Prospects of Enforcing the Yukos Award in Russia - ARIA - Vol. 26, No. 2
Author(s):
Denis Parchajev
Page Count:
14 pages
Media Description:
1 PDF Download
Published:
October, 2015
Description:
Originally from American Review of International Arbitration - ARIA
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I. INTRODUCTION
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.
II. THE YUKOS CASE
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
Therefore, the tribunal held that