Introduction
Facts
Decision
Comment


Introduction

On 7 December 2022, the Court of Cassation annulled the decision of the Court of Appeal to set aside the United Nations Commission on International Trade Law award in Oschadbank v Russia. The Court of Appeal had held that the tribunal lacked jurisdiction ratione temporis, as Oschadbank's investment in Crimea had been made before the time limit provided for in article 12 of the Ukraine-Russia Bilateral Investment Treaty (the BIT).

The Court of Cassation stated that the Court of Appeal had been wrong to annul the award based on the tribunal's lack of jurisdiction ratione temporis, considering that article 12 was a substantive rule rather than a jurisdictional condition.

The Court of Cassation's decision contrasted with the position previously adopted by the Swiss Federal Tribunal, which recently analysed the same provision as pertaining to jurisdiction.(1) However, the Court's decision appears to be in line with the recent trend adopted by the French courts of limiting the judicial review of arbitral awards.

Facts

This dispute is one of the first in a long line of BIT cases arising out of Russia's illegal occupation of Crimea to have resulted in an award. In March 2014, Russia enacted new laws establishing certain conditions for Ukrainian banks to continue operating in Crimea. Banks failing to meet these conditions – such as Oschadbank – were forced to cease their operations.

In 2016, Oschadbank commenced a treaty arbitration against Russia under the Ukraine-Russia BIT claiming damages for expropriation of its assets by the state. As in a number of other Crimea-related cases, Russia initially refused to participate in the arbitral proceedings (instead, sending letters contesting the tribunal's jurisdiction).

Arbitral award
In November 2018, the tribunal issued an award upholding jurisdiction over the dispute. The tribunal considered that it had territorial jurisdiction over the dispute because Russia had effective control over Crimea. It also found that it had jurisdiction ratione materiae, concluding that it was irrelevant that the investment had been made before Crimea came under Russia's control.

The tribunal held that Russia was liable for the expropriation of Oschadbank's assets in Crimea and ordered Russia to pay $1.1 billion.

Set aside proceedings before Court of Appeal
Despite initially refusing to participate in the arbitration, Russia became more pro-active following the issuance of the award. In February 2019, it initiated set aside proceedings before the Court of Appeal. Russia also filed an application for a stay of enforcement of the award (which was denied) and made a request for a revision of the award, which was suspended pending the outcome of the set aside proceedings.

Before the Court of Appeal, Russia mainly challenged the jurisdiction of the arbitral tribunal stating that it lacked:

  • temporal jurisdiction, because the investments were made before 1 January 1992, whereas the Ukraine-Russia BIT only protected investments made after that date;
  • territorial jurisdiction, as it was not accepted by all the relevant parties that Crimea is part of the territory of Russia; and
  • the subject-matter jurisdiction, because the condition of foreign investment was not satisfied given that Oschadbank had initially made a Ukrainian investment in Ukraine.

Finally, Russia also contended that the award should be set aside due to procedural fraud by Oschadbank, which had allegedly dissimulated the fact that the investment had been made before 1 January 1992.

Decision

Court of Appeal
On 30 March 2021, the Court of Appeal set aside the award, holding that the tribunal had lacked jurisdiction ratione temporis.(2) The Court of Appeal concluded that article 12 of the Ukraine-Russia BIT (which provides that the BIT "shall apply to all investments made by the investors of one Contracting Party in the territory of the other Contracting Party as of 1 January 1992") constituted a jurisdictional condition.(3) The Court of Appeal held that this condition was not satisfied in the present case because Oschadbank made its investment prior to this date.(4)

Court of Cassation
Oschadbank challenged the Court of Appeal's decision before the Court of Cassation. Oschadbank argued that article 12 of the BIT is not a condition applicable to jurisdiction, but rather a substantive provision limiting the date from which investments benefit from the BIT's protection.

The Court of Cassation concluded that neither the offer to arbitrate nor the definition of investments in the Ukraine-Russia BIT contained any temporal restrictions on jurisdiction. The Court agreed with Oschadbank that article 12 of the BIT was a rule of substance. It therefore held that the Court of Appeal had wrongly annulled the award.(5)

Comment

Interpretation of article 12 of Ukraine-Russia BIT
This dispute is of interest, as it stands out from most Crimea-related investment arbitrations where jurisdictional debate has centred on questions of whether:

  • Crimea is part of Russian territory; and
  • there is a foreign investment within the meaning and scope of the Ukraine-Russia BIT.

In this case, Russia attempted to rely on a novel defence to jurisdiction by arguing that the BIT would only protect investments made as of 1 January 1992 (ie, after the Soviet Union's demise).(6)

The text of article 12 is subject to competing interpretations, as is evident from the diametrically opposite positions adopted by the Court of Appeal and the Court of Cassation. On the one hand, article 12 could be interpreted as stating that the BIT only applies to investments made on or after 1 January 1992. That was the interpretation adopted by the Court of Appeal and it was not alone – the Swiss Federal Tribunal had previously agreed with the arbitral tribunal in Stabil et al v Russia arbitrations that article 12 of the Ukraine-Russia BIT constitutes a jurisdictional condition ratione temporis.(7) In those arbitrations, there was no question that the investment had been made after 1 January 1992, and the Swiss court's determination regarding the scope of article 12, therefore, did not have a bearing on the court's decision regarding the validity of the arbitral award.

