Journal of International Dispute Settlement, Vol. 1, No. 1 (2010), pp.

153–190
doi:10.1093/jnlids/idp003

Investment Arbitration and

the Energy Charter Treaty
KAJ HOBÉR*

1. Introduction
The purpose of this contribution is to give an overview of the investment
protection regime of the Energy Charter treaty (the ‘ECT’) and of the arbitra-
tion mechanism therein, as well as to comment on some of the arbitral awards
rendered so far under the ECT. To date, 23 cases have been brought by
investors to international arbitration under the ECT.1 Fifteen of these cases are
still pending,2 and two have been settled by the parties.3 In three cases under

* Partner, Mannheimer Swartling, Stockholm. Email: [email protected].

1
ICSID Case No ARB/01/4 AES Summit Generation Ltd (UK subsidiary of US-based AES Corporation) v
Hungary; SCC Case No 118/2001 Nykomb Synergetics Technology Holding AB (Sweden) v Latvia; ICSID Case
No ARB/03/24 Plama Consortium Ltd. (Cyprus) v Bulgaria; SCC Case No 126/2003 Petrobart Ltd. (Gibraltar) v
Kyrgyzstan; ICSID Case No ARB/04/10 Alstom Power Italia SpA, Alstom SpA (Italy) v Mongolia; Yukos Universal
Ltd. (UK—Isle of Man) v Russian Federation (UNCITRAL Arbitration Rules); Hulley Enterprises Ltd. (Cyprus) v
Russian Federation (UNCITRAL Arbitration Rules); Veteran Petroleum Trust (Cyprus) v Russian Federation
(UNCITRAL Arbitration Rules); ICSID Case No ARB/05/18 Ioannis Kardossopoulos (Greece) v Georgia; Amto
(Latvia) v Ukraine (SCC); ICSID Case No ARB/05/24 Hrvatska Elektropriveda d.d. (HEP) (Croatia) v Republic of
Slovenia; ICSID Case No ARB/06/8 Libananco Holdings Co. Limited (Cyprus) v Republic of Turkey; ICSID Case
No ARB/06/15 Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V.
(Netherlands) v Azerbaijan; ICSID Case No ARB(AF)/06/2 Cementownia ‘‘Nowa Huta’’ S.A. (Poland) v Republic of
Turkey; Europe Cement Investment and Trade S.A. (Poland) v the Republic of Turkey (ICSID); ICSID Case No ARB/
07/14 Liman Caspian Oil B.V. (the Netherlands) and NCL Dutch Investment B.V. (the Netherlands) v Republic of
Kazakhstan; ICSID Case No ARB/07/19 Electrabel S.A. v Republic of Hungary; ICSID Case No ARB/07/22 AES
00 00
Summit Generation Limited and AES-Tisza Er o mu Kft. v Republic of Hungary; Mercuria Energy Group Ltd. v
Republic of Poland (Arbitration Institute of the SCC); ICSID Case No ARB/08/13 Alapli Elektrik B.V. v Republic of
Turkey; ICSID Case No ARB/09/6 Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG v Federal
Republic of Germany; ICSID Case No ARB/09/10 EVN AG v The Former Yugoaslav Republic of Macedonia; PCA
Case No 2009-13 EDF International v Republic of Hungary.
2
Yukos Universal Ltd. (UK—Isle of Man) v Russian Federation (UNCITRAL Arbitration Rules); Hulley
Enterprises Ltd. (Cyprus) v Russian Federation (UNCITRAL Arbitration Rules); Veteran Petroleum Trust (Cyprus) v
Russian Federation (UNCITRAL Arbitration Rules); ICSID Case No ARB/05/18 Ioannis Kardossopoulos (Greece) v
Georgia; ICSID Case No ARB/05/24 Hrvatska Elektropriveda d.d. (HEP) (Croatia) v Republic of Slovenia; ICSID
Case No ARB/06/8 Libananco Holdings Co. Limited (Cyprus) v Republic of Turkey; ICSID Case No ARB/06/15
Azpetrol International Holdings B.V, Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. (Netherlands) v
Azerbaijan; ICSID Case No ARB/09/6 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG &
Co. KG v Federal Republic of Germany; ICSID Case No ARB/09/10 EVN AG v The Former Yugoaslav
Republic of Macedonia; PCA Case No 2009-13 EDF International v Republic of Hungary; ICSID Case No
ARB/07/14 Liman Caspian Oil B.V. (the Netherlands) and NCL Dutch Investment B.V. (the Netherlands) v
Republic of Kazakhstan; ICSID Case No ARB/07/19 Electrabel S.A. v Republic of Hungary; ICSID Case
ß The Author 2010. Published by Oxford University Press. All rights reserved. For permissions,
please e-mail: [email protected]

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 154 Journal of International Dispute Settlement
the Rules of the Stockholm Chamber of Commerce—Nykomb Synergetics
Technology Holding AB v the Republic of Latvia; Petrobart Limited v the Kyrgyz
Republic and Amto v Ukraine—and in one case before the International Centre
for Settlement of Investment Disputes (‘‘ICSID’’)—Plama Consortium Limited v
Republic of Bulgaria—the respective arbitral tribunals have issued final awards
on the merits. In the ICSID arbitration Ioannis Kardossopoulos v Georgia the
tribunal has issued an award on jurisdiction. Thus, decisions rendered on the
investment protection provisions of the ECT are still rather limited in number,
but the growing number of awards has nevertheless raised several issues of
general interest for the application of the ECT.

2. Overview of the Energy Charter Treaty

A. Background
In the early 1990s ideas were discussed on how to develop the energy
cooperation between Eastern and Western Europe. Russia and many of its
neighbouring countries were rich in energy but in great need of investment to
be able to reconstruct their economies at the same time as West European
countries were trying to diversify their sources of energy supplies to decrease
their potential dependence on other parts of the world. There was therefore a
recognized need to set up a commonly accepted foundation for energy
cooperation between the states of the Eurasian continent, out of which the
Energy Charter Process was born.4
The first formal step in the Energy Charter process was the adoption and
signing of the European Energy Charter (EEC), in December 1991. As a
political declaration of principles which the signatories declared they wished to
pursue, the EEC did not constitute a binding international treaty. However,
the EEC also contained guidelines for the negotiation of a subsequent binding
treaty—later to become the ECT—and a set of protocols.5
The ECT and the Energy Charter Protocol on Energy Efficiency and Related
Environmental Aspects were signed in December 1994 and entered into force
in April 1998. As of today, the ECT has been signed by 51 states and the

00 00
No ARB/07/22 AES Summit Generation Limited and AES-Tisza Er o mu Kft. v Republic of Hungary; Mercuria
Energy Group Ltd. v Republic of Poland (Arbitration Institute of the SCC); ICSID Case No ARB/08/13 Alapli
Elektrik B.V. v Republic of Turkey.
3
ICSID Case No ARB/01/4AES Summit Generation Ltd. (UK subsidiary of US-based AES Corporation) v
Hungary and ICSID Case No ARB/04/10 Alstom Power Italia SpA, Alstom SpA (Italy) v Mongolia.
4
See eg Graham Coop, ‘The Energy Charter Treaty: More than a MIT’ in C Ribeiro (ed), Investment
Arbitration and the Energy Charter Treaty, 4–9.
5
Bamberger and others, ‘The Energy Charter Treaty in 2000: In a New Phase Energy Law in Europe’ in
Martha M Roggenkamp and others (eds) Energy Law in Europe. Oxford University Press, Oxford 2001.

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 Investment Arbitration and the Energy Charter Treaty 155
European Union. The European Union and 45 states have ratified the treaty.6
It is noteworthy that the Russian Federation has signed but not ratified the
treaty. Russia has, however, accepted provisional application of the treaty.7
The ECT is a multilateral treaty with binding force, limited in its scope to
the energy sector. The purpose of the ECT, as stipulated in Article 2, is to
‘promote long-term co-operation in the energy field, based on complementa-
rities and mutual benefits, in accordance with the objectives and principles of
the Charter’. It is the only binding multilateral instrument dealing with inter-
governmental cooperation in the energy sector, and contains far-reaching
undertakings for the contracting parties. The ECT includes provisions regard-
ing investment protection, provisions on trade, transit of energy, energy
efficiency and environmental protection and dispute resolution.

B. Investment Promotion and Protection

The provisions of the ECT regarding foreign investments are considered to be
the cornerstone of the treaty. The aim of the foreign investment regime is to
create a ‘level playing field’ for investments in the energy sector and to
minimize the non-commercial risks associated with such investments. Under
the ECT a distinction is made between the pre-investment phase of making
an investment and the post-investment phase relating to investments already
made. While the provisions concerning the pre-investment phase primarily set
up a ‘soft’ regime of ‘best endeavour’ obligations, the ECT creates a ‘hard’
regime for the post-investment phase with binding obligations for the contract-
ing states similar to the investment protection provisions of the North
American Free Trade Agreement (NAFTA) and bilateral investment treaties
(BITs).8 The investment protection regime is discussed in more detail in
Section 3.

C. Dispute Settlement
Dispute settlement is regulated in Part V of the ECT (Articles 26–28).
Article 26 of the ECT governs investment disputes between private investors
and contracting states, and extends to investors a right to arbitration of such
disputes (see Section 4). Article 27 regulates resolution of state-to-state
disputes between contracting parties concerning the application or
6
The ECT has been signed by Albania, Armenia, Austria, Australia, Azerbaijan, Belarus, Belgium, Bosnia
and Herzegovina, Bulgaria, Croatia, Czech Republic, Cyprus, Denmark, Estonia, European Communities,
Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Italy, Japan, Kazakhstan, Kyrgyzstan, Latvia,
Liechtenstein, Lithuania, Luxembourg, Malta, Moldavia, Mongolia, Netherlands, Norway, Poland, Portugal,
Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, The former Yugoslav
Republic of Macedonia, Turkey, Turkmenistan, Ukraine, Uzbekistan, United Kingdom. Signatory States that
have not yet ratified the ECT are Australia, Belarus, Iceland, Norway, Russian Federation.
7
See Section 5.
8
Cf Bamberger and others (n 5).

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 156 Journal of International Dispute Settlement
interpretation of the ECT (not limited to matters of investments). The ECT
also contains special provisions for the resolution of trade disputes (see
Section 2D), a conciliation procedure for transit disputes (see Section 2E) and
consultation procedures for competition and environmental disputes.9

3. Investment Protection
A. Introduction
The investment protection provisions of the ECT are found in Part III of the
ECT. The aim of the provisions is to establish equal conditions for investments
in the energy sector and thereby limit the non-commercial risks connected
with such investments. The ECT separates two phases of investment protection
and affords them different levels of protection. As indicated in Section 2B
above, the provisions concerning the pre-investment-phase primarily set up
a ‘soft’ regime of ‘best endeavour’ obligations, whereas the ECT creates a
‘hard’ regime for the post-investment phase with binding obligations for the
contracting states similar to the investment protection provisions of the
NAFTA and BITs.10

B. Scope of Protection
The investment protection provisions of Part III of the ECT (post-investment
phase) are applicable to Investments of Investors. ‘Investment’ and ‘Investor’ as
referred to in the ECT are defined in Article 1.
An ‘Investor’ is a natural person having the citizenship or nationality of, or is
a permanent resident in, a contracting state in accordance with its applicable
law, or a company or other organization organized in accordance with the law
applicable in that contracting state.
‘Investment’ means every kind of asset associated with an economic activity
in the energy sector which is owned or controlled directly or indirectly by an
Investor and includes: (a) tangible and intangible, and movable and immov-
able, property, and any property rights such as leases, mortgages, liens, and
pledges; (b) a company or business enterprise, or shares, stock, or other forms
of equity participation in a company or business enterprise, and bonds and
other debt of a company or business enterprise; (c) claims to money and claims
to performance pursuant to a contract having an economic value and
associated with an Investment; (d) Intellectual Property; (e) Returns; (f) any
right conferred by law or contract or by virtue of any licences and permits
9
For a general overview of the various dispute settlement mechanisms of the ECT, see eg L Gouiffes, ‘The
Dispute Settlement Mechanisms of the Energy Charter Treaty’ in C Ribeiro (ed), Investment Arbitration and the
Energy Charter Treaty 22–34. JurisNet, Huntington (2006).
10
T. Wälde, ‘Investment Arbitration Under the Energy Charter Treaty – From Dispute Settlement to Treaty
Implementation’ (1996) 12 Arb Intl 437.

