A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in the Netherlands continues to be governed by the Wet van 2 juni 2014 tot wijziging van Boek 3, Boek 6 en Boek 10 van het Burgerlijk Wetboek en het Vierde Boek van het Wetboek van Burgerlijke Rechtsvordering in verband met de modernisering van het Arbitragerecht (“Arbitration Act“), to which there have been no legislative amendments.
A.2 Institutions, rules and infrastructure
It is expected that the Netherlands Arbitration Institute will introduce New NAI Arbitration Rules in 2023. The final version of the new rules is expected to be published on 1 May 2023 and to enter into force on 1 July 2023 (the introduction has been postponed with a year).
B. CASES
The four cases that will be summarized under this heading relate to awards issued under the Bilateral Investment Treaty 1998 between the Russian Federation and Ukraine[1]. Moreover, in each case, the Russian Federation attempts to get the awards set aside or revoked.
The background of all cases is similar: the Ukrainian claimants argue that their investments in Crimea have been expropriated in breach of the 1998 BIT by the Russian Federation following the occupation of Crimea by the Russian Federation, and they seek compensation. Russia considers that Crimea became part of the Russian Federation in March 2014. This was never recognized by Ukraine or the international community. Currently, (the Republic of) Crimea is under control and governance of the Russian Federation.
Naftogaz[2]
NJSC Naftogaz is a Ukrainian state owned company that produces and trades gas. National Joint Stock Company Chornomornaftogaz is a subsidiary of Naftogaz in Crimea. JSC Urktransgaz used to operate gas pipelines and gas storage facilities. The other parties involved in the arbitration provided ancillary services to Naftogaz and Urktransgaz. The business in Crimea was based on (inter alia) licenses, user rights and rights to operate. In March 2014, just after the occupation of Crimea, all assets of Chornomornaftogaz and Urktransgaz were expropriated. Subsequently, in April 2014, certain investments of Naftogaz (inter alia licenses to search for gas offshore) were expropriated. Finally, also in April 2014, all other assets of Naftogaz in Crimea were expropriated. Most of these assets were transferred to a newly incorporated Russian company called Chernomorneftegaz. Moreover, physical measures were taken to get all assets of Chornomornaftogaz and Urktransgaz under control.
In 2016, Naftogaz et al. initiated arbitration proceedings under the 1998 Bilateral Investment Treaty (BIT). The Russian Federation indicated that the claims brought could not be heard under the 1998 BIT and that therefore, the 1998 BIT could not serve as a basis for an arbitration case. The Russian Federation communicated (inter alia that):
“According to Article 1 of the Agreement the term “investments” shall mean any kind of tangible or intangible assets which are invested by an investor of one Contracting Party in the Territory of another Contracting Party. The property, which is the subject of the dispute, is located in the Republic of Crimea and the city of Sevastopol, which had previously been a part of Ukraine. The assets of claimants are not investments, because they have not been made in the territory of the Russian Federation, and, if ever made, they have been made prior to the occupation of the Republic of Crimea and the city of Sevastopol to the Russian Federation and not in accordance with the legislation of the Russian Federation. No taxes have been collected on these assets in accordance with the legislation of the Russian Federation and they have not contributed to the economic development of the Russian Federation. On the basis of the foregoing, the Russian Federation does not recognize the jurisdiction of the international arbitration at the Permanent Court of Arbitration to hear the present dispute.”
(Note: the ‘Agreement’ in fact refers to the 1998 BIT).
The Russian Federation did not participate in the arbitration proceedings until an interim award was issued on 22 February 2019. In the interim award, the majority of the tribunal held (i) that it was competent to hear the case, and (ii) that the Russian Federation had breached articles 5 (expropriation) and 2(1) (full and unconditional legal protection) and 3(1) (most favored nation treatment), and (iii) that the quantification of the compensation would be dealt with in the second phase of the arbitration.
