CASE OF KÖNYV-TÁR KFT AND OTHERS v. HUNGARY

1. The case originated in an application (no. 21623/13) against Hungary lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by Könyv -Tár Kft, Suli-Könyv Kft and Tankönyv -Ker Bt (“the applicant companies ”), on 26 March 2013.
2. The applicant companies were represented by Mr P. Köves, a lawyer practising in Budapest. The Hungarian Government (“the Government”) were represented by Mr Z. Tallódi, Agent, Ministry of Justice.
3. On 17 October 2013 notice of the application was given to the Government.
I. THE CIRCUMSTANCES OF THE CASE
4. The first applicant company, Könyv-Tár Kft, is a limited liability company with its registered office in Budapest. The second applicant company, Suli-Könyv Kft, is a limited liability company with its registered office in Tata. The third applicant company, Tankönyv-Ker Bt, is a limited partnership company with its registered office in Budapest.
5. The applicant companies are schoolbook distributors.
6. The Hungarian school system was entirely reorganised by a series of measures adopted in 2011 and 2012. The schools, formerly decentralised, became subject to centralised State management. On 9 December 2011 and 24 July 2012 respectively, Acts nos. CLXVI of 2011 and CXXV of 2012 (collectively referred to as “the New Regulations”) were published in the Official Gazette; they contained, inter alia, provisions amending Act no. XXXVII of 2001 on the Schoolbook Market. The amendments came into force on 1 October 2012 and were effective from the school year starting in September 2013. The essence of the new legislation was already contained in the first amendment, published in December 2011.
7. The applicant companies submitted that the Hungarian schoolbook distribution market, as a whole, had previously involved three groups of market participants: the publishers, the distributors and the schools. Prior to the New Regulations ’ entry into force, it could be considered a semi- regulated market; in respect of the publishers this meant that the legislature had established the requirements for a book to qualify as a schoolbook, and it often applied certain measures in this context, such as maximum prices or State subsidies based on indigence. However, the schoolbook distribution sector in itself was an unregulated market. The schoolbook distributors ’ clients were the schools, which, in an often highly competitive market, were able to select the publishers and schoolbook distributors, the former for the products they offered and the latter mainly for their reliability and accessibility and for the discounts promoted.
8. The task of distributors included not only the provision of logistical services but the processing of orders, the management of customised billing and the handling of returns. Most of the companies dealing with the distribution of schoolbooks leased warehouses and delivery vehicles for a two-to-four- month period when performing their activities, which were predominantly seasonal in nature. Besides their regular staff, ranging from three to fifty-seven employees, they employed an additional ten to thirty seasonal workers, normally students, for the compilation of schoolbook packages. Larger market participants generally had their own vehicles and storage bases where they performed both retail and wholesale activities. These companies bought the books from the publishers and made them available to the smaller distributors. There were well over thirty market-dominant schoolbook distributors operating in the country (six large and about thirty medium-sized distributors).
9. Participants in the market strove to acquire as many schools as possible as clients, in particular those which were located in the area close to the distributors ’ warehouses, in order to be able to optimise delivery costs. They made continuous efforts to keep hold of their clients, the schools, by providing flexible and prompt services. The wholesale price margin was generally about 3 % to 5 %, and the operating profit about 1 % to 5 %.
10. The first applicant, Könyv-Tár Kft, distributed educational materials for elementary and secondary schools. In this activity, it had business relationships with some 200 publishers, sixty of them being schoolbook publishers. In 2012 it supplied 126 schools.
11. The second applicant, Suli-Könyv Kft, served directly (i) 90 % to 95 % of schools in Komárom-Esztergom County; (ii) 100 % of schools in the western part of Pest County; (iii) 65 % to 70 % ) of schools in the northern part of Pest County; (iv) 95 % to 100 % of schools in Győr-Moson-Sopron County; (v ) 95 % to 100 % of schools in Vas County; (vi) 85 % to 90 % of schools in Veszprém County; and (vii) 25 % to 30 % of schools in Budapest. Moreover, it supplied more than 1,200 schools indirectly via subcontractors dealing exclusively in schoolbook retail, competing with another five large distributors.
12. The third applicant, Tankönyv-ker Bt, supplied about thirty-five schools in two counties.
13. The New Regulations introduced a new system of schoolbook distribution in Hungary, laying down that “schoolbook supply” ­ – comprising the order and purchase of school textbooks and their delivery to schools, and the collection of the purchase price from schools – was a public-interest responsibility of the State.
