Ukraine's Naftogaz launches enforcement of Hague arbitration award in countries with Russian property

Having secured a historic victory over Russia in the Permanent Court of Arbitration Tribunal in The Hague on 12 April, Ukrainian state-run national oil and gas company Naftogaz has announced the start of the compulsory recovery of compensation from Russia using Russian property located around the world.

Source: Oleksii Chernyshov, Chairman of the Board of Naftogaz, in his column in the Ekonomichna Pravda

Quote: "Naftogaz has launched a mechanism to enforce compensation from Russia for assets in Crimea under the decision of the Hague arbitration," said the head of Naftogaz.

Details: He said that at the time of the ruling, the amount of compensation was about US$5 billion, and it will increase until Russia completely fulfils its obligations.

"This is the largest amount awarded by an international arbitration tribunal as compensation for Russia's expropriation of assets in Crimea," Chernyshov said.

The strategy for recovering compensation from Russia was developed by Naftogaz's team together with the company's advisors, the US multinational law firm Covington & Burling LLP.

"Under the New York Convention of 1958, Naftogaz has the right to start the process of seeking recognition and enforcement of the judgement in the countries where the Russian Federation's assets are located," Chernyshov said.

He said transferring property in pursuance of an international arbitration award is one of the most effective ways to do so, and it's flawless from the point of view of the rule of law.

Based on this, on 23 June, Naftogaz of Ukraine and five other companies belonging to Naftogaz Group filed a motion with the US District Court for the District of Columbia to confirm the decision of the Arbitral Tribunal of the Permanent Court of Arbitration in The Hague.

"The United States has been chosen to launch this global process for a reason. First, this is one of the world's largest jurisdictions. Secondly, it is a country for which the rule of law is one of the fundamental principles," explained the head of Naftogaz.

Furthermore, the United States and its allies have frozen Russian assets worth about US$360 billion. And the US authorities have been developing mechanisms that will allow them to be transferred to Ukraine as compensation for Russian aggression.

Chernyshov stressed that the US' participation is "only the beginning".

Naftogaz expects that the US example will contribute to a global shift in cases involving frozen Russian assets, providing a legal basis for transferring them to Ukraine as compensation for the damage caused by the war.

"Other countries are next in line, which ... should not be named – just like the military cannot disclose the lines of their manoeuvres. However, as is reflected in the strategy, our position is that Ukraine should receive the full compensation provided in the arbitral award. As well as the interest that will be accrued all the time until Russia finally pays off the debt," said the head of Naftogaz.

He also voiced his belief that this successful experience of Naftogaz would set a precedent for other Ukrainian companies that have lost their property due to Russia's aggression.

In his words, "the nervous reaction of Gazprom CEO Alexey Miller, who threatened Naftogaz with Russian sanctions on 6 July if the launch of arbitration proceedings is not stopped, is an unbiased confirmation of this".

Background: Russia has threatened to impose sanctions over the ongoing arbitration proceedings between Naftogaz of Ukraine and Russian Gazprom. Gazprom's Chairman of the Board, Alexey Miller, made a statement to this effect.

On 12 April 2023, the Arbitral Tribunal of the Permanent Court of Arbitration in The Hague issued its historic decision that Russia must compensate Naftogaz for the losses incurred by the company for the expropriation of its assets in Crimea.

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