From 2014 to the present day the Russian Federation is conducting an aggressive military, information, diplomatic, and economic war against Ukraine. For Ukraine, but not only for her, but also for any civilized state that professes democratic European values and values of the supreme law it is important not only stopping agression from the occupier, but also bring him to international legal responsibility. However, the procedure for bringing an aggressor state to responsibility is much more complicated than the case, for example, in claims against individuals. In addition, it is very difficult to implement the decision of the international judicial body in case of winning the case.
The Russian Federation was not recognized as an aggressor by either the UN decisions or any international judicial institutions, but Ukraine seeks to protect its right to compensation for damage caused by the occupation of the Crimea and hostilities in the East of Ukraine.
Taking into account that the war in the East of Ukraine continues and the occupation of the Crimean peninsula remains in the hands of the Russian Federation, Ukraine continuously receives damage from destruction and damage of state enterprises, institutions, organizations, communal educational institutions, etc. In addition, the Russian Federation on the Crimean peninsula illegally uses and exploits natural resources (continental shelf or territories of exclusively marine economic zone of Ukraine).
According to the Minister of Justice of Ukraine Pavel Petrenko the amount of damage caused to Ukraine by the occupation of Crimea by the Russian Federation amounted to 1 trillion 80 billion hryvnia.
«The total calculation of the size of losses is 17 volumes. In particular, we are talking about the cynical attribution to the foreign exchange reserves of the central bank of the Russian Federation of money and assets of the National Bank of Ukraine. We detected a theft of 300 kilograms of gold and precious metals from the Savings Bank's in the Crimea. Also the assets of private banks for the amount of 17 billion hryvnias were lost», stressed the Minister.
In order to protect the interests of the state through damages Ukraine has filed five interstate lawsuits against Russia before the European Court of Human Rights. Ukraine also filed a lawsuit against the Russian Federation to the International Tribunal for the Law of the Sea in connection with the violation of the UN Convention on the Law of the Sea. It is worth noting that Russia has not recognized the jurisdiction of the tribunal established on the basis of this Convention with regard to delimitation of the boundaries of the disputed marine areas.
It is expected that Ukraine will receive just satisfaction at the final stage of the trial by the European Court of Human Rights in its lawsuits. This tactic of the Ministry of Justice of Ukraine is quite understandable for me, because Ukraine in this aspect is trying to learn from mistakes and victories of other countries.
I am reminded of such intergovernmental disputes that were considered by the European Court of Human Rights, such as «Cyprus v. Turkey» or «Georgia v. Cyprus». In the first occasion on May 12, 2014 the Grand Chamber of the ECHR published its decision on just satisfaction in the case «Cyprus v. Turkey». The court found that Turkey should compensate Cyprus for EUR 90 million in damages of which EUR 30 million to relatives of missing 1456 Greek Cypriots and EUR 60 million to Greek Cypriots, who continue to live on the Karpas peninsula occupied by Turkey. This decision was made after the expiration of 13 years after the Grand Chamber found that Turkey was responsible for violation of art. 2 of the Convention (right to life), art. 3 (prohibition of torture), art. 5 (right to liberty and personal integrity).
Otherwise, (the case «Georgia v. Russia») Georgia only until 2014 was waiting for the decision of the ECHR. The complaint was filed in March 2007, the process began in 2012. Tbilisi accused Russia of illegal arrests and mass deportations during the 2006-2007 anti – Georgian campaign. The ECHR ruled in favor of Georgia. During the year that is before the beginning of July 2015, Tbilisi and Moscow had to agree to pay compensation to Georgia or conclude a peace deal, but this did not happen. Georgia now demands from Russia through the ECHR 70 million euros.
These precedents charactarize a long term adjudicating cases in European Court of Human Rights. On the other hand, even, when Ukraine won, she would not able to comply with the judgment of the European Court of Human Rights from reason of limiting in executing of the decisions of international judicial institutions on the territory of the Russian Federation.
Thus, on February 14, 2015 the Constitutional Court of the Russian Federation ruled that the decision of the European Court of Human Rights should be enforced in the light of the supremacy of the Constitution of the Russian Federation.
«The European Convention for the Protection of Human Rights and Fundamental Freedoms and the practice of the European Court of Human Rights built on its provisions, do not override the principle of the priority of the Constitution of the Russian Federation».
