Yukos arbitration

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Seat of the permanent court of arbitration: The Peace Palace (“Vredespaleis”), The Hague.

The Yukos arbitration , also Yukos majority shareholder against the Russian Federation, refers to three parallel arbitration proceedings by three former shareholders of the former Russian oil and gas company Yukos against the Russian Federation . The case was administered by the Permanent Court of Arbitration in The Hague. In arbitration rulings dated July 18, 2014, plaintiffs were awarded a total of over $ 50 billion (€ 37.2 billion) plus 75% of their legal costs. These are by far the highest arbitration awards that have ever been made in investment arbitration .

background

Mikhail Khodorkovsky during a reception with Vladimir Putin , March 2002

Yukos was a Moscow- based oil and gas company that oligarch Mikhail Khodorkovsky acquired from the Russian state after privatization in 1995. Between 1996 and 2003, Yukos became the largest Russian oil and gas producer and one of the ten largest companies in the world in the sector in terms of market capitalization. The most important asset was the subsidiary Yuganskneftegaz (YNG). Khodorkovsky became politically active before he was arrested in October 2003 when he was the richest Russian at the time. Khodorkovsky (CEO of Yukos) and other Yukos directors have been charged and convicted of various crimes, including property offenses , forgery and tax evasion . Yukos itself was declared bankrupt by the Russian state because of unpaid taxes in August 2006 and then broken up. Starting in 2002, the Russian government filed a series of tax claims against Yukos for tax avoidance strategies via mailbox companies and frozen the company's assets. Between 2004 and 2007, most of the company's assets were confiscated and acquired primarily by the state-owned oil company Rosneft .

The matter has led to a number of legal disputes, including before the European Court of Human Rights and in arbitration proceedings administered by the Stockholm Chamber of Commerce (SCC) and the International Chamber of Commerce (ICC).

Involved

Plaintiff

The Yukos shareholders are the following companies, with their registered office and their participation in Yukos in brackets:

  • Hulley Enterprises Limited ( Cyprus , 56.3%)
  • Veteran Petroleum Limited (Cyprus, 11.6%)
  • Yukos Universal Limited ( Isle of Man , 2.6%)

Hulley Enterprises and Yukos Universal are both subsidiaries of GML Limited (formerly Group Menatep Ltd.), a holding company founded in 1997 by Khodorkovsky in Gibraltar, which previously held a majority in Yukos. The current main shareholders of GML are Leonid Newslin , who took over Mikhail Khodorkovsky's stake after he fled to Israel in 2003 . The remaining shares are divided between Mikhail Brudno and Vladimir Dubow, who also fled to Israel because of their Jewish descent, Wassili Schachnowski, who lives in Switzerland , and Platon Lebedew . Veteran Petroleum is a retirement fund for former Yukos employees. Together, the three companies originally held a total of 70.5% of the shares in Yukos.

The plaintiffs were represented by the law firm Shearman & Sterling .

defendant

Russia was represented by the New York law firm Cleary Gottlieb Steen & Hamilton and later also by the American law firm Baker Botts .

Composition of the arbitral tribunal

The arbitrators were the Swiss Charles Poncet (named by the plaintiffs), the American and former President of the International Court of Justice Stephen M. Schwebel (named by Russia) and as chairman of the Canadians L. Yves Fortier (named by the Secretary General of the Permanent Court of Arbitration) . The plaintiffs had initially named the American Daniel M. Price before he withdrew for reasons that were not known. The Geneva professor, Gabrielle Kaufmann-Kohler , who was nominated as a replacement, was rejected by the Permanent Court of Arbitration at the request of Russia due to concerns about bias . The plaintiffs then named Poncet.

Martin J. Valasek , now a partner in the law firm Norton Rose Fulbright in Montréal, acted as secretary of the arbitration tribunal .

Procedure

Legal basis

The decision is based on the provisions of the Energy Charter (Energy Charter Treaty, hereinafter ECT ) of 1998. The arbitration took place after the UNCITRAL rules instead of the 1976th The seat of the arbitration proceedings was The Hague .

procedure

Although these were formally three separate proceedings that were not consolidated, the parties each nominated the same arbitrators. Hearings were held simultaneously for all three proceedings and the awards are largely identical.

Arbitration

The lawsuits were filed in 2005. The plaintiffs claimed a total of more than 114 billion US dollars. Russia made unjustified tax claims, demanded fines and confiscated assets, threatened Yukos with the withdrawal of licenses, canceled a merger with the Russian oil company Sibneft and forced the sale of YNG. Together with the harassment of the Yukos executives, these measures represented a violation of the right to fair and equitable treatment according to Art. 10 (1) ECT and an indirect expropriation according to Art. 13 (1) ECT.

Intermediate award on jurisdiction

In November 2009, the arbitration tribunal issued an interim award in which it rejected two objections by Russia to its jurisdiction. Russia has never ratified the Energy Charter Treaty . It had therefore argued that the treaty was not applicable and that there was no basis for arbitration. However, Russia signed the treaty in December 1994, making it provisionally applicable under Art. 45 ECT "to the extent that such provisional application does not contradict the constitution, laws or regulations of the respective state". After obtaining legal opinions, the arbitral tribunal found this to be sufficient to affirm its jurisdiction. It also rejected Russia's further objection that the contract was inapplicable because the plaintiffs were backed by Russian citizens, and their stake in Yukos is therefore not an international investment protected by the Energy Charter Treaty. It decided that any company was free to invoke the treaty established under the law of another member state vis-à-vis a member state, which is the case for the plaintiffs.