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 Investment Arbitration and the Energy Charter Treaty 157
granted pursuant to law to undertake any ‘Economic Activity in the Energy
Sector’.
‘Economic Activity in the Energy Sector’ means economic activity concern-
ing the exploration, extraction, refining, production, storage, land transport,
transmission, distribution, trade, marketing, or sale of ‘Energy Materials and
Products’ except those included in Annex NI, or concerning the distribution of
heat to multiple premises.
The scope of protection pursuant to Part III of the ECT also delineates the
right to arbitration under Article 26, since the Investor’s right to arbitration is
limited to disputes between a ‘Contracting Party’ and an ‘Investor’ of another
‘Contracting Party’ relating to an ‘Investment’ of the ‘Investor’ in the Area of
the first ‘Contracting Party’.

C. Minimum Standard of Investment Protection—Article 10(1)

Article 10(1) sets out a number of basic principles for the treatment of foreign
investments that are frequently found in BITs. Article 10(1) provides that:
each Contracting Party shall, in accordance with the provisions of this Treaty,
encourage and create stable, equitable, favourable and transparent conditions for
Investors of other Contracting Parties to make Investments in its Area. Such condi-
tions shall include a commitment to accord at all times to Investments of Investors of
other Contracting Parties fair and equitable treatment. Such Investments shall also
enjoy the most constant protection and security and no Contracting Party shall in any
way impair by unreasonable or discriminatory measures their management, maintenance,
use, enjoyment or disposal. In no case shall such Investments be accorded treatment
less favourable than that required by international law, including treaty obligations.
Each Contracting Party shall observe any obligations it has entered into with an Investor
or an Investment of an Investor of any other Contracting Party.

(i) Fair and equitable treatment

Whereas the first sentence of Article 10(1) is a general statement regarding the
favourable investment climate that contracting parties are to maintain for
investments protected by the ECT, the second sentence of Article 10(1)
explains that such favourable conditions ‘shall include a commitment to accord
at all times to Investments of Investors . . . fair and equitable treatment’. This
standard of ‘fair and equitable treatment’ is derived from international law,
and has, through its frequent application by tribunals in BIT and NAFTA
arbitrations, become an important principle of investment protection. Although
certain principles have developed in arbitral practice (good faith, protection of
legitimate expectations, due process, proportionality, etc.11), the exact scope
11
See eg ICSID Case No ARB/01/7 MTD, Equity Sdn. Bhd. & MTD Chile S.A. v Chile (Malaysia/Chile BIT)
(25 May 2004); ICSID Case No ARB (AF)/00/3 Waste Management, Inc. v Mexico (Number 2) (NAFTA) (30
April 2004); ICSID Case No ARB/01/8 CMS Gas Transmission Company v Argentina (United States/Argentina

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 158 Journal of International Dispute Settlement
and meaning of fair and equitable treatment is not easily described in general
terms. The application of the principle is often fact-specific and requires
in-depth factual assessment as well as application of standards of good-
government conduct.12 As with any flexible standard, it is a challenge for
counsel and arbitrators to establish sources for good-government conduct that
are relevant and suitable in the context of an individual case. There is
otherwise a risk that a case will be decided on the basis of the arbitrators’
individual perceptions of what is fair and equitable in the circumstances of
the case.
As indicated above, tribunals applying the principle of fair and equitable
treatment have found it to include principles such as the protection of
legitimate investor expectations with respect to the maintenance of a stable and
predictable business and legal environment by the host government, the
principle of transparency, the good-faith and abuse of rights principles, due
process, proportionality and the prohibition on arbitrariness.13 References to
the prohibition on arbitrariness and requirements of transparency are
frequently made within the general framework of due process, which must
be observed by courts and authorities of the host state.

(ii) Most constant protection and security

The first part of the third sentence of Article 10(1) provides that investments
shall enjoy the ‘most constant protection and security’. The precise meaning of
these standards within the context of the ECT is somewhat unclear, but it has
been argued that they include—apart from police protection from riots and
similar physical attacks on the investment—a duty of the state to protect the
normal ability of the investor’s business to function in a level playing field.14

(iii) Discrimination
The second part of the third sentence of Article 10(1) provides that the
management, maintenance, use, enjoyment or disposal of investments is not to
be impaired by ‘unreasonable or discriminatory measures’. The reference to
unreasonable or discriminatory measures links the standard laid down in the
third sentence of Article 10(1) to the principle of fair and equitable treatment.
Thus, there is a certain overlap between the two standards. In the first award
ever issued under the ECT, Nykomb Synergetics Technology Holding AB v the

BIT) (12 May 2005); ICSID Case No ARB(AF)/97/2 Azinian, Davitian & Baca v Mexico (NAFTA)
(1 November 1999); ICSID Case No ARB(AF)/97/1 Metalclad Corporation v Mexico (NAFTA) (30 August
2000); ICSID Case No ARB (AF)/00/2 Tecnicas Medioambientales Tecmed, S.A. v Mexico (Spain/Mexico BIT)
(29 May 2003).
12
Cf T Wälde, ‘Investment Arbitration under the Energy Charter Treaty: An Overview of Key Issues’, (2004)
1 Transnational Dispute Management.
13
See n 11 above.
14
Wälde (n 12).

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 Investment Arbitration and the Energy Charter Treaty 159
Republic of Latvia, the tribunal found that Latvia had breached its obligation
under the ECT not to discriminate against the foreign investor by offering
higher tariffs for electricity to other companies and failing to present any
evidence why those companies were different (see Section 5A).

(iv) Umbrella clause

The last sentence of Article 10(1) emphasises the principle of pacta sunt
servanda by making it an obligation of each Contracting Party to ‘observe any
obligations it has entered into with an Investor or an Investment of an Investor
of any other contracting party’. Thus, a breach of such an obligation covered
by Article 10.1 may constitute a violation of a Contracting Party’s obligations
under the ECT. The precise scope of this so-called ‘umbrella clause’—in
particular whether it encompasses purely commercial conduct of, for instance,
state owned companies or only conduct that involves some elements of
government authority—remains to be determined by tribunals applying the
ECT. Most tribunals applying similar clauses in BITs have attempted to draw a
line excluding purely, or predominantly, commercial disputes. However, even if
such a distinction is accepted also for the ECT, the difficult task of deciding
what is commercial and governmental remains.15
It should be noted that Articles 26(3)(c) and 27(2) of the ECT allow for the
contracting parties listed in Annex IA to exclude disputes covered by the
umbrella clause from ECT dispute resolution under Article 26.16
It could also be argued that the umbrella clause of Article 10(1), when read
together with Article 22, may have far-reaching implications on commercial
contracts for the sale of goods, delivery of services etc. which have been
entered into by an investor and a legal entity controlled or owned by the host
state. According to Article 22(1), a state enterprise of the host state ‘. . . shall
conduct its activities in relation to the sale of or provision of goods and services
in its Area in a manner consistent with the Contracting Party’s obligations
under Part III of this Treaty’. In the light of Article 10(1), assuming a wide
interpretation of the umbrella clause, it could be argued that the host state may
become responsible under the ECT (in addition to any liability of the state
owned company under the commercial agreement) for a wide range of actions
or omissions of state enterprises in the fulfilment of agreements for the sale of
goods and delivery of services etc.

15
See eg T Wälde, ‘Contract Claims under the Energy Charter Treaty’s Umbrella Clause: Original Intentions
versus Emerging Jurisprudence’ in C Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty 205–36.
16
Australia, Hungary and Norway have made such reservations.

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 160 Journal of International Dispute Settlement
D. Most Favoured Nation Treatment
The fourth sentence of Article 10(1) states that investments in no case shall be
accorded ‘treatment less favourable than that required by international law,
including treaty obligations’ and Article 10(7) provides that:
Each Contracting Party shall accord to Investments in its Area of Investors of other
Contracting Parties, and their related activities including management, maintenance,
use, enjoyment or disposal, treatment no less favourable than that which it accords to
Investments of its own Investors or of the Investors of any other Contracting Party or
any third state and their related activities including management, maintenance, use,
enjoyment or disposal, whichever is the most favourable.
Thus, according to Article 10(1), if another treaty to which the state hosting
the investment is a party requires a better treatment for investments, this
treatment must be ‘imported’ into the ECT. The wording ‘treaty obligations’,
however, does not include decisions taken by international organizations
or treaties entered into force before 1 January 1970, according to an
Understanding in the Final Act of the Energy Charter Conference. Thus,
stronger investment protections and guarantees contained in a bilateral invest-
ment treaty to which the host state is a party will be available to an investor,
even if the investor’s home state does not have a bilateral investment treaty with
the host state.
Article 10(7) expresses the principle of national, or most-favoured-nation
(MFN) treatment. This treatment is afforded not only to the investments of
investors but also to activities related to investments including management,
maintenance, use, enjoyment or disposal.
The national treatment standard implies non-discrimination since the treat-
ment of investments shall be ‘no less favourable than that which it accords
to Investments of its own Investors’. However, in comparison with WTO
law or EU law, the concept of non-discrimination is less developed in
investment law.17
Thus, the most-favoured-nation treatment implies the incorporation of
standards and rights contained in other treaties, or legislation, or beneficial
treatment otherwise afforded to other investors into the protection offered to
investors by the ECT.
Another interesting and important provision is Article 10(12) of the ECT.
This provision stipulates that ‘/e/ach Contracting Party shall ensure that its
domestic law provides effective means for the assertion of claims and the
enforcement of rights with respect to Investments, investments agreements,
and investment authorizations’.
This provision was applied in the Petrobart case.18
17
Bamberger and others (n 5).
18
See Section 6.

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 Investment Arbitration and the Energy Charter Treaty 161
E. Article 13—Expropriation
One of the most fundamental provisions of the investment protection regime of
the ECT is Article 13, which deals with expropriation. Article 13(1), which
resembles similar provisions of BITs and which confirms the principle of full
compensation following expropriation, provides that:
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.
Article 13(1) also provides that the compensation must amount to the fair
market value of the investment immediately before the expropriation, or
impending expropriation, became known in such a manner as to affect the
value of the investment. Interest at a commercial rate established from the date
of expropriation until the date of payment is also included in the
compensation.
The significance of the protection against expropriation is not primarily the
protection against outright takings of investments by the host state, but rather
the protections against ‘measures having equivalent effect to nationalisation or
expropriation’, ie various forms of indirect or creeping expropriation such as
exorbitant regulations or confiscatory taxation that undermines the operation
or enjoyment of the investment.
The effect of the protection provided by Article 13 is that irrespective of
whether an expropriation is ‘lawful’, ie carried out in accordance with the
conditions set out in Article 13, or ‘unlawful’, the investor is entitled to
prompt, adequate and effective compensation. In the first case, compensation
is a precondition for the lawfulness of the expropriation, and, in the latter case,
compensation is equivalent to damages for the loss suffered by the investor as
a result of the unlawful expropriation. Where an international treaty, such as
the ECT, provides a standard of compensation for ‘lawful compensation’,
tribunals applying NAFTA or BITs, generally apply the same standard of
compensation whether the expropriation is lawful or unlawful.19

F. Article 17—Non-application of Part III in Certain Circumstances

In accordance with Article 17, each contracting party reserves the right to deny
the advantages of Part III to an entity owned or controlled by investors of
a state that is not a party to the ECT, if that entity has no substantial busi-
ness activities in the area of the contracting party where it is organized.
19
A Sheppard, ‘The Distinction between Lawful and Unlawful Expropriation’ in C Ribeiro (ed.) Investment
Arbitration and the Energy Charter Treaty 169–99.

