Investment Treaty Arbitration

Investment Treaty Arbitration: Hungary

Overview of investment treaty programme

1. What are the key features of the investment treaties to which this country is a party?

Hungary

 

BIT Contracting Party or MIT 1

Substantive protections

Procedural rights

Fair and equitable treatment (FET)

Expropriation

Protection
and security

Most-favoured-nation (MFN)

Umbrella clause

Cooling-off period

Local courts 2

Arbitration

Albania (1 April 1998)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Argentina (1 October 1997)3

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Australia (10 May 1992)

Yes

Yes

Yes

Yes

No

No

Yes

Yes

Austria (1 September 1989)

Yes

Yes

Yes

Yes

Yes

No

Yes

Yes

Azerbaijan (26 February 2008)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Belgium (23 September 1988)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Bosnia and Herzegovina (31 August 2005)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Bulgaria (7 September 1995)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Canada (21 November 1993)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Cambodia (not in force) 4

-

-

-

-

-

-

-

-

Chile (not in force)

Yes

Yes

Yes

Yes

No

5 months

Yes

Yes

China (1 April 1993)

Yes

Yes

Yes

Yes

No

No

No

Yes

Croatia (1 March 2002)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Cuba (24 November 2003)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Cyprus (25 May 1990)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Czech Republic (25 May 1995)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Denmark (18 October 1988)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Egypt (21 August 1997)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Estonia (signed, not in force)5

               

Finland (12 May 1989)

Yes

Yes

No

Yes

No

3 months

No

Yes

France (30 September 1987)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Germany (7 November 1987)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Greece (1 February 1992)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

India (2 January 2006)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Indonesia (13 February 1996)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Israel (14 September 1992) (terminated)6

Yes

Yes

Yes

Yes

No

No

No

Yes

Italy (23 February 1990) (terminated)7

Yes

Yes

No

Yes

No

6 months

Yes

Yes

Jordan (9 March 2008)7

               

Kazakhstan (3 March 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Kuwait (1 March 1994)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Latvia (25 August 2000)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Lebanon (23 July 2002)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Lithuania (20 May 2003)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Luxembourg (23 September 1988)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Macedonia (14 March 2002)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Malaysia (8 July 1995)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Moldova (16 August 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Mongolia (6 March 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Morocco (3 February 2000)

Yes

Yes

No

Yes

No

6 months

No

Yes

Netherlands (1 June 1988)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Norway (4 December 1992)

Yes

Yes

Yes

Yes

No

3 months

No

Yes

Paraguay (1 April 1995)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Poland (16 June 1995)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Portugal (8 October 1997)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Romania (6 May 1996)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Russian Federation (29 May 1996)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Serbia (30 March 2005)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Singapore (1 January 1999)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Slovakia (19 July 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Slovenia (9 June 2000)

Yes

Yes

No

Yes

No

6 months

No

No

South Korea (1 February 1989)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Spain (1 August 1992)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Sweden (21 April 1987)

Yes

Yes

Yes

Yes

No

No

No

Yes

Switzerland (16 May 1989)

Yes

Yes

Yes

Yes

Yes

12 months

No

Yes

Thailand (18 October 1991)8

Yes

Yes

Yes

Yes

Yes

No

No

Yes

Tunisia (not in force)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Turkey (1 November 1994)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Ukraine (3 December 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

United Kingdom (28 August 1987)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Uruguay (1 July 1992)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Uzbekistan (3 March 2003)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Vietnam (16 June 1995)9

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Yemen (9 April 2006)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

FTAs/EPAs

Substantive protections

Procedural rights

Fair and equitable treatment (FET)

Expropriation

Protection and security

Most-favoured-
nation (MFN)

Umbrella clause

Cooling-off period

Local courts

Arbitration

Energy Charter Treaty10

Yes

Yes

Yes

Yes

Yes11

3 months

Yes

Yes

Qualifying criteria - any unique or distinguishing features?

2. What are the distinguishing features of the definition of “investor” in this country’s investment treaties?

Hungary

Issue

Distinguishing features in relation to the definition of ‘investor’

Investors that qualify for protection

Hungarian investment treaties typically contain a broad definition of qualifying ‘investors’ that includes any natural or legal person of one contracting party that has made an investment in the territory of the other contracting party.

Natural persons are generally defined to mean any natural person having the nationality of either contracting party in accordance with its laws.

