Investment protection and arbitration: when companies sue states

1. Bilateral investment treaties

   A bilateral investment treaty, BIT for short, is an agreement between two states to protect each other's investors. Among other things, the state promises not to expropriate without compensation, to treat the investor fairly and equitably and no worse than others. Almost all such treaties give the investor the right to bring a claim against the state before a tribunal. Sweden has 52 bilateral treaties, most from the 1980s and 1990s.

   National Board of Trade (Kommerskollegium), A modernisation of Sweden's investment protection agreements, 2024

2. The Energy Charter Treaty

   The Energy Charter Treaty, ECT for short, is a multilateral treaty from 1994 for the energy sector with the same kind of investment protection. It is the treaty most often invoked in disputes. The Riksdag approved it in 1996.

   The Energy Charter Treaty, article 47; the Riksdag, committee report 2025/26:NU13; Eberhardt, Olivet and Steinfort, One Treaty to Rule Them All, TNI 2018

3. ICSID, UNCITRAL och PCA

   Disputes are decided by a tribunal, usually three arbitrators: one appointed by the investor, one by the state and a chair whom they agree on. The World Bank's arbitration institution ICSID administers the most cases. Other cases follow the UN arbitration rules from UNCITRAL and are often administered by the Permanent Court of Arbitration, the PCA, in The Hague. The award is binding and as a rule cannot be appealed on the merits, only annulled on narrow grounds such as conflict of interest or serious procedural errors.

   OECD, Gaukrodger and Gordon, Investor-State Dispute Settlement: A Scoping Paper, 2012

4. The clause that applies after termination

   Most treaties have a so-called sunset clause: investments made while the treaty was in force remain protected for 10 to 20 years after the treaty is terminated. In the Energy Charter Treaty the period is 20 years, according to article 47.3. The National Board of Trade points out that a unilateral termination of Sweden's treaties therefore locks in the old protection for a long time.

   National Board of Trade (Kommerskollegium), A modernisation of Sweden's investment protection agreements, 2024

Known treaty-based disputes, according to UNCTAD, World Investment Report 2026, figure II.16 (ISDS Navigator on 1 April 2026). The figures for recent years are revised upwards afterwards as more disputes become known; disputes kept entirely secret do not appear at all.

Amounts in disputes brought 2015 to 2024, excluding interest and excluding Yukos v Russia and Zeph v Australia, according to UNCTAD, IIA Issues Note 2025, figure 7. The costs are the average across more than 400 decisions up to May 2021 according to BIICL and Allen & Overy, 2021 Empirical Study. The kronor figures are converted at the Riksbank's annual average rate, 10.56 kronor per dollar in 2024 and 8.58 kronor in 2021.

1. Vattenfall mot Tyskland

   After Fukushima in 2011, the Bundestag decided that Germany would phase out nuclear power faster. Vattenfall, which is owned by the Swedish state, sued Germany in 2012 under the Energy Charter Treaty and ultimately claimed €6.1 billion with interest, around SEK 65 billion. In parallel, Germany's Federal Constitutional Court found in 2016 and 2020 that the law partly infringed the right to property and that the companies should receive reasonable compensation. In 2021 the state agreed with the four nuclear power companies on €2.4 billion, of which €1.425 billion to Vattenfall, around SEK 14.5 billion or $1.7 billion. The dispute ended. Germany's cost of the defence was €21.7 million up to August 2020. Already in 2009 Vattenfall had sued Germany over the environmental conditions for the Moorburg coal power plant in Hamburg; that dispute was settled in 2011.

   Vattenfall, 5 March 2021; the German federal government, Drucksache 19/22571; italaw, ICSID ARB/09/6

2. Philip Morris mot Uruguay

   In 2008 and 2009, Uruguay required the warning text to cover 80 per cent of the cigarette packet and each brand to be sold in only one variant. Philip Morris sued Uruguay in 2010 under the treaty with Switzerland. The tribunal dismissed all claims in July 2016 and ordered Philip Morris to pay $7 million, around SEK 60 million, of Uruguay's costs as well as the tribunal's fees. According to a study in Tobacco Control, the government first announced that it would soften the rules to avoid the dispute, but changed its mind.

   italaw, ICSID ARB/10/7; Crosbie, Sosa and Glantz, Tobacco Control 2018

3. Philip Morris mot Australien

   Australia introduced plain cigarette packaging in 2011. Philip Morris Asia in Hong Kong sued under the treaty between Australia and Hong Kong. The tribunal dismissed the claim in December 2015 without examining the merits. Australia had half of its costs of A$23 million reimbursed and itself paid around A$12 million. While the dispute was ongoing, New Zealand's Associate Minister of Health said in 2013 that the government would await the outcome before legislating on the same matter, an example that critics call regulatory chill.

   italaw, PCA 2012-12; IAReporter on the costs; IAReporter on New Zealand

4. RWE och Uniper mot Nederländerna

   In 2019, the Dutch parliament decided that coal may not be used for electricity production after 2029. The German companies RWE and Uniper, which had opened new coal power plants in 2015 and 2016, sued in 2021 under the Energy Charter Treaty and claimed around €1.4 billion and €1 billion respectively. Uniper withdrew its claim in 2022 as a condition for the German state's rescue package. RWE withdrew its claim in 2023, after Germany's supreme court found that the treaty's arbitration clause does not apply between EU countries. In Dutch courts the companies lost: the ban interferes with property but is lawful without compensation, according to the district court in 2022 and the court of appeal in 2025.

