Author: Alexander Ojugbeli
| Jurisdiction: International Russia Ukraine |
Topics: BITs Authority of the Arbitral Tribunal |
In May 2018, the Permanent Court of Arbitration (PCA) issued a monumental decision holding Russia accountable for expropriating assets held by Ukrainian investors in the Crimea.[1] In Everest Estate LLC v. The Russian Federation, the Tribunal held that the Russian Federation illegally expropriated hotels, apartments and other Crimean real estate owned by the Ukrainian investors which violated the 1998 Ukraine-Russia bilateral investment treaty (BIT).[2] As a result of this breach, the Tribunal awarded claimants over $150 million USD for the expropriated properties.[3] While the Russian Federation has recently filed a challenge to the award, and any recovery is likely to occur in the distant future, the Tribunals decision raises compelling issues regarding the strict jurisdictional requirements for international arbitrations.
It is a cornerstone principle that international arbitrations are exclusively reserved for international disputes. As such, disputes entail a nationality requirement that commands the investor carry a nationality distinct and different from the opposing State entity involved in the suit. Usually, nationality analyses focus on the investor especially as shrinking borders and transnational attitudes have become increasingly prevalent. However, the Everest Estate case provides a novel twist on the nationality issue by focusing on the applicable national denomination for the territory in question.
To this day, the political and diplomatic status of Crimea remains unclear. This stems from the fact that in March 2014, the Russian Federation sent shockwaves throughout the world when Vladimir Putin ordered the national army to invade neighboring Ukraine and subsequently annex the Crimea peninsula.[4] This military strong-arming was met with international opprobrium and many sanctions followed.[5] Moreover, there has been much resistance and hesitation to assign Russia de jure rule over Crimea as this would legitimize the militaristic means in which Russia obtained control over the Crimea. Additionally, the Ukrainian government still considers Crimea to be an intrinsically Ukrainian territory.[6] However, most actors in the international arena recognize that Russia maintains de facto control of the region, and both Ukraine and Russia concede to this reality.[7]
Therefore, the decision by the Everest Estate Tribunal to allow Ukrainian investors to proceed with arbitration in an international forum is particularly curious as the territorial rights to the Crimea remain unresolved. The Tribunal’s decision effectively allows de facto rule to serve as a proxy and replacement for de jure rule, in an attempt to avoid a converging nationality. Moreover, the ruling allows Ukrainian investors to recover under a treaty instrument that was not even contemplated at the time of the initial investments. Although, Crimea has historically maintained a healthy ethnic Russian population along with strong Russian sentiment, the Ukrainian investors were unlikely to expect the Russian-Ukraine BIT to provide security for their investments within a Ukrainian province.[8]
The decision by the Tribunal also appears to legitimize Russian rule over the Crimea by holding them liable for the Ukrainian investments within the area. By denoting these investments as “foreign” sourced, the Tribunal disenfranchises Ukrainians from their national claim to the region. Simultaneously, the Tribunal also transforms a local dispute into an international inquest and thus allows Ukrainian investors to access international arbitrations and seek recourse under bilateral investment treaties for investments made within national borders. This result violates the underlying wisdom that domestic disputes are inappropriate for international arbitration tribunals and such matters should be left to national courts.
In any respect, the Everest Estate Tribunal’s decision to find jurisdiction raises novel issues regarding territorial nationality. It will be interesting to monitor the development of this area as tribunals attempt to refine and identify the relevant considerations for allowing de facto nationality to serve as a substitute for de jure nationality.
[1] Everest Estate LLC et. al. v. Russia, PCA Case No. 2015-36, Award, 2 May 2018 https://www.italaw.com/cases/4224.
[2] Everest Estate LLC et. al. v. Russia, PCA Case No. 2015-36, Award, 2 May 2018 https://www.italaw.com/cases/4224.; Olena Snigyr, Ukraine’s Everest Estate LLC v. Russia: About More Than Money, The Jamestown Foundation (June 12, 2018), https://jamestown.org/program/ukraines-everest-estate-llc-v-russia-about-more-than-money/.
[3] Everest Estate LLC et. al. v. Russia, PCA Case No. 2015-36, Award, 2 May 2018 https://www.italaw.com/cases/4224.
[4] U.S. Department of State, 2014 Investment Climate Statement: Russia (2014).
[5] Edward Hunter Christie, Sanctions After Crimea: Have They Worked?, NATO Review Magazine, https://www.nato.int/docu/review/2015/russia/sanctions-after-crimea-have-they-worked/en/index.htm (last visited Nov. 26, 2018).
[6] Olena Snigyr, Ukraine’s Everest Estate LLC v. Russia: About More Than Money, The Jamestown Foundation (June 12, 2018), https://jamestown.org/program/ukraines-everest-estate-llc-v-russia-about-more-than-money/.
[7] Gina S. Lentine & Matthew Schaaf, Occupied Crimea: Victims and Oppressors, Freedom House (Aug. 30, 2018), https://freedomhouse.org/blog/occupied-crimea-victims-and-oppressors.
[8] Adam Taylor, To Understand Crimea: Take a Look at its Complicated History, Wash. Post: WorldViews, https://www.washingtonpost.com/news/worldviews/wp/2014/02/27/to-understand-crimea-take-a-look-back-at-its-complicated-history/?noredirect=on&utm_term=.d85935a6b0da.