Tatneft v. Ukraine, Partial Award on Jurisdiction, 28 Sept 2010

1.

By letter dated 11 December 2007,¹ OAO Tatneft ("Tatneft" or "Claimant") sent a Notice of Dispute to the President, the Prime Minister, and the Ministry of Foreign Affairs of Ukraine requesting that they open negotiations pursuant to Article 9(1) of the Agreement Between the Government of the Russian Federation and the Cabinet of Ministers of the Ukraine on the Encouragement and the Mutual Protection of Investments, dated 27 November 1998 (the "Russia-Ukraine BIT").² Claimant alleged that certain conduct by Ukraine amounted to "numerous breaches of the Ukraine-Russia BIT and, in particular, of Article 2, Article 4, and Article 5, and Article 3 in conjunction with Article 2(2)" of this treaty.

2.

The Parties being unable to reach a settlement of the dispute, Claimant served on Ukraine ("Respondent") a Notice of Arbitration and Statement of Claim dated 21 May 2008 ("Statement of Claim"), to submit the dispute to international arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law (the "UNCITRAL Rules"), in accordance with Article 9(2)(c) of the Russia-Ukraine BIT.

3.

While Article 9(2) of the Russia-Ukraine BIT provides for a six-month waiting period before such submission, Claimant has relied on Article 3(1) of the Russia-Ukraine BIT, which requires Ukraine to grant Russian investors and their investments treatment no less favorable than that granted to Ukrainian or third States’ investors and their investments; as the United Kingdom-Ukraine BIT³ provides in Article 8(1) for a three-month waiting period, Claimant has relied on this more favorable requirement.⁴

4.

Article 9 of the Russia-Ukraine BIT provides, in its relevant part:

1. In case of any dispute between either Contracting Party and the investor of the other Contracting Party, which may arise in connection with the investments, including disputes, which concern the amount, terms of and procedure for payment of compensation provided for in Article 5 hereof or with the procedure for effecting a transfer of payments provided for in Article 7 hereof, a notification in writing shall be handed in, accompanied with detailed comments which the investor shall forward to the Contracting Party involved in the dispute. The parties to the dispute shall exert their best efforts to settle that dispute by way of negotiations.

2. In the event the dispute cannot be resolved through negotiations within six months as of the date of the written notification as mentioned in Item 1 hereof above, then the dispute shall be passed over for consideration to:

[...]

(c) an "ad hoc" arbitration tribunal, in conformity with the Arbitration Regulations of the United Nations Commission for International Trade Law (UNCITRAL).⁵

5.

In its Statement of Claim, Tatneft alleged that certain "actions and omissions of Respondent constitute violations of its obligations to Tatneft under the Russia-Ukraine BIT, in particular Articles 2, 3(1), and 5 [...]"⁶ and requested that the Tribunal order, inter alia, payment by Respondent of an amount in excess of US$ 520 million for unpaid oil deliveries and compensation in an amount in excess of US$ 610 million for Claimant’s loss of management rights and rights associated with its shareholding interest in Ukrtatnafta.⁷

6.

In its Statement of Claim, Claimant appointed Professor Dr. Rudolf Dolzer as the first arbitrator.

7.

By letter dated 26 June 2008, Respondent appointed The Honorable Marc Lalonde, P.C., O.C., Q.C. as the second arbitrator.

8.

By communications dated 24 July 2008, the above-mentioned co-arbitrators informed the Parties of their appointment of Professor Francisco Orrego Vicuña as the presiding arbitrator.

9.

By letter dated 29 July 2008, Professor Orrego Vicuña informed the Parties that he accepted his appointment as presiding arbitrator.

10.

By letter dated 13 August 2008, the PCA informed the Parties that it accepted their request that the PCA provide administrative support in this arbitration.

11.

Following the first procedural meeting,⁸ by letter dated 27 October 2008, Respondent gave notice of a challenge to Professor Dolzer pursuant to Article 11 of the UNCITRAL Rules. The Parties submitted comments on the challenge and subsequently agreed that the Secretary-General of the PCA (the "Secretary-General") act as the appointing authority to decide the challenge. The Secretary-General invited the Parties on 19 November 2008 to submit further comments on the challenge, which they did.

12.

On 19 December 2008, having reviewed the Parties’ further comments, the Secretary-General sustained Respondent’s challenge and invited Claimant to appoint a substitute arbitrator in accordance with Article 12(2) of the UNCITRAL Rules.

13.

By letter of 16 January 2009, Claimant appointed The Honorable Charles N. Brower as arbitrator, in accordance with Article 12(2) of the UNCITRAL Rules.

14.

On 20 October 2008, the Tribunal held a first Procedural Meeting with the Parties in London. Present at the Procedural Meeting were:

Tribunal:

Professor Francisco Orrego Vicuña

Professor Rudolph Dolzer

The Honorable Marc Lalonde, P.C., O.C., Q.C.

For Claimant:

Mr. William B. McGurn III

Ms. Claudia Annacker

Mr. Lorenzo Melchionda

Mr. Vasily Mozgovoi

Mr. Milo Molfa

Mr. Peter Gloushkov

For Respondent:

Mr. Eric Schwartz

Ms. Sabine Konrad

Mr. Alain Farhad

Mr. Dmitri Grischenko

Permanent Court of Arbitration:

Paul-Jean Le Cannu

15.

In anticipation of the Procedural Meeting, the PCA had circulated Draft Terms of Appointment and Procedural Order ("Draft Terms of Appointment") to the Parties on behalf of the Tribunal. The Draft Terms of Appointment were not signed at the Procedural Meeting in view of the fact that Respondent announced that it would initiate the challenge procedure noted above. Following the decision on such challenge, the Terms of Appointment were revised, commented on by the Parties, duly signed in counterparts and dated 23 March 2009.

16.

On 20 February 2009, as previously agreed by the Parties,⁹ Respondent filed its Statement of Defense and Objections to Jurisdiction and Admissibility ("Statement of Defense").

17.

On 24 February 2009, the PCA, under instruction from the Tribunal, invited Claimant to submit its comments on the request Respondent made in its Statement of Defense that the Tribunal rule on the issue of jurisdiction as a preliminary question, in accordance with Article 21(4) of the UNCITRAL Rules.

18.

By letter dated 10 March 2009, Claimant submitted its comments on Respondent’s request and submitted, inter alia, that the request should be denied.

19.

On 12 March 2009, the PCA, under instruction from the Tribunal, informed the Parties that the Tribunal had decided to accept the proposed bifurcation. The Parties were invited to agree on a timetable for the jurisdictional phase of the proceedings by 23 March 2009.

20.

By letters dated 23 March 2009, Claimant and Respondent each wrote to the Tribunal informing it that the Parties had not been able to reach an agreement on a timetable for the jurisdictional phase of the arbitration.

21.

By letter dated 30 March 2009, the PCA, under instruction from the Tribunal, informed the Parties that the Tribunal had reached a determination regarding the timetable for the jurisdictional phase of the proceedings. Its decision stated that there was no need for a resubmission of Statement and Objections to Jurisdiction and Admissibility on the part of Respondent; that Claimant would have 90 days from the date of this letter to submit its Answer to such Objections; that Respondent would thereafter have 60 days for a Reply to such Answer; and that Claimant would then have 60 days for a Rejoinder to the Reply.

22.

On 12 May 2009, Mr. Eric Schwartz informed the Tribunal that having joined the law firm of King & Spalding he would continue to represent Ukraine in the arbitration, along with Messrs James Castello, Alain Farhad, and theirr co-counsel at Grischenko & Partners.

23.

On 29 June 2009, Claimant filed its Answer to Respondent’s Statement of Defense and Objections to Jurisdiction and Admissibility ("Answer"), in accordance with the timetable provided for in the PCA’s letter dated 30 March 2009.

24.

By letter dated 10 August 2009, Respondent informed the Tribunal that, due to the unavailability of numerous institutions and individuals in Ukraine during the summer holidays, it would not be in a position to submit its Reply on Jurisdiction within 60 days of receiving Claimant’s Answer. Respondent applied for an extension of the filing date from 28 August 2009 to 30 September 2009.

25.

By letter dated 11 August 2009, the PCA, under instruction from the Tribunal, invited Claimant to comment on Respondent’s letter of 10 August 2009.

26.

By letter dated 13 August 2009, Claimant informed the Tribunal that it would be prepared to agree to an extension of Respondent’s deadline for submission of its Reply from 28 August 2009 to 21 September 2009, provided that Claimant’s deadline for submission of its Rejoinder was extended concomitantly, from 27 October 2009 to 14 December 2009.

27.

By letter dated 13 August 2009, Respondent informed the Tribunal that it opposed Claimant’s proposal of an extension until 21 September 2009 and that it had requested an extension until the 30 September 2009 because the full extension was needed.

28.

By letter dated 17 August 2009, the PCA, under instruction from the Tribunal, informed the Parties that Respondent’s request to have the deadline for submission of its Reply on Jurisdiction extended until 30 September 2009 was granted, and that Claimant would be afforded the same extension of its Rejoinder on Jurisdiction, until 30 November 2009.

29.

By letter dated 24 August 2009, Claimant wrote to the Tribunal requesting an additional extension of its deadline for submission of its Rejoinder to Jurisdiction, from 30 November 2009 to 14 December 2009. Claimant noted that it had been authorized by Respondent to state that Respondent did not object to such an extension.

30.

By letter dated 31 August 2009, the PCA, under instruction from the Tribunal, informed the Parties that Claimant’s request dated 24 August 2009 had been granted and its deadline for submission of its Rejoinder would be amended in the agreed timetable to 14 December 2009. The PCA, under instruction from the Tribunal, further informed the Parties that the dates agreed upon for the hearing (29-31 March 2010) remained unchanged.

31.

On 30 September 2009, Respondent filed its Reply on Jurisdiction ("Reply"), in accordance with the timetable provided for in the PCA’s letters dated 30 March 2009, 17 August 2009 and 31 August 2009.

32.

On 14 December 2009, Claimant filed its Rejoinder on Jurisdiction ("Rejoinder"), in accordance with the timetable provided for in the PCA’s letters dated 30 March 2009, 17 August 2009 and 31 August 2009.

33.

By letter dated 25 January 2010, Respondent requested that the Tribunal order Claimant to produce to the Tribunal and Respondent certain documents which Respondent believed to be "important for the determinations the Tribunal must soon make"¹⁰ regarding the jurisdictional dispute between the Parties.

34.

By letter dated 27 January 2010, the PCA, under instruction from the Tribunal, invited Claimant to submit its comments on Respondent’s request of 25 January 2010 by 2 February 2010.

35.

By letter dated 2 February 2010, Claimant submitted reasons for which it believed Respondent’s request filed on 25 January 2010 should be rejected.

36.

By letter dated 9 February 2010, the PCA, under instruction from the Tribunal, informed the Parties of the Tribunal’s following decision with respect to Respondent’s request (referred to below as the "Request"):

1. The Tribunal notes that document production is primarily designed to assist the Parties in the preparation of their written pleadings, rather than their oral pleadings. In addition, the arguments raised in the Claimant’s Rejoinder have long been known to the Respondent. Any document request from the Respondent should have been filed following the submission in June 2009 of the Claimant’s Answer to the Respondent’s Objections to Jurisdiction and Admissibility, in which the Claimant’s arguments were originally submitted. In view of the foregoing and the long-established schedule of this case, the Request has been submitted at too late a stage to be accepted by this Tribunal.

2. As the Parties may recall, the Tribunal granted in August 2009 the one-month extension of time requested by the Respondent to file its Reply, on the understanding that this extension would not jeopardize the hearing dates that were being considered at the time, namely March 29-31, 2010. Later that month, the Tribunal also granted the extension of time that the Claimant requested to file its Rejoinder, and expressly confirmed that the hearing would be held on the above-mentioned dates. Due to the tardiness of the Request, it would be very difficult, if not impossible, to accommodate it without disrupting the hearing, a step which the Tribunal is not prepared to take.

3. For the reasons set out above, the Request is denied. Without prejudice to the Tribunal’s decision on jurisdiction, the Parties are further advised that if the Tribunal were to decide to join some jurisdictional issues to the merits, it would again assess whether the documentary evidence before it is sufficient. The Tribunal would have the opportunity to request the production of additional evidence relevant to these issues in the second phase of the proceedings. So would the Parties in their written pleadings on the merits.

37.

By letter dated 17 February 2010, the PCA, under instruction from the Tribunal, circulated Procedural Order No. 2 to the Parties concerning the organization of the hearing on jurisdiction scheduled for 29-31 March 2010.

38.

By letter dated 26 March 2010, Respondent filed a request for leave from the Tribunal to produce additional documents, attaching the documents in question.

39.

By letter of the same date, the PCA, under instruction from the Tribunal, invited Claimant to submit its comments on Respondent’s letter of 26 March 2010.

40.

On the same day, Claimant filed its comments regarding Respondent’s letter, along with new legal authorities. Claimant did not object to the admission of the new documents filed by Respondent but indicated that it "would expect that should it seek leave to file new exhibits of its own in the jurisdictional phase of this arbitration, Claimant would be afforded the same treatment."¹¹

41.

By letter dated 28 March 2010, the PCA, under instruction from the Tribunal, informed the Parties of the Tribunal’s decision (i) to admit the new documents that both Parties had submitted on 26 March 2010, and (ii) to draw the Parties’ attention to the fact that the rule prohibiting the submission of new documents "except with leave of the Tribunal for exceptional reasons" remained fully applicable.

42.

From 29 March through 31 March 2010, the hearing on jurisdiction was held at the Peace Palace, at The Hague, The Netherlands. Present at the hearing were:

Tribunal:

Professor Francisco Orrego Vicuña

The Honorable Charles N. Brower

The Honorable Marc Lalonde, P.C., O.C., Q.C.

For Claimant:

Mr. William B. McGurn III

Ms. Claudia Annacker

Mr. Cameron Murphy

Mr. Lorenzo Melchionda

Ms. Laurie Achtouk-Spivak

Ms. Alexandra Karaganova

Ms. Natalia Bourobina

Mr. Peter Gloushkov

Mr. Igor Nazarchuk

For Respondent:

Mr. Eric Schwartz

Mr. James Castello

Mr. Alain Farhad

Ms. Lorraine de Germiny

Mr. Dmitri Grischenko

Ms. Iryna Telychko

Permanent Court of Arbitration:

Daniel Drabkin

Paul-Jean Le Cannu

Court reporter:

Mr. Trevor McGowan

43.

Claimant is a publicly traded open joint stock company incorporated in accordance with Russian law and has its registered office in the Republic of Tatarstan,¹² a constituent republic of the Russian Federation. Tatneft is one of the largest producers of crude oil in Russia and produces 80% of the crude oil in Tatarstan.¹³ The Government of the Republic of Tatarstan holds a 36% interest and special voting rights in Tatneft.¹⁴ The rest of Tatneft’s shares is held by other investors.¹⁵

44.

Respondent is Ukraine, a sovereign State successor to the Ukrainian Soviet Socialist Republic.¹⁶

45.

Tatneft is a shareholder of the Transnational Finance and Production Petroleum Company Ukrtatnafta ("Ukrtatnafta"),¹⁷ a Ukrainian closed joint stock company¹⁸ that owns and operates the oil refinery in Kremenchug (the "Kremenchug Refinery").¹⁹

46.

The Kremenchug Refinery had been specifically designed during the Soviet era to process and refine oil extracted in Tatarstan, which is highly viscose and sulfurous.²⁰ With the dissolution of the Soviet Union and the creation of new international borders, the Kremenchug Refinery was separated from its oil supply located in Tatarstan.²¹ To enable its continued operation, Ukrtatnafta was established as "an integrated interstate economic complex of Ukraine and the Republic of Tatarstan" pursuant to the Treaty between the Government of Ukraine and the Government of the Republic of Tatarstan on Incorporation of Transnational Finance and Production Petroleum Company "Ukrtatnafta" concluded on 4 July 1995 (the "Ukrtatnafta Treaty").²² According to Article 4 of the Ukrtatnafta Treaty, "the minimum amount of oil to be supplied from the Republic of Tatarstan to Ukraine for refinement by the production facilities of the company [...] [would] be equal to or greater than 8 million tons per annum starting in 1996, including up to 4 million tons of oil in 1995."²³ The purpose of Ukrtatnafta was thus to exploit the Kremenchug Refinery efficiently and ensure an outlet for Tatar oil.²⁴ According to Claimant, because of its status as the largest producer of crude oil in Tatarstan, Tatneft was to be the principal supplier of oil to Ukrtatnafta under these arrangements.²⁵

47.

The conclusion of the Ukrtatnafta Treaty took place "within the framework of performance"²⁶ of the Treaty between the Government of the Russian Federation and the Government of Ukraine on Cooperation in Development of the Fuel and Energy Complexes signed on 7 September 1994 (the "1994 Fuel and Energy Cooperation Treaty").²⁷ Among other things, the 1994 Fuel and Energy Cooperation Treaty encourages the creation of joint ventures and interstate companies as a form of cooperation to address the problems affecting interconnected energy projects in the aftermath of the USSR’s dismemberment.²⁸

48.

