The Energy Charter Treaty - Chapter 5 - Investment Arbitration in Eastern Europe: In Search of a Definition of Expropriation
Kaj Hobér is a Partner with Mannheimer Swartling Advokatbyrå in Stockholm and Professor of East European Commercial Law at Uppsala University. He has been heavily involved in the legal aspects of doing business in Eastern Europe and the former Soviet Union for the last 25 years. His arbitration experience includes representing both Eastern and Western European, American and Russian parties as well as parties from developing countries in international arbitrations. He has also been involved in numerous oil and gas arbitrations, relating primarily to Northern Africa, the Middle East and the former Soviet Union. He has acted as counsel and arbitrator (including chairmanships) in more than 300 international arbitrations, including representation of the claimant in the first ECT award, as well as involvement in many other investment arbitrations. He is Chair of the IBA sub-committee on Investment Treaty Arbitration, a member of the board of the Arbitration Institute of the Stockholm Chamber of Commerce, the International Arbitration Club (London) and a member of the ICC Institute of International Business and Law (corresponding member).
Professor Hobér is the author of Joint Ventures in the Soviet Union (1989), Enforcing Foreign Arbitral Awards Against Russian Entities (1993), Transforming East European Law (1997), Protection of Property Rights in the Baltic Sea Region: Reality or Potemkin Villages? (1999), Applicable Law and Extinctive Prescription in Interstate Arbitration (2001), The Impeachment of President Yeltsin (2003), Essays on International Arbitration (2005), and is also the general editor of the Uppsala Yearbook of East European Law, and co-editor of Arbitration in Sweden (2nd ed., 1984). He has also published numerous articles on international arbitration and East European law.
The Energy Charter Treaty (ECT) is a multilateral treaty limited in its scope to the energy sector. It establishes a legal framework with respect to investment, trade, transportation and other matters. The aim of the ECT is to promote long-term co-operation in the energy field. The Final Act of the ECT was signed in Lisbon on 17 December 1994 and it entered into force on 17 March 1998. It has been signed and ratified by most East European states, including those of the CIS’. The Russian Federation has signed, but not ratified the ECT.
The main investment obligations of the ECT are set forth in Part III (Investment Promotion and Protection) of the ECT. The most interesting provisions, for present purposes, are found in Part III, particularly Article 13, which deals with expropriation. It reads:
1. Investments of investors of a Contracting Party in the area of any other Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as “expropriation”) except where such expropriation is:
a) for a purpose which is in the public interest;
b) not discriminatory;
c) carried out under due process of law; and
d) accompanied by the payment of prompt, adequate and effective compensation.
Such compensation shall amount to the fair market value of the investment expropriated at the time immediately before the expropriation or impending expropriation became known in such a way as to affect the value of the investment (hereinafter referred to as the “valuation date”).
Such fair market value shall at the request of the investor be expressed in a freely convertible currency on the basis of the market rate of exchange existing for that currency on the valuation date. Compensation shall also include interest at a commercial rate established on a market basis from the date of expropriation until the date of payment.
2. The investor affected shall have a right to prompt review, under the law of the Contracting Party making the expropriation, by a judicial or other competent and independent authority of that Contracting Party, of its case, of the valuation of its investment, and of the payment of compensation, in accordance with the principles set out in paragraph 1.
3. For the avoidance of doubts, expropriation shall include situations where a Contracting Party expropriates the assets of a company or enterprise in its area in which an investor of any other Contracting Party has an investment, including through the ownership of shares.
V. The Energy Charter Treaty
2. The First ECT Arbitral Award
2.1 The Background
2.2 The Dispute
3. The Second ECT Arbitral Award
3.1 The Background
3.2 The Dispute