Category: Hungary

DLA Piper has advised the Budapest Bank Group, KB Bank Group, and the Takarekbank Group on their establishment of the Hungarian Bankholding Ltd. financial holding company.

DLA Piper describes Hungarian Bankholding as, “Hungary’s second largest banking group providing services to 1.9 million customers, 200,000 micro-enterprises, 30,000 small and medium-sized enterprises, and 6,000 private banking clients.”

According to DLA Piper, “on October 30, the owners of the Budapest Bank Group, MKB Bank Group, and Takarekbank Group, signed an investment and shareholders’ agreement in accordance with their previous letter of intent.” Pursuant to this agreement, the firm reports, “on December 15, 2020, the signatories transferred their shares in their respective banks to Hungarian Bankholding Ltd., their jointly owned financial holding company.”

DLA Piper’s team consisted of Partners Andras Nemescsoi and Gabor Molnar, Counsel Gabor Hollos, Senior Associates Peter Virag and Jeno Kimmel, and Associates Balazs Szalbot and Andras Orban.

The act on the termination of the undivided joint ownership on lands (and on the clarification of the data of the rightholders of properties deemed agricultural land in the land registry) will enter into force on 1 January 2021.

The act ensures the possibility to terminate the undivided joint ownership on the properties considered agricultural and forestry land (a) by the division of the property, (b) by the acquisition of the property by one of the owners or (c) by the expropriation of the property. According to the new rules, any of the owners may initiate the termination of the undivided joint ownership by the division of the property in an application for recording the fact of the ongoing division.

Although the act enters into force on 1 January 2021, the Hungarian Government accepted a decree in the framework of the protection against the second wave of coronavirus pandemic, which provides for that an application for recording the fact of the ongoing division may not be submitted to the land registry office at this moment. The Government decree will be repealed on 8 February 2021, meaning that the procedure for the termination of the undivided joint ownership by the division of the property may be initiated only from this date.

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

Schoenherr has advised Switzerland-based technology company ABB on the sale of its plant in Ozd, Hungary, to wellness equipment producer Wellis, which was advised by Deloitte Legal.

The transaction was performed as an asset deal and included the sale of over 60,000 square meters of industrial land, including several production buildings.

Schoenherr’s team included Attorney Laszlo Krupl, Counsel Daniel Gera, and Associate Adrian Menczelesz.

Deloitte Legal’s team included Associate Partner Magdolna Csider, Managing Associate Gabor Babus, and Associate Zsolt Pinter.

On 1 December 2020 the Hungarian Parliament decided that as of 1 January 2021, one of the most effective bodies in the fight against discrimination, the Equal Treatment Authority (ETA) will be abolished. Its duties, including the legal protection against racial, gender and other discrimination, will be taken over by the Commissioner for Fundamental Rights. The proceedings ongoing on 1 January 2021 will be suspended until 31 January 2021. Likewise, ongoing administrative lawsuits appealing against decisions of ETA on 1 January 2021 will be suspended until 31 January 2021.

The establishment of the ETA with national competence was based on EU law. Its main task was to investigate complaints about discrimination and to enforce equal treatment. An application for a discrimination investigation can be made by the injured party if they have been disadvantaged by one their protected characteristics. Protected characteristics are listed by law, including gender, skin color, nationality, health status, religious or ideological beliefs, political or other opinion, marital status, sexual orientation, gender identity, age, sexual orientation and financial situation.

The abolition of the body does not substantially change the procedure, but merely moves it into different laws concerning the Commissioner for Fundamental Rights. The measure has been explained by the fact that the prohibition of discrimination and the right to equal treatment is derived from the Constitution, and fundamental rights are primarily protected by the Ombudsman, thus it is appropriate to direct them to the Commissioner for Fundamental Rights. According to the legislator, the integration of the Ombudsman and ETA will create a legal institution that will ensure more effective enforcement of equal treatment. By taking over the tasks of ETA, the Commissioner for Fundamental Rights has a wider power to investigate and take actions to enforce fundamental rights, mainly equal treatment.

Although the violation of equal treatment may not only arise in the context of employment, in the recent years a number of decisions appeared finding and sanctioning discrimination against employees.

