ABHH continues to inform on the ongoing investment treaty arbitration against Ukraine
A recent development was the formation of the arbitral tribunal. Immediately thereafter, ABHH filed a challenge to Prof. Murphy, the arbitrator appointed by Ukraine, on the grounds of perceived bias.
We reprint several articles from the legal and business press discussing these issues.
In addition to the articles, we also publish this short video on the subject: https://youtu.be/WkA9bRc6XSs
Article 1: https://www.iareporter.com/
Article 2: https://www.iareporter.com/
Article 3 (in Russian, please see English translation below): https://www.vedomosti.ru/
Article 1
Bernard Hanotiau is tapped to chair billion-dollar banking claim against Ukraine, while EU court rules on sanctions imposed on claimant’s minority shareholders.
Apr 10, 2024 | by Lisa Bohmer
Case(s) discussed in this article: ABH Holdings v. Ukraine
An ICSID tribunal has been constituted to hear the claims in ABH Holdings v. Ukraine.
The tribunal was finalized on April 9, 2024, with the parties’ appointment of Bernard Hanotiau as chair. The claimant nominated Francis Xavier, while Ukraine appointed Sean Murphy.
Mr. Xavier is a partner at Rajah & Tannin Singapore. He previously sat in the Khaitan Holdings v. India UNCITRAL case, but he was eventually disqualified from that arbitration after Joan Donoghue found that he could not continue to serve as an arbitrator in that dispute while his law firm was concurrently acting against India in local court proceedings.
Readers may recall that the Luxembourg-based ABH Holding lodged this arbitration in early 2024, arguing that Ukraine had breached its bilateral investment treaty (“BIT”) with the Belgium-Luxembourg Economic Union when the state in mid-2023 nationalized ABH Holdings’ fully-owned subsidiary Sense Bank (previously known as Alfa-Bank) based on the fact that sanctioned Russian individuals own a minority stake in ABH Holdings. ABH Holdings contends that the legal foundations of Ukraine’s sanctions regime are “at best shaky”, and it also alleges that the state has engaged in a smear campaign against the bank. The claimant is seeking no less than 1 billion USD in compensation.
While the parties were working on the constitution of the arbitration tribunal, ABH Holdings criticized Ukraine’s intention to transfer the bank to a third party, noting that it would pursue legal actions against any potential buyer. ABH Holdings also criticized the International Monetary Fund – a “sister institution of the World Bank” – for assisting Ukraine with the planned sale of Sense Bank.
Finally, on April 10, 2024, the EU’s General Court decided to annul the inclusion of two of ABH Holdings’ Russian minority shareholders, Petr Aven and Mikhail Fridman, on the lists of persons subject to restrictive measures between February 2022 and March 2023 (see here). A press release from the Court of Justice of the European Union notes that the court found that “although the grounds put forward by the Council may be such as to establish, as the case may be, a degree of proximity between Petr Aven and Mikhail Fridman and Vladimir Putin or his entourage, they do not demonstrate that they have supported actions or policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, or that they have provided material or financial support to the Russian decision-makers responsible for the annexation of Crimea or the destabilization of Ukraine, or that they have benefitted from those decision-makers”.
ABH Holdings welcomed this ruling in a press release issued today, noting that the company expects “this to be the first step to the total annulment of the sanctions against all our stakeholders in the EU and other jurisdictions”. At the same time, the decision concerning Mr. Aven specifies that Mr. Aven remains subject to sanctions set out in Decision 2023/572, which remains unaffected by today’s court decision. (At press time, the decision concerning Mr. Fridman was not yet publicly available.)
In the arbitration, the claimant is represented by Baiju Vasani and Alexander Yean, both in London. Ukraine’s Ministry of Justice is assisted by Quinn Emmanuel Urquhart & Sullivan in London.
Article 2
Banking investor challenges Ukraine’s appointee in ICSID dispute.
Apr 11, 2024 | by Lisa Bohmer
Case(s) discussed in this article: ABH Holdings v. Ukraine
The claimant in ABH Holdings v. Ukraine has lodged an arbitrator challenge against the respondent’s appointee, Sean Murphy.
ICSID registered the disqualification proposal on April 9, 2024, the very day when the arbitration tribunal was constituted. According to ICSID’s Arbitration Rules, the challenge will in principle be decided by Mr. Murphy’s co-arbitrators, Bernard Hanotiau (chair) and Francis Xavier (claimant’s appointee).
