Sergey Petrachkov served as an expert on Soviet law in an international investment dispute over former Soviet assets

Sergey Petrachkov, Partner in the Dispute Resolution practice, served as an expert on Soviet law in an investment dispute between a private US investor and Estonia. On February 21, 2025, the Permanent Court of Arbitration in The Hague ruled in favor of Estonia in an investment dispute over former Soviet assets (Case No. 2018-42), as also noted by Global Arbitration Review. The report prepared formed the basis of the resulting decision.

The investment dispute arose from the seizure by Estonia of the seaport of Lennusadam, formerly a facility belonging to the Soviet Armed Forces. The port was acquired by ELA USA, Inc. (the Investor) in the late 20th century. In the Investor's view, Estonia expropriated its assets without compensation, in violation of the 1994 Treaty on the Protection of Mutual Investments between the United States and the Republic of Estonia. The Investor laid claim to about USD 250 million. Meanwhile, Estonia argued that the sale of the seaport was invalid under Soviet law.

The purchase of the seaport occurred when Estonia was part of the USSR, which raised questions on the correlation between Soviet and Estonian law, as Soviet law prevailed over the laws of the individual republics. In this connection, Estonia submitted to the arbitral tribunal an expert opinion on Soviet law by Sergei Petrachkov.

During the Soviet period, the seaport was part of the military infrastructure owned and operated by the Soviet Ministry of Defense. At the time of the sale, no concept of private property existed within Soviet law. All military property was considered state property and could not be sold because this would require the express permission of the Soviet Ministry of Defense, to which the seaport beloged. In this regard, the sale of such state military property to the Investor is invalid.

The arbitral tribunal noted that, to respect the reasonable expectations of the parties to the transaction, the law that applied at the time of the transaction should be followed, despite the fact that, for Estonia, Soviet law is seen as that of an "occupation regime". As such, regarding the validity of the transaction, the arbitral tribunal was guided both by Soviet law, as described by the aforementioned expert's opinion and Estonian law. The conclusion on the admissibility of the application of Soviet law may come to bear on similar investment disputes.

Denis Bekker and Polina Perova, Senior Associates in ALRUD's Dispute Resolution practice, worked on the initial analysis of materials for forming the report.