Eurohold Bulgaria AD (Eurohold) and Euroins Insurance Group AD (EIG) have officially filed an arbitration claim against the Romanian government with the International Center for Settlement of Investment Disputes (ICSID) in Washington, DC, for more than EUR 500 million, according to the EIG website.
According to the report, the arbitration proceedings were initiated due to the Romanian state’s failure to comply with its obligations under the bilateral investment treaty between Bulgaria and Romania, including its obligation to ensure fair and equitable treatment for companies. EIG has been one of the largest investors in the Romanian insurance market, with investments of approximately EUR 280 million.
Eurohold and EIG are seeking damages for the actions of the Romanian authorities, which have damaged EIG’s business in Romania and completely destroyed it in the case of Euroins Romania, the statement said.
As reported, on March 17, 2023, the Romanian financial authority ASF revoked the license of Euroins Romania, which led to the bankruptcy of the insurer in June 2023.
October 25, 2023. Eurohold and EIG sent a notice of dispute to the Romanian government requesting an amicable settlement in the Euroins Romania case, but the Romanian government did not use this option.
Eurohold and EIG are being advised in the arbitration proceedings by Pinsent Masons, a leading multinational law firm, and by Gingov, Guginski, Ketchukov and Velichkov (DGKV), one of the largest and most prominent law firms in Bulgaria.
Euroins Insurance Group (EIG) is one of the largest independent insurance groups operating in Central, Eastern and South-Eastern Europe, represented in Ukraine by Euroins Ukraine.
International arbitration proved to be thorough, efficient, trustworthy, and, thus, attractive mechanism of dispute resolution. The story, however, rarely happy-ends with obtaining an arbitral award in favour of either party. Quite often the succeeded party needs to go through recognition and enforcement proceedings in the national courts to restitute its violated rights. Such recognition and enforcement proceedings frequently become even more interesting battle terrain and create preclusive case-law in this sphere.
State’s Immunity
The decision of the Ukrainian Supreme Court issued on 25 January 2019 in case Everest Estate LLC and others v Russian Federation[1] was widely covered and discussed both in Ukrainian and foreign arbitration communities. And it is no surprise since in the said decision the Supreme Court for the first time dealt with the issue of the state immunity and enforcement of investment arbitral awards against foreign state’s assets located in Ukraine.
As a general rule a state has an immunity from a) a lawsuit against it, b) interim relief, c) enforcement of a court decision against it. This “absolute” state immunity, however, was shattered by the Supreme Court in its decision in Everest Estate LLC case.
Everest Estate LLC and others applied for recognition and enforcement of the UNCITRAL arbitral award rendered with respect to the expropriation of their property and real estate in the Crimea by the Russian Federation. The recognition and enforcement of the award was sought in Ukraine where the assets of the Russian Federation were allocated against which the enforcement could be levied. The court of the first instance granted the enforcement of the arbitral award but left out the issue of state immunity of the Russian Federation.
Having reconsidered the case the Supreme Court dealt with the state immunity of the Russian Federation and found that consenting for the arbitration under Ukraine-Russia bilateral investment treaty (BIT) which provides for contracting states’ obligations to recognize the finality and binding effect of an arbitral award rendered in any dispute arising from the BIT, the Russian Federation ipso facto waived all its jurisdictional immunities.
The case became notable since the Ukrainian court nearly stripped off the absolute immunity of the state and allowed recognition and enforcement of the arbitral award against Russia’s assets located in Ukraine.
Recognition and Enforcement of Emergency Arbitral Awards
Another investment arbitration case JKX Oil & Gas PLC & Others v Ukraine made quite a stir in arbitration community in Ukraine and abroad but not just because of the final award rendered in favour of the investors but in relation to the emergency arbitrator interim award. In fact, this was the first case where the Ukrainian Supreme Court considered the issue of enforceability of the emergency arbitral award in Ukraine.
In January 2015 the appointed emergency arbitrator rendered an interim award by which ordered Ukraine to refrain from collecting gas production royalties from the investors at the rate exceeding the previously applicable fee. JKX Oil & Gas PLC & others applied to the Ukrainian court for the enforcement of emergency arbitral award in Ukraine.
Despite the fact that the Ukrainian courts of first and appeal instances granted the recognition and enforcement of the emergency award, the Supreme Court’s position was the opposite. In particular, the Supreme Court found that enforcement of such interim award would have been contrary to the public policy of Ukraine and be considered as interference in the Ukrainian tax legislation and legislative activity.
Remarkable, that the issue of the finality of the emergency arbitral award was not considered by the Supreme Court at all. Under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) the recognition and enforcement of the award may be refused inter alia if the award has not yet become binding on the parties. Thus, by not inferring to the issue of the finality of the emergency arbitral award the Supreme Court indirectly construed that arbitral interim measures are enforceable in principle under the New York Convention.
Sanctions as Public Order
In 2014 the legal environment in Ukraine was highly affected by the illegal annexation of the Crimea and Russian hostilities in the East of Ukraine. A vast range of economic sanctions were introduced by Ukraine in response to the Russian aggression and, thus, lots of overseas contracts concluded by the Ukrainian companies with Russian sanctioned counterparties defaulted. This gave a rise to multiple arbitration claims brought by Russian companies against Ukrainian entities. As a result, Ukrainian courts faced the problematics of recognition and enforcement of arbitral awards amidst special economic sanctions. економічних санкцій
In cases PJSC “Avia-FED-Service” v State Joint-Stock Holding Company “Artem” two different approaches were taken by the Ukrainian court with respect to granting recognition and enforcement of the arbitral awards rendered in favour of sanctioned Russian companies.
