Global Development

Introduction

On 18 February 2020, the Court of Appeal of The Hague reinstated three interim and three final awards in a case opposing three former shareholders in Yukos Oil Company (‘Yukos’) against the Russian Federation (the ‘Yukos Awards’). The so-called Yukos case has become notorious because of the significant amount of damages that the Russian Federation was ordered to pay to the former shareholders (i.e., more than 50 billion USD) and the diplomatic pressure applied by the Russian Federation to various countries in which enforcement of the awards was sought.¹

Beyond the significant amount at stake and the political issues, the decision is also interesting from a legal point of view, both with respect to the provisional application of the Energy Charter Treaty (‘ECT’) and in relation to the use of administrative secretaries by arbitral tribunals, which is a widespread practice both in commercial and investment arbitration.

Factual background

On 20 April 2016, the District Court of The Hague annulled the Yukos Awards. Unlike the Arbitral Tribunal, it concluded that the ECT, which the Russian Federation had signed but never ratified, only applies on a provisional basis to those ECT provisions that are consistent with Russian law.² According to the District Court, the offer to arbitrate included in Article 26 ECT is inconsistent with Russian law which does not provide for the option that acts of a public law nature are submitted to international arbitration.³ Therefore, the Russian Federation never made an unconditional offer to arbitrate within the meaning of Article 26 ECT and no valid arbitration agreement was concluded.⁴ This, in turn, led to the annulment of the Yukos Awards pursuant to Article 1065(1)(a) of the Dutch Code of Civil Procedure (‘DCCP’).⁵

On 18 February 2020, the Court of Appeal of The Hague quashed the decision of the District Court. As a result, the Yukos Awards were reinstated.

Provisional application of the ECT

The main question before the Court of Appeal of The Hague concerned the provisional application of the ECT. Pursuant to Article 45(1) ECT, signatories agree to provisionally apply the Treaty pending its entry into force to the extent that such provisional application is not inconsistent with their constitution, laws or regulations.⁶ Article 45(2)(a) ECT, however, also allows signatories to deliver a declaration upon signing that they cannot accept provisional application.⁷ The Russian Federation signed the ECT in 1994 without delivering such a declaration. Parliament, however, never ratified the ECT.

The Parties were divided on the interpretation of Article 45 ECT. The former Yukos shareholders argued that only if Russian law did not recognize the principle of provisional application, Article 26 ECT would not apply. The Russian Federation, however, asserted that Article 45 ECT required that each individual provision of the ECT would have to be consistent with Russian law. During the appeal before the Court of Appeal in The Hague, the Yukos shareholders argued (by way of subsidiary argument) that the relevant question was whether Russian law excluded the provisional application of one or more treaty provisions and not whether a certain provision of the ECT would be inconsistent with national law.⁸

The Court of Appeal concludes that this last position is the most convincing: a State that has not signed the declaration pursuant to Article 45(2)(a) ECT, is required to provisionally apply the Treaty, except to the extent that the laws or regulations of the State exclude provisional application of (categories of) Treaty provisions.⁹ Given that there is no rule in Russian law which excludes the provisional application of Article 26 ECT, Russian law is consistent with international investment arbitration and Article 26 ECT applies provisionally.¹⁰ Incidentally, the Court of Appeal notes that a dispute between a host country and a foreign investor is not of a public law nature. Even if it were, it is clear that the Russian Federation is a party to many BITs which provide for international arbitration as a potential form of dispute resolution.

Administrative secretary

One of the other arguments raised by the Russian Federation concerned the role of the ‘assistant’ to the Arbitral Tribunal. According to the Russian Federation, the significant number of hours spent by the assistant to the Arbitral Tribunal (in addition to the time spent by two administrative secretaries provided by the PCA) indicated his significant involvement in the drafting of the Yukos Awards.¹¹ As the arbitrators should have personally fulfilled their mandate, the Arbitral Tribunal did not comply with its mandate as required pursuant to Article 1065(1)(c) DCCP.¹² Moreover, as a result of the assistant’s overinvolvement, the Arbitral Tribunal was de facto constituted of four arbitrators, resulting in a breach of Article 1065(1)(b) DCCP.¹³

The Court of Appeal rejects the Russian Federation’s argument. According to the Court, the fact that the assistant wrote parts of the Yukos Awards does not lead to the conclusion that the Arbitral Tribunal was improperly constituted and there is thus no breach of Article 1065(1)(b) DCCP. Nor did it result in the Arbitral Tribunal consisting of an uneven number of arbitrators, and there is thus no breach of Article 1026 DCCP.¹⁴

The Arbitral Tribunal’s use of the assistant does not lead to a failure to comply with its mandate either (Article 1065(1)(c) DCCP), because there is no (unwritten) rule that arbitral assistants may not write parts of the award.¹⁵ There would be a failure to fulfil the Arbitral Tribunal’s mandate only if the assistant took decisions in relation to the awards or took end responsibility in relation to certain parts thereof.¹⁶ The fact that the assistant wrote parts of the Final Award and declared having spent many hours on the file, does not constitute sufficient evidence in this regard. The Court of Appeal also rejects the argument that the Arbitral Tribunal had not sufficiently informed the Parties regarding the role of the assistant, although the Presiding Arbitrator seems to have merely indicated that the assistant served as a contact person for the Presiding Arbitrator, in light of his intensive travel schedule.

The Yukos arbitration was subject to the UNCITRAL Rules and administered by the PCA. Had the Yukos arbitration been conducted under the ICC Rules, certain issues might not have arisen. Indeed, the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC Rules of Arbitration (the ‘ICC Note’) requires the parties’ informed consent as to the appointment of an administrative secretary.¹⁷ The ICC Note clearly states that administrative secretaries act under the strict and continuous supervision of the arbitral tribunal and that under ‘no circumstances’ the arbitral tribunal may delegate its decision-making functions to them. The ICC Note also lists the tasks considered appropriate for an administrative secretary. These include the preparation of the factual portions of an award, such as the summary of the proceedings, the chronology of facts and the summary of the parties’ positions for the tribunal’s review.

The UNCITRAL Notes on Organizing Arbitral Proceedings (the ‘UNCITRAL Notes’) also mention the role of administrative secretaries and clearly state that secretaries do not participate in the decision making.¹⁸ Unlike the ICC Note, however, the use of the UNCITRAL Notes by parties, arbitral tribunals and arbitral institutions is only recommended, whereas the ICC Note reflects the practice and policy of the ICC Court.

Under the ICC Note, there would thus have been more safeguards surrounding the appointment of the administrative secretary and clearer guidelines as to which tasks are appropriate. It therefore provides a clearer framework to assess allegations of improper involvement.

Conclusion

The Yukos Awards have raised quite a stir for many reasons. Unsurprisingly, the Russian Federation has filed a cassation appeal with the Dutch Supreme Court. The saga is hence likely to continue.

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