European Court of Human Rights

You are here: BAILII >> Databases >> European Court of Human Rights >> Albert & Ors v Hungary - 5294/14 (Judgment : inadmissible shareholders' complaints about legislation in Hungary restructuring banks : Grand Chamber) [2020] ECHR 543 (07 July 2020)
URL: http://www.bailii.org/eu/cases/ECHR/2020/543.html
Cite as: [2020] ECHR 543

[New search] [Contents list] [Help]

Press Release

issued by the Registrar of the Court

07.07.2020

ECHtR rejects as inadmissible shareholders’ complaints about legislation in Hungary restructuring banks

The case concerned complaints by 237 shareholders in two savings banks which were put under central supervising authorities following new legislation introduced in 2013.

In today’s Grand Chamber judgment¹ in the case of Albert and Others v. Hungary (application no. 5294/14) the European Court of Human Rights has, unanimously, declared the application inadmissible concerning 233 of the shareholders.

The applicant shareholders essentially complained that the new legislation had restricted their right to influence the operation of the banks in which they held shares.

The Court found in particular that the acts complained of by the applicants had principally concerned the savings banks, and had not directly affected the applicants’ shareholder rights as such. It further found that there were no exceptional circumstances, such as the shareholders and banks being so closely identified that it would be artificial to distinguish between them or pressure on the banks to join the State control scheme, to justify disregarding legal personality or the lifting of the corporate veil in the case.

The complaints should therefore have been brought by the two savings banks and not the applicants, who, as shareholders, could not claim to have been a victim of any violation of their rights under the European Convention of Human Rights.

The Court also decided, unanimously, to strike the application out of its list of cases in so far as it concerned the remaining four shareholders, who had decided to no longer pursue their cases.

Principal facts

The applicants are 237 shareholders in two savings banks, namely Kinizsi Bank Zrt. and Mohacsi Takarek Bank Zrt. They are all Hungarian nationals.

At the time their application was lodged in 2014, the applicant shareholders collectively held the majority of the shares in the savings banks, namely 98.28% of shares in Kinizsi Bank and 87.65% of shares in Mohacsi Bank. Among those who applied to the Court, an average shareholder in Kinizsi Bank owned around 0.015% of shares, while an average shareholder in Mohacsi Bank owned around 0.016%.

The applicants’ complaints focused on the legislation introducing the mandatory integration of their two banks into a state control scheme.

The legislation, Act no. CXXXV of 2013 on the Integration of Cooperative Credit Institutions and the Amendment of Certain Laws Regarding Economic Matters (“the Integration Act”), entered into force in 2013. It effectively integrated the applicants’ banks into a scheme aimed at improving the credit institutions sector in Hungary.

1. Grand Chamber judgments are final (Article 44 of the Convention).

All final judgments are transmitted to the Committee of Ministers of the Council of Europe for supervision of their execution. Further information about the execution process can be found here: www.coe.int/t/dghl/monitoring/execution.

The mandatory integration was headed by two central bodies, the newly created Integration Organisation of Cooperative Credit Institutions, and the Savings Bank, which are indirectly controlled or owned by the State.

Under the reform, legal compulsion to become members of the Integration Organisation was combined with heavy financial and formal conditions and time constraints. Non-compliance with the requirements of the Integration Act could lead to sanctions, such as exclusion of the members and withdrawal of licences.

As a result of the new legislation, the applicants' banks had to choose between either remaining members of the Integration Organisation or leaving it. Leaving implied re-applying for a new banking licence and, among other things, having to raise the banks' own capital. The choice to remain had to be made by the competent bodies of the banks, namely, the general meeting of their shareholders, which included most of the applicants, and the banks' management. Both banks ultimately agreed to remain members of the integration scheme.

Some of the shareholders challenged in court the banks' adoption of the articles of association in line with the model provided by the Integration Organisation. There is no information on the outcome of those legal proceedings.

Complaints, procedure and composition of the Court

The application was lodged with the European Court of Human Rights on 10 January 2014.

Relying on Article 1 of Protocol No. 1 (protection of property) to the European Convention on Human Rights, the applicants complained about the impact of the legislation on their right to influence the conduct and policy of the banks in which they had been shareholders. In particular, in their view, it had excessively interfered with their rights to establish and amend a memorandum of association, adopt annual reports, appoint board members and determine share capital or payment of dividends. Under the new legislation those issues had become subject to the approval of the Integration Organisation and/or Savings Bank.

In its Chamber judgment of 29 January 2019, the Court held, by six votes to one, that there had been no violation of Article 1 of Protocol No. 1.

On 24 June 2019 the Grand Chamber Panel accepted the applicants' request that the case be referred to the Grand Chamber.

A hearing was held in the Human Rights Building, Strasbourg, on 18 December 2019.

