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PCA CASE NO. 2018-41

IN THE MATTER OF AN AD HOC ARBITRATION BEFORE A TRIBUNAL
CONSTITUTED IN ACCORDANCE WITH THE AGREEMENT BETWEEN
THE GOVERNMENT OF THE RUSSIAN FEDERATION AND THE CABINET
OF MINISTERS OF UKRAINE ON THE ENCOURAGEMENT AND MUTUAL
PROTECTION OF INVESTMENTS DATED 27 NOVEMBER 1998

-and-

THE ARBITRATION RULES OF THE UNITED NATIONS COMMISSION ON
INTERNATIONAL TRADE LAW, 1976

v

AWARD

The Arbitral Tribunal
Mr. J. William Rowley, KC
Professor Vladimir Pavić
Professor Juan Fernández-Armesto (Presiding Arbitrator)

Registry
Permanent Court of Arbitration

1 November 2023

[Page 1]

INDEX

INDEX ................................................................................................................................................. 1

ABBREVIATIONS AND ACRONYMS ............................................................................................ 2

LIST OF CASES.................................................................................................................................. 7

I. INTRODUCTION..................................................................................................................... 12

II. THE PARTIES........................................................................................................................... 13

III. PROCEDURAL HISTORY ...................................................................................................... 16

IV. FACTUAL BACKGROUND .................................................................................................... 38

V. REQUESTS FOR RELIEF......................................................................................................... 41

VI. JURISDICTION AND ADMISSIBILITY.................................................................................. 43

VI.1. PRELIMINARY MATTERS ................................................................................................. 44

VI.2. FIRST JURISDICTIONAL OBJECTION: WAS THE INVESTMENT MADE IN THE
“TERRITORY” OF THE RUSSIAN FEDERATION?........................................................... 47

VI.3. SECOND JURISDICTIONAL OBJECTION: DOES THE INVESTMENT MEET THE
TEMPORAL REQUIREMENTS? ........................................................................................ 61

VI.4. THIRD JURISDICTIONAL OBJECTION: DID THE INVESTOR MAKE AN
INVESTMENT UNDER ARTICLE 1(1)?............................................................................. 76

VI.5. FOURTH JURISDICTIONAL OBJECTION: DOES CLAIMANT MEET THE
DEFINITION OF INVESTOR?............................................................................................ 81

VI.6. ADMISSIBILITY OBJECTION: IS THERE EVIDENCE OF FRAUD AND
CORRUPTION?................................................................................................................... 90

VII. MERITS .................................................................................................................................... 121

VII.1. BREACH OF ARTICLE 5 OF THE BIT........................................................................ 122

VII.2. OTHER BREACHES ................................................................................................... 158

VIII. DAMAGES .............................................................................................................................. 160

VIII.1. QUANTUM ................................................................................................................. 161

VIII.2. INTEREST ................................................................................................................... 184

VIII.3. TAX INDEMNIFICATION........................................................................................... 190

IX. COSTS OF ARBITRATION .................................................................................................... 193

X. DISPOSITIF ............................................................................................................................ 199

J. WILLIAM ROWLEY KC - SEPARATE OPINION ON QUANTUM ............ 201

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ABBREVIATIONS AND ACRONYMS

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[Page 5]

[Page 6]

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LIST OF CASES

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I. INTRODUCTION

1. This is an ad hoc investment arbitration dispute subject to the Arbitration Rules of the United Nations Commission on International Trade Law of 1976 [the “UNCITRAL Rules”]. The proceedings concern the alleged breaches by the Russian Federation of Articles 2, 3 and 5 of the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments, dated 27 November 1998¹ [the “BIT” or the “Treaty”].

2. The claimant is a Ukrainian joint stock company [“JSC”], which owned the formerly State-owned electricity network in Crimea, buying electricity from a Ukrainian state-owned wholesaler, and then selling the electricity to industrial and domestic customers in Crimea². Claimant alleges that it held an investment protected under the Treaty and that the Russian Federation took a series of measures that led to the dispossession and nationalization of its electricity network and associated assets in Crimea without any compensation. It therefore requests an award of USD 421.2 million [“M”], plus fees, costs, and interest in compensation for its expropriated assets³.

¹ Doc. CLA-1 (Claimant’s translation); Doc. RLA-127 (Respondent’s translation). ↩
² R I, paras. 12-17. ↩
³ R I, paras. 2-5, 44-67. ↩

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II. THE PARTIES

1. CLAIMANT

3. The claimant in these arbitration proceedings is the joint stock company JSC DTEK Krymenergo [“DTEK Krymenergo” or “Krymenergo” or “Claimant”] a Ukrainian company primarily engaged in the electricity distribution business on the Crimean Peninsula, with its registered address at:

JSC DTEK Krymenergo
57 Lva Tolstoho street
Kyiv, Ukraine, 01032

4. Claimant is represented in these proceedings by:

Mr. Jonathan Gimblett
Ms. Marney L. Cheek
Mr. Nikhil V. Gore
Mr. Volodymyr Shkilevych
COVINGTON & BURLING LLP
22 Bishopsgate
London EC2N 4BQ
United Kingdom
Emails: [email protected]
[email protected]
[email protected]
[email protected]

2. RESPONDENT

5. The respondent in these arbitration proceedings is the Russian Federation [“Russian Federation” or “Russia” or “Respondent”].

6. Respondent is represented in these proceedings by⁴:

Mr. Mikhail Vinogradov
Director General
GENERAL DEPARTMENT FOR INTERNATIONAL LEGAL COOPERATION
PROSECUTOR GENERAL’S OFFICE OF THE RUSSIAN FEDERATION
Bolshaya Dmitrovka str., 15a, build. 1,
Moscow 125993
Russian Federation
Email: [email protected]

⁴ Respondent was initially represented by the Ministry of Justice and by the firms Houthoff Coöperatief U.A. (Rotterdam) and Ivanyan and Partners (Moscow). On 8 July 2021, Respondent informed that the Russian Federation had transferred the authority to represent the State in international courts and arbitrations from the Ministry of Justice to the General Prosecutor’s Office and that the Russian Federation was now represented by Schellenberg Wittmer Ltd. (Zurich). The latter resigned as of 11 April 2022. ↩

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Mr. Andrey Kondakov
Mr. Sergey Morozov
Mr. Konstantin Ksenofontov
International Centre for Legal Protection
Krasnopresnenskaya Nab. 12
Moscow 123610
Russian Federation

***

7. Claimant and Respondent will jointly be referred to as the “Parties”.

3. THE ARBITRAL TRIBUNAL

8. On 16 February 2018, Claimant appointed as arbitrator:

Mr. J. William Rowley KC
Twenty Essex
20 Essex Street
London WC2R 3AL
United Kingdom
Email: [email protected]

9. On 18 June 2018, following Respondent’s failure to appoint an arbitrator, the appointing authority appointed as arbitrator:

Professor Vladimir Pavić
University of Belgrade, Faculty of Law
Bul. kralja Aleksandra 67
11000 Beograd
Serbia
Email: [email protected]

10. On 3 July 2018, Mr. Rowley and Professor Pavić appointed Mr. Stanimir A. Alexandrov as Presiding Arbitrator.

11. On 29 June 2020, following Mr. Alexandrov’s resignation, Mr. Rowley and Professor Pavić appointed as Presiding Arbitrator:

Professor Juan Fernández-Armesto
Armesto & Asociados
General Pardiñas, 102, 8º izda.
28006 Madrid
Spain
Email: [email protected]

12. By letter of 1 July 2020, Professor Fernández-Armesto accepted his appointment as Presiding Arbitrator.

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4. ADMINISTRATIVE SERVICES

4.1 REGISTRAR AND DEPOSITARY

13. In accordance with the Terms of Appointment, the Permanent Court of Arbitration [“PCA”] has provided administrative services in support of the Parties and the Tribunal, including by acting as registrar and as depositary of funds.

14. The contact details of the PCA are as follows:

Attn: Mr. Garth Schofield
Permanent Court of Arbitration
Peace Palace
Carnegieplein 2
2517 KJ The Hague
The Netherlands

15. The PCA and its officials are bound by the same confidentiality duties applicable to the Parties and the Tribunal in this arbitration.

4.2 ASSISTANT TO THE TRIBUNAL

16. With the consent of the Parties and his co-arbitrators, the President appointed the following Assistant to the Tribunal [the “Assistant”]⁵:

Mr. Adam Jankowski
Armesto & Asociados
General Pardiñas, 102, 8° izda.
28006 Madrid
Spain

17. The Parties received the Assistant’s curriculum vitae and declaration of independence and impartiality on 22 June 2021⁶.

⁵ Parties’ communications of 2 July 2021. ↩
⁶ Tribunal’s communication A8. ↩

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III. PROCEDURAL HISTORY

1. COMMENCEMENT OF THE ARBITRATION AND APPOINTMENT OF THE TRIBUNAL

18. On 16 February 2018, Claimant filed the Request for Arbitration, appointing Mr. J. William Rowley KC as arbitrator.

19. On 30 March 2018, Claimant requested the designation of an appointing authority for the appointment of the second arbitrator by the Secretary-General of the PCA.

20. On 25 May 2018, after giving Respondent an opportunity to comment, the Secretary-General of the PCA designated Professor Andreas Reiner as the appointing authority for all purposes under the UNCITRAL Rules [“Appointing Authority”].

21. Respondent having declined to appoint an arbitrator, on 18 June 2018, Professor Reiner appointed Professor Vladimir Pavić as arbitrator.

22. On 3 July 2018, Mr. Rowley and Professor Pavić appointed Mr. Stanimir Alexandrov as Presiding Arbitrator.

23. On 10 September 2018, the Tribunal circulated draft Procedural Orders [“PO”] No. 1 and No. 2 to the Parties for their comments.

24. On 26 September 2018, the Tribunal issued PO 1 and PO 2. In PO 2, the Tribunal set out two alternative procedural timetables for these proceedings (Annex A predicated on Respondent’s participation in the present proceedings and Annex B based on Respondent’s non-participation).

2. WRITTEN SUBMISSIONS AND DOCUMENT PRODUCTION

A. Statement of Claim

25. On 7 December 2018, in accordance with the procedural timetable set forth in PO 2, Claimant filed its Statement of Claim [“C I”], together with:

• The witness statements of Mr. Sergey Belyaev [“Belyaev WS”], Mr. Igor Maslov [“Maslov WS”], and Mr. Eduard Sokolovskiy [“Sokolovskiy WS I”];
• The expert reports of Mr. Carlos Lapuerta [“Lapuerta ER”], Mr. Peter B. Maggs [“Maggs ER”] and Dr. Irina Paliashvili [“Paliashvili ER I”];
• Fact exhibits CE-1 through CE-275; and
• Legal authorities CLA-1 through CLA-76.

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B. Respondent’s participation in the arbitration

26. On 5 April 2019, Respondent submitted a letter to the Tribunal stating that it “would like to participate in the Arbitration”. It also “confirm[ed] its intention to file a Request for Bifurcation” and requested an extension of six months to do so. By letter dated 15 April 2019, Claimant objected to Respondent’s request.

27. Accordingly, Respondent did not file its Statement of Defense nor an application seeking to bifurcate the proceedings by the deadlines stipulated in the procedural calendar.

28. On 23 April 2019, the Tribunal issued PO 3, extending the deadline for Respondent to submit its Statement of Defense and make the payment of its share of the advance requested by the PCA. Moreover, the Tribunal noted that Respondent was entitled to raise in its Statement of Defense any jurisdictional arguments it wished, which would be considered by the Tribunal in conjunction with the merits. Finally, the Tribunal decided that Annex A of PO 2, subject to certain adjustments to be agreed between the Parties, would be applicable to the proceedings, unless Respondent failed to submit its Statement of Defense or make the payment that was due.

C. Statement of Defense

29. On 23 May 2019, in compliance with the extended deadline provided in PO 3, Respondent filed its Statement of Defense, together with a Power of Attorney. Four days later, Respondent filed a corrected Statement of Defense [“R I”] together with:

• Fact exhibits RE-1 through RE-43; and
• Legal authorities RLA-1 through RLA-114.

30. In its Statement of Defense, Respondent made an application for security for costs.

31. On 31 May 2019, Respondent paid the sum of USD 200,000, representing its share of the initial deposit of costs, as acknowledged by the PCA by letter of the same day.

32. On 5 June 2019, the Tribunal issued PO 4, deciding that the proceedings should continue pursuant to the schedule provided in Annex A of PO 2, albeit subject to certain adjustments – to be agreed between the Parties – in view of the extension granted to Respondent for the filing of its Statement of Defense and the late payment of its share of the advance payment, and in light of Respondent’s application for security for costs.

D. Document Production

33. On 28 June 2019, the Parties exchanged their requests for document production and, on 19 July 2019, submitted their responses.

34. On 23 July 2019, the Tribunal issued PO 5, with a revised procedural calendar.

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35. On 24 July 2019, Claimant made an additional application for document production.

36. On 7 August 2019, the Tribunal issued PO 6, setting out its rulings on the Parties’ requests for document production.

E. Security for costs

37. The Parties agreed on a schedule – approved by the Tribunal – for further briefing in relation to Respondent’s application for security for costs [“Respondent’s Application”].

38. On 17 September 2019, Claimant filed its response to Respondent’s Application and submitted a counter-application for security for award [“Claimant’s Counter-Application”].

39. On 1 October 2019, Respondent filed its Reply to Claimant’s response to Respondent’s Application and Reply to Claimant’s Counter-Application.

40. On 15 October 2019, Claimant filed its Rejoinder on Respondent’s Application.

41. On 8 November 2019, the Tribunal issued PO 7, dismissing both Respondent’s Application for Security for Costs and Claimant’s Counter-Application for Security for Award.

F. Confidentiality

42. During the document production phase, Respondent raised some objections to Claimant’s Requests on the basis of confidentiality.

43. Thereafter, on 20 October 2019, Claimant wrote to the Tribunal “in relation to the Tribunal’s directives” in PO 6 and submitted a draft confidentiality order. On 28 October 2019, Respondent objected to Claimant’s request, arguing that such order was unnecessary.

44. On 13 November 2019, the Tribunal issued PO 8, denying Claimant’s request for the Tribunal to adopt a confidentiality order; the Tribunal did not find necessary, at that stage, to issue any additional orders, directions or instructions with respect to the protection of confidential information or documents beyond the order contained in para. 10 of PO 1.

45. On 18 November 2019, Respondent submitted an application for renewed consideration of the production of certain documents “reasonably believed to be held” by DTEK Energy LLC [“DTEK Energy”]. That same day, Claimant submitted an application seeking a “Confidential – Attorneys’ Eyes Only” designation for a document produced within the document production exercise. On 25 November 2019, both Parties opposed to the other party request.

46. On 28 November 2019, the Tribunal issued PO 9, denying both Parties’ requests.

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G. Statement of Reply

47. On 26 November 2019, Claimant filed its Reply [“C II”], together with:

• The second witness statement of Mr. Eduard Sokolovskiy [“Sokolovskiy WS II”];
• The expert report of Mr. Vladimir Omelchenko [“Omelchenko ER”], and the second expert report of Dr. Irina Paliashvili [“Paliashvili ER II”];
• Fact exhibits CE-276 through CE-354; and
• Legal authorities CLA-77 through CLA-118.

H. Statement of Rejoinder

48. On 11 April 2020, Respondent filed its Statement of Rejoinder [“R II”], together with:

• The expert reports of Ms. Tatiana Kurokhtina [“Kurokhtina ER”], Professor Sergey Tyulenev [“Tyulenev ER”], Professor Anton Asoskov [“Asoskov ER”], Mr. Vladyslav Sokolovskyi [“Sokolovskyi ER”], Dr. Boaz Moselle and Mr. Julian Delamer from Compass Lexecon [“Compass ER”], Dr. Ilya Dolmatov [“Dolmatov ER”], and Professor Oleksandr Vygovskyy [“Vygovskyy ER”];
• Fact exhibits RE-44 through RE-165; and
• Legal authorities RLA-127 through RLA-349.

3. HEARING ARRANGEMENTS

49. Following the invitation of the Tribunal, the Parties informed the Tribunal of their respective preferences regarding the location of the hearing [the “Hearing”]. Having considered the Parties’ submissions regarding the venue for the Hearing, the Tribunal decided to conduct the Hearing at the PCA’s premises in the Peace Palace in The Hague, the Netherlands.

50. On 2 April 2020, in light of the global COVID-19 pandemic, the Parties made a joint proposal for the identification of “the earliest possible alternative dates” in the event “that the scheduled hearing cannot be maintained”. By letter of 8 April 2020, the Tribunal provided its response to the Parties’ joint proposal, urging the Parties “to exercise best efforts to maintain the hearing dates as currently scheduled, whether in person or online”.

51. On 24 and 25 April 2020, and pursuant to Annex A to PO 5, Claimant and Respondent informed the list of witnesses and experts that they wanted to be called for cross-examination at the Hearing.

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52. Having conferred with each other and being unable to reach a common view, the Parties sent the Tribunal their respective comments regarding the Hearing on 30 April 2020:

• Claimant’s position was that if an in-person Hearing should prove impossible due to coronavirus-related restrictions, the Hearing should be conducted as scheduled by online video;
• Respondent objected to this matter being heard online due to “the complexity of the present case, numerous security, confidentiality and logistics concerns as well as serious due process considerations”.

53. On 4 May 2020, the Tribunal issued PO 10, on the Hearing arrangements. The Tribunal decided that the Hearing dates would remain unchanged and that, if the situation relating to the COVID-19 pandemic remained, the Hearing would be conducted online, subject to possible minor adjustments. The Tribunal also invited the Parties to agree on a protocol for the holding of an online hearing. Finally, the Tribunal decided to hold a pre-hearing conference with the Parties on 29 May 2020.

4. DISCUSSIONS REGARDING THE REJOINDER

54. In parallel to the discussions regarding the Hearing, and by letter dated 24 April 2020, Claimant requested the Tribunal to strike from the record portions of Respondent’s Rejoinder and the accompanying expert reports, on the basis that Respondent was trying to introduce new evidence and argumentations that could and should have been filed with the Statement of Defense.

55. By letter dated 30 April 2020, Respondent objected to Claimant’s request, on the basis that it “would constitute a manifest violation of Respondent’s fundamental right to present its case”.

56. On 4 May 2020, the Tribunal issued PO 11, dismissing Claimant’s request, but giving Claimant the possibility to submit arguments and evidence in rebuttal to those portions of the Rejoinder that it sought to exclude and/or to the accompanying expert reports.

57. On 6 May 2020, Claimant requested that the Tribunal clarify PO 11, noting that the two-week deadline for Claimant to respond to Respondent’s Rejoinder denied Claimant an effective opportunity to respond, and provided Respondent with an improper advantage in the proceedings – to which Respondent objected on 11 May 2020.

58. On 13 May 2020, the Tribunal informed the Parties that, having considered their submissions, it had decided, inter alia, to allow Claimant to submit new evidence rather than file a new submission by 25 May 2020. The Tribunal further stated that if Respondent submitted an application pursuant to para. 25(3) of PO 11 and the Tribunal decided to grant it, the Tribunal would be open to grant Respondent up to three weeks.

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59. On 18 May 2020, Respondent, inter alia, requested that the Tribunal order Claimant to provide “an index with its new documentary evidence” in accordance with the requirements set forth in section 3 of PO 2.

60. On 21 May 2020, Claimant objected to Respondent’s letter dated 18 May 2020, requesting that the Tribunal leave to dispense with the hard copy filing contemplated by clause 3.10 of PO 2. Claimant agreed to provide an index for its electronic submission in the form provided by clause 3.10.2 of PO 2 if leave were granted.

61. On 22 May 2020, Respondent reiterated its request dated 18 May 2020, arguing that clause 3.2 of PO 2 was a “clear indication” of the supporting evidence in each submission, including with hyperlinks in the footnotes of the submission, is required.

62. On 22 May 2020, the Tribunal decided not to take action on Respondent’s requests at that stage, but reserving the right to do so after the documents were submitted by Claimant.

63. Accordingly, on 25 May 2020, Claimant, inter alia, submitted:

• The Index of New Exhibits for Claimant’s evidentiary submission;
• An updated Table of Exhibits;
• An expert report by Professor Andriy Danylenko [“Danylenko ER”];
• A workbook containing updated damages calculations;
• Several revised exhibits.

64. On 1 June 2020, Respondent asked for authorization to submit a sur-rebuttal, for which it would require three weeks. On the following day, Claimant, inter alia, requested that the Tribunal deny Respondent’s application for a sur-rebuttal, and, if such application were granted, requested that it be limited.

65. On 4 June 2020, the Tribunal declined Respondent’s request for permission to file a sur-rebuttal and invited Respondent to file a request “specifying the categories of evidence it seeks to submit” by 8 June 2020. The Tribunal indicated, that in case the new request would be granted, Respondent would submit the new sur-rebuttal evidence no later than 19 June 2020. The Tribunal also granted Respondent’s request to call for examination Professor Oleksandr Vygovskyy, Ms. Tatiana Kurokhtina, and Professor Sergey Tyulenev; however, their direct examination would be limited to matters that were raised by Claimant on 25 May 2020.

66. Accordingly, on 8 June 2020, Respondent submitted information specifying the categories of evidence it sought to submit and how they were responsive to Claimant’s recent submissions.

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67. On 10 June 2020, Claimant argued that Respondent’s request dated 8 June 2020 should be denied, “with the exception of two requests related to damages issues”. Claimant requested that the Tribunal require Respondent to submit its sur-rebuttal documents no later than 15 June 2020 – to which Respondent objected.

68. On 12 June 2020, the Tribunal decided on each category of documents Respondent intended to submit as part of the sur-rebuttal. The Tribunal also ordered that Respondent submit the evidence within the scope ordered by the Tribunal by 19 June 2020.

5. HEARING ARRANGEMENTS II

69. Following the issuance of PO 11 on the hearing arrangements, the Parties exchanged several communications on the timing and modality of the Hearing.

70. The Parties had the opportunity to reiterate their positions at the pre-hearing conference held on 29 May 2020. Furthermore, the Parties discussed the allocation of time and interpretation at the Hearing. The Parties also agreed to the removal of Exhibit CE-551 from the record.

71. Following the pre-Hearing conference, by letter from the PCA dated 1 June 2020, the Tribunal presented two options to the Parties in relation to Hearing dates, and invited the Parties to comment, which they did on 5 June 2020:

• Respondent informed the Tribunal that neither alternative hearing timeframes proposed by the Tribunal would allow Respondent to fully present its case; Respondent suggested that the Tribunal “defer the hearing to a later date when it can be held in person”;
• Claimant informed the Tribunal that it would prefer to hold an online Hearing and made further submissions regarding the associated logistics; Claimant also requested that the Tribunal clarify whether the appended legal authorities to Exhibit CE-551 would be struck from the record.

72. On 9 June 2020, the Tribunal issued PO 12, deciding, inter alia, that the Hearing would be held from 28 June to 5 July 2020. The Tribunal further decided that the legal authorities appended to Exhibit CE-551 would remain in the record.

6. RESIGNATION OF MR. ALEXANDROV

73. On 12 June 2020, the Presiding Arbitrator, Mr. Alexandrov, referred to an earlier disclosure made regarding his relationship with Claimant’s appointed expert, Mr. Carlos Lapuerta. The Presiding Arbitrator informed the Parties that on 11 June 2020 an ICSID ad hoc Committee had annulled the award in the case of Eiser Infrastructure Limited and Energía Solar Luxembourg SARL v. Kingdom of Spain.

74. The Presiding Arbitrator also informed the Parties that in that case he acted as an arbitrator appointed by the claimants and Mr. Lapuerta acted as an expert for the claimants. According to the Mr. Alexandrov, the Committee concluded that:

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“[...] the tribunal was not properly constituted and there was a serious departure from a fundamental rule of procedure as a result of [Mr. Alexandrov’s] relationship with Mr. Lapuerta”.

75. Mr. Alexandrov asked the Parties to raise any issue arising out of the ICSID ad hoc Committee’s decision no later than 19 June 2020.

76. On 15 June 2020, Respondent stated, inter alia, that Mr. Alexandrov should “resign or be removed”. Respondent also raised several questions for the co-arbitrators to answer by 17 June 2020. Furthermore, on 16 June 2020, Respondent requested that the “upcoming hearing be adjourned and the proceedings stayed generally”, and informed that it would not participate in any further Hearing preparation activities.

77. On 17 June 2020, Professor Pavić provided his answers to Respondent’s questions raised in the letter dated 15 June 2020.

78. On that same day, Claimant objected to any further engagement of the Tribunal with Respondent’s requests and noted that the individual members of the Tribunal should not act on Respondent’s letter until Claimant had the opportunity to be heard.

79. Still on that same day, Claimant noted that Respondent had been aware of the fact that Claimant was working with Mr. Lapuerta and noted his previous interactions with Mr. Alexandrov. Claimant requested that the Tribunal “continue the hearing until [Respondent’s] impending challenge has been heard and determined”. Claimant informed that it did not consent to a stay of the proceedings as a whole.

80. On 18 June 2020, Mr. Rowley informed the Parties that his answers to Respondent’s questions raised in the letter dated 15 June 2020 were the same as those provided by Professor Pavić in his e-mail of 17 June 2020.

81. On 18 June 2020, the Tribunal issued PO 13, deciding to postpone the Hearing, which had been scheduled for 28 June to 5 July 2020.

82. On that same day, Respondent reiterated its request for a stay of the proceedings – while Claimant requested that the Tribunal reject such request. Claimant also noted that if Respondent failed to submit its sur-rebuttal on 19 June 2020, the Tribunal should conclude that Respondent had waived the right to do so.

83. On 19 June 2020, the Tribunal confirmed all procedural orders that it had issued to date in these proceedings.

84. Without prejudice to its objections to the constitution of the Tribunal, on 20 June 2020, Respondent submitted its sur-rebuttal evidence pursuant to PO 11, together with an updated list of legal authorities and index of sur-rebuttal materials. Furthermore, Respondent formally objected to the Tribunal’s decision of 12 June 2020 not to allow Respondent to file an expert report by a Ukrainian tax consultant.

85. On 20 June 2020, the Tribunal reiterated that all procedural orders that it had issued in the proceedings remained in place and that the proceedings were not suspended.

86. By letter dated 21 June 2020, the Presiding Arbitrator, Mr. Alexandrov, resigned.

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7. CHALLENGE OF CO-ARBITRATORS AND APPOINTMENT OF PROFESSOR ARMESTO

87. On 25 June 2020, the co-arbitrators, Mr. Rowley and Professor Pavić, informed the Parties that they were in the process of selecting a new Presiding Arbitrator.

88. On that same day, Respondent separately requested that Professor Pavić and Mr. Rowley address certain issues arising in relation to PO 1 and consider the manner of Mr. Alexandrov’s resignation by 29 June 2020. Respondent requested that the co-arbitrators avoid coordinating their answers with one another.

89. On 26 June 2020, Claimant objected to Respondent’s letter, in particular to Respondent’s request to disclose the Tribunal’s internal deliberations and communications, to Respondent’s “attempt to extend its deadline for a challenge beyond 29 June 2020”, and to Respondent’s “assertion that the process of selecting a new Presiding Arbitrator may not begin until 15 days after Mr. Alexandrov’s letter of resignation”.

90. On 27 June 2020, Professor Pavić informed the Parties that, having considered their letters, he was not aware of any circumstances that might require disclosure or warrant an amendment of his “unqualified Statement of Availability and Independence and Impartiality”.

91. On 29 June 2020, Mr. Rowley informed the Parties that, having considered their letters, he remained independent and impartial and noted that the process of appointment of a new Presiding Arbitrator was underway.

92. On 29 June 2020, Mr. Rowley and Professor Pavić appointed Professor Fernández-Armesto as the new Presiding Arbitrator.

93. On the same day, Respondent submitted a Notice of Challenge against Mr. Rowley and Professor Pavić [the “Challenge”].

94. On 1 July 2020, Claimant objected to Respondent’s Challenge.

95. On that same day, the PCA circulated the Declaration of Acceptance and Statement of Independence and Impartiality of Mr. Fernández-Armesto, his curriculum vitae and acceptance and disclosure letter dated 1 July 2020.

96. On 2 July 2020, Respondent objected to Claimant’s letter regarding the Challenge.

97. On 4 July 2020, the co-arbitrators informed the Parties that they did not intend to resign in the face of Respondent’s Challenge.

98. On that same day, Respondent expressed its disappointment with the co-arbitrators’ decision “to rush the appointment of the new presiding arbitrator”. Furthermore, Respondent requested that the members of the Tribunal answer several questions related to the appointment of Professor Fernández-Armesto, and particularly whether Mr. Alexandrov had had any role in the appointment. Respondent also requested the members of the Tribunal to confirm that “no further steps [would] be

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taken in these proceedings until completion of the determination of the [C]hallenge”.

99. By communication A1 dated 5 July 2020, the Tribunal invited Claimant to submit its comments to Respondent’s letter of 4 July 2020.

100. On 6 July 2020, Respondent communicated the Challenge to Professor Reiner for decision in his capacity as Appointing Authority. However, on 7 July 2020, Professor Reiner resigned as Appointing Authority.

101. On 8 July 2020, Claimant submitted its comments to Respondent’s letter of 4 July 2020 and commented on the appointment of the new Presiding Arbitrator and the next steps in this arbitration. On the following day, Claimant requested that the Secretary-General of the PCA designate a new Appointing Authority, on an expedited basis, to decide the pending Challenge.

102. On 10 July 2020, Respondent requested that the Secretary-General of the PCA apply certain criteria for selecting the Appointing Authority and requested that the name of any prospective candidate be communicated to the Parties for their comments prior to designation – to which Claimant objected, asking that the “usual procedure” for the designation of the Appointing Authority be followed.

103. On 14 July 2020, the PCA informed the Parties, inter alia, that:

• When asked to designate an Appointing Authority, the Secretary-General of the PCA does so by way of direct designation, without divulging the names of candidates beforehand; and
• The Parties’ comments regarding the profile of the Appointing Authority to be designated, as well as any further comments received from the Parties prior to 17 July 2020, would be submitted for the consideration of the Secretary-General of the PCA prior to designation.

104. On that same day, the Presiding Arbitrator, Professor Fernández-Armesto, addressed the issues raised in Respondent’s letter dated 4 July 2020. And on 16 July 2020, the co-arbitrators confirmed that Mr. Alexandrov had no role in suggesting or communicating with Professor Fernández-Armesto in relation to his appointment.

105. On 28 July 2020, the PCA informed the Parties that the Secretary-General of the PCA had designated Judge Geert J. M. Corstens as Appointing Authority in these proceedings.

106. On 7 October 2020, the Appointing Authority rejected the Challenge, after finding that⁷:

“[...] the applicable Article 10 of the UNCITRAL Rules provides that only ‘circumstances [...] that give rise to justifiable doubts as to the arbitrator’s

⁷ Judge Geert J.M. Corstens’ “Decision on the Respondent’s Challenge to Professor Vladimir Pavić and Mr. J. William Rowley QC as Arbitrators”, dated 7 October 2020, para. 45. ↩

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impartiality or independence’ may be grounds for challenges. That means that doubts must be justifiable to warrant disqualification of an arbitrator. Mere speculations do not suffice. In conclusion, I consider that there are no points raised by the Respondent that establish reasonable doubts as to the impartiality of the co-arbitrators”.

8. CONSULTATIONS REGARDING FURTHER SUBMISSIONS AND HEARING

107. By communication A2, the Tribunal – without prejudice to the Challenge that remained pending at the time – invited the Parties to present their views on the duration and timing of the Hearing, the necessity of additional submissions by the Parties, if any, and the marshalling of additional evidence, if any. Accordingly, on 22 July 2020, each of the Parties presented its comments.

108. On 28 July 2020, the Tribunal transmitted to the Parties its communication A3, pursuant to which it decided (without prejudice to the pending Challenge) that:

• The Parties should submit a pre-Hearing summary [“PH Summary”], summarizing the facts and the law, along with a reference to all relevant evidence;
• Claimant would file its PH Summary on 25 November 2020, and Respondent on 24 March 2021;
• No further submissions of marshalling of evidence by either Party was allowed;
• Given the availability of the Parties and the members of the Tribunal, the weeks of 6 September and 13 September 2021 were reserved for a Hearing to be held in person or by virtual conference.

109. On 31 July 2020, Claimant requested that the Tribunal reconsider its decision to postpone the Hearing until September 2021, and to hold the Hearing as soon as possible. Furthermore, Claimant asked that the PH Summaries be filed simultaneously two months after the Tribunal’s ruling on Claimant’s request.

110. The Tribunal invited Respondent to submit its comments on Claimant’s request for reconsideration – which Respondent did on 13 August 2020. On 20 August 2020, the Tribunal issued communication A5, rejecting Claimant’s request and re-affirming its decision of 28 July 2020 (without prejudice to the pending Challenge).

A. Pre-Hearing Summaries

111. On 25 November 2020, Claimant submitted its PH Summary [“CPreHS”].

112. On 12 March 2021, Respondent requested that the Tribunal reconsider its decision of 12 June 2020 concerning Respondent’s submission of sur-rebuttal evidence – to which Claimant objected on 30 March 2021.

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113. On 24 March 2021, Respondent submitted its PH Summary [“RPreHS”], together with certain corrections to one of its expert reports.

B. Hearing arrangements III

114. On 15 July 2021, Respondent informed the Tribunal that the Parties had been able to agree on several matters relating to the Hearing and submitted its proposals for the areas of disagreement. On that same day, Claimant confirmed the areas of agreement and filed its proposals on the points of disagreement.

115. By communication A11 dated 23 July 2021, the Tribunal informed the Parties of its decision concerning the points of disagreement between the Parties regarding the Hearing, including the examination of Respondent’s expert witnesses, closing oral submissions, and the option of holding the Hearing virtually should circumstances so require.

116. On 9 August 2021, the Parties informed the Tribunal of their agreement to hold the Hearing in person as scheduled.

117. Accordingly, on 13 August 2021, the Tribunal confirmed that the Hearing would be held in person in The Hague and invited the Parties to liaise and seek agreement on the remaining practicalities of the Hearing.

118. On 16 August 2021, Respondent requested that the Tribunal amend its decision in PO 12 on the timing for the direct examination/opening presentations of the experts at the Hearing, proposing that each witness be granted additional time to make their expert presentations. By letter of the same date, Claimant requested that the Tribunal amend its decision on the same matter, proposing instead that the Tribunal grant each Party the discretion to determine for itself the amount of time to spend on direct examination, and maintain the time limits set out in PO 12 in relation to the opening presentations.

119. By communication A15 dated 18 August 2021, the Tribunal issued its decision on the allocation of time for the direct examination of witnesses.

120. On 25 August 2021, Claimant notified the Tribunal that its fact witness, scheduled to appear at the Hearing, was unable to testify, and requested that another fact witness be called to testify in his stead. Respondent objected to this requested, after which Claimant filed a further response suggesting an alteration of the hearing schedule.

121. On 31 August 2021, the Tribunal decided to change the Hearing schedule, to accommodate the appearance of Claimant’s witness.

122. Therefore, on 3 September 2021, Claimant shared a proposal for the updated hearing schedule, agreed between the Parties. The Tribunal adopted the Parties’ proposed Hearing schedule.

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9. HEARING

123. The Hearing on all issues in this matter took place from 6 to 15 September 2021 in the Peace Palace in The Hague, the Netherlands, and was also hosted on the Zoom platform to facilitate the remote attendance of some participants.

124. The following individuals attended the Hearing⁸:

⁸ Remote participants are indicated with an asterisk. ↩

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125. The Parties produced the following exhibits at the Hearing:

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126. The Hearing was recorded and transcribed, and the Parties and the Arbitral Tribunal were provided with the Hearing transcript [“HT”].

10. POST-HEARING SUBMISSIONS

127. At the end of the Hearing the Parties and the Arbitral Tribunal discussed the post-Hearing phase. The Parties and the Tribunal’s agreements were reflected in PO 14.

128. The Parties sent their first post-Hearing briefs on 19 November 2021 [“CPHB I” and “RPHB I”].

129. Thereafter, the Tribunal asked the Parties for an additional clarification in their second post-Hearing Briefs. In particular, the Tribunal invited the Parties to⁹:

“[...] provide additional briefing on whether there is or has been any law enforcement and/or parliamentary investigation into the privatization of the energy sector in Ukraine between 2012 and 2014, and especially with respect to the ‘Akhmetov Group’, or DTEK Krymenergo in particular”.

130. By letters of 10 and 13 December 2021, Claimant and Respondent, respectively, requested leave to submit new evidence regarding this issue. The Parties only disagreed on the production of one category of evidence offered by Respondent, which Claimant considered unreliable and prejudicial for Claimant.

131. In its decision A23 the Tribunal admitted all the evidence proposed by the Parties into the record, finding that it would otherwise be pre-judging its decision on the evidence.

132. The Parties sent their second post-Hearing briefs on 17 December 2021 [“CPHB II” and “RPHB II”].

133. With its Second Post-Hearing Brief Respondent purported to introduce 49 new exhibits responsive to the Tribunal’s communication A22. Thereafter, Claimant identified 21 out of 49 Respondent’s new exhibits as being allegedly “non-responsive” and requested the Tribunal to decline their admission. Respondent, in turn, asked that Claimant’s motion be denied. In communication A25 the Tribunal informed the Parties that it would make a decision on the admissibility of the 21 exhibits in its future award. The Tribunal’s decision can be found in section VI.6.3.1A.c infra.

134. The Parties submitted their statements of costs on 21 January 2022 [“C SofC” and “R SofC”].

⁹ Tribunal’s communication A22, para. 3. ↩

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11. OTHER INCIDENTS AND CLOSING OF HEARINGS

A. Request for change of place of arbitration

135. On 23 August 2022, Respondent submitted a request to move the place of arbitration from The Hague (Netherlands) to Paris (France) or an alternative jurisdiction [Dubai (UAE), Cairo (Egypt) or Beirut (Lebanon)]. Claimant objected to this request, asking the Tribunal to maintain The Hague as the place of arbitration. Each of the Parties filed two further submissions on the issue.

136. By decision A30 dated 11 October 2022, the Tribunal decided to reject Respondent’s request, after finding that:

• Arbitral practice shows that moving the arbitral seat is an ultima ratio measure, where there is no other way to guarantee the integrity of the arbitration, the enforceability of the award or the parties’ due process rights;
• There was no evidence that the Dutch legal and judicial system was unable to guarantee Respondent’s due process rights, in the form of appropriate legal representation before the Dutch Courts – and therefore no reason that would justify moving the place of arbitration.

B. Naftogaz final award

137. On 9 May 2023, the Tribunal invited the Parties to submit any further awards or judgments, including separate opinions, delivered after the last round of written submissions, which might be useful to the Tribunal before closing the proceedings and adjudicating the case.

138. On 24 and 25 May 2023, both Parties agreed that the final award in the Naftogaz case, together with the dissenting opinion, were relevant to the Tribunal’s decisions in the present case. The Tribunal asked the PCA Registry for help to obtain NJSC Naftogaz’s consent to the provision of the final award to the record.

139. On 27 June 2023, Claimant filed a copy of the Naftogaz final award¹⁰ (together with a correction to the final award and a dissenting opinion), after Naftogaz initiated enforcement proceedings in the United States, which resulted in the final award becoming public.

