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PCA CASE NO. 2017-16

IN THE MATTER OF AN 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

-between-

(i) NJSC NAFTOGAZ OF UKRAINE (UKRAINE), (ii) NATIONAL JOINT STOCK
COMPANY CHORNOMORNAFTOGAZ (UKRAINE), (iii) JSC UKRTRANSGAZ
(UKRAINE), (iv) LIKVO LLC (UKRAINE), (v) JSC UKRGASVYDOBUVANNYA
(UKRAINE), (vi) JSC UKRTRANSNAFTA (UKRAINE), (vii) SUBSIDIARY COMPANY
GAZ UKRAIINY (UKRAINE)

(the “Claimants”)

-and-

THE RUSSIAN FEDERATION

(the “Respondent,” and together with the Claimants, the “Parties”)

PROCEDURAL ORDER NO. 8

The Arbitral Tribunal
Judge Ian Binnie (Presiding Arbitrator)
Dr. Charles Poncet
Professor Dr. Maja Stanivuković

Registry
Permanent Court of Arbitration

6 October 2019

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1. Procedural Background

1.1. On 22 February 2019, the Tribunal issued its Partial Award, in which it dealt with issues of jurisdiction, admissibility and liability (the “Partial Award”).

1.2. By correspondence dated 10 July 2019, the Respondent addressed the Tribunal for the first time in this arbitration to express “its willingness to appear in this Arbitration," and made three separate but connected requests, namely:

(i) to permit the Respondent to present written and oral argument in support of its jurisdictional objections;

(ii) subject to (i), to order a stay of the Arbitration until the Dutch courts have irrevocably decided upon the Respondent's request for setting aside the Partial Award; and

(iii) if jurisdiction were maintained subsequent to (i) or (ii), to grant the Respondent the opportunity to raise objections to the claim on the merits and in relation to quantum including a proper opportunity to challenge (via its own evidence and cross-examination) the Claimants' factual and expert evidence.

1.3. By correspondence dated 2 August 2019, the Claimants opposed the Respondent’s requests in their entirety, requesting that the Tribunal “maintain the existing procedural timetable.”

1.4. On 21 August 2019, the Tribunal issued Procedural Order No. 7, directing as follows in paragraphs 2.2 – 2.4:

2.2. Insofar as the Russian Federation wishes to contest the issue of jurisdiction, the Tribunal is not persuaded of the appropriateness or need to revisit any aspect of the Partial Award or indeed that it has the authority under the UNCITRAL Rules or Dutch law to do so. However, if the Russian Federation sees fit to make a more formal application to the Tribunal in this respect, with more ample treatment of its view of the Tribunal's authority to entertain further submissions on jurisdiction (which in any event can only extend to arguments or issues not already dealt with in the Partial Award), such application should be filed with the Tribunal no later than Friday 6 September 2019. If such an application is made the Tribunal will set a timetable for such further action, if any, as the Tribunal deems appropriate.

2.3. With respect to the Respondent's request for a stay of the proceedings, the Tribunal is not persuaded that the arbitration should be suspended during the pendency of the Set-Aside Proceedings. In deciding on this request, the Tribunal does not consider it appropriate to consider the likelihood of success of the Respondent's set-aside application, as it is for the Dutch courts, and not for the Tribunal, to decide on the fate of the Partial Award under Dutch law. The Tribunal is of the view, however, in line with the relevant provisions of the UNCITRAL Rules and the Dutch Code of Civil Procedure, that the parties to an arbitration are entitled to have the proceedings continue at a normal pace notwithstanding set-aside proceedings. As pointed out by the Claimants, it may well take two to three years, and possibly longer, for the Dutch courts to render a final decision on the set-aside application. While the Respondent acted well within its rights when it initiated the Set-Aside Proceedings, the Tribunal does not consider it appropriate to stay the proceedings absent an

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interim order to this effect by the Dutch courts or unless or until the Dutch courts have irrevocably decided on the set-aside application in favor of the Russian Federation.

2.4. Section 1.1 of Procedural Order No. 6 dated 16 April 2019, as revised by the Tribunal's letter to the Parties dated 11 July 2019, sets out the procedural timetable for the quantum phase of the arbitration. Accordingly, while the merits stage of the arbitration was closed by the Partial Award, the Respondent is invited to submit its Counter-Memorial on Quantum by Friday, 18 October 2019.