Legal persons are generally defined to mean any entity incorporated or constituted in accordance with the laws of a contracting party. In many treaties, it is also required that the legal entity has its central administration or principal place of business in the territory of the contracting party.

Denial of benefits

Some of the more recent Hungarian investment treaties permit the contracting parties to deny the benefits of the treaty to an investor of the other contracting party in circumstances where investors of a non-contracting party own or control the enterprise and/or the enterprise has no substantial business activities in the territory of the contracting party under whose law it is constituted (eg, Australia BIT).

Local entities

As a general rule, local entities cannot qualify as investors. However, six Hungarian BITs (ie, those with Australia, Finland, Israel, Sweden, Switzerland and the UK) provide that a company that is incorporated in the host state of the investment and whose shares are majority owned by nationals or companies of the other contracting party shall, in accordance with article 25(2)(b) of the ICSID Convention, be treated for the purposes of the Convention as a company of the other contracting party.

3. What are the distinguishing features of the definition of "investment" in this country’s investment treaties?

Hungary

Issue

Distinguishing features in relation to the concept of ‘investment’

Assets which qualify for protection

Hungarian investment treaties typically contain a broad definition of qualifying ‘investments’ that includes every kind of asset invested in connection with economic activities by an investor of one contracting party in the territory of the other contracting party, including in particular though not exclusively:

moveable and immoveable property as well as any other rights in rem such as mortgages, liens, pledges, and similar rights;

shares, stocks and debentures of companies or any other form of participation in a company;

claims to money or to any performance having an economic value associated with an investment; and

intellectual and industrial property rights, including copyrights, trademarks, patents, designs, rights of breeders, technical processes, know-how, trade secrets, geographical indications, trade names and goodwill associated with an investment.

Alteration of the form of the investment

It is generally agreed that any alteration in the form in which assets are invested shall not affect their character as qualifying investments under the treaty.

Substantive protections - any unique or distinguishing features?

4. What are the distinguishing features of the fair and equitable treatment standard in this country’s investment treaties?

Hungary

Issue

Distinguishing features of the fair and equitable treatment standard

Illustrations of the FET standard

Most Hungarian investment treaties provide that investments of investors shall at all times be accorded ‘fair and equitable treatment’. However, the formulation of the standard may vary, depending on the treaty but also on the translation. For instance, the China BIT provides that investments of investors shall be accorded ‘equitable treatment’, and the Slovenia BIT provides for ‘fair and impartial treatment’.

Management, maintenance, use, enjoyment and disposal of investments

Some Hungarian investment treaties provide that each contracting party shall accord treatment that is fair and equitable to investors as regards the management, maintenance, use, enjoyment or disposal of their investment (eg, Albania BIT).

Arbitrary or discriminatory measures

Some Hungarian investment treaties provide further elucidation on the fair and equitable treatment standard by requiring that each contracting party shall not impair by unreasonable, arbitrary or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments (eg, Azerbaijan BIT).

Customary international law

Hungary’s investment treaties typically do not equate the fair and equitable treatment standard with customary international law standards.

5. What are the distinguishing features of the protection against expropriation standard in this country’s investment treaties?

Hungary

Issue

Distinguishing features of the ‘expropriation’ standard

Direct or indirect expropriation

Hungarian investment treaties contain, without exception, protection against expropriation. Most of these treaties expressly protect against both direct and indirect expropriation.

However, the formulation of the standard varies in Hungary’s investment treaties. For instance, the Greece and South Korea BITs do not refer explicitly to expropriation or nationalisation, instead providing: ‘Neither Contracting Party shall take any measures depriving, directly or indirectly, investors of the other Contracting Party of their investments’.

Conditions for lawful expropriation

Hungary’s investment treaties typically provide that expropriation may only be carried out for a public purpose, under due process of law, on a non-discriminatory basis, and with prompt, adequate and effective compensation.

Compensation for lawful expropriation

Hungary’s investment treaties generally provide that compensation for lawful expropriation shall amount to the market value of the investment expropriated immediately before the expropriation or impending expropriation became public knowledge, shall include interest from the date of expropriation at a commercially reasonable rate, and shall be made without delay, and be freely transferable in a freely convertible currency.

Judicial review

Hungary’s investment treaties frequently provide that the investor affected shall have a right to prompt review, by a judicial or other independent authority of the host state of its investment, of the investor’s case and the valuation of the investment in accordance with the compensation principles set out in the treaty.

