Case C‑235/17

European Commission

v

Hungary

 Judgment of the Court (Grand Chamber), 21 May 2019

(Failure of a Member State to fulfil obligations — Article 63 TFEU — Free movement of capital — Article 17 of the Charter of Fundamental Rights of the European Union — Right to property — National legislation extinguishing, without compensation, the rights of usufruct over agricultural and forestry land acquired by legal persons or by natural persons who cannot demonstrate a close family tie with the owner of the land)

1.        Free movement of capital and liberalisation of payments — Restrictions on immovable property transactions — Fundamental rights — Right to property — National legislation providing for the extinguishment of the rights of usufruct acquired over agricultural land when the status of close relation of the owner of that land is not demonstrated — Not permissible — Justifications — None

(Arts 63 and 65(1) TFEU; Charter of Fundamental Rights of the European Union, Art. 17(1))

(see paragraphs 58, 124, 130, operative part)

2.        Fundamental rights — Charter of Fundamental Rights of the European Union — Scope — Implementation of EU law — National legislation such as to obstruct one or more of the fundamental freedoms guaranteed by the FEU Treaty — Member State relying on grounds envisaged by Article 65 TFEU or on overriding reasons in the public interest that are recognised by EU law as justification — Included

(Arts 63 and 65 TFEU; Charter of Fundamental Rights of the European Union, Art. 51(1))

(see paragraphs 63-65)

3.        Fundamental rights — Charter of Fundamental Rights of the European Union — Right to property — Scope — Rights conferring an acquired legal position — Concept — Rights of usufruct over immovable property permitting the usufructuary to use and enjoy that property — Included — Limitation or exclusion of the possibility of transferring the rights concerned — Irrelevant

(Charter of Fundamental Rights of the European Union, Art. 17(1))

(see paragraphs 69-71, 73)

4.        Fundamental rights — Charter of Fundamental Rights of the European Union — Right to property — Scope — Deprivation — Conditions

(Charter of Fundamental Rights of the European Union, Arts 17(1) and 52(1)).

(see paragraphs 86-89)

5.        Free movement of capital and liberalisation of payments — Restrictions on immovable property transactions — National legislation providing for the extinguishment of the rights of usufruct acquired over agricultural land when the status of close relation of the owner of that land is not demonstrated — Justification founded on objectives of general interest related to the farming of agricultural land — Conditions — Evidential requirements

(Art. 63 TFEU)

(see paragraphs 91, 92, 94)

6.        Free movement of capital and liberalisation of payments — Restrictions on immovable property transactions — National legislation providing for the extinguishment of the rights of usufruct acquired over agricultural land when the status of close relation of the owner of that land is not demonstrated — Not permissible — Justification founded on the prevention of practices intended to circumvent national law — Condition — Justification specifically targeting wholly artificial arrangements and ruling out any general presumption of abusive practices

(Arts 63 and 65(1)(b) TFEU)

(see paragraphs 110, 112, 114, 115, 119, 120)

7.        Fundamental rights — Charter of Fundamental Rights of the European Union — Right to property — National legislation cancelling by operation of law, and without compensation, the rights of usufruct acquired over agricultural land when the status of close relation of the owner of that land is not demonstrated — Not permissible — Reference to the general rules of civil law concerning compensation — Irrelevant

(Charter of Fundamental Rights of the European Union, Art. 17(1))

(see paragraphs 125-127)

Résumé

In cancelling the rights of usufruct over agricultural land in its territory that are held, directly or indirectly, by nationals of other Member States, Hungary has failed to fulfil its obligations arising from the principle of the free movement of capital and the right to property guaranteed by the Charter

In the judgment Commission v Hungary (C‑235/17), delivered on 21 May 2019, the Grand Chamber of the Court held that Hungary had failed to fulfil its obligations under Article 63 TFEU in conjunction with Article 17 of the Charter of Fundamental Rights of the European Union in cancelling, by operation of law, the rights of usufruct over agricultural and forestry land located in Hungary in so far as those rights are held, directly or indirectly, by nationals of other Member States.

In 2013, Hungary adopted a law (‘the 2013 Law’) under which the rights of usufruct over agricultural and forestry land previously acquired by legal persons or by natural persons who cannot demonstrate a close family tie with the owner of that land had to be extinguished, by operation of law, without any arrangements for compensating those persons having been provided for. In support of that Law, Hungary submits that the usufruct contracts concerned had circumvented the prohibitions on acquiring ownership of agricultural land that were in force before Hungary acceded to the European Union and that they had also infringed the national legislation concerning exchange controls applicable at that time, so that they were, on that account, void ab initio even before that accession. Hungary also relied on various agricultural policy objectives, namely ensuring that productive agricultural land can be owned only by the natural persons who work it and not for the purposes of speculation, preventing the fragmentation of land and preserving a population in rural areas and maintaining sustainable agriculture, as well as creating farms that are viable in size and are competitive.

After finding that it was not necessary to consider the 2013 Law in the light of Article 49 TFEU, the Court held that, by providing for the extinguishment, by operation of law, of the rights of usufruct held over agricultural land by persons not able to demonstrate a close family tie with the owner of that land — which include a great many nationals of Member States other than Hungary — that Law restricts, by virtue of its very subject matter and by reason of that fact alone, the right of the persons concerned to the free movement of capital guaranteed by Article 63 TFEU. Indeed, that national legislation deprives those persons both of the possibility of continuing to enjoy their rights of usufruct and of any possibility of alienating that right. That legislation is, moreover, liable to deter non-residents from making investments in Hungary in the future.

