Some thoughts on the foreign currency debtor relief act

Author: István Gárdos

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Economy and Finance, 2014/1.

The antecedents

Since the current government came into power in 2010, “rescuing foreign currency debtors” and “holding unfair banks to account” have been high on the political agenda (probably not independently from the devaluation of the forint in the same period). However, this battle has not produced a comprehensive outcome to date, as neither early debt repayments (végtörlesztés) nor the exchange rate cap (árfolyamgát) proved miracle cures. Following several attempts and high-sounding promises, in the last year doubts have emerged, like “Why should forex debtors end up better off than those who borrowed in forints?” “Why citizens who took out loans should receive greater support than those who endeavoured to do without?” Interestingly – and in an unprecedented way – the government began citing legal problems, taking the standpoint that no further measures were possible on its part until Hungary’s supreme court, the Curia, had adopted a position on issues relating to foreign currency loans. From this point on, enormous pressure was brought to bear on the Curia to reach a so-called “uniformity decision” (jogegységi döntés) to ensure uniform application of the law as soon as possible.

It should be noted that there was nothing compelling the Curia to reach any such decision. The Curia is a court of record in the sense that it rules primarily on individual cases; with each individual decision, it settles the given legal dispute on the one hand, while on the other hand providing guidance to the lower courts. Besides this, the Curia also serves to ensure that the courts pursue uniform practices by making uniformity decisions pertaining to matters of principle, which are binding on the lower courts. The Curia will make such decision if it discerns an inconsistency in judicial practice on some matter related to a specific case coming before it. However, no foreign currency loan lawsuits have yet come before the Curia – with the exception of the well-known Kásler case, in which the subject of the dispute was the legality of application of the exchange rate margin – and for this reason the necessity of issuing a uniformity decision did not strictly even arise in this regard. Despite this, the Curia saw the writing on the wall and adopted its decision no. 6/2013 PJE last December. This decision truly established an unequivocal position with regard to several fundamental questions of so-called foreign currency-based loans, while also dispelling a number of misconceptions that were motivated partly by political, partly by individual interests, and which exploited the opportunities presented by a meagre public knowledge of finance and law. Consequently, the Curia declared that a foreign currency-based loan is basically a forex loan, because the obligations of both the lender and the debtor are expressed in foreign currency; the fact that the ctual disbursement and repayment of the loan is made in HUF does not change the content and nature of the transaction. This is a valid transaction in keeping with Hungarian law which inevitably entails an exchange rate risk – theoretically for both parties. A transaction of this kind is not in itself unlawful or unfair, and is neither usurious nor misleading. The Curia added that, while it is naturally necessary for the contracting parties to be fully aware of the content of the transaction, and particularly important that consumers receive adequate information regarding the risks the transaction entails, such information need not extend to the actual size of the risk as no such prognosis can realistically be provided.

At the time this uniformity decision was reached, the Court of Justice of the European Union (EU Court) was in the process of reaching its preliminary ruling in the Kásler case. Mindful of this, the Curia indicated that it would return to issues regarding the perceived unfairness of certain conditions of foreign currency loans only after the EU Court had reached its decision. The latter needed to adopt a position in the Kásler case on questions related to the alleged unfairness of the exchange rate margin. This question arose because Hungarian law pertaining to unfairness in contractual conditions is based on EU regulations, where “unfairness” is a special concept in the legal sense which is not applicable to every clause of a contract. Regulations pertaining to unfairness essentially govern terms of a contract that are subsidiary to its essential content (i.e. the “small print”), to which the parties – and particularly the non-professional consumer – do not attach great weight. For this reason, they are typically included in a contract without any detailed negotiation, often revealed to the contracting party as an unexpected surprise at the most awkward moment as they discover that the contract places this or that obligation upon them, or denies them this or that right. By contrast, as a general rule, unfairness cannot enter into the equation when it comes to the terms that comprise the essential content of the contract and the substance of the business agreement between the parties, terms which also determine the object of the service provided and the fee to be paid for that service. A fundamental condition for the conclusion of a contract is that the parties should actually reach an agreement on such substantive terms, and as a consequence of contractual freedom – barring certain exceptional cases – it is not the task of the law to review the parties’ agreement or its essential business content. With these considerations in mind, the EU Court adopted the position in the Kásler case that the clause relating to the exchange rate margin should not be qualified as unfair in itself, but primarily only in the event that its formulation is unclear, or if its operation in practice and financial impact is not transparent to the consumer.

