Procedural Background

This document is a judgment of The Hague Court of Appeal (Gerechtshof Den Haag) dismissing an application by the Russian Federation to set aside arbitral awards rendered on 4 October 2022 and 2 December 2022. The awards were issued in an arbitration administered by the Permanent Court of Arbitration (PCA), initiated by several Ukrainian investors (Lugzor c.s.) under the 1998 Agreement between Ukraine and the Russian Federation on the Encouragement and Mutual Protection of Investments (the BIT). The underlying dispute concerned the alleged expropriation of the investors' assets in Crimea following its annexation by the Russian Federation in 2014. The arbitral tribunal had affirmed its jurisdiction and found Russia liable for breaching the BIT.

Key Issues and Parties' Positions

The central issue before the Court was the Russian Federation's challenge to the arbitral tribunal's jurisdiction, based on the ground that a valid arbitration agreement was absent (Article 1065(1)(a) of the Dutch Code of Civil Procedure). Russia argued that the investors' assets in Crimea did not qualify as protected "investments" under the BIT. Its primary contention was that the BIT's territorial scope is fixed at the time of the treaty's conclusion in 1998. Since the investments were made in Crimea when it was Ukrainian territory, they were not made "in the territory of the other Contracting Party" (i.e., Russia) and thus fell outside the BIT's protection. The investors countered that the tribunal correctly interpreted the BIT, arguing that jurisdiction is established if the investment is located in the territory under the de facto control of the respondent State at the time of the alleged breach. They also argued that Russia had waived its right to introduce new arguments not raised during the arbitration.

The Court's Analysis and Decision

The Court of Appeal conducted a full review of the tribunal's jurisdiction. It first dismissed the investors' waiver argument, finding that Russia's submissions were a permissible elaboration of its core jurisdictional objection raised in the arbitration. On the substantive jurisdictional question, the Court affirmed the arbitral tribunal's findings and rejected Russia's application. Interpreting the BIT in accordance with Article 31 of the Vienna Convention on the Law of Treaties (VCLT), the Court held that the treaty's object and purpose—the protection of investments—requires its application to the territory over which a contracting party exercises effective control at the time of the alleged treaty breach.

The Court reasoned that Article 12 of the BIT, which extends the treaty's application to investments made on or after 1 January 1992, serves a temporal function to exclude intra-Soviet era investments, but does not impose a requirement that an investment must be cross-border at its inception. The Court explicitly referenced and upheld its own consistent jurisprudence in the related *PrivatBank*, *Everest*, and *Belbek* cases, which established that the BIT's protections extend to Ukrainian investments in Crimea following the change in effective control. The Court concluded that the arbitral tribunal correctly found that the investments fell within the scope of the BIT and that it had jurisdiction over the dispute.

Operative Part

The Hague Court of Appeal dismissed the Russian Federation's application for the annulment of the arbitral awards. The Court ordered the Russian Federation to bear the costs of the court proceedings.