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Schriftenreihe des Europa Institutes Budapest, Band 22:195–205.


Strategies for Developing Hungarian Business Law


Hungarian jurisprudence will be facing fundamental changes within one or two years; Hungarian laws will become part of the unified system of jurisprudence of the European Union and Hungarian attorneys will have to practice by applying supranational European laws and national Hungarian laws at the same time. However, the changes will not only be the result of our adherence to the European Union. Hungarian jurisprudence – similarly to several other European systems of laws – adjusts to globalization and the intrusion of the information revolution with difficulty because Hungarian laws are based on the German traditions of jurisprudence, and the changes also mean the rapid spread of Anglo-American concepts of particular law. Rapid technical evolution often leads to a process in which laws are overtaking social evolution, advancing over-regulation and the emergence and operation of a law- or regulations- industry. We were hoping, during the first stormy years of the change of the system, that politics would gradually be relegated to the background in our civilian economics based on free market competition and private property (after all, we had successfully completed privatization in ten years, by 1998), but we had been disappointed because of sharp political conflicts that emerged after 1998. Roughhouse politics are overshadowing and indeed raping the logic of business law by restoring state interference in economic life through the enactment of monstrous laws.

All this justifies thinking about the future of Hungarian business law by rising above – for the moment at least – the daily problems of the process of enactment of laws and short-term, one or two years in length, plans for the creation of a new system of laws. Do we have any idea as to what Hungarian economic legislations will look like in a decade or two? Or are we only drifting in the framework of planned adjustments within the European efforts at harmonizing laws, twitching in the maelstrom of political demands? Are we going to be able to create a long-term program – corresponding to internal characteristics and the logics of jurisprudence – based on Hungarian concepts of economic legislation, including creation of laws, their application and theories? We must attempt to answer these questions in spite of the fact that we know that the strategy of future Hungarian jurisprudence will be partly determined in Brussels. However, a different outcome might be achieved by exerting our own efforts at modifying-supplementing the decisions of Brussels with a national strategy of developing our own new system of jurisprudence.


1. Tasks for the Present and for the Near Future

Since we have laid the foundations of the legal system of a market economy between 1988 and 1996, the actual tasks of the Hungarian business law may be defined as follows:

A./ The extensions of the laws of the market economy to other areas of economic life, including infrastructures; in other words, the construction of a complete structure of laws of economics.

The so-called secondary economic laws include:

– a./ Rules concerning railroads and energy service regulations;

– b./ Laws dealing with intellectual property, rights of inventors, (including computer rights), laws for inventions and copy rights. Laws must also be enacted concerning media- and advertisement-rights, as well as rules concerning the information-society.

– c./ Laws concerning the so-called “humane” infrastructure of the economy, such as laws for environmental protection, welfare legislation, protection of consumers, of personal data, etc.

“Secondary” laws have already been codified in the early 1990’s. Their enactment was accelerated after the codification of laws regulating the market economy between 1994 and 1996. The completion of the masses of these laws has extended into the year 2000. Therefore, this process will soon be completed.

B./ There are two tasks remaining concerning the fundamental free market laws.

– a./ The verification of economic legislation in practice, originally introduced purely on a theoretical basis. They must be tested against practical experiences which will also mean the elimination of technical mistakes resulting from rapid legislation and inexperience.

– b./ Coordination of basic economic laws, because there are a great many contradictions and differences in conceptualization, originating from the haste by which these laws have been enacted (for instance, laws concerning associations, accounting procedures and taxation, the laws of stock companies and competition among them, stocks and the capital markets, and laws related to share rights regulated by the Civilian Code (Ptk.))

The modification of fundamental laws – related to harmonization with European jurisprudence to be discussed below – takes place, according to well-established custom, in intervals of 6-8 years, in an institutional process of re-examination. For instance, in the case of the laws of associations and companies, this had occurred after 1988-1989 and in 1997 (a re-examination is expected to occur in 2003-2004); the laws concerning competition were re-examined in 1990, 1996 and in 2000; the reviews of laws of stocks came in 1990 and 1996 and, finally, in 2001 and similar periodization can be observed in banking laws. The next task will be the coordination of basic laws with previous jurisprudence concerning the new code of civil laws, while the revision of the later will take place continuously up to the year of 2006.

