ICSID Review – Foreign Investment Law Journal Blog Series

Based on the note 'The Applicability of Investment Treaties in the Context of Russia’s Aggression against Ukraine'

By Tobias Ackermann & Sebastian Wuschka


In February 2022, Russia dramatically escalated its conflict with Ukraine by commencing a large-scale invasion. At the time of writing, the fighting continues with the frontlines shifting constantly. The unlawfulness of Russia’s acts of aggression and declared annexations of further parts of Ukrainian territory is a clear-cut issue. Regrettably, the war is being waged as it was started: There is evidence of egregious violations of international humanitarian law and the commission of war crimes. Equally, Russia’s war of aggression causes severe damage to Ukrainian infrastructure and other sectors into which foreign investment usually flows. This post and the ICSID Review Note on which it is based shed light on the possibility to seek redress through investor-State arbitration.

Continued Application of Investment Treaties during Armed Conflict

Several Ukrainian investors have successfully relied on the 1998 Russia–Ukraine BIT to seek compensation for losses suffered after Russia’s annexation of Crimea. Similar claims may be brought in the context of the Russian invasion, as a notice of dispute by Ukraine’s Energoatom shows. Beyond that, Russia has concluded many other investment treaties, including with countries from which substantial foreign direct investment flows to Ukraine (on the Russian treaty model and in particular limitations with respect to the consent to arbitration, see Rubins and Nazarov, pp. 102-106). For investments made prior to Russia’s formal termination of the Energy Charter Treaty’s provisional application in 2009, claims may arguably also still be brought under the survival clause contained in its Article 45(3)(b).

Historically, the outbreak of war may have automatically abrogated most treaty relations between belligerents. Today, after the outlawry of war, a presumption of continuity has replaced this rule of treaty termination. While the International Law Commission has proposed further rules on the matter, investment treaties generally remain in operation also under the ILC’s Draft Articles on the Effects of Armed Conflicts on Treaties. Their continuing operation is based on the notion that they are designed to provide stable protection to foreign investors and their investments regardless of diplomatic and political quarrels. The inclusion of provisions that specifically address issues of armed conflict in many investment treaties further indicates that State parties have intended them to continue to apply in this context.

The Territorial Scope of Investment Treaties

The territorial scope of application of investment treaties is more difficult to identify in case of armed conflict. Although this aspect usually is a non-issue in arbitral proceedings, already Russia’s annexation of Crimea and the subsequent investment cases have brought about change. All of these cases raised the question whether the 1998 BIT could apply to Russia’s actions on the Crimean Peninsula, which de jure remains part of Ukraine but is effectively controlled by Russia. A second question raised by these cases was whether the BIT could apply to what essentially had been domestic investments made and held by Ukrainian investors prior to the annexation. These questions have generally been answered affirmatively both by the relevant tribunals (see as an example Privatbank and Finilon v. Russia, Interim Award of 27 March 2017) as well as Dutch (see here, here and here), French and Swiss courts during set-aside proceedings.

Beyond Crimea - Russia’s Investment Treaty Obligations and the Current War of Aggression

Extending this reasoning beyond Crimea to the current circumstances in other areas of Ukraine brings to light additional hurdles: Russia had effective control over Crimea, and it intended to maintain that control indefinitely and incorporate Crimea into the Russian Federation. This intent has not been clearly expressed with respect to all areas of Ukraine that Russia controls at the time of writing. Conversely, while such intention exists for the Donzek Peoples Republic, the Luhansk Peoples Republic and the Kherson and Zaporizhzhia regions, Russia’s control over them is neither complete nor uncontested. The constant changes in control over parts of Ukraine and the ongoing fighting, therefore, make it difficult to assess all aspects of the case in a general manner. Much depends on the circumstances of the individual case.

However, on the legal level, the Crimea decisions show that investment treaties may indeed apply beyond a State’s own de jure territory and reach foreign soil under its effective control. Where the boundaries of this case-law remain unsettled, the law of occupation could provide helpful guidance, as it offers a benchmark of what is considered effective control over foreign territory. Relying on these rules of international humanitarian law also helps to clarify that the determination of effective control remains a purely fact-based question. Whether Russia formally ‘incorporates’ certain territories and draws imaginary borders is irrelevant. What matters for the application of the law of occupation and should equally guide investment tribunals is whether a State exercises actual authority.

The details of this assessment involve intricate factual inquiries. Next to establishing the concrete damage caused to their investment, investors may need to present evidence as to the precise circumstances during which it occurred – that is, whether and for how long the territory their investment was controlled by Russia at the relevant time. Investors are well-advised to secure such evidence permanently, given that establishing a record of events during war at a later stage is in many cases an impossible exercise. Arguably, investors may still file such a claim against Russia, even if it has already lost control over the territory in question or loses it at a later stage of the conflict. If they further help to hold Russia accountable for the horrors it has caused, this can only be welcomed.

About the authors: Tobias Ackermann is an Associate at BLOMSTEIN Partnerschaft von Rechtsanwälten mbB, Berlin, Germany. Sebastian Wuschka is Of Counsel, Practice Group Complex Disputes, Luther Rechtsanwaltsgesellschaft mbH, Hamburg, Germany; Research Fellow, University of Lausanne, Switzerland; Associated Member, Institute for International Law of Peace and Armed Conflict (IFHV), Ruhr-University Bochum, Germany. Email: sebastian.wuschka@luther-lawfirm.com.

The opinions expressed in this blog are those of the author. They do not purport to reflect the opinions or views of ICSID.