It is troubling to see how intimidation tactics and smears have seamlessly transformed into some of the Hungarian government’s defining policies. As is well-known, Viktor Orbán’s personal disdain for George Soros, Hungarian-born US businessmen, has inspired several legislative reforms. These included the introduction of a transparency register for foreign NGOs, which was recently found incompatible with Union law (analysed here), and the so-called ‘Stop Soros’ legislation, the latter being subject to ongoing infringement proceedings before the Court of Justice. In a recent grand chamber judgment, the Court brought yet another blistering defeat to the Hungarian government, albeit one that leaves a bitter taste in the mouth.
The case formally concerned the reform of the Hungarian higher education law, but effectively targeted one institution only, namely the Central European University (CEU). This inspired the hashtag-worthy yet appropriate term ‘lex CEU’. The reforms were a relatively transparent attempt to frustrate the university`s activities in Hungary and to force it out of the country. Even though the Court unequivocally sided with the Commission, the CEU, in the meantime, was forced to relocate to Vienna, where it opened its new Campus. Against this background, Hungarian MEP Katalin Cseh put it best when she reportedly noted that ‘justice delayed is justice denied’.
Background of the case
The case arose against the background of a hasty reform to Hungarian higher education law, which rested on two parallel stipulations: where a higher education institution is seated outside the European Economic Area, the new law made carrying out higher education in Hungary subject to an international agreement between Hungary and the respective third State. In parallel, the reform prevented foreign higher education institutions to operate in Hungary, unless they equally carried out higher education in their State of origin. To the neutral observer, these amendments may appear to be mere technicalities. However, this is probably no coincidence. The two limbs of reform allowed the Hungarian government to hide under the sheets of legal trifle, even though without much success. Neither the Commission, nor the Court of Justice fell for it.
In its application, the Commission bend over backwards to challenge the education reform, making use of a broad arsenal of Union law. In her elaborate opinion (analysed here), Advocate General Kokott discussed all these points in detail and, by doing so, laid the doctrinal groundwork for the Court’s lengthy argumentation in this case. She concluded that Hungary had violated its obligations under the GATS as well as under Union law, a view that the Court of Justice essentially shares.
Before turning to the substance of the case, the Court sweepingly rejected Hungary`s claims of inadmissibility and of lack of jurisdiction. Regarding jurisdiction to rule on a Member States obligation under the GATS, the Court emphasised that the GATS formed an integral part of Union law and that its jurisdiction was therefore warranted by the obligation of WTO members to respect obligations arising from the organisation`s laws (paras. 45-57 and 68-93).
The judgment then pivoted in substance on three elements of assessment; the first limb of reform undertaken by Hungary, namely the requirement that Hungary must have concluded an international treaty with a third State before a foreign university may operate in Hungary (a.); the second limb of reform, requiring an education institution to carry out education in its State of origin (b.); and thirdly, violations of the Charter of Fundamental Rights (c.)
a. Requirement to conclude an international treaty before education may be carried out
As a first limb of reform, Hungary had introduced a requirement that prohibited the CEU to provide higher education in Hungary, unless an international agreement between the Hungarian government and the US – where the CEU has its seat – had been adopted to that end. The Court’s reasoning proceeded in three steps.
It first investigated whether Hungary violated its obligations under Article XVII of the GATS, which provides that each WTO member must guarantee ‘national treatment’, i.e. treatment no less favourable than that accorded to its own service suppliers. Regarding market access of higher education institutions, the Court confirmed, after analysing the complicated system of notified derogations, that Hungary cannot rely on a derogation from the national treatment obligation and, accordingly, must ensure that no less favourable treatment occurs regarding foreign education institutions (paras. 103-114).
As a second step, the Court confirmed that the reform deteriorates the competitive situation of a service provider, such as the CEU, which has its seat in another WTO Member State, since the conclusion of an international treaty is entirely at the discretion of the Hungarian government (paras. 118-121).
