How to prepare your investment arbitration against Russia: things to do and evidence to collect prior to commencing arbitration

How to prepare your investment arbitration against Russia: things to do and evidence to collect prior to commencing arbitration

Introduction

This article provides a checklist of things to do and evidence to collect for investment arbitration proceedings against Russia. Its aim is to give you an understanding of what is required, to save your and your lawyers’ time required for case preparation and ultimately to save the fees you will spend on your case against Russia.

The article is addressed to those who have lost business in Crimea or on Ukraine’s other occupied territories between 2014 and 2022.

Assess the claim – can it be brought to investment arbitration at all?

Prior to contacting lawyers, you should briefly assess your case yourself. In order to be successful in an investment arbitration, your case has to satisfy the following requirements:

  • What you have lost must be an investment. Relevantly for the purposes of Russia’s war against Ukraine, investment includes moveable and immoveable property, deposits or participations, rights to perform commercial activity, develop and exploit natural resources. Thus a factory, a mill or a silo would likely amount to an investment. A right to use agricultural land to grow crops would likely amount to an investment. Moveable and immoveable property will amount to an investment if used for commercial purposes, but there is investment case law to the effect that where such property is used for personal needs it may not necessarily amount to an investment.
  • The investment must have been located and damaged on the territory de-facto controlled by Russia. It is not enough that Russia has bombed your business from a distance. On the current state of the law, you can only recover from Russia if it has damaged or expropriated your investment while it de-facto controlled the territory on which it was located.
  • The country where the owner of the investment is based should have a bilateral treaty for protection of investments with Russia, which provides for investment arbitration. Ukraine and Russia have such treaty, signed in 1998, and it provides for investment arbitration under the rules of the Stockholm Chamber of Commerce or the UNCITRAL arbitration rules. Many other countries have investment treaties with Russia. The countries with which Russia has investment treaties, and copies of these treaties, can be found here: https://investmentpolicy.unctad.org/international-investment-agreements/countries/175/russian-federation.

Ask your lawyers to write to Russia so as to start the cool-down period

If your case satisfies the above requirements, ask your lawyers to write to Russia and to notify it about your claim. Under Article 9 of the Russia-Ukraine treaty, an investor is obliged to notify its claim to Russia “accompanied with detailed comments”. The parties then have six months to resolve their dispute prior to it being referred to arbitration. It may be possible to commence arbitration prior to the expiration of the six-months period, however it may then lead to lengthy discussions with the tribunal or Russia (if it participates) as to why you did not try to negotiate with Russia. It is better to avoid those arguments and associated costs, and notify Russia of your claim as soon as possible.

Collection of evidence from public sources

As discussed above, you need to demonstrate that your investment was located and damaged on the territory de-facto controlled by Russia.

Here is what might be useful in this regard:

  • Open Google Maps and find the location of your business / place where your stolen goods or equipment had been stored. Save a screenshot of this map.
  • Go to the Institute for the Study of War Ukrainian maps (https://www.understandingwar.org), and save the maps which show when Russian forces occupied this location. If this territory was later recaptured by Ukraine, identify the date when it was recaptured and save the maps until that day. Interpose the Google Map with the location of your business and the War Institute maps.
  • Find press articles or video news discussing when Russian forces occupied the relevant territory and what they did there. If they have been marauding, stealing or destroying property – and this is what happened in your case – it might be useful for the arbitration.
  • If Russia appointed its governors/administration in your region, find sources which identify the date of their appointment and evidence (i.e. news or official reports) that they have been appointed by Russia.
  • If Russia declared that it had “liberated” the place where your investment was located, find press or official reports where it did so.
  • In some regions, for example, Kherson, Russia demanded that local businesses register with the local and/or Russian authorities and pay taxes to those authorities. If this happened in your region, find any publicly available information in this regard (press articles, decrees of the Russian-appointed administration).
  • If Russia decided to use an area where your business was located for a military installation and publicly declared this – find this declaration.
  • If Russia or Russian-appointed administration has passed a law declaring that in certain areas non-Russian citizen cannot own property – and your investment is located in that area – find the relevant law.
  • If Ukrainian, US, British or other foreign news outlets or official sources contain similar information – collect it.

