Oleh Marchenko, Anastasiia Kotliarchuk and Nick Yurlov prepared an article for The European Arbitration Review 2022, dedicated to the topic “Why Ukraine Prevailed in Most Denial of Justice Cases: Denial of Justice Explored.” Read the full article below or by the link (in English).
In summary
We discuss investor-state cases involving denial of justice claims against Ukraine. It is no surprise that foreign investors regularly assert denial of justice claims against Ukraine, as its courts are widely criticised for corruption, lack of independence and inefficiency. What is surprising is that most of denial of justice claims against Ukraine failed. We discuss why and explore denial of justice from a wider perspective of investor-state, ECtHR, ICJ and EU jurisprudence. Finally, we give a summary of judicial failures for which international courts and tribunals held states responsible for a denial of justice.
Discussion points
- Ukrainian courts and denial of justice claims against Ukraine
- Reviewing denial of justice claims against Ukraine in contrast with other cases in which international courts and tribunals held states responsible for a denial of justice
- Summary of judicial failures for which international courts and tribunals held states responsible for denial of justice, including errors in applying rules of municipal law
- Barcelona Traction, Light and Power Co, Ltd (Belgium v Spain), 1970 ICJ
- Elettronica Sicula SpA (ELSI) case, USA v Italy, 1989 ICJ
- Company General of the Orinoco case, 1905
- Western NIS Enterprise Fund v Ukraine, ICSID Case No. ARB/04/2
- Stuhrk Delikatessen v Commission, 2018 EU Case T-58/14
- HSBC Holdings plc. v Commission, 2019 EU Case T-105/17
- Iberdrola Energía SA v The Republic of Guatemala, ICSID Case No. ARB/09/5
Ukrainian courts and denial of justice claims against Ukraine
Ukrainian courts are widely criticised for corruption, lack of independence, and inefficiency. According to the American Chamber of Commerce Business Climate Survey 2021,[1]66 per cent of the surveyed members said that the biggest obstacle to doing business in Ukraine is the lack of the rule of law. Seventy-four per cent said that to achieve economic growth in 2021, the government of Ukraine should conduct an effective judicial reform to establish the rule of law and fair justice. It is no surprise that foreign investors regularly assert denial of justice claims in investor-state disputes with Ukraine. It is, however, surprising that most of these claims against Ukraine have failed.
We discuss the following six investor-state cases where foreign investors asserted denial of justice claims against Ukraine: Krederi v Ukraine, Amto v Ukraine, GEA v Ukraine, Bosh v Ukraine, Tatneft v Ukraine and Western NIS Enterprise Fund v Ukraine. Despite widely criticised flaws and shortcomings of the Ukrainian judicial system, except for the Tatneft and Western NIS Enterprise Fund cases,[2] Ukraine won all of them. Arbitral tribunals decided that Ukrainian courts did not breach the basic rules of procedural fairness, such as the right to be heard, and their decisions were not grossly unfair to hold Ukraine responsible for a denial of justice under international law.
Denial of justice explained in a nutshell
Denial of justice is a well-recognised concept in international law and an element of the minimum standard of treatment under customary international law.[3]Denial of justice arises when a state breaches its obligations to ensure the fair and effective administration of justice to aliens according to the fundamental principles of due process.[4]
Procedural denial of justice occurs when there is (1) denial of access to courts; (2) unwarranted delay in court proceedings; (3) judgments dictated by the executive; and (4) gross deficiencies in the judicial process, such as corruption, discrimination, violation of the right to be heard, biased or unequal treatment, or abuse of judicial powers.[5]
Besides, denial of justice may occur when a judgment is ‘so manifestly unjust that no court which was both competent and honest [acting in good faith] could have given it.’[6] Claimants regularly allege denial of justice, often called a substantive denial of justice,[7] on account of errors made by national courts in applying municipal law. However, international tribunals do not serve as a court of appeal, and they do not review errors in the application of municipal law by national courts. Accordingly, no misapplication of municipal law by national courts in itself may result in denial of justice unless a court decision is ‘grossly or manifestly wrong’ so that it is evident from the judgment itself that the courts were either incompetent or acted in bad faith contrary to the general principles of law recognised by civilised nations and the laws of nations.[8]
However, even a simple error will be sufficient, and no bad faith is needed for a state to be responsible internationally for the misconduct or failures of its judiciary if its courts misapply some rule of international law or apply municipal law contrary to international law.[9] In such a case, a state will be responsible for a denial of justice or, absent a denial of justice, for the breach of a specific rule of public international law. Such a breach of international law may or may not be actionable under international investment agreements, but it is a separate issue that we do not discuss in this article.
Krederi v Ukraine (compared with Loewen v United States)
In the Krederi case,[10] award dated 2 July 2018, ICSID Case No. ARB/14/17, the ICSID Tribunal rejected the procedural denial of justice claims of Krederi, a UK company.[11] Krederi claimed that Ukraine denied justice due to many procedural irregularities by the courts that invalidated ownership rights of its local subsidiaries to three undeveloped land plots purchased from the Kyiv City Council. Krederi’s subsidiaries purchased these land plots to ‘develop a multi-functional complex including a luxury hotel, shopping area, multi-level parking, residential, office and retail spaces.’[12]
Krederi claimed, specifically, (1) that one case was considered by the wrong court (administrative as opposed to commercial courts), although Krederi’s subsidiaries never objected to the jurisdiction;[13] (2) that the courts arbitrarily extended three-year statute of limitations period and allowed the prosecutor to bring claims, although it was questionable whether the limitations period expired and, in any case, the courts had powers to extend the period;[14] (3) that one ‘case was suspiciously quickly decided’ by the first-instance court in one month,[15] though it is unwarranted delays that usually result in a denial of justice;[16] (4) that the courts treated its subsidiaries unequally, although Krederi did not provide convincing arguments for discriminatory treatment, etc.[17]
The ICSID Tribunal held that such procedural irregularities were not fundamental, and they did not violate the international minimum standard of procedural fairness, such as right to be heard or equal treatment rights (which Krederi failed to prove):
“631. More generally, the Tribunal finds that the procedural irregularities in regard to all four court cases do not rise to the level of an ‘outrageous failure of the judicial system.’ Because it cannot be said that the Ukrainian courts ‘administered justice in a seriously inadequate way,’ there was no denial of justice amounting to a violation of the fair and equitable treatment obligation [under] the Treaty [UK–Ukraine BIT] or under customary international law.”
