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Hague District Court sets aside US$50 billion Yukos award
Practical Law UK Legal Update Case Report 7-626-8065 (Approx. 4 pages)
Hague District Court sets aside US$50 billion Yukos award
| Published on 20 Apr 2016 • International, The Netherlands |
In The Russian Federation v Veteran Petroleum Limited, Yukos Universal Limited And Hulley Enterprises Limited (C/09/477160 / HA ZA 15-1, 15-2 and 15-112), the District Court of the Hague considered an application by the Russian Federation to set aside the Energy Charter Treaty (ECT) award in favour of the former majority shareholders in Yukos against the Russian Federation worth over US$50 billion.
In a landmark decision, the District Court of The Hague has granted the Russian Federation's application to set aside the 2014 US$50 billion Energy Charter Treaty (ECT) awards issued against it in favour of the former majority shareholders in Yukos (as well as the 2009 interim awards deciding that the tribunal had jurisdiction to hear the claims). With this decision, the largest arbitral award in history has been overturned.
The arguments forming the basis of Russia's application included the following grounds under section 1065 of the Dutch Code of Civil Procedure:
- Absence of valid arbitration agreement.
- Tribunal overstepped its remit.
- Irregularities in the tribunal's composition.
- The awards were unsubstantiated in several respects.
- The awards were contrary to Dutch public policy.
The issue of whether there was a valid arbitration agreement centred on the interpretation of Article 45 of the ECT, which provides for provisional application of the ECT where a state has signed but not ratified the treaty. In concluding that there was no valid arbitration agreement, the court agreed with the Russian Federation's experts that provisional application only applied to ECT provisions that were not incompatible with the Russian Constitution, laws, and regulations. Since Russia had only signed but not ratified the ECT, it was not bound by the provisional application of the arbitration clause contained at Article 26 of the ECT. Russia had never made an unconditional offer of arbitration and, therefore, the investors' notice of arbitration did not form a valid arbitration agreement.
Since the court found the tribunal lacked jurisdiction to hear the case, it did not go on to consider the other arguments submitted by Russia in its application.
It is reported that the investors will be appealing this decision and are continuing with enforcement proceedings initiated in Belgium, France, Germany, the UK and the US.
For a discussion of the underlying awards see Legal update, Majority shareholders in Yukos awarded US$50 billion).
We will report in more detail shortly.
Case: The Russian Federation v Veteran Petroleum Limited, Yukos Universal Limited And Hulley Enterprises Limited (C/09/477160 / HA ZA 15-1, 15-2 and 15-112) (District Court of The Hague).