It should also be borne in mind that the European Court of Human Rights finds the violation of certain articles of the European Convention for the Protection of Human Rights and Fundamental Freedoms. In addition, it is unknown how long the hybrid war will last, and again Ukraine will have to appeal to the European Court against Russia with new calculations for damages.
Is there not a single mechanism for effective compensation of losses caused to Ukraine by the Russian Federation?
In the absence of recognition of the Russian Federation as an aggressor state international law experts advise the Ministry of Foreign Affairs of Ukraine together with the Ministry of Justice of Ukraine to prepare for arbitration on the basis of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation On Promotion and Mutual Protection of Investments of November 27, 1998.
The experts explain that Ukraine's suit under this Agreement Ukraine delivers to the Arbitration Institute of the Stockholm Chamber of Commerce in which trial Ukraine will benefit in her favor. The trial will be effective through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards to which Russia joined. It should be noted that Ukraine has seriously considered its prospect of participation in this arbitration. The bilateral agreement between Ukraine and Russia was analyzed by the National Security and Defense Council of Ukraine.
In accordance with the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation On the Promotion and Mutual Protection of Investments, «the Parties have agreed that investments by investors of one of the Contracting Parties in the territory of the other state would not be expropriated, nationalized or will have consequences of expropriation, except when such measures are taken in accordance with the procedure established by law. Expropriation is accompanied by the payment of fast, adequate and effective compensation.
The size of this compensation must be in line with the market the cost of expropriated investments, right up to the moment expropriation or before it became officially known. Expropriation with compensation being paid immediately taking into account the interest accrued from the date of expropriation to pay interest rates on three – month deposits in USD on the London Interbank Market (LIBOC) plus 1%, and will be such that it is effectively implemented and freely transferred to.
In order to resolve a dispute between investors of a State and the other Contracting State, the Parties, which take part in regulating disputes shall decide dispute by negotiation and send written communications with detailed documents on the substance of the dispute. If within 6 months the Parties fail to reach an agreement, the investor of Contracting Party is entitled to apply to the competent court of the state, where the investment is made. The arbitral award will be final and binding for both Parties to the dispute. Each of the Contracting Parties undertakes to bring such a decision to execution in accordance with its legislation» (art 5, 9 Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation On Promotion and Mutual Protection of Investments of November 27, 1998).
At first glance this Agreement is convenient in its widespread use by Ukraine both in terms of the value of investment, the jurisdiction of the dispute, short-terms of pre-trial settlement. However, Ukraine can easily lose this arbitration. Why? Here are arguments.
First of all. This Agreement is not designed to resolve the interstate dispute. The state can not act as a Party to the dispute.
Thus, Part 2 of Article 1 of this Agreement defines the term «investor». «An investor is considered any natural person who is a national of a state and is competent in accordance with its legislation to invest in the territory of the other Contracting Party; b) any legal entity established in accordance with the law applicable to the territory of this Contracting Party, provided that a legal entity is competent in accordance with its own legislation to invest in the territory of another the contracting party.
As we can see, the state is not considered as the investor in the Agreement. I wanted to note that according to Part 3 of Art. 8 of the Commercial Code of Ukraine of January 16, 2003 No. 436 – ІV the legislator body stated that, «the economic competence of state authorities and local self – government bodies is implemented on behalf of the relevant state institution. Direct involvement of the state, state bodies in economic activities may be carried out only on the basis within the limits of authority and in the manner specified by the Constitution and laws of Ukraine».
However, for unknown reasons by Decree of the President of Ukraine No. 514/ 2015 of August 26, 2015 the Cabinet of Ministers of Ukraine has been given an instruction, «to prepare within a month's time negotiations and arrangements for conducting negotiations with the Russian side regarding the settlement of a dispute between Ukraine and the Russian Federation and application of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation on encouragement and mutual protection of investments».
At the same time Deputy Minister of Justice Olena Zerkal explained in one of the interviews that, «Ukrainian companies will be able to apply to the court for compensation for losses in Crimea».
Secondly. Ukraine does not have an appropriate strategy to assist, as a minimum on the methodological basis for state-owned enterprises in disputes on this Agreement with the Russian Federation.
By violating subparagraph 2 of paragraph 2 of the Decree of the President of Ukraine No 514 / 2015 the Ministry of Justice of Ukraine according to the official site is only developing a strategy for protecting the interests of the state within the framework of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation on the Promotion and Mutual Protection of Investments in 1998. Although Ukrainian private companies already participate in court proceedings on the basis of this Agreement.
