KluwerArbitration
Document information
Publication
Arbitrating for Peace: How
Arbitration Made a Difference
Jurisdiction
Ukraine
Organization
Arbitration Institute of the
Stockholm Chamber of
Commerce
Arbitrators/Judges
Johan Munck, Chairman
Anders Knutsson, Arbitrator
Claes Lundbland, Arbitrator
Case date
30 March 2010
Case date
8 June 2010
Parties
Claimant, RosUkrEnergo
Defendant, Naftogaz of
Ukraine
Bibliographic reference
Johan Sidklev, 'Chapter 13:
RosUkrEnergo versus Naftogaz
of Ukraine', in Ulf Franke ,
Annette Magnusson , et al.
(eds), Arbitrating for Peace:
How Arbitration Made a
Difference, (© Kluwer Law
International; Kluwer Law
International 2016) pp. 211 -
222
© 2018 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
Chapter 13: RosUkrEnergo versus Naftogaz of Ukraine
Johan Sidklev
SCC Award, 2010
(*)
§13.01 INTRODUCTION
On January 7, 2009, the existing energy relationship between Russia, Ukraine, and Europe broke
down over a natural gas dispute. The consequences were severe as, amid subzero
temperatures in many parts of Europe, the gas supply from Russia to Ukraine was cut off. What
aggravated the situation, and what may not be common knowledge, is that more than twenty
European countries were affected by the shortage, leaving hundreds of thousands of people
without light and heating and shutting down essential governmental functions across the
continent.
In fact, Europe at this time experienced an unprecedented energy crisis when 20% of the EU’s
gas supply was cut off for two weeks in the midst of winter. Despite the fact that Russia and
Ukraine had experienced a similar crisis in 2006, this was the first occasion since the Soviet
gas transit system was built in the 1970s that Russia actually stopped supplying gas to Europe.
This article will present and explain the nature of the problem, give a brief summary of the
dispute between RosUkrEnergo (“RUE”) (1) and Naftogaz of Ukraine (“Naftogaz”), (2) and reflect
P 211 upon the dispute resolution by the Arbitration Institute of the Stockholm Chamber of
P 212 Commerce (SCC) from a geopolitical perspective, taking into account the additional
ingredient of the 2015 gas crisis involving Russia’s annexation of Crimea.
§13.02 THE GAS PROBLEM IN A NUTSHELL
The nature of the gas problem is multidimensional, highly complex, and has clear political
overtones. This article will not set out to analyze this in any detail but merely convey the
fundamentals of the problem in order to put the dispute between RUE and Naftogaz in
perspective.
The roots of the problem lie in a combination of history and geography. During the Cold War,
the Soviet Union constructed gas pipelines which ran through Ukraine to Europe. In exchange
for transiting the Europe-destined gas through Ukraine, the Kremlin supplied Ukraine with
heavily discounted natural gas. This barter arrangement survived the Cold War, but was put
under severe pressure during the Ukrainian Orange Revolution in 2004 and the subsequent
election of the pro-Western president Victor Yushenko in 2005, and has since then been a
troubling source of global concern.
Europe’s dependence on the cooperation between Russia and Ukraine is a serious and growing
problem. During the period 1990-2012 the EU relied on Russian natural gas for approximately
20%-25% of its demand whereas in 2013 the figure rose considerably to 28%. (3) Many countries
are almost entirely dependent on Russian natural gas for domestic heating and electricity,
including Finland, Estonia, Latvia, Slovakia, and Bulgaria. (4) The fact that the lion’s share of
the Europe-destined gas needs to be transported via Ukraine is a source of continued
frustration to Russia, even if the construction of North Stream (transporting natural gas from
Russia to Germany in the Baltic Sea) has mitigated the problem to some extent.
Ukraine for its part relies on Russia for the majority of its energy needs. Almost 75% of the gas
consumed by Ukraine comes from Russia and around half of the country’s energy consumption
comes from natural gas, making it the most gas-dependent nation in the world. (5) Since most
of Ukraine’s industry and domestic heating is dependent on Russian gas, the country’s
economy as a whole would practically collapse without Russian gas supplies. To further
complicate the picture, Ukraine is also heavily dependent on continued Russian transit
deliveries to Europe as the transit fees which Russia pays Ukraine make up around 2% of
Ukraine’s GDP. (6)
However, Ukraine’s access to cheap and heavily discounted Russian gas has not served the
