000 Manolium Processing v. Belarus

At a glance

Parties

OOO Manolium-Processing (Russia) v. the Republic of Belarus

Case no.

PCA Case No. 2018-06 (UNCITRAL Transparency Registry)

Forum and rules

Ad hoc arbitration under the UNCITRAL Arbitration Rules 2013 and the UNCITRAL Rules on Transparency; PCA as registry; seat: The Hague

Treaty

Annex 16 (Protocol) to the Treaty on the Eurasian Economic Union of 29 May 2014, in force 1 January 2015

Tribunal

Juan Fernández-Armesto (Chairman), Stanimir Alexandrov, Brigitte Stern

Sector

Construction; real estate development; public transport infrastructure (Minsk)

Outcome

Final Award of 22 June 2021: Belarus expropriated the claimant's investment through abusive tax and enforcement measures and breached fair and equitable treatment. The claims about the termination of the Investment Contract were dismissed. Stanimir Alexandrov dissented in part.

Amount

Claimed: USD 155.9 million in lost profits on the Mall and USD 20,434,679 for the loss of the Facilities. Awarded: USD 20,434,679, plus interest from 27 January 2017. Costs: Belarus to pay EUR 402,424.88 (all of the claimant's share of the tribunal's costs) and USD 1,438,405.46 (75% of the claimant's legal costs).

The dispute

On 6 June 2003 the Russian company Manolium signed an Investment Contract with the Minsk City Executive Committee and Minsktrans. It would build and hand over, at its own cost, a trolleybus Depot, a Pull Station and a Road. In return it would get the right to develop a shopping and entertainment Mall in central Minsk. Its Belarusian subsidiary, Manolium-Engineering, built the Facilities only in part. The Minsk courts terminated the contract (Economic Court, 9 September 2014; Appellate Division, 29 October 2014; Supreme Court, 27 January 2015). The Municipality then refused to pay the costs, which a Ministry of Finance audit put at USD 19.4 million. It instead pursued a plan to obtain the Facilities for free: it levied Land Tax at penalty rates, foreclosed on the Facilities, transferred them by Presidential Order of 20 January 2017, and the subsidiary was forced into bankruptcy. The claimant alleged expropriation and breach of fair and equitable treatment (including denial of justice) under the Protocol and under Belarusian investment law. Belarus objected to jurisdiction (time, domestic law, contract claim, Minsktrans, ownership of the investment) and denied liability.

Key holdings

1. Jurisdiction in time. The Treaty does not apply to acts before 1 January 2015. The Tribunal has jurisdiction over the whole Tax Dispute. For the Termination Dispute it has jurisdiction only over two later measures: the Supreme Court's Cassation Decision and the 2017 auction of the Mall site. The Contractual and Minsktrans objections became moot. The objection to the ownership of the investment was rejected: incorporating and financing the subsidiary through intra-group loans is a protected investment. Final Award ¶¶ 271–309, 370–384
2. By majority, the Tribunal has no jurisdiction under the 2014 Belarusian Investment Law. That law does not cover investments made before it took effect, and its Article 13 gives priority to the treaty dispute mechanism. Stanimir Alexandrov dissented on this point. Final Award ¶¶ 328–347
3. The tax and enforcement measures amounted to an indirect expropriation in breach of Article 79 of the Protocol. The subsidiary lost the Facilities without compensation, and the claimant's shareholding fell to nil. The measures were an abuse of tax law aimed at obtaining the Facilities for free, and the Municipality's repeated refusal to take back the land plots was arbitrary. The same findings support a declaration that Belarus breached fair and equitable treatment (Article 68). Final Award ¶¶ 464, 508–516
4. Termination Dispute dismissed. General reports on the Belarusian judiciary are not enough, the Cassation Decision was reasoned, and the claim that the President pre-ordained it was not proven, so there was no denial of justice. The 2017 auction did not breach fair and equitable treatment. By majority, a judicial expropriation requires a denial of justice, so the Cassation Decision was not an expropriation; Alexandrov dissented on that standard. Final Award ¶¶ 574, 584, 591–594
5. Compensation equals the market value of the Facilities, measured by the costs in the Ministry of Finance Report (USD 19,434,679, converted from roubles at monthly rates) plus the USD 1 million payment to the National Library, for USD 20,434,679 in total. The claim for lost profits on the Mall failed for lack of causation, because the contract was validly terminated, and because the profits were speculative. Final Award ¶¶ 632–670
6. Interest runs from 27 January 2017 at the higher of the National Bank of Belarus published rate and six-month USD LIBOR, compounded every six months, with no country-risk premium. Belarus pays all of the claimant's share of the tribunal's costs and 75% of its legal costs, because the claimant won but recovered far less than it claimed. Final Award ¶¶ 688–698, 718–728
7. Interim measures refused. The claimant had not shown irreparable harm to justify orders against criminal proceedings or contact with its personnel. The Tribunal held that both parties must refrain from aggravating the dispute, but found a specific order unnecessary. It reminded the parties of their duties not to obtain evidence improperly, not to influence witnesses unduly, and not to put undue pressure on the other side. Decision on Interim Measures ¶¶ 131–172

Procedural history

1. 15 November 2017The claimant files its Notice of Arbitration and appoints Stanimir Alexandrov. Belarus appoints Brigitte Stern on 15 December 2017.
2. 17 January 2018The co-arbitrators appoint Juan Fernández-Armesto as presiding arbitrator. He accepts on 1 February 2018.
3. 17 May 2018Procedural Order No. 1 sets the procedural rules and timetable.
4. 1 August 2018Decision on Bifurcation: Belarus's request to hear quantum separately is refused.
5. 7 December 2018Decision on the claimant's Interim Measures Request: the requested orders are refused.
6. 10 July 2019Procedural Order No. 2 sets the arrangements for the hearing.
7. 29 July – 1 August 2019Hearing at the Peace Palace, The Hague.
8. 3 October and 28 November 2019The parties file post-hearing briefs, followed by costs submissions on 12 December 2019.
9. 22 June 2021Final Award: expropriation and breach of fair and equitable treatment found; USD 20,434,679 awarded plus interest and costs. Alexandrov dissents in part.

Tribunal, counsel and experts

Decided by

• Juan Fernández-Armesto President — chosen by the co-arbitrators
• Stanimir A. Alexandrov Co-arbitrator — appointed by the claimant (dissented on the Domestic Law Objection and on the standard for judicial expropriation)
• Brigitte Stern Co-arbitrator — appointed by the respondent

For the claimant

Baker & McKenzie

For the respondent

White & Case LLP · Advocate bureau Goretsky and Partners · Advocate bureau REVERA · Ministry of Justice of the Republic of Belarus

Experts

Travis A.P. Taylor (claimant) · Chris Lake (claimant) · Elena Tonkacheva (claimant) · Abdul Sirshar Qureshi (respondent) · Tatiana Rukhliada (respondent)

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Keywords

• Eurasian Economic Union Treaty
• Annex 16 Protocol
• indirect expropriation
• expropriatory taxation
• abuse of tax law
• arbitrariness
• fair and equitable treatment
• denial of justice
• judicial expropriation
• ratione temporis
• composite act
• non-retroactivity
• Belarusian Investment Law
• interim measures
• non-aggravation
• Minsk trolleybus depot
• Lukashenko
• lost profits

Summary generated with AI from the published documents — refer to the award for the authoritative text.