Name: Pavel Leutin
Student number: 12758795 Master’s Thesis
Investors’ Perspectives of Enforcement of International Investment Awards on the basis of Yukos Case
1. Introduction ... 1
2. Legal theory of international investment awards enforcement ... 2
2.1. ICSID Awards Enforcement ... 3
2.2. Non-ICSID Awards Enforcement: the New York Convention... 3
3. Yukos case ... 5
3.1. History and summary of facts ... 5
3.2. Permanent Court of Arbitration: reasoning and conclusion ... 6
3.2.1. Jurisdictional Stage ... 6
3.2.2. Merits Stage ... 9
3.3. The District Court of the Hague judgement: reasoning and outcome ... 9
3.4. The Court of Appeal in the Hague: reasoning and conclusion ... 16
3.5. Cassation in The Supreme Court of the Netherlands: potential outcome ... 20
3.6. Preliminary conclusion ... 20
4. Comparative analysis of judicial findings ... 21
4.1. Introduction: main issues at stake ... 21
4.2. PCA’s jurisdictional issues ... 21
4.3. Art. 45 ECT in view of Russian legislation ... 22
4.4. Art. 26 in view of Russian legislation ... 28
4.5. Potential repercussions of Yukos case ... 29
5. Conclusion ... 30
1. Introduction
It appears essential, first, to define the scope of my research and the reasons incited me to choose the mentioned topic. Secondly, I see it necessary to remind the key aspects of widely accepted knowledge concerned with the investments’ “win-win” effects for all parties involved. Finally, I refer to the genuine connection between the investment arbitration and the desired investments benefits.
My work focuses on the enforcement of international investment awards as a complete judicial institution on the basis of Yukos case, on its key stages and orders. I also make a decent effort to try to reveal its main advantages and disadvantages and, possibly, to think through its potential improvements.
Since the Russian Socialist Revolution 1917, where the issue to defend effectively foreign investments
beyond the national legal standards first appeared,1 the request for such a defence on the international plane
only grew significantly.
One of the most striking and recent examples in the world of international investments is the judicial process of former Yukos shareholders against Russia. I believe the outcome of this case appears particularly interesting and may exemplifies in many respects, taking into account the EU-Russia relations, the extraordinary amount of money involved and the polar positions of different courts considered the merits.
I would like to emphasize on this case not only due to the aforementioned reasons, but also due to my certain knowledge of Russian legal system. I believe that the practical value I could contribute is based, on the one hand, on the Russian legal education and, on the other hand, on the specialization on international investment law, acquiring at The University of Amsterdam.
2. Legal theory of international investment awards enforcement
The system of international investment dispute settlement is intentionally created as an independent, self-contained dispute settlement mechanism with the aim to guarantee investors fair, impartial and competent resolution of the potential disputes, arising from investment activities. A numerous range of investment treatment standards, in addition to the general principles of international law, would play this crucial role almost perfectly, except one circumstance - the principle of sovereign equality of States, including the impossibility of a sovereign State to be bound by any obligations except those voluntarily assumed by that
State.2 This is probably the main reason underlying the fact that the majority of investment treaties do not
even contain any provisions on recognition and enforcement of the awards.3
Therefore, the awards enforcement procedure may not stay beyond the national legal orders of the host States accepting investments. Consequently, the enforcement institute must be such flexible and efficient, as, on the one hand, providing the same guarantees of investment treatment as a very nature of the whole international investment legal system, and, on the other hand, observing all basic principles of public international legal order concerned with the status of its main actors – independent States. Thus, taking into account a promptly growing level of cooperation and mutual integration of States, an objective necessity to regulate recognition and enforcement of national courts’ decisions appears.
I believe it might be affirmed that the field of international investment awards enforcement is mostly shaped by two basic legal acts, namely, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter -ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter - the New York Convention), which are considered below.
1 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edition, Oxford University Press 2012), p. 1
2 CHARTER OF THE UNITED NATIONS, SAN FRANCISCO 1945, Art. 2(1)
2.1. ICSID Awards Enforcement
To begin with, ICSID Convention might be characterized as a cornerstone framework for international investment disputes settlement due to it covers many procedural aspects not stipulated by other procedural investment treaties. One of the striking examples, especially attractive for investors, is Art. 53(1) ICSID, which provides a binding character of the awards rendered for the Parties-Members of the Convention. Meanwhile, it must be emphasized that “only final awards are subject to recognition and enforcement, whereas preliminary
decisions (e.g. jurisdictional) are not considered as awards.”4 Additionally, a range of norms, stipulated by the
ICSID Convention, allows the Tribunal to stay enforcement of the award at its own discretion in the following cases:
a request for award interpretation as to the meaning or scope of it is applied;5
a request for award revision is applied.6
Moreover, Art. 51(4) ICSID obliges the Tribunal to stay enforcement of the award if the applicant applies for such a stay until the Tribunal rules on his request.
It must be noted that under the provision of Art. 54(1) “the enforcement obligation extends only to pecuniary obligations, whereas other obligations, such as restitution or specific performance, are not subject
to the provision mentioned.”7 The same legal provision contains a striking feature underlying the challenge of
enforcement process, namely, Art. 54(3) stipulates the execution of the awards under governance by the internal legislation in force in the States where such execution is sought.
