Chapter 4 Investment Disputes in Annexed Crimea from the Perspective of International Law

In: Unrecognized Entities
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1 Introduction1

The events of the Euromaidan in Ukraine between November 2013 and February 2014 not only ousted the then Ukrainian government but led to territorial disputes within the country as well. Besides military hostilities in the Donbass/Luhansk-region,2 the de facto territorial change of Crimea from Ukraine to Russia took place on 21 March 2014, when Russia annexed the peninsula.3 Annexation is the forcible and non-consensual acquisition of territory by one state at the expense of another state.4 It presupposes the effective occupation of the territory in question and the clear intention to appropriate it permanently,5 which is different from non-permanent occupation.

After the revolutionary events in Ukraine in 2014, Russian troops asserted control over Crimea. As a result of military intervention by Russia, demonstrations in support of Crimean independence took place. This led to a referendum on the status of Crimea under Russian protection.6 The referendum itself caused a declaration of independence from Ukraine, which had been accepted by Russia, and later to the incorporation of Crimea in the Russian Federation.7 In March 2014 property in Crimea had been nationalized and the Crimean Federal System of Governance established.8 All of these acts are recognized by the international community and legal scholars as not complying with the international legal order.9 In particular, the requirements for the exercise of remedial secession under the rule of self-determination of people were not present in Crimea.10 Thus, the annexation does not produce an international legal effect with respect to the de jure sovereignty of Ukraine over the territory, either towards the injured state or towards third states.11 In modern international law, the territorial integrity of a state is an important part of the international legal order12 and illegal annexation of territory does not end the status of the territory at issue as occupied.13 Customary international law not only determines that occupations should be terminated in accordance with international norms and institutions and the consent of the principal states involved,14 which is clearly missing in the case of Crimea; but also, besides these requirements, it further lays down that occupied territory must not be annexed.

Under customary international law, a territorial change is only legal under very strict conditions.15 For the situation of Crimea it is important to note that settled borders are privileged and acquisition of territory by threat or use of force is deemed illegal in modern international law.16 The territorial integrity of a state belongs to the corpus of fundamental principles of international law. Moreover, and of special relevance for the scrutiny at bar, the annexation of Crimea constituted a violation of the prohibition of the use of force as laid down in Article 2 (4) UN Charter. The violation was caused by Russian military personnel, who were actively involved, even if not using any identification bar uniforms without an indication of their national affiliation. The prohibition of the use of force belongs to the core of international law and is widely regarded as belonging to the status of a jus cogens norm.17 Even supposing that this were not accepted, it has acquired the status of an erga omnes norm, which will be relevant for application of the duty of non-recognition as discussed in this contribution. It prohibits inter alia the direct use of force, in the shape of incursion by troops on foreign territory.18 Whether these troops acted officially as foreign soldiers is not important as long as the annexing power is responsible for their actions,19 as Russia was in the case of Crimea.20

The annexation led to several international legal disputes in various fora. Besides cases before international courts such as the International Court of Justice21 or the European Court of Human Rights (ECtHR),22 several investment arbitrations are ongoing.23 The reason for that is that the change of the political system in Crimea led to expropriation of several Ukrainian undertakings. All investment claims seem to be administered by the pca and use the Russian-Ukrainian bilateral investment treaty (bit) as the applicable legal regime.

This contribution will try to shed some light on the issue of jurisdiction of arbitral tribunals as this does not seem to be properly addressed by the tribunals, which must apply the respective bilateral investment treaty (bit), here the Russian-Ukrainian bit. For this, we will first turn to the wording of the Russian-Ukrainian bit for a scrutiny of its territorial scope, then secondly to the duty of non-recognition under public international law, and will thereafter apply the Russian-Ukrainian bit in light of the duty of non-recognition. Thirdly, other legal avenues will be shown, namely the prohibition of expropriation under the echr, the law of aliens on expropriation, and the law of occupation regimes in the same regard.

2 The Russian-Ukrainian bit

In 1998, Russia and Ukraine concluded a bilateral investment treaty, the Russian-Ukraine bit.24 Scrutiny of the article will be limited to the territorial scope of the agreement.25 Article 1 of the Russian-Ukrainian bit defines the territorial scope of the agreement as “the territory of the Russian Federation or the territory of Ukraine and also their respective exclusive economic zone and the continental shelf as defined in conformity with international law.” To assess whether Crimea belongs to the territory of the Russian Federation for the purpose of the Russian-Ukrainian bit, an issue that arbitral tribunals so far have tried to avoid,26 Article 29 vclt prescribes the application of a treaty on the entire territory of a party and in the case of changes of territory the territorial application is on the changed territory.27

Thus, for the territorial scope of the bit, integration of the Crimean Peninsula into the Russian Federation had to be in accordance with international law. As shown above, this was not the case. The territory of Crimea is legally still part of Ukraine although Ukraine does not exercise control over it, and, at the outset, neither is the agreement applicable and nor would Ukrainian investments in Crimea be protected under the bit. Crimea does not fall within the sovereignty of the Russian Federation, which is only the administering power exercising de-facto control over Crimea.

Three lines of argument could lead to different conclusions. Additionally, the territorial application of the Russian-Ukrainian bit could also be manifested by other international legal principles. Firstly, it should be mentioned that Crimea could have become part of Russian territory under the moving-treaty frontiers-rule. Secondly, the integration of Crimea into the Russian Federation could constitute a case of state succession. Thirdly, it has to be analyzed whether Russia’s de facto control of Crimea is sufficient to apply the territorial scope of the Russian-Ukrainian bit.

2.1 Moving Treaty Frontiers Rule

Regarding the moving treaty frontiers rule, which belongs to the corpus of customary law,28 the territorial scope of a treaty is automatically extended to newly acquired territory from acquisition onwards.29 However, this principle is only applicable in cases of legal transfer of territory. Otherwise, the effects of the prohibition of use of force as laid down in Article 2 (4) UN Charter would be compromised. As a result, the internationally accepted moving treaty frontier rule is not applicable to illegally annexed territories such as Crimea.

