Investment protection in challenging times

The ongoing war in Ukraine has led to considerable losses for investors in both Ukraine and Russia. Those losses may well increase depending on the future course of the war and any steps Russia may take specifically targeting the assets of international investors in Russia. In addition to looking at available contractual protection and insurance (if in place) to mitigate such losses, investors should also be exploring their options under applicable investment treaties.

Investment treaties regulate the relationships (i) between signatory states and (ii) between such states and relevant commercial investors. They also give direct rights of action for investors against signatory states if they breach the standards of protection which are included in the relevant treaty.

Investment treaties

Investment treaties can be bilateral (BITs) or multilateral (MITs). Russia is (or has been) party to approximately 84 BITs and several MITs that provide investment protection, such as the Energy Charter Treaty.

When states sign BITs and MITs, they consent to be bound by the legal obligations in those treaties and waive their sovereign immunity in the event of claims brought by relevant investors. Any wrongdoing attributable to the state can generate liability and trigger a right to compensation. This can arise from the direct conduct of the state, or through the conduct of state organs or agents such as entities, ministries, or state-owned companies.

Standards of protection

Investors can rely on the standards of protection afforded to investors in BITs and MITs. These standards of protection are similar across different treaties, but the key protections afforded by these treaties typically include:

  • An obligation to provide fair and equitable treatment and full protection and security to investments.
  • A prohibition on expropriation other than on a non-discriminatory basis in the public interest. Any expropriation must be accompanied by payment of compensation at market value.
  • A right to transfer returns out of the state. Treaties generally permit temporary restrictions to address exceptional balance of payment difficulties but these are subject to strict limitations.
  • Access to justice, fair procedure, and prohibition of denial of justice.
  • Umbrella clauses provisions to guarantee the compliance with specific obligations and commitments assumed by a particular state vis-à-vis the investor.
  • Prohibition of arbitrary treatment or discriminatory measures.
  • An obligation for host states to provide no negative differentiation between foreign and national investors (National treatment).
  • Most-favoured-nation treatment to ensure states treat investors in a manner at least as favourable as the treat third parties.
  • Access to a neutral dispute settlement mechanism.

Dispute resolution

Investor-State dispute settlement mechanisms (ISDS) are a crucial component of most BITs and MITs and determine how disputes between states and investors are resolved.

ISDS provisions in investment treaties usually provide access to domestic remedies and/or international arbitration and give investors a choice to bring their claims to international arbitration and domestic courts. Many treaties give investors the option to bring a claim under either. Then once the choice is made, some treaties will consider it final and exclusive, while others will allow investors to resubmit their claims.

Most ISDS provisions contain limitations to access ISDS. These limitations will observe the subject matter and scope of the claim, the time and the identity and nationality of the claimant.


Under international law, Russia would be obliged to respect any award made by an arbitration tribunal under an investment treaty. However, Russia’s voluntary compliance with such awards has been poor. It would therefore likely be necessary to look for Russian assets outside of Russia against which to enforce. In this regard, it has been reported in the media that legislators in multiple jurisdictions are considering if, or how, frozen assets might be used to satisfy claims against Russia. This is unlikely to be straightforward.

Assisting investors

Our Sanctions, Corporate, Finance and International Arbitration have helped, and continue to help, many investors with their exit from Russia and on their options in terms of investment protection. Please contact us if you need assistance in this regard.