On November 30, 2009, an Arbitral Tribunal sitting in The Hague under the auspices of the Permanent Court of Arbitration ruled that the Russian Federation is bound by the Energy Charter Treaty (ECT) despite the fact that the Treaty has not been ratified by the Russian Duma. The Tribunal also held that the Yukos majority shareholders are entitled to the Treaty’s protection.
The three arbitrations were initiated by the Claimants following the illegal expropriation by the Russian Federation of their investment in Yukos Oil Company. The Claimants, two GML subsidiaries (Hulley Enterprises and Yukos Universal), and Veteran Petroleum, the pension fund for the benefit of former Yukos employees, seek compensation for an aggregate amount of up to 100 billion US dollars. The proceedings are the largest in international arbitration history.
The landmark decisions are particularly significant for two reasons:
First, because they hold the Russian Federation to be accountable for its conduct vis-à-vis the Yukos majority shareholders before an international tribunal deciding on the basis of an international treaty and applying international law.
Second, in the broader context of Russia’s energy policy, the rulings have a major precedential value which goes way beyond the present dispute. Indeed, the Russian Federation signed the ECT in 1994 and had applied it provisionally from that date until Summer 2009 when it decided to terminate this provisional application with effect from October 19, 2009. However, as the Claimants established that the Russian Federation had applied the treaty since its signature and that provisional application is an international law mechanism fully consistent with Russian treaty practice and Russian law, the Tribunal held that:
"pursuant to Article 45(3)(b) of the Treaty, investment-related obligations, including the obligation to arbitrate investment-related disputes . . . remain in force for a period of 20 years following the effective date of termination of provisional application. In the case of the Russian Federation, this means that any investments made in Russia prior to 19 October 2009 will continue to benefit from the Treaty’s protection for a period of 20 years – i.e. until 19 October 2029."
As a result, the decisions rendered on November 30, 2009 by the Arbitral Tribunal sitting in The Hague show that the ECT, far from being "stillborn," is quite alive and will continue to be binding on Russia for another 20 years with respect to past investments.
The arbitration proceedings brought by the Yukos majority shareholders will now proceed on the merits of the Claimants’ claims for the breaches of the ECT by the Russian Federation as regards their investment.
The Claimants are represented in the arbitration proceedings by partners Emmanuel Gaillard, Head of the International Arbitration Group of Shearman & Sterling and Yas Banifatemi, in charge of Shearman & Sterling’s Public International Law practice.
View client publication, "Yukos - Landmark Decision on the Energy Charter Treaty"