2.2 State Succession to International Treaties

In scholarly writings a further strain of argument is directed at the customary law rules of state succession to international treaties.30 The customary law of state succession has largely been codified by the Vienna Convention on Succession of States in respect of Treaties (vcst). Article 15 vcst provides that “treaties of the successor State are in force in respect of the territory to which the succession of states relates from the date of succession […] when part of the territory of one state […] becomes the territory of another state”. However, this rule is compromised by Articles 6 and 39 vcst, which determine that a change of territory not following international law or in cases of occupation does not change the territorial status of the territory at issue. Thus, Article 15 vcst applies only to lawful changes of territory.31 Any other result would comprise the principle of non-recognition under international law,32 which is also reflected in operative paragraph 6 of the ga Res. 68/262, and the claim of state succession by Russia is heavily impugned.33 An extension of the application of the Russian-Ukrainian bit to all Russian territory independently of its legal status would contravene the stated legal principles.34 In light of the affected international rights, any reading of the Ukrainian-Russian bit excluding the legality of the status of the territory in question,35 here Crimea, does not seem to be convincing, even if the object and purpose of the bit is to grant investors the widest possible protection.36 The same holds true for the pacta sunt servanda principle, which is also limited by peremptory norms of international law.

2.3 De Facto Control

A different line of argument had been proposed by the Swiss Federal Tribunal in its ruling on the jurisdictional award issued by the arbitral tribunal in the PJSC Ukrnafta v Russia arbitration.37 The Swiss Federal Tribunal stated that it does not have to decide on the legality of the annexation of Crimea to the territory of the Russian Federation. Moreover, application of the concept of de facto control over the territory of Crimea is in accordance with the provisions of the Ukrainian-Russian bit, as had been held by the arbitral tribunal as well.38 The exercise of de facto control over a territory and the fact that this would run counter to the territorial scope of the bit had also not been challenged before the arbitral tribunal and the Swiss Federal Tribunal. The Swiss Court reached its conclusion by relying on Article 29 vclt and the moving treaty frontiers rule,39 as explained above. The judgment of the Swiss Federal tribunal seems to be conclusive, given its procedural rules,40 as the territorial application of the bit has not been challenged by the parties. However, its reasoning on the moving treaty frontiers rule does not consider other international legal principles, above all breach of a peremptory norm by one party and the legal effects thereof, especially application of the duty of non-recognition. The Swiss Federal tribunal limited its reasoning too far on the pure issue of territoriality and left aside the legality issue, although both concepts are intertwined with each other.41 In conclusion, application of the doctrine of de facto control over a territory by the Swiss Federal Tribunal and the arbitral tribunal would disregard the international legal system and cannot be upheld in the circumstances at hand. Unlike human rights treaties like the echr,42 the Ukrainian-Russian bit does not entail a clause extending its territorial scope to areas over which one state does not have legal title. This can also not be construed by way of interpretation due to the overarching character of the prohibition of the use of force as a peremptory norm of international law. Any other conclusion would constitute indirect recognition of the illegal annexation of Crimea and a violation of the duty of non-recognition, as explained below.

As a result, the dispossessed state, Ukraine, maintains its claim to title over the annexed territory of Crimea and its treaties continue to be applied in the territory, although they are not enforceable due to the dispossessed state’s lack of de facto control over the territory and any acts conducted by the occupying power are not attributable to Ukraine.43 We should note that Ukrainian investment treaties concluded with third states bar Russia are unenforceable in the territory of Crimea due to Ukraine’s lack of effective control over the peninsula and cannot be applied in the case of expropriations involving nationals from these countries.44

3 The Duty of Non-Recognition under Public International Law

Moreover, the duty of non-recognition has to be respected by states if the requirements are given in the case of Crimea. Since the 1930s the duty of non-recognition of illegal acts under public international law has been advocated.45 The doctrine prescribes that a factual situation must not be recognized under public international law because of strong reservations as to the legality of actions that have been taken by a subject of international law. This is dogmatically founded in the “ex iniuria non ius oritur” principle according to which legal rights cannot derive from an illegal situation.46 This was first acknowledged by the icj in its Namibia advisory opinion of 1971.47 In this advisory opinion the Court stated that a customary duty of non-recognition existed as to the territorial administration of the territory of Namibia by South Africa, which essentially obliged the member states of the United Nations to acknowledge the illegality and invalidity of South Africa’s continued presence in Namibia.48 The Court’s statement is an expression of the general rule that territorial acquisitions by states are not to be recognized by other states when achieved through means inconsistent with international law, namely the threat or use of force.49 This general rule was embedded in more general terms in the International Law Commission (ilc) Articles on State Responsibility.50 Their Article 41(2) affirms that “no state shall recognize as lawful a situation created by a serious breach within the meaning of Article 40 […]”. Article 40, in turn, describes a serious breach as a gross violation or systematic failure to fulfill an obligation arising under a peremptory norm of public international law.51

Additionally, non-recognition of the acquisition of territory by force is explicitly mentioned in the General Assembly’s Friendly Relations Declaration,52 which states that “no territorial acquisition resulting from the threat or use of force shall be recognized as legal.”53 According to the icj in its Nicaragua ruling, this statement in the Declaration is part of the corpus of customary international law.54 Essentially, recognition as lawful of a situation created by a serious breach of international law is not just recognition of a fact. It would also lend legitimacy to the illegal act and tend to consolidate an illegal legal regime.55 By contrast, widespread recognition of a legal act as unlawful has the opposite effect and does protect the international legal order.56 This is the raison d’être of the duty of non-recognition. A further aspect is that non-recognition serves as a decentralized enforcement mechanism.57 Concerning Crimea, the duty of non-recognition has also been expressed in ga Res. 68/262, especially its paragraph 6 by requiring states to “refrain from any action or dealing that might be interpreted as recognizing the [altered status of Crimea]”.58

