Category: Hungary

Schoenherr has advised Kinnarps Hungary on leasing its new office and showroom headquarters in the Agora Hub Office from HB Reavis. OPL Gunnercooke advised HB Reavis.

Kinnarps Hungary is a European manufacturer of interior design solutions for offices, schools, and healthcare facilities, in business since 1942.

The HB Reavis Group has been operating in the real estate market for almost 30 years.

According to Schoenherr, the Agora Hub Office is a “new hub on the Vaci corridor offering unique green solutions and innovative digital technologies to its tenants.”

The Schoenherr team was led by Partner Laszlo Krupl and included Attorney Adrian Menczelesz and Associate Viktoria Magyar.

The OPL team included Senior Associate Nora Szucs.

In Hungarian civil and commercial litigations, the second instance court reviews the case in camera, yet either party has the right to request an oral hearing in the appeal procedure. Is the second instance court bound by such a request? Is the failure to hold an oral hearing considered as a serious breach, based on which new procedure shall be conducted? We answer these questions by analysing recent decision of the Hungarian Supreme Court in this article.

Facts

The customer (“Plaintiff”) and the trader (“Defendant”) concluded a fixed-price, full-supply electricity sales contract (“Contract”). for the year 2019. The Defendant was entitled to a price adjustment corresponding to the exchange rate changes under its general terms (“General Terms”).

Later the Defendant unilaterally amended its General Terms allowing him to modify the price based on the change in the average market price. The Plaintiff disputed that the new provisions have become part of the Contract without preliminary notification by Defendant.

First and second instance decisions

The first instance court found the claim unfounded and dismissed the action. Acting on appeal of both parties, the second instance court (“Appeal Court”) altered the first instance judgment and ordered the Defendant to pay the full claim of the Claimant.

According to the second instance judgment, the new provision of the General Terms allowing the unilateral amendment of the price was a “surprise clause”, and therefore it did not become part of the contract.

The Appeal Court highlighted that under the Civil Code, surprise clauses may only become part of the contract subject to prior notification given by their user (i.e. the Defendant), to the counterparty, which was missing in the case at hand.

Judgment of the Hungarian Supreme Court

The Defendant filed a request for review against the final judgement in which he claimed that the Second Instance Court had violated the procedural rules of the Hungarian Civil Procedure Code (“CPC”), as it had given its judgment without holding a hearing, despite his proper request.

The Supreme Court found that the Appeal Court decision violated the provisions of the CPC regarding oral hearings in the appeals procedure.

Under the CPC, the Appeal Court had to warn the party opposing the appellant that he could request a hearing. If it does, which was the situation in this case, the Appeal Court is obliged to hold a hearing.

The Supreme Court referred to the Section 14(1) of the International Covenant on Civil and Political Rights according to which in a suit at law, everyone shall be entitled to a fair and public hearing. Moreover, the Article XXVIII of the Hungarian Fundamental Law also guarantees the right to a fair trial as a constitutional guarantee of the judicial process. Lastly, the Civil Procedure Code also contains a reference to the fair trial.

The right to a fair trial includes all the conditions of the right to a court, i.e., the right to a public hearing, as confirmed by the previous practice of the Hungarian Constitutional Court in its decisions.

Since, according to the legislation, the court may not refuse to grant a request for a hearing, as the Covid19 provisions have not allowed that, the existence or absence of the party request is decisive in determining whether the right to a fair hearing has been violated.

Based on the above, as the Defendant’s request for holding a hearing was appropriate, the Defendant’s right to a fair hearing has been violated by the Appeal Court, and it ordered the Second Instance Court to retrial the proceedings and adopt a new decision.

Comment

By the above decision, the Hungarian Supreme Court reaffirmed the case-law developed earlier and followed the principle of Hungarian Constitutional Court according to which, if the parties have requested a hearing, the court cannot decide the case without a hearing.

This decision is also in line with the case law of the European Court of Human Rights (“ECtHR”), according to which the lack of public hearing may give rise to a breach of the European Convention of Human Rights if it cannot be sufficiently remedied at a later stage in the proceedings due the limited scope of the latter procedure.

This is the situation when the court can review only the questions of law, such as the judicial review procedure of the Hungarian Supreme Court.

