A Canadian court has rejected Russia’s bid to disqualify a US academic from giving expert evidence on behalf of a former investor in the defunct Yukos Oil Company, finding that the fact he may have become the “go to guy” for parties suing the state did not prove that he lacked independence.

In a judgment on 29 July, Justice Michael Penny in the Ontario Superior Court of Justice dismissed Russia’s motion to exclude evidence provided by Paul Stephan of the University of Virginia on behalf of Cypriot entity Luxtona in set-aside proceedings commenced by Russia.

Penny J also said he had “serious doubt” about a ruling last year by a different judge in the same proceedings, which had allowed Russia to introduce additional evidence that was not before the arbitral tribunal. He said he would invite the parties to reargue that narrow question.

In the set-aside proceedings, Russia is represented by Torys (where Penny J was a partner before joining the bench in 2009), while Luxtona is using Bennett Jones. In the arbitration, Luxtona is using Gibson Dunn & Crutcher while Russia is defended by Debevoise & Plimpton.

Luxtona has been pursuing an Energy Charter Treaty claim against Russia since 2013 over the loss of its shares in Yukos – which went bankrupt more than a decade ago after being hit with US$24 billion in back tax claims and fines. The claimant is a former subsidiary of Yukos that acquired shares in the company through a corporate reorganisation.

Russia never ratified the ECT and maintains that a clause in the treaty in which signatories agreed to provisionally apply the treaty prior to its entry into force does not extend to its investor-state dispute resolution provisions because they are inconsistent with Russian law.

In 2017, a Toronto-seated UNCITRAL tribunal chaired by US arbitrator John Crook upheld its jurisdiction over Luxtona’s claims. The co-arbitrators are Italy’s Luca Radicati di Brozolo of ArbLit and Costa Rica’s Rodrigo Oreamuno.

Last year, Justice Sean Dunphy in the Ontario court refused a bid by Luxtona to exclude expert evidence on Russian law that was not before the arbitral tribunal when it issued its award – finding he was not confined to the “four corners” of the evidentiary record in the arbitration.

Following that ruling, Luxtona also filed additional expert evidence on Russian law from Stephan (who had been an expert in the arbitration), giving rise to Russia’s motion to strike.

The state alleged that Stephan had a long history of providing strategic advice and expert reports for Yukos and Yukos-related entities in claims against Russia since 2005. It said he had made various public statements about his legal advice to Yukos and about his support for the company’s cause against Russia, and had received substantial compensation for these engagements.  

Russia also objected that Stephan was unqualified to provide expert evidence on Russian law, as he is not a Russian lawyer, is not qualified to practise law in Russia and has no degrees in Russian law or from any Russian university. The state said Stephan claimed expertise in a disparate variety of topics, seemingly in response to whatever was required at the time, despite not being fluent in the Russian language.

Luxtona rejected allegations of bias, saying it was unsurprising that parties who found his opinion helpful in one case would seek it again in comparable circumstances. It argued there was no requirement that an expert on foreign law be qualified to practise in the jurisdiction or be resident of or speak or read the language of the foreign jurisdiction.

In his judgment, Penny J said the threshold requirement for the admission of expert opinion evidence is that the expert possess special knowledge and experience going beyond that of the trier of fact. The admissibility of such evidence did not depend on how the special knowledge and experience were acquired.

In addition, he said Canadian law was clear that there was a further requirement that the expert opinion must “reflect an objective assessment of the questions at hand”.

Penny J said he was not satisfied that Stephan’s history with Yukos-related entities demonstrates any lack of independence. The fact that he has been paid by similarly situated parties could not be the basis for a finding of a lack of independence. There was no evidence Stephan had any inappropriate or direct financial or personal interest in the arbitration or the outcome of the set-aside proceedings.

The judge said Stephan’s “accumulated expertise” made him a natural selection in such a case. He said the record did not support the conclusion that Stephan was “parroting Luxtona’s views or tailoring his evidence to advance Luxtona’s theory of the case”. It was Stephan’s beliefs that led to his retainer, rather than the other way round.

Stephan’s “isolated public statements” also did not show that he had “entered the fray as an advocate and lost objectivity”. The judge said Stephan “is to be forgiven if he has taken what might, in the cold light of the courtroom, appear to be an unseemly pride in his work.” Comments he may have made at a seminar, “while colloquial and perhaps strident”, were in a context far removed from his role as an expert.

As to his qualifications, the judge noted that Stephan had an MA in Russian Studies and a law degree in the US. His specialties include post-Soviet law, taxation law, international business transactions and international law. He has been qualified as an expert in Russian law on many occasions before international tribunals and domestic courts in the US and Europe.

While it may well be that his lack of facility with the Russian language was “a limitation on his abilities”, the judge said this only went to the “extent” of his qualifications, not whether he has any at all.

The judge concluded by observing that Dunphy J’s preliminary ruling last year on the admissibility of new evidence by Russia was not binding upon him. While he was “loathe to create uncertainty in the management and orderly conduct” of the proceedings, Penny J said he had “serious doubt” about the correctness of that ruling, which could produce the “peculiar result” of the court deciding the issue of the tribunal’s jurisdiction on a completely different record than what was before the arbitral tribunal. He therefore invited the parties to reargue the question of the evidence’s admissibility.

Russia was ordered to pay C$75,000 towards Luxtona’s costs.

The Russia Federation v. Luxtona Limited, 2019 ONSC 4503

Before the Ontario Superior Court of Justice

  • Justice Michael Penny

Counsel to Russia

  • Torys LLP

Partner John Terry and senior associate Myriam Seers in Toronto

Counsel to Luxtona

  • Bennett Jones

Partners Lincoln Caylor and Ranjan Agarwal in Toronto

In the UNCITRAL arbitration

Tribunal

Counsel to Luxtona

  • Gibson Dunn & Crutcher

Cy Benson in London

Counsel to Russia

  • Debevoise & Plimpton

Partner Lord Goldsmith QC in London, international counsel Aimee-Jane Lee and Samantha Rowe, and associate Conway Blake