3.1 Applicable Norms

The duty of non-recognition does not apply without limits. This can be deduced from the Namibia advisory opinion of the icj as well as scholarly opinions59 that the duty of non-recognition of illegal acts is limited in two respects. First, it applies only to violations of international norms with an erga omnes and/or jus cogens character.60 This can also be derived, for instance, from Article 42 (2) ilc Draft Articles on State Responsibility. Violation of norms that do not possess this feature can only be addressed by the usual rules governing international wrongful acts. In reliance on these, the victim (state) of the unlawful act may not recognize the resulting situation as lawful, but no international obligations of other subjects of international law exist to do the same. In the Crimean case, illegal annexation of territory by force, breach of a jus cogens and/or erga omnes norm, prohibition of the use of force, is given.61

3.2 Exception for “Benevolent” Treaties

A second limitation of the duty of non-recognition arises from its exceptions. The duty of non-recognition is relative even in the case of a violation of a jus cogens and/or erga omnes norm. In the Namibia advisory opinion, the icj recognized an exception to the rule. While it found that in cases of illegal territorial acquisition, treaties with the rule-breaker must generally not be applied to the territory in question, this was not true in the case of multilateral treaties if their non-application adversely affects the people inhabiting the territory (the “Namibia exception” for benevolent treaties).62 The telos of this exception is that violation of an erga omnes rule should not operate to the detriment of the rights of the people of the territory as protected by human rights or humanitarian law treaties. What has to be assessed is whether the exception should be extended to bilateral treaties, namely bilateral investment treaties such as the Russian-Ukrainian bit. This issue is unsettled in international law at the moment. In Namibia, the icj accepted only multilateral treaties as benevolent treaties. In light of developments of international law since the early 1970s generally and investment law especially, the restriction of the exception’s application to multilateral treaties is far from convincing and seems outdated. Decisive for the classification of treaties as falling under the category of “benevolent treaties” should rather exclusively be the subject-matter and the object and purpose of the respective treaty but not its character as a bi- or multilateral treaty. This is supported by the wording of Article 40 of the ilc Articles on State Responsibility which cover all violations of a peremptory norm of international law.

Yet, even if, as argued here, bilateral treaties were covered by the Namibia exception, it is questionable whether an investment treaty can be regarded as a “benevolent treaty” at all. Investment treaties grant individuals a legal right to “protect” their investment against any treatment by the host state not in compliance with the underlying investment treaty.63 The purpose of the investment treaty regime is to protect the investor and to promote economic cooperation.64 At heart, the provisions on investment protection belong to the set of provisions against illegal expropriation of foreigners in a host country.65 As such, they could be considered as embodying a human right and their non-application may adversely affect the people in a given region.66 Historically, they are rooted in the law of aliens and the international protection of foreigners,67 which, in turn, also influenced the development of international human rights law. Yet the human rights analogy is not fully convincing.68 Unlike human rights, investment treaties are aimed at protecting only a specific group of individuals, namely foreign investors, and only at best indirectly at benefiting the people in the territory through the promise of economic development. The benevolent character of the Namibia exception seems to be meant in a broader context, benevolent for the people living in a certain territory.69 This implies “all” or “almost all” the people but not just an investor in a territory and some of the people living there. The human rights of the majority of people living in the territory would not be compromised by non-application of an investment treaty, also because they are not in a position to invoke the investment treaty’s protection standards. The effect for the people is different for human rights treaties70 or agreements on the rules of armed conflict.71 Investment treaties do not benefit the population comparably, and therefore have to be distinguished from human rights treaties for the purpose of the Namibia exception: They fall within different legal categories.

3.3 Addressee

A further aspect of the controversy is the addressee of the duty of non-recognition. It is not yet finally settled and remains disputed whether the duty of non-recognition applies not only to subjects of international law, namely states, but also to all international actors including courts and tribunals, especially arbitral tribunals in investment cases, which might not be bound by the rule due to their limited jurisdiction.72 There are arguments against it, usually the limited jurisdiction of international investment tribunals,73 yet this does not seem to be a valid counter-argument for the situation at hand,74 given the jus cogens and erga omnes character of the violated norm, namely prohibition of the use of force as laid down in Article 2 (4) UN Charter. Even if an international investment arbitral tribunal were not bound by the duty of non-recognition, any state intending to enforce the respective award would violate the duty of non-recognition and could be held liable for breach of international law.

3.4 Interim Result

It has to be stated, as an interim result, that the occupation and annexation of Crimea by Russia leads to application of the duty of non-recognition for other states in respect of treaties. The exception stated by the icj in its Namibia advisory opinion for benevolent treaties does not apply to investment treaties.

4 Applying the Russian-Ukrainian bit in Light of the Duty of Non-Recognition of Crimea?

Following the interim result, the duty of non-recognition has to be invoked against application of the Russian-Ukrainian bit on Crimea. The consequences of the duty of non-recognition are manifold: inter alia the annexing state is barred from enjoying rights connecting to the land.75 As a legal result, the Russian-Ukrainian bit cannot be used for protection of Ukrainian investments in Crimea. This is also given for Russian investment treaties with other states, in that the duty of non-recognition applies not only to the injured state but to all states and no investment treaty concluded by the Russian Federation includes the territory of Crimea. The bits concluded by Ukraine with third states cannot be used either, due to Ukraine’s lack of effective control over the territory of Crimea and its non-responsibility for the expropriations.

Moreover, non-application of the Russian-Ukrainian bit leads to the result, at first sight, that seemingly Russia would benefit from the illegal annexation which it has created because investments in the territory of Crimea would not be protected either by the Russian or any other bilateral investment treaty. It could be argued that the perpetrator of illegal acts would thereby not be legally punished for them, which does not seem to be a fair outcome or a proper solution to the case at bar. Some commentators argue that the duty of non-recognition has to be applied in a modified way in these instances.76 According to this strain of argument, a state can also fulfill its duties towards individuals in the case of exercise of de facto control, as legal title of sovereignty is not necessary.77 This does not seem to be fully convincing, because investment treaties do not fall within the category of benevolent treaties as established by the icj in the Namibia ruling. The proposed reading of international law would to a certain degree disrespect the international legal order due to the given violation of Article 2 (4) UN Charter, a peremptory norm of international law. In light of the foregoing, the pragmatic approach to extension of the territorial scope of investment treaties to “dependent territories”, as argued by some scholars,78 would run counter to some fundamental principles of the international legal order.

