Russian Federation faced a series of investment arbitration claims brought by Ukrainian companies in connection with the taking of their assets by Russian authorities in the aftermath of the annexation of Crimean Peninsula by the Russian Federation in 2014. These claims are based on 1998 Agreement On Encouragement and Mutual Protection of Investments between Ukraine and the Russian Federation.
A number of these actions have already resulted in arbitral awards finding Russia in breach of the 1998 Agreement and awarding Ukrainian claimants compensation for the expropriated assets. Following on their success in arbitration, several claimants already moved to attach available Russian assets in Ukraine in order to satisfy their claims under arbitral awards.
These claimants included a Ukrainian state-owned bank Oschadbank, as well as a group of companies spearheaded by LLC Everest Estate (“Everest Estate”) that are reportedly controlled by a Ukrainian business conglomerate Privat Group.1
Everest Estate group obtained a favourable ruling on recognition & enforcement of its USD 130 mln. arbitral award against Russian Federation in Ukraine from the Kyiv Appellate Court in September 2018 (upheld by Ukraine’s Supreme Court in January 2019) and submitted the award to the bailiffs for compulsory enforcement.
As a part of its enforcement strategy, Everest Estate group also wrestled for the assets of Ukrainian subsidiaries of three major Russian banks arguing that such assets are essentially controlled by the Russian Federation as the purported ultimate shareholder of those banks. One such enforcement action proved particularly fruitful as Ukrainian bailiffs seized and sold on public action the shares in Ukrainian bank Prominvestbank owned by Russian state financial corporation VEB.RF to satisfy Everest Estate’s claims under the award.
In turn, Oschadbank managed to recognise and enforce USD 1.3 billion arbitral award against the Russian Federation in Ukraine in July 2019 thus entering the pool of contenders for Russia’s assets in Ukraine alongside Everest Estate group. Apparently unhappy with Oschadbank’s potential competition in the enforcement proceedings, two companies linked with the Everest Estate group filed appeals with Ukraine’s Supreme Court against the court ruling that recognised and enforced Oschadbank’s award in Ukraine.
It is worth noting that in Ukraine parties that did not take part in the case may still be eligible to appeal the judgement if it affects their rights or interests. However, in order to preserve the privity of arbitration the law grants the right to challenge court rulings on recognition and enforcement of arbitral awards only to the parties that took part in the arbitration. No similar statutory right exists for the non-parties even if the arbitral award in question affects their interests in some way.
Applying the above rule, the Supreme Court decided to throw out the appeals since neither of the appealing entities were parties to the Oschadbank v Russia arbitration (text of the judgement is available here).
The above case is yet another episode in an ongoing saga of the enforcement of “Crimean” awards against the Russian Federation in Ukraine. In particular, the seizure and subsequent forced sale of shares in Prominvestbank sparked a separate investment arbitration action brought by Prominvestbank’s Russian shareholder against Ukraine. In June 2019 the emergency arbitrator appointed under SCC Rules issued provisional relief ordering Ukraine to prevent the sale of Prominvestbank shares. Prominvestbank’s shareholder even attempted to enforce that provisional relief with Ukrainian courts, however in late 2020 Kyiv Appellate Court rejected the application for enforcement of the award of the emergency arbitrator (this ruling was upheld by the Supreme Court in January 2021).
1UPDATE: on 30 March 2021 Paris Court of Appeal decided to annul the arbitral award in Oschadbank v Russia arbitration on the ground that Oschadbank’s assets in Crimea allegedly were not captured by the temporal scope of protection of 1998 Ukraine-Russia Agreement. Oshadbank will likely appeal the French court’s judgement.