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 162 Journal of International Dispute Settlement
Furthermore, contracting parties can deny the advantages of Part III if it is
established that the investment is an investment of an investor of a state that is
not a party to the ECT, with which the host state does not maintain diplomatic
relations, or as to which the host state upholds trade restrictions.
As has been evidenced by recent arbitral awards of tribunals established
under the ECT the interpretation of Article 17 raises difficult issues as to the
meaning and effect of Article 17(1) (see Section 6).

4. Settlement of Disputes between an Investor

and a Contracting Party
A. Introduction
The right to arbitration—or other dispute resolution mechanism (see Section
4C below)—of investment disputes set out in Article 26 is only one of many
dispute resolution mechanisms of the ECT, but arguably the most significant.
Article 26(1) covers: ‘disputes between a Contracting Party and an Investor of
another Contracting Party relating to an Investment of the latter in the Area of
the former, which concern an alleged breach of an obligation of the former under
Part III’. The definitions of these terms and thus the scope of the investor’s
right to dispute resolution in accordance with Article 26 have been described in
Section 2B above.
It should be emphasised that the right to arbitration, or other methods of
dispute resolution, under Article 26 arises solely out of the ECT and is not
subject to any requirement of exhaustion of local remedies, or any contractual
dispute resolution mechanisms.

B. Amicable Settlement
In accordance with the first paragraph of Article 26, investment disputes
(as defined above) must, if possible, be settled amicably. The investor may
not submit a dispute for resolution in accordance with Article 26 until
three months have elapsed from the date on which either party to the dispute
requested amicable settlement. However, if a dispute cannot be settled amic-
ably within three months, the dispute shall be resolved in a forum elected by
the investor, as set forth in Article 26.

C. The Investor’s Choice of Forum for Dispute Resolution

The investor has the choice of submitting an unresolved dispute covered by
Article 26 to one of the following fora under Article 26(2)(a)–(c):
 the national court or administrative tribunals of the contracting party
where the Investment was made,

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 Investment Arbitration and the Energy Charter Treaty 163
 in accordance with a previously agreed dispute settlement procedure, or
 international arbitration.
Among the above three forms of dispute resolution, the right to international
arbitration of investment disputes is by far the most important remedy available
to investors for enforcing their rights under the ECT. According to Article
26(4), investors may elect any of the following forms of international
arbitration:
 ICSID-arbitration (provided that both the host state and the investor’s
state have ratified the ICSID Convention);
 arbitration under the ICSID Additional Facility Rules (where either the
host state or the home state of the foreign national, but not both states,
have ratified the ICSID Convention);
 a sole arbitrator or ad hoc arbitral tribunal established under the
UNCITRAL Arbitration Rules; or
 arbitral proceedings under the Arbitration Institute of the Stockholm
Chamber of Commerce.
Thus, pursuant to Article 26(3)(a) each contracting party gives ‘unconditional
consent to the submission of a dispute to international arbitration or
conciliation in accordance with the provisions of this article’. This uncondi-
tional consent implies that a state cannot withdraw its consent, or withdraw
from the ECT, upon the request of an investor to commence arbitral
proceedings. The state’s consent is irrevocable and its withdrawal would not
be legally effective. In the case of a withdrawal from the ECT, the contracting
party remains bound to honour its investment protection obligations for a
period of 20 years following the effective date of its withdrawal, according to
Article 47 of the ECT.
However, according to Article 26(3)(b), the consent to international
arbitration of the contracting parties listed in Annex ID, is subject to the
limitation that where the investor previously has submitted the dispute to the
national courts of the host state or under another previously agreed dispute
settlement procedure it may not then pursue international arbitration in respect
of the same dispute. Almost half of the contracting parties have made such a
‘fork in the road’ reservation. Furthermore, as described above in Section 2C,
according to Article 26(3)(c), the contracting parties listed in Annex IA have
limited their consent with respect to disputes arising under the umbrella clause
in the last sentence of Article 10(1).20

20
Australia, Hungary and Norway have made such reservations.

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 164 Journal of International Dispute Settlement
D. Applicable Law
Article 26(6) provides that an arbitral tribunal established under para 26(4)
shall decide the issues in dispute in accordance with the ECT and the rules and
principles of international law.

E. Local Companies Controlled by Foreign Investors

As regards the nationality of an investor, Article 26(7) ECT states that a legal
entity which has the nationality of the contracting party to the dispute, but
before the dispute between it and the contracting party arose, the local party
was controlled by investors of another contracting party, the local party shall
be treated as a ‘national of another Contracting State’ for the purpose of
Article 25(2)(b) of the ICSID Convention, and a ‘national of another State’ for
the purpose of Article 1(6) of the Additional Facility Rules. Hence, if the
majority of shares of an investor of the same nationality as the host state are
controlled by investors of another contracting state, the investor is to be viewed
as an investor of another contracting party for purposes of establishing
‘diversity’ jurisdiction for an arbitral tribunal constituted under the ICSID
Rules or the ICSID Additional Facility Rules. Accordingly, the ECT creates a
possibility for ‘local companies’, which are owned or controlled by investors
of another contracting party, to request international arbitration under the
ECT against their ‘home states’, and benefit from the investor protection of the
ECT which may be more favourable than the protection available under
national law. Difficult questions of parallel proceedings may arise, however,
if claims under the ECT are brought simultaneously against the host state by
the local company and its foreign shareholder.

5. Provisional Application of the ECT

A. Provisional Application of Treaty Obligations
Provisional application of a treaty means that treaty obligations are given effect
prior to a state’s formal ratification or accession to a treaty. The reasons for
introducing the concept of provisional application may include, inter alia, that
there is some urgency to implement a treaty before the treaty is ratified, that
the negotiators are certain that the treaty will obtain the required domestic
approval for ratification, or that there is a desire to circumvent political or other
obstacles to the entry into force of a treaty.21
The Vienna Convention on the Law of Treaties 1969 (the ‘Vienna
Convention’) explicitly allows for provisional application of treaties. Firstly,
Article 18 of the Vienna Convention imposes the obligation on a state to
21
A Michie, ‘The Provisional Application of Arms Control Treaties’ (2005) 10 JC&SL 346–7.

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 Investment Arbitration and the Energy Charter Treaty 165
refrain from acts which would defeat the object and purpose of a treaty
when the treaty has been signed, or when the state has expressed its consent to
be bound by the treaty pending its entry into force. In addition, Article 25 of
the Vienna Convention provides that a ‘treaty or a part of a treaty is applied
provisionally pending its entry into force if: (a) the treaty itself so provides; or (b) the
negotiating states have in some other manner so agreed’ (emphasis added).
Article 45, in its entirety, reads as follows:
PROVISIONAL APPLICATION
(1) Each signatory agrees to apply this Treaty provisionally pending its entry into
force for such signatory in accordance with Article 44, to the extent that such
provisional application is not inconsistent with its constitution, laws or
regulations.
(2) (a) Notwithstanding paragraph (1) any signatory may, when signing, deliver to the
Depositary a declaration that it is not able to accept provisional application.
The obligation contained in paragraph (1) shall not apply to a signatory
making such a declaration. Any such signatory may at any time withdraw that
declaration by written notification to the Depositary.
(b) Neither a signatory which makes a declaration in accordance with subpara-
graph (a) nor Investors of that signatory may claim the benefits of provisional
application under paragraph (1).
(c) Notwithstanding subparagraph (a), any signatory making a declaration
referred to in subparagraph (a) shall apply Part VII provisionally pending
the entry into force of the Treaty for such signatory in accordance with
Article 44, to the extent that such provisional application is not inconsistent
with its laws or regulations.
(3) (a) Any signatory may terminate its provisional application of this Treaty by
written notification to the Depositary of its intention not to become a
Contracting Party to the Treaty. Termination of provisional application for
any signatory shall take effect upon the expiration of 60 days from the date on
which such signatory’s written notification is received by the Depositary.
(b) In the event that a signatory terminates provisional application under
subparagraph (a), the obligation of the signatory under paragraph (1) to
apply Parts III and V with respect to any Investments made in its Area during
such provisional application by Investors of other signatories shall nevertheless
remain in effect with respect to those Investments for twenty years following
the effective date of termination, except as otherwise provided in subpara-
graph (c).
(c) Subparagraph (b) shall not apply to any signatory listed in Annex PA.
A signatory shall be removed from the list in Annex PA effective upon delivery
to the Depositary of its request therefore.
(4) Pending the entry into force of this Treaty the signatories shall meet periodically
in the provisional Charter Conference, the first meeting of which shall be
convened by the provisional Secretariat referred to in paragraph (5) not later
than 180 days after the opening date for signature of the Treaty as specified in
Article 38.

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 166 Journal of International Dispute Settlement
(5) The functions of the Secretariat shall be carried out on an interim basis by a
provisional Secretariat until the entry into force of this Treaty pursuant to
Article 44 and the establishment of a Secretariat.
(6) The signatories shall, in accordance with and subject to the provisions of
paragraph (1) or subparagraph (2)(c) as appropriate, contribute to the costs of
the provisional Secretariat as if the signatories were Contracting parties under
Article 37(3). Any modifications made to Annex B by the signatories shall
terminate upon the entry into force of this Treaty.
(7) A state or Regional Economic Integration Organization which, prior to this
Treaty’s entry into force, accedes to the Treaty in accordance with Article 41
shall, pending the Treaty’s entry into force, have the rights and assume the
obligations of a signatory under this Article.
Article 45 of the ECT resulted in the provisional application of the treaty by all
signatory states between December 1994 and its entry into force in April 1998,
unless a member state expressly declared that it was unable to apply the ECT
provisionally. After April 1998, the provisional application was restricted to
those signatory states which had not yet ratified the treaty. In the Russian
Federation, for example, the ratification procedure commenced with the
introduction of the project in the State Duma in 1996. Parliamentary hearings
began in 1998, but the Duma postponed ratification several times due to
ongoing negotiations and disputes about the Transit Protocol to the Energy
Charter Treaty. When signing the ECT in 1994, the Russian Federation did
not register a declaration of non-application according to Article 45(2). There-
fore the Russian Federation applies the ECT on a provisional basis within the
framework of Article 45.22

B. The Relationship between International Law and Municipal Law

The crucial aspect of Article 45 is its first paragraph, which provides for
provisional application by a signatory state ‘to the extent that such provisional
application is not inconsistent with its constitution, laws or regulations’. This
provision seems to give national law priority over the treaty as long as it is
applied provisionally. The language could be interpreted in one of two ways,
or both, namely (i) provisional application itself must not be inconsistent with
municipal law and/or (ii) the substantive provisions of the treaty must not
be inconsistent with substantive provisions of municipal law.23
With respect to the Russian Federation, I will briefly look at the first issue.
The constitution of the Russian Federation assigns the right to negotiate and
conclude international treaties to the President (Article 86(b)), but leaves their
22
In the three arbitrations pending against the Russian Federation referred to in n 1 above, the Russian
Federation has argued that the ECT is not provisionally applicable to it. The tribunals sitting in these cases will
thus in due course address this issue.
23
The issue of whether provisional application itself was inconsistent with Greek and Georgian law arose in
the Kardassopoulos case, see Section 6B(v).

