Conclusie
PROCURATOR GENERAL
AT THE
SUPREME COURT OF THE NETHERLANDS
Number20/01595
Hearing23 April 2021
OPINION
P. Vlas
In the case of
The Russian Federation, with its official seat in Moscow, the Russian Federation,
v
1. Hulley Enterprises Limited, with its registered office in Nicosia, Cyprus
(hereinafter referred to as “Hulley”),
2. Veteran Petroleum Limited, with its registered office in Nicosia, Cyprus
(hereinafter referred to as “VPL”),
3. Yukos Universal Limited, with its registered office in Douglas, Isle of Man
(hereinafter referred to as “YUL”),
(hereinafter collectively referred to as "HVY")
Table of contents [1]
1.
Introduction
1.1
2.
The facts and the course of the proceedings
2.1
3.
Discussion of the principal ground for cassation
3.1
Ground for Cassation 1: violation of public procedural policy / exclusivity Article 1068 DCCP
3.2
Ground for Cassation 2: interpretation of Article 45(1) ECT
3.9
Introductory remarks
3.11
Ground for Cassation 2.2: Article 26 ECT
3.2
Ground for Cassation 2.3: jurisdiction of the Tribunal
3.23
Ground for Cassation 2.4: Limitation Clause
3.31
Ground for Cassation 2.5: 'not inconsistent' in Article 45(1) ECT
3.54
Ground for Cassation 2.6: Article 26 ECT inconsistent with Russian law?
3.58
Ground for Cassation 2.7: questions referred to the ECJ for preliminary rulings?
3.6
Ground for Cassation 2.8: complaint building therefrom
3.75
Ground for Cassation 3: interpretation of Article 1(6) and (7) (investment and investor)
3.76
Ground for Cassation 3: introductory remarks
3.77
Ground for Cassation 3.2: 'U-turn construction'
3.84
Ground for Cassation 3.3: actual economic contribution to the economy of the host country
3.115
Ground for Cassation 3.4: 'piercing the corporate veil'
3.12
Ground for Cassation 3.5: questions referred to the ECJ for preliminary rulings regarding Article 1(6) and (7) and Article 26 ECT?
3.13
Ground for Cassation 4: interpretation of Article 1(6) and (7) ECT (legality of the investments)
3.132
Ground for Cassation 4.2: existence of legality requirement
3.136
Ground for Cassation 4.3: illegal conduct
3.142
Ground for Cassation 4.4: violation of public policy
3.147
Ground for Cassation 4.5: questions referred to the ECJ for preliminary rulings regarding Article 1(6) and (7) and Article 26 ECT?
3.152
Ground for Cassation 5: Article 21(5) ECT
3.155
Ground for Cassation 5: introductory remarks
3.157
Ground for Cassation 5.2: mandatory nature of Article 21(5) ECT
3.161
Ground for Cassation 6: the role of the secretary of the Tribunal
3.18
Ground for Cassation 6.2: delegation to the secretary of the Tribunal
3.182
Ground for Cassation 6.2: introductory remarks
3.183
Grounds for Cassation 6.2.1-6.2.3: discussion of complaints
3.188
Ground for Cassation 7: lack of reasoning?
3.202
Ground for Cassation 7: introductory remarks
3.203
Ground for Cassation 7.2: discussion of complaints
3.206
Ground for Cassation 8: catch-all complaint
3.215
Conclusion in principal appeal
3.217
4.
Discussion of provisional ground for cross-appeal in cassation
4.1
5.
Conclusion
5
1.Introduction
1.1
The Russian Federation was ordered in arbitration proceedings to pay damages to HVY for breaching its obligations under the Energy Charter Treaty (referred to hereinafter as the “ECT”). [2] The Russian Federation instituted a claim with the Dutch courts to set aside the arbitral awards in question (also referred to hereinafter as the “Yukos Awards”). The District Court allowed the claim based on the lack of a valid arbitration agreement. On appeal, the Court of Appeal set aside the District Court's judgment and still rejected the Russian Federation's claims. The Russian Federation has instituted an appeal in cassation against the judgment of the Court of Appeal.