On 27 November 1998, the Government of the Russian Federation and the Cabinet of Ministers of the Ukraine concluded the Russia-Ukraine BIT, the treaty under which Claimant brings its claims. The purpose of this treaty was, among others things, "to develop the basic provisions"²⁹ of the Agreement on Cooperation in the Field of Investment dated 24 December 1993 (the "1993 Investment Cooperation Agreement"), a multilateral agreement to which both Russia and Ukraine were signatory.³⁰

49.

Since its incorporation in 1995, Ukrtatnafta’s shareholding structure has undergone several changes. Pursuant to the Ukrtatnafta Treaty, Ukrtatnafta was incorporated "on a parity basis"³¹ and, in the words of the Parties, "as a 50:50 joint venture" between Russian and Ukrainian interests.³² Under the original shareholding structure, Ukrtatnafta was to be owned 20.01% by Tatneft, 29,734% by the State Committee of the Republic of Tatarstan on the State Property Administration (the "State Committee"), 49,986% by the State Property Fund of Ukraine, and the remaining fraction of a percentage by seven other shareholders.³³

50.

In exchange for its 20.01% share, Tatneft was to contribute "180.90 Million US Dollars in the form of the fixed assets pertaining solely to operation of the oil wells on 22 oil deposits within the territory of the Republic of Tatarstan [...] for the term of 20 years."³⁴ Tatneft did not, however, contribute those oil-related assets.³⁵

51.

On 20 May 1998, Ukrtatnafta entered into an option agreement with Zenit Bank (the "Option Agreement"), which acted as a trustee for Tatneft.³⁶ Pursuant to this agreement, Zenit Bank purchased an option on the acquisition of 30,000 shares in Ukrtatnafta with a nominal value of US$ 1,000 per share,³⁷ and agreed to transfer the sum of US$ 30 million to Ukrtatnafta prior to 1 June 1998 as payment for the option.³⁸ The option allowed Zenit Bank to demand repayment by Ukrtatnafta of the US$ 30 million "at any time" and at first demand Ukrtatnafta was required to "return the monetary funds."³⁹ The Option Agreement also provided that "the proposed participation of [Zenit Bank] in [Ukrtatnafta] shall be of temporary character and is aimed at an ownership of the block of shares for the benefits of JSC Tatneft until JSC Tatneft receives a license for buying out shares of a non-resident from [Zenit Bank]."⁴⁰ The term of the option was until 1 September 1998.⁴¹

52.

The option was paid for by Zenit Bank by 1 June 1998 using funds provided by Tatneft under a trust agreement.⁴² Shortly thereafter, at a general shareholders meeting on 10 June 1998⁴³ the 1995 Incorporation Agreement was modified⁴⁴ following an expert reappraisal of the Kremenchug Refinery⁴⁵ and the exit from the company of certain shareholders as General Meeting No. 2 of 19 July 1997, para. 2, Exhibit C-122; and Rejoinder, paras. 154-155. The second appraisal well as the entry of others.⁴⁶ In addition to a general reduction of the authorized capital of the company,⁴⁷ the shareholding of the State Property Fund of Ukraine, the State Committee and Tatneft were reduced,⁴⁸ while a Swiss company, Amruz Trading AG ("Amruz") was, amongst others, introduced to Ukrtatnafta’s shareholding capital.⁴⁹ The Amended Incorporation Agreement⁵⁰ outlined the following ownership structure: Tatneft would own 0,278% of the capital, the State Committee 28,779%, the State Property Fund of Ukraine 43,054%, Amruz 8,336%, Zenit Bank 8,336%, Limited Liability Company "G-Auto LTD" 8,336%, and small minority shareholders owned the remaining 2,881%.⁵¹ Tatneft was to contribute US$ 1 million for its shares by 10 September 1998.⁵²

53.

On 1 June 1999, Ukrtatnafta concluded share purchase agreements with Amruz and Seagroup International Inc. ("Seagroup"), the latter a company registered in the United States.⁵³ Amruz and Seagroup each paid for their shares in Ukrtatnafta with promissory notes.⁵⁴ As a result of these agreements, Amruz held 8,336% of the shares in Ukrtatnafta (representing US$ 30 million), and Seagroup held 9.96% of the shares in Ukrtatnafta (representing US$ 35,845,132).⁵⁵ According to the Chief Control and Audit Office of Ukraine, only one of Amruz’s thirty promissory notes was redeemed to Ukrtatnafta; similarly, out of the thirty-six promissory notes that Seagroup used as means of payment, only two were redeemed.⁵⁶ Ukrtatnafta subsequently sold the remaining promissory notes at a loss.⁵⁷

54.

On 23 May 2000, Ukrtatnafta’s shareholders decided "[t]o agree with the transfer of 123,474,000 shares in AO Ukrtatnafta with the value of US30 million from ZENIT Bank to AO Tatneft."⁵⁸ On 16 June 2000, Ukrtatnafta concluded a share purchase agreement with Zenit Bank for 123,474,000 shares at a total price of US$ 30 million.⁵⁹ The funds previously transferred to Ukrtatnafta by Zenit Bank pursuant to its Option Agreement⁶⁰ set off its payment obligations under the share purchase agreement.⁶¹ Soon thereafter the shares Zenit Bank held in Ukrtatnafta were transferred to Tatneft.⁶² On 14 August 2000, Tatneft also contributed US$ 1 million directly to Ukrtatnafta’s capital.⁶³ As a result of these transactions, Tatneft held 8,613% of the shares in Ukrtatnafta (representing US$ 31 million)⁶⁴

55.

At this time, the State Committe owned 28,778% of the shares in Ukrtatnafta⁶⁵ Amruz and Seagroup held 8,336% and 9,960% of the capital, respectively.⁶⁶ The shareholding of the State Property Fund of Ukraine, which then amounted to 43,054% of Ukrtatnafta’s capital,⁶⁷ was later transferred to NAK Naftogaz of Ukraine ("Naftogaz"), a Ukrainian oil and gas production company wholly owned and controlled by the Ukrainian Government.⁶⁸ Small minority shareholders owned the remaining 1,259% of Ukrtatnafta’s shares.⁶⁹

56.

Several of the above-described transactions have been litigated in Ukrainian courts and as a result further developments with respect to Ukrtatnafta’s shareholding structure have taken place.

57.

The acquisitions of shares in Ukrtatnafta by Amruz, Seagroup and Tatneft have been litigated extensively.

58.

On 8 August 2001, the State Property Fund of Ukraine initiated court proceedings seeking the invalidation of the share purchase agreements concluded between Ukrtatnafta and Amruz and Seagroup.⁷⁰ The State Property Fund was eventually unsuccessful in these proceedings.⁷¹ Naftogaz subsequently initiated court proceedings to obtain the invalidation of Article 5.3 of Ukrtatnafta’s Incorporation Agreement to the extent that it was amended to refer to the use of promissory notes by Amruz and Seagroup for the payment of their shares in Ukrtatnafta.⁷² The Supreme Court of Ukraine rejected Naftogaz’s request in its decision of 18 April 2006.⁷³ In May 2007, however, the Ministry of Fuel and Energy of Ukraine applied for and obtained interim relief requiring the transfer of Amruz’s and Seagroup’s shareholding in Ukrtatnafta to Naftogaz.⁷⁴

59.

In addition, in July 2007, the Prosecutor General of Ukraine initiated court proceedings seeking the invalidation of the share purchase agreements entered into by Seagroup and Amruz, and an order that the shares be transferred to the State.⁷⁵ The Kiev Economic Court upheld the Prosecutor General’s claims on 17 September 2007.⁷⁶ According to Respondent, the Kiev Economic Court of Appeal rejected appeals lodged by Amruz and Seagroup against the Economic Court’s decisions on 30 October 2007.⁷⁷

60.

Shortly thereafter, in December 2007, Tatneft paid US$ 57.1 million for all of the share capital of Seagroup and US$ 23.9 million for a 49% stake in Amruz.⁷⁸ On 14 December 2007, according to Respondent, the Kiev Economic Court ordered measures for the enforcement of its decision of 17 September 2007.⁷⁹

61.

In February 2008, the Supreme Court of Ukraine reopened the court proceedings brought by the State Property Fund of Ukraine in 2001⁸⁰ pursuant to a request from the Prosecutor General.⁸¹ On 28 May 2008, the Kiev Economic Court—to which the cases had been remanded for a new trial⁸²—annulled the share purchase agreements and ordered the return of Seagroup’s and Amruz’s shares to Ukrtatnafta.⁸³ The Kiev Economic Court’s decisions were subsequently confirmed by the Supreme Court of Ukraine.⁸⁴

62.

On 15 May 2008, according to Claimant, the proceedings initiated in July 2007⁸⁵ were stayed pending the decision of the cases reopened by the Supreme Court of Ukraine in February 2008.⁸⁶ On 10 February 2009, again according to Claimant, the Kiev Economic Court of Appeals discontinued the proceedings initiated in July 2007.⁸⁷

63.

Finally, on 31 March 2009 following an application by a Ukrainian company called Korsan, the Economic Court of the Poltava Region handed down a judgment ordering Ukrtatnafta to sell Amruz’s and Seagroup’s shares, which had been returned to Ukrtatnafta pursuant to the judgment of 28 May 2008.⁸⁸ According to Claimant, the auction of Amruz’s and Seagroup’s shares took place in June 2009, the winner of which was Korsan.⁸⁹ As a result, Korsan now holds over 20% of Ukrtatnafta’s shares.⁹⁰

64.

Even more recently, on 3 November 2009, the Economic Court of the Poltava Region declared that Tatneft’s acquisition of shares of Ukrtatnafta was unlawful and ordered Tatneft to return its shares to Ukrtatnafta.⁹¹

65.

On 22 September 1994, prior to Ukrtatnafta’s incorporation, Tatarstan and Ukraine agreed that the Chairman of Ukrtatnafta’s Supervisory Board would be a representative of the former, and the Chairman of the Management Board a representative of the latter.⁹²

66.

On 31 January 2003, the Ukrtatnafta Supervisory Board decided "[t]o accept the proposal from the Ukrainian State Property Fund for the appointment of Pavel Vladimirovich Ovcharenko as Chairman of the Management Board of ‘Ukrtatnafta’ JSC."⁹³ Mr. Ovcharenko entered into an employment contract as Chairman of Ukrtatnafta’s Management Board on 6 February 2003.⁹⁴ On 15 September 2004, the Chairman of the Supervisory Board of Ukrtatnafta dismissed Mr. Ovcharenko from his position as Chairman of the Management Board.⁹⁵ On 21 September 2004, the Dzerzhinsky District Court in Kharkov ruled that the Supervisory Board of Ukrtatnafta was prohibited from holding meetings and making decisions to appoint and remove the Chairman and members of the company’s Management Board.⁹⁶ On the same day, the members of the Supervisory Board of Ukrtatnafta were given notice of the initiation of proceedings to enforce the court’s ruling.⁹⁷ The Supervisory Board however confirmed its Chairman’s decision to dismiss Mr. Ovcharenko.⁹⁸ To fill the position, the Supervisory Board appointed Mr. Sergey Glushko as Acting Chairman of the Management Board.⁹⁹

67.

On 9 November 2004, following an application from Mr. Ovcharenko, the Avtozavodsky District Court in Kremenchug issued a decision reinstating Mr. Ovcharenko on the ground that his dismissal

[...] took place contrary to a court ruling prohibiting [Ukrtatnafta’s] supervisory board from holding any meetings to appoint and recall the chairman and members of its supervisory board, because the latter’s members were aware of that proscription at the time of their meeting in question, because the supervisory board there dealt with an issue which was reserved under applicable legislation exclusively for the company’s general meeting, and because during its termination of the claimant as chairman of the company’s management board, the supervisory board was governed by such provision of the employment contract as was at odds with Ukrainian employment legislation and was void.¹⁰⁰

68.

Mr. Ovcharenko was reinstated on 11 November 2004.¹⁰¹ In a general meeting of Ukrtatnafta’s shareholders held the following day, the removal of Mr. Ovcharenko from the position of Chairman of the Management Board was unanimously approved and the Supervisory Board was instructed to consider the appointment of Mr. Glushko to fill this position.¹⁰² The decision by the Avtozavodsky District Court of 9 November 2004 was subject to various appeal proceedings,¹⁰³ and was ultimately confirmed on 29 August 2007 by the Appellate Court of the Sumy Region.¹⁰⁴

69.

On 19 October 2007, the Head of the Enforcement Unit of the Department of State Enforcement Service of the Central Department of Justice in Poltava Region ordered the enforcement of the decision of 9 November 2004.¹⁰⁵ According to Claimant, on the same day, Mr. Ovcharenko entered Ukrtatnafta’s facilities with "a squad of more than fifty armed men and at least one bailiff’ and seized control of the refinery, its offices, and its bank accounts.¹⁰⁶ Claimant contends that Mr. Ovcharenko’s conduct has deprived Tatneft "of payment for oil already delivered and [has] prevented Tatneft from continuing to enjoy its role as the principal supplier of oil to Ukrtatnafta."¹⁰⁷ Since this seizure, Mr. Ovcharenko has remained in control of the company.¹⁰⁸

70.

According to Respondent, Naftogaz took steps to organize a general shareholders’ meeting for the purpose of considering the replacement of Mr. Ovcharenko in December 2007.¹⁰⁹ However, because the representatives of Tatneft and the Tatar shareholders did not attend the meeting, the quorum requirements were not met.¹¹⁰ According to Claimant, Tatneft did not participate in the general shareholders’ meeting in December 2007 because it had been "deprived of its status as a member of a control block [and] was bound to be outvoted by the very interests that had destroyed that block."¹¹¹

71.

Under Contract No. 3-0407 dated 23 April 2007, a company called Suvar-Kazan, which Tatneft describes as its Commission Agent,¹¹² agreed to sell oil to a Ukrainian entity called Avto to supply the Kremenchug Refinery; the value of the contract was estimated at US$ 1.8 billion.¹¹³ According to Claimant, Suvar-Kazan thus sold US$ 1.09 billion worth of oil to Avto that was delivered to Ukrtatnafta.¹¹⁴ Two other companies, Taiz LLC and Technoprogress, were involved as intermediaries in these oil sales to Ukrtatnafta.¹¹⁵ Ukrtatnafta failed to pay for the oil deliveries made pursuant to Contract No. 3-0407.¹¹⁶ As a result, Avto claims to have been unable to make the required payments under the contract.¹¹⁷ Tatneft in turn claims that "it is in fact owed US$ 439 million for oil it provided to Ukrtatnafta and US$ 81 million for damages incurred as a result of such failure to pay for the oil."¹¹⁸

72.

On 29 October 2007, Mr. Ovcharenko wrote to Tatneft to propose the signature of longterm oil supply contracts with Ukrtatnafta.¹¹⁹ On 2 November 2007, the First Deputy General Director of Tatneft wrote to Mr. Glushko to inform him that Mr. Ovcharenko’s request contained unacceptable mistakes and would not be considered by Tatneft.¹²⁰

73.

On 18 April 2008, Suvar-Kazan entered into an agreement with Avto, Taiz and Technoprogress whereby the latter three companies assigned their claims for unpaid oil to Suvar-Kazan.¹²¹ On the basis of this assignment agreement, Suvar-Kazan initiated proceedings before the State Arbitration Court of the Republic of Tatarstan (the "Arbitration Court") to recover a sum in excess of 2.6 billion Ukrainian hryvna, the equivalent of approximately US$ 583 million.¹²² The Arbitration Court upheld Suvar-Kazan’s claim in the amount of 2.5 billion Ukrainian hryvna, including penalties.¹²³ According to Claimant, evidence has been provided that less than US$ 4 million have been paid by Ukrtatnafta out of the US$ 439 million owed to Tatneft.¹²⁴

74.

The Tribunal will note other relevant facts in this case in connection with the examination of the Parties’ arguments.

75.

The dispute brought before this Tribunal has as a triggering event what has been considered by Claimant to be the illegal "seizure" and "forcible takeover" of the Kremenchug Refinery by Mr. Pavel Ovcharenko on 19 October 2007, which, in Claimant’s view, had the result that Tatneft failed to receive payment for oil shipments and incurred losses in excess of US$ 520 million. Claimant also asserts that it has been deprived of its role as the principal supplier of oil to Ukrtatnafta and that its investment in the latter company has been both harmed and put in peril. The amount claimed in compensation for loss of management rights and rights associated with its shareholding interest in Ukrtatnafta has been estimated by Claimant to be in excess of US$ 610 million.

76.

An additional claim in excess of US$ 1.3 billion has also been submitted in connection with damages arising out of the alleged expropriation of the Ukrtatnafta shares belonging to Amruz and Seagroup.

77.

