ECLI:NL:HR:2021:1879

Uitspraak

SUPREME COURT OF THE NETHERLANDS

CIVIL DIVISION

Number20/01595

Date5 November 2021

JUDGMENT

In the case of

THE RUSSIAN FEDERATION,
having its seat in Moscow, Russia,

APPELLANT in the appeal in cassation, defendant in the conditional cross-appeal in cassation,

hereinafter the ‘Russian Federation’,

counsel: R.S. Meijer, R.R. Verkerk and A.E.H. van der Voort Maarschalk,

and

1. VETERAN PETROLEUM LIMITED,
having its registered office in Nicosia, Cyprus,

hereinafter ‘VPL’,

2. YUKOS UNIVERSAL LIMITED,
having its registered office in Douglas, Isle of Man,

hereinafter ‘YUL’,

3. HULLEY ENTERPRISES LIMITED,
having its registered office in Nicosia, Cyprus,

hereinafter ‘Hulley’,

DEFENDANTS in the appeal in cassation, appellants in the conditional cross-appeal in cassation,

hereinafter jointly referred to as ‘HVY’,

counsel: T. Cohen Jehoram, J. de Bie Leuveling Tjeenk and B.M.H. Fleuren.

1.Course of the proceedings

For the course of the proceedings in the courts of fact, the Supreme Court refers to:

the judgments in cases C/09/477160 / HA ZA 15-1, C/09/477162 / HA ZA 15-2 and C/09/481619 / HA ZA 15-112 of The Hague District Court of 11 March 2015, 8 July 2015 and 20 April 2016, respectively;

the judgments in case 200.197.079/01 of The Hague Court of Appeal of 11 October 2016, 25 September 2018, 18 December 2018 and 18 February 2020.

The Russian Federation has lodged an appeal in cassation against the court of appeal’s judgments of 25 September 2018 and 18 February 2020. HVY have lodged a conditional cross-appeal in cassation. The parties have submitted a statement of defence seeking dismissal of the other party’s appeal. The parties have submitted written explanations and argued their positions orally. Advocate General P. Vlas has submitted an advisory opinion recommending that the main appeal in cassation should be dismissed. The parties’ counsel have responded to that advisory opinion in writing.

2.Introduction and manner of treatment

(a) Introduction

2.1

The Russian Federation was ordered in arbitration proceedings to pay damages to three shareholders (or former shareholders) of Yukos Oil Company for breach of its obligations under the Energy Charter Treaty (hereinafter ‘ECT’)^[1]. The issue in the present case is whether the awards rendered in those proceedings should be annulled.

(b) Manner of treatment

2.2

First of all, in part 3 below, the Supreme Court will set out a number of starting points for the assessment of the case. These are: (a) the facts, (b) the applicable law and (c) the application of the Russian Federation and the decisions of the district court and the court of appeal in this respect. The findings of the court of appeal that are most relevant for the assessment in cassation will also be outlined in part 3 (d).

2.3

Then, in part 4, the complaints in cassation of the Russian Federation and of HVY will be summarised.

2.4

In part 5, the Supreme Court will deal with the grounds for cassation in Russian Federation’s main appeal, complaint by complaint. In doing so, the considerations of the court of appeal will be summarised first, to the extent that they are relevant to the assessment of each complaint of the appeal. Subsequently, in the discussion of grounds for cassation 1, 2, 3 and 5 of the appeal, the relevant provisions of the law and the treaties will be reproduced; the authentic English versions of the provisions of the treaties will be cited. Then the complaints submitted in that particular ground for cassation will be assessed. In relation to grounds for cassation 6, 7 and 8, the court of appeal’s considerations against which the complaints are directed will not be reproduced, because grounds for cassation 6 and 7 will be disposed of entirely by means of a summary statement of the grounds under art. 81 (1) of the Judiciary (Organisation) Act, and ground for cassation 8 does not require separate consideration.

2.5

Next, in part 6, the Supreme Court will assess whether the conditions under which HVY filed their cross-appeal have been met.

2.6

The Supreme Court will formulate its overall conclusion in part 7.

2.7

Finally, the decision follows in part 8.

3.Starting points and facts

(a) Facts

3.1

The following facts may be assumed in cassation.

HVY are, or at least were, shareholders in Yukos Oil Company (hereinafter ‘Yukos’), an oil company having its registered office in the Russian Federation. Yukos was declared bankrupt on 1 August 2006 and was deleted from the Russian Commercial Register on 21 November 2007.

In 2004, HVY initiated arbitration proceedings against the Russian Federation pursuant to art. 26 ECT (hereinafter the ‘arbitration proceedings’). In the arbitration proceedings, HVY claimed that the Russian Federation should be ordered to pay them compensation. They based their claim on the argument that, in violation of the ECT, the Russian Federation had expropriated their investments in Yukos and had failed to protect those investments. The place of arbitration was The Hague.

The arbitral tribunal appointed under the UNCITRAL Arbitration Rules (hereinafter the ‘arbitral tribunal’) ruled, in three separate interim awards^[2](hereinafter the ‘interim awards’), on a number of preliminary defences raised by the Russian Federation, including those relating to the arbitral tribunal’s jurisdiction. In the interim awards
,the arbitral tribunal rejected certain jurisdictional and admissibility defences, and decided with respect to other preliminary defences that it would reserve its decision on them until the merits phase of the proceedings.

In three separate final awards^[3](hereinafter the ‘final awards’), the arbitral tribunal rejected the Russian Federation’s remaining jurisdictional and admissibility defences, found that the Russian Federation had breached its obligations under art. 13 (1) ECT and ordered the Russian Federation to pay damages to HVY in the amount of USD 8,203,032,751 (to VPL), USD 1,846,000,687 (to YUL) and USD 39,971,834,360 (to Hulley). In short, the arbitral tribunal found that the Russian Federation had instigated a number of taxation and enforcement measures against Yukos seeking to bring about Yukos’s bankruptcy with the sole aims of eliminating M. Khodorkovsky (the chairman of Yukos and one of its shareholders) as a potential political opponent of President Putin, and of acquiring Yukos’s assets.

The Russian Federation signed but never ratified the ECT.

(b) Applicable law

3.2

Book 4 (‘Arbitration’) of the Dutch Code of Civil Procedure (CCP) as it was in force until 1 January 2015 is applicable to these proceedings for annulment of arbitral awards.^[4]Hereinafter, reference will be made using the indication ‘former art.’ even when referring to provisions that are identical to provisions having the same number in the currently applicable text of Book 4 of the Dutch Code of Civil Procedure.

(c) Application by the Russian Federation and the decisions of the district court and the court of appeal

3.3.1

In these proceedings, the Russian Federation has applied for annulment of the arbitral tribunal’s interim awards and final awards (see 3.1 (iii) and (iv) above, hereinafter also referred to jointly as the ‘arbitral awards’). The Russian Federation relies on the following grounds for annulment (as mentioned in former art. 1065 (1) CCP):

(a) there was no valid arbitration agreement, as a result of which the arbitral tribunal lacked jurisdiction to hear and decide HVY’s claims;

(b) the arbitral tribunal was improperly constituted, in particular in that the assistant to the arbitral tribunal clearly played a substantive role in assessing the evidence, in the deliberations of the arbitral tribunal and in preparing the final awards;

(d) no reasons were given for several crucial aspects of the arbitral awards;

(e) the arbitral awards were contrary to Dutch public policy and morality.

3.3.2

The district court^[5]decided in favour of the Russian Federation on the basis that there was no valid arbitration agreement. HVY appealed against the district court’s judgment.

3.3.3

In the appeal proceedings HVY objected to certain changes to the claim that were allegedly included in the Russian Federation’s statement of defence on appeal. In an interlocutory judgment^[6](hereinafter the ‘interlocutory judgment’) the court of appeal ruled that this objection was well founded in so far as it concerned the Russian Federation’s submissions regarding the fraud allegedly committed by HVY in the arbitration proceedings.

3.3.4

In its final judgment^[7](hereinafter the ‘final judgment’), the court of appeal quashed the judgment of the district court and dismissed the application of the Russian Federation.

(d) Summary of the court of appeal’s findings

3.4

Broadly speaking and in so far as relevant in cassation, the findings of the court of appeal came down to the following.

In the interlocutory judgment

(i) In its statement of defence on appeal, the Russian Federation put forward arguments which, in short, entailed that HVY fraudulently concealed in the arbitration proceedings the party with the actual ownership and control of HVY. These allegations, if correct, could provide grounds to apply for revocation of the arbitral awards on the basis of former art. 1068 (1) CCP. Therefore, these accusations cannot be raised in annulment proceedings such as these. (considerations 5.1 - 5.7).

In the final judgment

Jurisdiction; interpretation of the limitation clause in art. 45 (1) ECT

(ii) Art. 45 (1) ECT provides that each signatory to the ECT agrees to apply the Treaty provisionally, but only ‘to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’ (hereinafter the ‘limitation clause’). In the proceedings to annul the awards, HVY are permitted to defend – for the first time on appeal – an alternative interpretation of the limitation clause that they had not already defended in the arbitration proceedings. (considerations 4.4 - 4.5)

(iii) The limitation clause must be understood to mean that a signatory that has not made the declaration referred to in art. 45 (2) (a) ECT is obliged to apply the ECT provisionally except in so far as provisional application of one or more provisions of the ECT is contrary to national law in the sense that the laws or regulations of that State preclude the provisional application of the ECT in respect of certain treaty provisions or certain types or categories of treaty provisions. Therefore the limitation clause may not be invoked if a provision of the ECT is in itself contrary to any rule of national law. (consideration 4.5)

(iv) Based on this interpretation of the limitation clause, the provisional application of art. 26 ECT (which makes it possible to settle a dispute between a Contracting Party and an investor of another Contracting Party by means of arbitration) is not inconsistent with the ‘constitution, laws or regulations’ of the Russian Federation. It has not been argued or proven that Russian law contains a rule that precludes the provisional application of art. 26 ECT. This means that the Russian Federation was obliged to apply art. 26 ECT provisionally and that the district court was wrong to decide otherwise. (consideration 4.6)

(v) The Russian Federation’s interpretation of the limitation clause turns on whether any provision of the ECT as such is in conflict with national law. Even on the basis of this interpretation, art. 26 ECT is not inconsistent with Russian law within the meaning of art. 45 (1) ECT. (consideration 4.7)

Jurisdiction; interpretation of ‘Investment’ and ‘Investor’ in art. 1 (6) and (7) ECT

(vi) It follows from the wording of the ECT that an investment dispute falls within the scope of art. 26 ECT if the legal person making the investment is organised under the law of one Contracting Party and the investment as referred to in art. 1 (6) ECT takes place in another Contracting Party. It does not follow from the context of art. 1 ECT and art. 26 ECT or from the objective of the ECT that the drafters of the treaty intended to impose further requirements on the foreign nature of the investment or investor, or the international nature of the dispute. (consideration 5.1.7)

(vii) It does not follow from the text of art. 17 ECT (the denial of benefits clause) that investments made through the ‘U-turn construction’ (which according to the Russian Federation includes HVY’s investments) are not covered by the protection of the ECT. Nor is there any rule of customary international law or any general principle of law that would preclude a claim to protection in a case like this. (consideration 5.1.8)

(viii) The Russian Federation has not demonstrated the existence of a legal principle of investment law according to which any investment treaty only protects investments that make an economic contribution to the host country, regardless of whether the treaty contains a definition of the term investment. (consideration 5.1.9)

(ix) The Russian Federation has unsuccessfully argued that under principles of piercing the corporate veil, Russian businessmen involved in the privatisation of Yukos (hereinafter ‘Khodorkovsky
et al.’) cannot hide behind the corporate structure of HVY that they themselves misused in order to commit fraud, bribery and other crimes. Art. 1 (7) ECT does not provide a basis for the application of rules of national law with regard to piercing the corporate veil. (consideration 5.1.10)

(x) The ECT does not require that an investment be made in accordance with the law of the host country. Nor does the text of the ECT contain any restrictions in this respect for access to arbitration as referred to in art. 26 ECT. The result is that the arbitral tribunal would not be deprived of jurisdiction if it were shown that there had been illegal acts at the time or in the making of the investment. (consideration 5.1.11)

(xi) Accordingly, the grounds submitted by the Russian Federation as the basis for its argument that there was no valid arbitration agreement cannot support this conclusion. (consideration 5.3)

Breach of mandate and composition of the arbitral tribunal

(xii) The arbitral tribunal was in principle obliged to refer the dispute concerning the taxation measures imposed in Russia to the Russian tax authorities in any event. However, the failure to do so is not serious enough to justify annulment of the arbitral award, because it was not demonstrated that the Russian Federation has suffered a disadvantage because of such failure. (consideration 6.3)

(xiii) Even if it is assumed that the assistant to the arbitral tribunal drafted parts of the arbitral awards, this cannot lead to the conclusion that the composition of the arbitral tribunal violated the statutory rules or the rules agreed between the parties. The fact that the assistant performed substantive work does not mean that the arbitrators acted contrary to their mandate in such a way that this should result in the annulment of the arbitral awards. (consideration 6.6)

Reasoning

(xiv) The complaint that the arbitral tribunal issued an incomprehensible and unsound finding, tantamount to a finding without any reasons, concerning the claim that Yukos had made use of sham companies in low tax regions, rests on an incorrect reading of the final awards. (consideration 8.4)

Public policy

(xv) The fraudulent, corrupt and illegal activities of Khodorkovsky
et al.alleged by the Russian Federation do not lead to the conclusion that the arbitral awards or the manner in which they were made are contrary to public policy within the meaning of former art. 1065 (1) (e) CCP. (consideration 9.8)

4.The cassation complaints of the Russian Federation and HVY

The main appeal, lodged by the Russian Federation

4.1.1 The ground for appeal in the main appeal, lodged by the Russian Federation, consists of eight grounds for cassation, with grounds for cassation 1 to 7 each comprised of an introduction and several complaints. In summary, the grounds for cassation of the appeal raise the following issues.

