Are you sure?

Erase and rewind?

Two of the most successful commercial radio stations in Hungary with a national broadcasting license, Danubius and Sláger Rádió, lost the 2009 tender for their frequencies. According to a recent, legally binding court decision, the tender was unlawful as the winners FM1 and Advenio ought to have been disqualifi ed. The two US-owned broadcasters gave the Budapest Business Journal an exclusive peek into how they plan to regain their frequencies.

How do you interpret the court decision about your appeal?

Michael McNutt: We are obviously quite pleased with the Appeal court having upheld the principal ruling from the 1st court decision-namely that ORTT acted unlawfully when it did not reject the bid of Advenio or FM1. The court determined that even prior to any review of the bid itself those bidders should have been rejected due to an explicit violation of the Media law and related General Tender Rules.
One side benefit is that given that the facts of the case are the same and the legal violation being therefore also the same, it has made it extremely easy for the owners and local representatives to work jointly with the same legal counsel, effectively the same arguments and comraderie instead of fighting in the marketplace. The other direct benefit is frankly reduced litigation expense since our coordinate in avoids duplication and more of a round table brain-storming to see how best to tackle this issue.

However, it is disappointing that ORTT’s response was to simply announce that it would submit a request to the Supreme Court in a ‘back door’ attempt to circumvent what the law obliges it to do administratively- namely cancel the contracts immediately with the unlawful bidders.

What has happened since then?

MM: Given ORTT’s announcement to go to the Supreme Court, frankly the proverbial ball is in their court. We have reached out jointly to request a dialogue to resolve the situation amicably, but have received no response. We suspect that the intended changes to the Media Law that parliament is now enacting (or have and will implement) will serve as the justification for lack of action or dialogue that will undoubtedly occur while the annual summer holidays ensue until the beginning of September.
I say ‘poor justification’ since in fact parliament has the power to stop this nonsense immediately and direct ORTT to respect the law. It is quite remarkable that ORTT – and apparently Parliament as well - believes that it can act outside the law with no remedy. The longer the abuse continues from ORTT the more difficult it will be to find a mutually acceptable solution.

Barbary Brill: It is important to note that since both Sláger and Danubius have been off the air since November 2009, the investments of both of our companies have been virtually destroyed due to the conduct of ORTT. Following the unlawful signing of the newly awarded contracts those companies have essentially hired away the critical staff and both Danubius and Sláger have minimized local operations in order to preserve capital for the necessary litigation.

We have coordinated our efforts to ensure that in the event that ORTT does in fact cancel the unlawful contracts and wishes to enter into broadcasting agreements with Danubius and Sláger in terms and conditions that reflect and remedy ORTT’s unlawful conduct and acceptable to the owners of Sláger and Danubius then we could enter in good faith into those contracts and be back on the air in approximately 30 days.

It must be said however that the appetite to recover licenses diminishes with time and we will seek adequate and fair compensation for what is essentially the expropriation of our right to those contracts but for the unlawful conduct of ORTT. The fact of the matter is that for reasons not explicitly clear to us, but possibly indicated in the statements of the former chairman of ORTT in conjunction with this tender and his resignation, ORTT acted unfairly and discriminatorily against both Danubius and Sláger when it allowed those bids to be considered and scored.

MM: The Hungarian media, as well as ORTT and other government officials, including the new Prime Minister Mr. Orban, have attempted to portray this conflict as a case of us simply being ‘sore losers’ in a legitimate tender process. That couldn’t be further from the truth as the court decision clearly reflects. This about whether or not an agency of the State which reports directly to Parliament can simply modify the law when it sees fit for its purposes alone and without adequate review.
The Constitutional Court in 2006 issued a decision instructing Parliament to modify the Media law by December 31, 2007 to remedy certain unconstitutional provisions of the Media Law that apply directly to this issue, namely that there is not a clear and transparent process whereby ORTT is held accountable with a clear path for due process and adequate remedy to parties which have complaints against the conduct of ORTT. Parliament failed to do as the Constitutional Court ordered! Had it done its legislative diligence at the time, quite possibly the Court would already have ordered ORTT to cancel those contracts and we would already be back on the air!!  Instead, we are forced to proceed under a law and judicial process in Hungary that the Constitutional Court deemed was inadequate, unconstitutional, non-transparent and did not respect certain EU Directives related to the media and provide no clear path for justice to claimants. I guess we have validated the concern of the Court….

Do the two licensees conform to the media law now that they have sold their shares?

MM: Although neither of us are lawyers, the Court made very clear that ORTT overstepped its mandate when it allowed bidders with direct conflicts prohibited by the Media Law from participating at all in the tender. The fact is you cannot conform now to the media Law for a license that you never had the legal right to sign. It is as if decided to move into your house and then later on signed the paper to legally have the right to be in the house. The Court decided that you effectively had no right to enter my house and no document after that justifying your conduct can be considered.

