Category: Hungary

In accordance with its latest announcement, Hungarian Government decided to temporarily decrease the excise duty imposed on fuel products as of 10 March 2022. Other governments in the region also introduced similar measures to control fuel prices and thus inflation; compliance with the EU rules, however, might be of secondary importance.

On 10 March 2022, late in the evening the Hungarian Government announced – inter alia – to cut excise duty on fuel products with HUF 20/litre. The excise duty on petrol had been already cut on 28 February 2022 from HUF 120/litre to 115/litre and now to HUF 95/litre (fuel prices had been also already capped). The Association of Independent Petrol Stations in Hungary also requested previously to decrease the VAT rate applicable on fuels from 27% to 5%. 

It is not uncommon to try to control fuel prices via taxation, since excise duty and VAT (that also applies to the net price and excise duty as well) forms a significant part of fuel prices within the EU, almost half of the final price.  Although, it is not entirely up to the governments of the Member State: EU legislation sets harmonised minimum rates for excise duty and Member States are free to apply excise duty rates above these minima, according to their own national needs. The minimum rate for fuel (‘leaded petrol’) is EUR 0.421/litre and the now decreased Hungarian rate might just be well below the threshold, even if just temporarily.

Hungary is not the only Member State taking similar action: Romania’s coalition government also planned to temporarily halve excise taxes on fuels, even below the threshold, to help lower inflation from its highest level in over a decade. In Poland – as part of the “anti-inflation shield”- the government introduced its plan to cut value-added tax on fuel and introduce a zero VAT rate on goods including natural gas in January 2022. The problem once again is that it is inconsistent with the VAT directive, which allows a minimum 5% tax rate for natural gas.

The European Commission has not responded to the incompliance(s) yet, it would not be surprising either, if some sort of temporary derogation option would be announced in this regard.

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

Schoenherr has advised Solus Advanced Materials subsidiary Volta Energy Solutions Hungary on its acquisition of a 120,000 square meters land plot from Ipari Projekt Hungaria. Solo practitioner Miklos Miszkuly reportedly advised the seller.

According to Schoenherr, the acquired land plot is located in Tatabanya Industrial Park and “is an excellent possibility for further business development.”

Solus Advanced Materials is a South Korean supplier active in the copper foil industry. The company has been present in Hungary since 2018.

Ipari Projekt Hungaria is a industrial park developer.

Schoenherr previously advised Volta on receiving a loan from the EBRD for the construction of a copper foil factory (as reported by CEE Legal Matters on February 9, 2022).

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

VJT & Partners has advised WTS Klient on its sale of a majority stake in Klient Holding to ARX Equity Partners. Baker McKenzie advised the buyer.

WTS is a network of consulting firms represented in more than 100 countries worldwide. WTS Klient Hungary is a member of the WTS group, providing a business consultancy service to international and Hungarian companies.

Headquartered in Prague, ARX is a private equity firm operating in Central Europe.

“By acquiring an interest in WTS Klient we have invested in a new and dynamically developing industry that fits well into the investment portfolio of ARX Equity Partners,” ARX Partner Bela Lendvai-Lintner commented. “We are confident that WTS Klient, with its client base and highly trained experts, will push further forward on the list of Hungary’s leading tax and financial advisory firms.”

The VJT & Partners team included Partner Andras Lovretity and Associate Nandor Beck.

The Baker McKenzie team included Senior Counsel Pal Takacs and Senior Associate Daniel Orosz.

The Hungarian Competition Authority ordered online shop Alza to compensate consumers for a total amount 11 times as much as the fine to be paid to the HCA.

The Hungarian Competition Authority (HCA) has ordered online shop Alza to compensate consumers for a total of HUF 450 million (approx. EUR 1.2 million) in addition to a fine of HUF 40 million (approx. EUR 107.000) in its recent decision.

