EHRM, 13-01-2015, nr. 65681/13

From 1994 the applicant's family operated a grocery with the personal involvement of the applicant. They sold, initially under the excise licence of the applicant's mother, merchandise subject to excise tax, that is, alcohol and tobacco products. On average, the turnover of tobacco retail represented about one-third of the family's business.

The applicant himself obtained a shop-keeping licence in 1999 (see also paragraph 15 below). In 2001 he qualified as a trader and shop manager. In 2005, he was registered in his own right as a trader of excise goods.

On 11 September 2012 Parliament enacted Act no. CXXXIV of 2012 on the Repression of Smoking of the Youth and on Tobacco Retail. The Act was published on 24 September 2012. The Act was subsequently amended on several occasions, and the final version was enacted on 6 June 2013. It entered into force on 1 July 2013.

According to the Act, tobacco retail — previously exercised at about 42,000 retail points nationwide — was to become a State monopoly (exercised through a State-owned company, ND Nemzeti Dohány-kereskedelmi Nonprofit Zrt, ‘ND Zrt’), and tobacco retailers would become licensed through a concession tender, advertised on 15 December 2012, for up to five retail points per tenderer. In applying for the new concessions, tenderers were required to produce business plans reflecting, inter alia, the new governmental policy to limit to the utmost the access of minors to tobacco products, notably by prohibiting the entry of those less than 18 years of age into shops selling tobacco. Under the new licences, tobacco retail could take place only in shops with separate entrances, with dark shades in the shop windows preventing seeing through, and with only a limited selection of other goods on sale.

The final time-limit for applying was 22 February 2013. Entities previously engaged in tobacco retail had no privileges in the tender. The decision about the tenders was to be taken by ND Zrt.

In the tender, altogether some 6,800 licences were granted nationwide1..

The applicant applied for a concession on 4 February 2013, for the would-be licence to be used in the family enterprise. The application was signed by the applicant, and witnessed by his wife and their son. The applicant then amended the application according to the upcoming new rules, on 20 February 2013. According to the Government, the application was very succinct and in no way developed; in particular, it contained no appropriate business plan, which was part of the criteria for the tenders. The applicant submitted that no information was ever made available about the assessment of the tender.

On 23 April 2013 the applicant was informed that he had not obtained a tobacco retail concession. The decision contained no reasons or any indication of the applicant's score on the 120-point tender adjudication score-sheet, and it was not subject to any legal remedy.

The enterprise run by the applicant's family was obliged to terminate the sale of tobacco products by the statutory deadline, that is, 14 July 2013. Tobacco wholesalers were under a legal obligation to re-buy any outstanding stocks from terminated retailers.

The remaining sales activities of the applicant's family enterprise were no longer profitable, entailing the winding-up of the business.

Under the law, no compensation is available for former holders of tobacco retail licences who, by not having been awarded a concession, lost part of their livelihood. The applicant submitted that this was the case of his family; and that he had, after losing the retail licence, considerable difficulties in supporting his family including a minor son.

The applicant further submitted that others in comparable situations — and in the case of those who had never been doing tobacco retail beforehand, in non-comparable situations — had been granted concessions, which difference in treatment could not be explained by any circumstance other than political adherence. In his view, this was corroborated by the fact that some successful tenderers had obtained more than one concession for multiple selling points.

On 14 January 2014 the Constitutional Court declared admissible a number of complaints relating to the same matter.

In decision no. 3194/2014 (VII.14.) it dismissed these motions on the merits (see below in paragraph 16), noting in particular that the legislature had aimed to eliminate underage smoking and therefore restricted the accessibility of tobacco retail, measures reflecting Hungary's obligations under the WHO Framework Convention on Tobacco Control as well as the findings of the Global Youth Tobacco Survey.

Act no. CXXXIV of 2012 on the Repression of Smoking of the Youth and on Tobacco Retail provides as follows:

Section 2

Section 11

According to Act no. CIII of 1997 on Excise Tax and the Special Rules of Trading in Merchandise Subject to Excise Tax (‘the Excise Tax Act’), as in force until 1 May 2004, trading in excise goods was possible in two manners:

The relevant provisions of the Act provided as follows:

Section 72 (1)

In its relevant part, Act no. CLI of 2011 on the Constitutional Court (‘the Constitutional Court Act’) provides as follows:

Section 26

Section 29

Section 56

The Constitutional Court analysed the motions mentioned in paragraph 13 above from two aspects: whether the impugned legislation infringed the complainants' right to protection of their property and whether it breached their right to pursue an entrepreneurial activity.