While the reasons for this arbitrator challenge remain undisclosed, readers may recall that the underlying dispute relates to Ukraine’s mid-2023 nationalization of Sense Bank, which was previously fully owned by the claimant. This nationalization was prompted by the fact that sanctioned Russian individuals own a minority stake in ABH Holdings. As detailed in the Request for Arbitration, the nationalization was carried out through Law No. 9107-1, which specified that persons who suffered damages due to the nationalization would only be compensated “with the funds of the state (states) that has (have) committed or is (are) committing an armed aggression against Ukraine”.
In addition, Sean Murphy is a member of the Institute de Droit International, and he signed a March 1, 2022 Declaration (“IIL Declaration”) from that institute, which firmly denounced the “aggression for which the Russian Federation is responsible through its massive military intervention in Ukraine”. While it remains unconfirmed whether the recent arbitrator challenge is related to the IIL Declaration, readers may recall that arbitrators have been challenged based on their vote in favor of this declaration in previous cases: the Belbek and Privatbank v. Russia and Akhmetov v. Russia UNCITRAL arbitrations (in which challenges solely based on the vote in favor of the IIL Declaration were rejected), and the Ukraine v. Russia UNCLOS case concerning the detention of Ukrainian naval vessels and servicemen (where similar challenges were upheld).
In the arbitration, ABH Holdings is represented by Baiju Vasani and Alexander Yean, both in London. Ukraine’s government counsel is assisted by Quinn Emmanuel Urquhart & Sullivan in London.
We are seeking to learn more about this arbitrator challenge, and we will update our readers accordingly.
https://www.iareporter.com/articles/banking-investor-challenges-ukraines-appointee-in-icsid-dispute/
Article 3
Fridman's ABHH demanded that a US lawyer be removed from a lawsuit against Ukraine
Apr 15, 2024 | by Artem Kulsha
Sean Murphy has discredited himself with "unsubstantiated political accusations," says source
The Luxembourg-based ABH Holdings (ABHH) of Mikhail Fridman and his business partners Petr Aven and Andrey Kosogov has demanded that the US arbitrator chosen by Kyiv, Sean Murphy, be disqualified in the dispute over Ukraine's nationalisation of Alfa Bank. This is stated in the case file on the website of the International Centre for Settlement of Investment Disputes (ICSID), where the case is being considered. In December 2022, Alfa Bank Ukraine was renamed into Sense Bank.
What is ICSID
ICSID is one of the international autonomous institutions, along with the International Finance Corporation and the Multilateral Investment Guarantee Agency, for investor-state dispute resolution under the auspices of the World Bank (a specialised UN agency).
ABHH has filed a request for ICSID arbitration in late 2023 - the company accuses Kyiv of "unlawful expropriation" of the bank it previously owned and is demanding more than $1bn in compensation. The Ukrainian government nationalised Sense Bank (at the time the 11th largest bank in the country by assets) because it was owned by sanctioned individuals through ABHH and its subsidiary ABH Ukraine. Fridman, Aven and Kosogov have been under Ukrainian sanctions since 2022. Kyiv also extended restrictive measures to ABHH, ABH Ukraine and a number of other companies linked to the businessmen.
According to the latest data, Fridman owns 32.9% in ABHH, Aven - 12.4%, Kosogov - 41%. The Italian financial group UniCredit (9.9%) and The Mark Foundation for Cancer Research (3.9%) are also among its shareholders. ABHH controls Russia's Alfa Bank through two companies - Cyprus-based ABH Financial Limited and Russia's AB Holding, but a year ago Fridman and Aven said they would transfer their stakes in the bank to Kosogov.
The basis of ABHH's lawsuit against Ukraine is the 1996 agreement between the Belgo-Luxembourg Economic Union and the Government of Ukraine on the reciprocal promotion and protection of investments, the case file shows. The document obliges Ukraine to provide investors from Belgium or Luxembourg with the most favourable settlement in case of extreme situations, such as war.
"Investors of one Contracting Party whose investments suffer losses owing to war or other armed conflict, revolution, a state of national emergency or revolt in the territory of the other Contracting Party shall be granted by the latter Contracting Party a treatment, as regards restitution, indemnification, compensation or other settlement, at least equal to that which the latter Contracting Party grants to the investors of the most favoured nation," the document reads.