C. Verbal Note

140. On 12 September 2023, Respondent addressed a letter to the Tribunal, seeking leave to submit a copy of the Verbal Note addressed by the Ministry of Foreign Affairs of the Russian Federation to the Ministry of Foreign Affairs of Ukraine on 21 August 2023 [“Verbal Note”].

141. Respondent argued that the Verbal Note was a “development [that] should be brought to the attention of the Tribunal”, and that it “believes that the Verbal Note is self-evidencing, and no Parties’ submissions are required [...]”. Claimant, in turn,

¹⁰ Doc. CLA-142, Naftogaz (Final Award). ↩

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objected to the admission of the Verbal Note into the record on the basis of relevance and because it is “an unsolicited substantive filing that is not provided for in the procedural calendar of this case”.

142. On 26 September 2023, the Tribunal authorized Respondent to produce the Verbal Note, considering that it was a novel document, that could not previously have been marshalled by Russia. The Tribunal noted that it would advise the Parties if further submissions were necessary, after it had the opportunity to review the contents of the Verbal Note.

143. The Verbal Note reads as follows¹¹:

“Ministry of Foreign Affairs of the Russian Federation on behalf of the Russian Federation notifies of the following.

The Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments of 27 November 1998, shall apply to legal relations arising out of investments made in accordance with the legislation of the Russian Federation in the territory of Donetsk People’s Republic, Lugansk People’s Republic, Zaporozhye region and Kherson region, including but not limited to for the purposes of gaining profits, by investor of the Contracting Party, from the date following the accession of the mentioned territories to the Russian Federation and constitution of new entities therein, provided investments of investors registered on the territories of new entities of the Russian Federation are protected in Ukraine.

Further, the Russian Federation confirms that the Agreement shall apply similarly to the Republic of Crimea and federal city of Sevastopol”.

144. On 23 October 2023, Respondent informed the Tribunal that it had received a Note of the Embassy of Ukraine in the Republic of Belarus dated 7 September 2023 in response to the Verbal Note. Respondent offered to submit this Note into the record, should the Tribunal deem it helpful, while Claimant argued it was too late for additional documents to be considered by the Tribunal. On 30 October 2023, the Tribunal confirmed that it was sufficiently briefed and saw no need to obtain the Note of the Embassy of Ukraine.

145. The Parties did not request, and, in view of this, the Tribunal did not consider necessary, to have further submissions on this issue.

* * *

146. On 30 October 2023, the Tribunal declared the proceedings closed, in accordance with Article 29(1) of the UNCITRAL Rules.

¹¹ Verbal Note submitted by Respondent on 26 September 2023, as per the Tribunal’s instructions in communication A36. ↩

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12. DEPOSITS

147. By letter dated 1 November 2018, the PCA invited the Parties, on behalf of the Tribunal, to pay the sum of USD 400,000 (USD 200,000 from each Party) to establish the deposit on costs in accordance with Article 41(1) of the UNCITRAL Rules and paragraph 13(a) of PO 1 by 14 November 2018. On 26 November 2018, the PCA invited each Party to provide the remittance advice confirming payment of its share of the deposit.

148. By letter dated 12 December 2018, the PCA informed the Parties, on behalf of the Tribunal, that unless one or another of the Parties made the payment of the initial deposit by 17 December 2018, the Tribunal would proceed to suspend the proceedings.

149. On 17 December 2018, Claimant paid the sum of USD 400,000, representing its share and Respondent’s share of the initial deposit (given that Respondent was initially not participating in the proceedings).

150. On 30 April 2019 (that is, after Respondent had indicated its intention to participate in the proceedings), Respondent requested an extension of the deadline set forth in PO 3 for the payment of Respondent’s share of the initial deposit. On 1 May 2019, the Tribunal granted Respondent’s request and invited it to make the requested payment by 20 May 2019.

151. On 20 May 2019, Respondent advised that “the necessary budgetary procedures ha[d] not been completed yet” and requested a further extension to make the required payment in the course of the week commencing 27 May 2019.

152. On 29 May 2019, Respondent paid the sum of USD 200,000, representing Respondent’s share of the initial deposit.

153. On 6 August 2019, the PCA reimbursed USD 200,000 to Claimant, representing Claimant’s original payment of the initial deposit on behalf of Respondent.

154. By letter dated 9 October 2019, the PCA invited the Parties, on behalf of the Tribunal, to make a supplementary deposit of USD 400,000 (USD 200,000 from each Party).

155. On 6 November 2019, Claimant paid the sum of USD 200,000, representing Claimant’s share of the supplementary deposit requested on 9 October 2019.

156. On 31 December 2019, Respondent paid the sum of USD 200,000, representing Respondent’s share of the supplementary deposit requested on 9 October 2019.

157. By letter dated 4 June 2020, the PCA invited the Parties, on behalf of the Tribunal, to make a supplementary deposit of USD 800,000 (USD 400,000 from each Party) by no later than 6 July 2020. On 5 June 2020, the PCA corrected the date of payment specified in its letter dated 4 June 2020 and invited the Parties to make the supplementary deposit by 19 June 2020.

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158. On 5 June 2020, Respondent informed the Tribunal that it would not be “possible for Respondent to comply with the two-week deadline for the payment of its portion of the deposit” due to complex budgetary proceedings and the COVID-19 pandemic. Respondent requested that the Tribunal (i) extend the deadline for the deposit payment until 19 July 2020; and (ii) provide an approximate breakdown of fees and expenses included in the requested deposit payment.

159. On 8 June 2020, Claimant indicated that (i) it agreed that it would be helpful to see a breakdown of the fees and expenses included in the supplementary deposit payment; and, (ii) “[c]onsistent with the principle of equality of the parties”, it expected that any new deadline granted to Respondent would also apply to Claimant.

160. On 9 June 2020, the Tribunal (i) granted Respondent an extension until 19 July 2020 for the payment of the supplementary deposit; (ii) invited Claimant to confirm that it would make the requested payment by 19 June 2020, noting, inter alia, that, if no payment was received by such date, the Tribunal would need to reschedule the Hearing (at the time scheduled for 28 June to 5 July 2020); and (iii) circulated an interim statement of account and a breakdown of estimated fees and expenses for the Parties’ information.

161. On 12 June 2020, Claimant informed the PCA that the supplementary deposit of USD 400,000 might be completed “a day or two after the 19 June [2020] deadline, but in any event the funds [would] be received well in advance of the beginning of the [H]earing”.

162. On 16 June 2020 – after Respondent argued that Mr. Alexandrov should resign in light of his new disclosure – Respondent informed the Tribunal that it would put on hold the payment of the supplementary deposit of USD 400,000.

163. By letter dated 18 June 2020, Claimant informed the Tribunal that in view of the Tribunal’s decision to postpone the Hearing in PO 13, Claimant had suspended payment of the supplementary deposit of USD 400,000.

164. By letter dated 25 August 2020, the PCA invited the Parties, on behalf of the Tribunal, to make a supplementary deposit of USD 250,000 (USD 125,000 from each side) by 24 September 2020.

165. By letter dated 24 September 2020, Respondent requested a three-week extension of the deadline to make the supplementary deposit – which was granted by the Tribunal on 25 September 2020.

166. On 25 September 2020, Claimant paid the sum of USD 125,000, representing Claimant’s share of the supplementary deposit requested on 25 August 2020.

167. On 12 October 2020, Respondent paid the sum of USD 125,000, representing Respondent’s share of the supplementary deposit requested on 25 August 2020.

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168. By letter dated 5 July 2021, the PCA invited the Parties, on behalf of the Tribunal, to make a supplementary deposit of USD 400,000 (USD 200,000 from each side) by 5 August 2021.

169. On 8 July 2021, Respondent requested (i) an interim statement of account; and (ii) an extension of the deadline to pay its share of the supplementary deposit until 5 October 2021.

170. On 22 July 2021, the Tribunal (i) circulated an interim statement of account; and (ii) extended the deadline for payment of the supplementary deposit to 5 October 2021.

171. On 8 October 2021, Claimant paid the sum of USD 200,000, representing Claimant’s share of the supplementary deposit requested on 5 July 2021.

172. By letter dated 5 November 2021, the PCA noted that it had not yet received Respondent’s share of the deposit requested in July 2021, but that it understood that this was purely due to a clerical error and that payment was anticipated to be made shortly. Respondent was further requested to advise the Tribunal and the PCA as to the date on which it expected to make payment of the outstanding amount. Separately, and both bearing in mind the expense associated with the Hearing and in order to permit the Tribunal to move forward with its deliberations and drafting, the PCA invited the Parties, on behalf of the Tribunal, to make an additional supplementary deposit of USD 500,000 (USD 250,000 from each side) by 6 December 2021.

173. On 10 November 2021, Respondent (i) confirmed that payment of its share of the supplementary deposit requested on 5 July 2021 was expected to be made on 12 November 2021; and (ii) requested an extension until 31 January 2022 to pay its share of the additional supplementary deposit requested on 5 November 2021.

174. On 16 November 2021, Respondent paid the sum of USD 200,000, representing Respondent’s share of the supplementary deposit requested on 5 July 2021.

175. On 22 November 2021, the Tribunal (i) encouraged Respondent to make the supplementary deposit requested on 5 November 2021 as soon as practicable, and in any event by 31 January 2022; and (ii) requested Claimant to pay its share of the supplementary deposit by the deadline originally indicated (i.e., 6 December 2021) or sooner, should this be practicable, in order to avoid any disruption to the Tribunal’s ongoing work.

176. On 30 November 2021, Claimant indicated that it was not possible for it to make the requested payment before the end of the calendar year due to “certain internal budgetary constraints”, and requested to be permitted to pay its share of the supplementary deposit on the same terms as Respondent.

177. On 2 December 2021, the Tribunal granted Claimant’s request to be permitted to pay its share of the supplementary deposit by 31 January 2022.

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178. On 4 February 2022, Claimant paid the sum of USD 250,000, representing Claimant’s share of the supplementary deposit requested on 5 November 2021.

179. On 10 February 2022, and further to a request for an update, Respondent informed that “a clerical error had occurred in the process of preparing the payment, which delayed the process”, and that it was making its best efforts to effectuate the payment of its share of the supplementary deposit as soon as possible.

180. On 15 February 2022, the Tribunal requested Respondent to take steps to effect the deposit requested on 5 November 2021 as soon as possible. Respondent was further requested to indicate the date by which the transfer for the outstanding amounts should be expected. On 18 February 2022, Respondent indicated that it expected that the payment would be effectuated “in 2-3 weeks”.

181. On 20 April 2022, the Tribunal noted that the PCA had not received Respondent’s share of the supplementary deposit requested on 5 November 2021, and invited Claimant, pursuant to Article 41(4) of the UNCITRAL Rules, to make a substitute payment of Respondent’s share (i.e., USD 250,000) as soon as practicable, in order to avoid any disruption to the Tribunal’s ongoing work on the preparation of its decision. The Tribunal clarified that this was not intended to relieve Respondent of its obligation to make payment of the requested supplementary deposit, and that it maintained its request for Respondent to do so as soon as possible.

182. On 6 May 2022, Respondent paid the sum of USD 250,000, representing Respondent’s share of the supplementary deposit requested on 5 November 2021. Accordingly, on the same day, the Tribunal’s invitation for Claimant to make a substitute payment of Respondent’s share was rescinded.

183. By letter dated 14 August 2023, the PCA invited the Parties, on behalf of the Tribunal, to pay a final supplementary deposit of USD 430,000 (USD 215,000 from each side) by 13 September 2023.

184. On 18 August 2023, Claimant requested that a breakdown of expenses against income be provided supporting the request for a final supplementary deposit.

185. On 22 August 2023, the PCA, on behalf of the Tribunal, circulated an indicative accounting underpinning the request for a final supplementary deposit.

186. On 8 September 2023, the PCA invited Respondent, on behalf of the Tribunal, to make a deposit of EUR 210,784 (in lieu of USD 215,000), should Respondent wish to avail itself of the option to make the final supplementary deposit in euros, rather than in dollars.

187. On 12 September 2023, Claimant paid the sum of USD 215,000, representing Claimant’s share of the final supplementary deposit requested on 14 August 2023.

188. On 25 September 2023, and further to a request for an update, Respondent informed that “internal procedures” had been initiated to make the supplementary deposit in the alternative euro amount, confirming that it remained “fully dedicated” to the

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payment of its share of the deposit and noting that it anticipated that the payment process “may take up to 2 months”.

189. On 4 October 2023, the PCA, on behalf of the Tribunal, advised that the Tribunal’s award was substantially ready for issuance; noting that, should Claimant wish to avail itself of the option to make a substitute deposit of USD 215,000 in lieu of Respondent, the Tribunal would proceed to issue its award as soon as it was finalized.

190. On 31 October 2023, Claimant paid the sum of USD 215,000, representing Respondent’s share of the final supplementary deposit requested on 14 August 2023.

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IV. FACTUAL BACKGROUND

191. As of January 2015, Krymenergo operated the power distribution grid system¹² and distributed electricity¹³ on the Crimean Peninsula (with the exception of the grid systems of the City of Sevastopol and Shelkino, which, starting from 1995 and 1996 respectively, were operated by separate entities).

192. Claimant serviced a territory of approximately 27,000 square kilometers, providing electricity to more than 780,000 consumers. Its operations in Crimea were organized into 23 district electric networks and two municipal electric networks¹⁴. These operations were supported by a number of assets in Crimea, including real property¹⁵, equipment and movable property¹⁶, intangible assets¹⁷, such as licenses and contracts, and cash and securities¹⁸.

193. Between 2006 and 2012, the “DTEK Energy Group”, a group of companies beneficially owned by Mr. Rinat Akhmetov, purchased a total of 57.6% of the capital of Krymenergo¹⁹.

194. On 27 February 2014, Russian military forces occupied the building of the State Council of Crimea (i.e., the regional legislature) in Simferopol²⁰.

195. On 16 March 2014, an independence referendum was held²¹, and the next day the State Council of Crimea enacted Resolution No. 1745-6/14, declaring the Republic of Crimea an independent state [“Independence Resolution”]²².

196. On 18 March 2014, the Russian Federation entered into the Treaty Between the Russian Federation and the Republic of Crimea on the Admission to the Russian Federation of the Republic of Crimea and the Formation of New Constituent Entities Within the Russian Federation [“Annexation Treaty”]²³. This incorporated Crimea and the Federal City of Sevastopol into the Russian Federation as two new subjects and extended the application of Russian law to the region²⁴.

197. On 21 March 2014, the Russian Federation adopted a Federal Constitutional Law “on the Admission of the Republic of Crimea to the Russian Federation, and the Formation of the New Constituent Entities with the Russian Federation – the Republic of the Crimea and the Federal City of Sevastopol” [“Incorporation Law”

¹² R II, para. 22; C I, para. 44. ↩
¹³ C I, para. 12; Sokolovskiy WS I, para. 19. ↩
¹⁴ C I, para. 18; Maslov WS, para. 20; Doc. CE-1, p. 74. ↩
¹⁵ Maslov WS, paras. 20-23; Doc. CE-1, pp. 2, 9, 67, 74; Doc. CE-37. ↩
¹⁶ Belyaev WS, paras. 11, 21. ↩
¹⁷ Belyaev WS, paras. 21-22; Docs. CE-38, CE-39, CE-40 and CE-1, pp. 69-70. ↩
¹⁸ Belyaev WS, para. 21; Docs. CE-41 and CE-42. ↩
¹⁹ Docs. RE-68 and CE-11. ↩
²⁰ C I, para. 25. See also Doc. CE-43, paras. 155-158 and Doc. CE-44. ↩
²¹ Docs. CE-45 and CE-46. ↩
²² Doc. CE-46. ↩
²³ Doc. CE-48; Maggs ER, para. 36. ↩
²⁴ Doc. CE-48, Articles 2 and 9(1); Maggs ER, paras. 38, 43. ↩

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or “Law No. 6-FKZ”]²⁵. Both the Annexation Treaty (in its Article 6) and the Law No. 6-FKZ provided a transition period until 1 January 2015 for all rights and duties in the Republic of Crimea to be integrated into the Russian legal system.

198. In accordance with the Incorporation Law, the Russian Federation took further steps to integrate Crimea into the Russian state: Russia introduced the Ruble as the official currency in Crimea; the Ministry of Justice of the Russian Federation formed the Federal Bailiff Services of the Republic of Crimea, which was tasked with enforcing decisions of Crimea’s new courts; and the Ministry of Internal Affairs of the Russian Federation established a regional operation in Crimea²⁶.

199. On 30 April 2014, the State Council of Crimea issued Resolution No. 2085-6/14, expropriating certain properties within the Republic of Crimea, including Ukrainian state-owned property and “abandoned properties” [“Expropriation Resolution”]²⁷.

200. On 26 May 2014, Claimant restructured its corporate presence in Crimea, moving its corporate seat to Kyiv, Ukraine, and registering a branch office in Crimea [the “Branch”]²⁸.

201. On 29 May 2014, the Russian tax authorities issued a certificate registering Claimant as a foreign entity doing business in Crimea²⁹.

202. On 11 August 2014, the Russian government issued a Decree on the regulation of electricity in Crimea, which, among other things, provided that only designated entities were permitted to distribute electricity in Crimea³⁰.

203. On 29 August 2014, the Russian authorities in Crimea designated Claimant’s Branch as an authorized supplier of electricity in Crimea³¹.

204. On 21 October 2014, the Russian authorities approved Claimant’s investment program, committing to compensate Claimant for expenses incurred in a number of planned maintenance and upgrade projects³². On 27 October 2014 and 19 December 2014, the Russian authorities in Crimea set regulated tariffs for the supply of electricity by the Branch³³.

205. On 4 December 2014, Russia’s Ministry of Justice issued a certificate of accreditation to the Branch³⁴.

²⁵ Doc. CE-49; Maggs ER, paras. 43-44. ↩
²⁶ Doc. CE-49; Maggs ER, paras. 56-58; Docs. CE-50, CE-51, CE-52. ↩
²⁷ Doc. CE-80, Article 1. ↩
²⁸ Docs. CE-60, CE-61, CE-62, CE-63, CE-64. ↩
²⁹ Doc. CE-66. ↩
³⁰ Doc. CE-67. See also, Belyaev WS, para. 16. ↩
³¹ Doc. CE-68. ↩
³² Doc. CE-71. ↩
³³ Docs. CE-69 and CE-70. ↩
³⁴ Maggs ER, paras. 83-84. ↩

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206. On 21 January 2015, the State Council amended the Expropriation Resolution to add to the list of expropriated properties all of Claimant’s tangible and intangible assets in Crimea [“Amendment Resolution”]³⁵. Also on 21 January 2015, the Crimean Council of Ministers adopted a regulation placing Krymenergo’s movable and immovable property in Crimea under the control of a separate company known as Russian Krymenergo³⁶. On the same day, employees of Russian Krymenergo, accompanied by uniformed security personnel, entered the Branch office³⁷.

³⁵ Doc. CE-79; Maggs ER, para. 92. ↩
³⁶ C I, para 56; Maggs ER, paras. 94-95; Doc. CE-81. ↩
³⁷ C I, para. 47; Sokolovskiy WS I, para. 32; Belyaev WS, para. 24. ↩

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V. REQUESTS FOR RELIEF

1. CLAIMANT'S REQUEST FOR RELIEF

207. Claimant seeks the following relief³⁸:

“As a result of the Russian Federation’s breaches of the Treaty, DTEK Krymenergo has been completely deprived of its investment without payment of any compensation. For the reasons provided in this Statement of Claim, its Reply and this Pre-Hearing Summary, DTEK Krymenergo requests that this Tribunal:

a. adjudge and declare that the Tribunal has jurisdiction to hear and adjudicate DTEK Krymenergo’s claims against the Russian Federation;

b. adjudge and declare that the Russian Federation has breached Articles 2, 3, and 5 of the BIT;

c. award DTEK Krymenergo damages in the amount of not less than US$ 421,198,000, plus a gross-up for Ukrainian taxes on the award and pre- and post-award interest compounded at Russia’s sovereign borrowing rate;

d. award DTEK Krymenergo its costs and legal fees in accordance with Article 40 of the UNCITRAL Rules; and

d. accord DTEK Krymenergo such other relief as it deems appropriate”.

2. RESPONDENT'S REQUEST FOR RELIEF

208. Respondent seeks relief as follows³⁹:

“For all of the foregoing reasons, the Russian Federation respectfully requests that this Tribunal:

1. Dismiss Claimant’s claims on the ground that the Tribunal lacks jurisdiction and/or Claimant’s claims are inadmissible.
2. In the alternative, dismiss Claimant’s claims on the merits in their entirety.
3. In the further alternative, find that Claimant is not entitled to the damages it seeks.
4. Order Claimant to pay all costs and expenses incurred by the Russian Federation in connection with this arbitration plus interest, to be quantified at the appropriate time upon the separate submissions of the Parties.

³⁸ CPreHS, para. 341; CPHB I, para. 202. See also C I, para. 177; C II, para. 152; CPHB II, para. 70. ↩
³⁹ RPHB I, para. 298. See also RPreHS, para. 337; RPHB II, para. 87; R II, para. 1248; R I, paras. 404-406. ↩

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5. Grant any further relief against Claimant that the Tribunal deems appropriate”.

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VI. JURISDICTION AND ADMISSIBILITY

209. Under Article 9, in connection with Articles 1(1), 1(2) and 1(4) of the BIT, the Tribunal has jurisdiction over Claimant’s claims provided that the following requirements are met:

• Claimant must qualify as a Ukrainian “investor”;
• There must be a dispute in connection with an “investment” between Claimant and Respondent;
• Claimant must have sent a written notice of dispute, accompanied by detailed comments to Respondent;
• Claimant and Respondent must have endeavored to settle the dispute through negotiations, if possible; and
• At least six months must have passed between the notice of the dispute and the commencement of the arbitration.

210. Russia raises four jurisdictional objections and one admissibility objection, which, Claimant submits, should all be dismissed. The Tribunal will address these objections in the subsequent sections (VI.2 through VI.6). For each of these objections, the Tribunal will start by summarizing Respondent’s position, followed by Claimant’s position and then make its decision.

211. However, before doing so, the Tribunal must address certain preliminary matters (VI.1).

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VI.1. PRELIMINARY MATTERS

1. THE BIT REMAINS IN FULL FORCE AND EFFECT

212. Notwithstanding the existence of an armed conflict between Ukraine and the Russian Federation, as of the date of this Award the BIT between Ukraine and the Russian Federation remains in full force and effect: the Treaty has not been declared invalid, it has not been terminated, nor has its operation been suspended⁴⁰.

213. This is consistent with the general principle of international law that the existence of an armed conflict does not ipso facto terminate or suspend the operation of treaties between the parties to the conflict⁴¹.

214. A State intending to terminate or withdraw from a treaty to which it is a party, or to suspend the operation of that treaty as a consequence of an armed conflict, must notify the other party to the treaty⁴². To date, the Parties have not drawn the Tribunal’s attention to any such notification either by the Russian Federation or by Ukraine.

2. THE SOVEREIGNTY OF CRIMEA IS NOT IN DISPUTE

215. Russia says that, in international law, a court or tribunal only has jurisdiction over a State to the extent that such State has expressly consented⁴³. For this reason, a court or tribunal cannot exercise jurisdiction over a claim requiring the prior determination of a necessary predicate issue over which it lacks jurisdiction. Neither Russia nor Ukraine has consented to any BIT tribunal attempting any determination of Crimea’s status – a necessary prerequisite to the adjudication of this dispute, but one which implies sovereignty and therefore is outside this Tribunal’s jurisdiction, preventing it from exercising jurisdiction⁴⁴.

216. Claimant disagrees and avers that this case does not present any question pertaining to the sovereignty over Crimea⁴⁵.

217. The Tribunal, by majority (the President and Mr. Rowley), agrees with Claimant.

218. This case does not involve a decision regarding the sovereignty of Crimea – a question on which Ukraine and the Russian Federation hold opposing views and which squarely falls outside the remit of this BIT Tribunal. This Tribunal is not called upon to rule on the legal status of Crimea as between two sovereigns, but on a claim which derives directly from the BIT: whether the assets owned by Claimant

⁴⁰ The Verbal Note sent by the Russian Federation to Ukraine on 21 August 2023 does not affect the operation of the BIT; rather it confirms that, in the opinion of the Russian Federation, the Treaty remains in full force and effect. ↩
⁴¹ International Law Commission, Draft Articles on the Effects of Armed Conflict on Treaties, Article 3. ↩
⁴² International Law Commission, Draft Articles on the Effects of Armed Conflict on Treaties, Article 9(1). ↩
⁴³ R I, para. 84. ↩
⁴⁴ RPreHS, paras. 81, 126; RPHB I, paras. 3, 22-24. ↩
⁴⁵ CPreHS, para. 99. ↩

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in Crimea and allegedly impaired by Russia were located, for purposes of the BIT (and only for those purposes), in the territory of the Russian Federation.

Case law

219. The case law confirms the Tribunal’s conclusion: multiple investment tribunals have addressed investment treaty claims pertaining to Crimea, without making any determination concerning sovereignty⁴⁶.

220. Russia cites to an award under the United Nations Convention on the Law of the Sea [“UNCLOS”], in the dispute concerning coastal rights in the Black Sea, Sea of Azov and Kerch Strait (Ukraine v. the Russian Federation)⁴⁷, where the tribunal considered⁴⁸:

“[...] that the question as to which State is sovereign over Crimea, and thus a ‘coastal State’ within the meaning of several provisions of the Convention invoked by Ukraine, is a prerequisite to the decision of the Arbitral Tribunal on a significant part of the claims of Ukraine”,

with the consequence that the arbitral tribunal lacked jurisdiction over certain of Ukraine’s claims⁴⁹:

“[...] the Arbitral Tribunal concludes that pursuant to Article 288, paragraph 1, of the Convention, it lacks jurisdiction over the dispute as submitted by Ukraine to the extent that a ruling of the Arbitral Tribunal on the merits of Ukraine’s claims necessarily requires it to decide, expressly or implicitly, on the sovereignty of either Party over Crimea”.

221. The UNCLOS award is, however, inapposite, because in that case the tribunal was called upon to decide sovereign rights of Russia and Ukraine regarding coastal waters. This Tribunal, however, is not asked and does not have to make any findings on sovereignty; it need only determine whether the allegedly impaired investment is located, at the time of impairment, in the territory controlled by the Russian Federation.

222. Russia also invokes the International Court of Justice [“ICJ”] decision in Monetary Gold⁵⁰, which found that international tribunals cannot exercise jurisdiction if a non-party State’s legal interest⁵¹:

“[...] would not only be affected by a decision but would form the very subject-matter of the decision”.

⁴⁶ Doc. CLA-106, Naftogaz (Partial Award), para. 161; Doc. CLA-3, Belbek, para. 158; Doc. CLA-8, Stabil, para. 128; Doc. CLA-4, Ukrnafta, para. 132 ↩
⁴⁷ Doc. RLA-129, Coastal State rights (Ukraine v. Russian Federation). ↩
⁴⁸ Doc. RLA-129, Coastal State rights (Ukraine v. Russian Federation), para. 154. ↩
⁴⁹ Doc. RLA-129, Coastal State rights (Ukraine v. Russian Federation), para. 197. ↩
⁵⁰ Doc. RLA-49, Monetary Gold. ↩
⁵¹ Doc. RLA-49, Monetary Gold, p. 32. ↩

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223. In that case, the ICJ found that it did not have jurisdiction, in the absence of the consent by and participation of Albania, to adjudicate the submissions made by Italy, because⁵²:

“[w]here, as in the present case, the vital issue to be settled concerns the international responsibility of a third State [Albania], the Court cannot, without the consent of that third State, give a decision on that issue binding upon any State, either the third State, or any of the parties before it”.

224. These principles, however, are irrelevant for the present case. The present dispute is between a Ukrainian corporation and the Russian Federation and only relates to the alleged impairment of assets owned by that Ukrainian corporation in the territory of the Russian Federation, in violation of the provisions of the BIT. It does not affect a “vital issue” concerning “the international responsibility” of Ukraine.

⁵² Doc. RLA-49, Monetary Gold, p. 33. ↩

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VI.2. FIRST JURISDICTIONAL OBJECTION: WAS THE
INVESTMENT MADE IN THE “TERRITORY” OF THE
RUSSIAN FEDERATION?

225. Article 1(4) of the BIT provides the following definition of “Territory”:

“Article 1: Definitions
[...]
(4) ‘Territory’ shall denote the territory of the Russian Federation or the territory of Ukraine (as well as)/[and also] their respective exclusive economic zone and the continental shelf as defined in conformity with international law”. [Claimant’s translation in round⁵³, Respondent’s in square brackets⁵⁴; emphasis by the Tribunal]

226. The Parties’ linguistic experts agree that the Russian conjunction a takzhe and its Ukrainian equivalent a takozh in Article 1(4) of the BIT have the same meaning, i.e., “and also” or “as well as”, which can be used interchangeably⁵⁵.

1. RESPONDENT'S POSITION

227. Respondent’s primary argument is that the BIT is not applicable to Crimea since there is a territorial dispute between the Russian Federation and Ukraine regarding the status of Crimea.

228. Respondent denies that the term “territory” as used in the BIT has essentially a geographic meaning encompassing areas over which a State exercises effective control; in Russia’s submission, the term is limited to “sovereign territory”. The Tribunal could only decide that Crimea is Russian territory on the basis that Russia enjoys there all sovereign rights, powers and functions. If Crimea is Russian territory, it is not Ukrainian territory, and the BIT only contemplates that a place lies in the territory of Russia or in the territory of Ukraine. It follows that if Russia has sovereignty, Ukraine does not, and if Russia has sovereign rights, Ukraine does not⁵⁶.

229. Respondent advances four reasons to support its position that “territory” means “sovereign territory”⁵⁷:

1.1 ORDINARY MEANING

230. Russia says that under international law the ordinary meaning of “territory of” a State is limited to sovereign territory. Article 29 of the Vienna Convention on the

⁵³ Doc. CLA-1. ↩
⁵⁴ Doc. RLA-127. ↩
⁵⁵ Kurokhtina ER, para. 38; Tyulenev ER, para. 19; Danylenko ER, paras. 37-38. ↩
⁵⁶ RPreHS, para. 85. ↩
⁵⁷ RPHB I, para. 11. ↩

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Law of Treaties [“VCLT”] confirms that the term “entire territory” refers to the sovereign territory⁵⁸. Dictionaries are of limited use in ascertaining ordinary meaning, but the definitions of territory relied on by Claimant denote sovereign territory⁵⁹.

231. The language of Article 1(4) of the BIT leads to the same conclusion⁶⁰:

• The formulation “the territory of” gives rise to a strong presumption that it only means sovereign territory of the State at issue;
• The use of the genitive preposition “of”, and the possessive adjective “its” throughout the BIT are indicative of the meaning “sovereign territory”;
• The BIT uses the disjunctive conjunction “or” (“the territory of the Russian Federation or the territory of the Ukraine”), because the two notions are mutually exclusive: an area cannot be both the territory of Russia and Ukraine at the same time; and
• The exclusive economic zones and the continental shelf do not form part of the State’s sovereign territory; when the Contracting Parties wished to extend the definition of territory beyond sovereign territory, they did so explicitly.

232. The term “the territory of” is not a generic term. Where this formulation is used in international law, there is a very strong presumption that it means “sovereign territory”⁶¹.

1.2 CONTEXT

233. The BIT’s broader provisions evidence the meaning of “the territory of” as only its sovereign territory. Pursuant to Article 1(5) of the BIT, each Contracting Party has competence to legislate on its territory to the exclusion of the other Contracting Party⁶². Other powers ascribed by the BIT are also quintessentially sovereign, e.g.⁶³:

• Power to exploit natural resources – Article 1(1)(d);
• Power to limit the activity of foreign investors – Article 3(2);
• Power to conclude treaties with other sovereign States over the territory – Article 3(3);
• Power to expropriate – Article 5(1); and

⁵⁸ RPHB I, para. 12. ↩
⁵⁹ RPHB I, para. 13. ↩
⁶⁰ RPHB I, para. 14. ↩
⁶¹ RPHB II, paras. 2, 4. ↩
⁶² RPreHS, para. 107. ↩
⁶³ RPreHS, para. 108. ↩

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• Power to tax – Article 7(1).

1.3 OBJECT AND PURPOSE

234. The BIT’s object and purpose confirm that the BIT cannot operate as per its terms in relation to Crimea⁶⁴.

235. Respondent submits that when two States conclude a BIT, they are necessarily in agreement on what constitutes their respective territories and which of them is sovereign over that territory – failing which there will be a substantive disagreement between the Contracting Parties⁶⁵.

236. In the present case there is a fundamental disagreement between the Russian Federation and Ukraine over the status of Crimea:

• Russia says that Crimea is Russian sovereign territory, Crimea-based legal entities are Russian, Russian law applies and the legality of investments is determined by Russian law⁶⁶;
• While Ukraine defends that Crimea is Ukrainian sovereign territory, Crimea-based legal entities are Ukrainian, the Russian Federation is merely an occupier of Crimea, Russia has no power to legislate in Crimea, the actions of Russian State entities in Crimea are null and void, Ukraine has sovereign power to legislate over Crimean territory (and does so) and its courts still have jurisdiction over issues arising in Crimea⁶⁷.

237. It follows that the BIT cannot apply to Crimea in the current situation, where there is no agreement between the Contracting Parties as to the territorial status of Crimea. Without mutual sovereign recognition, it is impossible to know⁶⁸:

• Whether an investment made in Crimea was made in the territory of the Russian Federation or of Ukraine;
• Whether an investor based in Crimea is Russian or Ukrainian;
• Whose law governs the investment; and
• Whether actions of State entities in Crimea are to be judged against Russian or Ukrainian law.

⁶⁴ RPHB I, para. 16. ↩
⁶⁵ RPHB I, para. 19. ↩
⁶⁶ RPHB I, para. 20. ↩
⁶⁷ RPHB I, para. 21. ↩
⁶⁸ RPHB I, para. 22. ↩

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1.4 GOOD FAITH

238. Finally, Russia says that unreasonable or absurd results in interpretation are incompatible with a good faith interpretation⁶⁹. The interpretation that “territory of” refers to territory under effective control leads to manifestly absurd and unreasonable results: the Russian Federation would owe to Ukrainian nationals based, for example, in Kyiv, the BIT’s benefits for investments made in Crimea, while Ukraine would owe no BIT protection to Russian nationals based in Crimea having made investments in Kyiv⁷⁰. The result would be the creation of unilateral obligations for Russia, and the very negation of the aims of the BIT, namely mutual economic development⁷¹.

239. It cannot be that Russia consented to arbitrate in situations where there is no mirror obligation incumbent in Ukraine. The obligations of a Contracting Party abate where it is clear that the counterparty will not perform its part⁷².

2. CLAIMANT'S POSITION

240. Claimant says that Article 1(4) of the BIT provides a broad definition of territory, which covers areas within a Contracting Party’s effective control or jurisdiction. Claimant recalls that in its Opening Statement, Respondent admitted that⁷³:

“[t]he Russian Federation’s position about Crimea is that Crimea is Russian sovereign territory”.

241. Claimant adds that if Russia believes that Crimea is part of its sovereign territory, it stands to follow that Russia exercises effective jurisdiction and control over Crimea⁷⁴. Claimant adds that after the annexation of Crimea, Ukraine has issued a declaration to several of its treaties acknowledging that it does not currently exercise effective control over Crimea and that the Russian Federation has assumed effective control⁷⁵.

2.1 ORDINARY MEANING

242. Claimant submits that the ordinary meaning of territory in Article 1(4) of the BIT is apparent from Russian, Ukrainian and English dictionaries and extends to areas under a Contracting Party’s effective control and jurisdiction⁷⁶.

243. The Russian Federation and Ukraine’s treaty practice shows that where each Contracting Party has intended to limit the definition of territory, each has done so explicitly. When, in its pre-2014 practice, Ukraine intended to define territory as

⁶⁹ RPHB I, para. 33. ↩
⁷⁰ RPHB I, para. 31. ↩
⁷¹ RPHB I, para. 32. ↩
⁷² RPHB II, para. 13. ↩
⁷³ HT, Day 1, p. 153. ↩
⁷⁴ CPHB I, para. 60. ↩
⁷⁵ CPHB I, paras. 66-67. ↩
⁷⁶ CPHB I, para. 63. ↩

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encompassing sovereign territory in investment treaties, it explicitly did so, as seen in BITs with Egypt and Denmark⁷⁷. Meaningfully, the Contracting Parties chose not to reference sovereignty in the Ukraine-Russia BIT⁷⁸. Ukraine deferred to Russia’s preferred practice of leaving references to territory open-ended. Where States could have but chose not to adopt a restrictive definition of a treaty term, a narrow interpretation should not be imposed⁷⁹.

244. Claimant acknowledges that Crimea was not part of Russia in 1998, when the Treaty was signed, but that does not mean that Crimea cannot be Russian territory under the Treaty today. It is inherent in the generic term “territory” that its content might change over time⁸⁰. Since the ordinary meaning encompasses the entire area within a State’s jurisdiction and control, Crimea has been part of either the territory of Ukraine or the Russian Federation for the purposes of the BIT for the BIT’s entire duration⁸¹.

245. Claimant adds that Ukraine’s post-2014 treaty practice further confirms that Crimea is under the jurisdiction and effective control of the Russian Federation⁸², while in BITs negotiated post-annexation, Russia has continued to use substantially similar definitions⁸³.

2.2 CONTEXT

246. Claimant says that the context of the term territory in Article 1(4) of the BIT also makes clear that it only refers to areas under the effective control or jurisdiction of a Contracting Party. “Territory” includes “exclusive economic zone(s)” and the “continental shelf”, areas over which the Contracting States are not sovereign but hold certain sovereign rights⁸⁴.

2.3 OBJECT AND PURPOSE

247. In Claimant’s submission, the object and purpose of the BIT reinforces the conclusion that “territory” of the Russian Federation includes Crimea for purposes of the BIT. Since the purpose of the BIT, as explained in the preamble, is to create and maintain favorable conditions for mutual investments and create favorable conditions for the expansion of economic cooperation, such purpose would not be served if the Contracting Parties could, while claiming an area as under their jurisdiction, simultaneously disclaim obligations under the BIT over that same territory⁸⁵.

⁷⁷ CPHB I, para. 64. ↩
⁷⁸ CPHB I, para. 65, referring to Doc. CLA-4, Ukrnafta (Award on Jurisdiction), para. 147 and Doc. CLA-8, Stabil (Award on Jurisdiction), para. 143. ↩
⁷⁹ CPHB I, para. 65. ↩
⁸⁰ CPHB I, paras. 71-72, referring to Doc. CLA-101, Aegean Continental Shelf (Greece v. Turkey) and Doc. RLA-13, Dispute Regarding Navigational and Related Rights (Costa Rica v. Nicaragua). ↩
⁸¹ CPHB I, para. 74. ↩
⁸² CPHB I, para. 67, referring to Doc. CLA-127, BIT between Ukraine and the OPEC Fund. ↩
⁸³ CPHB I, para. 68. ↩
⁸⁴ CPHB I, para. 69. ↩
⁸⁵ CPHB I, para. 70. ↩

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2.4 GOOD FAITH

248. Claimant invokes Article 26 of the VCLT to say that Russia’s position violates the requirement of good faith and consistency recognized by international law: it is incompatible with good faith for Russia to aver that it has annexed Crimea, yet that its actions in Crimea are not subject to the BIT⁸⁶.

