INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES MAGYAR FARMING COMPANY LTD, KINTYRE KFT, AND INÍCIA ZRT Claimants v. HUNGARY Respondent (ICSID Case No. ARB/17/27) AWARD Members of the Tribunal Professor Gabrielle Kaufmann-Kohler, President of the Tribunal Dr. Stanimir A. Alexandrov, Arbitrator Dr. Inka Hanefeld, Arbitrator Secretary of the Tribunal Mr. Francisco Abriani Assistant to the Tribunal Mr. David Khachvani Date of dispatch to the Parties: 13 November 2019 REPRESENTATION OF THE PARTIES Representing Magyar Farming Company Ltd, Representing Hungary: Kintyre Kft and Inícia Zrt: Zannis Mavrogordato Michael Ostrove 20 Essex Street Théobald Naud London WC2R 3AL Maxime Desplats United Kingdom Clémentine Emery DLA PIPER FRANCE LLP 27 rue Laffitte 75009 Paris France and and András Dániel László András Nemescsói LFB - László Fekete Bagaméry Dávid Kőhegyi 13-15 Kuny Domokos utca Zsófia Deli H-1012 Budapest DLA Piper Posztl, Nemescsói, Györfi-Tóth & Hungary Partners Law Firm Csörsz u. 49-51. H-1124 Budapest Hungary and Beatrix Bártfai András Lovas Viktória Perényi Fanni Takács Sárhegyi & Partners Law Firm Árvácska u 6. H-1022 Budapest Hungary i TABLE OF CONTENTS TABLE OF SELECTED ABBREVIATIONS AND DEFINED TERMS ................................... IV I. PRELIMINARY MATTERS................................................................................................. 1 A. The Parties ...................................................................................................................... 1 B. The Dispute .................................................................................................................... 2 C. Requests for Relief ......................................................................................................... 4 D. The Tribunal ................................................................................................................... 6 (1) Arbitrator appointed by the Claimants .................................................................... 6 (2) Arbitrator appointed by the Respondent ................................................................. 7 (3) Presiding Arbitrator ................................................................................................ 7 (4) Secretary of the Tribunal ........................................................................................ 7 (5) Assistant to the Tribunal ......................................................................................... 7 E. Place of Proceedings....................................................................................................... 8 F. Applicable Laws ............................................................................................................. 8 (1) Procedure ................................................................................................................ 8 (2) Merits ...................................................................................................................... 8 G. Scope of this Award ..................................................................................................... 10 II. PROCEDURAL HISTORY................................................................................................. 10 III. FACTUAL BACKGROUND .............................................................................................. 23 A. Overview of the Agricultural Land Regulation in Hungary ......................................... 23 B. The Claimants’ Farming Business in Hungary ............................................................ 24 C. The Lease Agreement and the Pre-lease Right ............................................................. 25 D. Background and Adoption of the 2011 Amendment .................................................... 28 E. The 2014 Tenders ......................................................................................................... 31 F. Domestic Proceedings .................................................................................................. 34 G. Eviction......................................................................................................................... 36 H. Settlement Efforts ......................................................................................................... 38 IV. JURISDICTION .................................................................................................................. 41 A. Intra-EU Objection ....................................................................................................... 41 (1) The Respondent’s Position ................................................................................... 42 a. Article 8 BIT is incompatible with the EU Treaties ...................................... 42 b. The EU Treaties prevail ................................................................................ 44 (2) The Claimants’ Position ........................................................................................ 47 a. Article 8 BIT is compatible with the EU Treaties ......................................... 48 b. The EU Treaties do not prevail ..................................................................... 49 (3) Analysis................................................................................................................. 52 a. Is the Achmea Decision binding on the Tribunal? ........................................ 53 ii b. What is the value of the Member States Declarations? ................................. 55 c. Do the EU Treaties preclude the application of Article 8 of the BIT? .......... 60 B. Subject-Matter Jurisdiction .......................................................................................... 67 (1) The Respondent’s Position ................................................................................... 67 (2) The Claimants’ Position ........................................................................................ 70 (3) Analysis................................................................................................................. 73 V. LIABILITY .......................................................................................................................... 77 A. The Claimants’ Position ............................................................................................... 77 (1) Hungary exercised sovereign powers ................................................................... 77 (2) Hungary expropriated the contractual pre-lease right ........................................... 79 (3) Hungary expropriated the statutory pre-lease right .............................................. 81 (4) Hungary’s measures were not a lawful exercise of police powers ....................... 82 B. The Respondent’s Position ........................................................................................... 85 (1) The Tenders are irrelevant to the expropriation claim .......................................... 85 (2) Hungary did not expropriate the contractual pre-lease right ................................ 87 (3) Hungary did not expropriate the statutory pre-lease right .................................... 90 (4) Hungary exercised police powers ......................................................................... 91 C. Analysis ........................................................................................................................ 94 (1) Did the 2011 Amendment expropriate the statutory pre-lease right? ................... 95 (2) Was the 2011 Amendment a non-compensable regulatory measure? ................ 102 (3) Was the expropriation lawful? ............................................................................ 104 VI. QUANTUM ....................................................................................................................... 106 A. The Claimants’ Position ............................................................................................. 106 B. The Respondent’s Position ......................................................................................... 110 C. Analysis ...................................................................................................................... 114 (1) Method of valuation ............................................................................................ 115 (2) Contentious points of secondary valuation ......................................................... 117 (3) Mitigation ............................................................................................................ 121 (4) Interest................................................................................................................. 123 VII. COSTS ............................................................................................................................... 124 VIII. OPERATIVE PART .......................................................................................................... 127 iii TABLE OF SELECTED ABBREVIATIONS AND DEFINED TERMS BIT, the UK-Hungary BIT or the Treaty The Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Hungarian People's Republic for the Promotion and Reciprocal Protection of Investments, dated 9 March 1987 and entered into force on 28 August 1987 (CL-1) C- Claimants’ Exhibit CJEU The Court of Justice of the European Union CL- Claimants’ Legal Authority CM Claimants’ Memorial