PCA Tribunal finds that Russia committed an illegal expropriation against Ukrainian bank

Public Joint Stock Company “State Savings Bank of Ukraine” v. Russian Federation, PCA Case 2016-14


Public Joint Stock Company “State Savings Bank of Ukraine” (also known as JSC Oschadbank) submitted a claim to a PCA (Permanent Court of Arbitration) tribunal against the Russian Federation, alleging breaches of the latter’s obligations under the Agreement Between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments (the 1998 Russia–Ukraine BIT). The respondent declined to appear before the tribunal in this case. Despite Russia’s nonparticipation, the tribunal found that it was able to proceed under Article 28 of the UNCITRAL rules, which allows for the tribunal to do so if a party, after being duly notified, fails to appear at the hearing without showing sufficient cause for such failure.[1]

The tribunal found that Russia had committed an unlawful expropriation and awarded the Claimants approximately USD 1.1 billion in damages, as well as interest and arbitration costs. The tribunal’s decision on the amount of the award relied entirely on the testimony of the Claimant’s sole witness on damages. After the Paris Court of Appeal set aside the damages in a decision dated March 30, 2021, the French Supreme Court reinstated the award in January 2023.

The dispute

This case concerned the treatment of a Ukrainian bank by Russian authorities after the accession of the Crimean Peninsula into the Russian Federation.[2] The claimant, a public joint stock company registered in and wholly owned by the State of Ukraine, alleged that its Crimean business was destroyed by the actions of the respondent following the accession as part of a “deliberate campaign to replace the Ukrainian banks in Crimea with Russian banks.”[3] The claimant submitted a claim alleging violations of Article 2 (promotion and protection of investments), Article 3 (national treatment and MFN treatment), Article 4 (transparency and accessibility of legislation), Article 5 (expropriation), and Article 7 (transfer of funds) of the 1998 Russia–Ukraine BIT. The tribunal addressed the expropriation question and found that Russia committed expropriation by imposing legislation that it knew or ought to have known would be impossible for the claimant to comply with.[4] The lack of compensation provided for this expropriation rendered it illegal.


The events of this case arise from the 2014 entry of the Russian military forces into the Crimean Peninsula, and the area’s accession into the Russian Federation in March of that year. Prior to the accession, the claimant had a local branch in Simferopol, which was not a separate legal entity under Ukraine law, and held the property of Oschadbank. After the accession, Ukrainian banks were given until January 2015 to continue operating until they could obtain new licences from the Bank of Russia in accordance with Russian legislation. During this “transitional period,” these Ukrainian banks were also subject to a number of requirements for which noncompliance would result in the termination of operations. The claimant subsequently faced difficulties due to large amounts of withdrawals and interference with operations from local authorities and Russian state security. In May 2014, in response to its inability to effectively regulate banking activities in the Crimean Peninsula, the National Bank of Ukraine issued a resolution that prohibited Ukrainian banks from conducting activities in the area. Shortly after, the claimant decided to close its Crimean branch and initiate the de facto termination of its operations in the Crimean Peninsula.

After this termination, the Bank of Russia issued a decision on prohibiting the banking activities of the Claimant’s Crimean Branch on the ground of “non-fulfillment of obligations towards creditors (depositors).” Under the Depositor Protection Law (a federal law enacted by Russia in April 2014), the Depositor Protection Fund (DPF) was formed for the purpose of acquiring the rights of depositors against financial institutions in the Crimean Peninsula whose operations were terminated by the Bank of Russia and to pay compensation to individual depositors.[5] The DPF began to administer all of the claimant’s assets in the Crimean Peninsula, including personal and corporate loans, real estate, movable properties (like ATMs and vehicles), valuables (precious metals and investment coins), and monetary funds.[6] As of 2016, the DPF had filed over 634 lawsuits on behalf of claimant’s creditors for amounts in excess of the RUB 700,000 guaranteed under the Depositor Protection Law.

