Summary

PCA Case No. 2015-35

IN THE MATTER OF AN ARBITRATION BEFORE A TRIBUNAL
CONSTITUTED IN ACCORDANCE WITH THE UNCITRAL ARBITRATION RULES 1976

AND THE AGREEMENT BETWEEN THE GOVERNMENT OF THE RUSSIAN
FEDERATION AND THE CABINET OF MINISTERS OF UKRAINE ON THE
ENCOURAGEMENT AND MUTUAL PROTECTION OF INVESTMENTS DATED

27 NOVEMBER 1998

- between -

(i) STABIL LLC (UKRAINE)
(ii) RUBENOR LLC (UKRAINE)
(iii) RUSTEL LLC (UKRAINE)
(iv) NOVEL-ESTATE LLC (UKRAINE)
(v) PII KIROVOGRAD-NAFTA LLC (UKRAINE)
(vi) CRIMEA-PETROL LLC (UKRAINE)
(vii) PIRSAN LLC (UKRAINE)
(viii) TRADE-TRUST LLC (UKRAINE)
(ix) ELEFTERIA LLC (UKRAINE)
(x) VKF SATEK LLC (UKRAINE)
(xi) STEMV GROUP LLC (UKRAINE)

the Claimants

- and -

THE RUSSIAN FEDERATION

the Respondent

FINAL AWARD

The Arbitral Tribunal:
Professor Gabrielle Kaufmann-Kohler (Presiding Arbitrator)
Mr. Daniel M. Price
Professor Brigitte Stern

Registry:
The Permanent Court of Arbitration

12 April 2019

TABLE OF CONTENTS

I. THE PARTIES AND THEIR REPRESENTATIVES
II. OVERVIEW OF THE DISPUTE
III. PROCEDURAL HISTORY

A. INITIAL PHASE
B. JURISDICTIONAL PHASE
C. MERITS AND QUANTUM PHASE

IV. STATEMENT OF FACTS

A. THE CLAIMANTS AND THEIR INVESTMENTS IN CRIMEA............................................. 17
B. THE INCORPORATION OF CRIMEA BY THE RUSSIAN FEDERATION. ........................... 18
C. THE FACTS RELATING TO THE CLAIMANTS' INVESTMENTS....................................... 22

V. POSITIONS OF THE PARTIES

A. SUMMARY OF THE CLAIMANTS' POSITION AND REQUEST FOR RELIEF. .................... 28
B. SUMMARY OF THE RUSSIAN FEDERATION'S POSITION. ........................................... 32

VI. ANALYSIS

A. PRELIMINARY MATTERS

1. Law Governing the Procedure of this Arbitration
2. Subject Matter of this Award
3. Coordination of Parallel Proceedings
4. Default of the Respondent
5. Law Governing the Merits

B. RELEVANT PROVISIONS

C. ATTRIBUTION

1. The Claimants' Position
2. Analysis

(a) Attribution under international law
(b) Are the actions of the Crimean State Council and the Sevastopol Government attributable to the Russian Federation?
i. ILC Article 4
(c) Are the actions of the Paramilitary Forces attributable to the Russian Federation?
i. ILC Article 5
ii. ILC Article 11
(d) Conclusion

D. LIABILITY

1. The Claimants' Position
(a) The expropriation claim
(b) Discriminatory measures
(c) Most favored nation protections
i. Fair and equitable treatment
ii. Full protection and security
(d) Complete and unconditional legal protection of investments

2. Analysis
(a) Expropriation
i. The legal standard
ii. Did the Russian Federation expropriate the Claimants' investment?
iii. Was the Russian Federation's expropriation of the Claimants' investment lawful?
iv. Conclusion
(b) Other alleged treaty breaches

E. REPARATION

1. Standard of Compensation and Date of Valuation
(a) The Claimants' position
(b) Analysis
2. Valuation
(a) Mr. Kaczmarek's valuation
i. Discounted cash flow (DCF) approach
ii. Comparable publicly traded company (CPTC) approach
iii. Weighting of the DCF and CPTC approaches
iv. Stabil LLC's residential apartment
v. Allocation of damages between the Claimants
(b) Mr. Sénéchal's views
(c) The Claimants' comments on Mr. Sénéchal's views
(d) Analysis
i. Selection and weighting of the valuation methods
ii. Discounted cash flow (DCF) approach
iii. Comparable publicly traded company (CPTC) approach
iv. Stabil LLC's residential apartment
v. Conclusion
(e) Interest
i. The Claimant's position
ii. Analysis

VII. COSTS

A. THE CLAIMANTS' POSITION

B. RELEVANT PROVISIONS

C. COSTS OF THE TRIBUNAL, THE APPOINTING AUTHORITY AND THE PCA

D. COSTS OF LEGAL REPRESENTATION AND ASSISTANCE

E. ALLOCATION OF COSTS

VIII. OPERATIVE PART

...

