Setting the stage for Yukos’ final verdict overturning verdict in The Hague: Advocate General advises Dutch Supreme Court to uphold PCA sentences

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On April 23, 2021, Paul Vlas, Advocate General of the Dutch Supreme Court delivered his opinion in the Yukos case, paving the way for the definitive annulment act in The Hague after nine years of arbitration administered by the PCA and six years of annulment of litigation. Advocate General Vlas had previously advised the Dutch Supreme Court to reject Russia’s request for a stay of execution, the latter having finally followed the Advocate General’s opinion in December 2020. The April 23 opinion 2021 deals with a range of controversial topics, ranging from: among others, whether Russia was obliged to provisionally apply the Energy Charter Treaty (ECT) to questions concerning the role of the court assistant. In this round, Russia has also sought to involve the Court of Justice of the European Union, requesting a preliminary ruling on issues related to the interpretation of the TEC. This blog post will cover some of the issues addressed in Advocate General Vlas’ opinion.

Provisional application of the TEC

In the cancellation proceedings in The Hague, Russia sought to cancel the US $ 50 billion sums that held it responsible for TCE violations regarding its treatment of the former oil company Yukos. In 2016, Russia won in The Hague District Court, which found that the Yukos court had wrongly declared itself competent because Russia was not obliged to provisionally apply the TEC (dispute settlement clause) (see previous blog here). This judgment was overturned by the Court of Appeal in The Hague (see the previous blog here).

In the opinion of the Advocate General, the judgment of the Court of Appeal should be regarded as the last word on the matter.

The Advocate General begins his reflection by noting that a mechanism of provisional application (such as that found in Article 45 of the TEC) serves to obtain the expected benefits of a treaty before the completion of long periods. national ratification procedures. At the same time, the Advocate General observes that such mechanisms have been criticized for posing a potential threat to the separation of powers at the national level, an issue which has also been addressed by the District Court in The Hague (see blog previous here).

Article 45 (1) TEC on provisional application reads as follows:

“Each signatory undertakes to apply this treaty provisionally[…]insofar as this provisional application is not incompatible with its constitution, laws or regulations ”.

The Advocate General notes that to date, three different interpretations of this clause have emerged. According to the so-called “all or nothing” approach adopted by the arbitral tribunal, Article 45 TEC aims to determine whether the mechanism of provisional application as such is not incompatible with domestic law (see here). On the other hand, according to the “piecemeal” approach followed by the district court in The Hague, the crucial question is whether a specific provision of the TEC which is to be applied on a provisional basis is not incompatible with the law. internal. The Hague Court of Appeal adopted a third variant, ruling that Article 45 TEC applies as long as the provisional application of a specific provision of the TEC is not incompatible with domestic law, and concluding that Russian law does not exclude the provisional application of certain provisions (categories of) treaty provisions. In the opinion of the Advocate General, the approach of the Court of Appeal corresponds to the ordinary meaning of the wording of Article 45 TEC.

The Advocate General suggests rejecting Russia’s claim that a national court cannot maintain arbitral jurisdiction on grounds other than those applied by the court itself. Since under Dutch law the jurisdiction of an arbitral tribunal is subject to de novo revision, the question before the courts is not whether the court established its jurisdiction on a correct basis, but whether the court had jurisdiction. This approach avoids the situation where the parties would be referred to arbitration because the tribunal established jurisdiction on the wrong basis even though their intention was to resolve a dispute by arbitration.

No need to involve the CJEU

In the cassation proceedings, Russia asked the Dutch Supreme Court to submit a preliminary ruling concerning the TEC to the CJEU, arguing that the TEC is a mixed agreement that requires a consistent interpretation between EU institutions and states members. According to the Advocate General, however, the CJEU is only competent to interpret a mixed agreement when the EU has adopted instruments implementing the treaty concerned, which has not happened for the TEC. Advocate General discusses CJEU Advocate General Szpunar’s findings in detail in Moldova / Komstroy (see previous blogs here and here), which considered that the CJEU was competent to interpret the TEC since the substantive provisions of the TEC could apply in the EU legal order even if the ISDS mechanism of the TEC violates the EU law (in the Advocate General’s view of Szpunar, see further here). Noting that Advocate General Szpunar did not address the CJEU case law which links the jurisdiction of the CJEU to interpret mixed agreements to the existence of implementing legislation, Advocate General Vlas concludes that, in In any event, a preliminary ruling must be necessary to rule on a particular dispute. According to him, this condition is not met in the Yukos Case, among others, because the case concerns the provisional application of the TEC in Russia and not in the EU.

