Comprehensive Report: Investment Arbitration and Energy Charter Treaty

This report examines the Energy Charter Treaty (ECT) and its relationship with investment arbitration. It highlights the ECT's role in promoting energy sector investments, providing a framework for international cooperation, and ensuring the protection of foreign investors. The report details the ECT's provisions, including investment protection, trade, energy efficiency, and dispute resolution mechanisms. It also discusses the importance of investment arbitration in resolving disputes between host states and foreign investors, emphasizing the role of international investment agreements, free trade agreements, and bilateral investment treaties. The study further analyzes the objectives of the ECT, the benefits it offers to investors, and the mechanisms for ensuring fair and equitable treatment, security, and non-discrimination. The report concludes by emphasizing the ECT's effectiveness in attracting investment and facilitating long-term cooperation in the energy sector, while also acknowledging the challenges in managing the associated complexities.

Investment Arbitration and the Energy
Charter Treaty

TABLE OF CONTENTS
1. Introduction..................................................................................................................................4
2 OVERVIEW OF THE ENERGY CHARTER TREATY.............................................................5
4 SETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTY AND INVESTOR...13
5 PROVISIONAL APPLICATION OF ECT................................................................................16
6 AWARD RENDERED...............................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

ABSTRACT
The formation of investment arbitration and Energy Charter Treaty is the effective for
state as well as investors due to benefit for the both parties. It promotes the investment in the
sector of energy and ensure development of the same in an effectual manner. The current
investigation is based on assessing the benefit from the investment arbitration and its direct
impact on states attracting the foreign investors towards the specific sector. For this purpose,
secondary data are collected on the treaty in context of energy sector which in turn its
effectiveness can be determined that how investors get their dispute resolved on right time. In
addition to this, investment arbitration is helpful for the investors to protect their right and
provide them equal opportunities to determine the activities related investment and associated
risk with the same. It has been found that, investment arbitration is contributing towards the
benefits of the investors through appropriate return for investors and catering their requirement
in an effectual manner.

1. INTRODUCTION
An investment is considered as the most effective aspect for the purpose of growth and
development of a particular sector. However, issues in the procedures of investment affect the
performance of the sector to a great extent. Present report is based on Energy Charter Treaty
(ECT) and investment arbitration which promote the secured investment between foreign
investors and host state. In this context in-depth analysis has been done by covering the all
related aspects of ECT and assessing its link between investment arbitration. Moreover, the study
is completed with the help of inclusion of suitable articles related to ECT1.
Importance of the topic
The energy sector is considered as the most prominent aspect for the world due to its
significant contribution in ensuring the development and growth of the businesses. Investment is
considered as the most significant aspect to operate organization running in the energy sector in
order to increase the flow of money and contribute towards economic growth. However,
investors face several kind of issue in context of investment protection regime of the ECT and
arbitration mechanisms of the same2. However, several cases of investment arbitration are to be
settled effectively as many of the cases are still pending and affecting the procedure of
investment to a great extent. Owing to this, it is important to shed light on investment related
cases and resolve the dispute related to the same on right time3. However, ICSID arbitration
tribunals introduced the final aware on the merits so as to resolve the dispute. At this juncture,
investment protection provision related to decision was passed in context of ICT but still limited
number of cases are resolved and issues are being with regard to issues of generate interest for
the application of the ECT.
Definition of key terms
1 Caron, D.D., Schill, S.W., Smutny, A.C. and Triantafilou, E.E., Practising virtue: inside
international arbitration. Oxford University Press (2015)
2 (The EU and investment arbitration under the Energy Charter Treaty, 2017)
<http://www.law.qmul.ac.uk/events/items/168149.html> Accessed on 7th April 2017
3 Matsushita, M. and Schoenbaum, T.J., Emerging Issues in Sustainable Development:
International Trade Law and Policy Relating to Natural Resources, (2016) Energy, and the
Environment. Springer

