Investment Treaty Arbitration: Sweden

Issue

Distinguishing features in relation to the definition of “investor”

Nationality and residency (physical persons)

BITs concluded by Sweden offer protection to nationals of the contracting parties, usually defined as an individual who is a citizen in accordance with domestic law. Residents, by contrast, generally do not enjoy benefits under Swedish BITs. By contrast, the ECT extends protection to residents of contracting parties.

Dual nationals (physical persons)

Swedish BITs rarely regulate the situation of dual nationals. There are two notable exceptions. Under the BIT with Argentina, Swedish nationals domiciled in Argentina for more than two years must show that their investment originates abroad in order to enjoy the benefits of the BIT. Similarly, the BIT with Uruguay does not extend to investments made by dual nationals, unless they had legal domicile outside the host State when making the investment.

Incorporation/seat of investor and substantial business activities (legal persons)

Legal persons are generally considered a national of the state where they are incorporated or where they have their seat. It is uncommon to have other criteria, such as substantial business activities. Exceptions include the BITs with Ethiopia, Iran, and the Philippines (not in force), which in addition to a requirement of incorporation, seat or headquarters also require that the investor pursues economic activity in the purported home state.

Authorisation to invest

The Swedish BIT with China stipulates that any company, other legal person or citizen must be authorised by the Chinese government to make an investment, in order to qualify as an investor under the treaty. This issue has been raised as a defence by Sweden in Huawei v Sweden, ICSID Case No ARB/22/2, Procedural Order No. 3, 28 April 2023.

In the same vein, the now-terminated BITs with Czechia and Slovakia defined an investor as a national with permission to invest in the territory of the other contracting party, provided such a permission would be legally required.

Ownership/control/beneficial interest in respect of local/third state investment vehicles (legal persons)

Most Swedish BITs apply to investments by legal persons organised under the laws of a third state, if a national of a contracting party directly or indirectly controls or has a predominant interest in that legal person. The BITs with Kuwait and Turkey explicitly clarify that ownership and control can be exercised through subsidiaries or affiliates wherever located.

The majority of Swedish BITs that provide for ICSID rules also provide that a local legal entity shall be treated as a legal person of the other contracting party, if a national of that party holds a majority of the shares, as provided for in article 25(2)(b) of the ICSID Convention.

A number of Swedish BITs offer independent definitions of what constitutes ownership and control (see, eg, the BITs with Kuwait, Mexico, Thailand, Turkey and Ukraine, and the terminated treaties with India and Slovenia). To “own” is commonly defined as beneficially owning more than 50 per cent of the equity interest. To “control” is usually defined as holding, through the ownership of shares, the majority of the voting rights. Similar definitions are provided for “a predominating interest” in the BIT with Egypt, and in the terminated treaties with Czechia and Slovakia. The now-terminated treaty with Poland, singularly, clarified that purely contractual relations alone do not constitute a predominant interest.

The BIT with Saudi Arabia provides more flexibly for an examination of all circumstances, including financial interest and ability to exercise substantial influence over the company.

A number of Swedish BITs (eg, the treaties with  Argentina, Belarus, Chile and Iran, and the terminated treaties with Bulgaria and Lithuania) allow the host State to require proof of a claimant’s effective control or predominant interest in a local or third-State investment vehicle, by demonstrating majority ownership or voting rights as defined above. Some treaties make explicit that the investor has the burden of proof for the control it alleges to have over a legal person (see, eg, the BITs with Slovenia and Ukraine).  

Governmental entities

Two Swedish BITs with Gulf States (Saudi Arabia and the United Arab Emirates) provide, respectively, that the Saudi and Emirati governments and their financial institutions and investment authorities, including the Saudi Central Bank, shall qualify as investors. These clauses are likely a factor of the investment activities of the considerable sovereign wealth and investment funds of these treaty partners.

Control by non-nationals

Only one Swedish BIT (with Bulgaria, now terminated) explicitly excluded legal persons under the control of third-state nationals from protection under the BIT through a denial of benefits clause.

Issue

Distinguishing features of the fair and equitable treatment standard

Fair and equitable treatment

All Swedish BITs currently in force, as well as the ECT, guarantee investors fair and equitable treatment (FET) at all times.

The provision for FET commonly also prohibits the host State from impairing, through unreasonable or discriminatory measures, the management, maintenance, use, enjoyment or disposal of the investment, as well as the acquisition of goods and services, or the sale of production. Occasionally, this language will instead be contained in a separate clause.

The only Swedish BIT not to contain an FET clause is the now-terminated treaty with Bulgaria.

Reference to international and national law

FET clauses in Swedish treaties typically do not contain any qualifications or references to other legal standards, such as international law.

There are a few exceptions. The 1960s first-generation BITs with the Ivory Coast, Madagascar and Senegal offer “fair and equitable treatment in accordance with public international law and the national law of the contracting parties”. Similar language is found in the treaties with Mexico, Panama and Venezuela and in the terminated treaties with Croatia and Slovenia.

Such qualifications have been proposed to pertain to the FET standard’s relationship to the minimum standard of treatment under customary international law, although the matter is debated (see, eg, Infinito Gold v Costa Rica, ICSID Case No. ARB/14/5, Award, 3 June 2021, paragraphs 330–334; and Diss Op Stern, paragraph 81).