P 212 country well, as it has become one of the most energy-inefficient countries in the world. (7) But
P 213 raising gas prices in Ukraine would not be politically attractive since this would entail
higher production costs for the industry and more expensive heating for consumers. As a result,
Naftogaz sells gas to its national industry and consumers at a price which is lower than the
amount it pays Russia’s Gazprom. Consequently, Naftogaz is operating at a loss and has been
on the verge of bankruptcy and is continuously dependent on state subsidies to remain in
business. What makes the situation even more complex is the presence of endemic corruption
and opacity.
Russia is trying to make use of the situation by obtaining the lowest possible transit fees for its
Europe-destined gas, but also by proposing to raise the price of gas as a means of influencing
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 Ukrainian political decision making. Ukraine, in turn, is referring to its opacity and decaying
transit infrastructure as a possible explanation for allegations that natural gas has been
siphoned off from the system and is using its economic problems as an explanation for
delaying or failing to pay Gazprom invoices.
While the main trigger for the disputes in the 1990s was the somewhat straightforward payment
defaults by Ukraine, the situation subsequent to the Orange Revolution in 2004 became far
more complex and politicized. The Western-oriented policies of President Yushenko were not
embraced by the Kremlin and, once the Ukrainian leadership announced its desire for Ukraine
to become a member of NATO, Russia sought to increase gas prices and stiffen the terms of
supply. However, it is hard to believe that Russia actually imagined that the already heavily
indebted Naftogaz would be able to pay the higher prices demanded. Rather, one might think
that Russia’s true motives were to put pressure on Kiev and gain leverage over the Ukrainian
government to make concessions in other areas.
So, in simple terms, the 2009 gas disputes were the result of Ukraine being unable to cope with
the new market price for gas implemented by Russia coupled with Ukraine’s attempts to
maximize its position as a transit country for gas destined for Europe as a negotiating tool.
In the midst of the arbitration relating to the 2009 gas dispute, in February 2010 the Ukrainian
people elected Viktor Yanukovich as their new president. President Yanukovich, supported by
the Kremlin, marked the return by Ukraine to a significantly more pro-Russian approach. The
disrupted relations with the Russian leadership were quickly restored as President Yanukovich
managed to conclude a new pricing agreement with Gazprom. According to the 2010
agreement, Ukraine was afforded a 30% discount in relation to the originally negotiated price.
However, the 2010 agreement was not achieved without substantial concessions on the part of
Ukraine. This became clear when, in April 2010, President Yanukovich signed a treaty with
Russia whereby the Russian lease on naval facilities in Crimea was extended beyond 2017 until
2042. This was despite the fact that, only months earlier, President Yushenko and the Ukrainian
government had declared that the lease would not be extended and that the Russian fleet
would have to leave Sevastopol by 2017.
But it soon became clear that the 2010 agreement was not particularly favorable to Ukraine
since, due to falling market prices for natural gas, Gazprom had to renegotiate its contracts
with major European customers (bringing them into line with prices in the 2010 agreement with
Ukraine). In addition, in the 2010 agreement Ukraine had agreed to purchase 40 BCM on a
yearly basis, which was far beyond domestic demand for previous years.
P 213
P 214
In March 2014, Crimea was annexed to Russia following a controversial military intervention.
Following the annexation, Russia terminated the treaty with Ukraine relating to the lease of the
naval bases in Crimea. President Putin also arranged for the extrication of the deposed
President Yanukovich.
And in the fall of 2014, a new set of gas disputes arose, now including the intricate fact that
Russia had taken over Crimea, an action which was widely condemned by many world leaders
and organizations as an illegal annexation of Ukrainian territory. (8) The events led to the EU
and the US implementing far reaching sanctions regimes against Russian individuals and
business sectors, creating further tension and polarization between East and West.