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 Investment Arbitration and the Energy Charter Treaty 167
ratification to the Federal Assembly (State Duma and Council of the
Federation—Articles 71, 105 and 106(d)). The concept of ‘provisional
application’ is not dealt with in the relevant provision of Article 15 of the
Constitution.
(4) Generally accepted principles and rules of international law and international
treaties of the Russian Federation shall be an integral part of its legal system.
If an international treaty of the Russian Federation establishes rules, other than
provided for by the law, the rules of the international treaty shall be applied.
The details concerning international treaties are regulated by the 1995 Federal
Law on International Treaties of the Russian Federation. Article 23 of the
1995 Federal Law expressly deals with the provisional application of interna-
tional treaties in the Russian Federation:
1. An international treaty or part of a treaty may, before its entry into force, be
applied by the Russian Federation provisionally if such has been provided for in the
treaty or if an arrangement was reached concerning this with the parties who have
signed the treaty.
2. Decisions concerning the provisional application by the Russian Federation of an
international treaty or part thereof shall be adopted by the agency which adopted the
decision to sign the international treaty in the procedure established by Article 11 of
the present Federal Law.
If an international treaty, the decision concerning consent to the bindingness of which
for the Russian Federation is subject in accordance with the present Federal Law to
adoption in the form of a Federal Law, provides for the temporary application of the
treaty or part thereof or an arrangement concerning this has been reached with the
parties in any other way, it shall be submitted to the State Duma within a period of
not more than six months from the date of the commencement of the provisional
application thereof. By a decision in the form of a Federal Law in the procedure
established by Article 17 of the present Federal Law for the ratification of inter-
national treaties, the period of provisional application may be extended.
3. Unless provided otherwise in an international treaty or the respective States agree
otherwise, the provisional application by the Russian Federation of a treaty or part
thereof shall terminate upon informing the other States which provisionally are
applying the treaty of the intention of the Russian Federation not to become a par-
ticipant of the treaty.
It follows from the foregoing that Russian law acknowledges and accepts
provisional application of treaties per se. In this respect, Russian law is thus
consistent with Art. 45(1) of the ECT.

C. Termination and Opting out of Provisional Application of the ECT

According to Article 45(2) of the ECT, any signatory state may, when signing
the ECT, declare that it is not able to accept provisional application. In such
a case, neither a signatory that makes the declaration, nor investors of that

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 168 Journal of International Dispute Settlement
signatory state, may claim the benefits of provisional application. Australia,
Iceland and Norway made such declarations when they signed the ECT, and as
per 20 April 2006 the ECT is not yet in force for those countries. The Russian
Federation has thus not delivered a declaration pursuant to Article 45(2) of
the ECT.
Any signatory may also terminate its provisional application of the ECT by
written notification to the depository of the ECT of its intention not to become
a contracting party to the ECT according to Article 45(3) of the ECT.24
There is thus an express opting-out provision as per Article 45(2) of the
ECT. This notwithstanding, it may be argued that there is still an open
question as to whether an ECT signatory is obliged to declare that it is not able
to accept provisional application, where its legislation is in conflict with the
substantive provisions of the ECT, or if it is nevertheless—ie without making
any such declaration—entitled to rely on the condition contained in the
provisional application provision of Article 45(1), ie that provisional application
not be inconsistent with its constitution, laws or regulations.
Assuming that an ECT signatory would be entitled not to make an ‘opting-
out declaration’, it could prove extremely difficult to pass judgment on the
extent to which the provisions of the ECT are inconsistent with a particular
signatory’s constitution, laws or regulations.
As regards the ECT, an important question is whether private parties may
rely on the right to arbitration as per Article 26 under the provisional
application regime. Provisional application is a well-established method for
giving immediate effect to treaties. The arbitral tribunal in the Kardassopoulos
case found that provisional application of the ECT imports the application of
all of the Treaty’s provisions as if they were already in force.25

6. Awards Rendered
As previously mentioned, the investment protection regime of the ECT has
been in force since 1998, but the number of awards rendered so far is rather
limited. Out of the 20 cases that so far, 14 have been brought to international
arbitration under Article 26 are still pending. To date one award on jurisdiction
(Ioannis Kardossopoulos v Georgia) and four final awards (Nykomb Synergetics
Technology Holding AB v the Republic of Latvia; Petrobart Limited v the Kyrgyz
Republic; Amto v Ukraine and Plama Consortium Limited v Republic of Bulgaria)
have been issued under the ECT. Nykomb, Petrobart and Amto were all arbitra-
tions under the Rules of the Stockholm Chamber of Commerce, whereas
Plama and Kardossopoulos are ICSID cases.
24
A similar situation arose in the Petrobart case, see Section 6B(ii).
25
See Section 6B(v).

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 Investment Arbitration and the Energy Charter Treaty 169
Due to the limited number of awards, it is not yet possible to identify any
clear trends in ECT cases. However, in particular the awards in Petrobart,
Plama and Kardossopoulos raise some jurisdictional issues of general interest,
which will be discussed in Section 6B. As to the merits, the awards in Nykomb
and Petrobart involve questions concerning the standard of compensation in
case of other violations of the ECT than expropriation. Like many BITs, the
ECT does not contain any provisions on the standard of compensation to be
applied in such cases. This issue will be discussed in Section 6C.

A. Brief Introduction to the Cases

(i) Nykomb Synergetics Technology Holding AB v the Republic of Latvia26

Nykomb v the Republic of Latvia concerned a dispute regarding the purchase
of power by the state-owned Latvian company, Latvenergo and the Latvian
company Windau, a wholly owned subsidiary of the Swedish company,
Nykomb. In 1997, Latvenergo and Windau entered into several agreements for
the construction of power plants in Latvia. Pursuant to the agreements
Latvenergo undertook to purchase surplus electric power, ie electricity not used
for its own consumption, at a tariff which was twice the average electric power
sale tariff approved by the Public Utilities Commission of the Republic of
Latvia (the ‘Double Tariff’).
The first plant was ready for operation on 17 September 1999, but
Latvenergo refused to purchase the surplus electric power from the plant at the
Double Tariff. Due to Latvenergo’s refusal Windau was not able to start its
production until 28 February 2000. As from that time Latvenergo has
purchased surplus electric power from Windau at 75 percent of the average
tariff, ie at a tariff which is lower than the average tariff.
In the arbitration Nykomb argued that Windau was entitled to the Double
Tariff, since one of the contracts stipulated that the purchase price for surplus
energy was to be determined in accordance with the Latvian Law on Entre-
preneurial Activities in the Energy Sector. At the time when Windau signed the
agreements such law provided that power plants with a certain capacity were
entitled to the Double Tariff. Latvia, on the other hand, argued that Windau
only was entitled to 75 percent of the average tariff in accordance with the new
Energy Law, which had entered into force after Windau and Latvenergo
concluded their agreements.
Nykomb claimed that Latvenergo’s refusal to pay the Double Tariff with
reference to the new Energy Law, which deprived Windau of its right to the

26
The full text of the award is available in K Hobér, Investment Arbitration in Eastern Europe: In Search of
a Definition of Expropriation (Juris Net, LLC, Huntington 2007) Appendix 11. For a complete analysis of the
case, see Hobér, Investment Arbitration in Eastern Europe 202; and T Wälde and K Hobér, ‘The First Energy
Charter Award’ (2005) 22 J Int’l Arb 83–103.

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 170 Journal of International Dispute Settlement
Double Tariff referred to in the agreement, constituted a regulatory taking
having effect equivalent to expropriation (Article 13(1)). Nykomb also claimed
that such refusal by Latvenergo to pay the double tariff constituted discrim-
inatory measures, since Latvenergo were paying two other companies (SIA
‘Latelektro-Gulbene’ and Joint Stock Company ‘Liepãjas Siltums’) the Double
Tariff for its surplus electric power.
The tribunal found that there was no taking of Windau or its assets, no
interference with the shareholder’s rights or with the management’s control
over and running of the enterprise. It therefore concluded that the refusal to
pay the Double Tariff did not qualify as expropriation, or the equivalent
thereof, under the ECT.27 However, as to Nykomb’s discrimination claim, the
tribunal found that Latvia had breached its obligation under Article 10(1) of
the ECT not to discriminate by offering double tariffs to other companies and
failing to present any evidence why those companies were different.28

(ii) Petrobart Limited v the Kyrgyz Republic29

The arbitration between Petrobart Ltd of Gibraltar and the Kyrgyz Republic
concerned a sales contract between Petrobart and the Kyrgyz state owned
company KGM for the purchase by the latter of 200,000 tonnes of gas
condensate.
Petrobart delivered five shipments of gas but was only paid for the first two.
At the same time as Petrobart turned to domestic courts for recourse, Kyrgyz
authorities—as part of a reform of the system for supply of oil and gas in the
Kyrgyz Republic—took certain measures that made it impossible for Petrobart
to enforce its rights under the contract. The measures included a decision by
the Kyrgyz authorities to privatize KGM, and to transfer its assets, but not its
liabilities (including monies owed to Petrobart), to a new company as well as a
request by the Vice Prime Minister of the Kyrgyz Republic who—referring to
KGM’s critical financial standing—asked the chairman of a Kyrgyz court that
previously had rendered a judgment in favour of Petrobart, to assist in granting
a stay of the enforcement of the judgment against KGM. Enforcement was
stayed by the court referring to the letter of the Vice Prime Minister, and
before the period of stay of execution ended, KGM was declared bankrupt,
which meant that enforcement of the judgment was no longer possible.
With reference to the above the tribunal found that the Kyrgyz Government
was liable for certain breaches of the ECT, specifically by virtue of its failure
to provide fair and equitable treatment by transferring assets from KGM to the
above mentioned new company to the detriment of KGM’s creditors, including
Petrobart (Article 10(1)); and by intervening in court proceedings regarding
27
Nykomb v Synergetics Technology Holding AB v the Republic of Latvia s 4(3)(1).
28
Ibid s 4(3)(2)(a).
29
The full text of the award is available in Hobér (n 26) Appendix 12.

