Annulment of the arbitral Yukos awards: Interpreting Article 45(1) Energy Charter Treaty and Implications for Enforcement.

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Annulment of the arbitral Yukos awards:

Interpreting Article 45(1) Energy Charter Treaty

and Implications for Enforcement.

Master’s thesis for International Trade and Investment Law. Stefan Wedershoven

Supervisor: Dr. Hege Elisabeth Kjos January 16, 2017.

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In 2014, a tribunal at the PCA delivered a notorious award of $60 Billion in a dispute between former shareholders of Yukos and the Russian state. The arbitral award was subsequently annulled by a Dutch district court in The Hague. This paper consists of two parts. The first part of the essay looks at the differences in interpretation of article 45(1) Energy Charter Treaty by comparing the reasoning of the District Court in The Hague, the arbitral tribunal at the Permanent Court of Arbitration and legal scholarship regarding article 45(1) of the Energy Charter Treaty. This is an issue of treaty interpretation and I conclude that the District Court was right in annulling the arbitral award due to the lack of jurisdiction. The second part of the paper explores the implications of the annulment decision of the Dutch court. In my opinion, the former shareholders of Yukos will not be able to enforce the annulled award in the legal fora that I selected, that is France, the United States, and the Netherlands.

The arbitral proceedings were based on the Energy Charter Treaty. Russia contested the jurisdiction of the tribunal. Although the Energy Charter Treaty was provisionally applicable, both the claimant and the respondent could not agree to what extent the treaty was

provisionally applicable. The tribunal at the PCA had to decide whether the Energy Charter was provisionally applicable as a whole, or that only parts of the treaty were provisionally applicable. This issue concerned the interpretation of article 45(1) of the Energy Charter Treaty. The interpretation of article 45(1) Energy Charter Treaty combined with article 26 of the ECT is crucial in this dispute for it provides consent for the dispute settlement clause and therefore jurisdiction for the tribunal to adjudicate the claim.

To structure my own view on article 45(1) of the Energy Charter Treaty, I provide an

overview of the criticism on the tribunal’s award. Ultimately, I agree with the District Court’s interpretation of article 45(1) Energy Charter Treaty. As a consequence, the tribunal at the Permanent Court of Arbitration lacked jurisdiction to settle the dispute between the shareholders of Yukos and Russia.

After having concluded that the arbitral award of the tribunal at the PCA was not without faults, I examine the legal theory behind the enforcement of annulled arbitral awards. Case law in the US, France and the Netherlands indicates that the enforcement of the PCA award is technically possible for the former shareholders of Yukos. Despite the existence of these cases, I argue in this paper that the shareholders Yukos cannot rely on these examples because its situation is different when compared to the cases I covered. Both the District Court’s annulment decision and the tribunal’s decision do not violate standards of due process. Foreign courts will therefore not ignore the ignore the annulment decision. Although the tribunal’s interpretation of article 45(1) Energy Charter Treaty should be met with criticism, it does not allow courts to ignore the annulment decision.

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In this essay, I pay ample attention to the question of the level of deference for courts where enforcement is sought. To what extent should courts review awards that have been rendered in third countries? This is particularly interesting since a Dutch district court, a regular district court, annulled the international award reasoning that the Tribunal at the PCA wrongly interpreted the relevant provisions of the ECT.

1_{Rechtbank Den Haag (=District Court The Hague) 20 April 2014, ECLI:NL:RBDHA:2016:4229 (Russian}

Federation v Yukos Universal Limited).

2_{Yukos Universal Limited v. The Russian Federation, Interim Award on Jurisdiction and Admissibility of 30}

November 2009, PCA Case No. 227; Yukos Universal Limited v. The Russian Federation, Final Award of18 July 2014 PCA Case No. 227. Please note that there are two other interim decisions and final awards of the Tribunal, the Hulley and Veteran Petroleum, with Case No 226 and Case No 228. They are largely the same, apart from minor differences. I used the Yukos v. The Russian Federation decision in my research and every quote to an interim decision or final award of the PCA Tribunal refers to this particular version.

3_{Henceforth: the PCA.}

4_{The use of ‘the Tribunal’ in this paper refers to the Tribunal the PCA, unless specified otherwise.} 5_{OAO NEFTYANAYA KOMPANIYA YUKOS v. Russia App no 14902/04 (ECHR, 15 December 2014)} 6_{Henceforth: the ECT. Full text of the treaty can be found here:}

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The structure of this paper is as follows. I start with examining the Decision on Jurisdiction, which, according to the reasoning of the Dutch Court, promotes the wrong understanding of certain articles of the ECT. Since consent to arbitration is such a crucial element of

investment arbitration, the view of the Dutch District Court and legal scholars deserve examination.

Having examined the reasoning of the Tribunal and a relevant example of international case law, I then turn to the aforementioned verdict of the Dutch District Court that set the

international award aside and I compare it to recent discussion among scholars regarding the interpretation of article 45(1) ECT. I conclude this part of the essay with my own view on the matter.

The fourth section studies the practice of selected states and how they approach the issue of enforcement of annulled awards. When enforcement is sought in a foreign court, how relevant is the decision that annulled the original award? How do foreign courts approach this issue? I do so by looking, firstly, at the general theory and subsequently I examine case law of

relevant jurisdictions that are known for allowing the enforcement of annulled awards. The reader is provided a conclusion in the fifth and final section.

In essence, this paper explores the implications for the former shareholders of Yukos with regard to the enforcement of the Tribunal’s decision, due to the annulment of the original award.

2 The PCA award and the subsequent The Hague District Court Decision.

This section covers the recent judgment of the District Court in The Hague7_{that set aside the}

award of the PCA Tribunal and I subsequently assess the Dutch judgment in light of the purpose of this paper.8_{I pay close attention to the reasoning of the Dutch Court wherein the}

Court disagrees with the Tribunal. Upon request from the Russian Federation, the District Court in The Hague holds that the Tribunal lacked jurisdiction. I pay careful consideration to the arguments that the Court used to reject the Tribunal’s jurisdiction to render an award. The Court derives its own jurisdiction to set the award of the Tribunal aside by referring to the Dutch Civil Procedure Law, and more specifically the Dutch Arbitration Act. Article 1064 Dutch Arbitration Act combined with article 1065 and article 1073 Dutch Arbitration Act give

7_{Henceforth: the District Court.}

8_{Rechtbank Den Haag (=The Hague District Court) 20 April 2016, ECLI:NL:RBDHA:2016:4230 (The Russian}

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a Dutch Court the competence to set aside an award when the award has been rendered in the Netherlands. The complaint of Russia was inter alia that the tribunal overstepped its

jurisdiction since the absence of valid arbitration agreement, in connection with which the

Tribunal was not competent to take cognizance of and given an award on the defendant’s claims.9_{It is relevant to note that Dutch Arbitration Act has been succeeded by new}

legislation that has procedural impact. Under these new laws, setting-aside procedures start at an appellate court.