§13.03 The Dispute between RUE and Naftogaz (9)

In 2004, Gazprom introduced RUE as an intermediary in relation to its dealings with Naftogaz.
At the time, RUE and Naftogaz entered into several different contracts which governed (i) the
sale of natural gas from RUE to Naftogaz (which included prices and volumes); (ii) the terms
and conditions for Ukraine’s transit services provided to RUE for natural gas destined for RUE’s
European customers; and (iii) the terms and conditions for storage of RUE’s gas in large storage
facilities located on Ukrainian territory.
Each of the contracts included arbitration provisions referring any disputes to arbitration at
the SCC. The governing substantive law of all these contracts was Swedish law.
In April 2008, RUE initiated arbitration against Naftogaz under one of the contracts and
appointed former Swedish Chief Justice Anders Knutsson as arbitrator. Naftogaz appointed Mr.
Claes Lundbland and the two party-appointed arbitrators appointed the (then) Chief Justice of
the Swedish Supreme Court, Johan Munck, as chairman of the arbitral tribunal. During the
following year, seven more requests for arbitration were filed by the parties (three by RUE and
four by Naftogaz), making the dispute highly complex from a procedural standpoint. However,
the procedural complexity was made manageable by the parties appointing the same
arbitrators in all eight arbitrations and by the SCC Board deciding to consolidate the
arbitrations. Due to the complexity of the matters subject to arbitration, the parties and the
P 214 tribunal also agreed to divide the case into two phases whereby all transactions relating to the
P 215 2009 gas crisis were to be arbitrated in a final arbitration award, and the earlier disputes
(predominately those emanating from 2006) were to be adjudicated before that in a separate
award. Moreover, the parties agreed that the separate award would not be enforceable until
the final award had been rendered. In fact, the cooperative spirit amongst the parties and
their legal counsel, as well as the practical stance adopted by the SCC, the SCC Board, and the
tribunal ensured that the dispute – which was otherwise characterized by extreme sensitivity

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 coupled with apparent political motives from both Moscow and Kiev – could be handled
efficiently and yet with due consideration for both parties’ procedural rights.

