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Decision on Respondent's Application for Bifurcation

GLOSSARY OF DEFINED TERMS
2009 Regulatory Framework Media Law, GTT and the 2009 ORTT Call for Tenders
2009 Tender The Tender conducted by ORTT in 2009 for the FM frequency radio licence then held by Slàger
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings 2006
Broadcasting Agreement Agreement between Slàger and ORTT dated 18 November 1997, Ex. C-115
Claimants' Reply Claimants' Reply to Respondent's Request for Bifurcation dated 5 June 2013
Contract Framework Broadcasting Agreement, incorporating the Media Law and GTT (as alleged by Claimants in the Memorial at [43])
Emmis International Emmis International Holding, B.V., the First Claimant
Emmis Radio Emmis Radio Operating B.V., the Second Claimant
GTT General Terms of Tender of ORTT dated 30 August 1996, Ex. CA-4
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated 18 March, 1965
ICSID/the Centre International Centre for Settlement of Investment Disputes
Media Law Act I of 1996 on Radio and Television Broadcasting, Ex. CA-3
MEM Mem Magyar Electronic Media Kereskedelmi és Szolgáltató Kft, the Third Claimant
Memorial Claimants' Memorial on Jurisdiction and the Merits dated 24 April 2013
Netherlands BIT Bilateral Investment Treaty between the Netherlands and Hungary dated 2 September 1987
ORTTOrszágos Rádió És Televízió Testület, National Radio and Television Broadcasting Board of Hungary
Parties Collectively Claimants and Respondent
PO No1 Procedural Order No1 dated 5 October 2012
PO No2 Procedural Order No2 dated 25 March 2013
Request for Arbitration Revised Amended Request for Arbitration dated 27 December 2012, as further amended by letter from Claimants dated 25 March 2013
Respondent's Request Respondent's Notice of Jurisdictional Objections and Request for Bifurcation dated 28 May 2013
Rule 41(5) Decision The Tribunal's Decision on Respondent's Objection under ICSID Arbitration Rule41(5) dated 11 March 2013
Slàger/Slàger Radio Slàger Rádio Mú'sorzolgáltató Zrt
Switzerland BIT Bilateral Investment Treaty between Switzerland and Hungary dated 5 October 1988
Treaties Netherlands BIT and Switzerland BIT

I. INTRODUCTION

1.
The present dispute is submitted to the International Centre for Settlement of Investment Disputes (ICSID or the Centre) on the basis of the Agreement between the Kingdom of the Netherlands and the Hungarian People's Republic for Encouragement and Reciprocal Protection of Investments dated 2 September 1987, which entered into force on 1 June 1988 (the Netherlands BIT), the Agreement Between the Swiss Confederation and the Hungarian People's Republic on the Reciprocal Promotion and Protection of Investments dated 5 October 1988, which entered into force on 16 May 1989 (the Swiss BIT and jointly with the Netherlands BIT, the Treaties), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the ICSID Convention).
2.
The Claimants are Emmis International Holding, B.V. (Emmis International), Emmis Radio Operating, B.V. (Emmis Radio), and Mem Magyar Electronic Media Kereskedelmi és Szolgáltató Kft (MEM). Emmis International and Emmis Radio are both corporations organized and existing under the laws of the Netherlands. MEM is a company organized and existing under the laws of Hungary, allegedly controlled by Mr Jürg Marquard, a Swiss national. These parties will be collectively referred to hereinafter as Claimants.
3.
The Respondent is Hungary and is referred to as Hungary or Respondent.
4.
The dispute relates to the alleged unlawful expropriation by Respondent of Claimants' investments in a national FM-radio frequency broadcasting licensee, Slàger Rádio Musorzolgáltató Zrt (Slàger).
5.
This Decision concerns Respondent's request for bifurcation of these proceedings, made by Notice of Jurisdictional Objections and Request for Bifurcation dated 28 May 2013 (Respondent's Request). Pursuant to ICSID Convention Article 41 and Rule 41 of the Arbitration Rules, Respondent seeks a suspension of the proceedings on the merits and the resolution of Hungary's jurisdictional objections, summarised in its Request, as a preliminary matter.

