For those of you who are not familiar with the case, the Yukos litigation is one of the biggest disputes in the arbitration world. While the case is too complex and its history too long to describe properly in this article, suffice it to say that it comprised a multi-year hearing of a Russian tax dispute between Russian nationals and the Russian Federation concerning tax assessments again a Russian company. The arbitration fees amounted to multi-milliions and involved several of the world’s leading arbitration practitioners.

The final result of the arbitration was a finding that the arbitration tribunal had jurisdiction to arbitrate the dispute (an issue vigorously contested), a finding against the Russian Federation, and an award in favor of Yukos in the amount of US$ 50 Billion. Yes, that’s billion with a “B.”

On appeal, the Hague District order held that the arbitration panel, made up of Yves Fortier QC, Charles Poncet, and Stephen Schwebel, did not have jurisdiction. They accepted Russia’s submissions that Article 45 of the Energy Charter Treaty (“ECT”) was never ratified by Russia. The Court said that Russia’s signature on the ECT alone did not bind Russia in the absence of new Russian law reflecting the terms of the treaty. The upshot was that the notice of arbitration was invalid.

Many arbitration practitioners were deeply troubled by reports of events that occurred during the proceedings and many of the rulings made during the arbitration. Therefore, Albert Jan van den Berg (lead counsel for Russia) not surprisingly stated upon learning of the Dutch Court’s ruling:

“If the Yukos awards had been held valid and enforceable, the integrity and credibility of investment arbitration would have been seriously jeopardised,”

Also not surprisingly, Tim Osborne, director of GML (the company that indirectly owns the majority of Yukos’s shares), stated:

“We fully stand by the unanimous awards received in 2014 on the politically motivated destruction of Yukos. We will appeal the surprise decision by The Hague court and have full faith that the rule of law and justice will ultimately prevail.”

Emmanuel Gaillard, head of international arbitration at Shearman & Sterling and lead counsel for the shareholders in the arbitration, stated:

“The arbitral tribunal was composed of arbitrators of the highest calibre who were unanimous in their reasoning. I am confident that today’s decision will be reversed on appeal.”

THE RUSSIAN FEDERATION,
seated in Moscow, the Russian Federation,
claimant,
versus
YUKOS UNIVERSAL LIMITED,
with its registered office in Douglas, Isle of Man, defendant,
Case number / Cause list number: C/09/481619 / HA ZA 15-112

Special thanks to Jim Reiman and Georgia A. Lang for this post. Jim Reiman is an ADR Professional and commercial transactions attorney with 18 years experience in US law firms followed by 15+ years as a CEO and public company board director. He is a Fellow of the Chartered Institute of Arbitrators UK. ReimanADR.com. The post was edited by Georgialee A. Lang BA JD FCIArb, Georgialeelang.com.