TrustHLT/LaCour huggingface dataset:
GR1 (Government): However, in spite of the fact that the provisions governing the powers of the integration institutions indeed had relevance for the operation of the general meetings of the applicants' banks, the applicants still cannot claim to be victims of an interference with the right to property as shareholders of their banks simply on account of the entry into force of the integration act.
GR1 (Government): It is so because besides the reasons connected with the issue of corporate veil, which I shall elaborate upon later, the provisions of the integration act had no direct effect on the functioning of the general meetings, but further measures were needed to put them into effect.
GR1 (Government): These measures were specifically excluded by the applicants from the scope of the application.
GR1 (Government): Had it not been so, their case probably would have failed to meet the requirement of exhaustion of domestic remedies in addition to their lack of victim status.
GR1 (Government): The abundance or confusion of possible grounds for inadmissibility at this juncture proves exactly the point raised by the court's judgment in the case of Agrotexim, cited in the government's written observations about the practical difficulties ensuing from the piercing of the corporate veil as regards the requirement of exhaustion of domestic remedies.
GR1 (Government): For the decisions of the integration organization and the savings bank taken pursuant to the integration act may be challenged through different remedies before the Hungarian courts as it is required in the case of the decisions of administrative authorities.
GR1 (Government): Only after the organs of the integration have taken certain decisions and the banks have exhausted the available remedies could it be assessed whether there was an interference with the rights of the banks and eventually of the shareholders.
GR1 (Government): To be more specific, most powers of the integration organization and the savings bank, the applicants complain of has not even been exercised at all in relation to Mohachi Bank or Kennedy Bank.
GR1 (Government): Neither the integration organization nor the savings bank denied the issuing of bonds, any merger or demerger of the respective banks or the purchase of all shares.
GR1 (Government): Nor did they suspend or terminate the office of chief officers or suspend the voting rights of the shareholders.
GR1 (Government): In this respect, the application seems to be of the nature of an actio popularis.
GR1 (Government): In relation to the power of the integration organization and the savings bank to adopt a model statute or articles of association, it needs to be noted that cooperative credit institutions did have the right to comment on the model statute and to propose changes to the articles of association as they were adopted.
GR1 (Government): This, in fact, happened in the case of Mohachi Bank, where Mohachi Bank proposed several changes that were accepted by the savings bank.
GR1 (Government): As a result, Mohachi Bank adopted new articles of association on the 17th of December, 2015, in agreement with the savings bank.
GR1 (Government): Consequently, if shareholders of Mohachi Bank suffered any infringement of the rights protected by the convention, such infringement only occurred with the adoption of the new articles of association, which could have been subject to remedies by the shareholders under Hungarian law.
GR1 (Government): Kinezsi Bank has never adopted new articles of association in accordance with the Integration Act.
GR1 (Government): In this context, it must also be noted that the provisions of the model articles of association complained of by the applicants in their observations before the ground chamber, which were later elevated to the level of binding legal provisions, contained rules aimed at ensuring access by the central bank of the integration to the information necessary for the effective exercise of the supervisory powers conferred upon it by the law.
GR1 (Government): Such provisions don't exceed the scope of ordinary regulation powers of the state and cannot be challenged in abstracto before the court.
GR1 (Government): The applicants also argue in their submission to the ground chamber that the integration institution refused the payment of the dividends by the banks.
GR1 (Government): Although these allegations fall outside the scope of the case, since such refusal would be a specific measure excluded by the applicants from the scope of their application and did not happen by virtue of the entry into force of the Integration Act, the government informed the court that in reality, the dividends had been paid to the shareholders of both Moaci Bank and Kinezhi Bank, irrespective of the disapproval of the savings bank.
GR1 (Government): As it is shown by the document submitted by the government, the savings bank refused to approve the annual report of Kinezhi Bank in 2015, and for the same reasons in 2016, because Kinezhi Bank did not make it possible to carry out an audit by the audit firm responsible for carrying out a consolidated audit for the whole integration, and it decided to pay dividends, even though this could have potentially jeopardized the solvency of the bank.
GR1 (Government): Consequently, the savings bank disapproved of the payment of dividends by Kinezhi Bank, since the legal conditions for such payments set out in the law applicable to the entire financial sector, not specific to the cooperative credit sector, had not been met.
GR1 (Government): Nevertheless, the savings bank's disapproval didn't have any effect on the payment of dividends, which had already taken place.
GR1 (Government): It was then for the savings bank to institute court proceedings challenging the resolutions of the general meeting of Kinezhi Bank.
GR1 (Government): These proceedings were discontinued after transformation of the Kinezhi Bank into an investment company.
GR1 (Government): The aggregate amount of dividends paid by Moaci Bank between 2014 and 2016 amounted to 2.77 billion Hungarian forints,
GR1 (Government): whereas shareholders of Kinezhi Bank received dividends as much as 769 million Hungarian forints between 2014 and 2016.
