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Russia reacts to ex-Yukos shareholders’ attempt to reinstate Hague Tribunal’s $50bn ruling

November 28, 18:16 UTC+3

The arbitration tribunal had no competence to examine claims filed by Yukos, Head of the International Legal Protection Center Andrei Kondakov said

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© Mikhail Vyazovoy/TASS

MOSCOW, November 28. /TASS/. Russia’s representatives have responded to ex-Yukos shareholders’ attempt to repeal The Hague District Court’s ruling and reinstate an arbitration award obliging Russia to pay $50 billion, Head of the International Legal Protection Center representing Russia in the Yukos case Andrei Kondakov told TASS on Tuesday.

"The Russian Federation has sent a memorandum to The Hague Court of Appeal, giving a detailed reply to the complaint by former Yukos shareholders (Hulley Enterprises Limited, Yukos Universal Limited and Veteran Petroleum Limited), with the help of which they are trying to repeal the ruling by the District Court of The Hague passed in favor of Russia in April 2016," he said.

In its memorandum, the Russian side outlines its position, under which the arbitration clause in article 26 of the Energy Charter Treaty could not be applied to the Russian Federation without the [treaty] ratification procedure as the temporary application of the Energy Charter Treaty was limited only to the treaty’s provisions that did not contradict the Russian legislation," Kondakov said.

In view of this, the arbitration tribunal had no competence to examine claims filed by Yukos. This position was earlier upheld by the District Court of The Hague and served as the ground for repealing the arbitration award obliging Russia to pay $50 billion in compensation to former Yukos shareholders.

The memorandum sent to The Hague Court of Appeal "relies on a broader evidential base, eyewitness testimony and expert conclusions to describe in detail numerous unlawful acts committed by oligarchs in the process of Yukos privatization and after it," the head of the International Legal Protection Center said.

Specifically, the memorandum gives particular examples of manipulations and collusion in the process of loans-for-shares auctions, the bribing of government managers, the creation of a ramified network of fake companies to minimize taxes and siphon off illegally acquired assets abroad and conceal real beneficiaries of allegedly foreign companies, which filed lawsuits in The Hague against the Russian Federation, the memorandum says.

"We expect The Hague Court of Appeal to uphold the position of the Russian Federation and keep in force the ruling by the District Court of The Hague that justly repealed the arbitration award," Kondakov said.

2014 court rulings

The Permanent Court of Arbitration in The Hague passed a ruling in July 2014, obliging Russia to pay $50 billion compensation to former Yukos shareholders.

In its final awards, the arbitration tribunal ruled that Russia "had taken measures with the effect equivalent to an expropriation of claimants’ investments in Yukos" and thus had breached article 45 of the Energy Charter Treaty, which Russia signed but never ratified.

Attempts by former Yukos shareholders to seize Russia’s assets abroad

Former Yukos shareholders tried to use Russian assets abroad to enforce these arbitration rulings.

Media outlets had been numerously reporting since June 2015 that Yukos shareholders were seeking the seizure of the accounts of Russia and Russian companies in various European countries.

Specifically, Hulley Enterprises Limited representing the interests of former Yukos shareholders was seeking the termination of the construction of the Russian Spiritual and Cultural Center in Paris, threatening with penalties. However, the Paris court consistently declined to examine the claims of seizing this facility and suspending the works for the center’s construction.

In early April 2016, about $700 million worth of funds owned by Russia’s State Space Corporation Roscosmos and satellite communications operator Russian Satellite Communications Company (RSCC) were seized in France. The French court subsequently ordered to annul the seizure and unlock $300 million owed to Roscosmos. The court found that Roscosmos was a separate legal entity from the Russian government and its assets could not be qualified as the funds belonging to Russia.

The District Court of The Hague ruled in April last year that the panel of judges who had passed a $50 billion compensation judgment in favor of former Yukos shareholders had no right to review the dispute. As the Dutch district court ruled, the arbitration tribunal misinterpreted Europe’s Energy Charter Treaty, which Russia signed but never ratified.

Yukos case

Yukos, once Russia’s largest oil firm, was accused of tax crimes and declared a bankrupt by a Russian court ruling in 2006 while its assets were sold at auctions during the liquidation procedure.

In 2007, former Yukos shareholders filed a lawsuit with the Permanent Court of Arbitration in The Hague claiming that the Russian government had expropriated Yukos’s assets and demanding compensation for losses under article 45 of Europe’s Energy Charter Treaty.

The ex-Yukos shareholders initially claimed $28.3 billion in compensation from Russia but the sum was subsequently increased to $103 billion.

Russian Justice Minister Alexander Konovalov said on December 4, 2014 that in November Russia had challenged The Hague Tribunal’s $50 billion ruling (the examination of Russia’s appeal began on January 28, 2015).

Yukos former head Mikhail Khodorkovsky and his business partner Platon Lebedev were found guilty of embezzlement and tax evasion in May 2005 and sentenced to nine years in prison.

While serving their prison term, both Khodorkovsky and Lebedev were found guilty of embezzlement and money laundering in a second criminal case in December 2010 and sentenced to 14 years in prison, with account taken of the jail term they had served.

Khodorkovsky was pardoned by Russian President Vladimir Putin and left the prison in December 2013. Lebedev was released from the jail in early 2014.

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