HHR's Crimea Team Wins Two Major Cases in Dutch Court

July 27, 2022 — On July 19, 2022, the Court of Appeals of The Hague issued its long-awaited judgments in two proceedings that the Russian Federation had commenced to seek to set aside the arbitration awards we had obtained in favor of our clients in two of the Crimea arbitrations that had been seated in the Netherlands. In both cases, the Court rejected each of the numerous objections raised by the Russian Federation and dismissed its applications to set aside the awards.

The two arbitrations were: Aeroport Belbek LLC and Igor Valerievich Kolomoiskyv. The Russian Federation,; and Everest Estate LLC et al. v. The Russian Federation.

The Belbek arbitration involved the seizure by the Russian Federation of a private airport near Sevastopol beneficially owned by Mr. Kolomoisky, which was occupied by Russian troops as soon as the Russian Federation moved into Crimea in February 2014, and then subsequently nationalized by decree in June 2014. The Everest Estate arbitration involved the nationalization by the Russian Federation in September 2014 of a series of real estate holdings along the Black Sea coast of Crimea, including resorts, hotels and apartment buildings, all of which the Russian Federation believed (in many cases incorrectly) to have been connected to Mr. Kolomoisky. The Russian hostility to Mr. Kolomoisky, expressed in a television broadcast by President Putin, stemmed from Kolomoisky’s successful efforts to organize Ukrainian resistance to Russian incursions into the eastern provinces of Ukraine.

The firm commenced these two arbitrations, along with three others involving different properties in Crimea, in 2015. The jurisdictional decisions in the Belbek and Everest Estate arbitrations, both handed down in March of 2017 after extensive hearings on jurisdictional issues, were the first investment arbitration decisions ever to find that a bilateral investment treaty (in these cases, the treaty between Ukraine and Russia) protected investments in territory illegally occupied by the respondent state.

The Everest Estate arbitration was the last to be commenced, but the first to be completed. After hearings on the merits, the Everest Estate tribunal issued a Final Award in May of 2018, finding that the Russian Federation had expropriated the claimants’ properties in Crimea in breach of the bilateral investment treaty, and awarding a total of $139 million in damages, fees and costs. The Russian Federation, which had refused to participate in the arbitrations, immediately filed suit in The Hague Court of Appeal to seek to set the award aside.

The Belbek tribunal added a third stage after jurisdiction and liability. After a hearing on the merits in The Hague, it entered a Partial Award in February 2019, finding that the Russian Federation had illegally expropriated Belbek Airport, but putting off for an ongoing quantum phase the question of what compensation it owed for doing so. Later in 2019, the Russian Federation simultaneously appeared in the arbitration proceedings to contest quantum, and applied to The Hague Court of Appeals to set aside the Interim Award on jurisdiction and the Partial Award on liability.

In the meantime, the firm’s two Crimea arbitrations that were seated in Switzerland – PJSC Ukrnafta v. The Russian Federation and Stabil LLC et al. v. The Russian Federation – had progressed through hearings on jurisdiction, decisions on jurisdiction that were challenged but upheld in the Swiss Federal Supreme Court, hearings on the merits, and Final Awards in HHR’s clients’ favor that were also challenged but upheld in the Swiss Federal Supreme Court.

The HHR team relied heavily on the Swiss Court’s rejections of the Russian Federation’s arguments in the briefing and argument to the Dutch Court, and the Dutch Court quoted extensively from, and adopted, the Swiss Court’s reasoning in the decisions handed down by the Dutch Court on July 19. The Dutch decisions reject all of the Russian Federation’s arguments that the arbitral tribunals lacked jurisdiction over the claims, that the BIT does not apply to Ukrainian investments in Crimea, that the investments were not made legally, and that they were somehow tainted by corruption.

Unlike Switzerland, where a challenge to an international arbitration award is made directly to (and resolved expeditiously by) the highest federal court, the Netherlands requires such challenges to be commenced in the Court of Appeal at the seat of the arbitration, and allows the decisions of those courts to be appealed to the Supreme Court of the Netherlands. The Russian Federation’s previous Dutch counsel withdrew from representing it after the Russian invasion of Ukraine earlier this year, so it remains to be seen whether the Russian Federation can find new Dutch counsel, from among the small, specialized circle admitted to practice in the Supreme Court, to take an appeal from these decisions.

The Dutch Court’s judgments were recently covered in Global Arbitration Review and Investment Arbitration Reporter.

Hughes Hubbard’s team on the Crimea arbitrations and subsequent Swiss and Dutch court proceedings is led by John Townsend and Jim Boykin, and includes Vitaly Morozov, Eleanor Erney, Alexander Bedrosyan, and paralegal Svitlana Stegniy. It has in the past included Malik Havalic, Jan Dunin-Wasowicz, former partner Marc-Olivier Langlois, former counsel Leon Ioannou, former associate Sam Cowin, and former visiting specialist Stijn Winters.

HHR’s clients were represented in the Swiss proceedings by a team from the Lalive firm led by Marc Veit. In the Dutch proceedings, HHR’s clients are represented by a team from the NautaDutilh firm led by Mirjam van de Hel Koedoot.