LAURUS INVEST HUNGARY KFT AND OTHERS v. HUNGARY - 23265/13 [2015] ECHR 853 (08 September 2015)

FORMER SECOND SECTION

DECISION

Application no. 23265/13
LAURUS INVEST HUNGARY KFT and CONTINENTAL HOLDING CORPORATION
against Hungary and 5 other applications
(see list appended)

The European Court of Human Rights (Former Second Section), sitting on 8 September 2015 as a Chamber composed of:

          Guido Raimondi, President,
          Işıl Karakaş,
          András Sajó,
          Nebojša Vučinić,
          Helen Keller,
          Egidijus Kūris,
          Robert Spano, judges,
and Abel Campos, Deputy Section Registrar,

Having regard to the above applications lodged on 4, 5 and 8 April 2013,

Having regard to the decision of 19 November 2013 to join the applications,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,

Having deliberated, decides as follows:

THE FACTS

1. A list of the applicants is set out in the appendix.

The Hungarian Government (“the Government”) were represented by Mr Z. Tallódi, Agent, Ministry of Justice.

A. The circumstances of the case

2. The facts of the case, as submitted by the parties, may be summarised as follows.

3. The applicant companies were involved in developing and operating entertainment centres, slot machine arcades and other gaming arcades in Hungary.

4. In 2012 Parliament adopted Act no. CXLIV of 2012 (the “Arcade Ban”) restricting the activities of arcades and suppressing the operation of slot machine terminals, except in the three casinos having concessions for live gambling operations.

5. According to the applicants, the brief legislative explanation of the Arcade Ban provides little insight into the purpose and reasoning behind the legislation. While it prohibits arcades altogether, it expressly allows existing casinos to operate slot machine terminals. It also allows lotteries, bookmakers, totalizers, bingo halls, scratch cards and sweepstakes. The applicants stated that until recent times, the Government had effectively encouraged the growth of the - unregulated - online gambling market as a source of tax income for Hungary.

6. The Arcade Ban did not provide for the interested parties any legal avenue to be heard, appeal or otherwise challenge the revocation of the respective licences to operate arcades. The ban was introduced in an expedited manner and was not preceded by a public consultation. The revocation of the applicants’ licences occurred within 15 days from the publication of the first announcement of the idea in the Hungarian press. The Arcade Ban Bill was introduced on 1 October 2012 and voted into law the next day, on 2 October 2012. It was proclaimed on 9 October and entered into force on 10 October 2012.

7. As background, the parties submitted that under Act no. XXXIV of 1991 (the “Gambling Act”), the operation of slot machines in arcades in Hungary used to be a liberalised market activity, supervised by the Tax Authority and subject to significant fines for any compliance violations. The only precondition under the Gambling Act for the operation of slot machines in an arcade was the obtaining of a licence from the relevant authority for the operation of each slot machine terminal. In addition to the general operating licence, a specific licence was necessary for each type of game and slot machine terminal. The applicants were in possession of licences and related permits of operation with indeterminate validity, subject to annual review as to the lawful operation of the slot machines.

8. By 2010, a total of 1,270 slot machine operation licences had been granted in Hungary. Class II arcades (two slot machines maximum per venue) operated in bars and pubs, while “high-level” Class I arcades (more than twenty slot machines per arcade), i.e. “professional slot machine houses”, were frequently located in malls and major shopping centres in urban areas, requiring a large investment for their establishment and maintenance.

9. As of the date of the introduction of the present applications, two Class II casinos were located in Budapest, the State-owned Tropicana Casino and the privately owned Las Vegas Casino, and another one in Sopron, co-owned by the State. The income of these casinos from their slot machines has increased by 500-800% following the Arcade Ban.

10. On 1 November 2011 Parliament amended the Gambling Act by Act no. CXXV of 2011, which inter alia required slot machine operators to switch to server-based slot machines at a cost of approximately EUR 10,000 per slot machine. Compliance with the new law required large-scale arcade operators to invest several hundred million Hungarian forints. This and subsequent legislation multiplied the tax payable by arcade operators, resulting in a fall in the number of slot machines operated.

11. On the basis of these Acts, the applicants submitted they were confident that they could continue to operate, provided they complied with the new regulations, and that their licences would not be terminated. In the face of these legislative developments and the applicants’ expectations, the Arcade Ban effectively wiped out their business.

12. On 4 October 2013 the Constitutional Court dismissed two applicant companies’ constitutional complaints challenging the Arcade Ban.

13. Meanwhile, on 16 May 2013, five of the applicants in application no. 23853/13 (that is, Berlington Hungary Tanácsadó és Szolgáltató Kft, Lixus Szerencsejáték Szervező Kft, Lixus Projekt Szerencsejáték Szervező Kft, Lixus Invest Szerencsejáték Szervező Kft and Megapolis Terminal Szolgáltató Kft) brought an action in damages against the State claiming altogether 8 billion Hungarian forints on account of an alleged breach of the law of the European Union (EU) by the national lawmaker which effectively deprived them of their business.

14. In the ensuing litigation, on 13 February 2014 the Budapest High Court stayed its proceedings and requested a preliminary ruling from the Court of Justice of the European Union (“the CJEU”) concerning the gambling tax and the Arcade Ban.

