Dutch court overturns $50 billion ruling against Russia in Yukos case

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New York Times | 20 April 2016

Dutch court overturns $50 billion ruling against Russia in Yukos case


LONDON — In a major victory for the Russian government, a Dutch court on Wednesday overturned an award of more than $50 billion to former shareholders of the defunct oil company Yukos that Moscow was ordered to pay in 2014.

The court, in The Hague, said the panel of arbiters that had made the award, the largest ever in international arbitration, had “lacked jurisdiction” to do so.

While the court ruling is a blow to the former Yukos shareholders, it is unlikely to end the dispute that began when the Russian authorities arrested Yukos’s chairman, Mikhail B. Khodorkovsky, in 2003 and sold off his company over the next several years. Former Yukos assets are an important component of Rosneft, the state-controlled entity that is now the world’s largest publicly traded oil producer.

The Yukos shareholders have been trying to recover damages from Russia in various courts around the world, claiming that Moscow expropriated Yukos’s assets for political reasons.

“We are quite taken aback by this,” Tim Osborne, a British tax lawyer and the director of GML, a company that controlled a majority of Yukos shares, said in an interview. Mr. Osborne said that GML would appeal the case in The Hague.

Paying out $50 billion would be a strain for Russia, which has fallen into recession because of low oil prices and Western sanctions. Russia had revenue of $130 billion from oil exports last year, but the plunge in prices since mid-2014 means the country might make even less from petroleum this year.

The Russian government voiced pleasure over the ruling on Wednesday.

“If these men continue to try to exploit the international courts to take money from the Russian people, we will show Yukos engaged in massive tax fraud throughout its existence, and fight them in every court and every jurisdiction,” said Andrey Kondakov, director general of the International Center for Legal Protection, which the Russian government set up to fight the case.

The arbitration panel that ruled against Russia in 2014 had met in The Hague and had been chosen jointly by Yukos and the Russian Federation. That is why the appeal was heard by the Dutch district court that ruled on Wednesday. Its decision, in turn, could be appealed to higher Dutch courts.

GML is pursuing legal efforts to collect the Russian money in a half-dozen other countries: Belgium, Britain, France, Germany, India and the United States. There have not yet been rulings in those cases, and it was not immediately clear on Wednesday how the decision in The Hague might affect them.

“The arbitration tribunal was composed of three international law experts of the highest caliber, who were unanimous in their reasoning,” Emmanuel Gaillard, who leads the international arbitration practice at the law firm Shearman & Sterling in Paris and is the lead counsel for the Yukos shareholders in the proceedings, said in a statement on Wednesday. “I am confident that today’s decision will be reversed on appeal.”

But Jeff Sullivan, a partner and expert on energy arbitration at the law firm Allen & Overy in London, said Wednesday’s ruling was “a significant victory for Russia.’’

“Certainly the decision of the Dutch court will impact on the ability of Yukos shareholders to enforce the arbitration award in various countries around the world,’’ Mr. Sullivan said.

GML won the 2014 ruling under the Energy Charter Treaty, an international agreement intended to protect investors. But on Wednesday, the Dutch court said that although Russia had signed the treaty, it had not ratified it and so was not bound by it.

In the early years after the breakup of the Soviet Union in the 1990s, Yukos, under Mr. Khodorkovsky’s leadership, helped revive the flagging Russian oil industry, adopting Western technologies like water injection and fracking.

But Mr. Khodorkovsky eventually fell out of favor with President Vladimir V. Putin, who is said to have bridled at his rumored political ambitions. Mr. Khodorkovsky was arrested in 2003 at a Siberian airport and served 10 years in jail on charges of tax fraud and embezzlement before being pardoned by Mr. Putin and released in 2013.

Mr. Khodorkovsky is not a direct party to the legal dispute, having relinquished his shares. But his former partners, including Leonid B. Nevzlin, as well as a pension fund for former Yukos employees, would be beneficiaries if any awards are collected.

source: New York Times