1.2
This case is still governed by the former arbitration law, which is to say by the Fourth Book of the Dutch Code of Civil Procedure (“Arbitration”) as it applied until the implementation of the Arbitration Law Modernization Act on 1 January 2015. [3] Unless stated otherwise, the references in this Opinion refer to the earlier law. For an introduction to the setting aside proceedings of Articles 1064,
et seq., DCCP, I refer to the opinion I submitted on the Russian Federation's application to suspend enforcement. [4] The Supreme Court rejected this application in its decision of 4 December 2020. [5]
et seq., DCCP, I refer to the opinion I submitted on the Russian Federation's application to suspend enforcement. [4] The Supreme Court rejected this application in its decision of 4 December 2020. [5]
1.3
A large number of the complaints concern the interpretation of provisions of the ECT. In cassation, the Russian Federation argues that the Court of Appeal based its conclusion that the dispute between HVY and the Russian Federation is covered by the ECT on an incorrect interpretation of the relevant treaty provisions, meaning that its finding that a valid basis for arbitration exists is incorrect. This concerns, in particular, the interpretation of the terms “investor” and “investment” from the ECT and the scope of Article 45(1) ECT, which provides for the provisional application of the ECT by a State which did sign the ECT but for which this treaty has not yet entered into effect. In this introduction, I will briefly discuss the purpose and the formation of the ECT and the options that the ECT provides for resolving investment disputes. In the discussion of the various parts of the principal ground for cassation, I will go on and discuss in more detail the interpretation of the specific provisions of the ECT.
1.4
The ECT was concluded in Lisbon on 17 December 1994 with the aim of establishing cooperation in the energy sector, in particular between the Member States of the then-European Economic Community (EEC, currently the European Union) and States in Central and Eastern Europe, including the present Russian Federation. [6] This political desire had already been expressed previously in the non-binding European Energy Charter from 1991. The ECT lays down the agreements from the Energy Charter in a binding instrument. The ECT entered into force on 16 April 1998, after having been ratified by thirty States, including the Netherlands (see Article 44(1) ECT). The ECT has now been ratified by 51 States, and by the European Union. [7] The Russian Federation signed the ECT on 17 December 1994, but has not ratified it. [8] On 20 August 2009, the Russian Federation informed the depositary of the ECT (Portugal) that it no longer intended to ratify the ECT. From that moment on, the Russian Federation was no longer obliged to provisionally apply the ECT, except for the provisions relating to investment protection and dispute resolution in so far as these relate to investments already made (Article 45(3)(a) and (b) ECT).
1.5
In terms of substance, the provisions of Part III of the ECT, pertaining to “Promotion, Protection and Treatment of Investments”, are most relevant to this case. These provisions offer protection to investors who have made an investment in the area of one of the Contracting Parties. They cover the right to fair treatment and non-discrimination (Article 10 ECT) and protection from expropriation (Article 13 ECT). [9]
1.6
The ECT also provides for a mechanism whereby investors can enforce compliance with these rights. [10] Article 26 ECT stipulates that investors can submit disputes regarding alleged violations by a Contracting Party of one of the provisions of Part III of ECT to an arbitral tribunal, among other things. Article 26(4) ECT lists three possible avenues for dispute resolution:
a) arbitration at the International Centre for Settlement of Investment Disputes (ICSID) in Washington, on the basis of the ICSID Convention, [11] provided that both ECT Contracting Parties in question are parties to the ICSID Convention (or, if one of the ECT Contracting Parties is a party to the ICSID Convention, on the basis of the Additional Facility Rules appurtenant to that convention);
b) arbitration by a sole arbitrator or
ad hocarbitral tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), which happened in the present case;
ad hocarbitral tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), which happened in the present case;
c) arbitration at the Arbitration Institute of the Stockholm Chamber of Commerce.
1.7
This means that disputes on rights under the ECT can be submitted to various arbitral tribunals. Several decisions rendered by these tribunals will be discussed in this Opinion. The question that arises is what significance must be attributed to these decisions, in respect of which I note the following in this introduction.
