On July 18, 2014, an arbitral tribunal comprised of Yves Fortier QC (chairman), Dr. Charles Poncet (appointed by claimants), and Judge Stephen Schwebel (appointed by respondent), after ten years of litigation, rendered three almost identical decisions awarding the majority shareholders of the now-defunct Yukos oil company, the largest oil company in Russia at that time, a stunning US$50 billion. This is the largest award yet in investment treaty arbitration. The shareholder claimants were Yukos Universal Ltd., Hulley Enterprises, and Veteran Petroleum.

 

The Yukos Case by any measure is unprecedented. To put the enormity of a US$50 billion award into perspective, it is helpful to look at the World Bank’s 2013 annual survey of the GDP of 192 countries around the world. According to the survey, the GDP of 113 of those countries was less than US$50 billion. In relative terms, the Award is equivalent to approximately 11% of Russia’s foreign exchange reserves, 10% of its annual national budget and 2.5% of its GDP. The Award itself is 615 pages long. The parties had submitted thousands of pages of written pleadings and exhibits and the counsel for the parties together charged more than US$100 million.4 On 28 January 2015, Russia commenced a set-aside proceeding in The Hague District Court. As of the date of this writing, the Russian petition remains pending.

 

This note, after providing a summary of the facts (Section II), comments on three key principles applied in the Yukos Case in light of the relevant principles of international law on awarding damages: (i) the tribunal’s ruling that in developing a counterfactual or “but for” scenario as contemplated by the Chorzów Factory case, one must take into account the risk that a Government could impose new taxes on the investment—we call this the “negative side of Chorzów” (Section III); (ii) the proper valuation date is the date of the Award (Sections IV and V); and (iii) application of the contributory fault principle (Section VI).