Category: Hungary

Lakatos Koves & Partners, working with Clifford Chance’s London office, has advised John Swire & Sons Ltd. on the acquisition of the Swire Coca-Cola USA unit of Hong Kong-based conglomerate Swire Pacific Ltd. for USD 3.9 billion. Slaughter and May advised the sellers.

John Swire & Sons, headquartered in the UK, is responsible for formulating and directing the overall strategy of the Swire Group, a corporation with business activities encompassing property, beverages and food chains, aviation, marine, as well as trading and industrial activities.

Swire Coca-Cola USA produces and sells Coca-Cola and other drinks across 13 US states.

The LKT team included Partner Adam Mattyus.

In the past, banks have predominantly relied on financial metrics to guide their funding strategies. However, with the prominence and importance of ESG (Environmental, Social and Governance) principles, a paradigm shift is underway. Sustainability metrics are gaining prominence in the decision-making process for financing companies or projects.

In Hungary, sustainability is in its early stages and has not yet become a central concern for a considerable portion of the population. For most people, financial factors and the prospect of savings remain the primary driving forces behind their actions in this context. When it comes to contributing to climate protection, the most substantial efforts from the populace are directed toward renovating their real estate. However, the primary motivation behind these renovations isn’t rooted in environmental concerns but rather stems from the desire to reduce energy expenses.

The situation is somewhat different for companies. In general, the corporate sector is just embarking on its path toward greater awareness of ESG principles and sustainability practices. This holds true for both smaller enterprises and larger corporations. While there’s a recognized imperative to engage with issues related to climate neutrality and sustainability, the actual translation of these intentions into tangible actions remains quite limited. Recognizing that companies that do not address this issue will be at a strong competitive disadvantage when competing in the same market as Western European companies, there is already a sense of activity among larger companies.

Furthermore, in light of the Corporate Sustainability Reporting Directive (CSRD) adopted earlier this year, there are reporting obligations that companies must adhere to. These obligations, depending on the size of the company, will require reporting to commence either in 2025, 2026 or 2027. As a result of these regulatory changes, it is expected that large multinational companies will progressively factor sustainability metrics into their procurement decisions in the upcoming years.

The shifting landscape towards sustainability in banking and corporate practices represents a promising transformation. Companies worldwide are awakening to the call of ESG principles, navigating through a nuanced blend of incentives, steering funds away from environmental harm and propelling eco-friendly sectors forward. ESG programs help businesses attract investors, build customer loyalty, improve financial performance, make operations sustainable and gain a competitive edge. This journey is propelled by financial institutions reshaping their strategies, businesses recognizing the competitive edge of eco-consciousness, and individuals and companies planting the seeds of change.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

At the end of September, the long-awaited Regulation (EU) 2023/1804) on the deployment of alternative fuel infrastructure, and repealing Directive 2014/94/EU (“AFIR”) was published in the Official Journal of the European Union. Though the entry into force of AFIR is 13 April 2024, it is worth reviewing the key takeaways that the AFIR introduces as part of the EU’s Fit for 55 package.

The AFIR sets binding national targets for the development of adequate EU alternative fuel infrastructure. The new regulation also establishes common technical specifications and requirements regarding the information to vehicle users for the provision of data and payment requirements. The AFIR includes detailed regulations regarding light-duty and heavy-duty electric vehicles as well as planes and ships.

Member States are obliged to ensure that, at the end of each year, starting from 2024, specific power output targets are provided through publicly accessible recharging stations. The power output varies subject to the type of the vehicles (light-duty electric vehicles or heavy-duty electric vehicles) and their distance along the TEN-T core or comprehensive road network.

The prices charged to end-users by mobility providers must be reasonable, transparent and non-discriminatory and no additional charges shall apply to cross-border e-browsing.

Mobility providers before the start of the electric charging session provide end-users with all valid price information:

• through freely available, widely supported electronic means;
• clearly differentiating between the price components charged by the electric charging point operator, the applicable e-roaming costs and any other charges or fees applied by the mobility provider.

