Dutch Court Orders Russia to Pay $50B to Oil Shareholders

THE HAGUE, Netherlands (CN) – A Dutch appeals court on Tuesday ordered Russia to pay $50 billion to former shareholders of oil and gas giant Yukos, the latest development in a complicated, 15-year legal battle.

In a ruling only available in Dutch, the Hague Court of Appeals reinstated a decision by the Permanent Court of Arbitration which found in 2014 that the Russian government did not act in good faith when it brought tax fraud charges against Yukos executives in 2003. That decision had been overruled by a lower Dutch court in 2016.

Russian opposition figure Mikhail Khodorkovsky, the former owner of the Yukos Oil Company, poses for a 2018 photograph in London. (AP Photo/Matt Dunham, File)

“This is a victory for the rule of law. The independent courts of a democracy have shown their integrity and served justice. A brutal kleptocracy has been held to account,” said Tim Osborne, chief executive of GML, a holding company representing the majority of the Yukos shareholders.

Before his arrest in 2003, Yukos founder Mikhail Khodorkovsky was the richest man in Russia and the arrest was widely seen as a political maneuver by Russian President Vladimir Putin to consolidate power. Khodorkovsky (also spelled Khodorkovskiy) had previously funded several political candidates opposed to Putin.

Three former shareholders in Yukos – including GML, a holding company founded by Leonid Nevzlin and the recipient of Khodorkovsky’s shares – brought the case to the PCA, an international dispute resolution body, in 2005. GML argued that Russia had violated the Energy Charter Treaty by forcibly bankrupting Yukos through exorbitant tax assessments.

An international investment agreement for the energy sector, the Energy Charter Treaty was signed by Russia but never ratified by the Russian government. However, a provision in the treaty requires signatories to provisionally apply the conditions, unless the treaty is “inconsistent with constitutions, law or regulations.”

The PCA found that Russia launched “a full assault on Yukos and its beneficial owners in order to bankrupt Yukos and appropriate its assets while, at the same time, removing Mr. Khodorkovsky from the political arena.” The arbitration panel ordered Russia to pay $50 billion to former shareholders, the largest amount ever awarded by the PCA.

The Russian government appealed the massive award to a Dutch court, as the arbitration proceedings took place in The Hague. Tuesday’s ruling overturning the lower court is seen by many as a victory for the PCA, as the body would be left with little legal power if its rulings could simply be set aside by a local court.

The ruling comes three weeks before the start of the trial of three Russians and one Ukrainian man for their involvement in the shooting down of flight MH17 in 2014. The Russian government denies involvement in the downing of the passenger flight en route from Amsterdam to Kuala Lumpur, but a Dutch-led investigation found that a surface-to-air missile was launched at the flight from a Russian-backed area in Ukraine.

Even with a positive legal outcome, GML and others will have trouble recovering their money. GML has tried to claim compensation from the Russian government in Belgium and France but has been repeatedly blocked by national authorities.

Russia plans to appeal Tuesday’s ruling as well. The court “failed to take into account the illegitimate use by former Yukos shareholders of the Energy Charter Treaty that wasn’t ratified by the Russian Federation,” the foreign ministry said in a statement.

A case before the highest Dutch court would take at least another year.

Last month, the Strasbourg-based European Court of Human Rights ruled that Khodorkovsky and another Yukos executive did not get fair trials in Russia. They were each sentenced to 10 years in a Siberian prison camp for tax evasion and fraud.

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