How do you see Majthényi's resignation?

MM: Frankly, if what he alleges is true in that there was political interference in the tender process, then his resignation could be considered appropriate.  A more interesting question to be considered- what about the remaining ORTT members positions about his resignation? It was interesting that there was such a public and personal debate on-line by Annamária Szalai where she attempted to justify the conduct of the other board members. The fact is however that she never properly addressed one of the former Chairman’s key contention- that the ORTT staff recommended rejecting the two bidders and the members of the ORTT board provided no celar motivation to not do so. In addition there was an independent study prepared by Corvinus at the request of the Chairman which confirmed the ORTT’s internal recommendations.

We requested for ORTT to provide us copies of those studies as is our legal right under the law and ORTT has refused. In addition, during the proceedings we requested for the Court to order ORTT to submit them as evidence, but the Court indicated that the reports weren’t required since the basis for the reports was a review of the business plans which was not necessary since the bidder’s plans (Advenio and FM1) never should have been reviewed in the first place.

Why do you think ORTT decided the way they did?

BB: It is difficult to publically comment on the specific motives of the members of ORTT, but recall that in order for the vote to occur as it did, it required the cooperation and tacit consent of the Socialist members along with the Fidesz representatives. Interestingly, Parliament seemed to not be able to pass substantial legislation requiring inter-party cooperation, such as amending the Media Law to respect the instruction of the Constitutional Court, but in this case they did work together.

MM: What is relevant now is if the Fidesz parliament and Government would like to resolve this problem or not. And of course the Prosecutor has the right to review the conduct of the ORTT members to determine if they acted in accordance with the law or violated the law, including the Criminal Code provisions.

The only big difference in the points you were awarded by ORTT compared to Neo and FM1 is the amount they were willing to pay. If you had known this, would you have offered more?

BB: The only ‘big’ difference is not in the scoring- it is that we legally bid and they did not. It is important that the public understand that this isn’t about ‘points’, it is about the rule of law in Hungary and whether or not the media regulatory agency is obliged to respect that law.

Given the recent changes and intended development in the market as well as the concerns expressed about those changes, the rule of law is absolutely critical to an effective freedom of the press without political interference, suggestion or intrusion. This is the issue to debate-not points.

Danubius, the smaller of the two offered more money than Sláger. Why?

MM: The most critical to understand is that apart from the first year fee, the bidders were required to prepare and submit a business plan which would be reviewed in order for ORTT to determine the likelihood of collecting estimated fees from those operations. Danubius and Sláger have the only experience in Hungary as incumbents and our assumptions were in fact quite similar, although prepared completely independently of one another with completely different advisors. Danubius and Sláger management simply had a modest difference of opinion on the anticipated growth of the market whereby Danubius was slightly more optimistic than Sláger was. This difference is one of the primary differences in the fee structure.

Why do you think it is that you view the decision radically differently from NeoFM and FM1?

BB: The nice thing about court decisions is that they can be subjected to review by yourself or any person. NeoFM and FM1 have a commercial interest in presenting to purchasers of media, staff, suppliers and other interested parties that all is well in Wonderland.  The fact is that it is not- a simple review of the decision is sufficient.

MM: That being said, it is true that we did attempt to press the Court as far as possible on some other technical matters that are fairly complex and we did not prevail on those requests to the Court and we have been assesses the obligation to pay those related legal expenses. We happily do so however since we have won the fundamental issue at hand which is, namely, that ORTT acted unlawfully when it awarded the tender to Advenio and FM1. The Court’s irrevocable and definite decision is not a matter of interpretation…it’s fact.

You have worked pretty much in concert so far. Are there any differences in your cases /opinions?

BB: Not really. We are on the same page.

How did politics affect your case? I think we’ve answered this question already.
Why do you think the embassies got involved?

BB: We cannot specifically answer for the various embassies that have been interested in these events. However, we know from our experience as multinational investors in other EU countries that one of the roles of an Embassy in a foreign country is to promote cooperation on both a political and commercial level.  From a commercial standpoint the Embassy in part helps to insure investors from their home country are treated fairly and can compete transparently in the market. They also help promote investment in that country.  Consequently it is normal in a case such as ours that the embassies united and raised their collective voices and concern about the apparent lack of transparency in the tender for the national commercial radio licenses.  We believe that the type of situation that occurred to the owners of Sláger and Danubius as result of government actions sends a chilling message to other potential investors in Hungary.  The Hungarian economy needs FDI in order to survive so when it looks like local politics is grossly intruding on normal commercial businesses they will take their investments elsewhere. About the future of the case

What do you think will happen next?