To ensure price transparency prices charged by charging point, operators must clearly display the ad hoc price and all its components at the service station, including at least a prominent indication of the following price components:

• price per session;
• price per minute;
• price per kWh.

Payment card readers, devices with a contactless functionality that is at least able to read payment cards and QR codes, shall be ensured and installed by charging point operators. A retrofit obligation shall apply above a specific power output level from 2027.  

By Peter Gullai, Managing Associate, Kinstellar

ESG legislation changes in Hungary are reshaping corporate practices and legal counsel roles, according to Taylor Wessing Partner Zoltan Novak. “Green claims” and expanded reporting obligations, even beyond finance, demand precise compliance, and lawyers in Hungary now play a pivotal role in navigating this evolving ESG landscape, ushering in a new era of corporate responsibility.

“ESG legislation that is constantly being developed and introduced at an EU level is the talk of the town,” Novak begins. “The implementation of these changes leads to several interesting aspects that make this a very hot topic in many respects of the law, and how the law is applied for corporations and companies,” he says.

Specifically, Novak highlights “green claims.” Here, he says that “the main aim of the legislation coming from the EU is to devise a framework in which companies can advertise their products. From the perspective of lawyers, this means advice on advertisement law and trade law,” he explains. “In the past couple of decades, the environment-friendliness of products has become a selling point, and this development has now reached the point where it is coming under strict legal regulation.”

When it comes to financial products, Novak says that “the relevant EU legislation has already been introduced for some years. If you are an investment firm setting up a ‘green fund’ – a fund that aims to invest in climate-friendly projects and investments – calling it a green fund has already been subject to serious scrutiny at the EU level.” What is about to change, is that such “green claim regulations will extend beyond the financial sector, meaning that companies marketing standard consumer products, in or outside the store, will also be subject to such regulations. A relevant directive has already been proposed by the EU, which will be adopted in the course of this or next year,” Novak divulges.

The legislation, according to Novak, defines “when products can be marketed as being environmentally friendly. EU legislation defines in a closed list which products can be considered climate-friendly. One of the categories is ‘climate mitigation,’ and a product can only be framed as such if it uses renewable energy or contributes to so-called ‘carbon sinks’ – a climate science term,” underscoring how “climate science has entered the legal discipline in a very impressive manner.”

Also on the ESG front, there is another important development dealing with corporate reporting obligations. According to Novak, publicly listed corporations already have to “include in the annual report a detailed account of what they have done to mitigate climate change and increase sustainability. But right now, this obligation is being extended, and a new directive will have to be implemented by member states by next year. It will still not apply to all undertakings — only to large ones,” he explains. “Still, this will be a major expansion of corporate reporting obligations — it will be much broader than before.” In conclusion, reflecting on all of the updates, Novak says that the “legislation now puts such a heavy burden that lawyers with a deep understanding of sustainability matters will need to be involved in the decisions of companies, dealing with ESG issues — a new type of lawyer is emerging.”

Under Hungarian law the judge can reduce the amount of the contractual penalty if it is excessive. The penalty reduction shall be expressly requested by the defendant during the litigation. Can the defendant submit such request at any time during the litigation, or is there any deadline for that? In a recent decision, the Hungarian Supreme Court addressed this issue.

Facts

On 28 August 2017, the plaintiff („Plaintiff”) as a client and the defendant („Defendant”) as architect concluded two design contracts (“Contracts”), in which they agreed on a 60-day deadline for the preparation and submission of permit design documentations for two projects.

The Contracts specified penalties in case of the late performance by the Defendant.

The Defendant fulfilled its contractual obligations under Contracts but with considerable delays.

Statement of claim of the Plaintiff and defence of the Defendant

The Plaintiff brought an action against the Defendant in which he claimed late performance penalties for the delays in the deliveries of the permit plans and the deliveries of each construction plans.