2.5 SUPPLEMENTARY MEAN OF INTERPRETATION

249. Claimant says that there is no need to resort to supplementary means of interpretation as the ordinary meaning of the word “territory” is unambiguous – it refers to the occupied territory of a Contracting State. In any event, the supplementary means of interpretation do not prove otherwise. The travaux préparatoires show that Ukraine proposed, while discussing the BIT, three definitions of territory which included the word “sovereignty” – like it did in its BITs with other States. But ultimately, the Contracting Parties chose not to include the word sovereignty in the final draft⁸⁷.

3. TRIBUNAL'S ANALYSIS

250. This first jurisdictional objection refers to the delimitation of the term “territory”, as used in Article 1(4) of the BIT (the text of which has been provided at the beginning of this section) – and which is then used in Articles 2 through 9 and in Article 12 of the BIT.

251. Respondent’s argument is two-pronged:

• First, Respondent says that Article 1(4) refers to the “sovereign territory” of the Russian Federation; and
• Then Respondent adds that there is a fundamental dispute between the Russian Federation and Ukraine over the status of Crimea: both say that Crimea forms part of their sovereign territory; this being so, the BIT cannot apply to Crimea, because without mutual recognition it is impossible to know in which territory the investment is made, whether a Crimean investor is Russian or Ukrainian, which laws govern the investment and whether actions of State entities in Crimea are to be judged against Russian or Ukrainian law⁸⁸.

252. Claimant disagrees, submitting that the term “territory” refers to territory which is under the effective control of the Russian Federation or of Ukraine and that, at the time when Russia adopted the impugned measures, Crimea was under the control of the Russian Federation.

253. The Tribunal, by majority (the President and Mr. Rowley), considers Claimant’s analysis to be correct: the “territory of the Russian Federation” includes all territory which, at the time of the alleged breach of the Treaty, is under the control of the

⁸⁶ CPHB I, para. 70. ↩
⁸⁷ CPreHS, paras. 95-96. ↩
⁸⁸ RPHB I, para. 22. ↩

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Russian Federation; there is no dispute that since 2014 Crimea is under the control of the Russian Federation – and the alleged breach occurred in 2015.

3.1 THE PROPER INTERPRETATION OF THE TERM "TERRITORY OF THE RUSSIAN
FEDERATION”

254. Under the general rule of treaty interpretation set forth in Article 31 of the VCLT, the Tribunal must be guided “in good faith” by the “ordinary meaning” of the terms, “in their context” and “in light of [the treaty’s] object and purpose”.

255. All these criteria support the interpretation proposed by Claimant.

A. Ordinary meaning

256. The ordinary meaning of the term “territory” encompasses the entire area within a State’s possession or control, over which a government exercises de facto jurisdictional powers – irrespective of the question of sovereignty. Black’s Law Dictionary, in its 10^th edition, confirms this definition by describing territory as⁸⁹:

“[a] geographical area included within a particular government’s jurisdiction; the portion of the earth’s surface that is in a state’s exclusive possession and control”.

257. The treaty practice of both the Russian Federation and Ukraine shows that where each Contracting Party has intended to limit the definition of territory, each has done so explicitly:

• When Ukraine, in its pre-2014 treaty practice, intended to define territory as encompassing “sovereign territory”, it explicitly did so, as shown in its BITs with Egypt⁹⁰, Lithuania⁹¹, Netherlands⁹², Slovak Republic⁹³, Sweden⁹⁴ and Denmark⁹⁵, all of which define the “territory” of each Contracting Party as “the territory under its sovereignty”;
• Russia’s practice was different: it preferred not to tie the term territory to the concept of sovereignty and to leave references to territory open-ended⁹⁶.

258. Russia and Ukraine thus had different preferences as regards the definition of territory to be used in their respective BITs. Article 1(4) of the Russia-Ukraine BIT

⁸⁹ Doc. CE-126. The Oxford English Dictionary defines the notion of “territory” in a similar fashion: “[t]he extent of the land belonging to or under the jurisdiction of a ruler, state, or group of people” (Doc. CE-125, p. 2). ↩
⁹⁰ Doc. CLA-6, Article 1(4). ↩
⁹¹ Doc. CLA-91, Article 1(4). ↩
⁹² Doc. CLA-92, Article 1(c). ↩
⁹³ Doc. CLA-93, Article 1(4). ↩
⁹⁴ Doc. CLA-94, Article 1(5). ↩
⁹⁵ Doc. CLA-7, Article 1(4). ↩
⁹⁶ See BITs between URSS/Russian Federation and Lithuania (Doc. CLA-48), Netherlands (Doc. CLA- 95), Slovak Republic (Doc. CLA-96) and Sweden (Doc. CLA-97). ↩

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does not include any reference to “sovereignty”; in accepting this wording, Ukraine deferred to Russia’s preferred practice of leaving references to territory open-ended.

259. There is an additional argument: Russia’s practice of not referring to “sovereign territory” continued even after the incorporation of Crimea into the Russian Federation. The BIT signed between the Russian Federation and the Kingdom of Bahrein on 29 April 2014 defines “territory of a Contracting Party” as⁹⁷:

“[...] in case of the Russian Federation, the territory of the Russian Federation as well as its exclusive economic zone and continental shelf as they are defined in the UN Convention on the Law of the Sea”.

260. Consequently, under this BIT, Russia extends investment protection to Bahraini investors in Crimea – there is no carve-out provision, stating that investments in Crimea do not enjoy protection, because of any predicate sovereignty issue over the territory.

Russia's counterargument

261. Russia says that the use of the genitive preposition “of”, and the possessive adjective “its” throughout the BIT are indicative of the meaning “sovereign territory”⁹⁸.

262. The argument is a non sequitur: “of” and “its” can refer either to sovereign territory, or to territory under effective control (e.g., when Article 2 says that “[e]ach Contracting Party will encourage investors of the other Contracting Party to make investments in its territory”, the defined term “territory” can mean “sovereign territory” or “territory under effective control” – the definition in Article 1 leaves both options available).

263. Respondent adds that the BIT uses the disjunctive conjunction “or” (“the territory of the Russian Federation or the territory of the Ukraine”), because the two notions are mutually exclusive: an area cannot be both the territory of Russia and Ukraine at the same time⁹⁹.

264. Again, the argument is not persuasive: it is true, as Russia says, that an area cannot be at the same time protected territory of Russia and of Ukraine; but under the interpretation favored by Claimant and the Tribunal, Crimea only forms part of the territory of the Russian Federation – not of Ukraine (because Ukraine does not exercise control over that territory). Consequently, an investment made in Crimea has been made in the territory of Russia, is ruled by Russian law and the action of State entities in Crimea are to be judged against Russian law.

265. Respondent has also raised the argument that the “contemporaneous meaning” of territory must prevail, with the implication that, since Crimea was not part of Russia

⁹⁷ Doc. CLA-129, Article 1(d)(i). ↩
⁹⁸ RPHB I, para. 14. ↩
⁹⁹ RPHB I, para. 14. ↩

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in 1998, when the Treaty was signed, Crimea cannot be Russian territory under the Treaty today¹⁰⁰.

266. The Tribunal disagrees: there is no indication that the Contracting Parties, when they signed the BIT, wished to restrict its geographic scope to the territories which, at that time, were under their respective control. To the contrary: the fact that the Contracting Parties did not include a reference to sovereignty is a clear indication that they wished that investments in new territories, which might in the future come under their control, also benefit from Treaty protection. In the Tribunal’s opinion, what is relevant is the territory which the Contracting Parties had under their effective control as of the date when the alleged breach of the Treaty occurred.

B. Context

267. The context also supports the interpretation that the term “territory” in Article 1(4) of the BIT refers to areas under the effective control of a Contracting Party. Article 1(4) does not only mention the “territory of the Contracting Parties”, but it also includes, within the scope of the Treaty, two other areas:

• The “respective exclusive economic zone”, and
• The “continental shelf”.

268. Under international law, States do not exercise sovereignty over their “exclusive economic zones” and “continental shelves”, but only hold certain sovereign rights with regard thereto¹⁰¹. The inclusion of these non-sovereign areas within the definition of “territory” reinforces the conclusion that no connection between protected land area and sovereignty should be required.

269. Russia says that the powers ascribed by the BIT to the Contracting Parties in their respective territories (competence to legislate, to exploit natural resources, to conclude treaties with other sovereigns, to expropriate, to tax, etc.) somehow support its position that territory can only refer to sovereign territory¹⁰².

270. Again, the Tribunal is unpersuaded: the Russian Federation is de facto exercising each of these powers in Crimea – with the consequence that Russia’s argument in fact provides support to the Tribunal’s preferred interpretation (without prejudice to the discussion on which State is sovereign over this territory, which, as discussed above, is not for this Tribunal to adjudicate).

C. Object and purpose

271. The object and purpose of the BIT also support the conclusion that the “territory” of the Russian Federation includes Crimea. As explained in the Preamble, the purpose of the BIT is “to create and maintain favorable conditions for mutual investments”. That purpose would not be served if a Contracting Party could, while

¹⁰⁰ RPreHS, para. 88. ↩
¹⁰¹ RPHB I, para. 14. ↩
¹⁰² RpreHS, paras. 108-109. ↩

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claiming an area under its control and sovereignty, simultaneously disclaim obligations under the BIT over that same territory.

272. Respondent submits that when two States conclude a BIT, they are necessarily in agreement on what constitutes their respective territories and which of them is sovereign over that territory – failing which there will be a substantive disagreement between the Contracting Parties¹⁰³.

273. The Tribunal agrees that, when the BIT was signed, Russia and Ukraine likely agreed on their respective areas of sovereignty. It is also clear that by now there is a disagreement between both powers whether Crimea is under the sovereignty of one or the other. But the existence of this disagreement does not affect the object and purpose of the BIT: to provide, in the totality of the territory under the control of one Contracting Party, protection to investments by investors from the other Contracting Party.

D. Good faith

274. Article 31(1) of the VCLT requires treaties to be interpreted “in good faith”. Article 26 adds that treaties “must be performed by [the parties] in good faith”.

275. The principle of good faith in the interpretation and performance of the BIT does not advance Russia’s position.

The position of the Russian Federation

276. Russian legislation affirms that Crimea forms part of Russia’s sovereign territory, having been incorporated in March 2014: upon the execution of the Annexation Treaty on 18 March 2014¹⁰⁴ and the decision of the Russian Constitutional Court dated 19 March 2014 that the Annexation Treaty complies with the Russian Constitution¹⁰⁵, a Federal Constitutional Law (approved by the State Duma on 20 March 2014 and by the Federation Council on 21 March 2014) admitted Crimea and Sevastopol to the Russian Federation¹⁰⁶.

277. In the course of these proceedings, the Russian Federation has explicitly reaffirmed that, in its view, Crimea forms part of its sovereign territory. During the Hearing, the Russian Federation averred that¹⁰⁷:

“The Russian Federation’s position about Crimea is that Crimea is Russian sovereign territory, that legal entities based in Crimea are Russian, their capacity to do business in Ukraine is determined by Russian law, the conditions for lawful foreign investments in Crimea are determined by Russian law”.

¹⁰³ RPHB I, para. 19. ↩
¹⁰⁴ Doc. CE-48. ↩
¹⁰⁵ Doc. AA-3. ↩
¹⁰⁶ Doc. CE-49. ↩
¹⁰⁷ HT, Day 1, p. 153 (Geisinger). ↩

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278. Russia repeated this position in the PHB¹⁰⁸.

The position of Ukraine

279. Ukraine, while denying that Crimea forms part of Russia’s sovereign territory, has acknowledged in international instruments that, since 2014, Crimea is “temporarily occupied” by the Russian Federation; for example, the agreement for the protection of investments between Ukraine and the OPEC Fund for International Development, signed in 2017, includes the following footnote¹⁰⁹:

“Taking into account that the Autonomous Republic of Crimea and the City of Sevastopol, which are indispensable parts of [Ukraine], are temporarily occupied, provisions of this Agreement do not apply to these temporarily occupied territories unless full jurisdiction of [Ukraine] over these territories is restored”.

Discussion

280. The Russian Federation, Ukraine (and Claimant) thus agree that, since 2014, Crimea forms part of the territory which Russia controls – this factual circumstance is accepted by both States. The disagreement refers to the question of sovereignty, since Russia and Ukraine both aver that Crimea forms part of their respective areas of sovereignty.

281. When the VCLT requires that treaties be interpreted in good faith, it implies that constructions which lead to contradictory positions must be rejected.

282. There is an unsurmountable contradiction in Russia’s posture:

• On the one hand, the Russian Federation claims that Crimea has been incorporated into and now forms part of its sovereign territory; but,
• On the other hand, Russia says that, notwithstanding this incorporation, its actions in that territory escape the jurisdictional scope of the BIT, which is restricted to sovereign territory.

283. The interpretation advanced by Russia clearly leads to a contradiction: in Russia’s submission, even though Article 1(4) of the BIT supposedly refers to sovereign territory, and Crimea forms part of Russia’s sovereign territory, investments in Crimea are not protected under the Treaty. This position must be rejected, as contrary to good faith.

Russia's additional argument

284. Russia says that the interpretation supported by the Tribunal leads to manifestly absurd and unreasonable results: the Russian Federation would, for example, owe the BIT’s benefits to Ukrainian nationals based in Kyiv, which have made

¹⁰⁸ RPHB I, para. 20. ↩
¹⁰⁹ Doc. CLA-127. See also the BIT between Ukraine and Turkey, signed 2017, Article 1, Doc. CLA-128. ↩

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investments in Crimea, while Ukraine would owe no BIT protection to Russian nationals based in Crimea having made investments in Kyiv¹¹⁰. The result would be the creation of unilateral obligations for Russia and the very negation of the aims of the BIT, namely mutual economic development¹¹¹.

285. Respondent’s argument is purely hypothetical: Russia has not drawn the Tribunal’s attention to any precedent where a Russian investor, domiciled in Crimea and owner of an investment in Ukraine, was denied protection under the Treaty. It is not for this Tribunal to speculate whether, in that situation, the Russian investor would or not enjoy Treaty protection.

3.2 THE RELEVANT DATE FOR THE DETERMINATION OF THE TERRITORY

286. The Parties discuss not only the proper construction of the term “territory of the Russian Federation”, but also the relevant time when the investment had to comply with this jurisdictional requirement.

287. Russia says that the relevant date to establish whether a territory forms part of the geographical scope of protection is the date when the Treaty was signed. Once signed, the territory under protection cannot change¹¹² – with the implication that, since in this case Crimea was not part of the territory of the Russian Federation at the time when the BIT was entered into, Ukrainian investments in Crimea would not enjoy protection.

288. In line with the reasoning set forth above regarding the Respondent’s argument about the “contemporaneous meaning” of territory, the Tribunal disagrees. The relevant time to establish the precise extension of “the territory of the Russian Federation” is the date when Russia adopted the impugned measures – i.e., January 2015¹¹³. The precise extension of the territory in 1998, when the BIT was executed, is irrelevant. The geographic scope of a State’s territory is by its very nature changeable and there is no evidence that the Contracting Parties wanted to freeze their respective territories as of the time when the Treaty entered into force.

289. There is an additional reason: assume that, by 2015, Russia had lost control over certain territories, which are now occupied by another power. These lost territories cannot form part of the “territory of the Russian Federation”, for the simple reason that the measures in that territory are not being adopted by Russia (but rather by the occupying power) and, consequently, Russia cannot have any international responsibility with regard to that territory.

290. The same principle holds true for the contrary situation: if occupied and controlled territories are incorporated into the Russian Federation, and it is the Russian Federation which adopts measures in these territories, the latter must form part, for purposes of Article 1(4) of the BIT, of the “territory of the Russian Federation”.

¹¹⁰ RPHB I, para. 31. ↩
¹¹¹ RPHB I, para. 32. ↩
¹¹² R I, paras. 145-146, 167. ↩
¹¹³ The extension of the territory had not changed by the time when Claimant initiated these proceedings by filing the Request for Arbitration in February 2018. ↩

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3.3 CONCLUSION

291. The First Jurisdictional Objection is dismissed for two reasons – the first reason is adopted by majority, and the second unanimously (so that, in the end, the First Jurisdictional Objection is dismissed unanimously).

292. First, the Tribunal, by majority (the President and Mr. Rowley), concludes that the proper interpretation of Article 1(4) of the BIT is that “territory of the Russian Federation” refers to the geographical area which, at the relevant date (which is the date of the impugned measures)¹¹⁴, was under the control of the Russian Federation; and there is no dispute that, at the relevant date in this case (the year 2015), Crimea was a territory under the control of the Russian Federation. There is a dispute between Ukraine and the Russian Federation regarding which of the two powers held (and still holds) sovereignty over Crimea – but this dispute does not taint the conclusion that, for purposes of the BIT, Crimea forms part of the territory which is entitled to receive protection.

293. Second, even if the term “territory” in Article 1(4) of the BIT is properly to be interpreted referring to “sovereign territory” (an interpretation considered incorrect by the Tribunal, with the dissenting opinion of one of its members), Respondent’s jurisdictional objection would still have to be rejected for a separate reason (and the rejection for this cause is supported by the Tribunal in its entirety).

294. In putting forward this First Jurisdictional Objection, Respondent has run afoul of the principle of good faith, one of the founding principles of law in general, and international law in particular. Respondent has publicly and repeatedly declared, including in this arbitration, that its firmly held position is that Crimea forms part of its sovereign territory. At the same time, Respondent denies that Crimea is its sovereign territory for the purposes of the BIT. For a treaty to be performed in good faith, a State has to maintain towards a given factual or legal situation an attitude consistent with its prior public proclamations and statements (allegans contraria non est audiendus)¹¹⁵. Respondent is thus estopped from arguing that the territory it unambiguously declares to be part of its sovereign territory, should not be regarded as protected territory under the BIT, when an investor claims protection for its investments in that very territory.

295. In the present case, Russia not only publicly declared and treated Crimea as its sovereign territory at all times after annexation, but also¹¹⁶:

• Requested Claimant to restructure its corporate presence in Crimea via the Branch and registered it as a foreign entity;
• Issued a tax certificate for its operation;

¹¹⁴ The situation had not changed by the date of the Request for Arbitration. ↩
¹¹⁵ Doc. CLA-107, B. Cheng, General Principles of Law as Applied by International Courts and Tribunals, pp. 141-142; Doc. CLA-12, Temple of Preah Vihear (Separate Opinion), p. 39 (“[A] State party to an international litigation is bound by its previous acts or attitude when they are in contradiction with its claims in litigation”). ↩
¹¹⁶ See section IV supra. ↩

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• Designated the Branch as an authorized supplier of electricity in Crimea; and
• Approved the Branch’s investment program and accredited it.

296. Upon expiration of the transitional period for full integration of the rights and duties in Crimea into the Russian legal system (as set forth in the Annexation Treaty), Claimant’s assets were expropriated. It follows that the impugned measures did not predate Russia’s statements with respect to sovereignty, but were undertaken after such statements had been made and after Crimea was, as per the Annexation Treaty, fully integrated into the Russian legal system.

3.4 CASE LAW

297. All arbitral and judicial decisions which have analyzed the concept of territory in the BIT have come to the same conclusion as the Tribunal, by majority.

298. Various arbitral awards have found that Crimea is under effective control of the Russian Federation; among them are Privatbank¹¹⁷, Belbek¹¹⁸, Ukrnafta¹¹⁹, Everest¹²⁰, Stabil¹²¹, and Naftogaz¹²². All these cases concern claims by Ukrainian investors who alleged that the Russian Federation had impaired their assets in Crimea.

299. A number of Dutch and Swiss Courts have come to the same conclusion:

• The Hague Court of Appeal has dismissed requests presented by the Russian Federation to set aside the abovementioned arbitral awards in Privatbank¹²³, Belbek¹²⁴, Naftogaz¹²⁵, and Everest¹²⁶, finding that the arbitral tribunals had properly applied the concept of territory and that Crimea must be considered part of Russia’s territory;
• The Swiss Supreme Court also dismissed requests by Russia for the set aside of the awards in Ukrnafta¹²⁷ and Stabil¹²⁸, confirming that the Crimean Peninsula must be regarded as Russian territory.

¹¹⁷ Doc. CLA-2, Privatbank. ↩
¹¹⁸ Doc. CLA-3, Belbek. ↩
¹¹⁹ Doc. CLA-4, Ukrnafta (Award on Jurisdiction). ↩
¹²⁰ Doc. CLA-5, Everest. ↩
¹²¹ Doc. CLA-8, Stabil (Award on Jurisdiction). ↩
¹²² Doc. CLA-106, Naftogaz (Partial Award). ↩
¹²³ Doc. CLA-141, PrivatBank (Appeal). ↩
¹²⁴ Doc. CLA-139, Belbek (Appeal). ↩
¹²⁵ Doc. CLA-137, Naftogaz (Appeal). ↩
¹²⁶ Doc. CLA-140, Everest (Appeal). ↩
¹²⁷ Doc. CLA-122, Ukrnafta (Appeal), para. 4.2 (p. 12 of pdf). ↩
¹²⁸ Doc. CLA-123, Stabil (Appeal), para. 4.2 (p. 14 of pdf). ↩

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VI.3. SECOND JURISDICTIONAL OBJECTION: DOES THE
INVESTMENT MEET THE TEMPORAL REQUIREMENTS?

300. Article 12 of the BIT provides as follows:

“Application of the Agreement - This Agreement shall apply to all investments (made)/[carried out] by investors of one Contracting Party in the territory of the other Contracting Party, on or after January 1, 1992” [Claimant’s translation in round¹²⁹, Respondent’s in square brackets¹³⁰]

1. RESPONDENT'S POSITION

1.1 THE PROPER INTERPRETATION OF ARTICLE 12

301. Respondent submits that Claimant’s alleged investments were (at least in a substantive portion) made before 1 January 1992 and, as such, they are not protected under Article 12 of the BIT¹³¹, with the consequence that the Tribunal should “decline jurisdiction in its entirety, or, in the alternative, in part”¹³².

302. Russia avers that, in accordance with its ordinary meaning, the BIT only applies to investments which have been “carried out” (by a positive action) on or after 1 January 1992. This positive action must have been taken “by the investor of one Contracting Party on the territory of the other Contracting Party” (i.e., cross-border) on or after that date¹³³. Respondent submits that it is critical that an investment was “carried out” or “made” as of 1 January 1992, rather than that it merely “existed”¹³⁴. According to Respondent, the Contracting Parties chose 1 January 1992 because they aimed to cover only “new investments carried out after that date,” and this fact is clearly reflected in the English, Russian and Ukrainian version of Article 12 of the BIT by using the words “carried out” or “made” instead of “exists”, “expands” or “divests”¹³⁵.

303. Respondent refers to Article 28 of the VLCT, arguing that a treaty does not protect the investments made prior to its entry into force, unless the parties had a different intention¹³⁶. Respondent submits that “the Contracting Parties knew that investments carried out prior to January 2000 [the date the BIT entered into force] would not be covered by the Treaty’s protections”, unless the parties had a different intention¹³⁷.

¹²⁹ Doc. CLA-1. ↩
¹³⁰ Doc. RLA-127. ↩
¹³¹ R I, paras. 232-241; R II, paras. 493-548. ↩
¹³² R I, para. 235. ↩
¹³³ RPHB I, para. 38. ↩
¹³⁴ R II, para. 506. ↩
¹³⁵ R II, paras. 508-509, referring to Doc. RLA-221, Ruby, paras. 163-166. ↩
¹³⁶ VCLT, Article 28: “Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party”. ↩
¹³⁷ R II, para. 504. ↩

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304. The alleged investments at issue are assets held by Claimant in Crimea, the bulk of which were inherited from Soviet-era state-owned entities and thus pre-date 1992. Respondent submits that, although Claimant had plans “to renew, modernize and expand the grid”, these plans were never carried out¹³⁸. These investments cannot have been “made” after 1 January 1992 and thus fall outside the scope of the BIT. At most, only those investments that Claimant made after 1 January 1992 could fall within the scope of the BIT. But Claimant has never even tried to make, let alone prove, this case¹³⁹.

305. Russia rejects that the investments were “made” for purposes of Article 12 BIT in 2014, when Crimea was incorporated into the Russian Federation. The mere fact of holding an existing investment flies in the face of the plain language of Article 12. Investments must be “carried out”, not “held” or “maintained”. Further, an investment could not have been made through a change of territorial status of its location, with no action from the investor, because Article 12 refers to “investments carried out by the investors”. This plain language interpretation is confirmed by the purpose of the provision, which was to exclude Soviet-era legacy investments¹⁴⁰.

306. The travaux préparatoires confirm this interpretation¹⁴¹.

307. Russia adds a further requirement: it says that Article 12 requires that the investments must have been cross-border from the outset¹⁴². It is insufficient that a domestic investment later came to exist in the territory of the other Contracting State in order to fall within the BIT’s remit – otherwise Article 12 loses its effet utile¹⁴³.

1.2 THE INCORPORATION OF KRYMENERGO

308. The Russian Federation submits that the corporatization of Krymenergo as a joint stock company (previously defined as “JSC”) in 1995 did not have the effect of transferring ownership of the assets from the Ukrainian State to that company – the State simply transferred its assets from one pocket into another¹⁴⁴. The corporatization is a process of universal succession, and not an exchange for consideration. Krymenergo received, via legal succession, the same type of limited property rights which belonged to “State Enterprise Krymenergo”, i.e., the right of economic authority, not the right of ownership¹⁴⁵. Two letters issued by the Ministry of Justice of Ukraine confirm that State property contributed to the charter capital of a corporatized entity remains State property¹⁴⁶.

¹³⁸ R I, para. 239, referring to Maslov WS, paras. 10-11. ↩
¹³⁹ RPHB I, para. 39. ↩
¹⁴⁰ RPHB I, paras. 47-49. ↩
¹⁴¹ RPreHS, paras. 146-147. ↩
¹⁴² RPHB I, para. 50. ↩
¹⁴³ RPreHS, para. 145(b). ↩
¹⁴⁴ RPHB I, paras. 51-53. ↩
¹⁴⁵ RPHB I, para. 284. ↩
¹⁴⁶ RPHB II, para. 15, by reference to Doc. AV-24 and Doc. CE-499. ↩

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309. Furthermore, Respondent argues that Krymenergo’s minority privatization in 1997 had no impact on the transfer of property rights and did not result in the transfer of State property used by Krymenergo into private ownership. The sale of a minority shareholding to a private investor does not lead to a change of the legal regime of the State property held by that entity¹⁴⁷.

310. As a result of complete privatization, Krymenergo became the full owner of its assets in 2012. Russia says that Krymenergo did not acquire any new property within the process of privatization, nor did it issue new shares for their subsequent sale to the private investor. In fact, Krymenergo played no active role, but rather remained the passive object of the privatization¹⁴⁸. The formal change of legal regime of the assets held by Krymenergo from State ownership into private ownership happened due to the change of ownership of the company’s majority shareholding, not due to the purchase by Krymenergo of the assets¹⁴⁹.

2. CLAIMANT'S POSITION

2.1 THE PROPER INTERPRETATION OF ARTICLE 12

311. Claimant contends that its investments fall within the temporal scope of the BIT, because Krymenergo’s investments were “made” in the territory of the Russian Federation on 18 March 2014, the date when Russia assumed effective control over Crimea and when the assets were “invested [...] in the territory of the other Contracting Party” in the sense of Article 1(1) of the BIT. The Russian Federation took a unilateral and affirmative action – the annexation of Crimea through the enactment of the Incorporation Law¹⁵⁰. Claimant notes that this happened unquestionably after 1 January 1992¹⁵¹.

312. Claimant avers that Article 12’s reference to the defined term “investments” must be interpreted in context, by looking at the definition of “investments” set out in Article 1(1) of the BIT. Read together, the two articles provide that the assets in question are “made” for the purposes of Article 12 when those investments fulfill the requirements under Article 1(1). Krymenergo’s assets met this requirement – and thus were “made for the purposes of complying with Article 12 of the Treaty” on 18 March 2014, the date of Russia’s annexation of Crimea¹⁵². Invoking the testimony of its linguistic expert, Professor Danylenko, Claimant avers that the words “investment made” convey a resultative meaning and do not require any active action, contrary to what Russia argues¹⁵³.

¹⁴⁷ RPHB I, para. 290. ↩
¹⁴⁸ RPHB I, para. 294. ↩
¹⁴⁹ RPHB I, para. 295; RPHB II, para. 18. ↩
¹⁵⁰ CPHB I, paras. 93-94, by reference to Doc. CE-49. ↩
¹⁵¹ CPHB I, para. 88. ↩
¹⁵² CPHB I, para. 91. ↩
¹⁵³ CPHB I, para. 92. ↩

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2.2 THE INCORPORATION OF KRYMENERGO

313. In the alternative, even if the Tribunal were to find that Krymenergo’s investments were not made on 18 March 2014 (Claimant’s primary position), Claimant’s assets would still fall within the temporal scope of the BIT. Krymenergo was created as a new corporate entity through corporatization in 1995 and, thus, could not have made the investment before that date¹⁵⁴.

314. Before corporatization in 1995, the “State Enterprise Krymenergo” did not own its assets, but only operated assets owned by the State¹⁵⁵. But since its incorporation in 1995, Claimant has owned the assets, rather than operated them on the basis of economic or operational management, and consequently Article 22(5) of the Commercial Code was not applicable¹⁵⁶.

315. Invoking the testimony of its legal expert, Dr. Paliashvili, Claimant says that Krymenergo attained its legal personality in 1995 and, at this point, the assets transferred into the charter capital of Krymenergo became its property¹⁵⁷. The State contributed the assets to the JSC and, in consideration, the company issued 100% of its shares to the State. The contribution was one of property in return for ownership. There is no evidence in the record to suggest that the State transferred any economic rights of use or management into the charter capital of Krymenergo¹⁵⁸. A special corporatization commission determined the value of the assets, which were transferred as an “integral property complex” (a complex including all types of property utilized for business activity), and of the corresponding shares delivered in consideration. The Ministry of Energy and Electrification issued Order No. 127¹⁵⁹ that established Krymenergo, approved the valuation prepared by the commission and adopted Krymenergo’s charter¹⁶⁰.

316. With the support of Dr. Paliahsvili’s opinion, Claimant avers that the assets came into the ownership of Krymenergo as of the moment it was founded as a JSC¹⁶¹. The Law on Ownership¹⁶² governed ownership relations at the time of corporatization in 1995 and contained a clear, imperative rule “that assets contributed by the founder into the charter capital of a joint stock company are property of this joint stock company”¹⁶³. In particular Article 26(1) of the Law on Ownership provides that “[t]he object of ownership right of the company, which is a legal entity, are the money and property contributions of its participants”¹⁶⁴.

¹⁵⁴ CPHB I, para. 95. ↩
¹⁵⁵ CPHB I, para. 112. ↩
¹⁵⁶ CPHB I, paras. 108, 114. ↩
¹⁵⁷ CPHB I, para. 96. ↩
¹⁵⁸ CPHB I, para. 114. ↩
¹⁵⁹ Doc. CE-576. ↩
¹⁶⁰ CPHB I, para. 115. ↩
¹⁶¹ CPHB I, para. 96. ↩
¹⁶² Doc. CE-518 Rev. ↩
¹⁶³ CPHB I, para. 109, citing to HT, Day 3, p. 26, 1. 24 – p. 27, 1. 1 (Paliashvili). ↩
¹⁶⁴ CPHB I, para. 109, citing to HT, Day 3, p. 30, 11. 3-7 (Paliashvili); Doc. CE-518Rev. ↩

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Article 25(1), in turn, says that a JSC owns the “property acquired at the costs of selling its shares”¹⁶⁵.

317. Therefore, Claimant submits that the Ukrainian laws in force in 1995 lead to a clear and unambiguous conclusion that the entirety of assets contributed by the State into the charter capital of Krymenergo in 1995 were in its ownership as of the moment it was founded as a JSC, whereas the State became the owner of the shares¹⁶⁶.

318. Claimant argues that following the establishment of Krymenergo in 1995, the assets contributed to its charter capital were accounted for on the balance sheet of the newly incorporated JSC. The template charter for JSCs created through corporatization confirms that the company owns the contributions of its founders, and that the property of the company is reflected in its balance sheet¹⁶⁷. The privatization legislation provides for no changes in the accounting treatment of the assets of a JSC in which the shares were privatized. Therefore, the privatizations had no impact on the accounting treatment of Claimant’s assets¹⁶⁸.

319. Claimant rejects Russia’s position, based on the expert opinion of Professor Vygovskyy, that the assets became property of Krymenergo upon privatization; but even under Russia’s and Professor Vygovskyy’s theory of ownership, the assets were rightfully owned by Claimant by 2012 at the latest¹⁶⁹.

320. Claimant adds that the laws in effect in 1997 and 2012 are only relevant for the privatization process and have no bearing on the status of property acquired through corporatization in 1995¹⁷⁰.

3. TRIBUNAL'S ANALYSIS

321. The relevant provisions of the BIT are Articles 1(1) and 12, which read as follows:

“Article 1: Definitions - (1) The term “investments” means any kind of tangible and intangible assets which are (invested)/[put in] by an investor of a Contracting Party in the territory of the other Contracting Party in accordance with its legislation [...]”

“Article 12: Application of the Agreement - This Agreement shall apply to all investments (made)/[carried out] by investors of one Contracting Party in the territory of the other Contracting Party, on or after January 1, 1992”

[Claimant’s translation in round¹⁷¹, Respondent’s in square brackets¹⁷²; emphasis by the Tribunal].

¹⁶⁵ CPHB I, para. 109, citing to Doc. CE-518Rev. ↩
¹⁶⁶ CPHB I, para. 111. ↩
¹⁶⁷ CPHB I, para. 116, by reference to Doc. AV-23, sections 3.4 and 3.5. ↩
¹⁶⁸ CPHB I, para. 122. ↩
¹⁶⁹ CPHB I, para. 105. ↩
¹⁷⁰ CPHB I, para. 119. ↩
¹⁷¹ Doc. CLA-1. ↩
¹⁷² Doc. RLA-127. ↩

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322. In the previous section the Tribunal, by majority, has already concluded that the “territory” of the Russian Federation refers to the geographical area which, at the relevant date (i.e., in 2015, the date of the impugned measures) was under its control; and there is no dispute that, at the relevant date, Crimea was part of the territory under the control of the Russian Federation.

323. In this second objection, the Parties discuss the temporal application of the BIT to assets acquired before 1 January 1992.

324. When Russia adopted the impugned measures in 2015, Krymenergo owned certain assets in Crimea, for the distribution of electricity within that territory; a significant portion of these assets had been built, constructed or acquired during Soviet times, i.e., before 1 January 1992. Claimant has provided a detailed breakdown as of 2013 (i.e., three years before the alleged impairment)¹⁷³ of assets which had come into operation before 1992 [“Soviet Assets”].

325. Against this factual background, Russia says that, at least with regard to these Soviet Assets, the Tribunal lacks jurisdiction, because these investments do not meet the requirement under Article 12 of the BIT: the investment was not made (or carried out, in the translation preferred by Respondent) on or after 1 January 1992.

326. Claimant counters with two lines of reasoning:

• As a first argument, Krymenergo submits that its investments were “made” in the territory of the Russian Federation as of 18 March 2014, the date when Russia assumed control over Crimea;
• Subsidiarily, Claimant argues that it “made” the investment in 1995, when the Ukrainian State transferred certain assets (including the pre-1992 Soviet Assets) to the newly created JSC Krymenergo as a capital contribution; in consideration for the share capital assigned to the State, Krymenergo acquired ownership over these assets – and thus “made” the investment in 1995, as required by Article 12.

327. The Tribunal will first establish the proper construction of Article 12 of the BIT and, on the basis of this interpretation, will dismiss Claimant’s first argument (3.1.). Thereafter, the Tribunal will analyze Claimant’s subsidiary argument (3.2.) and conclude that Krymenergo in fact acquired all its Crimean assets (including the pre-1992 Soviet Assets) after January 1992 – with the consequence, in the view of the Tribunal, by majority (the President and Mr. Rowley), that the investment was made (or carried out) by a Ukrainian investor in the territory of the Russian Federation after 1 January 1992, as required by Article 12 of the BIT. Thereafter, Russia’s additional arguments will be dismissed (3.3.), leading to an overall conclusion (3.4.) and a summary of case law (3.5.).

¹⁷³ CPHB I, para. 167; Docs. CE-30, CE-31; C II, para. 145; CPreHS, para. 276. ↩

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3.1 DISMISSAL OF CLAIMANT'S FIRST ARGUMENT

328. Respondent says that the BIT only applies to investments which have been “carried out” (Respondent’s preferred translation) or “made” (the translation proposed by Claimant) after 1992¹⁷⁴. Claimant, on the contrary, says that the investment is “made” when the assets fulfill the requirements under Article 1(1) of the BIT – which, in this case, happened in 2014, when Russia annexed Crimea¹⁷⁵.

329. For the reasons set out below, the Tribunal rejects Claimant’s case for an investment date in 2014.

330. Under the general rule of treaty interpretation set forth in Article 31 of the VCLT, the Tribunal must again be guided “in good faith” by the “ordinary meaning” of the terms, “in their context” and “in light of [the treaty’s] object and purpose”. All these criteria support the interpretation proposed by Respondent.

A. Ordinary meaning

331. The ordinary meaning of Article 12 of the BIT supports Respondent’s position: it limits the “application” of the Treaty to “all investments made” (or “carried out”) by protected investors “in the territory of the other Contracting State”, “on or after January 1, 1992”. The words chosen by the Contracting Parties show that, to comply with the requirement of Article 12, it is not sufficient that an investor simply holds or maintains an investment; an action by the investor, performed after 1 January 1992, is required.

332. What does this action entail? How does an investor “make” (or “carry out”) an investment?

333. The answer is to be found in Article 1(1) of the BIT:

“1. The term “investments” means any kind of tangible or intangible assets which are (invested)/[put in] by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with its legislation, including:
a) Movable and immovable property, as well as any other related property rights; [...]”

[Claimant’s translation in round¹⁷⁶, Respondent’s in square brackets¹⁷⁷; emphasis by the Tribunal]

334. Article 1(1) of the BIT defines “investments” as “any kind of tangible and intangible assets”; and the first category of assets mentioned is “movable and

¹⁷⁴ RPHB I, para. 38. ↩
¹⁷⁵ CPHB I, para. 91. ↩
¹⁷⁶ Doc. CLA-1. ↩
¹⁷⁷ Doc. RLA-127. ↩

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immovable property, as well any other related property rights” – and this is the category of assets for which Claimant is claiming protection.

335. There is a strong relationship between “investment” and “property”: an investor “makes” or “carries out” an investment in movable or immovable property when it acquires ownership over the asset in question. The relationship between the person (the investor) and the asset (the investment) must be one of ownership¹⁷⁸ – the protection afforded by the BIT is for the benefit of the owner of the investment, and the compensation awarded for a breach of the Treaty is equal to the impairment suffered by the investor’s property rights¹⁷⁹.