Third, this begged the question whether such a deterioration may be justified based on Article XIV of the GATS, particularly the grounds of maintaining public order and the prevention of deceptive practices. Not unlike Union law, the GATS provides that the public order exception may only be invoked to thwart a ‘genuine and sufficiently serious threat […] posed to one of the fundamental interests of society.’ The Court easily dismantled this line of argument, noting that Hungary had failed to establish in detail how the activities of the CEU, or in fact of any foreign university, could possibly constitute such a severe threat. The claim that an international agreement would prevent deceptive practices by increasing the institutions reliability was easily debunked as well. In fact, AG Kokott (see here, at para. 139) illustrated that this was a bad faith argument. The CEU had operated for more than twenty years in Budapest. If officials of the Fidesz government wanted to ensure the quality of teaching, they could have simply taken the tram and visited the Campus. Accordingly, the Court fully rejected Hungary’s line of defence (paras. 136-139).
b. Requirement to carry out education in the State of origin
The second limb of reform concerned the requirement that only those universities may be authorised to operate in Hungary that provide education in their State of origin. It is noteworthy that this provision draws no distinction as to whether the institutions have their seat in a Member State of the EU or outside the Union. Against this background, the Court first focused on those institutions that have their seat outside the EU, thus assessing the compatibility of the reform with Article XVII of the GATS. The Court’s reasoning on this point mirrors the arguments developed with a view to the first limb of reform. The national measure constituted a deterioration of the situation of foreign education providers; Hungary claimed it was necessary for public order reasons but failed to provide evidence to that end and the Court – once again – did not buy it. As a corollary, the Court found the second limb of Hungary’s reform to equally violate the GATS, and thus, an integral part of Union law (paras. 152-156).
Only then did the Court turn to the compatibility of Hungary’s education reform with internal market law, namely with a view to higher education institutions seated in another Member State. Technically, these questions neither affected the CEU, which has its seat outside the EU, nor any other institution. The Commission, nonetheless, brought two claims premising on a violation of the freedom of establishment and of the freedom to provide services respectively. Whereas this may be criticised as shadow boxing, the Commission’s infringement proceedings challenged Hungary’s reform in toto and therefore could not have been limited to the case of the CEU.
First, the Court investigated whether Hungary had violated the freedom of establishment. By way of reference to its judgment in Neri, it confirmed that higher education institutions may be protected thereby. Remunerated teaching activities within a university programme must be considered an economic activity provided ‘the activity is carried on by a national of one Member State in another Member State on a stable and continuous basis’ from an establishment in another Member State. In this regard, the Court reiterated its ruling in Polbud – Wykonawstwo, holding that the freedom of establishment equally benefits companies which conduct most, or even all their business through a branch set up in another Member States. A national provision requiring a university to carry out teaching activities within its home Member State must be considered a restriction to the freedom of establishment, since it renders less attractive the establishment of foreign universities in Hungary (paras. 159-170). It may be puzzling to see this academic equivalent to a letterbox company be protected under the freedom of establishment. However, it conforms to the Court’s jurisprudence that even those companies may be protected by virtue of the freedom of establishment that are established solely for the purpose of establishing themselves in another Member State. Indeed, according to the Court, ‘[t]he reasons for which a company chooses to be formed in a particular Member State are, save in the case of fraud, irrelevant with regard to application of the rules on freedom of establishment’ (Inspire Art, para. 95, with reference to Centros).
Hungary tried to justify this restriction on public order grounds, essentially repeating its reasoning in the context of the GATS. Unsurprisingly, the Court was still not convinced by Hungary’s claims. It rejected the argument that educational activities would amount to a severe threat affecting a fundamental interest of Hungarian society and that such a threat could be neutralised only if that university carried out teaching activities in another Member State. In addition, the Court rejected the presumption that quality of teaching in one Member State would automatically ensure the quality of education in another. On that basis, the Court found the Hungarian education reform to violate the freedom of establishment (paras. 178-190).
