FAQs

In addition to the Yukos cases described in the Library, what are the other Yukos hearings, that relate to the “Yukos Affair”?

Apart from the various cases, brought by Rosneft against Yukos Oil Company, subsidiaries in Holland [see Yukos in The Netherlands section] have been forced to undertake against Promnefstroy, Rosneft or Mr Eduard Rebgun in the Netherlands [see Yukos in The Netherlands section]. In other juridictions, e.g. the United Kingdon, there are cases brought against Yukos Oil Company and its subsidiaries.

Does Yukos have any claims in The Hague or via Bilateral Investment Treaties?

No. Yukos only has a claim in the European Court of Human Rights [see ECtHR section]. The former majority shareholders of Yukos Oil Company have initiated legal processes under the Energy Charter Treaty (ECT) and former minority shareholders have made two claims under Bilateral Investment Treaties – the UK-USSR BIT and the Spanish-USSR BIT. The claim under the Energy Charter Treaty (ECT) is an arbitration, initiated by the Yukos majority shareholders, who accuse the Russian Federation of unlawful expropriation of their investments by imposing a series of tax claims on Yukos and forcing the sale of the company’s production units at a fraction of their value. The Yukos majority shareholders are seeking $100 billion in compensation.

Energy Charter Treaty (ECT) is an international agreement that obliges Russia to provide equal legal protection for energy investors. Russian Federation signed the treaty but never ratified it. However, when the treaty was signed, Russia pledged to abide by the Treaty’s terms provisionally. On 19 October 2009, Russia withdrew from the ECT, but a there is a provision in the Treaty, which requires Russia to continue to uphold property rights in the oil and gas sector for 20 years after withdrawing from it.

On 30 November 2009, The Hague Arbitral Tribunal ruled that the Russian Federation is bound by the ECT and that the Yukos shareholders are entitle to protection under the Treaty.

Arbitration proceeding under two Bilateral Investment Treaties – the UK-USSR BIT and the Spanish-USSR BIT - are brought by the minority shareholders of Yukos. Two of the minority shareholders have separate arbitrations before the Stockholm Chamber of Commerce. In September 2010, the Stockholm arbitration tribunal ruled that Russia breached the terms of a BIT between the UK and Russian Federation and obliged it to pay $3.5 million in compensation to Yukos minority shareholder RosInvestCo UK Ltd.

However, the Energy Charter Treaty and Bilateral Investment Treaty proceedings are not relevant to the current application before the ECtHR, because:

The parties are not the same. The parties to Energy Charter Treaty arbitrations are three former shareholders in Yukos who together had a majority shareholding in Yukos. Similarly, the BIT claimants are former shareholders. Each party claims, as foreigners, that their investment in Yukos was damaged. However the interests and rights of a company and its shareholders are distinct and separate from one another.
The subject matter is not the same. Yukos claims to be a victim of the violation of its rights under the the Convention because of:
1. Unfair tax proceedings;
2. Unlawful, arbitrary and discriminatory tax assessments;
3. Freezing of its assets;
4. Expropriation of YNG, and
5. The retrospective application of criminal offences, the scope of which could not be foreseen.
These are in direct contravention of the Convention, and therefore the violations cannot be raised in any other jurisdiction.

There is no other known legal or natural person who can complain that it was the direct victim of these events and matters. Therefore, Yukos (alone) is able to ‘claim to be a victim’ in this respect under Article 34 of the Convention.
The Energy Charter Treaty and Bilateral Investment Treaty arbitration proceedings are being conducted before ad hoc tribunals, constituted by the parties. These tribunals are not comparable to the ECtHR in their structure, permanence or authority.
Yukos’ application under the Convention was made substantially before any of the other claims

Who brought the case before the European Court of Human Rights, if Yukos no longer exists under Russian law?

As part of the admissibility process for the European Court of Human Rights, (ECtHR), the Russian authorities argued that the Court no longer had jurisdiction, because Yukos Oil Company, as a consequence of the bankruptcy, no longer existed. Mr Rebgun had accordingly attempted to dismiss Yukos’ representative before the ECtHR. The Court however rejected this defence and said:

The Court notes that the various alleged breaches of Articles 6, 7, 13, 14, and 18 of the Conventions and Article 1 Protocol No 1 in the present case concern the tax assessment and enforcement proceedings in respect of the applicant company which eventually resulted in its bankruptcy and ceasing to exist as a legal person. Striking the applicant out of the list under such circumstances would undermine the very essence of the right of individual applications by legal persons, as it would encourage governments to deprive such entities of the possibility to pursue an application lodged at a time when they enjoyed legal personality.

Beyond this legal step, practical steps were carefully put in place to ensure that the application could be maintained.