By Levente Csengery, Partner, KCG Partners Law Firm

Minister of Finance, Mihály Varga announced in November 2020 a new, six-point action plan designed to make payments and navigating red tape easier and cheaper in Hungary, as follows:

• Wherever there is an electronic cash register, electronic payments should be accepted with a measure that expands e-payments locations by 50,000-60,000 while reducing cash usage by tens of billions of forints.
• E-banking services should be extended to simplify financial management for businesses and the general public.
• Land registry procedures will be switched to digital as well, streamlining 130,000 cases a year.
• Mandatory valuation of real estate could become free of charge as banks will have access to a central database for generic valuations. This could affect up to the third of the cases.
• Notary procedures for real estate cases should be swifter.
• New digital documentation system is being introduced in order to bolster security for the 6.5 million Hungarians with bank accounts.

The measures have only been announced on Facebook yet, detailed legislation is to be expected shortly.

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

The Hungarian Parliament has adopted new rules reforming the 2018 civil procedural rules as of 1 January 2021.

Background

In 2018 a then-new procedural system was introduced to improve the efficiency of civil proceedings. The system was aimed at ensuring that the litigating parties as well as the court obtain all statements and evidence (or at least motions for evidence-taking) as soon as possible. This is the first stage of the proceeding, i.e. the preliminary phase. The subsequent phase is the hearing on merits, where evidence is examined, witnesses are questioned, and experts are involved.

To make the proceedings more efficient in this divided procedural system, the law prescribed many strict requirements concerning, among others, the exact content and filing method of the submissions, and severely regulated the consequences of presenting submission without prior judicial approval. These rigid rules resulted in severe judicial interpretation, where claims were often rejected upfront due to formal deficiencies without examining the merits. Statistics show that from 2018 litigation in Hungary became not only challenging but sometimes a matter of luck, leading to fewer claims brought before the courts.

New rules of the preliminary phase

Experience has shown that strict procedural requirements can sometimes lead to unreasonable results. Refining the regulation therefore became justified. As most of the anomalies arose during the preliminary phase, in this article we will deal only with the most important amendments concerning the first stage of the proceedings.

• Relief for plaintiffs: less mandatory requirements for the content of the statement of claim

First, the recital of the new rules confirms that there is no need for claimants to indicate the structural elements prescribed by law (i.e. “introductory part”, “substantive part” and “closing part”) word-by-word in the statement of claim. The recital of the amendment also clarifies that no fixed order of the content within these structural parts is required.

The new rules abolish the mandatory requirements regarding the various data of the defendant that had to be indicated in the statement of claim. From 2021, the name and address/seat will be enough. Any other data may be indicated optionally.

In practice, most of the interpretation problems were caused by the requirement for the claims to be “precise” and, therefore, less “precise” claims led to upfront rejections. Moreover, it was also questionable whether the wording infringes the requirement of precise wording where, for example, a claim contained unnecessary elements or where it contained excessively precise elements. The new rules (and their recital) now clarify that the wording of the claim is acceptable if the claimant clearly indicates its request from the court, but there is no legislative intention to require a wording that can be “copy-pasted” to the judgment itself.

• More room to remedy deficiencies

The new rules put less emphasis on upfront rejection and widen the possibilities to remedy the deficiencies of the statement of claim with respect to its content, formal elements and annexes. Even multiple errors in the statement of claim will not hinder the commencement of the proceedings. Correction will be possible during the preliminary phase if the court still lacks necessary elements from the statement of claim by ordering the claimant to supplement its submission.

In another welcome innovation, the new rules state that any issue concerning the merits of the case (e.g. whether the evidence is capable of substantiating the facts) may not be considered during the examination of the claim’s admissibility. Instead, the preliminary examination should focus on whether the motions are formally well submitted.

• More opportunities to submit written preparation

The 2018 procedural rules were inflexible as to additional written submissions: submission of preparatory briefs was only allowed in writing if the judge called upon the parties to do so. This rule in practice led to a trend where the litigating parties submitted standalone requests to the court seeking approval for an additional written submission. As these submissions were generally approved, the unnecessary rounds did not serve in any way to accelerate the proceedings.

The new rules allow the parties to submit amendments of the statement of claim/defence or corresponding submissions (e.g. motion for evidence-taking) without prior court order or approval. Also, from 2021, referring to new facts will not be considered as an amendment of the statement of claim/defence. Nevertheless, it is still not permitted to submit new factual assertations without prior approval from the judge even under the new rules, thus the effort to concentrate the number of submissions remains unchanged.

Takeaways

Relaxing the rules was in any event justified. First, the rigid interpretation in many cases undermined the interests of the parties seeking a court resolution for their civil law disputes. Second, the judicial practice was not unified. The concept of legal certainty, however, implies that the law must be interpreted and applied the same way irrespective of the acting judge or the court at stake, i.e. the outcome of the proceedings may not depend on where the claimant lodges its claim. Although the Supreme Court tried to conciliate the interpretational problems by issuing different working materials, the experience of recent years has shown that there was a strong need to simplify the regulation and make it more flexible.

