In 2007, a tender was announced for the reconstruction of Kharkiv Square in Kyiv, however the winner faced a series of challenges inhibiting any progress from being achieved. Over 14 million USD was paid to the city, as well as another 10 million USD spent on design and preparatory procedures, by the investor. After almost 5 years of inactivity and contract violations by the city authorities, they ultimately revoked the land allocation and unilaterally terminated the lease.
Reconstruction of Discord
“Kyiv Terminal” LLC, the company of British citizen Tamaz Somkhishvili, won the tender for the reconstruction of Kharkiv Square in the city of Kyiv, organized by the KMDA – the Kyiv State City Administration.
The reconstruction plans included a new transport interchange, which would greatly contribute to solving the carrying capacity issues faced at the time. The city authorities, Kyiv Avtodor and Kyiv Metro bore responsibility for this part of the project. In turn, the investor’s responsibilities were to build an office/hotel centre, retail premises, a parking lot for 500 vehicles and a bus terminal.
“Kyiv Terminal” LLC paid over 14 million USD to the city in exchange for the authority to implement the proposed project and lease the associated land. On top of this, the investor bore approximately 10 million USD in direct costs and losses for the detailed calculations of the project, the lease of land plots intended for the reconstruction and the expenses of architects (notably, the higher associated costs due to employing international architects). These costs and losses were independently confirmed by the appraisal company, Baker Tilly, the involvement of whom was a requirement of the city authorities.
Representatives of the KMDA recognised the existence of the investor’s right to compensation for the project-associated losses and went further to make ‘compromise’ proposals to cover such reimbursement. Moreover, the national legislation of Ukraine and the Ukraine – United Kingdom Bilateral Investment Treaty , expressly provide for and protects investors’ rights for compensation of losses in such cases.. Despite the situation being rather clear from the legal perspective, a series of investor’s efforts to resolve the dispute amicably were sabotaged by the city authorities.
In 2019, the case was taken to the court and the investor subsequently won. The court ordered the KMDA to repay the 14 million USD initially paid to the city authorities and an extra 10 million USD to cover direct damages. The ruling did not include compensation for lost profit, however. Despite the clear outcome of the case, the KMDA did not comply with the court’s order and in 2021, the authorities filed an appeal.
In May 2021, the Northern Court of Appeal overturned the 2019 ruling, erroneously citing the statute of limitations. Just months later, in October 2021, the Supreme Court revoked the decision of the Northern Court of Appeal, restored the original ruling on the investor’s rights to compensation for the damages incurred and sent the case back to the Northern Court of Appeals for the rehearing. The British Embassy was consulted for support and a representative was present at every session of the Supreme Court hearing.
A New Round of Conflict
Following the full-scale invasion by Russian forces, “Kyiv Terminal” LLC offered the city authorities an opportunity to end the case by a settlement agreeement. The investor, acting in good faith, offered to waive all financial compensation demands in exchange for a guarantee that, once the war ends, both parties would agree on a plot of land on which the investor would build an infrastructure facility necessary for the reconstruction of Kyiv, all at the investor’s own expense. This generous offer, however, was not accepted by the local authorities and therefore the case will resume, with the next session to be held on April 25.
It seems that those responsible for the failure of the investment project and reconstruction of Kharkiv Square are still employed by the KMDA and their fears of liability have stalled any progress in reaching mutually beneficial agreements. These officials not only are responsible for the losses of the investor, but they are also responsible for the disappearance of the budget funds that were allocated, and subsequently written off, for the improvement of the city’s transport infrastructure in time for the 2012 European Football Championship. It is also worth noting that the defamation campaign against the investor coincided with the new round of court proceedings. This campaign remains ongoing after six months despite the fact that no state authority in Ukraine, the United Kingdom or any Western country has now, or ever, had any accusations with or complaints against the investor.
“The accusations against the investor Tamaz Somkhishvili were activated right after when in July 2022, his Ukrainian company offered in the court proceedings to conclude a settlement agreement, according to which the investor would agree to waive the financial claims, including those that were already awarded to the investor by the court of first instance,” says Wolf Theiss partner, Taras Dumych.
In any case, the dispute must be settled within Ukraine in a timely manner. Otherwise, an international investment arbitration, involving the investor from the United Kingdom (the country which is one of Ukraine’s most vital military allies and post-war investors), would only bring more strife to the troubles that Ukraine is facing.
BY ARTEM HOROVENKO FOR DAILY.RBC.UA
