Pressure gauges, pipes and valves are pictured at an "Dashava" underground gas storage facility near Striy, Ukraine May 28, 2015. Ukrainian state energy firm Naftogaz paid Russia's Gazprom another $30 million in prepayment for gas supplies, the Ukrainian company said on Wednesday. REUTERS/Gleb Garanich - GF10000109831
Court victories have moved Ukraine closer to energy independence © Reuters
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While the past five years have seen fierce military battles for territory on the steppe of Donbas, another contest of great significance for Ukraine has played out in Europe’s courtrooms.

In Sweden and the Netherlands, Ukrainian lawyers have successfully defended their country’s industrial assets from Russian counterparts in a series of arbitrations.

At the centre of this legal tussle has been Kiev-based law firm Aequo, which started approaching Ukrainian businesses six months after Russia’s annexation of Crimea in March 2014. Its plan was to help protect their assets on the south-eastern Ukrainian peninsula from expropriation by Moscow.

One of the biggest losers in the annexation was Naftogaz, Ukraine’s state-owned energy company, which lost control of offshore and onshore gasfields to Russia. It therefore decided in late 2015 to pursue claims against the Russian Federation.

Naftogaz appointed US law firm Covington & Burling and co-counsel Aequo. “At that time, it was difficult to find a reputable and experienced law firm in Ukraine, which was not conflicted, to act against Russia and Russian state companies,” says Pavlo Byelousov, a partner at Aequo and head of its international arbitration and cross-border litigation. International law firms were also reluctant to act, as those with offices in Russia were concerned about staff safety and future operations in that country.

Moreover, few counsel believed a legal victory over Russia with regard to Crimean claims was achievable or enforceable. Aequo and Covington & Burling therefore adopted an unusual, ultimately successful legal argument, under the Russia-Ukraine bilateral investment treaty (BIT), leading to a partial award against Russia by an international court in The Hague in the Netherlands in February 2019.

The amount of damages will be set at the next stage of the arbitration. Naftogaz estimates the value of group assets expropriated by Russia in Crimea at around $5bn plus interest.

(Front Row, L-R) Gazprom CEO Alexei Miller and Ukrainian state gas company Naftogaz CEO Andriy Kobolev attend a signing ceremony after gas talks between the European Union, Russia and Ukraine at the European Commission headquarters in Brussels October 30, 2014. Ukraine, Russia and the European Union signed a deal on Thursday on the resumption of Russian natural gas supplies to Ukraine for winter after several months of delay during the conflict in Ukraine. REUTERS/Francois Lenoir (BELGIUM - Tags: BUSINESS ENERGY POLITICS) - GM1EAAV0JCJ01
Naftogaz chief executive Andriy Kobolyev, front right, with his Gazprom counterpart, Alexei Miller in 2014

Rather than asking the court to rule on the status of Crimea under international law, Mr Byelousov argued that “Russia is liable for any and all losses to Ukrainian and foreign investors [resulting] from the annexation of Crimea, since Russia assumed physical and effective control and jurisdiction over Crimea by formally annexing and admitting it” into its territory.

Aequo did not plunge blindly into this legal cauldron. It already knew both protagonists well. The firm had acted for Naftogaz before, having been engaged by Norwegian lead counsel Wikborg Rein during a Stockholm Chamber of Commerce arbitration over gas supply and transit contracts. It will also act for the Ukrainian supplier in a new arbitration initiated by Gazprom.

“Ukrainian lawyers in both litigation and arbitration, working with European and US firms, are enjoying huge successes in the international courts, showing their quality, innovation and customer service,” says Andy Hunder, president of the American Chamber of Commerce in Ukraine. “Some of them find it harder to fight a case for their clients in a local court, as Ukraine is still in the process of reforming its legal system and judiciary.”

The Stockholm arbitration panel had in February 2018 awarded the Ukrainian side a total of $4.6bn in compensation “for Gazprom’s failure to deliver the agreed volumes of gas for transit”, according to Naftogaz, which referred to the case as “the largest commercial arbitration ever”. Naftogaz suggested that mutual claims amounting to $125bn threatened to bankrupt both companies.

One local analyst, who declines to be named, credits the awards to the skills of Naftogaz business development director Yuriy Vitrenko, “who was successful in putting together a team of mainly external, very well-paid lawyers who were motivated to get into the legal history books”.

Certainly, the stock of both Mr Vitrenko and Naftogaz chief executive Andriy Kobolyev is soaring in Ukraine. The legal victories come on top of a restructure of Naftogaz to drive out large-scale corruption and arbitrage schemes traditionally conducted by shady intermediaries with political connections.

