Stabil and others v. Russia

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
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: Gabrielle Kaufmann-Kohler (Presiding), Daniel M. Price, Brigitte Stern
Sector: Petrol retail and fuel storage (Crimea)
Outcome: Jurisdiction upheld (26 June 2017). Final Award (12 April 2019): Russia unlawfully expropriated the claimants' Crimean assets in breach of Article 5. Russia did not take part in the proceedings.
Amount: Claimed: USD 47,406,455 plus compound interest. Awarded: an adjusted enterprise value of USD 34,562,175, divided among the eleven claimants, plus USD 27,238 to Stabil LLC for an apartment. Interest at 3-month USD LIBOR + 1%, compounded annually. Russia to pay 75% of costs: EUR 515,313.76 and USD 3,999,840.72.

The dispute

The claimants are eleven Ukrainian companies. Between them they owned, leased and supplied a network of 31 petrol stations and two fuel storage facilities in Crimea. Igor Kolomoisky was one of their beneficial owners. After Russia incorporated Crimea in March 2014, armed paramilitary forces seized the claimants' Feodosia headquarters on 22 April 2014, and the claimants lost control of their stations. Crimean and Sevastopol authorities then nationalised the assets: Crimea by the 3 September 2014 amendment to Decree No. 2085-6/14, Sevastopol by Order No. 401 of 11 November 2014. The claimants argued that this was an unlawful expropriation under Article 5 of the BIT, discrimination and a breach of the most-favoured-nation clause under Article 3, and a breach of the guarantee of full legal protection under Article 2. Russia did not appear. Its only response was letters saying that Crimea is Russian territory and that the BIT therefore does not cover the claims.

Key holdings

The BIT applies to Crimea. Under the BIT, "territory" includes territory over which a State exercises de facto control and jurisdiction, whether or not it holds lawful title. Russia cannot claim Crimea as its territory and at the same time deny that the BIT applies there; good faith rules this out. The BIT became opposable to Russia no later than 21 March 2014. The Tribunal expressed no view on whether the incorporation was legal. Award on Jurisdiction ¶¶ 170–176
The other jurisdictional requirements are met. Article 12 covers investments made after 1 January 1992 and does not require that they were made in the other State's territory from the start. The claimants are Ukrainian legal entities with legal capacity to invest. The legality of the investment is assessed under Russian law as of 21 March 2014, and the investments complied with it. Award on Jurisdiction ¶¶ 188–193, 206, 218, 232–233
The acts of the Crimean State Council and the Sevastopol Government are attributable to Russia as acts of its organs under ILC Article 4. The paramilitary forces belonged to the People's Militia, which had been empowered to exercise police powers. Their acts are therefore attributable to Russia under ILC Article 5, and also under Article 11 because Russia acknowledged and adopted them. Final Award ¶¶ 173, 198, 202–204
Russia directly expropriated the stations and storage facilities on 22 April 2014, and later formalised this by decree and order. Stabil LLC's apartment was expropriated on 3 September 2014. The expropriation met none of the four conditions in Article 5: it had no public purpose, it targeted Kolomoisky-linked assets and so was discriminatory, it lacked due process, and no compensation was paid. Later compensation schemes in Crimea and Sevastopol were inadequate, and the claimants did not have to try them. The Tribunal did not decide the other treaty claims. Final Award ¶¶ 229–231, 241, 251–260
Because the expropriation was unlawful, damages follow the Chorzów full-reparation standard: fair market value at 22 April 2014, assessed ex ante with Russia as the benchmark market. International sanctions did not affect the value. The valuation weighted DCF at 85% and comparable companies at 15%. The Tribunal cut the projected renovation uplift to the 167% shown in exhibit NAV-141 and used a terminal growth rate of 2.62%. The result was an enterprise value of USD 34,562,175. The apartment's value was reduced by 25%, to USD 27,238. Final Award ¶¶ 265–267, 347, 354, 376–378, 395, 403–407
Interest runs at 3-month USD LIBOR plus 1%, compounded annually. The Tribunal took this rate from Article 5(2) as a guide. Because the claimants won on jurisdiction and liability but only partly on quantum, Russia bears 75% of the arbitration costs (fixed at EUR 687,085.01) and of the claimants' legal costs (claimed at USD 5,333,120.96, found reasonable). That is EUR 46,846.71 and USD 363,621.88 to each claimant. Final Award ¶¶ 412, 429–430

Procedural history

15 October 2014The claimants send notices of dispute to Russia.
3 June 2015Notice of Arbitration filed under Article 9 of the BIT. The claimants appoint Daniel M. Price.
7 October 2015Tribunal constituted. The PCA had designated Michael Hwang as appointing authority, and he appointed Brigitte Stern on 28 September 2015. A tribunal with the same members was constituted in the parallel case PJSC Ukrnafta v. Russia (PCA Case No. 2015-34).
11 July 2016Hearing on jurisdiction in Geneva. Russia does not attend. Ukraine's non-disputing party submission had been admitted on 21 June 2016.
26 June 2017Award on Jurisdiction: the Tribunal has jurisdiction.
5–6 February 2018Hearing on the merits in Geneva. A further hearing with the tribunal-appointed quantum expert, Thierry Sénéchal, follows on 20 August 2018.
16 October 2018The Swiss Federal Supreme Court rejects Russia's application, filed on 14 August 2017, to annul the Award on Jurisdiction.
12 April 2019Final Award: Russia breached Article 5. Compensation, interest and 75% of costs awarded.

Tribunal, counsel and experts

Decided by: Gabrielle Kaufmann-Kohler President — chosen by the co-arbitrators
Daniel M. Price Co-arbitrator — appointed by the claimant
Brigitte Stern Co-arbitrator — appointed by the appointing authority
For the claimant: Hughes Hubbard & Reed LLP
Experts: Brent C. Kaczmarek (claimant) · Peter B. Maggs (claimant) · Glib Bondar (claimant) · Thierry Sénéchal (tribunal) · Igor Vesler (tribunal)