The Dutch Court then turned to the provisions that the tribunal at the PCA used to establish its jurisdiction, i.e. article 45 ECT and article 26 ECT, and to ‘ordinary meaning of article 45

ECT and [to]the question whether the arbitration provision of article 26 ECT is ‘not

inconsistent’ with the Russian Constitution, laws or other regulations.’10_{The Court started off}

by emphasizing the fact that the Russian Federation never formally ratified the ECT: ‘Before discussing the meaning of article 45 ECT the court would like to remind the parties that the Russian Federation did not ratify the ECT.’11_{This intention had been made clear by the}

Russian Federation: an agent of Russia notified the Portuguese Republic in 2009, in accordance with article 49 of the ECT.12_{The ECT was never ratified by the Russian}

parliament since ‘(..) the proposal to ratify the Treaty met “fierce opposition” in the State Duma hearings in April 1997 and January 2001 and continued to meet such opposition.’13

However, having signed but not having ratified the ECT does not mean that the Russian Federation is free to disregard the provisions of the treaty, or that Russia is not bound by the ECT. The ECT contains a rule which provides for the provisional application after having signed the treaty, in article 45(1): ‘Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.’14

The next step for the Dutch Court was to interpret article 45(1) of the ECT and to compare it with the findings of the PCA.

9_{Rechtbank Den Haag (=District Court The Hague) 20 April 2016, ECLI:NL:RBDHA:2016:4230 (The Russian}

Federation v Yukos Universal Ltd.), paragraph 4.2

10_{Ibid paragraph 5.5.} 11_{Ibid paragraph 5.6.}

12_{Ibid paragraph 2.4. See Article 49 of the Energy Charter Treaty which declares Portugal as the depositary of}

the treaty.

November 2009, PCA Case No. 227, paragraph 37.

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The qualification ‘to the extent that such provisional application is not inconsistent with its constitution, laws or regulation’ in article 45(1) ECT is designated as a ‘limitation clause’ by the Court.15_{However, the exact scope of this clause is not immediately clear. Is the entire}

treaty not provisionally applicable when provisional application in itself is inconsistent with Russian Law, or is the treaty partially provisionally applicable due to the signature of the Russian Federation? Does article 45(1) ECT put forward a ‘piecemeal’ or an ‘all-or-nothing-approach’? In other words, do we need to compare every article of the ECT with the Russian laws and assess its compatibility vis-à-vis each other, or does the phenomenon of provisional application in relation to Russian law render the ECT inapplicable?

In order to clarify the difference between the approaches, Mrs. Bench Nieuwveld writes in a blog that focuses on international (investment) arbitration that made the following remarks regarding the approaches:

‘[T]he overall question was whether the arbitral tribunal should read Article 45(1) [ECT] and 45(2) [ECT] as requiring a piecemeal approach as the Russian Federation suggested (i.e. comparing each ECT provision with that of the signatory’s constitution and laws searching for inconsistencies) or follow the Claimant’s principle of provisional application approach (i.e. merely looking at the signatories’ constitution and laws to see whether the principle of provisional application itself would be inconsistent)?’16

The fact that Russia opted to pursue the piecemeal approach, makes sense from a strategical point of view. The piecemeal approach is in Russia’s interest since it is more likely that certain provisions are to clash with Russian law than just the idea of provisional application. The Dutch Court noted the following: ‘the tribunal decided that by signing the ECT the Russian Federation consented to the provisional application of the entire treaty pending its entry into force, unless the principle of provisional application itself were contrary to the laws or other regulations’17_{and ‘(..) it essentially concerns the question whether or not the}

15_{Rechtbank Den Haag (=The Hague District Court) 20 April 2016, ECLI:NL:RBDHA:2016:4230 (The Russian}

Federation v Yukos Universal Ltd.) paragraph 5.7.

16_{Lisa Bench Nieuwveld, ‘Provisional Application of the Energy Charter Treaty: Article 45(1) “Limitation Clause”’}

(Kluwer Arbitration Blog, February 16 2010) < http://kluwerarbitrationblog.com/2010/02/16/provisional-application-of-the-energy-charter-treaty-article-451-limitation-clause/> accessed October 3 2016. Emphasis added.

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Limitation Clause should be interpreted in such a way that this clause relates to the provisional application principle - in which case the possibility of applying the ECT (as a whole) provisionally depends on the answer to the question whether national law provides for the principle - or that the provisional application of the ECT is limited to the treaty provisions that are not contrary to national law.’18

2.1 Tribunal’s Interim Decision on Jurisdiction and Admissibility: Claimant’s and Respondent’s position.

In its interim award, the PCA’s Tribunal recalled the following remarks made by Russia regarding the interpretation of article 45(1) ECT:

‘Article 45(1) does not operate on an “all-or-nothing basis” so as to require, as a matter of principle, either that the entire Treaty be provisionally applied, or that no portion of the Treaty be provisionally applied’ and ‘The plain language of Article 45(1), its context, the Treaty’s travaux préparatoires, the circumstances at the time of the Treaty’s conclusion, and State practice in the application of the Treaty all support the conclusion that Article 45(1) is to be applied provision-by-provision, and not on an all-or-nothing basis.’19

Russia also submitted that an all-or-nothing approach would violate the original intention of the drafters of the treaty as envisaged in the travaux préparatoires: ‘even relatively minor regulations could result in the non-application pro tanto of an inconsistent Treaty provision.’20

Formally, before a state can invoke this supplementary means of interpretation (compare article 32 of the VLCT), reference should be made to any subsequent agreement between the

parties regarding interpretation of the treaty or the application of the treaty and any subsequent any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation (article 31(3)(a) and article 31(3)(b)

VLCT). With that rule in mind, the Russian delegation refers to statements made by the British secretary of Foreign Affairs and the head of the ECT legal department agreed with that statement. The British Secretary of Foreign Affairs said that Article 45 of the ECT ‘places

Federation v Yukos Universal Ltd.) paragraph 5.8.