4.1.2 Ground for cassation 1 challenges the court of appeal’s finding (see 3.4 (i) above) that the Russian Federation’s allegation on appeal that HVY acted fraudulently in the arbitration proceedings cannot be raised in these annulment proceedings.

4.1.3 Ground for cassation 2 argues that the Russian Federation was not bound by the arbitration clause contained in art. 26 ECT, because the Russian Federation only signed the ECT and never ratified it. The Russian Federation disagrees with the court of appeal’s interpretation of the limitation clause and with the court of appeal’s finding based on this interpretation that the Russian Federation was required to apply art. 26 ECT provisionally (see 3.4 (ii) - (v) above).

4.1.4 Grounds for cassation 3 and 4 challenge the court of appeal’s finding (see 3.4 (vi) - (x) above) that HVY can invoke the provisions of the ECT. According to the Russian Federation, HVY cannot be deemed foreign investors and their investments do not qualify as foreign investments within the meaning of the ECT. In addition, the Russian Federation argues that HVY’s investments were illegal and therefore the arbitral tribunal had no jurisdiction to hear HVY’s claims. Furthermore, the Russian Federation submits that the arbitral tribunal’s ruling is contrary to public policy (see 3.4 (xv) above).

4.1.5 According to ground for cassation 5, the court of appeal erred in not ruling (see 3.4 (xii) above) that the arbitral tribunal violated its mandate by failing to make a referral to the tax authorities, as prescribed by art. 21 (5) ECT.

4.1.6 Ground for cassation 6 objects to the court of appeal’s finding (see 3.4 (xiii) above) about the role played by the assistant to the arbitral tribunal in the preparation of the arbitral awards. According to the Russian Federation, the assistant also performed substantive work and the arbitral tribunal was not transparent about this. Therefore, according to the Russian Federation, the court of appeal should have ruled that the arbitral tribunal violated its mandate and was improperly constituted.

4.1.7 Ground for cassation 7 challenges the court of appeal’s rejection (see 3.4 (xiv) above) of the ground for annulment raised by the Russian Federation that the arbitral tribunal had failed to give sound reasons for its finding that there was no evidence whatsoever that Yukos’s trading companies in the low tax region of Mordovia were sham companies.

4.1.8 Ground for cassation 8 builds on grounds for cassation 1 to 7.

The conditional cross-appeal by HVY

4.2.1 The ground for appeal in HVY’s cross-appeal consists of three complaints. Complaint 1 challenges the court of appeal’s rejection of HVY’s principal position on the interpretation of the limitation clause. Complaint 2 complains about the court of appeal’s finding that the arbitral tribunal was in principle obliged to refer the dispute to the Russian tax authorities. Complaint 3 complains that the court of appeal failed to appreciate that the Russian Federation was not entitled to raise at a later stage than in the summons a ground for annulment challenging the arbitral tribunal’s decision to dismiss the accusations based on the ‘unclean hands’ argument.

4.2.2 The complaints of the cross-appeal are all conditional. Complaint 1 was proposed subject to one or more of the complaints in ground for cassation 2 in the main appeal being successful; complaint 2 is subject to one or more of the complaints in ground for cassation 5 in the main appeal being successful, and complaint 3 is subject to one or more of the complaints in ground for cassation 3 or 4 in the main appeal being successful.

5.Assessment of the ground for appeal in the main appeal

Ground for cassation 1

Can fraud in the arbitration proceedings only be raised in revocation proceedings?

(a) Summary of the court of appeal’s considerations

5.1.1

The court of appeal considered the following to the extent relevant for the assessment of this ground for cassation.

(i) HVY object
inter aliato the Russian Federation’s claims that the arbitral awards are contrary to public policy due to fraud committed by HVY during the arbitration, consisting of submitting false statements and withholding documents, and that HVY failed to produce various documents and correspondence in the arbitration. (considerations 5.1(i) and (iii) of the interlocutory judgment)

(ii) HVY’s objection to these claims by the Russian Federation is that the Russian Federation should have filed the revocation proceedings on the basis of former art. 1068 CCP, or at least should have submitted its change of claim within three months after it became aware (or should have become aware) of the facts on which it bases its allegation that fraud was committed or documents were withheld. Also, according to HVY, the change of claim violates the requirements of due process (art. 130 CCP). (considerations 5.3 (b) and (c) interlocutory judgment)

(iii) In its statement of defence on appeal, the Russian Federation has not alleged any new instances of fraud, but merely referred to ‘new documents’ that it believes should have been produced by HVY in the arbitration. Thus, it is the allegations concerning fraud and withholding of documents in the arbitration that are at issue. (consideration 5.5 of the interlocutory judgment)

(iv) These allegations, if correct, could constitute grounds to apply for revocation of an arbitral award on the basis of former art. 1068 (1) CCP. The allegation that HVY failed to introduce certain documents into the proceedings that would have been relevant for the decision of the arbitral tribunal falls under the ground for revocation in former art. 1068 (1) (c) CCP. The accusations that HVY intentionally made false and/or incorrect statements, concealed the actual state of affairs or improperly influenced a witness, fall under the ground for revocation in former art. 1068 (1) (a) CCP. (consideration 5.6 of the interlocutory judgment)

(v) HVY rightly argues that these accusations can only be raised in a revocation proceeding based on former art. 1068 CCP and not in an annulment proceeding like the one at hand. The legal effect of annulment based on one of the grounds in former art. 1065 (1) CCP and annulment based on revocation is the same in both cases: the jurisdiction of the ordinary court is revived, unless the parties have agreed otherwise (see former art. 1068 (3) CCP). However, there are differences with respect to the period within which the legal remedies must be lodged and with respect to the court of competent jurisdiction. If more than three months have lapsed since the arbitral award became final and unappealable, revocation can still be applied for within three months after the fraud or forgery has become known or a party has obtained the new documents. No such additional period exists for annulment proceedings. Moreover, the application for revocation is filed with the court of appeal that would have jurisdiction to rule on the application for annulment referred to in former art. 1064 CCP on appeal, whereas annulment proceedings (which are governed by the former law in this case) are filed with the district court. Thus, there is only one instance deciding issues of fact in revocation proceedings. If annulment of the arbitral award could be applied for on account of one or more of the grounds for annulment in former art. 1065 (1) CCP based on the argument that the other party committed fraud during the arbitration or withheld documents, the same result could be achieved as with an application for revocation, but both the aforementioned three-month term and the exclusive jurisdiction of the court of appeal as the sole instance deciding issues of fact could be circumvented by a roundabout route, for example by – in annulment proceedings already pending before the district court – submitting fraud more than three months after the fraud was discovered as a new argument for relying upon former art. 1065 (1) (e) CCP, having already invoked that article in the summons. This would not be acceptable. (consideration 5.7 of the interlocutory judgment)

(vi) HVY’s objection that the Russian Federation cannot raise in these annulment proceedings its arguments that HVY committed fraud in the arbitrations is therefore well founded. HVY’s objection that the change of claim violates the requirements of due process will not be addressed. (consideration 5.8 of the interlocutory judgment)

(vii) In view of considerations 5.1 - 5.8 of the interlocutory judgment, there is no need to rule on the Russian Federation’s allegations that HVY committed fraud in the arbitrations. (considerations 9.7.1 - 9.7.2 of the final judgment).

(b) Relevant legal provisions

5.1.2

Former art. 1064 CCP reads as follows:

1. A complete or partial final arbitral award that cannot be appealed to a second arbitral tribunal, or a complete or partial final award rendered on arbitral appeal, may be challenged only by means of the legal remedies of annulment or revocation in accordance with this part.

2. The application for annulment is made to the district court with whose registry the original of the award must be deposited in accordance with article 1058 (1).

3. A party may submit an application for annulment as soon as the award has become final and unappealable. The right to do so expires three months after the date of deposit of the award with the registry of the district court. However, if the award together with leave for enforcement is served on the other party, that party may, irrespective of whether the three-month period mentioned in the preceding sentence has expired, still make an application for annulment within three months after such service.

4. (…)

5. All grounds for annulment must be submitted in the summons, on penalty of forfeiture of the right to rely on them.

Former art. 1065 (1) CCP reads as follows:

1. An award can be annulled only on one or more of the following grounds:

a. there was no valid arbitration agreement;

b. the arbitral tribunal was constituted in violation of the applicable rules;

c. the arbitral tribunal did not comply with its mandate;

d. the award was not signed in accordance with article 1057 or does not state the reasons on which it is based;

e. the award, or the manner in which it was made, is contrary to public policy or morality.

Former art. 1067 CCP reads as follows:

As soon as the judgment annulling an arbitral award has become final and unappealable, the jurisdiction of the ordinary court is revived, unless the parties have agreed otherwise.

Former art. 1068 CCP reads as follows:

1. An award can be revoked only on one or more of the following grounds:

a. the award is based in whole or in part on fraud discovered after the award is made, and committed during the arbitration proceedings by or with the knowledge of the other party;

b. the award is based in whole or in part on documents which, after the award was made, turn out to be forged;

c. after the award is made, a party obtains documents that would have influenced the decision of the arbitral tribunal and were withheld as a result of the acts of the other party.

2. The application for revocation must be brought applying article 1064 (3)
mutatis mutandisor, if this should be later, within three months after the fraud or forgery has become known or a party has obtained the new documents, before the court of appeal that would have jurisdiction on appeal to rule on the application for annulment referred to in article 1064. (…)

3. If the court finds that the ground or grounds submitted for revocation are correct, it will annul the award in whole or in part. Article 1067 applies
mutatis mutandis.

(c) Assessment of the complaints

5.1.3

Complaint 1.2 argues that the court of appeal wrongly decided that factual allegations that could have justified invoking revocation under former art. 1068 CCP cannot also result in the annulment of an arbitral award on the basis of former art. 1065 (1) (e) CCP due to a violation of public policy. The complaint also argues that the court of appeal wrongly denied the Russian Federation a free choice between the legal remedies of annulment and revocation.

5.1.4

In its initial summons, the Russian Federation argued as grounds for annulment of the arbitral awards
inter aliathat they were made in violation of public policy. It argued in its statement of defence on appeal that the arbitral awards are contrary to public policy because HVY acted fraudulently in the arbitration proceedings, including by submitting false statements, withholding documents relevant to crucial disputed issues in the arbitration and making secret payments to one of HVY’s key witnesses.

5.1.5

The only legal remedies available to challenge a final arbitral award that is not subject to appeal to a second arbitral tribunal are annulment (hereinafter ‘annulment proceedings’) and revocation (hereinafter ‘revocation proceedings’) (former art. 1064 CCP).

5.1.6

An award can be annulled only on the grounds mentioned in former art. 1065 (1) (a) - (e) CCP. One of these grounds is that the award, or the manner in which it was made, is contrary to public policy.

A party may submit an application for annulment as soon as the award has become final and unappealable. The right to do so expires three months after the date of deposit of the award with the registry of the district court. If the award together with leave for enforcement is served on the other party, that party may still submit an application for annulment within three months after this service (former art. 1064 (3) CCP).

5.1.7

Pursuant to former art. 1068 (1) CCP, an award can be revoked only on the grounds (a) that the award is based in whole or in part on fraud discovered after the award and committed during the arbitral proceedings by or with the knowledge of the other party, (b) that the award is based in whole or in part on documents which, after the award, turn out to be forged, or (c) that after the award one of the parties obtains documents which would have had an influence on the decision of the arbitral tribunal and were withheld as a result of the acts of the other party. These grounds are hereinafter collectively referred to as ‘fraud’.

The application for revocation must be brought within the term set out in former art. 1064 (3) CCP or, if this is later, within three months after the fraud became known (former art. 1068 (2), first sentence, CCP).

5.1.8

If an arbitral award has been made under the influence of fraud, this may constitute grounds for finding that the award, or the manner in which it was made, is contrary to public policy as referred to in former art. 1065 (1) (e) CCP. Therefore, a party may seek to have the arbitral award annulled on this ground in annulment proceedings.