[A] The First Phase of the Arbitration

During the first phase of the arbitration, where hearings were held in the summer of 2009 and
in January 2010, one of RUE’s requests was that Naftogaz should be required to pay penalty
interest for late payments relating to natural gas delivered by RUE during the first three
months of 2006. During this period, RUE had delivered gas to Naftogaz at a value of
approximately US $ 1.5 billion without receiving payment and, since the penalty provision in
the contract was in direct correlation with the amount outstanding, huge debts had accrued.
The value of the gas and Naftogaz’s non-payment was common ground in the arbitration.
Instead, Naftogaz’s defense against this claim was centered on two legal positions. First,
Naftogaz argued that pursuant to legal principles under Swedish law, RUE was not entitled to
any penalty interest since RUE was responsible for Naftogaz’s failure to make timely payments
and, second, pursuant to section 36 of the Swedish Contracts Act the penalty clause should in
any event be set aside or, alternatively, the penalty should be reduced to a reasonable
amount. In the tribunal’s opinion, the situation at hand was far beyond the scope of the
principle referred to by Naftogaz as its first line of defense and could therefore not be applied.
Instead, the tribunal came to focus its reasoning around section 36 of the Contracts Act.
Under section 36 of the Contracts Act, a term or condition of a contract may be modified or set
aside if it is unreasonable having regard to the contents of the agreement, the circumstances
prevailing at the time the agreement was entered into, subsequent circumstances, and
circumstances in general. In this respect, the tribunal made some interesting comments and
findings.
First, the tribunal concluded that due to practical, technical and financial difficulties for
Naftogaz to immediately pass on to its customers the substantially higher prices introduced by
RUE in 2006, it would have been reasonable under the circumstances to make some
transitional arrangements. Second, the tribunal considered that it was a very drastic step for
Gazprom to cut off the gas supply to Ukraine in January 2006 and that this measure must have
been of crucial importance to Naftogaz when it was induced to accept the new price model
without any transitional arrangements. It is interesting to note that the tribunal then
recognized the fact that section 36 is applied very restrictively in Sweden and that its
P 215 predominant application is intended for situations where parties have apparent unequal
P 216 bargaining power, mainly disputes between large companies and consumers. But, according
to the tribunal, the application of section 36 in the case of commercial agreements is far from
excluded, albeit in those relationships much stronger reasons are required for applying the
provision than in a contractual relationship between a company and a consumer.
Furthermore, despite its limited scope of application, and to the surprise of some, the tribunal
decided to apply section 36 in the dispute between RUE and Naftogaz so as to modify the
period during which Naftogaz would have to pay the contractually agreed penalty rate to RUE
(replacing it for a period with the lower Swedish statutory refund interest). The decisive factors
for the tribunal were two actions taken by Gazprom, namely reduction of gas pressure in the
system and taking control over Ukraine’s sole alternative source of gas (from Turkmenistan),
which under the circumstances were considered to be so extreme that they could, according to
the tribunal, form the basis for application of section 36 of the Contracts Act.
To summarize the situation with the Turkmen gas supplier, Naftogaz had in place a contract for
delivery of natural gas but Gazprom (via one of its subsidiaries), in the midst of RUE’s
negotiations with Naftogaz regarding revised prices, informed Naftogaz that it had concluded a
contract with the Turkmen supplier. This effectively prevented Naftogaz from receiving agreed
quantities of gas from its sole alternative supplier. The tribunal then assumed that the
Gazprom group had in fact induced the Turkmen supplier to breach its contract with Naftogaz
with the effect that no Turkmen gas could be delivered to Naftogaz.
The tribunal noted that if a party intervenes in a contractual relationship between other
parties and thereby contributes to a breach of contract by one of the parties to the detriment
of the other party, depending on the circumstances, this might be regarded as improper
conduct of business and even lead to liability for damages.
The fact that the two actions which founded the basis for the tribunal’s application of section
36 of the Contracts Act (i.e., reduction of gas pressure and the contract with the Turkmen gas
supplier) were committed by the Gazprom group (and not by RUE) was of no real concern to the
tribunal since (according to the tribunal) RUE was aware of the actions and took advantage of
them. Under those circumstances, whether or not the actions were formally attributable to RUE
was not of crucial importance.
The practical effect of the tribunal’s finding in this respect was that the contractually agreed
penalty interest rate was reduced for a period of five months, equaling the time which
Naftogaz (in the tribunal’s reasonable opinion) should have been able to adapt to the new
situation and price model. Subsequent to the five month period, the contractually agreed
penalty interest was again applied.
From a legal point of view, the tribunal’s findings with respect to the application of section 36
of the Contracts Act and its conclusion with respect to the attribution of Gazprom’s actions to
RUE attracted the most attention as between the parties.