By Alexandra Bognar, Attorney at law, and Dora Balogh, Associate, Schoenherr

The value added tax (VAT) on selling newly built properties will be reduced from 27% to 5% from 1 January 2021.

The demand in the real estate market accelerated so much that not only the prices of newly built homes, but also the prices of existing homes have risen. For months, construction industry players and home buyers have been waiting for the Hungarian Government’s decision to reduce the VAT to be paid on the construction of new homes. According to the bill, VAT on a new real estate is 5% if it does not exceed 150 square meters in the case of a multi-apartment residential property and 300 square meters in the case of single-family houses. Those who buy real estate participating in the Family Housing Subsidy Program (hereinafter referred to as: CSOK) can even have the 5 % VAT refunded, and new or used properties purchased with CSOK will be free of transfer tax as well, if the parties entered into the sales contract after 1 January 2021.

The 5% tax rate includes properties for which a building permit has been issued by the end of 2019, as well as those whose technical handover takes place after 1 January 2021. The latter is subject to 5% VAT even if the sales contract is concluded in 2020, so it matters when the real estate is handed over and when the payment is made.

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

“Right now, there is a bit of press around Hungary, for a variety of reasons,” says Kinstellar Partner Anthony O’Connor. “Some of that is related to the perceived tension between Hungary and the EU and the fact that the EU seems to be trying to tie certain expectations it has of Hungary to the funding it is due to receive.” 

The EU, facing political opposition from Poland and Hungary around the stimulus package aimed at providing pandemic relief to the member states, is still considering various political options to solve the recent deadlock emerging from the situation. O’Connor, however, believes that this can be de-coupled from foreign investors’ appetite for Hungarian M&A opportunities. “To a large extent, there is a seeming friction which is currently receiving press coverage – it has not, for now, reduced the appetite of investors for deal-making in Hungary.” 

What can have a more practical effect on deals and investment activity, he says, is the existence of some of the measures put in place earlier in the year. “When the pandemic started, the government passed laws calling for screening of certain types of investments from certain types of investors or in some particular sectors,” O’Connor reports. “These measures have continued and, while they have yet to block any deals, they have caused some of our clients to ask for clarification on whether and to what extent they might pose a threat to closing a deal.” Noting that other European governments have also turned to similar tools, O’Connor does not expect the measures to stall deals in Hungary significantly, saying that “some people may have been less inclined to look at Hungary as a place for their investments, but in our experience there has been no real threat here, rather an issue around managing perceptions and charting a course through any concerns raised by clients.”

Several recent deals support O’Connor’s report that opportunities remain, including GTT Communications’ recent USD 2.15 billion sale of its infrastructure business to I Squared Capital (on which, O’Connor points out, Kinstellar advised) and the sale of Dutch insurer Aegon’s assets to Vienna Insurance Group via a bidding process. “Both deals had a cross border element,” he says, “but with a significant asset value in Hungary.”  

Other than the VIG-Aegon transaction, which O’Connor describes as “the really big one for Q4,” he reports that there is “strong foreign investment interest to be sure, mainly in renewables, especially solar, although we are still doing deals for clients involving more traditional energy sector assets.” In addition, he says, “aside from that, the banking and finance sector is very active – there are some opportunities we expect to come to market soon.” Investors are also active in the healthcare and technology sectors, he says.

Finally, even with all the activity in Hungary, O’Connor still describes the back half of 2020 as mostly “stop and start in M&A.” According to him, “the market was very enthusiastic in September, looking forward to a strong last quarter, but in the period leading up to the recent lockdown, the market was more cautious.” The good news, in the end, is that deals are being done, he says, “even if not at the usual pace and volume.”

Ban, S. Szabo & Partners has advised Vodafone on the demerger of Vantage Towers in Hungary. 

According to Ban, S. Szabo & Partners, “the newly formed company owns and operates Vodafone Hungary’s passive infrastructure and focuses on the acceleration of Hungary’s digital advancement facilitating the rapid deployment of 5G. The activity of Vantage Towers will enable the widespread adoption of new technologies enhancing transport, education, healthcare, agriculture, and smart cities. Vantage Towers – by relying on the schemes enabled by the European Electronic Communications Code – will support the proliferation of network sharing arrangements and at the same time will focus on the use of renewable energy to minimize its impact on the planet.” 

Vantage Towers Hungary’s management is led by Chairman and MD Gergo Budai, who is also Deputy Chairman of Vodafone Hungary’s Board. 