Thirdly. Ukraine lacks international judicial practice in international judicial institutions. I only recall the dispute between Ukraine and Romania, but it cannot be a good example for Ukraine. It is a pity that Ukraine does not consider the possibility of «judicial war» with Russia in joint arbitration courts. Such a platform for training of Ukraine may be arbitration on the basis of the Agreement between Ukraine and the Russian Federation On the Status and Conditions of the Black Sea Fleet On the Territory of Ukraine ratified by the Law of Ukraine under No. 547 – XIV which continues with the Supplementary Agreement of April 24, 2010.
According to art. 6, 18, 24 of this Agreement, «the military formations of the Russian Federation shall carry out their activities in the places dislocations in accordance with the legislation of the Russian Federation, respect the sovereignty of Ukraine, adhere to its legislation and prevent interference in the internal affairs of Ukraine. The Russian Party will compensate for the damage that may be inflicted by actions or inaction of military formations or their persons, while performing their official duties to citizens or legal entities of Ukraine, which located on the territory of Ukraine in the amounts established on the basis of claims submitted in accordance with the legislation of Ukraine.
A Mixed Commission is created to resolve disputes concerning the interpretation and application of this Agreement. The Mixed Commission will act on the basis of its rules. If the Mixed Commission is unable to resolve the dispute, which has been transferred to her, it will be resolved diplomatically in the shortest possible time».
The advantage of Ukraine in this dispute is that the Ukrainian side has a large number of documented and verified by the Security Service of Ukraine information on the direct involvement of the Russian Black Sea Fleet in the capturing state power in the Crimea and occupating the Crimea. On the other hand, on the basis of this Agreement Ukraine has the right to file a lawsuit against the Russian Federation for damages in accordance with the legislation of Ukraine. And this in turn is an important part in the arbitration process, as the methodology for calculating damages will not be questioned by the Russian Federation. By the way, Ukraine can save money, which usually it can spending on international auditing of losses.
Another advantage in this arbitration process for Ukraine is the opportunity to propose entry to the Mixed Commission of impartial representatives, who will objectively assessing Ukraine's evidence of participation of soldiers and seamen of the Russian Federation fleet in the occupation of the Crimean peninsula.
Interesting and at the same time effective, but controversial is the mechanism of recovery of losses from the Russian Federation based on decisions of the national courts of Ukraine. Here is an example.
On May 30, 2016 the Holosiyivsky District Court of Kiev took a decision for compensation for moral and property damage caused by the Russian armed aggression against Ukraine and the occupation by the Russian Federation of part of the territory of the Luhansk region.
The ruling of the court in particular reads as follows, «to prohibit the Cabinet of Ministers of Ukraine, the Ministry of Finance of Ukraine, the National Bank of Ukraine, the State Treasury of Ukraine, other public authorities and their officials to carring out any actions related to the payment for external borrowing Ukraine to the Russian Federation in the amount of 3 billion USD and accrued interest on the trust agreement concluded on December 24, 2013 between Ukraine and Russia. To pause payments for the external borrowing of Ukraine for the Russian Federation in the amount of 3,000,000,000 USD and accrued interest on the trust agreement, which concluded between Ukraine and Russia on behalf the Minister of Finance of Ukraine acted».
Typically, plaintiffs in such disputes are individuals, who have suffered losses both from the occupation of Crimea and fighting in the East of Ukraine. From a moral point of view I fully support the plaintiffs and I certainly want that fair compensation to be guaranteed for them. However, not in this way.
Similarly situation meaning that international law losting his power if the question of intergovernmental significance would be solved in national courts. To resolve this situation the Verkhovna Rada of Ukraine must adopt a law guaranteeing compensation for the losses of the moral and material character for victims. Also Verkhovna Rada must distribute between her citizens the amount of compensations, which judged by the European Court of Human Rights after the consideration of Ukraine's complaints against Russia.
Thus, every arbitration holds for Ukraine both certain advantages and disadvantages. In each of the processes you can find inconvenient legal justifications for Ukraine, but this should not stop Ukraine from finding the optimal mechanism for reimbursement damages from aggressive war of Russia. The issues of compensation losses for Ukraine remain open.
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*Information about the author:
Vyacheslav Konoval, member of the Ukrainian branch of International Law Association