Sodexo Pass International SAS v Hungary ICSID Case No. ARB/14/20 - Annulment Proceeding - Excerpts of Decision on Annulment - 7 May 2021
Country
Year
2021
Summary
Source: icsid.worldbank.org
DECISION ON ANNULMENT
Members of the ad hoc Committee
Mr. Andrés Jana Linetzky, President of the ad hoc Committee
Dr. Ucheora Onwuamaegbu, Member of the ad hoc Committee
Dr. Jacomijn van Haersolte-van Hof, Member of the ad hoc Committee
TABLE OF CONTENTS
I. INTRODUCTION AND PARTIES
II. PROCEDURAL HISTORY
III. THE PARTIES' REQUESTS FOR RELIEF
A. Hungary's Request for Relief
B. The Claimant's Request for Relief
IV. THE PARTIES' POSITIONS AND COMMITTEE'S ANALYSIS
A. Manifest Excess of Powers (Article 52(1)(b))
(1) The Parties' Positions
(2) The Committee's Analysis
B. Serious Departure From a Fundamental Rule of Procedure (Article 52(1)(d))
(1) The Parties' Positions
(2) The Committee's Analysis
C. The Award Failed To State The Reasons On Which it is Based (Article 52(1)(e))
(1) The Parties' Positions
(2) The Committee's Analysis
V. COSTS
A. The Parties' Submissions on Costs
B. The Committee's Decision on Costs
VI. DECISION
I. INTRODUCTION AND PARTIES
1. This decision concerns an application for annulment (the "Application"), submitted by Hungary ("Hungary", the "Applicant" or the "Respondent"), of the Award rendered on January 28, 2019, by a tribunal composed of Professor William W. Park (President), Mr. Andrea Carlevaris, and Mr. John Christopher Thomas QC (the "Tribunal") in ICSID Case No. ARB/14/20 (the "Award") in the arbitration proceeding between Sodexo Pass International SAS ("Sodexo" or the "Claimant") and Hungary. The Award was accompanied by the separate and dissenting opinion of Mr. Thomas dated January 19, 2019 (the "Separate and Dissenting Opinion").
2. The Applicant and the Claimant are collectively referred to as the "Parties" and individually referred to as a "Party." The Parties' legal representatives and their addresses are listed above on page (ii).
3. The Award decided a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the Agreement between the Government of the Republic of France and the Government of the People's Republic of Hungary on the Encouragement and Reciprocal Protection of Investments dated November 6, 1986, which entered into force on April 10, 2006 (the "BIT" or the "Treaty"), and the Conventionon the Settlement of Investment Disputes betweenStates and Nationals of Other States (the "ICSID Convention") which entered into force on October 14, 1966.
4. In 1993, Sodexo S.A. incorporated its Hungarian subsidiary ("Sodexo Pass Hungary" or "SPH") to conduct a food and meal voucher business. Three years later, Sodexo S.A. incorporated Sodexo Pass International (Sodexo) as a French company, which is the Claimant in this proceeding.
5. The facts of this case are similar to two other food voucher cases, Edenred v. Hungary and UP and CD v. Hungary.1 The investors in all three cases depended on a Hungarian tax regime in place at the relevant time, which was favorable to their business.
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7. Sodexo brought an expropriation case against Hungary based on Article 9 of the France-Hungary BIT. The Edenred v. Hungary and UP and CD v. Hungary cases are based on the same BIT. Article 9(2) defines the scope of arbitration by limiting arbitration to "disputes concerning dispossession measures [...]."
8. The award in Edenred was rendered on December 13, 2016 and on June 14, 2017, the Tribunal indicated to the Parties that its analysis might benefit from seeing the Edenred award. The Claimant did not object to this, but Hungary opposed it on the basis that it would be prejudicial and unfair. On June 26, 2017, the Tribunal directed that the Edenred award be disclosed to the Tribunal, redacted with respect to Edenred's confidential information only, but not regarding the facts of the case.
9. The award in UP was rendered on October 9, 2018, and on October 11, 2018, Sodexo requested that the Tribunal admit the UP award into the record of this case. The Tribunal granted the Claimant's request and ordered the production of the UP award by the Respondent. Because this award was already in the public domain (according to the Respondent, released byunauthorized sources),the Respondent submittedit unredacted.
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11. In addition, the EC applied to the Tribunal for leave to intervene in the case as a non-disputing party. After reviewing the Parties' comments, the Tribunal granted the EC's request, and the EC submitted its amicus curiae brief on September 14, 2018.