336. The requirement set forth in Article 12 of the BIT thus implies that the investor, to fall within the temporal scope of the Treaty, must have acquired ownership of the investment for which protection is being sought after 1 January 1992.

B. Context

337. Article 12 of the BIT must be interpreted in the context of Article 1(1). It is meaningful that both provisions use markedly different terminology.

338. Article 1(1) uses the term “assets which are invested” (or in Respondent’s preferred translation, “assets which are put in”) in the territory of a Contracting Party. As the Respondent’s linguistic experts have explained, the verbal form used is the present tense, denoting a situation which is not linked to a particular time period¹⁸⁰. Article 12, on the other hand, uses a perfective passive past participle, translated into English as “investments made” or “carried out”, a tense which expresses that an action has already taken place and has been completed¹⁸¹.

339. The use of different verbal forms reinforces the conclusion that Article 12 requires that an action be performed: for the protection to arise, the investor must have “made” or “carried out” the investment post-1992.

C. Object and purpose

340. Under Article 28 of the VCLT, treaties do not have retroactive application before their date of entry into force, “[u]nless a different intention [of the Contracting Parties] appears from the treaty or is otherwise established”. The BIT entered into force in January 2000, and consequently, under the general principles of international law, investments carried out before that date are not covered, unless the Contracting Parties agreed otherwise.

341. The purpose of Article 12, however, was precisely to extend the temporal reach of the Treaty backwards, to the time span between the date when it entered into force (in 2000) and the end of the Soviet era (which for practical purposes can be deemed to have ended as of 1 January 1992). The Contracting Parties decided not to extend

¹⁷⁸ Or possibly some other ius in rem – a discussion which is irrelevant for the present case; where the investment consists of a contract, the investment is made when the investor enters into the contract. ↩
¹⁷⁹ See Articles 5 and 9 of the BIT. ↩
¹⁸⁰ Kurokhtina ER, para. 13. ↩
¹⁸¹ Kurokhtina ER, para. 28. ↩

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the temporal scope of protection to investments made during the Soviet era, a time when Ukraine and Russia were part of the same State – the Union of Soviet Socialist Republics [“USSR” or the “Soviet Union”].

342. The travaux préparatoires, which Article 32 of the VCLT permits being taken into consideration as supplementary means of interpretation, confirm the Tribunal’s conclusion. It was Ukraine which attempted to include a broader temporal scope, expanding protection to investments carried out before and after the entering into force of the BIT¹⁸². Russia, concerned about the ramifications of such an extension, proposed to limit protection to investments carried out post-1992, when the USSR had ceased to exist. And Ukraine eventually agreed.

343. For instance, in the negotiations regarding the BIT with Azerbaijan, Russia explained its insistence on a 1 January 1992 back-stop to avoid¹⁸³:

“[...] adverse consequences for Russia, associated, inter alia, with possible claims against Russia as a successor State of the USSR”.

D. Conclusion

344. Summing up, the Tribunal finds that the proper interpretation of Article 12 of the BIT implies that investments, to be protected, must have been “made” or “carried out” by the investor post-1992; and investments are “made” or “carried out” when the investor acquires ownership (or some other ius in rem over such assets).

345. The necessary consequence is that Claimant’s primary argument is dismissed: to meet the Article 12 requirement Claimant must prove that it acquired ownership over its purported investment post-1992.

346. Claimant’s argument, that it made (or carried out) the investment in 2014, when the Russian Federation incorporated Crimea to the territory under its control, is a non sequitur. Russia’s decision to annex Crimea did not result in Krymenergo acquiring any assets. Whatever assets Krymenergo owned before the annexation of Crimea by the Russian Federation were not acquired by reason of the annexation. They simply continued to be owned by Krymenergo after the annexation.

347. To benefit from Treaty protection, Krymenergo must prove that (in accordance with applicable law) it acquired its Crimean assets after 1 January 1992 – a question which will be analyzed in the next sub-section.

3.2 KRYMENERGO'S ACQUISITION OF ITS ASSETS

348. The next issue which the Tribunal must address is how Krymenergo acquired its assets in Crimea (including its Soviet era assets), and whether this occurred before or after 1 January 1992.

¹⁸² Draft BITs of 1994, 1997 and 1998, Article 12 or 13; Doc. RE-150, Doc. RE-151 and Doc. RE-152. ↩
¹⁸³ Doc. RE-153. ↩

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A. Proven facts

349. The Soviet Assets owned by Krymenergo in Crimea are, to a great extent, power lines and high-voltage substations built by the State between 1960 and 1990, when Ukraine was still part of the USSR. Originally, the ownership of these assets belonged to the Soviet Union¹⁸⁴. Following the collapse of the USSR and Ukraine’s independence in 1991, former property of the Soviet Union located in the territory of Ukraine became the property of Ukraine¹⁸⁵. Ukraine decided to entrust the right of economic authority over the State-owned electricity distribution assets located in Crimea to a State agency called “Krymenergo Industrial Energy Association” – but ownership of the assets remained with the Ukrainian State¹⁸⁶.

350. In 1995, Ukraine took a further step: it decided to corporatize the electricity distribution assets in Crimea. For that purpose, Ukraine created a new JSC with separate legal personality – Krymenergo, a Joint Stock Corporation under Ukrainian law which is the Claimant in the present arbitration. Upon its incorporation, the existing Association was dissolved, and the Ukrainian State contributed the electricity distribution assets located in Crimea – including the pre-1992 Soviet Assets – to the newly created Krymenergo, receiving in exchange 100% of its share capital¹⁸⁷.

351. In the course of the succeeding years, the name of Krymenergo was changed several times, including in 2012, when the name “Public Joint Stock Company DTEK Krymenergo” was assumed, and more recently, when it restyled itself as Join Stock Company (JSC) DTEK Krymenergo¹⁸⁸. But, as Claimant’s legal expert Dr. Paliashvili has affirmed¹⁸⁹:

“[...] none of the above name changes signified any material change in the company’s legal status; since 1995 DTEK Krymenergo [defined in this arbitration as Krymenergo] has been an independent legal entity, incorporated in the format of a joint stock company”.

352. Although the legal personality of Krymenergo continues unaltered since 1995, over time the shareholding in the company has significantly changed:

• In the beginning, the Ukrainian State held 100% of the share capital;
• In 1997, 30% was privatized, while 70% of shares remained State-owned¹⁹⁰;
• In 2006, an additional 10% stake in the company was privatized¹⁹¹;

¹⁸⁴ Lapuerta ER, para. 40. ↩
¹⁸⁵ Doc. RE-59. ↩
¹⁸⁶ Doc. AV-16 (Commercial Code of Ukraine); Doc. AV-26 (Resolution of the Cabinet Ministers of Ukraine). ↩
¹⁸⁷ Paliashvili ER I, para. 37. ↩
¹⁸⁸ Doc. CE-14. ↩
¹⁸⁹ Paliashvili ER I, para. 38. ↩
¹⁹⁰ Doc. RE-63. ↩
¹⁹¹ Doc. RE-67. ↩

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• Between 2006 and 2012, DTEK B.V. purchased 12.49% of the company’s shares¹⁹²; and
• In 2012, the State organized an auction for the sale of a 45% stake in Claimant, which was won by DTEK Holdings¹⁹³ and, thus, the DTEK Energy Group increased its stake in Krymenergo to 57.49%, acquiring control over the company, and privatizing the company by removing it from State control¹⁹⁴.

B. Discussion

353. The Parties discuss the precise timing when Krymenergo acquired the right of ownership over the Soviet Assets.

354. Claimant says that this occurred in 1995: at that time the State subscribed 100% of the share capital of Krymenergo and, as capital contribution, the State transferred to the corporation the right of ownership over the Soviet Assets¹⁹⁵.

355. Respondent says that in 1995 the Ukrainian State only contributed the right of economic authority over the Soviet Assets¹⁹⁶ and that the minority privatization in 1997 had no impact on the transfer of property rights and did not result in the transfer of State property used by Krymenergo into private ownership¹⁹⁷. But Russia does acknowledge that Krymenergo became full owner of its assets, including the Soviet Assets, upon its full privatization, which occurred in 2012¹⁹⁸.

356. It follows that the discussion as regards the acquisition of the Soviet Assets is moot.

357. Russia does not dispute that, at least in 2012, upon full privatization, Krymenergo acquired ownership rights over the Soviet Assets. Whether the acquisition of ownership rights occurred in 1995 (Claimant’s thesis) or in 2012 (as acknowledged by Russia) is irrelevant for the discussion at hand. Quod erat demonstrandum is that the acquisition occurred after 1 January 1992 – and that is true, both under the theory of Claimant and that of Respondent.

358. In sum, the Tribunal finds that Krymenergo acquired the Soviet Assets after 1992 – and these assets thus comply with the temporal requirement established in Article 12 of the BIT.

3.3 DISMISSAL OF RUSSIA'S ADDITIONAL ARGUMENTS

359. Russia submits two additional arguments.

¹⁹² Doc. RE-68. ↩
¹⁹³ Doc. CE-333. ↩
¹⁹⁴ Doc. CE-11. ↩
¹⁹⁵ CPHB I, paras. 110, 114; Doc. CE-13. ↩
¹⁹⁶ RPHB I, paras. 51-53. ↩
¹⁹⁷ RPHB I, paras. 53, 289. ↩
¹⁹⁸ RPHB I, para. 54. ↩

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360. First, Russia says that Article 12 of the BIT requires that the investments must have been cross-border from the outset¹⁹⁹; it is insufficient that a domestic investment, in order to fall within the BIT’s remit, comes to exist in the territory of the other Contracting State at a later stage – otherwise Article 12 would not have been necessary²⁰⁰.

361. The Tribunal, by majority (the President and Mr. Rowley), disagrees. Russia is conflating two different temporal moments.

362. Under Article 12 of the BIT, the investor must have acquired ownership over the assets, for which protection is claimed, after 1 January 1992. If the acquisition meets this temporal hurdle, Article 1(1) of the Treaty requires that such assets “are invested” or “are put in” in “the territory of the other Contracting State” – and the relevant date for meeting this second requirement is that of the impugned measure adopted by the “other Contracting State” (not the date when the investment had been acquired by the investor – see section VI.2.3.2 supra).

363. Contrary to Russia’s argument, Articles 1(1) and 12 of the BIT are both necessary and have an effet utile:

• The first rule extends protection to all assets which (at the time of the impugned measure) are invested in the territory of the other Contracting Party, while
• The second excludes pre-1992 assets, acquired during the Soviet era, when both Ukraine and Russia formed part of the USSR, and includes post-1992 assets, acquired between that date and the date when the BIT came into force (in the year 2000).

364. Second, Russia adds a further requirement: it says that Krymenergo did not play any active role in the acquisition of ownership²⁰¹.

365. The Tribunal disagrees.

366. Russia’s argument is contradicted by the facts. Krymenergo’s role in 1995, when it was incorporated, was anything but passive: it took the corporate decision to issue shares and to deliver these shares for subscription by the State. In exchange, as capital contribution for the new shares, the State transferred and Krymenergo acquired certain rights over the Soviet Assets (be it ownership rights, as defended by Claimant, be it the right of economic authority, as submitted by Respondent – the transfer of both types of rights requires the consent of the acquirer).

367. In terms of active participation, an acquisition through capital contribution is not less demanding than an acquisition by way of a share purchase agreement.

¹⁹⁹ RPHB I, para. 50. ↩
²⁰⁰ RPreHS, para. 145(b). ↩
²⁰¹ RPHB I, para. 295; RPHB II, para. 18. ↩

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3.4 OVERALL CONCLUSION

368. The Tribunal has unanimously concluded that the proper interpretation of Article 12 of the BIT implies that investments, to be protected, must have been “made” or “carried out” by the investor post-1992; and investments are “made” or “carried out” when the investor acquires ownership (or some other ius in rem over such assets). This conclusion has led to the dismissal of Claimant’s primary argument that it made (or carried out) the investment in 2014, when the Russian Federation incorporated Crimea to the territory under its control.

369. In the Tribunal’s unanimous opinion, to benefit from Treaty protection, Krymenergo must have acquired its Crimean assets, including the Soviet Assets, after 1 January 1992. There is no dispute that Krymenergo meets this test. Claimant says that it acquired ownership over the Soviet Assets (and other Crimean assets) in 1995, while Russia acknowledges that this happened in 2012. In any case, both Parties agree that the acquisition occurred after 1 January 1992; the requirement of Article 12 of the Treaty is thus satisfied.

Russia's additional arguments

370. Russia makes two additional arguments, which the Tribunal dismisses, the first by majority and the second unanimously:

• First, the Tribunal, by majority (the President and Mr. Rowley), and contrary to Russia’s submission, considers that Article 12 does not impose the requirement that the cross-border element of the investment must be met at the time the investment was made;
• Second, the Tribunal unanimously dismisses Russia’s allegation that Krymenergo did not play an active role in the acquisition of its assets.

371. The necessary overall consequence is that the Tribunal, by majority, dismisses Respondent’s Second Jurisdictional Exception.

3.5 CASE LAW

372. Several arbitral and judicial decisions, which have analyzed the ratione temporis jurisdiction under the BIT and the concept of making an investment, have come to the same conclusion as the Tribunal.

373. In the Naftogaz arbitration, the tribunal issued a partial award finding that it had jurisdiction to adjudicate claimant’s claim regarding an alleged expropriation in Crimea²⁰². In the set aside decision, the Hague Court of Appeal partially set aside the award²⁰³, arguing that, under Article 12 of the BIT, the arbitral tribunal lacked jurisdiction with regard to investments made before 1 January 1992. Thereafter, the arbitral tribunal issued its final award, acknowledging that its jurisdiction only

²⁰² Doc. CLA-106, Naftogaz (Partial Award), para. 274. ↩
²⁰³ Doc. CLA-137, Naftogaz (Appeal), para. 5.15. ↩

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extended to post-1992 investments²⁰⁴. In the circumstances of that case, the arbitral tribunal found that Naftogaz’s investments had indeed been made after 1992 and fell within the tribunal’s jurisdiction. In reaching this conclusion, the tribunal took into account the creation date of the companies in 1998²⁰⁵.

374. The Paris Court of Appeal reached a similar conclusion in the Oschadbank appeal decision on the application to stay the enforcement of the award²⁰⁶: the Court considered that the tribunal did not have jurisdiction ratione temporis, since claimant had made the investments in Crimea before 1 January 1992.

375. Respondent has also invoked the precedents in Gold Reserve²⁰⁷ and PAO Tatneft²⁰⁸ to support its argument about the term to “make” (or “carry out”) in Article 12 of the BIT as “owning” an investment.

376. Gold Reserve is a case before the English Court, in which it reached a decision on exequatur and denied respondent’s request. A Canadian company had acquired some mining concessions and mining rights in Venezuela from a US company through a share swap and further made contributions amounting to USD 300 M. The English Court found for the claimant and declared that, because of the contribution, there was indeed an investment; in that context the Court said that making an investment “includes the exchange of resources, usually capital resources, in return for an interest in an asset”²⁰⁹. Venezuela raised a subsidiary argument: that the share swap between the investor and a third party did not qualify as an investment. In an obiter the Court agreed.

377. The Gold Reserve judgment can be distinguished on the facts.

378. In the present case, the investor acquired the ownership over the allegedly impaired assets, and thus made the investment, through a capital contribution, in which a shareholder contributed these assets and in exchange the corporation issued shares – there is no allegation that the shareholder of Krymenergo carried out any share swap of Krymenergo’s shares.

379. Furthermore, the factual matrix of the present case fits into the definition of making an investment proposed by the judgment: “making” an investment “includes the exchange of resources, usually capital resources, in return for an interest in an asset”²¹⁰ – and in the present case, Krymenergo has indeed received an interest in an asset (the ownership over the Soviet Assets situated in Crimea) in exchange for a capital resource (the subscription of the shares by the shareholder).

²⁰⁴ Doc. CLA-142, Naftogaz (Final Award), para. 6 (p. 17 of pdf). ↩
²⁰⁵ Doc. CLA-142, Naftogaz (Final Award), paras. 316, 330. ↩
²⁰⁶ Doc. RLA-414, Oschadbank (Appeal), para. 93. ↩
²⁰⁷ R II, para. 533, by reference to Doc. RLA-229, Gold Reserve, para. 35. ↩
²⁰⁸ R II, para. 535, by reference to Doc. RLA-230, PAO Tatneft, para. 80. ↩
²⁰⁹ Doc. RLA-229, Gold Reserve, para. 35. ↩
²¹⁰ Doc. RLA-229, Gold Reserve, para. 35. ↩

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380. PAO Tatneft²¹¹ also does not support Respondent’s position. It is a case before an English Court, which denied the set aside request. Claimant was the shareholder of a Ukrainian oil company and subsequently acquired additional shares, reaching majority control. The English Court found that there was an investment given the significant sums claimant expended to acquire the shareholding that gave it majority control²¹². The Court reiterated the conclusion that making an investment “includes the exchange of resources, usually capital resources, in return for an interest in an asset”²¹³. The case is inapposite for the same reasons as Gold Reserve.

²¹¹ Doc. RLA-230, PAO Tatneft. ↩
²¹² Doc. RLA-230, PAO Tatneft, para. 80. ↩
²¹³ Doc. RLA-230, PAO Tatneft, para. 77. ↩

[Page 76]

VI.4. THIRD JURISDICTIONAL OBJECTION: DID THE
INVESTOR MAKE AN INVESTMENT UNDER ARTICLE 1(1)?

1. RESPONDENT'S POSITION

381. Respondent says that the plain language of Article 1(1) of the BIT defining investments requires an active cross-border investment at its inception in conformity with the host State’s legislation²¹⁴. The requirements of Article 1(1) (activity, cross-border and legality) must be met cumulatively and concurrently at the inception of the investment²¹⁵.

382. First, the Contracting Parties chose an active verb “put in” (“invested” in Claimant’s translation), rather than a passive verb such a “hold” or “own”. This distinction is reflected in the English, Russian and Ukrainian language versions of the BIT and indicates that the investor must actually do something with the assets listed rather than passively holding them in the territory of the other Contracting Party to be protected²¹⁶. Respondent relies on the opinion of its language expert Dr. Kurokhtina to support its position²¹⁷. The words “put in” also contain an inherent chronology referring to a specific point in time, namely when the investment is first put in. This can only happen once²¹⁸.

383. Second, Article 1(1) links this action of putting in with the “territory of the other Contracting Party”. It is insufficient that an investment merely exists, or that assets are held or maintained in that territory. The purported investor actually needs to invest actively or put in the assets in the territory of the other Contracting Party²¹⁹.

384. Third, the legality requirement in Article 1(1) further supports this point. The legality of making an investment can only be assessed if, at the requisite time, it is put into that territory, otherwise that law will not apply²²⁰.

385. Fourth, Respondent says that an interpretation which protects domestic investments that later passively came to be located in another State undermines the rationale of an investment treaty, and the object and purpose of the BIT as mutual economic expansion and development.

386. Fifth, the Contracting Parties could not have anticipated an interpretation which would either protect domestic investments or result in the creation of unilateral obligations.

387. In conclusion, Respondent avers that Claimant does not have a protected investment under Article 1(1) because it put no assets into Russia in compliance with its

²¹⁴ RPreHS, paras. 150-151; RPHB I, para. 60. ↩
²¹⁵ RPHB I, para. 71. ↩
²¹⁶ RPHB I, para. 61. ↩
²¹⁷ RPHB I, paras. 62-67. ↩
²¹⁸ RPHB I, para. 67. ↩
²¹⁹ RPHB I, para. 68. ↩
²²⁰ RPHB I, para. 70. ↩

[Page 77]

legislation, nor could it have done so prior to 2014, as it could only make domestic investments in Crimea that would have been subject to Ukrainian law. Even if Claimant’s alleged investment is assessed in 2014 (quod non), Claimant still has no investment because there was no active investment in Russia²²¹.

2. CLAIMANT'S POSITION

388. Claimant disagrees with Respondent’s third jurisdictional objection.

389. First, Claimant says that a linguistic analysis of Article 1(1) of the BIT does not support the alleged active investment requirement. Relying on the linguistic experts of both Parties, Claimant argues that the words used in Article 1(1) are in the passive voice and do not convey any active action²²².

390. Second, Claimant submits that the investment does not have to be made originally in the Russian Federation. Investments made in a domestic setting can later become an investment in the territory of another Contracting State as a result of territorial change and, thus, qualify for protection under the Treaty²²³. By the time of the expropriation, there was a physical, financial and legal border between Ukraine and Crimea²²⁴. Under Russian law, Krymenergo’s investment in Crimea was treated as cross-border under the Special Investment Regime for occupied Crimea²²⁵.

391. Claimant also highlights that relevant case law does not support Respondent’s position²²⁶.

392. Third, Claimant contends that there is no simultaneity requirement in the wording of Article 1(1). Claimant adds that the linguistic analysis does not prove such requirement²²⁷.

3. TRIBUNAL'S ANALYSIS

393. In the two previous jurisdictional objections, the Tribunal, by majority, has already found that:

• The proper interpretation of Article 1(4) of the BIT is that “territory of the Russian Federation” refers to the geographical area which, as of the date of the impugned measures, was under its effective control; and there is no dispute that, as of 2015, Crimea was a territory under the control of the Russian Federation;
• The proper interpretation of Article 12 of the BIT implies that investments, to be protected, must have been “made” (or “carried out”) by the investor post-1992; and investments in “movable or immovable property, as well any

²²¹ RPHB I, para. 74. ↩
²²² CPHB I, paras. 46-48. ↩
²²³ CPHB I, para. 50. ↩
²²⁴ CPHB I, para. 53. ↩
²²⁵ CPHB I, para. 54. ↩
²²⁶ CPHB I, paras. 51-52. ↩
²²⁷ CPHB I, para. 58; CPHB II, para. 14. ↩

[Page 78]

other related property rights” are “made” (or “carried out”) when the investor acquires ownership; in the present case, both Parties agree that the acquisition occurred after 1 January 1992, Claimant saying in 1995, while Russia acknowledges that this happened in 2012.

394. In this third objection, Respondent submits that Krymenergo’s assets do not qualify as an “investment” under Article 1(1) of the BIT, because Claimant did not comply with the active investment requirement, the cross-border requirement and the legality requirement at the time when the investment was made.

395. In its relevant part, Article 1(1) of the BIT reads as follows:

“1. The term “investments” means any kind of tangible or intangible assets which are (invested)/[put in] by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with its legislation, including:
a) Movable and immovable property, as well as any other related property rights; [...]”
[Claimant’s translation in round²²⁸, Respondent’s in square brackets²²⁹; emphasis by the Tribunal]

396. Russia reads four requirements into Article 1(1):

• That the investor must have performed an activity,
• That the investment must be cross-border,
• That the investment must comply with the legislation of the host State, and
• That the previous three requirements must be met cumulatively and concurrently at the inception of the investment²³⁰.

397. The Tribunal agrees that the first three requirements must be met; but the Tribunal disagrees with Respondent that these three requirements must be met concurrently at the inception of the investment.

398. First, the wording of Article 1(1), interpreted in light of the VCLT, contradicts Russia’s argument: there is no wording signaling that the three requirements must be met at the same time, and thus Russia’s attempt to create an additional jurisdictional hurdle for an investment claim under the BIT must fail.

399. Second, as regards the activity requirement, in the previous jurisdictional objection the Tribunal has already found that an investment in “movable and immovable property, as well as any other related property rights” is made (or carried out) when the investor acquires ownership over the assets and that, in this case, this occurred either in 1995 (Claimant’s submission) or at the latest in 2012 (Respondent’s

²²⁸ Doc. CLA-1. ↩
²²⁹ Doc. RLA-127. ↩
²³⁰ RPHB I, para. 71. ↩

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position) – both Parties accept that Krymenergo is the owner of the assets located in Crimea, which allegedly were expropriated by the Russian Federation.

400. The activity requirement has thus, in the view of the Tribunal, by majority, been complied with (respecting the temporal requirement of Article 12, as already established in the previous Jurisdictional Objection).

401. Third, the Tribunal agrees with Russia that the investment, when it was made, was domestic: at that time, Crimea was still a part of Ukraine. But an investment made in a domestic setting can later become an investment in the territory of another Contracting State as a result of territorial change and start qualifying for protection under the Treaty at that point in time.

402. This is indeed what happened: Crimea fell under the effective control of Russia in 2014, when it was annexed by the Russian Federation. Upon incorporation of Crimea into Russia, the investment became cross-border because, as Dr. Paliashvili explained at the Hearing²³¹:

“[...] following the occupation, the border was erected between mainland Crimea and Ukraine: there was a physical border with checkpoints and there was a virtual border. Because occupied Crimea, for example [...] became the ruble zone, and Ukraine is still the Ukrainian currency hryvnia zone. So the transfers, money transfers, they became cross-border; the goods transfers became cross-border”.

403. The moment when the cross-border requirement must be met is when the impugned measures are adopted by the host State, when the assets owned by a protected investor from the other Contracting Party are impaired, and when the protection granted by the BIT to foreign investment becomes effective.

404. This is because the purpose of the BIT is to protect cross-border investment from improper measures of the host State. There is no reason to deprive an asset from protection only because it was made in a territory which initially did not form part of the other Contracting State and which, thereafter, was annexed and incorporated into such State. A measure, adopted by the host State against an investment owned by an investor from the other Contracting State, cannot be excused simply because the protected investment is situated in a territory annexed by such State while the BIT was in force.

405. Lastly, as regards the legality requirement, until 2014 the investment was domestic and as such was subject to Ukrainian law; but, upon the incorporation of Crimea into the Russian Federation, Russian law became the law of the land in Crimea and the investment had to comply with Russian legislation.

406. In this case, the Tribunal finds that there is no evidence that, upon incorporation of Crimea into the Russian Federation, Krymenergo failed to comply with Russian legislation – on the contrary (see sections VI.5 and VI.6 infra).

²³¹ HT, Day 3, p. 17, ll. 3-10. ↩

[Page 80]

407. In sum, the Tribunal agrees with Respondent that, under Article 1(1) of the BIT, investments must meet three requirements (activity, cross-border and compliance with local legislation). But the Tribunal disagrees with Respondent's additional contention that the three requirements must be met concurrently at the inception of the investment.

Case law

408. Two cases have analyzed the concurrency requirement at the inception of the investment and have come to the same conclusion as the Tribunal.

409. In Clorox²³², the tribunal found that, when it obtained the shares of a local cleaning company through a share transfer, claimant did not make an active investment. Nevertheless, the tribunal noted that for there to be an investment, the treaty did not require a money contribution (or an “action of investing”) at the time of acquisition of the property of the assets. The tribunal found that even though an investment does require a transfer of value, which generally occurs at the time the asset is acquired, such transfer of value can also be deferred in time – i.e., after the initial date of acquisition of the assets²³³. The tribunal also concluded that making an investment did not require the movement of capital across international borders²³⁴.

410. Garcia Armas²³⁵ is an investment case that was brought before the Paris Court of Appeal after Venezuela filed a request to set aside the award – which was denied. In that case, claimants, who were Venezuelan nationals, had made a domestic investment in Venezuela and later acquired the Spanish nationality. After claimants acquired the second nationality, Venezuela adopted certain measures to take over their investment.

411. Venezuela argued that the assets were not protected by the treaty between Spain and Venezuela because the investment had initially been domestic. The Paris Court of Appeal found that the assets were protected thanks to the second nationality of the investors and concluded that the relevant date to determine if the assets were protected was the date when the State adopted the disputed measures and not when the investment was made²³⁶.

412. These cases confirm the Tribunal's conclusion above that – contrary to Russia's submissions in this arbitration – the three requirements (activity, cross-border and compliance with local legislation) do not have to be met cumulatively and concurrently at the inception of the investment.

²³² Doc. CLA-114, Clorox Spain. ↩
²³³ Doc. CLA-114, Clorox Spain, para. 824. ↩
²³⁴ Doc. CLA-114, Clorox Spain, para. 802. ↩
²³⁵ Doc. RLA-89, García Armas (Appeal I). ↩
²³⁶ Doc. RLA-89, García Armas (Appeal I), p. 9 of pdf. ↩

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VI.5. FOURTH JURISDICTIONAL OBJECTION: DOES
CLAIMANT MEET THE DEFINITION OF INVESTOR?

413. The term “investor of a Contracting Party” is defined in relevant part in Article 1(2) of the BIT as follows:

"b) any legal entity constituted in accordance with the legislation in force in the territory of that Contracting Party, provided that the said legal entity is competent in accordance with legislation of the Contracting Party to make investments in the territory of the other Contracting Party" [Claimant's translation²³⁷]

"b) any legal entity, set up or instituted in conformity with the legislation prevailing on the territory of the given Contracting Party, under the condition that the said legal entity is legally capable, under the legislation of its respective Contracting Party, to carry out investments on the territory of the other Contracting Party” [Respondent's translation²³⁸].

1. RESPONDENT'S POSITION

414. According to Respondent, Claimant does not meet the definition of an investor under Article 1(2)(b) of the BIT²³⁹.

415. First, Respondent considers that it is clear from the plain wording of Article 1(2) that the pertinent time to assess the investor's competency is when the investment is initially made²⁴⁰. According to Respondent, the present tense is used (i.e., “is legally capable”) because it is at the time of the making of the investment when the investor must have capacity to make that specific investment²⁴¹. Additionally, Respondent considers that Article 1(2) uses an active verb (i.e., “to carry out investments”), which, in its view, cannot be interpreted as “hold” or “maintain”²⁴².

416. Furthermore, Respondent submits, relying on Cem Cengiz²⁴³, García Armas²⁴⁴, and SVP²⁴⁵, that at the time of the investment the investor must be foreign²⁴⁶ and there must be a cross-border characteristic. In the present case, Claimant was a domestic investor when the investment was made and there was no cross-border characteristic, with the consequence that the Tribunal lacks jurisdiction ratione personae²⁴⁷.

²³⁷ Doc. CLA-1. ↩
²³⁸ Doc. RLA-127. ↩
²³⁹ R I, paras. 193-208; R II, paras. 702-753. ↩
²⁴⁰ RPreHS, paras. 161-162. ↩
²⁴¹ RPreHS, para. 163. ↩
²⁴² RPreHS, para. 163. ↩
²⁴³ Doc. RLA-88, Cem Cengiz, paras. 56, 152. ↩
²⁴⁴ Doc. RLA-89, García Armas (Appeal I), p. 8; Doc. RLA-412, García Armas (Appeal II), para. 56. ↩
²⁴⁵ Doc. RLA-411, SVP, para. 420. ↩
²⁴⁶ RPreHS, para. 164. ↩
²⁴⁷ RPreHS, para. 165. ↩

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417. Second, in Respondent's view, it is not enough that Claimant had the general ability under Ukrainian law to make investments in Russia, but it must have been legally capable to make the alleged specific investments in Russia²⁴⁸. Respondent explains that Ukraine's Law on Investment Activity merely recognizes general ability to invest; in relation to investments made by Ukrainians on territory outside Ukraine [“Outbound Investments”], Ukraine had in place a system of regulatory approvals, comprising customs approvals, currency requirements, export licenses and other forms of license, which depended on the specific nature and location of the investment²⁴⁹. Relying on Dr. Paliashvili's testimony²⁵⁰, Respondent says that Claimant should have obtained the licenses required to make Outbound Investments, something it failed to do, as the assets were acquired when Crimea was part of Ukraine²⁵¹. Thus, Claimant cannot be a protected investor under Article 1(2)²⁵².

418. Third, Respondent submits that even if Claimant's competency could be assessed in 2014 (quod non), it would still fail to meet the requirements under Article 1(2)²⁵³. Respondent states that the restrictions imposed by Ukrainian law in 2014 made it virtually impossible for Ukrainians to make or even hold investments in Crimea²⁵⁴. In particular, Respondent refers to the "NBU Resolution No. 699"²⁵⁵, which, according to its view, prohibited all investment into Crimea which took the form of money transfers²⁵⁶. Respondent takes issue with Dr. Paliashvili's testimony at the Hearing, where she stated that Ukraine would recognize a legal entity which has registered its head office or is otherwise based in Crimea, if registration is done outside of the Crimean Peninsula²⁵⁷. Russia considers that a Russian State body creating Crimean-based legal entities or branches would still be applying Russian law on the territory of Crimea, i.e., exercising sovereign powers with legal effect in Crimea, which Ukraine does not accept²⁵⁸.

419. Moreover, Respondent disputes Claimant's argument, based on Mr. Sokolovskyi's statement at the Hearing, that Resolution No. 148 authorized Claimant to conduct business in post-2014 Crimea. Respondent claims that Mr. Sokolovskyi merely confirmed that, even though Claimant was authorized to “perform day-to-day operations in Crimea, i.e., to sell electricity to customers", the resolution “did not regulate the questions of investment activity let alone authoriz[e] Claimant to make investments in Crimea"²⁵⁹.

²⁴⁸ RPHB I, paras. 79-80. ↩
²⁴⁹ RPreHS, paras. 166-167. ↩
²⁵⁰ RPHB I, para. 77, referring to HT, Day 3, p. 41, l. 6 to p. 42, l. 2. ↩
²⁵¹ RPreHS, para. 166. ↩
²⁵² RPreHS, para. 167. ↩
²⁵³ RPreHS, para. 168. ↩
²⁵⁴ RPHB I, para. 82. ↩
²⁵⁵ Doc. VS-18. ↩
²⁵⁶ RPHB I, para. 82, and RPHB II, paras. 22-25. ↩
²⁵⁷ RPHB II, para. 25. ↩
²⁵⁸ RPHB II, para. 25. ↩
²⁵⁹ RPHB II, para 26, referring to Sokolovskyi ER, para. 77. ↩

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2. CLAIMANT'S POSITION

420. Claimant claims to be a Ukrainian investor who qualified for protection under the BIT at all relevant times, as²⁶⁰:

• It is a legal entity duly incorporated in Ukraine – a requirement not contested by Respondent; and
• It is competent to make investments in the territory of the Russian Federation under Ukrainian law and allowed to invest and maintain its business in Crimea.

421. First, Claimant submits that Article 1(2)(b) of the BIT does not contain a temporal requirement that would require the Tribunal to assess Claimant's competence to make investments in the territory of Russia at the initial acquisition of each asset²⁶¹. In support of its argument, Claimant refers to the Naftogaz decision²⁶² and other Crimea-related cases where the competence of the investor was assessed at the time of the alleged treaty breach²⁶³.

422. Claimant states that Dr. Paliashvili confirmed at the Hearing that Krymenergo satisfied this requirement, as it was competent under Ukrainian law to make external investments outside Ukraine, including Russia and occupied Crimea, at all relevant times²⁶⁴.

423. Furthermore, Claimant says that under the BIT it is not required to qualify as foreign when it acquired the assets²⁶⁵. The fact that the assets were acquired when Crimea was not occupied by Russia is irrelevant²⁶⁶. In any case, Claimant considers that Russia cannot now claim that Krymenergo is not a foreign investor for the purposes of the BIT, when it has treated Krymenergo as such for Russian law purposes²⁶⁷.

424. Second, Claimant contends that under Ukrainian law it has always been competent to invest in the Russian Federation, which is sufficient to establish that it is an investor within the meaning of the BIT²⁶⁸. Claimant submits that there is no basis for Respondent's assertions that Article 1(2) of the BIT requires that Claimant shows that it was competent under Ukrainian law to invest in a specific geographic location and to make foreign investments in Crimea²⁶⁹. According to Claimant, this interpretation is supported by the ordinary meaning of the phrase “competent [...]

²⁶⁰ C I, paras. 71-73, referring to Doc. CLA-1, Articles 9(1)-(2); Doc. CE-19; Paliashvili ER I, sections V.A, V.B., V.B.2; CPHB I, paras. 30-31. See also HT, Day 3, p. 7, l. 13 to p. 9, l. 25. ↩
²⁶¹ C II, paras. 76-79; CPreHS, para. 117. ↩
²⁶² Doc. CLA-106, Naftogaz (Partial Award), para. 143. ↩
²⁶³ CPreHS, para. 117; CPHB I, para. 41. ↩
²⁶⁴ CPreHS, paras. 117-118; CPHB I, paras. 32-34. ↩
²⁶⁵ CPreHS, para. 117; CPHB I, para. 41. ↩
²⁶⁶ CPreHS, para. 118. ↩
²⁶⁷ CPreHS, para. 128. ↩
²⁶⁸ CPreHS, paras. 106-108. ↩
²⁶⁹ C II, paras. 54-55; CPreHS, paras. 107-108; CPHB I, para. 36. ↩

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to make investments" and that Respondent's argument fails both as a matter of treaty interpretation and of Ukrainian law²⁷⁰.

425. Contrary to Russia's assertions, Claimant further avers that there is no separate legal regime in Ukraine governing Outbound Investments²⁷¹. Dr. Paliashvili's testified at the Hearing that the Law on Investment Activity grants Ukrainian investors competency to make external investments; Ukraine has never adopted a separate special law on Outbound Investments, nor has it otherwise established a separate legal regime for Outbound Investments²⁷². Also relying on Dr. Paliashvili's testimony, Claimant contends that cross-border technical regulations which could have applied to an external investment are irrelevant to determine an investor's competency²⁷³.

426. Third, Claimant contends that it was not at any time required to obtain an NBU license or a Ministry of Economy license to invest in Crimea²⁷⁴. Claimant denies Russia's assertions that the Special Investment Regime prohibited or significantly limited the capacity of Ukrainian legal entities from investing and doing business in Crimea. NBU Resolution No. 699, which was abolished on 27 April 2020:

• Only applied to money transfers, and thus did not restrict or bar Ukrainian companies from maintaining existing investments in Crimea;
• Did not apply retroactively to Claimant's existing investment in Crimea; and
• Was irrelevant, because no transfer of funds was made by Claimant after the Resolution was adopted.

427. Furthermore, relying on Dr. Paliashvili's report²⁷⁵, Claimant rejects that its operation through a local Branch in Crimea contravened Ukrainian law²⁷⁶. To the contrary, Ukrainian Government Resolution No. 148, authorized Claimant to perform day-to-day operations in Crimea (i.e., to continue its electricity supply and distribution business under the circumstances of foreign occupation)²⁷⁷.

3. TRIBUNAL'S ANALYSIS

428. The Tribunal must determine whether Krymenergo is a qualified investor under the BIT. Article 1(2) BIT is the relevant provision, and it defines the term investor as follows:

“2. The term “investor of a Contracting Party” means:

²⁷⁰ CPHB I, paras. 37-38. ↩
²⁷¹ CPHB I, para. 38. ↩
²⁷² CPHB I, para. 38. ↩
²⁷³ CPHB I, para. 38, referring to HT, Day 3, p. 15, ll. 17-20 (Paliashvili). ↩
²⁷⁴ CPHB I, para. 39. ↩
²⁷⁵ Paliashvili ER I, paras. 9, 11, 41-44. ↩
²⁷⁶ CPreHS, para. 125. ↩
²⁷⁷ CPreHS, para. 128; Sokolovskiy ER, para. 77; CPHB I, para. 34. ↩

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a) [...]
b) any legal entity constituted in accordance with the legislation in force in the territory of that Contracting Party, provided that the said legal entity is competent in accordance with legislation of that Contracting Party to make investments in the territory of the other Contracting Party" [Claimant's translation²⁷⁸]

429. This provision sets forth two conditions that Krymenergo must satisfy to deserve protection under the BIT:

• It must be constituted in accordance with the legislation in force in the territory of Ukraine; and
• It must be competent in accordance with the legislation of Ukraine to make investments in the territory of Russia.

