The State of Ukraine has ended up as the losing party in investment arbitration for the second time in less than 6 months. In Joseph C. Lemire v. Ukraine (ICSID Case No. ARB/06/18), an investment arbitration under the Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (Institution Rules) of the International Centre for Settlement of Investment Disputes (the "ICSID"), an arbitral tribunal found for a US investor (the "Claimant"). The final award was issued by the tribunal on 28 March 2011 (the "Award"), ordering Ukraine (the "Respondent") to pay USD 8,7 million in compensation for the breach of the United States-Ukraine Bilateral Investment Treaty (the "BIT"), and USD 750,000 to compensate the reasonably incurred legal fees of the Claimant.

The breach of the BIT had been established in an earlier Decision on jurisdiction and liability of 14 January 2010 and the Award has subsequently served to determine the quantum of damages to be paid to the Claimant.

Background:

The Claimant is the owner of a radio station GalaRadio, which broadcasts in Ukraine. The dispute arose after over 200 of GalaRadio's applications to obtain licences for radio frequencies over the period of six years were unsuccessful. Despite all its efforts, Gala Radio had only been able to secure one licence to broadcast in a small village in rural Ukraine. Gala's competitors were much more successful in their applications ,with each competitor having received on average between 38 and 56 frequencies.

This case stems from the previous ICSID case involving the same parties which was amicably settled back in 2000 and the terms of the settlement agreement were embodied in an arbitral award. However, in 2006, the Claimant launched yet another investment arbitration claim, this time alleging that the Respondent had breached the terms of the 2000 settlement agreement as well as certain BIT provisions.

Ruling:

The tribunal held that the Respondent did not in fact breach any obligations assumed in the settlement agreement, but nevertheless found the Respondent liable for a breach of Article II.3 of the BIT, i.e. the 'fair and equitable treatment' provisions. The tribunal held that it was the manner in which the Respondent had dealt with the award of radio frequencies that had violated the fair and equitable treatment standard. In particular, the tribunal found that a number of decisions of the Ukrainian National Council for Television and Radio Broadcasting awarding radio frequencies were arbitrary and/or discriminatory and failed to meet the fair and equitable treatment standard provided for in the BIT.

This case is Ukraine's second loss in the ICSID. To date, Ukraine has been involved in 11 investment arbitrations and has lost only twice. The first defeat came with a final award in Alpha Projektholding GmbH v. Ukraine (ICSID Case No. ARB/07/16), rendered on 8 November 2010 and in which the tribunal ordered Ukraine to pay over USD 5 million to an Austrian investor for expropriation of rights and interest under joint activity agreements, as well as for the denial of fair and equitable treatment under the BIT.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 26/04/2011.