CASE OF LANCHID HITEL ES FAKTOR ZRT. v. HUNGARY
Remainder inadmissible;Violation of P1-1;Pecuniary damage - award
András Sajó;Françoise Tulkens;Guido Raimondi;Kristina Pardalos;Nona Tsotsoria
5. The applicant is a company limited by shares with its seat in Budapest. 6. By way of assignments for consideration, done in October 2001 and July 2002, the applicant acquired – through intermediaries – the debts of V. Rt and M. Rt from the Tax Authority. The debts consisted mostly of unpaid payroll taxes and social security contributions and originated in the period before 1998. 7. Since the debtors had become insolvent, the applicant brought an action against the State-owned Hungarian Privatisation and State Holding Company (ÁPV Rt) before the Budapest Regional Court in order to recover the assigned claims. Relying on section 328 of the (Old) Companies Act 1988, it argued that ÁPV Rt – the majority owner of the two debtor companies – bore vicarious liability for the outstanding debts. 8. On 25 September 2003 the Regional Court partly found for the applicant. The court awarded some 47.3 million Hungarian forints (HUF) to the applicant, which corresponded to the debts of V. Rt other than the payroll taxes and social security contributions. It dismissed the action in respect of the latter items. The applicant was obliged to pay HUF 9.6 million to the respondent in legal fees. 9. The applicant appealed. It claimed 22,482,500 Hungarian forints (HUF) plus accrued interest on account of the remaining debts of V. Rt and HUF 177,975,985 plus accrued interest on account of those of M. Rt. 10. The Budapest Court of Appeal upheld the first-instance decision on 9 July 2004. The applicant was obliged to pay HUF 3 million as procedural fees. 11. The applicant lodged a petition for review with the Supreme Court in respect of the social security contributions owed by M. Rt. It submitted that their amount altogether was approximately HUF 160 million – a sum including the principal of HUF 84,515,225 – but susceptible to further taking of evidence in resumed proceedings. 12. On 5 April 2005 the Supreme Court upheld the Court of Appeal's decision. It was satisfied that ÁPV Rt indeed bore vicarious liability in the circumstances. Relying on Uniformity Decision no. 2/2004.PJE, it held however that – pursuant to sections 3(3) and 25(2) of the (Old) Taxation Order Act 1990 – for the impugned social security contributions to be enforceable by the applicant, a decision should have been issued by the Tax Authority establishing the vicarious liability. For want of such a decision, the contributions could not be enforced by the applicant, since the assignment had not conferred any public law powers on it. The applicant was obliged to pay once more HUF 3 million as procedural fee. 13. Section 328 of the (Old) Companies Act 1988 provided as follows: “(1) If [the majority-owner, i.e. controlling] joint-stock company acquires such part of the shares of [the controlled joint-stock company] as exceeding three-fourth of [the latter's] share capital, the board of directors of the controlling ... company ... may give instructions concerning the management of the [controlled] ... company to [its] board of directors, which the latter must carry out (“joint-stock company under direct control”). (2) The controlling ... company shall bear unlimited liability for the debts of the joint-stock company under direct control.” 14. Section 3(3) c) of the (Old) Taxation Order Act 1990 (no. XCI of 1990) (as in force at the material time) provides that the Act is to be applied to the payment of social security contributions. Section 25(2) f) provides that, if a taxpayer fails to pay the tax and it cannot be recovered from that taxpayer, the Tax Authority is entitled to the adoption of a decision establishing vicarious liability to cover the outstanding debt. Sections 6(1) and 6(2), 35(2)f) and 120(1)a) of the (New) Taxation Order Act 2003 (no. XCII of 2003) contain identical rules. 15. The interpretation that assignees cannot claim in civil courts outstanding taxes from those with vicarious liability was upheld by the Supreme Court in Uniformity Decision no. 2/2004.PJE. It considered that, under both Taxation Order Acts, vicarious liability for tax debts was to be established by a decision of the Tax Authority. 16. However, the above legislation was subsequently repealed by Act no. LVI of 2005. According to the reasoning of the bill, the interpretation of the Supreme Court in Uniformity Decision no. 2/2004.PJE – an economically unjustified misconception of the law running counter to the intentions of the lawmaker – rendered unenforceable and thus worthless those tax debts which could not be recovered in the liquidation of the original debtors. Therefore the legal avenue of a civil action was to be opened for the assignees of such claims vis-à-vis those with vicarious liability, so as to restore constitutionality in terms of the right to access to a court in this context.