The definition of the most important terms in included in the essay are presented as
follows-
Energy Charter Treaty
The Energy Charter Treaty (ECT) is the multilateral instrument used for the international
communication in order to promote the and cooperate the energy sector. It is helpful for the
operation of the business without any kind of non-discriminatory energy market. The North
American Free Trade Agreement (NAFTA) is also connected with its for the promotion and
protection of investment.
2 OVERVIEW OF THE ENERGY CHARTER TREATY
Background
The development of energy corporation between Western Europe and Eastern during the
1990s was the significant task. This is because some of the countries like Russia and its
neighboring countries were quite well in the same sector. However, the potential issues was
related to need of investment so as to reconstruct their economies under West European countries
so as ensure that sources of energy are diversified through which dependence on another
countries will be reduced4. Owing to this, requirement of well settled foundation was felt for the
specific energy corporation and accordingly phase of initiation of Energy Charter began. In this
context, first of all European Energy Charter (EEC) was signed and adopted for the Energy
Charter. This step or phase converted into the ECT along with setting of the protocols5.
Further, in December of 1994 Energy Efficiency and connected environmental aspects
context were signed. This would be effective for the purpose of integrating the 51 states and
European union whereby it becomes easy to integrate all related activities. At the same time, 45
states and European union too signed the treaty. This in turn energy sector is being promoted
with the joint cooperation of varied countries. The biding force is associated with the ECT so as
to limit its scope towards the mentioned sector. The main reason behind promoting this particular
treaty is to provide the mutual benefits for the parties or countries ans support them to make huge
4 Dolzer, R. and Schreuer, C., Principles of international investment law (Oxford
University Press, 2012).
5 Dolzer, R. and Schreuer, C., Principles of international investment law (Oxford
University Press, 2012).

investment on different activities. This would be effective for the cooperation and development
of the nation. For this purpose, Article 2 consists of clear benefits in term of long term
cooperation of the energy sector in accordance with profit for the associated parties. However,
objectives and principles are focused effectively so as to ensure the ethical conduct of the
business activities and accordingly ensure the successful transaction regarding the investment
between different parties. In this manner, inter-governmental cooperation in the sector of energy
is dealt through the formation of multilateral instrument. This proves to be effective for
contracting parties to promote the investigation and determine the long term growth of the sector
in an effectual manner. Apart from this, several provisions are included in the Energy Charter
Treaty such as protection of investment and other related provision on trade. Along with that,
energy efficiency and transit on the same as well as dispute resolution. In addition to this,
environmental protection is also included under the treaty whereby it becomes easy to handle the
all related task support or issues which are being faced by the investors. Therefore, all related
aspects are considered under the Energy Charter Treaty whereby objectives regarding the higher
rate of return and protection of the investment. Though, it increases several issues in order to
manage the work and completing the requirement of the all related parties so as to cater the
requirement of the business effectively. Not only this but the growth of energy sector is also
determined with the effective implementation of the treaty.
Investment arbitration
Investment arbitration is the procedure applied to resolve the conflicts or dispute among
host states and foreign investors. It is helpful for foreign investors to bypass national
jurisdictions so as to resolve the dispute as per the different protections afforded under
international treaties. It is important for foreign investors to take the consent of host state for the
initiation of investment arbitration6. However, three different aspects such as International
investment agreements including multilateral agreements, Free Trade Agreement and Bilateral
Investment Treaties are involved to give the consent by host states. There are several contracting
parties who do not allow investors to resubmit the same dispute to international arbitration at a
later stage under article 26 such as Australia, Croatia, Cyprus and Japan as well as Poland and
6 De Luca, A., Non-Pecuniary Remedies Under the Energy Charter Treaty. (2015)
Transnational Dispute Management (TDM). 12(3).