Judgment was given by the Grand Chamber of 17 judges, composed as follows:

Ksenija Turkovic (Croatia), President,

Robert Spano (Iceland), ad hoc judge,

Linos-Alexandre Sicilianos (Greece),

Angelika NuBberger (Germany),

Siofra O'Leary (Ireland),

Helen Keller (Switzerland),

Andre Potocki (France),

Dmitry Dedov (Russia),

Branko Lubarda (Serbia),

Stephanie Mourou-Vikstrom (Monaco),

Pere Pastor Vilanova (Andorra),

Latif Huseynov (Azerbaijan),

Jolien Schukking (the Netherlands),

Lado Chanturia (Georgia),

Darian Pavli (Albania),

Erik Wennerstrom (Sweden),

Saadet Yuksel (Turkey), and also S0ren Prebensen, Deputy Grand Chamber Registrar.

Decision of the Court

The Court first reiterated that the applicants could not complain about a violation of the Convention in the abstract. An individual had to be able to show that he or she had been “directly affected” by the measure complained of.

In the present case, it was crucial from the outset to draw a distinction between complaints about measures affecting the applicants' rights as shareholders and those about acts affecting companies, in which they held shares.

The Court acknowledged that the reform had had a considerable impact at company level. The relevant provisions of the new legislation were clearly coercive and involuntary, and directly affected the governing structures of the two banks, which had lost a significant degree of their management power to the Integration Organisation and the Savings Bank.

However, the reform's bearing on the situation of the individual shareholders had been incidental and indirect. There was nothing to indicate that the applicants' rights as individual shareholders had as such been aimed at or adversely affected by the measures, which essentially related to corporate matters.

Firstly, the Integration Act and its Amendments had not regulated directly any of the specific legal rights that the applicants as shareholders had held under the applicable domestic law, or directly interfered with the exercise of those rights. Nor had the legislation apparently had an adverse impact on the business of the two banks.

Furthermore, the examples of restrictions on the applicants' rights to influence the conduct and policy of their banks had in fact been powers which, under the applicable domestic law, belonged to and been exercised exclusively by the companies' statutory bodies.

Indeed, the influence of a single shareholder over other shareholders was on the whole weak, given the number of shareholders that each of the two banks had, the number of shares owned by an average shareholder and the lack of any indication that at the time the applicants as a group had been bound by a shareholder agreement or other means of consolidating their fragmented influence at general meetings of the two banks.

The Court thus found that the acts complained of by the applicants had concerned principally Kinizsi Bank and Mohacsi Bank, and had not directly affected the applicants' shareholder rights as such.

It also rejected the applicants' request to pierce the corporate veil and recognise their standing to complain on behalf of the banks because they owned almost 100% of the shares. The banks had not been family-run or owned or otherwise closely-held entities, but had been public companies with limited liability, numerous shareholders and a fully delegated management. The banks and their shareholders had not therefore been so closely identified with each other that it would be artificial to distinguish between them.

Nor did the Court find that there were exceptional circumstances, such as a high degree of State involvement in the integration scheme, preventing the banks from bringing cases to the Court in their own name.

Although future member institutions had been put under a certain amount of pressure to join the scheme, there was no evidence that the applicants' banks had been prevented from challenging the reform. On the contrary, the domestic legal system provided access to court to contest the reform in general as well as specific decisions of the Integration Organisation. Such remedies had in fact been used with success in 2014 when some savings cooperatives had challenged the entirety of the legislation before the Constitutional Court, which had intervened and modified its provisions.

In any event, the applicants, who held considerable voting majorities in the general meetings of the two banks, could have directed the banks, which remained operational with their regular management in place, to bring legal proceedings on their behalf.

The Court concluded that, in the circumstances, the complaints about the Integration Act and the Amendments should have been brought by the two banks and that the applicants could not claim to be victims of any violation of the European Convention. It was therefore unable to take cognisance of the merits of the applicants' complaint.

The Court's findings were moreover in line with fairly intrusive measures being accepted for banks in many Council of Europe member States, which considered that insufficient regulation of the sector could lead to serious risks for their economies.

The Court thus held that that part of the application had to be declared inadmissible, in accordance with Article 35 § 3 (a) and 4 (admissibility criteria).

Separate opinion

Judge Dedov expressed a concurring opinion, which is annexed to the judgment.

The judgment is available in English and French.

This press release is a document produced by the Registry. It does not bind the Court. Decisions, judgments and further information about the Court can be found on www.echr.coe.int. To receive the Court's press releases, please subscribe here: www.echr.coe.int/RSS/en or follow us on Twitter @ECHR CEDH.

Press contacts

echrpress@echr.coe.int | tel.: +33 3 90 21 42 08

Tracey Turner-Tretz (tel: + 33 3 88 41 35 30)

Denis Lambert (tel: + 33 3 90 21 41 09)

Inci Ertekin (tel: + 33 3 90 21 55 30)

Patrick Lannin (tel: + 33 3 90 21 44 18)

The European Court of Human Rights was set up in Strasbourg by the Council of Europe Member States in 1959 to deal with alleged violations of the 1950 European Convention on Human Rights.