The Russian Federation Constitutional Court Confirms That The Russian Constitution Does Not Allow the Provisional Application of International Treaty Provisions on Investor-State Dispute Settlement

28th December 2020

The Constitutional Court of the Russian Federation (RFCC) has issued a decision on 24 December 2020, in which the RFCC confirmed principles of Russian constitutional law concerning the separation of powers and consent to Investor-State Dispute Settlement (ISDS).

ISDS is a type of arbitration by which private investors bring claims against foreign States, usually seeking compensation for alleged harms resulting from the foreign State’s sovereign acts. ISDS cases are heard by private arbitrators, rather than by national courts, so long as the foreign State has unambiguously given consent to ISDS in an international treaty or other instrument.

As confirmed in the RFCC’s ruling, whilst the executive branch of the Russian State does have the power to sign and provisionally apply international treaties on behalf of the Russian Federation, the executive branch cannot use this power to change or circumvent rules that are to be enacted legislatively by the Federal Assembly (the Russian Parliament). Based on the principle of separation of powers, some matters can only be regulated via legislative procedures carried out by democratically elected Parliament and cannot be delegated to the executive authorities.

The jurisdiction of the Russian courts is a perfect example of one of these matters, as the RFCC further explained. The executive authorities therefore cannot provisionally apply ISDS clauses under international treaties that have not been ratified by the Russian Parliament, which would transfer disputes against the State from the jurisdiction of Russian courts to the jurisdiction of ISDS tribunals. Within the Russian legal system, the Russian Parliament has the exclusive power to authorize ISDS, such as by ratification of a treaty containing an ISDS provision. Finally, the RFCC confirmed under existing law that the Russian Parliament cannot delegate this exclusive power to the executive branch, and indeed specifically explained it has not done so in the Russian Federation’s laws on foreign investment.

This ruling by the RFCC has significant implications for the YUKOS case, which has triggered a number of claims under the ISDS provisions of the Energy Charter Treaty (ECT). The ECT is a multilateral convention that was provisionally applied by the Russian executive authorities but was never ratified by the Russian Parliament. Notably, the ECT itself provides in article 45(1) that ECT signatories do not provisionally apply the ECT in its entirety, but only “to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.” The RFCC’s ruling confirms that provisional application of the ECT’s provisions on ISDS was not in accordance with the Russian Federation’s Constitution and laws, as the Russian Federation has consistently argued.

The RFCC’s ruling further demonstrates that the Russian Federation never gave consent under the ECT to arbitrate with private claimants, such as the YUKOS oligarchs or their offshore shell companies. Absent such consent, any ISDS awards rendered against the Russian Federation —such as the awards issued in Hulley Enterprises v. Russian Federation for damages exceeding US$ 50 billion plus interest – are unlawful not only under Russian law, but also under international law and multilateral treaties concerning international arbitral awards.