14. According to the reasoning of the relevant bill, the legislature ’ s intention was to discharge these duties through a single, State-owned non-profit book distribution company, Könyvtárellátó Kiemelten Közhasznú Nonprofit Kft ( Non - profit Library Supplier Limited Liability Company; hereinafter “Könyvtárellátó”). A description of the objectives pursued gave the following reasons for the decision:
“ to strengthen the schoolbook procurer ’ s position through the uniform and centralised procurement of schoolbooks ... and ... to make schoolbook distribution more transparent by generating competition in a stronger position, that of the procurer. ”
15. The applicant companies submitted that the New Regulations had centralised and monopolised the schoolbook distribution market with a guaranteed margin of 20 % for the State-owned schoolbook distributor, without providing any compensation for former market participants, including themselves. As a consequence, the applicant companies and other schoolbook distributors had effectively been barred from the market (which was either their exclusive or major field of activity), where they had been operating freely prior to the entry into force of the New Regulations.
16. The applicant companies filed a constitutional complaint with the Constitutional Court, requesting that the New Regulations be repealed. However, in their submissions to the Court, they stated that this was not an effective remedy because even if the Constitutional Court had repealed the New Regulations, they would have needed to reinvest a significant amount of money in order to re-establish their business, and would have been unable to repair the damage they had already sustained.
17. On 14 April 2014 the Constitutional Court terminated the proceedings without an examination of the merits of the applicant companies ’ complaint. The Constitutional Court noted that subsequent legislation, Act no. CCXXXII of 2013 on Schoolbook Supply in the National Public Education System, had been enacted, and had entered into force on 1 January 2014. This legislation repealed Act no. XXXVII of 2001 on the Schoolbook Market entirely, including the impugned New Regulations. The Constitutional Court found that the examination of the provisions ’ alleged unconstitutionality had thus become redundant.
As of 1 January 2014, Act no. CCXXXII of 2013 had completely removed any schoolbook distribution based on the free market, and had introduced an entirely State-organised form of schoolbook supply to the Hungarian public education system.
The applicant companies did not file a constitutional complaint against Act no. CCXXXII of 2013.
18. The relevant provisions of Act no. XXXVII of 2001 on the Schoolbook Market, as amended by section 14(1) of Act no. CLXVI of 2011 and Act no. CXXV of 2012, and in force between 1 October 2012 and 1 January 2014, provided:
“ (6) The ordering, purchase and delivery of school textbooks to schools, and the collection of the purchase price from schools (hereinafter ‘ schoolbook supply ’ ) shall be tasks of public interest performed by the State via the Non - profit Library Supplier Limited Liability Company (hereinafter ‘ Könyvtárellátó ’ ) ... ”
“ (13) Other school textbook publishers and distributors or substitute suppliers may, upon agreement with Könyvtárellátó, participate in carrying out the tasks related to schoolbook supply ... ”
19. The relevant provisions of Act no. CCXXXII of 2013 on Schoolbook Supply in the National Public Education System, in force as of 1 January 2014, provide :
“ (2) The nationwide ordering, purchase and delivery of school textbooks to schools, and the collection of the purchase price from schools (hereinafter ‘ schoolbook supply ’ ) shall be tasks of public interest to be performed by a non - profit limited liability company (hereinafter ‘ Könyvtárellátó ’ ) appointed by the State by decree of the Government. ”
20. The relevant provisions of the Fundamental Law of Hungary provide:
“ (1) The economy of Hungary shall be based upon work as the very foundation of productivity, and upon freedom of enterprise.
(2) Hungary shall ensure the conditions of fair economic competition, act against the abuse of a dominant economic position and protect the rights of consumers. ”
“ (1) Every Hungarian citizen shall have the right to formal and non-formal education.
(2) Hungary shall implement this right through the dissemination of and by providing general access to, community culture, by providing free and compulsory primary schooling, free and universally accessible secondary education, and higher education made available to all on the basis of their ability, as well as by providing financial support as laid down in an act of Parliament to those receiving education.
(3) An act of Parliament may set as a condition for receiving financial aid at a higher educational institution participation, for a specific period of time, in employment or enterprise that is regulated by Hungarian law. ”
“ (1) Everyone shall have the right to freely choose his or her job or profession, and the freedom to conduct a business. Everyone shall have a duty to contribute to the enrichment of the community through his or her work, performed according to his or her abilities and faculties.
(2) Hungary shall endeavour to ensure the possibility of employment for everyone who is able and willing to work. ”
“ (1) The Government shall implement the central budget lawfully and efficiently, under the principle of prudence and transparency. ... ”
21. Judgment no. Pfv.IV.20.602/2017/5 of the Kúria contains the following passages :
“ [20] ... Certainly, the Hungarian labour - law provisions ( section 115 of the Labour Act, as in force in the relevant period) were not in compliance with Article 7 (1) and (2) of Directive 2003/88/EC. The Hungarian rules, at least to some extent, were clearly in conflict with the provisions of the EU directive.