Portugal. Along with that, other countries such as Spain, Sweden, Italy and Greece etc are also
included7.
Objectives of the current study
 To understand the link between investment arbitration and ECT To analyze the role of ECT
Main body
Being multilateral treaty with biding force and extent of its scope to the energy sector
investment are promoted to a great extent. It helps to attract number of investors and offer them
appropriate kind of services so as to get the higher rate of return. However, it is effective in
promoting the long-term support in the field of energy in accordance with mutual benefits and
compplementarities. However, principles and objectives of the charter are focused to a great
extent in order to accomplish all related activities effectively. The major role of ECT covers the
transit of energy, provision on trade and investment protection as well as energy efficiency.
Along with that dispute resolution and environmental protection is supported with the help of
ECT only8.
3 INVESTMENT PROTECTION
It is the third part of the ECT under which investment protection are made so as to
accomplish the related activities ans support other parties effectively. The investment promotion
and protection is considered as the cornerstone of the treaty as it related to foreign investments
only. It would be effective to reduce the risk related to non-commercial sector and create a level
play field with regard to investment9. The basis purpose behind the same is to reduce the risk
related to non-commercial aspects which is associated with the investments. Furthermore,
equality condition for the foreign investors are established in the sector of energy. The formation
of this treaty proposed two two aspects such as pre-investment and post investment are
7 odogawa, N., Energy Charter Treaty: Standing Out Beside the WTO. In Emerging Issues
in Sustainable Development. Springer Japan (2016)
8 Dugan, C., Wallace, D., Rubins, N. and Sabahi, B., Investor-state arbitration. (Oxford
University Press 2011)
9 Spears, S.A., The quest for policy space in a new generation of international investment
agreements (2010) Journal of International Economic Law, 13(4), pp.1037-1075.

considered in order to provide the protection for the investors and support them to make the
investment in other related sector.
For this purpose, pre-investmenrt phase deals with the soft regime in context of best endeavor
obligations whereas the poster investment phase reflects that hard regime of the ECT to bind
with obligation contracting10. For this purpose, parties such as North American Free Trade
Agreement and bilateral investment treaties are considered. It is showing that investment related
procedures are mad possible with the help of ECT's provision only. It proves to be effective for
supporting the related parties and resolving several issues which are being faced during the
investment11.
Furthermore, frequently found investments in BITs are treated on the basis of certain
principles. The first one is related to fair and equitable treatment under which contracting parties
need to ensure that favorable investment climate is maintained. It consists of certain arbitral
practices such as due process, good faith and protection of legitimate expectations as well as
proportionality etc. However, good government conduct is needed for the purpose of factual
assessment that standard applied effectively12.
On the other hand, most constant security and protection are also considered under the
head of investment protection, In this context investors should be protected in term of normal
ability to function in the level of playing field. This duty is performed by the state for protecting
the right of investors and offering the security so as to promote them for investment. Here,
discrimination is also considered on the priority which is explained in the Article 10(1) that
unreasonable discrimination will not take place in term of maintenance, use and management or
disposal of investment13. This would be effective to ensure betterment of investors and they will
10 Hober, K., Investment Arbitration and the Energy Charter Treaty (2010) Journal of
International Dispute Settlement, 1(1) pp.153–190
11 Dolzer, R. and Schreuer, C., Principles of international investment law. (Oxford
University Press 2012)
12 Rovine, A.W., Contemporary issues in international arbitration and mediation. Brill
(2013)
13 Kleinheisterkamp, J., Investment protection and EU law: the intra-and extra-EU
dimension of the Energy Charter Treaty (2012) Journal of International Economic Law,