The activities of digital market players have been in the focus of the HCA in the last few years. Here are some of the recent cases that have come to the fore:

• In 2019, the HCA found that Facebook infringed competition law by advertising its services as being free. The competition authority considered that although users did not have to pay for the use of the online platform, but the social media giant benefited economically from collecting their data and using it for targeted advertising. The HCA imposed an extremely high fine of HUF 1.2 billion (EUR 3.2 million) on Facebook. However, Facebook appealed this decision, and the courts annulled the fine in its entirety. It is yet to be seen how the HCA losing the Facebook case will influence its already opened proceeding against Viber and TikTok.
• In 2020, the competition watchdog imposed a fine of HUF 2.5 billion (approx. EUR 6.6 million) on the operator of the online booking portal booking.com, and at the same time banned the Dutch undertaking from continuing its aggressive sales methods. The HCA ruled that booking.com engaged in unfair commercial practices against consumers by, among other things, misleadingly advertising some of its accommodations with a free cancellation option and exerting undue psychological pressure on consumers to make early bookings. A little later the same year, the HCA also found a competition law infringement with regard to the Hungarian online accommodation booking platform, Szallas.hu. The HCA established that messages which appeared on the website and mobile application of Szallas.hu created a sense of urgency and impeded the normal decision-making process of consumers reducing their ability to make well informed decisions. The HCA concluded that Szallas.hu had engaged in aggressive commercial practices, however, due to its cooperation with the authority during the proceeding, the HCA merely ordered the undertaking to implement a complex package of measures to ensure compliance with law, instead of imposing a fine.
• In 2021, the competition authority established that discount practices of the online marketplace eMAG had been unfair toward consumers. The HCA’s investigation revealed that eMAG failed to develop internal regulations during its campaigns that would have ensured that the actual, typical price of a product was displayed as its “original” price; the crossed-out prices were only applied occasionally and for extremely short periods. The Authority imposed a fine of HUF 200 million (approx. EUR 530.000) for the infringement and ordered the operators of the webshop to provide compensation and of approximately HUF 4 billion (approx. EUR 10.7 million) (to be used partly for compensating consumers and partly for supporting the e-commerce presence of companies). Similar infringements have been established earlier in other cases, but this amount of compensation was unusual a few years ago.

And these are just the tip of the iceberg. This time the webshop Alza.hu was in deep water. The HCA found that Alza.hu urged its customers in an aggressive manner to buy certain products as soon as possible by sending messages containing several misstatements. The HCA imposed a fine of HUF 40 million (approx. EUR 107.000) on the operator of the online shop and ordered it to pay a consumer redress scheme of at least HUF 450 million (approx. EUR 1.2 million).

The HCA launched the investigation against the Hungarian Alza.hu Kft. and its Czech parent company, Alza.cz. a.s., due to suspected inappropriate marketing methods. The proceeding uncovered that Alza had applied eye-catching, flashing pop-up messages in its platform, such as „Currently X customers are interested in the product”, „This product was purchased by X customers this week”, „This product was purchased by X customers today” or “Last X items” etc.

As stated in the HCA’s decision, these messages did not correspond to reality in terms of the popularity of the products among consumers and the number of consumers in Hungary. For example, the message “Currently X customers are interested” did not show the actual number of customers interested at that moment, but the total number of views on that day for that product in all online shops belonging to the group of undertakings, i.e., not limited to Hungary.

Furthermore, these messages, through the combined effect of their wording and visualisation, urged consumers to purchase goods as soon as possible by exerting psychological pressure on them. For example, the webshop typically indicated that there were only a limited number of products available for delivery, usually (less than) 3, 5 or 10 items; and in several cases it indicated that “Last X items” of a product were available. Besides emphasising the popularity of the products, the low number of items available or ready for delivery was intended to reinforce the scarcity effect and the fear-of-missing-out (FOMO) effect on consumers. Lower number of ready-to-deliver items, irrespective of the actual stock level, and references to “last” available items were used to emphasise the limited availability of the products, so that consumers associate the product with greater value or the chance of missing out.

The HCA imposed a HUF 40 million (approx. EUR 107.000) fine on Alza.hu Kft. and its parent company Alza.cz a.s. for the infringement. When determining the – rather low – fine, the HCA also took into account the consumer redress package undertaken by the online shop, as well as other factors, such as acknowledging the infringement, not appealing the decision and revise their internal compliance policies. Under the commitment, every consumer who made a purchase from Alza’s online store in 2019, will receive a coupon worth HUF 3000 (EUR 8). The discount can be used for one year on any purchase over HUF 10.000 (EUR 27). The coupons will be sent by Alza via email to all eligible persons by April 2022, but this information also have to be communicated via other communication channels. If the total value of the coupons used does not reach HUF 450 million, Alza will have to provide direct compensation to consumers through ancillary commitments made during the proceeding. If the amount of reparation is still below the HUF 450 million (approx. EUR 1.2 million) threshold, Alza will have to pay the difference in fines.

