• Olexander Droug

    Partner, Sayenko Kharenko

    Olexander specialises in dispute resolution and restructuring, with a focus on international arbitration and cross-border commercial litigation. His experience includes advising local and foreign clients at all stages of complex multi-jurisdictional proceedings, as well as commercial and investment arbitration under the arbitration rules of all major arbitration institutions and ad hoc arbitration rules. Mr Droug also advises clients on obtaining and implementing interim relief, as well as on recognition and enforcement in Ukraine of arbitral awards and foreign court judgments.

  • Alina Danyleiko

    Associate, Sayenko Kharenko

    Alina has represented multinational clients in arbitration proceedings under NAI, SCC and LCIA Arbitration Rules in such industries as energy and natural resources, public sector and IT. Ms Danyleiko has also been involved in Ukrainian court proceedings on product liability matters, as well as on recognition and enforcement of foreign arbitral awards in Ukraine.

Sayenko Kharenko

Address: 10 Muzeyny Provulok, Kyiv, 01001, Ukraine

Tel.: +380 44 499 6000, 389 5000

Fax: +380 44 499 6250

E-mail: info@sk.ua

Web-site. www.sk.ua

Sayenko Kharenko is one of Ukraine’s largest law firms, offering comprehensive support in all major sectors of economy. In order to manage the rapidly evolving Ukrainian legal and business environment, the firm embraces innovation through new products, out-of-the-box thin­king and creative solutions. The emphasis on innovation brings services that enable the firm’s clients to excel in what they do. Sayenko Kharenko has been recognized over 100 times as No. 1 law firm in key practice areas and named “Best Law Firm in Ukraine” more than 30 times by the most prestigious ­professional excellence awards.

Sayenko Kharenko has provided legal services to over 1,200 clients from more than 60 countries around the globe, and recognizes that every single client has unique business needs. The firm tailors its services to best fit the individual profile of each and every client.


New Approach to State Immunity in Ukraine

Enforcement of investment treaty arbitral awards in Ukraine has taken a new turn. On 25 January 2019, the Supreme Court granted enforcement of an investment treaty arbitral award against the Russian Federation (the Everest Award) rendered on the basis of the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine On Encouragement and Mutual Protection of Investment of 28 November 1998 (the BIT) in the Everest Estate LLC et al. v. The Russian Federation case.

In this case, the Supreme Court stripped the Russian Federation of its state immunity on the basis that the Russian Federation entered into the BIT, which constitutes a waiver of immunity in accordance with the case law of the European Court of Human Rights (ECHR) and customary international law.

Below we analyse the preconditions, reasoning and consequences of this decision by the Supreme Court on enforcement of investment treaty arbitral awards in Ukraine and against Ukraine.

Ukrainian Law and the Supreme Court Findings on State Immunity

In Ukraine, any court action against a foreign state or its property is barred by the rule of state immunity, which includes: (a) immunity from a suit; (b) immunity from interim relief; (c) immunity from enforcement of a court judgment in the territory of Ukraine.

This rule is set out in Article 79 of Law of Ukraine On Private International Law No 2709-IV and provides that a Ukrainian court shall not institute a court action against a foreign state or its property unless such foreign state expressly gives its consent to the respective action. Ukrainian legal doctrine calls this approach absolute immunity.

Ukrainian courts have previously followed the absolute immunity approach. For example, the Ukrainian company LLC Energoalliance sought enforcement in Ukraine of an ad hoc investment treaty arbitral award rendered against the Republic of Moldova in the Energoalliance v. Republic of Moldova case. The case did not commence on the grounds that LLC Energoalliance “failed to provide consent of a competent body of the Republic of Moldova to consider an [enforcement application] against it by a court of Ukraine”.

In Everest enforcement proceedings Russia did not participate, but sent two letters to Ukrainian courts. Russia  declared that it is “a sovereign state, its property and assets located in Ukraine are immune from jurisdiction of courts and other state organs of Ukraine on the basis of Article 5 of the United National Convention on Jurisdictional Immunities of States and Their Property (2004)” (the UN Convention).

On 25 September 2018, the first instance court granted enforcement of the Everest Award, but did not mention the state immunity rule.

The Supreme Court decided to revisit the issue of state immunity. In its resolution of 25 January 2019, the Supreme Court concluded that “by entering [the BIT] which provides for obligations to recognize the finality and binding effect of an arbitral award rendered in any dispute arising from [the BIT], the Russia Federation ipso facto waived all its jurisdictional immunities”.

The Supreme Court reached this conclusion on the basis that the concept of restrictive immunity applies in Ukraine in accordance with “customary international law and taking into account the ECHR judgment in the Oleynikov v. Russia case”.

The so-called restrictive immunity concept (which means that a state cannot rely on immunity if it engages in a commercial transaction or similar act of private law) is not part of Ukrainian law and is mutually exclusive with the absolute immunity approach.

