OVERTURNING THE YUKOS AWARD: THE SMILE OF MOSCOW

 

 

OVERTURNING THE YUKOS AWARD: THE SMILE OF MOSCOW

 

José María Viñals Camallonga                                    José Luis Iriarte

Partner and Head of International Operations                Of Counsel

LUPICINIO INTERNATIONAL LAW FIRM            LUPICINIO INTERNATIONAL LAW FIRM

 

 

Madrid, 5 October 2016.- On July 18, 2014, the Permanent Court of Arbitration at The Hague handed down a decision in the case of Yukos Universal Limited (Isle of Man) v. Russia, ordering the latter to pay the claimant more than 50 billion dollars. That decision was based on Russia having violated its obligations under the Energy Charter Treaty (ECT) for expropriating Yukos without just cause and, largely, for political reasons.

However, on April 20, 2016, the District Court in The Hague issued a ruling overturning the aforementioned award and admitting the appeal by Russia. The long and densely worded judgment argues that the Russian Federation had not consented to being submitted to international arbitration, since although Russia had signed the ECT it had not yet ratified the Treaty. The District Court held that the provisions of the ECT operate only in respect of those provisions that are compatible with Russian law, and concluded that the provisions regarding the resolution of disputes in Article 26 of the ECT violate the Russian Constitution.  As a consequence, the provisional acceptance of the treaty text without formal ratification does not oblige Russia to submit to international arbitration in this matter. In other words, the Permanent Court of Arbitration at The Hague lacked jurisdiction.

As soon as possible after receiving the favourable 2014 arbitration award the claimant sought its implementation, and as expected they were faced with the complex problem of sovereign immunity.  In this regard there is conflicting case law in the various countries in which they tried to enforce the award. But after the recent ruling they faced with another problem of great complexity: is it possible to enforce an overturned award?

In principle, it is reasonable to say that it is not. It is not possible to enforce an award that has been annulled in the country in which it was given. This is the majority position which also has very strong support in Article V.1.e) of the 1958 New York Convention: “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that … (e) The award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”

However, there is a minority case law position where the courts have sometimes granted the recognition and enforcement of foreign awards which have been overturned by the courts of the country in which they were first handed down. This position is based on two arguments: the first is Article VII.1 of the New York Convention, which says that you may apply conventions or state regulations that treat recognition and execution more favorably than the Convention itself, so that if a state’s law does not make the annulment of the award by a different state a cause for rejection the award can still be recognized and enforced.  Secondly, a more frequently invoked argument has been to recognize the foreign award when it has been overturned for reasons contrary to the public policy of the recognizing state.

Regardless of the eventual operation of Article VII.1 of the New York Convention in a particular state, it is very difficult to argue that the annulment of the award was done so for reasons against the public policy of any state in which the claimant might seek recognition.  As such, following the judgment of the District Court of The Hague, while we await the decision of the Court of Appeal it will be very difficult for the Yukos award to be recognized and enforced in any jurisdiction.

 

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© 2016. LUPICINIO INTERNATIONAL LAW FIRM

 

 

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