[21] The Kúria holds, despite the findings of the final and binding judgment, that the direct consequences of such a legislative error (mistake), namely the claimant ’ s deprivation of days of paid leave, had a substantive effect on his private life. ...
[22 ] ... The relevant case-law of the Court of Justice of the European Union has clarified that it is exclusively the national law that applies to the national courts ’ assessment of actual liability for damage.
[23] Although there had been a proposal to include provisions in the new Civil Code regarding the legislature ’ s liability for damage caused by legislation, that proposal was finally not accepted; and the old Civil Code did not include any such provisions. The court as a law enforcer cannot, at its own discretion, countervail that.
[24] Pursuant to Article 339 of the old Civil Code, a person who unlawfully causes damage to another person is liable for such damage. He is relieved of liability if he is able to prove that he has acted in a manner that can generally be expected in the given situation. The Kúria finds that this provision cannot be applied to the relationship between the claimant and the defendant in the present case. It is well- established case-law under the old Civil Code that Article 339 was not applicable to damage caused by legislation. Thus, in the absence of any applicable legal provisions, the court correctly dismissed the claimant ’ s claims for damages in a final and binding judgment, which is therefore upheld by the Kúria. ”
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1 TO THE CONVENTION
22. The applicant companies complained that the creation of a State monopoly in the schoolbook distribution market had deprived them of the peaceful enjoyment of their possessions, in breach of Article 1 of Protocol No. 1 to the Convention, which reads:
“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.”
23. The Government argued that the complaint was premature and that the applicant companies had not exhausted all the effective domestic remedies, as required by Article 35 § 1 of the Convention. They submitted that the constitutional complaint submitted by the applicant companies was an effective remedy in relation to which proceedings were still ongoing at that time. It was not disputed by the Government that the Constitutional Court could not award damages for the violation of constitutional rights. However, the Government asserted that once the preliminary issue of the constitutionality of the legislation was determined by that court, damages could be sought before the ordinary courts in civil proceedings.
24. Moreover, maintaining that European Union ( EU ) law was not relevant in the present case and that, in any event, its application fell outside the Court ’ s jurisdiction, the Government argued, referring to Laurus Invest Hungary KFT and Others v. Hungary ((dec.), nos. 23265/13 and 5 others, ECHR 2015 (extracts)), that the applicant companies should have brought an action in damages on the basis of a breach of EU law, failing which they had failed to exhaust domestic remedies.
25. The applicant companies emphasised that the Government had failed to prove that an action against the legislature underpinned by a constitutional complaint was available and effective. They referred to the case of Vékony v. Hungary ( no. 65681/13, 13 January 2015), arguing that, under the current Hungarian jurisprudence, the legislature could not be held liable for its actions; and any such lawsuit against the legislature was only a theoretical possibility which could not be considered an effective remedy. Moreover, they submitted that, to their knowledge, no provision of EU law required a government to monopolise the schoolbook distribution market without compensation.
26. With regard to the applicant companies ’ constitutional complaint which was pending at the time of the application, the Court reiterates that the requirement for the applicant to exhaust domestic remedies is normally determined with reference to the date on which the application was lodged with the Court (see Baumann v. France, no. 33592/96, § 47, ECHR 2001 ‑ V (extracts) ). However, the Court also accepts that the last stage of the exhaustion of domestic remedies may be reached shortly after the lodging of the application but before the Court determines the issue of admissibility (see Škorjanec v. Croatia, no. 25536/14, § 44, ECHR 2017 ( extracts )). In the present case, the Court observes that the Constitutional Court eventually terminated the case without examining its merits. The Court is of the view – without addressing the question as to whether in general a constitutional complaint to the Hungarian Constitutional Court is an effective remedy for the purposes of Article 35 § 1 of the Convention – that in the present case the applicant companies cannot be expected to have lodged another constitutional complaint challenging Act no. CCXXXII of 2013 once their first constitutional complaint had been dismissed by the Constitutional Court without an examination of the merits.
27. In respect of a potential action in damages on the basis of a breach of EU law, the Court takes into consideration a recent judgment of the Kúria (no. Pfv.IV.20.602/2017, see paragraph 21 above), where the latter examined the responsibility of the Hungarian State for wrongful implementation of EU legislation. It found that the State had failed to properly implement an EU Directive, and that this omission had had repercussions on the claimant ’ s private life. Therefore, the State ’ s responsibility could in principle be engaged; however, the Kúria dismissed the claim for damages because the Civil Code did not contain any provision on the direct liability of the legislature. The Court is thus not persuaded that in the present case an action in damages on the basis of a breach of EU law would have been a remedy capable of providing redress for the applicant companies ’ complaints and offering reasonable prospects of success (see Sejdovic v. Italy [GC], no. 56581/00, § 46, ECHR 2006-II).
