Category: Hungary

CIG Pannonia Insurance has appointed David Kozma as Deputy Chief Executive Officer.

Kozma first joined the company in 2021 as Managing Director, Chief Legal Officer. He moved from UNIQA, where he had worked since 2007. He first joined UNIQA Insurance as an In-House Legal Trainee. Ten years later, in 2017, he was appointed to Head of Legal Affairs (reported by CEE Legal Matters on August 9, 2017). In 2018 he was appointed to Legal Director and, in 2020, he became the Director of Legal & Compliance. In 2021, he also served as the Managing Director of UNIQA Real Estate.

Before UNIQA, Kozma was a Junior Legal Counsel with Dekra Expert between 2014 and 2016.

Originally reported by CEE In-House Matters.

Whereas competition law regimes around the globe struggle to find the right enforcement tools in a fast changing world, leading some jurisdictions to introduce revolutionary and highly sophisticated new intervention powers for competition authorities, Hungary is to experiment a simpler approach: an “increase of the hammer’s size”.

Increase of the cap from 10 to 13%

Modelled on EU law, the maximum fine that the Hungarian Competition Authority (Gazdasági Versenyhivatal – GVH) is entitled to levy for infringements under the Hungarian Competition Act (hereinafter: the HCA) (most notably for breaches of Articles 101 and 102 TFEU and their national equivalents, Section 11 and 21 HCA), has always been 10% of the net turnover achieved by the undertaking or the group of undertakings concerned.

This fundamental rule is about to change. On 6 July 2023, Act 53 of 2023 on the Laying the Foundations for Hungary’s Budget for 2024 (the Act) was published in the Hungarian Official Gazette. The Act, in addition to raising the maximum fines for a number of illegal behaviors, such as road traffic and misdemeanor offences, also amends Article 78(1b) HCA. The amendment provides that “[the] amount of the fine shall not exceed thirteen percent of the net turnover of the undertaking or, as identified in the decision, group of undertakings in the business year preceding the decision […]. The amount of the fine imposed on an association of undertakings shall not exceed thirteen percent of the net turnover of the member undertakings in the preceding business year […].”

The Hungarian legislature thus decided to amend what has been one of the cornerstones of the HCA ever since its entry into force in 2007.

Reasons are unclear

Whilst the change is certainly not of minor importance, no public consultation has been conducted and no impact study has been done (or at the very least none has been made available to the public). Given that the amendment relates to the 2024 state budget which, as customary, brings about changes in a number of other legislative instruments, it seems questionable whether there is any conscious competition policy consideration at all behind the increase of the maximum fine under the HCA.

It is true that the explanatory memorandum of the amending law merely states that the amendment is justified by the need to increase the deterrent effect of the sanctions (affecting a number of offences, as said: from speed driving to cartels). However, the vagueness of this very general reference in a budget related legal instrument still gives rise to the suspicion that the units responsible for state revenues in the Ministry of Finance simply observed that certain fine levels have not been adjusted to inflation levels and proposed corresponding increases. Most other fine figures amended (not being expressed in percentage points, but in absolute numbers) were also mostly increased by 30%.

No incompatibility with EU law

Be that as it may, the 13% competition law fine cap seems to be rather unique in the EU. And while not anymore corresponding to the standard 10% fine cap, the new rule is not incompatible with EU law. Article 15 (as well as Recital 49) of the ECN+ Directive (Directive 1/2019/EU) states that “Member States shall ensure that the maximum amount of the fine that national competition authorities may impose on each undertaking or association of undertakings participating in an infringement of Article 101 or 102 TFEU is not less than 10 % of the total worldwide turnover of the undertaking or association of undertakings in the business year preceding the decision”. The 10% limit was therefore not an absolute maximum but an expected minimum of the maximum.

Observations

What impact the amendment will have in practice is to be seen. Some tentative comments can, however, be made already at this stage.

First, given the structure of the HCA and the competences of the GVH, the 13% cap will be applicable under the HCA for all kinds of infringements, ranging from antitrust matters, through merger control related issues (gun jumping) to B2B and B2C unfair commercial practices (price gauging, greenwashing, influencer marketing etc).

Second, while the amendment will enter into force on 1 September 2023, the Act remains completely silent on the specifics of this temporal scope rule. Whereas this is certainly not elegant, it remains to be true that, under one of the most fundamental constitutional law principles, an increased (thus: a new) sanction cannot apply to any infringements committed prior to its entry into force (nulla poena sine lege). Hence it would appear to be fair to assume that the increased cap can only be applicable to conduct committed after 1 September 2023.

