Procedural Background

This final award was rendered by an arbitral tribunal constituted under the UNCITRAL Arbitration Rules, 1976, and administered by the Permanent Court of Arbitration (PCA). The dispute arose from claims brought by JSC Oschadbank, a Ukrainian state-owned bank, against the Russian Federation under the 1998 Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments (the “BIT”). The Russian Federation did not participate in the proceedings, aside from initial correspondence challenging the tribunal's jurisdiction.

Jurisdiction

The tribunal first addressed the primary jurisdictional question of whether the Claimant's investments in the Crimean Peninsula fell within the territorial scope of the BIT following the events of March 2014. The tribunal interpreted the term “territory” in Article 1(4) of the BIT in accordance with the Vienna Convention on the Law of Treaties. It concluded that the term refers to an area where a State exercises jurisdiction and control. The tribunal found that by taking steps under its own domestic law to annex the Crimean Peninsula and assert sovereignty, the Russian Federation had brought Crimea within its “territory” for the purposes of the BIT. Consequently, the tribunal affirmed its jurisdiction over the dispute, also finding that the Claimant was a protected “investor” and its banking operations constituted a protected “investment” under the Treaty.

Liability and Merits

On the merits, the tribunal found that the Russian Federation had engaged in an unlawful expropriation of the Claimant’s investments, in breach of Article 5(1) of the BIT. The tribunal analyzed a series of measures undertaken by the Respondent and its instrumentalities, including the Bank of Russia and the Depositor Protection Fund. These measures included the imposition of an onerous and unworkable regulatory framework designed to expel Ukrainian banks, the termination of the Claimant's banking license, the seizure of its assets (including cash, property, and loan portfolios), and the effective destruction of its business operations in Crimea. The tribunal determined that these actions, viewed cumulatively, constituted a creeping expropriation that was unlawful because it was not for a public purpose, lacked due process, was discriminatory, and was not accompanied by prompt, adequate, and effective compensation.

Quantum and Relief

The tribunal awarded the Claimant damages in the total sum of USD 1,111,300,729. This amount comprised compensation for the loss of assets (USD 597,771,793), loss of future profits or goodwill (USD 484,616,757), and other heads of loss (USD 28,912,179). The tribunal accepted the Claimant's alternative valuation date of 31 March 2014. In addition to damages, the tribunal ordered the Respondent to pay pre-award and post-award interest, calculated at the six-month USD LIBOR rate plus 2%, compounded annually. The Respondent was also ordered to bear all costs of the arbitration and the Claimant's legal fees and expenses.