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 Investment Arbitration and the Energy Charter Treaty 171
the stay of execution of a final judgment to the detriment of Petrobart
(Article 10(12)).30
The award was challenged by the Kyrgyz Republic before the Svea Court
of Appeal in Stockholm. The Court of Appeal, however, in a decision dated
19 January 2007 upheld the award.31

(iii) ICSID Case No ARB/03/24 Plama Consortium Limited v Republic

of Bulgaria32
Plama Consortium Limited (‘Plama’) is a Cypriot company, which purchased
an equity interest in a Bulgarian company, Nova Plama, owning an oil refinery
in Bulgaria. Plama claimed that Bulgaria interfered with the operation of the
oil refinery in a manner that was inconsistent with Bulgaria’s international
law obligations under both the Energy Charter Treaty and the Cyprus-
Bulgaria BIT.
In its decision on jurisdiction of 8 February 2005, the tribunal retained
jurisdiction to consider the merits of Plama’s argument that Bulgaria had
breached the ECT, while determining that it did not have jurisdiction under
the Cyprus-Bulgaria BIT. The BIT claims will not be dealt with any further
in this article.33
In its award on the merits, the tribunal accepted Bulgarias’s factual allegation
that Plama was guilty of misrepresentation. When the Bulgarian government
consented to Plama’s purchase of shares in Nova Plama it had clearly under-
stood that two large commercial entities were the owners of Plama. The true
owner of Plama, a private individual, did nothing, however, to remove this
understanding, of which he undoubtedly was aware.34 The tribunal viewed
Plama’s behaviour to be contrary to relevant provisions of Bulgarian law and to
international law. The tribunal stated that the ECT should be interpreted in
a manner consistent with the aim of encouraging respect for the rule of the law
and quoted the introductory note to the ECT that reads: ‘[t]he fundamental
aim of the Energy Charter Treaty is to strengthen the rule of law on energy
30
Petrobart Limited v the Kyrgyz Republic 76.
31
Case No T 5208-05 The Republic of Kirgizistan v Petrobart Ltd (Svea Court of Appeal, Judgment of 19
January 2007.
32
The full text of the award is available at http://www.encharter.org/fileadmin/user_upload/document/
Plama_Bulgaria_Award.pdf. November 12, 2009.
33
The Cyprus-Bulgaria BIT only provided for jurisdiction with regard to claims of expropriation. Since
Plama’s claim concerned other alleged breaches of the Cyprus-Bulgaria BIT, Plama tried to rely on the MFN-
clause in the Cyprus-Bulgaria BIT to be able to invoke the dispute resolution clauses in other Bulgarian BITs,
which gave investors the option to pursue dispute resolution for all breaches of the treaty. However, the tribunal
found that the MFN treatment obligation contained in the Cyprus-Bulgaria BIT did not extend to Plama the
protection of dispute resolution provisions set out in other Bulgarian investment treaties. The tribunal
emphasised that it is a well-established principle, both in domestic and international law that the parties to an
arbitration must clearly express their agreement to arbitrate, and that ‘doubts as to the parties’ clear and
unambiguous intention can arise if the agreement to arbitrate is to be reached by incorporation by reference’ such
as through an MFN clause (see Plama Consortium Limited v Republic of Bulgaria 63 [199]).
34
Plama Consortium Limited v Republic of Bulgaria 35 [128–9].

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 172 Journal of International Dispute Settlement
issues [. . .]’. The tribunal concluded that the substantive protections of the
ECT cannot apply to investments that are made contrary to law.35
The tribunal went on to identify the applicable rules and principles of inter-
national law. The tribunal found guidance in two earlier investment arbitration
decisions cited by Bulgaria, namely Inceysa v El Salvador36 and World Duty Free
v Kenya.37 The tribunal was of the view that granting protection to Plama
would be contrary to the principle nemo auditor propriam turpitudinem allegans—
that nobody can benefit from his own wrong—invoked in the Inceysa case.38
The tribunal also found that Plama’s conduct was contrary to the principle
of good faith which is part of both Bulgarian and international law. In the view
of the tribunal, this principle includes an obligation for the investor to provide
the host state with relevant and material information concerning the investor
and the investment. That obligation is particularly important when the
information is necessary for obtaining the state’s approval of the investment.39
Even though the tribunal could not grant the substantive protections of the
ECT to Plama, it went on to consider the further arguments presented in the
case. This consideration led to the conclusion that Plama’s claims on the merits
would have failed in any case.40 In the tribunal’s view, Plama’s investment was
a high risk project. The plan to get the refinery to yield a profit did not work
for reasons which were not attributable to any unlawful actions of Bulgaria.41

(iv) Amto v Ukraine42

Amto v Ukraine concerned a dispute arising out of the bankruptcy of the
Zaporozhskaya AES nuclear power plant (‘ZAES’) in Ukraine. Amto, regis-
tered in Latvia, invested in the Ukrainian stock company EYUM-10 from
1999 and onwards. ZAES is the largest nuclear power plant in Ukraine. It is
a separate division of the national nuclear power generating company
‘Energoatom’ that is owned by the State of Ukraine. EYUM-10 was a supplier
of services to ZAES, which was also EYUM-10’s largest debtor.
In 2002 and 2003, EYUM-10 commenced court proceedings in Ukrainian
commercial courts in respect of amounts owed to EYUM-10 by ZAES. The
claims were successful and EYUM-10 received judgments against ZAES
for a total amount of approximately 28 million Ukrainian hryvni (UAH).
Execution of the judgments were stayed however, due to six separate
35
Ibid 40 [139].
36
ICSID Case No ARB/03/26 Inceysa Vallisoletana S.L. v Republic of El Salvador, Award of 2 August 2006
(‘Inceysa’).
37
ICSID Case No Arb/00/7 World Duty Free Company Limited v The Republic of Kenya, Award of 4 October
2006.
38
Plama Consortium Limited v Republic of Bulgaria 42 [143].
39
Ibid 42 [144].
40
Ibid 43 [147].
41
Ibid 92 [305].
42
The full text of the award is available at http://www.encharter.org/fileadmin/user_upload/document/
Amto_Ukraine_Award.pdf. November 12, 2009.

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 Investment Arbitration and the Energy Charter Treaty 173
bankruptcy proceedings against Energoatom which were commenced between
March 2002 and December 2003. EYUM-10 complained of the delays, errors
and the tolerance of procedural abuse by the Ukraine courts in these proceed-
ings. On May 15, 2006 EYUM-10 and Energoatom signed an agreement
relating to Energoatom’s outstanding debts to EYUM-10. The latter claimed
that this agreement never entered into force because Energoatom did not
provide a bank guarantee which was a condition precedent. Energoatom did,
however, pay in accordance with the agreed time schedule. The agreement was
amended and re-executed on 11 August 2006, but with no bank guarantee.
In its decision on jurisdiction, the tribunal rejected all of Ukraine’s
jurisdictional objections which, inter alia, included an objection that the case
was inadmissible since Ukraine denied Amto the advantages of part III of the
ECT on the basis of Article 17(1).43
The tribunal concluded that Amto had failed to demonstrate any denial of
justice in the courts’ handling of the proceedings or any series of circumstances
that cumulatively amounted to a denial of justice in violation of Article 10(1)
of the ECT. The tribunal also dismissed Amto’s claim that the Ukrainian
bankruptcy legislation was clearly inadequate and did not live up to the
standard required by international law, which Amto claimed would have
constituted a breach of Article 10(12). The tribunal also dismissed Amto’s
further claims eg that the Ukrainian government had interfered in the ongoing
bankruptcy proceedings, that EYUM-10 had been the victim of aggressive
conduct on behalf of the tax authorities and several allegations relating to
the conduct of Energoatom. In all, the tribunal found that no breach of the
ECT by or attributable to Ukraine had been established and accordingly,
all of Amto’s claims were denied.44

(v) ICSID Case No ARB/05/18 Ioannis Kardassopoulos v Georgia—decision

on jurisdiction45
The dispute concerns allegations that the Republic of Georgia (‘Georgia’) has
breached its obligations to Kardassopoulos under the BIT between Greece and
Georgia and also under the ECT in respect of Kardassopoulos’ interest in an
oil and gas concession in Georgia.
On 3 March 1992, the American company Tramex entered into a joint
venture agreement with the Georgian state-owned oil company SakNavtobi.
This agreement resulted in GTI Ltd. (‘GTI’), a joint venture vehicle owned in
equal shares. The purpose of the joint venture was to, inter alia, construct new
oil refineries and pipelines in order to exploit the Georgian oil fields. In 1993,
GTI was granted a 30-year concession for Georgia’s pipelines by Transneft,
43
See Section 6B(iv).
44
Limited Liability Company Amto v Ukraine 64 [115].
45
The full text of the decision is available at http://www.encharter.org/fileadmin/user_upload/document/
Kardassopoulos.pdf. November 12, 2009.

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the state-owned entity which held the rights over the pipelines. Subsequently,
Tramex, directly or through GTI, made a series of investments related to the
pipelines, including engaging an engineering company for the construction of
a pipeline and purchases of land and equipment. In February 1996, Georgia
adopted a new decree which provided that the new state owned company
GIOC would represent Georgia in a contract regarding the construction and
exploitation of the Samgori-Batumi pipeline. The new decree also cancelled all
rights given earlier that contradicted the new decree. In March 1996, Georgia
signed a 30-year contract for the transportation of oil through Georgia with
a consortium of major oil corporations, whereby GIOC was appointed to
construct the Samgori-Batumi pipeline instead of GTI. In 1997, a committee
was set up to review Tramex’ incurred expenses and determine possible
reimbursement. In 2004, an independent audit commissioned by the Georgian
government estimated Tramex’ losses at USD 106.3 million. No payment was
made by Georgia. Later in 2004, the new Georgian government established
another compensation commission and later informed Kardassopoulos that this
commission had decided that there were no legal grounds for holding Georgia
liable for the claim. The commission reasoned that the Georgian government
could not be held liable for Tramex’ claims since the government had not
represented a party to any of the agreements which were concluded by Tramex
in Georgia. The parties to the joint venture agreement and the concession were
SakNavtobi and Transneft, respectively. Both these entities, although state
owned, were legal entities distinct and independent from the state, acted on
their own behalf and were thus responsible for their own obligations.
In its decision on jurisdiction of 6 July 2007, the tribunal decided that
Georgia’s objections to the tribunal’s jurisdiction ratione materiae under the
ECT and the BIT, as well as Georgia’s objection to the tribunal’s jurisdiction
ratione temporis under the ECT, were denied. However, Georgia’s objection
to the tribunal’s jurisdiction ratione temporis under the BIT was joined to the
merits.46 Since Georgia claimed that the acts which caused Kardassopoulos’
alleged loss occurred prior to the entry into force of the ECT on 16 April 1998,
one of the issues that was addressed by the tribunal was if the ECT became
provisionally applicable prior to that date.47

B. Jurisdictional Issues

(i) Nykomb
Nykomb did not raise very many jurisdictional issues, but a few findings of the
tribunal should nevertheless be briefly noted.
46
Ioannis Kardassopulos v Georgia 69 [262].
47
See Section 6B(v).

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 Investment Arbitration and the Energy Charter Treaty 175
(a) Investment
In the arbitration, Latvia argued that the contract between Latvenergo and
Windau for the purchase of electric power, upon which Nykomb’s claims were
based, was a commercial contract and as such not protected by the ECT.
Latvia contended that the ECT only applies to investment contracts within the
meaning of the ECT, and that Nykomb’s claims, which were based on a
commercial contract, were outside the scope of the ECT.
The tribunal, however, found that the purchase contract could not be
regarded as purely commercial, nor could the action to refuse payment of the
double tariff under the contract be considered as purely commercial. As for the
objection that the purchase contract was not an investment contract within
the meaning of the ECT, the tribunal found that it suffices to note that a
contract for provision of energy for eight years ‘clearly falls within the Treaty’s
definition of an investment in Article 1 of the Treaty’.48

(b) Retroactive application

Latvia also argued that Nykomb was seeking to apply the treaty retroactively
because the contract between Windau and Latvenergo had been concluded
before the entry into force of the ECT. The tribunal, however, rejected the
argument that retroactive application had been asserted, since the alleged
breaches occurred after the entry into force of the ECT.49

(ii) Petrobart
(a) Investment
One of the jurisdictional issues in Petrobart was whether Petrobart had an
‘investment’ in the Kyrgyz Republic for purposes of the ECT. In an earlier
UNCITRAL arbitration between the same parties, a different tribunal had
ruled that Petrobart’s sales contract with KGM did not qualify as a foreign
‘investment’ under the Foreign Investment Law of the Kyrgyz Republic.
The tribunal in the ECT arbitration stressed that the term ‘investment’ must
be interpreted in the context of each particular treaty in which the term is
used,50 and that the question therefore was whether Petrobart’s right under the
contract to payment for goods delivered under the contract was an asset that
constituted an investment under the definition of investment provided by
ECT.51 Article 1(6)(c) of the ECT provides that assets constituting an
investment shall include ‘claims to money and claims to performance pursuant
to contract having an economic value and associated with an Investment’
(emphasis added). However, the tribunal found that the wording of
48
Nykomb v Synergetics Technology Holding AB v the Republic of Latvia s 4.3.3(d).
49
Ibid s 4.3.3(a).
50
Petrobart Limited v the Kyrgyz Republic 69.
51
Ibid 71.

