Title

AGREEMENT BETWEEN THE GOVERNMENT OF HUNGARY AND THE GOVERNMENT OF GEORGIA FOR THE PROMOTION AND RECIPROCAL PROTECTION OF INVESTMENTS

Preamble

The Government of Hungary and the Government of Georgia (hereinafter referred to as the "Contracting Parties",

Desiring to intensify economic cooperation to the mutual benefit of both Contracting Parties, and promote investments of investors of one Contracting Party in the territory of the other Contracting Party, and

Affirming the Contracting Parties' adherence to international law;

Seeking to ensure that investment is consistent with the protection of health, safety and the environment, the promotion and protection of internationally and domestically recognised human rights, labour rights, and internationally recognised standards of corporate social responsibility;

Desiring to promote investment that contributes to the sustainable development of the Contracting Parties;

Aiming to secure an overall balance of rights and obligations between investors and the host state;

Being aware that the promotion and reciprocal protection of investments, according to the present Agreement, stimulates the business initiatives in this field;

Bearing in mind that, in light of the judgment of the Court of Justice of the European Union in Achmea (C-284/16), this Agreement should be terminated in the event of Georgia's accession to the European Union,

Have agreed as follows:

Body

Article 1. Definitions

For the purposes of this Agreement:

1. The term “investment” shall comprise every kind of asset invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the latter and shall include, in particular:

a. movable and immovable property as well as any other rights in rem such as mortgages, liens, pledges and similar rights;

b. shares, stocks and debentures of companies or any other form of participation in a company;

c. bonds, loans and other financial and debt instruments of an enterprise;

d. futures, options and other derivatives;

e. claims to money or to any performance having an economic value which are directly related to an investment;

f. intellectual and industrial property rights, including copyrights, trade marks, patents, designs, know-how, trade secrets, geographical indications, trade names and goodwill which are directly related to an investment;

g. any right conferred by law or under contract and any licenses and permits pursuant to law, including the concessions to search for, extract, cultivate or exploit natural resources.

Any alteration of the form in which assets are invested shall not affect their character as investment on condition that this alteration is made in accordance with the laws and regulations of the Contracting Party in the territory of which the investment has been made.

In order to qualify as an investment for the purposes of the present Agreement, an asset must have the characteristics of an investment, including such characteristics as a certain duration, the commitment of capital or other resources, the expectations of gain or profit, and the assumption of risk. The arbitration award or any order or judgement rendered with regard to the covered investment shall not be considered as investment for the purposes of the present Agreement.

For greater certainty:

“claims to money” does not include claims to money that arise solely from:

(i) commercial transactions for the sale of goods or services by a natural person or an enterprise in the territory of a Contracting Party to a natural person or an enterprise in the territory of the other Contracting Party, or

(ii) the extension of credit in relation to such transactions.

2. The term “investor” shall mean any natural or legal person of one Contracting Party that has made an investment in the territory of the other Contracting Party.

a. The term “natural person” shall mean any individual having the citizenship of either Contracting Party in accordance with its laws.

b. The term “legal person” shall mean with respect to either Contracting Party, any legal entity incorporated or constituted in accordance with its laws and; having its central administration or engaged in substantive business activities in the territory of one Contracting Party.

3. The term “returns” shall mean amounts yielded by an investment and in particular, includes profits, interest, capital gains, dividends, royalties or fees.

4. The term “territory” shall mean:

a. in the case of Hungary, the territory over which Hungary exercises, in conformity with international law, sovereignty, sovereign rights or jurisdiction;

b. in the case of Georgia, the territory defined by Georgian legislation, including land territory, its subsoil and the air space above it, internal waters and territorial sea, the sea bed, its sub-soil and the air space above them, in respect of which Georgia exercises sovereignty, as well as the contiguous zone, the exclusive economic zone and continental shelf adjacent to its territorial sea, in respect of which Georgia may exercise its sovereign rights and/or jurisdiction in accordance with the international law.

5. The term “freely convertible currency” means a currency that is widely used to make payments for international transactions and widely exchanged in principal international exchange markets provided it is not contrary to the regulations of either of the Contracting Parties, and how the International Monetary Fund determines the scope of freely convertible, or freely usable currency.

Article 2. Promotion and Protection of Investments

1. Each Contracting Party shall encourage and promote in its territory investments made by the investor of the other Contracting Party and shall admit such investments in accordance with its laws and regulations.

