Protecting Investments Abroad: Part 2 — Finnish Businesses and Investment Protection

This is part two of a series of four blog posts published after the Dispute Resolution Breakfast Seminar on this topic. If you wish to learn more about these topics, feel free to get in touch with our experts Anna-Maria Tamminen and Ricardo Gomes.

The legal aspects of investments abroad are often last on investors’ agenda when deciding where to invest. Traditionally, Finnish companies have engaged in long-term investments abroad, such as investments in industrial facilities or in the services sector. Due to their long-term perspective, there is a risk that the political and legal systems change during the lifespan of such investments. Nevertheless, Finnish companies often fail to do the mapping of the countries with which Finland has BITs. Until problems start surfacing, investor-state dispute settlement is rarely discussed.

Recently, the geopolitical situation forced Finnish businesses to make hard decisions almost overnight. Many Finnish businesses were faced with difficult choices following the Russian invasion of Ukraine. In troubling times, businesses need predictability and legal certainty. In cases like the invasion of Ukraine, investor-state dispute settlement is needed and often the necessary last resort.

Finland may not have a BIT with another country, but it could be a party to a multilateral treaty such as the Energy Charter Treaty (currently being reformed), which provides similar investment protections.

Finland signed its first BIT in 1980 with Egypt. The latest BIT signed by Finland was signed with Hong Kong in 2009. Since 2009, the EU has handled foreign direct investment policies on behalf of EU members as part of the EU common commercial policy. One example of a treaty entered into by the European Union is the EU-Canada Comprehensive Economic and Trade Agreement (“CETA”).

The majority of BITs worldwide (and multilateral investment treaties) provide for the following protections for investors:

• Fair and equitable treatment (“FET”)
  
  This clause basically ensures that the investor will be treated fairly without expecting arbitrary and discriminatory actions by the host state against the investor. In addition, some BITs provide for full protection of the investment in the territory of the host state. The Finland–Russia BIT includes both of these protections in Articles 3 and 4.
  
  
• Compensation in the event of nationalisation/expropriation protection
  
  BITs often prohibit the nationalisation or expropriation of investors (except in limited circumstances). The term expropriation has been subject to many interpretations in case law, and it is commonly accepted that it is not limited to the direct expropriation (physical appropriation) but also to indirect expropriation (e.g. through reduction of value). In addition, BITs often require that the host state pay “appropriate compensation” in cases of expropriation. The Finland–Russia BIT includes this protection for Finnish investors in Article 4.

• National treatment or most favoured nation (“MFN”)
  
  These clauses are often seen in international trade agreements. In BITs, their purpose is to ensure that foreign investments are treated as favourably as national investments. The Finland–Russia BIT includes this protection in Article 3.

• Investor-state dispute settlement (“ISDS”)
  
  As mentioned in the first instalment of this blog series, BITs provide for a dispute resolution mechanism that refers disputes to a neutral and impartial tribunal to decide on the disputed matter. The mechanism often includes other steps (such as negotiations) before reaching arbitration. The Finland–Russia BIT includes a provision on the settlement of disputes in Article 8.

It is important for BITs to grant these protections to investors, but enforcing those rights is a different matter. How do you enforce those rights against a host state that has a history of not complying with international arbitration awards?

Stay tuned — more to follow in the upcoming weeks.