2.2. Non-ICSID Awards Enforcement: the New York Convention
With respect to the recognition and enforcement of non-ICSID awards, in most national legal orders they subject to the New York Convention. Its main purpose and scope are defined as application to the recognition and enforcement of awards made in the territories of other States and to the awards not considered
as domestic awards in the State where their recognition and enforcement are sought.8
One of the investors attractive features of the Convention, provided by Art. III, is the prohibition to impose substantially “more onerous conditions on recognition and enforcement of foreign awards than
domestic awards.”9
In respect of the grounds to resist enforcement, the NY Convention grants the right to a party, against whom the award is rendered, to request a refusal of the award if that party provides an authorized legal organ with the proof of the following:
The parties were under some incapacity, or the investment agreement is not valid under the law
applicable to the parties or under the law of the country where the award was issued;
4 Josefa Sicard-Mirabal and Yves Derains, Introduction to Investor-State Arbitration, (Kluwer Law International 2018), p. 251 5 The Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Washington, D.C., U.S.A., 1965, Art. 50(2)
6 Ibid, Art. 51(4)
7 Josefa Sicard-Mirabal and Yves Derains, Introduction to Investor-State Arbitration, (Kluwer Law International 2018), p. 252 8 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York 1958, Art. I(1)
The party against whom the award is rendered was not properly noticed either of the adjudicator’s designation or of the arbitration proceedings, or was otherwise unable to present the case;
The award is beyond the terms required and scope of the submission to arbitration. Meanwhile,
if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced;
The composition of the arbitral authority or the arbitral procedure did not correspond to the
agreement of the parties, or, failing such agreement, did not satisfy certain legal requirements of the place where the arbitration seated;
The award has not yet become binding on the parties or has been dismissed or suspended by an
authority of the State, where the award was rendered.10
Additionally, the award’s recognition and enforcement might be refused if the certain authorities of the place where such recognition and enforcement are sought decide that:
The subject matter of the difference is not subject to be resolved by arbitration under the
national law;
The recognition or enforcement of the award would contradict to the public policy of that
country.11
Another relevant provision, stipulated by Art. VII(1) NY Convention, is concerned with the
“most-favourable rule principle”.12 In view of the subject I intend to address further, namely, the perspectives of
ex-Yukos shareholders on the track of enforcement of the arbitral award rendered in their favor, it appears essential to consider the SOCIETE PT PUTRABALI ADYAMULIA v. RENA HOLDING Case (hereinafter – Putralabi Case) precedent and its interpretation by the French court.
Briefly describing the merits of the Putrabali case, Putrabali initiated arbitration proceedings, where London was chosen as the place of the tribunal’s constitution, and the tribunal issued an award in favor of Rena Holding. Nevertheless, Putrabali appealed and the High Court in London partially annulled the award. Then the Arbitral Tribunal issued a second award in favor of Putrabali and obligated Rena Holding to pay for the cargo. Upon the Rena Holding’s application to enforce the first award in France, the French Cassation
Court ordered the enforcement of the award.13 Prof. Sébastien Besson emphasized on the reasoning the Court
stated, namely that “an international arbitral award is independent of a national legal order and its validity was
to be ascertained by the laws of the country where enforcement is sought”.1415
10 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York 1958, Art. V(1) 11 Ibid, Art. V(2)
12 Josefa Sicard-Mirabal and Yves Derains, Introduction to Investor-State Arbitration, (Kluwer Law International 2018), p. 257 13 Aceris Law LLC, “ENFORCEMENT OF AN ANNULLED ARBITRATION AWARD: SOCIETE PT PUTRABALI ADYAMULIA v. RENA HOLDING French Court of Cassation (2007)”, 04/05/2017, https://www.acerislaw.com/enforcement-of-an-annulled-arbitration-award/
14 The International Council for Commercial Arbitration, Breakout Session C1, 11 June 2012,
https://www.arbitration-icca.org/conferences-and-congresses/ICCA_SINGAPORE_2012-video-coverage/ICCA_SINGAPORE_2012-C1.html
Thus, the foregoing illustrates that the French courts tend to apply French law on recognition and enforcement due to its more favorable character comparing to the New York Convention, recognizing foreign
annulled awards.16
One more striking feature of the enforcement mechanism of international investment non-ICSID awards is the different interpretation of the same treaties by varying composition of the judicial bodies
considering the case.17 One may reasonably note that the adjudicators of the international investment
arbitration designated by the Parties probably would have different view on the disputed provisions comparing to the governmental judges of a particular State, whose qualification was acquired under the respective national legal doctrine. I would even assume that the widely discussed reform of international investment dispute settlement mechanism will comprise the reformation of the awards enforcement mechanism that would bestow upon a more unilateral approach in treaties interpretation.
3. Yukos case
In this part of my research I intend to address Yukos case, including the summary of the facts, key circumstances preceding the initiation of judicial proceedings, political element, its influence and role in Yukos case and other relevant facts. At first sight, some aspects might appear as not directly relevant to the enforcement of the award, but, in my view, to provide a comprehensive legal understanding of the case and its prospective process, it is crucial to overstep the boundaries of a stringent legalistic approach.
Additionally, it is particularly important from the point of view of the Claimants perspectives on enforcement of the annulled awards to understand reasoning of the tribunal and its way to certain conclusions. Thus, I am going to be involved in a deeper manner in the relevant decisions.
To begin with, Yukos case appears particularly interesting not only due to its record-setting pecuniary obligations imposed on a State in the history of international investment arbitration, but also due to far more extended political incentives underlying the initiation of the process, taking into account adjoining judicial processes concerned with the human rights violations, considered by the European Court of Human Rights, opinions on Yukos case publicly expressed by some West-European leaders, official position on the State’s campaign against Yukos expressed by the Parliamentary Assembly of the Council of Europe, sustainable growth of tensions in EU-Russia relations within last decade etc.
3.1. History and summary of facts
OJSC “Yukos Oil Company” was founded in Moscow, Russia, on April 15, 1993. It specialized in oil and gas exploration and production. By the period between 1996 and 2003 the Company reached a pick in its
development, covering around 20% of the Russian oil output.18 In 2003, its main founder, the principal owner
and CEO – Mikhail B. Khodorkovsky, the 16th richest man in the world by the time, was arrested by Russian
16 Josefa Sicard-Mirabal and Yves Derains, Introduction to Investor-State Arbitration, (Kluwer Law International 2018), p. 257 17 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edition, Oxford University Press 2012), p. 28
authorities, whereas the governmental campaign, based on the alleged tax crimes, was initiated against Yukos, which led to its formal bankruptcy in August 2006.
On 2 November 2004 the international investment process was initiated by three former Yukos shareholders: Hulley Enterprises Limited (“Hulley”), Yukos Universal Limited (“YUL”) and Veteran Petroleum Limited (“VPL”), (collectively, “Claimants”), where “all three Claimants delivered to the President of Russia notifications of claim with respect to Russia’s alleged violation of its obligations under the Energy Charter Treaty (hereinafter – the ECT) and sought to settle the disputes amicably pursuant to Article 26(1) of
the ECT.”19
“Having failed to settle their disputes amicably within the three-month period established under Article
26(2) of the ECT, on 3 February 2005, Hulley and YUL initiated arbitration proceedings against Russia.”20
Claimants announced the Respondent’s failure to protect Claimants and the expropriation of their investments
in Yukos.21
3.2. Permanent Court of Arbitration: reasoning and conclusion
In 2014 the international investment arbitration against Russia was won by ex-Yukos shareholders in Permanent Court of Arbitration, where six awards were issued: three jurisdictional awards and three awards on the merits as a result of three independent processes initiated by three former Yukos shareholders, respectively. Since they are of the identical nature deriving from the same circumstances, the Court’s reasoning, conclusions, materials and proofs invoked are almost the same. Thus, for the purpose of the procedural efficiency, I intend to refer to the reasoning of the only HULLEY ENTERPRISES LIMITED v. THE RUSSIAN FEDERATION Case decisions due to its biggest amount of damages ordered to be paid to
the Claimant (USD 39,971,834,360).22
3.2.1. Jurisdictional Stage
As I mentioned previously, the conclusions of the Court and its reasoning appear crucial to estimate the Claimants’ perspectives to enforce and finally receive the damages ordered to be paid by Russia. Taking into account the subject matter of my work, jurisdictional issues at stake, defined and considered by the Court, appear particularly interesting and relevant from the point of view of potential appeal in the future.