The Defendant’s statement of defence was for the dismissal of the Plaintiff’s action.

In the preparatory phase of the litigation, the Defendant argued that the Plaintiff’s failure to inform him of the data necessary for the design in due time constituted an intermediate breach of Contracts and it prevented the defendant from performing within the deadline. Consequently, he shall not pay any late performance penalty.

Later, at the trial phase of the litigation, the Defendant also requested reduction of the penalty of late performance claimed by the Plaintiff, arguing that the amount of the penalties significantly excessive even though the Defendant had fulfilled its contractual obligation.

First Instance Court

The first instance court (“First Instance Court”) founded the late performance penalty claims well-founded but reduced their amounts.

It held that the amount of penalty of late performance claimed by the Plaintiff, was grossly excessive and was not compatible with the Hungarian Civil Code and reduced them.

Second Instance Court

Following appeals by both sides, the second instance court (“Second Instance Court”), amended the first instance decision and awarded the penalty claims fully.

The Second Instance Court held that the Defendant’s request for reduction of the penalty had been introduced lately, only in the trial phase of the litigation. Since in the trial phase, the statement of defence can be modified only in exceptional circumstances, which was not the case, the Defendant could not introduce a request for reducing the penalties.

Request fort judicial review

The Defendant submitted a request for judicial review against the final judgment, arguing that according to the Civil Procedure Code (“CPC”), the request for the reduction of the penalty could not be regarded as an amendment of the statement of defence, but a “different legal argument” which could be submitted at any time during the procedure.

Hungarian Supreme Court

The Supreme Court rejected the Defendant’s requests for judicial review.

According to the Supreme Court, the request for a reduction of the penalty shall be considered as an additional substantive law objection which is considered as an amendment of the statement of defence.

The Supreme Court pointed out that, while the Defendant’s defence of the Plaintiff’s intermediate breach of contract would have excluded entirely the right enforced by the Plaintiff, the reduction of the penalty was intended only to (partially) terminate the right asserted by the Plaintiff. For this reason, these substantive law objections were different.

However, during the trial phase of the proceedings, the Defendant can modify its statement of defence under exceptional circumstances, which were not met in this case, consequently, the Defendant’s request for the reduction of the penalties was not admissible. Therefore, the Supreme Court upheld the final judgment in its part challenged by the judicial review.

Takeaways

The new Civil Procedure Code has significantly modified the rules governing Hungarian litigations, sanctioning severely the delays of the parties. Hungarian Courts tend to interpret these provisions strictly; therefore, Defendants should carefully consider the proper timing of introducing penalty reduction claims in Hungary.

By Richard Schmidt, Partner, and Peter Korozs, Attorney-at-law, SmartLegal Schmidt & Partners

As part of the implementation of the European Union’s waste management directives, Hungary will also need to apply the rules of the ‘Extended Producer Responsibility’ (EPR) legislation as from 1 July 2023.

What is EPR?

EPR stands for Extended Producer Responsibility. The concept is that at the end of the lifecycle of certain products, both manufacturers and the first domestic distributors are responsible for and have an obligation to pay for waste management. The first payment obligation will arise as a result of the first data submission due on 20 October 2023, and after that, EPR fee must also be paid.

While there’s a lot of information about this new legislation, there are still many questions and misconceptions. Therefore, in the following 7 + 1 points, in a question-answer format, we have gathered the fundamental aspects that can help stakeholders prepare for the first data submission due on 20 October 2023.

Which products are covered by the new legislation?

The legislation applies to so-called circular products. The current Hungarian legislation defines products more broadly than required by the EU, so the EPR obligation covers packaging, certain single-use and other plastic products (e.g., cups, food containers), electrical and electronic equipment, batteries and accumulators, vehicles, tires, office and advertising paper, cooking oil and fat, textile products, and wooden furniture.

Does the new legislation only effect on big enterprises?

