Emergofin B.V. and Velbay Holdings Ltd. v Ukraine

Case summary

At a glance

Parties: Emergofin B.V. (Netherlands) and Velbay Holdings Ltd. (Cyprus), both affiliates of UC RUSAL, v. Ukraine
Case no.: ICSID Case No. ARB/16/35
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules 2006
Treaty: Netherlands–Ukraine BIT of 14 July 1994
Tribunal: Professor Zachary Douglas KC (President), John Beechey CBE, Sir Michael Wood KCMG KC
Sector: Aluminium production (Zaporozhye Aluminium Combine, ZAlK)
Outcome: Liability was found for the renationalisation (denial of justice and expropriation), the shareholder interference and the 2018 sanctions. The electricity pricing claim and the moral damages claim failed. Final Award of 1 May 2026 awarded USD 71,000,000 plus interest.
Amount: Claimed: at least USD 829,098,000 (Memorial), then at least USD 1,089,100,000 (Reply), plus USD 5,000,000 in moral damages. In the quantum phase the claim was USD 228,668,068. Awarded: USD 71,000,000 in restitutionary damages, with interest at the 5-year US Treasury Rate compounded annually from 9 June 2015 to 24 February 2022 and from the Award until payment. Ukraine was also ordered to pay part of the Claimants' legal costs and its own half of the arbitration costs, which the Claimants had advanced. Total arbitration costs: USD 1,009,421.74.

The dispute

Velbay, a Cypriot company controlled by the Dutch company Emergofin, acquired 97.55% of ZAlK, Ukraine's only primary aluminium producer. This included a 68.01% stake bought from AvtoVAZ-Invest under the 2006 ZAlK SPA for USD 71,000,000. The Ukrainian Prosecutor then sued to rescind the privatisation agreements, claiming Velbay had failed to refinance a 1997 loan for aluminium foil equipment that ZAlK never owned. The courts rescinded the 2006 SPA in 2012, and the 68.01% stake was transferred to the State Property Fund (SPFU) on 9 June 2015. The Claimants also complained of four other matters: Ukraine's refusal to reinstate differential electricity pricing for ZAlK; their exclusion from the 2016 and 2017 shareholder meetings with the help of the Khortitskiy Regiment; and their inclusion on a sanctions list in 2018. They relied on fair and equitable treatment, full protection and security, national treatment, the umbrella clause and expropriation under Articles 3 and 6 of the BIT. Ukraine objected to jurisdiction ratione temporis, to notice and to moral damages. On the merits it denied any breach, and on quantum it argued that ZAlK had no market value.

Key holdings

Jurisdiction exists only over claims whose elements arose after 22 September 2005, the date Emergofin acquired control of Velbay. The claim for moral damages is outside jurisdiction or inadmissible, because the BIT protects investments, not the personal interests of investors or their representatives. Decision on Jurisdiction, Admissibility and Liability ¶¶ 68, 120, 621.1
The Electricity Pricing Claim is dismissed. Stability and predictability of the legal framework are not an actionable part of fair and equitable treatment. Repealing differential pricing in line with a consistent policy against cross-subsidies was not arbitrary. There was no less favourable treatment, because ZTMK never in fact received differential pricing. CMU Instruction No 1566-p created no obligation towards ZAlK under the umbrella clause. Decision ¶¶ 185, 205, 244, 247
Denial of justice. The Kyiv Commercial Court rescinded the 2006 SPA for material breach (Article 651 of the Civil Code), although the Prosecutor had pleaded only a material change of circumstances (Article 652). Velbay therefore could not answer the novel propositions on which the court relied. The courts also ignored the SPFU's official position that the refinancing obligation had been fulfilled. The Tribunal found this was a deliberate stratagem. The denial of justice was consummated on 11 March 2015 (breach of Article 3(2)), and the share transfer in June 2015 was an unlawful expropriation under Article 6. Decision ¶¶ 461, 466–467
The SPFU colluded with the Khortitskiy Regiment and ZAlK's management to keep Velbay's representatives out of the 2016 EGM and the 2017 AGM. This breached fair and equitable treatment. The full protection and security claim was not proved, and there was no expropriation because the deprivation was not permanent. The 2018 Sanctions Decision was arbitrary because there was no stated or objectively ascertainable link between its purpose and scope and the Claimants. It was not expropriatory, because the Supreme Court quashed it on 11 August 2020. Decision ¶¶ 538–541, 602, 605
A State cannot escape liability because the confiscated property had no market value. The Tribunal awarded restitution of the USD 71,000,000 purchase price for the 68.01% stake, citing Ukraine's manifest unjust enrichment. It refused the USD 148,120,632 in later capital investments, since ZAlK's decline was not attributable to Ukraine. It also refused the USD 9,547,436 claimed for the 29.54% stake: Velbay kept title to those shares, and the interference with its rights was only temporary. Award ¶¶ 29, 35–40, 45
Interest runs at the 5-year US Treasury Rate, compounded annually, from 9 June 2015. Accrual is suspended from the start of the armed conflict on 24 February 2022 until the date of the Award. Award ¶¶ 49–51
Costs do not simply follow the event. The central Electricity Pricing Claim failed, and the sum awarded is about 6% of the market valuation of some USD 1,116,900,000. The Claimants' early procedural conduct was also taken into account. Ukraine pays part of the Claimants' costs and the half of the arbitration costs it had failed to advance. Award ¶¶ 62–65

Procedural history

8 December 2015Claimants send a Notice of Dispute to Ukraine.
25 October 2016ICSID receives the Request for Arbitration. It is registered on 9 November 2016.
15 March 2017Tribunal constituted.
5 December 2017The Tribunal rejects the Claimants' request for provisional measures.
1–6 November 2020Hearing on jurisdiction and merits, held by videoconference.
1 July 2021Decision on Jurisdiction, Admissibility and Liability. Three claims are upheld in part; quantum and costs are reserved.
March 2022 – 6 January 2026Proceedings suspended by agreement of the parties after the outbreak of armed conflict.
1 May 2026Final Award: USD 71,000,000 plus interest and a contribution to costs.