Application in Ukraine of the Rules of Customary International Law through ECHR Judgments

The conclusion of the Supreme Court that Russia had waived its immunity in accordance with the restrictive immunity concept is based on customary international law cross-referred to in the ECHR case Oleynikov v. Russia (Oleynikov case). The Supreme Court also referred to another ECHR case, Cudak v. Lithuania (Cudak case), to demonstrate that the application of absolute immunity has been eroded over the course of many years.

In the Oleynikov case and Cudak case, the ECHR found that the restrictive immunity concept in the UN Convention could be elevated to the rule of customary international law, and hence it would apply also to those states which had not ratified the UN Convention. In both cases, the ECHR found a violation of the Convention for the Protection of Human Rights and Fundamental Freedoms (the European Convention) in respect to a right of access to a court and a fair trial under Article 6 Para. 1 of the European Convention, given that the national courts prematurely applied absolute immunity without establishing all the facts.

The European Convention and ECHR practice do actually form part of Ukraine’s national law. However, the conclusions of the Supreme Court on waiver of immunity by reference to the ECHR judgements cross-referring to customary international law are rather controversial.

In the Oleynikov case, the ECHR analysed Russian law and facts which have no connection to Ukraine and/or any simila­rity with enforcement of the Everest Award. For instance, the ECHR established that Russia signed the UN Convention (Ukraine did not sign the UN Convention). Moreover, the ECHR established that prior to signing the UN Convention, Russia expressly accep­ted restrictive immunity as a principle of customary international law as the Russian president confirmed several times that restrictive immunity is a principle of customary international law and that the absolute immunity approach was obsolete (neither the Ukrainian President nor other Ukrainian officials made any such statements). The ECHR also established that restrictive immunity applies in Russia in light of Russian court practice and legislation (as noted above, Ukrainian court practice and legislation take a different approach).

The underlying dispute in the Russian courts in the Oleynikov case also concerned a private law loan transaction between a Russian citizen and the local trade office of the Embassy of the Democratic People’s Republic of Korea (the Everest Award does not deal either with any private law transactions or acts of Russia).

The ECHR took a similar position in the Cudak case and analysed in detail Lithuanian law and the relevant facts. In particular, the ECHR noted that the Lithuanian Supreme Court in its practice abandoned the concept of absolute immunity and instructed the lower courts to determine in each particular case whether the dispute was of a public law or private law nature. The facts of the underlying dispute in Lithuanian courts also concerned an alleged private law dispute about compensation for unlawful dismissal of an employee of the Polish Embassy in Vilnius.

There are three important observations.

First, the ECHR in its practice applies the European Convention and interprets its provisions to establish whether it has jurisdiction over a case and whether the state breached or impaired any of the rights guaranteed by the European Convention. It is not a function of the ECHR to interpret  national law of Member States and instruct the courts of Member States on how to apply their national law. Ukraine also undertook to recognise ECHR judgements in the part of interpretation and application of the European Convention.

Notably, in both the Oleynikov case and the Cudak case, the ECHR established violations of the European Convention not because absolute immunity was applied as such, but because the Russian and Lithuanian courts applied this rule prematurely and without proper examination of the facts, thereby overstepping their margin of appreciation. From this standpoint, only the ECHR conclusions as to the obligation of national courts to perform deep examination of all facts before dismissing a case due to immunity rules should have been taken into account by Ukrainian courts.

Second, the Supreme Court of Ukraine (acting before December 2017) had previously already expressed its position that when an ECHR judgement was rendered against a state other than Ukraine, this ECHR judgement may not have a binding effect in Ukraine (Case No 6-756ц16). The Supreme Court of Ukraine also noted in that same case that any doctrinal findings of the ECHR shall not be regarded as a source of law in Ukraine.

Third, in the Everest case the Supreme Court did not explain how its findings on the application of restrictive immunity based on ECHR court practice are related to waiver of immunity by Russia as such. A foreign state can certainly waive its immunity, even based on provisions of Article 79 of Law of Ukraine On Private International Law No 2709-IV. It would not be correct to say that a foreign state can only waive its immunity if such state acted in a private law capacity (and, as already noted, the Everest Award does not deal with any private law transactions or acts of the Russian Federation in any event).

At the same time, as decisions of the Supreme Court acting as a court of appeal in recognition and enforcement cases are final and cannot be challenged further, the position taken by the Supreme Court on  application of restrictive immunity can only be revisited in another case dealing with enforcement against a foreign state.


The Supreme Court’s decision to enforce the Everest Award in Ukraine has, without doubt, become a turning point in the enforcement of investment treaty arbitral awards in Ukraine. On the one hand, Ukrainian courts are likely to follow the Supreme Court’s findings and apply the rules of the UN Convention in similar cases.

On the other hand, Ukraine is a frequent respondent in investor-state arbitrations. It is also the rule of customary international law that states grant jurisdictional immunities to other states on a reciprocal basis and can withdraw such immunity accordingly. Therefore, Ukraine might well enjoy less protection in future enforcement proceedings against it and its property in the courts of foreign countries.