An ICSID arbitral tribunal seated in Washington D.C. has dismissed an expropriation claim brought by a Cypriot company against Hungary, finding that the State did not expropriate the company’s investment in the multi-million ‘King’s City’ mega-casino project (the “Project”).  

The company, Vigotop, backed by Project Sponsors including US billionaire businessman Ronald Lauder, had sought €300 million compensation in the ICSID arbitration proceedings, claiming that Hungary took a series of unlawful measures in breach of a bilateral investment treaty between Cyprus and Hungary, culminating in the termination of the concession contract underpinning the Project.  

The tribunal’s award, published earlier this month, adopts a clear step-by-step approach to the analysis of claims where a State’s alleged expropriatory act is the exercise of a negotiated contractual termination right, rather than a legislative act or executive decree.  

The tribunal also addressed the extent to which the potential violation of non-expropriation standards, such as “fair and equitable treatment” (the “FET standard”), may inform the analysis of expropriation claims.  Although the Cyprus-Hungary treaty contains an FET standard, it also expressly limits a tribunal’s jurisdiction to expropriation claims.  Vigotop nevertheless sought to persuade the tribunal that the FET standard was relevant to its expropriation analysis.  Such a situation is not unique to this case; previous tribunals have also heard FET arguments in cases where their jurisdiction is restricted to expropriation claims.  Here, the tribunal took the opportunity to re-establish the boundaries between the treaty standards and to clarify the role of the “good faith” principle, consideration of which is not restricted to FET claims.


In October 2009, Vigotop concluded a concession contract for the Project with Hungary, then governed by Prime Minister Gyurcsány’s Socialist Party.  The Project Sponsors intended to build “one of Europe’s premier tourist destinations”: a resort consisting of attractions including a mega-casino, luxury hotels, theme parks, spa facilities and botanical gardens.  The Project was to be located in Sukoró, on the shores of Lake Velence.  When the site was identified, Project Sponsor Yoav Blum entered into a ‘land swap agreement’ with Hungary under which he exchanged his own land for plots of land in Sukoró.  The then government’s support for the Project led to offers of financial incentives and the grant of ‘special project status’ aimed at reducing the administrative formalities for the implementation of the Project at Sukoró. 

Despite this support, the Project Sponsors encountered various obstacles in implementing the Project.  Even prior to the signing of the concession contract, questions were raised as to the validity of the land swap agreement, specifically whether the valuation of Mr Blum’s land had been accurate and if the transaction met the requisite public interest objective.  In April 2010, the centre-right Fidesz party came to power led by Prime Minister Orbán, who appointed a Commissioner tasked primarily with investigating the land swap agreement.  (Following court proceedings, Hungary’s Supreme Court, the Curia, ultimately declared the agreement null and void in 2012.)

The new Orbán government was opposed to the Project being located at Sukoró and revoked the Project’s special project status in September 2010, citing new “environmental and touristic” policies.  The Project Sponsors’ requests to the new government for meetings and confirmation of its support for the Project largely went unanswered. 

Under the concession contract, the Project Sponsors were required to locate the headquarters of its concession company on the Project site and certify that the company had a legitimate right of possession and right to build in respect of that site, by January 2011.  Although the Project Sponsors searched for alternative sites, they ultimately certified Sukoró as the Project Site in December 2010, shortly before the deadline.  This was in spite of the fact the company was located in a neighbouring city, Székesfehérvár and, most importantly, despite the on-going litigation and resulting uncertainty regarding the land swap agreement. All rights to the Project site were then assigned to the concession company.

In January 2011, the government terminated the concession contract with immediate effect, principally on the grounds that the concession company was not located on the Project site and the company did not have legitimate ownership and building rights in respect of the site. 

The arbitration proceedings 

The tribunal was chaired by Professor Dr Sachs of CMS, who was joined by Mr Doak Bishop of King and Spalding and Dr Veijo Heiskanen of Lalive.  The tribunal decided it had to determine whether an expropriation had taken place as a matter of fact, taking into account that sovereign conduct is a necessary requirement for a finding of expropriation.  Here, the Orbán government did not terminate the concession contract by a legislative act or executive decree, but rather by exercising a negotiated contractual termination right exercisable on breach of contract.   