2. Each Contracting Party shall accord in its territory to investments of the other Contracting Party and to investors with respect to their investments fair and equitable treatment and full protection and security in accordance with paragraphs 3 and 4.

3. A Contracting Party breaches the obligation of fair and equitable treatment referenced in paragraph 2 through a measure or aseries of measures that constitute:

a. denial of justice in criminal, civil or administrative proceedings; or

b. fundamental breach of due process in judicial and administrative proceedings; or

c. manifest arbitrariness; or

d. targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; or

e. harassment, coercion, abuse of power or similar bad faith conduct.

A breach of another provision of this Agreement or any other international agreement cannot be established as claim for breach of this article.

The fact that a measure breaches domestic law does not, in and of itself, constitute a breach of this Article; a Tribunal must consider whether a Contracting Party has acted inconsistently with the obligations in paragraph 2.

4.  For greater certainty, "full protection and security" refers to the Contracting Party's obligation to ensure the physical security of investors and investments.

Article 3. Investment and Regulatory Measures

1. The Contracting Parties reaffirm the right to regulate within their territories to achieve legitimate policy objectives, such as

a. to secure compliance with laws and regulations that are not inconsistent with this Agreement;

b. the protection of environment including climate change, human, animal, or plant life, public health, social services, public education, safety, public security, public morals, or maintenance of public order;

c. to regulate the conservation of living or non-living exhaustible natural resources; or

d. to ensure social or consumer protection, privacy and data protection, or promotion and the protection of cultural diversity.

2. The mere fact that a Contracting Party regulates, including through a modification to its laws and regulations, in a manner which may negatively affect an investment or interferes with an investor?s expectations of profits, does not necessarily amount to a breach of an obligation under this Agreement.

3. For greater certainty and subject to paragraph 4, a Contracting Party?s decision not to issue, renew or maintain a subsidy

a. in the absence of any specific commitment under law or contract to issue, renew or maintain that subsidy; or

b. in accordance with terms or conditions attached to the issuance, renewal or maintenance of the subsidy, shall not constitute a breach of the provisions of this Agreement.

4. For greater certainty, nothing in this Agreement shall be construed as preventing a Contracting Party from discontinuing the granting of a subsidy or requesting its reimbursement or as requiring that Contracting Party to compensate the investor therefore, where such measure is necessary in order to comply with international obligations between the Contracting Parties or has been ordered by a competent court, administrative tribunal or other competent authority of similar nature.

Article 4. National and Most-Favoured-Nation Treatment

1. Each Contracting Party shall in its territory accord to an investor of the other Contracting Party and to an investment, treatment not less favourable than the treatment it accords, in like situations to its own investors and their investments with respect to the conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory.

2. Each Contracting Party shall in its territory accord to investors of the other Contracting Party and their investments treatment no less favourable than that it accords, in like situations, to investors of a third country or to their investments with respect to the� operation, conduct, management, maintenance, use, enjoyment and sale or disposal of their investments in its territory.

3. For greater certainty, treatment referred to in paragraph 2 shall not encompass the dispute resolution mechanism or any undertakings concerning the contractual obligations of the host state as provided in this or other international agreements. Substantive obligations in other international investment treaties and other trade agreements do not in themselves constitute "treatment", and thus cannot give rise to a breach of this Article, absent measures adopted or maintained by a Contracting Party pursuant to those obligations.

4. The National Treatment and Most-Favoured-Nation Treatment provisions of this Agreement shall not apply to advantages accorded by a Contracting Party pursuant to its obligations as a member of a customs, economic, or monetary union, a common market or a free trade area.

5. The provisions of this Article shall not be construed so as to oblige one Contracting Party to extend to the investors of the other Contracting Party, or to the investments or returns of investments of such investors the benefit of any treatment, preference or privilege, which may be extended by the former Contracting Party by virtue of any international agreement or arrangement relating wholly or mainly to taxation.

6. Nothing in this Agreement shall prevent a Contracting Party from exercising its rights and fulfilling its obligations deriving from its membership in any existing or future economic integration agreement, such as free trade area, customs union, common market, economic and monetary union, including the European Union.

7. The provisions of this Article shall not apply to government procurement by a Contracting Party or a state owned enterprise.

Article 5. Compensation for Losses

1. When investments of investors of either Contracting Party suffer losses owing to war, armed conflict, a state of national emergency, revolt, insurrection, riot or other similar events in the territory of the other Contracting Party, they shall be accorded by the latter Contracting Party treatment, as regards restitution, indemnification, compensation or other settlement, not less favourable than that which the latter Contracting Party accords to its own investors or to investors of any third State whichever is more favourable.

