Eugene Kazmin v. Republic of Latvia

Case summary

At a glance

Parties: Eugene Kazmin (Ukraine) v. Republic of Latvia
Case no.: ICSID Case No. ARB/17/5
Forum and rules: ICSID Convention arbitration; ICSID Arbitration Rules of 10 April 2006; place of proceedings Paris
Treaty: Latvia–Ukraine BIT of 24 July 1997
Tribunal: Vera van Houtte (President), Mark A. Kantor, Rolf Knieper
Sector: Steel production (Liepajas Metalurgs plant)
Outcome: The proceedings were discontinued without prejudice because the Claimant did not post the EUR 3 million security for costs ordered in PO6. The Claimant was ordered to pay Latvia's costs. Ukraine's Supreme Court later upheld recognition and enforcement of the award in Ukraine.
Amount: Claimed: EUR 72,031,855.64 and USD 4,121,450.00 plus interest. Awarded on the claims: nothing (no decision on the merits). Costs: the Claimant pays Latvia USD 250,000 (less any ICSID reimbursement) and EUR 3,223,212.40, without interest. The costs of the arbitration totalled USD 462,466.98.

The dispute

Eugene Kazmin, a Ukrainian national, bought the core assets of the insolvent Latvian steel mill Liepajas Metalurgs in 2014. He made the purchase through KVV LM, a Latvian company created by KVV Group, after a tender run by the insolvency administrator and the consultancy Prudentia. KVV LM stopped steelmaking in May 2015 and was declared insolvent on 16 September 2016. Kazmin claimed that Latvia misrepresented the state of the plant and failed to provide the support and electricity price reductions it had allegedly promised. He argued that this amounted to creeping expropriation (Article 5 of the BIT), a breach of fair and equitable treatment (Article 2(2)), and a breach of an umbrella clause imported from the Bulgaria–Latvia BIT through the MFN clause. Latvia objected to jurisdiction: it said Kazmin's ownership was not proven, the investment was not made lawfully or in good faith, the conduct of the administrator and Prudentia could not be attributed to the State, and the claims were contractual. It also denied liability and causation, blaming KVV LM's failure on Kazmin's mismanagement.

Key holdings

Security for costs granted. The Tribunal had serious doubts that the Claimant would pay an adverse costs award. Its concern was less his possible impecuniosity than his business conduct: Ukrainian criminal investigations involving companies linked to him, assets held through intermediaries, and unexplained 2016 transactions of KVV LM. It ordered EUR 3 million (not the EUR 4 million requested) by bank guarantee within 15 days. PO6 ¶¶ 59–60, 65, 68
The Tribunal suspended the proceedings for non-compliance under Article 44 of the ICSID Convention. Latvia could apply for discontinuance if no security had been posted by 6 November 2020. PO7 ¶¶ 18, 26–27
The Chair of the ICSID Administrative Council rejected the proposal to disqualify all three arbitrators. It was untimely, filed about 87–90 days after the facts relied on. It also failed on the merits: the language of PO6 reflected adverse findings the Tribunal had to make and did not show a manifest lack of impartiality. Disqualification Decision ¶¶ 62, 67, 80, 84
A discontinuance without prejudice is a procedural decision within the Tribunal's power under the second sentence of Article 44, because the ICSID rules do not address failure to post security. This distinguishes the case from the with-prejudice dismissal in RSM v. Saint Lucia. The Tribunal ordered discontinuance without prejudice. Award ¶¶ 113–116, 121
The decision on discontinuance and costs is issued as an award under Articles 48 and 61(2). This lets Latvia enforce the costs decision and lets the Claimant seek annulment. Award ¶¶ 135, 147–148
The Claimant is responsible for the discontinuance because of his continued refusal to post security, which after the disqualification decision of 14 October 2020 could only be read as intentional. He must pay Latvia USD 250,000 (less any ICSID reimbursement) and EUR 3,223,212.40, which the Tribunal found reasonable. Interest is refused: only simple interest could be considered, and the risk-free Euribor rate had been negative. Award ¶¶ 152–153, 172–176
The Supreme Court of Ukraine upheld recognition and enforcement. The New York Convention grounds did not apply to an ICSID award. The Court found no breach of Ukrainian public policy or of the right of access to court: the security order pursued a legitimate aim, Kazmin had not sought annulment under Article 52, and he could bring his claims again. Supreme Court ruling, pp. 5–10

Procedural history

30 December 2016Request for Arbitration dated 30 December 2016, received by ICSID on 3 January 2017 and registered on 3 February 2017.
28 July 2017Tribunal constituted.
13 April 2020Procedural Order No. 6 orders the Claimant to post EUR 3 million security for costs within 15 days.
6 May 2020Procedural Order No. 7 suspends the proceedings for non-compliance with PO6.
30 July 2020The Claimant proposes the disqualification of all three members of the Tribunal.
14 October 2020The Chair of the ICSID Administrative Council rejects the disqualification proposal.
10 December 2020Latvia applies for discontinuance and an award on costs.
24 March 2021Award dispatched: proceedings discontinued without prejudice, costs awarded to Latvia. The Ukrainian court rulings refer to the award as dated 17 March 2021.
18 October 2021The Kyiv Court of Appeal recognises the award and grants leave to enforce it in Ukraine.
2 September 2022The Supreme Court of Ukraine dismisses Kazmin's appeal and upholds the Kyiv Court of Appeal ruling.

Tribunal, counsel and experts

Decided by: Vera van Houtte President — appointed by the institution
Mark Kantor Co-arbitrator — appointed by the claimant (challenge rejected)
Rolf Knieper Co-arbitrator — appointed by the respondent (challenge rejected)
David Malpass Chair of the ICSID Administrative Council, Chair of the ICSID Administrative Council (decided the disqualification proposal)
S. O. Pohribnyi Judge, Supreme Court of Ukraine (judge-rapporteur)
I. Yu. Huleikov Judge, Supreme Court of Ukraine
O. V. Stupak Judge, Supreme Court of Ukraine
For the claimant: Lamwell Law Firm · ARBITRADE Attorneys-at-Law · Jones Day · Asters · Markus Gronbach
For the respondent: State Chancellery of the Republic of Latvia · LALIVE
Experts: William Eggington (claimant) · Julie Boland (claimant)