Based on the above, by insisting on the “absolute nature” of the right to be heard in the second instance procedure, the Hungarian Supreme Court issued a judgment which is in conformity with its earlier decision and with the case law of the ECtHR.

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

Did You Know that a total of 15 partners have worked on multiple reported Hungarian Banking/Finance client matters in the ten years that CEE Legal Matters has been covering the market? The Banking/Finance leaderboard over the past decade is led by CMS Budapest Partner Erika Papp, who has worked on 14 reported Banking/Finance client matters in that time.

According to the Activity Rankings function of the CEELMDirect website, Dentons Partner Gergely Horvath has worked on six in that time, placing him in second place, with Kinstellar Partner Csilla Andreko and Noerr Partner Edina Schweizer – both of whom have worked on five – following close behind. Kinstellar Partner Anthony O’Connor has worked on four reported Banking/Finance client matters in the past decade, while Marton Kovacs, the Managing Partner of Moore Legal Hungary, and Lakatos Koves & Partners Partner John Fenemore have both worked on three.

A total of eight lawyers have worked on two reported Hungarian Banking/Finance deals over the past decade: CMS’s Andreas Koehler, Szabolcs Szendro, and Gabor Czike, Schoenherr’s Gergely Szaloki, Dentons’ Istvan Reczicza, EY Law’s Ivan Sefer, Erdos Katona’s Luca Bokor, and Partos & Noblet Hogan Lovells’ Sandor Bekesi.

An additional 81 partners have worked on one reported Banking/Finance deal in Hungary over the past decade. Want to see which client matters these lawyers worked on? Visit CEELMDirect.com, the world’s only truly dynamic legal directory, and find out for yourself!

Former KNP Law Attorney at Law Abigel Sill has been promoted to a Partner position with the Budapest firm.

According to KNP Law, Sill, who has been with the firm since 2015, is an expert in “international and cross-border transactions, servicing clients engaged in the manufacturing, trading, and servicing sectors in a wide array of industries, including the automotive sector.” In addition, she specializes in employment law and data protection. Before joining KNP Law, Sill spent almost six years with the Abraham Law Office and, earlier, over a year with Egri & Szekeres.

“Abigel’s dedication, perseverance, and tireless advocacy have consistently set the benchmark for legal excellence,” Managing Partner Kornelia Nagy-Koppany commented. “It is not just her in-depth knowledge of the law that sets her apart; it is also her exceptional understanding of our client’s needs and her unwavering commitment to meeting them. As she steps into this new role, we are confident that she will continue to lead with the same fervor and precision that has marked her career to date. Her elevation to a partner position is a testament to her outstanding contributions and the immense value she brings to our firm.”

A significant part of the provisions of the Government decree on the detailed rules of the operation of the extended producer responsibility system will enter into force on 1 July 2023, however, some provisions are already applicable from 1 April.

The national introduction of the extended producer responsibility was necessary to meet the EU waste management targets and to comply with EU directives. The Government decree aims to create a circular economy in Hungary, in which fewer products become waste and the generated waste can be recycled as raw materials.

The Government decree applies to products identified by the eight-digit identification number (circular code), which are covered by the extended producer responsibility system (circular product), and to the waste from circular products and activities related thereto. The producer of the circular product must perform its extended producer responsibility obligation in two ways: by collective performance through a designated concession company, or in the case of certain circular products (e.g. industrial or automotive batteries and accumulators), by individual performance according to the choice of the producer instead of the collective performance. In order to ensure the conditions for individual performance, the manufacturer enters into a concession subcontract with the concession company.

The producers must register at the national waste management authority before starting the waste management activity. The national waste management authority can order the producer to pay a waste management fine for the violation of the registration obligation. If the producer fails to comply with the obligation to pay the waste management fine, the national waste management authority will suspend the placing on the market of the circular product. The extended producer responsibility may be taken over by contract as provided for in the Government decree.

In case of circular products, the manufacturer of the product pays the financial contribution (extended producer responsibility fee) for the performance by the concession company of the tasks of the organisation fulfilling the extended producer responsibility on behalf of the manufacturer. The producer keeps records of the circular products he has placed on the market, and, in the case of individual performance, of the quantities of waste he has received and treated, and of the quantities of waste generated from circular products he has received and treated.

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

The Hungarian Government would designate additional areas of Budapest as immediate ‘Rust Belt’ areas, where the related development regulation will be applicable.