2. Without prejudice to paragraph 1 of this Article, investors of one Contracting Party who in any of the events referred to in that paragraph suffer losses in the territory of the other Contracting Party resulting from:

a. requisitioning of their investment or a part thereof by its forces or authorities;

b. destruction of their investment or a part thereof by its forces or authorities which was not caused in combat action or was not required by the necessity of the situation

shall be accorded by the Contracting Party, in whose territory the losses occurred, restitution or compensation.

Article 6. Expropriation

1. Investments of either Contracting Party shall not be subject to nationalisation, direct or indirect expropriation, or any measures having equivalent effect (hereinafter referred to as “expropriation”) in the territory of the other Contracting Party except for a public purpose. The expropriation shall be carried out under due process of law, on a non-discriminatory basis and shall be accompanied by provisions for the payment of prompt, adequate and effective compensation. Such compensation shall amount to the fair market value of the investment expropriated immediately before expropriation or impending expropriation became publicly known or when the expropriation took place, whichever is earlier, and shall be made without delay, be effectively realizable and be freely transferable in a freely convertible currency. In case of delay it shall include interest at a commercially reasonable rate from the date of expropriation to the date of actual payment.

2. The investor affected shall have a right, to prompt review of its claim and of the valuation of its investment under the law of the expropriating Contracting Party, by a judicial or other independent authority of that Contracting Party, in accordance with the principles set out in this Article.

3. For the purpose of this Agreement:

a. direct expropriation occurs when an investment is nationalised or otherwise directly expropriated through formal transfer of title or outright seizure.

b. indirect expropriation results from a measure or series of measures of a Contracting Party having an equivalent effect to direct expropriation, in that it substantially deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment, without formal transfer of title or outright seizure.

4. The determination of whether a measure or series of measures by a Contracting Party, in a given specific situation, constitutes an indirect expropriation requires a case-by-case, fact-based inquiry that considers, among other factors:

a. the economic impact of the measure or series of measures, although the sole fact that a measure or series of a measure of a Contracting Party has an adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred,

b. the duration of the measure or series of measures by a Contracting Party,

c. the character of the measure or series of measures, notably their object and content.

5. For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures by a Contracting Party that are designed and applied to protect legitimate policy objectives, such as the protection of public health, social services, public education, safety, environment including climate change, public morals, social or consumer protection, privacy and data protection, or the promotion and protection of cultural diversity, or to secure the payment of taxes or other contributions or penalties, do not constitute indirect expropriation.

6. This Article does not apply to the issuance of compulsory licences granted in relation to intellectual property rights, or to the revocation, limitation or acquisition of intellectual property rights to the extent that such issuance, revocation, limitation or acquisition is consistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights in Annex 1C to the WTO Agreements (“TRIPS Agreement”).

Article 7. Transfers

1. The Contracting Parties shall permit all transfers related to investments and returns. The transfers shall be made in a freely convertible currency and in accordance with the laws and regulations of the Contracting Party where investments were made without any restriction and undue delay. Such transfers shall include in particular:

a. capital and additional amounts to maintain or increase the investment;

b. returns as defined in paragraph 3 of Article 1 of this Agreement;

c. the amounts required for payment of expenses which arise from the operation of the investment, such as payment of royalties and license fees or other similar expenses;

d. payments in connection with contracts, including loan agreements;

e. proceeds of the total or partial sale or liquidation of the investment;

f. the wages or other similar earnings of natural persons engaged from abroad, in connection with an investment, subject to the laws and regulations of the Contracting Party, in which the investment has been made;

g. compensations owed pursuant to Articles 5 and 6 of this Agreement;

h. payments arising out of settlement of a dispute under Article 13 of this Agreement.

2. The transfers shall be made after the investor fulfilled all of its related financial obligations according to the laws and regulations in force of the Contracting Party in the territory of which the investment was made.

3. Nothing in this Article shall be construed to prevent a Contracting Party from delaying or preventing a transfer by applying measures in an equitable and non-discriminatory manner and not in a way that would constitute

a disguised restriction on transfers, in accordance with its laws and regulations relating to:

a. taxation;

b. bankruptcy, insolvency or protection of the rights of creditors;

c. issuing, trading or dealing in securities;

d. criminal or penal offences;

e. financial reporting or record keeping of transfers when necessary to assist law enforcement or financial regulatory authorities; and

f. the satisfaction of judicial or administrative judgements or decisions.

