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.

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.

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

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?

History and national sentiment

Listening to the debates around Horthy and Kádár (the first was the governor of the Hungarian Kingdom which had no king and led Hungary - driven by the hope to get back the territories lost in the peace treaties after the first world war (simply called Trianon in Hungary due to the place where its Hungarian part was signed) from Hitler, the second "reigned" over the time between 1956 (crushing of the Revolution) till the dawn of the system change over the "merriest barrack" of the socialist camp) and noticing that even if two evoke the same facts and both think they are in the centre and are realistically judging these eras, they can draw diametrically opposed conclusions, it was interesting to read an article of Tony Judt (http://www.nytimes.com/2010/08/08/books/08judt.html?_r=1&pagewanted=all) in his book: Reappraisals: Reflections on the Forgotten Twentieth Century (see also: the review by the Guardian ) about the seven-volume "Lieux de memoire" from Pierre Nora where he - end Nora - diagnosed the recent problems in the French historic conscience: on one hand: history and memories have lost their relation to each other - meaning that before, the memories of people about history were shaped by what historical science said about the events and was taught at school while as historical narrative is very little taught now at schools, they lost touch with each-other. It has to be known that on French motorways, not only tourist attractions but also places where important historical events took place, are marked with a board, showing the name of the place and a picture of the event but with no further explanation. I had to search the net for example to identify a place, where the picture showed armed people (the French will apprehend, but by the scenery, they could have been robbers) stopping a post-coach. Well, at home I found out that this was the place where Louis XVI was captured when he tried to escape the revolutionary court which later sentenced him and his wife, Marie-Antoinette, to death. These boards meant something to those who could connect to the historic event and its significance and meaning to the French from the name of the place (other examples being Péronne, Verdun, Ypres from the first world war). The other aspect is maybe best shown that such a board does not show Vichy (at least did not when Judt wrote his book). And the reason is that there is no universally agreed narrative about what it means and it is thus not integrated into the political conscience of the Fifth Republic. This does not mean - writes Judt - that a uniform appraisal is necessary, there are other events which are controversially interpreted (even Jeanne d'Arc, being the favourite of the Le Pens - it was Jean-Marie in Judt's time, now Marine) but that it was not discussed. Mitterand, who consciously tried to celebrate the glory of the French and has thus built and inaugurated memorials all over the country, was conspicuously silent about Vichy. Hungarians have a similar - although not at all silent - conflict with both long periods of the twentieth century - although one could argue that the period before - 1867 to 1914, when Hungary was part of the Austro-Hungarian Monarchy and when most of the conflicts which resulted in such a bloody harvest, were sawn - is also not processed in national memory and common conscience. A glimmer of hope is that debating began and, as mentioned, a common understanding of the facts may emerge. There are, however, some factors which make it almost impossible to achieve a "minimum of understanding" which, I think, Judt and Nora consider as a precondition: the connection to daily politics, the polarisation of political camps, coupled with the total lack of interest for politics on the part of the majority, and these two, seemingly contradictory factors leave space for purely emotional approaches. And in my opinion, only a rational approach can arrive to this mentioned minimum of understanding. While searching for links for this post, I found an interesting article about the same topic, also inspired by Nora's gigantic enterprise. When I read it, I may return.

Breaking news: New Hungarian Liberal Civic Party in the making!

OK, I was at least as bombastic as a tabloid but still: the first sentences of a programme have been published and another blog pőublished a similar call . This is not the first expression of desire but till now everybody just dreamt of it - and expected others to come up- but now someone at least was undertaking an initiative. In a normal environment, you could ask, what is a party initiative on a blog worth? In Hungary, however, the most politically active who do not belong to the mainstream parties are present in the blogosphere or on Facebook. Well, Orbán, the prime minister claimed in the European Parliament that they won the 2010 elections on the Internet and on Facebook. If this is (rightly) not convincing, think about the "Milla" who organised the most successful opposition demonstrations since FIDESZ is in government. This organisation gave birth to the party "Fourth Republic" . I am afraid that some explanation is due. The first republic was the one after the first World War, the second after the second, both were followed by communist rule. The third republic counts its days from since the system change, 1990. So the party wants to establish the fourth one, as the resources of the third one are depleted and there is imminent danger that a Putinist system will replace it. What are the chances of a liberal civic party? Can it gain sufficient votes? Is "civic" bourgeois or citoyen (the two different meaning of the Hungarian word "polgári" which I translated to civic? "Civic" is there in the name of FIDESZ, the now ruling party. They understand it (if at all) as supporting their clientèle, mainly the wealthy among them, by government interventionism (and even by unlawful methods which are justified by retroactive legislation or formalistic application and using gaps in the law). Apart from their support for the rich, they are not right wing, they practice social demagogy and state interventionism in everything including sexual morale, education, economy, culture... Jobbik is a nationalist populist party who wants to exit the EU and re-instate national ownership. The border on the extreme left in their economic programme (which is by far not coherent). LMP is an antiglobalistic green party. MSzP has implemented neo-liberal policies against its will and is widely seen as the party of people who only serve their own good. The Democratic Coalition of ex-prime minister Gyurcsány regards itself as a leftist liberal but also sees that it has a Socialist past and that it can only gain support by maintaining left-wing rethoric. The liberals and the conservative (were they?) MDF disappeared among scandals. This is a separate story in itself but not worth mentioning at the moment. So what are the chances? Right-wing in Hungary always meant nationalism. There is no one who can address the national questions in a way that would be European, progressive and realistic and at the same time appealing emotionally. Of course real liberal, pro-enterprise policies are missing and would appeal to a lot of "opinion-leaders" but would have a slim support in the countryside. Finally, the election system is such that one strong alliance could only defeat FIDESZ. The individual election constituencies are single-round, first-past-the-post and no validity limit is set. So if the 54% who cannot chose a party now do not vote, and there are six parties (which is realistic now), 9% is enough to win a seat. And the winner in the individual constituencies wins additional seats on the lists. So if a party wins the individual seats (50%) and some places on the lists, it can already even have 2/3 but surely a majority. Questions abound....