15. The questions put by the Budapest High Court were, in so far as relevant:

“... 8. Is non-discriminatory legislation of a Member State compatible with Article 56 TFEU if it prohibits with immediate effect the use of slot machines in amusement arcades, without allowing the operators of games of chance affected a transitional or adjustment period or offering them appropriate compensation, and, at the same time, establishes in favour of casinos a monopoly in the operation of slot machines?

...

10. If questions 8 and/or 9 are answered in the affirmative, what criteria must the national court take into account to determine whether the restriction was necessary, appropriate and proportionate in the context of the application of Articles 36 TFEU, 52(1) TFEU and 61 TFEU or where there are overriding requirements?

11. If questions 8 and/or 9 are answered in the affirmative, having regard to Article 6(3) TEU, must account be taken of the general principles of law, as regards the prohibitions laid down by a Member State and the grant of a period of adjustment? Must account be taken of fundamental rights - such as the right to property and the prohibition on depriving a person of property without compensation - in connection with the restriction arising in the present case and, if so, in what way?

12. If questions 8 and/or 9 are answered in the affirmative, must the judgment in Brasserie du pêcheur and Factortame (C 46/93 and C 48/93, EU:C:1996:79) be interpreted as meaning that infringement of Articles 34 TFEU and/or 56 TFEU may give rise to liability for damages on the part of the Member State on the ground that those provisions - because of their direct effect - confer rights on individuals in the Member States?

...

15. Is the principle of EU law applicable according to which the Member States are obliged to pay compensation to individuals for damage resulting from infringements of EU law attributable to the Member States also where the Member State has sovereignty in the area which the adopted legislation concerns? In such a case do fundamental rights and the general principles of law derived from the common constitutional traditions of the Member States also serve as a guide?”

16. On 11 June 2015 the CJEU (First Chamber) gave judgment. It held, in so far as relevant:

“1. National legislation such as that at issue in the main proceedings, which, without providing for a transitional period, introduces a five-fold increase in the flat-rate tax to be paid on slot machines operated in amusement arcades and, in addition, introduces a proportional tax on that activity, constitutes a restriction on the freedom to provide services guaranteed by Article 56 TFEU provided that it is liable to prohibit, impede or render less attractive the exercise of the freedom to provide the services of operating slot machines in amusement arcades, this being a matter which it is for the national court to determine.

2. National legislation such as that at issue in the main proceedings, which, without providing for either a transitional period or compensation for operators of amusement arcades, prohibits the operation of slot machines outside casinos constitutes a restriction on the freedom to provide services guaranteed by Article 56 TFEU.

3. Restrictions on the freedom to provide services which may result from national legislation such as that at issue in the main proceedings can only be justified by overriding reasons in the public interest if the national court finds, after an overall assessment of the circumstances surrounding the adoption and implementation of that legislation:

- that it actually pursues, primarily, objectives relating to the protection of consumers against gambling addiction and the prevention of criminal and fraudulent activities linked to gambling; the mere fact that a restriction on gambling activities incidentally benefits, through an increase in tax revenue, the budget of the Member State concerned, does not prevent that restriction from being considered actually to be pursuing, primarily, those objectives;

- that it pursues those goals consistently and systematically, and

- that it meets the requirements arising from general principles of EU law, in particular the principles of legal certainty and the protection of legitimate expectations and the right to property.

...

5. Article 56 TFEU is intended to confer rights on individuals, in such a way that its infringement by a Member State, including as a result of its legislative activity, gives rise to a right of individuals to obtain from that Member State compensation for the damage suffered as a result of that infringement, provided that that infringement is sufficiently serious and there is a direct causal link between that infringement and the damage sustained, this being a matter which it is for the national court to determine.

...

7. The fact that national legislation such as that at issue in the main proceedings concerns an area falling within the competence of the Member States does not affect the answers to the questions raised by the referring court.”

17. The reasoning of the CJEU’s judgment contained the following passages:

“11. Paragraph 26(3) of [Law XXXIV of 1991 on the organisation of games of chance (‘the Law on games of chance’)] was ... amended, with effect from
10 October 2012, by Paragraph 5 of Law CXLIV of 2012 amending Law XXXIV of 1991 on the organisation of games of chance (‘the amending law of 2012’) so as to grant to gaming casinos the exclusive right to operate slot machines.

12. Paragraph 8 of the amending Law of 2012 inserted into the Law on games of chance Paragraph 40/A, subsection 1 of which provided that licences for the operation of slot machines installed in amusement arcades issued before the effective date of that amending Law would lapse on the day following that date and that organisers of games of chance would be required to return those licences to the tax authorities within fifteen days of that date.

...

The existence of restrictions on the fundamental freedoms

...

44. By [question 8], the referring court asks whether national legislation such as the amending Law of 2012, which, without providing for either a transitional period or compensation for operators of amusement arcades, prohibits the operation of slot machines outside casinos, constitutes a restriction on the free movement of goods and freedom to provide services, guaranteed by ... [Article] 56 TFEU.

...

51. ...[I]t follows, inter alia, from the [judgments in Anomar and Others, C-6/01, EU:C:2003:446, paragraph 75, and Commission v Greece, C-65/05, EU:C:2006:673, paragraph 53] that national legislation which authorises the operation and playing of certain games of chance in casinos only constitutes an obstacle to the freedom to provide services.

