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Editorial staff table of contents Journal on Legal and Economic Issues of Central Europe: Adina Ciciovan: The New Shift to ‘Business Common Sense’: Mgr. Jan Gazda, Ph.D. Does it Fulfil the Reasonable Expectations of English Commercial Men? ...... 2. (Faculty of Civil Engineering, Czech Technical David Ramiro Troitiño: The Single European Act – the Creation of the Interior Market in Europe . . . . 8. University, Prague, Czech Republic) Doc. Dr. Ivan Halász, Ph.D. Małgorzata Zielenkiewicz: The Advancement of Central and Eastern European (Institute for Legal Studies of the Hungarian Countries in Transformation Process – Cluster Analysis on the Basis of the Bertelsmann’s Academy of Science, Budapest, Hungary) Transformation Index ...... 14. Assoc. prof. dr. Ceslovas Christauskas (Faculty of Social Science, Anna Blajer-Gołębiewska: The Importance of Corporate Reputation for Investors Kaunas University of Technology, Lithuania) in the Banking Sector in Poland ...... 25. Dr. Paweł Kawa Sándor Madai: About Regulation of Crimes against Property in Hungary ...... 35. (School of Banking and Management, Cracow University of Economics, Poland) Akos Cserny: The Change of Public Law in Central-Eastern European States ...... 39. Dr. Julia Koralun-Bereźnicka Henriett Rab, Peter Sipka: Are Social Rights Obstacles to Flexibility? ...... 44. (Faculty of Management, Krisztián Szabó: Pre-trial Detention during the Investigatory Phase in Hungary ...... 49. University of Gdańsk, Poland) Doc. JUDr. Zdeněk Koudelka, Ph.D. Márton Leó Zaccaria: Conceptual Changes Concerning Working Time in Hungarian Labour Law . . . 54. (Supreme Public Prosecutor’s office, Brno, Tamas Prugberger, Andrea Szollos: An Extremely Significant Doctor of Academy Thesis Czech Republic) on the Sustainability Affecting our Universe (Globe) and our Living Environment Doc. Ing. Václav Liška, CSc. (Faculty of Civil Engineering, Czech Technical and the Legal Aspects of the Interpretation of Sustainability ...... 59. University, Prague, Czech Republic) Dalia Perkumienė, Rasa Šemiotienė: Peculiarities of the Legal Status of People JUDr. Radka MacGregor Pelikánová, Ph.D., LL.M., MBA with Disabilities in Lithuania ...... 64. (Attorney-at-Law, Prague, Czech Republic) Rita Matulionyte: Cultural Heritage and Public Interest versus Private Rights: Prof. Dr. Peter Mihalyi (Economics Department, Central European a Struggle for a Balanced Approach in Lithuania ...... 70. University, Budapest, Hungary) Simonas Nikartas: Public Interest According to Lithuanian Population: Prof. Dr. Dragan M. Mitrović Awareness and Involvement in its Protection ...... 79. (Faculty of Law, University of Belgrade, Serbia) Dr. Dragos Paun Milda Burnytė: Pertinence of Liberalism – Communitarianism Dispute in Defining (Faculty of Business, Babeş-Bolyai University, the Public Interest ...... 91. Cluj-Napoca, Romania) Bernadett Veszprémi: The Most Significant Changes Affecting the Administrative Work Doc. JUDr. Karel Schelle, CSc. (Faculty of Law, Masaryk University, Brno, of Hungarian Local Authorities ...... 97. Czech Republic) Zoltán Imre Nagy, Éva Bába Ms Bács: Organisational Changes of Professional Football Companies . . 102. JUDr. Bc. Jaromír Tauchen, Ph.D., LL.M. Eva Kebrlová, Johan Schweigl: National and International Aspects of Protection (Faculty of Law, Masaryk University, Brno, Czech Republic) of Cultural Heritage in the Czech Republic ...... 112.

Journal on Legal and Economic Issues of Central Europe © 2014 STS Science Centre Ltd . All rights reserved . Neither this publication nor any part of it may be reproduced, stored in a retreival system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of STS Science Centre Ltd . Issued twice a year . Printed in the EU . ISSN 2043-085X 2 Journal on Legal and Economic Issues of Central Europe

The New Shift to ‘Business Common Sense’: Does it Fulfil the Reasonable Expectations of English Commercial Men? Adina Ciciovan 1

Abstract

The decision of the English Supreme Court in the commercial case of Rainy Sky V Kookmin Bank 2 has had the unfortunate effect of producing an undesirable outcome: what is business common sense to one judge is ambiguous or commercially absurd to another and vice versa. The result is that this may undermine the faith that can be placed in any interpretation of an agreement below the level of the Supreme Court and this has a damaging effect upon certainty in commercial litigation which is clearly undesirable for reasonable commercial men operating in this context. The law of contract interpretation as applied by judges currently confuses interpretation with rectification of contract and while the exclusion of prior negotiations in interpretation is still the rule rather than the exception, there is a real need for coherence and certainty in the area of contractual interpretation in the United Kingdom. Key words: business common sense, contractual interpretation, implication, rectification, background, commercial men, reasonable expectations.

In the well-known case of Investors Compensation Scheme v West Lord Hoffman considered that a fundamental change has Bromwich Building Society 3 the House of Lords was required to overcome the principles of contract interpretation and revolu- construe a claim form produced by the ICS for investors who tionized the law by outlining 5 principles of interpretation 4 and sought compensation for negligent advice which was given by stating that ‘something had seemed to have gone wrong’ 5 in by their former financial advisers in regard to mortgages that the drafting of the clause’ in question . He based his judgment were taken from several building societies . According to the on the speeches of Lord Wilberforce in the cases of Prenn v Sim- claim forms produced by the ICS, the investors had to assign monds 6 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen 7 and to the scheme all rights arising out of the transaction against considered that the result was ‘to assimilate the way in which the financial advisers and anyone else subject to a reservation such documents are interpreted by judges to the common sense of certain rights against the building society which offered the principles by which any serious utterance would be interpreted mortgage . A dispute arose as to the meaning of section3(b) of in ordinary life .8’ The supreme importance of this decision lies the form and the ICS initiated proceedings against the vari- in the fact that it recognized that the courts may take into ac- ous building societies and firms of solicitors claiming compen- count the background of a contract in interpreting its word- sation for breach of statutory duties and damages for breach ing regardless of whether the wording is ambiguous or not and of common law duties . Lord Hoffman took the opportunity to that the courts do not have to find a meaning within the range dispense with the old rules of construction designed to protect of available meanings of a particular word if there is an obvi- the principle of the objective record upon which the courts may ous syntactical or linguistic mistake . The underlying scheme of only take into account the background of the contract provided thought employed by Lord Hoffman was that language is an that the wording was ambiguous or produced an absurd result imprecise method of communication whereby ‘linguistic codes and that the court could only determine on a meaning that fell are inadequate for the communication of sufficiently precise within the range of the available meanings of the words used in meanings by way of sufficiently short utterances being insuf- the contract . ficiently precise and efficient at encoding meaning 9’ . Therefore

1 Adina Ciciovan, International Law LLB . International Commercial Law and Practice LLM . University of Sheffield, United Kingdom . 2 [2011] UKSC 50(SC) . 3 [1998] 1 All ER 98 . 4 [1998] 1 All ER 98 at 94 – 95 . 5 Ibid . 6 [1971] 1 W .L .R . 1381,1384 – 1386 . 7 [1976] 1 W .L .R . 989 . 8 Ibid .at 3 . 9 Adam Kramer ‘Common Sense Principles of Contract Interpretation (And How We’ve Been Using Them All along)’ 23 Oxford Journal of Legal Studies 2003 page 175 . 2/2014 3 words cannot be analysed in isolation by the courts and it is the contingencies occurred 15 . According to the interpretation that contextual background which directly influences the meaning Chartbrook advanced there was no element of contingency and of such words . The decision triggered a surprising amount of there was a balancing payment due in virtually every instance .16 criticism from the academic sphere 10 particularly directed at Therefore, Lord Hoffman concluded that the ordinary meaning Lord Hoffman’s statement that the factual background includes of the words used made no commercial sense and that the court ‘absolutely anything,11‘ a statement which was later clarified to was not required to reformulate an alternative wording for the be referring to absolutely anything which was regarded to be payment provision in question to bring it in line with the true relevant 12. This decision nevertheless represents the bedrock of intention of the parties . Rather, the court’s task was to decide interpretation in English law and currently influences other ar- what a reasonable person would have understood the parties to eas of interpretation such as implication and rectification which have meant by using the language which they did 17. The fact shall be touched upon below . that the court might have to express that meaning in a language A relatively new case with a very obvious connection with quite different from that used by the parties was no reason not ICS 13 is the case of Chartbrook v Persimmon 14 where the court to give effect to what they appeared to have meant 18. And then was required to construe the payment provisions in a develop- Lord Hoffman to the surprise of many added: ‘What is clear ment agreement in respect of a site Persimmon owed in Wand- from these cases is that there is not, so to speak, a limit to the sworth . The site was legally owned by Chartbrook and Persim- amount of red ink or verbal rearrangement or correction which mon thought it would be suitable for a mixed development and the court is allowed . All that is required is that it should be clear made a number of offers to him in this regard . Chartbrook ac- that something has gone wrong with the language and that it cepted a building licence under which he was to remain the should be clear what a reasonable person would have under- owner of the land and Persimmon would obtain planning per- stood the parties to have meant .’ 19 mission to construct the development and sell the flats within, As can be seen from the outset, this case is one of a kind . Not the commercial premises being sold back to Chartbrook who only is Chartbrook v Persimmon a case where judges reject the would afterwards receive a percentage of the sale proceeds with plain meaning of a contract in favour of what they think it must minimum guaranteed amounts . The site was expanded and the have been intended,20 but the court in this case also seemed to payment figures were reworked in a careless manner so that in grant itself a ‘judicial licence’ to correct errors in contract provi- effect they appeared to offer Chartbrook a much higher amount sions without a limit where rectification claims await and are than it was commercially reasonable to do so . Chartbrook ar- later not considered because the matter was ‘corrected’ through gued for a literal interpretation asserting that the figures accu- construction? Lord Hoffman simply went out of his way to say rately reflected the amount of payment he was owed under the that if the court concludes that something has gone wrong with contract while Persimmon represented by Christopher Nugee the language there is no ’limit to the amount of red ink or verbal QC of Wilberforce Chambers argued that the contract should arrangement or correction’ the court is allowed:it interprets the be rectified to reflect the objective consensus of the parties as contract in a way a reasonable observer would have understood opposed to the subjective one and that the long standing rule of the parties 21. With all due respect to Lord Hoffman, this ap- English law which excludes prior negotiations of the parties for proach confuses rectification with construction . This approach the purposes of contract interpretation should be abolished . which is based on principles 5 of the ICS seems to operate in This case was an exceptional one and Lord Hoffman drew practice as a disguised form of rectification in the area of con- an inference from the first principle of the ICS and express- struction as there does not seem any difference in practice in ly acknowledged that the law rarely accepted that the parties how a court will correct a contract in construction as compared made mistakes in formal commercial agreements and there were to rectifying a contract when a rectification claim is successful . instances where the language used had clearly gone wrong . In This is quite unfortunate for counsel an other practitioners in this case the literal definition of the balancing payment made the area because they will not be able to predict which is a con- no sense at all and it was apparent that the agreement was to struction case and which is a rectification case . Cristopher Nu- guarantee a minimum land value in respect of an individual gee QC admitted in his article 22 that he thought he understood residence with the possibility of a larger payment if certain rectification well prior to this case . Moreover, the decision in

10 Gerard McMeel ‘Prior negotiations and subsequent conduct-the next step forward for contractual interpretation?’ 119 Law Quarterly Review 2003 pages 272 – 297 . 11 Ibid .at 3 . 12 Bank of Credit and Commerce International S .A v Ali [2001] UKHL 8 at [39] . 13 Ibid .at 3 . 14 [2009]1 AC 1101 . 15 Chris Hoar ‘ What does it all mean?’ Jan/Feb Construction Newsletter 2010 Page 2 . 16 Ibid . 17 Adam Chichester-Clark and Sebastian Kokelaar ‘Interpreting Contracts after Rainy Sky’ Thirteen Old Square Chambers 2012 page 7 . 18 Ibid . 19 [2009]1 AC 1101 at 1114G . 20 Christopher Nugee ‘Something’s gone wrong with my contract’ December Construction Law Journal 2009 page 15 . 21 Ibid . 22 Christopher Nugee ‘Rectification after Chartbrook v Persimmon: where are we know?’ 26 Trust Law International 2012 page 1 . 4 Journal on Legal and Economic Issues of Central Europe

this case can have potential implications for parties to build- of contracts is a lengthy process in itself and drafters may have ing contracts ‘especially since modern forms, such as PPC2000, to cover expressly various contingencies which may otherwise rely on parties filling in numerous spaces with substantive draft- never have been considered .30 ing to get them to think about risk allocation and responsibility . The case of Rainy Sky SA v Kookmin Bank,31 a decision which What happens, for example, if the price framework in PPC2000 is largely grounded on the two approaches to construction of is not properly tied into the contract, or if in the NEC form, Lord Hoffman in Chartbrook 32 and A – G of Belize,33 has paved one of the blanks in the contract is filled in so as to make it the way towards what Lord Neuberger MR in the Re Sigma nonsensical? 23’ Finance Corp 34 called as ’an iterative process’ which involves The case of Attorney General of Belize v Belize Telecom Ltd 24 ’checking each of the rival meanings against the other provi- concerned the proper construction of the articles of association sions of the document and investigating its commercial con- of a company and whether they contained an implied term . sequences 35. ’The facts of the case were that the claimants en- A special shareholder, provided he held 37 .5% of class shares tered into a shipbuilding contract with a Korean shipbuilder C could appoint two managing directors to represent his inter- whom they were required to pay in instalments . The defendant est . The shareholder defaulted and there were no more class C shipbuilder was the customer of a reputable bank who issued shareholders in the company therefore the question that arose him bonds . The shipbuilder went into insolvency and the claim- was what was to happen to the two directors that were previ- ants sought to recover the sums paid and contacted the bank ously appointed by the special shareholder . It was held by the pursuant to the bonds . The bank refused to pay and the dispute courts that the articles of association contained an implied term was centered on the meaning of the words ‘all such sums’ in that the directors are to vacate the office if no such shareholder paragraph 3 of the bonds . The bank argued that the phrase re- exists . Although this is a Privy Council case and officially not ferred back to the pre-delivery instalments listed in paragraph 2 binding in England and Wales it is influential for the fact that which omitted the insolvency of the builder whereas the claim- Lord Hoffman made a number of observations relating to the ants argued that it referred to the pre-delivery instalments in business efficacy test and the officious bystander test by saying the first line of paragraph 3 on the basis that the purpose of that they were not to be treated as different or additional tests . the bonds was to refund the instalments in cases of insolvency Rather there was only one question to be answered, namely of the builder . Simon J preferred the argument advanced by what is the contract, read as a whole, reasonably understood to the claimants and considered that they were deprived of the mean . In addition, he also added that it was not necessary, be- bonds in the only circumstances in which they needed them, fore a term could be implied that it must ‘go without saying: 25’’ a result which appeared uncommercial to him . In the Court of is no more than another way of saying that, although the instru- Appeal this decision was reversed by Paten LJ who could not ment does not expressly say so, that is what a reasonable person accept that paragraph 2 of the bonds served no useful purpose . would understand it to mean .’ 26 The Supreme Court overturned the decision of Paten LJ and With all due respect to his Lordship, it is the author’s view considered that the parties differed in the role played by consid- that Lord Hoffman has created a confusion in the law of con- erations of business common sense in determining the meaning tract implication that did not exist before as the law was rea- that the wording of the bonds would convey to a reasonable sonably clear in this area . Prior to this case, the law was that person . This is exactly where Clark LJ disagreed with Patten in order for a term to be implied it must give business efficacy LJ, he did not think that it was necessary to show that the to the contract 27. This was later supplemented by the officious most natural reading of the words produced ’a result so extreme bystander test, a term coined by MacKinnon LJ 28 who said as to suggest it was unintended 36’ before the court could de- that for a term to be implied it had to be so obvious as to go part from it: ’’The language used by the parties will often have without saying . Lord Hoffman’s approach is significantly differ- more than one potential meaning… If there are two possible ent from the two tests and has the effect of ‘assimilating 29’ the constructions, the court is entitled to prefer the construction processes of implication and interpretation of terms . This has which is consistent with business common sense and reject the raised concerns in the construction world where the drafting other .37 ’In this regard, he expressly approved the dictum of

23 Shaun Tame ‘Don’t be absurd: Challenging a contract’ 31st July 2009 available at http://www .bdonline .co .uk . 24 [2009] 1 WLR 1988 . 25 Ibid . 26 Ibid . 27 The Moorcock (1889) L .R . 14 P .D .64 . 28 Shirlaw v Southern Foundries (1926) Limited [1939] 2 K .B . 26 . 29 Ibid . at 22 . 30 Melinda Parisotti ‘An Idiot’s guide to stupid questions’ 28th May 2010 available at http://www .building co. .uk . 31 [2011] UKSC 50(SC) . 32 Ibid . at 14 . 33 [2009]1WLR 1988 . 34 [2008] EWCA Civ 1303 . 35 Ibid . 36 [2009]1 AC 1101 at 42 . 37 [2011] UKSC 50(SC) at 21 . 2/2014 5

Longmore LJ in Barclays Bank plc v HHY Luxembourg SARL: 38 a better deal from a commercial point of view which can be ’If a clause is capable of two meanings…it is quite possible that very different from the views of the parties during the stages of neither meaning will flout common sense . In such circumstanc- negotiations especially where the clause in question was never es, it is much more appropriate to adopt the more, rather than considered . Lastly, the decision in Rainy Sky 43 does not pay any the less, commercial construction 39. ’ But the court should be due regard to the situation where the parties have made a deal mindful that considerations of business common sense cannot which does not necessarily reflect business common sense, es- be invoked by a party to a contract in order to improve a bad pecially where the parties have entered in a less advantageous bargain .40 Greater difficulties will arise, however where two bargain to receive some sort of benefit elsewhere . separate interpretations of a clause can be grounded on busi- All in all, the cases of Chartbrook 44 and Rainy Sky 45 send out ness common sense . In this regard it was suggested that the powerful messages to drafters that they have to be extremely court should adopt the interpretation that is most faithful to careful when drafting a contract . The burden therefore is shoul- the wording of the contract 41. dered by the drafters on whom commercial men rely heavily . By looking at the various stages of the decision in Rainy Sky,42 There have been suggestions in the literature 46 to improve the one can easily conclude that what is business common sense to quality of drafting so as to avoid the court imposing its own busi- one judge is ambiguous or commercially absurd to another and ness common sense to the parties bargain . It seems that drafters vice versa . The result is that this may undermine the faith that in turn, do not trust judges when they appear to misinterpret can be placed in any interpretation of an agreement below the the plainest of language .47 In the case of Alchemy Estates Ltd level of the Supreme Court and this has a damaging effect upon v Astor 48 for example, in response to an application for licence certainty in commercial litigation which is clearly undesirable to assign, an email was sent by the landlord’s solicitors;’Our for reasonable commercial men operating in this context . client in principle is prepared to grant its consent… Please note Moreover, if one looks at the initial stages of negotiations that this correspondence does not constitute the provision of that take place between commercial men, one will find that consent by our client . Such consent will only be provided on they may not have an intent as regards the operation of a clause the completion and delivery of a formal Licence executed as because they may simply overlook it during negotiations and a Deed 49 .’ According to the judge in this particular case this not attach particular importance to it . This is because business was ‘consent which was…unequivocal .’ 50 men may sometimes agree to one clause to be inserted in the Finally, it cannot be contested that the undoubtedly talented contract in return for the other side to do the same . In such Lord Hoffman wanted to see his judicial views enshrined and a situation if a dispute arises, each side will interpret the clause carried on 51 and his aim was to render the rules of contractual and will consider that their particular understanding makes the interpretation more intellectually coherent, such that a com- most business common sense . Furthermore, when these inter- mon thread of presumed intention ran through all elements of pretations are advanced to the court to consider, they will be the process .52 Whether this is so is for the current generation of choosing between two different commercial understandings judges to determine 53. What is clear though is that the need for that come late into play but are not part of the actual back- a systematic approach to contractual interpretation has never ground because they may have never been considered during been greater 54. This unquestionably undermines certainty in the actual negotiations . A second danger in this situation is, the law of contract interpretation and this certainly does not that the judges may be imposing their own views on what is fulfil the reasonable expectations of commercial men .

38 [2010] EWCA Civ 128 1248 at 26 . 39 Ibid . 40 Procter&Gamble Co v Swenska Cellulosa Aktiebolaget[2012] EWHC 498(CH) . 41 Enterprise Inns plc v Palmerston Associates Ltd [2011] EWHC 3165(CH) . 42 Ibid . at 2 . 43 Ibid . at 2 . 44 Ibid .at 14 . 45 Ibid . at 2 . 46 Case Comment ‘Charbrook v Persimmon Homes Ltd: price calculation-a better drafting approach 30 Property Law Bulletin 2009 pages 17 – 23 . 47 Paul Clark ‘Conveyancer’s notebook ‘ 1 Conveyancer and Property Lawyer 2010 page 86 . 48 [2008]EWHC 2675(CH);[2009] 1 W .L .R . 940 . 49 Ibid . 50 Ibid . 51 Katy Dowell ‘Lord Hoffman’s Legacy to live on’ 23 Lawyer 2009 page 6 . 52 Richard Farnhill ‘Contractual Interpretation: what does it all mean?’ 3rd December 2009 Allen & Overy . 53 Ibid . 54 Ibid . 6 Journal on Legal and Economic Issues of Central Europe

Bibliography 1. Alchemy Estates Ltd v Astor [2008]EWHC 2675(CH);[2009] 1 W .L .R . 940 . 2 . Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 . 3 . Bank of Credit and Commerce International S .A v Ali [2001] UKHL 8 . 4 . Barclays Bank plc v HHY Luxembourg SARL [2010] EWCA Civ 128 . 5 . Chartbrook v Persimmon [2009]1 AC 1101 . 6 . Enterprise Inns plc v Palmerston Associates Ltd [2011] EWHC 3165(CH) . 7 . Investors Compensation Scheme v West Bromwich Building Society 1998] 1 All ER 98 . 8 . Prenn v Simmonds 1971] 1 W .L .R . 1381 . 9 . Procter&Gamble Co v Swenska Cellulosa Aktiebolaget[2012] EWHC 498(CH) . 10 . Rainy Sky SA v Kookmin Bank [2011] UKSC 50(SC) . 11 . Reardon Smith Line Ltd v Yngvar Hansen-Tangen 1976] 1 W .L .R . 989 . 12 . Re Sigma Finance Corp [2008] EWCA Civ 1303 . 13 . Shirlaw v Southern Foundries (1926) Limited [1939] 2 K .B . 26 . 14 . The Moorcock (1889) L .R . 14 P .D .64 . 15 . Adam Chichester-Clark and Sebastian Kokelaar ‘Interpreting Contracts after Rainy Sky’ Thirteen Old Square Chambers 2012 pages 1 – 17 . 16 . Adam Kramer ‘Common Sense Principles of Contract Interpretation (And How We’ve Been Using Them All along)’ 23 Oxford Journal of Legal Studies 2003 pages 173 – 196 . 17 . Alan Berg ‘Thrashing through the undergrowth’ 122 Law Quarterly Review 2006 pages 354 – 362 . 18 . Andrew Westlake and Daniel Futter ‘House of Lords Judgment on Chartbrook Limited v Persimmon Homes Limited’ available at http://www .mayerbrown .com/files/Publication/4707c779-5cac-462c-8292-4e843e24973e/Presentation/Publication Attachment/1c082072-aceb-49d7-8350-56e8975ced56/0257ins_Westlake .pdf . 19 . B .J . Davenport ‘Thanks to the House of Lords’ 115 Law Quarterly Review 1999 pages 11 – 14 . 20 . Case Comment ‘Charbrook v Persimmon Homes Ltd: price calculation-a better drafting approach 30 Property Law Bulletin 2009 pages 17 – 23 . 21 . Chris Hoar ‘What does it all mean?’ Jan/Feb Construction Newsletter 2010 pages 2 – 3 . 22 . Christopher Nugee ‘Rectification after Chartbrook v Persimmon: where are we know?’ 26 Trust Law International 2012 pages 76 – 82 . 23 . Christopher Nugee ‘Something’s gone wrong with my contract’ December Construction Law Journal 2009 pages 14 – 16 . 24 . Conrad Walker and Helen Rowlands ‘Reviewing the approach to contractual interpretation’ 156/21 Solicitors Journal 29TH May 2012 page 12 . 25 . ‘Contract Construction after Chartbrook’ Volume 6 Issue 1 In-house perspective Cripps Harries Hall 2009 . 26 . David McLauchlan ‘Chartbrook Ltd v Persimmon Homes Ltd: commonsense principles of interpretation and rectification?’ 126 Law Quarterly Review 2010 pages 8 – 14 . 27 . David McLauchlan ’Contract Interpretation: What is it About?’ 31 Sydney Law Review 2009 pages 5 – 51 . 28 . David McLauchlan ‘Common assumptions and contract interpretation’ 113 Law Quarterly Review 1997 pages 237 – 245 . 29 . David McLauchlan ‘Refining Rectification’ 130 Law Quarterly Review 2014 pages 83 – 111 . 30 . Donald Nicholls ‘My Kingdom for a Horse: the meaning of words’ 121 Law Quarterly Review 2005 pages 577 – 591 . 31 . Ebenezer Adodo ‘Considerations of business common sense in advance payment bond/guarantee interpretation’ 6 Journal of Business Law 2012 pages 531 – 545 . 32 . Emma Jacob and Geoff Steward ‘To Belize, or not to Belize, that is the question: have the traditional tests for implying terms into contracts been superseded’ available at http://www .inhouselawyer .co .uk . 33 . Geoffrey Marston ‘The Parol Evidence Rule: The Law Commission Speaks’ 45 The Cambridge Law Journal 1986 pages 192 – 194 . 34 . Gerard McMeel ‘Prior negotiations and subsequent conduct-the next step forward for contractual interpretation?’ 119 Law Quarterly Review 2003 pages 272 – 297 . 35 . Guy Fetherstonhaugh QC ‘Rectifying mistakes in property documents A Paper for the PLA Conference 2010’, Friday 16th April 2010 Falcon Chambers . 36 . Hugh Arthur ‘Mistake: where are we now?’ 26 Trust Law International 2012 pages 66 – 75 . 37 . Janet O’Sullivan ‘Absurdity and Ambiguity-Making Sense of Contractual Construction’ 71 The Cambridge Law Journal 2012 pages 34 – 37 . 38 . Janet O’Sullivan ‘Say what you mean and mean what you say: Contractual interpretation in the House of Lords’ 68 The Cam- bridge Law Journal 2009 pages 510 – 512 . 39 . Johan Steyn ‘The Intractable Problem of The Interpretation of Legal Texts’ 25 Sydney Law Review 2003 . 2/2014 7

40 . John McCaughran ‘Implied Terms: the journey of the man on the Clapham omnibus’ 70 The Cambridge Law Journal 2011 pages 607 – 622 . 41 . J .W . Carter ‘Commentary on ‘The Challenge of Principled Gap-filling’ September 2013 available at http://www .law .uq edu. au/. documents/cli-sem-series/2013/CLI-Comment-12-Sept-2013-John-Carter .pdf . 42 . Katy Dowell ‘Lord Hoffman’s Legacy to live on’ 23 Lawyer 2009 page 6 . 43 . Lord Bingham of Cornhill ‘A new thing under the sun? The interpretation of contract and the ICS decision’ 12 Edinburg Law Review 2008 pages 374 – 390 . 44 . Lord Justice Staughton ‘Interpretation of Maritime Contracts’ 26 Journal of Maritime Law and Commerce 1995 pages 259 – 271 . 45 . Mark Watson-Gandy ‘Counsel’s Opinion-Rainy Sky v Kookmin Bank’ Business Money May 2012 Thirteen Old Square Chambers page 66 . 46 . Martin Hogg ‘Fundamental issues for reform of the law of contractual interpretation’ 15 Edinburgh Law Review 2011 pages 406 – 422 . 47 . Masood Ahmed ‘Reviewing the exclusionary principle in English Contract Law’ 33 Liverpool Law Review 2012 pages 111 – 131 . 48 . Melinda Parisotti ‘An Idiot’s guide to stupid questions’ 28th May 2010 available at http://www .building .co .uk . 49 . Paul Clark ‘Business Common Sense’ 3 Conveyancer and Property Lawyer 2012 pages 190 – 194 . 50 . Paul Clark ‘Conveyancer’s notebook ‘1 Conveyancer and Property Lawyer 2010 pages 82 – 86 . 51 . Paul David ‘Contract Interpretation and Implied Terms: the current State of Play’ 2012 available at http://www .pauldavid . co .nz/publications/ . 52 . P .S . Davies ‘Interpreting commercial contracts: back to the top’ 127 Law Quarterly Review 2011 pages 185 – 188 . 53 . Richard Buxton ‘ ‘Construction’ and rectification after Chartbrook’ 69 The Cambridge Law Journal 2010 pages 253 – 262 . 54 . Richard Farnhill ‘Contractual Interpretation: what does it all mean?’ 3rd December 2009 Allen & Overy . 55 . S .C . Smith ‘Making Sense of Contracts’ 36 Scots Law Times 1999 pages 307 – 312 . 56 . Sebastian Kokelaar and Clare Arthurs ‘ I can see clearly … interpreting contracts post Rainy Sky’ September/October Procure- ment and Outsourcing Journal 2012 pages 16 – 19 . 57 . Shaun Tame ‘Don’t be absurd: Challenging a contract’ 31st July 2009 available at http://www .bdonline .co .uk . 58 . Shy Jackson ‘Pre-contractual negotiations: recent trends in the interpretation of contracts’ 32 Construction Law Journal 2007 pages 268 – 275 . 8 Journal on Legal and Economic Issues of Central Europe

The Single European Act – the Creation of the Interior Market in Europe David Ramiro Troitiño 1

Abstract The Single European Act is a treaty crucial in the European integration because it meant deeper integration in economy, politics and social involvement of the European people in the process. This article analyzes the main aspects of this treaty for building Europe closer to its original target of the European State. The integration included in the treaty solved effectively the problems of the European process and hence is presented from a wide perspective in order to understand the whole process of integration and the most likely future development. The main achievement of the Treaty, the Interior Market, is analyzed in this research paper in order to understand its real impact in the European building process and its power shaping the integration to its current shape. Key words: european integration, common market, interior market, european people, European Union, european economy.

Introduction area that wanted to abolish borders inside the Community . The creation of a common economic area also meant the free The Single European Act meant deeper integration in Eu- movement of products and economic agents, companies and rope as a way to solve the previous problems of the organization people . Criminals also could move freely inside the area . In- and fulfil the needs of the member states . It had many contri- creased cooperation in these fields was needed before creat- butions from different sources, but essentially it was focused ing the common area . Borders were also a problem, because on the creation of a Single Market in Europe . The Common previously, with the Common Market created in the ‘50s, Market had been a failure in terms of integration, because there people did not have free movement and control over bor- were still many obstacles for trading inside the Communitarian ders still existed . The previous common area was mainly for area . This Treaty intended to solve these problems and hence goods, which could pass borders without major controls, but create a real common economic area in Europe . afterwards were checked in the city of arrival . The Schengen The meeting of the European Council in France in 1984 cre- agreement, included in the Treaty of Amsterdam, was also ated a committee to discuss the different proposals drafted and a consequence of this problem, because it ended permanent recommendations to reforms for the European Communities . controls in the inner borders of the Union, with some excep- The committee was chaired by an Irish politician, Dooge, and tions because of security reasons . its conclusions were the basis for the new Treaty and the cre- 3 . A common economic area needed a common currency to in- ation of the European Single Market 2. crease and facilitate commercial exchanges . The problem was The final report of the committee identified the main ob- pointed out in the ‘80s as a consequence of the Single Euro- stacles to creating a real European market, as: pean Act and the creation of the Single Market . Afterwards, 1 . Technical problems: There were different pieces of legisla- the Euro was created and most of the members of the Union tion all over Europe that had a restrictive effect on trade . shared their currency, eliminating hence another barrier to According to the national legislation of the member states, Communitarian trade . a product could be legal in one state but illegal in another 4 . A common area also needed common access to the sources of state with different national legislation . The legal require- energy . There were no European webs in electricity and gas, ments were different, generating a big barrier for a common and the markets were still national with almost no connec- economic area . The solution was obvious and easy: to elabo- tions between the member states . As energy is a very impor- rate common legislation all over Europe . But the problem tant input in any industrial and commercial activity, the ac- was how to do it . cess to it should be similar in all the common area in order to 2 . Free movement of people: There was no cooperation in im- get similar conditions for production . Otherwise, a cheaper portant fields as security, delinquency, or immigration in an or better access could mean a distortion in the market with

1 David Ramiro Troitino, Associate Professor in European Studies, Tallinn University of Technology, Estonia . 2 http://europa .eu/legislation_summaries/institutional_affairs/treaties/treaties_singleact_en .htm . 2/2014 9

artificial competitiveness of the companies of one state . The Single Market creation of European webs in gas and electricity has been a priority for the European Union since the Single Market, The single market is the main creation of the SEA, a Euro- but they are still developing, and will be one of the main pean market without restrictions or discriminations between challenges of the organization in the near future . member states . The idea is very simple; previously, the mem- 5 . Fiscal Barriers . The problem of a Common Area with differ- ber states had national markets, with common national rules, ent tax systems was a distortion to the market . One of the and freedom for the economic agents to act in the whole state . four freedoms of the Single Market was the free movement The European market pretended to do the same but on a Euro- of capital, but it is still not achieved fully because the money pean level, where the origin of the economic action inside the would probably go to the countries where fewer taxes are market would not make any difference . To create an internal paid, as Luxembourg, with the consequent lost for the origi- market, first it was needed to define what a good is, in order to nal country . Also, the tax system is important in the market know what can be traded in the common area . According to the because different levels of taxes have an influence in the com- definition accepted in the European Communities, a good is petitiveness of companies and their geographical location . If a product valuable in money and used for trading . This defini- taxes are lower in one state and we have a common area, the tion is very wide, and includes almost everything in society . It is companies of this state will pay less and hence they can sell the greatness of the SEA, because almost everything in Europe their products more cheaply and succeed among consumers . became Communitarian, and ever since, the influence of the On the other hand, if the economic area is common, without European building process in the existence of European citizens borders, the geographical position of companies inside this is continuous . area is irrelevant, because once inside they can move their After defining a good, it was needed to clarify which goods production freely in the whole area . If one state has a lower could enjoy the internal market and move freely all over Eu- level of taxes for corporations and companies, probably the rope . It was decided that the goods produced in a member state, big companies will move to this country in order to save the ones which suffered a big transformation in a member state, money in taxes, as the case of Ireland showed us . Also the and foreign products after customs taxes, could enjoy the in- indirect taxes, as the VAT, have a big influence on the free ternal market, . The most problematic was the second category, movements of goods, as the states have different rates . So, the goods that after a big transformation inside the common some kind of harmonization is still needed, but the states area can move freely, because it could happen that while bring- are afraid of losing sovereignty in this field, because it is es- ing some product in pieces from abroad and assembling them sential for them to keep their social systems and other state inside the territory of the Community, they would then enjoy policies . It will also bring the European state closer, because the Single Market . The European Communities specified clear- some kind of common institutions should be in charge of the ly that a big transformation was needed in order to avoid this common taxes . So, as a consequence of the Single Market, kind of conflict . the debate on taxes in Europe started, and will be important The next step was how to reach an internal market; the first in the future middle term in European integration . measure, already included in the Common Market, was abolishing customs inside the Communities and having common The creation of a real common market and the solution of all borders for products from outside the common area . The main its problems and distortions can be achieved with two different challenge of the SEA for the creation of the internal market was kinds of measures: abolishing the measures of equivalent effect to customs . They 1 . Positive actions: Legislation on a European level, harmoniza- could have different names and shapes, but they had a similar tion of the different situations and legislations all over Eu- effect of customs over trade . Mainly they were discriminatory rope . The European Communities could launch their own internal taxes that protected the national production against legislation in the field of the Single Market after the creation the competition of other European companies . The main prob- of the SEA . If the member states share the same legislation, lem here was when the products were similar but not exactly and it is above the national legislation, the restrictive effect the same, and whether they competed between them or not . Fi- of the national legislation on trade will disappear . If the Com- nally, to reach an internal market fiscal cooperation was needed, munity or the Union launches any legislation, automatically but this last part is still under construction and will be one of it becomes legislation of the member states and any national the main steps in European integration in the coming years . legislation in conflict with the European legislation should be derogated or changed to follow the European standards . The Free Circulation of Goods legal activity of the European Communities after the SEA For the free circulation of goods, some basic requirements increased enormously to avoid national barriers to trade . already included in the Common market were needed, as the 2 . Negative actions: The European institutions can forbid ac- common customs, plus the agreements of the European Com- tions against the spirit of the Single Market . These actions munities with the GATT and the World Trade Organization . are mainly prohibitions of state actions with a restrictive ef- The end of the internal barriers was more complicated because, fect on Communitarian trade . Normally these measures are as we have mentioned before, there were, and in some fields still consequence of the litigation between different parties and are, other national barriers to trade . The negative actions here the judgements of the European High Court of Justice . are mainly prohibition of customs and monetary barriers to 10 Journal on Legal and Economic Issues of Central Europe

import-exports inside the territory of the common area . They to pay the tax in one day and nationals in one year . So this is are very easy to recognize, and hence no major problems were a discrimination that helps nationals to compete under better found here . The payments of equivalent effect were much more conditions . The second main problem was a link with fines, problematic, and were not defined in the treaty of the SEA . Ac- when other Europeans got bigger fines than nationals . The cording to the High court of Justice of the European Communi- different amounts were accepted, but with some limits, be- ties following a judgment of 1969 about the diamond fund in cause it was more difficult to control the fraud of European Belgium, a payment of equivalent effect is: companies and hence the possibilities of finding wrong prac- 1 . Payment in money . The amount does not matter . tices were lower, and hence the fines were bigger . But this 2 . Imposed by one state . Here the state is understood in a broad difference had to be proportionate and be applied as a pun- way, including all the institutions of it, and all its levels, from ishment, never as a way to protect the national producers . national level, regional level, and local level . 3 . Obligatory . The economic agent has to be forced to pay it . Indirect taxes are another issue with a big influence in the Here there was a controversial issue in the ‘80s about export- free circulation of goods, because states can use the indirect ing books . The person doing it had to pay to get the docu- taxes to promote exports if the countries play with the different ments filled and went to the High Court of Justice arguing rates to apply . As an example, in the car market we see that in it was a payment of equivalent effect . Anyway, the Court a country called A the final price of a model of a car is 10,000 ruled against him because, even though it was complicated, euros . It includes different taxes, as the VAT at 16% and the he could have filled out the documents by himself . So, it was road tax of 10% . The price of the car without the indirect taxes not an obligation . would be 7,936 .50 euros . In another country of the European 4 . The denomination of the payment does not matter, nor market, called B, the price for the same model of car is the whatever name it has . same, 10,000 euros, but with different indirect taxes, VAT at 5 . It works when you cross a national border inside the Euro- 19% and road tax at 5%; the price without indirect taxes would pean economic area . be 8,064 .50 euros . If someone from country B buys a car in 6 . It does not have to have a discriminatory effect or be protec- country A, he will pay the indirect taxes in his own country, tive of the national industry . so it will make a price of 7,936 .50 plus 19% (1,269 .76) plus 5% (339 .80) making a final price of 9,604 euros, thus mak- Discriminatory internal taxes are another obstacle to the free ing it cheaper to buy the car in another country than in his circulation of goods . They are forbidden and their definition own . On the other hand, if a consumer from country A buys is found also in the judgements of the High Court of Justice . a car in country B, the price will be 8,064 .50 euros plus 16% In order to find a discriminatory internal tax, some conditions (1,290 .40) + 10% (806 .40) paying finally 10,160 euros, more need to be fulfilled: expensive than buying it in his own country . 1 . It has to affect to the same kinds of goods that should have The consequences of this system are: almost the same taxes . It is accepted when there are differ- 1 . Country A cars are better for exports in the internal Market ent taxes, but not with big differences . The reason, among and better for the factories located in this country because others, is that national authorities can control national pro- they get some kind of subsidy for exporting with its tax sys- duction more effectively . An example of this is the Bresciani tem . judgement . The car industry in country A is more competitive in its 2 . In the case of similar goods, they should have similar taxes . national market, so it will sell more cars because the imports Here the problem is finding when goods are similar, and, fol- will be smaller . lowing the definition of the High Court, products are similar The government of country A gets more money via indirect when they have similar characteristics or fulfil similar needs, taxes because it charges 26% compared with the indirect as wine and beer, or bananas and apples . The case of beer and taxes of country B, 24% . wine is very clear . The northern countries of Europe do not The European Union gets less money from country A, be- produce wine because of their weather conditions; instead, cause a standard percentage is levied on the harmonized beer is locally produced . Both products are not the same, but VAT base of each EU country . The VAT resource accounts they are similar because they fulfil the same need of consum- currently for around €14bn 3. ers . So, depending on the prices, consumers will have beer or wine . These northern countries usually had high taxes The problem can be solved in a very easy way, by just paying for wine, and lower for beer, and hence they were protecting the indirect taxes where the car or any other product is bought, the national industry with the introduction of a discrimina- independent of where it is going to be used inside the Commu- tory tax . Nevertheless, most of the time, to find out if some nitarian area, as is done inside the member states’ national mar- products are similar, customs classifications are checked, and kets . If you buy a car in Paris, you pay the indirect taxes there, if they are in the same category they are considered similar even if you live in Lyon and you are going to use the car there, goods . The main problems here could be different times for but the difference is that France has a central state that collects paying the taxes, because it could be that non-nationals need the money and manages it for the benefit of all French citizens .

3 http://ec .europa .eu/budget/explained/budg_system/financing/fin_en cfm. . 2/2014 11

As there is not a European government, the issue is very deli- ways to nationals and to other Europeans . For states to use their cate: who is going to get the money of the indirect taxes, and legislation with a different application for nationals and Euro- how are they going to use it . The necessity of a European eco- peans is forbidden in most cases because it is discrimination nomic government has been discussed lately in the context of against the other members of the common market . IN a case the crisis of the euro; this new institution could be in charge of called Conegate in 1986, where an importer of love dolls from managing the revenues of the indirect taxes and investing them Holland to the United Kingdom was banned from his imports, in European projects for the benefit of the European people . the case ended up in the European courts . The British govern- But it seems a long term step because it will be very close to ment defended using the social protection of British society for a European government, something still too advanced for cur- the ban because this trade was against morality . But at the same rent Europeans . time, the production of these items in the UK was not forbidden . So, the European Court decided that it was a measure of Technical Barriers equivalent effect, with different application to nationals and Another problem of the internal market was the technical other Europeans, and against free trade . The British govern- barriers to trade because different legislation could make trade ment had to change its position and respect the free trade in between the members of the common area difficult . The SEA the Single Market . tried to harmonize them by pointing out their negative effect On the other hand, we see another case in Denmark . The on trade and the necessity of overriding them . As with previous Danish government made a law about recycling and forced the problems, the Treaty is very vague, and a more exact definition companies to have warehouses on Danish soil to manage the is given by the judgements of the High Court of Justice . products for recycling . There were some complaints because it A technical barrier can have an influence on imports and was restrictive in terms of trade . The European tribunal judge- exports, and both are treated differently, accepting national ment made clear that it was a measure from one state with discrimination over national exports, but not on European im- restrictive effect on trade and differently applied to nationals ports . Quantity restrictions were forbidden, but they created than to other Europeans, because the national producers al- few problems because they were very easy to recognize and ready had stores or offices in Denmark, and the Europeans were hence to abolish . force to open them, with a consequent lost in competitiveness . In the case of imports, a measure of equivalent effect is The Danish government defended its case using environmental a measure of one state, understanding the state in a broad way . reasons, and this exception was accepted by the High Court of As an example, we see two judgements of the European Court, Justice . It means that some exceptions are accepted for national Buy it Irish and Strawberries . The first one was a campaign barriers to trade when there is an important reason for that . launched in Ireland to promote Irish products, and hence dis- Protections of the environment, of consumers, or security rea- criminating the European . The entity in charge of this cam- sons are among the most important exceptions . paign was a private foundation, but it was proved that the Irish The measures that are applied in the same way for nationals state was funding this foundation, and hence it was considered and other Europeans created more problems, because there was a state campaign and consequently was forbidden . The case of no discrimination, but many times they were providing a market the Strawberries is related with France and Spain; when the advantage to the national producers . If there is European legisla- Spanish were exporting their agricultural production to the tion in a specific field, these measures are completely forbidden, rest of Europe, the French farmers were blocking the roads on and if they have a restrictive effect on trade also, unless there the borders between Spain and France, stopping the trade on is an important reason for it . In Germany in the case of Cassis these products . French farmers did so because they could not de Dijon, a popular drink in France, the beverage was illegal in compete with Spanish production in a free market, because the Germany because, according to German legislation, it did not Spanish produced more cheaply . As the roads were blocked, the have enough alcohol content to be sold as an alcoholic drink and rest of Europe was buying French agricultural products . The Eu- it had too much to be a non-alcoholic beverage . The company ropean tribunal said it was a measure of equivalent effect made went to the European Courts and started a process . The German by the French state because the French police did not stop the government defended this measure because the German con- blocking of the roads, so it was a State measure because of the sumers were used to alcoholic drinks with a minimum percent- omission of its duties . As we can see, the concept of measure of age of alcohol, and selling Cassis de Dijon would be like cheating a state is really broad . them, so because of the protection of consumers, this rule was These actions of the states had to have a restrictive effect legal for the German government . The High Court ruled against on trade . Some companies went to the European tribunals, but Germany, because even though the German defence was accept- their claims were not attended because the measures of the ed, it was considered not proportional . The German government states had a neutral effect on trade, as, for example, about open- could force the French company to write down the alcoholic ing hours in France on Sundays . Some companies complained, content clearly on the labels of its products . So, afterwards, the but the answer of Europe was that it had no effect on trade tribunal always looks for the less restrictive way for trade if there because on Sundays there was no trade for anyone . is an exception . Another example is a judgement about vinegar The measures identified with restrictive effects on trade were and Italy, where the national laws forbid the commercialization divided in two groups: measures applied in the same way to na- of vinegar made of products other than wine . The Italian gov- tionals as to other Europeans, and measures applied in different ernment used the same argumentation as Germany, the protec- 12 Journal on Legal and Economic Issues of Central Europe

tion of consumers because traditionally vinegar is made of wine Free Movement of Persons in Italy, but the tribunal ruled against it because this goal could have been achieved in a much less restrictive way, just writing The SEA meant a big development in the free movement of on a label that the vinegar was made from another product . Also persons inside the territory of the European Communities and there was a similar case between margarine and butter in France, also was the precursor of the Schengen agreement signed years with the same argumentation and the same conclusions . after . There were three main ways of enjoying the free movement of persons after the SEA: Imports to the Common Market Signing a work contract: All nationals of any member state could move to another member state to work in the context Measure from one State of the Single Market . It meant that doing an economic ac- ↓ tivity in a company in another member state was easier and Neutral Restrictive effects- Measure of equivalent effect increased the mobility of European workers, increasing hence ↓ ↓ the possibilities of the workers to find a better job for their ↓ ↓ career and providing the European companies a wider spec- Measure differently applicable Measure Indifferently Applicable trum from which to choose the best option for fulfilling any vacancy .

Services: Any European could move to another European In the case of exports, it is a bit different, because the actions state inside the common area for an economic activity related that discriminate in favour of the nationals are allowed . For with services . This area works in the short term when the per- example, in the case of vinegar, the Italian government could son provides a service outside of the territory of his national forbid the export of any vinegar if it was not made from wine . It state . means that self-discrimination is legal in the case of exports to Creating your own business: Europeans could start their own other areas of the European market . business anywhere in the territory of the Community without restrictions based on nationality, with some exceptions . Hence, Exports of the Common Market the Europeans could live legally in the country where they started their own economic activity, increasing the mobility and the Measure from one State competitiveness of the European economies, and providing also ↓ an easier legal framework that increased this kind of business Restrictive effects on trade activity . ↓ ↓ After the SEA there were still some problems in the free Neutral Restrictive effects movement of persons in the European area, because this free- ↓ ↓ dom was basically linked with economic activity, and many Quantities Measure of equivalent effect Europeans who were not active economic agents could not ↓ ↓ enjoy it . In order to solve these problems, new ways for en- ↓ ↓ joying the free movement of people were developed . Nev- Measure Differently applicable Measure ertheless the basement provided by the SEA led to a com- (Forbidden) Indifferently pletely free movement of people in Europe, increasing the Applicable mobility of the European population and reinforcing the Eu- ropean identity . (Legal) The solutions for all these problems, which were, and to Conclusions some extend still are affecting the free movement of goods in The SEA has been one of the most important milestones the Single Market of the European Union are basically two: in the EU integration . The concept of Interior Market was the 1 . European legislation: When we have European legislation no same than the previous Common Market, a way to hide a Eu- exceptions are allowed and all countries have to respect it ropean failure . But the SEA really established the European because it is over the national legislation . market, including most of the economic fields in the area of 2 . Information of the legal measures to the Commission: Each influence of the European Communities, and establishing the time that a member state is going to start a legislative process basement for further development in the field with the creation in any field that could influence European trade and the Eu- of the European currency, the euro, by the treaty of the Euro- ropean market, it has to inform the European Commission, pean Union in 1992 . The inclusion of the free movement of which will study whether this measure could have a restric- people also increased the relation between Europeans and its tive effect on trade before giving its approval, and avoiding common identity, contributing to the developing of a common the introduction of new legislation against the ideas of the identity . These facts make the SEA the most influential treaty Single Market introduced by the SEA . in the European Union history . 2/2014 13

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The Advancement of Central and Eastern European Countries in Transformation Process – Cluster Analysis on the Basis of the Bertelsmann’s Transformation Index Małgorzata Zielenkiewicz 1

Abstract Since 1989 the Central and Eastern European countries have passed a long way from a centrally planned economy to a democracy and market economy. After 25 years of transition it is worth of checking how far have these countries reached. The aim of the paper is to examine the advancement of institutional transformation in the Central and Eastern European countries in comparison to the other countries in the catching-up process. The research is based on the Transformation Index designed by German foundation Bertelsmann Stiftung. Data comes from 116 countries from the period 2003 – 2014. The survey was conducted with usage of a cluster analysis, Euclidean distances and measures of dispersion. Key words: transformation, transition, institutional changes, European integration. JEL: H11, O57, P10, P20, P30, P48, P51.

1. Introduction 2. Transformation and its Measurement Institutional changes are an important issue in the discus- Most simply speaking, transformation means moving from sion on the determinants of socio-economic prosperity of the one political system to the another one – in case of post-com- countries . One way of catching-up with the most developed munist countries moving from a centrally planned economy to countries is adapting their systemic solutions . Leaving aside the a market based economy, and from an authoritarian regime to question if such a way always gives expected results, for the a democracy . It required rebuilding the rules and conditions post-communist countries reforming their economic systems of functioning of economic entities and individuals, especially was a necessary step, if they wanted to leave behind a centrally in areas of macroeconomic stability, liberalization of markets, planned economy . Haw far have these countries reached on privatization and adapting a legal framework . Among the styles their transformation path? The aim of the paper is to examine of transformation two main attitudes can be seen – “a shock the advancement of institutional transformation in the Cen- therapy” (speed transition with radical reforms in all areas in tral and Eastern European countries in comparison to the other the same time), and a gradual transition (slower changes, “step countries in the catching-up process . The research is based on by step” reforming, with time for social adaptation and building the Betelsmann Stiftung’s Transformation Index (BTI) and cov- a new institutional order) 2 . ers data from 116 countries for the period 2003 – 2014 . The The strategies chosen by the countries from Central and paper includes: Eastern Europe were different, e g. . speed way of transforma- -- literature review on transformation and its measurement, tion in Poland and Estonia, gradual way in Hungary, or lack of transformation as in case of Belarus . Moreover, some of -- BTI’s components characteristics, post-communist countries have made an effort to join the Eu- -- the analysis of measures of dispersion and Euclidean distance ropean Union, while some of them decided to remain outside . in order to examine if there can be observed an institutional The countries that have joined the EU made it in different convergence process among the catching-up countries, years: Czech Republic, Estonia, Hungary, Lithuania, Latvia, -- hierarchic (weighted pair-group method using arithmetic Poland, Slovakia, Slovenia (together with Malta and Cyprus) averages) and non-hierarchic (k-means method) cluster have joined the EU in 2004, Bulgaria and Romania – in 2007, analysis, that enabled checking the changes in the countries’ Croatia – in 2013 . Official candidates to the membership are assignment to the groups of similarity in terms of transfor- Albania, Montenegro, Serbia, Macedonia (also Turkey and Ice- mation progress . land), and as potential candidates Bosnia and Herzegovina and Kosovo are considered .

1 Małgorzata Zielenkiewicz, Ph .D ,. Microeconomic Department, Faculty of Economics, University of Gdańsk, Poland . 2 W . Jarmołowicz, D . Piątek, Strategia transformacji a doświadczenia wybranych krajów. Elementy analizy porównawczej (EN: Transformation Strategies vs the Experience of Selected Countries. A Comparative Analysis), Zeszyty Naukowe Polskiego Towarzystwa Ekonomicznego, 2008, No . 6: 205 – 232 . 2/2014 15

Empirical evidences show that European integration gener- The question that could be raised is if the countries should ally accelerate institutional changes, but new member states transform their institutional framework to make it most similar still differ from old member states 3 . Additionally, the research as possible to the most developed countries . The economists on institutional convergence show that the Commonwealth of differ in opinions on that issue – some of them point, that re- Independent States do not reduce significantly their distance sults of the most developed countries are a proof for effective- to OCED countries 4 . However, post-communist countries are ness of their solutions, while some raise the meaning of cultural not the only ones that can be described as “transition econo- and historical circumstances, and initial conditions in the mo- mies” . In 2000 International Monetary Fund listed the follow- ment of the application of “institutional transplant” . Taking ing countries 5: into account the complexity of the problem, an evaluation of •• Transition economies in Europe and the former Soviet the institutional solutions is a topic for a separate research . Union: Another issue is the measurement of the systemic changes in -- Central and Eastern Europe (CEE): Albania, Bulgaria, Croa- the transformation process . There are many indicators that en- tia, Czech Republic, FYR Macedonia, Hungary, Poland, Ro- able measuring of institutional aspects, e g. Index of Economic 9 mania, Slovak Republic, Slovenia; Freedom (Heritage Foundation) , Economic Freedom of the World (Fraser Institute) 10, Worldwide Governance Indicators - - Baltics: Estonia, Latvia, Lithuania; (World Bank) 11, Political Institutions (World Bank) 12, World -- Commonwealth of Independent States (CIS): Armenia, Governance Index (Forum for a New World Governance) 13, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Global Competitiveness Index – Pillar 1: Institutions (World Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uz- Economic Forum) 14, Democracy Index (The Economist Intel- bekistan . ligence Unit) 15, Polity Index (Center for Systemic Peace) 16, •• Transition economies in Asia: Cambodia, China, Laos, Viet- Freedom House Index (Freedom House) 17, Transition Indica- nam . tors (European Bank for Reconstruction and Development) 18, Sustainable Governance Indicators (Bertelsmann Stiftung) 19, Later to this list IMF have added The Arab Countries in Transformation Index (Bertelsmann Stiftung) 20, and many Transition (ACTs), that is “countries that have undergone re- more . In the paper Transformation Index was used because of gime change (Egypt, Libya, Tunisia, Yemen) and those that its adequacy to the subject of the research . Next part includes have engaged in transformation under existing regimes (Jordan, more detailed information about the index . 6 Morocco)” . Also the Latin American countries adapted many 3. Construction of the Betelsmann Stiftung’s changes to fulfil requirements of Washington Consensus 7, and term “transition” sometimes is also used in relation to some Transformation Index African countries, that in 90s began so called “second wave” The Betelsmann Stiftung’s Transformation Index (BTI) 21 of democratization (“first wave” relates to achieving indepen- measures an advancement in democracy, market economy dence after the colonization) 8 . and governance quality among the countries that hadn’t been

3 A . Balcerzak, Institutional Integration in the Sphere of Business Infrastructure in the European Union in the Years 2000 – 2008, Journal of Reviews on Global Economics, 2013, No . 2: 131 – 141; M . Zielenkiewicz, Globalisation, European Integration and Institutional Changes, International Journal of Social Sciences, 2013,Vol . II, No . 2: 145 – 169 . 4 D . Piątek, Jakość rządzenia w krajach transformujących się (EN: The quality of governance in transition countries), Ekonomia i Prawo, 2010, No . 6 .1: 277 – 288 . 5 Transition Economies: An IMF Perspective on Progress and Prospects, IMF, 2000 . 6 H . Finger, D . Gressani (ed .), Toward New Horizons. Arab Economic Transformation Amid Political Transitions, IMF, 2014 . 7 C . Auroi (ed .), Latin American and East European Economies in Transition: A Comparative View, EADI Book Series 21, Frank Cass, London 1998 . 8 E . J . Keller, Africa in Transition: Facing the Challenges of Globalization, Harvard International Review, 2007, No . 29 2:. 46; G . Bauer, S . D . Taylor, Politics in Southern Africa: state and society in transition, Lynne Rienner Publishers, Boulder (USA) 2005 . 9 Heritage Foundation: http://www .heritage .org/index . 10 Fraser Institute: http://www .freetheworld .com . 11 D . Kaufmann, A . Kraay, M . Mastruzzi, The Worldwide Governance Indicators – Methodology and Analytical Issues, The World Bank, Development Research Group, Macroeconomics and Growth Team, 2010 . 12 T . Beck, G . Clarke, A . Groff, P . Keefer, P . Walsh, New tools in comparative political economy: The Database of Political Institutions, World Bank Eco- nomic Review, 2011, 15:1, 165 – 176 (September) . 13 R . François, World Governance Index. Why Should World Governance Be Evaluated, and for What Purpose? Forum for a new World Governance, 2008 . 14 World Economic Forum: http://www .weforum .org/issues/global-competitiveness . 15 The Economist Intelligence Unit‘s Democracy Index: http://www .eiu .com . 16 Center for Systemic Peace: http://www .systemicpeace org/csprandd. .html . 17 Freedom House: http://www .freedomhouse .org . 18 European Bank for Reconstruction and Development: http://www .ebrd .com . 19 Bertelsmann Stiftung – Sustainable Governance Indicators: http://www .sgi-network .de . 20 Bertelsmann Stiftung – Transformation Index: http://www .bti-project .org . 21 S . Donner, H . Hartmann, R . Schwarz, Transformation Index BTI 2014, Bertelsmann Stiftung, Gütersloh 2014 . 16 Journal on Legal and Economic Issues of Central Europe

a member of OECD before 1989 (with exclusion of very small covers 129 countries categorized in seven geographical groups: countries) . The index was constructed by German foundation East-Central and Southeast Europe, Latin America and the Ca- Bertelsmann Stiftung, and published for the first time in 2003, ribbean, West and Central Africa, Middle East and North Af- than in 2006, and since then is published every two years . At rica, South and East Africa, Post-Soviet Eurasia, Asia and Ocea- the beginning BTI was calculated for 116 countries, currently it nia . Table 1 shows the construction of the index .

