The Court of Permanent Arbitration in the Hague, known as the CPA, today made public a decision in a case brought against the Russian Federation in 2007, by the former shareholders of Russian oil company Yukos.
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Yokos’ assets were seized by Russia and eventually absorbed into the state owned oil company Rosneft, led by consummate Kremlin insider Igor Sechin.
Ten years ago, Russian oligarch Mkhail Khorovsky, once the richest man in Russia, controlled between 60 and 70 percent of Yukos through the Gibraltar based Menatep group, now known as GML Ltd.
The Court of Permanent Arbitration has now found for the claimants and awarded the shareholders of GML Ltd. just over $50 billion in compensation, plus reimbursement of their legal costs. While this is slightly less than half the $114 billion they had been asking for, it’s still a very nice outcome.
Tim Osborne, a director at GML, describes today’s award as being very favorable, and likely the biggest such award ever.
In 2003, Mikhail Khodorkovsky was arrested at gun point by agents of the Russian Federation acting on orders of Vladimir Putin, and languished in jail for a decade, until Putin finally pardoned him in December of 2013. Once he had been arrested, it transpired that he had been able to transfer ownership of his personal 70% stake in GML to business confrère Leonid Nevzlin, who escaped the clutches of rough Russian justice only by taking refuge in Israel, where he is a citizen.
The other beneficial investors in GML are Platon Lebedev, Mikhail Brudno, Vladimir Dubov and Vasilly Shaknovski.
While Khodorkovsky is not a direct beneficiary of today’s judgment, having surrendered his interest to Nevzlin, one can certainly speculate that there may be a form of underlying gentlemen’s agreement between them, restoring at least some of Khodorkovsky’s holdings once the award is paid out–providing it survives the inevitable appeals process.
The Permanent Court of Arbitration is an intergovernmental organization sitting in the Hague, with 115 member states. Established in 1899 to facilitate arbitration and other forms of dispute resolution between states, today the PCA provides services for the resolution of disputes involving various combinations of states, state entities, intergovernmental organizations and private parties as well.
The members of the Arbitral Tribunals who signed the decision handed down today, which was actually signed ten days ago, on July 18th, were The Hon. L. Yves Fortier PC CC OQ QC (Chairman), Dr. Charles Poncet and Judge Stephen M. Schwebel.
The court first had to decide that it had jurisdiction over the case, which was filed under a 1994 Energy Charter Treaty, to which Russia is a signatory but which it has not yet ratified. It took the court two years to consider that aspect of the case, which it finally decided in 2009.
In today’s ruling, the court finds that the Russian Federation indeed took measures equivalent to an expropriation of Menatep’s (now GML’s) investments in Yukos and thus breached Article 13(1) of the Energy Charter Treaty.
Finally, in considering damages, the court found some contributory fault on the part of GML, leading it to reduce the amount of damages awarded, but still ending up with the hefty figure of $50 billion.
The length of the judgement is fully commensurate with the size of the award — it took until page 564 of the more than 600 page long judgement to get to the magic number. In addition, should Russia not pay up by January 2, 2015, the clock will start ticking in additional interest charges.
Coming as this does on top of Russia’s other woes, with the implementation of financial sanctions, both by the United States and the European Union, over recent events in the Ukraine, this was a judgement Vladimir Putin could probably have done without.
Even so, Russia’s Foreign Minister Sergei Lavrov pointed out an appeal is likely, saying today “The Russian side, those agencies which represent Russia in this process, will no doubt use all available legal possibilities to defend its position.”
So it may well take a while to process the panoply of appeals procedures available to Russia, and even if the GML groupprevails all the way through these, they may still have to attempt to enjoin international Russian state assets if Putin should still not pay up.