Exemplifications

While uncommon, certain Swedish BITs exemplify conduct that could trigger the FET clause. For example, the BITs with Oman and Vietnam, as well as the terminated treaty with Poland, provide that restrictions on purchases of raw materials, components and units, auxiliary materials, energy and fuel as well as means of production and operation of all kinds, all constitute unreasonable measures within the meaning of the FET clause. The clause in the Polish treaty also stipulated that the host state must refrain from hindering the sale of products within the country and abroad. The introduction of general restrictions based on the economic situation, such as in response to shortages, were, however, not to be considered unreasonable.

Issue

Distinguishing features of the “expropriation” standard

Prohibition of expropriation

All Swedish BITs and the ECT contain the standard prohibition of expropriation (ie, prohibiting expropriation or nationalisation unless in the public interest, non-discriminatory and against payment of compensation). Most also contain a requirement that expropriation be undertaken in accordance with due process.

Expropriation of income from investments

It is fairly common that the expropriation clause stipulates its application also to income from investments.

Indirect expropriation

All Swedish BITs explicitly include indirect expropriation or measures of an equivalent effect within the scope of protection offered by the treaty.

Indirect expropriation is usually not defined or exemplified in the treaty text. BITs that do offer examples (Kuwait and United Arab Emirates) list the freezing or blocking of assets, levy of unreasonable taxation, compulsory sale of all or part of the investment, any state intervention, impairment, deprivation of management or control of any kind with respect to the investment, or a measure resulting in loss of or damage to the economic value of such an investment. Such definitions largely comport with extensive arbitral practice defining indirect expropriation as effective loss or neutralisation of property through state interference.

As to taxation, arbitral practice suggests that unreasonable tax measures are such that are extraordinary, punitive or arbitrary (see EnCana v Ecuador, LCIA Case No UN 3481, Award, 3 February 2006, paragraph 177). In this context, one may note that the BIT with the Russian Federation, as well as the ECT, contain a general exemption of tax measures from the scope of application.

Right to judicial review of expropriatory measure

A number of Swedish BITs guarantee investors a right to prompt review by a judicial or other independent authority of the legality of the expropriation, its process and the valuation of the investment. Such right is contained in the treaties with Bosnia and Herzegovina, Chile, Hong Kong, Iran, Korea, Kuwait, Lebanon, Mauritius, Panama, Saudi Arabia, Ukraine and the United Arab Emirates, and in the ECT, as well as in the terminated BITs with Croatia, India and Slovenia.

Position of shareholders in relation to expropriation of local company assets

A number of Swedish BITs regulate the rights of foreign shareholders in local companies, providing that where assets of a local company are expropriated, the host state must ensure the application of the expropriation provision to shareholders covered by the BIT so as to guarantee them prompt, adequate and effective compensation in relation to their investment. Such clauses are found in the treaties with Armenia, Bosnia and Herzegovina, Guatemala, Hong Kong, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Lebanon, Mauritius, Mozambique, Mongolia, Nigeria, Oman, Panama, Thailand and Yemen, as well as in the terminated BIT with India, and in the ECT.  

Compensation

Most Swedish BITs contain the standard requirement that compensation should be prompt, adequate and effective.

A few treaties contain relevant variations to the language. For example, the treaty with Armenia provides that in respect of expropriation carried out in the territory of Armenia, compensation must be “prior”, whereas in respect of Sweden it suffices that compensation is “prompt”. The treaty with Saudi Arabia, too, provides that provisions should be made for the determination and payment of compensation at or prior to the time of expropriation or comparable measure. Such strict provisions are unusual but have been discussed in arbitral practice (see, eg, Saint-Gobain v Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, 30 December 2016, paragraphs 417-425).

As to the meaning of “prompt” compensation, a protocol to the BIT with Egypt defines “prompt” as a transfer made within such a period as is normally required for the completion of transfer formalities. Such clarification should significantly restrict the latitude for the host state to choose when to make payment of compensation.

The treaties with Hong Kong, India (terminated) and Iran lack a reference to “prompt, adequate and effective”, requiring merely “compensation”. The BIT with China also lacks reference to “prompt, adequate and effective” compensation and instead provides as the relevant benchmark that compensation should place the investor in the same financial position as if the expropriation had not taken place. As to timing, these treaties furthermore require that compensation be “paid without delay”, “without unreasonable delay”, “expeditiously” or similar language.

Issue

Distinguishing features of the “national treatment” and/or “most favoured nation” standard

Most-favoured-nation and national treatment

All Swedish BITs and the ECT provide for most-favoured-nation (MFN) treatment and most provide also for national treatment. The most commonly appearing language guarantees treatment no less favourable than that accorded to investments made by the contracting party’s own investors or by investors of third states, whichever is the more favourable.

A limited number of treaties, predominantly concluded in the 1990s, contain a more restricted MFN clause, which offers treatment on as favourable terms as investors from third States but makes no offer of national treatment. Such clauses can be found in the treaties with Argentina, China, Indonesia, Morocco, Oman, Turkey and Vietnam, and in the terminated treaties with Czechia, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia.