The Russian Federation initiated court proceedings to set aside the interim award, with an order for costs. Naftogaz et. al concluded that these claims must be rejected, also with an order for costs. The Hague Court of Appeal (“Court of Appeal“) agreed with Naftogaz et al.
The Court of Appeal started by setting out the rules on the interpretation of the 1998 BIT. Such interpretation must take place on the basis of the Vienna Convention on the Law of Treaties (1969), more specifically articles 31 and 32 thereof.
Setting aside the award on the basis of Article 1065 (a) of the Dutch Code of Civil Procedure (lack of a valid arbitration agreement)
The Russian Federation relied on seven grounds to argue that the interim award must be set aside for lack of a valid arbitration agreement.
The Court of Appeal considered, as a preliminary issue, that it would need to assess on the basis of articles 31 and 32 of the Vienna Convention on the Law of Treaties if the conditions for entering into a valid arbitration agreement have been met.
Moreover, the Court of Appeal considered, as a second preliminary issue, the position of Naftogaz et al. to the effect that the Russian Federation had forfeited their right to seek the setting aside of the interim award on other grounds than those set out in the letter quoted above. Naftogaz et. al argued that the Russian Federation had appeared in the arbitration proceedings and failed to raise these (formal) defenses prior to the material defenses (i.e., applying article 1052 of the Dutch Code of Civil Procedure). The Russian Federation argued it never appeared in the proceedings. The Court of Appeal disagreed with Naftogaz et al. and found that the Russian Federation had not formally appeared in the arbitration, as the key message of the relevant letter partly quoted above is that the Russian Federation shall not participate in the arbitration. This in turn implied that the limitations of article 1052 of the Dutch Code of Civil Procedure did not apply.
As a third preliminary consideration, the Court of Appeal answered the question of whether it was bound by the tribunal’s reasoning to conclude that it was competent to hear the case (a position taken by the Russian Federation). The Court of Appeal referred to standard case law of the Dutch Supreme Court which indicates that the Court of Appeal must indeed – as Naftogaz et al. argued – independently assess whether the tribunal was competent to hear the case and that it may take into account other aspects than just the reasoning of the tribunal[3].
The first and second ground allegedly leading to lack of a valid arbitration agreement: the tribunal had held that “article 31(1) of the Vienna Convention on Treaties directs that the Treaty be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose.” The definition of Territory under the 1998 BIT[4] is as follows: “The term “territory” means the ‘territory of the Russian Federation or the Territory of Ukraine as well as their respective exclusive economic zone and the continental shelf, defined in accordance with international law.” Moreover, the tribunal considered that many of Ukraine’s BITs do define territory with reference to “sovereignty”, but not this particular one. The tribunal explicitly states that it can apply the 1998 BIT without giving any judgment on the dispute between Ukraine and the Russian Federation in relation to Crimea.
The Russian Federation disagreed with the tribunal. Its position is that the tribunal inevitably – due to the definition of ‘territory’ in the 1998 BIT – would have to judge on the merits of dispute between Ukraine and the Russian Federation relating to whether Crimea forms part of the sovereign territory of the Russian Federation or of Ukraine. According to the Russian Federation, the tribunal failed to do so by applying an incorrect (neutral) definition of ‘territory’ (by not including ‘sovereign’ in the definition). The tribunal was not allowed to apply the incorrect definition (ground 2) and it was not allowed to give a decision on the sovereignty dispute (ground 1).
Naftogaz et al. took the position that the dispute between the Russian Federation and Ukraine did not block the way for application of the 1998 BIT. The definition of ‘territory’ as applied by the tribunal neither implies any judgment on the sovereignty issue, nor does it include any decision to the effect that Russian laws apply in Crimea. Ukraine is not a party to the current dispute and Ukraine’s interests are not at stake. The tribunal did not give a decision that impacts the interests of Ukraine.
