Ex-YUKOS shareholders bet on American justice

Ex-YUKOS shareholders bet on American justice

Economist Maslennikov: “Moscow will not implement these verdicts”

The half-forgotten, ancient, but surprisingly tenacious “YUKOS case” has acquired a new dimension – an American one. The District Court for the District of Columbia did not recognize Russia’s right to sovereign immunity in the United States, protecting it from claims of ex-shareholders of a liquidated oil company in the amount of $50 billion. The Russian side’s arguments about the lack of jurisdiction over this long-term litigation were rejected, which means that new proceedings are ahead. They have little practical meaning: the defendant does not intend to pay anything to the plaintiffs, but for Moscow there is a risk of additional reputational losses.

Judge Beryl Howell decided to reject the Russian Federation’s petition filed back in 2015 to declare the dispute with ex-YUKOS shareholders outside the jurisdiction. “This case can now proceed to consideration of the merits with a view to determining whether the final awards (issued in 2014 by the Permanent Court of Arbitration in The Hague – “MC”) under the New York Convention should be enforced.

This story is extremely complicated, with a lot of purely legal twists and nuances. Let us recall that nine years ago, a court in The Hague, after a ten-year trial with the participation of the Russian side, awarded the former controlling shareholders of Yukos – Hulley Enterprises (Cyprus), Veteran Petroleum (Cyprus) and Yukos Universal (Isle of Man) – compensation of $50 billion for the “expropriation” of the company. According to Reuters, by today the amount has reached $60 billion, including interest. Moscow refused to pay, citing the fact that it had not ratified the multilateral treaty to the Energy Charter (ECT), the document that became the basis for the plaintiffs to initiate arbitration.

In turn, the former shareholders tried to launch arbitration awards in several jurisdictions at once, including (in addition to the Netherlands) the United States, where there are state assets of the Russian Federation. Today the case is in the Amsterdam Court of Appeal, which must evaluate Russia’s argument that the plaintiffs committed an act of fraud (the rest of the arguments of the Russian side were rejected by the Dutch courts). At the stage of the arbitration proceedings, their witness Andrei Illarionov (ex-adviser to the president on economics, now recognized by the Ministry of Justice of the Russian Federation as a foreign agent) allegedly received from the ex-shareholders of YUKOS a certain “secret” donation in exchange for testimony beneficial to them. Be that as it may, the plaintiffs do not have to count on any Russian money: Moscow’s official position is unchanged and is that arbitration courts, be it in The Hague, or in Amsterdam, or anywhere in the West, are not authorized to consider this dispute. Moreover, YUKOS shareholders are not foreign investors, but citizens of the Russian Federation.

However, it seems that it is in the United States that history is gradually gaining a “second wind.” In March 2022, representatives of the Russian Federation told the American court that the SVO in Ukraine represents “an evolving situation that provides another basis for suspending the proceedings while the trial in Amsterdam is taking place in parallel.” But then the court did not grant the request (as it happened today), citing the provisions of the New York Convention and denying Russia the right to immunity from legal proceedings in the United States.

“The old litigation is moving to a new level, a new round, due to today’s geopolitical circumstances,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – According to the Foreign State Immunities Act (FSIA), enshrined in the New York Convention, the American Themis can either consider the case or refuse. In general, at her discretion. In this case, an obvious choice was made in favor of the plaintiffs, although this is still an interim decision. And now the judge expects that by December 5 the parties will provide a mutually agreed upon schedule for consideration of the “final issues.” One of two things: either the petition of the ex-YUKOS shareholders (for recognition and enforcement of the 2014 arbitration awards in the United States) will be granted, or, less likely, the Russian position will prevail.”

Since Anglo-Saxon law is case-based, the situation must be looked at in a broader context. The point is to try to overcome various kinds of legal restrictions that directly prohibit the confiscation of Russian assets frozen in the West in favor of the offended ex-YUKOS shareholders. And it doesn’t matter what kind of money this is, what its nature is: if a precedent is created in the United States, courts in Europe will be able, on its basis, to make similar decisions on claims against Russia in the case of a former oil company. It is clear, Maslennikov argues, that Moscow will not implement these verdicts, but additional reputational costs in this particular issue may result in problems in other areas. In particular, in international commercial disputes, which will become more difficult to resolve in your favor.

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