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some obligations on the Russian Federation, but only to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.’ 21

Conversely, the claimant Yukos argues that the reasoning regarding article 45(1) ECT from the Russians is ‘fundamentally flawed and should be rejected.’22_{Furthermore, and quite}

surprisingly, the shareholders do not observe a strict dichotomy between the two approaches: ‘Claimant argues that neither Respondent nor its experts provide any justification for the basis on which the text of Article 45 would make a distinction between a “partial” application under Article 45(1) and an “all or nothing” application under Article 45(2)(a). To the contrary, Claimant observes, both provisions refer to “provisional application” without further qualification: consistency of “provisional application” with a signatory’s internal law under Article 45(1), and opting out of “provisional application” under Article 45(2)(a).’23

Yukos also asserts that even if the desired argumentation by Russia was to be followed, i.e. the piecemeal approach, would rule in favour of the Yukos shareholders. After all, ‘Russian law fully recognizes the principle of provisional application, and there is no inconsistency between the substantive provisions of the Treaty and Russian law either.’24

The tribunal notes that the Russian approach protects ‘the prerogatives of the Russian legislative.’ Allegedly, the main rationale for Russia is that by following this approach, the Russian Duma protects its prerogative to set laws for the Russian people. 25_{In this case, article}

45(1) of the ECT may not be relied upon by the parties because disputes ‘under Russian law, (..) disputes arising from sovereign acts or omissions, including claims for damages for expropriation, may not be submitted to arbitration absent a legal enactment in the form of a law or a ratified treaty so providing.’26_{The fact that Russia never ratified the ECT results in}

the non-provisional application of that part of the treaty: under Russian legislation, a separate piece of legislation is required when one seeks to commence arbitration concerning

‘sovereign acts of various Russian authorities’ such as expropriation or tax measures.27

November 2009, PCA Case No. 227, paragraph 294. Note that the United Kingdom is a party to the ECT.

22_{Ibid paragraph 72.} 23_{Ibid paragraph 296.} 24_{Ibid paragraph 72.} 25_{Ibid paragraph 293.} 26_{Ibid paragraph 71.} 27_{Ibid paragraph 355.}

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Accordingly, the Russian Federation asserts that every resort to investor-state arbitration, requires a specific law or a ratified treaty.

2.2 The Tribunal’s decision regarding article 45(1) ECT

Ultimately, the Tribunal decided in favour of the argumentation brought forward by Yukos: ‘the Tribunal finds that the ordinary meaning of the terms of Article 45(1), in their context and in the light of the object and purpose of the Treaty, favours Claimant’s interpretation. In the Tribunal’s opinion, by signing the ECT, the Russian Federation agreed that the Treaty as a whole would be applied provisionally pending its entry into force unless the principle of provisional application itself were inconsistent “with its constitution, laws or regulations.”’ The following paragraphs set out how the Tribunal interpreted article 45(1) ECT. To start off, it is worth noting that the arbitral tribunal did not explicitly and wholeheartedly agree with either of the interpretations and arguments brought forward by the two parties.28

With regard to the Russia’s argument, the Tribunal decided that ‘to the extent’ in article 45(1), was not to be construed as being decisive for the interpretation of article 45(1) ECT: ‘Far from being determinative of the meaning of the Limitation Clause, however, the use of the introductory words “to the extent that” requires the Tribunal to examine carefully the words that follow, namely “that such provisional application is not inconsistent with each signatory’s constitution, laws or regulations.”’29

Nonetheless, the shareholders of Yukos were closer to the truth, but the Tribunal was not entirely content with their argumentation: ‘the Tribunal finds that Claimant does not provide sufficient support for its interpretation of the phrase “such provisional application” as

necessarily referring to the principle of provisional application.’30_{The word ‘such’ in article}

45(1) ECT concerns the provisional application of the entire treaty.31

Part of the Tribunal’s reasoning in favour of the Yuko-shareholders is that parties would have laid down the obligation to provisionally apply only parts of the ECT in other, more concise terms.32

November 2009, PCA Case No. 227, paragraphs 301, 303.

29_{Ibid paragraph 303.} 30_{Ibid paragraph 303.} 31_{Ibid paragraph 304.} 32_{Ibid paragraph 311.}

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Subsequently, the Tribunal makes a compelling argument related to the object and purpose of the ECT, and, a fortiori, related to the essence, or as the Tribunal puts it ‘the grain’ of

international law.33_{The Tribunal asserts that the provisional application of only certain parts}

of the treaty, runs counter to the contractual nature of the principle of pacta sunt servanda.34

The Tribunal asserts that the partial provisional application of the ECT enables states to hide behind their domestic legislation. This allows them to evade treaty obligation which they essentially agreed upon by signing the treaty: ‘this cardinal principle of international law strongly militates against an interpretation of Article 45(1) that would open the door to a signatory, whose domestic regime recognizes the concept of provisional application, to avoid the provisional application of a treaty (to which it has agreed) on the basis that one or more provisions of the treaty is contrary to its internal law.’35_{In addition, partial provisional}

application of the ECT is in violation with article 27 VCLT which reads that ‘party may not invoke the provisions of its internal law as justification for its failure to perform a treaty’, the Tribunal holds.

The Tribunal then quotes professor Crawford, who argued that there exists a strict divide between international and domestic law.36_{Even if article 45(1) of the ECT refers explicitly to}

domestic law, international tribunals and therefore international law decides whether states comply with their obligations:

´Even where there is an express treaty exception for domestic legal requirements, that is not treated as a self-judging or “automatic” reservation, and it has to be explained to the satisfaction of the international tribunal — which retains its

Kompetenz-Kompetenz — what the domestic requirement means, why it applies and how far it goes.´37

The Tribunal notes that states are free to conclude a treaty in which they allow that domestic law controls the validity of international obligations: ‘This would include a regime where each signatory could modulate (or eliminate) its obligation of provisional application based on

34_{Ibid paragraphs 312, 313.} 35_{Ibid paragraph 312.} 36_{Ibid paragraph 316.} 37_{Ibid paragraph 316.}

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consistency of each provision of the treaty in question with its domestic law.’38_{The Tribunal}

however holds that article 45(1) of the ECT does not produce such a regime: ‘(..) agreement to such a regime would need to be clearly and unambiguously expressed, a standard which article 45(1) does not meet.’39

Crucial for the decision of the Tribunal is the alleged uncertainty that arises from the partial provisional application. Stressing the divide between rules of international and domestic law, the Tribunal fears that states could be tempted to change their domestic laws after a dispute between an investor and a state has materialized.40

Looking at the state practice, the Tribunal concludes that its decision is supported by such state practice.41_{The Tribunal relies on statements made by six states regarding article 45 ECT}

and the Tribunal relies on ‘lists (..) maintained to keep track of the intentions of the signatories’ whether or not they would accept provisional application of the treaty.’42

2.3 Kardassopoulos v. Georgia

To strengthen its reasoning, the Tribunal points to an earlier investment arbitration case rendered under the ICSID set of rules, Kardassopoulos v. Georgia.43 Although the principle

of stare decisis is not explicitly adhered to in investment arbitration, past decisions

nonetheless play an important role and most arbitral tribunals take them into account when deciding on newer cases as noted by Van Bogdandy and Venzke: ‘notwithstanding the mantra that international law knows no doctrine of stare decisis, courts regularly use precedents in their legal argumentation and at times engage in detailed reasoning on how earlier decisions are relevant or not.’44

In this case, a Tribunal was also asked to interpret article 45(1) ECT and provisional

application of the ECT in general. This case concerned a Greek investor who had managed to secure investment opportunities in Georgian oil pipelines and other projects in the nascent oil

39_{Ibid paragraph 320.} 40_{Ibid paragraph 315.} 41_{Ibid paragraph 321.} 42_{Ibid paragraph 322.}

43_{Kardassopoulos v. Georgia, Decision on Jurisdiction of 6 July 2007, ICSID Case No. ARB/05/18. Georgia is a}

party to the ECT.

