Category: Hungary

This past year brought significant privacy-related regulatory challenges to business operations. The pandemic situation and lockdown, the ever-rising number of data breaches, the invalidation of the EU-US Privacy Shield, and the challenges arising from the uncertainties of BREXIT have all tested compliance departments to the full.

The pandemic and the health emergency situation forced many companies to seek innovative solutions to maintain or to completely transform their business operations. Sending employees into home office and working remotely from home and keeping contact with customers and clients have changed the way businesses operate, significantly accelerated the expansion of e-commerce towards new business opportunities, customers, and product types. Indeed, the rapid move to a digital business and related digital transformation was a key driver or survival strategy for several companies, while disrupting the traditional legal and compliance work performed by multinational corporations. The shift away from physical to online operations has shown the importance of digital communication channels and platforms, online customer relationship management, and mobile applications, and this also brought challenges to those compliance departments inexperienced with digital transformation projects and accompanying regulatory challenges, and with complex privacy-by-design, privacy-by-default, e-privacy, information security, information technology, and intellectual property-related challenges.

The dark side of the lockdown also led to an ever-increasing number of cyberattacks and data breaches that caught many compliance departments off-guard. Phishing campaigns, ransomware attacks, and direct cyberattacks resulted in major data breaches throughout Europe – and in Hungary as well. Preparation for data breaches paid off where tested data breach playbooks were available, and many compliance heads encountered such data breaches and business email compromise frauds for the first time.

Hungarian regulatory authorities continued their growing focus on digital operations. The Hungarian Competition Authority is currently investigating the role of data and data-based business models in e-commerce and the resulting effects on competition, the Hungarian National Bank has issued several new recommendations and guidelines on remote working, bank physical and logical security, and compliance defense lines, and the National Authority for Data Protection and Freedom of Information has continued to enforce the General Data Protection Regulations provisions and imposed its largest-ever fine: approximately EUR 280,000 on a Hungarian telecommunication company for insufficient technical and organizational measures related to a data breach.

The second part of the year was influenced by EU-level developments involving international data transfers. The invalidation of the EU-US Privacy Shield and the limitations articulated by the Court of Justice of the European Union relating to the use of EU standard contractual clauses have forced companies to initiate the complex task of assessing third countries and identifying appropriate supplementary measures to secure international data transfer compliance. This required the mapping of international data transfers, replacement of the EU-US Privacy Shield where necessary, and conducting transfer impact assessments by sending out questionnaires to business partners and obtaining feedback from them to document and assess the need for specific supplementary tools required for the data transfer. In that regard, the simple paperwork of entering and signing EU standard contractual clauses have become more burdensome and difficult to manage considering the wide scope of transfers and outsourced business operations.

At the year’s end, the exit of the United Kingdom from the European Union also became reality. Several business operators have already taken steps to address the fact that the UK will be a third country in the future; however, given that the European Commission has not released an adequacy decision concerning the status of the United Kingdom post-BREXIT, this situation also caused compliance challenges to companies considering the need to conduct transfer impact assessments regarding UK operations. Finally, during the Christmas period, representatives of the UK and the EU struck a deal and recognized the UK as a safe country in the EU-UK Trade and Cooperation Agreement until July 1, 2021, and it is anticipated that the EU Commission will adopt an adequacy decision soon.

We expect that challenges relating to the COVID situation, digitalization, and the growth of e-commerce and privacy enforcement will continue and that more focus will be given to the use of monitoring technologies and tools.

By Adam Liber and Tamas Bereczki, Partners, Provaris

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As the world continues to fight the challenges presented by COVID-19, some guidance on the effects on litigation of the COVID-19 crisis can be discerned from the past year. We know that some sectors have suffered more than others, and participants in industries most affected by COVID-19, like airlines, HORECA, tourism, entertainment, and the commercial real estate sector have already become involved in related legal disputes, such as contractual disputes concerning supply chain disruptions. The big question is whether the pandemic qualifies as a force majeure or a material adverse change that could allow the contracting parties to walk away.