Arbitrators selection
According to ICSID rules, each party of the dispute appoints one arbitrator, and they choose the chairman of the tribunal jointly. In February, Ukraine chose Murphy, a lawyer and professor, once a member of the UN International Law Commission and a former employee of the US State Department's legal department. ABHH chose Malaysian Francis Xavier, a partner at the Singaporean law firm Rajah & Tann.
On 9 April, the parties were able to agree on the appointment of Belgian lawyer Bernard Hanotiau as presiding arbitrator. The tribunal was then constituted, but ABHH immediately filed a motion to disqualify Murphy. Under ICSID rules, proceedings are suspended from the time a request for an arbitrator's disqualification is filed until it is decided. The decision is made by the remaining arbitrators, who have about 40 days to decide.
The reasons for ABHH's request to disqualify the American are not given in the case file. Vedomosti’s source familiar with the process explains this by the fact that in the spring of 2022, Murphy signed the declaration of the Institute of International Law (IIL) condemning Russia's actions against Ukraine. All the signatories of this document (115 in total) have discredited themselves as objective international lawyers, the source says: "Murphy is actually a politically charged official".
Representatives of ABHH and law firm Quinn Emanuel Urquhart & Sullivan, which is defending Ukraine, did not respond to Vedomosti's inquiry.
Earlier, arbitrators in several Russian-Ukrainian cases at the UN Commission on International Trade Law were disqualified for signing the IIL’s document, for example, in the case of Ukrainian businessman Rinat Akhmetov's assets "seized" in Donbas. About a month ago, an arbitrator chosen by Ukraine in a case against Russia at the International Tribunal for the Law of the Sea on a dispute over the Kerch Strait incident in 2018, when Ukrainian naval vessels entered the Strait, was challenged on the same grounds. The signing of the IIL’s declaration is now a source of pain for many lawyers, and this "scenario" will continue to develop in other arbitrations, a source familiar with the ABHH v. Ukraine case said.
Disqualification success
The public expression of a political position on issues that are potentially relevant to the merits of the dispute may indicate the arbitrator's bias, says Kira Vinokurova, a partner at Pen & Paper. Impartiality of arbitrators is one of the main principles and virtues of dispute resolution in international investment arbitration, she notes. If Murphy is disqualified, it will be a fair and justified decision - by signing the declaration, the arbitrator indicated that he supported the Ukrainian side, Stonebridge Legal partner Alexey Yadykin said.
But attempts to disqualify arbitrators for their political statements are much more common than they actually manage to disqualify them, says Denis Bykanov, a partner at Pavlova, Golotvin, Bykanov and Partners. He is sceptical about the likelihood of ABHH's application being granted, but the lawyer assesses the company's chances of defeating Ukraine in ICSID as high, given that the seizure of property took place and there was no talk of any compensation. Yadykin agrees that ABHH has a "strong position" in the case.
Vinokurova notes that the standards of investor protection in the agreement between the Belgo-Luxembourg Union and Ukraine are formulated quite broadly and depend on the interpretation of the parties and arbitrators, as well as the justifications for the nationalisation of ABHH's assets that Ukraine will present.
In any case, such complex proceedings take years, and it will take some more time to enforce the judgement, notes Bykanov. On average, such proceedings can last 3-4 years or more, Vinokurova and Yadykin agree. The arbitrators will be careful at every stage of the dispute, as the ABHH v. Ukraine case is "very politically sensitive", notes Anastasiya Ryabova, a lawyer of the KIAP law firm.
Decisions of ICSID tribunals are binding and do not require a separate procedure for recognising and enforcing the decision, Yadykin notes, so the parties often execute them voluntarily. If Ukraine fails to do so, ABHH will have to seek enforcement of the judgement outside that country, which is "not an easy task for many reasons", the lawyer adds. It is possible that ABHH will not be physically able to carry out the enforcement procedure in Ukraine, because it is not even clear how to submit the necessary documents for this purpose under martial law in this country, Nikolay Titov, co-founder of the a.t.Legal law firm, added.
On 10 April 2024, the EU Court of Justice lifted two of the three grounds for sanctions against Fridman and Aven, which were in force from February 2022 to March 2023 (the measures were extended for six months in January 2024): the decision concerned support for Russia's actions and financial support for its policy in Ukraine. The court concluded that there was insufficient evidence that the businessmen had supported the Russian special operation. The third criterion - "a leading businessman" - was not subject to review and can be challenged in separate lawsuits, so the sanctions also continue to apply.