5.1.9

The considerations in 5.1.8 above do not alter the fact that fraud by one of the parties to the proceedings can also constitute a ground for revocation pursuant to former art. 1068 (1) CCP. It does not follow from the text of the law or from the legislative history that the legislature intended that, if the allegations constitute both a ground for annulment within the meaning of former art. 1065 (1) CCP and a ground for revocation within the meaning of former art. 1068 (1) CCP, a party may use these arguments as the basis for its application solely in revocation proceedings. Nor do the manner in which both proceedings were designed by the legislature and the differences between the two proceedings provide any ground for interpreting the statutory rules in former art. 1064 - 1068 CCP in this manner. The Supreme Court considers the following in this regard.

5.1.10

Like annulment proceedings, successful revocation proceedings result in annulment of the arbitral award (former art. 1068 (3) CCP). There is therefore no difference in legal effect that would justify making revocation proceedings (to the exclusion of annulment proceedings) the only court proceedings in which a party can assert that an arbitral award was made under the influence of fraud.

The result of the rule in former art. 1068 (2), first sentence, CCP is that a revocation application can still be lodged if the time limit for lodging an annulment application has already expired or the annulment proceedings have been completed without resulting in annulment. The provision in former art. 1068 (2) CCP is intended to broaden the scope for challenging an arbitral award by giving the party that wishes to purport that the award is based on fraud an additional period of time to file the application for revocation. It would be inconsistent with this intention to find that an allegation that the arbitral award was made under the influence of fraud can only be used as the basis for an application for revocation and not for a timely application for annulment.

It also does not follow from the statutory rules on revocation of court decisions (art. 382
et seq.of the CCP) that potential grounds for revocation may only be raised in revocation proceedings. On the contrary, wherever possible the annulment of court decisions should be achieved by means of an ordinary legal remedy.^[8]Only when the ordinary remedies against a judicial decision have been exhausted or the time limits for such remedies have expired unused is the extraordinary legal remedy of revocation available (art. 383 (1) CCP).

5.1.11

Pursuant to former art. 1064 (2) CCP, the annulment application must be filed with the district court, with the possibility of an appeal,^[9]whereas pursuant to former art. 1068 (2) CCP the revocation application must be filed, by way of prorogation of jurisdiction,^[10]with the court of appeal that would have jurisdiction on appeal to rule on the annulment application. The reason for this difference is not explained in the legislative history. The difference – partly given the fact that it no longer exists under current law (see art. 1064a (1) of the CCP) – is of insufficient weight to assume that revocation proceedings are intended to be the exclusive legal remedy for fraud, and therefore does not prevent the argument that the arbitral award was made under the influence of fraud from also being used as the basis for a timely application for annulment.

5.1.12

The court of appeal therefore erred in finding that the Russian Federation could raise the arguments mentioned in consideration 5.5 of the interlocutory judgment only in revocation proceedings and that those arguments therefore could not be the basis for the application for annulment at issue in these proceedings. The complaint directed against that finding is well founded. The remaining complaints of ground for cassation 1 need not be addressed.

5.1.13

The following should also be noted.

5.1.14

Pursuant to former art. 1064 (5) CCP, the grounds on which the claimant wishes to base the application for annulment must be included in the initial summons, on penalty of forfeiture of the right to rely on them. In the
Breeders/Burshan^[11]case, the Supreme Court ruled that former art. 1064 (5) CCP does not in itself preclude further elaboration, on appeal, of grounds put forward in the initial summons, and if necessary correction of an omission, in response to a defence raised in the further course of the proceedings, or as a result of the decision of the court of first instance. However, the possibility to elaborate, on appeal, on grounds already submitted in the summons, or to make new factual submissions, is not unlimited. This possibility is limited
inter aliaby the ordinary rules applicable to appeal proceedings, such as art. 130 CCP. In addition, this possibility is limited by specific provisions that prescribe when a certain ground for annulment must be invoked for the first time, on penalty of forfeiting the right to rely on it later. If such a provision is at issue, the court will have to assess in each individual case whether a new factual or legal submission introduced in the course of the annulment proceedings would conflict with the purport of such a provision, partly in view of the requirements of due process.^[12]

5.1.15

It follows from 5.1.7 - 5.1.10 above that revocation proceedings provide a person who believes that an arbitral award is based on fraud with an additional opportunity to challenge the award in court on that ground, which is particularly important when the other legal remedies, such as an application for annulment, have already been exhausted or the time limits for lodging them have expired unused at the time when the fraud is discovered. The fact that this possibility is limited in time by the period of three months after the fraud became known (former art. 1068 (2), first sentence CCP) means that after this period expires unused, the other party may assume that the arbitral award is no longer subject to annulment as a result of revocation. This period therefore serves legal certainty. However, if annulment proceedings are already pending in which it was argued in the summons that the award, or the manner in which it was made, is contrary to public policy, the other party has to take account of the possibility that the arbitral award will be set aside on that ground, and the interest of legal certainty will not be harmed if the public policy plea is further elaborated during the annulment proceedings by invoking fraud. Therefore, the purport of former art. 1068 (2), first sentence CCP does not imply that in annulment proceedings too, fraud must be invoked within the term mentioned in this provision, on penalty of forfeiture of the right to rely on it at a later stage. Whether fraud can be invoked in annulment proceedings at a later stage must otherwise be assessed according to the rules set forth in 5.1.14 above.

5.1.16

Regarding the application of art. 130 (1) CCP, it must be assessed in each specific case whether the submission of a new argument to substantiate a ground for annulment already advanced in the summons violates the requirements of due process. In this respect, the reason for not asserting the new argument earlier may be one of the important considerations.

The violation of due process requirements referred to in art. 130 (1) CCP may arise
inter aliaif, in a case such as the present one, in which it is alleged that the arbitral award was made under the influence of fraud, the further elaboration referred to above is raised later than in the next submission or document filed after the fraud has become known.

5.1.17

The considerations above about the relationship between revocation proceedings and annulment proceedings also apply under current law.

5.1.18

In this case, the Russian Federation argued that it discovered fraud on the part of HVY after the date of the district court’s judgment, and invoked this in its next submission on appeal (the statement of defence on appeal). The court of appeal did not address the question of whether this further elaboration by the Russian Federation in its statement of defence of the ground for annulment already invoked in the initial summons violates the due process requirements referred to in art. 130 (1) CCP.

(d) Conclusion

5.1.19

In conclusion, ground for cassation 1 of the appeal is successful.

Ground for cassation 2

Is the Russian Federation required by art. 45 ECT to apply art. 26 ECT provisionally?

(a) Summary of the court of appeal’s considerations

5.2.1

The court of appeal considered the following in its final judgment, to the extent relevant for the assessment of this ground for cassation.

New grounds and arguments for jurisdiction in the annulment proceedings

(i) The arbitral tribunal considered two interpretations of the limitation clause: it must be determined whether the
principleof provisional application is contrary to Russian law (HVY’s position), or whether an
individual provisionof the ECT (in this case art. 26) is contrary to Russian law (the Russian Federation’s position). The arbitral tribunal accepted HVY’s position as the correct one. (consideration 4.4.1)

(ii) In these annulment proceedings, HVY argued in the alternative, for the first time on appeal, that the limitation clause concerns the question of whether the
provisional applicationof one or more provisions of the ECT is incompatible with the law of a Contracting Party, because the legislation of that Contracting Party allows for the provisional application of a treaty in principle, but excludes certain treaty provisions or certain categories or types of treaty provisions from provisional application. (consideration 4.4.2)

(iii) It is incompatible with the statutory system that the annulment court may only review whether the arbitral tribunal assumed jurisdiction on the correct grounds and may not find that there was jurisdiction on grounds not addressed by the arbitral tribunal for whatever reason (and wrongly so, in the court’s opinion). It would be contrary to effective arbitral proceedings if an arbitral award had to be annulled because the arbitral tribunal used an incorrect argument for taking jurisdiction, when in fact jurisdiction does exist. (consideration 4.4.3 - 4.4)

(iv) The foregoing also means that, in principle, there is no objection if the defendant in the annulment proceedings asserts new arguments that could support the arbitral tribunal’s finding that it has jurisdiction. HVY’s alternative position with respect to the interpretation of the limitation clause will be considered when determining whether there was no valid arbitration agreement within the meaning of former art. 1065 (1) (a) CCP. (considerations 4.4.5 - 4.4.7)

The interpretation of art. 45 (1) ECT (and more specifically the limitation clause) and the interpretation of art. 45 (2) (a) ECT

(v) HVY’s alternative position is the one most consistent with the ordinary meaning of the wording of the limitation clause and with the context, object and purpose of the ECT. There is insufficient evidence of an established state practice within the meaning of art. 31 (3) of the Vienna Convention on the Law of Treaties (hereinafter ‘VCLT’)^[13]but, even if such a practice were to exist, it would not be inconsistent with HVY’s alternative position. This means that the limitation clause must be understood to mean that a signatory that has not made the declaration referred to in art. 45 (2) (a) ECT is required to apply the ECT provisionally except in so far as provisional application of one or more provisions of the ECT is inconsistent with national law in the sense that the laws or regulations of that State preclude provisional application of the ECT in respect of certain treaty provisions or certain types or categories of treaty provisions. Therefore, the limitation clause cannot be invoked if a provision of the ECT is in itself inconsistent with any rule of national law. (considerations 4.5.9 - 4.5.33)

(vi) This interpretation does not leave the meaning of art. 45 (1) ECT or of the limitation clause ambiguous or obscure, and it does not lead to a manifestly absurd or unreasonable result. Therefore, there is no reason to apply the additional interpretation rules in art. 32 VCLT. For the record, it should be noted that the
travaux préparatoiresconfirm this interpretation of art. 45 (1) ECT. (considerations 4.5.34 - 4.5.40)

(vii) The meaning of the words ‘not inconsistent’ follows from the court of appeal’s interpretation of the limitation clause. The point of the interpretation is whether there is a national law or regulation that precludes provisional application of certain treaty provisions or certain types or categories of treaty provisions. If so, provisional application of those treaty provisions or types or categories of provisions is ‘inconsistent’ with national law. (consideration 4.5.41)

(viii) The text and context of art. 26 ECT in no way suggest an interpretation to the effect that provisional application of art. 26 ECT (dispute resolution by arbitration) is ‘inconsistent’ with Russian law if such manner of dispute resolution has no legal basis in Russian law, or that law itself does not provide for that possibility. The district court’s finding to the contrary amounts to saying that the provisions of the ECT can only be applied provisionally if there is already a legal basis to do so in national law. This would deprive the provisional application as referred to in art. 45 (1) ECT of much of its practical significance and would not be in accordance with the wish of the Contracting Parties expressed in this provision to apply the ECT provisionally as much as possible. (consideration 4.5.47)

(ix) In conclusion, the limitation clause must be interpreted as meaning that a signatory that has not made the declaration referred to in art. 45 (2) (a) ECT is required to apply the ECT provisionally, except in so far as provisional application of one or more provisions of the ECT is contrary to national law in the sense that the laws or regulations of that State preclude the provisional application of certain treaty provisions or certain types or categories of treaty provisions. Based on the Russian Federation’s interpretation of the limitation clause, there is an ‘inconsistency’ within the meaning of art. 45 (1) ECT in any event if a treaty provision and a certain rule of national law cannot be applied simultaneously, because application of one rule would result in a violation of the other. Whether besides this there is an ‘inconsistency’ depends on the specific context of the rules at issue. In any event, there is no ‘inconsistency’ merely because national law does not provide a basis for, or does not provide for, the relevant provision of the ECT. (consideration 4.5.48)

Application of limitation clause in this case (based on the court of appeal’s interpretation of this provision)

(x) The provisional application of art. 26 ECT is not inconsistent with the ‘constitution, laws or regulations’ of the Russian Federation. It has not been argued or shown that any rule of Russian law precludes the provisional application of art. 26 ECT. This means that the Russian Federation was obliged to apply art. 26 ECT provisionally and that the district court was wrong to decide otherwise. (consideration 4.6.1)

Application of the limitation clause in the present case (based on the Russian Federation’s interpretation of it)

(xi) Nevertheless, for the record, the court of appeal will examine whether, based on the interpretation given to the limitation clause by the Russian Federation and the district court, art. 26 ECT is inconsistent with any provision of the law of the Russian Federation. (consideration 4.6.2)

(xii) The Russian Federation put forward three independent grounds on which it believes it follows that arbitration of HVY’s claims is inconsistent with Russian law: (a) it is contrary to the principle of separation of powers enshrined in Russian statute and constitutional law; (b) under Russian law disputes about public law powers, such as tax disputes and expropriation disputes, are not arbitrable; (c) under Russian law shareholders are not entitled to claim a reduction in the value of their shares for damage caused to the company. (consideration 4.7.1)

(a) The separation of powers

(xiii) The Russian Laws on Foreign Investment of 1991 and 1999 (hereinafter ‘LFI 1991’ and ’LFI 1999’) explicitly make international arbitration of investment disputes possible. (consideration 4.7.5)

(xiv) Russian law does not contain a rule that provisional application is not possible in relation to treaties that have to be ratified because they contain provisions that deviate from or supplement federal legislation. Art. 23 (2) of the Federal Law on International Treaties (hereinafter ‘FLIT’) allows for the provisional application of treaty provisions that deviate from or supplement federal legislation. Since under Russian law the provisional application continues until the Russian Federation informs the other Contracting Parties that it does not intend to become a party to the treaty in question, which in this case happened in August 2009, this can only mean that provisional application of the ECT before that time is not ‘inconsistent’ with Russian law within the meaning of art. 45 (1) ECT. (considerations 4.7.9 - 4.7.21 and 4.7.30)

(xv) The Constitutional Court of the Russian Federation considers it permissible for the government to require the Russian Federation to provisionally apply treaty provisions pending ratification, even if these treaty provisions deviate from federal legislation. (consideration 4.7.29)

(xvi) Although the ECT was not submitted to the Duma within the six-month period referred to in art. 23 (2) FLIT, this did not affect the provisional application of the ECT. This means that the provisional application of the ECT is not limited by the operation of the limitation clause of art. 45 (1) ECT in combination with art. 23 (2) FLIT. The Russian Federation’s invocation of the separation of powers is not valid. (considerations 4.7.30 - 4.7.32)

(b) Are disputes concerning public law powers arbitrable?

