Anniversary expropriations: On the latest developments in Crimea

Authors: Sebastian Wuschka, LL.M. (Geneva MIDS) and Ralf Lewandowski


Although seven years have passed since the Russian Federation illegally annexed Crimea, the situation remains both politically and legally volatile. After Russia had initially expropriated mainly Ukrainian companies and nationals, a presidential decree signed in March 2020 imposed a one year deadline on foreign property owners to transfer ownership of their Crimean assets to Russian nationals, either directly or with intermediary involvement of the Russian state. Now that this deadline has expired, the question arises which legal remedies the affected individuals and companies can pursue in case Russia enforces the decree.

Potential legal remedies for those affected

Recourse to (Russian) state courts is unlikely to hold much promise for the foreign property owners in Crimea. Likewise, the path to the European Court of Human Rights (ECtHR), which – as far as reasonable – requires exhaustion of legal remedies, is also paved with difficulties. While Article 1(1) of the First Additional Protocol to the European Convention of Human Rights guarantees the protection of property, the effectiveness of this protection with regard to economic damages shows deficits, particularly in the context of Russian measures. Most prominently, Russia has in various instances refused to comply with ECtHR rulings, invoking provisions of constitutional law that would preclude the payment of compensation. In addition, the ECtHR, as a human rights court, often determines compensation conceptually in a way that falls short of full and exhaustive reimbursement for damages suffered.

A much more promising approach is that of resorting to international investment arbitration, where possible. Many challenges concerning the territorial applicability of investment protection treaties that were triggered by the unlawful annexation of Crimea have by now been resolved by arbitral tribunals and state courts in proceedings between Ukrainian nationals and companies and Russia. In these cases, various arbitral tribunals accepted jurisdiction on the basis of the 1998 Russia-Ukraine bilateral investment treaty, while avoiding the precarious situation of having to recognise the illegally annexed Crimean peninsula as Russian territory. Also, dealing with the matter in setting aside proceedings, the Swiss Federal Tribunal confirmed that the factual Russian control over Crimea is sufficient to extend the territorial scope of that treaty to the peninsula.

Investment protection for foreign property owners

The legal protection provided by investment treaties is of course not limited to Russia's relationship with Ukraine. Injured enterprises and individuals from third countries – such as Germany – can also successfully challenge Russian expropriatory measures. Germany concluded a bilateral investment treaty (BIT) with Russia as early as 1989, on the basis of which qualifying investors can seek compensation for a potential expropriation of their investments. However, there are certain particularities to be mindful of, especially in relation to BITs concluded by Russia.

For instance, unlike most German investment treaties, the Germany-Russia BIT does not offer an unlimited possibility to institute arbitral proceedings after six-months of fruitless settlement negotiations in case of an investment dispute. Instead, recourse to arbitration under the treaty is limited to disputes relating to the free transfer of capital, as well as disputes over the amount of compensation and the procedure for compensation in the event of an expropriation. A prominent case brought on the basis of the treaty exemplifies that arbitral claims concerning expropriation are nevertheless generally admissible under that BIT. As the arbitral award in Sedelmayer v. Russia shows, the jurisdictional scope of the BIT also encompasses disputes as to whether a compensable expropriation exists in the first place.

Looking forward

While the geopolitical situation between Russia and Ukraine seems to be locked in a stalemate, its legal dimension is developing more rapidly. Arbitral tribunals have already ordered Russia to pay compensation to Ukrainians for expropriations of property. It did not take long for at least one of these decisions to also be enforced under the 1958 New York Convention. With now approximately 11,500 property owners in Crimea affected by Russia’s decree of March 2020, aggrieved parties from third countries will also need to consider instituting similar proceedings - if necessary by way of a joint or mass claim.

Sebastian Wuschka LL.M. (Geneva MIDS)

Sebastian Wuschka LL.M. (Geneva MIDS)
Of Counsel
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