July 28, 2014 3:20 pm

The $50bn Yukos award: Key quotes from the tribunal judgment

Below are key quotes from the judgment of the Permanent Court of Arbitration in The Hague, which awarded former leading shareholders of the Yukos oil company $50bn in damages against Russia.

On Moscow’s demands for tax reassessments against Yukos:

“The primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos and appropriate its assets.”

“Russia’s total failure to engage with any of Yukos’s settlement proposals raises significant doubt in the tribunal’s mind as to whether respondent’s true and sole concern in its dealings with Yukos after the tax reassessments were issued was the collection of taxes.”

“The totality of the bankruptcy proceedings . . . were not part of a process for the collection of taxes but rather, as submitted by claimants, indeed ‘the final act of destruction of the company by the Russian Federation and the expropriations of its assets for the sole benefit of the Russian state and state-owned companies Rosneft and Gazprom’”.

On the auction of YNG, Yukos’s largest oil producing unit:

YNG was acquired by Baikal Finance Group, a company whose registered address was that of a bar in Tver, a town north of Moscow and was established two weeks before the auction. Despite having capital of $359, it managed to pay the required cash deposit of $1.77bn to register for the auction. Rosneft, the state-owned energy group, acquired the company following the auction.

The tribunal called the auction “one of the most striking episodes in the saga of Yukos’s demise”.

“The tribunal notes that its findings are consistent with those of the RosInvestCo and Quasar tribunals, which found ‘many aspects of the YNG auction more than suspect’ and concluded that ‘the auction of YNG was rigged’”.

“It was the desire of the state to acquire Yukos’s most valuable asset and bankrupt Yukos. In short, it was in effect a devious and calculated expropriation.”

“Russian authorities deliberately ignored the advice of Dresdner (its valuation expert) that haste in carrying out the auction could decrease the price”. And the tribunal said the final price paid for YNG was “far below the fair value”.

“Baikal Finance Group was one of the most opaque facets of the YNG auction.”

“It was obviously created solely for the purpose of bidding for YNG at the auction.”

On Rosneft’s role in the affair:

“Baikal Finance Group’s YNG purchase was an action in the state’s interest, the inference being that the state, the 100 per cent shareholder of Rosneft, the most senior officers of which were members of President Putin’s entourage, directed that purchase in the interest of the state”.

“[Expropriation was] in the interest of the largest state-owned oil company, Rosneft, which took over the principal assets of Yukos virtually cost-free.”

On the intimidation of Yukos executives and staff:

“Intimidation and harassment of Yukos’s senior executives, mid-level employees, in-house counsel and external lawyers by the Russian authorities not only disrupted the operations of Yukos but also contributed to its demise and thereby damaged claimants’ investment.”

“It . . .support[s] claimants’ central submission that the Russian authorities were conducting a ‘ruthless campaign to destroy Yukos, appropriate its assets and eliminate Mr [Mikhail] Khodorkovsky as a political opponent.”

On pressure placed on PwC to withdraw its audit of Yukos and give evidence against Mr Khodorkovsky and Platon Lebedev:

“The pressure on PwC informs the tribunal’s view that Yukos was the object of a series of politically motivated attacks by the Russian authorities that eventually led to its destruction, as alleged by Claimants.”

“PwC was clearly pressed by the Russian authorities to find ground for withdrawing its audits of Yukos.”

On the Yukos rehabilitation plan:

“The tribunal did not accept that it was in any sense proper or fair for the creditors’ committee to reject the Rehabilitation Plan, for the court to declare Yukos bankrupt, or for Yukos to have been deprived of all of its remaining assets through a hasty and questionable liquidation process.”

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.


Sign up for email briefings to stay up to date on topics you are interested in