[AMICUS CURIAE] In June 2015, PJSC Ukrnafta initiated arbitration proceedings under UNCITRAL Arbitration Rules against Russian Federation based on the Russia-Ukraine BIT and sought payment of 50,314,336 USD as compensation for expropriation. The ground for the claim was the fact that the Ukranian company owned 16 petrol stations in the region of Crimea.
The arbitral tribunal held that it had jurisdiction to hear the dispute. However, the Russian Federation challenged the award on jurisdiction before the Swiss Supreme Court. The appeal was based on two grounds.
Firstly, the concept of territory under Russia-Ukraine BIT included only the actual territory at the moment of the signing of the treaty. Any further changes should have been agreed between contracting States supplementary. Secondly, the ownership of petrol stations by PKSC did not constitute investments under the Russia-Ukraine BIT.
The Swiss Federal Supreme Court rejected these arguments. In regard to the notion of territory, the reasoning of the Supreme Court was based on the Vienna Convention on the Law of treaties. According to the Article 29 of this Convention, an international treaty is binding upon each party in respect of its entire territory, unless a different intention appears from the treaty. Therefore, the Court came to the conclusion that even in a case of subsequent territorial changes, a BIT remains applicable to the entire territory of each State and there is no necessity in a supplementary agreement. As for the notion of investment, the Swiss Supreme Court came to the conclusion that the wording in the Russia-Ukraine BIT was counter to the restrictive position of Russian Federation. The Supreme Court distinguished between two approaches to the notion of investment- «transaction-based » and «asset-based». The main difference between these models is that the latter includes the protection of investments in the form of assets and rights which are not directly related to a cross-border transaction. The Russia-Ukraine BIT included non-exhaustive list of assets which qualify as investments, thefore, the Swiss Supreme Court found that the purpose of the BIT was to broaden the protection of investments and the adopted approach was asset-based.
As a result, the Swiss Court came to the conclusion that the Arbitral tribunal had a jurisdiction to hear this dispute. The most relevant aspect of this decision is the in interpretation of the BIT. The Supreme Court took into account the purpose of the BIT, not just a literal interpretation.