C./ The demands for harmonization of economic legislation with that of the European Union is a fundamental task and we have to accomplish this through the coordination of our laws in a process of verification with practical experience. In case of the fundamental laws of economics discussed above, this is a comparatively simple task, since these laws have already been created with an eye on the framework of the European system. There would be changes in this system only if there were parallel changes in European economic legislation. See, for instance, the appearance of American-type laws for the protection of investments, the European codification of rules for company takeovers, or some institutions of corporate governance (Hungarian laws concerning corporations and companies are solid, but the laws regulating concerns are continuously being modified). The evaluations of the European Union of countries becoming candidates for admission to the Union have always been very positive about Hungary’s fundamental economic institutions-jurisprudence.

We are lagging behind with EU-law harmonization with respect to economic legislation. The reason for this may be found in mistakes in legislation and in the weakness of the “experts” of individual ministries for practicing jurisprudence. It is also a fact that the Ministry of Foreign Affairs and/or the Ministry of Justice, entrusted with the task, have not been able to coordinate such activities sufficiently that are divided among several other ministries of state. However, in my opinion, the cause is not legislative and unsuccessful coordination is only the tip of the iceberg; there are technical-economic reasons behind the failure. Our technological-economic backwardness is the real cause of our failure in adapting the European Union’s technologies in information transmission or in the protection of the environment. There are conflicting political/economic interests behind attempted coordination of jurisprudence concerning agriculture, since we are trying to protect our agriculture, which a quick adoption of the European Union’s principles would harm.

I would like to mention – without excusing our mistakes – that the adoption of modern European business law is being hindered by the unbelievable over-regulation extorted by the trade unions (see, for instance, law No.2 concerning associations, the so-called capital-adequacy principle), and the over-zealous demands of the bureaucracy in Brussels (related to the criminal liability of legal entities). Brussels is trying to force the establishment of institutions by the new member states, when these institutions have not even been introduced as yet by the European Union, using the new members as guinea pigs. The Union “suggests” regulations in many instances, whose basic purpose is the conquest of our markets by the original member states or the establishment of preferences for their advisor-companies.

At the same time, we must emphasize the fact that the adoption of European institutions of economic legislation develops and modernizes our own jurisprudence; therefore, the successful completion of harmonization of laws is, even from a strictly legal point of view, in our national interest. When considering the oft-voiced fears and reservations, we must emphasize the fact that the required direct adoption of supranational European jurisprudence will not harm our national legal traditions. In fact, the Union, enacts laws for the harmonization of the so-called “big businesses,” banks, stock markets, etc., that are rooted in the liberalism of its founding fathers. The Union does not attempt to exclude the national legal traditions of its member states concerning property laws in everyday life or small businesses – for instance, not one legal principle of the Union dealing with association laws affects savings associations or joint income-societies, and there is only one law concerning limited liability companies. Therefore, we have the opportunity to maintain our national legal traditions – if we are sufficiently prepared for the task – and will not simply copy European principles word-by-word out of laziness, or of being pushy, or for convenience’s sake; but adopt European concepts of jurisprudence in a creative way, corresponding to our national jurisprudence, using appropriate means.

In the coming years we must:

a./ Begin the enactment of high quality legislation of economic laws, correcting the mistakes that had been understandably committed in the course of a stormy, opportunistic development. At the same time, we must ensure the relative stability of economic legislation that had already been codified. We must reject small modification of the laws, urged on by lobbyists supporting everyday political causes, originating in constantly changing power-relations. It has become customary to enact laws especially for financial reasons, – that are mostly related to the state budget and year-end accounting regulations – by the so called “lettuce-legislation,” interfering with thirty or forty other laws. These low-level “financial” laws endanger legal security and the integrative function of laws.

b./ We must enact a unified system of new laws in this legislative period for financing the state budget, closing the previous processes of legislation, replace law XXVII of 1992 that has been amended innumerable times. The new laws should establish a stable concept of state property ownership, creating a system for handling state possessions by creating a new modern state treasury. With the conclusion of the process of privatization, a new system of regulations for the day-to-day administration of permanent state properties must be created (because the law of XXXIX, 1995, is no longer sufficient for this purpose). The neglect by state institutions of their obligations to the state budget by creating sham-associations and other situations where it is justified to form state-companies must be discontinued; all the rules concerning associations must apply to them as well (see the case of the Hungarian Bank for Development Stock Company). If the state continues to participate in the activities of the economy, then it cannot hide behind its sovereignty. (See references to the absence of legal entities for parliament or the government.)