52. In those circumstances, the answer to question 8 is that national legislation, such as that at issue in the main proceedings, which, without providing for either a transitional period or compensation for operators of amusement arcades, prohibits the use of slot machines outside casinos constitutes a restriction on the freedom to provide services guaranteed by Article 56 TFEU.

...

The justification of the restrictions on the freedom to provide services

54. By questions 3, 4, 10 and 11, which should be considered together, the referring court asks, in essence, to what extent the restrictions that could result from national legislation, such as that at issue in the main proceedings, may be allowed as exceptional measures expressly provided for in Articles 51 TFEU and 52 TFEU, applicable in this area under Article 62 TFEU, or justified, in accordance with the case-law of the Court, by overriding reasons in the public interest.

...

The existence of overriding reasons in the public interest

56. It should be noted at the outset that legislation on games of chance is one of the areas in which there are significant moral, religious and cultural differences between the Member States. In the absence of harmonisation at EU level, the Member States are, in principle, free to set the objectives of their policy on betting and gaming and, where appropriate, to define in detail the level of protection sought (see, to that effect, judgments in Dickinger and Ömer, C-347/09, EU:C:2011:582, paragraph 47, and in Digibet and Albers, C-156/13, EU:C:2014:1756, paragraph 24).

57. The identification of the objectives in fact pursued by the national legislation is, in the context of a case referred to the Court under Article 267 TFEU, within the jurisdiction of the referring court (judgment in Pfleger and Others, C-390/12, EU:C:2014:281, paragraph 47).

58 However, it must be stated that the declared objectives pursued by the legislation at issue in the main proceedings, namely the protection of consumers against gambling addiction and the prevention of crime and fraud linked to gambling, constitute overriding reasons in the public interest capable of justifying restrictions on gambling (see, to that effect, judgments in Carmen Media Group, C-46/08, EU:C:2010:505, paragraph 55, and in Stanley International Betting and Stanleybet Malta, C-463/13, EU:C:2015:25, paragraphs 48 and 49 and the case-law cited).

The proportionality of the restrictions to Article 56 TFEU

62. As a preliminary point, it should be noted that the choice of methods for organising and controlling the operation and playing of games of chance or gambling, such as the conclusion with the State of an administrative licensing contract or the restriction of the operation and playing of certain games to places duly licensed for that purpose, falls within the margin of discretion which the national authorities enjoy (see judgments in Anomar and Others, paragraph 88 and Carmen Media Group, C-46/08, EU:C:2010:505, paragraph 59).

63. A limited authorisation of those games on the basis of special or exclusive rights granted or assigned to certain bodies, which has the advantage of confining the desire to gamble and the exploitation of gambling within controlled channels, is capable of falling within the pursuit of the public interest objectives of protecting the consumer and public order (see, inter alia, judgments in Läärä, C-124/97, EU:C:1999:435, paragraph 37; Zenatti, C-67/98, EU:C:1999:514, paragraph 35, and Anomar and Others, C-6/01, EU:C:2003:446, paragraph 74).

64. The restrictions imposed by the Member States must, nevertheless, satisfy the conditions laid down in the case-law of the Court as regards their proportionality, that is to say, be suitable for ensuring attainment of the objective pursued and not go beyond what is necessary in order to attain that objective. It should also be recalled in this connection that national legislation is appropriate for ensuring attainment of the objective relied on only if it reflects a concern to attain it in a consistent and systematic manner (see judgment in HIT and HIT LARIX, C-176/11, EU:C:2012:454, paragraph 22 and the case-law cited).

...

71. ... [A] policy of controlled expansion of gambling activities can only be regarded as being consistent if, first, criminal and fraudulent activities linked to gambling and, secondly, addiction to gambling could have been a problem in Hungary at the material time and if the expansion of authorised and regulated activities could have solved that problem (see, to that effect, judgments in Ladbrokes Betting & Gaming and Ladbrokes International, C-258/08, EU:C:2010:308, paragraph 30; Zeturf, C-212/08, EU:C:2011:437, paragraph 70, and in Dickinger and Ömer, C-347/09, EU:C:2011:582, paragraph 67).

72. It is for the referring court to determine, in the context of the case before it, whether those conditions are satisfied and, if applicable, whether the expansion in question is on such a scale as to make it impossible to reconcile with the objective of curbing addiction to gambling (see, to that effect, judgment in Ladbrokes Betting & Gaming and Ladbrokes International, C-258/08, EU:C:2010:308, paragraph 38).

73. To that end, that referring court must carry out a global assessment of the circumstances in which the restrictive legislation at issue was adopted and implemented.

The examination of the justifications in the light of fundamental rights

74. Moreover, it should be noted that, where a Member State relies on overriding requirements in the public interest in order to justify rules which are liable to obstruct the exercise of the freedom to provide services, such justification must also be interpreted in the light of the general principles of EU law, in particular the fundamental rights now guaranteed by the Charter of Fundamental Rights of the European Union (‘the Charter’). Thus, the national rules in question can fall under the exceptions provided for only if they are compatible with the fundamental rights the observance of which is ensured by the Court (see, to that effect, judgments in ERT, C 260/89, EU:C:1991:254, paragraph 43; Familiapress, C 368/95, EU:C:1997:325, paragraph 24, and Ålands Vindkraft, C 573/12, EU:C:2014:2037, paragraph 125).

