Guest Post: Eric Chang on “Ukraine’s Lawfare Strategy May Help in Deterring Further Russian Plans for Invasion”

Want to know more about how lawfare can operate in a real-world setting not (yet) involving armed conflict?  Today’s post is a really fascinating examination of how the Ukraine is employing a “lawfare” strategy against the Russian Federation’s ominous military behavior on its border.  Guest essayist Eric Chang explains how international investment law can become a lawfare tool (weapon?) in countering Russian “grey zone” hostilities.

There are lots of fascinating aspects to Eric’s discussion, including how the international law of occupation comes into play, and how the Ukraine has empowered its “citizens and corporations to accomplish its overall objectives.”

Here on Lawfire^® we’ve been examining lawfare recently (see e.g., here), and particularly the increased use of it by America’s opponents.  What makes Eric’s piece especially interesting is that it is an example of how a friendly country is very obviously using law as a substitute for traditional military means.  It also illustrates how business activities and national security can relate in a 21st century law practice.

Eric advises that this post is a summary of a forthcoming article entitles “Lawfare in Crimea: Weaponizing International Investment Law Against Russia’s Occupation of Ukraine.”  I urge you to read the essay below as it’s an exclusive ‘first look’ at a discussion of a cutting-edge application of lawfare theory.  

Ukraine’s Lawfare Strategy May Help in Deterring Further Russian Plans for Invasion.

By Eric Chang 

Russia’s recent, alarming military movements near the Ukrainian border are renewing fears of a large-scale invasion. While condemning Russia’s threatening moves, the international community appears reluctant to put boots on the ground in aid of Ukraine.

President Biden has ruled out use of U.S. military forces, instead weighing heavy sanctions on Russia’s banking system. Both the U.S. and Germany have also publicly stated that they may shut down the Gazprom-owned Nord Stream 2 pipeline project if Russia invades Ukraine. Thus, for the time being, the main deterrent options appear to be economic.

Lawfare strategy

Ukraine’s military options are limited: its generals acknowledge that a full Russian invasion would overwhelm Ukrainian defense forces.

Faced with a vastly superior military adversary, Ukraine has engaged in a strategy of unconventional warfare (pitted against Russia’s own “grey zone” hostilities in Crimea and the Donbas region), developing an arsenal of non-military strategies. Chief among these is its systematic campaign of lawfare (“Lawfare”) – as defined by Major General Charles J. Dunlap, Jr., USAF (Ret.) as “the strategy of using – or misusing – law as a substitute for traditional military means to achieve an operational objective.”^[1]

Ukraine deployed this strategy in response to Russia’s 2014 invasion and occupation of the Crimean Peninsula, focusing on a specific area of law – international investment law. Ukraine’s strategy presents an instructive case study of a belligerent State’s deliberate and systematic use of Lawfare in an ongoing international armed conflict.

Of equal interest, Ukraine and Ukrainian investors have astutely leveraged principles of the law of armed conflict (“LOAC”) in order to avail themselves of the unique advantages of international investment law and accomplish Ukraine’s Lawfare objectives.

Perhaps most significantly, given recent events, Ukraine’s success in the legal proceedings arising out of the Crimean occupation may influence any Russian invasion cost-benefit assessment.

The role of international investment law

International investment law is a specialized subset of public international law, and its defining feature is a unique dispute resolution forum known as investor-State dispute settlement (“ISDS”). ISDS allows private Ukrainian investors to file claims directly against Russia for breaches arising out of Russia’s 2014 invasion and subsequent occupation of Crimea, collectively seeking billions of U.S. Dollars in compensation.

The Ukrainian government, through its Ministry of Justice, has been outspoken about its strategy of Lawfare, going so far as publishing an informational website broadcasting its “Lawfare Project” against Russia. The website makes abundantly clear that the Ukrainian government is coordinating a comprehensive “legal confrontation” against Russia.

The Ukrainian investors’ investment claims against Russia are filed pursuant to a 1998 bilateral investment treaty between Russia and Ukraine (the “Russia-Ukraine BIT”). Bilateral investment treaties (“BITs”) are international agreements negotiated between two sovereign States to encourage foreign investment flows between the parties.

BITs grant mutual guarantees and protections for investors of each State who invest in the territory of the other State (the State who welcomes the foreign investor is known as the “host State”). Typical substantive provisions include protection from arbitrary expropriation of investments, and the guarantee of fair and equitable treatment of investments. Today, there are over 3,300 BITs in force globally, creating a vast, interconnected network of investment treaties amongst hundreds of States.

Arbitration claims

The most unique feature of BITs is the ability for investors to file arbitration claims directly against host States when the latter are alleged to have breached treaty protections.

The originality and importance of ISDS is hard to overstate host States agree to waive sovereign immunity, and within the framework of such arbitration disputes, they are treated in the same manner as any ordinary commercial party in a business dispute.

This unique feature makes investment treaty arbitration an attractive forum for Ukrainian investors to seek legal recourse for losses resulting from the Russian invasion and occupation.