Ban, S. Szabo & Partners’ team included Partners David Kiss and Janos Rausch and Counsel Gergely Szabo. 

Debt collection is among the enforcement priorities of the Hungarian Data Protection and Freedom of Information Authority (“Hungarian DPA”) since several years a significant proportion of the Hungarian DPA decisions and court cases involving the judicial supervision of the Hungarian DPA’s decisions relate to debt collection and the handling of debtors’ complaints. In the past years, the Hungarian DPA blacklisted several practices by debt collection agencies, and the Hungarian DPA confirmed that relative to the debt collection it is illegal if debt collectors contact any third parties (i.e. the debtors’ neighbours), process the debtors’ close relatives’ personal data, process the debtors’ health related personal data (i.e. sickness or other medical condition) and any other sensitive information relative to the debtors’ whereabouts (i.e. whether the debtor is imprisoned or in pre-trial detention) or collect personal data beyond the purposes that are strictly necessary for debt collection.

In the past, debt collection companies in Hungary broadly relied on the contractual legal basis of Article 6(1)(b) GDPR when they processed debtors’ personal data for debt enforcement purposes. The Hungarian DPA, however, took a different approach on this issue and asserted on the basis of the Article 29 Working Party’s and the EDPB’s guidance that the contractual legal basis of Article 6(1)(b) GDPR must be narrowly interpreted and this legal basis may only apply to data processing activities objectively necessary for the performance of a contract. In contrast, the Hungarian DPA asserted that debt enforcement activities may only be performed based on legitimate interests (Article 6(1)(f) GDPR). This approach of the Hungarian DPA also had an impact on the applicable data subject rights because the right to object against the data processing does not apply in case of contractual necessity as a legal basis. Therefore, the Hungarian DPA also concluded that debt collection companies must notify debtors about their right to object under Article 21 GDPR.

The Hungarian Kuria (i.e. the Supreme Court of Hungary) in its recently released decision (105.K.700.451/2019/9., “Case”) handed down an important judgement on this particular issue confirming the interpretation of the Hungarian DPA on the qualification of debt enforcement activities and the applicable legal basis to such activities under the GDPR’s provisions. 

Facts of the Case

The natural person debtor concluded a loan agreement with a credit institution, and the credit institution effected the early termination of the agreement. The credit institution voluntarily assigned and contractually subrogated the creditor’s rights to a third-party debt collection company and discharged the debt. The debtor made a complaint to the Hungarian DPA to order the debt collection company to delete the debtor’s personal data, because the debtor asserted that he already paid the debt, and the debt collection company was illegally processing his personal data.

The debt collection company stated that it processed the debtor’s data for debt enforcement purposes on the contractual legal basis of Article 6(1)(b) GDPR; and also, for complaint management purposes and credit reference purposes involving the disclosure of the data to the Central Credit Information System (KHR) under Article 6(1)(c).

The Hungarian DPA established in its decision Nr NAIH/2019/2566/8. that the debt collection company was not authorized to process the debtor’s data based on the contractual legal basis of Article 6(1)(b) GDPR and ordered the company as the data controller to provide proof to the debtor that the company has a prevailing legitimate interest to process the debtor’s personal data or to delete it. The Hungarian DPA refused in all other respects the debtor’s compliant. 

The Hungarian DPA concluded that the debt collection company was not able to invoke the contractual legal basis, because according to the Hungarian DPA data processing relative to debt collection is only permissible based on the legitimate interest of claim enforcement under Article 6(1)(f) GDPR as a legal basis.

Decision of the first instance court

The debt collection company challenged the Hungarian DPA’s decision before court and filed judicial supervision request arguing that the voluntary assignment of the claim and the contractual subrogation of the creditor’s rights does not alter the nature of the debt. According to the argumentation of the debt collection company, debt enforcement as a data processing activity is based on the enforcement of claims deriving from the loan agreement following a contract’s termination. The assignment of the relevant claim and the contractual subrogation of the creditor’s rights does not change the legal basis of data processing, because the legal basis remains the contract and the debt management company may only assert the rights from the basic contract. The debt collection company argued therefore that the restrictive interpretation of contractual necessity under Article 6(1)(b) GDPR cannot be accepted.

