SECOND SECTION

Application no. 23265/13 LAURUS INVEST HUNGARY KFT and CONTINENTAL HOLDING CORPORATION against Hungary and 5 other applications (see list appended)

STATEMENT OF FACTS

A list of the applicants is set out in the appendix.

A. The circumstances of the case

The facts of the case, as submitted by the applicants, may be summarised as follows.

The applicants are Hungarian companies involved in develop ing and operat ing entertainment centres, slot machine arcades and other gaming arcades in Hungary.

In 2012 Parliament adopted Act no. CXLIV of 2012 (the “Arcade Ban”) restricting the activities of arcades and the operation of slot machine terminals – except in the three casinos having concessions for live gambling operation s .

According to the applicants, the brief legislative explanation of the Arcade Ban provides little insight into the purpose and reasoning behind the legislation . While it prohibits arcades altogether , it expressly allows existing casinos to operate slot machine terminals. It also allows lotter ies , bookmakers, totalizers, bingo halls, scratch cards and sweepstakes. The applicants state that until recent times, the Government have effectively encouraged the growth of the – unregulated – online gambling market as a source of tax income for Hungary.

The Arcade Ban does not provide for the interested parties any right to be heard, or a right to appeal or otherwise challenge the revocation of the respective licences to operate arcades. The ban was introduced in an extremely expedited manner, without any public consultation. The revocation of the applicants ’ licence s occurred within 15 days from the publication of the first announcement of the idea in the Hungarian press, without any prior notice or right to challenge the measure. The Arcade Ban Bill was introduced on 1 October 2012 and voted into law the next day.

As of the b eginning in 1991 with the adoption of Act no. XXXIV (the “Gambling Act”), the operation of slot machines in arcades in Hungary was a liberalised market activity, supervised by the Tax Authority and subject to relatively high potential fines for any compliance violations, which have however been rare. The only precondition under the Gambling Act for the operation of slot machines in an arcade was the obtaining of a licence from the relevant authority for the operation of each slot machine terminal. In addition to the general operating licence, a specific licence was necessary for each type of game and slot machine terminal. The a pplicants were in the possession of licences and related permits of operation with indeterminate validity, subject to annual review as to the lawful operation of the slot machines.

By 2010, a total of 1,270 slot machine operation licences had been granted in Hungary. Class II arcades (two slot machines maximum per venue) operated in bars and pubs , while “ h igh-level” Class I ar cades (more than twenty slot machines per arcade), i.e. “professional slot machine houses” , were frequently located in malls and major shopping centres in urban areas, requiring a large investment for their establishment and maintenance. There is little practical difference between slot machine facilities at Class II casinos and those at Class I arcades. T he f irst a pplicant , Laurus Kft , was one of the leading market players in Class I arcades with 237 employees and over 700 playing positions.

As of the date of the present application, two Class II casinos are located in Budapest, the State -owned Tropicana Casino and the privately owned Las Vegas Casino, and an other in Sopron, co-owned by the State . The income of such casinos from their slot machines has increased by 500-800% following the Arcade Ban.

On 1 November 2011, Parliament amended the Gambling Act with the Server Switch Act, which required slot machine operators to switch to server-based slot machines at a cost of approximately EUR 10,000 per slot machine. Compliance with the new law required large-scale arcade operators to invest several hundred million Hungarian f orints.

Act no. CLVI of 2011 , in force as of 30 November 2011 , further amended section 33 et seq. of the Gambling Act by increasing the tax payable by arcade operators by more than 600%, resulting in a significant fall in the number of slot machines operated.

On the basis of these Acts, the applicants were confident that they could continue to operate , provided they complied with the new regulations, and that their licences would not be terminated. In the face of these legislative developments and the applicants ’ expectations, the Arcade Ban effectively wiped out the applicants ’ business.

The a pplicants submit that they have submitted a petition to the Constitutional Court requesting the annulment of the Arcade Ban . However, even if the Constitutional Court overturn s the Arcade Ban , the applicants would need to re-invest a significant amount of money to re-establish their business and would be unable to recover the damage already suffered. Accordingly, the applicants maintain that there is no effective domestic remedy available as the Hungarian State has immunity vis-à-vis individuals and companies in the event of civil - law damages caused by any piece of legislation.

A decision by the Constitutional Court is pending.

B. Relevant domestic law

O n 2 October 2012 Parliament adopted Act no. CXLIV of 2012 which was promulgated on 9 October 9 2012 and took effect on 10 October 2012.

Section 2 of Act no. XXXIV of 1991 on the Organisation of G ambling A ctivities states: “the operation of slot mac hines is a liberalis ed activity.” Under section 26 (3) and (5) , only casinos and arcades were allowed to operate slot machines.