12. The EC's submission focused on the impact of the Slovak Republic v. Achmea BV case ("Achmea Decision")2 on the Tribunal's jurisdiction. First, the EC argued that, under the principle of primacy, EU law prevails over the BIT's arbitration clause (Article 9(2) of the BIT) in the event of conflict of laws. Thus, Article 9(2) of the BIT became invalid when Hungary joined the European Union ("EU"). Second, the principle of posteriority found at Article 30(3) of the Vienna Convention on the Law of Treaties (1969) ("VCLT") supports the EC's view because Article 30(3) provides that when the parties to an earlier treaty are also parties to a later treaty, but the earlier treaty is not terminated or suspended, the earlier treaty applies only to the extent that its provisions are compatible with the later treaty. Third, the EC argued that Achmea's reasoning that intra-EU investment arbitration is incompatible with EU law is applicable to ICSID arbitrations because the ICSID system precludes review of an award by a national judge of a Member State, thus forestalling any possibility that a judge of a Member State's court could control the substance of an ICSID award. The EC made other arguments such as the sunset clause seeking to prolong the applicability of the arbitration clause being invalid, and that any award in this dispute would be unenforceable because it would be based on an invalid consent.
13. The Tribunal found that the dispute before it did not involve the application of the law of any EU State or of the EU itself. Article 9(3) of the BIT indicates that the Tribunal shall apply the provisions of this Agreement and the rules and principles of international law. This is in contrast to some BITs which refer to the application of the laws of the host State, as in Article 8(6) of the Netherlands-Slovakia BIT that was central to the decision in Achmea. Also, the Tribunal noted that there was no allegation of a violation of EU law in this case. Based on this, the Tribunal applied neither Hungarian law nor EU law. In addition, the Tribunal found that the CJEU ruling would not bind the Tribunal but the EU state court in Germany that referred the case, and the ruling's erga omnes effect affects EU Member State courts, not an ICSID tribunal. The Tribunal found that the TFEU and the France-Hungary BIT do not share the same subject matter, as required for application of the VCLT's provisions 59 and 30 on conflicts and that neither the TFEU's nor the VCLT's provisions on conflict of laws apply in this arbitration. Thus, the Tribunal found that the Achmea Decision did not preclude its jurisdiction in this case.
14. The Majority found that Sodexo's shareholding rights in SPH constituted a protected investment under the BIT, and such rights were the subject of expropriation. The Tribunal proposed a definition of indirect expropriation which the Parties accepted.
Based on this definition, the Tribunal found that Hungary's various changes to its tax laws constituted a series of measures leading to the indirect expropriation. The Tribunal also found that these tax law changes substantially deprived the Claimant of the fundamental attributes of property in its investment, including use and enjoyment. The changes rendered the Claimant's investment worthless as its value was transferred to the State. Based on their object, content and intent, the Tribunal found that the tax measures were not made for a public purpose. The Tribunal also found that the severity of the tax measures made them disproportional to their stated objectives. The Tribunal concluded that all these factors militate in favor of a finding of expropriation rather than bona fide regulatory measures.
15. Based on the Chorzów Factory principle of full reparation as reflected in Article 31 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (2001), the Tribunal found that compensation is the most appropriate form of full reparation in this case. The BIT's own formula for compensation is "prompt, adequate and effective payment." The BIT also refers to "real value" which the Tribunal found to be equivalent to Fair Market Value. Given Sodexo's proven record of profitability, the Tribunal accepted the Discounted Cash Flow method to be an appropriate standard of valuation to determine the investment's fair market value. The Tribunal, thus, awarded to the Claimant compensation in the sum of seventy-eight million, three hundred and sixty- two thousand, four hundred and ninety-five Euros (78,362,495) plus pre- and post- award interest.
16. The Tribunal decided that each party would bear its own costs based on the fact that neither side pursued its claims or defenses in bad faith, and the fact that difficult questions arose which divided the Tribunal.
17. In his Separate and DissentingOpinion, Mr. Thomas agreed that there is "dispossession"
in the sense of Article 5(2) of the BIT and in that regard, he agreed with the Majority's finding of liability and award of damages. However, finding that the dispossession was "temporary," he disagreed with the finding of expropriation, arguing that a finding of discrimination and disproportionality by the Majority cannot morph "dispossession" into "expropriation." For Mr. Thomas, the Claimant did not have a right to the favorable Hungarian tax regime in question. Hungary would be fully within its rights to do away with the tax regime. Hungary did not commit to maintaining the regime, and the Claimant certainly had no legitimate expectation otherwise. The Majority's rebuttal on this point is that Hungary could have rid itself of the tax regime on which the voucher business depended, and this would have had a devastating effect on the French issuers' investment without any right of action accruing to the French issuers. However, Hungary did not do that. Rather, it put in place a system which, in effect, transferred the French issuers' market share in the voucher business to the State in a way that was discriminatory, not for a public purpose, and disproportional to its stated purpose and which rendered the French issuers' investment worthless.
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VI. DECISION
262. For the reasons set forth above, the Committee decides as follows:
(1) Hungary's Application for Annulment of the Award rendered on January 28, 2019, in the arbitration proceeding between Sodexo Pass International SAS and Hungary is rejected in its entirety;
(2) Each Party shall bear the costs of its own legal fees and expenses related to the annulment procedure; and
(3) Hungary shall bear all administrative costs incurred by the Centre related to the annulment procedure.
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