On 30 November 2009 the PCA Tribunal rendered a jurisdictional award (hereinafter – the
Jurisdictional Award), affirmed its jurisdiction and assumed to consider the merits of the dispute.23 The
Tribunal formulated the following jurisdictional issues to be considered:
19 HULLEY ENTERPRISES LIMITED v THE RUSSIAN FEDERATION, PCA Case No. AA 226, FINAL AWARD, 18 July 2014, para. 9 20 Ibid, para. 10
21 HULLEY ENTERPRISES LIMITED v THE RUSSIAN FEDERATION, PCA Case No. AA 226, FINAL AWARD, 18 July 2014, para. 11 22 Ibid, para. 1888(f)
23 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 600(d)
1) The meaning and the legal effect of the Limitation Clause, provided by Art. 45(1) ECT in terms of the intentions of the Parties, the interpretational rules of public international law and the context of Parties’
relations;24
2) The correspondence of the provisional application principle, stipulated by Art. 45(1) ECT, to the
internal Russian legislation;25
3) The consistency of the ECT arbitration clause, contained in Art. 26 ECT, with Russian law.26
With respect to the first issue at stake, considered at the jurisdictional stage, the Court, first of all, analyzed in a detailed manner the exact words of the respective provision and their contextual meaning. Article 45(1) ECT is formulated as follows:
“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”.27
The Tribunal concluded that, taking into account the ordinary meaning of the Article, Russia may, for the purpose of avoiding the Part V ECT application and despite its many years stalwart in respect of the provisional application, claim the inconsistency of the ECT provisional application with its internal
legislation.28 Meanwhile, the Parties did not consent on the question whether the respective clause implies a
so-called “piecemeal” or “all-or-nothing” approach, where, on the one hand, the Russian State insisted on the conformity analysis of each ECT provision to its internal legal acts and, on the other hand, HEL requested to
define whether the principle of provisional application per se corresponds to the Russian legislation.29
The Court undertook to analize literally each word of Article 45 ECT in a very detailed manner. Therefore, first of all, it came to a conclusion, that the manner the respective provision is formulated in, corresponds better to the interpretation as “the provisional application of the entire treaty” as the ordinary
meaning of the term implies under Art. 31(1) of the VCLT.30 In addition to its finding, in view of the absent
explicit provision on the partial provisional application, the Court emphasized on the lack of basis to infer that
the signatories obliged themselves to apply provisionally only certain ECT parts.31
Second, in view of its abovementioned conclusion, the Tribunal defined the next issue to be resolved, namely, whether the principal of provisional application of the whole ECT agreement corresponds to the
Russian Constitution and other internal laws and regulations of the Russian Federation.32
24 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 290
25 Ibid, para. 330 26 Ibid, para. 347
27 THE ENERGY CHARTER TREATY 1991, Art. 45(1)
28 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 284
29 Ibid, para. 292 30 Ibid, para. 308 31 Ibid, para. 311
32 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 329
Thus, in respect of the second jurisdictional issue, the Tribunal found that the principal of provisional application is perfectly corresponds to the provisions of the Russian Constitution and other internal legal acts. Moreover, taking into account the notification on the termination of the ECT’s provisional application, made by the Russian Federation on 20 August 2009, the Tribunal concluded that such provisional application was
in force until the respective moment.33
With respect to the third jurisdictional issue, the Court concluded that the Arbitration clause, provided
by Art. 26 ECT, does not contradict to the Russian law provisions.34 In its reasoning, the Court resorted to the
fact that the ECT provisions on its provisional application, at the moment of its signing by the Russian Federation, were in conformity with the Russian legal acts in light of the lack any declarations on the Russian side as to the Russia’s inability to accept ECT’s provisional application. It is conditioned by the Court’s analysis of the so-called Explanatory Note, submitted by the Russian Government to the State Duma (lower house of the parliament: Russian Federal Assembly) when the ECT was submitted for ratification. The Note contained a provision on the agreement of the Contracting Parties’ majority to apply the ECT provisionally
before its entry into force. 35 This position was affirmed by Professor Suren A. Avakiyan, one of the leading
experts in a sphere of Russian Constitutional Law and one of Respondent’s expert witnesses whose student I
was honored to be getting my first legal degree at Lomonosov Moscow State University.36
Another crucial aspect that the Court decided to define is whether it is sufficient to sign the Treaty to
express the consent of the State to international adjudication under the ECT.37 For that purpose the Tribunal
invoked certain provisions of the Russian Federal Law on International Treaties (hereinafter – the FLIT). The Tribunal’s finding that these provisions “are very clear” allowed it to conclude that the Russian Federation, signing the ECT, assumed an obligation to be bound provisionally by the ECT Arbitration Clause stipulated
by Art. 26.38 Moreover, the Court stated that it is evident from certain FLIT provisions that the provisional
application of international agreements is allowed under the Russian legislation.39 Additionally, the Tribunal
focused on a particular requirement of the FLIT, namely, the six-month term provided for the ratification by
State Duma of the treaties that subject to provisional application.40 Meanwhile, the Tribunal inferred that the
observance of this term is only for internal purpose, irrelevant to the enforcement of the provisional application
of the international agreement.41
To sum up, the Tribunal stated in its conclusion that the “all-or-nothing” approach must applied in respect of the ECT provisional application, including the Arbitration clause in Art. 26, on the jurisdictional
33 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 338
34 Ibid, para. 392
35 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 374
36 Ibid, para. 375 37 Ibid, para. 379 38 Ibid, para. 382 39 Ibid, para. 383
40 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 386
territory of Russia until 19 October 2009, when the latter submitted a respective notification.42 Additionally, the Court confirmed that the requirement of consistency of internal legislation with the ECT provisions,
stemming from Art. 45(1), is met.43 Consequently, the Tribunal denied the jurisdictional objections of the
Respondent.44
3.2.2. Merits Stage
With respect to the applicable law, the main relevant legal act invoked by the Claimants as breached by Russian State was the ECT. The Court analyzed the alleged violations of certain ECT provisions, and found that “the harsh treatment was exercised towards Messrs. Khodorkovsky and Lebedev (the latter served as CEO of Group Menatep Ltd. - the principal shareholder of YUKOS) jailed and the very pace of the legal proceedings does not correspond to the legal principle of due process. Instead, the Tribunal stated that the Russian courts bent to the will of Russian authorities to bankrupt Yukos for the assumption of its assets by a
State controlled entity and to imprison Mikhail Khodorkovsky as a potential political rival.”45 Therefore, the
PCA Tribunal found the Respondent liable for the violation of Art. 13 ECT.46
3.3. The District Court of the Hague judgement: reasoning and outcome
As a matter of course, not willing to compensate the damages ordered, the Russian Federation requested to set aside the interim and merits awards, rendered on Yukos case. Since Netherlands was a place of the investment arbitration process governed under the UNCITRAL Arbitration Rules, not containing self-sufficient annulment and enforcement mechanism comparing to ICSID institution, the Dutch national court became an option for the interested Party to apply for reversal of the PCA awards. The arbitrations were conducted in The Hague, where the District Court of The Hague (hereinafter – the District Court), as a competent authority to rule on the request of the Russian State, set aside the awards on the basis of lack of a valid arbitration agreement and lacked jurisdiction.
