The annulment proceedings in the Yukos case, initiated by Russia with the aim of setting aside the largest arbitral awards in history, may finally be coming to an end.(1) An interim decision of 4 December 2020 by the Supreme Court and the opinion of the advocate general of 23 April 2021 seem to have given away which party is likely to prevail in this long-running saga.

Facts

The Yukos saga started in 2005 when VPL, YUL and Hulley (Yukos's shareholders) filed requests for arbitration in United Nations Commission on International Trade Law arbitration proceedings administrated by the Permanent Court of Arbitration seated in The Hague. In 2014 Russia was ordered to pay $50 billion in damages to Yukos's shareholders under the Energy Charter Treaty (ECT) (the Yukos awards). The tribunal held that Russia, by expropriating Yukos's shareholders' investments in OAO Yukos Oil Company, had breached Articles 10 (fair and equitable treatment of investors) and 13 (wrongful expropriation) of the ECT.

Russia initiated annulment proceedings before The Hague District Court and in 2016 succeeded in setting the Yukos awards aside. Yukos's shareholders successfully appealed the first-instance decision. On 18 February 2020 The Hague Court of Appeal quashed The Hague District Court's judgment and thereby reinstated the Yukos awards. The shareholders could now seek the enforcement of the awards against Russia's assets globally. Russia's appeal to the Supreme Court is pending. However, a judgment is expected soon as the advocate general recently issued its opinion. This appeal is Russia's last chance to have the appellate court's ruling overturned. Over time, the amount of damages due to the Yukos's shareholders has increased to $57 billion.

Supreme Court's preliminary decision

Prior to rendering its final decision, the Supreme Court appears to have already given away that Russia's chances of success in setting aside the Yukos awards may be remote. It did so in its interim decision of 4 December 2020, further to a request by Russia for the suspension of enforcement of the Yukos awards.

An application to set aside an award does not automatically suspend its enforcement (Article 1066(1) of the Code of Civil Procedure (CCP)).(2) Nevertheless, the court deciding on the request to set aside an award (in this case, the Supreme Court) may, at the request of either party, suspend the enforcement until a final decision is taken on the application for setting the award aside (Article 1066(2) of the CCP).

In assessing the request for suspension, the standard to be applied consists of two independent tests:

  • the likelihood of success of the setting-aside action; and
  • balancing the interests of the parties involved.

Likelihood of success of setting-aside action

The assessment of the likelihood of success of an annulment claim is a preliminary one as it involves a summary assessment of the claim. Thus, the Supreme Court is restricted in its assessment and can examine only whether the grounds for annulment brought by Russia are prima facie justified. The court is solely allowed to take note of the Yukos awards and the objections against these awards raised in the application for a stay of the enforcement.(3) Suspension of enforcement will be granted if it is likely that the award will be set aside. In addition, as the Supreme Court does not deal with facts but with matters of law, the matter will be reviewed by the Supreme Court only in a limited way.

Balancing interests of parties involved

The parties' interests which must be balanced in these proceedings are:

  • the risk of restitution;
  • the possible irreversible consequences of the execution; and
  • the duration of the cassation proceedings.

The advocate general advised the Supreme Court to reject Russia's request to suspend the enforcement of the Yukos awards.(4) The Supreme Court followed the advocate general's opinion in its 4 December 2020 judgment.(5) It rendered the provisional conclusion that Russia's grounds for setting the awards aside will have an insufficient chance of success.

The Supreme Court also held that the balancing of the parties' interests cannot justify the suspension of enforcement. The Supreme Court did acknowledge that the enforcement of the Yukos awards will likely imply a certain recovery risk for Russia now that the awards can be enforced against their assets. However, it also considered that it is unlikely that recovery of the $57 billion will be easy and that the amount (or a large part thereof) will be recovered during the remainder of the Supreme Court proceedings.

Consequently, the Supreme Court rejected the application to stay the enforcement of the Yukos awards.

Advocate general's opinion

In his non-binding opinion of 23 April 2021, Advocate General of the Supreme Court Paul Vlas advised the Supreme Court to dismiss Russia's appeal and uphold the Yukos awards.(6)

Advocate General Vlas held, among other things, that:

  • the grounds put forward by Russia denying the provisional application of the ECT, particularly its dispute resolution mechanism (because Russia had signed but not yet ratified the ECT) were unfounded;
  • the ECT has its own definition of 'investment' and 'investor' which the Court of Appeal had applied properly in relation to Yukos's shareholders' investments in Yukos Oil;
  • under the ECT, it is considered that the illegality of an investment can at most play a role in the tribunal's assessment of the case on the merits as there is no general principle of international investment law that would require a tribunal to decline jurisdiction in the case of an illegal investment;
  • the Court of Appeal correctly ruled that the tribunal's failure to fully inform parties about the role of the secretary does not constitute a serious enough violation to set aside the Yukos awards;
  • Russia's request to refer preliminary questions to the European Court of Justice regarding the interpretation of the ECT should be rejected as it is not necessary to decide the grounds for appeal.

Parties will have the opportunity to respond to this opinion within two weeks.(7) As the opinion is non-binding, the Supreme Court need not adopt the attorney general's opinion. However, it usually does adopt said opinion.

No date has been set yet for the Supreme Court to render its judgment.(8)

End of saga almost in sight?

If the Supreme Court, in line with its interim judgment and the advocate general's opinion, dismisses Russia's appeal, this will mark the end of the proceedings, to Russia's detriment. However, if the Supreme Court decides to first refer preliminary questions to the ECJ, the Supreme Court proceedings will be suspended.

If the Supreme Court considers the appeal to be well founded, it will set aside The Hague Court of Appeal's judgment, but only to the extent covered by the grounds of appeal. In general, the Supreme Court then refers the case to an appellate court, as it is not a court of fact and cases often require further investigation. If The Hague Court of Appeal renders a new judgment, proceedings may still be incomplete since it will be possible to lodge another appeal against this judgment with the Supreme Court.

Endnotes

(1) For further details on the Yukos case, please see:

(2) The setting-aside proceedings are being conducted on the basis of the rules of the previous Arbitration Act, which was in force up to 1 January 2015, as the arbitration was initiated before that date. The relevant provision dealing with the suspension of the enforcement of an award has not materially changed.

(3) As well as possibly the summons in the annulment proceedings.

(4) Advocate General P Vlas, advisory opinion to the Supreme Court dated 13 November 2020, ECLI:NL:PHR:2020:1082.

(5) Supreme Court, 4 December 2020, ECLI:NL:HR:2020:1952.

(6) Advocate General P Vlas, advisory opinion to the Supreme Court dated 23 April 2021, ECLI:NL:PHR:2021:425.

(7) However, in general, parties refrain from doing so as there is nothing to add to their written statements.

(8) This is generally three months after the advocate general has issued their opinion.