As the case of Alza demonstrates, cooperation with the HCA and appropriate commitments offered can significantly reduce or even avoid fines. However, this also comes at a cost: the cost of the whole “package” for Alza is still significant: HUF 490 million in total, of which 40 million (approx. EUR 107.000) is the direct fine and 450 million is the cost of compensation of consumers. Thus, besides the preventive nature of fines, consumer redress has recently come to the fore, as a result of the changes in the HCA’s approach. The HCA seeks to ensure that consumers experience first-hand the benefits of the authority’s activities.

It is evident that significant digital market players are currently under close scrutiny by the HCA and can quickly be targeted in case of suspected infringements. We therefore encourage digital market businesses to make it a priority to operate in compliance with competition and consumer protection laws, including the availability of appropriate internal policies to avoid costly proceedings with potential further significant costs in the end, whether to be paid to the state in fines or to the consumers as compensation.

By Anna Turi, Head of Competition, and Balint Szabo, Associate, Schoenherr

The Hungarian Competition Authority (“HCA”) has published a summary report of its 2021 activities. The HCA opened 51 competition proceedings against 124 undertakings, almost 25% more than in the previous year, and 42 cases were closed in 2021.

Record amount of fines

In 2021 the HCA has established a competition law infringement in 28 proceedings against 71 undertakings. The HCA imposed a fine in 25 cases amounting to around HUF 18.2 billion (approx. EUR 50 million) fine on 62 undertakings in total. This is a record amount compared to previous years (2020: HUF 8.4 billion (approx. EUR 22.7 million); 2019: HUF 8.8 billion (approx. EUR 23.8 million), although a very significant proportion of this relates to the high-profile fertiliser cartel, in which the HCA imposed fines totalling HUF 14 billion (approx. EUR 38 million). However, this decision, together with many others, is not necessarily final, as the fined companies may turn to court against the HCA’s decision, as was the case in the fertiliser cartel. Excluding the fertiliser case, the total amount of fines imposed in 2021 has decreased compared to previous years.

2021: the year of cartels

It is not an exaggeration to state that 2021 was the year of cartels, given that more than 90% of the HUF 18.2 billion (approx. EUR 49 million) fines, namely HUF 16.2 billion (approx. EUR 43.8 million), was imposed for agreements restricting competition (mostly cartels). Last year 8 such cases were closed: an infringement was established for 4 public procurement cartels, 2 non-public procurement cartels and 2 other anti-competitive agreements.

The HCA carried out dawn raids with the suspicion of cartels or other market distortions at 56 market players last year, during which it processed around 14 TB of data. This is not at all an indication that the coronavirus pandemic deters or limits the HCA’s enforcement or dawn raid activities.

Consumer protection: targeting infringements linked to COVID-19

Consumer protection cases accounted for more than 50% of the closed cases. Fines were imposed in half of the consumer protection cases, totalling HUF 2 billion (EUR 5.4 million). Here the HCA prioritised the detection of COVID-19 related infringements and imposed fines around HUF 449 million (approx. EUR 1.2 million), i.e., a quarter of the total fines imposed in consumer protection cases were imposed for COVID-related infringements.

The most exciting consumer protection case of 2021 was not related to the pandemic, but to one of the most popular social media platforms. The HCA had previously found that Facebook had committed an infringement when it advertised its service as free, given that users did not have to pay a fee for using the service, but their user activities and data resulted in commercial benefits for Facebook, thus it had meant in fact paying for the service. The HCA imposed the largest consumer protection fine in its history until that date on Facebook, HUF 1.2 billion (approx. EUR 3.2 million) (there have been higher fines since then). However, the courts have ruled recently in Facebook’s favour and annulled the fine in its entirety.

