Yukos Oil has won a landmark case against Russia after the firm was ruthlessly dismantled.
The former majority owners of Yukos Oil were awarded $50billion after the Permanent Court of Arbitration in The Hague ruled Russia was “politically motivated” when it broke the company apart, piece by piece.
The tribunal ruled: “Yukos was the object of a series of politically-motivated attacks by Russian authorities that eventually led to its destruction.”
It added the Russian Federation’s intention was to “bankrupt Yukos, assign its assets to a State-controlled company and incarcerate {Mikhail Khodorkovsky} who gave signs of becoming a political competitor.”
With a $15billion fortune, Khodorkovsky was once Russia’s richest man. He was at the helm of Yukos when the systematic destruction took place.
Khodorkovsky, who was recently released from a decade-long stint in Russian prison camps, has always maintained the campaign against him and his firm were politically motivated – revenge for financing opposition parties.
The historical arbitral award also mandated the Russian Federation reimburse $60million of legal fees and EUR4.2million in arbitration costs.
“This award is a major victory for us. After intense scrutiny, the tribunal confirmed what the claimants have been saying all along, namely that Yukos was destroyed, and its assets expropriated, for political reasons,” said Tim Osborne, director of GML, the holding company that indirectly owned the majority of Yukos’ shares.
Yas Banifatemi, International Arbitration partner in charge of the Shearman & Sterling LLP’s Public International Law practice, added: “The award is final and binding, and is now enforceable in 150 States under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.”
Yukos’ downfall began in 2004 after the Russian government imposed $27million worth of tax charges. Just a year earlier it held the title of Russia’s largest oil company, with 100,000 employees, six main refineries and a market capitalisation of $33billion. It also produced the largest daily production rates in the country.
The hefty tax bill was soon followed by the orderly acquisition of Yukos’ assets, beginning with its “crown-jewel” Yuganskneftegaz. What was left of the company was split between Russian state-owned companies Rosneft and Gazprom. The move saw Rosneft later assume the title of Russia’s largest oil producer.
The first claims against the Russian Federation were raised in October 2004. Arbitration began in February 2009.
On July 18 this year the tribunal found the Russian Federation’s actions amounted to an “unlawful expropriation” before awarding the bumper $50million sum.
The tribunal also ruled the majority shareholders would be entitled to post-award interest if the Russian Federation fails to pay the outstanding amount by January, 15 2015.
However, Yukos’ former chief legal counsellor has his reservations about an eventual pay-out.
Dmitry Gololobov said: “Russia has the money to hire the best international lawyers, who won’t give up without a fight.
“So the Yukos affair could easily go on for another 10 years.”