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Sunday, July 29, 2012

About memories, again

This time comparison of British and Hungarian memorials, both controversial and still different. It is about memorials to victims of the second World War. OK, British were the winners and Hungarian on the side of losers. And in spite of that, British are more tactful, balanced and consider more the sensitivities of others. The Hungarians have a mythical eagle (originally most probably a lanner). It appears as the bird on the coat of arms of the first royal family descending from the chieftain under whose reign the Hungarians entered the Carpathian Basin where they reside also today in a medieval chronicle and as the forefather of this family in another. In Hungarian, however, the word "turul" (most probably of Turkish origin) was first used by a 19th century poet, János Arany. Immediately before and during the war, it was the symbol of a far-right, nationalist and anti-Semitic movement and thus hundreds of thousands of Hungarian Jews and Roma were murdered in this sign. In spite of that, a memorial was erected in Budapest to commemorate the victims of the war figuring this symbol. The idea led to vivid protests and the Budapest Municipality did not authorise the erection of the monument which was done in spite of that. The creators wanted to soothe the sensitivities by declaring that the memorial also wants to commemorate the civilian victims, including those deported to concentration camps. They were not, however, to give up that the sculpture should be this ill-reputed symbol. The British recently unveiled a memorial to the Bomber Command which also killed many civilians in Germany, among others during the cruel raid on Dresden. It has aroused strong feelings in Germany but it was not erected until they arrived to an agreement that the civilian victims will also be mentioned. But this is a memorial to the dead, and the form, although somewhat strange, and resembling the Brandenburg Gate in Berlin, has no offensive message.

