Yukos Capital S.a.r.l. Obtains Security from Rosneft to Discharge Freezing Order

Russian state oil company Rosneft has provided a mutually agreed security, in order to discharge a £425m freezing order of the English High Court obtained by Yukos Capital S.a.r.l (Yukos Capital) in March relating to unpaid Rosneft debt obligations.

Yukos Capital, an indirect former subsidiary of the now dissolved Yukos Oil Company, has been seeking to enforce arbitration awards against Rosneft it obtained in 2006. The commercial awards relate to loans Yukos Capital made to Yuganskneftegaz (YNG) in 2004, which were subsequently defaulted on. YNG had been Yukos Oil Company’s principal production subsidiary, but it was acquired by Rosneft in a highly questionable forced auction in 2004, and then merged into Rosneft. The YNG auction was the first in a number of actions taken by the Russian Federation against Yukos Oil Company in what is generally regarded as the largest expropriation in history.

The freezing order granted by Mr. Justice David Steel on 11 March 2010 extended beyond Rosneft to affiliated special purpose vehicles forming part of its trade finance structure. The order caught not only assets within the jurisdiction but trade debts cited in England. Corresponding orders were obtained in New York, Ireland and Jersey (where the Rosneft affiliates were incorporated).

All this had the combined effect of trapping substantial Rosneft assets. Yukos Capital argued that any judgment it obtained would be essentially unenforceable without the injunctive relief of a freeze.