ICSID tribunal finds Hungary in violation of its BIT obligations and awards damages to Sodexo Pass International

Sodexo Pass International SAS v. Hungary, Award, ICSID Case No. ARB/14/20


In 2014, Sodexo Pass International filed an ICSID claim against Hungary, alleging breaches of the latter’s obligations under the France–Hungary BIT (1986) regarding expropriation.

The tribunal concluded that Hungary’s tax reforms, undertaken between 2010 and 2013, and which impacted the fringe benefit voucher system offered by Sodexo, had indeed amounted to expropriation of Sodexo’s investment, violating the company’s rights under the BIT. The tribunal awarded Sodexo approximately EUR 78,362,495 in damages with interest. In doing so, the tribunal underlined a clear message: states must exercise caution when creating new legislation that can violate their international obligations.


Sodexo Pass International SAS, a French multinational corporation specializing in corporate catering services and meal vouchers, ventured into the Hungarian market in 1993. The Hungarian government, recognizing the potential benefits of such vouchers, implemented a neutral tax regime, fostering a favourable environment for Sodexo’s operations. However, starting in 2010, in a spontaneous shift in policy, Hungary enacted legislation granting preferential treatment within the industry to a newly established state-owned company, Magyar Posta. This sudden move effectively excluded private operators like Sodexo from the lucrative market in which they had invested. Alleging that Hungary’s actions had violated its rights under the France–Hungary BIT, Sodexo initiated ICSID arbitration proceedings against Hungary in 2014.

The dispute

The new legislation introduced by Hungary created stringent operational and regulatory requirements that Sodexo argued not only disadvantaged, but actively discriminated against foreign service providers in favour of domestic companies.

The Hungarian government decided to enact such legislation for several reasons. Specifically, Hungary argued that it tried to promote the growth of state-owned enterprises and that it attempted to safeguard its domestic industry. Overall, the Hungarian government argued that it tried to protect and safeguard a certain internal market with due attention to the welfare of Hungarian consumers. Hungary maintained that the prepaid corporate vouchers industry was a strategic sector and aimed to grant Magyar Posta a competitive advantage in this market in order to achieve several public policy goals.

The newly enacted legislation had a significant impact on Sodexo, which had been operating in Hungary for over 20 years and had a strong market share in the prepaid vouchers sector. The legislation indirectly excluded Sodexo from the market, causing it to lose significant business and ultimately leading to its exit from Hungary. Hungary recognized that Sodexo’s claim had the potential to amount to expropriation but argued that its regulatory measures were justified on legitimate public policy grounds related to the welfare of Hungarian consumers.

The claims

Sodexo filed an ICSID claim against Hungary, alleging that it had created a discriminatory regulatory framework that favoured Magyar Posta and had breached the France–Hungary BIT by violating FET standards and by expropriating Sodexo’s investment without compensation. Sodexo’s arguments were based on a breach of Art. 5(2) of the France–Hungary BIT. This provision upholds that the states “shall not take expropriation or nationalisation measures or any other measures the effect of which is to dispossess, directly or indirectly, the investors of the other Party of investments belonging to them in its territory, except in the public interest and provided that such measures are not discriminatory or contrary to any particular undertaking.” 

Sodexo’s claim that Hungary violated the FET principle hinged on the argument that the state’s changes in legislation were arbitrary, lacked transparency, and significantly altered the business environment in which the company had invested. Hungary defended its position by arguing that the granting of preferential treatment to Magyar Posta was justified by legitimate public policy objectives, such as promoting competition and protecting the interests of Hungarian consumers. Moreover, Hungary purported that its actions did not constitute unfair discrimination because the new tax measures were based on an objective rationale. Hungary highlighted the fact that the new regulatory measures were enacted with the goal of achieving better economic conditions for Hungarian consumers and that the underlying reason for this policy referred to creating better conditions and easier access to Hungarian customers.