Third, it has recently been made clear by the Hungarian legislature (with active support from the GVH) that the maximum amount of the fine under the HCA is truly just a cap and in no way a basis for the fine calculation. It is perhaps also a unique feature that the “cap function” has been explicitly codified with a view to avoid a different judicial interpretation (thus, the 0% and 13% of last year’s turnover are not two benchmarks which the GVH and courts should take into consideration when assessing the fine in light of the gravity of the infringement). Hungary clearly does not want to join jurisdictions which draw inspiration from the BGH’s Grauzement (BGH, 26.02.2013, NZKart 2013, KRB 20/12) jurisprudence.

In light of the above cemented cap function, it is questionable whether the increase from 10 to 13 % will have any suction-effect, moving the average fines generally higher. Indeed, there have been only very few cases, where the fine has reached the cap (then: 10%). Most of these cases affected mono-product SME (mostly: domestic) companies having been involved in long lasting cartels. For larger, multinational corporations with a differentiated product and services portfolio, reaching or even coming close to the cap (be it 10% or 13%) would still appear to be very unlikely.

Fourth, an interesting new issue may emerge in terms of sharing of competences and case referrals regarding matters capable of being investigated and sanctioned by both the EU Commission and the GVH. The cap of the fine would so far be the same regarding the given infringement (say an abuse of a dominant position under Article 102 TFEU) irrespective of the proceeding authority. This may change for conduct committed after 1 September 2023: if the GVH proceeds, the fine cap will be higher than if the EU Commission does. Which authority will then be considered best placed to address the potential infringement?

By Gabor Fejes, Partner, Co-Head of Competition and Antitrust, Balazs Csepai, Senior Associate, Competition and Antitrust, and Flora Kondrat, Junior Associate, DLA Piper Hungary

Substantial changes have been introduced by Act XXXI of 2023 amending several acts on judicial matters. The new law has been passed in the beginning of June 2023, however most of its provisions enter into force at a later date.

Among the most important changes are the followings.

The act postpones the entry into force of Act on the Registration and of Legal Persons and the Registration Procedure until 1 January 2026, as the preparation for the introduction of the unified register of legal persons, including the introduction of uniform and fast procedural rules for automatic decision-making, requires more time. It is planned to replace the current company act, however based on the reasoning behind the postponement, the technical conditions have not yet been established.

The new provisions of the Criminal Procedure Act – entering into force on 1 September 2023 – allow the authorities to involve assistants in interpreting tasks who are not considered interpreters by procedural means, in order to promote the language use rights of those entitled, such as victims, financially interested parties or other interested parties.

As of 1 September 2023, it amends the Act on Notaries and determines that settlement on matrimonial property can be the subject of a settlement procedure before a notary and the Hungarian Chamber of Civil Law Notaries handles the transmission of data from family law related records to the Central Bureau for Statistics.

Based on the amendment of the Civil Code, as of 1 September 2023, judges are no longer obliged to terminate joint parental custody on the request of either parent, but they may consider whether the termination of joint parental custody is in the best interests of the child and, based on this, decide to maintain or terminate joint parental custody.

As of 1 January 2024, by the amendment of Act on Execution of Penalties, it introduces a credit system in correctional facilities which is a progression system based on credit values calculated on the basis of the convict’s behaviour, cooperativeness and performance in the context of reintegration activities. The collection of credit points may result in a transfer to a more favourable category compared to the initial classification. By amending the provisions of Act on Execution of Penalties, the motivational system to be introduced is planned to strengthen the responsibility of the convicted, making them interested in maintaining the execution order and implementing the reintegration plan.

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

From 1 January 2024, new provisions of the act on general rules on electronic administration and trust services (“E-administration Act”) will enter into force which aim to resolve the legal uncertainty over the interpretation of the written form of private electronic documents.

According to the Civil Code currently in force, a declaration on paper is deemed to be in writing if it is signed by the party making the declaration, and a declaration is also deemed to be in writing if it is communicated in a form that is capable of reproducing the content of the declaration unchanged and of identifying the declarant and the time of making the declaration. Under these provisions of the Civil Code, it is left to the judicial practice to decide whether a particular form of legal declaration meets the requirement of written form. However, a number of forms of declaration have emerged in commercial practice, for which there is no uniform judicial practice, and the rules create legal uncertainty. In addition, the current laws do not define the electronic document.