   ICSID, ARB/21/4 and ARB/21/22; SOMO on RWE; the court of appeal in The Hague 2025

5. Rockhopper mot Italien

   In December 2015, Italy's parliament banned new oil and gas extraction near the coast, and the following year the British company Rockhopper was refused the Ombrina Mare field. The company sued under the Energy Charter Treaty and was awarded in 2022 around €190 million plus interest, roughly SEK 2 billion. In June 2025 the award was annulled in its entirety, because the arbitrator the company had appointed had not disclosed an old Italian criminal case. The dispute is now being heard by a new tribunal.

   ICSID, ARB/17/14; the annulment decision 2025

6. More examples

   Lone Pine sued Canada over Quebec's moratorium on fracking and lost in 2022. Eco Oro sued Colombia over a mining ban in a protected highland; the tribunal found in 2021 that Colombia had breached the treaty but awarded 2024 no damages. TC Energy claimed $15 billion from the USA when the permit for the Keystone XL oil pipeline was revoked, but the claim was dismissed in 2024.

   italaw, Lone Pine; El Universal on Eco Oro; Offshore Technology on TC Energy

The amounts in kronor and dollars are converted at the Riksbank's annual average rate for the year in which the award or settlement was made.

1. Achmea, 2018

   On 6 March 2018, the EU Court of Justice held that an arbitration clause in an investment treaty between two EU countries is contrary to EU law, because a tribunal may need to interpret EU law without being able to ask the EU Court of Justice.

   the EU Court of Justice, case C-284/16

2. Komstroy, 2021

   On 2 September 2021, the EU Court of Justice held that the same applies to the Energy Charter Treaty: its arbitration clause cannot be used in disputes between an investor from one EU country and another EU country.

   the EU Court of Justice, case C-741/19

3. PL Holdings, 2021

   In October 2021, the EU Court of Justice added that an EU country may not agree to a separate arbitration agreement after the fact with the same content as an invalid clause either.

   the EU Court of Justice, case C-109/20

1. Legislators may hold back

   Critics argue that the threat of an expensive dispute makes governments refrain from or soften laws, even when the state would win. This is called regulatory chill. Interviews with officials in Ontario show that proposals began to be scrutinised internally to avoid disputes. A study of environmental regulations found that disputes are followed by weaker regulation, most clearly in countries with strong administration. Other studies of Canada found that officials seldom knew of the treaties at all. The research is thus divided.

   Van Harten and Scott, JIDS 2016; Berge and Berger, JIDS 2021; Côté, LSE 2014

2. Climate policy

   Researchers have estimated that climate policy could lead to claims from oil and gas investors of up to $340 billion, and that the Energy Charter Treaty protects the largest single part of these assets. The UN climate panel IPCC writes that treaties such as the Energy Charter Treaty have arbitration clauses that protect investors against policies that could make their assets worthless.

   Tienhaara et al., Science 2022; IPCC AR6, Working Group III, chapter 14

3. Arbitrators are not judges

   Arbitrators are appointed for each dispute and are paid per assignment. The same people can be arbitrators in one case and counsel in another. A study of 1,039 disputes found that a small but significant group has such dual roles, and a study of all ICSID appointments found that a small circle dominates. One study found that arbitrators interpret their jurisdiction in the investor's favour; another found no link between the state's level of development and the outcome.

   Langford, Behn and Lie, JIEL 2017; Puig, EJIL 2014; Van Harten, Osgoode Hall LJ 2012; Franck, Harvard ILJ 2009

4. Only investors can sue

   The treaties give the investor the right to bring a claim, but the state can only respond. Foreign companies also get a route that domestic companies lack. In 2010, Australia's Productivity Commission advised the government against clauses that give foreign investors greater rights than Australian ones. Counterclaims by the state are possible but unusual.

   Productivity Commission, Bilateral and Regional Trade Agreements, 2010, recommendation 4c; Urbaser v Argentina

5. Secrecy

   Many disputes are conducted without public insight. UNCTAD writes that the real number of disputes is probably higher than the known one, and that about a fifth are settled, usually on confidential terms. The UN transparency rules from 2014 apply only to newer treaties unless the parties agree otherwise. Sweden has signed the convention that extends them to older treaties but has not ratified it.

