It was on 24 February, 2022 that Russia started an unprecedented full-scale war on Ukraine. As of 1 September, 2022 direct documented damage to residential and non-residential real estate and other infrastructure alone came to more than USD 127 billion and total economic losses are estimated at USD 600 billion, according to the National Council for the Recovery of Ukraine from the Consequences of the War and Kyiv School of Economics (KSE). The war is still continuing and direct and indirect losses are increasing progressively. There is no better time to start legal actions for war damages, so the current situation and possible options are set out below.
The Concept of Sovereign Immunity and a Few Facts
It’s fair to say that, when going to court, if we are considering a claim against a sovereign state, the first and key issue arises, that of sovereign immunity. This concept means that a sovereign state cannot be sued without its consent.
The world’s first precedent was set by the Supreme Court of Ukraine that Russia should not be granted sovereign immunity because of its criminal actions. To the best of our knowledge there are no claims filed against a sovereign state in the USA or UK (no immunity precedent).
At the same time, legal entities and individuals in Ukraine are free to file claims against Russia. According to the legal conclusion by the Supreme Court of Ukraine (as declared in case No. 308/9708/19 on 14 April, 2022), Russia lacks immunity from adjudication of tort claims as a result of its armed aggression against Ukraine: “The Supreme Court proceeds from the premise that if the tort exception is applied, any dispute that arose in its territory, and that a citizen of Ukraine has, even with a foreign state, such as Russia, may be heard and decided by a Ukrainian court as a proper and competent court.”
In case No. 760/17232/20-ts, the Supreme Court noted further in its 18 May, 2022 resolution that “maintaining Russia’s immunity would be inconsistent with Ukraine’s international law anti-terror obligations” and that “maintaining Russia’s jurisdictional immunity would deprive a claimant of effective access to court for protecting their rights, which is inconsistent with Article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms.” Therefore, the Supreme Court concluded that “Russia has no grounds to invoke immunity to avoid liability for the damages caused to the claimant’s property.”
The Supreme Court’s advanced approach and conclusions have turned Ukraine into a unique country where a damages action may be initiated against Russia directly, and the claimant subject to proof of the damages caused is to obtain a successful judgment that will be readily recognisable and enforceable in Ukraine and other jurisdictions.
This is shown in statistics, with more than 100 claims filed against Russia in Ukraine to date (16 cases have been considered and satisfied).
Some claims have been filed with ECHR. BIT Investment claims have probably been initiated too, but they are unknown because of the cooling off period and confidentiality.
Claims brought against related private parties like Wagner (PMC), Total Energies (FR), Prosus/Avito (NL) are also known. Given Russia’s intentions to increase the number of private military companies, claims against private companies are a promising option.
Potential Defendants and Issues that May Arise
With regard to the proper defendant, the option of the sovereign state or private one may be considered. In the case with sovereign, it should be Russia or Belarus, if private – state companies or private companies, or sanctioned persons.
As mentioned above, in Ukraine it is possible to bring a claim against a sovereign, since the issue of Russia’s sovereign immunity no longer exists. It is important that the possibility exists to recognize and enforce the decision of the Ukrainian court in other jurisdictions.
If a claim is brought against a sovereign, the causality is assumed for Russia or Belarus, if against a private one, there is high legal resistance. In the latter case, the following question arises: what takes precedence in decisions or sanctions. In the case of a claim against a private person, it is more difficult to prove the causality. Moreover, private companies will take part in the litigation, which will increase costs.
In both options it makes sense to consider compensation through assets not sanctioned or blocked, not pleaded, and not diplomatic immunity.
The potential example of a private party-defendant is HeadHanter.ru – an online recruitment platform connecting job seekers with employers with US/ Valuation/HD-Cyprus listing shareholders. This web platform has posted job listings for those who are looking to go to war. This is an example of causality, which is a key issue in the case of private claims.
Assets and Enforcement
Finding assets through which it will actually be possible to execute a decision is an important stage which is necessary for completing the process. Among the assets at the expense of which it would be realistic to recover damages from Russia are the following: receivables, bonds, shares, real estate, paintings.
An excellent example which shows that there are assets beyond the Russian Federation and which are not under sanctions or recognized as collateral and are, at the same, of great value, is about 400 paintings of Russian museums, including Picasso’s painting “Girl on a ball”, that are found abroad and exhibited outside of Russia.
Another example are the yachts belonging to Russian oligarchs that have been impounded abroad. In the case of non-sovereign assets, which may be sanctioned, there is no guarantee that they can be used for the purposes of private claims. At the same time, in the event of proving causality, it is possible to receive compensation from such assets. Poland and Finland both declared recently that they support the confiscation of frozen assets belonging to Russia in favor of Ukraine. By the way, the largest concentration of seized yachts belonging to Russian oligarchs is situated in Finland.
In UK the possibilities do exist to recover damages in a criminal case on the basis of a decision of a foreign court under the Proceeds of Crime Act 2002 in UK (POCA).
We propose to consider in greater detail the options for obtaining compensation.
(1) Ukrainian Court Decision with Further Recognition and Enforcement Abroad
The first and one of the main options is to file a claim in Ukraine against Russia due to the absence of sovereign immunity. When taking into consideration this option, we take into account the Supreme Court precedent.
Tort claims for harm caused to property may be brought in the jurisdiction where the harm was inflicted, i.e. in Ukraine. Substantive law is Ukrainian.
