No suspension of enforcement of arbitral awards in Yukos case
In the case between the Russian Federation and three former shareholders in Yukos Oil Company, the Supreme Court today dismissed the Russian Federation’s application to suspend enforcement of the arbitral awards given in 2014. These awards ordered the Russian Federation to pay around USD 50 billion in compensation for failing to protect the shareholders’ interests.
The case
Yukos Oil Company was one of the biggest oil and gas companies in the Russian Federation. In the 1990s it was privatised. In the period from 2003 to 2006 the Russian Federation imposed several substantial tax demands on Yukos and, as a result, one of its main production companies was auctioned off. Yukos was eventually declared bankrupt in 2006.
Three major shareholders (Veteran Petroleum Ltd, Yukos Universal Ltd and Hulley Enterprises Ltd) then initiated arbitration proceedings against the Russian Federation. Arbitration is a form of private justice in which independent arbitrators rule on a case. The arbitration proceedings were held in The Hague and lasted about 10 years. In its judgment of 18 July 2014, the arbitration tribunal ordered the Russian Federation to pay the three shareholders a total of USD 50 billion in compensation. The Russian Federation then applied to a Dutch district court to set aside this judgment. The court found in favour of the Russian Federation but, on appeal, the appeal court ruled that the district court’s judgment was incorrect. This meant that the arbitral award again took effect. The Russian Federation then lodged an appeal in cassation with the Supreme Court.
Cassation proceedings
The Russian Federation wants the Supreme Court to quash the appeal court’s judgment. In preliminary proceedings, it applied to the Supreme Court to suspend enforcement of the arbitral awards. The Russian Federation challenges the interpretation of the treaty provision on which the arbitrators based their authority. It also argues that the arbitrators have not adhered to their mandate and should not have left part of their work to an assistant. And it asserts that the arbitral awards are not well reasoned and are contrary to public policy.
Supreme Court judgment
In the preliminary proceedings, the Supreme Court has now dismissed the application for suspension. It has issued a provisional opinion on the arguments put forward by the Russian Federation for quashing the appeal court’s judgment. The Supreme Court holds that the likelihood of those arguments succeeding is not such as to warrant not awaiting its own final judgment. Its assessment of how both parties’ interests would be affected by continuing or suspending enforcement also gave it no reason to grant the Russian Federation’s applications.
Outcome
The Supreme Court’s decision means that the former shareholders can continue to enforce the arbitral awards pending its final judgment. Oral pleadings in the main action will take place in early 2021.