Tribunal awards damages to Yukos Capital, finding that Russia expropriated its investment, while two arbitrators partially dissent on quantum

Yukos Capital SARL v. The Russian Federation, PCA Case No. 2013-31

A PCA tribunal found the Russian Federation liable for expropriation in an ECT case initiated by Yukos Capital Ltd. (Yukos Capital) concerning Russia’s alleged expropriation of its investments in its indirect parent company in Russia, Yukos Oil Company OJSC (Yukos Oil), and its allegedly unfair and discriminatory treatment of the claimant. The final award was rendered on July 23, 2021.

Background and claims

Yukos Capital was incorporated in Luxembourg on January 31, 2003, as a group finance company to serve the needs of the wider Yukos group of companies (Yukos Group). Following a series of corporate restructurings beginning in 2005, on August 4, 2016, Yukos Capital merged with Miwok Wealth PIC Ltd (Miwok), a British Virgin Islands entity, and on September 1, 2016, the surviving company, Miwok, changed its name to Yukos Capital Ltd.

Yukos Capital’s investment consisted of two loans advanced to Yukos Oil in 2003 and 2004 (2003 Loan and 2004 Loan). Each was advanced with funds loaned to Yukos Capital by Brittany Assets Ltd (Brittany), another Yukos Group company, for the express purpose of advancing those funds to Yukos Oil. Yukos Capital was only liable to repay Brittany when it was repaid by Yukos Oil.

In the background of the tax assessments and related proceedings initiated by Russia against Yukos Oil in 2003, Yuganskneftegaz (YNG), one of the biggest production subsidies of the Yukos Group, was auctioned by the Russian Ministry of Justice to enforce the 2000 tax assessment of Yukos Oil. After this auction, in 2004, Yukos Oil defaulted on a USD 1 billion loan agreement with a consortium of banks led by Société Générale SA, eventually resulting in the banks filing an application requesting that Yukos Oil be declared bankrupt on March 6, 2006.

Yukos Capital filed an application with the Moscow Arbitrazh Court to include its claims under the 2003 and 2004 Loans in the register of creditors of Yukos Oil. However, the court dismissed the claimant’s application based on the Russian tax authority’s argument that the Loans were not due yet. Despite repeated attempts to pursue the application, the court did not allow them, and Yukos Oil was eventually liquidated without the claimant receiving any payment. Yukos Capital brought claims of expropriation and breach of the FET standard under the ECT against Russia.

Jurisdictional objections

Aside from objections it had raised at the bifurcated jurisdiction stage, which were rejected by the tribunal in its Interim Award on Jurisdiction, Russia also raised certain additional objections at the merits stage: (1) the Loans were illegal under both international and domestic law; (2) Yukos Capital did not qualify as a protected investor under ECT Article 1(7) in light of its corporate structure and current nationality; (3) the proceedings were an abuse of process; and (4) Yukos Capital’s claim was excluded by virtue of the tax carve-out in ECT Article 21. The tribunal decided that the objections raised regarding illegality were intertwined with the facts relevant to merits and would therefore be considered along with the issue of liability, and the issue of abuse of process would be considered along with the issue of compensation.

With respect to the objection under ECT Article 1(7), which defines the term “investor,” Russia argued that the claimant was not an ECT-protected investor because it: (1) was a shell company with no substantial business activities in Luxembourg and was ultimately controlled by nationals of a third state; and (2) had ceased to be an ECT national as a result of the corporate reorganization carried out by the claimant since the Hearing on Jurisdiction.

With respect to the first part, the tribunal stated that the material time for the purpose of determining the tribunal’s jurisdiction was the date upon which the dispute was submitted to arbitration. The factual record as to the ownership and control of Yukos Capital on that date was undisputedly established during the jurisdiction phase. Since April 14, 2005, a Dutch foundation incorporated in 2005, Stichting Administratiekantoor Yukos International (Stichting), had become the sole indirect shareholder of Yukos Capital. Evidence given at the jurisdiction stage showed that, at the material time, Yukos Capital was owned and controlled by Stichting acting through its board and not by nationals of a third state. Therefore, the first limb of Russia’s objection failed.

With respect to the second part, the tribunal rejected Russia’s argument that Yukos Capital must maintain the nationality of an ECT contracting state continuously until the date of the award in order to be able to continue to invoke the jurisdiction of the tribunal. It observed that the constant practice of international courts was to determine jurisdiction as at the date of institution of the proceedings. Further, the ECT contained no express provision that required continuous nationality to be maintained until the date of the award, and contrary to Russia’s argument, such a rule was not part of customary international law.

On the taxation carve-out in ECT Article 21, the tribunal considered that the applicability of the carve-out would only have to be analyzed if Yukos Capital’s claim were properly characterized as a claim with respect to taxation measures. However, this was not the case: Yukos Capital had not sued in respect of a Russian taxation measure. To the extent that its case concerned taxation measures against Yukos Oil, they were only relevant as possible context for Russia’s actions against Yukos Capital. Therefore, this was not a claim in respect of a taxation measure and was not subject to the carve-out.

Investment expropriated as part of orchestrated campaign against the Yukos Group

Yukos Capital submitted that the Russian judiciary’s treatment of it constituted an independent act of expropriation, as the judgments denying its claims in the bankruptcy proceedings were improper, discreditable, or manifestly contrary to Russian law. These facts, according to the claimant, demonstrated an abuse of rights, arbitrary decision making, and a violation of due process. The claimant also maintained that while the Russian courts’ behaviour in isolation amounted to a judicial expropriation, it also fit within a wider pattern of conduct in breach of ECT Articles 13 and 10.

