P IT EE 1 5 3 5 Bud a p e s t Pf . 8 3 0 .

Thorbjrn Jagland
Secretary General
Council of Europe
Avenue de l'Europe
F-67075 Strasbourg Cedex
Fax +33 (0)3 88 41 20 00
Budapest, 2 February 2016

Hungarian Constitutional Court is depriving consumers of their human rights

Decision 33/2015

Dear Mr Jagland,
In addition to my letter of 30 November 2015 I am also sending you an English
translation of Decision 33/2015 from the Hungarian Constitutional Court
(s. attachment). On its face, it appears to be supporting the human rights of
consumers. However, when you dig a little deeper into the substance of the decision,
you will discover that the human rights of consumers are being violated in a most
egregious way.
To understand how, we have to look at prior case law. The Hungarian Supreme Court
(Kria) delivered a decision on 4 July 2013 (Gfv.VII.30.078/2013/14.), in which it held
an FX consumer loan contract void, because the lender attached a hidden cost
element to it. This decision encouraged more than 12,000 FX loan debtors to initiate
court proceedings against their lenders in order to have their loan contracts also
declared void. The essence of the Hungarian Supreme Courts holding was one of
unconscionability.
Now according to the Hungarian National Bank there were approximately 650,000 FX
consumer loan contracts in effect as of September 2014. In a measure of panic by the

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Hungarian Parliament they enacted a law providing for the mandatory conversion of
existing foreign currency (FX) consumer debts into Hungarian forints at the date of
enactment (Sections 3, 10 and 15 of Act LXXVII of 2014). Hence, circumventing any
claims any FX loan debtors would have had against their oppressive lenders. In doing
so, ultimately violating the Hungarian Constitution and the European Convention on
Human Rights (Convention).
The significance of this is the fact that the law amends only existing private party
contractual loan agreements ex post without the provision of any substantive or
procedural due process. It does not even attempt to disguise itself as an act that
affects the future rights of parties.
The Hungarian Parliament has overstepped its legislative bounds under the purview
of the Convention; not so under the Hungarian Constitution, at least according to the
decision of the Hungarian Constitutional Court. The Court rejected more than 700
applications in connection with the Act that ordered a mandatory conversion of foreign
currency (FX) consumer debts into Hungarian forints at the date of enactment.
The applicants argued that the Act violates Article XXVIII of the Constitution [Right to
a Fair Trial] and Art. 6 of the European Convention on Human Rights because the
Hungarian Parliament is not entitled to amend private-law contracts with legislative
measures and, by doing so, determine civil rights and obligations. This is outside the
scope of their powers.
The Constitutional Court, however, came to a different conclusion. In the Courts view
private-law contracts may be amended by legislative measures. Decision 33/2015
reiterates the reasoning of previous decisions (8/2014, 3168/2015 and 3147/2015).
These decisions demonstrate that the justices do not respect the values of the
European Convention on Human Rights. The Court appears not to understand the
concept of separation of powers.
Solving the FX consumer debt crisis in line with the Governments interests
The Hungarian authorities have been warned many times by their European partners
not to allow consumers to take out FX loans, because such instruments are very risky

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and have the propensity to financially ruin debtors, which in turn will have a negative
impact on the national economy. The FX consumer debt crisis is caused by the
complete failure of the Hungarian Financial Supervisory Authority to perform its
obligations and the Banks to perform adequate risk assessments. A large number of
victories by FX loan debtors in court against their lenders would harm the
Governments financial-interests as more and more loan agreements are held void.
In a cunning display of legislative initiative Parliament passed Act LXXVII of 2014
protecting consumers from further FX risk clearly in violation of the Hungarian
Constitution and the Convention, not to mention absolutely needless as the
Hungarian Supreme Court had already handed down a decision that took consumer
protection rights into account. The enclosed decision has further upheld this Act, even
though the Courts reasoning is seriously flawed.
The Hungarian Constitutional Court has developed the concept of amending privatelaw contracts by legislative measures. This concept allows the Government to
impose new rules on existing FX consumer loan contracts. Several laws were
adopted during 2014 and 2015, which are based on this concept (Act XXXVIII of
2014, Act XL of 2014, Act LXXVII of 2014, Act CXLV of 2015). These laws ensure
that the FX consumer debt crisis is solved in a way that best suits the Governments
interests regardless of the existing legal framework.
The concept of amending private-law contracts by legislative measures has a
number of advantages for the Government. In particular the Government does not
need to bother with the debtors legal arguments against the validity of their
contracts, because the legislative process does not afford debtors the right to speak
or appeal.
Violation of Art 6 of the Convention
The concept of "amending private-law contracts by legislative measures" clearly
affects the determination of civil rights and obligations stipulated in Art. 6 of
the Convention and further manifestly violates the [entitlement] to a fair and public
hearing by an independent and impartial tribunal established by law as set forth in
Art. 6 of the Convention. Not only does the Hungarian Parliament not qualify as an