In the wake of the EU Court’s ruling, the Curia adopted its decision no. 2/2014 PJE extraordinarily quickly, which dealt with the following three issues: first, confirmed that the foreign exchange risk does not render the contract unfair unless the customer is unaware of the existence of such risk, second, invalidated the clause relating to the exchange rate margin in foreign currency-based loans, third set the requirements to which clauses governing the unilateral amendment of contracts must conform. It is my firm belief that the Curia adopted a hasty and erroneous stance on the questions relating to the foreign exchange margin and the unilateral amendment. The court based its invalidation of the clause pertaining to the exchange rate margin on the conclusion – albeit correct in itself – that no actual exchange occurs in the case of foreign currency-based loans, and for this reason the value of the service that the exchange rate margin represents is neither clear nor comprehensible. In reaching this conclusion, the Curia delivered an unacceptably broad interpretation of the EU Court’s stated requirement pertaining to the clarity and transparency of the clause in question. Clauses relating to the exchange rate margin are generally unequivocal in contracts, increasing the cost of borrowing for the customer by a precisely determinable degree. Moreover, in the vast majority of cases the exchange rate margin is based on objective market data which are entirely in the public domain and applied uniformly by the lending banks to all their customers. The Curia evaluated the clause in question on the basis of the sole proviso that no actual money exchange occurs, but neglected to examine whether there is any element of the lending service – or any cost incurred in connection with it – which justifies the application of this “charge.” It also failed to take into account that the exchange rate margin is an element of the counter-value of the service provided by the lender, the removal of which can upset the balance in the value of the entire service and the consideration paid for it. Ultimately, by examining the justification for one element of the value of the service, thereby overriding the business agreement between the parties and erasing a charge which is clearly specified in the contract, and of which every customer was aware, the Curia committed precisely what the regulations governing unfair clauses prohibits. In framing the requirements relating to the contractual clause enabling unilateral amendment of a contract, the Curia likewise rendered the EU Court’s requirements absolute. It prescribed requirements pertaining to the unilateral amendment of a contract which, in content, the EU Court had specifically formulated with respect to the exchange rate margin. The mechanical extension of clearly interpretable, appropriate requirements relating to the exchange rate margin to clauses enabling unilateral amendment of a contract essentially makes the enforcement of such – otherwise legally recognized – clauses impossible. With respect to both the exchange rate margin and the unilateral amendment, the upshot of the Curia’s adopted stance is that the practice pursued for years by all banks collectively and uniformly, known to all and approved by the competent supervisory bodies, now qualifies as unlawful, and the relevant contractual clauses are rendered null and void. The Curia also disregarded the fact that the issues in question – particularly the unilateral amendment of contracts – were governed by specific legal provisions; that the clauses now rendered invalid actually conformed to these laws, and that every interested party proceeded in the knowledge that their course of action was legal. An overwriting on this scale of such commonly used contracts is in no way reconcilable with the principle of legal certainty.

