TrustHLT/LaCour huggingface dataset:
AP1 (Applicant): foreign dividend in case of Mohajibank and the 300 million foreign dividend in case of Kinijibank should also be taken into account.
AP1 (Applicant): This argument is also wrong.
AP1 (Applicant): As these dividends related to earnings accumulated before the entry into force of the Integration Act, the source of the dividend was not included in our valuation.
AP1 (Applicant): It would, therefore, be wrong to deduct this dividend once again from the valuation.
AP1 (Applicant): Summarizing these arguments, we submit that the applicants have standing in this procedure.
AP1 (Applicant): Now I will turn to the question of unjustified interference.
AP1 (Applicant): It is not disputed between the parties that there was an interference with the applicant's right to property.
AP1 (Applicant): As we have explained in our submissions, the interference qualifies as deprivation of property or at least control of use.
AP1 (Applicant): Whichever is the correct characterization of the state's interference with the applicant's rights, the requirements laid down in Article 1 of Protocol Number 1 apply.
AP1 (Applicant): Thus, the impugned legislation violates the convention unless it serves the public interest, it complies with the requirements of the rule of law, and it is proportionate and provides adequate compensations for the victims.
AP1 (Applicant): Our position is that the Integration Act fails to meet any of these requirements.
AP1 (Applicant): Concerning the question of public interest, the government argues that the Integration Act was necessary to protect the depositors and investors and to ensure profitable operation.
AP1 (Applicant): First, I will explain that these reasons, even if they were valid in relation to the savings cooperative sector, do not apply to the banks.
AP1 (Applicant): Then I will also show that the alleged reasons are also wrong in relation to the savings cooperative sector.
AP1 (Applicant): When the Integration Act was introduced, as I explained, the applicants were shareholders of the banks and not of savings cooperatives.
AP1 (Applicant): The government never contested that the banks operated profitably, complying with the statutory capital requirements, maintaining at all times their solvency and liquidity.
AP1 (Applicant): The government argues that the banks fell under the scope of the Integration Act because it was unavoidable to extend the scope of the legislation to the banks for two reasons.
AP1 (Applicant): First, because the banks were members of voluntary institution protection scheme, and second, because they had other strong ties to the sector.
AP1 (Applicant): Let me now turn to the first argument.
AP1 (Applicant): The starting point is that the predecessors of the banks and the banks themselves were free to leave the voluntary institution protection scheme before the introduction of the Integration Act.
AP1 (Applicant): There was absolutely no legal necessity to extend the scope of the Integration Act to the banks, which is clearly supported by the following facts.
AP1 (Applicant): First, the joint and several liability among the members of the integration was only introduced about a year after the new rules entered into force.
AP1 (Applicant): The joint and several liability would not cover institutions who exited the integration in this period.
AP1 (Applicant): Second, not all institutions who were previously members of the voluntary institution protection scheme became members of the new integration.
AP1 (Applicant): First, the Integration Act was not applicable to six savings cooperatives.
AP1 (Applicant): Second, Széchenyi Bank was also exempted, even though it was also a member of the voluntary institution protection scheme.
AP1 (Applicant): And furthermore, the integration institutions themselves excluded from the integration four savings cooperatives that were in difficult financial position before the joint and several liability entered into force.
AP1 (Applicant): These examples show that contrary to the government's allegations, it would have been possible both legally and technically to exclude the banks from the integration.
AP1 (Applicant): In addition, these special treatments not only prove the lack of public interest, but they also show that the personal scope of the Integration Act was defined arbitrarily.
AP1 (Applicant): Therefore, the Integration Act was discriminatory.
AP1 (Applicant): The second argument of the government, according to which the banks were included in the integration as they had strong ties to the sector, is also not convincing.
AP1 (Applicant): The banks, based on their free choice, considering the reasonable price offered, used some services of the saving bank and other service providers who also provided services to the savings cooperatives.
AP1 (Applicant): It is difficult to see, however, how the fact that, for example, the banks use the same provider of IT or cash transportation services as some other savings cooperatives would make it inevitable to force them into the integration.
AP1 (Applicant): The banks were not in a position that would have required any kind of state intervention, and the government failed to give any convincing argument why it was unavoidable to include the banks in the integration.
AP1 (Applicant): Therefore, in respect of the banks, the Integration Act served no public interest at all.
AP1 (Applicant): Let me now summarize why the government's arguments supporting public interest in relation to the savings cooperatives are also without merits.
AP1 (Applicant): Let us focus first on the profitability argument.
AP1 (Applicant): Our position is that this argument is wrong for two reasons.
AP1 (Applicant): First, the government failed to prove that the savings cooperative sector was not operating profitably.
AP1 (Applicant): As we have proved in our submissions in 2011 and 2012, the last two years before the integration, the losses of the commercial bank exceeded 400 billion forint.