In its conclusion the District Court focused on the polar meaning of the ECT signature, namely, that it
could not lead the Russian Federation to be bound provisionally by the ECT arbitration provisions.47
Consequently, an unconditional offer to arbitrate has never been made by the Russian State in terms of the ECT arbitration clause and the PCA did not satisfy jurisdictional requirements to consider the merits of the case.48
Assessing the dispute, The District Court started with the definition of the main issues to be solved.
42 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 395
43 Ibid, para. 396 44 Ibid, para. 612(a)
45 HULLEY ENTERPRISES LIMITED (CYPRUS) v THE RUSSIAN FEDERATION, PCA Case No. AA 226, INTERIM AWARD ON JURISDICTION AND ADMISSIBILITY, 30 November 2009, para. 1583
46 Ibid, para. 1585
47 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.95
First, The District Court reasonably addressed the question of its competence to consider the dispute. For that purpose, the District Court invoked certain provisions of the Dutch Code of Civil Procedure, namely,
Articles 1064(2) and 1073(1), stipulating an application for a reversal to the District Court.4950 Taking into
account that The Hague was chosen as the place of the arbitration seat, the District Court confirmed its jurisdiction.
Second, The District Court addressed the issue whether the PCA Tribunal had jurisdiction to resolve the dispute. To resolve an issue, The District Court delineated sub-issues to be considered. It started with the analysis of relevant legal provisions, namely, Art. 26, 45 ECT. Additionally, it took into account the object and purpose of the ECT, the nature of international law, the State practice and the travaux preparatoires. It also scrutinized relevant provisions of internal Russian legislation to solve the main sub-issue, playing the role of the cornerstone to affirm the PCA competence, namely, the legal nature and substance of the ECT signature, ratification and their comparative analysis.
With respect to Art. 45(1) ECT and its meaning for the dispute, The District Court invoked a classical
legal rule of interpretation provided by Articles 31 and 32 VCLT.51 The Court recalled the detailed analysis
of the wording of the respective clause made by PCA and inferred one principal difference between the PCA’s view and its own. The District Court particularly emphasized on the relevance for the context-related interpretation of Art. 45(1) ECT of the term “regulations”, contained in the ECT Limitation Clause alongside the constitution and other legal acts. From the point of view of the District Court, distinguished from the PCA’s one, its reason is not just invoked to emphasize the drafters’ intention to provide as broad overview as
possible to guarantee giving consideration to each provision of Signatories’ internal legislation. 52
In addition, the Court found relevant the meaning of Art. 45(2)(c) ECT and stated the wrong conclusion of PCA on the clear meaning of the respective provision. The provision states that despite the submission of the respective declaration by the State-Signatory, part VII is presumed to be provisionally applied but, likewise
para. 1 of the same article, only to the extent not contradictory to the internal laws and regulations.53 In view
of the absence of the term “constitution” in Art. 45(2)(c) ECT as a required criterion for the assessment of the provisional application of the entire treaty, The District Courts disagreed with the PCA’s conclusion and stated
that the provision of Art. 45(2)(c) comprises the specific treaty provisions from the respective part.54 Thus,
the District Court interpreted the provision considered in a polar way comparing to the PCA’s meaning given
and stated the lack of grounds for the PCA’s finding.55
49 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.3
50 Dutch Code of Civil Procedure, Art. 1064(2), 1073(1)
51 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.9
52 Ibid, para. 5.13
53 THE ENERGY CHARTER TREATY 1991, Art. 45(2)(c)
54 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.15
The District Court also applied a more extended approach and paid attention to the object and purpose of the ECT on the basis of international law. Even though the District Court agreed with the PCA’s application of two provisions of international law, stipulated by Articles 26, 27 VCLT, providing the principles of pacta sund servanda and the impossibility for a Party to invoke the national law provisions to justify its failure to
perform its duties under the treaty, respectively, it came to a different conclusion on the outcome.56 The
District Court emphasized on the PCA’s failure to specify to what extent the provisional application under the
ECT Limitation clause would contradict to the object of the ECT. 57
The main difference in the conclusion of PCA and of The District Court, deriving from the application of the same international law principles to interpret Art. 45(1) ECT, is that according to the District Court, Parties signed the ECT may “explicitly limit the provisional application of the Treaty”. The Court made its conclusion on the basis of Art. 25(1)(a) VCLT, providing a provisional application of the treaty until its entry
into force as long as the treaty contains the respective provision.58 Therefore, the District Court’s position is
that the scope of the provisional application is limited to Art. 45(1) ECT that does not contradict to national law, and the State relying on the conflict between its national law and a treaty provision, does not violate the
principles stipulated by Articles 26, 27 VCLT. 59 To clarify the meaning of the provisional application
doctrine, contained in Art. 25 VCLT, it appears essential to resort to the commentaries related to the mentioned Article, namely, due to the urgent reasons that States may face with on practice, the obligatory application of an international treaty required for the States’ matters, may take place on a provisional basis until their
respective organs approve an international treaty on a regular basis.60 Therefore, beyond any doubts, such
provisions on provisional application possess legal effect and entail the treaty’s preliminary application.61 To
confirm, the Special Rapporteurs of the International Law Commission on the Law of Treaties - Professors Brierly and Lauterpacht, provided samples of the international agreements agreed to be provisionally applied
before being ratified.62 One of the striking examples of provisionally applied international treaties is the
General Agreement on Tariffs and Trade (hereinafter - GATT) that was applied provisionally from 1947 to
1994.63
The District Court’s energetic efforts to reveal the meaning of Art. 45(1) ECT in terms of the Parties’ intentions and relations led it to the conclusion principally distinguished from the PCA’s one. The District Court agreed with the Russia’s interpretation of the ECT Limitation clause and, consequently, confirmed that
the Russian State is only bound by the ECT provisions corresponding to the Russian national legislation.64
56 Vienna Convention on the Law of Treaties 1969, Art. 26, 27
57 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.19
58 Vienna Convention on the Law of Treaties 1969, Art. 25(1)(a)
59 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.19
60 Manhoush H Arsanjani, W. Michael Reisman, Oxford Public International Law (Oxford University Press 2015), p. 86 61 Manhoush H Arsanjani, W. Michael Reisman, Oxford Public International Law (Oxford University Press 2015), p. 86 62 Manhoush H Arsanjani, W. Michael Reisman, Oxford Public International Law (Oxford University Press 2015), p. 88 63 Manhoush H Arsanjani, W. Michael Reisman, Oxford Public International Law (Oxford University Press 2015), p. 88