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 As mentioned in the introduction to this article, Ukraine and Russia are dependent on one
another for the proper functioning of the sales infrastructure of natural gas. RUE needed access
to Ukraine’s transit pipelines in order to reach its European customers and it also needed
access to gas storage facilities, particularly during the warmer months of the year when gas
P 216 consumption was low but the production level maintained. Within Ukraine, Naftogaz had
P 217 access to enormous underground storage facilities with capacity to provide storage for RUE’s
gas as well. That being the case, another aspect of the first phase of the dispute concerned
Naftogaz’s obligations to provide these transit and storage services to RUE, and RUE’s
obligations to pay for those services. In fact, RUE had claimed compensation in the arbitration
in the amount of approximately US $ 580 million relating to Naftogaz’s failure to transit (as
well as to inject, store and withdraw) gas from its underground storage facilities. Naftogaz’s
defense to these claims was primarily that they had been presented too late.
In relation to this issue, the tribunal made some interesting findings. The tribunal first noted
that, pursuant to section 32 of the Swedish Sales of Goods Act, a buyer has a duty to put the
seller on notice within a reasonable time after it detected, or should have detected, a defect
in the goods supplied (such as quality or quantity). In this case, the tribunal accepted that RUE
had put Naftogaz on due notice within a reasonable time through certain correspondence with
the effect that the claims were not time-barred.
However, the tribunal then analogously applied the Swedish Commercial Agents Act by
reference to certain case law, thereby extending the notice obligation to include certain
additional requirements. The tribunal referred to the preparatory works of that act and
concluded that the party seeking compensation must give notice to the effect that they have a
claim for compensation and state the general composition of the damage as well as the basis
for the claim. Furthermore, since Naftogaz (according to the tribunal) was in a position similar
to that of an agent when it came to its obligations to transit, inject, store and withdraw gas on
behalf of RUE, the notice requirements extended to RUE as well.
After having examined the correspondence, which the tribunal found constituted due notice
under the Sales of Goods Act, it ruled that the correspondence did not meet the additional
notice requirements flowing from the Commercial Agents Act since RUE had not clearly
expressed to Naftogaz its intention to pursue a claim for damages or penalties. Based on this
reasoning, the tribunal dismissed RUE’s claims in this part of the arbitration.
This finding was yet another decision that attracted the parties’ attention. The imposition by
the tribunal of additional notice requirements on RUE by way of analogy (after having
concluded that the notice requirements laid down under the directly applicable legislation
had been met) was a broad and somewhat surprising interpretation of Swedish law.
This first phase of the arbitration between RUE and Naftogaz encompassed many more issues,
which were of financial and principal importance to the parties but perhaps less interesting
from a legal and historical perspective. Suffice it to say that under a separate award rendered
in March 2010, the parties were alternately successful and unsuccessful, albeit that the net
amount (some US $ 197 million) awarded by the tribunal was in favor of RUE.
Notwithstanding that the first phase of this dispute was high-profile in many respects and
(given the amounts at stake) also financially important to the parties, the real legal battle was
yet to be resolved.
P 217
P 218
[B] The Second Phase of the Arbitration
The second phase of the arbitration centered on Naftogaz’s allegedly illegal appropriation of
11 billion cubic meters (BCM) of natural gas belonging to RUE but stored in Naftogaz’s
underground storage facilities under a storage contract between the parties. The value of the
11 BCM of gas was (according to RUE) US $ 4.95 billion.
Naftogaz’s appropriation of the 11 BCM of natural gas had its origin in Yulia Tymoshenko having
become Ukrainian Prime Minister in 2007 and her desire to exclude RUE from the gas trade
between the two States. To that effect, Prime Minister Tymoshenko eventually secured an
agreement with the Russian government under which Gazprom and Naftogaz would return to
direct trading starting from January 2009.
By the end of January 2009, RUE held 11 BCM of gas, which it had previously purchased from
Gazprom, in the Ukrainian underground storage facilities. The 11 BCM of gas was stored under a
storage contract which obliged Naftogaz, on RUE’s orders, to lift and transport the quantities of
gas required by RUE’s customers. However, when Naftogaz repeatedly failed to adhere to RUE’s
lifting orders it ultimately transpired in February 2009 that the 11 BCM of gas was missing.
RUE then filed its claim with the arbitral tribunal requesting that Naftogaz be ordered to pay
damages in the amount of US $ 4.95 billion for breach of contract and another US $ 495 million
relating to contractual penalties. In the alternative, RUE claimed that Naftogaz be ordered to
return the 11 BCM of natural gas to RUE and that the penalties could be discharged by Naftogaz
by transferring to RUE an additional 1.1 BCM of gas.
Naftogaz accepted that it had appropriated the 11 BCM of gas, but argued that it had been
entitled to do so on the basis that it had entered into an agreement with Gazprom under which
Gazprom had assigned to Naftogaz a claim of US $ 1.7 billion which Gazprom alleged it had
against RUE. Naftogaz had then seized the 11 BCM of gas from RUE as payment in kind for its

