Amsterdam Appeal Court’s Judgement Strengthens Yukos’ shareholders payment hopes

09 May 17

FD.nl Het Financieele Dagblad

In a judgment handed down today, Tuesday, the Amsterdam Appeal Court opened the door to the handing back to the shareholders of part of the property of former Russian oil company, Yukos.

This concerns Yukos’ foreign assets that come under the umbrella of a Dutch company, Yukos Finance, that unlawfully fell into the hands of others in 2006. The assets are worth EUR 800 million.

There have been ongoing lawsuits in the Netherlands since 2007 about Yukos Finance which, amongst other things, owns a refinery and oil pipelines. The current owner, OOO Promnefstroy, may still file an appeal against the judgment before the Dutch Supreme Court but the Supreme Court may only rule on procedure and not on facts.

Contrary to Dutch public policy

The Appeal Court found that Yukos’ bankruptcy in 2006 that resulted in the sale of the shares of Yukos Finance to Promneftstroy may not be recognised in the Netherlands. At that time the Russian authorities, with the help of the tax inspectorate, pushed Yukos over the brink into bankruptcy. That was an act in breach of Dutch public policy.

The case surrounding Yukos Finance is part of a battle fought by the former Yukos shareholders against the Russian state which, as they see it, then illegally expropriated Yukos. Aside from the case surrounding Yukos Finance a much bigger case, filed by the former major shareholders of Yukos before the Permanent Court of Arbitration in The Hague, is in play. This concerns compensation for all Russian property expropriated at the time.

USD 50 billion in damages

In 2014 the Permanent Court of Arbitration in The Hague awarded the shareholders unprecedentedly high damages of USD 50 billion (EUR 45 billion). The Russian authorities challenged this award. Last year, a District Court ruled that the Permanent Court of Arbitration lacked jurisdiction in the case. The major shareholders have challenged this decision in an appeal filed before The Hague Appeal Court. Because this concerns an exceedingly large sum and both parties have deep pockets, the lawyers concerned expect that this case to be fought right up to the Supreme Court.

The battle for Yukos had a strongly political character. Yukos major shareholder Mikhail Chodorkovsky was seen at the time as a political opponent of Vladimir Poetin, the current Russian president. Putin mobilised the power of the Russian state apparatus to expropriate Chodorkovsky. Yukos found itself facing such enormous tax assessments imposed by the Russian authorities that a bankruptcy became inevitable.

A provoked bankruptcy

In its judgment the Amsterdam Appeal Court found that “not only were Russian rules of law breached”, but that this took place “with the specific intent of provoking an inability to pay and, ultimately, of provoking Yukos Oil’s bankruptcy”. After the bankruptcy the greatest part of Yukos’ assets came into the hands of Russian state-owned oil company Rosneft through an auction.

The arbitration case and the case surrounding Yukos Finance are the most important theatres in the legal battle opposing the former Yukos shareholders and the Russian authorities. That the battle is being fought primarily in the Netherlands is the consequence of the location in the Netherlands of both the Permanent Court of Arbitration and of Yukos Finance. The arbitration case concerns far greater sums than those in the Yukos Finance case. But these sums are not available for the picking. If the shareholders finally win this case they will first need to have attachment levied on the former Yukos assets. In the case of Yukos Finance the shareholders have far more direct access to compensation.

Click here to read the original article in Dutch.

DISCLAIMER: The English version is a translation from the Dutch original Het Financieele Dagblad article and is for information purposes only. In case of a discrepancy, the Dutch original will prevail.