The regulation of state institutions of finance must completely be adjusted to fit the requirements of the new civil code, which will hopefully be codified by 2006. The legal framework of state support and subventions of various economic activities must be regulated completely according to the rules conforming to those of the European Union.

c./ During the necessary transformation of regional Hungarian governing institutions, properties publicly owned by local governments must also be independently regulated by law and rules of property management by governing institutions and must be separated from those of state-owned properties.

d./ Finally, – following the slowdown of new legislation of the economic processes and their stabilization – emphasis must be placed on the practical application of laws. The enactment of so-called “programmatic” or “leading” legislation must become exceptional (these were necessary at the time of the change of the system), and the personal and material conditions for the application of economic laws must be ensured. For instance, the same way we have already created a speedy process for the creation of a trustworthy list of companies, we must achieve a similar result in the registration of all private property. Economic security provided by laws would be greatly enhanced, – at least in my opinion, – if we turned away from the practice of handling real property rights by administrative organs in the 1970’s, to a system of registration maintained by the courts. Modern financial-technical foundations of the work of judges must also be established (including an information system), in order to establish a more uniform, more predictable and more secure application of economic laws. The establishment of separate courts of appeal and the simultaneous abandonment of the role of the Supreme Court as a court of appeals should provide a sufficient basis for this process. However, the change must be supported by the creation of appropriate financial bases for the courts as independent institutions, by presenting a separate budget for them to parliament. The continuous change of the rules of court procedures must come to an end. By strengthening a new system of presentation, the modern process of proceedings shall be stabilized by the end of the current parliamentary cycle.


2. Long-term Direction of Development

Technological evolution demands both the regulation of processes and the system of organizations, since the fundamental economic processes are taking place within and among organizations (or systems of organizations). However, jurisprudence is traditionally human-based (legal personalities of associations emerged only during the course of the 19th century and the influence of the so-called “fictitious theory” continues in our days), and it basically means regulation of individual human behaviour. In fact, technological norms would become real legal norms only if we could provide them with value-contents. This is already evident in environmental protection and gene modification technology. We must also avoid exaggerations and prevent jurisprudence to become captive to technological norms, collections of copy rights, or mathematical equations. At the same time, economic legislation must create guarantees for the functioning of the system of organizations. On the one hand we must become accustomed [by creating adequate means to ensure the activities of associations-, legal-entities, competition and financial associations] to the reality of consolidated companies and on the other hand, we must curtail the perverse actions of conglomerates injuring public interests. We must acknowledge the fact that an association is not a human being, its legal conditions are relative and it can have several functions (it can have integrated or only limited liability). In the case of organizations, their relations to responsibility for the consequences of their actions cannot necessarily be on the basis of the theory of free will – for instance, consumer protection demands more and more objective responsibility in rights for compensation – etc.

The technological regulation of economic processes, or the regulation of associations, awakens the always present instinctive urge of bureaucrats for over-regulation by state institutions, the instinct for manufacturing always newer paragraphs. Conscious strategies of deregulations must be employed against these tendencies, such as:

1./ Projects for deregulation must be prepared in economic fields that are the most exposed to over regulations, and they must exclude expenses that are becoming outdated because of technological advances, or because of legal norms meaning additional expenses for entrepreneurs. Such a process of deregulation should not become a campaign matter for governmental politics (as has been the case in the past in most cases), but a matter for continuous review.

2./ In the case of every significant legal regulation the examination of its probable impact must be performed prior to its introduction, an economic analysis of the expected impact of the regulation must be examined in order to ascertain social costs and further consequences. In the light of such effects, the said regulations may be justified or rejected. (This would be deregulation with an eye on the future.) The results of these examinations must be made public before they are submitted to the judgment of parliament.

In the struggle against overregulation, attention must be directed to the fact that in the short run, state institutions often have interests other than those of the economy. A “bureaucrat’s desk” is interested in operative interventions in the economic processes, limited in scope in the case of laws, and tends to introduce regulations by legal means. A population accustomed to a paternalistic state apparatus, as well as mass communications, demand in almost every case legal regulation by the government by directive; therefore, this process has an element of averting responsibility by the apparatus.

On the other hand, digitalization makes possible the realization of an almost century-long vision of a service-state. The modern state will indeed be able to provide services through digitalized processes and digital systems of case-solving and registries will be quicker, more convenient and less bureaucratic for the population. In addition, digitalized/electronic procedures by the government will require far less rules in providing services; therefore, in the long run, it will support deregulation.

The rapid development of technology and the concomitant economic transformation undermines one of the fundamental legal elements of business law, namely, stability. Consequently, the continuous technological changes demand a corresponding process from economic laws. At the same time, exaggerated flexibility obstructs the estimate of risks in business and leads to uncertainty for entrepreneurs. The state must admit to the old truth – in the face of pressure from mass communications and public opinion – that a bad regulation is better than a continuously changing one, and that security provided by laws is the fundamental element of the operations of a market economy. At the same time, economic laws must conform to technologies by which the fast-developing socio-economic needs can be satisfied. There are several methods to accomplish this.

