The intersection of international investment law and domestic politics often leads to high-profile arbitration cases, with the annulment of awards frequently making headlines. One such case is the long-standing dispute between the Hungarian energy company MOL Group and the Republic of Croatia. The saga encapsulates the complex dynamics of investment arbitration, allegations of corruption, and the challenges of enforcing awards in politically sensitive contexts.
The Origins of the Dispute
The origin of the dispute between MOL, a Hungarian multinational oil and gas company, and Croatia can be traced back to 2008 when MOL managed to increase its shares in INA, the Croatian multinational oil company, to 47.16%. This was followed by amendments to the Shareholder Agreement between the Government of Croatia and MOL in 2009. As per the amendments, MOL was given control over INA, and the Government agreed to take over INA’s gas storage facilities and to take over the business of gas sales. The former Prime Minister of Croatia, Ivo Sanader, was subsequently arrested on allegations of bribery. When the amendments to the Shareholder Agreement were concluded, Sanader had allegedly accepted bribes from MOL in order to facilitate their conclusion.[1]
MOL v. Croatia Arbitration Proceedings: Round I
MOL initiated ICSID arbitration proceedings against Croatia in 2013, claiming that Croatia’s actions were in breach of the Energy Charter Treaty (“ECT”) (ICSID Case No. ARB/13/32). In 2014, Croatia then responded by initiating arbitration proceedings based on the Shareholder Agreement under the UNCITRAL Rules (Republic of Croatia v. MOL Hungarian Oil and Gas Company Plc, PCA Case No. 2014-15), arguing that, on account of the alleged corruption on the part of Sanader, the amendments to the Shareholder Agreement were null and void. The arbitration proceedings were both ongoing in parallel to Sanader’s criminal trial in Croatian courts. Croatian courts sentenced Sanader and Hernádi for corruption, but arbitral tribunals were not convinced by the evidence.
The ICSID arbitral tribunal ultimately ruled in favour of MOL in 2022, dismissing Croatia’s corruption allegations due to insufficient evidence. The arbitral tribunal found that Croatia had breached its obligations under the Energy Charter Treaty. Consequently, Croatia was ordered to pay compensation to MOL, with reports indicating an award of approximately USD 184 million in damages, plus interest.
In the UNCITRAL proceedings, the tribunal also dismissed Croatia’s claims of bribery and breaches of domestic corporate law against MOL. Consequently, Croatia was ordered to bear the tribunal’s fees and administrative fees, as well as most of MOL’s legal and expert fees and other expenses.
However, this was not the end of the saga, as Croatia started annulment proceedings. MOL, in turn, started enforcement proceedings in the United States and two new arbitration proceedings.
Croatia’s Push for Annulment
Following the tribunal’s decision, Croatia sought annulment of the award under the ICSID Convention. Annulment proceedings under ICSID are not appeals; they are limited to specific grounds, such as the tribunal’s manifest excess of powers, a serious departure from fundamental procedural rules, or failure to state reasons for its decision. Under Article 52 of the ICSID Convention, the grounds for the annulment of the award are the following:
- The Tribunal was not properly constituted;
- The Tribunal has manifestly exceeded its powers;
- There was corruption on the part of a member of the Tribunal;
- There has been a serious departure from a fundamental rule of procedure; or
- The award has failed to state the reasons on which it is based.
Croatia’s annulment request focused on alleged procedural irregularities and the tribunal’s handling of evidence related to corruption claims. Croatia argued that the tribunal failed to properly assess critical evidence, undermining the award’s legitimacy.
Following the unfavourable outcome in the UNCITRAL case, Croatia also sought to annul the UNCITRAL arbitration award before Swiss courts, as the seat of the arbitration was in Geneva, Switzerland. The Swiss Federal Supreme Court, serving as the competent authority for such matters, dismissed Croatia’s request to revoke the arbitration ruling on 17 October 2017 (Case No. 4A_53/2017). Croatia then submitted a request for revision of the UNCITRAL award. In its decision on 23 September 2022 (Case No. 4A_69/2022), the Swiss Federal Supreme Court examined whether a broadly formulated waiver of appeal in the arbitration agreement could exclude the possibility of seeking a revision of the arbitral award. The court concluded that such a waiver could indeed preclude the remedy of revision, thereby rejecting Croatia’s request.
Enforcement Proceedings Before U.S. Courts
Following the issuance of the favourable decision at the ICSID in July 2022, MOL initiated enforcement proceedings in the United States to ensure compliance with the award. In January 2023, MOL filed a petition with the U.S. District Court for the District of Columbia to enforce the ICSID award, citing Croatia’s failure to satisfy any portion of the awarded sum. In September 2024, the court denied Croatia’s motion to dismiss MOL’s enforcement action, allowing the proceedings to continue. As of November 2024, MOL submitted a statement of material facts to the court, detailing the arbitration award and Croatia’s non-compliance. The enforcement proceedings in the U.S. are ongoing, with MOL seeking to compel Croatia to honour the ICSID tribunal’s award.
MOL v. Croatia Arbitration Proceedings: Round II
In 2022, MOL launched a third arbitration under the UNCITRAL Rules, which is currently pending at the PCA (PCA Case 2023-09). This contract-based arbitration concerns MOL’s allegation that Croatia breached the parties’ agreements regarding MOL’s investments in INA – in a context where MOL’s contractual claims were dismissed in the MOL Hungarian Oil and Gas v. Croatia (1) arbitration for lack of jurisdiction.
In 2024, MOL started another arbitration at the ICSID (ICSID Case No. ARB/24/19) under the Energy Charter Treaty (ECT). The request for arbitration was registered by the ICSID on 20 June 2024. The tribunal was constituted in November 2024.
Broader Implications
The MOL v. Croatia annulment saga has significant implications for investment arbitration. It underscores the challenges tribunals face in addressing corruption allegations, particularly in cases where evidence is scarce or politically charged. It also highlights the limits of annulment as a remedy, given its narrow scope under the ICSID Convention and the traditional pro-arbitration stance of the Swiss courts.
Moreover, the case raises questions about the enforceability of awards in politically sensitive disputes. Even if the annulment request is denied, Croatia’s resistance to compliance could complicate MOL’s efforts to enforce the award. This reflects a broader trend in which States challenge the legitimacy of investment arbitration outcomes, fueling debates about the system’s fairness and effectiveness. The annulment proceedings in the MOL v. Croatia case are also a reminder of the intricate interplay between law, politics, and business in investment arbitration. As the saga unfolds, it will provide valuable insights into how the annulment mechanism of investment treaty awards operates and the extent to which it can address concerns about the integrity of arbitral awards.
[1] B. Praštalo, MOL v. Croatia Saga: A Two-Faced Janus in the ISDS Reform Debate, 2 January 2023, https://arbitrationblog.kluwerarbitration.com/2023/01/02/mol-v-croatia-saga-a-two-faced-janus-in-the-isds-reform-debate/ (last accessed 22 January 2025).