Naftogaz v Russia - PCA Case No 2017-16 - Partial Award and Dissenting Opinion of Professor Dr. Maja Stanivukovíć - 22 February 2019
Country
Year
2019
Summary
PCA CASE NO. 2017-16
IN THE MATTER OF AN ARBITRATION BEFORE A TRIBUNAL CONSTITUTED
IN ACCORDANCE WITH
THE AGREEMENT BETWEEN THE GOVERNMENT OF THE CABINET OF
MINISTERS OF UKRAINE AND THE RUSSIAN FEDERATION
ON THE ENCOURAGEMENT AND MUTUAL PROTECTION OF INVESTMENTS
DATED 27 NOVEMBER 1998
-and-
THE ARBITRATION RULES OF THE UNITED NATIONS COMMISSION ON
INTERNATIONAL TRADE LAW, 1976
(I) NJSC Naftogaz of Ukraine, (II) National Joint Stock Company Chornomornaftogaz, (III) JSC Ukrtransgaz, (IV) Likvo Llc, (V) JSC Ukrgasvydobuvannya, (VI) JSC Ukrtransnafta, (VII) Subsidiary Company Gaz Ukraiiny v The Russian Federation.
The Arbitral Tribunal
Judge Ian Binnie, C.C., Q.C. (Presiding Arbitrator)
Dr. Charles Poncet
Professor Dr. Maja Stanivukovíć
TABLE OF CONTENTS
Part 1 - OVERVIEW
Part 2 - THE PARTIES
Part 3 - PROCEDURAL HISTORY
1. Constitution of the Tribunal and Communications From the Respondent
2. Fixing of the Procedural Timetable
3. Filing of the Statement of Claim; Respondent's Failure to Submit a Statement of Defence; Bifurcation; and Amendments to the Timetable
4. Hearing
5. Post-Hearing Proceedings
Part 4 - THE CLAIMANTS AND THEIR OPERATIONS AND INVESTMENTS IN CRIMEA
1. NJSC Naftogaz's Operations and Investments
2. Chornomornaftogaz's Operations and Investments
3. Ukrtransgaz's Operations and Investments
4. Likvo's Operations and Investments
5. Ukrgasvydobuvannya's Operations and Investments
6. Ukrtransnafta Operations and Investments
7. Gaz Ukraiiny Operations and Investments
Part 5 - THE EVENTS IN THE CRIMEAN PENINSULA OF FEBRUARY-MARCH 2014
Part 6 - THE SEIZURE OF THE CLAIMANTS' ASSETS
Part 7 - REQUEST FOR RELIEF
Part 8 - KEY LEGAL PROVISIONS
Part 9 - RUSSIA'S CHALLENGE TO JURISDICTION AND ADMISSIBILITY
Part 10 - ARE THE CLAIMANTS PROTECTED "INVESTORS" WITHIN THE SCOPE OF THE BIT? (JURISDICTION RATIONE PERSONAE)
(a) The Claimants' Position
(b) Submission of Ukraine
(c) The Tribunal's Analysis
Part 11 - WERE THE SEIZED ASSETS "INVESTMENTS" WITHIN THE PROTECTION OF the BIT?
(a) Russia's Position
(b) The Claimants' Position
(c) The Tribunal's Analysis
Part 12 - ARE THE CLAIMANTS' CLAIMS FOUNDED ON TREATY OBLIGATIONS THAT WERE THEN BINDING ON RUSSIA?
(a) The Claimants' Position
(b) The Tribunal's Analysis
Part 13 - DID THE CLAIMANTS COMPLY WITH THE NOTICE AND NEGOTIATION REQUIREMENTS OF THE TREATY?
(a) The Claimants' Position
(b) The Tribunal's Ruling
Part 14 - DOES CONSENT TO ARBITRATION UNDER ARTICLE 9 OF THE TREATY EXTEND TO CLAIMS BEING MADE BY MULTIPLE CLAIMANTS IN A SINGLE
ARBITRAL PROCEEDING?
(a) The Claimants' Position
(b) The Tribunal's Analysis
Part 15 - ATTRIBUTION OF LIABILITY UNDER THE TREATY
(a) The Claimants' Position
(b) The Tribunal's Ruling
Part 16 - EXPROPRIATION
(a) The Claimants' Position
(b) The Tribunal's Analysis
Part 17 - FULL AND UNCONDITIONAL LEGAL PROTECTION
(a) The Claimants' Position
(b) The Tribunal's Analysis
Part 18 - MOST FAVORED NATION TREATMENT
(a) The Claimants' Position
(b) The Tribunal's Analysis
Part 19 - COSTS
Part 20 - DISPOSITIF
PART 1 - OVERVIEW
1. The Claimants are state-owned and/or state controlled companies' established in Ukraine in the gas and oil sector. They claim direct expropriation of their investments in the Crimean Peninsula, including the city of Sevastopol, by the Russian Federation through the adoption of a combination of legislative acts and physical interference in the period between 3 March 20142 and 30 April 2014.3 The measures followed the Russian Federation's occupation and purported annexation 4 of Crimea, "transferring almost all of the Claimants' Crimea-based assets to a Russian state-owned company."6 In addition to expropriation, the Claimants claim breach of the undertaking of full and unconditional legal protection 7 and various other breaches of the Agreement Between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments, dated 27 November (the "Treaty" or the "BIT")
2. The Respondent in this arbitration is the Russian Federation which declined to participate in these proceedings except to file an objection to jurisdiction.
