Some battles are won before they are ever fought, 1 yet some wars are destined

to scourge the land for years after the victory. Indeed, Yukos Oil Company has

secured a huge award in investment arbitration against Russia, but the taste of its

triumph is bittersweet. Nothing is over until the awarded money is actually

received. Enforcement of the favorable award promises to be an uphill battle.

 

Of all the reasons parties choose international arbitration as a dispute

settlement method – greater confidentiality, well-versed and savvy arbitrators,

absence of any origin-based connotations or privileges to either party –

enforcement of the award may still present certain tangible obstacles. One of them

is that neither the tribunal itself, nor the arbitral institution, has the power to

secure the rendered award.2 Russia has already made it abundantly clear that it has

no desire to comply with the award voluntarily.3 This means that the Yukos award

can only be enforced in the state courts.

 

Insofar as the enforcement of foreign arbitral awards is concerned, once a

favorable decision is rendered, enforcement is usually merely a matter of

formality. Foreign arbitral awards are predominantly recognized and enforced

under the New York Convention. The success of the latter is regarded as one of

the paramount accomplishments in international dispute resolution. Well over 100

countries have undertaken to enforce arbitral awards, unless there are gross

violations of arbitral procedure or major defects in the consent to arbitration.

 

At the same time, enforcement of the Yukos award is by no means ordinary.

From the outset it was obvious that the enforcement proceedings were deeply

infused with a whole bouquet of complications.

 

For starters, the award-debtor is Russia, a sovereign state. Naturally, the

question of immunity from enforcement comes into play. Secondly, the award

touched upon very sensitive issues. For example it rather openly criticized actions

of Russian authorities to the point where the legitimacy of state policies was

questioned. The tribunal may have overstepped the boundaries of its mandate.

Therefore, it was clear that Russia would invoke the public policy defense in the

enforcement proceedings. Furthermore, there allegedly is another judgment on the

same subject matter between the same parties.

 

“[W]e didn’t go into this to get a Pyrrhic victory,” claims Tim Osborne, head

of GML Ltd., former holding company of Yukos Oil Co, in an interview with

Bloomberg Television.4 Yet, enforcing an arbitral award against Russia is no

small feat. It will take great effort, boldness and considerable time and resources.

It is worthwhile nonetheless. There are $50 billion on the line, which is enough of

an incentive to lure the world’s elite lawyers.

 

This article aims to ascertain the prospects of enforcing the Yukos award in

Russia. It pays particular attention to the viability of the public policy defense as

the most probable cornerstone of the Russian legal defense. Part II of the article

gives an overview of the Yukos case. Thereafter, Part III analyzes the specific

grounds for refusal of enforcement of the award.

 

 

 

Yukos was Russia’s biggest and one of the world’s top oil companies. It thrived

until the early 2000s, when a chain of actions by Russian authorities brought it to its

knees. Its reserves were drained by considerable fines imposed on it for tax evasion.

In 2006 it was declared bankrupt. In the aftermath of these unfortunate events,

Yukos started an action against Russia under the Energy Charter Treaty (“ECT” or

“Treaty”) and the European Convention on Human Rights (“ECHR”), claiming

what may seem as exorbitant amounts in compensation.

 

In its defense Russia raised a number of jurisdictional objections. As far as the

proceedings under the ECT are concerned, it asserted that it was never bound by the

Treaty. Russia signed the ECT on December 17, 1994, but never ratified it. In

addition, in 2009, when the arbitration proceedings had already begun, it announced

that it no longer had any intention of ratifying the treaty anytime in the future.

 

Contrary to Russia’s assertions, the tribunal declared that the Limitation

Clause of Article 45(1) negates provisional application of the Treaty only where

the principle of provisional application is itself inconsistent with the constitution,

laws or regulations of the signatory State, which was not the case in Russia.5
Therefore, the tribunal held that