In addition to the newly appeared derivative claims, the management of new COVID-19 related claims in addition to already pending cases was a big challenge for the Hungarian court system last year. However, it appears that the law has developed and adapted, as it always does. After the very first day of the state of emergency – which was declared on March 11, 2020 – it took only two and a half weeks (March 31, 2020) for courts to restart their work (although of course with limited capacity, postponements of deadlines for hearings and filings, and restrictions on entering court buildings and file review (subject to previous registration, etc.). In the meantime, courts have been equipped with virtual facilities (like the distance-hearing system which was installed independently of COVID-19 and which now provides more than 70 conference rooms in court buildings suitable for sessions across the country, mainly used for taking evidence by videoconference) and have offered e-hearings on online platforms (such as Skype for Business).

Actually, last year distance-hearings were widely used, especially in criminal cases, unlike e-hearings, which remained uncommon. There could be several reasons for this reluctance among legal practitioners, one of which could be the lack of infrastructure. However, there might be further considerations in the background as well, like the importance of physical presence in the court room, which facilitates free-flowing discussions and allows the court the opportunity to read body language, and which also avoids the formality of e-hearings, connected to the ability to make full-time recordings.

Of course, the courts were eager to recover quickly after the 2.5-week closure to avoid any sizeable backlog. Court statistics show that for the first two quarters of 2020, the number of new claims dropped by only 2.3% – impressive, compared to the 11% decrease in new claims in 2018 (due primarily to the then-newly-introduced Civil Procedural Code). Of course, the effects of the pandemic are easy to identify in the statistics for the first half of 2020: the number of closed cases dropped by 6.8%, the number of pending cases increased by 1.7%, and the ratio of filing and closing of 2020 is by far the lowest in recent years. Unfortunately, the continuous decrease in delayed cases (i.e., cases still pending after two years) stopped in 2020, which means that cases started and/or pending in COVID-19 times may take even longer to resolve. We anticipate that this backlog will start to decrease, however, as the courts adapt to the pandemic and respond to pressure to deliver justice where possible. Even now, hearings are scheduled and held more and more as they were in the pre-pandemic era, though there are notable differences: plastic shields installed on the desks, chairs placed according to rules of social distancing, mandatory mask wearing, and airing of the court rooms every 40 minutes.

While courts are now moving forward with pre-existing cases with greater ease, they still have to deal with the fallout of the COVID-19 pandemic, including an increasing number of consumer claims, contractual disputes, insolvencies, and employment claims, which are likely to stay with us in the post-COVID-19 era, too.

This might push courts to go ahead with the original (and stricter) deadlines; however, the courts, legal practitioners, and clients must be conscious that it is likely to take longer and require more work to achieve results by remote-working compared to more traditional methods – anticipating that society may keep the home workstyle even after COVID-19.

By Orsolya Kovacs, Partner, Nagy & Trocsanyi

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On February 8, 2021, CEE Legal Matters reported that Oliver Koppany and Csaba Rusznak had joined KNP Law Nagy-Koppany Lencs & Partners in Budapest. Rusznak will lead the firm’s Dispute Resolution Practice Group, while Koppany, who joined as Foreign Legal Counsel, is preparing to take over the management of the firm from his mother, KNP Law Founder and Managing Partner Kornelia Nagy-Koppany. We spoke with Koppany and Rusznak to learn more about their background and plans for the future.

CEELM: Tell us a bit about KNP.

Oliver: KNP started 15 years ago and is an independent international law firm in Hungary, with a team of about 20 people. It was started by the same three Partners we have today: Kornelia Nagy-Koppany, Laszlo Lencs, and Timea Fuzessy Maglics. As a child, I would go down to the firm’s offices after school, and I noticed that what started as one small office on a floor with four other offices kept spreading. Eventually, office by office, KNP had taken over the entire floor.

We have had a long, stable, and successful history so far and the goal from here on is to focus on expansion and growth.

CEELM: What would you identify as the highlights of your careers, leading up to today?