The Court of Appeal disagreed with the Russian Federation’s position that the tribunal had explicitly or implicitly given a decision on the sovereignty dispute between the Russian Federation and Ukraine. The Russian Federation interprets ‘territory’ as ‘sovereign territory’, with one of the requirements being that the sovereignty of a state over a certain territory is internationally recognized. However, the tribunal explicitly had not included ‘sovereign’ into the definition of ‘territory’. Where the tribunal held that the laws of the Russian Federation apply in Crimea, this was merely an assessment of facts (rather than a legal assessment).
In relation to the definition of ‘territory’ as applied by the tribunal, the Court of Appeal found: (i) that it is undisputed that the Russian Federation controls Crimea, (ii) that the definition of ‘territory’ in the 1998 BIT does not imply ‘sovereign territory’ (as this is not part of the wording of the definition), and (iii) that there isn’t a rule in the international laws on treaties that implies the interpretation put forward by the Russian Federation, whereas the application in good faith of the three elements of article 31 of the Convention on the Law of Treaties – wording, context and ‘object and purpose’ – imply that Crimea forms part of the territory of the Russian Federation.
As a consequence, the Court of Appeal held that the tribunal did not apply an incorrect definition of ‘territory’ under the 1998 BIT. This could not be a ground for setting aside the interim award.
The third ground allegedly leading to lack of a valid arbitration agreement is that of a(n) (alleged) lack of ‘reciprocity’. The Russian Federation argued that since Ukraine fails to protect Crimean investors with investments in Ukraine, Ukrainian investors in Crimea cannot expect protection from the Russian Federation. This allegedly would be derived from the definition of ‘territory’. In the Russian Federation’s view, reciprocity is the corner stone of all bilateral investment treaties. Naftogaz et al. have rejected this line of reasoning. The alleged lack of reciprocity does not stand in the way of the conditions for entering into an arbitration agreement having been met (and it is not a condition subsequent for accepting an arbitration agreement either).
The tribunal addressed the issue and it held only that Ukraine contests the sovereignty claims made by the Russian Federation over Crimea and that Ukraine accepts in practical terms the fact that the Russian Federation controls Crimea. The tribunal took this into account when considering that the Russian Federation was exercising a sovereign power over Crimea.
The Court of Appeal rejected the position taken by the Russian Federation. The 1998 BIT does not cease to apply in Crimea for lack of reciprocity. Neither party to the 1998 BIT had terminated or suspended the 1998 BIT. By initiating the arbitration case, Naftogaz et al. accepted the offer to arbitrate as per the 1998 BIT. The tribunal then had to – by interpreting the 1998 BIT – assess whether the Russian Federation fulfilled their obligations under the 1998 BIT (as the tribunal did). The obligations of Ukraine under the 1998 BIT were not at stake and there was no need to assess these in an abstract manner. Even if Ukraine were to fail to fulfil its obligations under the 1998 BIT, this would not relieve the Russian Federation to arbitrate the dispute with Naftogaz et al.
The fourth ground allegedly leading to lack of a valid arbitration agreement is that the investments would be made outside the temporal scope of the 1998 BIT. Article 12 of the 1998 BIT stipulates that investments made on or after 1 January 1992 are protected. The question is whether ‘made’ references just ‘an existing state of affairs’ (as the tribunal has held) or whether ‘made’ implies investments actually (and actively) made on or after 1 January 1992. The Russian Federation argued the latter. Naftogaz et al. argued that the investments they made in Crimea became protected investments only after March 2014, as Crimea then became Russian ‘territory’. The 1998 BIT stipulates that “This Agreement shall apply to all investments made by investors of one Contracting State in the territory of the other Contracting Party, on or after January 1, 1992.” The key point is that the investments made cannot be assessed independent of the territory where they are made. The fact that the investments had in fact been made prior to 1 January 1992 is irrelevant.
