FOURTH SECTION
\nCASE OF REPCEVIR\u00c1G SZ\u00d6VETKEZET v. HUNGARY
\n(Application no. 70750\/14)<\/p>\n
JUDGMENT
\nSTRASBOURG
\n30 April 2019<\/p>\n
This judgment will become final in the circumstances set out in Article 44 \u00a7 2 of the Convention. It may be subject to editorial revision.<\/p>\n
In the case of Repcevir\u00e1g Sz\u00f6vetkezet v. Hungary,<\/strong><\/p>\n The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:<\/p>\n Jon Fridrik Kj\u00f8lbro, President, Having deliberated in private on 2 April 2019,<\/p>\n Delivers the following judgment, which was adopted on that date:<\/p>\n PROCEDURE<\/strong><\/p>\n 1.\u00a0\u00a0The case originated in an application (no. 70750\/14) against Hungary lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (\u201cthe Convention\u201d) by a cooperative, Repcevir\u00e1g Sz\u00f6vetkezet (\u201cthe applicant\u201d), on 28 October 2014.<\/p>\n 2.\u00a0\u00a0The applicant was represented by Mr P. Metzinger, a lawyer practising in Budapest. The Hungarian Government (\u201cthe Government\u201d) were represented by Mr Z. Tall\u00f3di, Agent, Ministry of Justice.<\/p>\n 3.\u00a0\u00a0The applicant company alleged that the domestic courts had breached its right to a fair trial when they rejected its requests that the case be referred to the Court of Justice of the European Union (\u201cthe CJEU\u201d) for a preliminary ruling pursuant to Article 267 of the Treaty on the Functioning of the European Union (\u201cthe TFEU\u201d).<\/p>\n 4.\u00a0\u00a0On 1 September 2015 notice of the application was given to the Government.<\/p>\n 5.\u00a0\u00a0Mr P\u00e9ter Paczolay, the judge elected in respect of Hungary, withdrew from sitting in the case (Rule 28 of the Rules of Court). The President of the Chamber accordingly appointed Mr Robert Spano, the judge elected in respect of Iceland, to sit as an ad hoc judge (Article 26 \u00a7 4 of the Convention and Rule 29 \u00a7 1).<\/p>\n THE FACTS<\/strong><\/p>\n I.\u00a0\u00a0THE CIRCUMSTANCES OF THE CASE<\/p>\n 6.\u00a0\u00a0The applicant is registered under Hungarian law as a cooperative based in Aranyosgad\u00e1ny.<\/p>\n 7.\u00a0\u00a0The applicant\u2019s aim is to support its members in their agricultural activity, in particular by purchasing expensive machines and lending them to its members free of charge. The members pay a regular \u201ccontribution fee\u201d to the cooperative.<\/p>\n 8.\u00a0\u00a0The applicant considered that the lending of machines constituted the very essence of its economic activities. It therefore deducted the value-added tax paid in respect of the machines from the tax which it was liable to pay.<\/p>\n 9.\u00a0\u00a0In 2008 the Hungarian Tax Authority fined the applicant, having found that the lending of machines to members free of charge was not an \u201ceconomic activity\u201d within the meaning of Act no. LXXIV of 1992 on Value-Added Tax. As a consequence, the applicant was not entitled to deduct the tax paid on the goods it purchased.<\/p>\n A.\u00a0\u00a0The first set of proceedings<\/strong><\/p>\n 10.\u00a0\u00a0The applicant challenged the decision of the Tax Authority before the administrative courts. Pointing to the special provisions applying to cooperatives and to the fact that its members paid contribution fees, it argued, on the basis of domestic law, that the service in question was to be considered a genuine economic activity.<\/p>\n 11.\u00a0\u00a0On 17 February 2009 the Baranya County Court upheld the administrative decision. The Supreme Court, in review proceedings, upheld that judgment on 26 November 2009. In response to the applicant\u2019s argument to the effect that the contribution fee paid by members should be taken into account as a \u201cconsideration\u201d for the lending of machines, rendering the applicant\u2019s activity an \u201ceconomic\u201d one, the Supreme Court referred to the Aardappelenbewaarplaats judgment of the CJEU (C-154\/80, EU:C:1981:38),in which that court had held that \u201ca provision of services for which no definite subjective consideration is received does not constitute a provision of services \u2018against payment\u2019 \u201d.<\/p>\n B.\u00a0\u00a0The second set of proceedings<\/strong><\/p>\n 12.