WASHINGTON -- A district court in The Hague has quashed a $50 billion award that Russia had been ordered to pay the former majority shareholders of the dismantled oil giant Yukos, a major victory for Russia and its effort to portray the dismantling a decade ago as a case of righting past wrongs.
The Hague court ruled on April 20 that the European arbitration court, which ruled in July 2014, misinterpreted a treaty that Russia signed but never ratified and wasn't qualified to issue the award to Yukos's former owners.
The July 2014 award was the largest ever issued by an arbitration court anywhere.
Yukos was once Russia's largest oil company until its co-founder, Mikhail Khodorkovsky, was imprisoned, and its most profitable assets sold off in dubious auctions.
The shareholders who took the case to the court of arbitration, known as Group Menatep Limited (GML), have vowed to appeal the April 20 decision.
The Origins Of Yukos
Formed in the early years of Boris Yeltsin's presidency, Yukos was put together from several Siberian oil and gas fields and refineries. In 1995, the Yeltsin government began selling off key state assets under a controversial program known as "loans for shares."
Yukos ended up in the hands of a former leader of the youth division of the Communist Party, Khodorkovsky, who built up the company -- sometimes ruthlessly -- into what became Russia's largest.
Khodorkovsky Arrest
In 2003, Khodorkovsky, by then a billionaire, was arrested, then convicted on fraud charges, and he served his prison sentence, mainly in a Siberian penal colony, until 2013 when he was pardoned by President Vladimir Putin.
In the years after Khodorkovsky's arrest, Yukos was dismantled, its key assets sold off in state-run auctions and acquired by the government-owned oil giant Rosneft.
The Fight Back
Shortly after Yukos started being dismantled, GML began waging a legal battle to recover some of their assets. Khodorkovsky, who now lives in Switzerland, is not among them.
GML have built their case using a provision in a European treaty known as the Energy Charter, which Russia signed in 1994.
Moscow has argued that, since it never ratified the treaty, its provisions don't apply, and Putin formally withdrew Russia from the charter in 2009.
In July 2014, the Permanent Court for Arbitration in The Hague rejected those arguments, and awarded GML $50 billion, ruling that Yukos was deliberately destroyed through punitive tax penalties and expropriation of assets.
But, in its ruling on April 20, the Hague court essentially agreed with the Russian argument on the question of the treaty's relevance.
Beginning last year, court bailiffs in France and Belgium began seizing assets, mainly outstanding debt, owed by European countries to Russian government-linked companies such as the space agency, Roscosmos. By one estimate, already $1 billion has been ordered seized. Related proceedings are beginning to make their way through U.S. federal courts.
What's At Stake?
The fight for its legacy -- specifically compensation for its current and former shareholders -- has become a battle between Russia and the West.
Before the latest ruling, Russia reacted angrily and threatened to seize other governments' property in retaliation. Aleksandr Bastrykin, the head of Russia’s Investigative Committee, accused the United States this week of wielding "legal weapons" in a "hybrid war" against Russia.
In light of the April 20 ruling, the asset seizure cases being heard in various courts will likely be suspended for now, though GML has vowed to appeal the latest verdict.
"The arbitration tribunal was composed of three international law experts of the highest caliber, who were unanimous in their reasoning," Emmanuel Gaillard, who was the lawyer for the Yukos shareholders in the proceedings, said in a statement. "I am confident that today's decision will be reversed on appeal."
For his part, Khodorkovsky, despite not being directly involved in the case, reacted strongly to the April 20 ruling, saying it showed that "the West had eased up on pressuring" Russia.
"My friends will continue their resistance. I have, and will, go about regime change by other means," he said in a Twitter posting on April 20.