Limited right to arbitration

Some Hungarian investment treaties state that, in the absence of further agreement between the parties, the BIT only provides a right to arbitration where the dispute ‘relates to the amount of compensation payable’ as a result of an expropriation of property (eg, Austria, China, Korea, Netherlands, Paraguay, Poland, Switzerland, UK BITs).

 

6. What are the distinguishing features of the national treatment/most-favoured-nation treatment standard in this country’s investment treaties?

Hungary

Issue

Distinguishing features of the ‘national treatment’ and/or ‘most favoured nation’ standard

Illustrations of the MFN standard

Almost every Hungarian investment treaty provides a national treatment and most-favoured national treatment of qualifying investments, by providing that treatment shall be no less favourable than that offered to the investments or returns of the host state’s own investors or any third party.

The exact scope of the MFN clauses vary, and are sometimes linked specifically to other substantive protections, such as full protection and security (eg, Belgium, Cyprus, Greece, Korea, Netherlands, Hungary, Spain BITs), and may extend to compensation payable for losses due to wars, emergencies and similar situations (eg, Albania, Paraguay BITs).

Common exceptions to MFN treatment

Most Hungarian investment treaties provide that the provision of national and/or most favoured national treatment of an investment does not extend to the benefits of membership of a customs union, monetary union or free trade area, nor to taxation agreements and/or taxation legislation.

Extension to procedural rights

Hungarian investment treaties are silent as to whether the national treatment and most favoured nation obligations include procedural rights in their scope of application.

7. What are the distinguishing features of the obligation to provide protection and security to qualifying investments in this country’s investment treaties?

Hungary

Issue

Distinguishing features of the ‘protection and security’ standard

Illustrations of the FPS standard

Most Hungarian investment treaties provide that investments of investors shall at all times be accorded ‘full protection and security’ (eg, Albania, Azerbaijan, Croatia, Czech Republic, Kuwait BITs). Hungary’s treaties do not generally describe the scope of the protection and security obligation.

The formulation of the protection and security standard varies widely in Hungary’s investment treaties. For instance, some treaties provide a standard of ‘protection and security’ (eg, Australia BIT), ‘adequate protection and security’ (eg, Indonesia BIT), ‘security’ (eg, China BIT), ‘protection’ (Norway BIT), ‘full protection’ (Sweden BIT), ‘full legal protection’ (eg, Argentina BIT), ‘most constant protection and security’ (Thailand BIT; Energy Charter Treaty), or ‘full physical security and protection’ (Netherlands BIT). Whether or not these different formulations equate to different levels of protection is open to debate.

Some Hungarian treaties do not provide for protection or security in any form (eg, Finland, Slovenia BITs).

Management, maintenance, use, enjoyment and disposal of investments

Some investment treaties provide that each contracting party shall accord protection and security to investors as regards the management, maintenance, use, enjoyment or disposal of their investment (eg, Australia BIT).

Customary international law

Hungary’s investment treaties do not limit the obligation to provide protection and security to the level required under customary international law.

8. What are the distinguishing features of the umbrella clauses contained within this country’s investment treaties?

Hungary

Issue

Distinguishing features of any ‘umbrella clause’

Scope

Only seven of Hungary’s investment treaties contain an umbrella clause (Austria, Denmark, Kuwait, Netherlands, Switzerland, Thailand, UK BITs).

The umbrella clause language in Hungary’s treaties is generally uniform. For instance, the Denmark, Kuwait, Netherlands, and UK BITs all provide that: ‘Each Contracting Party shall observe any obligation it may have entered into with regard to investments of investors of the other Contracting Party’.

The drafting in the Thailand BIT is slightly different: ‘Each Contracting Party shall observe any obligation, additional to those specified in this Agreement, into which it may have entered with regard to investments of nationals or companies of the other Contracting Party’.

9. What are the other most important substantive rights provided to qualifying investors in this country?

Hungary

Issue

Other substantive protections

Encouragement of favourable conditions for investors

Most Hungarian investment treaties provide that each contracting party shall encourage and create favourable conditions for the investors of the other contracting party.

However, some treaties provide that contracting parties shall not encourage investment by lowering domestic environmental, labour or occupational health and safety legislation or by relaxing core labour standards, and that the contracting parties shall consult where required with a view to avoiding any such encouragement (eg, Azerbaijan BIT).