\u00a0\u00a0On 9 December 2010 the applicant, represented by a different lawyer from the one who had represented it in the previous set of proceedings, introduced a second set of proceedings, seeking damages against the Supreme Court before the Budapest Regional Court. It alleged that the Supreme Court had violated European Union law on account of its failure to apply, of its own motion, Article 17 of the Sixth Council Directive 77\/388\/EEC (see paragraph 30 below) in its 2009 judgment and on account of the wrongful qualification of the applicant\u2019s activity for the purposes of the value-added tax deduction. The applicant argued that the European Union law provision analysed in the Aardappelenbewaarplaats case was Article 8 of the Second Council Directive 67\/228 (defining the basis for assessment of value-added tax), rather than Article 17 of the Sixth Council Directive 77\/388\/EEC (concerning tax deduction). It was the latter that should have been directly applicable in the case before the Supreme Court. In the applicant\u2019s view, the Aardappelenbewaarplaats case was about whether turnover tax should be imposed on storage services provided free of charge for members of a cooperative association, whereas the case before the Supreme Court had concerned a different question, namely the deductibility of input VAT. Alleging the Supreme Court\u2019s liability for judicial malpractice, the applicant relied on the K\u00f6bler judgment of the CJEU (see paragraph 31 below). It requested that the Budapest Regional Court obtain a preliminary ruling from the CJEU as to the conformity of the Supreme Court\u2019s judgment with European Union law and the conditions for establishing whether the Supreme Court might be liable for a wrongful judgment.<\/p>\n 13.\u00a0\u00a0On 31 May 2011 the Budapest Regional Court rejected the applicant\u2019s claim against the Supreme Court. It held that in the main proceedings, the Supreme Court had been bound by the applicant company\u2019s claim taking issue only with the alleged absence of a \u201cconsideration\u201d and the resulting qualification of its service as not being an \u201ceconomic activity\u201d. The Regional Court was of the view that in that respect the Supreme Court had duly examined the relevant European Union law of its own motion.<\/p>\n 14.\u00a0\u00a0Without requesting a preliminary ruling, the Budapest Regional Court held that the K\u00f6bler judgment was not relevant in the case because the applicant had sought to sue the Supreme Court on the basis of the Hungarian Civil Code, rather than seeking to sue the Hungarian State itself under European Union law.<\/p>\n 15.\u00a0\u00a0The applicant appealed and requested the second-instance court to obtain a preliminary ruling also on the question of whether the K\u00f6bler principles were applicable if the reparation claim was directed against the Supreme Court and not the State.<\/p>\n 16.\u00a0\u00a0On 28 August 2012 the Budapest Court of Appeal upheld the first-instance judgment, without requesting a preliminary ruling. It accepted the applicant\u2019s argument that the reasoning of the first-instance judgment was erroneous with respect to the alleged irrelevance of the K\u00f6bler case, but held that, in any event, the applicant\u2019s claim was ill-founded on other grounds. Notably, it pointed to the fact that during the first set of proceedings (see paragraph 10 above) the applicant had failed to refer to European Union law, and considered that this fact in itself had rendered the applicant\u2019s claim unfounded.<\/p>\n 17.\u00a0\u00a0Arguing that European Union law was to be applied proprio motu, even without an explicit reference from the plaintiff, the applicant requested a review of the final judgment by the K\u00faria (the historical appellation by which the Supreme Court was renamed in 2012, see the first sentence of point 36 of the Constitutional Court\u2019s decision cited in Baka v. Hungary [GC], no. 20261\/12, \u00a7 55, ECHR 2016). It also reiterated its request that the case be referred for a preliminary ruling and proposed that the K\u00faria also ask whether the liability of a State under the K\u00f6bler principles may be subjected to the precondition that an explicit reference to the relevant provisions of European Union law must be made by the plaintiff in the main \u2013 in the present case first \u2013 proceedings.<\/p>\n 18.\u00a0\u00a0The questions thus proposed by the applicant for the purposes of a preliminary ruling read as follows:<\/p>\n \u201c1.\u00a0\u00a0Does the reparation claim fall within the scope of European law in civil proceedings, such as actions in damages based on section 349 of the Hungarian Civil Code, brought by an individual against the Supreme Court of the Member State concerned, in which the plaintiff claims that the Supreme Court has violated a right conferred on him by a directly applicable provision of European law in previous administrative proceedings. If so, to what extent?<\/p>\n 2.\u00a0\u00a0In the common system of value-added tax, with regard to the specificities thereof, may Council Directive 77\/388\/EEC, especially its Article 17(2)(a), be interpreted as meaning that a national measure (e.g. a judgment) is incompatible with it if it denies the right of a cooperative, otherwise subject to value-added tax in the Member State concerned, to deduct input VAT paid on machines purchased, for the sole reason that the cooperative handed over those machines to its members, a \u2018grouping of growers\u2019, without consideration?