II. PROCEDURAL HISTORY

6.
The Tribunal set forth the procedural history of this matter from the filing of the Request for Arbitration on 28 October 2011 until 10 March 2013 in its Decision on Respondent's Objection under ICSID Rule 41(5) dated 11 March 2013 (Rule 41(5) Decision).
7.
By paragraph 85 of that Decision (the dispositif), the Tribunal decided to:

(1) Grant Respondent's objection under Rule 41(5) of the ICSID Arbitration Rules to the extent of dismissing all Non-Expropriation Claims from these proceedings as being outside the scope of the Tribunal's jurisdiction;

(2) Deny Respondent's objection under Rule 41(5) in respect of the Customary International Law Expropriation Claim;

(3) Join any further objection to the jurisdiction of the Centre in respect of the Customary International Law Expropriation Claim, to the extent maintained, to the merits; and,

(4) Grant Claimants 14 days from dispatch of this Decision to the Parties within which to file a further Revised Amended Request reflecting the terms of this Decision.

8.
Pursuant to paragraph 85(4), by letter dated 25 March 2013, Claimants requested the Tribunal to treat specified passages in paragraphs [24], [27], [65] and [68] of the Revised Amended Request as stricken. Accordingly, the Tribunal treats the Request for Arbitration in these proceedings as the Revised Amended Request dated 27 December 2012, as further amended by this letter (together Request for Arbitration).
9.
Following the Rule 41(5) Decision, the Parties further applied, by letters from Claimants dated 14 March 2013 and from Respondent dated 15 March 2013, for further directions as to the procedural calendar and for an oral hearing thereon. Having received written submissions from the Parties, a teleconference hearing was convened before the full Tribunal on 21/22 March 2013. Following that hearing, the Tribunal issued Procedural Order No2 (PO No2) dated 25 March 2013.
10.
This Order provided, by way of amendment to paragraph 12.7 of Procedural Order No1 (PO No1), for the Respondent to notify the Tribunal and Claimants by 22 May 2013 whether it intended to raise any jurisdictional objections under ICSID Arbitration Rule 41(1) and request a suspension of the proceedings on the merits. In the event that such an application were made, it further provided for Claimants to reply by 5 June 2013 and for the Tribunal to decide the question of bifurcation by 19 June 2013. It then set forth two alternative pleading scenarios depending upon the Tribunal's decision.
11.
On 24 April 2013 (in accordance with the Tribunal's decisions of 18 April 2013 and 2 May 2013), Claimants filed their Memorial on Jurisdiction and the Merits and accompanying documents (Memorial).
12.
On 28 April 2013, the Parties agreed certain revisions to the procedural timetable, including extending the time for the Respondent's Request to May 28, 2013. The Tribunal consented to these extensions on 2 May 2013.
13.
The Respondent filed its Request on 28 May 2013.
14.
The Claimants filed its Reply on 5 June 2013.
15.
Each party subsequently wrote to the Tribunal: Respondent by letter dated 6 June 2013 and Claimants by letter dated 10 June 2013.
16.
The Tribunal has deliberated by conference call on 10/11 June 2013 and by other means.

III. RELEVANT LEGAL TEXTS

17.
The Tribunal sets forth below the relevant portions of the legal texts germane to its Decision.

A. ICSID Convention and Arbitration Rules

18.
Article 25(1) of the ICSID Convention, which is found within Chapter II headed "Jurisdiction of the Centre", provides:

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

19.
Article 41 of the Convention, which is within Chapter IV Section 3 headed "Powers and Functions of the Tribunal," provides:

(1) The Tribunal shall be the judge of its own competence.

(2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits.

20.
Arbitration Rule 41 "Preliminary Objections" provides, in relevant part:

(3) Upon the formal raising of an objection relating to the dispute, the Tribunal may decide to suspend the proceeding on the merits. The President of the Tribunal, after consultation with its other members, shall fix a time limit within which the parties may file observations on the objections.

(4) The Tribunal shall decide whether or not the further procedures relating to the objection made pursuant to paragraph (1) shall be oral. It may deal with the objection as a preliminary objection or join it to the merits of the dispute. If the Tribunal overrules the objection or joins it to the merits, it shall once more fix time limits for the further procedures.