be provided equal right and opportunities for the investment14. Here, the economic activities
related to energy sector was kept on the center under which varied aspects regarding the
transport, transmission and refining. Along with that, storage, land transport as well as
transmission related activities are also covered under which investment decision can be taken
effectively. However, products or material included in the Annex NI is not included in the
economic activities with regard to energy sector15. The right of arbitration in the article 26 is
depicted through which scope of protection under the PART 3 of mentioned treaty.
The investment protection is done with the help of setting minimum standards under
article 10 (1). This shows that parties associated with the contract are provided the equitable and
stable as well as transparent conditions for the investors through which better investment
decision can be made. At this juncture, condition can be related to fair and equitable treatment,
proper security along with maintenance etc16. All these specified condition must be considered or
followed by the contracting parties through which they can effectively accomplish the purpose of
contract. Not only this but the healthy investment decision are also made among the people or
individual17. The first standard is of treatment towards the investors which actually must be
equitable and fair. At this juncture, contracting parties are required to ensure that favorable
investment climate is maintain so as to promote the investment which is protected through ECT.
For this purpose, international law is considered which is effectively applied in case of NAFTA,
BIT arbitration. This contribute towards protecting the investment in a most suitable manner. Not
p.jgs004.
14 Wilske, S. and Edworthy, C., The Future of Intra-European Union BITs: A Recent
Development in International Investment Treaty Arbitration against Romania and Its Potential
Collateral Damage. (2016) Journal of International Arbitration 33(4), pp.331-351.
15 Alvarez, J.E., The evolving BIT (2010) Transnational Dispute Management (TDM). 7(1).
16 Simmons, B.A., Bargaining over BITs, arbitrating awards: The regime for protection and
promotion of international investment (2014) World Politics, 66(01), pp.12-46.
17 Alvarez, J.E. and Brink, T., Revisiting the Necessity Defense: Continental Casualty v.
Argentina (2012) Transnational Dispute Management (TDM), 9(3).

only but the specific principles are developed for the purpose of arbitrage practice such as due
process, proportionality as well as protection of legitimate expectations18.
Although, description of the same is not mentioned under the general terms. Owing to
this, description is fact specific so that accordingly it can be applied effectively in order to
conduct the in-depth factual assessment This proves to be effective to maintain the appropriate
standard related to government conduct19. For this purpose, factual assessment contributes
towards implementation of good governance and complete the related work accordingly.
Though, flexible standard are applied in order to handle the individual case. In case of not
establishing the flexible standard, it might be possible that decision is taken in accordance with
arbitration individual perception. Similarly, host states is responsible for protecting the legitimate
expectations of capitalist in term of practicable business along with focus on legal environment.
This proves to be effective to carry out the operational activities effectively cater the requirement
of foreign as well as local investors in an effectual manner. Moreover, principles related to due
process, prohibition related transparency requirement etc are considered. This aids to ensure well
being of contracting parties and make them able to form the appropriate agreement with
investors from member countries20.
For this purpose, host country is responsible to treat the investors in a right manner and
secure their invested amount so as to generate adequate rate of return without any kind of risk.
Moreover, varied kind of obligations are considered by the business so as to treat the investors in
a right manner and supporting them to accomplish long as well as short term objectives
regarding the investment of money21. In addition to this, obligation regarding refraining on
discriminatory measures is also fulfilled by the host states. This is helpful for country as well as
18 Kapeliuk, D., The repeat appointment factor: exploring decision patterns of elite
investment arbitrators (2010) Cornell L. Rev., 96, p.47.
19 Shan, W. and Zhang, S., The Treaty of Lisbon: half way toward a common investment
policy ( 2010) European Journal of International Law, 21(4), pp.1049-1073.
20 Spears, S.A., The quest for policy space in a new generation of international investment
agreements (2010) Journal of International Economic Law, 13(4), pp.1037-1075.
21 Yackee, J.W., Do Bilateral Investment Treaties Promote Foreign Direct Investment-
Some Hints from Alternative Evidence. (2010) Va. J. Int'l L., 51, p.397.

