This article was originally published in World Pipelines and can be accessed here.
Leigh Crestohl, Partner
Limitation periods are not mere technicalities in litigation strategy: Tatneft v Ukraine
Pipelines are undertakings which by their nature carry the potential for complex cross-border litigation. Two recent decisions of the English Court in the long-running dispute between Tatneft and Ukraine illustrates how litigation strategy can have serious and costly consequences.
The dispute arose out of the ownership and control of Ukrtatneft JSC (“UTN”), which owns a refinery in Ukraine’s Poltava region. On 19 October 2007, UTN was “raided”, and Tatneft’s shares in UTN were effectively confiscated and later acquired by the Privat Group, controlled by Ukrainian oligarchs Igor Kolomoisky and Gennady Bogolyubov. Tatneft was unable to collect some US$420 million for oil supplied to the refinery through a pipeline from Tatarstan.
In May 2008, Tatneft commenced an arbitration against Ukraine under the Russia-Ukraine bilateral investment treaty (“the BIT Arbitration”). Tatneft claimed for the loss of its “investment” in UTN, as well as the outstanding oil supply debt, alleging that it was the victim of an unlawful “siphoning” scheme, by which the perpetrators used sham agreements with companies controlled by the Privat Group to siphon funds from the intermediary companies along the contractual payment route. Tatneft obtained an Award on 29 July 2014 in its favour for US$112 million for treaty breaches, but the oil debt claim was rejected because Ukraine’s liability had not been established.
In March 2016, Tatneft started a claim for $334.1 million in the English Commercial Court against Kolomoisky, Bogolyubov and others for the alleged “oil payment siphoning scheme”.
On 24 February 2021, the Commercial Court dismissed Tatneft’s claim as time-barred under the Russian three-year limitation period ( EWHC 411 (Comm)). Following an elaborate review of the evidence, including materials filed in the earlier BIT Arbitration, the judge concluded that Tatneft had sufficient knowledge far earlier than it claimed (at paras. 311 and 544-546). For limitation purposes, Tatneft only needed to know that funds had been misappropriated through the diversion of money for the Defendants’ own financial benefit.
To many, it may appear a perverse result. However, it serves as a reminder that limitation periods are not mere technicalities, even in cases where serious dishonesty may be at issue. The limitation issue will likely have loomed large from the outset when, and the costs of litigating this case in the English Court over a five-year period will undoubtedly have been huge.
Which cards to play?
In August 2017, Tatneft started proceedings in England to enforce the BIT Arbitration Award against Ukraine. After failing to resist enforcement on State immunity grounds in 2018 ( EWHC 1797 (Comm)), Ukraine secured something of a pyrrhic victory in November 2020. The Court accepted Ukraine’s argument that a portion of Tatneft’s interest in UTN was acquired in contravention of Ukrainian company law, which would have knocked out $81 million of the $112 million total Award. However, the Court held that it was an abuse of process for Ukraine not to have raised this illegality point in 2018 (at para 74), and that it was now estopped. The judge also inferred that Ukraine deliberately chose not to raise the point in the BIT Arbitration, and had thus waived its right to object to the Tribunal’s jurisdiction.
In litigation, questions often arise about what issues to raise, against whom, where, and when. Many different legal, commercial, political and tactical factors may be at play. English judges are increasingly intolerant of strategies that prolong proceedings or appear abusive. Withholding even a meritorious argument in one’s “back pocket” can prove risky, and a litigant is generally best off playing its best hand first, and before any potential limitation periods are engaged.