AP1 (Applicant): In the same years, the savings cooperative sector operated profitably.
AP1 (Applicant): Second, we deny the government's claim that the more effective and profitable operation of the private entities in itself qualifies as public interest.
AP1 (Applicant): This justifies state interference.
AP1 (Applicant): This is in particular the case in the savings cooperative sector where although efficiency is an important requirement, the main objective is to serve the residents even if they are not wealthy and educated enough to use the more sophisticated banking services.
AP1 (Applicant): The second argument of the government is that the depositors of the savings cooperatives were in danger.
AP1 (Applicant): Before showing that this argument is unfounded, it is important to highlight that the problems referred to by the government have only been identified after the Integration Act entered into force.
AP1 (Applicant): Accordingly, potential problems not yet even identified logically could not have served as the basis for the legislation.
AP1 (Applicant): The government supports its position primarily by referring to the fact that out of 117 savings cooperatives, four did not meet the capital requirements in 2013.
AP1 (Applicant): However, these cases actually contradict the government's argument.
AP1 (Applicant): First, the losses of these savings cooperatives arose out of grave misconducts.
AP1 (Applicant): This is clearly supported by the fact that several criminal procedures were launched in relation to the activities of some of these institutions.
AP1 (Applicant): Such reckless behavior has never been typical at the savings cooperatives.
AP1 (Applicant): Therefore, it is groundless to make any general conclusion with respect to the sector.
AP1 (Applicant): To provide perspective for comparison, within the 20 years of the operation of the Voluntary Institution Protection Scheme, no savings cooperative belonging to the scheme became insolvent.
AP1 (Applicant): Second, it is particularly striking that the four savings cooperatives which served as the raison d'etre of the integration were excluded from it.
AP1 (Applicant): These cases, therefore, cannot support that the impugned legislation served the public interest.
AP1 (Applicant): The government further tries to support the necessity of the impugned measures by the results of the audits completed following the adoption of the Integration Act.
AP1 (Applicant): The government reports that as a result of the audit, almost two-thirds of the savings cooperatives were obliged to increase their reserves.
AP1 (Applicant): The government, however, fails to mention that these institutions complied with the instructions received from the integration institutions and provided the missing capital from their own funds, and it was necessary to provide additional funds only in respect of three savings cooperatives in the total amount of 1.7 billion forint,
AP1 (Applicant): less than 1% of the solvency capital of the savings cooperatives falling under the scope of the Integration Act.
AP1 (Applicant): This example clearly shows that in general, these institutions were sufficiently capitalized, and what was needed is not the reorganizations of the saving cooperative sector, but rather the strengthening of the state supervision.
AP1 (Applicant): In summary, we argued that the interference was not based on public interest.
AP1 (Applicant): One might, therefore, ask what the real reason for the brutal interference was.
AP1 (Applicant): This brings us to the third argument of the government.
AP1 (Applicant): The government also argues that one of the purposes of the integration was the protection of investors.
AP1 (Applicant): Now, this argument is nothing more than a severe insult on the applicants and all other ex-members of the savings cooperatives.
AP1 (Applicant): As a result of first acquiring majority state ownership in the savings bank and control of the integration institutions, and then reprivatization, the shareholders of the savings cooperatives have been swept out of the sector.
AP1 (Applicant): The Integration Act was used as a tool to ensure that the savings cooperatives and some banks carefully cherished by the state and the integration institutions are merged into a single commercial bank controlled by a handful of selected new owners.
AP1 (Applicant): The government's goal has already been announced in July 2013 in a speech of the Prime Minister when he said that the purpose of the government with the restructuring of the savings cooperative sector is to create a market participant that can be measured to OTP, the largest Hungarian bank.
AP1 (Applicant): Not surprisingly, with the mergers on the 31st of October 2019, the savings bank became the fifth largest bank in Hungary and the CEO of the bank announced earlier that with further mergers, the goal is to create the second largest Hungarian bank without whether creating a competitor to another bank could qualify as public interest.
AP1 (Applicant): More importantly, as Professor Kish judged the Hungarian Constitutional Court in his dissenting opinion stated, the Integration Act makes it clear that the confiscation was executed not with a view to public interest, but for the benefit and in the interest of private individuals through the state as intermediary.
AP1 (Applicant): Before the Integration Act entered into force, the savings cooperative sector had 150,000 owners and the savings cooperatives had majority stake in the savings bank.
AP1 (Applicant): Under the new regime, there are no savings cooperatives anymore.
AP1 (Applicant): The previous owners of the absorbed institutions have lost any control.
AP1 (Applicant): According to newspaper articles and company documents, the savings bank has three dominant owners and all assets of the extinguished savings cooperatives are owned in majority by the savings bank.
