Round-Up of Investment Arbitrations Against CIS States: Recent Developments

swallowIn the December 2016 – March 2017 period, some major procedural developments occurred in several pending and concluded investment arbitrations against CIS states.

In some of these pending disputes, arbitral tribunals have asserted jurisdiction over the investors’ claims, addressing noteworthy issues such as: provisional application of the Energy Charter Treaty, application of BITs to investments in Crimea and corruption allegations related to changes in political regime in the CIS region.

In some other already concluded arbitral proceedings, national courts in the seat of arbitration addressed the Soviet-era narrowly drafted dispute resolution clauses in BITs and the recognition and enforcement of the emergency arbitration awards against the respondent state.


Aeroport Belbek LLC and Mr Igor Valerievich Kolomoisky v The Russian Federation; PJSC CB PrivatBank and Finance Company Finilon LLC v The Russian Federation

On 24 February 2017, identical arbitral tribunals in a pair of Crimea-related investment arbitrations, after a hearing on jurisdiction and admissibility in July 2016, issued their unanimous Interim Award, as disclosed in a PCA Press Release dated 9 March 2017. While the Press Release itself does not address the conclusions of the tribunals, according to the Claimants’ counsel and several arbitration online services, the arbitrators concluded that “an occupying power may be held responsible under a BIT for its conduct in the occupied territory”.

This conclusion, to make a BIT applicable as regards investments made prior to the change of the legal status of the territory, is novel and unprecedented and may have implications for other pending Crimea-related arbitral proceedings. The cases will proceed to the merits stage, where the Russian Federation will face claims ranging from USD 15 mln, with the date of the hearing not yet known. The tribunal comprises Sir Daniel Bethlehem (the Claimant’s nominee), Dr Vaclav Mikulka (appointed on behalf of the Respondent) and Prof Pierre Marie-Dupuy (the Presiding Arbitrator).

Yukos s.a.r.l. v The Russian Federation

In January 2017, the arbitral tribunal in one of the two still ongoing Yukos-related investment arbitrations found itself competent to hear the dispute under the Energy Charter Treaty and the UNCITRAL Arbitration Rules, with a seat in Geneva. It held that the ECT was provisionally applicable to the Russian Federation despite its non-ratification of the Treaty. This conclusion is at odds with the ruling of The Hague District Court annulling the USD 50 bln arbitral award and finding that the ECT is not provisionally applicable to the Russian Federation.

The award on jurisdiction is not publicly available yet.  However, as IAReporter said, this decision is not unanimous and the Respondent’s nominee, Prof Brigitte Stern, in quite a natural manner, issued a dissent. This ruling paves the way to the USD 1.5 bln –  USD 15 bln (tentatively) claims based on the loans that the former Yukos had received and that were not repaid after its forced bankruptcy.

Quasar de Valores et al v The Russian Federation

In December 2016, in another Yukos-related arbitration that concluded in favour of the investors in 2012, the Swedish Supreme Court refused to grant leave of appeal of the Svea Court of Appeal decision. The investors filed an appeal after the Svea Court ruled in January 2016 that the tribunal lacked jurisdiction under the 1990 Spain-USSR BIT to decide the claim of Spanish investment funds with a minority shareholding in the former Yukos.

The appeal focused on the interpretation of the narrowly-worded Soviet-style BIT dispute resolution provisions referring to disputes “relating to the amount or method of payment of compensation” and the scope of MFN clause. The Svea Court, rejecting the conclusions from the declaratory judgment of the Stockholm District Court, held that the dispute resolution provision and the MFN clause of the BIT did not grant jurisdiction to decide whether the expropriation had occurred. Now, when the declaratory judgment has passed all court instances in Sweden, it is likely that the arbitral award will be annulled.


JKX Oil plc v Ukraine

In February 2017, the arbitral tribunal in a long-lasting dispute under the 1993 UK-Ukraine BIT and the UNCITRAL Arbitration Rules rendered the final award (not public), rejecting the majority of the investor’s claims and awarding USD 11.8 mln in compensation, out of USD 168 mln that the investor had requested. According to the public statement of the investor, the arbitrators did not find Ukraine liable for allegedly excessive levying of taxes and accepted only its “subsidiary claims”.

It has been recently revealed that Ukraine has filed an application to the High Court in London to annul this arbitral award on the ground of “serious irregularity” in conducting the arbitral proceedings.

