Dan Cake S.A. v. Hungary

Case summary

At a glance

Parties: Dan Cake (Portugal) S.A. v. Hungary
Case no.: ICSID Case No. ARB/12/9
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules in effect from 10 April 2006; place of proceedings Paris
Treaty: Portugal–Hungary BIT (in force 8 October 1997)
Tribunal: Prof. Pierre Mayer (President), Prof. Jan Paulsson, Mr. Toby Landau QC. In the revision proceedings Prof. Stephan W. Schill replaced Prof. Paulsson after he resigned.
Sector: Food manufacturing (biscuits and cakes); insolvency
Outcome: Hungary was held liable in 2015 for breaching fair and equitable treatment through a denial of justice by the Metropolitan Court of Budapest. The 2017 Award ordered damages. In 2018 the Tribunal continued the stay of enforcement of the Award until it decides Hungary's Achmea-based application for revision.
Amount: Claimed: about EUR 47,869,000 plus interest. Awarded (Award of 21 November 2017, as described in the 2018 decision): EUR 5,233,862.63 plus interest and costs.

The dispute

In 1996 Dan Cake, a Portuguese company, bought 86.67% of the Hungarian biscuit maker RELO and renamed it Danesita. In 2006 creditors sought Danesita's liquidation. The Metropolitan Court of Budapest declared Danesita insolvent on 18 January 2007 and appointed a liquidator. Dan Cake and Danesita negotiated with creditors, including the secured lender MKB Bank, and on 10 April 2008 asked the court to convene a composition hearing. Such a hearing was the only way to stop the sale of Danesita's assets. On 22 April 2008 the court refused to convene the hearing until seven supplementary requirements were met, and reminded the liquidator of his duty to sell the assets. The liquidator then put the factory up for public tender and sold it. Dan Cake claimed breaches of the BIT's fair and equitable treatment, full protection and security, non-impairment and expropriation provisions. Hungary did not contest jurisdiction. On the merits it argued that insolvency law protects creditors, that the court could lawfully ask for more documents, that Dan Cake had not exhausted local remedies, and that the liquidator was a private actor.

Key holdings

Jurisdiction upheld; Hungary did not contest it. The BIT's requirement to go first to local courts (Article 8.3) did not apply: the measures had an effect equivalent to expropriation, and Hungary in any case waived the requirement by not objecting. Decision on Jurisdiction and Liability ¶¶ 67–79
Under Section 41(5) of the Bankruptcy Act the court had to convene a composition hearing within 60 days. Its 22 April 2008 decision was a flagrant violation of the Act. All seven conditions it imposed were unnecessary, two directly violated Dan Cake's rights as a creditor, and at least one could not be met within a reasonable time. Together with the reminder to the liquidator to sell, the obstacles showed that the court did not want to do what was mandatory. Decision on Jurisdiction and Liability ¶ 142
Hungary breached fair and equitable treatment (Article 3.1) through a denial of justice: the decision shocks a sense of juridical propriety. The exhaustion objection failed because no appeal against the decision was possible. Dan Cake's earlier failures to act, and the possibility of bidding for the assets, were not remedies that had to be exhausted. Decision on Jurisdiction and Liability ¶¶ 145–154
The same decision was an unfair measure that impaired the liquidation of the investment, in breach of Article 3.2. That provision does not require a measure to be both unfair and discriminatory. Decision on Jurisdiction and Liability ¶¶ 155–157
The liquidator's sale of the factory did not breach international law, even if it were attributable to Hungary. Once the court had refused the hearing, the liquidator had to proceed with the sale. Causation and quantum were reserved for a later phase. Decision on Jurisdiction and Liability ¶¶ 158–161
Article 51(4) of the ICSID Convention creates no presumption either for or against a stay of enforcement pending revision. The Tribunal does not assess the merits of the revision request unless the request is abusive. Hungary's Achmea-based request was genuine and not dilatory. Pursuing revision and annulment in parallel was legitimate. Stay Decision ¶¶ 47–60
Weighing the consequences for each side, the Tribunal continued the stay. Hungary would face a risk of having to recover payments if revision succeeded. Dan Cake's harm from a delay was limited, because post-award interest runs and the proceedings were short. The request that Hungary post security was rejected, and costs were reserved. Stay Decision ¶¶ 61–69

Procedural history

27 March 2012ICSID received the Request for Arbitration dated 22 March 2012. It was registered on 19 April 2012.
17 January 2013Tribunal constituted. Proceedings were later bifurcated into jurisdiction and liability, then damages.
20–22 October 2014Hearing on jurisdiction and liability held in Paris.
24 August 2015Decision on Jurisdiction and Liability: jurisdiction upheld and Hungary found in breach of Articles 3.1 and 3.2 of the BIT.
21 November 2017Award ordering Hungary to pay EUR 5,233,862.63 plus interest and costs.
19 March 2018Hungary filed a Request for Annulment based on the CJEU's Achmea judgment.
4 June 2018Hungary filed an Application for Revision based on Achmea, with a request to stay enforcement.
8–17 August 2018Prof. Paulsson resigned. Prof. Stephan W. Schill accepted his appointment by Dan Cake, and the Tribunal was reconstituted.
25 December 2018Decision continuing the stay of enforcement pending the decision on revision; the request for security was denied.

Tribunal, counsel and experts

Decided by: Pierre Mayer President — appointed by the parties jointly (appointed by party agreement on the co-arbitrators' proposal)
Jan Paulsson Co-arbitrator — appointed by the claimant (resigned during the revision proceedings (vacancy notified 8 August 2018))
Toby Landau Co-arbitrator — appointed by the respondent
Stephan W. Schill Co-arbitrator — appointed by the claimant (replaced Jan Paulsson on 17 August 2018 (revision proceedings))
For the claimant: Andrade de Matos & Associados
For the respondent: Weil, Gotshal & Manges LLP / Siegler Ügyvédi Iroda · Horváth and Partners DLA Piper · DLA Piper France LLP
Experts: Patrique Fernandes (claimant) · Peter Kindler (respondent)