AP1 (Applicant): It is common knowledge that the three owners are all government-friendly investors who have an established status in the new economic elite established after the 2010 re-election of Mr. Orbán,
AP1 (Applicant): the Hungarian Prime Minister.
AP1 (Applicant): Should the court find that the interference still served public interest, I will now argue that it was not proportionate.
AP1 (Applicant): This court stated in several cases that it is not for the court to say whether a legislation represents the best solution for dealing with a problem.
AP1 (Applicant): But the court always said that this does not give an absolute exemption from the scrutiny of the court.
AP1 (Applicant): The court may find that the interference was disproportionate if the legislator did not remain within the bounds of its margin of appreciation.
AP1 (Applicant): We respectfully submit that the government in this case failed to remain within these bounds.
AP1 (Applicant): We ask this court to find that the interference was disproportionate.
AP1 (Applicant): I will give three reasons.
AP1 (Applicant): First, the government failed to prove that it carried out any kind of balancing test.
AP1 (Applicant): Second, the government could have applied less intrusive measures.
AP1 (Applicant): In the years preceding the Integration Act, the Voluntary Institution Protection Scheme, with the support of the Banking Supervisory Authority, effectively assisted the consolidation of the sector.
AP1 (Applicant): In this process, in every region, the biggest and most efficient institutions absorbed those, the efficient operation of which on the longer term did not seem assured.
AP1 (Applicant): Similar methods were used in other European countries.
AP1 (Applicant): We are not aware of any European country where the original owners lost their rights as a consequence of direct state intervention, where even the technical details are included in acts so that no legal remedy would remain available.
AP1 (Applicant): The safety and effectiveness of the sector could have been significantly improved by measures such as further increasing the competence and resources of the Voluntary Institution Protection Scheme and strengthening the supervision of the institutions in the savings cooperative sector.
AP1 (Applicant): These measures would have resulted in the strengthening of the protection of depositors and also in the increasing of the efficiency of the sector without interfering with the property rights of the members or the shareholders.
AP1 (Applicant): Our third reason concerning the lack of proportionality is that contrary to the government's allegations, neither the applicants nor the bank benefited from the integration.
AP1 (Applicant): Just to give two examples.
AP1 (Applicant): The first example is that the 136 billion foreign state funds to which the government referred only ensured that the state acquired 99.75% share
AP1 (Applicant): in the integration organization, but never provided any benefits to the banks or the applicants.
AP1 (Applicant): The second example shows that contrary to the government's arguments, all benefits of the integration were allocated to the savings bank.
AP1 (Applicant): This is clear if we compare the average earnings before and after the integration.
AP1 (Applicant): Comparing the years 2010, 2012 to the years 2014 and 2018, the earnings of Kineji Bank decreased by almost 90% and the earnings of Mohachi Bank decreased by 64%.
AP1 (Applicant): At the same time, the earnings of the savings bank increased by 1000%.
AP1 (Applicant): If we compare 2012 to 2018, the increase is 4000%.
AP1 (Applicant): This means that all benefits of the integration was allocated to a well-chosen small circle of shareholders.
AP1 (Applicant): To conclude, the question this court needs to answer is a very simple one.
AP1 (Applicant): In the absence of legitimate public interest, does the fact that the applicants' voting rights were severely restricted, and as a consequence, the share lost their value, qualify as an infringement of Article 1 of Protocol No. 1
AP1 (Applicant): of the Convention?
AP1 (Applicant): We respectfully submit that it does.
AP1 (Applicant): Therefore, we ask the court to establish that the Integration Act violated the rights of the applicants and to afford just satisfaction.
Linos-Alexandre Sicilianos (JudgeP): I call now Mr. Tallódi.
Linos-Alexandre Sicilianos (JudgeP): Please, you have the floor.
GR1 (Government): ladies and gentlemen, it's a privilege and an honor to appear before the Court and set out the position of the Government of Hungary in this seemingly complicated but ultimately rather clear case.
GR1 (Government): The case concerns a legislative reform affecting the financial sector of Hungary in the aftermath of 2009 global financial crisis.
GR1 (Government): This reform, initiating a process of integration of cooperative credit institutions, had the purpose to ensure the stable and profitable operation of a financial sector comprised of 121 cooperative credit institutions, following well-known models of integration of savings cooperatives and in accordance with the relevant European Union law.
GR1 (Government): EU legislation were decisive in shaping the reform as they require for an integration of financial institutions the power of instruction by the central body vis-à-vis the affiliated institutions, the joint and several liability of the members, and the joint monitoring of the solvency and liquidity of the central body, and of all the affiliated institutions.
GR1 (Government): The reform was considered essential to enhance financing for enterprises and consumers in smaller towns and villages where cooperative credit institutions mostly operate.
GR1 (Government): In the following, I shall first address the scope of the case and then argue that the applicants lack victim status or in any event they have lost their locus tandi on behalf of the affected companies as a result of voluntarily selling their shares in Moacibank or by the selling of a part of the portfolio of Kinezibank.