The tribunal’s analysis


The tribunal also found that it had jurisdiction to hear the dispute because, after 2014, Russia assumed responsibilities under the Russia–Ukraine BIT to Ukrainian investors of the Crimean Peninsula. To reach this conclusion, the tribunal asked whether the Crimean Peninsula constituted part of Russia’s “territory” for the purposes of the BIT, focusing on Article 1(4), which defines territory as “the territory of the Ukraine or the territory of the Russian Federation, as well as their respective exclusive economic zone and continental shelf, as determined in conformity with international law.” To interpret the meaning of “territory,” the tribunal relied on Article 31(1) of the Vienna Convention on the Law of Treaties, under which interpretations are to be done “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”

Using this mode of analysis and testimony from the claimant’s witness, Professor Malcolm Shaw, the tribunal found a definition of “territory” that relied more on a state’s exercise of jurisdiction and control rather than whether that state had legitimate sovereign title to the territory in question.[7] Russia’s exercise of jurisdiction over the Crimean Peninsula could be seen through its legislative and administrative control. The tribunal also accepted Professor Shaw’s contention that Russia’s claim of sovereign title over the peninsula, though contested by the international community, when coupled with its exercise of effective control, creates undeniable treaty obligations which, if Russia fails to uphold, would contradict its own claim.

The claimant had a valid investment under the BIT

Although not participating in the proceedings, Russia expressed through its limited correspondence with the tribunal that its primary objection was that there was no “investment” by the claimant under Article 1(1) of the BIT. The respondent made five arguments to support this contention, each of which was rejected by the tribunal: (i) the claimant’s assets in the Crimean Peninsula were not “invested in the territory of the Russian Federation”; (ii) the investments were made before the accession of the Crimean Peninsula to the respondent; (iii) the investments were not made in conformity with the respondent’s legislation; (iv) the claimant’s investments were not subject to taxation under the respondent’s legislation; and (v) the claimant’s investments did not contribute to the development of the respondent’s economy.[8]

The first argument was already addressed by the previous jurisdictional analysis. In response to the second argument, the tribunal found that there was no such temporal requirement (that the definition of “investment” was limited to investments made before Russia’s treaty obligations became effective in Crimea) in the treaty. The tribunal rejected the third argument, noting that laws made during the transitional period after the accession permitted the continued operation of Ukrainian banks in Crimea until January 2015, so the claimant was in conformance with Russian legislation for the purposes of Articles 1(1) and 2(1) of the BIT.[9] The tribunal rejected the fourth argument because there was no evidence that Russian taxes were ever levied during the time that the claimant was permitted to continue its operations in Crimea, and Russian constitutional law did not allow for collection of taxes in Crimea until January 2015, so no taxes could have been owed by the claimant before it closed down. Finally, the fifth argument was rejected because, in the tribunal’s view, the claimant would have contributed more to the respondent’s economy had it been able to continue operations, and the fact that Russia received little economic benefit during the claimant’s short period of operation did not render invalid treaty protections that would have otherwise existed.[10]

Attribution of responsibility

In the absence of express wording in the BIT, the tribunal found it appropriate to apply rules of attribution under customary international law, found in the ILC Articles. Using Article 4 (State Organs), Article 5 (Delegated Governmental Authority), and Article 8 (Directed or Controlled by the State), the tribunal analyzed the attribution of responsibility for various organizations involved in the events leading up to Crimean accession to the Russian Federation and the events causing the claimant’s loss.

Using Article 4, actions of the military and Parliament of Russia (state organs of the Russian Federation) could be attributed to the respondent. The tribunal also found that the Bank of Russia was a state organ, and therefore, its actions were attributable to the respondent under Article 4. The actions of the DPF —which was formed by the Deposit Insurance Agency of Russia, was directed and controlled by the Russian government, had the main objective of implementing Russian Federal Law on the financial system of the Crimean Peninsula, and played a key role in facilitating respondent’s control of the Crimean banking system—were attributed to Russia under Article 8.

The tribunal found that actions of the Crimean authorities (including the (i) Crimean State officials; (ii) the Crimean courts; (iii) the Crimean Parliament; and (iv) the Sevastopol’s Assembly) were attributable to the respondent under Article 4. Under the broad customary international law approach to determining whether an entity is a state organ, the tribunal found that the Accession Treaty and Accession Law, which integrated the Crimean authorities into the Russian government, made them state organs. Finally, the tribunal found Russia responsible for the conduct of the Crimean self-defense forces because they were under the instruction, direction, or control of Crimean authorities at all material times after March 2014.

