CASE OF AGRO-PACHT KFT. v. HUNGARY
(Application no. 31185/14)
13 October 2020
This judgment is final but it may be subject to editorial revision.
In the case of Agro-Pacht Kft. v. Hungary,
The European Court of Human Rights (Fourth Section), sitting as a Committee composed of:
Faris Vehabović, President,
Iulia Antoanella Motoc,
Carlo Ranzoni, judges,
and Ilse Freiwirth, Deputy Section Registrar,
Having regard to:
the application (no. 31185/14) against Hungary lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Hungarian company, Agro‑Pacht Kft (“the applicant”), on 23 April 2014;
the decision to give notice to the Hungarian Government (“the Government”) of the complaints concerning Article 1 of Protocol No. 1 and Article 14 of the Convention and to declare inadmissible the remainder of the application;
the parties’ observations;
Having deliberated in private on 22 September 2020,
Delivers the following judgment, which was adopted on that date:
1. The case concerns legislative amendments removing the applicant’s usufruct rights over agricultural land. The applicant relied on Article 1 of Protocol No. 1 to the Convention read alone and in conjunction with Article 14 of the Convention.
2. The applicant is a limited liability company registered under Hungarian law, seated in Budapest and owned by two Austrian nationals. It was represented by Mr S. Huber, a lawyer practising in Wien.
3. The Government were represented by their Agent, Mr Z. Tallódi, of the Ministry of Justice.
4. The facts of the case, as submitted by the parties, may be summarised as follows.
5. In 1999 and 2000, the applicant acquired usufruct rights over Hungarian agricultural lands by concluding contracts with the owners. Under these contracts, the applicant was entitled to use the agricultural lands “life-long”, that is to say, until its eventual dissolution.
6. The rights were formally registered in the land register.
7. Up until 31 December 2001, domestic natural and legal persons, as well as foreign natural and legal persons, were able to contract usufruct rights on agricultural land without any legal limitation. After this date, no foreign person could establish such rights over agricultural lands in Hungary. According to the Government, this legislative change resulted in an increase in the number of concealed contracts by means of which foreign natural and legal persons obtained usufruct rights in Hungary. As of 1 January 2013, new contracts between domestic natural persons for the pro futuro establishment of usufruct rights over agricultural lands were statutorily declared null and void by the implementation of an amendment contained in section 7 of Act no. CCXIII of 2012 on the Amendment of Certain Acts on Agriculture with the exception of those concluded by and between close relatives.
8. With a view to terminating these usufruct rights over agricultural lands obtained through concealed contracts, Parliament enacted Act no. CCXII of 2013 on Certain Provisions and Transitional Rules related to Act no. CXXII of 2013 on Transactions in Agricultural and Forestry Land (hereafter “the Transition Act”) which was promulgated on 12 December 2013 and came into effect on 14 December 2013.
9. Section 108 of the Transition Act terminated ipso iure all usufruct rights over agricultural lands as of 1 May 2014, except for rights established between close relatives (subsection (1)), as well as any related usufruct lease rights, as of 1 September 2014 (subsection (3)).
10. Deregistration of the rights concerned was implemented under the then effective rules of Act no. CXLI of 1997 on the Land Registry (hereafter “the Land Registry Act”). Section 94 of the Land Registry Act obliged the authority to request a declaration from natural persons affected by the measures in order to verify whether they were close relatives of the owner of the land. The usufruct rights were struck out of the land register as a matter of course in cases where the affected natural persons failed to submit a declaration demonstrating close relationship with the owner of the land or where the usufruct right holder was a legal person.
11. The applicant’s usufruct rights were struck out of the land register by decisions of declarative effect given by the competent administrative authorities in accordance with the Transition Act, because the applicant, a company, was not a “close relative” of the landowners.
12. The applicant’s usufruct rights ceased to exist ex lege on 1 May 2014.
13. Meanwhile, in February 2014 constitutional complaints were lodged by various complainants, including the applicant, with the Constitutional Court against the provisions of the Transition Act, arguing that the ex lege termination of lawfully acquired usufruct rights without any indemnification or transitory period violated the constitutional protection of property rights.
14. The Constitutional Court analysed the alleged unconstitutionality of section 108 of the Transition Act. On 21 July 2015 it found, in decision no. 25/2015. (VII.21.) AB, that the legislator had failed to enact extraordinary rules to compensate the contracting parties for the financial disadvantages deriving from the ex lege termination of the usufruct and use contracts regulated by the Transition Act. It emphasised that, given the diversity of the concerned legal relationships, the general settlement rules applicable under civil law were not capable of resolving all possible claims between the parties concerned. Therefore, as a result of the failure of the legislator to enact a statutory settlement regime, an unconstitutional omission was found. The Constitutional Court called the legislator to put an end to it by 1 December 2015 at the latest.
