Dutch court scraps record $50bn payout over bankrupt oil giant

The Dutch Supreme Court has cancelled a $50bn arbitration award Russia was ordered to pay former shareholders of bankrupted Russian oil giant Yukos, throwing the case back for appeal and likely years more litigation.

Yukos collapsed in 2006 after oil tycoon Mikhail Khodorkovsky fell out with Russian President Vladimir Putin and the government began demanding billions of dollars in alleged back taxes that ultimately resulted in it being seized by the state. Critics said the move was an attempt to silence Khodorkovsky, a vocal opponent of Putin.

Friday’s ruling came after seven years of legal wrangling in Dutch courts following an arbitration tribunal ruling in 2014 that found Moscow had violated its international obligations by taking actions designed to bankrupt Yukos, formerly Russia’s largest oil company.

The Supreme Court’s decision marks the second time that Dutch judges have set aside the arbitration award after The Hague District Court dismissed it in 2016, only to see it reimposed on appeal.

Years of additional litigation

Referring the case back to a lower court in the Netherlands will likely bring years of additional litigation in the case involving the largest known arbitration award on record.

Most Yukos assets were absorbed by Russian oil producer Rosneft and former Yukos shareholders brought a case to recover their assets to the Permanent Court of Arbitration in The Hague, from where the case has proceeded through the Dutch legal system.

“Today the Supreme Court quashed the appeal court’s final judgment as well as the court’s preceding judgment,” a statement from the Supreme Court said after it referred the case back to the Amsterdam Court of Appeal.

The Supreme Court judges accepted one of Russia’s grounds of appeal.

“The Russian Federation’s argument that the shareholders have committed fraud in the arbitral proceedings has been wrongly dismissed by the Court of Appeal on procedural grounds and should have been judged with respect to content,” it found. “Therefore the judgements of the Court of Appeal cannot be upheld.”

It rejected Russia’s other grounds for appeal, including complaints that the court did not have jurisdiction. The judgement on that issue was final, it said.

Former shareholders welcome ruling

Friday’s ruling was welcomed by the former shareholders, who said in a statement that they “won on all substantive grounds of Russia’s appeal”.

“We will study the Supreme Court ruling, but are confident that the Court of Appeal in Amsterdam will dismiss the baseless allegations raised by the Russian Federation, and the arbitral awards will be upheld,” said Tim Osborne, chief executive of GML, the holding company of former Yukos majority shareholders.

Legal proceedings seeking to enforce the arbitration award had been lodged in the Netherlands, the United Kingdom and the United States by subsidiaries of GML, formerly known as Group Menatep Ltd, which held approximately 70 percent of the shares in Yukos.

The Prosecutor General’s Office of the Russian Federation meanwhile said while the decision “upholds the principles of the rule of law and the independence of the justice system”, it regretted that the Supreme Court did not order “a complete abolition of arbitral decisions at this stage”.

The next stage of litigation will run up to 2023, the office said in a statement.