Oliver: When I was in high school and told my mother that I wanted to become a lawyer she insisted I get a US education. I went to Suffolk University in Boston and then the American University Washington College of Law in DC.

During my studies, I spent a bit over a year with Willkie Farr & Gallagher, with the tremendous David Mortlock as my mentor. He taught me how to work with people – I owe a lot to him. He really breaks the mold of the old way of thinking that associates must suffer on their way to the top. His approach was always respectful, caring, and that of being a guiding hand – something that I really wish to emulate at KNP.

During my undergraduate studies in Boston, I also worked at Foley & Lardner, where I worked for Chris McKenna. He was fantastic in helping me understand how to develop new business opportunities and think outside the box. I know it is a tall order to ask for everyone that walks through our doors to be happy and excited for the unique challenges each day presents, but that would be my goal.

Csaba: I was born in Hungary in the mid-1980s, and in the early 1990s my parents went to London for what they thought was going to be six months, to “experience life in the West.” That became eight years, and then eventually, in 1999, we moved to the United States. I studied foreign relations at Georgetown University and went to Vanderbilt University Law School after that. In 2012, I joined the international law firm of Arnold & Porter, where I spent most of my time doing international arbitration work – both in the firm’s Washington D.C. and London offices.

In 2018, I started my own independent practice – Sovereign Arbitration Advisors. It was a bit of a new model, with me being essentially an independent practitioner. I typically work either with other practitioners or law firms, putting together the most appropriate team for each engagement. I think that the collaboration and partnership with KNP is a fantastic example of the type of additive value that someone with my flexible platform can bring. My D.C. platform will continue its existence, but I will be spending a lot more time in Hungary.

CEELM: What drew you to KNP in particular?

Csaba: There was real professional chemistry, ever since my first meeting with Oliver. We are both Hungarian, but we have also had significant experience in the U.S., which means that we understand each other on many levels. We place the same value on excellence and on building solid, long-term relationships. We understand each other instinctively. As for our collaboration, we started to understand that if we could bring our assets and experience together, there would be a real opportunity for all of us to grow, both in terms of business opportunities and as professionals.

CEELM: What is on the agenda for the first couple of years for you both?

Csaba: The first thing is to make sure that the integration goes well. Our primary focus is making sure that the firm’s existing clients are able to tap into the new capability that I bring. International arbitration, ADR, transnational litigation, but more than that – my network around the world and my relationships. Although my primary area is dispute resolution, I will be helping the firm whenever I can in any and all matters as the relationship evolves.

Oliver: The firm is well known for our Pharmaceutical and Life Sciences practice. The pandemic has been challenging – and we have had to deal with this head-on. Part of that was addressing the new client concerns presented by the unprecedented situation that most of us have not seen in our lifetimes.

We are also heavily focused on labor and employment matters, in addition to real estate concerns, which again, due to the pandemic, involved some unique legal obstacles, which were challenging, but also extremely rewarding to work hand-in-hand with our clients on. Our team has done a phenomenal job navigating these unique and challenging times. Moving forward, our objective is to continue to focus on our clients and provide them with the quality of service they know and expect from us.

We are also expanding, not only in size, but in practice areas, where we are launching some which our firm has previously not had – such as Arbitration and White Collar Criminal Defense. Considering a large portion of our firm, including the founding partners, is the same since as it was at our inception 15 years ago, we are focused on organic and strategic growth in the long-term.

CEELM: Since you mentioned the pandemic, how do you feel things have changed since early 2020?

Oliver: Just like everyone else, we had to adapt quickly. Over the years, we have built extremely strong relationships with our clients, and we had to make sure we could continue to build and strengthen these relationships in alternative ways, including much more video conferencing! We have always made sure that everyone on our team is equipped with the best technology, so in that sense the transition from the office to the work-from-home setting was smooth and seamless.

