In the courts, International tobacco companies (factories and trading houses) fined by the Ukrainian Antimonopoly Office seek a qualified independent examination of the AMCU's ruling to impose an unprecedented industrial fine. The inability to achieve justice in Ukrainian courts will force the plaintiffs to apply to international arbitration that could severely undermine the investment image of Ukraine.
Ukrainian courts help the AMCU defend their controversial decision and prevent such an independent examination to protect the "honour of the regiment" of the Antimonopoly Office. But the Ukrainian judicial system is only worsening the situation. In the dispute with the AMCU and Ukrainian judicial practice, tobacco companies collect more strong arguments to file for international arbitration.
Some of the global tobacco companies have already reached the level of the Supreme Court of Ukraine. It is perhaps the last chance to avoid a harsh international scandal that will cause irreparable damage to the Ukrainian investment climate and force many foreign companies to evade doing business in our country.
Confrontation Chronicles
The most significant progress was made by the distributor Tedis Ukraine. The Supreme Court found the claims of the AMCU to be groundless, which was the first signal of a possible collapse of the arguments of the antimonopoly regulator that fined the largest participants in the tobacco market UAH 6.5 billion.
In the case of tobacco companies, which have been subjected to an unprecedented industrial fine, the confrontation with the Ukrainian Antimonopoly Office and Themis continues at different stages.
The parent company Philip Morris Ukraine advanced: Philip Morris International decided not to rely on Ukrainian courts but appealed to international arbitration. Philip Morris Ukraine lawsuit in an investment arbitration against the government of Ukraine in connection with the unlawful ruling of the AMCU was filed with the International Center for the Settlement of Investment Disputes (Washington, DC, USA).
“The actions of the AMCU that allowed the distributor to gain control over the wholesalers and then changed their mind and fined the company and the distributor for following the Committee's permits are unlawful, unreasonable, and unjustified,” the PMI commented. The actions of the Ukrainian Antimonopoly Office are called to be “arbitrary and discriminatory” and caused harm to the company. The dispute between the investor and the state will have an extremely negative influence on the investment attractiveness of Ukraine, as well as the country's reputation,” said CEO Philip Morris Ukraine Costas Salvaras.
After British American Tobacco loss in yet another Ukrainian court instance in January, the company also announced its intention to resort to proceedings against Ukraine in international arbitration.
The Ukrainian division of the international Imperial Tobacco is also working in two directions to achieve justice in the case of the fine from the AMCU. The Ministry of Justice has received a notice from the company on its intention to initiate an investment dispute against the state of Ukraine. In the notice, the company point out the illegality and unfoundedness of the accusations by the AMCU, the non-transparency and inconsistency of state actions against British business in Ukraine, the expropriation of funds and lack of access to justice.
At the same time, Imperial Tobacco is seeking protection from the Ukrainian judiciary. But in early February, the court of appeal did not satisfy the company's claim and upheld the decision of the court of the first instance on a fine of UAH 460 million under the decision of the AMCU. The company also failed to obtain an independent examination of the AMCU's allegations, which could completely destroy its arguments, as the courts have consistently rejected the appropriate motions. Thus, the Ukrainian judiciary has taken a prejudiced position against tobacco companies. This, in turn, induces the tobacco giant to apply to international arbitration; Imperial Tobacco is almost within an ace of filing such a lawsuit. However, the company also filed a cassation appeal against the decisions of the courts of previous instances to the Supreme Court. It means that the manufacturer is already close to using all opportunities to achieve a fair decision in the Ukrainian courts.
“Unfortunately, the appeal branch of the judiciary has shown the same bias and political commitment as the court of the first instance. This development gives another alarming signal to the community of foreign investors about the real state of legal proceedings in Ukraine,” commented Rastislav Chernak, CEO of Imperial Tobacco Ukraine.
Experts warn that if Ukraine continues defending the “honour of the regiment” of the AMCU at any cost, it will bring the case to international arbitration. It will turn into a crushing blow to the country's reputation in terms of doing business here and will entirely destroy its investment image in investors' minds.
The destructive effects of international arbitration
According to the companies’ statements, the actions of the AMCU will be qualified as illegal expropriation of profits and violation of the principle of fair and equal treatment of investors for international arbitration. Ukraine risks ruining economic relations with several large countries, where the parent companies of participants the tobacco market fined in Ukraine are registered in. For example, Philip Morris has American-Swiss roots, Imperial Tobacco and British American Tobacco are British.
In its statement about the pressure in Ukraine on global tobacco giants, the European Business Association also emphasizes that international arbitration will be a severe blow to the country as “such high-profile disputes usually attract a lot of attention from the international community and will have extremely negative consequences for Ukraine's investment climate. Business urges the Government of Ukraine to respond appropriately to the reports of the investment dispute with the state of Ukraine initiated by international investors from the USA, Great Britain and Switzerland and the Netherlands by the AMCU and to approach this issue impartially in compliance with Ukrainian legislation and international agreements.
The ambassadors of 11 EU countries to Ukraine, including representatives of the mentioned Netherlands and Great Britain, have already called on the Ukrainian authorities to change their minds and not to destroy the business climate in Ukraine and to fulfil guarantees of investor protection. Otherwise, the country itself undermines its investment image, reduces the likelihood of attracting new investors, and creates preconditions for the departure of those who already work here. Besides, Ukraine was warned that the country could be included in the list of countries where investing is not recommended due to excessive risks.
A series of high-profile scandals related to pressure on international companies in Ukraine has already “paid off”. Zero foreign investment in 2020 and companies operating here brought dividends of about $3.5 billion, an unprecedented outflow indicating the flight of capital from the country and the lack of business motivation to invest in Ukraine.