28. In sum, the Court is satisfied that it is not possible to reject the application for non-exhaustion of domestic remedies.
29. Further, the Government argued that there was no “possession” in the present case attracting the guarantees of Article 1 of Protocol No. 1, and that therefore the applicant companies ’ complaint was incompatible ratione materiae with the provisions of the Convention. They emphasised that the Convention did not guarantee the right to acquire property, and future income was generally not regarded as a “possession”. The Government argued that the applicant companies ’ market share and future income had been affected by a change in the organisation of public education, which had occurred within the limits of the wide margin of appreciation afforded to the authorities in such matters, and the fact remained that the applicant companies ’ mere hope of being able to continue trading on a market with a decentralised system of school procurement for an unlimited period of time did not constitute a “possession ” for the purposes of Article 1 of Protocol No. 1.
30. The applicant companies stressed that the concept of property and thus “possessions ” under Article 1 of Protocol No. 1 was to be broadly interpreted. Similarly to physical goods, certain rights and interests constituted assets and might also be classified as “possessions”. The applicant companies had accumulated significant business know-how and goodwill, and acquired a clientele (schools and school publishers) which fell within the ambit of “possessions”. These elements were only of any value in the realm of schoolbook distribution. The applicant companies argued that the State, through the New Regulations, had not simply limited their opportunities to continue their business, but, by legislative measures, had made it completely impossible.
31. The Court reiterates that the concept of “possessions” in Article 1 of Protocol No. 1 has an autonomous meaning which is certainly not limited to the ownership of physical goods: certain other rights and interests constituting assets can also be regarded as “property rights”, and thus “possessions” for the purposes of this provision (see Iatridis v. Greece [GC], no. 31107/96, § 54, ECHR 1999 ‑ II). Rights akin to property rights have existed in cases where, by dint of their own work, the applicants concerned had built up a clientele. This clientele had, in many respects, the nature of a private right and constituted an asset, and hence a possession within the meaning of the first sentence of Article 1 (see Van Marle and Others v. the Netherlands, 26 June 1986, § 41, Series A no. 101, and Malik v. the United Kingdom, no. 23780/08, § 89, 13 March 2012). The applicability of Article 1 of Protocol No. 1 extends, among others, to professional practices, their clientele and their goodwill, as these are entities of a certain worth that have in many respects the nature of private rights, and thus constitute assets, being possessions within the meaning of the first sentence of this provision (see Van Marle and Others, cited above, § 41; Döring v. Germany (dec.), no. 37595/97, ECHR 1999-VIII; Wendenburg and Others v. Germany (dec.), no. 71630/01, ECHR 2003-II; Buzescu v. Romania, no. 61302/00, § 81, 24 May 2005; and Oklešen and Pokopališko Pogrebne Storitve Leopold Oklešen S.P. v. Slovenia, no. 35264/04, § 54, 30 November 2010; compare and contrast Tipp 24 AG v. Germany (dec.), no. 21252/09, § 26, 27 November 2012 ). The Court has held, for example, that operating a cinema for eleven years without the interference of the authorities had resulted in the creation of a clientele which constituted an asset (see Iatridis, cited above, § 54). The Court has also held that an applicant could be said to have an existing possession in respect of providing funeral services during a period of legal vacuum (see Oklešen and Pokopališko Pogrebne Storitve Leopold Oklešen S.P., cited above, § 58).
32. In the present case the Court observes that the applicant companies, which had been in the schoolbook distribution business for years, had built up close relations with the schools located in their vicinity. The volume of clients in this business is limited, as it will always correspond to the number of schools and pupils in a given region. The Court is therefore convinced that the clientele – although somewhat volatile in nature – was an essential basis for the applicant companies ’ established business, which cannot, in the nature of things, be easily benefited from in other trading activities. Indeed, the applicant companies ’ lost clientele has in many respects the nature of a private right, and thus constitutes an asset, being a “ possession ” within the meaning of Article 1 of Protocol No. 1 (see Van Marle and Others, Döring, and Wendenburg and Others, all cited above ). The complaint therefore cannot be rejected as incompatible ratione materiae with the provisions of the Convention.
