High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. Through inflated tax claims, the ruling said, senior officials set out to destroy Russia’s then biggest oil company, transfer its assets to a state-controlled competitor – Rosneft – and put Mr Khodorkovsky in jail.
“The tribunal confirmed what the [Yukos shareholders] have been saying all along,” said Tim Osborne, director of GML, the Yukos holding company. One Russian tycoon said the decision was “good, and something like this needed to happen”. “I don’t like Khodorkovsky, and he did many bad things. But their way of dealing with him was completely illegal,” the tycoon said.
The ruling by the Permanent Court of Arbitration in The Hague was, moreover, the unanimous opinion of three judges. One, Stephen Schwebel, former president of the International Court of Justice, was appointed by Russia. But Moscow will almost certainly see it as having political overtones, a day before the EU and US were set to impose tougher sanctions against Russia over its interference in Ukraine. Deteriorating relations with the west may also make it even less likely that Moscow will pay out damages worth about 2.5 per cent of economic output.
Just six months ago, say legal experts, Russia still seemed interested in being part of international “clubs” like the Organisation for Economic Co-operation and Development, the group of mainly rich countries. As the Ukraine crisis worsens, protecting its international reputation no longer seems a priority. “If one were to be quite cynical, I think the reputational consequences for Russia [of not paying] will be very limited indeed, because they have already been through a lot of things,” said Loukas Mistelis, director of the School of International Arbitration at Queen Mary University of London. “I think they would be prepared to take quite a bit of risk.”
Though Russia cannot appeal against the award, Moscow said it would pursue all legal avenues for trying to get it “set aside”. It can try to argue in a Dutch national court that – contrary to the tribunal’s findings – it was not bound by the Energy Charter Treaty, the agreement regulating cross-border energy business which Russia signed but never ratified, and withdrew from in 2009. Even if the ruling stands, shareholders face a tortuous battle trying to enforce it.
If Moscow refuses to pay, they must pursue Russian sovereign commercial assets in the 150 countries that are party to the so-called 1958 New York Convention on enforcing arbitration awards. Franz Sedelmayer, a German who set up a security business in St Petersburg in the 1990s – when Vladimir Putin was the city’s deputy mayor – won the first investment arbitration case against Russia. The panel ruled some of his assets were illegally expropriated by order of Moscow. “I’m quite optimistic that anyone who gets a sizeable judgment against Russia will be able to prevail, eventually. But it’s a rocky road,” Mr Sedelmayer told the Financial Times. “I was dispossessed . . . 20 years ago, and I’m still on the case.”
Mr Sedelmayer has won cases to auction off assets such as former Russian trade missions buildings in Sweden and Germany, but added he had faced numerous Russian attempts to discredit and block him. Key to success for the Yukos shareholders, he said, would be persuading courts that assets of Russian state-controlled companies – even if not 100 per cent state-owned – could be seized to pay off the state’s debt to the claimants.
Courts took varying views on that issue in different countries, he said. Emmanuel Gaillard of Shearman & Sterling, which represented the Yukos claimants, said he was confident of eventually “piercing the veil” around assets of Russian state companies such as Rosneft, the oil company, and the natural gas monopoly, Gazprom.
He added that the principle that state-controlled businesses could be a kind of proxy for the state was already inherent in sanctions over Ukraine against companies such as Rosneft – which has been targeted by the US. But if Russian state businesses find themselves hit both by western sanctions and attempts to seize assets by Yukos shareholders, relations between the Kremlin and the west could sour further.
One person close to Mr Putin said the Yukos ruling was insignificant in light of the bigger geopolitical stand-off over Ukraine. “There is a war coming in Europe,” he said. “Do you really think this matters?”