“If all the media reports about Hungary were true, we as a law firm that was chiefly established for the purpose of providing legal services to foreign investors would not even exist any more. Yet here we are. We haven’t shrunk in size and we have sufficient work. In other words, the situation isn’t as bad a suggested by some media outlets.
If the government is at
fault, then it can chiefly
be blamed for its poor
communications.”
– Andreas Köhler
“I judge the state of Hungarian law not on the basis of how good the Constitution is and who has voiced what opinion of it, but according to the quality of the laws and the rulings that I deal with on a daily basis. I’m sure that’s the same for others doing business here. Nevertheless, it seems to be “fashionable” and politically opportune for external observers in particular to keep on commenting and criticising the Hungarian Constitution.”
– Tamás Tercsák
Following the worldwide merger of the large international law firms SNR Denton and Salans and the large Canadian law firm FMC, the Hungarian law firm Kõvári Tercsák Salans has been operating under the new trade name Dentons since the beginning of April and now calls itself Kõvári Tercsák Salans FMC SNR Denton. The Budapest Times spoke with partners Andreas Köhler and Tamás Tercsák about the changes. We also discussed the new Constitution, the new labour code and the new civil code, as well as legal certainty and government communications.
What is the mood like among your clients currently?
AK: Recently a survey on that topic was published by the German-Hungarian Chamber of Industry and Commerce. Our experiences back up those results. The mood of companies varies from sector to sector. Firms producing for export are predominantly satisfied because they are essentially decoupled from the problems. On the other hand companies seeking to sell their products in Hungary and firms that have been hit by special taxes tend to be dissatisfied. Our clients from the banking sector, with few exceptions, are currently “hibernating”, rather than thinking about expansion.
Almost all companies, however, face the problem of the constantly changing legal environment.
TT: Keeping on top of the changes is a great challenge not only for those companies but also for us. On the other hand it’s true to say that our work is made easier by many well-written laws. For all the uproar about the Constitution and the amendments to it, it repeatedly gets forgotten that there have been significant improvements to the legislation that are relevant to day-to-day business life. For example, the new labour code that came into force on 1 July 2012 is significantly better than its predecessor. The new civil code, which will enter into force on 15 March 2014, has also turned out well and will have a helpful impact on business processes.
What is it that you like so much about the new civil code?
TT: It governs topics that were previously not governed. For example, the trustee concept was introduced, which previously was not present in the Hungarian legal system. Mortgage law is also very well-regulated, which will have a positive impact on the loan business. In addition to banks, businesses in general have reason to welcome the new code because company law is regulated in more detail and more logically than before. Overall the new civil code regulates a lot of areas relevant to companies more clearly, more stringently and therefore more transparently. In our view the drafters have performed very good work.
In other words, while there is great agitation about Hungary’s new Constitution and the frequent amendments to it, the government has struck it right with the labour code and the civil code. What do you think is the reason for the Constitution and the labour code and the civil code being perceived so differently by the public?
AK: We have the impression that very capable people worked on the labour code and on the civil code. We know that distinguished university professors were involved in both, i.e. genuine specialists, not parliamentarians, were at work. Their work also benefitted from being allowed sufficient time, which is indispensable if the product is to be of high quality.
TT: It is also beneficial that the laws we have praised are not politically charged, unlike, for example, the new Constitution. Several governments and people who were not part of those governments have worked on them.
AK: Of course we don’t know who worked on the laws exactly but we know the professors who played a leading role and they are the most distinguished in their given legal fields. They began their work in part under the previous governments and were able to continue it following the change of power.
Can you discern foreign models in the new Hungarian civil code?
TT: International experiences and rulings naturally influenced the new code, such as German mortgage law. Hungarian law has always been strongly influenced by German law. The trustee concept was added from other national legal systems. While German law still has the greatest influence on Hungarian law, not everything is perfectly regulated there either, so the drafters also turned to English and American law.
If you were to compare the German labour law with the Hungarian legislation, what would be the result? Is one better or more modern?
AK: In Germany there is still not a unified labour code. Labour law is regulated there in many individual laws, so unlike in Hungary there isn’t a unified code that regulates everything in one document, removing the need for turning to dozens of ancillary laws. In that respect Hungary is more advanced.
Critics from the left-liberal camp claim precisely the opposite when it comes to the Constitution…
TT: It is interesting in general how much attention is paid to the Hungarian Constitution in international media reports. For those like us who work for companies it plays a less important role and we barely have to apply it in our everyday work or not at all. I judge the state of Hungarian law not on the basis of how good the Constitution is and who has voiced what opinion of it, but according to the quality of the laws and the rulings that I deal with on a daily basis. I’m sure that’s the same for others doing business here. Nevertheless, it seems to be “fashionable” and politically opportune for external observers in particular to keep on commenting and criticising the Hungarian Constitution. It seems to me that instead of speaking about the really important and relevant things, they prefer to talk about those things that non-lawyers can also understand readily and that can easily be used to spark political conflict.
AK: A lot of foreign media outlets take the easy way out. For all that criticism of the situation in Hungary may be justified, I cannot discern any objectivity in the German media reporting in particular. I’m not eligible to vote in Hungary, and even if I were I’m not sure who I would vote for. Nevertheless, my view is that the reporting on Hungary in the German-language media is exaggerated and one-sided, even if there is naturally an element of truth in the comments or at least there might be. I think there wasn’t as much reporting about Hungary in the previous ten years as there has been in the past three. Most of the stereotypes repeated do not reflect the actual, far from simple situation in Hungary.