Krederi also tried to argue a substantive denial of justice by judgments in one case alleging that the courts deprived one of Krederi’s subsidiaries of its ownership rights to the land plots illegally because they erred in the application of domestic law (article 388 of the Ukrainian Commercial Code (UCC)). Under article 388, property may not be reclaimed from a good-faith buyer by its owner except when the owner lost possession of the property contrary to its will.[18] Besides, Krederi claimed that its subsidiary was deprived of its ownership rights in breach of article 1 protocol 1 to the ECHR, which guarantees peaceful enjoyment of possessions since a ‘technical breach’ in the internal decision-making of the Kyiv City Council to approve sales deals in favour of Krederi’s subsidiaries was not sufficient to justify the deprivation of property.[19]
However, the Tribunal disagreed with Krederi because its argument that the courts misapplied Ukrainian law (article 388 UCC) is insufficient for denial of justice. Even if Ukrainian courts erred in the application of article 388 UCC, Krederi failed to show that their judgments were ‘outrageously [manifestly] wrong’[20] or ‘patently unjust’[21] to evidence a ‘clear and malicious [bad faith] misapplication of the [domestic] law’ by Ukrainian courts in violation of the general principles of law and public international law.[22] The ICSID Tribunal held that the breaches in the procedure to approve the land plots sales transactions were not merely formal or technical.[23] In the Tribunal’s view, the procedure was important, while the courts had ‘valid reasons’ to invalidate the land sales transactions and to have the land plots reclaimed by the Kyiv City Council from Krederi’s subsidiary because the decisions of the Council to sell the land plots lacked ‘critical approvals’ and, therefore, there was the lack of will to sell them.[24]
In contrast, in Loewen v United States, in which the United States prevailed on jurisdiction and in which the ICSID Tribunal held that Loewen did not exhaust local remedies for denial of justice claims against the United States,[25] the Tribunal expressed its opinion on merits holding that it ‘reached the firm conclusion’ that the trial of Loewen in the Mississippi courts amounted to both procedural and substantive denial of justice.[26] Specifically, the Tribunal observed in the ‘strongest terms’[27] that the conduct of the trial ‘was so flawed that it constituted a miscarriage of justice amounting to a manifest injustice as that expression is understood in international law.’[28]
Loewen v United States arose from a contractual dispute between Loewen Group (Canada) and Mr O’Keefe running a competing funeral business in Mississippi.[29] Mr O’Keefe sought damages from Loewen in a Mississippi court for alleged breach of US$4 million contract.[30] Despite the small amount owed under the contract, the jury awarded O’Keefe US$25 million in damages, US$75 million in emotional damages, and US$400 million in punitive damages.[31] To stay the enforcement of the excessive award, Loewen had to post a 125 per cent bond or US$625 million.[32] Loewen tried arranging it but finally decided to settle the dispute with O’Keefe for US$175 million.[33]
In Loewen, the Tribunal concluded that there was a denial of justice because ‘the [Mississippi] trial court permitted the jury to be influenced by persistent appeals to local favoritism as against a foreign litigant [against a Canadian, Ray Loewen, and Loewen Group, a Canadian corporation].’[34] During the trial, Mr O’Keefe and his counsel described Loewen as a ‘wealthy and powerful foreign corporation,’ financed by Asian money, ‘sweeping through Mississippi’ to destroy Mr O’Keefe, who was an American ‘war hero’, ‘fighter for his country’ against Japanese during the WWII, and a ‘home-town’ funeral operator serving the poorer black Mississippi community.[35]
Mr O’Keefe’s counsel, a black lawyer, appealed to the primarily black jury to ‘do their duty as Americans and Mississippians’ and impose US$1 billion in punitive damages against an ‘outsider’ Loewen (from Canada).[36] Such ‘discreditable and improper’ tactics,[37] viewed by the ICSID Tribunal as ‘the antithesis of due process’,[38] led the jury to impose ‘excessive’ US$500 million damages against Loewen, which the Tribunal regarded as ‘grossly disproportionate’ to the actual damage incurred by Mr O’Keefe.[39] The ICSID Tribunal held that these and other shortcomings made the trial ‘by any standard of measurement . . . a disgrace’, that ‘the trial judge failed to afford Loewen the process that was due,’[40] and, further, held that ‘the whole trial and its resultant verdict [its outcome] were clearly improper and discreditable and cannot be squared with minimum standards of international law and fair and equitable treatment.’[41]
Compared with Krederi, the Loewen case involved gross deficiencies in the judicial process, such as unequal treatment of Loewen in the trial in Mississippi. Besides, the jury’s judgment and US$500 million fine imposed on Loewen by the jury were ‘grossly disproportionate’ and also ‘manifestly’ unjust, contrary to the minimum standard of treatment and due process under public international law. Therefore, if Loewen exhausted local remedies in the United States (which is a substantive element for a denial of justice) and the Tribunal had jurisdiction (the jurisdiction was denied), it would have found that Loewen suffered procedural and substantive injustice in the United States.