Respondent denies that it has taken any action or been responsible for any inaction that might be in breach of the Russia-Ukraine BIT and submits that no damages have been proved by Claimant. Respondent has raised four main objections to the jurisdiction of the Tribunal and three concerning the admissibility of the claims, requesting their summary dismissal. Respondent’s objections to jurisdiction are premised on arguments against the application of the Russia-Ukraine BIT to this dispute. First, Respondent argues that a different treaty regime governs this dispute; second, Respondent contends that Claimant does not satisfy the definition of investor as provided in the Russia-Ukraine BIT; third, Respondent is of the view that Claimant has not made an investment under the Russia-Ukraine BIT; and fourth, Respondent argues that even if there was an investment, it was not made in conformity with Ukrainian law, and therefore does not satisfy the requirements for protection under the treaty. Respondent also objects to the admissibility of claims brought on behalf of Amruz and Seagroup, the admissibility of claims for unpaid oil deliveries, and finally objects that Tatneft has failed to state an arguable case concerning the alleged harm to its rights as a shareholder. As will be explained, this last objection was later partially withdrawn. These objections are addressed and decided in this Partial Award.

78.

It is Respondent’s view that this case is not an investor-State arbitration but a dispute relating to an intergovernmental project, the Ukrtatnafta joint venture between Tatarstan and Ukraine.¹²⁵ Respondent maintains that since Ukrtatnafta was established pursuant to the Ukrtatnafta Treaty, which in turn was concluded within the framework of the 1994 Fuel and Energy Cooperation Treaty, a comprehensive regime governs the Ukrtatnafta project as a whole, including the procedures for the settlement of disputes that might arise.¹²⁶

79.

Such procedures are provided for under Article 14 of the 1994 Fuel and Energy Cooperation Treaty. Article 14 provides that:

Disputed issues arising between business entities of the Parties in the execution of the agreements negotiated on the basis of the present Treaty shall, by agreement of the Parties, be subject to review by state arbitrage courts, provided no mutually acceptable solution was found theretofore.

Issues arising out of interpretation or application of the provisions of this Treaty shall be settled through negotiation and consultation in accordance with the rules of international law.¹²⁷

80.

The first paragraph of Article 14 refers disputes between business entities to "state arbitrage courts," which are explained to be the ordinary judicial commercial courts.¹²⁸ The second paragraph refers issues arising out of interpretation or application of the Treaty to settlement "through negotiation and consultation in accordance with the rules of international law." Also the Ukrtatnafta Treaty provides in Article 11 that the Parties "shall settle all disputes related to the interpretation and fulfillment of the present Treaty by way of negotiation and consultation."¹²⁹ Disputes between "entities of the Parties" shall under Article 12(2) of the latter Treaty be dealt with by civil courts, state arbitrage courts and arbitration tribunals.¹³⁰

81.

Relying on the findings of the International Court of Justice in the Right of Passage case¹³¹ and those in the Tunisia/Libya Continental Shelf case,¹³² Respondent argues that the Ukrtatnafta Treaty regime is a case of lex specialis that will prevail over any other dispute settlement arrangements of a more general kind, such as those of the Russia-Ukraine BIT, which is thus inapplicable to this dispute.¹³³ Respondent notes, moreover, that as held in the Mavrommatis Palestine Concessions case¹³⁴ and in the Southern Bluefin Tuna case,¹³⁵ the principle of lex specialis also applies in the context of dispute resolution.

82.

In Respondent’s view, any recourse to the Russia-Ukraine BIT would upset the carefully-agreed dispute settlement arrangements expressly made by the parties to the specific treaties governing the Ukrtatnafta project noted above. As noted in the Wintershall case,¹³⁶ protecting the parties’ agreement on a specific dispute resolution mechanism is a matter of importance. Respondent also notes that recourse to the Russia-Ukraine BIT would put Ukraine at a disadvantage as it could not bring potential counterclaims in relation to Tatarstan’s oil delivery obligations because it would only allow for Russian investors to claim against Ukraine.¹³⁷ In addition, because the investment was made in Ukraine, it would not be possible either, in Respondent’s view, for it to launch a parallel "investor" claim against Russia or Tatarstan to address the "complaints it might have concerning Tatarstan’s or the Russian Federation’s defective implementation of the Ukrtatnafta project."¹³⁸

83.

Claimant asserts to the contrary that the present dispute is governed by Article 9 of the Russia-Ukraine BIT as it relates specifically to the fact that Tatneft is a qualified investor that has made an investment covered by the Russia-Ukraine BIT and which is thus entitled to its protection.¹³⁹ Claimant notes in particular that Article 9 of the Russia-Ukraine BIT applies to "[a]ny dispute between one of the Contracting Parties and an investor of the other Contracting Party arising in connection with investments [...]".¹⁴⁰

84.

Claimant further argues that the principle of lex specialis applies "only where the parties and subject matter of conflicting norms are the same,"¹⁴¹ a situation not present in this dispute because the subject matter of the 1994 Fuel and Energy Cooperation Treaty and the Ukrtatnafta Treaty are not concerned with investment protection but with pursuing cooperation in the energy field and the establishment of Ukrtatnafta following the dissolution of the Soviet Union.¹⁴² It is noted that only the Russia-Ukraine BIT, signed more than three years later than the Ukrtatnafta Treaty was concluded, governs investment disputes, which is further confirmed by the fact that the Russia-Ukraine BIT makes no reference to those other treaties and instead relates to the 1993 Investment Cooperation Agreement.¹⁴³

85.

Claimant submits in this context that the Russia-Ukraine BIT refers to disputes between different parties and concerns subject matters different from the 1994 Fuel and Energy Cooperation Treaty and the Ukrtatnafta Treaty.¹⁴⁴ It notes in particular that this dispute is not between "business entities of the Parties" or "entities of the Parties," as provided for by those other treaties, but it is a dispute between a Russian investor and Ukraine.¹⁴⁵ Moreover, the present dispute does not concern the interpretation or application of those other treaties. In any event, even if the dispute concerned issues of interpretation and application, this would not divest this Tribunal of jurisdiction as held in the Mox Plant case¹⁴⁶ or as evidenced by numerous situations of concurrent jurisdiction between international tribunals.¹⁴⁷

86.

Both the Southern Bluefin Tuna case and the Mavrommatis case, on which Respondent relies, are, in Claimant’s view, inapposite in the present dispute because the first did not cancel out dispute settlement mechanisms in another treaty, and the second did not exclude jurisdiction over issues which could not have been submitted to alternative procedures.¹⁴⁸

87.

This first objection to the Tribunal’s jurisdiction concerns in essence a question of treaty interpretation as to the operation of the principle of lex specialis. The Tribunal is called upon to decide which of two sets of treaties is to govern the present dispute as far as jurisdiction is concerned. The first set, relied upon by Respondent, is the 1994 Fuel and Energy Cooperation Treaty and the Ukrtatnafta Treaty, the latter being concluded "within the framework of performance of’ the former.¹⁴⁹ The second set, relied upon by Claimant, is the 1993 Investment Cooperation Agreement and the Russia-Ukraine BIT, the latter being concluded to "develop the basic provisions of’ the former.¹⁵⁰

88.

The dispute settlement provisions of these sets of treaties, as noted above, lead in opposite directions. The first set envisages negotiation and consultation for disputes concerning the application or interpretation of the treaties at issue,¹⁵¹ which is often the case in intergovernmental disputes, and contemplates domestic court proceedings for disputes relating to agreements entered into by "entities" or "business entities" of the parties.¹⁵² The second set, however, provides specifically for investor-State arbitration when the dispute concerns measures affecting a protected investor and a qualifying investment.¹⁵³

89.

This discussion involves issues that often arise when competing titles to jurisdiction are involved. While in this case, in spite of the intense litigation before both Russian and Ukrainian courts, no competing jurisdiction appears to have arisen between different international tribunals, parallel rules on dispute settlement have indeed been invoked. As the jurisdiction of this Tribunal depends on which set of treaties should be applied, the question is also which international legal rules governing dispute settlement should prevail.

90.

Although international law, or for that matter private law, does not thus far provide clear-cut rules on how to solve questions of concurrent jurisdiction, there are nonetheless some rules and principles that offer appropriate guidelines. The first such situation, not quite common, is when a treaty itself will establish the jurisdictional priority or exclusivity of one forum over another,¹⁵⁴ but this has not happened in this dispute. A second approach is that resulting from the operation of the principle of lex specialis.

91.

Claimant has convincingly argued that lex specialis requires identity between the parties and the issues concerned so as to give rise to a situation where different sets of rules might be opposed or contradictory.¹⁵⁵ In this case, identity is not quite evident because on a prima facie basis Tatneft and Ukraine are not simply "business entities of the Parties" or "entities of the Parties" as respectively referred to under the 1994 Fuel and Energy Cooperation Treaty and the Ukrtatnafta Treaty.¹⁵⁶ More complex arrangements and participations are involved in this dispute as shown by the facts in the record. Whether there is in this case a protected investor and a qualifying investment, elements which are essential for the operation of the Russia-Ukraine BIT, will be discussed below in connection with separate objections to the Tribunal’s jurisdiction.

92.

In deciding cases of concurrent jurisdiction it is of the essence to ascertain whether the same, or related, parties and the same, or related, issues are in dispute, for otherwise there will be no conflict of rules. A Resolution adopted in 2003 by the Instituí de Droit International on the doctrine of forum non conveniens in private international law, concluded that "[p]arallel litigation in more than one country between the same, or related, parties, in relation to the same, or related, issues, should be discouraged."¹⁵⁷ It can be similarly concluded here that any concurrent international legal title to jurisdiction would require identical parties and issues, and that even then parallel litigation should be discouraged.

93.

The Tribunal is also mindful of the difficulty to establish which set of rules is lex generalis and which is lex specialis. Respondent, as noted, asserts that the 1994 Fuel and Energy Cooperation Treaty and Ukrtatnafta Treaty are lex specialis because they were specifically designed to govern the energy and fuel cooperation between Tatarstan and Ukraine and the Kremenchug Refinery project, and thus they prevail so as to deprive the Tribunal of jurisdiction over this dispute. Claimant, to the contrary, believes that only the investment arrangements and the Russia-Ukraine BIT contain the applicable dispute settlement provisions, and thus the 1994 Fuel and Energy Cooperation Treaty and Ukrtatnafta Treaty do not govern this dispute as far as jurisdiction is concerned.

94.

Were this dispute purely a diplomatic one involving two governments or States, the Tribunal would have no doubt about the appropriateness of resorting to the 1994 Fuel and Energy Cooperation Treaty and Ukrtatnafta Treaty in respect of their interpretation or application. But the dispute evidently goes beyond that framework. While the Ukrainian State is involved as one of the parties, the other side consists of various entities that have intervened in the origin and development of the project, including Russia, Tatarstan and public and private entities. In addition, the main activities of Tatneft and Ukrtatnafta as described by the Parties, namely the production and the supply of oil and the operation of a refinery¹⁵⁸ with a view to securing profits,¹⁵⁹ are essentially of a business nature.¹⁶⁰ It is in the context of these activities that a dispute arose regarding shareholders’ rights and control of the Kremenchug Refinery, and the alleged non-payment for oil deliveries. To that extent, the nature of the dispute is more related to business investments and activities, a fact that points in the direction of deciding for the application of the Russia-Ukraine BIT and related provisions, subject to the jurisdictional requirements of the latter being met.

95.

The Tribunal notes Respondent’s argument to the effect that the application of the Russia-Ukraine BIT would put Ukraine at a disadvantage because it could not submit a counterclaim nor launch an investor claim. Insofar as such counterclaim might concern Claimant, there is no impediment to it being introduced because that is a right in international arbitration, as envisaged under Article 19(3) and (4) of the UNCITRAL Arbitration Rules. If it concerns other entities, such as the Tatarstan or Russian Government, the very same provisions of the Ukrtatnafta Treaty or 1994 Fuel and Energy Cooperation Treaty invoked by Respondent would be available for it to take action in respect of obligations undertaken by those Governments.

96.

The Tribunal is also mindful that the Parties have invoked various decisions of international courts or tribunals in support of their arguments. It should be noted in this respect that, in all the pertinent cases, the Permanent Court of International Justice ("PCIJ")—which was instrumental in clarifying the issues associated with concurrent jurisdiction under treaties between two parties—decided in favor of its jurisdiction in spite of requests to decline in favor of some other jurisdiction. So was done in the Mavrommatis case,¹⁶¹ although only in respect of a preliminary issue, as was done in the Chorzow Factory case¹⁶² and in the Rights of Minorities case.¹⁶³

97.

In the Electricity Company of Sofia case, the PCIJ took the view that new jurisdictional arrangements should not be understood as necessarily excluding earlier arrangements.¹⁶⁴ Neither could of course earlier arrangements be understood as excluding later ones.

98.

This interplay of dates is also to be noted in the present case since, on the one hand, the 1993 Investment Cooperation Agreement came ahead of the 1994 Fuel and Energy Cooperation Treaty and Ukrtatnafta Treaty and, on the other hand, the Russia-Ukraine BIT was signed after the Ukrtatnafta Treaty was concluded. None of it, however, bears on the present dispute in view of the finding that the nature of the dispute under the Russia-Ukraine BIT is in principle different from the type of dispute envisioned by the dispute settlement arrangements under the Ukrtatnafta Treaty and the 1994 Fuel and Energy Cooperation Treaty.

99.

The Tribunal must also note that the decision in the Southern Bluefin Tuna case argued by the parties, in spite of having been much criticized in the legal literature, came to the right conclusion in view of the fact that there were specific dispute settlement arrangements in force between the parties to that dispute, different from those under the Law of the Sea Convention. Moreover, as argued by Claimant, that decision did not cancel out dispute settlement mechanisms in the latter Convention.¹⁶⁵ In a different context, the Mox Plant arbitration involved an issue of exercise of judicial deference in favor of the European Court of Justice, where two treaties also prompted an issue of concurrent jurisdiction.¹⁶⁶

100.

Even if it were concluded that in this case the Parties are identical, this does not impact the operation of the dispute settlement arrangements under the Russia-Ukraine BIT in light of the conclusion that the dispute, due to its business nature, falls more accurately within the ambit of such arrangements than any alternative mechanism. Thus, the provisions of the BIT are to be regarded as the lex specialis governing dispute settlement in this case.

101.

Respondent objects to the jurisdiction of the Tribunal on the ground that Claimant is not an investor protected under the Russia-Ukraine BIT because it is controlled by the Government of Tatarstan, a fact that should prevail over Claimant’s assertion that its shares are publicly traded in the form of global depository receipts and ordinary shares on various stock exchanges in Europe and Russia.¹⁶⁷

102.

Respondent argues in support of this view that Tatarstan holds approximately 36% of Tatneft voting stock by the intermediation of a company wholly-owned by the Government of Tatarstan and other corporate arrangements.¹⁶⁸ Moreover, the Tatar Government holds a "golden share" which, as disclosed by Claimant to the United States Securities and Exchange Commission ("SEC"), enables it to veto major decisions of shareholders, including changes in capital stock, charter amendments, liquidation or reorganization of Tatneft, and entering into major or interested party transactions, among other powers.¹⁶⁹ Respondent also contends that Claimant does not provide any information as to who are the beneficial owners of the shares not directly owned by Tatarstan. Respondent points to a 2005 report by Standard & Poor (the "S&P Report") finding that more than 50% of Tatneft’s share capital is controlled by the Tatar State.¹⁷⁰

103.

Respondent further argues that the Tatar Government also controls the Board of Directors of Tatneft as the Prime Minister is the Chairman of the Board and five other high government officials participate in it, together with a number of employees of Tatneft.¹⁷¹ In the filing noted above, Claimant explained to the SEC that "Tatarstan [owns], directly or indirectly, controlling or substantial minority stakes in [...] virtually all of the major enterprises in Tatarstan."¹⁷²

104.

The control of Tatneft, Respondent further maintains, also results in the use of this company by the Government for public policy purposes, such as maintaining employment levels, expending on social assets, selling oil to certain customers or raising funds for the benefit of the Government.¹⁷³ Raising capital or paying debt for the Government has also been a consequence of that dependency.¹⁷⁴ Respondent believes that the company is also used to implement Russia’s geopolitical policies, particularly so as to reduce oil supplies to certain countries not of the like of the Russian Government.¹⁷⁵ The presence of these factors is indicative that Tatneft is controlled by the Government of Tatarstan and is being used for public, non-commercial purposes, particularly in relation to the Ukrtatnafta project.¹⁷⁶

105.

In Respondent’s argument, Tatneft "acquired its shareholding in Ukrtatnafta only because the Republic of Tatarstan designated Tatneft as a shareholder."¹⁷⁷ It follows that Tatneft is in essence a vehicle of Tatarstan for the purposes of Ukrtatnafta.¹⁷⁸ Tatneft’s participation in the project was decided under the Ukrtatnafta Treaty and the company was designated as one of Tatarstan’s representatives in Ukrtatnafta. Further evidence of this relationship is found in the fact that in October 2006 Tatneft and the Tatar Government entered into a five-year fiduciary management agreement under which Tatneft proposed candidates for the Ukrtatnafta’s governing bodies and voted the Government’s shares subject to instructions of the Government.¹⁷⁹

106.

