JKX Oil & Gas, et al v. Ukraine

Case summary

At a glance

Parties: JKX Oil & Gas plc, Poltava Gas B.V. and JV Poltava Petroleum Company (PPC) v. Ukraine, represented by the Ministry of Justice
Case no.: Ukrainian court cases No. 757/5777/15-ц (enforcement of SCC emergency decision EA/2015/002) and No. 824/22/19 (recognition of PCA award, Case No. 2015-11)
Court: Pechersk District Court of Kyiv; Kyiv City Court of Appeal; Higher Specialized Court of Ukraine for Civil and Criminal Cases; Kyiv Court of Appeal; Supreme Court of Ukraine
Underlying award(s): SCC emergency arbitrator decision of 14 January 2015 (corrected 21 January 2015), Case No. EA/2015/002, by Rudolf Dolzer; PCA award of 6 February 2017 in Case No. 2015-11, amended on 7 March 2017
Treaty: Energy Charter Treaty (emergency proceeding); UK–Ukraine BIT of 10 February 1993 (PCA award)
Sector: Oil and gas; subsoil rent for natural gas production
Outcome: Ukrainian courts finally refused to enforce the emergency arbitrator decision on public policy grounds and for breach of the three-month cooling-off period (Supreme Court, 19 September 2018). They recognised the PCA award, except for the order addressed to the National Bank of Ukraine (Kyiv Court of Appeal, 5 July 2019; upheld on 21 November 2019).
Amount: PCA award recognised for USD 11,789,438.83 in damages plus interest, and costs of EUR 313,430.52, GBP 328.54 and USD 12,500. The Ministry of Justice estimated that the emergency decision would cost the 2015 State budget UAH 597.25 million.

The dispute

JKX Oil & Gas plc and Poltava Gas B.V. invested in Ukraine through the gas producer JV Poltava Petroleum Company (PPC). Ukraine raised the subsoil rent payable on PPC's natural gas production from 28%, the rate in the Tax Code until 31 July 2014, to 55%. The investors invoked the Energy Charter Treaty. On 14 January 2015 an SCC emergency arbitrator, Rudolf Dolzer, ordered Ukraine to refrain from charging PPC rent above 28% until the full tribunal decided on interim measures. Ukraine did not take part. When the investors sought enforcement in Ukraine, the Ministry of Justice objected on four grounds: the ECT three-month cooling-off period had not been respected, Ukraine had not been properly notified, the 2010 SCC Rules did not apply, and enforcement would breach public policy by changing tax rates set only by the Tax Code. Separately, JKX sought recognition in Ukraine of a 2017 PCA award under the UK–Ukraine BIT that granted damages and an order on the repatriation of dividends.

Key holdings

First instance granted enforcement of the emergency decision. Ukraine was notified by e-mail and the timetable gave it a chance to respond. The three-month cooling-off period ran from the investors' letter of 13 November 2014. The decision was made under the Rules in force when the application was filed, and it did not breach public policy. Pechersk District Court, pp. 4–5
The Higher Specialized Court quashed the appeal ruling of 17 May 2016 and sent the case back. It found that the appeal court had dismissed Ukraine's objections without analysing them: the cooling-off notice had been sent to the Presidential Administration rather than the Ministry of Justice; notice had arrived during non-working holidays; the 2010 Rules had been applied; and the effect on rent and the State budget had not been considered. Ruling of 2 November 2016, pp. 4–5
On remand, the Kyiv City Court of Appeal refused enforcement. Only the Tax Code may set or change taxes, so enforcing a decision that cut PPC's rent from 55% to 28% would breach Ukraine's public policy (Article V(2)(b) New York Convention) and threaten its interests. The court also found a breach of the ECT Article 26(2) cooling-off period and accepted the objections on notice and on the applicable Rules. Ruling of 21 December 2016, pp. 5–7
The Supreme Court upheld the refusal. It agreed on public policy and held that the breach of the three-month cooling-off period, because notice was sent to the Presidential Administration, was a separate ground for refusal under Article V(1)(b) of the New York Convention. Resolution of 19 September 2018, pp. 7–8
The Kyiv Court of Appeal recognised the PCA award of 6 February 2017 for damages, interest, costs and the order that Ukraine allow PPC to repatriate dividends without restriction. It rejected Ukraine's due process objection (an expedited schedule), its illegality objection, which was unproven, and its excess-of-mandate objection. The dividend order was declaratory relief based on Article 7 of the UK–Ukraine BIT. Ruling of 5 July 2019, pp. 5–7
The court refused recognition of the part of the award ordering the National Bank of Ukraine to help PPC repatriate dividends. The NBU was not a party to the arbitration agreement (the consolidation agreement of 21 July 2015), and imposing direct obligations on it is contrary to Ukrainian public policy. Ruling of 5 July 2019, p. 7
The Supreme Court dismissed the Ministry of Justice's appeal against the partial recognition. Only the introductory and operative parts of its decision are published. Resolution of 21 November 2019

