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Published online by Cambridge University Press: 15 September 2015
Yukos conducted its sales through a network of companies registered in a number of low-tax regions in Russia. Following tax investigation, Russian authorities found it had underpaid taxes and held it liable for unpaid taxes, fines, and penalties of USD 24.18 billion. The tax investigations were accompanied by criminal proceedings against and the subsequent imprisonment of some of Yukos's senior management. Following Yukos's unsuccessful attempts to settle its tax debt, the Russian tax authorities sold its core production facility, YNG, in order to satisfy their tax payment demands. YNG was eventually acquired by the state-owned Rosneft. Yukos then went into bankruptcy, with the Russian State owning 97.67 per cent of the claims against it and receiving 99.71 per cent of the bankruptcy proceeds.
Case Summaries: International Investment Law
The following summaries provide a brief factual background and describe the key findings of recent cases settling disputes about international investment.
This note focuses on the three identical awards (jointly referred to in this note as the ‘Awards’) brought by the respective shareholders of Yukos: Hulley Enterprises Limited (Cyprus) v. Russian Federation, Final Award of 18 July 2015, PCA Case No. AA 226; Yukos Universal Limited(Isle of Man) v. The Russian Federation, Final Award of 18 July 2014, PCA Case No. AA 227; Veteran Petroleum Limited (Cyprus) v. Russian Federation, Final Award of 18 July 2014, PCA Case No. AA 228.
2 Awards paras. 1585 and 1888. Even though at the time the Yukos arbitration proceedings were commenced, Russia was applying the ECT only provisionally and in 2009 withdrew from the Treaty completely, in separate awards on jurisdiction the tribunal found that it could face international responsibility on the basis of the ECT provisions; see Hulley Enterprises Limited (Cyprus) v. Russian Federation, Interim Award on Jurisdiction and Admissibility of 30 November 2009, PCA Case No. AA 226; Yukos Universal Limited (Isle of Man) v. The Russian Federation, Interim Award on Jurisdiction and Admissibility of 30 November 2009, PCA Case No. AA 227; Veteran Petroleum Limited (Cyprus) v. Russian Federation, Interim Award on Jurisdiction and Admissibility of 30 November 2009, PCA Case No. AA 228.
3 Awards paras. 1827 and 1688–1689. In the proceedings before the European Court of Human Rights, Russia was also found in breach of the European Convention on Human Rights, Article 6 (right to a fair trial) and Article 1 of Protocol No. 1 (protection of property). In particular, the Court held that, given the pace of the enforcement proceedings and the obligation to pay the full enforcement fee and the authorities’ failure to take proper account of the consequences of their actions, the Russian authorities had failed to strike a fair balance between the legitimate aims sought and the measures employed; See Case of OAO Neftyanaya Kompaniya Yukos v. Russia (Application no. 14902/04), Judgment of 20 September 2011 at para. 658. Where the Courts’ decision differs most strikingly from the Awards is in the assessment of the damage Yukos sustained as a result of Russia's breaches of international law. In its judgment on just satisfaction, the Court focused on the damages caused by several violations of the Convention, noting that it was not able to establish a causal link between the overall disproportionate nature of the enforcement proceedings and the liquidation of Yukos. Consequently, according to the European Court of Human Rights, Yukos damage was assessed only at EUR 1,866,104,634; See Case of OAO Neftyanaya Kompaniya Yukos v. Russia, (Application no. 14902/04), Judgment (just satisfaction) of 24 June 2014 at paras. 27–36.
4 Awards, para. 756.
5 Awards, para. 678.
6 Awards, paras. 718 and 733–744.
7 Awards, paras. 975–980.
8 Awards, para. 820.
9 Awards, paras. 1020–1022.
10 Awards, paras. 1179–1180.
11 Awards, para. 1633.
12 Awards, para. 1637.
13 Awards, para. 1585.
14 Awards , paras. 1352 and 1373.
15 Awards, para. 1370.
16 Ibid.
17 Awards, para. 1354.
18 Awards, paras. 756 and 1430.
19 Awards, para. 1416.
20 Awards, para. 1421.