Stabil LLC, Rubenor LLC, Rustel LLC, Novel-Estate LLC, PII Kirovograd-Nafta LLC, Crimea-Petrol LLC, Pirsan LLC, Trade-Trust LLC, Elefteria LLC, VKF Satek LLC, Stemv Group LLC v. The Russian Federation

Case summary

At a glance

Parties: Stabil LLC, Rubenor LLC, Rustel LLC, Novel-Estate LLC, PII Kirovograd-Nafta LLC, Crimea-Petrol LLC, Pirsan LLC, Trade-Trust LLC, Elefteria LLC, VKF Satek LLC and Stemv Group LLC (all Ukraine) v. the Russian Federation
Case no.: PCA Case No. 2015-35; Swiss Federal Supreme Court 4A_398/2017 and 4A_246/2019; US District Court for the District of Columbia Case No. 1:22-cv-00983 (TNM)
Forum and rules: Ad hoc arbitration under the UNCITRAL Arbitration Rules 1976, PCA as registry; seat Geneva
Treaty: Russia–Ukraine BIT of 27 November 1998
Tribunal: Prof. Gabrielle Kaufmann-Kohler (Presiding), Mr. Daniel M. Price, Prof. Brigitte Stern
Sector: Petrol retail and fuel storage (Crimea)
Outcome: Jurisdiction upheld (26 June 2017). In the Final Award (12 April 2019) the Tribunal held that Russia unlawfully expropriated the claimants' Crimean petrol stations, storage facilities and an apartment in breach of Article 5 of the BIT, and awarded reduced damages. The Swiss Federal Supreme Court dismissed both of Russia's challenges, and a US court denied Russia's motions to dismiss and to stay the confirmation petition.
Amount: Claimed: USD 47,406,455 plus interest. Awarded: USD 34,589,414 in total (including USD 27,238 for Stabil LLC's apartment), with interest at 3-month USD LIBOR + 1%, compounded annually. Costs: Russia bears 75% of the arbitration costs (fixed at EUR 687,085.01) and of the claimants' legal costs, i.e. EUR 46,846.71 and USD 363,621.88 to each claimant.

The dispute

Eleven Ukrainian companies, of which Igor Kolomoisky is a beneficial owner, owned, leased and supplied a chain of 31 petrol stations, two fuel storage facilities and other assets in Crimea. They had acquired or built these assets between 2000 and 2010. After Russia incorporated Crimea in March 2014, paramilitary forces seized the claimants' Feodosia office and petrol stations on 22–25 April 2014. The Crimean State Council (decree amended on 3 September 2014) and the Sevastopol Government then nationalised the assets. The claimants relied on Articles 2, 3 and 5 of the Russia–Ukraine BIT (full legal protection, non-discrimination and MFN, expropriation). Russia did not take part in the arbitration. In letters of 12 August and 15 September 2015 it objected that the property lay in Crimea and that the BIT could not apply to it; Ukraine filed a non-disputing party submission supporting jurisdiction.

Key holdings

"Territory" in Article 1(4) of the BIT includes areas over which a Contracting Party exercises jurisdiction and de facto control, even without lawful title. The BIT therefore became opposable to Russia for Ukrainian investments in Crimea no later than 21 March 2014. The Tribunal expressed no view on the legality of the incorporation. Award on Jurisdiction ¶¶ 146, 175–176
Investments made in Crimea before the incorporation are protected. Article 12 covers all investments made after 1 January 1992, and the BIT does not require an investment to have been made in the host State's territory from the outset. The claimants are Ukrainian legal entities competent to invest, and their assets complied with Russian law when they came under BIT protection on 21 March 2014. Award on Jurisdiction ¶¶ 188–193, 206, 218, 232
The Swiss Federal Supreme Court dismissed Russia's challenge to the Award on Jurisdiction. Under Article 29 VCLT a treaty applies to a State's changed territory (the "moving treaty frontiers" rule). The asset-based definition of investment in Article 1(1) contains no temporal cross-border requirement, and protection depends on the situation at the time of the breach. Judgment 4A_398/2017, E. 4.3.2, 4.4.3
Russia breached Article 5 of the BIT by expropriating the claimants' investment. Compensation is the fair market value at 22 April 2014, assessed with Russia as the benchmark market. The resulting increase in value compared with a Ukrainian benchmark is not a windfall, and international sanctions do not affect the valuation. Final Award ¶¶ 344–354, 430(i)
The Tribunal accepted the 85% DCF / 15% comparable-companies method, the WACC and the 2% Russian country risk. It reduced the projected gain from the planned renovation of 19 stations to 167%, based on actual renovations in mainland Ukraine. It adopted a terminal growth rate of 2.62%. This reduced the enterprise value from USD 47,370,137 to USD 34,562,175. The value of Stabil LLC's apartment was reduced by 25%, to USD 27,238. Final Award ¶¶ 375–378, 395, 403–406
Interest runs at 3-month USD LIBOR + 1%, compounded annually, by analogy with Article 5(2) of the BIT. Because the claimants won on jurisdiction and liability but only in part on quantum, Russia bears 75% of all costs: EUR 515,313.76 and USD 3,999,840.72. Final Award ¶¶ 412, 429
The Swiss Federal Supreme Court dismissed Russia's application to set aside the Final Award. The dispute concerned a pecuniary claim for compensation, not the status of Crimea, so it was arbitrable. Jurisdiction had already been finally decided in 2018. New allegations about Mr. Kolomoisky were inadmissible. Judgment 4A_246/2019, E. 3.5, 4.2
The US District Court denied Russia's motions to dismiss and to stay. The FSIA arbitration exception applies, Russia's objection concerns arbitrability rather than jurisdiction, and the BIT creates a commercial legal relationship under the New York Convention. As a foreign State, Russia has no due process protection. Confirmation awaits further merits briefing. Memorandum Order, pp. 5–12