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 176 Journal of International Dispute Settlement
Article 1(6)(c) presented certain ambiguities and the logical problem that the
term ‘Investment’ is not only the term to be defined, but is also used as an
integrated part of the definition. The tribunal concluded that ‘this means that
the definition is in reality a circular one which raises a logical problem and
creates some doubt about the correct interpretation’.52
Instead the tribunal based its jurisdiction on Article 1(6)(f), which provides
that an asset constituting an investment shall also include ‘any right conferred
by law or contract or by virtue of any licences and permits granted pursuant to
law to undertake any Economic Activity in the Energy Sector’ (emphasis added).
‘Economic Activity in the Energy Sector’ is in Article 1(5) defined as
‘economic activity concerning the exploration, extraction, refining, production,
storage, land transport, transmission, distribution, trade, marketing, or sale of
Energy Materials and Products except those included in Annex NI, or
concerning the distribution of heat to multiple premises’. It was not disputed
in the arbitration that the gas condensate, which Petrobart sold according to
the sales agreement, constituted ‘Energy Materials and Products’ within the
meaning of the ECT. With reference to the above, the tribunal found that
‘a right conferred by contract, to undertake an economic activity concerning
the sale of gas condensate is an investment according to the Treaty [ECT].
This must also include the right to be paid for such a sale’.53
The decision of the tribunal that Petrobart’s claim for payment under the
sales agreement constituted an investment in the meaning of the ECT was not
challenged by the Kyrgyz Republic in the above-mentioned application for the
setting aside of the award before the Svea Court of Appeal.

(b) Applicability of the ECT with regard to Gibraltar

Another jurisdictional issue was whether the ECT was applicable with respect
to investors of Gibraltar. When the United Kingdom signed the ECT, it made
a declaration under Article 45(1) that the provisional application of the treaty
should extend to the United Kingdom of Great Britain and Northern Ireland
and to Gibraltar. However, when the United Kingdom ratified the ECT, it was
specified in the instrument of ratification, that the ratification was in respect of
the United Kingdom of Great Britain and Northern Ireland, the Bailiwick of
Jersey and the Isle of Man. Gibraltar was not mentioned in the instrument
of ratification.54 The tribunal therefore had to determine whether the ECT
applied to Gibraltar despite the non-inclusion of Gibraltar in the instrument of
ratification. The tribunal found that such problem of interpretation had to
be resolved through a ‘rather formal approach based on the wording of the
Treaty’, and noted that ‘according to the text of the Treaty provisional
application ceases if it is terminated either by a special notification under
52
Ibid 72.
53
Ibid 72.
54
Ibid 62.

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 Investment Arbitration and the Energy Charter Treaty 177
Article 45(3)(a) of the Treaty or by transition from provisional application to
a corresponding and final legal commitment resulting from the entry into force
of the Treaty. It could indeed be expected that the United Kingdom, if it
wished the provisional application of the Treaty to Gibraltar to be terminated
as a result of a ratification not including Gibraltar, should have made this clear
by making a notification in line with Article 45(3)(a) or a declaration in some
other form in connection with the ratification. In the Arbitral Tribunal’s
opinion, the fact that the ratification, for political or other reasons, did not
include Gibraltar does not justify the conclusion that the United Kingdom
intended to revoke the application of the Treaty to Gibraltar on a provisional
basis’.55
In other words, the tribunal found that the instrument of ratification,
which—with respect to the United Kingdom of Great Britain and Northern
Ireland (not including Gibraltar)—transformed the provisional application
of the ECT into a final legal commitment, should not be interpreted as
a termination of the provisional application in relation to Gibraltar.
This issue was part of the Kyrgyz Republic’s above-mentioned challenge of
the award before the Svea Court of Appeal. In the challenge proceedings, the
Kyrgyz Republic argued that the tribunal exceeded its mandate by finding that
the ECT applied provisionally to Gibraltar. The Court of Appeal, however,
held that the Tribunal had not exceeded its mandate. The Court found that
since there is no provision in the ECT which governs the situation where the
ECT has been ratified with regard to a territory not corresponding to the
territory covered by the provisional application, it could have been expected
that the United Kingdom would have made it clear that the ECT no longer
applied to Gibraltar, had this been the intention. With reference thereto,
the Court found that the Tribunal had been correct in finding that Gibraltar
was still covered by the provisional application of the ECT.

(c) Article 17 ECT

The Kyrgyz Republic also argued that Petrobart, according to Article 17(1)
ECT, should be denied the protection of the investment protection provisions
of Part III of the ECT, since Petrobart was owned or controlled by nationals of
a non-contracting party to the ECT, and since Petrobart had no substantial
business activities in Gibraltar. The tribunal, however, attached weight to
Petrobart’s information that it was managed by an English company that
handled many of Petrobart’s strategic and administrative matters. This
contradicted, according to the tribunal, the view that Petrobart was owned
or controlled by nationals of a state other than the UK and that Petrobart did
not have substantial business in the UK.56
55
Ibid 62–3.
56
Ibid 63.

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The tribunal did not specifically address the question whether the non-
application in certain circumstances of Part III as provided for in Article 17
goes to the jurisdiction of the tribunal or constitutes a defence on the merits of
the case. However, the reference by the tribunal to Article 10(2) of the Rules
of the Arbitration Institute of the Stockholm Chamber of Commerce, regarding
the time when jurisdictional objections should be made, indicates that the
tribunal viewed Article 17 as a jurisdictional defence. The distinction is of
importance, since matters of jurisdiction may be open for review by local
courts at the place of arbitration (or an ICSID ad hoc committee) on the
grounds that the tribunal has exceeded its jurisdiction.
Curiously, the Kyrgyz Republic did not argue before the Swedish Court of
Appeal in the above-mentioned challenge of the award, that a misapplication of
Article 17 would constitute an excess of mandate by the Tribunal. The
question whether the non-application in certain circumstances of Part III as
provided for in Article 17 goes to the jurisdiction of the tribunal or constitutes
a defence on the merits of the case was therefore not determined by the Court
of Appeal. Rather, the Kyrgyz Republic initially argued that the tribunal
exceeded its mandate by not scrutinizing the ownership and status of Petrobart
in greater detail. This claim, however, appears subsequently to have been
withdrawn.

(d) Res Judicata

The case also involved matters of res judicata and estoppel in relation to a
previous UNCITRAL arbitration under the Foreign Investment Law of the
Kyrgyz Republic previously initiated by Petrobart against the Kyrgyz Republic
regarding the same investment. In the UNCITRAL arbitration, a different
tribunal had ruled that Petrobart’s sales contract with KGM did not qualify as
a foreign ‘investment’ under the Foreign Investment Law of the Kyrgyz
Republic. With reference hereto, The Kyrgyz Republic argued in the present
proceedings under the ECT that the decision of the tribunal in the
UNCITRAL arbitration should operate to bar such proceedings on grounds
of res judicata. The tribunal, however, rejected the res judicata defence since the
two arbitrations were based on different arbitration clauses, viz., the first clause
in the Foreign Investment Law and the other in the ECT, and since the first
arbitration dealt with investments under Kyrgyz law and the other with alleged
violations of the ECT.57 For similar reasons the initiation of the first proceed-
ings without simultaneously initiating the ECT proceedings did not prevent
Petrobart—on grounds of estoppel - from later initiating ECT proceedings based
on the same factual allegations.58
57
Ibid 64–6.
58
Ibid 66–8.

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 Investment Arbitration and the Energy Charter Treaty 179
(iii) Plama
(a) Burden of proof
In Plama, the tribunal discussed the burden of proof with regard to
jurisdictional requirements, and adopted the test previously advocated by
Judge Higgins in her separate opinion in the Oil Platforms Case.59 In such case
Judge Higgins held that:
the only way in which, in the present case, it can be determined whether the claims of
[Claimant] are sufficiently plausibly based upon the 1955 Treaty is to accept pro tem
the facts as alleged by [Claimant] to be true and in that light to interpret Articles I,
IV and X for jurisdictional purposes, that is to say, to see if on the basis of Iran’s
claims of fact there could occur a violation of one or more of them.60
She also held that:
the Court should . . . see if, on the facts as alleged by [Claimant], the [Respondent’s]
actions complained of might violate the Treaty articles (§ 33) . . . Nothing in this
approach puts at risk the obligation of the Court to keep separate the jurisdictional
and merits phases . . . and to protect the integrity of the proceedings on the
merits . . . what is for the merits, (and which remains pristine and untouched by this
approach to the jurisdictional issue) is to determine what exactly the facts are,
whether as finally determined they do sustain a violation of . . . [the treaty] and if so,
whether there is a defence to that violation . . . In short it is at the merits that one
sees ‘whether there really has been a breach’.61
The tribunal concluded that it did not understand Judge Higgins’ approach to
be controversial and stated that it would apply such approach to the
jurisdictional issues in dispute in the present arbitration.62

(b) Investment
In its objection to jurisdiction, Bulgaria argued that Plama had not made an
‘Investment’, as defined in the ECT. Bulgaria claimed that Plama had
misrepresented or wilfully failed to disclose its true ownership to the Bulgarian
authorities in violation of Bulgarian law. Accordingly, the consent of Bulgaria’s
Privatization Agency to Plama’s purchase of shares in the local company was
null and void under Bulgarian law. Therefore Plama had failed to make a valid
investment.63
The tribunal found that as for the application of the definitions of ‘Investor’
and ‘Investment’ in the ECT, it is irrelevant who owns or controls the claimant,
and that ‘applying Judge Higgins’ approach to disputed facts, the Tribunal

59
Oil Platforms (Islamic Republic of Iran v United States of America), Preliminary Objection, Judgment,
ICJ Reports 1996, p. 803.
60
Islamic Republic of Iran v United States of America [32].
61
Islamic Republic of Iran v United States of America [34].
62
Plama Consortium Limited v Republic of Bulgaria 36 [119].
63
Ibid 38 [126].

