Investment Arbitration Involving Russia

Russia’s Bilateral Investment Treaty Network

The Russian Federation has concluded more than 80 bilateral investment treaties (BITs), the majority of which date from the 1990s and early 2000s. These treaties typically provide substantive protections including fair and equitable treatment, full protection and security, most-favoured-nation treatment, national treatment (subject to exceptions), and protection against expropriation without prompt, adequate, and effective compensation. Most Russian BITs contain investor-state dispute settlement (ISDS) provisions permitting arbitration under the ICSID Convention, UNCITRAL Rules, or the Stockholm Chamber of Commerce (SCC). Russia signed but has not ratified the Energy Charter Treaty (ECT); it applied the treaty provisionally from 1994 until its withdrawal in 2009.

Russia’s approach to BITs has evolved significantly since the mid-2000s. Following the Yukos awards, Russia has sought to renegotiate existing BITs to narrow investor protections and has terminated several treaties, including those with the United Kingdom (terminated 2024), Canada, and the Czech Republic. The 2021 Model BIT issued by the Ministry of Economic Development reflects a more cautious approach, including: (1) a narrowed definition of investment requiring a substantial business presence; (2) a general exception for sovereign debt restructuring; (3) an express exclusion of taxation measures from expropriation protection; and (4) a requirement that investors exhaust domestic remedies for 18 months before commencing arbitration. Several treaties concluded after 2021, including those with Iran and Nicaragua, follow the new model.

The Yukos Cases

The Yukos arbitration is the most significant investment treaty litigation in Russian history. Three sets of proceedings — Yukos Universal Limited (Isle of Man) v Russian Federation (PCA Case No. AA 227), Hulley Enterprises Limited (Cyprus) v Russian Federation (PCA Case No. AA 226), and Veteran Petroleum Limited (Cyprus) v Russian Federation (PCA Case No. AA 228) — were brought by former shareholders of Yukos Oil Company under the ECT. The claimants alleged that Russia’s tax enforcement actions against Yukos between 2003 and 2007, including back-tax assessments totalling approximately 24 billion USD and the forced auction of Yukos’s principal production subsidiary, Yuganskneftegaz, constituted an expropriation of their investments in violation of ECT Article 13.

The tribunal, seated in The Hague and administered by the Permanent Court of Arbitration under UNCITRAL Rules, issued its Award on 18 July 2014, unanimously holding that Russia had expropriated the claimants’ investments in violation of the ECT. The tribunal awarded 50 billion USD in damages, the largest award in investment treaty history. The tribunal also held that Russia’s provisional application of the ECT was binding and that the ECT’s denial of benefits clause did not apply because Russia had not invoked it before the arbitration commenced.

Russia challenged the award before the District Court of The Hague, which set aside the award in 2016 on jurisdictional grounds, holding that Russia had not consented to arbitration under the ECT through provisional application. The Hague Court of Appeal reversed in 2020, reinstating the award, and held that Russia had consented to arbitration through Article 26 of the ECT. In 2024, the Supreme Court of the Netherlands dismissed Russia’s cassation appeal, finally upholding the award. Russia has not paid the award and has continued to resist enforcement in multiple jurisdictions. In 2023, the claimants obtained attachment orders against Russian state assets in Germany, France, and Belgium, though enforcement has been complicated by sovereign immunity defences and the 2022 sanctions regime.

Russia’s Response to Investment Treaty Claims

Russia has developed a strategy to resist investment treaty claims through multiple avenues. The Federal Law on Sovereign Immunity (No. 297-FZ of 2015) codifies Russia’s adherence to restrictive sovereign immunity but expressly reserves Russia’s right to assert immunity from enforcement in any foreign court. The Law provides that foreign states enjoy immunity in Russian courts but allows waiver by treaty or contract. Russia has also enacted legislation, including amendments to the Arbitration Procedure Code (APK RF) and the Federal Law on International Commercial Arbitration (No. 5338-1 of 1993), to restrict the enforcement of foreign arbitral awards against Russian state property.

In proceedings arising from the Yukos enforcement campaign, Russia has argued that: (1) enforcement against central bank assets violates the customary international law prohibition on enforcement against property used for sovereign functions; (2) the awards violate Russian public policy because they arise from what Russia characterises as a tax dispute; and (3) enforcement is barred by force majeure and changed circumstances following the 2022 sanctions. The Ministry of Justice coordinates Russia’s defence in investment arbitration through its Department for International Law and Cooperation.

Sovereign Immunity and State Enterprise Liability

The interaction between sovereign immunity and state enterprise liability is a recurring issue in investment arbitration involving Russia. The 2015 State Immunity Law adopts a restrictive approach, distinguishing between sovereign acts (acta jure imperii) — for which immunity applies — and commercial acts (acta jure gestionis) — for which it does not. Russian state enterprises, including Gazprom, Rosneft, and Russian Railways, are generally considered separate legal entities whose assets are not subject to enforcement for Russian Federation liabilities. However, Russian courts have applied the alter ego doctrine in limited circumstances, and the Supreme Court has held in Ruling No. 305-ES19-6826 (2020) that state enterprise assets may be attached where the enterprise is so closely controlled by the state that it serves as the state’s alter ego.

Other Significant Cases

Beyond Yukos, Russia has been involved in several other investment treaty proceedings. In Charanne B.V. and Construction Investments B.V. v Spain (SCC Case No. V 062/2012), the tribunal considered Spain’s regulatory changes to its renewable energy subsidy regime, but the case is more significant for Spain’s investment treaty practice than Russia’s. More directly relevant to Russia is RosInvestCo UK Ltd v Russian Federation (SCC Case No. V 079/2005), in which the tribunal upheld Russia’s jurisdictional objection based on the United Kingdom-Russia BIT’s fork-in-the-road clause, finding that the claimant had elected to pursue domestic remedies rather than arbitration. Quasar de Valores v Russian Federation (SCC Case No. 24/2007), concerning Yukos-related expropriation claims under the Spain-Russia BIT, was dismissed on limitations grounds.

The 2022 conflict with Ukraine has generated new investment treaty claims against Russia. Several Ukrainian investors and foreign companies have initiated arbitration proceedings under the Ukraine-Russia BIT and other applicable treaties, alleging expropriation of assets in occupied territories and regulatory measures affecting foreign investments. These claims raise novel issues concerning the application of BITs during armed conflict, the definition of investment in territories subject to military occupation, and the scope of the essential security interests exception in Russian BITs. The outcomes of these proceedings will significantly shape the future of investment arbitration involving Russia.