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 recently acquired debt. Since RUE’s consent was needed for a valid appropriation, Naftogaz
initially argued that such consent had been impliedly given by RUE’s senior management.
However, having assessed the evidence before it, the tribunal was satisfied that RUE had not
consented to Naftogaz’s appropriation and consequently ruled in favor of RUE. (10) In doing so,
it ordered Naftogaz to return to RUE the 11 BCM of gas. The tribunal also ordered Naftogaz to
pay contractual penalties to RUE by delivering another 1.1 BCM of gas to RUE, noting the
parties’ agreement in this regard.
RUE filed a motion with the local courts in Kiev regarding recognition and enforcement of the
SCC award. The Court of First Instance promptly rendered a judgment in favor of RUE,
P 218 recognizing the award. However, Naftogaz appealed, arguing that the SCC award was contrary
P 219 to national public policy. The appellate court did not agree with Naftogaz and concluded
that the award was not contrary to public policy as it had no effect on the independence,
integrity, basic constitutional rights or freedom guarantees protected by Ukrainian public
policy. The Supreme Court later affirmed the decision. (11)
Considering that the Ukrainian courts in the past have been reluctant to recognize foreign
arbitral awards rendered against the State or State-owned entities, the decision by the
Ukrainian Supreme Court affirming the lower court’s decision to recognize and enforce the SCC
award in this case is an important precedent.
The 2006 and 2009 gas disputes between Russia and Ukraine came to a peaceful conclusion as
a result of the SCC awards. However, natural gas as a powerful political and strategic tool
would soon come to the fore again as further tension between the two nations started to
escalate.

§13.04 THE ‘GAS WAR’ ARBITRATIONS CONTINUE

Since 2004, Ukraine had sought to establish closer relations with the EU whilst simultaneously
retaining its good relations with Russia. This balancing act was put to the test in November
2013 when the EU-Ukraine political association and free trade agreement was put on the table.
(12) The EU was willing to offer Ukraine its sought-after loans and aid (to cope with the
impending financial crisis), but only on condition that significant changes were made to
legislation in Ukraine. For its part, Russia offered Ukraine substantially greater loans, without
requiring any regulatory changes. In addition, Russia also offered Ukraine lower prices for gas.
President Yanukovych ultimately chose not to sign the deal with the EU, but instead opted to
build closer ties with Russia. To this end, in December 2013, President Yanukovych and
President Putin signed a treaty whereby Russia would buy US $ 15 billion worth of Ukrainian
Eurobonds and lower the cost of natural gas from the current price of US $ 400 to US $ 268 per
1,000 cubic meters. (13) President Yanukovych’s decision not to form a partnership with the EU
was the spark that ignited the 2014 Ukrainian revolution (also known as the Euromaidan
Revolution) and the beginning of the end for Viktor Yanukovych’s presidency.
By mid-February 2014, the riots in Maidan square in Kiev culminated in significant bloodshed
and loss of life. Under the threat of an outright armed conflict, President Yanukovych was
removed from office by the parliament and subsequently fled the country. As a result of the
deposition of President Yanukovych and non-recognition of the new Ukrainian leadership,
P 219 Russia halted its purchase of Eurobonds, and in April 2014 Russia cancelled the previously
P 220 agreed natural gas discount via the built-in price review mechanism in the treaty. (14) And
here the seeds for yet another geo-political driven gas dispute were sown.
The reason stated by Gazprom for cancelling the discount was primarily the US $ 1.7 billion
debt accrued by Naftogaz since 2013. (15) However, Ukraine did not agree to pay the higher
prices and instead sought to obtain energy independence, inter alia, by striking a deal with
Slovakia on re-using an old pipeline that could provide an alternative source of gas. (16)
As European energy security was once again severely threatened, the EU Energy Commissioner
initiated intense trilateral negotiations with Ukraine and Russia aiming to get the parties to
reach a compromise and thereby secure the uninterrupted flow of gas to Europe. But the initial
talks were unsuccessful and, since no agreement was reached within Gazprom’s deadline, in
June 2014 gas deliveries to Ukraine were once again cut off.
Subsequently, on June 16, 2014, the SCC received yet another request for arbitration, this time
from Gazprom claiming that Naftogaz owed it some US $ 4.5 billion for gas supplied in late 2013
and early 2014. (17) On the same date, Naftogaz filed its request for arbitration against
Gazprom, requesting, inter alia, a retroactive change in the gas price and compensation for
excess payments made since 2011, estimated at US $ 6 billion. (18) As with the 2010 disputes, a
pragmatic approach from the parties and the SCC allowed consolidation of the two
arbitrations. The tribunal was constituted in September 2014 and an award is expected during
mid-2016. (19)