   UNCTAD, IIA Issues Note 4/2021; UNCITRAL, the Mauritius Convention

6. Institutions

   In 2015, UNCTAD wrote that the question is not whether the system should be reformed but how. Since 2021, the OECD has been working to align the treaties with climate goals. The Columbia Center on Sustainable Investment argues that the benefits are largely unproven while the costs are becoming increasingly clear. The Transnational Institute, a critical think tank, has examined the Energy Charter Treaty and the arbitrators' network. In 2017, more than 230 law and economics professors asked the US president to remove ISDS from NAFTA.

   UNCTAD, World Investment Report 2015; OECD, Future of Investment Treaties; CCSI 2018; TNI 2012; the professors' letter 2017

1. Protection where courts are weak

   Investment protection was built to move disputes from diplomatic pressure, and earlier plain power politics, to legal review. Defenders argue that a company investing in a country with biased or slow courts needs a neutral forum when the state takes its property or changes the terms arbitrarily. However, a study of US diplomatic cables found that diplomats intervened just as often in countries with treaties as in those without.

   Shihata, ICSID Review 1986; Gertz, Jandhyala and Poulsen, World Development 2018

2. The state wins more often

   Of the concluded disputes, states have won more than investors, and most damages awards are small compared with what was claimed. The headline amounts are exceptions. The European business organisation BusinessEurope describes ISDS as a neutral and fact-based mechanism and an important part of investment protection, but admits that the system can become more open and more consistent.

   UNCTAD, IIA Issues Note 4/2021; BusinessEurope 2014

3. Do the treaties attract investment?

   This is the main argument for the treaties, and the research is mixed. An early study found that more treaties bring more foreign investment to developing countries. Later studies that take into account that investment can also lead to treaties find weaker effects or none. The largest meta-analysis, of 74 studies, found an effect so small that it can be regarded as zero but could not rule out a small positive effect, and signs that positive results are published more often.

   Neumayer and Spess, World Development 2005; Aisbett, OUP 2009; Brada, Drabek and Iwasaki, Journal of Economic Surveys 2021

4. The National Board of Trade's assessment

   Sweden's trade agency found in 2017 no effect of CETA's investment protection on Sweden's right to regulate, because in practice the protection goes no further than Swedish law, the European Convention on Human Rights and EU law. In 2024, the agency recommended that Sweden's 52 outdated treaties be modernised through a new model treaty, not abolished.

   National Board of Trade (Kommerskollegium), Analysis of the CETA free trade agreement, 2017 and A modernisation of Sweden's investment protection agreements, 2024

1. The investment court in CETA

   In the EU's agreement with Canada, CETA, arbitrators are replaced by a permanent tribunal with members appointed in advance by the parties, and an appellate body. The EU Court of Justice found in 2019 that the arrangement is compatible with EU law, among other reasons because the tribunal cannot call into question democratically decided levels of protection. The investment part will not apply until all EU countries have ratified the agreement. Sweden ratified in 2018; in August 2025, ten countries remained.

   the EU Court of Justice, opinion 1/17; Canada's parliament on the ratifications

2. A multilateral investment court

   In 2018, the EU's Council of Ministers gave the Commission a mandate to negotiate a multilateral investment court, with full-time judges on long, non-renewable terms and an appellate body.

   the Council, the negotiating directives, 2018

3. UNCITRAL Working Group III

   In the UN Commission on International Trade Law, states have been negotiating reforms since 2017. A code of conduct for arbitrators was adopted in 2023 and limits dual roles with cooling-off periods. A statute for an advisory centre to help poorer states was adopted in principle in 2024. Drafts for a permanent tribunal and an appellate body are still being negotiated.

   UNCITRAL, the code of conduct; UNCITRAL, Working Group III

4. New model treaties

   Since 2019, the Netherlands has had an independent authority appoint arbitrators. India terminated treaties with 58 countries after 2016 and wrote a new model treaty. Brazil's treaties have no investor-state dispute settlement at all. South Africa replaced its treaties with a national law in 2018. The new agreement between the USA, Mexico and Canada removed ISDS between the USA and Canada. Bolivia and Venezuela have left ICSID.

   Kluwer on the Netherlands; bilaterals.org on India; ASIL on Brazil; Webber Wentzel on South Africa; Gibson Dunn on USMCA; ICSID on Venezuela

The Riksdag approved CETA on 22 March 2018 with 248 votes to 24 (the vote, committee report 2017/18:UU19) and the EU's agreement with Chile, which also has an investment court, on 23 October 2024 with 258 to 35, where V and MP voted no (committee report 2024/25:UU4). A proposal in an individual motion is the member's own, not necessarily the party's.