Olympic Entertainment Group AS (Estonia) v. Republic of Ukraine
PCA · Investment (ICSID and treaty) · Ukraine · 15 Apr 2021
Why it matters
This award is significant because it confirms that a sudden, uncompensated ban on gambling can constitute indirect expropriation under a bilateral investment treaty, even when motivated by public safety concerns. The Tribunal rejected Ukraine's argument that the investor's lack of proper licenses deprived it of jurisdiction, emphasizing that the investment was made in substantial compliance with local law. The case also illustrates the application of the 'sole effects' doctrine in assessing expropriation.
Summary
Olympic Entertainment Group AS (OEG), an Estonian company, invested in Ukraine's gambling industry through its subsidiary Olympic Casino Ukraine LLC (OCU). Between 2004 and 2009, OEG operated slot machines and casinos under licenses issued by the Ministry of Finance. In May 2009, following a deadly fire in a gambling hall, Ukraine's government rapidly enacted a law banning all gambling businesses, with no transitional period and no compensation. The law came into effect immediately upon publication, effectively shutting down OEG's operations. OEG initiated arbitration under the Estonia-Ukraine BIT, claiming expropriation, unfair treatment, and denial of full protection and security. Ukraine objected to jurisdiction, arguing that OEG's investment was not made in accordance with local laws because it lacked proper licenses in the early years. The Tribunal dismissed this objection, finding that OEG had obtained all required licenses by 2006 and had operated lawfully. On the merits, the Tribunal held that the Gambling Ban Law constituted an indirect expropriation under Article 5 of the BIT. It applied the 'sole effects' test, focusing on the impact of the measure on the investment rather than the state's intent. The Tribunal found that the ban substantially deprived OEG of the value of its investment, and that Ukraine's public safety concerns did not justify the lack of compensation. The Tribunal awarded OEG EUR 7,500,000 in damages, representing the fair market value of the investment as of the date of expropriation, plus pre- and post-award interest at LIBOR + 4%. It also ordered Ukraine to pay EUR 2,750,000 in costs. The award was unanimous.
The detail
Parties: Olympic Entertainment Group AS (Estonia) v. Republic of Ukraine
Case number: PCA Case No. 2019-18
Outcome: The Tribunal found that Ukraine's Gambling Ban Law indirectly expropriated the Claimant's investments and awarded EUR 7,500,000 in damages plus interest and costs.
Quantum: EUR 7,500,000
Applicable law: Estonia-Ukraine BIT (1995); UNCITRAL Rules 1976
Issues in play: The case involved a conflict between Ukraine's right to regulate gambling for public safety and the investor's right to protection against expropriation under the BIT. The Tribunal balanced the state's police powers against the treaty's requirement of compensation for indirect expropriation.
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