How can Ukrainian businesses make Russia pay for the damage caused by the war?

How can Ukrainian businesses make Russia pay for the damage caused by the war?

Every day, we receive news that Russian occupiers are stealing Ukrainian grain or bombing Ukrainian factories. In this article, we discuss how Ukrainian businesses (companies and individuals) can hold Russia accountable for their crimes and recover damages.

What options are available?

There are several options for obtaining a judgment against Russia through:

  1. the International Court of Justice (ICJ) and the International Criminal Court (ICC);
  2. the European Court of Human Rights (ECtHR);
  3. the Ukrainian courts;
  4. Investment arbitration.

We briefly explain each avenue hereunder, but for businesses, in our opinion, the fourth option would likely be the most practical.

The International Court of Justice (ICJ) and The International Criminal Court (ICC)

The ICJ entertains disputes between States, in this case between Ukraine and Russia. Once a judgment is made, a special compensation mechanism will be established.

The question will be whether such compensation would cover the destruction of commercial and industrial facilities, given that the ICJ deals only with matters arising from the international treaties concluded between Ukraine and Russia, such as the genocide case.

The ICC has broader jurisdiction (war crimes, crimes against humanity, genocide, crimes of aggression), but the problem of compensation remains the same.

The European Court of Human Rights (ECtHR)

After Russia's invasion of Ukraine, Russia withdrew from the Council of Europe. Subsequently, the Council of Europe adopted a resolution according to which applicants may sue Russia for violations committed before 16 September 2022. This means that only damages incurred before that date can be recovered from Russia.

Another nuance is that the ECtHR hears cases concerning violations of the European Convention on Human Rights. The ECtHR has jurisdiction over cases on violations of property rights of individuals, but not of business entities.

Ukrainian Courts

According to international law, a State is immune from a suit in another State`s national court. In other words, one can sue Russia in a Ukrainian court only if Russia agrees to such proceedings against it. This concept, fortunately, is not absolute.

Recently, the Ukrainian Supreme Court ruled that a judicial immunity of Russia does not apply to cases "on compensation for damage caused to an individual, his property, health or life as a result of armed aggression by Russia".

This means that the mechanism already exists, but it is not entirely clear from the Supreme Court's judgment how widely this principle is applied: there are no judgments to date on the recovery of damages from Russia in Ukraine.

Investment Arbitration

In 1998, Ukraine and Russia concluded the Agreement on Mutual Protection of Investments, according to which Russia is obliged to protect Ukrainian investments, including investments in the occupied territories. If these investments are destroyed or confiscated, Russia is obliged to compensate Ukrainian investors. For example, if the Russian occupiers stole or damaged a company’s property, the company may seek compensation via investment arbitration against Russia.

It is possible to receive compensation not only for destroyed or stolen property, but also for property the use of which has become impossible because of the war. For example, the owner of grain does not have to prove the fact of the theft. It is enough that he could not use the grain because of the war.

The above also applies to businesses in other areas. For example, if a mall or a cement factory does not operate because of the occupation, owners of these businesses may claim lost profits from Russia.

There are known cases where the occupiers forced Ukrainian farmers, under physical threat, to “sell” grain in exchange for nothing. This can also be the subject of a claim in investment arbitration.

What is an Investment?

An investment may constitute a movable or immovable property, rights on property; shares, deposits or money; rights on intellectual property; and rights to conduct business activity or to exploit natural resources.

In essence, if one invests money to make a profit, it constitutes investment.

Benefits of Investment Arbitration

The advantages of investment arbitration over the other options are the following:

  • there are positive precedents, the so-called "Crimean cases," when Ukrainian businesses (Naftogaz Ukraine, NEC Ukrenergo, etc.) all won investment cases against Russia;
  • an arbitration award is usually faster and easier to enforce than a national court decision;
  • jurisdiction in investment arbitration is easier to justify and substantiate;
  • investment arbitration specialises in cases concerning damages to businesses (companies and individuals - owners of investments);.
  • usually, investment arbitration is not as heavily burdened with proceedings as other dispute resolution fora or institutions.

This article was prepared by Vitaliy Kozachenko and Danil Hristich, partners at Fortior, and Sergey Platonov, a Fortior associate. If your business has suffered damage due to Russia's war against Ukraine, please write us to [email protected]. We would be happy to consult you on recovering damages in investment arbitration.

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