In its response the Hungarian DPA indicated that Article 6(1)(b) GDPR must be interpreted narrowly as attested by the European Data Protection Board’s 2/2019 Guidelines and stated that the contractual legal basis only applies to data processing being objectively necessary for the performance of a contract and as such, this does not apply to all further actions triggered by the non-compliance with or to any other defaults in the execution of a contract. The Hungarian DPA noted that certain actions can be reasonably foreseen and are necessary within a normal contractual relationship, such as sending formal reminders about outstanding payments or correcting errors or delays in the performance of the contract. However, Article 6(1)(b) may only cover processing of personal data which is objectively necessary in relation to such actions. Complex data processing activities that involve the use of third persons, such as debt collection companies and claim enforcement before court may not be considered as an activity being within the ordinary course of contractual performance, therefore such third persons may not rely on contractual necessity as a legal basis.

In its decision, the first instance court refused the debt collection company’s claim and confirmed the Hungarian DPA’s interpretation that debt collection companies may not rely on Article 6(1)(b) GDPR as a legal basis for debt enforcement. With the voluntary assignment of the claim and the contractual subrogation of the creditor’s rights, the claim’s ownership is transferred and therefore the claim gets separated from the original contractual relationship and the new claim owner will have no further rights stemming from the original contract as the assignment does not result in the change of the original contracting parties.  Because the contract is terminated with the claim’s assignment to the debt collection company, thus the related data processing activities can no longer be based on contract performance as there is no contractual relationship between the debtor and the debt collection company and the debt collection company is not authorized to process the debtor’s personal data for contractual performance purposes. The first instance court confirmed that the debt collection company may rely on the contractual legal basis to send payment reminders or perform similar tasks which aim to return the legal relationship into normal contractual performance. However, this does not apply to the debt collection company’s activities performed after the assigned contract’s termination.

Procedure before the Kuria

The debt collection company filed a judicial supervision request to the Hungarian Kuria and asserted that the first instance interpreted incorrectly the applicable civil law and data protection legal provisions in its decision. The debt collection company stated that the assignment of the claim does not change the contractual legal basis of the data processing, because the claim’s assignment should be interpreted as the creditor’s contractual subject change and that the contractual relationship “survives” both the termination and the assignment of the claim and the existence of the claim cannot be separated from the original contract. The debt collection company also argued that relying on  legitimate interests as a legal basis and the handling of debtor objections would likely cause significant administrative costs to the company and the success of the objection would not result in the deletion of data, because the company would be anyway compelled to process the related debtors’ data due to the company’s legal obligations to disclose data to the Central Credit Information System (KHR) for credit reference purposes under Article 6(1)(c) GDPR. 

The Hungarian DPA argued for the approval of the first instance court decision on its merits. The DPA considered that the debtors’ right to object provide adequate guarantees to data subjects relative to debt enforcement activities and the debt collection company must conduct a legitimate interest assessment to be able to enforce debt claims. Furthermore, the Hungarian DPA stated that debt claim enforcement legal compliance costs cannot be invoked in that regard. The Hungarian DPA argued if the debt collection company was authorized to process the debtor’s data based on Article 6(1)(b) GDPR, then there would be no reasonable time limit for such processing.

The Kuria refused the judicial supervision request and approved the first instance court decision and emphasized that following the original contract’s termination data processing does not involve the performance of a contract, but to enforce the debt collection company’s legal claim for the payment of a debt, which may not be considered as contractual necessity. The Kuria confirmed that after the contract’s termination contractual legal basis only include activities that are necessary for the direct performance of the original contract, such as sending payment reminders and simple administrative tasks. Following the Article 29 Working Party’s and the EDPB’s interpretation, the Kuria considered that it is particularly important whether the company’s activities are directly related to the contractual performance or such activities occur separately (in time). The Kuria also emphasized that even if the debt collection company lacks any contractual legal bases for data processing, it may still process the data based on its legitimate interest. However, the debt collection company must conduct a legitimate interest assessment to establish the prevailing nature of its interest. The Kuria also confirmed that the reference to legal compliance costs relative to handling data subject objections are irrelevant in the actual case.

Conclusion

The Kuria’s decision is no surprise, because the court’s decision corresponds to the EDPB’s narrow interpretation that limits data processing activities to operations that are objectively necessary for contract execution.

Debt collection companies may not therefore rely on contractual necessity regarding debt enforcement activities. Because debt collection companies are not authorized by any sector specific legal provisions to process debtors’ personal data, operators of this sector are strongly advised to review their data protection compliance measures and conduct legitimate interest assessments, if necessary. It is likely that the Kuria’s decision will significantly increase data privacy related compliance costs, because debt collection companies may expect the rise in the numbers of debtor’s objections, thus debt collection companies may also need to reshape and automate their internal processes relative to handling data subject requests and debtor’s objections.

By Adam Liber, Partner, and Tamas Bereczki, Partner, Provaris