New tool in the HCA’s hands: accelerated sector inquiry

Last summer the Hungarian Government introduced a new legal instrument to extend the powers of the HCA, allowing it to order an accelerated sector inquiry if competition is distorted or restricted in a specific market and an urgent intervention is required to identify and address these market disturbances. The HCA initiated the first accelerated sector inquiry in the construction sector on the Hungarian market of ceramic masonry elements (bricks), then another one on the Hungarian market of construction wood materials. Most recently it has conducted an accelerated sectoral inquiry on the market of COVID-19 antigen tests due to the extraordinary high prices by regional comparison.

Abuse of dominance

In 2021 the number of suspected abuse of dominance investigations increased compared to previous years, with a total of eight cases, but these are still ongoing, with the exception of the Budapest Airport case.

Merger Control: clearance is granted in an average of 4 days

The HCA received a record number of notifications of concentration in 2021 and cleared 64 transactions last year. As no competition concerns were identified in any of the cases, the HCA issued a clearance certificate in 92% of the cleared transactions in a very short time (average clearance time of 4 days). The HCA is one of the most effective authorities in handling notifications of concentration that do not raise competition concerns in Europe, which is also important from a competitiveness perspective. The excellent statistics are also helped by the possibility of a prenotification procedure, also favoured by the Authority, whereby the notifying party can discuss all relevant matters with the HCA before formally submitting the notification, making the actual proceeding more efficient and faster.

The Beer Act has entered into force: proceedings against two fast food chains and three breweries

In 2020 the Hungarian Parliament amended certain provisions of the Trade Act and from 2021 further extended the powers of HCA: in the HoReCa sector, catering businesses may not conclude any exclusive agreements on the procurement of beverages with beverage companies with significant market power. Furthermore, catering businesses shall offer the products of at least two beverage companies for all categories of beverages sold (not only beer). These trade rules are enforced by the HCA. The competition authority recently announced that it had launched the first competition proceedings under the new trade rules against two fast food chains, KFC and Burger King, and three beer producers, Dreher, Borsodi and Heineken.

It pays off to cooperate with the competition authority

The competition authority provides a wide range of opportunities for market players to cooperate with the authority. By cooperating with the HCA, the legal consequences of competition law infringements can be significantly reduced: fines can be avoided or significantly reduced, and in cases resulting in commitments, the HCA does not even establish an infringement. Last year, 24 companies obtained a reduction or waiver of fines totalling more than HUF 7.6 billion (approx. EUR 20.5 million), which represented 29% of the total amount of competition fines imposed last year.

What to expect in the coming year(s)

The importance of consumer protection cases has steadily increased in recent years, and the fines imposed in such cases have in many cases approached or even reached the level of fines imposed in cartel proceedings. While in 2021 the COVID-19 infringement related cases played a significant role, an emphasis will be on sustainability, environmental aspects and green marketing in the upcoming years. This is also supported by the fact that the HCA published its guidance on green marketing for businesses at the end of 2020.

The pandemic has been part of our everyday life for two years now and it has resulted in permanent or temporary disturbances on several markets, which required the prompt investigation and intervention by the HCA. However, as the published data show, these tasks (e.g., conducting accelerated sector inquiries) have not impeded the authority in carrying out its traditional enforcement tasks.

In the last two years the HCA closed roughly the same number of proceedings for cartels, consumer protection infringements or merger control as it did in 2019, before the pandemic. The number of proceedings opened (including sector inquiries) has increased, not only compared to the previous year, but also compared to the year before the pandemic. Thus the pandemic has not reduced but intensified the HCA’s activity in the protection of competition and consumers, and we can expect the same in 2022.

By Anna Turi, Head of Competition, and Balint Szabo, Associate, Schoenherr

The European Commission has revised the regulations of the net short position reporting and published rules to permanently lower the initial net short position reporting threshold from 0.2% to 0.1% under the EU Short Selling Regulation (SSR). The new threshold took effect on 31 January 2022.

Any natural or legal person who has a net short position in relation to the issued share capital of a company that has shares admitted to trading on a trading venue, shall notify the relevant competent authority where the position reaches or falls below 0.1% of the issued share capital of the company concerned and each 0.1% above that. The Hungarian competent authority is the Central Bank of Hungary (MNB), which monitors the market based on the notification, and investigates if the short selling results in an abnormal market.

In connection with the pandemic, the European Securities and Markets Authority (ESMA) has decided to reduce the initial net short position reporting threshold from 0.2% to 0.1% as temporary measures, which were applied from 16 March 2020 and were renewed several times in June, September and December 2020. The measure was expired on May 2021, but relating to the ESMA’s proposal, the European Commission modified SSR and constantly applies 0.1% threshold for the initial net short position reporting.