4. For the purpose of this Agreement, exchange rates shall be the rate published – in accordance with the laws and regulations of the Contracting Party, which has admitted the investment – by the financial institution effecting the transfer unless otherwise agreed. Should such rate not exist the official rate has to be applied unless otherwise agreed.

Article 8. Taxation

1. Nothing in this Agreement shall affect the rights and obligations of either Contracting Party under any tax convention. In the event of any inconsistency between this Agreement and any such tax convention, the tax convention shall prevail to the extent of the inconsistency.

2. Article 4 (National and Most-favoured-Nation Treatment) and Article 7 (Transfers) shall not apply to an advantage accorded by a Contracting Party pursuant to a tax convention.

3. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade and investment, nothing in this Agreement shall be construed to prevent the adoption, maintenance or enforcement by a Contracting Party of any measure aimed at ensuring the equitable or effective imposition or collection of taxes that:

a. distinguishes between taxpayers, who are not in the same situation, in particular with regard to their place of residence or with regard to the place where their capital is invested; or

b. aims at preventing the avoidance or evasion of taxes pursuant to the provisions of any tax convention or domestic fiscal legislation.

4. For the purpose of this Article:

a. “residence” means residence for tax purposes;

b. “tax convention” means a convention for the avoidance of double taxation or any other international agreement or arrangement relating wholly or mainly to taxation that either Contracting Party to this Agreement is party to.

Article 9. Subrogation

1. If a Contracting Party or its designated agency makes a payment to its own investors under a guarantee or insurance it has accorded against non-commercial risks in respect of an investment in the territory of the other Contracting Party, the latter Contracting Party shall recognize:

a. the assignment, whether under the law or pursuant to a legal transaction in that country, of any right or claim by the investor to the former Contracting Party or its designated agency, as well as,

b. that the former Contracting Party or its designated agency is entitled by virtue of subrogation to exercise the rights and enforce the claims of that investor and shall assume the obligations related to the investment.

2. The subrogated rights or claims shall not exceed the original rights or claims of the investor.

Article 10. Corporate Social Responsibility

1. Each Contracting Party reaffirms the importance of internationally recognized standards, guidelines and principles of Corporate Social Responsibility, that have been endorsed or are supported by that Contracting Party.

2. Each Contracting Party shall encourage the uptake of responsible business conduct by companies and investors in line with internationally recognised principles and guidelines of Corporate Social Responsibility and shall encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate these standards, guidelines and principles into their business practices and internal policies.

3. The Contracting Parties commit to exchanging information and, as appropriate, cooperating on promoting responsible business practices.

Article 11. Investment and Environment

1. The Contracting Parties reaffirm the importance of the right of each Contracting Party to determine its sustainable development policies and priorities, to establish its own standards of environmental protection, consistently with internationally recognized standards and agreements on environmental protection, that have been endorsed or are supported by that Contracting Party, and shall effectively implement the Paris Agreement under the United Nations Framework Convention on Climate Change, done at Paris, on 12 December 2015.

2. The Contracting Parties shall not encourage investment by weakening or reducing the levels of protection afforded in their domestic environmental laws.

3. The Contracting Party shall not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such legislation as an encouragement for an investment in its territory.

Article 12. Investment and Labour

1. The Contracting Parties reaffirm the importance of the right of each Contracting Party to determine its sustainable development policies and priorities, to establish the levels of domestic labour protection it deems appropriate. Such levels, laws and policies shall be consistent with each Contracting Party’s commitments to international labour standards and agreements, that have been endorsed or are supported by that Contracting Party.

2. The Contracting Parties shall not encourage investment by weakening or reducing the levels of protection afforded in their domestic labour legislation.

3. The Contracting Party shall not waive or otherwise derogate from, or offer to waive or otherwise derogate from such legislation in order to encourage investment in its territory.

4. Each Contracting Party is committed to effectively implement the ILO Conventions it has ratified.

Article 13. Settlement of Investment Disputes between a Contracting Party and an Investor of the other Contracting Party

1. This Article applies to legal disputes between an investor of one Contracting Party and the other Contracting Party arising out of the covered investment of the former in the territory of the latter Contracting Party. Such dispute shall concern an alleged breach of an obligation of the Contracting Party under this Agreement, which caused loss or damage to the investor of the other Contracting Party.