...

- The principles of legal certainty and the protection of legitimate expectations

...

77. In that regard, it must be pointed out that the principle of legal certainty, the corollary of which is the principle of the protection of legitimate expectations, requires, inter alia, that rules of law be clear and precise and predictable in their effect, especially where they may have negative consequences on individuals and undertakings (see, to that effect, judgments in VEMW and Others, C-17/03, EU:C:2005:362, paragraph 80 and the case-law cited; ASM Brescia, C-347/06, EU:C:2008:416, paragraph 69, and Test Claimants in the Franked Investment Income Group Litigation, C-362/12, EU:C:2013:834, paragraph 44).

78. The Court has also held that a trader cannot place reliance on there being no legislative amendment whatever, but can only call into question the arrangements for the implementation of such an amendment (see, to that effect, judgment in Gemeente Leusden and Holin Groep, Joined Cases C-487/01 and C-7/02, EU:C:2004:263, paragraph 81).

79. Likewise, the principle of legal certainty does not require that there be no legislative amendment, requiring as it does, rather, that the national legislature take account of the particular situations of traders and provide, where appropriate, adaptations to the application of the new legal rules (judgments in VEMW and Others, C-17/03, EU:C:2005:362, paragraph 81, and Plantanol, C-201/08, EU:C:2009:539, paragraph 49; see, to that effect, judgment in Gemeente Leusden and Holin Groep, Joined Cases C-487/01 and C-7/02, EU:C:2004:263, paragraph 70).

...

84. As regards ... the amending Law of 2012, it is apparent from the decision to refer that that Law resulted, on the day following its entry into force, in the automatic revocation of the licences to operate slot machines in amusement arcades, without providing for either a transitional period or compensation for the operators concerned.

85. In that regard, it should be noted that, when the national legislature revokes licences that allow their holders to exercise an economic activity, it must provide, for the benefit of those holders, a transitional period of sufficient length to enable them to adapt or reasonable compensation system (see, to that effect, European Court of Human Rights, Vékony v. Hungary, no. 65681/13, §§ 34 and 35, 13 January 2015).

86. Moreover, the applicants in the main proceedings argue that, before the entry into force of the amending Law of 2012, they incurred expenses in order to adapt to the implementation, under the amending Law of 2011, of the new system for the operation of slot machines. That operating system, which was supposed to enter into force on 1 January 2013, required that slot machines operated in amusement arcades would function online and would be connected to a central server. That legitimate expectation was undermined with immediate effect following the adoption of the amending Law of 2012.

87. In that regard, it must be noted that a trader who has made costly investments in order to comply with the scheme adopted previously by the legislature could see his interests considerably affected by the withdrawal of that scheme before the date announced, all the more so if that withdrawal takes place suddenly and unforeseeably, without leaving him enough time to adapt to the new legal situation (see, to that effect, Plantanol, C-201/08, EU:C:2009:539, paragraph 52).

88. It is for the national court to ascertain, in the light of all the foregoing considerations, whether national legislation such as that at issue in the main proceedings meets the requirements arising from the principles of legal certainty and the protection of legitimate expectations.

- The right to property

89. The applicants in the main proceedings also allege that national legislation such as that at issue in those proceedings infringes the right to property of amusement arcade operators, enshrined in Article 17 of the Charter.

90. In that regard, it should be noted that national legislation that is restrictive from the point of view of Article 56 TFEU is also capable of limiting the right to property enshrined in Article 17 of the Charter. Likewise, the Court has already held that an unjustified or disproportionate restriction of the freedom to provide services under Article 56 TFEU is also not permitted under Article 52(1) of the Charter, in relation to Article 17 thereof (Pfleger and Others, C 390/12, EU:C:2014:281, paragraphs 57 and 59).

91. It follows that, in the present case, the examination, carried out in paragraphs 56 to 73 of the present judgment, of the restriction represented by legislation such as that at issue in the main proceedings from the point of view of Article 56 TFEU also covers possible limitations of the exercise of the right to property guaranteed by Article 17 of the Charter, so that a separate examination is not necessary (see, to that effect, Pfleger and Others, C 390/12, EU:C:2014:281, paragraph 60).

Answers to questions 3, 4, 10 and 11

92. In the light of the foregoing, the answer to questions 3, 4, 10 and 11 is that restrictions on freedom to provide services which may result from national legislation such as that at issue in the main proceedings can only be justified by overriding reasons in the public interest if the national court finds, after an overall assessment of the circumstances surrounding the adoption and implementation of that legislation:

- that it pursues those goals consistently and systematically, and

- that it meets the requirements arising from general principles of EU law, in particular the principles of legal certainty and the protection of legitimate expectations and the right to property.

...

The existence of an obligation to provide compensation
on the part of Member State concerned

...

101. By questions 5 and 12, the referring court asks, in essence, whether Article 34 TFEU and/or 56 TFEU are intended to confer rights on individuals, in such a way that their infringement by a Member State, including as a result of its legislative activity, gives rise to a right of individuals to obtain from that Member State compensation for the damage suffered as a result of that infringement.