The SSR determines a two-step model, but the second step was not modified. It means that a natural or legal person who has a net short position in relation to the issued share capital of a company that has shares admitted to trading on a trading venue shall disclose details of that position to the public where the position reaches or falls 0.5 % of the issued share capital of the company and each 0.1 % above that. The first step informs the authorities about potential systemic risks, the second step supports the market to be aware of individual short positions.

By Krisztian Brody, Attorney at Law, KCG Partners Law Firm

Hungarian lawyer Szilvia Daxauer has joined Mndipharma in Vienna as Head Of Legal / Central Eastern Europe & Russia Region.

Daxauer joins from Bayer where she served as the company’s General Counsel – Law and Compliance between 2014 and 2021. Since May 2020, she had also served as the Head of Law, Patents and Compliance. Earlier still, she worked for Nestle, first as a Legal Counsel between 2006 and 2012 in Budapest and as a Senior Legal Counsel in Vevey, Switzerland in 2013. Prior to moving in-house, she was a Trainee Attorney with Krankovics Panszky Arva Law Firm between 2004 and 2006.

“Where care and collaboration meet, to make a difference when it matters most,’ says the Mundipharma mission that sheds some light on what I love about working in the healthcare industry,” commented Daxauer. “I am excited to leverage on my previously gained experiences and take the opportunity to innovate, redefine and transform in my new role so that I can contribute to moving some needles in the world. On top of that, I am a member of a genuinely diverse and inspiring team.”

Originally reported by CEE In-House Matters.

On December 7, 2021, CEE Legal Matters reported that Lakatos, Koves and Partners had successfully represented Facebook Ireland in a dispute with the Hungarian Competition Authority before the Kuria – the Hungarian supreme court. CEELM spoke with LKT Partner and Co-Head of Competition Eszter Ritter, who led the team, to learn more about the case.

CEELM: To give our readers a bit of context, please tell us how the case started.

Ritter: The case was related to Facebook’s social media service, including the statement “It’s free and always will be,” which was in use when the investigation started, back in 2016. At the time, the Hungarian Competition Authority (HCA) had started to focus on digital services and the way these monetize users’ attention and personal data. Other countries’ competition authorities were taking a closer look as well. To them, the problem was: while consumers pay no money for these “zero-priced” services, service providers are making a lot of money using their data.

The trigger may have been a paper published by the French and German competition authorities in 2016, on data and competition law, looking at the relevance of users’ data and how it was being used. This was just a few days after the adoption of the GDPR. Both generated a volcanic eruption type of reaction.

All of a sudden, everyone was talking about personal data usage and consent, and the related economic impact. The debate was oftentimes framed as US-based GAFAM (Google, Apple, Facebook, Amazon, and Microsoft) taking advantage of European users’ data. And the HCA asked itself: are Hungarian consumers being treated fairly during this process?

CEELM: At which point of the proceedings did you get involved?

Ritter: When the HCA notified Facebook of the decision to launch an investigation, in 2016, that’s when we came in. So, we were involved in the proceedings right from the start.

CEELM: What exactly was your mandate?

Ritter: When deciding to launch such investigations, the HCA must explain what the subject matter of the investigation is – including the alleged violations of the law. They then follow that up with a factfinding process, requesting and analyzing information from the company itself and other sources. So, from the start, our mandate covered the entire investigation process – to advise and provide strategic guidance as well as representation during the investigation phase. Which is standard for HCA-related mandates – on which we have a very good track record.

Specifically, the investigation was on unfair commercial practices. Regulated by the Unfair Commercial Practices Directive 2005/29/EC (UCPD), these include misleading and aggressive commercial practices, which – and this came into play throughout the case – “are likely to materially distort the transactional decision of the average consumer.”

CEELM: Walk us through the process. How do these investigations unfold?

Ritter: The HCA’s proceedings consist of two major parts: the investigation, run by case handlers, followed by the decision-making phase, run by the Competition Council (CC) – the actual decision-making unit of the HCA.