33. The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
34. The Government argued that the New Regulations had not monopolised the business in which the applicant companies had been active, but, as an inherent consequence of the centralisation of schoolbook management, had merely centralised the procurement of schoolbooks. The Government stressed that the New Regulations had not revised the rules on providing services in the field of schoolbook distribution, and had not given exclusive rights to a State-owned entity to carry out such activities. The new rules had done no more than reorganise the relevant system of public procurement. The applicant companies had had no “licence to operate” in this field which could be seen as having been “withdrawn”; they were free to continue their schoolbook distribution activities and provide services to the new centralised procurer of schoolbooks. Indeed, Könyvtárellátó had concluded a number of schoolbook distribution agreements in public procurement procedures. The Government further argued that schoolbook publishers and distributors had previously been able to influence the choice and purchase of books by giving bonuses or discounts, which prejudiced the legislature ’ s aim of ensuring that educational aspects prevailed with regard to the selection of schoolbooks.
35. The Government argued that, although the new rules of schoolbook procurement might have indirectly interfered with the applicant companies ’ financial interests, such interference had complied with the requirements of Article 1 of Protocol No 1. The measure complained of was lawful; it allowed sufficient time for the applicant companies to adjust their business practice to the new circumstances, and did not interfere with the existing contracts between the applicant companies and their clients. Furthermore, as to the existence of a general interest, the Government stressed that the New Regulations ’ legislative objectives could be clearly identified from the legislature ’ s explanation attached to the amendment proposals ( see paragraph 14 above). The Government argued that the schoolbook market had been a distorted one where the end- consumers ( that is, the pupils or their parents) did not freely select the product and the product was not paid for by the schools or the teachers who actually selected them.
36. The Government emphasised, however, that the primary reason for introducing the impugned legislation had been to strengthen the market position of the procurer vis-à-vis the publishers in order to ensure more efficient spending of public funds, rather than addressing any potential market distortions. They added that the market had been rather static in that schools had not changed textbooks (publishers) easily, whereas at the same time, schools were often ready to change distributors for higher premiums. The Government maintained that the impugned measure was thus justified, since the State could not be compelled to maintain an irrational system of budgetary expenditure.
37. The applicant companies argued that creating a State- owned entity and centralising within such an entity a formerly decentralised economic activity on an unregulated market qualified as monopolisation, and as such amounted to an interference with their right to peaceful enjoyment of their possessions. They stressed that the New Regulations did not comply with the requirement of lawfulness : as the State had not provided for a sufficient transitional period, the impugned legislation violated customary international law and the Fundamental Law of Hungary. Furthermore, there was no legal avenue available to the applicant companies to challenge the impugned provisions.
38. The applicant companies also submitted that, contrary to the Government ’ s argument, they could not continue their former business by concluding contracts with the centralised procurer. Könyvtárellátó had not issued public procurement tenders for schoolbook distribution activities, but only two public procurement tenders for the performance of certain partial activities, such as logistics and packaging, and only in certain areas of Hungary (excluding, for example, the capital). In addition, these public procurement tenders of limited scope were all “ closed tenders ” – that is, only invited participants could participate. Further, the applicant companies doubted the need to make schoolbook distribution more transparent. Adverse influencing of schools ’ decision- making in terms of schoolbook procurement was inconceivable, since the contents and, most importantly, the prices of all schoolbooks distributed by the applicant companies had been regulated by the State.
39. The applicant companies emphasised that there had been no strong correlation between the fact that the distributors were chosen by the schools and the fact that the products were paid for by the parents. This structural feature did not particularly affect the operation of the distribution market, and had little or no impact on the number of market participants and return rates. Since the price of the schoolbooks had always been regulated, the level of profit was mostly dependent on the price margins offered by the publishers, within a range of 11 % to 16 %. Furthermore, schoolbook distributors offered a commission of 2 % to 7 % to schools – depending on the services provided by them ( for example, labelling, distribution to students and handling of returns) – deducted from the margin received from the publishers. The remaining 4 % to 14 % had to cover the distributors ’ operating costs. The applicant companies emphasised that the 11 % to 16 % margin offered by the publishers was a free - market margin. Under the New Regulations, the official, State-owned schoolbook distributor had a guaranteed margin of 20 %, which in itself undermined the Government ’ s premise that schoolbook distribution under the new system was cheaper and more efficient.
40. The Government and the applicant companies both argued that although the option of buying schoolbooks from alternative sources had always been available, it had never been the market practice, representing only an insignificant part of the overall market.
( a ) Whether there was an interference
41. The Court reiterates that Article 1 of Protocol No. 1 comprises three distinct rules. The first rule, which is of a general nature, lays down the principle of peaceful enjoyment of property; it is set out in the first sentence of the first paragraph. The second rule covers deprivation of possessions and subjects it to certain conditions; it appears in the second sentence of the same paragraph. The third rule recognises that the States are entitled, amongst other things, to control the use of property in accordance with the general interest, by enforcing such laws as they deem necessary for the purpose; it is contained in the second paragraph (see Sporrong and Lönnroth v. Sweden, 23 September 1982, § 61, Series A no. 52).