(xvii) A dispute between a foreign investor and the host country is not of a public law nature. However, even if it is assumed that under Russian law arbitration is only available for private law disputes and that the present dispute is not a private law dispute, international arbitration under art. 26 ECT is not ‘inconsistent’ with Russian law. An arbitral tribunal appointed pursuant to art. 26 ECT must decide a dispute submitted to it ‘in accordance with this Treaty and applicable rules and principles of international law’. It is inconceivable that such a form of international arbitration could not exist alongside the legal provisions cited by the Russian Federation. The fact that for domestic situations Russian law opens up the possibility of arbitration only for private law disputes does not conflict with the fact that the ECT opens up international arbitration for the cases regulated therein, in addition to the existing options under domestic Russian law. The treaty practice of the Russian Federation also shows no reluctance to allow international arbitration of disputes about investment treaties. (considerations 4.7.35 - 4.7.37)

(xviii) Nor does the Explanatory Note submitted by the government to the Duma on 26 August 1996 as an explanatory memorandum to the bill to ratify the ECT, which was required by art. 16 (4) FLIT to include ‘a report on its conformity with the legislation of the Russian Federation’, reveal any problem with the arbitration clause in art. 26 ECT or with the provisional application of that provision. (consideration 4.7.38)

(xix) Based on the foregoing alone, it cannot be concluded that art. 26 ECT is inconsistent with Russian law within the meaning of the limitation clause, even if the Russian Federation’s interpretation of it were assumed to be correct. (consideration 4.7.39)

(xx) Art. 25 and 27 of the Russian Code of Civil Procedure also do not allow any other conclusion than that treaties may contain rules to the effect that disputes other than those relating to private law may be submitted to arbitration. The same applies to art. 1 (5) of the Law on International Commercial Arbitration and art. 21 and 23 of the Code of Civil Procedure in Commercial Matters. (considerations 4.7.40 - 4.7.42)

(xxi) Both LFI 1991 and LFI 1999 explicitly leave open the possibility that a dispute between a foreign investor and the Russian Federation may be settled in a different way than by a Russian court. Art. 9 LFI 1991 refers to the possibility of ‘international means for settling disputes’, while art. 10 LFI 1999 refers to ‘international arbitration (arbitration tribunal)’. Arbitration under art. 26 ECT is covered by both descriptions. Art. 9 LFI 1991 and art. 10 LFI 1999 are based on a broad view of what can be regarded as an investment dispute under these laws and do not limit that possibility to private law disputes. (considerations 4.7.47 - 5.7.52)

(xxii) The ‘Basic Principles Law’ also provides that an international treaty may stipulate that investment disputes between an investor and the former USSR may be resolved by other means than through the Russian courts. This does not include any limitation to private law disputes. (consideration 4.7.54)

(xxiii) Even if LFI 1991 and LFI 1999 do not provide a basis for a treaty to submit a dispute such as the one between HVY and the Russian Federation to international investment arbitration, it does not in any case follow from these laws that such a form of arbitration is ‘inconsistent’ with Russian law. Nor does it follow from other sources of Russian law. Nor is there any evidence of a general legal opinion in the Russian Federation that international arbitration of international investment disputes is impermissible. (consideration 4.7.57)

(xxiv) In conclusion, art. 26 ECT is not inconsistent with Russian law within the meaning of the limitation clause. (consideration 4.7.58)

(c) Does Russian law give shareholders a claim for decrease in value of their shares?

(xxv) The argument that under Russian law HVY as shareholders (or former shareholders) of Yukos cannot bring an action in respect of damage caused to the company is not relevant to the question of whether the arbitral tribunal had jurisdiction under art. 26 ECT to rule on the dispute between the parties. (consideration 4.7.62)

(xxvi) The arbitral tribunal understood HVY’s claim to mean that they argued that the Russian Federation had expropriated their shares (not explicitly but
de facto). The arbitral tribunal allowed HVY’s claims on this ground. The court of appeal agrees with this reading of HVY’s arguments. Based on this, the arbitral tribunal correctly ruled that HVY did not bring proceedings for damage caused to the company (Yukos). (consideration 4.7.63)

(xxvii) To the extent that it should be held that the ECT allows shareholders to make claims that shareholders cannot make under Russian law, it does not follow that the ECT is inconsistent with Russian law on this point (within the meaning of the limitation clause). (consideration 4.7.64)

(b) Relevant treaty provisions

5.2.2

Art. 26 ECT (‘Settlement of Disputes between an Investor and a Contracting Party’) reads as follows in so far as is relevant:

1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.

2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution:

(a) to the courts or administrative tribunals of the Contracting Party to the dispute;

(b) in accordance with any applicable, previously agreed dispute settlement procedure; or

3. (a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article.

(b) (…)

4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 (c), the Investor shall further provide its consent in writing for the dispute to be submitted to:

(a) (…)

(b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as ‘UNCITRAL’); or

5. (…)

6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.

7. (…)

8. (…).

Paragraphs 1 and 2 of art. 45 ECT (‘Provisional Application’) read as follows:

1. Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.

2. (a) Notwithstanding paragraph 1 any signatory may, when signing, deliver to the Depositary a declaration that it is not able to accept provisional application. The obligation contained in paragraph 1 shall not apply to a signatory making such a declaration. Any such signatory may at any time withdraw that declaration by written notification to the Depositary.

(b) Neither a signatory which makes a declaration in accordance with subparagraph (a) nor Investors of that signatory may claim the benefits of provisional application under paragraph 1.

(c) Notwithstanding subparagraph (a), any signatory making a declaration referred to in subparagraph (a) shall apply Part VII provisionally pending the entry into force of the Treaty for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its laws or regulations.

(c) Assessment of the complaints

Did the Russian Federation unambiguously and voluntarily consent to arbitration?

5.2.3

Complaints 2.2 and 2.8 argue that the fact art. 26 ECT contains an arbitration clause is not sufficient to give the arbitral tribunal jurisdiction. The arbitral tribunal could only have jurisdiction if the Russian Federation clearly, unambiguously and voluntarily consented to arbitration. These complaints argue that this requirement is not met in the present case.

5.2.4

These complaints cannot result in cassation. The Supreme Court is not required to give grounds for reaching this conclusion. This is because when considering these complaints it is not necessary to answer questions that are important for the uniform interpretation and application of the law or the development of the law (see art. 81 (1) of the Judiciary (Organisation) Act).

Was the court of appeal allowed to consider new jurisdictional arguments?

5.2.5

Complaint 2.3 addresses several grievances against the court of appeal’s finding (see 5.2.1 (i) - (iv) above) that the court of appeal may hold that the arbitral tribunal had jurisdiction to hear HVY’s claims on the basis of arguments put forward by HVY for the first time in the annulment proceedings, even though the arbitral tribunal itself did not base its jurisdiction on these arguments.

5.2.6

These complaints cannot result in cassation merely because there is no interest therein. The court of appeal’s ruling regarding the jurisdiction of the arbitral tribunal is based not only on the argument about jurisdiction asserted by HVY for the first time in the annulment proceedings and the related interpretation of the limitation clause (considerations 4.5.8 - 4.6.2 of the final judgment), but also – only for the record – on the Russian Federation’s interpretation of the limitation clause, which was followed by the district court (considerations 4.7.1 - 4.7.58 of the final judgment). Below in 5.2.11 - 5.2.20 it will be shown that the complaints against that ruling given only for the record cannot succeed.

5.2.7

With respect to the merits, the complaints are not successful either. In this respect the following is considered.

On the basis of former art. 1052 (1) CCP, the arbitral tribunal may rule on its jurisdiction itself. However, if the arbitral tribunal finds that it has jurisdiction, that finding is not final. The last word on the jurisdiction of arbitrators lies with the court.^[14]This is connected with the fundamental character of the right of access to a court of law.^[15]

If pursuant to former art. 1065 (1), opening words and (a) CCP, it is claimed that the arbitral award should be annulled because there is no valid arbitration agreement, the court should assess whether a valid arbitration agreement exists. This assessment should be made without restraint,^[16]and is not limited to the question of whether the arbitrators assumed jurisdiction on the correct grounds. The public interest in effective arbitration implies that the court should not annul the arbitral decision on the sole ground that the arbitral tribunal gave incorrect reasons for its decision that it had jurisdiction to hear the dispute. Therefore, the court is free to decide, on grounds other than those relied on by the arbitral tribunal, that it rightly considered itself competent to take cognisance of the dispute. After all, a different view would mean that a court that finds that the grounds relied on by the arbitral tribunal were insufficient to establish its jurisdiction, but notes that the arbitral tribunal did have jurisdiction on other grounds, would nevertheless have to annul the arbitral award. The consequence of this would be that, even though there is a valid arbitration agreement, the dispute would have to be decided by the ordinary court, unless the parties agree otherwise (former art. 1067 CCP). This would not be consistent with the parties’ clear intention to submit their dispute to arbitration rather than to the court system.

Interpretation of the limitation clause

5.2.8

Complaint 2.4 is directed against the interpretation of the limitation clause given by the court of appeal (considerations 4.5.8 - 4.6.1 of the final judgment, summarised in 5.2.1 (v) - (x) above). Complaints 2.5 and 2.6 are directed against the findings made by the court of appeal only for the record on the basis of the interpretation of the limitation clause advocated by the Russian Federation and subscribed to by the district court (considerations 4.7.1 - 4.7.58 of the final judgment, summarised in 5.2.1 (xii) - (xxiv) above).

According to complaints 2.4 and 2.5, the limitation clause is concerned with whether the provisional application of separate treaty provisions in a specific case is inconsistent with national laws and regulations. These complaints agree with the district court’s interpretation of the limitation clause, to the effect (see consideration 5.33 of the district court’s judgment) that provisional application of the possibility of arbitration as provided for in art. 26 ECT is incompatible with Russian law not only if what follows from that provision is prohibited in national law, but also if arbitration in a dispute such as the present case has no statutory basis or does not fit within the statutory system, or is not compatible with the principles laid down in or apparent from the legislation. According to these complaints, the district court was right in considering that there may be inconsistency with Russian law even if that law itself does not provide for the possibility of arbitration as regulated in art. 26 ECT. Therefore, according to these complaints, the court of appeal should not have assessed whether art. 26 ECT and Russian law could apply simultaneously in this case, but should have done what the district court did and determined whether this dispute could be settled by arbitration on the basis of Russian law.

5.2.9

The provisions of the ECT must be interpreted on the basis of the standards set out in art. 31-33 VCLT. Pursuant to art. 31 (1) VCLT a treaty must be interpreted in good faith in accordance with the ordinary meaning of the terms of the treaty in their context and in the light of the object and purpose of the treaty. It follows from art. 31 (3), opening words and (b) VCLT that, besides the context, account must also be taken of any subsequent practice in the application of the treaty which establishes the agreement of the Contracting Parties regarding the interpretation of the treaty; this implies that the prevailing view in the case law and literature of the Contracting Parties also constitutes a primary means of interpretation when construing that treaty (hereinafter ‘state practice’).^[17]Additional means of interpretation may be invoked in order to confirm the meaning resulting from the application of art. 31 VCLT, or to determine the meaning if the interpretation in accordance with art. 31 VCLT leaves the meaning ambiguous or obscure, or leads to a result which is manifestly absurd or unreasonable (art. 32 VCLT). With due regard to the provisions of art. 32 VCLT, the
travaux préparatoiresof a treaty may be relied upon for the interpretation of that treaty.^[18]

5.2.10

The court of appeal’s interpretation of the limitation clause (consideration 4.5.48, first sentence of the final judgment, see 5.2.1 (ix) above) appears to the Supreme Court to be correct, on the ground of the court of appeal’s arguments in considerations 4.5.9 - 4.5.47 (see 5.2.1 (v) - (viii) above). However, partly in view of the divergent interpretations of the limitation clause by the arbitral tribunal, the district court and the court of appeal in this case, it cannot be assumed that this interpretation is an
acte clairin all respects. If necessary, the Supreme Court may have to refer the interpretation of the limitation clause to the Court of Justice of the European Union. However, contrary to what is argued in complaint 2.7, there is no need to do so in this case, because the answer to the question of whether the court of appeal’s interpretation is correct is not decisive for the decision on the appeal in cassation. This is because on other grounds the complaints cannot result in cassation in any case. In this connection, the Supreme Court considers the following.