44_{Von Bogdandy and Venzke, ´On the functions of international Courts: An appraisal in light of their burgeoning}

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industry in Georgia. Problems arose when the Georgian government cancelled all existing contracts in its oil industry due to new Georgian legislation.45

Kardassopoulos v. Georgia and Yukos v. Russian Federation are not entirely similar. In the

former case, Georgia and Greece both ratified the ECT, as opposed to the Russian Federation in Yukos v. The Russian Federation.46_{Nonetheless, the Tribunal holds that the two cases are}

comparable for they both cover article 45(1) ECT and provisional application of the ECT. The Tribunal uses several arguments to decide in favour of Yukos, and the referral to the

Kardassopoulos v. Georgia is part of the argumentation: the Tribunal emphasizes that the

reasoning is in line with a previous decision.47_{The starting point of the Tribunal in}

Kardassopoulos v. Georgia was the ordinary meaning of the words in article 45(1) ECT,

followed by the remark that article 31(3)(c) VLCT also ‘includes relevant rules of customary international law.’48_{The Tribunal further notes that ‘application’ in article 45(1) ECT implies}

the application of ‘the treaty as a whole and not just parts of it (..).’49

The Tribunal in Kardassopoulos decided that since Greek law did not have an explicit prohibition of provisional application of treaties, the provisional application of the ECT was allowed.50_{This line of reasoning has been linked with the sovereignty of states.}51

Looking back to the argumentation employed by the Tribunal in Yukos v. The Russian

Federation, the Tribunal there referred to the practice of states and found that in most of these

cases states understand provisional application as having an all-or-nothing approach:

‘There is, nevertheless, in the Tribunal’s view a sufficiently well-established practice of provisional application of treaties to generate a generally accepted understanding of what is meant by that notion. Where what is in issue is, as in the present case, the provisional application of the whole treaty, then such provisional application imports

45_{See note 43, paragraph 31 and 34.}

46_{Kardassopoulos v. Georgia, Decision on Jurisdiction of 6 July 2007, ICSID Case No. ARB/05/18, paragraph 110.} 47_{Yukos Universal Limited v. The Russian Federation, Interim Award on Jurisdiction and Admissibility of 30}

48_{Ibid paragraph 206,207.}

49_{Kardassopoulos v. Georgia, paragraph 210.} 50_{Ibid paragraph 246.}

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the application of all its provisions as if they were already in force, even though the treaty’s proper or definitive entry into force has not yet occurred.’ 52

In the following Decision on the Merits, the Tribunal in Kardassopoulos v. Georgia did not deviate from the above and this can be implied from the following sentences: ‘The ECT would have been provisionally applicable during both of these periods’ and ‘however, the Respondent concedes that, in view of the Tribunal’s finding that the ECT applied

provisionally at the time of the alleged expropriation of Mr. Kardassopoulos’ interest.’53

Admittedly, one has to infer my conclusion from the phrases, but it is not unreasonable to add ‘the ECT as a whole’ in the previous sentences.

3 Reasoning and Verdict of the Dutch Court regarding article 45(1) ECT.

After having covered the Interim Decision of the PCA, the next step is to compare the above with the reasoning of the Dutch Court. In order for the Court to determine the exact scope of article 45(1) ECT, it made reference to the principles of treaty interpretation enshrined into the VLCT and more specifically article 31(1) VLCT. According to the Court, this provision entails that

‘the interpretation of the limitation Clause must take place according to the regulations laid down in article 31 and 32 VLCT that is in accordance with the meaning assigned to the phrases in common parlance, with due observance of their context and in light of the object of the ECT.’54

The Dutch Court noted that the right interpretation of ‘to the extent’ in article 45(1) ECT is as a ‘degree of interpretation.’55_{The Court decided that the phrase ‘such’ in article 45(1) ECT}

does not provide a conclusive answer to the question whether a piecemeal or all-or-nothing approach is appropriate.56

The Court refuses to engage with the travaux préparatoires. In its eyes, the interpretation brought forward by using article 31 VLCT did not produce any ambiguous or obscure findings. Neither deems the Court the findings manifestly absurd or unreasonable.57_This

52_{Kardassopoulos v. Georgia, Decision on Jurisdiction of 6 July 2007, ICSID Case No. ARB/05/18, paragraph 219.} 53_{Kardassopoulos and Fuchs v. The Republic of Georgia, Final Award of 3 March 2010, ICSID Case No.}

ARB/05/18, paragraphs 662 and paragraph 235.

54_{Rechtbank Den Haag (=District Court The Hague) 20 April 2014, ECLI:NL:RBDHA:2016:4229 (Russian}

Federation v. Yukos Universal Limited) paragraph 5.9.

55_{Ibid, paragraph 5.11.} 56_{Ibid, paragraph 5.12.} 57_{Ibid, paragraph 5.22.}

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conclusion was reached by the PCA Tribunal as well.58_{I will not discuss whether the Russian}

law is compatible with the separate provisions of the ECT in this paper. The interpretation of article 45(1) ECT combined with article 26 ECT is, however, of crucial importance for the purpose of this essay since these articles provide the consent needed to initiate arbitration between the two parties.

3.1 Discussion on article 45(1) ECT.

In legal scholarship, some writers disagree with the findings of the tribunal at the Permanent Court of Arbitration. Indeed, the award has even been called problematic and in the same vein writers have criticised the wording of article 45(1) ECT.59_{Instead, they subscribe to the}

partial provisional application of the ECT arguing that article 45(1) ECT is better suited to be interpreted as only allowing a piecemeal approach. This section provides an overview of the criticism and I end this section with my view on the matter.

Messrs. Mahnoush and Reisman argue that the all-or-nothing interpretation of article 45(1) ECT is not fully in line with object and purpose of the ECT. If the object and purpose of provisional application is to increase legal certainty for investors, the reading of the Tribunal is counter-intuitive. A fortiori, they hold, the use of ‘to the extent’ in article 45(1) ECT does not fit in with the chosen all-or-nothing approach. There is no ‘partial’ provisional application in that case and therefore ‘to the extent’ should not be construed as dictating an all-or-nothing approach: ‘the phrase to the extent, is meaningful only if it refers to the various obligations in the ECT.’60_{The writers also assert that the structure of the ECT prevent an all-or-nothing}

approach.61_{I discuss these arguments below.}

Others also hold, while emphasising the ordinary meaning of the terms as is required by article 31 VLCT, that article 45(1) ‘(can) result in a partial provisional application of the ECT, namely to the extent the provisions of the ECT are not inconsistent with the signatory’s

59_{Arsanjani and Reisman, ‘Provisional Application of Treaties in International Law: The Energy Charter Treaty}

Awards’ (2011) in Enzo Cannizaro, The Law of Treaties Beyond the Vienna Convention (OUP 2011) page. 91-93. Note that Mr. Reisman appeared as a claimant’s witness and defended the position of the Yukos-shareholders, see paragraph 231 in the Interim Decision on Jurisdiction of the Tribunal.