1.5. On 28 August 2019, the law firms Schellenberg Wittmer Ltd and Ivanyan & Partners informed the Tribunal that they had been instructed to represent the Respondent in these arbitral proceedings, requesting “for a reasonable extension of time for the filing of the Counter-Memorial on Quantum” (the “Extension Request”).

1.6. By correspondence dated 28 August 2019, the Claimants requested an opportunity to respond to Respondent's letter “before the Tribunal makes a decision on the [Respondent’s] requests.”

1.7. On 29 August 2019, the Tribunal invited the Claimants to provide by 9 September 2019 any comments they may wish to make in response to the Respondent's letter of 28 August 2019.

1.8. By letter of 5 September 2019, the Claimants asked the Tribunal to reject the Respondent's Extension Request and maintain the existing procedural timetable.

1.9. On 6 September 2019, as foreseen in Procedural Order No. 7, the Respondent filed its Request to the Tribunal to use its Authority to Entertain Further Submissions on Jurisdiction (the “Request”) together with supporting evidence.

1.10. By letter of 9 September 2019, the Claimants requested the Tribunal to “strike from the record of this proceeding Part III of the [Request] and all of the legal authorities that [the Respondent] cites therein” as it contained “inappropriately submitted substantive arguments on matters on jurisdiction” and to allow the Claimants to respond to the Respondent’s correspondence.

1.11. Also on 9 September 2019, the Respondent requested leave to comment “very briefly” on the Claimants' letter of 9 September 2019.

1.12. Also on 9 September 2019, the Tribunal granted the Respondent an opportunity to respond, by 13 September 2019, “very briefly” to the Claimants' objection to Part III of the Request. The Claimants were granted an opportunity to respond to the Request and any supplemental “very brief” comments from the Respondent on Part III of the Request by 27 September 2019.

1.13. By letter of 13 September 2019, the Respondent commented on the Claimants' objection to Part III of the Request. The Respondent also reiterated that it was “dedicated to participating fully in this arbitration and has therefore initiated the required administrative process to make the full payment of its share of the deposit.” However, “due to administrative constraints, it has emerged that the process may take up to four weeks longer than expected.” Accordingly, the Respondent requested an extension until 10 October 2019 to pay the deposit.

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1.14. On 13 September 2019, the Tribunal denied the Claimants' request to strike out Part III of the Request and invited the Claimants to address the entirety of the Request when they respond to the Respondent's various applications on or before 27 September 2019, it being understood that the Claimants' response was limited to procedural issues and was not to address the substance of the jurisdictional points flagged in Part III. Moreover, the Tribunal invited the Claimants to submit, by 20 September 2019, their own proposed revised timetable in the event an extension for the filing of the Counter-Memorial on Quantum was granted to the Respondent. Should such proposed revised timetable be received from the Claimants, the Tribunal invited the Respondent to provide its comments thereon by 27 September 2019. The Tribunal further granted the Respondent's request for extension until 10 October 2019 to pay its share of the deposit in the amount of EUR 250,000.

1.15. By letter of 18 September 2019, the Claimants proposed a revised timetable.

1.16. On 26 September 2019, the Claimants submitted their response to the Request.

1.17. By letter of 27 September 2019, the Respondent provided its comments on the Claimants' revised timetable.

1.18. By letter dated 1 October 2019, the Claimants provided their comments on the Respondent's letter of 27 September 2019 with respect to the revised timetable.

1.19. On 2 October 2019, the Respondent submitted its comments on the Claimants' letter of 1 October 2019.

2. The Respondent's Request to the Tribunal to use its Authority to Entertain Further Submissions on Jurisdiction

The Respondent's Position

2.1. The Respondent argues that, in accordance with Dutch law, insofar as an arbitral tribunal still has a mandate, it retains the power to reconsider its decision on jurisdiction. In particular, the Respondent asserts that mandatory Dutch law (particularly Articles 1049 and 1059 of the Dutch Code of Civil Procedure (the “DCCP”)) prevails over the provisions of the UNCITRAL Rules and determines the classification of an award as well as any res judicata effect thereof. According to the Respondent, the Tribunal's Partial Award constitutes an “interim award" within the meaning of Article 1049(2) of the DCCP. It thus is not, the Respondent argues, a final award. More specifically, in the Respondent's view, a decision on jurisdiction contained in an interim award constitutes a so-called "binding final decision". As such, the Respondent states, the Tribunal's decision on jurisdiction does not have res judicata effect under Article 1059 of the DCCP, as it does not concern a “substantive legal relationship in any meaningful sense”. Moreover, the “'res judicata effect of a decision applies only to other proceedings'.” The Respondent concludes by noting that the Tribunal has a continuing obligation to reconsider such a decision if it is based on an incorrect factual or legal basis.

