News (#06 June 2019)


Ukrnafta won case against Russia in international arbitration

On 12 April 2019 the court of arbitration resolved to recover USD 44.4 million from the Russian Federation in favor of Ukrnafta PJSC as indemnification for the expropriation of the company’s property in annexed Crimea.

The company statement states that in April 2014, shortly after the annexation of Crimea by Russia, illegal armed groups of the aggressor state seized administrative premises and 16 gas filling stations owned by Ukrnafta.

In October 2014, Ukrnafta informed the Russian Federation of violation of its rights, being guided by the provisions of the Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation for the Promotion and Reciprocal Protection of Investments. However, Russia ignored the notification sent by Ukrnafta about the dispute that arose under the agreement.

On 3 June 2015 Ukrnafta submitted the dispute for its ad hoc consideration in the court of arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

By its decision of 26 June 2017 the court of arbitration declared its jurisdiction to consider the dispute under the Agreement.

The Russian Federation appealed against this decision to the Supreme Court of Switzerland, but the latter dismissed the claim filed by the Russian Federation by its ruling of 16 October 2018. The Supreme Court of Switzerland agreed with the court of arbitration that Ukrnafta was an investor under the Agreement, and the property of Ukrnafta located in Crimea is an investment.

By its ruling of 12 April 2019, the court of arbitration recovered USD 44.455 million from the Russian Federation in favor of Ukrnafta as indemnification for the expropriation of the company investments in annexed AR Crimea, as well as over USD 3.5 million in fees for arbitration services.

According to the arbitration ruling, the interest is accrued on the amount of indemnification from 22 April 2014. As of April 2019, the amount of accrued interest exceeds USD 5.5 million.


Court recognized PrivatBank’s nationalization as illegal

The Kyiv District Administrative Court upheld the claim filed by Igor Kolomoisky against the National Bank and the Cabinet of Ministers regarding privatization of PrivatBank in 2016.

The court found it illegal and abolished the decision by the state to withdraw insolvent PrivatBank from the market.

“Among other things, the reasons for adopting such a decision were the lack of evidence on part of the defendants regarding the availability of the statutory grounds to record PrivatBank in the category of insolvent banks, following which the procedure for its nationalization was initiated, and the violation of the bank nationalization procedure of itself, which is regulated at legislative level,” the court press service informed.

Therefore, the procedure of nationalization was declared unjustified by the court and as one that was carried out with numerous violations of the current law, which was followed by the unlawful state interference in the rights of the bank’s shareholders, including the plaintiff, to peacefully own their property, which is a violation of both the requirements of national legislation, including the Constitution of Ukraine, and the provisions of international standards in this area.


Court canceled multimillion claims filed by State Fiscal Service against carrier UIA

The Kyiv District Administrative Court has canceled the claim filed by the State Fiscal Service against UIA in the amount of UAH 60 million. The Large Taxpayer Office of the State Fiscal Service filed an appeal against this ruling to the Sixth Administrative Court of Appeal.

During the tax audit, it was established that UIA paid out UAH 431.6 million to the non-resident company Fintas Aviation Leasing UK One Limited for the lease of two aircraft in 2013-2015 under leasing terms.

At the same time, the airline took advantage of benefits (exemption from taxation of the income generation source) provided to it under Article 8 of the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains.

The SFS did not accept this decision and decided to recover UAH 56.3 million of taxes that were not received from the airline and a fine of UAH 3.6 million.

UIA believes that this Convention takes precedence over the provisions in the Tax Code. The airline stated that profits from commercial activities conducted without the establishment of permanent representative offices in another state as well as income from the aircraft operation in international traffic are taxable only in the state, where a person-income beneficiary is a resident.


Court ordered Odessa Port Plant to pay USD 250 million to Ostchem

The Kyiv Court of Appeal has unblocked the enforcement of the decision taken by the Arbitration Institute of the Stockholm Chamber of Commerce of 25 July 2016, related to recovery of USD 193 million plus interest from the Odessa Port Plant in favor of Ostchem.

Ostchem filed a claim to Kyiv Court of Appeal in November 2018. In its claim, the company asked the court to recognize and grant permission on enforcement the decision taken by the Stockholm arbitration. Ostchem demanded the issue of a writ of enforcement in relation to the decision taken by the Arbitration Institute of the Stockholm Chamber of Commerce.

The Kyiv Court of Appeal ruled to uphold the claim filed by Ostchem in full.

A reminder that in May 2017, the Superior Specialized Court suspended the enforcement of the court decision on recovery of USD 193 million from Odessa Port Plant in favor of Ostchem. Besides, the court also suspended enforcement of the ruling taken by Yuzhnensky City Court of Odessa Region, which upheld the petition filed by Ostchem to recognize and to grant permission for the enforcement in Ukraine of the partial arbitration decision taken by the Stockholm Arbitration Institute in the case on recovery of USD 193.26 million of the principal amount of debt and USD 57.98 million of accrued interest from Odessa Port Plant in favor of Ostchem. This verdict was later upheld by the Court of Appeal of Odessa Region.

Odessa Port Plant is obliged to repay USD 193.36 million of the principal sum of debt and USD 57.8 million of interest accrued for late payments in favor of Ostchem.


The Ukrainian Journal of Business Law

Subscribe to The Ukrainian Journal of Business Law right now and enjoy the most relevant issues on doing business in Ukraine on your device or in print.

All this for just USD 9.99 a month.


Subscribe now