As the bilateral investment treaty limited the tribunal’s jurisdiction to expropriation claims, the tribunal dealt at the outset with Vigotop’s argument that violations of other standards of investment protection, such as the FET standard, may inform the tribunal’s analysis.  Vigotop also submitted that an absence of good faith may indicate that there has been a breach of the expropriation provision.  Having found no clear precedents from previous cases, the tribunal found that a violation of the FET standard is “neither a necessary nor sufficient basis for finding an expropriation”.  Nevertheless, the tribunal noted that the internationally recognised principle of good faith is not restricted to FET claims and may therefore inform the tribunal’s expropriation analysis.  

Significantly, the tribunal then rejected the Hungarian government’s claim that the termination of a contract in accordance with Hungarian law could not constitute an expropriation.  The tribunal found that it was instead required to determine whether the government had “stepped out of its contractual shoes” in terminating the concession contract, on the basis of a “hidden political agenda” being the true reason for the termination.  

The tribunal established a three part framework in which to conduct its analysis. 

  • Did the government have public policy reasons for terminating the contract?
  • Did the government have contractual grounds for terminating the contract? 
  • Did the government abuse its contractual termination right in order to avoid liability to compensate or was the termination legitimate and consistent with the principle of good faith?

The tribunal found that Vigotop had not produced sufficient evidence to show that the government had adopted a general policy against the implementation of the Project in Hungary, but it was clear the government was opposed to the Project being located in Sukoró specifically, based on its new environmental and touristic policies.  The government therefore acted in its sovereign capacity in terminating the concession contract. 

As for the second step, the tribunal found that Vigotop had failed to perform a material obligation of the contract in never obtaining legitimate possession of, and the right to build on, the Project site, in response to which the government had a contractual right of termination. 

Finally, the tribunal found that the evidence of the uncertainty surrounding the land swap agreement showed that the Project Sponsors must have known, on entering into the contract, that there was a risk they would not be able to certify Sukoró as the Project site before the contractual deadline. They accepted that risk.  Furthermore, there was not sufficient evidence to show that the government had hampered Vigotop’s search for alternative sites.  Vigotop therefore had not discharged its burden of showing that the government abused its contractual termination right, contrary to good faith, meaning that its expropriation claim ultimately failed.  


Good faith

The tribunal observed that there is no obligation under international law actively to support foreign investments.  Moreover, in contracting with governments, investors are subject to the inherent risk that successive governments will change their policies.  The burden is therefore on investors to ensure that any specific obligations to support investments are negotiated and incorporated into concession contracts.  Although the tribunal expressly found that the principle of good faith informs the manner in which governments perform their obligations, it is not in itself an independent source of obligations that can be invoked by investors whose expectations have not been met by contracting States.  

The tribunal took care to demarcate the non-expropriation and FET treaty standards.  The FET standard is broad, encompassing principles such as non-discrimination, proportionality, transparency and respect for legitimate expectations, many of which are relied upon by disgruntled investors in their claims against States.  Previous tribunals have not always drawn a clear line between the standards, for example by considering discriminatory treatment in the context of an expropriation analysis.  In situations such as this one where a claimant asks a tribunal to consider the potentially unfair, discriminatory or bad faith conduct of a State, but where the treaty limits the tribunal’s jurisdiction to expropriation issues only, tribunals are sometimes tempted to take a broad-brush approach in order to be able to take account of the FET standard.  The Vigotop tribunal nevertheless resisted the temptation to blur the line between the standards, whilst recognising that the good faith principle permeates all treaty standards. 

Contractual termination

The tribunal also provided a clear three part framework for the consideration of cases where the expropriatory act complained of is the exercise of a contractual termination right, consolidating existing jurisprudence in this area and setting a useful precedent for future cases.   


The case presented some challenging legal issues arising out of a politically-charged set of circumstances.  The facts suggested that the state was not beyond reproach for the manner in which it had conducted itself, albeit that the relevant conduct fell outside the ambit of an expropriation analysis.  This was perhaps recognised in the tribunal’s pragmatic costs award, which required each party to cover its own costs in recognition of the fact Vigotop raised “reasonable issues in good faith and presented an arguable case”.  The tribunal’s pragmatic and considered approach to some challenging concepts makes this award a valuable addition to the growing body of investment treaty jurisprudence.