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) JSC UKRGASVYDOBUVANNYA (UKRAINE),
(v) JSC UKRTRANSNAFTA (UKRAINE), (vi) SUBSIDIARY COMPANY GAZ UKRAIINY
(UKRAINE)
(the “Claimants”)
-and-
THE RUSSIAN FEDERATION
(the “Respondent,” and together with the Claimants, the “Parties”)
PROCEDURAL ORDER NO. 21
The Arbitral Tribunal
Hon. Ian Binnie C.C., K.C. (Presiding Arbitrator)
Dr. Charles Poncet
Professor Dr. Maja Stanivuković
Registry
Permanent Court of Arbitration
5 December 2022
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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 The dispositive section of the Partial Award provides:
For the reasons set out above, the Tribunal by majority rules:
(a) That the Tribunal has jurisdiction over the claims;
(b) That the Claimants have established a violation of Article 5 (expropriation) and Article 2(1) (full and unconditional legal protection) and Article 3(1) (most favored nation treatment) of the BIT.
The Tribunal will therefore proceed to the quantum phase of the arbitration.
1.3 On 6 October 2019, the Tribunal issued Procedural Order No. 8, directing as follows in paragraph 4.1.2:
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.
1.4 On 19 July 2022, the Claimants informed the Tribunal that The Hague Court of Appeal (the “Court”) had issued a judgment in annulment proceedings initiated by the Respondent against the Partial Award (the “Judgment”), partially setting aside the Partial Award. The Claimants also requested leave to submit an English translation of the Judgment, together with brief comments, by 26 July 2022.
1.5 On the same date, the Tribunal invited the Parties to submit an agreed translation of the Judgment and any comments they may wish to make by 5 August 2022.
1.6 On 27 July 2022, the Respondent requested an extension until 31 August 2022 to submit its comments.
1.7 On the same date, the Tribunal invited the Claimants to provide any comments they might have on the Respondent’s request by 3 August 2022.
1.8 On 2 August 2022, the Claimants informed the Tribunal that they did not object to the Respondent’s request for an extension to 31 August 2022 on the understanding that the Respondent’s request left in place the 5 August 2022 deadline for the submission of an agreed translation of the Judgment.
1.9 On 4 August 2022, the Tribunal confirmed its preference to receive the agreed translation of the Judgment by 5 August 2022, extending the time limit for the filing of the Parties’ comments on the Judgment to 31 August 2022.
1.10 On 6 August 2022, the Claimants submitted the Parties’ agreed translation of the Judgment.
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1.11 On 8 August 2022, the Tribunal invited the Respondent to confirm that the translation was agreed by the Parties by 12 August 2022.
1.12 On 11 August 2022, the Respondent confirmed that the Parties had agreed on the English translation of the Judgment submitted by the Claimants.
1.13 On 31 August 2022, the Parties submitted their respective comments on the Judgment. In its comments, the Respondent inter alia requested that the Tribunal reopen the jurisdictional phase of the arbitration, adopt a new procedural schedule for further submission from the Parties on this issue, and grant the Respondent leave to file additional comments on Dutch law by 30 September 2022.
1.14 On 1 September 2022, the Tribunal invited the Claimants to provide any comments on the Respondent’s requests by 8 September 2022.
1.15 On 8 September 2022, the Claimants submitted their comments on the Respondent’s requests of 31 August 2022. In their comments, the Claimants inter alia stated that they did not object to the Respondent’s request to file additional comments on Dutch law if the Tribunal considered that such comments would be helpful and the Claimant were granted an equal opportunity to reply to the Respondent’s additional comments.
1.16 On 13 September 2022, the Respondent requested that the Tribunal confirm that it had no objection to the submission of additional comments on Dutch law from the Respondent.
1.17 On the same date, the Claimants clarified their position with regard to the submission of additional comments on Dutch law from the Respondent as set out above.
1.18 On 14 September 2022, the Tribunal granted the Respondent an opportunity to file additional comments on Dutch law by 30 September 2022 and the Claimants to respond to the Respondent’s comments by 14 October 2022.
1.19 On 30 September 2022, the Respondent submitted its additional comments.
1.20 On 14 October 2022, the Claimants submitted their comments on the Respondent’s additional comments, accompanied by an affidavit of the Claimants’ Dutch counsel, Ms. Mirjam van de Hel-Koedoot.