<\/p>\n 3.\u00a0\u00a0Is the liability of a Member State\u2019s Supreme Court excluded, under the rules of European law, by the sole fact that an individual did not allege explicitly the infringement of a specific provision of European law in the judicial proceedings for the review of an administrative decision denying him the right to tax deduction? Or should the domestic court enforce of its own motion the directly applicable provision of European law (in this case, Article 17(2)(a) of the Sixth Directive)?<\/p>\n 4.\u00a0\u00a0Is the infringement sufficiently serious if the Supreme Court of a Member State denies, in administrative proceedings, an individual\u2019s right to tax deduction without analysing the underlying provision of European law directly or referring the case for a preliminary ruling, in circumstances where the reasoning of the refusal to refer the case [to the CJEU] is based on the Supreme Court\u2019s reliance on a judgment of the [CJEU] adopted on a different subject and where this latter court has not yet adopted a ruling on the issue at hand?\u201d<\/p>\n 19.\u00a0\u00a0On 2 October 2013 the K\u00faria dismissed in a procedural order (v\u00e9gz\u00e9s) the applicant\u2019s request for a preliminary ruling. Firstly, it noted that it was not in dispute between the parties that the case fell within the scope of European Union law; the referral of the first question would therefore have been futile. Secondly, concerning the second, third and fourth questions, the K\u00faria held that they could have been considered in the first proceedings, but that they fell outside the scope of the action in damages brought against the Supreme Court on account of alleged judicial malpractice. It further held that in the framework of the action in damages, assessment of the consequences of the applicant\u2019s failure, in the first set of proceedings, to make explicit allegations of an infringement of European Union law (see question\u00a03 quoted in paragraph 18 above) was the task of the national courts, and that it did not raise any question of interpretation that would fall under the jurisdiction of the CJEU.<\/p>\n 20.\u00a0\u00a0The applicant complained to the K\u00faria about the above refusal but in vain; on 4 December 2013 itheld, in a procedural order (v\u00e9gz\u00e9s), that no appeal lay against such a decision.<\/p>\n 21.\u00a0\u00a0On 11 December 2013 the K\u00faria upheld, in a judgment (\u00edt\u00e9let), the final decision of the Budapest Court of Appeal. It reiterated that the applicant could have relied on the Sixth Council Directive and put forward its arguments concerning the allegedly correct interpretation of domestic law in the light of European Union law before the Supreme Court in the 2009 proceedings. Since the applicant had failed to do so, the Supreme Court had indeed been prevented, by force of the applicable procedural rules, from examining such arguments as raised in the subsequent proceedings for damages, concerning the compatibility of the final judgment of 2009 with European Union law. Therefore, the Supreme Court could not bear responsibility for the infringement of European Union law alleged by the applicant. The judgment of the K\u00faria was served on the applicant on 7\u00a0February 2014.<\/p>\n 22.\u00a0\u00a0On 13 March 2014 the applicant lodged a constitutional complaint under section 27 of the Constitutional Court Act (see Mendreiv. Hungary (dec.), no. 54927\/15<\/a>, \u00a7 13, 19 June 2018), claiming that the proceedings before the K\u00faria had been unfair on account of the latter\u2019s allegedly arbitrary refusal to refer the case for a preliminary ruling. Contending that the Constitutional Court should be considered as a \u201ccourt or tribunal\u201d for the purposes of Article 267 of the TFEU, the applicant also requested the Constitutional Court to turn to the CJEU in order to enquire whether an \u201carbitrary\u201d refusal of a last-instance jurisdiction to refer a case for a preliminary ruling may violate the party\u2019s right to a fair trial guaranteed by Article\u00a047 of the Charter of Fundamental Rights of the European Union (see paragraph 29 below) and, if so, under what conditions such a refusal might be considered arbitrary. The applicant argued, in particular, that the K\u00faria had failed to recognise an issue of fundamental importance, namely that whether a certain legal issue (the consequences of a plaintiff\u2019s failure to put forward explicit allegations as to an infringement of European Union law) fell within the ambit of national law or European Union law was itself a question belonging necessarily to the realm of European law. Ignoring that concept, the K\u00faria had \u201csolved\u201d the problem in an arbitrary fashion, that is, by refusing the reference and barring the applicant\u2019s access to a \u201clawful judge\u201d, the CJEU in the circumstances.