The first steps during the investigation, normally, are a series of requests for information. And the client received a lot of those, which we worked on, providing the information as best we could. The scope of the investigation shifted somewhat – perhaps a reason for the large number of requests. There was some unexpected back and forth between the HCA’s units as we went along.

Once the investigation was complete, the second phase, before the CC, took place. As a first step, the CC issued their preliminary position – including the initial findings based on the investigation report, what they thought of the case, and a likely decision in the matter. The client could then submit written comments in what amounts to a defense, and opt for a hearing – which we did, of course. The client made cooperating with the authority on this case a priority.

After the first hearing, we were surprised that the CC instructed the case handlers to investigate yet another aspect of the service. This is unusual. Once that investigation was completed, the CC issued another statement of objection, so a second hearing followed. Then we were stuck waiting for a decision.

The HCA’s decision came in December 2019. The HCA decided that the “free and always will be” statement was misleading because Facebook uses users’ data and monetizes it – so, according to the HCA, the users were paying for the service not with money but with their personal data – which meant that the service was not free. As the HCA saw it, if the consumer provides anything in return, they de facto “pay a price” – be it attention, or commitment, or data – and the service cannot be considered free.

CEELM: And then it was time to go to court?

Ritter: Well, to go before the court of first instance – the Budapest Metropolitan Court (BMC). Indeed, we filed a lawsuit against the HCA decision. Then COVID-19 struck, and the Hungarian administrative court system underwent an unrelated full reorganization. All pending cases were reallocated, with significant delays: we only got the hearing in autumn 2020.

The reviewing court held two hearings – which was also unusual because the facts on what had happened were not really disputed. It was just a matter of legal interpretation of the applicable law, in particular, what is covered by price and how the average consumer understands the term “free.”

The court’s decision completely accepted our arguments and vacated the HCA ruling: the BMC agreed there was no basis for the HCA to decide as they had – to equate (background-collected) user data to money payments made by the consumer, and call both a price of the service.

It was also significant that, for a violation of the relevant legislation to occur, the commercial practices themselves had to be not just misleading, but also have the ability to distort the consumer’s decision-making.

We were able to support our position on this with a 2018 first-instance court ruling from Germany, on the same subject matter, which was, fortunately, upheld on appeal. The German courts essentially ruled that consumers know that free is about not having to pay money, which is undisputed for Facebook’s social media service. They held that non-monetary commitment (like time and attention) is a matter unrelated to the message of the service being free. So, the statement was not misleading the average consumer. This position was also taken by the BMC.

CEELM: The HCA wasn’t happy with that decision, I take it?

Ritter: No, the HCA challenged that decision. While HCA cases are first reviewed by a court of first instance, any subsequent challenges go straight before the Kuria.

It’s important for these challenges to be drafted properly, as the Kuria will only review a decision within the limited scope of the challenge. Essentially, the Kuria had to decide if the previous BMC ruling had been lawful. Only a violation of the law, within the court of first instance’s decision, would have meant that the decision was struck down.

This was not the case. The BMC’s decision was deemed lawful, with no problems or violations either on the interpretation of legislation or procedural rules. The Kuria adopted its decision in October 2021. The written decision was received mid-November and the HCA eventually published the decision on its website, as it’s required to do.

CEELM: What were the immediate practical implications of Kuria’s decision?

Ritter: Because normally any HCA decision is immediately enforceable, the original fine they imposed – and it was a record one, in 2019, for HUF 1.2 billion – had already been paid. So, the amount had to be returned to Facebook, with interest. Some procedural costs were also imposed on the losing party – but compared to the sizable fine these were marginal.

CEELM: What do you think is the wider impact of the case?

Ritter: These proceedings were presented as a landmark case by the HCA back in 2019, a showcase of the authority’s creative enforcement relating to digital services. The publicity was quite impressive, showing the HCA’s intention to impact the delivery of cross-border services by big international players, in the interest of consumers.

The case may also increase the appetite of enforcers in other EU member states for doing the same. The incentive is all the greater since, as of May 2022, the sanctions for unfair commercial practices infringements will be harmonized in all member states: the maximum fines for such infringements should be at least 4% of a company’s global turnover, similar to the case of GDPR infringements.