GR1 (Government): In the alternative, I shall argue that even if the applicants could be considered as victims, the integration act did not constitute deprivation of property as alleged by the applicants, but a measure of control of use of property.
GR1 (Government): And finally, this interference was justified by important public interests and was proportionate in view of the significant financial contribution of the state to the integration of cooperative credit institutions.
GR1 (Government): As regards the scope of the case, the measures complained of are certain provisions of act, number 135 of 2013, on the integration of cooperative credit institutions, the so-called integration act.
GR1 (Government): The complaint is not about their application, but about their very existence.
GR1 (Government): The applicants did not complain of any specific measures taken on the basis of the integration act, but claimed that they had been deprived of their property by virtue of the entry into force of the integration act.
GR1 (Government): They alluded that the measures complained of amounted to confiscation of their possessions.
GR1 (Government): However, it must be borne in mind that the possessions they had allegedly been deprived of in 2013 consisted of shares in their banks operating in the cooperative credit sector, which yielded them about 3.5 billion forints in dividends between 2014
GR1 (Government): and 2016, and which they later sold for 4 billion forints altogether, while still retaining a company with a value of 2.9 billion forints.
GR1 (Government): It's a quite significant profit from a property the applicants have allegedly no longer had since 2013, or it is a clear indication that the applicants' allegations of interference with their right to property are manifestly untrue.
GR1 (Government): the integration act affected cooperative credit institutions, that is, corporate entities, yet the applications the court is dealing with today were submitted by a group of shareholders of two such financial institutions, Mohachi Bank and Kinezhi Bank.
GR1 (Government): The government of Hungary agrees with the findings of the judgment of the chamber that the applicants lack victim status.
GR1 (Government): They are basically two main reasons why the applicants could not be regarded as victims of the alleged violations.
GR1 (Government): First, the applicants complain of certain provisions of the integration act in the abstract, and not the application of these provisions to them.
GR1 (Government): Thus, the present application is in essence an actio popularis, which is not admissible under article 34 of the convention.
GR1 (Government): The applicants complain that the ownership structure in the cooperative credit sector was altered.
GR1 (Government): However, these changes did not affect their ownership in their banks.
GR1 (Government): They complain that shareholders of the savings bank were obliged to sell certain type of shares.
GR1 (Government): However, the applicants were not shareholders of the savings bank and did not own that particular type of shares.
GR1 (Government): They complain that the shares obtained by the state, not from the applicants, were later sold to a rival private company and not to the applicants' banks and their partners.
GR1 (Government): However, the convention doesn't grant the right to obtain property.
GR1 (Government): It only requires that existing possessions be respected.
GR1 (Government): The transaction complained of did not affect the applicants' possessions as shareholders of their banks.
GR1 (Government): They might as well claim to have been affected by such transaction as taxpayers.
GR1 (Government): However, the state budget is not covered by the notion of possessions within the meaning of article 1 of protocol number 1 to the convention.
GR1 (Government): The above are examples of allegations about effects of the integration act, which are essentially true, but did not directly affect the applicants' possessions and therefore cannot serve as a ground for recognizing their victim status.
GR1 (Government): On the other hand, the applicants also made some allegations which are untrue.
GR1 (Government): Contrary to the applicants' allegations, none of the impugned provisions provided for the loss of any competence of the general meeting of their banks, nor can we talk about total control of their activities, as the applicants suggest.
GR1 (Government): Instead of a direct interference, as the applicants suggest, the respective provisions of the integration act provided for the possibility of interference by the integration organization or the savings bank with certain decisions of the general meetings of the banks.
GR1 (Government): In accordance with EU legislation, the central body of the integration has the power of supervision and instruction vis-a-vis the affiliated institutions.
GR1 (Government): Like, as the constitutional court's decision also referred to its powers, a quasi-administrative authority.
GR1 (Government): The designation of the savings bank as the central bank of the integration and not the base bank, as the applicants have chosen to translate it, clearly shows that the savings bank had tasks and powers in respect of the members of the integration, similar than the central bank of Hungary.
GR1 (Government): The Hungarian National Bank has, in respect of financial institutions outside the integration.
GR1 (Government): With the difference that unlike the applicants' banks at the general meeting of the savings bank, normally banks have no say at all in the functioning of the central bank.
GR1 (Government): It seems to be the right place here to note that the integration act provided for exactly those enhanced supervisory powers in respect of the applicants' banks, notably the decisions of the general meeting of the shareholders, which the applicants claim in their observations to should have sufficed as less intrusive measures to ensure the future stability of the sector.
GR1 (Government): It follows that as far as the measures affecting the powers of the general meeting of the shareholders are concerned, the applicants accepted their necessity and proportionality in their observations.