The Yukos Awards annulment surprised many. In the Final Award rendered on 18 July 2014, after 10 years of proceedings, the Arbitral Tribunal unanimously ruled that the Russian Federation had taken measures having an effect equivalent to nationalization or expropriation under the ECT and granted Claimants (Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited) $50 billion in damages, $60 million in legal fees and $5.6 million in costs.
In our blog of 19/06/2015 (https://www.international-arbitration-attorney.com/overview-of-the-yukos-arbitration/), we mentioned that the Russian Federation sought the annulment of the Yukos Awards (three interim awards dated 30 November 2009 and three final awards dated 18 July 2014) before the Dutch Courts on several grounds, including the absence of a valid arbitration agreement. In its judgment of 20 April 2016, The Hague District Court annulled the awards for lack of jurisdiction.
The Hague District Court’s reasoning for granting the annulment of the Yukos Awards, in accordance with the Russian Federation’s interpretation of Article 45 ECT (which provides that each signatory agrees to apply the ETC provisionally pending its entry into force “to the extent that such provisional application is not inconsistent with its constitution, laws or regulations”), is that the wording of this Article requires an examination of whether each separate provision of the ECT is consistent with the 1993 Constitution and others laws or regulations of the Russian Federation. Therefore, according to the Court, the Russian Federation would only be bound by the provisions which are reconcilable with its laws.
The Hague District Court considered that the settlement of disputes between a foreign investor and a party to the ECT, under Article 26 ECT, is contrary to Russian law because the principle of separation of powers requires that the Parliament of the Russian Federation ratify the treaties that supplement or amend Russian law. Article 26 ECT could not be provisionally applied without the Duma and the Council of the Federation adopting a federal law to this effect.
Therefore, the Court granted the annulment of the Yukos Awards on the ground that the notice of arbitration served on the Russian Federation did not constitute a valid arbitration agreement and the Arbitral Tribunal should not have declared itself competent to hear the dispute.
In light of this finding, the Court considered unnecessary to rule on the other grounds raised before it seeking the Yukos Awards.
While this was indeed the most thorny legal issue concerning jurisdiction faced by Yukos’ shareholders, and the dispute is not over, this is a major setback after 10 years of legal proceedings.
The full text of the court’s reasoning may be found below.