* This text was reproduced and reformatted from the text available at the International Centre for Settlement of Investment Disputes website (visited Mar. 30, 2011) http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC1730_En&caseId=C114.

1 Energy Charter Treaty, Dec. 17, 1994, 2080 U.N.T.S. 100

2 AES Summit Generation Ltd. v. Republic of Hungary, ICSID Case No. ARB/07/22, ¶ 4.9 (Sept. 23, 2010), available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC1730_En&caseId=C114.

3 Id. ¶ 4.11.

4 Id.

5 Id. ¶ 7.2.3. The Treaties refer to the European Community and the Energy Charter Treaty.

6 Id. ¶ 7.6.5.

7 Id. ¶ 7.6.6.

8 Id.

9 Id. ¶ 7.6.9.

10 Id. ¶ 9.3.5.

11 Id. ¶ 9.3.8 (citing Duke Energy Electroquil Partners v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, ¶ 340 (Aug. 18, 2008); Técnicas Medioambientales Tecmed S.A v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, ¶ 154 (May 29, 2003); CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ABB/01/8, Award, ¶ 275 (May 12, 2005)).

12 Id. ¶ 9.6.13.

13 Id. ¶ 9.3.18.

14 Id. ¶ 9.2.23.

15 Id. ¶ 9.2.24.

16 Id. ¶ 9.3.29.

17 Id. ¶ 9.3.35.

18 Id. ¶ 9.3.40.

19 Id. ¶ 9.3.73.

20 Id. ¶ 10.3.6.

21 Id. ¶ 10.3.8.

22 Id. ¶ 10.3.12.

23 Id. ¶ 10.3.18.

24 Id.

25 Id. ¶ 10.3.34

26 Id. ¶¶ 10.3.45-53.

27 Id. ¶ 13.1.1.

28 Id. ¶ 13.3.2.

29 Id. ¶ 13.3.5.

1 Article 10(1) and 10(7), and Article 13 of the ECT read as follows:

Article 10(1) Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party.

Article 10(7) Each Contracting Party shall accord to Investments in its Area of Investors of other Contracting Parties, and their related activities including management, maintenance, use, enjoyment or disposal, treatment no less favourable than that which it accords to Investments of its own Investors or of the Investors of any other Contracting Party or any third state and their related activities including management, maintenance, use, enjoyment or disposal, whichever is the most favourable.

Article 13(1) Investments of Investors of a Contracting Party in the Area of any other Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as “Expropriation”) except where such Expropriation is:

• for a purpose which is in the public interest;

• not discriminatory;

• carried out under due process of law; and

• accompanied by the payment of prompt, adequate and effective compensation.

Such compensation shall amount to the fair market value of the Investment expropriated at the time immediately before the Expropriation or impending Expropriation became known in such a way as to affect the value of the Investment (hereinafter referred to as the “Valuation Date”).

Such fair market value shall at the request of the Investor be expressed in a Freely Convertible Currency on the basis of the market rate of exchange existing for that currency on the Valuation Date. Compensation shall also include interest at a commercial rate established on a market basis from the date of Expropriation until the date of payment.

Article 13(2) The Investor affected shall have a right to prompt review, under the law of the Contracting Party making the Expropriation, by a judicial or other competent and independent authority of that Contracting Party, of its case, of the valuation of its Investment, and of the payment of compensation, in accordance with the principles set out in paragraph (1).

Article 13(3) For the avoidance of doubt, Expropriation shall include situations where a Contracting Party expropriates the assets of a company or enterprise in its Area in which an Investor of any other Contracting Party has an Investment, including through the ownership of shares.

2 Exhibit C-4.

3 The Original PPA required MVM to pay several different types of fees to AES Tisza, of which there were two major components: (a) the Availability Fee (payment for capacity to be in place in case it is needed); and (b) the Energy Fee (payment for the cost of the power it actually requires to have generated).