15. At the date of the latest information available to the Court provided by the applicant on 31 July 2017, the Government had not yet created the compensation scheme prescribed by the Constitutional Court.
RELEVANT LEGAL FRAMEWORK
16. The relevant legal framework is outlined in C.A. Zrt and T.R. v. Hungary ([Committee], nos. 11599/14 and 11602/14 (joined), § 14, 1 September 2020).
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1 To THE CONVENTION
17. The applicant complained that it had been deprived of its possessions unjustifiably and in indirect discrimination against its foreign owners. It relied on Article 1 of Protocol No. 1 to the Convention read alone and in conjunction with Article 14 of the Convention. Being the master of the characterisation to be given in law to the facts of the case (see Radomilja and Others v. Croatia [GC], nos. 37685/10 and 22768/12, §§ 114 and 126, ECHR 2018), the Court considers that this complaint falls to be examined only under Article 1 of Protocol No. 1 to the Convention, which reads as follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
18. The Government argued that the applicant had failed to exhaust the available domestic remedies. In particular, they referred to the possibility of a settlement, in court proceedings, between the owner of the agricultural land and the usufruct right holders under the ordinary rules of civil law.
19. The applicant disagreed, submitting that the Government did not refer to any decisions where the proposed remedy was shown to be effective in the circumstances, as required by the Court’s case-law.
20. The general principles concerning exhaustion of domestic remedies are resumed in Vučković and Others v. Serbia ((preliminary objection) [GC], nos. 17153/11 and 29 others, §§ 69-77, 25 March 2014).
21. More specifically, the only remedies which Article 35 § 1 of the Convention requires to be exhausted are those that relate to the breaches alleged and at the same time are available and sufficient; the existence of such remedies must be sufficiently certain not only in theory but also in practice, failing which they will lack the requisite accessibility and effectiveness. It falls to the respondent State to establish that these various conditions are satisfied (see Karácsony and Others v. Hungary [GC], nos. 42461/13 and 44357/13, § 76, 17 May 2016).
22. The Court further observes that an action for damages may sometimes be deemed sufficient in certain circumstances, in particular where compensation is the only means of redressing the wrong suffered (see, mutatis mutandis, Iatridis v. Greece [GC], no. 31107/96, § 47, ECHR 1999‑II). In the instant circumstances, however, the Court is not persuaded that initiating civil proceedings against the owners of the agricultural land would have been an alternative to genuine measures which the Hungarian legal system should have afforded. Without embarking on a closer scrutiny of the nature of the civil-law remedies suggested by the Government, the Court observes that the Constitutional Court itself held that, given in particular the diversity of the legal relationships concerned, the general settlement rules under civil law were not capable of resolving all possible claims between the parties concerned and a dedicated legal scheme for compensation was required in the instant situation (see paragraph 14 above). At the date of the latest information available to the Court provided by the applicant on 31 July 2017, this scheme had not been enacted by the lawmaker (see paragraph 15 above).
23. In these circumstances, the Court is satisfied that the application cannot be rejected for non-exhaustion of domestic remedies. It further notes that the application is not inadmissible on any other grounds. It must therefore be declared admissible.
1. The parties’ submissions
(a) The applicant
24. The applicant complained that it had been deprived of its possessions in breach of Article 1 of Protocol No. 1 to the Convention because of the ex lege termination of its usufruct rights on 1 May 2014, no compensation regime having been set up by the Government.
25. In particular, the applicant complained that the measure was not foreseeable in the absence of any preceding regulations foreshadowing the ex lege termination of its usufruct rights. The reasoning of the Transition Act had made no reference to the alleged public interest as claimed by the State, namely, to return Hungarian agricultural land to Hungarian farmers for cultivation purposes and to circumvent land speculation (see paragraph 27 below).
26. The enactment of the Transition Act was contrary to the principle of the rule of law, as the transitory period was short. Furthermore, the lack of an effective compensation regime rendered the interference disproportionate, considering the long-term nature of the legal relationships concerning the usufruct rights, which constituted a major source of income for the applicant.
(b) The Government
27. The Government submitted that even though the impugned measure had amounted to an interference with the applicant’s property rights, the interference was prescribed by law and justified. They maintained that the aim of the legislation was to ensure the cultivation of Hungarian agricultural land by Hungarian farmers and to cease the disadvantageous fragmentation of estates caused by the ownership structure and land speculation, and also to harmonise domestic regulations on the ownership and use of agricultural land with European Union regulations.