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must accept, pro tem, the investment as alleged by the Claimant; and on this
ground alone, the Tribunal decides that Bulgaria’s submission fails’.64 The
tribunal also found that as Bulgaria’s commitment to arbitrate was based on
the ECT and not the agreement for purchase of the shares, the agreement to
arbitrate remained effective even if the parties’ agreement regarding the
purchase of Nova Plama is arguably invalid because of misrepresentation by
the Claimant.65

(c) Article 17 ECT

Bulgaria also argued that its consent to submit disputes to arbitration under
Article 26(1) ECT was expressly limited to disputes concerning an alleged
breach of an obligation arising under Part III of the ECT. Part III contains
Article 17, which reserves to a contracting party, the right to deny advantages
of that Party to ‘a legal entity if citizens or nationals of a third state own or
control such entity and if that entity has no substantial business activities in the
Area of the Contracting Party in which it is organized’. Bulgaria claimed that
by denying to the claimant, in accordance with Article 17(1), the protections
afforded by Part III, Bulgaria’s consent to submit disputes concerning alleged
breaches of obligations under Part III, did not provide a basis for jurisdiction in
this case.66
In its assessment of the parties’ arguments, the tribunal agreed with Bulgaria
that the jurisdiction of the tribunal under Article 26 ECT is limited to the host
state’s obligations under Part III of the ECT. However, the tribunal found that,
with reference to the wording of Article 17(1), ‘each Contracting Party reserves
the right to deny the advantages of this Part [Part III]’ (emphasis added), and
interpreted in good faith in accordance with its ordinary contextual meaning,
such denial applies only to advantages under Part III. The tribunal concluded
that ‘it would therefore require a gross manipulation of the language to make it
refer to Article 26 in Part V of the ECT’.67
The tribunal noted that a contracting state can only deny the advantages of
Part III if the specific criteria of Article 17(1) are satisfied. The tribunal further
noted that the question whether such criteria are met could raise wide-ranging,
complex and highly controversial disputes, as in the present case, and that in
the absence of Article 26 as a remedy available to the parties, the tribunal
questioned how such disputes could ever be decided.68 The tribunal concluded
that it would be a ‘license for injustice’ and that ‘the Contracting State invok-
ing the application of Article 17(1) is the judge in its own cause’, if arbitration
64
Ibid 38–9 [128].
65
Ibid 39 [130].
66
Ibid 14 [32].
67
Ibid 45–6 [147].
68
Ibid 46 [149].

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 Investment Arbitration and the Energy Charter Treaty 181
under Article 26 would not be available to the investor for purposes of
determining whether the conditions of Article 17(1) have been met.69
The tribunal also addressed certain other issues concerning Article 17. The
tribunal considered whether Article 17 in itself provided sufficient notice to
the investor that it could not enjoy the protection of the ECT (assuming the
criteria for its application are satisfied) or if further notice was required. Given
the wording of Article 17(1) (‘reserves the right to deny’), the tribunal took the
view that interpretation of Article 17(1) of the ECT in accordance with Article
31(1) of the Vienna Convention70 required that the right of denial be actively
exercised by the contracting state.71
Since Bulgaria had not made such notice until after Plama made its request
for arbitration and not until 4 years after Plama made its investment, the
tribunal also had to determine whether such a notice applied retrospectively
or only prospectively. Again invoking Article 31(1) of the Vienna Convention,
stressing in particular the objects and purpose of the ECT, the tribunal
concluded that the exercise by a contracting party of its right under
Article 17(1) should not have retrospective effect as it would not be consistent
with the purpose of the ECT ‘to promote the long term co-operation in the
energy field’. The tribunal pointed out that such unexercised right could lure
putative investors with legitimate expectations only to have those expectations
made retrospectively false at a much later date and that the investor could not
plan in the long-term for such an effect.72

(iv) Amto
(a) Investment
One of the jurisdictional objections raised by Ukraine was that Amto’s shares
in EYUM-10 did not constitute a qualified investment under the ECT since
EYUM-10’s operations were not associated with an economic activity in the
energy sector as required by Article 1(6) of the ECT. EYUM-10 provided
technical services such as installations, repairs and upgrades to ZAES. Ukraine
submitted that the mere contractual relationship with an entity engaged in the
energy sector is not sufficient to be ‘associated with that activity’. The tribunal
pointed out that ZAES/Energoatom was engaged in an economic activity in
the energy sector as its activity concerned the production of electrical energy.
The tribunal concluded that the close association of EYUM-10 with ZAES

69
Ibid 47 [149].
70
Article 31(1) of the Vienna Convention reads: ‘a treaty shall be interpreted in good faith in accordance with
the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and
purpose’.
71
Plama Consortium Limited v Republic of Bulgaria 49–50 [155–8].
72
Ibid 50–3 [159–65].

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in the provision of technical services directly related to energy production
meant that Amto’s shareholding in EYUM-10 was an investment in the
meaning of the ECT.73

(b) Article 17 ECT

Ukraine also objected that the State’s ‘right’ to deny advantages under
Article 17 is not subject to arbitration, such that the State is the sole and
exclusive judge whether the Investor has the characteristics described in
Article 17(1). The objection had a terminological basis. Article 26(1) entitles
an Investor to submit to arbitration an alleged dispute relating to breaches of
the State’s ‘obligations’. Article 17 of the ECT, however, refers to a ‘right’ to
deny advantages. Therefore, Ukraine argued, the tribunal had no jurisdiction
rationae materiae. The tribunal dismissed this objection. It explained, with
reference to the competence/competence principle in international arbitration, that
a dispute regarding an obligation includes a dispute relating to the existence of
the obligation. Ukraine’s exercise of its right to deny advantages was an aspect
of the dispute submitted to arbitration by Amto. It was thus within the
jurisdiction of the tribunal.74
Ukraine also argued that the case was inadmissible since Ukraine denied the
advantage of part III of the ECT on the basis of Article 17(1). The tribunal
explained that there are two cumulative requirements that must be met
before Ukraine can exercise its right to deny. First, the investor must be owned
or controlled by citizens or nationals of a third state (ie a state that is not
a contracting party). Secondly, the investor must have ‘no substantial business
activities’ in the state of its incorporation. The tribunal found that Amto was
incorporated in Latvia and wholly owned by a company incorporated in
Liechtenstein. That company was in turn wholly owned by a Liechtenstein
foundation whose ultimate beneficiaries were Russian nationals. This raised
the issue whether Russia is a ‘third state’ within the meaning of the first
requirement of Article 17(1). However, the tribunal found that the second
requirement under Article 17(1) had not been met. It was satisfied that Amto
had substantial business activity in Latvia and consequently, Ukraine had no
right to deny Amto the advantages of Part III. Thus, the tribunal did not need
to determine whether Russia qualified as a ‘third state’ for the purposes of
Article 17(1), or whether the State could exercise its right to deny advantages
at any time, including after the initiation of an arbitration.75

73
Limited Liability Company Amto v Ukraine 31 [43].
74
Ibid 39 [60].
75
Ibid 44 [70].

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 Investment Arbitration and the Energy Charter Treaty 183
(v) Kardassopoulos
(a) Jurisdiction Ratione Materiae
Georgia challenged the tribunal’s jurisdiction ratione materiae on two indepen-
dent grounds. First, it submitted that Kardassopoulos had no interest in
the joint venture vehicle GTI. Georgia, among other things, claimed that the
interest in GTI was held by Tramex USA and not by Tramex Panama, the
company in which Kardassopoulos held an interest. The tribunal concluded
that the indirect ownership of shares by Kardassopoulos constituted an
‘investment’ under the BIT and the ECT.76 It went on to say that, contrary to
Georgia’s contention, Tramex Panama did indeed exist before the joint venture
agreement was executed,77 that the joint venture agreement was entered into
by Tramex Panama78 and that Kardassopoulos held an interest in Tramex
Panama at the time of the execution of the joint venture agreement.79
Georgia’s second objection to the tribunal’s jurisdiction ratione materiae was
that the joint venture agreement and the concession were void ab initio under
Georgian law. In Georgia’s view, neither SakNavtobi nor Transneft was author-
ized to grant the rights conferred to GTI under the joint venture agreement,
or the concession, or to even enter into those agreements. Article 12 of the
BIT sets forth an express provision that precludes the treaty’s application in
respect of investments that were inconsistent with Georgia’s legislation.
Georgia submitted that even though the ECT did not contain a provision to
the same effect, Kardassopoulos could not argue that the ECT protects an
investment that is illegal under Georgian law.
Kardassopoulos on the other hand, stated that the issue of whether his
investment was made in accordance with the ECT and the BIT should be
resolved solely under those treaties and not by reference to Georgian law.
The tribunal stated that it must decide the issues in dispute in accordance with
the applicable rules and principles of international law. It cited the relevant
provisions of the ICSID Convention (Article 42(1)), the ECT (Article 26(6))
and the BIT (Article 9(4)). The tribunal further declared that even though it
was not authorized to apply Georgian law, it is a well established fact that there
are provisions of international agreements that can only be given meaning by
reference to municipal law. In the present case, Georgian law was relevant
to determine whether Kardassopoulos’ investment was covered by the terms of
the ECT and the BIT.80 Notwithstanding the fact that the joint venture
agreement and the concession might have been void ab initio under Georgian
law, the tribunal found that the investment was nonetheless protected under
the BIT and the ECT. As the tribunal observed, Georgia did not allege that it
76
Ioannis Kardassopulos v Georgia 34 [124].
77
Ibid 35 [129].
78
Ibid 37 [135].
79
Ibid 38 [141].
80
Ibid 39 [144–6].

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was Kardassopoulos that had committed any act in violation of Georgian law.
Rather, Georgia argued that its very own state-owned enterprises had violated
Georgian law by exceeding their authority. Since the agreements in question
had been entered into with Georgian state-owned entities and because their
content was approved by Georgian government officials without objection
for many years thereafter, Kardassopoulos had every reason to believe that the
agreements were in accordance with Georgian law. Therefore, Kardassopoulos
had a legitimate expectation that his investment in Georgia was in accordance
with relevant local laws. Consequently, the tribunal denied Georgia’s
objection.81

(b) Provisional application

Georgia also challenged the tribunal’s jurisdiction ratione temporis under both
the ECT and the BIT. In essence, Georgia claimed that the acts which caused
Kardassopoulos’ alleged loss, including the various government decrees,
occurred prior to the entry into force of the ECT on 16 April 1998. As
stated above, Article 45 of the ECT stipulates that each signatory agrees to
apply the Treaty provisionally pending its entry into force for such signatory to
the extent that such application is not inconsistent with its constitution, laws or
regulations. Georgia argued that neither Greek nor Georgian law permitted the
provisional application of the ECT. Therefore, Kardassopoulos was not entitled
to the ECT’s protection until 16 April 1998.
According to Article 1(6) of the ECT,
. . . the term ‘Investment’ includes all investments, whether existing at or made after
the later of the date of entry into force of this Treaty for the Contracting Party of the
Investor making the investment and that for the Contracting Party in the Area of
which the investment is made (hereinafter referred to as the ‘Effective Date’)
provided that the Treaty shall only apply to matters affecting such investments after
the Effective Date.
The tribunal stated that it followed from Article 1(6) that both States’
domestic laws had to be considered, because in order to determine which is the
‘later’ of the two dates of entry into force of the ECT (for Georgia and for
Greece) it was necessary to identify each date, since only then could the ‘later’
of them be determined. The tribunal found no support for Georgia’s claim that
provisional application of treaties was inconsistent with Georgian and Greek
domestic laws. Consequently, the ECT provisionally applied to Georgia and to
Greece from the date of signature on 17 December 1994 until 16 April 1998
when the ECT definitively entered into force.82
The question for the tribunal was therefore whether for the purposes of the
definition of ‘Effective date’ in Article 1(6) of the ECT, the date from which
81
Ibid 53 [194].
82
Ibid 63 [239] and 65 [246].

