Yukos and Contributory Fault - Journal of Damages in International Arbitration - Vol. 2, No. 2
1 PDF Download
Originally from Journal of Damages in International Arbitration
The concept of contributory fault in international law has been developed to address the consequences of blameable conduct of a party injured by an internationally wrongful act.1 It has been applied most recently in the three awards rendered in the arbitration between the majority shareholders of Yukos and the Russian Federation (referred to hereinafter as Hulley awards). In these awards, the tribunal reduced the damages awarded to the claimants by 25%, which was the figure corresponding to the tribunal’s assessment of the claimants’ contribution to the injury. In nominal terms, this led to the reduction of damages by USD 16.7 billion, from USD 66.7 billion to USD 50 billion. The present paper provides an analysis of that particular aspect of the Hulley awards.
There are three essential requirements for contributory fault to come into play, namely: (1) existence of an internationally wrongful act of the state, (2) blameable conduct of the injured party and (3) the causal link between that blameable conduct and the injury suffered by that party. Clear logic underpins these requirements. With regard to the first requirement, if there is no internationally wrongful act, the state cannot be held responsible for it, and accordingly, there can be no issue of contributory fault. This is true, in particular, for situations in which the conduct of the state is a justified response to the conduct of the injured party. For example, material incompliance by an investor with the conditions of a license, state aid, tax exemption or other public law entitlement, may authorize the state to revoke it. This in turn may imply the investor’s obligation to return the corresponding benefits, and put in question the financial viability of the investment. If the entitlement is revoked by the state in accordance with the legal regime applicable to it, and in good faith, no issue of international responsibility would arise under those circumstances, regardless of the possible loss of the investor. Whereas, unjustified revocation of the entitlement may give rise to international responsibility of the state. Article 39 of the ILA Articles on Responsibility of States for Internationally Wrongful Acts (the “ARSIWA”),4 in Part Two “Content of the International Responsibility of a State”, implicitly confirms that the concept of contributory fault becomes relevant only when there is an internationally wrongful act of a state, which triggers its international responsibility.
Second, the conduct of the injured party must be blameable, e.g. it must be inconsistent with the pattern expected from the party in the specific circumstances.