104. According to settled case-law, EU law confers a right to compensation where three conditions are met: the rule of law infringed must be intended to confer rights on individuals; the infringement must be sufficiently serious; and there must be a direct causal link between the breach of the obligation resting on the State and the damage sustained by the injured parties (see, inter alia, judgments in Brasserie du pêcheur and Factortame, Joined Cases C 46/93 and C 48/93, EU:C:1996:79, paragraph 51; Danske Slagterier, C 445/06, EU:C:2009:178, paragraph 20, and Commission v Italy, C 379/10, EU:C:2011:775, paragraph 40).

...

106. Consequently, the answer to questions 5 and 12 referred for a preliminary ruling is that Article 56 TFEU is intended to confer rights on individuals, in such a way that its infringement by a Member State, including as a result of its legislative activity, gives rise to a right of individuals to obtain from that Member State compensation for the damage suffered as a result of that infringement, provided that that infringement is sufficiently serious and there is a direct causal link between that infringement and the damage sustained, which it is for the national court to determine.

...

111. By question 15, the referring court asks, in essence, to what extent the fact that national legislation such as that at issue in the main proceedings concerns an area falling within the competence of the Member States affects the answers to questions 5, 7, 12 and 14.

112. It suffices to note, in that regard, that, as was pointed out in paragraph 34 above, the Member States must exercise their competences consistently with EU law and, in particular, the fundamental freedoms guaranteed in the Treaty, which apply to situations such as those at issue in the main proceedings, which fall within the scope of EU law.

113. In those circumstances, the justifications put forward by a Member State in support of a restriction on those freedoms must be interpreted in the light of the fundamental rights, even where that restriction concerns an area falling within the competence of that Member State, provided that the situation at issue falls within the scope of EU law (see, to that effect, judgment in Åkerberg Fransson, C-617/10, EU:C:2013:105, paragraph 21).

114. Likewise, any infringement of EU law by a Member State, including when it concerns an area falling within the competence of that Member State, renders that Member State liable in so far as the conditions set out in paragraph 104 of the present judgment are satisfied.”

18. The case is still pending before the Budapest High Court.

B. Relevant domestic law

19. Under section 26(3) of Act of the Gambling Act, as amended by the Arcade Ban, slot machines can be operated only in casinos; in any given casino, only one company may operate slot machines.

Section 40/A(1) provides that arcade licences and slot machine licences previously issued become null and void on the entry into force of the Arcade Ban.

20. Act no. CLXXVII of 2013 on the Transitional Provisions concerning the Entry into Force of the new Civil Code[1] provides as follows:

Section 1

“Unless this Act provides otherwise, the provisions of Act no. V of 2013 on the [new] Civil Code shall be applied to:

a) facts and legal relations occurring

b) legal statements made

after its entry into force.”

Section 54

“The provisions of the [new] Civil Code on non-contractual liability ... shall be applied to such conducts - including omissions - causing damage as occurred subsequent to its entry into force. Continuing conducts causing damage which commenced prior to the entry into force shall be subject to the previous rules even if the conduct causing damage terminates or the damage occurs at a time after the entry into force.”

21. Section 339 of the [old] Civil Code establishes liability for non-contractual damages, with a limitation period of five years as per section 324(1) of the same Code.

22. The standing case-law of the Supreme Court/Kúria concerning the lawmaker’s tort liability was recapitulated by the Budapest Court of Appeal in leading case no. EBD2014.P.1 as follows:

“[T]he Supreme Court held in leading case no. EBH1999.14 that rules of tort liability cannot be applied to legislation, that is, to the activity aimed at adopting general and abstract legal rules of behaviour. In leading case no. BH1993.312 it also considered that the damage potentially resulting from the entry into force of a law laying down a general rule of normative force does not create a relationship of civil law liability between the lawmaker and the alleged victim of the legislation. ... Furthermore, leading case no. BH1994.31 also reflects the jurisprudence according to which the lawmaker cannot be held liable for the adoption of normative rules, unless there are additional findings of fact (többlettényállás).”

In the leading case, such additional findings of fact were constituted by an underlying decision of the Constitutional Court holding that the law-making process in question had been dysfunctional in that the resultant legal provision was nothing less than an individual decision to the detriment of the complainant, couched in terms of a legislative act.

C. Relevant law of the European Union

23. Article 4(3) of the Treaty on the European Union provides as follows:

“Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.

The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.

The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.”

24. Article 56 of the Treaty on the Functioning of the European Union (TFEU) provides as relevant:

“Within the framework of the provisions set out below, restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended. ...”

25. Article 267 TFEU provides as relevant:

“The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning:

(a) the interpretation of the Treaties;

(b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union; ...”

26. The Charter of Fundamental Rights of the European Union provides as follows:

Article 17 § 1

“Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest.”

27. The case-law of the Court of Justice of the European Union contains the following principles:

“The purpose of a preliminary ruling by the Court is to decide a question of law, and that ruling is binding on the national court as to the interpretation of the Community provisions and acts in question.” (judgment in Benedetti, 52/76, EU:C:1977:16, point 3 of the operative part).

“[A] judgment in which the Court gives a preliminary ruling on the interpretation or validity of an act of a Community institution conclusively determines a question or questions of Community law and is binding on the national court for the purposes of the decision to be given by it in the main proceedings.” (judgment in Wünsche, 69/85, EU:C:1986:104, paragraph 13).

