Russia ordered to pay billions for violations of international law

The Permanent Court of Arbitration has ordered Russia to pay US$50billion
Permanent Court of Arbitration
The Peace Palace. Images courtesy Permanent Court of Arbitration
International investment law is gaining in significance and the interface between this body of law and other areas of law is increasing

Two recent judgements against Russia relating to the bankruptcy and confiscation of Yukos Oil show that states will be held liable for breaking international law, with very substantial fines to pay.

Yukos, once Russia’s largest oil producer, filed for bankruptcy in 2006. The company had been controlled by Mikhail Khodorkovsky, who was at one point Russia’s richest man. He was arrested in 2003 and spent ten years in jail after being convicted of fraud and tax evasion. Khodorkovsky was targeted after he declared his interest in entering politics in Russia and raised issues of corruption within the Russian government, potentially challenging President Vladimir Putin.  Russian state-owned company Rosneft took over most of Yukos assets after the company was declared bankrupt in 2007.

The European Court of Human Rights, Europe’s highest authority on human rights, decided on 24 June 2014 that Russia had to pay the former shareholders of Yukos more than €1.8 billion for violations of the right to a fair trial and the protection of property. The Permanent Court of Arbitration (PCA), the oldest international court in the world, in its decision on 18 July 2014 stated: “Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a State-controlled company, and incarcerate a man who gave signs of becoming a political competitor.” That court awarded former shareholders of Yukos more than US$50 billion.

"States must remember that European human rights law protects the right to property."

“International investment law is gaining in significance and the interface between this body of law and other areas of law is increasing,” said Dr James J. Busuttil, a member of the Permanent Court of Arbitration and expert in European human rights law. “These decisions demonstrate how states can be held liable for breaches of different rules of international law, including the right to property guaranteed in international and regional human rights treaties.”

Professor Surya P Subedi OBE  Professor Surya P. Subedi OBE, a barrister practicing in international investment law, pointed out, “International investment law is being applied and interpreted in a much wider context by international courts and tribunals with a view to righting wrong and providing effective remedy to foreign investors against States which violate not only the rules concerning the regulation of foreign investment but also the rights of juridical and natural persons guaranteed in international human rights treaties. I had long argued for the application and interpretation of the rules of international investment law regarding it as a member of a wider family of international legal order and that is what seems to be happening in the recent past in cases both against companies and governments around the globe.  These are certainly exciting times for anyone interested in the functioning of international law in general and international investment law in the international community.”

The PCA found that Russia “was not driven by motives of tax collection but by the desire of the State to acquire Yukos’ most valuable asset and bankrupt Yukos. In short, it was in effect a devious and calculated expropriation”.

"These decisions are lessons that there is a real cost to violating international law"

While Russia will challenge these decisions, it is likely they will stand. “The Grand Chamber of the European Court of Human Rights is very unlikely to overturn the near unanimous decision of its Chamber, especially in such a well-reasoned and detailed decision. States must remember that European human rights law protects the right to property and that they will be brought to book if they violate that right,” said Dr Busuttil. “Russia has already said it will try to overturn the PCA decision in the Dutch courts. Given the prestige of the PCA and the individual members of the Court, which decided the case unanimously, that appeal will also likely fail. These decisions are lessons for Russia, and other states, that there is a real cost to violating international law.”