Admission of investments in accordance with the host state’s laws and regulations

Most Hungarian investment treaties provide that each contracting party shall admit investments of investors in accordance with its laws and regulations.

Returns from investments

Most Hungarian investment treaties provide that returns from investments shall enjoy the same protection as the original investment. Some treaties attach this standard to the NT and MFN standards (eg, Albania BIT).

Free transfer of payments

Most Hungarian investment treaties provide that the contracting parties shall guarantee the transfer of payments related to investments and returns, and that the transfers shall be made in a freely convertible currency, without any restriction and undue delay.

Subrogation

Most Hungarian investment treaties provide that if a contracting party or an agency of a contracting party makes a payment to any of its nationals under a guarantee or other form of indemnity it has granted in respect of an investment, the other contracting party shall recognise the transfer of any right or title in respect of such investment.

Compensation for losses arising in war or armed conflict

Most Hungarian investment treaties provide that investors shall be compensated for losses owing to war, armed conflict, a state of national emergency, revolt, insurrection, riot or other similar events (eg, Australia BIT). However, the formulation of the standard varies. For instance, some treaties attach this standard to the NT and MFN standards, such that treatment and compensation arising in respect of armed conflict shall not be less favourable that that which is accorded to the host state’s own investors or the investors of any third state (eg, Albania, Azerbaijan BITs).

Entry and sojourn of personnel

Some of Hungary’s investment treaties provide that a contracting party shall permit natural persons who are nationals of the other contracting party and personnel employed by companies of that other contracting party to enter and remain in its territory for the purpose of engaging in activities associated with investments (eg, Australia BIT).

Transparency of laws

Some of Hungary’s investment treaties provide that each contracting party shall, with a view to promoting the understanding of its laws and policies that pertain to or affect investments in its territory by nationals of the other contracting party, make such laws and policies public and readily accessible (eg, Australia BIT).

Mandatory measures

Some of Hungary’s investment treaties provide that each contracting party shall not impose mandatory measures on investments by investors concerning the purchase of materials, means of production, operation, transport, marketing of its products or similar orders having unreasonable or discriminatory effects (eg, Azerbaijan BIT).

Procedural rights in this country’s investment treaties

10. Are there any relevant issues related to procedural rights in this country’s investment treaties?

Hungary

Issue

Procedural rights

Negotiations

Almost all Hungarian investment treaties provide that disputes between investors and host states shall in the first instance be subject to consultations and/or negotiations. Upon the failure of the amicable settlement process, the parties may settle their dispute through other forms of settlement. These differ slightly from one investment treaty to another.

Limited right to arbitration

Every Hungarian investment treaty provides for investor-state arbitration, although the scope varies. As noted above, in some treaties arbitration is limited to disputes relating to expropriation (eg, Austria, China, Korea, Norway, Paraguay, Poland, UK BITs). Some BITs provide that non-expropriation disputes under the treaty may be submitted to arbitration provided that both parties expressly consent thereto (eg, Paraguay BIT).

Cooling-off period

Most Hungarian investment treaties provide for a mandatory cooling-off period of six months (eg, Albania, Azerbaijan BIT). Other treaties provide for a cooling-off period of three months (Finland, Norway BITs; Energy Charter Treaty), five months (Chile BIT), or 12 months (Switzerland BIT). Six Hungarian BITs do not provide for a cooling-off period at all (Australia, Austria, China, Israel, Sweden, Thailand BITs).

Fork-in-the-road

A minority of Hungarian investment treaties contain so-called fork-in-the-road provisions (eg, Azerbaijan, Macedonia BITs). That is, investors must elect either to pursue their claim through the local courts or by international arbitration. They cannot do both.

Local remedies

Some Hungarian investment treaties provide for the exhaustion of local remedies. For instance, some treaties provide that where the dispute involves a claim other than expropriation, the investor shall first exhaust local remedies in the competent judicial or administrative bodies of the host state (eg, Australia, Kuwait BITs). By contrast, some treaties require the investor to first submit its dispute to the courts of the contracting party in which the investment was made; if judgment is not passed within a period of 18 months, the investor may submit the expropriation dispute to arbitration (eg, Paraguay, Portugal BITs).