§13.05 ARBITRATION AS AN ALTERNATIVE TO ARMED CONFLICT

Can wars be avoided or mitigated by referring the parties’ differences to arbitration? In all of
the “gas war” disputes between Russia and Ukraine (which also affected a large part of Europe),
despite the inter-state nature of the disputes, there were underlying contracts between two
commercial parties which referred any dispute to arbitration at the SCC. This is, admittedly, an
unusual situation where the more likely scenario in an inter-state dispute would be non-

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 contractual or possibly based on an investment treaty. (20)
P 220
P 221
The Russia-Ukraine cases are also unique in the sense that the object of the disputes, natural
gas, is immensely important for hundred millions of people in Ukraine and throughout Europe,
as well as for the continent’s industry and general economy. Another distinguishing factor,
which is unique to these disputes, is the geo-technical aspect of the transit system, making the
parties highly interdependent.
That said, it is clear that the actions taken by both sides leading up to the respective
arbitrations were impacted and tempered by the fact that any aggressive or violent behavior
would subsequently have to be defended before an arbitral tribunal, something they knew
would not serve the party’s purposes well. Indeed, when the negotiating tactics at times were
considered unjust and coercive this was noted by the tribunal and the award adjusted
accordingly.
The increasingly more onerous sanctions regime imposed by the EU and the United States on
Russia during 2014-2015 as a response to Russia’s annexation of Crimea has, however, further
complicated the situation, but at the same time defined the battle lines. Russia is clearly
dependent on the West for financial services, food exports and technical expertise – all of
which is being choked off by economic sanctions. Additionally, since Europe relies on Gazprom
for up to a third of its gas demand, almost half of which is being transited through Ukraine, it is
quite telling that Gazprom has so far been exempted from the sanctions regime.
When Russia technically cut off gas deliveries to Ukraine in June 2014, it nonetheless continued
to pump gas through the Ukrainian transit system for its European customers. However, if
Russia ultimately decides to use its gas supply to strike back against European sanctions, the
Kremlin would have deployed its best weapon against Europe and the stage would then be set
for a gas war of as yet unprecedented proportions.
But, in our profession as lawyers and jurists, we must aspire to prevent, mitigate and end war.
As H.G Wells (21) put it as long ago as in 1935, “If we don’t end war, war will end us.” The idea of
imposing arbitration on warring parties is not a novel one. The Hague Peace Conference of
1899, which is one of the cornerstones in the modern history of international arbitration, was
convened at the initiative of the Russian Czar Nicholas II and led to the establishment of the
Permanent Court of Arbitration in The Hague (the PCA). (22) And the idea of resolving
differences between nations by way of international arbitration was in fact also picked up by
P 221 US President Theodore Roosevelt in his long-neglected Nobel Peace Prize acceptance speech
P 222 in 1910. (23) Another US leader, President William Howard Taft, also espoused an “arbitral
court” as a means to compel States to resolve their differences. (24)
Over the last one-hundred years, the Arbitration Institute of the Stockholm Chamber of
Commerce has created its own legacy as an arbitral institution that embraces and promotes
the rule of law, democracy and true independence and neutrality. That, together with its
efficient and highly professional day-to-day management of cases, has engendered the trust
and confidence of parties from all around the globe, who rely on the SCC to administer their
disputes. Through its vast experience, the SCC has also gained particular prominence in
administrating some of the world’s largest and most politically sensitive cases and, in my
opinion, is well-equipped to tackle the product of the aspirations of Czar Nicholas II and
presidents Roosevelt and Taft, were they one day to become a reality.
P 222

References
*) Johan Sidklev acted counsel to RosUkrEnergo AG in the dispute with Naftogaz of Ukraine.
This contribution is based on information in the public domain.
1) RUE is a 50/50 joint venture between Centragas AG (Austria) and Gazprom (Russia), which in
turn is owned by the Russian State.
2) Naftogaz is wholly owned by the Ukrainian State and one of the largest companies in the
country.
3) Prof. Jonathan Stern et al., Reducing European Dependence on Russian Gas, The Oxford
Institute for Energy Studies, October 2014.
4) BP Global Statistical Review of World Energy, June 2010. Supplemental data from CIA World
Factbook.
5) Russia-Ukraine Gas Dispute Remains Unsettled, RIA-Novosti, December 20, 2005.
6) Ukraine: A Natural Gas Consortium Proposal, February 15, 2010 (accessible at
www.stratfor.com/analysis).
7) Prof. Jonathan Stern et al., Reducing European Dependence on Russian Gas, The Oxford
Institute for Energy Studies, October 2014.