The definitions “investor” and “investment” of the TCE

Russia argued that applicants in the Yukos the arbitrations were controlled by Russian investors who used “turn-around arrangements” to gain protection under the ECT. The Advocate General notes that this request must be assessed in the light of the TEC’s own definition of the terms “investor” and “investment”, referring to Article 31, paragraph 4, of the Vienna Convention, which respects the “Special meaning” of a term if it evenings. The Advocate General agrees with the judgment of the Court of Appeal that the object and purpose of the ECT does not require that other conditions be read in the ECT’s definitions of “investor” and of “investment”. He also argues that the recent reform proposals of the European institutions proposing to exclude letterbox companies from the scope of the TEC cannot be considered as a subsequent practice within the meaning of the VCLT. Although some courts have imposed additional requirements under the ICSID Convention or specific bilateral investment treaties, the Advocate General agrees with the Court of Appeal that such requirements do not constitute a general rule and are not necessarily applicable to TCE. This could mean that letterbox companies can benefit from TCE protection, but denying the benefits clause gives contracting states the option to prevent it if they wish. In response to Russia’s claim that the applicants’ investments were illegal, the Advocate General notes that the TEC does not contain an explicit legality requirement and that the implicit legality requirement recognized by case law arbitration does not affect jurisdiction (see also this Blog).

Taxation

Another series of arguments concerned the exception of the TEC for fiscal measures (art. 21 (1) TEC) and the claw-back for fiscal measures constituting an expropriation (art. 21 (5) TEC). Russia complained that the tribunal failed to appeal to the Russian tax authorities, as required by Article 21 (5) (i) TEC. The Advocate General notes that even if a referral had taken place, the tribunal would not have been obliged to follow the findings of the national tax authorities. Therefore, the Advocate General agrees with the Court of Appeal that the tribunal’s failure to involve the national tax authorities was not sufficiently serious to justify setting aside the award.

The role of the court assistant

Russia’s most sensational complaint in the annulment proceedings was that the court’s assistant had drafted significant parts of the award (see previous blogs here, here, here and here). According to the Advocate General, there is no generally accepted rule or practice which in any case makes it unacceptable for a court to delegate the drafting of the substantial parts of an award to a secretary. Rather, the absence of such a general rule explains why some arbitration rules explicitly deal with the issue. If the applicable rules do not, the court has the discretion to delegate certain tasks to the secretary, as long as he performs his own functions.

Therefore, a party seeking to quash an award on this ground would have to prove that the arbitrators did not properly perform their mandate. This could be the case if a court simply adopted the drafts or improperly involved the secretary in the decision-making process. According to the Advocate General, this high burden of proof corresponds to the seriousness of the allegation made against the tribunal and to the judicial deference incumbent on the tribunal in this context.

In the present case, the Advocate General concludes that Russia has failed to demonstrate that the arbitrators did not exercise their own mandate or that the secretary functioned as a “fourth arbitrator”, when the tribunal should have informed the arbitrators. parts of the decision of the secretary role. Moreover, according to the Advocate General, the appeals court did not err in rejecting Russia’s offer to hear the secretary, because even though he had provided drafts for important parts of the award, this would not be grounds for canceling the awards.

Final remarks

In his opinion, the Advocate General agreed with the Court of Appeal on most points. If the Dutch Supreme Court follows the advice, Russia’s initial success in The Hague District Court will have been permanently overturned and six years of attempts to overturn the PCA sentences will have come to an end. At the same time, the judgment will not end the Yukos litigation in courts and tribunals around the world, as recipients of PCA awards are likely to increase their enforcement efforts in various jurisdictions (see previous blog here) while arbitrations subsequent investments made by other shareholders remain unresolved.

This article first appeared on the Kluwer Arbitration Blog here.

Written by Johannes Hendrik Fahner of Allen & Overy, and the firm of the University of Amsterdam



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