Furthermore, Sodexo claimed that Hungary’s grant of preferential treatment to Magyar Posta constituted indirect expropriation of its investment, as the expropriation was not made in the public interest and the measure was discriminatory. Indirect expropriation occurs when a state’s actions, although not amounting to a formal expropriation of an investment, have a substantial effect on the value of the investment and effectively deprive the investor of its ability to control or benefit from the investment. Sodexo argued that the new tax legislation created a “substantial deprivation” of its investment, thus constituting indirect expropriation. Sodexo asserted that Hungary’s tax measures resulted in the expropriation of its shares in a company called SPH (Sodexo Pass Hungary, Sodexo’s subsidiary in Hungary), contending that the new measures destroyed SPH’s profitability and thereby devalued its shares, akin to a seizure. Sodexo argued that various elements like goodwill, know-how, customer portfolio, market access, and market share were integral to its investment and have been subject to expropriation. Despite SPH still being operational, Sodexo insisted that control of shares is irrelevant to the dispossession and that the duration of such dispossession need not be permanent. 

Hungary acknowledged the potential for expropriation in the present case but disputed the claim, emphasizing that Sodexo still held title, ownership, and control of the shares. Hungary argued that Sodexo’s grievances stem from a decrease in the value of shares rather than a true expropriation of rights. Additionally, Hungary contended that for an expropriation claim to be valid, Sodexo had to demonstrate persistent and irreversible permanence in the deprivation. Hungary also maintained that the new tax measures did not constitute indirect expropriation as they did not deprive Sodexo of its investment. Hungary highlighted that Sodexo could continue to operate in the prepaid corporate vouchers market through other channels, such as selling its vouchers directly to consumers rather than using the already existing system.

The tribunal’s analysis

The tribunal agreed with Sodexo, finding that the newly enacted legislation “effectively deprived Sodexo Pass of its right to operate in the market and compete on a levelled playing field.” The tribunal found that Hungary created an artificial advantage for Magyar Posta and caused Sodexo to be exposed to unfair treatment. The tribunal’s analysis, in this case, required a delicate balancing act: weighing Hungary’s right to regulate for public policy objectives, such as improving tax compliance, against the need to protect foreign investments from undue interference. In its reasoning, the tribunal considered several key aspects: the FET standard, the object of expropriation, the occurrence of the expropriation, the distinction between expropriation and bona fide regulatory intervention, and the lawfulness of the expropriation.

The tribunal noted that Hungary’s decision to grant preferential treatment to Magyar Posta was based on political rather than economic considerations and that the assumption that Magyar Posta could provide better services than Sodexo for Hungarian customers was not supported by evidence. Furthermore, the tribunal noted that Sodexo had built up a strong reputation and customer base in Hungary and that the unfair treatment to which it had been exposed prevented the company from leveraging its existing assets and connections.

The majority in the tribunal concluded that Sodexo’s ownership rights in SPH were protected and were indeed the object subject to expropriation, as provided for under Art. 5(2) of the France–Hungary BIT. The tribunal asserted that indirect expropriation occurs when the value of the property, such as shares in this instance, is significantly diminished to the point of effectively destroying the investment, even if the property itself is not physically seized. If Hungary’s actions directly targeted the shares, this would have constituted a case of direct expropriation. However, Hungary’s alterations to its tax laws were seen as a series of actions leading to indirect expropriation. These tax changes significantly deprived Sodexo of the core benefits of its investment, rendering it valueless as its worth was transferred to the state. The tribunal determined that these tax measures were not enacted for a public benefit and were disproportionate to their stated goals, thus leaning toward a finding of expropriation rather than bona fide regulatory measures. The tribunal established that Hungary’s main intent with the new legislation was more linked to keeping foreign voucher issuers from entering the local market rather than to pursuing a charitable reform for a consumer-oriented approach. 

