Investors in Yukos took the position that the actions of the Russian authorities constituted an unlawful expropriation. Based on that argument, the investors initiated arbitration proceedings against the Russian Federation under the ECT claiming compensation for damages. The place of arbitration was The Hague, in The Netherlands. As the proceedings were initiated before 2015, the Dutch Arbitration Act 1986 applied.

The Russian Federation disputed jurisdiction of the arbitral tribunal. It argued that it was not bound by the ECT as it had not ratified the treaty and that only those provisions of the ECT that did not violate Russian law could apply provisionally which did not include the arbitration provisions of Article 26 of the ECT. The investors argued that the ECT as a whole applied provisionally and that provisional application of a treaty per se was not contrary to Russian law.

On 30 November 2009, the arbitral tribunal issued interim awards on jurisdiction in which it confirmed jurisdiction to hear and decide the expropriation claims (see Legal update, Energy Charter Treaty has provisional application to the Russian Federation in Yukos claim). The arbitral tribunal held that the ECT provisionally applied to the Russian Federation between signing the ECT in 1994 and informing the depository of the intention not to ratify the ECT in 2009. Agreeing with the investors, the arbitral tribunal took the view that Russian law does not prohibit provisional application of treaties.

In July 2014, in three parallel awards, the arbitral tribunal awarded the former majority shareholders in Yukos over US$50 billion in damages, the largest arbitral award in history (see Legal update, Majority shareholders in Yukos awarded US$50 billion).

Following the rendering of the final arbitral awards, the Russian Federation initiated proceedings before the District Court in The Hague seeking to set aside the interim awards on jurisdiction of 2009 and the final arbitral awards on the merits of 2014.

The setting aside claims were based on the grounds that:

The District Court of the Hague's setting aside judgment is subject to appeal (within three months) to the Court of Appeal in The Hague and the decision of the Court of Appeal will be subject to cassation appeal (again within three months) to the Dutch Supreme Court. The investors have already announced that they will initiate an appeal and this could take a few years to complete.

The first appeal, to the Court of Appeal, concerns a full review of the facts and the law as found and applied by the District Court, while the cassation appeal to the Supreme Court is basically limited to matters of law. Although counter-intuitive, the application of foreign law is considered a matter of fact and not a matter of law in Supreme Court appeals (which can be distinguished from the application of foreign law by lower courts). This distinction may become particularly relevant in this matter, as the Supreme Court will not consider the issues of Russian law which actually played a key role in the present decision to set aside. In other words, the last real chance in these proceedings for the investors to raise arguments under Russian law to overturn the setting aside judgment is at the Court of Appeal level.

If the Court of Appeal were to overturn the judgment of the District Court, for instance due to a different interpretation of Russian law, the other arguments of the Russian Federation to set aside the arbitral awards (that were not ruled on by the District Court) may come back into play.

The AA 1986 specifically provides that the setting aside of an arbitral award rendered in the Netherlands causes the automatic termination of any prior court leave to enforce that arbitral award in the Netherlands (section 1062(4)). Accordingly, the investors will not be able to enforce or continue to enforce the arbitral awards in The Netherlands. This will of course change again if this decision setting aside the awards is overturned on appeal. However, section 1062(4) does not apply to the enforcement of awards outside the Netherlands. Broadly speaking, the Dutch legislature and judiciary therefore have no extraterritorial power when it comes to the enforcement of awards abroad and so the question as to whether such enforcement can take place despite the setting aside by the Dutch court must be answered on the basis of the laws of the place of enforcement, treaties and international comity.

The investors have already initiated enforcement proceedings in Belgium, France, Germany, the UK and the US and have already indicated they will continue seeking enforcement in those jurisdictions.

Turning to whether the courts of those jurisdictions are likely to enforce an award set aside at the seat, France is an exception in that it has a special mechanism for enforcement of foreign arbitral awards independent from the New York Convention whereby the setting aside in the place of origin is no ground to refuse enforcement.

However, there is also a growing body of authority for the interpretation that where enforcement is sought under the New York Convention, enforcement may be granted despite the setting aside of the award in the country of origin. This turns on the interpretation of the word "may" in Article V(1) of the New York Convention (which provides that a foreign award "may" be refused enforcement at the request of the award debtor on certain grounds). It would seem unlikely that the drafters of the New York Convention intended that enforcement be mandatorily refused if enforcement in the country of origin was, say, suspended as opposed to refused and so the word "may" in Article V(1) must be intended to leave discretion to the enforcement court. One could also argue that enforcement may not be refused under Article V(1)(e) of the New York Convention if the setting aside is still subject to appeal and that the decision on enforcement may or should be adjourned in those circumstances (Article VI). Furthermore, case law from a number of jurisdictions supports enforcement of foreign arbitral awards that have been set aside in the country of origin, including in France (Hilmarton v OTV, Putrabali v Rena and Maximov v NLMK) and the US (Chromalloy Aerospace v Arab Republic of Egypt, Baker Marine (Nig.) Ltd v Chevron (Nig.) Ltd and TermoRio S.A. E.S.P. v Electranta S.P.). In the well-known matter of Yukos Capital v Rosneft (200.005.269/01), the Amsterdam Court of Appeal also held that under the New York Convention, enforcement in the Netherlands of an arbitral award rendered in the Russian Federation was allowed despite having been set aside in Russia . In that judgment the Amsterdam Court of Appeal further held that the recognition of a foreign setting aside judgment is not governed by the New York Convention but by private international law.

The key question for the investors seeking international enforcement of the arbitral awards will therefore be whether or not the country of enforcement is required to recognise the Dutch setting aside judgment, either on the basis of a treaty or international comity.

For a full discussion on these issues, see Article, Awards set aside at the seat of the arbitration: is enforcement still possible?

Likewise, the Russian Federation may seek to consolidate this win and seek recognition of the setting aside judgment in countries that are required to do so on the basis of a treaty with The Netherlands. What treaties could come into play in this situation? Not the well-known European treaties, which are not applicable to arbitration, but rather some long-forgotten treaties that allow recognition of judgments annulling arbitral awards even if the judgments are still open to appeal in the country of origin. Examples of such treaties would include The Netherlands' treaties with Germany (The Hague, 30 August 1962) and the UK (The Hague, 17 November 1967).