The tribunal found a lack of due process in that Yukos Capital was never afforded a proper opportunity to have its claim considered and admitted. Rather, it was subjected to a series of actions, both by the courts and the prosecutorial authorities, which barred that opportunity. Further, Russia’s actions in excluding Yukos Capital from the creditors of Yukos Oil, while substantially accepting the claims of YNG, with no legitimate basis of distinction, were discriminatory. Therefore, disallowing Yukos Capital’s proof of debt in the bankruptcy proceedings constituted expropriation of that debt, because the taking was without “due process of law,” discriminatory, and amounted to a denial of justice, constituting a breach of its obligations under ECT Article 13. The tribunal also concluded from other relevant factual elements that the denial of justice to which Yukos Capital was subjected was part of an orchestrated campaign against the Yukos Group.

No evidence of illegality concerning the investment

The parties agreed that the principal question for the tribunal to consider was whether Yukos Capital’s conduct relating to making the Loans constituted a crime of tax evasion. The relevant domestic laws cited by Russia (both Russian and New York law) commonly required a deliberate intent to commit a criminal act. According to the tribunal, these laws did not support the proposition that a regulatory breach, without criminal intent, would suffice to render the Loans void. The tribunal also concluded that this was the position under the international law doctrines of public policy and unclean hands.

Having considered the evidence, the tribunal held that Russia had not established that the arrangements through which funds were remitted to make the Loans were part of a scheme established with the criminal intent to evade Russian tax.

Partial dissents regarding claimant’s contribution to its losses

With respect to Russia’s jurisdictional objection on abuse of process, the tribunal disagreed. It found that Yukos Capital did not change its corporate nationality between its incorporation and the events of which it complained in order to benefit from an investment treaty to which it was not previously entitled. It was already incorporated in Luxembourg long before the dispute arose.

With respect to whether the claimant contributed to its losses, the principal question for the tribunal was whether, on the dates on which Yukos Capital made its investments under the Loans, there was a reasonably foreseeable risk that these sums would be lost due to Russia’s actions. If so, the proximate cause of Yukos Capital’s loss would be its own actions in choosing to make the investment despite this risk.

With respect to the 2003 Loan, the tribunal concluded that it was not reasonably foreseeable at the time of making the investment that Yukos Oil would default on repayment because of the respondent’s actions. However, from May 27, 2004 (which was the date on which Yukos Oil publicly acknowledged, for the first time, that it might be driven into bankruptcy as a result of the actions of the Tax Ministry), there was a reasonably foreseeable risk that the loan might not be repaid. From that date, any lender in Yukos Capital’s position would have been on notice that any further sums advanced under the 2003 Loan would be at some risk of non-recovery.

Accordingly, the tribunal held that compensation for the loss relating to the sums advanced under the 2003 Loan, from December 3, 2003, to May 26, 2004, was properly recoverable, but while sums advanced after that date could be included as compensation due from Russia, they would be discounted by 50% to take account of the extent of the claimant’s contribution to its own loss.

According to the tribunal, the circumstances were different with respect to the 2004 Loan. At the time of making the loan, Yukos Capital had to consider whether to enter into the Loan at all since, for a lender in Yukos Capital’s position, Russia’s actions against Yukos Oil until then clearly demonstrated an imminent risk that Yukos Oil would be driven into bankruptcy and that any loans would have to be recovered through claims in bankruptcy proceedings. Therefore, the proximate cause of the loss of the 2004 Loan was the claimant’s own decision to advance when it was reasonably foreseeable that it would be lost as part of the actions against Yukos Group. As a result, the tribunal ruled that the August 2004 Loan was irrecoverable in these proceedings.

Tribunal member J. William Rowley disagreed with the majority on the decision to award only 50% of the sums advanced under the 2003 Loan after May 26, 2004, and to deem the 2004 Loan irrecoverable. He stated that this would result in unjust enrichment of over USD 400 million for Russia.

Tribunal member Brigitte Stern also wrote a partial dissent regarding the award, explaining that the majority disregarded the reality and the true nature of Yukos Capital, whose role as an investor was to render a financial service, that is, to pass through sums of money from one Yukos Group company to another, for a profit consisting only of the interest spread between back-to-back loans. The loan advanced by Yukos Capital to Yukos Oil should have been considered holistically with the preceding loan advanced by Brittany to Yukos Capital. With the award rendered by the majority, Yukos Capital would be unjustly enriched, by receiving the amount of a loan which it was never entitled to keep (since it was to be repaid to Brittany), and be able to reap interest at a commercial rate for 12 years.

Decision and costs

The tribunal held that by taking Yukos Capital’s loans without due process or compensation, Russia expropriated those loans in breach of ECT Article 13. Given this finding, the tribunal did not consider it necessary to determine Russia’s liability for alternative claims under ECT Article 10.

Russia was directed to compensate Yukos Capital for its loss of the sums due under the 2003 Loan to the extent of USD 2,630,706,272.17 and interest. Russia was also ordered to bear the claimant’s reasonable legal costs and expenses, amounting to USD 20,552,462.46.


Trishna Menon is an India-qualified international disputes lawyer.

Notes: The tribunal was composed of Campbell McLachlan (President, appointed by the PCA’s Secretary-General, New Zealand national), J. William Rowley (claimants’ appointee, Canadian and New Zealand national) and Professor Brigitte Stern (respondent’s appointee, French national). The award is available at The dissent of J. William Rowley is available at, and that of Professor Brigitte Stern is available at