Oschadbank v. Russian Federation (I)
PCA · Investment (ICSID and treaty) · Russia · 26 Nov 2018
Why it matters
This is a landmark award in investment treaty arbitration arising from the annexation of Crimea. It is one of the first awards to address the application of a bilateral investment treaty to territory that has been annexed, and it sets important precedents on the definition of 'territory' under the treaty, attribution of conduct by state organs and de facto authorities, and the valuation of expropriated investments in a conflict zone. The award also demonstrates the consequences of non-participation by a respondent state.
Summary
Oschadbank, a Ukrainian state-owned bank, had a branch in Crimea with assets including loans, securities, and real estate. Following Russia's annexation of Crimea in March 2014, Russian authorities took measures that effectively expropriated Oschadbank's investments. The Bank of Russia prohibited Oschadbank's activities in Crimea and ordered the closure of its branch. The Deposit Protection Fund (DPF) took over Oschadbank's assets and transferred them to Russian banks. Oschadbank initiated arbitration under the Russia-Ukraine BIT, claiming expropriation and other treaty breaches. Russia did not participate in the proceedings. The Tribunal, constituted under UNCITRAL Rules, had to determine jurisdiction, including whether Crimea was part of Russia's territory under the BIT. The Tribunal interpreted 'territory' to include Crimea, as the BIT applied to the entire territory of each party, and Russia's annexation did not change that. It found that Oschadbank's branch constituted an investment and that Oschadbank was an investor. On attribution, the Tribunal held that the conduct of Russian state organs (Parliament, Bank of Russia, DPF) and de facto authorities (Crimean self-defense forces) was attributable to Russia. The Tribunal found that Russia's measures amounted to an unlawful expropriation because they were not for a public purpose, were discriminatory, and violated due process. The Tribunal awarded damages of USD 1,111,300,729, comprising loss of assets, loss of future profits, and other losses, plus pre- and post-award interest at LIBOR + 2% compounded annually. Russia was also ordered to pay all arbitration costs and Oschadbank's legal fees.
The detail
Parties: Oschadbank v. Russian Federation (I)
Case number: PCA Case No. 2016-14
Outcome: The Tribunal found that Russia unlawfully expropriated Oschadbank's investments in Crimea and awarded USD 1,111,300,729 in damages plus interest and costs.
Quantum: USD 1,111,300,729
Applicable law: Agreement Between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments (1998); UNCITRAL Arbitration Rules (1976)
Issues in play: The case involved the interpretation of 'territory' under the bilateral investment treaty in the context of Russia's annexation of Crimea, and whether the treaty applied to investments in Crimea after the annexation. The Tribunal also addressed attribution of conduct by Russian state organs and de facto authorities.
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