There are currently eleven known investment treaty claims filed by Ukrainian investors against Russia.^[2] The investors allege Russia’s illegal seizures of various investments located in Crimea, such as banking operations, an airport, gas stations, real estate, wind farms, and electrical power stations.

International law of occupation

From a military law perspective, Ukraine’s strategy is all the more remarkable because it further leverages the international law of occupation in order to achieve its Lawfare objectives.

Russia’s invasion of Crimea created an unusual situation under international law: Ukrainian investors in Crimea suddenly found themselves in Russian occupied territory, thus opening the way to leverage the Russia-Ukraine BIT (under the treaty, a Ukrainian investment must be located in the territory of the host State, that is, Russia).

Recognizing this opportunity, the Ukrainian investors successfully argued that, under the international law of occupation, their Crimean investments were made within Russian occupied territory, and therefore fall within the scope of the Russia-Ukraine BIT – while not conceding that Crimea is still legally part of Russia.

The tribunals in the various cases have uniformly found jurisdiction on the basis that “an occupying power may be held responsible under a BIT for its conduct in the occupied territory,” and that the Russia-Ukraine BIT extends to territory over which either State exerts “effective control.”

Effective control, of course, is a term of art in the law of occupation (pursuant to Article 42 of the Hague Regulations (1907), and the subsequent Fourth Geneva Convention (1949)). Relying on the law of occupied territory, the tribunals have concluded that Crimea is within Russian territory, focusing on the de facto “effectiveness” of Russia’s occupation of Crimea, rather than its de jure status (which the international community uniformly recognizes as remaining part of Ukraine).

Empowering Ukrainian citizens and corporations

Another observation is that through its Lawfare strategy, Ukraine has empowered Ukrainian citizens and corporations to accomplish its overall objectives as a belligerent State. Ukraine appears to be directly coordinating and underwriting several claims filed by Ukrainian state-owned entities, and through its Lawfare Project, Ukraine’s Ministry of Justice has encouraged and leveraged other Ukrainian investors to bring the various investment claims.

The resulting awards against Russia achieve both the investors’ personal goals of compensation, and Ukraine’s Lawfare objective of countering Russia’s military invasion and occupation. One could call this an outsourcing, or privatization, of Lawfare as a tool of statecraft.

Ukraine’s approach is not an isolated example: the civil liability provisions of the U.S. Antiterrorism Act (“ATA”)[3] similarly allow individual victims of terrorist acts to file suit against entities who provide material support to known terrorist organizations. As with Ukraine’s BIT strategy, the U.S. can be said to have partly outsourced its counterterrorism efforts by enacting the ATA, and enlisting the help of private individuals in fighting terrorist activities.

Success of investment treaty claims

The investment treaty claims have been largely successful, resulting in significant awards against Russia. Currently, awards on liability potentially expose Russia to over $8 billion in damages, with quickly compounding legal interest.

While Russia is a notoriously difficult State to enforce against, Ukrainian investors are starting to see success in various court proceedings, and have already successfully enforced on a $159 million award, as well as another $88 million pair of related awards.

Indeed, Russia has reversed its policy of not participating in the arbitrations, and it is now scrambling to defend and challenge enforcement efforts in multiple jurisdictions around the world. Russia’s change in policy is telling, and reveals that Ukraine’s Lawfare strategy is causing some degree of financial pain.

This financial exposure can be understood in the context of the other rising costs of Russia’s Crimean occupation: the first five years cost Russia approximately 1.5 trillion rubles, or roughly over $20 billion, equal to two years’ worth of Russia’s education budget, or three years’ worth of its funds for healthcare.  

The precedent set by this first wave of investment arbitration awards arising out of the Crimean invasion is highly significant in the current context: Russia must be aware that any invasion of the remainder of Ukraine would expose it to a further, massive wave of investment treaty claims, with potential liability orders of magnitude greater than Russia’s current exposure. Russia’s defense of such new claims would face a difficult uphill battle, considering the now well-established line of adverse arbitral decisions.

Exposure to a new wave of investment claims, by itself, may not sufficiently deter Russia from a further invasion of the rest of Ukraine. However, the potential financial pain would be considerable, especially when added to the risk of other financial sanctions (in particular, excluding Russia from the SWIFT global electronic payment system – a sanction which, when levied against Iran, crippled its economy).

Ukraine’s Lawfare strategy must be understood as one tool in an unconventional warfare toolkit that includes standard military action (such as in the Donbas region), shutting off the flow of a major irrigation canal to Crimea (creating a significant water shortage in the peninsula), and advancing a sophisticated international public opinion offensive which calls to mind China’s Three Warfares Strategy.

Seen in this context, Ukraine’s encouragement of BIT claims against Russia forms part of an overall coordinated strategy that may help tip the scales against invasion in Russia’s cost-benefit analysis. If this is correct, Ukraine’s Lawfare strategy would represent a remarkable use of legal proceedings as a substitute for traditional military means in pursuing its operational objectives against Russia.

