Procedural Posture

This document is a Decision on Jurisdiction, Admissibility, and Liability issued by an ICSID Tribunal in an arbitration between Emergofin B.V. and Velbay Holdings Ltd. (Claimants) and Ukraine (Respondent). The dispute arose from Ukraine's treatment of the Claimants' investments in the Zaporozhye Aluminum Combine (ZAlK), specifically concerning electricity pricing, the judicial renationalization of Velbay's shareholding, physical interference at shareholder meetings, and the imposition of state sanctions. Having bifurcated quantum, the Tribunal herein addresses the Respondent's jurisdictional objections and the merits of the Claimants' liability claims under the Netherlands-Ukraine Bilateral Investment Treaty (BIT).

Jurisdiction and Admissibility

The Respondent raised several jurisdictional objections, primarily targeting the timing and control of the Claimants' investments. The Tribunal upheld jurisdiction ratione temporis over claims arising after 22 September 2005, the date Emergofin acquired control over Velbay and thus established a protected investment under the BIT. The Tribunal dismissed the Claimants' request for moral damages, ruling that the BIT's substantive protections and the Tribunal's jurisdictional mandate are strictly limited to the protection of the "investment" as an asset, precluding claims for reputational or psychological harm suffered by the investors or their representatives.

Tribunal's Analysis on Liability

The Tribunal dismissed the Electricity Pricing Claim, finding no actionable breach of the Fair and Equitable Treatment (FET) or national treatment standards. The Tribunal held that Ukraine's policy to eliminate cross-subsidies in the wholesale electricity market was a legitimate exercise of regulatory power and did not constitute arbitrary or discriminatory conduct against ZAlK.

Conversely, the Tribunal upheld the Renationalisation Claim, concluding that the Ukrainian courts committed a denial of justice in breach of the FET standard. The domestic courts rescinded the 2006 Share Purchase Agreement (SPA) based on an unpleaded ground of material breach, rather than the pleaded ground of a material change of circumstances. This deprived Velbay of its fundamental due process right to confront the legal propositions underpinning the rescission. The Tribunal further held that the subsequent transfer of Velbay's shares to the State Property Fund of Ukraine constituted an unlawful expropriation under Article 6 of the BIT.

Regarding the Shareholder Interference Claim, the Tribunal found that the State Property Fund of Ukraine colluded with an armed group and ZAlK's management to physically blockade Velbay's representatives from attending the 2016 and 2017 general meetings. This orchestrated exclusion violated the FET standard. Finally, the Tribunal upheld the Sanctions Claim, ruling that the 2018 Presidential Decree imposing sanctions on the Claimants lacked any stated or objectively ascertainable link to the sanctioned entities, rendering the measure arbitrary and in breach of Article 3(2) of the BIT.

Decision

The Tribunal declared that it possessed jurisdiction over the dispute for claims arising after 22 September 2005 and found the claims admissible. On the merits, the Tribunal held Ukraine liable for breaches of the FET standard and unlawful expropriation concerning the Renationalisation Claim, the Shareholder Interference Claim, and the Sanctions Claim. All other claims were dismissed. The Tribunal reserved the issues of quantum and costs for a subsequent final phase of the arbitration.