The District Court of the Hague has overturned a $50bn arbitral award against the Russian Federation in a long-standing dispute with the shareholders of oil company Yukos.
The claimants’ lawyers from Shearman & Sterling and Dutch firm De Brauw Blackstone Westbroek said the court had “incorrectly applied” Russian law provisions and articles of an international treaty and added they would be appealing the decision.
The dispute began over a decade ago, when Shearman was instructed by Yukos’ majority shareholders Hulley Enterprises, Yukos Universal and Veteran Petroleum through Gibraltar-based holding company GML.
The claim followed the dissolution of Yukos by Russian authorities after the 2003 arrest of its founder and owner Mikhail Khodorkovsky. The claimants said that Russia had breached its international obligations under the Energy Charter Treaty (ECT) by a series of actions which eventually saw the transfer of Yukos’s assets to state-owned energy giants Rosneft and Gazprom and the “complete and total deprivation” of their investments.
In a landmark judgment in July 2014 the arbitral tribunal said Russia had to pay out $50bn (£29.bn) in damages to the shareholders.
In today’s decision, the court held that the award could not stand on the ground that the Russian Federation was not bound by the provisional application of Article 26 of the ECT containing the offer to arbitrate.
Cleary Gottlieb Steen & Hamilton was the lead counsel for Russia throughout the proceedings, with the team led by partners Larry Friedman, David Sabel, Claudia Annecker and Matthew Slater.
Hanotiau & van den Berg partner Albert Jan van den Berg appeared for Russia before the Hague court. Dutch firm Houthoff Buruma was also involved, led by partner Rob Meijer.
De Brauw partner Marnix Leijten appeared for the Yukos claimants, working alongside Shearman arbitration head Emmanuel Gaillard and public international law head Yas Banifatemi.
Banifatemi said: “The claimants will continue moving forward with their worldwide efforts to enforce the Russian Federation’s international obligations, as recognized by the arbitral tribunal. Under the 1958 New York Convention, enforcement courts will be at liberty to assess the award for themselves, irrespective of what the Dutch courts have to say on the matter.”
The Hague district court also awarded costs against Yukos’s shareholders, ordering them to pay a total of €16,801 for the appeal proceedings. That included €3,957.80 in disbursements and €12,844 in fees, according to the judgment.
The fees for the appeal stages are substantially less than those incurred during the decade-long arbitration proceedings. The total amount billed by Shearman on its behalf and that of its experts was $76.63m plus an additional £1.1m, over nine years of arbitration, while Russia’s fees reached $27m, with a further $4.5m on experts’ fees and expenses.
White & Case, among other firms, is instructed by Russia in opposing the enforcement of the award, notably in the US and Germany.
The legal line-up:
For the claimant, the Russian Federation
Hanotiau & van den Berg partner Albert Jan van den Berg; Cleary Gottlieb Steen & Hamilton partners Larry Friedman, David Sabel, Claudia Annecker and Matthew Slater
For the defendants, Veteran Petroleum, Yukos Universal and Hulley Enterprises
De Brauw Blackstone Westbroek partner Marnix Leijten; Shearman & Sterling partners Emmanuel Gaillard and Yas Banifatemi