Yukos and Moldova Cases- Two Sides of the Same Coin?

By Marina Leal Galvão Maia

Posted: 31st August 2016 08:10

Two cases that have been catching the eye of many practitioners of arbitration, the Yukos shareholders vs. Russia and the Moldova v. Komstroy (formerly Energoalians), have much more in common than one would have thought at first glance. Both cases deal with investment arbitration claims and their subsequent awards, both in favor of investors, were set aside at the seat of arbitration and raised questions and heated discussions about the always so controversial topic of enforcement of annulled awards. The bittersweet relation between courts and tribunals has often resulted in setting aside arbitral awards and this has led to tremendous speculation. A brief background of these two landmark cases is discussed below.
 
Yukos shareholders vs. Russia

 
The Yukos case is one of the most famous ones in the history of arbitration which lasted for ten years. In this case, Yukos claimed that that the Russian courts wrongfully launched tax evasions charges against Yukos, which culminated in its bankruptcy. The jurisdiction of the tribunal was contested by Russia in this case, relating to the provisional application of certain articles of ECT (Energy Charter Treaty), which Russia signed, but never ratified. Article 45(1) of the ECT, which refers to the provisional application of the Treaty,  provides that it will be applied provisionally pending its entry into force to the extent that such provisional application is not inconsistent with the signatory’s constitution, laws or regulations. The PCA arbitral tribunal ascertained that this article refers to the application of the treaty in its entirety, including article 26, about the settlement of disputes, which according to Russia was inconsistent with its national law.
 
The arbitral tribunal after deciding it was competent, awarded Russia to pay Yukos 50 billion USD in damages. The happiness of winning the case, though, did not last for long for the Yukos. After the award was issued in 2014 by an arbitral tribunal under the PCA, enforcement was sought – and denied in April of 2016 – by the Hague District Court, ruling that the PCA had no jurisdiction in the case.
 
The Claimants tried to enforce, in many jurisdictions, the award against Russian estate companies, but ran into some problems when the award was set aside at the seat of arbitration, as questions arose about the existence of the exequatur after the annulment of the award. The Yukos majority sought enforcement of the award against Russia’s assets in countries such as Belgium, Germany, France, India, the UK and the US.  So far the decisions of these state courts are still pending on this controversial topic that is the enforcement of awards set aside at the seat of arbitration.
 
It is worth mentioning that, in August 2015, article 1412quinquies was added into the Belgian Code of Civil Procedure, which strengths the protection of foreign property, making it harder to seize them. It is widely understood that the addition of this article was to avoid diplomatic incidents with Russia, after it lost the Yukos case.
 
Moldova vs. Komstroy
 
Just like the Yukos case, the Moldova case has had its own share of popularity. The veins of this case spread out to several countries such as Belgium, France, Moldova, Russia, Ukraine and the United States. Moreover, important aspects investment arbitration such as the jurisdiction of the tribunal and the constitution of “investment” under investment arbitration came to light. 
 
This infamous case dates back to 1999 when the predecessor of Komstroy, Energoalians entered into an agreement with Moldova for the supply of electricity. The dispute arose in the year 2010 when Moldova failed to make the payment under the said agreement pursuant to which arbitration proceedings ensued. In the year 2013, majority of the 3 panel tribunal passed an award against Moldova, holding the country liable for breaching the treaty’s fair and equitable treatment standard under the 1996 Ukraine - Moldova treaty.Aggrieved by the said award, Moldova instead filed an application before the Paris Court of Appeal to set aside the said award, citing inter alia many of the points raised by the chair of the tribunal, Dominic Pellew in his dissenting opinion. In April of 2016 – incidentally the same month of the decision in the Yukos case – the Court of Appeal of Paris annulled the arbitration award issue by the arbitral tribunal, also arguing that they did not have jurisdiction over the dispute.
 
The Moldova case also involved recovery of assets from the country and its state owned companies such as MoldATSA. These assets were located in several countries including Belgium. Hence, in April, 2015, Komstroy locked MoldATSA’s accounts in Eurocontrol, an international organization working for air traffic safety in Europe. Proceedings ensued before the seizure judge in Belgium, who decided that the money locked with Eurocontrol belongs to Moldova and declared the seizure invalid. However, theannulment of the award by The Paris Court, in this case, resulted in defreezing of MoldATSA’s assets as well.
 
Enforcement of awards set aside at the seat of arbitration?
 
As shown above, the root of the problem of both cases is the possibility to enforce the award set aside by the seat of arbitration. Special attention shall be made to the New York Convention, which deals with the enforcement of foreign arbitral awards. Its article V which brings an exhaustive list of when the enforcement of the award may be refused, and one of its possibilities is when the award was set aside by a competent authority of the country in which, or under the law of which, that award was made, as per article V(i)(e). The keyword ‘may’ in this provision is controversial. It is wildly accepted that the word ‘may’ signifies that the courts have the discretionary power, to enforce or not the award, never the obligation to not enforce it. Thus, it is up to the national courts of each country to decide which is the best approach – enforcing or not – the annulled award.
 
The mind-set of most of the courts in civil jurisdiction is based on the discretionary nature of the word “may”. While some of the countries choose to enforce an award the others may feel least inclined to do so. For example, France has enforced several awards which have been annulled at the seat of arbitration. In Nikolay Maximov V. NLMK, the Paris Court de Grande enforced an award which was duly annulled in Russia for public policy reasons. The French outlook in terms of enforcement stems from the belief that arbitral awards are de-nationalised in nature and hence not attached to any country. Thus, an award, even if annulled in another country may still be subject to enforcement in France. A similar approach is adopted by the Dutch courts in the case of Yukos Capital v. Rosneft [2012] EWCA Civ 855
 
The above cases clearly portray the inquisitional nature of the courts. The courts still perform to maintain the historical “superiority” it has obtained over centuries. With the advent of modern methods of dispute resolution, the courts are beginning to loosen its reigns over litigants, however, they don’t intend to give up entirely. Therefore, only time will tell what the relation between courts and tribunals culminate into.

Marina Leal Galvão Maia is part of the AIA Team and is a fourth year student of Law at the Universidade Federal de Minas Gerais in Brazil. She has participated in numerous competitions involving arbitration, such as the Willem C. Vis International Commercial Arbitration Moot and the Brazilian competition  Competição Brasileira de Arbitragem – Petrônio Muniz, she has also done research in various topics of arbitration and was the coordinator of the arbitration and international contracts group in her university.

Marina can be contacted on +32 2 643 33 07 or by email at administration@arbitration-adr.org

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