Monday, July 23, 2012

European Court Cases affecting Hungary - part two

This time about a case which got some publicity in Hungary and one which did not. It concerns customer protection, which is in the powers of the EU as a unified market clearly requires uniform consumer protection rules. The cases were so-called "references for preliminary ruling" where a national court dealing with a topic which is subject to European law, can ask the European Court of Justice to interpret a European regulation or directive. A lot of these cases are about whether a certain national law is in line with European legislation as if it is not, it cannot be applied. In most cases if a directive is not implemented correctly, the directive should be applied, except against individuals if the national law is unfavourable to the State (this means that a Member State cannot benefit from its own failure to implement the directive). (for example Case 8/81, Ursula Becker v Finanzamt Münster-Innenstadt). But also interpretation of a regulation can be asked from the Court. In the case (C 472/10) between the National Authority for Consumer Protection (Nemzeti Fogyasztóvédelmi Hatóság) and Invitel Távközlési Zrt, a telecommunications company, the Hungarian court proceedings were about the right of the provider to charge its cost from expenses due to a specific form of payment to the client who chose this form of payment. The client had a contract - fairly frequent - where in exchange for a benefit (like free or cheaper purchase of equipment) the client undertook not to cancel the contract for a certain binding period. Thus, it did not have the possibility to chose another provider due to the increase of the charge. Another aspect of the fee increase was also taken into account by the Court: " term included in the general business conditions of consumer contracts" enabling "unilateral amendment of fees connected with the service to be provided, without setting out clearly the method of fixing those fees or specifying a valid reason for that amendment". The Court set out some guidelines in judging terms in the general conditions invalid: "The national court must determine, inter alia, whether, in light of all the terms appearing in the general business conditions" "and in the light of the national legislation" whether "the reasons for, or the method of, the amendment of the fees connected with the service to be provided are set out in plain, intelligible language and, as the case may be, whether consumers have a right to terminate the contract". Thus, the reason and method of the change of price must be set out clearly in the general conditions, but the absence of the right to terminate the contract is also a factor to be considered. Thus, the general interpretation in the Hungarian press that all clauses in the general conditions which give the provider the right to change the price are invalid, is too wide, there are conditions under which price increases - in particular if there are elements of cost which change - can be valid. There is one factor I miss actually from among these factors: it is the possibility of the consumer to change some behaviour to escape from the price increase. In this concrete case, the fee was tied to a certain method of payment and the change of payment method may have been open to the customer. The other question was whether the national authority has the right to declare the clause found invalid by the national court invalid in respect of all other contracts. The answer of the European Court of Justice to this question was also yes: "it does not preclude the declaration of invalidity of an unfair term included in the standard terms of consumer contracts in an action for an injunction, provided for in Article 7 of that directive, brought against a seller or supplier in the public interest, and on behalf of consumers, by a body appointed by national legislation from producing, in accordance with that legislation, effects with regard to all consumers who concluded with the seller or supplier concerned a contract to which the same general business conditions apply, including with regard to those consumers who were not party to the injunction proceedings" This means that if national legislation gives the right to the consumer protection or similar authority to declare invalid the clause which was found invalid by a court also in respect of consumers who were not parties to these court proceedings. The other case (C 137/08) between VB Pénzügyi Lízing Zrt. and Ferenc Schneider , the question again is the validity of a clause in the general conditions, this time the court having jurisdiction for a case between the service provider and the client. It is normal practice to assign a court which has jurisdiction in a case. This is also often contained in the clauses of general contractual conditions. Under Hungarian law, the court on the seat or residence of the defender has default jurisdiction. That would mean that the service providers suing customers would have to sue them at the court where they live and this is usually avoided by this clause, prescribing the jurisdiction of the court close to the service provider. As these are in the bigger cities, typically in Budapest, they can be assumed to be usually more experienced in business law. The court in which the case, in conjunction with which the preliminary ruling was requested, suspected that this clause of assigning jurisdiction may be invalid and thus asked the European Court of Justice whether it can refuse to handle it. The question was also raised whether a clause in a contract can be considered invalid when the client did not contest its validity before. The Court suspended the case until the judgment in another (C243/08) between Pannon GSM Zrt. and Erzsébet Sustikné Győrfi where it was established that: "The national court is required to examine, of its own motion, the unfairness of a contractual term where it has available to it the legal and factual elements necessary for that task." Thus, the court could declare on its own motion invalid the its assignment and refuse to handle the case. A more interesting question is, which finally has to be decided by the national court and sorry enough, I did not find any information about the result of the case in the Hungarian court, whether such an assignment can be declared invalid. The court found that a “term whose purpose is to confer jurisdiction in respect of all disputes arising under the contract on the court in the territorial jurisdiction of which the seller or supplier has his principal place of business, obliges the consumer to submit to the exclusive jurisdiction of a court which may be a long way from his domicile. This may make it difficult for him to enter an appearance. In the case of disputes concerning limited amounts of money, the costs relating to the consumer’s entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence. Such a term thus falls within the category of terms which have the object or effect of excluding or hindering the consumer’s right to take legal action”. Thus, taking into account the circumstances, such a term may be invalid. The court did not establish that such a term is necessarily invalid, just that it can be invalid (“must be considered in the light of the particular circumstances of the case in question (see Freiburger Kommunalbauten, paragraph 22)”) and that if it is, the court assigned in the contract can refuse to deal with the case. There is one gap in the argumentation of the court: as mentioned, in Hungary the default court is the one on the seat or domicile of the defendant, thus, when the customer wants to sue the provider, the default court is also not necessarily one close to him/her. On the other hand, the argument is valid when (as in the concrete case) the provider sues the customer.

Thursday, July 19, 2012

European Court of Auditors audits organic product control

The European Court of auditors published a special report (approved the 28th March) about its audit of the control system for organic products, whether they provide sufficient assurance that the key requirements for organic production, processing, distribution and imports are fulfilled. Control procedures governing the organic production within the EU, were introduced by Regulation (EC) No 834/2007 , from January 2009 while control procedures for importing products were introduced by Council Regulation (EEC) No 2092/9120 and amendments in June 1991. The organic market has rapidly developed and experienced annual growth rates of more than10 % in the last two decades. The European market for organic food amounts to about 20 billion euro annually, representing an estimate of 1,5 % share of the entire food market. Therefore it is important that customers should have assurance that the products they buy as organic, are really produced according to the rules. The Member States have to set up a control system that verifies and certifies for each operator in the supply chain (farmers, processors, importers) the correct application of the production rules. The control system aims at guaranteeing the production processes and not the products themselves since there is no scientific way to determine whether a product is or¬ganic or not. The Member States designate one or more competent authorities responsible for controls. This authority designates, depending on the system chosen: public control authorities; private control bodies; or a mix of the two. Where a Member State chooses a system with private control bodies, these bodies need to be accredited. Each EU Member State has appointed a single national accreditation body. The Commission is responsible for auditing Member States’ control systems. Four systems were foreseen for imports, out of which the system of recognized equivalent third countries (managed by the Commission) and of import authorizations, provided by the Member States are operational. This latter was intended to be transitional, two other regimes, both based on the recognition of recognized control bodies or authorities for countries which have not yet attained recognition. The unified system of EU production control is put in place so that any consumer in any Member State can be sure that a product certified by another Member States conforms to the same requirement as that labelled in their own country. The court found weaknesses in the control system of the Member States (which is no surprise, its task is to find the weak points). It highlighted the following main problems: Some authorities do not exercise sufficient control over the control bodies that actually perform the controls. They do not have the information to ensure that all operators are inspected at least once a year, as required. Exchange of information does not always function correctly, even within Member States and there are difficulties in ensuring the traceability of the organic products. This is even more difficult to achieve for products crossing borders. Exchange of information could help in adopting good practices in areas like testing for residual chemicals where the regulation is interpreted differently by different control bodies. The audit also tested the methods of residue testing and found some good practices to disseminate. Two of the ten control bodies, however, did not apply adequate procedures for sampling and analysis. In assessing the traceability, the auditors found one case of a falsified certificate which is part of a larger ongoing investigation of alleged fraud. Also concerning traceability, from the sample 32 % of the products could not be traced back to the producer level and the information required was complete for only 56 % of the products (after collecting additional information). One major explanation for this situation is that Member States do not have authority over operators outside their territory, in the case of products or product ingredients crossing intra- and extra-EU borders. The Commission has to exercise more oversight in the EU and has to collect more information to assess that third countries recognised as equivalent continue to fulfil the requirements. There is also a significant backlog in assessing applications for equivalence from third countries – probably also due to the lack of information.

