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Investment arbitration and the Energy Charter Treaty

Treaty-based investment arbitration is becoming increasingly important in international commerce; the vast majority of such investment cases were filed within the past three years, and the issues associated with investment arbitration are therefore of growing interest not only to governments but also to the business and legal communities. Within this overall picture, the Energy Charter Treaty occupies a singular position, providing a unique multilateral investment protection regime for the energy sector. The Energy Charter Secretariat, together with the Arbitration Institute of the Stockholm Chamber of Commerce, therefore took the initiative to organise a Conference on 'Investment Arbitration and the Energy Charter Treaty', which took place in Stockholm on 9-10 June 2005.

The Conference examined such issues as the concept of expropriation, investments and investors covered by the Treaty, the issue of state responsibility, and the relationship between contractual claims and claims under the Energy Charter Treaty. It was opened by the King of Sweden, with welcoming addresses also from Dr. Ria Kemper, the Energy Charter Secretary General, and from Ulf Franke, Secretary General of the Stockholm Arbitration Institute. The programme included presentations or commentaries from leading experts on international arbitration and on the application of the Energy Charter Treaty. It is anticipated that the proceedings of the Conference will be published in the coming months, providing valuable guidance to private practitioners, public servants, in-house counsel, arbitrators and other interested parties on the application of the Treaty.

The Energy Charter Treaty and Dispute Settlement

The investment-related provisions are a cornerstone of the Energy Charter Treaty. They aim to promote and protect foreign investment in member countries. To this end, the Treaty grants a number of fundamental rights to foreign investors with regard to their investment in the host country. Foreign investors are protected against the most important political risks, such as discrimination, expropriation and nationalisation, breach of individual investment contracts, damages due to war and similar events, and unjustified restrictions on the transfer of funds. By reducing the political risks that foreign investors face in the host country, the Treaty boosts investor confidence and encourages international investment flows. The investment provisions are backed up by mechanisms both for inter-state arbitration and for investor-state dispute settlement.

The Treaty grants foreign investors in the energy sector the right to sue the host country in case of an alleged breach of an obligation of the host State relating to investment promotion and protection. The foreign investor can bring the case before the domestic courts of the host country or submit it to international arbitration. The award of an international arbitration is binding and final, and each Contracting Party is obliged to make provision for the effective enforcement of such awards in its area. More information on the dispute settlement provisions of the Treaty is available in the 'Consolidated Energy Charter Treaty'.