60_{Ibid, page 92.} 61_{Ibid page 93.}

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constitution, laws or regulations.’62_{Domestic law determines which provisions of the ECT}

will be applied provisionally.

In an expert opinion related to the PCA proceedings, Rudolf Dolzer also criticised the

decision of the PCA award regarding article 45(1) ECT: ‘The Yukos Tribunal’s conclusion in favour of its ‘all-or-nothing’ approach is without legal support.’63_{In order to build his}

argument, he starts his interpretation of the treaty with a reading of article 45(1) ECT while focusing on the ordinary wording of the article, as is required by the VCLT. 64_{Mr. Dolzer}

interprets the words ‘to the extent’ and ‘such’ in article 45(1) ECT as phrases that limit the applicability of that article.65

Further support for his argument finds Mr. Dolzer in the structure of the ECT and other articles in the ECT: ‘Interpreting the words “to the extent” in their context, it should be noted that various other provisions of the ECT contain the same terms. These provisions illustrate that these terms, as used in the ECT, refer to scope of application rather than a binary “all or nothing” outcome.’66

In addition, concerning the structure of the treaty, Reisman focuses on article 45(2)(a) ECT and article 45(2)(c) ECT. The former of the two paragraphs contains a provisional applicable treaty rule with the same language as article 45(1). Dolzer holds that article 45 ECT should be interpreted in the most cohesive manner possible. That means that paragraph (a) and (c) of article 45 ECT should be understood as having the same reach.67_{Article 45(2)(C) of the ECT}

stipulates that, whatever is declared under paragraph (2)(A) of the same article, state parties still must provisionally apply a certain chapter of the treaty. Using Mr. Dolzer’s coherence argument, it follows that ‘to the extent’ in article 45(1) has the same meaning as in paragraph 2(C) of article 45 ECT.

Thirdly, Mr. Dolzer notes some counter intuitive elements in the decision of the Tribunal, findings that were also touched upon earlier by Messrs. Reisman and Arsanjani noted above.

62_{Gerhard Hafner, ‘The provisional application of the Energy Charter Treaty’ (2009) in Christina Binder and}

others, International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009) page 601.

63_{Hulley Enterprises Limited, Yukos Universal Limited, and Veteran Petroleum Limited v. The Russian Federation}

Case No. 1:14-cv-01996-ABJ (DDC 2015) Expert Opinion of Professor Dolzer, paragraph 14.

Case No. 1:14-cv-01996-ABJ (DDC 2015) Expert Opinion of Professor Dolzer, Paragraph 14.

65_{Ibid paragraph 22.} 66_{Ibid paragraph 24.} 67_{Ibid paragraph 34.}

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Mr. Dolzer’s point is as follows: if the rationale of the provisional application of the ECT is to increase legal flexibility and protection, the ‘all-or-nothing’ approach would be the

inappropriate option since small legal incompatibilities would render the treaty as a whole inapplicable.

Fourthly, Mr. Dolzer refers to the travaux préparatoires and the practice of the state parties to make his case that the chosen all-or-nothing approach is inappropriate. According to Dolzer, states have made numerable statements, both explicitly and implicitly, that only the piecemeal approach of provisional application is applicable upon them. Conversely, according to Mr. Dolzer, the petitioners were unable to prove that a single state endorsed the all-or-nothing approach, after the Tribunal relied on the six statements allegedly endorsing the all-or-nothing point of view.68

Finally, Mr. Dolzer disagrees with the Tribunal on the subject of the divide between international and domestic law, in the sense that domestic law should never be used to ‘dodge’ or ‘evade’ obligations from international sources.69_{Mr. Dolzer asserts that this}

principle is not relevant in this case given that article 45(1) ECT explicitly refers to rules from domestic legal systems.70_{Mr. Dolzer disagrees with the quote of professor Crawford that the}

tribunal used: article 45 ECT is not about self-judgment71_{or about the divide between}

domestic and international law. Furthermore, Mr. Dolzer argues that article 45(1) ECT is ‘a

lex specialis within the ECT, (..) it has to be interpreted on its own terms.’72_{Another point of}

critique of Dolzer is that he argues that principle of pacta sunt servanda does not apply here since those principles only apply in cases of a ratified treaty. I indicated earlier in the paper, Russia did not ratify the ECT.73

In the Decision on Jurisdiction, the Tribunal listed the opinions of other notable legal scholars. Since they deviate from the Tribunal’s final award, it is relevant to examine those arguments here. They may indicate that the Tribunal of the PCA made a wrong decision

Case No. 1:14-cv-01996-ABJ (DDC 2015) Expert Opinion of Professor Dolzer, paragraphs 31, 63, 67, 72 and 83. I referred to these statements earlier in the paper.

November 2009, PCA Case No. 227, paragraph 312 and 313.

70_{See note 67, paragraph 35.}

71_{Self-judgment in international law occurs when a treaty allows states to evade international obligations}

under certain circumstances.

72_{See note 68, paragraph 38.} 73_{Ibid note 68, paragraph 48.}

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regarding article 45(1) ECT, a fear that is only fueled by the decision of the Dutch District Court.

For instance, Professor Pellet seemingly lends support to the view that the provisional application in the ECT is governed by a piece-meal approach: Professor Pellet submits that, ‘by signing the ECT, France only accepted the provisional application of the ECT’s

provisions to the extent that they did not conflict with its Constitution, in accordance with Article 45(1) of the ECT.’74

Professor Koskenniemi also seems to agree with professor Pellet: ‘When a State agrees on the temporary application of a treaty so as to prepare its entry into force, it is understandable that such application is subject to domestic laws and regulations.’75_{Although this is hardly an}

explicit affirmation of the piecemeal approach, it is easy to infer it from his words. After all, ‘such application’ is subject to, or limited by domestic laws and regulations. ‘Limited by’ indicates that the rule of provisional application exists despite conflicting national legislation, but its reach is limited.