Russia committed an unlawful expropriation

The tribunal found that Russian actions constituted an expropriation, which, due to the lack of compensation rendered, was wrongful. The tribunal determined that the legal framework established by the respondent for the Bank of Russia’s decision on termination of activities of Ukrainian banks did not attempt to provide any meaningful assessment process nor any practical means for Ukrainian banks to defend themselves. Additionally, the Crimean Financial System Law was also discriminatory due to imposing more onerous obligations and requirements on the claimant than on Russian banks. Taken together, these actions were evidence of a wrongful expropriation in violation of Article 5 of the BIT.[11] Because the tribunal found that the respondent had breached Article 5, it was unnecessary to consider alternative claims, since the resulting damages would not vary from those granted for the finding of an unlawful expropriation.


In calculating the damages award, the tribunal relied on the testimony of the claimant’s sole witness on damages, Jeffrey Davidson (a specialist in forensic and investigative accounting from the Institute of Chartered Accountants in England and Wales). The loss was quantified according to three components: (i) loss of assets; (ii) loss of future profits; and (iii) other heads of loss (lost assets of third parties and securities lost for the transactions of other branches). Davidson valued the loss of assets on the basis of the claimant’s management accounts and used a discounted cash flow method to calculate the loss of future profits.

In evaluating Davidson’s valuation approach, the tribunal referred to an article by Professor Aswath Damodaran, a finance professor at New York University. The article argues for the use of equity valuation models with actual or potential dividends for financial service firms. While the tribunal noted a few areas in which Davidson specified that Damodaran’s article was inapplicable to the valuation of the claimant’s assets (owing to the differing nature of the claimant’s bank as a “vanilla” deposit-taking institution as compared to more complex financial institutions), it was satisfied to see that Davidson’s approach was largely in line with the principles set forth in the article.

The tribunal accepted findings that set the loss of assets at USD 597 million, the loss of future profits at USD 484 million, and other heads of loss at USD 28 million, for a total of approximately USD 1.1 billion, in addition to interest. The tribunal also found the respondent responsible for paying the costs of the arbitration.


This award touches on a number of subjects that may be interesting to parties to bilateral investment treaties: treatment of investments in occupied or illegally annexed territories (in which case the definitions of core terms like “territory,” “investment,” and “attribution” will likely arise), treatment of non-appearance by a respondent, and damages calculation in cases where only the claimant participates. The last issue especially raises questions about the suitability of party-appointment-driven dispute settlement for compensation calculation, and it may be difficult to maintain an image of impartiality when a tribunal accepts the findings of a claimant-appointed expert witness without raising many concerns. Alternative methods like tribunal appointment of experts may help mitigate the problematic optics of cases where the respondent does not participate in the proceedings. This case is a further illustration of the limitations of current ISDS rules and the need for reform.

Notes: The tribunal was composed of David A. R. Williams (presiding arbitrator), Charles N. Brower (claimant’s appointee) and Hugo Perezcano Díaz (appointed by the appointing authority, who was designated by the Secretary-General of the PCA due to Russia’s nonparticipation in arbitrator appointment). The award of November 26, 2018, is available at https://www.italaw.com/sites/default/files/case-documents/italaw171188.pdf


Dihu Wu is J.D. candidate from the University of Michigan Law School and a former International Law Fellow at IISD.


[1] Pps. 57–58, para. 193.

[2] The tribunal defined “accession” as “The change that occurred in the status of the Crimean Peninsula in February-March 2014, without prejudice to its lawfulness or unlawfulness under international law.”

[3] P. 15.

[4] P. 83, para. 297.

[5] P. 16, para. 70.

[6] P. 22, para.90.

[7] P. 60, para. 206.

[8] P. 65, para. 225

[9] Article 2(1) states that “Each Contracting Party shall encourage the investors of the other Contracting Party to make investments in its territory and shall admit such investments subject to its laws.” P. 24, para. 99.

[10] Pp. 65–67, paras. 225–35

[11] P. 89, para. 321