5.2.11

In considerations 4.7.5 - 4.7.32 of the final judgment (see 5.2.1 (xiii) - (xvi) above), the court of appeal found that Russian constitutional law and federal law do not preclude the provisional application of treaties. In considerations 4.7.5 and 4.7.47 - 4.7.52 of the final judgment (see 5.2.1 (xiii) and (xxi) above), the court of appeal found that Russian law in art. 9 LFI 1991 and art. 10 LFI 1999 explicitly allows international arbitration on investment disputes, and that both laws confirm that a dispute like the present one is arbitrable. The court of appeal therefore assessed not only – in accordance with its interpretation of the limitation clause – whether the provisional application of art. 26 ECT is inconsistent with Russian law and whether art. 26 ECT and Russian law can apply at the same time, but also – only for the record, in accordance with the interpretation of the limitation clause advocated by the Russian Federation – whether Russian law itself offers a basis for a form of dispute settlement as provided for in article 26 ECT and as is at issue in this case.

5.2.12

Complaint 2.5 argues
inter aliathat the court of appeal applied ‘a legally incorrect
petitio principii’ because it based its finding that Russian law provides for the possibility of international arbitration in a dispute such as the one at issue here, via art. 9 LFI 1991 and art. 10 LFI 1999, on art. 26 ECT itself, while the question is whether the existing internal legal order – understood by the Supreme Court to mean: disregarding the ECT – provides for such arbitration. This complaint fails because it is based on an interpretation of the limitation clause that cannot to this extent be correct in any event. This is true for the following reasons.

5.2.13

The interpretation advocated by the Russian Federation of the words ‘not inconsistent with its constitution, laws or regulations’ in the limitation clause, as set out in 5.2.12 above, is not consistent with the wording of this clause. The text of the limitation clause does not provide any grounds for the interpretation that provisional application of art. 26 ECT is precluded if Russian law itself does not provide for the possibility of arbitration as regulated by art. 26 ECT. The words ‘not inconsistent with’ indicate that there must be no inconsistency between the relevant provision of the ECT and national law, and not that the provision of the ECT must be in line with a similar provision in national law.

5.2.14

The interpretation advocated by the Russian Federation does not arise from the context of the limitation clause either and is not in accordance with the object and purpose of the ECT. The preamble to the ECT includes the following:

‘Wishing to implement the basic concept of the European Energy Charter initiative which is to catalyse economic growth by means of measures to liberalise investment and trade in energy.’

Art. 2 ECT (‘Purpose of the Treaty’) reads as follows:

This Treaty establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter.

The European Energy Charter 1991, to which the preamble and art. 2 ECT refer, states under 4 (‘Promotion and protection of investments’):

‘In order to promote the international flow of investments, the signatories will at national level provide for a stable, transparent legal framework for foreign investments, in conformity with the relevant international laws and rules on investment and trade.

They affirm that it is important for the signatory States to negotiate and ratify legally binding agreements on promotion and protection of investments which ensure a high level of legal security and enable the use of investment risk guarantee schemes.’

Art. 10 (1) ECT reads as follows:

Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. (…)

The ECT, in particular Part III of the ECT (‘Investment Promotion and Protection’), also contains various provisions aimed at encouraging foreign investment and protecting investors and their investments. All of this shows that an important objective of the ECT is to promote investment in the energy sector
inter aliaby encouraging and creating stable, fair, favourable and transparent investment conditions for investors from other Contracting Parties. Art. 26 ECT, which provides for a mechanism by which investors can enforce the rights resulting from the ECT, should also be viewed in this light.

Provisional application of the ECT is manifestly intended to ensure that in so far as possible these favourable investment conditions become effective as soon as the ECT is signed. This is not compatible with an interpretation of the limitation clause to the effect that an investor could not rely on the protection provided by the ECT if the law of the signatory did not itself provide for it. This would mean that the provisional application of the ECT as provided for in art. 45 (1) ECT would have no practical significance.

5.2.15

The interpretation of the limitation clause advocated by the Russian Federation, as set out in 5.2.12 above, also finds no support in state practice. In order to determine that there is a subsequent practice in the application of the treaty that has established agreement between the Contracting Parties on this interpretation, all Contracting Parties must have accepted this interpretation, explicitly or otherwise, in the application of the treaty concerned.

The Russian Federation has relied on statements from parties to, or signatories of, the ECT and has referred
inter aliato the 1994 EU Joint Statement^[19]and a declaration of the European Commission of 21 September 1994^[20](see consideration 4.5.29 of the final judgment). It has not been shown that the other Contracting Parties support the interpretation of the limitation clause which, according to the Russian Federation, follows from the 1994 EU Joint Statement. Moreover, this Joint Statement and the declaration by the European Commission were made prior to the ECT being concluded, so that a subsequent practice cannot be derived from them.

Similarly, the European Council Declaration of 13 July 1998^[21]cited by the Russian Federation, however it is to be understood, was not shown to be supported by all Contracting Parties.

The statements concerning the preparation and approval of the authentic Russian text of the ECT cannot be regarded as a subsequent practice within the meaning of article 31 (3) (b) VCLT either. The same applies to the comments made during or after the negotiation process by officials of some other countries, such as the Netherlands, Finland and the United Kingdom.

Nor has any subsequent practice in the application of the ECT been shown which established agreement among the Contracting Parties on the interpretation defended by the Russian Federation.

5.2.16

In conclusion, the Russian Federation’s interpretation of the limitation clause, in so far as that interpretation entails that the national law of a signatory must itself provide for the treaty regulation whose provisional application is at issue, is not in accordance with its wording, does not arise from the context, is inconsistent with the object and purpose of the ECT, and also finds no support in state practice. The fact that, at least to this extent, the limitation clause cannot be interpreted in the manner advocated by the Russian Federation, is not ambiguous or obscure and does not lead to a result which is manifestly illogical or unreasonable. Therefore there is no reason to apply the additional interpretation rules of art. 32 VCLT, including consultation of the
travaux préparatoires.

In view of the foregoing, there can be no reasonable doubt that the interpretation of the limitation clause advocated by the Russian Federation is not correct, at least to this extent. There is therefore no reason to refer questions for preliminary rulings pursuant to the third paragraph of art. 267 TFEU, as argued in complaint 2.7.

5.2.17

The court of appeal’s finding that Russian law explicitly allows arbitration in a dispute such as the present case is also based on its interpretation of Russian law. Pursuant to the provisions of art. 79 (1) (b) of the Judiciary (Organisation) Act, the correctness of this judgment cannot be questioned in cassation.

5.2.18

To the extent that complaint 2.6 criticises the grounds given in relation to the court of appeal’s considerations about the question of whether Russian law offers a basis for a form of dispute settlement as provided for in art. 26 ECT, these complaints cannot be judged without also considering the correctness of the court of appeal’s findings on the substance and the interpretation of that law. This means that these complaints about the grounds for the judgment also fail on the basis of art. 79 (1) (b) of the Judiciary (Organisation) Act.

5.2.19

The grievance in complaint 2.6.5 that the court of appeal should not have taken into account HVY’s defences concerning the scope of LFI 1991 and LFI 1999, which were not raised until after the exchange of pleadings on appeal, is not valid. After all, the court of appeal has to apply the laws of foreign states of its own motion and when making its judgment in this respect it was not bound by the parties’ submissions on this point. Moreover, HVY were free to elaborate and specify by means of a motion the position they had already adopted regarding the applicability and interpretation of these laws.

5.2.20

Since the grievances in complaints 2.5 and 2.6 against the court of appeal’s findings – given only for the record and based on the interpretation of the limitation clause advocated by the Russian Federation – cannot result in cassation, there is no interest in complaint 2.4. After all, these findings can independently support the court of appeal’s finding that the Russian Federation is bound by the arbitration clause in art. 26 ECT. This means that complaint 2.4 cannot result in cassation either.

(d) Conclusion

5.2.21

In conclusion, the ground for cassation 2 cannot result in cassation.

Ground for cassation 3

Did HVY make an Investment and are they an Investor within the meaning of art. 1 and 26 ECT?

(a) Summary of the court of appeal’s considerations

5.3.1

In summary, and to the extent relevant for the assessment of this ground for cassation, the court of appeal considered the following in its final judgment.

The standards to be followed in interpreting the ECT

(i) The provisions of the ECT must be interpreted on the basis of the standards in art. 31 and 32 VCLT. (considerations 4.2.1 - 4.2.5)

Investment/Investor, art. 1 (6) and (7) ECT

(a) Introduction

(ii) Art. 1 paragraphs 6 and 7 ECT define the terms ‘Investment’ and ‘Investor’. According to the Russian Federation, the arbitral tribunal misinterpreted these terms, with the result that it wrongly found that it had jurisdiction to hear HVY’s claim. (consideration 5.1.1)

(b) (…)

(c) Position of the Russian Federation and assumptions of the court of appeal

(iii) The position of the Russian Federation in these annulment proceedings is that the arbitral tribunal did not have jurisdiction because HVY and their shares in Yukos do not fall under the protection of the ECT, so that the arbitral awards must be annulled on the basis of former art. 1065 (1) (a) CCP. According to the Russian Federation, HVY are bogus foreign investors with a bogus foreign investment. (consideration 5.1.3)

(iv) The starting point for the interpretation of art. 1 (6) and (7) ECT is the text of these provisions and the ordinary meaning attributed to their wording. It is not disputed that HVY is a company ‘organised in accordance with the law applicable in that Contracting Party’. Therefore, from a textual point of view, the requirements imposed by art. 1 (7) ECT on an Investor have been met. In textual terms, the definition of Investment as referred to in art. 1 (6) ECT is also met. This paragraph gives a non-exhaustive list of ‘assets
’, which also includes shares (art. 1 (6) (b) ECT). The Yukos shares held by HVY can therefore be deemed an Investment within the meaning of the ECT. Finally, the requirement of art. 26 ECT that there be a dispute between a ‘Contracting Party’ (the Russian Federation) and investors from ‘another Contracting Party’ (HVY, companies organised under the laws of Cyprus and the Isle of Man) ‘relating to an Investment of the latter in the Area of the Former’ is met, textually speaking. (consideration 5.1.6)

(d) Foreign investment, foreign investor

(v) The ECT chose ‘the law of the country under the laws of which the Investor is organised’ to determine the nationality of an Investor. The drafters of the ECT could have chosen to include additional conditions in art. 1 (7) ECT (as has been done in other investment treaties), by which it could have been determined whether HVY have a genuine link with Cyprus or the Isle of Man respectively. They did not do so. (consideration 5.1.7.2)

(vi) The ECT determines precisely when there is an Investor and an Investment and when an investment dispute is of an international nature that falls within the scope of art. 26 ECT. Neither from the context of art. 1 and 26 ECT, nor from the objective of the ECT, does it follow that the drafters of the treaty intended to set further requirements for the foreign nature of the Investment or Investor, or the international nature of the dispute. (consideration 5.1.7.3)

(vii) Art. 1 (6) ECT states that an Investment is every kind of asset owned or controlled by an Investor. It is an established fact that the Yukos shares are held by HVY. It is therefore not necessary to establish who controls the shares. The Understanding to art. 1 (6) ECT, which specifies how to determine whether there is an Investment in one Contracting Party that is directly or indirectly controlled by an Investor from another Contracting Party, is therefore not relevant here. (consideration 5.1.7.4)

(e) Control of the investing company (U-turn)

(viii) It does not follow from the text of art. 17 ECT (denial of benefits clause) that investments made using the ‘U-turn construction’ (which is how the investments of HVY should be regarded, according to the Russian Federation) are not covered by the protection of the ECT. Art. 17 ECT gives Contracting Parties the right to deny protection to a precisely defined category of investors, namely investors who are established in a Contracting Party for formal reasons only, but who are materially predominantly connected to a State that is not a Contracting Party. This does not mean that an exception must be read into art. 1 ECT for a different category of investors, namely sham companies and/or investors who are controlled by nationals of the Contracting Party in which they make investments. (consideration 5.1.8.4)

(ix) The arbitral awards which (to a certain extent) confirm that U-turn constructions do not merit protection, do not provide sufficient grounds to assume that there is an international principle of law whereby investment treaties do not (or should not) protect U-turn constructions. (consideration 5.1.8.9)

