A sudden change of the banking sector legal framework has provoked a tide of arbitrations against South-Eastern European States. Interventionist measures enacted by host States of investment have harmed the position of foreign banks on the local market. Consequently, banks have decided to initiate arbitral proceedings to protect their interests.
Countries in South-Eastern Europe have faced economic turmoil over the past 20 years. Their economic transition from heavily-controlled to free-market economies is still ongoing in some of the countries in the region. Bank loans which were non-existent two decades ago are now common. Before the global economic crisis, bank loans indexed in Swiss Francs were popular in the region. The value of Swiss Francs and lower interest rates at the time were beneficial for loan holders.
However, dramatic changes affected these loans. Swiss banking authorities decided to repudiate the control of exchange rates of their national currency which resulted in its appreciation. In some cases, the value of bank loans in Swiss francs has doubled or even tripled, leaving debtors in dire straits. Debtors pressured their governments to enact measures to stabilize the interest rates and recreate the original value of bank loans, as was done by certain governments.
Sudden Change of Legal Framework in Montenegro
Montenegro, for example, enacted an Act on Conversion of Bank Loans in Swiss Francs CHF in Euros EUR (“Official Gazette of Montenegro”, No. 46/2015 and No. 59/2016). This change of legal framework bound banks to convert bank loans and reinstitute the exchange rate valid on the day of conclusion of the loan contract.
The only bank which had issued bank loans in Swiss francs in Montenegro was Addiko Bank, which raised a claim before the ICSID. While not many details are known currently, the Austrian-based bank, as an investor, sent a letter to the Montenegrin President regarding a violation of the Austrian-Montenegrin BIT. It requested Montenegro to repeal the problematic legislation which dramatically affected its position on the Montenegrin market.
Sudden Change of Legal Framework in Croatia
Another ex-Yugoslavian republic, Croatia, has faced multiple, similar claims over the last two years. Its sudden change of legal framework, enacted in 2015, imposed the conversion of over USD 3 billion worth of bank loans issued in Swiss francs. The costs of this conversion would be about USD 1 billion. Although many foreign banks threatened to sue the Republic of Croatia, its authorities defended the measure on the basis that it was necessary to protect its citizens.
First, in 2016, UniCredit Bank Austria AG and Zagrebačka Banka d.d. (ICSID Case No. ARB/16/31) raised an ICSID claim against the Republic of Croatia. Then, a year later, three different banks also sued Croatia – Raiffeisen Bank International AG and Raiffeisenbank Austria d.d. v. Republic of Croatia (ICSID Case No. ARB/17/34), then Erste & Steiermärkische Bank d.d., Erste Group Bank AG, and Steiermärkische Bank und Sparkassen AG v. Republic of Croatia (ICSID Case No. ARB/17/49) and finally Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia (ICSID Case No. ARB/17/37).
Investors usually initiate cases due to a lack of legal certainty which is in violation of provisions of the relevant bilateral investment treaty (BIT). They typically seek protection on the basis of a violation of the Fair and Equitable Treatment treaty standard.
A Sudden Change of Legal Framework and the Standard of Fair and Equitable Treatment
Fair and Equitable Treatment, in theory, ‘calls for an adjustment of a given situation, accommodation of competing interests and balancing of competing principles rather than a strict adherence to the letter of the law or to the rules enunciated in the BITs‘.
Furthermore, Fair and Equitable Treatment, amongst other elements, usually encompasses the protection of the foreign investor’s legitimate expectations. Such protection stems from ‘the abidance to promises and covenants that have been given to the investor and upon which the investor has relied‘.
There are limits to legitimate expectations, however. For instance, the tribunal in Saluka v. Czech Republic found that ‘no investor may reasonably expect that the circumstances prevailing at the time investment is made remain totally unchanged . In order to determine whether frustration of the foreign investor’s expectation was justified and reasonable, the host state’s legitimate right subsequently to regulate domestic matters in the public interest must be taken into consideration.‘
Sudden changes of legal frameworks by host States due to financial crises are not new. In 2006, due to the financial crisis in Argentina, the tribunal in LG&E v. Argentina found that ‘financial measures to address the crisis in the early 2000s would be a valid excuse.' In Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, a foreign investor started an arbitration after governmental interventionist measures due to the financial crisis in Greece. The investor similarly claimed the breach of fair and equitable treatment as per the relevant BIT. 
Currently in Montenegro and Croatia, the investment arbitration proceedings remain ongoing and little information is publicly available. Both parties in these cases issued press releases justifying their acts. While only these two ex-Yugoslavian countries have faced claims so far, it is yet to be seen if other ex-republics would face them as well. It is possible that such negative examples push local governments to think twice before making sudden changes to legal frameworks.
 Surya P. Subedi, International Investment Law, Reconciling Policy and Principle, Oxford and Portland, Oregon, 2008, p. 174.
 Roland Klager, Fair and Equitable Treatment in International Investment Law, Cambridge University Press, 2011, p. 117.
 Saluka Investment BV v The Czech Republic, UNCITRAL-PCA, Partial Award (March 17, 2006), para 305.
 LG&E v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability of 3 October 2006, paras. 238, 240, 266.
 Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case ARB/13/8), Award, 9 April 2015.