As a legal expert what is your view of the whole debate about the Constitution?
TT: It damages the country far more than possible weaknesses or errors in the Constitution. If German readers have a negative image of Hungary because of such negative reports, that can also lead to fewer investments from Germany, for example. The same applies to the suggestion that the courts are no longer independent. In reality we have not seen any signs of negative changes regarding the courts in the course of our work. I really cannot report on any bad experiences with the Hungarian courts.
AK: The criticism of the amendments to the Constitution certainly needs to be taken seriously. However, the number of areas for concern is limited. The international press has made a sweeping judgement of the whole Constitution, which allegedly is paving the way for dictatorship. In other words, the criticism is not proportional to the actual faults. I think we all agree that there is a need for improvement regarding the three points about which the European Commission recently reiterated its serious concerns. The government would be well-advised to sort out those matters instead of taking offence and digging in its heels.
TT: If all the media reports about Hungary were true, we as a law firm that was chiefly established for the purpose of providing legal services to foreign investors would not even exist any more. Yet here we are. We haven’t shrunk in size and we have sufficient work. In other words, the situation isn’t as bad as suggested by some media outlets. If the government is at fault, then it can chiefly be blamed for its poor communications. Problematic issues are presented badly and insufficient explanation is given, while good things are sometimes totally ignored. Although the government employs people specially for communicating to the world abroad, I haven’t observed any improvement in this regard. It’s not only difficult to understand why the government doesn’t communicate better but also damaging to our business, because potential new investors without personal experience of Hungary get information from the media and may be deterred. In the end the whole country loses out as a result.
This is now the fourth constitutional amendment. Are so many attempts really necessary? Wouldn’t it have been better to get it right first time round? After all we are speaking about a Constitution, with a relatively small number of pages at that.
AK: Certainly, the way in which it is gradually taking its final shape is far from elegant. I believe it would have deserved more care and circumspection at the outset. Nevertheless, it’s good that the government at least reacts promptly when there’s a need for changes. However, whether the Constitution really needed to be and needs to be amended because of all the problems that have come to light is another question. Possibly they could have been solved by other legal means.
Why do you think the government didn’t allow itself more time to compose a high-quality and more permanent Constitution?
TT: Drafting legislation is a complicated process. I’m sure that a much better and also more permanent text could have been produced if greater care had been taken. I feel that there’s a fundamental problem with the attitude of the government here. Being armed with a two-thirds majority it repeatedly amends laws because it is in the position to do so. From the perspective of the government, laws are a means by which to govern, which can be quickly adapted to the situation as it presents itself. Instead of “rule of law”, what we are witnessing is “rule by law”. This rather disrespectful approach to the laws, including the text of the Constitution, is surprising given that the government team is composed in large part of lawyers.
It is also hardly conducive to legal certainty.
AK: All the same I wouldn’t speak about a lack of legal certainty. There are an enormous number of new regulations and it’s a great challenge for us as solicitors to keep abreast of the changes. However, I wouldn’t equate that with a lack of legal certainty. It’s true, however, that the constant stream of new regulations makes an almost inflationary impression. A lot of people think that is related to the reform backlog, which had to be worked through all at once, which simply leads to such inelegant technical faults as can be found in the Constitution. We have the impression that it is now part of the government’s style of working to bring laws into force and then gain an impression of whether they actually function adequately in practice. If not, then corrections are quickly made. Of course that’s one approach, though it isn’t a particularly elegant one.
How do your clients deal with the fast-changing legal environment?
TT: Surprisingly well, not least because they’re used to similar situations from other countries. As Hungarian lawyers we are sometimes inclined to take a more negative view of the situation than our internationally active clients who have personal experience of countries where laws are amended even more rapidly, and where there really are serious issues with the lack of legal certainty.
Do you have clients that are planning to pull out of Hungary?
AK: No, not for reasons specific to Hungary. Not even our clients from the financial sector are considering that. Of course we have clients who leave Hungary for internal company group reasons, such as a decision to reduce the number of offices in Europe from ten to eight or to move production away from Europe altogether.
Let’s speak about your law firm. What is the reason for the merger of Salans, FMC and SNR Denton?
AK: The background is that Salans previously focused on continental Europe and had only a relatively small UK and US unit. We were among the market leaders in the Central and Eastern European region and Commonwealth of Independent States region, but not in the US and the UK. For years Salans had been keen to develop a strong presence there too, but that was far from easy by our own efforts alone. Fortunately that tied in with SNR Denton, which is very strong in the US and the UK but had not really been able to gain a foothold on the European continent. The icing on the cake was then FMC, which was the first of the top Canadian law firms to seek a global merger. Our current setup and strategic goals were optimally suited and there were virtually no geographical overlaps. Now we have a law firm that is excellently positioned globally with 79 offices in 52 countries and 2,500 solicitors, making us the seventh-largest law firm worldwide. The choice of trade name was designed to indicate that none of the law firms had taken over the others. Instead of inventing a name, we decided on the trade name Dentons because market research showed that Denton was the best known globally of the previous names. The “s” that was added to the name stands both for SNR and Salans.
TT: The name is also designed to signal that it is a multi-centric alliance that offers the best legal services in each given country, rather than being overly influenced or dominated by one particular legal culture. It was important to us that that continues to be the case and that every law firm can continue to work as previously.
What will change for your clients?
AK: We can now advise our clients at 79 offices. The offices can provide mutual support and cover larger regions, which is an important criterion for some clients when choosing a law firm. Clients who require that will benefit from our broader setup and increased experience.
