Originally from The American Review of International Arbitration (ARIA)

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I.     INTRODUCTION

Recent United Nations General Assembly resolutions have called for the creation of a reparations mechanism to hold Russia and its proxies to account for internationally wrongful acts committed in Ukraine.  If a reparations mechanism is to be created, it will exist alongside other options for aggrieved parties seeking compensation from Russia, including potential claims arising under Russian Bilateral Investment Treaties (BITs). Such parallel litigation can undermine the legitimacy and finality of a reparations mechanism, further decreasing the likelihood that Russia would voluntarily participate. Russia has concluded BITs with almost every country that has frozen its Central Bank assets (the “coalition of the frozen,” or “COTF”) except the United States, and Russian BITs typically provide for ad hoc arbitration under the UNCITRAL Rules or under the auspices of an institution.  Given the scale of commercial damage that has occurred in Russia and Ukraine (both its occupied and non-occupied areas), it is reasonable to expect a large volume of BIT filings against Russia in the coming years as injured parties pursue every available source of compensation. Such parallel BIT actions present two species of problem for a future reparations mechanism. First, the existence of parallel litigation erodes what little diplomatic appeal a reparations mechanism may have to Russia as a source of legal peace. Second, award creditors seeking to enforce BIT awards will seek to do so wherever Russian assets can be found, including in countries among the COTF. Absent appropriate legislative action, such enforcement actions could tie up Russian assets that could otherwise go to funding the mechanism for the benefit of other categories of claimants.

This article presents a series of policy options that may decrease the risk that parallel BIT arbitrations arising out of Russian aggression pose to a reparations mechanism. After briefly outlining the nature of the parallel litigation risk, this article assesses the viability of three policy levers: first, the possibility that investors’ home countries legally extinguish BIT claims; second, the inclusion of a “fork-in-the-road” clause in the founding charter of a reparations mechanism; and third, the possibility that states supporting a reparations mechanism change their domestic arbitration law to render BIT awards arising out of the war in Ukraine non-enforceable. A final section concludes that a combination of the second and third policies would create de facto exclusivity for a Ukrainian reparations mechanism even where de jure exclusivity is not possible.