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2013 highlights: commercial disputes


By Dmytro Shemelin, lawyer at Ilyashev & Partners for Сompanion, Ukrainian magazine

Last year was expectedly productive in dispute resolution: it was time to settle cases initiated immediately after the 2008 crisis.

Let us start with an overview of international proceedings with participation of Ukraine.

The WTO cases related to “recycling fee”, which has been recently introduced in Russia and Ukraine, attract the most interest. The Russian fee has already brought significant losses to the Ukrainian exporters: by some estimates, total sales losses of Bogdan, ZAZ and KrAZ amounted to more than USD 300 mln. Both European and Japanese manufacturers suffered similar inconveniences.

In connection herewith, in July 2013, Japan and the EU demanded consultation (the first stage of trade dispute settlement) and after failure the claimants demanded convening the panel, a group of arbitrators, which would consider the dispute “Russian Federation – Recycling Fee on Motor Vehicles” on merits. Ukraine did not dare to file a separate lawsuit, but participated in the consultations, and will probably try to participate in the proceedings as a third party (pursuant to Art. 10 of WTO Dispute Settlement Understanding).

However, on 30 October, Japan demanded similar consultations in respect of the Ukrainian recycling fee. The EU and Russia have joined the consultations meanwhile. If the case “Ukraine – Definitive Safeguard Measures on Certain Passenger Cars” is not settled amicably, it will be considered mainly in 2014.

However, it is quite possible that Russia or Ukraine amends the legislation on recycling fee, eliminating de facto discrimination of imported car industry, of which the EU and Japan complained. In this case, the dispute will be settled amicably (as most WTO disputes), and the proceedings will not follow.

More news also comes from international investment arbitration. In March 2013, hearing in the case of “OAO “Tatneft” v. Ukraine” was completed; the Tatar investors demanded compensation for their withdrawn shares and operational control over the Ukrainian PAO “Ukrtatnafta”, which owns oil refinery in Kremenchug.

The amount in dispute was at different times from one-half to more than two billion dollars, making it the second largest international arbitration in Ukrainian history (lawsuit Generation Ukraine Inc. for USD 9 bln in 2003 ended in complete victory of the state).

The case of Tatneft still can be settled amicably although with the launch of own refinery complex TANECO Tatneft hardly really needs Ukrainian refineries. Obviously, in the near future we should expect a final judgment in this long-lasting dispute since 2008.

In July 2013, Joseph Lemire (“Gala Radio”) won his second case against Ukraine. The state lost both the arbitration (compensation totaled more than USD 10 mln) and the appeal proceedings.

In early 2013, we finally had the first investment case filed by the Ukrainian plaintiff against a foreign state: SE “Energorynok” sued Moldova in the Stockholm arbitration. The amount in dispute is relatively small: less than USD 2 mln, but progressive views of lawyers of the state enterprise deserve respect.

Following Energorynok, in August 2013 a Ukrainian citizen Gennady Mikhaylenko filed an investment lawsuit against Belarus to the ICSID for over USD 175 mln. Mr. Mikhaylenko, who served time in the Belarusian prison, complained about the expropriation of his investment in the factory of seamless pipes. The case consideration is just beginning.

The European Court of Human Rights set a new (albeit negative) record: Ukraine lost more than EUR 27 mln to Agrocomplex affected by judicial corruption. Judgment, which amount is three times more than the total annual state budget for payments on the ECHR’s judgments, proves that compensations of the European Court can be not only nominal.

In the field of commercial arbitration many interesting cases were not disclosed for reasons of confidentiality. Nevertheless, some information still leaked.

Autumn negotiations on European association again raised the specter of dispute between Gazprom and Naftogaz on the validity of the Natural Gas Purchase and Sale Contract in 2009-2019 and the application of its “take or pay” provision. Both parties again rattled the saber, but considering that the dispute was politically motivated and taking into account a number of recent losses of Gazprom in such cases it is very unlikely that the case will eventually be considered in court or tribunal.