The Court of Appeal agreed with the interpretation of the Russian Federation, to the effect that only investments actually (and actively) made on or after 1 January 1992 are protected. Hence, the interim award is set aside because the tribunal held that it is competent to hear all claims, whereas it could only hear claims in relation to investments made on or after 1 January 1992. In the quantum phase of the arbitration, which is still ongoing, the parties are taking positions as to when investments have been made (with the Russian Federation arguing that all investments have been made before 1 January 1992, and Naftogaz et al. arguing that all investments have been made after 1 January 1992). In view of this ongoing debate in the arbitration case, the Court of Appeal shall not give a decision on which investments would qualify for protection.
The fifth ground (allegedly) leading to lack of a valid arbitration agreement is the Russian Federation’s position that the investments made do not qualify as ‘investments’ under the 1998 BIT. For investments to be protected, they need to have been made on the sovereign territory of the Russian Federation when they were made. They must be assets which are invested in the territory of the other Contracting Party in accordance with its legislation. The investments were made prior to 2014, so under Ukrainian legislation. The tribunal has held that the date of expropriation and the date of initiating the arbitration are relevant (rather than the historical dates when the investments were made, as this would lead to a loss of protection for those investments that became foreign investments because of the acts of one Contracting Party).
Naftogaz et al. argued that the investments must be considered investments as per the definition of the 1998 BIT. Crimea has been part of the Russian Federation since March 2014. The investments became qualifying investments then. If the interpretation would be different, it would be contrary to the subject and purpose of the treaty.
The Court of Appeal repeated the standard set by article 31(1) of the Vienna Convention on the Law of Treaties (wording of the clause, context and object and purpose, all applied jointly in good faith). The Court of Appeal decided that the investments made by Naftogaz et al. qualify as ‘investments’ under the 1998 BIT. The reasons are: (i) the wording does not suggest that the investments from the start had to be on the territory of the other Contracting State, (ii) it is sufficient when applying article 31 of the Vienna Convention on the Law of Treaties that the investments were in the territory of the Other Contracting state at the moment of the alleged breach. The linguistic expert’s analysis does not provide a counterindication. Investments made prior to 1 January 1992 are excluded from the scope of the 1998 BIT, but for investments made after that date no additional conditions are imposed. The wording, subject and purpose of the 1998 BIT do not lead to a different conclusion.
The sixth ground (allegedly) leading to lack of a valid arbitration agreement is the position of the Russian Federation in relation to the definition of ‘investor’ in the 1998 BIT. According to the Russian Federation, Naftogaz et al. were never allowed to make foreign (as opposed to domestic) investments under Ukrainian law.
The tribunal held that Naftogaz et al. would qualify as ‘investor’ if they would have the relevant corporate structure and powers. The tribunal held that neither Naftogaz’s charters nor any Ukrainian law prohibited making foreign investments. Moreover, Ukrainian investors were deemed to be foreign investors unless they recognized themselves as Russian entities as of March 2014. The condition of having a different nationality at the moment of expropriation therefore was met. Hence Naftogaz et al. qualify as ‘investors’.
Naftogaz et al. agreed with the tribunal that they qualify as ‘investors’. Two conditions have to be met: valid constitution of the legal entity in accordance with the laws of Ukraine, and being competent under Ukrainian laws to make investments in the territory of the Russian Federation. The first condition is met since every Naftogaz entity has been validly incorporated under the laws of Ukraine. The second is met since the company is allowed to (generally) make investments. ‘Competence’ indeed refers to corporate structure and powers. Other tribunals have held that ‘competency’ implies a ‘capacity to enter into legal relations’. The Ukrainian laws that are referenced by the Russian Federation that allegedly would prohibit Naftogaz et al. from making the investments, in fact do not have this effect.
The Court of Appeal decided that article 2( 2) of the 1998 BIT that “the natural person or legal entity is competent in accordance with its legislation to make investments in the territory of the other Contracting Party” merely requires that the investor in accordance with the laws of its own jurisdiction must be allowed (competent) to make investments on the territory of another Contracting State. Naftogaz et al. were allowed to make such investments. Maintaining such investments after the “absorption” of Crimea is not contrary to the laws of Ukraine. The fact that Ukraine does not consider these to be foreign investments does not imply that Naftogaz would not be allowed to maintain them. Ukraine recognized that the Russian Federation in fact exercises control and bears responsibility for expropriations it makes and the compensation thereof.