430. Russia does not take issue with the first condition; but as regards the second requirement, it says that Krymenergo's competency must be gauged at the inception of the investment [the “Temporal Requirement”] and that Krymenergo must be competent to carry out the specific investment in the territory of Crimea [the "Competency Requirement”].

431. The Tribunal will first establish the relevant proven facts to decide upon this jurisdictional objection (3.1), will then analyze the Temporal Requirement (3.2), and thereafter will discuss the Competency Requirement: whether the investor must be authorized to carry out investments in Russia in general, or if the authorization must specifically relate to the territory of Crimea (3.3).

3.1 PROVEN FACTS

432. It is not contested that since 1995 Krymenergo has been an independent legal entity, incorporated in the form of a JSC (with some of its stock capital subsequently changing ownership)²⁷⁹, which carried out its business activities in Crimea, in accordance with the general investment regime for domestic investments under Ukrainian law. These business activities continued after Russia's annexation of Crimea.

Ukrainian law after the annexation

433. After the Russian occupation of Crimea, Ukraine issued a Special Investment Regime (Law 1207 and Law 1636), regulating Ukrainian investments in Crimea²⁸⁰. The Special Regime recognized that investments in Crimea were now under the control of Russia and guaranteed the preservation of ownership and other property rights²⁸¹. Based on Law 1207, on 7 May 2014 the Ukrainian Cabinet of Ministers

²⁷⁸ Doc. CLA-1. ↩
²⁷⁹ Paliashvili ER I, para. 38. ↩
²⁸⁰ Docs. CE-121 and CE-259. ↩
²⁸¹ Paliashvili ER II, paras. 14 and 21. ↩

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issued Resolution No. 148 “On the Specifics of Regulating Relations in the Sphere of Electric Power in the Occupied Territory of the Autonomous Republic of Crimea and the City of Sevastopol” [the “CMU Resolution on Electric Power"]²⁸², which authorized Ukrainian entities engaged in electricity supply and distribution in Crimea, including Krymenergo, to continue their operations²⁸³.

Russian law after the annexation

434. After the annexation of Crimea, Krymenergo's investment became subject to Russian legislation. In response to a request from the Russian Ministry of Energy, on 26 May 2014, Krymenergo restructured its corporate presence in Crimea, moving its corporate seat to Kyiv and registering a branch office in Crimea (previously defined as the "Branch”)²⁸⁴. After this restructuring, Krymenergo was a company incorporated under Ukrainian law, headquartered in Kyiv, operating through a Branch without legal personality established in Crimea.

435. On 29 May 2014, shortly after the establishment of the Branch, the Russian tax authorities issued a certificate registering Krymenergo as a foreign entity doing business in Crimea²⁸⁵. On 30 May 2014, the Uniform State Register of Enterprises and Organizations of Ukraine confirmed the registration of the Branch²⁸⁶; and, on 4 December 2014, the Russian Ministry of Justice issued a certificate of accreditation to the Branch²⁸⁷.

3.2 THE TEMPORAL REQUIREMENT

436. In the previous section²⁸⁸, it was found that Claimant acquired its assets in Crimea while Crimea was part of Ukraine, and that these assets came under the protection of the BIT in 2014, as a result of the territorial change caused by Crimea's annexation.

437. Under Article 1(2) of the BIT the investor must be “competent in accordance with legislation of that Contracting Party to make investments in the territory of the other Contracting Party”. The Parties discuss whether the relevant date to assess this requirement is the date of the initial investment (Respondent's position), or the date of the alleged violations of the BIT (Claimant's position).

438. The Tribunal has already concluded in the Third Jurisdictional Objection that the cross-border requirement must be met at the time when the impugned measures are adopted by the host State. The same principle must be applied to the requirement that the investor must be competent under Article 1(2) of the BIT. The Tribunal finds no reason to make that assessment when the assets were acquired, as this would automatically deprive the assets from protection, only because the

²⁸² Doc. CE-72. ↩
²⁸³ Paliashvili ER I, para. 60. ↩
²⁸⁴ Doc. CE-268; Paliashvili ER I, paras. 41-43. ↩
²⁸⁵ Doc. CE-66. ↩
²⁸⁶ Doc. CE-64; Paliashvili ER I, paras. 43-44. ↩
²⁸⁷ Doc. CE-63. ↩
²⁸⁸ See section VI.4 supra. ↩

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investment was made in a territory which initially did not form part of the other Contracting State, and which thereafter was annexed and incorporated into such State.

Case law

439. The Tribunal's conclusion is reinforced by the fact that case law in related cases²⁸⁹ – although not binding on this Tribunal – also decided that the competency requirement must be ascertained at the time when the impugned measures were adopted by Russia.

440. The Belbek²⁹⁰ and Privatbank²⁹¹ tribunals found that the definition of investor provided for in Article 1(2) of the BIT did not include a Temporal Requirement, such as to require an investor to be a citizen of a given contracting party at the point at which the initial investment was made²⁹².

"More telling is the definition of the term 'investor of a Contracting Party' in Article 1(2) of the Treaty which, both as regards natural persons having the citizenship of the state of a Contracting Party and as regards legal entities constituted in accordance with the legislation in force in the territory of a Contracting Party, contains no temporal requirement at all, such as would require an investor to be a citizen of a given Contracting Party, or an entity constituted in accordance with the laws of a given Contracting Party, at the point at which the initial investment was made". [Emphasis added by the Tribunal]

441. Similarly, the Naftogaz tribunal, which examined an analogous case under the same BIT, concluded that the jurisdictional facts were to be ascertained as of the date of the alleged breach and as of the date of the commencement of the arbitration, but not as of the date of the initial investment²⁹³.

"[...] in the majority view, orthodox principles of treaty interpretation require the jurisdictional facts to be ascertained as of the date of the alleged breach, not the date of the initial investment, plus the date of the initiation of proceedings". [Emphasis added by the Tribunal]

442. The case law on which Respondent relies also reinforces the Tribunal's view.

443. For instance, contrary to Respondent's averments, the tribunal in Cem Cengiz concluded that the claimant in that dispute was not a covered investor because on the date he made the investment, “and at all times until the alleged breach of the BIT occurred", he had the nationality of the respondent State²⁹⁴.

²⁸⁹ Doc. CLA-106, Naftogaz (Partial Award), para. 165; Doc. CLA-3, Belbek, para. 241; and Doc. CLA- 2, Privatbank, para. 228. ↩
²⁹⁰ Doc. CLA-3, Belbek, para. 241. ↩
²⁹¹ Doc. CLA-2, Privatbank, para. 228. ↩
²⁹² Doc. CLA-3, Belbek, para. 241. ↩
²⁹³ Doc. CLA-106, Naftogaz (Partial Award), para. 165. ↩
²⁹⁴ Doc. RLA-88, Cem Cengiz, para. 152. ↩

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"In the view of the Tribunal, on the evidence that is available to it, the Claimant is not a covered Investor as he is not an “Investor of another Contracting Party," because on the date he made his investment, and at all times until the alleged interference occurred, he was an investor of the Republic of Turkey". [Emphasis added]

444. The SVP tribunal had to apply a different BIT and it emphasized that this issue is not a matter of general principle, but rather depends upon the specific wording of each treaty²⁹⁵. More importantly, it expressly mentioned that Crimean cases were not comparable to the case the tribunal was adjudicating²⁹⁶:

"Claimant claims that the Crimean cases, filed pursuant to the Ukraine-Russia BIT, confirm his reasoning that treaties can extend protection conferred to investments if the "nationality" of the investment changes. However, the Crimean cases do not appear, from the publicly available information, to be comparable to the case at hand. For the majority of the Tribunal, the matter in dispute in Crimea evolved from domestic disputes to international ones by virtue of a territorial change and, more importantly, the issue in the Crimean cases is not the nationality of the investor but the status of the investments”. [Emphasis added]

3.3 THE COMPETENCY REQUIREMENT

445. Article 1(2) of the BIT requires that, at the date of the impugned measures, Krymenergo is competent in accordance with the legislation of Ukraine to make investments in the territory of the other Contracting Party.

446. The Parties discuss whether the “territory of the other Contracting Party" refers to Russia in general (Claimant's position)²⁹⁷ or to Crimea in particular (Respondent's position)²⁹⁸. The discussion is moot because in 2015, at the time of the impugned measures, under Ukrainian law, Krymenergo was authorized both to invest in Russia in general and in Crimea in particular.

447. First, there is no dispute about Krymenergo's competency to invest in Russia, as Respondent does not seem to dispute this point²⁹⁹. Additionally, Ukraine's Law on Investment Activity³⁰⁰ generally grants Ukrainian investors legal competency to make external investments. In Dr. Paliashvili's words³⁰¹:

"[A]ny legal entity (with minor exceptions not applicable to DTEK Krymenergo) can be an investor or a participant in investment activity. All investors, irrespective of their ownership and type of business entity, have equal right to carry out investment activity. To make an investment in any object (except where the investment is specifically prohibited or restricted) is

²⁹⁵ Doc. RLA-411, SVP, para. 435. ↩
²⁹⁶ Doc. RLA-411, SVP, para. 440. ↩
²⁹⁷ CPreHS, para. 106; CPHB I, para. 31. ↩
²⁹⁸ RPHB I, paras. 81-87. ↩
²⁹⁹ R II, para. 706. ↩
³⁰⁰ Doc. CE-269, Article 7.1 and 7.5 inter alia. ↩
³⁰¹ Paliashvili ER I, para. 46. ↩

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an inalienable right of the investor. An investor has the right to possess, use, and dispose of investment objects and investment results".

448. Second, after the Russian occupation of Crimea, Ukraine approved a Special Investment Regime (Law 1207 and Law 1636), recognizing that investments in Crimea were under the control of Russia and ensuring that investors such as Krymenergo could maintain and operate their investments in Crimea as a matter of Ukrainian law³⁰². The Special Investment Regime did not subject Ukrainian investors in occupied Crimea, such as Krymenergo, to any additional or new requirements with regards to their investments³⁰³. As Dr. Paliashvili's notes³⁰⁴:

"[T]he Special Investment Regime did not subject Ukrainian investors to the special requirement of obtaining an individual NBU License for cross- border investments".

449. Third, the special procedures introduced by the Special Investment Regime included the CMU Resolution on Electric Power, relating to the electric sector, which allowed Krymenergo to continue its business in the occupied territory³⁰⁵.

450. Fourth, on 30 May 2014, the Branch created by Krymenergo in Crimea, in response to a request from the Russian Ministry of Energy, was duly registered in Ukraine by the Uniform State Register of Enterprises and Organizations of Ukraine³⁰⁶ (fact also acknowledged by the Russian authorities)³⁰⁷. Likewise, Respondent's expert, Mr. Sokolovskyi, admitted at the Hearing when he was asked whether Krymenergo's Branch in Crimea was formally created in compliance with Ukrainian law that³⁰⁸:

"Yes, it's true: the branch has been created according to the law of Ukraine".

451. Therefore, the Tribunal concludes that Krymenergo meets the definition of investor for the purposes of Article 1(2) of the BIT, since, as of the date of the alleged breach of the BIT, Krymenergo was competent in accordance with the legislation of Ukraine to invest and maintain its investment in Russia in general and in Crimea in particular.

***

452. In view of the above, the Tribunal concludes that Krymenergo is a qualified investor under the BIT and dismisses Respondent's Fourth Jurisdictional Objection.

³⁰² Paliashvili ER I, para. 55. ↩
³⁰³ Paliashvili ER I, para. 56. ↩
³⁰⁴ Paliashvili ER I, para. 56. ↩
³⁰⁵ Doc. CE-72. See also Paliashvili ER I, para. 60. ↩
³⁰⁶ Doc. CE-64; Paliashvili ER I, paras. 43-44. ↩
³⁰⁷ Doc. CE-66 and Doc. СЕ-63. ↩
³⁰⁸ HT, Day 3, p. 97, ll. 16-20 (Sokolovskyi). ↩

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VI.6. ADMISSIBILITY OBJECTION: IS THERE EVIDENCE OF FRAUD AND CORRUPTION?

453. Respondent has one final objection: Russia argues that Claimant's claims are not admissible because Claimant's ultimate beneficial owner, Mr. Rinat Akhmetov, acquired Claimant through fraud and corruption³⁰⁹. According to Respondent, this is a sufficient basis for the Tribunal to render Claimant's claim inadmissible or, otherwise, to deny jurisdiction³¹⁰.

454. Claimant, on the other hand, argues that there is no basis for Respondent's allegations of fraud and corruption. Claimant asserts that its investment was made in conformity with the law. Claimant additionally argues that allegations of corruption, fraud, and illegality must be established by means of a “clear and convincing” evidence and argues that Respondent does not come close to meeting this standard³¹¹.

455. The Tribunal will briefly lay out the positions of Respondent (1.) and Claimant (2.) before providing its analysis (3.).

1. RESPONDENT'S POSITION

456. Respondent submits that Mr. Akhmetov's energy empire, the “DTEK Energy Group", corruptly acquired its additional 45% stake in (and thus also control over) Claimant (1.1) which, pursuant to international public policy, renders Claimant's claim inadmissible. Alternatively, Respondent says that the Tribunal lacks jurisdiction because the alleged corruption has stained Claimant's investment, which therefore was not carried out in accordance with the BIT (1.2)³¹².

1.1 CLAIMANT WAS ACQUIRED THROUGH FRAUD AND CORRUPTION

457. According to Respondent, the ultimate owner of Claimant, Mr. Akhmetov, is known to be associated with criminal organizations³¹³, "ha[s] a very dubious reputation” and “built his business empire through fraud and corruption"³¹⁴. Respondent cites to periodicals accusing Mr. Akhmetov of benefitting from corruption³¹⁵, and points to his connections to Ukraine's political elite, including the former president of Ukraine, Mr. Viktor Yanukovych³¹⁶.

³⁰⁹ RPreHS, paras. 13-26; R II, paras. 67-127. ↩
³¹⁰ R II, para. 700. ↩
³¹¹ CPreHS, paras. 163-164; referring to Doc. CLA-35, Siag, paras. 325-326; Doc. RLA-104, EDF, paras. 221, 232. ↩
³¹² R I, para. 243. ↩
³¹³ RPreHS, para. 13; Doc. RE-77, p. 387; Doc. RE-78, p. 62; Doc. RE-79, p. 189; Doc. RE-80, p. 88; Doc. RE-81, p. 10; Doc. RE-82, pp. 102-105; Doc. RE-83; Doc. RE-84, p. 331. ↩
³¹⁴ R I, para. 248. ↩
³¹⁵ Doc. RE-86; Doc. RE-87. ↩
³¹⁶ R II, paras. 78-82; Doc. RE-80, p. 88; Doc. RE-85, p. 197. ↩

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458. Furthermore, Respondent submits that the privatization of the Ukrainian energy complex, including Claimant, involved large scale corruption and was undertaken for the benefit of oligarchs close to the government at the time³¹⁷. According to Respondent, the privatization process of the Ukrainian energy complex was opaque and enabled the improper influencing of public officials³¹⁸. Respondent argues that the privatization auctions, including the one involving the 45% stake over Claimant, were biased towards certain buyers and showed many signs of systemic corruption³¹⁹.

459. Respondent argues that the legal conditions, limiting who could participate in the Krymenergo auction (and other energy company auctions), restricted competition so that only a select few oligarchs, including Mr. Akhmetov, could participate³²⁰. Respondent concludes that the privatization auction in 2012 was “clearly rigged"³²¹.

1.2 ILLEGALITY RENDERS THE CLAIM INADMISSIBLE

460. Respondent argues that Claimant's claim should be rendered inadmissible because, as a matter of international public policy, a person involved in illegal activity cannot claim for an investment that derives from an illegal act³²². Alternatively, Respondent also argues that Claimant's investment fails to meet the conditions for jurisdiction under Article 1(1) of the BIT, which requires investments to be made “in conformity with the latter's state legislation”³²³.

461. Respondent argues that international public policy dictates that the Tribunal must use its discretion not to admit this claim, because of the illegal act of Claimant's shareholders. The Tribunal cannot be seen to promote and encourage illegality by ignoring the fraud that led to the procurement of Claimant and thus the making of the investment. It should rule this claim inadmissible as a result.

462. Alternatively, Respondent asserts that it did not agree to arbitrate with a Ukrainian investor under the BIT in relation to an investment tainted with fraud and illegality. The investment was not carried out in accordance with the BIT, thus stripping the Tribunal of jurisdiction³²⁴.

463. Respondent argues that in a situation as this, where Claimant's alleged investment is tainted by illegality and fraud, the Tribunal should not distinguish between Mr. Akhmetov, DTEK Holdings, Claimant, and their investment³²⁵.

³¹⁷ RPreHS, para. 16; Doc. RE-89; Doc. RE-90. ↩
³¹⁸ RPreHS, paras. 17, 40; Sokolovskyi ER, paras. 82-89; Doc. RE-92. ↩
³¹⁹ RPreHS, para. 16; Doc. RE-92. ↩
³²⁰ Doc. RE-94; Sokolovskyi ER, para. 99. ↩
³²¹ R I, paras. 248-251, referring to Doc. RE-20; Doc. RE-21; Doc. RE-22; Doc. RE-23; Doc. RE-24; Doc. RE-25; Doc. RE-26; Doc. RE-27; Doc. RE-28; Doc. RE-29. ↩
³²² R II, paras. 693-694, referring to Doc. RLA-247, Inceysa Vallisoletana, para. 248. ↩
³²³ R II, para. 695. ↩
³²⁴ R II, para. 699. ↩
³²⁵ R II, para. 698. ↩

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2. CLAIMANT'S POSITION

2.1 CLAIMANT'S INVESTMENT WAS LAWFULLY MADE

464. Claimant asserts that its "assets were admitted as investments in Russia under the [Incorporation] Treaty and the accompanying Federal Law on Accession”³²⁶. Claimant further submits that it received certification in December 2014 as a Branch of a foreign legal entity accredited in the territory of the Russian Federation³²⁷. Claimant notes that it converted to a Branch in order to comply with the Russian legislation, although admission of assets as investments had already been accomplished by the Annexation Treaty and accompanying legislation³²⁸. Therefore, according to Claimant, its investments meet the requirement of Article 1(1) of the BIT as they were made “in conformity with [the host State's] legislation"³²⁹.

465. Finally, Claimant argues that Respondent's allegations of illegality address conduct by entities other than Claimant and, thus, have no legal relevance³³⁰.

2.2 RESPONDENT HAS NOT PROVIDED SUFFICIENT EVIDENCE IN SUPPORT OF ITS ALLEGATIONS OF ILLEGALITY

466. Claimant submits that the burden of proof with respect to corruption allegations is on the party alleging corruption³³¹ and argues that Respondent provides no support for the accusations of corruption against its majority shareholder³³². Claimant notes that Respondent refers to press statements in support of its allegations and asserts that these cannot sustain corruption allegations³³³. Respondent's allegations with respect to the ultimate beneficial owner are baseless, as the owner never participated in Claimant's management; nor has Respondent raised any specific issues regarding Claimant's misconduct³³⁴.

467. Claimant asserts that Respondent's allegations in any case are false³³⁵.

• First, exhibits show that there was competition and the price paid was over the initial bidding price³³⁶;

³²⁶ C I, para. 94, referring to Maggs ER, para. 77. ↩
³²⁷ Doc. CE-63. ↩
³²⁸ C I, para. 95, referring to Maggs ER, paras. 79-80; Doc. CE-63; Doc. CE-66. ↩
³²⁹ C I, para. 96. ↩
³³⁰ C II, paras. 86-87. ↩
³³¹ C II, para. 86, referring to Doc. CLA-115, ECE Projektmanagement, para. 4.873 (“The burden of proof is undoubtedly on the party alleging corruption”); Doc. RLA-104, EDF, para. 221. ↩
³³² C II, paras. 88-93. ↩
³³³ C II, para. 88, referring to Doc. RE-20; Doc. RE-21; Doc. CLA-116, Jan Oostergetel, para. 303 (“Mere insinuations cannot meet the burden of proof which rests on Claimants [to prove corruption]"). ↩
³³⁴ C II, para. 87. ↩
³³⁵ C II, paras. 89-90, referring to R I, para. 251; Pavliashvili ER II, paras. 31-33; Doc. CE-279; Doc. CE-281. ↩
³³⁶ Doc. CE-536; Doc. CE-538. ↩

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• Second, the preparation for the auction and the auction itself were in compliance with the Ukrainian legislation³³⁷.

468. Claimant argues that considering the evidence on the record – which reveals an unchallenged, competitive, and public auction – Respondent's allegations based on unreliable press reports cannot support a finding of illegality, either with regard to DTEK Krymenergo or its shareholder. Notwithstanding several changes in government, with regard to the privatization of Krymenergo in 2012 no civil or criminal complaints or investigations have been initiated against the State Property Fund of Ukraine, DTEK Holdings, Krymenergo or their officials³³⁸. Moreover, Claimant asserts that the Government of Ukraine praised the results of the auction and the price paid for the 45% stake in Krymenergo³³⁹.

469. Claimant argues that Respondent has no evidence to support its accusation that the privatization auction of Krymenergo was tainted by corruption. Claimant notes that Respondent relies on a handful of publications and articles, including many from obscure sources, the majority of which describe other privatization auctions in 2012³⁴⁰.

3. TRIBUNAL'S ANALYSIS

470. DTEK Energy Group is the trade name of a group of companies operating in the electricity and related sectors³⁴¹. In 2012, the parent company of the group was a Dutch company then called DTEK Holdings B.V., which later changed its name to DTEK Energy B.V [“DTEK B.V.”]. One of its 100% subsidiaries was a Cypriot company known as DTEK Holdings Limited [“DTEK Holdings"].

471. DTEK Energy Group belongs to Mr. Rinat Akhmetov, a Ukrainian national who has often been described as an “oligarch” and the wealthiest person in Ukraine³⁴². Mr. Akhmetov owns the DTEK Energy Group through his company PJSC System Capital Management [or “SCM"]³⁴³.

The privatization of the energy sector

472. In the post-Soviet era there was a broad privatization of the energy sector, which saw controlling stakes in a number of the largest energy companies sold to private parties. Mr. Akhmetov's DTEK Energy Group was an active participant in these privatizations³⁴⁴.

³³⁷ CPreHS, para. 167; Pavliashvili ER II, para. 33. ↩
³³⁸ Pavliashvili ER II, para. 40. ↩
³³⁹ C II, para. 92, referring to Doc. CE-282. ↩
³⁴⁰ CPreHS, para. 166, referring to Doc. CLA-116, Jan Oostergetel, para. 303. ↩
³⁴¹ C I, para. 2. ↩
³⁴² See section VI.6.3.1B infra. ↩
³⁴³ Doc. CE-15, p. 18; Doc. CE-16; Doc. CE-17; Doc. CE-18. ↩
³⁴⁴ R II, Appendix 2; see section VI.6.3.1C infra. ↩

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The Krymenergo Auction

473. On 4 May 2012, an auction was organized for the sale of a 45% stake in Claimant [the so-called “Krymenergo Auction”]. The Krymenergo Auction was won by DTEK Holdings³⁴⁵, after which DTEK Holdings entered into a “Sale and Purchase Agreement of the Share Package of Krymenergo PJSC” with the State Property Fund ["SPF"]³⁴⁶. Through this acquisition, DTEK Energy Group increased its stake in Krymenergo to 57.49%, thus acquiring control of the company³⁴⁷.

474. Krymenergo's current share ownership is as follows³⁴⁸:

• DTEK Energy Group (through DTEK Energy B.V. and DTEK Holdings) owns a total shareholding of 57.49%,
• The SPF of Ukraine owns a shareholding of 25%,
• Svarog Asset Management LLC, a Ukrainian asset management fund, owns a shareholding of 12.37%, and
• The remaining 5.14% of the shares are owned by a number of private individuals, none of whom owns more than a 1% stake.

3.1 ALLEGATIONS MADE AND EVIDENCE SUBMITTED

475. Respondent has made numerous allegations and submitted extensive evidence which allegedly supports its claim that Mr. Akhmetov and his DTEK Energy Group acted with corruption and malfeasance with regard to the privatization of Krymenergo. These allegations and evidence relate to Mr. Akhmetov (B.), to the Krymenergo Auction (C.) and to investigations involving the DTEK Energy Group (D.). In most cases, Claimant has made submissions and submitted evidence to counter Respondent's allegation.

476. Before analyzing these allegations and the available evidence, the Tribunal must solve a related procedural incident (A.).

A. Decision on the admissibility of 21 Exhibits

477. In communication A22, the Tribunal invited the Parties to³⁴⁹:

"[...] provide additional briefing on whether there is or has been any law enforcement and/or parliamentary investigation into the privatization of the energy sector in Ukraine between 2012 and 2014, and especially with respect to the ‘Akhmetov Group', or DTEK Krymenergo in particular”.

³⁴⁵ Doc. CE-333. ↩
³⁴⁶ Doc. CE-281. ↩
³⁴⁷ Doc. CE-11, p. 214. ↩
³⁴⁸ Request for Arbitration, fn. 4. ↩
³⁴⁹ Tribunal's communication A22, para. 3. ↩

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478. By letters of 10 and 13 December 2021, Claimant and Respondent, respectively, requested leave to submit new evidence regarding this issue³⁵⁰. In particular:

• Claimant sought leave to submit into the case record two publicly available documents³⁵¹:
  • A report of the “Parliamentary Ad Hoc Committee on Privatization”, and
  • A judgment of a Ukrainian court dismissing the challenge of Ukraine's Prosecutor's Office to the privatization of an entity by the Akhmetov Group.
• Respondent sought leave to file the following new, publicly available documents³⁵²:
  • Documents produced by the “Special Control Commission on Privatisation of Ukraine", and
  • “Relevant and informative press coverage”.

479. The Parties only disagreed on the production of the "relevant and informative press coverage" offered by Respondent, which Claimant considered unreliable and prejudicial for Claimant³⁵³.

480. In its decision A23 the Tribunal admitted all the evidence proposed by the Parties into the record, finding that it would otherwise be pre-judging its decision on the evidence³⁵⁴. The Tribunal noted that the concerns on the reliability of the sources would be addressed by the Tribunal when assigning the appropriate weight to the different categories of evidence in its future award³⁵⁵. Accordingly, the Parties filed the additional evidence with their Second Post-Hearing Briefs.

481. With its Second Post-Hearing Brief, Respondent purported to introduce 49 new exhibits responsive to the Tribunal's communication A22. Thereafter, Claimant identified 21 out of 49 Respondent's new exhibits as being allegedly “non- responsive" and requested the Tribunal to decline their admission³⁵⁶. Respondent, in turn, asked that Claimant's motion be denied³⁵⁷. In communication A25 the Tribunal informed the Parties that it would make a decision on the admissibility of the 21 exhibits [the “21 Exhibits”] in its future award³⁵⁸.

³⁵⁰ Tribunal's communication A23, para. 1. ↩
³⁵¹ Tribunal's communication A23, para. 5. ↩
³⁵² Tribunal's communication A23, para. 6. ↩
³⁵³ Tribunal's communication A23, paras. 12-13. ↩
³⁵⁴ Tribunal's communication A23, paras. 15, 18. ↩
³⁵⁵ Tribunal's communication A23, paras. 15-17. ↩
³⁵⁶ Claimant's letter of 13 January 2022, p. 3. ↩
³⁵⁷ Respondent's letter of 19 January 2022, p. 4. ↩
³⁵⁸ Tribunal's communication A25. ↩

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a. Claimant's position

482. According to Claimant, Russia has introduced in the Second Post-Hearing Brief 21 new Exhibits – Docs. RE-199 to RE-209 and RE-236 to RE-245 – that do not meet the Tribunal's criteria for the introduction of new evidence and should therefore be excluded from the record³⁵⁹. Claimant explains that³⁶⁰:

"Ten exhibits do not even refer to law enforcement and/or parliamentary investigations or to privatization of the energy sector between 2012 and 2014, and while others do refer to the privatization of the energy sector, they are neither law enforcement nor parliamentary documents but unreliable and tendentious third-party commentary”.

483. Claimant avers that Russia seeks to use these exhibits, covering general issues of privatization, in a “speculative manner to make unsupported allegations”³⁶¹.

484. Therefore, Claimant requests the Tribunal to decline the admission into the record of the 21 Exhibits identified as non-responsive³⁶².

b. Respondent's position

485. Russia counters that the 21 Exhibits clearly fall within the ambit of the Tribunal's directions because they are "directly relevant to the investigations into the privatization of the energy sector” in Ukraine between 2012 and 2014 regarding the “Akhmetov Group"³⁶³.

486. Respondent considers Claimant's objections to be wrong and sorely misguided. It organizes its response by categorizing the 21 Exhibits into different groups³⁶⁴:

• According to Respondent, Exhibits RE-208 and RE-209 are relevant to the issue of illegality because they contain interviews discussing the activities of the Privatization Commission with the Head of the Privatization Commission and with the witness invited to testify before it;
• Exhibits RE-236 to RE-242 concern the issue of whether the Ukrainian judges who rendered a decision favorable to Mr. Akhmetov's privatizations were corrupt; this category is within the ambit of the Tribunal's directions as it addresses claims of corruption that already form part of the arbitration³⁶⁵;
• Exhibit RE-201 is an authoritative research paper that discusses the unlawful privatizations and mentions Mr. Akhmetov and his business 21 times; it thus

³⁵⁹ Claimant's letter of 13 January 2022, p. 1. ↩
³⁶⁰ Claimant's letter of 13 January 2022, pp. 1-2. ↩
³⁶¹ Claimant's letter of 13 January 2022, p. 2. ↩
³⁶² Claimant's letter of 13 January 2022, p. 3. ↩
³⁶³ Respondent's letter of 19 January 2022, p. 2. ↩
³⁶⁴ Respondent's letter of 19 January 2022, pp. 2-3. ↩
³⁶⁵ Tribunal's communication A23, para. 16. ↩

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addresses “law enforcement and/or parliamentary investigation into the privatization of the energy sector in Ukraine”³⁶⁶; and

• As to Exhibits RE-199, RE-200, RE-202 to RE-207, and RE-243 to RE-245, Respondent notes that Claimant's only reason for excluding these documents is that “they are neither law enforcement nor parliamentary documents”³⁶⁷; yet, Respondent recalls that the Tribunal “admitted not only official law enforcement or parliamentary documents, but also relevant and informative press coverage"³⁶⁸.

487. Therefore, Respondent requests the Tribunal to reject Claimant's motion to not admit into the record the 21 Exhibits and to rule that Claimant shall bear all costs related to the exchanges following the Tribunal's communication A22³⁶⁹.

с. Decision of the Tribunal

488. As the Tribunal will explain in further detail in section 3.2 infra, any allegation of corruption must be given serious consideration by an arbitral tribunal – to the point where a tribunal may have a duty to investigate sua sponte. In the present case, in communication A22 the Tribunal asked the Parties to provide additional briefing regarding investigations into the privatization of the Ukrainian energy sector and with regards to the DTEK Energy Group.

489. Claimant has asked the Tribunal to declare that the 21 Exhibits are inadmissible because they do not refer to law enforcement and/or parliamentary investigations or to privatization of the energy sector between 2012 and 2014.

490. Claimant's objection, however, misses the point of the Tribunal's fact-finding exercise. The Tribunal is concerned with obtaining any evidence upon which Respondent relies in support of the allegations of corruption it asserts in this arbitration. Only then can the Tribunal be satisfied that it has given appropriate consideration to the serious accusations made by Respondent.

491. Therefore, the Tribunal admits the 21 Exhibits, without prejudice to the weight that will apportion to such evidence in the following sections.

B. Allegations and evidence concerning Mr. Akhmetov

492. Respondent's allegations include claims with regard to Mr. Akhmetov's:

• Alleged political connections (a.),
• Alleged ties to criminal activity (b.), and

³⁶⁶ Claimant's letter of 13 January 2022, fn. 6. ↩
³⁶⁷ Claimant's letter of 13 January 2022, p. 2. ↩
³⁶⁸ Respondent's letter of 19 January 2022, p. 3. See also Tribunal's communication A23, para. 18. ↩
³⁶⁹ Respondent's letter of 19 January 2022, p. 4 ↩

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• Apparent dominance of the energy sector in Ukraine, including his broad success in the privatization auctions (c.).

a. Mr. Akhmetov's alleged political connections

(i) Respondent's position

493. Russia alleges that Claimant's ultimate beneficial owner, Mr. Rinat Akhmetov, is one of Ukraine's most notorious oligarchs, who built his business through fraud and corruption, thanks to his close personal connections to political decision-makers in Ukraine³⁷⁰.

494. According to Respondent, Mr. Akhmetov corruptly benefited from his association with Ukraine's political elite, having accumulated substantial wealth through privatizations of State property rigged in his favor³⁷¹ – including in his acquisition of Claimant.

495. In particular, Respondent submits that Mr. Akhmetov enjoyed close personal ties to Mr. Viktor Yanukovych, beginning when Mr. Yanukovych was the governor of Donetsk in 1997 and through his time as Prime Minister and then President of Ukraine³⁷². Respondent notes that Mr. Akhmetov built his energy empire precisely during the presidency of Mr. Yanukovych, whose government organized the sale of the state's shareholdings in the energy companies in 2012, including Krymenergo³⁷³.

(ii) Claimant's position

496. Claimant does not address Respondent's allegations with respect to Mr. Akhmetov's alleged political connections, other than to say that they are not relevant to the issue of whether Claimant's investment was lawfully made.

(iii) Evidence submitted

497. It is not disputed between the Parties that Mr. Akhmetov is the ultimate beneficial shareholder of a controlling stake in Claimant³⁷⁴. Mr. Akhmetov has repeatedly been described as an "oligarch"³⁷⁵.

498. In September 2012, the Centre for Eastern Studies (or “OSW” for its Polish name Ośrodek Studiów Wschodnich), a Polish public institution established in 1990 and financed by the Polish State budget, published a comprehensive study on “The Oligarchic Democracy – the influence of business groups on Ukrainian politics”³⁷⁶.

³⁷⁰ R I, paras. 248 et seq.; R II, paras. 67-68; RPreHS, para. 14. See also RPHB I, para. 100; RPHB II, paras. 39-42; HT, Day 1, p. 178, ll. 14-21. ↩
³⁷¹ R I, paras. 248 et seq.; R II, paras. 78-82. ↩
³⁷² R II, para. 87. ↩
³⁷³ R II, paras. 78-82. ↩
³⁷⁴ C I, para. 8; R I, para. 247; R II, para. 67. ↩
³⁷⁵ See, e.g., Doc. RE-206. ↩
³⁷⁶ Doc. RE-80. ↩

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Although this is a comprehensive study from a respected think tank, it contains two important caveats³⁷⁷:

"This work is based on commonly available materials (mainly on the Internet). Considering the fact that publication of sponsored texts – which are often aimed at discrediting political opponents and business competitors – is widespread in the Ukrainian media, despite the author's best efforts and critical approach, in many cases it has been difficult to verify the credibility of the facts presented below.
It is often impossible to clearly assess the assets owned by individual oligarchs, and percentage differences between the data published in various rankings of Ukraine's richest people reach double digits. This is due to the problems with assessing the value of particular assets owned by the oligarchs".

499. The study explains that the “oligarchic system” (described as the links between the "newly formed big business and the political class”) emerged shortly after Ukraine re-gained independence in 1991 and became firmly established in the second half of the 1990s during the presidency of Mr. Leonid Kuchma³⁷⁸. In the final years of the Soviet Union, the Communist nomenklatura began amassing capital and purchasing industrial plants at low prices as part of privatizations. The study contends that “the first business groups (usually branded as clans) began to emerge during the period of the country's political and economic transformation”³⁷⁹.

500. The study identifies one of these business groups as the “Donetsk clan”, whose business base was metallurgy and in which Mr. Akhmetov eventually became “the most important oligarch”³⁸⁰. The study explains that Mr. Akhmetov was born in 1966 in the city of Donetsk, close to the Russian border, and that his significance in the region started to grow after 1995, when he became a shareholder of the Donetsk-based Dongorbank. Mr. Akhmetov then went on to become a business leader in the Donbas region by taking over companies and plants, particularly in the metallurgical industry³⁸¹.

501. The study indicates that Mr. Akhmetov was Ukraine's richest person in 2011 and that in 2012 he was classified as no. 39 in the Forbes global ranking of billionaires³⁸². In 2012, his main sectors of business activity were metallurgy, media, banking, transport, conventional power engineering, insurance, and retail trade³⁸³.

502. In turn, Mr. Viktor Yanukovych, who was governor of the Donetsk Oblast between 1997 and 2002, then Prime Minister of Ukraine between 2002 and 2005, and finally

³⁷⁷ Doc. RE-80, p. 11. ↩
³⁷⁸ Doc. RE-80, pp. 9, 13. ↩
³⁷⁹ Doc. RE-80, p. 13. ↩
³⁸⁰ Doc. RE-80, p. 14. ↩
³⁸¹ Doc. RE-80, pp. 88-89. ↩
³⁸² Doc. RE-80, pp. 84, 86. ↩
³⁸³ Doc. RE-80, p. 8. ↩

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President of Ukraine from 2010 to 2014, is identified in the OSW study as "the main political representative of th[e] [Donetsk] clan”³⁸⁴.

503. At the end of Mr. Kuchma's presidency, individual businessmen gained influence and increasingly “legalized” their fortunes, concentrating their assets in groups³⁸⁵. This is said to be the case of Mr. Akhmetov's SCM (System Capital Management)³⁸⁶, Ukraine's largest corporation, founded in 2000³⁸⁷, which, according to Claimant, owns DTEK Energy B.V. and DTEK Holdings, the two companies that hold stakes in Claimant³⁸⁸. The study asserts that under Mr. Kuchma's rule, politicians became clients of big business and represented its interests in parliament and government³⁸⁹.

504. According to the study, during the years of 2005 to 2010, Mr. Akhmetov's association to Mr. Yanukovych was not always favorable to his business interests. The study submits that this led Mr. Akhmetov to become the most influential element of the opposition, by contributing to the Party of Regions³⁹⁰. Not only the business circles linked to Mr. Akhmetov became the principal financial base of the Party of Regions, but Mr. Akhmetov himself became a member of Parliament. The study claims that almost half of the members of Parliament had ties to Mr. Akhmetov³⁹¹.

505. When Mr. Yanukovych won the 2010 presidential elections, he was partially endorsed by the Party of Regions³⁹². According to the study, by the end of 2011, most members of the Ukrainian government were linked to the Donetsk clan, which was the predominant group within the Party of Regions. The study explains that Mr. Akhmetov's interests in the government were represented by several ministers, including the deputy prime minister and minister of infrastructure, and the deputy prime minister and healthcare minister³⁹³.

506. The study submits that Mr. Yanukovych subjugated his coalition partners and marginalized the opposition almost completely. This enabled him to favor the "Family", a group of people in his entourage, including his own family, who were able to gain enormous influence in Ukraine³⁹⁴. According to the study, Mr. Yanukovych's rule “turned out to be [...] beneficial for Ukraine's richest businessman”, Mr. Akhmetov³⁹⁵.

