International Arbitration Top Trends 2023
Arbitration arising out of Russia’s invasion of Ukraine
Investors in the energy sector may also be able to pursue claims against Russia under the Energy Charter Treaty (ECT). Several arbitral tribunals and courts – primarily in the context of the Yukos disputes – have held that Russia is bound by a provisional application of the ECT. Russia announced its intention to withdraw from the ECT in 2009, but the ECT’s ‘sunset clause’ means that for investments made prior to that date, the treaty’s protections will apply until 2029.
At least 10 arbitrations to date were initiated by investors impacted by Russia’s 2014 seizure of Crimea, with a number of claimants already receiving substantial damage awards. No new investor-State arbitration claims against Russia have yet been publicly recorded in relation either to Russia’s 2022 invasion of Ukraine or the counter-sanctions it has implemented in the invasion’s wake. We expect that to change in 2023. While such arbitration claims are unlikely to be straightforward (particularly in relation to questions of causation and quantum), they still present the best available option for businesses facing significant damages and little realistic prospect of obtaining justice in Russia’s domestic legal system.
‘On its face, much of Russia’s conduct may be considered to violate well-established standards of international investment protection. While such arbitration claims are unlikely to be straightforward, they may present the best available option for businesses facing significant damages and little realistic prospect of obtaining justice in Russia’s domestic legal system.’
Eric Leikin, Partner
Russia’s invasion of Ukraine has made the performance of existing commercial contracts much more difficult or, in some cases, legally or practically impossible. This has resulted in numerous contracts being suspended or terminated under contractual force majeure, frustration, and/or sanctions and export control clauses, as well as on equivalent statutory bases.
Many of the resulting disputes relate to the effects of various sanctions on the relevant companies, industry, or products – and the extent to which these have been avoided or mitigated by subsequent changes in ownership structure or operating model. Beyond the interpretation of the relevant contractual and statutory provisions, these disputes are likely to turn on their individual facts, including the conduct of the parties in the run-up to the formal dispute process. This heightens the importance of document production orders, which potentially enable one party to prove facts (eg details of ownership structure) currently known only to the opposing party.
The unique legal landscape in which these disputes must be resolved also highlights the importance of taking strategic decisions to safeguard the jurisdiction of an appropriate tribunal and the enforceability of any award issued. Russian legislation confers exclusive jurisdiction on Russian courts over disputes with persons targeted by sanctions, even authorising courts to issue anti-suit injunctions to prevent litigation or arbitration proceedings abroad from being started or continued against sanctioned persons.
As the effects of Russia’s invasion of Ukraine persist, businesses will therefore need to carefully analyse and manage the risks associated with termination and/or non-performance of Russia-related contracts.
Looking one year ahead… enforcement
Both claimants in investor-State arbitrations against Russia and parties involved in commercial arbitrations against Russian businesses are likely to face challenges enforcing any awards rendered in their favour. To put it bluntly, pending a regime change in Moscow, any award issued against Russia (or State-aligned) entities, or in reliance on the effect of Western sanctions, will be extremely difficult to enforce within Russia – but, as experience shows, enforcement of such awards can be achieved through more creative, cross-jurisdictional strategies.
A key space to watch will therefore be the development of interlocking domestic and international mechanisms to utilise the huge number – currently estimated to be at least US$330bn – of Russia-related assets that have been frozen abroad. If 2023 turns out to be, as we expect, the year of Russia-related arbitration claims, 2024 may be the year of Russia-related enforcement actions. Stay tuned.