42. In the present case, it has not been disputed by the Government that the New Regulations introduced a new system of schoolbook distribution in Hungary, and that this affected the applicant companies ’ business and financial interests.
43. The Court notes that, as a consequence of the impugned legislative measure, the applicant companies effectively lost their clientele, which could be considered a “possession” for the purposes of Article 1 of Protocol No. 1 (see paragraph 32 above). It thus finds that there has been an interference with the applicant companies ’ rights under that provision, consisting of a measure entailing control of the use of their property. Such an interference falls to be considered under the second paragraph of Article 1 of Protocol No. 1 (see, mutatis mutandis, Buzescu, cited above, § 88, and Tre Traktörer AB v. Sweden, 7 July 1989, § 55, Series A no. 159 ).
(b) Whether the interference was justified
44. 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 (see Iatridis, cited above, § 58), which presupposes that the applicable provisions of domestic law are sufficiently accessible, precise and foreseeable (see Beyeler v. Italy [GC], no. 33202/96, § 109, ECHR 2000 ‑ I). In the present case, the Court observes that the measure complained of was based on two statutory amendments which had been duly published. It thus satisfied the lawfulness requirement.
( ii ) General interest – legitimate aim
45. Any interference with the enjoyment of a right or freedom recognised by the Convention must pursue a legitimate aim. The principle of a “fair balance” inherent in Article 1 of Protocol No. 1 itself presupposes the existence of a general interest of the community (see Beyeler, cited above, § 111 ). Because of their direct knowledge of their society and its needs, the national authorities enjoy a wide margin of appreciation in determining what is in the general interest of the community (see, mutatis mutandis, James and Others v. the United Kingdom, 21 February 1986, § 46, Series A no. 98, and Vékony, cited above, § 33 ). Furthermore, the notion of “public interest” is necessarily extensive. The Court, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature ’ s judgment as to what is “in the public interest” unless that judgment is manifestly without reasonable foundation (see James and Others, cited above, § 46).
46. In the present case, the Court does not need to determine whether the implementation of the impugned reform pursued a legitimate aim. Even assuming that this reform was aimed at ensuring more efficient spending of public funds, the Court is not convinced that this aim consisted in protecting the end-users ’ (that is, the parents ’ or pupils ’ ) interests, given that the prices of schoolbooks were and remained State - regulated, independently of the measures under scrutiny (see paragraph 38 above). Moreover, the Court notes that the fact that the State-owned schoolbook distributor has a guaranteed margin of 20 %, exceeding the margin of 11 % to 16 % that had been offered to the applicant companies on the free market before the New Regulations, might also call into question the Government ’ s argument about ensuring more efficient spending of public funds.
47. At any rate, assuming the existence of a legitimate aim pursued by those measures, it must be ascertained whether the circumstances of the case disclose a violation of the applicant companies ’ rights under Article 1 of Protocol No. 1 in terms of proportionality.
( iii ) Proportionality of the measure
48. In order to be compatible with the general rule set forth in the first sentence of the first paragraph of Article 1 of Protocol No. 1, in the light of which the second paragraph is to be construed, an interference 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 (see Sporrong and Lönnroth, cited above, § 69 ). The search for this balance is reflected in the structure of Article 1 of Protocol No. 1 as a whole (ibid.), and hence also in the second paragraph. There must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised (see James and Others, cited above, § 50 ). A fair balance between the general interest and the individual ’ s rights will not be found if the person concerned has had to bear an individual and excessive burden (see Vékony, cited above, § 32 ).
49. In the determination of the proportionality of the interference in cases concerning loss of clientele and the practice of a profession, the Court has considered, inter alia, (i) the existence of regulations applicable to the applicant ’ s business; (ii) the nature of such regulations ( for example, if the industry was such that, in view of the dangers inherent in it, it was traditionally subject to restrictions ); and (iii) whether transitional measures existed ( for example, at least partial continuation of the activity was possible for some time) (see Oklešen and Pokopališko Pogrebne Storitve Leopold Oklešen S.P. , cited above, and contrast Tipp 24 AG, cited above, § 34).
50. It is of crucial importance for the State to put in place measures of protection against arbitrariness, as required by the rule of law in a democratic society (see, mutatis mutandis, Centro Europa 7 S.r.l. and Di Stefano v. Italy [GC], no. 38433/09, § 156, ECHR 2012, and Anheuser-Busch Inc. v. Portugal [GC], no. 73049/01, § 71, ECHR 2007 I). Moreover, although the second paragraph of Article 1 of Protocol No. 1 contains no explicit procedural requirements, it has been construed as requiring that persons affected by a measure interfering with their possessions be afforded a reasonable opportunity to put their case to the responsible authorities for the purpose of effectively challenging those measures (see Microintelect OOD v. Bulgaria, no. 34129/03, § 44, 4 March 2014).