M | Management Index MII | Management Performance Q17 .3 | Regional cooperation Source: Bertelsmann Stiftung, http://www.bertelsmann-stiftung.de (access form June 2014). 2/2014 17

BTI is based on 52 detailed categories that are aggregated to enables measuring the distance between the countries with tak- 17 sub-indicators . Another step is aggregation to 4 pillars: SI: ing into account many factors in the same time . Democracy Status, SII: Market Economy Status, Difficulty, MII: Table 2 shows average values and measures of dispersion for Management Performance . SI and SII together are the basis for Democracy Status, Market Economy Status and Management S: Status Index, while Difficulty and MII – for M: Management Index, and Euclidean distance calculated for these three indi- Index . In each category countries receive 0 – 10 points . Except for cators . The results refer to 116 countries covered by Bertels- Difficulty, the higher score the better . “Difficulty” measures the mann’s survey since 2003 (the countries are listed in the tables scale of the economic and social problems, hence a high score is 3 and 4 in section with cluster analysis) . not a positive result . In the Management Index this component Euclidean distance shows that, on average, the countries be- is rescaled for the purpose of correct aggregation . come more similar . In 2003 an average distance was at the level of 4,28, while after 11 years – lower by 11,5% . Although stan- 4. Dynamics of BTI and Euclidean distances dard deviation in 2014 was lower than in 2003, the coefficient The aim of this part of the paper is to examine the con- of variation was still at the level of about 60% . The range be- vergence process among the countries in terms of institutional tween maximum and minimum score slightly increased, so the changes measured with BTI . Because BTI includes many fac- results suggest that institutional convergence does not apply to tors, Euclidean distance was used as a measure of similarity/ the all countries, but rather to some group that became more dissimilarity: similar, while the rest is still very diverse . All three BTI’s main components had increasing trend to 2008 – the year of the financial crisis . But in all cases average p scores in 2014 were higher in comparison to 2003: SI increased 2 d(xi , xk ) = di k = ∑(xi j − xk j ) , by 5%, SII – by 4%, and M – by 14% . Again, the range for De- j=1 mocracy and Market Economy increased, but standard devia- where j is characteristic for the objects xi and xk, and p is the tion decreased in all three areas . Also coefficients of variation number of characteristics . In other words, Euclidean formula had decreasing trend, especially in case of Management .

Table 2. BTI’s main components and Euclidean distance for 116 countries in period 2003 – 2014

Result / Years 2003 2006 2008 2010 2012 2014

Democracy Status (SI) Average 5,51 5,79 5,90 5,83 5,79 5,77 Min . value 1,80 1,58 1,43 1,47 1,27 1,42 Max . value 10,00 9,90 9,90 9,90 9,95 9,95 Range (max-min) 8,20 8,32 8,47 8,43 8,68 8,53 Standard deviation 2,30 2,18 2,15 2,10 2,10 2,06 Coefficient of variation 41,6% 37,6% 36,4% 36,1% 36,3% 35,7% Market Economy Status (SII) Average 5,37 5,58 5,70 5,66 5,64 5,59 Min . value 2,00 1,14 1,29 1,21 1,18 1,21 Max . value 9,43 9,36 9,57 9,50 9,57 9,50 Range (max-min) 7,43 8,21 8,29 8,29 8,39 8,29 Standard deviation 1,85 1,79 1,83 1,80 1,81 1,82 Coefficient of variation 34,4% 32,1% 32,1% 31,8% 32,1% 32,6% Management Index (M) Average 4,29 4,79 4,91 4,89 4,86 4,90 Min . value 0,96 0,00 1,04 1,46 1,31 1,34 Max . value 7,92 7,51 7,52 7,52 7,72 7,68 Range (max-min) 6,96 7,51 6,48 6,07 6,41 6,34 Standard deviation 1,91 1,58 1,49 1,48 1,51 1,45 Coefficient of variation 44,6% 32,9% 30,3% 30,4% 31,0% 29,6% Euclidean distance for SI, SII and M Average 4,28 3,96 3,92 3,84 3,86 3,79 Min . value 0,03 0,16 0,04 0,11 0,12 0,12 Max . value 12,65 12,86 13,07 12,84 13,30 13,12 Range (max-min) 12,62 12,70 13,02 12,73 13,18 13,00 Standard deviation 2,57 2,31 2,26 2,27 2,29 2,28 Coefficient of variation 60,0% 58,3% 57,7% 59,1% 59,3% 60,2% Source: Own study on the basis of Bertelsmann Stiftung’s data, http://www.bertelsmann-stiftung.de (access form June 2014). 18 Journal on Legal and Economic Issues of Central Europe

In case of Democracy Status the lowest score in 2003 be- 9,14 points . In 2014 only three countries had the scores above longed to Afghanistan and Liberia (1,80) . 10 points had Costa 9 points: Taiwan (9,50), Czech Republic (9,45), and Estonia Rica, Czech Republic, Hungary, Lithuania, Poland, Slovakia, (9,14), but the EU countries and “Asian tigers” were still on Slovenia, Uruguay . In 2014 the lowest score (1,42) had Soma- high positions . The largest negative change took place in case lia, and none of the countries was evaluated on the level of 10 of Eritrea (‑2,28) and Iran (-2,14), and the largest increase points . Above 9 points achieved Uruguay (9,95), Estonia (9,70), (above 2 points) in case of Malawi, Georgia, Liberia, Laos, Taiwan (9,65), Czech Republic (9,60), Poland (9,35), Slovenia and Ghana . (9,30), Costa Rica (9,30), Lithuania (9,25), Chile (9,10), Slo- In 2003 the score for Management Status below 1 point vakia (9,05) . The largest changes on minus took place in case of appeared in Zimbabwe, Iraq, Liberia, North Korea, and Togo . Mali (decrease by 3,35 pints), the largest changes on plus – in None of the countries was evaluated above 8 points, and the case of Liberia (increase by 4,65 points) . highest scores belonged to Estonia (7,92), Lithuania (7,70), The lowest score of Market Economy Status in 2003 be- and Chile (7,69) . In 2014 there were not results under 1 point . longed to Somalia (2,00), the highest – to new European The lowest scores noted North Korea (1,38), Syria (1,36), and Union members and so called “Asian tigers” . Estonia, Singa- Eritrea (1,34), the highest – Taiwan (7,68), Uruguay (7,46), pore, and Hungary had 9,43 points, and Taiwan, Slovakia, and Brazil (7,30) . In case of this indicator changes were larger Lithuania, South Korea, Czech Republic, and Slovenia had – in the range of -3,44 (Mali) to 5,26 (Liberia) .

Table 3. Position of the European countries in the rankings in 2014

Democracy Market Economy Management Country Rank* Score Rank* Score Rank* Score Albania 40 6,70 34 6,39 50 5,17 Belarus 89 3,93 82 4,68 106 2,75 Bosnia and Herzegovina 51 6,35 35 6,39 90 3,95 Bulgaria 14 8,35 15 7,93 20 6,30 Croatia 13 8,45 16 7,89 17 6,46 Czech Republic 4 9,60 2 9,43 16 6,57 Estonia 2 9,70 3 9,14 4 7,26 Hungary 21 7,95 13 8,14 57 4,96 Latvia 11 8,75 14 8,07 12 6,82 Lithuania 8 9,25 8 8,71 8 7,08 Macedonia 29 7,20 23 7,14 26 6,12 Moldova 31 7,15 60 5,50 43 5,52 Poland 5 9,35 4 8,96 6 7,21 Romania 22 7,90 18 7,89 35 5,80 Russia 79 4,40 42 6,07 94 3,90 Serbia 20 7,95 24 7,07 25 6,13 Slovakia 10 9,05 11 8,54 7 7,09 Slovenia 6 9,30 5 8,93 19 6,30 Ukraine 53 6,10 54 5,68 78 4,25 Turkey** 24 7,55 20 7,46 14 6,66 * Rank for 116 countries; ** not a European country, but is considered as EU member Source: Bertelsmann Stiftung’s data, http://www.bertelsmann-stiftung.de (access form June 2014).

Changes in the European countries were usually under 1 According to the positions in the rankings presented in table point (an exception is Hungary – decrease in all areas, Molda- 3, Estonia and Poland seem to be the most advanced in the via – increase in all areas, Bosnia and Herzegovina – increase transformation process . In 2014 Estonia was 2nd in Democracy of SI, Serbia – increase of SII, Romania – increase of SII, Rus- ranking, 3rd in Market Economy ranking, and 4th in Manage- sia – decrease of SI and M) . It is worth of mentioning that ment ranking . Poland was at 5th, 4th, and 6th place . Also Czech in most of the European countries the largest transformation Republic and Slovenia were highly in the rankings of Democ- took place in the 90s, where data are not available . Hence, racy and Market Economy, but received lower score in terms of what can be seen, are the results of transformation process in Management Status . Except for Hungary and Romania, the EU form of present position in the ranking, after main transfor- countries were in first 20 in all areas . Among European coun- mation . tries the lowest positions had Belarus, and Russia . 2/2014 19

Figure 1 shows the dendrogram for 116 countries for 2003, 5. Cluster Analysis of Countries for BTI’s Components and figure 2 – for 2014 (because the dendrogram was too large, For the countries surveyed the cluster analysis was conduct- similarities/dissimilarities are shown for 100 groups) . According ed . Two methods were used: hierarchic (weighted pair-group to the dendrograms (the line on the figure 1 and 2) and a verifi- method using arithmetic averages – WPGMA) and non-hierar- cation of other variants, 7 was chosen as a number of groups for chic (k-means method) . The analysis is based on the Euclidean k-means cluster analysis . The countries assigned to the groups distance for 17 components of BTI (Q1 – Q17 from the table of similarity are presented in tables 4 (2003) and 5 (2014) . The 1) . The purpose of the analysis is to examine the place of the countries were also placed on separate lines in accordance with European countries among the other countries and its changes their geographical location, in order to make the comparison eas- in period 2003 – 2014 . ier (Bertelsmann’s geographical classification was used) . Figures 4 and 5 show the level of BTI’s components in the cluster groups .

Figure 1. Dendrogam for BTI’s components (Q1 – Q17) – WPGMA method (2003)

Source: Own study Figure 2. Dendrogam for BTI’s components (Q1 – Q17) – WPGMA method (2014)

Source: Own study 20 Journal on Legal and Economic Issues of Central Europe

Table 4. Cluster groups – k-means method (2003)

Regions: Group I Group II Group III Croatia, Czech Rep ., Estonia, 1 | East-Central and Southeast Hungary, Latvia, Lithuania, Albania, Macedonia, Romania, Serbia Bosnia and Herzegovina Europe Poland, Slovakia, Slovenia 2 | Latin America and the Argentina, Dominican Rep ., Ecuador, Colombia, Guatemala, Nicaragua, Paraguay, Chile, Costa Rica, Uruguay Caribbean El Salvador, Mexico, Peru Venezuela 3 | West and Central Africa - - Burkina Faso, Niger 4 | Middle East and North Africa - Turkey Lebanon, Morocco Madagascar, Mozambique, Nigeria, Uganda, 5 | South and East Africa - - Zambia 6 | Post-Soviet Eurasia - Russia, Ukraine Armenia Nepal 7 | Asia and Oceania South Korea, Taiwan India, Malaysia, Sri Lanka, Thailand Papua New Guinea Philippines Group IV Group V Group VI Group VII Bulgaria - - - Brazil, Jamaica Bolivia, Honduras - Cuba, Haiti Central African Rep ., Chad, Congo DR, Côte - Benin, Mali Cameroon d’Ivoire, Guinea, Rwanda, Togo Bahrain, Egypt, Iran, Jordan, Saudi - - Algeria, Iraq, Libya, Sudan, Syria, Yemen Arabia, Tunisia Angola, Burundi, Eritrea, Ethiopia, Liberia, Botswana, Namibia, South Africa Ghana, Senegal, Tanzania Kenya Malawi, Sierra Leone, Somalia, Zimbabwe Azerbaijan, Belarus, Kazakhstan, Georgia, Moldova, Tajikistan, Turkmenistan, - Mongolia Kyrgyzstan Uzbekistan Bangladesh Singapore Cambodia, China, Pakistan, Vietnam Afghanistan, Laos, Myanmar, North Korea Indonesia Source: Own study

Table 5. Cluster groups – k-means method (2014)

Regions: Group I Group II Group III Bulgaria, Croatia 1 | East-Central and Southeast Czech Rep ., Estonia, Hungary, Albania, Bosnia and Herzegovina, - Europe Latvia, Lithuania, Poland, Romania, Macedonia Serbia, Slovakia, Slovenia Argentina, Bolivia, Colombia, 2 | Latin America and the Brazil, Chile, Costa Rica, Uruguay Dominican Rep ., El Salvador, Honduras, Ecuador, Guatemala, Nicaragua Caribbean Jamaica, Mexico, Paraguay, Peru Burkina Faso, Côte d’Ivoire, Guinea, 3 | West and Central Africa - Benin, Ghana, Senegal Liberia, Niger, Nigeria, Sierra Leone, Togo 4 | Middle East and North Africa Turkey Lebanon Algeria, Egypt, Libya, Morocco, Tunisia Malawi, Namibia, South Africa, Uganda, Angola, Burundi, Kenya, Mozambique, 5 | South and East Africa Botswana Zambia Tanzania 6 | Post-Soviet Eurasia - Georgia, Moldova, Mongolia, Ukraine Kyrgyzstan 7 | Asia and Oceania South Korea, Taiwan India, Indonesia, Philippines Bangladesh, Papua New Guinea Group IV Group V Group VI Group VII - - - - - Cuba, Venezuela Haiti - Central African Rep ., Chad, Congo DR, - Cameroon - Mali Bahrain, Jordan, Saudi Arabia - Iraq, Yemen Iran, Sudan, Syria Rwanda Ethiopia Madagascar, Zimbabwe Eritrea, Somalia Azerbaijan, Belarus, Tajikistan, Armenia, Kazakhstan, Russia - Uzbekistan Turkmenistan China, Malaysia, Singapore, Sri Cambodia, Laos Afghanistan, Myanmar, Nepal, Pakistan North Korea Lanka, Thailand, Vietnam Source: Own study 2/2014 21

Figure 4. Average level of BTI’s components in the cluster groups (2003)

Source: Data from Bertelsmann Stiftung, http://www.bertelsmann-stiftung.de (access form June 2014) 22 Journal on Legal and Economic Issues of Central Europe

Figure 5. Average level of BTI’s components in the cluster groups (2014)

Source: Data from Bertelsmann Stiftung, http://www.bertelsmann-stiftung.de (access form June 2014)

In the tables 4 and 5 the European countries are in the first and Southeast Europe were in four different cluster groups, and and sixth line (1 – East-Central and Southeast Europe, 6 – Post- Post-Soviet Eurasia were in five groups . Altogether the Euro- Soviet Eurasia) . In 2003 the countries classified as East-Central pean countries were in six groups . 2/2014 23

Most advanced in the transformation process (in BTI’s countries (Euclidean distance for 116 countries in the period meaning) in 2003 was group I, where belonged: Croatia, Czech 2003 – 2014 has decreased), but not all countries participates in Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slova- this process . The diversity of institutional framework measured kia, and Slovenia . In this group were also some Latin American with the Bertelsmann Stiftung’s Transformation Index among countries, South Korea and Taiwan . As can be seen on the figure Central, Eastern, and South-eastern Europe has decreased, 4, group IV, where Bulgaria belonged, was “the second best” what in this case means: group . Bulgaria shared this group with Brazil, Jamaica, Botswa- -- in 2003 these countries belonged to 6 different groups of na, Namibia, South Africa, and Singapore . Group II (Albania, similarity, while in 2014 only to 4, Macedonia, Romania, Serbia) was “less transformed” and this -- in 2014 most of the countries (12 out of 19) belonged to is the first group were also the European post-soviet countries the same group of similarity, while previously were more disappeared (Russia and Ukraine) . Also Turkey and the countries persed . from Latin America, and Southern Asia were in this group . The only European county included in the group III was Bosnia and The group that includes most of the European countries is Herzegovina . Belarus and Moldavia belonged to the groups the most advanced in the transformation process . This group with the lowest scores of BTI (VI and VII) . includes also 8 non-European countries: Brazil, Chile, Costa In 2014 the place of some countries has changed (table 5) . Rica, Uruguay, Turkey, Botswana, South Korea, and Taiwan . 5 The countries from the first line appear only in two groups – out of 7 European countries that do not belong to the most most of them in group I . The European countries that are new advanced group (Albania, Bosnia and Herzegovina, Macedonia, in this most advanced in transformation process group are Bul- Moldavia, Ukraine), belong to the second in terms of the trans- garia, Romania, and Serbia . Also Turkey, Brazil, and Botswa- formation advancement group, and share this group with many na have moved to this group . From the Central, Eastern, and Latin American countries, but also with some countries from South-eastern Europe only Albania, Bosnia and Herzegovina the other continents . From the European countries the most and Macedonia do not belong to the group I . They have oc- outliers are Russia and Belarus (do not share the cluster group curred more similar to the countries from group II, and share with any other European country) . this group with Moldavia and Ukraine . Other European post- The preliminary research on the impact of the advancement soviet countries are in group IV (Russia) and V (Belarus) . In in transformation measured with BTI on economic growth 22 case of Russia it means moving to less transformed group . In shows that there are some universal changes that work indepen- case of Belarus – group V from 2014 has similar results (figure dently from the initial conditions and geopolitical area (that is 5) in comparison to group VI from 2003 (figure 4) . Rule of Law, Stability of Democratic Institutions, and Currency and Price Stability), but some of them depends on these issue . 6. Conclusion The research is going to be continued in the direction of evalu- According to the results of the analysis, there can be observed ating the effects of the transformation and its dependency on an institutional convergence process among the catching-up other factors .

Literature 1 . Auroi, C . (ed .) Latin American and East European Economies in Transition: A Comparative View. EADI Book Series 21, Frank Cass, London, 1998 . 2 . Balcerzak, A . Institutional Integration in the Sphere of Business Infrastructure in the European Union in the Years 2000 – 2008. Journal of Reviews on Global Economics, 2013, No . 2: 131 – 141 . 3 . Bauer, G ., Taylor, S .D . Politics in Southern Africa: state and society in transition. Lynne Rienner Publishers, Boulder (USA), 2005 . 4 . Beck, T ., Clarke, G ., Groff, A ., Keefer, P ., Walsh, P . New tools in comparative political economy: The Database of Political Institutions. World Bank Economic Review, 2011, 15:1, 165 – 176 (September) . 5 . Bertelsmann Stiftung – Sustainable Governance Indicators: http://www.sgi-network.de. 6 . Bertelsmann Stiftung – Transformation Index: http://www.bti-project.org. 7 . Center for Systemic Peace: http://www.systemicpeace.org. 8 . Donner, S ., Hartmann, H ., Schwarz, R . Transformation Index BTI 2014. Bertelsmann Stiftung, Gütersloh, 2014 . 9 . European Bank for Reconstruction and Development: http://www.ebrd.com. 10 . Finger, H ., Gressani, D . (ed .) Toward New Horizons. Arab Economic Transformation Amid Political Transitions. IMF, 2014 . 11 . François, R . World Governance Index. Why Should World Governance Be Evaluated, and for What Purpose? Forum for a new World Governance, 2008 . 12 . Fraser Institute: http://www.freetheworld.com. 13 . Freedom House: http://www.freedomhouse.org.

22 M . Zielenkiewicz . Wpływ zmian instytucjonalnych na wzrost gospodarczy w krajach rozwijających się i w procesie transformacji (EN: The impact of institutional changes on economic growth in developing and transition countries). Studia Ekonomiczne, Economic University in Katowice (in print) . 24 Journal on Legal and Economic Issues of Central Europe

14 . Heritage Foundation: http://www.heritage.org/index. 15 . Jarmołowicz, W ., Piątek, D . Strategia transformacji a doświadczenia wybranych krajów. Elementy analizy porównawczej (EN: Transformation Strategies vs the Experience of Selected Countries. A Comparative Analysis). Zeszyty Naukowe Polskiego Towarzystwa Ekonomicznego 2008, No . 6: 205 – 232 . 16 . Kaufmann, D ., Kraay, A ., Mastruzzi, M . The Worldwide Governance Indicators – Methodology and Analytical Issues. The World Bank, Development Research Group, Macroeconomics and Growth Team, 2010 . 17 . Keller, E .J . Africa in Transition: Facing the Challenges of Globalization. Harvard International Review, 2007, No . 29 .2: 46 . 18 . Piątek, D . Jakość rządzenia w krajach transformujących się (EN: The quality of governance in transition countries). Ekonomia i Prawo, 2010, No . 6 .1: 277 – 288 . 19 . The Economist Intelligence Unit’s Democracy Index: http://www.eiu.com. 20 . Transition Economies: An IMF Perspective on Progress and Prospects. IMF, 2000 . 21 . World Economic Forum: http://www.weforum.org/issues/global-competitiveness. 22 . Zielenkiewicz, M . Globalisation, European Integration and Institutional Changes. International Journal of Social Sciences, 2013,Vol . II, No . 2: 145 – 169 . 23 . Zielenkiewicz, M . Wpływ zmian instytucjonalnych na wzrost gospodarczy w krajach rozwijających się i w procesie transformacji (EN: The impact of institutional changes on economic growth in developing and transition countries). Studia Ekonomiczne, Economic Univer- sity in Katowice (in print) . 2/2014 25

The Importance of Corporate Reputation for Investors in the Banking Sector in Poland Anna Blajer-Gołębiewska 1

Abstract Corporate reputation is claimed to be one of the most important signals that influence investors’ decisions. If there is a significant relationship between the higher level of corporate reputation and economic performance, investors should pay more attention to changes in reputational factors in companies. However, previous analyses of the relationship between the level of corporate reputation and economic performance conducted on the basis of well-established markets, and for companies the shares of which are listed on large and mature stock exchanges lead to different, and often contradictory results. As a result, the aim of this research is to identify the relationship between the higher level of corporate reputation and economic performance as well as the importance of corporate reputation for investors in the case of a developing and relatively young banking sector in Po- land. The hypothesis put states that in the case of smaller, developing markets there is no significant relationship between corporate reputation and economic performance in the banking sector, thus investors do not pay so much attention to reputational factors. As the results of the research show, there the hypothesis cannot be rejected. Author provides few explanations for the fact. Key words: Social Responsibility, Corporate Reputation, Behavioural Finance, Investment Decisions, Event Studies, Poland. JEL Classification: M14, G02, G11, G14

Introduction Bebbington, Larrinaga, Moneva 2008; Roberts and Dowling, 2002,) . Little and Little (2000) also point out, that good rep- Corporate reputation can be described as a function of col- utation can “produce” certain tangible benefits such as lower lective judgements of a given firm based on its financial, so- capital, premium prices for products, etc . As a result, economic cial, and environmental performance, which changes over time, performance should be very important for investors, as well as and which is a kind of specific intangible asset able to gen- corporate reputation which not only works as a signal of good erate wealth . The first part of the definition shows corporate performance, but can also create even better economic perfor- reputation (CR) as the outcome of shared socially judgements mance in the future . (based on impressions) which represents the sociological point One of the main issues about reputation is that it takes of view (Fombrun and Van Riel, 1997; Scott and Walsham, time to build up, but it is easily damaged (Scott and Walsham 2005) . These collective judgements are formed on the basis 2005) . As a result, companies face reputational risk . One of the of a wide range of corporate relations with all stakeholders: first formal definitions of reputational risk was introduced by investors, employees, suppliers, customers, banks, society, etc . Basel Committee on Banking Supervision . It considers mainly The complicated net of relations among entities engaged in companies operating in the banking sector . According to the the way a company is operating implies the fact that corpo- definition reputational risk is “arising from negative perception rate reputation considers various aspects of corporate activities on the part of customers, counterparties, shareholders, inves- (Gotsi and Wilson 2001) . The relations with stakeholders and tors, debt-holders, market analysts, other relevant parties or their judgements are considered the most important for good regulators that can adversely affect a bank’s ability to maintain corporate reputation, so corporate reputation is often defined existing, or establish new, business relationships and contin- as stakeholders’ overall evaluation of a company (Gotsi and ued access to sources of funding (e .g . through the interbank or Wilson 2001) . securitisation markets) . Reputational risk is multidimensional The second part of the definition is based on the strategic and reflects the perception of other market participants” (Bazel management approach . It states that good reputation can be Committee, 2009) . The definition of reputational risk puts an used as an intangible asset . So, by generating reputational cap- impact on the same issues as mentioned-above definitions of ital a company is able to achieve advantages, and create not reputation . Moreover, the need to pay attention to the effects of only value, but also an improved loyalty from employees, great- reputational risk on a bank overall liquidity position and struc- er latitude in decision making, goodwill, etc . (Fombrun 1996; ture of the balance sheet is emphasized .

1 Anna Blajer-Gołębiewska, Ph D. ., Department of Microeconomics, Faculty of Economics, University of Gdansk, Poland . 26 Journal on Legal and Economic Issues of Central Europe

The importance of reputational factors and their impact on Schwizer 2013) . Researchers choose companies operating in the perception of companies and further the increase of their well established markets, and listed on the developed stock ex- sale volumes, profits, development possibilities is really impor- changes . tant and it becomes more recognizable especially in the bank- As mentioned above, the analyses differ, and results are of- ing sector . There is a wide range of research conducted mainly ten unequivocal . Some of them show positive relationship be- for developed, well-established markets, and for companies tween corporate reputation (or corporate social responsibility which shares are listed on large and mature stock exchanges . as a proxy for corporate reputation) and corporate economic The research often considers the impact of reputation damage performance (Orlitzky, Schmid and Rynes, 2003; Lee and Roh, on companies performance . There is numerous research in the 2012), but others conclude that the relationship is negative corporate reputation, however, the results obtained are not con- (Waddock and Graves 1997; Makni, Francoeur, Bellavance, gruent . 2009) . There are also analyses for which results either show the The approach applied in this research differs . As there are lack of relationship or are just inconsistent (Aupperle, Carroll, many different, and often contradictory results of research in and Hatfield 1985; Mc Williams and Siegel, 2000) . corporate reputation in the literature and they are obtained on Most of the research focus on factors that causes a de- the basis of companies operating in developed, well-established crease in the reputation, and on its impact on such variables markets for product and listed on the developed, well-estab- as operational losses, profits, return of assets (ROA), return lished stock exchange markets, the intention of authors was to on sales (ROS), growth in sales or share prices, etc . (Turban consider the role of corporate reputation in the case of compa- and Greening 1997; Preston and O’Bannon, 1997; Ruf and al . nies operating in more concentrated, developing market, and 2001; Makni, Francoeur, Bellavance, 2009; Fiordelisi, Soana, listed in the relatively young stock exchange . An example of Schwizer, 2013) . a market that fulfils above-mentioned assumptions is the bank- As this research focuses on the banking sector in Poland, the ing sector in Poland . The other aspect that differs this research literature analysis considered research on relation between cor- from previous ones is that it focuses not on the reputational porate reputation and corporate performance in case of banking damage, but on improvement in reputation and its relation with sector . The analysis revealed that there is a range of research companies’ performances . which covers different aspects of the relation . As a result, the aim of this research is to identify relation Most of the research is based on the relation between repu- between the higher level of corporate reputation and economic tational loss and operational losses (as proxy for economic per- performance as well as the importance of corporate reputation formance) . In some research, it is assumed that the reputational for investors in the case of a developing and relatively young loss follows operational losses . In others, the impact of reputa- banking sector in Poland . The hypothesis put states that in the tional loss on operational losses is analysed . An example of the case of smaller, developing markets there is no significant rela- research which falls into the first group is the one conducted tion between corporate reputation and economic performance by Fiordelisi, Soana, Schwizer (2013), in which the authors in- in the banking sector, thus investors do not pay so much atten- vestigated how the probability of experiencing a reputational tion to reputational factors . loss is influenced by the selected economic factors . What they The article proceeds as follows . The next section provides found was that as profits of companies in the banking sector a brief overview of literature on reputational factors and their increase, the probability of reputational damage also increases . impact on corporate economic performance (generally and in Moreover, they provided evidence that a higher level of capital the case of the banking sector) . In the following section the ap- invested reduces the probability of reputational damage, as well plied methodology is presented and there are stages of data se- as higher level of intangibles . lection outlined . In the next section, findings in the relationship In the second group, the group of the research in an im- between corporate reputation and corporate performance in the pact of reputational loss on operational losses, there are mainly case of banking sector in Poland are presented and discussed . analysis of stock prices’ reactions after announcements of op- Then, the penultimate section presents and discuss findings in erational losses based on event study methodology . An example the impact of better reputation on share prices in banking sec- of such a research is the one conducted by Sturm (2013) who tor in Poland . The final section provides summary and conclu- provides an evidence for negative stock market reaction after sions . the first press announcement of operational losses in the Eu- ropean banking industry . Other authors have also found that Literature Overview firm’s market value respond negatively to operational loss Better corporate reputation (or higher level of corporate so- events (Perry and De Fontnouvelle, 2005; Gillet, Hübner and cial responsibility) is supposed to be a signal to investors that Plunus 2010) . by investing in these companies’ shares they secure themselves Determination of appropriate economic or financial indica- sure profits in future . There is a wide array of literature on cor- tors opens up many possibilities for researchers . However, the porate reputation (CR) and its relationship with economic is- determination of proxies for corporate reputation is rather prob- sues such as corporate financial performance or economic per- lematic . In some research, authors modify abnormal returns in formance . These studies are based mainly on evidences from order to isolate the reputational effect, but this methodology two sectors: oil and gas (Feria-Dominguez, Jimenez-Rodriguez is applicable only in cases of reputation changes due to opera- and Marino-Fdez-Galiano 2013) or banking (Fiordelisi, Soana, tional losses . In order to correct data for the market exposure, 2/2014 27 and for the mechanical impact of the operational loss, before In the next section the methodology applied in this research computing the average abnormal return of each day t, the nega- is presented and stages of data selection are outlined and dis- tive return as a result of the operational loss event (operational cussed . loss divided by market capitalization) is added to the abnormal return at time 0 (Gillet, Hübner and Plunus 2010) . Methodology The other way to determine corporate reputation, which has There are two main groups of factors that influence the per- become a common practice because of its simplicity, is to apply ceived corporate reputation . The first group includes strictly points achieved by companies in rankings of reputation as prox- economic and financial aspects . The second group contains so- ies for corporate reputation . For instance, the positive relation cial, ethical, and legal aspects such as: corporate social responsi- between social and financial performance for companies from bility, investor relations, environmental protection, health and the banking industry was found by Simpson and Kohers (2002) safety, best practices in corporate governance codes of ethics, who applied Community Reinvestment Act ratings as a mea- etc . (figure 1) . It is widely claimed that the level of corporate sure for social performance . Similarly, Tischer and Hildebrandt reputation depends strongly on the level of corporate social (2013) conducted a research on the impact of publishing repu- responsibility and other factors from the second group (Esen tation rankings of the German Manager Magazine from 1998 2013), so it is a common practice to use these factors as proxies to 2008 on share prices . for the level of the perceived corporate reputation .

Figure 1.

Source: own compilation

Moreover, Hillenbrand and Money (2007) found that that corporate reputation and economic performance remains in- there is considerable similarity between the concepts of respon- conclusive . sibility and reputation . They suggest that reputation models In order to identify the importance of corporate reputation may be applied as measures “for many of the aspects conceptu- for investors in the case of the banking sector in Poland, two realized as responsibility” . In the case of banks, the detailed theo- lation should be taken into consideration: (I) relation between retical framework of relationships between reputation and CSR previous economic performance and achieved corporate reputa- of banks was created by Trotta et al . (2011) . On the basis of tion (if better economic performance implies better reputation), their research they claimed that corporate social responsibility and (II) an impact of better reputation on investors willingness is not only “an important reputational driver”, but also (if both to buy shares, and thereby on share prices . As a result, the re- CR and CSR concepts are based on stakeholders expectations) search was divided into two parts . there is a clear bi-directional relationship between corporate In the first part of the research, in order to identify the re- reputation and corporate social responsibility . lation between previous economic performance and achieved Changes in the perceived reputation of the company imply corporate reputation in cases of companies from the banking changes in investors behaviour, particularly in investors’ interest sector, the following research steps were conducted: (1) selec- in the company, which is expressed mainly in the higher demand tion of the most appropriate ranking of corporate reputation; for shares and the resultant higher share prices (figure 1) . (2) selection of indicators for economic performance; (3) selec- As a result, for the research purpose the equation sign could tion of companies for which all the indicators are available; (4) be put between corporate reputation and other factors such as calculation of correlations among corporate reputation indica- corporate social responsibility (figure 1 .), because factors such tors and economic performance; (5) calculation of correlations as CSR not only influence corporate reputation, but also may among corporate reputation indicators and changes in econom- act as proxies for it . The question of mutual relations between ic performance indicators; (6) calculation of relative economic 28 Journal on Legal and Economic Issues of Central Europe

performance indicators; (7) calculation of correlations among The next research step was to select companies from the corporate reputation indicators and relative economic perfor- banking sector which were listed in the Warsaw Stock Exchange, mance indicators . because these companies are obliged to publish their financial In the second part of the research, in order to identify the documents . If there were companies which were not listed in impact of better reputation on share prices in the banking sec- the Ranking of Responsible Businesses, they got 0 points for tor, the following research steps were conducted (1) selection corporate reputation as they were not interested in promoting of the stock exchange index based on reputational factors; (2) activities which could improve their reputation . choice of appropriate methodology; (3) choice of appropriate Then the analysis of correlations between reputational factors event window; (4) selection of companies from the banking sec- and economic performance for banks included in the Ranking of tor included in the index; (5) adjustment of their share prices to Responsible Business in years 2011 – 2013 was conducted . The determine abnormal returns . Pearson correlation coefficient methodology was applied . Addi- There are not many rankings based on reputational factors in tionally, the test for the significance of the Pearson correlation Poland . Most of them consider brands, but not companies (such coefficients using Student’s t-distribution was also performed at as the PremiumBrand project) . For the research purposes the the following levels of probability: 0 .1, 0 .05, and 0 .01 . annual Ranking of Responsible Business in Poland introduced Pearson correlation coefficients were calculated not only by Responsible Business Forum (Polish non-profit organization) between corporate reputation indicators and economic perfor- and PricewaterhouseCoopers was selected . The advantage of the mance, but also between reputation indicators and year-to-year index is that it does not include information about companies’ changes in economic performance indicators . economic and financial situation, so it can be applied to identify In the next step of the research the relative economic perfor- correlations with economic indicators . However, the index and mance indicators were calculated as the value of each economic its components may be used for the research only in the case of indicator for a given company in relation to the sectoral aver- data from 2011 – 2013, as the previous construction of the index age value of the indicator . Then Pearson correlation coefficients differs significantly from the current one . The components of for relationships between corporate reputation indicators and the index are indices of Responsible Leadership, Dialogue with relative economic performance indicators were calculated . That Stakeholders, Social Commitment, Responsible Management, was the last stage of the first part of the research . and Social Innovation . (Responsible Business…, 2014) . In the second part of the research, in order to identify the im- As it was mentioned above, there is a clear bi-directional pact of better reputation on share prices in the case of banking relationship between corporate reputation and corporate so- sector companies, the RESPECT Index published by the Polish cial responsibility (Trotta et al . 2011) . As a result, for in this Warsaw Stock Exchange (WSE) was applied . This is the only research components of the Ranking of Responsible Business one index in the WSE that is based on reputational factors . In were applied as proxies for the level of corporate reputation . order to be included into the RESPECT Index, each company The Ranking of Responsible Business is created on the ba- has to go through three phases of companies’ evaluation pro- sis of questionnaire voluntary answered by companies . That cess . The first one is the identification of companies with the means that in the ranking there are only companies which want highest liquidity . The second one is the evaluation of corporate to promote their reputation . The fact that there were only 65 governance practices at companies, as well as information and companies in 2013, 58 in 2012 and 66 in 2011 shows that investor relations governance . The third one is the evaluation reputational factors are not perceived by Polish companies as of the adherence to Corporate Social Responsibility (CSR) best important . practices in companies based on questionnaires completed by In order to identify relation between economic performance the companies in which the following areas are assessed: envi- and corporate reputation, the following proxies were chosen: ronmental protection, community outreach, CRS policy and ac- -- net profit as a proxy for the profitability of a company after tivities, management system, relations with stakeholders, code accounting for all cost, of ethics, audits, and human resources management . For purposes of this analysis companies from the banking -- net profit per share as a proxy for the profitability of a com- sector included in the RESPECT Index were selected . The aim pany after accounting for all cost per share, of the analysis was to find an impact of improvement in the -- gross profit as a proxy for the profitability as revenue minus reputation on investor decisions . Thus, the additional hypoth- the cost of production before deducting overhead, payroll, esis was put that the fact that a company enters the RESPECT taxation, and interest payments, Index, based on reputational factors, should be a signal of its -- equity as a proxy for the value of an ownership interest in better reputation for investors . As a result, their demand for property, shares of these companies should increase and it should also -- return on assets (ROA) as a proxy for company’s ability to imply an increase in share prices (figure 1) . The event study generate profits before leverage, rather than by using lever- methodology is the most appropriate for this analysis . In or- age, der to find long-run implications the event window was set as a period (-360,360) days . However, finally in the analysis the -- return on equity (ROE) as a proxy for company’s efficiency quotation days were taken into consideration . at generating profits from every unit of shareholders’ equity, In such small Stock Market Exchanges as WSE, there is -- share in the stock exchange market . a problem with the number of observations . In the analysed pe- For purposes of this analysis companies from the banking sector included in the RESPECT Index were selected. 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Some components of the Ranking were cor- higher than the average return in the banking sector, if thethe valuethe valuethe value is valueis above loweris lower is lower 0,than andthan 0. than lower 0. 0. when the value is lower thanthe 0. banking sector, if the value is above 0, and lower when the related also with return on assets . For example, in companies, the value is lower than 0. value is lower than 0 . in which Responsible Leadership was at a high level, the com- ReputationReputationReputation and and corporate and corporate corporate performance performance performance in inth ethin casee th casee ofcase ofbanking bankingof banking sector sector sector in inPoland Polandin Poland Reputation and corporateReputation performance and Corporate in th Performancee case of banking in the Case sector inpany’s Poland ability to generate profits before leverage (ROA) in the Reputation and corporate performance in the case of banking sector in Poland same year was also high, as well as high level of net profit per ofThe BankingThe analysisThe analysis analysis Sector of ofcorrelations in ofcorrelations Poland correlations between between between reput reput ationalreputationalational factors factors factors and and economic and economic economic performance performance performance The analysis of correlations between reputational factors and economicshare two, performance three and four years before, and ROE four years be- The analysis of correlations between reputationalfor factorsfor the for the bankingandThe the banking economic bankinganalysis sector sector of sector performance incorrelations in years in years years 2011-2013 between 2011-2013 2011-2013 reputational wa was conducteds wa conducteds factorsconducted by byfore application by application (table application 1) . of of the of the Pearson the Pearson Pearson for the banking sector in years 2011-2013for the wa s banking conductedcorrelation sectorcorrelation bycorrelationand application in economiccoefficients. yearscoefficients. coefficients. performance2011-2013 of theThe The Pearson testThe test forfor watest thefor sthe for conductedthe banking signi the signi ficancesigni sectorficance ficance by of in application of theyears ofthe Pearson the Pearson Pearson of correlation correlation the correlation Pearson coefficients coefficients coefficients correlation coefficients. The test for thecorrelation significance coefficients. of using theusing Pearson using Student's Student'sThe Student's correlation test t-distribution t-distribution for t-distribution the coefficients signi was was ficance also was also perf also perf oformed. perf theormed.ormed. Pearson For For 48 For 48 observations correlation 48 observations observations coefficients (n=48; (n=48; (n=48; df=46), df=46), df=46), the the the using Student's t-distribution was also using performed. Student's For minimal48 t-distribution minimal observationsminimalTable value value1. P valueearsonof was (n=48;ofcoefficient coefficientcoefficientsof also coefficient df=46), perf to for togetormed. correlations the getto the get the statistically the Forstatistically between statistically 48 observationsreputationalsignificant significant significant factors correlation correlation (n=48; and correlation economic is df=46), 0.240is performance0.240is 0.240 at the theat theat level for the level companies level in the banking sector minimal value of coefficient to get the statisticallyminimal value significant ofof ofcoefficient0.1 0.1correlationof (*), 0.1 (*), 0.285 (*), 0.285 to 0.285 atis get the0.240at the atthelevel the levelat statistically the0.05level 0.05 level (**),0.05 (**), and(**), significant and 0.368 and 0.368 0.368 at the atcorrelation the atlevel the level oflevel of0.01 is 0.01of 0.240 (***;0.01 (***; (***; tableat table the 1).table level1). 1). of 0.1 (*), 0.285 at the level 0.05 (**), andof 0.3680.1 (*), at the0.285 level at of the 0.01 TherelevelThere (***;There were0.05 weretable werenot(**), not1). many not andmany many statistically0.368 statistically statistically at the significan levelsignifican significan oft 0.01correlationst correlationst (***;correlations tablebetween between between1). reputational reputational reputational factors factors factors There were not many statistically significant correlationsandand economicand economic between economic performance reputational performance performance for factors for companies for companies companies in in th e thin bankinge th bankinge banking sector. sector. sector. In In the Inthe case the case of case of companies ofcompanies companies Year Social There were not many statistically significant correlations between reputational factors Social Ranking leadership and economic performance for companies in the bankingfrom from sector. fromthe the banking Inthe banking the banking casesector sector ofsector in companies inPoland Polandin Poland there there therewere were wereno nostatistically nostatistically statistically significant significant significant correlations correlations correlations between between between innovation Responsible Responsible Responsible Responsible stakeholders Points in the Points commitment management from the banking sector in Poland thereand were economic no statistically performancereputationalreputational significantreputational factors for factorscorrelations factors companies and and net and net between profit net profit in s, profit th grosss,e bankinggrosss, gross profits, profits, profits, sector. levels levels levels Dialogue with Inof of equity the ofequity case equity in in companies, of companies,in companies companies, as as well aswell as well as as reputational factors and net profits, grossfrom profits, the banking levels their of theirsector equity sharestheir shares inshares in in Polandcompanies, inthe thein stock the stockthere stockmarket as marketwere well-4 market exchange no asexchange statisticallyexchange-0 (table 007. (table (table 1). significant1). However, 1).However,0 .064However, thcorrelations eth interestinge th interesting0e .137 interesting betweenfact fact is fact0 that,.019is that,is thethat, the the 0 .110 0 068. their shares in the stock market exchangereputational (table 1). However, factorsstatisticallystatistically statistically andthe interesting net significant significant profit significant s,fact correlations gross iscorrelations that,correlations-3 profits, the appeared appeared levels appeared-0 033. between of between equitybetween reputational0 .072reputational in reputational companies, indi 0indi .155ces indices asandces and well net and net profit0 as .039net profit profitper per per 0 .112 0 073. statistically significant correlations appearedtheir sharesbetween in reputational theshareshare stock sharetwo, two, marketindi threeNettwo, three cesprofit threeand andandexchange four and netfour years fourprofit years -2 (table yearsbefore. perbefore. before.1). If thereHowever,If-0 there043. If thereare are no are nothcorrelationse no0correlations interesting.048 correlations for for netfact0 for.128net profits, isnet profits, that, profits, it meanstheit0 .032means it means that that that 0 .130 0 063. share two, three and four years before. Ifstatistically there are no significantcorrelationsthethe lowerthe lower forcorrelationslower number netnumber numberprofits, of ofshares appeared sharesofit meansshares might -1might that might betweenbe becorre becorre -0latedcorre 045.reputationallated withlated with higherwith higher0 .049higherindi reputational recesputational re putationaland0 .101factors.net factors. profit factors. per0 .021 0 .113 0 050. the lower number of shares might be corresharelated two, with threehigher and reputational fourSimilarly,Similarly, yearsSimilarly, factors. before. for for most for If most there most0 of of reputationalare of reputational no reputational -0correlations 007. indices indices indices for0 there .064 therenet there wereprofits, were were statistically0 .137 statisticallyit means statistically that significant 0 .019 significant significant 0 .110 0 068. Similarly, for most of reputationalthe lower indices number therecorrelations correlationsof correlationsshares were withstatisticallymight with withreturn be return corre return on significant on elated-4 quity on equity e withquity three three higher -0 three and 059. and four andre fourputational yearsfour years0 .019 years be fore. befactors. fore. be fore. Some Some0 .103 Some components components components-0 .022 of of the of the the0 .086 0 028. correlations with return on equity three and four yearsRanking beRankingfore.Ranking were Some were were correlated components correlated correlated also also-3 of with also the with returnwith return -0 return on044. on assets. on assets. assets. For0 For.057 example, For example, example, in0 .143 in companies, incompanies, companies, 0 in .026 in which inwhich which 0 .104 0 061. Similarly, for mostGross profit of reputational-2 indices-0 049. there were0 .043 statistically0 .125 significant0 .028 0 .127 0 059. Ranking were correlated also with returncorrelations on assets. with ForResponsible example,Responsible returnResponsible on inLeadership companies,eLeadershipquity Leadership three was was in at andwaswhich ata high aat four high a level,high yearslevel, level,the the becompany's the fore.company's company's Some ability ability componentsability to togenerate generateto generate ofprofits profits the profits before before before Responsible Leadership was at a high level, the company's ability to generate profits -1before -0 041. 0 .055 0 .107 0 .024 0 .118 0 055. Ranking were correlated also with return0 on assets.-0 For026. example,0 .058 in companies,0 .097 in which0 .033 0 .102 0 057. Responsible Leadership was at a high level,-4 the company's-0 049. ability0 .023to generate0 .068profits before-0 .002 0 .075 0 031. -3 -0 077. -0 .020 0 .080 0 .004 0 .068 0 022. Equity -2 -0 082. 0 .035 0 .097 0 .004 0 .096 0 038. -1 -0 031. 0 .078 0 .132 0 .040 0 .123 0 074. 0 0 .044 0 .136 0 .188 0 .092 0 .179 0 132. -4 0 .511*** 0 .380** 0 .447*** 0 .472*** 0 .416*** 0 468***. -3 0 .481*** 0 .351** 0 .469*** 0 .466*** 0 .439*** 0 461***. Net profit per share -2 0 .274* 0 .240 0 .256* 0 .287** 0 .273* 0 281*. -1 0 .158 0 .145 0 .120 0 .175 0 .115 0 154. 0 0 .122 0 .134 0 .131 0 .084 0 .074 0 108. 30 Journal on Legal and Economic Issues of Central Europe

-4 0 .263* 0 .264* 0 .263* 0 .222 0 .204 0 .250* -3 0 .218 0 .282* 0 .331** 0 .206 0 .244* 0 .249* ROE -2 0 .133 0 .091 0 .162 0 .133 0 .182 0 .137 -1 -0 028. 0 .010 0 .035 -0 .005 0 .047 0 .002 0 0 .093 0 .158 0 .153 0 .129 0 .128 0 .127 -4 0 .221 0 .212 0 .222 0 .171 0 .172 0 .205 -3 0 .164 0 .209 0 .293** 0 .166 0 .255* 0 .215 ROA -2 0 .110 0 .079 0 .174 0 .126 0 .208 0 .144 -1 -0 014. 0 .005 0 .040 0 .003 0 .068 0 .019 0 0 .258* 0 .107 0 .223 0 .284* 0 .256* 0 .244* -4 -0 049. 0 .055 0 .102 0 .003 0 .108 0 .049 Share in the stock -3 -0 091. 0 .006 0 .041 -0 .023 0 .049 0 .004 exchange -2 -0 084. 0 .017 0 .036 -0 .016 0 .061 0 .010 -1 -0 011. 0 .085 0 .117 0 .053 0 .127 0 .081 0 0 .018 0 .167 0 .104 0 .083 0 .145 0 .112 *** p < 0.01; ** p < 0.05; * p < 0.1 Source: own compilation

Almost all Pearson coefficients calculated for correlations third year before the analysed year and Responsible Leadership, between reputational factors and changes in economic perfor- Dialogue with Shareholders, Responsible Management and to- mance indicators for companies in the banking sector in Poland tal points in ranking . In companies, in which the level of Equity were not significant (table 2) . Statistically significant correla- has increased in the last year before inclusion in the ranking, tions appeared between the change in gross profit from fourth to the Responsible Management was promoted (table 2) .

Table 2. Pearson coefficients for correlations between reputational factors and changes in selected economic performance indicators for companies in the banking sector in 2013 Year Social Social Ranking leadership innovation Responsible Responsible Responsible Responsible stakeholders Points in the Points commitment management Dialogue with -4 to -3 0 .061 0 .129 0 .141 0 .075 0 .129 0 .096 Change in the net -3 to -2 0 .004 -0 .002 0 .056 0 .011 0 .077 0 .024 profit -2 to -1 -0 129. -0 .138 -0 .142 -0 .128 -0 .126 -0 .133 -1 to 0 -0 125. -0 .132 -0 .136 -0 .125 -0 .123 -0 .129 -4 to -3 0 .279* 0 .274* 0 .121 0 .298** 0 .161 0 .244* Change in the gross -3 to -2 0 .193 0 .187 0 .170 0 .231 0 .164 0 .202 profit -2 to -1 0 .030 0 .027 -0 .010 0 .013 -0 .014 0 .012 -1 to 0 -0 153. -0 .169 -0 .171 -0 .150 -0 .150 -0 .159 -4 to -3 0 .102 0 .142 0 .164 0 .156 0 .152 0 .150 Change in the -3 to -2 0 .023 0 .108 0 .078 0 .039 0 .131 0 .072 equity -2 to -1 0 .139 0 .183 0 .154 0 .086 0 .100 0 .111 -1 to 0 0 .283* 0 .183 0 .200 0 .176 0 .212 0 .207 -4 to -3 -0 107. -0 .051 -0 .019 -0 .101 -0 .031 -0 .077 Change in the net -3 to -2 -0 228. -0 .221 -0 .170 -0 .229 -0 .136 -0 .208 profit per share -2 to -1 -0 124. 0 .008 -0 .014 -0 .141 -0 .079 -0 .086 -1 to 0 -0 175. -0 .142 -0 .148 -0 .169 -0 .161 -0 .167 *** p < 0.01; ** p < 0.05; * p < 0.1 Source: Own compilation

In the next step of research each indicator for economic per- also not many significant correlations, and results for relative formance was calculated in the relation to the average value of values are very similar to real values . In fact, there were no sta- the indicator in the banking sector (table 3) . Then the Pearson tistically significant correlations between reputational indices coefficients of correlations between reputational factors and and relative net profit, relative gross profit, relative equity value changes in relative economic performance indicators for compa- and share in the stock exchange market . Once again the same nies in the banking sector were calculated . This time there were factors appear to be not connected (table 3) . 2/2014 31

Table 3. Pearson coefficients for correlations between reputational factors and changes in selected relative economic performance indicators for companies in the banking sector in 2013 Year Social Social Ranking leadership innovation Responsible Responsible Responsible Responsible stakeholders Points in the Points commitment management Dialogue with -4 0 .079 0 .141 0 .188 0 .119 0 .199 0 151. -3 0 .062 0 .168 0 .212 0 .131 0 .213 0 162. Relative net profit -2 0 .061 0 .148 0 .185 0 .125 0 .204 0 150. -1 0 .027 0 .104 0 .134 0 .088 0 .168 0 109. 0 0 .016 0 .094 0 .123 0 .078 0 .156 0 099. -4 -0 003. 0 .120 0 .109 0 .078 0 .124 0 094. -3 0 .033 0 .101 0 .157 0 .080 0 .172 0 113. Relative gross profit -2 0 .042 0 .143 0 .191 0 .107 0 .195 0 140. -1 0 .047 0 .135 0 .173 0 .112 0 .194 0 137. 0 0 .057 0 .130 0 .157 0 .107 0 .191 0 133. -4 0 .045 0 .134 0 .124 0 .106 0 .156 0 122. -3 0 .050 0 .133 0 .158 0 .129 0 .179 0 140. Relative equity -2 0 .092 0 .193 0 .219 0 .162 0 .237 0 189. value -1 0 .071 0 .159 0 .189 0 .131 0 .214 0 160. 0 0 .097 0 .175 0 .202 0 .140 0 .231 0 176. -4 0 .478*** 0 .321** 0 .395*** 0 .463*** 0 .429*** 0 439***. -3 0 .448*** 0 .370*** 0 .440*** 0 .457*** 0 .451*** 0 451***. Relative net profit -2 0 .344** 0 .306** 0 .304** 0 .360** 0 .336** 0 345**. per share -1 0 .193 0 .160 0 .131 0 .192 0 .165 0 180. 0 0 .153 0 .138 0 .124 0 .109 0 .120 0 131. -4 0 .306** 0 .272* 0 .291** 0 .290** 0 .324** 0 307**. -3 0 .193 0 .248* 0 .253* 0 .228 0 .252* 0 240. Relative ROE -2 0 .221 0 .225 0 .231 0 .231 0 .239 0 223. -1 0 .154 0 .174 0 .172 0 .168 0 .222 0 173. 0 0 .198 0 .221 0 .200 0 .231 0 .265* 0 228. -4 0 .289** 0 .272* 0 .289** 0 .272* 0 .323** 0 299**. -3 0 .177 0 .241* 0 .255* 0 .217 0 .270* 0 237. Relative ROA -2 0 .211 0 .221 0 .248* 0 .241* 0 .286** 0 246*. -1 0 .120 0 .137 0 .152 0 .137 0 .201 0 151. 0 0 .279* 0 .144 0 .234 0 .305** 0 .287** 0 268*. -4 0 .005 0 .119 0 .150 0 .068 0 .146 0 102. Relative share in -3 -0 002. 0 .105 0 .132 0 .068 0 .136 0 093. the stock exchange -2 0 .016 0 .108 0 .138 0 .075 0 .152 0 103. market -1 0 .038 0 .126 0 .166 0 .098 0 .174 0 126. 0 0 .039 0 .185 0 .124 0 .099 0 .165 0 130. *** p < 0.01; ** p < 0.05; * p < 0.1 Source: Own compilation

Proxies for corporate reputation were statistically significant- In other words, the higher the profitability of a company after ly correlated with relative net profit per share in years -4 and -3 accounting for all cost per share compared with others compa- at the lever of p=0 .01 and in the year -2 at the level of p=0 .05 . nies in the banking sector, the more responsible the leadership Similarly, mainly the past values of ROE and ROA were corre- and management in that company will occur in a few years, as lated with reputational factors . The level of social innovations well as better dialogue with stakeholders, social commitment, was higher in companies, in which ROE in the same year was and social innovation . Similarly, the higher company’s ability higher, but the correlation is significant at p=0 .1 . ROA was to generate profits before leverage, rather than by using leverage significantly correlated also with the level of responsible leader- and the higher company’s efficiency at generating profits from ship, responsible management, and with the total number of every unit of shareholders’ equity compared with other compa- points achieved in the ranking . nies in the sector, the more responsible leadership and manage- 32 Journal on Legal and Economic Issues of Central Europe

ment there will be in that company in few years . Furthermore, in the RESPECT Index were lower than the average return in the a better dialogue with stakeholders, social commitment, and banking sector, the values are lower than 0 in the graph (figure 2 social innovation may be expected in about 3 or 4 years . and 3) . The quotation number 253 (the quotation in the middle) The analysis revealed that many economic performance indi- represents the day of inclusion into the RESPECT Index . cators are not correlated with corporate reputation in the future . The very small sample of just four observations seems to Thus, the fact of high level of corporate reputation is not corre- be not enough to conduct any research at all . However, tak- lated with the economic performance achieved by companies . ing into consideration the level of concentration in the Polish The interesting finding is the fact, that it is not equity or banking sector (during the last 20 years 10 largest banks were profit that counts, but the efficient management and employ- in possession of about 70% of all assets in the banking sector), ment or usage of resources . This is what implies better corporate the number of companies (only 16 banking companies listed in social responsibility and corporate reputation in the future . the WSE in 2014) and the number of consolidations that were An Impact of Better Reputation on Share Prices completed last years (Kozak 2013), the analysis is justified . In cases of companies A and B the values of BHAR increased in the Banking Sector around the quotation day . Moreover, BHARs were positive for As mentioned above, the analysis of an impact of better repu- both companies from about a half a year before inclusion into the tation on share prices for companies in the banking sector was Index . In other words, if an investor bought share of these com- conducted on the basis of BHAR methodology . Returns on shares panies, he could earn more than on average shares of companies of a company from the banking sector included in the RESPECT in the banking sector starting from a half of a year before inclu- Index higher than the average return in the banking sector are sion into the Index . He could also expect that around the day of represented by points above 0 in the graph (figure 2 and 3) . If inclusion abnormal returns will increase, and prices of shares of returns on shares of a company from the banking sector included included companies will generate even higher relative returns .