In those circumstances, the Court held that it was necessary to examine whether that restriction could be justified by overriding reasons in the public interest or by the reasons mentioned in Article 65 TFEU, and whether it was consistent with the principle of proportionality in particular, in pursuing the objectives relied on in a consistent and systematic manner.

In that context, the Court also pointed out that the fundamental rights guaranteed by the Charter of Fundamental Rights are applicable in all situations governed by EU law and that they must, therefore, be complied with where national legislation falls within the scope of EU law. That is inter alia the case where national legislation is such as to obstruct one or more of the fundamental freedoms guaranteed by the FEU Treaty and the Member State concerned relies on grounds envisaged in Article 65 TFEU, or on overriding reasons in the public interest that are recognised by EU law, in order to justify such an obstacle. In such a situation, the national legislation concerned can fall within the exceptions thereby provided for only if it complies with the fundamental rights the observance of which is ensured by the Court. In that regard, the use by a Member State of the exceptions provided for by EU law in order to justify an impediment to a fundamental freedom guaranteed by the Treaty must be regarded as ‘implementing Union law’ within the meaning of Article 51(1) of the Charter of Fundamental Rights.

Consequently, the Court examined whether the 2013 Law was compatible with EU law in the light of the exceptions thereby provided for by the Treaties and the case-law of the Court and also of the fundamental rights guaranteed by the Charter of Fundamental Rights, which include the right to property safeguarded by Article 17 of that charter, which the Commission claimed had been infringed in the present case.

As regards Article 17 of the Charter of Fundamental Rights, the Court stated, first, that the protection afforded by Article 17(1) of that charter concerns rights with an asset value creating an established legal position under the legal system concerned, enabling the holder to exercise those rights autonomously and for his or her own benefit. According to the Court, it is evident that the rights of usufruct at issue have an asset value and confer on the usufructuary an established legal position, even if the possibility of transferring such rights is limited or precluded under the applicable national law. Indeed, where such rights of usufruct over agricultural land are acquired contractually, a price will, as a rule, be paid. Those rights enable their holders to make use of such land, in particular for economic purposes, or even, depending on the circumstances, to lease the land to third parties; such rights therefore fall within the scope of Article 17(1) of the Charter of Fundamental Rights.

The Court held, secondly, that the rights of usufruct that were cancelled by the 2013 Law must be regarded as having been ‘lawfully acquired’ for the purposes of Article 17(1) of that charter. Those rights had been created at a time when the creation of such rights was not prohibited by the legislation in force and it has not been established by Hungary that those rights were invalid as a result of an infringement of the national legislation at the time concerning exchange controls. In addition, those same rights were entered as a matter of course in the land registries by the competent national authorities and their existence was confirmed by a law adopted in 2012.

Thirdly, the Court held that the 2013 Law does not involve restrictions on the use of possessions but rather entails a person being deprived of his possessions within the meaning of Article 17(1) of the Charter of Fundamental Rights, notwithstanding the fact that the rights of usufruct concerned are not acquired by a public authority and that their extinction results in full ownership of the land concerned being restored to the owners.

At the conclusion of that analysis, the Court made clear, however, that the exercise of the rights guaranteed by the Charter of Fundamental Rights may be limited, as long as the limitation is provided for by law, respects the essence of those rights and, subject to the principle of proportionality, is necessary and genuinely meets objectives of general interest recognised by the European Union or the need to protect the rights and freedoms of others. In that regard, it follows from a reading of Article 17(1) of the Charter of Fundamental Rights in conjunction with Article 52(1) thereof, that when the public interest is invoked in order to justify a person being deprived of his or her possessions, compliance with the principle of proportionality as required by Article 52(1) of that charter must be ensured with regard to the public interest concerned and the objectives of general interest which the latter encompasses. Such a reading also implies that, if there is no such public interest capable of justifying a deprivation of property, or even if such a public interest is established, the conditions laid down in the second sentence of Article 17(1) of the Charter of Fundamental Rights are not satisfied, there will be an infringement of the right to property guaranteed by that provision.

In that regard, while the Court accepted that national legislation may restrict the free movement of capital, on the ground of objectives such as those relied on by Hungary in support of the 2013 Law, it held nonetheless that that Law could not be regarded, in the absence of evidence, as in fact pursuing such objectives, nor as being appropriate for ensuring the attainment of those objectives. The Court added that that Law, in any event, goes beyond what is necessary in order to attain them. For those same reasons, the Court concluded that there were no public-interest grounds capable of justifying the deprivation of property arising from the cancellation of the rights of usufruct concerned.

As regards that deprivation of property, the Court added that, in any event, the 2013 Law does not satisfy the requirement to pay fair compensation in good time, provided for in the second sentence of Article 17(1) of the Charter of Fundamental Rights. That Law does not contain any terms ensuring that the usufructuaries who have been deprived of their property receive compensation, and Hungary’s simply referring to the general rules of civil law cannot satisfy that requirement. In the present case, a reference of that kind to civil law would place on the usufructuaries the burden of having to pursue the recovery, by means of procedures that may prove lengthy and expensive, of any compensation which might be payable to them by the landowner. Such rules of civil law do not make it possible to determine easily and in a sufficiently precise and foreseeable manner whether compensation will in fact be able to be obtained at the end of such procedures, nor do they disclose the nature of any compensation there may be.