Thus, the stated legal situation seems to benefit even the rule-breaker of a peremptory norm of international law. Yet it is the logical result of an incoherent international legal order. Public International law is not “complete” in the sense of national legal orders and it tends to focus on the state but not the individual rights of natural or legal persons such as investors who enjoy only limited rights under international law. Additionally, the grant of international or quasi-international rights to individuals is a rather new development in international law. In addition it is, unfortunately, not really frictionless towards the established state-based system of international law and leads inevitably to tensions among established legal principles, in the case at bar the duty of non-recognition.

This outcome is certainly problematic for the international system of investment protection by bilateral treaties, yet this has to be in order with other legal principles. Moreover, non-application of the Russian-Ukrainian bit does not necessarily lead to a horror vacui. Legal lacunae are common in any legal system and there may be further avenues for investors, which will be explored next.

5 Additional International Law Regimes

General international law does not prohibit expropriation, which is a sovereign right of every state.79 However, international law provides for three additional legal regimes to be applicable in the case of expropriation. One is protection of property under Article 1 ap i to the echr; the second is the law of aliens as established under customary international law; and the third is laid down in humanitarian law. All regimes will be addressed in turn.

5.1 European Convention on Human Rights and Fundamental Freedoms

The situation in Crimea and the expropriation of Ukrainian companies clearly falls within the territorial ambit of the European Convention on Human Rights and Fundamental Freedoms (echr). According to Article 1 echr, the territorial scope of the Convention is extended to the “jurisdiction” of the parties and not limited to their sovereign territory.80 Thus, it broadens the territorial application of the echr81 to include protection of property and prescribes that “no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and the general principles of international law.” It looks as if the conditions were not satisfied in the case of the Russian expropriations in Crimea due to non-compensation of the expropriated natural and legal persons and the provision is fulfilled.82 Just satisfaction with a private party is granted by the Court of Human Rights under Article 41 echr and can lead to the full value of the expropriation.83

Yet it has to be borne in mind that Article 41 echr does not grant legally enforceable title to the winning party in a case. It is only a statement by the Court of Human Rights as to what sum would constitute “just satisfaction” in the circumstances of the case before it. Thus, even if Ukrainian companies were entitled to receive just satisfaction, enforcement could and likely would involve difficulties. Whether the judgment of the echr could be used in national courts of member states of the Convention bar Russia is still to be seen, although not very likely because these states have not committed any wrong and did not take part in the proceedings in front of the echr. In sum, Article 1 ap i to the echr seems to be violated by Russia’s expropriations in Crimea, but it will be difficult for investors to actually gain “just satisfaction” in the meaning of Article 41 echr.

5.2 The Law on Aliens

In addition to the echr, the law on aliens might constitute a further possibility for expropriated investors. Customary international law does not permit any treatment of aliens by their host state. It grants aliens an international minimum standard which is independent of the treatment of nationals in the respective state84 and other obligations that states may incur under human rights treaties such as the echr and this applies to the Russian Federation as well. In international law, an alien is defined as an individual, including legal persons, who resides within the borders of a country but is not a citizen or subject of that country.85 The nationality of a corporation is usually the state of its incorporation.86 The minimum standard granted applies inter alia in cases of expropriation and foreign investments like those in Crimea. The standard to be respected includes inter alia that expropriation must be accompanied by appropriate compensation which has to be in accordance with the Hull formula, meaning “prompt, adequate and effective”.87

Application of the law of aliens’ minimum standard rule in the case of the annexation of Crimea is problematic on two accounts. First, strictly speaking, expropriated Ukrainian companies are not “alien” in Crimea due to the illegality of the annexation under Public International Law. Russia is only exercising de facto control over the territory and it seems rather doubtful whether the customary minimum standard rule also applies to de facto regimes. This view is supported by the fact that the law of investment protection under bilateral investment treaties is only an evolutionary concept from the law of aliens granting more legal protection to the investor.88 Thus, in essence, both systems should run in parallel and the law of aliens is only applicable in the undisputed territory of a state, excluding in the case at bar, Crimea. In other cases, recourse to the law of occupation has to be taken. Secondly, enforcement of a violation of the minimum standard rule is only possible before international courts and tribunals and, as a further requirement in cases of diplomatic protection,89 after exhaustion of local remedies. Investors do not enjoy a distinct protection standard under international law.90 At the moment, it does not look likely that the Russian Federation would participate in any Court and/or tribunal case for which its consent is required, which would hamper law enforcement.

In light of the said legal and factual obstacles, the law of aliens does not seem to be the proper avenue for solving the issue of investment disputes and compensation for expropriated property in annexed Crimea.

5.3 Geneva Conventions – Humanitarian Law

Thirdly, humanitarian law could grant a right to investors in the case of illegal expropriation. Crimea is, as stated above, occupied territory of Ukraine and was illegally annexed by Russia. International humanitarian law consists of the 1899 and 1907 Hague Regulations and the four Geneva Conventions and the Additional Protocols thereto, which are applicable in cases of armed conflict and occupation.91 For the scrutiny at hand, the 1907 Hague Regulations and the Fourth Geneva Convention and the First Additional Protocol thereto might regulate expropriation of investors in Crimea.

Firstly, the 1907 Hague Regulations, especially Article 46,92 could be brought forward in the context of control over Crimea and the occupation regime because it immunizes private property from confiscation.93 According to the International Court of Justice in its Wall advisory opinion, the provision is applicable even in cases of occupation where the hostilities took place a rather long time ago.94 This could be contested in light of the 1907 Hague Regulations approach to rather short-term occupations until the conclusion of a peace treaty.95 The acquisition of territory by war was not deemed illegal in 1907 and would lead to non-application of the Article 46 Hague Regulations on Crimea, an aspect the icj did not pay any attention to in its Palestine Wall advisory opinion. However, considering that opinion, the provision applies to the situation in Crimea, which is legally an ongoing Russian occupation.

