An international arbitration tribunal in the Netherlands has awarded the shareholders of the now-defunct Yukos oil company more than US$50 billion (yep BILLION!), ruling that the Russian government wrongly seized the company from investors.
The panel, in a roughly 600-page ruling, held that the seizure of Yukos was a politically driven campaign to neutralise Yukos’ former chairman, Mikhail Khodorkovsky, and distribute the oil giant’s valuable assets to state-owned energy companies. The award has proven a devastating blow to the Kremlin. Predictably the Kremlin has already dismissed the decision and vowed to avenge appeal it.
So how do you enforce a $50 BILLION award? Especially against a state not known for playing by the rules.
Certainly a march on Moscow might have dramatic flair, but it’s far more likely that shareholders will achieve the results they want by using courts worldwide to seize Russian state owned property. The Federal Court of Australia has been prepared to help in similar situations before. In 2011 it made freezing orders against a party to arbitration proceedings in Switzerland in relation to over AUD$700 million of shares in a publicly listed Australian company (Fortescue Metals). This order was made despite the fact that both parties were foreign, and the only connection to Australia was the fact that the assets in contention were located here.
There are, of course, exceptions and sovereign immunity is the big one here. If any assets were to be seized, they would have to be commercial assets, so Yukos shareholders couldn’t just claim ownership over a Russian warship in Sydney Harbour, or ransack the Russian embassy for fancy office supplies. Nonetheless, there are still some pretty good prizes up for grabs. Gazprom and Rosneft would be fair game, and they have significant assets located outside of Russia. Although we don’t imagine Yukos shareholders will take a crowbar to Gazprom pipelines in Central Asia any time soon, a court order freezing those assets coupled with a bottle of vodka would cause the Kremlin to sit up and take notice.