Russia ordered to pay record US$50 billion to Yukos' shareholders

In an arbitration that has taken nearly 10 years to conclude, the Russian Federation has been ordered to pay US$50 billion to oil company Yukos' shareholders plus costs of €4.2 million.

Russian authorities dissolved Yukos after its owner, Mikhail Khodorkovsky, was arrested in 2003 for alleged tax evasion and alleged theft after funding opposition parties.  After ten years in custody, he was pardoned in 2013.  Following its dissolution, Yukos' assets were ultimately transferred to state-owned energy companies Rosneft and Gazprom.

The Permanent Court of Arbitration, sitting in the Hague, found that Russia was bound by the Energy Charter Treaty (despite the treaty not having been ratified by the Russian Duma) and that its actions, in expropriating Yukos' assets, were unlawful and in breach of the ECT.

This is the largest ever award by an arbitral tribunal (breaking the existing record of US$2.1 billion awarded to Dow Chemical in a dispute with a Kuwaiti Petrochemical Company).

Disputes concerning matters of private international law referred to the Permanent Court of Arbitration are generally enforceable in the same manner as any international commercial arbitration award, including through the New York Convention (of which Russia is a signatory).  However, the convention permits contracting states to refuse to enforce an award on public policy grounds (among other things), as does Russian law. This discretionary aspect, when enforcing arbitral awards, may give Yukos' shareholders cause for concern. 

In its 18 July Final Award, the Tribunal held that the shareholders were entitled to “reparation for the injury they suffered as a result of those of [Russian Federation’s] measures that the Tribunal has found to be internationally wrongful” and that they will be entitled to post-award interest if the Russian Federation fails to pay the amounts due by January 15, 2015.   

Russia has improved over the years, but still has a somewhat mixed track record on the enforcement of foreign arbitration awards, so it very much remains to be seen whether the Russian Federation complies with the awards (especially given the astronomical amount involved).  This is likely to be the first stage in lengthy proceedings relating to the recognition and enforcement of the awards.  With the arbitrations seated in The Hague, The Russian Federation will no doubt be considering its options of appeal.  In the interim, the successful claimants will sensibly have an eye on the assets of The Russian Federation for the purposes of any future enforcement actions, which would most likely require a strategy of asset seizing in numerous jurisdictions in order to recover the full quantum awarded.  

Many Russians have monitored this case with great interest, which may now have a wider impact in assisting and providing a catalyst to other claims in damages for alleged unlawful expropriation of assets and businesses in Russia. 

For further information regarding the topics discussed in this article, please contact Sara Chisholm-Batten or Garbhan Shanks.