The Russia-Ukraine war has led to the domino effect of unforeseen events, political measures and countless legal questions to answer. One of those questions relates to venues to bring compensation claims for damages reaching billions of US Dollars. This includes physical damage to property and infrastructure as a result of ongoing military actions in Ukraine and Russia's seizure of property in the occupied territories. In addition, Russia has publicly announced its plans for economic retaliation for western sanctions effectively seizing Russian assets of western companies leaving the country due to the war.
In May 2022 the Draft Law on imposing external administration has been adopted in the first reading. The Draft Law would enable Russian governmental agencies to effectively take control of foreign companies which suspended business in Russia after 24 February 2022. Such "external administration" may go as far as selling companies' shares on auction excluding any participants from Russia's 'unfriendly states'.
European Convention of Human Rights
Affected companies and individuals can pursue their claims against Russia under the European Convention of Human Rights ("Convention"). This is an international agreement signed between 46 member states of the Council of Europe (not to confuse with the European Union) aiming to protect human rights and political freedoms in Europe. The Convention established the European Court of Human Rights ("ECtHR") which considers claims as to the alleged breaches of the Convention by its member states.
The claims may include Russia's breaches of the right to peaceful enjoyment of possessions (property rights as enshrined in Protocol 1 to the Convention) and Russia's duty to make a just satisfaction (Article 41 of the Convention).
Right to peaceful enjoyment of possessions
The term "Possessions" under the Convention includes shares, patents, licences, leases and welfare benefits (provided they are enjoyed by legal right, not by discretion). "Peaceful enjoyment" in turn, includes the right of access to the property.
Companies or individuals may not be deprived of their property (meaning that the property cannot be nationalised or confiscated) except in instances provided for by law, and be justified as a proportionate means of pursuing a legitimate aim in the public interest. The ECtHR has consistently held that the deprivation of property without compensation will be generally considered disproportionate except for "exceptional circumstances" (James v UK).
In cases of interference with the property applicants would need to demonstrate that Russia has failed to strike a "fair balance between the demands of the general interest of the community and the requirements of the protection of the property rights" (Sporrong and Lönnroth v Sweden).
Just satisfaction claims
Article 41 of the Convention states:
"If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party."
Thus the wording provides that the ECtHR will award just satisfaction only: (i) if domestic law does not allow complete reparation to be made, and (ii) "if necessary". Furthermore, the circumstances of a specific case will be considered to ensure that any award of satisfaction is "just". When deciding on the amount of compensation the ECtHR will also consider the local economic circumstances and domestic standards.
It is notable that the applicant's compliance with the formal and substantive requirements deriving from the Convention and the procedural rules is a condition for the award of just satisfaction.
As a result of the Russia-Ukraine war, Russia's membership in the Council of Europe was suspended on 25 February 2022. Russia ceases to be a Party to the Convention on 16 September 2022. This means that affected companies and individuals may bring claims against Russia only in relation to its acts or omissions that occur before 16 September 2022. Interference with property rights that occurs after this date will fall outside the ECtHR's competency.
Russia has previously refused to enforce the ECtHR's awards whilst still being a member of the Council of Europe and therefore it may refuse to enforce any awards rendered after 24 February 2022.
That being said, it is difficult to predict the political environment in Russia in the next three to five years, being the approximate time required to obtain an award. Further, many countries are clearly demonstrating political will to explore the possibility of seizing Russia's property as a mechanism for redistribution in favour of individuals and entities affected by the Russian acts of aggression in Ukraine. It may be the case that the Council of Europe will be amendable to consider such mechanisms to assist with the enforcement of their compensation awards against Russia.
The ECtHR is one of the most straightforward and cost effective venues to seek compensation from Russia. This is evident by its growing caseload: as of 30 April 2022, there were 18,200 pending applications against Russia under consideration. In light of the Russia-Ukraine war, this figure is expected to grow exponentially in the coming months, resulting in further delays in the claims' processing time.
There are also clear risks and limitations associated with potential claims including the unclear prospects of enforcement of potential awards. The circumstances of each specific case should be considered to assess the appropriateness of the ECtHR route in each case.