HUN-1990-S-002

a) Hungary / b) Constitutional Court / c)  / d) 04-10-1990 / e) 21/1990 / f)  / g) Magyar Közlöny (Official Gazette), 98/1990 / h) .

Keywords of the Systematic Thesaurus:

03.05

General Principles - Social State.

03.17

General Principles - Weighing of interests.

04.14

Institutions - Activities and duties assigned to the State by the Constitution.

05.02.02

Fundamental Rights - Equality - Criteria of distinction.

05.03.39.04

Fundamental Rights - Civil and political rights - Right to property - Privatisation. (Privatisation, definition )

Keywords of the alphabetical index:

Reprivatisation, compensation / Reprivatisation, definition / Co-operative, property.

Headnotes:

According to Article 70/A.1 of the Constitution and in the absence of constitutional reasons, if the property of certain people were to be reprivatised while that of others was not - depending on the type of property - this would amount to discrimination in relation to the acquisition of property. In examining the Government's privatisation programme, it was necessary to clarify the conceptual uncertainty concerning the relationship between privatisation, reprivatisation and compensation. Privatisation involved the assignment of state property into private ownership while reprivatisation was the return of assets formerly owned by private persons but currently in the possession of the State. The term "compensation" was, however, used in a special sense by the Government: the sole legal basis for the partial compensation was fairness, the State was not obliged to pay such compensation and no former owner had the right to receive it since it depended solely on a sovereign state decision.

It was then necessary to consider two types of discrimination, first between the former owners and non-owners and then between the former owners according to the type of property. The constitutionality of the discrimination between former and non-owners depended on whether the interests of these two groups had been weighed with the same degree of prudence and impartiality. If it were the case that, with the preferential treatment of former owners, the distribution of state property would produce a more favourable overall social result as regards the constitutionally-mandated "market economy" than equal treatment would, then this would be permissible. In this type of situation, it was necessary to ascertain whether the right of former owners of land had had their interests considered as thoroughly and impartially as those of all other former owners in order to reveal the objective basis of the discrimination between former owners. Further, it had to be proved that former non-landowners had to be put into a disadvantageous position in order to achieve equality of persons as completely as possible in the future market economy. On its interpretation of Article 70/A of the Constitution, the discrimination in the Act under consideration would accordingly be unconstitutional.

The taking of property from co-operatives, even by virtue of law, without immediate, unconditional and full compensation violated Articles 12.1 and 13 of the Constitution. The recognition by the State under Article 12.1 of the Constitution that co-operatives were autonomous included the recognition that they had the right to property although the Constitution did not expressly provide for co-operative property. Article 9.1 of the Constitution provided a prohibition of discrimination ("the equal protection clause") against any forms of ownership and further, under Article 13 of the Constitution, constitutional protection was also extended, inter alia, to the unnamed property of business associations. As co-operatives and agricultural co-operatives were a form of business association, irrespective of the fact that they were not regulated by the Act on Business Associations, the property of agricultural co-operatives (including arable land) enjoyed constitutional protection similar to that of the property of business associations. Consequently Articles 12.1 and 13.1 of the Constitution read together guaranteed the right to property including the right of agricultural co-operatives to the arable land they owned. Since property could be taken by a single official decree or by virtue of law only with immediate, unconditional and full compensation, the Government's proposal was therefore unconstitutional.

Summary:

The Prime Minister petitioned for an advisory opinion on the interpretation of certain legal provisions concerning the government's privatisation programme.

He requested:

a.     whether compensation procedures to provide for certain people's former property to be reprivatised while other people's property would not be returned to them amounted to discrimination contrary to Article 70/A of the Constitution. According to the Government, the general principle of privatisation was that state property was sold to new owners in exchange for payment while former owners received partial compensation. The settlement of land ownership would be an exception to these principles because in such questions either the original land would be returned in kind or other land offered in exchange; and

b.     whether, in the context of Articles 12 and 13 of the Constitution it was constitutional to take land from co-operatives without expropriation proceedings and compensation. Within the government's framework of reprivatisation, arable land in the possession of the co-operatives which had not been acquired in the manner prescribed by the Civil Code would serve as the source for reprivatisation without any compensation.

The Constitutional Court interpreted Article 70/A of the Constitution - with regard to Articles 9 and 13.1 of the Constitution - to mean that according to Article 70/A.1 of the Constitution there was discrimination against persons if, in the absence of constitutional reasons, the property of certain persons was reprivatised while the property of others was not, depending on the type of property. Such discrimination was unconstitutional.

