Once it had been privatised in 1995-96, Yukos Oil Company confronted its Soviet legacy of chronic under-investment: oil production was falling by 15%; the company owed debts of around $3 billion; workers had not been paid for months. The economic shocks of 1998, when the rouble and stock market collapsed, only made things harder.

But new management restructured Yukos from top to bottom, and invested heavily in new technology, boosting oil production and efficiency. The company adopted Western standards of governance, issued quarterly financial reports in line with US accounting rules, and published its entire ownership structure.

By 2003, Yukos was the country’s largest taxpayer, accounting for 5% of the federal budget, employing 100,000 people across 50 regions, and reaching a market value of more than $33 billion. Yukos joined the Financial Times top ten global companies for shareholder confidence.

Following the turn of the century, Yukos chief executive, Mikhail Khodorkovsky, played a growing role in Russian civil society, promoting liberal democracy and economic reform. In 2001 he launched the Open Russia Foundation to strengthen the country’s democratic culture. President Vladimir Putin considered Khodorkovsky a threat, and decided to make an example out of him.

State authorities began to harass and threaten Yukos staff. The company’s offices were searched and files confiscated. In October 2003, Mikhail Khodorkovsky was seized at gunpoint. Two months later, the Russian tax authorities demanded $3.5 billion from Yukos, only months after a regular tax audit had given the company a clean bill of health. Yukos was ordered to pay the full amount in two days. Over the next two years, Yukos was intentionally bankrupted by the Kremlin and Khodorkovsky was banned to Siberia after a show trial that was roundly condemned by the European Court of Human Rights — the charges were clearly fabricated and the trial violated every principle of the rule of law.

As journalist Catherine Belton later concluded, the Kremlin’s renewed contempt for the rule of law both at home and abroad started with Yukos. It’s illegal expropriation “…helped transform the entire [Russian] law-enforcement system – the police, prosecutors, and the courts – into a predatory machine that took over businesses and removed political rivals for Putin’s ruling elite”. 

More than 30 Yukos employees were interrogated or arrested. Yukos Executive Vice-President, Vasily Aleksanyan, was diagnosed with lymphoma and AIDS shortly after his detention, but was repeatedly denied urgent medical attention even as his health deteriorated. A man of honour, Aleksanyan refused to give false testimony against his Yukos colleagues. He remained in pre-trial detention for almost three years in conditions described as “monstrous” by Russia’s Human Rights Council. In 2008, the European Court of Human Rights ordered Russia to release him. But Aleksanyan never recovered, and died shortly after his release. The European Court of Human Rights has condemned Russia on eight separate occasions for violating the basic rights of former Yukos executives. In 2014, the Court awarded former shareholders €1.9 billion in compensation.

As it pursued its campaign of intimidation, the Russian state revealed its true goal: to destroy Yukos and steal its assets. In 2006, the state auctioned off Yukos’s core production facility, Yuganskneftegaz, in less than 10 minutes. The vast majority of Yukos’s assets were acquired well below their market value by Rosneft, the state-owned oil producer, and its affiliates. Yukos was forced into bankruptcy in 2006, and struck from the company register in 2007.

In 2005, after it became clear that the Russian Federation intended to expropriate the company, former Yukos majority shareholders commenced independent arbitration proceedings, pursuant to the Energy Charter Treaty. For more than a decade, three renowned arbitrators examined more than 4,000 pages of evidence, and presided over 10 days of hearings on jurisdiction and then 23 days on the merits. More than 20 witnesses give evidence. While Russia participated fully in all proceedings, it put forward not a single factual witness, despite the tribunal suggesting this would be helpful.

In its Final Awards of July 2014, the tribunal concluded that:

1. “Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a State-controlled company, and incarcerate a man who gave signs of becoming a political competitor”;
2. “… [T]he State’s campaign of intimidation and harassment not only disrupted the operations of Yukos but also contributed to its demise”;
3. “The primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos and appropriate its valuable assets”;
4. “The owners could not have been expected to anticipate that they risked the evisceration of their investments and the destruction of Yukos”.

The Tribunal awarded compensation of more than $50 billion to GML’s wholly-owned subsidiaries, Yukos Universal Limited and Hulley Enterprises Limited, and to Veteran Petroleum Limited, a pension fund for the benefit of former Yukos employees.

After a lengthy period of Russian appeals in the Dutch court system, the Hague Court of Appeal rejected all Russian arguments and confirmed the more than $50 billion Arbitral Awards in 2020. The Dutch Supreme Court affirmed the substance of that ruling in November of 2021, ruling in favor of the former Yukos shareholders on seven out of eight grounds, confirming that:

1. Russia is bound by the provisions of the Energy Charter Treaty;
2. Former Yukos shareholders are indeed ‘investors’ with an ‘investment’;
3. The arbitral awards do not violate Dutch public policy, as Russia tried to claim;
4. The fact that the arbitral tribunal did not make a referral to the Russian tax authorities pursuant to the ECT cannot lead to the awards being set aside;
5. The Dutch Court of Appeal correctly rejected Russia’s claim that the alleged role of the secretary to the tribunal could lead to the awards being set aside;
6. The Dutch Court of Appeal correctly rejected Russia’s arguments on Yukos’ alleged misuse of ‘sham’ companies;
7. All these decisions meant that Russia’s ‘sweep up’ ground of appeal did not require independent consideration.

The Dutch Supreme Court decision on those issues is final. “These include complaints regarding the interpretation of the provisions in the ECT from which the arbitration tribunal derived its authority and the complaint that the tribunal did not adhere to its mandate. Because of the rejection of these grounds of appeal, the judgement of the Hague Court of Appeal on these issues is final.”

The Dutch Supreme Court ordered one remaining issue, which had been rejected the Hague Court of Appeal on procedural grounds, to be considered in full by the Amsterdam Court of Appeal. On February 20^th, 2024, the Amsterdam Court of Appeal dismissed that last remaining issue as well.

As the Russian Federation has steadfastly refused to pay the Arbitral Awards or negotiate in good faith about a settlement, the former majority shareholders started enforcement proceedings in the Netherlands and several other countries under the rules of the New York Convention.

The New York Convention requires contracting states to recognize and enforce foreign arbitration awards in the same way they do domestic awards, by converting the foreign arbitration award into a judgment enforceable by a national court. The former majority shareholders are entitled to initiate enforcement proceedings against Russian state assets in 169 countries. Previously, the majority shareholders started enforcement proceedings in France, Belgium, Germany and India, but for the moment they have focused on the following three jurisdictions:

The Netherlands

The former Yukos shareholders seized eighteen Benelux trademarks held by FKP Sojuzplodoimport (FKPS) on behalf of the Russian Federation and successfully auctioned them on June 17, 2024 in The Hague for EURO 1.6 million (approximately USD 1.7 million). This landmark event marked the first successful enforcement by the former majority shareholders against Putin’s Russia worldwide, ten years after the Arbitral Awards were issued.

England and Wales

On November 1^st, 2023, the High Court in London rejected the Russian Federation’s attempt to hide between state immunity from jurisdiction. This means the former majority shareholders are a significant step closer to having the Arbitral Awards recognized and enforced in England and Wales. On 14-16 January 2025 the Court of Appeal in London will hear the Russian Federation’s appeal against the High Court judgment of November 1st, 2023

United States

On November 17^th, 2023, the District Court for the District of Columbia also rejected Russia’s claim of sovereign immunity from jurisdiction. The Court will now turn to the question whether the Awards should be recognized and enforced under the terms of the New York Convention.