BY
The decade-long battle to get compensation for the
illegal seizure of Yukos will continue well into the future after an unexpected
— and legally questionable — court ruling in the Netherlands.
Dutch court threw Russia an unexpected lifeline Wednesday in a $50 billion
arbitration case, pushing a decade-long legal saga into further appeals that
could drag on for years.
The dispute — the biggest
arbitration case in history — deals with the fate of now-defunct Yukos, once
Russia’s biggest oil company. Moscow seized the firm in 2003, allegedly for tax
fraud, and threw Yukos boss and Kremlin critic Mikhail Khodorkovsky into prison
in Siberia.
Shareholders of Yukos took the
case to international arbitration in the Hague and won a landmark ruling in the summer of 2014
that found that Russian President Vladimir Putin and the Kremlin had gobbled up
Yukos for political reasons. Under that ruling, former Yukos shareholders can
grab Russian assets anywhere in the world to the tune of $50 billion as
compensation for Russia’s seizure of Yukos.
But on Wednesday, the District
Court of the Hague essentially questioned the 2014 ruling. Under the terms of
the Energy Charter Treaty, which Russia signed but never ratified, foreign
investors can seek legal protection if they feel they’ve been wronged. The
court ruled that the treaty did not apply to Russia, meaning that Yukos shareholders
can’t seek legal redress internationally.
The district court ruling is a
small setback, not a defeat, for Yukos shareholders. The broader 2014 ruling
still stands while the case is being appealed. This means that Yukos
shareholders can still continue to pursue Russian assets abroad, unless and
until some local court says they can’t, and have already targeted some Russian
assets in Belgium and France.
Shareholders are also seeking to get the 2014
ruling enforced in other countries, such as the United States and the United
Kingdom, which could open the door to more asset seizures.
Tim Osborne, director of GML,
the company that held the bulk of Yukos shares, said in a statement: “We will
appeal this surprise decision by the Hague Court and have full faith that the
rule of law and justice will ultimately prevail.”
The case has had both
financial and political repercussions. Russia reacted angrily to the 2014
ruling and threatened countries that sought to
comply with it. Russia also drafted its own legislation last
year that allows it to grab any assets belonging to foreign companies, an
eye-for-an-eye response to the Hague’s ruling.
Despite the small victory
Russia won on Wednesday, its reputation is already sullied among foreign
investors; kicking the resolution of the Yukos case further down the road
probably won’t change that.
“Whether or not the Russian
state will be held liable is increasingly becoming a moot point,” said Sijbren
de Jong, an analyst at the Hague Center for Strategic Studies. “The whole Yukos
ordeal, coupled with the Kremlin’s adventurous foreign policy and the
international sanctions that came in response, have already done tremendous
damage to the country’s investment profile abroad.”
The District Court ruled on a
seemingly arcane point that Russia, which is no longer part of the Energy
Charter Treaty, is not bound by its provisions, even though it was a signatory
to the treaty when it snatched up Yukos. Lawyers for GML noted that the
original arbitration panel already considered that question and found that
Russia was bound by its provisions.
Wednesday’s ruling seems to
contradict the treaty, which explicitly ensures
protection for investors for a period of up to 20 years — even before a country
ratifies the treaty, and even if a country later abandons it. Russia ditched
the Energy Charter Treaty in 2009.
“The court’s reading is
strange,” de Jong said. Russia provisionally applied the provisions of the
Energy Charter Treaty for years, right up to August 2009, when it abandoned the
treaty altogether, he said. “How can you formally terminate something you claim
you are not bound by?”
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