The Constitutional Court interpreted Article 12.1 of the Constitution in conjunction with Article 13.1 of the Constitution to mean that the Republic of Hungary guarantees agricultural co-operatives the right to the arable land they own. Article 13.2 of the Constitution on expropriation is a guarantee provision that is applicable to the taking of property not only by a single official decree but also by virtue of law. Property may be taken either by a single official decree or by virtue of law only with immediate, unconditional and full compensation. Taking property without immediate, unconditional and full compensation is, therefore, unconstitutional.

The first part of the Government petition asks whether it constitutes discrimination between the former owners if, depending on the kind of property, some of them are given back their former properties, while others are not, during the process of reprivatising state property.

The permissibility of any limitations upon constitutional rights may be judged only on the basis of arguments which address the unavoidability of the limitations in a particular case. Arguments in support of the discrimination between the former owners are not included in the petition.

However, the Constitutional Court has taken into consideration that the question itself implies that it should be examined in relation to the Government's privatisation programme and it notes that the privatisation of state property through sale, to anyone theoretically, is a principal rule in this programme. The former owners of assets that are now in the property of the State will receive partial compensation. Land ownership is an exception to these principles because the original ownership would be restored in kind. From the wording of the petition it may be inferred that in the case of former owners of assets other than land, the return of assets in kind would be substituted by partial compensation: "their property will not be returned to them due to the different privatisation and compensation principles."

These explanations do not contain an assessable cause for the discrimination.

The question to be answered is whether the reprivatisation of land ownership, with regard to the reprivatisation of other state-owned assets, involves discrimination that conflicts with Article 70/A of the Constitution.

The position of the Constitutional Court was that, in this particular case, differentiating on the basis of the type of property became discrimination against persons since it related to the acquisition of property.

The question included two partially overlapping kinds of discrimination: discrimination between the former owners and non-owners, on the one hand; and discrimination between the former owners according to the type of the property.

Article 70/A of the Constitution prohibits discrimination in connection with human rights and the rights of citizens. In the Constitutional Court's opinion, the State's guarantee of the right to property (Article 13.1 of the Constitution) also embraces the right to acquire property. In the given context, the right to engage in business activities must also be taken into consideration because privatisation, including the privatisation of land, primarily serves the formation of an entrepreneurial economy.

The question whether discrimination remained within constitutional limits may only be examined in the objective and subjective context of the current rules because the same criterion - e.g., "landowner" - may constitute discrimination, depending on the context. Equality shall exist with reference to the essential element of a given state of facts. If, however, a different rule applies to a group within a given regulatory scheme, this will be in conflict with the prohibition of discrimination, unless there is sufficient constitutional justification for the difference. By assigning state property into private ownership, the State fulfils the duty to create a socially-aware market economy, set forth as an aim in the Preamble to the Constitution. However, as an owner, the State acts freely in deciding how to support private property, even when it comes to assigning its own property.

If, however, during the assignment of state property into private ownership, the State differentiates between former owners by establishing different conditions for the acquisition of property and, what is more, it further differentiates within the group of former owners, then it will only violate Article 70/A of the Constitution if its arguments fail to meet the conditions of permissible positive discrimination.

The constitutionality of the discrimination depends on whether the discrimination between owners and non-owners is realised in a procedure where the interests of former owners and non-owners have been weighed with the same degree of prudence and impartiality. In the review of such a possibility, former owners just like non-owners have the right to equal treatment and to have their interests judged with the same degree of attention and equity, but none of them has a right to a share in the state property. Without this, the discrimination violates the Constitution.

Even if the above considerations are flawless, the discrimination is constitutional only if the gratuitous property acquisition, granted to former owners, and property acquisition by others in exchange for payment, establishes equality between the private owner participants in the market economy to be developed. If it can be proved that with the preferential treatment of former owners, the distribution of state property will yield a more favourable overall social result than equal treatment would, and if it follows inexorably from the facts that another non-discriminatory procedure against the non-owners would be far from this result, then non-owners could not claim that their rights ensured by Article 70/A of the Constitution had been violated. The criterion of discrimination - i.e., the former ownership situation - would not be unconstitutional if it logically followed from the above arguments.

