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Investment Protection in Ukraine

Date of publication: 17 April 2019

Yevheniia Makarenko, Lawyer

Source: The Ukrainian Journal of Business Law

In the course of the economy’s development and the attraction of foreign capital into Ukraine, the issue of protecting foreign investments is becoming more and more important not only at national but international level too.

Ukrainian legislation, international treaties, and conventions signed and ratified by Ukraine provide foreign investors with a fairly wide range of instruments enabling to protect their interests in the event of any kind of investment dispute.

Rights of Foreign Investors in Ukraine

Protection of foreign investments in Ukraine is regulated by the Law of Ukraine On the Regime of Foreign Investments of 25 June 2016 (hereinafter — Foreign Investment Regime Law) and the Law of Ukraine On Protection of Foreign Investments of 5 October 1991 (hereinafter — Investment Protection Law). These regulatory acts define basic safeguards regarding the protection of foreign investments in Ukraine.

Ukrainian legislation sets out a range of guarantees for foreign investments. In particular, Article 8 of Foreign Investment Regime Law specifies that if in the future the special foreign investments legislation of Ukraine changes the guarantees on protection of foreign investments within a period of ten years from the date of such legislation coming into force the state will, at the request of a foreign investor, apply guarantees of protection of foreign investments.

It should be noted that foreign investments in Ukraine are not subject to nationalization. The public authorities of Ukraine have no right to refinance foreign investments, with the exception of cases of application of safeguard measures in the event of natural disasters, accidents, epidemics, and epizootics. Compensation to a foreign investor must be paid in a fast, adequate and effective manner.

In the event of termination of investment activity, a foreign investor has the right to return investments in kind or in the currency of investment in the amount of the actual contribution no later than six months from the date of termination of such activity (taking into account the possible reduction in the sum of authorized capital) without payment of duties, as well as income from these investments in cash or commodity form at the real market value.

Foreign investors enjoy guarantees that, after paying taxes, fees and making other mandatory payments, they will be provided with unimpeded and immediate transfer abroad of their profits, income and other funds in foreign currency obtained on legal grounds as a result of foreign investments.

Conclusion of Bilateral Treaties in the Course of Protection of Foreign Investment Rights

Practice shows that in the course of protection of foreign investments the state concludes bilateral investment treaties. A bilateral investment treaty (hereinafter — a BIT) is an agreement establishing the terms and conditions for private investment concluded by individuals and legal entities of one state on the territory of another state.

Most BITs grant investments made by an investor of one contracting state in the territory of the other a number of guarantees, which typically include fair and equitable treatment, protection from expropriation, full protection and security.

The distinctive feature of many BITs is that they enable the application of an alternative dispute resolution mechanism, whereby an investor whose rights under the BIT have been violated, could have a right to resolve a dispute in international arbitration, often in the ICSID (International Centre for the Settlement of Investment Disputes), rather than applying for remedies in the national courts of the host state.

This proceeding is called an investor-state dispute settlement. Ukraine is a signatory to the Convention on the Settlement of Investment Disputes between the States and Nationals of Other States of 1965 (ICSID), which also prescribes a procedure on the conduction of investment arbitration. Ukraine has concluded bilateral investment treaties with more than 70 countries. Most bilateral investment treaties have an agreed arbitration clause.

Investment Arbitration as a Legal Instrument for the Protection of Foreign Investors’ Rights in Ukraine

According to the rules of Ukrainian investment legislation, disputes between foreign investors and the state on state regulation of foreign investments and activities of enterprises with foreign investments are subject to consideration in the courts of Ukraine, unless otherwise specified by international treaties to which Ukraine is a party. All other disputes are subject to review by the courts of Ukraine or by agreement of the parties — in arbitration. One of the main legal instruments for the protection of foreign investment rights is investment arbitration.

Ukraine has been actively participating in investor-state arbitrations both as a respondent state and also through its investors.

Most Ukrainian investment treaties provide a right of recourse to ICSID and ad hoc tribunal constituted in accordance with UNCITRAL rules. Some treaties also allow investors to pursue an arbitration claim through the Court of Arbitration of the International Chamber of Commerce.

A crucial factor for any investor with a potential BIT claim, which should be considered, is the jurisdiction of the tribunal established to consider the claim. If a tribunal determines that it lacks jurisdiction, it will dismiss the claim. Jurisdictional issues will be considered more extensively in a future advisory. In addition, one particularly important jurisdictional question is also relevant to the selection of the arbitral forum.

One of the main problems, which can be faced by an investor, is enforcement of an arbitration award and recovery of awarded assets.

If the state refuses to voluntarily compensate the sum under the arbitration award, the investor should recognize and enforce the arbitration award in Ukraine in accordance with the civil procedural rules and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention).

Ukrainian legislation does not divide the procedure on the recognition and enforcement of commercial arbitration awards and investment arbitration awards.

In should be noted that there is a specific Procedure called On Approval of the Procedure for Using State Budget Funds Allocated for Making Payments Related to the Enforcement of the Decisions Upheld by Foreign Jurisdictional Bodies, approved by Resolution of the Cabinet of Ministers of Ukraine No. 408 of 7 March 2007 (hereinafter — the Procedure).

This Procedure sets out the rules for making settlements under the decisions upheld by an international arbitration conducted under the agreement on exercising the jurisdiction, which the state of Ukraine has granted in accordance with an international treaty duly concluded by Ukraine.

ICSID arbitration awards are subject to automatic recognition of contracting parties. The investor in possession of a certified copy of an ICSID award is, therefore, entitled to execute that award in any Contracting State. Arbitration awards enforced under the New York Convention do not have such a simplified way. The enforceability of arbitration awards can be refused by national courts of Ukraine on specifically limited grounds (under Article V of the New York Convention), such as the public policy exception.

In order to obtain an enforcement ruling (decision of a national court), an applicant (investor) should file the Motion to the national court of the place of residence of the debtor. The limitation period for filing the Motion for recognition and enforcement of an arbitral award is three years starting from the moment when the investment arbitration award came into effect.

The execution stage of enforcing an investment arbitration award is the most problematic. The majority of claimants who experience difficulties when enforcing their award experience them at this stage.

Enforcement proceedings are a separate procedure, which are resorted to when a court has already recognized the arbitral award but the debtor fails to perform it in good faith. In such case, the court issues a writ of execution, which is to be presented for enforcement to the State Enforcement Service (Bailiffs). Factual enforcement procedure may take between several months and several years to get enforcement of the arbitral award.

Investors must take into account the sovereign immunity rules of the jurisdiction in which they’re attempting to enforce the arbitral award. Most domestic immunity rules do have specific forms, but generally they protect state assets from being seized.

Investors must search for commercial assets belonging to the losing State sovereign against which execution can be sought. This is no easy task as certain assets cannot be considered to be commercial. This includes all assets owned by foreign central banks or any assets allocated for military purposes.


As mentioned above, the state of Ukraine provides guarantees in the form of the national regime in treating foreign investments, ten-year application of guarantees in force at the time of an investment being made; protection from nationalization, compensation and reimbursement of losses caused by the activity of the state authorities of Ukraine, right for repatriation of investments made in Ukraine and proceeds from investment activity.

In the event of an investment dispute, one of the most effective legal instruments for remedies is investment arbitration. A foreign investor has the right to apply for arbitration under BIT or ICSID Convention in order to recover violated rights. However, if the losing state refuses to pay the awarded amount of money, the investors should go to national courts in order to recognise and enforce the investment arbitration award.