It is not often that $50-billion arbitration awards are issued. So it is understandable why the global arbitral community was awaiting the decision of The Hague District Court in The Russian Federation v. Veteran Petroleum Limited, The Russian Federation v. Yukos Universal Limited, and The Russian Federation v. Hulley Enterprises Limited (“Yukos”). On April 20, the wait ended. The District Court quashed the three awards totaling nearly $50 billion, holding that Russia never agreed to arbitrate disputes under the Energy Charter Treaty (“ECT”) .

How did the District Court reach this conclusion? Russia had, after all, signed the ECT in 1994. While it terminated provisional application of the ECT in 2009, under the ECT’s terms, investments made before this date were still subject to investor-State arbitration of expropriation disputes. Once it became a signatory, Article 45(1) of the ECT made the ECT provisionally applicable to Russia unless provisional application of the ECT was inconsistent with Russia’s constitution, laws, or regulations. Russia could have submitted a declaration at the time of execution under Article 45(2) of the ECT that it was not able to accept provisional application of the ECT pending entry into force of the ECT, but it did not do so--unlike several other countries which had submitted such declarations. Hence, the tribunal concluded that Article 45(1) was applicable. Since it further found that there was no inconsistency with Russia’s constitution, law, or regulations, the arbitration clause in the ECT was in effect and binding.

In its review, the District Court held that the limitation contained in Article 45(2) was not an “all or nothing” proposition. It held further that Article 26 of the ECT containing the arbitration clause could not become effective until Russia ratified it in keeping with the principle of separation of powers. Under the Russian Constitution only the Federal Parliament could ratify a treaty that supplemented or amended Russian law. The Court held that there was no Russian law that allowed an independent legal basis for the settlement of investor-State disputes in international arbitral proceedings. Thus Russia never agreed to arbitrate and the tribunal had no jurisdiction to hear these matters.

Under Dutch law, having an award quashed is the exception, not the rule. The doctrine developed by the Dutch Supreme Court in landmark cases such as Spaanderdam/Anova and Rijpma/Kers prevents parties from successfully using a setting aside mechanism as a de facto appeal. But in 2014, another landmark decision, Chevron/Ecuador, was rendered. The Dutch Supreme Court there held that if the jurisdiction of the tribunal is contested, the court will adhere to a less rigid standard of review. Why? Because parties have a fundamental right to access to courts. If arbitrators do not have jurisdiction, that right is violated.

It was Chevron/Ecuador that provided the Yukos District Court with sufficient ammunition to engage in a full review of the jurisdictional issues. Lack of a valid arbitration agreement is a setting aside ground similar to Article V(1) (a) of the New York Convention. As with Article V(1)(a), courts are usually of the view that while tribunals may decide on their own jurisdiction, courts will have the final word on whether1 jurisdiction exists. The rationale is that all courts--whether the courts of origin in an annulment procedure or the courts of enforcement--must protect parties’ fundamental right to access to courts.

The Hague District Court explained that “this fundamental character  also entails that, in deviation from a principally restrictive assessment in reversal proceedings, the court does not restrictively assess a request for reversal of an arbitral award on the ground of a lacking valid agreement.” The District Court also shifted the burden of proof by requiring that the claimants prove that the tribunal had jurisdiction.

Although some courts do address Article V(1)(a) of the New York Convention in a manner that safeguards a right of access to courts by closely scrutinizing a tribunal’s rationale in support of jurisdiction, shifting of the burden is not typical under Article V(1)(a).

The Hague District Court only ruled on jurisdiction, not on any of the other annulment grounds relied upon by The Russian Federation. Hence, Dutch precedent that setting aside mechanisms cannot be used as a de facto appeal remains intact.

In the United States, the question of who decides whether an arbitrator has jurisdiction is a function of contract. In First Options,1 the Supreme Court held that courts “should not assume that the parties agreed to arbitrate arbitrability” unless there is “clear and unmistakable” evidence that they did so. While private parties do not negotiate treaties like the ECT, if they want the tribunal to decide arbitrability, they need to make sure under First Options that they say so clearly and unmistakably in the arbitration clause of an agreement if they want to avoid the fate of the claimants in Yukos.