In its first uniformity decision, the Curia thus explicitly rejected efforts to legally denounce foreign currency-based lending as a whole. In its second decision, however, it invalidated two fundamental contractual clauses pertaining to the pricing of loans. In this way, foreign currency-based loans themselves did not prove legally untenable, thereby freeing both legal authorities and politicians from the question – difficult to manage from both the legal and practical aspect alike – of what to do in the event of a contract becoming invalid in its entirety. The government thus escaped from the trap it itself created by asserting the invalidity of foreign currency-based loans as a contract type. At the same time, the Curia’s second decision provided substantial assistance to the political endeavours by specifying that a more favourable rate of exchange must be applied retroactively for debtors, while hikes in interest and charges must be taken as if they had never happened. In the wake of the second Curia decision, Act XXXVIII of 2014 – passed via an urgent procedure which, though extraordinary, has become increasingly the norm in recent years – essentially granted the court’s decision statutory force, declaring null and void the contractual clauses pertaining to the exchange rate margin and unilateral amendment. This so-called “act of invalidity” thereby led to a further deterioration in the situation created by the Curia’s second decision, because, while previously there was still hope that the Curia’s errors could be remedied via individual lawsuits and the competent courts could take circumstances into account which the Curia had not considered, this option was effectively terminated pursuant to the act of invalidity. Also aggravating the situation was the act of invalidity’s retroactive redrafting of the statute of limitations in the Civil Code, extending its power to cases where outstanding claims would otherwise have already lapsed. With regard to unilateral contractual amendments, the act of invalidity seemingly provided banks with the opportunity to preserve the relevant clauses since the act only declared them invalid based on a legal presumption, and the banks applying these clauses could file suit in order to overturn this presumption. However, the act determined specific deadlines and procedural rules for any such lawsuit which render successful litigation an illusion. These special rules are of grave concern from a constitutional viewpoint as they infringe the right to due process and the independence of the judiciary, fundamental elements of astate governed by the rule of law.

Is there a reason for a separate debt relief act?

One constitutional concern arising in connection with the act of invalidity was that it held out the prospect of a separate act being passed some time in the autumn governing debt relief obligations arising from the invalidation of the clauses in question. It follows from this that the banks had to decide on initiating lawsuits without being able to know exactly what consequences would result from the invalidity established by the act. Adding to the uncertainty was the issuing by the National Bank (MNB) of a directive which, based on an “unorthodox” interpretation of the law, would result in losses for the banks exceeding all expectations. Subsequently, Act XL of 2014 (the “debt relief act”) was duly passed earlier than expected in September. Neither the debt relief act itself nor the Bill containing the preamble to the legislation offer any explanation as to why the law declaring invalidity needed to be separated from that determining the method of debt relief. One can only surmise that the legislation was split in two due to political considerations, or in order to speed up the process. Obviously more time was needed to draw up detailed rules for the debt relief procedure than to declare the clauses null and void initially. However, even now we have still not reached the end of the regulatory process as the debt relief act further empowers the MNB to determine rules with respect to numerous matters of detail.

As a jurist, the analogy of the declaratory and obligatory judgement inevitably springs to mind. It is a basic principle that a petition, or statement of claim, to initiate a civil action must contain an explicit request seeking a judgement which actually determines the rights and obligations of the parties. The plaintiff must declare what they are seeking from the defendant, and generally it is not possible to initiate a lawsuit which by itself merely resolves some legal question. The goal of the court procedure is to settle an actual legal dispute, and it is only in exceptionally justified cases precisely circumscribed by law that an opportunity exists to submit a petition which is aimed not at imposing an obligation on the defendant but merely at establishing a fact or legal state of affairs. This strict, closed system was breached some years ago by an amendment to the law which – clearly with foreign currency loans primarily in mind – made it possible to request that the invalidity of a contract be established in itself, without determining the legal consequences. This amendment triggered wanton litigation, and an unprecedented proliferation of forex loan lawsuits as a consequence. Numerous judgements were reached in which the court determined the invalidity of some clause of a contract without ruling on the legal consequences thereof. The parties thus effectively made little progress, and only at the censured bank in question would serious questions be raised about how the given decision affected its situation, its portfolio of loans and related revenues and obligations. A similar degree of uncertainty was created due to the separation in time of the act declaring invalidity from the regulations determining the relevant legal consequences. At the same time, the interesting aspect of the situation is that the debt relief act precludes the use of the option introduced by the aforementioned legal amendment in the case of foreign currency loans, prohibiting petitions aimed exclusively at establishing invalidity; moreover, it extends this prohibition to procedures already under way, ordering these to be discontinued (§37).

