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 article from the legal and business press discussing these issues.
In addition to the article, we also publish this short video on the subject: https://youtu.be/WkA9bRc6XSs
Article
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.