The Hungarian Government has intervened on the energy markets by preventing Poland’s largest oil company, Orlen, from seizing payments made by Hungarian state-owned electricity utility MVM to Gazprom in satisfaction of an arbitral award that Orlen had obtained against Gazprom. Although the Government has portrayed Decree No. 117/2024. (V./30.), as emergency legislation aimed at securing national energy interests, this Decree could be deemed a disproportionate non-market measure that is contrary to international law, thus having significant legal and, potentially, regional political implications.

In May 2024, Poland’s largest oil company, Orlen, issued letters to three gas companies in Austria (OMV), Hungary (MVM-CEEnergy), and Slovakia (SPP), communicating its intent to seize payments owed by these companies to Gazprom.

Orlen’s claims against Gazprom stem from an SCC arbitral award rendered in favour of Orlen’s wholly owned subsidiary, EUROPOL GAZ, for losses incurred when Russian gas supplies were suspended in 2022, following Poland’s refusal to comply with Russia’s demand for payment in roubles (“EUROPOL GAZ Award”). Gas deliveries through the Yamal pipeline were discontinued, and, as a result, EUROPOL GAZ suffered significant financial damages.

After its initial communication from May 2024, Orlen notified CEEnergy, a wholly owned subsidiary of the Hungarian state-owned energy utility MVM, of its intention to seize approximately USD 350 million in receivables owed by CEEnergy to Gazprom for gas deliveries.

Shortly afterwards, and in an apparent response to Orlen’s request to CEEnergy, the Hungarian Government enacted emergency Governmental Decree No. 117/2024. (V./30.) (“Orlen Decree”) which circumvents the enforcement of Orlen’s claims against Gazprom in Hungary. The Orlen Decree was enacted under the guise of protecting public order in Hungary. In particular, under the Orlen Decree, payments to Gazprom “may not be seized, subjected to enforcement or subjected to a protective measure in order to secure or satisfy a third party’s claim, because it is contrary to Hungarian public order.”[1]

The Orlen Decree was enacted under the constitutional “state of emergency” that the Government has declared and maintained for over four years. In such “state of emergency”, the Government may issue decrees deviating from laws adopted by Parliament to protect state interests in various, vaguely defined areas, including economic stability, energy supply, and public order. The legal bases under which such deviation is possible, according to the Constitution,[2] should be set out in a cardinal act (“Enabling Act”)[3].  

While these emergency decrees and the extensive legislative powers vested in the Government have been subject to frequent challenges before the Hungarian Constitutional Court, the Court has, for the most part, endorsed the Government’s stance. For example, in a recent decision, the Constitutional Court dismissed arguments that the Government had abused its legislative powers by centrally setting the prices of certain food products.[4]

The Orlen Decree appears to align with this such trend of expansive and controversial use of emergency legislative powers. It exempts certain payments under a narrow category of gas supply agreements from seizure in enforcement proceedings, on the grounds that such enforcement would be “contrary to the public order”[5].

Whilst the language of the Orlen Decree is, on a superficial reading, broad and does not identify particular gas supply agreements or parties, it solely extends to companies supplying gas to Hungary’s universal service provider, i.e., MVM. Thus, in practice, the Orlen Decree shields from enforcement or seizure of any payments made to Gazprom by MVM – and it effectively protects Gazprom from award creditors in Hungary.

The Government’s pre-emption of such enforcement proceedings and the jurisdiction of national courts with reference to “public order” is problematic, as its precise scope remains unclear.

On the one hand, it may refer to the ambiguous notion of internal public order, as interpreted by the Constitutional Court in the context of criminal and administrative sanctions[6]. An argument militating in favour of this interpretation is the fact that, in the Enabling Act, “public order” is mentioned in the same article as “legal” order and “public security”[7].

An alternative interpretation may relate to public order as a basis for denying enforcement of foreign arbitral awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). In this regard, Hungarian courts have thus far developed a carefully circumscribed understanding of “public order” in line with international standards. For example, according to a recent judgement, public order may only be implicated if the enforcement of a foreign decision threatens the economic and social order of Hungary, or if the legal relationship in question has broader implications for public order beyond the immediate parties.[8]

If this interpretation of “public order” under international law prevails, it may be argued that Hungary’s enactment of the Orlen Decree to protect MVM and Gazprom constitutes a violation of the New York Convention. This is because the New York Convention governs the treatment of foreign arbitral awards in signatory states, and it does so by providing a closed list of grounds upon which a national court may refuse recognition and enforcement (see Article V). By preventing the enforcement of the EUROPOL GAZ award through emergency legislation, rather than through judicial proceedings under the New York Convention, Hungary may have arguably circumvented its international law obligations by enacting the Orlen Decree. As the legal and political context is still unfolding, it remains to be seen whether Orlen will ultimately succeed in recovering the monies owed to it by Gazprom in Hungary or, indeed, in the wider CEE region where several states depend on supplies of gas from Gazprom, as the dominant supplier. Thus, what currently appears to be a localized dispute may well escalate into a matter with far-reaching implications under international law.

By Dániel Dózsa, Dragana Nikolić and Lili Hanna Fehér

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[1] Orlen Decree, Article 1
[2] Constitution of Hungary, Article 53 subsection (1)
[3] Act XCIII of 2021 on the coordination of security and safety activities
[4] See Decision of the Constitutional Court No 3323/2024 (Vii. 29.) Ab dated 29 July 2024
[5] See Orlen Decree, § 1
[6] See e.g. Constitutional Court Judgement nr. 38/2012 (XI.14.)
[7] Preamble, Section e) of subsection (2) of Section 80 of the Enabling Act
[8] See Decision of the Pécs Regional Court of Appeal No. DBT2023.4720. dated 2023