Collective Arbitration Against Russia By Ukrainian Businesses Expropriated In The Crimea
Is collective arbitration against Russia for the expropriations of Ukrainian assets occurring in Crimea possible?
An article in the New York Times dating from 11 January 2015 notes that the plunder of Ukrainian-owned assets is continuing in the Crimea on a large scale today. Armed forces known as the “people’s militia” are invading property wearing black balaclavas, supported by the local authorities, and over USD 1 billion in real estate and other assets have been reportedly stripped from their former owners without compensation.
These assets are reported to include hotels, banks, shipyards, farms, gas stations, bakeries, dairy farms, and even the Yalta Film Studio, the former Hollywood of the Soviet Union. The Russian-backed “Government” reportedly claims that nothing was confiscated, calling this a procedure of forced redemption. The main target to date is reportedly Igor Kolomoisky, the main owner of Ukraine’s largest bank, and an anti-separatist Governor in the town of Dnipropetrosvsk.
Russia has been administering the Crimea since 21 March 2014 as one of nine federal districts of Russia, although Russia disputes the label of annexation. Local disputes concerning the expropriations have been appealed to the Russia’s Supreme Court, and President Putin even encouraged Crimeans to stop paying their loans to Ukraine’s largest bank, which foreseeable caused borrowers to reportedly stop paying their loans. It is laughable to suggest that anyone whose assets were expropriated in the Crimea will have a fair day in court before Russia’s Supreme Court.
Does the bilateral investment treaty signed between Ukraine and Russia in 1998 hold the key to Ukrainians obtaining compensation for the theft of Ukrainian-owned assets in the Crimea through collective arbitration against Russia? This bilateral investment treaty, which is available here, provides for full compensation for expropriations in Article 5:
“Article 5 – Expropriation
1. The investments of investors of either Contracting Party, carried out on the territory of the other Contracting Party, shall not be subject to expropriation, nationalization or other measures, equated by its consequences to expropriation (hereinafter referred to as expropriation), with the exception of cases, when such measures are not of a discriminatory nature and entail prompt, adequate and effective compensation.
2. The compensation shall correspond to the market value of the expropriated investments, prevailing immediately before the date of expropriation or when the fact of expropriation has become officially known. The compensation shall be paid without delay with due regard for the interest, to be charged as of the date of expropriation till the date of payment, at the interest rate for three months’ deposits in US Dollars prevailing at the London interbank market (LIBOR) plus 1%, and shall be efficiently realizable and freely transferable. “
Article 9 also permits investors to initiate an UNCITRAL arbitration against Russia in the event of “any dispute” between Russia and Ukrainian investors, including disputes concerning the expropriation of investments:
Resolution of Disputes Between Contracting Party and the Investor of the other Contracting Party
1. In case of any dispute between either Contracting Party and the investor of the other Contracting Party, which may arise in connection with the investments, including disputes, which concern the amount, terms of and procedure for payment of compensation provided for in Article 5 hereof or with the procedure for effecting a transfer of payments provided for in Article 7 hereof, a notification in writing shall be handed in, accompanied with detailed comments which the investor shall forward to the Contracting Party involved in the dispute. The parties to the dispute shall exert their best efforts to settle that dispute by way of negotiations.
2. In the event the dispute cannot be resolved through negotiations within six months as of the date of the written notification as mentioned in Item 1 hereof above, then the dispute shall be passed over for consideration to:
a) a competent court or an arbitration court of the Contracting Party, on whose territory the investments were carried out;
b) the Arbitration Institute of the Chamber of Commerce in Stockholm,
c) an “ad hoc” arbitration tribunal, in conformity with the Arbitration Regulations of
the United Nations Commission for International Trade Law (UNCITRAL).
3. The award of arbitration shall be final and binding upon both parties to the dispute. Each Contracting Party shall undertake to execute such an award in conformity with its respective legislation.”
Clearly, the bilateral investment treaty signed in 1998 was intended to protect Ukrainian investments on Russian soil, giving Ukrainian investors the right to seek compensation through investment arbitration were their assets to be expropriated by Russia. As Russia claims that the Crimea is now part of Russia, why should not Ukrainian businesses be able to seek compensation directly against Russia on the basis of the 1998 BIT?
According to Russian apologists, this is impossible, due to the legal issue of whether the Crimea now constitutes a part of Russia as a matter of international law. General principles of international law such as nemo auditur propriam turpitudinem allegans and good faith, however, suggest that Russia may not be entitled to benefit from its own wrongs.
Apologists have also claimed that it is not Russia that is carrying out the expropriations, but instead the Government of the Crimea. While there are issues of the attribution of State responsibility for the acts of the “Government” in the Crimea, many arguments can be made that the acts of the federal district should be attributable to Russia.
Apologists also claim that the lack of Russia’s consent to arbitration with foreign investors in the Crimea will prevent a successful claim against Russia. The bilateral investment treaty, however, does not clearly limit itself to the territory belonging to Russia at the time of signing the treaty.
While there is no guarantee of success, as the apologists’ arguments are surmountable, Ukrainians whose assets have been expropriated in the Crimea, such as those discussed in the New York Times, should seriously consider the possibility of bringing claims against Russia on the basis of the 1998 Ukraine-Russia bilateral investment treaty.
Moreover, Ukrainians whose assets have been expropriated in the Crimea might consider targeting Russia in a collective arbitration, along the lines of Abaclat and Others v. Argentina, where the arbitral tribunal found that the fact that the claim was a collective claim and that the group of claimants was very large did not hinder the arbitration, since Argentina’s consent to arbitrate included claims presented by multiple claimants. While there are many legal issues with respect to bringing such a collective claim, this could allow the hundreds of individuals in the Crimea whose assets have been expropriated to obtain compensation for the expropriation of their assets and businesses at a relatively low cost.
While collective arbitration against Russia is by no means guaranteed to succeed, the current alternative, appealing to the Russian Supreme Court, is far less likely to yield meaningful results for Ukrainians. Ukrainians whose assets have been expropriated in the Crimea should consider a collective claim on the basis of the 1998 Ukraine-Russia BIT, to ensure that, even if there are not military consequences for its acts, since Russia is armed to the teeth, there are additional financial consequences for Russia’s actions in the Crimea.
– William Kirtley