Hungarian cases at the European Cout of Justice part 1 - some taxes

I collected some cases of the European Court of Justice in the area of consumer protection and taxes where Hungary was affected. I start with taxes, the second part will deal with consumer protection cases. Let’s start with a tax case where Hungary won against the Commission. The Court ruled in its judgement in the case C 253/09 about the deduction from the base of the personal income tax payable on the sale of property and about the deduction of the transfer tax paid on the purchase of property of the transfer tax paid on property sold by the same person (although it is paid by the buyer) that it is not discriminatory if only amounts paid for properties purchased can be deducted from the tax base of property sold where the property purchased is in Hungary. This sounds logical, as it was also established by the Court, saying that “there is a direct link between the tax advantage granted and the initial levy. First, that advantage and the tax levy are applied to one and the same person and, second, they both relate to the same tax” and “that the objective of the legislation at issue is to avoid – upon the purchase of a second principal residence in Hungary – the double taxation of the capital invested in the purchase of the previous residence that has been sold”. However, the Court looked a little further. Firstly it established that these rules constitute a discrimination but recognised that in light of the above arguments this discrimination is justified by pursuing and objective in public interest (i.e. to preserve the coherence of the tax system and also: "If taxpayers not having paid the tax at issue previously were able, under the tax regime at issue, to benefit from the tax advantage concerned, they would take unfair advantage of taxation that was not applicable to their previous purchase outside Hungary.") Interestingly, no specific arguments are found in the judgement about the transfer tax but the same logic would apply here, except that the tax in not paid by the same person (but was paid at the time of purchase by the seller, although on a value at that time).
The COurt made an interesting statement, by also giving its opinion about tax harmonisation: “While the property transactions carried out in other Member States might also have been subject to similar or even identical taxes to that at issue, it must be noted, however, that in the current stage of the development of EU law, the Member States enjoy a certain autonomy in the area of taxation provided they comply with EU law, and are not obliged therefore to adapt their own tax systems to the different systems of tax of the other Member States in order, inter alia, to eliminate the double taxation.” So, according to the Court, one way of further integration can be a harmonization of these taxes also and a mutual recognition of taxes paid in another member state.

This harmonization has relevance to a problem now widely discussed, the importance of which is secondary but some way emblematic. The issue is the registration tax and the amendment of the law about road transport, which introduced draconian fines for Hungarians who avoid the – very high though recently decreased – registration tax on passenger cars by registering their car in a neighbouring country where this tax does not exist or is lower. There is a European Directive on the harmonisation of car taxes, mainly targeted at the tax continuously paid in different countries on vehicles registered in that country. The annex to this directive lists a number of specific taxes in different countries but the registration tax in Hungary is not listed. There is also a draft directive, which wants to harmonise further the conditions of the obligation to re-register cars moved from one member state to another. In both the directive and the draft, there is a precise definition of the residence which defines where a car has to be registered and pay taxes. In contrast to this definition, the Hungarian law does not define residence but takes the registration in the residence register as a formal condition. There are two lists of conditions, one for the driver, which acknowledges the situation of those who are abroad temporarily (for work, for example) but the formulation of the conditions for the owner (operator) of the vehicle are chaotic. Driving a car rented abroad or registered on a foreign company – for which the driver may work – is, however, only authorised for one day for someone who does not have a temporary residence abroad. This is also causing problems. For those, however, who stay abroad but do not want to give up their permanent residence in Hungary (or have a temporary residence in Hungary) to go to Hungary in a car registered on their name can mean a fine of up to 3200 Euro and losing their car. This is clearly offending the freedom of establishment and of move within the EU and also the spirit of the mentioned directive, and the re-registration directive is still far away and has only partial impact. Recently a judgement of the Court in the joined cases C 578/10 to C 580/10, can mean some hope that at least when their case comes to the European Court of Justice, the Hungarian regulation may be declared contravening European Law. The judgement namely concerns the Dutch registration tax, and says: “that Article 56 EC must be interpreted as meaning that it precludes legislation of a Member State which requires residents who have borrowed a vehicle registered in another Member State from a resident of that State to pay, on first use of that vehicle on the national road network, the full amount of a tax normally due on registration of a vehicle in the first Member State, without taking account of the duration of the use of that vehicle on that road network and without that person being able to invoke a right to exemption or reimbursement where that vehicle is neither intended to be used essentially in the first Member State on a permanent basis nor, in fact, used in that way.”, which means that not only the tax paid regularly, but also the tax paid on registration cannot be levied on a vehicle which is not used “essentially in the” country “on a permanent basis”. By the way, the Hungarian registration tax was once subject to proceedings at the European Court of Justice (joined cases C-290/05 and C-333/05), when the question was again about proportionality (also referred to in the judgement in question), i.e. that the registration tax on used vehicles has to take into account the depreciation of the vehicle, i.e. can be levied only on basis of its real value and not on its purchase value.