$100 billion case

The Hague court is preparing to consider the claim of Yukos shareholders against Russia

It's about 100 billion. In January 2010, the Arbitration Court in The Hague will start considering on the merits the claim of foreign shareholders of Yukos against Russia. Foreign investors demand compensation for the illegal expropriation of the assets of Khodorkovsky's oil company in the amount of $ 100 billion. The possible outcome of events - studied by The New Times
On November 30, an arbitral tribunal in The Hague ruled that Russia violated the requirements for the protection of investments in the energy sector and used discrimination and fair proceedings against Yukos. Investment protection requirements are set out in Article 13 of the Energy Charter Treaty, which Russia signed in 1994 and withdrew its signature on October 18, 2009.

Charter in action Such a verdict of the Hague Arbitration Court is based on the fact that Russia, having signed the Energy Charter

* * It has been ratified by 60 states of the world. and the treaty attached to it, thereby assumed the obligation to fulfill the provisions of these documents, despite the fact that the State Duma never ratified the charter. One of the provisions of the charter and the treaty attached to it is to protect foreign investments invested in the country's natural resources (oil, gas) from expropriation. And if the state expropriates the property, and with it the investment, then the private owner has the right to file a claim for compensation in international arbitration. Moreover, the state cannot invoke sovereign immunity and not face trial.

Evidently, when withdrawing their signature on October 18, the Russian authorities expected that the Hague Arbitration would take this into account and dismiss the suit, which, by the way, had been in preparation for more than four years by Yukos's foreign shareholders. However, “according to the UN Vienna Convention, which regulates the implementation of international treaties by countries, the state that put its signature under the treaty is obliged to comply with its norms at the stage of ratification, that is, at the stage of provisional execution of an international treaty, up to withdrawal from it,” said in an interview with The New Times is a well-known lawyer Mikhail Barshchevsky, who represents the government of the Russian Federation in the highest judicial instances.

And the liquidation of YUKOS and the sale of its assets happened in 2004-2007, that is, before the signature was withdrawn. According to The New Times interlocutors, close to the foreign shareholders of Yukos, it was because of the lawsuits that threatened the Russian government that on July 30, 2009, Prime Minister Vladimir Putin withdrew his signature from the Energy Charter agreement. “Unfortunately, the Energy Charter, which was signed at one time and which has not yet been ratified by the Russian side, as we said earlier, did not play its role,” Putin said then at a meeting with Bulgarian Prime Minister Stanishev. “Today we can say for sure and unequivocally that we don’t see any point in even keeping our signature on this document.”

“We are very pleased with the decision of the arbitration tribunal in The Hague, which ruled that Russia was bound by the provisions of the Energy Charter treaty until October 19, 2009,” Emmanuel Gaillard, head of the arbitration practice department at the law firm Sherman and Sterling, representing the interests of foreign shareholders of Yukos (in particular, Group Menatep Ltd). “This decision is important not only for the shareholders of the once-existing oil company, but also for all investors in the Russian energy industry who invested before October 19, 2009,” he added.

And who are the judges? The next stage of the arbitration, scheduled for January, is consideration of the claim on the merits. According to Gaillard, the plaintiffs will present documents and testimonies of witnesses to the Arbitration Court that Yukos property was expropriated and that the investors were not compensated as they should have been. The amount of the claim of Group Menatep Ltd against the Russian Federation is $100 billion.

The Court of Arbitration in The Hague operates under the rules of the United Nations Commission on International Trade (UNCITRAL). It was specifically set up to deal with complaints from foreign shareholders following the Yukos smash and the transfer of its main assets (mainly Yuganskneftegaz) to the state-owned Rosneft. In their actions, arbitrators sitting in the Netherlands are guided by international law and the provisions of the Energy Charter.

“The process will take at least two years,” says Emmanuel Gaillard. The sources of The New Times, close to the shareholders of Yukos, believe that this is an optimistic forecast. According to them, Russia may deliberately delay the process, using procedural clues, so the case could drag on for another five years.

Russia under arrest Do foreign investors have a chance not only to win the case, but also to collect compensation from Russia, which amounts to almost 10% of domestic GDP? “Russia has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In the same way, another 143 states ratified this agreement, so we can demand compensation for the damage to our clients at the expense of the property of the Russian Federation located on the territory of these countries, ”comments Gaillard, a representative of the plaintiffs.