B. The Netherlands-Hungary Bilateral Investment Treaty

21.
Article 4(1) of the Netherlands BIT provides:

Neither Contracting Party shall take any measure depriving, directly or indirectly, investors of the other Contracting Party of their investments unless the following conditions are complied with:

(a) the measures are taken in the public interest and under due process of law;

(b) the measures are not discriminatory or contrary to any undertaking which the former Contracting Party may have given;

(c) the measures are accompanied by provision for payment of just compensation. Such compensation shall represent the genuine value of the investments affected and shall, in order to be effective for the claimants, be paid and made transferable, without undue delay, to the country designated by the claimants concerned and in the currency of the country of which the claimants are nationals or in any freely convertible currency accepted by the claimants.

22.
Article 1(1) provides:

[T]he term "investments" shall comprise every kind of asset connected with the participation in companies and joint ventures, more particularly, though not exclusively:

(a) movable and immovable property as well as any other rights in rem in respect of every kind of asset;

(b) rights derived from shares, bonds or other kinds of interests in companies and joint ventures;

(c) title to money, goodwill and other assets and to any performance having an economic value;

(d) rights in the field of intellectual property, technical processes and knowhow;

(e) rights granted under public law, including rights to prospect, explore, extract and win natural resources.

C. The Switzerland-Hungary Bilateral Investment Treaty

23.
Article 6(1) of the Swiss BIT provides:

Neither of the Contracting Parties shall take, either directly or indirectly measures of expropriation, nationalization or any other measure having the same nature or the same effect against investments belonging to investors of the other Contracting Party, unless the measures are taken in the public interest, on a non-discriminatory basis, and under due process of law, and provided that provisions be made for effective and adequate compensation. The amount of compensation, interest included, shall be settled in the currency of the country of origin of the investment and paid without delay to the person entitled thereto, without regard to its residence or domicile.

24.
Article 1(2) provides:

The term "investments" shall include every kind of assets and particularly:

(a) movable and immovable property as well as any other rights in rem, such as servitudes, mortgages, liens and pledges;

(b) shares, parts or any other kinds of participation in companies;

(c) claims to money or to any performance having an economic value;

(d) copyrights, industrial property rights (such as patents, utility models, industrial designs or models, trade or service marks, trade names, indications of origin), know-how and goodwill;

(e) concessions under public law, including concessions to search for, extract or exploit natural resources as well as all other rights given by law, by contract or by decision of the authority in accordance with the law.

IV. THE PARTIES' PLEADINGS

25.
The Tribunal will now summarise the pleadings of the Parties to the extent relevant and necessary to its Decision.

A. The Claim

26.
By their Request for Arbitration (as amended, including as a result of the Tribunal's Rule 41(5) Decision), Claimants allege that Respondent breached the Treaties and customary international law by indirectly expropriating Claimants' investments in a national FM-radio frequency broadcasting licensee, Slàger.1 They allege the Respondent did so by conducting a tender for the radio frequency then held by Slàger in 2009 (the 2009 Tender) in an unlawful manner.2
27.
In setting forth the claimed basis for ICSID jurisdiction under Article 25 of the Convention, Claimants allege:3

The Claimants' investments in the stock of Slàger Radio evidenced their interests in the value of the rights conferred by their broadcasting licences. These rights included not only the right to conduct broadcast operations but also the legal protection granted by the Media Law and the regulations or other instruments adopted to implement the Media Law. Those rights and protections included, inter alia, the preference that was accorded to existing licensees in competitive tenders in which they sought renewal of their licenses, and a legal framework guaranteeing that tenders would be conducted lawfully and in a fair and transparent manner.

28.
Claimants develop these points in their Memorial. They allege:4

Hungary's scheme to subvert the legal norms under which Claimants were entitled to renewal of their licence indirectly expropriated Claimants' investments, including the value of their shares in Slàger Radio, related assets (including rights granted by its broadcasting agreement) and operations.