(x) From the arbitral case law cited by HVY, it can be inferred that there is no generally accepted principle of law that investment treaties do not protect companies that are wholly controlled by nationals of the host country. (consideration 5.1.8.10)

(xi) The state practice referred to by the Russian Federation does not carry much weight, because the correct interpretation of the ECT does not imply the exclusion of U-turn investments. In addition, the circumstances referred to by the Russian Federation do not meet the requirements of art. 31 (3) (b) VCLT, because they do not refer to state practice in the application of the ECT, but to choices made by states when concluding new treaties. (consideration 5.1.8.11)

(f) Economic contribution to host country

(xii) There may be a rule of unwritten law that an investment within the meaning of the ICSID Convention^[22]can only be said to exist if the investor makes an economic contribution to the host country. This does not imply the existence of an internationally recognised principle of investment law according to which any investment treaty will only protect investments that make an economic contribution to the host country, regardless of whether the treaty contains a definition of the term investment. Although the Russian Federation referred to an arbitral award that accepted the existence of such a legal principle, this is not sufficient to establish the existence of a legal principle in the sense intended by the Russian Federation. The Russian Federation further submits that in arbitral case law and recent treaties, the existence of an international investment is established on the basis of objective criteria. However, the Russian Federation has not demonstrated that such criteria also apply to an investment within the meaning of art. 1 (6) ECT. (consideration 5.1.9.4)

(xiii) The drafters of the Treaty could have defined the term ‘Investment’ in art. 1 (6) ECT more restrictively than they did. From the wording of the ECT it is clear, however, that only an ‘asset-based’ definition, i.e. a non-exhaustive list of assets, is used to determine whether there is an Investment within the meaning of the ECT. Given this fact, the circumstance that art. 1 (6) ECT refers to an Investor that ‘makes’ an Investment and (in the Understanding) to an Investment that ‘is made’, does not provide sufficient support to read into this paragraph a requirement that the foreign investor must make an economic contribution to the host country. (consideration 5.1.9.5)

(b) Relevant treaty provisions

5.3.2

Art. 1 (6) and (7) ECT read as follows:

6. “Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:

(a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;

(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;

(c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;

(d) Intellectual Property;

(e) Returns;

(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.

A change in the form in which assets are invested does not affect their character as investments and the term “Investment” includes all investments, whether existing at or made after the later of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the “Effective Date”) provided that the Treaty shall only apply to matters affecting such investments after the Effective Date.

“Investment” refers to any investment associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party in its Area as “Charter efficiency projects” and so notified to the Secretariat.

7. “Investor” means:

(a) with respect to a Contracting Party:

(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;

(ii) company or other organisation organised in accordance with the law applicable in that Contracting Party;

(b) with respect to a “third state”, a natural person, company or other organisation which fulfils,
mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party.

(c) Assessment of the complaints

Are there any further requirements with regard to qualifying as an Investment and Investor within the meaning of the ECT?

5.3.3

According to complaint 3.2.2, the court of appeal’s interpretation of the terms ‘Investment’ and ‘Investor’ in considerations 5.1.5 - 5.1.8 of the final judgment conflicts with art. 31 (1) VCLT. The court of appeal is argued to have wrongly based its interpretation on a purely grammatical interpretation of only part of the text of the ECT, namely the definitions in art. 1 (6) and (7) ECT, and attached little weight to subsequent state practice, which must be taken into account on the basis of art. 31 (3) (b) VCLT. Therefore, this complaint argues, the court of appeal wrongly failed to apply the four interpretation criteria mentioned in art. 31 (1) VCLT as having equal value and in relation to each other.

In essence, complaint 3.2.3 argues that when interpreting the terms ‘Investment’ and ‘Investor’, the court of appeal failed to appreciate that to determine whether a company is protected as an Investor under the ECT, it is not sufficient for the company to be organised under the laws of a Contracting Party other than the host country and to be the formal legal owner of shares in a company in that host country. If the ownership and control (art. 1 (6) ECT refers to ‘owned or controlled’) actually lie with nationals of the host country, that company is not a foreign investor and therefore does not fall under the protection of the ECT, the complaint argues. According to this complaint, the court of appeal misunderstood the ordinary meaning of the terms in the ECT. The ordinary meaning, according to the complaint, is that a party makes an economic contribution during a certain period of time and runs a certain risk.

Complaint 3.2.3 goes on to argue that the court of appeal wrongly attributed too little or no significance to the object and purpose of the ECT, namely the promotion and protection of foreign investments.

Furthermore, the court of appeal misunderstood the context of art. 1 (6) and (7) ECT, according to the complaint. The coherence of these provisions with the Understanding to art. 1 (6) ECT and articles 10 (1) and (3), 13, 17 and 26 ECT makes it clear that the ECT is only applicable if an investor from one Contracting Party invests in the territory of another Contracting Party.

The complaint also argues that the court of appeal wrongly, or at least without sufficient reasoning, ruled that the state practice invoked by the Russian Federation bears little weight. The court of appeal’s finding that this state practice does not relate to the interpretation and application of the ECT because it concerns choices made afterwards when concluding new treaties, is also incorrect.

Finally, the complaint argues that the court of appeal ignored clear rules and fundamental principles of international law, thereby violating art. 31 (3) (c) VCLT. In this regard, the complaint refers to the principles that international investment treaties only protect international investments (and therefore not domestic ones) and offer protection to actual investors and therefore not to those who are only investors ‘on paper’.

Complaint 3.3, which is directed against considerations 5.1.9.1 - 5.1.9.5 of the final judgment, argues that the court of appeal wrongly rejected the Russian Federation’s position that HVY’s shares in Yukos do not qualify as investments within the meaning of art. 1 (6) ECT, because HVY have made no actual economic contribution to the Russian Federation. The complaint argues that the court of appeal wrongly operated on the basis of a purely grammatical interpretation and wrongly found that the Russian Federation had not demonstrated the existence of such an internationally recognised legal principle of investment law, because the court of appeal is required to establish the existence of a legal principle within the framework of its obligation to interpret a treaty (if necessary of its own motion). According to the complaint, the court of appeal wrongly found that the requirement of the economic contribution only applies to an investment as referred to in the ICSID Convention. In this regard, the complaint refers to the requirements set out in the case
Salini Costruttori SpA v. Morocco^[23](hereinafter ‘
Salini’).

5.3.4

These complaints, which can be considered jointly, raise the question of how to interpret the provisions of the ECT. This question must be answered on the basis of the criteria set out in art. 31 - 33 VCLT, as explained above in 5.2.9. Accordingly, pursuant to art. 31 (4) VCLT, a term in the ECT must be given a special meaning if it is established that this was the intention of the parties.^[24]

5.3.5

Art. 1 ECT is entitled ‘Definitions’ and contains definitions of the terms ‘Investment’ and ‘Investor’ in paragraphs 6 and 7. It follows from the text of art. 1 (6) and (7) ECT that the parties to the ECT assigned a special meaning to these terms. Art. 1 (7) ECT identifies as Investors companies or other entities ‘organised in accordance with the law applicable in that Contracting Party’.^[25]HVY are companies organised in accordance with the laws of the Contracting Parties Cyprus and the Isle of Man.

The first paragraph of art. 1 (6) ECT provides that an Investment is every kind of asset owned or controlled directly or indirectly by an Investor, and this is followed by a list of kinds of asset under (a) to (f). To qualify as an Investment within the meaning of this provision, two cumulative conditions must be met: (i) it must be a kind of asset that an Investor owns or controls, directly or indirectly, and (ii) such asset must comprise at least one of the elements listed in points (a) to (f) of that provision.^[26]HVY hold, or at least held, shares in the Russian Federation-based oil company Yukos. Shares in a company or business enterprise are specified in art. 1 (6), first paragraph and (b) ECT.

5.3.6

It follows from the considerations in 5.3.5 above that HVY meet the definition of Investor as laid down in art. 1 (7) ECT, and that the shares held by them meet the definition of Investment as laid down in art. 1 (6), first paragraph and (b) ECT. Not all investments that meet the definition in the first paragraph of art. 1 (6) ECT fall within the scope of the ECT. In order to qualify, the investment must be associated with an economic activity in the energy sector within the meaning of the third paragraph of art. 1 (6) ECT.^[27]The shares held by HVY in the oil company Yukos are related to an economic activity in the energy sector. This is not in dispute between the parties. Therefore, the condition set out in art. 1 (6), third paragraph ECT is also met.

5.3.7

The wording of art. 1 (6) (b) and (7) ECT indicates that for the purposes of determining whether a company is protected as an Investor under the ECT, it is sufficient for the company to be organised under the law of a Contracting Party other than the host country and to be the formal owner of shares in a company in that host country. The Contracting Parties assigned a special meaning to the terms ‘Investment’ and ‘Investor’ in art. 1 (6) and (7) ECT through the definitions of these terms set out therein. Therefore, when interpreting the term ‘Investment’ in art. 1 (6) (b) ECT, the requirements formulated in
Salinifor determining whether there is an investment within the meaning of the ICSID Convention – which, unlike the ECT, does not itself determine the meaning of international investment – are not relevant.

5.3.8

The interpretation provided in 5.3.5 - 5.3.7 above in accordance with the wording of art. 1 (6) and (7) ECT is consistent with the context of these provisions and with the object and purpose of the ECT. With regard to context, the following is important. Complaint 3.2.3 invokes the Understanding on art. 1 (6) ECT as included in the Final Act of the European Energy Charter Conference.^[28]This Understanding deals with the criterion of ‘controlled’. HVY is the owner of the Yukos shares (‘owned’), and therefore this Understanding plays no role in the interpretation of art. 1 (6) (b) ECT.

Although art. 10 (3) and art. 13 ECT do distinguish between a Contracting Party’s own Investors and Investors of other Contracting Parties or third States, they do not indicate that additional requirements should be imposed on the international nature of an Investment or Investor.

Art. 17 ECT (denial of benefits clause) gives Contracting Parties the right to deny the protection of Part III of the ECT to investors that are formally established in a state bound by the ECT, but in terms of substance are predominantly linked to a State that is not a Contracting Party. This provision allows the Contracting Parties to limit the scope of the ECT, thereby confirming the broad scope of the ECT if (as in the case of the Russian Federation) art. 17 ECT is not applied. Not only the context, but also the purpose of the ECT – which includes the promotion of international cooperation in the field of energy and the stimulation and protection of international investments (see also 5.2.14 above) – indicates that no other requirements should be set for the foreign nature of an Investment than those that follow from the wording of art. 1 (6) and (7) ECT. This purpose is served precisely by broad, easily applicable and predictable definitions of the terms ‘Investment’ and ‘Investor’.

5.3.9

Account should also be taken of any subsequent practice in applying the Treaty which establishes the agreement of the parties regarding the interpretation of the Treaty (art. 31 (3) (b) VCLT).

The fact that a number of Contracting Parties to the ECT have excluded investments made by means of a ‘U-turn construction’ from the scope of subsequent investment treaties does not affect the application of the ECT. This therefore cannot be taken into account under art. 31 (3) (b) VCLT. The same applies to the proposals for modernisation of the ECT, since these proposals do not relate to the application of the current ECT, but to a possible new amended treaty. For that matter, there is no evidence of any subsequent practice in application of the ECT establishing the agreement of the Contracting Parties to an interpretation other than that which follows from the text, context, object and purpose of the ECT.

5.3.10

Any relevant rule of international law applicable in the relations between the parties must also be taken into account (art. 31 (3) (c) VCLT). General principles of law as set out in art. 38 (1) (c) of the Statute of the International Court of Justice may also be relevant.

No rule of international law applicable to the relations between the parties can be inferred from arbitral case law relating to treaties other than the ECT. Moreover, such case law is not unambiguous. For that reason alone, the Russian Federation’s submissions regarding internationally recognised principles of investment law, which it claims can be derived from this case law, need not be taken into account. There is no evidence of any other source indicating the existence of internationally recognised principles of international investment law according to which any investment treaty – including the ECT – would only protect investments that make an economic contribution to the host country, regardless of whether the treaty contains a definition of the term ‘investment’ or whether investment treaties would not protect companies that are wholly controlled by nationals of the host country.

5.3.11

The court of appeal’s interpretation of art. 1 (6) (b) and (7) ECT is correct in the light of the foregoing. This means that the requirement in art. 26 ECT that there must be a dispute between a ‘Contracting Party’ (the Russian Federation) and an Investor from ‘another Contracting Party’ (HVY) ‘relating to an Investment of the latter in the Area of the Former’ has also been met.

5.3.12

For the record, it should be noted that the
travaux préparatoiresof art. 1 (6) and (7) ECT confirm this interpretation. It appears from this drafting history that the parties to the ECT deliberately opted for a broad meaning of the terms ‘Investor’ and ‘Investment’ and, despite proposals to the contrary, refrained from including additional criteria.

5.3.13

The complaints 3.2.2, 3.2.3 and 3.3 fail in the light of the foregoing.

