The Hague’s Arbitration orders Russia to pay compensation for losses and lost property of Ukrainian Naftogaz in Crimea

The Arbitration Tribunal at the Permanent Court of Arbitration in The Hague ordered Russia to pay $5 billion in favour of Ukraine’s gas company Naftogaz.

Arbitral awards can be enforced through the enforcement mechanism. Therefore, in case Russia refuses to voluntarily enforce the award, in accordance with the New York Convention of 1958, Naftogaz has the right to start the process of recognising and enforcing the award in the countries where the Russian assets are located.

“The court found that the amount of such compensation should be equal to the fair market value of Naftogaz’s assets before their expropriation. Despite Russia’s insistence that Naftogaz is not entitled to any compensation for the expropriation of its assets, the Arbitral Tribunal did not agree with this statement”

The amount of compensation set by this award is the largest amount awarded by an international arbitration tribunal as compensation for Russia’s expropriation of assets in Crimea.

In addition, the court ruled that Russia should reimburse Naftogaz for the costs associated with the arbitration proceedings.

As a reminder, in October 2016, Naftogaz and six other companies of the Naftogaz Group initiated arbitration proceedings against Russia on the basis of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation on the Promotion and Mutual Protection of Investments, also known as the Ukrainian-Russian Investment Protection Agreement.

Oral hearings on jurisdiction and liability were held at the Peace Palace in The Hague in May 2018. In February 2019, the tribunal ruled in favour of Naftogaz. The tribunal confirmed its jurisdiction over the case and found that the Russian Federation had illegally expropriated Naftogaz’s investments in violation of its obligations. Accordingly, the current (second) stage of the arbitration proceedings concerns the determination of the amount of compensation for Naftogaz’s losses,” the company explained.

In July 2022, the Hague Court of Appeal confirmed the jurisdiction of the Arbitral Tribunal in the case.