Section 339 of the Civil Code establishes general tort liability . However, Hungarian courts have established that there is no civil -law relationship between a legislator and an injured party and that a legislator cannot possibly commit an act of unlawfulness by introducing new legislation. Therefore, legislative organs in Hungary cannot be sued for damages in relation to the passing of laws.

Article 25 of the Fundamental Law establishes the Constitutional Court as the supreme organ for the protection of the Fundamental Law , with competence to examine the constitutionality of laws and to review court decisions for conformity with the Fundamental Law . Since 2012, constitutional complaints may be submitted to the Constitutional Court if a right of the petitioner guaranteed by the Fundamental Law is violated by a final and binding court decision or by the application of an unconstitutional law in judicial proceeding s; there is no procedure available to repair an accomplished violation of rights . The only remedy that the Constitutional Court can provide is a decision declar ing that the measures applied are in breach with the Fundamental Law – but without awarding any pecuniary compensation.

COMPLAINTS

The a pplicants submit that a lthough the Arcade Ban has not directly expropriate d their economic rights in the form of their business premises and property assets, it has rendered valueless the applicants ’ investment held in the form of their shareholding in the arcades. The enactment of the Arcade Ban is in fact an investment treaty case of expropriation; however , the applicants are either seated in Hungary or based in a country without a bilateral investment protection treaty with Hungary; in either case, no protection is available under investment treaties. They rely on Article 1 of Protocol No. 1 (read alone and in conjunction with Article 14 of the Convention in that casinos were allowed to carry on the activities in question) as well as Article s 6 and 13 of the Convention .

QUESTIONS TO THE PARTIES

1. Have the applicants exhausted all effective domestic remedies, as required by Article 35 § 1 of the Convention, given that the Constitutional Court proceedings are still pending?

2. Was the impugned measure in compliance with the requirements of Article 1 of Protocol No. 1?

In particular, did the licences in question constitute possession s (see Rosenzweig and Bonded Warehouses Ltd v. Poland , no. 51728/99, 28 July 2005 ; Tre Traktörer AB v. Sweden , 7 July 1989, Series A no. 159)?

Can the measures be justified under the “general interest” clause of Article 1 of Protocol No. 1?

Were the requirements of lawfulness met (see Capital Bank AD v. Bulgaria , no. 49429/99, ECHR 2005 ‑ XII (extracts))?

Were there any circumstances under which the lack of compensation for the revocation of licences could be justified under Article 1 of Protocol No. 1?

3 . Did the applicants suffer discrimination in the enjoyment of their property rights, contrary to Article 14 of the Convention , read in conjunction with Article 1 of Protocol No. 1, given that casinos were not subjected to the impugned measure?

4. Did the applicants have access to a court regarding the pecuniary losses allegedly sustained , as required by Article 6 of the Convention?

5 . The p arties are requested to provide factual information on subsequent developments in the gaming sector, in particular the granting of casino licences.

Appendix

No.   Date of intro Name and address   Representative

23265/13

04/04/2013

Laurus Invest Hungary Kft . H-1051 Budapest Dorottya u. 2.

Dr. Köves Péter

Continental Holding Corporation USE-9040 Alto Cedro Drive Beverly Hills, CA-90210

23853/13

05/04/2013

Berlington Hungary Tanácsadó és Szolgáltató Kft . H-1081 Budapest Népszínház u. 29., III/8.

Dr. Grád András

CITY-WIN Szerencsejáték Szervező Kft . H-1081 Budapest Népszínház u. 29., III/8.

LIXUS INVEST Szerencsejáték Szervező Kft . H-1081 Budapest Népszínház u. 29., III/8.

LIXUS PROJEKT Szerencsejáték Szervező K ft . H-1081 Budapest Népszínház u. 29., III/8.

LIXUS Szerencsejáték Szervező Kft H-1081 Budapest Népszínház u. 29., III/8.

MEGAPOLIS TERMINAL Szolgáltató Kft . H-1081 Budapest Népszínház u. 29., III/8.

24262/13

05/04/2013

Taylor ’ s Kft . H-1163 Budapest Cziráki u. 26-32.

Dr. Grád András

Cardamonica Kft . H-1163 Budapest Cziráki u. 26-32.

New Cardamon Kft . H-1163 Budapest Cziráki u. 26-32.

New Star Game Kft . H-1163 Budapest Cziráki u. 26-32.

New Star Play Kft . H-1163 Budapest Cziráki u. 26-32.

Star Game Kft . H-1163 Budapest Cziráki u. 26-32.

25087/13

04/04/2013

C Zrt . and 16 Others

Dr. Karsai Dániel

25095/13

08/04/2013

Creative Gaming Solutions Kft H-2161 Csomád Kossuth L. u. 79.

Dr. Lajer Zsolt

25 102 /13

05 /04/2013

J-M Kft .

Dr. Karsai Dániel