The seventh ground (allegedly) leading to lack of a valid arbitration agreement is based on article 9 of the 1998 BIT which (allegedly) does not allow similar claims like the ones brought by Naftogaz et al. to be decided in one case. They must, according to the Russian Federation, be decided as separate cases. Moreover, Dutch law requires (for the joinder of arbitration proceedings) that all parties involved give their consent to the joinder. The Russian Federation had not consented. Hence the interim award must be set aside on the basis of article 1065(a) of the Dutch Code of Civil Procedure.
Naftogaz et al. argued that the 1998 BIT uses the words ‘investor’ and ‘investors’ interchangeably. Moreover, the claims are all based on the same facts and the same rules. And the claimants are all part of the same group of companies. The principles of efficiency, effectiveness and consistency render any reasoning to the effect that the 1998 BIT would prohibit multiparty arbitrations incomprehensible. The Dutch rules do not apply, as these cover cases where claimants started separate cases that were joined at a later stage.
The Court of Appeal agreed with Naftogaz et al. that the 1998 BIT allows for multiparty arbitrations. The wording of the 1998 BIT does not limit its offer to arbitrate to individual investors. Moreover, multiparty arbitrations are common also in other BIT arbitrations. The Court of Appeal agreed with the tribunal that for reasons of efficiency and consistency also in the underlying case all claims of Naftogaz et al. should be decided in a multiparty arbitration, as they relate to the same facts, the same legal rules and the entities are closely connected. Hence, the tribunal could decide on the joint claims of Naftogaz et al. and this did not constitute a ground for setting aside the interim award.
Conclusion on 1065(a) of the Dutch Code of Civil Procedure
None of the seven grounds put forward by the Russian Federation leads to setting aside the interim award, except the one based on article 12 of the 1998 BIT (temporal scope). Otherwise the conditions of the application of the 1998 BIT have been met and the tribunal was competent to hear the case between Naftogaz et al. and the Russian Federation.
Setting aside the award on the basis of article 1065 sub c of the Dutch Code of Civil Procedure (the tribunal did not comply with their instructions)
This is a repetition of the position of the Russian Federation that the claims brought by Naftogaz et al. could not be decided jointly in one arbitration. The Court of Appeal rejected this position.
Setting aside the award on the basis of article 1065(e) of the Dutch Code of Civil Procedure (the award is contrary to Dutch public order)
The Russian Federation argued that the award is contrary to Dutch public order on two grounds: a dispute that could not be subjected to arbitration formed the basis for the majority of the tribunal to declare themselves competent to hear the case, and the awards of the tribunal honor corruption, fraud and violence and are based on essential facts that were deliberately withheld from the tribunal.
The first ground relates to a position that the Court of Appeal already rejected (in the context of Article 1065(a) of the Dutch Code of Civil Procedure): the tribunal – as per the Russian Federation’s views – had to give judgment on whether Crimea belongs to the sovereign territory of the Russian Federation in order to give a decision on the merits of the claims. The Court of Appeal had held that this position is incorrect as no such decision is needed.
In relation to the second ground, the Russian Federation argued that Naftogaz et al. failed to inform the tribunal of the corrupt and fraudulent acts when acquiring the drilling installations. Any award that honors corruption and fraud is by its very nature contrary to public order and must be set aside.
Naftogaz et al. responded that the first ground is incorrect (no decision on sovereignty in relation to the territory is required) and in relation to the second ground that it was only raised now (i.e., too late) and that it lacked any substantiation.
