Author: Denis Parchajev*
Published: October 2015
Some battles are won before they are ever fought, 1 yet some wars are destined to scourge the land for years after the victory. Indeed, Yukos Oil Company has secured a huge award in investment arbitration against Russia, but the taste of its triumph is bittersweet. Nothing is over until the awarded money is actually received. Enforcement of the favorable award promises to be an uphill battle.
Of all the reasons parties choose international arbitration as a dispute settlement method – greater confidentiality, well-versed and savvy arbitrators, absence of any origin-based connotations or privileges to either party – enforcement of the award may still present certain tangible obstacles. One of them is that neither the tribunal itself, nor the arbitral institution, has the power to secure the rendered award.2 Russia has already made it abundantly clear that it has no desire to comply with the award voluntarily. This means that the Yukos award can only be enforced in the state courts.
Insofar as the enforcement of foreign arbitral awards is concerned, once a favorable decision is rendered, enforcement is usually merely a matter of formality. Foreign arbitral awards are predominantly recognized and enforced under the New York Convention. The success of the latter is regarded as one of the paramount accomplishments in international dispute resolution. Well over 100 countries have undertaken to enforce arbitral awards, unless there are gross violations of arbitral procedure or major defects in the consent to arbitration.
At the same time, enforcement of the Yukos award is by no means ordinary. From the outset it was obvious that the enforcement proceedings were deeply infused with a whole bouquet of complications.
For starters, the award-debtor is Russia, a sovereign state. Naturally, the question of immunity from enforcement comes into play. Secondly, the award touched upon very sensitive issues. For example it rather openly criticized actions of Russian authorities to the point where the legitimacy of state policies was questioned. The tribunal may have overstepped the boundaries of its mandate. Therefore, it was clear that Russia would invoke the public policy defense in the enforcement proceedings. Furthermore, there allegedly is another judgment on the same subject matter between the same parties.
“[W]e didn’t go into this to get a Pyrrhic victory,” claims Tim Osborne, head of GML Ltd., former holding company of Yukos Oil Co, in an interview with Bloomberg Television. Yet, enforcing an arbitral award against Russia is no small feat. It will take great effort, boldness and considerable time and resources. It is worthwhile nonetheless. There are $50 billion on the line, which is enough of an incentive to lure the world’s elite lawyers.
This article aims to ascertain the prospects of enforcing the Yukos award in Russia. It pays particular attention to the viability of the public policy defense as the most probable cornerstone of the Russian legal defense. Part II of the article gives an overview of the Yukos case. Thereafter, Part III analyzes the specific grounds for refusal of enforcement of the award.
II. THE YUKOS CASE
Yukos was Russia’s biggest and one of the world’s top oil companies. It thrived until the early 2000s, when a chain of actions by Russian authorities brought it to its knees. Its reserves were drained by considerable fines imposed on it for tax evasion. In 2006 it was declared bankrupt. In the aftermath of these unfortunate events, Yukos started an action against Russia under the Energy Charter Treaty (“ECT” or “Treaty”) and the European Convention on Human Rights (“ECHR”), claiming what may seem as exorbitant amounts in compensation.
In its defense Russia raised a number of jurisdictional objections. As far as the proceedings under the ECT are concerned, it asserted that it was never bound by the Treaty. Russia signed the ECT on December 17, 1994, but never ratified it. In addition, in 2009, when the arbitration proceedings had already begun, it announced that it no longer had any intention of ratifying the treaty anytime in the future.
Contrary to Russia’s assertions, the tribunal declared that the Limitation Clause of Article 45(1) negates provisional application of the Treaty only where the principle of provisional application is itself inconsistent with the constitution, laws or regulations of the signatory State, which was not the case in Russia. Therefore, the tribunal held that…
*Associate in the Dispute Resolution practice group at Motieka & Audzevičius PLP, Vilnius, specializing in the energy sector. His primary focus is arbitration, both commercial and investment, international commercial law and the WTO. LLM degree in Comparative and International Dispute Resolution, Queen Mary University of London.