In an article written by Gerhard Hafner and in his submission as a respondent’s witness in the proceedings at the PCA, the author also subscribed to the partial application of the ECT: ‘It can result in a partial provisional application of the ECT, namely to the extent the provisions of the ECT are not inconsistent with the signatory’s constitution, laws or regulations.’76_He

repeated his stance in the proceedings before the PCA.77

Another indication of the piecemeal approach of article 45 ECT is derived from the inclusion of the word ‘regulations’ in article 45 ECT: ‘the last phrase (..) its constitution, laws and regulations also compels the conclusion that article 45 (1) refers to provisional application of various obligations of the Treaty.’78_{The argumentation is as follows. The procedure of}

(provisional) application of international treaties is usually covered in the constitution of the state party, or in other formal laws, which are referred to in article 45 ECT as ‘its constitutions and laws’. It is unlikely that the provisional application of treaties or the application of treaties

November 2009, PCA Case No. 227, paragraph 176. It is interesting to note that Mr. Pellet was called upon by the Russian Federation. The same goes for professor Koskenniemi.

76_{Gerhard Hafner, The ‘provisional application’ of the Energy Charter Treaty (2009), p. 601.} 77_{Yukos v. The Russian Federation (2009) Decision on jurisdiction and admissibility, paragraph. 152.}

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is covered in these low-ranking laws: ‘it (..) difficult to imagine how an issue as important as the authority of a state to provisionally apply a treaty would be decided by ‘regulations.’’79

Therefore, ‘regulations’ refer to the lower ranking rules with which the ECT may clash. These rules cover ‘particular issues addressed in the Treaty’80_{but since the provisional application}

of treaties is probably addressed elsewhere in the legal system, and more specifically in a higher-ranking law, the regulations may clash with the actual provisional application of the treaty, or put differently, with the practical aspects of implementing a treaty that are addressed in regulations.

These are not the only sources advocating the piecemeal approach.81_{The previous sections}

indicate that there exists significant agreement on the subject of provisional application of the ECT among scholars in international law. That raises the following question: what are the consequences of the Tribunal’s misinterpretation?

If Russian law does not or did not provide for the provisional application of the ECT, article 26 ECT does not provide for a valid basis for or consent to arbitration. The unilateral

invitation and consent to arbitrate in the ECT, known as arbitration without privity, enshrined in article 26 ECT, has become invalid.82

3.2 Author’s view on article 45(1) ECT.

In the paragraphs above, I laid out the method of interpretation that the tribunal used for article 45(1) ECT. Because the Dutch Court rejected that interpretation of article 45(1) ECT, it is relevant to give my own views on the matter. For the sake of clarity, I repeat the wording of article 45(1) ECT: ‘Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.’ As any other treaty interpreter, my starting point is article 31(1) VLCT which needs me to look ‘at the ordinary meaning given to the terms of the treaty in the context and in the light of its object and purpose.’

Awards’ (2011) page 93.

Case No. 1:14-cv-01996-ABJ (DDC 2015) Expert Opinion of Professor Dolzer, paragraph 93.

81_{See for instance U. Klaus, The Gate to Arbitration – The Yukos case and the provisional application of the}

Energy Charter Treaty (2005) (Transnational Dispute Settlement, Volume 2:3) p. 7. Mr. Klaus deems the

avoidance of possible conflicts between domestic law and the ECT as decisive for choosing the piecemeal approach.

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While I see some merit in the Tribunal’s textual emphasis on the phrases ‘such’ and ‘such provisional application’, I agree with the interpretation that results in the piecemeal approach. The phrase ‘to the extent’ simply limits the scope of the rule, but only in so far as the

application is not limited by, in this case, domestic law.

Another key argument that the Tribunal used to strengthen its reasoning is article 27 VCLT. In the eyes of the tribunal, states should not be allowed to evade obligations under

international law by referring to domestic law. However, and agreeing with Dolzer, I would argue that article 27 VCLT is not helpful here. Article 45(1) ECT provides a more specific rule of international law which takes precedence over the general rule of article 27 VCLT due to the principle of lex specialis. The wording of article 45(1) ECT is precise enough to

provide that effect. The Tribunal’s test is ‘clear and unambiguous’ language and it is arguable that article 45(1) ECT is clearly and unambiguously written.

Rudolf Dolzer also brought a strong complaint concerning the interpretation of article 45(1) ECT. He asserted that article 45(1) ECT was meant to attract as many signatories as possible by giving state parties flexibility. The adopted all-or-nothing approach runs against this goal for it renders the whole treaty inapplicable in cases of conflicting rules. If the purpose of article 45(1) ECT was to ‘cast the net’ (of legal protection) as far as possible, an interpretation that would deny protection to entities would not be desired. I therefore disagree with the interpretation of the PCA Tribunal.

3.3 The source of the right of national courts to annul an (international) award. The sections above show that the Dutch District Court did not feel restrained when it comes to the annulment of this international arbitral award. Apparently, this District Court now finds itself in a position where it disagrees with a Tribunal filled with notable international arbitrators on the issue of jurisdiction, and therefore essentially appears to be deciding, or alternatively, seems to be influencing the interpretation of an international treaty, in this case the ECT. Usually the role of treaty interpretation is exclusively reserved for state parties and for international tribunals.

In addition, even though the arbitral proceedings in The Hague took around ten years and some of the most notable scholars in international law were consulted, the Dutch District Court annulled the award of the PCA Tribunal. The scale of the award did not seem to induce to the District Court to be cautious with its reasoning. One could argue that the chances are

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slim that the PCA Tribunal would propagate the wrong interpretation of the ECT with all of its knowledge of international law.

The ability of the Dutch court to annul the raises the question from what source the court derives this competence. Put differently, should the Dutch District court be allowed to

effectively have the last word on the interpretation of an international treaty such as the ECT, or should this task be left to the discretion of the international tribunal? This question

concerns the balance between the jurisdiction of the seat of the arbitration on the one hand, and the independence of the international tribunal on the other hand.

There is some case law and scholarship that provides insight between the aforementioned balance that is nowadays accepted in the arbitral practice and community: ‘The right of national courts to review and annul awards rendered on their territory is confirmed by judicial practice and in scholarship.’83_{Secondly, this author finds support for this view in the case of}

Saipem v. Bangladesh: ‘There is no question that, under most legal systems including the

Bangladeshi one, by choosing the seat of the arbitration the parties submit to the jurisdiction of the courts at the seat, which jurisdiction can be exercised in aid and in control of the arbitration process.’ 84_{This jurisdiction is however limited to ‘supervisory jurisdiction.’}85

This is a manifestation of the theory of F.A. Mann who developed the argument in his article

Lex Facit Arbitrum. This theory gives the seat of the arbitral the right to review the arbitral

proceedings: ‘The courts at the seat of the arbitration oversee the proper functioning of the procedural aspects of the arbitration and, at the end of the process, confirm or set aside the award.’86_{That is because when the parties choose a particular country as the seat of}

arbitration, under the theory of lex facit arbitrum, ‘the parties thus choose to submit

themselves to the legislation of that state.’87_{This view on the matter is also known as the ‘seat}

83_{Hege Elisabeth Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and}

International Law (OUP 2013) page 32.