In addition, the HCA’s case was an interesting and relevant response to the question of consumers’ data, from an unfair commercial practices regulation perspective. The legal implications of Kuria’s reasoning are also interesting. It offered an interpretation of what price means under the UCPD, a piece of constructive reasoning to be added to the enforcement practice evolving around that directive, in particular relating to zero-priced services.

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Jalsovszky Law Firm’s Managing Partner Pal Jalsovszky interviews Prologis Legal Counsel CEE Ildiko Kollar.

Jalsovszky: Ildiko, thank you for your time. You started your career at an international law firm and then you switched to become a legal counsel for Prologis. What prompted you to make this decision?

Kollar: The reason was a personal one. I had just given birth to my second child at the time, and I felt it would be difficult to balance the expectations of the law firm with my family commitments. Then, a possible solution came along. Our firm worked for Prologis, which was starting to build its own in-house legal team. Prologis needed an in-house lawyer, and I took the opportunity.

Working in-house, I hoped to find a work-life solution with more balance than is possible when working for an international law firm. Of course, my 13 years working for Prologis have been demanding, but there is one clear advantage of being an in-house lawyer: I have just one single client.

Jalsovszky: What do you expect from an external legal adviser? How do you select the advisers that you work with?

Kollar: I expect business-minded legal advice. This means the adviser not only needs to be excellent in the legal domain but should also understand how our business works. For this reason, we are prepared to invest time into explaining the ins and outs. At the end of the day, we are happier cooperating with a couple of select law firms with a deep knowledge of our business, than working with more advisers who are less connected to us.

Nevertheless, the situation is somewhat different within the different countries in the region. As a qualified Hungarian lawyer, I am able to keep 80% of the Hungarian work in-house, only involving external advisers for large-scale real estate transactions. We also involve advisers in areas that require specific knowledge – for instance, when we set up private electricity networks in our parks, we mandated an external counsel to advise us on the legal implications. In the Czech Republic and Slovakia, we use external advisers more on a day-to-day basis, providing them with more general commercial law work in addition to transactional advisory.

Jalsovszky: Do you prefer working with international law firms or local law firms?

Kollar: I find that lawyers at international law firms still have a specific mindset that sets them apart. They understand the circumstances affecting our business, the terminology that we use, and our general daily routine. International law firms, in this sense, are a bit like buying from a well-known global brand: you know what to expect from them and, even if they do not necessarily provide the highest-quality product, you are rarely disappointed. Also, it is easier for me in the Czech Republic and Slovakia to connect with an international law firm as my insight into the legal market is still limited in these countries.

The selection process is a bit different in Hungary, the market in which I am most at home. Here, as well as international law firms we also tend to involve smaller domestic firms in our panel. We still prefer that lawyers have had past experience with international law firms, though.

Jalsovszky: What were your biggest challenges in recent years? How did the pandemic affect your business?

Kollar: The pandemic has created a very peculiar business situation and legal environment. My first recourse for developments every morning was the Hungarian Gazette (Magyar Kozlony) which is a strange situation even for a lawyer to be in! But we needed to find ways to keep up with the fast-changing legislation.

All legal procedures have slowed down due to the pandemic, whether business decisions or administrative procedures. On the other hand, we have had the chance to optimize our use of certain applications (like e-signature and Zoom) with which we were not familiar before. In hindsight, I think the pandemic has been beneficial in forcing us to modernize our processes.

Fortunately, from the business perspective, the logistics sector was resilient to the pandemic, and companies even benefitted from increased demand. It is unsurprising that, due to low entrance barriers and the availability of cheap credit facilities, a lot of new players entered the market, meaning competition has become even stronger.

Jalsovszky: As a lawyer, what key differences do you perceive between the legal systems of the countries that you supervise?

Kollar: There are of course many differences, but I will just highlight one of them as an example. I have recently become extremely grateful for the Hungarian land registry system! In my view, our system is way ahead of the equivalent systems in the Czech Republic, Slovakia, or Romania. This is mainly due to the fact that, while the land registry system has been in continuous operation in Hungary, registering the transfer of real estate property was not obligatory in either the Czech Republic or Slovakia from the 1960s until the early 1990s. This meant a reliable system was not created as quickly, and it is still sometimes very difficult to establish the chain of title for properties. As a consequence, these countries are still struggling with the difficulties of having an incomplete real estate cadaster.

Jalsovszky: What are your main projects and challenges for the coming years?

