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Covington Secures Victory for Naftogaz in Crimea Arbitration Against Russia

March 1, 2019

WASHINGTON—Covington secured a major victory on behalf of Ukraine’s state-owned oil and gas company, NJSC Naftogaz of Ukraine, in an international arbitration against the Russian Federation. A tribunal sitting at the Permanent Court of Arbitration, in The Hague, concluded that Russia unlawfully expropriated Naftogaz’s assets in Crimea, in violation of Russia’s obligations under a bilateral investment treaty between Russia and Ukraine. Naftogaz’s assets have been valued at $US5 billion, plus interest.

 

“This is an important day for our client,” said David Pinsky, counsel for Naftogaz. “Russia targeted Naftogaz’s oil and gas assets in Crimea, and a neutral tribunal has held Russia accountable.” 

After Russia’s unlawful invasion and occupation of Crimea in 2014, Russia confiscated Ukrainian-owned assets. Naftogaz’s valuable energy assets in Crimea were among Russia’s primary targets.

 

The arbitral tribunal concluded that Russia unlawfully expropriated Naftogaz’s assets, that Russia violated its obligation to extend full and unconditional legal protection to Naftogaz’s investments in Crimea, and that Russia breached the most-favored-nation (MFN) treatment obligation of the BIT. The tribunal also confirmed that it has jurisdiction under the bilateral investment treaty to hear the dispute, and that Russia’s obligations under the treaty extend to the territory it now unlawfully occupies in Crimea.

 

“We are very pleased with the outcome,” said Marney Cheek, DC-based counsel for Naftogaz. “This award makes clear that Russia is not above the law and it cannot evade responsibility for its actions in Crimea.”

 

Naftogaz initiated its case in October 2016. A hearing on jurisdiction and liability was held in May 2018. Now that jurisdiction and liability have been determined, there will be a further phase of the proceedings to determine the amount of compensation owed to Naftogaz.

 

Partner David Pinsky and special counsel Erin Thomas in New York, partner Marney Cheek in Washington, DC, partner Jeremy Wilson in London and associates Josh Picker, William Lowery, Daniel Allman, Paris Aboro, and Alex Gudko represent Naftogaz. Denis Lysenko, Pavlo Byelousov, and Myroslava Savchuk of Aequo Law Firm in Ukraine acted as local counsel on the matter.

 

Covington represents a number of investors who have asserted claims against the Russian Federation related to the unlawful seizure of assets in Crimea. Covington also represents the Government of Ukraine in contentious cases against the Russian Federation before the International Court of Justice and an arbitral tribunal constituted under the UN Convention on the Law of the Sea.

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