2.1 The Respondent submits that the Court partially set aside the Partial Award in accordance with Article 1065(1)(a) of the Dutch Code of Civil Procedure because Article 12 of the BIT affords protection only to investments made after 1 January 1992 and it was neither clear from the Partial Award nor from Procedural Order No. 8 whether the Tribunal had assumed jurisdiction in respect of investment made before that date. The Respondent highlights that the Paris Court of Appeal in set-aside proceedings concerning the award in Oschadbank v. the Russian Federation, similarly held that that tribunal had no jurisdiction over the investments made before 1 January 1992.
2.2 According to the Respondent, the partial annulment extends to the Tribunals’ finding of jurisdiction as a whole. It is therefore incumbent on the Tribunal to make a fresh decision on jurisdiction after affording the Parties an opportunity to brief the Tribunal thereon. Without a
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fresh decision on jurisdiction, the Respondent argues, the Tribunal cannot proceed to decide on the merits.
2.3 The Claimants reject the Respondent’s request and argue that it is based on an incorrect interpretation of the Judgment. According to the Claimants, Procedural Order No. 8 directly establishes that the Tribunal upheld its jurisdiction only with respect to the investments made after 1 January 1992. However, the Claimants continue, the Court “took a cautious approach” finding that the consequences of Procedural Order No. 8 on jurisdiction were unclear and partially set aside the Partial award only insofar as the Tribunal found that it had jurisdiction to adjudicate all claims, including those concerning the investments made before 1 January 1992.
2.4 In this regard, the Claimants disagree with the Respondent’s argument that the Court annulled the dispositif on jurisdiction and referred the case back to assess jurisdiction afresh. The Claimants point out that, although the Court found that Article 12 of the BIT limits the protection to investments made after 1 January 1992, it also indicated “various illustrative scenarios” under which the investments “may count as having been made after 1 January 1992.” Thus, pre-1992 investments could qualify for protection under Article 12 of the BIT if acquired by the Claimants “after 1992, or if expanded after 1992, but only as to the extent of the expansion.” According to the Claimants, their investments qualify for protection under the various scenarios set out by the Court.
2.5 The Claimants submit that the Court has conclusively decided on the jurisdiction of the Tribunal in the Judgment. As the Partial Award has thus become final, the Tribunal cannot issue an additional award on jurisdiction. The only issue that remains unresolved is “the pool of assets for which compensation is due.”
3.1 The Tribunal notes, at the outset, the disagreement between the Parties regarding the dispositif of the judgment handed down by the Hague Court of Appeal on 19 July 2022. According to the Russian Federation, “the Tribunal is now compelled to reopen the jurisdictional stage of the proceedings, since the Tribunal’s finding on jurisdiction was annulled.”¹ In the submission of the Russian Federation:
12. It clearly appears from the “dispositif” of the Judgment that it annulled the general declaration of jurisdiction by the Tribunal in the Partial Award, although some of the grounds for lack of jurisdiction put forward by the Russian Federation have been dismissed.
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16 ...the Partial Award generally declared without any limitation, either temporal or other, that “The Tribunal has jurisdiction over the claims” (§ 274 (a) of the Partial Award “dispositif”). This general declaration of jurisdiction is openly contradicted and invalidated by the Judgment and therefore does not exist any longer. By the partial set aside, it is thus the general declaration of jurisdiction at § 274 (a) of the Partial Award that is annulled. Given that there are no other declarations of jurisdiction that stand, the Partial Award being
1 Russian Federation Letter, 31 August 2022, p. 1. ↩
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deprived of its binding effect, the matter that has been annulled is to be reconsidered by the Tribunal again.
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20. In this regard, the Tribunal must decide again on jurisdiction, by issuing new arbitral award on jurisdiction, given that the Hague Court of Appeal has neither confirmed jurisdiction of the Tribunal nor replaced the annulled Partial Award, even only in part. In fact, it is vested with no such power.
