Vigotop Limited v. Hungary
ICSID · Investment (ICSID and treaty) · Hungary · 1 Oct 2014
Why it matters
This case is significant for its detailed analysis of the boundary between contractual termination and expropriation in investment treaty arbitration. The tribunal held that a state's termination of a concession contract for material breach by the investor, without evidence of abuse of right or bad faith, does not amount to expropriation. It underscores that investors bear the risk of failing to meet contractual conditions, even when political changes affect the investment climate. The decision also clarifies that proportionality analysis is not required when the breach occurs at an early stage of performance.
Summary
Vigotop Limited, a Cypriot company, invested in a large-scale casino and entertainment project (King's City Project) in Hungary. The project involved a land swap agreement and a concession contract signed in 2009 with the Hungarian government. After a change of government in 2010, the new Fidesz administration terminated the concession contract in January 2011, citing Vigotop's failure to secure a valid site for the casino as required by the contract. Vigotop initiated ICSID arbitration under the Cyprus-Hungary BIT, claiming expropriation without compensation. The tribunal dismissed all claims. It found that Vigotop had materially breached the concession contract by failing to obtain a site with clear title, and that Hungary had legitimate contractual grounds for termination. The tribunal also rejected Vigotop's argument that Hungary abused its termination right, noting that Vigotop had not proven that government actions prevented it from securing an alternative site. The tribunal emphasized that the investment was at an early stage (no construction had begun) and that proportionality of termination was not relevant. Each party bore its own costs and half of the arbitration costs.
The detail
Parties: Vigotop Limited v. Hungary
Case number: ICSID Case No. ARB/11/22
Outcome: Claimant's claims dismissed; Respondent's claim for dismissal granted; each party bears own costs and half of arbitration costs.
Applicable law: Cyprus-Hungary BIT (1989); ICSID Convention; Hungarian law
Issues in play: The case involved the interplay between contractual termination rights under Hungarian law and the expropriation protection under the BIT, specifically whether a state's termination of a concession contract for alleged breach constituted an expropriation without compensation.
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