4. By way of background, Naftogaz and the other members of the Claimant group constituted in February 2014 the largest participants in natural gas exploration, production, transport, storage, processing and distribution in Crimea.
5. On or about 27 February 2014, armed members of the Russian military entered Crimea and over subsequent days effectively occupied the region. The military occupation was accompanied by a step by step takeover of the institutions of government by individuals who were supportive of Crimea joining the Russian Federation. On 15 March 2014, the Ukrainian Parliament stripped the Crimean Parliament of its powers.1° Thereafter, until 21 March 2014, the only duly constituted legislative and executive authority in Crimea was the government of Ukraine (which was ousted effective 18 March 2014).
6. On 21 March 2014, the Russian Federation enacted federal constitutional Law 6-FKZ (the "Law on Admission"), admitting the Republic of Crimea and the Federal City of Sevastopol to the Russian Federation effective 18 March 2014.11 As will be described, the annexation was coupled with Russia's taking of the Claimants' assets.
7. While the Crimean Parliament purported to seize the Claimants' assets on 17 March 2014, it had already been stripped of its powers two days previously and its attempted takeover was without legal effect. However, effective 18 March 2014, Russia integrated Crimea into its Federation and subsequently took legislative steps to seize the Claimants' assets, culminating on 30 April 2014 when the State Council of the Republic of Crimea, exercising its newly conferred legislative authority under the Russian Constitution, decreed "all state property (of the state of Ukraine) and abandoned property located in the territory of the Republic of Crimea shall be considered the property of the Republic of Crimea" (the "Nationalization Decree")
8. There is no dispute that the Claimants' assets were seized without compensation. The issues are whether the Claimants qualify as "investors" and their seized assets as "investments"
within the protection of the BIT, and if so, whether the seizure is attributable to Russia. A resolution of these issues is required to determine whether this Tribunal has jurisdiction to deal with the claim and if so, whether there is any BIT liability on the part of Russia.
9. The Russian Government takes the position that the BIT does not apply because, at the time of the initial investment, the assets in question were located in Ukraine, not Russia. The Claimants, it is said, never made any investment in the Russian Federation. The seizure occurred before the annexation of the Republic of Crimea and the city of Sevastopol by the Russian Federation and is therefore not attributable to the Russian Federation.'
10. The Tribunal by majority is of the view that the critical date is not the date of the initial investment. The Tribunal's jurisdiction depends upon the facts existing (1) at the date of the alleged breaches of the BIT, (2) as well as at the date of the initiation of these proceedings. The Tribunal, by a majority, rules that on those two dates, the Claimants satisfy the requirements of the BIT, properly interpreted, and therefore the Tribunal does have jurisdiction to determine the dispute.
11. Further, on the facts, a majority determines that the Claimants assets were expropriated by the Respondent, the Russian Federation, without compensation contrary to the BIT. The dissent concludes inter alia that the investments do not qualify for BIT protection unless "foreign" ab initio, which the investments were not.
12. As the issue of quantum was bifurcated from the issue of jurisdiction and liability, the Tribunal will convene a further hearing to assess the quantum of the Claimants' losses.
....
PART 20 - DISPOSITIF
274. For the reasons set out above, the Tribunal by majority rules:
(a) that the Tribunal has jurisdiction over the claims;
(b) that the Claimants have established a violation of Article 5 (expropriation) and Article 2(1) (full and unconditional legal protection) and Article 3(1) (most favored nation treatment) of the BIT.
275. The Tribunal will therefore proceed to the quantum phase of the arbitration.
Place of arbitration: The Hague, the Netherlands
Signed. ..
Dissenting Opinion of Professor Dr. Maja Stanivukovíć
1. PRELIMINARY CONSIDERATIONS
1.1. Introduction
1. The Partial Award addresses two principal issues: jurisdiction of the Tribunal under the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments (the "BIT"), as well as the Respondent's liability for breaches of the BIT by actions undertaken against the Claimants' investments in the period from 27 February to 30 April 2014. The majority has found that it has jurisdiction and that the Respondent bears liability for breaches of the BIT. I regret that I am unable to join my colleagues in their decisions for the reasons that will be explained below.
...
5.2. Conclusion
239. The Claimants bear the burden of proving that the property for which they claim compensation was their own property, rather than the property of the State of Ukraine. To the extent that they were unable to discharge that burden by showing that the property seized was their own property, there can be no liability for expropriation under Article 5 of the BIT.
Place of arbitration: The Hague, the Netherlands
Signed. ..
Footnotes omitted from this introduction,
OCR errors may be present