MM: The Parliament is in the final stages of completing revisions to the Media Law and possibly abolishing ORTT. Until we understand those changes we cannot access their impact on our claims. However, obviously any legal change now will not obviate the violations that have already occurred. In fact those changes may in fact ‘dig the hole’ a little deeper for the government if they are not careful. We need to see the final text and continue to press for dialogue.

What do you plan on doing?

MM: We continue to press for dialogue and prepare for defending the victories in the Hungarian courts as well as continuing to assemble the required evidence for a possible international claim. One thing is very clear- in the event there is no settlement presented for our claims and if the government continues to skirt its obligations to implement the decisions of the court then we will be obliged to file a claim in international arbitration. We are prepared for this possibility and have marshaled the necessary legal expertise and resource to see it through, much as the Canadian firm which was unlawfully removed from Ferihegy airport.

Why do you think you would win a new tender (as there would be sure to be one even if the new radios lost their license)?

MM: We do not believe that ORTT could not cancel the tender in which we are the winners but for their unlawful awarding to FM1 and Advenio. We participated in the tender in good faith and rightfully should have been awarded those licenses. If ORTT now determines to cancel the tender it could only be to damage us further. In effect ORTT would be indicating that it cancels the unlawful Advenio and FM1 contracts and then cancels the tender- on what basis? ORTT determined we were suitable bidders and the highest ranked lawful bidders. It will be interesting to see what the Government does.

This has basically become a lawyers' match. Who are your lawyers and why do they think you have a case?

BB: Danubius and Sláger have engaged Szeckay & Associates Law firm and have retained Imre Kónya for local Hungarian litigation and expect for the same firm to assist on any international process. The owners of Danubius & Sláger have notified the Government of Hungary of the violations of their rights and loss of investment and have estimated the value of the damage that would be sought in an international claim to be approximately $50 million for each of the two national radio licenses.  

A radio, as any business, is built upon its staff. What has happened to yours?

BB & MM: Please see above. Sláger and Danubius however have attempted to remain on good terms with employees let go as a result of the ORTT actions. It has not been easy and there is a lot of misinformation in the marketplace. We can only say that hopefully we will get the licenses back under terms and conditions that remedy the damage and look forward to rebuilding our respective teams. Then we can compete again in the marketplace!

If there was a miraculously fast decision, how much time would it take you to get your stations restarted?

BB: We believe that it would take approximately 30 days to restart operations. We both still have out studios intact and it becomes a matter of personnel. After all, Advenio and FM1 were awarded end of October and we ceased on November 19. Not Long is the short answer.

Would you have offered more, had you known what the others had bid?

MM: The bids submitted were already the highest scored bids by ORTT apart from the unlawful bids. The only party that offered more were unlawful, and their business plans were unrealistic according to the  ORTT’s president and the correspondence on ORTT’s own website. We had no reason to offer more.

BB: We had 12 years of experience behind a realistic, sustainable bid for the next seven years. Who would know better than the incumbents what the market was like? Government bodies are notoriously not very adept at gauging market reactions, and the issue was what would happen in the next seven years, which is a difficult question anyway.

You are saying that this is an investment climate issue. What would you  tell a potential investor about Hungary?

MM: From an investors’ perspective, it is the rule of law that calls into question in a situation like this. There is an inadequate ability to get court decisions enforced. If the ruling of the Constitutional Court does not have to be applied (i.e. with the amendment of the media law), and a court can decide that the tender was not lawful and ORTT says that that’s  nice but we are going to change the law retroactively, then this brings a host of problems: there is no adequate legal recourse or clear path to justice. Other foreign investors in other industries have also been concerned about the rule of the law, it has been a continuing debate for at least 10 years now.

BB: We’d tell them about our experience that there is a Catch 22 concerning legal remedies.

MM: If you want to invest in Hungary, and if the government is involved in any shape or form in your business, even if it just grants the licenses, you definitely do not want to rely only on a Hungarian court and you should simply assume that the government will apply the law.  It would be foolish not to build the ability in the contract to take legal problems outside of Hungary, in case there is an issue.  The problem is not necessarily with the judges. if decisions are not enforced, their effectiveness is eroded.

Have you talked with the new government?

BB:  No, but we have made it known that we would be willing to talk.

How are you trying to change the situation?

MM: On June 30, we sent a letter to the Prime Minister’s office which has been also sent to the nine ambassadors who voiced their support for our case earlier. We are also in dialogue with the US government as well as other relevant governments. We believe it is very clear, that he ball is in the government’s court until the first week of January. Incidentally, that is when Hungary takes over the presidency of the EU. (MTD)