³⁸⁴ Doc. RE-80, p. 14. ↩
³⁸⁵ Doc. RE-80, p. 17. ↩
³⁸⁶ Doc. RE-80, p. 17. ↩
³⁸⁷ Doc. RE-80, p. 89. ↩
³⁸⁸ C I, para. 8; Doc. CE-18. ↩
³⁸⁹ Doc. RE-80, p. 19. ↩
³⁹⁰ Doc. RE-80, pp. 25-26. ↩
³⁹¹ Doc. RE-80, pp. 26-27. ↩
³⁹² Doc. RE-80, p. 37. ↩
³⁹³ Doc. RE-80, p. 38. ↩
³⁹⁴ Doc. RE-80, p. 40. ↩
³⁹⁵ Doc. RE-80, p. 53. ↩

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507. The study is from 2012; in 2014, Mr. Yanukovych was ousted from office in the so-called "Revolution of Dignity” or the “Maidan Revolution” and, in 2019, he was sentenced in absentia to 13 years in prison for high treason.

508. Russia submitted an additional “commentary” published by the OSW in February 2015. This commentary notes that, although Akhmetov's influence diminished after Yanukovych's presidency, he successfully diversified his business interests outside of the Donetsk region, including in the power, telecommunication, and agriculture sectors. The commentary also suggests that the fact that the government has not called into question Mr. Akhmetov's privatization of State assets since 2010 indicates that Mr. Akhmetov “sealed a deal with Kyiv”³⁹⁶.

Other evidence

509. The account detailed in the OSW study is backed by several other contemporaneous pieces of evidence, which include academic books and newspaper articles.

510. For instance, Russia has brought into the record an excerpt from the 2012 book Organized Crime, Political Transitions and State Formation in Post-Soviet Eurasia by Dr. Alexander Kupatadze, a Senior Lecturer at the Russia Institute in King's College London³⁹⁷. This book also refers to Mr. Akhmetov's links to the Party of Regions and to Mr. Yanukovych. It supports the view that Mr. Akhmetov and Mr. Yanukovych were both “informal leaders” of the Donetsk clan³⁹⁸, where Mr. Akhmetov "looked after business", while Mr. Yanukovych “looked after politics"³⁹⁹. According to Dr. Alexander Kupatadze, Mr. Akhmetov was the main financier of the Party of Regions and his capital holdings increased threefold during Mr. Yanukovych's governorship of Donetsk⁴⁰⁰.

511. Russia has also introduced into the record a 2014 study by Mr. Matthew Rojansky, the Director of the Kennan Institute at the Woodrow Wilson International Center for Scholars, a United States non-partisan policy forum⁴⁰¹. In this study, entitled "Corporate Raiding in Ukraine: Causes, Methods and Consequences”, Mr. Rojansky explains that “corporate raiding” in Ukraine is the illegal or improper transfer of valuable assets, or value generated from those assets, generally by means of improper coercive action, or failure to act, on the part of corrupt State authorities⁴⁰². Mr. Rojansky explains that corporate raiding in Ukraine can trace its origins to the late Soviet-era, but that this phenomenon grew with the post-1991 privatization, with straightforwardly criminal acts, made possible by the general lawlessness of the time.

³⁹⁶ Doc. RE-200, p. 3. ↩
³⁹⁷ Doc. RE-82. ↩
³⁹⁸ Doc. RE-82, p. 104. ↩
³⁹⁹ Doc. RE-82, p. 103. ↩
⁴⁰⁰ Doc. RE-82, p. 104. ↩
⁴⁰¹ Doc. RE-22. ↩
⁴⁰² Doc. RE-22, p. 420. ↩

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512. Mr. Rojansky goes on to contend that, during Mr. Yanukovych's administration, raidings still took place although they did not involve overtly criminal activity⁴⁰³. Mr. Rojansky argues that Ukraine's most prominent oligarchs benefitted from this corporate raiding, including Mr. Akhmetov, who is described as Ukraine's wealthiest oligarch and “has also been accused of acquiring valuable assets at discount prices by playing the role of 'white knight' in association with raiders”⁴⁰⁴.

513. Russia has also filed a one-page excerpt of a 2015 book called Ukraine – Democratization, Corruption and the New Russian Imperialism by Professor Taras Kuzio, a British academic specialized in Ukrainian studies⁴⁰⁵. Albeit in less detail, Professor Kuzio asserts that the Party of Regions:

"[...] was organized by Yanukovych and Akhmetov to unite political and economic structures in Eastern Ukraine with smaller subgroups [...]".

514. Similarly, Russia has submitted a two-page excerpt from the 2015 book The Gates of Europe: A History of Ukraine by Professor Serhii Plokhy, the Mykhailo Hrushevsky professor of Ukrainian history at Harvard University, where he also serves as the director of the Harvard Ukrainian Research Institute. Professor Plokhy's account coincides with the OSW study, by explaining that the "oligarchization" of the Ukrainian economy corresponded to the post-Soviet Ukrainian privatization under former president Mr. Kuchma. Professor Plokhy also notes that in the 1990s one of the new “men of steel” was Mr. Akhmetov, who is described as “the leader of the Donetsk group”⁴⁰⁶.

515. Russia has additionally submitted a research paper published in July 2021 by Chatham House, the Royal Institute of International Affairs. The research paper, titled “Ukraine's system of crony capitalism”, makes note of Mr. Akhmetov's ties with the 2019 Ukrainian government, stating that⁴⁰⁷:

"It is widely believed in Kyiv that Akhmetov's direct influence on the government has increased since the 2019 elections, even if he controls far fewer votes in parliament. Prime Minister Denys Shmyhal previously held a senior position at Akhmetov's energy company DTEK, while Olha Buslavets, the acting energy minister from April–November 2020, had a professional background in Donetsk's coal industry, which is dominated by Akhmetov. She denied reports of having ties to DTEK".

b. Mr. Akhmetov's alleged ties to criminal activity

(i) Respondent's position

516. Respondent alleges that Mr. Akhmetov is also well-known for his involvement and close connections with criminal structures and fraud schemes⁴⁰⁸. Respondent

⁴⁰³ Doc. RE-22, p. 422. ↩
⁴⁰⁴ Doc. RE-22, p. 427. ↩
⁴⁰⁵ Doc. RE-85. ↩
⁴⁰⁶ Doc. RE-84, p. 331. ↩
⁴⁰⁷ Doc. RE-201, p. 11. ↩
⁴⁰⁸ R II, para. 67; RPreHS, para. 13. ↩

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submits that violence has long been a feature of economic activity in the Donetsk region where Mr. Akhmetov started his business empire, and that Mr. Akhmetov built his fortune through crime, violence and corruption⁴⁰⁹.

517. Respondent argues that Mr. Akhmetov has links to criminal activities since 1986 and that his significance in the Donbas region grew after the assassinations of several businessmen, whose assets Mr. Akhmetov subsequently acquired. According to Respondent, media reports connect these assassinations to Mr. Akhmetov⁴¹⁰.

518. Respondent additionally submits that Mr. Akhmetov was associated with and took over the leadership of a criminal group known as “Lux” (“Lyuksovska hrupa"), which has allegedly been implicated in the murders of dozens of businessmen. Respondent submits that Mr. Akhmetov became the “heir” to these businessmen's assets⁴¹¹.

519. Respondent claims that these assassinations attracted the attention of Ukraine's General Prosecutor's Office, which identified 50 contract-killings, the beneficiary of which reportedly may have been Mr. Akhmetov. According to Respondent, these cases were never solved as political authorities influenced by Mr. Akhmetov allegedly interfered in the investigations⁴¹².

(ii) Claimant's position

520. Claimant does not address Respondent's allegations.

(iii) Evidence submitted

521. Respondent has submitted several pieces of evidence in support of its allegations of ties between Mr. Akhmetov and criminal activities.

522. Several academic studies and newspaper articles point out that Mr. Akhmetov's activities were largely unknown until approximately 1985⁴¹³. According to one source – a book by Mr. Hans van Zon on The rise of conglomerates in Ukraine – Mr. Akhmetov and his brother were involved in criminal activities as early as 1986, particularly in a robbery that led to the death of three people, although no criminal proceedings were ever started against them⁴¹⁴.

523. An article by Professor Kuzio (a British academic specialized in Ukrainian studies) goes on to say that in 1988 Mr. Akhmetov was questioned for being a member of an organized crime group in the Donetsk region; and that in 1999 the Ministry of

⁴⁰⁹ R II, paras. 68, 72; RPreHS, para. 13. ↩
⁴¹⁰ R II, paras. 69-71. ↩
⁴¹¹ R II, para. 74. ↩
⁴¹² R II, para. 75. ↩
⁴¹³ Doc. RE-77, p. 387; Doc. RE-78, p. 61; Doc. RE-80, p. 88. ↩
⁴¹⁴ Doc. RE-77, p. 387. This same excerpt is also referred to in an article published by Professor Kuzio in a book of the Soviet and Post-Soviet Politics and Society on Ukraine's Euromaidan – Analyses of a Civil Revolution (Doc. RE-78, p. 61). ↩

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Internal Affairs, Directorate on Organized Crime leaked a document entitled "Overview of the Most Dangerous Organized Crime Structures in Ukraine", in which Mr. Akhmetov is listed as a member of a criminal group that goes by the name of "Lyuksovska hrupa"⁴¹⁵.

524. Likewise, Harvard University's Professor Plokhy argues in his 2015 book The Gates of Europe: A History of Ukraine that in the early 1990s Mr. Akhmetov “took leadership of a company called Lux, known to the Ukrainian authorities for its criminal origins and connections”⁴¹⁶.

525. Several sources argue that around that same time, Mr. Akhmetov became a disciple of Mr. Akhat Bragin, described as a leader of the criminal underworld and the owner of the Shakhtar Donetsk football club⁴¹⁷. Mr. Bragin was eventually murdered in a 1995 bomb explosion at the Shakhtar football stadium. According to the Kyiv Post, this crime remains unresolved to this day⁴¹⁸. However, several newspaper articles and academic books point out that there have been rumors that Mr. Akhmetov might have been associated with this death. This may be due to the fact that Mr. Akhmetov was apparently not present in the match that evening, something which an online article claims “had never happened before”⁴¹⁹.

526. According to several pieces of evidence on the record, Mr. Akhmetov inherited Mr. Bragin's empire, including the Shakhtar Donetsk football club⁴²⁰. The OSW study notes that Mr. Akhmetov's significance in the Donetsk Oblast started to grow precisely after the assassination of Mr. Bragin in 1995⁴²¹.

527. Respondent has also introduced a three-page excerpt from Dr. Andrew Wilson's (senior lecturer in Russian and Ukrainian studies at the University of London) 2006 book Ukraine's Orange Revolution⁴²². Dr. Wilson explains that in the mid-1990s a series of murders rocked the Donetsk clan. Besides Mr. Bragin, who was killed in a bomb explosion, his business partner, the former regional governor and owner of the Aton energy and metal trading concern, Mr. Yevhen Shcherban, was gunned down in broad daylight at the Donetsk airport, together with his wife. Several other prominent figures in the Donbas region also died⁴²³. Dr. Wilson notes that after this, a younger generation, which used mafia methods, ascended to power. This new generation was led by Mr. Akhmetov, who is allegedly associated with the death of Mr. Bragin⁴²⁴.

528. In a chapter of the previously cited 2012 book Organized Crime, Political Transitions and State Formation in Post-Soviet Eurasia, which is dedicated to

⁴¹⁵ Doc. RE-78, p. 61. ↩
⁴¹⁶ Doc. RE-84, p. 331. ↩
⁴¹⁷ Doc. RE-20; Doc. RE-78, p. 62; Doc. RE-79; Doc. RE-80, p. 88; Doc. RE-81. ↩
⁴¹⁸ Doc. RE-20, p. 6. ↩
⁴¹⁹ Doc. RE-83, p. 1. ↩
⁴²⁰ Doc. RE-20, p. 6; Doc. RE-21; Doc. RE-77, p. 387. ↩
⁴²¹ Doc. RE-80, p. 88. ↩
⁴²² Doc. RE-81. ↩
⁴²³ Doc. RE-81, p. 10. ↩
⁴²⁴ Doc. RE-81, pp. 10-11. ↩

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Ukraine's "Privatization and Re-privatization"⁴²⁵, Dr. Alexander Kupatadze discusses the prevalence of organized crime in Ukraine. According to Dr. Kupatadze, a “particular feature of regional economic activity in Ukraine is its history of extensive violence”. He goes on to explain that, as a result of a number of assassinations, Mr. Akhmetov gained in power, and that these assassinations were never investigated⁴²⁶:

"Until the time of writing, there are 55 contract assassinations that have not been investigated. Importantly, the individuals targeted were mainly entrepreneurs and their assets ended up under the control of Rinat Akhmetov (Kuzin 2006). Vladimer Malishev, the head of the regional branch of the Ministry of the Interior, whose direct responsibility it was to investigate these cases, became Akhmetov's head of security and was subsequently elected to Parliament on the Party of Regions' ticket".

529. According to Dr. Kupatadze, the Donetsk clan managed to secure and take control of the regional business through informal and sometimes illicit deals, which produced "tightly-knit networks of politicians, entrepreneurs and criminals in Donetsk"⁴²⁷. Dr. Kupatadze also observes that many property transfers happened after the assassinations of politicians and businessmen, and the property formerly owned by them appeared on the books of companies controlled by Mr. Akhmetov⁴²⁸.

с. Mr. Akhmetov's dominance of the energy sector

(i) Respondent's position

530. Respondent highlights Mr. Akhmetov's dominance of the energy sector and asserts that it is “general knowledge in Ukraine” that Mr. Akhmetov accumulated his substantial wealth through privatizations of State property rigged in his favor⁴²⁹.

531. Respondent argues that, considering Mr. Akhemtov's ties to then President, Mr. Victor Yanukovych⁴³⁰, it is “not surprising" that Mr. Akhmetov was one of the most prolific buyers at the privatization auctions for regional power distribution and generation companies in Ukraine during that time⁴³¹.

532. Respondent asserts that, even before the privatization auctions had taken place, it was already apparent to experts and the public that “[...] the privatization of the Ukrainian energy sector [would] benefit one person [Mr. Akhmetov]”⁴³². According to Respondent, this is because Mr. Akhmetov not only had a very significant political and financial influence, but because he also controlled most of coal mining facilities of Ukraine used to generate electricity and, thus, the privatization of

⁴²⁵ Doc. RE-82. ↩
⁴²⁶ Doc. RE-82, pp. 102-103. ↩
⁴²⁷ Doc. RE-82, p. 103. ↩
⁴²⁸ Doc. RE-82, p. 104. ↩
⁴²⁹ R II, paras. 82 et seq.; RPreHS, para. 26. ↩
⁴³⁰ See section VI.6.3.1B supra. ↩
⁴³¹ R II, para. 84-85, Appendix II. ↩
⁴³² RPHB II, para. 40. ↩

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electricity companies could have enabled him to fully concentrate both production and distribution of electricity in Ukraine in his hands⁴³³.

533. Respondent draws attention to Mr. Akhmetov's success in the privatization auctions over the energy sector between 2010 and 2014. Respondent identified 12 auctions during this period in which the shares of energy distribution and generation companies were privatized⁴³⁴. According to Respondent, of these 12 auctions, half (including the 2012 auction in which Claimant's shares were privatized) were won by Mr. Akhmetov's DTEK Holdings. Respondent additionally notes that of the remaining six auctions, three were won by companies associated with other Ukrainian oligarchs, and two were won by independent participants “not connected to the Ukrainian oligarchy”⁴³⁵.

(ii) Claimant's position

534. Claimant does not refute that Mr. Akhmetov is a dominant force in the energy sector as well as other businesses sectors in Ukraine. Claimant nevertheless argues that only Krymenergo is relevant and asserts that the Krymenergo Auction was competitive and approved by the then government⁴³⁶.

535. Claimant points to the detailed review conducted by Dr. Paliashvili in which she concluded that the Auction was held in compliance with the applicable legislation. Claimant also notes that no complaints were ever received by Krymenergo of the SPF as to the conduct of the Auction.

(iii) Evidence submitted

536. The OSW study provides perspective regarding the scope of Mr. Akhmetov's dominance of the energy sector. The study explains that in late 2011 and early 2012, the DTEK Energy Group strengthened its position on the power engineering market by buying controlling stakes in power plant complexes from the State as part of tenders, including Zakhidenergo, Dnieproenergo, and Kyivenergo. The study notes that, with the takeover of these three power plant complexes, in addition to the assets he already owned in the energy sector (including Skhidenergo in the Donetsk Oblast), Mr. Akhmetov controlled approximately 30% of the electricity produced in Ukraine⁴³⁷.

537. In arriving at its figures, the OSW study, which was published in September 2012, does not factor the DTEK Energy Group's acquisition of Claimant nor other acquisitions identified by Respondent (including PJSC Donetskoblenergo, PJSC Westenergy, and PJSC Dniprooblenergo⁴³⁸).

⁴³³ RPHB II, para. 40. ↩
⁴³⁴ R II, para. 86, Appendix II. ↩
⁴³⁵ R II, para. 86, Appendix II. ↩
⁴³⁶ CPreHS, para. 167. ↩
⁴³⁷ Doc. RE-80, p. 54. ↩
⁴³⁸ R II, Appendix II. ↩

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538. Mr. Akhmetov's dominance of the energy sector is not limited to ownership of his large share of energy distribution companies in Ukraine, including Krymenergo; it also includes the control of at least half of Ukraine's production of coal⁴³⁹. This, it is argued, freed Mr. Akhmetov from dependence on external suppliers, thus enabling him to run an integrated production chain from coal mining and enrichment to the production and distribution of electricity⁴⁴⁰.

539. Other sources submitted by Respondent similarly affirm Mr. Akhmetov's position as the most dominant figure in the energy sector in Ukraine. The Chatham House research paper, published more recently in July 2021, states that⁴⁴¹:

"Rinat Akhmetov remains the biggest player in the coal industry. In 2017, his company DTEK accounted for 86 per cent of Ukraine's total production of 28 million tonnes of thermal coal".

C. Allegations and evidence on the Krymenergo Auction

540. On 4 May 2012 an auction was organized for the sale of Claimant's 45% share package owned by SPF (State Property Fund). The Krymenergo Auction was won by DTEK Holdings⁴⁴², after which DTEK Holdings and the SPF entered into a “Sale and Purchase Agreement of the Share Package of Krymenergo PJSC”⁴⁴³.

541. Respondent has identified what it describes as two potential red flags in connection with the Krymenergo Auction: the restrictions placed on potential bidders (a.); and the low purchase price paid by the DTEK Energy Group (b.).

a. Restrictions placed on bidders

542. On 5 March 2012, the Cabinet of Ministers approved “Resolution 116-r” with the terms for selling the State's 45% stake in Claimant⁴⁴⁴. The document sets out the conditions and requirements for participation in the Krymenergo Auction. Among other things, buyers had to demonstrate compliance with one of the following characteristics⁴⁴⁵:

• That they could ensure “electricity transmission and supply for the recent three full calendar years, of at least 30 percent of [Krymenergo's] electricity transmission and supply for the same [period]"; or
• That they had a “direct holding for the recent three full calendar years of over 50 percent of the authorized capital of legal entities which transmit and supply electricity of at least 30 percent of [Krymenergo's] electricity transmission and supply for the same period”.

⁴³⁹ Doc. RE-80, p. 54. ↩
⁴⁴⁰ Doc. RE-80, p. 54. ↩
⁴⁴¹ Doc. RE-201, p. 18. ↩
⁴⁴² Doc. CE-333. ↩
⁴⁴³ Doc. CE-281. ↩
⁴⁴⁴ Doc. RE-187. ↩
⁴⁴⁵ Doc. RE-187, p. 2. ↩

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543. The resolution excluded the participation of any entity that was owned in 25% or more by the Ukrainian State (or another State or government)⁴⁴⁶.

544. Russia asserts that the requirements of Resolution 116-r clearly introduced a barrier to competition in the Auction: few companies had the required expertise. In fact, there were only two bidders in the Krymenergo Auction: DTEK Holdings and LEA⁴⁴⁷.

545. Russia offers a press article to prove that the sole competitor of DTEK in the Krymenergo Auction – LEA – was owned by Mr. Akhmetov's business partner, Mr. Grigorishin. According to Russia, this points to the illusory character of competition in the Auction⁴⁴⁸. Other articles allege that the two had colluded under similar circumstances in the auction for Donetskoblenergo⁴⁴⁹ and Dneproblenergo⁴⁵⁰. In both of those auctions, like in the Krymenergo Auction, the final price only increased minimally⁴⁵¹.

b. Purchase price

546. Russia raises concerns with respect to the apparently low sales price paid by DTEK Holdings at the Krymenergo Auction⁴⁵². Russia submits that the low sales price at the Krymenergo Auction, as well as other privatization auctions, is indicative of systemic corruption⁴⁵³. According to Russia, an "obscure" valuation process resulted in the unnaturally low sales price of USD 30 M for the 45% share package of Krymenergo⁴⁵⁴. Russia notes that the price only increased by 4.7% (approximately USD 1.2 M) during bidding due to the lack of any legitimate competition⁴⁵⁵.

547. Claimant denies that the purchase price set at the Krymenergo Auction is indicative of any wrongdoing, and asserts that the Auction was competitive and approved by the then government⁴⁵⁶. According to Claimant, the methodology for setting the purchase price was appropriate and was approved by the Cabinet of Ministers of Ukraine⁴⁵⁷.

⁴⁴⁶ Doc. RE-187, p. 2. ↩
⁴⁴⁷ Doc. CE-348, p. 4. ↩
⁴⁴⁸ Doc. RE-97, p. 1. ↩
⁴⁴⁹ Doc. RE-98, p. 2. ↩
⁴⁵⁰ Doc. RE-203, p. 1; Doc. RE-206, p. 1, stating that "it was decided to create something akin to competition among bidders”. ↩
⁴⁵¹ Doc. RE-98, p. 2; Doc. RE-206, p. 2. ↩
⁴⁵² R II, paras. 88-96; RPHB I, paras. 101-103; RPreHS, paras. 16-18. ↩
⁴⁵³ RPreHS, para. 16; Doc. RE-92. ↩
⁴⁵⁴ RPHB I, para. 105; Doc. RE-98; HT, Day 1, p. 190, ll. 2-7. ↩
⁴⁵⁵ RPHB I, para. 105; Doc. RE-98; RPHB II, para 41. ↩
⁴⁵⁶ CPreHS, para. 167; Doc. CE-536; Doc. CE-282; Doc. CE-279; Doc. CE-281. ↩
⁴⁵⁷ CPHB I, para. 14. ↩

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548. Claimant notes that the Krymenergo Auction resulted in a selling price UAH 10 M above the starting price and was “praised" by the then government⁴⁵⁸ in two articles published by press service of the seller itself, SPF⁴⁵⁹.

D. Allegations and evidence on investigations and legal actions

549. Russia claims that the lack of competition and fraudulent nature of the privatization auctions involving the energy sector did not go unnoticed by the authorities. Russia refers to several investigations lawsuits which allegedly sought to declare these privatizations illegal⁴⁶⁰.

550. In 1993, the Ukrainian Parliament, in compliance with the Law on Privatization, created a “Special Control Commission” [“Commission”] on the privatization of State enterprises. The Commission was abolished in 2019 and ceased to carry out any parliamentary investigations, including an investigation commenced in 2017 in relation to the energy sector privatizations in 2011-2014 (the time period when the Krymenergo Auction took place)⁴⁶¹. It issued its final report in 2018, with some bland statements that privatization had not been “efficient”, and that the transformation of the public sector must be affected by “transparent and competitive privatization of state-owned property"⁴⁶². The report does not have any specific reference to the privatization of Krymenergo. It has a section devoted to the privatization of Ukrtelecom, which is said to have resulted in an "unlawful arrangement to misappropriate” State-owned property⁴⁶³, and another dedicated to the privatization of Dneproenergo, without voicing any criticism⁴⁶⁴.

551. Claimant acknowledges that a report of the Commission raised concerns about the privatization of Ukrtelecom, the Ukrainian telecommunication company. Claimant asserts that neither the DTEK Energy Group nor any other companies, whose final beneficial ownership may be attributed to Mr. Akhmetov, participated in the initial privatization of Ukrtelecom in 2010-2011. Claimant explains that the Ukrainian- registered ESU LLC company acquired Ukrtelecom in the privatization made in 2011. After the privatization, a company owned by Mr. Akhmetov acquired Ukrtelecom from ESU LLC. Claimant notes that in 2020 Ukrainian courts dismissed the SPF's claims of illegality, and that the case is currently pending before the Supreme Court⁴⁶⁵.

Dneproenergo

552. While it was operative, the Commission held a number of meetings, and there are transcripts of the statements made during these meetings.

⁴⁵⁸ Doc. CE-282. ↩
⁴⁵⁹ Doc. CE-282. ↩
⁴⁶⁰ RPreHS, para. 25; RPHB II, paras. 42-43. ↩
⁴⁶¹ RPHB II, fn. 83. ↩
⁴⁶² Doc. CE-577, p. 16/16. ↩
⁴⁶³ Doc. CE-577, p. 12/16. ↩
⁴⁶⁴ Doc. CE-577, p. 13/16. ↩
⁴⁶⁵ CPHB II, fn. 84. ↩

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553. The meeting of 4 March 2015 discussed the privatization of Dneproenergo – a company acquired by the DTEK Energy Group. The Commission invited another “oligarch" Mr. Igor Valrievich Kolomoisky to make a presentation and answer questions; he said that State property had been "unlawfully privatized"⁴⁶⁶ and that Dneproenergo was “stolen twice” “for the first time it was 40% and then the second time, when they added another 25%”⁴⁶⁷; he added⁴⁶⁸:

"They wrote the law for themselves [...] it's like saying everyone plays football, but the one who always wins is Germany. So here everyone takes part in the privatization, but Akhmetov is the one who gets everything".

Zapadenergo

554. Russia adds that, in 2017, the Commission transferred to the Prosecutor General a report on the privatization of Zapadenergo, another utility acquired by the DTEK Energy Group⁴⁶⁹. The evidence submitted does not prove Respondent's averment; Russia has failed to marshal any proof that the Commission issued any report on the privatization of Zapadenergo and sent it to the Prosecutor General.

555. What the documents relied upon by Respondent show is that an individual deputy, Ms. Voitsitska, personally wrote to the Prosecutor General, saying that there were indicia that the privatization had resulted in the commitment of various criminal offences⁴⁷⁰. The Prosecutor General effectively initiated criminal proceedings in July 2017, and informed the Deputy, explaining that the “pre-trial investigation continues"⁴⁷¹. There is no evidence in the file regarding the result of these pre-trial investigations.

Civil action by the Prosecutor General

556. In 2015, the Prosecutor General initiated civil proceedings⁴⁷² with regard to the privatization auction of Dneproenergo, which had been won by the DTEK Energy Group. The Prosecutor made several allegations, including⁴⁷³:

• That the conditions to participate in the auction were formulated in such a way as to artificially create barriers;
• That there was lack of competition in the determination of the price; and
• That the State received significantly less funds than it should have and thus the privatization violated the State's interests.

⁴⁶⁶ Doc. RE-219, p. 2/40. ↩
⁴⁶⁷ Doc. RE-219, p. 4/40. ↩
⁴⁶⁸ Doc. RE-219, p. 3/40. ↩
⁴⁶⁹ RPHB II, paras. 45-46. ↩
⁴⁷⁰ Doc. RE-220, p. 4/12. ↩
⁴⁷¹ Doc. RE-229. ↩
⁴⁷² Respondent says that the proceedings were criminal; this is false; the purpose of the procedure was the nullity of the privatization. See Doc. RE-101, p. 24/53. ↩
⁴⁷³ Doc. RE-101. ↩

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557. The Commercial Court of Kyiv upheld the Prosecutor's arguments, found that the privatization auction had been illegal and annulled the sale of Dneproenergo to the DTEK Energy Group⁴⁷⁴. But the first instance judgement was quashed in 2015 by the Supreme Commercial Court of Ukraine (presiding Judge O.O. Eevsikova and Judges O.A. Krovolets and O.B. Popikova), which found that there were no grounds to invalidate the privatization and consequently confirmed the privatization⁴⁷⁵.

Announcement by the new Prosecutor General

558. On 2 December 2021, Ms. Irina Venediktova, the Prosecutor General of Ukraine, made an announcement in her Facebook page, saying that her office would resume the investigations of more than 200 criminal cases against “legal entities and individuals from the ambit of the owner of several channels, coal companies, energy companies, etc"⁴⁷⁶. The post does not mention Mr. Akhmetov, nor the privatization of Krymenergo (nor any other privatization in Ukraine). Some newspaper articles, however, speculate that the Prosecutor General may have been referring to Mr. Akhmetov⁴⁷⁷.

559. There is no evidence in the file showing that the Prosecutor General actually resumed these investigations, that they targeted Mr. Akhmetov or any of his companies, and that they led to the indictment or conviction of Mr. Akhmetov.

3.2 LEGAL FRAMEWORK

A. The consequences of a finding of corruption

560. Respondent alleges that the DTEK Energy Group corruptly acquired its additional 45% stake in (and thus also control over) Krymenergo. Russia submits that international public policy requires the Tribunal to declare that Claimant's claim is inadmissible because of the illegal acts of Claimant's controlling shareholders. Alternatively, Respondent says that the Tribunal lacks jurisdiction because the alleged corruption has stained Claimant's investment, which therefore was not carried out in accordance with the BIT.

561. The Tribunal has taken Respondent's allegations very seriously.

562. After being confronted with Respondent's allegations of corruption, the Tribunal issued communication A22, inviting the Parties to provide additional briefing with respect to any law enforcement and/or parliamentary investigations into the privatization of the energy sector in Ukraine between 2012 and 2014, and especially with respect to the “Akhmetov Group”, which, per the Tribunal's clarifications, was to include all companies in the energy sector whose final beneficial ownership may be attributed to Mr. Rinat Akhmetov or to the DTEK Energy Group⁴⁷⁸.

⁴⁷⁴ Doc. RE-101, p. 24/53. ↩
⁴⁷⁵ Doc. RE-102, p. 19. ↩
⁴⁷⁶ Doc. RE-232. ↩
⁴⁷⁷ Doc. RE-233; Doc. RE-234; Doc. RE-235. ↩
⁴⁷⁸ Tribunal's communication A22, para. 3. ↩

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563. The legal consequences of corruption are stark: if an investor is shown to have procured or performed its investment through corruption, such an investor will lose access to the protections otherwise granted under international law. This arises from the principle of “unclean hands” and the longstanding doctrine upheld by investment tribunals that "an unlawful act cannot serve as the basis of an action in law"⁴⁷⁹.

564. This understanding is further bolstered by the language of the BIT in this case, which extends protection only to those investments made “in accordance with [the host State's] legislation"⁴⁸⁰ – and both Ukraine and Russia, the parties to the BIT, proscribe corruption in their national legislations.

565. The Tribunal notes that, even if the BIT did not contain this specific reference, the requirement that an investment may not be tainted by illegality is an implicit condition contained in all investment agreements. This is because no tribunal could rationally conclude that a State agreed to offer investment protections, enforceable through international arbitration, to an investor that acted unlawfully when obtaining such protections⁴⁸¹.

B. Burden of proof

566. International investment tribunals routinely apply the principle of “actori incumbit probatio", a doctrine which allocates the burden of proof to the party bringing a claim. This is a general principle of law and has been applied consistently by arbitral tribunals as well as by the ICJ⁴⁸². Thus, in principle, the party which alleges a fact bears the burden of proving it. The same principle is reflected in Article 24(1) of the UNCITRAL Rules:

"Each party shall have the burden of proving the facts relied on to support his claim or defence".

567. Since in this case it is Russia that is alleging that Claimant's investment was obtained through and is tainted by broad illegality and corruption, it is Respondent that has to provide supporting evidence.

C. Standard of proof

568. As for the standard to be applied to assess the evidence, the Tribunal perceives no reason to depart from the traditional standard of preponderance of the evidence, since neither the BIT nor the UNCITRAL Rules impose a different standard⁴⁸³.

⁴⁷⁹ B. Cheng, General Principles of Law as Applied by International Courts and Tribunals, Cambridge University Press (reprinted, 2006), p. 155. ↩
⁴⁸⁰ Doc. CLA-1, BIT, Article 1. ↩
⁴⁸¹ Doc. CLA-74, Flughafen, para. 132; Doc. RLA-257, Plama, paras. 138-139; Doc. RLA-86, Phoenix, para. 101; Doc. CLA-22, Saur, para. 308. ↩
⁴⁸² Doc. RLA-92, Metal-Tech, para. 237; Doc. CLA-74, Flughafen, para. 136; Doc. RLA-328, Soufraki, para. 58; Glencore, para. 668. See also B. Cheng, General Principles of Law as Applied by International Courts and Tribunals, Cambridge University Press (reprinted, 2006), pp. 327-330. ↩
⁴⁸³ Glencore, para. 669. ↩

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569. Neither the BIT nor any other instrument of international law applicable to this arbitration provide specific guidance with respect to the standard of proof required for an arbitral tribunal to make (or reject) a finding of corruption. Thus, the Tribunal has wide discretion to determine the weight and significance of the evidence⁴⁸⁴. As the Tribunal in Penwell has recently found⁴⁸⁵:

“This Arbitral Tribunal does not see any convincing reason why, outside the field of criminal law, a heightened standard of proof should apply to allegations of illegality. In the field of criminal law, the standard must be high because what is at stake is the risk of unjustly sanctioning an innocent person. Outside that field, what is at stake is the respective interests of two persons, the claimant and the respondent, and it would be paradoxical to impair the interests of the latter by reason of the seriousness of the alleged misbehaviour of the former".

Red flags

570. In international arbitration there will hardly ever be direct evidence of corruption and tribunals have no coercive powers. In most cases, corruption can only be proven by circumstantial evidence, through indicia of illicit conduct – the so-called “red flags" approach⁴⁸⁶. Red flags are part of circumstantial evidence, which can then give rise to proof of corruption⁴⁸⁷: if a party marshals evidence that proves the existence of certain indicia, and it is possible to infer from these indicia (using experience and reason) that a certain fact occurred, the Tribunal may take such fact as established. The absence of direct evidence should not be a bar to a finding of corruption, where the red flags are such that they convince the Tribunal of the reality of the allegations⁴⁸⁸.

571. The Basel Institute of Governance has published a guideline (known as a “Toolkit for Arbitrators" on corruption and money-laundering in international arbitration⁴⁸⁹) which provides several non-exhaustive examples of “red flags”. Included among these "red flags" are⁴⁹⁰:

• Personal connections to decision-makers of the State;
• The prevalence of corruptive behavior in the host State as revealed by certain international organizations or NGOs; or
• The existence of criminal investigations carried out prior to the arbitration proceedings, or in the meantime, by domestic authorities.

⁴⁸⁴ Doc. RLA-92, Metal-Tech, para. 238. ↩
⁴⁸⁵ Penwell, para. 334. ↩
⁴⁸⁶ RPHB II, para. 35. ↩
⁴⁸⁷ Doc. RLA-92, Metal-Tech, para. 243. ↩
⁴⁸⁸ Penwell, para. 334. ↩
⁴⁸⁹ Corruption and Money Laundering in International Arbitration: Toolkit for Arbitrators, April 2019, pp. 7-8. ↩
⁴⁹⁰ Corruption and Money Laundering in International Arbitration: Toolkit for Arbitrators, April 2019. ↩

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572. What is the relevance of Ukrainian criminal investigations for the present arbitration?

573. This arbitration procedure and any potential criminal investigation operate in different legal spheres, are subject to diverging standards of proof, and may reach conflicting results. The fact that the Ukrainian criminal system has not punished alleged corrupt practices surrounding the acquisition of Krymenergo, does not preclude a hypothetical finding by this Tribunal that corruption has occurred. And vice-versa. That said, the conclusions of (or absence of investigation by) the municipal justice systems – which have a much higher capacity of investigation than this Arbitral Tribunal – is one of the various elements that must be considered when evaluating the available evidence⁴⁹¹.

3.3 DECISION

574. Respondent alleges that Claimant and its assets were obtained by fraud and corruption, because the 2012 acquisition by DTEK Holdings of a 45% shareholding in Krymenergo, which gave the buyer control over the company, involved large scale corruption. Consequently, says Respondent, the Tribunal should render Claimant's claim inadmissible, Claimant's investment being ultimately tainted with illegality, or, alternatively, it should deny jurisdiction⁴⁹².

575. Claimant, on the other hand, argues that Respondent's allegations of illegality address conduct by entities other than Claimant and are without legal relevance. In any event, Claimant argues that these allegations are plainly false⁴⁹³.

576. Respondent's allegation of corruption in this case has a special characteristic, not encountered in the case law accessible to this Tribunal: Respondent is not alleging that Claimant, the Ukrainian company Krymenergo, acted corruptly when it procured the investment (i.e., when it acquired the electrical assets located in Crimea, which allegedly have been impaired by Respondent's measures); nor is Respondent averring that Krymenergo acted corruptly in its dealings with the Crimean or Russian authorities, during the operation of its investment in Crimea.

577. Respondent's argument is different: it submits that the DTEK Energy Group engaged in corruption of the Ukrainian authorities when, in 2012, in the wake of the privatization of the Ukrainian electricity sector, it acquired from the Ukrainian State a 45% participation in Claimant. As a consequence of that acquisition, DTEK Holding (which was already a minority shareholder) became the controlling shareholder of Claimant.

578. In other words: Respondent is not alleging that the investor procured or performed the investment through corruption in the host State, but rather that the actions of the controlling shareholder of the investor, when it acquired control over the investor in the home State, was tainted by corruption. In Russia's submission, this

⁴⁹¹ Glencore, para. 673. ↩
⁴⁹² See section VI.6.1 supra. ↩
⁴⁹³ See section VI.6.2 supra. ↩

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irregularity at the shareholder level must impair the standing of the subsidiary, to claim, as a protected investor, investment protection in the host State.

579. Russia's position raises significant legal problems.

580. In essence, what Russia is requesting is that the Tribunal sanction Krymenergo with the loss of its standing, for an alleged malfeasance committed not by it, but rather by its majority shareholder – without taking into consideration that, even after the Krymenergo Auction the DTEK Energy Group has not become the 100% shareholder of Krymenergo. Indeed, the Ukrainian State and other minority shareholders still hold a significant 42% stake in Krymenergo.

581. There is no allegation that either Krymenergo itself, its directors, officers or its minority shareholders, in any way cooperated or participated in the corruption. Respondent is asking the Tribunal to deny standing to Claimant, a company with separate legal personality and with significant minority shareholders, as a punishment for alleged wrongdoings performed by a third party, for which Claimant bears no responsibility. To accept Respondent's exception, and to deprive Krymenergo of standing to claim, could thus be considered a breach of the universal principle that no one can be punished for actions committed by third parties.

582. That said, the Tribunal does not have to delve into the difficult question of whether in international arbitration an investor can be deprived of standing because of corruption committed by its controlling shareholder when acquiring control over the investor because, even assuming arguendo that this was possible, a careful review of all the evidentiary record shows that Russia has failed to make out its case.

