Yukos enforcement proceedings so far

Roughly one and one-half years since an arbitral tribunal in the Hague, Netherlands, handed shareholders of the now-defunct Yukos oil company an unprecedented $50 billion award, the victorious litigants don’t appear much closer to getting their hands on any of that judgment. According to the shareholders’ attorneys, recognition and enforcement proceedings have been initiated in France, the US, the UK, Belgium and Germany. While the Paris Court of General Jurisdiction granted recognition of the award in December 2014, Russia has appealed the lower court’s recognition order. In the US, however, things are progressing significantly more slowly. 

The arbitral award winners (Hulley Enterprises, Yukos Universal and Veteran Petroleum) filed their petition to have the massive judgment confirmed by the US District Court for the District of Columbia in November 2014. In the intervening 13 months, the parties are on their third judge, with the previous appointments having been disqualified and recused, and have only just exchanged arguments relating to the court’s jurisdiction to hear the case. Considering that the New York Convention was intended to make the process of confirming/recognizing foreign arbitral awards relatively easy and quick, Russia’s attorneys at White & Case likely take pride in how the case is (not) progressing so far.

With the bulk of the case still in front of us, I thought I’d provide a brief summary of the claims made by the shareholders and Russia’s initial arguments against the recognition of the arbitral award.

Shareholders’ arguments in their Petition to Confirm Arbitration Awards

  • They bring this recognition and enforcement action under 9 USC § 201 and pursuant Article I(1) of the New York Convention.
  • They argue that “[c]onfirmation proceedings under the Convention are summary in nature, and the court must grant the confirmation unless it finds that the arbitration suffers from one of the defects listed in the Convention” (citing Arg. Repub. v. Nat’l Grid, 637 F.3d 365, 369 DC Cir. 2011)) and that “[t]he court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention” (quoting 9 USC § 207).
    • I should note that the New York Convention provides seven grounds for denying recognition, and Russia argues five of them can be used to defeat the shareholders’ petition here.

Russia’s arguments in its Motion to Deny Confirmation of Arbitration Awards

  • Invoking New York Convention Article V(1)(a), Russia claims the awards are a nullity because it never agreed to arbitrate and the tribunal never had jurisdiction.
  • Invoking New York Convention Article V(2)(b), Russia argues that confirmation should be denied because doing so would be repugnant to the public policy of the US. It cites several ways that recognition would be at odds with US policy:
    • First, Russia claims that the petitioning companies perpetrated fraud on the tribunal by concealing the true identities of the owners and the underlying fraud by which they acquired Yukos shares. According to Russia, such actions violate the petitioners’ duty of candor owed to the court and go against the principle “that a wrongdoer shall not be permitted to profit through his own wrongdoing.”
    • Second, Russia argues that the tribunal was biased against it and that the US Supreme Court has elucidated a policy against authorizing litigants to submit their cases to bodies that “might reasonably be thought biased against one litigant.”
    • Third, Russia characterizes the rate of interest applied as ‘punitive’ and argues that under the Foreign Sovereign Immunities Act, a foreign state “shall not be liable for punitive damages.”
  • Invoking New York Convention Articles V(1)(b), V(1)(d) and V(2)(b), Russia claims that it was denied a meaningful opportunity to be heard. These arguments largely relate to the valuation methodology used by the tribunal.
  • Invoking New York Convention Article V(1)(d), Russia argues that the composition of the Hague tribunal violated the parties’ agreement. Crucially, Russia contends that the chairman of the tribunal improperly delegated important tasks to a colleague, evidenced by the fact that the unappointed attorney billed more hours than any of the officially selected arbitrators.
  • Invoking New York Convention Article V(1)(d), Russia claims that the tribunal’s procedure violated the parties’ agreement. Specifically, Russia complains that the tribunal made determinations as to whether Moscow’s tax assessments were discriminatory or expropriatory and that the tribunal failed to state the reasons upon which the award was based.

As I already stated, the above-listed points are only from the initial petition to enforce and Russia’s motion to deny confirmation. In the coming months there should be plenty more on the way. I plan on following the case decently closely and hope to have periodic updates. Personally, I’m (foolishly) hoping for a relatively quick end to the confirmation/recognition stage and can’t wait for execution proceedings.

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