4 Memorial, ¶ 79.

5 Memorial, ¶ 79.

6 Exhibit C-7.

7 Exhibit C-7, p. 4.

8 Exhibit C-9, p. 2.

9 Exhibit C-9, p. 24 of the 2001 Amendment Agreement.

10 This latter provision is to be understood against Act CX of 2001 on Electricity (“2001 Electricity Act”) which provided for termination of Hungary’s existing administrative pricing regime for generators from 1 January 2004.

11 Claimants’ Request for Arbitration, p. 8. This is not contested by the Respondent.

12 As the debate developed, references in the press and elsewhere were made to generators profits as “extra,” “too high,” “huge” and “luxury.” The Hungarian public was described as “defenceless” against rising prices and it was said that such “luxury profits” must be “knocked down.”

13 Memorial, ¶ 110.

14 The difference between what MVM paid for electricity and what it could recover.

15 Article 26(7) ECT reads:

(7) An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph (4) and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)(b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.”

16 Article 1(6) of the ECT reads:

(6) “Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and includes: tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges; (b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise; (c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment; (d) Intellectual Property; (e) Returns; (f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector. A change in the form in which assets are invested does not affect their character as investments and the term “Investment” includes all investments, whether existing at or made after the later of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the “Effective Date”) provided that the Treaty shall only apply to matters affecting such investments after the Effective Date. “Investment” refers to any investment associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party in its Area as “Charter efficiency projects” and so notified to the Secretariat.

17 Article 26(1) and (2) of the ECT read:

(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.

(2) If such disputes can not be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution . . .

18 Even though there was a procedure started by the European Commission to investigate the alleged state aid awarded by Hungary through Power Purchase Agreements, it is to be noted that such procedure was not between the parties to this dispute but between the European Commission and Hungary. In addition, the subject matter in such investigation was to determine whether the Power Purchase Agreements contained state Aid, under European Law (Final Decision C(2008)2223 of June 04, 2008), which is a different dispute than the one subject to this arbitration. The subject matter of that proceeding being different from the subject matter of this dispute, allows the Tribunal to sustain that the claim should not be barred by res judicata.

19 Article 26(3) of the ECT reads:

(3)(a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article.

(b)(i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph (2)(a) or (b) (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41.

20 Respondent’s post-hearing submission, ¶ 95.

21 Transcript, p. 1422: 1-6

22 Respondent’s post-hearing submission, ¶ 96.

23 In order to support this claim, Claimants mention that: a) in CME v. Czech Republic, the Tribunal found that the breach of legal security of contract rights underpinned the Claimants’ investment; b) Schreuer has maintained that “a willful refusal by a government authority to abide by its contractual obligations, abuse of government authority to evade agreements with foreign investors and action in bad faith in the course of contractual performance may well lead to a finding that the Standard of fair and equitable treatment has been breached”; and c) in the CMS v. Argentina case, the Tribunal considered that the fair and equitable treatment standard was violated when the state put a freeze on contractually agreed tariff adjustments intended to increase gas prices. Claimants’ Memorial, ¶¶ 200-204.

24 Claimants’ post-hearing submission, ¶¶ 101-103.

25 Memorial, ¶ 215.

26 Exhibit C-1, Article 10(1).

27 Claimants note that in Metalcald and in Tecmed, the Tribunals found that stability and predictability of business framework was an accepted element of the fair and equitable standard. Memorial, ¶ 202.

28 In order to support this claim, Claimants mention that: a) the Tecmed Tribunal resolved that “the foreign investor expects the host state to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor”; b) in Maffezini v. Spain, the Tribunal said that “the lack of transparency with which this loan transaction was conducted is incompatible with Spain’s commitment to ensure the investor a fair and equitable treatment in accordance with Article 4(1) of the same treaty. Accordingly, the Tribunal finds that, with regard to this contention, the claimant has substantiated his claim and is entitled to compensation . . . “; and c) the Tribunal in Waste Management determined that the lack of due process may be a “manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candor in an administrative process.” Memorial, ¶¶ 205-208.

29 Claimants’ post-hearing submission, ¶¶ 84-86.

30 Counter-Memorial, ¶ 125.

31 Hungary refers to the Saluka case and says “that the tribunal found that regulatory changes, if not discriminatorily applied, would not amount to a fair and equitable treatment violation.” Counter-Memorial, ¶ 326.