The meaning of “no less favourable”

Few Swedish BITs offer detailed definitions of what treatment “no less favourable” means. One exception is the treaty with Kuwait, which exemplifies “treatment less favourable” with measures such as: restricting the purchase of intermediate as well as raw or auxiliary materials, of energy or fuel or of means of production or operation of any kind; impeding the marketing of products inside or outside the country; or imposing additional performance requirements once the investment has been established, which may hinder their expansion or maintenance. At the same time, this clause retains space for such measures, if they are deemed vital for the protection of national security, public order or public health.

Duty of state enterprises to afford national and most-favoured-nation treatment

The treaty with Mozambique specifies that each contracting party shall ensure that its state enterprises, in the provision of their goods or services, accord national and MFN treatment to covered investments. This treaty also provides in general terms that the obligations under the BIT apply to state enterprises in the exercise of regulatory, administrative, or other governmental authority delegated to them. The latter provision comports with findings of tribunals on attribution of conduct to state enterprises under general international law, whereas the provision on state enterprises in relation to MFN could be interpreted as going further (cf, eg, Ortiz v Algeria, ICSID Case No ARB/17/1, Award, 29 April 2020, paragraphs 163-171, reviewing relevant arbitral practice). The ECT also contains a provision requiring contracting Parties to ensure that its state enterprises conduct their activities in relation to the sale or provision of goods and services in a manner consistent with the state’s obligations under the ECT.

Common exceptions to MFN treatment: economic co-operation agreements

All Swedish BITs, as well as the ECT, exempt from the MFN standard treatment resulting from an existing or future free-trade area, customs union, common market or economic union.

The treaty with the Russian Federation contains a more specific clause, exempting any agreement on economic cooperation between the Russian Federation and states that previously formed part of the USSR from MFN treatment.

Common exceptions to MFN treatment: tax treatment

Most Swedish BITs also exempt treatment with respect to taxation. Such an exemption is however missing from the 1960s treaties with Ivory Coast, Madagascar and Senegal, as well as from treaties with China, Egypt, Malaysia, Pakistan, Serbia and Tunisia.

The treaty with the Russian Federation provides, more specifically, that tax treatment does not at all fall within the scope of the BIT except where taxation can be deemed equivalent to expropriation. The ECT also contains a provision stating that the treaty does not create rights or obligations with respect to tax measures.

Common exceptions to MFN treatment: Prior bilateral investment treaties

BITS concluded by Sweden in the 1970s and 1980s often exempt all previously concluded BITs from the MFN standard, suggesting that this was part of the Swedish negotiating brief at the time. Such clauses can be found in the same treaties that do not exempt tax measures from MFN, namely China, Egypt, Malaysia, Pakistan, Serbia and Tunisia, suggesting that this was an earlier iteration of the Swedish standard proposal for an MFN clause.

Somewhat later treaties, concluded in the late 1980s and early 1990s tend to contain a variation on this clause that, while not exempting all prior BITs, exempts the three first-generation BITs that Sweden concluded in the 1960s with Ivory Coast, Madagascar and Senegal (which regulate not only investments but also trade and shipping issues). This type of clause can be found in the BITs with Argentina, Indonesia, Sri Lanka and Yemen, and in the terminated treaties with Bolivia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia.

Exceptions from national treatment

A few Swedish BITs allow the host state to introduce exceptions from national treatment in particular circumstances: when such treatment results from special incentives in order to stimulate the creation of local industries and does not significantly affect covered investors (Tanzania) or from laws to promote investments (Thailand), or is required for the maintenance of defence, national security and public order, environmental protection, morality or public health (Russian Federation). The now terminated BIT with Bulgaria also secured a certain policy space for the host state to make or maintain exceptions from national treatment.

Other exceptions: intellectual property

The ECT exempts intellectual property from national and MFN treatment, referring instead to applicable international agreements for the protection of such property to which the respective ECT states are parties.

Other exceptions: development finance institutions

In a rare clause, the treaty with South Africa exempts special advantages given to development finance institutions (DFIs) engaged in development assistance and frees the host state from giving the same advantages to other investors, including other DFIs. The practical application of this seemingly bespoke clause should be fairly limited.

Issue

Distinguishing features of the “protection and security” standard

Full (and constant) protection (and security)

Most Swedish treaties provide for full protection to be afforded to investments, using one of the standard wordings of “full protection” or “full protection and security” (FPS). The ECT also offers FPS.

Exceptions, which do not provide for FPS, include three first-generation BITs from the 1960s with Ivory Coast, Madagascar and Senegal, and later BITs with China, Egypt, Malaysia, Mexico, Pakistan, Serbia, Sri Lanka and Tunisia.

Iterations of the FPS clause

The majority of Swedish BITs with an FPS clause refer merely to “full protection”, but one in four BITs offer “full protection and security”. One now terminated treaty (with Slovenia) provided for “full and constant protection and security”. The ECT offers “the most constant protection and security”. Whether or not such differences in language carries any practical significance is debatable (see Parkerings-Compagniet v Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, paragraph 354).

Reference to international law

A considerable number of FPS clauses in Swedish BITs (some 40 per cent) stipulate that investments in no case shall be treated less favourably than what is required by international law. This condition arguably provides a lower threshold for, rather than a limitation on, the treatment investors can expect. However, the language may differ in potentially relevant ways, for example, by offering FPS “in a manner consistent with” international law, municipal law and the provisions of the BIT” (see BIT with Ethiopia).

