Denial of Benefits under Investment Treaties in the Context of Russian Aggression against Ukraine - ARIA - Vol. 34, No. 2

Iryna Ivanova is an attorney-at-law (Ukraine), Associate, Integrites law firm, Kyiv, Ukraine. Ms. Ivanova’s main areas of practice are international arbitration, both commercial and investment, and cross-border litigation. She has experience in proceedings conducted on the basis of the rules of ICSID, LCIA, SCC, UNCITRAL, GAFTA, FOSFA, LMAA, and ICAC at the UCCI, both as a counsel and an arbitrator’s assistant. She has been involved in a number of cross-border litigation proceedings and advised clients on the settlement of complex multijurisdictional issues.

Serhii Uvarov is an attorney-at-law (Ukraine), Partner, Integrites law firm, Kyiv, Ukraine. Mr. Uvarov focuses on the areas of commercial and investment arbitration, arbitration-related litigation and cross-border commercial litigation. He has been involved in arbitral proceedings under LCIA, SCC, ICC, UNCITRAL, JAMS, LMAA, and ICAC at UCCI Arbitration Rules. His experience also includes representation of the Ukrainian state authorities in UNCITRAL arbitration, as well as Ukrainian state companies before foreign courts and international tribunals. He also advised clients on transnational insolvency and receivership, fraud investigation, including anti-bribery probes, as well as recognition and enforcement of foreign judicial and arbitral awards in Ukraine.

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Originally from The American Review of International Arbitration (ARIA)

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I. INTRODUCTION

International lawyers have spent much time and effort trying to create a transparent, safe, and secure environment for cross-border investments. The tools of diplomatic protection have evolved over the years, leading to the emergence of investment treaties. Such bilateral and multilateral treaties provide for the specific duties of the host States, as well as for effective international mechanisms (arbitration) for investors to hold the host States liable and to get compensation for breaches of such duties.

Somewhat ironically, the incredible, hard-won benefits of these protections soon needed to be limited. Indeed, the aim of diplomatic protection was limited to protecting investors in the host States that operate in good faith. Similarly, some investment treaties seek to prevent potential abuses of the investment protection regime by investors. This gave rise, inter alia, to the concept of the “denial of benefits.”

In 2022, Russia’s aggressive war against Ukraine made this concept once again relevant, albeit in a somewhat unusual context.

This war not only led to the tremendous suffering of the Ukrainian people, but also resulted in a firm response by democratic countries to the Russian economy in the form of sanctions, freezing, seizure, or nationalization of Russian property and businesses abroad. Respective measures were certainly justified (and furthermore, arguably, as yet far insufficient). However, they also create the risk that Russian investors may at the same time seek to take advantage of international investment treaty protections. Can the “denial of benefits” concept be of any assistance in preventing such types of abuses?