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 Investment Arbitration and the Energy Charter Treaty 185
the ECT became provisionally applicable is to be treated as its ‘date of entry
into force’. The tribunal stated that the language used in Article 45(1) is to be
interpreted such that each signatory state is obliged, even before the ECT
has formally entered into force, to apply the whole ECT as if it had already
done so.83 One reason for this interpretation was that if ‘entry into force’ in
Article 1(6) was to mean only definitive entry into force, it would mean that
investments during the period of provisional application would be excluded
from the ECT. Such a result would strike at the heart of the clearly intended
provisional application regime, according to the tribunal.84 Provisional appli-
cation imports the application of all the treaty’s provisions as if they were
already in force, even though the treaty’s definitive entry into force had not yet
occurred.85

(vi) Concluding remarks on jurisdiction

(a) Article 17 ECT
As mentioned above, there are still too few arbitral awards under the ECT to
draw any general conclusions regarding jurisdictional issues arising under the
ECT. It is interesting to note, however, that both Petrobart, Plama and Amto
involved the application of Article 17, either as a jurisdictional defence, or as
a defence on the merits.
In the Plama award, the tribunal had to determine two issues regarding
the application and interpretation of Article 17. The first question is whether
Article 17 goes to the jurisdiction of the tribunal or whether it goes to the
merits. The tribunal in Plama dismissed Bulgaria’s argument that the appli-
cability of Article 17 would affect the jurisdiction of the tribunal, whereas the
tribunal in Petrobart did not make any express decision on whether Article 17
was a jurisdictional or merits issue. Neither did the tribunal in the Amto award,
even though by examining Ukraine’s claim in this regard the tribunal seems to
have accepted that the applicability of Article 17 may affect its jurisdiction.
The second issue in relation to Article 17 that arose in Plama is whether the
provision means that treaty protection is excluded as soon as the conditions in
17(1) are fulfilled, or whether an additional express notice by the state to
the investor prior to the occurrence of the allegedly wrongful acts is required.
The tribunal in Plama considered such an additional notice to be required,
whereas the tribunals in Petrobart and Amto did not expressly determine this
issue.
Thus, the cases discussed in this contribution show that there is, for the time
being, no general approach to the application of Article 17. Only time will tell
if there will ever be such a general approach.

83
Ibid 57 [211].
84
Ibid 59 [222].
85
Ibid 58 [219].

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 186 Journal of International Dispute Settlement
(b) Provisional Application
In Petrobart, the issue of provisional application of the ECT in relation to
Gibraltar was addressed. Further issues regarding the provisional application
are likely to arise in the future, since both Belarus and the Russian Federation
are signatories that apply the ECT provisionally in the sense that they have
signed the ECT without submitting a declaration that it is not able to accept
provisional application in accordance with Article 45(2). In Kardassopoulos,
the tribunal found that provisional application imports the application of all
the ECT’s provisions—ie including provisions on dispute settlement—as if they
were already in force, even though the Treaty’s definitive entry into force has
not yet occurred.

(c) Investment
As is frequent also in arbitrations under BITs, the tribunals in all five
arbitrations discussed above had to determine objections by the State-party
that the investor had not made an ‘Investment’ protected by the ECT. As
evidenced by the award in Plama, the determination of such issues may involve
questions of what issues properly belong to the tribunal’s decision on
jurisdiction and what issues should be left for the determination of the merits.

C. Compensation Standards
The ECT (like most BITs as well as NAFTA), does not contain any provision,
nor language, addressing the issue of compensation in case of violation of
other investment protection provisions (fair and equitable treatment, non-
discrimination, etc) than expropriation. In this context, it may be of interest
that the awards both in Nykomb and Petrobart dealt with the issue of compen-
sation in case of violations of Article 10 of the ECT. Since the investors’ claims
for compensation in the Plama and Amto cases were denied, those awards will
not be discussed in the following.

(i) Nykomb
As mentioned above in Section 3(1)(1), in Nykomb, the tribunal found that
Latvia had breached its obligation under Article 10 of the ECT not to
discriminate against foreign investors by offering the so-called ‘double tariff’ to
certain other companies but not to Nykomb’s Latvian subsidiary, Windau, and
by failing to present any evidence why those companies were different.
As to the standard of compensation applicable in the event of such discrimi-
nation, the tribunal noted that the principles of compensation provided for
in Article 13(1) of the ECT, in the event of expropriation, were not applicable
to the assessment of damages or losses caused by violations of Article 10.
The tribunal found that ‘the question of remedies to compensate for losses
or damages caused by the Respondent’s violation of its obligations under

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 Investment Arbitration and the Energy Charter Treaty 187
Article 10 of the Treaty must primarily find its solution in accordance with
established principles of customary international law. Such principles have
authoritatively been restated in The International Law Commission’s Draft
Articles on State Responsibility adopted in November 2001’.86
The tribunal further noted that according to Articles 34 and 35 of the ILC
Draft Articles, restitution was the primary remedy. However, with respect to
the case before it, the tribunal found that restitution was a suitable remedy
primarily where the state had instituted actions directly against the investor.
Where the actions were directed against its subsidiary, the tribunal instead
found the appropriate remedy to be compensation for the losses or damage
inflicted on the investor’s investment.87
Nykomb claimed damages corresponding to the difference between the
‘double tariff’ and the tariff that actually had been paid to Windau. However,
the tribunal decided not to give Nykomb the full difference between the two
sets of tariffs because the higher payments would not have gone directly to
Nykomb. The tribunal stated that ‘the money would have been subject to
Latvian taxes etc., would have been used to cover Windau’s costs and down
payments on Windau’s loans etc., and disbursements to the shareholder would
be subject to restrictions in Latvian company law on payment of dividends’.88
Taking into account the requirements under applicable customary interna-
tional law of causation, foreseeability and the reasonableness of the result, the
tribunal nevertheless found that the reduced earnings of Windau constituted
the best available basis for the assessment also of Nykomb’s losses. It came to
the conclusion that a discretionary award of one third of the estimated loss
in purchase prices of electricity up to the time of the award would serve as
a reasonable basis for the quantification of Nykomb’s assumed losses up to the
time of the award.89
As regards Nykomb’s alleged losses on delivery of electric power to
Latvenergo for the remainder of the 8-year contractual period, the tribunal
considered this potential loss too uncertain and speculative to form the basis
for an award of monetary compensation. The tribunal, however, considered it
to be a continuing obligation of Latvia to ensure payment at the double tariff
for electrical power delivered under the contract for the rest of the 8-year
contractual period. It therefore ordered Latvia to fulfil its obligation to pay
the double tariff for future deliveries during the remainder of the contractual
period.90

86
Nykomb v Synergetics Technology Holding AB v the Republic of Latvia (2005) 1 Stockholm International
Arbitration Review 104–5.
87
Ibid 105–8.
88
Ibid 105.
89
Ibid 107.
90
Ibid 108.

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 188 Journal of International Dispute Settlement
(ii) Petrobart
In Petrobart, the tribunal found that the Kyrgyz Republic had violated its
obligations under Articles 10.1 and 10.12 of the ECT (see Section 3D). With
reference to the Chorzów Factory Case and to ILC’s Draft Articles on State
Responsibility, the tribunal found that Petrobart had suffered damage as a
result of the Kyrgyz Republic’s breaches of the ECT and that Petrobart had,
as far as possible, to be placed financially in the position in which it would
have found itself, had the breaches not occurred.91
Petrobart essentially claimed compensation for (i) the unpaid invoices for gas
condensate actually delivered by Petrobart to KGM; and (ii) loss of profit with
regard to the remaining deliveries under the contract.
The tribunal found that due to the troublesome financial situation of KGM,
KGM would probably not have survived irrespective of the breaches of the
ECT committed by the Kyrgyz Republic.92
The tribunal nevertheless found that the transfer by the Kyrgyz Republic of
substantial assets belonging to KGM to other state entities caused substantial
damage to KGM’s creditors, including Petrobart. Due to the inadequacy of
the information submitted by the parties, the tribunal found that the damage
suffered by Petrobart could not be established with precision. The tribunal
therefore found it necessary to make a general assessment based on its
appreciation of the situation as a whole. In making such assessment, the tri-
bunal found that the Kyrgyz Republic ‘as responsible for the transfer and lease
of KGM’s assets, shall compensate Petrobart for damage which the Arbitral
Tribunal estimates at 75% of its justified claims against KGM’.93
With regard to Petrobart’s claim for lost profit, the tribunal found that there
remained a great deal of uncertainty as to the consequences of the breakdown
of the business relations between Petrobart and KGM. The tribunal therefore
concluded that Petrobart had not established that it was entitled to compen-
sation for loss of future profits.94

(iii) Concluding remarks regarding compensation

Since most of the respective tribunals’ findings regarding damages in Nykomb
and Petrobart are rather fact specific, only limited conclusions can be drawn
from such cases. It should be noted, however, that in the absence of express
provisions on the standard of compensation, the tribunals in both cases relied
upon customary international law. This is consistent with the findings of other
tribunals awarding compensation for violations of the standards of fair and

91
Petrobart Limited v the Kyrgyz Republic 77–8.
92
Ibid 81.
93
Ibid 83–4.
94
Ibid 86–7.

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 Investment Arbitration and the Energy Charter Treaty 189
equitable treatment, non-discrimination etc. under BITs and NAFTA.95
Guidance is usually sought from the ILC Articles on State Responsibility
which in turn build on the principles laid down in the Chorzow Factory case.
This is, however, only the first step in that it establishes the standard of
compensation. As stated in Article 31 of the ILC Articles the standard is ‘full
reparation’.
When it comes to the method of establishing and calculating ‘full reparation’,
customary international law does not provide much guidance. The cases
discussed above—as well as the above mentioned BIT and NAFTA case—
illustrate that the method chosen depends on, and varies with, the circum-
stances of each individual case, including, inter alia, the nature of the violation
of the fair and equitable treatment standard and the kind and nature of the
investment in question. Sometimes the starting point might be the amount
actually invested, in other cases it might be more appropriate to focus on lost
future profits as established by using the DCF method.
An additional observation that may be made is that it would seem that the
issue of causality has the potential of creating more problems in this context
than in relation to compensation for expropriation. One possible explanation is
that violation of the fair and equitable treatment standard, non discrimination
standard etc. do not automatically result in the elimination of the investment,
as is mostly the case with expropriation, but rather results in a decline in the
business in question, or in other negative impact on it. The difficulty is to
determine the extent to which this is caused by the violation of the fair and
equitable treatment standard.
For instance in Nykomb, where the investment—the local subsidiary
Windau—was still in operation and the contract for delivery of electric power
was still in force between Windau and Latvenergo, the tribunal made a clear
distinction between the damage suffered by Nykomb and the damage suffered
by Windau. The tribunal only awarded damages that would compensate
Nykomb for the damage, that it had actually suffered, and not for losses
suffered by Windau. Nykomb’s damage was quantified as a proportion of the
earnings that would have been generated by Windau, had there not been
any breach of the treaty, ie the tribunal estimated the dividends that would
have been collected by Nykomb from its subsidiary, rather than establishing
a reduction of the value (if any) of Nykomb’s shares in Windau.

95
See eg ICSID Case No ARB/01/7 MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, Award of
25 May 2004; ICSID Case No ARB/01/8 CMS Gas Transmission Company v The Argentine Republic, Award of 12
May 2005; ICSID Case No ARB/01/12 Azurix Corp v The Argentine Republic, Award of 14 July 2006; S.D. Myers,
Inc. v Canada, 8 ICSID Reports (2005) 18; ICSID Case No ARB(AF)/99/1 Marvin Feldman v Mexico, Award of
16 December 2002.

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 190 Journal of International Dispute Settlement
7. Concluding Remarks
My observations and conclusions with regard to Nykomb, Petrobart, Plama,
Amto and Kardassopoulos have already been made in relation to the issues of
‘jurisdiction’ and ‘compensation’, and shall not be repeated here. It is striking,
however, and probably a manifestation of the fact that the ECT still is a rather
young and ‘untested’ investment protection treaty, that the five awards that
have been made to date involve so many issues of general interest.
It is likely that also future ECT awards will involve issues of general interest
for the application of the ECT. In this regard it may be noted that after
a somewhat ‘slow start’ for the investment protection regime of the ECT,
investors have now started to discover the treaty. Of the 20 cases registered
under the ECT thus far, 15 have been registered since 2005. With increasing
investor awareness of the treaty, we will probably see a continued steady stream
of cases during the coming years.

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