28. The Government also argued that the change in legislation had been foreseeable, since as from 1 January 2002, no foreign natural or legal person had been allowed to establish contractual usufruct rights over agricultural land (see paragraph 7 above), and therefore it could not have been expected that usufruct rights acquired prior to the legislative change would remain intact.
29. The Government disputed that the decision of the Constitutional Court (see paragraph 14 above) created an obligation on the legislature to provide a compensation scheme for usufruct holders, since this would create an unfair situation with regard to landowners who were not part of the scheme.
30. Finally, the Government submitted that the measures complained of had not placed an excessive burden on the applicant, as compensation was possible either by a settlement or by civil-law claims against the owner of the agricultural land.
2. The Court’s assessment
(a) Whether there has been an interference
31. The Court notes that it was not in dispute between the parties that the applicant was “deprived of [its] possessions”, within the meaning of the second sentence of Article 1 of Protocol No.1 of the Convention by virtue of the contested legislation. The Court sees no reason to hold otherwise.
32. Such interference must comply with the principle of lawfulness and pursue a legitimate aim by means reasonably proportionate to the aim sought to be realised (see Fábián v. Hungary [GC], no. 78117/13, § 65, 5 September 2017, and Béláné Nagy v. Hungary [GC], no. 53080/13, § 113, 13 December 2016).
33. In the present case the parties disagreed as to whether the interference with the applicant’s property right was “subject to the conditions provided for by law” within the meaning of the second sentence of the first paragraph of Article 1 of Protocol No. 1 (see paragraphs 25 and 28 above).
34. The Court reiterates that the first and most important requirement of Article 1 of Protocol No. 1 is that any interference by a public authority with the peaceful enjoyment of possessions should be lawful: the second sentence of the first paragraph authorises a deprivation of possessions only “subject to the conditions provided for by law” and the second paragraph recognises that States have the right to control the use of property by enforcing “laws”. Moreover, the rule of law, one of the fundamental principles of a democratic society, is inherent in all the Articles of the Convention. The principle of lawfulness also presupposes a certain quality of the applicable provisions of domestic law. In this regard, it should be pointed out that when speaking of “law”, Article 1 of Protocol No. 1 alludes to the very same concept as that to which the Convention refers elsewhere when using that term. It follows that the legal norms upon which the interference is based should be sufficiently accessible, precise and foreseeable in their application. In particular, a norm is “foreseeable” when it affords a measure of protection against arbitrary interferences by the public authorities. Any interference with the peaceful enjoyment of possessions must, therefore, be accompanied by procedural guarantees affording to the individual or entity concerned a reasonable opportunity of presenting their case to the responsible authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by that provision. In ascertaining whether that condition has been satisfied, a comprehensive view must be taken of the applicable judicial and administrative procedures (see Lekić v. Slovenia [GC], no. 36480/07, §§ 94‑95, 11 December 2018, with further references; see also Capital Bank AD v. Bulgaria, no. 49429/99, § 134, ECHR 2005-XII).
35. In the present case, the Court notes that the interference consisted of the specific legislation, namely the Transition Act, which came into effect on 14 December 2013 and in its application in the instant case. There was no dispute between the parties that the domestic legal provisions providing the legal basis for the impugned interference were accessible to the applicant. The Court sees no reason to disagree on that point.
36. On the issue of whether the legal consequences of the Transition Act were foreseeable, the Court observes that the parties did not put forward any arguments to the contrary. The Court is therefore satisfied that the rules in question were formulated with sufficient precision and thus met the qualitative requirement of foreseeability.
37. As regards the applicant’s plea that the legislation lacked foreseeability in that it was unexpected (see paragraph 25 above), the Court observes that starting from 1 January 2002 no foreign legal or natural person could establish new contractual usufruct rights on agricultural land in Hungary; moreover, starting from 1 January 2013, contracts between domestic natural persons for the establishment of new usufruct rights – with the exception of those concluded by and between close relatives – were statutorily declared null and void (see paragraph 7 above).
38. The Court agrees with the Government (see paragraph 28 above) in that the direction set by this sequence of legislation demonstrated a clear trend, foreshadowing the possibility of the implementation of further restrictive regulation of usufruct rights with foreign beneficiaries. Reiterating that neither the Convention nor its Protocols prevent the legislature from interfering with existing contracts (see Bäck v. Finland, no. 37598/97, § 68, ECHR 2004‑VIII), the Court cannot conclude that the interference in question was unforeseeable in this respect and therefore incompatible with the principle of lawfulness.
