April 18, 2022

Ukraine Crisis: Enforcing Foreign Investor Claims Against Russia

In response to sanctions imposed on Russia for its unprovoked invasion of Ukraine, the Putin regime has promised to take countermeasures in an effort to make foreign investors feel some pain. This King & Spalding memo says that investors harmed by these actions may have recourse against Russia under various international treaties, assuming that a diplomatic resolution for addressing those claims cannot be achieved. This excerpt describes Russia’s treaty obligations that may give rise to claims by foreign investors:

There are currently 62 bilateral investment treaties (“BITs”) in force between Russia and key jurisdictions such as Canada, the Netherlands, Singapore, Switzerland, Turkey, the United Arab Emirates, and the United Kingdom, but not the United States. Russia is also party to several multilateral treaties that provide investment protection guarantees, most notably the Energy Charter Treaty (the “ECT”). Although Russia never ratified the ECT and sought to terminate its provisional application in 2009, the ECT contains a 20 year “survival” mechanism. This arguably means that Russia will remain bound by investment protection guarantees in the ECT until 2029.

These investment treaties provide investors and their investments in Russia with several protections, although the scope and nature of those protections will vary depending on the particular treaty, and allow affected investors to bring legal claims directly against Russia for violations of these guaranteed protections.

By now, you’re probably saying, “that’s swell, but how are investors going to collect any damage awards they receive?” The memo says that there may be way to do that:

In the likely event that Russia fails to voluntarily pay an adverse arbitral award, a foreign investor will need to enforce its award against Russian state-owned assets located outside Russia. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the “New York Convention”) is a multilateral treaty that requires its 169 Contracting States (which include Russia) to recognize and enforce arbitration awards rendered in other Contracting States, subject to very limited exceptions.

The memo acknowledges that enforcement will pose significant challenges, but because international sanctions regimes have frozen many billions of dollars in Russian assets, investors that can identify frozen assets belonging to certain Russian state-owned entities may be able to enforce arbitral awards against those assets.

John Jenkins