Figure 2. Buy-and-Hold Abnormal Returns (for 0 as the reference day) in subsequent quotation days during one year before and after the inclusion day – companies A and B

Source: Own compilation

Figure 3. Buy-and-Hold Abnormal Returns (for 0 as the reference day) in subsequent quotation days during one year before and after the inclusion day – companies C and D

Source: Own compilation 2/2014 33

In cases of companies C and D the values of BHAR seems Secondly, as mentioned above, the analysis revealed, that it to be not influenced by the event . In the company C BHARs is not equity or profit that counts, but the efficient manage- started to soar from quotation 170 which is more than a quarter ment and employment or usage of resources . And this is cor- of a year before the inclusion into the RESPECT Index . Com- related with future higher reputation . In companies, in which pany D experienced negative BHARs before and after the in- management is able to generate high profits before leverage and clusion into the RESPECT Index . Around the day of inclusion is efficient at generating profits from every unit of shareholders’ BHARs went slightly up, but they remained still lower than 0, equity, the level of responsible leadership and management will so by investing in this company one could lose (compared with increase in few years, as well as better dialogue with stakehold- investment in an average company from the banking sector) . ers, social commitment, and social innovation . Efficient man- Analysis of the impact of better reputation on share prices agement leads to responsible management, which creates better in the banking sector shows that results differ . The additional reputation of a company . hypothesis that the fact of inclusion into the RESPECT Index Thirdly, in the case of developing banking sector, where ad- is a signal of its better reputation for investors, so their demand ditionally companies are listed in the relatively young stock for shares of these companies should increase and it should also exchange, there is no evident increase in investors’ interest in imply increase in share prices, cannot be confirmed . a company after their inclusion into the stock exchange index based on reputational factors . On this development stage of Summary and Conclusions the banking sector the increase in the reputation level is not as On the basis of the research conducted the hypothesis, that significant as pure economic performance . Moreover, it could in the case of smaller developing markets there is no signifi- mean that reputation becomes really important at certain level cant relation between reputational factors and economic per- of market development . That gives an opportunity for further formance in the banking sector, cannot be rejected . There are research in the field behavioural finance to verify this hypoth- a few reasons for this fact . Firstly, in the banking sector in Po- esis and to explain the phenomena . land a level of corporate reputation expressed in a position in The main conclusion that can be drawn from the research a reputation ranking is not strongly connected with previous is that the effect of an increase in reputation has no conclusive higher performances . As a result, investors in the banking sec- impact on investors’ interest in a company in the banking sector do not expect the information about company’s reputation tor in Poland . As a result, there is a need for further research to convey additional information about its economic perfor- which could reveal if the effect of reputation damage could have mance . So, the value of information about corporate reputation a stronger impact, than the effect of an increase in reputation, is much lower than it should be due to the theories described on investors’ interest in a company and thereby on increase in in the literature . share prices .

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About Regulation of Crimes against Property in Hungary Sándor Madai 1

Abstract In Hungary – similarly to other countries – the types of crimes mostly irritating the society and fundamentally affecting everyday life are the crimes against property. The paper presents the place of crimes against property in the new Hungarian criminal code, the general issues relating to crimes against property. Also presents paper the new and old-new aggrevated cases of crimes against property. Key words: Hungary, criminal law, criminal code, property.

Place of Crimes Against Property in the New Criminal In Hungary – similarly to other countries – the types of crimes mostly irritating the society and fundamentally affect- Code ing everyday life are the crimes against property . These kind of As we have already referred to it above, a new Criminal actions had been in the centre of criminal law thinking and leg- Code entered into force in Hungary in 2013 . The crimes islation for centuries and they stayed there in our days, too . Act against property in the new code – in consideration of the na- no V of 1961 and later Act no IV of 1978 – which were in close ture of conducts and the protected legal subjects – are set forth relation to each other in the aspect of their social backgrounds in three separate chapters that is the violent crimes against and also in respect of their wordings in many cases – provided property, other crimes against property and crimes against stable background for the establishment and rooting of judicial intellectual property . Violent crimes against property include practice . This was also not changed by the arrival of the change robbery, plundering, extortion and frontier justice . Crimes of the political system as a result of which – and thereafter – against property include theft, deterioration, embezzlement, the criminal act was modified a lot more than it was required fraud, economic fraud, fraud by using information systems, according to professionals, however, the hard dogmatics of the fraudulent breach of trust, negligent administration, unlawful crimes against property ensured that the fundaments of the appropriation, receiving of stolen goods, use of a vehicle with- chapter were rarely touched by the – sometimes stormy – wind out authority and usury crime . The new code – contrary to the of change . Therefore, it does not appear to be useless to review previous act – regulates the crimes against intellectual property the changes arising in this respect which require adequate re- in a separate chapter . The reason for this is that their uniform sponses from the theoreticians and the practical professionals as legal subject is the protection of specific interests relating to in- well on the grounds of the entry into force of the new Criminal tellectual property rights . At the level of the society these could Code (Act no C of 2013 2) as of 1 July 2013 . be indicated as the interests of acknowledging and motivat- The sphere of crimes against property is the most significant ing the creators of intellectual properties, facilitating creativity of crimes which become known to the organs of law enforce- and innovation and – in respect of distinctive signs – identi- ment, thus, it decisively determines the magnitude of all crimes . fying the undertakings and provision of accurate information Only by reviewing criminal statistical data we may see that the to the consumers . The crimes determined in this chapter and significance of crimes against property is immense . In 2012, the crimes against property both infringe property relations, 259,617 crimes against property have become known to the however, the protection – in nature – differs from that of the organs of law enforcement in Hungary which represent 56 .8 per classical crimes against property . There is also a difference in cent of all crimes which such organs became acquainted with 3. the way of regulations that is these are framework dispositions

1 Dr . Sándor Madai, associate professor, Head of Department of Criminal Law and Criminology, Faculty of Law, University of Debrecen, Hun- gary . 2 The idea of codifying the new criminal code had already arisen previously as well and codification has been ongoing for approximately fifteen years . Mihály Tóth: At the cradle of the new criminal code, Hungarian Law, Issue 9 of 2013, page 527 [Original title: Tóth Mihály: Az új Btk . bölcsőjénél, Magyar Jog 2013 . évi 9 . szám . 527 . old ]. . 3 Information on the crimes of 2012 – Ministry of Internal Affairs, Coordination and Statistical Department and IT Department of the Chief Prosecutor’s Office – page 17 [Original title: Tájékoztató a 2012 . évi bűnözésről, Belügyminisztérium Koordinációs és Statisztikai Osztály, valamint Legfőbb Ügyészség Informatikai Főosztály, 17 . old .] . 36 Journal on Legal and Economic Issues of Central Europe

which means that the different elements of the definitions of The actual amount of the damage may qualify as an aggra- these crimes are filled with contents by certain other legal regu- vating or mitigating circumstance based on the fact if it is closer lations . These characteristics provide basis for the formation to the lower or the higher value of the respective category . In of the individual regulations in a separate chapter . This chap- case of a value being closer to the lower limit, it shall qualify as ter contains the following crimes: usurpation, infringement of a mitigating circumstance, while in the opposite case, it will be copyright and certain rights related to copyright, compromis- considered as an aggravating circumstance . The same shall be ing or defrauding the integrity of technological measures for applicable in case of damages significantly exceeding the very protection, falsifying data related to copyright management, significant amount, considering the fact that the legislator did violation of industrial design rights . not make a distinction in this regard . We must refer to the fact that infringements of properties General Issues Relating to Crimes Against Property not reaching the amount of HUF 50,000 are usually consid- The legislator of the Hungarian Criminal Code – similarly ered as offences, however, in case of certain aggravating cases to the German regulations and contrary to the Austrian Crimi- – provided that the condition determined in the code is met – nal Code – chose such legal technical construction in respect the conduct causing an infringement of properties below HUF of crimes against property – and generally in respect of other 50,000 also qualifies as a crime . A typical aggravating circum- crimes as well – that the aggravated cases – that is the conducts stance – besides other circumstances – in case of crimes against which are threatened by more severe punishment – are regu- property are the committing in a criminal conspiracy, in a busi- lated together with the basic definition of the respective crimes ness-like manner or at the place of public danger . and not under separate heads . Naturally, both solutions – that In the course of determining the criminal conspiracy, the leg- is the Hungarian-German type and the Austrian way (that is islator provides assistance to the interpretation thereof since the aggravated cases regulated separately) – may have advanta- it sets down the definition in the Criminal Code . Pursuant to geous and disadvantageous characteristics, however, we are of point 2 of Section 459 (1) a criminal conspiracy is set up when the view that the difference is only a matter of decision and two or more persons commit crimes in an organized manner or possibly, legal historical trends and it has no determining influ- they agree to do so and provided that they attempt the com- ence on aggravation . mitting of at least one crime, however, no criminal organiza- In Hungary, two types of aggravation systems have been tion is established . Committing crimes in a criminal conspiracy worked out by the legislator in respect of crimes against prop- is a form of committing crimes jointly and this fact in itself erty . In the first case, which appears to be plausible and hard generally increases its danger to society . When defining the to be disputed, the legislator decided to ascribe accentuated criminal conspiracy, the code evaluates the organized nature of material unlawfulness to such crimes which represent more the committing of crimes that is when the agreement of the significant subjective weight as to the rate of the infringement contributors – the members of the criminal conspiracy – aims at of the interests relating to the property that is the higher the the committing of more crimes without organizing all details of infringement of the interests relating to the property is caused committing each and every crime . Namely, the code evaluates by the crime, the higher the punishment is applicable . In the such higher level of danger to do society forming basis of the other case the legislator considers certain circumstances as ac- aggravated qualification that the perpetrators not only realized centuated and makes the imposing of more severe punishment or attempted to realize one given crime but they organize the possible . In both cases the theoretical basis for the imposing criminal acts themselves 4. of a more severe punishment is the accentuated danger of the In respect of the interpretation of committing crimes in respective conduct on the society . a business-like manner, the legislator provides assistance The question is the value limits determined by the legislator among the interpretative provisions of the Criminal Code: which have significance in case of crimes against property . Pur- “a crime is committed in a business-like manner by a person, suant to Section 459 (6) of the Criminal Code the infringement who strives at regular profit-making through the commitment of interest relating to property caused by the crime is of crimes of similar character” 5 In case of committing crimes a) lower between HUF fifty-thousand and one and five-hun- in a business-like manner, the legislator does not find the or- dred thousand; ganized character of the same as a circumstance having an ag- b) higher between HUF five-hundred thousand and one and gravated danger on society but the fact that the person so act- five-million; ing intends to realize profit at the detriment of other persons’ c) significant between HUF five-million and one and fifty-mil- properties and strives to obtain regular income thereby, even lion; though the actual realization of the profit by the perpetrator d) very high between HUF fifty-million and one and five-hun- is not required to established that the crime was committed in dred million; a business-like manner . Naturally, it is also not excluded that e) very significant above HUF five-hundred million . a crime committed in a business-like manner is connected to

4 The practical aspects of the issue are examined by Róza Mészár . Róza Mészár: Evaluation of criminal conspiracy, criminal organizations and grouped perpetration and the judicial practice, Jura, Issue 1 of 2003, pages 169 – 172 . [Original title: Mészár Róza: A bűnszövetség, a bűnszer- vezet, valamint a csoportos elkövetés értékelése és a bírói gyakorlat, Jura, 2003 . évi 1 . szám, 169 – 172 . old .] . 5 Point 28 of Section 459 (1) of the criminal code . 2/2014 37 a criminal conspiracy in which case the danger of society is which makes the conduct committed at the offence value be- even more accumulated 6. come a crime . Pursuant to the code, theft is deemed to be more Committing crimes at the place of public danger is a very aggravated in case it is committed by way of pocket-picking for specific aggravated case which complies several circumstances . lower, higher, significant or very high values . The code fails to provide a definition, therefore – in the ab- Pursuant to the new code theft committed at the offence sence of legal basis – the contents of the same had to be worked value also qualifies as a crime in case it is realized “in the forest out by theoreticians and by the judicial practice . Committing by illegal chopping of wood” . The legal policy objective of the crimes “at the place of public danger” is more than it could be regulation is clear . It is typical nowadays – especially in autumn- drawn from the grammatical interpretation of the same . The wintertime – that theft is realized by illegal chopping of wood phrase not only indicates the place of perpetration but it also which is characteristically a Janus-faced conduct: mostly such refers to the time of committing the respective crime . Public people get firewood who cannot buy wood due to their finan- danger arises when as a result of the destructive effect of certain cial circumstances, however, it also occurs that the perpetra- substances or energies one or more persons (whose exact num- tors getting wood this way realize profit by selling such wood . ber may not be defined) or a defined number of various persons The new code does not consider the reason for the committing or things representing significant value are endangered . Thus, of the crime, however, this might be taken into consideration a crime committed at the place of a force majeure event (flood, when imposing the punishment . We must, however, refer to the earthquake) or other extraordinary event (explosion, fire) are circumstance that this aggravating circumstance has relevance deemed to be committed at the place of public danger 7. in one case only within the aggravation system of theft that On the whole, it may be declared that the new Criminal is when the theft committed at the offence value qualifies as Code did not bring fundamental dogmatic changes in respect a misdemeanour . Besides the above, this circumstance has no of the crimes against property . It may also be declared that the relevance, since the value of the wood stolen is the one and previously applied rates of sanctions also did not change, how- only relevant factor . The Criminal Code does not define for- ever, it may be unambiguously established that new aggravated est, however, we need to search for a legal category definition, cases have been inserted compared to the previous ones . The since the definition of other sciences – for example the biologi- explicit objective of the legislator was to simplify the previous cal definition of forests – could further increase the uncertainty complicated regulations of crimes against property and make of the application of the law . In the event that we choose the the same more transparent, thereby assisting those applying the definition-based adjudication of the issue, we primarily need to legal regulations in their work . decide if criminal law should use the forest definition of another legal branch or should it make up a specific forest definition The New Regulations of Theft with criminal law contents . The latter would also not be sur- The new code intends to provide a higher level of protection prising, however if we let the practice make it up exclusively only to objects of protected cultural properties (out of all cultur- and not legal basis would be granted thereto, it would general properties) and regulates the perpetration of theft in respect ate such problems which would be pushing the borders of the of archaeological findings as an aggravated case . Separate ap- principle of material law legality, particularly the prohibition praisal of archaeological findings is reasonable because the defi- of uncertain criminal laws . Currently, the Criminal Code does nition of protected cultural properties only covers the elements not contain the definition of forests, thus, assistance may be of the archaeological heritage placed in the public collection . sought from the system of definitions of other legal branches . The establishment of the accentuated criminal law protection, Points a) – d) of Section 6 (1) of Act no XXXVII of 2009 on however, is reasonable in case of such archaeological findings forests, the protection and management of forests sets forth the as well which are already moved from the archaeological quarry areas which qualify as forests . In consideration of such points, but which have not yet been placed in the public collection . The there would be a legal basis for the possibility to establish the background legal regulation in case of the definitions of protect- perpetration in a forest, which would also serve the uniformity ed cultural properties and archaeological findings is Act no LXIV of jurisdiction . of 2001 on the protection of cultural heritage . The new regulation of the code sets down that the objects used for liturgies are Perpetration to the Detriment of a Person who – Due deemed to be included in the definition of objects of religious to his/her Seniority or Handicap – is Capable honour, while the alloy of precious metals and the materials re- to Recognize and Avert the Crime to a Limited Extent quiring metal commercial permits are included in the definition of precious metals . The theft of objects placed on dead bodies This aggravating circumstance has relevance in case of vari- shall also qualify as an aggravated case if the dead body is not ous crimes (robbery, embezzlement, fraud) . In reality, this ag- in a cemetery or other burying place . Due to the large number gravating circumstance covers to cases . On the one hand, the of cases, pocket-picking is not only regulated as a circumstance victim’s capacity to recognize or avert the given actual crime

6 Imre Madácsi: The problems of cumulation and committing crimes in a business-like manner, Criminal law codification, Issue 1 of 2002, pages 30 – 31 [Original title: Madácsi Imre: A bűnhalmazat és az üzletszerűség problematikája, Büntetőjogi Kodifikáció, 2002 . évi 1 . szám, 30 – 31 . old .] 7 Judgment no BH1988 . 304 of the Supreme Court of Hungary . 38 Journal on Legal and Economic Issues of Central Europe

is limited . On the other hand, this restraint may also arise out tor to recognize such status . It could possibly be a better solu- of seniority or certain handicaps . It is important, however that tion if this aggravated case was linked to an actual age, since this status shall subsist prior to the commencement of perpe- such a regulation is in force in the Hungarian Criminal Code in tration, thus, it is not the crime which induces this status . The connection with the protection of children, which links the ag- legislator did not define seniority and the reasons on the basis gravating cases of certain crimes to an actual age of children . of which a certain person qualifies as a senior . Thus, the defini- We trust that the reviewing of the principles and main char- tion needs to be worked out by the judicial practice . In respect acteristics of the chapters of the new Hungarian Criminal Code of the seniority the physical and mental status of the victim on the crimes against property will assist the legislation of other needs to be examined, as well as the possibility of the perpetra- countries as well in improving the actions against crimes . 2/2014 39

The Change of Public Law in Central-Eastern European States Akos Cserny 1

Abstract The roots of the current constitutional and political-governmental models of Central-Europe shall be searched in the period of the system change. This paper focuses basically on the constitutional changes in the former socialist countries. As a result of these changes, between 1990 and 1997 almost every post-socialist state adopted a new democratic constitution. (Except for Hungary, where the constitution was only amended, but a new constitution had not been adopted since 2011). The paper is trying to find the answer, what those challenges were, that the constitutionalizers of the regime change had to respond to. Furthermore what the common or at least similar solutions, techniques and institutions were applied and introduced at that time. The paper – as a result of the author’s nationality and the fields of his scientific researches – put an emphasis to the constitutional changes in the Hungarian public law system, both in political and in economic aspects. Beside the amendment of the text of the Hungarian Constitution in 1989 and 1990, the paper introduces the most relevant decisions of the Constitutional Court of Hungary, which had been established also as a result of the system change. The decisions of the Hungarian Constitutional Court played an important role in the system change, furthermore in the establishment and in the consolidation of the rule of law in Hungary. Key words: change of public law, Central-Eastern European states, Hungary, democratic constitution, constitutional court.

The roots of the current constitutional and politico-govern- The constitutionalizing process of the regime change began mental models of Central-Europe can be found in the period of in 1989; its direct antecedents were especially remarkable where the regime shift, or rather the system change . There is, however, the transition was delayed and resulted from the previous era a slight difference between these two terms . “System change” as its integral part . This is particularly true for Hungary whose reflects a more intense and more extensive social activity that democratic transition is referred to as a ‘constitutional revolu- existed during the period . tion’ 3 or ‘the revolution of the rule of law’ 4 by some experts; It is widely known that the chain of events that culminated these terminologies are simply more sophisticated ways of indi- in the system change actually started in the Soviet Union as cating a peaceful transition . a top-down reform of the state socialism . The fact that Mikhail In the context of the Central-Eastern European constitu- Gorbachev and Boris Yeltsin considered the perestroika as the tionalizing process,5 however, the Hungarian example is consid- revolutionary renewal of socialism is somewhat contradictory .2 ered unique . In 1989 a new constitutional document was born It is obvious, however, that neither the Soviet Union nor the – practically the first new written constitution of the Central- two socialist states leading the reform – Poland and Hungary Eastern European constitutionalizing process – which is formal- – used the term “revolution” for this process at that time (be- ly regarded as a constitutional amendment . In fact, this consti- tween 1985 and 1989/90); this was probably because it allowed tution was declared provisional, but it reacted to every political for the Bolshevik revolution of 1917 to remain on a pedestal and professional challenge that was set by the democratizing and because the situation was not perceived as revolutionary . zeitgeist at the time . The fact that it did not take its place in

1 Dr . Akos Cserny, Ph .D ., Dean, Faculty of Public Administration, National University of Public Service, Hungary . 2 Krausz, Tamás: Tézisek a rendszerváltás történeti értelmezéséhez . [Thesis to the historical interpretation of the system change] In: Krausz Tamás: Vitás kérdések a Szovjetunió és Kelet-Európa XX . századi történetében . Előadások, esszék és tanulmányok . Russzisztikai könyvek XXXIII . Russica Pannonicana, Budapest, 2011 . p . 196 . 3 Szente, Zoltán: Európai alkotmány- és parlamentarizmustörténet (1945 – 2005) . [A History of European Constitutions and Parliamentarism (1945 – 2005)] Osiris Kiadó, Budapest, p . 488 – 495 . 4 Majtényi, László: A jogállami forradalom történeti alkotmánya [The historical constitution of the revolution of the rule of law] . In: És mi lesz az alkotmánnyal? Szerk .: Majtényi László – Miklósi Zoltán . Eötvös Károly Intézet, Budapest, 2004 . pp . 71 – 80 . 5 Halász, Iván: Alkotmányozás és a fontosabb alkotmánymódosítások Közép-Európában 1989 után . [Constitution-making and important constitutional amendments in Central Europe after 1989] In: Alkotmányozás Magyarországon és máshol . Szerk .: Jakab András – Körösényi And- rás . MTA TK PTI – U .M .K ,. Budapest, 2012 . p . 163 – 176 . 40 Journal on Legal and Economic Issues of Central Europe

history in this aspect is due to the decision – made for political Croatian, Romanian, Slovakian, Ukrainian and other political reasons by its creators – that the document would be called the elites confined themselves rather to significant amendments amendment of the socialist constitution of 1949 . to the constitutions . Kosovo, while becoming independent, Between 1990 and 1997 almost every post-socialist state adopted its constitution in 2008 with serious, albeit indirect, adopted a new democratic constitution . The Croats and Serbs international support . The document was necessary in order to had their constitutionalizing process in 1990; the Bulgarians, gain independence in the face of the gradual withdrawal of the Macedonians, Romanians, and Slovenians adopted their new international community . constitutions in 1991; the Czechs, Estonians, Lithuanians, and The period of the new constitutionalizing process was ended Slovaks in 1992; the Russians in 1993; the Belarusians and by Hungary with the adoption of the new Fundamental Law Moldovans in 1994; the Ukrainians in 1996; the Poles in 1997; in 2011; however, it did not radically alter the existing legal and, finally, the Albanians in 1998 . It should be noted, though, structure . The provisions intended to be conservative and con- that the Serb constitution of 1990, was voted for by the repub- sidered nationalistic did not even aim to subvert the structure lican parliament elected at the time of the one-party system and put in place at the time of the regime change . Instead, the gov- the practically omnipotent Communist League; thus, its demo- ernment wanted the past 20 years, which were declared transi- cratic legitimacy was relatively apocryphal . Its provisions were tional, to come to an end symbolically and wished to give the not even supported by the reputation of the National Round population the hope of a new beginning 9. We may say that the Table like in Hungary 6. Meanwhile, in 1995, the forced consti- outset of a new conservative based consolidation can be found tution of Bosnia and Herzegovina was born and was reestab- in the adoption in this document 10. lished by the pressure of the international community; however, One country is missing from the above list – Latvia . The Lat- this is not related to the democratic transition but rather to the vian parliament annulled the Soviet annexation of the country end of the Yugoslav Wars . Therefore, this fundamental law is in spring 1990 and some months later the Latvian democratic not a product of compromise by the local political powers but is constitution of 1922 was entered into force provisionally . Origi- instead a document forced on them by the great powers .7 nally, this was intended as a temporary solution by the Latvians The democratic constitutionalizing process of the peaceful but finally it became permanent; the public law system of the transition in Europe ended roughly with the adoption of the country continued to function and was democratic as well .11 Polish constitution in 1997 and the Albanian constitution in Only the issue of basic rights missing from the constitution of 1998 . It should be noted, however, that in the case of both 1922 had to be solved, which were enshrined in the fundamen- countries the so-called “provisional constitutions” were adopted tal law in 1998 12. in the course of the peaceful transition – the Albanians in 1991, What were the challenges that the constitutionalists of the and the Poles in 1992 . These laws were not true constitutions regime change had to respond to? What were the common – or, but rather constitutional statutes regulating the relation of pow- at least, similar – solutions, techniques and institutions that ers . As the list of basic rights was missing from the Albanian were applied and introduced at that time? Since the regime one, the previously mentioned constitutional statute was com- change entailed the renaissance of human rights issues, the plemented with a catalogue of basic rights in 1993 8. Central-Eastern European constitutions paid a much greater The later constitutions of the region, however, were estab- deal of attention to this issue than the constitutions did be- lished in a different era and were created to respond to dif- tween the two World Wars . This is, in part, a result of the fact ferent challenges . The Serbian constitution adopted in 2006, that they could take into consideration the experience of the for instance, intended to react to the disappearance of the last old West-European democracies and the activities of various remnants of Yugoslavian statehood, the collapse of the authori- universal and regional international organizations in develop- tarian regime also concerned in war crimes and marked by the ing law on human rights .13 I have already mentioned that the name of Slobodan Milosevic, and the forthcoming secession of Latvian constitution of 1922, in fact, ignored the catalogue of Kosovo . At the turn of the millennium there were several sig- basic rights . As the population of the region knew, after the 40- nificant constitutional transitions in the region, but only a few year experience of state socialism: it is not enough to declare efforts led to the adoption of a totally new constitutions . The the rights but they also need to be guaranteed . Thus, many

6 Tóth, Károly: Új alkotmányok előkészítése és elfogadása Kelet-Európa államaiban [The preparation and adoption of the new constitutions in Eastern European countries] . In: Kelet-Európa új alkotmányai . Ed . Tóth Károly . JATE, Szeged, 1997 . p . 28 . 7 Halász, Iván: Nemzetközi igazgatás a válságövezetekben – adalékok a nemzetközi igazgatás történetéhez és jelenlegi dilemmáihoz . [Internati- onal administration in the crisis areas] Külügyi Szemle IV . évf . 2005 . No . 1 – 2 . p . 254 . 8 Szente, Zoltán: Európai alkotmány- és parlamentarizmustörténet (1945 – 2005) [A History of European Constitutions and Parliamentarism (1945 – 2005)] . Osiris Kiadó, Budapest, pp . 514 – 515 . 9 Halász, Iván: Symbolic Elements in the Preambles to the Constitutions of the Visegrad Countries . Acta Juridica Hungarica, Vol . 52 . No . 2 . 2011 . 126 – 127 . p . 10 Halász, Iván: „WE THE MEMBERS OF THE HUNGARIAN NATIONS” Remarks on the Changing Concept of Nation in the New Funda- mental Law of Hungary . Journal on European History of Law . Vol . 4 . 2013 . No .1 . p . 128 – 129 . 11 Ibid . pp . 48 – 49 . 12 Szente, Zoltán: op . cit . 13 Ha l á s z , Iván: Central European Legal Assistance . Trends and Priorities After 2004 . In: Hungary’s LegalAssistance Experiences in the Age of Globali- zation . Nagoya, Nagoya University, 2006 . p . 249 – 262 . 2/2014 41 mechanisms and institutions were included in the post-socialist of state and the issue of the election process for the presidency: constitutions that were intended to provide those guarantees . directly by the population or indirectly by the parliament . Ini- Two institutions were especially popular: the separate con- tially, the head of state elected by the parliament was not un- stitutional court and the institution of the commissioner for common in the region either, but this solution has seemed to fundamental rights, that is, the ombudsman . Both institutions diminish . Several states that had decided on electing the head started to permeate slowly into the public law system in many of state by the parliament at the time of the regime change Central-Eastern states already in the second half of the 1980s changed this method later . This is valid for the Visegrad States, and became dynamic after 1989 . too – the Slovaks changed to the direct election of the head of Even though the trends and solutions were similar, it is precar- state in 1999, whereas the Czechs did only in 2012 . Currently ious to consider a totally homogenous model . While the consti- in this region the head of state is elected indirectly, i .e . by the tution of most countries specifies only one general ombudsman parliament only in Hungary and Estonia . of human rights, the Polish constitution of 1997 also included The internal categorization of the post-socialist region is the institution of the ombudsman for children . In Hungary, how- partly related to these characteristics of governmental form . As ever, four specialized ombudsmen operated before the constitu- far as we are concerned, we can distinguish three sub-regions: tionalizing process of 2011 – the parliamentary commissioners the first includes the Baltic States and Central Europe in the for fundamental rights, minorities, data protection and future narrow sense with Slovenia, the second includes the Balkan generation . Most post-socialist countries established a separate and the post-Yugoslav states, and the third includes mainly the constitutional court, but the Estonians, in fact, decided on the European post-Soviet republics – that is, Russia, Ukraine, Be- American model, so the task of the constitutional court is carried lorussia and Moldova . We note that at the same time that this out by a department of the Supreme Court instead of a separate categorization is not of absolute value, there may be significant constitutional court . According to the Estonian constitution the differences even within certain groups (for instance, between courts shall not apply unconstitutional laws . Russia with one central power and Ukraine with multi-central The post-socialist region shows a more varied picture regard- power and multi-speed, or the currently stable Croatia and the ing the forms of government . In post-Soviet Eastern Europe, the less stable Southern Balkan states .) model of strong presidential power became significant, specifically in Russia and Belorussia . Although Ukraine is vague in this respect, the position of the Ukrainian head of state is definitely stronger than those of his Central European colleagues’ . In the so-called Central Europe of Visegrad (Poland, the Czech Re- public, Slovakia and Hungary) the parliamentary governmental form is distinctly dominant, though the power of the head of state is different . The South-East European states show a varied picture in this respect, but it may also be said that after the end of the Yugoslavian wars, the power of the parliament started to increase even in the countries where strong authoritarian presidential regime was established due to war (for example, Serbia, Macedonia and Croatia) . Despite the significant strengthening of the parliaments, the position of the head of state remained substantial in these countries . There are intensive debates about the Romanian form of government whether it is half- presidential or merely parliamentary-presidential . However, it should be considered that it is basically parliamentary, which Hungary is made more colorful by the rather independent institution of the head of state . The Romanian system shall be judged appro- The Act of 1989 amendment to the Constitution of the priately on the basis of the actual operation . The seriousness of Hungarian People’s Republic, named the “constitution of the the elected head of state directly increases if he can rely on the regime change” and the cardinal acts attached to it shall primar- stable parliamentary majority that supports him, or is able to ily be the basis of the answer to the question of what effect the cooperate with the head of government . It can make his situa- regime change had on the Hungarian constitutional structure tion significantly easier if the latter is not the leader of the party and what public law changes it resulted in . at the same time . However, in the case that the head of govern- The amended constitution promulgated on 23 October 1989 ment has strong parliamentary support and is also the leader was established within the legal frames of the Soviet communist of a strong party, the position of the head of state also weakens constitution, the constitution of ’49, on the “grounds of legal- structurally . Similar duality is characteristic of Lithuania, which ity”; its preamble includes the following sentence: ”…- hereby the literature considers sometimes a half-parliamentary, but establishes the following text as the Constitution of the Republic of Hun- sometimes half-presidential form of government . gary, until the country’s new Constitution is adopted… There are relatively significant differences between the states Based on this the primary aim of the Act XXXI of 1989 was of the region with regard to the actual legal status of the head to help the “peaceful political transition into the rule of law”, 42 Journal on Legal and Economic Issues of Central Europe

and establish the multi-party system, parliamentary democracy, Constitutional Court at statutory level proves the close connec- and social market economy . This transition period, in the sense tion between the Constitution situated at the top of the hierar- of public law, lasted for 22 years in Hungary, until the adoption chy of law and the Constitutional Court protecting the consti- of the Fundamental Law of 2011 14. tutionality of laws . On the basis of the preamble of the Act on The Fundamental Law – as I have mentioned previously – the Constitutional Court, the Constitutional Court was estab- placed the system of basic rights and duties on new bases . It lished by the National Assembly in order to build up the rule of declares that the Hungarian Republic acknowledges the invio- law, protect the constitutional order and basic rights guaranteed lable and inalienable rights of man, whose respect and defense in the Constitution, and establish the separation of powers and are the primary duties of the state . Rights have been enshrined their mutual balance . The Constitutional Court might be the in the article on basic rights that were not included before, such symbol of the paradox nature of the regime change: a revolu- as the freedom of enterprise and economic competition, the free tion under Constitutional Court control . However, nobody was movement and free choice of residence, the right to access and aware of this aspect at the time of the establishment of the Con- disseminate data of public interest, or to hold strikes . stitutional Court . The Constitutional Court belonged to the Due to the amendment of the constitution of 1989 there tools/instruments of the desired rule of law . The Constitution was a major transitional period in Hungary, which meant the made democratic by an amendment was worth “protecting” by end of the socialist state, paving the way towards democracy the negotiating political parties; the existence or non-existence and the rule of law . Among these changes there were some that of the Constitutional Court was a relatively insignificant part of became tangible immediately, such as the transformation of the a greater political bargaining . Neither Europe nor the Council party system, free parliamentary elections, and consequently of Europe regarded the existence of the Constitutional Court the change in the political composition of the National Assem- the requirement of Hungarian democracy . However, as it was bly – which provided for the legal continuity between the suc- established it has become a responsible guard of the transi- cessive political systems . tion methods unassailable in the aspect of the rights of liberty, The political parties as institutions and the electoral laws makes decisions on the exceptions where the legal continuity as legal filter mechanisms are parts of a whole that we usually can be broken, and transmits the content of the basic rights indicate with the terms of political pluralism and multi-party created and exercised in the democracies of the world with its democracy . The parties – that participate in the formation of interpretation activity . the will of the people and its manifestation – can be formed Initially the Constitutional Court made significant decisions and act freely with respect to the Fundamental Law and Con- in connection with the regime change, for example the Consti- stitutional laws . In order to guarantee this, their activities shall tutional Court resolution of 23/1990 (X .31) on the unconstitu- not involve gaining and exercising power violently, or possess- tionality of capital punishment,15 or the Constitutional Court ing it exclusively . At the same time, the most telling example of decisions of 9/1992 (I .30) and 11/1992 (III .5) on the criterion Hungary’s incomplete transition of public law is perhaps that system of the rule of law .16 the efficient regulation of transparent management and finance The basic frameworks of the rule of law were established in of political parties has been unsolved, which upholds the pos- the course of the constitutionalizing process of 1989 and the sibility of corruption and slightly hinders the promotion of the ensuing state-building . In the following years, the consolidation principle of equal opportunities . of the basic institutions and ensuring their consistency had to There were also products of constitutionalizing at the end be worked on . In building the system of the rule of law, it was of the ‘80s that were influential in the transition process of the less and less justified to maintain the nature of transition, the past 25 years . The Constitutional Court, the President, the country needed a stable civil democratic structure . In the sense State Audit Office, ombudsmen, and local governments are for of public law this process was ended by the aforesaid adoption example types of “institutions of regime change” . of the Fundamental Law of 2011 in Hungary . On the basis of the numbering of Acts of Parliament the Besides the political and public law transition, however, in amendment to the Constitution in 1989 (Act XXXI) was fol- the last decade of the 20th century the economic change re- lowed by the Act on the Constitutional Court (Act XXXII) . The lated and due to the aforesaid took place as well . As a result consecutiveness of the two acts cannot be considered a coinci- of the privatization and “de-nationalization” of the economy, dence, as their adoption was carried out with respect to each the market economy started to emerge also in Hungary and other . The subsequent adoption of the Constitution and the consequently the distribution of property changed, too .17 The

14 Halász Iván: Creation and Characteristics of the new Fundamental Law of Hungary . The Lawyer Quaterly, 2011 . September, Vol I . No . 2 . p .85 – 105 . 15 For further details, see: Tóth, J . Zoltán: Halálbüntetés pró és kontra [Reasons for and against death penalty] . HVG-ORAC, Budapest, 2012, ISBN 978-963-258-177-4 . 16 Sólyom, László: Az alkotmánybíráskodás kezdetei Magyarországon [The beginnings of the constitutional court’s jurisdiction in Hungary], Osiris, Budapest, 2001 . 17 Soós, Károly Attila: Rendszerváltás és privatizáció . [System change and privatisation] Corvina Kiadó, Budapest, 2009 . For a historical survey about the development of the constitutional protection of property ownership see: Téglási András: A historical survey about the development of the constitutional protection of property ownership . In Studia Iuridica Caroliensia 4 . Károli Gáspár Református Egyetem, Budapest, 2009 . pp . 219 – 234 . 2/2014 43 amendment to the Constitution set out the equal protection of demolished, transformed: through privatization or reprivatiza- public and private property .18 tion 23. The actual constitutional problem was: to what extent The new provisions due to the constitutional system change the previous nationalizations can be regarded unconstitutional . of property created the constitutional basis of the start of the It is important to note that the intent of the redress of – politi- process, the result of which a great part of the national asset cal – grievances suffered in the previous system also played an nationalized nearly on the whole after 1945 could be privatized important role in defining the solution methods . again in 15 years 19. This privatization process, taking place in The Constitutional Court decision made in the first period a relatively short period in the aspect of history, played a signifi- of its operation proved to be crucial not only in the field of cant role in the creation or revival of market economy (at the the constitutional protection of property, but also in the aspect start of which the rate of state property exceeded 85 percent .) 20 of the development of the entire legal system . The court also By now, nearly four-fifths of the Hungarian economy has been took decisions that the Parliament could not – and presumably privately owned .21 did not want to – make, namely in which form the privatiza- The comprehensive amendment to our Constitution in 1989 tion shall be carried out in Hungary . The Constitutional Court was inspired by the negation of the existing distribution of stated that – except for a narrow group, the previous church property of that time . This meant the rejection of the previous property and land – there is no room for reprivatization; the socialist system of property ownership leveling at the system- privatization of state property and compensation could take atic eradication of private property – which was carried out suc- place instead . In choosing the process of state property privati- cessfully regarding capital goods .22 The harmonization of the zation it was crucial that ascertaining the original owners would legal and political dimensions of this new system of distribution have been impossible due to the changes in ownership after of property had to be carried out by the Constitutional Court, the nationalizations . But the investors purchasing state proper- enabling the creation of the new distribution of property differ- ties expected to buy them from the original owners . It is to be ent from the previously existing ones . noted that reprivatization was carried out (in case the subject In the course of the regime change, the problem of carry- and object were known and they could be connected to each ing out the compensation to be given for the deprived proper- other) practically in every post-communist country – including ties emerged first, or rather the claim for restitution of those Germany, Croatia, Romania and Ukraine, even Poland (where who suffered non-material damage in the past systems (from the land of the peasants were not collectivized to such extent as 1939), so those who were persecuted or suffered disadvantages . in our country) – except for Hungary 24. Primarily the problem was how the old system of the distri- In Hungary the compensation as decided by the Constitu- bution of property, which gave absolute priority to the state tional Court was regarded as given on the ground of equity, i .e . (social) property against all other forms of property, should be ex gratia and not on subjective right 25.

18 Téglási, András: A tulajdon alkotmányos védelme Magyarországon az Alaptörvény hatálybalépését követően. [The constitutional protection of property in Hungary after the entering into force of the Fundamental Law] in: Drinóczi Tímea – Jakab András (szerk .): Alkotmányozás Magyarországon 2010 – 2011 . I . kötet, Pázmány Press, Budapest – Pécs, 2013, pp . 307 – 310 . 19 Téglási András: A tulajdoni rendszerváltás egyes alkotmányjogi aspektusai . [Some constitutional aspects of the property system change] In: A Köz- társasági Alkotmány 20 éve (Tanulmánykötet) . Ed .: Kocsis Miklós – Zeller Judit . Published by Pécsi Alkotmányjogi Műhely Alapítvány, Pécs, 2009, p . 307 . 20 Téglási, András: Transformation of the property system in the Hungarian constitutional law . In: Studia Iuridica Caroliensia 5 . ISSN 1788-0246 . Pub- lished by Károli Gáspár Református Egyetem, Budapest, 2010, p . 160 . 21 Téglási, András: Transformation of the property system in the Hungarian constitutional law . op . cit . 22 Téglási, András: A tulajdon védelme Magyarország Alaptörvényében – különös tekintettel az alkotmánybírósági gyakorlat lehetséges változásaira . [The protection of property in the Fundamental Law of Hungary – with special respect to the possible changes in the jurisprudence of the Constitutional Court] Alkotmánybírósági Szemle, 2013/2 ., p . 116 . 23 For further details about the constitutional property ownership guarantee in the field of agriculture in Hungary see: András Téglási: How is property ownership guaranteed constitutionally in the field of agriculture? Journal of Agricultural and Environmental Law, CEDR Hungarian Association of Agricultural Law, No . 2009/7 ., pp . 18 – 29 . 24 Téglási, András: A tulajdoni rendszerváltás egyes alkotmányjogi aspektusai [Some constitutional aspects of the property system change] . op .cit ., pp . 313 – 314 . 25 Téglási, András: A tulajdoni rendszerváltás egyes alkotmányjogi aspektusai [Some constitutional aspects of the property system change] . op .cit . pp . 311 – 312 . 44 Journal on Legal and Economic Issues of Central Europe

Are Social Rights Obstacles to Flexibility? Henriett Rab,1 Peter Sipka 2

Abstract The paper examines the effects of the theory of flexible working to the effective protective power of social rights. Our starting point is to examine the effectiveness of social rights according to the present tendencies of employment and the utility of flexibility in proportion/relation to the emergence of the instruments of social protection beyond the claim of security of employees. So the aim is to reveal whether the social rights are obstacles to the establishment of flexibility or they are simply forced into the background according to the different interests. As a conclusion we suggest that the total revision of the system of concepts in labour law is needed. Key words: social law, labour law, employment protection, flexicurity.

Introduction legal relationship in which the core duty of the worker is to submit his /her labour power for the employee must be concerned, The world of labour has become more and more internation- because this proper is the delimitation between civil law and al and this process resulted in a new direction of evolution of labour law based (classical/typical) legal relationships .4 employment law in Europe, especially in the European Union . Our standpoint is that if a legal relationship incorporates this This evolution is countermarked by the concept of “flexicurity” . above mentioned attitude, the protective function of labour law Employment has always had a close connection with the eco- should appear vigorously irrespectively of its title . nomic stability because of the employers’ interests; but increas- In this paper we will examine the effects of the theory of flex- ing the capacity became more determined by the rapid progress ible working to the effective protective power of social rights . of technology . An important human instrument of this is the Our starting points are the following: more efficient employment, for which the flexible forms of em- -- Social rights create clear limits for settling working condi- ployment are the appropriate alternatives . It is always hard to tions in the typical working relationships . distinguish correlation from causation when analysing the nex- -- The need for flexible working conditions effected new types us between economic performance, employment creation, and of legal relationships in which the fundamental (labour law labour market organisation .3 The regulation of employment is connected) social rights cannot be provided on the same constantly changing; and the interest of the employers and the level needs of the labour market both become part of this regulation . Flexibility emerges in connection with establishing the legal The Formation of the Present Situation frames of atypical forms of employment and these forms are widespread . This phenomenon plays a key-role also in connec- Since the 70s the status of the workers employed improved tion with guaranteeing the fundamental labour rights . following the harmonization of laws in the EU because of Therefore the observation of the development of labour strengthening social protection and the more outlined character- law cannot be limited to the legal relationships based on the istic of these rights . The Council of Europe came forward with national Labour Acts, because there are a lot of worker who new conventions on increasing the level of social protection, for perform work beyond the scope of classical (labour law based) example the Revised European Social Charter reinventing the legal frames, but if we observe the main attributes of these con- European Social Charter or the European Code of Social Secu- nections, it would be hard to explain why those workers do not rity . Both of these conventions define social rights in general . deserve the same protection as the employees . Therefore every Similarly, the scope of the International Labour Organization

1 Dr . Henriett Rab, Department of Agricultural, Environmental and Labour Law, Faculty of Law, University of Debrecen, Hungary . 2 Dr . Péter Sipka, Department of Agricultural, Environmental and Labour Law, Faculty of Law University of Debrecen, Hungary . 3 DE VOS, M .: European Flexicurity and Globalization: A Critical Perspective, The International Journal of Comparative Labour Law and Industrial Relations, Volume 25/3, 2009, 209 . 4 BARNARD C . – DEAKIN, S . – KILPATRICK, C.: Equality, Non-discrimination and the Labour Market in the UK, The International Journal of Comparative Labour Law and Industrial Relations, 18/2, 2002, 130 . 2/2014 45

(ILO) conventions and the number of the countries ratifying fundamental principles of social law are revalued because they them are also expanding . Last but not least, the EU itself is try- will give the essential framework for the legal connections . ing to increase the level of social protection in more and more In case of persons performing work not within the frames areas by declaring the fundamental social rights and by defin- of employment relationship it is very difficult to guarantee le- ing the workers’ rights on the level of an EU convention (see: gal protection because of several aspects as follows: employees’ European Employment Strategy) . This development is a neces- protection of interests does not pay attention to this problem, sary consequence of the process where the economy has became and the protectionist intervention of the state is limited only to more and more transnational in the past decades . In addition prohibit false establishment of employment relationship . Dis- the cooperation of the EU Member States has resulted that the positivity in civil law leads undoubtedly to boundaries in the labour law also crossed the borders, so the supranational regu- context of labour protection but at the same time it must be lation of some labour related legal relationships was no longer stated that the legislator does not want to establish such protec- avoidable . It is remarkable that some experts of labour law say tive rules like in the field of labour law . For example in the case the developing law of the EU is the most important route to of contract for professional services the work performed and maintaining social and labour protection in the face of market the result of the work both is the subject of the legal relation- fundamentalism 5. As a result of these achievements the workers ship but not the continuous process of work . A fundamental employed has became a well protected group, and this protec- obstacle to create unified regulation and protection at EU level tion mainly originated from the respected social rights . is the lack of unified system of concepts related to employees, At the same time, with this statement is only relevant to self-employees and even the employment relationship .6 This a limited extent besides strengthening the workers’ protection gap comes from the protection of the legal system of the Mem- employed not in an employment relationship but performing ber States and the primary economic purpose of the regulation work in modern employment relationships; one direction of this of labour law . This resulted the following: the EU legislation progress is the concept of the so called atypical employment declared the personal scope in connection with the legal institu- relationships within the frames of labour relationships and the tions as a concept, which can replace the unified concept of the work performed beyond these frames . The harmonization of employee . In connection with free movement the regulation on laws did not strengthen to the necessary extent the protection social co-ordination defines self-employed persons as a group, of the employees performing labour not in an employment re- which belongs to the personal scope of these legal guarantees . lationship, so this way the legislation of the EU supported the Free movement became step by step the fundament of a general unbalanced nature and inequality of the protection of labour economic and social EU citizenship because of the purpose of and social rights . This phenomenon also led to an implicit step establishment of the common inner market, which overgrows back in the level of social protection despite the accomplish- the traditional sphere of labour law 7. The ECJ stated in Hoek- ment of social rights . The employment-based social legislation stra 8. that the concept of worker (employee) has an independent in the EU has a protectionist attitude, which focuses not on meaning in community law, which is independent of national increasing and guaranteeing employment but on the protection laws and this meaning is beyond the traditionally accepted defi- of those who are already engaged in work . nition of worker in labour law . The ECJ follows this judgment This attitude led to a dual regulation in the labour market . consequently . According to this interpretation worker means The workers who are performing work in a typical form of em- a person who performs paid work temporarily or permanently 9, ployment (we can call it first level of employment) enjoy all the with disregard to the nature of the legal relationship .10 . advantages that the labour law of their member state provides Regarding the EU level of social protection persons who perfor them, because the Member States have clear and strict la- form work not within the frames of employment relationship bour law regulations in order to protect them . The effect of fall under the same adjudication as the employees but this does the social law predominates in these legal connections, in most not mean that disadvantages can easily be evaded in practice, cases they also have statutory health insurance and their super- because this latter is realized within the frames of national em- annuation tax is paid . ployment policy and regulation and this is the fundamental The workers of the “flexible labour market” (we call it sec- task of the national legislation and jurisdiction . ond level of employment) have less protection in their legal connections . Because of the wide range of the atypical param- The Requirements of the Modern Employment eters, the way they perform their work is less regulated, which Our starting point is to examine the effectiveness of social also means that in case of a legal dispute the lack of regulation rights according to the present tendencies of employment and effects defencelessness . Therefore on this level the role of the the utility of flexibility in proportion/relation to the emergence

5 HEPPLE, B .: Fundamental Social rights since the Lisbon treaty, European Labour Law Journal, Volume 2 (2011), No . 2 ., 151 . 6 GYULAVÁRI, T .: Szürke Zóna, A munkaviszony és az önfoglalkoztatás közötti jogviszonyok Európában és Magyarországon, Habilitációs Értekezés, Eötvös Lóránt Tudományegyetem, Állam- és Jogtudományi Kar, Budapest 2010 . (kézirat, lezárva 2010 . június 7 .), 146 – 147 . 7 COUNTOURIS, N :. The Changing Law of the Employment Relationship, Ashgate Publishing, Aldershot, 2007 ., 198 . 8 75/63 . Hoekstra v Bestuur der Bedrijfsvereniging voor Detailhandel en Ambachten [1965] ECR 177 . 9 SCHOUKENS, P . (editor): Social protection of the self-employed in the European Union, Kluwer Law and Taxation Publishers, Deventer-Boston, 1994 ., 44 . 10 344/87 Bettray [1989] ECR 1621 paragraph 16, valamint C-357/89 Raulin [1992] ECR I-1027, paragraph 10 . 46 Journal on Legal and Economic Issues of Central Europe

of the instruments of social protection beyond the claim of se- lose the chance of getting the achievements of the classic labour curity of employees . So the aim is to reveal whether the social and social law . But on the other hand if social rights are guaran- rights are obstacles to the establishment of flexibility or they teed on the highest level in all working forms the labour market are simply forced into the background according to the differ- becomes inflexible and ineffective which creates less economic ent interests . production and less workplace in the long run . Darwin’s thesis – according to which not the strongest or the The emergence of flexibility is two-sided in the regulation; most intelligent race survives but the one, which can change the it appears in connection with adjusting labour law to the la- fastest – can be the starting point . This can be imported into bour market and in connection with the increasing level of la- labour law as follows: the labour law system, which can adapt bour law norms based on dispositivity . It does not matter from the best and the fastest will be the “winner .” 11 If we place the which viewpoint we are trying to examine this legal problem, labour law regulation in its life-like medium, the labour market the adaptability of the system of labour is the most stressed 16. then the need for flexibility is unavoidable in connection with The balance must be achieved between the acts increasing efficient employment . Flexibility appeared undoubtedly with competitiveness and social function, which is a key element the atypical forms of employment . The legal frames of social of the concept of worker . So we can reach the question raised protection are established nowadays with the fundamental la- in the title of this paper because if we try to find this balance bour guaranties in spite of the states’ retreat from legislation, we have to find balance between two opposite poles, namely which is based on economic reasons . With the intensification flexibility (which means competitiveness in this context) and of the effects of civil law the intention to consummate the prin- social security . A rate, which is acceptable by both sides, should ciple of freedom of contract has appeared 12. In this context flex- be found . The first pole is the legal protectionist viewpoint, ibility can be regarded as a complex concept; it means the regu- which is common among the developed countries in Europe lation of flexible labour market, flexible forms of employment and the other pole is the regulation of the United States of and also the flexibility of the legal regulation itself 13. America, which is based on the state’s intervention only in The relationship between labour law and flexibility is two- a narrow circle . sided, because on the one hand it is a supported aim because The viewpoint of civil law – based on the principle of free- of the improvement of the employment situation according to dom of contract – marks the less protectionist approach, so the the labour market’s situation; and on the other hand it can only headway of civil law in labour law regulation can easily lead to have limited effect in connection with keeping the social pro- the weakening of the social protective function . It is the task tection’s already achieved level . Flexibility is today’s ideology 14 of the legislation to monitor this process but the state cannot to improve the labour market’s state and at the same time for leave out of consideration the priority of the increasing of the satisfying the need for labour law, which is in accordance with economic efficiency because of the appropriate assurance of the the expectations to improve economic efficiency . We must not budget . forget that the solutions that mean a competitive method for In the EU level we can find another point of view . The EU the employer can mean at the same time uncertainty and dan- legal sources can provide a transnational effect with which the ger for the employee .15 To find a good balance point, a very im- processes of the transnational labour market (TLM) can be reg- portant issue must be decided by the Member States, namely: ulated centrally . Since the Green Paper 17 it is declared that the Which attribute is more important; flexibility or security? This economic-friendly approach cannot be circumvented, moreover problem can be formulated in a different way: Should law assist it is a well accepted outlook that the aim of law is to “serve” the economy to provide an economic-friendly legal framework for economy . As a result of this, some member states has cut off the development, or should it give the strict legal limits in order to limits of social protection in order to speed up their economy . protect the workers no matter in which legal relationship they In some cases (e .g . Poland) it was communicated as a tempo- provide their work? rary restriction, but in other countries (e g. . Hungary) the re- In the national level if the economical approach is the de- codification of the Labour Code was clearly dedicated to help termining arranging theory, the law has not got enough power employers to perform better in the international competition . in every type of working to enforce those principles which tra- But on the other hand due to the sources of EU’s primary verse the unprotective regulations . Using this solution effects law the basis of social rights is very strong so the core of social that a great number of workers having atypical labour relations rights is stated and respected . This parallel requirement appears

11 BANKÓ, Z.: Az atipikus munkaviszonyok, Dialóg Campus Kiadó, Budapest-Pécs, 2010 ., 36 – 37 . 12 FIRLEI, K .: Neue Formen und Aspekte atypischer Arbeitsvehältnisse . In Floretta, H . (szerk .): Österreichische Landesberichte zum Internationalen Kongress für das Recht der Arbeit und der Socialen Sicherheit in Caracas . Wien, 1985, Manzsche Verlag, 1985, 32 . 13 BREWSTER, C . – MAYNE, T . – TREGSAKIS, O .: Flexible working in Europe . JWB, 1997/2, 137 . 14 CARUSO, B .: The Concept of Flexibility in Labour Law. The Italian Case int he European Context . Catania, 2004 ., Universita degli Studi di Catania, 22 . 15 FAHLBECK, R .: Towards a Revolutionised Working Life . The Information Society and the Transformation of the Workplace . IJCLLIR, 1998/3 ., 9 . 16 BANKÓ, z :. Az atipikus munkaviszonyok, Dialóg Campus Kiadó, Budapest-Pécs, 2010 ., 40 . 17 Commission Green Paper of 22 November 2006 entitled „Modernising labour law to meet the challenges of the 21st century“ [COM(2006) 708 - not published in the Official Journal] . 2/2014 47 in the EU legal instruments 18 as well, which are the basis of and also the guarantees of labour emergence in a unique way . the regulation of atypical forms of employment because it is But if we examine the atypical employment relationships from a fundamental purpose to serve the labour market flexibility the point of view of social rights and social security we can and the security of the employees at the same time . According find serious infringements of these fundamental rights because to this special requirement was the technical term for flexicur- of the ignorance of labour rights and the lack of approxima- ity born in the legal literature . The need for security appears on tion of other legal norms . This can lead to the depreciation the side of the workers and flexibility appears on the side of the of the labour and social rights generally recognized in long- employers, but only through the needs of the labour market . term . Take a simple example: if the third party employer is So we can state that the basic problem is the fundamentally liquidated, wage guarantee will not secure the discharge of the different legal status and position of the parties and in addi- workers wage who works within the frames of manpower-lease . tion we must take into consideration the only formally exist- Hungarian labour law has already taken the road, which leads ing equality of the parties, which is based on the principles of to a lower protection of labour and social rights because of the private law . The following opinion is clearly made up by bodies new tendencies; namely, the growth of employment is more dealing with atypical employment (especially agency work), or- important than the employment relationship itself and its ganisations dealing with protection of interests: the basis of the guarantees . This process does not take into consideration the employees’ revulsion from these forms of employment is the protection of fundamental social rights, either . In this system fear of the unknown, namely the replacement of the classical, social rights are not obstacles to the establishment of flexibility well-protected and legally guaranteed employment relationship but at the same time their emergence at high level will not lead by some kind of new forms of employment . With proper guara- to this result for sure . nees and notification it is clear that flexibility can serve stability An evaluation after five years of operation of the European the most,19 that is labour law regulation has to secure efficient Employment Strategy as regards the adaptability pillar was crit- economic frames and this way the states can find the acceptable ical .20 It had failed to introduce a balance between flexibility, guarantees for the workers’ rights . The role of the law is to find security and job quality; flexibility had increased to the detri- instruments, alternatives for solution, which means – within ment of employment security .21 the frames of the present system of labour law – establishing Some experts 22 – a bit far from the world of labour law – alternative forms of employment and their appropriate legal approach this question from the concept of flexible knowledge guarantees . highlighting that flexible knowledge can give the employees the To achieve this goal a very important step would be to create security they need instead of social protection . This aspect is and accept a common definition which can take in all the legal beyond the sphere of law and is very human resource manage- forms of working . The main attribute of this should be the judgment-centred, but/and it can also be an alternative for the leg- ment of labour power . In case the centre of the worker’s duty islation, which can replace – but in to our opinion only supple- is to submit his/her labour power for another party, the legal ment – the strict legal regulation . relationship should be considered as a labour relationship . With It is uncontroversial between labour lawyers that the main this approach a wide range of workers, self employees could purpose of labour law is to protect the employee, but there are be protected on a higher level and it would be easier to create clashing options about the level of this protection . The com- a more homogeneous transnational labour market where the mon ground is the importance of the fundamental rights, which limits for the employer would be clear, strict and common . cannot be restricted with economic reasons . With this approach the title of the legal relationship is no longer important, if the Conclusions and Recommendations: given situation has a connection with any fundamental right, The effect of the economic processes influencing the labour the protection is provided . But getting to this common line market cannot be put aside because the employment relation- Member States and EU have to cooperate to find a solution ship – as a living organism – has an inevitable mutual effect which is applicable in every State and acceptable for them . It on the social and economic processes . But it is not advisable is a difficulty that the labour law of the Member States is not to approach these relations only from the side of the need to harmonised, and therefore the approximation is always hard increase employment – or in other words: increasing economic and slow . On the other hand, the unequal legal situation of the growth – because of the specialities of the atypical employment workers is not acceptable and the sustenance of this legal en- relationships . Especially, these forms of work were established vironment will cause serious disadvantages in the global eco- by the special interests of employers and situations of workers; nomic competition too .