The law’s retroactive effect

As already mentioned, one of the fundamental problems with the act of invalidity is that it annuls a set of contractual terms which were commonly applied and believed valid by all concerned parties at the time the contracts were concluded. At the same time, likewise with retroactive effect, it alters the rules pertaining to the term of limitation and the procedure for enforcing rights. The debt relief act, just like the act of invalidity, is a piece of legislation with retroactive effect, since it defines rules for contractual relationships established before it entered into force, and – as we discussed above in relation to the prohibition on declaratory petitions – alters standard rules pertaining to procedures already in progress. In an entirely unprecedented fashion, the debt relief act puts into practice an qualified instance of retroactive legislation by generally extending the debt relief obligation prescribed in the act to contracts that have been previously subject to legally binding court decisions (§6). The law’s preamble declares as a natural matter of course that the law does not “respect judgements already reached,” but overwrites the content of those judgements; it does not deem it necessary to provide any meaningful justification or explanation for the legality of this – or, given that this task seemed impossible to complete, has not even made any attempt to do so (preamble attached to §6).

In light of its retroactive effect, a fundamental question of the act is whether it effectively only codifies the existing law or actually amends it. To put it another way, the question is whether, even in the absence of the act, the same or different rules should be applied in settling debts with customers. In essence, this is what determines whether the prohibition on retroactive legislation, one of the fundamental prerequisites of constitutionality, is breached in content as well. The preamble to the law offers a contradictory response to this question.

“The Bill regulates the rules for settling debts with consumers in harmony with the Civil Code.” (General preamble, point 4.) “The Bill lays down the general rules for settling debts which the court would apply in individual lawsuits based on an interpretation of the Civil Code.” (General preamble, point 5.) The earnestness of these declared objectives, though obviously aimed at conforming to the requirement of constitutionality, is called into question by the preamble itself.

Such doubt is primarily raised by the statement that “for the settlement of past overpayments of this nature, there is currently neither a valid binding uniformity decision nor an individual court ruling expressly settling this matter. For this reason, the legislator […] needed to determine the general principles for settling debts through a more abstract interpretation of the law.” (General preamble, point 5.) According to the legislator, therefore, there is no established legal practice in this matter, so that the law effectively precedes the clarification of the legal situation, deciding by means of codification how to proceed in such cases. This is one possible procedure looking to the future; however, in the case of settlement with retroactive effect, it inevitably raises the possibility – or risk – that instead of codifying a law that is already prevailing, a new law is being created, thereby altering the previous legal situation. While the courts state what is law in circumstances deemed normal from the point of view of constitutionality, meaning that the courts decide what rules are applied in answering a given question or resolving a legal debate, the legislator – in creating this act – has now removed the matter from the hands of the courts. And this, once again, is problematic because settlement takes place not with respect to the future, but to existing contractual relationships. With regard to the future, the legislator can create rules that endorse their own political preferences, and the parties must enter contracts – and fulfil contractual and other obligations – in knowledge and consideration of these rules. In a state governed by the rule of law, the legislator has no power to legally adjudicate on existing contractual relationships, as establishing the content of the law governing a given legal relationship falls within the sole remit of the courts. Courts must operate independently of the government and of politics in general, acting exclusively on the basis of laws governing contracts and the relevant established legal practice. Retroactive legislation breaches this division of powers, allowing the legislator access to an area they have no business entering in a constitutional state.