First of all, it would be advantageous to enact complex laws for separate legal sectors that would include both private- and public-rights, material rights and formal rights and they would, at the same time, also include civil laws, administrative laws, financial laws, labour laws and laws for legal procedures, etc. Experience teaches us that the best regulations of economic life may be achieved by complex laws which are, at the same time, longer lasting and clearer than laws belonging solely to separate branches of jurisprudence. In addition, legal rules must offer several variations for practical experience. For instance, in the case of property laws, variations concerning material possessions and contracts could be regulated separately (including entrepreneurial, individual or portfolio varieties).

Another solution for encouraging stability would be the enactment of framework-laws that would include appropriate clauses in their general sections. However, in my opinion, under the new conditions, the frameworks of jurisprudence must not be filled with regulations of administrative functions, as it has been the custom since the 19th century, and as it is being suggested by adherents of government by decrees. This would result in overregulation by directives that are even more dangerous than overregulation by laws. It may deform the laws, transform the balance of power in favour of the existing administration and is more difficult to control. On the contrary, the framework laws of economic processes may be modified through practice by lawyers and the courts, or by everyday application of laws and self-regulations.

During the process of the change of the political system there had been – and rightly so – significant reluctance on the part of Hungarian public opinion to continue the usage of such flexible terminologies as “good morals in trade,” or “significant community interests,” etc. These terms were considered to imply the possibility of insecure, “constantly changing political influences.” However, if court procedures concerning commerce and trade would be solidified and became more uniform, if a confident court would exclude the often hidden and subconscious influences of executive power and politics, then legal precedents established by court proceedings could become a significant element for the development of our economy. In fact, the application of the laws by the courts is more capable of adjustment without “bumps on the road” than jurisprudence itself.

The development of legal procedures by the courts in applying laws to economic processes is based on the recognition of practices by lawyers and legal advisors. These are also based on the attention paid to legal techniques employed and their recognition, rejection or modification. The influence of the application of laws is based on practices by lawyers and legal advisors, as these are manifested in the court proceedings. For instance, there is a positive tendency in Hungarian corporate law in that it begins to grow out of its initial rigidity and its practitioners recognize the fact that the law has to serve the needs of enterprises or entrepreneurs operating within the rules. Serving this way is not shameful, since it is the consequence of the character of civil economic law. In other words, the freedom of lawyers and entrepreneurs must be respected as long as they act lawfully and their actions do not conflict with the laws or with public interests.

We must also acknowledge that of all areas of law that are the most influenced by technological developments, economy desires self-regulation to the greatest extent. This is already obvious in such areas as laws affecting the media- and the internet, author’s rights, etc. In these cases the “trade” itself, including people who are the most affected by it, create “ethical” norms whose observation is guarded by elected bodies of the “trades” themselves. In these matters self-regulation is related ever more strongly to the spread of the process employing elected judges or various mechanisms of mediation (mediators, courts of honour, reconciliation, etc.) In my opinion, state jurisprudence and the persons applying the laws of the state should abandon their jealousy over the loss of their monopoly for establishing legal regulations. In areas that are the most exposed to technological changes, the state must accept the fact that enactment of laws and their application by the state is but a supplement to self-regulation and to agreed-upon processes for the settlements of disputes by parties in question. For instance, in Hungary, self-regulation works exceptionally well in the area of domain-names of the internet; what reason would the state have to interfere with this process? However, in areas where the protection of public interests are involved, for instance in consumer protection, in the defence of personal rights, in the prevention of computer crimes, in the need for setting up security systems to prevent attacks by hackers, in protecting digital technology, state actions must complement self-regulation. In cases where the public interests are severely injured, accounting cannot be a matter only for moral judgments, or be simply based on mutual agreement (for instance, payment for the harm caused). Therefore, total self-regulation is not acceptable, but there is need for its more frequent application than it is currently the case.

A further necessary adjustment induced by technological advances concerns the appearance and codification of a third generation of basic human rights laws and their realization through “invisible” constitutional processes, which avoid or amplify positive laws. The institutional centers for these adjustments are the constitutional courts, that emerged during the last 50 years. In a process of political system-transformation, the possibilities of the new constitutional courts were much greater in this “invisible” development than it was the case in Western Europe with its mature jurisprudence. (In this process, the Hungarian constitutional courts were pioneering the changes.)