18 For example the third of the four pillar of the European Employment Strategy is entitled ’Encouraging adaptability of businesses and their employees’, and it covers adaptability in terms of the organisation of work, working patterns and contracts, as well as adaptability in terms of regulatory and training systems . As we see it recognises explicitly that a balance must be struck between the need of business for flexibility, and the needs of employees for security and employability, and the striking this balance will not always be an easy task . 19 KISS, Gy .: Munkajog, Osiris Kiadó, Budapest, 2006 . 20 Taking Stock of five Years of European Employment Strategy, COM (2002), 17 July 2012 ., 416 . 21 Bercusson, B .: European Labour Law, Cambridge University Press, 2nd edition, 2009 ., 176 . 22 Ann Numhauser-Henning: In: Numhauser-Henning, A .: . Flexible Qualification – a Key to Labour Law? The International Journal of Comparative Labour Law and Industrial Relations, Volume 17/1 ,. 2001 ,. 101 . 48 Journal on Legal and Economic Issues of Central Europe

The concept of flexicurity, which should mean without decreas- flexibility and security but the total revision of the system of ing flexibility the decrease of the employees’ uncertainty can be concepts in labour law is needed instead . It is unnecessary to a correct solution but at the same time further tasks for the leg- create norms for personal work-performing relationships in la- islation . We must also take into consideration that this problem bour law, which aim more or less security or flexibility because is not primarily a legal problem because of its economic, relative first the labour law regulation has to define precisely the per- and emotional nature . In our opinion this fading nature of flex- sonal scope of these rules and this is the task mainly of the ibility leads to difficulties of establishing security and to constant national legislation .23 challenges for the legislation . The EU has created and applied A similar standpoint has evolved in the international legal successfully the Open Method of Coordination (OMC), which literature, for example according to Freedland and Countouris can be a way to find balance both at EU and national level . creating the concept of personal employment contract instead The most important consequence of the European debate of classical employment contract can be a way to secure labour according to Gyulavári is no more the balance needed between law guarantees in a broader sense .24

23 GYULAVÁRI, T .: Szürke Zóna, A munkaviszony és az önfoglalkoztatás közötti jogviszonyok Európában és Magyarországon, Habilitációs Értekezés, Eötvös Lóránt Tudományegyetem, Állam- és Jogtudományi Kar, Budapest 2010 . (kézirat, lezárva 2010 . június 7 .), 155 . 24 FREEDLAND, M . – COUNTOURIS, N .: Flexibility of the labour market, 2006 . http://www .publications .parliament uk/pa/ld200607/ldselect/. ldeucom/120/120we18 .htm . 2/2014 49

Pre-trial Detention during the Investigatory Phase in Hungary Krisztián Szabó 1

Abstract Liberty is a prodigious worth and it is doubtful that people recognize it’s real importance in daily life. It was not protected and defended in the most ferocious period of the history, hereby numerous human lives and destinies were ruined. In a state founded on the rule of law we must belive that in absence of legally binding judgement establishing criminal responsibility deprivation or restriction of liberty is only occured in the really justified cases, in the most necessary level and period, and in compliance with the regulations entirely. However, according to the Hungarian scientific literature and practice, the Hungarian court’s decision-making concerning pre-trial detention is „automatic, schematic or stereotyped”. In this study I examine the practice of the Hungarian courts concerning the pre-trial detention ont he basis of Act XIX of 1998 on Criminal Proceedings. Key words: pre-trial detention, investigatory phase, criminal procedural law, Hungary.

1. Automated Decision Making justification can not be found in case of judicial decrees ordering or maintaining pre-trial detention, mostly .5 „Automatic, schematic or stereotyped” – the Hungarian bib- I wish to make it clear that the problem – according to my liography’s 2 most frequently used terms related to the ordering judgement – is not the rulings related to pre-trial detention of and maintaining of pre-trial detention, and neither case-law nor Act XIX of 1998 on Criminal Proceedings basically, but the de- the statictics make the usage of these not flattering attributives veloped case-law which has been abandoned from the norms inappropriate . Similar problems had been described by bibli- despite of the Debrecen Regional Court of Appeal’s order men- ography 3 related to this subject for more than one decade yet, tioned recreative exception . It is an unfortunate and not unique consequently it is easy to see: situation has not changed during incident in case of the Hungarian criminal procedure’s contem- the past period of time . Automatisms providing easier decision porary history . It is enough to think about the provisions of the making, spreading of justification and argumentation schemes 4 8/2013 . (III .1 .) Constitutional Court Decisions, in which the had been thrusting into the background slightly . Substantive Constitutional Court has determined the prosecuting authori-

1 Dr . Krisztián Szabó, Faculty of Law, University of Debrecen, Hungary . 2 Szilárd Holhós-Kovács shows „automatic, schematic” judicial decision in his study, Communiqué issued after the meeting of the Local Expert Group (Hungary) of Fair Trials International (FTI) deals with „automatic” judicial approvingin relation to prosecutor’s motion, and Ferenc Kőszeg pays attention to similar problems in his study of 2011 among others . See in detailed: Szilárd Ho l h ó s -Ko v á c s , Pre-trial detention pro and contra from the point of judicial proceedings and decrees; Journal of Judges, 2011, 1 – 2 . issue, 130 – 145 ;. Communiqué issued after the meeting of the Local Expert Group (Hungary), 21 February 2013 .; Ferenc KŐSZEG, Crime, prison population, pre-trial detention, Review of Internal Affairs, 2011, 4 . issue, 5 – 31 . 3 For example the Court of Hajdú-Bihar County’s council leader’s announcement of 23 May of 2001 – published on 2001 . El . II . C . 6/6 . number, 2001 ., with the title: Some practical questions arised in the scope of coercive measures restricting liberty – has established that: „it is arised infrequently that after the prosecutor’s motion extending pre-trial detention the judge hands down a decision in contradiction with the motion of the presecutor” and „it is a repeating text in the prosecutor’s motion that conditions of pre-trial detention are exist invariably […] judgement of applications about releasing has becomed especially schemtaic with regard to the mentioned” 4 In detailed about this: János BÁNÁTI – András Kristóf KÁDÁR – Mátyás BENCZE, Institution of pre-trial detention and appointed counsel for the defence, Foundation, 2005, 2 . issue, 49 – 64 . 5 I refer as a recreative exception to the decree of the Debrecen Regional Court of Appeal No . Bnyf .II .394/2008/2 ,. which – beside the establishment that court of first instance has not fulfilled it’s justifying obligations – calls the attention to the followings: „special grounds have to be verified individually, and in the justification it has to be named that what conditions can establish these grounds and what reasons can be against these grounds.” Thereafter the decree analyses the pro and contra reasons of pre-trial detention in the concrete case in detail, over seven sides of paper, contrary to the two-three pages of provisions of the investigation judge . 50 Journal on Legal and Economic Issues of Central Europe

ties’ unconstitutional methods related to rights of defence with justifying special arresting grounds determined in Paragraph (2) regard to certain powers of disposal 6. of Article 129 of Act XIX of 1998 on Criminal Proceedings on I would like to emphasize that I deem the legal institution behalf of prosecuting authorities . But if the defendant could not of pre-trial detention necessary, which is reasonable and justifi- expect it even from an independent and unprejudiced investi- able applied in many cases, as a matter of fact . Simultaneously, gating judge, then from whom? It would be important to make case-law of the imposition and maintenance of the most seri- investigating judges realize that their duty is not the assisting ous coercive measures is strongly demurrable and it’s scope is the investigating authority and the prosecutor in their work con- not constricted to the really justified case . It is inadmissible in sidering the interests of investigation . Investigating judge is the a state founded on the rule of law . In connection with pre-trial legal institution taken over from the German Code of Criminal detention it is worth emphasizing that if the prosecutor and Procedure, it’s main function to put procedural safeguards into judicial practice applied the provisions of Act XIX of 1998 on effect and to protect basic rights during the investigatory phase . Criminal Proceedings, the relating decisions, the provisions of On the basis of Constitutional Court Decision No . 166/2011 . the European Court of Human Rights (hereinafter: ECtHR), (XII 20. ). it is unanimously opposed to the fundamental law and the directions of Act XIX of 1998 on Criminal Proceedings’ an- contrary to the stipulations of the international convention to notations and explanations completely, the number of critical use any investigation tactics method in the decision making 7. reflections would reduce to a minimum and the present study In 2012, on the basis of investigating authorities’ proposals would not have born . investigating judge ordered the most serious coercive measure in 5334 cases from 5699 prosecutor’s motions ordering for 2. Lack of Researching Alternatives pre-trial detention . It means a 93,59 % ordering ratio, which Prosecuting authorities, as a first step, should research that was 95,51 % in 2011 and 96,79 % in 2010 8. These numbers whether criminal procedure purposes can be attained by lighter corroborate the automatism that investigating judges order coercive measures compared to pre-trial detention . It is not only pre-trial detention in the most motions of the prosecutor not a requirement worked out in legal theory which can be left out considering the possibility of lighter coercive measures . The of consideration by the practising lawyer with confident emi- establishment of „detention is the general rule not the excep- nence, but an expectation laid down in Paragraph (2) of Article tion” is not excessive, indeed . Naturally, as the explanation of 60 of Act XIX of 1998 on Criminal Proceeding or in Decision statistical data relating to order for pre-trial detention we could no . BH 2005 .205 of the Supreme Court, for example . To this acknowledge that the prosecutor makes a proposal for ordering effect, ordering a coercive measure restricting the constitutional pre-trial detention solely in those cases when it is really justified rights of the person concerned (like pre-trial detention) can be after considering all circumstances of the concrete case and the appropriate only when the purpose of the procedure can not be judge applies deprivation of liberty on the basis of thorough warrantable with another action resulting more lenient restric- deliberation only in such cases . Simultaneously, we know that tion (like house arrest or curfew) . On the other hand, decrees it is not entirely true . Our country has been found in breach related to pre-trial detention usually do not mention that provi- by the ECtHR in the X Y. . versus Hungary case 9 recently, be- sions of the Paragraph (2) of Article 60 of Act XIX of 1998 on cause during the plaintiff’s pre-trial detention lasting 6 months Criminal Proceedings have been examined and considered by and 11 days there was not any motion of the prosecutor or the court . judicial decision considering lighter coercive measures . Hun- Consequently, it is not possible to conclude on whether why gary has claimed that prosecutive courts made their decisions the court has considered the coercive measures restricting liberty about ordering and maintaining pre-trial detention on the basis less are inapplicable . Naturally, it would be difficult to maintain of the investigation of the idividual case’s data and personal the actual automated procedure in case of the substantive ex- circumstances . However, the ECtHR found no indication sup- amination relating thereto, since an authentic justification indis- porting this fact in the questionable decisions, only the fact of pensably requires personalized decision-making, including the the abstract and shematic judicial justification contested in the analysis of the accussed’s personal conditions and the evidences present study was established .

6 On the basis of Paragraph (3) of Article XXVIII of Fundamental Law, the Constitutional Court has established that during the enforcement of Paragraph (1) of Article 48 of Act XIX of 1998 on Criminal Proceedings it is a constitutional requirement that the counsel for the defence is to be informed in time about the place and date of the defendant’s interrogation therefore he/she can take part at the interrogation and exercise his/her rights . In case of the absence of such a notification the defendant’s confession can not be considered . The developed criminal procedure practice shows clearly the impotence of the defence and the restriction of the defence’s right by that the prosecuting district court and the court of justice have not found any objectionable thing in the procedure of the investigating authority, as a result of which the counsel for the defence could not be present at the interrogation of the defendant . 7 Constitutional Court has determined in it’s quoted decision that the following passage of the Paragraph (1) of Article 209 of Act of 1998 on Criminal Proceedings „during the procedure investigating judge is due to consider the special investigation tactics aspects of the investigating authority and the prosecutor, specially that the suspected and the counsel for the defence can know the data, facts and evidences of the investigation merely based on rules authoritative to the investigation” is unconstitutional and contrary to the stipulations of the international convention, therefore this passage has been cancelled . 8 Statistical Notice of the Prosecutor 2012., Field of Criminal Law, Office of the Prosecutor General Informatics Department, Table of 57 . nr ., 47 . 9 X.Y. versus Hungary, judgement of 19 March of 2013 (file number: 43888/08 . 2/2014 51

3. Decision Making Based on Facts suspected affects the success of the procedure (defeat or encumber it), „established” assumption relating thereto can not Evidence based Medicine (EBM) developed by Cochrane is be grounded on . According to the Decision no . BH 2006 .280 already a worldwide accepted and applied method in medical of the Supreme Court pre-trial detention based on C) point can practice deciding on human lives . It seems that case-law decid- be justifiable ordered only when data prove that the suspected ing on human destinies has not reached this level . In Hungary, have threatened the witnesses, and continuation of evidence in it is fundamentally left out of consideration that pre-trial deten- endangered for this reason . tion can not be ordered based on merely assumption . In the mo- Furthermore, it is worth emphasizing the Decision no . BH tion of the prosecutor or in the judicial decision it would be nec- 2005 .205 of the Supreme Court which determines that refer- essary to point out such facts or purpose of the suspected from ring to the C) point is not grounded if it is based on assump- which existence of special grounds determined in Paragraph (2) tions predominantly considering the informations of the avail- of Article 129 of Act XIX of 1998 on Criminal Proceedings can able investigatory documents . be proven . These facts or purpose can be found out from data of Taking the documents of the concrete case for basis, estab- the relating investigative documents (which are not equal with lished assumption determined in Act XIX of 1998 on Crimi- evidences relating to the merits of the case, naturally) . nal Proceedings can be ruled by the court after the evaluation The Debrecen Regional Court of Appeal in it’s above men- compatible with the rules of formal logic .11 Personally, I do not tioned decree 10 has pointed out that justification can not be entirely agree about that ordering for pre-trial detention is „ob- accepted if it only defines the detention cause determined in vious” in case of certain types of crime independently of the the operative clause and not makes that probable in the con- individual case’s evidences 12. During the investigation of the crete case . The decision highlights that such a proposal which widespread intellectual, corruption and economic crimes against only points out the cause determined in Paragraph (2) of Article property it should be taken into consideration that whether all 129 of Act XIX of 1998 on Criminal Proceedings can not be necessary documents have gathered in the course of executed accepted by the prosecutor . It is worth emphasizing the latter perquisition and sequestration or does the defendant have po- statement, because unfortunately in most cases justification of tential opportunity to encumber or influence the verification in decrees is solely the verbatim repetition of the facts determined case of the application of coercive measures . in the motion of the prosecutor from which the judge draws In my opinion, it is unjustified ordering for pre-trial deten- the conclusion of the existence of well-founded suspicion . How- tion in such cases, where all contracts and accounting docu- ever, well-founded suspicion of commiting a crime is the gen- ments of the business organizations concerned had been seques- eral condition of ordering for pre-trial detention in fact, but tered by the investigating authority, the permanent address of not sufficient cause of that for itself, since occurrence of some the company’s executive was in another county than the head- special ground determined in Paragraph (2) of Article 129 of quarters, the company’s executive had close family ties, he/she Act XIX of 1998 on Criminal Proceedings is necessary for that . had other companies, he/she had not previous convictions and Occurence of the above-mentioned special grounds is generally he/she made a detailed confession as a suspect . Investigating not justified by the means specified by case-law and bibliogra- judge and court of justice prosecuting during the appeal had not phy, but this presents problem neither for the proposer nor for mentioned in their decree that why the applying of house ar- the decision-maker based on the experiences . rest or curfew would be inadequate in such circumstances, they Assumption for itself is not enough for decision-making based had ordered for pre-trial detention against the defendant with on facts, since law tries to ensure that existing of special ground a two-sentence justification but not using whatever evidence in has real arguments . [See .: Recommendation of Departmental relation to special grounds . Committee of European Council R (80) 11 . number 3 . point] . The defence also should know the evidences supporting pre- Assumption described in judicial decision can not make order- trial detention, since ECtHR has pronounced in the Nikolova ing for pre-trial detention legal for itself in no cases of special ar- versus Bulgaria case 13 that equality of weapons is not guaran- resting grounds . For example, the Decision no . BH 2009 .42 of teed if the counsel for the defence has no access to the investi- the Supreme Court emphasizes in relation to d) point that only gatory documents, which are necessary for refuting the legality the concrete (real) danger can cause ordering for pre-trial deten- of his/her client’s detention . It means that, the defence should tion in case of „weéé-founded suspicion”, abstract presence of know all evidences, which corroborate the existence of pre-trial the danger is not enough for ordering and maintaining coercive detention’s special grounds according to the proposer prosecu- measures . Facts expounded above are corroborated by the Deci- tor . Without it the defence is not in a position to make efficient sion no . BH 2007 .12 of the Supreme Court, in which ordering arrangements against the most serious coercive measure, his/her for pre-trial detention is deemed illegal by the Supreme Court, arguments can be only formal and general independently from since legitimate reasons described in the decree ignore factual the data of the concrete case . Notwithstanding the Nikolova- grounds . If there is not concrete data on how paroling of the decision of 1999, legal practice reckoned it as the defence as

10 Debrecen Regional Court of Appeal’s decree No . Bnyf .II .394/2008/2 . 11 In detailed about this: Ho l h ó s -Ko v á c s , i.m., 137 . 12 In detailed about this: Endre Bó c z , About coercive interrogation, Hungarian Law, 2013, 2 . number, 69 – 70 . 13 Nikolova versus Bulgaria, Judgement of 25 March of 1999 . (file number: 31195/96) . 52 Journal on Legal and Economic Issues of Central Europe

to the merits in Hungary of the 21st century . If the defence Nikolova-decision is a compulsory legal requirement for the wanted to know the evidences corroborating the justification prosecuting authorities at present . Naturally, if no material le- of pre-trial detention – maybe he/she made a proposal relating gal-consequences connect to the failure to annex copies in the to this with reference to the Strasbourg-decision – that was cer- practice, modification of Act XIX of 1998 on Criminal Proceed- tainly refused referring to the interests of investigation . ings will be ineffective for itself . In the moment of closing the However, prosecuting authorities have to do that considering present study we can only hope that it will happen not this way not only the legal practice of ECtHR (anyway, that is left out of and really material change comes in Hungarian legal practice consideration in most cases), but Explanatory statement of Act relating to pre-trial detention . XIX of 1998 on Criminal Proceedings also gives a similar interpretation in connection with pre-trial detention determined in 4. Pre-trial Detention as a Tool of Pressure the C) point: „The potential condition and ability of the defendant are For the theoretical and empirical specialists practising in inadequate to influence the evidence. It is necessary to base on all real the field of criminal law it is evident that the circumstances of facts or action efforts for ruling this reason.” 14 pre-trial detention in Hungary remind not the often-mentioned Since neither the Nikolova versus Bulgaria case referred luxury conditions and comfort of the Breivik’s case 15. It is well- above, nor the bibliography were not enough to occur whatever kown that penal institutions are overcrowded and Hungary has change in the Hungarian legal practice, consequently Hungary been founded in breach by the ECthR several times because of was founded in breach by ECtHR also in the X .Y . versus Hun- the detention’s conditions 16. The defendant’s fear about the gary case, because equality of weapons principle was not guar- judge orders his/her pre-trial detention – which will cause ir- anteed between the prosecutor and the defence in relation with reversible and irreparable damages for him/her in the future by knowledge of evidences justifying pre-trial detention . The Hun- overstep the goals of criminal proceedings – in case of the pos- garian State has claimed that the proposer prosecutor has to sible prosecutor’s motion does not prove groundless in relation recite evidences justifying the proposal on the session of inves- to statistical data known above . This may be for instance termi- tigating judge based on Paragraph (3) of Article 211 of Act XIX nation of employment, failure of enterprise, elimination from of 1998 on Criminal Proceedings, however selection of these social life, suffered physical and sexual abuse during pre-trial is the discretional authority of the prosecutor, the defence and detention . The defendant can also suffer these negative after- the judge can know only the selected evidences . On the other maths if acquittal will born in his/her case years later . In such hand, ECtHR has proclaimed that equality of weapons has to circumstances, it is distressing when the investigating authority be guaranteed not between the defence and the judge on this constantly mentions pre-trial detention as a tool of pressure in matter, but between the defence and the prosecutor . But it is order to get cooperation from the defendant 17. Persuading the not guaranteed, if the defence can not know the investigatory defendant to make a confession can not be a coercive measure, documents on the basis of which he/she can effectively contest but if the legal practice does not filter such cases out – however the detention of the defendant . automated and non fact-based decision making mechanism Maybe, because of serial condemnations, maybe, for the means this – this method of pressure remains a not lawful but sake of encouraging the equality of weapons, with effect from generally accepted custom . 1 January 2014 legislator has amended Paragraph (1) of Article It is questionable that holding out the prospect of pre-trial 211 of Act XIX of 1998 on Criminal Proceedings with Article detention can work the legal facts of coercive interrogation out 44 of Act CLXXXVI of 2013 to the followings: if the subject of in a given case . Certain bibliography resolutions highlight that prosecutor’s motion is ordering for pre-trial detention, the copy holding out the prospect of pre-trial detention in absence of of those investigatory documents justifying the proposal have frightening shall not be considered coercive interrogation in le- to be annexed to the proposal sent for the suspected and the gal terms .18 On the other hand, it is an undeniable fact that defence . We can only hope this provision pushes its way also „the same contents can be drafted in several ways and almost in practice and this will mean material change in law enforce- all of readings can be told in such tone, which interprets a mina- ment . tory message beside the intellectual contents .” 19 Anyway, it is welcomed that in contradiction to defensive It is practically unverifiable that in what tone the „threaten- proposals dismissed with reference to the interests of the in- ing” of defendant with pre-trial detention has happened, as it vestigation, compliance with the judgements determined in is also highlighted in the 8/2013 . (III .1 .) Constitutional Court

14 Katalin Ho l é – Erzsébet Ka d l ó t [editors], Explanatory statement of Act XIX of 1998 on Criminal Proceedings, II . volume, Hungarian Journal Paper- and Book Publisher, Bp ., 2007, 508 . 15 Anders Behring Breivik Norwegian mass murderer has been sentenced to 21 years of prison by the Court of Oslo on 24 . August of 2012 because of murdering 77 people . This was the most serious penalty of the Norwegian law . In relation to the circumstances of punishment executive, domestic press published writings with the following sonorous titles: A real luxury prison (www .hirado .hu), Mass murderer in wellness prison (www . blikk .hu) . 16 Last: Hagyó versus Hungary, Judgement of 23 April of 2013 . (file number: 52624/10) . 17 Mátyás BENCZE, Predominancing the presumption of innocence in Hungarian criminal courts’s justification practice, Review of Internal affairs, 2011, 9 .issue, 107 . 18 Bó c z , 70 – 71 . 19 Bó c z , 70 – 71 . 2/2014 53

Decisions: „There are not independent participants of the in- not comfortable environment .” 22 It is absolutely possible that terrogations carried into effect during the investigation . One investigating authority has cited somebody as a witness, thereof the consequences of the absence of publicity is that inter- fore neither the lawyer nor any other independent participant rogation’s happenings can be verified and reconstructed more of the procedure can be present at the interrogation, and the in- difficult later .” 20 vestigating authority has tried to extract an adequate testimony In my opinion, threatening with deprivation of liberty is from the witness by suspicion and threatening with pre-trial not a permissible tool of psychical pressures exerted on the de- detention – or in gentle terms it has informed the witness about fendant . Balázs ELEK expressly classifies psychical coercion as these possibilities . coercive interrogation in such case, if the investigating author- Fortunately, the Act CLXXXVI . of 2013 has bringed change ity informs the defendant that he/she gets certain advantages in this respect too, since it makes the presence of the lawyer act- (remain free) only in case of confession 21. ing on the witness’s behalf possible again at all interrogations If the counsel for the defence is also present at the interro- with effect from 1 January 2014 . It might be preventable that gation, it is naturally easier to reconstruct that the member of the criticized „instruction” of the investigating authority has the prosecuting authority has informed the defendant merely such psychical influences, which fill every sound minded people the contents of laws or has threatened him/her impliedly or less with serious fear and cause them stress . Otherwise, in the XXI . impliedly . It is not negligible that the presence of the counsel for century it can be expected that during the investigation testi- the defence by itself also can be a certain assurance against the monies are recorded by picture-tape and phonautograph ma- abuses of administrative authority . chines by the prosecuting authority, thus influencing and the It is also an incorrect but established practice in Hungary threatening or not threatening instruction can be determined that during the beginning period of the procedure, such person clearly . is interrogated as a witness – based on investigation tactics as- As a summary it can be established that: liberty is a prodi- pects – who becomes a suspect in a short time by the authorities gious worth and it is doubtful that people recognize it’s real im- in a predictable way . From 1 January of 2012, presence of the portance in daily life . It was not protected and defended in the lawyer has been excluded at the interrogation of witnesses, the most ferocious period of the history, hereby numerous human legislator has reduced the scope of legal institution for the plain- lives and destinies were ruined . In a state founded on the rule of tiffs and witnesses exclusively . Considering the behaviours of law we must belive that in absence of legally binding judgement the authorities, in relation to the lawyer supporting the witness, establishing criminal responsibility deprivation or restriction of Csaba FENYVESI has concluded that: „On the basis of his/her liberty is only occured in the really justified cases, in the most formal presence it seems his/her power serves for prevention of necessary level and period, and in compliance with the regula- possible ’abuses’ of investigating authority or prejudicial action tions entirely . Since automated and schematic procedure does and for reassurance to the witness in an unknown, official and not ensure it, the present legal practice is need to be modified .

20 8/2013 . (III . 1 ). Constitutional Court Decision’s preamble 2 2. . point . 21 Balázs ELEK, Influencing the testimony in criminal proceedings, Tóth Bookstore and Publisher, Debrecen, 2008, 115 . 22 Csaba Fenyvesi, Lawyer of the witness, as assister, Lawyer’s paper, 2004, 2 . issue, 34 . 54 Journal on Legal and Economic Issues of Central Europe

Conceptual Changes Concerning Working Time in Hungarian Labour Law Márton Leó Zaccaria 1

Abstract This paper examines one of the problematic questions of employment relationship, namely, some aspects of legal regulation of working time in connection with the Hungarian labour law reform of 2012 and its effects and expectable effects on legal practice and legal theory. In its background the following fact can be found: the new legal circumstance changed conceptual structure to a great extent, this way it became more unambiguous, and more practical from many points of view. However, these changes also raise some important questions, mainly in connection with EU law and the applicability of legal practice worked out before 2012. So the study concentrates on the problems of working time and shift work, and in connection with the latter emphasizes the contrasts to the earlier regulation. Besides legal rules, I examine theoretical and practical questions as well. The study points out that only judical practice can decide whether the concepts are applicable or not. Key words: concept of working time, Directive 2003/88/EC, employer’s performance, Hungarian labour law, labour law, rest period, shift work, shift worker, working acivity, working time.

1. Introduction These latter issues are also connected to the fundamental rights of workers but the the legislator focused more on the main eco- In Hungary the new Labour Code came into force on 1st July nomic interests . To conclude we can state that Hungarian la- 2012, namely, Act I of 2012 on the Labour Code (in the follow- bour law is closing on civil law directly and intensively, which is ing: Mt .) .2 This law came out as a result of a long procedure, one of the most important legal means for making flexible – and which often caused great difficulties and contradictions 3 what secure at the same time – employment relationships . So the is not surprising regarding the complexity and inportance of legislator intended to highlight the employer’s and employee’s labour law and industrial relations . It is not disputed in Hun- fundamental interest of freedom of contract; and in this regard garian legal literature that the Mt . has brought (and is bringing) the regulation is based far more on the content created by the such basic changes in many questions, which will redifine the parties of employment contract and collective agreement than employment relationship’s subjects’ status and scope basically the classical cogent norms of labour law . in the future of Hungarian labour law .4 In my opinion one of such fields within the labour law norms The Hungarian labour law reform of 2012 was needed in- is the system of working time, namely, since the labour law reg- deed 5 according to the ministerial explanation of the new ulation came into light it is one of the fields, which commands labour code so these modifications mark a new direction for the employees’, employers’ labour law jurists’ interest . Its main managing employment relationships . The main reasons behind reason is that rules of working time is one of the content ele- the reform were the following: modernization of labour law, ments of employment relationship, which basically influences synchronizing the norms with the guidelines of legal practice, the employees’ working conditions as well as the employer’s effective harmonisation with European Union law and guar- working activity, since it is defined broadly to what extent and anteeing competetiveness and effectiveness at the same time .6 how can the employer utilize the workforce used by her/him,

1 Dr .Márton Leó Zaccaria, Department of Agricultural Law, Environmental Law and Labour Law, Faculty of Law, University of Debrecen, Hun- gary . 2 Some rules of the Mt . – the rules of employment different from the employment contract, partly new rules referring to annual paid leave and calculating absence fee – came into force only on 1st January 2013 mainly because of legal political and legal application causes . 3 Pr u g b e r g e r , T .: Magyar munka- és közszolgálati jogi reform európai kitekintéssel, Miskolc, Novotni, 2012, 275 – 291 . 4 Let’s think of e .g . generally the duty of general care clause, rethinking of liability for damages or serious changes of certain institutions of collective labour law . 5 Act I of 2012 on the Labour Code and the ministerial explanation of the bill, http://www .mkogy .hu/internet/plsql/ogy_irom .stat_besz_jel?P_ CKL=39&P_FOTIP=T (04 .03 .2012), 83 – 85 . 6 Act I of 2012 on the Labour Code and the ministerial explanation of the bill, http://www .mkogy .hu/internet/plsql/ogy_irom .stat_besz_jel?P_ CKL=39&P_FOTIP=T (04 .03 .2012), 83 – 85 . 2/2014 55 namely, how much working time can the employer require from the elements of working time 8. Namely, the concept of working the employee to perform and how can it be disposed . time is complete in Hungarian labour law if we practically read On the next few pages I overview the nodes of the Mt ., paragrahs (1) and (2) together even if it is justified from legal which refer to the regulaion of working time . I will also take technical aspect to interpret in details the concepts of these ac- into consideration the previous judicial practice in order to tivities in separate paragraphs . Clearly, the legislator’s intention see the real applicability of the new rules clearly . Furthermore, is to raise the rules worked out by legal practice to legal force in I will examine how the new norms correspond to the Directive spite of the fact that such conceptual element cannot be1 found 2003/88/EC . in the Directive . The cause of it may be that according to the Hungarian legislator’s concept the definition of working time 2. The Concept of Working Time can be completed this way, since if the legal regulation would It is necessary to overview some elements of the new concep- not name these sub tasks, sub obligations separately, it would tual catalogue of the new regulation of working time (articles not be clear how should they be counted to the actual working 86 – 91 . §) regarding that the ministerial explanation of the bill time 9. The argument of the bill also states that 10 these activi- emphasizes that reregulation of the rules in connection with ties do not belong to the essential elements of the employee’s working time was necessary and one of the legislator’s main work, but without them the other requirements could be ful- motivations was to make the conceptual structure more appli- filled hardly or they could not be fulfilled at all . I agree with cable and more transparent .7 In this sense the explanation of this viewpoint and I would like to add that these elements can concept has become really broader and at some points more be seperated from actual work, but their usual, regular perfor- percise, but at the same time several questions have emerged mance also can be regarded job task in merit 11. in connection with the new concept, which are worth examin- Consequently, according to the Mt . every task the employee ing systematically . It is an interesting point in the reregulation does regularly in connection with her/his job without any spe- that the above mentioned Directive 2003/88/EC also contains cial order can be regarded preparatory and finishing activity . comprehensive catalogue of the concepts, which are absolutely This definition clearly shows the essence of this kind of activity, necessary for the effective application of the relevant norms in since it states that it is also a kind of performance of task, so practice . they may appear in the employee’s scope of duties . However, Albeit with, the conceptual system has not changed to the concept also contains restriction, since the rule may become a great extent: some concepts have remained unchanged (work- shoreless if this obligation would be required in every activity of ing time), there are concepts, which have changed at least in the employee . So only the activities in connection with the job approach (activity without interruption), and some others have exclusively are listed here, what is important because these ac- broadened (seasonal employment), but there are some more tivities practically can be regarded as complementary activities concepts, which have been redrafted not quite obviously at the to the job description . It is logical, since the employee’s basic first sight (shift work), and there are new ones (preparatory and obligation is to perform tasks in her/his job, and if for the sake ending activity), and what is more, some concepts have disap- of this performance to fulfil the further requirements is neces- peared from the law (afternoon shift) . The cause of all these is sary, this draft is correct and precise in any case . In this case that the legislature’s aim – besides simplifying and making the usual and regular task performation means that practically the rules more transparent – was that the system of working time employees „know themselves” what they have to do regarding and rest period in the new Labour Code would correspond to these kinds of activities, so all of this kind of tasks is essential the standard legal practice and the EU standards . Not too far elements of the job . However, it must be added that dispute ahead it can be stated that at many points the new Mt . harmo- may occur if the performance of these activities are regular but nize with requirements, but at some points there are serious not standard and they occur in most of the cases . deficiencies . In my opinion in such cases the starting point is whether the According to article 86 . § paragraph (1) the concept of work- task can be fulfilled without the preparatory or finishing activ- ing time has remained unchanged: it is a period prescribed from ity as it is required in a certain situation . In case the answer is the beginning of work to the end of it, plus the preperatory and „yes” it is not necessary to regard it as part of the working time, finishing activity connected to it . In connection with this con- but if the answer is „no” the requirements of the main rule in cept we have to examine two important questions as follows . paragraphs (1) and (2) must be fulfilled by all means . Finally, Regarding that paragraph (2) defines right after this the con- I would like to add that beyond the conceptual elements de- cept of preparatory and finishing activities it is clear that the scribed above it is of high importance that the employee has to legislator intends to make unambiguous the close unit between carry out these kinds of activities without any special instruc-

7 Act I of 2012 on the Labour Code and the ministerial explanation of the bill, http://www .mkogy .hu/internet/plsql/ogy_irom stat_besz_jel?P_. CKL=39&P_FOTIP=T (04 .03 .2012), 142 – 143 . 8 In connection with the elements of working time see the following judgments of the Curia of Hungary: EBH2011 . 569, BH2009 . 335 . 9 It must be added that they can be derived from the employee’s obligation for availability . 10 Act I of 2012 on the Labour Code and the ministerial explanation of the bill, http://www .mkogy .hu/internet/plsql/ogy_irom .stat_besz_jel?P_ CKL=39&P_FOTIP=T (04 .03 .2012), 142 . 11 Namely, if the employee would not fulfil them, employee would not perform according to the employment contract, so it would cause infringement on the employer’s side . 56 Journal on Legal and Economic Issues of Central Europe

tions . Especially, in employment relationship the employee has of e .g . duty or availability in spite of the fact that it cannot be not to work independently, what is the most special feature of found in the text of the Hungarian law, but it can be observed in employment relationship .12 All these are reflected in the fact legal practice 20. It is clear that according to the logic of Hungar- that the employee’s legal situation and legal status can be de- ian labour law the time defined for working contains the avail- scribed as subordination, since the employer – beyond dispute ability, since this rule is regarded as the employee’s main obliga- – is above the employee in the strict hierarchy of the legal relation, which basically defines the employee’s legal status 21. tionship .13 In practice its main manifestation is the employer’s On examining this conceptual deficiency it is clear that right to broad sphere of instructions what covers special tasks from the view of employees’legal protection it would be more of work and activity . What is more, it is not only the employer’s advantageous to name the situation when the employee is at right but it is the employer’s task to instruct the employee pro- the employer’s disposal without any real working avtivity . It is fessionally, since it belongs to the circle of employment obli- clear that with this kind of interpretation of the preparatory gations 14. Consequently, it would come from the inner logic and finishing activity the legislator pays attention to the special of employment relationship that this kind of activity on the situation of obligation of availability, but on the other hand, employee’s side – which the employee has to do without any the legislator’s intention is to deliminate the working time as special instruction – would not be regarded as working activity method of regulation . literally, since it is done without instruction . However, the law Finally, I would like to mention the article 86 . § paragraph referring to the standard judicial practice 15 declares that pre- (3) of the Mt ., which tries to make the concept of working time paratory and finishing activities definitely must be done with- as precise as possible by defining – partly in accordance with out instruction what may be approved . The circle is completed, the previous regulation – the periods that cannot be regarded since it is beyond dispute that habitual activity without instruc- as working time . On the one hand, in practice the qualification is also working activity 16. tion of these periods often causes problems 22 and on the other Attention should be paid to another element in connection hand, the period of actual working time can be defined more with the concept of working time: compliance with the Direc- precisely in accordance with the legislator’s intention . The min- tive . This question is of high importance, because many experts isterial explanation of the bill also states 23 that breaks are parts regard the greatest deficiency of the rules of working time in the of the working time only in the cases when the employee takes Hungarian Labour Code of 1992 that the Directive interprets a stand-by job,24 since in this case breaks do not interrupt work this concept more broadly, but it is more logical from the aspect but practically takes place during the period of work and stand- of judicial practice .17 The directive states that working time is by . Namely, according to the main rule breaks are not parts of the period during which the employer works and the employee working time, which theoretical base can be found in the Di- stays at the employer’s disposal and fulfils her/his duties ac- rective . Article 103 . § paragraph (4) of the Mt . clearly eclares cording to the national rules .18 Namely, the Directive describes that a break must be given by interrupting work and its back- the above mentioned obligation of disposal liability as working ground can be found in that part of the Directive, which refers time; 19 since its starting point is that the employee’s main ob- to rest period 25. The Directive – similarly to the resolutions ligations hardly can be seperated . It is very important in case of the Court of Justice of the European Union (in the follow-

12 Ki s s , Gy .: A munkavállalóhoz hasonló jogállású személy problematikája az Európai Unióban és e jogállás szabályozásának hiánya a Munka Törvénykönyvében, Jogtudományi Közlöny, 68 (2013) 1 ., 1 – 14 . 13 Ki s s , Gy .: Munkajog a közjog és a magánjog határán – egy új munkajogi kialakításának szükségessége, Jogtudományi Közlöny, 63 (2008) 2 ., 70 – 81 . 14 Bí r ó , N . – Ná d a s , Gy . – Ra b , H . – Si pk a , P . – Za c c a r i a , M .L :. A munka törvénykönyvének kommentárja, OptiJus Elektronikus Jogi Adatbázis, article 51 . § . 15 See for example the following judgments of the Curia of Hungary: EBH2005 . 1235, BH2005 . 102, BH2004 . 389 . 16 All these can be traced back to the fact that the employee during availability has to be in a state able to work to perform work any time during this period . Namely, these special obligations may be interpreted as special forms of availibilty as well . 17 Pr u g b e r g e r , T .: Európai és magyar összehasonlító munka- és közszolgálati jog, Budpaest, CompLex, 2006, 329 – 330 . 18 Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning aspects of the organisation of working time, article 2, point 1 . 19 Pr u g b e r g e r , T .: Az európai munkajog vázlata, Lícium-Art, Debrecen, 2007, 71 – 72 . 20 In the following cases the Curia of Hungary stated that obligation for availability is such a basic principle of employment relationship that practically, without it we cannot speak about employment relationship: BH2009 . 220, BH2006 . 95, BH2005 . 102, BH1999 . 429 . 21 Namely, the aim is definitely to define the period that can be regarded working time easier, this way easing the parties’ situation regarding the contractual performance . 22 For example: BH2009 . 335 . 23 Act I of 2012 on the Labour Code and the ministerial explanation of the bill, http://www .mkogy .hu/internet/plsql/ogy_irom stat_besz_jel?P_. CKL=39&P_FOTIP=T (2012 .03 .04 .), 142 . 24 According to article 91 . § of the Mt . we can speak about stand-by job if the employee (taking into consideration a longer period) because of the type of her/his tasks, is available at least during one-third of the regular working time without work, namely working performance-especially because of the specialities of the job, and the conditions of working performance means smaller requisition compared with the general requisition for the employee . In such special cases it is justified that breaks would be regarded as part of working time . 25 Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning aspects of the organisation of working time, articles 3 – 7 . 2/2014 57 ing: CJEU) – definitely describes the differences between work- In the case of the previous regulation the situation is seem- ing time and rest period 26. The Directive regards rest period as ingly simple, because the conjunctive conditions are in close a period, which is not working time, namely, every period of connection, but the starting point of regulation is undoubtedly time during which the employee is not obliged to work or be the employer’s activity . Albeit with, this kind of interpreta- available . It is important that the Directive definitely seperates tion seemed to be easily applicable in the last few years, but working time and rest period 27 regarding it to be such basic it caused several difficulties in legal interpretation 33. So a new principle that simultaneous existence of working time and rest concept was justified, but I would like to turn attention to two period is conceptually impossible .28 Practically, in the previous theoretical (at the same time practical) problems . Mt . this same rule could be found,29 so the merit of the new It is a conceptual change in the law that instead of previ- Mt . is clarification . ous work schedules without interruption, shift(s), and seasonal work, employer’s activity is defined but not working sched- 3. The Problematique of Shift Work ule 34. All these are in accordance with article 96 . § paragraph The second question I examine in this study is in connection (1) of the Mt ., which declares the working schedule organised with shifts, working in shifts . In practice in Hungarian law it by the employer unilaterally working schedule 35. The ministe- is a recurring problem 30 what is regarded shift and what are rial explanation of the bill also states that working schedule the real attributes of (multiple) shifts employer activity as base and employer’s activity must be seperated, since the former can of the work schedule . In this respect the legislator decided to aligne to the latter but not the other way round . Logically, we redefine this concept and to put on new basis the regulation have to think backwards now, since the law before 1st July 2012 materials of this kind of working activity referring to working defined ex lege certain forms of schedules – namely, working time . It was realized in the new law, but this is one of the points schedule – in accordance with the employer’s special activity, in the new codex, which is often criticized both by legal science but the present Mt . defines the conditions when the employer’s and legal practicioners . activity can be regarded special . The legislator’s intention to According to article 90 . § point b) of the Mt . the employer’s make distinction between the names of different legal institu- activity is shifts activity if it reaches eighty hours weekly . So the tions the way that an employer’s special performance could not law does not state any further conceptual elements, so it can be be confused with the working schedule applied there is clear . declared that in the new labour law system every activity on the In my opinion this kind of approach is correct, but the concept employer’s side that takes at least eighty hours per week must of shift work is more sensible in connection with such direct be regarded as shift work . This way the legislator tried to make reregulation . this concept simpler and united what is strenghtened by the My other critical comment is that the concept of shift work ministerial explanation of the bill .31 The previous Mt . (1992) should be defined in closer relationship with the conceptual declared the following: working schedule is regarded as shift structure of the Directive as it follows . According to the in- work if the employer’s daily operating time is more than the ner logic of the Directive 36 work performed in shift and the employee’s daily full working time and the employees perform employee working in shift are defined separetely . I think it is the same work in turn by each in periods regularly within one important because the work performed this way cannot en- day .32 It is clear that the two definitions are different in merit, sure enough guarantees for the employee that the employee since in the case of the new rule only one condition is declared is really regarded to be employed in shift according to certain by the law, but the previous text rather declared three conjunc- Member State’s legal practice, so to define the given group of tive conditions on the basis of practical interpretation . employees is also necessary . According to the Dierective shift

26 See some examples of the CJEU’s judgments about the relationship of availibility and actual work in the following cases: C-151 of 9 Septem- ber 2003 Landeshauptstadt Kiel versus Norbert Jaeger, C-303/98 of 3 July 2001 CIG versus ServicioGalego de Saúde, C-303/98 of 3 October 2000S SIMAP versus Conselleirade Sanidad y Consumo de la GeneralidadValenciana . 27 Rest time covers all kinds of rest time, also breaks . According to the Hungarian use of the principle the rules for/of breaks are consistent with the Directive . 28 Besides this is very logical because if it was allowed for the employee to have breaks during working activity it would lead to legal infringement because it wouldn’t be unambiguous whether the employee is obliged to perform according to the employer’s instructions . 29 Act XXII of 1992 on the Labour Code, http://www .opten hu/loadpage. php?dest=OIS. Z&twhich=301872&srcid=ol7230&tvalid=2012 .3 .1 .# sid256 (03 .02 .2013), article 117 . § paragraph (1) point a) . 30 These questions have emerged mainly in connection with payment of extra charges what is beyond the subject of this paper . 31 I would like to add that justification of this point is not quite unambiguous since it states the only meaningful innovation that the law is that it disregards whether the employees performing a certain job really alternate each other, but it regards governing only the period of work . In this sense, the definition is really simpler and more precise . But attention should be paid to the fact that in practice the clarification of the concept of shift is necessarily more complicated, namely judging whether in case of a certain working performance the employee is entitled ex lege for extra wages . See the following judgments of the Curia of Hungary: EBH2009 . 1987, EBH2006 . 1539, EBH2005 . 1345 . 32 Act XXII of 1992 on the Labour Code, article 117 . § paragraph (1) point e) . 33 See for example the following judgments of the Curia of Hungary: EBH2009 . 1987, EBH2006 . 1539, EBH2005 . 1345 . 34 In the latter case article 90 . § point c) of the Mt . states seasonal employment . 35 Such clear definition of working schedule cannot be found in the Labour Code of 1992 . 36 Regarding that firstly, article 3 . and 4 . define period of night shift, then employee performing night shift . 58 Journal on Legal and Economic Issues of Central Europe

work means 37 any method of organising work in shifts whereby work, which is of high importance regarding work performed in workers succeed each other at the same work sanctions accord- weekly in different periods . It would be incorrect to identify the ing to a certain pattern, including a rotating pattern, and in method of work with the patterns of work used in Hungarian which may be continuous or discontinuous, entailing the need terminology earlier,40 but its essence is not far from this . Sum- for workers to work at different times or a given period of days ming up, the definition of pattern of shift work, with special or weeks . Obviously, if we interpret the old and the present attention to the Directive, may be correct with the completion regulation by the help of the Directive, the Mt . of 1992 is closer that the greatest deficiency of the new regulation is not that it to the conceptual system of the directive even if the concept regards shift work as the employer’s activity instead of pattern described above seems a little bit dim at the first sight .38 It of work . seems that it reconstructs seemingly different conditions while the new regulation is brief but substantive . According to the Di- 4. Conclusion – Trapped in Concepts rective shift workers are workers whose patterns of work is part It is clear that the base of legal changes referring to work- of shift work . It is clear that according to the Directive special ing time regulation is the new conceptual catalogue and new rules of the Member States should be applied to shift workers approach . Naturally, it is correct, since the legislator’s aim was if the shift workers’ work schedule can be inserted into working to limit this material of rules, which on the one hand, is more procedure of shift work . applicable and easier to be interpreted, than the previous one, It is noteworthy that the starting point of the Directive is and on the other hand, serves both parties’ interest equally . It not the concept of „several/multiple” shifts, but definitely the is sure that transparency and stronger structure serve both the employees’ activitiy, that is, they really work in turn by each employer’s and employees’ interest, but at the same time ruling other . This direction is not in accordance with the concept of guidelines should be taken into consideration at least to the the Mt . even if it is stated in the ministerial explanation of the same extent . Namely, the Mt ’s. interpreters’ important task will bill that the concept of shift is defined by groups of employees be – besides the need of conforming to the practical require- but not by working time . It is added that it is not important ments of Hungarian labour law – to interpret the new regula- whether they alternate each other or not, the only important tions in great accordance with Directive 2003/88/EC even if thing is that the employer employs several groups of employees Hungarian labour law has new – in some cases different – direc- during different periods within one day . I agree the latter only tion in merit at some points . Furthermore, the base of correct partly, since I think that it is exagerrated in the present Mt . that practical application can be only the precise and consequent use it clearly ignores the clause of the Directive referring to shift of concepts exclusively . In this study I intented to describe that work even if we agree with the second part of the definition 39. at some places the new concepts also need further interpreta- Furthermore, it is very important from the point of judicial tion and amendment so that the above mentioned rules could practice that according to the Directive it is a special pattern of fulfil the aims of labour law to a greater extent .

37 In the terminology of the Directive „shift work” and „shift worker”, „Schichtarbeit” and „Schichtarbeiter”, furthermore, „travail posté” and „travailleur posté”, namely, the Hungarian translation in the compound shift work correctly reflects the original meaning of „shift” (working in shifts, in way of shifts) . 38 Act I of 2012 on the Labour Code and the ministerial explanation of the bill, http://www .mkogy .hu/internet/plsql/ogy_irom stat_besz_jel?P_. CKL=39&P_FOTIP=T (04 .03 .2012), 143 . 39 It can be criticized because the ministerial explanation of the bill is more precise concerning the real content of the applicable rules than the text of norm regarding that from article 90 . § point b) only implicitely can be derived that the employer because of the speciality of the working activity employs several employees (separated from each other) or groups of employees to perform the same activity . 40 In the Directive: „method of organising work”, „Form der Arbeitsgestaltung” or „moded’organisation du travail” . 2/2014 59

An Extremely Significant Doctor of Academy Thesis on the Sustainability Affecting our Universe (Globe) and our Living Environment and the Legal Aspects of the Interpretation of Sustainability Tamas Prugberger,1 Andrea Szollos 2

Prof . Dr . habil . Gyula Bandi defended his Doctor of Acad- the institutions examined by him, he divides the body of the emy thesis on May 24, 2014 at the Hungarian Academy of work on the merits into two sections . In Part ‘A’ there are six Sciences in the subject referred above in the title . Prof . em . chapters discussing the questions of the relations of sustain- Dr . Prugberger was the external examiner of the thesis, while ability and law, where chapter one deals with the content, defi- the other author of the present study also took part in the de- nition, possibilities and limits of sustainable development, and fending and dispute . In this thesis Gyula Bandi raised the ques- the second one shows the non-consistent legal material con- tions concerning the fate of the human race and its possibilities cerning and connecting with sustainability . The third chapter of living. Today’s rapid technical development serves not only discusses sustainability and the flexibility related to it, while the convenience of part of the human race but – as a result of chapter four treats ethical questions and chapter five deals with growing lazy – it also leads to the degeneration of mankind . questions of legal and political contact points of sustainability . Besides, it has murderous side-effects which ruin the eco-system In this closing chapter of Part ‘A’, the author discusses the views and the ecological balance . The growing mechanization and au- of jurisprudence on the law of sustainability . Whereas Part ‘A’ tomation demand more and more energy and the exhaustion shows sustainability and the law pertaining to it in its own of energy sources, moreover, the pollution of air, water and soil global relation, Part ’B’ examines the different fields of sustain- deriving from that, the ruination of arable lands, the dangerous ability in line with the legal fields relevant to them . Here the consumption of rain forests and other flora ruin and endanger author discusses four main subjects divided into four chapters, more and more habitats, which may easily lead to the extinction the first of which is the right to the environment, the emphasis of the human race . Bandi deals with such kinds of problems in of which was essential because, as the author indicates, sustain- his thesis raising the question of where we can find the limits ability and its right can be caught the most obviously through of this technical-technological development and the consequent the means of this entity . pollution and damage of the environment, from where there is Following this come the principles of subsidiarity, precau- no turning back and the exploitation of the environment, which tion and integrity in subsequent chapters, the roots of which is committed by today’s human society for the sake of its own institutions go back to Part ‘A’ . The author shows all this reli- greed, may easily deprive future generations of their conditions ably, therefore this system of relations, which runs through the of existence . Due to the fact that Gyula Bandi intends to pub- thesis, makes the author’s work of social and legal theoretical lish his study in another form and not in the near future, with character . The thesis is closed by a conclusion comprising both a view to the future generation, we think it important that all Parts ‘A’ and ‘B’ . Succeeding all this, we can find the extremely that he wrote about in his work and only a narrow body had rich list of sources of literature, which was worked up in the a debate on and was informed about shall be known to a wider thesis . circle of the future legal profession growing up beside today’s Back to the questions on the merits, we can say that in the one . Therefore we consider it important to publish Bandi’s work first chapter of Part ’A’, the author gives the definition and con- including our own reflections in the framework of this study . tent of the concept of sustainability referring to the fact that Gyula Bandi’s thesis can be regarded as a long-felt want sustainable development is related to the maintaining capacity with respect to the fact that it deals with sustainability and of the earth with man and society in the centre . If this devel- sustainable development – together with its legal relevance – opment exceeds the maintaining capacity of the earth, it can- comprehensively in its complexity . This is the first attempt for not be sustained . Since the development can be sustained – the such a comprehensive study of this area in Hungary . Follow- author claims properly – if it helps to preserve and sustain the ing the introductory considerations, where the author outlines further operation of ecological systems and cannot be sustained the system of his work, certain questions of its contents and if it does not . Namely, there might be technological develop-