Legality requirement

Three in four Swedish BITs state that full protection is conditioned on the investment being made in accordance with the laws and regulations of the host state. Where such clauses do not explicitly set this condition, the treaty as a whole will usually (again, three in four) in any event only apply to investments made in accordance with domestic law, pursuant to the definition of covered investments. Only a handful of Swedish BITs set neither type of legality requirement (those with Hong Kong, Kyrgyzstan and Mozambique).

Issue

Distinguishing features of any “umbrella clause”

Observance of obligations toward investors

About a third of Swedish BITs contain an umbrella clause, requiring each contracting party to observe any obligation it has entered into with investors of the other Contracting Party with regard to their investment.

Umbrella clauses are included primarily in BITs concluded in the 2000s but also appear in older treaties. Where included, the formulation closely tracks that provided in the 2002 Swedish Model BIT.

Compliance with commitments

The BIT with Laos contains a similarly worded but different clause, sometimes referred to more generally as a compliance with commitments clause. This provides that each contracting party “shall constantly guarantee the observance of the commitments it has entered into with respect to the other Contracting Party”. The Swedish version of the provision adds some nuance by requiring the states to “constantly guarantee the fulfilment of commitments it has made in respect of investments made by the other Contracting Party” (translation and emphasis by the author). Neither version, however, refers explicitly to commitments the host state may have made toward the investor or to a national or company of the other contracting party. It is unclear whether the clause is intended to, or can, function as an umbrella clause.

Issue

Other substantive protections

Armed conflict/civil unrest

Most Swedish BITs contain a so-called compensation for losses clause, also known as a war clause. The most common form obligates the host state to refrain from discriminating against protected investors if and when compensation is offered to local investors or investors from third states for losses incurred due to war or armed conflict, national emergency, revolt, insurrection or riot. Such clauses may be standalone or folded into the expropriation clause, or, less commonly, form a sub-clause of the FET or FPS clause (see the now terminated treaties with Czechia and Slovakia).

Some 20 more recent treaties, primarily concluded in the 2000s, contain so-called extended war clauses, which, in addition to the above, also regulate investors’ right to compensation for requisitioning of investments or wanton destruction of the same by military forces. The ECT also contains an extended war clause.

Transfers

All Swedish BITs and the ECT contain clauses stipulating that each contracting party shall allow without delay the transfer, in freely convertible currency, of payments in connection with an investment. Such clauses commonly exemplify relevant types of payment in a non-exhaustive list.

The treaty with Kuwait defines the term “without delay” in the context of repatriation or transfer of payments as the period “normally required for the completion of necessary formalities”, counted from the day on which the request for repatriation or transfer was submitted, and in any event no longer than one month.

Free entry and sojourn of personnel

About 50 per cent of Swedish BITs contain a provision stating that, subject to the laws and regulations relating to the entry and sojourn of aliens, nationals of the investor’s home state shall be permitted to enter and to remain in the host state, together with members of their household, for the purpose of carrying out activities associated with the investment. A similar provision is found in the ECT.

Some treaties contain softer language. For example, the BIT with Kuwait requires the host state to examine in good faith and give sympathetic consideration to such requests by investors.

Freedom from local content requirements and other special conditions

A few Swedish BITs (such as with Indonesia, Oman and Vietnam, and the terminated treaties with Bolivia, Czechia, Poland and Slovakia) stipulate a right for the investor to freely choose suppliers, carriers and/or transport service providers. The treaties with Oman and Vietnam also set out a right for the investor to freely sell its products within the host state. The treaty with Mozambique contains a more comprehensive prohibition of special requirements regarding local content, export, sales limitations, technology transfer or research and development.

Prohibiting restrictions on raw materials

Certain Swedish BITs prohibit host state restrictions on the purchase of raw materials and other means of production and operation. The treaties with Czechia and Slovakia contain a protocol with a clause to this effect. In the same vein, the treaties with Oman and Poland stipulate that restrictions on raw materials may trigger the application of the FET clause. The treaties with Czechia, Poland and Slovakia are terminated.

Fairness in tax treatment

The treaty with Kuwait contains a clause requiring the host State to extend fairness and equity in its tax treatment of protected investments. Such a clause is not present in other Swedish BITs. The treaty with the Russian Federation by contrast exempts all tax measures from the scope of the BIT, unless the tax can be deemed equivalent to expropriation.

Effective means of asserting claims

A number of Swedish BITs contain clauses requiring each contracting party to provide effective means of asserting claims and enforcing rights with respect to investments covered by the BIT (see treaties with Algeria, Georgia, Guatemala, Kazakhstan, Kuwait, Kyrgyzstan and Mozambique, and the terminated treaty with Croatia). A similar clause is found in the ECT. Such clauses are otherwise fairly rare in treaty practice generally and their effect is debated (see, eg, Chevron v Ecuador I, PCA Case No 2007-02/AA277, Partial Award on the Merits, 30 March 2010, paragraphs 241–248). However, most tribunals consider them to add to, and not merely restate, the law on denial of justice and the clause can be construed as granting access to local courts.