39. However, as regards the requirement enounced in the Court’s case-law, according to which an interference with the peaceful enjoyment of possessions must be surrounded by adequate procedural guarantees enabling an applicant effectively to challenge the measures in question, the Court cannot but note the persistent absence of a comprehensive compensatory scheme.
40. This legislative omission was specifically pointed out by the Constitutional Court, which set a deadline for the lawmaker to provide for such rules. However, at the date of the latest information available to the Court, no legislation had been enacted in pursuit of this ruling (see paragraphs 14 and 15 above).
41. For the Court, this omission raises doubts as to the lawfulness of the interference in question (see, mutatis mutandis, Capital Bank AD, cited above, § 139). However, in the circumstances of the present case the Court does not consider it necessary to ascertain whether the applicant had at its disposal sufficient procedural guarantees as, even assuming that it had, the measures complained of would in any event violate Article 1 of Protocol No. 1, for the following reasons.
(c) Legitimate aim
42. The applicant argued that the termination of its usufruct rights had served no public interest. The Government contested this.
43. The Court reiterates that any interference by a public authority with the peaceful enjoyment of possessions can only be justified if it serves a legitimate public (or general) interest. Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to decide what is “in the public interest”. Under the system of protection established by the Convention, it is thus for the national authorities to make the initial assessment as to the existence of a problem of public concern warranting measures interfering with the peaceful enjoyment of possessions (see Béláné Nagy, cited above, § 113). The notion of “public interest” is necessarily extensive. The Court finds it natural that the margin of appreciation available to the legislature in implementing economic policies should be wide and will respect the legislature’s judgment as to what is “in the public interest” unless that judgment is manifestly without reasonable foundation (see Jahn and Others v. Germany [GC], nos. 46720/99 and 2 others, § 91, ECHR 2005 VI).
44. The Government submitted in particular that the aim of the legislation was to stop the fragmentation of land caused by land speculation as well as to promote the use of arable land by domestic farmers.
45. The Court – in the light of the wide margin of appreciation afforded to the State – considers that the interference complained of may be regarded as pursuing a national economic interest. The latter consisted in the elimination of disadvantageous fragmentation of estates, that is to say, in the creation of economically viable agricultural lands. The Court therefore is satisfied that the enactment of the Transition Act served a legitimate aim.
(d) Proportionality of the interference
46. As to the proportionality of the interference, the respondent Government submitted that the measure complained of did not place an excessive burden on the applicant since compensation had in theory been possible under civil law (see paragraph 30 above). The applicant contested these arguments and submitted that the State had not provided any proof of the existence of such remedy and that the transitory period was short (see paragraph 26 above).
(i) General principles
47. The Court reiterates that an interference with the peaceful enjoyment of possessions must strike a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. In particular, there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised by any measure depriving a person of his possessions (see Pressos Compania Naviera S.A. and Others v. Belgium, 20 November 1995, § 38, Series A no. 332; Former King of Greece and Others v. Greece [GC], no. 25701/94, §§ 89-90, ECHR 2000‑XII; and Scordino v. Italy (no. 1) [GC], no. 36813/97, § 93, ECHR 2006‑V). In determining whether this requirement is met, the Court recognises that the State enjoys a wide margin of appreciation with regard both to choosing the means of enforcement and to ascertaining whether the consequences of enforcement are justified in the general interest for the purpose of achieving the object of the law in question (see Chassagnou and Others v. France [GC], nos. 25088/94 and 2 others, § 75, ECHR 1999‑III).
48. Nevertheless, the Court cannot abdicate its power of review and must determine whether the requisite balance was maintained in a manner consonant with the applicants’ right to the peaceful enjoyment of their possessions, within the meaning of the first sentence of Article 1 of Protocol No. 1 (see Jahn and Others, cited above, § 93). Compensation terms under the relevant legislation are material to the assessment whether the contested measure respects the requisite fair balance and, notably, whether it does not impose a disproportionate burden on the applicants. In this connection, the taking of property without payment of an amount reasonably related to its value will normally constitute a disproportionate interference and a total lack of compensation can be considered justifiable under Article 1 of Protocol No. 1 only in exceptional circumstances (see The Holy Monasteries v. Greece, 9 December 1994, § 71, Series A no. 301‑A; Former King of Greece and Others, cited above, § 89; Turgut and Others v. Turkey, no. 1411/03, §§ 86-93, 8 July 2008; and Şatır v. Turkey, no. 36192/03, § 34, 10 March 2009).