Yukos owned three direct, first tier, wholly owned subsidiaries registered outside Russia: Yukos UK Limited, Yukos CIS Investments Limited and Yukos Finance BV. Before Yukos was declared bankrupt under Russian law, Yukos, its CEO and deputy CEO and these three first tier subsidiaries lodged an application with the ECtHR (Application No 37165/06: the July Application) to continue support and protect Yukos’ existing application.

Of these subsidiaries, Yukos Finance BV is of particular significance. It indirectly owned, through subsidiaries, two very important investments in strategic foreign assets, namely major shareholdings in an oil refinery in Lithuania and an oil pipeline in Slovakia. As a result, Yukos Finance BV has been the focus for major litigation brought by Mr Rebgun, Rosneft and a former Rosneft subsidiary, which claims to have bought the shares in Yukos Finance BV from Mr Rebgun in the auctions held in the spurious Russian bankruptcy.

As a result of the decisions of the Dutch courts (which have refused to recognise the spurious Russian bankruptcy, on the grounds that it does not withstand the test of scrutiny because of unfairness) the Dutch assets have been protected from the spurious Russian bankruptcy. The relevant strategic investments were, then, sold in fair market arms-length transactions, and the proceedings are held under the control of the Dutch courts.

Yukos Finance BV also had shares in a wholly owned Dutch subsidiary, Yukos International (UK) BV.

In order to further protect these assets from the impending spurious Russian bankruptcy,Yukos decided, before the bankruptcy began, to transfer these shares in Yukos International (UK) BV to a protective foundation created under Dutch law, Stichting Administratiekantoor Yukos International (Stichting I) against the issue of depository receipts. A similar arrangement was undertaken in respect of the shares in the Dutch subsidiary of Yukos CIS Investments Ltd, through the creation of Stichting Administratiekantoor Financial Performance Holdings (Stichting II). Stichting I and II are themselves applicants in Application No 16887/08, which is again an application submitted in support of the main Yukos application.

Both Stichting I and II were created with the object of, in summary, the payment of creditors of Yukos, the representation and protection of the interest of Yukos including as ‘benevolent intervener’ (pursuant to Section 6:198 of the Dutch Civil Code) the maintenance of proceedings, including before the ECtHR, with a view to striving ‘for distribution of any funds received by it and to be received through a scheme to shareholders of Yukos Oil Company in accordance with applicable law and principles of reasonableness and fairness’.

Both Stichting I and II were therefore created by Yukos to ensure that, notwithstanding the dissolution of Yukos as a matter of Russian law, there are two proper legal vehicles (namely Stichting I and II), both created in a jurisdiction where the spurious Russian bankruptcy has not been recognised, which are able to receive an award of just satisfaction if one is made to Yukos by the ECtHR, and distribute it, under the appropriate judicial supervision, to the ultimate stakeholders in Yukos in the way in which a lawful and fair distribution on liquidation should occur.

Thus Stichting I and II represent a legitimate mechanism whereby an award under Article 41 of the Convention can be administered, notwithstanding the eradication of Yukos under domestic Russian law.

Q&A on the Amsterdam Appeals Court 19 October 2010 Judgement

On 19 October 2010, the Amsterdam Appeals Court ruled that Promneftstroy had not become a shareholder in Yukos Finance B.V., rejecting the Russian bankruptcy trustee’s claim that Promneftstroy had acquired shares in an auction held by the Russian administrator.

What is the background to this appeal decision?
This particular legal fight is essentially about who is entitled to the shares in Yukos Finance. Yukos Finance was a 100% owned Dutch subsidiary of Yukos Oil Company (Yukos). As part of his role as receiver in the (sham) Russian bankruptcy proceedings for Yukos, Eduard Rebgun announced in early August 2006 that he intended to replace the existing management of Yukos Finance, David Godfrey and Bruce Misamore, with individuals of his own choosing.

In response, Yukos Finance, as well as Godfrey and Misamore, began legal proceedings in Amsterdam to establish that Rebgun did not have the authority to replace management of Yukos Finance. They argued (amongst other points) that (i) the territoriality principle in Dutch international insolvency law prevented a foreign trustee from exercising his authority based on Russian bankruptcy law in the Netherlands (including voting on shares in a Dutch company) and (ii) the Russian bankruptcy was spurious and contrary to Dutch public policy, and as such should not be recognized by the Dutch courts.

After a series of written briefs and a hearing, the Amsterdam District Court ultimately delivered a decision on 31 October 2007, in favour of the original management of Yukos Finance. The Court held that:

... the course of events as represented hereinbefore can only lead to the conclusion that the way in which the additional tax assessment owed by Yukos Oil, and the size thereof, was assessed by first the Russian Tax Authorities and subsequently by the tax court cannot stand the test of criticism. … The conclusion must … be that in the course of the determination of the tax it owed to the Russian State and the extent thereof, Yukos Oil was deprived of a fair trial.

