OOO Manolium Processing v. Republic of Belarus

Case summary

At a glance

Parties: OOO Manolium-Processing (Russia) v. the Republic of Belarus
Case no.: PCA Case No. 2018-06
Forum and rules: Ad hoc arbitration under the UNCITRAL Arbitration Rules 2013, with the UNCITRAL Transparency Rules; PCA as registry; seat The Hague
Treaty: Treaty on the Eurasian Economic Union of 29 May 2014, Annex 16 (the Protocol), Arts. 84–85; in force 1 January 2015
Tribunal: Juan Fernández-Armesto (Chairman), Stanimir Alexandrov, Brigitte Stern
Sector: Real estate development; public transport infrastructure; taxation
Outcome: Final Award of 22 June 2021: Belarus expropriated the investment through tax and enforcement measures and breached fair and equitable treatment; the claims on the termination of the contract and for lost profits were dismissed. Stanimir Alexandrov dissented on two points.
Amount: Claimed: USD 20,434,679 for the Facilities plus USD 155.9 million in lost profits on the Mall. Awarded: USD 20,434,679, with interest from 27 January 2017. Costs: Belarus pays EUR 402,424.88 (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 Manolium, a Russian company, signed an Investment Contract with the Minsk City Executive Committee and Minsktrans. Under it, Manolium was to build a trolleybus depot, a pull station and a road at its own cost, and in return would get the right to develop a mall in central Minsk. Its Belarusian subsidiary, Manolium-Engineering, built most of the Facilities but did not finish the Depot. The Belarusian courts terminated the contract in 2014; the Supreme Court confirmed this on 27 January 2015. State audits valued the Facilities at about USD 19.4 million, but the Municipality did not want to pay that sum. Instead it carried out a plan: land tax at penalty rates was assessed on the land plots, which the Municipality itself had refused to take back; the tax was enforced against the Facilities; and a Presidential Order of 20 January 2017 transferred the Facilities to the city without payment. Manolium-Engineering then went bankrupt. Manolium claimed expropriation, breach of fair and equitable treatment and denial of justice under the EEU Treaty and the Belarusian Investment Law. Belarus objected that the claims fell outside the Treaty in time, that they were contractual, that the Investment Law gave no jurisdiction, and that Manolium did not own the investment. It also denied liability.

Key holdings

Jurisdiction in time: the Tribunal covers the whole Tax Dispute, because all of its measures came after the Treaty entered into force on 1 January 2015. On the Termination Dispute, it covers only two later measures: the Supreme Court's Cassation Decision of 27 January 2015 and the 2017 auction of the right to develop the Mall site. Earlier acts are excluded under the rule against applying treaties retroactively (Art. 28 VCLT). Award ¶¶ 308–309, 381
By majority, there is no jurisdiction under the 2014 Belarusian Investment Law. Its arbitration clause (Art. 13) covers only investments made after the Law took effect, and the Law itself gives priority to the treaty procedure. Stanimir Alexandrov dissented on both points. Award ¶¶ 328–347
The ratione materiae objection fails. Incorporating and capitalising a wholly owned Belarusian subsidiary, financed by group loans of about USD 25 million, is a protected investment under Arts. 6(7) and 66 of the Protocol. How the investor chose to finance the investment does not matter. Award ¶¶ 370–379
Belarus's tax and enforcement measures had effects equivalent to expropriation, in breach of Art. 79 of the Protocol. Manolium-Engineering lost the Facilities without compensation, and Manolium's shareholding was reduced to nil. The authorities abused tax law to obtain the Facilities for free. Their repeated refusals to take back the land plots, which caused the penalty tax to accrue, were arbitrary. The same findings support a declaration of breach of fair and equitable treatment (Art. 68). Award ¶¶ 464, 508–510, 516
The Termination Dispute claims are dismissed. The Cassation Decision was not a denial of justice: general reports on the weakness of the Belarusian judiciary do not show a breach in this specific case, and the claimant did not prove that the President dictated the outcome. The 2017 auction did not breach fair and equitable treatment. The Cassation Decision was not a judicial expropriation; the majority held that such a claim requires a denial of justice, and Alexandrov dissented on that standard. Award ¶¶ 552–553, 574, 584, 591–594
Compensation is USD 20,434,679. This is the construction cost of USD 19,434,679 found in the Ministry of Finance Report, converted at monthly exchange rates, plus the contractually required USD 1 million payment to the National Library. The claim for lost profits on the Mall fails for lack of causation, because the contract was validly terminated, and because the profits were speculative. Award ¶¶ 639–654, 662–670
Interest runs from 27 January 2017 at the higher of the National Bank of Belarus published rate and six-month USD LIBOR, without any country-risk premium, compounded every six months. Belarus bears all the tribunal's costs and 75% of the claimant's legal costs, which reflects the claimant's partial success on quantum. Award ¶¶ 698, 725–728
Interim measures: the Tribunal refused to order Belarus to halt criminal proceedings or to stop contacting the claimant's personnel. It found that no specific non-aggravation order was needed, but reminded both parties of their duties not to aggravate the dispute, not to obtain evidence improperly, and not to pressure witnesses or the investor. Decision on Interim Measures ¶¶ 131–133, 145, 151–172