Yukos Capital SARL

In 2003 and 2004, Yukos Capital, a Luxembourg finance company that was part of the Yukos group, granted four loans to Yuganskneftegaz (YNG) then a full subsidiary of Yukos Oil Company. As is discussed above, YNG was subsequently sold in a highly controversial auction, and eventually came under the control of the Russian state oil company Rosneft. YNG then defaulted on repayment of the loans from Yukos Capital.

To address this default, in December 2005 Yukos Capital started arbitration proceedings with the International Court of Commercial Arbitration of the Moscow Chamber of Commerce, claiming repayment of the loans with interest. In four arbitral awards (one for each loan agreement) dated 19 September 2006, the arbitral tribunal awarded most of Yukos Capital’s claims.

When Yukos Capital subsequently commenced enforcement action in the Netherlands, Rosneft applied to the Russian state courts to have the arbitral awards set aside. On 18 and 23 May 2007, the Moscow Arbitrazh Court set aside the awards and its decisions were upheld at two levels of appeal by the courts of the Russian Federation.

Rosneft then argued in the enforcement action in the Netherlands that leave to enforce should be denied because the awards had been set aside by the Russian courts. Rosneft argued that Article V of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards to which both the Netherlands and the Russian Federation are a party and which was the basis of Yukos Capital's request for leave for enforcement, provides that recognition and enforcement may be refused at the request of the party against whom the award is invoked, if that party furnishes proof that it has been set aside by a competent authority of the country in which the award was made.

When Rosneft invoked this provision – based of the ruling on the Moscow Arbitrazh Court – Yukos Capital did not dispute that the awards had been set aside or that the Russian courts had jurisdiction to do so. However, Yukos Capital argued that, because the Russian judiciary was neither impartial nor independent when it came to matters relating to Yukos, the decisions to set aside should not be a reason to deny leave to enforce the awards.

Initially, the exequatur court in the Netherlands found that exceptional circumstances can justify granting the leave irrespective of a decision to set aside – but that in the case at hand, Yukos Capital had not sufficiently shown that such exceptional circumstances existed.

However, Yukos Capital appealed, and on 28 April 2009 the Amsterdam Court of Appeal overturned the decision in first instance and granted the requested leave to enforce. The Court of Appeal held that the Convention did not cover the question of whether Dutch courts should recognise the decisions by the Russian courts to set aside the awards and that this question had to be answered under Dutch private international law. The Court then reasoned that, if the decisions to set aside were not recognised, they had to be ignored.

The Court of Appeal then held that:

(i) Rosneft had insufficiently disputed Yukos Capital’s argument that the Russian judiciary is not impartial and independent in cases concerning Yukos or its former parts and management if interests are at stake which the Russian state considers to be its own interests; and that

(ii) it was so likely that the decisions to set aside resulted from a judicial process which was not impartial and independent that these decisions could not be recognised in the Netherlands and therefore had to be ignored. There being no other grounds that could justify a refusal of the leave to enforce, the Court of Appeal granted the requested leave.

Rosneft then lodged an appeal in cassation with the Dutch Supreme Court. It argued that the Moscow Arbitrazh Court decisions to set aside had to be respected and were a fatal impediment to the granting of leave to enforce the arbitral awards in the Netherlands.

Yukos Capital put up a substantive defence, but argued first and foremost that Rosneft’s appeal in cassation was inadmissible, based on the prohibition in the Convention against procedural discrimination between foreign and domestic arbitral awards and considering that for domestic arbitral awards under the Dutch Code of Civil Procedure (DCCP) no cassation appeal against a leave for enforcement is allowed.

On 25 June 2010, the Supreme Court sided with Yukos Capital, agreeing that Rosneft’s appeal in cassation was, indeed, inadmissible.

Of particular significance, the Court of Appeals held in this case that the decisions to set aside could not be recognised because of the court’s finding that the Russian judiciary was not independent and impartial in cases that pertain to the Yukos group and which concern interests that the Russian state considers its own. It then granted leave to enforce the arbitral awards.