A second line of argument might be laid down in Geneva Convention iv.96 According to Article 6 (3) (2) Geneva Convention iv some rules of the Geneva Convention also apply in times of occupation after cessation of hostilities.97 Article 53 gc iv, which is one of the named provisions in Article 6 (3) (2) gc iv, deals with protection of private property, but only in a limited context. According to this provision, the destruction of “real”, immovable private property is prohibited, but this is limited to the physical destruction of private property. Expropriation as the “legal destruction” of private property is not covered by the norm, as can also be inferred from the norm’s second sentence, which states an exception for military operations. The scope of application of Additional Protocol i to the Geneva Conventions is not given more than a year after the cessation of hostilities and, therefore, does not lead to a different conclusion. As a result, the rules of humanitarian law do not provide a mechanism for protection against expropriation more than one year after the cessation of hostilities and in the case of an illegally annexed territory.

In this regard the relationship between humanitarian and human rights law becomes important. Both sets of rules are not (mutually) exclusive. The protection of human rights treaties does not cease in times of armed conflict and the International Court of Justice has stated numerous times, especially regarding the long-term occupation of certain territories by Israel, that humanitarian and human rights are applicable side-by-side.98 The icj spelled out that the occupier must “take measures to ensure respect for human rights and international humanitarian law in the occupied territories.”99 Even if the applicable law of the Geneva Conventions did not lead to effective protection of private property, it would not prohibit application of the European Convention on Human Rights and Fundamental Freedoms.

Yet, even if international humanitarian law provided some protection for private property, violation would lead to the same enforcement problem as constituted above in respect of the law of aliens. The jurisdiction of international courts is limited to the consent of the parties,100 which is not to be expected from the Russian side. Thus, even if the situation in Crimea is covered by Article 46 of the 1907 Hague Regulations, an effective legal remedy is absent.

As a result, none of the three scrutinized international legal regimes and fora seem to provide a convincing solution of the issue at bar; they all bear risks and weaknesses for the investor relying on them and do not provide the same standard of protection as a bilateral investment treaty.101 The most promising avenue seems to be the echr, although enforcement of the judgments of the European Court of Human Rights is very limited.

6 Conclusions

The analysis has shown that the issue of the territorial application of investment treaties in annexed Crimea is rather complicated. The illegal annexation and ongoing occupation did not alter the international legal status of Crimea. It still belongs to the territory of Ukraine and falls under its sovereignty, although this is not enforceable at the moment. Russia exercises only de facto control over the peninsula. Additionally, the occupation and annexation of Crimea had been conducted by the use of military means attributable to Russia, constituting a violation of Article 2 (4) UN Charter, a peremptory and jus cogens norm of international law. This breach activated the duty of non-recognition and all states are obligated not to recognize the change of control over Crimea in their (treaty) relations with Russia. In effect, this leads to non-application of the Russian-Ukrainian bit in Crimea and expropriated investors are barred from having recourse to arbitral investment tribunals.

The stated non-application of the Russian-Ukrainian bit does not seem to be an implausible conclusion, as some scholars argue.102 International law is fragmented and far from coherent, which means, in essence, that lacunae are possible, as in every legal order. Regard has to be paid to the fact that Russia’s actions constitute a gross violation of – and are condemned by – international law and that it has to reinstall Ukrainian sovereignty over the peninsula as soon as possible. In the long term, Russia is legally barred from gaining advantages from the annexation of Crimea, even if sanctions had been imposed against it.103 Further, the international regime of investment protection is aimed at the legal bearer of sovereignty over a territory; if an illegal territorial change occurs, that system is unable to protect the “old” investor for the territory in question. Finally, individual legal protection of investors is still a special segment of international law and does not go fully hand-in-hand with other, more state-centered regimes of the international legal order, which leads to frictions. Even if this assessment did not fall within the ambit of jurisdiction of international investment tribunals, all states would be barred from enforcing the award by paying due regard to the duty of non-recognition.

However, some legal rules are applicable and do protect natural and legal persons living in the occupied territory. Although Ukraine is still the bearer of title to land and sovereignty, the de facto control of Crimea by the Russian Federation does lead to an inherent limitation of the execution of Ukraine’s treaties in the territory of Crimea. This legal vacuum is partly filled by the obligations of the Russian Federation under the law of occupation and human rights. Yet, arguably, the current corpus of international law fails to provide a satisfactory solution to the problem of illegal expropriations of aliens on annexed territory. Therefore it should develop in the direction of a complete legal order with efficient enforcement mechanisms for limiting the possibility and application of lacunae which also hamper the international acceptance of international law as a legal order and not just mere politics.

Additionally, the international legal fora explored, namely the European Convention on Human Rights and Fundamental Freedoms, customary law of aliens, and the law of occupation laid down in the 1907 Hague Regulations, Geneva Conventions and Additional Protocols, all have deficits of their own and may also not lead to full, if any, compensation of expropriated investors. Regarding compensation, the most promising forum might be the European Court of Human Rights, but this grants only just satisfaction which is likely to be lower than the expropriated assets. Thus, Russia may benefit, if not de jure, but to a certain degree de facto from the imperfect international legal order in terms of investment protection.

1

The sponsorship for this research has been provided by the Alexander von Humboldt Foundation in the framework of the Research Group Linkage Programme funded by the Federal Ministry of Education and Research.

2

On their effect on investment disputes see Stefan Lorenzmeier and Maryna Reznichuk, “Investment Law and the conflict in the Donbas region: Legal Challenges in a special case”, in Tobias Ackermann/Sebastian Wuschka (eds.), Investment in conflict zones (Brill Nijhoff, Leiden/Boston, 2020), 431–457.