64 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.23
With respect to the issue whether the prior declaration is required in light of Art. 45(2) ECT to rely successfully on the provision of Art. 45(1), the District Court decided that, first, the question is irrelevant to
the substance of the claim and, second, such a declaration is not required. 65
The District Court addressed another essential question – whether the Arbitration clause stipulated by Art. 26 ECT corresponds to the Russian national legislation. The mentioned issue appeared relevant for the Court due to the alleged violations of certain ECT provisions concerned with the standards of foreign investment treatment, namely, the obligation to treat investments fairly and equitably, excluding discrimination preventing the usage of investments, provided by Art. 10 ECT, and the obligation to refrain
from nationalization and expropriation, provided by Art. 13 ECT.66
In its assessment of the abovementioned ECT Arbitration clause, the District Court resorted to the specificity of its own, Dutch national legal system. Therefore, to resolve the issue, the Court justified its resort to the Russian law on the ground of Section 25 Dutch Code of Civil Procedure, containing a provision on the court’s ability to supplement its own motion, whereas the law that subject to the necessary application, may also include the foreign law. Such position allowed the District Court to state the necessity to define the contents of the relevant internal legislation of Russia. To perform such an undertaking, the Court recalled the experts’ opinions provided by the Parties to the dispute, namely, the reports of two Professors of the leading Russian Universities – Kostin Alexey Alexandrovich and Asoskov Anton Vladimirovich. Inclusion of their reports in the examination of the Russian legislation allowed the District Court to establish the contents of
relevant Russian law.67
To solve the ECT Arbitration clause issue, The District Court defined the relevant legal provisions of Russian law and, alongside the PCA, provided its own explanation and interpretation of the respective norms.
In respect of the Art. 9 The USSR Law on Foreign Investments 1991 (hereinafter – The Law on Foreign Investments 1991), the Court resorted to the abovementioned experts’ opinions and to the Russian legal doctrine. The key feature of Art. 9 defined by the District Court corresponds, from its point of view, to the Russia’s position, according to which the provision stipulates the disputes related to the sphere of public law
and expropriation subject only to the jurisdiction of the Russian national courts.68 Further, the District Court
emphasized on the distinction of legal nature of relations stipulated by Art. 9(1) and 9(2) The USSR Law on Foreign Investments 1991, where the first provides the predominance of the public-law nature and the second is limited to investment disputes where the civil-law nature overrides. In view of the Court, such conclusion corresponds to the Russian legal doctrine, whereas the PCA Tribunal failed to affirm such distinction. It
65 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.31
66 Ibid, para. 5.32
67 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.34
68 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.48
allowed The District Court to infer that the Tribunal was incorrect and, contrary to its opinion, the arbitration
option is not provided by Art. 9(2) The USSR Law on Foreign Investments 1991.69
Another relevant provision of internal Russian legislation analyzed by the PCA Tribunal and by The District Court is Art. 10 The Law on Foreign Investment 1999 (hereinafter – The Law on Foreign Investments 1999). The District Court did not agree with the Tribunal’s conclusion in respect of the mentioned norm that
disputes between an investor and a state can be resolved in the international arbitration.70 According to the
Court, since Art. 10 contains a general reference not only to the international agreements, but also to the national legal acts authorizing local courts to resolve certain disputes stemming from foreign investments, the Article stipulates an option to arbitrate under a certain condition, namely, the respective provision in the treaty itself, does not contain a legal ground to arbitrate over provisions of Part III ECT. To underpin its finding, The District Court invoked the so-called “blanket provision” described in the Russian legal doctrine. According to previously mentioned Prof. Asoskov, invoked as an expert to the process, the “blanket provision” is characterized by the lack of certain elements in the provision, whereas it contains a reference to a certain set of rules.71
Taking into account its scrutiny, in the conclusion on the meaning of Art. 10 The Law on Foreign Investments 1999, The District Court stated that the respective provision does not contain a sufficient legal
ground that might be invoked to establish international arbitral proceedings under Art. 26 ECT.72
Another crucial aspect The District Court found relevant to define the legal force of certain ECT provisions is The Explanatory Memorandum to the ratification act (hereinafter – the Memorandum) made by the Government of Russia in 1996. Contrary to the PCA Tribunal, The District Court found that since the Memorandum appeared as an act of the executive legal authority with the purpose of the ECT ratification, which has never taken place, the executive organ’s position should not be perceived as a legislative act. Moreover, according to The District Court, the issue whether the provisional application of Art. 26 ECT is in
conformity with the internal legislation of Russia is not resolved by The Memorandum.73
With respect to the interpretation of Articles 9, 10 The Federal Laws on Foreign Investments 1991 and
1999 respectively, The District Court found the Tribunal’s findings insignificant.74 It underpinned its position
by the fact that, as the parliamentary history of BITs concluded and ratified by The Russian Federation illustrates, the disputes resolution in international investment arbitration, including the one considered, is not
stipulated by Russian law.75 For example, the South Africa – Russia BIT was accompanied by the explanatory
69 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.51
70 Ibid, para. 5.53
71 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.56
72 Ibid, para. 5.58
73 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.60
74 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.61
note of 8 April 2000 containing the provision that the BIT is subject to be ratified, whereas The Federal Law
on Foreign Investments 1991 does not stipulate an investor-state dispute settlement mechanism.76 In view of
The District Court, such explanatory notes confirm that The Federal Laws on Foreign Investments 1991 and
1999 do not contain a legal basis for international arbitration in cases as the case considered.77 Thus, in its
interim statement on Art. 26 ECT, The District Court inferred that The ECT Arbitration clause is not
underpinned by Russian law and does not correspond to the benchmark stipulated by that law.78
One more question that appeared essential for the definition of the legal force of Art. 26 ECT is whether its provisional application might be based on the ECT signing or an additional ratification under Russian law
is required.79 The District Court analyzed in a detailed manner certain provisions of The Russian Federal on
International Treaties and came to the conclusion that its respective provision, stipulated by Art. 2, provides that the signature of a treaty only gives it a bounding tone if a treaty contains a provision giving such effect.