On this background, Respondent asserts that Tatneft is an emanation of the Republic of Tatarstan, itself a subdivision of the Russian Federation, and should be treated identically to the State.¹⁸⁰ Whether a structural or functional test, or a combination thereof, is applied in this case, Tatneft’s situation is not different from that of SODIGA in the Maffezini case,¹⁸¹ in which a private commercial corporation with State participation in its stock was found to be governmental in nature because its aims were the development of new industries, with the result that Spain was held internationally responsible for the company’s conduct towards investors. The same conclusion was reached in Salini v. Morocco¹⁸² in respect of a company entrusted with the development of public works.¹⁸³

107.

In Respondent’s understanding, the definition of investor under Article 1(2) of the Russia-Ukraine BIT does not extend to a Contracting State party to that treaty; it only refers to "any natural person" and to "any legal entity" to the extent that one or the other is legally capable of carrying out investments in the territory of the other Contracting Party, and subject to requirements of nationality or incorporation.¹⁸⁴ Although such reference to "any legal entity" is broad, a State is a different category of foreign investor as understood under both Russian and Ukrainian law. In fact, the Russian investment law of 4 July 1991 considers "foreign states" as separate from foreign legal persons and foreign citizens;¹⁸⁵ so too the Ukrainian foreign investment law of 1996 considers "foreign countries, international governmental and non-governmental organizations" as a category different from legal entities and natural persons.¹⁸⁶

108.

Respondent takes the position that the Russia-Ukraine BIT does not refer at all to investments by States or State entities and is only concerned with the case of individuals and private companies, just as is the case with investment arbitration generally.¹⁸⁷ Moreover, both Ukraine’s and Russia’s treaty practice has been to expressly include government-controlled entities when they have intended to have their investments protected,¹⁸⁸ but this was not the case of the Russia-Ukraine BIT in spite of the fact that various inter-governmental agreements relating to joint projects between both countries were in force at the time the Russia-Ukraine BIT was concluded. When a State wishes to protect its own interests it does not need to rely on investment treaty claims but can resort directly to diplomatic protection and negotiations.¹⁸⁹

109.

In Respondent’s argument, the basic principle applicable in this matter was noted in the CSOB case¹⁹⁰ to the effect that State-controlled entities discharging governmental functions or acting as agents of the government should not be treated as nationals of another Contracting State under Article 25 of the ICSID Convention, but since it was concluded that this was not the case in that dispute the tribunal affirmed its jurisdiction.¹⁹¹ Respondent asserts that it is positively the case here and that that principle is not restricted to the ICSID Convention but is rooted in the customary law rules on attribution, as reflected in Article 5 of the International Law Commission ("ILC") Articles on State Responsibility.¹⁹² Relying by analogy on the ILC Articles on State Responsibility,¹⁹³ Respondent argues that Tatneft’s shareholding participation in Ukrtatnafta meets the test for attribution under Articles 5 and 8 and relevant arbitration awards, and thus constitutes, in the words of Mr. Zachary Douglas, a "sovereign investment activity" that does not qualify for protection under the BIT.¹⁹⁴

110.

In this context it is also argued by Respondent that it is not appropriate to examine only the nature of the activity undertaken but also its purpose, which in this case is inextricably related to governmental policies and functions.¹⁹⁵ It is pointed out that in fact the transformation of a former State entity into Tatneft as a joint stock company following the demise of the Soviet Union has not resulted in independence from the Government.¹⁹⁶ The shareholding structure explained above, coupled with the "golden share" privileges and Tatarstan’s control of Tatneft’s management, are each expressions of such public purpose, and so is Tatneft’s support of public policies and financial operations that only benefit the Government.¹⁹⁷

111.

Finally, Claimant erroneously argues that its participation in Ukrtatnafta could not be held to have been pursuant to government direction because, if this were true, Claimant would have been entitled to immunity, which it was not.¹⁹⁸ In Respondent’s view, Claimant wrongly assumes that an entity that does not qualify as an investor under the BIT would necessarily be entitled to immunity.¹⁹⁹ In any event, Claimant did not raise any argument involving immunity before the Ukrainian courts.²⁰⁰

112.

Respondent concludes that Tatneft was involved in the Ukrtatnafta project to act as the agent for Tatarstan and discharge its obligations under the Ukrtatnafta Treaty, thus furthering both States’ energy policies.²⁰¹ Both the nature and the purpose of Tatneft’s participation in Ukrtatnafta points to the exercise of governmental functions which preclude the protection of this instrumentality as an investor under the Russia-Ukraine BIT, thus resulting in the Tribunal’s lack of jurisdiction in this dispute.²⁰²

113.

Claimant believes the situation to be quite different from the view put forth by Respondent. Following the collapse of the Soviet Union, the assets of Tatneft Amalgamation, a State-owned and operated company, were transferred to Claimant, OAO Tatneft, a newly-incorporated joint stock company.²⁰³ Privatization followed by the sale in 1994 of portions of its shares to managers and workers, and after 1996 by public offering of depository receipts in London, New York and Frankfurt stock exchanges.²⁰⁴ As a result of this process of privatization, approximately 65% of Tatneft shares are presently owned by private shareholders unrelated to Tatarstan.²⁰⁵ Claimant further argues that while it is impossible for Tatneft, a publicly traded company, to know each of the beneficial owners of its shares, it is clear that the Tatar Government owns no more than 36% of Tatneft’s shares, directly and indirectly. The S&P Report’s conclusion that Tatarstan controls more than 50% of Tatneft's share capital is simply unsupported.²⁰⁶

114.

It is further explained that only six out of fifteen members of the Board of Directors are officials of the Government of Tatarstan.²⁰⁷ The principal objective of the company, as any other major oil company, is to undertake for-profit activities, and the fact that it might also undertake activities relating to its social responsibility does not make it an emanation of the Republic of Tatarstan.²⁰⁸

115.

In Claimant’s view, Respondent has failed to prove that Tatneft is owned or controlled by the Republic of Tatarstan, and not even the fact that the latter owns a golden share changes this conclusion as it can only appoint one member of the Board of Directors and exercise some other limited veto rights not unknown to many other companies.²⁰⁹ The Executive Board does not include any person holding a position in the Tatar Government nor is the General Director a government official.²¹⁰ While filings before the SEC have been invoked by Respondent to prove government control over Tatneft, this amounts only to a disclosure of all kinds of risks that could give rise to liability if not disclosed, but does not state or suggest that Tatneft is under such control.²¹¹ Tatneft is also subject to anti-monopoly legislation and operates in a competitive environment.²¹²

116.

Never has Tatneft exercised sovereign functions that could be equated to functions de jure imperii, not even at the time of the Soviet Union, because it was a production unit the mission and core business of which were oil drilling and refining.²¹³ Not even the alleged financial transactions that Respondent invokes as evidence of government control amount to more than one-time occurrences in the form of loans that were repaid to Tatneft.²¹⁴ Claimant further maintains that it does not implement Tatarstan’s domestic policies except to the extent mandated by law to every company, and even less so does it implement the Russian Federation’s foreign policy.²¹⁵

117.

It is also argued by Claimant that its participation in the Ukrtatnafta project is not to serve as the Tatar Government’s agent under the Ukrtatnafta Treaty, but only to contribute in the framework of the commercial nature of the project to the recreation of the integrated oil production and refining complex that had existed before international borders were set following the collapse of the Soviet Union.²¹⁶ Also Ukrtatnafta was incorporated as a commercial company to attend these ends.²¹⁷ It is not for Tatneft to perform the obligations of Tatarstan as to the supply of oil under the Ukrtatnafta Treaty and this could have been done by any other company.²¹⁸

118.

It is also explained that at first Tatneft and Tatar Government officials attended the Ukrtatnafta General Meetings separately, and the fact that later a power of attorney was given to Tatneft to undertake such representation does not prove dependency but, to the contrary, shows that since the outset Tatneft was not conceived as representing the Tatar Government for otherwise those powers of attorney would be unnecessary.²¹⁹

119.

Claimant also argues that, in any event, whether Tatneft is a private or public company is irrelevant for qualifying as an investor under Article 1(2) of the Russia-Ukraine BIT since it satisfies both the requirement of having been instituted in accordance with Russian legislation and being legally able under that legislation to carry out investments in Ukraine.²²⁰ Neither of these requirements excludes publicly-owned or controlled investors which, moreover, are expressly envisaged as investors under the Russian investment law noted above.²²¹ Russian treaty practice also reflects this broad understanding of the concept of investor, with the sole exception of the bilateral investment treaties of both Russia and Ukraine with the United States because of the policy followed by the latter in this respect.²²² Similarly, Respondent’s efforts to rely on the European Convention of Human Rights so as to deny protection to public investors under the Russia-Ukraine BIT do not alter such understanding in light of the fact that Article 34 of the Convention, unlike the Russia-Ukraine BIT, excludes governmental entities from lodging individual complaints.²²³ While Respondent cannot find any support in Article 1(2) of the BIT to exclude public or mixed entities from the definition of investor,²²⁴ Respondent’s analogy argument based on the international law on attribution is equally unsupported.²²⁵ According to Claimant, "(t)here are no rules of attribution of general applicability under international law, and there is no justification for applying the rules of attribution that form part of the law of State responsibility as such to other areas of international law."²²⁶

120.

Claimant also maintains that, as held in Saluka, the "Tribunal cannot in effect impose upon the parties a definition of ‘investor’ other than that which they themselves agreed."²²⁷

121.

In Claimant’s view, Maffezini dealt with a different matter, namely the requirements of Article 25(1) of the ICSID Convention as to qualifying investors, a situation not given in the instant case because no such limitations apply to non-ICSID arbitration and because the Russia-Ukraine BIT specifically contains a definition of investor.²²⁸ It is explained that Russia is not a party to the ICSID Convention nor does the Russia-Ukraine BIT provide for the choice of ICSID arbitration.²²⁹ Furthermore, the 1993 Investment Cooperation Agreement specifically includes "the member-states [...] and the state and administrative-territorial entities," thus including both public and private investments, an objective which the Russia-Ukraine BIT has preserved.²³⁰

122.

It follows, in Claimant’s argument, that Tatneft is a private commercial entity not controlled de jure or de facto by the Tatar Government, and it does not carry out governmental functions.²³¹ Should a structural test be applied to reach a determination, the nature of Tatneft’s activity shows that it is different from the exercise of governmental authority since investing in a downstream refinery to process its oil is not a governmental function, as concluded in respect of another commercial activity in Jan de Nul.²³² If a functional test were applied, it would lead, as in CSOB, to the conclusion that even if Claimant were promoting governmental policies and purposes, these would not lose their commercial nature.²³³

123.

It is further noted that Tatneft could not and has not claimed immunity from jurisdiction before a foreign court, what might have been done if its activities were considered to be jure imperii, as concluded in respect of the National Iranian Oil Company by the Court of Appeals of The Hague.²³⁴ Consequently, the Ukrainian courts would have been prohibited from taking measures of constraint.²³⁵

124.

Claimant argues lastly that all the cases that have applied the structural test to some effect involve situations where the government’s capital participation is above 51% or effectively designates or controls the company’s management.²³⁶ Any attempt to pierce Tatneft’s corporate veil, as Respondent pretends, would be entirely unwarranted in light of the corporate structure explained above.²³⁷

125.

Article 1(2) of the Russia-Ukraine BIT provides that:

‘Investor of a Contracting Party’ shall imply: a) any natural person, who is a citizen of the state of a Contracting Party, and who is legally capable under its respective legislation to carry out investments on the territory of the other Contracting Party; b) any legal entity, set up or instituted in conformity with the legislation prevailing on the territory of the given Contracting Party, under the condition that the said legal entity is legally capable, under the legislation of its respective Contracting Party, to carry out investments on the territory of the other Contracting Party."²³⁸

126.

As summarized above, Respondent argues that Claimant does not qualify as an investor under this definition.²³⁹

127.

The arguments set out by Respondent raise two main questions. The first question is whether or not Tatneft is State-controlled. If this is answered in the affirmative, the second question is whether as such it would nonetheless qualify as an investor under the Russia-Ukraine BIT. As will be explained, the Tribunal is persuaded that the first issue should be answered negatively, and thus there shall be no need for the Tribunal to examine the second question.

128.

The Tribunal shall to this end begin with an examination of what has come to be known as a "structural test." Both Parties appear to agree on the fact that from a strict legal point of view Tatneft is a corporate entity separate from the Tatar Government, incorporated as a joint stock company and endowed with its own corporate legal personality. This is also quite evidently a matter of record which the Tribunal accepts as established.

129.

The question then turns to an examination of whether in fact governmental control is in place in respect of Tatneft. There is undoubtedly a government presence in Tatneft’s governing bodies and some features of its operations. The fact that the Tatar Prime Minister is the Chairman of the Board of Directors, that some other government officials participate in it, and that Tatarstan owns a so-called "golden share" resulting in some veto rights and administration privileges, points in that direction.

130.

Those aspects of government presence, however, are not in themselves enough to reach a conclusion on the issue before the Tribunal. It is also necessary for the Tribunal to note that the Tatar Government’s shareholding is limited to 36% of the stock, that the participation of Tatar Government officials in the Board does not constitute a majority of its members, and that the "golden share" privileges have not been shown to have been exercised in the conduct of Tatneft’s affairs, as explained by Claimant. The argument that the Tatar Government’s shares are held by means of a wholly-owned government entity²⁴⁰ does not change the factual situation noted above; nor for that matter does the allegation that the rest of the shares in Tatneft are owned by individuals or entities that could be related to that Tatar Government. While the S&P Report points out that "obscure intermediary vehicles are used for the control by regional authorities in Tatneft,"²⁴¹ this assertion, besides its rather general scope, does not appear to offer evidence on which the Tribunal could rely to establish that government control in fact exists. Therefore, in the absence of specific evidence in this respect there would be no justification to undertake the piercing of Tatneft’s corporate veil nor would this appear to meet the strict legal conditions normally required for such a piercing.

131.

The transition of Tatneft from a State company to a commercial joint stock corporation has followed a pattern which is rather typical of the former Soviet Republics that have substituted market economy models for their past centrally-planned status. Privatization has usually accompanied this transition, as is the case here. This transition is not unknown to Western economies either, as noted by the Maffezini decision in the case of SODIGA in Spain and by many other cases in which State-owned companies have been privatized. In this context it is not unusual that the government will retain certain rights, particularly in respect of the structure of the capital stock or charter amendments.

132.

These surviving rights do not suggest, however, that the company keeps on being a State-owned entity or that the transition in question is fictitious unless other expressions of control are available, such as government ownership of a majority of the capital stock, as was the case in Maffezini, Salini v. Morocco and others noted above in the context of Claimant’s argument. Significant control of management and operational decisions might offer other indications of factual State ownership, but such control does not appear to be present in this case.

133.

In connection with the structural test, tribunals have also examined on occasions whether the nature of the activity undertaken would be indicative of some form of exercise of sovereign authority associated to the concept of jure imperii, as was the case in Jan de Nul noted above. Claimant’s argument to the effect that investing in a downstream refinery to process the oil produced in another country cannot be considered an activity de jure imperii, or is in some other way attributable to the State, is persuasive. While in some countries oil production and refining is done by private companies, in others it is done by public entities, but even the latter will not normally be operating in the context of sovereign powers. The Tribunal must accordingly conclude that the structural test for establishing government control has not been met in the instant case.

134.

The fact that Tatneft has not invoked sovereign immunity before the courts of Ukraine has also been raised as an argument to justify that it is thus not a State-owned or controlled entity. The Tribunal does not believe this argument to be dispositive of the issue since not claiming immunity does not mean that it could not have been invoked as a matter of law if the entity so claiming qualifies for this jurisdictional protection. The Tribunal must note, however, that the distinction between jure imperii and jure gestionis was born in the context of claims to sovereign immunity, so as to prevent jurisdiction in the first case and allow for it in the second.

135.

The Tribunal must proceed to examine next whether in spite of government control not having been shown from a "structural" point of view, there might still be a case for finding that the "functional test" is met. Respondent believes in this respect that in fact Tatneft is used by the Tatar Government to pursue its public policies, expressed in terms of employment goals, social undertakings, the supply of oil to preferred clients, budgetary contributions and raising capital for public purposes, among other expressions.

136.

Claimant itself has explained that some such purposes have been pursued in the context of the company’s activities, but that these have been for the most part imposed by law on every company incorporated in Tatarstan, or are policies that any major company might pursue anywhere in the world in terms of social responsibility. It has also been noted that financial transactions have taken the form of repayable loans and that in any event they are one-time occurrences.

137.

As with the structural test, the Tribunal is convinced that some such functional elements are present in Tatneft’s policies, but they do not appear to amount to the core of its business and are rather marginal. Because of its past close connection with the Tatar Government, it is perhaps inevitable that some of these policy elements might have survived in Tatneft, but again that does not mean that the company loses its essential commercial aims in the undertaking of business. It would be quite different if business were undertaken on behalf of the State for the accomplishment of its public objectives. In Claimant’s argument this was not even the case under the Soviet Union because Tatneft was established as a production unit of oil and gas and its refining.

138.

The Tribunal is mindful that the Commentary on the ILC’s Articles on State Responsibility concludes that not even the conduct of State-owned and controlled corporate entities is attributable to the State unless involving the exercise of governmental authority.²⁴² While questions of attribution belong to the merits of the case, Respondent has invoked such rules, with particular reference to Articles 5 and 8 of the International Law Commission’s Articles on State Responsibility, to find guidance by analogy as to whether for jurisdictional purposes Tatneft’s conduct should be attributable to Tatarstan,²⁴³ which in Respondent’s view is the case here, including the attribution of Tatneft’s shareholding in Ukrtatnafta.²⁴⁴

139.