Csaba: I should add that, as much as it has taken from us, the pandemic has given back, in a way. The world has flattened significantly, and people are much more willing to embrace electronic communications, whereas in the past they may have insisted on meeting in conference rooms, or over a formal meal. We have been invited into each other’s homes, met their children, and shared stories of frustration and challenges. It has had the cumulative effect of increasing intimacy, and in a way, it has brought forth an increase in human trust.

The pandemic has also compressed the time necessary for productive conversations with clients, allowing us – and them – to come to faster decisions. Now, you can have a meeting over Zoom almost immediately, instead of needing to wait six months until the next time you are all together in a particular region.

CEELM: Oliver, the long-term plan is for you to take over the reins of the firm. How are you planning to carry out that transition?

Oliver: I have thought about this question quite a lot. Succession is an important topic for us in 2021. Right now, I am at the early stages of this process, which involves learning and absorbing everything I possibly can, not just as it relates to my job as an attorney, but as it relates to the daily, monthly, and yearly tasks of managing a law firm. I have some big shoes to fill, but I have been preparing for this since middle school when I decided I wanted to follow in my mother’s footsteps. I wish I could tell you that we have a concrete five-year plan, but the truth is we don’t. A transition like this must be organic, and we have to make sure our team and our clients have the proper time to become familiar with the change, and that the partners of the firm are comfortable with it. Once everyone is aware of it and is comfortable with it, and when I am ready – the change can be made.

With that said, there is no one else who is emotionally more invested with purer intentions than I am, given that KNP was started by my mother, and I need to make sure that the future of the firm is built on the values she instilled in me and that she has built KNP on. I have a lot to learn, but I am delighted about all the great possibilities, the incredible client base, and the amazing team we have at KNP.

CEELM: What are the firm’s main strengths at the moment that you are looking to build upon?

Oliver: We currently have some 15 practice areas. We have already widened our focus to include data protection and privacy, white collar crime and cyber law, and now, thanks to Csaba, dispute resolution as well, in addition to our already strong Pharmaceutical and Life Sciences practice. We also regularly advise our clients on real estate, tax, labor and employment, public procurement, and competition law matters, among others.

CEELM: What are you looking to grow further?

Oliver: Strategically, green energy. We see a lot of potential there and we have interesting and exciting clients in that area, especially with Hungary perhaps being less open to green energy than some of the neighboring countries to this point. There is nothing more exciting than helping a client navigate a field of law which is truly just developing.

CEELM: How will the firm be different once that transition is complete? And what will you keep the same?

Oliver: Truthfully, I do not expect the firm to be different. For 15 years, we have successfully grown and expanded based on the ideals of the current leaders of the firm. I hope that I can build on what we have and emulate their decision making.

I would say that, while not different, I hope that I can add to the firm by bringing a new and perhaps more youthful perspective to the table. My mother says that Managing Partners are not like wine – meaning they do not necessarily get better with age. I am focused on growth, but I want to make sure that we grow by adding practice areas and practice groups that we do not already have, and that we find the most talented individuals in those fields to support and build upon. Csaba brings experience, education, and a skillset that no one else in Hungary has. Our White-Collar Criminal practice is headed by an attorney who was a police officer prior to making the transition. I personally cannot think of a better person to lead this practice than someone who has seen the system from the inside out.

As to why I hope to keep much the same, much of what I have learned about this industry came as lessons from my mother. Her business development skills are second to none, so I am hoping to learn and grow on that front from her still. She also has a phenomenal way of being a leader and a mentor, but also a friend to everyone. It is hard to explain and mimic, but I have to learn and execute it the same way she does! And of course, I have to incorporate the lessons I learned from mentors like Chris McKenna and David Mortlock along the way. Our focus on the human element is the most important thing – to have the team happy and content coming into work and appreciating both the place they work in and the teammates that they can learn from and work with.

CEELM: Csaba, what is your role in all of this? How will you be supporting this changing of the guard?

Csaba: I think my precise role and contributions will become clearer over time as we grow and things develop. This is not something that can be precisely foreseen as we sit here today, but focusing on the big picture goals, the first is of course making sure that we continue to deliver excellent value for the firm’s existing clients.

