Hughes Hubbard Secures $11.5M Award Against Russia for Aeroport Belbek

PCA tribunal awards compensation in Crimea-related investment treaty arbitration.

Highlights

After almost twelve years, the firm achieved a complete victory against the Russian Federation to recover compensation for its expropriation of the Belbek Airport in Crimea.
Tribunal unanimously awarded $11.5 million in damages, plus interest, costs and a significant portion of legal fees, to Aeroport Belbek.
Arbitration produced precedent-setting jurisdiction and liability awards, including the first application of a bilateral investment treaty to occupied territory.

On Oct.1, almost twelve years after commencing proceedings, Hughes Hubbard achieved a complete victory in the first of the arbitrations the firm brought against the Russian Federation to recover compensation for its expropriations of Ukrainian investments in Crimea.

One of the first actions of the Russian troops when they entered Crimea in February 2014 was to occupy Belbek Airport, which was then a privately-owned airport near Sevastopol used by corporate and charter flights. The airport was owned and operated by Aeroport Belbek LLC, a company 90% owned by Igor Kolomoisky. The Russian-installed administration in Crimea nationalized Belbek Airport in June of 2014, and the firm filed a demand for arbitration against the Russian Federation on behalf Aeroport Belbek LLC and Kolomoisky in January 2015 under the Ukraine-Russia bilateral investment treaty.

A distinguished tribunal was appointed to hear the case, consisting of Professor Pierre-Marie Dupuy, Sir Daniel Bethlehem, and Dr. Vaclav Mikulka. The arbitration proceeded under the UNCITRAL Rules, administered by the Permanent Court of Arbitration at The Hague, but the Russian Federation refused to participate beyond denying that the tribunal had jurisdiction.

The Tribunal issued an Interim Award in 2017, unanimously rejecting the Russian objections to jurisdiction (and making this the first case to apply a bilateral investment treaty to territory occupied by force). It issued a Partial Award in 2019, unanimously finding that the Russian Federation had expropriated our clients’ investment in breach of the treaty.

After the partial award, the Russian Federation decided to defend the quantum phase, in which it tried unsuccessfully to reopen the decisions reached in the Interim Award and the Partial Award. It also tried to disqualify the arbitrators and to set aside the earlier awards in the Dutch courts, resulting in substantial delays. A hearing on quantum was held in May and June 2021, by video conference because of the COVID-19 pandemic.

On Oct. 1, the tribunal administered by the Permanent Court of Arbitration unanimously granted Aeroport Belbek compensation of $11.5 million for the expropriation of the airport, plus interest from June 2014 (which adds an additional $15 million), plus all costs and a large portion of legal fees.

Law360, Global Arbitration Review and Investment Arbitration Reporter reported on the decision.

John Townsend led the Hughes Hubbard team with assistance from Eleanor Erney and Malik Havalic.