Yukos Universal Limited (Isle of Man) v The Russian Federation: A Classic Case of Indirect Expropriation

Abstract

A claim of indirect expropriation is at the heart of the Yukos investment arbitration cases brought by three former shareholders of Yukos Oil Company (“Yukos”) against the Russian Federation. On July 18, 2014, the Tribunal issued its unanimous final awards in these combined cases, determining that the Russian Federation had breached its obligations under Article 13 (Expropriation) of the Energy Charter Treaty (“ECT”). The Tribunal held that while the Russian Federation “has not explicitly expropriated Yukos or the holdings of its shareholders,” nonetheless, the measures it had taken “have had an effect ‘equivalent to nationalization or expropriation.’” The Tribunal’s ruling was thus squarely founded on a finding of indirect expropriation. The Tribunal concluded that “the primary objective of the Russian Federation was…to bankrupt Yukos and appropriate its valuable assets.” With this determination of liability, the Tribunal awarded the enormous sum of over US$50 billion to the claimants for their damages.

The Yukos case presents a paradigmatic example of indirect or “creeping” expropriation. Doctrinally, these Yukos arbitrations do not present a difficult case. The Tribunal’s analysis falls squarely within the legal framework for assessing indirect expropriation. The series of measures taken by the Russian Federation against Yukos are complex in their multiplicity. However, measures of a similar type have been imposed by other governments on foreign investments in other states. Aside from the sheer size and scale of this expropriation, perhaps the most remarkable aspect of the Yukos case is that no one might have expected, in a modern and globalized world in which the Russian Federation had taken steps to become more open and integrated in the world economy, that a company such as Yukos – Russia’s leading oil company and largest taxpayer – would be subjected to these measures by its own government.