3

President of Russia Press Release, Laws on admitting Crimea and Sevastopol to the Russian Federation (Mar 21, 2014), available at http://en.kremlin.ru/acts/news/20625. On the legal issues see also Kit de Vriese, “The Application of Investment Treaties in Occupied or Annexed Territories and ‘Frozen’ Conflicts: Tabula Rasa or Occupata?”, in Tobias Ackermann/Sebastian Wuschka (eds.), Investment in conflict zones (Brill Nijhoff, Leiden/Boston, 2020), 319–358.

4

Rainer Hofmann, “Annexation”, in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2013), para. 1; Gerhard Hafner/Gregor Nowak, “State Succession in Respect of Treaties”, in Duncin Hollis (ed.), The Oxford Guide to Treaties (oup, Oxford, 2012), 397, 405; Daniel Costelloe, “Treaty Succession in Annexed Territory”, 65(2) International and Comparative Law Quarterly (2016), 343–378, 354.

5

Rainer Hofmann, Ibid., para. 1.

6

Nataliia Tuzheliak, “Investors at Conflict’s Crossroads: An Overview of Available International Courts and tribunals in the Crimean Context”, 6 ucl Journal of Law and Jurisprudence (2017), 14–45, 15.

7

Ibid., 15 with further references.

8

Ibid., 16 with further references.

9

unga Resolution A/Res/68/262 on the territorial integrity of Ukraine, adopted on 27 March 2014; Thomas Grant, “Annexation of Crimea”, 109(1) American Journal of International Law (2015), 68–95; Christian Walter, Postscript: Self-Determination, Secession and the Crimean Crisis 2014, in Christian Walter et al (eds.), Self-Determination and Secession in International Law (oup 2014), 302 ff.. For the opposite view, which does not pay enough regard to the events that happened, see Michael Geistlinger, “Der Beitritt der Republik Krim zur Russländischen Föderation aus der Warte des Selbstbestimmungsrechts der Völker”, 52(2) Archiv des Völkerrechts (2016), 175 – 204.

10

Grant, op.cit. note 9, 77; Jure Vidmar, “The Annexation of Crimea and the Boundaries of the Will of the People”, 16(3) German Law Journal (2015), 365–383, 365 ff.

11

Costelloe, op.cit. note 4, 354.

12

icj, Accordance with international law of the unilateral declaration of independence in respect of Kosovo, advisory opinion, icj-Rep. 2010, 400, para. 80.

13

Adam Roberts, “Occupation, Military, Termination of” in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2009), para. 37.

14

Ibid., para. 55.

15

Gleider Hernández “Territorial Change, Effects Of”, in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2010), para. 2.

16

See e.g. ga res 3314 (xxix), 1974 on the definition of aggression; Hofmann, op.cit. note 4, para. 1.

17

Oliver Dörr, “Use of Force, Prohibition of”, in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2015), para. 1.

18

Ibid., para. 15.

19

See Art. 4 ff. ilc Rules on State Responsibility, unga Res. 56/83.

20

Christian Marxsen, “The Crimea Crisis – An International Law Perspective”, 74 Zeitschrift für ausländisches öffentliches Recht und Völkerrecht (2014), 367–391, 384.

21

Case Concerning the Application of the International Convention on the Suppression of the Financing of Terrorism and of the International Convention on the Elimination of all Forms of Racial Discrimination, Preliminary Objections, icj-Rep. 2019, 558–608.

22

ECtHR, Ukraine v. Russia [GC], App. nos. 20958/14, 38334/18, Judgment of 14 January 2021. To date over 5000 applications are pending before the echr in connection with the events in Crimea and Eastern Ukraine. See Country Profile Russia, last updated June 2021, https://echr.coe.int/Documents/CP_Russia_ENG.pdf. For further cases and courts see Gaiane Nuridzhanian, “Crimea in International Courts and Tribunals: Matters of Jurisdiction”, in Max Planck Yearbook of United Nations Law Online (Brill Nijhoff, Leiden/Boston, 2018), 378–403.

23

For an overview see Sondra Faccio, “The Interplay Between Investment Law and the Duty of Non-recognition in Situations of Contested Territory”, 28 Italian Yearbook of International Law (Brill, Leiden, 2019), 111–134, 111; Serhii Uvarov, “Investment Disputes Related to Crimea: Overview”, Arbitration.ru (2018), 6–32, 26 f.

24

Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of investments (signed 27 November 1998, entered into force 26 January 2000).

25

Also not addressed is the issue of Ukrainian bilateral investment treaties with third states. Even if investment by third-country nationals in Crimea were to fall within the territorial ambit of the treaty, the agreement is not applicable due to Ukraine’s lack of territorial control over the peninsula.

26

For reports on decisions already taken, see e.g. Investment Arbitration Reporter, ‘Full jurisdictional reasoning comes to light in Crimea-related BIT arbitration vs. Russia’, 9 November 2017, available at <https://www.iareporter.com/articles/full-jurisdictional-reasoning-comes-to-light-in-crimea-related-arbitrationeverest-estate-v-russia/>; Investment Arbitration Reporter, ‘Further Russia investment treaty decisions uncovered, offering broader window into arbitrators’ approaches to Crimea controversy’, 17 November 2017, available at <https://www.iareporter.com/articles/investigation-further-russia-investment-treaty-decisions-uncoveredoffering-broader-window-into-arbitrators-approaches-to-crimea-controversy/>.

27

Mark Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Martinus Nijhoff Publishers, Leiden/Boston, 2009), Art. 29, n. 7; Kerstin von der Decken, “Art. 29”, in Oliver Dörr and Kirsten Schmalenbach (eds.), Vienna Convention on the Law of Treaties (Springer, Berlin/Heidelberg, 2nd ed., 2018), para. 28 f.

28

Ibid., Art. 29, para. 27.

29

Richard Happ, Sebastian Wuschka, “Horror Vacui: Or Why Investment Treaties Should Apply To Illegally Annexed Territories”, 33(3) Journal of International Arbitration (2016), 245–268, 257.