By comparison, the interpretation adopted by the Court of Cassation might be said to run against the natural and ordinary meaning of article 12 which provides that the BIT "shall apply" to investments "carried out . . . as of 1 January 1992". However, the potential ambiguity regarding whether the phrase "as of 1 January 1992" relates to the timing of the investment or the scope of the BIT's application can be resolved when read in context of the other provisions of the treaty. Indeed, the Court of Cassation justly highlighted that neither the dispute resolution provision (article 9) nor the definition of investment provision (article 1.2) in the BIT includes any limitation on the temporal jurisdiction. On this read, article 12 appeared to provide that any qualifying investments of qualifying investors – regardless of when they were made – would fall within the scope of the protections of the treaty in relation to conduct occurring after 1 January 1992. Such an approach also appears to be consistent with the objectives of the BIT.

Restrictions on courts' review of arbitral awards
While the Court of Cassation's interpretation of article 12 of the Ukraine-Russia BIT may seem surprising, this decision certainly follows the Court's recent trend towards limiting the judicial review of arbitral awards.

Under French law, the courts generally have limited powers to review the tribunal's findings when considering whether to set aside an arbitral award.(8) However, the courts' power is wider when it comes to the tribunal's jurisdiction, which they can review de novo.(9) The characterisation of the legal issue under review is, therefore, of crucial importance in annulment proceedings before the French courts.

By concluding that article 12 of the Ukraine-Russia BIT is a rule of substance, the Court of Cassation restricted the courts' power to analyse this provision and its impact on the tribunal's jurisdiction anew. This seems to follow the recent trend of the Court of Cassation to limit the review of awards on jurisdictional grounds after the Court of Appeal set aside numerous arbitral decisions on this basis. For example, in Rusoro, the Court of Cassation concluded that the time limit provided for in the treaty constituted a condition of admissibility rather than jurisdiction.(10) Similarly, in Garcia, the Court of Cassation overturned the decision of the Court of Appeal, which had set aside an award on the basis that the tribunal failed to establish that the condition pertaining to the nationality of the investors had been fulfilled. The Court of Cassation held that there was no such jurisdictional condition in the treaty.(11)

Next steps
The Court of Cassation annulled the 30 March 2021 decision with respect to article 12 of the Ukraine-Russia BIT, remanding the case for re-consideration by the Court of Appeal. This means that the Oschadbank award is not yet completely safe from being set aside. In particular, the Court of Appeal will now have to consider the other jurisdictional arguments made by Russia, including those concerning the territorial and subject-matter jurisdiction of the tribunal. The Court of Appeal's decision on those matters will be of considerable importance in the context of ongoing and future Crimea-related arbitrations.

For further information on this topic please contact Veronika Timofeeva or Marria Puchyna at Freshfields Bruckhaus Deringer via email ([email protected] or [email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.

Henriietta Yaitska and Lynn Rahouli assisted in the preparation of this article.

Endnotes

(1) See here and here.

(2) Paris Court of Appeal, 30 March 2021, 19/04161, Oschadbank v Russia. The decision is available here (in French). For more information, see "Court annuls billion-dollar award, finding Crimea investment was made before BIT applied".

(3) Ibid, para 76.

(4) Ibid, paras 94-101.

(5) Court of Cassation, 7 December 2022, 21-15.390, Oschadbank v Russia. The decision is available here (in French).

(6) The final award in the arbitration proceedings recently became public in light of the claimant's enforcement proceedings in the United States. From this award, it can be deduced that the above-mentioned argument was not made during the arbitral proceedings. The only temporal requirement that the tribunal considered was about whether the investments were made before the illegal annexation of the Crimean Peninsula by the respondent. See Oschadbank v Russia, Award, 26 November 2018, PCA Case No. 2016-14, para 226.

(7) Decisions of the Swiss Federal Tribunal, 16 October 2018, 4A_398/2017; 4A_396/2017 (the latter decision was rendered in the Ukrnafta v Russia case, which was heard by the same tribunal in parallel proceedings).

(8) C Seraglini and J Ortscheidt, Droit de l'arbitrage interne et international (LGDJ Lextension, 2nd edition, 2019), para 989:

ne peut apprécier le bien-fondé de la décision du tribunal arbitral, notamment s'agissant de la détermination et de la mise en œuvre de la règle de droit. Ainsi, hors les cas, définis par l'article 1520 du Code de procédure civile, de violation du principe de la contradiction ou de l'ordre public international, le contenu de la motivation de la sentence échappe au contrôle du juge de la régularité de la sentence.

Article 1520 du Code de procédure civile.

(9) C Seraglini and J Ortscheidt, Droit de l'arbitrage interne et international (LGDJ Lextension, 2nd edition, 2019), para 992:

[d]ans le cadre du contrôle de la régularité de la sentence, le juge n'est aucunement lié par le point de vue exprimé par le tribunal arbitral sur sa compétence. Il peut alors opérer un contrôle total sur la compétence du tribunal arbitral […]. Le juge va notamment contrôler l'interprétation de la convention d'arbitrage par le tribunal arbitral, dès lors qu'elle met en cause sa compétence. Il va, dans son analyse, rechercher tous les éléments de fait et de droit permettant d'apprécier la portée de la convention d'arbitrage

Court of Cassation, 6 January 1987, 84-17.274, SPP v Egypt. This decision is available here (in French). This solution, first applied in the context of commercial arbitrations, has long been confirmed as also relevant to investor-State disputes. Paris Court of Appeal, 12 April 2016, 13/22531, Komstroy (formerly Energoalians) v Republic of Moldova. The decision is available here (in French).

(10) Court of Cassation, 31 March 2021, 19-11.551, Rusoro Mining v Venezuela. The decision is available here (in French).

(11) Court of Cassation, 1 December 2021, 20-16.714, García Armas et García Gruber v Venezuela, paras 9-10. The decision is available here (in French).