Is there an ‘acte clair’?

5.3.14

In view of the foregoing, there is no reasonable doubt as to the interpretation of the ECT insofar as it is relevant to the decisions set out above. Therefore, contrary to what is argued in complaint 3.5, the Supreme Court sees no need to refer questions for a preliminary ruling within the meaning of the third paragraph of art. 267 TFEU.

Other complaints

5.3.15

The other complaints in ground for cassation 3 cannot result in cassation either. The Supreme Court is not required to give grounds for reaching this conclusion. This is because when considering these complaints it is not necessary to answer questions that are important for the uniform interpretation and application of the law or the development of the law (see art. 81 (1) of the Judiciary (Organisation) Act).

(d) Conclusion

5.3.16

In conclusion, ground for cassation 3 cannot result in cassation.

Ground for cassation 4

Do the alleged illegal acts of HVY and Khodorkovskyet al.
have consequences for the annullability of the arbitral awards?

(a) Summary of the court of appeal’s considerations

5.4.1

In its final judgment, the court of appeal considered the following, to the extent relevant for the assessment of this ground for cassation.

(i) There is a principle of international law that international investments made in violation of the law of the host country do not merit protection. This applies even if the relevant investment treaty does not expressly provide as such. In order to lose the protection of an investment treaty, the case must be one where ‘the illegality affects the “making”, i.e. arises when initiating the investment itself and not just when implementing and/or operating it’. A distinction must be made between ‘(1) legality as at the initiation of the investment (“made”) and (2) legality during the performance of the investment’. Illegal acts by HVY in the period after HVY made their investment in Yukos therefore cannot lead to a lack of jurisdiction of the arbitral tribunal. (consideration 5.1.11.2)

(ii) The ECT does not fall into the category of investment treaties where the definition of the term ‘investment’ includes a phrase that the investment must have been made ‘in accordance with the law’, or words to similar effect. With respect to a treaty that does not contain a legality requirement, the arbitral case law is divided on the question of what consequence should ensue if an investor acts ‘illegally’ when making the investment. (considerations 5.1.11.3 - 5.1.11.4)

(iii) The Russian Federation has not provided sufficient evidence that there is a generally accepted legal principle that an arbitral tribunal must (always) decline jurisdiction in the event of an ‘illegal’ investment. Art. 1 (6) ECT does not contain a legality requirement. Nor does the text of the ECT contain any restrictions in this respect on access to arbitration as referred to in art. 26 ECT. In this case the ordinary meaning of the wording of art. 1 (7) ECT prevails. It follows that the arbitral tribunal would not be deprived of jurisdiction if it were shown that there had been illegal acts at the time of or in connection with the investment. The fact that such illegal acts could possibly lead to the dismissal of the claims is not relevant in the context of the present ground for annulment (former art. 1065 (1) (a) CCP). (consideration 5.1.11.5)

(iv) Even if it had to be assumed that illegal acts at the time of making the investment under the ECT do lead to the lack of jurisdiction of the arbitral tribunal, this does not help the Russian Federation. In no. 1283 of the final awards, the arbitral tribunal correctly ruled that the alleged conduct of Khodorkovsky
et al.is too distantly related to the transactions in which HVY acquired their shares in Yukos. The Russian Federation’s assertion that HVY’s direct involvement in the illegal acquisition of the Yukos shares in 1995/1996 precludes the jurisdiction of the arbitral tribunal is therefore not valid. (consideration 5.1.11.6 - 5.1.11.7)

(v) Even if the shares acquired by HVY in 1999 - 2001 were acquired by other persons/companies in 1995/1996 through illegal acts, this does not mean that HVY were acting illegally at the time of their investment. There is insufficient connection between the (alleged) illegalities in 1995/96 and the making of the investment by HVY. This does not change if HVY’s possible involvement in the payment of bribes is taken into account. The Russian Federation’s submissions in this regard do not demonstrate a sufficient connection between HVY’s (more specifically YUL’s) investment and the alleged bribery. In any event, there is no such obvious illegality that it must lead to the arbitral tribunal’s lack of jurisdiction. (consideration 5.1.11.8)

(vi) Possible illegal acts by Khodorkovsky
et al.at the time of Yukos’s privatisation are too distantly related to the investment by HVY. (consideration 5.1.11.9)

(vii) The Russian Federation argues under the heading of ‘unclean hands’ that the enforcement of the arbitral awards will lead to a violation of public policy in terms of fraud, corruption and other serious illegalities. (consideration 9.8.1)

(viii) The arbitral tribunal’s considerations in this respect, as well as the Russian Federation’s criticisms of them, were discussed and rejected in considerations 5.1.11.1 - 5.1.11.9. (consideration 9.8.5)

(ix) In addition, the following is considered. The arbitral tribunal held that the alleged illegalities are not relevant to finding for HVY in the arbitration because (i) only an illegality in the making of the investment is relevant for protection under the ECT, (ii) the alleged illegalities were committed by parties other than HVY, and (iii) HVY lawfully acquired the shares in Yukos. Even if it were assumed that the alleged illegalities took place and that they affected public policy, there is no reason why this finding by the arbitral tribunal would be contrary to public policy. (consideration 9.8.7)

(x) The complaint that the arbitral tribunal wrongly ruled that HVY could be ‘separated’ from Khodorkovsky
et al.and that they were not ‘controlled’ by the trustees in Guernsey and Jersey lacks a factual basis. In this regard, the arbitral tribunal considered only that a number of the alleged illegal acts took place before HVY became shareholders and that these acts were therefore carried out by ‘others’, such as Bank Menatep or Khodorkovsky
et al. The arbitral tribunal thus merely decided that Bank Menatep and Khodorkovsky
et al.are different persons/legal persons than HVY and that no acts carried out by others before HVY became shareholders can be held against HVY. That finding, in so far as it is capable of being reviewed in these annulment proceedings, is correct and has not been contested by the Russian Federation, or in any event not contested on sufficient grounds. (consideration 9.8.8)

(xi) At the time of the acts of the Russian Federation qualified by the arbitral tribunal as expropriation, Khodorkovsky was the chairman and either directly or indirectly a shareholder of Yukos, and the arbitral tribunal held that by
de factoexpropriating Yukos, the Russian Federation also intended to hit Khodorkovsky. This finding is not incompatible with the finding that HVY and Khodorkovsky are different legal entities. Therefore, there is no evidence of an improper, incomplete and superficial assessment of the evidence in the file by the arbitral tribunal. (consideration 9.8.9)

(b) Assessment of the complaints

Is there a sufficient link between the alleged illegal acts and the investment by HVY?

5.4.2

Complaint 4.3.1 argues that in answering the question of whether the shares were acquired lawfully, the court of appeal should not have merely assessed the transactions through which HVY acquired the shares in Yukos, but should also have included the involvement of Khodorkovsky
et al.in the acquisition of the shares in 1995/1996 in its assessment. The court of appeal’s finding is based on an incorrect legal interpretation of the scope of the ECT and in any event insufficient grounds were given for it, according to the complaint.

5.4.3

The legal complaint in complaint 4.3.1 is based on an incorrect reading of the court of appeal’s finding, and therefore, on account of a lack of a factual basis, it cannot result in cassation. After all, in considerations 5.1.11.7 - 5.1.11.9 of the final judgment, the court of appeal included the transactions in 1995/1996 that preceded the acquisition of the shares by HVY in 1999-2001 in its assessment. In doing so, it presumed for the sake of argument that the shares in 1995/1996 were acquired by other persons or companies through illegal acts. The court of appeal therefore did not limit itself to an assessment of the transactions through which HVY acquired the shares in Yukos.

5.4.4

The court of appeal concluded that there is insufficient connection between the alleged illegal acts in 1995/1996 and the investment by HVY. This finding was based on a consideration and evaluation of the facts put forward by the Russian Federation in this regard, which the court of appeal presumed for the sake of argument to be correct. This consideration and evaluation are reserved to the court of appeal as the court deciding issues of fact. The finding is not incomprehensible and sufficient grounds were given for it. The complaint of a lack of sufficient grounds therefore fails.

5.4.5

Complaint 4.3.2 argues that the court of appeal gave incorrect or insufficient grounds for its finding (in consideration 5.1.11.2 of the final judgment) that illegal acts by HVY in the period after HVY made their investment in Yukos cannot lead to a lack of jurisdiction of the arbitral tribunal.

5.4.6

This complaint cannot result in cassation either, because it lacks a factual basis. The Russian Federation took the position in the courts of fact (statement of defence on appeal, para. 723) that it is undisputed that the protection afforded by the ECT can only be withheld from investments of which the making, and not the subsequent implementation, is illegal. It did not argue that the arbitral tribunal should have declined jurisdiction because of illegal acts by HVY in the period after HVY made their investment in Yukos. This argument, which also requires an assessment of fact, cannot be raised for the first time in cassation.

5.4.7

The court of appeal’s finding that the alleged illegal acts are insufficiently related to the acquisition of the shares by HVY (which is unsuccessfully contested in complaints 4.3.1 and 4.3.2) can independently support the court of appeal’s finding that the alleged illegal acts do not preclude the jurisdiction of the arbitral tribunal. This means that there is no interest in dealing with complaint 4.2, which complains of the court of appeal’s finding (in considerations 5.1.11.3 - 5.1.11.5) that since the ECT does not contain an explicit legality requirement, illegal acts at the time of HVY’s investments do not preclude the jurisdiction of the arbitral tribunal. Therefore, this complaint cannot result in cassation either.

Are there grounds for finding that the arbitral awards, or the manner in which they were made, are contrary to public policy?

5.4.8

Complaint 4.4 addresses various complaints against the court of appeal’s finding (in consideration 9.8 of the final judgment) that there is no ground to rule that the arbitral awards, or the manner in which they were made, are contrary to public policy. Complaint 4.4.2 argues that this finding is inconsistent with the international standard that no protection is afforded to goods or rights obtained through illegal acts or operated for illegal purposes, and that the court of appeal also failed to recognise that it would be contrary to national and international public policy for treaty-based claims in respect of an illegally acquired or illegally operated investment to be eligible for protection. Complaint 4.4.3 argues that the court of appeal’s finding (in consideration 9.8.8 of the final judgment) is incomprehensible when it states that the Russian Federation did not provide grounds (or sufficient grounds) for its objection to the arbitral tribunal’s ruling that the conduct of Khodorkovsky
et al.cannot be held against HVY. These complaints can be discussed jointly.

5.4.9

Under former art. 1065 (1) (e) CCP, an arbitral award may be annulled
inter aliaon the ground that the award, or the manner in which it was made, is contrary to public policy. According to settled case law, an arbitral award may be annulled on this ground only if the content or execution of the award conflicts with peremptory law of such a fundamental nature that compliance with it may not be obstructed by restrictions of a procedural nature.^[29]

When assessing the application for annulment, the court must exercise restraint, except in so far as the application is based on the argument that there is no valid arbitration agreement, or that both parties were not heard. Annulment proceedings may not be used as a disguised form of appeal. The public interest in effective arbitration means that the civil courts should intervene in arbitral awards only in clear cases.^[30]The complaints (rightly) do not argue that the court of appeal misunderstood the standard set out above.

5.4.10

In consideration 9.8.7 of the final judgment, the court of appeal referred to its findings in considerations 5.1.11.7 - 5.1.11.9 of the final judgment. When assessing the alleged violation of public policy, the court of appeal presumed for the sake of argument the illegal acts of Khodorkovsky
et al. as alleged by the Russian Federation and also presumed for the sake of argument that they affected public policy. Subsequently, in consideration 9.8.8 of the final judgment, the arbitral tribunal’s opinion was reproduced which, in so far as now relevant, entails that Bank Menatep and Khodorkovsky
et al.are other persons/legal persons than HVY and that no conduct can be held against HVY that was carried out by others before HVY became shareholders.

The court of appeal’s finding that this ruling by the arbitral tribunal was correct and had not been contested (or at least not contested on sufficient grounds) by the Russian Federation must be understood as meaning that the Russian Federation has not contested (or has not contested on sufficient grounds) that the alleged illegal acts were performed by other persons/legal persons than HVY and that they took place before HVY became shareholders. This finding must also be seen in conjunction with the court of appeal’s finding – unsuccessfully contested, as discussed in 5.4.4 above – that even if the Russian Federation’s factual allegations are presumed to be true, there is insufficient connection between the alleged illegal acts of Khodorkovsky
et al.and the making of the investment by HVY at issue in this case.

5.4.11

The court of appeal’s finding that the arbitral awards, or the manner in which they were made, are not contrary to public policy is based on the considerations mentioned in 5.4.10 above and, in light of the standard set out in 5.4.9 above, it does not indicate an incorrect interpretation of the law. It is based on assessments and evaluations which are reserved to the court of appeal as the court that rules on the facts. The correctness of this decision therefore cannot be further examined in cassation. Sufficient grounds were given for the contested decision and, in light of the pleadings and other documents, it is not incomprehensible. The complaints set out above in 5.4.8 are therefore rejected.