The new provisions of the E-administration Act entering into force on 1 January 2024 determine the general definition of a private electronic document containing a written legal declaration, which also complies with the provisions of the Civil Code. Accordingly, unless otherwise provided by law, a private electronic document is an electronic document that is authenticated by the declaring party with at least an advanced electronic signature and an electronic time stamp or by a document verification service that is specified in the decree of the Government (AVDH). A legal statement made in an electronic private document is also considered as a written declaration under the Civil Code.

Under the Civil Code currently in force, in certain areas of law (real estate, succession, family law, corporate law, financial services), electronic declarations have been so far considered to be written only subject to certain restrictions: if the content was recorded in typescript and complied with the legal requirements governing the creation of electronic documents. From 1 January 2024, this provision will be adapted with the definition of electronic document in the E-administration Act which will provide that, in the context of real estate, succession, family law and corporate law, a private electronic document containing only a textual statement will be considered as a written document. Finally, in order to ensure the development of the digitalisation of the financial and insurance sector and to preserve the results already achieved in this area, the new provision of the E-administration Act will also contain that, in relation to services provided by organisations supervised by the Hungarian National Bank, the requirement of written form is also met by a private electronic document containing a legal declaration signed by the customer with a simple electronic signature, subject to certain conditions.

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

Former Burai-Kovacs, Perlaki, Stanka, Szikla & Partners Managing Partner Gergely Stanka has joined Dentons in Hungary, along with a team of seven lawyers, as a Partner in the firm’s Litigation, Dispute Resolution, and Arbitration practice on July 1, 2023.

Stanka is a litigation and arbitration expert who focuses on banking law, investment services, and capital markets. He joins Dentons with a team of seven lawyers including three Of Counsel, two Associates, and two Junior Associates.

Before joining his new firm, Stanka spent seven years with Burai-Kovacs, Perlaki, Stanka, Szikla & Partners, which he joined in 2016 through the merger of Burai-Kovacs & Partners with his own firm of David, Stanka,
Szikla Attorneys at Law. He had established DSS in 2010. Earlier, he spent eight years with Nagy es
Trocsanyi, starting as a Trainee in 2001, being promoted to an Associate in 2003, and then a Senior Associate in 2007.

“I am delighted to join Dentons alongside my trusted colleagues,” Gergely Stanka commented. “I am excited to collaborate closely with all practice groups in Hungary and across Europe to provide innovative and effective solutions to our clients’ most intricate disputes. Our collective goal is to solidify Dentons’ position as the go-to firm for comprehensive and outstanding legal representation in all areas of disputes and arbitration.”

“We are thrilled to welcome such a highly experienced Litigation, Dispute Resolution, and Arbitration team to our ranks,” Dentons Hungary Managing Officer Gabor Kiraly added. “We firmly believe that their expertise, combined with our extensive resources, will forge an unparalleled synergy that will set us apart in the market and solidify Dentons’ position as the premier law firm in Hungary.”

The Hungarian Parliament adopted a new act on 13 June 2023 on the employment of third-country nationals. The purpose of the new regulations is to provide a transparent and unified background for the employment of guest workers coming to Hungary from outside the EU. The new act does not affect the employment of EU nationals and citizens of Ukraine and Serbia in Hungary.

The new act introduces a new residence and work permit that entitles employees coming from specific third countries (so-called guest workers) to stay in Hungary for a maximum of two years and to work for privileged employers (‘kedvezményes foglalkoztató’ in Hungarian) or to qualified temporary work agencies (‘minősített kölcsönbeadó’ in Hungarian). The ‘privileged employer means’ (i) an employer with a strategic partnership agreement with the Government, (ii) an employer who is implementing an investment of major importance for the national economy, (iii) an employer with a partnership agreement under the Priority Exporter Partnership Programme.

Compared to the current provisions, the new guest worker residence permit will be issued in a simplified procedure since the labour authority will not be involved. Instead, the employers will have to make a statement that they could not fulfil the position with a Hungarian applicant.

The government will determine the job positions in which the guest workers can be hired, the third countries from which the guest workers can come to Hungary and the maximum number of guest workers that may enter and work in Hungary per year.

The new Act will enter into force on 1 November 2023.