The same examination must be made in order to decide whether discrimination between former owners by the type of property at issue - i.e., if only real property is reprivatised - is in conflict with Article 70/A of the Constitution. First, it must be ascertained whether the right of the other former owners to have their interests considered as thoroughly and impartially as those of the former landowners has been satisfied in the enactment of the discriminatory regulation. The objective basis of the discrimination between the former owners must be shown. In addition, it must be proved that it was necessary to put non-land owners into a disadvantageous position in order to achieve the equality of persons as completely as possible in the future market economy and that the initial conditions of the market economy would be much more unfavourable if the other former owners were not put into a disadvantageous position.

While proving whether discrimination against certain persons or groups is a condition for achieving a more complete social equality, the Constitutional Court may not accept arguments concerning a preferred group which are valid in relation to another group as well (e.g. the establishment of entrepreneurial economy, the remedying of injustice). On the other hand, to prove equal treatment, it is necessary to give a complete account of the interests of both the preferred and discriminated groups together with the method of evaluation.

The Constitutional Court interpreted Article 70/A of the Constitution to mean that it amounts to discrimination against persons if certain persons' former property is reprivatised, while other persons' property is not returned to their possession; the Constitutional Court therefore proclaimed this discrimination unconstitutional.

The Government tried to interpret Article 13 of the Constitution in relation to Article 12 of the Constitution: whether it is possible to take land from co-operatives by virtue of the law but without expropriation and compensation procedures. The Constitutional Court interpreted these provisions with regard to the property belonging to agricultural co-operatives, irrespective of the fact that there are several other kinds of co-operatives.

According to Article 13 of the Constitution the Republic of Hungary guarantees the right to property, and it adds that property may be expropriated only exceptionally when this is a matter of the public interest, and only in the manner prescribed by law, with full, unconditional and immediate compensation.

Under Article 12.1 of the Constitution, the State supports co-operatives based on voluntary association and recognises their autonomy. That provision of the Constitution, therefore, concerns those co-operatives which exist on the basis of voluntary association - irrespective of the circumstances of their foundation. The only organ competent to decide whether a co-operative exists on the basis of voluntary or involuntary association is the general meeting of the co-operative. Accordingly, the Constitutional Court has not found any constitutional justification for depriving, with universal validity of law, the agricultural co-operatives of the protection guaranteed under Article 12.1 of the Constitution.

The recognition by the State that co-operatives are independent includes the recognition that they have the right to property although the Constitution does not provide explicitly for co-operative property. The Constitutional Court, therefore, found it necessary to interpret Article 12 of the Constitution with reference to Article 9.1 of the Constitution, under which in the Republic of Hungary public and private property shall receive equal protection under the law. The clause, however, may not be viewed as constituting an exhaustive list of kinds of property protected by the Constitution and, accordingly, to be classified in one of these would be a precondition for constitutional protection. It is not certain kinds of ownership that the Constitution distinguishes between but, on the contrary, it provides a prohibition of discrimination against any form of ownership. Accordingly, Article 9.1 of the Constitution is an explanation for the proposition of equality before the law, referred to in Article 70/A.1 of the Constitution, as well as the general proposition of the right to enterprise and freedom of competition contained in Article 9.2 of the Constitution, with regard to the right to property. Article 9.1 of the Constitution is, therefore, not related to Article 13 of the Constitution which guarantees the right to property without the distinction (between private and public property) set forth in Article 9.1 of the Constitution. On the basis of Article 13 of the Constitution, constitutional protection is extended, among others, to the unnamed property of business associations as well. The Constitutional Court, therefore, took the position that the property of agricultural co-operatives, including arable land, enjoys constitutional protection similar to that of the property of business associations.

In accordance with the petition for the interpretation of the Constitution, the Constitutional Court examined the possibility of taking land from co-operatives by virtue of law but without an expropriation procedure and compensation. Article 13.1 of the Constitution, which deals with expropriation, is a guarantee provision that applies to the taking of property not only by a single official decree but also by virtue of law. Property may only be taken either by a single official decree or by virtue of law - with regard to Article 13.1 of the Constitution - with immediate, unconditional and full compensation.

Accordingly, the Constitutional Court took the position that the taking of property from co-operatives - even by virtue of law - without immediate, unconditional and full compensation, violates Articles 12.1 and 13 of the Constitution, and is, therefore, unconstitutional.

Languages:

Hungarian.