In March 2013, behind a veil of secrecy in the High Court of London continued to consider the specific proceedings on the suit of Victor Pinchuk to Igor Kolomoisky and Gennady Yaroslavsky concerning shares of OJSC Krivoy Rog State Iron Ore Integrated Works. Although initial claim was made public, other details of proceedings with more than USD 140 mln at stake were not disclosed.

In September 2013, American Carpatsky Petroleum Corporation appealed to the Ukrainian court for recognition and enforcement in Ukraine of the Stockholm award on recovery from OJSC “Ukrnafta” of more than USD 145 mln in connection with breach of the agreement on joint activity. In response UkrNafta appealed the arbitral award in the Swedish court. Outcome of the case is still unclear.

Finally, in late November corporate dispute between shareholders of Nemiroff was completed, the dispute had been considered for about three years according to the LCIA Rules. Although a final award did not give a decisive advantage to either party, it is interesting to review a number of security measures imposed by the arbitrators, who, according to one of the parties to the proceedings, effectively counteracted raider actions of its opponent in Ukraine and withdrawal of assets from the disputed company. Hopefully, such a civilized practice of considering corporate disputes will be further applied.

Let us turn to domestic affairs. New Year 2013 was memorable by queues in air ticket offices resulting from the bankruptcy of Aerosvit. After the 2008 fuel crisis and four-year series of scandals and losses, last year it seemed that Aerosvit would still fly. Instead, Ukraine’s largest air carrier filed application for bankruptcy to the Kyiv Commercial Court. Although de jure bankruptcy has not happened yet, whereas in the summer of 2013 the ruling on initiation of the case was set aside in appeal and cassation proceedings, Aerosvit did not resume navigation. Currently, UIA carries out most of its flights.

One more interesting incident was almost unnoticed: in May 2013 the Kyiv Commercial Court resumed hearings in the case filed in 2005 upon the claim of consortium “Investment Metallurgical Union” to the State Property Fund on invalidation of 2004 decisions on privatization of Krivorozhstal. The lawsuit was substantiated by the alleged violation of social obligations and collective agreement. About a month later Petro Symonenko registered in the Verkhovna Rada a draft law on return of Krivorozhstal to state ownership. For unknown reasons, this strange case that sprang out of nowhere, quietly sunk into oblivion: some time later the lawsuit was dismissed due to absence of the plaintiff.

The international dispute between the Kazakh BTA Bank and its former CEO Mukhtar Ablyazov, who was accused of embezzling USD 5 bln belonging to the bank was successful for the Ukrainian party. In November 2012, M. Ablyazov, who was granted political asylum in Great Briatin, lost one of the cases in the High Court of London, and was obliged to pay a few billion dollars to the Bank. The case was one of the largest fraud cases in the history of England. In this regard, the case was further developed in 2013. Judgments of the English court, as well as the earlier court freezing orders and orders on the transfer of M. Ablyazov’s assets in Ukraine, were recognized by the Ukrainian courts. Currently, the Kazakh BTA Bank with the assistance of the Ukrainian counsels transfers to its ownership the assets that were previously registered on the companies of Ablyazov, including the Ukrainian BTA Bank.

Mr. Ablyazov was arrested in France according to the English order, and now the General Prosecutor’s Office of Ukraine is seeking his extradition with the assistance of international lawyers. In October 2013, the investment court of arbitration dismissed the claim of Ablyazov against Kazakhstan (case “KT Asia Investment Group B.V. v. Kazakhstan”) finding that the investment protection cannot be provided to non-transparent offshore company owned by M. Ablyazov.

At the end of the year, the public was stirred by AIS statements about the alleged forcible seizure of its business by DCH group, controlled by Alexander Yaroslavsky. The press reported DCH attempts to collect more than UAH 700 mln on loans previously granted to automobilists by Ukrsibbank. This major case is still pending.

In general, 2013 was quite a busy one for trial lawyers. It seems that there has been some movement towards a civilized peaceful settlement of disputes, including through international institutions. One can only welcome such a move, especially in light of the current political conflict and neglect of courts.

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