“The mechanism for the execution of the Arbitration Court of Arbitration is thoroughly spelled out and very simple. Losing the case threatens Russia with the arrest of any assets with state participation: oil, gas, Aeroflot aircraft, bank accounts, lists lawyer Vladimir Gladyshev, managing partner of Gladyshev and Partners. “If Rosneft exports oil produced from Yukos assets, no matter what intermediaries are used, then it can be arrested by court order and sold at auction.”

According to the expert, wherever state assets are located, for example, Gazprom, Rosneft or the titanium producer Washington-Avisma, they can be arrested. “Even if the charter of state-owned companies says that they are not liable for the debts of the state, and the state for their debts, assets can be seized, and Yukos shareholders are compensated through their sale,” Gladyshev says.

“Plaintiffs will have to prove that Yukos property was taken away, and not gone for tax debts,” Mikhail Barshchevsky doubts the success of the shareholders. “They need to convince the Arbitration Court that there were no tax claims against the oil company and this practice in relation to Yukos was selective. I am not sure that the state acted exclusively against this company. We just haven't heard of similar cases against other companies."

There are precedents Despite the seeming uniqueness of the current case, it turns out that in the history of Russia there have already been cases when the state was forced to appear in an arbitration court, where the plaintiff was a private person. One such litigation is still going on. German businessman Franz Sedelmayer filed a lawsuit against the Russian Federation for about $2.5 million. Having renovated a mansion on Kamenny Island in St. Petersburg with an area of ​​20 thousand m2, he did not receive compensation for the fact that the building, against his will, became the property of the presidential administration: as they say, the mansion was liked by the then manager of the Kremlin, Pavel Pavlovich Borodin. Nemets won arbitration in 1998 and began prosecution of the Russian state. At the suit of Sedelmeier, German courts four times - in 2006 (twice), 2008 and 2009 - seized the movable and immovable property of the Russian state (land, buildings and even exhibits) located on the territory of the Federal Republic of Germany. And although so far the German investor has not received a full refund, he delivers a constant headache to the Russian side. “The Zedelmeier case paved the way for court cases involving Russia as a defendant,” comments Gladyshev. - Before that, it was believed that individuals are not objects of international law and cannot summon the state to court. The more such cases, the clearer it is how to sue the state.”

“Traditionally, the immunity of the state is its absolutely inviolable characteristic, and it is usually impossible to carry out any penalties from the state,” says Sergey Lebedev, professor at MGIMO. But at the moment there is a deviation from this principle. If the state acts in its imperious status, then this principle is preserved. If it carries out acts of a commercial nature, then it cannot claim immunity. This issue should be settled within the framework of the UN Convention on State Immunity, but Russia is not a party to this convention.”

And the former first deputy chairman of the Central Bank, Sergei Aleksashenko, in connection with the decision of the Hague arbitration, recalled the case of the Swiss company Noga, which was suing from 1997 to 2006.

* The subject of the lawsuit filed by the head of Noga, Nessim Gaon, against the Russian Federation was the unilateral termination by the Russian side of an agreement on the supply of food in exchange for oil. The amount of damage in the suit was estimated at $63 million. “If the Arbitration Court in The Hague decides that the Russian side will have to compensate for the damage, then the state will have to execute this decision. Although the amount of the claim of foreign investors of $100 billion seems to me too high. But the Noga case shows that sooner or later the government had to pay its debts. Even if it then bought these debts through the second hand (by the American businessman Alex Kogan. - The New Times), but the state nevertheless executed the court decision, ”says Aleksashenko.

If you delve into history, it turns out that even the Soviet state could be called to account. Having expropriated the gold mines owned by the English company Lena Goldfields in 1918, the Bolsheviks received a summons to arbitration after 12 years. In 1935, the USSR was ready to pay a small amount to a foreign investor (about £50 thousand out of almost 3 million, according to the lawsuit), but then Stalin changed his mind, recalled the representative of the USSR from the arbitration and shot him just in case. Then the Second World War began, and the British government decided not to complicate relations with an ally. “But in those years there was no New York Convention, which makes it very difficult to repeat the story with Lena Goldfields,” says lawyer Gladyshev. He also recalled that various international arbitrations are now considering claims against two Latin American states - Peru and Argentina, which at one time declared a sovereign default; lawsuits have also been filed against Venezuela, where Hugo Chavez nationalized the oil industry. “Western investors have learned well the lessons they learned in Africa and are now insuring their investments: for example, many bilateral agreements have been concluded with China, and China strictly observes these agreements. That is why the money goes there, ”the expert says.