49. However, Article 1 of Protocol No. 1 does not guarantee the right to full compensation in all circumstances (see James and Others v. the United Kingdom, 21 February 1986, § 54, Series A no. 98, and Broniowski v. Poland [GC], no. 31443/96, § 182, ECHR 2004-V). While it is true that even in many cases of lawful expropriation, such as a distinct taking of land for road construction or other public purposes, only full compensation may be regarded as reasonably related to the value of the property, this rule is not without exceptions (see Former King of Greece and Others, cited above, § 78). Legitimate objectives of “public interest”, such as pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value (see James and Others, cited above, § 54, and Valle Pierimpiè Società Agricola S.p.a. v. Italy (merits), no. 46154/11, § 72, 23 September 2014).
(ii) Application of these principles to the present case
50. The margin of appreciation afforded to the State in identifying appropriate measures for the implementation of the reform in question is a wide one as noted in paragraph 43 above. However, the Court emphasises that such measures must not be disproportionate in terms of the means employed and the aim sought to be realised, and must not expose the parties concerned to an individual and excessive burden.
51. As regards the personal burden which the applicant sustained on account of the impugned measure in the present case, the Court first notes that the applicant had concluded long-term usufruct contracts before the enactment of the Transition Act and had carried out agricultural activity based on that usufruct right for years. The ex lege termination of the applicant’s usufruct rights affected long-term legal relationships (see paragraphs 5 and 26 above).
52. Moreover, the Court observes that the legislation, promulgated on 12 December 2013, set the date of the ex lege termination for 1 May 2014, little more than four months later (see paragraphs 8 and 9 above), which – in the context of legal relationships existing for a number of years previously – cannot be held to have afforded the applicant a sufficient transitional period within which to adjust itself to the new scheme. The Government failed to submit any argument concerning the relative brevity of the transitory period; they made no reference to any pressing economic or social need which could have prevented affording a longer period. In particular, for the Court, the ex lege termination of usufruct rights for the purpose of circumventing land speculation and creating viable estates cannot be considered as corresponding to an exceptional circumstance which would allow for shortening the transitory period (compare and contrast with Jahn and Others, cited above, § 116-117).
53. The Court further finds it relevant that the State provided no possibility for judicial redress or financial compensation to counterbalance the interference caused by the impugned measure. This omission was found to be unconstitutional by the Constitutional Court, which prescribed a deadline of 31 December 2015 for the State to rectify the situation. The deadline expired without any result (see paragraphs 14 and 15 above).
54. The Court notes the Government’s argument according to which the measure at issue did not impose an excessive burden on the applicant, since compensation was obtainable by way of either a settlement or civil-law claims brought against the land-owner (see paragraph 30 above). However, the effectiveness and scope of such proceedings and agreements are questionable at the very least, as noted by the Constitutional Court in its decision no. 25/2015. (VII. 21.) AB (see paragraphs 14 and 22 above).
55. In sum, having regard to the short transitory period, the lack of any compensatory scheme and the importance that the usufruct rights had for the applicant, the Court concludes – even bearing in mind the wide margin of appreciation afforded to the State in implementing the reform in question – that the interference with the applicant’s rights was disproportionate to the aim pursued and that the applicant had to bear an individual and excessive burden. A disproportionate measure, especially without any scheme of compensation, does not satisfy the requirements of the protection of possessions under Article 1 of Protocol No. 1 (see, mutatis mutandis, Vékony v. Hungary, no. 65681/13, § 35, 13 January 2015, and Valle Pierimpiè Società Agricola S.p.a., cited above, §§ 74–77).
56. There has accordingly been a violation of Article 1 of Protocol No. 1 to the Convention.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
57. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
58. In respect of pecuniary damage, the applicant claimed 2,747,700 euros (EUR). This figure represents the losses allegedly suffered by the applicant as a result of having been deprived of the usufruct rights on 900 hectares of arable land.
59. The applicant also claimed EUR 40,000 as a lump sum for legal fees incurred, without further itemisation.
60. The Government contested these claims as excessive.
61. The Court considers that the question of the application of Article 41 is not ready for decision. It is therefore necessary to reserve the matter, due regard being had to the possibility of an agreement between the respondent State and the applicant (Rule 75 §§ 1 and 4 of the Rules of Court).
62. Accordingly, the Court reserves this question in whole and invites the Government and the applicant to notify it, within six months, of any agreement that they may reach.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Declares the application admissible;
2. Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention;
3. Holds that the question of the application of Article 41 is not ready for decision, and accordingly:
(a) reserves the said question in whole;
(b) invites the Government and the applicant to submit, within six months, their written observations on the matter and, in particular, to notify the Court of any agreement that they may reach;
(c) reserves the further procedure and delegates to the President of the Committee the power to fix the same if need be.
Done in English, and notified in writing on 13 October 2020, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Ilse Freiwirth Faris Vehabović
Deputy Registrar President