Investment treaty arbitration: a possible avenue for damages claims against Russia arising out of the Ukraine conflict?

Russia’s ongoing war continues to have devastating consequences for the people of Ukraine, both personally and economically. As part of a possible economic fightback against Russia, Sana Mahmud looks at whether investment treaty arbitration offers recourse to recover losses arising as a result of the continuing conflict. 

The basis of investment treaty claims 

Investment treaty arbitration is arbitration between a company or an individual investor against a state for breach of that state’s obligations under international law to protect the investor's investment. A bilateral investment treaty (BIT) is a treaty between two states under which each state agrees to afford rights and protections to investors from the other. 

Russia is party to 84 BITs with other countries,1 including many European and Middle Eastern states. Ukraine and the United Kingdom also both have BITs with Russia; however, it should be noted that there is not one in force with the United States.2 Of these 84 BITs, 63 are currently in force. Russia is also party to a number of further multilateral treaties containing investment provisions.3 For the purposes of this article, international energy companies will perhaps be the most likely claimants, but contractors with investments or business in Russia may also be affected.

Types of claims 

Broadly, two types of claims are likely to be relevant here. The first are claims for damage to investments within Russia, and the second are claims for damages to investments in areas of Ukraine now under Russian control. 

In respect of the first type of claim, an investor may be able to claim damages in circumstances where Russian countermeasures to Western sanctions affect operations and investments in the country. Where, for example, a company has had to exit the Russian market and/or can no longer operate efficiently as result of those measures, it may be possible for the investor to bring a claim under the terms of a relevant BIT. 

The second type of claim already has some precedence, although it may be less common than the first. Following Russia’s 2014 invasion and occupation of the Crimea, there have been a number of investment treaty arbitrations initiated under the Ukraine-Russia BIT,4 some of which have resulted in significant awards favourable to the investor. The claims in these cases have largely related to the expropriation or nationalisation of assets held by Ukrainian individuals or companies. 

What an investor must demonstrate

The first question to consider is whether the individual or company that wants to pursue a claim can be classed as an investor under the applicable treaty, and whether that treaty’s definition of investment applies in the circumstances. As set out in an article in last year’s Annual Review, treaties will often define an investor and investment broadly; however, careful consideration will need to be given to the precise wording of the particular BIT. For example, it is likely that construction companies that carry out works under an infrastructure contract with the Russian state or a public authority will qualify as investors.

The protections offered under BITs commonly include provisions that:

  • Protect the investor’s legitimate expectations;
  • Protect the investor against uncompensated expropriation or nationalisation by the host state;
  • Guarantee fair and equitable treatment;
  • Guarantee protection and security for the investor’s investment; and 
  • Guarantee that the foreign investor will be treated no worse than local investors. 

When considering whether to bring a claim, an investor must be able to demonstrate that measures introduced by Russia amount to a breach of the provisions found in the applicable BIT, and that the breach has caused a loss to the investor. 

Some BITs can also contain provisions that guarantee compensation for losses arising out of war or armed conflict which leads to a change of de facto control over a territory. This can apply, for example, in circumstances where the investment was made prior to the annexation of Crimea by Russia and may cover not only property that is physically damaged or destroyed in the conflict itself, but also to loss of profits as a result of disruption to business operations. 

Enforcement issues 

In cases brought under the Ukraine-Russia BIT in relation to the expropriation of investments in annexed Crimea, Russia has largely not engaged in the process but has challenged the award at the later stages when the investor has sought enforcement by a relevant national court. 

It should be noted that Russia is not a signatory to the ICSID Convention, and any award pursuant to a BIT rendered by an arbitral tribunal will have to be enforced under the New York Convention. This means that the relative ease of the self-contained ICSID enforcement regime is unavailable if a claim is decided in the investor’s favour. Given its approach to the Crimea claims, Russia will likely challenge the award in the courts where enforcement is sought pursuant to the national law of the seat of the arbitration. 

A further complication may arise when enforcement is sought in states where Russian state assets are frozen as a result of sanctions. Accessing these funds could be difficult and companies would need to ensure that an exception to the law applies that would enable an investor to receive the compensation awarded by a tribunal. The LCIA has recently been granted a licence in relation to UK sanctions that allows it to process payments from parties subject to the regime to cover arbitration costs. Whilst this exemption will likely apply largely to commercial arbitrations, it may indicate a willingness by states to allow payments in circumstances where they are made pursuant to an award. 

For these reasons, an enforcement strategy should be considered carefully at the outset before a claim is brought. This is particularly important in circumstances where enforcement must be sought in a third country in which Russia has assets that are subject to sanctions. The earlier an award is made, the earlier it can be enforced, before the potential deluge of similar claims starts. 

What to think about now

As the crisis and conflict continues to develop, companies whose operations or assets are affected by the war or by Russian countermeasures to western sanctions should consider whether there are any relevant BITs that offer protection for their investments. 

If there is an applicable BIT in force pursuant to which a claim can be brought, companies should, at a minimum, protect their position by:

  • Compiling and preserving all documents relating to the ownership, corporate structure and value of the investor company and investment;
  • Compiling a comprehensive list of all assets and affected contracts in Russia and/or Ukraine;
  • Compiling evidence of the effect of the conflict and any Russian countermeasures to sanctions on business operations;
  • Compiling and preserving all information and communications with any Russian state officials; 
  • Keeping up to date with further sanctions developments in Russia and third countries where enforcement could be sought; and
  • Considering whether to issue a notice of dispute under the relevant BIT as many contain six-month negotiation provisions before the commencement of any arbitration proceedings.


If an applicable BIT exists, it is potentially possible for an investor to bring a claim against Russia for damages arising out of the consequences of the invasion of Ukraine. However, the terms of the BIT must be considered carefully alongside a clear enforcement strategy before any action is commenced. 

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