- The judgment will be appealed by Russia to the Supreme Court.
- Russia uses a defense, which is a result of the habit of signing agreements, but never ratifying them.
- Russia's appeal will prolong the need to possibly pay for another two years.
Last week, the Hague Court of Appeal stated Russia is responsible for paying $50 billion to former Yukos Shareholders. OJSC “Yukos Oil Company” was an oil and gas company based in Moscow, Russia. Yukos was acquired from the Russian government by Russian oligarch Mikhail Khodorkovsky’s Bank Menatep during the controversial “loans for shares” auctions of the mid 1990s.
The Hague Court of Appeal (“Gerechtshof ’s-Gravenhage”) is one of five appeals courts in the Netherlands. The Court of Appeal re-examines the facts of the case and reaches its own conclusions. In most cases it is possible to contest the Court of Appeal’s decision by appealing in cessation to the Supreme Court of the Netherlands.
This decision has significant meaning for the Kremlin. It could have an economic and political impact. Russia has no choice but to comply with the decision. If Russian president Vladimir Putin chooses not to comply with the decision it could create a domino effect of political propaganda leading to economic consequences.
The significance of the case is centered on the European Union’s interest in uninterrupted receipt of Soviet energy resources, primarily gas. To this end, the European Energy Charter (EEA) was initiated in 1991.
The Charter is a concise expression of the principles that should underpin international energy cooperation, based on a shared interest in secure energy supply and sustainable economic development.
At the time, what it meant for the Soviets is that EU members will invest in the economy of the Eastern European nations. In return they would provide the West with energy. Representatives of 51 countries, including Russia, the United States, and Canada signed the EEA in the Hague. However, the Charter was only a Declaration. In 1994, the Energy Charter Treaty (ECT) was opened for signature, which is a legally binding document that has priority over national law. A Secretariat with headquarters in Brussels and a higher body, the Conference, which meets twice a year, were established to monitor the implementation of the Energy Charter Treaty.
The provisions signed:
- The protection and promotion of investments in the energy sector;
- Free trade in energy materials;
- Freedom of energy transit through pipelines and networks;
- Reduction of adverse impacts on the environment;
- Mechanism for resolving disputes between States, as well as between States and investors.
The ECT has clearly defined rules for market participants. Russia has readily signed this agreement, which opened the European energy market to them. In accordance with paragraphs 1 and 5, contradictions between the States parties to the agreement and private investors in the energy sector were subject to settlement in the framework of International arbitration, established through the mediation of the permanent court of arbitration (PCA) in the Hague.
Interestingly, Russia always signs these agreements, but does not ratify them. Hence, it can claim later it was not enforceable. A ratified contract means that the terms have been agreed upon by all parties, but has not yet been fully executed, signed, and delivered. Later an error can be claimed during creation of the contract and it can be interpreted as void. The same occurred with the ECT treaty. In this case it would mean the case shouldn’t be decided in the Hague because it’s not a credible jurisdiction. In 2016, the district court of the Hague ruled in favor of Russia. An appeal was made to the Appeals court in the Hague and it was successful in obtaining a judgment of $50 billion.
The Kremlin still has a right to appeal to the Supreme Court of the Netherlands, and they’ve already announced that they will. The case will give Russia an additional two years. Russia’s defense is the part about ratification, as well as stating that Yukos investors are convicted criminals. Hence, Russia claims, you can’t ask the court to award any damages as a result of criminal activity.
It is plausible to expect that the EU does not have an interest in the Yukos shareholders or their financial gains. Nevertheless, laws should be enforced. Khodorkovsky was the same thief as all the others. The only difference is that he was a competitor to Vladimir Putin at the time. Therefore, as per Russian style, he was convicted of crimes and served significant time in a Russian prison.
Russia may refuse to pay in the case of an adverse final decision. If last week’s decision is upheld, it might cause an economic collapse. This was suggested right after the announcement when the Russian Rouble tumbled. Also, with non-compliance additional sanctions can follow against Russia, also creating a burden on the Russian economy. There is also the possibility of Russia’s property being seized to cover the debt. It could create significant issues internationally for Russia.
It is possible that Yukos shareholders will disappear or will be sent to prison on some additional charges. That is Russia’s style of dealing with a “problem.” It is highly unlikely Yukos shareholders will ever see any money from this judgement.