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 8) See statements, inter alia, by the European Union (through its High Representative for
Foreign Affairs and Security Policy, Catherine Ashton) on March 1, 2014; by NATO (through its
Secretary General Anders Fogh Rasmussen in the North Atlantic Counsel) on March 3, 2014;
by the UN (through a spokesman for UN Secretary General Ban Ki-moon) on March 1, 2014.
In addition, the actions were condemned by a large number of nations on an individual
basis.
9) The Separate Award and the Second Separate Award rendered in the arbitrations between
RUE and Naftogaz on March 30, 2010 and June 8, 2010 respectively, to which reference is
made in this article, were made publicly available through the local enforcement process
in Ukraine (see Ruling of the Supreme Court of Ukraine dated November 24, 2010, of which
an unofficial translation is provided at http://www.sccinstitute.se/media/29994/ruling-of-
the-supreme-court-of-ukraine-24-november-2010_2.pdf).
10) The second separate award between RUE and Naftogaz was rendered on June 10, 2010 (see
Ruling of the Supreme Court of Ukraine dated November 24, 2010, of which an unofficial
translation is provided at http://www.sccinstitute.se/media/29994/ruling-of-the-supreme-
court-of-ukraine-24-november-2010_2.pdf).
11) Ruling of the Supreme Court of Ukraine, November 24, 2010, of which an unofficial
translation is provided at http://www.sccinstitute.se/media/29994/ruling-of-the-supreme-
court-of-ukraine-24-november-2010_2.pdf.
12) The EU-Ukraine Association Agreement was eventually signed by Ukrainian President Petro
Poroshenko on June 27, 2014
http://eeas.europa.eu/delegations/ukraine/eu_ukraine/association_agreement/index_en
.htm.
13) Shaun Walker, Vladimir Putin Offers Ukraine Financial Incentives to Stick with Russia, The
Guardian, December 18, 2013.
14) Katherine Rushton, Russia Cancels Ukraine’s gas discount and demands USD 1.5 bn, The
Telegraph, April 4, 2014.
15) Mazneva Elena, Gazprom Raises Gas Export Prices as Ukraine Looks for Cash, Bloomberg,
April 1, 2014.
16) Laurence Norman, EU Modestly Expands Sanctions on Russia, Wall Street Journal, May 12,
2014.
17) Maria Tsarova, Is a New Russia-Ukraine ”Gas-War” Coming?, CIS Arbitration Forum, February
16, 2015
18) Ibid.
19) Stockholm Court Expected to Make Decision on Gazprom, Naftogaz Debt Lawsuit in June 2016,
Interfax-Ukraine, May 14, 2015.
20) The Energy Charter Treaty, signed by some fifty-one states and the EU, contains in its
Article 27 a possibility for two contracting states to resolve any dispute regarding the
treaty and its application by ad hoc arbitration. However, as far as is publicly known, the
provision has never been utilized.
21) Herbert George Wells (1866-1946) was an English writer in many genres, including, inter
alia, politics, social commentaries and rules of war.
22) The chief objective of the conference was to discuss peace and disarmament. The
conference was concluded by adopting the 1899 Convention on the Pacific Settlement of
International Disputes which included arbitration as one of the means for resolving
conflicts. See further at www.pca-cpa.org.
23) President Roosevelt gave his Nobel Price acceptance speech in the National Theatre in
Oslo, Norway, on May 5, 1910. The full speech is available at
http://www.nobelprize.org/nobel_prizes/peace/laureates/1906/roosevelt-lecture.html
24) John E. Noyes, William Howard Taft and the Taft Arbitration Treaties, 56 VILL.L. REV. 535
(2011).

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