The Tribunal cannot fail to note, however, that Respondent’s argument stresses that Ukraine cannot be held responsible for court decisions, such as those concerning Mr. Ovcharenko and their consequences, because of considerations of proximity and foreseeability, an argument that does not seem to follow its views on attribution.²⁴⁵

140.

The Tribunal is not persuaded that Tatneft has been empowered to exercise governmental authority in light of the facts of this case, despite that its participation finds its origins in the Ukrtatnafta Treaty and other governmental measures adopted for its negotiation and materialization. It should also be noted that even though the Tatar President resolved in his Decree of 1994 to approve the transfer of various shares and rights to the authorized fund of Ukrtatnafta, the Decree refers to those shares held by the Republic of Tatarstan and State-owned assets, which insofar as Tatneft was concerned were at the time undergoing privatization.²⁴⁶ The effects on the question of parity of this and other decisions concerning the Tatar contribution is a separate matter that shall be discussed further below.²⁴⁷ As will also be discussed below, business decisions characterize Tatneft’s activities and the company is subject to legislation on competition, taxation and other aspects that are typical of private entities, just like the nature of such activities is in essence unrelated to the exercise of governmental authority.

141.

The Parties have argued extensively about the filings of Tatneft before the SEC and whether these again show that the company is under government dependency and ultimately an instrumentality of the Tatar Government. In that filing Tatneft indeed asserted that "the Tatarstan government is able to exercise considerable influence over us. The Tatarstan government has used its influence in the past to mandate oil sales and to cause us to raise capital for the benefit of Tatarstan or to pay the debts of Tatarstan when independently we may not have entered into such transactions."²⁴⁸

142.

Claimant has explained that such filings must refer to all possible risks in order to avoid potential liability if some form of government interference results in the underperformance of the instruments offered. The Tribunal notes that the filing in question, which was made in 2006, refers to instances of "past" influence, which may well have been the case at a certain point in time.²⁴⁹ That does not mean, however, that it is necessarily so at present. The providing of information about risk is the very purpose of such filings and because, in the context of operating in a former Soviet Republic, government influence or intervention cannot be excluded as an absolute certainty at some future juncture, a precautionary risk disclosure might be justified but does not alter the commercial elements involved in a company of this kind.

143.

The Tribunal also notes the Parties’ discussion on whether there are "political elements" to this dispute that could affect the Tribunal’s jurisdiction. The Tribunal, however, is satisfied that no such argument has been made by Respondent but that Respondent only asserts that the likely Russian pressure against Ukraine reveals that the dispute is typically intergovernmental.²⁵⁰

144.

The Parties have also discussed whether Tatneft’s participation in the Ukrtatnafta project is merely as an agent for the Tatarstan Republic or as a fully independent commercial company. The question of a fiduciary arrangement or powers of attorney mentioned above has been at the heart of this discussion.²⁵¹

145.

The Tribunal believes that there is nothing unusual in that both the interests of the Tatar Government and one major oil company incorporated in that Republic might coincide in a foreign business project, or that practical questions might justify the convenience of granting powers of attorney for a period of time.

146.

Furthermore, the fact that the Ukrtatnafta project was established and organized under a treaty does not show that all forms of participation might be tainted by government dependency. Many projects set under international agreements facilitate the business operations of both public and private entities, particularly where trans-border questions arise.

147.

The Tribunal is also mindful that, as held in CSOB, not even the pursuit of public policies can always be equated with the loss of the commercial nature of the specific activity undertaken, be it banking as in that case or oil processing as in this one. The CSOB tribunal held that "the steps taken by CSOB to solidify its financial position in order to attract private capital for its restructured banking enterprise do not differ in their nature from measures a private bank might take to strengthen its financial position."²⁵²

148.

The question this Tribunal must answer is thus whether in this case the kind of measures taken by Tatneft in the pursuit of its business might differ in their nature from measures any other major oil company may take. The facts underlying the functional test in this case do not lead in the direction of finding that Tatneft is an instrumentality of the Tatar Government but rather a private entity with government links surviving former times.

149.

The Tribunal fully understands Respondent’s views that tend to identify those elements of governmental presence that could disqualify Tatneft from claiming under the Russia-Ukraine BIT. Indeed, according to Respondent, the Ukrtatnafta project is a government-to-govemment project in which Tatneft has not participated in commercial terms.²⁵³ Claimant’s argument stresses those elements that are typical of private commercial ventures. While a company like Tatneft, originating in past models, shows a certain interaction of both elements, the Tribunal must find which of the two predominates.

150.

In light of the Tribunal’s findings about Tatneft not meeting the structural or the functional test for establishing de jure or de facto government control, or for establishing that it carries out government functions, the Tribunal must conclude that business-related aspects predominate in Tatneft’s operations and that it is thus entitled to claim as a private investor under the Russia-Ukraine BIT. The record of profits obtained by Tatneft between 2005 and 2008, which Claimant explained at the hearing,²⁵⁴ is not insignificant and confirms the predominant business orientation of the company.

151.

Even if it were held that Tatneft is a public company in light of its origins and some of its features, it is not unusual to have such companies claiming as investors in investment arbitration. Claimant has invoked in this connection the cases of AG1P, EDF, Saipem, CSOB, Telenor and other companies.²⁵⁵

152.

In light of the Tribunal’s conclusion reached above that Tatneft is entitled to claim as a private investor, the Tribunal need not address the issue of whether public entities are allowed to claim under the Russia-Ukraine BIT or under Russian or Ukrainian investment laws. The Tribunal’s conclusion regarding Tatneft’s private investor status does not prejudge this important issue, which has been prominently and competently discussed by the Parties in their pleadings.

153.

Respondent submits a third objection to the Tribunal’s jurisdiction in terms that, even if it were admitted that the Russia-Ukraine BIT applies to this dispute and that Tatneft is an investor under its terms, the Tribunal still cannot exercise jurisdiction over this claim as Claimant’s participation in Ukrtatnafta is not an "investment" according to the definition of investments provided in Article 1(1) of the Russia-Ukraine BIT.²⁵⁶

154.

In Respondent’s view, Ukrtatnafta was described by the Ukrtatnafta Treaty as "an integrated interstate economic complex of Ukraine and the Republic of Tatarstan" (Article 3) with the principal purpose of securing the oil supply to the Contracting Parties (Article 5) by means of the refinement of oil from Tatarstan (Article 4).²⁵⁷ This is further confirmed by Ukrtatnafta’s Charter to the effect that the project is conceived as a mechanism for the economic integration of the two countries.²⁵⁸ All these factors indicate that "Tatneft participated in Ukrtatnafta because of a political decision" in light of which Tatneft’s participation is inseparable from Tatarstan’s participation, and is quite different from an ordinary commercial one.²⁵⁹

155.

Because of that integrated participation, the contribution of assets by Tatneft was never made in the original form envisaged and had to be amended.²⁶⁰ Respondent notes in particular Tatneft’s failure to contribute certain oil deposits committed to the project, which was later changed to the purchase of shares at a monetary value.²⁶¹ A participation originating in a political decision of Tatarstan directed to use Tatneft as a vehicle to implement its own obligations under the Ukrtatnafta Treaty does not qualify as an investment within the meaning of Article 1(1) of the Russia-Ukraine BIT.²⁶² Such a situation does not correspond to an investment decision by the investor; unlike the investor in Tokios Tokelés, Tatneft has not caused an investment in Ukrtatnafta by means of the contribution of money or effort from which a return or profit is expected.²⁶³

156.

In Claimant’s view, Tatneft’s participation in Ukrtatnafta complies with all the requirements and conditions that the Russia-Ukraine BIT envisages in its definition of investments, particularly in terms of encompassing all kinds of property and intellectual values, including monetary funds and securities and the right to perform commercial activity, as well as prospecting, development and exploitation of natural resources, among others. At no point does this definition exclude the protection of investments that, like here, have been made for a mixed public and commercial purpose.²⁶⁴

157.

Claimant further argues that arbitral tribunals have consistently rejected the pretension of introducing additional requirements in the definitions of investment included in the applicable bilateral investment treaties. This was in particular the case of Tokios Tokelés, where Ukraine attempted to introduce an origin-of-capital requirement. So too in Saluka the tribunal refused to take into consideration the motives of the investor’s decision to invest as nothing in the bilateral investment treaty allowed it to do so.²⁶⁵

158.

Claimant also asserts that in this case the combination of mixed commercial and public motives are predominant features of the investment undertaken, as confirmed by the Ukrtatnafta Charter (Article 2.1) and the 1993 Investment Cooperation Agreement, which the Russia-Ukraine BIT sought to develop.²⁶⁶ Claimant points to Article 3 of the 1993 Investment Cooperation Agreement which defines the "Parties’ investments" as "types of property, financial, intellectual valuables invested by Parties’ investors into objects of entrepreneurial activity and other types of activity for the purpose of gaining profit (income) or a social effect."²⁶⁷ It is noted that profit and social effects reflect that very purpose of a mixed commercial and public nature related to investments under these provisions.²⁶⁸

159.

The Tribunal must begin its considerations in this matter by examining the definition of "investments" in Article 1(1) of the Russia-Ukraine BIT. Like with many bilateral investment treaties, the definition is indeed broad and intends to cover all activities that might be related to the economic interest of the investor in undertaking such investment. The definition refers to "all kinds of property and intellectual values" invested in the territory of another "Contracting Party," identifying in particular "movable and immovable property and any other rights of property therein, [...] monetary funds and also securities, liabilities, deposits and other forms of participation" and "rights to perform commercial activity, including rights to prospecting, development and exploitation of natural resources."²⁶⁹

160.

The Tribunal would have great difficulty in concluding that Tatneft’s participation in Ukrtatnafta does not qualify as an investment in light of the definition noted. In fact it qualifies as an investment under almost all the kinds of property listed therein. Tatneft’s contribution may have been amended to separate it from the obligation to supply oil produced in certain deposits and assign to such contribution a monetary value, but far from disqualifying the investment made, it comes to confirm that the activity was conceived as encompassing various kinds of assets of economic value.

161.

The Tribunal rejects entering into an examination of the motives behind the investment, unless there were evidences of bad faith, abuse of the law or improper behavior, which is not the case here. Although allegations of a set-up have been made in connection with the share purchases by Amruz and Seagroup, there is no evidence of this on record and the allegation has been denied.²⁷⁰ This Tribunal agrees with the decision in Saluka, noted above, which refused to take into account the investor’s motives. Indeed, rather than examining the motives behind the investment, this Tribunal must seek to establish, in accordance with Article 31(1) of the Vienna Convention on the Law of Treaties, the ordinary meaning of the terms of the Russia-Ukraine BIT in their context and in light of its object and purpose, and whether Claimant’s alleged investment falls within the meaning of those terms. The Tribunal notes, further, that it is a generally accepted view that no additional conditions to those agreed by the parties should be introduced by tribunals in the definition of investments. As long as the activities undertaken meet the elements of the definition noted, which is the case here, they should be considered as a covered investment.

162.

The Parties have again argued in this context whether the investment relates to public or business purposes, or a combination thereof. The Tribunal finds Claimant’s argument that mixed purposes characterize its investment to be persuasive. In fact, such purpose is not only in accordance with the legal texts governing the Ukrtatnafta project noted but also reflects the realities described above about the interaction of both public and private interests that has been typical of the transition period between the command economies of the past and the market economies of the present.

163.

It is also relevant to note in this respect that in CSOB the tribunal held that a State-owned enterprise is not necessarily performing State functions when it takes advantage of State policies allowing for a restructuring to compete in a free market economy.²⁷¹ Even less would that be the case when the enterprise has accomplished its transition to privatization and competition but still relies on certain government policies to that effect. Unlike Maffezini, however, in this case the private entity is operating for profit and is not discharging what could be considered as essentially governmental functions delegated to it by the State.²⁷²

164.

These mixed purposes do not alter the fact that the interest and activity of Tatneft in the Ukrtatnafta project are, in their essence, commercially-orientated. The Tribunal must also note that the very definition of investments in the Russia-Ukraine BIT provides that "[n]o alteration of the type of investments, which the funds are put in, shall affect their nature as investments [..,]."²⁷³ Whether the contribution made took one form or another is irrelevant as it was conceived in either case as a type of investment in the Ukrtatnafta fund, and thus its nature as an investment does not change. The Tribunal thus concludes that Tatneft has made an investment within the meaning of the BIT.

165.

In close connection with the objection to the Tribunal’s jurisdiction examined above, Respondent asserts that even if Tatneft’s shareholding in Ukrtatnafta were to be qualified as a private investment, it still would not qualify for protection under the Russia-Ukraine BIT because it was not made in conformity with the legislation of the State where the investment was made, as required under Article 1(1) and reiterated under Article 2(1).²⁷⁴

166.

Respondent asserts that the requirement of conformity with the host State’s legislation is not limited to the initiation of the investment, as Claimant contends,²⁷⁵ but is a continuing requirement such that protections under the Russia-Ukraine BIT should only be extended insofar as the investment is at all relevant times in compliance with the law.²⁷⁶ Unlike the relevant provision in Fraport²⁷⁷ the language used in Article 1(1) of the Russia-Ukraine BIT is not tied to the admission of the investment itself, and thus Fraport should not be relied upon to limit the requirement of complying with the host State’s legislation.²⁷⁸ In any event, Respondent argues that Tatneft’s investment was not originally made in compliance with Ukrainian law, and Tatneft also did not abide by the continuing requirement of parity in the Ukrtatnafta Treaty.²⁷⁹

167.

In Respondent’s view, breach of Ukrainian legislation is found at the very origin of Tatneft’s investment. While Ukrtatnafta was registered in December 1995 with Tatneft listed as a founding shareholder holding 20.01% of shares, Tatneft did not make any contribution to Ukrtatnafta until 14 August 2000, when it paid US$ 1 million in cash, with its shareholding reduced to 0,278%.²⁸⁰ This was followed by its acquisition of shares in Ukrtatnafta held by Zenit Bank, a Russian commercial bank Tatneft had co-founded, valued at US $ 30 million, although the purchase price paid by Tatneft to Zenit has not been revealed.²⁸¹ This operation brought Tatneft’s shareholding in Ukrtatnafta to 8,613%.²⁸² Thus, from Ukrtatnafta’s incorporation in December 1995 until August 2000, Tatneft appeared and acted as a shareholder in Ukrtatnafta without making any contribution to the company, which violated the Ukrtatnafta Incorporation Agreement and Ukrainian legislation.²⁸³ Respondent emphasizes that in light of these facts, it should be recognized that Tatneft’s investment was made in August 2000, and not December 1995 upon Ukrtatnafta’s incorporation, as Claimant contends.²⁸⁴

168.

Respondent relies on the 1995 Incorporation Agreement, which provided that Tatneft’s contribution in the form of fixed assets was to be made "no later than 30 days" from the date of registration of the company.²⁸⁵ While Tatarstan’s failure to contribute oil deposits prevented Tatneft from contributing the fixed assets used to extract oil from such deposits, even the amended contribution of US$ 1 million that was due on or before 10 September 1998 pursuant to the 1998 Amended Incorporation Agreement was not paid until August 2000.²⁸⁶ Despite Tatneft’s failure to make its contribution, Tatneft was not excluded from Ukrtatnafta’s shareholding and in fact voted its shares at annual general shareholders’ meetings in violation of Ukrainian law.²⁸⁷

169.

Pursuant to Article 33 of the Law on Business Entities, Tatneft was required to contribute the full value of its shares "not later than one year after" the company’s registration.²⁸⁸ Pursuant to Article 8 of the Law on Securities and Stock Exchange, no shares could be issued to Tatneft prior to its actual contribution in August 2000.²⁸⁹ Finally, pursuant to Article 41(2) of the Law on Business Entities, Tatneft had no right to participate in any meetings of shareholders before its contribution in August 2000.²⁹⁰ Respondent maintains that both Tatneft and Tatarstan must have been aware of the irregularity of their shareholder status as they participated in the general shareholders’ meetings in 1997 and 1998, and voted for the exclusion of other shareholders that had not yet contributed their share capital.²⁹¹ Because of these non-conformities with host State legislation, Tatneft’s investment falls outside the scope of the Russia-Ukraine BIT’S protections.

170.

Tatneft’s investment was also not made in conformity with Ukrainian law because it was made in conjunction with and in support of Tatneft’s attempt to subvert the parity requirement established in the Ukrtatnafta Treaty and other constituent documents of Ukrtatnafta through the acquisition of majority control of the company.²⁹²

171.