The Rust Belt areas are defined as areas with transport, utilities and institutional infrastructure, or which can be sustainably provided with such infrastructure, suitable for residential and other uses, typically including brownfield sites. An immediate Rust Belt action area is a Rust Belt area where preparatory works for the construction works do not need to be carried out, are in progress or can be carried out within a short period of time, and where the owners or developers plan to carry out a construction project that is authorised or under preparation, and where the introduction of the related incentives could lead to a rapid start of construction.

The Government intends to designate the following areas as new immediate Rust Belt action areas: in the 11th District, the area between Fehérvári road – Galvani road – Szerémi road – Barázda street would be demolished and then, after the area is cleared, residential housing would be built in several phases. In the 14th District, the planned investment will also be property development. In the 15th District, a residential area with commercial and service functions would be created.

The essence of Rust Belt area development is that investors in such areas benefit from a variety of advantages. On the one hand, the status as a priority investment in the national economy means that the building permit is not dependent on the local government and the procedure is faster and simpler. On the other hand, 5% VAT is applicable without a time limit and can be reclaimed by prospective home buyers.

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

A new ruling of the Curia has finally settled the long-lasting debate on whether the general rules of civil law or the provisions of the Labour Code apply to the liability for damages of the employed managing director.

The interpretation difficulties have arisen from the single fact that the Labour Code – which refers to the applicable provisions of the Labour Code regarding the compensation for damages – does not contain any reference to the relevant section of the Civil Code, which establishes the general liability clause applicable to the managing directors in the event of contract breach.

• The judgment published in 2023 stated that the liability of an employed managing director for damages is to be assessed according to the general rules of the Labour Code, meaning that the employer must prove
• that the employee in such position did not act as expected in the given situation,
•  the damage and its amount, as well as
•  the existence of the causal link.

As per the reasoning of the new judgement, the Curia states that contrary to the provisions of the Labor Code, according to which the provisions of civil law apply to damages caused by an executive employee in the context of managerial activities, the Labour Code in force during the assessed damage does not refer to the rules of civil law, which leads to the partial turning of the burden of proof.

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

Five years ago, probably the most common concern of companies across the European Union was to reach compliance with the General Data Protection Regulation. In the recent years, tempers have calmed down, nevertheless the application of the GDPR raises interesting legal questions from time to time. To celebrate the GDPR’s fifth birthday, we collected five landmark decisions of the Court of Justice of the European Union interpreting the GDPR that made a high impact on data controllers’ lives.

#1 The DIGI case about purpose limitation (Case No. C-77/21)

In 2020 Hungarian telco company DIGI was fined for HUF 100 Million by the Hungarian supervisory authority since an ethical hacker revealed that a test database is available online which contains the personal data of DIGI’s clients collected for the purposes of the conclusion and performance of subscription contracts. DIGI created the test database following a technical malfunction but after correcting the error, forgot to delete it.

DIGI challenged this decision before the administrative court which wanted CJEU to answer the question whether the principle of purpose limitation precludes the controller from using personal data in a test database which were previously collected in another database.

The Luxembourg Court clarified that the principle of purpose limitation does not preclude the controller from storing personal data in a database set up for testing and error correction purposes if such further processing is compatible with the initial data collection purposes.

#2 The Fashion ID case about joint controllers (Case No. C-40/17)

In this case, the CJEU confirmed that the capacity of being a data controller is independent of the fact whether the data controller has access or not to the data.

Fashion ID, an online clothing retailer embedded on his webpage the Like social plugin of Facebook, which means that the personal data of the webpage visitors is transmitted to the Facebook. A consumer protection association started a litigation against Fashion ID and the national court referred the case to Luxembourg.

In this context, the CJEU ruled that the fact that Fashion ID does not have access to the collected and transmitted data, does not preclude him from being a controller. In fact, Fashion ID is regarded as a joint controller with Facebook, given that the data processing is carried out in the economic interest of both parties for their jointly determined purposes.

#3 The Austrian Post case about the right to compensation (Case No. C-300/21)

Data controllers can keep calm, as in a fresh decision, the CJEU ruled that not every infringement of the GDPR gives rise to a right to compensation.

