“Naftogaz issues a bill: Russian property in Austria goes under the hammer
4 August 19:07
The Naftogaz of Ukraine Group has received permission from an Austrian court in Vienna to enforce an arbitration award in a case against the Russian Federation over the expropriation of assets in Crimea. This is the so-called “Crimean decision”, according to which the tribunal ordered Russia to pay Naftogaz more than $5 billion in 2023, [Komersant ] reports, citing the group’s chairman of the board, Sergiy Koretsky.
The court in Vienna allowed the encumbrance of more than 20 real estate properties owned by the Russian Federation or affiliated structures (organizations or individuals that are interconnected in a certain way that allows them to influence each other, especially in financial and commercial matters – ed.) These assets are estimated at more than EUR 120 million. They are planned to be put up for auction. The proceeds from the auction will be used to enforce the arbitration award. The company emphasizes that similar legal actions have already been initiated in a number of other countries where Russian assets have been found.
History of the dispute: from annexation to arbitration
Naftogaz initiated the arbitration proceedings in October 2016. The reason was that official Moscow violated the provisions of the bilateral agreement between Ukraine and Russia on mutual protection of investments. According to the company, after the annexation of Crimea, its assets were illegally seized without any compensation.
The list of expropriated property included:
- special permits for subsoil use;
- infrastructure for gas production, transportation and storage;
- equipment and shares in gas pipelines;
- over 675 million cubic meters of natural gas in underground storage facilities.
Naftogaz was a leading player in the natural gas market in the region until 2014. Its activities covered all parts of the gas cycle: from exploration to distribution to end consumers.
Arbitration award: over $5 billion in compensation
on April 12, 2023, the arbitral tribunal established under the auspices of the Permanent Court of Arbitration (PCA) in The Hague issued the Final Award in the case. The tribunal was composed of Judge Ian Binney (Canada), Dr. Charles Ponce (Switzerland) and Dr. Mai Stanivukovic (Serbia).
The tribunal found the Russian Federation responsible for the expropriation of Naftogaz Group’s property and ordered it to pay the company more than USD 5 billion. This decision was the largest compensation award among all claims filed by Ukrainian companies against Russia for losses incurred as a result of the occupation of Crimea.
Judicial victory in the Netherlands
An intermediate step on the way to the final award was a partial decision of the tribunal, which confirmed the jurisdiction of the arbitrators to consider the case and recognized the responsibility of the Russian Federation.
In 2024, the Supreme Court of the Netherlands considered the Russian side’s cassation appeal against this partial award. The appeal was dismissed and the arbitral award was upheld. This significantly strengthened Naftogaz’s position at the international level and provided a legal basis for initiating the enforcement procedure.
Read also: Naftogaz defeated Gazprom in Switzerland: what is known about the $1.37 billion arbitration
Russia refuses to pay, and Naftogaz has launched an asset recovery campaign
Despite the final arbitration award and the dismissal of the Russian complaint by the highest court in the Netherlands, the Russian side has not paid Naftogaz the compensation awarded. In response, the company has initiated an international legal campaign to enforce the award in jurisdictions where assets of the Russian Federation or its affiliates can be identified and seized.
This is another practical step towards recovering more than $5 billion from Russia for the illegally seized assets of Naftogaz Group in Crimea. Similar actions are underway in other jurisdictions. Russia will pay for everything. Sooner or later. It will,” commented Sergiy Koretsky, Chairman of the Board of Naftogaz of Ukraine Sergiy Koretsky, Chairman of the Board of Naftogaz of Ukraine.
International support of the case
The successful progress of the case was made possible by the coordination of legal teams in different jurisdictions. Naftogaz’s interests in Austria are represented by the local law firm DORDA. Partner Alexander Karl and general counsel Robert Keimelmayr are working on the case with the support of Theresa Stingle.
Internationally, Covington & Burling is representing the company in the arbitration process and the subsequent collection campaign. The team consists of David Pinsky, Clovis Trevino, Paris Aboro and Dean Acheson.
Is it realistic to recover the full amount of damages from the Russian side?
Despite the legal success, the process of collecting compensation from the Russian Federation may be delayed. Russia does not recognize arbitration awards in cases related to the annexation of Crimea and actively avoids enforcement of court decisions in international jurisdictions. However, Naftogaz continues to identify and initiate the seizure of assets located in the legal field of countries that recognize the arbitral award as binding.
Experts note that the Naftogaz case is a precedent for all Ukrainian companies that have lost business in Crimea. It may become an important marker of the effectiveness of international justice in cases related to war crimes and violations of international agreements.
The decision of the court in Vienna was another signal of the legal irreversibility of the consequences of the expropriation of Ukrainian assets in Crimea. The forced sale of Russian real estate in Austria is only the beginning of a process that aims not only to restore justice but also to create a real mechanism of economic pressure on the aggressor state.
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