Notes

[1] Colonel Charles J. Dunlap, Jr., Lawfare Today: A Perspective, 3 Yale J. Int’l. Aff. 146, 146 (2008).

[2] Oschadbank v. The Russian Federation, PCA Case No. 2016-14 (Perm. Ct. Arb. 2016), https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/1022/dtek-v-russia (“Oschadbank v. Russia”); PJSC CB PrivatBank and Finance Company Finilon LLC v. The Russian Federation, PCA Case No. 2015-21, PCA Case Repository (Perm. Ct. Arb. 2015) (“PrivatBank v. Russia”); Aeroport Belbek LLC and Mr. Igor Valerievich Kolomoisky v. The Russian Federation, PCA Case No. 2015-07, PCA Case Repository (Perm. Ct. Arb. 2015) (“Belbek v. Russia”); (i) Stabil LLC, (ii) Rubenor LLC, (iii) Rustel LLC, (iv) Novel-Estate LLC, (v) PII Kirovograd-Nafta LLC, (vi) Crimea-Petrol LLC, (vii) Pirsan LLC, (viii) Trade-Trust LLC, (ix) Elefteria LLC, (x) VKF Satek LLC, (xi) Stemv Group LLC v. The Russian Federation, PCA Case No. 2015-35, PCA Case Repository (Perm. Ct. Arb. 2015) (“Stabil LLC and others v. Russia”); PJSC Ukrnafta v. The Russian Federation, PCA Case No. 2015-34, PCA Case Repository (Perm. Ct. Arb. 2015) (“Ukrnafta v. Russia”); Everest Estate LLC et al. v. The Russian Federation, PCA Case No. 2015-36, PCA Case Repository (Perm. Ct. Arb. 2015) (“Everest Estate LLC and others v. Russia”); (1) Limited Liability Company Lugzor, (2) Limited Liability Company Libset, (3) Limited Liability Company Ukrinterinvest, (4) Public Joint Stock Company DniproAzot, (5) Limited Liability Company Aberon Ltd v. The Russian Federation, PCA Case No. 2015-29, PCA Case Repository (Perm. Ct. Arb. 2015) (“Lugzor and others v. Russia”); NJSC Naftogaz of Ukraine, PJSC State Joint Stock Company Chornomornaftogaz, PJSC Ukrgasvydobuvannya and others v. The Russian Federation, PCA Case No. 2017-16, PCA Case Repository (Perm. Ct. Arb. 2017) (“Naftogaz and others v. Russia”); and JSC DTEK Krymenergo v. the Russian Federation, PCA Case. No. 2018-41 (Perm. Ct. Arb. 2018) (“Krymenergo v. Russia”). There are also press reports that Ukraine’s nuclear energy company, NNEGC Energoatom, is preparing to file a $100 million claim against Russia over the alleged expropriation of a wind farm in Crimea (“Energoatom v. Russia”). Cosmo Sanderson, Ukrainian state entity prepares Crimea claim, Global Arbitration Review (Jan. 6, 2021), https://globalarbitrationreview.com/ukrainian-state-entity-prepares-crimea-claim. Finally, it is also reported that Ukrenergo, a state-owned power company, is proceeding with a $1 billion investment claim against Russia for the alleged seizure and expropriation of 15 electrical substations and several thousand kilometers of power lines in Crimea (“Ukrenergo v. Russia”). The claim is reported to be administered by the Permanent Court of Arbitration, but is not listed on the PCA list of investor-state cases. Cosmo Sanderson, Ukrainian state entity’s claim against Russia underway at PCA, Global Arbitration Review (Aug. 5, 2020), https://globalarbitrationreview.com/ukrainian-state-entitys-claim-against-russia-underway-pca.

[3] 18 U.S.C. §§ 2333, 2339(B); see also Linde v. Arab Bank, PLC, 882 F.3d 314 (2d Cir. 2018); see also Harry Graver & Scott. R. Anderson, Shedding Light on the Anti-Terrorism Clarification Act of 2018, Lawfare Blog (Oct. 25, 2018, 12:00 PM), https://www.lawfareblog.com/shedding-light-anti-terrorism-clarification-act-2018.

About the author

Eric Chang is a captain in the U.S. Army’s Judge Advocate General Corps and serves as an International Law Officer for the  426th Civil Affairs Battalion (Airborne).  He is also the Founder and Principal, Chang Law, a practice focusing on international investment law. This post is a summary of a forthcoming article titled “Lawfare in Crimea: Weaponizing International Investment Law Against Russia’s Occupation of Ukraine.”

Disclaimers

The views expressed herein are those of the author. They do not necessarily represent the views of the Department of Defense, the Department of the Army, the Judge Advocate General’s Corps, or any other governmental or non-governmental agency.

The views expressed by guest authors do not necessarily reflect the views of the Center on Law, Ethics and National Security, or Duke University.  

Remember what we like to say on Lawfire^®: gather the facts, examine the law, evaluate the arguments – and then decide for yourself!