GR1 (Government): The second reason for the lack of victim status follows from the fact that the measures taken pursuant to the impugn provisions of the Integration Act could have affected the margin of maneuvering of the general meeting of the banks and not the shareholders' rights vis-a-vis their company.
GR1 (Government): Thus, the rights of the bank and not those of the shareholders would have been affected.
GR1 (Government): The shareholders, either a majority of shareholders or all of them, cannot identify with the company which has a legal personality distinct from its owners.
GR1 (Government): The actions of the shareholders taken through the general meeting are, for all intents and purposes, attributable to the company, and it is the company that bears civil law liability for the decisions of the general meeting and not the individual shareholders.
GR1 (Government): Since the corporate entities directly or potentially affected by the impugn legislation were functioning with full legal capacity at the time of the filing of the present application, there are no exceptional circumstances in the present case justifying the disregarding of the legal personality of Mohatchi and Kenezi banks.
GR1 (Government): There are no exceptional circumstances justifying the piercing of the corporate way.
GR1 (Government): The government recalled the well-established case law of the court, concordant with the jurisprudence of the International Court of Justice, that the concept of the public company is founded on a firm distinction between the rights of the company and those of its shareholders.
GR1 (Government): Only the company, endowed with the legal personality, can take action in respect of corporate matters.
GR1 (Government): A wrong done to the company can indirectly cause prejudice to its shareholders, but this does not imply that both are entitled to claim compensation.
GR1 (Government): Whenever a shareholder's interests are armed by a measure directed at the company, it is up to the latter to take appropriate actions.
GR1 (Government): An act infringing only the company's rights does not involve responsibility towards the shareholders, even if their interests are affected.
GR1 (Government): Such responsibility arises only if the act complained of is aimed at the rights of the shareholders as such, or if the company has been wound up.
GR1 (Government): The applicants in this case have not put forward any reasonable explanation as to why their banks had failed to submit the present application themselves.
GR1 (Government): Neither could they prove, for it was not so, that the banks had been in any way hindered by the law or by the authorities' actions to do so.
GR1 (Government): To paraphrase the court's findings in Agripexim, there is no evidence to suggest that at the material time, it would have been impossible as a matter of fact or a flaw for the organs set up under the Articles of Association of the Applicants' Companies to seek protection of their rights before the court.
GR1 (Government): In the relevant period, both banks did take part in domestic legal proceedings with full legal capacity.
GR1 (Government): There may be two equally possible reasons for the individual shareholders being the applicants in this case, instead of the banks on whose behalf they complain of the introduction of the Integration Act.
GR1 (Government): It might have been an error.
GR1 (Government): In this case, it is not for the court to rectify this error by departing from its well-established case law.
GR1 (Government): The principle of effective legal protection cannot be interpreted as proposed by the applicants to the effect of disregarding any and all of the admissibility criteria set forth in the Convention.
GR1 (Government): On the other hand, the choice of putting the shareholders in the position of applicants instead of the banks themselves might as well have been a deliberately calculated move to obscure the facts of the case.
GR1 (Government): For if the applicants had been the banks themselves, the focus on the case would have quickly shifted to the banks' gains from the integration, and the numbers would have spoken loudly for themselves, far from having suffered any loss of the value of their shares in the savings bank.
GR1 (Government): The applicants' banks benefited from a significant increase of the dividends paid for their shares in the savings bank.
GR1 (Government): While in 2013 and 2014, the dividends paid to the shareholders of the savings bank amounted to 3.55% and 7.45%, respectively,
GR1 (Government): of the normal value of the shares in 2015 and 2016 after the raise of the savings bank's capital by the contested measures, the dividends paid amounted to 48% and 65% of the nominal value of the shares.
GR1 (Government): The dividends obtained in the three years following the entry into force of the contested measures altogether were 10 times higher than in the prior three years.
GR1 (Government): This significant increase in profits in itself proves that the contested measures successfully fulfilled their purpose of increasing the profitability of the cooperative credit sector and provided sufficient compensation for any actual or perceived loss of influence over the management of this sector.
GR1 (Government): That being said, even if the applicants could have claimed low custody before the court to complain of the prejudice allegedly suffered by their banks on account of the entry into force of the Integration Act, they lost their low custody as a result of voluntary transactions they entered into following the filing of their application.
GR1 (Government): All shareholders of Mohatchi Bank, including the applicants, sold their shares to the savings bank and Kinezhi Bank with consent by the general meeting of the shareholders, transferred its contract portfolio to B3 Takareg Sovetkazet, and now operates as an investment company.
GR1 (Government): As a result, the applicants hold no shares in any bank that would be subject to the provisions of the Integration Act.
GR1 (Government): Consequently, the applicants can no longer claim to represent the banks formerly affected on account of having an economic interest in them.