Thus, a definition of the treaty’s signature consequences is left to the drafters.80 The foregoing analysis of the
respective provisions of the Russian internal legislation allowed The District Court to conclude that none of them contains provisions on the provisional application of the binding character independent from the ECT provisions. Therefore, The District Court found that Art. 11 The Federal Law on International Treaties does
not contain a sufficient legal basis for the ECT provisional application.81
Additionally, The District Court addressed Art. 39 ECT, providing the treaty’s ratification or approval
by signatories.82 Contrary to the PCA’s finding, from The District Court’s point of view, Davydov’s signature
may not supersede the ratification required by Art. 39 ECT. Meanwhile, The District Court agreed with the Art. 45 ECT interpretation, according to which the provisional application depends on the internal legislation
of a signatory.83 Therefore, with respect to the provisional application of Art. 26 ECT The District Court came
to a provisional conclusion on the necessity to invoke certain provisions of the Constitution of The Russian
Federation 1993 (hereinafter – The Constitution 1993).84
The Constitution 1993 is an act of the superior legal force on the territory of Russia. Having regard its content, The District Court stated that the key provisions of The Constitution 1993 stipulate the divisions of
State power into legislative, executive and judicial branches, whereas all of them are independent.85 On that
basis, to interpret The Constitution 1993 correctly, The District Court referred to a range of the experts’
76 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.63
77 Ibid, para. 5.64 78 Ibid, para. 5.65 79 Ibid, para. 5.66
80 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.69
81 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.71
82 THE ENERGY CHARTER TREATY 1991, Art. 39
83 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.72
84 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.73
opinions invoked in the process by the Parties. According to one of them – Dr. Baglay, in accordance with the constitutional principle of the power’s division, the only branch of power authorized to express consent on behalf of The Russian State to be bound by an international treaty, is legislative, whereas The Russian Parliament – The Federal Assembly is the only legal authority holding legislative power. Thus, The Constitution 1993 limits the governmental bodies relating to other branches of power to consent on behalf of
Russia where the ratification is required.86 Another expert’s opinion that The District Court referred to is the
Prof. Avakiyan’s, according to which the ratification of any international treaty changing the provisions of the
Russian legal system is required.87 This exploration allowed The District Court to define and state the vital
role of The Federal Assembly in the enforcement process of international treaties.88 In support of its finding,
The District Court mentioned the expert’s commentaries to the Russian Federal Law on International Treaties 2006 (hereinafter – The FLIT) concerned with the meaning of Art. 15(1) therein. It is stated in the opinion that the only form of the State’s consent to provide an obligatory character of an international treaty is to
accept a federal law, which only belongs to The Russian Parliament.89
In its conclusion on the role of The Constitution 1993 provisions in respect of the disputed issue The District Court agreed with the experts invoked on the Russian side. Therefore, The District Court decided that, in view of the abovementioned constitutional provisions, international agreements are not subject to application only on the basis of its signature, but additional ratification must be present. With respect to the content and meaning of Russian law, in The District Court’s opinion it does not contain a sufficient legal ground for the establishment of international investor-state dispute settlement. Moreover, The Court emphasized that due to the constitutional principle of the power’s division discussed above a legal person relating to the executive power could not have authorities to express a legally binding consent on behalf of
The Russian State. Therefore, the ECT Arbitration clause might not be provisionally applied.90
The last legal provision The District Court found relevant and considered is the one provided by Art. 23 FLIT. The key feature of the mentioned provision is the six-month term established for the submission of a treaty to the Parliament which subject to ratification in a form of a federal law and which contains a provisional application clause. According to The District Court, in view of the lack of the legislative affirmation, the ECT Limitation clause (Art. 45) prevents the provisional application of Art. 26 ECT for a
period longer than six months.91
To sum up, in the final conclusion The District Court stated that the ECT signature is not enough to make a provisional application of Art. 26 ECT obligatory for The Russian Federation. Therefore, an
86 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.80
87 Ibid, para. 5.81 88 Ibid, para. 5.84
89 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.86
90 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.93
91 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.94
unconditional offer to arbitrate in terms of The ECT Arbitration clause has been never made on The Russian
State’s side.92
3.4. The Court of Appeal in the Hague: reasoning and conclusion
On 18 February 2020 The Appellate Court in the Hague (hereinafter – The Appellate Court) reversed the Decision of The District Court of 20 April 2016, rejected the Russian Federation’s claims and, therefore,
revived the Yukos awards rendered by the PCA’s Tribunal.93
In its Judgement, The Appellate Court delineated the grounds for appeal, provided its own view on the interpretation and application of the Limitation clause, stipulated by Art. 45(1) ECT, scrutinized the question whether the Claimants and their business activities might be defined as “investors” and “investments” in terms of ECT, respectively. Additionally, The Appellate Court provided a conclusion on its jurisdiction under Dutch procedural law and assessed the alleged violation of the public policy requirements.