2.2. The Respondent notes that the Tribunal rendered its decision on jurisdiction without hearing from the Respondent. In light of the amount in dispute, the Respondent submits that the Tribunal

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should remedy that shortcoming by allowing the Respondent an opportunity to present its case. Moreover, the Respondent would request the suspension of the set-aside proceedings with respect to the Partial Award currently pending before the Dutch courts if the Tribunal agreed to reconsider its jurisdictional decision. Further, the Respondent argues that other tribunals in Crimea-related cases have decided to afford the Respondent an opportunity to present its case.

2.3. Finally, the Respondent submits that the Tribunal should exercise power to reconsider jurisdiction for the reasons developed more fully in paragraphs 22-48 (Part III) of the Request.

The Claimants' Position

2.4. With reference to Methanex v. United States, the Claimants argue that the Partial Award is final within the meaning of Article 32(2) of the UNCITRAL Rules. The Claimants disagree with the Respondent's argument that the Partial Award is an interim award under Article 1049 of the DCCP, arguing, inter alia, that the UNCITRAL Rules and not the law of the seat govern the issue of finality of an award. The Claimants further argue that the Partial Award was a final award both under the UNCITRAL Rules and Article 1049 of the DCCP, referring to case law of the Dutch Supreme Court that defines a final award as “an award with an operative part that contains a final decision on (part of) the claims.” The Claimants also assert that the decision on jurisdiction cannot be a "binding final decision" under Dutch law, because the jurisdictional decision is contained in a final award rather than in an interim award. The Claimants highlight that the Respondent recognized that the award is final by filing an application to set aside the Partial Award. The Claimants further submit that the Partial Award has res judicata effect. According to the Claimants, both Article 32(2) of the UNCITRAL Rules and Article 1059 of the DCCP provide for the application of res judicata principle to preclude reconsideration of a jurisdictional decision. In the Claimants' view, the jurisdictional decision has res judicata effect as it concerns the legal relationship in dispute. Since the Partial Award is final and binding, it cannot be subject of an appeal.

2.5. The Claimants note that the Respondent was given a full opportunity of presenting its case on jurisdictional and liability issues. Any reconsideration of the jurisdictional decision would lead to a risk of parallel proceedings and contradictory decisions. The Claimants assert that Respondent's reference to the decisions of tribunals in other Crimea-related matters is misleading, as these cases are at different stages of the proceedings and have not seen a partial awards on jurisdiction.

3. The Respondent's Request for an Extension of Time for the Filing of the Counter-Memorial on Quantum

The Respondent's Position

3.1. The Respondent argues that the time granted in Procedural Orders Nos. 6 and 7 was insufficient for the filing of the Counter-Memorial on Quantum and requests an extension until 13 December 2019. According to the Respondent, the extension will not change the dates of the Hearing in Quantum and will not affect the Claimants.

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3.2. In support of its request, the Respondent notes that the Claimants have spent more than 2 years to prepare its case on quantum, the Claimants' Memorial on Quantum raises “complex technical issues" and relies on several extensive expert reports. In particular, the Respondent refers to a "352 page-long” Expert Report dated 27 June 2019 prepared by Gaffney, Cline & Associates, whose first version was filed on 15 September 2017, and three reports issued by Ryder Scott Company, LP in 2015, which “total more than 500 pages." The Respondent notes that, in contrast, "its experts have only been afforded less than four months to prepare a full-scale report."

3.3. The Respondent agreed with the revised timetable proposed by the Claimants with one exception, namely that the Claimants and the Respondent should each be afforded the same amount of time, either nine or ten weeks, to prepare their final submissions.

The Claimants' Position

3.4. The Claimants submit that the Respondent “had more than ample opportunity” to provide its proposals on the procedural timetable. In particular, the Tribunal had invited the Parties to comment on the procedural timetable for the quantum phase of the arbitration on 27 February 2019 and on 29 March 2019, but the Respondent failed to respond both times. The Claimants further argue that a 4-month period is sufficient for the purposes of preparing a Counter-Memorial on Quantum.

3.5. If the Tribunal decided to entertain the Respondent's Extension Request, the Claimants proposed certain modifications to the schedule to prevent a scheduling conflict.