1 Prof .em . Dr .Tamas Prugberger, honoral member of Scientific and Artistic Academy of Vojvodina, Department of Agriculture and Labour Law, Faculty of Law, University of Miskolc, Miskolc, Hungary . 2 Dr . Andrea Szollos, Department of Agriculture and Labour Law, Faculty of Law, University of Miskolc, Miskolc, Hungary . 60 Journal on Legal and Economic Issues of Central Europe

ment, which is a great leap forward technically and technologi- exploit the environment only on the basis of his own insatiable cally, however, if it exceeds the ecological maintaining capacity, instinct for over-consumption and to ruin it with his over-con- it cannot be sustained . The author alludes, as well, that the suming – throwing away attitude – without caring for the inter- good solution in this respect is to follow the middle course in ests of the present ascending and future generations . From this the development . As the human race and the society composing point of view, in our opinion, Bandi correctly regards the law of the organised collectivity of man, its economy, and the living nature, which is the ethical and moral basis of law, as of great and lifeless natural and artificial environment forming a terri- importance . The Catholic Church lists and evaluates its posi- tory for all the formerly mentioned, moreover, the interactions tive attitude towards environmental protection on this basis . of all these factors and their effects on the maintaining capacity Although such kind of examination, could have been completed of the environment are concerned with herein, consequently, with respect to not only the Hungarian historical churches but global interactions prevail . The author even points out that it also the Orthodox, Islamic and Hindu religions . Since churches is difficult to judge how much we can foresee the natura and and different religious institutions can have large influence on socio-metrics negative and positive pro future consequences of the ethical and moral consciousness, which would be of pri- these global interactions . The legal approach depends on the mary importance in other parts of the world, as well, from the nature of such effects, too . Hence, as the author alleges it cor- viewpoint of the requirements of sustainability . In this respect, rectly, the environmental protection and its law form the rela- China, India and the Arabian states, for example, are regarded tively certain point, which can provide the function of evalua- as delicate territories, therefore, it does matter how the Hindu, tion and testing . Muslin and other religions judge the environment, its protection In connection with this, the author – though in a later chap- and sustainable development . The question may arise whether ter of the thesis – deals with the concept of flexibility, which is they – during their enormous development at present – take the related to the capacity of the eco-system, making it able to en- limits of sustainability into account and if their religions and dure its disturbance without meanwhile getting to a new state, ethical and moral norms urge people to do so . regarding quality . The author asserts that in order that the new Following proper logics and methodology, the author then quality state shall not occur due to its negative effects on soci- turns to the examination of policies and legal questions pertain- ety, economy and etc ., the eco-system makes use of its control- ing to sustainable development . Bandi, however, starts with the ling, improving mechanism thus re-building itself . The same is European policies and law . Hereby we don’t want to say that realized by itself through its own protective mechanism in the there is something missing, namely the international policies or nature, flora and fauna, too . In the case of society, however, an law with a broader scope, because the author outlines them at external intervention is needed for the realization of all this . the beginning of his thesis analysing the Rio and the Rio+20 For the sake of ensuring the social sustainable development, the Conferences and conferences related to sustainable develop- ‘controlling, improving mechanism’ is provided by the law and ment, greenhouse effect and global warming as well as interna- the state and international administrative organisation, which tional treaties, as a result of which – stated by the author brave- – in our opinion – is properly stated by the author . ‘Flexibil- ly and properly – “wrong compromises” have been achieved . ity’ – as the author explains in a professionally well-established The Rio Conference did not get over the experts’ report and way – is a dynamic system linked to human activities, which the forming of the legal principles of sustainability . As the au- is expressed by the capability of how to manage risks and dis- thor claims these principles were not more than the adaptations turbances and how to react to uncertainty and future changes . of the Charter of the United Nations for these fields . In our Accordingly, based on professional literature, Bandi specifies opinion, the legal principles, which are directly and especially four ‘keys’ to what effects certain juristic and meta-juristic, related to this area, having picked out of Bandi’s list, are as fol- single or collective, private or etatical activities, concerning the lows: paying attention to generations, the national sovereignty eco-system, environment and human society, will have affect- over natural resources, prevention of environmental damages, ing the present and future . The keys are as follows: a .) taking precaution, the principle of cooperation nationally and interna- into consideration of social ecological risks; b .) the capability of tionally, the maintenance of the common heritage of mankind managing risks and disturbances; c .) the all-round capability of and being the most essential, the decision-making based on exploring possibilities; and d .) the comparison with each other environmental impact assessment . Bandi declares bravely that of the facts suitable for giving productive answers . Considering these principles are basically of ‘lex imperfecta’ nature, because these ‘four keys’, the author establishes the principles of the their observation may not be requested legally . How much these application of ‘flexibility’ such as integrity, subsidiarity, precau- principles were ignored by law enforcement was obvious, too, tion, cooperation, systematics and social participation based on when in the case of Bos-Nagymaros, the observation of sustain- human rights . The contents and functions of these principles able development as a compulsory rule did not even come up are explained in detail by the author in separate chapters in the for examination . Furthermore, we would like to state that the second part of Part ’B’ . Thus the author replies the pro futuro USA had reservations about the convention having come into answerable question of the accessible locating of effects with existence at the Rio Conference and were unwilling to sign it as negative or positive contents . they thought the prohibition of the logging of rainforests would Gyula Bandi necessarily mentions the ethical and moral deprive the economies of the South American states of finan- background of sustainability, too, which is of fundamental im- cial resources . Moreover, the conventions defining the carbon portance, since man – especially if he is egocentric – tends to emission quotas made the so called quota-trade possible, which 2/2014 61 completely rendered the convention restricting carbon emission Report was issued in 2010, which is described by the author soft . It might have been good if the author had included these in detail . We would like to highlight here the necessity of the facts in the part his work which examines this question as an consumption of the decreasing natural resources in an economi- emphasis of his arguments . cal and effective manner and the statement according to which In his thesis, when outlining the development of the law of the mitigation of the environmental impact and the achieve- sustainable development, the author refers to the Greek pre- ment of environmental and climate-political goals can be ac- liminary study written in 2000 on behalf of the EU, which es- complished only if environmental protection considerations are tablished twelve basic principles . Bandi enumerates them . As implemented everywhere . As a second topic, the author deals for us, we consider the environmental public policy, the prin- with the appearance of sustainable development in the primary ciples of sustainability and maintenance capacity, the obliga- law, namely, after the Maastricht Treaty, the importance of the tion to restore the disturbed eco-system, the declaration of the environmental protection was incorporated into the Treaty of aesthetic and common heritage value of nature, the gentle de- Rome as a new Title VII . The author, however, correctly dem- velopment of the sensitive eco-system and the education for onstrates the problem that neither the Preamble of the Treaty of environmental awareness essential . The Greek author ranks Rome nor Title VII contains the concept of sustainability, and the establishment of the law of sustainability and forming of that the Preamble still treats only the importance of economic a system imbued with moral contents among the latter, where development . The author asserts that though the Maastricht Bandi’s ethical and moral views discussed earlier recur . In what Treaty changed the rules of environmental legislation, it did not follows, Bandi demonstrates how all this was developed by the define how it should be done . However, he did not carry out principles which were formulated by the International Law So- a critical analysis at this point . Then he emphasizes the Lisbon ciety in New Delhi . The author points out that these principles Treaty as a source of the primary law, which explicitly declares have already drawn up that the states are obliged to use the that the EU works for the sustainable development of the earth natural resources in compliance with sustainability, to show through the means of the high-level protection of the quality intergenerational equity, to expand environmental responsibil- of the environment . Nevertheless, according to Bandi’s proper ity and to supervise the settlement of accounts connected with statement, this is not reflected in the Treaty on the Functioning environmental damages . Finally, related to the development of of the EU since it emphasizes the economy and its development international environmental law, the author refers to the UCN pushing environmental protection in the background . Draft-Code, which treats the environment and its sustainable The author of the thesis deals with the strategies of sustain- development on the basis of the aspects of flexibility . Unfor- ability and development as a third topic . Herein he analyses tunately, as Bandi points it out, as well, all this can only be what happened at the Cardiff and Göteborg Summits . He de- considered as a theoretical declaration because of its – without clares that it was the Göteborg Summit where the comprehen- sanctions – ‘lex imperfecta’nature . sive and strategic concept of the EU’s sustainable development, Slightly deviating from Bandi’s system, now we are going involving economic, social and environmental dimensions, was to discuss Chapter V ., which treats the EU policy and law of formed . The author continues with the examination of the ac- sustainable development . Incidentally, we have deviated from tion programmes of sustainable development and the detailed the system of the thesis only in a way that the author presents analysis of the Lisbon Strategy pointing out that the climate the stages of the formation of the policy and law of sustainable change and economical consumption of natural resources have development only after ascertaining its concept . become the most important issues . Turning back the EU policy and law of sustainable develop- The fifth topic of this chapter is the introduction to the prac- ment, the author examines five issues before deducing conclu- tice of the many-sided sustainability, in connection with which sions, the first of which is the introduction of environmental the author treats the impact assessment, relationship between action programmes and funds . The author starts with the Paris energy and environment, public procurement and cooperation Summit of 1972, though there was no question of environmen- with developing countries . Following this, the author draws tal protection and sustainable development in effect at that a very thorough conclusion, the essence of which is that for the time . As the author refers, it happened in 1973, when the first most part, declarations, which are full of contradictions, have environmental action programme, which has been followed by been drawn up . He alleges accurately that sustainable develop- five more since then, was launched . Bandi shows the contents ment has still not been taken seriously by politics . As we see of the action programmes in detail in his thesis . He points out it, there is still a very strong view that the climate change is that development should be reconciled with the prevention of not caused by environmental and air pollution, but a natural nature and prevention of damages and integrity should be em- periodic movement of climate-warming . Overwhelmingly, there phasized . In line with prevention, the programmes concentrate exist only legal principles and there are hardly any concrete pro- on substances and activities, which destroy natural resources visions and even they can be evaded . All this, though not so and cause damage to the environment in another way . Herein explicitly, is suggested by Bandi, too . the author refers to hazardous waste stressing that the imple- In the closing chapter of Part ‘A’ of the thesis, the author mentation of these tasks is within the competence of member shows the views of jurisprudence on sustainability . Under the states and the EU interferes only when member states cannot influence of these views, in the author’s opinion, sustainable cope with their problems . This is the principle of subsidiarity . development appeared first at an international level and in in- After the revision of the action programmes in 2007, the SOER ternational law . It penetrated into contract law (law of obli- 62 Journal on Legal and Economic Issues of Central Europe

gations), however, only in a general and inaccurate character . that the European Convention on Human Rights does not Bandi also claims herein that according to certain authors, law mention environmental protection literally, whereas the Euro- is not suitable for the management of sustainable development pean Commission on Human Rights declares in concrete cases and other emerging, boiling phenomena . His reaction to this, (people living in the neighbourhood of airports) that the resi- however, is not unequivocal enough, though, it seems from the dents’ quality-of-life interests shall be considered . As the deci- context hermeneutically that he disagrees with this view . sions of the European Court of Human Rights related to the We think that the analysis of the principles related to the right for respect of private and family life, and to the respect environmental impact assessment in the second part of the of the rights to life and health have an impact on environmen- closing chapter is a very essential and thorough one . In con- tal protection, too . In our view, Bandi states accurately that nection with this, Bandi deals with the clarification of the con- according to the opinion of The European Court of Human cepts of environmental law and states that it is not necessary to Rights, it is now regarded as a principle that there is a relation form too precise, exact definitions . It is sufficient if the use of between the fundamental rights and the quality of the environ- words succeeds according to general agreement . We think that ment . we can take this view of the author only partially . In our view, Afterwards, under point four, the author, having analysed the definitions should be precise, though, we are also opposed the Hungarian legal status of sustainability in respect to the to over-precision, because it makes law enforcement more dif- Act on Environment, Constitutional Court decisions related to ficult . According to Bandi, it is impossible to give a consistent, environmental protection, and the new Fundamental Law, con- clear definition of sustainable development since sustainability cludes that the right to environment has become independent is a slogan which is often used without a content ‘being aware and is a constitutional basic right in itself in Hungary, too . This of the fact that it cannot realistically be enforced .’ It is indeed proper statement would have been more reliable if the author this fact which is the very reason for giving a clear definition of had referred to the Acts on environmental, air and water con- sustainability from a lawyer’s point of view . We argue against servation, etc ., too, which all have an effect on the health of the the author’s opinion that ‘sustainability and sustainable devel- body and soul, and on their condition, the constitutional basic opment do not make it feasible to set up a consistent system ’. It human right to a healthy environment . is true statically, though, regarding its dynamics, it is not . The last point of this chapter contains the author’s summary Following all this, the author outlines the possible legal based on the previous four points . He declares as a deficiency framework of sustainability in Hungary, dividing it into internal that the Charter of Fundamental Rights does not include the and external integrities . The requirements of the external integ- right to a healthy environment; economic goals overshadow rity is that provisions shall possibly cover most environmental environmental protection, though its importance should be elements, whereas internal integrity requires that economic and claimed since environmental protection requires an integrated environmental regulations shall be in line with, strengthening in approach as nowadays environmental damages infringe many contrast to weakening, one another . people’s rights . On the other hand, Bandi also states that the Moving on to Part ‘B’ of the thesis, sustainability is exam- content of environmental law may not be expanded beyond ined by the author with a view to its assertion, its regulation in reasonable limits, whereas, the committed side of the environ- the different legal fields, and how these rules are enforced in mental law is coupled with a comprehensive international and practice . He analyses the right to a healthy environment first national as well as institutional and human responsibility . In from the point of view of international law and traces it back the spirit of this, everybody – asserts Bandi – is obliged to pro- to natural law as a moral category and then to the UN Human tect the cleanness of the air, water and soil, the symbioses, in Rights Charter as a source of substantive law . In this context, a word: the environment . We would like to mention that herein Bandi has established a threefold-relationship system, in which the new elements appear in a mix with the old ones examined in he demonstrates that the realisation of sustainable develop- Part ‘A’ and therefore there are several recurring overlaps . ment means its enforcement as a human right, as well, and only The subsequent three chapters deal with the most impor- in this case is the environment healthy, which all man has the tant principles of sustainability . The author gives their more right to . After this theoretical introduction, he goes on to anal- precise definitions herein . The principle of subsidiarity is de- yse environmental law itself with reference to the UN, member fined as the sharing of social functions of and responsibility for states and the entitled natural persons, by examining all this the maintenance of the environment among the different legal in the different sources of international law . As a result he con- subjects . The aim of the principle of precaution is to minimalize cludes that ‘environmental protection in relation to sustainable environmental risks . Therefore, it is important ‘to act now for development penetrates into international legal documents the sake of the environment and not to wait until scientific re- only in small steps .’ In this respect, he – in a latent manner – sults become known’ . In our opinion, this attitude is a little ‘on- correctly expresses his criticism towards the legal documents conscious’, which is rather emotional and risky . The principle of environmental protection such as the Stockholm and Rio of integrity means the integration of sustainable development, Conventions that none of them is legally binding, which is their environmental and health protection into other policies of the most important deficiency . This criticism of sanction-deficiency EU, which – according to the author – has to be a continuous goes through the whole thesis . process . We can observe some overlapping herein, too, since Next the author examines the right to the environment from principles were discussed in some places in Part ‘A’, too, how- the viewpoint of European law and comes to the conclusion ever, their contents were not clarified there . 2/2014 63

On the basis of what was discussed in Parts ‘A’ and ‘B’ of the the large number of national and international literature listed thesis, the author summarises his conclusions under five points, in the bibliography and he dealt with this comprehensive topic which are as follows: a) sustainability and sustainable develop- with almost legal theoretical abstraction in a completely new ment shall be treated together; b) the starting point shall be manner and furthermore, he even inserted a new category: the sustainability; c) equity between generations; d) the close rela- ‘flexibility’ . Thus he has largely enriched the ‘basic legal study’ tionship of sustainable development with environmental law; e) of sustainable development, which may have an outstanding im- sustainability lacks exact legal concepts . pact not only on legislation but also on the legal practice devel- To sum up, based on all the above, we would like to em- oping in this field . The drawback of the legal theoretical – legal phasize that the work describes sustainable development with philosophical treatment of this legal field is its abstraction . The a completely new attitude and accurately from legal point of author could have decreased this kind of abstraction by inserting view . It catches the relevant characteristics relating to legal regu- realistic cases into adequate places, while it is very positive, nov- lation and law enforcement of sustainable development prop- el and proper that he pointed out original texts by placing them erly, pointing out that we cannot talk about the establishment of in frames . It is very impressive and positive that the main events a special, separated legal institution, but we have to use the proof the development of the legal institutions have been shown, visions of different fields here in a flexible way depending what is however, critically but objectively, we can say that it could have exactly necessary . It is also positive that he shows that the most been a slightly more powerful, mainly in the case of the EU . We important among them is environmental protection indeed . It feel that the attitude of the Catholic Church towards environ- is very impressive that the author focuses the different legal mental protection and sustainability, which we also think very fields on sustainability ‘circle – radiately’ . This gives grounds praiseworthy, is a slightly over-dimensioned . This may totally for requiring an exact precise legal definition of sustainability . have disappeared if the approaches of the other churches e . g . We think it essential that the author shall declare that the de- Reformat, Christian, Orthodox, and other religions relating to velopment may only be sustained if its limits are considered and the topic, had been compared in the respect of what they ad- the law uses its law enforcement means, i .e . the system of sanc- vocate concerning sustainability and environmental protection tions, for its assertion . The author comprehensively worked up and what impact of all this has on the society . 64 Journal on Legal and Economic Issues of Central Europe

Peculiarities of the Legal Status of People with Disabilities in Lithuania Dalia Perkumienė,1 Rasa Šemiotienė 2

Abstract The term “disability” is a social concept, which seeks to identify and remove various barriers interfering with the disabled in their endeavour to take an equal level of participation in all areas of life. The category of the disabled includes all persons who, because of the prevailing attitudes in the society, cannot enjoy the same opportunities as everyone else. Disability may be of three levels – heavy, medium and light. The manifold problems of persons with disabilities should be given a special attention. Key words: disability, persons with disabilities, legal regulation, the rights of persons with disabilities.

Introduction two benefits – it is a significant contribution to the economy as of the EU member state, so of the European economy, at the More than one billion of the world’s population has a dis- same time, the independence of the disabled in society dramati- ability, and almost one-fifth of those individuals, i e. . 110 – 190 cally increases . Therefore, the legal status of persons with disabil- million, daily face major obstacles . There are about 80 million ities should be a key focus now – to consider the re-evaluation people with disabilities in Europe . In the year of 2012 – 2013, of human disability and analyse new opportunities following it . there were 260 121 disabled persons in Lithuania receiving dis- A disabled person can choose what he or she wants and is able to ability pensions or benefits . In 2012 – 2013, there lived 15 544 do, and a public responsibility is to help them achieve it . children with disability . The number of the disabled in Lithuania The first very important step in the consolidation of the sta- corresponds to the United Nations data, which shows that peo- tus of persons with disabilities was made in 1997 with the sign- ple with disabilities account for about 10 percent of the global ing of the Amsterdam Treaty of the European Union 6, includ- population 3 . The study of the Lithuanian Union of Students ing Article 13, which established the need to “take appropriate (LSS) 4 revealed only a quarter of Lithuanian higher schools action to combat discrimination based on sex, racial or ethnic are designed for individuals with mobility disabilities . In 2013, origin, religion or belief, disability, age or sexual orientation” . about three thousand persons with disabilities were employed, For a long time, however, disability was treated as a medical i e. . every tenth handicapped unemployed who had registered at problem, not as a human rights’ issue concentrated on a person the labour exchange . Disabled persons in Lithuania face social with a physical, mental, and intellectual or other impairment . discrimination from potential employers . Quite often, the latter This article aims at conveying the peculiarities of the dis- even do not analyse the situation thoroughly, they just refuse to abled individual’s legal status . employ people with disabilities . It is explained by low labour productivity and economic inefficiency of the disabled; employers The concept of the disabled person’s disability are also afraid of taking responsibility for people with disabilities The term “disability” is a social concept, which seeks to iden- supposing the risk of their health deterioration . Discriminated tify and remove various barriers interfering with the disabled in individuals are exposed to social exclusion, they find it more dif- their endeavour to take an equal level of participation in all ficult to acquire profession and get a well-paid job; their partici- areas of life . The category of the disabled includes all persons pation in the public life of society is limited 5 . It is necessary to who, because of the prevailing attitudes in the society, cannot emphasize the fact that active integration of the disabled brings enjoy the same opportunities as everyone else .

1 Dalia Perkumienė, Head of the Law Department, Kauno kolegija/ University of Applied Sciences, Lithuania . 2 Rasa Šemiotienė, Kauno kolegija/ University of Applied Sciences, Lithuania . 3 Website of the Ministry of Social Security and Labour of the Republic of Lithuania: http://www .socmin .lt/index .php?-681837845 . 4 Website of the Lithuanian Student Union: http://lss lt/tyrimai-ir-leidiniai. / . 5 L . Vengalė, I . Mackevičiūtė . Lygybė ir įvairovė darbo vietoje: Lygių galimybių politikos apžvalga ir teisinės rekomendacijos (Equality and Diversity at the Workplace: Review on Equal Opportunity Policy and Legal Recommendations), Vilnius . 2008, p .6 . 6 http://eur-lex .europa .eu/en/treaties/dat/11997D/htm/11997D .html, login time 04 .03 . 2013 . 2/2014 65

For the first time, the concept of disability and its classi- responsibilities . A very handicapped person is a disabled of any fication was introduced by the World Health Organisation in age whose physical and mental disabilities completely restrict 1980 7 . A disability is a long-term health deterioration of a per- their opportunities to focus, to move, to work, to integrate, and son’s body owing to the structure disorders and dysfunction, to be economically independent . The concept of disability in and to unfavourable environmental factors; also, reduction of our country has only been established since July 1, 2005 by participation in social life and limited performance opportuni- the empowered Act on Social Integration of the Disabled . As ties 8 . Meanwhile, a person with a disability is defined as an Article 2 in the Lithuanian Social Integration Law on Disability individual who, because of the congenital or acquired physi- declares – disability means long-term health deterioration, re- cal or mental disability, partially or totally, is unable to lead duction of participation in social life, and limited performance their personal or social life, to perform their duties and exercise opportunities caused by a person’s body structure and dysfunc- the rights provided by law 9. Varžinskienė R . defines disability tion together with adverse environmental factors . as the physical or mental obstacle preventing or restricting the Disability may be of three levels – heavy, medium and light . individual’s ability to function as the others . Disability means A disabled person is a person who was diagnosed as a disabled, any disorder, syndrome, disease, illness, injury or impairment, with to or less than 55 percent of disability rate, and (or) when which deprives, reduces or limits the person’s ability to perform the immediate necessity of specific need satisfaction was es- daily activities and feel a full member of society; it limits the established 12 . The definition is rather vague, although disability sential vital functions – hearing, vision, and mobility, self-care, should be defined carefully – it should be exhaustive enough development, work, or it is damaging them . In other words, it is to give the protection by the law and enable to ensure a wide a limited human capacity to perform actions usual and normal range of individuals, and anyone who experiences discrimina- to every healthy person . Mostly, the disabled person cannot tion because of disability, that they can take advantage of the take care of their personal and social life properly, and experi- law . On the other hand, the opportunity to protect one’s rights ence their rights because of their physical or mental disorders .10 cannot be denied just because of the fact that the concept of The definition of disability is very important in legislation, as disability is regulated too narrowly in the rule of law . Therefore, the latter determines the target groups to be protected by law . it is worth mentioning the concept of equal opportunities here, The provisions of the Constitution of the Republic of Lithu- which is related to this article . The term Equal Opportunities ania (hereinafter referred to as the Constitution) 11 do not pro- means the implementation of human rights – as indicated in vide any specific acts for someone with a disability, only general the international acts on human and citizen rights, and Lithua- statements can be found . In the best case, such an individual nian legislation, too – regardless age, sexual orientation, disabil- may expect that the discrimination be prohibited because of ity, race or ethnic origin, religion or belief, and other statutory common law: “Human rights should not be restricted, and grounds under the international treaties and laws of the Repub- the individual should not be provided with privileges on the lic of Lithuania . In the case of violation of the Equal Oppor- grounds of sex, race, ethnicity, language, origin, social status, tunities, this means direct or indirect discrimination regarding religion, beliefs or opinions .” A disabled person is only men- age, sexual orientation, disability, race or ethnic origin, religion tioned in the Constitution stating that “the State shall guaran- or belief .13 In the Social Services Act of the Republic of Lithu- tee its citizens the right to old-age and disability pensions” . The ania 14, the definition of disabled or handicapped does not exist, Resolution No .I-352 “Regarding the Protection of the Interests but the concepts “an adult person with disability” and “a child of the Disabled in Lithuania”(No . 20-513, 1990), approved by with disability” are distinguished . the Supreme Council of the Republic of Lithuania on 5 July The European Union’s Documents Related to the 1990, was the first act of law regulating the legal position of people with disabilities . The Law on Social Integration of the Integration into Society of Persons with Disabilities Disabled in the Republic of Lithuania (10) was approved on The European Union recognises that the manifold problems 28 November 1991, and it identified the disabled person as of persons with disabilities should be given a special attention . handicapped (invalid) . A handicapped person is an individual First of all, people with disabilities should have conditions to of any age who, because of a congenital or acquired physical or fulfil their roles and responsibilities as citizens and ensure that mental defect, in whole or in part, is unable to take care of their they have the same choices and control over their lives as non- personal and social life, experience their rights and carry out disabled people . Actions should be guided by the principle that

7 Adomaitienė R ., Mikelkevičiūtė, J . Negalios fenomenas sociologijos teorijų požiūriu (Disability Phenomena under the Sociology Theories) // Ugdy- mas . Kūno kultūra . Sportas . No .4 (41), 2001 p . 5 . 8 Baranauskienė I ., Ruškus, J . Neįgaliųjų dalyvavimas darbo rinkoje: profesinio rengimo ir profesinės adaptacijos sąveika (The Disabled in the La- bour Market: Interaction between Vocational Training and Professional Adaptation) . Monografija . Šiauliai: Šiaulių universiteto leidykla,2004, p .11 . 9 Addakha, R . (2007) . How Young People with Disabilities Conceptualize the body, sex and Marriage in Urban India, Sex disabled . 10 Ruškus J . Negalės fenomenas (Disability Phenomena) . Šiauliai, 2002 (p 12. .) 11 The Constitution of the Republic of Lithuania// Valstybės Žinios, No.33-1014, 1992, (Article 29 and 53). 12 The Law on Social Integration of the Disabled Persons in the Republic of Lithuania//Valstybės žinios, No. 36-969, 2005 (Article 2). 13 The Law on Equal Opportunities of the Republic of Lithuania//Valstybės žinios, No. 114-5115, 2003 (Article 2). 14 The Law on Social Services of the Republic of Lithuania//Valstybės žinios, No. 17-589, 2006 (Art. 2). 66 Journal on Legal and Economic Issues of Central Europe

people with disabilities, like all other human beings, are ensured Forum of People with Disabilities was adopted in Madrid; it access and inclusion . One of the most important tasks is to establishes the non-discrimination of disability and a need of ensure the availability of long-term care and support services . It affirmative governmental action regarding the people in ques- is appropriate to consider other issues, such as disability com- tion . The fundamental rights and provisions for people with pensation, habilitation and rehabilitation, economic and social disabilities were formulated in this declaration, it established consequences of disability reduction, combating health care a new direction – from charity and expectation of mercy to the inequalities . The most relevant objectives are to reduce social disabled rights to non-discrimination, and positive support as exclusion, removing barriers to facilitate the movement and use subjective rights guarantees . This declaration is considered to of information technology 15 . be the beginning of a new movement of people with disabilities: Disabled people constantly hear that all human rights are one year later the launch of two new instruments – the relevant universal and solid, and this is presented as fundamental prin- EU directive and the UN Convention – was started at the new ciples of the human rights theory . According to A .Vaišvila,16 European Disability Forum Conference . The authorities of the a mature person is a legal entity, in respect of the responsibili- European Union institutions in this conference repeatedly un- ties related to those rights . A disabled person faces a curious derlined that provisions of the Social Charter (ratified by Lithu- situation – it is often not without an additional state aid to be- ania, too) may be regarded as personal rights and defended in gin exercise their rights, and quite often, the issue on execution the courts 20 . Thus, Paragraph 3 of Article 15 of the EU Social of obligations legalising those rights is omitted . Charter (revised) 21 proclaims that the State is committed to By enabling a disabled person to exercise their rights, they supporting disabled people in their full social integration and may be required to fulfil their duties . For example, given a prop- participation in public life, in particular, through measures er education and corresponding environment, a person with including technical aids when aiming to overcome barriers to mobility or visual impairments may become a teacher, a doc- communication and mobility; consequently, it shall also enable tor, a judge, and, like all representatives of these professions, those people to have free access to transport, housing, cultural pay taxes to the government (rather than wait for governmental activities, and leisure . support in one or another form) 17 . At the international level, The greatest achievement in specific strengthening of the the United Nations Universal Declaration of Human Rights 18 rights of persons with disabilities at the international level is with the legal and moral standards and human rights principles the UN Convention on the Rights of Disabled Persons 22 of for an individual, as the highest value to be protected, were 2006 . It is a binding document that, for the first time in his- taken over and consolidated in all major international, regional, tory, in the international human rights law, formalised the es- and national laws . Human rights and freedoms are recognised as sential rights of disabled people, embracing basic human rights the principle values of modern democratic states, consequently, and freedoms without discrimination, and by this it promotes their proper implementation, legal protection and defence is respect for their inherent dignity . The UN Convention on the one of the most important issues for the state and society . Thus, Rights of Disabled Persons legal insanity is enshrined in the people with disabilities, like all citizens, must possess the same 12th Article – Equality before the law . human rights . Lithuania has also ratified most major international instru- For quite a long time, however, international human rights ments on human rights, as well as provisions relating specifi- provisions were not applied to protect persons with disabilities, cally to disabled people’s rights . One of the latest and most as there has not been specifically mentioned that discrimina- important documents, however, would be Convention on the tion based on disability is illegal . Only after a few dozen years Rights of Persons with Disabilities adopted in May of 2010 . since adoption of the first human rights documents, the inter- The aim of the Convention is to promote and ensure that all national community finally acknowledged that those acts con- people with disabilities experience full and equal enjoyment of tain non-discrimination provisions applicable to persons with all human rights and fundamental freedoms, and to promote disabilities . Since the implementation of human rights is not respect for their inherent dignity . The Convention on Persons granted hierarchy, individuals with disabilities should not be with Disabilities has established equality before the law, free- assessed by measures of efficiency or competitiveness 19 . dom and security, personal integrity requirements, free move- The year of 2003 was proclaimed as the year of people with ment, citizenship, and independent living rights, the right to disabilities in Europe . In 2002, the Declaration of the European health, work, employment and education, the opportunity to

15 http://www .edf-feph .org/ login time: 15 .04 .2013 . 16 Vaišvila A . Teisės teorija (The Theory of Law) . Vilnius, 2000, p . 336 – 337 . 17 Latauskienė G . Neįgalus asmuo Žmogaus teisių apsaugos požiūriu (A Disabled Person in Terms of Human Rights Protection .) Jurisprudencija No . 54 (46),Vilnius,2004,p .77 . 18 The Universal Declaration of Human Rights (1948) // Valstybės žinios: Vilnius, No. 68-2497,2006, (Art.1). 19 Downtime Problems of the EU in the Context of the Declared Values: Global Initiative on Psychiatry .Vilnius,2007, p 7. . 20 Latauskienė G . Neįgalus asmuo Žmogaus teisių apsaugos požiūriu (A Disabled Person in Terms of Human Rights Protection) . Jurisprudencija No . 54 (46),Vilnius,2004, p .78 . 21 European Social Charter (revised) // Valstybės žinios. 2001. No. 49-1704. 22 The UN General Assembly adopted the UN Convention on the Rights of Disabled Persons on Dec . 13, 2006: http://www .un .org/disabilities/ documents/convention/convoptprot-e .pdf, login time: 12 03. .2013 . 2/2014 67 participate in the political and cultural life 23 . The approval of implementing social integration, the level of disability and in- the law demonstrates that commitment before the international capacity levels, vocational rehabilitation services, principles of community (joining the EU) and its own citizens are important special need and satisfaction establishment .26 It is necessary to for Lithuania to recognise the democratic rule of law and to emphasize that in Lithuania, disability level is determined to respect basic international human rights standards for the pro- people under 18 years of age, except for persons who are (were) tection and respect of all people . insured by the state social insurance; their working capacity is Lithuanian Legislation Regulating the Legal Status determined already under the age of 18 and to the retirement age . Special needs are identified within 15 working days, and of People with Disabilities disability or capacity level for work – within 30 calendar days The domestic laws and the Constitution regulate the legal from the date of document submission or the date of dispatch status of people with disabilities in the Republic of Lithuania, to the person, or else within 90 calendar days, since the retire- and certain specific areas are regulated by separate laws or in- ment allowance or benefit releasing institution is informed 27 . ternational legislation . For example, in Germany, the disability being over 50 per cent, The Constitution guarantees the fundamental rights and it is regarded as severe disability 28; in Lithuania, if a disabled freedoms to a person . Here, the proclaimed regulations are in person is employable from 30 to 55 per cent, he or she is consid- line with the provisions set out in international instruments, ered to have partial ability to work and is available for work . establishing the need to protect and respect the person, their Now there are about 34 thousand public buildings in Lithu- honour and dignity, and to protect against any form of discrimi- ania, such as schools, clinics, hospitals, shopping and catering nation . Article 29 of the Constitution states that it is prohibited centres, theatres, banks, post-offices, and others, that should be to restrict the rights or privileges of persons because of their adapted to the needs of people with disabilities . According to sex, race, nationality, language, origin, social status, religion, preliminary estimates, the reconstruction of these buildings, if beliefs or views . Although the protection from the right limi- adapted to the needs of the disabled, would cost over 7 billion tation and against discrimination because of disability is not litas, as it is stated in the Project of the National Integration specified in the Constitution, Article 6 declares, “The Constitu- of Persons with Disabilities for the Period of 2013 – 2019, in tion is an integral and directly applicable statute” . Therefore, the programme prepared by the Ministry of Social Security and every citizen of the Republic of Lithuania may protect his or Labour (MSSL) of the Republic of Lithuania .29 It should be her rights based on the Constitution . In addition, Article 29 of noted that Lithuanian legislation does not regulate the terms the Constitution states, “all citizens are equal before the law, in which the existing public buildings should be made fit to the the courts, and other governmental authorities and officials” . needs of persons with disabilities . Quite recently, since 2011, Many other parts of legislation of the Republic of Lithuania under the Construction Law of the Republic of Lithuania 30, that regulate various social relations are established under the new constructions or public buildings, which are under major principle of Constitutional equality of all persons and the one repairs, must be readjusted to meet the demands of people with of non-discrimination 24 . disabilities . It is necessary to notify the fact that for long a disabled per- Lithuanian Department of the Disabled at the Ministry of son in Lithuania has been known as invalid . It was only since Social Security and Labour of the Republic of Lithuania pro- 2005 that an important act on the social integration of the vides for the rights of persons with disabilities (they, however, disabled in the Republic of Lithuania has come into force and do not have the power of legislation, they act more as an adviso- changed the legal status of the disabled persons . It has substi- ry body); the Office of the Ombudsman, where a complaint on tuted the Act of the Social Integration of the Disabled (1991) . discrimination against disability may be submitted, but they do Under this Act, a disabled person is a person whose disability, not have powers of the courts, thus, the investigated complaint in accordance with the recognised disability standards, equals may be challenged in the courts . Non-governmental organisa- to or less than 55 percent of disability rate, and (or) the need tions (the Hope, the Disability Forum, Associations of the dis- for special requirements is established 25 . The aim of this law is abled in various cities, sports clubs, employment agencies, and to guarantee equal rights and opportunities to the disabled in etc ). provide protection for the disabled . society, to establish the principles of social integration, to define Since 2009, the Lithuanian Labour Exchange has launched the system of social integration, its prerequisites and terms for the encouragement programme for people with disabilities to the integration of people with disabilities, to define institutions involve them in business, telecommuting work at home, also

23 Website of the Ministry of Social Security and Labour of the Republic of Lithuania: http://www .socmin .lt/index php?-48322262. 0 . 24 Preliminary Reports by the UN Convention on the Rights of Persons with Disabilities, Project (Žin., 2012, No. 12-1479-01). 25 The Law on Social Integration of the Disabled Persons in the Republic of Lithuania // Valstybės žinios No. 36-969 (Actual wording since 2004), 1991, Vilnius . 26 Id. 27 Id. 28 http://www .germanlawjournal .com/pdfs/Vol05No11/PDF_Vol_05_No_11_1373-1392_Private_Kock .pdf, login time: 12 03. .2013 . 29 Lithuanian Government Resolution on the National Integration of Disabled People in 2012 – 2019 approval of the programme: http://www .lrv . lt/Posed_medz/2012/121121/06 .pdf, login time 12 03. .2013 . 30 The Law on Construction of the Republic of Lithuania// Valstybės žinios No. 32-788 (actual wording 28 .06 .2011), 1996, Vilnius . 68 Journal on Legal and Economic Issues of Central Europe

to improve the support forms in companies that employ people Already from 2000 to 2002, the legislation introduced in Ger- with disabilities, and to organise vocational rehabilitation in the many in particular emphasised the comprehensive adaptation tailored centres . Also since 2009, the funding of disability em- of environment (public buildings and transportation, food es- ployment has been started . It is interesting to note that a dis- tablishments, educational institutions, streets, parking spaces, abled person, whose working capacity is less than 25 percent, etc ). for the needs of the disabled; the German laws also care and a person with working ability from 30 – 40 percent, receive about integration of people with disabilities into the labour job subsidy for an indefinite period of time 31 . The same prac- market, by subsidising jobs, providing all the necessary equip- tice is applied in Germany – if the employer employs a person ment for independent living, enabling people exist in the least with severe disabilities, they are subsidised for an indefinite pe- possible dependence on others, setting up special houses (day riod 32 . care centres in Lithuania) . Tax incentives and free basic services In the judicial practice, there occur cases when the employer, (transport, the Internet, cultural events, treatment and rehabili- in order to “legally” dismiss a disabled person, carries out struc- tation, etc .), voting and adjusted voting environment, free of tural corporate changes, and the position of the employee is lost charge sign language service, etc ., at the time, provided greater (January 26, 2012, Vilnius District Court’s decision on the peti- opportunities for full integration into society . After Lithuania tioner’s AK wrongful dismissal, when the petitioner had 50 per- had signed the UN Convention on Persons with Disabilities in cent of working capacity 33) . In addition, there are cases when 2010, the legal framework for the disabled was given a strong persons are dismissed because of disability (indirect discrimina- start for adjustment . The rights of disabled people in Lithuania tion), which is a hindrance to operational duties (Civil case No . began to develop after the adoption of the Social Integration 2A-520-555/2013 34, Civil case No . 2A-751-198/2010 35) . Law for the Disabled in Lithuania (2005) and Equal Oppor- The Lithuanian Labour Code 36 does not include an extra tunities Act (2003) . While in Germany all national legislation annual leave for the disabled as well as cuts down on the ex- regarding the legal status of persons with disabilities was estab- tra time spent validating the fulfilment of the disabled, how- lished more than 10 years ago, in Lithuania, such acts of law ever, by the demand of the disabled and by the report from are only gaining acceleration, and are reflected in the presented the health care institution, not all working time is included by draft programme by the Government of Lithuania – yet not Article 146 . endorsed – the Resolution on National Integration of Disabled The recent survey done by the Lithuanian Union of Students People in 2012 – 2019 . about students with disabilities in higher educational institu- It should be noted that the Lithuanian laws regulating the tions of Lithuania has revealed a downward trend regarding the legal status of persons with disabilities are not comprehensive data of students with disabilities: in the 2011 – 2012 academic enough and have a number of shortcomings . As a proof, the year, only 878 students with disabilities studied in Lithuanian UN Convention on the Rights of Persons with Disabilities universities and colleges (correspondingly, in 2010 – 2011, there has disclosed that the Lithuanian legal framework needs to be were 996 students, and in 2009 – 2010 academic year – 1026 adjusted, starting with the concept of a disabled person and students) 37 . It was only since 2011 that Lithuanian legislation a larger environmental adaptation, to the expansion of equal has incorporated the statement that the reconstructed or newly rights of these people to education, employment, independent constructed buildings must be fitted for the disabled; and al- living, and etc . though there are just a few institutions of higher education in Lithuania adapted for physically disabled persons, the tailoring Conclusions of information environment is no less important . In addition, 1 . The concept of disability in various countries is still being a flexible approach to attendance, a custom reporting format evolved, it is however acknowledged, that disability origi- for people with disabilities, the coordinator’s post, correct and nates from the interaction between individuals with impair- respectful attitude of teachers, and classmate interaction are ments and the attitude of the environment; also it depends greatly appreciated . Therefore, the adjustment of education on the obstacles created for those persons to fully and ef- and social services legislation should be given high priority in fectively participate in the public life on equal basis with strengthening the legal status of persons with disabilities . others . Legislation governing the legal status of the disabled in 2 . Although cases on disability are not numerous in Lithuanian Germany, in some areas, is wider, it allows disabled people live court practice, nevertheless, the adopted acts of law, such independently; public buildings and public transport are ac- as Disability Rights Convention (2010), the Act on Social cordingly adapted, the disabled have free access to the Inter- Integration of Persons with Disabilities in the Republic of net . This provides greater opportunities for a disabled person . Lithuania (2004), the Act on Social Services (2006), the Act

31 Website of the Labour Exchange: www .ldb .lt/Informacija/PaslaugosAsmenims/Puslapiai/idarbinimas_subsidijuojant_d .aspx . 32 http://www .germanlawjournal .com/pdfs/Vol05No11/PDF_Vol_05_No_11_1373-1392_Private_Kock .pdf, login time: 12 03. .2013 . 33 Vilnius Regional Court Decision of January 26, 2012 on the petitioner’s A .K . wrongful dismissal from the post at the National Paying Agency at the Ministry of Agriculture . 34 Kaunas Regional Court‘s Decision in a Civil Case No . 2A-520-555/2013 of April 3, 2013 . 35 Panevezys Regional Court‘s Decision in a Civil Case No . 2A-751-198/2010 of December 19, 2011 . 36 The Labour Code of the Republic of Lithuania//Valstybės žinios No. 64-2569, Vilnius, 2002. 37 Website of the Lithuanian Student Union: http://lss .lt/tyrimai-ir-leidiniai/, login time: 12 .03 .2013 . 2/2014 69

on Equal Opportunities (2003) and others are building dif- advisory body), the Office of the Ombudsman, which ac- ferentiated policy of the disabled rights protection . cepts complaints on discrimination related to disability, but 3 . In international papers, the analysis of the disabled issues they do not have powers of the courts, and the investigated is performed by distinguishing two aspects: a search for the complaint may be later sued in the courts . It is NGOs that ways to better meet the individual needs of people with dis- provide more protection for the disabled . abilities (rehabilitation, technical tools, integration into soci- 5 . The biggest advancement in the status of legal persons with ety, etc .); on the other hand, the issues of the disabled inter- disabilities in Lithuania took place in 2010, after the UN ference arising from the lack of good public process organi- Convention on Persons with Disabilities was adopted . It was sation, by paying particular attention to the environmental an important base to adjust the legal framework in respect of adaptation, adequate education and employment scheme, the rights of persons with disabilities . The rights of disabled are analysed . people in our country were started to develop in 2005, after 4 . Although it aims to successfully integrate people with dis- the adoption of the Law on Social Integration of the Disabled abilities into society (employment, education, culture events, in the Republic of Lithuania and the Equal Opportunities Act etc .), difficulties persist: physical environment unsuitable for (2003) . All acts of law, however, in relation to the legal sta- the disabled, the insufficient system of independent life skill tus of persons with disabilities, were introduced into national development . legislation of Germany more than a decade ago; Lithuania, Lithuania provides for the rights of persons with disabilities though, has just started its legislation on this issue – the draft under the order of the Department of Disabled Matters at programme regarding the Resolution on national integration the Ministry of Social Security and Labour (but they do not of the disabled for 2012 – 2019 has been submitted by the have the power to prepare or issue laws, they act more as an Government of Lithuania and is waiting for approval .

References 1 . The Constitution of the Republic of Lithuania// Valstybės Žinios, No.33-1014, 1992, (Article 29 and 53). 2 . Website of the Ministry of Social Security and Labour of the Republic of Lithuania: http://www .socmin lt/index. php?-. 681837845 . 3 . The Law on Social Integration of the Disabled Persons in the Republic of Lithuania//Valstybės žinios, No. 36-969, 2005. 4 . Lithuanian Government Resolution on the National Integration of Disabled People in 2012 – 2019 approval of the programme: http://www .lrv .lt/Posed_medz/2012/121121/06 .pdf, login time 12 .03 .2013 . 5 . The Law on Equal Opportunities of the Republic of Lithuania//Valstybės žinios, No. 114-5115, 2003. 6 . The Law on Social Services of the Republic of Lithuania//Valstybės žinios, No. 17-589, 2006. 7 . The Universal Declaration of Human Rights (1948) // Valstybės žinios: Vilnius, No. 68-2497, 2006. 8 . Addakha, R . (2007) . How Young People with Disabilities Conceptualize the body, sex and Marriage in Urban India, Sex disabled. 9 . The UN General Assembly adopted the UN Convention on the Rights of Disabled Persons on Dec . 13, 2006: http://www . un .org/disabilities/documents/convention/convoptprot-e .pdf, login time: 12 .03 .2013 . 10 . Adomaitienė, R ., Mikelkevičiūtė, J . Negalios fenomenas sociologijos teorijų požiūriu (Disability Phenomena under the Sociology Theories) // Ugdymas . Kūno kultūra . Sportas . No .4 (41), 2001 . 11 . Baranauskienė, I ., Ruškus, J . Neįgaliųjų dalyvavimas darbo rinkoje: profesinio rengimo ir profesinės adaptacijos sąveika (The Disabled in the Labour Market: Interaction between Vocational Training and Professional Adaptation). Monografija . Šiauliai: Šiaulių universiteto leidykla, 2004 . 12 . Latauskienė, G . Neįgalus asmuo Žmogaus teisių apsaugos požiūriu (A Disabled Person in Terms of Human Rights Protection.) Juris- prudencija No . 54 (46),Vilnius, 2004 . 13 . http://www .germanlawjournal .com/pdfs/Vol05No11/PDF_Vol_05_No_11_1373-1392_Private_Kock .pdf, login time: 12 .03 .2013 . 14 . Ruškus, J . Negalės fenomenas (Disability Phenomena). Šiauliai, 2002 . 15 . The Law on Construction of the Republic of Lithuania// Valstybės žinios No. 32-788 (actual wording 28 .06 2011),. 1996, Vilnius . 16 . Vilnius Regional Court Decision of January 26, 2012 on the petitioner’s A . K . wrongful dismissal from the post at the National Paying Agency at the Ministry of Agriculture . 17 . Kaunas Regional Court‘s Decision in a Civil Case No . 2A-520-555/2013 of April 3, 2013 . 18 . Panevezys Regional Court‘s Decision in a Civil Case No . 2A-751-198/2010 of December 19, 2011 . 19 . The Labour Code of the Republic of Lithuania//Valstybės žinios No. 64-2569, Vilnius, 2002. 20 . Vaišvila, A . Teisės teorija (The Theory of Law). Vilnius, 2000 . 21 . Website of the Lithuanian Student Union: http://lss .lt/tyrimai-ir-leidiniai/ . 22 . http://eur-lex .europa .eu/en/treaties/dat/11997D/htm/11997D .html, login time 04 .03 . 2013 . 23 . Vengalė, L., Mackevičiūtė, I . Lygybė ir įvairovė darbo vietoje: Lygių galimybių politikos apžvalga ir teisinės rekomendacijos (Equality and Diversity at the Workplace: Review on Equal Opportunity Policy and Legal Recommendations). Vilnius . 2008 . 70 Journal on Legal and Economic Issues of Central Europe

Cultural Heritage and Public Interest versus Private Rights: a Struggle for a Balanced Approach in Lithuania Rita Matulionyte 1

Abstract This paper discusses the balance between cultural heritage as a public interest and private property rights. It analysis the problems that Lithu- anian court faces when enforcing cultural heritage laws in public interest proceedings, overviews the main principles that European Court of Human Rights has set in cases related to cultural heritage and discusses how Lithuania and other countries in the region could ensure a balance of public and private interest when protecting cultural heritage. Key words: cultural heritage, public interest, European Court of Human Rights, property right, Lithuania.

in the practice of European Court of Human Rights . As a case I. Introduction study, Lithuanian national experience is taken as an example . Although being a relatively new member to international trea- International treaties on cultural heritage, such as World ties to cultural heritage, in the last decades Lithuania has es- Heritage Convention 2, have been highlighting the need to pre- tablished a comprehensive legal system for the protection of serve cultural heritage and suggesting requirements and restric- cultural heritage and is making considerable efforts to enforce tions in relation to use of cultural heritage objects by private them . persons or public authorities . According to national laws that implement these international obligations, private owners of II. In Short: Protection of Cultural Heritage in Lithuania immovable cultural heritage objects can use them only according to the purpose prescribed, can do repair work or alterations Lithuania has a several-century-long tradition of protection only if allowed by responsible cultural heritage institutions, etc . of its cultural heritage . The respect for cultural heritage is said to On the other hand, another set of international obligations re- have its roots already in the Third Statute of Lithuania (1588) . quire protecting a set of private rights including property right . During 1795 – 1918, the laws of Russian empire were valid in In particular, European Convention on Human Rights 3 requires Lithuania that contained several legal provisions in relation to ensuring the enjoyment of property right and allows only those the protection of cultural heritage (e .g ., on protection of histori- limitations that are “in public interest” and that are reasonable cal castles) . The first laws specifically devoted to the protection and proportionate . Finding of a balance between the public of cultural heritage were adopted during Lithuania’s first period interest in cultural heritage and private rights and interests is of Independence (1918 – 1940) 4 that later were superseded by a difficult task both for national legislators and law enforce- cultural heritage laws of the Soviet Union (1940 – 1990) 5 . ment authorities . Since the Independence in 1990, Lithuania undertook a great The purpose of this article is to examine how national courts effort to establish an efficient framework for the protection of have been struggling to find a balance between these conflicting its tangible and intangible cultural heritage, which constitutes rights and interests and whether any guidance could be found a vital part of its cultural identity . It swiftly ratified virtually all

1 Dr . Rita Matulionyte, LL .M . (Munich), senior research fellow, Law Institute of Lithuania, Vilnius, Lithuania . This paper is a part of a project “Problems of Identification of Public Interest in Lithuanian Law: Criteria and Priorities” financed by the Research Council of Lithuania and conducted by the Law Institute of Lithuania . 2 Convention Concerning the Protection of the World Cultural and Natural Heritage, adopted in Paris on 17 – 21 November 1972 . 3 The European Convention for the Protection of Human Rights and Fundamental Freedoms, adopted on 4 November 1950, Rome, with additional protocols . 4 E .g . the Law on the Commission of Archeology of 1919 . 5 Collection of previous laws can be found on “Paveldosauginės teisės šaltiniai” available on http://www3 lrs. lt/pls/inter/w5_show?p_r=883&p_. k=1 . 2/2014 71

6 main international conventions in the field of cultural heritage III. Cultural Heritage in Public Interest Proceedings and established an elaborated legal framework for the protection of tangible and intangible cultural heritage . in Lithuania Currently, the main laws that regulate the protection of tan- Lithuanian courts have developed several criteria that need gible cultural heritage 7 in Lithuania are the Law on the protec- to be met in order to enforce cultural heritage laws in public tion of immovable cultural heritage 8 and the Law on the pro- interest proceedings 11 . First, it has to be proven that there is tection of movable cultural heritage objects 9 . These laws define a public interest in the case at stake . Secondly, the public in- the functions of state and local institutions in preserving cul- terest claim should be brought before court by an authorized tural heritage, procedures of announcing an object as cultural person or authority . Third, the nature and extent of injury need heritage, measures of protection (e .g . rights and duties of man- to be specified as well as the subjects of the society that are agers of cultural heritage) as well as educational and informa- or will be harmed by the illegal conduct . Fourth, the remedy tional measures related to the heritage . A set of by-laws provide requested by the prosecutor should be appropriate and propor- detailed regulations on how these laws should be implemented . tional . Finally, if there is a conflict with another public interest In addition, the Law on protected territories and the Law on re- or rights and interests of private persons, the question of bal- gional planning contain provisions relevant to the regional plan- ance between these interests should be solved . ning of protected territories (including territories surrounding For the purpose of this research, three of these questions are the immovable cultural heritage objects) . The main institution important: does the protection of cultural heritage constitute that is vested with the rights to administer the protection of a public interest; how the balance between public and private tangible cultural heritage is the Department of Cultural Heri- interests involved should be established; and whether the rem- tage . The Ministry of Culture forms the cultural policies in the edies requested in cultural heritage cases are proportional? field, while the State Commission for Cultural Heritage advices government in cultural policy making . 1. Does Protection of Cultural Heritage Constitute a Public The application of cultural heritage laws is supervised by Interest? the Department of Cultural Heritage . In case of violation of As a general matter, there is no clearly defined concept of cultural heritage laws, the Department has a right to impose public interest either in statutory law or court practice in Lithu- administrative fines, seek for the compensation of damage done ania . This concept is almost absent from the laws on cultural to the heritage or request expropriation of property . Apart from heritage 12. Protection of immovable cultural heritage is men- the Department, cultural heritage laws are also often enforced tioned as one of public interests that need to be taken into ac- through so called “public interest proceedings” normally insti- count in territorial planning processes 13 as well as when order- gated by the public prosecutors 10 . Since the question of bal- ing the destruction of illegal constructions 14 . However, none ance between the protection of cultural heritage and private of these laws provide an explicit definition of public interest . rights is most often addressed in these proceedings, they will be Lithuanian courts have also agreed that there can be no ex ante the focus of this article . definition of public interest . The Constitutional Court of Lithu-

6 As of March 2014, Lithuania has ratified Convention concerning the Protection of the World Cultural and Natural Heritage; Convention on the means of prohibiting and preventing the illicit import, export and transfer of ownership of cultural property; Convention for the protection of cultural property in the event of armed conflict and its two protocols; Convention for the Safeguarding of the Intangible Cultural Heritage; Convention on the Protection of the Underwater Cultural Heritage; Convention on the Protection and Promotion of the Diversity of Cultural Expressions; UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects; Council of Europe European Cultural Convention, Convention for the Protection of the Archaeological Heritage of Europe, European Convention for the Protection of the Audiovisual Heritage . 7 The protection of intangible cultural heritage is regulated by a separate set of laws, such as the Basic law on the preservation of ethnic culture and the Law on the products of ethnic heritage; their implementation is coordinated and supervised by different institutions, such as Ministry of Culture, Ministry of Agriculture (with regard to ethnic products), Commission for the Preservation of Ethnic Culture, and Lithuanian Folk Culture Center . 8 Adopted on 22 December 1994, Žin., 1995, Nr. 3-37, with later amendments. 9 Adopted on 23 January 1996, Žin., 1996, Nr. 14-352, with later amendments. 10 In 2011 the Prosecutor Office received 15 complaints in relation to the defense of public interest in this field, 8 of which reached the court and 4 of which were fully satisfied), see See Prosecution Service, „Prokurorų veiklos nekilnojamojo kultūros paveldo apsaugos srityje 2011 metais apibendrinimas ir analizė (eng . Prosecutors action in the field of protection of cultural heritage in 2011: summary and analysis), done at 7 February 2012, no . 17 .3-21, available at http://www .prokuraturos lt/nbspnbspVie%C5%A1ojointeresogynimas/tabid/163/Default. .aspx . 11 See, e .g ., Lithuania Supreme Administrative Court decision of 30 April 2012, case no . A-556-1517/2012 . 12 E .g . the Law on immovable heritage only mentions “society needs”, e .g . in case of expropriation; Law on movable cultural heritage objects states that one of the functions of the Department of Cultural Heritage is to approach court for the protection of public interest in specifically enumerated cases, such as expropriation of cultural heritage object, compensation for damage done for the object, etc . (Article 3 part 4 para 6) . 13 Article 8(1)(2) of the newly amended Law on regional planning . 14 Law on construction, Article 28 part 2 para 4, Article 28 part 7 para 4, Article 281 part 2 para 2 . 72 Journal on Legal and Economic Issues of Central Europe

ania indicated that “public interest can be only grounded on the values 23 . These constitutional values should not be put against basic values of society which are implemented and protected by each other; rather, a proper balance between them should be the Constitution” 15 and the existence of public interest should established 24 . However, the courts are often rather reluctant to be evaluated and proven on case by case basis 16 . A similarly take into consideration different interests involved . Quite of- broad approach of public interest is found in the case law of the ten, in case there is a violation of cultural heritage laws, they are Supreme Court of Lithuania 17 as well as Supreme Administra- willing to merely enforce the law . Even when parties argue that tive Court of Lithuania 18. the enforcement of a particular cultural heritage law will violate Despite (or because) of that, in cases involving cultural heri- their rights, such as property right, courts in some cases merely tage courts find little difficulty in establishing public interest . ignore such arguments 25 . According to the Constitutional Court of Lithuania, “a guaran- In other cultural heritage cases however, the courts under- tee of cultural freedom, state support for culture as well as the take the weighting exercise as required by the Constitutional protection of cultural heritage monuments and values consti- Court 26 . Here, two types of conflicts of interests could be dis- tute public interest whereas a state support and protection of tinguished . culture is an important function of the state” 19 . Public interest in preservation of cultural heritage has been confirmed both by Cultural Heritage v. Legal Stability and Foreseeability the Supreme Court of Lithuania and the Supreme Administra- The main issue that is often brought up in public interest tive Court of Lithuania 20 . proceedings on cultural heritage in Lithuania is the principle of Such conclusion is not surprising . Numerous international legal certainty and foreseeability . There has been a widespread documents implicitly or explicitly recognize public interest in problem that public interest proceedings are instigated either the preservation of cultural heritage . Whereas public interest after the statutory term for such proceedings has lapsed 27 or, in cultural heritage could be implied from the 1972 World even if this term has not lapsed, a number of years have passed Heritage Convention, the so called “Faro Convention” explicitly since the adoption of the contested administrative act related to states that “The Parties undertake to: (…) recognize the public cultural heritage 28 . In such cases the courts have taken a con- interest associated with elements of the cultural heritage in siderable effort to weight the two conflicting interests, the pro- accordance with their importance to society” 21 . As will be seen tection of cultural heritage on the one hand, and the legal sta- later, the European Court of Human Rights has also accepted bility and foreseeability of legal relationships on the other hand . that the protection of cultural heritage is a legitimate aim (or However, the results of a weighting exercise diverge . public interest) that the State may pursue when interfering with In some cases the courts have given priority to the protection individual rights, especially with the right to property enshrined of cultural heritage . For instance, in Kaunas 9th Fort case 29, in the Article 1 of Protocol No . 1 of the European Convention the prosecutor contested a regional planning document that on Human Rights 22. allowed constructing buildings in the territory of Kaunas 9th Fort, a protected cultural heritage object . Constructions in the 2. How to Balance Public and Private Interests? territory were not allowed under the existing regulations and Weighting of public and private interests involved in the it was clear from the case that the contested regional planning case has proven to be not such an easy task for Lithuanian documents were issued due to the mistake of public authorities . courts . The Constitutional Court of Lithuania has highlighted Even worse, the claim was brought more than five years after that public interest has to be balanced against private interest, the adoption of the contested document . The owner of the land since both public interests and private rights are constitutional was arguing inter alia that the period that has lapsed since the

15 Constitutional Court Decision of 21 September 2006, Žin., 2006, 102-3957 . 16 Constitutional Court Decision of 21 September 2006, Žin., 2006, 102-3957 . 17 See, e .g ., Lithuania’s Supreme Court decision of 22 March 2006, case no . 3K-3-194/2006 . 18 The latter has clarified that “public interest is not any legitimate interest of a person or a group of persons but only that interest that reflects and expresses the fundamental values of the society that are entrenched and protected by the Constitution of the Republic of Lithuania”, see Lithuania’s Supreme Administrative Court decision of 25 July 2008 case no . A146 - 335/2008 . 19 Constitutional Court decision of 8 July 2005, Žin., 2005-07-19, Nr . 87-3274 . 20 See, e .g ., Lithuania‘s Supreme Administrative Court decision of 26 September 2011 case no . A662-3141/2011 . 21 The Council of Europe Framework Convention on the Value of Cultural Heritage for Society, adopted on 27 October 2005, Article 5(a) . 22 See discussion below . 23 Constitutional Court decisions of 6 May 1997 and of 13 December 2004 . 24 Constitutional Court decision of 21 September 2006 . 25 E .g . Lithuania’s Supreme Administrative Court decision of 26 September 2011, case no . A-662-3141-11 . 26 Lithuania’s Supreme Administrative Court decision of 10 April 2012 no . AS146 - 200/2011 and decision of 14 November 2011, No . I-556- 16/2011 . 27 Prosecutor has to bring the public interest claim before the court in one month after acquiring the knowledge about the violation of public interest . 28 Under the survey of the State Commission on Cultural Heritage, in most cases the negative outcomes of public proceedings have been caused by the missed statutory term to start such proceedings, see a note on “Bylos dėl Kuršių neringos”, available at http://www3 lrs. lt/pls/inter/. w5_show?p_r=1017&p_k=1 . 29 Lithuania’s Supreme Administrative Court decision of 12 July 2012No . A556 - 2050/2012 . 2/2014 73 adoption of the document is unreasonably long . Allowing such than it would serve the protection of public interest 33. At the late proceedings arguably violates the principle of legal certain- same time, in some cases the courts have still given priority to ty and foreseeability, it destroys trust that persons complying the protection of cultural heritage even if a very long period of with laws have into state and its legal system . time (e .g . 10 years) has passed since the allegedly illegal act 34 . The court, however, was of a different opinion . It first re- Commentators have repeatedly highlighted inconsistency of iterated that “in order to decide whether the enforcement of decisions on this issue in Lithuania and uncertainty as to which public interest should be denied, all circumstances because of interest would prevail in a particular case 35 . This problem has which public interest proceedings were not started earlier have been recently approached by enacting amendments to the Law to be taken into consideration, in particular the actions of the on regional planning . Article 49(6) of the Law on regional plan- prosecutor and public administration authorities, the actions of ning that came into force on 1st January 2014 now specifies a person who was a beneficiary of the allegedly illegal admin- that the regional planning documents can be challenged in pub- istrative acts, and other circumstances important to the case” . lic interest proceedings within 20 working days after the adop- Then the court merely stated that “the protected value enables tion of the contested document . The renewal of this term can giving priority not to the stability and certainty of civil relation- be requested but the document can be challenged no later than ships [but to the protection of cultural heritage]” . That is, since 2 years from the day it came into force . The limitation period the public interest at stake is a cultural heritage object of high of 2 year was implemented to ensure more legal certainty and cultural value, the priority was given to the protection of cultur- foreseeability for the parties, such as owners of cultural heritage al heritage, even if public authorities made mistake in territorial objects . At the same time it means that cultural heritage laws planning processes and were late in requesting to eliminate this now can be enforced in public interest proceedings no later than mistake in public interest proceedings 30 . 2 years after the violation of the law has occurred . In some other cases, the priority was given to the principle of legal certainty and foreseeability . In such cases the courts Cultural Heritage v Property Right have repeatedly reaffirmed the that legal security would not be Another conflict in public interest litigation has been be- guaranteed if persons, for an indefinite time period, would face tween the protection of cultural heritage and property right, a possibility that documents defining their legal relationships or financial interests, of the parties involved . In the analyzed (e .g . their right to carry out constructions on the land they public interest cases the involved parties often argue that the own) could be challenged in public interest proceedings 31 . As invalidation of regional planning documents and/or restoration an example, the public prosecutor contested regional planning of a previous status quo would lead owners of the property or documents that allowed building several blocks of apartments the state (municipality) to financial losses . The courts however, in the city of Nida 32, a capital of the Curonian Spit National have repeatedly reaffirmed that protection of cultural heritage Park, which is a UNESCO cultural heritage area and is highly is given priority over private, state or municipality financial in- appreciated by Lithuanian society and government . The con- terests . tested regional planning documents were adopted almost 10 For instance, in abovementioned Kaunas 9th Fort case 36, the years before such proceedings were commenced and the build- owner of the land in dispute was arguing that if the regional ings had already been finalized and sold to private owners . The planning document that was issued due to the mistake of some court took into account a long period of time that has lapsed state authority was canceled, the owner will claim damages and the fact that this delay was due to inefficient work of public from the state or municipality budget to compensate losses ex- authorities . The 99 persons that acquired rights into immov- perienced due to the negligent acts of administrative authori- able property built on the basis of contested regional planning ties . The Supreme Administrative Court of Lithuania has given acts acted honestly and there was no fault from their side . Also, priority to the preservation of cultural heritage: “even if state as a general matter, it was allowed to build buildings in the terri- or municipality would have to compensate damage that certain tory at stake, even though their height should have been lower . persons have experienced, this would be justified; such objects Taking all these and other circumstances into account, the court as Kaunas 9th Fort have to be inherited, passed over from gen- decided that invalidation of contested regional planning acts eration to generation as an inseparable part of the entire soci- in this particular case would cause private interests more harm ety” .