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26. Naturally, the Tribunal should hear the parties before being able to decide again on its own jurisdiction...²
3.2 According to the Claimants, on the other hand,
There is no textual or other basis for Russia’s position that Court “quashed” the dispositif on jurisdiction and referred the case back to the Tribunal to assess jurisdiction anew under Article 12. Rather, the Court “refrain[ed] from passing judgment on the issue of which investments are eligible for protection,” noting that the discussion of when the investments were made is still being conducted in the quantum phase of the arbitration.³
3.3 The Tribunal recalls that the dispositive part of the Partial Award (Professor Stanivuković dissenting) reads as follows:
For the reasons set out above, the Tribunal by majority rules:
(a) that the Tribunal has jurisdiction over the claims:
(b) that the Claimants have established a violation of Article 5 (expropriation) and Article 2(1) (full and unconditional legal protection) and Article 3(1) (most favored nation treatment) of the BIT.
The Tribunal will therefore proceed to the quantum phase of the arbitration.
3.4 The Tribunal 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 Procedural Order No. 8 stated “subject matter jurisdiction was affirmed only in respect of investments made after that date.” Thus, the Tribunal stated, “the quantification phase will only deal with investments made after that date.”
3.5 The Respondent, the Russian Federation, which had until then declined to participate, sought (and was granted) leave to intervene in the subsequent arbitral proceedings. Inter alia the Russian Federation then applied to submit “full argument” on the jurisdictional issues. The request for “full argument” was denied by Procedural Order No. 7 dated 21 August 2019; however the Russian Federation was invited to address any jurisdictional “issues not already dealt with in the Partial Award” and did so by submissions dated 6 September 2019. Subsequently, by Procedural
2 Russian Federation Letter, 31 August 2022, ¶¶ 12, 16, 20, 26. ↩
3 Claimants’ Letter, 14 October 2022, p. 2 (internal citations omitted). ↩
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Order No. 8 dated 6 October 2019, the Tribunal held unanimously that the issues sought now to be raised by the Russian Federation had already been canvassed by the Tribunal and dealt with in both the majority and dissenting opinions.
3.6 In the Tribunal’s view, the Russian Federation’s statement that “the Tribunal’s finding on jurisdiction was annulled” is not exact. The Hague Court of Appeal intervened in its words “to be certain” that the Tribunal understood its jurisdictional limits. The “set aside” was only “to the extent that the Tribunal has held it has jurisdiction to adjudicate all claims since it only has jurisdiction to adjudicate investments made on or after January 1, 1992.”⁴
3.7 In fact, the Russian Federation had already acknowledged in paragraph 3 of its Amended Counter-Memorial dated 24 January 2022, that the Partial Award had clearly excluded consideration of investments made before 1 January 1992. The Russian Federations stated in its Amended Counter-Memorial that the Tribunal had “emphasized” the Article 12 limitation:
Moreover, as emphasized by the Tribunal in the Partial Award dated 22 February 2019 (the “Partial Award”) and reconfirmed by the Tribunal in Procedural Order No. 8, Article 12 of the BIT limits the temporal scope of application of the BIT to investments made or carried out “as of January 1, 1992.” The Claimants therefore bear the burden of proving that each and every alleged investment for which they are claiming compensation was carried out on or after 1 January 1992.⁵
3.8 It is not clear whether the Russian Federation drew this acknowledgment to the attention of the Hague Court of Appeal.
3.9 In any event, the Tribunal concludes that the Hague Court of Appeal did not put in question the Tribunal’s jurisdiction to adjudicate claims to investments made after 1 January 1992 or its authority to continue with the quantum phase of the arbitration on the basis of the Partial Award. As the Russian Federation itself noted in paragraph 22 of its letter of 31 August 2022, the Hague Court of Appeal confirmed in paragraph 5.7.7 that:
...the discussion of when the investments were made is still being conducted in the arbitration proceedings, the court will refrain from passing judgment on the issue of which investments are eligible for protection. (Emphasis added)
3.10 The Court’s reference to the Tribunal’s ongoing conduct of the quantum hearing in relation to “investments” with no indication of lack of jurisdiction to do so is not consistent with the Russian
4 See The Hague Court of Appeal Judgment, ¶ 5.7.6: ↩
5.7.6 Since the consequences of Procedural Order No. 8 are not clear, to be certain the Partial Award will be set aside, but only to the extent that the Arbitral Tribunal has held that it has jurisdiction to adjudicate all claims, since it only has jurisdiction to adjudicate investments made on or after January 1, 1992.