Other complaints

5.4.12

The other complaints in ground for cassation 4 cannot result in cassation either. The Supreme Court is not required to give grounds for reaching this conclusion. This is because when considering these complaints it is not necessary to answer questions that are important for the uniform interpretation and application of the law or the development of the law (see art. 81 (1) of the Judiciary (Organisation) Act).

(c) Conclusion

5.4.13

In conclusion, ground for cassation 4 cannot result in cassation.

Ground for cassation 5

Did the arbitral tribunal violate its mandate by failing to make a referral to the relevant tax authorities (art. 21 (5) ECT)?

(a) Summary of the court of appeal’s considerations

5.5.1

The court of appeal considered the following in its final judgment, to the extent relevant for the assessment of this ground for cassation.

(i) If the question arises of whether a taxation measure constitutes an expropriation, art. 21 (5) ECT requires the arbitral tribunal to refer the question to the relevant tax authorities. The arbitral tribunal was therefore in principle required to refer the dispute concerning the taxation measures imposed in Russia to the Russian tax authorities in any event. However, the failure to do so is not sufficiently serious to justify the annulment of the arbitral awards, because it was not shown that the Russian Federation suffered any harm as a result of this failure. (consideration 6.3.2)

(ii) It is difficult to see what additional information the arbitral tribunal could have obtained from the Russian tax authorities that would have led to a different decision. Therefore, it cannot be concluded that the Russian Federation was materially harmed by the fact that the arbitral tribunal did not refer the question of whether the tax measures taken in Russia constitute an expropriation to the Russian tax authorities. (consideration 6.3.3)

(iii) The argument that the dispute should have been referred to the tax authorities in Cyprus and the United Kingdom is not valid, since art. 21 (5) (b) ECT only requires referral to the ‘relevant competent tax authority’ if the question is ‘whether a tax constitutes an expropriation’. However, HVY did not argue that taxation measures taken by Cyprus or the United Kingdom constitute an expropriation. (consideration 6.3.4)

(iv) The prohibition on anticipation of witness testimony, which was invoked by the Russian Federation, is a Dutch procedural law concept according to which the judge is not allowed to anticipate the outcome of a possible witness examination. Even if it is assumed that arbitrators in an international arbitration are bound by this prohibition, there was no anticipation of witness testimony in this case. Art. 21 (5) (b) (iii) ECT is of a completely different nature than the obligation not to refrain from hearing witnesses on the ground of a prognosis. The principle that both sides should be heard, which the Russian Federation has also invoked, is a fundamental principle of procedural law that cannot be equated with the arbitral tribunal’s duty to refer the dispute to the competent tax authorities and its discretionary power to take into account the tax authorities’ conclusions. Therefore, there has been no violation of the arbitrators’ mandate that justifies annulment of the arbitral award. (consideration 6.3.5)

(b) Relevant treaty provisions

5.5.2

Art. 21 (1) and (5) of the ECT (‘Taxation’) reads as follows:

1. Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency.

5. (a) Article 13 shall apply to taxes.

(b) Whenever an issue arises under Article 13, to the extent it pertains to whether a tax constitutes an expropriation or whether a tax alleged to constitute an expropriation is discriminatory, the following provisions shall apply:

(i) The Investor or the Contracting Party alleging expropriation shall refer the issue of whether the tax is an expropriation or whether the tax is discriminatory to the relevant Competent Tax Authority. Failing such referral by the Investor or the Contracting Party, bodies called upon to settle disputes pursuant to Article 26(2)(c) or 27(2) shall make a referral to the relevant Competent Tax Authorities;

(ii) The Competent Tax Authorities shall, within a period of six months of such referral, strive to resolve the issues so referred. Where non-discrimination issues are concerned, the Competent Tax Authorities shall apply the non-discrimination provisions of the relevant tax convention or, if there is no non-discrimination provision in the relevant tax convention applicable to the tax or no such tax convention is in force between the Contracting Parties concerned, they shall apply the non-discrimination principles under the Model Tax Convention on Income and Capital of the Organisation for Economic Cooperation and Development;

(iii) Bodies called upon to settle disputes pursuant to Article 26(2)(c) or 27(2) may take into account any conclusions arrived at by the Competent Tax Authorities regarding whether the tax is an expropriation. Such bodies shall take into account any conclusions arrived at within the six-month period prescribed in subparagraph (b)(ii) by the Competent Tax Authorities regarding whether the tax is discriminatory. Such bodies may also take into account any conclusions arrived at by the Competent Tax Authorities after the expiry of the six-month period;

(iv) Under no circumstances shall involvement of the Competent Tax Authorities, beyond the end of the six-month period referred to in subparagraph (b)(ii), lead to a delay of proceedings under Articles 26 and 27.

(c) Assessment of the complaints

Should the failure to refer a question to the tax authorities result in annulment of the arbitral awards?

5.5.3

Complaint 5.2.1 argues that the court of appeal committed serious errors by not attaching any consequences to the fact that the arbitral tribunal refused to refer the dispute about the taxation measures imposed in Russia to the tax authorities. In doing so, the court of appeal denied the mandatory nature of the referral obligation prescribed by art. 21 (5) (b) (i) ECT, or applied a non-existent futility exception. The refusal of the arbitral tribunal to refer the matter is a violation of its mandate and of the procedural aspect of public policy, which justifies annulment of the arbitral awards, according to the complaint.

5.5.4

Pursuant to former art. 1065 (1) (c) of the CCP, an arbitral award may be annulled if the arbitral tribunal did not comply with its mandate. When assessing whether the arbitral tribunal exceeded the limits of its mandate, it must also be considered whether the dispute was resolved in accordance with the procedural rules that apply in the case in question. The court must exercise restraint in its examination of whether the arbitral tribunal has complied with the procedural rules. This is partly related to the fact that proceedings under former art. 1065 CCP may not be used as a disguised form of appeal, and that the public interest in effective arbitration implies that the civil courts should only intervene in arbitral decisions in clear cases. If in such a case there is a conflict with the principles of due process, the arbitral award will be subject to annulment under former art. 1065 (1) (e) CCP (on account of being contrary to public policy). By its nature, this provision must also be applied with restraint.^[31]It follows that if the breach of the mandate is not serious, it will not result in annulment of the arbitral award. In answering the question of whether the seriousness of the breach justifies annulment of the arbitral award, the court has a margin of discretion.

5.5.5

Under art. 21 (1) ECT, the ECT does not in principle preclude the power of Contracting Parties to adopt taxation measures. Art. 21 (5) ECT contains an exception to this, whereby taxation measures may not entail expropriation in violation of art. 13 ECT. Under art. 21 (5) (b) (i) ECT the Investor or the Contracting Party claiming that a taxation measure is in fact an expropriation contrary to art. 13 ECT must refer the issue of whether this is indeed the case to the competent tax authorities. If the Investor or the Contracting Party fails to do so, this obligation rests with the body called upon to settle disputes, in this case the arbitral tribunal. Art. 21 (5) (b) ECT covers both a dispute about whether a tax constitutes an expropriation and a dispute about whether a tax alleged to constitute an expropriation is discriminatory.

5.5.6

In accordance with the first sentence of consideration 6.3.1 of the final judgment, the court of appeal established – and this is not contested in cassation – that the Russian Federation’s complaints that the arbitral tribunal did not apply or correctly apply art. 21 (5) ECT relate to the question of whether there was an expropriation. With regard to that question, art. 21 (5) (b) (iii) ECT provides that the body called upon to settle disputes ‘may take into account’ any conclusions arrived at by the competent tax authorities. To that extent, the obligation of the body called upon to settle disputes differs from the case where the issue is whether a tax alleged to constitute an expropriation is discriminatory. In the latter case, art. 21 (5) (b) (iii) ECT requires that the body called upon to settle disputes ‘shall take into account’ any conclusions of the competent tax authorities that have been arrived at in due time.

5.5.7

In light of the arbitral tribunal’s power, if the tax authorities are asked whether a taxation measure constitutes an expropriation, to take into account or disregard the tax authorities’ conclusions in its assessment (‘may take into account’), and in view of the arbitral tribunal’s explicit reference to this power in the final awards (no. 1427), the court of appeal’s finding that there was no reason to see why the arbitral tribunal would have reached a different conclusion had that question been referred to the tax authorities is not incomprehensible. The court of appeal’s ruling on that basis that the failure (as found by the court of appeal) to refer the dispute to the tax authorities is not sufficiently serious to justify annulment of the final awards does not demonstrate an incorrect interpretation of the law, is not incomprehensible and is not based on insufficient grounds, particularly in view of the restraint to be exercised by the courts (as described above in 5.5.4). The grievances in complaint 5.2.1 fail for these reasons.

Other complaints

5.5.8

The other complaints in ground for cassation 5 cannot result in cassation either. The Supreme Court is not required to give grounds for reaching this conclusion. This is because when considering these complaints it is not necessary to answer questions that are important for the uniform interpretation and application of the law or the development of the law (see art. 81 (1) of the Judiciary (Organisation) Act).

(d) Conclusion

5.5.9

In conclusion, ground for cassation 5 cannot result in cassation.

Ground for cassation 6

Does the manner in which the assistant to the arbitral tribunal was involved in the making of the arbitral awards constitute grounds for annulment of the arbitral awards?

5.6.1

Ground for cassation 6 is directed against consideration 6.6 of the final judgment. In this consideration, the court of appeal rejected the objections of the Russian Federation to the manner in which the assistant to the arbitral tribunal was allegedly involved in preparing the arbitral awards.

5.6.2

The complaints of this ground for cassation cannot result in cassation. The Supreme Court is not required to give grounds for reaching this conclusion. This is because when considering these complaints it is not necessary to answer questions that are important for the uniform interpretation and application of the law or the development of the law (see art. 81 (1) of the Judiciary (Organisation) Act).

Ground for cassation 7

Are the arbitral tribunal’s decisions on Yukos’s alleged abusive use of sham companies lacking in sound reasoning?

5.7.1

Ground for cassation 7 is directed against considerations 8.4.13 and 8.4.16 of the final judgment. In these considerations, the court of appeal rejected the Russian Federation’s objections to the arbitral tribunal’s finding in no. 639 of the final awards, which includes the statement that ‘[t]he Tribunal has not found any evidence in the massive record that would support Respondent’s submission that there was a basis for the Russian authorities to conclude that the entities in Mordovia, for example, were “shams”’ and to the arbitral tribunal’s conclusions in no. 648 of the final awards to the effect that the Tax Ministry had provided insufficient evidence to support the conclusion that all the Yukos subsidiaries established in the Republic of Mordovia were abusing the low tax regime.

5.7.2

The complaints in this ground for cassation cannot result in cassation. The Supreme Court is not required to give grounds for reaching this conclusion. This is because when considering these complaints it is not necessary to answer questions that are important for the uniform interpretation and application of the law or the development of the law (see art. 81 (1) of the Judiciary (Organisation) Act).

Ground for cassation 8

5.8

Ground for cassation 8 builds on grounds for cassation 1 to 7 and does not require separate consideration.

6.Evaluation of the ground for appeal in the conditional cross-appeal

The cross-appeal was filed conditionally (see 4.2.2 above). It follows from the assessment of the main appeal that the conditions have not been met, and therefore the conditional cross-appeal does not need to be dealt with.

7.Overall conclusion

7.1

In conclusion, grounds for cassation 2 to 7 in the main appeal cannot result in cassation and ground for cassation 8 does not require separate consideration. Ground for appeal 1 is successful. The contested judgments of the court of appeal will therefore be quashed. The conditional cross-appeal does not require consideration.

7.2

The case will be referred to another court of appeal for further consideration and decision.

Decision

The Supreme Court:

in the main appeal:

- quashes the judgments of The Hague Court of Appeal of 25 September 2018 and 18 February 2020;

- refers the case to Amsterdam Court of Appeal for further consideration and decision;

- orders HVY to pay the costs of the proceedings in cassation, assessed up to the present judgment at € 7,082.07 on the part of the Russian Federation for disbursements and € 2,600 for attorney fees, plus the statutory interest on these costs if HVY have not paid them within fourteen days of today’s date.

This judgment was rendered by Vice President C.A. Streefkerk as the Presiding Justice and by Justices T.H. Tanja-van den Broek, M.J. Kroeze, C.H. Sieburgh and F.J.P. Lock, and was pronounced in public by Justice H.M. Wattendorff on
5 November 2021.

ECLI:NL:HR:2021:1879

Cassatie over annulering van arbitrale uitspraken in het kader van het Energiehandvestverdrag

Uitspraak

1.Course of the proceedings

2.Introduction and manner of treatment

(a) Introduction

3.Starting points and facts

(a) Facts

4.The cassation complaints of the Russian Federation and HVY

The main appeal, lodged by the Russian Federation

5.Assessment of the ground for appeal in the main appeal

Ground for cassation 1

6.Evaluation of the ground for appeal in the conditional cross-appeal

7.Overall conclusion

Voetnoten