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Yukos Award – Is There a Chance for a Successful Challenge?


Is an appeal really possible in this case? And, if not, what other options are available for the Russian Federation? Russia’s leading newspaper Kommersant has leaked Russia’s intentions and the grounds it can use to resist the award.

This article aims to find out which legal recourse can be used by the Russian Federation and whether it has chances of success.

Can Russia Appeal the Award?

The possibility of the revision of an arbitral award is generally governed by the law of the seat of the arbitration, applicable arbitration rules and international treaties. In this case none of these seem to offer such an opportunity to the parties.

As the Yukos arbitration proceedings took place in The Hague, such questions would be governed by Dutch law. Despite the ongoing reform of Dutch arbitration law, currently these issues are still governed by Book Four of the Dutch Code of Civil Procedure 1986 (hereinafter the “CPC”).  CPC Article 1050(1) limits the possibility of an appeal only to those cases where the parties have agreed to it.

In investment arbitration the parties’ agreement for such a procedure can be found either in the applicable arbitration rules or applicable investment treaty or convention.

As the claimants filed the request for arbitration under Article 26(4)(b) of the Energy Charter Treaty, in this case it would be the UNCITRAL Arbitration Rules 1976. Article 32(2) of the rules states that the award “shall be final and binding on the parties”, leaving no space for an appeal.

A similar provision can be found in the dispute resolution part of the Energy Charter Treaty. Under Article 26(8) the award of the arbitral tribunal is final and binding.

However, this does not actually mean that Russia has no recourse in this case. It can still challenge it in the Dutch courts but on different grounds.

Challenging the Award

Article 1064(1) of the Dutch CPC names challenge of the award in courts as the only possible recourse against the final arbitral award. The law provides only a limited number of grounds that can possibly lead to a successful challenge. They include the following:

–      absence of a valid arbitration agreement;

–      violation of rules during the constitution of the arbitral tribunal;

–      non-completion of the arbitral tribunal in respect of its mandate;

–      mistakes in the form of the award (e.g. it was not signed or does not state reasons for such a decision); and

–      the award, or the manner in which it was made, violates public policy or good morals.

Shortly after the publication of the award Kommersant, a major Russian newspaper, published an article revealing, based on its own sources of information, possible grounds for challenge, which Russia might rely upon.  This leak also stated that Russia will particularly try to prove that the award contradicts “public policy and good morals”.

Violation of a Precondition?

According to Kommersant Russia will allege that the arbitral tribunal had deliberately (calling it “a waste of time”) ignored the provision of an article of the Energy Charter Treaty, which states that tax disputes should be initially referred to the Competent Tax Authorities of the contracting states.

This seems to be a reference to Art. 21(5)(b)(i) of the Treaty. This Article does indeed say that if the investor alleges expropriation which resulted from a state’s taxation measures, he should preliminarily refer the case to the competent taxation authorities, which would have six months to resolve the dispute.

In this case it would be extremely important to determine whether the requirement of Article 21 should be interpreted as a precondition for arbitration or a mere procedural issue. In the first situation the courts may follow the logic of the US case Republic of Argentina v. BG Group plc, in which the American appellate court annulled the award because the parties had failed to fulfil a similar requirement.

However, this seems to be very unlikely as in the vast majority of the cases the courts come to the opposite conclusion. For instance, the US Supreme Court has recently vacated the above mentioned decision in the BG Group case.

Violation of Principle of Procedural Fairness?

Furthermore, Kommersant shows that Russia also intends to use the fact that the members of the tribunal, while acknowledging that they were not competent in the questions of Russian tax law, refused to hear experts on this issue. Moreover, the tribunal allegedly failed to take into account the decisions of the European Court of Human Rights from 2011 on the similar actions of the Yukos shareholders.

This would be the issue of procedural fairness. In extreme cases non-admission of an expert or evidence can be interpreted as a violation of this principle and lead to the annulment of the award.

However, in most situations courts have acknowledged the right of tribunals to excercise a significant degree of discretion in determining the admissibility and relevance of the evidence.

For instance, in a similar case C v. Dr. Vladimir, the Austrian Supreme Court stated that “It does not amount to a violation of the right to be heard if requests for the taking of evidence were not granted”.

In addition, the Russian side also disagrees with the method used to quantify damages. This, however, can be only regarded as a matter of merits and, therefore, cannot be revised by the Dutch courts.

Possible Course of Events

There is no chance for appeal on the merits in this case. However, this does not exclude challenging the entire award on other grounds which the Russian side will definitely attempt in the Dutch courts. As the post shows, this measure will most likely fail.

The failure of the challenge also does not mean that Russia is left without any further options. Even after it, the country can still refuse to enforce the award. This would lead to a series of complex litigation procedures in various jurisdictions, in which the claimants will try to enforce the award against the Russian state’s assets.

Ivan Philippov

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