GR1 (Government): In any event, the fact that the applicants have made a considerable income from these transactions prove that the complaints concerning the alleged deprivation of property, whoever the victim of the impugned measures was, were manifestly ill-founded from the outset.
GR1 (Government): the efforts that make it abundantly clear that the applications are inadmissible.
GR1 (Government): However, should the court piercing the corporate veil without exceptional reasons, leaving out of consideration the line between the individual applications and actio popularis and the requirement of exhaustion of domestic remedies, grant locus tendi to the applicants, and find that there was an interference with the right to property, the government argued that such interference pursued an important public interest and was proportionate to this public interest.
GR1 (Government): The interference was affected in the general interest to ensure a more effective, secure, and profitable operation of the banking sector, with special emphasis on providing proper financial services in rural areas.
GR1 (Government): In addition to the fact that the low capitalization of saving cooperatives led them to limit their lending activity and to substantially invest in state bonds and other low-risk forms of investments, thereby not providing services much needed for the development of rural areas, small size and low capitalization of savings cooperatives presented a twofold risk.
GR1 (Government): First, the relatively small saving cooperatives did not always have proper risk assessment mechanisms to assess the actual risk of a transaction, and thus capital adequacy ratios were often calculated on the basis of the unsound estimates.
GR1 (Government): These were the estimates the applicants relied on in contesting the necessity of the interference by the state.
GR1 (Government): In reality, an audit carried out by the independent audit firms showed that equity of the whole sector were more than 55 billion Hungarian forints, less than indicated in the balance sheets.
GR1 (Government): Second, already a limited number of larger scale loan defaults could pose a significant risk in view of the low capitalization of saving cooperatives.
GR1 (Government): These risks were demonstrated by the bankruptcy of two saving cooperatives in 2011 and in 2012.
GR1 (Government): More bankruptcies could have followed had it not been for the measures introduced by the Integration Act.
GR1 (Government): The Integration Act attempted to address the deficiencies of the highly important cooperative credit institutions to ensure the sustainability and profitability of these financial institutions, and through this to assist economic recovery by enhanced lending activity in small towns and the countryside.
GR1 (Government): These economic goals are sufficient to justify the state interference with the operation of the financial market.
GR1 (Government): States enjoy a wide margin of appreciation in the field of regulation of the use of property in accordance with their economic policy.
GR1 (Government): Contrary to the applicant's allegations, the general interest referred to in Article 1 of Protocol Number 1 to the Convention does not have to confirm to a pressing social need as required under Article 8 to 11 of the Convention, and no deprivation of property took place either, which would have arguably had to be justified by a stronger public interest than the realization of an economic policy.
GR1 (Government): Nevertheless, the complex aims of the Integration Act did include the protection of the rights of others in response to a pressing social need, while some measures simply pursued social and economic goals which governments are free to set in the general interest in the framework of their economic policies.
GR1 (Government): It is not for this Court to review these policies in the abstract.
GR1 (Government): It can only assess the effects of specific measures on the applicant's rights in concreto.
GR1 (Government): However, the applicants don't contest the effects of specific measures.
GR1 (Government): Such measures were specifically excluded from the scope of their application.
GR1 (Government): As regards the applicant's arguments contesting the general interest behind the adoption of the Integration Act, the government noted that the exclusion of certain financial institutions from the integration is no proof of the applicant's allegations.
GR1 (Government): The reasons for exclusion of some banks from the scope of the Integration Act by the legislator had been examined and upheld by the Constitutional Court in its decision number 20 of 2014.
GR1 (Government): Later decisions by the integration authorities were based on an individual assessment of the situation of each institution concerned as well as of the possible effects of their failures.
GR1 (Government): As an example shown by the document submitted to the Court, Széchenyi Credit Cooperative was excluded after having found that, one, it had acted rather irresponsible in the past despite any warnings by the supervisory authorities, and two, it provided services only to its members or owners, three, whose claims as depositors were covered by the General Insurance Fund, and thus, four, its failure would have no serious effect, five, whereas the integration's aim was not to protect the imprudent owners of cooperative credit institutions but the depositors and the prudent investors.
GR1 (Government): The exclusion of such institutions from the integration also served the applicant's interests directly and indirectly, since thereby the losses of these institutions did not diminish the profits of the cooperative credit sector, more specifically the savings bank, which thus could pay higher dividends to the applicant's banks.
GR1 (Government): Therefore, these measures served the applicant's interests as much as the general interest.
GR1 (Government): Not only was the reform pursuing the public interest in relation to stabilizing and intensifying the activity of cooperative credit institutions, it also contained a significant element of compensation, which ultimately rendered any interference proportionate.
GR1 (Government): The compensation manifestly itself by the financial contribution of the state to the integration organization amounting to 136 billion Hungarian forints, which resulted in a significant increase of dividends paid by the savings bank to the applicant's banks.