583. What does the evidence submitted by Russia prove?

A. Evidence regarding Mr. Akhmetov

584. The evidence regarding Mr. Akhmetov – the person who controls the DTEK Energy Group – presents him as one of Ukraine's wealthiest and most powerful oligarchs, one of the leaders of the Donetsk clan, and a person who has actively participated in Ukrainian politics. It is undoubted that Mr. Akhmetov has amassed a huge business empire in a few decades. The studies by think-tanks and academics (which seem to attract a higher degree of impartiality and objectivity than news outlets) suggest that Mr. Akhmetov had close ties with former presidents, Messrs. Kuchma and Yanukovych, and that his business benefitted considerably from these close associations – even if after the fall of President Yanukovych, Mr. Akhmetov's political influence seems to have waned to a certain degree⁴⁹⁴.

585. Russia has filed extensive open-source information, hinting at an obscure, or even criminal record in Mr. Akhmetov's early life. Dr. Kupatadze, a Senior Lecturer at the Russia Institute in King's College London, notes nevertheless that there is “no formal evidence” confirming the alleged criminal past of Mr. Akhmetov. In fact, a

⁴⁹⁴ Doc. RE-200, p. 3. ↩

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number of newspapers publicly apologized for linking Mr. Akhmetov to organized crime⁴⁹⁵. There is also no evidence in the file that Mr. Akhmetov was ever investigated, indicted or convicted, for any criminal activity and, consequently, he must be presumed innocent.

586. In 2021, the Prosecutor General of Ukraine made an announcement in her Facebook, saying that she would resume the investigation of more than 200 cases against an unnamed businessman. There have been some speculations that she may have been referring to Mr. Akhmetov – although this is not proven. There is no evidence in the file that the announcement, against whomever it was directed, has led to any investigation, indictment or conviction – of Mr. Akhmetov or of any other person.

B. Evidence regarding DTEK Energy Group's success in privatization auctions

587. It is undisputed that Mr. Akhmetov's DTEK Energy Group participated between 2012 and 2014 in 12 privatization auctions and that it was successful in six of them.

588. Was the success of the DTEK Energy Group achieved through the use of corruption?

589. The evidence marshalled by Russia which connects Mr. Akhmetov directly with corruption in the energy privatization process is very thin. Russia has only placed on the record two articles, one published on the internet and another in a newspaper, in which Mr. Akhmetov is outrightly accused of corruption:

• A 2019 article published in the internet page “Censor.net" in which Ms. Aleksandra Drik, a candidate running for the Ukrainian Parliament, refers to Mr. Akhmetov as corrupt and argues that he has never been held accountable⁴⁹⁶; and
• Another article published in the Ukrainian newspaper Novoe Vremia in March 2020, in which Mr. Mikheil Saakashvili, Head of the Odessa Regional State Administration, argues that to combat corruption in Ukraine oligarchs such as Mr. Akhmetov “should be imprisoned for corruption”⁴⁹⁷.

590. Respondent has highlighted that between 1993 and 2019 a parliamentary Commission investigated the privatization process, criticized the privatization of Ukrtelecom (a company eventually acquired by the DTEK Energy Group, after the privatization) and made some bland recommendations with regard to the need to improve the privatization methodology. There is no evidence that this Commission ever criticized the privatization of Krymenergo. There is evidence that another oligarch, Mr. Kolomoisky, who gave evidence before the Commission, criticized the privatization of Dneproenergo in favor of the DTEK Energy Group. But the

⁴⁹⁵ Doc. RE-82, p. 104. ↩
⁴⁹⁶ Doc. RE-86. ↩
⁴⁹⁷ Doc. RE-87. ↩

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probative value of his statement is very low, because he was a rival of Mr. Akhmetov in that transaction.

591. Respondent has also referred to letters and statements made by a single Ukrainian deputy, Ms. Voitsitska, who claimed that privatization of Zapadenergo has resulted in criminal offences. She wrote to the Prosecutor General, a file was opened, but there is no evidence that the investigations led to any indictment or conviction (or even to any conclusions).

592. Finally, the Prosecutor General initiated civil actions to annul the Dneproenergo privatization (in which the DTEK Energy Group had been successful), but the action was eventually dismissed by the Supreme Commercial Court of Ukraine. Russia has tried to undermine the impartiality of the judges of the Supreme Commercial Court of Ukraine, by pointing out that several years thereafter, the PIC examined Presiding Judge O.O Eevsikova for the position of Supreme Court judge and concluded “that the Candidate does not meet the criteria of integrity and professional ethics” for such position, in particular because of a failure to explain their sources of income⁴⁹⁸. The same occurred with Judge O.A. Krovolets, but the reasons were the influence of his mother-in-law in the advancement of his career and other procedural irregularities⁴⁹⁹. Be that as it may, there is no evidence that the judgement of the Supreme Commercial Court, which dismissed the Prosecutor General's claims, was obtained through corruption or through other irregularities.

593. If the evidence regarding corruption in general is thin, there is no evidence whatsoever which specifically links the 2012 privatization of Krymenergo (a transaction which occurred more than a decade ago) and malfeasance. There is no evidence of:

• Any formal complaint against either the SPF, the DTEK Energy Group, Krymenergo or their officials regarding the Krymenergo Auction⁵⁰⁰;
• The parliamentary Commission having investigated or criticized the privatization of Krymenergo; or
• Any action by the Public Prosecutor, by the police, or of any judicial or civil actions before the courts with regard to the Krymenergo Auction.

C. Evidence regarding the Krymenergo Auction

594. Is there any other evidence that the Krymenergo Auction was rigged in favor of the DTEK Energy Group?

595. There are two factors which undoubtedly favored DTEK Energy Group over other possible bidders:

596. First, the SPF decided to privatize a 45% stake in Krymenergo. When the Auction was called, 70% of the shares belonged to Ukraine, while the DTEK Energy Group

⁴⁹⁸ Doc. RE-236. ↩
⁴⁹⁹ Doc. RE-237, p. 3/12; Doc. RE-239. ↩
⁵⁰⁰ CPreHS, para. 23. ↩

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held 12.49% and other minority shareholders held the remaining 17.51%, with each shareholder owning less than 5%. If the aim of the SPF was to transfer control over Krymenergo to a private party, and thus to maximize the profit for the Ukrainian State, the financially reasonable solution would have been to auction off at least a 51% participation: in that case, the number of possible participants might well have been enlarged, since the successful bidder would have obtained control of Krymenergo (in which DTEK would only be a minority participant).

597. Instead of following this route, SPF chose to sell a 45% participation, which did not guarantee to any successful bidder control of the company, and consequently significantly reduced the attractiveness of the Auction (few buyers would be prepared to invest in a 45% shareholding, knowing that DTEK Holdings, the State and the other minority shareholders could outvote the buyer in Krymenergo's shareholders meeting). The selection of the 45% threshold also excluded the minority shareholders (who each owned less than 5%) from the list of buyers who could reach control of Krymenergo. In fact, the only person who could participate in the Auction and through that acquisition reach control of the company, was the DTEK Energy Group.

598. SPF's decision to sell a 45% stake thus played out to the advantage of DTEK Energy Group, because it minimized interest by third parties.

599. Second, Resolution 116-r, approved by the Cabinet of Ministers, limited the right to participate in the Auction to bidders who could prove significant experience in the field of electricity transmission and supply and who did not have a State participation in excess of 25%.

600. The requirements of Resolution 116-r also played out to the benefit of DTEK Energy Group. Few companies met the stringent requirements to be able to participate; and, in fact, only two companies – DTEK and LEA, both controlled by Ukrainian oligarchs – participated.

The resulting Auction Price

601. Any privatization auction requires a base bidding price. At the time of the Krymenergo Auction there were two general systems for determination of the base bidding price in Ukraine:

• The first one contemplated a “standardized valuation” by the SPF on the basis of three approaches: (i) an asset-based method; (ii) an income approach; and (iii) a comparative approach⁵⁰¹; and
• The second system included an independent external valuation⁵⁰² and was only performed if there was only one bidder⁵⁰³.

⁵⁰¹ R II, para. 94; Sokolovskyi ER, paras. 83-87. ↩
⁵⁰² RPreHS, para. 18. ↩
⁵⁰³ Sokolovskyi ER, para. 88. ↩

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602. SPF decided to adopt the first system (because in fact there were two bidders: DTEK Holdings and LEA⁵⁰⁴) and set the base bidding price at UAH 246 M (roughly USD 30 M⁵⁰⁵). At that time, Krymenergo was a loss-making enterprise (it had lost UAH 160 M), with a high value of assets (UAH 2.62 billion) and significant equity (UAH 1.64 billion)⁵⁰⁶.

603. The Auction began with the base bidding price of UAH 246 M. The price was raised four times. At the last stage, LEA offered UAH 253.6 M and DTEK Holdings offered UAH 256 M. LEA did not raise its offer any further, and the Competition Commission selected DTEK Holdings as the winner⁵⁰⁷. The increase was 4.7% of the base bidding price.

604. This UAH 256 M “Auction Price” corresponds to 45% of the share capital; applied to 100%, the value of the company would be UAH 569.1 M. This price must be adjusted by several factors (including a discount for lack of control, the limited number of participants and adding in Krymenergo's liabilities of UAH 874 M) resulting in an “Adjusted Auction Price”, at the date of alleged expropriation, of USD 176.4 M – as will be explained in the quantum section VIII.1.4.3B of this Award. There the Tribunal will conclude, by majority (the President and Professor Pavić), that the fair market value of Krymenergo's business, as of the date of expropriation, amounted to USD 207.8 M. The Auction Price was thus, even after the adjustments, 15% lower than the fair market value of Krymenergo's business on the alleged date of expropriation.

D. Conclusion

605. Are there red flags? Do they connect?

606. From the above it results that there is evidence that Mr. Akhmetov, the ultimate controller of the investor, has enjoyed personal connections and close ties with politicians at the highest levels of the Ukrainian State, and that he himself has actively participated in politics. That constitutes a red flag.

607. However, the allegations of a criminal past are unproven.

608. There is evidence that the privatization process in Ukraine could have been carried out in a way which maximized the price obtained by the State, while avoiding the creation of powerful oligarchic groups – which benefitted from close connections with the political elite and were capable of accumulating enormous wealth. There is evidence that Mr. Akhmetov is the controller of one of these groups, and that he benefitted from his connections with the political power. There have been investigations into certain privatizations in which the DTEK Energy Group participated (Dneproenergo, Zapadenergo, possibly Ukrenergo). However, none of these investigations has resulted in the annulment of the privatization, or in the indictment or conviction of Mr. Akhmetov.

⁵⁰⁴ Doc. CE-348, p. 4. ↩
⁵⁰⁵ RPHB I, para. 105; Doc. RE-98. ↩
⁵⁰⁶ Doc. RER-1-24, p. 29/46. ↩
⁵⁰⁷ Doc. CE-281, pp. 11-12; Doc. CE-280, p. 4; Doc. CE-348, p. 4. ↩

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609. As regards the privatization of Krymenergo, there is no evidence of any investigation, by any political or judicial authority. There is not even any public accusation or statement that this particular transaction was affected by corruption or malfeasance. There simply is no red flag.

610. It is true that the SPF structured the Krymenergo Auction in a way which benefitted Krymenergo: the 45% stake which was put on the market and the strict requirements for participants, were limitations that reduced the number of possible bidders, and consequently lowered the purchase price which was eventually achieved. The DTEK Energy Group made a good bargain and was able to purchase control over Krymenergo at a good price.

611. A low sales price can be a red flag, as has been found by tribunals in several prior arbitrations⁵⁰⁸. But one must be careful in not drawing simplistic conclusions. The SPF must have been aware that, by privatizing a 45% stake and by restricting the number of potential buyers, it was impairing the price it would eventually receive. But price maximization is not the only legitimate public policy objective in a privatization. The State can legitimately forego a high price, if the buyer is a solid company, permits vertical integration, undertakes new contributions and investments and guarantees the reliability of the public service.

612. In sum, there are indeed certain red flags in relation to the privatization process in Ukraine, in general, and Mr. Akhmetov's participation, in particular. But there are no accusations at all regarding the Krymenergo privatization. Even though it is true that this transaction was structured in a way that did not maximize the sales price, there may have been legitimate policy reasons for the SPF to forego a high price.

613. The red flags which exist are set off by other possible explanations and simply do not connect. Russia has been unable to prove quod erat demonstrandum: that the privatization of Krymenergo in particular was rigged in DTEK Energy Group's favor by corruption or other malfeasance. Absent such evidence, the Tribunal cannot but dismiss Respondent's Admissibility Objection.

⁵⁰⁸ See e.g., Penwell, para. 361 (in Penwell the tribunal found that a low sales price was indicative that the purchase price was not the true consideration for the investment). ↩

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VII. MERITS

614. Turning now to the merits of the present dispute, Claimant requests that the Tribunal adjudge and declare that Respondent violated Articles 2, 3 and 5 of the BIT. The Tribunal will first address the allegation of breach of Article 5 of the BIT, which is Claimant's primary claim (VII.1). Since it will come to the conclusion that there is a breach, the Tribunal will then briefly analyze whether Respondent also breached Articles 2 and 3 of the Treaty (VII.2).

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VII.1.BREACH OF ARTICLE 5 OF THE BIT

615. Claimant's fundamental claim is that Russia unlawfully expropriated Krymenergo's investments, in breach of Article 5 of the BIT, which reads as follows⁵⁰⁹:

"Article 5
Expropriation

1. Investments made by investors of one Contracting Party in the territory of the other Contracting Party shall not be expropriated, nationalized or subject to other measures equivalent in effect to expropriation (hereinafter referred to as "expropriation”), except in cases where such measures are taken in the public interest under due process of law, are not discriminatory and are accompanied by prompt, adequate and effective compensation". [Emphasis added]

616. Respondent, in turn, submits that the taking of Claimant's assets satisfied the requirements for a lawful expropriation under Article 5 of the BIT.

617. The Tribunal will briefly summarize the positions of Claimant (1.) and Respondent (2.) before providing its analysis (3.).

1. CLAIMANT'S POSITION

618. Claimant submits that Russia directly expropriated its investment in Crimea by way of overt administrative and legislative measures that were enforced through local courts and physical force⁵¹⁰.

619. Specifically, on 21 January 2015, the State Council of the Republic of Crimea – which Respondent describes as a “constituent entit[y]" of the Russian Federation⁵¹¹ – amended its previously adopted Expropriation Resolution and included all of Krymenergo's tangible and intangible property in Crimea on its list of property that shall be "taken into account as property of the Republic of Crimea” (previously defined as the “Amendment Resolution”)⁵¹². That same day, Crimea's Council of Ministers – the executive branch of the Russian administration in Crimea⁵¹³ – transferred title to such property to a Russian State-owned enterprise – Russian Krymenergo. These acts were immediately followed by the outright physical

⁵⁰⁹ Doc. CLA-1. Respondent's translation (Doc. RLA-127) does not differ significantly; however, Respondent's translation omits the wording “are taken in the public interest under due process of law". Respondent has corrected this omission in its written submissions, where it has added the wording in square brackets: "The investments of investors of either Contracting Party, carried out on the territory of the other Contracting Party, shall not be subject to expropriation, nationalization or other measures, equated by its consequences to expropriation (hereinafter referred to as expropriation), with the exception of cases, when such measures [are taken in the public interest under the due process of law] are not of a discriminatory nature and entail prompt, adequate and effective compensation” (see R II, para. 867). ↩
⁵¹⁰ C I, paras. 104-113; C II, para. 101; CPreHS, paras. 172, 176-178. ↩
⁵¹¹ Doc. CE-49. ↩
⁵¹² Doc. CE-79. ↩
⁵¹³ Doc. CE-136. ↩

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seizure and occupation of Krymenergo's offices. Furthermore, over the following months, the Crimean authorities transferred all of Claimant's bank accounts⁵¹⁴ and receivables to Russian Krymenergo, while leaving Claimant liable, under Russian law, for any outstanding debts⁵¹⁵.

620. Claimant further argues that the expropriation is attributable to Respondent because it was undertaken through the actions of Crimean authorities, whose acts are likewise attributable to Russia⁵¹⁶.

621. According to Claimant, Russia's complete taking of its business and assets in Crimea constitutes a “textbook expropriation”, to the extent that it was even referred to by Respondent's officials as a “nationalization procedure”⁵¹⁷. This language was echoed by the Prime Minister of the Republic of Crimea, who acknowledged that he made a "decision to submit a proposal to the State Council of Crimea to nationalize the Public Joint Stock Company [DTEK] Krymenergo”⁵¹⁸.

622. Furthermore, Claimant submits that the expropriation of DTEK Krymenergo's assets failed to meet any of the four cumulative criteria required for a lawful expropriation, as provided for in Article 5 of the BIT⁵¹⁹:

First, the expropriation was not accompanied by prompt, adequate, and effective compensation, not even an offer of compensation of any kind (1.1);

Second, it lacked a legitimate public purpose (1.2);

Third, it did not comply with basic due process (1.3); and

Finally, it was part of a campaign of expropriation directed at Ukrainian investors and was thus discriminatory (1.4).

623. Therefore, Claimant submits that Russia is liable for unlawfully expropriating Krymenergo's investments in Crimea, in violation of Article 5 of the BIT⁵²⁰.

1.1 RUSSIA HAS NOT PROVIDED CLAIMANT ANY COMPENSATION

624. According to Claimant, the BIT expressly requires that expropriations must be accompanied by “prompt, adequate and effective compensation”, that is to say⁵²¹:

Compensation shall be accorded without undue delay;

⁵¹⁴ Doc. CE-84. ↩
⁵¹⁵ C I, paras. 103, 107-111; C II, para. 101; CPreHS, para. 177. See also, Maggs ER, section VI.A. ↩
⁵¹⁶ C I, para. 106, fn. 243, referring to CLA-24, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), Article 4 and cmts. 1, 6. ↩
⁵¹⁷ C I, para. 113; C II, para. 101. See also CE-138, CE-137, CE-139. ↩
⁵¹⁸ C II, para. 101; CPreHS, para. 179; CE-140. ↩
⁵¹⁹ C I, paras. 103-104, 114-115, 133; C II, paras. 100, 120, 126; CPreHS, paras. 173, 175, 180; CPHB I, para. 124. ↩
⁵²⁰ C I, paras. 104, 133; C II, para. 100; CPreHS, para. 180; CPHB I, para. 124. ↩
⁵²¹ C I, paras. 130-131; C II, paras. 120, 125; CPreHS, para. 194. ↩

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Must correspond to the market value of the expropriated investments immediately before the date of expropriation or before the fact of expropriation became officially known; and

Must be actually available to the investor, i.e., be paid in convertible and freely transferable funds.

625. Claimant avers that six years have elapsed, and Russia has not offered – let alone provided – any form of compensation⁵²². Claimant submits that the settlement procedure that Russia allegedly has made available to Claimant expressly excluded public utilities – such as Claimant – and, in any case, provided for negotiations on the possibility of compensation, not a guarantee of payment itself⁵²³.

626. It follows that an expropriation conducted without such compensation violates Article 5 of the BIT and thus renders the expropriation unlawful on its own⁵²⁴.

1.2 RUSSIA EXPROPRIATED CLAIMANT WITHOUT A LEGITIMATE PUBLIC PURPOSE

627. Claimant further avers that the Russian Federation expropriated Claimant without a genuine and legitimate public purpose. According to Claimant, none of the rationales advanced by Respondent to justify the existence of such a purpose (which changed throughout the proceedings⁵²⁵) withstands scrutiny⁵²⁶.

628. First, at the time of expropriation, Respondent did not raise the issue of any alleged improprieties in the acquisition of Claimant by its majority shareholder. Therefore, Russia's ex-post facto theory that the nationalization's “main purpose” was to cure the alleged illegal privatization of Krymenergo cannot be considered as a valid justification, and it is, in any case, contradicted by documentary evidence⁵²⁷.

629. Second, Russia's argument that Claimant's assets were expropriated so as to secure the energy supply of the Crimean Peninsula is also pretextual⁵²⁸. By the time of the expropriation, the Crimean authorities had never perceived threats to the stability and security of power supply from Claimant – precisely the contrary⁵²⁹. In any case, Krymenergo, as responsible solely for the distribution of electricity (not for its generation), could not, and did not, take any measures to limit electricity supply or distribution to consumers in Crimea⁵³⁰. Claimant submits that an “assumption” that some of Claimant's affiliates “may” have had something to do with power cuts, on

⁵²² C I, para. 132; C II, para. 125; CPreHS, para. 195; CPHB I, paras. 126, 147. ↩
⁵²³ CPHB I, para. 147. ↩
⁵²⁴ C I, paras. 103, 114-115, 130, 133; C II, paras. 125-126; CPreHS, paras. 194, 196. ↩
⁵²⁵ HT, Day 1, pp. 71-74 (Gimblett). ↩
⁵²⁶ C I, paras. 116-120; C II, para. 121; CPreHS, para. 187; CPHB I, paras. 127, 130, 134. ↩
⁵²⁷ C II, para. 115; CPHB I, para. 133. ↩
⁵²⁸ C I, para. 117; CPHB I, para. 130. ↩
⁵²⁹ C I, para. 118; C II, para. 103; CPreHS, para. 182; CPHB I, para. 130; Doc. CE-142; Sokolovskiy WS, para. 46. ↩
⁵³⁰ C II, paras. 106-112; CPHB I, paras. 127, 130; Omelchenko ER, paras. 25-28. ↩

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the basis of press articles⁵³¹, does not amount to a legitimate basis for expropriation of Claimant's business⁵³².

630. Third, Claimant rejects Russia's allegation that it nationalized Krymenergo to put an end to Claimant's unlawful conducts related, inter alia, to “double advance payments". According to Claimant, there is simply no evidence of any illegal conduct. On the contrary, DTEK Krymenergo's billing practices were in line with applicable law and industry standards in Ukraine which were equally applicable in Crimea⁵³³.

631. In light of foregoing, Claimant concludes that the expropriation of Krymenergo's assets was not motivated by any legitimate public purpose, which also renders the expropriation unlawful under the BIT⁵³⁴.

1.3 RUSSIA FAILED TO ACCORD CLAIMANT DUE PROCESS

632. Claimant submits that, under the international standard of due process applicable to the BIT, due process requires prior notice of an expropriation and a meaningful opportunity to challenge the expropriation in advance⁵³⁵. However, Respondent failed to meet any of these criteria, in breach of Article 5 of the BIT⁵³⁶.

Krymenergo received no prior notice of the expropriatory measures;

Nor was there any meaningful opportunity to challenge the legality of the expropriation; and

Russia failed to mention the real reasoning for the expropriation.

633. Furthermore, the expropriation violated the Russian Constitution. As determined by the Russian Constitutional Court⁵³⁷, it was unconstitutional to expropriate property purely on the basis of its assets being included in the Annex to the Expropriation Resolution (the case of Claimant's assets). Russia's failure to comply with its own fundamental law constitutes a further ground to conclude that it did not comply with the international standard of due process⁵³⁸.

⁵³¹ C II, para. 111, referring to Docs. RE-30 and RE-31. ↩
⁵³² C II, para. 112. ↩
⁵³³ C II, para. 114, referring to Sokolovskiy WS II, paras. 20-24; CPreHS, paras. 29, 182; CPHB I, paras. 127, 131. ↩
⁵³⁴ C I, para. 126; CPHB I, para. 136. ↩
⁵³⁵ C I, paras. 127-128; CPreHS, para. 188; CPHB I, paras. 138-140; referring to Doc. CLA-27, ADC, para. 435; Doc. CLA-32, Ioannis Kardassopoulos, para. 396; Doc. CLA-33, Crystallex, para. 713; Doc. CLA-34, Middle East Cement Shipping, para. 143; Doc. CLA-35, Siag, para. 442; HT, Day 4, p. 52, ll. 10-15 and p. 75, ll. 21-25 (Maggs). ↩
⁵³⁶ C I, para. 129; C II, para. 122-124; CPreHS, paras. 189-190; CPHB I, paras. 125, 138, 142. ↩
⁵³⁷ Doc. CE-249. See also Docs. CE-248, CE-364, CE-367, CE-376 to CE-388. ↩
⁵³⁸ CPreHS, paras. 191-193. ↩

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1.4 RUSSIA EXPROPRIATED CLAIMANT IN A DISCRIMINATORY MANNER

634. Finally, Claimant avers that the lack of a “legitimate public purpose” is further corroborated by the fact that the expropriation was carried out as part of a discriminatory campaign of expropriation against Ukrainian investors⁵³⁹, which was confirmed not only by official statements⁵⁴⁰, but also by the documented practices of Russian and local authorities across a range of industries⁵⁴¹.

635. Likewise, the fact that Crimean authorities did not pursue similar expropriation campaigns against investors from other States is further indicative of Russia's discriminatory policy. For instance, the Crimean authorities have not nationalized the electricity distribution company in the city of Sevastopol, EC Sevastopolenergo, which was owned by non-Ukrainians⁵⁴². Similarly, there were 45 Ukrainian banks seized in Crimea, but there is no record of an expropriation of a Russian bank⁵⁴³.

2. RESPONDENT'S POSITION

636. Respondent does not contest that there was a taking of Claimant's property⁵⁴⁴. Likewise, it does not object to Claimant's assertion that the taking is attributable to the Russian Federation.

637. Nonetheless, Respondent avers that the taking of Claimant's assets satisfied the requirements of Article 5 for a lawful expropriation, because⁵⁴⁵:

First, Claimant had access to an adequate and effective compensation mechanism (2.1);

Second, the nationalization was based on legitimate public policy considerations and, as such, was decided in the public interest (2.2);

Third, it was compliant with the applicable standards of due process (2.3); and

Finally, it was not discriminatory against Claimant (2.4).

2.1 CLAIMANT HAD ACCESS TO AN ADEQUATE AND EFFECTIVE COMPENSATION MECHANISM

638. Respondent rejects Claimant's allegation that no compensation was offered. According to Respondent, through Law of Crimea No. 345-ZRK/2016 [“Law No. 345-ZRK"]⁵⁴⁶, the Crimean authorities offered a compensation mechanism to the legal owners of assets included in the Expropriation Resolution. Pursuant to Article

⁵³⁹ C I, paras. 120-122; C II, paras. 117, 121; CPHB I, paras. 126, 146. ↩
⁵⁴⁰ Docs. CE-104, СЕ-137, СЕ-105. ↩
⁵⁴¹ C I, para. 122. ↩
⁵⁴² C I, para. 124; C II, para. 117. ↩
⁵⁴³ C I, para. 125. ↩
⁵⁴⁴ R I, paras. 113, 328, 337-338. ↩
⁵⁴⁵ RPreHS, para. 198. ↩
⁵⁴⁶ Doc. AA-16. ↩

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5(3) of said Law, applications for compensation had to have been made before 1 June 2017⁵⁴⁷. However, Claimant failed to make any application and does not allege that it even contemplated such action⁵⁴⁸. Furthermore, although Article 1(2)1 of Law No. 345-ZRK initially excluded utility companies from its coverage, this article was inapplicable⁵⁴⁹. Therefore, Respondent submits that Claimant is precluded from relying on the absence of payment of compensation⁵⁵⁰.

639. In any event, Respondent contends that the mere failure to pay compensation does not render an expropriation unlawful per se, as expressly recognized by several legal scholars and in multiple investment cases⁵⁵¹.

2.2 THE NATIONALIZATION PURSUED LEGITIMATE PUBLIC PURPOSES

640. According to Russia, sovereign States enjoy wide latitude in determining whether an action is taken for a public purpose. The sovereign determination of a public purpose should not be second-guessed⁵⁵². Respondent alleges that the dispossession of Claimant's assets served several legitimate public purposes⁵⁵³:

641. First, the expropriation was aimed at curing Claimant's alleged investments of “the stain of fraud and corruption”. Given the illegitimate circumstances in which Claimant's controlling shareholder obtained its privatized shareholding, it was in Respondent's legitimate public interest to erase the effects of the illegitimate privatization such that the assets could be returned to the possession of the State⁵⁵⁴.

642. Second, it was justified by the need to protect public order:

643. On the one hand, it was intended to safeguard the energy supply of the Crimean Peninsula. Respondent contends that while power supply was in the hands of Claimant, power cuts increased in Crimea and the electricity supply was not reliable. Respondent further submits that Claimant's ultimate beneficial owner – Mr. Akhmetov – is directly responsible for power cut-offs and outages in socially and strategically important sites and institutions and, thus, he and his group, in any case, should not be considered a reliable energy operator⁵⁵⁵.

⁵⁴⁷ R I, para. 370; R II, paras. 894-896; RPreHS, para. 203. Asoskov ER, paras 34-39. ↩
⁵⁴⁸ R II, para. 897; RPreHS, para. 203. ↩
⁵⁴⁹ RPreHS, para. 203. ↩
⁵⁵⁰ R II, para. 898. ↩
⁵⁵¹ R I, para. 369; R II, paras. 899-907, RPreHS, para. 204; referring to Docs. RLA-296, M. Mohebi, The International Law Character of the Iran-United States Claims Tribunal (1999), p. 289; RLA-137, J. Crawford, Brownlie's Principles of Public International Law (8th ed., 2012), p. 624; RLA-297, A. Sheppard, The distinction between lawful and unlawful expropriation, in C. Ribeiro (ed.), Investment Arbitration and the Energy Charter Treaty (2006), p. 171; RLA-298, Mobil, para. 301; RLA-299, Tidewater, paras. 141, 146; RLA-300, Ampal, para. 286; RLA-301, Compañía del Desarrollo de Santa Elena, para. 101; Doc. RLA-302, Southern Pacific Properties, paras. 158, 183. ↩
⁵⁵² R I, paras. 346-347; referring to Doc. RLA-103, Rusoro, para. 385. ↩
⁵⁵³ R I, paras. 345-348; R II, para. 804; RPreHS, paras. 177, 199; RPHB I, para. 94. ↩
⁵⁵⁴ R I, paras. 353-356; R II, paras. 802, 804(a), 805-810; RPreHS, paras. 42-45, 178-179; RPHB I, paras. 95-115; RPHB II, paras. 33-54. ↩
⁵⁵⁵ R I, paras. 334-338, 349-351; R II, paras. 804(b), 811-817; RPreHS, paras. 180-181; RPHB I, paras. 116-118, 121-135; RPHB II, paras. 55-58, 60-62. ↩

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644. On the other hand, it was justified by the need to put an end to Claimant's “illegal practices"⁵⁵⁶:

Claimant unlawfully claimed 100% advance payments from consumers, in breach of Russian law;

Furthermore, Claimant opted not to comply with the rules on protected zones and rules on the use of land plots;

Finally, Claimant refused to accept the tariff established for DTEK Krymenergo.

645. In sum, Respondent submits that the dispossession of Claimant's assets pursued legitimate bona fide public interests, in compliance with Article 5 of the BIT⁵⁵⁷.

2.3 THE NATIONALIZATION WAS COMPLIANT WITH THE APPLICABLE STANDARDS OF DUE PROCESS

646. Respondent further contends that the seizure of Claimant's assets complied with the applicable standards of due process⁵⁵⁸.

647. The adoption of the Expropriation Resolution was within and in accordance with the powers of the Crimean authorities and, contrary to Claimant's allegation, it did not violate the Russian Constitution⁵⁵⁹.

648. Moreover, Claimant's position that the lack of advance notice and opportunity to be heard in advance violates due process is meritless. International law only imposes the obligation to provide an opportunity for an investor to challenge the legality of the expropriation through effective and transparent procedures⁵⁶⁰. Likewise, Russian law does not contain a requirement of prior notice of the seizure, but only imposes a guarantee of judicial control, which can be carried out before or after the expropriatory measures⁵⁶¹.

649. According to Respondent, Claimant was given this opportunity, like several other property owners impacted by the Expropriation Resolution. However, since Claimant was unable to establish legal acquisition and ownership of the assets, it deliberately and strategically opted not to challenge the Amendment Resolution and, instead, to proceed directly to arbitration. Claimant is now estopped from

⁵⁵⁶ R I, para. 357-358; R II, paras. 804(b), 818-821; RPreHS, para. 180, 182-183; RPHB I, paras. 120, 136-141. ↩
⁵⁵⁷ R II, paras. 822, 873; RPreHS, para. 184. ↩
⁵⁵⁸ R I, para. 362; R II, para. 875; RPreHS, para. 200; RPHB I, para. 149; RPHB II, paras. 63, 66. ↩
⁵⁵⁹ R I, paras. 363-364; R II, paras. 876-877; RPreHS, para. 200. ↩
⁵⁶⁰ R I, paras. 365-366; R II, paras. 888-889; RPreHS, para. 201; RPHB I, paras. 149, 151-155; RPHB II, paras. 64-65; referring to Doc. RLA-280, South American Silver, paras. 582, 585; Doc. CLA-27, ADC, para. 435; Doc. CLA-32, Ioannis Kardassopoulos, para. 396. ↩
⁵⁶¹ R II, paras. 878-879; RPHB I, paras. 149, 156-158, 167-171; RPHB II, para. 66; HT, Day 4, pp. 209-210 (Prof. Asoskov). ↩

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claiming a violation of due process when it decided not to exercise the remedies available to it⁵⁶².

2.4 THE NATIONALIZATION WAS NOT DISCRIMINATORY AGAINST CLAIMANT

650. Respondent further rejects that Claimant's dispossession of assets was conducted in a discriminatory manner⁵⁶³.

651. Before its reunification with the Russian Federation, Crimea was part of Ukraine; therefore, it is unsurprising that a majority of property owners in Crimea were Ukrainians. In any case, neither Law No. 38-ZRK, the Expropriation Resolution nor the Amendment Resolution refer to the nationality of those whose property was dispossessed, be it Ukrainian or otherwise. Moreover, the Amendment Resolution also covers a number of assets that belonged to non-Ukrainian companies⁵⁶⁴.

652. In any case, a test for discriminatory treatment requires an appropriate comparator, which Claimant has failed to identify. The only such purported similar company presented by Claimant is inapposite because EC Sevastopolenergo, unlike Claimant, was not implicated in any violations of Russian law⁵⁶⁵.

3. DISCUSSION

653. The Tribunal's analysis will start by defining the requirements for an expropriation under the BIT (3.1). The Tribunal will then summarize the proven facts (3.2). Thereafter, the Tribunal must answer two questions to determine whether Claimant's investment was unlawfully expropriated:

Do the proven facts demonstrate that there was an expropriation under the BIT? (3.3)

If so, did such expropriation comply with the criteria set forth in the BIT to be considered lawful? (3.4)

654. The Tribunal will conclude that Respondent's taking of Claimant's assets constituted an unlawful expropriation, in breach of Article 5 of the BIT (3.5). Therefore, the Tribunal will analyze the two counterarguments advanced by Respondent to justify the taking of Claimant's assets and the non-payment of compensation (3.6).

3.1 REQUIREMENTS FOR AN EXPROPRIATION UNDER THE BIT

655. Article 5 of the BIT contains a general prohibition against three types of dispossession measures taken by the host State:

⁵⁶² R I, para. 365; R II, paras. 881-887; RPreHS, para. 201; RPHB I, paras. 150, 161-166. Asoskov ER, paras. 40-51. ↩
⁵⁶³ R I, paras. 360-361; R II, paras. 890-891; RPreHS, paras. 185-189, 202; RPHB I, para. 174. ↩
⁵⁶⁴ R II, paras. 826-829, 890; RPreHS, para. 186; RPHB I, para. 175; RPHB II, para. 68. ↩
⁵⁶⁵ RPreHS, para. 188; RPHB I, paras. 176-177. ↩

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expropriations,

nationalizations, and

other measures with equivalent effect.

656. As a general rule, such measures are improper; as an exception, they are licit if the host State meets four cumulative requirements:

the measures must be accompanied by prompt, adequate and effective compensation,

be taken in the public interest,

in accordance with due process, and

not be discriminatory.

Measures

657. The concept of “measure”, which is not defined in the BIT, must be understood in a broad sense – as is made clear by the text of the BIT itself, which only refers to the noun "measures”, without any further qualification. Therefore, it covers all types of administrative, legislative or judicial acts carried out by any of the powers of the Russian Federation (or by any other entity for whose acts Russia is responsible in accordance with international law), and prohibits such acts from resulting in expropriation, nationalization or an equivalent measure.

Expropriation, nationalization

658. Likewise, the BIT does not provide a definition of “expropriation” or “nationalization”, but both are well-established international law concepts.

659. In an “expropriation” a State, exercising its sovereign powers, dispossesses an investor of a protected investment, depriving the investor of the ability to manage, use or control its property, or of the ownership of the investment. The definition of expropriation is centered on the taking suffered by the investor: there is no requirement that the investor's loss translate into enrichment of the State – although typically expropriations will result in wealth passing from the investor to the State, to a public entity, or to a private beneficiary favored by the State.

660. Expropriations on a sector or industry-wide basis are usually referred to as “nationalizations". As explained by the tribunal in OI European Group⁵⁶⁶:

“Nationalization is a concept analogous to expropriation, with the addition that it frequently involves complete sectors of the economy and that the State normally assumes ownership of the investment it has taken from the investor”.

⁵⁶⁶ Doc. RLA-344, OI European Group, para. 328. ↩

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661. Investor⁵⁶⁷ and investment⁵⁶⁸, in turn, are concepts defined in the BIT. The Tribunal has already concluded that the Claimant is an investor for the purposes of the Treaty⁵⁶⁹, and that it is the holder of a protected investment, which includes real property, valuable equipment and other moveable property, cash, and intangible assets, such as shares, licenses, and contracts⁵⁷⁰.

Types of expropriation

662. Expropriation can be direct or indirect:

Direct expropriation involves the “outright taking or seizure of property rights in assets owned by private parties, usually combined with a transfer of such rights to either the expropriating state or to third parties”⁵⁷¹;

Indirect expropriation occurs when the property is otherwise destroyed or there is a significant depreciation of the value of the assets, or the owner is deprived of its ability to manage, use or control its property, without the legal title being affected.

663. The main distinguishing characteristic between a direct and an indirect expropriation is whether legal title to property is affected⁵⁷².

3.2 PROVEN FACTS

664. On 27 February 2014, Russian military forces gained control of key locations in the capital city of the Autonomous Republic of Crimea, which before had been a part of Ukraine⁵⁷³.

665. On 16 March 2014, an independence referendum was held⁵⁷⁴, and the next day the State Council of the Autonomous Republic of Crimea declared the formation of the new sovereign entity named the Republic of Crimea⁵⁷⁵ [already referred to as the “Independence Resolution"]; at the same time, the authorities made it clear that they were requesting that the new State entity be incorporated into the Russian Federation⁵⁷⁶.

⁵⁶⁷ Doc. CLA-1, Article 1(2) of the BIT. ↩
⁵⁶⁸ Doc. CLA-1, Article 1(1) of the BIT. ↩
⁵⁶⁹ See section VI.5 supra. ↩
⁵⁷⁰ See section VI.4 supra. ↩
⁵⁷¹ A. Reinisch and C. Schreuer, “Expropriation” in International Protection of Investments: The Substantive Standards, Cambridge University Press (2020), para. 156. ↩
⁵⁷² A. Reinisch and C. Schreuer, “Expropriation” in International Protection of Investments: The Substantive Standards, Cambridge University Press (2020), para. 203. ↩
⁵⁷³ See, e.g., Doc. CE-43; Doc. CE-44, paras. 155-158. ↩
⁵⁷⁴ Doc. CE-45. ↩
⁵⁷⁵ Doc. CE-46. ↩
⁵⁷⁶ Doc. CE-46, para. 8, p. 3 of pdf. ↩

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666. Two days later, under the Annexation Treaty, the Republic of Crimea became part of the Russian Federation⁵⁷⁷.

