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The Energy Charter Treaty - 20 years on

14 April 2014

Arbitration partner Jeffrey Sullivan was recently invited by the ICSID Secretary General to speak at the Energy Charter Treaty Conference which took place in Paris on 7 March to mark the 20th anniversary of the Energy Charter Treaty.

The Energy Charter Treaty is a unique multilateral treaty created with the aim of opening energy markets in its Member States by establishing a legal framework to liberalise trade and investment and minimise associated risks. A&O acted in the first arbitration in relation to the Energy Charter Treaty in 2001 and continues to have a world-leading practice in this area. A&O has acted in more Energy Charter Treaty claims than any other law firm (advising parties in a fifth of all claims brought under the Treaty) and is currently acting in six separate arbitrations brought under the Treaty.

Jeff shared his views on the Energy Charter Treaty 20 years after its inception and sought to dispel some of the recent criticism to which the investment arbitration regime has been subject, particularly with regard to its impact on States’ right to regulate on matters of public policy. Jeff highlighted that, while States voluntarily give up some sovereignty when entering into any treaty, this is a compromise that they accept in the hope of receiving the benefit of additional foreign investment.  Moreover, the awards rendered by tribunals applying the Treaty indicate that a State will not be found to have breached the Treaty where it enacts a proportionate regulatory measure in the public interest where those measures do not contradict any specific representations or commitments made by the State.

Jeff highlighted that the Energy Charter Treaty is the only example of a sector-specific Multilateral Investment Treaty for good reason. Energy investments are typically high risk, long-term and capital intensive.  Investors are therefore more likely to make a cross-border investment in this sector where the host state provides some form of investment protection and a greater degree of regulatory stability. States have agreed to offer the investments protections found in the Energy Charter Treaty because they require foreign capital to exploit their natural energy resources.

Jeff also dismissed claims that the Energy Charter Treaty, or investment arbitration as a whole, has generated an unreasonably high numbers of claims against states. He observed that, as at the end of 2012, there had been a total of 514 investment arbitration claims ever.  To put this in perspective, in the US there have been more than 143 domestic court challenges to President Obama’s health care legislation alone.  Where one measure in one country has provoked so many claims it is difficult to conclude that the entire global investment arbitration regime has generated an inordinate number of challenges to governments and their right to regulate.

For further information please speak to Jeff Sullivan, Antonio Vazquez-Guillen and David Ingle.