Choice of international arbitration fora

Most Hungarian investment treaties provide a right of recourse to ICSID, and in some cases the only arbitration forum available is ICSID (eg, Thailand BIT). In many cases, there is an additional possibility of ad hoc arbitration under the UNCITRAL rules (eg, Albania, India BITs). A minority of investment treaties contain consent to submit the dispute to ICC Paris (eg, Cuba BIT), the Arbitration Institute of the Stockholm Chamber of Commerce (eg, Belgium, Greece, Russia BITs), or ad hoc arbitration in accordance with the terms of the treaty (eg, Australia BIT).

The Energy Charter Treaty provides a choice for arbitration under ICSID, ICSID Additional Facility, UNCITRAL and SCC arbitration.

Applicability of the treaty

Most Hungarian investment treaties provide that the treaty shall apply to all investments, whether made before or after the date of entry into force of the agreement, but shall not apply to any dispute which arose before its entry into force.

Time limits

Some of Hungary’s investment treaties set a time limit on arbitrable disputes, such that an investor may submit a dispute to arbitration only if not more than a certain number of years (generally three) have elapsed from the date on which the investor first acquired knowledge of the alleged breach and knowledge that the investor had incurred loss or damage (eg, Azerbaijan BIT).

11. What is the status of this country’s investment treaties?

Hungary

Consistent with standard investment treaty practice, all of Hungary’s BITs can be unilaterally terminated by a contracting party at any time after the end of the initial term of the treaty (most often 10 or 15 years) by giving one year’s written notice of the party’s intention to terminate the agreement. Most treaties incorporate a ‘survival clause’ which extends the treaty’s application in relation to existing investments made prior to the termination of the agreement for a further period from the date of termination (generally 10 or 15 years: see eg, Albania and Australia BITs; although some treaties provide for a 5 or 20 year sunset period: see eg, Italy and Israel BITs).

Most of Hungary’s investment treaties are currently in force, with the exceptions of the Chile, Estonia and Tunisia BITs (not yet in force) and the Italy and Israel BITs (terminated in 2007 and 2008, respectively).

Practicalities of commencing an investment treaty claim against this country

12. To which governmental entity should notice of a dispute against this country under an investment treaty be sent? Is there a particular person or office to whom a dispute notice against this country should be addressed?

Hungary

Government entity to which claim notices are sent

According to Section 3:405(1) of the Hungarian Civil Code, in civil law relationships, the Hungarian state is represented by the minister in charge of supervising state assets. According to Section 84(d) of Government Decree 212/2010 (VII. 1.) on the scope of powers and duties of the ministers and the state secretary in charge of the prime minister’s office, the Minister of National Development is in charge of the supervision of state assets.

13. Which government department or departments manage investment treaty arbitrations on behalf of this country?

Hungary

Government department which manages investment treaty arbitrations

The Minister of National Development, as the government member representing the state in civil law relationship, manages investment treaty arbitrations.

14. Are internal or external counsel used, or expected to be used, by the state in investment treaty arbitrations? If external counsel are used, does the state normally go through a formal public procurement process when hiring them?

Hungary

Internal/external counsel

The Hungarian state does not have a dedicated internal counsel for investment disputes; the state mandates different well-known international law firms on a case-by-case basis.

Practicalities of enforcing an investment treaty claim against this country

15. Has the country signed and ratified the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965)? Please identify any legislation implementing the Washington Convention.

Hungary

Washington Convention implementing legislation

Hungary signed the Washington Convention on 1 October 1986 and deposited the ratified version on 4 February 1987. The Washington Convention entered into force with respect to Hungary on 6 March 1987. See Law Decree No. 27 of 1987.

16. Has the country signed and ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the New York Convention)? Please identify any legislation implementing the New York Convention.

Hungary

New York Convention implementing legislation

Hungary promulgated the New York Convention by Law-Decree No. 25 of 1962, with the following reservation:

‘The Hungarian People’s Republic shall apply the Convention to the recognition and enforcement of such awards only as have been made in the territory of one of the other Contracting States and are dealing with differences arising in respect of a legal relationship considered by the Hungarian law as a commercial relationship.’

17. Does the country have legislation governing non-ICSID investment arbitrations seated within its territory?

Hungary

Legislation governing non-ICSID arbitrations

Act LXXI of 1994 on Arbitration applies to all institutional and ad hoc arbitration, where the seat of the arbitration is in Hungary.

18. Does the state have a history of voluntary compliance with adverse investment treaty awards; or have additional proceedings been necessary to enforce these against the state?