84_{Saipem S.p.A. v The People’s Republic of Bangladesh, Award of 30 June 2009, ICSID Case No. ARB/05/7.}

2009.

85_{Ibid paragraph 161.}

86_{Emmanuel Gaillard, ‘The Enforcement of Awards set aside in their Country of Origin (1998) ICSID Review,}

page 17.

87_{Jacomijn van Haersholte and Erik Koppe, ‘International arbitration and the lex arbitri´ (2015) Arbitration}

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theory’, which further entails that states have the sovereign right to regulate ‘all persons and things’ in their territory.88

This view can be compared to the view on arbitration that is common in some civil law countries, where it is said that ‘arbitrators do not derive their powers because they have their seat there.’89_{The influence of national law on the arbitral proceedings is therefore smaller.}

Indeed, if the link between the arbitrators and the seat is weak ‘it would be perfectly proper to recognize an award in one state that had been set aside in another, the law of the seat of the arbitration having no precedence over the law of the place of enforcement.90_{The implications}

of these views on enforcement will be dealt with in the following section of this paper. The conclusion of this section is therefore that the Dutch District Court retains at least some sort of control over the procedure taking place at the PCA Tribunal that is accepted by doctrine. The Dutch District was entitled to annul the decision of the Tribunal.

4 Enforcement of annulled awards: theory and background.

The next sections examine whether the shareholders of Yukos have options to enforce the award of the PCA Tribunal despite the fact that the award has been set aside by a court at the seat of the arbitration. To achieve this goal, I examine case law in which an award creditor could enforce the annulled award and I deduce the legal framework that courts build when they acknowledge annulled awards. I start off with some general considerations regarding the applicable conventions and the theory on the status of an award in the international legal sphere. The central questions in the following section are: what is the legal validity of the judgment that set the original award aside? Does the annulled award keep its validity?

In legal theory on international arbitration, professor Gaillard distinguishes three views on the enforcement of annulled awards and the effect of the annulment of the original award: the monolocal view,91_{the Westphalian view, and lastly the Transnational approach. These views}

help clarify how courts approach the issue of annulled awards.

According to Mr. Gaillard, the first view entails that once the award derives its authority from the seat of arbitration. If the seat of the arbitration annuls the decision, the annulled decision

88_{Hege Elisabeth Kjos, Applicable Law in Investor State Arbitration: The Interplay between National and}

International Law (OUP 2013), page 27.

89_{Emmanuel Gaillard, ‘The Enforcement of Awards set aside in their Country of Origin (1998) ICSID Review,}

page 18.

90_{Ibid page 19.}

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‘(..) ceases to exist. It cannot therefore be recognized anywhere else.’92_{The multilocal or}

Westphalian approach allows for states to determine themselves whether they recognize the award. The law of the seat is not seen as the ‘exclusive source of the arbitrators’ power to adjudicate.93_{The third and last view envisages the existence of ‘an autonomous arbitral legal}

order.’94_{The last two views therefore allow the enforcement of annulled awards.}95

4.1 Enforcement of annulled awards in the United States

According to an article in the New York Law Journal written by Mr. Fellas, practice in the US has not been uniform with regard to enforcement of awards that have been set aside in the seat of the arbitration.96_{The writer of the article asserts that arbitral awards that have been set}

aside in their seat generally only lose their legal relevance in that first state, and that domestic law of a third country decides whether or not to recognize the decision of the first court. This is the dominant theory in the US.97

4.1.1 Corporacion Mexicana de Mantenimiento Integral v. Pemex98

The case PEMEX99_{is relevant for this paper since a party to a dispute tried to enforce an}

award in the United States but the award had been annulled by the seat of the arbitration, in this case Mexico. First, I will provide a short overview of the facts in order to provide some background into the case and then I turn to the argumentation used by the American courts. This case is relevant for the shareholders of Yukos because the District Court allowed the execution of the annulled award.

The cases derive its name from Pemex which is a state company of Mexico, active in both producing crude oil and the import of refined oil. The adversary was COMMISA, a Mexican subsidiary of an American construction company. COMMISA was granted a contract to build oil rigs the Gulf of Mexico.100

92_{Emmanuel Gaillard, Legal Theory of International Arbitration (Martinus Nijhoff Publishers 2010) page 135.} 93_{Ibid page 24-25.}

94_{Ibid page 35.} 95_{Ibid page 136.}

96_{John Fellas, ‘Confirmation of Awards Vacated at the Arbitral Seat’ (2016) New York Law Journal, page 3.} 97_{Ibid page 3. He notes that this is the dominant theory in the US.}

98_{Corporacion Mexicana de Mantenimiento Integral S. De R.L. De C.V. v. Pemex-Exploracion Y Producion, 2016}

WL 4087215 (2d Circuit, August 2, 2016). Full case can be found here:

<http://law.justia.com/cases/federal/appellate-courts/ca2/13-4022/13-4022-2016-08-02.html> last accessed November 8 2016.

99_{Henceforth: Pemex-case.}

100_{Corporación Mexicana de Mantenimiento Integral S. De R.L. De C.V. v. Pemex-Exploración Y Produción, 2016}

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Legal troubles arose when PEP, a subsidiary of PEMEX, insisted that the oil rigs had to be completed before they were shipped to their final locations whereas COMMISA feared that this would increase costs.101_{Despite near completion of the oil rigs, arbitration proceedings}

were initiated with COMMISA filing a ‘demand for arbitration with the International

Chamber of Commerce in December 2004.’102_{However, at that time PEP had already seized}

all the assets and was trying to file a petition for rescission of the contract that, COMMISA tried to prevent from happening, without any success.

A notable turn of events in the PEMEX case were two changes of Mexican laws. A new arbitration law retroactively invalidated the base of jurisdiction for the arbitration procedures. Therefore, the claim issued by COMMISA to prevent the rescission of the contract, was longer subjectable to arbitration.103

The arbitral tribunal decided in favour of COMMISA. They received an award of $300 million and sought to ‘confirm’ the award in the States, while PEP appealed both the

tribunal’s judgment and the ‘confirmation’ of the award in the United States.104_{PEP’s appeal}

was successful before a Mexican court and the court annulled the earliest award of the arbitration tribunal, referring to the newer arbitration laws. Of course, in the proceedings before the District Court in the US, PEP referred to the judgment ruled in favour of PEP, and, as far as I know, it complied with Mexican Law.