The tribunal, however, left two other questions of jurisdiction open that Russia had raised: whether the plaintiffs are not allowed to invoke the energy charter contract because of their own misconduct ("unclean hands") and whether the contract paves the way to an arbitral tribunal because of "tax issues" Measures "opened that do not constitute expropriating taxes.

Arbitration award

In the three final awards, each about 600 pages long, the arbitral tribunal decided that the measures taken by the Russian executive against Yukos amounted to indirect expropriation without compensation. Russia is liable for this violation of Art. 13 ECT. However, Yukos would be partly to blame for the abuse of tax havens and the tax treaty between Cyprus and Russia. The tribunal therefore reduced the plaintiffs' claim for damages by 25%.

The damage to be compensated is made up of the value of the plaintiffs' shares and the dividends they lost due to the expropriation in the opinion of the arbitral tribunal . The arbitral tribunal set the total including interest for the time since the expropriation at over 66 billion US dollars, which, reduced by the 25% contributory debt, results in just over 50 billion US dollars. In addition, there is further interest and compound interest from 180 days after the award of the arbitration award.

The arbitration tribunal dismissed Russia's complaints of jurisdiction that were still open after the interim arbitration award had been issued. It is true that illegally made investments are not protected by the ECT. However, illegal actions in the operation of the investment do not preclude the right to legal protection. The tax claims against Yukos are also not covered by the exception of tax matters in Art. 21 ECT. The regulation only applies to "real" taxes that are levied to cover the general financial needs of the state, but not to taxes that serve to destroy a company or eliminate a political opponent.

Scope and costs of the procedure

In total, the process lasted 10 years, there were 37 days of hearings, the transcripts of which fill 3,300 pages, and 6,500 pages of pleadings and 11,000 annexes were submitted.

The process itself incurred a total of 8.24 million euros in costs. Of this amount, the arbitrators' remuneration accounted for 5.26 million euros (equivalent to 750–850 euros / hour) and the secretary of the arbitral tribunal 970,000 euros (equivalent to 250–325 euros / hour). The remainder of the cost includes the Permanent Court of Arbitration fees, court reporters, translators, hearing rooms and other expenses. The cost was completely imposed on Russia.

The plaintiffs claimed more than US $ 80 million for legal and expert fees, and Russia reported legal costs of US $ 27 million. According to the arbitration, Russia will have to pay around $ 60 million to cover the plaintiffs' costs.

Repeal Procedure

In November 2014, Russia applied to the District Court of The Hague to set aside the arbitral awards. One of the applications was published by the Russian Ministry of Finance in January 2015.

The request for annulment is based on the following points:

  1. The Tribunal did not have jurisdiction because there is no valid arbitration agreement was
  2. The tribunal did not do its job
  3. The tribunal was not composed correctly
  4. The tribunal did not give sufficient reasons for the award
  5. The arbitral award violates public policy

Russia claims, among other things, that the arbitration tribunal's secretary, a lawyer who became a partner of the Norton Rose Fulbright law firm during the proceedings , had such a large influence on the proceedings that he acted as "fourth arbitrator" without being named . This is shown in particular by the fact that the secretary himself acted as an arbitrator in the course of the proceedings in other cases, that he invested significantly more hours than the actual arbitrator (2,600 hours compared to 1,500–1,850 hours for the actual arbitrators) and that the permanent court of arbitration had already appointed two secretaries for administrative tasks. The exact activities of the secretary during the proceedings could not be ascertained because the permanent tribunal refused to disclose the details of his activities, citing the confidentiality of the arbitration deliberations.

The judgments of the arbitral tribunal were overturned on April 20, 2016 by a state court in The Hague. The court found the arbitral tribunal to have no jurisdiction as the provisional applicability of the ECT in Russia does not relate to the dispute settlement mechanism of the agreement. The plaintiffs appealed against this judgment. According to one of the plaintiffs' attorneys, enforcement should continue.

The Hague Court of Appeal ruled in favor of the plaintiffs on February 18, 2020. The awards from 2014 are now back in force.

enforcement

Both the plaintiffs themselves and external observers suspect that the enforcement of the arbitral award will be complex and lengthy, as recognition in Russia appears to be impossible and assets abroad are in most cases subject to state immunity .

The plaintiffs want to focus on enforcement initially on Belgium and France as well as Great Britain, the USA and Germany. Among other things, they plan to execute in museum collections exhibited by Russia around the world, aircraft at air shows and commercially used assets of the Russian central bank. The assets of state-controlled companies such as Gazprom or Rosneft are also a conceivable goal of enforcement.

In December 2014, the arbitration awards were declared enforceable in France.

