Michael D Goldhaber 16x9

The Dutch appeal court has reinstated a major $50bn award to Yukos shareholders by Russia, in a long-running dispute.

Some oil gushers spray in a continuous stream; others stop and start as if a capricious force of nature sporadically covers the spout. And so it is with litigation.

In 2014, a Permanent Court of Arbitration panel ordered Russia to pay $50bn to the majority shareholders of the oil company Yukos. (It went bust following unprecedented tax demands and was subsequently bought by state-owned Rosneft.) That award was annulled by a Dutch lower court in 2016, but in February 2020 the Dutch Court of Appeal reinstated it.

The main issue that judges cannot agree on is whether Russia can be bound by a treaty that it signed without ratifying. The lower court had ruled that an arbitration treaty could not apply provisionally because arbitration is inconsistent with Russian law. The appeal judges rejected that premise. After a careful review of the Energy Charter Treaty’s (ECT's) text, structure, purpose and drafting history, they concluded that the ECT may apply provisionally unless specific provisions are barred by Russian law, which they are not.

The lawyers for Russia include Albert Jan van den Berg of Hanotiau & van den Berg, who argues that at this point, five legal forums have accepted five competing interpretations of the key treaty clause. How, then, could Russia have given its “unambiguous consent to arbitration”?

Carolyn Lamm of White & Case (which also acted for Russia) adds that Russian oligarchs do not qualify as foreign investors just because they sue through “deceptive offshore structures”. Moreover, she says, Russia proved Yukos’s privatisation was rigged and sums totalling $613m were paid in bribes. Such illegality would both violate public policy, and disqualify an investment for protection.

The Court of Appeal disagreed that either international law or the ECT requires an investor to have a genuine presence in its home state, or contribute to its host economy. Further, the appeal court found no general rule that a tribunal lacks jurisdiction to protect an illegal investment. And if the issue of legality is not jurisdictional, the court reasoned, then it is not available on review in national courts. 

On the question of public policy, the court concluded that the alleged illegalities in Yukos’s 1995-96 privatisation were “too far removed” from the 1999 to 2001 purchase of Yukos shares by the corporate entities that brought the arbitration. “In any event,” the court added, “the illegality is not so evident that it should lead to a lack of jurisdiction.”

Andrey Kondakov, who coordinates Russia’s defence, says: “The Russian Federation is confident that the Dutch Supreme Court and other courts of competent jurisdiction will effect justice… upon appeal.”

What are the likeliest next chapters in this lifetime of litigation? Russia will appeal to the Dutch Court of Cassation, then ask the court to refer the case to the Court of Justice for the European Communities. Meanwhile, the claimants will ask a Washington, DC federal court to clear the way for US enforcement.

Yukos’s counsel are equally confident their win will stand, but the long dormancy of their $50bn arbitral award has made them philosophical. Emmanuel Gaillard of Shearman & Sterling says: “An award is an award, and it stands as a victory for the international rule of law irrespective” of whether it is domestically annulled or enforced.

His colleague Yas Banafatemi agrees: “The real victory is the fact that an international tribunal had the courage to recognise that Russia had committed an international wrong. That is a victory, and will be a victory always – even if we don’t collect a kopeck.”

Michael D Goldhaber serves as US correspondent for the International Bar Association. He has been tracking the world’s largest disputes since the turn of the millennium. Email: michael.goldhaber@gmail.com

This article first appeared in the April-June edition of fDi Magazine. The full digital version of the magazine is available here

This article is sourced from fDi Magazine
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