Foreign investments

Foreign Investments in Russia at Risk: How Investment Arbitration Can Offer Protection

Russian actions in Ukraine have resulted in far-reaching sanctions by a number of jurisdictions, including the United Kingdom, United States, European Union, Canada and Japan.

In response, Russia is issuing anti-sanctions measures that target foreign companies from these jurisdictions. These government measures include, for example:

  • the nationalization of the assets of foreign investors (draft approved on March 16, 2022, currently pending in Parliament for final adoption)
  • the use of intellectual property rights without authorization or compensation (Presidential Decree No. 299; March 6, 2022)
  • the creation of a register of “unreliable” companies that have left Russia or suspended their business activities. These companies could face additional taxes (bill)
  • the nationalization of jets and aircraft leased abroad (presidential decree; March 14, 2022)
  • repayment in Russian rubles of a debt in hard currency owed to a foreign creditor (Presidential Decree No. 95; March 5, 2022)
  • new limitations on cross-border money transfers for Russian and non-Russian residents (Presidential Decree No. 126; March 18, 2022).

The Russian courts also appear to have intervened. Recently, a Russian judge refused to enforce Hasbro’s trademark rights to the cartoon character Peppa Pig, solely based on the “unfriendly” actions of the UK, US and EU.

Foreign investors who are subject to these measures may seek protection under Russia’s Bilateral Investment Treaties (“BITs”). The Russian Federation has concluded BITs with several countries, including Canada, United Kingdom, South Korea, France, Netherlands, Germany, Belgium/Luxembourg, Switzerland, Austria , Spain, Albania, Hungary, Kuwait, Czech Republic, Vietnam, Sweden, Cuba, Romania, Slovakia, Denmark, Greece, Italy, Norway, North Macedonia, Finland, Ukraine, Kazakhstan, Africa South, Turkey, Japan, Egypt, Argentina, Moldova, Lebanon, Lithuania, Yemen, Bulgaria, North Korea, Armenia, Mongolia, Laos, Syria, China, Qatar, Jordan, Indonesia, Venezuela, Turkmenistan, Libya, Angola, Singapore , United Arab Emirates, Nicaragua, Uzbekistan, Zimbabwe, Azerbaijan, Bahrain, Equatorial Guinea, Cambodia, Iran, Palestine.

These BITs contain provisions ensuring that investments enjoy (i) fair and equitable treatment, (ii) full protection and security, and (iii) a prohibition on expropriation or dispossession of the investment. Many of these BITs also contain an armed conflict “compensation for losses” clause.

The definition of “investment” is broadly defined in BITs and generally includes: movable and immovable property, stocks/stocks/debentures or other forms of participation in a company or enterprise, monetary claims and performance claims under a contract having financial value, intellectual property rights, and rights conferred by statute or contract (i.e. concession rights).

The definition of “investor” is also broad and generally includes natural persons having the citizenship or nationality of the Contracting State, and/or companies, companies, enterprises incorporated in the Contracting State.

To pursue the protection of their investments, foreign investors may submit claims against the Russian state to international arbitration before an arbitration institution, such as the Stockholm Chamber of Commerce, or to ad hoc arbitration in accordance with the United Nations Commission on International Trade Arbitration Rules. Law (UNCITRAL). Arbitral tribunals have jurisdiction to award multimillion-dollar damages to foreign investors who can establish the breach of the BIT and the damages they suffered.

To actually bring a case against Russia, an investor will first need to serve a notice of counterstatement briefly outlining the violations of the BIT and the remedies sought. Karel Daele, a partner in our UK Disputes & Investigations team, and Elizabeth Montpetit, Senior Counsel in our UK Disputes & Investigations team, have extensive experience in investor-State arbitration.