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Procedural Background
This Final Award, rendered in an SCC arbitration (V 2015/092) under the Energy Charter Treaty (ECT), resolves a dispute between three Cypriot-incorporated claimants (Littop Enterprises Limited, Bridgemont Ventures Limited, and Bordo Management Limited) and the state of Ukraine. The Tribunal, chaired by Julian D M Lew with co-arbitrators L. Yves Fortier and Rodrigo Oreamuno, addressed multiple jurisdictional and admissibility objections raised by the Respondent, ultimately declining jurisdiction without reaching the merits of the claims.
Tribunal's Analysis and Decision on Jurisdiction
The Tribunal dismissed the Claimants' case by upholding three of the Respondent's jurisdictional objections, each of which was found to be independently dispositive of the dispute.
First, the Tribunal examined whether the Claimants held a qualifying "investment" under Article 1(6) of the ECT at the time the arbitration was commenced. It found that Claimants Littop and Bridgemont failed to discharge their burden of proving ownership of shares in the Ukrainian energy company, Ukrnafta, as of the date of the Request for Arbitration. The evidence indicated that these claimants had transferred their shares in October 2013, and the Tribunal was not persuaded by the evidence presented to demonstrate their reacquisition by the critical date. Consequently, the Tribunal held it lacked jurisdiction ratione materiae over the claims of Littop and Bridgemont.
Second, the Tribunal addressed Ukraine's objection that the claims were inadmissible because the investment was tainted by illegality. The Tribunal found that the Claimants' investment, particularly the conduct of their ultimate beneficial owners in obtaining and maintaining management control over Ukrnafta, was permeated by bribery and corruption. Applying the principle of "clean hands" as a tenet of international law and transnational public policy, the Tribunal concluded that it could not exercise jurisdiction over claims founded upon an investment so tainted by illegality.
Third, the Tribunal analyzed Ukraine's invocation of the denial of benefits clause under Article 17(1) ECT. It found that the Respondent had validly denied the treaty's benefits. The Tribunal determined that the two conditions of Article 17(1) were met: (i) the Claimants were ultimately owned and controlled by nationals of a third state (Israel, a non-ECT Contracting Party) at the time the investment was made, 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 and Costs
Based on these three independent grounds, the Tribunal declined jurisdiction over the Claimants' claims in their entirety. All other claims and jurisdictional objections were not determined. The Tribunal ordered each party to bear its own costs incurred in the arbitration.