The professional development of the firm’s attorneys will be key as well. I was very lucky to have been able to spend time with Arnold & Porter where collegiality and supporting each other was so important – and I see a lot of that at KNP. I wish to share my knowledge and experience with folks at the firm.

CEELM: Looking at the legal services market in Hungary, what are the things you will make sure to keep an eye on?

Oliver: I would call it the innovation gap that needs to be filled in the profession, especially in Hungary. Our job as lawyers is to advise and communicate clearly and effectively, but also to stay on top of new developments.

Csaba: The Hungarian market today is doing extremely well, since it is plugged into the international trade and business environment. Here I am talking not just about the EU but also North America, and increasingly Asia and Africa. We want to be at the cutting edge of these developments, helping clients navigate challenges and giving the lawyers of the firm as much opportunity to engage with that as possible.

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Any COVID-19 vaccine related questions addressed to a candidate during a job interview may cause serious legal problems, since the answers can influence the employer’s judgement of the applicant positively or negatively, which can potentially lead to discrimination. Moreover, the refusal of the vaccination cannot serve as a basis for the termination of the employment relationship by notice – indicates act Ban & Karika Attorneys at Law.

„The employer is not allowed to ask the applicant in a job interview if he or she has already been vaccinated or plans to take up the COVID-19 vaccine,” indicated dr. Ivett Bognár, expert of act Bán & Karika Attorneys at Law on a webinar organized by the law firm. On one hand these are extremely sensitive data and the employer has no legal rights to process this information. On the other hand, these data can affect the employer’s judgement of the applicant positively or negatively, potentially establishing discrimination which can lead to legal proceedings against the employer. „In case of discrimination a fine can also be imposed against the employer from HUF 50.000 up to HUF 6.000.000,” emphasized dr. Peter Weidinger, LL.M., expert of act Ban & Karika Attorneys at Law.

„The case is not easier in a reverse situation either. The potential employee may ask question about the opinion of the future employer on the vaccination, e.g. does it suggest to its employees to take up the vaccine. However, the representatives of the employer are not legally obligated to answer these questions” – explained dr. Ivett Bognar.

However, the employer is eligible to ask about the immunity of its employee on labour law purposes, in order to protect the health of its workers or due to organisational reasons. In relation to the processing of these data it is important to emphasize that the employer may only process these types of sensitive data as far as necessary and proportionate to take the appropriate steps to prevent the further spread of the COVID-19 virus.

The necessity and proportionality shall be examined by positions, since in case of workers who work from home the risk is significantly lower than in case of somebody who gets in touch with many people on a daily basis (e.g. stewardesses, workers in tourism or hotel and catering sector). The data processing can be especially justified in case of workers who have direct connection with people who may have been infected by the virus (e.g. nurses, workers of social institutions). 

The employer is not entitled to obligate its employees to take up the COVID-19 vaccine anyway. Such obligation can only be imposed by the state, and following that it can be enforced by the employers. In cases like this however only workers employed in specified positions can be obligated to get vaccinated. For example, in Hungary only those can be employed as foresters who are vaccinated against rabies.

Although it cannot be excluded that the COVID-19 vaccine will be added to the list of recommended vaccines in the future. National Public Health Center publishes its decision on the recommended vaccines every year, this however has not been published for 2021 yet.

It is important to emphasize that the employer can suggest the vaccination to its employees, however, if someone refuses to take up the COVID-19 vaccine, it cannot serve as a basis for the termination of the employment relationship by notice. As in the reasoning of the notice the employer can only refer to reasons which are in relation with the employee’s attitude, lack of his/her abilities or the functioning of the employer. The refusal of the vaccination does not fall within this scope – indicated dr. Ivett Bognar.

By Ivett Bognar, Junior Associate, act Ban & Karika Attorneys at Law

After more than a year of the Covid pandemic, there is hope that vaccinations will allow us to beat the virus and get back to normal life. We will be able return to our workplaces, meet our colleagues face to face and work together more efficiently. However, this is not yet possible, since not all of us are vaccinated or have existing immunity to Covid.

