How to protect Ukrainian and foreign investors from the consequences of Russian aggression in Ukraine?

Chapter 1. The European Court of Human Rights

The Russia-Ukraine war has been lasting since 2014. After February 2022, hardly anybody has not yet faced its consequences. How to protect Ukrainian and foreign investors from the consequences of Russian aggression in Ukraine? The International Law Committee of the Ukrainian Bar Associationhas launched a series of webinars aimed at helping in-house lawyers at multinational and local companies understand how international law can help protect their companies' rights and interests.

I. What are the Webinars aimed for?

At these webinars, we analyse available mechanisms for the protection of investors, differences in protection regimes and available mechanisms resulting from the different statuses of different territories. We then voice our preliminary recommendations. These webinars aim to create a forum for sharing thoughts on the above, which shall be instrumental for in-house lawyers, who will make or influence decisions on recovery of damages caused by the Russian invasion of Ukraine.

On 8 November 2022, we opened our series of webinars with the first one, addressing how means of investment protection and mechanisms of compensation may differ in different territories of Ukraine. We then focused on the European Court of Human Rights (‘ECtHR’) as a forum for seeking compensation for the damage caused by the war.

The following speakers participated in the webinar:

Vladyslav Bandrovsky – Deputy Head of the International Law Committee at Ukrainian Bar Association (‘UBA’), LL.M., attorney-at-law, and associate focusing on international arbitration and cross-border litigation at the leading Ukrainian law firm Sayenko Kharenko – opened the webinar with an introduction and moderated the webinar thereafter.

Olga Kuchmiienko – Head of the International Law Committee at UBA, LLM, PhD, attorney-at-law working in-house at one of the major multinational railway industry companies (Stockholm, Sweden) – described the background of the affected territories, prospects on the investment protection and provided general advice on the damage recovery.

Viktor Pasichnyk – Member of the International Law Committee at UBA and Associate focusing on international arbitration and cross-border litigation at the leading Ukrainian law firm Vasil Kisil & Partners – presented a special report on companies which suffered damage caused by Russian hostile actions.

Oleksiy Koltok – attorney-at-law and Counsel specializing in litigation at the leading Ukrainian law firm Sayenko Kharenko – shared information about the current state of claims filed by companies suffering damages from the full-scale Russian invasion and inter-state disputes between Ukraine and Russia before the ECtHR. He also described the procedure for applying to the ECtHR.

Toni Nogolica – attorney-at-law specializing in human rights and international arbitration at the Croatian law firm Nogolica Law Office. He shared his views on the prospects of the ECtHR claims against Russia and highlighted the importance of compliance with the admissibility criteria given the ECtHR cases concerning the former Yugoslavia countries. He also described the advantages and disadvantages of ECtHR vis-à-vis the investment arbitration and evaluated prospects of enforcing ECtHR judgements against Russia.

II. How may the means of investment protection and mechanisms of compensation differ in different territories of Ukraine?

Despite the full-scale war, international law remains in force and provides a number of instruments for protecting investors' rights during the war. The war caused enormous damage to Ukraine, which Russia should compensate for.

Olga Kuchmiienko emphasized that the international community does not recognize Russia’s annexation of the Crimea peninsula because a change in Ukraine’s territory is illegal from an international law standpoint. The same shall apply to the recently annexed parts of the territory of four Ukrainian oblasts (regions) – Luhansk, Donetsk, Zaporizhzhya and Kherson. Russia not only controls these territories by military means but also officially annexed them and reflected this annexation in multiple legal acts, such as Russian President Putin’s decrees on the annexation of the Ukrainian territories and transferring ownership of the Zaporizhzhya Nuclear Power Plant into Russian federal ownership. It is safe to assume that for the purpose of compensation for the war-related damages, the international community will regard these territories as being under Russia’s effective control. This would carve a way to hold Russia accountable for such damages.

Each situation where Russia’s armed aggression caused damage must be considered individually. This is because the legal status of various Ukrainian territories varies. For example, Crimea has been considered under Russia’s effective control since 2014, while territories of the recently annexed regions currently controlled by Russia will likely be considered under its effective control. At the same time, there are other types of territories – internationally recognized as a territory of the international conflict (territories of Luhansk and Donetsk regions since 2015), currently occupied areas, recently liberated areas that Ukraine regained control during 2022, and territories that have never been occupied, but suffered from shelling and suchlike hostilities.

As a result, it is critical to develop a strategy for compensation of damages and selecting the appropriate forum for a dispute and seeking compensation. (e.g. ECtHR, investment arbitration, litigation in Ukraine or abroad).

III. Are there many companies suffering damage due to Russian armed aggression in Ukraine?

The short answer by Viktor Pasichnyk is “yes” – in the report about companies suffering damage due to Russian armed aggression he noted that at least 18 Ukrainian companies have already applied to the ECtHR. Several other companies announced their intention to file soon.

A complicated issue here is that companies usually incur damages to diverse assets located on territories with different statuses (occupied, annexed, area of direct combat). What is more important, such damage is often caused by various types of Russia's aggression – ranging from destruction of a production facility by a missile strike, loss of control over occupied production facilities, and up to marauding warehouses by Russian soldiers).

Thus, all facts and damages must be carefully documented in order to prepare a solid position for future disputes.

