Brussels Takes Hungary to EU Court Over Banned Corporate Tribunals

The European Commission is suing Hungary at the Court of Justice of the European Union for ignoring a binding EU prohibition on private tribunals that let foreign investors sue governments outside the regular court system. Under long-standing case law from the EU's highest court, these 'intra-EU investor-State arbitration' mechanisms—often buried in old bilateral deals between member states—are strictly illegal because they bypass national courts. Brussels opened an official infringement action against Budapest in 2025 (case reference INFR(2025)2204) to force compliance. Having determined that Hungary failed to fix the breach, the executive decided on Thursday to take the legal battle to the judges in Luxembourg.

Before joining the bloc or modernising their trade treaties, many European nations agreed to let foreign companies bypass local judges and take legal grievances directly to private arbitration panels. The EU outlawed this practice across the single market, establishing that only public domestic courts and European judges can interpret EU law. When a government keeps these private tribunals alive, it creates a parallel judicial system where corporate investors can claim huge financial damages outside standard European oversight. For citizens, that means taxpayer money is put at risk in private courtrooms operating outside the standard democratic and judicial rules that protect everyone else in the single market.

A referral to the Court of Justice is the final, heavy-handed stage of an infringement procedure—the multi-step discipline process Brussels uses to drag non-compliant member states into line. The process usually gives governments ample time to quietly back down during confidential exchanges. When diplomatic warnings fail to move the needle, the Commission trades dialogue for a courtroom. For Hungary, which already maintains a crowded schedule of legal squabbles with the EU executive, this latest suit reinforces a persistent structural tension: Brussels insists that EU legal supremacy is non-negotiable, while Budapest routinely tests how much institutional friction it can generate before court-ordered fines kick in.

The legal action now sits with the judges at the Court of Justice in Luxembourg. Both sides will submit written pleadings and present oral arguments before the court delivers a final, legally binding judgment. If the court rules against Hungary and Budapest continues to permit intra-EU arbitrations, the Commission can launch a follow-up action asking judges to slap daily financial fines on the Hungarian treasury until full compliance is met.