Basic constitutional rights originally consisted of laws providing protection against the state; for instance, in the case of the media, constitutional rights served to protect the freedom of the press, of speech and other personal freedoms. The so-called second generation basic social rights, whose preparation began in the middle of the 20th century, contributed to the emergence of the so-called third generation of fundamental laws, concerning citizenship (human) rights. The third generation rights declare, among other things, that the state provides services through state institutions such as a healthy environment, a healthy life style, the possibility of obtaining information quickly, including information obtained by access to the internet.

The third generation of fundamental laws has multiple meanings. Therefore, they supplement positive rights and they can even annul detailed regulations of other laws which are impinging on positive rights. (In Hungary, there is an institutional means for this process in the person of an ombudsman for the protection of information and data.) A further impact of these rights is that they often conflict with older laws and they usually come out victorious from such conflicts. For instance, the freedom of information is often a stronger law than that concerning business secrets based on the freedom of entrepreneurial activity and principles of the freedom of the internet is stronger than freedoms of property and business contracts. The latter may be injured by the requirement that economically strong servers provide free universal information without charge. It would be important, therefore, to develop a legal method – perhaps enforced by practices of the constitutional court – to handle the conflict between fundamental laws. In fact, the contents and extent of the third generation of fundamental human rights laws are far less firm than that of the first generation of political rights; they are dependent on the economic power of a given state and their possibilities are provided by economic geography and the conditions of a given culture.

Another possibility for progress is in the adjustment of older rules to fit new circumstances. The civil code provides for this process through the regulations of electronic shopping and banking, by applying the rules of written contracts in cases of electronic contracts that were executed without the use of written documents. The latter processes are included in electronic contracts by applying to them the rules of blanket-contracts or individual agreements. Another possibility is in the supplement of laws, such as the law of 2001: CVIII, dealing with digital/electronic commercial services. This supplemental process provided an excellent solution, at least in my opinion, by the enactment of the law of intellectual rights of 1999, providing protection for computerized creations. It considers data banks (digital archives) as individual collections and enforces financial compensation for their use to the servers. The law also provides protection for creations that could be reproduced by establishing joint marketing associations that collect compensations. The laws protecting industry were also able to solve the problem of the digital reproduction-business by modernizing copy right laws. In Hungary, the transfer of the rights of the written media into a general media law was, unfortunately, unsuccessful; it did not succeed in creating a unified system. The law of 1996:I, dealing with radio and television broadcasting rights, was especially weak; its recasting from a judicial point of view– regardless of its political absurdities – is becoming more urgent by the day. Our civil code has difficulties digesting so-called intellectual property rights and abandoning the property rights concerning material possessions. However, through the practice of attorneys and of the courts, including particular contracts dealing with personal properties (including the acquisition of companies, the sale or purchase of property rights, etc.), are becoming better organized.

The adoption of laws to the new situation is also occurring through the process of their extension to new areas of application. An example for this is the enactment of laws protecting personal data, which is the product of the jurisprudence of the last twenty years. The right for the protection of personal data is continuously being extended and it is also changing from the protection of individuals [through guarantees of the freedom of information], to general rights of the information-society. The Hungarian law for the protection of personal data, enacted in 1992, was among the first of its kind internationally and its role in shaping public opinion was especially positive. At the same time, it must also be noted that the practical experiences of the last ten years should also be transmuted into laws, which means institutional re-examination. In this we also face the collision of public interests; the purported interests of an affective public administration often collide with the protection of individual freedoms. We must find a middle ground by which we will not unnecessarily impede the development of state record-keeping systems and, at the same time, make sure that the assertive efforts of state institutions do not distort the protection of the rights of individual citizens and open the doors to the abuse of executive power.

It is encouraging to be able to observe that a struggle had begun against the over-politicization of jurisprudence and that there are efforts being made to increase the moral guarantees of business law. We must increase the norms of the civil code in order to make it part of the entire legal system; this means that laws must be practiced according to their aims, the abuse of the law is not permitted (it is illegal by itself) and that no one may assert his lawful rights in order to gain personal advantages. These attitudes must become norms of public law in rejecting political manipulations. On the other hand, we must clarify situations in which the absence of laws has created gaps in the civil code according to which “everything is permissible that is not forbidden by the laws.” This saying may be valid only to a limited extent. Politicians and state institutions should act only on the basis of the civil code in parliamentary proceedings as well as in government administration, the latter of whose tasks include the implementation of the laws. In public jurisprudence, the sort of freedom that is present in the private sector, simply does not exist.