Ukraine’s Everest Estate LLC v. Russia: About More Than Money

Last month (May 2018), the Russian Federation lost an important lawsuit lodged against it by “Everest Estate LLC and Others,” 18 Ukrainian companies that had held assets in Crimea prior to Moscow’s illegal annexation of this peninsula in early 2014. The Permanent Court of Arbitration (PCA) in The Hague ruled that the Russian government had illegally expropriated hotels, apartments and other Crimean real estate owned by the claimants, and it awarded them approximately $159 million (plus legal costs) for this breach of the 1998 Russian-Ukrainian bilateral investment treaty (Iareporter.com, May 9; Investmentpolicyhub.unctad.org, accessed June 11).

Even though Russia is fully expected to dispute the court decision and the claimants are unlikely to collect full restitution for a long time, the news of the PCA victory excited Ukrainian society. This was the first instance when victims of Russian aggression were able to legally secure some level of reimbursement for their losses incurred since 2014.

In launching its military campaign against Ukraine four years ago, Russia violated not only fundamental norms and principles of international law, but also a slew of bilateral and multilateral agreements. Ukraine has, thus, chosen to defend itself using conventional (military) means as well as legal challenges in international courts. The application of various international arbitration mechanisms, including the PCA, become one of these non-military instruments to force consequences on the aggressor. At the same time, however, the absence of legal precedent made pursuing such a case somewhat risky for the claimants. Notably, the application of an international arbitration mechanism in the case of lost investments in Crimea evoked certain concern in Ukraine that the court would not recognize this case as under its jurisdiction at all because, according to international law, Crimea is Ukrainian territory. At the same time, some feared that the ultimate decision might somehow provide a basis for the recognition of Crimea as part of the Russian Federation.

Taras Kachka, an advisor to the minister of foreign affairs of Ukraine, said that the arguments of the Ukrainian companies in this recent case were based on the fact that although Crimea is Ukrainian territory, it is occupied by Russia and under the effective control of the Russian state. Hence, Russia is responsible for the protection of investments in Crimea (ZN.UA, May 20). The Hague-based arbitration body agreed with this position, declaring that, independent of who controls the territory de jure, the state that controls the territory is de facto responsible for violations of investors’ rights. This case might become precedent-setting for future arbitration proceedings. At least eight similar cases are pending, brought by Ukrainian companies Ukrnafta, Stabil, Aeroport Belbek, Lugzor, Privatbank, Naftogaz and Oschadbank (Yurydychna Gazeta, May 2).

Additionally, investment protection arbitration procedures could likely be applied toward assets moored in the Donbas territories (Donetsk and Luhansk oblasts) held by Russia and its local proxies. Indeed, pre-existing legal precedents include cases such as “Hlebik v. Ukraine” and “Ilashku v. Moldova and Russia,” which raise the probability that Russian control and, thus, Russian liability for these territories will be recognized as a legal fact (Yurydychna Gazeta, May 2).

These kinds of suits are likely to benefit from encouragement and comprehensive support of the Ukrainian government. In addition to international investment arbitration cases, some international law experts—for example, Borys Babin, the Kyiv-based permanent representative of the president of Ukraine in Crimea (Author’s interview, April 10)—emphasize that Ukraine should adopt a more active policy in, inter alia, the fields of:

• international humanitarian law (pursuing legal cases to address Moscow’s drafting of Ukrainian citizens from Crimea into the Russian Armed Forces and the creation of illegal military groups, the illegal jurisdiction of Russian courts in Crimea, etc.),
• international maritime law (opposing Russia’s capture of Black Sea infrastructure and shelf resources, the militarization of maritime infrastructure, systemic interdictions of navigation through the Kerch Strait, violations of navigation security in the territorial sea and inland waters of Ukraine, etc.),
• international air law (against breaches of air security),
• violations of World Trade Organization (WTO) regulations (legally responding to instances of unsanctioned foreign trade with Crimea as well as violations of Ukrainian intellectual property in Crimea and the occupied territories of eastern Ukraine).

Since 2014, Russian lawyers have been shifting their interpretation of the fundamental regulations and principles of international law, especially concerning issues of territorial integrity, the inviolability of borders and national self-determination. Dr. Olexander Zadorozhny, a legal scholar at the Taras Shevchenko National University of Kyiv, details this in his 2015 book, Russian Doctrine of International Law After the Annexation of Crimea. Much like its attempts to create an alternative political reality in its neighborhood, Russia is trying to bring an alternative legal reality into existence in which strength and power trumps equal standing before the law.

The Euro-Atlantic region’s post–Cold War security system based on law and trust remains under threat. The downward trend arguably began with the systematic undermining of human rights in Russia and escalated with Moscow’s aggression against several independent states across the former Soviet space. It continues today with the creeping occupation and annexation of Georgian territories, the de facto occupation of Moldovan territory, and, in Ukraine, via the violation of international law in Crimea and in Donbas. The broader strategic impact of Kyiv bringing multiple arbitration cases against Moscow before international courts thus far outweighs simply seeking restitution for the loss of property or business. Such a situation seems to open the door to Ukraine, Georgia and Moldova potentially cooperating in the use of international law as an instrument of defense.