Though not touching on the principle of the matter, it is very doubtful whether there is any truth to the preamble’s assertion that there is no established legal practice on the issue to be regulated. What are we actually talking about here? Pursuant to the act of invalidity, the clauses of loan contracts pertaining to the exchange rate margin and the unilateral amendment of contracts are null and void; as a consequence, we must proceed as if the contracts never contained these clauses from the outset; it follows that the parties violated the terms of their contracts when they fulfilled their payment obligations by heeding these invalid clauses (both in disbursing and paying off the loans). Due to this performance breaching the terms of the contract, the act states that “overpayments occurred to the credit of consumers” (General preamble, point 1); accordingly, “one of the main goals of the Bill is to settle overpayments occurring to the credit of consumers due to invalid contractual terms” (General preamble, point 5). It is not clear what is so extraordinary about this to necessitate an abstract interpretation of the law, as quoted above. It is easily understood that it is no rare occurrence when the parties – either knowingly or inadvertently – fail to correctly fulfil the terms of the contract, and it may also easily occur that an overpayment appears to the credit of one or other party as a result. A significant number of legal disputes in civil law are precisely about drawing the legal conclusions from failure to fulfil the terms of a contract and settling accounts between the parties accordingly. It is scarcely credible that, with a more thorough examination based on legal practice in cases of breach of contract, it would not be possible to adopt an unequivocal position on the matters to be regulated here. What is more credible is that by claiming legal uncertainty the legislator wished to give themselves greater scope to determine the rules for settling debts to their own liking. This, however, is difficult to reconcile with the legislator’s objective – if indeed it really was their objective – that the act should not amend, but only codify the existing law.

This supposition is supported by the declaration in the preamble itself that: “Given that this methodology of calculation is the most favourable for debtors, then it is this which must be set down in law. An important consideration from the point of view of legal policy is that the legislator should choose the calculation method most favourable to the consumer.” (General preamble, point 6.) With this the legislator makes two assertions: first, that the legal situation is not clear-cut, meaning that an unequivocal outcome cannot be reached purely via an interpretation of the laws and legal practice; and second, that in the position of choice arising from this legal uncertainty, the interests of debtors are regarded as of prime importance and the rules for settling debts are formulated accordingly. The upshot of all this is that the legislator’s true goal – having paid polite lip service to the principle of constitutionality – is to determine a set of rules which are as favourable as possible to debtors. From a political point of view, this could be a legitimate goal of legislation; however, only if this legislation, in keeping with normal rules defining spheres of authority, is aimed at the future. In the case of retroactive regulation, the enforcing of political goals to the detriment of legal considerations inevitably leads to a violation of the requirements of a state governed by the rule of law.

Settling overpayments

According to the most important regulation of the act from the point of view of civil substantive law, the amount to be paid to debtors must be calculated as if the overpayments were originally made as early repayments (paragraph (2) of §5). Based on what was discussed in general in the preceding paragraph, the question can effectively be put thus: In the absence of special regulations in the debt relief act, would this really be the method of settling debts to be applied on the basis of Hungarian law? In other words, in deciding on the legal dispute brought before it, would a court proceed according to this rule? Naturally no one can say what ruling a court would reach in any given lawsuit (and for this reason it is certainly problematic if the legislator assumes the constitutional role of the court); nevertheless, it is possible to scrutinize how reasonable the legislator’s position is in this regard, and how much doubt can be cast over the standpoint represented by the act. The significance of the matter is that the more questionable the validity of the position enshrined in the act, the greater the doubt over whether the act conforms to the requirements of a constitutional state.

What do we mean by early repayment? Early repayment occurs when a debtor fulfils their obligation before it actually falls due (paragraph (2), §282 of the old Civil Code; §6:36 of the new Civil Code). It follows from this definition that early repayment is a conscious and intentional action by the debtor. Both the consciousness and intent of the debtor must extend to providing the given service – in our case payment – as a fulfilment of their debt, and also to the awareness that they are not obliged to honour it before the due time specified in the contract. Early repayment does not occur, for example, if a debtor accidentally leaves his wallet at his creditor; or if, before travelling or due to a sudden outbreak of fire at home, he takes his money to his neighbour for safe-keeping, to whom he otherwise has an outstanding debt only due to be paid later; or if, of his two creditors, he accidentally transfers money to the one to whom his debt has not yet fallen due. In the same way, we cannot talk of early repayment in the event that the debtor pays in the belief that he owes a due debt of the given amount. The intentional nature of early repayment is clearly confirmed by the above-cited provision of the old Civil Code, which expressly makes the option of early repayment dependent on the consent of the entitled party, as well as by the aforementioned provision of the new Civil Code, which speaks of payment being both offered and accepted. In keeping with this, general practice holds that loan contracts permit early repayment on condition that the debtor informs the creditor of their intention in advance; such a statement of intent effectively amends the provision of the contract specifying the maturity of the debt, and from this point on the date indicated in the statement will be the new due date for repayment of the debt.