4. The Tribunal's Decision

4.1. The Tribunal, having carefully considered the submissions of both the Claimants and the Russian Federation, all of which were of great assistance, concludes as follows:

4.1.1 With respect to Russia's request to submit full argument on the jurisdictional issues, the Tribunal's procedure is governed by the UNCITRAL Rules. Although Article 32(2) of the UNCITRAL Rules provides for the finality of a Partial Award, Article 15(2) of the UNCITRAL Rules grants to the Tribunal a broad power to conduct the arbitration in the manner that it considers appropriate. The Parties disagree on whether Article 15(1) of the UNCITRAL Rules permits the Tribunal to re-open the Partial Award to revisit objections to jurisdiction, and whether the Dutch law of arbitration also applies to confer such a discretion, and indeed whether the doctrine of res judicata applies at all, but these points are moot because even assuming the Tribunal has such a discretion in this case to re-open the jurisdictional phase it declines to do so.

4.1.2 Procedural Order No. 7 dated 21 August 2019 invited the Respondent to address the Tribunal's authority to entertain further submissions in respect of jurisdictional “issues not already dealt with in the Partial Award”. The Respondent has outlined in Part III of its submissions dated 6 September 2019 the issues it wishes to argue. All of those issues have already been canvassed by the Tribunal and dealt with in both the majority and dissenting opinions. In particular, Item 5 in Part III asserts that "[t]he majority of the investments were made before 1992". In this case, however, the Tribunal bifurcated all issues dealing

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with the quantification of the claim. The Tribunal specifically noted in paragraph 175 of the Partial Award that "[t]he Treaty itself is not without temporal limitations. Article 12 restricts protection to investments made ‘on or after January 1, 1992'." Accordingly subject matter jurisdiction was affirmed only in respect of investments made after that date. The quantification phase will only deal with investments made after that date.

4.1.3 The Tribunal recalls that the Respondent was invited to participate in the resolution of jurisdictional issues as well as to comment on scheduling matters prior to the issuance of the Partial Award on 22 February 2019. The Respondent has not suggested any change of circumstances or other justification for putting the Claimants to a re-hearing of jurisdictional objections which the Claimants have already addressed in the hearing leading to the Partial Award. While it is important to protect the procedural rights of the Respondent, it is equally important not to impose on the Claimants further proceedings to address objections on which the Respondent was repeatedly invited to make submissions in a timely way but repeatedly declined to do so. Accordingly the request of the Respondent to reopen the hearing on jurisdictional objections is denied. The Tribunal will proceed directly to the quantum stage.

4.1.4 With respect to the Respondent's application to modify the schedule set out in Procedural Order No. 6, the Tribunal agrees with the Respondent that some modification is appropriate. The Respondent submitted a proposed new schedule by letter dated 28 August 2019, to which the Claimants responded with suggested modifications on 18 September 2019. Both sets of proposals respect the existing hearing dates of 12-14 May 2020. On 27 September 2019, the Respondent accepted the Claimants' proposal except for the allowance of 10 weeks to the Claimants to deliver a Reply but only 8 weeks to the Respondent to file a Rejoinder. The Respondent has suggested a compromise allowing 9 weeks to each side. However the Tribunal notes that the 10 weeks permitted to the Claimants commence with the filing of the Counter-Memorial on Quantum on 13 December 2019 not long before the December 2019 holiday period. Some consideration should reasonably be allowed to the Claimants in light of that disruption. Further, the Tribunal notes the Respondent's acknowledgement that 9 weeks would be sufficient to prepare its Rejoinder which in the nature of things takes less time to prepare than the Reply as it will, of course, be limited to any fresh matters raised in the Reply. Fairness to both sides suggests accelerating delivery of the Respondent's Counter-Memorial on Quantum to 6 December 2019. The extra week would, in effect, be given to the Respondent for its Rejoinder. In the circumstances the Tribunal directs that the Respondent file its Counter-Memorial on Quantum on or before Friday, 6 December 2019, that the Claimants' Reply be filed within 10 weeks on or before Friday, 14 February 2020, and that the Respondent file its Rejoinder within 9 weeks no later than 17 April 2020. Accordingly the Schedule will be as follows:

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Date: 6 October 2019

Place of Arbitration: The Hague, the Netherlands

Signature

On behalf of the Tribunal
Judge Ian Binnie
Presiding Arbitrator