UK: Investment Treaty Protections for Charterparty Operations

Inmaris Perestroika Sailing Maritime Services GMBH and Others v Ukraine

Bilateral Investment Treaties (BITs) are treaties between two countries which protect investments made by nationals (including companies) from one country in another country. BITs protect foreign investors from government action which affects the value of their investments. They also establish a framework for the resolution of disputes between a foreign investor and the host country. Disputes are resolved through arbitration, usually administered under the Rules of the International Centre for Settlement of Investment Disputes (ICSID) (which is part of the World Bank) or on an ad hoc basis, pursuant to the United Nationals Commission on International Trade Law (UNCITRAL) Arbitration Rules.

Unlike commercial arbitration, which is pursuant to a contractual relationship between two parties and which includes an agreement to arbitrate, BIT claims are based on rights conferred on the foreign investor by a treaty between the host country and the country of the foreign investor. BITs have been used successfully to protect against egregious forms of government action, such as confiscation and expropriation of private property owned by foreign investors. A recent decision has highlighted the flexibility and scope of BITs in protecting against government action which affects rights under charter agreements.

Background facts

The dispute involved the Khersones, a three-mast fully-rigged windjammer, owned by a Ukrainian state-owned education institution. Pursuant to an agreement in 1996, Inmaris operated the Khersones on behalf of Ukraine. For several weeks a year, the vessel was used for the education of cadets for Ukraine's national fishery fleet. For the remainder of the year, the vessel was operated by Inmaris for recreational tourism and marketing purposes. Inmaris was responsible for all operational costs, and kept the income from the tourism and marketing activities.

In 1999, the Parties agreed that the Khersones should be renovated and repaired and various options for financing the renovations were considered. The Parties eventually agreed that the vessel would be renovated using funds raised by a German ship investment fund. Inmaris made a one-time payment of DM 1,100,000 which was used to pay for the renovations. In return Inmaris received the right to operate the vessel under a bareboat charter contract. Various sub-charter and agency contracts between four Inmaris companies were also entered into for the purposes of operating the vessel. The Khersones continued to provide cadet training, and continued to be operated for tourism and marketing purposes.

After the March 2005 "Orange Revolution", Ukraine demanded additional payments. Inmaris refused and in April 2006 the Khersones was prohibited from leaving the territorial waters of Ukraine.

The various Inmaris companies brought an action against Ukraine under the Germany-Ukraine BIT which requires arbitration under the ICSID Convention. An arbitration tribunal was constituted. In order to avoid arbitration of the BIT claims, Ukraine objected to the Tribunal's jurisdiction. Ukraine's main argument was that there was no "investment" within the meaning of the BIT (The decision is available here).

Operations under a charter agreement may be an "investment"

BITs protect only "investments", which are defined broadly to include land and tangible assets, as well as intellectual property and shareholdings. Under most BITs, including the Germany-Ukraine BIT, contractual rights, such as "claims to money" or "claims to performance having an economic value", may also constitute "investments" which will be afforded BIT-protection.

Ukraine argued that Inmaris had no "claim to performance" because the bareboat charter contract was "fictitious", in the sense that it did not create any legal rights or obligations between the Parties. The Tribunal rejected this argument because although there was no dramatic change in the operation of the vessel after the 1999 bareboat charter contract, the agreement did create legal rights and obligations including Inmaris' payment of the renovation costs and rights as charterer.

Ukraine argued that even if Inmaris had contractual rights under the bareboat charter contract, Inmaris' "claims to performance" were not "investments" but merely ordinary commercial transactions. Whether or not contractual rights can be said to be "investments" depends on the facts of each case. Broadly speaking, "investments" are usually commercial operations involving the risk of profit or loss over a period of time and which are of some significance to the host state's economy.

Ukraine attempted to strengthen its argument by taking the position that the contractual rights of each Inmaris company had to be analysed individually and separately. The Tribunal, however, concluded that a BIT claim can be based on a group of integrated contracts which collectively constitute an "investment". The fact that the arbitration proceedings were brought by the various Inmaris companies jointly was important because it allowed the Tribunal to analyse Inmaris' operations as a whole, rather than looking at the role that each Inmaris company played and whether that limited role could be an "investment". The Tribunal's commonsense approach allows companies to structure their corporate affairs as they wish, in particular, the operation of vessels pursuant to a charterparty, without losing the protections afforded by BITs. It ensures also that BIT protections are matters of substance rather than form, so long as all corporate entities are involved as claimants.

The Tribunal concluded that Inmaris' operation of the vessel constituted an "investment" under the Germany-Ukraine BIT. In this case, the charterparty was for a period of years, for the purpose of carrying on tourism and marketing operations for profit and involved the renovation of a state-owned vessel which provided training to state cadets.

Protection of returns

As a consequence of the operations under the bareboat charter contract being an "investment", the Tribunal considered whether the various rights to payments from one Inmaris company to another Inmaris company (i.e. intra-Inmaris payments) were protected under the BIT. Such payments (which included sub-charter payments, agency fees and shares of revenue from tourism and marketing activities) were disrupted when Ukraine prevented the Khersones from leaving its territorial waters.

The Tribunal noted that a protocol to the Germany-Ukraine BIT protected returns from investment equally as investment themselves. The intra-Inmaris payments, such as sub-charter payments and agency fees, relating to the operation of the vessel under the bareboat charter contract were therefore also protected.

Having concluded that there is an "investment" and that it has jurisdiction, the Tribunal will now proceed to consider Inmaris' BIT claim on the merits, including whether Ukraine breached its obligations under the Germany-Ukraine BIT to Inmaris as a foreign investor.

BIT protection of foreign investor rights

There are close to 3000 BITs in the world today which collectively provide extensive protections to foreign investors against government action. BITs usually protect against foreign governments breaching their contractual obligations to a foreign investor. BITs protect also against government action which adversely affects property rights, private contractual relationships and commercial operations of foreign investors. The possibility of a BIT claim should be considered whenever there is a dispute with a foreign government or where foreign government action disrupts rights to operate a business or assets.

Holman Fenwick Willan has one of the largest international dispute resolution practices of its kind, with strength in court, arbitration and alternative dispute resolution.

We have the expertise and international reach to handle the most complex of disputes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.