The Republic of Hungary is represented in these proceedings by:
Mr. Whitney Debevoise, Esq.
Arnold & Porter LLP
555 12 Street, N.W.
Washington, D.C. 20004
Dr, Éva Derzsényi
Deputy State Secretariat
Ministry of Informatics and Communications
Republic of Hungary
Dob utca 75-81 H-1077
The Respondent was also represented by Mrs. Zsuzsanna Varga, Director General at Ministry of Finance from 30th September 2004 until 3rd February 2005.
(1) in expropriating Teiertor's investment, or part thereof, without compensation, in breach of Article VI of the BIT; and
(2) in failing to accord Telenor fair and equitable treatment and protection for Telenor's investment, in breach of Article III of the BIT.
(1) Telenor has failed to plead facts showing a prima facie case of expropriation, even assuming the truth of the allegations of fact made by Telenor; and
(2) disputes arising under Article III are outside the jurisdiction of the Tribunal, which is confined by Article XI of the BIT to issues of expropriation.
The provisions of the Hungary-Norway BIT relevant to the present proceedings are Articles III, IV, VI and XI, which provide as follows:
PROMOTION AND PROTECTION OF INVESTMENTS
Each Contracting Party shall promote and encourage in its Territory' investments made by investors of the other Contracting Party and accept such investments in accordance with its laws and regulations and accord them fair and equitable treatment and protection. Such investments shall be consistent with the national objectives of and he subject to the laws and regulations of the Contracting Party in the Territory of which the Investments are made.
MOST FAVORED NATION TREATMENT
1. investments made by Investors of one Contracting Party in the territory of the other Contracting Party, as also the returns therefrom, shall be accorded treatment no less favourable than that accorded to investments made by Investors of any third State.
2. The treatment granted under paragraph 1 of this Article shall not apply to:
- any advantage accorded to Investors of a third State by the other Contracting Party based on any existing or future customs or economic union, or similar international agreement, or free trade agreement to which either of the Contracting Parties is or becomes a Party.
- any advantages accorded to Investors of a third State by the other Contracting Party by virtue of a double taxation agreement or other agreements regarding matters of taxation or any domestic legislation relating to taxation.
EXPROPRIATION AND COMPENSATION
1. Investments made by Investors of one Contracting Party in the territory of the other Contracting Party cannot be expropriated, nationalized or subjected to other measures having a similar effect (hereinafter referred to as "Expropriation") unless the following conditions are fulfilled:
(I) The expropriation shall be done for public interest and under due process of law.
(II) It shall not be discriminatory.
(III) It shall be done against compensation.
2. Such compensation shall amount to the market value of the investment immediately before the date of expropriation and shall be paid without delay and shall carry an annual rate of interest equal to 12 months LIBOR quoted for the currency in which the investment was made until the time of payment. The payment of such compensation shall be effectively realizable and freely transferable.
DISPUTES BETWEEN AN INVESTOR AND A CONTRACTING PARTY
1. This Article shall apply to any legal disputes between an Investor of one Contracting Party and the other Contracting Party in relation to an investment of the former either concerning the amount or payment of compensation under Article V and VI of the present Agreement, or concerning any other matter consequential upon an act of expropriation in accordance with Article VI of the present Agreement or concerning the consequences of the non-implementation or of the incorrect implementation of Article VII of the present agreement.
2. Any such disputes which have not been amicably settled within a period of three months from written notification of a claim, shall if either Party to the dispute so wishes, be submitted for conciliation or arbitration under the Convention of IS March 1965 on the settlement of investment disputes between States and nationals of other States (the Washington Convention).
In support of its contention that the various measures referred to above constituted expropriation Telenor referred to:
(1) a decision of an ICSID tribunal that violation of the "fair and equitable treatment" requirement might well amount to expropriation,4
(2) decisions of other ICSID tribunals that substantial interference with an investor's property rights constituted expropriation even if effected through otherwise internally legitimate legislation or court rulings;
(3) decisions to the effect that if government actions (legislative, administrative or judicial) were discriminatory or arbitrary or perhaps unfair or inequitable, they were more likely to be viewed as expropriatory.5
Telenor's Memorial concluded with the following summary:
"• Any measure attributable to a State - should it be individual or regulatory - qualifies as expropriation if such measure interferes with one’s right to property.
• In deciding whether a regulatory measure has this effect, public interest and rule of law shall both be considered.
• Regulatory measures pursuing aims other than the interest of the public (lack of legitimate aim) or that are disproportional (lack of fair balance between the aim sought and means employed) qualify as expropriation with no doubt.
• Also, arbitrary, unfair, inequitable, unreasonable, discriminating nature of a measure, or violation of due process of law (lack of lawfulness) shall qualify as expropriation."