667. On 21 March 2014, Russia adopted the Incorporation Law, which undertook to integrate Crimea into the Russian Federation; this Law, inter alia:

Extended the application of the Russian tax regime to the territory of the Republic of Crimea⁵⁷⁸,

Introduced the Russian RUB as the national currency in Crimea⁵⁷⁹ and

Established Russian courts in Crimea⁵⁸⁰.

668. On 30 April 2014, the State Council of the Republic of Crimea, using as a legal basis the Incorporation Law, issued the Expropriation Resolution stating that certain categories of property “shall be considered the property of the Republic of Crimea”⁵⁸¹. At that point, the affected categories of assets included Ukrainian State-owned property and “abandoned properties”.

669. Claimant's investment, however, was not affected at this stage.

Claimant's investment continues in the Republic of Crimea

670. Adapting to the new situation, on 26 May 2014 Claimant restructured its corporate presence in Crimea, moving its corporate seat to Kyiv, Ukraine, and registering a Branch in Crimea⁵⁸².

671. The Russian authorities accepted Claimant's change: on 29 May 2014, the Russian tax authorities issued a certificate registering Claimant as a foreign entity doing business in Crimea⁵⁸³.

672. On 11 August 2014, the Russian government issued a Decree on the regulation of electricity in Crimea, which, among other things, provided that only designated entities were permitted to distribute electricity in Crimea⁵⁸⁴. Less than three weeks later, on 29 August 2014, the Russian authorities in Crimea designated the Branch as an authorized supplier of electricity in Crimea⁵⁸⁵.

673. The Russian authorities continued to condone Claimant's activity in Crimea until the end of 2014:

⁵⁷⁷ Doc. CE-48, Articles 2, 9(1). ↩
⁵⁷⁸ Doc. CE-49, Article 15. ↩
⁵⁷⁹ Doc. CE-49, Article 16. ↩
⁵⁸⁰ Doc. CE-49, Article 9. ↩
⁵⁸¹ Doc. CE-80, Article 1. ↩
⁵⁸² Doc. CE-60; Doc. CE-61; Doc. CE-62; Doc. CE-64. ↩
⁵⁸³ Doc. CE-66. ↩
⁵⁸⁴ Doc. CE-67. See also, Belyaev WS, para. 16. ↩
⁵⁸⁵ Doc. CE-68. ↩

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On 21 October 2014, they approved Claimant's investment program⁵⁸⁶;

On 27 October 2014 and 19 December 2014, they set regulated tariffs for the supply of electricity by the Branch⁵⁸⁷; and

Finally, on 4 December 2014, Russia's Ministry of Justice issued a certificate of accreditation to the Branch⁵⁸⁸.

Claimant's investment is targeted by the Amendment Resolution

674. The manner in which the Russian Federation treated Claimant's investment changed abruptly in January 2015.

675. On 21 January 2015, the State Council of the Republic of Crimea passed an amendment to the Expropriation Resolution [already referred to as the "Amendment Resolution”] adding to the list of dispossessed properties all of Claimant's tangible and intangible assets in Crimea⁵⁸⁹.

676. On that same day, the Council of Ministers of the Republic of Crimea adopted a regulation placing Krymenergo's movable and immovable property in Crimea under the control of a Russian state-owned enterprise – Russian Krymenergo⁵⁹⁰.

677. In parallel, employees of Russian Krymenergo, accompanied by uniformed security personnel, entered the Branch office, demanded original financial documents, keys and seals, and ordered Krymenergo employees to leave the premises⁵⁹¹. The following day, non-technical Krymenergo staff were barred entrance to the Branch office⁵⁹².

678. In the following month, the Crimean authorities took further expropriatory actions by amending the measures adopted on 21 January 2015, including by transferring all Claimant's bank accounts and receivables to Russian Krymenergo⁵⁹³, and seizing Claimant's shareholding in PJSC East Crimean Energy Company⁵⁹⁴.

679. No compensation has been paid by the Crimean or Russian authorities for Claimant's dispossessed assets.

⁵⁸⁶ Doc. CE-71. ↩
⁵⁸⁷ Doc. CE-69; Doc CE-70. ↩
⁵⁸⁸ Doc. CE-63. ↩
⁵⁸⁹ Doc. CE-79. ↩
⁵⁹⁰ Doc. CE-81. ↩
⁵⁹¹ Sokolovskiy WS, paras. 44-45; Belyaev WS, paras. 24-26. ↩
⁵⁹² Belyaev WS, para. 27. ↩
⁵⁹³ Doc. CE-84. ↩
⁵⁹⁴ Doc. CE-41. ↩

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3.3 DID RESPONDENT EXPROPRIATE CLAIMANT'S INVESTMENT?

A. The taking of Claimant's assets

680. As seen above, the Russian Federation gained control over the Crimean Peninsula in February 2014. In April 2014, the Crimean authorities enacted the Expropriation Resolution, nationalizing certain enterprises⁵⁹⁵.

681. Claimant's investment, however, was not affected by the Expropriation Resolution. Instead, Claimant continued to operate its business in the Republic of Crimea and, until the end of 2014, obtained further assurances which confirmed that its business was compliant with local regulations.

682. The situation changed in January 2015, when, suddenly, the Crimean authorities reversed course.

683. It is undisputed that there was a taking of Claimant's assets, which occurred through three main events on 21 January 2015:

First, the State Council of the Republic of Crimea issued the Amendment Resolution⁵⁹⁶ and placed all of Claimant's tangible and intangible property in Crimea on a list of property that should be “taken into account as property of the Republic of Crimea”;

Second, on the same day, Crimea's Council of Ministers transferred control of Claimant's property to Russian Krymenergo⁵⁹⁷; and

Third, also on the same day, Russian Krymenergo employees physically entered the main office buildings of Claimant in Simferopol and forced Claimant's management from the offices without readmission to Claimant's facilities;

[the “Expropriatory Measures”].

684. Further actions were later adopted in furtherance of the Expropriatory Measures adopted on 21 January 2015; as a result, there was a complete dispossession of Claimant's business and assets in Crimea.

685. In light of the facts described, the Russian Federation does not contest that the taking of Claimant's assets constitutes an expropriation or nationalization: in fact, Respondent even refers to the Amendment Resolution as the “Decision to Nationalise"⁵⁹⁸.

686. Likewise, there is no dispute between the Parties that the taking of Claimant's assets was a classic, direct expropriation: the actions taken by the Crimean authorities formally and expressly divested Krymenergo of title to each of its assets in Crimea,

⁵⁹⁵ Doc. CE-80. ↩
⁵⁹⁶ Doc. CE-79. ↩
⁵⁹⁷ Doc. CE-81. ↩
⁵⁹⁸ R I, para. 328. ↩

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physically prevented Krymenergo from accessing its property on the peninsula, and, ultimately, transferred title, use, and benefit of Krymenergo's assets to Russian Krymenergo.

B. Attribution

687. The next question is whether the Expropriatory Measures can be attributed to the Russian Federation.

688. Article 4 of the International Law Commission Draft Articles on State Responsibility [the “ILC Draft Articles”] states as follows⁵⁹⁹:

"Article 4. Conduct of organs of a State

1. The conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.

2. An organ includes any person or entity which has that status in accordance with the internal law of the State".

689. The Expropriatory Measures of 21 January 2015 were undertaken by three entities:

The State Council of the Republic of Crimea;

The Council of Ministers of the Republic of Crimea; and

The employees of Russian Krymenergo, a State-owned Russian company.

690. The actual entity responsible for the taking, however, is the State Council of the Republic of Crimea: the focal legal action was taken through the adoption of the Amendment Resolution, and the transfer of control over Claimant's assets by the Council of Ministers, as well as the physical eviction of the Branch office premises by Russian Krymenergo employees, were ancillary in nature.

691. In any case, Respondent does not dispute that the actions of these three entities can be attributed to the Russian Federation⁶⁰⁰.

692. The first two are official organs of the Republic of Crimea, an entity which, according to Russian law, forms part of the Russian Federation. The Annexation Treaty and Incorporation Law are clear in delegating any local powers to the organs of the Republic of Crimea from the federal organs of the Russian Federation⁶⁰¹.

⁵⁹⁹ Doc. CLA-24, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001). ↩
⁶⁰⁰ The only reference to the question of attribution in Respondent's pleadings is found in R I, para. 330, in which Respondent states: “More specifically, the Crimean authorities (assuming that their actions can be attributed to the Russian Federation) enacted the [Expropriation Resolution] (and the subsequence [Amended Resolution] [...]" [Emphasis added]. ↩
⁶⁰¹ Docs. CE-46 and CE-48. ↩

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Thus, the actions of the State Council or the Council of Ministers of the Republic of Crimea can be attributed to the Russian Federation.

693. The third entity, i.e., Russian Krymenergo, acting through its employees who physically threatened Claimant's staff and expropriated the premises of Claimant's Branch office, exercised the public powers of eviction, and executed the regulations introduced by the local legislative body. Thus, their actions can also be attributed to the Russian Federation⁶⁰².

694. As a result, the Tribunal confirms that the actions of the Crimean authorities and Russian Krymenergo are attributable to Respondent under Article 4 of the ILC Draft Articles.

***

695. There is thus no disagreement between both Parties that direct expropriation has indeed taken place, and that the Expropriatory Measures are attributable to the Russian Federation. The real issue in dispute between the Parties is whether such expropriation complied or not with the requirements of Article 5 of the BIT. The Tribunal will analyze this question in the next chapter.

3.4 WAS THE EXPROPRIATION COMPLIANT WITH ARTICLE 5 OF THE BIT?

696. Both Parties agree that the BIT does not forbid States from expropriating assets owned or controlled by investors, or from nationalizing natural resources or economic sectors. The Parties also agree, however, that the BIT establishes four requirements which the State must comply with in order for the expropriation to be lawful. The measure:

Must ensure prompt, adequate and effective compensation (A.),

Pursue a legitimate public purpose (B.),

Be adopted under due process of law (C.), and

Not be discriminatory (D.).

697. Claimant alleges that each of the requirements must be met⁶⁰³. The Tribunal agrees: failure to comply with any of the requirements will render the expropriation unlawful.

698. The Tribunal must therefore determine whether the Russian Federation satisfied such conditions when adopting the Expropriatory Measures – otherwise the expropriation would be deemed unlawful, in violation of Article 5.

⁶⁰² Doc. CE-58. The Resolution of the State Council of the Republic of Crimea establishing Russian Krymenergo provides that (i) the Council of Ministers of Crimea shall “[d]efine the management body" of the enterprise; and (ii) a commission of the State Council of Crimea “shall be responsible for supervising the implementation of this Resolution". ↩
⁶⁰³ R I, para. 103. ↩

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699. Claimant argues that the Russian Federation has not complied with any of the conditions set for a lawful expropriation under Article 5 of the BIT. The Russian Federation, in turn, considers that it has complied with all of them.

700. The Tribunal will analyze each of these requirements in turn to determine whether the Russian Federation has complied with the provisions of the Treaty.

A. Prompt, adequate and effective compensation

701. Article 5 of the BIT requires that the measures are accompanied by

"[...] prompt, adequate and effective compensation".

702. Claimant avers that Russia's failure to provide any form of compensation violates Article 5 of the BIT and, thus, renders the expropriation unlawful on its own. Respondent, for its part, does not deny that it did not pay any compensation to Claimant, but argues that the mere failure to pay compensation does not render an expropriation unlawful per se.

703. The BIT clearly states that expropriation must comply with four cumulative conditions, including the payment of “prompt, adequate and effective compensation". It follows that failure to pay such compensation renders the expropriation non-compliant with Article 5⁶⁰⁴.

Respondent's counterargument

704. Alternatively, Respondent contends that Claimant had access – through Law No. 345-ZRK – to a "prompt, adequate and effective compensation” mechanism, but that it failed to apply within the deadline foreseen in the Law. Hence, Claimant is precluded from relying on the absence of payment of compensation.

705. The Tribunal disagrees.

706. First, Law No. 345-ZRK was enacted by the State Council of the Republic of Crimea only on 28 December 2016, i.e., two years after the Expropriation Resolution. It follows that it was not “prompt” compensation.

707. Second, it was also not "effective” compensation, since Law No. 345-ZRK did not constitute a guarantee of payment. It established a procedure under which the authorities could grant compensation, subject to certain conditions. Particularly, Law No. 345-ZRK expressly states that the applicant must prove that it had ownership of the property⁶⁰⁵. However, according to Respondent's position in this arbitration, Claimant would not be able to establish legal acquisition and ownership of the assets. Respondent's attitude makes it likely that any application would have been rejected.

⁶⁰⁴ Doc. CLA-25, Vivendi II, para. 7.5.21; Doc. CLA-30, von Pezold, para. 498. ↩
⁶⁰⁵ Doc. AA-16, Article 4.2(3). ↩

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708. Third, Law No. 345-ZRK expressly excluded utility companies from its scope:

"2. The effect of this Law does not apply to property owned on the right of ownership before inclusion in the List by:

1) organizations that provided as of 21 February 2014 utilities and life support services for the population of the Republic of Crimea".

709. Russia does not deny that Law No. 345-ZRK expressly excluded utility companies, but avers that such exception is “inapplicable”, because the State Council of the Republic of Crimea did not publish a list of the excluded entities, pursuant to Article 1(3) of Law No. 345-ZRK. This argument does not withstand scrutiny: failure to compile that list does not mean that the investor would automatically be eligible for compensation under Law No. 345-ZRK. It follows that Law No. 345-ZRK could not be considered "adequate" compensation either.

710. In sum, the Tribunal concludes that Respondent's failure to pay “prompt, adequate and effective compensation" constitutes a breach of Article 5 of the BIT.

***

711. Since the Expropriatory Measures did not comply with one of the fundamental requirements of Article 5 of the BIT, there would be no need to decide whether such Measures were taken in the public interest, conducted under due process of law and in a non-discriminatory manner. Nevertheless, as the Parties have pleaded extensively on these matters, the Tribunal will address them briefly.

B. Public purpose

712. To be considered lawful, Article 5 of the BIT also requires an expropriation to be

"[...] taken in the public interest”.

713. According to the Russian Federation, sovereigns enjoy wide latitude in determining whether an action is taken for a public interest – in other words, the sovereign determination of a public purpose should not be second-guessed by an investment tribunal⁶⁰⁶. Russia says that the expropriation of Claimant's assets served at least two legitimate public interests⁶⁰⁷:

First, it was necessary to protect the public order, either to ensure “accident-free and stable operation of the power supply system of the Republic of Crimea and to prevent interruptions in the supply of electricity to socially significant objects" and to respond to “Claimant's continued unlawful practices" (a.); and

⁶⁰⁶ R I, para. 346. ↩
⁶⁰⁷ R II, para. 804; RPreHs, para. 177. ↩

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Second, it “cured Claimant's alleged investments of the stain of fraud and corruption arising out of the illegitimate 2012 privatization of the controlling stake in Claimant's shareholding” (b.).

714. Claimant, in turn, argues that Russia's allegations of “public purpose" are pretextual and unsupported. There is no evidence linking Claimant to the power cuts claimed to have inspired the expropriation. Likewise, there is no contemporaneous complaints about Claimant's conduct nor about the acquisition of Claimant by its majority shareholder. The real motivation for the expropriation was the desire to dispossess Ukrainians from their businesses in Crimea.

Tribunal's analysis

715. The Tribunal is respectful of Russia's sovereign right to determine what is in the public interest⁶⁰⁸. However, such respect does not mean carte blanche: the public interest must go beyond a State's mere declaration; therefore, the Tribunal is called to verify whether the alleged public interest is substantiated with “convincing facts or legal reasoning”⁶⁰⁹.

716. As noted by the ADC v. Hungary tribunal⁶¹⁰,

"[...] a treaty requirement for 'public interest' requires some genuine interest of the public. If mere reference to 'public interest' can magically put such interest into existence and therefore satisfy this requirement, then this requirement would be rendered meaningless since the Tribunal can imagine no situation where this requirement would not have been met".

717. Likewise, in British Caribbean Bank Limited the tribunal observed that public purpose requires an explanation of how the State's goal will be fulfilled⁶¹¹:

"[public purpose] requires – at least – that the Respondent set out the public purpose for which the expropriation was undertaken and offer a prima facie explanation of how the acquisition of the particular property was reasonably related to the fulfilment of that purpose”.

718. In addition, the public purpose requirement should be considered by reference to the time when the expropriatory measure was taken. In other words, the alleged public purpose must be contemporaneous to the expropriation, and not an ex-post facto construction that aims at justifying the taking.

719. To determine whether the expropriation was actually carried out in the public interest it is thus necessary to analyze how the contemporaneous official documents justified the taking of Claimant's assets:

720. The starting point is the Expropriation Resolution, which explained that⁶¹²:

⁶⁰⁸ Doc. RLA-103, Rusoro para. 385. ↩
⁶⁰⁹ Doc. CLA-27, ADC, para. 430. ↩
⁶¹⁰ Doc. CLA-27, ADC, para. 432. ↩
⁶¹¹ Doc. CLA-28, British Caribbean Bank, para. 241. ↩
⁶¹² Doc. CE-80. ↩

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"[...] all State property (of the State of Ukraine) and abandoned property located on the territory of the Republic of Crimea shall be considered the property of the Republic of Crimea”.

721. This wording was slightly modified through the Amendment Resolution, to read as follows⁶¹³:

"[...] all state-owned property (of the state of Ukraine) and ownerless property located in the territory of the Republic of Crimea, as well as the property specified in the Annex to this Resolution, is taken into account as property of the Republic of Crimea".

722. The Amendment Resolution also added a new clause, stating that:

"[...] the Council of Ministers of the Republic of Crimea has the right to introduce a temporary administration indicating its powers to manage an enterprise, a company or its branch, in cases where the introduction of a temporary administration is necessary for provision of stable and trouble-free operation of the facilities which are recognized to be owned by the Republic of Crimea, with the aim of preventing the occurrence of disturbances during operation of these facilities”. [Emphasis added]

723. The explanatory note to the draft resolution of the State Council of the Republic of Crimea "On Amendments to Certain Resolutions of the State Council of the Republic of Crimea” [the “Explanatory Note to the Amendment Resolution"] clarified that the inclusion of Claimant's movable and immovable property in the list of properties considered to be the properties of the Republic of Crimea was made⁶¹⁴:

"[...] in order to ensure stable and safe operation of power supply systems, prevent the occurrence of destabilizing situations while providing consumers of the Republic of Crimea with electricity and prevent the occurrence of interruptions in electricity supply for consumers in the Republic of Crimea".

a. Safeguarding power supply to the inhabitants of the Crimean Peninsula and responding to unlawful practices

724. It follows that the stated official and contemporaneous purpose of the Expropriatory Measures was to secure the energy supply of the Crimean Peninsula.

725. The Tribunal – in line with Claimant⁶¹⁵ – accepts that energy security constitutes, in principle, a legitimate public interest. However, the relevant question is not whether ensuring energy supply to the Crimean Peninsula could be seen as a legitimate public purpose – which it could – but whether the expropriation of Claimant's assets was “reasonably related to the fulfillment of that purpose”.

⁶¹³ Doc. CE-79. ↩
⁶¹⁴ Doc. CE-141, p. 3. ↩
⁶¹⁵ HT, Day 1, p. 66, ll. 21-23 (Gimblett). ↩

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726. Russia argues that the taking of Claimant's assets was necessary because Claimant did not provide a stable and reliable service, ignored the Russian regulations on electricity distribution, and, despite several warnings, continued its unlawful practices⁶¹⁶.

Power cut-offs

727. First, Russia avers that DTEK Krymenergo was responsible for several black-outs that occurred in the Crimean Peninsula⁶¹⁷. The Tribunal, however, is not convinced by this argument. The evidence shows that DTEK Krymenergo could not have been responsible for the power outages in Crimea, because⁶¹⁸:

Claimant was a company responsible solely for the distribution of energy within Crimea, not for its generation in Ukraine; and

Claimant's operations were limited to the territory of Crimea and, thus, had no bearing on the transmission of electricity from Ukraine to Crimea.

728. Claimant's expert's unrebutted opinion provides that it was the Ukrainian entity charged with ensuring the stability of the power grid, NEC Ukrenergo, and not the energy distributors such as Claimant, that could make the decision to cut-off electricity supply⁶¹⁹:

"NEC Ukrenergo is responsible for determining, on a real-time basis, how the IPS of Ukraine transmits electricity over MPTLs from the generating companies to the regional grids of electricity distribution companies".

729. If NEC Ukrenergo made the decision to limit the supply of electricity to Crimea, then Claimant simply could not transmit any energy to any local consumers, as it was itself cut-off from the source of energy⁶²⁰:

"All real-time commands and instructions from NEC Ukrenergo (or from its standalone subdivisions – the regional electric energy systems) must be followed unconditionally by all business entities whose power industry facilities are connected to the IPS of Ukraine, including gencos [power generation companies] and distribution companies" [explanation and emphasis added].

730. Respondent appears to recognize the weakness of its argument when it acknowledges that Claimant could have been “connected to" rather than "personally responsible” for the interruptions in energy supply⁶²¹:

"[...] the Crimean authorities had every reason to assume that Claimant (as part of the DTEK Group) was (if not personally responsible) at least connected

⁶¹⁶ RPHB I, para. 120. ↩
⁶¹⁷ R I, paras. 62, 350. ↩
⁶¹⁸ Omelchenko ER, paras. 25-28. ↩
⁶¹⁹ Omelchenko ER, para. 20. ↩
⁶²⁰ Omelchenko ER, para. 35. ↩
⁶²¹ R I, para. 336. ↩

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to the black-outs that were endangering the daily operations of crucial facilities in Crimea".

731. Second, Russia argues that, regardless of Claimant's operations, its ultimate beneficiary owner – Mr. Akhmetov – had responsibility for and influence over Ukrainian power generation and power cut-offs⁶²². However, the Tribunal finds this argument irrelevant to the discussion on whether the seizure of Claimant's assets was taken to ensure stable supply of energy: what is relevant is that Respondent failed to demonstrate that Claimant (the company Krymenergo) was in any way responsible for such outages.

732. The result is that Russia's alleged public purpose, i.e., ensuring the secure and uninterrupted supply of electricity to the Crimean Peninsula, would not have benefitted from the expropriation of Claimant's business.

Failure to supply energy to sensitive locations

733. Russia further submits that, in June 2014 (i.e., six months before the Expropriatory Measures), Claimant ceased to supply electricity to certain military objects due to non-payment of the electricity bills⁶²³.

[Pro memoria: Before the annexation of Crimea, DTEK Krymenergo serviced the Ukrainian navy infrastructure under contracts with the Ukrainian Ministry of Defense which, in turn, paid the electricity bills. After the annexation, the Russian military seized navy bases, military offices and other property owned by the Ukrainian Ministry of Defense, which then stopped paying the electricity bills.]

734. Respondent argues that this was done in violation of the applicable Russian law, which prohibits the cutting-off of electricity supply whenever this may lead to environmental or social consequences⁶²⁴.

735. However, in August 2014 (i.e., four months before the Expropriatory Measures), DTEK Krymenergo and the Russian Ministry of Defense reportedly entered into new electricity contracts that provided for the supply of energy to these units; moreover, these contracts contained provisions prohibiting Claimant from cutting electricity⁶²⁵.

736. The Tribunal concludes that Respondent has failed to prove that Claimant did not comply with this new arrangement and ceased to supply energy to those sites after entering into these new contracts.

⁶²² R II, paras. 811-815; RPreHS, para. 180; RPHB I, paras. 121-127; RPHB II, paras. 60-61. ↩
⁶²³ R II, para. 816; RPreHS, para. 181; RPHB I, paras. 129-135; RPHB II, para. 58. ↩
⁶²⁴ R II, para. 815; RPreHS, para. 181; RPHB I, paras. 129-135. ↩
⁶²⁵ CPreHS, paras. 45, 217; Doc. CE-290. ↩

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Claimant's unlawful practices

737. Respondent further argues that Claimant unlawfully claimed 100% advance payments from Crimean consumers until the expropriation, despite a specific warning that these practices violated the applicable Russian law and, thus, should have ceased on 1 January 2015⁶²⁶. Moreover, Respondent avers that Claimant failed to ensure that its activities complied with the Russian legal requirements on protected zones⁶²⁷.

738. However, the Tribunal is not convinced that such alleged practices created a threat to energy supply in Crimea so as to justify the seizure of Claimant's assets.

***

739. In sum: in view of the contemporaneous evidence, the Tribunal is not convinced that the expropriation was undertaken with the legitimate goal of securing the power supply to the inhabitants of the Crimean Peninsula. Although this was the pretext given in the Amendment Resolution itself, there is no evidence which could substantiate that the local authorities had a legitimate reason to worry about the security of energy supply by DTEK Krymenergo at the time of the expropriation.

b. Curing the illegal privatization of Claimant's assets

740. The main alleged public purpose for the expropriation of Claimant's assets, which Russia first introduced in its Rejoinder, and on which it focused in its subsequent submissions, concerns the alleged need to cure Claimant's illegalities.

741. As a general principle, it is legitimate for a State, in the exercise of its sovereign powers, to undertake actions aimed at curing illegalities.

742. In the current case, however, the Tribunal is convinced that Respondent was not guided by this principle when it expropriated Claimant's assets.

743. As noted above, the official contemporaneous documents do not refer to the necessity of “curing illegalities”⁶²⁸.

744. Respondent, relying on the testimony of Professor Asoskov, now argues that the category of "State property” – which, pursuant to the Expropriation Resolution, should be considered the property of the Republic of Crimea – “logically encompasses illegal privatized companies in Crimea” and, thus⁶²⁹:

"[...] it was possible for Claimant to understand from the nature and purpose of these legal acts what was the reason behind the seizure of Claimant's alleged assets”.

⁶²⁶ RPreHS, para. 182; RPHB I, paras. 139-140. ↩
⁶²⁷ RPreHS, para. 182; RPHB I, paras. 136-138. ↩
⁶²⁸ See paras. 720-723 supra. ↩
⁶²⁹ RPHB I, para. 112; HT, Day 4, p. 110, ll. 11-16, p. 139, ll. 14-20 and p. 140, ll. 1-10 (Asoskov). ↩

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745. The Tribunal disagrees. There is nothing in the language of the Expropriation Resolution or its amendments that refers to this alleged “main purpose" of the expropriation.

746. Respondent also argues that the Crimean authorities explained the purpose of curing the illegal acquisition of the assets both before and after the expropriation⁶³⁰. The Russian Federation bases its argument on two pieces of evidence:

747. (i) An article from San Diego Tribune from 2 December 2014⁶³¹. The Tribunal finds, however, that this article is not authoritative of what the Crimean authorities considered the reason for the dispossession; while the article does ascribe certain statements to Mr. Aksyonov about his view that the Expropriation Resolution was needed "to right the wrongs committed by corrupt Ukrainian officials”, there is no mention of Krymenergo.

748. (ii) An article from a news outlet from 22 January 2015⁶³², purporting to quote Mr. Aksyonov saying that “the privatization of the state shareholding did not take into account the interests of the Crimeans”. Yet, even if such statement could be attributed to Mr. Aksyonov, it simply means that Mr. Aksyonov had a negative opinion as to the price at which the privatization was made – but this is different than making the allegation that the low price resulted from fraud or corruption.

749. In any event, Russia's argument about the expropriation curing Claimant's illegalities fails, because the Tribunal has already found that there is no evidence that the Krymenergo Auction was tainted by fraud or corruption⁶³³.

C. Due process

750. Article 5 of the BIT also requires that the expropriation be completed "under due process of law".

751. Claimant asserts that Russia has not only violated the international standard of due process, which requires prior notice of an expropriation and a meaningful opportunity to challenge the expropriation in advance, but also its own fundamental Law, which would constitute a further ground to conclude that it did violate due process.

752. Respondent, in turn, avers that international law (and Russian law) only imposes the obligation to provide an opportunity for an investor to challenge the legality of the expropriation through effective and transparent procedures.

⁶³⁰ RPreHS, para. 179; RPHB I, para. 111; HT, Day 1, p. 192, ll. 1-2. ↩
⁶³¹ Doc. RE-136. ↩
⁶³² Doc. RE-137. ↩
⁶³³ See section VI.6.3.3C supra. ↩

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Preliminary issue

753. Unlike other treaties⁶³⁴, which expressly require an expropriation to be carried out in accordance with the domestic law of the expropriating State, Article 5 of the BIT does not refer specifically to the regulations of the expropriating State, but to due process in general, a generic concept to be construed in accordance with international law.

754. Therefore, the Tribunal must limit itself to analyzing whether Russia has complied with the requirement of due process as understood by international law, without entering into an assessment of non-compliance with Russian domestic law.

755. It follows that Claimant's allegations that it was unconstitutional to expropriate property purely on the basis of its assets being included in the Annex to the Expropriation Resolution are irrelevant for this purpose.

Alleged violations of due process

756. Claimant identifies three alleged violations of due process:

First, DTEK Krymenergo received no prior notice of the Expropriatory Measures;

Second, there was no meaningful opportunity to challenge the legality of the expropriation; and

Third, Russia failed to mention the real justification for the taking of Claimant's assets.

a. Prior notice and right to be heard

757. Claimant argues that DTEK Krymenergo received no prior notice of the Expropriatory Measures⁶³⁵. Mr. Belyaev, Claimant's CFO, explained that he learned of the Expropriatory Measures from the “Crimean TV news”⁶³⁶. Claimant further asserts that, since DTEK Krymenergo had no notice of the expropriation, it also had no meaningful opportunity to challenge the expropriation in advance⁶³⁷. Respondent, for its part, denies that international law imposes the obligation to provide advance notice of the expropriation⁶³⁸.

758. The Tribunal considers Respondent to be correct on this point.

759. The Tribunal agrees that there is no general principle of international law that requires the expropriating State to inform the investor of its decision in advance.

⁶³⁴ A. Reinisch, "Legality of Expropriations”, in Standards of Investment Protection, Oxford University Press (2008), p. 191. ↩
⁶³⁵ C I, paras. 44-61, 129; CPreHS, paras. 14, 189; CPHB I, paras. 138, 142; HT, Day 1, p. 70, ll. 10-12 (Gimblett). ↩
⁶³⁶ Belyaev WS, para. 23; Maslov WS, para. 27. ↩
⁶³⁷ C I, para. 129; CPreHS, para. 190. ↩
⁶³⁸ R I, paras. 365-366; R II, paras. 888-889; RPreHS, para. 201; RPHB I, paras. 149, 151-155; RPHB II, paras. 64-65. ↩

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There are some situations – e.g., in the midst of a food crisis or a collapse of the financial markets – in which immediacy is essential to achieve the intended public interest and in which informing in advance could frustrate such purpose. For these reasons, international law cannot grant the investor an absolute right to be heard and to challenge the measure before the State adopts the expropriatory measure.

760. The requirements of international law in relation to due process in the context of expropriation of assets owned by foreigners are more limited: in short, due process does not require the expropriated investor to be informed ex ante of the decision to expropriate, but rather that it has an opportunity to challenge such decision before an independent and impartial body (which could be done either before or after the measure)⁶³⁹. The standard of due process under international law in this context has been summarized in ADC v. Hungary as requiring⁶⁴⁰:

"[...] an actual and substantive legal procedure for a foreign investor to raise its claims against the depriving actions already taken or about to be taken against it".

761. In the present case, Respondent submits that Claimant had the right to challenge, before the Russian courts, the decision to nationalize its assets⁶⁴¹, but that Claimant opted not to challenge the Amendment Resolution because it was unable to establish legal acquisition and ownership of the assets. Claimant, however, says it did not challenge because any attempt to obtain justice locally would have been futile – not only because all similar challenges were unsuccessful, but also because the judicial system in Crimea was unlikely to have given fair consideration to any complaint brought by Claimant after the Expropriatory Measures⁶⁴².

762. Be that as it may, Russia's averment that a right to appeal the decision before the Russian courts was available remains unchallenged and is sufficient for "due process of law” to have been complied with.

b. Justification(s) for the taking of Claimant's assets

763. Claimant also argues that, even if it had been afforded the possibility to challenge the Expropriatory Measures, the vague references to energy security reasons would not have allowed Claimant to prepare a reasoned defense against the Expropriatory Measures, particularly against what Respondent now advances as the “main purpose"⁶⁴³ of the taking – i.e., to cure the alleged illegalities in the 2012 Krymenergo Auction.

764. The Tribunal shares this assessment: an essential element of due process, required by international law, is that the expropriated party knows with certainty the grounds for the expropriation; otherwise, it will not be in a position to challenge the measure. In this case, if the Expropriation Resolution and its Amendment, which could have

⁶³⁹ R. Dolzer, U. Kriebaum and C. Schreuer, Principles of International Investment Law, Oxford University Press, 3^rd edition (2022), pp. 217-218. ↩
⁶⁴⁰ Doc. CLA-27, ADC, para. 435. ↩
⁶⁴¹ RPreHS, para. 201. ↩
⁶⁴² C II, paras. 123-124. ↩
⁶⁴³ See, e.g., RPreHS, para. 178. ↩

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been issued inaudita parte, did not identify the reason(s) for the taking with clarity and certainty, Claimant's right to submit its challenge would be undermined.

765. And, on this point, the official contemporaneous documents, enacted by the Russian Federation, show significant weaknesses:

766. First, the Expropriation Resolution and its Amendments are silent as to the justifications of the taking of Claimant's assets⁶⁴⁴.

767. Second, the Amendment Resolution broadly says that⁶⁴⁵:

"1.1. Before the completion of stock taking and allocation of property that is recognized as the property of the Republic of Crimea in accordance with the Annex to this Resolution, the Council of Ministers of the Republic of Crimea has the right to introduce a temporary administration indicating its powers to manage an enterprise, a company or its branch, in cases where the introduction of a temporary administration is necessary for provision of stable and trouble-free operation of the facilities which are recognized to be owned by the Republic of Crimea, with the aim of preventing the occurrence of disturbances during operation of these facilities". [Emphasis added]

768. Third, the Explanatory Note to the Amendment Resolution stated that the inclusion of Claimant's movable and immovable property in the list of properties considered to be the properties of the Republic of Crimea was made⁶⁴⁶:

"[...] in order to ensure stable and safe operation of power supply systems, prevent the occurrence of destabilizing situations while providing consumers of the Republic of Crimea with electricity and prevent the occurrence of interruptions in electricity supply for consumers in the Republic of Crimea".

769. Again, by this time, there was no reference to the “main purpose" of the Expropriatory Measures.

770. It follows that, in tempore insuspecto, Respondent failed to clearly identify and explain the grounds (and, particularly, the primary reason) for expropriating Claimant's assets, which prevented Claimant from preparing a reasoned challenge against the Expropriatory Measures.

***

771. Summing up, the Tribunal finds that Respondent's failure to identify clearly and explain the reasons for expropriating Claimant's assets, which is a basic guarantee of due process required by international law, constitutes a breach of Article 5 of the BIT.

⁶⁴⁴ Docs. CE-80, CE-37, CE-41, СЕ-84. ↩
⁶⁴⁵ Doc. CE-79. ↩
⁶⁴⁶ Doc. CE-141, p. 3. ↩

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D. Non-discrimination

772. Finally, Article 5 of the BIT requires that any expropriation is “not discriminatory”.

773. Claimant says that the expropriation was carried out as part of a discriminatory campaign of expropriation against Ukrainian investors⁶⁴⁷, which was further confirmed by the fact that Crimean authorities did not pursue similar expropriation campaigns against investors from other states, such as the EC Sevastopolenergo⁶⁴⁸.

774. Respondent disagrees and argues that the Expropriation Resolution does not refer to nationality, whether Ukrainian or any other, and actually covers a number of assets that belonged to non-Ukrainian companies⁶⁴⁹. It adds that the purported “comparator” company presented by Claimant is inapposite because EC Sevastopolenergo, unlike Claimant, was not implicated in any violations of Russian law⁶⁵⁰.

Applicable test

775. Claimant does not propose any specific test for the Tribunal to assess whether the expropriation was discriminatory. Respondent, in turn, proposes that the Tribunal uses the Saluka test⁶⁵¹.

776. In line with the Saluka tribunal's reasoning, a taking is discriminatory if

similar cases,

are treated differently,

without reasonable justification.

777. The Tribunal considers that Claimant has successfully argued that the above test is met in the circumstances of the current case. Indeed, Claimant has proven that, while its assets were subjected to expropriation, (i) a similar foreign investor, EC Sevastopolenergo⁶⁵², (ii) was not expropriated (iii) without reasonable justification differentiating the two.

Respondent's counterargument

778. Respondent argues that EC Sevastopolenergo is not a proper comparator, because, unlike Claimant, it did not engage in illegal activities⁶⁵³.

779. The Tribunal disagrees.

⁶⁴⁷ C I, paras. 120-122; C II, paras. 117, 121; CPHB I, paras. 126, 146. ↩
⁶⁴⁸ C I, para. 124; C II, para. 117. ↩
⁶⁴⁹ R II, para. 890; RPreHS, para. 186; RPHB I, para. 175. ↩
⁶⁵⁰ RPreHS, para. 188; RPHB I, paras. 176-177. ↩
⁶⁵¹ RPreHS, para. 185, referring to Doc RLA-100, Quiborax, which, in turn, applied the three-pronged test formulated in Saluka (Doc. CLA-62). ↩
⁶⁵² Docs. CE-108, СЕ-109, СЕ-110, СЕ-111 and CE-112. ↩
⁶⁵³ RPreHS, para. 188; RPHB I, paras. 176-177. ↩

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780. The relevant moment to apply the Saluka test is the moment of the expropriation. At that time, there were no allegations of illegality against Claimant. Even if now Russia argues that the expropriation was made in furtherance of curing illegalities, there is no contemporaneous evidence supporting any such allegations.

781. In any event, the Tribunal is convinced that the discrimination was not made with a reasonable justification:

782. First, Claimant has proffered evidence from February 2015, i.e., right after the expropriation took place, showing that the head of the Republic of Crimea expressly stated that the Expropriation Resolution was issued to “nationaliz[e] Ukrainian enterprises located on the Crimean Peninsula”⁶⁵⁴, and not those belonging to persons with a different nationality.

783. Second, even if the assets of some Russian investors were included in the Expropriation Resolution, such investors were offered compensation⁶⁵⁵.

* * *

784. Summing up, the Tribunal finds that Respondent's Expropriatory Measures were discriminatory, in breach of Article 5 of the BIT.

3.5 CONCLUSION

785. In the previous sections, the Tribunal has found that Respondent's taking of Claimant's assets failed to meet each of the four cumulative requirements set forth in Article 5 of the BIT, as it was:

Not accompanied by “prompt, adequate and effective compensation”,

Not taken in the public interest,

Not taken in accordance with due process, and

Discriminatory.