Transparency and publication of legislation

A number of Swedish BITs contain transparency clauses requiring each contracting party to ensure that its general laws, regulations, administrative practices and procedures pertaining to or affecting investments covered by the BIT are promptly published or otherwise made publicly available. Such clauses are found in BITs that contain effective means clauses (ie, with Algeria, Georgia, Guatemala, Kazakhstan, Kuwait, Kyrgyzstan and Mozambique, and the terminated treaty with Croatia) and also in the BITs with Iran and Panama, and the terminated BIT with Ecuador.

Home State or international accounting standards

A number of treaties provide that investments may be subjected to bookkeeping and auditing standards binding on the investor under their national requirements or internationally accepted standards. The purpose of this condition is to create favourable conditions for assessing the financial position and results of activities related to investments abroad. Such clauses can be found in treaties with Albania, Argentina, Bolivia, Indonesia, Laos, Ukraine and Vietnam, and the now-terminated treaties with Czechia, Estonia, Latvia, Lithuania, Poland and Slovakia. A protocol to the treaty with Lithuania clarifies that auditing must be to the standards of the host State and, if so desired, to international standards. 

Subrogation

The vast majority of Swedish BITs, and the ECT, contain a clause on subrogation, providing that if a Contracting Party or its designated agency makes a payment to any of its investors under a guarantee it has granted in respect of the investment, the rights enjoyed by the investor under the BIT transfers to the home state.

Issue

Other substantive protections

Subject-matter exclusion

It is uncommon for Swedish BITs to contain any explicit non-precluded measures clauses or other exclusions from liability.

Relatedly, although technically a limitation on the scope of the consent to arbitration, the treaty with Mexico bars ISDS claims relating to resolutions lawfully adopted by the host state for national security reasons or to prohibit or restrict the acquisition by foreign investors of an investment owned or controlled by host state nationals.

The ECT contains a general carve-out for measures necessary for the protection of the host state’s essential security interests, implementation of policies regarding non-proliferation of nuclear weapons or the maintenance of public order, as well as carve-outs for measures  necessary to protect human, animal or plant life or health, essential to the acquisition or distribution of energy materials and products in certain conditions of short supply, or designed to benefit aboriginal or socially or economically disadvantaged investors.

Denial of benefits

Swedish BITs generally do not contain clauses denying benefits. The now-terminated treaty with Bulgaria is an exception, containing a clause where each contracting party reserves the right to deny the advantages of the BIT to a legal entity controlled by third-state nationals if the legal person is established on the territory of one of the contracting parties with the only or predominant purpose to invest in the territory of the other contracting party. The ECT also contains a denial of benefits clause, applying to legal entities owned or controlled by third-state nationals and not conducting any substantial business activities in its home state. This clause also applies where the host state finds that the investment is made by an investor from a third state with which the host states does not maintain a diplomatic relationship or where the relationship is affected by sanctions or similar measures.  

ESG considerations

Swedish BITs, being generally of older date, rarely include language regarding environmental, social and governance (ESG) issues. Only four BITs (with Armenia, Georgia, Mauritius and Mozambique) do so, in the form of preambular language introducing ESG considerations to assist the implementation and interpretation of the treaty. Such language recognises the potential of developing economic and business ties as a means to promote respect for internationally recognised labour rights, and state the contracting parties’ agreement that the economic objectives primarily served by investment protection can be achieved without relaxing health, safety and environmental measures of general application.

Sovereignty over resources

The ECT contains a provision reaffirming sovereign rights over natural resources, as long as such rights are exercised in accordance with and subject to the rules of international law.

Issue

Procedural rights

Agreement to arbitrate investor-state disputes

The vast majority of Swedish BITs provide for investor-state dispute settlement (ISDS) through arbitration. The exceptions are three 1960s first-generation BITs with Ivory Coast, Madagascar and Senegal.

Furthermore, the BITs with Egypt, Malaysia and Serbia contain no standing offer to arbitrate but require the parties to agree to refer the dispute to ICSID. Should this not settle the dispute, the treaty provides for the claim to be espoused and settled through state-to-state arbitration as provided for in the BIT.

With respect to China, the 1982 BIT itself does not give investors access to dispute settlement against the state, but a separate protocol that entered into force in 2004 provides for ISDS. The BIT with China is of particular interest, as this is the only BIT to have given rise to a request for arbitration against Sweden (Huawei v Sweden, ICSID Case No. ARB/22/2, currently pending).

Access to local courts

About a third of Swedish BITs provide explicitly that the investor should have access to local courts to resolve investment disputes with the host state. In some instances where the BIT lacks such a clause, local courts may nevertheless be accessed as a result of an effective means clause (see, eg, the treaties with Guatemala, Kyrgyzstan and Mozambique). The ECT offers access to local courts as an alternative to international arbitration.

Relationship with local court proceedings (fork in the road, waiver, exhausting local remedies, preserving right to arbitration)

It is fairly uncommon for Swedish BITs to regulate the relationship with local court proceedings in any detail.

Few treaties contain fork in the road clauses or waiver clauses. An example of a treaty containing both, however, is the BIT with Mexico. This provides that an investor may not allege a breach of the BIT both in arbitration before the host State’s national courts or tribunal, and that an investor may submit a claim to arbitration only if it waives its right to initiate or continue local court proceedings (bar proceedings for injunctive, declaratory or other extraordinary relief).