IV. ECtHR as a mechanism of investment protection

Peculiarities and hurdles of applying to the ECtHR

Oleksiy Koltok opened his presentation by talking about 16 companies belonging to Ukrainian wealthiest oligarch Rinat Akhmetov (SCM and Metinvest group) and two state-owned companies (Public broadcasting company and hydro energy producer Ukrhydroenergo), that have already applied to the ECtHR for compensation for damages caused by the Russian re-invasion in February 2022. According to the latest publicly available information, 17,450 claims against Russia are pending, of which 11,126 concern the occupied eastern regions and Crimea.

Inter-state disputes between Ukraine and Russia are crucial for considering private claims against Russia. These cases concern the shooting down of a civil airplane over Ukrainian territory by Russia (a joint claim of Ukraine and Netherlands) and violations of human rights, including of minorities, on the occupied territories and the annexed Crimea. The ECtHR has already recognized the fact that Russia exercises effective control over Crimea and carries its obligations to protect the human rights on the territory of Crimea set forth in the European Convention on Human Rights (‘Convention’) in its interim decision. However, all private claims against Russia concerning the territories annexed or occupied before 24 February 2022 are suspended until the ECtHR renders final decisions in the abovementioned inter-state cases.

Are there any procedural deadlines to apply with a claim?

Many discussions are going around the expiration of the limitation period for filing claims and Russia's expulsion from the Council of Europe, which prevents claimants from filing claims for damage caused after 16 September 2022. According to Oleksiy, the ECtHR has the competence to consider disputes concerning the violation of rights granted by the Convention by Russia before 16 September 2022. Thus, ECtHR remains in the arsenal for compensating for damages caused by Russia’s hostile actions, which occurred before this date.

Shall companies exhaust all domestic remedies available to the applicant prior application to the ECtHR?

ECtHR usually considers only applications filed by claimants who have exhausted all means of protecting their rights before the domestic authorities. Thus, it is advisable to prove that Ukrainian and/or Russian authorities failed to protect the claimant’s rights or were unable to do that in principle. Mr Koltok suggested to rely on Russia’s sovereign immunity as an obstacle to receiving compensation through the Ukrainian courts and on Russia’s unwillingness to enforce such decisions should they pierce Russia’s sovereign immunity.

What procedure does an individual application go through?

In general terms, the procedure envisaged for individual applications is as follows:

1. Filing an application. It is necessary to submit only prima facie evidence; there is no need to claim the exact amount of damages at this stage.
2. Notification of the respondent state about the application.
3. Submitting evidence and written observations by the applicant and the respondent state and claiming just satisfaction (indicating an amount of the monetary claims).
4. Hearings.
5. Rendering a judgement.
6. Making a ruling on just satisfaction (quantum), if such ruling was not made together with a judgement on merits.

In the course of the ECtHR dispute, it is possible to claim the following damages and expenses:

1. Pecuniary damage consisting of (a) direct damages (e.g. destruction of real estate, expropriation of shares or goods) and lost profit (a profit which a claimant could have gained should his rights be not violated).
2. Moral damage (moral suffering incurred by an individual claimant, deterioration of his health because of stress).
3. Expenses (legal fees, post fees, etc.).

It is worth mentioning that, although being regarded as an independent and professional court satisfying well-grounded claims, the ECtHR usually awards far fewer amounts of money than initially claimed and only a part of expenses.

V. Can Yugoslavia experience be of use?

Recommendations for applicants to the ECtHR

Mr Nogolica commented on several relevant Yugoslavia cases, in particular the inter-state claim brought by Slovenia against Croatia concerning the nationalization of the Ljubliana Bank and the individual application filed by Ljubliana Bank itself and emphasized the following issues to take into account.

Firstly, there is a supreme importance of compliance with ECtHR admissibility requirements since only a tiny share of applications, including those made in relation to the violation of the right to property, are being held admissible and considered on merits.

Secondly, ECtHR has a significant advantage over investment arbitration, which is another important instrument provided by international law to protect the right to property. This advantage is the lack of a nationality requirement – it is possible for anyone whose rights to property were violated by Russia’s hostile actions in Ukraine to file an application to ECtHR, while in the case of investment arbitration, nationals of other counties which have no investment treaties with Russia cannot do so.

Finally, ECtHR litigation is relatively cheaper and easier than investment arbitration; however, ECtHR usually awards claimants significantly lower compensation and offers no effective mechanism of enforcement against a state unwilling to comply with its decision, such as Russia.

Conclusion: Will enforcement of the ECtHR decisions be problematic?

States such as Russia may be unwilling to comply with the ECtHR decisions. However, applying to the ECtHR or even obtaining an ECtHR decision does not always preclude the claimant from seeking redress elsewhere, including before the arbitral tribunals considering investment claims against states under the investment protection treaties or suchlike international law instruments (this should however be always checked in relevant legal instruments). A vivid example of this is the Yukos saga, in which investors in the expropriated Russian oil giant Yukos have applied to both the ECtHR and the ad hoc arbitral tribunal under the Energy Charter Treaty.

All the above means that companies shall take a closer look at the ECtHR mechanism when considering ways to apply for compensation for damages caused by Russia in Ukraine.

Authors:

Olga Kuchmiienko, Head of the UBA International Law Committee,  Lawyer, Ph.D.

Vladyslav Bandrovsky, Deputy Head of the UBA International Law Committee, International Arbitration associate at Sayenko Kharenko.

Viktor Pasichnyk, Associate at Vasil Kisil Partners, Alumnus of a Mentoring Programme of International Law Committee of UBA.