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impartial body, but it also has an explicit vested interest in the outcome. Furthermore
even if Parliament did qualify as an impartial tribunal which it does not - it has not
afforded any debtor any meaningful substantive or procedural due process within the
legislative process.
It is quite understandable that such a parliamentary body cannot afford debtors these
rights, because constitutionally it is not established to do so, which makes the
rationale behind Art. 6 of the Convention even more substantial and prevalent. Art. 6
of the Convention clearly specifies, that only impartial tribunals are entitled to
determine civil rights and obligations, and it also clearly defines the institutional and
procedural requirements for such tribunals. The Hungarian Constitutional Court
ignores all of these requirements.
For more detail, please refer to the Section F (Statement of alleged violation(s) of the
Convention and/or Protocols and relevant arguments) of the ECtHR cases 27514/15
and 36981/2015 and to the Guide on Article 6 "Right to a Fair Trial (civil limb)" of
Council of Europe/European Court of Human Rights, 2013.
Alternatively even if the Courts holding was considered to have merit, i.e. that a
legislative body has the power to alter civil rights and obligations ex post, the Courts
reasoning is nonetheless flawed by its own standards.
The Constitutional Court does admit that at the time the Act becomes effective, it
does effectively intervene in the contractual freedom of the parties, because of its
draconian nature, but fails to find this unconstitutional (Decision 33/2015 Sec. [35][37]) as long as measures undertaken by Parliament are undertaken upon the same
conditions that must be observed by courts when amending private-law agreements
(Decision 33/2015 Sec. [39]-[41]).
The Court focuses on two elements: 1. The equitable interests of both parties, and 2.
A balance of interests in the light of new circumstances. The Court identifies the
weakening of the Hungarian forint as a circumstance, which has changed since the
conclusion of the FX loan contracts (Decision 33/2015 Sec. [43]), and this change in
circumstances provides the grounds for the application of clausula rebus sic stantibus
(Decision 33/2015 Sec. [44]). However, what the Court fails to do, probably for

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P IT EE 1 5 3 5 Bud a p e s t Pf . 8 3 0 .

Thorbjrn Jagland
Secretary General
Council of Europe
Avenue de l'Europe
F-67075 Strasbourg Cedex
Fax +33 (0)3 88 41 20 00
Budapest, 2 February 2016

ATTACHMENT

TRANSLATION
HUNGARIAN CONSTITUTIONAL COURT
Number of the decision: CC (Constitutional Court) Decision 33/2015 (XII. 3.)
Date of the decision: Budapest, 01.12.2015
Excerpt:
IV.
[33]

The constitutional complaints are unfounded.

[34]

1. The Constitutional Court first examined whether the conditions for amending
private-law contracts by legislative measures had been met [see Sections 10, and
15(1) of the Act].

[35]

First of all, the Constitutional Court found that the challenged provisions of the Act
violate the complainants right to contractual freedom as protected by the
constitution.
[]

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[36]

Contractual freedom as an expression of private autonomy and free will includes

the freedom to enter into contracts, i.e. the parties freedom to decide whether or
not they want to enter into the contract and if they do, with whom (freedom to
choose counterparty), in what form (freedom to choose contract type) and with what
scope (principle of optionality). Additionally, the parties freedom also includes their
right to decide on amending the contract or terminating the contractual relationship.

[37]

However, as far as the challenged provisions of the Act are concerned, the affected
private-law contracts are amended, regardless of the parties will, at the time the Act
enters into force, and the content of the amendment is imposed on the parties on a
mandatory basis [see Sections 3(1), 10, and 15(1) of the Act]. Such ex-post
amendment of the rights and obligations arising from private-law contracts by
legislative measures is clearly an intervention in the contractual freedom of the
parties. This intervention, however, is not necessarily unconstitutional.

[38]

The Constitutional Court refers to its previous decision, in which it established that
"every contract that is not performed on the spot contains a certain degree of risk for
the parties. Circumstances may change between the signing of the contract and the
performance of the contract. Such changes can completely upset the economic
balance or at the very least cause significant disproportionality between the parties.
If the parties are unable to adopt their contractual relationship to the new
circumstances either by a new contract or by an amendment of their existing
contract then an intervention into the private-law contract might become
necessary. The courts, the legislature and the Government are entitled to intervene
in private-law contracts. It is within the competence of the court to rectify the
economic imbalance in the individual contractual relationships on a case-by-case
basis. However, court procedures are incapable of restoring the economic balance
between parties on a case-by-case basis if a large number of contracts are affected
and the imbalance is caused by changes on a social scale that equally affect the
relevant contracts. In such cases the intervention by legislative measures is justified
with the aim of a unified solution." [CC Decision 32/1991 (VI. 6.), ABH 1991, 146,
152153.]