II. OVERVIEW OF THE DISPUTE

3. The Claimants seek compensation for a series of measures taken by the Respondent "that disrupted and eventually destroyed [their] Crimean operations," culminating in the dispossession and nationalization of their network of 31 petrol stations and associated assets in Crimea. 1 According to the Claimants, the Respondent's conduct was motivated by hostility toward Mr. Igor Valerievich Kolomoisky, "a well-known Ukrainian businessman and the former Governor of the Dnepropetrovsk State Administration in Ukraine, [who] is one of the Petrol Companies' beneficial owners." 2 The Claimants submit that, by its conduct, the Respondent has violated Articles 2, 3, and 5 of the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments, dated 27 November 1998 (the "Treaty" or "BIT").

4. Although invited by the Tribunal to do so, the Respondent did not file a Statement of Defense or otherwise participate in these proceedings. Its only communications in the context of these proceedings were a letter dated 12 August 2015 from its Ministry of Justice and a cover letter dated 15 September 2015 from its Ambassador to the Kingdom of the Netherlands (the "Respondent's Letters").

5. In its letter dated 12 August 2015, the Ministry of Justice wrote as follows:

We return you herewith the Notices of Arbitration on the arbitration proceedings initiated under Article 9 of the [Treaty] before the Permanent Court of Arbitration by [the Petrol Companies] vs. the Russian Federation [...].

It is manifest that such claims cannot be considered under the [Treaty] mentioned above and, therefore, the [Treaty] cannot serve as a basis for composing an arbitral tribunal to settle these claims.

In accordance with paragraph 1 Article 1 of the [Treaty] the term "investment"

means every kind of movable and immovable and intellectual property invested by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the legislation of the latter Contracting Party. The property in question which is the matter of the claims is situated in the territory of the Crimea and Sevastopol, i.e., in the territory that was a part of Ukraine but at the present time pursuant to the will of people forms an integral part of the territory of the Russian Federation and cannot be regulated by the [Treaty].

On the basis of the above mentioned the Russian Federation does not recognize the jurisdiction of an international tribunal at the Permanent Court of Arbitration in settlement of the abovementioned claims.

6. In his cover letter of 15 September 2015 forwarding the one just quoted, the Ambassador of the Russian Federation to the Kingdom of the Netherlands stated:

Nothing in the attached letter of the Ministry of Justice of the Russian Federation can be interpreted as consent of the Russian Federation to constitution of an arbitral tribunal, participation in arbitration proceedings, or as procedural actions taken in the framework of the proceedings, mentioned therein, or as waiver by the Russian Federation of the jurisdictional immunities in respect of itself and its property in relation to any judicial or administrative proceedings or procedures, connected directly or indirectly with these claims, including immunity from court jurisdiction and immunity from any measures of constraint that can be connected directly or indirectly with these claims, regardless of the jurisdiction (national or supranational) under which they are initiated.

7. As noted at paragraph 81 of the Award on Jurisdiction of 26 June 2017 (the "Award on Jurisdiction"), the Tribunal understood the Respondent's Letters to constitute an objection to jurisdiction. The objection to jurisdiction was addressed in the Award on Jurisdiction. For purposes of this Award, the Tribunal understands the Respondent's Letters as an objection to the Claimants' requested relief.

...

VIII. OPERATIVE PART

430. For the reasons set forth above, the Tribunal decides as follows:

(i) Declares that the Respondent has breached Article 5 of the Treaty in respect of the Claimants' investment;

(ii) Orders the Respondent to pay forthwith compensation to the Claimants for the expropriation of their petrol stations and storage facilities, in the following amounts, in each case plus interest from 22 April 2014 until payment in full, at LIBOR for three month deposits in U.S. dollars, plus 1%, compounded annually:

a. to Stabil LLC: US$ 2,964,057;
b. to Rubenor LLC: US$ 534,105;
c. to Rustel LLC: US$ 2,403,473;
d. to Novel-Estate LLC: US$ 1,068,210;
e. to PII Kirovograd-Nafta LLC: US$ 801,158;
f. to Crimea-Petrol LLC: US$ 267,053;
g. to Pirsan LLC: US$ 267,053;
h. to Trade-Trust LLC: US$ 10,280,111;
i. to Elefteria LLC: US$ 14,234,000;
j. to VKF Satek LLC: US$ 871,478;
k. to Stemv Group LLC: US$ 871,478;

(iii) Orders the Respondent to pay forthwith compensation to Claimant Stabil LLC for the expropriation of its residential apartment, in the amount of US$ 27,238, plus interest from 3 September 2014 until payment in full, at LIBOR for three month deposits in U.S. dollars, plus 1%, compounded annually;

(iv) Fixes the costs of arbitration at EUR 687,085.01;

(v) Decides that the Respondent shall bear 75% of the costs of arbitration fixed in the preceding paragraph and of the Claimants' costs of legal representation and assistance, and thus orders the Respondent to pay EUR 46,846.71 and US$ 363,621.88 to each Claimant, plus interest from the date of this Award until payment in full, at LIBOR for three month deposits in U.S. dollars, plus 1%, compounded annually;

(i) Dismisses all other claims.

...