Winning a victory against Russia: 10 steps Oschadbank case

On November 26, 2018, the International Arbitration fully agreed with the Oschadbank arguments and awarded in its favor 1 300 000 000 USD of compensation from the Russian Federation, which the Bank had submitted as a claim to the aggressor state for the loss of its investments in the Crimea.

This amount comprises not only the loss of the Bank’s property, its valuables and assets, such as premises, equipment, cash and precious metals, but also the loss of business for years to come. In addition, for each day of delay in payment of this amount from the date of the arbitration’s award about 97 000 USD are imposed as a fine in favor of the State Savings Bank of Ukraine.

This is an unprecedented court case that opens the way for other companies to sue for their lost businesses in Crimea as a result of Russia’s annexation of the peninsula. And not only to sue, but to win, following the Oschadbank’s example.

The fight had lasted since 2014 and resulted in victory for the Ukrainians. So, 10 steps that have made it possible are as follows.

Step one: keep calm and record everything. Seizure of the Bank’s assets, monetary values and basic infrastructure occurred in April 2014. All Oschadbank team’s attempts to keep them met with tough resistance from local and arrived “green men” and self-proclaimed “owners” of the occupied Ukrainian peninsula. Daily and hourly the Bank’s head office received more and more alarming information. There was only one option left for the Bank, that was to thoroughly record and document this high-handed robbery in broad daylight. So they collected their evidence base.

At the same time, the Bank continued its operation and provided services to its customers until the last day, while the Constitution and Laws of Ukraine were in force in Crimea. And the next day RNCB (Russian National Commercial Bank) signs appeared on Oschadbank offices. And it should be noted that its branches kept the same equipment, furniture and staff, and rendered services to the same customers as before.

Step two: focus on the essential. More than half of the total Bank’s assets in the Crimea, namely receivables, belong to one company, that is the borrower of the Bank. Therefore, the main task in collecting the evidence base for the robbery of the Ukrainian State Bank by the occupiers was to keep the original loan agreements with the company and export them to the territory of mainland Ukraine. The Bank succeeded at the last moment. How did it manage? That is another story, which later after the Crimea’s liberation and return will be worthy to become the plot of some spectacular detective movie.

Step three: never give up, be balanced and decisive at the same time. When the whole scope of evidence was collected, comprising tens of thousands of pages, hundreds of hours of witnesses’ audio and video recordings, and it was all handed over to lawyers (bank, extrabank, international ones), their opinion about success of the Oschadbank’s claim against the Russian Federation was equally divided, in the ratio of 50:50. Since it was about billions UAH, high costs of legal support and advice, after consideration we had a great temptation to quit it all and not to apply to international courts. But we realized that then we would definitely lose in that case. Therefore, we decided to seize the slightest opportunity and continue the fight.

Step four, the legal framework must be as perfect as possible. The Bank’s legal team, together with external legal advisers, had made every effort to find an international agreement to refer to in order to properly substantiate Oschadbank’s claims to the aggressor state. And they found it. This is a bilateral agreement on the promotion and mutual protection of investments between Ukraine and the Russian Federation dated November 27, 1998.

This agreement was not only signed by both countries, but ratified as well. Therefore, the choice of this legal basis was no less important than the collection of evidence. After all, we know that, for example, in 2014, YUKOS company that won 50 billion USD from Russia, used the provisions of the European Energy Charter to refer to in the court proceedings. The plaintiff won the case. But despite the fact that the Charter was signed by the Russian Federation, it was not ratified. Consequently, it helped the Kremlin to avoid payments in favor of the plaintiffs, Yukos shareholders.

Step five: choose the most professional strategic legal advisor. To choose such partners, the Oschadbank team hold negotiations with the top ten leading global law firms that possess necessary expertise and competence in international investment disputes.