Amto v Ukraine (compared with Dan Cake v Hungary)
In Amto,[42] award of 26 March 2008, SCC Case No. 080/2005, the SCC Tribunal rejected the procedural denial of justice claims of Amto, a Lithuanian company.[43] Amto claimed that Ukraine denied justice as a result of (1) the interference by the government of Ukraine in the bankruptcy proceedings against the state-owned Energoatom (an operator of Zaporizhzhia Nuclear Plant), where EYUM-10, an Amto subsidiary in Ukraine, unsuccessfully tried to enforce claims for the construction works done at the nuclear plant; (2) unreasonable delays in three bankruptcy proceedings; (3) tolerance by courts of procedural abuses; and (4) prevention of EYUM-10 from participating in three other bankruptcy proceedings. In 2002 and 2003, the creditors initiated six bankruptcy proceedings against Energoatom. EYUM-10 participated in three bankruptcy proceedings, two of which (the fourth and the fifth) were instituted by EYUM-10.[44]
The Tribunal held that in these bankruptcy proceedings, the courts did not deny due process to EYUM-10. Specifically, EYUM-10 did not participate in three initial bankruptcy proceedings not due to actions of the courts but because the initiating creditors failed to post a public notice of these proceedings and, as a result, EYUM-10 was not aware of these proceedings and was not able to join them. Besides, its inability to enter the initial three bankruptcy proceedings was soon remedied when EYUM-10 was able to initiate two bankruptcy proceedings against Energoatom.[45]
The Tribunal held that there was no procedural injustice in the three bankruptcy cases, in which EYUM-10 participated, observing that the procedural irregularities in these cases were ‘insignificant’,[46] delays were ‘not excessive’ and could be explained by the ‘procedural complexity’ of these cases,[47] many appeals and cassation requests were resolved ‘relatively rapidly,’[48] and that Resolution No. 1160 enacted by the government did not interfere in any way with the bankruptcy cases.[49] The Tribunal further observed that Amto’s claims that justice was denied in Ukraine ‘demonstrate unrealistic expectations of a simple and rapid result’ in the complex bankruptcy cases, where the courts considered ‘many other interests and competing rights’.[50]
In contrast, in Dan Cake v Hungary,[51] award dated 24 August 2015, the ICSID Tribunal accepted the claims of Portuguese Dan Cake that the Metropolitan Court of Budapest denied justice to the investor in a bankruptcy case against Hungarian food production company Danesita, in which Dan Cake invested back in 1996.[52] In January 2007, the Metropolitan Court found Danesita insolvent and appointed a liquidator.[53] The liquidator was required to sell Danesita’s assets within 120 days.[54] In February 2008, it put Danesita’s factory for sale through a public tender for the first time, but no one expressed interest in buying.[55] On 10 April 2008, based upon support from a significant number of creditors, Danesita petitioned the Metropolitan Court to convene a creditors’ ‘composition hearing,’ at which Danesita could seek to secure a ‘composition agreement’ with creditors to restore its solvency and avoid liquidation.[56]
However, the Metropolitan Court rejected the request, asked Danesita to produce additional documents, and, at the same time, reminded the liquidator of its duty to liquidate Danesita within 120 days (the Court’s decision dated 22 April 2008).[57] Under the Hungarian law, no appeal was possible against the Court’s decision dated 22 April 2008.[58] The liquidator proceeded promptly and, on 29 May 2008, announced the second tender, where the Danesita’s assets were sold for an equivalent of US$2.4 million.[59]
The Tribunal held that the 22 April decision of the Metropolitan Court was unfair and inequitable and constituted a denial of justice because the Metropolitan Court ‘deprived Danesita of the chance – whether great or small – to avoid the sale of its assets’ and its liquidation.[60] Instead of complying with its obligation to convene the composition hearing, the court ordered Danesita to provide additional documents, ‘which were obviously [manifestly] unnecessary’ and imposed changes in the draft composition agreement to exclude Dan Cake, as one of Danesita’s creditors, from participation in the composition hearing, although Dan Cake had such right under the Hungarian law.[61] The Tribunal further held that the court decision made the demise of Danesita ‘inevitable’,[62] and concluded that a denial of justice took place, observing that:
“146. … Arbitral Tribunals have used, in order to characterize judicial decisions as denials of justice, various expressions which all perfectly fit the Metropolitan Court of Budapest’s 22 April 2008 decision: ‘administer[ing] justice in a seriously inadequate way,’ ‘clearly improper and discreditable,’ ‘[m]anifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety … .’ The International Court of Justice [in the ELSI case] defined denial of justice as ‘a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.’ The decision of the Metropolitan Court of Budapest [dated 22 April 2008] does shock a sense of juridical propriety. (citations omitted)”
“160. … What was shocking was the refusal by the Court, in violation of Hungarian law, to convene a composition hearing, which was the only way to prevent the sale of the factory.”
GEA v Ukraine (compared with Regent Company v Ukraine)
In the GEA case,[63] award of 31 March 2011, ICSID Case No. ARB/08/16, the ICSID Tribunal rejected denial of justice claims made by Germany’s GEA.[64] GEA claimed that it suffered a denial of justice in Ukraine because its courts unreasonably refused to recognise and enforce US$30 million ICC arbitral award against state-owned enterprise Oriana.[65] GEA’s claimed that the courts ‘never addressed’ its arguments why the agreement to arbitrate existed.[66] But the Tribunal observed that, according to the case records, the courts ‘heard’ GEA’s arguments, ‘directly dealt with the issue’ and simply rejected the arguments, explaining that those who executed the agreement for repayment of debts, which included an ICC arbitration clause, were not duly authorised by Oriana to execute the agreement on its behalf.[67] Therefore, the ICSID Tribunal concluded that justice was not denied by Ukraine and rejected the claims of GEA.[68]
In contrast, in Regent Company v Ukraine[69] (Application No. 773/03, ECtHR decision dated 3 April 2008), which was factually similar to the GEA case, ECtHR decided that Regent Company (Seychelles) was denied a ‘fair trial’ by Ukraine in violation of article 6 ECHR, when a valid US$2.46 million arbitral award dated 23 December 1998 had not been enforced within a ‘reasonable time and in full’ (for over three years from July 1999 until October 2002, when Regent lodged its application to ECtHR) against state-owned Oriana (the same debtor as in the GEA case).[70]
Although the ECtHR noted that ‘one of the main reasons’ why the final arbitral award was not enforced against Oriana ‘was the insolvency’ of the state-owned debtor,[71] that may not serve as an excuse for ‘the continued non-enforcement of the judgment debt,’ as a result of inactions of the state bailiffs and the moratorium imposed by Ukraine from November 2001 on the forced sale of property of state-owned enterprises. The ECtHR held that such a continued non-enforcement for more than three years ‘constituted a breach of article 6, section 1 of the ECHR.[72] The ECtHR ordered Ukraine to pay to Regent Company the total amount owed under the arbitral award and the post-judgment interest at ECB’s marginal lending rate plus 3 per cent.[73]
It is worth mentioning Western NIS Enterprise Fund v Ukraine, ICSID Case No. ARB/04/2, claims registered by ICSID on 26 January 2004. Western NIS Enterprise Fund (United States) brought investor-state claims under the United States–Ukraine BIT against Ukraine for a denial of justice. The fund claimed that justice was denied by Ukraine when its courts arbitrarily denied the recognition of an AAA award against a fund’s local partner in a sunflower oil production joint venture. The denial of justice claims were settled, and the proceedings were discontinued by the Tribunal on 1 June 2006, after Ukraine apparently convinced the local partner to pay its debts to Western NIS Enterprise Fund.[74]
Bosh v Ukraine (compared with the Ukrainian Tobacco cartel case)
In Bosh v Ukraine,[75] award dated 25 October 2012, ICSID Case No. ARB/08/11, the ICSID Tribunal rejected denial of justice claims against Ukraine brought by Bosh International, Inc (Germany) and its Ukrainian subsidiary B&P Ltd. They claimed that justice was denied in Ukraine when the Kyiv Commercial Court commenced ‘fresh proceedings’ initiated by Taras Shevchenko University (the University) and awarded the University’s claims to terminate its 25-year contract with B&P Ltd.[76] Bosh argued that the res judicata principle (regarded as the general principle of law)[77] prevented courts from resolving the resubmitted claims brought on 2 November 2008, because earlier on 29 October 2008, the court ruled that it lacked jurisdiction to resolve the same claims brought by the University, which ‘fell within the jurisdiction of ICSID.’[78]
However, in public international law, the res judicata principle attaches only to any ‘final judgment’ on merits, while ‘where a tribunal has merely declared itself to have no jurisdiction to entertain a suit, this does not prevent the same issue from being presented [again] before another tribunal [court].’[79] Accordingly, Ukraine would violate the res judicata principle under public international law only when its courts reopened and decided the same dispute again after it was finally resolved on merits. But the res judicata principle was not breached when the court ruled that it had no jurisdiction, and later when the same dispute was resubmitted by the University.