The Court therefore
Annuls the Partial Award of February 22, 2019 insofar as the Arbitral Tribunal found that it had jurisdiction to adjudicate all claims, as it only had jurisdiction to adjudicate investments made on or after January 1, 1992;
Orders the Russian Federation, as the party mainly found against, to pay the costs of the proceedings... (Emphasis added)
5 Amended Counter-Memorial, 24 January 2020, ¶ 3. ↩
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Federation’s position that “the Tribunal’s finding on jurisdiction was annulled.”⁶ The Russian Federation submission ignores the words in the Court’s dispositif “to be certain” and “only to the extent that” and “insofar as”. The Tribunal is to carry on its analysis of investments made after 1 January 1992 which, as the Russian Federation acknowledges at paragraph 3 of its Amended Counter-Memorial on Quantum, the Tribunal had already accepted as a limit on its jurisdiction. The Hague Court of Appeal brought clarity and finality to the interpretation of the Article 12 limitation, but the Russian Federation itself was in no doubt that the Tribunal in its Partial Award had already accepted the limitation as binding.
4.1 The Russian Federation refers to the case of The Bolivarian Republic of Venezuela v. Serafin García Armas and Karina García Gruber⁷ for the proposition that a court in set aside proceedings:
...had not the power to replace the arbitral tribunal’s declaration of jurisdiction with its own.
4.2 In the present case, according to the Russian Federation:
the Hague Court of Appeal did not pretend to substitute its finding on jurisdiction with the one of the Tribunal, it simply quashed the Award (its general declaration of jurisdiction) and referred the case to the Tribunal to assess jurisdiction and, in particular, to assess the conditions of Article 12 BIT with regard to Claimants’ claims.
4.3 Leaving aside the Russian argument that the Hague Court of Appeal “simply quashed the Award” (which has been rejected above), the Tribunal is unable to agree with the Russian Federation that “the Tribunal must hear the parties on jurisdiction and cannot merely render an award on jurisdiction, without hearing the parties, for the sole reason that Article 12 of the BIT was only discussed in terms of quantum and not jurisdiction.”
4.4 On the contrary, with respect, the bifurcation of the arbitral proceedings ensured that the Partial Award dealt with Article 12 in terms of jurisdiction and did not discuss Article 12 in terms of quantum because quantum issues had been excluded from that stage of the proceedings. Professor Stanivuković indicates at paragraph 1.3 of her concurring reasons that ... in its quantum award, the Tribunal must “decide which assets are eligible for protection.” We are all agreed on that point.
4.5 Although the Russian Federation chose not to participate in the Tribunal’s hearings on jurisdiction and the merits, the reasons of the Hague Court of Appeal make clear (and as the Russian Federation acknowledges at paragraph 12 of its letter of 31 August 2022) that the Russian Federation advanced all of its jurisdictional objections to that Court in the set-aside proceedings and all of the objections were rejected except the “to be certain” concern about pre-1 January 1992 investments.
4.6 Moreover, as is clear from this Tribunal’s Partial Award, all of the jurisdictional objections raised before the Hague Court of Appeal were considered by the Tribunal in its Partial Award and indeed it will be recalled that “the Tribunal admitted Russia’s ‘fresh evidence’ on Article 12 in the quantum phase, granted the Claimants an “opportunity of reply to the Respondent’s rebuttal
6 Russian Federation Letter, 31 August 2022, p. 1. ↩
7 Russian Federation Letter, 30 September 2022, ¶ 5. ↩
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of the Claimants’ ‘position’ on Article 12,” and further allowed Respondent “to deliver a ‘surrebuttal’ so as to have the ‘last word.”⁸ Some of the objections were by Professor Stanivuković in her dissent from the Partial Award.
4.7 The Russian Federation has not established the need for any new jurisdictional hearing. In its letters of 31 August 2022 and 30 September 2022, the Russian Federation has not indicated any fresh objections or the existence of additional support for old objections all of which have been rejected.
5.1 The Parties are agreed that the Hague Court of Appeal judgment was based on Article 1065(1)(a). The effect, according to the Russian Federation, is as follows:
24. The Hague Court of Appeal therefore explicitly indicates that it is for the Tribunal to decide on its own jurisdiction after the partial set aside. According to the Court, this is an obligation and not a mere faculty given that no finding on jurisdiction or the extent of it exists any longer. After the partial set aside, the Tribunal cannot continue the arbitration proceedings on the merits.