The maintenance of parity between the Tatar and Ukrainian sides was an essential requirement of the Ukrtatnafta Treaty, not just at the origin, as Claimant contends, but throughout the life of the project.²⁹³ Respondent relies on the language of the Ukrtatnafta Treaty which provided for the incorporation of Ukrtatnafta "on a parity basis,"²⁹⁴ and notes the Tatar presidential decree of 13 December 1994 and the minutes of the 1994 meeting between Ukrainian and Tatar governmental officials, each of which reference parity between Tatar and Ukrainian sides in relation to the Ukrtatnafta project.²⁹⁵ The 1995 Incorporation Agreement and the original Ukrtatnafta Charter even refer to the preservation of parity in the event of modification of the Ukrtatnafta fund.²⁹⁶ Respondent argues that it is evident in Tatneft’s own Statement of Claim that it breached the parity of the Ukrtatnafta project when it became allied in interest with Tatarstan, Amruz and Seagroup to leverage a controlling position of 55.7% in the company.²⁹⁷

172.

Respondent contends that the introduction of Amruz in 1998 and Seagroup in 1999 to the shareholding of Ukrtatnafta violated the Ukrtatnafta Treaty because it "was designed covertly to alter the equilibrium between the parties" agreed in the documents noted above.²⁹⁸ Evidence of this lies in the fact that Amruz and Seagroup paid with promissory notes, thus not contributing to the company’s working capital needs, and still obtained the valuable position of power broker between the Ukrainian and Tatar parties.²⁹⁹

173.

Although Claimant has argued that the State Property Fund of Ukraine supported the 1998 Amended Incorporation Agreement³⁰⁰ that changed the parity requirement, and therefore Respondent is estopped from arguing the agreement’s illegality,³⁰¹ Respondent retorts that no decision of a shareholders’ meeting could alter the requirements of the Ukrtatnafta Treaty, and therefore such decisions are ineffective.³⁰² Moreover, the actions taken at the 1998 shareholders’ meeting, including the decision to amend the 1995 Incorporation Agreement and Ukrtatnafta Charter and alter parity, are ineffective because a valid quorum of 60% of the shareholders was not present at the meeting. This is because both Tatneft and Tatarstan had no legal right to attend and vote shares they had not legally acquired.³⁰³

174.

In Claimant’s view, Respondent’s late argument that the 1998 amendments to the Ukrtatnafta Incorporation Agreement are invalid because Tatneft had not made its contribution within the prescribed time, and was hence not entitled to have shares issued in its name or vote in shareholders’ meetings until full payment had been received, is contradicted by the facts of the case.

175.

While the Ukrtatnafta Treaty was clear that from the outset Ukraine would contribute the Kremenchug Refinery to the Ukrtatnafta project, the assets to be contributed by Tatneft and Tatarstan were not identified with equal specificity and the question became subject to intense negotiations between the Parties.³⁰⁴ When the original envisaged contribution of certain Tatarstan oil fields and oil-related assets proved to be unfeasible in economic terms, Ukrtatnafta shareholders sought other alternatives.³⁰⁵ Following a reappraisal of the Kremenchug Refinery and a reduction of its capital value, it was agreed in 1999 that Tatarstan would transfer shares of its oil company Tatneftprom to Ukrtatnafta.³⁰⁶

176.

It was also agreed that Claimant would contribute US$ 31 million in cash to Ukrtatnafta instead of oil-related assets.³⁰⁷ In view of the need to obtain authorization from Russia’s Central Bank to make a cash contribution, Tatneft’s contribution was made in the form of US$ 1 million transfer in its own name and US$ 30 million share purchases by Zenit Bank, acting as Tatneft’s trustee and becoming a temporary shareholder in Ukrtatnafta.³⁰⁸ Following the authorization of the Russian Central Bank in 2000, Zenit’s shares in Ukrtatnafta were later repurchased by Tatneft.³⁰⁹ Claimant also submits that its expertise and technical knowledge in the oil sector were also crucial to Ukrtatnafta’s viability and as such are also a kind of investment protected under the Russia-Ukraine BIT.³¹⁰

177.

Claimant disagrees with Respondent’s interpretation of Article 33 of the Ukrainian Law on Business entities. Claimant asserts that Article 33 sets out the legal consequences when there is a violation of the law.³¹¹ A shareholder shall pay 10% per annum of the amount overdue, a penalty that was never invoked; and the company may dispose of the outstanding shares, which Ukrtatnafta did not do.³¹² Additionally, the contractual obligation of the founders of Ukrtatnafta to make their contributions within thirty days under the 1995 Incorporation Agreement does not qualify as "legislation" within the meaning of Article 1(1) of the Russia-Ukraine BIT.³¹³

178.

Claimant asserts, moreover, that Tatneft and Tatarstan have at all times prior to these proceedings, and even months after they were commenced, been recognized by Respondent as legitimate shareholders in Ukrtatnafta.³¹⁴ Ukraine never sought to exclude Tatneft or Tatarstan from shareholders’ meetings or question their right to vote despite the complications in the formation of the capital of Ukrtatnafta.³¹⁵ Only in its Reply did Ukraine take the position for the first time that the 1998 shareholders’ meeting was illegal and ineffective due to the alleged lack of prescribed 60% quorum of shareholders.³¹⁶ Moreover, in certain Ukrainian court proceedings, the Ukrainian Government took the position that the shareholders’ resolutions and amended agreements were in general lawful and lack of payment of the contributions within the given deadline constituted, if anything, a curable breach.³¹⁷ Finally, the lack of quorum argument could no longer be invoked, as the applicable statute of limitations is long expired.³¹⁸

179.

Claimant also disagrees with Respondent’s interpretation of the meaning of "parity" in the Ukrtatnafta Treaty and related documents. Claimant first argues that the stipulation to incorporate Ukrtatnafta "on a parity basis" did not amount to a requirement but was rather a description of the initial distribution of the share capital of Ukrtatnafta.³¹⁹ Even if the language of parity was mandatory and not descriptive, the requirement had a temporal limitation and only applied to the initial distribution of the capital shares at the time of incorporation, and Ukrtatnafta was not intended to remain incorporated on a parity basis in perpetuity.³²⁰

180.

If the parity issue had been so essential to Ukrainian law it would have been spelled out in specific mandatory terms in the Ukrtatnafta Treaty and subsequent instruments governing the Ukrtatnafta project, but this was not generally the case.³²¹ The only reference to the applicability of the parity principle to modification of the shareholding structure was contained in the 1995 version of the Incorporation Agreement; however, this was freely amendable and in fact amended to delete this language in 1998.³²² The lack of a continuing parity requirement is further confirmed by the fact that shareholders from the start intended Ukrtatnafta to be transformed into an open joint stock company.³²³

181.

Considering that following the expropriation events alleged by Claimant Ukrainian shareholders now control over 60% of Ukrtatnafta’s shares, Claimant argues that Ukraine itself would be in breach of a continuing parity requirement, if one exists.³²⁴

182.

In Claimant’s interpretation according to the express language in Article 1(1) of the Russia-Ukraine BIT and the ruling in Fraport, the requirement to make an investment in accordance with the host State’s legislation is limited to the initiation of the investment and does not extend to post-investment violations.³²⁵ Claimant explains that the share distribution in 1995 was indisputably made on a parity basis.³²⁶

183.

Moreover, before the share purchases of Amruz and Seagroup intervened resulting in Respondent’s view in the violation of parity, references to such parity were abandoned by amendments made to the constituent documents of Ukrtatnafta, including the 1995 Incorporation Agreement and Ukrtatnafta Charter.³²⁷ Thus, Amruz’s and Seagroup’s investments were made at a time when parity was no longer envisioned.³²⁸

184.

Finally, none of Claimant’s actions amount to a breach of a fundamental principle of the host State’s laws, according to the qualification of this requirement in L.E.S.I., or to misrepresentation, as was the case in Plama, or to an intent to acquire jurisdiction by some fictitious and abusive acquisition, as was the case in Phoenix.³²⁹

185.

In any event, Claimant asserts, Respondent should be estopped from relying on alleged violations of Ukrainian law as a bar to jurisdiction and admissibility. Ukraine did not protest any of the events it now protests until a decade after the events occurred, despite the fact that Ukrainian officials sat on the management and supervisory boards of the company.³³⁰ All of the 1998 amendments to the Ukrtatnafta Incorporation Agreement were unanimously approved by Ukrtatnafta shareholders, including the State Property Fund of Ukraine.³³¹ Ukraine never protested the participation of Tatneft or Tatarstan in general meetings of shareholders, and it never claimed a violation of Article 33 of the Law on Business Entities or Article 8 of the Law on Securities and Stock Exchange; moreover, it expressly consented to the admission of Amruz and Seagroup into the Ukrtatnafta shareholding, and the deletion of references to parity in the company’s founding documents.³³²

186.

As held in Fraport and Kardassopoulos, principles of fairness should require a tribunal to hold a government estopped from invoking as a jurisdictional defense a violation of its domestic laws in respect of an investment that itself had endorsed.³³³ More specifically, Respondent is estopped from arguing that an agreement which it has approved was not initially valid.³³⁴ Moreover, considering that Ukrainian shareholders now control over 60% of Ukrtatnafta’s shares, Respondent also should not be heard to allege an illegality where it is itself in breach.³³⁵

187.

In connection with this objection to jurisdiction the Tribunal must address whether or not Claimant’s investment was made in compliance with Ukrainian legislation, as required by Articles 1(1) and 2(1) of the Russia-Ukraine BIT.

188.

Respondent has alleged breaches of the Ukrtatnafta Incorporation Agreement, Ukrainian Law on Business Entities and Ukrainian Law on Securities and Stock Exchange arising from the circumstances of Claimant’s contribution to Ukrtatnafta in exchange for its shareholding. As will be explained, the Tribunal is persuaded that Claimant’s non-compliance with the time limits imposed on its contribution does not deprive the investment of protection under the Russia-Ukraine BIT. Once the participation in the form of contributing the development of certain Tatarstan oil fields and oil-related assets did not prove feasible, an alternative arrangement was agreed upon, including the commitment of Tatarstan to contribute shares in Tatneftprom and of Tatneft to pay US$ 31 million for the shares issued.³³⁶ True enough, this last payment was done late and through an intricate financial arrangement involving Zenit Bank,³³⁷ but there is no evidence that the late capital contribution caused Tatneft’s investment to be illegal.

189.

While the thirty-day period imposed by the 1995 Incorporation Agreement was not complied with, this was only upon the realization that the intended contribution of fixed assets was unfeasible, and this does not amount to a breach of legislation. Moreover, under Article 33 of the Ukrainian Law on Business Entities, if shares are not paid within three months after expiration of the prescribed term (of not more than one year), the company may dispose of such shares, but this is not mandatory and in this case Ukrtatnafta did not.³³⁸ Despite the tardiness of its contribution, Tatneft was recognized as a Ukrtatnafta shareholder and exercised voting rights without any objections by Ukrainian shareholders, and therefore the pertinent contributions cannot be considered to be tainted by illegality.

190.

The Tribunal is also mindful of the provision in Article 1(1) of the Russia-Ukraine BIT to the effect that "[n]o alteration of the type of investments, which the funds are put in, shall affect their nature as investments, unless such alteration is contrary to the laws of the Contracting Party on whose territory the investments were made." In the absence of a specific law of Ukraine that would have been breached as a result of implementing a different form of participation, the changes in that participation, which transformed it into a different kind of economic arrangement pursuing the same ends, do not affect the protections afforded to the investment under the BIT.

191.

In light of the Tribunal’s conclusion that Claimant’s late contribution does not render its shareholding invalid, Respondent’s objection based on Article 41 of the Law on Business Entities is also without merit. Article 41 establishes that the right to participate in general meetings of shareholders is vested in persons holding shares at the date of the general meeting, and quorum for a valid meeting requires the attendance of shareholders holding over 60% of the votes.³³⁹ While Respondent has argued that all actions taken at the 1997 and 1998 shareholders’ meetings are invalid due to a lack of quorum, Claimant has persuasively argued that it would be incorrect to count Tatneft’s shares for purposes of counting total outstanding shares, but not to count them for purposes of constituting quorum. Even if Tatneft’s shares were invalid, Respondent has not alleged that quorum would not have been met at these meetings without counting Tatneft’s shares as part of the total outstanding shares. Thus it does not appear that these meetings were tainted by illegality.

192.

Moreover, as explained above, the Tribunal is of the opinion that Tatneft’s late contribution does not make its shareholding invalid, and this is further evidenced by the fact that Ukrainian parties never objected to its presence or participation at these shareholder meetings. It is also noteworthy that any objection based on breach of either the Ukrainian Law on Business Entities or the Ukrainian Law on Securities and Stock Exchange is inapposite due to the expiry of the applicable three year limitations period.³⁴⁰

193.

Respondent has also alleged that Tatneft’s investment was not made in conformity with Ukrainian legislation because it was made in support of its attempt to subvert the parity between Ukrainian and Tatar sides, a requirement entrenched in governing documents of the Ukrtatnafta project. There is no doubt that the Ukrtatnafta Treaty provided for the incorporation of Ukrtatnafta "on a parity basis,"³⁴¹ but the Parties have divergent opinions on the implications of this provision. The Tribunal must thus determine whether parity was a) merely descriptive of the initial distribution of shares, b) a requirement applicable only at the stage of incorporation, or c) a requirement that was applicable to the entire life of the Ukrtatnafta project.

194.

It is reasonable to assume that the stipulation in the Ukrtatnafta Treaty to incorporate Ukrtatnafta "on a parity basis" was mandatory and required that Tatarstan’s and Ukraine’s participation be on equal footing at the outset of the company’s incorporation. This objective was well-reflected in the parity of the initial contributions envisaged, and was in fact complied with in terms of the initial distribution of capital shares.

195.

It is relevant that, unlike the Ukrtatnafta Treaty, the Ukrtatnafta Charter and 1995 Incorporation Agreement each stipulated that parity would be preserved in the event of alteration of the Ukrtatnafta fund. These documents could be amended by shareholder agreement and were in fact amended in 1998 to remove the mandatory language of preserving parity. The fact that the Ukrtatnafta Treaty, which could not be freely amended by shareholders, did not contain similar language, indicates that the Ukrtatnafta Treaty did not impose a continuing parity requirement on the Ukrtatnafta project. It would have been different if the Ukrtatnafta Treaty had mandated that the share distribution would have to be preserved on an equal basis at all times, but this was not the case. Thus, while the Ukrtatnafta Charter and 1995 Incorporation Agreement did provide for the preservation of parity, these documents were validly amended by unanimous vote of shareholders 1998, at the same time that Amruz was introduced to Ukrtatnafta’s shareholding structure.

196.

The fact that Amruz and Seagroup were accepted as new shareholders is also indicative that the parity basis had a flexibility inherent to the financial or operational needs of Ukrtatnafta, and if the Tatar Government, Tatneft and these new shareholders achieved some form of shareholder alliance resulting in the control of 55.7% of the stock, this cannot be held contrary to Ukrainian legislation but is rather the expression of normal majorities in a joint stock company and its voting arrangements. Claimant’s argument that Ukraine itself now controls 60% of Ukrtatnafta shares which would, following Respondent’s views, also be in breach of parity, is persuasive and shows that parity was not understood as a continuing requirement under the Ukrtatnafta Treaty.

197.

The Tribunal is also of the opinion that the language of Articles 1(1) and 2(1) of the Russia-Ukraine BIT indicates that Claimant’s investment should be in conformity with the host State’s legislation at its initiation, but does not convey the meaning that this would have to be a permanent requirement. Indeed, Article 2(1) establishes that Ukraine "shall allow"³⁴² or "shall admit"³⁴³ investments in accordance with its legislation, which points to the initiation of the investment. The discussion in Fraport that "the effective operation of the BIT regime would appear to require that jurisdictional compliance be limited to the initiation of the investment"³⁴⁴ is illustrative of the question that in certain instances that might be the appropriate conclusion unless clear evidence to the contrary is available. This evidence is not available in this instant case.

198.

As noted above, it is undisputed that Ukrtatnafta was in fact incorporated on a parity basis in 1995. It is noteworthy, however, that Claimant’s investment also complied with host State law in 2000 when its amended capital contribution was actually transferred to Ukrtatnafta, firstly because the parity requirement under the Ukrtatnafta Treaty only applied to incorporation, and secondly because the continuing parity requirement under the Ukrtatnafta Charter and 1995 Incorporation Agreement had been removed by unanimous shareholder vote in 1998. Thus, at the initiation of the investment, Tatneft complied with the parity noted in the Ukrtatnafta Treaty; and in 2000, it complied with the new structure of capital contributions unanimously agreed at the shareholders meetings in 1998 and 1999.

199.

In light of the Tribunal’s above findings, it is not necessary for the Tribunal to decide whether Respondent should be estopped from invoking this jurisdictional defense, as Claimant contends. True enough, the record shows the State Property Fund of Ukraine supported the 1998 Amended Incorporation Agreement, including the alterations noted in respect of the parity of the project, just as a number of Ukrainian Government officials participating in the pertinent meetings did, particularly in their capacity as members of Ukrtatnafta’s supervisory board.³⁴⁵ These facts provide further evidence that for the Ukrainian shareholders the new kinds of arrangements which altered the parity of the project were satisfactory and were not understood to be in breach of Ukrainian legislation.

200.