The Court of Appeal held that setting aside an award on the basis of it being contrary to public policy is only possible if very fundamental rights are breached by it. These very fundamental rights can be material or procedural rights. Moreover, they can be fundamental principles that relate to essential interests of society and that shape the foundations of the ethical, legal and economic order of society, or fundamental legal principles or general interests of a fundamental nature. To prevent the setting aside procedure becoming an indirect appeal, the court cannot decide too quickly that an award is contrary to public order and can only intervene in clear examples of such cases. The court will then have to form its own opinion and include facts that were not part of the arbitration case.[5]
The Russian Federation has not argued a breach of procedural rules. In relation to the alleged breach of material rules, the Court of Appeal decided that the first ground is rejected (as the interim award did not require a decision on the sovereignty of the territory of Crimea) and the same applies for the second ground (there is no substantiation of these allegations).
The final decision is that the interim award is set aside only insofar as the tribunal has held that it was competent to hear all claims, as it is only competent to hear claims related to investments made after 1 January 1992.
Everest [6]
Everest Estate LLC and the other defendants in the setting aside proceedings are all (except one natural person) legal entities existing under the laws of Ukraine. They all had assets in Crimea and all assets were expropriated by the Russian Federation (just months) after March 2014. Everest et al. initiated an arbitration under the 1998 BIT against the Russian Federation to seek compensation for the expropriations. The tribunal held that it was competent to hear the claims in an interim award and awarded approximately USD 129 million in compensation to Everest et al.. The Russian Federation initiated setting aside proceedings before The Hague Court of Appeal.
In view of the similarities between the Naftogaz and the Everest cases, we will only highlight important differences. In the Everest case, the Court of Appeal rejected all grounds for setting aside the awards.
In the Everest case, the Russian Federation argued not only that the awards must be set aside but also that they must be revoked on the basis of article 1068 of the Dutch Code of Civil Procedure as Everest et al. allegedly withheld information that the tribunal needed to form an opinion on the lawfulness of the investments and its own competence to hear the claims. According to the Russian Federation, Everest et al, failed to share information on bribes, criminal investigations into the privatization of real estate, unauthorized pressure on civil servants and massive fraud by PrivatBank. The Russian Federation furthermore referenced case law that demonstrated that Everest et al. had made investments in an illegal manner. Everest et al. denied these allegations. They had not withheld relevant information. The Russian Federation chose not to participate in the arbitration, but it was kept informed at all times and should have raised the alleged deceit in the arbitration case (it is too late to only do this now; as per article 1068(2) of the Dutch Code of Civil Procedure it should have been done in the course of the arbitration or ultimately within three months of the dates of the respective awards).
The Court of Appeal held that the revocation was invoked too late. Moreover, the Court of Appeal held that the connection between the accusations and the alleged unlawful investments is insufficiently substantiated by the Russian Federation.
The claims of the Russian Federation were all rejected.
PrivatBank[7]
PrivatBank was incorporated in Ukraine in 1992 under the laws of Ukraine. PrivatBank was registered in the State Register of Banks (as of 1992) and could therefore run operations in Crimea as well (which it did as of 1994). The National Bank of Ukraine started issuing licenses as of 1996 and it issued a full banking license to PrivatBank. PrivatBank had branches in Crimea and it ran self-service counters and ATMs in Crimea. Loans were granted by PrivatBank to individuals and businesses in Crimea.
On 21 April 2014, the Russian Central Bank decided to terminate all activities of PrivatBank in Crimea. Certain of its assets were expropriated and nationalized.
In December 2016, the National Bank of Ukraine had PrivatBank declared bankrupt. The poor capital position of PrivatBank was the reason for this step. PrivatBank was then sold for 1 Ukrainian grivna to the Ukrainian state. It was subsequently recapitalized for an amount of USD 5.5 billion.
Prior to the nationalization, an investigation was carried out at the request of the National Bank of Ukraine. It appeared that a large-scale fraud had taken place within PrivatBank and that loans were granted mostly for the benefit of (former) shareholders and their affiliates. These loans were overdue and unpaid. Moreover, there had been a large-scale money-laundering scheme in place and a shadow-banking structure.