Meanwhile, in December 2016, the Kiev Court of Appeal refused to enforce and recognise the SCC emergency arbitration award rendered against Ukraine in related proceedings, after numerous shuttling of the case between several instances of the Ukrainian courts since 2015.

The Court stated that the enforcement of the emergency award will violate the public order of Ukraine, since it would reduce the applicable tax rate for the Claimant from 55% to 28%, which can be implemented only in accordance with the Tax Code of Ukraine. It also pointed at the non-compliance with the three-month “cooling-off” period under Article 26 ECT that the Claimant had triggered on 13 November 2014. The Court noted that the Claimant had filed the application for the emergency proceedings on 7 January 2015 – during the Christmas holidays in Ukraine, out of the office days at the Ministry for Justice – and, thus, the Respondent could not present its objections to the Claimant’s application.


Vladislav Kim et al v The Republic of Uzbekistan

On 8 March 2017, the arbitral tribunal issued the Decision on Jurisdiction in a dispute related to two cement plants that a group of 12 Kazakh investors initiated in 2013 under the ICSID Convention and the 1997 Kazakhstan-Uzbekistan BIT. The arbitrators found themselves competent to hear these claims and rejected all four of the Respondent’s objections related to claimants’ nationality, “passive” investment, its legality and corruption allegations.

In particular, one of the Respondent’s allegations concerned the inadmissibility of the claims as based on the investments that the Claimants had procured illegally – an issue quite often arising in CIS-related disputes (eg similar issues arose in the previously covered cases Belokon v Kyrgyzstan and Metal-Tech v Uzbekistan). The Respondent asserted that the Claimants had made undue payments to the daughter of the then President of Uzbekistan Mr Islam Karimov, but the Tribunal denied it as not sufficiently proven based on the evidence before it. The case will now proceed to the merits stage.


Windoor v The Republic of Kazakhstan

In January 2017, it was reported that Estonian construction company Windoor put Kazakhstan on notice of a potential investment arbitration claim under the ICSID Convention and the Kazakhstan-Estonia BIT. The contention concerns its construction works of the conference centre in Astana, started in 2013, which was going to be partially used by the Ministry of Foreign Affairs of Kazakhstan.

Windoor had already been involved in the SCC arbitration with the Kazakh state-owned entity Baltiiski Dom that ended up with a EUR 23 mln award in favour of the Estonian investor, unenforced by Kazakhstan courts to date. Windoor triggered the six-month “cooling-off” period under Article 9 of the BIT in 2016, but no reaction from the state authorities followed within this period according to the investor. The investor plans to submit its claim in the first quarter of 2017.


Garanti Koza LLP v Turkmenistan

In December 2016, the arbitral tribunal rendered a final award in favour of a British subsidiary of a Turkish construction company in a dispute under the ICSID Convention and the 1992 Turkey-Turkmenistan BIT and 1995 UK-Turkmenistan BIT. The arbitrators awarded USD 2.5 mln to the Claimant (5% of the requested compensation), finding Turkmenistan liable for violations of the fair and equitable treatment standard and umbrella clause.

Garanti Koza did not prevail on all of its claims: the arbitrators rejected its claims for direct and indirect expropriation, unreasonable and discriminatory measures and failure to provide full protection and security to its investment. Moreover, the Tribunal found that the Claimant itself was partially responsible for the overall failure of its highway construction projects in Turkmenistan. There are two other disputes that Turkish investors initiated against Turkmenistan in relation to construction projects that remain pending in ICSID.

Concluding remarks 

While in some of the mentioned disputes, the tribunals and national courts have already said their final words (Garanti Koza; JKX Oil plc; Quasar), either rendering the awards on their merits or deciding that the tribunal was not competent to hear the dispute, the other disputes (YUKOS s.a.r.l.; Privatbank and Belbek; Vladislav Kim; Windoor) will only move to either the jurisdictional or merits stage.

It also remains to be seen what jurisdictional conclusions other Crimea-related arbitral tribunals will reach in the pending cases, as well as whether some other conclusions on the provisional application of the ECT will follow from the Dutch court in the Yukos annulment proceedings.

About the Author:

Elena Burova is a regular contributor to the CIS Arbitration Forum. She holds an LL.M. degree in Investment Treaty Arbitration from Uppsala University (Swedish Institute scholar 2015-2016) and graduated with honours from Moscow State Institute of International Relations (MGIMO University) in 2015. Elena focuses on international commercial and investment arbitration and worked/trained in international law firms in Stockholm and Moscow.

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