Investment treaty practice

Model BIT

Does the state have a model BIT?

Hungary does not have a model BIT at the moment.

Preparatory materials

Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?

According to Act L of 2005 on the procedure relating to international treaties, the minister in charge of foreign policy is responsible for keeping the original copies of international treaties and a register of the most important data relating to such treaties. According to the law, the register should be available on the internet. The registry is available at: www.kulugyminiszterium.hu/szerzodes/main.aspx. Furthermore, the International Law Department of the Ministry of Foreign Affairs and Trade provides information upon request. Treaty preparatory materials are usually kept with the ministry in charge of negotiations at the time. In practice, the chances of locating and accessing them are variable.

The National Archives of Hungary also keeps records of international treaties and diplomatic correspondence. These are researchable upon request. Documents relating to foreign affairs are available at: www.digitarchiv.hu.

Scope and coverage

What is the typical scope of coverage of investment treaties?

Typically, investment treaties have a broad definition of both ‘investor’ and ‘investment’. The definition of ‘investment’ usually includes every kind of asset invested in connection with economic activities. The most important types of investment are generally listed in a non-exhaustive list, including:

  • movable and immovable 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;
  • 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; and
  • rights conferred by law or under contract and any licences and permits pursuant to Law 8, such as concessions.

Returns of investments are often explicitly qualified as investment. It is often agreed that any alteration of the form of investment shall not affect their character as investment.

The definition of investor is similarly extensive and generally includes any natural or legal person of one contracting party that has made an investment in the territory of the other contracting party.

In the case of natural persons, this requires having the nationality of either contracting party. In the case of legal persons, this requires a legal entity incorporated or constituted in accordance with the laws of one contracting party. In many cases, it is also required that the legal entity has its central administration or principal place of business in the territory of the contracting party. Some of the most recent BITs allow the contracting parties to deny the benefits of the treaty to an investor of the other contracting party, if investors of a non-contracting party own or control the enterprise and the enterprise has no substantial business activities in the territory of the contracting party under whose law it is constituted.

In this case, the contracting parties may also deny the benefits of the treaties to an investor of the other contracting party (or an investment of such contracting party) and to investments of such investor. This will occur if investors of a non-contracting party own or control the investment and the denying contracting party adopts or maintains measures with respect to the non-contracting party that prohibit transactions with the investment or that would be violated or circumvented if the benefits of the agreement were accorded to the investments of investors.

Protections

What substantive protections are typically available?

Typically, investment treaties provide fair and equitable treatment and full protection and security. In certain cases, for example, the treaty with Italy, this is completed with an express prohibition of discrimination.

Virtually every investment treaty provides a national and most-favoured-nation (MFN) treatment of the investment. The scope of the MFN clauses vary but often include compensation for losses owing to wars, emergencies and similar situations. Treaties also guarantee the free transfer of returns and recognition of the subrogation of investors’ rights and claim to export or credit guarantee institutions of the investor’s state.

Typically, Hungarian BITs contain no umbrella clauses. Some of the earlier treaties contain umbrella clauses, which may be rather vague. For example, the UK-Hungary BIT sets forth that contracting parties shall observe any obligations it may have entered into with regard to investments of investors of the other contracting party. Treaties, without exception, protect against expropriation, typically setting out that expropriation or measures with equivalent effect can only be carried out for a public purpose, under due process of law, on a non-discriminatory basis, with prompt, adequate and effective compensation. The exact rules, however, vary.

Dispute resolution

What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?

Every investment protection treaty provides investor-state arbitration, although the scope varies. In many cases, arbitration is limited to disputes relating to expropriation. Almost all BITs provide for a mandatory cooling period of six months available for amicable settlement.

The most commonly used dispute resolution option is ICSID. In many cases, there is a possibility of ad hoc arbitration according to UNCITRAL rules, upon the choice of the investor. A minority of BITs contain consent to submit the dispute to ICC in Paris or the Arbitration Institute of the Stockholm Chamber of Commerce.

A minority of treaties require exhaustion of local remedies or contain ‘fork-in-the-road’ provisions, setting forth that once a dispute is submitted to any court or arbitration tribunal, the choice is final and cannot be changed. In particular, recent BITs set a period of limitation to enforce claims.

Confidentiality

Does the state have an established practice of requiring confidentiality in investment arbitration?

We are not aware of any publicly established or stated practice.

According to publicly available information, Hungary requested confidentiality in two cases: Emmis v Hungary (ARB/12/2) and Accession v Hungary (ARB/12/3) out of 15 pending or concluded cases. However, the scope of these requests is not publicly available.

According to ICSID’s official website, out of the nine cases concluded with an award on the merits, seven have been made public: Emmis v Hungary (ARB/12/2), AES Summit Generation Limited and AES-Tisza Erőmű Kft v Hungary (ARB/07/22), Telenor v Hungary (ARB/04/15), ADC v Hungary (ARB/03/16), Electrabel SA v Hungary (ARB/07/19), Vigotop Limited v Hungary (ARB/11/22), Accession v Hungary (ARB/12/3). In addition, in the pending case Dan Cake (Portugal) SA v Hungary (ARB/12/9), the award on jurisdiction and liability has been made public.

Insurance

Does the state have an investment insurance agency or programme?

Hungary does not have such a programme at the moment.

The Hungarian Export-Import Bank’s investment insurance facility provides cover for country and political risks, in respect of the capital invested in a foreign enterprise and the return on such investment.