(1) Telenor repeatedly invoked claims under the concession contract which were outside the jurisdiction of the Tribunal and were governed by Hungarian law and subject to the exclusive jurisdiction of the Hungarian courts. ICSID jurisdiction was based on consent and Hungary had not consented to jurisdiction by the Tribunal over contract claims. Only if a breach of contract rose independently to the level of expropriation - as where it resulted in extinguishment of the investment or its removal from the investor's control - could the Tribunal's jurisdiction be engaged.
(2) None of the claims was based on expropriation or other matters consequential upon an act of expropriation, which was the sole basis of Tribunal's jurisdiction.
(3) Telenor misunderstood the concept of expropriation. The fundamental predicate element of the law of expropriation was that there must have been either a government taking of an investment or such substantial regulatory interference with an investment as to render it functionally equivalent to a taking by depriving the investor of control over the investment or depriving the investment of all significant economic value.
(4) The allegations against Hungary of breaches of European Community law were misconceived, because they related to legislation enacted prior to the relevant Community instruments coming into force and, more fundamentally, because non-compliance with EC Directives, even if established, was not within the Tribunal’s jurisdiction.
(5) The Tribunal had no jurisdiction over claims for breach of the "fair and equitable treatment" provisions of Article III, which fell outside Article XI, nor could the rubric of expropriation be expanded to encompass minimum standards under international law, which are not a subset of expropriation but are a feature of fair and equitable treatment.
(6) Telenor has not alleged that the actions by Hungary of which it complains deprived Telenor of control of its investment or deprived that investment of meaningful value. It was in the nature of regulation that it involved some sort of wealth deprivation and Telenor’s contention that any form of interference with the investor's property or diminution of its value constitutes expropriation was completely out of line with expropriation jurisprudence. There had to be interference so substantial as to deprive the investor of all or most of the benefits of its investment, and that had not been alleged. That conclusion was reinforced by Article VI(2), which provided that compensation for expropriation "shall, amount to the market value of the investment immediately before the date of expropriation", which plainly referred to either seizure of the investment or extinction of its market value, not merely diminution in the investor’s profits. This is to be contrasted with the provision for compensation for losses in Article V.
Hungary contended that complaints about the regulatory structure of universal service provision were also unfounded. The funding approach adopted by Hungary was one of the most commonly accepted throughout the world. Complaints as to the failure of ETTA to assess data and ETTA’S collection methods had already been brought before the Hungarian courts, where they belonged, and they were not matters for the Tribunal. The interconnection fee issues and other complaints likewise provided no basis for an expropriation claim. While the relevant measures extended to Pannon, they were not targeted at Pannon but applied equally to other mobile operators, including Pannon's principal competitor, Westel. Three other claims (the competition authority claim, handset subsidies and dial digit fees) were insufficiently particularised and anyway related to transitory phenomena not reached by the public international law of expropriation.
(1) What is the investment alleged to have been expropriated?
(2) Has Telenor asserted facts showing a prima facie case of expropriation within the meaning of Article VI of the BIT?
(3) Does the Tribunal have jurisdiction over claims under Article III of the BIT?
At the hearing on jurisdiction Telenor described Pannon as the vehicle for Telenor’s investment, which consisted of four elements:
(1) The radiotelephone network
(2) Pannon's customers
(3) The concession granted by the concession agreement, carrying with it legitimate expectations on the part of Telenor, including fair and equitable treatment and conformity with laws, including EU law
(4) Pannon's income expectations.
Telenor contended that all these elements had to be taken together and not dealt with in isolation from each other. On this basis it would be wrong to focus on the fact that Pannon was a profitable company. The kernel of Telenor's complaint was that because of the improper actions of Hungary, Telenor had been deprived of market share and its network was being used by others without proper payment. So Telenor's loss was not simply the money taken from it, for example through the ETTA levy, but future income of which it had legitimate expectations.
(1) Telenor’s claims are dismissed on the ground that the Tribunal has no jurisdiction over them;
(2) Telenor is ordered to reimburse to Hungary its contributions to the fees and expenses of ICSID, including the fees and expenses of the Tribunal, and the costs incurred by Hungary as set out in the annexed Schedule of Costs. Telenor is ordered to pay these costs within 30 days from the notification by ICSID to the parties of its fees and expenses.
|SCHEDULE OF COSTS|
|1, Counsel for Hungary: fees and expenses||US$|
|(i) Arnold & Porter LLP (15th May 2006):||979,785.61|
|(ii) Arnold & Porter LLP (23rd May 2006):||31,615.72|
|(ii) Law offices of Tamas Kende, Budapest||237,938.96|
|2. Hungary’s travel costs for attending hearings||3,552.48|
3. ICSID costs, including the fees and expenses of this Tribunal: Amount to be advised to the parties
|(i) paid by Hungary:||150,000.00|
|(ii) paid by Telenor:||150,000.00|
|(iii) to be reimbursed by Telenor to Hungary:||Half of ICSID costs|
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