Hungary

Compliance with adverse awards

There are two publicly known international arbitration awards in which Hungary was ordered to pay damages to the investor (ADC v. Hungary (ARB/03/16), EDF International S.A. v. Hungary (UNCITRAL). There is no information in the public domain to suggest that Hungary has failed to voluntarily comply with these awards. There is also no indication that Hungary would not fully comply with adverse awards in the future.

19. Describe the national government’s attitude towards investment treaty arbitration

Hungary

Attitude of government towards investment treaty arbitration

The attitude of the Hungarian government towards investment arbitration is generally favourable, evidenced by the over 60 BITs and the ECT entered into by Hungary.

The Hungarian state has a reputation for actively defending itself in investment arbitrations. Apart from one example (AES v. Hungary (ARB/01/4)), Hungary has not agreed to settle in investment arbitrations.

20. To what extent have local courts been supportive and respectful of investment treaty arbitration, including the enforcement of awards?

Hungary

Attitude of local courts towards investment treaty arbitration

According to publicly available information, Hungarian courts have never been called upon to enforce an investment treaty award against Hungary. In general, however, Hungarian courts have taken a pro-international arbitration approach with regard to the review of foreign arbitral awards in international commercial arbitration, enforcing awards in conformity with the New York Convention and showing reluctance to annul them.

National legislation protecting inward investments

21. Is there any national legislation that protects inward foreign investment enacted in this country? Describe the content.

Hungary

National legislation

Substantive protections

Procedural rights

FET

Expropriation

Other

Local courts

Arbitration

Act XXIV of 1988 on the Investments of Foreigners in Hungary

-

The foreigner must be compensated immediately at actual value for the damages arising from nationalisation, expropriation or measures with similar legal effect. The state arranges for compensation via the public administrative law body which passed the expropriatory measure. The amount of compensation must be paid to the beneficiary in the currency of the investment. (Section 1(2)-(4))

Investments of foreigners in Hungary shall enjoy full protection and security. (Section 1 (1))

Yes – in case of breach of Act XXIV of 1988, the investor may request court review of the administrative resolution concerning compensation issued by the government organ that committed the expropriation. (Section 1(3))

-

National legislation protecting outgoing foreign investment

22. Does the country have an investment guarantee scheme or offer political risk insurance that protects local investors when investing abroad? If so, what are the qualifying criteria, substantive protections provided and the means by which an investor can invoke the protections?

Hungary

Relevant guarantee scheme

Qualifying criteria, substantive protections provided and practical considerations

The state-owned Hungarian Export-Import Bank Plc. (Eximbank) and the Hungarian Export Credit Insurance Plc. (MEHIB) operating within an integrated framework perform the tasks of Hungary’s export credit agency, pursuant to the rules of Act XLII of 1994. Eximbank provides – among other things – bank guarantees. MEHIB provides insurance products relating to – among other things – foreign investments of Hungarian investors.

Payment of Eximbank guarantees securing foreign investment loans and MEHIB insurances underwritten in connection with the costs of participation in foreign tenders as well as foreign capital investments and revenue are guaranteed by the state, according to the rules of Government Decree No 435/2012. (XII. 29.) and Government Decree No 312/2001 (XII. 28.), respectively.

Eximbank provides guarantees securing foreign investment loans. Main statutory qualifying criteria include: (i) no debts from similar transactions towards Eximbank/ MEHIB or the state; (ii) no public debt; (iii) no bankruptcy, insolvency or similar procedure; (iv) adequate financial condition. Business terms relating to actual products are not available.

MEHIB investment insurance facility provides cover for political risks in respect of the capital invested in a foreign enterprise and the returns on such investment. Insured risks guaranteed by the state include:

• nationalisation, expropriation, war, rebellion, civil war, or state or public administrative measure which prevents the transfer of the capital or the revenue to the insured party;

• after winning tender, the foreign issuer of the tender refuses to sign the contract;

• natural and nuclear catastrophes;

• consequences of breach of contract by a third state party.

Awards

23. Please provide a list of any available arbitration awards or cases initiated involving this country’s investment treaties.