By Eszter Ila-Horvath, Attorney at Law, KCG Partners Law Firm

Zsolt Farkas has been appointed a Partner in Oppenheim’s Dispute Resolution group in Budapest.

Farkas joined the firm in 2006 as a Junior Associate and has, according to Oppenheim, “steadily progressed in recent years to Senior Counsel. His specialization is mainly in litigation with an international element, but his practice covers all types of litigation, including arbitration.”

“Zsolt has outstanding expertise in litigation, his commitment to the firm and his performance is exemplary,” Head of Dispute Resolution group Tamas Eless commented. “His appointment as a Partner is another milestone in a 17-year journey and I am proud to have accompanied him throughout his career at Oppenheim.”

“I am proud to continue as a Partner where I started as a Junior Lawyer 17 years ago” added Farkas.

“Zsolt’s appointment as a Partner is part of a process of ensuring that the next generation of lawyers play an increasingly important role in the life of the firm and is a striking example of our commitment to supporting talented people,” Managing Partner Istvan Szatmary said.

The Hungarian Supreme Court (the Kuria) has recently addressed an important principle related to dismissals that has long been known in labour law jurisprudence. In this article we summarize the decision and its effects.

Facts

In the examined case, the applicant worked as an account management consultant in a bank. His tasks included the preparation of offers for the conclusion of housing savings contracts, for the sale of which, the employee received a bonus from the employer.

His employer established during an internal investigation, that in the majority of the housing savings contracts opened by the employee, the clients did not start saving, however, the employee received the bonus for the unsuccessful contracts.

The results of the investigation were communicated to the applicant. Six months later, the employer terminated his employment with immediate effect.

Based on the justification of the dismissal, the internal investigations revealed that the applicant opened the housing savings contracts without actual customer demand and sales performance. In doing so, he collected bonuses illegally. After the errors and the bad practice were revealed during the internal audit, he did not change his practice.

The applicant filed a lawsuit for wrongful termination. According to him, the expectation from him in connection with the housing savings contracts was to arouse the interest of the customers, and in the event that they wish to conclude a contract, to sign the detailed offer with them. He also argued that other employees also committed similar behaviour, yet the employer did not terminate their employment.

First- and second-instance decisions

The first instance court found that the termination with immediate effect was unfounded. The court found that the applicant opened the savings contracts because the customers were interested in housing savings.

Following the defendant’s appeal, the second-instance court changed the first-instance court’s judgment and rejected the applicant’s claim.

The second instance court found that while it is reasonable that in some cases the customers cannot start the savings, the 73% rate in case of the contracts opened by the applicant is unacceptable and constitute a breach of his work duties, as he clearly started the contracts without assessing the actual customer demand and therefore violated the contracting process.

Judgment of the Supreme Court

The applicant filed a request for judicial review against the final judgment, which the Supreme Court found to be well-founded.

According to the Supreme Court, the second-instance court wrongly imputed to the applicant that he continued the bad practice despite the internal investigation. On the contrary, the related documents contained that the contracts were “OK”. From this, the applicant could reasonably conclude that no serious irregularities were discovered in his work.

The court highlighted that in case the employer considered that the applicant had committed serious breaches of obligations during his activities related to the housing savings contracts, the applicant should have been clearly informed of this and asked to stop the bad practice.

In the absence of this, the applicant rightly claimed that the employer did not inform him until his dismissal that he did not perform his activities in accordance with the employer’ expectations.

The Supreme Court ultimately found that a bad practice developed and tolerated at the applicant’s place of work cannot be held against the applicant.

Comment:

Although the text of the Labor Code does not include it, the basic criteria related to dismissal have long been established in Hungarian judicial practice, according to which, the justification shall be true, clear, reasonable, and timely.

The requirement of reasonableness means that there must be a causal/logical link between the invoked breach and the consequence, i.e. that the employment relationship may no longer be maintained. Therefore, the dismissal might not be reasonable in case of minor, eventual breaches, or, as highlighted in the examined case, if the employer tolerated the problematic behaviour at the workplace or did not apply the same serious sanction for other employees.

The examined decision reinforced the well-established court practice in Hungary, according to which, a bad practice developed and tolerated at the employer cannot serve as a reason for termination.
Since the judgment can be invoked as a precedent, Hungarian legal practitioners can rely on this court practice with greater certainty in the future.