“In ... accordance with settled case-law, all the authorities of the Member States have the task of ensuring observance of the rules of Community law within the sphere of their competence .... It should also be remembered that the interpretation which, in the exercise of the jurisdiction conferred upon it by Article 234 EC, the Court gives to a rule of Community law clarifies and defines, where necessary, the meaning and scope of that rule as it must be, or ought to have been, understood and applied from the time of its coming into force ... In other words, a preliminary ruling does not create or alter the law, but is purely declaratory, with the consequence that in principle it takes effect from the date on which the rule interpreted entered into force ... It follows that, in a case such as the main proceedings, a rule of Community law as thus interpreted must be applied by an administrative body within the sphere of its competence even to legal relationships which arose and were formed before the Court gave its ruling on the request for interpretation ...” (judgment in Willy Kempter, C-2/06, EU:C:2008:78, paragraphs 34-36).

“As regards Article 4 TEU, it should be recalled that according to settled case-law, under the principle of sincere cooperation laid down in paragraph 3 of that article, it is for the Member States to ensure judicial protection of an individual’s rights under EU law ... In addition, Article 19(1) TEU requires Member States to provide remedies sufficient to ensure effective legal protection in the fields covered by EU law” (judgment in ClientEarth, EU:C:2014:2382, paragraph 52).

“On any view, a breach of Community law will clearly be sufficiently serious if it has persisted despite a judgment finding the infringement in question to be established, or a preliminary ruling or settled case-law of the Court on the matter from which it is clear that the conduct in question constituted an infringement.” (judgment in Test Claimants in the Thin Cap Group Litigation, C-524/04, EU:C:2007:161, paragraph 120; see also Test Claimants in the FII Group Litigation, C-446/04, EU:C:2006:774, paragraph 214 and the case-law cited there).

COMPLAINTS

28. The applicants alleged that the removal of their licences to operate arcades and slot machines in Hungary amounted to an unjustified interference with their rights under Article 1 of Protocol No. 1, read alone and in conjunction with Article 14 of the Convention. Moreover, the absence of any legal avenues to challenge this measure amounted to a violation of their rights under Articles 6 and 13 of the Convention.

THE LAW

29. The applicants complained that the invalidation of their licences to operate arcades and slot machines amounted to an unjustified deprivation of property in breach of Article 1 of Protocol No. 1 of the Convention, read alone and in conjunction with Article 14 of the Convention.

Article 1 of Protocol No. 1 reads as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

Article 14 of the Convention reads as follows:

“The enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”

30. The Government contested that argument. They argued in particular that the applicants had failed to exhaust all domestic remedies. Notably, an action in damages against the State alleging a violation of the law of the European Union was - and is - available to them in the circumstances. They submitted that, in the absence of a provision to that effect in the legal instruments forming the basis of EU law, the Court of Justice of the European Union had developed in its case-law the principle that if a Member State violates EU law, which enjoys supremacy over national law, notably by not taking all the necessary steps to give full effect to EU law in its national legal system, it should bear tort liability vis-à-vis the holders of rights under EU law (see Francovich and Others v. Italy (C-6/90 and C-9/90) judgment of 19 November 1991). This principle was extended by the CJEU so as to cover losses which originate in the acts or omissions of any State organ which violate EU law and thus result in a violation of the rights enshrined in EU law (see Brasserie du Pêcheur SA (C-46/93) and Factortame Ltd. (C-48/93) judgment of 5 March 1996). In such cases Member State immunity is restricted, therefore they can be sued with a reasonable prospect of success.

31. The applicants argued that it was the standing jurisprudence of Hungarian courts that the lawmaker could not be successfully sued for damages caused by legislation (see leading case no. EBD2014.P.1 in paragraph 22 above). Therefore, such an action was not an effective remedy to exhaust in the circumstances. To the extent that an action, as suggested by the Government, was to concern a violation of EU law, they argued that its subject matter would be different from that of the present applications, having nothing to do with their rights under the Convention. They further argued that, ever since the accession of Hungary to the European Union, Hungarian courts had never established the lawmaker’s liability for a breach of EU law and, in view of the standing jurisprudence reiterated by the above-mentioned leading case, the probability of such an outcome was very little. Given the complete lack of a relevant and settled case-law as well as the costs and time that additional - most likely futile - proceedings would require, the applicants were of the view that an obligation to use the avenue of an action in damages against the lawmaker would place a disproportionate burden on them and would constitute an obstacle to the effective exercise of their right of individual application under Article 34 of the Convention.

32. Article 35 § 1 of the Convention provides as relevant:

“The Court may only deal with the matter after all domestic remedies have been exhausted, according to the generally recognised rules of international law, ...”.

33. The assessment of whether domestic remedies have been exhausted is normally carried out with reference to the date on which the application was lodged with the Court. However, as the Court has held on many occasions, this rule is subject to exceptions, which may be justified by the particular circumstances of each case (see Baumann v. France, no. 33592/96, § 47, 22 May 2001).

34. In the present case, the Court observes that shortly after the introduction of the present applications, some applicants (see paragraph 13 above) brought an action in damages against the State, claiming compensation for the loss of business sustained on account of the impugned legislation, the latter allegedly being in breach of EU law. The other applicants have not availed themselves of this legal avenue.