Kollar: As I just mentioned the land registry system: the electronic land registry procedure to be introduced in 2023 is something which I will need to explore in-depth. Although the digitalized procedure has been a success both in the ordinary courts and company courts, I still have some doubts regarding the land registry offices, where the current practice is slightly inconsistent.

I am also following the developments in environmental legislation with a certain degree of pride. Prologis has always strived to set new standards as an environmentally responsible company – it is a forerunner in sustainability and is, in many ways, years ahead of its competitors. We make extensive use of solar energy and green solutions, and we consider all the environmental aspects of a real estate transaction with a great deal of care.

Finally, legal technology solutions are of particular interest to us. One of our strategic priorities involves continuous improvement through the automatization of our processes. Although we have already made significant progress, there is still room for more comprehensive use of technology in the legal sphere.

Jalsovszky: Thank you for talking to us, Ildiko.

Kollar: Thank you. It was my pleasure.

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Almost ten years ago, in 2012, major changes were introduced in Hungarian employment law, including a new Employment Code. The updated rules had a significant impact on market practice and, consequently, on the volume of employment litigation. The latter number was further influenced, however, by the new Code of Civil Procedure, which came into effect in January 2018. In this article, we offer insight and explanation for the possible causes of the decreasing number of employment lawsuits.

Decrease in Numbers

As per court statistics, between 2000 and 2011 the number of employment litigations initiated was over 25,000, almost every year. In 2012 this number dropped below 20,000 and, in the following years, the fall continued. By 2019, the number of cases had decreased to 4,615.

In 2020, the Hungarian court system also underwent radical changes, with the abolition of the separate administrative and employment courts. In the first half of 2021, only 2,563 new employment claims were brought to courts, which, in the light of the downward trend, is not a surprising number. Some types of cases have indeed been reclassified from employment cases to administrative cases, however, the decrease in the number of employment lawsuits has been long present before this reclassification.

It is also noteworthy that in 2019 30% of the employment cases completed by courts lasted three months or less, by far the highest rate for the duration of employment disputes. This ratio remained at 28% in the first half of 2021. It indicates that almost one-third of employment disputes end on either the first or the second court hearing, which is due to the number of settlement agreements approved by courts.

The Price of Wrongful Termination

Many professionals claim that it is simply no longer worth it for employees to start a litigation procedure with their (former) employer. The new employment and civil procedure regulations certainly did not make it easier for employees to bring their claims to court. The new Employment Code has changed the basic characteristics of the legal consequences of wrongful termination, such as their extent and conditions for application. Before 2012, employees could generally apply for reinstatement and were entitled to claim a higher and non-fixed amount of compensation, whereby the length of litigation just increased the amount of their claim.

According to the current regulation, employees may only apply for reimbursement in narrow and predetermined cases of serious infringements. In addition to this, the current Employment Code caps the amount of compensation that may be claimed in case of unlawful termination – employees may only receive up to 12 months’ absentee pay as compensation. When employees find a new job that offers them a higher salary during the litigation, they may only claim a fraction of that compensation.

As the quantitative risk of wrongful termination has thus been defined and significantly reduced, the employers can avoid and/or mitigate the legal consequences of wrongful termination through applying termination agreements more frequently and, due to this, the latency of the termination cases is increasing.

The Change in Market Practice

Not all causes for the decrease in court claims and changes in the employment practice are negative, however. In recent years, employers are getting more careful with handling their HR matters, as the supply and demand sides of the employment market change. Employers also frequently request the help of attorneys in HR matters, which could also be a factor in decreasing the number of employment disputes.

In the event an employer decides to end the employment relationship, current market practice shows that, instead of unilateral termination, termination agreements are increasingly common. While a termination agreement reduces the risks of a lawsuit, it also helps the parties create a win-win situation. To facilitate negotiations and reach an agreement, employers can also assess the situation in light of the above-mentioned cap applicable in case of wrongful termination.

Although the visible number of employment disputes decreased, we cannot conclude that there are no disputes between employees and employers. However, the above numbers show that the current employment and procedural laws can lead and influence the parties to resolve their conflicts by means other than litigation, resulting in cost and time-saving solutions and settlements.

By Szilvia Fehervari, Partner, Szabo Kelemen & Partners Andersen Attorneys

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.