Ukraine: USPA Fails To Hire Arbitration Counsel

Last Updated: 11 July 2019
Article by Ihor Kravtsov and Serhiy Yaroshenko

As Investment Arbitration Is On the Rise, Ukrainian Sea Ports Authority Fails to Hire Counsel. Does this mean any good?

Despite turbulent times ever since Crimea annexation by Russia in 2014, Ukraine has proved legally strong. By seeking justice, Ukrainian entities have initiated a dozen of investment arbitrations valued over USD 10 billion against Russia and claimed damages for their unlawfully expropriated investments. Practically half of those have been decided in investors' favour, with the remaining cases pending. This latest pro-investor jurisprudence has raised client's interest in arbitration and boosted lawyers' confidence in the emergence of sophisticated disputes.

Boasting an extensive arbitration practice, we at EVRIS had decided to use the arisen opportunity and bid through a public tender as an arbitration counsel for a potential applicant, the Ukrainian Sea Ports Authority (USPA). However, having encountered a number of discriminatory terms that a bidder was required to comply with to participate in the tender, this opportunity seemed far less feasible. So, below we are sharing how exactly USPA has failed to engage an arbitration counsel, and how EVRIS succeeded.

USPA has strategic value for Ukraine as it, among others, manages state property in Ukrainian seaports and raises investments into port infrastructure. Its lost investments in Crimea are currently estimated at USD 40-50 million, which justifies the need for arbitration. To remedy its investor rights, USPA announced a public tender seeking legal services for drafting a notice of arbitration to the Russian Federation under Ukraine-Russia Bilateral Investment Treaty (BIT) to trigger the cooling-off period.

To our surprise however, USPA's tender terms appeared so stringent that merely a single law firm applied. This resulted in the firm's withdrawal from the list of tender participants and eventually, termination of the tender.

As a tender bidder, we at EVRIS disagreed with some of the terms considering those unreasonable, discriminatory and as such affecting fair competition, and appealed. The appeal procedure encompassed submission of a written complaint with the Antimonopoly Committee of Ukraine (AMCU) and participation in a series of subsequent hearings. EVRIS' complaint was partially satisfied unlike of LALIVE's who acted as the only other law firm appealing the tender terms.

The first condition that we at EVRIS deemed discriminatory was the "similar/analogous agreement" requirement. It provided that a bidder had a representative experience of drafting an arbitration notice specifically to the Russian Federation government under the effective BIT. Any personality of the respondent otherwise in investment arbitration representations would not qualify.

The second discriminatory condition required that a bidder would have operated in the market as the same legal entity for at least 20 years. This neither seemed relevant in view of the many corporate reorganisations that have taken place in the past decade.

The third discriminatory condition envisaged that a bidder would prove its successful representation of Ukraine before other arbitral tribunals. Representation of other sovereigns would not qualify.

All of the above has evidenced the lack of tender framework that would have attracted many competent counsels. Following its review of a written complaint and a series of hearings where EVRIS lawyers argued in favour of deleting the discriminatory terms and incentivising the tender competition, AMCU partly granted EVRIS' complaint.

It seemed that EVRIS was rightful in pursuing the appeal. Essentially, the tender terms were so unreasonable that hypothesisingly only a couple of law firms worldwide would be eligible to apply and yet they did not do so. As a result, only a single firm placed its bid, and, thus, the tender was terminated.

At the end of the day, the tender failed due to imprudence of USPA, which narrowed the number of potential counsels by a few firms. Because of its unreasonably stringent conditions, USPA has not only been losing time to arbitrate but also must have incurred costs in connection with the tender preparation that failed due to its imprudent approach, as well as has failed to gain profit on an award in successful arbitration that has not been commenced yet.

Regardless, for the next tender, we at EVRIS recommend provisioning more service provider-oriented terms that would enable involvement of many counsels in the tender. This would promote competition among the bidding counsels and ensure top-level conditions for the state, which ultimately should contribute to the success of arbitration. We also remain optimistic about the potential investment arbitration opportunities that currently Ukraine has to offer and look forward to positive developments with AMCU.

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.

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