Foreign investments in Russia at risk: how investment arbitration can provide protection

The Russian actions in Ukraine have prompted wide ranging sanctions by a number of jurisdictions, including the United Kingdom, the United States, the European Union, Canada and Japan.  

In response, Russia is issuing anti-sanctions measures which target foreign businesses from these jurisdictions. These government measures provide, for example, for:

• the nationalisation of foreign investors' assets (draft approved 16 March 2022, now pending in the Parliament for final adoption)
• the use of IP rights without permission or compensation (Presidential Decree No. 299; 6 March 2022)
• the creation of a register of "unreliable" companies that have left Russia or suspended commercial activities. These companies could face additional taxes (draft legislation)
• the nationalisation of foreign-leased jets and aircrafts (Presidential Decree; 14 March 2022)
• the repayment in Russian roubles of hard currency debt owed to a foreign creditor (Presidential Decree No. 95; 5 March 2022)

• further limitations on cross-border monetary transfers for both Russian and non-Russian residents (Presidential Decree No. 126; 18 March 2022).

The Russian courts also seem to have stepped in. Recently, a Russian judge refused to enforce Hasbro's trade mark rights on cartoon figure Peppa Pig, solely on the basis of the 'unfriendly' actions of the UK, the US and the EU.  

Foreign investors who are subjected to these measures can claim protection under Russia's bilateral investment treaties ("BITs"). The Russian Federation has entered into BITs with multiple countries including Canada, United Kingdom, South Korea, France, Netherlands, Germany, Belgium/Luxembourg, Switzerland, Austria, Spain, Albania, Hungary, Kuwait, Czech Republic, Vietnam, Sweden, Cuba, Romania, Slovakia, Denmark, Greece, Italy, Norway, North Macedonia, Finland, Ukraine, Kazakhstan, South Africa, Turkey, Japan, Egypt, Argentina, Moldova, Lebanon, Lithuania, Yemen, Bulgaria, North Korea, Armenia, Mongolia, Laos, Syria, China, Qatar, Jordan, Indonesia, Venezuela, Turkmenistan, Libya, Angola, Singapore, United Arab Emirates, Nicaragua, Uzbekistan, Zimbabwe, Azerbaijan, Bahrain, Equatorial Guinea, Cambodia, Iran, Palestine.

These BITs contain provisions guaranteeing that investments benefit from (i) fair and equitable treatment, (ii) full protection and security, and (iii) a prohibition on expropriation or dispossession of the investment. Many such BITs also contain a "compensation for losses" clause relating to an armed conflict.

The definition of "investment" is broadly defined in BITs and generally includes: moveable and immoveable property, shares/stocks/bonds or other forms of participation in a company or business, claims to money and claims to performance under a contract having a financial value, intellectual property rights, and rights conferred by law or under contract (ie concession rights).

The definition of "investor" is also broad and generally includes natural persons having citizenship or nationality of the Contracting State, and/or corporations, companies, firms incorporated in the Contracting State.

To pursue their investment protection, foreign investors can submit claims against the Russian State to international arbitration at an arbitral institution, such as the Stockholm Chamber of Commerce, or an ad hoc arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). Arbitral tribunals have the jurisdiction to award multimillion dollars' worth of damages to foreign investors who can establish the breach of the BIT and the damages they have suffered.

To actually bring a claim against Russia, an investor will first have to serve a Notice of Dispute briefly setting out the BIT breaches and the remedies sought. Karel Daele, a Partner in our UK Disputes & Investigations team, and Elizabeth Montpetit, Senior Counsel in our UK Disputes & Investigations team, have extensive experience in investor state arbitration.

For further information about specific BITs and assessing potential claims, please contact our Disputes & Investigations team.