Russia Insists $50 billion Yukos Shareholder Case Must Remain Paused

Hulley Enterprises Ltd. et al. v. Russian Federation, case number 20-7113

On Wednesday 23 June 2021, Russia told the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit), that arguments by former Yukos Oil Co. shareholders against pausing a $50 billion award enforcement case “cannot be taken seriously” since they “fabricate two (non-existent) legal errors” over issues the court did not address.

Facts

The long running legal dispute stems from 2005 arbitration proceedings instituted by Yukos’s shareholders before the United Nations Commission on International Trade Law, which are administered by the Permanent Court of Arbitration seated in The Hague. The shareholders claimed that Yukos, formerly the largest oil company in Russia, was misappropriated by the state in a politically motivated move.

In 2014 Russia was ordered to pay $50 billion in damages to Yukos’s shareholders under the Energy Charter Treaty (ECT). The tribunal held that Russia, by expropriating Yukos’s shareholders’ investments in OAO Yukos Oil Company, had breached Article 10 (fair and equitable treatment of investors) and Article 13 (wrongful expropriation) of the ECT.

The Yukos awards remain the largest damages awarded in international arbitration. 

Russia initiated annulment proceedings and these awards were overturned by The Hague District Court in 2016.

On 18 February 2020, The Hague Court of Appeal quashed The Hague District Court’s judgment and thereby reinstated the Yukos awards.

On 15 May 2020, the Russian Federation submitted an appeal to the Dutch Supreme Court regarding the Judgement of The Hague Court of Appeal. This appeal is Russia’s last chance to have the appellate court’s ruling overturned. Over time, the amount of damages due to the Yukos’s shareholders has increased to $57 billion.

Yukos shareholders continue to seek enforcement of the awards

The award confirmation case is paused as Russia tries to undo a decision verifying the tribunal’s jurisdiction. A new ruling could take a long time, and Yukos shareholders are trying to further the proceedings to get, at the very least, security on the Yukos awards in case the assets to pay “vanish” and to lift a stay on $50 billion award confirmation case in the D.C. federal court.

Prior to the proceedings before the D.C. Circuit Court,  the English Commercial Court had dismissed an application by former Yukos shareholders to lift a stay on proceedings to enforce the arbitration awards, finding that the stay should remain in place pending the outcome of the challenge to those awards before the Dutch Supreme Court. On the facts, the English court did not have power to order security for the award. 

Russia, in its 23 June brief, criticised the former shareholders’ arguments that the D.C. federal court abused its discretion by granting a stay and urged the appellate court to affirm a lower court ruling denying prejudgment security due to the country’s unwaived immunity from prejudgment attachment under the Foreign Sovereign Immunities Act.

In its submission on behalf of Russia, law firm White & Case LLP, stated that: “Nor is there any merit to appellants’ six scattershot attempts to dispossess the district court of this broad discretion. Respondent has been forced to play whack a mole to rebut each baseless attempt in detail below, but an example from their main argument proves the point”.

The filing continued: “Thus, because there has been no explicit waiver, appellants’ requested security violates the Russian Federation’s immunity from prejudgment attachment under the [Foreign Sovereign Immunities Act], and this court may therefore confirm the district court’s decision on that alternative basis as well.”

If Russia is unsuccessful in its appeal, the former Yukos shareholders could seek the enforcement of the awards against Russia’s assets globally. These assets vary hugely from intellectual property rights for vodka brands in Benelux, to a historic building in Paris (the Russian cultural orthodox centre), to assets associated with space programmes. The enforcement process against state assets for such high value awards is likely to present a wide variety of novel legal and jurisdictional challenges and so the proceedings are far from over. We continue to observe how the case develops. A decision from the D.C. Circuit Court is expected in the coming months.

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