Liability of the Russian Federation for its aggression in Ukraine and the potential consequences of the war for Polish business

29 April 2022 | Knowledge, News

The Russian aggression in Ukraine has many people enquiring about the possibility of holding the Russian Federation accountable for the acts it has committed in the territory of Poland’s eastern neighbour. Yet, at this stage, what should be considered is not only the actual accountability, but also the ontological fact of the existence of liability, which is an inherent condition for the existence of law.

During the ongoing assault in Ukraine, the Russian Federation and its associates have committed numerous acts that flagrantly violate the peremptory norms of international law. Many of these undoubtedly constitute war crimes against civilians and crimes of genocide as described in Article II of the UN Convention on the Prevention and Punishment of the Crime of Genocide. Among the consequences of these actions are a general prohibition on recognising the effects arising from such acts and the duty of the international community to take action to restore the lawful state of affairs. At present, the activity of many states, including Poland, is focused on ensuring that the Russian Federation is held accountable for the physical and moral damage it has caused.

From the perspective of Polish business, potential losses are difficult to estimate. It is highly likely that in the current situation the reactions from Russia will be much harsher compared to the embargo imposed by the Kremlin in 2014. The Russian authorities are already announcing the confiscation and even nationalisation of businesses owned by companies originating from countries that are “considered unfriendly”. For the moment, a large part of Polish business has suspended its activities or held off on new investments within the Russian market.

An equally important factor is the continuing uncertainty about the future end date and the long-term consequences of the conflict. In such a situation, Polish business may take a number of steps to pursue claims arising out of losses suffered to date in connection with the ongoing war. Investment arbitration against the Russian state is a potential avenue for pursuing such claims. In most cases, Polish companies will not be able to directly resort to such a solution, in particular because the 1992 bilateral investment treaty between the Government of the Republic of Poland and the Government of the Russian Federation has never been ratified. Still, the Russian Federation will not be able to avoid investment arbitration against it if initiated by companies or subsidiaries incorporated in countries that have a binding BIT with Russia (including the Netherlands and Germany). Thus, investors, through such a subsidiary, will be able to pursue claims against Russia on neutral ground.

Other available ways of pursuing claims, much more frequently used, are commercial arbitration and litigation before common courts. Despite their many advantages, potential difficulties connected with the future enforcement of awards or judgments issued by competent institutions cannot be ruled out. There is a high risk that Russian entities, fearing a judgment unfavourable to them, may try to transfer the resolution of the case to Russian courts, which would undoubtedly take a more sympathetic stance.

This was the case in PESA v Russian Ural Transport Machinery Construction Company JSC (Uraltransmash). Despite a valid arbitration clause providing for proceedings to be held before a tribunal established under the rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), the Russian Supreme Court held that, in light of the 2020 amendments to the commercial procedure rules, Russian courts had exclusive jurisdiction over the sanctioned entity case. Although Uraltransmash’s motion for a prohibition to proceed was ultimately dismissed on the grounds that the proceedings before the SCC were concluded before the Supreme Court issued the judgment, the risk of Russian courts following the jurisdictional approach set by the Supreme Court remains real.

Enforcement difficulties will mainly concern situations where the sanctioned entity has assets in Russia.

In light of the above threats to the pursuit of claims in ways that have so far been considered conventional, there are many voices calling for the creation of a special international court or claims commission, which would play a key role in satisfying those who have suffered losses as a result of the Russian invasion of Ukraine. At the same time, emphasis is placed on the key role of the International Criminal Court in The Hague to decide on the criminal liability of individual perpetrators of war crimes, which is essential to ensure the continued efficient functioning of the international legal order.

Questions?

Contact the authors

Marek Jeżewski, PhD, Advocate, Partner, Head of Dispute Resolution Practice

Magdalena Papiernik-König, Advocate, Counsel

Source: Forbes

Date: 15 April 2022

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Contact us:

Marek Jeżewski, PhD

Marek Jeżewski, PhD

Advocate, Partner, Head of Dispute Resolution

+48 795 548 314

m.jezewski@kochanski.pl