30 Another case where priority was given to the protection of cultural heritage is Lithuania‘s Supreme Court decision of 14 March 2008 case no 3K-7-23/2008 . 31 See, e .g ., Lithuanian Administrative Supreme Court decision of 25 July 2008 Case no . A146-335/2008 . 32 Lithuania Supreme Administrative Court decision of 30 April 2012, case no . A-556-1517/2012 . 33 In a similar manner the Lithuania Supreme Administrative Court gave priority to legal certainty principle in another case that concern the construction of buildings in the protected Curonian Spit National Park, see decision of 22 April 2011, case no . A-556-194/2011 . 34 E .g . Lithuania Supreme Court decision of 23 August 2011, case no . 3K-3-344/2011(public interest was defended despite of the fact that 10 years have passed from the conclusion of the contested agreement) . 35 See E . Klimas, A . Brazdeikis, “Visuomenės (viešojo) intereso gynimas planuojant teritorijas” (eng . Protection of public (society) interest in zoning and planning), in: Vilniaus Universitetas, VšĮ “InvestuokLietuvoje”, “Viešo intereso gynimas: subalansuoto požiūrio link” 118-139 (Vilniaus universiteto leidykla 2013), p . 122 . 36 Lithuania‘s Supreme Adminsitrative Court decision of 12 July 2012, case no . A-556-2050/2012 . 74 Journal on Legal and Economic Issues of Central Europe

More interestingly, in some cases the courts have stated that tural heritage object involved . An additional measure, such as financial argument cannot be taken into account at all . In a case restoration of previous status quo and/or compensation for dam- concerning the renovation of Vilnius castles 37, the permissions age done for the heritage, needs to be requested 39 . to renovate Vilnius castles were granted without consulting the The proportionality of remedies, as another criteria, is less Directorate of the State Cultural Reserve of Vilnius Castles and, discussed in Lithuanian court practice . Although courts gener- therefore, their invalidation was requested . The respondents ally recognize the principle of proportionality in applying rem- and third parties referred, among others, to financial losses that edies, the application of this principle sometimes raises doubts . the invalidation of the building permission would cause to the For instance, the so called “Preilos boteliai” case concerned the municipality budget . The Lithuania’s Supreme Administrative construction of several summer houses in the Curonian Spit Court stated that the “court does not evaluate the administra- National Park under allegedly illegal regional planning docu- tive act or activity from the political or economic point of view; ments 40 . The Supreme Court of Lithuania confirmed the deci- it merely determines whether the statute or other type of laws sion of a lower instance court which ordered the destruction has not been violated (…)” . of 10 completed buildings . The Supreme Court of Lithuania Property right argument is not normally taken into consid- found that the destruction of buildings built as a result of illegal eration by courts also when private (rather than public) prop- regional planning documents is a proportionate measure since erty or financial interests are involved . For instance, in a case constructions on the territory in question were not allowed at concerning the Panevėžys’ Soup Factory 38, the owner of the all and therefore, there was no possibility to legalize the build- soup factory was challenging the decision to recognize sever- ings in question . The case was broadly covered in media and, af- al buildings of the factory as objects of cultural heritage . The ter several years of lobbying and negotiations, the construction owner argued that this would make the development of factory company and public institutions have reached to the settlement activities impossible due to use restrictions set in relation to the agreeing that buildings do not need to be destroyed but certain protected object . Furthermore, since Lithuanian laws do not ar- changes to the buildings and their infrastructure will have to be guably envisage sufficient compensatory measures and mecha- made in order to meet the requirements of the regional plan- nisms in case the property is nominated as a protected cultural ning acts . heritage, the owner and other persons will suffer substantial One could discuss whether the settlement in the abovemen- financial harm . The court essentially ignored these arguments tioned case resulted in a better accommodation of the principle and merely noted that “the cultural heritage object that meets of proportionality or rather a victory of private lobbyists against the statutory requirements can be recognized as protected cul- cultural heritage enforcement authorities . In any case, a pro- tural heritage object irrespectively of who owns the object (…) . portionality of remedies was an important issue for Lithuanian Thus, the law envisages the possibility to restrict the rights of courts in years 2006 – 2010 . During this period Lithuanian laws the owner when the object is recognized as a protected cultural did not allow the legalization of constructions that were built heritage” . without necessary regional planning documents or on the basis of documents that have been later recognized by court as in- Appropriateness and Proportionality of Remedies valid . Thus, if a regional planning document was recognized as Another challenge in setting the limits of public interest in invalid (e .g ., because of procedural violations), and it was not cultural heritage cases is determination of measures that should possible to change the building to meet the requirements of law, be applied . Lithuanian courts have recognized that the rem- the only measure available under the law was the destruction edies requested in public interest cases should be appropriate of the building . Such stringent laws were introduced due to the and proportionate . fact that before year 2006 the right to legalize illegal construc- With regard to appropriateness, the courts have been check- tions was often misused and most of unauthorized construc- ing whether the remedy requested will effectively help to pre- tions were legalized post factum 41 .The stringent approach ap- serve the public interest . Ordinarily, under the public interest plied between 2006 and 2010, however, was also controversial procedure in administrative courts, prosecutor would request and courts tried to find solutions not to apply the most strin- the invalidation of arguably illegal regional planning act . How- gent measure, destruction . For instance, in one of the cases 42, ever, if the buildings at stake have already been built or recon- the Supreme Administrative Court stated that since the viola- structed (and used), a mere invalidation of administrative acts tion in regional planning process was merely procedural and, would not necessarily be a sufficient measure to protect the cul- thus, immaterial, the requirement to destroy buildings would

37 Lithuania‘s Supreme Adminsitrative Court decision of 26 September 2011, case no . A-662-3141/2011 . 38 Lithuania‘s Supreme Adminsitrative Court decision of 6 January 2011, case no . A-756-1707/2010 . 39 For instance, in Zalgiris stadium case, the prosecutor requested to invalidate the regional planning documents concerning the constructions of Zalgiris stadium in Vilnius next to (or possibly party inside of) the ancient Jewish cemetery . For whatever reason, the prosecutor was not planning to request the demolition of already made constructions . The LVAT found that the remedy was not appropriate for the actual protection of public interest, see Supreme Administrative Court decision of 18 June 2010, case no .A-556-860/2010 . 40 Lithuania‘s Supreme Court decision of 28 April 2010, case no . Nr . 3K-3-143/2010 . 41 E .g ., in 2004 around 80 percent of illegal constructions used were legalized, see State Commission for Cultural Heritage, note “Teismų praktikos paveldo apsaugos srityje apžvalga” of 30 September 2005, p . 4, available at http://www3 .lrs .lt/pls/inter/w5_show?p_r=1017&p_k=1 . 42 Lithuania’s Supreme Administrative Court decision of 27 June 2005, case no . A-05-740/05 . 2/2014 75 not meet the criteria of reasonability, justice and legitimate in- property in accordance with the general interest or to secure the terests . payment of taxes or other contributions or penalties” (emphasis Since 2010, the Law on construction allows, in certain situ- added) . ations and if the fee is paid, to legalize the constructions that Obviously, in interpreting Article 1 of Protocol 1, the ECHR had been carried out on the basis of documents that were later has extensively analyzed the concepts of “general interest” and recognized as illegal 43 . Furthermore, when deciding on the de- “public interest” 47 . In its case law, the Court has suggested two struction of buildings, the court is required to take into account general criteria for evaluating whether a proposed measure is the impact that the construction had on the environment and in the “public interest”: (1) the activity must have a legitimate society interests, the consequences of elimination of the results aim; and (2) the interference must strike a fair balance between of illegal construction, the possibility to reestablish the situa- the public interest and the interests and rights of those impac- tion that was before the construction, and the honesty of per- ted, ensuring a “reasonable relationship of proportionality” be- sons who had acquired proprietary rights on the basis of the tween the activity and the impacted rights 48. contested administrative acts 44 . In this way the proportional- In cases relating to cultural heritage laws, the ECHR has ap- ity of the measure is weighted and the balance of interests is plied the same test . The most significant cases related to cultu- sought . ral heritage shall shortly be introduced here 49 . Firstly, in Beyeler Whether and to which extent the Lithuanian practice is rea- v. Italy case 50, the applicant complained of the exercise by the sonable will be seen after the overview of the relevant practice Italian Ministry of Cultural Heritage of its right of pre-emption of the European Court of Human Rights . over a Van Gogh painting that he had bought through an antiques dealer in Rome . The Court considered that the control IV. ECHR Practice on Cultural Heritage v. Property Right by the State of the market in works of art is a “legitimate aim” As a general matter, there is little case law on cultural prop- for the purposes of protecting a country’s cultural and artistic erty on international level 45 . A number of European Court of heritage 51 . However, the court found a violation of the right Human Rights (ECHR) cases on cultural heritage is also limited . to property for the lack of fair balance in the way in which the One of the reasons might be the fact that European Convention right of pre-emption was exercised . Namely, it highlighted that on Human Rights does not recognize a right to the protection the principle of lawfulness also presupposes that the applicable of cultural and natural heritage as such . The Court has also not provisions of domestic law be sufficiently accessible, precise recognized such a right as such . However, in a number of cases and foreseeable 52 . As the Italian laws on pre-emption were it has accepted that the protection of cultural heritage is a legiti- not clear enough and the authorities acted 5 years after they mate aim that the State may pursue when interfering with indi- became aware of the violation of law, the court found that the vidual rights, especially with the right to property enshrined in fair balance between the property right and the exercise of its Article 1 of Protocol No . 1 of the European Convention on Hu- limitation (pre-emption right) was not met . man Rights 46 . Therefore, most cases on cultural heritage that Secondly, in Debelianovi v. Bulgaria case 53, the applicants had reach ECHR relate to the alleged violation of property right as obtained a court order for the return of a house that had be- implemented in Article 1 of Protocol No .1 of the Convention . longed to their father and had been turned into a museum in In short, Article 1 of Protocol 1 of the Convention first of 1956 after expropriation . The building in question was regarded all requires that each person is entitled with the peaceful enjoy- as the most important historic and ethnographical monument ment of his possessions and shall not be deprived of his pos- in the town . The National Assembly introduced a moratorium sessions . Then, it sets two limitations . First, it allows depriva- on restitution laws with regard to properties classified as nation of the possessions “in the public interest and subject to the tional cultural monuments . On the basis of this moratorium, conditions provided for by law and by the general principles of the courts dismissed an appeal by the applicants seeking to se- international law” (emphasis added) . Secondly, it allows States cure effective possession of the property . The Court held that to “enforce such laws as it deems necessary to control the use of the purpose of the moratorium was to ensure the preservation

43 Law on construction, Article 281 part 2 para 3 . 44 Law on construction, Article 281 part 3, Article 28 part 8 . 45 Francisco Francioni, in: Silvia Borelli, Federico Lenzerini (eds .), Cultural Heritage, Cultural Rights, Cultural Diversity: New Developments in International Law (Martinus Nijhoff Publishers 2012), p . 6 . 46 ECHR report on “Cultural rights in the case law of European Court of Human Rights”, 2011, available at http://www .echr .coe .int/Documents/ Research_report_cultural_rights_ENG .pdf, para 35 . 47 These terms are generally used as synonyms . 48 See, e .g ., James and others v the United Kingdom, (App . No . 8793/79), ECHR Judgment of 21 February 1986; Lithgow and others v the United kingdom, (App . No . 9006/80), ECHR, Judgment of 8 July 1986; also Perault Et Al, “Partnerships For Success In Protected Areas: The Public Interest And Local Community Rights To Prior Informed Consent (Pic)”, 19 Geo . Int’l Envtl . L . Rev . 475 (2007), p . 498 . 49 A short summary is also available in ECHR report on “Cultural rights in the case law of European Court of Human Rights”, 2011, available at http://www .echr .coe .int/Documents/Research_report_cultural_rights_ENG .pdf, p . 19 – 20 . 50 Beyeler v. Italy ([GC] no . 33202/96), ECHR 2000-I . 51 Beyeler v. Italy, para . 112 . 52 Beyeler v. Italy, para . 109 . 53 Debelianovi v. Bulgaria, (App . no . 61951/00) ECHR decision of 29 March 2007 . 76 Journal on Legal and Economic Issues of Central Europe

of protected national heritage sites, which was a legitimate aim and (2) the interference must strike a fair balance between the in the context of protecting a country’s cultural heritage . How- public interest and the interests and rights of those impacted; ever, the Court found a violation of Article 1 of Protocol No . 1 in particular, limitation on the fundamental right should be pro- on the ground that the situation had lasted for more than 12 portional to the goal of the limitation (proportionality require- years and the applicants had obtained no compensation . ment) . Finally, in one of the most recent and important decisions This test applies not only in making cultural heritage laws, in Kozacıoğlu v. Turkey 54, the applicant complained that the but also in applying and enforcing them 56 . Therefore, it could government has failed to take special architectural or historical be taken into account by national courts in enforcing cultural characteristics of a listed building into account when assessing heritage laws . It is true that courts cannot be obliged to weight the compensation for its expropriation . The Grand Chamber different rights and interests in each particular case, since it is first reiterated that country’s cultural heritage is a legitimate primarily the duty of the legislator to set the balance of interests aim capable of justifying the expropriation by the State of in the law whereas the courts should primarily be concerned a building listed as “cultural property” . Concerning the level of with the enforcement of law . However, when the conflict of sev- compensation required, the Court reiterated that “[a]n interfer- eral rights or interests is apparent and there is an obvious ques- ence with the right to the peaceful enjoyment of possessions tion of balance of rights and interests at stake, national courts, must achieve “a “fair balance” between the demands of the gen- when weighting different interests, could take into account the eral interest of the community and the requirements of the pro- two-step test as developed by the ECHR . tection of the individual’s fundamental rights” . After analyzing If ECHR test is applied in national enforcement cases, first, the proportionality of the contested law, it concluded that the the “legitimacy” requirement would mean that there should be law in question had imposed an excessive and disproportionate a legal ground for the public interest enforcement claim . This burden on the applicant . would normally be a violation of cultural heritage law . A violation of law, however, is not enough to enforce public interest V. Lessons to be Learnt from the ECHR (cultural heritage law) claim . The court would have to check The abovementioned ECHR cases could teach Lithuanian whether there is a “fair balance” between the public interest at and other national institutions and courts several lessons in stake and other private rights involved . In particular, it would making and enforcing cultural heritage laws . have to evaluate whether the measures requested are proportionate to their aims and do not unreasonably violate other 1. Cultural Heritage Protection as a Legitimate Aim rights or interests involved . First of all, the ECHR has recognized cultural heritage as The previous analysis has shown that Lithuanian courts in a legitimate aim when setting limitations on the property right a number of cases apply a very similar test . Apart from chec- and pointed to its great importance for the society: king whether the violation of law could be found, they invoke The Court points out in this respect that the conservation of the the question of balance of public and private interests 57 . On cultural heritage and, where appropriate, its sustainable use, have as the other hand, in a number of cases the courts seem to ignore their aim, in addition to the maintenance of a certain quality of life, the the question of fair balance . Violation of law itself is often preservation of the historical, cultural and artistic roots of a region and a sufficient ground to enforce the cultural heritage law at stake . its inhabitants. As such, they are an essential value, the protection and Even if the conflicting interests are raised by parties, the courts promotion of which are incumbent on the public authorities 55. sometimes merely ignore their arguments . The test developed This confirms that States can limit private property rights in by the ECHR encourages a change in this practice and proposes relation to cultural heritage objects . This approach has already to carefully analyze the potential conflict of interests in all cases . been fully followed by Lithuanian courts . The courts have been The need of balancing of public interest in cultural heritage and recognizing cultural heritage as a part of public interest and al- the right of property has also been highlighted in the Council lowing public prosecutor bringing public interest claims for the of Europe documents 58 . Therefore, the balancing test should be violation of cultural heritage laws . carefully applied in the national court practice . 2. A (compulsory) Fair Balance Test 3. Criteria to be Taken into Account Secondly, in order to establish that the limitation was in Further on, the ECHR practice in the field of cultural heri- public interest, the court uses the same 2-step test as used in tage gives some examples as to what rights and interests are of other cases on Protocol 1 Article 1 of the Convention: (1) the importance when weighting the public and private interests and activity must have a legitimate aim (legitimacy requirement); finding a fair balance between them .

54 Kozacıoğlu v. Turkey, ([GC], no . 2334/03) ECHR decision of 19 February 2009 . 55 Kozacıoğlu v. Turkey, para . 54 . 56 E .g . in Beyeler v Italy case, a violation of property right was found because of too delayed application of laws . 57 See discussion above . 58 See „Introduction to the Guidance on the development of legislation and administrative systems in the field of cultural heritage (first published in 2000)“, in Council of Europe, European Cultural Heritage, Volume 1, (Council of Europe Publishing, 2002) p . 387 . 2/2014 77

Financial interests may lead to the violation of Article 1 of Protocol 1 . That is, in Debelianovi v. Bulgaria case more than 12 years of proceedings Firstly, one of the criteria that ECHR takes into account is allowed court to establish a violation of property right . Also, the financial interests . In Kozacıoğlu v. Turkey case, the court in Beyeler v. Italy case, 5 years of delay by public institutions to found a violation of a property right because the financial value exercise pre-emption right led to the same results . of property was determined without taking into account its his- As discussed before, Lithuanian courts also have dismissed torical and cultural value . This led to indirect financial loss to public interests claims when the claim was raised either after the owner . He was supposed to receive much less remuneration the statutory term for such claims has expired or when the pe- than what the value of the property was if its historical and riod between the adoption of the contested administrative act cultural value had been taken into account . and the public interest claim was unreasonably long . Also, Lith- In contrast, financial arguments have in most cases been dis- uanian courts have highlighted the duty of public institutions missed by Lithuanian courts . The courts have either ignored to act quickly after acquiring knowledge about the violation of party’s arguments related to financial losses 59, or even claimed law and cooperate when enforcing the law 62. However, the prac- that courts are not supposed to evaluate the political and eco- tice has been not fully consistent . In some cases public interest nomic impact of their decisions 60 . In this way Lithuanian courts claim was enforced even where 5 or 10 years have lapsed 63 . seem to follow the approach that cultural heritage protection is Therefore, the recent amendments to the Law on regional plan- a value much higher than any private proprietary or financial ning that provided the final 2 year term in which the regional interest that may lie in the protected object . Meanwhile in the planning document can be contested in public interest proceed- ECHR practice, property right is considered as a primary fun- ings should be welcomed . A clearly defined and reasonable term damental right . Cultural heritage laws may set limitations on is compatible with the practice of the ECHR . Also, it gives more it, however, only as long as they follow a legitimate aim and legal certainty to owners of cultural heritage objects and other maintain a fair balance with the property right and other legiti- parties and in this way establishes certain balance between en- mate interests . forcement of cultural heritage law and legal certainty principle . Certainly, it is up to States to choose how they see the fair On the other hand, one could argue that this term would balance between the protection of heritage and the protection of hamper the enforcement of laws related to cultural heritage and a private property right . However, the entire neglect of financial lead to decrease of the protection of cultural heritage in general . interest of the owners of cultural heritage objects seems to be Up to now numerous enforcement claims have failed because both incompatible with the ECHR practice and unreasonable . prosecutors missed 1 month term to commence proceedings in The balance between public and private interests is indispensible . the court . Cultural heritage institutions in Lithuania, such as Private owners should not only suffer losses under cultural heri- Department of Cultural Heritage or the State Commission for tage laws . They need to be encouraged in owning and preserving Cultural Heritage, have been informing prosecutor about the cultural heritage objects . Therefore, it would be meaningful to potential violations several years after the violations have been take into account the interests of a private owner in deciding done . This situation has arguably been due to lack of human whether the object should be recognized as a cultural heritage and financial resources that cultural heritage institutions pos- object, setting legal regime to it (conditions and restrictions on sess, lack of cooperation between the institutions, insufficient exploitation and preservation), when providing incentives to pre- qualifications, competences and experiences by public officials . serve (direct state support, tax cuts) as well as when enforcing If these problems were not tackled, the 2 year term will con- cultural heritage laws . In order to find the public interest in the siderably worsen the enforcement of cultural heritage laws . It object, it is not enough to say that it is of high cultural value, is true that some positive initiatives have been undertaken to economic considerations should be taken into account too 61 . If solve the abovementioned problems . In the last years, public the opinion and interests of private owners are not taken into ac- prosecutors have been assigned areas of specialization . Thus, count, they will not be willing to cooperate with the state in pres- public prosecutors who specialize in enforcement of public in- ervation activities, which would mean that the state alone will terest in the field of cultural heritage now are able to collect have a difficult burden to take care of cultural heritage objects . experience in this field and establish contacts and cooperation with cultural heritage institutions . However, additional mea- Over-lengthy Proceedings and Negligent Conduct sures may need to be considered to ensure that, despite of the of Public Authorities shortened limitation period in which public proceedings can be Secondly, under the ECHR practice the over-lengthy court initiated, the efficiency of enforcement of cultural heritage laws proceedings and negligence from the side of public authorities is not affected . In particular, trainings and qualification raising

59 E .g . in Panevezys soup factory case (A-756-1707/2010), the owner argued that the value of the buildings will substantially decrease if they are recognized as objects of cultural heritage . 60 See Lithuania‘s Supreme Adminsitrative Court decision of 26 September 2011, case no . A-662-3141/2011 (Vilnius castles) . 61 Wolfgang Wieshaider, Denkmalschutzrecht: Eine systematische Darstellung für die österreichische Praxis (Springer Praxis & Recht 2002), p . 12 . 62 E .g . Lithuania’s Supreme Administrative Court decision of 25 July 2008, case no . A-20-335/2008 . 63 E .g . Lithuania Supreme Court decision of 23 August 2011, case no . 3K-3-344/2011(public interest was defended despite of the fact that 10 years have passed from the conclusion of the contested agreement) . 78 Journal on Legal and Economic Issues of Central Europe

courses as well as the exchange of foreign experiences and good ress is being made in this regard 66, making laws and informa- practices are needed . In addition, a liability of public officials tion on protection of cultural heritage “accessible, precise and could be considered . Currently, it is the institution that signs foreseeable” shall still remain a significant task for Lithuanian under the regional planning document (normally, municipality) authorities . which is held liable for damages if the document is found illegal . Liability of the expert institutions, including cultural heritage Proportionality authorities and expert organizations, that were consulted and Finally, the main principle that ECHR applies in its practice approved the challenged documents, need to be considered 64 . on Article 1 Protocol 1 is proportionality . It means that the measure limiting the right to property should be proportional to Clear and Accessible Law its goal . In enforcement cases proportionality principle would The third criteria that the ECHR has taken into account, is mean that enforcement measures requested should be propor- the legal certainty in relation to the content of cultural heritage tional to the violation done . laws . In Beyeler v. Italy, the court highlighted that “the applicable As discussed earlier, both Lithuanian statutes and courts provisions of domestic law [should] be sufficiently accessible, generally recognize proportionality principle in determining the precise and foreseeable” . Since the contested provisions on cul- remedy . In particular, when a court has to decide on the destruc- tural heritage law were not “sufficiently accessible, precise and tion of a building, as the most stringent measure, the Law on foreseeable”, they could not be enforced . construction requires courts to take into account a variety of In Lithuanian court practice, lack of clarity of regional plan- factors; it also allows the application of alternative measures, ning laws has been occasionally raised by parties but essentially such as legalization of buildings . Such provisions should be ignored by courts . At the same time, various stakeholders, in- welcomed as enabling the proportional approach to remedies . cluding public institutions themselves, recognize that although When constructions are generally allowed under all laws in the main laws on cultural heritage are rather clear, there are force, including cultural heritage laws, and merely proper pro- some problems in the field . The laws and especially by-laws are cedures were not followed to acquire all needed documents, it being changed very often, which means that owners of cultural could be disproportional to destroy the buildings; legalization heritage objects have to constantly follow the existing regula- in some cases might be a more suitable and proportionate mea- tions in the field . Many by-laws are still not clear, difficult to sure . On the other hand, it is also important that these provi- comprehend . Although all laws and by-laws are published on- sions are applied carefully . As stated in law itself, if imperative line, they are not kept accessible in a consumer-friendly manner . norms of cultural heritage laws or other laws are violated, legal- An ordinary citizen who owns a cultural heritage object needs ization should not be allowed . to make much effort to find out about the requirements that apply . At last but not the least, the state register for immovable VI. Conclusions property still in some cases does not contain information that The article demonstrates that the enforcement of cultural a particular immovable property is a protected cultural heri- heritage laws and balancing them with other rights and inter- tage object . The information about protected heritage objects is ests of private parties might be a rather complicated task for available in a separate register of cultural heritage, which is cur- national legislators and courts . The ECHR provides some useful rently being synchronised with the state register of immovable guidance in what should be taken into account when determin- property . Also, in numerous cases the valuable elements of the ing such balance . However, exchange of experiences and good protected heritage objects have not been identified 65 and the practices among states on a balanced enforcement of cultural protection certificates that would outline the rights and duties heritage laws as well as more academic discussion in this regard of the manager have not been issued . Although a constant prog- are encouraged .

64 This idea was also raised by the State Commission on Cultural Heritage, note of 21 April 2010 on “Bylos dėl Kuršių neringos”, available at http://www3 .lrs .lt/pls/inter/w5_show?p_r=1017&p_k=1 . 65 E .g . Lithuanian register for cultural heritage contains 108 urbanistic heritage objects (parts of cities) of which 59% do not have identified valuable elements, see presentation by Diana Varnaite, a director of the Department of Cultural Heritage, made on 04 March 2014, available at http://www .kpd .lt/failai/u10/Diskusija_urbanistikos_tema_2014-03-04 pd. f . 66 See Annual activity report of the Department of Cultural heritage for year 2012, available at http://www .kpd .lt/lt/node/837 . 2/2014 79

Public Interest According to Lithuanian Population: Awareness and Involvement in its Protection 1 Simonas Nikartas 2

Abstract Background: Implementation of the project “Problem of Identification of Public Interest in Lithuanian Law: Criteria and Priorities” at the Law Institute of Lithuania included a public opinion survey “Attitude Towards the Public Interest in Lithuania” which was carried out in October, 2013. The research is based on the assumption that although the public interest is a legal category, it has its roots in society. Therefore, it is necessary to reveal the experience and conception of the public interest among its members (citizens). The article presents analysis of the results of this public survey which relates the experience of citizens with the public interest. It aims to reveal the following indicators of the experience of the society related to the public interest: particular aspects in perception of public interest, the prevalence and sources of citizens’ interaction with public interest, the extent of active participation of citizens in protection of public interest, the distribution of the social-demographic characteristics of the citizens participating in the protection of public interest (the balance between active participation in protection of public interest and social demographic characteristics). Methods: statistical analysis of data from a representative public survey of Lithuanian citizens (1002 respondents). Results: The results of the survey showed that half of the respondents have not encountered the question of protection of the public interest. The main source of knowledge of the public interest is media, and only a small part, i.e. 13.9 percent of them know it from personal experience. Even smaller part of the respondents, i.e. 10.2 have percent participated in the protection of public interest. Statistical analysis showed the existence of statistically significant relations between the participation of citizens and such social demographic characteristics as income, education and place of residence. The research revealed that persons with higher income, better social status (specialists, servants), residing in bigger cities are more active in the protection of the public interest. Respectively, more passive individuals are those whose income is lower, workers and unemployed persons, as well residents of rural areas. Conclusions: Lithuanian society is not active in protection of public interest. The activity of individuals strongly depends on their social and economic resources. This suggests the assumption that the growth of social and economic welfare will have impact on the activeness of the society in the protection of public interest. Keywords: Public Interest, Protection of Public Interest, Citizens Experience, Citizens Participation, Social Demographic Characteristics.

1. Introduction guided by Lithuanian law in cases when the public interest is identified and it is given preference to private interests . The This article is based on the results of a public opinion sur- aim of the project is achieved by carrying out a comparative vey “Attitude towards the Public Interest in Lithuania” . The interdisciplinary doctrine study, as well as a research on legal survey was carried out in October, 2013 by a market research regulation and legal practice in above mentioned area . Protec- centre “Vilmorus” according to the questionnaire that was pre- tion of the public interest in democratic countries is hardly pared by the Law Institute of Lithuania research team . The comprehensible without the participation of society: although survey was carried out under the framework of a Lithuanian the crucial role in protection of public interest have authorized Research Council funded project “Problem of Identification of state institutions, an effective protection of public interest is Public Interest in Lithuanian Law: Criteria and Priorities” . The possible only in interaction of these institutions and society . aim of the project is to explore what criteria and priorities are Notable link between public interest and interest of the society

1 The article has been prepared as part of the project “Problem of Identification of Public Interest in Lithuanian Law: Criteria and Priorities” . The project is funded by Research Council of Lithuania (Project no . MIP-13339) . 2 Dr . Simonas Nikartas, Research fellow, Law Institute of Lithuania, Vilnius, Lithuania . 80 Journal on Legal and Economic Issues of Central Europe

is showed the scientific literature,3 and in the practice of Lithu- characteristics (the relationship between the active participa- anian courts 4. tion in protection of public interest and social demographic It can be stated that citizens participation is a crucial ele- characteristics) and the activity of citizens in specific areas of ment here and it is essential to the existence of the public inter- public interest . est itself . Accordingly, the efficiency of defending public interest There is a number of legal research carried out in Lithuania strongly depends on the activity of the society in protecting its and other countries: much attention in those research is given interests . to the concept of public interest and to the various aspects of Bearing in mind that this article assumes that the public legal regulation 5. However, public interest is not only a legal interest is not only legal but in particular a social category category but also a social one . The latter aspect has not al- that emerges from the public, it is necessary to reveal the ex- most been surveyed . For instance, there is no empirical survey perience and understanding of the public interest among soci- performed in Lithuania that would comprise the perception of ety . This article explores the results of the social survey about public interest in society and citizens’ experience in participat- personal experience of inhabitants that was conducted within ing in protection of public interest . In Lithuania there have the framework of above mentioned project . The objective of been carried out several surveys about citizens’ participation this article is to disclose the indicators of that experience in in public security,6 civic and political 7 activities . Those areas the field of public interest: separate aspects in perception of can be understood as one of the objects of the public interest . public interest, the prevalence and sources of citizens’ interac- There are very few public opinion polls on public interest made tion with public interest, involvement of residents in protec- in other countries as well .8 Even though there are broadly re- tion of public interest, the distribution by socio-demographic searched such aspects as civic, political and other kind of pub-

3 Driukas A ., Valančius V . Civilinis procesas: teorija ir praktika . I tomas . [Civil Process: Theory and Practice . Volume I ]. Vilnius: Teisinės informacijos centras, 2005, p .669 . Staniūnas E . Viešojo intereso apibrėžimo Lietuvos urbanistinėje plėtroje klausimu . [On the issue of definition of public interest in Lithuanian urban development] Urbanistika ir architektūra . 2008, 32(4): 248; Krivka E . Public Interest in the Law of Civil Procedure . Jurisprudencija, 2007, 10(100); Gumbis J . Public Interest: Problem of Conceptualisation // Socialiniai mokslai 2006, Nr . 1(51); Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 217 – 231; Krivka, Egidijus . Public Interest in the Matters of the Restitution of Property Rights in the Lithuanian Case Law // Journal on Legal and Economic Issues of Central Europe . 2013, Vol . 4, No . 2 . 4 Lithuanian Constitutional Court in 1997 . 6 May ., 2005 . 13 May ., 2006 . September 21 ., 2011 . January 6 ., 2013 . April 2 . resolutions; aggregation of the practice of Supreme Administrative Court of Lithuania in proceedings in accordance with the public interest in protecting the subjects of complaints (applications), . SACL Bulletin, 2008 . (September-December) No . 16 . 5 Bozeman, B . Public values and public interest: counterbalancing economic individualism . Washington, D . C .: Georgetown University Press, 2007; McHarg, A . Reconciling Human Rights and the Public Interest: Conceptual Problems and Doctrinal Uncertainty in the Jurisprudence of the European Court of Human Rights. The Modern Law Review. 1999, 62(5): 671−696; Downs, A. The Public Interest: Its Meaning in a Democracy. Social Research. 1962, 29(1): 1−36; Krivka, Egidijus. Public Interest in the Matters of the Restitution of Property Rights in the Lithuanian Case Law // Journal on Legal and Economic Issues of Central Europe . 2013, Vol . 4, No . 2; Gumbis, J . Changes in social phenomena and their conceptualisation: international and national contexts. Socialiniai mokslai. 2006, 1(53): 7−16; Korsakaitė, D . Viešasis interesas valstybinio regu-liavimo požiūriu: sampratos analizė ir formulavimas . [The public interest in terms of state regulation: concept analysis and formulation] Ekonomika. 2006, 76: 36−53; Mackonis, A. Individualistinė viešojo intereso sąvokos turinio analizė . [The content analysis of Individualistic concept of the public interest] Teisės problemos. 2009, 2(64): 86−108; Trumpulis U. The Variety of Public Interest Con-cept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 217 – 231; Driukas A ., Valančius V . Civilinis procesas: teorija ir praktika . I tomas . [Civil Process: Theory and Practice . Volume I .] Vilnius: Teisinės informacijos centras, 2005, p .669 . Krjazhkov, A . V . Publichnyj interes ponjatie vidy i sashita [Public interest conception variety and protection] . Gosudarstvo i pravo . 1999, 10: 92; Staniūnas E . Viešojo intereso apibrėžimo Lietuvos urbanistinėje plėtroje klausimu . [On the issue of definition of public interest in Lithuanian urban development] Urbanistika ir archi- tektūra . 2008, 32(4): 248 . 6 Victimisation experience in Lithuania in 2007 . 2008 Crime victim survey of the Crime prevention centre in Lithuania Vilnius: NPLC, VIL- MORUS, 2008 . Nikartas S . Communities involvement in crime prevention . Doctoral disserta-tion . Mykolas Romeris University, Vilnius, 2012 . 7 Ziliukaite, R., et al. Neatrasta galia: Lietuvos pilietines visuomenes žemėlapis . [Undiscovered power: Lithuanian civil society map] Vilnius: Versus aureus (2006); Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2007 metai . [Civil power index in 2007] Vilnius: PVI . 2008; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2008 metai . [Civil power index in 2008] Vilnius: PVI . 2009; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2009 metai . [Civil power index in 2009] Vilnius: PVI . 2010; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2010 metai . [Civil power index in 2010] Vilnius: PVI, 2011; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2012 metai. [Civil power index in 2012] Vilnius: PVI, 2013; Žiliukaitė R . Pilietinių veiklų rizikos ir motyvacija dalyvauti pilietinėse veiklose šiandieninėje Lietuvos visuomenėje . [Risk and motivation to participate in civic activities in today’s Lithuanian society .] Sociologija . Mintis ir veiksmas 02 (2010): 116 – 130 . 8 Particularly the survey on perception of public interest in media carried out in 2012 . in the UK (Voicing the Public Interest: Listening to the Public on Press Regulation ., 2012: http://www .carnegieuktrust org. uk/getattachment/8f98195f-4b95-4f0f-aa52-dd79cd3b5177/Voicing-the-. Public-Interest .aspx . 2/2014 81 lic participation,9 there are researched only certain and partial In this study, the statistical error does not exceed 3 1. per- elements of public interest . cent . (in case the responses are distributed by 50 percent: 50 percent .), confidence limit – 0 .95 11. 2. Research Methodology Public opinion poll was carried out from 4th to 14th of Octo- Social and demographic characteristics of the respondents ber, 2013 in Lithuania by a market research centre “Vilmorus” Gender: according to the questionnaire that was prepared by the Law •• Men – 44 .9 percent (450 respondents) Institute of Lithuania research team . There were questioned in- •• Women – 55 .1 percent (552 respondents) habitants of Lithuania from 19 cities and 30 villages 10. In order to represent all the residents of Lithuania, there was used mul- Age: tilevel random sampling . Selection of respondents was devel- •• Up to 29 years – 20 .2 percent (202 respondents) oped so that every inhabitant of Lithuania could have an equal •• 30 – 39 years – 15 percent (151 respondents) chance of being questioned . Sample consisted of 1,002 respon- •• 40 – 49 years – 17 .7 percent (177 respondents) dents of 18 years and older Lithuanian population . Such age •• 50 – 59 years – 17 .7 percent (177 respondents) range was selected taking into account a specific object of this • survey – the public interest and related issues, i e. ., the aspect • 60 – 69 years – 12 .7 percent (127 respondents) of legal relations in which are usually involved legally capable •• 70 years and over – 16 .7 percent (167 respondents) adults who have legally unlimited opportunities to participate Nationality: in the defence of private and public interests . •• Lithuanian – 90 .4 percent (905 respondents) The survey took place at the respondents’ housing, which •• Russian – 5 .5 percent (55 respondents) means that there were a few social groups that did not fall into •• Pole – 2 .3 percent (23 respondents) the study sample . These are the people at custodial institutions, •• Other – 1 .8 percent (18 respondents) hospitals and individuals who do not have a place of residence . The survey was conducted by personal interview, the inter- Marital status: viewer interviewed each respondent individually at the latter’s •• Single – 20 .6 percent . (206 respondents) home . This survey form helps to obtain the most complete an- •• Married – 47 .1 percent . (472 respondents) swers to every question, ensuring that each respondent has to •• Lives in unregistered marriage – 5 .6 percent . (57 respondents) answer the same questions (this requirement cannot be achieved •• Divorced – 10 .2 percent . (102 respondents) if the questionnaire is prepared for individual fill in) . In addi- • tion, the use of a personal interview methodology ensures that • Widowed – 16 .4 percent . (164 respondents) the respondents will be asked questions in accordance with Education: the established order . Using this method, the respondent can •• Without education – 0 .5 percent . (5 respondents) demonstrate a wide range of support material (a list of names, •• Primary education – 4 .4 percent . (44 respondents) statements, explanations, and so on), which is impossible dur- •• Incomplete secondary education – 8 .7 percent . (87 respon- ing a telephone survey . dents) The data were entered and statistically calculated (and veri- •• Secondary education – 29 .6 percent . (29 6. respondents) fied) with SPSS programme . The information has been com- • pared according to the main social and demographic sections • College / spec . secondary education – 31 .2 percent . (312 re- (age, gender, education, income, family, social status, type of spondents) residence) . •• Higher education – 25 .7 percent . (257 respondents)

9 zukin, C ., Keeter, S ., Andolina, M ., Jenkins, K ., & Carpini, M . X . D . (2006) . A new engagement? Political participation, civic life, and the changing American citizen . New York, NY; Verba, S ,. Schlozman, K . L ,. Brady, H ., & Nie, N . H . (1993) . Citizen Activity: Who Participates? What Do They Say? . American Political Science Review,87(02), 303 – 318; Carpini, M . X . D ,. Cook, F . L ,. & Jacobs, L . R . Public deliberation, discursive participation, and citizen engagement: A review of the empirical literature . Annu . Rev . Polit . Sci ,. 7, 315 – 344, 2004; Dalton, R . J . Citizenship norms and the expansion of political participation . Political studies, 2008, 56(1), 76 – 98; Rowe, Gene, and Lynn J . Frewer . „A typology of public engagement mechanisms .“ Science, technology & human values 30 .2 (2005): 251 – 290; Weber, L . M ,. Loumakis, A ., & Bergman, J . Who participates and why? An analysis of citizens on the Internet and the mass public . Social Science Computer Review, 2003, 21(1), 26 – 42; Bingham, L . B ., Nabatchi, T ., & O‘Leary, R . The new governance: Practices and processes for stakeholder and citizen participation in the work of government . Public administration review, 2005, 65(5), 547 – 558; Bovaird, T . Beyond engagement and participation: User and community coproduction of public services . Public Administration Review, 67(5), 846 – 860, 2007; Gil de Zúñiga, H ., Jung, N ., & Valenzuela, S . Social media use for news and individuals’ social capital, civic engagement and political participation .Journal of Computer Me- diated Communication, 2012, 17(3), 319 – 336; Stolle D ., & Hooghe, M . Inaccurate, exceptional, one-sided or irrelevant? The debate about the alleged decline of social capital and civic engagement in Western societies . British journal of political science . 2005, 149 – 167 . 10 Cities: Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys, Druskininkai; districts of: Kaunas, Alytus, Šakiai, Pakruojis, Utena, Tauragė, Švenčionys, Raseiniai, Kupiškis, Akmenė, Rokiškis, Kretinga, Šilutė, Telšiai, Mažeikiai, Marijampolė, Molėtai, Šalčininkai, Ukmergė . 11 Size of statistical errors with different results: 5% ± 1 4%;. 10% ± 1 .9%; 30% ± 2 .9%; 50% ± 3 .1%; 70% ± 2 .9%; 90% ± 1 .9% . 82 Journal on Legal and Economic Issues of Central Europe

Social status: 3. Research Results •• Unemployed, temporarily not working – 11 percent . (110 respondents) Perception of Public Interest •• Housewife – 4 .9 percent . (49 respondents) Before discussing the results of the survey it is necessary to •• Retired, disabled – 31 .1 percent . (311 respondents) present the prevailing concepts of public interest that are used in the legal and sociological literature . This will help to reveal •• Student, pupil – 6 .6 percent . (67 respondents) the extent to which these concepts are reflected in society . • • Entrepreneur, a business owner – 3 .2 percent . (33 respon- There is no single definition of public interest concept . Ac- dents) cording to Lithuanian law researcher U . Trumpulis provided •• Farmer – 1 .2 percent . (12 respondents) classification of the concepts of public interest, there can be •• The highest or middle range manager – 2 percent . (20 re- distinguished the following basic concepts of public interest: spondents) procedural perception, the majority opinion, common values •• Attendant, technician – 7 .9 percent . (79 respondents) perception and common interest perception .13 •• Skilled worker – 13 .6 percent . (136 respondents) A procedural approach to the public interest is based on •• Labourer – 4 .5 percent . (45 respondents) the assumption that a specific decision and the effects of it •• Other – 0 .4 percent . (4 respondents) will meet the public interest if it is adopted in accordance with the established rules . For the supporters of the procedural Income per family member: approach it is sufficient that the decision would be taken in •• Up to 400 LTL 12 – 10 .4 percent . (105 respondents) accordance with the procedural rules and the assessment of 14 •• 401 – 600 LTL – 16 8. percent . (168 respondents) the consequences is not relevant for them . Public interest is •• 601 – 800 LTL – 21 6. percent . (216 respondents) understood as the standard of legality and an axiom that the decision, taken in favour of the public interest, arises from the •• 801 – 1000 LTL – 21 .1 percent . (211 respondents) process itself 15. • • 1001 LTL and over – 18 .2 percent . (182 respondents) The supporters of the majority opinion view on public inter- Place of residence: est claim that public interest is such interest that is supported •• Vilnius – 17 percent . (170 respondents) by the majority of society . According to this conception the 16 •• Kaunas, Klaipėda, Šiauliai, Panevėžys – 28.3 percent. (284 subjective aspect of the public interest is emphasised . Here, respondents) individuals are considered to be the best evaluators of their own •• Other cities – 25 .1 percent . (252 respondents) interests, and the best confirmation of this assertion are the expressed wishes of individuals . According to this perception the •• Village – 29 .6 percent . (297 respondents) public interest itself has no objective and independent content . Questions about the Experience in the Field of Protection It is revealed only by combining individual interests, embrac- of Public Interest ing them, thus identifying the predominant interest which is The questions that the respondents were asked can be classi- considered to be the public interest 17. Some authors argue that fied into the following groups: this concept is not suitable for democratic countries because the •• Questions about the perception of the public interest majority will always have an advantage over minorities, it will •• Questions about the experience in the areas of public interest dominate against them and will be able to impose its will re- 18 •• Questions about evaluation of the areas of public interest . gardless interests of the minority . Basically here the category of public interest is replaced by the category of the majority, but It should be noted that in Lithuanian questionnaire was the implementation of majority will does not mean that there is used the term “societal interest” that is considered to be more public interest implemented 19. linguistically understandable to people who are not profession- The concept of common values in the public interest is als in the field . based on the objective side of the interest, in particular, it is This article focuses on the analysis of the survey results focused on the object of interest – the value 20. Public inter- about the concept of public interest in society and the experi- est is considered to be something that is valuable to all, or at ence in protecting public interest . least widely recognized as a value, i .e ., the common value for

12 Currency rate: 1 Litas (LTL) = 0 .29 Euro 13 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 217 – 231 . 14 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 220 . 15 Gumbis, J . Changes in social phenomena and their conceptualisation: international and national contexts . Socialiniai mokslai . 2006,1(53): 7−16. Quoted from: Trumpulis U. The Variety of Public Interest Concept and their Evaluation). Social Sience Studies, 2010 4(8). p. 220. 16 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 222 . 17 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 222 . 18 McHarg, A . Reconciling Human Rights and the Public Interest: Conceptual Problems and Doctrinal Uncertainty in the Jurisprudence of the European Court of Human Rights. The Modern Law Review. 1999, 62(5): 671−696.;Trumpulis U. The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 222 . 19 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 217 – 231 . 20 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 223 . 2/2014 83 everyone .21 Contrary to the majoritarian view on the public of a certain subject without previous knowledge of how they interest, the approach based on common values does not con- perceive the content of that interest . In this regard, in particu- sider public interest as mere sum of the interests of private lar, respondents were asked to answer an open question: what entities 22. is public interest? This question was answered by 60 6. percent Common interest approach to the public interest perceives (N=607) of the respondents . the latter as a set of common interest to all members of society The responses presented on the Table 1 show that, as it was or as the interest that would be common to all, if every mem- predicted, respondents indicated the very abstract concepts ber of society would be rational and fair .23 Common interest of public interest . This is not surprising since, as mentioned is characterized by the fact that the individual can meet the above, these respondents are not professionals, and one should public interest only if that interest is seen and supported by not expect a precise and comprehensive definition from them . other members of society (for instance, clean air, water, security The responses have shown that the largest part (35 9. percent ). and so on) .24 Here, in favour of the public interest will be acted of the respondents perceive the public interest as something that in cases when the decisions and actions can ensure greater op- is useful, necessary and relevant to the society . A significant part portunities for the agents get what they seek 25. of the population that participated in the survey linked the pub- The study was based on the assumption that the societal lic interest to the concept of majority opinion: 12 1. percent stat- and public interest can be a sleek concept for the residents who ed that the public interest is what is necessary for most people, are not legal or public sector professionals . It would be meth- relevant for everyone; 12 percent perceive the public interest as odologically wrong to ask respondents about their assessment the interests if the majority and their satisfaction .

Table 1. Perception of the public interest

N Percent What is relevant and useful to society 145 23,8 What is necessary for most people, relevant for everybody 73 12,1 These are the interests of majority and their satisfaction 73 12,0 Solving social problems, helping people 65 10,7 Interests and needs of the residents of Lithuania 56 9,2 Well-being, public order, standard of living in the closest environment 54 8,9 The opinion of the inhabitants 52 8,6 Protection of the interests of Lithuanian residents 41 6,7 These are statutory activities, the state-citizen relationship 38 6,2 Various interests, group interests and their satisfaction 33 5,4 Restoration of justice in the various fields, rights protection 24 4,0 What is publicly available 19 3,1 Protection of environment 10 1,6 Restoration of the ownership rights to real estate and land 9 1,4 When the authority mixes (or distinguishes) public and private interests 8 1,4 Protection of cultural heritage 6 1,1 Consumer rights protection 6 1,0 Moral issues of the society 5 0,8 Interests in construction 4 0,7 Public education 3 0,5 Other 12 1,9 Total 607 121,1

21 Sorauf, F . J . The Public Interest Reconsidered . The Journal of Politics . 1957, 19(4), p .619 . Cited by: Trumpulis U . The Variety of Public Inte- rest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 223 . 22 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 223 . 23 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 226 . 24 Gumbis, J . Changes in social phenomena and their conceptualisation: international and national contexts . Socialiniai mok-slai . 2006,1(53), p . 8 – 9; Cituojama iš: Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 227 . 25 Trumpulis U . The Variety of Public Interest Concept and their Evaluation) . Social Sience Studies, 2010 4(8) . p . 227 . 84 Journal on Legal and Economic Issues of Central Europe

18 .9 percent of the respondents identify the public interest This assumption is based on the other results of the same with the public interest in certain areas: 8 .9 percent . respon- survey . Almost half (47 .5 percent) of the respondents agree dents perceive the public interest as well-being of the closest with the statement that the whole society benefits from protec- environment, public order, standard of living, 4 percent as re- tion of public interest (see Table 2) . Such view is more consis- storative justice, protection of rights, and as protection of the tent with the common values approach . A smaller proportion of environment – 1 .6 percent of people, as ownership rights to real respondents (17 percent) disagree with this statement, because estate and land reform – 1 .4 percent . only certain social groups get the benefits, and 11 .8 percent – So it can be assumed that the majority of society in one because only certain individuals benefit from it . It should be or another way associates public interest with the benefits for noted that a large proportion (23 .7 percent) of respondents has society or the majority of it . This suggests that in society there identified that they did not know the answer to this question, prevails a perception of the public interest that corresponds to or simply had no opinion . the opinion of the majority of the concept of common values .

Table 2. Do you agree with the statement that while protecting the public interest the whole society benefits from it (economically or otherwise)?

N Percent Agree 476 47,5 Do not agree as only certain groups of society benefit from it 171 17,0 Do not agree as only certain individuals benefit from it 119 11,8 Did not know/ did not have an opinion 237 23,7 Total 1002 100,0

It is interesting that in case of conflict of interests, respon- greatest number of people agrees 49 .2 percent of respondents . dents tend to support the majoritarian approach (see Table 3): Partially with this statement agree 29 .2 percent of respondents, with the view of public interest as the maximum benefit to the while only 3 percent disagree .

Table 3. Do you agree with the statement that it is important to ensure maximum benefit (economic or other) to the greatest number of people when arises the conflict of interest in decision-making?

N Percent Agree 493 49,2 Partially agree 293 29,2 Do not agree 30 3,0 Did not know/ did not have an opinion 186 18,6 Total 1002 100,0

On the other hand, most of the respondents agree (56 .9 approach, although a significant proportion (24 .1 percent) percent) that it is necessary to take into account the interests of respondents also believe that the interests of the majority of minorities while protecting public interest of the majority should be respected regardless the interests of a smaller part of (see Table 4) . This indicates that society has a quite tolerant the society .

Table 4. Do you agree that ensuring the public interest is necessary to respect the:

N Percent Interests of the majority regardless or only partially depending on the interests of the 242 24,1 smaller part of society Interests of the majority, taking into account the interests of the minority as well 570 56,9 Other 7 0,7 Did not know/ did not have an opinion 183 18,3 Total 1002 100,0 2/2014 85

The study also aimed to find out how much the public opin- violated when the moral norms are violated, although the statu- ion is consistent with the procedural approach to the public tory requirements may be respected . However, more than half interest (see Table 5) . Only a small part of the respondents of the respondents are not categorical at this point and tend to (14 .4 percent) believe that the public interest is violated when believe that the public interest is violated when the formal legal there is non-compliance with formal legal requirements . 15 .4 requirements are not respected and when the legal norms are percent of the respondents consider that the public interest is violated, although the statutory requirements are respected .

Table 5. Do you agree with the statement that the public interest is more violated when:

N Percent Formal legal requirements are violated 144 14,4 Moral norms are violated, although the statutory requirements are respected 154 15,4 Both 542 54,1 Did not know/ did not have an opinion 161 16,1 Total 1002 100,0

The Knowledge about Public Interest sonal or professional experience – 13 .9 percent and 5 .3 percent accordingly . Among those, who have faced public interest indi- When assessing the experience of society members in facing rectly (16 .6 percent of respondents), this was done through the the public interest (see Table 6) it can be noted that a half (50 .3 experience of the family members and friends, and even in 33 percent) of the respondents have identified that they have not percent of cases – through the media . The latter figure confirms encountered the public interest . Only a small proportion of the a trend analysed by many other research, that the main source respondents have faced the public interest directly: through per- of the public knowledge is media 26.

Table 6. If you have faced with the public interest, how did it happen?

N Percent Studying Constitution or other legislation 36 3,6 Watching TV, listening to the radio, reading newspapers, browsing the Internet 330 33,0 Personal experience 140 13,9 Experience of the family members or friends 166 16,6 Professional experience 53 5,3 Did not face with it 504 50,3 Total 1002 122,7

Participation of the Society in Protecting Public Interest the scope of the direct involvement of citizens in defending the public interest, the surveyed were asked a question, whether Involvement of the society is a crucial way to ensure the they had something done within past 12 months that would de- public interest . It is hard to imagine a defence of public in- fend any public interest . For example, maybe have approached terest without a societal participation . The level of how much to any state officer or government department in order to pro- the public interest is protected in a particular country strongly tect a specific public interest . 10 2. percent of the respondents depends on civic activism in that country . Because of the rela- answered to this question positively (see Table 7) . This sug- tively low level of civic engagement in Lithuania 27 there was gests that the activity of the population in protecting the public held a hypothesis that there will be also a poor public participa- interest is relatively not high, which confirms the above mention defending the public (societal) interest . In order to reveal tioned hypothesis . 26 Dobryninas, A ., Gaidys, V . Ar saugi Lietuvos visuomenė . Lietuvos gyventojų viktimizacijos patirtis ir požiūris į baudžiamąją justiciją bei vi- suomenės saugumą . [Is a Lithuanian society safe? Lithuanian population victimization experiences and its attitudes to criminal justice and public safety] Lietuvos Respublikos Seimas, Jungtinių Tautų vystymo programa . Vilnius, 2004; Kalpokas, V . Visuomenės požiūris į baudžiamąją politiką ir žiniasklaidos įtaka. Baudžiamoji politika Lietuvoje: tendencijos ir lyginamieji aspektai, [Public attitudes to penal policy and media influence . Criminal Policy in Lithuania: Trends and comparative aspects] 131; McCombs, M . (2013) .Setting the agenda: The mass media and public opinion . John Wiley & Sons; 27 In 2012 . Civil power index survey in Lithuania data shows that 16 .6 percent of respondents indicated that they contacted state controlling authorities (police, tax inspection, rights of the child, etc .) reporting on violations of the law . It should be noted that in 2010 . survey data, this figure was lower – 11 .6 percent (see Degutis M ,. Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2009 metai . [Civil power index in 2009] Vilnius: PVI . 2010; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2010 metai . [Civil power index in 2010] Vilnius: PVI, 2011; Degutis M ,. Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2012 metai . [Civil power index in 2012] Vilnius: PVI, 2013 .) . It should also be noted that, although the wording of the question in our study is different (it is asked not about the appeal due to the law violation, but due to the defense of the public interest), we believe that this specifics – referral to the authorities on the basis of important issues (interest) for the resident, should provide similar results . 86 Journal on Legal and Economic Issues of Central Europe

Table 7. Have you done something over the last 12 months that would protect any public interest? For example, maybe you have contacted the state officer or governmental institution in order to protect a specific public interest?

N Percent Yes 102 10,2 No 831 82,9 Did not know/ did not have an opinion 69 6,9 Total 1002 100,0

The study also hypothesizes about a statistically significant In order to assess if there exists a similar trend in the scope of relationship between involvement of residents in protection of this survey, we have tested whether there is a statistically signifi- the public interest and their socio-demographic characteristics . cant relationship between the involvement of residents during In Lithuania there were carried out research on civic engagement the last 12 months in defence of any public interest and the so- that show quite visible trends that socially and economically cial and demographic characteristics such as age, employment, stronger members of society (with higher education, younger education, social status, place of residence . The hypothesis was and middle-aged, with higher income, from bigger cities, of tested applying a Chi-square test 29. Looking at the results, it higher social status) are also more active in it .28 Accordingly, can be said that a large part of the hypothesis was confirmed . rather passive members of society are with lower education, A statistically significant relationship is noticed between the older age, lower income and lower social status . This led to the participation in the last 12 months in defending any public in- hypothesis that indicators of higher activity in defending the terest and education (see Table 8) . Only 2 .9 percent of respon- public interest are characteristic to the population with greater dents with incompleted secondary education have participated social capacity, and socially weaker population groups are usu- in defence of any public interest, compared to 16 3. percent of ally less active in this regard . people who have higher education .