29.
Relying upon the definition of investments contained in the Treaties, Claimants allege that ‘[p]rincipally those investments comprise their respective shares in Slàger Radio, Claimants' Hungarian subsidiary, and the rights derived from those shares.'5 Claimants particularise the rights derived from the shares as:6

• The Broadcasting Agreement between Slàger Radio and ORTT7, which is an asset and more particularly (i) comprises rights granted under public law (Netherlands Treaty, Article 1(1)(e)), and (ii) constitutes a concession under public law (Switzerland Treaty, Article 1(2)(e)).

• The rights, protections and guarantees conferred under the Contract Framework, which include, inter alia, the right to broadcast, the right of Slàger as the incumbent bidder to receive a preference or advantage in the tender for the renewal of its broadcasting right; the guarantee that all tenders for the renewal of that broadcasting right shall be conducted according to law in good faith, and on a fair, non-discriminatory, nonpartisan and transparent basis. Those rights, protections and guarantees constitute investments because they are (i) rights granted under public law (Netherlands Treaty, Article 1(1)(e)), and (ii) rights given by law, by contract or by "decision of the authority in accordance with the law." (Switzerland Treaty, Article 1(2)(e)).

30.
The Broadcasting Agreement is defined by Claimants as the Agreement between Slàger and ORTT dated 18 November 1997.8 The Contract Framework is defined by Claimants as the Broadcasting Agreement incorporating the Media Law and the ORTT's General Terms of Tender (GTT).9
31.
In elaborating their claim of expropriation, Claimants allege:10

The unlawful measures described above rendered Claimants shares in Slàger worthless. The value of Slàger was intrinsically tied to Respondent's observance of the rights and guarantees provided to Slàger in the Contract Framework and the expectation that Slàger's broadcasting right would be renewed indefinitely as long as Slàger provided good radio broadcasting services, complied with the Contract Framework and offered a reasonable broadcast fee. Respondent's wilful failure to observe these obligations coupled with its effective plot to foreclose any meaningful relief from Hungarian courts annihilated the value of Slàger's shares.

B. Respondent's Notice of Jurisdictional Objections

32.
By its Request, Respondent gives notice of its jurisdictional objections and requests bifurcation of the proceedings so that they may be further pleaded and determined by the Tribunal.
33.
In summary, Respondent submits that Claimants' claim:11

... does not "aris[e] directly out of" an investment as required by Article 25 of the ICSID Convention. Furthermore, it largely concerns non-existent rights that fail to meet the definition of "investment" under the Treaties and the ICSID Convention. Finally, the asserted rights are not cognizable as vested property rights under Hungarian law and therefore cannot, at the threshold level, be the subject of an expropriation claim, the only claim for which Hungary has consented to arbitration. The dispute is therefore beyond the Tribunal's jurisdiction due to the failure to meet the requisite conditions ratione materiae and ratione voluntatis.

34.
Specifically, Respondent submits that:

• The alleged right of incumbent preference does not exist under Hungarian law. There being no legal right, there can be no investment capable of being expropriated;12 and,

• The alleged rights of fair treatment or legitimate expectation regarding the 2009 Tender do not constitute an asset or investment capable of being expropriated.13

C. Claimants' Reply

35.
Claimants allege in Reply that Respondent has mischaracterised the nature of the claim, including Claimants' investments. It emphasises that these investments include:

• Their shares in Slàger;

• Their contractual rights under the Broadcasting Agreement and its Contractual Framework; and,

• Their direct rights under the Media Law, the GTT and the 2009 Call for Tenders (together the 2009 Regulatory Framework).

They allege that these rights, taken together, would have entitled them to renewal of their licence in 2009, with or without an incumbent advantage.14 Thus, Claimants allege, Respondent's actions in failing to renew their licence, have deprived them of the entire value of their investment.

V. ISSUES ON BIFURCATION

A. Common Ground

36.
The Parties advance opposing submissions on the question of bifurcation. Nevertheless, there is a measure of agreement between them as to (a) the approach to be taken to bifurcation; and (b) the law applicable to the determination of Claimants' investments. The Tribunal adopts these points as the starting-point for its analysis.

B. Respondent's Request for Bifurcation

C. Claimants' Reply on Bifurcation

VI. TRIBUNAL'S ANALYSIS

VII. DECISION

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