In any case, it has not been shown that any supposed breach concerned a fundamental principle of the host State’s legislation as required by the L.E.S.l. case.³⁴⁶ Finally, there are no indications on record to the effect that Claimant engaged in abusive conduct in breach of the host State’s legislation or otherwise acted in bad faith. For the reasons stated above, therefore, Respondent’s objection to the Tribunal’s jurisdiction on this count cannot be upheld.

201.

As explained above at paragraph 77 of this award, Respondent has also submitted three objections concerning the admissibility of Tatneft’s claims. The first objection is based on the understanding that Claimant cannot claim for the interests of Amruz and Seagroup; the second objection concerns the allegation that Claimant has no ins standi to claim for unpaid oil deliveries; and the third objection is that Tatneft has failed to state an arguable case concerning the alleged harm to its rights as a shareholder. This last claim was, however, partially withdrawn at the opening of the Jurisdictional Hearing.³⁴⁷ The pertinent objections will be examined next.

202.

In Respondent’s view, it is unclear what legal theory Claimant relies upon as the basis of its additional US$ 1.3 billion claim³⁴⁸ in relation to Amruz and Seagroup.³⁴⁹ In fact, according to Respondent, there is no legal theory that may support Tatneft’s claim: if Tatneft is bringing a claim for loss of the "enhanced value" of its own shareholding based on the existence of a shareholders’ alliance, "such a claim is manifestly without merit";³⁵⁰ if Tatneft is bringing a claim for indirect loss as a shareholder in Seagroup and Amruz due to the latter’s loss of their own shares in Ukrtatnafta, Tatneft has no standing to claim on behalf of Amruz and Seagroup.³⁵¹ Indeed, even if the rights of Seagroup and Amruz had been harmed, these companies are not parties to the arbitration and have separately submitted "cooling-off letters" to Ukraine, respectively invoking the Energy Charter Treaty and the Ukraine-USA BIT, just as Tatarstan has also submitted such a letter in connection with the Russia-Ukraine BIT.³⁵²

203.

Respondent further contends that Claimant can only claim for a loss relating to an investment if it acquired the investment prior to the time its cause of action arose, which it did not in this case.³⁵³ Respondent refers to several judicial proceedings, the first of which was initiated in 2001, regarding the invalidation of the agreements for the purchase of Ukrtatnafta shares by Amruz and Seagroup.³⁵⁴ In particular, Respondent insists that while Claimant acquired shares in Amruz and Seagroup in December 2007, Ukrainian courts twice held earlier that year that the share purchase agreements were invalid and ordered the transfer of Amruz’s and Seagroup’s shares to a third party (Naftogaz in May 2007 and the Ministry of Fuel and Energy of Ukraine in December 2007).³⁵⁵ Respondent thus concludes that the acquisition of the shares took place after the alleged harm had occurred, as confirmed by Claimant’s own statements.³⁵⁶ Because "the wrongful act had occurred on the claimant’s own case before that acquisition in December 2007," there was no composite act, contrary to Claimant’s argument at the hearing.³⁵⁷ What happened after the alleged deprivation of Amruz’s and Seagroup’s shares in 2007 "was the continuation of the same."³⁵⁸

204.

In addition, the sole purpose of Tatneft’s belated acquisition of shares in Amruz and Seagroup was to sue Respondent in this particular forum.³⁵⁹ At a time when Amruz’s and Seagroup’s shares had been taken away and the refinery of which they were shareholders had been raided, according to Claimant, by Mr Ovcharenko, there was no rational, let alone commercial, justification for this acquisition.³⁶⁰ It follows that Tatneft’s attempt to transfer their alleged injury to itself by acquiring shares in these two companies amounts to impermissible forum shopping.³⁶¹

205.

Finally, Respondent contends that the purchase by these companies of founding shares was contrary to the original understanding that shareholders would be limited to entities of Tatarstan and Ukraine.³⁶² Respondent also notes that the payment of founding shares with promissory notes, as these companies did, is contrary to Ukrainian legislation.³⁶³ While it is unnecessary, in Respondent’s view, to resolve these issues because Tatneft’s claims are inadmissible, these "oddities" further undermine the legitimacy of these claims.³⁶⁴

206.

To conclude, Respondent asks the Tribunal to find that "Ukraine has not consented to arbitrate the claims of Swiss or American entities under the Ukraine-Russia BIT, that Tatneft did not own shares in Seagroup and AmRuz at the time that these entities’ claims of expropriation arose, and that therefore those claims do not have the requisite nationality requirement to be brought under the Russia-Ukraine BIT [...] its claims in relation to AmRuz and Seagroup should be deemed inadmissible and outside the scope of the jurisdiction of this Tribunal."³⁶⁵

207.

Claimant argues in respect of this first objection that at the time the improper transfer of shares from Amruz and Seagroup to Naftogaz and the illegal taking of the Kremenchug Refinery took place,³⁶⁶ Tatneft, the State Committee and both Amruz and Seagroup were "aligned in interest," the latter three having granted powers of attorney to Tatneft to represent their interests.³⁶⁷ As a result of this shareholder alliance, Tatneft’s shareholding in Ukrtatnafta enjoyed "a significant enhancement in value."³⁶⁸ By depriving Amruz and Seagroup of their shareholder rights, Respondent "has arrogated to itself a controlling interest in Ukrtatnafta [,..],"³⁶⁹ thus causing additional material damage to Claimant’s investment.³⁷⁰ Claimant further argues that "respondent’s objection that claimant may not claim the enhanced value of its shareholding resulting from its shareholder alliance with AmRuz and Seagroup and the Republic of Tatarstan is a question that cannot be addressed without the full record"³⁷¹ and "[t]he extent to which this alliance which created a control block increased the value of Tatneft shareholding is a question for the merits phase."³⁷²

208.

In addition, while it is correct to argue that Amruz and Seagroup are not parties to this arbitration, Tatneft is entitled to claim as an indirect shareholder for the harm caused to its interests by the expropriation measures affecting those companies.³⁷³ Relying on Article 15 of the ILC Articles, Claimant argues that "the persistent failure of respondent to remedy the raider action and the various court decisions that resulted in AmRuz and Seagroup losing title to their shares constitute composite acts which began before claimant acquired an indirect interest in Ukrtatnafta and which continued thereafter,"³⁷⁴ ultimately "ripen[ing] into an outright transfer of title to the shares in June 2009 [..,]."³⁷⁵ Claimant points out that "[i]n December 2007 none of the court proceedings pending against AmRuz and Seagroup resulted in [a] final and irrevocable judgment" and "[t]he court proceedings that actually deprived AmRuz and Seagroup of their shares in Ukrtatnafta had not been initiated in December 2007."³⁷⁶

209.

Finally, Tatneft argues that, because it was a shareholder in Amruz and Seagroup, it decided not to cause them to pursue separate arbitrations under the Energy Charter Treaty or the Ukraine-USA BIT "in an effort to streamline the resolution of claims."³⁷⁷ Claimant further contends that Respondent’s assertions that the acquisition of shares in these companies would amount to impermissible forum shopping are inapposite because the arbitrations pursued under those other treaties would be no less efficacious than the present one and thus no advantage can be gained by resorting to the Russia-Ukraine BIT.³⁷⁸ On the other hand, contrary to impermissible forum shopping such as that considered in Phoenix, in this case there is no substitution of an entity in a State having an investment treaty for an entity in a State not qualifying for treaty protection.³⁷⁹

210.

Both parties are in agreement about the fact that neither Amruz nor Seagroup are parties to this arbitration. In light of Respondent’s argument that it was not clear whether Tatneft was claiming on behalf of Amruz and Seagroup or under some other entitlement and following Claimant’s clarifications at the hearing,³⁸⁰ the Tribunal has to address two distinct issues: (i) the admissibility of Tatneft’s claim as an indirect shareholder for the loss arising out of the alleged deprivation of Amruz’s and Seagroup’s shareholding in Ukrtatnafta; and (ii) the admissibility of Tatneft’s claim arising out the exclusion of the allied shareholders including Amruz and Seagroup and the consequential loss of the "enhanced value" of Tatneft’s shareholding in Ukratatnafta.

211.

With respect to the first issue, Respondent insisted at the hearing that the Tribunal should focus on two elements: first, whether Claimant’s interest in Amruz and Seagroup was acquired before or after the events giving rise to the alleged harm and thus whether Claimant met the legal requirement of being in control of the investment at the time the alleged harm took place; second, whether this acquisition was made for litigation purposes as opposed to commercial purposes.³⁸¹ If both elements are present, Tatneft’s claim should be held inadmissible.

212.

Respondent has cited Mr. Zachary Douglas to the effect that if "Claimant maintains that its investment has been expropriated, for example, then it must be able to demonstrate that it had effective control over that investment at the time of the alleged expropriation."³⁸² Because Tatneft acquired shares in both Amruz and Seagroup it might eventually qualify as an indirect investor in Ukrtatnafta as far as the shares of these companies in the latter are concerned,³⁸³ but still this status would have to exist at the critical date of the measures affecting such companies.

213.

The evidence produced by Claimant indicates that it acquired shares in Amruz and Seagroup in December 2007.³⁸⁴ Respondent does not challenge that Tatneft had control of Amruz and Seagroup after that date.³⁸⁵ A number of the acts complained of by Claimant, especially the court proceedings that were commenced in 2008 and resulted in the sale of Amruz’s and Seagroup’s shares by auction in June 20 09,³⁸⁶ took place after the acquisition. It is true, however, that Claimant, Amruz and Seagroup alleged in 2008 that the interests of Amruz and Seagroup started to be adversely affected in 2007, i.e. prior to Tatneft’s acquisition. In its Statement of Claim, Tatneft indicated that the improper transfer of Amruz’s and Seagroup’s shares to Naftogaz in May 2007 deprived them of their shareholder rights.³⁸⁷ Similarly, Seagroup stated in broader terms in its Notice of Dispute dated 10 June 2008 that "[d]uring 2007, as a result of a series of actions and omissions of the Ukrainian Government, the Ukrainian courts and enforcement officers, Seagroup has been deprived of its shares in Ukrtatnafta and of its shareholder rights, suffering significant and ongoing damages."³⁸⁸ Amruz’s Notice of Dispute of 11 June 2008 is identically worded and refers to the same date and events.³⁸⁹

214.

As set forth in Chapter II, following an application for interim relief by the Ministry of Fuel and Energy of Ukraine, Amruz and Seagroup were indeed ordered to transfer their shares in Ukrtatnafta to Naftogaz on 22 May 2007.³⁹⁰ On 17 September 2007 and 30 October 2007, the Economic Court and the Economic Court of Appeal of the city of Kiev successively upheld claims from the Prosecutor General of Ukraine seeking the invalidation of the share purchase agreements entered into by Seagroup and Amruz and ordered the transfer of their shares to the State (represented by the Ministry of Fuel and Energy of Ukraine).³⁹¹ On 14 December 2007, according to Respondent, the Economic Court of the city of Kiev ordered measures for the enforcement of its decision of 17 September 2007.³⁹²

215.

In subsequent submissions, however, Claimant has given evidence of a third court action that was initiated in February 2008, after its acquisition of shares in Amruz and Seagroup, and resulted this time in a final and irrevocable decision to transfer these shares to a third party.³⁹³ By contrast, the outcome of the first court proceedings that took place in the first half of 2007 was temporary by nature since the court ordered the transfer of the shares by way of interim relief. The second court proceedings were stayed in May 2008 pending the resolution of the third court proceedings and eventually discontinued in February 2009.³⁹⁴ It is only in late 2008, in the third court proceedings, that the issue of the validity of Amruz’s and Seagroup’s share purchase agreements reached the Supreme Court of Ukraine which then confirmed the annulment by the lower courts of the purchase agreements and the order to return the shares to Ukrtatnafta.³⁹⁵ The returned shares were then sold at an auction in June 2009 to a company called Korsan, following a court order to that effect.³⁹⁶

216.

While Claimant concedes that there is no evidence in the record that Claimant sought to obtain any specific guarantee with respect to its purchase of shares in December 2007,³⁹⁷ the Tribunal agrees that when Tatneft acquired its shares in Amruz and Seagroup, the court decisions that affected these shares could still be subject to review by higher courts and thus were not final.³⁹⁸ Claimant could still seek to obtain a remedy. In addition, in previous proceedings regarding the validity of Amruz’s and Seagroup’s acquisition of shares in Ukrtatnafta, the Supreme Court of Ukraine had twice handed down decisions in favor of Amruz and Seagroup, in 2002 and as recently as April 2006.³⁹⁹ The prospect of prevailing in the new proceedings of 2007 and 2008, though uncertain, was not unreasonable or unlikely.

217.

The Tribunal thus further agrees that the cumulation of the three above-described court proceedings, which concerned the same issue and all resulted in the transfer of Amruz’s and Seagroup’s shares to a third party, along with the alleged raid on Ukrtatnafta, should be considered in aggregate to determine what the alleged breach was and when it occurred.⁴⁰⁰ It is only in mid-2009, when the shares were auctioned and acquired by Korsan, or at the earliest in late 2008, when the Supreme Court of Ukraine confirmed the lower court’s decision to transfer Amruz’s and Seagroup’s shares to Ukrtatnafta, that it became clear that Amruz and Seagroup had been fully and finally deprived of their shares. This repeated pattern of allegedly harmful acts and decisions would aptly be characterized as a composite act, the extent of which was revealed when it crystallized in the course of 2009. The Tribunal thus concludes at least some of the alleged harm to its indirect investment occurred after the acquisition of Tatneft’s shares in Amruz and Seagroup.

218.

The Tribunal now turns to the second element of Respondent’s objection, namely that Tatneft acquired its shares in Amruz and Seagroup for purposes of litigation, and thus attempted to "forum shop."

219.

The Tribunal notes that while Amruz and Seagroup had in fact submitted notices of dispute to Ukraine separately from Tatneft, which could have led to separate arbitrations under a different bilateral investment treaty or the Energy Charter Treaty, the companies were of course free to pursue the course of action they thought best for their interests, particularly in view of the fact that Tatneft had acquired their shares. Claimant explains that the course of action followed was that deemed to be more efficient as it avoided parallel arbitrations and reduced costs for both parties.⁴⁰¹ The Tribunal is not to sit in judgment of the parties’ litigation strategies, except when there might be some form of abuse.

220.

Indeed, it is one thing to artificially build up a case for taking advantage of a given arbitration forum, such as was considered in the Phoenix case noted above and other investment arbitrations,⁴⁰² which is certainly not permissible because it amounts to an abuse of rights or bad faith and possibly to misrepresentation of the facts to the tribunal, and quite another to choose a given forum as a matter of legitimate convenience. The Tribunal notes in this respect Claimant’s argument to the effect that no particular advantage could be obtained by bringing a case to this forum as opposed to the Ukraine-US BIT or the Energy Charter Treaty, and that in any event Claimant is not substituting a status of protected investor for that of an investor which otherwise is not entitled to protection, which is the essence of forum shopping.⁴⁰³ Similar standards of protection are available under the various treaties mentioned; those standards might even be superior in some respects under the Ukraine-USA BIT or the Energy Charter Treaty. There is no evidence that Tatneft’s purpose was to defeat the nationality requirement of the applicable BIT, as argued by Respondent.⁴⁰⁴

221.

The Tribunal concludes that the second element of Respondent’s admissibility objection, namely that Tatneft acquired in Amruz and Seagroup solely for litigation purposes, is also missing. Tatneft’s claim as an indirect shareholder for the loss arising out the alleged deprivation of Amruz’s and Seagroup’s shareholding in Ukrtatnafta is therefore admissible.

222.

The Tribunal finally turns to the alleged inadmissibility of Tatneft’s claim arising out the exclusion of the allied shareholders and the consequential loss of the "enhanced value" of its shareholding in Ukratatnafta.

223.

The Tribunal notes that Respondent has not specifically alleged that this particular claim would amount to forum shopping but rather that it has no legal or factual basis.⁴⁰⁵ In any event, the Tribunal is of the view that Claimant has convincingly argued that there existed an alliance of shareholders before the alleged harm took place. The powers of attorney relied upon by Claimant in support of the existence of this shareholder alliance were first issued in 2004 and 2006 and gave it significant discretion in a number of areas,⁴⁰⁶ at a time when Claimant and the other allied shareholders together held 55.7% of Ukratatnafta’s share capital.⁴⁰⁷

224.

The Tribunal further agrees that the issue is not whether "Tatneft’s involvement in the shareholders alliance or the enhanced value it fosters are separate rights protected by the Russia-Ukraine BIT" but rather whether "its involvement in the shareholders’ alliance increases the value of its investment in Ukrtatnafta."⁴⁰⁸ Whether damages were caused to Tatneft’s investment as a consequence of the alleged exclusion of the allied shareholders and what their quantum is, if any, is not something to be decided at this stage; this will require a full submission of the facts and evidence on the merits, including, inter alia, detailed explanations about the legal nature of the shareholders’ alliance, a matter on which the Tribunal put specific questions to Claimant at the jurisdictional hearing.⁴⁰⁹

225.