PrivatBank initiated arbitration proceedings against the Russian Federation under the 1998 BIT in 2015. Like in the other two cases, the Russian Federation did not participate in the arbitration and returned the documents. Also like in the other two cases, the tribunal decided it was competent to hear the claims and that the Russian Federation breached its obligations under the 1998 BIT (article 5). The quantum phase is still ongoing. The Russian Federation seeks to get the first three awards set aside or revoked before the Hague Court of Appeal.
In view of the similarities between these cases, we will only highlight key differences with the other two cases.
In this particular case, an important aspect is the fraud and corruption. The tribunal held that the investments were made in accordance with relevant legislation. In the context of the Russian Federation’s position that the awards are contrary to public order and therefore must be set aside (as they honor fraud, corruption and violence), the Court of Appeal considered the following. In the quantum phase that was currently ongoing, the Russian Federation was given broad opportunity to submit evidence on the illegality of the assets. This may even lead to a situation where the Russian Federation is liable but pays no damages. Therefore, the reasoning put forward by the Russian Federation in relation to violation of public order in relation to withholding documents was premature. If the Russian Federation would still feel that their illegality reasoning had not been weighed properly after the final award was issued, it could still consider initiating new setting aside proceedings.
In relation to revocation (article 1068 of the Dutch Code of Civil Procedure), the Russian Federation failed to raise the issues in the course of the arbitration whilst it was clear that the relevant documents were brought into its possession in a timely manner. A press release about the fraud dates back to 2018 and the Russian Federation should have brought this to the attention of the tribunal immediately rather than wait to find out if the outcome of the case would be favorable or not (with awards being issued in 2019). This is not allowed under article 1068(1) of the Dutch Code of Civil Procedure. Moreover, the revocation also failed on material grounds. The considerations of the Court of Appeal were the same as in relation to the position of the Russian Federation that the awards would be contrary to Dutch public order.
The claims of the Russian Federation were all rejected.
Belbek[8]
Belbek is a legal entity organized under the laws of Ukraine. The other defendant in the setting aside proceedings is a natural person holding more than 93% of the economic ownership of the shares in Belbek. Belbek used to operate an airport close to Sevastopol that it owned.
In June 2014, a Russian company was granted the rights to operate the airport and in February 2015, the terminal and landing strip were nationalized by the Russian Federation. Moreover, in 2017, various plots of land that were owned by Belbek were nationalized as well.
In January 2015, Belbek et al. initiated arbitration proceedings under the 1998 BIT, seeking compensation on the basis that the Russian Federation had breached articles 5, 3 and 2 of the 1998 BIT. The Russian Federation did not participate in this arbitration either. In the awards that have already been issued, the tribunal held that it was competent to hear the claims and that the Russian Federation breached article 5 of the 1998 BIT. The quantum phase of the arbitration is still ongoing. Like in the other cases, the Russian Federation participates in this quantum phase and it may raise defenses in relation to the amount of damages.
In the case before the Court of Appeal, the Russian Federation claimed that the awards must be set aside.
In view of the similarities between these cases, we will only highlight key differences with the other three cases. In the Belbek case, the grounds for setting aside were lack of a valid arbitration agreement and the awards being contrary to public order. In sum, the claims of the Russian Federation were all rejected (in line with the other three cases).
Concluding remarks on the judgments
The setting aside cases in relation to awards issued under the 1998 BIT (between Ukraine and the Russian Federation) relating to compensation for the expropriation of assets in Crimea are a fine example of the Court of Appeal in The Hague’s elaborate and detailed reasoning, demonstrating both specialist knowledge and giving clear guidance for other cases.
***
[1] 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 1998 (the 1998 BIT).
[2] ECLI:NL:GHDHA:2022:1295.
[3] ECLI:NL:HR:2021:1645.
[4] Article 1(4) of the 1998 BIT.
[5] ECLI:NL:PHR:2020:1176.
[6] ECLI:NL:GHDHA:2022:1297.
[7] ECLI:NL:GHDHA:2022:1294.
[8] ECLI:NL:GHDHA:2022:1296.