Friday, July 13, 2012

Votewatch: how the Council votes

Votewatch.eu has now started to follow votes in the Council although this is much more difficult. Surprising results: not only the U.K. but also Germany and Austria frequently voted against the majority (29, 16 and 16%, respectively). The U.K. actually also voted most against these two states and vice versa. The countries with the fewest "No" votes in the last three years (of which two were under the "liberation war" government of Viktor Orban) were Lithuania, Cyprus, Estonia, Hungary, Luxembourg, Romania and Slovakia. As far as Hungary is concerend, out of 10 negative votes, 2 fall to the period of the Orban government. The votes recorded are only final formal votes where the motion was accepted. Of course, "no" votes in case of rejected motions would count to be majority votes anyway. It also has to be noted that 65% of votes where a qualified majority was sufficient, unanimity was nevertheless achieved. (analysis based on European Voice

Wednesday, July 11, 2012

The most dangerous banking scandal?

Conspiracy theorists may feel justified: big British banks manipulated the LIBOR and EUROLIBOR fixings in London first to boost their profits - more precisely some brokers convinced the submitters to submit false numbers to improve the valuation of the positions they held and then, after the 2008 crisis, to decrease the visible extent of their problems. Barclays published an e-mail about a discussion with the deputy president of the Bank of England, from which they concluded (during the crisis, i.e. in the second case) that the BofE also wants to see lower rates. There are news that regulators warned Barclays in the other direction. As far as the U.S. dollar is concerned, the LIBOR is the main reference rate for Europe while in the case of the Euro, EURIBOR has a wider base then EUROLIBOR. Interestingly, it was already seen in 2009 that the EUROLIBOR is coherently lower than the EURIBOR ( also in 2010 ). So are banks the villains who manipulate everything? Well, concurrently, we have seen that JP Morgan manipulated energy contract prices in the U.S., the German internal secret service (Verfassungsschutz) was unable to track extreme right murderers for years as they did not evaluate and did not share information. The world is evil, and the only good news is that manipulations are uncovered and punishment comes (the otherwise very successful CEO, Bob Diamond also had to resign from Barclays). What is more interesting, though, is whether someone can sue to recover losses suffered due to the manipulation. Of course, the manipulations impact was small (probably some basis points) and thus small investors and borrowers cannot really gain much. It has also to be investigated whether Barclays' rate was not excluded as the extreme ones are. And it will not be easy to prove the damage. In the first times, borrowers lost if their contracts were LIBOR or EUROLIBOR indexed but it can be argued that the margin may not have been the same, had been the reference rate lower. And in the course of the duration, the downward manipulation could have benefited them (and if the rate was fixed in the contract and then indexed to LIBOR for example, it can be argued that they only profited). The reverse is true for investors, who first may have gained. In Hungary, retail contracts are made out at an initial rate and then are - until recently - not indexed explicitly but depend on the cost of funding of the bank. So there is little to do. And Hungarian banks use the EURIBOR wider than the EUROLIBOR - it was evident from the outset that it is more representative and there is more liquidity behind. May this also mean that it is more difficult to manipulate it?