Hungary

Awards

According to the public record, as of April 2016, nine investment treaty cases against Hungary have been concluded. In eight cases an award was rendered on the merits:

Emmis v. Hungary (ARB/12/2)

Accession Mezzanine Capital v. Hungary (ARB/12/3)

Vigotop v. Hungary (ARB/11/12)

AES v. Hungary (ARB/07/22)

Electrabel v. Hungary (ARB/07/19)

Telenor v. Hungary (ARB/04/15)

ADC v. Hungary (ARB/03/16)

EDF International S.A. v. Hungary (UNCITRAL)

One case was settled and discontinued:

AES v. Hungary (ARB/01/4)

Pending proceedings

According to the public record, as of April 2016, five investment treaty cases are pending against Hungary:

ENGIE v. Hungary (ARB/16/14);

Sodexo v. Hungary (ARB/14/20);

Cheque Dejeuner v. Hungary (ARB/13/35);

Edenred v. Hungary (ARB/13/21);

Dan Cake v. Hungary (ARB/12/9).

Reading List

24. Please provide a list of any articles or books that discuss this country’s investment treaties.

Hungary

A. Laszlo and G. Wellman, ‘Hungary’, in S. Jagusch and E. Triantafilou (eds.), Getting the Deal Through: Investment Treaty Arbitration (2015), available at https://gettingthedealthrough.com/area/60/jurisdiction/68/investment-treaty-arbitration-hungary/

Notes

1 Following the entry into force of the Lisbon Treaty on 1 December 2009, foreign direct investment has come within the exclusive competence of the European Union (EU). EU Regulation No. 1219/2012 establishes transitional arrangements for BITs concluded between EU member states and third countries. Although these BITs remain binding, the Regulation establishes conditions for their continuing existence and their relationship with the EU’s investment policy. According to article 5 of the Regulation, the Commission is empowered to assess existing BITs in order to evaluate whether they conflict with EU law. If the Commission comes to the conclusion that one or more of an existing BIT’s provisions constitutes a serious obstacle to negotiations or conclusions of investment agreements by the EU, the Commission and the member state concerned shall identify appropriate actions to resolve the matter (art 6). Further, member states now have to seek the Commission’s authorisation to amend existing BITs or conclude new BITs (art. 7).

2 The answer ‘yes’ indicates that the treaty in question expressly grants an investor the right to bring a dispute under the treaty before local courts while ‘no’ means that the right to use local courts is not express in the treaty and therefore subject to domestic law.

3 Note that whilst the Argentina BIT provides that investors may submit disputes to ICSID, Argentina has announced that it plans to withdraw from the ICSID Convention: MercoPress, ‘Argentina in the Process of Quitting From World Bank Investment Disputes Centre’, 31 January 2013, http://en.mercopress.com/2013/01/31/argentina-in-the-process-of-quitting-from-world-bank-investment-disputes-centre.

4 The text of this treaty is not available on public sources.

5 The text of this treaty is not available on public sources.

6 The Israel BIT was terminated on 26 June 2007. A sunset clause in the BIT continues to protect investments made before termination for a period of 20 years.

7 The text of this treaty is not available on public sources.

8 Note that whilst the Thailand BIT provides that investors may submit disputes to ICSID, Thailand has signed but not yet ratified the ICSID Convention. Since the BIT does not contain Thailand’s consent to arbitration in non-ICSID fora, the Thailand BIT does not presently provide investors with an actionable right of arbitration.

9 Note that whilst the Vietnam BIT provides that investors may submit disputes to ICSID, Vietnam is not a Contracting State to the ICSID Convention.

10 Hungary signed the Energy Charter Treaty on 27 February 1995, ratified the Treaty on 1 April 1998, and deposited its instrument of ratification on 8 April 1998. The Energy Charter Treaty entered into force with respect to Hungary on 7 July 1998. The Energy Charter Treaty has also been ratified by: Afghanistan, Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Ireland, Italy, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Sweden, Switzerland, Tajikistan, the Former Yugoslav Republic of Macedonia, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan and the European Union (as successor of the European Communities). Australia, Belarus, Iceland, Norway and the Russian Federation have signed the Energy Charter Treaty but have not yet ratified it. On 20 August 2009, the Russian Federation informed the depositary of the Energy Charter Treaty that it did not intend to become a contracting party of the Energy Charter Treaty.

11 Annex IA of the ECT allows contracting states to enter a reservation to the effect that they do not give unconditional consent to arbitration in respect of a dispute arising under the umbrella clause. Hungary has made such a reservation, in addition to Australia, Canada and Norway.

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