Background - Chapter 1 - 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.
During the last 5–8 years there has been a dramatic increase in the number of arbitrations involving states and state entities. No official statistics are available to confirm this statement, but this is certainly the general perception of arbitration lawyers in most parts of the world. As I see it, this is the result of two overlapping and interdependent developments, i.e., the transformation of the political and economic systems in Eastern Europe, including the former Soviet Union, and the significant increase in so-called investment arbitrations.
As far as Eastern Europe is concerned, the most dramatic aspect is perhaps the dissolution of the Soviet Union resulting, inter alia, in more than a dozen new States. All the former republics of the Soviet Union have now become independent States. All of them are now participants in international trade and finance, albeit to varying degrees. The new States and their State owned entities are actively trying to entice foreign investments into their economies, in particular in the oil and gas sector and with respect to other natural resources. The opening up of the economies of Eastern Europe has made such markets much more interesting for foreign investors than was the case in the past. Many of the new States and East European countries have signed bilateral investment protection treaties (“BITs”) as well as other treaties addressing other aspects of foreign investment. Such investment treaties often include arbitration provisions which allow investors to initiate arbitration proceedings against the host State.
The other development – investment arbitration – is primarily the result of the spectacular growth of foreign investment in general during the past few decades. This has in turn led to a dramatic growth in the number of BITs. It is believed that around 2200 BITs are in force today. Most of them have provisions providing for arbitration as the dispute settlement mechanism with respect to disputes between the investor and the host State. In addition to BITs, there are several multilateral agreements dealing with foreign investment and the protection thereof. One of the more important multilateral agreements is the North American Free Trade Agreement (NAFTA) entered into by Canada, Mexico and the United States in 1994. While there are several dispute settlement mechanisms in the NAFTA, it is particularly Chapter 11 which is of interest in the present context. Chapter 11 sets out specific standards for the treatment of foreign investments and lays down detailed arbitration provisions. Chapter 11 of the NAFTA has generated several arbitrations, many of which have been widely discussed and debated.