ADC Affiliate and ADC & ADMC Management v Hungary

Year of the award: 2006
Forum: ICSID
Applicable investment treaty: Cyprus - Hungary BIT (1989)

Arbitrators:
Neil Kaplan CBE QC, President
The Hon. Charles Brower
Professor Albert Jan van den Berg

Executive summary

In 1995, the Claimants, ADC Affiliate and ADC & ADMC Management, both Cypriot companies ultimately owned by Canadian investors, entered into a contract with a Hungarian state agency, ATAA, whereby they had to renovate, construct and operate two terminals of Budapest-Ferihegy International Airport in Hungary. In late 1998 the Claimants successfully finished construction and renovation of the terminals and operated them until the end of 2001. However, in December 2001 a Decree issued by the Minister of Transport of Hungary resulted in the take over of all the activities related to the operation of the Airport from the Claimants.

In 2003, ADC Affiliate and ADC & ADMC Management initiated arbitration proceedings against Hungary under the Cyprus-Hungary BIT (1989) claiming that their investments had been expropriated and requesting an award of damages in the amount ranging from US$ 68 million to US$ 99.7 million.

The Tribunal found that an unlawful expropriation had indeed occurred. In its evaluation of damages, the Tribunal declined to apply the BIT standard of "just compensation" equal to "market value of the expropriated investments at the moment of the expropriation", as in the Tribunal's view, that BIT standard applied in cases of lawful expropriation. Instead, the Tribunal applied relevant rules of customary international law as elucidated in the PCIJ Chorzów Factory case ("payment of a sum corresponding to the value which a restitution in kind would bear"). As a relevant date for the assessment of damages, the Tribunal chose the date of the Award because the value of the investments increased considerably since the date of expropriation.

To estimate the market value of the investments, the Tribunal applied the DCF analysis, although without a detailed explanation. The Tribunal awarded approximately US$ 76.2 million to the Claimants, plus post-Award interest at 6% p.a. compounded monthly until payment.