51. Furthermore, compensation terms under the relevant legislation may be material to the assessment of whether the contested measure respects the requisite fair balance and, notably, whether it imposes an individual and disproportionate burden on the applicants (see, mutatis mutandis, Pressos Compania Naviera S.A. and Others v. Belgium, 20 November 1995, § 38, Series A no. 332).
52. At the outset, the Court notes an attribute inherent in the schoolbook market which is unusual in some aspects. The protagonists who select the products ( that is, the schools or the teachers) are not the ones who pay for them ( that is, the end-users: the pupils and their parents). In the Court ’ s view, this scheme can be explained by the need to ensure that all pupils in a class use the same textbook. This arrangement might, however, entail some market distortions and a potentially exposed situation for the end-consumers. Such a situation can be offset by market regulation, for example by means of maximum prices or State subsidies.
53. However, the Court is not convinced that these features of the schoolbook market produce a distortive effect on competition amongst participants in the distribution business, such as the applicant companies. It observes that the distributors maintained contractual relationships with the schools and not with the end-users; and, for their part, the schools were entirely free to select any distributor as their long - or short-term supplier. It is true that there was a constant market outlet (that is, the multitude of pupils in need of textbooks in a given school year ) ultimately corresponding to the entirety of the applicant companies ’ and other distributors ’ combined services. However, the applicant companies ’ respective shares in this constant market outlet were in no way guaranteed, since they needed to acquire and preserve their clientele ( the schools ) in a largely unregulated and competitive market environment. The Court is therefore satisfied that although the schoolbook market did indeed have some special attributes, these did not give rise to any special or privileged market conditions for the applicant companies such as to justify in itself the State intervention complained of in the present case.
54. Furthermore, the Court is not persuaded by the Government ’ s argument that the New Regulations did not monopolise schoolbook distribution or give exclusive rights to a State-owned entity to perform a business activity previously carried out by the applicant companies. On the contrary, in terms of market reality, the Court considers that the State, through the New Regulations, stopped the applicant companies from continuing their business operations and in fact created a monopolised market in schoolbook distribution. The monopolised nature of the market was confirmed and strengthened by the subsequent legislation ( see Act no. CCXXXII of 2013 on Schoolbook Supply in the National Public Education System, cited in paragraph 19 above ). The Court observes that, although there was no formal withdrawal of a licence (compare and contrast Tre Traktörer AB, cited above, § 53, and Vékony, cited above, § 29 ), the New Regulations introduced a system of schoolbook procurement where, inevitably, the applicant companies ’ entire clientele was taken over by the State-owned Könyvtárellátó. As of the 2013/14 school year, the applicant companies were practically excluded from schoolbook distribution contracts.
All these observations prompt the conclusion that in practice the applicant companies ’ business could not be continued.
55. It is true that the applicant companies could, in theory, conclude schoolbook distribution agreements with Könyvtárellátó within the framework of public procurement procedures. However, at this juncture, the Court notes the applicant companies ’ submission, unrefuted by the Government, that in practice, these tenders were limited in scope and open only to invitees (see paragraph 38 above). The Court therefore cannot consider these public procurement tenders a realistic prospect by which the applicant companies could have continued their business and maintained their clientele.
56. Although the interference with the applicant companies ’ possessions was a control of use rather than a deprivation of possessions and therefore the case-law on compensation for deprivation of possessions is not directly applicable (see J.A. Pye (Oxford) Ltd and J.A. Pye (Oxford) Land Ltd v. the United Kingdom [GC], no. 44302/02, § 79, ECHR 2007 ‑ III), it nevertheless must be emphasised that a disproportionate and arbitrary control measure, especially without any scheme of compensation (see paragraphs 50 and 51 above), does not satisfy the requirements of the protection of possessions under Article 1 of Protocol No. 1 (see, mutatis mutandis, S.C. Antares Transport S.A. and S.C. Transroby S.R.L. v. Romania, no. 27227/08, § 48, 15 December 2015, and Vékony, cited above, § 35).
57. In the present case it is noteworthy that the State made it impossible for the applicant companies to continue their business but provided no possibility of judicial redress or any financial compensation ( see, by contrast, Pinnacle Meat Processors Company and 8 Others v. the United Kingdom, no. 3329 8/96, Commission decision of 21 October 1998, unreported, and Ian Edgar (Liverpool) Limited v. the United Kingdom (dec.), no. 37683/97, ECHR 2000 -I ).