Employers (and also employees) quite rightly want to get back to “normal” working practices as soon as possible; however, employers are responsible for ensuring a healthy and secure working environment for their employees. How can they meet that obligation? The simplest way is to organise work according to which employees have immunity to Covid and which employees do not. Mere knowledge of this data qualifies as data processing, indeed as the processing of a special category of personal data, for which data processing is only permitted in a very limited number of cases. The new statement by the Hungarian Data Protection Authority gives employers guidance on whether they may process their employees’ data, and if so, how they should proceed with the data processing.

The main points of the statement 

In general, processing data on employee immunity is not permitted. In a risk analysis, employers must decide whether it is necessary for them to know about employee immunity for specific jobs. Employers may not discriminate between employees with different types of immunity, whether due to the vaccination or due to an earlier illness. Indeed, employers are not even permitted to know about it. Employers are only entitled to check an employee’s immunity certificate or application, without making a copy of it, and note the fact that the employee has immunity and the end date of immunity if it is stated in the certificate.

Data on immunity may only be processed once the legal grounds and the aim of data processing are specified. Suitable measures for achieving the aim of data processing must be taken and also documented by the employer. The aforementioned risk analysis is also essential before data processing can take place. Before beginning with the data processing, employees must be properly informed about it. 

During the data processing, all GDPR requirements must be met, especially data transparency, accuracy and security. 

Possible further developments

The statement by the Data Protection Authority highlights that legislation on the issue is needed. It is possible the legislator will rule differently from the Authority on the matter. It is also possible that when there are changes in the pandemic situation, the Authority will take a different view and this statement will no longer be applicable.

By Edina Czegledy, Counsel, and Ildiko Angeli, Associate, Noerr

Gabor Hollos and Zoltan Kozma have been promoted to Local Partner at DLA Piper in Budapest.

Gabor Hollos specializes in M&A and capital market transactions. He began his career in law at Martonyi es Kajtar Baker McKenzie in 2005, then joined DLA Piper in 2012. He obtained his Juris Doctor at the University of Szeged in 2004.

Zoltan Kozma is Head of Technology at DLA Piper Hungary and the pro bono coordinator of the office. He first joined DLA Piper in 2002 and spent the next fifteen years with the firm. He also spent nearly a year at UNHCR between October 2014 and May 2015. He moved to Microsoft in 2017, then a year later moved to Deloitte Legal. He re-joined DLA Piper in 2018. Kozma obtained his Juris Doctor at the Eotvos Lorand University in 2001.

“With the promotion to Local Partner status, we acknowledge and reward the very hard work delivered on a very high professional level by which our new local partners have supported our clients to achieve their commercial goals,” commented DLA Piper Hungary Managing Partner Andras Posztl.

“The tax number of one of my companies was deleted due to some blunder, but we corrected it” – so begins a widely-known and innocent story that could happen to anyone. Then we realise in terror that due to this “blunder”, the Court of Registration refuses to register our company, or that the tax authority wants to delete the tax number of one of our existing companies. Could this have been avoided? What can be done?

A significant portion of the tax consultants consider tax registration as a superweapon against tax fraud. Its purpose is to ensure that those who committed some kind of dubious act in the past — for example, let a company dissolve with tax debts — cannot hold executive positions for a while. Numerous examples show, however, that, many people fall victim to it even though they could not be farther from committing tax fraud.

How did we miss this?

The company did not display a company sign at its registered office, and it neglected to remedy this despite a warning from the tax authority. Or the annual accounts are not adopted due to a conflict between the owners, and as a result, the company fails to comply with several deadlines with regard to fulfilling its obligation to publish the data, despite the authority’s notice. These are just some of the everyday cases in which the tax authority is entitled to delete the company’s tax number. And the deletion of the company’s tax number “stigmatises” the manager and owners of the company concerned – after that, they do not have the right to be involved in any company as senior officers or majority owners for five years.