2. Any dispute shall, if possible be settled amicably and be subject to negotiations between the parties to the dispute.

3. The negotiations start on the date when the disputing investor of one Contracting Party requests negotiations in a written notification of dispute from the other Contracting Party. In order to facilitate the amicable settlement of the dispute, the written notice shall specify the name and the address of the investor, the factual, and presumed legal basis of the claims and the relief sought.

4. If any dispute between an investor of one Contracting Party and the other Contracting Party cannot be thus settled within a period of six months following the date of the written notification of dispute, the investor shall be entitled to submit the dispute either to:

a. the competent court of the Contracting Party in the territory of which the investment has been made; or

b. the International Centre for Settlement of Investment Disputes (ICSID) pursuant to the applicable provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington D.C. on 18 March 1965, in the event both Contracting Parties are parties to this Convention; or

c. an ad hoc arbitral tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), as amended in 2010. The parties to the dispute may agree in writing to deviate from these Arbitration Rules; or

d. an arbitral tribunal established under the Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes (“Additional Facility Rules of ICSID”), provided that either the disputing Contracting Party or the Contracting Party of the investor, but not both, is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of other States, opened for signature at Washington D. C. on March 18, 1965; or

e. any other form of dispute settlement agreed upon by the parties to the dispute.

5. Once a dispute has been submitted to one of the fora mentioned in paragraph 4 a.–e., that election shall be final and the investor shall have no recourse to the other dispute settlement fora listed in paragraph 4 a.–e.

6. If any dispute between an investor of one Contracting Party and the other Contracting Party cannot be thus settled within a period of six months following the date on which the written notification was made in accordance with paragraph 3 of this Article, and the disputing investor intends to submit the dispute to one of the fora listed in paragraph 4 a.–e., the latter shall notify in writing the other Contracting Party of its intention to submit the dispute at the very latest simultaneously to submitting the dispute to one of the fora.

7. An investor may submit a dispute as referred to in paragraphs 1–3 to arbitration in accordance with paragraph 4 only if not more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that the investor has incurred loss or damage.

8. When rendering its decision, the tribunal shall apply this Agreement as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Contracting Parties. For greater certainty, the domestic law of the Contracting Parties shall not constitute part of the applicable law. In case of Hungary, the term “domestic law” comprises the law of the European Union.

9. The tribunal referred to in paragraph 4 b.–e. shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Contracting Party. For greater certainty, in determining the consistency of a measure with this Agreement, the tribunal may consider, as appropriate, the domestic law of a Contracting Party as a matter of fact. Any meaning given to domestic law by the tribunal shall not be binding upon the courts or the authorities of that Contracting Party.

10. The respondent party may, no later than thirty (30) days after the establishment of the tribunal, or before the first meeting, whichever is earlier, file an objection that a claim or any part thereof is manifestly without legal merit. The objection may relate to the substance of the claim, the jurisdiction, or the competence of the tribunal. The respondent party shall specify as precisely as possible the basis for the objection. The tribunal, after giving the parties to the dispute an opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, issue a decision or award on the objection, stating the grounds thereof. The tribunal shall assume the facts alleged by the claimant to be true, and may also consider any relevant facts not in dispute. On receipt of the objection under this paragraph, the tribunal shall suspend the proceedings on the merits and establish a schedule necessary for considering the objection and the further conduct of the proceeding. The decision of the tribunal shall be without prejudice to the right of a respondent party to object in the course of the proceeding, to the legal merits of a claim and without prejudice to the tribunal’s authority to address other objections as a preliminary question.

11. Without prejudice to the tribunal’s authority to address other objections as a preliminary question or to the right of a respondent party to raise any such objections at any appropriate time, the tribunal shall address and decide as a preliminary question any objection by the respondent party that, as a matter of law, a claim, or any part thereof, is not a claim for which an award in favour of the investor may be made, even if the facts alleged by the investor were assumed to be true. The tribunal may also consider any relevant facts not in dispute. Such an objection shall be submitted to the tribunal as early as possible, and in any event not later than the expiration of the time limit fixed for the filing of the counter-memorial or statement of defence. On receipt of an objection under this paragraph, and unless it considers the objection manifestly unfounded, the tribunal shall suspend any proceedings on the merits, establish a schedule for considering the objection consistent with any schedule it has established for considering any other preliminary question, and issue a decision on the objection, stating the grounds thereof.