Even though the tribunal agreed that Hungary had a prima facie intent related to the well-being of Hungarian consumers, Hungary was not able to produce any evidence or documents to support the tangible economic benefits of such a regulatory reform to satisfy the tribunal. Moreover, many Hungarian politicians testified that the regulatory measures were indeed taken in order to block foreign companies from profiting from the local market in the government’s attempt to gain more economic control over various industries.

In regard to compensation, neither party argued that compensation has been paid for the expropriation. Since the tribunal found that no compensation was paid and that there was no real public purpose component of the measure, the tribunal found that indirect expropriation has occurred in the absence of a verifiable or solid legal basis, as opposed to the requirements put forth by Art. 5(2) of the France–Hungary BIT. The tribunal relied on the principle of full reparation, opting for compensation as the appropriate remedy. The BIT’s criteria for compensation, which includes “prompt, adequate and effective payment” and refers to “real value,” was interpreted to mean fair market value. Considering Sodexo’s profitability, the tribunal accepted the discounted cash flow method to ascertain the investment’s fair market value. Consequently, Sodexo was awarded its claim of EUR 78,362,495 along with pre- and post-award interest.

In his dissenting opinion, J. Christopher Thomas concurred with the majority’s finding of liability and damages but disagreed on the characterization, seeing the dispossession as temporary rather than constituting expropriation. The arbitrator argued that Hungary had the right to change its tax regime, and Sodexo had no legitimate expectation otherwise. However, the majority contended that Hungary’s actions effectively transferred Sodexo’s market share to the state in a discriminatory and disproportionate manner, rendering Sodexo’s investment worthless.


The Sodexo Pass v. Hungary case illustrates the intricate interplay between a state’s regulatory authority and its obligations toward foreign investments under investment treaties. The tribunal’s scrutiny of Hungary’s tax reforms underlines the in-depth scrutiny of the threshold required to establish regulatory expropriation. Despite the inherent challenges associated with proving such expropriation, the tribunal ruled in favour of Sodexo, affirming that Hungary’s actions amounted to indirect expropriation. Central to the tribunal’s decision was Sodexo’s demonstration of how its investment suffered under Hungary’s regulatory framework. In contrast, Hungary’s defence faltered due to a lack of consistent evidence, leaving its rebuttal against Sodexo’s expropriation claim unsubstantiated. 

For foreign investors, this ruling can be seen as a victory, in which a tribunal offers protection against unforeseeable and detrimental regulatory interventions by host states. Nevertheless, the case also raises pertinent questions regarding the impact of international law on domestic affairs. While acknowledging the importance of upholding international obligations, the tribunal’s examination of Hungary’s arguments and subsequent findings undoubtedly carry implications for the regulatory autonomy of states. Thus, the Sodexo Pass v. Hungary case also underscores the complex interplay between international investment law and national regulatory policies.


The arbitral tribunal was composed of William W. Park (President, from the United States and Switzerland), Andrea Carlevaris (appointed by claimant, from Italy), and J. Christopher Thomas (appointed by respondent, from Canada). 

The final award is available at https://jusmundi.com/en/document/decision/en-sodexo-pass-international-sas-v-hungary-award-monday-28th-january-2019#decision_5179

The dissenting opinion of arbitrator J. Christopher Thomas is available at https://jusmundi.com/en/document/opinion/en-sodexo-pass-international-sas-v-hungary-separate-and-dissenting-opinion-of-j-christopher-thomas-monday-28th-january-2019#opinion_2865.  

The France – Hungary BIT is available at https://jusmundi.com/en/document/treaty/en-agreement-between-france-and-hungary-for-the-protection-and-the-promotion-of-investment-france-hungary-bit-1986-thursday-6th-november-1986#pa_25199



Mihai Coca-Constantinescu is a qualified jurist, which holds an LL.B. in International and European Law from the University of Groningen, and is an LL.M. candidate in International Trade and Investment Law at the University of Amsterdam. He currently works in the private sector.