Alpha Projektholding GmbH v. Ukraine
ICSID · Investment (ICSID and treaty) · Ukraine · 8 Nov 2010
Why it matters
This case is a landmark for its detailed analysis of joint activity agreements as investments under the BIT and ICSID Convention. It clarified that contractual rights to share profits from a joint activity can constitute an investment, and that a state's interference with such rights through corporatization and payment suspension can amount to expropriation and denial of fair and equitable treatment. The award also addressed the valuation of improvements and the use of minimum monthly payment provisions.
Summary
Alpha Projektholding GmbH, an Austrian company, entered into joint activity agreements (JAAs) with the Hotel Dnipro in Kyiv, Ukraine, to renovate and operate hotel floors. Under the 1998 JAA, Alpha contributed funds to renovate floors 11-12 in exchange for 50% of profits until 2004, later extended to 2015. A 1999 JAA covered floors 8-10. In 2004, Ukraine corporatized the hotel, transferring it to a state-owned company, and payments to Alpha ceased. Alpha initiated ICSID arbitration under the Austria-Ukraine BIT, claiming expropriation, unfair treatment, and other violations. The tribunal found that the JAAs constituted investments under the BIT and ICSID Convention, rejecting Ukraine's jurisdictional objections. On the merits, the tribunal held that Ukraine's corporatization and cessation of payments amounted to expropriation and denial of fair and equitable treatment, but not violation of the umbrella clause or national treatment. The tribunal awarded damages based on historical losses, foregone revenue, debt payments, and terminal value of improvements, totaling USD 2,979,232 as of 2004, with interest at 9.11% compounded annually, resulting in USD 5,250,782 by December 31, 2010. Each party bore its own legal costs, with a minor adjustment for a challenge to an arbitrator.
The detail
Parties: Alpha Projektholding GmbH v. Ukraine
Case number: ICSID Case No. ARB/07/16
Outcome: Ukraine expropriated Claimant's investment and denied fair and equitable treatment; Ukraine ordered to pay USD 2,979,232 plus interest (total USD 5,250,782 as of Dec 31, 2010).
Quantum: USD 5,250,782
Applicable law: Agreement for the Promotion and Reciprocal Protection of Investments between Austria and Ukraine (UABIT); ICSID Convention; Ukrainian law
Issues in play: The BIT's expropriation and fair and equitable treatment provisions collided with Ukraine's actions in corporatizing the hotel and stopping payments, which the tribunal found to be expropriatory and unfair.
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