As regards the property right, the Constitutional Court held in essence that the complainants' business activities in tobacco retail — however long-standing it may have been — did not constitute per se acquired possessions or constitutionally protected legitimate expectations. Prior to 1 July 2013, they had not possessed specific licences for tobacco retail, this kind of licence having been instituted only by the impugned legislation as of that date. Therefore, the legislation did not deprive them of pre-existing, acquired possessions, nor did it annul their shop-keeping licences in general. Moreover, their licences to sell merchandise subject to excise tax (a licence different from the one instituted by the impugned legislation, issued by the Tax Authority as a pre-condition for engaging in tobacco retail) were non-transferable and revocable permits, which did not constitute possessions. The Constitutional Court emphasised that the legislation did not prevent the complainants from applying for tobacco retail concession under the new system and, if successfully licensed, from continuing their activities.

As regards the complaint concerning the right to pursue an entrepreneurial activity, the Constitutional Court agreed that the complainants' activity fell within the scope of constitutional protection. Nevertheless, it underlined that this right did not give an unrestricted or inalienable entitlement to pursue an activity of one's choice. In the Constitutional Court's view, the impugned legislation did not prejudice the essence of the right to pursue an entrepreneurial activity, namely it did not permanently deprive the complainants of the possibility to continue their tobacco retail business, let alone to pursue entrepreneurial activities in general. It only subjected that activity to conditions, which they were not unable to meet. The Constitutional Court found that limitation to be in the public interest and to be sufficiently proportionate to the underlying public health considerations, all the more so since the goods merchandised by the complainants represented well-known health risks and the treatment of smoking-related diseases put a considerable burden on the State — which, in the Constitutional Court's view, enjoyed a wide margin of appreciation in the regulation of the matter in question.

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:

In the leading case, such additional findings of fact were constituted by the 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.

The Government argued at the outset that the applicant's mother being the previous licence-holder, the application was incompatible ratione personae from the applicant's perspective. The applicant contested this view, arguing that the loss of the retail concerned the entire family enterprise and that he had personally been holder of an excise licence.

The Court points out that, in order to rely on Article 34 of the Convention, two conditions must be met: an applicant must fall into one of the categories of petitioners mentioned in Article 34, and he or she must be able to make out a case that he or she is the victim of a violation of the Convention. According to the Court's established case-law, the concept of ‘victim’ must be interpreted autonomously and irrespective of domestic concepts such as those concerning an interest or capacity to act. In addition, in order for an applicant to be able to claim to be a victim of a violation of the Convention, there must be a sufficiently direct link between the applicant and the harm which they consider they have sustained on account of the alleged violation (see, among other authorities, Tauira and Others v. France, no. 28204/95, Commission decision of 4 December 1995, Decisions and Reports (DR) 83-B, p. 112; Association des amis de Saint-Raphaël et de Fréjus and Others v. France, no. 38192/97, Commission decision of 1 July 1998, DR 94-B, p. 124; Comité des médecins à diplômes étrangers v. France and Others v. France (dec.), nos. 39527/98 and 39531/98, 30 March 1999; Gorraiz Lizarraga and Others v. Spain, no. 62543/00, § 35, ECHR 2004-III).

In the present case, the Court observes that although formally speaking the previous holder of the excise licence was the applicant's mother, that licence was benefiting their family enterprise, an assertion of the applicant not refuted by the Government. Moreover, the applicant himself was holder of a shop-keeping licence concerning the same grocery and was registered as a trader of excise goods, this licence entitling him to sell tobacco products (see paragraph 15 above). In these circumstances, the Court considers that the non-acquisition of a new licence, if only pursued by the applicant rather than other family members, produced a sufficiently direct link between him and the harm perceived to be sustained on account of the alleged violation. It is therefore satisfied that the application cannot be rejected as incompatible ratione personae.

The Government further asserted that the applicant should have filed a constitutional complaint which, if successful, would have opened the way for an action in damages against the responsible authorities, as established in leading case no. EBD2014.P.1., published in 2014. Similar complaints had been declared admissible by the Constitutional Court. They emphasised that this was in no way a discretionary remedy, the Constitutional Court being under a legal obligation to examine the merits of such complaints in so far as they fulfilled the statutory conditions. This remedy had not proved ineffective by the time the application was introduced, was available to the applicant at that moment, and offered a reasonable prospect of success; consequently, it should have been used. It was true that the procedure before the Constitutional Court alone could not have produced pecuniary redress for the applicant; however, the aggregation of this procedure with a subsequent civil-law litigation would have qualified as an effective remedy (see Kudła v. Poland [GC], no. 30210/96, §§ 152, 157, ECHR 2000-XI; Omasta v. Slovakia (dec.), no. 40221/98, 10 December 2002; and Dorota Szott-Medynska v. Poland (dec.), no. 53351/99, 9 October 2003).

The applicant contested this view, asserting that section 56(2) of the Constitutional Court Act, read in conjunction with sections 26(2) and 29, expressly provides for a ‘discretionary’ examination of a complaint's admissibility, including the question whether the subject matter of a constitutional complaint directed against a legal provision raises constitutional law issues of ‘fundamental importance’. Accordingly, this legal avenue, which may only be availed of ‘by exception’, was no effective remedy in his opinion. He further noted that the leading case on the State's tort liability, referred to by the Government, concerned a situation where a parliamentary act of individual effect (namely, a dismissal) constituted an abuse of legislative power. While accepting the State's liability in that particular situation, the courts confirmed that ordinary legislative acts would remain covered by the State's immunity.

