Ukrnafta defeats Russian Federation in an international arbitration tribunal
Ukrnafta defeats Russian Federation in an international arbitration tribunal

By an arbitral award dated 12 April 2019, the Russian Federation has been ordered to pay PJSC Ukrnafta USD 44.4 million in compensation for expropriation of property of PJSC Ukrnafta in the Autonomous Republic of Crimea annexed by the Russian Federation.

In April 2014, shortly after annexation of the AR Crimea by the Russian Federation, illegal armed forces of the aggressor state seized administrative offices and 16 petrol stations of PJSC Ukrnafta.

All efforts by PJSC Ukrnafta to bring back control over the seized administrative offices and the petrol stations (including the convenience stores, equipment, and associated permits and licenses) by way of applications to the “law enforcement bodies” installed by the aggressor state were futile.

In October 2014, PJSC Ukrnafta, following part 1 Article 9 of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation on the encouragement and mutual protection of investments (the Agreement), informed the aggressor state – the Russian Federation of violation of the rights of PJSC Ukrnafta.

The Russian Federation ignored the notice of PJSC Ukrnafta about the presence of a dispute under the Agreement.

In light of the foregoing, following part 2 Article 9 of the Agreement, on 03 June 2015, PJSC Ukrnafta referred the dispute to an ad hoc arbitration tribunal, in accordance with the Arbitration Regulations of the United Nations Commission for International Trade Law (UNCITRAL).

By an award dated 26 June 2017, the arbitral tribunal found jurisdiction to consider the dispute under the Agreement.

The Russian Federation challenged said award to the Supreme Court of Switzerland, but the latter, by decision dated 16 October 2018, dismissed the claim of the Russian Federation. At the same time, the Supreme Court of Switzerland agreed with the arbitral tribunal that PJSC Ukrnafta is an investor under the Agreement, and the property of PJSC Ukrnafta in the territory of the AR Crimea comprises investments.

By an award dated 12 April 2019, the arbitral tribunal ordered the Russian Federation to pay PJSC Ukrnafta USD 44,455,012.00 in compensation for the expropriation of investments of PJSC Ukrnafta on the territory of AR Crimea, as well as more than USD 3.5 million in arbitration costs.

Under the award, the Russian Federation is to pay interest on the awarded compensation from 22 April 2014. As of April 2019, the amount of interest accrued comprises more than USD 5.5 million.

PJSC Ukrnafta was able to obtain positive arbitration award under general facilitation of the minority shareholders of PJSC Ukrnafta, which not only assisted in the choice of remedies, but also assisted PJSC Ukrnafta in paying arbitration costs. Moreover, joint consideration of similar cases of PJSC Ukrnafta (case No. 2015-34) and LLC Stabil and others (case No. 2015-35) allowed PJSC Ukrnafta to save arbitration costs.