International courts now recognize Russia to be responsible for the expropriation of assets in Crimea, the Ukrainian territory Russia started to occupy in February 2014, and now Ukrainian courts have an instrumental role in stopping Russia from seizing the territory’s assets.
In 2014, the self-proclaimed “authorities” in Crimea announced the nationalization of about 480 enterprises and organizations. Many entrepreneurs lost control of their assets. Most of them chose the tactic of waiting. However, a number of companies decided to take their cases to the international courts. And now we have the first encouraging results.
Everest Estate company and 18 other plaintiffs have won their cases against Russian Federation at the Permanent Court of Arbitration in The Hague in 2018. In their claims, the plaintiffs charged Russia with effectively expropriating their assets in Crimea. The court considered these cases to be violations by Russia of the bilateral Russian-Ukrainian investment protection agreement of 1998.
The agreement with the Russian Federation prohibits the expropriation and nationalization of investments of representatives of one state on the territory of the other (Article 5). Upon consideration of the case, the court awarded the plaintiffs compensation in excess of $130 million plus interest, as well as more than $8.5 million to compensate the plaintiffs for their expenses and €650,000 to compensate for the costs of the arbitral tribunal.
This ruling was made despite the fact that Russia boycotted the case from the very beginning. However, the rules of the arbitral tribunal stipulate that if the defendant ignores the consideration of the case and does not appoint its own arbitrator, one will be appointed by the court, and the arbitral award will still be recognized and enforced throughout the world.
However, obtaining a court ruling against Russia does not automatically mean compensation will be obtained. The main problem is the enforcement of the court decision. It is a well-known fact that Russia is in no hurry to comply with international courts’ decisions against Russia.
For instance, after the European Court of Human Rights adopted a final decision in Yukos oil company case, Russian President Vladimir Putin signed a law by which the Constitutional Court of Russia was actually allowed not to recognize the ECHR’s decisions. There are other cases of Russia and its companies openly refusing to abide by the rulings of international courts.
In 2014-2015, the plaintiffs in the Yukos case managed to confiscate Russian assets in a number of European countries – Belgium, France and Austria. That was under a decision of the Permanent Court of Arbitration in The Hague dated July 18, 2014, whereby the court ordered Russia to return $50 billion to the former shareholders of Yukos.
The confiscation of the assets affected a number of banks: VTB, VGTRK, TASS and other companies (the complete list is unknown). These were the assets of legal entities that were wholly or mainly controlled by the Russian state, or those that had debts to the latter.
Belgium went further than the other states. They even managed to arrest the accounts of the Belgian diocese of the Russian Orthodox Church and diplomatic institutions – although not for long. That decision was later canceled. Unfortunately, the aforesaid arbitration award in The Hague was also subsequently canceled by a local “state” court. Yukos shareholders have appealed against that decision, but their case has not yet been heard.
Let’s return to Ukraine – light has appeared at the end of the tunnel. In September of this year, the Kyiv Court of Appeal passed an unprecedented decision to arrest the assets of Russian banks in Ukraine to ensure the reimbursement by the Russian Federation of the losses in Crimea of Everest Estate and 18 other claimants.
The court agreed that the property of banks that are actually controlled by Russia is the property of Russia, which may be subject to enforcement on the basis of an international court decision. These are the following enterprises:
– Prominvestbank, 99.7726 percent of whose shares belong to the State Corporation – the Bank for Development and Foreign Economic Activity (Vnesheconombank);
– Sberbank, solely owned by the Savings Bank of Russia, which in turn belongs to the Central Bank of the Russian Federation;
– VTB BANK, whose sole owner is VTB Bank, which belongs to the Ministry of Finance of the Russian Federation and the Federal Agency for State Property Management and the State Corporation- Deposit Insurance Agency.
The aforesaid information is contained in the decision of the Court of Appeal of Kyiv dated Sept. 5, 2018.
In order to enforce the decision of an international arbitration court in any state, it is necessary to apply to the relevant court with a petition for the recognition of, and permission to enforcement, the court decision. Ukraine is not an exception – such a procedure is set out in the Civil Procedural Code of Ukraine.
In Ukraine, awards of international commercial arbitration tribunals are executed irrespective of the country in which they were issued. To initiate such a procedure, it is necessary, not later than three years after the receipt of the arbitration award, to apply to the Kyiv Court of Appeal with the respective application.
In addition, together with the application for recognition and enforcement of an award, one can file another application – to take interim measures. This is to stop the sudden disposal of assets by the defendants if they wish to prevent the enforcement of the award.
This was the way chosen by the representatives of Everest Estate and the 18 other plaintiffs, including former chairman of the Board of PJSC CB PrivatBank Alexander Dubilet. In July, they applied to the Kyiv Court of Appeal with an application for recognition of, and permission for, the enforcement of the award of the Permanent Court of Arbitration in The Hague, and in August they filed an application for interim measures.
The plaintiffs now have a real opportunity to have their prayers for relief granted using the assets of the Russian banks. Of course, the decision of the Kyiv Court of Appeal is not final and will be reviewed by the Supreme Court. Time will show. But now it is clear that international courts recognize Russia is responsible for the expropriation of assets in Crimea, and that Ukrainian courts have sufficient powers to implement a recovery procedure.
Oleh Gromovyi is a managing partner at GENTLS law firm.
