Commentaire arrêt C235/17

Camille Flamein                         European Commission v. Hungary C-235-17

M1 DIE Aff

1. Introduction

Citizens of the European Union (EU), have the freedom to move and reside freely in any Member State of their choice. While most travel for holidays or business, there is a growing numbers of persons moving to other Member States to set up their lives there. This fundamental freedom is thus protected by the founding treaties^[1]. When the EU was founded, European States agreed on the creation of a new legal order of EU law and its supremacy. Therefore when a European State wants to join the European Union, it has to fulfill the EU critera^[2] of membership known as ‘the Copenhagen criteria’ which include ‘a free-market economy, a stable democracy and the rule of law, and the acceptance of all EU legislation’. The new Member State has to accept and applies EU legislation, if not, sanctions are taken by the European Institutions. Hungary, a Member State of the EU, decided in 2013 to change its law on the right of usufruct which refers to the right of one individual to use (usus) and enjoy (fructus) the property of another individual. This Hungarian law established restrictions for acquiring ownership title over farming lands and arable lands for non-Hungarian citizens to protect national interests.

2. Facts and Proceedings

In 2013, Hungary enacted legislation^[3] providing that rights of usufruct over agricultural land located in Hungary may be granted or maintained only in favour of persons having a close family tie with the owner of the agricultural land concerned. That legislation, which affected in particular the situation of nationals of Member States other than Hungary, provided that the rights of usufruct created in favour of natural or legal persons not having such a family tie with the owner would be cancelled as from 1 May 2014.

On 17 October 2014, the Commission sent a letter of formal notice to Hungary, taking the veiw that, by adopting the restrictions relating to the right of usufruct over agricultural land, contained in certain provisions of the 2013 Law on transitional measures, including Paragraph 108(1), Hungary had infringed Articles 49^[4] and 63^[5] TFEU and Article 17^[6] of the Charter

On 18 December 2014 Hungary replied by a letter in which it disputed those infringements.

On 19 June 2015, the Commission issued a reasoned opinion in which it maintained that, by cancelling certain rights of usufruct with effect from 1 May 2014 by means of Paragraph 108(1) of the 2013, Hungary had infringed the provisions of European Union law previously mentioned.

On 9 October 2015 and 18 April 2016 Hungary replied by letters, in which it argued that there had been no infringements as alleged.

In those circumstances, the Commission decided to bring an action in front of the European Court of Justice, and requests the Court to find that, if in providing for the cancellation of the rights of usufruct created in favour of persons not having a close family tie with the owner, Hungary has infringed both the principle of the free movement of capital and Article 17^[7] of the Charter.

3. Arguments of the Parties

        3.1 Argument of the Parties on the Jurisdiction of the Court

        3.1.1 Argument of the Claimant

The Commission, argues that EU law applies ab initio in new Member States and that, in the present case, the dispute concerns a provision of national law adopted in 2013, which provided for the cancellation, by operation of law, on 1 May 2014 of rights of usufruct still in existence at that time and recorded in the land registers. Consequently, the dispute does not concern the legality of usufruct contracts concluded before Hungary’s accession to the European Union.

3.1.2 Argument of the Defendant

On the opposite, Hungary submits that, since the usufruct contracts cancelled by the contested provision circumvented the prohibitions on acquiring ownership of agricultural land that were in force before Hungary acceded to the European Union and were, on that account, void ab initio even before the accession, neither the prohibitions thereby infringed, nor their effets, nor, consequently the subsequent cancellation by the contested provisions of the rights of usufruct at issue can be assessed in the light of European Union (EU) law^[8].

Therefore, Hungary considers that, the Court does not have jurisdiction to interpret EU law as the facts of the dispute pre-date the accession of the Member State to the European Union.

        3.2 Arguments of the Parties on the Substance

        3.2.1 Arguments of the Claimant

Firstly, the Commission submits that the contested provision is capable of restricting, depending on the particular circumstances of each individual case, the freedom of establishment^[9] and the free movement of capital^[10].

Secondly, the Commission considers the contested provision to be indirectly discriminatory vis-à-vis nationals of Member States other than Hungary. Indeed, between 1992 and 2002, the creation of a right of usufruct was the only way for such nationals to invest in agricultural land in Hungary and it would moreover have been unusual for those persons to have close relations owing agricultural land.^[11] Therefore, in those circumstances, the contested provision cannot be justified on the basis of Article 65(1)(b)^[12] TFEU or by overriding reasons in the public interest.

Thirdly, the Commission considers the Hungarian’s grounds of justification not acceptable and the contested provision not satisfaying the requirements deriving from the principle of proportionality^[13] for various reasons ; first, the various agricultural policy objectives mentioned in Hungarian law^[14] do not justify an obstacle to the free movement of capital, as they are not appropriate, coherent or necessary^[15] for the purpose of attaining objectives^[16]. Second, the requirement of the foreign exchange autorisation from the National Bank of Hungary for non-residents^[17] gives rises to discrimination based on nationality prohibited by EU law^[18]. Third, the objective of cancelling rights of usufruct if a national of a Member States other than Hungary chooses, for the purpose of investing in agricultural land or establishing himself in Hungary, a legal instrument available under the law of that Member State, that is merely the exercice of the freedom of  establishment and free movement of capital cannot be classified as abuse. Fourth, the contested provision infringes the principles of legal certainty^[19] and of the protection of legitimate expectations^[20] because it is not proportionate or justified to provide for a transitional period of only 4 months, whilst abolishing, at the same time, the transitional period of 20 years laid down less than 1 year previously^[21]. Futhermore, for the Commission, not to provide any specific compensation allowing the persons concerned to be compensated, for the loss of the consideration paid, the loss of value of the investments made and the loss of profit is also contrary to those principles.

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