Procedural Posture

This Final Award was issued by an arbitral tribunal constituted under the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). The dispute arose under the Energy Charter Treaty (ECT) between three Cypriot companies—Littop Enterprises Limited, Bridgemont Ventures Limited, and Bordo Management Limited (collectively, the Claimants)—and Ukraine (the Respondent). The arbitration concerned the Claimants' investment in PJSC Ukrnafta, a major Ukrainian oil and gas producer. The Tribunal declined jurisdiction over the claims on multiple grounds.

Tribunal's Analysis and Decision on Jurisdiction

The Tribunal upheld three of the Respondent's jurisdictional objections, each of which it found to be independently dispositive of the case.

First, addressing jurisdiction ratione materiae, the Tribunal found that Claimants Littop and Bridgemont had failed to prove that they held an "Investment" as required by Article 1(6) of the ECT at the time the arbitration was commenced on 30 June 2015. The evidence submitted was deemed insufficient to establish their ownership of Ukrnafta shares on the critical date. The Tribunal did, however, accept (with some hesitation) that Claimant Bordo held a small number of shares, which constituted a qualifying investment.

Second, the Tribunal declined jurisdiction on the grounds that the Claimants' investment was tainted by bribery, corruption, and illegality, in violation of international public policy. The Tribunal found that the Claimants' ultimate beneficial owners (UBOs) had made payments of over US$100 million in 2003-2004 to individuals connected to the then-President of Ukraine to obtain and maintain management control over Ukrnafta. This initial corrupt act, along with subsequent arrangements to consolidate control, was found to have permeated the entire investment. The Tribunal concluded that the effects of this corruption continued through the years and that it would be contrary to international public policy to exercise jurisdiction over claims originating from such conduct.

Third, the Tribunal held that the Respondent had validly invoked the denial of benefits clause under Article 17(1) of the ECT. The Tribunal determined that both conditions for denial were met: (i) the Claimants were owned and controlled by nationals of a third state (Israel, as the UBOs' Cypriot nationality was acquired after the dispute arose and was deemed an abuse of process), and (ii) the Claimants, as special purpose vehicles, lacked "substantial business activities" in their state of incorporation, Cyprus. The Tribunal also affirmed that a denial of benefits can be invoked retrospectively after arbitration proceedings have commenced.

Dispositive Ruling and Costs

For these three independent reasons, the Tribunal declined jurisdiction over all of the Claimants' claims. Consequently, the Tribunal did not determine the merits of the substantive claims. In its discretion, the Tribunal ordered each party to bear its own legal fees and expenses incurred in connection with the arbitration.