ESTONIA Trends and Developments Contributed by: Maria Pihlak, Carri Ginter, Raul Kartsep and Katariina Kuum, Sorainen
Investor–State Arbitration in Estonia: Trends, Challenges and the Future Estonia is entering a new phase of economic and geopolitical change. Once primarily known for its pio- neering digital governance and tech start-up scene, the country is now emerging as a hub for defence and dual-use technologies. At the same time, its legal environment is being reshaped by evolving EU sanc- tions regimes, stricter foreign-investment controls and a more intricate relationship between EU law and international arbitration. These shifts mean that investor–state dispute settle- ment (ISDS) – once a marginal feature of Estonia’s investment landscape – is gaining strategic relevance. As Estonia attracts increasing foreign investment in high-tech, defence and energy-related sectors, it will need to manage the corresponding legal risks, par- ticularly those involving expropriation claims, ‘fair and equitable treatment’ (FET) standards, and enforcement of arbitral awards in a sanctions-laden environment. This article explores the emerging trends, challenges and future directions of investor–state arbitration in Estonia, drawing on Sorainen’s experience in ISDS. It considers how developments in the defence sec- tor, the handling of frozen assets under EU sanctions, and the expansion of the IT and technology economy are converging to create both opportunities and new points of tension for investors and the state alike. Key developments in Estonia’s investment landscape The defence and dual-use technology surge In 2024, Estonia launched a EUR100 million Defence Fund, administered by SmartCap, to invest in early- stage and growth-stage defence and dual-use tech- nology companies. The initiative reflects Estonia’s goal of developing sovereign capabilities in robotics, autonomous systems and cybersecurity – all areas with high dual-use potential. A notable example is EDGE Group’s (United Arab Emirates) acquisition of a majority stake in Milrem Robotics, Estonia’s leading developer of unmanned ground vehicles and robotics systems. The deal – the largest foreign investment in Estonia’s defence sector to date – illustrates both the scale of opportunity and
the legal complexity of foreign participation in sensi- tive industries. Defence and dual-use technologies are tightly regulated, touching on national security, export controls and confidentiality obligations – areas that could easily give rise to investor–state disputes if the rules change or are applied unevenly. Frozen assets and the sanctions dimension Estonia’s Riigikogu (parliament) recently adopted leg- islation permitting the use of Russian assets frozen under EU sanctions as an advance payment for repa- rations owed by Russia to Ukraine. While politically resonant, this measure introduces significant legal risks. Questions may arise over ownership, compen- sation, due process, and consistency with both con- stitutional property protections and international law. The link between sanctions enforcement and invest- ment protection is growing more complicated. Foreign investors whose assets are frozen or whose deals are affected by sanctions may try to seek compensation under bilateral investment treaties (BITs), claiming that Estonia’s measures amount to indirect expropriation or denial of justice. Enforcing arbitral awards against sanctioned entities is also difficult – frozen assets can’t easily be accessed, and EU courts may refuse Estonia’s technology ecosystem continues to draw strong interest from global investors. Building on its e-Residency programme, advanced digital infra- structure and vibrant start-up culture, the country is increasingly focusing these strengths on cybersecurity and defence-tech innovation. Venture capital funds such as Plural, along with participants in the NATO Innovation Fund, are backing companies developing AI-powered situational awareness tools, autonomous systems and surveillance technologies. recognition on public policy grounds. The booming IT and technology sector This surge in high-tech investment strengthens Esto- nia’s position as a digital leader but also brings new legal risks. As emerging technologies overlap with sensitive regulatory areas – including data protection, privacy, export controls and national security – the potential for investor–state disputes is likely to grow.
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