58. The margin of appreciation afforded to the State in identifying appropriate measures for the implementation of the reform in question is a wide one (see paragraph 45 above). However, such measures must not be disproportionate in terms of the means employed and the aim sought to be realised, and must not expose the business players concerned to an individual and excessive burden. In the present case the drastic change to the applicant companies ’ business was not alleviated by any positive measures proposed by the State. Moreover, the intervention concerned a business activity that was not subject to previous regulations and was not in any sense dangerous, and the applicant companies were not expected to assume that their business would be de facto monopolised by the State (see Oklešen and Pokopališko Pogrebne Storitve Leopold Oklešen S.P., and contrast Pinnacle Meat Processors Company and 8 Others; Ian Edgar (Liverpool) Ltd; and Tipp 24 AG, all cited above ).
59. Having regard to (i) the eighteen-month transitional period, (ii) the fact that the applicant companies were never invited by Könyvtárellátó to participate in any closed tenders after the entry into force of the New Regulations and that they were de facto excluded from the schoolbook distribution contracts as of the 2013/14 school year, (iii) the fact that no measures were put in place to protect the applicant companies from arbitrariness or to offer them redress in terms of compensation, (iv) the fact that it was impossible for the applicant companies to continue or reconstitute their business outside the sphere of schoolbook distribution, and (v) the absence of any real benefits for the parents or pupils, the Court concludes that the interference with the applicant companies ’ right was disproportionate to the aim pursued, in that they had to bear an individual and excessive burden. Therefore, it finds that there has been a violation of Article 1 of Protocol No. 1 to the Convention.
II. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
60. The applicant companies complained that the implementation of the New Regulations and the introduction of a completely new schoolbook management system by the State, without providing any opportunity for them to seek judicial review or redress, amounted to violations of their rights under Article 6, as well as under Article 13 of the Convention read in conjunction with Article 1 of Protocol No. 1.
61. They further alleged that, through the New Regulations, the legislature had created a monopolised schoolbook distribution market in favour of the State-owned Könyvtárellátó, which had previously only been one of the market players. In their view, this course of action was discriminatory, in breach of Article 14 of the Convention read in conjunction with Article 1 of Protocol No. 1.
62. The Court reiterates that Article 13 does not go so far as to guarantee a remedy allowing a Contracting State ’ s laws as such to be challenged before a national authority on the grounds of being contrary to the Convention (see, among other authorities, Magyar Keresztény Mennonita Egyház and Others v. Hungary, nos. 70945/11 and 8 others, § 124, ECHR 2014 (extracts), and Paksas v. Lithuania [GC], no. 34932/04, § 114, ECHR 2011). In the instant case, the applicant companies ’ complaint under Article 13 is at odds with this principle. Consequently, this complaint is manifestly ill-founded and as such must be declared inadmissible, in accordance with Article 35 §§ 3 (a) and 4 of the Convention.
63. Furthermore, the Court considers that, in the light of its findings concerning Article 1 of Protocol No. 1 ( see paragraph 59 above), it is not necessary to examine separately either the admissibility or the merits of the complaints raised under Article 6 of the Convention and Article 14 of the Convention read in conjunction with Article 1 of Protocol No. 1 (see, mutatis mutandis, Magyar Keresztény Mennonita Egyház and Others, cited above, § § 121 and 123).
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
64. 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.”
65. The first applicant company claimed 159,000,000 Hungarian forints (HUF – approximately 521,000 euros (EUR) ) in respect of pecuniary damage. The second applicant company claimed HUF 575,000,000 ( approximately EUR 1,885,000 ) in respect of pecuniary damage. The third applicant company claimed HUF 14,500,000 ( approximately EUR 47,500 ) in respect of pecuniary damage. These figures represent the decrease of the companies ’ equity values, as per an audit report, as a result of the violation suffered.
They made no claims in respect of non-pecuniary damage.
66. The first applicant company also claimed EUR 25,000 plus value - added tax (VAT) for legal fees, and EUR 3,125 plus VAT for expert fees incurred before the Court. The second applicant company claimed EUR 5,750 plus VAT, and the third applicant company claimed HUF 590,551 (approximately EUR 1,940) plus VAT for expert fees.
67. The Government contested these claims as excessive.
68. 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 companies (Rule 75 §§ 1 and 4 of the Rules of Court).
69. Accordingly, the Court reserves this question and invites the Government and the applicant companies to notify it, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, of any agreement that they may reach.
1. Declares, unanimously, the complaint concerning Article 1 of Protocol No. 1 to the Convention admissible;