To begin with, The Appellate Court addressed the meaning of one of the key legal provisions for the dispute resolution – The Limitation clause under Art. 45(1)(2) ECT and stated that if a Party to a treaty signed it but has not made a declaration under Art. 45(2)(a) ECT, a Party shall be bound by the provisional application of certain ECT provisions so far as and to the extent their provisional application does not contradict to the domestic law. To underpin its position, the Appellate Court addressed the context of Art. 45 ECT and inferred that one of the main purposes of the ECT is the investments promotion in the energy sector that implies laying
the grounds for stability and transparency.94 Moreover, the Appellate Court emphasized that the ECT
provisional application is implied and derives from the Parties’ initial intentions to create such a condition
immediately upon the ECT signature.95
Therefore, The Appellate Court confirmed the position of the PCA’s Tribunal in its Interim Award on Jurisdiction and Admissibility on 30 November 2009 (hereinafter – The Interim Award). In its reasoning, with respect to the issue of “inconsistency” between the provisions of an international treaty and of the domestic legislation, The Appellate Court emphasized on the importance of “the specific context of the legislation at
issue”.96
With respect to the application of the clause considered, The Appellate Court decided that the ECT provisional application corresponds to the Russian relevant legal acts. From the point of view of The Appellate Court, in view of the provision under Art. 23(1) FLIT, considered in Part 3.3., there was no provision in Russian domestic law that would prevent Art. 26 ECT from its provisional application. Therefore, Russia
should have applied the ECT Arbitration clause provisionally.97
92 Russian Federation v. Yukos Universal Limited, Hulley Enterprises Limited and Veteran Petroleum Limited (Yukos Setting Aside Decision), District Court of The Hague, ECLI:NL:RBDHA:2016:4230, 20 April 2016, para. 5.95
93 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 11 94 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 4.5.26 95 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 4.5.26 96 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 4.5.48 97 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 4.6.1
One more essential jurisdictional issue addressed by The Appellate Court is the conformity of The Claimants and their activities in Russia with the requirements of ECT provisions containing definitions of “Investor” and “Investment”. The Appellate Court uphold the position of the PCA Tribunal and rejected the Russian appeal to Articles 1(6) and 7 ECT. With respect to the “Investor” definition, in view of the Appellate Court, the ECT drafters did not conclude additional requirements for an actor to correspond to the “Investor” definition under ECT. Thus, in view of the absence of such requirements concerned with not only the place of the company’s incorporation, but also with the genuine link between the place of business activities, the
legal nature of the former Yukos shareholders corresponds to the ECT provisions.98
With respect to the issue whether The Claimants’ activities are covered by the ECT definition of “Investments”, The Appellate Court found that since the ECT contains explicit provisions on the investment and an investment dispute of international character and it is evident from the ECT drafters’ intention not to include additional requirements for the investments concerned with the direct or indirect control of
investments, further detailed exploration of who possesses the investments control is not required.99 Therefore,
the Defendant’s invocation of basic international investment law categories under ECT failed.100
The Russian Federation raised another jurisdictional issue in front of The Appellate Court, namely, whether the tribunal possesses the mandate under Article 1065(1)(c) Dutch Code of Civil Procedure (hereinafter – The DCCP). The provision mentioned stipulates not compliance of the tribunal with its mandate
as a ground for setting aside of an award.101 According to the Appellate Court, the conformity with the relevant
procedural law and with the procedural norms designated by the Parties are implied under this ground.102 To
underpin its position, Russia formulated a range of arguments. I would like to focus on some of them in a more detailed manner for further assessment of The Appellate Court’s Judgement.
With respect to the noncompliance with the Art. 21(5)(b) ECT, The Appellate Court does not consider nonfulfillment by the Tribunal of the obligation to submit the relevant question to the tax authorities as
sufficient to quash the award.103 Moreover, in view of the Court, not submitted dispute to the domestic tax
agency does not have “any material effect”.104
Having regard the argument of The Russian Federation on the wrong method of damages calculation, The Appellate Court stated its failure. In its reasoning The Court referred to Art. 13 ECT defining the compensation value “immediately before the expropriation” in case of expropriation. Meanwhile, the provision does not include an illegal expropriation as the one took place in Yukos case, where the position that The Investors might choose the valuation moment between the date of expropriation (19 December 2004) and the date when the final award was issued. Therefore, whether such position on the determination of
98 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 5.1.7.2 99 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 5.1.7.3 100 Ibid, 5.1.7.4
101 Dutch Code of Civil Procedure, Art. 1065(1)(c)
102 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 6.1.1. 103 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 6.3.2. 104 Ibid, para. 6.3.3.
damages is right or wrong, it does not give anything on the correspondence of the Tribunal with its mandate.105 Thus, The Appellate Court did not find breaches of its mandate reasonably grounded to quash the final
award.106
The issue on whether the Yukos Awards did not meet the requirement to state reasons, provided by Dutch domestic legislation for the award, has also been considered by The Appellate Court. Even though sufficient grounds to set aside the Yukos Awards were not found, The Appelate Court undertook a broadly extended analysis of relevant issues.
