The First Energy Charter Treaty Arbitral Award - Chapter 7 - Essays on International Arbitration

Kaj Hobér is a Partner of Mannheimer Swartling, resident Stockholm office and Professor of East European Commercial Law at Uppsala University, Uppsala. His practice areas include: international arbitration, East European law, international investment and trade, international business transactions. He has been heavily involved in the legal aspects of doing business in Eastern Europe and the former Soviet Union for the last 20 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 taking place in Stockholm, Moscow, London, Paris, New York, Vienna and elsewhere. Mr. Hobér has also been involved in numerous oil arbitrations, relating primarily to northern Africa, the Middle East and the former Soviet Union and has acted as arbitrator in more than 150 international arbitrations (including chairmanships) and as counsel in approximately 150 international arbitrations.

Professional memberships include: member of the Swedish Bar Association; member of the American Bar Association; member of the Board of the Swedish Scientific Institute of Arbitration Law, the Board of the Arbitration Institute of the Stockholm Chamber of Commerce, the International Arbitration Club (London) and member of the ICC Institute of International Business and Law (corresponding member). He has been listed as arbitrator on the panels of the Austrian Federal Chamber of Commerce, Vienna, the Chamber of Commerce and Industry of the Russian Federation, Moscow, the Ukrainian Chamber of Commerce, Kiev, the American Arbitration Association and of the ICSID Arbitration Center, Washington DC. He is also a Commissioner at the United Nations Compensation Commission in Geneva.

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Originally from Essays on International Arbitration

7.1 Introduction

On 16 December 2003 an arbitral tribunal sitting in Stockholm ordered one of the republics of the former Soviet Union to pay compensation to a Western investor for violating provisions of the Energy Charter Treaty (the “ECT”). This is the first arbitral award rendered under this treaty. The case raised a number of important, interesting and complicated issues, which will be discussed below.

Compared to the by now very large number of BIT-based arbitrations, and the equally impressive number of cases under Chapter XI of the NAFTA, the ECT has so far led to only few cases. AES v. Hungary – before the ICSID – was settled by a negotiated restructuring of disputed contractual arrangements; two new cases are currently pending, one before the ICSID (Plama v. Bulgaria et.al.) and, one before the Stockholm Chamber of Commerce Arbitration Institute. This is not surprising: The ECT became effective only in 1998 – about 50 years after the first bilateral investment protection treaties and 6 years after the NAFTA. All of Western and Eastern Europe and the former Soviet Union4 – is less litigious than North America, in particular the US. In addition, the energy business tends to be dominated by “heavy” formerly, or still, state-owned monopolies. Their dispute resolution culture is rather collegial than litigious.

Table of Contents:

7. The First Energy Charter Treaty Arbitral Award

7.1 Introduction

7.2 The Dispute in a Nutshell

7.3 The Arguments

7.4 The conclusions of the Arbitral Tribunal

7.5 The key legal issues

7.6 Concluding remarks