The above leads to the conclusion that the Russian bankruptcy order in which Rebgun was appointed receiver in the bankruptcy of Yukos Oil was effected in a manner not in accordance with the Dutch principles of due order of process and is thus in violation of Dutch public order. For that reason, the bankruptcy order cannot be recognized and the receiver’s powers that ensue from it under Russian law cannot be exercised by Rebgun in the Netherlands.

This was a significant victory, and further acknowledgement of the fact that the tax proceedings and subsequent bankruptcy of Yukos, as the Dutch Court stated, could not stand the test of criticism.

It should be noted that simultaneous with these proceedings, other proceedings took place for immediate relief. Those proceedings, which were summary proceedings, had ended in a decision of the Dutch Supreme Court wherein the Dutch Supreme Court had decided that the territoriality principle is not an impediment for a foreign trustee to vote on shares in a Dutch company, provided certain circumstances are met (no prejudice of creditors).
What were the grounds of the appeal?
The grounds for the appeal covered the Russian judgment that declared Yukos bankrupt, and appointed Rebgun as receiver, and concerned the degree to which they were eligible for review by the Dutch court, and the consequences that the Dutch court may attach to such a review. Furthermore, the grounds of appeal also contested other positions taken by Yukos Finance, Godfrey and Misamore, including their interpretation of the territoriality principle.
Promneftstroy was not a part of the District Court decision, but feature in the Appeal Court decision. Who are Promneftstroy? What is their involvement?
Promneftstroy is a Russian investment company and former subsidiary of Rosneft, the oil giant owned by the Russian government. They were accepted as an ‘interested party’ to the proceedings because after the final oral hearing at the District Court, but before the Court’s 31 October 2007 judgment, Rebgun sold to them the shareholding of Yukos Finance at a bankruptcy auction in Russia.

Promneftstroy argued that, despite the 31 October 2007 judgment, this transfer to them of shares in Yukos Finance was valid.

Promneftstroy also joined Rebgun in arguing that the dismissal of Godfrey and Misamore, and the appointment of new directors, was legally valid.

As a result of Promneftstroy joining the appeal, the Court of Appeal was explicitly asked to answer the question whether or not Promneftstroy had indeed become a shareholder of Yukos Finance – a question that, for the reasons described above – had not been at issue in first instance.
Promneftstroy were basically kicked out of the Appeal. Why?
Promneftstroy’s claims were primarily rejected based on the legal notion of territoriality – that is, the question of to what extent one country’s authority can be enforced in another country.

The Yukos Finance shares that (formerly) belonged to Yukos Oil are situated (and were situated at the time of the auction by Rebgun) in the Netherlands. The court held that, in pursuance of the principle of territoriality, the Russian bankruptcy attachment on the assets of Yukos Oil had not become incumbent on those shares.

The Appeal Court ruled that, although the territoriality accepted in Dutch law for the foreign appointed receiver does not constitute an “absolute impediment” to exercising acts of administration and disposition with respect to the assets located in the Netherlands:

...such exercise of powers may not extend so far that Rebgun may liquidate these assets as receiver in order to distribute the proceeds thereof to the creditors recognised in the Russian bankruptcy. After all, doing so would achieve that assets which do not fall under the bankruptcy attachment according to Dutch law, to nonetheless be involved in the liquidation of the estate through their sale, so that the bankruptcy attachment achieves a wider scope than the principle of territoriality allows with respect to the assets present in the Netherlands.

Promneftstroy also argued that it should be protected as an “acquirer in good faith”. The Court held, however, that Promneftstroy was already aware of the risk that it would be established in Dutch proceedings that it did not validly acquire the shares at the time of the purchase of the Yukos Finance shares.
With regards to the other issues at stake – why did the Court defer its decision?
The decision on the other issues was deferred because, quite simply, the same matters at the time was being considered by the European Court of Human Rights (ECtHR). The ECtHR is the highest authority on the application and interpretation of the European Convention on Human Rights (ECHR), and Yukos Finance, Godfrey and Misamore had argued that the Russian bankruptcy of Yukos Oil Company was in violation of several sections of the ECHR – which has to be applied also by the Dutch courts. Yukos Finance, David Godfrey and Bruce Misamore, the directors of Yukos Finance, specifically requested that the decision here be deferred in order to await the ECtHR’s judgment on the merits.

The Appeal Court agreed, stating that “there is virtually no difference between the factual basis on which the ECtHR will decide and the facts that may be deemed uncontested in the matters at hand.”