35. In the ensuing proceedings, the Budapest High Court perceived an issue potentially emerging under the relevant law of the European Union. It then decided to request a preliminary ruling from the CJEU. At this juncture, the Court notes the relevant domestic jurisprudence according to which the enactment of laws does not normally create a relationship of civil liability between the lawmaker and those alleging damages flowing from that legislation (see paragraph 22 above). However, for the Court the fact that the High Court decided to obtain the CJEU’s ruling, rather than to decide the case on the basis of that jurisprudence, demonstrates the reasonable prospect that any liability allegedly incurred on the side of the State may be decided with regard to the relevant state of EU law, rather than solely on the basis of the jurisprudence of the domestic instances.

36. In its judgment of 11 June 2015 the CJEU held in particular as follows (Case C-98/14):

“Article 56 TFEU is intended to confer rights on individuals, in such a way that its infringement by a Member State, including as a result of its legislative activity, gives rise to a right of individuals to obtain from that Member State compensation for the damage suffered as a result of that infringement, provided that that infringement is sufficiently serious and there is a direct causal link between that infringement and the damage sustained, which it is for the national court to determine”.

37. The Court observes that this ruling makes reference to a potential infringement of the principle of freedom to provide services within the European Union, which the impugned legislation is capable of causing. The CJEU reiterated that Member States of the European Union bear liability towards individuals for such infringements. Article 56 TFEU has been interpreted to entitle those injured to claim compensation for the resultant damages; and it is for the national courts to assess in this context whether the infringement was sufficiently serious and whether there was a causal link between that infringement and the damage sustained. In carrying out that assessment, the national courts have to examine the impugned measures also from the perspective of Article 17 of the Charter of Fundamental Rights (see §§ 89-92 of the CJEU reasoning, quoted in paragraph 17 above).

38. The Court further notes that, according to Article 267 TFEU and the well-established case-law of the CJEU, a preliminary ruling given by the CJEU is binding on the referring national court as to the interpretation of the EU law rule in question. It clarifies and defines the meaning and scope of that rule as it must be, or ought to have been, understood and applied from the time of its coming into force. Furthermore, pursuant to the principle of “sincere co-operation”, the authorities of the EU Member States have the task of ensuring, within the sphere of their competence, observance of the rules of EU law, as interpreted by the CJEU, and the judicial protection of an individual’s rights under EU law. Consequently, the Court is satisfied that guidance provided by a preliminary ruling must be observed not only in the specific dispute which has given rise to the referral but, indirectly, also in other cases, even concerning legal relationships which arose before the CJEU gave its ruling in question. The Court observes at this juncture that a breach of Community law is “sufficiently serious” - for the purposes of the test consistently applied by the CJEU in cases concerning State liability for infringements of EU law - if it persists despite a preliminary ruling or settled case-law of the Court on the matter from which it is clear that the conduct in question constituted an infringement (for the relevant principles of EU law, see paragraph 27 above).

39. For the Court, the ruling in the present case therefore provides the Hungarian courts with guidance as to the criteria to be applied in the case pending before them. According to this guidance, justifications for the restriction complained of must also be interpreted in the light of the general principles of EU law, in particular the fundamental rights guaranteed by the Charter of Fundamental Rights of the European Union, including its Article 17.

40. It follows that the litigation in progress before the national authorities ought to be capable of encompassing, ultimately, the issue of justification for the alleged breach of the litigant applicants’ rights guaranteed by Article 1 of Protocol No. 1. In the course of this scrutiny, the standing case-law of the CJEU and the preliminary ruling given in the instant case require the national courts to assess, firstly, whether the restrictions satisfy the conditions laid down in the case-law of the CJEU as regards their proportionality (see § 64 of the CJEU reasoning, quoted in paragraph 17 above) and whether they are compatible with the fundamental rights the observance of which is ensured by the CJEU (see §§ 74 to 91 of the CJEU reasoning, quoted in paragraph 17 above). In particular, the national courts are to assess whether the restriction actually pursues, primarily, objectives relating to the protection of consumers against gambling addiction and the prevention of criminal and fraudulent activities linked to gambling; whether it pursues those goals consistently and systematically; and whether it meets the requirements arising from general principles of EU law, in particular the principles of legal certainty and the protection of legitimate expectations and the right to property (see § 92 of the CJEU reasoning, quoted in paragraph 17 above). Secondly, in the eventuality of an infringement of Article 56 TFEU, the national courts are further required to examine whether that infringement is sufficiently serious and whether there is a direct causal link between that infringement and the damage sustained.

41. This method of scrutiny bears close resemblance to that applied by the Court for the purposes of Article 1 of Protocol No. 1. In essence, the Court’s case-law requires that, in order for an interference to be compatible with Article 1 of Protocol No. 1 it must be lawful, be in the general interest and be proportionate, that is, it must strike a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights (see, among many other authorities, Beyeler v. Italy [GC], no. 33202/96, § 107, ECHR 2000-I, and J.A. Pye (Oxford) Ltd and J.A. Pye (Oxford) Land Ltd v. the United Kingdom [GC], no. 44302/02, § 75, ECHR 2007-III). The requisite fair balance will not be struck where the person concerned bears an individual and excessive burden (see Sporrong and Lönnroth v. Sweden, 23 September 1982, §§ 69-74, Series A no. 52).