In cases regulated by the debt relief act, what happens is that the debtor has fulfilled his payment obligation according to the clause of the contract becoming void on the basis of the act of invalidity. To the best of his knowledge, the debtor has thus fulfilled his contractual obligation, while the creditor has accepted the payment by the same token. Subsequently, pursuant to the act of invalidity, and based on an interpretation of the contract in keeping with this act, it turns out that the debtor has paid more than he actually needed to pay. Obviously the surplus payment has occurred under a misapprehension (the debtor believing that this was the amount of his due debt), and not with the intention of paying off the debt before maturity. The creators of the law are also fully aware of this fact, referring not to the actual, but rather to the hypothetical intent of the debtor. “It corresponds to the [debtor’s] presumed intent if this overpayment is rendered as [a repayment of] the principal” (General preamble, point 6). If this is truly the most favourable option for the debtor, then it can also be assumed that the debtor would now like to settle the amount of overpayment in this way. What the debtor wants now, however, is not relevant – or at least would surely not be relevant to a lawsuit brought before a court – precisely because he will always be inclined towards the solution most beneficial to him. The sole relevant question is what the debtor’s intention was when he made the payment. It is clear that the debtor wanted nothing more than to fulfil his due payment obligation. If he had known that he owed less, then he would have paid less, and if he had become aware after completing the payment that he had overpaid, then in most cases it is highly likely that he would have reclaimed the surplus. The surplus here is nothing other than an erroneous payment. The majority of debtors obviously wanted to take advantage of the available borrowing opportunity, and only wanted to repay as much as they absolutely had to. Whoever wished to make early repayment of their debt would not have been repaying the amount of the overpayment arising from the voiding of the aforementioned clauses, but instead a different amount which was as much as appeared possible and advantageous in light of their prevailing financial situation. Viewed realistically, there is no basis to the supposition in the preamble to the debt relief act that debtors, if aware of an overpayment, would have intended to have this rendered to their accounts as an early repayment.

It appears that the legislator, too, was uncertain on this matter. In one place it states that “overpayment must be rendered as an early repayment of the principal,” and it is irrelevant that the early repayment was unintentional since “voluntary early repayment cannot even occur here” (General preamble, point 6). Elsewhere it states that the law “chose a more subtle solution […] not prescribing the use of the early repayment construction, since in this institutionalized form it would genuinely have no requisite legal basis, but instead the creation of a legal situation for the consumer at the time of settling the debt which implies that the overpayments were made as early repayments at the time they occurred” (preamble attached to §5). In other words: It isn’t like this, but we’ll carry on as if it were anyway. Here there is no word of legal considerations; the Bill openly acknowledges that the conditions for being able to verify early repayment are not in place, but despite this – for political considerations – it decides that it will resolve the contractual relationship as if the debtor had actually made early repayment of their debt: “The essence of settlement by early debt repayment is that the gains deriving from the earlier favourable exchange rate should benefit the debtors” (General preamble, point 6). After this, the only remaining question is on what basis did the Preamble as quoted above state, that the act determines rules which a court would also apply in the conduct of a lawsuit. If they do so at all, courts exercise great caution in applying any analogy similar to that described in the act, and certainly not in order to maximize the benefits appearing in favour of one particular party.