The best option is to file a claim in Ukraine, then recognize and enforce a Ukrainian court decision in other jurisdictions (UK, Cyprus, CH). There is a legal framework: Ukraine is a party to bilateral treaties, which involve mutual recognition and enforcement of court decisions.
Any damage can be recovered: destructive, expropriation, lost profit, receivables from occupied territories.
Russia does not participate in litigation and does not file any appeal and/or cassation appeal from such judgments. Thus, the decision of the court of first instance comes into force and becomes final. It is important to observe all the procedural requirements for due process and notice to the defendant.
The recognition and enforcement of a Ukrainian judgment should be sought in those countries that are parties to bilateral legal assistance treaties and politically supportive of Ukraine, such as Poland.
Foreign court decisions about the recovery of damages could be recognized by the UK, USA and Canada. Issues of sovereign immunity and public policy arise when deciding on the recognition and enforcement of a foreign judgment.
It is a positive development that countries do recognize the Russian regime as terrorist and Russia as a terrorist state. Such countries cannot grant immunity and respect to the state which commits acts of aggression, violates international law, and in respect of which there is a decision of the court for compensation for damages as an outcome of such aggression.
The UN General Assembly adopted an important resolution on Russian reparations for Ukraine on November 14 (https://news.un.org/en/story/2022/11/1130587), announcing the establishing of an international mechanism for compensation for damage, loss and injury, as well as a register to document evidence and claims. It will become the basis for the adaptation of national legislation by countries in which the enforcement of the Ukrainian decision will be further requested and where Russian assets are located.
(2) Investor Claim (BIT)
The second option is an investor claim (BIT). If the asset is located in occupied territory, the possibility exists of a parallel claim against the aggressor state, by analogy with the precedent case – an investment arbitration that followed the annexation of Crimea and the expropriation of assets under the 1998 Ukraine-Russia BIT.
The BIT was also invoked by the tribunal in Everest Estate LLC et al. v. The Russian Federation, where Russia was found to exercise effective control over Crimea (the award was supported by the Netherlands and Switzerland, among others). The outcome was an asset freeze against VTB Bank, Sberbank of Russia and VEB, and the investor managed to recover damages from Russia.
There is still no clear understanding as to whether this will apply to old and new annexed territories. At the same time, Russia is liable under international law for this exportation, Russia controlled this territory and officially announced the annexation. Furthermore, amendments made to the Constitution of Ukraine directly indicate that Russia is responsible for what happened there.
Is it possible to initiate a BIT dispute in relation to assets that were not under Russian control for long? A good question is: to what extent is Russia liable over this territory for the loss of investments? Kharkiv and Kherson are examples when the territory was occupied but is now liberated. Moreover, Kherson is still being declared by Russia as annexed territory. There are no new precedents, in our opinion, so it is during the particular period of control that Russia is liable. The question is whether Russia can be held responsible under such circumstances when there is no control over the territories.
(3) ECHR Claim
The following should be taken into account when deciding whether to file a claim with the European Court of Human Rights. Following its expulsion from the Council of Europe on 16 March, 2022, the Russian Federation ceased to be a High Contracting Party to the European Convention on Human Rights on 16 September, 2022.
The Court will only deal with applications directed against Russia in relation to alleged violations of the Convention that occurred up till 16 September, 2022. Even if you file a claim for damages caused prior to this established deadline, the process of consideration of a case by the ECHR is lengthy and the most important enforcement is very questionable.
Russia went even further, and adopted laws on non-enforcement of ECHR decisions after 15 March, 2022. Thus, without execution, the specified option seems to be not such a strong one.
(4) Consideration of a Dispute by Foreign Courts (US, UK and other)
The fifth option is applied with a claim to courts in the US, UK or other jurisdictions. In this context it’s important to realise the issues that will arise. These include any exemption from immunity and the requirement of a link. A major, separate stage is to prove the jurisdiction of the foreign court. It will be difficult for a foreign court to resolve such a case, because the proper forum is a Ukrainian court, even for foreign investors.
(5) Compensation in a Criminal Case
Another option is a criminal case, especially when it comes to receiving compensation for moral harm. At the same time, the potential defendant in a civil claim within a criminal case could be an individual (in some categories of cases a legal entity), but not a sovereign state. Therefore, the question of the enforcement and sufficiency of assets from this person remains an open one. In addition, it will be difficult to prove causality. The duration of the investigation and consideration of criminal cases is quite a lengthy process, which negatively affects the preference for this option.
At the same time, this option also deserves consideration, since there is a precedent under POCA assets in the UK, which could be used for recovering damages in a criminal case.
Funding Opportunities through Litigation Finance Fund
If the case is strong enough, but there are not enough funds to get access to justice, one option to consider is a Litigation Fund. Such funds evaluate changes and costs, providing financing of the case based on estimated valuation. If the case submitted by claimants is successful, they receive a portion of the settlement amount (success fee).
Instead of a Summary
If a business is affected by Russia’s war on Ukraine, the best options are to sue Russia in Ukraine or initiate an investment claim (BIT), or, as an alternative, file a private claim. A BIT claim is the strongest due to precedent though, at the same time, with lengthy consideration and jurisdictional issues. Moreover, such a possibility is only open if the assets are located on territory which is or was occupied (newly annexed) or at least was under the temporary control of Russia. Even if Russia does not participate in the consideration, there will most likely be an appeal submitted against an award and active actions will be required at the execution stage.
If another type of damage is caused or damage takes place in territories other than those types indicated above, the best option is to go to a Ukrainian court with further recognition and enforcement of the decision in those countries that are politically supportive of Ukraine, such as Poland, Canada, etc.
