ESTONIA Law and Practice Contributed by: Maria Pihlak, Carri Ginter, Raul Kartsep and Katariina Kuum, Sorainen
state has regulatory authority, historical legal com- plexities or legacy obligations. These include public utilities, property restitution and financial services. This reflects the nature of a small, open economy where a variety of industries may generate isolated but high-stakes disputes rather than a pattern of systemic AS Tallinna Vesi and United Utilities (Tallinn) B.V. v Republic of Estonia (ICSID Case No. ARB/14/24) Brought under the Estonia–Netherlands BIT (1992) Case initiated in 2014 Award rendered in 2019 Facts of the case • The case was brought by AS Tallinna Vesi (Esto- nia’s largest water utility) and its foreign investor, United Utilities (Tallinn) B.V., a Dutch company. The investor had acquired the utility in the early 2000s during Estonia’s privatisation drive, with an agreed-upon tariff methodology embedded in the Shareholders’ Agreement and Services Agreement, which was endorsed by the city of Tallinn. conflict in any one sector. 1.5 Major Arbitrations • After regulatory reforms in 2010, Estonia’s Compe- tition Authority began exercising new powers over tariff approval. It rejected Tallinna Vesi’s applica- tions to increase water tariffs, citing consumer protection and public interest. The investor claimed that Estonia had breached its legitimate expecta- tions and unlawfully interfered with its contractual rights, leading to substantial financial losses. Key legal principles Fair and equitable treatment (FET) and legitimate expectations • The investor claimed that Estonia violated the FET standard under the Estonia–Netherlands BIT by frustrating its legitimate expectations that the pre- agreed tariff formula would remain enforceable. • Estonia argued that its regulatory reforms were legitimate exercises of sovereign authority aimed at protecting public welfare and reducing excessive consumer pricing.
Umbrella clause and contractual rights • The investor alleged that Estonia’s actions breached the umbrella clause of the BIT, which protects contractual commitments made with for- eign investors. Expropriation • Though not the primary issue, the investor also argued that the state’s refusal to approve tariff increases amounted to indirect expropriation of their economic rights. Outcome • In June 2019, the ICSID tribunal dismissed all of the claimants’ claims and found that Estonia had not violated the BIT. • The tribunal accepted that while the claimants may have had commercial expectations, those expec- tations did not amount to protected legitimate expectations under international law, particularly given the regulated nature of the water sector. • Estonia’s actions were found to be consistent with its sovereign right to regulate in the public interest. • The claimants were ordered to cover a portion of Estonia’s legal costs. Legal significance • The case is a leading example of how tribunals distinguish between commercial disappointment and treaty violations, especially in highly regulated industries. • It confirmed that legitimate expectations under FET must be based on clear and specific assurances, not just general policy or contractual provisions. • The award affirmed the principle that states can revise regulatory frameworks to serve evolving public needs, particularly where no guarantees of regulatory stability have been made. • It strengthened Estonia’s reputation as a rule-of- law jurisdiction capable of defending itself suc- cessfully in complex treaty disputes. ELA USA, Inc. v Republic of Estonia Brought under the Estonia–United States of America BIT (1994) Case initiated in 2018
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