A battle over Russian assets: The former owners of Yukos suffer a legal setback

A Dutch court grants relief to Russia

A DECADE ago the Russian government snatched Yukos from its oligarch owners, then bankrupted it and broke it up. The giant oil company’s boss, Mikhail Khodorkovsky, was jailed. The dispossessed shareholders sued abroad, and in 2014 won a stunning victory: a $50 billion award against Russia by a panel in The Hague, a record for an international arbitration. That set off efforts to enforce the award in several countries—by laying claim to Russian state assets—when Moscow refused to pay up. But the asset-hunters suffered a serious setback on April 20th when a Dutch court ruled that the arbitration award should be set aside.

The original panel had concluded that the Russian state illegally expropriated Yukos, using tax-evasion charges as a pretext. In doing so, the judges ruled unanimously, Moscow had breached the terms of an international energy charter. But this week the court found that the panel should never have taken the case because although Russia had signed the energy charter, its parliament never ratified it.

Russia welcomed the decision as a “sensible” response to a “flawed” arbitration award that had been politically motivated (thereby lobbing back a charge made against Russia by the original panel, which said Yukos had been “the object of politically motivated attacks” by the authorities that “led to its destruction”). Lawyers for the Russian government, including White & Case, a top-tier American firm, immediately called for enforcement of the award to cease. The former shareholders have begun legal proceedings aimed at confiscating Russian state assets in numerous countries, including America, Britain, France, Germany and Belgium. More than $1 billion-worth of property, bank accounts and other assets have been frozen in France and Belgium.

Russia’s lawyers say the setting-aside of the award means it cannot now be enforced in any of the more than 150 countries that have signed a convention on recognition of international-arbitration rulings. They plan to file motions to dismiss those enforcement cases that have already been launched.

Lawyers for the other side argue that the decision does not necessarily stop enforcement dead. National courts “will be at liberty to assess the award for themselves, irrespective of what the Dutch courts have to say on the matter”, said Yas Banifatemi of Shearman & Sterling, a law firm that represents GML, a holding company for the former majority owners of Yukos. The biggest of these is Leonid Nevzlin, who is now based in Israel. Mr Khodorkovsky is no longer directly involved, having transferred his stake to Mr Nevzlin in 2005.

The former shareholders plan to appeal; the case could go all the way up to the Dutch Supreme Court. They argue that Russia was governed by the energy charter because it had agreed to apply it provisionally pending ratification—indeed, Moscow was keen on provisional application because it wanted to attract more foreign investment.

Even if enforcement proceedings can move ahead in some countries, getting hold of more assets could be a struggle. The job is made harder by European governments that are wary of being seen to support a private challenge to Russian sovereign immunity. Belgium’s foreign ministry intervened recently to stop bailiffs from seizing a building in Brussels owned by the Russian state, which GML had gone after. And France is weighing a change to the law that would make it harder to freeze such assets. 

Original