For the sake of completeness, the Court went on to briefly examine the compatibility of the Hungarian law with the freedom to provide services, essentially reproducing the arguments already invoked with regards to the freedom of establishment. It held, in this context, that the provision of remunerated education or training courses falls within the scope of application of the Services Directive. The Court then had no difficulty in qualifying the Hungarian law as a possible restriction to the freedom to provide services and, in highlighting once more the poor justificatory basis given by Hungary, found the reform in violation of Union law (paras. 193-207).
c. Academic freedom as a fundamental right
Last, the Court focused on possible violations of the Charter of Fundamental Rights, particularly Articles 13, 14(3) and 16 thereof. In this regard, it confirmed that, by adopting the education reform, Hungary ‘implemented Union law’ in the sense of Article 51(1) of the Charter and therefore had to respect the provisions enshrined in it. This conclusion applied to the two possible situations under the Hungarian law; where the reforms affect education institutions outside the EU, Member States perform their obligations under the GATS, an international agreement concluded by the Union; where the reforms pertain to universities or researchers inside the EU, the situation will effectively be governed by internal market law. Either way, the Charter applies (paras. 212-216).
Hungary’s ‘lex CEU’ allowed the Court to articulate itself for the first time on the fundamental right to academic freedom, as codified in the second sentence of Article 13 of the Charter. To ascertain the provision’s meaning, it therefore revisited the European Court of Human Rights’ interpretation in Erdoğan and Others v. Turkey of the freedom of expression, which includes safeguards of academic freedom. In the Convention context, academic freedom includes the guarantee to disseminate information, to conduct research and to distribute knowledge without restriction. In the context of Union law, however, the Court of Justice ruled that the fundamental right to academic freedom should be understood more broadly. It relied on a recommendation drafted by the Council of Europe’s Parliamentary Assembly to conclude that academic freedom must equally be ensured on an institutional level. Pursuant to Article 13 of the Charter, Member States are therefore required to protect higher education institutions from threats to their institutional autonomy. The Court asserted that the measures taken by Hungary are such as to endanger the institutional autonomy of foreign higher education institutions and therefore violate Article 13 of the Charter (paras. 222-228, 242).
Additionally, the Court considered that the Hungarian reforms equally infringed Article 14(3), which spells out a freedom to found educational establishments, and Article 16 of the Charter, relating to the freedom to conduct business in accordance with EU and national law. The two are closely connected, since Article 14(3) gives specific expression to the freedom to conduct a business. In that regard, the Court swiftly acknowledged that Hungary’s education reform violated both these fundamental rights as well. Recounting its earlier findings in the judgment, it concluded that limitations to these Charter rights cannot be justified by any objective of general interest and therefore constitute violations thereof (paras. 229-243).
In this context, the Court hangs the bar for limitations to fundamental rights quite low. Hungary’s reforms constitute limitations to fundamental rights as they ‘are capable of endangering’ academic freedom (para. 228) and ‘render uncertain’ the freedom to conduct a business (para. 233). As was insightfully noted in this context, the Court appears to develop a strategy in this regard. The Charter should provide protection against national measures that effectively aim at the stigmatisation of persons or institutions. In this vein, the Court demonstrates its alertness to the effects of national measures as well as its willingness to make active use of the Charter for the purpose of confronting illiberal policies.
This litigation must have caused those working and studying at the premises of the CEU many sleepless nights. And even now, victory is bittersweet, as mechanisms of supranational ex post control may often be incapable of providing timely redress against illiberal policies at national level. Yet, it should be noted that the Court’s reasoning makes amends for some of the hardship suffered.
It demonstrates that Union law offers multiple avenues to challenge the most blatant immoderations of illiberalism and that the Commission’s infringement actions have effectively paved the way to a firm response to illiberal policies in the Member States. This allowed the Court to successively refute Hungary’s attempts to rely on public order grounds to justify illiberal measures (see in the context of refugee relocation here, para. 134; and regarding the so-called transparency law here, para. 93). In the CEU case, the Court rejected Hungary’s claims that the education reform would be necessary to safeguard public order or neutralise deceptive practices. This judgment therefore adds another brick to the bulwark of a Union based on the rule of law.
What is more, the ruling suggests that the CEU’s situation encouraged the Court to actively stick up for academic freedom. It consolidated a watchful approach with regard to limitations to fundamental rights and motivated an expansive interpretation of academic freedom as a fundamental right guarantee. As such, the requirement of institutional autonomy is a welcome clarification to Article 13 of the Charter. It will be interesting to see whether this standard may raise questions of compatibility with respect to other higher education institutions in the EU. For the time being, however, the judgment signals the Court’s commitment to protect academic freedom in the EU – and that is, after all the misery that the CEU was put through, a positive development.