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25. The Tribunal, having not yet issued a final award and not being functus officio, is therefore in the position of deciding again on its own jurisdiction. The Tribunal is in fact the only body having authority to do it pursuant to the positive effect of the principle competence-competence recognized both in Dutch arbitration law...⁹
5.2 The Russian Federation did not provide the Tribunal with any expert evidence on these points of Dutch law.
5.3 On the other hand, the Claimants submitted the evidence of Mirjam van de Hel-Koedoot of NautaDutilh N.V., who expressed the contrary view that Dutch courts conduct “a full (de novo) review in relation to the question whether a valid arbitration exists,” and “have the last word” on issues of jurisdiction. Thus, according to Dutch counsel:
8. In light of the above, it would not be possible for a Dutch setting aside court to refer the question of jurisdiction back to the relevant arbitral tribunal, as it is the court which has the last word with respect to that question. In its Judgment, the Dutch Court of Appeal has made a final decision fully deciding on the jurisdiction of the arbitral tribunal on the basis of Article 1065(1)(a) DCCP. This entails that under Dutch law it is not possible for the tribunal to make any (further) decision on its jurisdiction in the pending arbitration.¹⁰ (Emphasis added)
5.4 On the record, and in the absence of any response evidence from the Russian Federation, the Tribunal would not be correct in holding the further jurisdictional hearing proposed by the
8 Claimants Letter, 8 September 2022, p. 3. ↩
9 Russian Federation Letter, 31 August 2022, ¶¶ 24-25. ↩
10 Affidavit of Mirjam van de Hel-Koedoot, affirmed 14 October 2022, ¶ 8. ↩
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Russian Federation even if, contrary to the Tribunal’s view, such a hearing was either necessary or appropriate.
6.1 The application of the Russian Federation for a re-hearing of its jurisdictional objections is dismissed without, of course, prejudice to the entitlement of the Russian Federation to have the impact of the Article 12 limitations considered by the Tribunal in all relevant aspects of its consideration of its determination of the proper quantum of compensation.
Date: 5 December 2022
Place of Arbitration: The Hague, the Netherlands
Signature
On behalf of the Tribunal
Hon. Ian Binnie C.C., K.C.
Presiding Arbitrator
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Concurring Opinion of Professor Maja Stanivuković
1.1 It is my understanding that the Tribunal ruled on the Respondent’s plea concerning its ratione temporis jurisdiction in the Partial Award, but only in general terms, by affirming jurisdiction only in respect of investments made after 1 January 1992.¹¹ In the Partial Award the Tribunal made no findings as to when investments may have been made.¹² In my view, the ruling on jurisdiction ratione temporis is not complete yet. It remains to be determined when the investments in questions were made to determine whether they are eligible for protection. The ruling on that part of the ratione temporis plea has implicitly been deferred to the quantum phase of the proceedings. The Tribunal still needs to rule on that plea in the Final Award.
1.2 The issue to be disposed of in this Procedural Order is whether, upon receiving the judgment of the Hague Court of Appeals, the Tribunal must reopen the jurisdictional phase of the proceedings to decide which investments are eligible for protection. I concur with the majority of the Tribunal that the reopening is not necessary. UNCITRAL Rules (1976), Article 21(4) allows the Tribunal to proceed with the arbitration and rule on the plea concerning its jurisdiction in the Final Award. Deferral is more efficient when jurisdictional considerations, such as the issue of which investments are eligible for protection, are closely intertwined with substantive issues.¹³
1.3 However, I disagree with the majority’s opinion that the Partial Award “dealt with Article 12 of the BIT in terms of jurisdiction” (see para. 4.4. of this Procedural Order). As stated above, in order to fully deal with the jurisdictional objection based on Article 12 of the BIT, in addition to affirming its jurisdiction in general terms, the Tribunal must also decide which investments are eligible for protection.
Professor Maja Stanivuković
11 Partial Award, ¶ 175; Procedural Order No. No. 8, 6 October 2019, ¶ 4.1.2. ↩
12 Procedural Order No. 9, 9 January 2020, ¶ 3.2.3. ↩
13 Paulsson and Petrochilos, UNCITRAL Arbitration, Kluwer Arbitration, November 2017, pp. 202-203. ↩