The second objection to admissibility made by Respondent is that Tatneft cannot claim for unpaid oil deliveries because it did not have a supply contract with Ukrtatnafta and such supply was done by the intermediation of several Ukrainian and Tatar companies.⁴¹⁰ A request made by Ukrtatnafta to secure such contract was rejected by Tatneft on the grounds that it had been made by an unrecognized official of the company following the dispute about the appointment of Mr. Ovcharenko already noted, and it was thus Tatneft that chose not to become Ukrtatnafta’s supplier.⁴¹¹ In any event, this claim is unrelated to Claimant’s alleged investment, i.e. its shareholding participation, and would at most involve a doubtful contractual debt the situs of which is probably Tatarstan.⁴¹² Relying on Joy Mining and Romak, Respondent concludes that Claimant’s claim for unpaid oil is not a protected investment within the meaning of the Russia-Ukraine BIT.⁴¹³ It is also noted in this respect that the refusal to supply the oil results in a violation of the Republic of Tatarstan’s obligations under the Ukrtatnafta Treaty.⁴¹⁴

226.

It is further explained that it appears that the same claims for oil deliveries have been brought before the courts of Tatarstan by another company that exported oil produced by Tatneft, Suvar-Kazan, and this company has obtained a decision in its favor and has seized assets of Ukrtatnafta by way of interim relief.⁴¹⁵ This confirms that the oil supplier to Ukrtatnafta was not Tatneft but other companies either in Tatarstan or Ukraine.⁴¹⁶ Under Ukrainian law parties cannot assign their claims to third parties.⁴¹⁷ In the end there would be a serious risk of Tatneft obtaining double recovery.⁴¹⁸

227.

Respondent also maintains that the temporal scope of considerations of admissibility is not limited and can take into account developments occurring after the arbitration was initiated, as was held in SGS v. Philippines,⁴¹⁹ Taking into account the evidence on events occurring both before and after the date that these proceedings were instituted, the debt for oil deliveries not only has been paid but has been "overpaid."⁴²⁰ A number of assignments of claims took place between some of the intermediary companies, in particular Avto and Suvar-Kazan, and were invalidated by Ukrainian courts with the consequence that Ukrtatnafta refused to recognize the validity of those assignments and make payments to those companies.⁴²¹ Those assignments artificially created jurisdiction in the courts of Tatarstan, which granted the compensation noted and ordered the seizure of Ukrtatnafta’s shares in Tatneftprom, representing the total contribution of Tatarstan to Ukrtatnafta.⁴²² Ukratatnafta, however, has paid its debts in full to Taiz and Tekhnoprogress, the Ukrainian intermediaries.⁴²³

228.

In Respondent’s view, it follows from the above facts that Tatneft has failed to state a prima facie case concerning the claims for unpaid oil deliveries because it has not shown how the measures adopted affected its investment and resulted in a breach of the Russia-Ukraine BIT.⁴²⁴ Relying on SGS v. Philippines Respondent asserts that the "mere refusal to pay a debt is not an expropriation of property, at least where remedies exist in respect of such a refusal."⁴²⁵

229.

Claimant’s reliance on Siemens v. Argentina to claim for consequential damages from the non-payment to other entities is in Respondent’s view misplaced.⁴²⁶ That case accepted to protect Siemens from claims of its contractors and suppliers against the company,⁴²⁷ but here Tatneft is seeking something quite different, namely that the Tribunal order Ukraine to compensate Claimant for claims it has against third parties to which it would have supplied oil.⁴²⁸ This is not the meaning of the protection of investments under either the Russia-Ukraine BIT or international law.⁴²⁹

230.

Claimant asserts that it has not brought in this case a contractual claim for the breach of an oil supply contract between Tatneft and Ukrtatnafta; rather, its claim is that the illegal seizure of bank accounts and taking control of Ukrtatnafta by Mr. Ovcharenko has deprived Tatneft of payment for oil deliveries and of the benefit to continue being the principal supplier of oil to Ukrtatnafta.⁴³⁰

231.

Because the critical date for determining admissibility is when the arbitration was instituted (namely, 21 May 2008), and the Russian court decision in favor of Suvan-Kazan was issued several months later (September 2008), the latter cannot be relied upon for raising an objection to admissibility.⁴³¹ That court decision can at the most have relevance in determining the amount of compensation due, which is a matter for the merits.⁴³²

232.

Claimant also maintains that consequential damages have been awarded by tribunals when the claims arise out of events that are the direct and immediate consequence of the host State’s violation of its treaty obligations, as decided in the Siemens case, a matter which again can only be examined at the merits stage.⁴³³ In this case the causal link results from the fact that the illegal takeover of the Kremenchug Refinery resulted in non-payment to intermediaries for oil supplied, which in turn have failed to pay Tatneft.⁴³⁴

233.

It is also explained that the reason why Tatneft refused to enter into a supply contract with Ukrtatnafta at the time it was proposed by Mr. Ovcharenko was not just that this official was not recognized as having been validly appointed, but also because Tatneft was at the time owed US$ 520 million by Ukrtatnafta for oil that had been delivered but not paid for.⁴³⁵ A similar reason explains the interruption of oil supplies to the Kremenchug Refinery in 2005.⁴³⁶

234.

Whether partial payments took place or not is a question concerning quantum and not admissibility.⁴³⁷ In any event, the payments made to both Taiz and Tekhnoprogress, Ukrainian companies that together with Avto are under the control of businessmen related to Mr. Ovcharenko, has not resulted in any payment reaching Tatneft but has rather benefited entities connected to the new Ukrtatnafta administration.⁴³⁸ These payments were objected to by the Ukrainian Prime Minister as "unlawful and have features of financial machinations and considerably violate the interests of the major shareholders of Ukrtatnafta, JSC."⁴³⁹ Even if the payments ordered in connection with the seizure of Ukrtatnafta’s shares in Tatneftprom materialize, they still fall short of the amount owed to Tatneft.⁴⁴⁰

235.

The Tribunal must now turn to the examination of the objection to admissibility made in connection with the question of unpaid oil deliveries to Ukrtatnafta. While no contract has directly linked Tatneft to Ukrtatnafta in this matter, but instead a number of intermediaries were used, the issue is still whether Claimant is entitled to receive payments for oil sold to Ukrtatnafta and which have allegedly remained unpaid as a consequence of the measures affecting the latter, particularly in terms of interventions in the bank accounts and financial operations of the company following the reinstatement of Mr. Ovcharenko.

236.

Respondent has appropriately invoked the decision in Joy Mining in order to draw a distinction between ordinary sales contracts, which in its view is the case here, and investments.⁴⁴¹ It has invoked the decision in Romak insofar as it required that if the parties wished to consider some other transaction as an investment, including a "pure" "one-off sales contract," this would have to be worded in terms that leave no room for doubt about the intention of the parties.⁴⁴²

237.

Those findings are right insofar as contracts and similar transactions are concerned, but here the claim consists of consequential damages relating to the events surrounding the Kremenchug Refinery and the management of Ukrtatnafta, and not a contractual claim between the Parties. In the Tribunal’s view, this is a matter that requires examination on the merits and only then will it be possible to establish whether some breach of rights or treatment has occurred and whether payment has been made, to whom, in what amount, and under what entitlement. The Parties’ discussions about the meaning of Siemens in this context are also relevant to the merits of the case. Therefore, while Tatneft’s claim for consequential damages in relation to unpaid oil deliveries is admissible, complex questions of litigation between some such intermediaries and Ukrtatnafta, including the seizure of assets, and their eventual incidence on the issue of double recovery needs also to be examined on the merits.

238.

The Tribunal must also take note that Tatneft’s claim in this matter involves the allegation that it lost its role as main supplier of oil to Ukrtatnafta and the potential significance of this consequence for the value of its shares. Respondent asserts that Tatneft was offered the opportunity to enter into a long-term oil supply contract with Ukrtatnafta and the offer was refused by Claimant. There is no doubt a question concerning the role of Mr. Ovcharenko in Ukrtatnafta that appears to have explained this refusal, but more importantly, a decisive reason explained by Tatneft is that it was owed at the time millions of dollars and was not willing to commit further resources with an uncertain future. However that may be, the validity of this claim and its eventual resulting damages can only be assessed by the Tribunal on the merits.

239.

As noted above, Respondent originally objected to admissibility on the ground that Claimant failed to state an arguable case that demonstrated prima facie that there was a violation of the Russia-Ukraine BIT in respect of its rights as a shareholder in Ukrtatnafta, or that harm and damages ensued from such claim.⁴⁴³ This objection, however, was withdrawn in light of judicial proceedings taking place in Ukraine after Respondent’s Reply on Jurisdiction was submitted.⁴⁴⁴ This withdrawal was made without concession in respect of the merits of this and related claims. Accordingly, it shall not be addressed by the Tribunal at this stage.

240.

As a factual matter, however, it is appropriate to note that the Economic Court of the Poltava Region declared on 3 November 2009 that Tatneft’s purchase of shares representing 8,613% of Ukrtatnafta had been unlawful and ordered Tatneft to return those shares to Ukrtatnafta.⁴⁴⁵ No compensation for these measures has thus far been offered or paid.⁴⁴⁶

241.

In addition to Respondent’s jurisdictional defense to the allegation that it breached Article 5(1) of the Russia-Ukraine BIT concerning the expropriation of shares, which has now been clearly withdrawn,⁴⁴⁷ Respondent also made in its Statement of Defense two other arguments concerning the need for Claimant to make an arguable case. These objections were not expressly withdrawn and therefore will be addressed by the Tribunal.

242.

One such argument concerns the guarantee of legal protection to Claimant under Article 2(2) of the Russia-Ukraine BIT, which provides:

Either Contracting Party shall guarantee, in conformity with its legislation, the complete and unconditional legal protection of investments of investors of the other Contracting Party.⁴⁴⁸

243.

Respondent asserts that such protection is not an unconditional guarantee of treatment and it is different from a full security and protection clause.⁴⁴⁹ As such it cannot give an investor an individual enforceable right under international law and, moreover, the protection that is to be granted in conformity with Ukraine’s legislation has not been removed and it could be enforced before the Ukrainian courts.⁴⁵⁰

244.

The second of Respondent’s arguments concerns Article 3(1) of the Russia-Ukraine BIT, which provides:

Each Contracting Party shall provide on its respective territory a regime for the investments made by investors of the other Contracting Party, and also with respect to the activity involved in making such investments which regime shall be no less favorable than the one granted to its own investors or investors of any third state, precluding the use of discriminatory measures, which could interfere with the management and disposal of those investments.⁴⁵¹

245.

While Claimant asserts that this provision "requires Ukraine to grant to Russian investors and their investments treatment no less favorable than that granted by Ukraine to its own investors or to investors of third States and their investments,"⁴⁵² Respondent maintains that the Article noted does not refer to "treatment" but to "a regime for the investments," which is a different matter as it addresses only a system of general application and not a specific treatment to a certain investor.⁴⁵³ Because this is not a case of most favored nation treatment it cannot be used to import Article 2(2) of the United Kingdom-Ukraine BIT and the fair and equitable treatment and full protection and security therein envisaged, as Tatneft pretends.⁴⁵⁴

246.

In view of the withdrawal noted above it would not be appropriate to examine Claimant’s arguments concerning Article 5(1) of the Russia-Ukraine BIT, but they shall be examined in respect of Articles 2(2) and 3(1).

247.

Claimant asserts that the failure to grant "complete and unconditional legal protection" under Article 2(2) of the Russia-Ukraine BIT and the need to ensure most favored nation treatment under Article 3(1), which in every version of Russian bilateral investment treaties in other languages is translated as "treatment" and not "regime," provide ample grounds to consider that it is plausible that if the matter is discussed and proved on the merits the alleged violations of the Russia-Ukraine BIT might be established to the satisfaction of the Tribunal.⁴⁵⁵ Claimant submits that it has stated an admissible case in this respect.

248.

The Tribunal believes first that the reference to "complete and unconditional legal protection" envisaged in Article 2(2) of the Russia-Ukraine BIT is not to be taken lightly in that potentially it might involve a substantial guarantee of treatment benefiting the investor in light of the facts of the case. This treatment can only be discussed in the context of the merits of the case.

249.

The Tribunal must also note that Claimant relies on the most favored treatment provided for in Article 3(1) of the Russia-Ukraine BIT to the effect that it can invoke the application of Article 2(2) of the United Kingdom-Ukraine BIT. The latter Article provides for fair and equitable treatment and the enjoyment of full protection and security, which Tatneft considers applicable because it grants a more favorable treatment to British investors and their investments in Ukraine. Again this particular claim can only be considered in the context of the specific treatment envisaged, which is a matter for the merits. At that point it will also be necessary to examine whether Article 2(2) of the Russia-Ukraine BIT is in some respect analogous to Article 2(2) of the United Kingdom-Ukraine BIT, or entails a different kind of legal obligation.

250.

At this stage, however, the Tribunal is satisfied that these claims are admissible. While it is not implausible to argue that the events described might have compromised fair and equitable treatment and full protection and security if the standard of the United Kingdom-Ukraine BIT is held applicable in this respect, or if the Russia-Ukraine BIT is interpreted to encompass similar obligations, these issues are of course also matters to be decided at the merits.

251.

It should be noted, as explained in the narrative of facts above, that Article 3(1) has also been invoked in connection with Article 8(1) of the United Kingdom-Ukraine BIT which entitles U.K. investors to commence arbitration after a three-month waiting period rather than the six-month period envisaged in the Russia-Ukraine BIT, and which consequently affords more favorable treatment to such investors.⁴⁵⁶ This issue has not been objected to in the context of jurisdiction or otherwise and hence will not be addressed by the Tribunal.

252.

In light of the above considerations, the Tribunal concludes that the objections to admissibility of Tatneft’s claims cannot be upheld, without prejudice to the examination of defenses on the merits and the evidence offered at that stage about the manner in which Respondent may have breached the Russia-Ukraine BIT, and the related damages and links of causality with the measures taken.

253.

For all of the reasons set out above, the Tribunal decides as follows:

a) Respondent’s objections to jurisdiction and admissibility are dismissed;

b) all questions concerning costs are reserved for subsequent determination.

The Tribunal invites the Parties to confer and agree on a procedural calendar for the merits phase of this arbitration, and to report to the Tribunal thereon within 60 days of the issuance of this Partial Award.

Marc Lalonde	Appointed by the State
Charles N. Brower	Appointed by the investor
Francisco Orrego Vicuña	President

Tatneft v. Ukraine

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary

Partial Award on Jurisdiction

CHAPTER I - PROCEDURAL HISTORY

A. Commencement of the Arbitration Proceedings

B. Constitution of the Arbitral Tribunal

C. First Procedural Meeting

D. Written Phase of the Proceedings

E. Oral Phase of the Proceedings

CHAPTER II - FACTUAL BACKGROUND

A. The Creation of Ukrtatnafta

B. The Conclusion of the Russia-Ukraine BIT and the 1993 Investment Cooperation Agreement

C. The Evolution of Ukrtatnafta’s Shareholding Structure

D. Litigation Relating to the Acquisition of Shares in Ukrtatnafta by Amruz, Seagroup and Tatneft

E. The Management of Ukrtatnafta

F. The Sale of Oil by Tatneft to Ukrtatnafta

CHAPTER III - THE TRIBUNAL’S CONSIDERATIONS AND FINDINGS

A. The Dispute Brought before the Tribunal

B. Objections to Jurisdiction

1. First Objection to Jurisdiction: The Russia-Ukraine BIT Does Not Apply to Disputes concerning Ukrtatnafta

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

2. Second Objection to Jurisdiction: Tatneft Is Not an Investor within the Meaning of the Russia-Ukraine BIT (Objection Ratione Personae)

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

3. Third Objection to Jurisdiction: Tatneft’s Participation in Ukrtatnafta Is Not an Investment within the Meaning of the Russia-Ukraine BIT (Objection Ratione Materiae)

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

4. Fourth Objection to Jurisdiction: Tatneft’s Participation in Ukrtatnafta Is Not in Conformity with Ukrainian Legislation (Objection Ratione Materiae)

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

C. Objections to Admissibility

1. First Objection to Admissibility: Tatneft Has No Ius Standi to Claim on behalf of Amruz and Seagroup

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

2. Second Objection to Admissibility: Tatneft Has No Ius Standi to Claim for Unpaid Oil Deliveries

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

3. Third Objection to Admissibility: Tatneft Has Failed to State an Arguable Case concerning Alleged Violations of its Rights under the BIT and Ensuing Damages

Respondent’s arguments

Claimant’s arguments

The Tribunal’s findings

CHAPTER IV - DECISION

Instantly access the most relevant case law, treaties and doctrine.

**2. Second Objection to Jurisdiction: Tatneft Is Not an Investor within the Meaning of the Russia-Ukraine BIT (Objection Ratione Personae)**

**3. Third Objection to Jurisdiction: Tatneft’s Participation in Ukrtatnafta Is Not an Investment within the Meaning of the Russia-Ukraine BIT (Objection Ratione Materiae)**

**4. Fourth Objection to Jurisdiction: Tatneft’s Participation in Ukrtatnafta Is Not in Conformity with Ukrainian Legislation (Objection Ratione Materiae)**

**1. First Objection to Admissibility: Tatneft Has No Ius Standi to Claim on behalf of Amruz and Seagroup**