To begin with, The DCCP stipulates in Art. 1065(1)(d) a legal ground to set aside an award concerned with the necessary statement of reasons. Consequently, in case of the absence of sufficient reasons, the Dutch
legislation provides an opportunity to quash such an award.107 To estimate the reasons Russia referred to The
Appellate Court invoked the explanation of the Supreme Court of what exactly implied under the abovementioned provision. It is evident from the Supreme Court’s position that the reasons should be clear
and quite concrete. In view of that, The Appellate Court estimated The Russian Federation’s argumentation.108
Having regard The Russian Federation’s argument about the no well-founded reasons proposed in respect of the damages determination, The Appellate Court resorted to its previous reasoning mentioned in
the damages determination and its mandate Part of its Judgement.109 Nonetheless, irrelevant to the outcome
of The Court’s findings on its mandate, it affirmed that the utmost what The Tribunal’s conclusion may lead to is the characterization of the reasons as unsound, but not as absent. In view of the foregoing Supreme Court’s position on the meaning of Art. 1065(1)(d) DCCP, The Appellate Court inferred that in any case there
is no sufficient ground to quash the award.110
With respect to The Russian State’s argument on the lack of reasons in the award proving the
counterfeit character of Mordovian companies, The Appellate Court also stated its failure.111 In its reasoning,
The Appellate Court found the complaint incorrect on the basis of the wrong interpretation of the Final Award. From its point of view, the mistake stemmed from the wrong Russia’s reference to massive record on the basis of which the Russian authorities might define the counterfeit nature of the Mordovian companies. The Court stated the Russia’s failure to recognize that the massive record does not refer to the arbitration record, but to the tax proceedings. Therefore, numerous Russia’s links to evidence submitted in the arbitration proceedings
were irrelevant.112
One more crucial argument Russia resorted to was the lack of reasons stated by The PCA Tribunal in respect of the YNG shares auction. The Appellate Court recalled The Tribunal’s explanation and even mentioned some of its statements. Therefore, it concluded that the reasons were not only stated, but also well
105 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 6.4.26 106 Ibid, para. 6.4.27
107 Dutch Code of Civil Procedure, Art. 1065(1)(d)
108 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 8.1.2 109 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 8.3.1. 110 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 8.3.2 111 Ibid, para. 8.4.17
founded.113 Additionally, the only conclusion The Russian Federation’s argument might lead to is the recognition of the flawed character of the Tribunal’s reasoning that is not sufficient grounds to quash the Final
Award.114
The last essential argument raised by Russia and considered by The Appellate Court was that The
Yukos Awards contain violations of public order and good morals.115 To estimate comprehensively the
Russian Federation’s argument, The Appellate Court defined the only reasons sufficient to set aside The Yukos Awards. In its view, the potential violations of public policy must be related to the lack of impartiality and independence of The Tribunal, whereas the facts would confirm the absence of the arbitrator’s impartiality and independence or, at least, would prove serious doubts in respect of the arbitrator’s impartiality and
independence.116
In response to a range of The Russian Federation’s arguments, The Appellate Court decided that The Tribunal observed the procedural principle of the equality of arms and, therefore, did not violate the right of
Russia to heard.117 In addition, The Court stated a lack of substantive evidence provided by the Russian side
to confirm its assertions in respect of the failure to observe the procedural equality.118
With respect to the Russia’s claimed assertions on the fraud committed by the Claimants in the arbitral proceedings, The Appellate Court recalled its own Interim Ruling on 18 September 2018 where it stated that even if The Claimants neglected to submit certain documents having vital meaning for The PCA’s decision, the only ground it might be for is the Award revocation, but not for its setting aside, what corresponds to Art.
1068(1) DCCP.119 Therefore, at the preliminary stage The Appellate Court acknowledged the Claimants
objections to the Russia’s assertions well-founded and did not address them in its Decision.120
The Russian Federation, in support of its assertion, also referred to the “unclean hands” argument, according to which the enforcement of The Yukos Awards would violate public policy in view of the alleged fraud, corruption and other illegal acts committed by the key figures involved in the process. According to The Appellate Court, Russia failed to prove the connection between the abovementioned illegalities and the
investment activities of three former Yukos shareholders.121 Additionally, The Appellate Court stated the
irrelevance of the alleged illegal acts asserted by The Russian Federation to the possible protection under the
ECT invoked by the Claimants.122
To sum up, The Appellate Court, after consideration of the arguments raised before it by The Russian Federation’s representatives, did not find sufficient legal grounds that would confirm the alleged violations of
113 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 8.6.5 114 Ibid, para. 8.6.5
115 Ibid, para. 9.1.1 116 Ibid, para. 9.1.5
117 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 9.3.2 118 Ibid, para. 9.4.1
119 HVY v Russia, Ruling of The Court of Appeal in The Hague, 25 September 2018, para. 5.6 120 Ibid, para. 5.8
121 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 9.8.5 122 Ibid, para. 9.8.7
public policy or good morals by The Claimants, Mr. Khodorkovsky et al. Therefore, it refused to quash The
Yukos Awards.123
In its final conclusion, The Appellate Court found the former Yukos shareholders’ grounds invoked persuasive and affirmed them partially successful in respect of The Tribunal’s jurisdiction. At the same time, The Court defined the grounds invoked by The Russian Federation as insufficient to set aside The Yukos
Awards.124 Therefore, The Appellate Court quashed The Judgement of The District Court.125
3.5. Cassation in The Supreme Court of the Netherlands: potential outcome
With respect to the legal perspectives on the outcome of the dispute, it appears essential to address some international legal experts expressed their positions on the Case. Even though on 15 May 2020 The Russian Federation applied a cassation appeal to the Supreme Court of the Netherlands (hereinafter – The Supreme Court), according to Mr. Stan Putter, a Partner of one of the leading Dutch Law Firms – “CONWAY Advocaten and Attorneys-at-law”, The Supreme Court’s considerations will be limited by the legal aspects and objections concerned with insufficient reasoning of The Appellate Court. In his view, “the benchmark may entail that The Supreme Court will only address the issue whether The Appellate Court estimated the
quashing grounds that Russia referred to while using the correct decision standard”.126 Therefore, from the
point of view of “CONWAY Advocaten and Attorneys-at-law”, the former Yukos shareholders are expected
to win in The Supreme Court.127
Another prominent comment is proposed by Matthew Guarnaccia, a reporter of the legal news service “Law360”, according to which the Paris Tribunal de Grande Instance ordered not to release certain Russian assets and dismissed The Russian Federation’s request based on the assertion that the enforcement proceedings are subject to be affected by the judgement of the District Court of The Hague quashed the Yukos
awards”.128129
3.6. Preliminary conclusion
One of the most striking features in the Courts’ findings is the opposite conclusions on the same facts and circumstances. At the same time, each judicial body applied a comprehensive approach and provided a deep assessment of relevant facts and legal provisions, reflected in the invocation of the international law rules of interpretation, numerous experts’ opinions, resorting to legal doctrines not only on the international, but also on the national level.
I personally incline to the PCA’s reasoning and, consequently, to its decisions at the jurisdictional and merits stages. Rationales underlying the issues considered are presented in the following part of my research.
123 Unofficial translation: HVY v Russia, The Appellate Court of The Hague, Judgement of 18 February 2020, para. 9.9.1 124 Ibid, para. 10.1
125 Ibid, para. 10.3
126 Conway & Partners' Dutch Arbitration Newsletter, The Hague Court of The Hague Reinstates USD 50 billion Yukos awards 127 Conway & Partners' Dutch Arbitration Newsletter, The Hague Court of The Hague Reinstates USD 50 billion Yukos awards 128 Decision of the Tribunal de Grande Instance d'Evry (French), 10 February 2017
129 Matthew Guarnaccia, Law360,