In this regard, the Tribunal only observed that Ukrainian courts did not offend in any way the principle that ‘it is only final judgments [on merits] that attract the status of res judicata, rather than all procedural decision by a court or tribunal.’[80] As there was no violation of the res judicata principle as applied by international courts, the ICSID Tribunal discussed whether the courts had properly applied the domestic procedural rules and found that they applied the rules reasonably, and such application did not at all ‘offend a sense of judicial propriety’, concluding that Bosh was not denied justice.[81]
In contrast to Bosh v Ukraine, in the Ukrainian Tobacco cartel case, the Supreme Court of Ukraine, in decisions dated 2 February, 15 April, 1 June, 23 June and 10 August 2021,[82] satisfied claims of the Ukrainian subsidiaries of global tobacco manufacturers (Philip Morris, JTI, BAT, Imperial) and their wholesale distributor Tedis Ukraine to invalidate 6.5 billion hryvni fines (US$240 million) imposed by the Antimonopoly Committee of Ukraine.[83] The Committee alleged that Philip Morris, JTI, BAT and Imperial colluded with each other and Tedis Ukraine to eliminate competition on the tobacco wholesale market and to have Tedis Ukraine as their exclusive wholesale distributor in Ukraine. The Committee also alleged that the tobacco manufacturers created barriers for any other wholesale distributor to enter the market.[84] The Supreme Court held that the Committee breached the res judicata principle[85] when to prove the cartel collusion, it relied on Committee’s findings in the earlier cartel collusion case, although there was no final and binding decision on merits in that case,[86] and on Committee’s decision No. 551-p of 16 December 2016, in the earlier abuse of dominance case,[87] to which the tobacco producers were not parties. Besides, the Supreme Court held that the Committee breached fundamental due process rights of the claimants, such as their right to be heard and to examine evidence.[88] As JTI, BAT, Imperial and Philip Morris were not parties to the abuse of dominance case, they could not have examined or objected against the allegedly incriminating evidence.
Although not addressed by the Supreme Court, the Committee’s investigation of the Tobacco cartel case involved other serious violations of procedural fairness by the Committee and Ukraine, including the undue intervention of the national police and prosecutors in the investigation and the arbitrary fines imposed by the Committee. The Attorney General and other high-ranking officials made public statements directing the Committee to ‘take measures’ against JTI, BAT, Imperial and Philip Morris to ‘force’ them to ‘destroy’ the monopoly of Tedis Ukraine.[89] Besides, the Committee did not explain in its decision to impose penalties how it calculated the fines levied on BAT, JTI, Imperial and Philip Morris, and what factors affected their amounts.[90] As a result, the Committee deprived the tobacco producers of their right to be able to effectively challenge the fines (and their amounts) before the courts based on the basic principle of equal treatment: the Committee shall treat everyone equally and may not impose, without reasons, unequal fines for a cartel infringement under similar circumstances.[91]
Finally, it was manifestly unjust for the Committee to implicate Philip Morris, JTI, BAT and Imperial in the cartel collusion to create and maintain a monopoly of Tedis Ukraine[92] because it was the Committee itself that in 2010–2011 granted merger consents to Tedis Ukraine to acquire substantially all wholesalers and also granted consents for 10-year non-compete agreements entered by Tedis Ukraine to prevent ex-owners of the acquired wholesalers from competing with Tedis Ukraine. The Committee itself recognised that its consents ‘established lasting and permanent barriers for any prospective competitors [of Tedis Ukraine] to enter the market.’[93] Before the Supreme Court remedied gross injustice, Philip Morris, JTI, BAT, and Imperial publicly said that they may launch investor-state claims against Ukraine.[94] Philip Morris made good on its promises and filed its claims to ICSID in January 2021.[95]
Tatneft v Ukraine
In Tatneft v Ukraine,[96] award on merits of 29 July 2014, PCA Case No. 2008-8, the PCA Tribunal rejected procedural denial of justice claims against Ukraine brought by Tatarstan’s Tatneft (Russian Federation).[97] Although the Tribunal was unwilling to hold that Ukraine was liable for a substantive denial of justice, it found that arbitrary decisions of its national courts, which helped to deprive Tatneft of its investments in Ukrtatnafta (an oil refinery JV, in which Tatneft owned 22.7 per cent shares) were unfair and inequitable.[98] The Tribunal awarded US$112 million in damages to the investor.[99] Tatneft claimed that its investments in Ukraine were treated unfairly and that due process was denied in Ukraine when its national courts helped Korsak LLC, a 1 per cent minority shareholder in Ukrtatnafta, and Privat Group standing behind Korsak LLC, to deprive Tatneft of its control over the management board of Ukrtatnafta in the interests of Privat Group in 2007. Besides, Tatneft claimed that due process was denied when the Ukrainian courts helped to deprive Tatneft of its 22.7 per cent shares interest and investments in Ukrtatnafta for the benefit of Privat Group affiliated with Ukrainian oligarch Ihor Kolomoiskyi.[100] Tatneft claimed that the courts of Ukraine helped Privat Group to carry out its corporate ‘raid’ over the refinery.[101]