Table 8. Participation in the last 12 months in defending any public interest and education of the respondent

Yes No Did not know/ did not answer Total N 4 116 16 136 Incomplete secondary education Percent 2,9 85,3 11,8 100 Secondary, college, spec . secondary N 56 507 46 609 education Percent 9,2 83,3 7,6 100 N 42 208 7 257 Higher education Percent 16,3 80,9 2,7 100 Chi-square value 0,000* * Chi-square value < 0.05. There is a statistically significant relationship

There is a statistically valid connection between the participa- interest frequently and have income per family member 1001 tion in the past 12 months in defending any public interest and LTL and below, and those, who were the least involved in the de- income rate per family member (see Table 9) . Here two groups fence of any public interest and whose income per family member stand out: those, who participated in the protection of any public is 401 – 600 LTL (respectively 19 .8 percent and 3 .6 percent) .

28 Ziliukaite, R., et al. Neatrasta galia: Lietuvos pilietines visuomenes žemelapis. [Undiscovered power: Lithuanian civil society map]Vilnius: Versus aureus (2006); Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2007 metai . [Civil power index in 2007] Vilnius: PVI . 2008; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2008 metai . [Civil power index in 2008] Vilnius: PVI . 2009; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2009 metai . [Civil power index in 2009] Vilnius: PVI . 2010; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2010 metai . [Civil power index in 2010] Vilnius: PVI, 2011; Degutis M ., Ramonaitė A., Žiliukaitė R . Pilietinės galios indeksas 2012 metai . [Civil power index in 2012] Vilnius: PVI, 2013 . 29 Chi-square test (χ2) is applied to make statistical conclusions . It is also known as the compatibility test . Chi-square value indicates whether there is a statistically significant relationship between the two tested variables . A statistically significant relationship exists when the Chi-square value < 0 .05 . See more details .: Čekanavičius V ., G . Murauskas Statistics and its Applications . Part 1 . Vilnius: TEV, 2000 . 2/2014 87

Table 9. Participation in the last 12 months in defending any public interest and income per family member Yes No Did not know/ did not answer Total N 10 85 9 104 Up to 400 LTL Percent 9,6 81,7 8,7 100 N 6 148 15 169 401 – 600 LTL Percent 3,6 87,6 8,9 100 N 17 181 18 216 601 – 800 LTL Percent 7,9 83,8 8,3 100 N 20 178 14 212 801 – 1000 LTL Percent 9,4 84,0 6,6 100 N 36 139 7 182 1001 LTL and over Percent 19,8 76,4 3,8 100 Chi-square value 0,000* * Chi-square value < 0.05. There is a statistically significant relationship

A statistically significant relationship exists between the in- percent in rural areas, compared with the average 83 .8 percent volvement of citizens and the place of residence (see Table 10) . by the urban population) . Such a distribution is due to the fact There should be noted that a similar activity exists among popu- that relatively large proportion of the rural population did not lation of the major cities of Lithuania and the inhabitants of the know or did not answer to the question (11 .1 percent, whereas other (smaller) towns . Less positive responses were among the the average among the respondents in big cities is 2 .8 percent) . rural population (8 .1 percent, compared with the average 11 It should be noted that a relatively large part of those who were percent by the urban population) . But it also should be pointed unaware and did not respond to this question were from the out that there are relatively few negative responses as well (80 8. smaller towns (9 2. percent) .

Table 10. Participation in the last 12 months in defending any public interest and the place of residence Yes No Did not know/ did not answer Total N 18 145 7 170 Vilnius Percent 10,6 85,3 4,1 100 Kaunas, Klaipėda, N 33 245 6 284 Šiauliai, Panevėžys Percent 11,6 86,3 2,1 100 N 27 201 23 251 Other towns Percent 10,8 80,1 9,2 100 N 24 240 33 297 Village Percent 8,1 80,8 11,1 100 Chi-square value 0,001* * Chi-square value < 0.05. There is a statistically significant relationship

There was no statistically significant relationship found be- spondents participated defending the public interest much more tween participation in the past 12 months in defending any often than from the other age groups: 14 .6 percent, whereas the public interest and the age of the respondents . However, there overall average of positive responses in other age groups is 9 1. can be distinguished the age group of 50 – 59 years old that re- percent (see Table 11) .

Table 11. Participation in the last 12 months in defending any public interest and the age of respondents Yes No Did not know/ did not answer Total N 20 170 12 202 Up to 29 years Percent 9,9 84,2 5,9 100 N 14 126 11 151 30 – 39 years Percent 9,3 83,4 7,3 100 N 14 147 16 177 40 – 49 years Percent 7,9 83,1 9,0 100 N 26 140 12 178 50 – 59 years Percent 14,6 78,7 6,7 100 N 14 107 6 127 60 – 69 years Percent 11,0 84,3 4,7 100 N 13 141 13 167 70 years and over Percent 7,8 84,4 7,8 100 Chi-square value 0,576* * Chi-square value > 0.05. There is no statistically significant relationship 88 Journal on Legal and Economic Issues of Central Europe

Speaking about the activity of the population according to its place of residence, family income, social status . Most respon- socio-demographic characteristics, it should be noted that more dents who confirmed that the people from their environment active parts of society are from 50 to 59 years old (14 7. percent did something that would protect any public interest are of the of positive responses), have higher education (16 3. percent), higher education (23 .3 percent), of higher income (29 1. per- with higher income (over 1001 LTL – 19 7. percent), are either cent), of higher social status (specialists – 25 .7 percent, officials students and pupils (15 .4 percent) or specialists and officials (14 – 21 .5 percent), Vilnius city residents (21 .8 percent) . Respec- and 17 .8 percent accordingly) . The survey showed no major dif- tively those who have pointed low activity in their environment ferences between various cities, however, there can be observed regarding usually have lower education (primary education – only smaller activity among rural population (8 percent) . 4 .5 percent, incomplete secondary education – 12 .6 percent, secondary education – 15 2. percent), lower income (up to 400 The Participation Rates in the Closest Environment LTL – 12 .4 percent, 401 – 600 LTL – 8 .9 percent, 601 – 800 LTL of the Respondents 11 .1 percent), lower social status (unemployed – 12 6. percent, The respondents were asked about the experience of the retired – 12 .2 percent, labour workers – 12 .8 percent) live in people from their close environment in protecting the public rural areas (15 .5 percent) 30. interest (see Table 12) . The purpose of the question was specify These trends can be explained by the fact that the issue of (or identify) the prevalence of public involvement in protection the public interest usually affects both a person and his/hers so- of the public interest, based on the respondents’ knowledge cial environment, therefore it is often participated in a defence about the participation of people from their close environment . of public interest together . When asked whether they are aware of cases where their relatives, friends, acquaintances did something to protect any pub- Participation of the Citizens in Separate Spheres lic interest, 17 .5 percent of the respondents answered positively of Public Interest and 70 .4 percent of them did not know about such cases . It is The results of the citizens activity in separate areas of public interesting that the distribution of above mentioned responses interest are demonstrated in Table 13 . It should be noted that according to socio-demographic characteristics is very similar to most of the respondents (10 9. percent) identified that they or the distribution of responses from the self-reported activity in people close to them have faced the defence of public inter- protecting the public interest . est in such area as restoration of the ownership rights to real Table 12. Do you know about cases when your relatives, friends or estate and land . A bit smaller part of respondents indicated the acquaintances did something that would defend any public interest? defence of public interest by protecting the consumer right (7 percent), environmental protection (5 9. percent ). and spatial N Percent planning (5 .2 percent) . According to this survey, the citizens Yes 175 17,5 are much less active in protection of cultural heritage and other No 705 70,4 public interest areas (respectively 2 .2 and 2 5. percent) . Did not know/ did not answer 121 12,1 These results indicate that the greater part of the popula- Total 1002 100,0 tion is more likely to be involved in the public interest when is relatively more concerned with the interests of individuals . It is set a statistically significant relationship between the For instance, the restoration of property rights, consumer rights participation of the people from respondents’ close environment protection . It can be assumed that personal gain factor in the and the social demographic characteristics such as education, main of motivation stimuli for the population .

Table 13. What specified public interest have you, your family, your relatives or friends faced over the past 12 months?

N Percent The public interest in the field of consumer rights protection 71 7,0% The public interest in restoration the rights to land or real estate 110 10,9% The public interest in protection of the environment 59 5,9% The public interest in constructions, spatial planning 52 5,2% The public interest in protection of cultural heritage 22 2,2% With other public interests 25 2,5% Has never encountered any public interest protection 754 75,3% Did not answer 3 ,3% Total 1002 109,4%

30 It should be noted that, again, among villages and the smaller towns inhabitants it is recorded relatively more “do not know” answers or the unanswered cases and a small number of negative responses . 2/2014 89

4. Conclusions the protection of public interest . The study showed that the distribution of responses regarding the involvement in public Research results suggest that the prevailing perception of pub- interest protection of the people from respondents’ environ- lic interest in Lithuanian society embraces the majoritarian and ment according to social demographic characteristics is very as common values approach towards it . Much smaller proportion similar to the distribution of responses from the self-reported of respondents perceive the public interest in procedural terms . activity in protecting the public interest . It is assumed that According to the survey the Lithuanian population can be in defending the public interest in most cases the people are characterized as the country with the low level of participa- participating together with other people from their close en- tion in defending the public interest . People who are actively vironment . involved in the protection of public interest have usually higher The greater part of the population who indicated that they income, higher social status (specialists, officials), reside in big- participated in defending the public interest is likely to be in- ger towns . Respectively – individuals with low income, workers volved in the activities that are relatively more concerned with and the unemployed, living in rural areas, are more passive re- the interests of individuals: the restitution of property, protec- garding the issues of public interest . tion of consumer rights . It can be assumed that the main moti- Slightly higher proportion of respondents indicated that vation factor that encourages the population to protect public the people from their close environment have participated in interests is the personal gain factor .

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Pertinence of Liberalism – Communitarianism Dispute in Defining the Public Interest Milda Burnytė 1

Abstract Upon collision of public and private interest in case law, the lack of clearer definition of public interest in Lithuanian legal acts becomes obvious. The fact that recourse to the pubic interest may justify restriction of exercise of certain private interests, and at the same time restriction of individual rights (e.g., property rights) shows the necessity of public interest definition. However, it is debated whether this concept can be clearly defined and, if yes, how precisely it should be defined. In this article it is intended to evaluate the main differences between competing concepts of public interest and to identify the causes that determine these differences. Also, it is argued that the main controversies in defining the concept of public interest arise from reliance on the ideas of one of political theories – liberalism or communitarianism. Key words: public interest, private interests, individual rights, liberalism, communitarianism.

Introduction insights into this topic . E . Krivka (2003, 2007, 2008) and V . Nekrošius (2012) have analysed the problem of defining the In a democratic state, interests that are significant for the public interest in Lithuania law; U . Trumpulis (2010), J . Gum- whole community are as important as the assurance of exercise bis (2006) A . Mackonis (2009), D . Korsakaitė (2006) have ex- and protection of individual rights . However, in Lithuanian leg- amined the concept of public interest and its relationship with islation the general concept of public interest is not established, individual interests; E . Monkevičius (2009) has analysed the what determines that the legislation gives only fragmented im- question of definition of public interest in the sphere of envi- ages of the concept of public interest, and in a case law the ronmental protection . It should be noted that the multi-faceted settlement of intersection of social and individual interests be- (social, legal, economic) analysis of relation between public incomes very problematic . In Lithuanian law, as a public interest terest and private interests is presented in selected articles, is- are usually treated these interests of the whole society or part of sued by the Lithuanian Free Market Institute (2012) . However, it which are associated with the basic values of the community, the problem of definition of public interest has not been stud- protected by the Constitution . Therefore, the concept of public ied from the perspective of political theory . The object of this interest covers not only the wide range of public relations and article is to evaluate the different concepts of public interest, objects, but also can vary depending on the social, political and with a special emphasis on the influence of ideas of liberalism economic circumstances, what complicates the search of its ex- and communitarianism as the basis of formation of different act definition . concepts of public interest . It is intended to substantiate that This term is also an integral part of the political discourse the main theoretical differences defining the concept of public – the concept of public interest is often used in the debates as interest arise from reliance on liberal political theory or com- an indisputable and self-evident argument against certain de- munitarian ideas . cisions . Frequent and undefined usage of this term facilitates Studies from the field of public administration and politi- attribution of certain interests as common to the whole soci- cal science which examines the concept of public interest and ety . At the same time, the protection of public interest often the case law of Lithuanian Constitutional Court are analysed in requires the constraint of fundamental individual rights (such this article . The research is conducted within the project „The as the right to private property), and limitation of freedom of Problem of Recognition of Public Interest in Lithuanian Law: action or pursuit of individual benefits . These reasons lead to Criteria and Priorities“(MIP-019/2013), which is funded by Re- the search for the criteria that determine the balance between search Council of Lithuania . The aim of the project is to explore individual and community interests or establish the priority of what criteria and priorities are followed in Lithuanian law, in public interest over private interests . order to identify the public interest or to give priority to it over Although the problem of definition of public interest is not the private interests, in a comparative interdisciplinary study of widely analysed in Lithuania, but there are some significant scientific doctrine, legal regulation and case law . The author of

1 Milda Burnytė, Junior Research Fellow, International Relations Office, Law Institute of Lithuania, Vilnius, Lithuania . 92 Journal on Legal and Economic Issues of Central Europe

the article analyses the material of the project using the political act not only on the basis of personal interests, however are al- – economical approach, in order to evaluate arguments of utili- truistic and have regard to future generations as well .3 However, tarian theories in defining the public interest and determining in such a case utilitarian theories go beyond the boundaries of its relation with private interests and the applicability of these this concept and rely on principles characteristic to other theo- arguments in the legal practice . retical positions . At the same time, utilitarian public interest concept, despite 1. The Problem of Defining the Public Interest having obvious disadvantages, remains popular for defining Disputes concerning the harmonization of public and pri- the public interest, because it offers neutral criteria suitable for vate interests occurring in a case law require a more specific modern pluralistic societies . As summarized by M . Feintuck definition of the concept of public interest . However, either in while analysing evolution of the public interest concept in the a case law, either in the scientific literature exists a disagree- United Kingdom, the concept of public interest especially de- ment not only about how to define the latter concept, but also pends on variable link between state and individual . During the if this term, in general, could be defined and used in legal prac- last decades, the shift from interventionist and welfare state tice in a way that it would not unreasonably prevent to realize model to a greater laissez – faire individualism caused that col- the private interests and would not violate individual rights . lective values are more marginalized in the dominating political Therefore, opinions in the discussion on this issue range from discourse 4. Hence, as a result of interpretation of social welfare the absolute priority of the public interest over private interests as the freedom to pursue individual interests such tendencies and the concrete definition of this term (i .e . naming the specific are reflected in the legal regulation .5 This predetermines de- values or material goods) to the categorical rejection of public crease of state powers and abandoning of argumentation based interest concept as an incompatible with the principles of lib- on community values . eral democracy . Theories that criticize utilitarian public interest theory un- V . Held gives one of the most comprehensive classifications derline that an essential property of public interest is that this of public interest theories, taking into account both, quanti- legal category maintains continuity of society and protects tative and qualitative, approaches in defining the concept of it from processes of disintegration . Therefore, the concept of public interest . According to him, there are three types of public public interest has to comprise the fundamental imperatives of interest theories: democracy which are foundations of any democratic political •• Preponderance theories, treating the public interest as a certain order: human dignity, citizen equality and opportunity to ac- ethical imperative, usually based on the so-called natural tively participate in social activities . M . Feintuck submits such rights; a concept of public interest which indicates citizenship and •• Common interest theories, understanding the public interest as mutual equality of citizens as its core . This concept of public the agreement between the best part of members of the soci- interest emphasizes that democratic order requires from mem- ety, as the consensus on certain key issues, or as an interest bers of society recognition of certain common values that can which is common to the majority; be described by the term of citizenship . The above mentioned •• Solitary theories, according to which public interest arises from definition of public interest allows avoiding the risk to submit the particular ethical values uniting a separate community .2 interests of a certain group or of majority of society as the public interest, or to represent temporary values as dominating in The first two type of the concept of public interest are based the society . In addition, if the public interest was described only on utilitarianism criteria of definition of public interest . These in economic terms, it would become unnecessary as a separate are procedural theories defining and determining existence of concept, as in such a case it would not differ from any other the public interest through mathematically through sum of in- guarantors of effective functioning of the free market .6 The con- dividual interests . However, quantitative measurement methods cept of public interest which focuses on the community inter- suggested in the said theories are not easily applied in practice, ests does have regard to interest of society’s minorities, but, at as object of public interest often comprises future perspective the same time, is more capable to resolve conflicts of public and as well . Environment and heritage protection, which require private interests . restriction of private interests, can be attributed to the latter Although the theory seeks to clarify the concept of the public objects . In the latter case, economic benefit principle cannot be interest, it nevertheless remains too abstract for relying on it in applied for the right balance between public and private inter- a case law . The concept of public interest which emphasizes citi- ests . Certain economic activities, that otherwise could acceler- zenship does not provide more than what is already entrenched ate economic growth, have to be restricted as a result of envi- by constitutional norms or doctrine of human rights . To sum ronmental protection requirements . Utilitarian public interest up, the public interest is defined in two alternative ways: 1) concepts disregard such cases . Such a fallacy is sought to be based on the criterion of common good or interest of majority avoided by making presumption that members of the society of the society; 2) based on values dominating in certain com-

2 V . Held, The Public Interest and Individual Interests. New York: Basic Books, 1970, p . 10 – 11 . 3 M . Feintuck, ‘The Public Interest’ in Regulation . Oxford: Oxford University Press, 2004, p . 11 – 13 . 4 M . Feintuck, p . 37 . 5 A . Ogus, Regulation: Legal Form and Economic Theory . Oxford: Clarendon, 1994, p . 25, 29 . 6 M . Feintuck, p . 56 – 60 . 2/2014 93 munity, being a foundation for interaction between members of comparison with other public and private interests“ 9. These ar- the society . The firs theoretical position emphasizes individual guments can also be applied to the sphere of cultural heritage . rights and unrestricted economic activity; the second empha- The concept of public interest based on community values sizes the importance of the community and values supported is often criticized for an absolute priority of public interest over by it . Therefore, strict application of one of these positions and private or group interests and for the approach that the public protection of individual rights or priority of community values interest always remains stable and unchanging .10 The question complicates definition of a common concept of the public inter- of limit, when the public interest takes precedence over private est . In order to achieve such a goal, no arguments of any of the interests, is indeed problematic . However, the public interest is said positions may be ignored . not necessarily contrary and inconsistent with individual inter- 2. The Relation between Public Interest and Individual ests . In the United States the term Public Interest Law does not indicate the constraint of individual rights, but on the contrary, Interests the representation and defence of rights of those individuals and It must be emphasized that in clarifying and defining the vulnerable groups whose interests might be violated by interest relationship between public and private interests, not only the of influential individuals or structures (e .g . consumer rights, role of legislature is important . The court, addressing conflict environmental protection) . However, the concept of public in- situations between public and private interests, the solution of terest remains controversial in Lithuania . Some authors argue, which is not practically clear, also has a significant influence . that linking the public interests with an interest of the state in According to the ruling of Constitutional Court of the Republic Central and Eastern Europe is the legacy of the Soviet regime, of Lithuania, the public interest, as the common interest of the when the term “public” basically meant solutions of the repres- whole state and society or its part, must be reconciled with the sive government .11 During the times of Soviet regime, only autonomous interests of the individual, because not only the the state had the power to define what may be considered as public interest but also the rights of individual are the constitu- a public interest, as well as, the alternative articulation of the tional values .7 In accordance with this ruling of Constitutional public interest was impossible because of dependence of legal Court of the Republic of Lithuania, it is clear that the concept system on the political sphere (which is now possible due to an of public interest is not interpreted as the simple sum of in- independent judiciary) .12 It may be assumed that because of dividual interests . At the same time, under this decision, the the above mentioned reasons most of the theorists in Lithuania importance of public interest is determined not only by quan- supporting liberal ideas have a sceptical view to the legal defini- titative indicators, but also by the values which are expressed tion of the public interest . by this interest . The latter position is criticized by the theorists According to U . Trumpulis, „the public interest is such an who emphasize only the existence of private interests and deny interest of the state and society which is based on primacy of the practical necessity of the concept of public interest . the individual and his rights”, therefore, it can not be precisely In the study of Lithuanian Free Market Institute on the pro- defined, as strict legal definition of this concept would com- tection of public interest in Lithuanian law, it is indicated that plicate the proper implementation and protection of this in- it is incorrect to assert that in a certain disputes the conflict terest .13 In this case, what is considered as the public interest between public and private interests tends to be addressed . In must not entirely depend on the will of the legislature, because a particular dispute, only collision between different private in- the latter would not be able to cover the immense variety of terests, which are derived or supported by the public interest cases, and strict legal definition of public interest would lead arguments, exists .8 However, this theoretical position is denied to the inevitable violation of certain individual rights . Other through the environmental case . According to E . Monkevičius, authors, on the contrary, argue that the lack of definition of “the opinion of experts of Lithuanian Free Market Institute, public interest, causes the risk that state may interfere in the that it is impossible to distinguish the public interest and to de- private life of members of society and restrict their individual termine its priorities in the sphere of environmental protection, rights (such as the right to freely dispose private property) using can not be accepted . Social and economic development of so- the public interest argument .14 According to V . Nekrošius, the ciety is only possible if the protection of land and of all natural concept of public interest, provided in the ruling of Lithuanian environments is guaranteed . These interests have a priority in Constitutional Court, is so broad that it covers almost all areas

7 Ruling of Constitutional Court of the Republic of Lithuania 2004-12-13, . 8 LLRI ekspertizė: Dėl Lietuvos Respublikos viešojo intereso gynimo civiliniame ir administraciniame procese įstatymo projekto Nr . XP-1963, . 9 E . Monkevičius, „Viešojo intereso gynimo problema aplinkosaugos ginčuose .“ Socialinių mokslų studijos, 1(1), 2009, p . 40 . 10 U. Trumpulis, „Žmogaus individualūs interesai kaip viešojo intereso pagrindas .“ Socialinių mokslų studijos, 2(6), 2010, p . 225 . 11 E . Rekosh, K . A . Buchko, V . Terzieva (ed ),. Pursuing the Public Interest: A Handbook for Legal Professionals and Activists . New York: Columbia Law School, 2001, p . 1 – 3 . 12 J . A . Goldston, „Public Interest Litigation in Central and Eastern Europe: Roots, Prospects, and Challenges .“ Human Rights Quarterly, 28/2, 2006, p . 493 . 13 U . Trumpulis, 2010, p . 134 . 14 R . Giguolaitė, „Viešojo intereso kaina – nuosavybės teisių ribojimas .“ Viešojo intereso veidai: socialinė, teisinė ir ekonominė problematika . Vilnius: Letuvos laisvosios rinkos institutas, LAWIN, 2012, p . 61 . 94 Journal on Legal and Economic Issues of Central Europe

of life; therefore it can be used by the state to intervene into the 3. Controversy between Liberalism – sphere of private legal relations . Though, the particular interest should be considered as public interest only when there is Communitarianism? a violation of constitutionally protected values .15 In both cases, The difference between left – right wing political views in the aim in one way or another to define the public interest is contemporary politics is no longer so significant due to the con- treated as an impediment to the realization of private interests vergence of both . The programmes of political parties have very and individual rights . wide political and economic provisions, in order to attract large However, when the public interest is defined as representing groups of voters . However, the problem which arises seeking to community values, it does not mean that private interests will define the public interest shows that a dispute between liberal- be ignored as a consequence of the implementation of public ism and communitarianism is still relevant . Controversial ques- interest . According to J . Bell, the concept of public interest is tions in a political agenda, which receive high attention from indispensable in a case law to define such a situation when cer- the society and cause numerous debates, clearly reveals relation tain individual interests are not necessarily realized but when between the public interest and political ideologies . Such con- particular values which are necessary for the maintenance of troversy is especially evident when one intends to legally define inner connection and development of society are protected 16. and regulate such areas as family policy or state support for the Most of these theories do not define public interest procedur- cultural sphere .20 Then questions about the limits of legal regu- ally, but see it as a legal category which ensures the protection lation and distribution of economic resources arise . of community values, and which is characterized in association The debate between liberals, who stress the minimal role of with well-being of the whole community, human dignity and the state and emphasize the importance of individual rights and the maintenance of existing social order 17. J .E . Lane claims that free-market, and communitarians, who underline the need for the term “public interest” does not mean that the majority of a strong state in order to protect the basic community values, society members believe that certain interests are public, but is very broad . The author of this article does not aim to iden- because each of them would like that the state will be guided tify which side of the dispute has the stronger arguments but by them due to the fact that they are rational 18. The public to distinct fundamental problems of both positions in defining interest can be defined as such interest, which is widely recog- the public interest and to substantiate the claim that disagree- nized in the community regardless of whether the realization ment concerning the definition of public interest is based on or protection of these interests will provide benefits for each the controversy between two political ideologies – liberalism individual . and communitarianism . The concept of public interest is basi- This interest can be understood as a counterweight to inter- cally determined by the priority given to the individual or to ests of private groups of influence having the exclusive goal of the community . If individual rights and economic freedom are providing personal benefit to a certain person or a group . None- concerned as the primary principles of social regulation, then theless, economic regulation theory in essence contradicts the the public interest will be treated as the sum of private interests . community values theory and autonomic definition of public Consequently, liberals do not strongly support the concept of interest as independent of private interests . Economic regula- public interest, as by this concept the primacy of public interest tion theory explains the definition of public interest as accu- over private interests is implied . mulation of individual interests 19. The main difference between Representatives of liberal thought, such as J . Rawls and these theoretical positions arises from relationship of individual R . Rorty, relate the common good and public interest with un- and state . In accordance with the economic regulation theo- justified interference of state in the private life of members of ry, the purpose of the state is to ensure protection of personal society, while libertarians link public interest with political con- rights and facilitate realization of private rights . In contrast, the straints of the free market 21. In this case, for the definition of community values theory emphasizes the importance of com- public interest as an interest representing the common will of munity interests, where under the purpose of the state is to the whole society, liberals do not use utilitarian techniques with maintain the community interests and limit private interests . which in other cases of social regulation liberals tend to agree . To sum up, an assumption can be made that the disagreement According to J . Rawls, utilitarianism, as well as any other theo- over the public interest concept can be founded on difference retical approach that provides universal and in all cases adap- between ideological theories of liberalism and communitarian- tive criteria of social relation, cannot become the ground for ism . the concept of public justice .22 In this case J . Rawls is referring

15 V . Nekrošius, „Viešojo intereso gynimas civiliniame procese ir Konstitucinio Teismo doktrina .“ Jurisprudencija, 19 (3), 2012, p . 1105 – 1106, 1108 . 16 J . Bell, „The Public Interest: Policy or Principle?“, R . Brownsword (ed ),. Law and the Public Interest . Stuttgart: Franz Steiner, 1993, p . 30 . 17 M . Feintuck, p . 41 . 18 J . E . Lane, Viešasis sektorius . Vilnius: Margai raštai, 2001, p .18 . 19 G . A . Tanguay, P . Lanoie, J . Moreau, „Environmental Policy, Public Interest and Political Market .” Public Choice, 120, 1/2, 2004, p .3 – 4 . 20 J . Novkov, „Law and Political Ideologies .“ K . E . Whittington, R . D . Kelemen, G . A . Caldeira (ed ),. The Oxford Handbook of Law and Politics . Oxford: Oxford University Press, 2008, p . 640 . 21 S . J . D . Hollenbach, „Virtue, the Common Good, and Democracy .“ Amitai Etzioni (ed .), New Communitarian Thinking: Persons, Virtues, Constitu- tions, and Communities . Charlottesville: University Press of Virginia, 1996, p . 147 . 22 J . Rawls, „The Idea of an Overlapping Consensus .“ Oxford Journal of Legal Studies, 7(1), 1987, p . 4 . 2/2014 95 to the criterion of common benefit that ignores interests of mi- ing the public interest . According to the author, public inter- nority groups in the pluralistic liberal democracy . Also, liberals est related to the present time covers assurance of individual reject any idea of values which are common to the whole com- rights and regulation of interpersonal relations . Public interest munity . R . Rorty claims that the aspiration of common good addressing the future should be defined as maintenance of the should not be the object of public policy, as everything what de- current situation (in case of environmental protection) and pro- pends on moral values and subjective judgments 23. Therefore, tection of valuable heritage (in case of historical and cultural in liberal theories the public interest is always interpreted as the heritage) . In both cases, public interest is based on natural right sum of private interests, as the social harmony can be achieved of future generations to live in a healthy environment and to get only through the coordination of private interests . acquainted with historical and cultural values . From communitarian point of view, coexistence of individu- Therefore, it is better to define the public interest not as an als motivated only by personal interests and by the realization objective and clearly expressed goal but as a process . Herewith, of the right to privacy would be a problematic task in a modern the protection of public interest should cover permanent as- democratic society . Democratic system requires cooperation be- surance of balance between current and future needs, as well tween members of society and mutually cherished values . Soli- as between individual and public interests .27 The definition of darity is needed to prevent permanent state of conflict . And public interest largely depends on political notions . Therefore, this is not an authoritarian state, but positive members of the in seeking more precise definition of public interest it is neces- public engagement model . Communitarianism also emphasizes sary to find the balance between various interests of different the moral dimension, and the interaction between it and the social groups . Otherwise, if particular values or material objects community . The public interest is defined as a legal construct are concerned as a public interests before the political discus- designed to protect community values . sions, there is a danger that certain values and norms will be Democratic system demands cooperation between members attributed to the society which does not support it . of society and protection of common values . Solidarity is necessary seeking to avoid the permanent state of conflicts . This Conclusions is not a model of authoritarian state but, otherwise, a positive •• Summarizing the variety of public interest conceptions, two involvement into public relations .24 Also, communitarianism types of theories could be distinguished: 1) theories, which emphasizes the moral dimension of legal norms and interaction define public interest as a procedure, i .e . theories which use between law and society .25 Communitarianism defines public quantitative methods in order to identify similar private in- interest as a legal construct the purpose of which is to secure terests and indicate the majority of them; 2) theories defin- common values of a particular society . ing public interest as an aggregate of common values, which Therefore, it could be stated that the concept of public inter- support the interaction between members of society . est depends on tendency to accept the notions of one of two •• The procedural theories are sceptical towards the concept political theories . Summarising, two main positions defining of public interest and towards the aim to legally define it, the public interest could be distinguished: because the term public interest implies a restriction of pri- •• Liberal contractualism . This position states that the public vate interests and individual rights . While theories empha- interest must ensure the protection of individual rights and sizing common values treats public interest as a necessary liberties in a particular political association, which enables legal category in order to sustain the connection between each member of society to implement individual interests; members of society . Therefore, the controversy between the •• Solidarity . This position relates public interest with certain abovementioned theoretical positions is based on a different moral imperatives deriving from solidarity of community 26. approach to the relation between the state and individual . According to abovementioned ideas, it could be concluded •• Disagreement on the conception of public interest is based that none of the ideological positions is capable to explain the on tendency to support the notions of one of the two politi- variety of cases in case law . As a result, supporting particular cal theories – liberalism or communitarianism . political theory leads to the stalemate when it is necessary to •• Since none of the political theories is able to grasp the vari- define the public interest . Public interest is a diverse category ety of cases in case law, and taking into account that the con- that covers both current and future public relations . There are cept of public interest covers not only current but also the also noted efforts to harmonize principles of different political future public relations, the public interest should be defined ideologies . C . W . Lewis seeks to present a more comprehen- by means of political discussion in order to harmonize the sive and holistic definition of public interest which would cover notions of liberal and communitarian theories, taking into criteria of both liberalism and communitarianism for specify- consideration interests of each group of society .

23 R . Rorty, „The Priority of Democracy to Philosophy .“ Merrill D . Peterson, Robert C . Vaughan (ed .), The Virginia Statute of Religiuos Freedom: Its Evolution and Consequences in American History . Cambridge: Cambridge University Press, 1988, p . 263 . 24 S . J . D . Hollenbach, p . 148 – 149 . 25 P .van Seters, „Communitarianism in Law and Society .“ P .Van Seters (ed ),. Communitarianism in Law and Society . Lanham: Rowman & Littlefield Publishers, 2008, p . 12 . 26 R . E . Ashcroft, „From Public Interest to Political Justice ”. Cambridge Quarterly of Healthcare Ethics, 13, 2004, p . 25 . 27 C . W . Lewis, „In Pursuit of the Public Interest .“ Public Administration Review, 66/5, 2006, p . 695 – 699 . 96 Journal on Legal and Economic Issues of Central Europe

•• The position of the Constitutional Court of the Republic nal interest that is the condition of any activities – either pri- of Lithuania regarding the public interest is very general; vate, either public . That is the reason that causes the priority therefore, concerning the above mention difference between of public interest over private interests . Also, it is important two political theories, it should be supplemented by a more to emphasize that public interest must determine a balance precise specification of relation between public and private between private interests, without distinguishing any private interests . Public interest should be defined as such commu- interest over other private goals and aspirations .

List of References Scientific Sources: 1 . Ashcroft, R .E . From Public Interest to Political Justice. Cambridge Quarterly of Healthcare Ethics, 13, 2004 . 2 . Bell, J . The Public Interest: Policy or Principle? R . Brownsword (ed .) Law and the Public Interest . Stuttgart: Franz Steiner, 1993 . 3 . Feintuck, M . ‘The Public Interest’ in Regulation. Oxford: Oxford University Press, 2004 . 4 . Giguolaitė, R . Viešojo intereso kaina – nuosavybės teisių ribojimas. Viešojo intereso veidai: socialinė, teisinė ir ekonominė problematika . Vilnius: Letuvos laisvosios rinkos institutas, LAWIN, 2012 . 5 . Goldston, J .A . Public Interest Litigation in Central and Eastern Europe: Roots, Prospects, and Challenges. Human Rights Quar- terly, 28/2, 2006 . 6 . Held, V . The Public Interest and Individual Interests. New York: Basic Books, 1970 . 7 . Hollenbach, S .J .D . Virtue, the Common Good, and Democracy. Amitai Etzioni (ed .) New Communitarian Thinking: Persons, Virtues, Constitutions, and Communities . Charlottesville: University Press of Virginia, 1996 . 8 . Lane, J .E . Viešasis sektorius . Vilnius: Margai raštai, 2001 . 9 . Lewis, C .W . In Pursuit of the Public Interest. Public Administration Review, 66/5, 2006 . 10 . LLRI ekspertizė: Dėl Lietuvos Respublikos viešojo intereso gynimo civiliniame ir administraciniame procese įstatymo projekto Nr. XP-1963. < http:// www lrinka. lt/index. .php/analitiniai_darbai/llri_ekspertize_del_lietuvos_respublikos_viesojo_intereso_gynimo_civiliniame_ ir_administraciniame_procese_istatymo_projekto_nr_xp_1963/4468;print;1ir> . 11 . Monkevičius, E . Viešojo intereso gynimo problema aplinkosaugos ginčuose. Socialinių mokslų studijos, 1(1), 2009 . 12 . Nekrošius, V . Viešojo intereso gynimas civiliniame procese ir Konstitucinio Teismo doktrina. Jurisprudencija, 19 (3), 2012 . 13 . Novkov, J . Law and Political Ideologies. K . E . Whittington, R . D . Kelemen, G . A . Caldeira (ed .) The Oxford Handbook of Law and Politics . Oxford: Oxford University Press, 2008 . 14 . Ogus, A . Regulation: Legal Form and Economic Theory . Oxford: Clarendon, 1994 . 15 . Rawls, J . The Idea of an Overlapping Consensus. Oxford Journal of Legal Studies, 7(1), 1987 . 16 . Rekosh, E ., Buchko, K .A ., Terzieva, V . (ed .) Pursuing the Public Interest: A Handbook for Legal Professionals and Activists . New York: Columbia Law School, 2001 . 17 . Rorty, R . The Priority of Democracy to Philosophy. Merrill D . Peterson, Robert C . Vaughan (ed .) The Virginia Statute of Reli- giuos Freedom: Its Evolution and Consequences in American History . Cambridge: Cambridge University Press, 1988 . 18 . Seters, van P .Communitarianism in Law and Society. P .Van Seters (ed .) Communitarianism in Law and Society . Lanham: Row- man & Littlefield Publishers, 2008 . 19 . Tanguay, G .A ., Lanoie, P ., Moreau, J . Environmental Policy, Public Interest and Political Market. Public Choice, 120, 1/2, 2004 . 20 . Trumpulis, U . Žmogaus individualūs interesai kaip viešojo intereso pagrindas. Socialinių mokslų studijos, 2(6), 2010 . Case Law: 1 . Ruling of Constitutional Court of the Republic of Lithuania 2004-12-13, . 2/2014 97

The Most Significant Changes Affecting the Administrative Work of Hungarian Local Authorities 1 Bernadett Veszprémi 2

Abstract Legislation in Hungary constantly raises challenges for the Hungarian system of public administration. Due to financial, personnel, or organizational reasons, adapting and complying to the related legal regulations is especially difficult for local authorities. In my opinion, the legislative intentions are not always in harmony with reality: sometimes, they leave the practical needs and preconditions out of consideration. Therefore, many times the legislative changes are far from being an advantageous change for local authorities: their implementation can be difficult for these bodies, requiring a lot of time and energy from their part. This, of course, raises the question whether legislation actually brings order or chaos to public administration, or more precisely, to its system of local governments? The answer is not always clear. In my opinion, legislative changes may cause chaos only on short-term: in the long run, such changes tend to yield positive results. Key words: Hungary, Local Authorities, Workforce, Material resources, Communication, Workload.

e) A new administrative system for the local governments was 1. Legal Challenges established, consisting of a reduced number of offices . The recent years saw many changes in the organization and f) The role of the mayor increased, while notary responsibili- responsibilities of local governments . These changes were gen- ties saw major changes . erated primarily by the relevant regulations, and the modifica- g) The role of county-level local governments also changed, es- tions affecting them . My goal is to present and analyse these pecially in the areas of regional development and country changes; however, instead of using chronological order, I will planning . present them by the specific areas they affect . These areas in- h) Legal audit was replaced by supervision, and new resources clude the organizational level, the roles and activities, the IT in- are provided for government offices . frastructure, and the miscellaneous changes not related strictly i) A new associative system was introduced . to any of the above areas . I would like to focus only on some of these changes to provide further examples . At the same time of creating the Mötv., 1.1 Organizational Changes the offices of public administration were also transformed and In December 2011, a new act related to local governments re-organized to government offices, in accordance with the was passed: the CLXXXIX. Act of 2011 on the local governments of amendments of the CXXVI. Act of 2010 on capital and county- Hungary (hereafter Mötv.) . The new act brought several changes level government offices, and the establishment and regional integration to the local governments, with the most important ones being of such offices, and the Decree of 288/2010. (XII.21.) on capital as follows (note that the list is indicative only): and county-level government offices . This change resulted in numer- a) The municipal services offered by local governments (name- ous changes: firstly, it integrated the specialized agencies of lo- ly education and healthcare) were reduced . cal administration; secondly, it changed the hierarchy of local b) Changes were made in the priorities of mandatory duties administration (with the appearance of positions like the gov- (such as settlement management, involving the local popula- ernmental commissioner and the director-general); and finally, tion in management, or supporting the self-organization of it established legal supervision and created new legal resources the local society) . (such as local-level decrees, provisions supplemented by govern- c) A task-based financial assistance system was introduced in ment offices, and fines issued following legal supervision) . From place of normative support . the perspective of local administration and the local govern- d) Facultative tasks are now financed either from local governments, the latter is more relevant . ment revenues, or from sources established specifically for The establishment of joint local government offices (similar in such tasks . many respect to the former notarial districts) is also a change

1 This research was supported by the European Union and the State of Hungary, co-financed by the European Social Fund in the framework of TÁMOP-4 .2 4. .A/ 2-11/1-2012-0001 ‘National Excellence Program’ . 2 Dr . Bernadett Veszpremi, Ph .D ,. Associate Professor, Faculty of Law, University of Debrecen, Hungary . 98 Journal on Legal and Economic Issues of Central Europe

generated by the Mötv . These offices were created for small set- the local administrative structure, the improvements of admin- tlements (with the number of inhabitants being below 2000) to istrative work, and organization developments . However, it is save costs and increase administrative efficiency . important to note that the current amount of workforce is not Out of the recent legal changes of public administration, the enough to perform some tasks, and to ensure efficient and fast most important one is definitely the establishment of the district administration . Currently, there is no way to fill all positions: system . The legal status of the districts is determined by several therefore, local governments try to solve the problem in an ad- acts and decrees: the CXXVI. Act of 2010 on the legal status of the hoc manner by employing civil servants through miscellaneous districts; the XCIII. Act of 2012 on the establishment of districts and legal relations . its required amendments; the Decree of 515/2013 (XII.30.) on Gov- Besides the various advantages, the aforementioned changes ernment Windows (that is, front offices of the government); the also resulted in several disadvantages from the perspective of the Decree of 218/2012. (VIII.13.) on the establishment of capital and offices, such as the following: county-level district offices; the Provision of 1299/2011. (IX.1.) on a) The layoffs generally result in an increased workload . the establishment of districts; and finally, the KIM (Közigazgatási b) Due to the fusion of departments, civil servants must learn és Igazságügyi Minisztérium: Ministry of Public Administra- to perform duties that formerly belonged to another area . tion and Justice) Order of 3/2013. (II.18.) . c) The transparency and unity of the system may be harmed, if What were the effects of the district system on the local gov- the duties belonging to a specific area are split . ernments? Well, first of all, the staff of the mayoral offices have been decreased . While this sounds like a disadvantage, it was The communication between the district and the local gov- actually a positive development: although the transfer of state ernments is also known to have several advantages and disad- administration tasks resulted in the layoff of local government vantages . Since the two administrative bodies are usually locat- civil servants, this staff was then employed by the district offic- ed within the same building, the physical proximity greatly sup- es . This is due to the XCIII. Act of 2012, which enacts that pub- ports the information flow . However, this proximity also means lic servants, who handled administrative work positions that that administrators may be tempted to circumvent the official have been transferred from the local governments, would also way of handling duties, not to mention that the separation of be transferred themselves to the district office (in proportion to the administrative bodies can actually hinder administration, if the tasks transferred to the district office, of course) 3 . a case must be handled by multiple authorities that are part of The details of this transfer were part of the Act and the gov- separate administrative sub-systems . ernment Decree of 218/2012. (VIII.13): with this, the status of That said, even with the above issues, local governments and the pending tasks, the property related to state administration district offices usually experience no conflicts during their daily tasks (both chattels and real estate), and the IT databases/re- routine when located in the same building and face a split ad- cords were also settled . ministrative structure . This is due to personal reasons: in most On the strength of this law, all the properties and rights re- cases, district offices employ the same civil servants who for- lating to properties of the local governments that ensured the merly worked for the local government . This means that the performance of the transferred duties have come into free use of personal relationships within the system remain untouched, the government from January 1, 2013 . The utilization right of which helps a lot in the effective handling of any problem that these properties is exercised by the government offices 4 . may arise . In parallel to the transferred administrative duties and authorities, the data and databases handled by local governments 1.2 Role and Activity Changes were also transferred to the district offices (along with the au- The first major reform in public administration was marked thorization to handle them) . The means and deadline of this by the CXL. Act of 2004 (abbreviated as Ket.), which replaced an transfer was defined in the agreement made between the gov- act that regulated Hungarian public administrative procedures ernment office and the local governments .5 for almost 50 years: the IV. Act of 1957, commonly known as The distribution of real estate properties was also defined in Áe. The advent of the new act brought fundamental changes an agreement, as the district offices were established in the mu- to official public administration . Of course the major stages of nicipal buildings of the cities acting as the district centres . the official proceedings remained the same, and the procedural This agreement also defined the details of transferring the activities were also similar to the earlier approach; however, new chattels and real estate to the district office . This included both legal institutions appeared (such as new legal and contributory the shared real estate properties, and also the ones that were authorities), and new deadlines were defined – both of which re- transferred to the office for exclusive use . quired adaptation . The new procedural steps (such as the refusal The layoff (by the reduction of administrative tasks) also of applications without substantial investigation) required new allowed further developments, such as the transformation of decision methods (or decrees), while the new deadlines greatly

3 XCIII. Act of 2012 on the establishment of districts and its required amendments, Section 7 .§ (1) . www .njt .hu, Date of download: April 1, 2014 . 4 XCIII. Act of 2012 on the establishment of districts and its required amendments, Section 2 .§ (1) . www .njt .hu, Date of download: April 1, 2014 . 5 XCIII. Act of 2012 on the establishment of districts and its required amendments, Section 7 .§ (6) . www .njt .hu, Date of download: April 1, 2014 . 2/2014 99 affected the internal ways of working . Adapting to the new rules vation purposes . An obligation was also defined: if the district took time – the best indication of this is the fact that the Ket . office requests the closed cases, they must be transferred within took effect almost only just after a year it had been announced . three working days – needless to say, the fact that the offices The legislative direction and the changes of municipal public are located within the same building greatly helps in meeting administration are of course also affected by foreign tenden- this deadline . cies as well: in particular, the effects of Directive 2006/123/EK The cases transferred from the notary to the district office of the European Parliament and the European Council (also includes primarily the document office matters, child protec- known as the Services Directive) are readily apparent . Regarding tion, child welfare, and child guardianship cases, social admin- the administrative work, the provisions of the Directive affect istration, entrepreneurial activity matters, communal, veteri- not only paper-based procedures, but also electronic communi- nary, and water conservancy cases, and the management of the cation as well . local defence committee . The organizational and operational To ensure the liberty of service providing, it puts great em- guidelines of the district office provides a detailed list of the phasis on the equal opportunity of foreigners . Therefore, it ex- case types transferred to itself . At the same time, the Decree pects from member states to simplify the procedures of specific of 78/2012 (XII.28) issued by the Ministry of Interior defines services as much as possible . This, among other changes, results the competences that stay at the local governments . According in that several activities (which required official permission ear- to this, the double legal status and linkage of the notary still lier) can now be carried out by simply just notifying the au- exists, as some tasks related to state administration were not thorities . As for the local governments, the Services Directive had transferred to the district offices . indirect effects through the changes in the used forms and the It is also a disadvantage that case groups exist in which not simplification of the legal procedures – both of which are due to every case type has been transferred to the district office: there- the legal harmonization . fore, clients may get confused, as it is not always clear which When it comes to legal changes, the changed venue of ad- office to turn to . For example, within the social area, the nor- ministrative tasks must also be mentioned . New case groups mative and subjective public health service became a district of- have been formed that have been handled by a single notary fice responsibility, while equity health service remained a local (and mayoral office) in the entire district area . Such case groups government task . The logic behind this reorganization was the have been the proceedings pertaining to public construction, or same as the approach in distributing tasks between the local the cases related to government-issued documents . With the governments and the district offices in general: cases related advent of the district system, public construction matters have to the everyday life and local features of the settlement would been transferred to the notary of the district centre, while the remain a local government responsibility, just like the cases that document offices have become parts of the district offices . require decisions considering the local interests . The establishment of the district offices also meant the re- In certain areas, the aforementioned redistribution had its distribution of administrative tasks that formerly belonged to own advantages for local governments as well, though . Still sticking the local governments . The redistribution was justified by the to the above example, it is important to note that while clients following factors: may indeed get confused in finding out to which authority the a) Cost-effectiveness various forms of public health service belong, local authorities b) Work efficiency on the other hand experienced a reduced workload (and thus c) Client-orientation more breathing space) by keeping only the equity health service d) Performing tasks with the proper economies of scale . as a notary responsibility . e) Dividing the tasks of local governments and state-level ad- In practice, though, administrators faced an increased work- ministration on an organizational level . load instead . Also, the removal and rearrangement of tasks fre- f) Considering the differences in the structure of settlements . quently resulted in the reduction of administrative personnel, g) Developing the disadvantaged regions of the country . as it happened for example in the social areas (like working-age h) Ensuring the development of the settlements fulfilling local allowance or regular child protection allowance) . Such cases organizational roles . pose notably heavy workload on administrative personnel, due i) Establishing the harmony in state administration by adjust- to the huge number of affected clients and the characteristics ing to the authority of other administrative agencies 6. of the cases . When it comes to working-age allowance, the applications must be treated with a 1 .5x multiplier, since this type Most of the problems was probably caused by this regula- of allowance is shared (between employment and support, and tion . This, however, does not mean that the idea is incorrect; it regular social allowance and unemployment benefit) . In this simply means that it is not free of errors, and since the change is case, workload was increased by the legal regulations, not the relatively new, the reorganization has not been without issues . district system per se . Clearly, there is still work to do . Similarly to client uncertainty, the division of specific ad- The Decree of 218/2012. (VIII.13.) defined rules for handling ministrative areas and the fact that not all of the cases were cases in progress, while the cases closed until December 31, transferred also harm transparency and uniformity . To give ex- 2012 have been transferred to the notary for document preser- amples from social administration again, cases of this area are

6 Provision of 1299/2011. (IX.1.) on the establishment of districts, Clause 2 . 100 Journal on Legal and Economic Issues of Central Europe

split between the district office and the local government: the c) A municipal decree issued within a municipal administra- nursery fee and the public health service were transferred to tive case, the district office, while the child protection allowance, and the 2 . The Ket . itself restricts e-administration in the following kindergarten/schooling benefits remained in the notary’s sphere cases: of authority . a) Court decision due to authority negligence, The labour bureau of the local government and the district b) Authority debate settled by the Fővárosi Közigazgatási és office also has its role in the support of working-age citizens: Munkaügyi Bíróság (Budapest Court of Public Adminis- the bureau is the specialized agency of the district office . Com- tration and Labour), munication between the agencies uses a lot of paper, requires c) Court revision of administrative decisions . extra work, and needs different IT infrastructures that cannot 3 . E-administration may also be neglected if it cannot be recog- always cooperate, and have problems with information queries . nized in relation to a specific case . The solution would be the transfer of the related tasks to the district office, or the merge of the labour bureau into the local From the perspective of local governments, the above changes government: this would ensure a cost-effective and faster ad- meant that ostrich policy could only be pursued in local admin- ministrative work . istrative cases: in every other case, matters submitted through Needless to say, official administration is (or can be) also af- e-administration must have been handled . fected by legislation and other factors . The headway of e-administration can be ensured not just Let me provide some examples of departmental legisla- by establishing the necessary technological infrastructure and tion, too . In recent years, the changes caused by the massive the transformation of working processes; the improvement of amounts of legislative modifications became almost impossible digital competences (both on the client and office sides) is just to follow . Even if considering only the most important legisla- as important . Informing the population on the available means tive modifications affecting departmental administration, the of administration, the possibilities of using e-administration changes heavily increased the workload, since the modification and the available methods of e-services is also important, not of the III. Act of 1993 has created the working-age allowance, to forget the required financial background that must also be and thus divided the welfare payments into regular social wel- provided . Finally, local governments must also take a stand fare, unemployment benefit, and communal work . As for the on e-administration (that is, they must define if they want to education, with the modification of the CXC. Act of 2011, the continue it, how they want to realise it within their authority, Klebelsberg Intézményfenntartó Központ (Klebelsberg Institu- and what resources are available for its development), and must tion Maintenance Centre, KLIK) was established 7, which ef- settle its state by legislation (that is, it must define the cases fectively removed the primary schools from the authority of the where it is not available) . local governments . Besides Ket ., there was another act too that urged for utiliz- 1.3 IT Infrastructure Changes ing the possibilities of the information society: this was the XC. Act of 2005. on the liberty of electronic information, and later The formulation of the Ket. also heralded a new service: the (after it has been repealed), the CXII. Act of 2011. on the right electronic administration (e-administration), which opened all the to information self-determination and the liberty of information floodgates on its introduction . The Ket. allocated an entire sec- (hereafter Info .) . This act elevates the expectancy of electronic tion to explain the basics of electronic administration . It estab- releases to a legal level (as it has already been defined in the lished the electronic submitting of case-starter applications as eEurope Action Plan and the CLBPS recommendations), and a possible and basic client right, which confronted administra- defines the website publication of specific data types (release tive authorities to a fait accompli . The initiative was great, even lists) as an obligation of public authorities (either on the own, if a bit premature . Complications arose, either because of the shared or central website of the specific authority) . This led lack of funds, or due to the lack of necessary technical infra- to notable improvements in official administration, as the case structure . Because of this, the legislation – realising the weak forms are now public and downloadable, while case descriptions points of the initiative – allowed the authorities to restrict or are also available online, both of which makes administration forbid e-administration by the related acts, government decrees, easier and faster . and local government decisions . This proved to be a good work- The Services Directive raised challenges for the IT infrastruc- around, but did not mean that the problem was solved . ture of state administration and the local authorities . As it aims With the modification of Ket . in 2012, the negligence and to enable e-administration for foreigners as well, it instructs restriction of e-administration was possible only in case of the Hungarian authorities to enable Ügyfélkapu (Client Gateway, an following scenarios: access point through which clients can safely connect to public 1 . E-administration may be prohibited by a specific provision administration authorities by personal identification) for for- of law, such as: eign citizens too, and introduce electronic services available for a) An act, them as well . b) A government decree issued in the original legislative Due to the constant development of information technology, sphere of authority, there has been a great increase in the number of areas where

7 Government decree of 202/2012 (VII.27.) on the establishment of the KLIK, Clause 3 .§ (1), Article c .) www .njt .hu . Date of download: 2014 .04 .10 . 2/2014 101 legislation requires the use of specific records, databases, sets are developed without inter-operability, and if no broadband legal requirements for the software used by the administrative connection is available for every administrative body . bodies (regarding document handling, for example), or even determines the specific software to use (such as ÉTDR for public Summary construction matters, or ASZA for the register of births) . Organizations . The changes in tasks and authorities required The latest change was induced by the L. Act of 2013 . on an organizational transformation as well . Therefore, in most the electronic information safety of state administrative and cases, the offices of local governments were either closed or municipal bodies . This act obligated administrative bodies to merged, while the administrative tasks were redistributed . The create an IT safety code and an IT safety strategy, to work out new responsibilities require new knowledge to acquire . a safety action plan, to classify organizations to specific security Workforce . The legislative changes transferred most of the au- levels and classes, and to assign IT security responsibles who thorities of the local governments to the district offices, which oversee the above changes . meant that the administrative personnel must also had to be However, new changes are also on the horizon . The latest reg- taken care of . This both had its advantages and disadvantages . ulation – which did not yet take effect – comes from the CCXX. It is certainly a positive development that the personnel were Act of 2013 . which defines the general rules of harmonizing the transferred along with the tasks (thus, neither down-sizing, nor state-level and local-level records, and which ordains the inter-op- the training of new administrators were required) . However, the erability of the various official records . This act observes the reg- reduction of personnel resources resulted in an increased work- ulations of the electronic information safety act, and assigns the load in certain areas, which is certainly a disadvantage of the government with defining the primary and derived data . It aims district system . to ensure that communication between the various agencies and Material resources . This area is characterized by straightfor- its records are constantly maintained by providing a data con- ward legal settlement . The state concentrates on task-based as- nection service; this would ensure that no matter which source sistance, and by making the regional and local administrations clients and administrators visit, they would be able to fetch the independent, it also establishes physical contact with the two latest data . To facilitate this, it also ordains authorities to cre- subsystems as they share the same location . Fortunately, this ate the procedural order, the regulations of the data connection causes no tensions, as the ownership of the real estates, chattels service, and to work out the agreement of establishing such data and databases are clearly defined in agreements . connection service between the related authorities . The act as- Communication . The unchanged work relationship between signs a specific authority to oversee this area, and also establishes administrators and the physical proximity greatly help every- a central address register to ensure the unified address handling . day communication . Although the offices belong to separate These provisions will probably take effect in 2015 . administrative subsystems, they tend to cooperate well . By communication in this case, I also mean the cooperation and 2. Miscellaneous Factors Affecting Local Administration inter-operability of the official IT applications, where, to be Besides legal factors, the organization of public services is frank, there is still great room for improvement . This is due also affected by several financial (economic), personal (human), to the underdevelopment and the deficiencies of the govern- social, and IT-related factors as well, which impact administra- ment background, and also because of the lack of willingness tive service providing either in a positive, or negative way . Need- and budget to improve on the local level . less to say, all the above factors may impact local administration Workload . Generally speaking, administrative tasks are han- negatively . If the local administration does not have the required dled in a unified manner, thanks to the detailed legal back- budget, it must give up on certain facultative tasks, or it must ground . However, stability is missing . Since its inception, Ket. close or merge institutions . The required IT infrastructure is has been modified in almost 50 instances, and this act defines also not sufficient in itself: if the digital literacy, and the willing- only the procedural aspects . With the appearance of the dis- ness to learn using e-administration is missing, the service sim- tricts, the complicated cases (affecting a greater number of ply cannot fulfill its potential . If the population does not trust the population) have been transferred to the district offices, in such technical developments (and in public administration), but certain segments are affected heavier workload due to the they will not use the available e-administration solutions, even lack of workforce . To ensure coherence, it would be reasonable if the legal and IT developments would allow it . And finally, to transfer certain case types in the affected areas (such as in the legal attempts to achieve a true information society and to working-age allowance) . On a side note, it must also be pointed follow the footsteps of the leading countries by using their best out that in many cases, the increased workload is caused not by practices in the Hungarian administrative procedures are also in the introduction of the district system, but rather the legislative vain, if the required IT infrastructure is not available, if systems changes affecting the related specialized agency . 102 Journal on Legal and Economic Issues of Central Europe

Organisational Changes of Professional Football Companies Zoltán Imre Nagy,1 Éva Bába Ms Bács 2

Abstract Since the 90s professional football has been going through an unprecedented economic growth. The football ventures are becoming more and more middle-sized companies. In football there are organizational changes, which are reflected in changes of legal forms of professional football clubs, and in using of modern controlling, planning, risk and financial management. There are important questions that remain unanswered within the financing of football clubs, such as the impact of risks or the market value of capital costs. In addition to liquidity and beyond the above, the acceptance of the determinational dependence of certain capital funds on sports results and the development of a strategy suitable for the optimal target system are also important requirements. In this article, we would like to present those answers of the football companies given to the challenges they have been facing that effect their organisational system. In the light of international comparison, we also refer to the status of the once world famous Hungar- ian football, which used to see brighter times. Key words: professional football, legal forms, organizational structure, controlling, controlling system building in footbal undertaking.