30

Ibid., 257; Costelloe, op.cit. note 4, 354.

31

Costelloe, op.cit. note 4, 350; Patrick Dumberry, A Guide to State Succession in International Investment Law (Edgar Elgar, Oxford, 2018), 6.125.

32

See infra 3.

33

Grant, op.cit. note 9, 92.

34

In light of the duty of non-recognition, this is also the case for other bits concluded by Russia. Slightly different: Tuzheliak, op.cit. note 6, 23 f.

35

Costelloe (op.cit. note 4) stresses that the term “territory must derive its meaning, at least in part, from its normative context”, at 366. This would again run counter to the fundamental principles of international law involved in the context of Crimea.

36

Tuzheliak (op.cit. note 6) is referring to the original Russian and Ukrainian wording of the bit, which does not necessarily include the legality of territorial status, at 24.

37

Schweizerisches Bundesgericht, judgment of 16 October 2018, 4A_396/2017, Zeitschrift für Schiedsverfahren (German Arbitration Journal) 2019, 93, with a case-note by Sebastian Wuschka, “Durch Annexion “internationalisierte” Investitionen – eine Anomalie im Investitionsschutzrecht?, at 98. An almost identical decision was rendered by the Swiss Federal Tribunal on the same day concerning a parallel decision of the same tribunal in the related case of Stabil et al. v Russia. It also seems that this route had been taken by the arbitral tribunals in the other cases, see the analysis of Sebastian Wuschka, “Investment tribunals adjudicating claims relating to occupied territories – curse or blessing?” in Antoine Duval & Eva Kassoti (eds.), Economic Activities in Occupied Territories: International, EU Law and Business and Human Rights Perspectives (Routledge, London, 2020, 235–252).

38

Para. 4.2. of the judgment of the Swiss Federal Tribunal.

39

Para. 4.3. of the judgment of the Swiss Federal Tribunal.

40

Wuschka, op.cit. note 37, 98.

41

In a similar vein: Ibid., 99.

42

See infra 5.1.

43

See also Costelloe, op.cit. note 4, 373.

44

A further issue is the regions of the so-called Donetsk/Luhansk Republics. On their legal status: Bill Bowring, “Non International Law and Non-recognized Entities: Towards a Frozen Future?” (in this volume) and Lorenzmeier and Reznichuk, op.cit. note 2, 431–457, in respect of the application of investment treaties.

45

Malcolm Shaw, International Law (cup, Cambridge, 8th ed. 2017), 347.

46

Ibid., 347.

47

icj, Legal Consequences for States of the Continued Presence of South Africa in Namibia [South West Africa] notwithstanding Security Council Resolution 276 (1970), advisory opinion, icj Rep. 1971, 16 et seq.

48

Ibid., 16, 54.

49

See Draft Declaration on the Rights and Duties of States, 1949; Shaw, op. cit. (note 45), 347 f. and several unga Resolutions, especially the “Friendly Relations Declaration” (ga Res. 2625 (xxv) adopted 24 October 1970), the “Definition of Aggression” (ga Res. 3314 (xxix), adopted 14 December 1974) and Resolution A/Res/68/262 on the territorial integrity of Ukraine, adopted 27 March 2014.

50

ilc Draft Articles on Responsibility of States for Internationally Wrongful Acts, 2001. For the EU, the similarly worded Arts. 41 and 42 of the Draft Articles on the Responsibility of International Organizations of 2011 would be applicable, should they evolve into treaty law. At the moment, for states as well as international organizations, only the customary rules of these principles are applicable. See e.g. Stegmann, Responsibility of the EU and its Member States under International Investment Protection Agreements (Springer, Heidelberg 2019), 79 ff.

51

On jus cogens norms, see Alexander Orakhelashvili, Peremptory Norms in International Law (oup, Oxford, 2006). According to his assessment, jus cogens and erga omnes obligations are two sides of the same coin and are virtually coextensive, ibid., 286 et seq. The icj refrains from coining a norm as jus cogens and tends to state its erga omnes character.

52

ga-Res. 2625 (xxv), Declaration on Principles of International Law Concerning Friendly Relations and Co-operation Among States in Accordance with The Charter of the United Nations of 24 October 1970.

53

ga Resolution 2625 (xxv); Art. i. See also Art. 5 (3) ga Definition of Aggression, ga Res 3314 (xxix), 14 December 1974, UN Doc a/res/29/3314.

54

icj, Military and Paramilitary Activities in and against Nicaragua, icj-Rep. 1986, 14, para. 188.

55

James Crawford, Brownlie’s Principles of Public International Law (oup, Oxford, 8th ed. 2012), 600.

56

See Enrico Milano, “The Non-Recognition of Russia’s Annexation of Crimea: Three Different Legal Approaches and One Unanswered Question”, 1 Questions International Law (2014), 35–55, 37.

57

Costelloe, op.cit. note 4, 356.

58

ga-Res. 68/262 is rightly considered as a collective application of the rule of non-recognition, see Grant, op.cit. note 9, 91.

59

E.g. Crawford, op.cit. note 55, 598 et seq.; Jochen Frowein, “Non-Recognition”, in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2011), para. 6. Critical to some of the legal effects of the duty of non-recognition: Stefan Talmon, “The Duty Not to ‘Recognize as Lawful’ a Situation Created by the Illegal Use of Force or Other Serious Breaches of a Jus Cogens Obligation: An Obligation without Real Substance?”, in Christian Tomuschat/Jean-Marc Thouvenin (eds.), The Fundamental Rules of the International Legal Order. Jus cogens and obligations erga omnes (Brill, Leiden, 2005), 9 ff.

60

In this respect see icj, Legal Consequences for States of the Continued Presence of South Africa in Namibia [South West Africa] notwithstanding Security Council Resolution 276 (1970), advisory opinion, icj Rep. 1971, 16, 54, para. 119; icj, Legal Consequences of the Separation of the Chagos Archipelago from Mauritius, 2019, para. 175 ff.