The Second District Court reasoned that ‘basic notions of justice’ would be violated if it would validate the award of the Mexican Eleventh Collegiate: ‘the Southern District exercised discretion, as allowed by treaty, to assess whether the nullification of the award offends basic standards of justice in the United States.’105_{The main complaints of the Second}

District Court entail that, first, the new arbitration laws would retroactively apply on the parties. Therefore the contract between COMMISA and PEMEX would be governed by rules that were not in existence at the time of conclusion of the contract. This is particularly

dangerous since it ‘left COMMISA without an apparent ability to litigate its

claims.’106_{Secondly, it was relevant ‘that COMMISA would have no legal remedies available} 101_{Ibid page 7.} 102_{Ibid page 7,8.} 103_{Ibid page 9.} 104_{Ibid page 4} 105_{Ibid page 40.}

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that COMMISA would be left “without a remedy” for its claims given the compressed statute of limitations for actions instituted in the Tax and Administrative Court.’107

The argumentation then turns to article V of the Panama Convention. The general rule under both the New York and Panama Convention is that arbitral awards of a State party are readily enforceable in another contracting party unless Article V of the Panama/New York

Convention is invoked, for there is no ‘substantive difference between the two.’108_{They both}

display ‘a pro-enforcement bias.’109

If a party invokes article V of the New York convention before a Court of law, a judge ‘may’ refuse enforcement when certain criteria are met. The phrase ‘may’ indicates that a judge is not bound to comply with such a request, but ‘that discretion should be exercised by framing the issue as one of a clash between two competing obligations of (..) courts: on the one hand the obligation of a court to confirm an arbitration award pursuant to the convention, and on the other, its obligation based in international comity to respect the judgment of a foreign court.’110_{If no exception is invoked before a court, the arbitral award must be recognized and}

executed.111_{The position of the claimants needs to be respected: ‘fairness to the litigants’ is a}

cardinal principle in the eyes of the US court.112

While courts in the United States may enforce awards that have been set aside in the country of origin, the principle of international comity limits this discretion and therefore: ‘a final judgment obtained through sound procedures in a foreign country is generally conclusive unless enforcement of the judgment would offend the public policy of the state in which enforcement is sought.'113_{When we apply these findings to the Yukos-cases, one would have}

to consider whether the enforcement of the PCA Awards would violate ‘public policy’ in the United States.

At first glance, a ‘violation of public policy’ is a broad and unspecified legal test. The Court in Pemex narrowed it slightly and asserted that public policy is violated when enforcement is ‘repugnant to fundamental notions of what is decent and just in the State where enforcement

107_{Ibid page 12.} 108_{Ibid page 25.} 109_{Ibid page 25.}

110_{John Fellas, ‘Confirmation of Awards Vacated at the Arbitral Seat’ 2016 New York Law Journal page 3.}

Document can be found here: < http://www.newyorklawjournal.com/id=1202769850373/Confirmation-of-Awards-Vacated-at-the-Arbitral-Seat?slreturn=20161116154437> last accessed December 16 2016.

111_{See note 107, page 26.} 112_{Ibid page 28.}

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is sought.’114_{The C ourt does note that there exists a high threshold with regard to this rule.}

That is to say, enforcement of an (annulled) award will rarely meet the requirements for being ‘repugnant’ to fundamental notions of the (US) legal order: ‘the standard is high, and

infrequently met”; “a judgment that ‘tends clearly’ to undermine the public interest, the public confidence in the administration of the law, or security for individual rights of personal liberty or of private property is against public policy.’115

The District Court gave four considerations that led to the enforcement of the annulled award and three of them are relevant for this paper. First, the Court asserts that a party should have a place to get a judgment on their dispute. Secondly, the Court looks at substantive law that governed the dispute: ‘the repugnancy of retroactive legislation that disrupts contractual expectations.’ Thirdly, the Court remarks that it is required that companies/entities receive compensation when its assets are expropriated. Finally, the Court covered the argument of sovereign immunity of the state and the waiver thereof. 116_{State immunity rules will not be}

discussed in this section.

With regard to Yukos, ‘expropriation without compensation’ would be the most fruitful option for the shareholders to pursue. After all, until this day, the shareholders of Yukos have not received any compensation for the actions of the Russian government. However, the shareholders of Yukos will try to enforce the PCA Award. As I argued earlier on in this paper, the Tribunal at the PCA lacked jurisdiction to adjudicate the case because the dispute

settlement clause of the ECT was not provisionally applicable.

However, the author of this paper fears that the award rendered by the PCA will not be enforceable in the United States, nor will the US courts ignore the decision of the district court in The Hague. If we follow the Court’s line of reasoning, one is forced to conclude that the decision of the Dutch District Court will not violate ‘basic notions of justice’ and it is unlikely that the different interpretation of the District Court of The Hague will meet a ‘threshold that is infrequently met’. While I understand that in the case of PEMEX and the retroactively applied laws the Court chose to ignore the appeal in Mexico, the situation was different compared to the situation of Yukos.

WL 4087215 (2d Circuit, August 2, 2016) page 28.

115_{Ibid page 28.} 116_{Ibid page 30.}

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In PEMEX, it appears that the Mexican legislator intervened indirectly in the case and altered the dispute settlement rules in favour of state subsidiary PEP. This is indeed ‘repugnant to fundamental notions of what is decent and what is just’, if we use the terminology of the District Court. In both the Tribunal’s award and the decision of District Court of The Hague, there is no question of retroactively applied rules of law.

The question whether or not the recognition of the PCA award, despite the fact that it has been annulled in the seat of arbitration, would violate the public policy of the United States will be conclusively answered in this section.

4.1.2 Chromalloy v. Egypt

There is more practice in the United States which may establish a general rule in favour of the Russian state, although the practice confirms enforcement of awards that had been set aside in the country of origin. The following sections explores whether the actual practice is in favour of the shareholders of Yukos, or conversely, in favour of the Russian government.

In a case prior to Pemex, an American court decided upon a case in which a tribunal allegedly wrongfully assumed its jurisdiction. The company Chromalloy sold and maintained

helicopters for the Egyptian Air Force when the Egyptian government suddenly terminated the contract. Chromalloy initiated arbitration and was subsequently given an award totalling $17 million. An Egyptian Court then annulled the award and, several months later,

enforcement of the original award was sought in the United States by Chromalloy.117

The American judges emphasized the earlier covered general rules concerning the

enforcement of awards and its discretion under article V(1)(E) of the New York Convention: ‘the award was made in Egypt, under the laws of Egypt, and has been nullified by the court designated by Egypt to review arbitral awards. Thus, the Court may, at its discretion, decline to enforce the award.’118_{Secondly, the Court repeated the principle of article VII of the New}

York Convention.

117_{Chromalloy Gas Turbine v The Arab Republic of Egypt, 939 F Supp 907 (DDC 1996) Case can be found here:}

<http://law.justia.com/cases/federal/district-courts/FSupp/939/907/1511634/> last accessed November 16 2016.

118_{Chromalloy Gas Turbine v The Arab Republic of Egypt, 939 F Supp 907 (DDC 1996) Case can be found here:}

<http://law.justia.com/cases/federal/district-courts/FSupp/939/907/1511634/> last accessed November 16 2016.

Annulment of the arbitral Yukos awards: Interpreting Article 45(1) Energy Charter Treaty and Implications for Enforcement.