AKT blog post series has previously touched upon the still fairly recent Partnership, Trade and Cooperation Agreement between UK and Serbia . As mentioned then, this new agreement is complemented by the fairly long-standing Serbia-UK Agreement on the Reciprocal Promotion and Protection of Investments (Serbia-UK BIT)  providing a set of international law protections for investors from both countries.

This important aspect of the mutual UK-Serbia relationship is the main topic of this blog post.

Generally, protection of foreign investments aims at providing investors with extra protections under international law, mostly through concluded investment treaties between their home country and the host country of the investment, in order to entice them to invest. Host states, in return for obliging themselves to certain standards, aim to present themselves as investment-friendly destinations and receive increased foreign investment. This is the basic premise of the Serbia-UK BIT as well, expressed in its Preamble calling for ‘favourable conditions for greater investment’ and noting that such conditions would stimulate ‘individual business initiative’ and ‘increase prosperity in both States’. Generally speaking, to achieve this, the BIT sets out who and what is protected; what are the protections that UK and Serbia offer to respective investments; and how are these protections to be enforced.

In terms of ‘who’, eligible protected investors are both natural persons and entities that have recognized nationality and/or place of incorporation or constitution in each of the States in accordance with their positive laws (Article 1 (c), (d) and (e)). Investments themselves are defined very broadly, effectively as ‘every kind of asset’, ranging across moveable and immoveable property, IP rights, mortgages, liens, shares and governmental concessions up to an including ‘claims to money or to any performance under contract’ (Article 1 (a)). Such broad definitions are in line with the era when the BIT was signed (early 2000s) and in practice mean that it would be hard to find an asset not protected under the agreement.

What are those protections? While the BIT covers more ground, there are several critical ones. One is that investments need to be accorded fair and equitable treatment, full protection and security, and not be subject to unreasonable or discriminatory measures concerning management, maintenance, use, enjoyment or disposal of said investments; any additional obligations entered into towards foreign investors need to be respected as well and are thus covered by the BIT (Article 2(2)). Investments, returns from investments, and their management and associated activities must not be treated less favourably than the states would treat investments from any third state (most-favoured-nation clause) or their own nationals (national treatment) (Article 3). Further, investments are protected from unlawful expropriation or nationalization – any taking must be non-discriminatory, for a public purpose and accompanied by prompt, adequate and effective compensation that reflects the market value of the investment before expropriation (Article 4). Finally, investors are guaranteed free transfer of payments relating to their investments (including capital transfers, profit returns, proceeds from liquidation of the investment) and such transfers are to be without delay, in convertible currency and in accordance with currency exchange regulations at the time (Article 6).

What exactly these provisions mean is a topic that goes far beyond the ambit of this post as these and similar provisions have been interpreted, applied and refined in roughly around 1000 investment arbitrations in the last three decades. Whilst details of every case remain critical, it can be broadly concluded that the host state (either UK or Serbia) is expected to behave in a rule of law-compliant manner, with transparency, honesty and with respect towards legitimate expectations of the investor.

Staying on the topic of arbitrations, how these investment protections are enforced remains a key question for any investor. According to the BIT, after an initial attempt at amicable solution, the parties (investor and the state) can agree on using either arbitration under the World Bank International Centre for Settlement of Investment Disputes (ICSID), arbitration under the Court of Arbitration of the International Chamber Commerce, or an ad hoc arbitral proceeding either under a special arrangement or following the Arbitration Rules of the United Nations Commission on International Trade Law. In case that the parties do not agree, this last option (arbitration under UNCITRAL Rules) is the default one. Generally, any arbitral award reached can be enforced globally in a fairly straightforward manner, making investment protection enforcement system one of the strongest available on the international plane.

In summary, Serbia-UK BIT provides a high degree of protection for investors in both countries and is an instrument to be taken into account carefully by all involved. Investment protection can be costly, and might only be appropriate in relatively high-stakes situations, but it can also be effective in avoiding disputes in the first place and providing an appropriate remedy.

Velimir Živković