So…..What’s The Back Story On Yukos Oil?

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OJSC “Yukos Oil Company” was an oil and gas company based in Moscow,Russia. Yukos was acquired from the Russian government by Russian oligarch Mikhail Khodorkovsky‘s Bank Menatep during the controversial “loans for shares” auctions of the mid 1990s. Between 1996 and 2003 Yukos became one of the biggest and most successful Russian companies, producing 20% of Russia’s oil output, as much as Libya or Iraq, and Khodorkovsky became an advocate of democratization, international co-operation and Russian reform.

In October 2003 Khodorkovsky—by then the richest man in Russia and 16th richest man in the world—was arrested, and the company was forcibly broken up for alleged unpaid taxes shortly after and declared bankrupt in August 2006. Courts in several countries later ruled that the real intent was to destroy Yukos and obtain its assets for the government, and act politically against Khodorkovsky. In 2014 the largest arbitration award in history, $50 billion (€37,2 billion), was won by Yukos’ former owners against Russia. 

From 2003-04 onwards, the Russian government presented Yukos with a series of tax claims totaling US$27 billion (€20,1 billion). As the government froze Yukos’ assets at the same time, and alternative attempts to settle by Yukos were refused, the company was unable to pay these tax demands. Between 2004 and 2007, most of Yukos’s assets were seized and transferred for a fraction of their value to state-owned oil companies.

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The Parliamentary Assembly of the Council of Europe condemned Russia’s campaign against Yukos and its owners as manufactured for political reasons and a violation of human rights. Between 2011 and 2014 several court cases were won by the former company’s management and investors against Russia or against the companies that acquired Yukos assets.

The European Court of Human Rights ruled that there had been unfair use of the legal and tax system; the Arbitration Institute of the Stockholm Chamber of Commerce, an established neutral body used by Russia and the West since the 1970s for trade disputes, concluded that the government’s action was an “unlawful expropriation” using “illegitimate” tax bills, whose effect was intended to “destroy Yukos and gain control over its assets”; and the Permanent Court of Arbitration in The Hague ruled unanimously upon awarding compensation of $50 billion for the company’s assets, that Yukos was the target of a series of politically motivated attacks by Russian authorities that eventually led to its destruction, and that Russia had expropriated Yukos’ assets in breach of the Energy Charter Treaty, (The treaty does not stop governments seizing or nationalizing commercial assets, but requires the investors to be fairly compensated if this happens. Russia never ratified the full treaty but these clauses were still legally binding under both the treaty and Russian law until 2029).

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According to the Permanent Court of Arbitration’s ruling, the primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos, appropriate its assets for the sole benefit of the Russian state and state-owned companies Rosneft and Gazprom, and remove Khodorkovsky from the political arena.

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Shearman flags potential conflict at White & Case as US rivals face off in $50bn Yukos arbitration

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Shearman & Sterling has raised a potential conflict of interest issue at White & Case (W&C) in its representation of Russia’s bid to annul the $50bn arbitration award against it over the collapse of oil giant Yukos.

In a motion to recuse or disqualify a US district judge on 19 November before the district court of Columbia, Yukos shareholders Hulley Enterprises, Yukos Universal and Veteran Petroleum alerted the court that they were ‘investigating prior attorney-client relationships’ between them, their affiliates, and W&C.

‘The facts underlying the prior relationships (which date back to at least 1999 and appear to involve matters raised by W&C in this proceeding) are being investigated as quickly as possible, but due to the passage of time and the intervening confiscation of most of the relevant documents by agents of the Russian Federation, petitioners may not be in a position to make a final determination whether to seek disqualification of W&C for several weeks,’ the court filing said.

Russia was ordered to pay $50bn to the majority shareholders in Yukos Oil Company, once Russia’s largest oil producer, by an arbitral tribunal sitting in The Hague in 2014. It was the largest arbitration award in history and 20 times larger than the previous record. Recognition and enforcement of the award in the courts, however, is expected to take about a decade and will generate millions of dollars in legal fees. Proceedings are taking place across various jurisdictions, including Belgium and the US.

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W&C was instructed by Russia to coordinate the country’s defence against enforcement and annulment proceedings across at least three jurisdictions on the case, while Cleary Gottlieb Steen & Hamilton and Baker Botts acted for Russia in the original tribunal where the award was made against it.

Shearman as well as local law firms assisting it in the recognition and enforcement of the award, are now investigating whether W&C has a conflict of interest in representing Russia. The firm is known to have represented Yukos around the time of the oil giant’s collapse a decade ago, with W&C chairman Hugh Verrier one of the company’s advisers.

W&C Washington DC-based arbitration partner Carolyn Lamm is leading Russia’s defence in the US, with David Goldberg leading proceedings in London and Markus Burianski heading the defence in Germany. Russia has also instructed Brussels-based Albert Jan van den Berg of Hanotiau & van den Berg in a bid to have the award set aside at the seat of arbitration, The Hague.

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Shearman’s team in the US, led by veteran litigator Henry Weisburg and the firm’s deputy head of litigation Richard Schwed, already successfully petitioned district judge Amy Berman Jackson to recuse herself from hearing a request to enforce the Yukos award against Russia in Washington DC over ‘cumulative connections’ with Lamm, as the pair were mothers to children at the same school.

Shearman head of international arbitration, Paris-based Emmanuel Gaillard, who alongside public international law chief Yas Banifatemi is coordinating the enforcement after securing the $50bn award for the majority shareholders in Yukos Oil Company in July 2014, has instructed Stephenson Harwood to enforce the award in the English courts and Dutch firm De Brauw Blackstone Westbroek for proceedings in the Netherlands.

A spokesperson for Stephenson Harwood told Legal Business: ‘The issues with regards to the potential conflict of interest in relation to W&C are currently being investigated by the claimants.’

Stephenson Harwood’s head of commercial litigation, John Fordham, is leading proceedings to seize assets in the UK with support from litigator Ros Prince. Stephenson Harwood has instructed David Foxton QC and Paul McGrath QC of Essex Court Chambers as counsel.

W&C would not comment on the matter.

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tom.moore@legalease.co.uk

Russian fury at Belgium asset seizure in Yukos oil case

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Russia has protested to the Belgian ambassador over the seizure of Russian state assets in Belgium – a move triggered by a court ruling over the now-defunct Yukos oil firm.

The ambassador was told that the asset seizure was “an openly hostile act” that “crudely violates the recognised norms of international law”.

Last year a court told Russia to pay Yukos shareholders $50bn (£32bn) in compensation, after Yukos’s break-up.

A Russian state firm took over Yukos.

In July 2014, an international arbitration court in The Hague said Russian officials had manipulated the legal system to bankrupt Yukos, and jail its boss, the oligarch Mikhail Khodorkovsky.

On Friday, President Vladimir Putin said Russia did not recognise the court’s authority.

Responding to the asset seizure, he said Russia would “defend our interests by the route of justice”.

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Wider seizures

France has also seized Russian state accounts in about 40 banks, along with eight or nine buildings, AFP news agency reports.

And a legal application has also been filed to seize Russian state assets in the UK and US, a lawyer acting for Yukos shareholders told the BBC.