Assessing Damages for Reparations Calculation

22.02.2023

Has your company’s property been damaged by hostilities or missile attacks, have assets been stolen by the Russians, or has your business experienced a significant reduction in revenue as a result of the war? You may be entitled to compensation for your losses or lost profits from the aggressor’s funds through the reparations’ mechanism.

BACKGROUND

Ukraine’s future victory in the war waged against it by the Russian Federation is becoming more and more inevitable. However, retreating, the Russian army resorts to “scorched earth tactics” – a strategy of complete destruction of everything valuable in the liberated territories, as well as the destruction of remote civil infrastructure with missile attacks, trying to cause maximum damage to the Ukrainian economy and population.

Given the experience of previous wars, a country that starts an aggressive war and eventually loses it is faced with the need to pay reparations for the damage done. Reparations are not only compensation for damage and suffering – they also have a strategic and political component, as a tool to restore the broken international order, punish aggression and crimes against humanity and prevent similar acts in the future by this and other states.

WHY NOW

The mechanism for collecting reparations from the Russian Federation is currently under development, and the final amount of damage to your business can be calculated only after the end of hostilities. But we suggest thinking about assessing the damage and taking action on future compensation now.

Using the example of Germany, which started and lost two world wars, it should be understood that the payment of reparations can drag on for decades. The damage caused to Ukraine by the aggressor state far exceeds the funds and assets seized by other countries, and the Russian economy will probably have to work on the restoration of Ukraine for many years. Therefore, the sequence of payment of reparations really matters.

WHAT CAN BE DONE TODAY

If your company has suffered significant damage to real estate as a result of hostilities, you can carry out a damage assessment in accordance with the Methodology approved by the State Property Fund of Ukraine and the Ministry of Economy of Ukraine in October 2022.

These damage assessment reports can be used to file lawsuits in Ukrainian and international courts to obtain compensation for seized Russian assets, international financial aid, and funds from the state budget of Ukraine. Currently, the process of collection and payment of compensation is just beginning, but it should be assumed that the total amount of payments may be limited and those companies that apply first may have advantages both in time and in the amount of compensation.

As for compensation for lost profit, there is currently no approved methodology in Ukraine, but general practice of reviewing valuation reports by international courts shows that attention is paid firstly to the logic and validity of the appraiser’s calculation, so the appraisal can be based on generally accepted global valuation practice.

The approaches to forming the sequence of payments of reparations to Ukrainian businesses are not regulated today, but it can be assumed that after the end of the war and the settlement of the payment mechanism, the queue will quickly form and be maintained for quite a long time. Therefore, early completion of important steps can turn out to be an extremely successful strategy.

If you would like to discuss your company’s plans for compensation for damages caused by Russian aggression, We will be happy to share our thoughts on this matter – please call LUCAS or send us your inquiry.