So what would the court do? The most likely option would be for it to apply the classic institution of unjust enrichment, which expressly serves to settle cases of this kind in which some kind of special legal title (e.g. compensation) cannot be established. The law of unjust enrichment is a general regulation for any instance where someone unduly gains a financial advantage, and is thus obliged to provide restitution to the party at whose expense they became enriched (§361 of the old Civil Code; §6:579 of the new Civil Code). A typical case of unjust enrichment is mistaken payment, which is when someone pays another party to whom they are not actually in debt. According to the submitter of the debt relief act, however, “the overpayment defined in the above cannot be regarded assolutio indebiti[undue payment]” since the lending bank has an outstanding claim against the debtor. Here, however the fundamental question is whether the circumstance of the debtor’s debt not yet being due is relevant from the point of view of assessing the payment; in other words, the question is what happens in the event that the debtor mistakenly fulfils his payment obligation prior to the maturity of the debt. Is he then entitled to reclaim the amount paid in this way, or merely to request that the payment be credited to him as an early repayment of his debt? The latter solution, on which the provision of the act is based, would run counter to both the contractual intent of the parties and the essence of a loan contract. In a loan contract, the parties agree that the creditor will disburse a specified sum to the debtor, which the latter is obliged to repay at a later time; or, to put it another way, the loan contract entitles the debtor to use the creditor’s money for a stipulated period of time. An unintentional repayment is not a legal action which would in any sense overwrite the agreement between the parties; the loan contract is still effective, and the debtor is still entitled to use the given sum accordingly. Unless some event has occurred in the meantime leading to termination of the contract, the creditor cannot refuse to make the mistakenly repaid sum available to the debtor once more. This situation can only be interpreted as solutio indebiti resulting in unjust enrichment of the creditor, obliging the latter to refund the given sum to the debtor. It is my conviction that on this basis the situation could be resolved in a legally well-grounded, financially correct manner. In any event, it is sad how casually the legislator is willing to depart from a classic legal solution based on very weak reasoning, even in a case where the declared goal and constitutional requirements alike would demand that it adopts the most conservative legal position possible.

Amendment of the act of invalidity

Although there is no scope here to present and analyze the debt relief act in detail, it would be a mistake to omit mentioning how this law has amended several points of the act of invalidity, itself passed only a few months previously.

One such essential amendment specifies that the assumption of invalidity of the contractual clause enabling unilateral amendment of contracts, does not apply to clauses applied after 27 November 2010 with respect to a specific range of forint and forex loan contracts (paragraph (9) of §52). One of the key objections to the act of invalidity was that in formulating the requirements with respect to contractual clauses enabling the unilateral amendment of contracts, the act completely disregarded the fact that special prescriptions of the law, changing several times over the years, applied to such contractual clauses. The law now justifies this amendment precisely by noting that it was at this time that the legal regulations pertaining to these contractual terms were amended, which supports the opinion that the changing legal environment cannot be disregarded in applying these requirements. This is also a fundamental change because one of the most significant constitutional objections to the act of invalidity was expressed with respect to just the making of this presumption and the resulting reversal of the burden of proof. As a consequence of the amendment, it is not the credit institution which must initiate a lawsuit in order to protect the contract, but the MNB which is entitled to sue the institution if it judges a contractual condition to be unfair. Critics of the act of invalidity have objected to the law precisely due to what they see as unjustified retroactive redrafting of the earlier rules, since the legislator’s desired goal – even without the injury caused by the act – would be achievable by means of a so-called suit in the public interest initiated by the MNB or other entitled body. With this legal amendment, even the legislator has now acknowledged that this is a genuinely viable route, which in itself confirms that related constitutional concerns were well founded. At the same time, the amendment has resulted in the creation of an ambiguous situation whereby different rules apply to contracts falling within the scope of the amendment and to those which fall outside it, which is to say that different presumptions prevail regarding the same contractual clause depending on what kind of contract the clause is used in. In this way, the act has created a confusing situation that cannot be reconciled with the concept of legal certainty. As a consequence of this, proceedings may be launched in connection with the same contractual condition based on entirely different rules, which in itself carries the risk that different judgements are delivered in different procedures regarding the same contractual clause.

