International arbitration News, analytics and practice

16Mar/10Off

Olympic v. Ukraine

“A State may not expropriate or otherwise

take in whole or in part a foreign private

investment in its territory, or take measures

which have similar effects, except …”

1992 World Bank Guidelines

on the Treatment of Foreign Direct Investment

Recently the Olympic Entertainment Group (OEG) – a Baltic group of company operating casinos in many countries – announced its intention to institute arbitration proceedings against Ukraine (http://www.kommersant.ua/). The ground for filing the claim may be the measures of the state resulted in prohibition of gambling in Ukraine. Respective law was adopted on 15 May 2009 and introduced on 25 June 2009. The above announcement was made on 10 March 2010, and already caused different comments regarding the possible outcomes of the case. Some of my colleagues  believe that the Group has no chance to win because the measure were introduced by law, and that law was not challenged before the Constitutional Court of Ukraine. However, there is an alternative opinion, that the mentioned circumstance (no case against the above law in the Constitutional Court) may not be treated as decisive for the tribunal.

casino arbitration Olympic v. Ukraine

Other factors may be taken into account, in particular, whether the measures were done not only in accordance with applicable legal procedures, but also in pursuance in good faith of a public purpose, and without discrimination on the basis of nationality.

Otherwise the establishment of the prohibition may be considered as an indirect expropriation.

The practice of investment arbitration shows that under the notion of the indirect expropriation may fall the list of governmental measures, in particular:

  • Revocation of an operating license –TecmedS.A. v. Mexico, ICSID Award, 2003;
  • Denial of a construction permit contrary to prior assurances –Metalcladv. Mexico, ICSID Award, 2000;
  • Revocation of a free zone permit –Goetz and Others v. Burundi, ICSID Award, 1998–Middle East Cement Shipping v. Egypt, ICSID Award, 2002;
  • Disproportionate tax increases –In the Matter of Revere Copper v. OPIC, Award 1978;
  • Arrest and expulsion of an investor or other persons who play key roles in the investment –Bilouneand others v. Ghana, UNCITRAL ad hocTribunal, Award 1989–Benvenuti & Bonfant v. Congo, ICSID Case No. ARB/77/2, Award 1980;
  • Replacement of the owner’s management by government imposed managers –StarrettHousing Corp. v. Iran, 4 Iran-US C.T.R. 122 (1983).–Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-US C.T.R. 219 (1984).

As to the situation in Ukraine after the mentioned Law came into force, let me note that not only foreign investors suffered, but also the national entrepreneurs. They are trying to compensate their damages or at least to reach the repayment of the state duties paid for the licenses. It means actually, that though the foreign investors were put in a bad position, they were not discriminated. That opinion corresponds to the well known conclusion in the case SalukaInvestments BV (The Netherlands) v. Czech Republic, UNCITRAL Partial Award, 2006 (para. 255): “It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.“

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