The Tribunal observed that Ukraine did not deny procedural justice to Tatneft as its courts were ‘generally available’ to Tatneft, delays in court proceedings were ‘not extraordinary,’[102] and ex parte court proceedings and other ‘shortcomings’ in the judicial process were not sufficiently ‘serious’ to amount to denial of justice.[103] Questioning whether a substantive denial of justice exists[104] and unwilling to say that Ukraine denied justice to Tatneft in a substantive sense,[105] the Tribunal held instead that Tatneft was unfairly treated in Ukraine,[106] explaining that ‘it was Tatneft that had been entrusted with the task of managing the company and while new corporate arrangements are always possible, in the instant case these did not follow the normal corporate decision-making process but were the result of judicial intervention and the reinstatement [by the Ukrainian courts] of Mr Ovcharenko [as chairman of the management board of Ukrtatnafta, acting in the interests of Privat Group]’ and that Tatneft ‘was deprived of ownership [to 22.7 per cent shares in Ukrtatnafta],’ which was ‘not open to question’.[107]
Although the Tribunal noted that the question of whether such judicial intervention amounted to a substantive denial of justice is ‘immaterial,’ when deciding whether Ukraine breached the fair and equitable treatment standard, the Tribunal considered whether the judicial decisions were ‘manifestly unfair.’[108] The Tribunal concluded that the judgments and related events viewed in the aggregate were ‘certainly’ unfair[109] and amounted to ‘arbitrariness’.[110] Effectively, in Tatneft, the Tribunal applied the threshold for a substantive denial of justice[111] to find that Ukraine breached the FET standard but was unwilling to say that justice was denied to Tatneft.
Perhaps, the Tribunal was unwilling to recognise a substantive denial of justice because, in its view, ‘bad faith’ was required for judicial conduct to amount to a denial of justice, while no bad faith was required for the breach of the FET standard.[112] It was, therefore, easier for the Tribunal to find a violation of the FET standard by the courts, although it analysed the judicial conduct through the glasses of a substantive denial of justice by reviewing in Tatneft whether the judgments were ‘manifestly unjust’.
Summary
Ukraine prevailed against denial of justice claims in Krederi, Amto and GEA as delays in court proceedings were ‘not excessive’, may be explained by ‘procedural complexity’ of the bankruptcy proceedings (Amto v Ukraine), the Ukrainian government did not interfere in judicial decision making, and the shortcomings in judicial proceedings were ‘insignificant’ and did not breach the fundamental due process rights. Besides, judgments were not contrary to the general principles of law, such as res judicata (Bosh v Ukraine), no rule of public international law was misapplied by the courts of Ukraine, their judgments were not arbitrary, and the courts made no manifest errors in applying the municipal law of Ukraine. Therefore, the tribunals could not hold in these cases that there was ‘an outrageous failure of the judicial system,’ that justice was administered by the courts of Ukraine ‘in a seriously inadequate way,’ that ‘judgments were clearly improper or discreditable,’ or that judgments ‘offended a sense of judicial propriety’.
In contrast to Krederi, Amto and GEA, international courts and tribunals have held in investor-state and other cases that states are responsible for a denial of justice when:
- access to courts or adjudicatory process is denied;
- judicial proceedings are excessively delayed;
- judgments are not enforced by a state;
- judgments are dictated by the government;
- foreigners are denied fundamental due process rights due to gross deficiencies in the judicial process, such as corruption, discriminatory or unequal treatment, breach of essential defence rights (right to be heard, to examine incriminating evidence, etc);
- judicial discretion is abused, or judgments are arbitrary or unreasonable;
- judgments or judicial proceedings are contrary to the general principles of law (eg, good faith, pacta sunt servanda, proportionality, res judicata, and abuse of rights);
- courts fail to apply or make an error in applying a rule of public international law or apply a rule of municipal law contrary to any rule of international law; or
- courts make a manifest or gross error in applying a rule of municipal law that no competent and honest court (no court acting in good faith) could have made.
[1] Results of Ukraine Business Climate Survey: A Year of Lockdown by ACC in Ukraine and Citi Ukraine. https://chamber.ua/wp-content/uploads/2021/03/AmCham_CITI_survey_2021_EN_FINAL.pdf.
[2] The Western NIS Enterprise Fund case was settled, and in the Tatneft case, Ukraine lost on merits.
[3] Newcombe, Andrew. Law and Practice of Investment Treaties: Standards of Treatment Ebook (Kluwer Law International). Aspen Publishers (Wolters Kluwer Legal). Kindle Edition, section 6.5.
[4] Loewen Group, Inc and Raymond L Loewen v the United States of America, NAFTA/ICSID Case No. ARB(AF)/98/3, award dated 26 June 2003 (Loewen v United States or Loewen), section 129. In Loewen, the ICSID Tribunal agreed with the opinion of Professor Greenwood QC that ‘customary international law imposes on States an obligation “to maintain and make available to aliens, a fair and effective system of justice [in accordance with the minimum standard of treatment of aliens and the general principals of law recognised by civilized nations].”’
[5] Newcombe, Andrew. Law and Practice of Investment Treaties: Standards of Treatment Ebook, section 6.5: ‘Denial of justice can therefore arise from procedural irregularities in judicial proceedings, such as undue delays, lack of due process, failure to provide a fair hearing or the non-execution of a judgment [etc]. This is sometimes referred to as procedural denial of justice. (citations omitted).’