Other BITs to contain fork in the road clauses are those with Argentina, Chile, China, Saudi Arabia, Turkey and Uruguay, stating for example that the choice between arbitration and local court proceedings shall be final (Argentina, Chile and Uruguay) or providing that an investor may have recourse to arbitration only if it has withdrawn its case from national courts before a final judgment is rendered (China) or if the judgment is excessively delayed (Turkey). Other treaties with a waiver clause include those with Kuwait and the Philippines.

It is also uncommon for Swedish BIT to require the exhaustion of local remedies. Exceptions include the BIT with China, which one-sidedly allows China as a host state the option of requiring that the investor exhausts Chinese domestic administrative review procedures, lasting for up to three months, before submitting the dispute for resolution by international arbitration. The treaty with Egypt also requires the exhaustion of local remedies before the investor may resort to international settlement, as long as the application of local remedies is not unreasonably prolonged. If it is contentious whether remedies have been unreasonably prolonged, this is to be settled through state-to-state dispute resolution under the BIT.

Equally uncommon, a few treaties explicitly preserve a right to arbitration although proceedings have taken place before local courts. One example is provided by the treaty with Malta, which sets out state consent to arbitrate, irrespective of whether local remedies have been exhausted or not. Another example is the treaty with Nigeria, stating that an investor’s invocation of local remedies does not extinguish the right to international arbitration, and specifying that investors need not exhaust local remedies before invoking international arbitration.

Cooling off periods

The majority of Swedish treaties provide that investors and host states must attempt amicable settlement for six months before resorting to formal dispute settlement.

A few treaties provide for shorter time periods, such as three months (Armenia, China, Pakistan, Peru, Romania, Sri Lanka and Yemen) or four months (Morocco).

No cooling off period is stipulated in the BITs with Egypt, Malaysia and Serbia, or in the terminated BIT with Poland (all of which require an agreement to arbitrate most investor-state disputes). Cooling off is also not required in the BITs with Tunisia and Venezuela.  

Scope

Most Swedish BITs offer ISDS in relation to any dispute concerning or related to an investment or variations on such language. The treaties with Mexico and Vietnam contain a more restrictive dispute settlement clause, covering disputes “concerning the interpretation and application” of the BIT. The same language could be found in the now-terminated treaties with Czechia, Estonia, Hungary, India, Latvia, Lithuania and Slovakia.

Other terminated BITs limited the scope of the offer to arbitrate investor-state disputes to certain types of claims. The treaty with Bulgaria limited investor-state arbitration to claims concerning expropriation and transfer; the treaty with Hungary to expropriation only; and the treaty with Poland to expropriation and compensation for losses. For other disputes, the host state and investor had to agree to arbitrate (Hungary and Poland), or the investor had to raise the matter with its home state for potential arbitration with the host state (Bulgaria).

The ECT allows states to withhold unconditional consent to arbitration when the dispute arises under the treaty’s umbrella clause.

An example of subject-matter exclusion from ISDS is the treaty with Mexico, which provides that claims cannot be brought to challenge resolutions lawfully adopted by the host state for national security reasons or to prohibit or restrict the acquisition by foreign investors of an investment owned or controlled by host state nationals.

Arbitration rules

Swedish BITs show a general preference for resolving investor-state disputes under the ICSID Convention, to which Sweden has been a party since 1967. Where the other contracting party is not a member, Swedish BITs often stipulate that ICSID dispute resolution shall be used once both parties have become members of the ICSID Convention, and often refer to ICSID Additional Facility Rules in the meantime.

In the 1990s, Sweden began including references to dispute resolution under UNCITRAL rules in a handful of BITs (Bolivia, Czechia, Hong Kong, Poland, Russian Federation and Slovakia). Neither of these treaty partners was a party to the ICSID Convention at the time. Of these, only the treaties with Hong Kong and Russia remain in force.

A good number (some 60 per cent) of Swedish BITs currently in force provide for ad hoc arbitration under UNCITRAL rules as an alternative to ICSID arbitration. Usually, the investor is given the right to choose between the different dispute resolution mechanisms. Occasionally, UNCITRAL arbitration is presented as a fallback, if ICSID arbitration for some reason is unavailable (see, eg, the BIT with Venezuela; when concluding the BIT with Sweden, Venezuela was a party to the ICSID Convention but denounced the same in 2012).

The BITs with Iran and Mexico, as well as the terminated treaty with Croatia, additionally offer ICC arbitration as an alternative to ICSID and UNCITRAL rules.

No Swedish BITs refer to the SCC arbitration rules for the resolution of investor-state disputes, plausibly revealing a reluctance to refer to the Stockholm-based SCC Arbitration Institute for disputes involving the Swedish state or Swedish investors.

Under the multilateral ECT, SCC arbitration is indicated as an alternative to ICSID, ICSID Additional Facility or UNCITRAL rules.

Applicable law

Most Swedish BITs do not define the applicable substantive law to resolve investor-state disputes. Exceptions include the BITs with Argentina, Kuwait, Lebanon, Mexico and Zimbabwe, the terminated treaty with India, and the ECT. These treaties all stipulate that investor-state disputes be settled with reference to the provisions of the treaty, applicable rules and principles of international law, and in some instances, also the law of the host State.