The Court further notes that the assessment required by the CJEU explicitly relies, at least partly, on the case-law of the Court (see § 85 of the CJEU reasoning, quoted in paragraph 17 above)

42. For the Court, to substitute its own assessment for that of the national courts as oriented by the Court of Justice of the European Union, without awaiting the outcome of those proceedings, would be tantamount to ignoring its subsidiary role (see Eckle v. Germany, 15 July 1982, § 66, Series A no. 51).

43. Consequently, the Court is satisfied that the pending court case offers a reasonable prospect of success for the applicants to have their claims adjudicated on the merits and, potentially, to obtain damages. It is therefore capable of providing redress in the circumstances for the alleged violation of the litigant applicants’ rights under Article 1 of Protocol No. 1, read alone and in conjunction with Article 14 of the Convention, and thus constitutes an effective remedy to be exhausted for the purposes of Article 35 § 1 of the Convention.

It follows that the applications must be rejected as premature in respect of those applicants whose case is currently pending before the Budapest High Court, in so far as Article 1 of Protocol No. 1, read alone and in conjunction with Article 14 of the Convention, is concerned.

44. Moreover, as regards the remaining applicants, the Court is satisfied that in view of the ruling of the CJEU (see also paragraphs 23, 27 and 38 above) they also have the possibility to file a claim similar to the extant one and thus avail themselves of a remedy which is likewise capable of redressing their alleged grievances.

It follows that in their respect the applications must be rejected for non-exhaustion of domestic remedies, in so far as Article 1 of Protocol No. 1, read alone and in conjunction with Article 14 of the Convention, is concerned.

45. Finally, for essentially the same reasons, namely, the availability of a legal avenue capable of providing adequate redress, the complaints under Articles 6 and 13 of the Convention concerning the alleged lack of access to a court or the absence of a remedy, are manifestly ill-founded within the meaning of Article 35 § 3 (a) and must be rejected, pursuant to Article 35 § 4 of the Convention.

46. In sum, the Court concludes that the applications must be rejected, pursuant to Article 35 §§ 1, 3 (a) and 4 of the Convention.

For these reasons, the Court, unanimously,

Declares the applications inadmissible.

Done in English and notified in writing on 1 October 2015.

Abel Campos Guido Raimondi
Deputy Registrar President

APPENDIX

No	Application No	Lodged on	Applicant Seat Nationality	Represented by
1.	23265/13	04/04/2013	LAURUS INVEST HUNGARY KFT a Hungarian limited liability company seated in Budapest CONTINENTAL HOLDING CORPORATION a company established under the laws of California, USA, seated in Beverly Hills	Péter KÖVES
2.	23853/13	05/04/2013	BERLINGTON HUNGARY TANÁCSADÓ ÉS SZOLGÁLTATÓ KFT a Hungarian limited liability company seated in Budapest LIXUS SZERENCSEJÁTÉK SZERVEZŐ KFT a Hungarian limited liability company seated in Budapest LIXUS PROJEKT SZERENCSEJÁTÉK SZERVEZŐ KFT a Hungarian limited liability company seated in Budapest LIXUS INVEST SZERENCSEJÁTÉK SZERVEZŐ KFT a Hungarian limited liability company seated in Budapest CITY-WIN SZERENCSEJÁTÉK SZERVEZŐ KFT a Hungarian limited liability company seated in Budapest MEGAPOLIS TERMINAL SZOLGÁLTATÓ KFT a Hungarian limited liability company seated in Budapest	András GRÁD
3.	24262/13	05/04/2013	TAYLOR’S KFT a Hungarian limited liability company seated in Budapest NEW STAR PLAY KFT a Hungarian limited liability company seated in Budapest STAR GAME KFT a Hungarian limited liability company seated in Budapest NEW CARADMON KFT a Hungarian limited liability company seated in Budapest CARADMONICA KFT a Hungarian limited liability company seated in Budapest NEW STAR GAME KFT a Hungarian limited liability company seated in Budapest	András GRÁD
4.	25087/13	04/04/2013	A. KFT a Hungarian limited liability company seated in Putnok J. KFT a Hungarian limited liability company seated in Putnok K. ZMRT a Hungarian limited liability company seated in Budapest L. KFT a Hungarian limited liability company seated in Szentes M. KFT a Hungarian limited liability company seated in Budapest S. KFT a Hungarian limited liability company seated in Budapest S. C. KFT a Hungarian limited liability company seated in Debrecen S. J. KFT a Hungarian limited liability company seated in Debrecen SZ. KFT a Hungarian limited liability company seated in Újfehértó T. KFT a Hungarian limited liability company seated in Gyulaháza T. D. KFT a Hungarian limited liability company seated in Szentes	Dániel András KARSAI
5.	25095/13	08/04/2013	CREATIVE GAMING SOLUTIONS KFT a Hungarian limited liability company seated in Csomád	Zsolt LAJER
6.	25102/13	05/04/2013	J. M. KFT a Hungarian limited liability company seated in Szeged	Dániel András KARSAI

[1] The new Civil Code entered into force on 15 March 2014.

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You are here: BAILII >> Databases >> European Court of Human Rights >> LAURUS INVEST HUNGARY KFT AND OTHERS v. HUNGARY - 23265/13 [2015] ECHR 853 (08 September 2015) URL: http://www.bailii.org/eu/cases/ECHR/2015/853.html Cite as: [2015] ECHR 853