32 Hungary notes that in the Eastern Sugar case, the Tribunal stated that an investment treaty may not be invoked “each time the law is flawed or not fully and properly implemented by a State,” otherwise “every aspect of any legislation or its implementations could be brought before an international arbitral tribunal under the guise of a violation of a BIT.” Counter-Memorial, ¶ 359.

33 Hungary indicates that “As Thomas Wälde has explained, “[t]he general investment standards under Article 10(1) . . . need to be specified and applied in light of Article 20(2),” which is the ECT’s specific provision on transparency. This imposes a “relatively toothless obligation,” requiring only that States promptly publish laws and regulations affecting investments.” Counter-Memorial, ¶ 360.

34 Counter-Memorial, footnote 561; Memorial, footnote 222.

35 Exhibit C-111, pp. 102 et seq. and F(i).

36 Claimants’ post-hearing submission, ¶ 101.

37 Claimants’ post-hearing submission, ¶ 102.

38 Article 26(6) ECT.

39 Specifically, the 2001 Settlement Agreement and the 2001 PPA did not contemplated that after 2004 no reintroduction of regulated pricing could take place.

40 Award, May 29, 2003, ¶ 154, quoting the International Court of Justice, Case: Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), 128, p. 65, July 20, 1989, ICJ, General List No. 76.

41 First Cycle, 1992-2000; Second Cycle, 2001-2004 (generators exempted for 2004); Third Cycle, 2005-2008 (applied to generators from December 2006-2007).

42 This study had been done earlier by HEO economists to determine the appropriate figure for return on assets for the initial price calculation for the 2005-2009 pricing cycle for electricity supply and distribution companies which had remained under an administrative pricing regime for that period.

43 Counter-Memorial, ¶ 376.

44 Respondent’s post-hearing submission, ¶ 65.

45 Respondent’s post-hearing submission, ¶ 67.

46 Exhibit R-196.

47 Exhibit C-82.

48 Exhibit C-83.

49 Exhibit C-83.

50 Exhibit C-82.

51 Transcript, pp. 844:2-845:2; Exhibit R-172, ¶ 229.

52 Exhibit SF 19, p. 9.

53 Exhibit C-58, Article 55 of the 1994 Electricity Act.

54 Memorial, ¶ 65.

55 On the one hand, Claimants stated that the 8% return on equity was a starting price, on the other hand, Respondent stated that the 8% return on equity was a maximum cap.

56 Kovacs Statement, ¶ 39.

57 Békés First Statement, p. 36 and p. 38.

58 Memorial, ¶ 239.

59 Counter-Memorial, ¶ 383.

60 With the difference that Claimants specify that the national generator that received a better treatment is Paks. Memorial, ¶ 239.

61 With the difference that Claimants specify that the other generators that received a better treatment are Budapesti, Pannon, Mátra and Csepeli. Memorial, ¶ 245.

62 Memorial, ¶ 254.

63 Exhibit CA-80, T.M. Wälde, Energy Charter Treaty-based Arbitration, Transactional Dispute Management, Vol. 1, Issue 3, p.30.

64 Compañia de Aguas del Aconquija, S.A. and Vivendi Universal S.A. v. Argentine Republic, Award, 20 August 2007, ¶ 7.4.16

65 Brownlie, Ian, System of the Law of Nations: State Responsibility (1986), p. 162 Google Scholar.

66 Memorial, ¶ 255.

67 Memorial, ¶ 255.

68 Memorial, ¶¶ 256 et seq.

69 Memorial, ¶ 258.

70 Memorial, ¶ 263.

71 Counter-Memorial, ¶ 406.

72 AES’s memorandum to the EC, R-93, 13 February 2006.

73 The total cost of the arbitration proceeding (US$ 887,839.04) includes an estimate of the courier expenses for the dispatch of the award and may thus be subject to slight change. A final financial statement will be issued by the Centre upon the closure of the trust fund account established for this case.