In first case[2] the Ukrainian Supreme Court considered the issue of sanctions and public policy of Ukraine and granted recognition and enforcement of the Russian ICAC award in Ukraine. In particular, the Supreme Court found that sanctions are not part of public policy and thus did not preclude recognition and enforcement of the arbitral awards issued in favour of the sanctioned companies in Ukraine.
In the second case[3] the position of the Supreme Court was quite the opposite. During the cassation review of the case the Supreme Court overruled the decisions of the courts of lower instances and refused recognition and enforcement of the Russian ICAC arbitral award in Ukraine. In its considerations the Supreme Court took into account the legal nature of PJSC “Avia-FED-Service” (the claimant) being the entity directly related to the Russian military enterprises and the fact that further enforcement of the Russian ICAC award would be for the benefit of the aggressor-state enterprises.
In its deliberations the Supreme Court assessed also the issue of further enforcement of the arbitral award in Ukraine which in fact would have been impossible in the circumstances of the imposed sanctions. The Supreme Court inter alia found that “sanctions represent one of the new aspects of the public policy in Ukraine” and, that the recognition and enforcement of the arbitral awards is within the competence of the court, but not of the enforcement authority. The Supreme Court, however, noted that the restrictive measures (sanctions) taken by Ukraine against the Russian PJSC “Avia-FED-Service” do not terminate the debtor’s obligations, nor do they make it impossible for it to comply with the Russian ICAC arbitral award after the termination of the sanctions against PJSC “Avia-FED-Service”.
The further court practice proved that the Ukrainian courts tend to follow the second approach while considering applications for recognition and enforcement of the arbitral awards issued in favour of sanctioned companies. Hence, even if such company has a favourable arbitral award it has to wait until the sanctions are lifted (if lifted at all).
The Limits of the Enforcement
Case Ostchem Holding Limited v Odesa Portside Plant (OPP) became another notable case related to granting enforcement of foreign arbitral awards in Ukraine. Ostchem Holding Limited applied to the Ukrainian court for recognition and enforcement of arbitral award against the state-owned Odesa Portside Plant (OPP). OPP was ordered to pay to Ostchem Holding Limited approximately USD 251 million under a gas supply contract.
Following success in arbitration proceedings Ostchem Holding Limited filed its application for recognition and enforcement of the arbitral award in Ukraine. While Ostchem Holding Limited succeeded in the first instance court, the appeal proceedings in the Supreme Court, however, turned to be a backblow.
In its decision issued on 8 June 2021[4] the Supreme Court refused recognition and enforcement of the arbitral award on public policy grounds. In particular, in its decision the Supreme Court found that the enforcement of the recovery of the debt and the accrued penalty under the arbitral award would make it impossible to keep OPP in a condition safe for its proper operation and, as a consequence, may threaten man-made and environmental disasters in the Odessa region (Ukraine).
The decision of the Supreme Court, though doubtful on the legal grounds, evoke though the issue of reasonable limits of enforcement of the arbitral awards against strategic enterprises and the impact of such enforcement to public interests.
The above cases became remarkable and wildly discussed in arbitration community as they set the further trends to be followed by the Ukrainian courts while considering arbitration related matters.
[1] Case No. 796/165/2018 (https://reyestr.court.gov.ua/Review/79573187)
[2] Case No. 761/46285/16-ц (https://reyestr.court.gov.ua/Review/86903591)
[3] Case No. 824/100/19 (https://reyestr.court.gov.ua/Review/87760125)
[4] Case No. 824/241/2018 (https://reyestr.court.gov.ua/Review/97736188)
Modus Energy International, a member of the Lithuanian diversified company Modus Grupe, has initiated an arbitration against Ukraine over the retrospective reduction of feed-in tariffs in seeking to compensate damages of EUR 11.5 million, according to a draft government resolution on the procurement of legal advisors services to defend the interests of the state in arbitration. The draft resolution, authorizing the Ministry of Justice to apply the simplified negotiating procedure, was included in the agenda of the government meeting on Wednesday.
According to an explanatory note to the draft resolution, the Ministry of Justice received a notice of arbitration against Ukraine on March 23 from the owner of Bolokhivsky Solar Park 1 LLC, Bolokhivsky Solar Park 2, as well as Solar Zalukva LLC – the Lithuanian company Modus Energy International. The company, in particular, claimed that Ukraine violated the Energy Charter Treaty by lowering feed-in tariffs from August 1, 2020 by 15%., the amount of which was guaranteed until the end of 2029, through the adoption of Law No. 810-IX.
According to preliminary estimates, the damages claimed are EUR 11.5 million.
According to the note, Modus Energy International did not agree to the terms of the Memorandum of Understanding between the government and investors signed in June 2020, which provides for a reduction in feed-in tariffs in exchange for repayment of debts to electricity producers from renewable energy sources.
The company asks the arbitration tribunal to recover from Ukraine, including the losses incurred, as well as interest on them and all costs of the arbitration proceedings.
For its part, the Ministry of Justice points out in a note that a meeting of the Interdepartmental Working Group was held on April 2, at which it was deemed expedient to involve a legal advisor to properly protect the interests of the state in arbitration in the course of applying the negotiation procedure for the purchase of its services.As reported, the National Energy and Utilities Regulatory Commission of Ukraine (NEURC) in 2019 approved a feed-in tariff of 15.03 euro cents per 1 kWh for solar power plants Bolokhivsky Solar Park 1 and Bolokhivsky Solar Park 2 until January 1, 2030. Investments in the project amounted to EUR 30 million. In addition, in the first half of 2019, Modus Grupe began construction of two solar power plants in Ukraine with a total capacity of 46 MW.