(In the article we summarized the court decision published under No. BH 2023.5.137)

By Peter Gritta, Attorney-at-law, SmartLegal Schmidt & Partners

The passing of time makes claims unenforceable in front of courts. While in some countries, a simple notice letter interrupts the limitation period, in Hungary creditors who want to avoid the limitation of their claim must initiate a lawsuit. Is it always enough to start litigation to interrupt the limitation of claims in Hungary? The Hungarian Supreme Court addressed this question in a recent case.

Facts

The Plaintiff was employed by the Defendant, when on 19 March 2016, he suffered a work accident. In October 2016 a medical exam revealed that the accident had permanently impaired the Plaintiff’s health.

On 19 March 2019, the Plaintiff initiated litigation against the Defendant for damages and loss of income in connection with the accident. However, as he failed to remedy the deficiencies of his statement of claim, his claim was dismissed by the first instance court by a procedural order which became final on 25 March 2020 (“the Prior Litigation”).

On 17 December 2020, the Plaintiff filed a new statement of claim with basically the same content as in the Prior Litigation (“the New Litigation”). In its defence, the Defendant argued, among other things, that the Plaintiff’s statement of claim had been submitted after the three-year limitation period applicable under the Hungarian Labour Code for claims arising out of employment relationships.

First- and second-instance decisions

Both the first- and second-instance courts dismissed the Plaintiff’s statement of claim. They stated that the Prior Litigation could not interrupt the limitation period pursuant to the relevant provisions of the Hungarian Civil Code. This code is applied as background law in certain matters that the Labour Code does not directly regulate.

The courts pointed out that the commencement of litigation interrupts the limitation of the claim only where the court decides the case on the merits. However, the court acting in the Prior

Litigation had not closed the action with a final decision on the merits.

Consequently, the courts in the New Litigation held that the Plaintiff’s statement of claim was time-barred, therefore, they dismissed it.

Judgment of the Supreme Court

In his request for judicial review, the Plaintiff claimed, among other things, that the lower courts had disregarded the provision of the Hungarian Civil Code, according to which the limitation period is interrupted by the judicial procedure of the claim against the debtor if the court has adopted a final and binding decision on the merits that closes the procedure.

According to the Plaintiff, the court acting in the Prior Litigation had rejected the Plaintiff’s first statement of claim. Later, it had informed the Plaintiff that the order had become final. In the Plaintiff’s view, by that order, the limitation period had been interrupted, and it had started to run again.

With respect to the interruption of the limitation period, the Supreme Court highlighted that the Plaintiff had relied on the prior litigation decision issued in March 2020.

However, this decision to reject the statement of claim on procedural grounds, for this reason it could not be considered as a “decision on the merits”. Therefore, the procedural order was not capable of interrupting the limitation period, which has expired before starting the New Litigation.

For this reason, the Supreme Court upheld the second-instance decision.

Comment

According to the former Civil Code, which was effective until 2014, the limitation period was interrupted, among others, by starting legal proceedings against the debtor.

The new Civil Code, which came into force in 2014, clarified the above provision stating that the commencement of a judicial procedure against the debtor interrupts only the limitation period if the court has adopted a final and binding decision on the merits that closes the procedure.

The recent decision of the Supreme Court reaffirms the above provision. It also sends the clear message that if a claimant starts legal proceedings to enforce its claim, it must act not only diligently but appropriately as well.

If its statement of claim does not comply with the law, plaintiffs shall remedy the deficiencies upon the request of the court, otherwise it will be rejected and it will not be capable of interrupting the limitation period and preventing the limitation of the claim.

By Richard Schmidt, Partner, and Peter Korozs, Junior Associate, SmartLegal Schmidt & Partners

After a long period of preparations the Whistleblower Protection Act has been finally passed.

The act becomes effective on the first of August 2023. As of this date, certain obliged persons must implement the reporting channels and comply with other obligations imposed by the act.

The exception applies to employers who have at least 50 and up to 249 employees and, at the same time, are not public contracting authorities.

Those persons who meet conditions above have a prolonged period until the fifteenth of December 2023 to implement the reporting channel.

The obligations that must be fulfilled by each obliged person include, in particular:

1) The implementation of the internal reporting channel;

2) The designation of a designated person who will receive reports;

3) The obligation to inform potential whistleblowers (in particular on ways and methods how to submit the report and about the contact information of the designated person); and

4) The prohibition of retaliation against whistleblowers for submission of the report.

By Michal Pálinkás, Partner, Act Legal