oil-1The District Court of the Hague overturned a record $50 billion in damages awards issued by the Permanent Court of Arbitration (“PCA”), to the former controlling shareholders of the Yukos Oil Company on the grounds that Russia had not submitted itself to the PCA’s jurisdiction.

In 2014, the PCA awarded the former Yukos Oil Company shareholders damages, unanimously finding that Russia had breached its international obligations under the Energy Charter Treaty by destroying Yukos Oil Company, expropriating its assets for political reasons and transferring its assets to the state-owned oil company Rosneft.

The arbitral awards totaled $50 billion and were the largest ever issued by an arbitration tribunal.

The arbitration was brought under the arbitration provision in the Energy Charter Treaty, an international agreement designed to provide a multilateral framework for energy cooperation including: protection of foreign investments, non-discrimination conditions for trade in energy markets, products and energy-related equipment, provisions to ensure reliable cross-border energy transit, the promotion of energy efficiency, resolution of disputes between participating states and, pertinent here, the resolution of disputes among investors and host states. Russia signed the Energy Charter Treaty but never ratified it. Thus, the Hague Court found, the Russian state had never agreed to be bound by the arbitration provision in the Energy Charter Treaty and annulled the award.

The former Yukos shareholders have stated they will appeal.

In addition GML, the company that controlled a majority of Yukos Oil Company’s shares, is pursuing enforcement action against Russia in six other countries:  Belgium, Britain, France, Germany, India and the United States. Decisions in those cases are still pending and it is not clear what effect the Hague decision will have on those actions.