Procedural history

13 November 2014The investors sent a letter proposing amicable settlement under ECT Article 26 and the Netherlands–Ukraine and UK–Ukraine BITs. It was addressed to the Presidential Administration.
7 January 2015The investors applied to the SCC Arbitration Institute for an emergency arbitrator. Rudolf Dolzer was appointed on 8 January 2015.
14 January 2015Emergency arbitrator decision (EA/2015/002) ordered Ukraine not to charge PPC rent above 28%. A corrected decision followed on 21 January 2015.
8 June 2015The Pechersk District Court of Kyiv granted leave to enforce the emergency decision.
2015–2016The Kyiv City Court of Appeal refused enforcement. On 24 February 2016 the Higher Specialized Court quashed that ruling. On 17 May 2016 the Court of Appeal upheld the first-instance ruling.
2 November 2016The Higher Specialized Court quashed the ruling of 17 May 2016 and remanded the case.
21 December 2016The Kyiv City Court of Appeal reversed the first-instance ruling and refused enforcement.
6 February 2017PCA award in Case No. 2015-11 under the UK–Ukraine BIT. The costs order was amended on 7 March 2017.
19 September 2018The Supreme Court dismissed the investors' cassation appeal. The refusal to enforce the emergency decision became final.
5 July 2019The Kyiv Court of Appeal partially recognised the PCA award (full text dated 10 July 2019).
21 November 2019The Supreme Court dismissed the Ministry of Justice's appeal against the partial recognition.

Tribunal, counsel and experts

Decided by: Rudolf Dolzer SCC emergency arbitration, SCC emergency arbitration — appointed by the institution (Emergency Arbitrator)
L.I. Tsokol Judge, Pechersk District Court of Kyiv — appointed by a court
D.D. Luspenyk Judge, Higher Specialized Court of Ukraine for Civil and Criminal Cases — appointed by a court (presiding)
B.I. Hulko Judge, Higher Specialized Court of Ukraine for Civil and Criminal Cases — appointed by a court
V.I. Zhuravel Judge, Higher Specialized Court of Ukraine for Civil and Criminal Cases; Supreme Court of Ukraine — appointed by a court
S.F. Khopta Judge, Higher Specialized Court of Ukraine for Civil and Criminal Cases — appointed by a court
S.P. Shtelyk Judge, Higher Specialized Court of Ukraine for Civil and Criminal Cases — appointed by a court
I.M. Verbova Judge, Kyiv City Court of Appeal — appointed by a court (presiding)
L.D. Polyvach Judge, Kyiv City Court of Appeal — appointed by a court
O.V. Shakhova Judge, Kyiv City Court of Appeal — appointed by a court
M.Ye. Chervynska Judge, Supreme Court of Ukraine — appointed by a court (presiding)
N.O. Antonenko Judge, Supreme Court of Ukraine — appointed by a court
V.M. Korotun Judge, Supreme Court of Ukraine — appointed by a court
V.P. Kurylo Judge, Supreme Court of Ukraine — appointed by a court
T.A. Semeniuk Judge, Kyiv Court of Appeal — appointed by a court
S.Yu. Martev Judge, Supreme Court of Ukraine — appointed by a court
A.A. Kalarash Judge, Supreme Court of Ukraine — appointed by a court
Ye.V. Petrov Judge, Supreme Court of Ukraine — appointed by a court
For the claimant: Andrii Viktorovych Stetsenko · Olha Yuriivna Shenk · Mykola Volodymyrovych Heletii · Serhii Yuriiovych Hryshko · Oleksandr Petrovych Martynenko · Vitalii Volodymyrovych Radchenko · Olha Bohdanivna Vorozhbyt · Volodymyr Oleksandrovych Kolvakh · Maksym Volodymyrovych Buhai · Viktor Petrovych Chykyrynda
For the respondent: Ministry of Justice of Ukraine