Naftogaz wins Slovak Constitutional Court appeal in IUGAS case

The Constitutional Court of the Slovak Republic has satisfied the claims of National Joint Stock Company “Naftogaz of Ukraine” regarding violation of the latter’s rights to a fair trial, and found that Naftogaz incurred unreasonable costs in enforcement proceedings in the Slovak Republic.

This enforcement proceeding has been underway in Slovakia since 2017 at the initiative of Italia Ukraina Gas S.p.a. (IUGAS) and its successor, the Hungarian company Trameta kft, based on relief sought against Naftogaz of Ukraine in order to collect a fine of USD 12.7 million plus interest from Naftogaz in line with the final award of the Arbitration Institute of the Stockholm Chamber of Commerce of 19 December 2012 (Award).

As part of the enforcement of the Award, a Slovak bailiff seized Naftogaz natural gas that was imported through the territory of Slovakia. Numerous abuses by the Slovak bailiff in the enforcement proceedings in Slovakia led to artificial creation and accumulation of around EUR 22 million debt for Naftogaz for the alleged storage of previously seized natural gas, despite the fact that neither the bailiff nor the storage company had provided any documentary evidence of the fact and the cost of storing seized Naftogaz gas.

The decision of the Constitutional Court of Slovakia in favour of Naftogaz has taken legal effect and is without appeal. With this decision, the Constitutional Court of Slovakia set aside the judgement of District Court Bratislava II with regard to the obligation for Naftogaz to reimburse over EUR 11.5 million in costs for the alleged gas storage. The District Court Bratislava II is therefore obliged to reconsider the claims of Naftogaz regarding the illegal and unfair accrual of enforcement costs, taking into account the position of the Constitutional Court of Slovakia.

This enforcement proceeding was the largest in the history of the Slovak Republic. Naftogaz’s lawyers have prepared an application to the District Court Bratislava II with a request to reconsider the validity and legality of the gas storage costs, and will submit it in the near future. Under Slovak law, the District Court Bratislava II will be obliged to abide by the decision of the Slovak Constitutional Court when reviewing Naftogaz’s claims.

The fine was originally awarded by an arbitration tribunal following a dispute between the companies over a contract signed in 2003 with IUGAS by then-deputy chairman of the executive board of Naftogaz Igor Voronin for the supply of 13 billion cubic metres of gas for 10 years at a fixed price of $ 110 / thousand cubic metres. This agreement was concluded without the necessary approvals. Italian citizen Marco Marenko, who owned IUGAS at the time of the conclusion, was later convicted in his homeland of fraud and tax evasion.

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