[39]

Acting with due consideration of the applicable provisions of the Hungarian Civil
Code (Act IV of 1959), the Constitutional Court developed the principle of ex-post
amendment of private-law contracts by legislative measures for the purpose of

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amending long-term contractual relationships with legislation. In the operative part

of CC Decision 8/2014 (III. 20.) the Constitutional Court established that "Article II
[Human dignity is inviolable], Article B(1) [the principle of legal certainty] and Article
M(2) [consumer protection] of the Constitution provide sufficient legal grounds for
the State to amend private-law contracts by legislative measures, but only when the
requirements of the clausula rebus sic stantibus principle are met". This means the
constitution allows the amendment of private-law contracts by legislative measures
under the same conditions that must be observed when a private-law contract is
amended by a court. The Constitutional Court emphasized that the protection of
constitutional values such as "legal certainty, contractual freedom and trust in the
fulfilment of private-law contracts requires the legislature, when applying
legislative measures to amend a large number of private-law contracts, to strictly
observe the conditions that apply when private-law contracts are amended by a
court. Long-term private-law contracts may be amended by legislative measures if
the requirements of the clausula rebus sic stantibus doctrine are met. Amendment of
private-law contracts by a court is an adequate measure to rectify any imbalance
between the parties diverging interests if the court takes all the circumstances of the
case into consideration. An amendment of private-law contracts by legislative
measures must likewise take the equitable interests of both parties into
consideration, which means that any such legislative amendment must seek a
balance of interests in the light of the new circumstances." {CC Decision 8/2014
(III.20), Reasoning [91]}

The Hungarian Parliament does not qualify as an impartial tribunal

[40]

Under the current legal framework a court may amend private-law contracts if in a
long-term contractual relationship a change in circumstances makes it likely that
performing the contract under the existing terms would harm any partys material

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legitimate interests and (a) the change in circumstances was not foreseen by the
parties at the time the contract was concluded, (b) the parties did not cause the
change in circumstances and (c) the change in circumstances cannot be regarded as a
normal business risk (Act V of 2013 on the Hungarian Civil Code, Section 6:192). The
conditions for amending private-law contracts by courts are fundamentally the same
as the conditions established by the Constitutional Court in previous rulings in
relation to the amendment of private-law contracts by legislative measures.
According to CC Decision 66/1995 (XI. 24), the conditions for legislative intervention
into private-law contracts are met if "a change in circumstances has occurred after
conclusion of the contract, performing the contract under the existing terms would
violate a material legitimate interest of a party, the change in circumstances could
not have been reasonably foreseen by the parties and, furthermore, if the change
exceeds the risk of normal changes. Another condition for legislative intervention
into private-law contracts is that the change in circumstances must occur on a social
scale. This means the change must affect a large number of contracts." (CC Decision
1995, 333, 339)
[41]

"Restriction of the freedom to contract [...] violates constitutional values if there are
no justified reasons for it and it is not reasonable" {CC Decision 3298/2014 (XI. 11),
Reasoning [29]}. However, if these conditions are met, the restriction is justified
hence it cannot be considered arbitrary and therefore does not violate the
constitution.

[42]

2. In this case, the Constitutional Court established the following in relation to the
amendment of private-law contracts by legislative measures.

[43]

The challenged provisions of the Act convert payment obligations denominated in

foreign currencies into Hungarian forints. The primary objective of the legislative
intervention is to eliminate the exchange rate risk for consumers (as debtors) for the
future since this has put an unpredictable and heavy burden on them. Exchange rate
fluctuations (deterioration of the Hungarian forint) are a result of economic
processes. Economic processes develop independently of the parties but have an
effect on their long-term contractual relationship. The scope of the exchange rate
fluctuations is a change in circumstances that clearly exceeds the risk of reasonably
foreseeable and normal changes. The parties could not influence the exchange rate
fluctuation. The parties must have taken the risk of exchange rate fluctuation into

