Yukos Legal Saga Continues...

For now, the Russian Federation has escaped from compensating shareholders of former Russian oil company Yukos for their alleged unlawful expropriation. Friday, November 5th, the Dutch Supreme Court in the Hague quashed the Hague Appeal Court’s final judgment as well as the Hague court’s preceding judgment, after it referred the case back to the Amsterdam Court of Appeal.

Start of the Yukos Legal Saga

Yukos collapsed in 2006 after oil tycoon Mikhail Khodorkovsky fell out with Russian leader Vladimir Putin and the government began demanding billions of dollars in alleged back taxes that ultimately resulted in it being seized by the state. Most Yukos assets were absorbed by Russian oil producer Rosneft and former Yukos shareholders, including Khodorkovsky's business partner and former Yukos executive Leonid Nevzlin, brought a case to recover their assets to the Hague-based Permanent Court of Arbitration (PCA), from where it has proceeded through the Dutch legal system.

2014 The Permanent Court of Arbitration (PCA) made the $50-billion award to the shareholders in 2014, the largest-ever sum for the tribunal, after nine years of hearings.

2016 The District Court of The Hague set aside the award after finding Russia was not bound to provisionally apply the Energy Charter Treaty, which it had never ratified.

2020 Appeal Court of The Hague squashed District Court's judgment and reinstated the PCA award, prompting Russia’s latest appeal.

Dutch Supreme Court Judgment (November 5, 2021)

Two outcomes seemed likely:

1. Conform the recommendation of the top legal advisor to the Supreme Court reject Russia’s appeal on all grounds, giving green light to enforce the $57-billion award.

2. Starting a preliminary ruling procedure at the European Court of Justice about scope of Energy Charter Treaty.

In the Komstroy case the European Court of Justice judged it is the court who should judge about the scope and interpretation of the ECT.

However, the Dutch Supreme Court has chosen for a third outcome:

The Supreme Court judges accepted one of Russia's grounds of appeal: "The Russian Federation’s argument that the shareholders have committed fraud in the arbitral proceedings has been wrongly dismissed by the Court of Appeal on procedural grounds and should have been judged with respect to content. Therefore the judgements of the Court of Appeal cannot be upheld." The allegation will now be considered by the Amsterdam Appeal Court. All Russia's other grounds of appeal were dismissed, including its argument that it was not bound by the provisional application of the Energy Charter Treaty. Russia's request that the Supreme Court refer certain questions of ECT interpretation to the European Court of Justice for a preliminary ruling (outcome under 2.) was also refused. The Prosecutor General’s Office of the Russian Federation said that while the decision "upholds the principles of the rule of law and the independence of the justice system" it regretted that the Supreme Court didn't order "a complete abolition of arbitral decisions at this stage."

The Energy Charter Treaty (ECT) (Lisbon, 17 December 1994)

The ECT is an international treaty that was adopted in the 1990s with the purpose of protecting investment in the newly-independent fossil-rich former-Soviet states, which did not have a tradition of democracy, separation of powers and independent judiciaries. Since then, however, the ECT has become a tool used by the fossil fuel industry to delay and hinder much-needed democratically-adopted climate action.

With increasing climate action, including actions triggered by successful climate litigation, States are more and more exposed to such claims for damages. States like the Netherlands are squeezed between a rock and a hard place. On the one hand, they have been legally obliged to take climate action (Dutch Supreme Court, Urgenda, 2019) and on the other they face multi-billion-euro claims in arbitration by fossil giants. Needless to add that this was never the intention of the ECT and that the ECT in this way puts factual financial pressure on States to breach their international obligations under the 2015 Paris Agreement.

In this light it is a good thing to notice the Supreme Court did not accept Russia's grounds of appeal for the ECT. Even without a ratification Russia as a signatory state is still bound to obligations in the ECT.

The Yukos Legal Saga Continues?

But referring the case back to a lower court in the Netherlands - the appeal court in Amsterdam - will likely bring years of additional litigation. The Yukos legal saga may still drag on, as the supreme court could send the case to the European Court of Justice later on. Even if the shareholders win in Amsterdam, they face a years-long battle to enforce the $50-billion award and seize Russian assets in several countries including the United States, Britain and the Netherlands.

This effort has already begun, with a Dutch court granting the shareholders local rights to two iconic vodka brands, Stolichnaya and Moskovskaya.