[6] Loewen v United States, award, section 132, where the ICSID Tribunal stated that a denial of justice may arise if there occurred ‘[m]anifest injustice in the sense of a lack of due process leading to an outcome [judgment] which offends a sense of judicial propriety.’ See also Barcelona Traction, Light and Power Co, Ltd (Belgium v Spain), 1970 I.C.J. 3, 144 (5 February 1970) (separate opinion given by judge Tanaka, J) (Barcelona Traction case):
“([D]enial of justice occurs in the case of such acts as – ‘corruption, threats, unwarrantable delay, flagrant abuse of judicial procedure, a judgment dictated by the executive [cases of procedural injustice], or so manifestly unjust [often referred to as substantive injustice] that no court which was both competent and honest [acting in good faith] could have given it, . . . But no merely erroneous or even unjust judgment of a court will constitute a denial of justice.’) (citations omitted).”
[7] In Denial of Justice in International Law, Cambridge, Cambridge University Press, 2005 (at 98), Jan Paulsson writes that, in his opinion, there is no substantive denial of justice in the sense that manifestly wrong or manifestly unjust court judgments shall be viewed as resulting from fundamental procedural irregularities and, therefore, their nature is always procedural:
“Denial of justice is always procedural. There may be extreme cases where the proof of the failed process is that the substance of a decision is so egregiously wrong that no honest [acting in good faith] or competent court could possibly have given it. Such cases would sanction the state’s failure to provide a decent system of justice. They do not constitute international appellate review of nat ional law.”
[8] Iberdrola Energía SA v The Republic of Guatemala, ICSID Case No. ARB/09/5, award dated 17 August 2012, section 432:
“. . . the Tribunal shares the position of the Claimant in that ‘. . . denial of justice is not a mere error in interpretation of local law [by national courts], but an error that no merely competent judge could have committed and that shows that a minimally adequate system of justice has not been provided.’”
[9] As observed by judge Tanaka, J in his separate opinion in the Barcelona Traction case:
“A judgment of a municipal court which gives rise to the responsibility of a State by a denial of justice does have an international character when, for instance, a court, having occasion to apply some rule of international law, gives an incorrect interpretation of that law or applies a rule of domestic law, which is itself contrary to international law (Brierly-Waldock, op. cit., p. 287).”
[10] Krederi Ltd v Ukraine, ICSID Case No. ARB/14/17, award dated 2 July 2018.
[11] Krederi v Ukraine, award, sections 542, 546, 547, 570, 601 and 630.
[12] Krederi v Ukraine, award, sections 2 and 433.
[13] Krederi v Ukraine, award, section 503–508.
[14] Krederi v Ukraine, award, sections 509–528, 552–558.
[15] Krederi v Ukraine, award, section 531.
[16] Krederi v Ukraine, award, section 535:
“535. Usually, denial of justice complaints concerning the length of judicial proceedings concern overly long proceedings; swift court action as such does not amount to a violation of due process . . .”
[17] Krederi v Ukraine, award, sections 536, 559–570.
[18] Krederi v Ukraine, award, sections 581–591.
[19] Krederi v Ukraine, award, section 581.
[20] Krederi v Ukraine, award, section 583.
[21] Krederi v Ukraine, award, section 584.
[22] Krederi v Ukraine, award, section 589.
[23] Krederi v Ukraine, award, section 590.
[24] Krederi v Ukraine, award, section 591.
[25] Loewen v United States, award, sections 207–217.
[26] Loewen v United States, award, section 54.
[27] Loewen v United States, award, section 241.
[28] Loewen v United States, award, section 54.
[29] Loewen v United States, award, sections 30–38.
[30] Loewen v United States, award, section 3.
[31] Loewen v United States, award, section 4.
[32] Loewen v United States, award, section 6.
[33] Loewen v United States, award, section 7.
[34] Loewen v United States, award, section 136.
[35] Loewen v United States, award, sections 56, 62, 68.
[36] Loewen v United States, award, sections 56, 68, 70, 100.
[37] Loewen v United States, award, section 137.
[38] Loewen v United States, award, section 122.
[39] Loewen v United States, award, section 113.
[40] Loewen v United States, award, section 119.
[41] Loewen v United States, award, section 137.
[42] Limited Liability Company Amto v Ukraine, SCC Case No. 080/2005, award dated 26 March 2008 (Amto v Ukraine).
[43] Amto v Ukraine, award, sections 78–79, 80, 83–84.
[44] Amto v Ukraine, award, section 27.
[45] Amto v Ukraine, award, section 78.
[46] Amto v Ukraine, award, section 79.
[47] Amto v Ukraine, award, section 83.
[48] Amto v Ukraine, award, section 84.
[49] Amto v Ukraine, award, section 80.
[50] Amto v Ukraine, award, section 84.
[51] Dan Cake SA v Hungary, ICSID Case No. ARB/12/9, award dated 24 August 2015 (Dan Cake v Hungary).
[52] Dan Cake v Hungary, award, section 146.
[53] Dan Cake v Hungary, award, section 41.
[54] Dan Cake v Hungary, award, section 45.
[55] Dan Cake v Hungary, award, section 45.
[56] Dan Cake v Hungary, award, sections 45, 49–50.
[57] Dan Cake v Hungary, award, section 54.
[58] Dan Cake v Hungary, award, section 55.
[59] Dan Cake v Hungary, award, sections 57–59.
[60] Dan Cake v Hungary, award, section 145.
[61] Dan Cake v Hungary, award, section 145.
[62] Dan Cake v Hungary, award, section 145.
[63] GEA Group Aktiengesellschaft v Ukraine, ICSID Case No. ARB/08/16, award dated 31 March 2011 (GEA v Ukraine). It is worth mentioning that after concluding that GEA was not an investor under the Germany–Ukraine BIT and the Tribunal did not have jurisdiction, the ICSID Tribunal considered GEA’s denial of justice claims on merits anyway and rejected them.
[64] GEA v Ukraine, award, section 319.
[65] GEA v Ukraine, award, section 269.
[66] GEA v Ukraine, award, section 314.
[67] GEA v Ukraine, award, sections 315–316. The agreement for repayment of debts was signed by only one representative of Oriana, while Ukrainian law then required that cross-border contracts to be valid shall be signed by at least two representatives of Ukrainian entities. GEA claimed that such a requirement was discriminatory, but the Tribunal rejected that argument.
[68] GEA v Ukraine, award, section 319.
[69] Regent Company v Ukraine, Application No. 773/03, ECtHR decision of 3 April 2008 (Regent Company v Ukraine).
[70] Regent Company v Ukraine, ECHR decision, sections 1, 9, 58.