other related investors who are investing their huge amount of money to get the appropriate
return and determine the growth of the energy sector22.
It can be understood with the help of example of case related to ECT “Plama Consortium
Ltd v Republic of Bulgaria”. Under this, issue was faced due to change in the environmental law
of Bulgaria wherein principle related to fair and equitable treatment. It is because changes were
not favourable and impact of the same was seen on the parties related to associated with the
contract. However, it was stated by the tribunal that equitable and fair treatment standard can be
complied to certain extent23. This would be effective to consider the legitimate expectations
wherein investment backed expectation related to certain conditions are shown effectively. At
this juncture tribunal stated that amendments in the environmental law was not unfair and did not
breach the fair and equipment treatment standard. However, claimant was exempted firm the
liability caused in the past environmental damages24.
Another aspect associated with investment protection is of contract protection and
security. This show that investment must be backed with proper security and constant protection.
It would be effectively to follow the standard mentioned in the ECT25. However, it is the
responsibility of the state the provide protection for the business of investors in context of
normal ability so as to effectively operate the business in the field of oil and gas. It shows that
investment arbitration and ECT has strong connection through which proper protection is
provided for the investors by securing their money on the basis of standard regulations. Apart
from this, Article 10 (1) discrimination's third sentence of the second part is showing that
unreasonable measures related to use, maintenance and management as well as disposal of
22 García-Bolívar, O.E., Permanent Investment Tribunals: The Momentum is Building Up
(2014) Transnational Dispute Management (TDM), 11(1).
23 Van Harten, G., Arbitrator behaviour in asymmetrical adjudication: an empirical study of
investment treaty arbitration (2012) Osgoode Hall LJ, 50, p.211.
24 Schill, S.W., W (h) ither fragmentation? On the Literature and Sociology of International
Investment Law (2011) European Journal of International Law, 22(3), pp.875-908.
25 Allee, T. and Peinhardt, C., Delegating differences: Bilateral investment treaties and
bargaining over dispute resolution provisions (2010) International Studies Quarterly 54(1), pp.1-
26.

investment are not affected through. Owing to this, framed standards are taken into account
through which all parties get appropriate services effectively. Owing to this, ECT do not
discriminate and not entitled to breach the standard set for the protection of investors. For this
purpose, foreign investors can be discriminated in term of offering greater tariffs and
inappropriateness to show the the evidence. This in turn all related activities of investment can be
resolved effectively for meeting the expectations of the contracting parties and support them to
seek for the new investment plan etc26.
In addition to this, umbrella clause reflects that Pacta sunt servanda in which each party
make an obligation to inspect that any obligation with which they are entered must not be
violated. As parties will fulfill the same to accomplish the long as well as short term objectives.
Such terms tend to affect the rights of contracting parties so as to protect their right effectively
and reduce the chances of conflicts among them. The umbrella clause covers that whether the
organization covers under the sector follow the commercial conduct or they are state owned
only27. For this purpose, it is important to shed light on their conduct and relevance to the
government authority. In this manner, investors can take decision in their respective areas.
However, some of the clauses are following the clauses in accordance with the BITs in order to
work upon the commercial dispute and ensure the well being of all related parties28.
However, the major task is about the decide that which is the commercial and which one
is the governmental aspects. It proves to be effective to take the decision effectively and
determine the higher level of satisfaction among the related contracting parties. On a critical
note, disputes covered under the Articles 27(2), 26(3)(c) of the ECT is considered the be
excluded in term of dispute of the umbrella, clause. This might make it critical to resolve the
26 Allee, T. and Peinhardt, C., Delegating differences: Bilateral investment treaties and
bargaining over dispute resolution provisions (2010) International Studies Quarterly 54(1), pp.1-
26.
27 Bernasconi-Osterwalder, N. and Hoffmann, R.T., The German nuclear phase-out put to
the test in international investment arbitration? Background to the new dispute Vattenfall v.
Germany (II). (2012) International Institute for Sustainable Development, pp.2-4.
28 Schill, S.W., Enhancing International Investment Law's Legitimacy: Conceptual and
Methodological Foundations of a New Public Law Approach (2011) Va. J. Int'l L., 52, p.57.