<\/p>\n 23.\u00a0\u00a0The applicant\u2019s constitutional complaint contained the following passages:<\/p>\n \u201cThe complainant … does not want to call into question the merits of the K\u00faria\u2019s impugned judgment in the present procedure [but rather complains that] the K\u00faria acted unfairly in the review proceedings …<\/p>\n The K\u00faria\u2019s procedure was in breach of the claimant\u2019s constitutional right to a fair trial, guaranteed by Article XXVIII (1) of the Fundamental Law, in so far as the K\u00faria acted arbitrarily in omitting to refer the case for a preliminary ruling. …<\/p>\n The K\u00faria failed to explain, in line with the Cilfit requirements … why and how it had deemed itself exempt from the obligation to refer a question [on the interpretation of EU law to the CJEU for a preliminary ruling]. …<\/p>\n [I]n the light of the above, the K\u00faria failed to comply with its obligation to refer [a question to the CJEU for a preliminary ruling] and that in an arbitrary, grossly unprofessional manner …\u201d<\/p>\n 24.\u00a0\u00a0On 19 May 2014 the Constitutional Court rejected the constitutional complaint as inadmissible, without putting forward a preliminary ruling request (see decision no. 3165\/2014. (V.23.), referred to in Somorjai v.\u00a0Hungary, no. 60934\/13<\/a>, \u00a7 34, 28 August 2018). It held that the question whether a request for reference to the CJEU should be made or not was to be decided by the judges hearing the case in the ordinary courts, and that the Constitutional Court lacked jurisdiction to review such decisions. It further noted that the only claim an applicant might make in constitutional complaint proceedings initiated under section 27 of Act no. CLI of 2011 on the Constitutional Court was that a judgment be quashed. Consequently, no request for a preliminary ruling was possible under that law, and the applicant\u2019s request to that effect had to be rejected.<\/p>\n 25.\u00a0\u00a0The Constitutional Court\u2019s decision contained the following passage:<\/p>\n \u201c[The applicant] was of the view that the rejection by the K\u00faria of his request to have the case referred to the [CJEU] had been arbitrary in that the K\u00faria should have provided professionally appropriate, objective and duly detailed reasons in that respect but, in the applicant\u2019s opinion, it had failed to do so. In that connection, the applicant referred to the requirements contained in the [CJEU]\u2019s Cilfit and K\u00f6bler judgments …\u201d<\/p>\n Apart from that passage, the decision did not address the issue of adequate reasoning by the K\u00faria.<\/p>\n II.\u00a0\u00a0RELEVANT DOMESTIC AND EUROPEAN UNION LAW<\/p>\n 26.\u00a0\u00a0Certain provisions concerning the Constitutional Court\u2019s power of review in connection with constitutional complaints were set out in Mendrei (cited above, \u00a7\u00a7 12-15).<\/p>\n Section 43 of the Constitutional Court Act, which was not quoted in Mendrei (cited above), provides as follows:<\/p>\n \u201c(1)\u00a0\u00a0If the Constitutional Court, in the course of proceedings provided for in section\u00a027 and on the basis of a constitutional complaint, declares that a judicial decision is contrary to the Fundamental Law, it shall quash the decision.<\/p>\n (2)\u00a0\u00a0Provisions of Acts that contain regulations in respect of court proceedings shall be applied to the procedural consequence of a Constitutional Court decision that quashes a judicial decision.<\/p>\n (3)\u00a0\u00a0In court proceedings conducted as a consequence of the quashing of a judicial decision by the Constitutional Court, the decision of the Constitutional Court as to the constitutional issue shall be adhered to.<\/p>\n (4)\u00a0\u00a0The Constitutional Court, when it quashes a judicial decision, may also quash judicial decisions or the decisions of other authorities which were reviewed by the given decision.\u201d<\/p>\n 27.\u00a0\u00a0The provisions of the old Code of Civil Procedure (Act no. III of 1952) pertaining to the reference for a preliminary ruling, as in force at the material time, were set out in Somorjai, cited above,\u00a7\u00a7 28 and 36.<\/p>\n Article 361 of the old Code of Civil Procedure provided as follows:<\/p>\n \u201cIn order to provide redress following a constitutional complaint, the K\u00faria shall decide as follows: …<\/p>\n (c)\u00a0\u00a0if the Constitutional Court has quashed a judicial decision, [the K\u00faria] shall … remit the case to the first or second-instance court for new proceedings and a new decision; or order the adoption of a new decision in respect of an application for review.\u201d<\/p>\n
\nRobert Spano, ad hoc judge,
\nFaris Vehabovi\u0107,
\nEgidijus K\u016bris,
\nCarlo Ranzoni,
\nGeorges Ravarani,
\nMarko Bo\u0161njak, judges,
\nand Marialena Tsirli, Section Registrar,<\/p>\n