Moreover, if the tax number of a company is deleted via a final and binding decision, the tax authority does not warn the managers and the owners regarding the danger of the ban before or even after the deletion. The persons concerned usually only realise the problem when, instead of the notification that their newly-founded company has been registered, they receive a decision from the tax authority, saying that an issue was found during the tax registration procedure, and hence the new company cannot be assigned a tax number.

Having regard to this, it should borne in mind that anyone can request a certificate from the tax authority that he or she is not subject to any ban that would prevent tax registration. And in the case of a joint investment, it may be justified to require our partner to request such certificate too.

What can be done in this situation?

Since the fact that prevents registration arose in an earlier proceeding, that may have been finally closed years ago, by the time we get to the tax registration procedure at issue, the situation may have become irremediable. Years after the fact, it is useless to claim that we were actually not responsible for the late submission of the accounts.

In certain cases, the banned person may apply for an exemption, but these are very rarely granted. For example, we can be exempted if the tax debt due to which the ban was imposed does not exist anymore, or the taxpayer settles it. We have to realise, however, that this excuse does not apply to companies that have already been dissolved, since the tax debt of a ceased company cannot be settled.

If there is no other solution, the parties could, due to the ban, carry out their activity in another corporate form, not the one previously planned. The consequences of the ban could for example be avoided through a trust or a limited partnership. This, however, often makes corporate operation – otherwise planned to be simple – rather complex.

Grabbing the problem at the roots

The only really effective solution is if we act in time and do not let ourselves be blacklisted. This means that if the tax authority threatens us with deleting our company’s tax number for any reason, or if our tax debt exceeding 5 million forints has been unsettled for a significant time, we have to act. But even then, our choice of tools is still important.

One common misconception is that the restoration of the tax number solves everything. Actually, even if we succeed in bringing the company back from involuntary liquidation after the final and binding deletion of the company’s tax number, the owners and executive officers will still remain banned. Because of this, it is important to act before the decision on deletion becomes final.

It could also lead to unpleasant surprises if it turns out that despite the irrecoverability of our company’s tax debt, the tax authority still keeps it on record. Because of this, it is practical to request an extract of our tax account and have the tax debt deleted from it via a separate request if the tax authority failed to do so on its own account.

By Daniel Veres, Trainee Lawyer, Jalsovszky

The Supreme Court of Hungary recently put an end to a long debate amongst legal practitioners and academia. In its decision No. 1/2021 PJE, the court confirmed that an agreement cannot be considered null and void only because it was signed on the basis of a power of attorney by:

• an authorized representative of a company having joint signing and representation rights who was given the power of attorney by another authorized representative of the same company also having joint signing and representation right; or
• a person who was authorized by two authorized representatives of a company having joint signing and representation rights.

Although the court decision is based on the provisions of previous versions of the Hungarian Civil Code and Hungarian Banking Act, its conclusions in this case will be applicable to future cases.

Our clients often ask whether one person can sign a contract on behalf of both parties. This dilemma has particular relevance if the contract is signed on behalf of two parties within the same group of companies (e.g. between a parent company and a subsidiary) and the two members of this group of companies are represented by one person who is an authorized representative (e.g. the managing director, the CEO) of both companies.

Certain jurisdictions expressly prohibit such treatment; in other words, if a contract is signed on behalf of both parties by the same person (even in that person’s capacity of holding different positions), the contract may be deemed invalid. The previous Hungarian Civil Code (Act IV of 1959) contained a similar rule, i.e. a representative who also represented the counterparty was not allowed to act.

The “new” Hungarian Civil Code (Act V of 2013) changed this and introduced the rule that a contract signed by a representative on behalf of a principal can be challenged by that principal if there is a conflict of interest between the representative and principal. Accordingly, Hungarian law does not expressly prohibit the signing of a contract on behalf of both parties by the same person (and therefore, this situation does not lead to automatic invalidity); however, careful steps must be taken (e.g. by passing internal approvals and acknowledgments) to avoid creating grounds for any right to challenge the contract.

