Yukos Awards in a Nutshell

14th February 2020

Yukos Awards have nothing to do with the Energy Charter Treaty (ECT). It is a Russian tax dispute between Russian nationals and the Russian Federation concerning Russian tax assessments against a Russian company (Yukos Oil) that the Russian Oligarchs owned and controlled. If the Yukos Awards would be valid and enforceable, the integrity and credibility of investment arbitration will be seriously jeopardized.
First, the arbitrators accepted jurisdiction on the basis of an arbitration clause in a treaty that had not been ratified by the respondent State (the Russian Federation).
Second, the arbitrators applied the ECT to so-called “investors” (Russian Oligarchs) who are in reality nationals of the respondent State and who round tripped Russian money via shell companies in tax havens (Cyprus). The ECT is intended for foreign investments, not for “investments” by their own nationals.
Third, the arbitrators declined to rule on the illegal origin of the shares in Yukos, reasoning — inexplicably — that the shell companies “are separate from” the Russian Oligarchs (Final Awards para. 1370).
Fourth, the arbitrators ignored that tax is an excluded matter under the ECT, arguing that it was expropriation in disguise of taxation (a finding that is diametrically opposed to that of the European Court of Human Rights).
Fifth, the arbitrators deliberately disobeyed the ECT requirement to consult the tax authorities of Cyprus, the United Kingdom and the Russian Federation, reasoning that it would be “futile”.
Sixth, the arbitrators spectacularly erred in holding that there was no evidence regarding tax fraud in Mordovia by the Oligarchs, whilst they had an abundance of evidence before them (Final Awards para. 639).
Seventh, the arbitrators invented their own method for calculating damages without consulting the parties about their method, thereby violating the fundamental rules of due process. Worse even, in applying their own method, the arbitrators made a calculation error of not less than US$ 20 billion.
Finally, the arbitrators impermissibly delegated their duty to draft the Awards to an assistant without telling the parties that they had delegated this personal task and charging an unprecedented fee of almost EUR 1 million for the assistant.