Supreme Court quashes Court of Appeal’s Judgement in arbitration case Yukos

In 2020, the Court of Appeal in The Hague upheld arbitral awards of 2014 in which the Russian Federation was ordered to pay damages, amounting to approximately USD 50 billion, to three (former) major shareholders in Yukos Oil Company. Today the Supreme Court quashed the appeal court’s final judgement as well as the court’s preceding judgement. The Supreme Court has honoured one of the Russian Federation’s grounds of appeal. The case has been referred to the Amsterdam Court of Appeal for renewed judgement on this ground. The other grounds have been rejected.

The case
Yukos Oil Company was one of the largest oil and gas companies in the Russian Federation. In the 1990s Yukos was privatised. In the period from 2003 to 2006, the Russian Federation imposed several substantial tax demands on Yukos and, in that connection, subsequently auctioned off one of Yukos’ main production companies. Yukos was eventually declared bankrupt in 2006.

Three (former) major shareholders in Yukos (Veteran Petroleum Ltd, Yukos Universal Ltd and Hulley Enterprises Ltd) then initiated arbitration proceedings against the Russian Federation. Arbitration is a form of private dispute resolution in which independent arbitrators (the arbitration tribunal) rule on a case. The arbitration proceedings were held in The Hague. In its awards of 18 July 2014, the arbitration tribunal ordered the Russian Federation to pay the three shareholders a total of approximately USD 50 billion in compensation. Subsequently, the Russian Federation applied to the Dutch court to set aside the awards. The district court ruled in favour of the Russian Federation. The Court of Appeal ruled that the district court’s judgement was incorrect and dismissed the claim to set aside the arbitral awards. This meant that the arbitral awards were reinstated. The Russian Federation then lodged an appeal in cassation with the Supreme Court.

Cassation proceedings
The Russian Federation has requested the Supreme Court to quash the Court of Appeal’s judgements. The arguments brought forward by the Russian Federation concern, among other things, the way the Court of Appeal handled the Russian Federation’s claim that the shareholders have committed fraud in the arbitral proceedings. Furthermore, the Russian Federation argues that the arbitration tribunal and the Court of Appeal have misinterpreted the provisions in the Energy Charter Treaty (ECT) on which the arbitration tribunal has based its authority to rule on the shareholders’ claim. The Russian Federation also states that the arbitration tribunal has not adhered to its mandate and that the arbitral awards are contrary to public policy.

Advocate General’s advisory opinion
The Advocate General has advised the Supreme Court to dismiss the appeal in cassation, thereby upholding the appeal court’s judgement.

Judgement Supreme Court
The Supreme Court has honoured the Russian Federation’s appeal in cassation on one issue. According to the Supreme Court, the Russian Federation’s argument that the shareholders have committed fraud in the arbitral proceedings has been wrongly dismissed by the Court of Appeal on procedural grounds and should have been judged with respect to content. Therefore the judgements of the Court of Appeal cannot be upheld. The Supreme Court has rejected the Russian Federation’s other grounds of appeal. These include complaints regarding the interpretation of the provisions in the ECT from which the arbitration tribunal derived its authority and the complaint that the tribunal did not adhere to its mandate. Because of the rejection of these grounds of appeal, the judgement of the The Hague Court of Appeal on these issues is final.

Consequences
The Supreme Court has quashed the Court of Appeal’s judgements and has referred the case to the Amsterdam Court of Appeal for renewed discussion and ruling regarding the relevant issue.

Published on www.rechtspraak.nl (in Dutch)
ECLI:NL:HR:2021:1645

An English translation of the judgement of the Supreme Court will be published on www.rechtspraak.nl in due time.