The Austrian Post collected information on the political affinities of the Austrian people and used a special algorithm to categorize and send them targeted advertising. An individual claimed that he suffered non-material damages as a consequence of this data processing and started a litigation to seek compensation.

The Austrian Supreme Court asked the CJEU whether a mere infringement of the GDPR is sufficient to confer a right to compensation. The CJEU clarified that while administrative remedies can be sought in case of an infringement of the GDPR, the right to compensation offered by the GDPR is conditional upon a damage suffered.

#4 Hungarian case about the admissibility of parallel proceedings (Case No. C-132/21)

In a case connected to Hungary, the CJEU needed to answer the question whether administrative and civil remedies offered by the GDPR may be exercised parallelly.

Regarding the factual background, after the company only partially complied with the access request of a shareholder, the latter started an administrative litigation against the decision of the Hungarian supervisory authority and parallelly filed a civil lawsuit against the company.

The administrative court sent the case to the CJEU which found that the administrative and civil remedies provided for by the GDPR may be exercised concurrently with and independently of each other.

#5 The Schrems II case about annulling the Privacy Shield (Case No. C-311/18)

Undoubtedly, the decision that made the highest impact on data controllers’ lives was the one delivered in the case started by Maximilian Schrems, the nemesis of Mark Zuckerberg in relation to data transfers to the United States.

In this case, the CJEU found that the EU-U.S. Privacy Shield mechanism, which facilitated data transfers to the United States, did not provide an adequate protection to personal data transferred to the U.S., therefore considered it as invalid.

Companies who transferred personal data to the U.S. based on the Privacy Shield needed to find other ways to be able to transmit personal data the U.S. lawfully, for example using the standard contractual clauses.

Now, at least, the new Transatlantic Privacy Framework is on the horizon, so hopefully data transfers to the U.S. will be significantly easier.

By Anita Vereb, Attorney-at-law, SmartLegal Schmidt & Partners

Lakatos Koves & Partners, working with Clifford Chance, has advised Hungary’s Eximbank Zrt on its USD 1.25 billion offering of 6.125% notes due 2027. Kinstellar, working with Latham & Watkins, advised the joint lead managers.

Founded in 1994, Eximbank Zrt is the Hungarian state-owned export-import bank. 

The Lakatos Koves & Partners team was led by Partners John Fenemore and Szabolcs Mestyan and included Lawyers Agnes Abraham and Gergely Kantor and Trainee Lawyer Zsofia Szakmary.

The Kinstellar team included Partner Levente Hegedus and Managing Associate Mate Nagy.

Significant changes are expected in the Hungarian tax system in the coming years, which could have a major impact on economic operators and individuals alike. As a result of the changes, the State is likely to lose significant revenues and the means to replace these revenues are not yet known.

On one hand, reform of the personal income tax is on the table for a long time. A government-civil working group tasked with planning the simplification of the personal income tax system should have started working in the first quarter of 2023. Previous plans were to remove tax credits deemed ineffective or unnecessary, but the reform will almost certainly not be implemented in the following years.

In the contrary, the special taxes imposed by the government on retailers, the oil industry, banks, insurers and pharmaceutical companies as a response to the energy crisis could be abolished next year, and will only be collected after the tax year of 2022 and 2023. The only known exception is the environmental tax on airline tickets to offset carbon emissions from travel, which will remain. The abolishment of these measures is expected to decrease public revenues while lowering inflation. The reason for the abolishment is that it is a part of the commitments made by the Hungarian Government to access the recovery plan created by the EU to combat the economic consequences of the coronavirus epidemic.

Considering that the special taxes amounting to up to HUF 800-900 billion in revenue for the state yearly, their abolition is expected to have to be compensated to maintain a balanced budget. A possible medium-term solution is the mandatory introduction of the global minimum tax, as the relevant proposals shall be debated in Parliament soon. The package would increase the burden on multinationals from the current 1-9% to 15%. This action – which was opposed for a long time by the Hungarian Government – would jeopardize the Hungarian tax advantage, while increasing tax income. The global minimum tax would affect more than a hundred companies in Hungary, including MOL and OTP among the domestically owned ones.

Although the challenges surrounding the economic environment in the next few years mean that the future of the economy, thus taxes is not known, one thing is certain: significant changes are expected.

By Bálint Éberhardt, Attorney at Law, KCG Partners Law Firm