Both men are in the frame for key political roles, enjoying the confidence of the new president, Volodymyr Zelensky, and are praised by commentators and advisers for helping Ukraine achieve a degree of energy independence.

If Naftogaz can invest the further damages it is seeking in domestic gas production, “this could make Ukraine a gas-exporting country over the medium to longer term”, says Timothy Ash, senior emerging markets sovereign strategist at Bluebay Asset Management.

Other Ukrainian companies have joined the fray to claim damages relating to assets seized by Russia in Crimea. These include energy companies Ukrnafta, DTEK and Ukrenergo, and banking groups Oschadbank and PrivatBank.

While Russia has refused to participate in arbitrations for many BIT claims relating to Crimea, because it did not recognise the tribunals’ jurisdictions, this stance could be changing.


Bittersweet victory?
“In May, Moscow said it would take part in international arbitrations brought by Ukrainian parties, even where it does not recognise a tribunal’s jurisdiction,” says Florence Cahill, a senior analyst at London-based political risk and dispute consultancy GPW. She adds, however, that the importance of Gazprom to Russia’s self-image will be critical to Kremlin calculations.

“Conceding too readily to Naftogaz would be a humiliation for Russia,” warns Ms Cahill. “Gazprom plays a very special geopolitical role. It is effectively a tool through which Russia exercises its foreign policy. Any insult or embarrassment to Gazprom is an affront to [president Vladimir] Putin’s leadership.”

Some even fear the victory against Gazprom may prove bittersweet for Ukraine and its companies, which have lost assets both in Crimea and the country’s eastern industrial heartland of Donbas.

Continued purchases of Russian fuel by Ukraine’s state enterprises give Moscow influence over Ukrainian elites, whose dependence on Russia can leave them compromised, and leverage in future deals over assets, trade and territory.

“The government of Ukraine should be prepared that the Russians at some point may decide to negotiate and finally pay compensation for those assets, especially in Crimea,” says one leading financier in Kiev, who declines to be named.

“But having done that, Russia will claim in exchange legal title over those assets, minimising the probability of those areas being returned to Ukraine.”

This piece has been updated since publication to reflect more accurately the roles of the legal counsel


The tables below rank law firms for the FT Innovative Lawyers Europe awards.