Unfortunately, no. The EPR obligation affects the majority of businesses to some extent. If a business manufactures circular products or is the first to place them on the domestic market, it falls under the EPR obligation automatically.

What do I need to do if I manufacture or distribute circular products domestically?

In this case, you must fulfill a so-called dual registration obligation. Firstly, you need to register on the Partner Portal of MOHU Ltd. Secondly, you must also register separately with the national waste management authority.

Is it enough to submit data to the waste management authority quarterly, or are there other obligations?

Data submission is just one of the many administrative obligations. Besides the registration obligation mentioned earlier, you also have obligations for record-keeping, fee payment, invoicing-related clause, as well as information and cooperation obligations.

Whom do I pay the EPR fee to, and based on what, is it considered as a tax?

The EPR fee must be paid to MOHU Ltd. against an issued invoice. The first invoices are expected to be sent to stakeholders in early November 2023.

Unlike environmental product fees, EPR is not considered as a tax. However, it is worth noting that the EPR fee can be deducted from the environmental product fee, so double taxation for the same product is avoided.

The fee rates for the year 2023 were determined by the Minister of Energy in Decree No. 8/2023. (VI.2.) EM. It is evident from this decree that the EPR fees are significantly higher compared to the previous environmental product fees. For example, while the fee for paper and cardboard was 19 HUF/kg, the EPR fee is now 173 HUF/kg. Similarly, the EPR fee for plastics is nearly four times higher (219 HUF/kg) compared to the previous 57 HUF/kg fee.

Can I avoid paying the EPR fee?

In special cases, you may be exempt from the obligation to pay the EPR fee.

For example, individuals and charitable nonprofit organizations may be exempt if they sell the product in question outside of economic business activity.

You also do not have to pay the EPR fee if, for instance, the product is sold or stored in a tax warehouse or within such a warehouse, or if it is exported 60% or more as a standalone product or part of another product.

Will the tax authority check compliance with the obligation? Who will enforce it?

Since the EPR fee is not considered as a tax, the tax authority will not have the right to carry out audits or enforce it. These tasks fall under the responsibility of the national waste management authority (Pest County Government Office). In cases of non-compliance, they are expected to issue warnings initially, but the authority also has the power to suspend the distribution of the product, impose fines, and in the case of a failure to register, even refuse to collect the concession waste.

+ How can I prepare effectively?

It is advisable to thoroughly examine the subject with the help of experts, classify the products passing through your business. This can help establish proper records and, in some cases, reduce EPR fees. Additionally, in certain situations, you can also reduce administrative obligations, avoiding extra payment obligations.

By Henrik Bereznai, Attorney, Jalsovszsky

Hungarian forest management regulations are among the strictest in Europe, however, there have always been investments and real estate developments that affected forest areas, the effect of which could so far be compensated by a fine in certain cases. As of 1 July 2023, the new provisions of the Forest Act brought pleasant changes, as even in the case of non-natural forests, the authority immediately obliges the developers affecting the forest area to reforest and not only to pay a forest protection contribution, if the size of the area reaches or exceeds one hectare.

This is a significant change compared to the previous rules, where up to now replacement afforestation was only automatic in the case of natural and nature-like forests. The new provisions also facilitate the creation of viable forests, as replacement afforestation areas of less than half a hectare are also acceptable if they are directly connected to an already existing, registered forest area.

In practice, the biggest challenge for replacement afforestation in larger developments is to find suitable sites of the right size and characteristics for afforestation. In smaller areas of one or two hectares or less, unless they are connected to a larger afforested area, it is much more difficult to ensure that the new forest can function ecologically as a forest.

These amendments can therefore ensure that when removing a forest of several hectares due to real estate development, the investor does not “tick off” the replacement afforestation with smaller forest patches of a few thousand square meters or by paying the forest protection contribution, and that developments affecting smaller forest areas are also sure to result in the creation of new forests.

