"The state should not benefit from violation by a public authority of the formal procedures established by it", — Aleksey Kot, Managing Partner at Antika Law Firm, points out
— What are the dynamics of consideration of investment disputes with the participation of Ukraine?
— At present we know about a number of major investment disputes with the participation of Ukraine, the value of which runs into very impressive amounts. The main claims against our state are made by the companies operating in the oil and gas industry, and are associated with a significant rise in the rent payment for oil and gas extraction.
In addition, Russian companies that are placed under sanctions imposed by Ukraine, can also take the opportunity to apply to investment arbitration.
Among the most high-profile cases, the decision on which will, beyond all doubt, affect the further relations of Ukraine and investors, one can note the claim made by JKX and Poltava Oil and Gas Company against Ukraine for 270 million US dollars; the claim by shareholders of Ukrnafta PJSC against Ukraine and Naftogaz NJSC in connection with illegal change of control over the company; a rather recent claim by the Rusal Company against Ukraine in connection with nationalization of shares in Zaporizhzhia Aluminum Plant; as well as the claim of Naftogaz NJSC against Russia for 2.6 billion US dollars in connection with nationalization of assets in Crimea.
— Who acts as the state's legal advisors in these and other investment disputes? Is the practice of enlisting foreign law firms as the main legal advisor preserved?
— The legal advisors of Ukraine are, as a rule, consortia consisting of foreign and Ukrainian law firms or a large foreign law firm, which enlists the Ukrainian firm or firms as the local consultants.
Such practice is quite justified, since at the moment the majority of Ukrainian law firms do not have enough experience to conduct arbitration proceedings in foreign courts independently, especially in such a specific sphere as protection of investments. At the same time, there are many foreign firms for which investment arbitration is their exclusive competence.
— Can you sum up as to what investors complain about most often? And what are state agencies doing to improve this situation?
— Most often investors complain of violation of the foreign investment protection guarantees provided by Ukraine. Some of these complaints result from agreements (for example, the Production Sharing Agreement and other private and public agreements), which were signed earlier.
At the same time, the additional argument is the provisions found in interstate agreements on mutual protection of investments, as well as a number of industry conventions, which provide similar provisions. So, the European Energy Charter can be an example, which contains an entire section of regulations aimed at protecting investors.
In Ukraine, unfortunately, the bad practice has evolved of accepting radical changes in the tax and customs systems only in connection with the current political or economic feasibility, without regard to how such a decision can affect the interstate agreements concluded by Ukraine. Such practice, certainly, is not perceived by investors, even those, who are already used, to some extent, to such "features" of Ukrainian legislative practice.
In similar arbitration proceedings, the position of Ukraine comes most often down to the fact that the specific agreement with the investor should not be applied, as it is, according to the state, illegal, invalid or because actions on the part of the investor are , to some extent, illegal. At the same time, quite often such grounds are essentially formal, resulting from the lack of powers in the public authorities on their signing and other formal infringements.
It should also be noted that such an approach recently lost its relevance, in particular, in view of practice of the European Court of Human Rights. For example, in the Rusovsky vs. Ukraine case, the European Court formulated the principle of "appropriate public administration". The essence of this principle is that the state should not benefit from violation by a public authority of the formal procedures established by it.
— How ready is Ukraine to settle investment disputes at the pre-arbitration stage?
— In view to the current position of the public authorities, there are often situations when dispute settlement at the pre-arbitration stage is not possible. According to representatives of investors, it is extremely difficult to conduct any constructive dialogue or find a compromise solution with Ukrainian colleagues. The settlement issue can usually make progress only at the last stages of arbitration proceedings — when positions of the parties are already fully set out and it is possible to predict the arbitration decision with a certain degree of probability.
— Did the forecasts about submission of claims for violation of the rights of investors in Crimea and Donbas come true? What is your position on jurisdictional of similar disputes?
— It is obvious that "the Crimean issue" is political, and Russia will try to ignore any decisions of the International Courts of Justice or arbitration on it. Therefore, despite the rather optimistic mood, the main problems will arise at a stage of the decision's recognition and enforcement.
It should be remembered that even if control over Crimean companies were to be formally returned by a ruling to their Ukrainian owners, it is unlikely to succeed to fulfill such a decision in Russia with the nihilistic attitude towards the law in the Russian Federation at the present time.
As for jurisdiction, in my opinion, the only more or less real opportunity to receive at least some compensation is to appeal to international courts. Russia will never recognize the jurisdiction of Ukrainian courts, and you should not hope for objectivity of consideration of disputes by Russian courts. On the other hand, it is a matter of strategy and tactics of judicial proceedings, for which consultants are responsible.
— Investment arbitration is very expensive. How much does the state spend on accompanying cases in investment arbitration, and what is current practice with regard to compensation for expenses, including on legal advisors?
— The value of investment disputes runs into tens and hundreds of millions dollars. Accordingly, the cost of accompanying them cannot be low. That is why the principled stance of Ukrainian state agencies, which agree to an amicable settlement only when the result of the process is almost obvious, is rather strange. In this context, we cannot speak about the attainment of a really favorable compromise decision for the state.
According to public sources, we know that, for example, representation of the state by King & Wood Mallesons LLP Company in the claim by JKX Oil & Gas Plc, Poltava Gas and JP Poltava Petroleum Company against the State of Ukraine came to 79,000 USD. Even higher amounts in fees for foreign law firms have been agreed in other cases: 450,000 EUR for safeguarding the interests of Ukraine by Foley Hoag LLP international law company in the claim of City-State NV, Praktyka Asset Management Company LLC, Crystal-Invest LLC and Prodiz LLC Company against the State of Ukraine; 810,319 USD for protecting the interests of Ukraine by Holland & Knight LLP international law company in the claim of the Universal Trading & Investment Co Company, Inc (UTICO) and Foundation Honesty International, Inc. against the Prosecutor-General's Office of Ukraine, the Ministry of Justice and the State of Ukraine, etc.
The issue of compensation for expenses is also rather obvious. In the course of such complexity, the expenses of the party spent on legal advisors will always be clearly recorded and justified. Therefore, the decision depends here only on the position of judges and the regulations of the relevant court. If the regulations provide such compensation and, at the same time, the amount is not limited, the court will, most likely, adjudge compensation of all expenses in full.