[71] Regent Company v Ukraine, ECHR decision, section 59.
[72] Regent Company v Ukraine, ECHR decision, sections 59–60.
[73] Regent Company v Ukraine, ECHR decision, sections 66, 69.
[74] Western NIS Enterprise Fund v Ukraine, CSID Case No. ARB/04/2 (Western NIS Fund v Ukraine). ICSID registered the claims on 26 January 2004. The case was discontinued on 1 June 2006, after Western NIS Enterprise Fund and Ukrainian settled the dispute. ICSID website: https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/04/2.
[75] Bosh International, Inc (Germany) and B&P Ltd Foreign Investments Enterprise (Ukraine) v Ukraine, ICSID Case No. ARB/08/11, award dated 25 October 2012 (Bosh v Ukraine).
[76] Bosh v Ukraine, award, sections 276–277.
[77] Bosh v Ukraine, award, section 277. The Tribunal agreed with Bosh that res judicata is the general principle of law and, therefore, a source of public international law under article 38(1) of the ICJ Statute.
[78] Bosh v Ukraine, award, section 263.
[79] Bin Cheng. General Principles of Law as Applied by International Courts and Tribunals. Cambridge University Press. 2006 Paperback Edition, at 337–338.
[80] Bosh v Ukraine, award, section 281.
[81] Bosh v Ukraine, award, section 281.
[82] (1) Philip Morris Ukraine, Philip Morris Sales & Distribution v Antimonopoly Committee of Ukraine (Committee), Case No. 910/17723/19, Decision of the Supreme Court of Ukraine dated 10 August 2021 (Philip Morris v Committee). (2) JT International Ukraine and JT International Company Ukraine v Committee, Case No. 910/17623/19, Supreme Court Decision dated 10 August 2021 (JTI v Committee). [3] British American Tobacco Sales & Marketing Ukraine v Committee, Case No. 910/17929/19, Supreme Court Decision dated 15 April 2021, and AT Tobacco Company BAT-Pryluky v Committee, Case No. 910/17931/19, Supreme Court Decision of 23 June 2021 (BAT v Committee). [4] Imperial Tobacco Production Ukraine and Imperial Tobacco Ukraine v Committee, Case No. 910/17310/19, Supreme Court Decision of 1 June 2021 (Imperial v Committee). [5] Tedis Ukraine v Committee, Case No. 910/17891/19, Supreme Court Decision dated 2 February 2021.
[83] Committee’s Decision No. 697-p dated 10 October 2019 in the Tobacco cartel case.
[84] The Supreme Court observed in section 25 of its decision in JTI v Committee that materials in the previous cartel collusion case (Case No. 143-26.13/124-14), to which the tobacco producers were parties, does not contain any evidence of a cartel collusion, and that ‘it was not proper for [the Committee] to rely on its conclusions [and evidence] made in earlier abuse of dominance case No. 126-126.13/28-16, in which a party to the dispute [that is JTI] did not participate’. The Supreme Court further observed that the Committee ‘breached the [basic] principle of adversarial proceedings [including the right to be heard] and [JTI] was not able to object against the Committee’s conclusions [and against the incriminating evidence JTI was not able to examine].’ Therefore, the Supreme Court held that the Committee’s decision in the earlier cartel collusion case and abuse of dominance case did not have a binding ‘res judicata character’ and, therefore, that the Committee built its case on unacceptable evidence.
As a result of these fundamental breaches of due process by the Committee in investigating the cartel collusion case, the Supreme Court held that Committee’s Decision No. 697-p to impose a 6.5 billion hryvni fine on the tobacco manufacturers (JTI, BAT, Philip Morris, and Imperial) and Tedis Ukraine was not based on proper evidence and was ungrounded. The Supreme Court revoked the Committee’s Decision No. 697-p and the fines imposed by that decision. See Supreme Court Decision in JTI v Committee Case, section 28. The Supreme Court decided identically in Imperial v Committee, BAT v Committee and Philip Morris v Committee.
[85] One of the effects of the res judicata principle both under the Ukrainian law (eg, article 75.4 of the Commercial Procedure Code of Ukraine) and international law, as observed by the Mixed Commission in the Orinoco case (Company General of the Orinoco case, Opinion of Umpire of 31 July 1905, 276) that any ‘fact distinctly put in issue and directly determined by a court of competent jurisdiction . . . cannot be disputed’ and that such facts do not require to be proven again in future judicial proceedings between the same parties. The res judicata principle and other fundamental principles of procedural fairness, including the right to be heard and rights of defence, attach not only to judicial proceedings before courts or tribunals but also to cartel investigations and proceedings before the Antimonopoly Committee of Ukraine, as expressly recognised by Ukraine in article 255 of the EU–Ukraine Association Agreement. See Newcombe, Andrew. Law and Practice of Investment Treaties: Standards of Treatment Ebook, section 6.7 that under customary international law, states have an obligation to accord the basic principles of due process in any administrative and execution proceedings.
[86] Committee’s Decision No. 608-p dated 9 December 2014, in cartel collusion case No. 143-26.13/124-14, where the Committee investigated cartel collusion between the tobacco manufacturers (Philip Morris, JTI, BAT, and Imperial) and Tedis Ukraine. By Decision No. 608-p, the Committee terminated investigation proceedings finding no evidence of the cartel collusion.
[87] Committee’s Decision No. 551-p of 16 December 2016, in abuse of dominance case No. 126-126.13/28-16 against Tedis Ukraine. By Decision No. 551-p, the Committee levied a 429 million hryvni fine on Tedis Ukraine for abuse of monopoly on the wholesale cigarettes market by charging excessive prices to retailers and other wholesalers buying cigarettes from Tedis Ukraine.
[88] These fundamental principles of due process (fair proceedings) are derived from and are an essential part of the general principles of law recognised by civilised nations, including Ukraine. They are also a part of the minimum standard of treatment of aliens under customary international law. The general principles of law and the minimum standard of treatment under customary law are sources of international law. See Kotuby, Jr, Charles T. General Principles of Law and International Due Process (Cile Studies). Oxford University Press. Kindle Edition. Chapter 1, Section B (The Origin and Evolution of International Due Process). Newcombe, Andrew. Law and Practice of Investment Treaties: Standards of Treatment Ebook, section 6.7. Under article 38(1) of the ICJ Statute, the rules of international law include international custom and the general principles of law recognised by civilised nations.
