Ukrainian Arbitration Blog

Platform dedicated to practical insights and updates about international arbitration in Ukraine

Recently, a group of Estonian shareholders (“claimants”) of Arricano Real Estate Plc (“Arricano”), one of Ukraine’s largest commercial real estate developers, submitted a notice of dispute to Ukraine’s government in connection with the long-lasting shareholder dispute over one of the largest shopping malls in Kyiv – Sky Mall. The claimants argue that Ukrainian authorities violated, among others, Articles 2(2), 3(1), 3(2) and 5 of the Ukraine-Estonia Agreement On Promotion and Reciprocal Protection of Investments (“Ukraine-Estonia BIT”) by allegedly facilitating the loss of the claimants’ control over Sky Mall. The claimants estimate their losses at USD 750 million. 

The shareholder dispute over Sky Mall has a long and extremely complicated history, which makes it one of the most resounding and colorful shareholder conflicts in Ukraine’s modern history.

Sky Mall was initially developed by Estonian investors in 2005-2006. Phase 1 of Sky Mall project opened in 2007. Arricano, a Cypriot company, was formed in 2008 to consolidate the control of the Estonian investors over the project through another Cypriot company, Assofit Holdings Ltd (“Assofit”). 

In 2009, Estonian investors decided to find an outside investor for the project as they needed an additional capital injection in order to complete the construction. As the result, Stockman Interhold S.A. (“Stockman”), a third party company incorporated in the British Virgin Islands invested approximately USD 30 million in equity and debt in the project in exchange for 50.03% interest in Assofit – the project’s holding company. Arricano retained the right to repurchase the shares in Assofit from Stockman under the terms of the shareholders’ agreement and a call option agreement entered between shareholders in February 2010. 

Not long afterward, in November 2010 Arricano decided to exercise the call option and repurchase the shares from Stockman as per the terms of the shareholders’ agreement and the option agreement. However, Stockman in response unilaterally terminated the shareholders’ agreement and refused to transfer its shares in Assofit to Arricano. Stockman contended that Arricano previously committed several material breaches of the shareholders’ agreement by allegedly engaging in negotiations with a third party over additional investments in the project and financing the buyout of Stockman’s shares in Assofit. 

Both parties initiated legal proceedings, which span across several jurisdictions and resulted in a series of arbitral awards, as well as judgements of Ukrainian, English and Cypriot courts.

One of the peculiar features of those proceedings was that two different arbitral tribunals at some point issued conflicting awards on the related aspects of the dispute. In particular, the UNCITRAL tribunal (constituted under the shareholders’ agreement) found that Stockman validly terminated the shareholders’ agreement whereas the LCIA tribunal (constituted under the call option agreement) in its second award decided that Arricano validly exercised the call option and was entitled to repurchase the shares in Assofit from Stockman. 

The dispute in LCIA arbitration was reportedly concluded in 2016 when the LCIA tribunal ordered Stockman to transfer the shares in Assofit to Arricano for nil consideration.

However, according to the claimants, while the arbitrations and foreign proceedings were still underway, several actions of Ukrainian authorities rendered the claimant’s interest in the project essentially worthless. Among other charges, the claimants argue that Ukrainian courts stripped them of their rights under loan agreements made to finance the project and later reclaimed the land on which Sky Mall was built. Claimants also allege that Ukrainian authorities were complicit in the claimants’ loss of control over Sky Mall as the result of the foreclosure on the project by a Ukrainian bank. Further, the claimants argue that Ukrainian authorities were allegedly responsible for the harassment of Arricano’s employees in the course of criminal proceedings.

The claimants argue that actions of Ukrainian authorities constituted a violation of Ukraine-Estonia BIT’s provisions on fair and equitable treatment, full protection and security and prohibition of illegal expropriation. In addition, applying the MFN provision of Ukraine-Estonia BIT, the claimants argue that Ukrainian authorities failed to accord them effective means of asserting claims and enforcing rights that are accorded to investors from other states under other Ukraine’s bilateral investment treaties.

In accordance with Article 8 of Estonia-Ukraine BIT, the notice of dispute filed by Arricano triggers a cooling-off period of 6 months. Upon expiry of this term, if no settlement is reached between the claimants and Ukraine, the claimants will be able to submit the dispute either to an ICSID or UNCITRAL tribunal.


 –  Notice of Dispute under the Agreement between the Government of the Republic of Estonia and the Government of Ukraine for the Promotion and Reciprocal Protection of Investments


 – Arricano’s information update at London Stock Exchange 

– Arricano’s press release