International Arbitration Court Orders Russia to Pay $5 Billion to Ukrainian Firm Naftogaz Over Seizure of Crimean Assets

An international arbitration court has ordered Russia to pay $5 billion to Naftogaz, a Ukrainian state-owned energy company, over assets seized by Russian forces during the 2014 occupation of Crimea. The tribunal, which is based in The Hague, rejected Russia’s arguments that Naftogaz was not entitled to compensation for the exportation of its assets, finding that Russia had violated a 1998 agreement between the two countries called the Encouragement of Mutual Protection of Investments.

Naftogaz and six subsidiaries filed the case in October 2016, citing the treaty as the basis for their claims. The parties argued over jurisdiction in May 2018, with the tribunal ultimately ruling that it had jurisdiction over the case. The tribunal’s decision was based on the fact that the treaty provided for investor-state arbitration and that the case was within its scope.

The tribunal also rejected Russia’s argument that Naftogaz’s claims were time-barred. Russia had argued that the claims arose in March 2014, and that the three-year statute of limitations had expired by the time the case was filed in October 2016. The tribunal, however, found that Naftogaz’s claims did not accrue until the assets were actually seized by Russian forces, which occurred in June 2014.

The tribunal’s award of $5 billion is based on a calculation of Naftogaz’s losses from the seizure of its assets in Crimea. The award includes $4.2 billion in compensation for Naftogaz’s assets and $760 million in interest.

In addition to the compensation award, the tribunal also ordered Russia to pay for Naftogaz’s arbitration costs. Russia did not immediately respond to the tribunal’s decision.

How Can Naftogaz Collect?

The decision in the Naftogaz case is likely to be seen as a significant development in the ongoing conflict between Ukraine and Russia, as it marks the first time that an international tribunal has awarded compensation to a Ukrainian company for losses resulting from the annexation of Crimea. The decision may also have broader implications for the role of investment treaties in regulating international disputes.

Enforcing the ruling of the international arbitration court that Russia must pay $5 billion to Naftogaz presents a significant challenge for the Ukrainian energy company. While the tribunal’s decision is legally binding on Russia, it is not self-executing, and Naftogaz will need to take further steps to enforce the award.

One possible approach for Naftogaz is to seek recognition and enforcement of the award in national courts in countries where Russia has assets. Naftogaz could file a lawsuit in a court where Russia has a significant presence and seek a judgment that recognizes and enforces the tribunal’s award. Once the award is recognized by a national court, Naftogaz can seek to attach and seize Russia’s assets to satisfy the award.

Another option for Naftogaz is to seek enforcement of the award through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York Convention is an international treaty that provides for the recognition and enforcement of foreign arbitral awards in over 160 countries, including Russia and Ukraine. Naftogaz could file a request for recognition and enforcement of the award in a country that is a party to the New York Convention and seek an order from a national court to attach and seize Russia’s assets to satisfy the award.

Collection is Not as Easy as It Sounds

However, enforcing the award through national courts or the New York Convention may be difficult in practice, as Russia is likely to resist any attempts to seize its assets. Russia has a history of ignoring international court rulings and has refused to pay awards in other cases in the past. Naftogaz may also face challenges in identifying and locating Russia’s assets, as Russia is likely to take steps to conceal its assets and make them difficult to seize.

Given these challenges, Naftogaz may also explore other options for enforcing the award, such as negotiating a settlement with Russia or seeking the assistance of the international community. Naftogaz could seek the support of Ukraine’s allies in the European Union and the United States and ask them to put pressure on Russia to comply with the award. Naftogaz could also seek the assistance of international organizations such as the International Monetary Fund, which has provided financial support to Ukraine in the past, to help enforce the award.

Overall, enforcing the award in the Naftogaz case will require a multi-pronged approach that involves legal, diplomatic, and political strategies. Naftogaz will need to be persistent and creative in its efforts to collect the $5 billion from Russia and may need to be prepared for a long and difficult process. The tribunal’s decision is a significant victory for Naftogaz and Ukraine, but enforcing the award will be a complex and challenging task.