By Borbala Maglai, Attorney at Law, KCG Partners Law Firm

The amendment to the Local Taxes Act, which entered into force on 1 January 2015, allowed local governments to levy a municipal tax on any taxable subject within their jurisdiction that is not prohibited by law and is not subject to a statutory public tax.

In practice, municipalities have primarily levied a municipal tax on agricultural land, which increased when the moratorium expired under which municipalities were not allowed to impose new local taxes or municipal taxes for the year 2022.

On 1 September 2023, an amendment to the Local Taxes Act entered into force, terminating the right to levy municipal taxes on agricultural land, agricultural land property or property rights on agricultural land. The municipalities had to take the necessary measures until 2 September 2023 if their municipal tax decree does not comply with the provisions of the Local Taxes Act in force from 1 September 2023.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

The Hungarian renewable energy sector has recently undergone a huge development, mainly focusing on photovoltaic power plants. In Hungary, rooftop photovoltaic projects are mainly widespread among households and companies to cover their own electrical needs. These projects are so-called household power plants, which are basically micro power plants connected to the low-voltage system.

The general rule regarding this kind of power plant is that the produced electricity shall be accepted and bought by the electricity trader or universal service provider upon the producer’s request. However, due to network capacity issues, the Government temporarily suspended the possibility of feeding the electricity generated by household power plants to the public network and only those household power plants may be installed which produce electricity solely for their own electricity consumption. This restriction did not concern those household power plants which were implemented based on connection requests submitted before 31 October 2022.

The restriction was introduced since the number of solar power stations in Hungary was growing rapidly and the electricity grid in all parts of the country was not able to keep up with the development. The sudden change in grid connection rules created uncertainty and hindered the deployment of residential solar power systems. However, by today, certain improvements to the Hungarian electric system have been made, thus, the temporary suspension of feeding the electricity back into the grid will be terminated by the end of this year, communicated by the Hungarian Government recently. The removal of restriction will not apply to all parts of Hungary, but only to certain areas of the country. The Government will announce in the coming weeks which areas will be able to reconnect the household power plants to the grid again. What remains to be clarified is the tariffs at which households will be able to benefit from the possibility of connecting to the grid in the future.

During the establishment of the tariff-regime, the Hungarian Government has to take into consideration the EU Directive 2019/944 on common rules for the internal market for electricity, which expressly set that citizen energy communities are subject to non-discriminatory, fair, proportionate and transparent procedures and charges, including with respect to registration and licensing, and to transparent, non-discriminatory and cost-reflective network charges ensuring that they contribute in an adequate and balanced way to the overall cost sharing of the system.

By Lilla Majoros, Attorney at law, KCG Partners Law Firm

DLA Piper has advised the RV Ingatlan Befektetesi Alap fund on its acquisition of the Roseville office building in Budapest from Atenor.

Atenor is a real estate developer listed on the Euronext Brussels market.

According to DLA Piper, Roseville is a “newly completed Grade A+ office building with BREEAM ‘Excellent’ rating located in North Buda. Roseville is Atenor’s flagship development [and] one of the most prestigious office buildings in Budapest, with its premium location and sustainable design. The building, which opened in the summer of 2023, is occupied by international companies such as Veeva Systems, L’Oreal, and Red Bull.” The building offers approximately 15,500 square meters of space.

“The significance of the deal is enhanced by the fact that this year has been a subdued year for the Hungarian real estate market, including the office market, due to the uncertain financing environment, with fewer and lower value transactions than last year,” the firm reported.

The DLA Piper team included Partner Gabor Borbely, Attorney at Law Tamas Balogh, Senior Associates Bettina Boncok and Angela Toth, and Junior Associate Borbala Bernath.

DLA Piper could not disclose additional information on the deal.

Editor’s Note: After this article was published, CMS announced it had advised Atenor on the sale. The firm’s team included Partner Gabor Czike and Senior Associate Laszlo Jokay.