Croatia Waiting for ICSID Ruling in Case Brought by Hungary's MOL

By 6 February 2019

ZAGREB, February 6, 2019 - Arbitration proceedings which the Hungarian energy group MOL has launched against Croatia before the International Centre for Settlement of Investment Disputes (ICSID) in Washington are still ongoing and a ruling is pending, and Croatia has contested the jurisdiction of the arbitration tribunal in Washington in all arbitration proceedings initiated against it based on investment protection agreements with EU member states or the Energy Charter Treaty, the government said in response to a query from Hina on Wednesday.

MOL launched arbitration proceedings before the ICSID in late 2013, arguing that Croatia had failed to honour its commitments from the main agreement on gas business and its annexes. The Hungarian company is demanding about US$1 billion in damages.

At the four hearings that were held, Croatia presented its arguments denying that with its discriminatory, arbitrary and non-transparent actions it had caused damage to MOL's investment in the Croatian oil and gas company INA, and expressed expectations that its arguments would be taken into account, the government said.

The government stressed that MOL did not suffer any damage and that it was in fact the Croatian state that was adversely affected by agreements that were the result of corruption. "The hearings before the arbitration tribunal were completed in July 2018 and now we are awaiting a ruling. This process can take a year or more, given its complexity. At this stage of the process, we cannot divulge any more details," the government said.

The government recalled that Croatia had adopted the EU declaration on the legal consequences of the judgement of the Court of Justice in the Achmea case and on investment protection in the European Union, under which courts outside the EU cannot have jurisdiction over investment disputes between member states. "Consequently, in all arbitration proceedings that have been launched against Croatia based on investment protection agreements with EU member states or the Energy Charter Treaty objections were raised to the jurisdiction of the arbitration tribunal in Washington," the government said.

Last month, all EU member states undertook to terminate bilateral investment protection agreements signed between them, and 22 of them committed to ensure that the Energy Charter Treaty could not be used as a basis for arbitration following the Court of Justice judgment of March 2018. The judgment concerned a lawsuit brought by the Dutch insurance company Achmea against Slovakia.

The European Commission said at the time that "the dispute settlement mechanisms provided in these treaties as well as their intra-EU application of the Energy Charter Treaty are incompatible with EU law and discriminate between EU investors."

The Commission welcomed the fact that "the majority of member states committed to undertake action to ensure that the Energy Charter Treaty cannot be used as a basis for arbitration between investors and EU member states."

However, Hungary is not among the majority of member states that took on these commitments. Its permanent representative to the EU signed a separate statement saying that the Hungarian government will terminate all bilateral investment protection agreements with other member states either through a multilateral agreement or bilaterally. Hungary maintains that the Achmea judgment concerns only bilateral investment protection agreements and not the arbitration clause in the Energy Charter Treaty.

In addition to MOL's action, Croatia is faced with another seven ongoing arbitration cases that have been brought against it before the UCSID, including lawsuits brought by four banks over the conversion of loans denominated in Swiss francs into euros.

More news on the INA-MOL case can be found in the Business section.

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