News overview:

An international investment arbitration dispute between Tokios Tokeles, a company incorporated in Lithuania, and the State of Ukraine, which has continued for over four years at the International Centre for the Settlement of Investment Disputes (ICSID), has resulted in a victory of the State.

On July 26, 2007, the Arbitration Tribunal rendered, by the majority of votes, an Award in favour of Ukraine. The majority of the Arbitration Tribunal was constituted by the distinguished international arbitrators Lord Mustill (the President of the Arbitration Tribunal, the United Kingdom) and Professor Piero Bernardini (the arbitrator, as appointed by the Respondent, Italy). Mr. Daniel M. Price (USA), the arbitrator appointed by the Claimant, has presented a Dissenting Opinion with respect to Ukraine’s alleged violation of Article 3 of the BIT concerning the provision of “fair and equitable and not less favourable” treatment of investments.

The claims of Tokios Tokeles pertained to the alleged violations by Ukraine of the Ukrainian-Lithuanian BIT by virtue of the actions of the governmental authorities, primarily the tax service, in 2002 and, to a lesser extent, in 2003-2005, as directed against “Taki Spravy”, its subsidiary company in Ukraine. Over a number of years, Taki Spravy have conducted an extensive propaganda campaign in connection with this arbitration case accusing the Ukrainian authorities of an allegedly politically stipulated, designed campaign of persecution of that Ukrainian company in connection with a book of Ms. Yu.Tymoshenko, an opposition political leader, printed in Taki Spravy Publishing House in 2002. Tokios Tokeles, as the parent company and the Claimant in the dispute with the State, argued that its investments in Taki Spravy had been inflicted by such campaign of persecution practically an irreparable damage. The State denied any political stipulation of that case, which case was in fact related to an ordinary investigation by the Tax Service of violations of the tax laws with the use of so-called “fictitious enterprises”. The amount of the stated claims of Tokios Tokeles made after all over 73 million US dollars plus an interest and the arbitration costs.

In the Award, which had been prepared by the Arbitration Tribunal for over a year, the Respondent’s objections to the jurisdiction were dismissed. At the same time, the Tribunal unanimously dismissed the claim of expropriation (Article 5 of the BIT) and, by the majority of votes, dismissed the claims for breach of Articles 2 (promotion and protection of investment) and 3 (“fair and equitable and not less favourable” treatment of investments) of the BIT. The Arbitration Tribunal also decided that each party shall bear its own legal costs and expenses, and shall contribute one half of the costs of the proceedings.

This is the fourth completed investment dispute with participation of the State of Ukraine at ICSID. Three previous disputes on the claims of investors from the USA had resulted in two settlement agreements without a monetary compensation on the part of the State (the first case of J. Lemire in 2000 and the case of Western NIS Enterprise Fund in 2006). In 2003, Ukraine gained the first victory in the dispute upon the claim of the U.S. company Generation Ukraine, Inc., the amount of the claim in which dispute was one of the largest amounts in the world history of arbitration disputes – about 9.5 billion US dollars. This new victory places Ukraine among the most successful respondent states in international investment disputes in the world.

The Ministry of Justice of Ukraine was represented in Tokios Tokeles case by the same counsel as in the previous successful case of Generation Ukraine - Ukrainian law firms Grischenko & Partners (Sergei Voitovich, Oleg Vysochinsky, Dmitry Grischenko) and Proxen & Partners (Andriy Alekseyev, Oleg Shevchuk).

Pursuant to Article 52 of ICSID Convention, an application for annulment of an award may be submitted by a party to ICSID within 120 days as of the date of dispatch of the award on a limited list of grounds. This term has expired in late November 2007, and the Claimant has not filed an application for annulment.