Preservation of rights under national or international law

Some 40 per cent of Swedish BITs contain a clause stipulating either that the BIT in no way shall restrict or prejudice the rights and benefits investors enjoy under national or international law in the host state’s territory or that, to the extent national law or international law entitle investments to more favourable treatment than provided for in the BIT, such provisions shall prevail. In the same vein, the ECT provides that where two or more contracting parties have entered into a prior or subsequent international agreement overlapping with the ECT, the investor or investment shall enjoy the treatment most favourable as between the ECT and such other agreement.  

Indemnification through insurance or guarantee contract

It is fairly common (some 60 per cent) for Swedish BITs to provide that the host state shall not assert, as a defence, counterclaim or right of set-off, that the investor has received or will receive indemnification or compensation for all or part of the alleged damages pursuant to an insurance or guarantee contract. In some instances, this clause makes clear that this restriction applies to any phase of the arbitration procedure or of the execution of an arbitral award (see the treaty with Armenia).

In some instances, the clause allows the host state to require evidence that the compensating party agrees to the investor exercising the right to claim compensation under the BIT (see the treaties with Algeria, Bosnia and Herzegovina, Ethiopia, Kazakhstan, Kyrgyzstan, Lebanon, Mexico, Mozambique, Mongolia, Panama, Saudi Arabia, Tanzania, Thailand and Uzbekistan, and the terminated treaties with Croatia, Ecuador, India, Romania and Slovenia).

Sovereign immunity

The BITs with Kuwait and Lebanon explicitly bar the host state from asserting sovereign immunity as a defence against investor claims.

Diplomatic relations

Certain BITs (eg, with Kuwait, Lebanon, the Philippines and Saudi Arabia) specify that they continue to apply irrespective of whether the contracting parties maintain diplomatic or consular relations.

Waiver of diplomatic protection

A few Swedish BITs contain a clause preventing the contracting states from pursuing through diplomatic channels any dispute referred to international arbitration unless the arbitral tribunal has declined jurisdiction, or the host state fails to comply with the award. Such clauses are included in the treaties with Indonesia, Kuwait, Nigeria, Pakistan, the Philippines, Sri Lanka, Uruguay and Yemen.

Relationship with other BITs

Only a handful of Swedish BITs address the situation where an investor may benefit from multiple BITs with the host state.

The terminated treaties with Poland, Slovakia and Slovenia provided that investors who are covered by the BIT through beneficial interest clauses, but also by other BITs by virtue of the nationality of their investment vehicle, may not raise a claim under both in respect of the same matter. Even stricter, the terminated treaty with Czechia provided that if the investor enjoys the coverage by any other BIT, it cannot invoke the protections under the treaty.

By contrast, the BIT with Ukraine provides that where a matter is governed simultaneously by the BIT and another international agreement binding on the contracting parties, the investor may take advantage of whichever rules are more favourable.

Relationship with an arbitration agreement under an investor-State contract

One treaty (with Malta) stipulates that the investor retains the right to arbitration under the BIT regardless of whether or not a contract between the investor and the host state contains an arbitration agreement, so long as the dispute has not been settled under such an agreement.

Seat of arbitration in New York Convention State

Some 70 per cent of Swedish BITs that provide for non-ICSID arbitration (primarily UNCITRAL rules, but also ICSID Additional Facility or other ad hoc procedures), contain a provision that such arbitrations shall be held in a state party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Some treaties to contain such clauses provide that this is compulsory whenever such arbitration is resorted to or selected by the investor (see, eg, the BITs with Bosnia and Herzegovina, Malta, Tanzania, Thailand and South Africa). Other treaties stipulate that this condition be applied if requested by either party to the dispute (see, eg, the BIT with Guatemala or Mexico).

Finality and enforceability

It is fairly common (some 60 per cent) for Swedish BITs to provide that awards shall be final and binding. Such a clause is also found in the ECT. It is also common for Swedish BITs to assign to the contracting states an obligation to carry out, execute or provide for the enforcement of the award within their respective territories. The ECT, too, contains this type of clause.

In combination with the fact that most Swedish BITs prefer ICSID arbitration and the frequent provision for ad hoc arbitration to be seated in a New York Convention State, the prospects are fairly strong for enforcement of awards based on Swedish BITs. The BITs with the least protection in this respect are those with Bolivia, Czechia, Hong Kong, Poland, the Russian Federation and Slovakia. Of these, only the BITs with Hong Kong and Russia remain in force.  

Government entity to which claim notices are sent

A Notice of Dispute (NoD) should be addressed to the Governmental Offices of Sweden, which legally speaking forms a single agency.

The NoD should primarily be sent to the government department responsible for the disputed treatment (ie, if the claim relates to the energy sector, the notice may be addressed to the department responsible for energy affairs). Additionally, the Ministry for Foreign Affairs (MFA) should be put on notice. The MFA is the department with overall responsibility for investment treaties and can ensure that the government is properly informed about the implications of an NoD.

The Office of the Chancellor of Justice (Justitiekanslern, JK) represents Sweden in the ongoing proceedings in Huawei v Sweden (ICSID Case No. ARB/22/2). However, this arrangement is the result of an explicit decision taken by the government regarding the management of the specific dispute. NoDs in future disputes should not be addressed to JK.

Government department that manages investment treaty arbitrations

The Office of the Chancellor of Justice represents Sweden in its only investor-state dispute to date to proceed to arbitration. However, this is the result of an in casu decision by government and could therefore change in future cases.  

