The Arbitration Institute of the Stockholm Chamber of Commerce finds Russia responsible for the bankruptcy of YUKOS and liable to foreign investors
A former minority shareholder of Yukos initiated a suit against the Russian state. The Arbitration Institute of the Stockholm Chamber of Commerce, decided that State actions caused the bankruptcy of the petroleum company. The Arbitration Court ruled for the Yukos shareholders and for the recovery of $3,5 million USD in damages from the State. The Agreement between the Government of the Union of Soviet Socialist Republics and the Government of the United Kingdom of Great Britain and Northern Ireland on the Promotion and Reciprocal Protection of Investments (London, April 6, 1989) was the legal foundation of this decision. The USSR ratified this Agreement by the Ordinance of the Supreme Soviet of the USSR of May 29, 1991 N 2199-I. The Agreement prescribes that disputes unresolved amicably shall be submitted to international arbitration, if either party of the dispute wants it.
Therefore, any investor involved in the dispute can submit the case to the Arbitration Institute of the Stockholm Chamber of Commerce (art. 8 of the Agreement). However, Russia’s position was based on the contestation of jurisdiction of the arbitration under the provisions of the Agreement. The decision was delivered on September 17, 2010 by the Arbitration Institute of the Stockholm Chamber of Commerce in favor of RosinvestCo UK Ltd. It has been confirmed by its attorneys and the representative of the Ministry of Finance. RosinvestCo is affiliated with the American hedge-fund Elliott Associates with assets of $17 billion. Since 2007 British investors first sought to recover $75 million, and later claimed more than $200 million, owing to the investment losses after the bankruptcy of Yukos. Russia tried to contest the jurisdiction of the Arbitration Institute of the Stockholm Chamber of Commerce in Sweden’s state courts assuming that the arbitrators could only decide the questions about the procedure for, and amount of, compensation, but not the question of its origin. The Supreme Court of Sweden finally dismissed this appeal on November 12.
The eurobonds’ prospectus of November 29, prepared by the Russian Ministry of Finance, mentions this decision against Russia. According to the representative of the Russian Ministry of Finance, the arbitration decision was appealed in the Court of Appeal in Stockholm on December 10. Russia’s legal position is based on the fact that the arbitrators exceeded their powers, because they could not examine the tax issues of Yukos in Russia. In addition, the arbitrators committed a procedural mistake, having imposed the burden of proof on the Russian Federation. Despite a significant reduction in compensation, Russia continues to dispute the decision, because it is of the precedential nature of the disputes on investment protection agreements. The same Arbitration Institute in Stockholm is now considering a lawsuit by seven Spanish investment funds – holders of Yukos’ American Depositary Receipts, whose interests are represented by Renta 4 S.V.S.A. (the total amount of stated claims is not disclosed).
If you need further information on the subject, contact Kristoffer Svendsen.