Dutch court reinstates order for Russia to pay $50 billion to former Yukos shareholders

Moscow, February 19 - Neftegaz.RU. The Hague Court of Appeal said that it has reinstated an order for Russia to pay $50 billion to former shareholders in the Yukos oil company, S&P Platts reported. The $50-billion award was originally made in 2014 by The Hague Permanent Court of Arbitration after a claim was brought by three former shareholders in Yukos – Veteran Petroleum, Yukos Universal, and Hulley Enterprises.

Following unprecedented tax demands from the Russian government in the early 2000s, Yukos was declared bankrupt in 2006, and its assets sold off. Former Yukos shareholders say this amounted to an illegal dismantling and expropriation of the company. State-owned Rosneft took control of most of Yukos' assets. Rosneft reached a settlement with Yukos' subsidiaries in March 2015, but the shareholders have continued fighting the Russian government for damages.

The original court ruling found that Russia's intention was not to collect tax from Yukos, but eliminate then-CEO Mikhail Khodorkovsky as a potential political rival to Russian President Vladimir Putin. Khodorkovsky is not part of the arbitration case against Russia.

Khodorkovsky and his business partner Alexander Lebedev were sentenced to 8 years in prison in 2005 for fraud. They were subsequently found guilty of money laundering and oil embezzlement, and their sentences were extended. Khodorkovsky was pardoned in 2013 and Lebedev released from jail in 2014.

Court rulings

In 2016 the original ruling in the former shareholders' favor was overturned, on the grounds that Russia has signed but not ratified the Energy Charter Treaty, which allows for arbitration between governments and foreign investors. On February 18 the Hague Court of Appeal reinstated the original decision.

"According to the court of appeal, the jurisdiction of the Arbitration Tribunal does indeed rest on the ECT. When the Russian Federation signed the ECT, it undertook to apply that treaty provisionally unless it would violate Russian law," it said in a statement.

"In the opinion of the court, there is no question of conflict with Russian law. Russia also put forward a number of other arguments as to why the arbitration award should be set aside, but the court also rejected them," it added.

Russian appeal

The Hague Court of Appeal said that Russia can appeal against the ruling at the Supreme Court. The Russian Justice Ministry has already said that it would do so. "Russia will continue to stand up for its legitimate interests, and on appeal, will challenge the verdict issued by the court of appeal in the Supreme Court of the Netherlands," it said in a statement.

The ministry said that Russia had not consented to the arbitration. "The Dutch Court of Appeal also did not take into account the unlawful use by the former Yukos shareholders of the ECT mechanism, which has not been ratified by Russia, and was applied only on a temporary basis to the extent that it did not contradict current Russian legislation. The arbitration clause contained in the Energy Charter Treaty did not fall within the scope of such temporary application," the ministry said.