Collection of evidence for your particular case

As the claimant in investment arbitration proceedings you would need to explain: (i) in respect of which investment you are seeking compensation; (ii) what rights you had to this investment; and (iii) what happened to your investment.

If you are claiming in respect of stolen grain, you might need the following documents:

  • your purchase contracts and invoices covering the relevant grain;
  • any quality/quantity certificates in respect of the grain;
  • transport documents and/or warehouse certificates showing where the grain was stored at the time when it was stolen;
  • any evidence demonstrating that it has been stolen or destroyed: pictures of videos of the process would of course be ideal, but if those are not available then a letter from the warehouse, a press-report confirming the theft, pictures (with date) of the warehouse which is empty or destroyed would be useful;
  • any on-sale contract or offers from potential purchasers which you might have had in respect of this grain; and
  • evidence of market prices of the grain: such as reports from brokers, professional publications or experts in the field, evidence of sale contracts for similar grain concluded shortly before Russian occupation of the relevant territory.

If you are claiming in respect of lost moveable property (e.g. tractors or other agricultural equipment), you might need:

  • purchase contracts, state registration documents and detailed specifications of the lost equipment;
  • if your equipment has GPS trackers, evidence of when and where it was moved by Russian forces;
  • evidence from the internet of the approximate price of similar equipment prior to Russian occupation; and
  • ideally, evidence of a dealer in this equipment confirming how much it could have been bought or sold for prior to Russia’s invasion.

If you are claiming in respect of your right to use the land (e.g. you have leased agricultural land but could not have used it due to Russia’s occupation / military activities on this land), you might need:

  • lease agreements and any state registration thereof;
  • any expert assessments of the land you might have conducted, so as to identify the potential crop yields – if you do not have it, you could organise it with an expert from an agricultural institute or another scientific organisation;
  • evidence as to the past crop yields;
  • historic evidence of the prices you have sold your crops for and any projections you might have made as to the likely future sales; and
  • evidence of the cost of planting and harvesting the crops, including the cost of equipment lease or amortisation, human resources, fuel and others.

If you have lost an industrial plant, a large hotel, restaurant or another business, you could either claim for the cost of property and equipment or, ideally, you would claim for the loss of business. As to the loss of equipment – see paragraph 9. As to the property, you would have to prove your rights and identify the market value of the property prior to the Russian occupation. If you want to claim the value of the business, you would need to adduce expert evidence demonstrating such value. There are auditing firms which specialise in this. They would have to prepare a report calculating the value of the business in view of its potential earnings and other factors. The person who prepares the report has to be willing to attend a hearing and answer the tribunal’s questions (if any) on the details of the report.

An auditor’s report like this, and the auditor’s time to attend a hearing before the tribunal, might be expensive. Therefore, if you have lost a small hotel, a restaurant, or another small business, it might be cheaper simply to claim based on the market value of the property or equipment.

Organising evidence for your lawyers

To save your lawyers time and minimise fees, you should try to collect as much evidence as possible yourself, and to organise it in a logical way. It might be best to do this in the following way:

a) create a cloud folder (google, dropbox or another service – the more secure the better);

b) create sub-folders for each relevant topic, e.g. “maps”, “evidence of Russian control of the territory”, “description of the investment”, “rights/ownership documents”, “evidence of destruction/damage/expropriation”, “valuation evidence”;

c) when you put documents in these folders, name them in the following format “2022.02.24 [Short Description]” – this way the computer will automatically sort them in chronological order

d) prepare a detailed description of your case based on these documents in chronological order, e.g.:

  • Company A acquired 1,000MT of grain on date B from Seller C, for US$ amount D (see document “2022.02.01 Purchase Contract”, document “2022.02.01 Quantity Certificate” and “2022.02.01 Quality Certificate”).
  • Company A delivered it to warehouse E on date F, and the warehouse issued a warrant to confirm its receipt of the goods (see document “2022.02.03 Warehouse Certificate”).
  • Company A paid Seller C for the grain on date G (see document “2022.02.03 SWIFT Confirmation”).
  • Company A planned to on-sell the grain to Buyer H or a similar buyer at similar price. Buyer H made an offer to buy the grain for price I (see document “2022.02.22 Sale Contract / Purchase Offer”).
  • Similar grain was trading at similar prices at about the same time (see document “2022.03.22 Broker Confirmation”, and an unrelated sale contract at document “2022.03.22 Sale Contract”).
  • On 24 February 2022 Russia invaded the territory where the warehouse was located (see document “2022.02.24 Map of Russian Occupation”) and continues to occupy this territory to this day (see document “2022.09.05 Map of Russian Occupation”).
  • On 1 March 2022 the warehouse operator reported that the grain has been removed from the warehouse by Russian occupation forces, loaded on trucks and shipped in an unknown direction (see document “2022.03.01 Warehouse Operator Report”).
  • There are multiple press reports of Russian forces stealing grain and shipping it off to Syria and other destinations from the same or nearby locations (see documents “2022.04.05 Russia Steals Grain”).
  • Had the grain been sold to its intended buyer, instead of being stolen by Russian forces, Company A would have earned US$J,JJJ,JJJ.JJ, based on the price offered by Buyer H, which reflects the market prices at the time (see document “2022.09.05 Loss Calculation”).

e) Identify the persons who could provide witness or expert evidence to support your case. For example, in the grain theft scenario, you could ask your trader to provide evidence. He will know when the grain was bought and from whom, where it was stored, where it was to be shipped and so forth. You could ask the warehouse owner / operator to confirm what happened to your grain. You could ask a broker to confirm the market price.

Finding co-claimants

A lot of people and businesses have suffered similar kinds of loss due to Russia’s invasion of Ukraine. A lot of the cases might involve the same issues, for example, whether or not Russia de-facto controlled a certain territory, or whether it just came and left, or destroyed it by shelling. If Russia disputes jurisdiction of the investment tribunal in different cases, it will likely use similar arguments.

For these reasons, it might make a lot of sense to group similar claims or claims arising from Russia’s occupation of the same region, to be grouped and run together. Mr Kolomoyski, for example, has grouped the claims of the various companies owning his petrol stations in Crimea into the same arbitration. Grouping claims together is likely to save a lot of time for lawyers (they would not have to repeat the same arguments several times over) and reduce arbitrators’ fees (it is best if one tribunal decides all similar issues in one case, rather than a hundred tribunals each consider and decide the same issue anew).

Therefore, if you want to save money:

  • speak to your neighbours and speak to other people who have lost business in your region;
  • send them this article or conduct a brief assessment of their case based on the parameters outlined above;
  • ask them if they might be willing to join you in seeking compensation from Russia; and
  • if they are interested – send them to your lawyers to see how your claims could be run in the same arbitration.

Financing lawyers’ fees and arbitration costs

Before you launch an arbitration, it is important to ensure that you have enough money to finish it. Otherwise the tribunal might decide to dismiss your case for failure to pay arbitration fees.

Discuss with your lawyers how much an arbitration in your particular case is likely to cost, and how consolidation with other similar cases might affect the price tag. Check the calculator provided by the Stockholm Chamber of Commerce to see how much the arbitrators and the SCC are likely to charge: https://sccinstitute.com/our-services/calculator/. If you choose UNCITRAL arbitration, you will not have to pay the SCC fees.

Conclusion

If your business has suffered losses due to Russia’s occupation of Ukrainian territories, conduct a brief self-assessment to see if you could claim compensation in investment arbitration against Russia. What you lost must be an investment (as opposed to personal property) and it must have been located and damaged on the territory de-facto controlled by Russia.

If these criteria are satisfied, as your lawyers to write to Russia and notify it of your claim, so that the 6-months cool-down period provided by the Russia-Ukraine investment treaty starts to run.  

Collect as much evidence as you can yourself, to save your lawyers’ time and reduce their fees. Organise this evidence in a clear and logical way, so that your lawyers can quickly understand the nature of the case and find all the relevant documents.

See if your neighbours or other business in your region have suffered similar losses. Refer them to your lawyers and see if your case can be consolidated with theirs. This could result in massive savings in lawyers’ fees and arbitration costs for your own case.

Check the likely fees of the arbitrators using the SCC calculator, and discuss with your lawyers how much your case is likely to cost (with or without consolidation with others), so you can budget accordingly.

To discuss your investment case with us, email [email protected].

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