1. Introduction in the international scene, the further betterment of the standards of the OTP Bank League, which at the same time is the Since the 1990s, professional football has undergone unprec- key to the positive results of the Hungarian national team . edented economic uplift worldwide . From an economic point of The general conditions of professional football change at view, this sport has evolved into an industry that beyond the a pace that is hard to follow by the adaptiveness of most of the football clubs participating in the championships that are orga- football clubs . These changes are so intense that one cannot avoid nized by the various leagues also involves rather untransparent, agreeing with Caesar Luis Menotti, the legendary Argentinean complementary economic operations where companies increas- coach: “The world of utopias has now gone . We live in a utilitar- ingly perform their specific activities on the level of medium- ian society where football is condemned to big businesses ”. sized enterprises – when they are measured against traditional industrial actors –, by following their unquestionable economic 2. Changes in Professional Football interests . During the past few decades, tremendous changes have In line with these truly economic processes, football in Hun- taken place in football, both on and off the pitch . We would gary should also put the conditions of becoming an industry in like to highlight only a single data to illustrate this: In 1963, place, apply the methods of developed markets in the work of the monthly salary was DM 1,200 in the level one Bundesliga the Hungarian Football Federation (MLSZ), as well as in the in Germany . Only the world champion Hans Schäfer received organizational setup, management of the Football League and its double . In 2005, the average monthly salary reached EUR professional clubs, in their acquisition of capital resources and 26,000 – 27,000 . The stars had earned millions a year even at the establishment of control . (Borbély, 2012) It is the only way that time . to ensure the long-term, efficient operation of Hungarian clubs The “off the pitch” changes can be divided into four groups .

1 Dr . zoltán Imre Nagy, Óbuda University, Budapest, Hungary . 2 Éva Bába Ms Bács, Faculty of Epplied Economics and Rural Development, University of Debrecen, Hungary . 2/2014 103

Figure 1: Categorisation of the “off the pitch” Changes

Source: Own research The above revolutionary changes are closely interconnected with each other .

2.1 Financial Field which in the case of a football enterprise obviously depend on sports results . (Keller Ch . 2006) Sales revenues, especially in the case of the teams of big In the case of significant economic and intangible results, the football nations, have increased dramatically during the past dependence of main revenues on sports results significantly de- decades . The German level one Bundesliga had reached EUR 2 creases . Examples of this are media rights revenues, which are sold billion sales revenue as early as in 2010, while in England, it through contracts prior to the launch of the season . For certain exceeded EUR 2 .4 billion . Ratings are immense, for example periods, these revenues can be considered fixed . In this case of in 2010 in Germany, the average number of spectators visiting course, growth opportunities are highly limited for the duration a match was about 41,000, with the standard ticket price of of these contracts . Revenue growth can only be achieved as a re- more than EUR 21 . Media revenues have also increased mas- sult of sports results, in the case of unexpected successes abroad or sively . It is highly important that professional football is a very by integrating new media elements . Revenues from media rights, costly economic field, where the increase of sales revenues goes therefore, can be considered a given condition depending on the hand in hand with the considerable growth of expenses . Finan- previous season, which of course does not mean that the club cial stability plays a huge role, which is reflected in the quality should not try to generate as much revenue as possible, as me- of the management and its set-up . From the perspective of our dia revenues are usually the most significant and most intensely selected topic, the organisational changes, the latter and the growing revenue source for professional football clubs . In Germa- establishment of controlling organisations have a significance ny, in the 2008/2009 season in the Bundesliga 1, such revenues (Haas, O:2006) . increased by 40 percent compared to the 2006/2007 season . (4 . Capital can be provided through internal or external financ- Bundesligareport, 2011) . The revenue structure of the 2009/2010 ing . Football enterprises are highly dependent on internal financ- season is shown in Table 1 . The tendency observed is that clubs ing, where forms of financing specific to football are especially have to move in the direction of pay-per-view channels instead of prevalent . Financing sources in this case can be expanded by in- free television channels . This is more apparent in Italy, France and creasing revenues and decreasing expenditures or releasing tied England, where revenues are greater as a result . Significant growth up capital . Main revenues in a classical sense are revenues from is expected in the field of secondary sales and foreign broadcasts, media rights and ticket sales, merchandising (image transfer), where main target countries are China and Japan . The role of new and revenues from noneconomic areas or areas close to football, media (Internet and Mobil funk) is also on the rise . 104 Journal on Legal and Economic Issues of Central Europe

Table 1: German football championship revenues in the 2009/2010 season (Bundesliga 1), Billons Euros and %

Game and ticket revenues 0,379 21,43% Transfer revenues 0,106 6,01% Sponsorships and advertisings 0,512 28,92% Merchandising revenues 0,074 4,17% Media revenues 0,505 28,55% Other revenues 0,193 10,93% Total 1,769 100% Source: 4. Bundesligareport 2011, www.bundesliga.de

2.2 Legal Field and International Balance Sheets A football enterprise naturally strives to maximise intangible result, value, however, this can only be achieved at the The legal form, structure, organisational set-up and manage- expense of other result factors . Primarily this would clash with ment of businesses considered medium-sized even in industrial economic result . If the club’s management and owner decide to terms have been necessarily adjusted to the changes of the mar- sign valuable star players and managers regardless of the size ket and the environment . Companies have been formed basi- of the expenditure, this will obviously have a positive effect on cally in the following two ways: intangible results and naturally sports results as well . It is very a) The decision of the Football Association makes the outsourc- likely that in the long-term the enterprise’s revenues will also ing of the licence department and its transformation into increase . In the mid-term, however, such decisions impose sig- a company possible (e .g . Germany) nificant financial burdens, which in turn could lead to a serious b) The Football Association makes the form of capital company financial crisis for the club . In professional football – as opposed a requirement in level one or in both top levels . to other economic fields – it is not customary to prepare a separate plan with respect to image impact for example . Today, the Result factors (sports, economic and intangible results) are change of image is still an indirect effect of investment . The way interrelated and interdependent, their sum giving us the aggre- of the future is that football enterprises shall directly plan to gate result . (Bott, S .:2007) . Naturally, the exploitation of oppor- increase intangible results through certain targeted promotions, tunities arising due to the operation of incorporated companies e .g . by planning and managing member recruitment, loyalty emphasises result maximising orientation within operation . (It promotions, etc . would be expedient to discuss legal forms separately as their sig- The three main components of the aggregate result and their nificance within football makes this necessary) . The economic factors are closely interrelated . For example, the improvement result of a football enterprise should never be identified as the of sports results has a positive impact on economic result, which profit achieved in the fiscal year, as the latter is no more than in turn leads to an increase in television and ticket revenues and a snapshot of long-term economic performance . A more inter- the sale of promotional products, but member contributions esting issue is what economic activity was used to generate the and revenues from sponsorship deals could also grow . Improv- economic profit of the given year; whether it is the result of ing sports results also affect intangible results: the club becomes the previous championship season, and whether, taking into ac- more respected, supporter ties become stronger and media inter- count the given sports result risks, these economic conditions est increases . A good economic result has a favourable effect on will be repeated or not in the next season . sports results as the sufficient liquidity provided through profit The intangible result, success of a football enterprise entails and appropriate management allows the club to fulfil incentive all value factors that are very difficult to quantify using finan- wage and premium payments without any problems . We should cial-economic or sports result aspects . This includes the image also emphasise that a good economic result has a positive effect of the football enterprise, the improvement of which usually on intangible result as well . Opportunities open up to finance results in an increased media presence or the improvement of supporter projects and clubs as well as significant advertising financial positions or the growth of the market value of the en- activity . Star players and managers can be signed to the extent terprise . Of course this also impacts economic results as an im- of expanding financial opportunities . Intangible result also has proved image could lead to increased sponsorial involvement . an effect on the factors of the other two result components: When speaking of intangible results, we should also mention sports results improve through the impact on public opinion, the supporters’ strong identification with the club . This strong but economic result also improves since television revenues and relationship has a positive impact not only on economic result, the sales of endorsed products increase . In the case of sufficient but could also boost the achievement of better sports results . interest, live broadcasts can be set up, member contributions (Many have experienced what the legendary ‘Fradi-heart’ as well as sponsorship revenues rise . Understandably, sponsors means, and probably even more have heard of it) . The personal highly appreciate the significance of image . (Allen, F.: 2011) goals of competent club executives could also strongly influence A football enterprise acts correctly if it strives to achieve the the intangible results of football enterprises . In this case, pro- maximum of the composite result made up of the aforemen- fessional decision making considerations play a subordinated tioned three components . role only, and in most cases this particular factor is enforced through sympathy or dislike shown towards club executives or 2.3 Marketing Field owners or their acceptance and ability to enforce their interests . Presence in the media is of paramount importance . The foot- (Borbély A . (2012)) ball club is sold as a brand value . Diversification activities and 2/2014 105 globalisation efforts appear followed by the entry into the large 3.2 Advantages and Disadvantages of Registered Association Asian and other foreign markets with modern media tools . 2.4 Environment Funding, registering and operating an association is relatively simple, and the rules are transparent . All strata of society At modern and successful professional football teams the like to make use of the advantages of this form of non-profit number of stakeholders increases extremely and harmonising company having legal personality, which provides tax benefits . their various needs is a very high level management task . The registered associations fill such an important social role in Germany that they are exempted, in respect of the public 3. Organizational Adaptation of Football Enterprises purpose activity, from corporate income tax, industrial tax, real Football is now a scene of structural changes worldwide estate and property tax, and in addition, they are only charged that are embodied in the alteration of the legal forms of en- by a beneficial 7% general turnover tax (VAT) . Otherwise, the terprises backing professional football, as well as the spreading general rate of VAT is 19% . However, these tax benefits touch application of modern controlling, planning, risk and financial professional football undertakings to only a minor extent as management tools . From an economic perspective, with these these professional associations may obtain only a small amount recently emerging elements football clubs have started to build of revenues exempt from taxation . The tax benefit helps mostly up a modern and complex, specialized sector where the most amateur and mass sports .A further drawback of operations in important requirement until the end of the championship sea- the form of associations is that there are no rules concerning the son is the maintenance of licensing conditions . distribution, utilization of the realized profit . In consequence, 3.1 Role, Significance of the Legal Forms and Organizations most of the football clubs expend the realized profit on efforts of Enterprises in Football to increase the value of the team of players, while have a much weaker focus on raising financial reserves, which would other- In line with the international outlook I wish to rely primar- wise be beneficial for long-term operations . ily on the peculiarities of German professional football, since it The rules relating to associations do not provide satisfactory shows most of all the presumable mainstream of the develop- protection even for lenders . Associations are answerable with ment of football . Let us overview which are the forms of under- their own assets for their liabilities, but there are no detailed le- taking in the German League football, and what the changes in gal prescriptions in the relevant law of associations in Germany . trends are . Of course, in principle, regulations may be set up relating to On the basis of the 1998 Resolution of the German Federal publicity, application of profits and collateralising the loans in Parliament, it is possible to operate football undertakings also the statutes of associations, which is, however, scarcely feasible . in the form of an incorporated firm which means that the mem- We can hardly suppose that the elected management of an as- bers are not responsible for the liabilities of the company; these sociation would set up restrictions on itself . Logically, all this are share companies, limited liability companies, and limited has a negative impact on the opportunities for financing with share partnerships], in addition to the classical form of associa- outside capital . tion (Bundesliga Offizielles WEB-Seite 2011) . The main point It follows from all this that a registered association may only here is that such part of the association participating in League make use to a restricted extent of any potential possibilities of football can be outsourced into the form of incorporated firm . financing . An increase in equity is allowed primarily through the It is interesting that in Germany 21 teams from League I and retention of profits, but we must add that the profits may only 36 teams from League 2 are operating currently in the form of be increased up to a certain limit per year, in order to maintain incorporated firms (figure 2) . the non-profit status of the company . The hosting of shares and Figure 2: Distribution of legal status in Germany (I – II. League clubs) the involvement of contributed capital may only be secured after transformation into an incorporated firm . Therefore, in the Legal Form Frequency event of associations, funding by banks or private individuals Association 15 Share comp . 2 who are committed to the given association will be possible in LLC 4 line with own revenues and subsidies . The first-mentioned re- LLC with right 5 sources may cover current expenditures to a minor extent; they LLC & Co .LP . 10 play a part mostly in the financing of long-term projects . Due I .– II Liga, Total 36 to the aforementioned lack of publicity and of mechanisms of control and protection, the issuance of bonds or of the so-called participation certificates poses difficulties to associations . Altogether we can state that the registered association will continue to function as one of the most significant legal forms of professional football in Germany as well, in spite of the fact that the law of associations is far from providing satisfactory conditions for the operations of football clubs carrying out modern business activity . Thus, it is no wonder that in Germa- ny there appears a strong inclination towards the transforma- Source: Dworak,A.: Finanzierung für Fußballunternehmen, Erick Schmidt Verlag tion from the form of association into the form of incorporated 2010, p. 52 106 Journal on Legal and Economic Issues of Central Europe

firm . This does not mean that the clubs (mainly the amateur firms . The surviving association operates as a so-called parent and mass sports clubs) will turn away from the form of associa- association, and it disposes usually over the majority of votes in tion . Professional football is such an area . The best example for the incorporated football firm . an efficiently operated association is VfB Stuttgart . 3.3.1 Share Companies The traditional form of association as a basic model of management may also be successful in professional football, but it is Share companies are advantageous, if there is a great need for true that this is realised also thanks to Stuttgart’s main sponsor, capital and if it is possible to involve further financers into joint its exclusive partners and its team partners . The list is deserving financing . However, in the course of the acquisition of capital, of attention: Gazi, Merzedes Benz, Puma EnBW, Kronbacher, the majority of votes is in each case an indispensable require- BW Bank, Breuninger, Kärcher, and Coca Cola . Therefore, is no ment for the parent association, which can be secured through wonder that VfB Stuttgart was and is very successful . the issuance of registered shares and/or preference shares with restricted transferability (Nagy, z . I ., 2012) . In the first case Records of VfB Stuttgart: the permission of the management of a share company is also German championship: required for the acquisition of shares, while the latter ones do •• Winners (5): 1950, 1952, 1984, 1992, 2007 not secure any votes for the shareholders, and their issuance •• Runners-up (4): 1935, 1953, 1979, 2003 may not exceed the sum of the shares already issued (ordinary shares and shares with restricted transferability) . In this way German Cup: the formation of an undesirable majority may be prevented; •• Winners (3): 1954, 1958, 1997 but obviously, the involvement of capital will also be narrowed •• Runners-up (2): 1986, 2007 due to the restrictions, since in the event of contribution of further capital required due to the increase of capital or losses the German Super Cup: parent association may incur obligations of payment in order •• Winners (1): 1992 to secure the majority, because the licence rights are possessed in this case by the parent association . The League Association German League Cup: strictly controls compliance with each regulation . FC Bayern •• Runners-up (3): 1997, 1998, 2005 Munich has succeeded in setting up a successful company limited by shares . Successful Football Club: Bayern München Share Oberliga Süd I: Company (Figure 3) . •• Winners (3): 1945 – 46, 1951 – 52, 1953 – 54 Figure 3: Ownership structure •• Runners-up (3): 1949 – 50, 1952 – 53, 1955 – 56

2nd Bundesliga Süd II: •• Winners (1): 1977

Bezirksliga Württemberg-Baden: •• Winners (2): 1926 – 27, 1929 – 30 •• Runners-up (1): 1925 – 26

Gauliga Württemberg: •• Winners (4): 1934 – 35, 1936 – 37, 1937 – 38, 1942 – 43 Source: FC Bayern München WEB site •• Runners-up (4): 1938 – 39, 1939 – 40, 1940 – 41, 1941 – 42 According to the pre-agreed plans, until July 2011 Audi AG UEFA Cup: increased its share up to 9 .09% in three phases . As a result, the •• Runners-up (1): 1988 – 89 company approached the existing share of Adidas AG . The association has retained shares making up a quota of 81 2%,. while UEFA Cup Winners’ Cup: the amount of the subscribed capital has risen to EUR 27 5. •• Runners-up (1): 1997 – 98 million . The company limited by shares is the sole owner of the Allianz Arena München Stadion GmbH, which constructed UEFA Intertoto Cup: and now operates the stadium . Until 2006, this limited liability •• Winners (2): 2000, 2002 company was 50% owned by TSV 1860 München, which then – due to its financial difficulties – sold its share to FC Bayern München AG in consideration of EUR 11 million . 3.3 Incorporated Firms However, the real concept of an incorporated firm of foot- Records of Bayern München: ball refers more to the outsourcing of football undertakings and •• Most Bundesliga titles won: 21 of the fields neighbouring football into incorporated firms, or, •• Most Bundesliga games won (907) and points achieved respectively, to the transformation thereof into incorporated (3095) 2/2014 107

•• Most game days on top of the league: 592 b) The other form of limited liability companies is the entity •• Most average points per game in the Bundesliga: 1 .93 holding the right to participate in the championships, where •• Most Bundesliga goals scored: 3412 management by the parent company is also in place, but in •• Most consecutive wins in the Bundesliga (19 March – 20 this case the entire license comes to the possession of the September 2005): 15 subsidiary . Nevertheless, all the other areas (marketing, mer- •• Most games won in a club’s first Bundesliga season chandising, etc .) remain with the parent company, or they (1965 – 66): 20 are outsourced to further entities . An advantage of this limited liability company form is that the license has to be se- •• Biggest lead over second-place finisher (2002 – 03): 16 cured by the company that uses it, and therefore it is not the points entire parent company that needs to comply with the strict •• Championship with fewest points under the 3-point rule licensing requirements, as on the whole the parent company (2000 – 01): 63 may be in a much worse situation than the limited liability •• Championship with the most losses in a season company focusing solely on professional football . (2000 – 01): 9 c) The third situation is when the limited liability company •• As a negative record, Bayern’s match in Dortmund plays an essential role within the group, and agrees to apply in the 2000 – 01 season was the most unfair match in a broad range of tools for capital acquisition, while it would Bundesliga history, with 15 cards having been shown (10 prevent external investors from having any weighty word in yellow, 1 yellow-red, 2 red), and of those, 12 (8, 1, 1) management . were shown to Bayern players, which is also a record in From among these various solutions, in Hungary it would Bundesliga history . be expedient to frame such a limited liability company rep- •• Most championships won: 22 resenting a real pool of capital resources that is a part of •• Most cups won: 15 a business group, which facilitates access to capital without •• Most league cups won: 6 causing problems in management . In this case, the group in •• Most doubles won: 8 fact operates a limited partnership via the limited liability •• Only club to win the double (Bundesliga and cup) twice company where any investor can enter in the position of the in a row (2005 – 06 and 2006 – 07) limited partner, without causing any change in management . Towards this end, Hungary should implement the necessary •• Only club to win a championship with the men’s and legal changes, and in addition the attitudes and management women’s football department practices of clubs need to be modified, as well . •• Fastest goal in Champions League history: After 10 sec- onds by Roy Makaay on 7 March 2007 against Real Ma- 3.3.3 Limited Partnership with Restricted Liability of Partners drid This is a company having legal personality, in which, as is •• Last club to win the Champions League/European Cup well-known, at least one of the partners (the general partner) three times in a row: 1974 – 76 must bear unlimited and joint and several liability vis-à-vis the •• Highest aggregate win in the UEFA Champions League creditors . The other owners, who have otherwise interest in the knockout stage: 12 – 1 on 24 February 2009 (5 – 0) and registered capital embodied by the share capital, need not war- 11 March 2009 (7 – 1) against Sporting CP rant for the liabilities of the company (dormant partners) . This is an intermediate legal form that shows the marks of a share 3.3.2 Limited Liability Companies company and the personal liability existing in the case of limited partnerships, where the general partner provides for the The legal form of limited liability companies is highly popu- management of the undertaking . The supervisory board elected lar in other sports, such as in the field of handball and ice- by the general meeting of the dormant partners supervises the hockey, too . Limited liability companies tend to take various work of the general partner acting with personal liability, on forms in football . the one hand, and executes the resolutions of the general meet- a) One of these forms represents a football limited liability coming, on the other hand, which includes the dormant partners’ pany where all the businesses associated with football are in- declaration of acceptance and agreement in the case of more cluded, and that is generally operated as a subsidiary of a par- important decisions . Within the scope of legal forms such so- ent company otherwise not involved in football . The license lutions are interesting for football clubs, since they are vested is held by the parent company . In this case, it is the majority with the marks of restricted liability covering the general part- owner, the parent association that determines the foundation ner of a limited partnership, and at the same time they open of the limited liability company . This solution in fact means a lot of alternative opportunities for finding equity . This limited the establishment of a subsidiary limited liability company . partnership with restricted shareholders’ liability also exists in An example here can be Borussia Mönchengladbach . the case of the forms of GmbH & Co . KG . 108 Journal on Legal and Economic Issues of Central Europe

Figure 4: Organizational Scheme “Limited Partnerships with share it has issued also preference shares without voting right . It is responsibilities” a further problem that the possibility of controlling efficiently the leading bodies of an incorporated firm is missing also in the form of football GmbH & Co . KG for the potential investors; they must satisfy themselves with the role of dormant partner if they are not members of the parent association . Unfortunately, this may repel potential investors or, at least, it may be taken into account as a significant negative factor upon the valuation of the participation . It is very important in this solution that separation between the rights of general partners and dormant partners should be complied with strictly in practice . It occurs that potential investors frequently link their possible commit- ments to being involved into the direction and operation of the undertaking, which will of course appear understandable from the aspect of taking care for the safety of investment . In the event of a football GmbH & Co . KG, any influence by investors may only be implemented within certain limits . By the way, this is shown by the objection made by the League Associa- tion against an investor agreement entered into by TSV 1860 München in the 2009 spring season . The investor agreement contained decisions in respect of persons as conditions for contract, which would have for consequence illicit influence on the side of dormant partner, and/or it would have secured the right of veto in respect of the decisions of the associations . We can finally state that the outsourcing of significant branches of a football undertaking into the form of an incorporated firm should be deemed as a considerable step forward in comparison with the deficient regulations of the operations of associations, regarding the economic professionality of football clubs, partially from the side of commercial law and partially from the side of shareholding law . Through the introduction of organizational and legal structures that are necessary for the football clubs to be considered professional, there are further Source: A. Dworak: Finanzierung für Fußballunternehmen positive effects generated for football companies: for example, In the case of the legal form operating with the limited li- the football undertaking has to reevaluate its assets due to the ability of a limited partnership, the parent company as general transformation, which usually has a positive effect on the pro- partner may not restrict its personal liability . Thus the associa- portion of equity . This is still complemented by the fact that in tion should act simultaneously as general partner and dormant the event of incorporation, the equity will increase through the partner if it wishes to retain the aforementioned limited part- accumulation of profits based on the compulsory regulations nership directly as its own property, which is not at all per- of the application of profits . Incorporation allows external in- mitted from the legal aspect . Therefore, it is required to insert vestors to get involved in football undertakings, which may be a limited liability company between the existing association implemented through investment into the respective business and the limited partnership . This subsidiary LLC is a person- quotas of an LLC or a share company or a limited partnership . ally answerable general partner, and it functions as managing di- Here we must stress above all the obligation of publicity and rector at the same time . The shareholders as dormant partners information which makes the incorporated firms transparent may consist of the parent company itself and of external inves- for the potential investors of debt capital, and allow for reli- tors . This has the advantage, on the one hand, that the parent able credit ratings and risk assessments . Furthermore, it is also company is secured by an LLC of limited liability, and, on the advantageous that incorporated football firms operate similarly other hand, that the possibility exists to increase the dormant to incorporated firms functioning in other fields, from the point partners’ share in the limited partnership up to almost 100%, of view of the protection of creditors . Finally, a large palette of without violating the rules of the League Association relating to alternative financing is available for incorporated firms which majority share . In Germany, 10 GmbH & Co . KG companies which are not available in the event of the original legal form were operating in 2009 in the Licence Leagues (League 1 and and organizational structure of associations . Nevertheless, it 2) . See Figure 2 . should be underlined that in the event of the use of the form Should a football GmbH & Co . KG be floated to the stock of the incorporated football firm, it is about the transforma- exchange, it must tolerate a significant handicap as opposed tion and change of the organizational unit of execution and to the companies operating in the form of share company, if not about a total abandonment of the form of association . The 2/2014 109 form of association will continue to be the main form for foot- 4. Changed Business Model ball undertakings and a fundamental solution for the procurement of capital . Due to the reasons above, professional football As a result of the above changes, the business model of pro- is partially an exemption in this respect . fessional football has been fundamentally transformed .

Table 2. The comparison of the two models of football Source of financing government revenues business revenues Role of budget constraint soft budget constraint hard budget constraint Feature of the owner no real owner real owner(s) non profit: Operational framework corporate form of company form of social club legitimacy of the political system, service as a subfield of the Role of football improving morale entertainment industry Source: András K.(2004): The comparison of the two models of football

In the case of the developed football countries and market 6. Teams of the OTP Bank League by the Legal Forms economies the business model has clearly prevailed in profes- of Business and Organizational Forms sional football . While in the developing countries, in spite of all the required structural changes, a mixed system has been Figure 5. Teams of the OTP Bank League by the legal forms formed that still bears the elements of the state model . of business and organizational forms 5. Organizational Requirements for Professional OTP Bank League Football Entities in Switzerland Football Club Legal Form Győri ETO limited liability company In Switzerland, the Football League stipulates rigorous re- VIDEOTON limited liability company porting obligations, and in addition it prescribes the structures Budapesti Honvéd limited liability company and mandatory statuses for the operation of a Super League MTK Budapest share company team . Relying on these foundations, the right-minded Calvinis- Ferencvárosi TC share company tic Puritanism operates all the clubs in highly structured forms . DVSC-TEVA share company Therefore, I would recommend the introduction of the Swiss KTE-Phoenix limited liability company organizational requirements in OTP Bank League, as well . Újpest FC limited liability company DVTK limited liability company Swiss mandatory minimum organizational requirements for the Kaposvári Rákóczi limited liability company teams of the Super League: PMFC Matias limited liability company 1 person, UEFA-licensed trainer MVM-Paks limited liability company 1 person, assistant trainer with Super League license Lombard Pápa Termál FC limited liability company FGSZ Siófok limited liability company 1 person, goalkeeper trainer with Super League license 1 person, fitness trainer 1 person, managing director and administration manager (the same person can work in both functions) 1 person, finance manager 1 person, marketing manager 1 person, media manager Recommended: 1 person, security expert, possible cooperation with the representatives of supporters . (Lehmkuhl D . – Siegrist, O .:2009)

In Switzerland, any omission of the monthly reports or non- fulfillment of payment obligations would promptly entail a fine of CHF 10,000 . In response to further omissions, negotiations Source: Own research are commenced in relation to the withdrawal of the license . 110 Journal on Legal and Economic Issues of Central Europe

At first sight, it can be claimed that there is nothing wrong Table 3. Application of controlling at German football clubs with the clubs participating in the OTP Bank League in terms Time of application of their restructuring into capital companies, as in Hungary the Distribution (%) of controlling formal conversion of the first-league clubs into capital compa- 1 – 5 years 58,5 nies has actually been implemented (Figure 5) . In Switzerland, 5 – 10 years 13,7 this restructuring move has been executed on the basis of the more than 10 years 17,1 Association’s mandatory requirement . In contrast, as it has been no answer 10,3 pointed out above, the German first league still has a number of Source:Controlling im Profifußball, Roßbach, Th:2011, p. 43 clubs operating in the form of associations . Restructuring into capital companies has also been implemented in the Greek first It is an even more interesting question what means of con- league on a mandatory basis . trolling the clubs of League 1 – 3 use in Germany – some of the Nonetheless, another issue is how much in Hungary the clubs do apply more than one of these tools (Table 4) . preferred form of capital companies ensures additional capital Table 4. Applied controlling devices and methods in League 1 – 3. resources . For instance, a club achieving successes both in the of Germany sport and economic fields currently operates as a private com- Controlling devices and methods Rate of application (%) pany limited by shares, with one private person being its sole Benchmarking 27,27 owner . Here, the question is how much the form of a one-man Comparison of the planned and factual figures 12,12 company serves the ends of capital acquisition, as the amount Balanced Scorecard 9,09 of the capital subscribed by the sole owner is only HUF 49 Obtainment of liquidity 6,06 million . On the other hand, one would find a limited liability Rolling forecasts 3,03 company with 2 legal entity partners and registered capital of Scenario procedures 3,03 more than one billion Hungarian Forints . The individual situa- Profit and loss analysis, 3,03 tions can be highly varied . In view of the unfortunate, yet typi- Detailed budgeting 3,03 cal lack of capital resources that is a dominant feature of do- Target cost analysis 3,03 mestic football in spite of the corporate income tax allowances Quarterly and monthly reports 3,03 and preferential aids, I would propose the establishment of real Addison controlling tool 3,03 capital companies, especially the operation of groups described Own analyses 3,03 above (Borussia Dortmund) . Similarly in Hungarian football, Deviation analyses 3,03 such capital companies have to be established that are able to ABC analysis 3,03 attract additional, fresh capital resources . A large proportion of Business plan 3,03 business processes – primarily in the field of ticket sales and Others 3,03 player trading transactions – remain outside the balance sheets . Source:Controlling im Profifußball, Roßbach, Th:2011, p. 44 Considerable problems are caused by kickbacks provided on corporate income tax allowances and other aids, as well as other An important question is what controlling targets, mean- uncertain and invisible incomes and expenses . (Kotlán I ., Ma- ing what the focal point of controlling is at football enterprises chová z ,. Janíčková L .:2011) (Table 5) From several respects, the government would be interested Table 5. The subject-matter of controlling In League 1 – 2 in elevating 3 – 4 clubs in Hungary to make them capable of of Germany outstanding and high-standard sporting and economic perform- Subject of controlling intensity (%) ance, which would have economic, budgetary benefits – not to merchandizing 79,3 mention the social implications that cannot be directly assessed payments 89,7 with economic indicators . (Bács z . – Szima G . 2012) operations 89,7 The balance sheet figures of DVSC Futballszervező Zrt . re- stadium use 79,3 flect significantly positive results for the past four years, and media rights 82,8 moreover on the 2009 profit the owners were paid dividends sponsorship 96,6 in an amount of HUF 800 million, while a decision was made player transfers, 69,0 on the establishment of the training center of the Debrecen marketing 89,7 Football Academy, an investment of HUF 800 million (Bács – Source:Controlling im Profifußball, Roßbach, Th:2011, p. 46 Szilágyi, 2012) . 7. Establishment of Controlling Organizational Units Considering that in Hungary many first-league clubs prepare only annual budgets to serve as the basis of economic man- at the Football Enterprises agement, one could claim that it is not only goal scoring and In Germany, the teams of League 1 – 3 were involved in excellent defense where Hungary has gaps to close nowadays, a questionnaire survey concerning the application of control- but also in the field of the application of developed methods ling . 53 associations and capital companies responded to the of market economy . Long-term successes can be achieved only questionnaires, which indicated and extremely positive ap- with a firmly grounded, stable organizational and financial proach to the effort (Table 3) . background (Borbély, 2008) . 2/2014 111

8. Conclusions be structured together with a risk management system and detailed budgeting (Haas, O: 2006) . As a summary, it is to be pointed out that financial fore- Controlling has an increasingly important role in the operation sight and controlling constitute such indispensable subsystems of foreign football clubs, though its potentials still have not been for football associations and enterprises that are responsible exploited optimally even abroad, in the major football nations . for the alignment, coordination of various other processes and The processes will be accelerated by UEFA’s new licensing regu- subsystems . With reliance on the set of indicators of control- lations posing strict requirements and attributing an even more ling, a higher level of transparency is put in place to support significant role to financial stability (financial fair play) . Football the supply of information and managerial decisions . As a re- is becoming more and more professional and business-oriented, sult, environmental changes become recognizable in their ear- which requires the application of modern management systems . ly stages, and therefore the necessary measures can be taken The application of controlling is spreading, which improves the sooner, which then allows active management . Furthermore, effectiveness of the business areas . This relatively new, gradually controlling promotes the continuous review and correction of strengthening aspect, i e. . the economic side of football seems to own activities . For this reason, it is very much expedient to set be extremely important for the clubs and the federations alike via up a planned, documented and consciously implemented sys- the issuance of licenses . Additional stakeholders include football- tem of controlling both in the operative and strategic fields . related market vendors, agents, owners, as well as shareholding The above-described tools that have already been partly applied companies, creditors and even auditors . Abroad, in the major na- by the German clubs – such as the Balanced Scorecard – are tions of football the current focal point of debate is the organiza- excellently suitable for helping adequate responses to future tional forms of controlling systems . Experts deem it to be expedi- challenges . These means of controlling can be combined with ent to operate independent controlling departments organized in each other, and therefore the Balanced Scorecard system can the light of the individual controlling tasks at the football clubs .

References Allen, F . Liquidity and crises. Oxford Univ . Oxford, GB, 2011 . András, K . A hivatalos labdarúgás piacai. 53 .sz Műhelytanulmány . Budapesti Közgazdaságtudományi és Államigazgatási Egyetem . 2004, p . 1 – 189 . Bács, z ., Szima, G . Értékek a klubépítésben (és ami még mögötte van). Nemzetközi Turizmus és Sportmanagement Konferencia, Debrecen, 2012, p . 1 – 12 . Bács, z ., Szilágyi, S . A DVSC BL szereplésének gazdasági és államháztartási vonatkozásai. Debreceni Egyetem, 2012, p . 1 – 6 . Borbély, A . Országos Sporttudományi Kongresszus. Magyar Sporttudományi Szemle . 12/ 2 . Budapest, 2012, p . 6 – 12 . Borbély, A . Sportpolitika s sportgazdaság változásai Magyarországon és az Észak- alföldi Régióban, különös tekintettel a küzdősportokra. (habilitációs anyag), 2008 . Bott, S . Internationalisierungsstrategien von nationalen Fußballigen. 1 . Auflage . Norderstedt: Books on Demand GmbH, 2007, p . 1 – 143 . Dworak, A . Finanzierung für Fußballunternehmen. Erich Schmidt Verlag, 2010, p . 1 – 387 . Haas, O . Controlling der Fußballsunternehmen. Auflage 2 . Berlin: Erich Schmidt Verlag, 2006, p . 1 – 244 . Keller, Ch . Corporate Finance im Profifussball. Stuttgart: Ibidem Verlag, 2006, p .1 – 230 . Kotlán, I ., Machová, z ., Janíčková, L . Taxation influence on the economic growth. Politická ekonomie 5 . Vysoka Skola Econo- micka v Praze (Csehország) (in English), 2011 . Lehmkuhl, D, Siegrist, O . Swiss Football. http://www .ipw .unisg .ch/org/ipw/web .nsf/SysWebRessources/Presentation+Lehmku hl+Swiss+Football/$FILE/SwissFootball .pdf . 2009 . Nagy, I . z . Modern forms of business in professional football. Danube/Law and Economics Review . Volume 3 . Issue Number 2, 2012 . 07 . 05, 2012, pp . 1 – 17 . RoSSbach, T . Controlling im Profifußball. BiTS Business and Information Technology School GmbH . Diplomarbeit . Iserlohn, Németország, 2011, p . 71 . 112 Journal on Legal and Economic Issues of Central Europe

National and International Aspects of Protection of Cultural Heritage in the Czech Republic Eva Kebrlová,1 Johan Schweigl 2

Abstract In this paper, the authors outlined the general aspects of protection of archaeological and cultural heritage in the Czech Republic. After clas- sifying the different “levels” of protection, they described the development of the legislative protection in the Czech lands. The authors also focused on the contemporary regulation, i.e. especially the Czech Act on National Cultural Heritage. Explaining the basic principles on which this act is built, they also paid attention to several other laws concerning the matter. Last but not least, the authors pointed out the influence of international treaties to which the Czech Republic acceded. They mainly focused on the Valletta Treaty and the Convention concerning the Protection of World Cultural and Natural Heritage. Key words: cultural heritage, natural heritage, archeological discoveries, multilateral treaties, Austrian Empire, Czechoslovakia, the Czech Republic, the Act No 20/1987 on National Cultural Heritage, Valletta Treaty, the European Convention on the Protection of the Archaeological Heritage.

7 8 I. Introduction gional treaties ; (iv) EU law ; and (v) national laws of the particular nations . In the continental Europe, the efforts to protect and preserve As protection of cultural heritage is a broad subject covering objects of historical significance are principally regulated by law protection of many different properties, e .g . cultural, archaeo- of public administration . Within this branch of law, there are logical, historical, and others, it is obvious that international usually special laws on heritage preservation . As UNESCO puts protection plays an important roles . Especially the universal it, heritage is our legacy from the past, what we live with today, international treaties and conventions regulating illicit transfer and what we pass on to future generations 3. Although the pur- of cultural property are of significant importance . The national pose of protection of cultural and other heritage is sometimes laws are often based on the international treaties to which the expressed in different words, the core idea may be defined as particular state is a signatory; the purpose of the national laws “ensuring that effective and active measures are taken for the protection, is often to put in practice the general rules set forth in the in- conservation and presentation of the cultural and natural heritage situ- ternational treaties . ated on its territory”.4 In our paper, we focused on regulation and protection of Over the years there have been many attempts to protect cultural heritage in the Czech Republic . First, we outlined the cultural heritage so that it could be preserved for future gen- development of protection of cultural heritage in the Czech erations . There are several levels of such protection; the levels lands . We pointed out several aspects of regulation of cultural may be categorized as follows: (i) international treaties between heritage in the Austrian Empire so that we could later describe particular nations 5; (ii) universal multilateral treaties 6; (iii) re- the progress in the development thereof in Czechoslovakia . We

1 Mgr . Eva Kebrlová, Ph .D ., Institute of Legal Skills and Innovation of Studies, Faculty of Law, Masaryk University, Brno, Czech Republic . 2 Mgr . Johan Schweigl, Department of Financial Law and Economics, Masaryk University, Brno, Czech Republic . 3 See: UNESCO web site . Available here: http://whc .unesco .org/en/about/ . 4 The UN Convention Concerting the Protection of the World Cultural and Natural Heritage, Art . 5 . 5 For example: Treaty of Cooperation Between the United States of American and the United Mexican States Providing for the Recovery and Return of Stolen Archaeological, Historical and Cultural Properties (1970); Agreement Between the United States of America and the Republic of Peru for the Recovery and Return of Stolen Archaeological, Historical and Cultural Properties (1981), etc . 6 For example: Convention for the Protection of Cultural Property in the Event of Armed Conflict with Regulations for the Execution of the Convention 1954, Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property 1970, Convention concerning the Protection of the World Cultural and Natural Heritage 1972, etc . 7 For example: The Council of Europe’s Valetta Treaty (1992): the European Convention on the Protection of the Archaeological Heritage . 8 For example: EU Council Directive 93/7/EEC of 15 March 1993 on the return of cultural objects unlawfully removed from the territory of a Member State or European Union Council Regulation (EEC) No 3911/92 of 9 December 1992 on the export of cultural goods . 2/2014 113 also presented the Czech contemporary laws on protection of interference with proprietary rights . Aside from that, the object cultural heritage and some of the international treaties which of regulation, i .e . heritage (a sight), was not defined as a legal the Czech Republic acceded to . category . Because of some delays in the inter-departmental pro- II. Development of Protection of Cultural Heritage ceedings and the serious geopolitical situation of 1938, preparatory works on the law seized spontaneously . in the Czech Lands The Chapter V of the draft was to regulate “archeological We can trace several identical features in the development discoveries” . The archeological sites had to be permitted by of protection of cultural heritage in the countries of Europe . the National Heritage Office, which was supposed to oversee Since the Renaissance there were many people interested in the them . Researchers were to be held responsible for any damage ancient cultural objects (in the Papal States, the Italian city- caused and they were supposed to prevent any damage . Own- states) or prehistoric objects (in Sweden) . This also influenced ers of historical sites – with exception of buildings, closed yards the future regulation . The first institutional attempts to protect and active cemeteries – were obliged to tolerate the diggings . the objects of cultural heritage in the territories of the Austrian Such owners were however compensated on the principle of Empire were launched by the establishment of the Central Com- compensation for expropriation . If a research activity applied mission for Preserving the Historic Buildings and Appointing to a piece of land registered in public records, the records had of Land’s Conservators in 1850 . However, no comprehensive to be updated and clearly state that the particular plot is sub- regulation was adapted . After the so-called Austro-Hungarian ject to temporary expropriation . The findings were generally Compromise of 1867, the development in Hungary took its called as ‘heritage’ and it was up to the particular researcher to own direction, which, as for protection of cultural heritage, re- decide whether the particular finding should stay at the site . As sulted in the passage of the Statutory Article No XXXIX/1881 for the permitted diggings, the objects found were owned by in 1881 (the “Statutory Article”) . The purpose of the Statutory the researcher who found them . Any random discoveries were Article was to protect historic buildings both above ground and to be regulated by private law 12. The draft did not define any underground and it was supposed to regulate archeological sites offences concerning archeology . Nevertheless, there was a pro- as well .9 It had been the only statutory regulation of the issue vision in the Chapter X, which stated that illicit exporting of of protection of cultural heritage for almost 80 years . a cultural property abroad may be punished with up to two After the establishment of Czechoslovakia, it was clear that years in prison or a monetary fine amounting up to one million certain legislative work on that subject should be tackled . In CZK . Other breaches of the law were to be punished by a mon- 1919, an archaeological commission of the Archaeological Insti- etary fine up to 200,000 CZK . Exculpation was possible if the tute queried the preparatory works of the new cultural heritage charged person did not know that the property was heritage . act at the Ministry of Education and National Enlightenment . In 1941, the matter of archeology was for the first time regu- In the reply, the Ministry outlined the scheme of the arrange- lated by a generally binding law – the governmental decree No ments of the future law, i .e . general principles, public-owned 274/1941 on archeological heritage . The governmental decree cultural property, private-owned cultural property, protection of introduced several principles that remain valid till now . The the town settings, excavations and findings, public and private guarantor of expertise was the Archeological Institute, who was collections, trade with antiquities . The originally ambitious the only one who could carry out excavations . The Archeologi- plan to cover numerous issues was rather limited to delimiting cal Institute was also entitled to grant permission to other ex- the matter and pointing the direction of future deliberations of perts from museums and other scientific institutions . A finder the Ministry . No real legislative process had been tackled .10 of a historical property was obliged to protect and maintain it . In the early 1920s, a new model for the draft of a universal The property itself and its surrounding could not be changed . law on protection of heritage was drafted . The actual work on Movable assets found during the archeological researches be- that act, however, had not been tackled till 1928 11. The leg- longed to the state, but the owner of the land was compensated islative process consisted of two parts . First, the draft of the to the amount of the price of material . Ownership of random law was presented to some legal experts . Secondly, an inter-de- discoveries was regulated by private law . The governmental departmental government proceeding took place . In 1934, an ex- cree established numerous sanctions for breaching the provi- planatory report to the draft was completed . If the first part of sions of the decree: a fine up to the amount of 300,000 CZK, the legislative process was considered to be ‘a battle’, the inter- incarceration up to six months or forfeiture of the movable as- departmental proceedings resembled ‘a war’ . The broad object sets found . of the regulation, i .e . prehistoric, historical, cultural and natural The governmental degree was replaced by the Act on Cul- property, was criticized . The draft of the law was therefore ‘de- tural Heritage No 22/1958 (the “ACH”) . Archeology was reg- signed to decline’ due to its very essence . The extremely broad ulated by the part three of the ACH . No significant changes scope failed to deal with the valid and still repeated objection of were introduced by this act, as the provisions of ACH generally

9 See, the explanatory report to the Framework of the Act on Sites (in Czech: Osnova zákona o památkách), 1934, p . 20 . 10 Štoncner, 2005, p . 247, argues that it is likely that the intention was not understood as the beginning of the works, especially with respect to the very short period for reply, it was only a basic insight into the issue . 11 Štoncner, 2005, p . 246 . 12 Salák, 2013, p . 269 ff . 114 Journal on Legal and Economic Issues of Central Europe

correspond to the former regulation . ACH did not include spe- archeological research . Such an agreement may include many cial provisions on sanctions, as the sanctions were regulated by requirements laid down in the Valletta Treaty, which have not other laws .13 been implemented into the national legislation 19. Launching of a particular research has to be reported to AI III. The Contemporary Protection of Cultural Heritage by the authorized organization . The same applies to the final in the Czech Republic report . Aside from the authorized organizations, the archeological research may be for a limited period of time and only The contemporary regulation of offences concerning arche- occasionally by a person authorized to carry out the research ology are grounded on the general position of archeology 14. In under the Section 21a NCH Act within the freedom of render- the Czech legislation, archeology is regulated mainly in the Part ing services . In this case, however, the conditions stated in the three and some provisions of the Part five of the Act No 20/1987 Act No 18/2004 on Recognition of Expert Qualification have on National Cultural Heritage (the “NCH Act”) . Some of the to be complied with . other provisions of NCH Act apply only if the archeological Regional authorities are entitled to give of up to 4 million discovery is announced to be cultural heritage . Some other laws CZK 20 to those who carry out research without a permission concerning collections apply if the discovery is a movable and of the Ministry, without an agreement of an authorized organi- if it’s a part of a museum collection (the Act No 122/2000 on zation with AI, without a statute of a person entitled to carry Protection of Museum Collections) . An illicit export should be out a research, without in some cases informing the National prevented by the Act No 71/1994 on Trade and Export of Ob- Heritage Institute and so on . jects of Cultural Value . From the view of the international law, Principally, the carrying of a research itself may only take the most important source is the European Convention of the place after an agreement on conditions of a research is con- Protection of Archeological Heritage, often called the Valletta cluded . Such an agreement shall be presented by the digger to Treaty, which the Czech Republic acceded to 15. We focus on the owner of the respective property . If such an agreement is not Valletta Treaty in more detail in the following Chapter . entered into, Regional office makes a decision that the owner The NCH Act regulates the general requirements set forth has to tolerate the research and it sets forth the conditions to by the Valletta Treaty; however, not all and not completely . The be met . Part three of NCH Act deals with licenses to carry out archeo- Archeological researches made during construction activi- logical research, required qualification, archeological research, ties in the territory with archeological discoveries are subject archeological discoveries and ownership thereof, plans of ter- to special treatment . The builders are supposed to report their ritories with archeological discoveries, and compensation for intention already at the moment of planning the building . In a detriment . the Act No 183/2006 on Territorial Planning and Building Pro- The Archeological Institute of the Academy of Sciences (the ceedings (the “Building Act”), there are also several provisions “AI”) 16 is an “expert guarantor”, entitled to carry out archeo- on unexpected archeological discoveries during a construction . logical research based on NCH Act . It also presents its opinion Builder is obliged to inform the respective Building Office and on protection of archeological heritage in some special proceed- the National Cultural Heritage authority . Aside from that, the ings according to other laws . NCH Act granted a power to the finder has to stop any works and ensure that such a discovery Ministry of Culture to allow other entities to carry out archeo- be not damaged . After consulting the National Cultural Heri- logical research . This power, nevertheless, may be exercised only tage authority, the Building Office lays down the conditions for in extraordinary circumstances, and if certain requirements, preserving the archeological heritage . The construction works such as qualification 17 and sufficient equipment,18 are met . may be stopped or even terminated . Failing to comply with the The Ministry grants or revokes such a license after communi- abovementioned obligations, the builder may be given a fine of cating it with AI . up to 1 million CZK 21. After the license is granted, the entity becomes an autho- Protection of public interest in preserving the discovery rized organization which is obliged to enter into agreement is, however, in conflict with the proprietary rights . Therefore, with AI about the extent and conditions for carrying out the the builder shall be compensated for the incurred costs 22. The

13 Compare: Varhaník – Malý, 2011, p . 149 . 14 See: Varhaník, 1999, p . 337 ff . 15 According to the Article 10a of the Constitution of the Czech Republic, application of the Valletta Treaty prevails the application of the national law . 16 Aside from AI in Prague and in Brno, there are certain public-funded organization of the particular districts, the Institutes of archeological cultural heritage, to which, however, the powers according to the Section 21 NCH Act do not apply . 17 The Act requires a university degree and at least two years of practice, see the Section 21 para 3 . 18 The Act requires that the applicant has a laboratory facility and premises needed for scientific research and documentation of the archeological discoveries . 19 For example, preference of a non-destructive research, security of the archeological site during the research, requirements on the final report and the length of the period for submitting such a report – see Varhaník – Malý, 2011, p . 156 . 20 The Section 35 para 2 letter F,G and the Section 39 para 2 letter F,G of NCH Act . 21 The Sections 178 para 2 letter M and para 3 letter B and the Section 180 para 2 letter M and para 3 letter B of the Building Act . 22 The Section 176 para 6 of the Building Act . 2/2014 115

NCH Act 23 sets forth similar rules . Aside from that, the finder the Architectural Heritage of Europe signed in Granada on 3 is obliged pay a close attention to the interests of the owners of October 1985; the European Convention on Offences relating the real estate in question . to Cultural Property signed in Delphi on 23 June 1985; and the As for the random discoveries made aside from any archeo- European Convention for the Protection of the Archaeological logical research,24 these discoveries have to be reported within Heritage signed in London on 6 May 1969 . one day to AI, to the closest museum or to the respective mu- The Valletta Treaty is a multilateral treaty of the Council nicipality; the discovery and site shall remain unchanged . The of Europe . Its aim is to protect the archaeological heritage as finder is entitled to receive a reward and compensation of the a source of the European collective memory and as an instru- necessary costs . Movable archeological discoveries belong to ment for historical and scientific study . Each member state has the region in which they were found; if, however, they were dis- to institute a legal system for the protection of archaeological covered by a publicly funded institution or by an organizational heritage, in particular to make provisions on the maintenance branch of a municipality or of the state, they belong to such of an inventory of its archaeological heritage and the designa- a municipality or to the state . Failing to report a random dis- tion of protected monuments and areas, the creation of archae- covery may lead to both administrative punishment, i .e . a fine ological reserves, even where there are no visible remains on the of up to 4 million CZK,25 and criminal punishment, e .g . larceny ground or under water, for the preservation of material evidence or concealing of a thing 26. to be studied by later generations, and the mandatory reporting In principal, the primary objective of public administration to the competent authorities by a finder of the chance discov- is not to punish the offences, but rather to make sure that the ery of elements of the archaeological heritage and making them original state of affairs is restored . As for archeology, however, available for examination 29. Aside from that each member state restitution is not possible if the discovery or the site was dam- is obliged to implement several measures on physical protec- aged . The Part five of the NCH Act lays down measures against tion of the archeological protection and guarantee the scientific breach of the obligations: there are fines and ban on activities significance of archaeological research . Each state shall also ar- of the offender for up to two years . range for public financial support for archaeological research With respect to the abovementioned rules concerning ar- from national, regional and local authorities in accordance with cheological research and the provisions on how to become the their respective competence . authorized organization or a person entitled to carry out ar- As for mutual obligations among the signatories, the parties cheological researches, it is obvious that the Czech Republic of Valetta Treaty shall inform the competent authorities in the has, as many other signatories of the Valletta Treaty, 27 adhered state of origin which is a party to the Treaty of any offer sus- to the practice that only institutional archeological researches pected of coming either from illicit excavations or unlawfully are allowed to carry out a research . Any amateur researches are from official excavations, and to provide the necessary details punished as unauthorized excavations in the territory with ar- thereof . Since 2000, the Czech Republic is a signatory to Val- cheological discoveries which may be fined of up to 2 million letta Treaty and, therefore, it is obliged to comply with the prin- CZK . Again, we mention also the criminal aspects of such a be- ciples set forth in that Treaty . havior . In the Czech Republic, there is only a limited possibil- Another significant Convention aimed at protection of cul- ity to privately own any movable archeological assets . The con- tural heritage is the Convention concerning the Protection of temporary legislation states that only regions, municipalities or World Cultural and Natural Heritage (the “Convention”) . The the state may own movable archeological assets . Therefore, the Czech Republic, or to be more precise Czechoslovakia, acceded offenders may also be charged for committing a crime of damag- to Convention 1990, i .e . ca 18 years after the single text of the ing a thing of another or misusing of an ownership 28. Convention had been agreed on by all parties and adopted by IV. The International “Level” of Protection of Cultural the General Conference of UNESCO . The Convention established the World Heritage Committee which shall maintain the Heritage “World Heritage List”, which is a list of properties forming part As it was mentioned above, the international “level” of proof the cultural heritage and natural heritage, which it consid- tection of cultural heritage or archeological assets is an impor- ers as having outstanding universal value . Aside from that the tant part of regulation . The Valletta treaty is one of the uni- Committee maintains the “List of World Heritage in Danger”, versal treaties with numerous signatories . This Treaty is based which is a list of the property appearing in the World Heritage on several preceding treaties, i .e . European Cultural Conven- List “for the conservation of which major operations are necessary and tion signed in Paris on 19 December 1954, in particular Ar- for which assistance has been requested under this Convention. This list ticles 1 and 5 thereof, the Convention for the Protection of shall contain an estimate of the cost of such operations.” 30

23 The Section 24 of the NCH Act . 24 The Section 23 of the NCH Act . 25 The Section 35 para 2 letter F or the Section 39 para 2 letter F of the NCH Act . 26 The Section 205 or 219 of the Act No 40/2009 Criminal Code . 27 Michalik, 2008, Chapter III .1 . 28 The Section 228, 229 of the Criminal Code . 29 The Article 2 of Valletta Treaty . 30 The Article 11 para 4 of the Convention . 116 Journal on Legal and Economic Issues of Central Europe

Under the Convention, the World Heritage Committee has tecting cultural heritage . As a member state of the European vast powers which are defined mainly in the Article 13 of the Union, the EU directives are reflected in the Czech national Convention . The Convention established a Fund for the Protec- legislation . tion of the World Cultural and Natural Heritage of Outstanding Although the history of protection of cultural heritage in the Universal Value called “the World Heritage Fund”, which serves Czech lands reaches all the way back to the Austrian Monar- as a trust fund for achieving the goals of the Convention . chy, the crucial act was adapted less than 30 years ago . It is Since the Czech Republic is a member state of the European the Czech Act on National Cultural Heritage, which has been Union, the EU directives and regulations also apply . There are amended several times since its passage . The act regulates many several important directives concerning protection of cultural issues concerning archaeological objects and cultural heritage . It heritage, e .g . Council Directive 93/7/EEC of 15 March 1993 on is based on the principle that movable archeological discoveries the return of cultural objects unlawfully removed from the terri- belong to the region (municipality) in which they were found; tory of a Member State, which has been amended several times if, however, they were discovered by a publicly funded institu- since its passage; or the Council Regulation (EC) No 116/2009 tion or by an organizational branch of a municipality or of the of 18 December 2008 on the export of cultural goods . On the state, they belong to such a municipality or to the state . In EU level, there were or have been several programs aimed at cul- principal, individuals cannot obtain ownership of such objects ture: the “Culture 2000” Programme, the Culture Programme nowadays . Individuals who find an object which falls within (2007 – 13), the Work Plan for Culture (2008 – 2010), the Work the scope of archaeological or cultural heritage shall report such Plan for Culture (2011 – 2014), to mention a few . a discovery . Failing to do so may lead to both administrative and criminal punishment . V. Conclusion The Czech Republic is a signatory of numerous international Protection of cultural heritage is an important goal of the treaties and conventions concerning protection of archaeologi- contemporary society . There are several “levels” of protection: cal and cultural heritage . The most crucial ones are probably international treaties between particular states; universal mul- the Valletta Treaty and the Convention concerning the Protec- tilateral treaties; regional multilateral treaties; supranational tion of World Cultural and Natural Heritage . According to the law, such as EU law; and national laws of the particular states . Czech Constitution, the Czech Republic has to fulfill its obliga- The Czech Republic is a modern state with legislation pro- tions arising from the international law .

References The Act No 1/1993, Constitution of the Czech Republic . The Act No 18/2004, on Recognition of Professional Qualification and Other Eligibility of the Nationals from the Other EU Member States . The Act No 20/1987, on the National Cultural Heritage . The Ministry of Culture’s Ordinance No 187/2007 Sb ., which sets forth the requirements on the content of a plan of a territory with archaeological discoveries . The Act No 183/2006, on Territorial Planning and the Building Proceedings (the Building Act) . An Explanatory Report to the Draft Law on Heritage (Sights) Praha: Ministry of Education and National Enlightenment, 1934, 55 p . The European Convention of the Protection of Archeological Heritage (the Valletta Treaty) . The Convention concerning the Protection of World Cultural and Natural Heritage . MICHALÍK, T . Právo a archeológia v európskych štátoch (administratívnoprávne aspekty). Strojopis rigorózní práce . Právnická fakulta Trnavskej univerzity v Trnave, 2008, 95 p . Salák Jr ., P . Nález pokladu mezi ABGB a Osnovou OZ z r. 1937 aneb cesta tam a zase zpátky. Časopis pro právní vědu a praxi . Supple- mentum Spory a jejich řešení v proměnách věků . 2013, Vol . XXI, p . 269 – 274 . ISSN 1805-2789 (Online) . Štoncner, P . Příspěvky k dějinám památkové péče v Československé republice v letech 1918 – 1938. Part 4 . – Snahy o vydání památkové- ho zákona . Zprávy památkové péče . 2005, No 3, p . 246 – 252 . ISSN 1210-5538 . VARHANÍK, J . K právní úpravě archeologických výzkumů a nálezů. Správní právo. 1999, roč . XXII, No 6, p . 337 – 356 . ISSN 0139- 6005 . VARHANÍK, J ., MALÝ, S . Zákon o státní památkové péči. Komentář. Praha: Wolters Kluwer ČR, 2011, 1196 p . ISBN 978-80-7357- 659-2 . UNESCO web site . Available here: http://whc .unesco .org/en/about/ . 2/2014 117

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