61

Dumberry, op.cit. note 31, 6.115. On the issue whether international law should develop in the direction of full application of the duty of non-recognition, see Stefan Lorenzmeier, “The duty of non-recognition and free trade agreements: lessons for investment law form the case of Front Polisario”, in Tobias Ackermann/Sebastian Wuschka, Investments in Conflict Zones (Brill, Leiden, 2020), 359–386.

62

icj, Legal Consequences for States of the Continued Presence of South Africa in Namibia [South West Africa] notwithstanding Security Council Resolution 276 (1970), advisory opinion, icj Rep. 1971, 16, 55, para. 122.

63

Matthias Herdegen, Principles of International Economic Law, (oup, Oxford, 2nd ed., 2016), 439.

64

Zachary Douglas, The International Law of Investment Claims (cup, Cambridge, 2009), para. 234.

65

On the legal nature of international investment law: Rudolf Dolzer/Christoph Schreuer, Principles of International Investment Law (oup, Oxford, 2nd ed. 2012), 19 ff.

66

For the “investment-as-property” theory: Zachary Douglas, “Property, Investment and the Scope of Investment Protection Obligations”, in: Zachary Douglas/Joost Pauwelyn/Jorge Vinuales (eds.), The Foundations of International Investment Law (oup, Oxford 2014), 363, 372 ff.

67

On the law of aliens: Stephan Hobe, “The Development of the Law of Aliens and the Emergence of General Principles of Protection under Public International Law”, in Marc Bungenberg/Jörn Griebel/Stephan Hobe/ August Reinisch (eds), International Investment Law (Nomos, Baden-Baden, 2015), 7 ff. See also infra 5.2.

68

On the difference between investment law and human rights law, see also, e.g., Anne Peters, Beyond Human Rights (cup, Cambridge, 2016), 318–321.

69

This is supported by the examples given by the Court e.g. birth certificates, marriages, issues of humanitarian and human rights law, see icj, Legal Consequences for States of the Continued Presence of South Africa in Namibia [South West Africa] notwithstanding Security Council Resolution 276 (1970), advisory opinion, icj Rep. 1971, 16, 54, para. 125.

70

echr, Art. 1 ap i, protection of property against expropriation, see infra 5.1.

71

Geneva Conventions and Protocols, see infra 5.3.

72

See the analysis by Dumberry, op.cit. note 31, 6.143.

73

See e.g. Nuridzhanian, op.cit. note 22, 396. A further critique is whether arbitral tribunals have jurisdiction to assess the legality of a territorial claim, see ibid with further references.

74

Dumberry, op.cit. note 31, 6.177, accepts an ex officio review of a tribunal jurisdiction.

75

Grant, op.cit. note 9, 68, 93.

76

Happ,Wuschka, op.cit. note 29, 263.

77

Ibid.

78

Ibid., 245; Karl Doehring, “The Scope of Territorial Application of Treaties – Comments on Art. 25 of the ilc 1966 draft Articles on the Law of Treaties”, 27 Zeitschrift für ausländisches öffentliches Recht und Völkerrecht (1967). 483–490, 488.

79

Alexander Orakhelashvili, Akehurst’s Modern Introduction to International Law (Routledge, London/New York, 8th ed. 2019), 344.

80

ECtHR, Loizidou v Turkey (Preliminary Objections), Series A No 310, paras. 59 ff.; Ilașcu and Others v. Moldova and Russia, para. 377 ff.; Chiragov and others v Armenia, para. 12 ff.

81

Costelloe, op.cit. note 4, 371.

82

See: Tuzheliak, op.cit. note 6. Several thousand cases are pending before the ECtHR re the situation in Crimea and Russia’s annexation.

83

ECtHR, Neftanyanaya Kompaniya Yukos v. Russia, App. No. 14902/04, Judgment of 24 June 2014.

84

Crawford, op.cit. note 55, 613.

85

Hollie Dickerson “Minimum Standards”, in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2010), para. 2.

86

icj, Barcelona Traction Light and Power Company, icj-Rep. 1970, 3. See also Art. 9 ilc Draft Articles on Diplomatic Protection (2006), gaor 61st Session Supp 10, 16.

87

World Bank Guidelines on the Treatment of Foreign Direct Investment, section iv (1) and (2). See also: Shaw, op.cit. (note 45), 633. Orakhelashvili, op.cit. note 79, 344 with further references to the case-law.

88

This can be deduced for instance by the inclusion of the international minimum standard in bits, see Crawford, op.cit. note 55, 613.

89

See e.g. Tuzheliak, op.cit. note 6, 40.

90

Orakhelashvili, op.cit. note 79, 343.

91

On investment treaties in time of occupation: Tobias Ackermann, “Investments under Occupation”, in Katia Fach Gomez/Anastasios Gourgourinis/Catherine Titi (eds.), International Investment Law and the Law of Armed Conflict (Springer, Heidelberg, 2019), 67 ff.

92

The provision reads: “Family honour and rights, the lives of persons, and private property, as well as religious convictions and practice, must be respected. Private property cannot be confiscated.”

93

Eyal Benvenisti, “Occupation, Belligerent”, in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (oup, Oxford, 2009), para. 29.

94

icj, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory (Advisory Opinion), icj-Rep. 2004, 136, para. 124.

95

Benvenisti, op.cit. note 93, para. 12.

96

Geneva Convention relative to the protection of civilian persons in time of war of 12 August 1949, unts vol. 75, 287.

97

icj, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory (Advisory Opinion), icj-Rep. 2004, 136, para. 125.

98

icj, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory (Advisory Opinion), icj-Rep. 2004, 136, para. 112.

99

icj, Armed Activities on the Territory of Congo (Congo v Uganda), icj-Rep.2005, 168, para. 211.

100

See e.g. Art. 36 icj Statute.

101

See also Dumberry, op.cit. note 31, 6.171.

102

Costelloe, op.cit. note 4, 363.

103

EU Regulation No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine, oj 2014 l 229/1. The sanctions have been renewed every six months since then, see e.g. oj 2021 l 321/1.