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Hulley Enterprises Ltd. (Cyprus) v. Russian Federation, Yukos Universal Ltd. (Isle of Man) v. Russian Federation, Veteran Petroleum Ltd. (Cyprus) v. Russian Federation
Published online by Cambridge University Press: 20 January 2017
Extract
On July 18, 2014, the Arbitral Tribunal (Tribunal) constituted in accordance with Article 26 of the Energy Charter Treaty (ECT) and the 1976 UNCITRAL Arbitration Rules under the auspices of the Permanent Court of Arbitration issued its long-awaited final awards in the famous arbitral proceeding related to the demise of oil giant Yukos. The Tribunal held unanimously that a coordinated set of actions by the Russian government (including arrests, tax reassessments, fines, and the forced sale of Yukos) amounted to an indirect expropriation of Yukosin breach of Russia’s obligations under the ECT, and that Russia was liable to pay prompt, adequate, and effective compensation for that breach. The Tribunal concluded that Yukos’s claims were not barred by the company’s own illegal acts or because of the “carve-out” for taxation measures under Article 21 of the ECT. Instead, the Tribunal concluded that the claimants had contributed to the prejudice they suffered and it therefore reduced the awards and reimbursement for legal costs by 25 percent. Even accounting for this reduction, the composite final award is still, by far, the largest known arbitral award ever rendered. The Tribunal ordered the Russian Federation to pay damages totaling US$50,020,867,798, in addition to arbitral and legal costs. Post-award interest is due on any outstanding amounts of damages and costs not paid starting from January 15, 2015, and is to be compounded annually thereafter.
Keywords
- Type
- International Decisions
- Information
- Copyright
- Copyright © American Society of International Law 2015
References
1 Energy Charter Treaty, Art. 26, opened for signature Dec. 17, 1994, 2080 UNTS 95, 34 ILM 360 (1995).
2 United Nations Commission on International Trade Law, UNCITRAL Arbitration Rules, Apr. 28, 1976,15 ILM 701 (1976), available at http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf.
3 Hulley Enters. Ltd. (Cyprus) v. Russian Fed’n, PCA Case No. AA 226 (Ad Hoc Arb. Trib. July 18, 2014); Yukos Universal Ltd. (Isle of Man) v. Russian Fed’n, PCA Case No. AA 227 (Ad Hoc Arb. Trib. July 18, 2014); Veteran Petroleum Ltd.(Cyprus)v.Russian Fed’n, PCA Case No.AA 228(Ad Hoc Arb.Trib.July 18, 2014)[hereinafter Final Awards],all at http://www.pca-cpa.org. The awards, which are nearly identical, will be cited hereinafter as one.
4 Hulley Enters. Ltd. (Cyprus) v. Russian Fed’n, PCA Case No. AA 226, Jurisdiction and Admissibility (Ad Hoc Arb. Trib. Nov. 30, 2009); Yukos Universal Ltd. (Isle of Man)v.Russian Fed’n, PCA Case No.AA 227, Jurisdiction and Admissibility (Ad Hoc Arb. Trib. Nov. 30, 2009); Veteran Petroleum Ltd. (Cyprus) v. Russian Fed’n, PCA Case No.AA 228, Jurisdiction and Admissibility (Ad Hoc Arb. Trib. Nov. 30, 2009),all at http://www.pca-cpa.org.
5 On the jurisdictional decision, see Chiara Giorgetti, The Yukos Interim Awards on Jurisdiction and Admissibility Confirms Provisional Application of Energy Charter Treaty, ASIL Insight (Aug. 3, 2010), at http://www.asil.org.
6 The ECT, supra note 1, Article 10(1) (Promotion, Protection and Treatment of Investments) provides in pertinent part:
Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment.
Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations.
7 Id., Article 13(1) (Expropriation) provides in part:
Investments of Investors of a Contracting Party in the Area of any other Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as “Expropriation”) except where such Expropriation is:
- (a)
(a) for a purpose which is in the public interest;
- (b)
(b) not discriminatory;
- (c)
(c) carried out under due process of law; and
- (d)
(d) accompanied by the payment of prompt, adequate and effective compensation.
Such compensation shall amount to the fair market value of the Investment expropriated at the time immediately before the Expropriation or impending Expropriation became known in such a way as to affect the value of the Investment (hereinafter referred to as the “Valuation Date”).
8 OAO Neftyanaya Kompaniya Yukos v. Russia, App. No. 14902/04, Merits (Eur. Ct. H.R. Sept. 20, 2011); see also OAO Neftyanaya Kompaniya Yukos v. Russia, App. No. 14902/04, Just Satisfaction (Eur. Ct. H.R. July 31, 2014). Judgments of the European Court of Human Rights cited herein are available at http://hudoc.echr.coe.int.
9 See also Final Awards, paras. 795, 815, 820.
10 See also id., para. 1037.
11 Quoting President of Russia, Press Conference with Russian and Foreign Media (Dec. 23, 2004), at http://www.en.kremlin.ru/events/president/transcripts/22757.
12 On the related issue of the importance of unilateral governmental statements in international investment law, see Reisman, W. Michael & Arsanjani, Mahnoush H., The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes, 19 ICSID Rev. 328 (2004)CrossRefGoogle Scholar.
13 Agreement for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital, Cyprus Russ., Dec. 5, 1998, Cyprus Official Gazette No. 3306, Feb. 26, 1999, at 87, available at http://www.mof.gov.cy/mof/taxdep.nsf/ (follow hyperlink “Double Taxation Agreements”).
14 In particular, see Kardassopoulous v. Republic of Geor., ICSID Case Nos. ARB/05/18, ARB/07/15 (Mar. 3, 2010), at http://www.italaw.com (also interpreting the ECT), cited in Final Awards, para. 1769.
15 The events that resulted in the expropriation of Yukos were at the center of several international proceedings in diverse forums. The Yukos Tribunal specifically analyzed the decisions of the European Court of Human Rights in OAO Neftyanaya Kompaniya Yukos v. Russia, supra note 8, Merits; Quasar de Valores SICAV S.A. v. Russian Fed’n, Award (Stockholm Ch. Comm. [SCC] July 20, 2012), at http://www.italaw.com [hereinafter Quasar ]; RosInvestCo UK Ltd. v. Russian Fed’n, SCC No. V (079/2005), Final Award (SCC Sept. 12, 2010), at http://www.italaw.com.
16 For example, the Tribunal noted that its findings were consistent with those of the RosInvestCo and Quasar tribunals, which found many aspects of the YNG auction “more than suspect” and concluded that “the auction of YNG was rigged.” Final Awards, para. 986 (quoting Quasar, supra note 15, para. 116, and RosInvestCo, supra note 15, para. 620(d), respectively); see also id., paras. 1181, 699–700 (referring to RosInvestCo and Quasar, and quoting OAO Neftyanaya Kompaniya Yukos, supra note 8, Merits, paras. 601–02, respectively).
17 See Giorgetti, Chiara, Horizontal and Vertical Relationships of International Courts and Tribunals—How Do We Address Their Competing Jurisdiction?, 30 ICSID Rev. 98 (2015)CrossRefGoogle Scholar.