In June 2015, accounts of Russian diplomatic missions in Belgium were blocked, but released again after a Russian protest. In October 2015, the Russian House of Lords approved a bill that would allow the assets of other states to be confiscated in Russia in return for the seizure of Russian property abroad. Also in October 2015, the shares of the Russian state media holding WGTRK in the French television channel Euronews were frozen. In Germany, an application for a declaration of enforceability of the arbitral award is pending at the Chamber Court in Berlin.

The attempt by the Russian Federation to suspend the enforcement of the arbitral awards in France pending the reversal in the Netherlands was rejected in December 2015.

There will be $ 2.6 million in interest per day until the award is paid.

Web links

Individual evidence

  1. ↑ Yukos break up: Russia sentenced to $ 50 billion in damages . Mirror online. July 28, 2014. Retrieved June 27, 2015.
  2. ↑ a b c d e f g h i j k l m n o p q Yukos v. Russia: Issues and legal reasoning behind US $ 50 billion awards , Investment Treaty News, September 4, 2014
  3. ↑ Mikhail Chodorkovsky ( July 15, 2006 memento in the Internet Archive ) in: Forbes Magazine , accessed December 30, 2010
  4. ^ Yukos Creditors Told Russian Oil Company Is Doomed . In: Bloomberg , July 25, 2006. Retrieved August 31, 2008. 
  5. ^ Yukos case against Russia begins at the European court . In: BBC News , March 4, 2010. 
  6. ↑ Russian state oil company wins another Yukos auction . In: New York Times , August 8, 2007. 
  7. ↑ European court rules Russia must pay Yukos shareholders 1.9 billion euros , reuters.com, July 31, 2014
  8. ↑ QUASAR DE V ALORES SICA V SA et al vs. Russian Federation (Stockholm 2012)
  9. ↑ Yukos Capital Sarl against Yuganskneftegaz (now Rosneft , Moscow 2006); Yukos Capital Sarl v Tomskneft (New York 2007)
  10. ↑ GML's Energy Charter Treaty Claim against the Russian Federation (PDF) undated "Background Note" on the website of the law firm Shearman & Sterling
  11. ↑ Chodorkovsky Allies Turn Hunters for $ 140 Billion Rulings , bloomberg.com, July 14, 2014
  12. ↑ Shearman & Sterling, YUKOS: LANDMARK DECISION ON THE ENERGY CHARTER TREATY (PDF) Client Publication, January 5, 2010
  13. ↑ a b Spectacular loss amount - exemplary process , RA Hansjörg Stutzer on nzz.ch, August 12, 2014
  14. ↑ PCA Case No. AA 227
  15. ↑ Martin Valasek , nortonrosefulbright.com
  16. ^ The Challenge of the Yukos Award: an Award Written by Someone Else - a Violation of the Tribunal's Mandate? , Dmytro Galagan, kluwerarbitrationblog.com, February 27, 2015
  17. ↑ a b The largest Arbitration Awards in history: Three Majority shareholders in Yukos awarded total damages of over $ 50bn from the Russian Federation , Herbert Smith Freehills Arbitration Notes, August 14, 2014
  18. ↑ "Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations."
  19. ↑ a b The Yukos settlement: an insider's view into the largest arbitration award in history , Harvard Law Today, March 10, 2015
  20. ↑ a b Galagan, The Challenge of the Yukos Award: an Award Written by Someone Else - a Violation of the Tribunal's Mandate? , kluwer arbitration blog, February 27, 2015
  21. ↑ The largest arbitration awards in history: three majority shareholders in yukos awarded total damages of over $ 50bn from the Russian Federation , lexology.com, August 13, 2014
  22. ↑ a b On writs filed by the Russian Federation seeking to annul the awards issued by an international arbitral tribunal in arbitrations commenced against the Russian Federation by the former shareholders of Yukos Oil Company , Press Release, Ministry of Finance of the Russian Federation, 6. February 2015
  23. ↑ PETITION FOR SETTING ASIDE THE FAMOUS YUKOS AWARDS MADE PUBLIC BY THE RUSSIAN MINISTRY OF FINANCE , Altana Arbitration Newsroll, February 20, 2015
  24. ↑ James Menz: The fourth arbitrator? The role of the administrative secretary in arbitration proceedings , ArbitrationVZ 2015, 210
  25. ↑ a b US $ 50 billion Yukos awards set aside in The Hague , Global Arbitration Review, April 20, 2016
  26. ↑ Unexpected success for Moscow in the Yukos case.
  27. ^ Court reinstates order for Russia to pay $ 50 billion over Yukos . Associated Press . February 18, 2020.
  28. ↑ a b c Yukos chief plaintiff Tim Osborne in conversation , nzz.ch, July 4, 2015
  29. ↑ a b http://www.shearman.com/en/services/practices/international-arbitration/yukos-enforcement-proceedings
  30. ↑ Michael Stabenow: Dispute about Yukos. Belgium releases Russian accounts again , FAZ from June 21, 2015
  31. ↑ Russian Law Allowing Seizure of Foreign-Owned Assets Passed by Federation Council , The Moscow Times, October 28, 2015
  32. ↑ Russian Stake in Euronews Frozen Over Yukos Case , The Moscow Times, October 28, 2015