Six out of ten advisors were not ready to take on such a difficult case. We chose American Quinn Emanuel Urquhart & Sullivan LLP of the remaining four companies. They deal exclusively with litigation and they are a leading company in investment disputes involving various states. And most importantly, they, as well as the Oschadbank team, believed in victory from the very beginning! And it was despite the fact that there was no precedents of similar cases. There were, of course, legal disputes concerning investments in the territories seized by one country from another. But Crimea is another story. De facto, it was annexed by Russia. De jure, almost all countries in the world do not recognize it. So, how should the court consider the territory of the Crimean Peninsula? And Quinn Emanuel Urquhart & Sullivan LLP experts found the answer to this question. Time shows that the choice of the partner was absolutely right.

Step six: statements of claim must be submitted in detail and in most convincing manner, with full evidence base attached. Relevant letters and a statement of claim copies (if you put over 30 thousand pages together, you’ll get a man-size stack of boxes with weight over 70 kg) were sent out: to the President and Prime Minister of the Russian Federation, the Ministry of Foreign Affairs and the Ministry of Economy of the Russian Federation and other entities of the government of Russia -- to 10 addressees in general. According to the rules and regulations of the bilateral agreement, the plaintiff waited for a response for six months. There followed no response. And it certainly didn’t play in the defendant’s favor.

Step seven: if the law allows, go straight. Strategic legal advisers told the Bank not to carry out the so-called bifurcation. It means the division of legal proceedings into two component parts. In the first proceedings, the issue of the legal competence of the arbitration to consider the dispute is supposed to be resolved. How to define the concept of a “territory” of the peninsula? Is it possible to assume the assets of the Bank as investments, and the Oschadbank as an investor? In the second part it is presumed to talk about the case on merit. It was decided to hear both parts in the same proceedings, which significantly accelerated consideration of the case.

Step eight: the arbitrator matters. Each party has to choose its arbitrator. Oschadbank chose the well-known lawyer Charles Brower (the Honorable Charles N. Brower), who once took part in the development of disarmament agreements between the United States and the USSR. Involvement of such a respected and well-known world expert, without a doubt, made the arbitration decision indisputable from the perspective of impartiality.

Step nine: the venue of proceedings is of great importance. In general, court hearings were held by the arbitration court ad hoc in accordance with the Arbitration Rules of the UN Commission on International Trade Law (UNCITRAL) under the management of the Permanent Court of Arbitration, PCA, located in the Hague (Netherlands). And Paris was chosen as the place of hearing. After all, the actual place of arbitration is determined by the procedural law of hearings, and French laws are less lenient to the parties to court proceedings, who initially do not participate in them, and then try to appeal against their awards. As mentioned above, the Russian Federation not only failed to respond to Oschadbank’s appeal and the claim, but ignored the whole proceedings. Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, awards of the International Investment Arbitration Court may be enforced in 156 jurisdictions. In fact, in 156 countries around the world, including through the seizure and recovery of assets.

Step ten: failure to attend court proceedings does not exempt from liability. According to the Arbitration Rules of the UN Commission, if a party receives a relevant notice, but does not appear in court without reasonable excuse, the case consideration is allowed to be conducted in its absence. The award in any case is binding. The fact that Russia ignored the Oschadbank case without reasonable excuse, as well as all other relevant hearings, indicates that in fact it has no valid arguments in its favor. As practice shows in such cases, the aggressor country is trying to oppose already at the stage of implementation of the decisions taken by the international arbitration.

Thus, Russia is not going to make compensation awarded by the international arbitration. And Oschadbank will look for the property of the Russian Federation or state-owned companies of the aggressor country in other states, to seize and enforce them. Another way is a scheme for replacing the creditor in Russia’s relations with foreign contractors, where Russia acts as a creditor.

It may take years. But the main thing is that the aggressor country can and should be enforced to be held accountable for the illegal annexation and violation of numerous rules and regulations of the international law. It will be a difficult path. Search of assets means a large scope of work. However, this method is feasible and the State Savings Bank of Ukraine is not going to give it up.


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