Dispute Resolution
RankLaw firmDescriptionOriginalityLeadershipImpactTotal
STANDOUTHogan LovellsArgued before the Court of Justice of the European Union successfully for the uniform application of EU law in an eight-year bilateral investment treaty dispute between its client, the Slovak Republic, and Dutch insurer Achmea. With all EU member states agreeing to terminate bilateral investment treaties concluded between them, the ruling sets a precedent for EU law to take precedence over international law in matters of conflicting interest, and will affect hundreds of other pre-existing awards. Commended: Markus Burgstaller.79925
HIGHLY COMMENDEDAequoSuccessfully proposed new arguments validated in the Permanent Court of Arbitration in The Hague extending the Russia-Ukraine bilateral investment treaty to cover Crimea, the Ukrainian peninsula annexed by Russia in 2014. This allowed Ukraine’s national oil and gas company, Naftogaz, to bring an investment dispute against the Russian Federation to reimburse all Naftogaz’s oil and gas assets, lost to the state during Russia’s annexation of Crimea. The litigation is ongoing due to appeals.88622
HIGHLY COMMENDEDFreshfields Bruckhaus DeringerRepresented logistics company UPS in its appeal against the European Commission’s decision to block its acquisition of TNT Express while allowing FedEx to do the same. The firm successfully argued that the EU’s economic analysis was flawed. It is the first time the Court of Justice of the European Union has considered an econometric model.77822
HIGHLY COMMENDEDPaul HastingsRepresenting a group of Italian industrial companies that rely on an internal, private electricity grid, the firm successfully challenged the imposition of electricity dispatching fees levied by the Italian grid operator. The firm convinced the Court of Justice of the European Union that private electricity grids in Italy should not be subject to the same obligations as those connected to the public grid.87722
HIGHLY COMMENDEDPérez-LlorcaDemonstrated that French car-sharing company BlaBlaCar is a social network and not a public transportation company for the purposes of Spanish legislation, arguing that once a trip is organised through the platform, the driver and rider are acquaintances. The ruling has allowed BlaBlaCar to continue operating in Spain, one of its most profitable countries.87722
HIGHLY COMMENDEDSimmons & SimmonsThe firm took a leading role alongside Justice Robin Knowles and Chief Master Marsh in rewriting the civil procedure rules for disclosure in commercial disputes in England and Wales. In pilot since January 2019, parties must consider using technology or ediscovery in disclosure. If they choose not to use tech, they must justify why not. The move aims to reduce companies’ ability to bury each other under onerous disclosure requirements.77822
HIGHLY COMMENDEDSlaughter and MayActed for British Airways in its defence of £3.6bn of claims brought in the UK by international purchasers of airfreight, who alleged a cartel in the global air cargo market. Lawyers successfully challenged the interpretation of the scope of English law on economic torts, the presumption of innocence and related confidentiality rights of named individuals, and the English court’s jurisdiction to hear follow-on competition damages claims, resolving previously unsettled points of law.78722
COMMENDEDAequoHelped pharmaceutical company Darnitsa cancel market authorisation of competitor Zdorovya’s copycat version of Citramon-Darnitsa, one of its most widely sold drugs. The Supreme Court of Ukraine judgment marked the first court verdict in Ukraine where a trademark infringement was terminated by cancelling market authorisation of the infringing product.77721
COMMENDEDBonelliEredeWhen $170m disappeared from cryptocurrency platform Bitgrail, the firm represented users who wanted to withdraw their funds to prevent further loss. Lawyers achieved an immediate block of the exchange and seizure of the cryptocurrency assets, a first in civil proceedings in Italy. Bankruptcy proceedings are ongoing.78621
COMMENDEDClientEarthThe environmental law charity bought €30 of shares in Polish state-controlled energy group Enea in order to challenge the company’s decision to invest €1.2bn in coal power plant Ostroleka C and to educate other shareholders about the financial and climate risks. When Enea ignored the 80 per cent of shareholders that opposed the decision, the firm brought a successful case against the company, proving the investment was economically unviable in the face of rising carbon and falling renewables prices.78621
COMMENDEDHogan LovellsRepresented Eurasian Natural Resources Corporation in the Court of Appeal, arguing that it should not be forced to share documentation produced from an internal whistleblowing inquiry with the UK’s Serious Fraud Office. The result ensures that documentation stemming from internal investigations would not have to be made available to prosecutors, upholding the principle of legal professional privilege.67821
COMMENDEDPinsent MasonsActing for Teva Pharmaceutical in a dispute against Truvada, the firm successfully challenged the requirements for obtaining a supplementary protection certificate, which extends the validity of a patent beyond the expiry date. The Court of Justice of the European Union ruled SPCs no longer apply to combinations of drugs that are not part of the original patent.78621
COMMENDEDUría Menéndez AbogadosDefended Galician bank Abanca against a class action suit brought by Spanish consumer rights group Adicae on behalf of 11,000 customers who had allegedly misunderstood their mortgage terms. The firm successfully argued that the court address commonality in such a case and devised a methodology by which Abanca’s legal team could answer each plaintiff, saving time and reducing costs.77721
COMMENDEDAllen & OveryActing for G-Research, the firm recovered stolen information from an ex-employee of the company who resigned without notice and fled to Hong Kong. Civil and criminal lawyers collaborated to pursue all available remedies, including the first private prosecution for violation of a serious crime prevention order.77620
COMMENDEDGide Loyrette NouelDefended a client accused of unlawfully disclosing information relating to T-Mobile USA’s ongoing $15bn takeover bid by French-listed Iliad. The firm convinced the Autorité des Marchés Financiers, France’s financial markets watchdog, to reconsider its regional interpretation of the law as it relates to unlawful disclosure of information. Gide’s client was cleared of all charges and the AMF’s position is now more closely aligned with those of the UK Financial Conduct Authority and US regulators.67720
COMMENDEDRed Lion ChambersRepresented alleged terrorist Assad Sabra in absentia before the Special Tribunal for Lebanon, a specialist international court in The Hague, concerning his alleged role in the murder of former prime minister of Lebanon, Rafik Hariri, and 21 others in a car bombing in Beirut in 2005. This was the first in-absentia international trial since the Nuremberg trials and the first international criminal law proceedings to consider complex telecommunication material.77620
COMMENDEDDechertRepresented the state of Bolivia in arbitration proceedings against former president Gonzalo Sánchez de Lozada. As Mr Lozada had fled to Virginia, the firm used a US federal statute to force discovery against him, the first time this has been used by a state against a former head of state in arbitration proceedings.76619

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