The Stockholm Chamber of Commerce (SCC) has long played a quiet role in adjudicating legal disputes between foreign investors and their host countries, but a recent development is attracting new scrutiny.

In a busy year, the SCC's caseload includes everything from billion-dollar claims for expropriation of oil and gas assets in Kazakhstan to tariff disputes between solar power generators and the Spanish government.

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A sizeable number of countries have agreed to use SCC arbitration for FDI disputes. However, states are slowly awakening to a drastic change made in 2012 to the SCC's arbitration procedures: the introduction of a fast-track 'emergency' arbitration option. 

Under this new process, a party that claims to be facing imminent harm can seek a rapid ruling from a specially appointed arbitrator. In run-of-the-mill contractual disputes between private parties, one party may want an emergency order that temporarily bars its erstwhile business partner from selling off and dispersing key assets.

However, the speed with which emergency arbitrators mete out temporary justice – a mere five days – is ill-suited to FDI disputes involving sovereign states. Most government bureaucracies cannot respond instantaneously to complex legal threats. Investigating allegations, crafting responses and obtaining political sign-off all take time. Which is why typical international arbitrations against states take years to prosecute and adjudicate.

But, thanks to the SCC's emergency arbitrator mechanism, foreign investors can now seek temporary injunctions against government actions, and get a ruling in less than a week. Energy producers affected by a tax hike, bank shareholders irked by a central bank policy change, or businesses facing a criminal investigation, can all invoke this process.

The intrusive nature of such rulings – ordering authorities to suspend regulatory or criminal measures for example – is ironic. In typical FDI legal disputes, arbitration panels – after years of deliberation – will rarely order states to do anything. Rather, if foreign investors have been unjustly treated, the most that they will typically receive is financial compensation. 

Yet, the emergency arbitration process now offers a means to bind the hands of government – and in such a rapid timeframe that states may not have time to hire lawyers or show up to defend themselves. In several recent cases, the tiny republic of Moldova has not mounted any defence in such emergency proceedings.

Of course, investors do not always win these lightning legal skirmishes. Even when they do, any emergency orders can be reviewed at a later date once a full panel of arbitrators is in place to hear the underlying controversy.

Nevertheless, the emergency arbitrator process looks ill-suited to complex FDI disputes that involve sensitive questions of government regulation, criminal investigations or legislative actions. Do not be surprised if some governments act soon to limit their exposure to the process. 

Luke Eric Peterson is the publisher of InvestmentArbitrationReporter.com a news and analysis service focused on FDI arbitrations between investors and states.