First investment dispute against the Republic of Belarus: looking into Hague court ruling
In 2017, “Manolium-Processing”, a Russian investor initiated the first arbitration proceeding against the Republic of Belarus ever, seeking to collect over 200 mln USD (the amount claimed was later decreased to 176 mln USD) in the Ad Hoc Court.
By mid 2021 in the Ad Hoc Court rendered the decision adjudging 20.4 mln USD to the Russian investor. This article will briefly inform you of the 18-years history of relations between the investor and the Belarusian state that gave rise to the investment dispute, and on the findings of the international arbitration court.
How it started
The history of relations between the above-mentioned Russian investor and the Republic of Belarus started in 2003. This year saw an investment agreement between them stipulating that the Russian investor had undertaken to build a retail and entertainment complex in Minsk’s centre and invest at least 81.7 mln USD to that effect.
As a consideration for the granted right to implement the investment project, the investor had undertaken to build, at own expense, and to transfer to Minsk’s municipal property, a trolley-bus depot by July 1, 2011, and to transfer 1 mln USD for the purpose of construction of the Belarusian National Library. The investor was able to start constructing the mentioned Complex (implementing the investment project) only after it has completely discharged the mentioned undertakings.
What went wrong?
The construction of the trolley-bus depot was dragged on, while expenses increased exponentially amounting to some 20 mln USD (instead of initial 15 mln USD) by 2011. By July 1, 2011, the trolley-bus depot had not been transferred to Minsk’s municipal property, while the construction of the Complex had not been initiated by the investor. Due to this, in 2014 the investment agreement with the Russian investor was dissolved by Minsk Economic Court.
Investor’s relations with the Republic of Belarus reached a stalemate: the investor sought redress for the costs incurred in constructing the trolley-bus depot, while the Republic of Belarus insisted that the depot shall be transferred to Minsk’s communal property without compensation and that there are no grounds to compensate the investor any costs incurred.
With due account for taxes charged with respect to the Russian investor in the amount of 24.4 mln USD due to the dissolution of the investment agreement, the trolley-bus depot was transferred to Minsk’s communal property by virtue of Edict of the President of the Republic of Belarus in discharge of the debt before the state.
The Russian investor demanded that the following sums shall be collected from the Republic of Belarus:
а) costs actually incurred amounting to 20.4 mln USD, in particular:
- 19.4 mln USD – investor’s expenses in constructing the depot, and
- 1 mln USD – moneys remitted for the purpose of construction of the Belarusian National Library;
b) lost profits amounting to 156 mln USD due to the impossibility of implementing the investment project for the construction of the Complex, established by investor as the difference between the Complex’s market value of 399 mln USD and the planned volume of inputs for Complex construction amounting to 243 mln USD.
What were court’s findings?
The investment arbitration deemed the Russian investor’s claim as rightful and that he had the right to seek 20.4 mln USD of costs actually incurred from the Republic of Belarus. The arbitration concluded that expropriation was carried out by the Republic of Belarus: as the trolley-bus depot was unlawfully transferred to Minsk’s communal property and was operated without any monetary compensation to the investor.
The claim seeking to collect lost profit was not sustained by the court. The court deemed that the investment agreement was dissolved with investor without any violation of the EAEU Treaty, and therefore the investor may not demand an additional compensation. Moreover, despite the fact that the investor was granted access to the Complex site, the investor never prepared project documentation and never started construction activities. Furthermore, with the passage of time of negotiations between the parties about the investment agreement, business environment in the Belarusian market had considerably decayed, and in this connection the construction of the Complex became gainless for the investor.
Prohibition of expropriation of investments is the basic warranty for investors pursuing investment activity in the Republic of Belarus, – except those cases where expropriation measures are taken by the state for the public benefit and entail a swift and adequate compensation. This warranty is directly stipulated by cl. 79 of the EAEU Treaty signed by both the Republic of Belarus and the Russian Federation.
Thus, the norm stipulated by cl. 79 of the EAEU Treaty did work in the first case: actions of the Republic of Belarus involving the confiscation of the trolley-bus depot were deemed as expropriation of investments, and as a result, the Republic of Belarus shall pay a compensation to investor amounting to the costs actually incurred by investor. However, the case was not as simple with the lost profit – in this case investor failed to prove the validity of its claims.
However, despite the mentioned ruling was declared, the question remains open as to whether the state will actually execute it and actually pay the award to investor, as actual execution of awards of international courts is subject to decisions of the state itself (whether the state will acknowledge an award of an international arbitration court). REVERA’s lawyers will be monitoring this situation and will inform you about whether the first international award against the Republic of Belarus will be actually executed.
The first investment case against the Republic of Belarus has inspired investors that invested earlier in the territory of the Republic of Belarus to apply for the protection of their rights to international courts. Thus, at present, despite high costs and long pendency of investment arbitration cases, three lawsuits filed by investor against the Republic of Belarus are being examined by international arbitration courts: UAB Modus grupe (2021), Delta Belarus Holding BV (2018), and GRAND EXPRESS (2018). No awards in these cases have yet been made.