[89] ‘To Offer a Smoke. What Avakov [ex-Minister of Internal Affairs of Ukraine] and Lutsenko [ex-Attorney General] Searched at Tobacco Monopoly [Tedis Ukraine].’ By Yanina Kornienko, Fedir Popadyuk. Economy Pravda. 1 April 2017. Avakov and Lutsenko v Terentyev [ex-Head of Antimonopoly Committee of Ukraine]. Our Money. 1 December 2017.
[90] The Committee has wide discretion in imposing fines for cartel infringements, but it may not exercise its discretion arbitrarily without explaining how the Committee determined amounts of such fines and what factors affected its decision to impose higher or lower amounts against cartel members in like circumstances. Such an arbitrary abuse of powers by the Committee is not in line with procedural fairness and the rule of law. As observed by the ICJ in the Elettronica Sicula SpA (ELSI) case, USA v Italy (1989) (judgment dated 20 July 1989):
“arbitrariness is not so much something opposed to a rule of law, as something opposed to the rule of law. This idea was expressed by the Court in the Asylum case, when it spoke of ‘arbitrary action’ being ‘substituted for the rule of law’ (Asylum Judgment, ICJ Reports of 1950, at 284). It is a wilful disregard of due process of law, an act which shock, or at least surprises, a sense of judicial propriety.”
[91] It is worth comparing the Tobacco cartel case with the EU court practice on this issue. For example, the EU General Court in Stuhrk Delikatessen v Commission (judgment, 13 July 2018, Case T-58/14) annulled the €1.13 million fine imposed on Stuhrk as the Commission did not explain in its decision how the fine was determined. In that case, the Commission applied different reduction rates to the basic amount of fines to Stuhrk and other cartel members but failed to state clear reasons for different rates. The General Court held that the lack of clear reasons violated Stuhrk’s right to be able to effectively challenge the fine on the basis of the principle of equal treatment. The General Court annulled the fine against Stuhrk on the ground of insufficiency of reasons. Judgment, 13 July 2018. Sections 296, 327, 332 and 334.
In another recent case (HSBC Holdings plc v Commission, judgment, 24 September 2019, Case T-105/17), the EU General Court annulled a €33.6 million fine imposed by the European Commission on HSBC for colluding with other financial institutions to manipulate prices (Euribor rates) on the EU futures market. The General Court annulled this fine because the Commission failed to state sufficient reasons for the 98.849 per cent reduction factor applied to arrive at the €33.6 million fine levied on HSBC. Judgment, 24 September 2019. Sections 330–354.
[92] Committee’s Decision No. 697-p dated 10 October 2019, in the Tobacco cartel case, section 137.
[93] When, in 2018, the Committee finally decided to revoke its 10-year non-compete consents granted earlier to Tedis Ukraine, it admitted (Committee’s Decision No. 641-p of 20 November 2018):
“[that] the concerted actions [entering by Tedis Ukraine into 10-years non-compete agreements], for which the Committee granted its consents by Decisions No. 701-p, 702-p, 703-p, and 704-p, of November 23, 2011, established permanent and lasting (until November 23, 2021) barriers for any prospective competitors [of Tedis Ukraine] to enter the monopolized [tobacco products wholesale] market, and these [market-entrance] barriers [created by Committee] continue to exist [presently].”
[94] International tobacco companies intend to defend their rights in international arbitrations. EBA’s Press Release dated 6 August 2020: https://eba.com.ua/en/mizhnarodni-tyutyunovi-kompaniyi-mayut-namir-zahyshhaty-svoyi-prava-v-mizhnarodnomu-arbitrazhi/.
According to a public statement made by Mr Rastislav Chernak, Imperial’s CEO in Ukraine, concerning arbitrary decisions of the Ukrainian courts in the Tobacco cartel collusion case: ‘Ukrainian jurisprudence is a great disappointment for us and all international investors in Ukraine. If international companies do not receive protection of their interests from Ukraine’s judicial system, they will be forced to turn to international arbitration against Ukraine.’
[95] Philip Morris International Inc and others v Ukraine (ICSID Case No. ARB/21/3). ICSID website: https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/21/3.
[96] OAO Tatneft v Ukraine, PCA Case No. 2008-8, award on merits of 29 July 2014 (Tatneft v Ukraine).
[97] Tatneft v Ukraine, award on merits, section 351.
[98] Tatneft v Ukraine, award on merits, sections 412–413.
[99] Tatneft v Ukraine, award on merits, section 642.
[100] Tatneft v Ukraine, award on merits, section 372.
[101] Tatneft v Ukraine, award on merits, section 99, 373.
[102] Tatneft v Ukraine, award on merits, section 351.
[103] Tatneft v Ukraine, award on merits, section 391.
[104] Tatneft v Ukraine, award on merits, section 352.
[105] Tatneft v Ukraine, award on merits, section 391.
[106] Tatneft v Ukraine, award on merits, section 404.
[107] Tatneft v Ukraine, award on merits, section 403.
[108] Tatneft v Ukraine, award on merits, section 405.
[109] Tatneft v Ukraine, award on merits, section 405.
[110] Tatneft v Ukraine, award on merits, section 413. As observed by the ICJ in the ELSI and Asylum cases, ‘arbitrary action’ is ‘something opposed to the rule of law’ and ‘it is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.’
[111] Substantive denial of justice may occur when a judgment is ‘so manifestly unjust that no court which was both competent and honest [acting in good faith] could have given it.’ For a more detailed discussion, see the ‘Denial of justice explained in a nutshell’ section, above.
[112] Tatneft v Ukraine, award on merits, section 411. As observed by Judge Tanaka in Barcelona Traction, although ‘erroneous or unjust decisions of a court, in general, must be excluded from the concept of a denial of justice,’ when a judgment is so ‘manifestly’ unjust or wrong that ‘no court which was both competent and honest [acting in good faith] could have given it,’ such judgment serves as clear evidence that the courts either acted in bad faith or were incompetent. Manifestly unjust decisions of national courts are incompatible with the rule of law, the general principles of law, and the obligations of each state under the rules of customary international law to ensure the fair and effective administration of justice to aliens.