The Court recalls that the only remedies which Article 35 § 1 of the Convention requires to be exhausted are those that relate to the breaches alleged and at the same time are available and sufficient. The existence of such remedies must be sufficiently certain not only in theory but also in practice, failing which they will lack the requisite accessibility and effectiveness; it falls to the respondent State to establish that these conditions are satisfied (see, among other authorities, McFarlane v. Ireland [GC], no. 31333/06, § 107, 10 September 2010). The existence of mere doubts as to the prospects of success of a particular remedy which is not obviously futile is not a valid reason for failing to exhaust domestic remedies (see Akdivar and Others v. Turkey, 16 September 1996, § 71, Reports of Judgments and Decisions 1996-IV). Lastly, an applicant who has availed himself of a remedy capable of redressing the situation giving rise to the alleged violation, directly and not merely indirectly, is not bound to have recourse to other remedies which would have been available to him but the effectiveness of which is questionable (see Manoussakis and Others v. Greece, 26 September 1996, § 33, Reports 1996-IV, and Anakomba Yula v. Belgium, no. 45413/07, § 22, 10 March 2009).

In the present case, the Court notes at the outset that it was not in dispute between the parties that the constitutional complaint procedure alone could not have produced pecuniary redress for the applicant. In any event, the cases referred to by the Government were eventually dismissed by the Constitutional Court on the merits (see paragraph 13 above). It is true that these decisions post-dated the introduction of the application and that, at that time, the outcome of the constitutional procedures was unknown as yet.

However, for the Court, the applicant cannot be expected to have pursued a constitutional complaint with the sole purpose of enabling a subsequent action in damages against the lawmaker. This is so because the case-law on such liability, as evidenced by the leading case published in 2014 but referring to a standing jurisprudence, is quite restrictive in terms of possible scenarios where the lawmaker can be held liable for prejudice resulting from legislation, namely, particular findings of fact, such as ad hominem or otherwise dysfunctional legislation, are required — an element which does not appear to pertain to the applicant's situation and whose presence has not been argued by the Government.

The Court is therefore not persuaded that a potential action in damages against the legislator underpinned by a constitutional complaint, if and when successful, was an effective remedy whose existence was sufficiently certain both in theory and in practice. Without taking a position on the effectiveness of the constitutional complaint procedure in general, the Court is therefore satisfied that the constitutional complaint is not a remedy of a kind whose non-pursuit can be held against the applicant in this case.

It follows that the application cannot be rejected for non-exhaustion of domestic remedies.

The Government further argued that the licence in question was a new institution under the law, enacted by the 2012 legislation. The applicant had never possessed this right, because the previous concession he had had was different in nature. Therefore, the application was, in the Government's view, directed at the acquisition of an asset, a right not guaranteed by the Convention or its Protocols. Moreover, the Convention or its Protocols could not be construed to guarantee any right to the continued exercise of a gainful activity based on representing health hazard to others, like tobacco sales. The application was thus incompatible ratione materiae with the provisions of the Convention.

The applicant argued that his former licence was just as much a possession as the one he was striving to acquire and that its loss consequently brought Article 1 of Protocol No. 1 into play.

The Court considers that the question concerning the nature of the licences at issue is closely linked to the merits of the application and must be joined to it for joint consideration.

The Court notes that the application is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.

The applicant claimed 10,000 euros (EUR) in respect of pecuniary damage and EUR 5,000 in respect of non-pecuniary damage. The former figure is the applicant's global estimate for lost business.

The Government contested these claims in general terms.

Without speculating on the profits which the applicant would have achieved if the violation of the Convention had not occurred, the Court observes that he suffered a real loss of business. It therefore considers it appropriate to award a lump sum in compensation for the loss of future earnings. In addition, the Court considers that the violation it has found of Article 1 of Protocol No. 1 in the instant case must have caused the applicant prolonged uncertainty in the conduct of its business and feelings of helplessness and frustration, entailing some non-pecuniary damage.

Thus, the Court considers it reasonable, making its assessment on the basis of equity, to award the applicant an aggregate sum of EUR 15,000, covering all heads of damage (see, mutatis mutandis, Centro Europa 7, cited above, §§ 219 to 222).

The applicant also claimed EUR 10,600 for the costs and expenses incurred before Court. This figure corresponds to the legal fees billable by his lawyer, that is, 19.4 hours of paralegal work, charged at an hourly rate of EUR 50, as well as 64.2 hours of legal work, charged at an hourly rate of EUR 150.

The Government contested this claim.

According to the Court's case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum. In the present case, regard being had to the documents in its possession and the above criteria, the Court considers it reasonable to award the sum of EUR 6,000 for the proceedings before the Court.

The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.