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consideration, but they could not reasonably have foreseen that the fluctuation
would reach the current level and remain there for a long period of time. (As the
Curias Uniformity Decision 6/2013 PJE, Article 3 stated: "[the] financial institutions
legal obligation to inform the consumers had to include the possibility of exchange
rate fluctuation and its impact on the instalments. The obligation to inform the
consumers could not have included the potential extent of exchange rate
fluctuations." This is obviously because "there is no foreseeable and predictable
extent or limit of exchange rate deteriorations or improvements, especially in view of
long time periods.") However, the exchange rate fluctuations unquestionably put a
significant financial burden on the debtors.
[44]

It is important to note that while the value of the financed properties has remained
unchanged, the weakening of the Hungarian forint has resulted in an unforeseeably
great increase in the debtors payment obligations. It is settled case-law of the courts
developed on the basis of case-by-case litigations that "the debtors of foreign
currency (FX) loan contracts paid a lower interest rate but had to bear the exchange
rate risk. This contractual arrangement does not render the FX loan contracts
unlawful, obviously immoral or usurious. It does not make repayment of the debt
impossible, and FX loan contracts cannot be regarded as sham transactions.
Furthermore FX loan contracts do not become void due to an unforeseeable one-way
shift in contractual burdens [...]". Finally "FX loan debtors must bear the impacts of
the exchange rate fluctuations because they paid a lower interest rate on their loans
than other debtors who acquired their debt in Hungarian forints. The weakening of
the Hungarian forint increases the debtors financial burden, while a strengthening of
the Hungarian forint reduces the financial burden." (Uniformity Decision 6/2013 PJE)
The settled case-law described above establishes the general legal principle that
debtors must bear the exchange rate risk. {Obviously courts may arrive at different
conclusions in individual case-by-case litigations. The Curia noted in its Uniformity
Decision 2/2014 PJE that "if the financial institution did not provide sufficient
information to the debtor about the exchange rate risk, as a result of which the
debtor believed the exchange rate risk is not real or has only a limited effect, the
contractual clause pertaining to the exchange rate risk is unfair, which leads to the
full or partial invalidity of the contract."}

[45]

Exchange rate fluctuations are not predictable. Exchange rate fluctuation is a risk that
can cause significant financial loss for the debtors and also, in view of the large

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number of debtors, for the entire society. The aim of mitigating such risk provides
the legislature with the legal grounds to intervene into private-law contracts and, by
doing so, to protect consumer interests. (It should be noted that the mandatory
conversion of foreign currency debts into Hungarian forints was performed primarily
in the debtors interest because the conversion eliminated the exchange rate risk).
The complainants in these proceedings argue that the challenged provisions of the
Act would violate the right to fair trial. It must be emphasized that these arguments
are not valid, because the challenged provisions of the Act do not interfere with
ongoing court proceedings. The mandatory conversion of the debts has no effect on
the outcome of individual court proceedings with regard to the validity/invalidity of
loan contracts (or certain contractual clauses) (see also Uniformity Decision 2/2014
PJE cited above).
[46]

According to the Minister of Justice, an additional objective of the challenged

legislation is the protection of the lenders. The aim of closing the lenders open
foreign currency positions provides the legal grounds for the legislature to intervene
into private-law contracts. The lenders interest was to close their open foreign
currency positions as soon as possible. This interest required the mandatory
conversion of the FX consumer debts to the greatest degree possible. Thus, a main
objective of the mandatory conversion of the FX debts besides consumer
protection was to reduce the lenders FX exposure to as much as possible.
Additionally, the protection of the lenders interests leads indirectly to the
protection of the interests of the depositors.

[47]

Failure to convert the FX debts or delaying their conversion represented a systemic

risk for Hungary because of the large number of FX loan contracts and the size of the
outstanding FX debt. If the exchange rate risk had not been mitigated, a significant
weakening of the Hungarian forint could have been expected, and this would have
further ruined the financial situation of the debtors.

[]
[57]

4. Finally, the Constitutional Court examined the complainants arguments regarding

violation of Article XXVIII [Right to Fair Trial] of the Constitution. In the view of the
Constitutional Court, there is no connection at all between the challenged provisions
of the Act and the right to fair trial. The challenged provisions of the Act do not

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interfere with ongoing court proceedings. Complainants are usually asking the courts
to declare FX loan contracts void. The challenged provisions of the Act eliminate the
exchange rate risk for the future. It is obvious that the challenged provisions of the
Act have no influence on the outcome of the individual court proceedings. The
Constitutional Court therefore considers the complaints in this regard unfounded and
rejected them.

Original Decision in Hungarian language:

http://public.mkab.hu/dev/dontesek.nsf/0/00FCFFEC8DA25134C1257EC000586314?OpenDo
cument
Translation prepared by PITEE, 02.02.2016.
www.pitee.org/english