GR1 (Government): The indirectly affected applicants also were indirectly compensated by the increase of profitability of their enterprises.
GR1 (Government): But most of all, the fact that the applicants realized quite a significant income from their shares, which had allegedly been expropriated by the state as a result of the integration act, proves that they were not forced to bear an individual and excessive burden, if any at all.
GR1 (Government): for listening to me so patiently and that intently.
Linos-Alexandre Sicilianos (JudgeP): Judge Wennerström.
Erik Wennerström (Judge): Thank you.
Erik Wennerström (Judge): Thank you, Mr. President.
Erik Wennerström (Judge): Let me first ask whether acting through the companies was ever considered seriously by the shareholders, and if so, why it was discarded.
Erik Wennerström (Judge): That would be my first question.
Erik Wennerström (Judge): My second question concerns the imperatives for the legislative reform that took place that has been described.
Erik Wennerström (Judge): Now, we have been informed of events taking place in Hungary and a national interest in the reform, but we have also had references to EU legislation making requirements on the legislation.
Erik Wennerström (Judge): Could you please elaborate upon the proportions of these two imperatives?
Erik Wennerström (Judge): To what extent was this defending a national interest?
Erik Wennerström (Judge): To what extent was it EU compliance?
Linos-Alexandre Sicilianos (JudgeP): Thank you very much, Judge Chanturia.
Lado Chanturia (Judge): I have two questions, one for the applicant and second for the government.
Lado Chanturia (Judge): The first question for applicant, in your application, you complained about the violation of your rights under Article 1, Protocol Number 1, as shareholders of “Kinizsi” Bank and “Mohácsi” Bank, but not as representatives of your banks.
Lado Chanturia (Judge): Is it correct?
Lado Chanturia (Judge): I'm asking it because formally, the decision to remain in the new scheme was the decision was made by the banks.
Lado Chanturia (Judge): And it is necessary to make distinction between the bank as a legal entity and shareholders of this bank.
Lado Chanturia (Judge): Second question to the government, you mentioned in your communication that the cooperative credit institutions had a choice to remain in the new scheme, new system, or to leave it, to exit the system.
Lado Chanturia (Judge): The applicant contested it because the exit was not realistic.
Lado Chanturia (Judge): And my question is, how realistic was the option of exit?
Lado Chanturia (Judge): And do you have information about the banks who did apply this right to exit from the new scheme?
Linos-Alexandre Sicilianos (JudgeP): Thank you very much. Judge Dedov.
Dmitry Dedov (Judge): First of all, I would like to ask the applicants to clarify their victim status, because they did not raise this issue.
Dmitry Dedov (Judge): And the second question is to the government.
Dmitry Dedov (Judge): The question is very simple.
Dmitry Dedov (Judge): Whether the government apply the Basel principles of the prudential supervision.
Dmitry Dedov (Judge): And if yes, and I think that the government surely apply this principle, because they're very recognized and known principles.
Dmitry Dedov (Judge): Do these principles include the corporate control over the financial institutions?
Dmitry Dedov (Judge): And if not, why the government choose to go further and to have this control in addition to these principles and requirements for the capital of the financial institutions?
Linos-Alexandre Sicilianos (JudgeP): Thank you very much, Judge Pavli.
Darian Pavli (Judge): I have a question for the applicant, but the government, of course, may feel welcome to comment as well.
Darian Pavli (Judge): My question relates to one of your submissions with respect to when you discovered the possibility of the banks themselves as corporate entities bringing this case, you argued that they were under various forms of pressure and specifically that there was pressure exerted on them after their filing a petition with the Constitutional Court of Hungary.
Darian Pavli (Judge): And so I'd be grateful if you could elaborate a little bit on that, on the specifics of what happened after the filing of the petition with the Constitutional Court.
Linos-Alexandre Sicilianos (JudgeP): I would like also to put a question to the applicants, but perhaps the government may wish to react also.
Linos-Alexandre Sicilianos (JudgeP): Could you please clearly resume the ways by which the applicants have been directly and personally affected in their capacity as shareholders in this particular case?
Linos-Alexandre Sicilianos (JudgeP): And second question also, the government says that dividends have in fact been paid during the years 2014 to 2016.
Linos-Alexandre Sicilianos (JudgeP): Can the applicants confirm this or not?
Linos-Alexandre Sicilianos (JudgeP): So with this, I think that we can withdraw for 30 minutes, following which the parties will be able to submit their brief observations in reply to each other's submissions and to reply to the questions of the judgment.
Linos-Alexandre Sicilianos (JudgeP): So the hearing is suspended.
AP1 (Applicant): I would answer the questions of Mr. Wennerstrom, Mr. Giantulli and Mr. Pavli in one because
AP1 (Applicant): they relate to the very same question.