Arbitral tribunal awards compensation for PrivatBank asset expropriation
The Permanent Court of Arbitration in The Hague has issued a final arbitral award in favour of PrivatBank and ordered Russia to pay more than $327 mln in compensation for losses caused by the unlawful expropriation of the bank’s assets in Crimea. The amount includes interest accruing from 18 April 2014 and which will continue to accrue until full payment, as well as other related costs and expenses of the bank.
This was reported by the bank’s press service.
Before and after: a brief comparative table
Below is a concise comparative overview of the situation before 2014 and after the final arbitral award. The table helps to quickly grasp the changes in legal status and financial claims.
| Before | After |
|---|---|
| Until April 2014 PrivatBank carried out significant operations in Crimea and held a loan portfolio, real estate and cash. | Following the occupation the respondent implemented measures that led to the unlawful expropriation and cessation of the bank’s operations on the peninsula. The tribunal awarded compensation of over $327 mln. |
| The proceedings were initiated by the bank in 2015 under the 1998 Bilateral Agreement on Encouragement and Reciprocal Protection of Investments. | The Permanent Court of Arbitration accepted its jurisdiction, dismissed the respondent’s objections and found a breach of Article 5 of the Agreement. |
| Jurisdiction and admissibility issues had previously been addressed in preliminary arbitral decisions. | The final award grants compensation, interest from 18 April 2014 and reimbursement of the bank’s costs. |
Case details and the bank’s position
The award relates to case No. 2015−21, which PrivatBank initiated in 2015 under the 1998 bilateral investment treaty. The arbitral tribunal found that it had jurisdiction to hear the claims and that the claims were admissible.
The bank’s press release quotes Solvita Deglava, a member of the Management Board for reorganisation and troubled assets. She said: “The final arbitral award is a clear and important victory that is the culmination of an 11‑year legal battle by PrivatBank to secure justice and the principle that unlawful expropriation must have consequences. The arbitral tribunal confirmed the bank’s right to substantial compensation, interest and reimbursement of costs. We expect the award to be enforced and paid in full, and we will take all necessary measures to secure payment and protect the bank’s and its stakeholders’ interests,” Ms Deglava added.
On jurisdiction and the respondent’s objections
The tribunal rejected the respondent’s arguments that the investments were allegedly unlawful, finding that such objections did not deprive the tribunal of the right to hear the case. This means the legality of the expropriation was decided on the merits and could not be displaced by technical jurisdictional arguments.
The award also records that the respondent breached the provisions of Article 5 of the Agreement, which provided the basis for the compensation and cost awards.
Which assets were in Crimea before the expropriation
Until April 2014 PrivatBank conducted significant operations on the Crimean peninsula. The assets included loans extended to customers, the bank’s real estate and cash that supported the functioning of the regional network.
After the unlawful occupation the respondent implemented a series of measures that resulted in the seizure of those assets and the effective cessation of the bank’s activities in the region. It is those measures that were the subject of the arbitral proceedings.
What this means for investors and key terms to know
The arbitral award is significant primarily as a precedent in cases concerning the expropriation of foreign investments. For the ordinary investor it is important to be aware of the risks associated with geopolitical events and the possible difficulties in enforcing awards against a state.
It is useful to recall some basic financial terms. A bond is a debt instrument in which the issuer undertakes to repay the principal and pay interest. Yield is the percentage return on an investment over a given period. An index is a measure that reflects the change in value of a group of assets or a market. OVDP (domestic government bonds) is the abbreviation for Ukrainian domestic government debt securities. Understanding these terms helps an investor assess risks and make decisions about portfolio diversification.
Finally, it should be remembered that the tribunal awarded payment with interest accruing from 18 April 2014. The amount will continue to grow until the award is actually enforced, and PrivatBank has already stated its intention to take the necessary measures to secure payment and protect the interests of its stakeholders.
