Olympic Entertainment Group AS (Estonia) v. Ukraine

At a glance

Parties

Olympic Entertainment Group AS (Estonia) v. Ukraine

Case no.

PCA Case No. 2019-18

Forum and rules

UNCITRAL Arbitration Rules 1976, administered by the PCA; seat London

Treaty

Estonia–Ukraine BIT of 15 February 1995

Tribunal

Neil Kaplan (Presiding Arbitrator), Michael Pryles, J. Christopher Thomas

Sector

Gambling (casinos and slot machines)

Outcome

Unanimous award of 15 April 2021: jurisdiction upheld; Ukraine's 2009 Gambling Ban Law was an unlawful indirect expropriation; damages awarded.

Amount

Claimed: at least EUR 12,404,000 plus interest. Awarded: EUR 7,500,000 plus interest at 12-month LIBOR + 4%, compounded annually, from 25 June 2009. Costs: EUR 2,750,000 to the Claimant, with simple interest at LIBOR + 4%.

The dispute

Olympic Entertainment Group AS, an Estonian gambling operator, invested in Ukraine from 2004 through its subsidiary Olympic Casino Ukraine LLC (OCU). It made equity contributions of about EUR 4.1 million and a shareholder loan of EUR 28.6 million, and in 2007 it acquired the Eldorado Group. After a gambling-hall fire in Dnipropetrovsk on 7 May 2009, Ukraine suspended all gambling licences. It then enacted Law No. 38/2009 "On the Prohibition of Gambling Business in Ukraine", which came into force on 25 June 2009 with no transitional period and no compensation, and which cancelled all gambling licences. OEG claimed expropriation, breach of fair and equitable treatment, breach of the duty to create favourable conditions, and breach of full protection and security under the Estonia–Ukraine BIT. Ukraine argued that the investment was not made in accordance with Ukrainian law because OEG had no licence when it entered the market in 2004. It also argued that the ban was a valid exercise of police powers and only temporary, and that OCU was already insolvent, so the ban did not cause the loss.

Key holdings

1. Jurisdiction upheld. The investment itself (shares, loans, property, intellectual property) was lawful. Ukraine did not prove that OEG operated licensable gambling establishments in 2004. Even if a licence costing less than EUR 40 had been missing, that de minimis breach would not violate a fundamental principle of Ukrainian law. ¶¶ 49–60
2. Proportionality is part of the test for a valid exercise of police powers. The Gambling Ban Law pursued public health and morality in good faith. But it was disproportionate: it took immediate effect, gave no adjustment period and no compensation, and destroyed an entire sector of the economy. It was therefore not a valid exercise of police powers. ¶¶ 90–101
3. The Tribunal called the case a textbook example of indirect expropriation. Revoking the licences ended OEG's ability to earn a commercial return. The ban was not merely temporary, because the zoning regime was not adopted until July 2020. The expropriation was unlawful under Article 5 because no compensation was provided. ¶¶ 106–113
4. The Tribunal observed that the ban also breached fair and equitable treatment, because it frustrated OEG's legitimate expectation that its licences would last until expiry. It made no decision on that claim or on full protection and security, since neither would affect quantum. ¶¶ 132, 139
5. Causation established. The shareholder loan did not show that liquidation was inevitable, and OCU had positive EBITDA and growing revenue. Liquidation began on 3 July 2009 because of the ban, not on 9 June 2009 as Ukraine argued. ¶¶ 159–169
6. Damages assessed at fair market value, not liquidation value. The starting point was the USD 15 million Maxbet offer, discounted for the burden of the shareholder loan, the uncertainties of the Maxbet negotiations, the possible non-renewal of the licences after 2011 and some risk of double recovery. The award is EUR 7,500,000, with interest at 12-month LIBOR + 4%, compounded annually. ¶¶ 170–185
7. Costs follow the event. Ukraine pays EUR 2,750,000 of OEG's costs, including the deposits OEG paid on Ukraine's behalf. The costs of the arbitration totalled USD 543,154.40. ¶¶ 189–203, 205

Procedural history

1. 25 June 2009The Gambling Ban Law enters into force and gambling licences are cancelled.
2. 26 December 2017Ukraine's Ministry of Justice informs OEG that it will not pay compensation.
3. 5 November 2018OEG files its Notice of Arbitration.
4. 29 December 2018The co-arbitrators appoint Neil Kaplan as Presiding Arbitrator.
5. 10 May 2019Procedural Order No. 1.
6. 13–20 December 2020Hearing on jurisdiction, merits and quantum by Zoom videoconference.
7. 15 April 2021Award: unanimous; jurisdiction upheld, unlawful indirect expropriation found, EUR 7,500,000 awarded.

Tribunal, counsel and experts

Decided by

• Neil Kaplan President — chosen by the co-arbitrators
• Michael Pryles Co-arbitrator — appointed by the claimant
• J. Christopher Thomas Co-arbitrator — appointed by the respondent

For the claimant

AEQUO Law Firm · Matrix Chambers

For the respondent

Ministry of Justice of Ukraine · Blackstone Chambers · Withers LLP · LCF Law Group

Experts

James Nicholson (claimant) · Alexander Davie (claimant) · Olexander Martinenko (claimant) · Geoffrey Senogles (respondent) · David Clifton (respondent)

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Keywords

• Estonia–Ukraine BIT
• gambling ban
• casinos
• indirect expropriation
• police powers
• proportionality
• legality requirement
• in accordance with host State law
• fair and equitable treatment
• legitimate expectations
• licence revocation
• causation
• shareholder loan
• Maxbet offer
• fair market value
• LIBOR + 4%
• Chorzów Factory

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