By Akos Bajorfi, Counsel, and Akos Mates-Lanyi, Counsel, Noerr

The concept of “rust zones” was introduced by the Hungarian legislation in 2020, covering neglected area reserves. Rust zones, due to the expansion of the cities, are now wedged into the urban environment and are mainly unused due to previous pollution typically resulting from industrial activities. By applying a reduced VAT rate of only 5% and other economically stimulating regulatory elements, these zones can become valuable to investors again and can be reused and reintegrated into the cities. By doing so, the goal is to encourage the construction of affordable, new housing and creating construction jobs which can provide significant help to the construction industry weakened by the effects of the coronavirus pandemic.

Government action in March 2021

One of the challenges in the practical application of the new concept of rust zones is the assessment and designation of the specific areas. To initiate the process of cleaning up these areas, the Hungarian Government established an initiative-based nomination procedure in the middle of March 2021.

According to the issued Government decree, during the marking out of the development areas to be considered rust zones, a preliminary assessment is conducted in each case and, depending on the findings of the preliminary assessment, a detailed assessment can be initiated to define the development area. The Head of the Prime Minister’s Office is responsible for initiating the assessments, while the final decision at the end of the detailed assessment is made by the so called Rust Zone Committee consisting of five members to be appointed by the PMO Head and the  Minister of Innovation and Technology.

The main preliminary criterion for the project in examination is that it has to have a value of at least HUF 1 billion. As a result of the preliminary assessment, it is decided whether the area in question can be identified as an immediate rust zone or as a medium- and long-term rust zone.

Types of rust zones

For immediate rust zones the preparatory work required to initiate construction works is either not required, or is ongoing, or can be carried out in a short period of time, and the owners or the builders are planning the implementation of a construction project which is already authorized (has a building permit) or is in preparation.

In case of medium- and long-term rust zones complex preparatory work, such as environmental remediation, demolition, public works and infrastructure development, property planning, land development and town planning is required. Due to the complexity of these tasks, governmental coordination, significant financial expenditure and a long-term preparation period is necessary.

Final decision of the Rust Committee

Many factors are considered when making the final decision, including the previous activity and the edifices remaining on the site, ownership structure, environmental conditions and circumstances, and naturally the parameters of the project to be developed, its compatibility with its surroundings and municipality and government preferences.

If the area receives support from the Rust Committee, then the applicant has to propose to delimit the area based on the topographical number(s). If the circumstances are available, the project can also be declared an investment of major importance for the national economy, which ensures shorter authorization times and higher level of support from the authorities.

Future outlook

The commencement of the rust zone cleanups is definitely a welcome initiative; however, since the 5% VAT on residential housing projects in general was brought back in Hungary at the beginning of 2021, it remains a question whether there will be any other attractive incentives for investors and builders starting projects in areas with unfavorable conditions that require a lot of extra work.

By Denes Glavatity, Associate, KCG Partners Law Firm

On 10 March 2021, a new Government decree was passed aiming to ease construction work processes by not requiring certain safety measures. The decree is not to be applied for high value (above HUF 700 million) projects, public procurements and defensive or security procurements.

According to the decree, in any other works not falling in the above categories, based on the decision of the project owner, the pre-COVID regulations (especially the rules of the Construction Act, the Act on Fire Protection and the Disaster Management Act) can be applicable for any structure affected by the stricter regulations related to the pandemic. The more lenient (pre-COVID) rules will also apply for administrative proceedings initiated after 10 March 2021, and proceedings in progress on that day.

It is worth to mention that similarly to administrative processes, construction works started before 10 March 2021 can also use the lenient regulations after 10 March 2021. The decree expires on 23 May 2021.

Even though the option of using the provisions of the building, disaster and fire protection legislation that came into force before 4 November 2020 is only available for two and a half months, it is a welcome initiative that can potentially help smaller sized construction works involving the small and medium-sized enterprises that were hit the hardest by the pandemic.

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