Internal/External counsel

Sweden has retained external counsel through formal procurement to respond to the investment claims brought against it to date. The state is normally represented by a combination of international and local counsel, working with government counsel within the Office of the Chancellor of Justice.

Washington Convention implementing legislation

Act on Recognition and Execution of Awards Concerning Certain International Investment Disputes, SFS 1966:735.

New York Convention implementing legislation

Swedish Arbitration Act, SFS 1999:116, sections 52–60.

Legislation governing non-ICSID arbitrations

The Swedish Arbitration Act applies to all arbitrations seated in Swedish territory, including international and treaty-based arbitrations (see section 46 of the Arbitration Act, SFS 1999:116).

Compliance with adverse awards

No investment awards have been rendered in any case involving Sweden as a respondent. Sweden has received three known Notices of Dispute, of which only one has proceeded to the filing of a Request for Arbitration (see Huawei v Sweden, ICSID Case No ARB/22/2). This case is still pending in its early stages.

Attitude of government towards investment treaty arbitration

As far as is known, the Swedish government has not expressed any official views on investment treaty arbitration per se.

Sweden is generally considered an arbitration-friendly jurisdiction. It is also an open economy, mindful of the role played by foreign direct investment for economic development. The National Board of Trade Sweden, which supports the Swedish government with analysis regarding investment protection issues and in the ongoing reform of investor-state dispute resolution, observes that present Swedish BITs offer a comparatively extensive level of protection, which has served well Swedish investors wanting to invest in States with which Sweden has a BIT.

Issues relating to foreign direct investment now fall under EU competence. The Swedish government has expressed concern over the protection of investors, including within the EU. It underlined in its joint Declaration with Finland, Luxembourg, Malta and Slovenia on the Achmea case and investment protection in the EU, that EU member states are obligated to provide remedies sufficient to ensure the effective legal protection of investors’ rights through their courts and tribunals and requested more guidance on how EU law protects intra-EU investments, including through legal remedies.

Sweden has signed, but not ratified, the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the Mauritius Convention), which entered into force on 18 October 2017.

Sweden is in the process of establishing a domestic foreign direct investment regime, to include a screening mechanism. This legislation is based on the EU investment screening framework.

Attitude of local courts towards investment treaty arbitration

Sweden is regarded an arbitration-friendly jurisdiction and arbitration has a long history in Sweden. Swedish courts encounter international investment awards relatively frequently, due to the popularity of the SCC Arbitration Institute, which is chosen as a venue for some 25 per cent of investment disputes under the Energy Charter Treaty.

Swedish law (the Arbitration Act, SFS 1999:116) permits both setting aside and annulment of arbitral awards made in Sweden. Historically, this is rarely ordered by the courts. However, in the wake of Achmea, Swedish courts have recently annulled several investment treaty awards (see Supreme Court, Case No. T 1569-19, Judgment of 14 December 2022, annulling two awards rendered in PL Holdings v Poland, SCC Case No V 2014/163; and Svea Court of Appeal, Case No. T 4658-18, Judgment, 13 December 2022, annulling the award in Novenergia v Spain, SCC Case No 2015/063).

As to enforcement against sovereign respondents, the Swedish Supreme Court in 2021 denied a respondent state sovereign immunity from enforcement in relation to sovereign wealth fund assets invested in Sweden, in a case seeking to enforce an investment award against such assets (see Supreme Court, Case No. Ö 3828-20, Judgment of 18 November 2021, Ascom). Other aspects of the enforcement proceedings are still pending.  

Relevant guarantee scheme

Qualifying criteria, substantive protections provided and practical considerations

Swedish Exports Credit Guarantee Board

The Swedish Exports Credit Guarantee Board (Exportkreditnämnden, EKN) promotes Swedish exports and the internationalisation of Swedish companies by, inter alia, offering an investment guarantee to companies investing abroad to cover the risk of loss due to political events affecting the investment. The guarantee can be used by investors or financiers of investment loans and offers protection against events that occur from the date of the full or partial completion of the investment or the disbursement of the loan. EKN offers guarantees for investments in both goods and services production, as well as for the risk that the investor cannot repatriate returns from their investment. Eligible investments must be sound and contribute to economic development in the country of investment.

Awards

SwemBalt AB, Sweden v Republic of Latvia, UNCITRAL, Decision by the Court of Arbitration, 23 October 2000 (Latvia–Sweden BIT; now terminated)

Ioan Micula and others v Romania I, ICSID Case No. ARB/05/20, Award, 11 December 2013 (Romania–Sweden BIT; now terminated)

Ioan Micula and others v Romania II, ICSID Case No. ARB/14/29, Award, 5 March 2020 (Romania–Sweden BIT; now terminated)

Pending proceedings

Huawei Technologies Co, Ltd v Kingdom of Sweden, ICSID Case No. ARB/22/2 (China-Sweden BIT)

Article/Book

Henrik Horn & Pehr-Johan Norbäck, “International investment agreements – efficient means to promote Swedish growth?”, PM 2019:09, Tillväxtanalys

Henrik Horn & Pehr-Johan Norbäck, Modernisera Sveriges investeringsskyddsavtal, (2020) Ekonomisk debatt 48(3), pp 24–36