JDSupra | 5 October 2022
Russia’s purported annexation of parts of eastern Ukraine likely to trigger investment treaty claims against Russia
by Hogan Lovells
On September 30, 2022, Russian President Vladimir Putin purported to annex four Ukrainian provinces: Luhansk, Donetsk, Kherson, and Zaporizhzhia. This escalation is likely to trigger investment treaty claims against Russia.
The Government of Russia’s purported annexation of parts of Eastern and Southeastern Ukraine is the latest step taken by Russia to escalate its military aggression against Ukraine. We recommend that investors in the region that have suffered harm as a result of Russia’s conduct assess their legal options in light of this important event. Specifically, based on consistent decisions by arbitral tribunals and reviewing courts related to Russia’s 2014 purported annexation of Crimea, investors with investments in Luhansk, Donetsk, Kherson, and/or Zaporizhzhia may now initiate claims against Russia for damages as a consequence of harm caused by the Government of Russia to their investments.
Key Investment Treaty Law
The Ukraine-Russia bilateral investment treaty (BIT) provides substantive protections for Ukrainian investors and their investments in Russia. The BIT also grants investor-state dispute settlement (ISDS) rights for those foreign investors against Russia to seek damages for Russia’s breaches of the BIT.
Following Russia’s purported annexation of Crimea in 2014, several Ukrainian companies doing business in Crimea brought arbitration claims against Russia. Several arbitral tribunals have found that Russia’s step purportedly to annex Crimea led them to have jurisdiction over claims by those Ukrainian companies against Russia under the BIT. Domestic courts have generally upheld those tribunal’s decisions on jurisdiction, including recently by The Hague Court of Appeal in Belbek and Kolomoisky v. Russia; Naftogaz et al v. Russia, Everest et al v. Russia, and PrivatBank v. Russia. The court found that the tribunal had jurisdiction under the BIT even though the investors made their investments during the time of Ukraine’s control of Crimea, because they were made prior to Russia’s purported annexation of Crimea. The Swiss courts in Ukrnafta v. Russia and Stabil v. Russia have also previously upheld tribunals’ findings on jurisdiction on a similar basis. One limitation imposed by certain reviewing courts has been that investments made prior to the fall of the Soviet Union may not qualify for investment protections under the BIT.
In addition to the Ukraine-Russia BIT, Russia has entered into other investment treaties with other countries that protect those countries’ investors and their investments in Russia. Foreign investors in Luhansk, Donetsk, Kherson, and/or Zaporizhzhia should review their investment structures and assess whether there may be claims available under additional investment treaties.
Possibility of Damages
Russia has historically refused to comply with arbitral awards. Potential claimants thus should be realistic about possible damages recovery from Russia in the short-to-medium term. Notwithstanding, investment treaties are powerful tools and provide valuable rights to qualified investors. Binding arbitral awards are even more valuable and may be employed to secure commercial and/or political gain in addition to their legal effect.
In sum, investors with investments in the Luhansk, Donetsk, Kherson, and/or Zaporizhzhia provinces should carefully consider their rights under the Ukraine-Russia BIT and/or other investment treaties. Investors should also carefully assess their investment structures and history, and should carefully document harm caused by the Government of Russia to their investments.