Although it does not appear thus in form, in terms of content the provision which prohibits banks from raising interest and charges until 30 April 2016 (§45) can likewise be regarded as an amendment of the act of invalidity. In proceedings initiated on the basis of the act of invalidity, the clause enabling unilateral amendment thus proves valid to no avail as the bank is not entitled to assert this right. This amendment of the law thus overwrites the valid agreement between the parties, despite the fact that the legislator set requirements that are very hard to fulfil with respect to the validity of such an agreement. The banks are not entitled to raise interest rates even when they conform to the relevant legal requirements, and even if the conditions are otherwise in place rendering a raise justified and lawful. With this amendment the debt relief act encroaches on the principle of private autonomy, violating the freedom of contract and the binding power of contracts that derives from this.

Finally, we draw attention to one more very significant change from the point of view of constitutionality. The debt relief act states that there is no scope for a retrial in suits aimed at overcoming a presumption of unfairness made in relation to contractual clauses enabling unilateral amendment (paragraph (11) of §52). A retrial is classified as an extraordinary remedy, which – within the strict framework regulated by procedural law – permits a binding judgement to be reviewed in light of a given circumstance, unknown at the time the judgement was reached, becoming known after the event. Retrial is an institution of fundamental importance which ensures that a judgement founded on the bearings of a case which do not actually correspond to the relevant facts should not remain in force, provided that the omission of the given facts was not the result of negligence on the part of the party initiating the retrial. A special instance of a retrial occurs when, after the judgement is made, the law serving as the basis of the judgement is declared void by the Constitutional Court due to contravention of the Fundamental Law. In such a case, it is obviously not the fault of the litigant that legislation contravening the Fundamental Law was applied in the legal action at hand. At such times, a spanner is thrown into the works of state justice when it emerges that a law created by the state should not have been applied. In instances like this, it is thus especially reasonable that there should be a legal remedy available to the affected party with which to correct this error.

Retrial is therefore a fundamental tool ensuring the lawful functioning of justice, provided to litigants by practically every legal system operating on the terrain of constitutionality. This is particularly true of a case of a retrial where the annulment of the applied law enables the legal dispute to be judged anew. Moreover, this amendment also runs up against the prohibition on retroactive legislation since it deprives the party in a procedure already in progress of the extraordinary remedy guaranteed by law; it excludes the parties from a forum of legal remedy which was still open to them when the procedure began, and which otherwise remains available to the parties in all other civil suits. We can see no sensible justification that would legitimize this step or refute its arbitrariness.

We can only gauge the real significance of this legal deprivation, however, if we also take into account that the dispute in the lawsuits in question concerns not the factual background to the case, but instead a purely legal issue. The court is examining whether a contractual condition applied by the bank conforms to the requirements specified by the law. For this reason, with respect to these suits, the option of retrial will arise primarily in the event that the Constitutional Court annuls the act of invalidity. Each bank that has initiated legal action has argued that the act contravenes the Fundamental Law, and accordingly requested the acting court to suspend the lawsuit and to request the Constitutional Court to review the act. Regrettably, a majority of judges on the Metropolitan Court of the first instance rejected this request, finding that the application of the act was not a source of concern. This is especially painful because a major portion of the constitutional concerns over the act expressly touched upon fundamental elements of constitutionality, namely the prohibition on retroactive legislation, the right to due process and the independence of the judiciary. There is the suggestion of something fundamentally amiss if a judge is insensitive to these matters, if even damage to the independence of the judiciary fails to disturb them. Luckily, there were still a few judges opposing the majority opinion who have turned to the Constitutional Court, and hopefully there will be other judges sitting on theMetropolitan Court of Appeal of the second instance who will proceed in the same way. The act of invalidity has thus come before the Constitutional Court, while it is also possible that lawsuits will reach legally binding conclusions in the meantime. In these cases, the option of retrial would arise should the Constitutional Court accede to the petitions. The amendment of the law is thus explicitly aimed at preventing the lawsuits being tried again, or at invalidating judgements in the event that the law which serves as their basis is annulled. This tiny, barely noticeable amendment is therefore essentially designed to ensure that the extraordinary situation introduced by the act should prevail even in the event of the Constitutional Court qualifying it as contravening the Fundamental Law. In other words, the debt relief act – in respect of the act of invalidity – effectively eliminates the possibility of constitutional oversight.