Private arbitration tribunals in focus: What the Klesch case means for companies*

When states change taxes or introduce new regulations, companies are often hit in the middle of their ongoing business. However, large investors have a special tool at their disposal to defend themselves against this: private arbitration tribunals. The current case of the Klesch Group against Germany, Denmark and the European Union shows how powerful this instrument has become and how far-reaching the consequences can be.

Arbitration tribunals as parallel justice?

Over a thousand such proceedings have been initiated worldwide since the 1960s. They are based on investment protection treaties in which states promise companies that their investments will not be affected by political decisions. The original aim was to promote investments in countries with uncertain legal situations. However, their use has changed considerably. Today, states are already being sued if new laws or taxes could affect expected profits. This not only affects small states with weak administrations, but increasingly also industrialized nations. The proceedings take place outside of public jurisdiction, are largely confidential and are often conducted by commercial lawyers. Decisions can involve billions of euros.

The Klesch case: excess profits tax under fire

The Klesch Group, an industrial commodities group based in London and Geneva, owns refineries in Germany and Denmark. When the European Union decided in 2022 to introduce the so-called excess profits tax or windfall profits tax in order to partially skim off sharply increased profits from energy companies, Klesch felt that its economic expectations had been violated and initiated arbitration proceedings.

In summer 2024, the company achieved an important interim result: Germany may not enforce the tax for 2022 for the time being. Although this decision is not yet final, it shows the direction in which the proceedings could move. If the arbitration tribunal does indeed declare the tax inadmissible, there is a threat of similar lawsuits from other companies.

Why this is relevant for companies

The case makes it clear how strongly private arbitration tribunals can influence corporate strategies. They offer investors an additional level of legal protection, a kind of international arbitration body that exists in parallel to national courts. For companies that operate globally, this can be a strategic advantage, especially when regulatory risks or political intervention are imminent.

At the same time, these procedures are controversial. Critics speak of a shift in the balance of power. States may have to align public policy with private sector profit interests. Decisions by such courts can effectively block or at least delay national legislation.

What internationally active companies should know

For internationally active companies, dealing with arbitration tribunals has long been part of a professional legal and risk policy. They can offer protection, open up scope for negotiation and mitigate regulatory risks. At the same time, the requirements for compliance, contract design and political monitoring are increasing.
Companies that analyze at an early stage which investment protection agreements apply to their locations, investments and supply chains gain a clear advantage. Because those who know the rules of the game can mitigate risks and take advantage of opportunities.

Arbitration: A global necessity

The Klesch case makes it clear that private arbitration tribunals are not a peripheral area of international commercial law, but a highly effective mechanism with considerable economic implications. They influence investment decisions, tax policy and geopolitical strategies. Companies that trade globally therefore have no choice but to deal with these proceedings professionally.
Private arbitration tribunals are not a disruptive factor in the rule of law. They are part of the reality of a globalized economy. The decisive factor is how companies use them strategically.

Business mediation as a preventive alternative: conflicts before they become arbitration proceedings

However, strategic decisions should also take other considerations into account. While private arbitration courts play an important role, many companies overlook a more cost-effective and faster alternative: professional commercial mediation through state-recognized dispute resolution bodies. Conflicts in commercial transactions – be it regulatory issues, contractual disputes or political interventions – can often be resolved through structured negotiations with neutral support before they escalate into lengthy and expensive arbitration proceedings.

Why mediation makes sense for companies

Proceedings before recognized dispute resolution bodies such as CenaCom offer considerable advantages. They are significantly cheaper than arbitration proceedings, take considerably less time and enable the parties involved to develop self-determined solutions instead of submitting to an arbitration decision. Particularly in the case of regulatory conflicts, open dialogs between companies and government agencies – supported by neutral mediators – can clarify misunderstandings and create win-win solutions that are acceptable to all parties involved.

Recommendation for companies

Internationally active companies should strategically consider commercial mediation as another method of out-of-court dispute resolution and establish it as an integral part of their conflict prevention strategy. Early involvement of mediators at the first signs of regulatory tensions or contractual disputes can prevent costly arbitration proceedings and preserve business relationships. The combination of proactive policy monitoring, competent legal drafting and the use of state-recognized dispute resolution bodies offers holistic protection that usefully complements reactive arbitration.

*Source: Taz.de; 17.09.2025; https://taz.de/Deutschland-vor-dem-Schiedsgericht/!6113768/