Legal proceedings before the Supreme Court of The Netherlands
In 2014 an independent international Arbitral Tribunal in The Hague ruled unanimously that one of Russia’s most successful companies, Yukos Oil, was illegally expropriated by the Russian Federation.
The Tribunal awarded compensation of $50 billion to former Yukos majority shareholders. In its Final Awards, the Tribunal concluded that:
- ‘Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a State-controlled company, and incarcerate a man who gave signs of becoming a political competitor;
- the State’s campaign of intimidation and harassment not only disrupted the operations of Yukos but also contributed to its demise;
- the primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos and appropriate its valuable assets.’
The Russian Federation applied to the Dutch courts to have the Arbitral Awards set aside. National courts in the Netherlands have jurisdiction over the set-aside process since The Hague was the seat of the arbitration.
In 2016, the District Court of The Hague decided to set aside the Arbitral Awards: it ruled that the Arbitral Tribunal did not have jurisdiction to hear the claims since the Russian Federation had signed but not ratified the Energy Charter Treaty (ECT), the legal basis for the arbitral proceedings.
On 18 February 2020, in a detailed 134-page judgment, the Court of Appeal of The Hague quashed the decision of the District Court, and reinstated the Arbitral Awards. An English translation of the decision is available here.
The Court of Appeal found that the Arbitral Tribunal did have jurisdiction to hear the claims brought by the former shareholders on the basis that the Russian Federation, whilst it had signed but not ratified the ECT, had provisionally applied the ECT, including its provisions regarding dispute resolution. The Court of Appeal further found that provisional application of the ECT and its dispute resolution mechanism were not inconsistent with the constitution, laws or regulations of the Russian Federation.
On 15 May 2020, the Russian Federation filed a cassation appeal against the judgment of the Court of Appeal with the Supreme Court of The Netherlands. On 17 July 2020, the former Yukos majority shareholders filed their statement of defence.
The Supreme Court of The Netherlands reviews decisions of the lower courts to ensure they properly applied the law when rendering their decision. It reviews neither the facts nor issues of foreign law, but focuses on the applicable Dutch law and the interpretation of the ECT, and whether the reasoning of the Court of Appeal was defective in some way. It is for the Russian Federation to demonstrate to the Supreme Court that the Court of Appeal failed to apply the law correctly or that the reasoning of the Court of Appeal was defective.
On 5 February 2021, the Supreme Court of The Netherlands will hold a short hearing on Russia's final attempt to set aside the Arbitral Awards. In accordance with Supreme Court practice, the parties have one hour each to introduce their positions, followed by short responses. In their written submissions, filed with the Supreme Court on the same day, the parties will set out their arguments in full as to whether the Court of Appeal judgment (and thus the Arbitral Awards) should be upheld.
Meanwhile, the former Yukos majority shareholders continue to enforce the Arbitral Awards, invoking the New York Convention. This allows the shareholders to seize Russian state assets in more than 160 countries. In December 2020, the Supreme Court of The Netherlands dismissed Russia’s application to suspend enforcement of the Arbitral Awards, deciding that the former Yukos majority shareholders may continue to enforce them. Following a preliminary review of Russia’s appeal, the Supreme Court ruled that the likelihood of Russia’s arguments succeeding was not such as to warrant any suspension of enforcement.