UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary
ICSID · Investment (ICSID and treaty) · Hungary · 9 Oct 2018
Why it matters
This case is significant for its detailed analysis of indirect expropriation and the fair and equitable treatment standard in the context of regulatory changes affecting the meal voucher industry. The tribunal found that Hungary's 2011 reform, which drastically increased taxes on meal vouchers, constituted an indirect expropriation of Claimants' investment without adequate compensation. The award also addressed the impact of EU law on intra-EU BITs, following the Achmea decision, but upheld jurisdiction. It provides guidance on the assessment of damages for loss of business value in regulated industries.
Summary
The case concerns a dispute between French companies UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale, and Hungary, over Hungary's 2011 reform of its meal voucher system. The reform significantly increased taxes on meal vouchers, making the business model of Claimants' Hungarian subsidiary, which issued such vouchers, economically unviable. Claimants alleged that the reform violated the France-Hungary BIT, specifically the provisions on expropriation (Article 5(2)) and fair and equitable treatment (Article 3). Hungary argued that the reform was a legitimate exercise of its sovereign right to regulate for public policy reasons, including combating the shadow economy and promoting healthier eating. The tribunal, after a detailed analysis, found that the reform constituted an indirect expropriation because it substantially deprived Claimants of the value of their investment without adequate compensation. The tribunal rejected Hungary's defense that the reform was a non-discriminatory regulatory measure, noting that the tax increase was disproportionate and targeted the meal voucher sector. The tribunal also found that Hungary had breached the fair and equitable treatment standard by failing to provide a stable and predictable regulatory framework, which frustrated Claimants' legitimate expectations. However, the tribunal dismissed other claims, including those under the Hungary-Croatia and Hungary-Lithuania BITs. On damages, the tribunal awarded EUR 23,196,000, calculated based on the loss of value of the investment, plus interest at EURIBOR plus 6.01% compounded annually from 2 January 2012. The tribunal also ordered Hungary to pay 75% of Claimants' arbitration costs. The award is notable for its application of the Achmea decision on intra-EU BITs, where the tribunal upheld its jurisdiction despite the CJEU's ruling that such BITs are incompatible with EU law, finding that the Achmea decision did not retroactively affect the validity of the arbitration agreement.
The detail
Parties: UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary
Case number: ICSID Case No. ARB/13/35
Outcome: Hungary breached Article 5(2) of the France-Hungary BIT. Hungary ordered to pay EUR 23,196,000 in damages plus interest and 75% of Claimants' arbitration costs.
Quantum: EUR 23,196,000
Applicable law: France-Hungary Bilateral Investment Treaty (BIT) of 1986; ICSID Convention; Hungarian tax laws
Issues in play: The dispute involved Hungary's 2011 tax reform that increased taxes on meal vouchers, which Claimants argued amounted to expropriation and violated fair and equitable treatment under the BIT. Hungary defended the reform as a legitimate public policy measure.
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