1.8
According to the Vienna Convention on the Law of Treaties (referred to hereinafter as “VCLT”) [12] , arbitration case law is not a source for the interpretation of treaties. This case law can, however, provide insight into the manner in which a treaty is applied in actual practice. [13] Arbitration case law can be used to demonstrate the existence of a principle of customary international law which must be taken into account in the interpretation of a treaty pursuant to Article 31(3) VCLT. Of course, there must be a general state practice that is extensive and virtually uniform, the legal theory being that this practice is required by international law. [14]
1.9
Arbitral tribunals are not bound by decisions rendered by other arbitral tribunals, because the principle of binding precedent (
stare decisis) does not apply. [15] Therefore, there may be differences between decisions – which can of course also be explained by the facts and the manner of litigation. Care must be taken to prevent drawing conclusions on the basis of a single decision or a few decisions. Also, unanimous decisions carry more weight than decisions in respect of which dissenting opinions have been written. [16]
stare decisis) does not apply. [15] Therefore, there may be differences between decisions – which can of course also be explained by the facts and the manner of litigation. Care must be taken to prevent drawing conclusions on the basis of a single decision or a few decisions. Also, unanimous decisions carry more weight than decisions in respect of which dissenting opinions have been written. [16]
1.1
The ICSID Convention provides a procedural framework for the resolution of international investment disputes between States and investors [17] and does not relate to disputes between States and their own citizens. [18] The ICSID Convention does not stipulate when an international investment is involved, but leaves this up to the ICSID arbitral tribunals to decide, with their decision in that regard to be based in part on the investment treaty (usually a bilateral investment treaty (BIT)) underlying the dispute. Therefore, the approach adopted by an arbitral tribunal in a case under the ICSID Convention depends on the underlying investment treaty. ICSID tribunals will only assume jurisdiction if the investment also falls within the scope of protection provided by the ICSID Convention. [19] In practice, ICSID tribunals therefore sometimes impose more stringent requirements than the underlying investment treaties themselves, in particular when concerning the term “investment”. [20] Those requirements may also be more stringent than those of other commercial or other arbitral tribunals which do not base their jurisdiction on the ICSID Convention. [21]
1.11
The foregoing is relevant because the ground for cassation refers in a number of places to ICSID decisions to substantiate the assertion that a generally accepted principle of international investment law is reflected therein (see subground 3 of the principal ground for cassation). In the assessment of this assertion, it must be considered that the ICSID Convention in some respects imposes requirements itself which may be more stringent than the requirements imposed in investment treaties. Also, for all arbitration case law, it must always be considered whether the approach adopted therein generally applies or is based on the specific formulations of the underlying investment treaty.
1.12
Concluding this introduction, I will now proceed to a presentation of the facts and the course of the proceedings and a discussion of the principal ground for cassation.
2.The facts and the course of the proceedings
2.1
Briefly put, this case concerns the following. [22] HVY are, or were, shareholders in Yukos Oil Company (referred to hereinafter as "Yukos"), an oil company based in the Russian Federation, which was declared bankrupt on 1 August 2006 and deleted from the Russian Trade Register on 21 November 2007.
2.2
In 2004, HVY initiated arbitration proceedings against the Russian Federation based on Article 26 ECT. They asserted that the Russian Federation had expropriated and failed to protect their investments in Yukos, in violation of the ECT. HVY were seeking damages from the Russian Federation. The location of the arbitration proceedings was The Hague.
2.3
The tribunal appointed pursuant to the UNCITRAL Arbitration Rules (referred to hereinafter as the “Tribunal”) ruled on a number of preliminary defences raised by the Russian Federation, including in relation to the jurisdiction of the Tribunal, in three separate Interim Awards on Jurisdiction and Admissibility of 30 November 2009 (referred to hereinafter as the “Interim Awards”). In the Interim Awards, the Tribunal rejected several arguments on jurisdiction and admissibility and decided with regard to other preliminary defences that the decision in this respect would be stayed until the merits phase of the proceedings.
2.4
In three separate Final Awards of 18 July 2014, [23] the Tribunal rejected the remaining arguments on jurisdiction and/or admissibility advanced by the Russian Federation, ruled that the Russian Federation violated its obligations under Article 13(1) ECT, and ordered the Russian Federation to pay HVY damages in the amount of USD 8,203,032,751 (to VPL), USD 1,846,000,687 (to YUL) and USD 39,971,834,360 (to Hulley). The Tribunal ruled, succinctly put, that by imposing a number of taxation and collection measures against Yukos, the Russian Federation intentionally bankrupted Yukos for no purpose other than to eliminate Mr Mikhail Khodorkovsky, the Chairman of Yukos and one of its shareholders, as a potential political opponent of President Putin, and to acquire Yukos' assets.
2.5
In separate summonses of 10 November 2014, the Russian Federation summoned Hulley, VPL and YUL to appear before the District Court of The Hague seeking to have the District Court set aside the Interim Awards and Final Award rendered by the Tribunal in each of their cases. These three cases were joined by the District Court based on a request from the Russian Federation.
2.6
On 20 April 2016, the District Court set aside the Interim Awards and the Final Awards in a single judgment that was rendered in the three joined cases, based on the lack of a valid arbitration agreement. [24] HVY lodged an appeal against this judgment with the Court of Appeal in The Hague.
2.7
In an interim judgment of 11 October 2016, the Court of Appeal ordered a personal appearance of the parties, which was held on 16 January 2017.
2.8
In an interim judgment rendered on 25 September 2018, the Court of Appeal assessed several preliminary objections raised by HVY in respect of the handling of certain assertions put forward by the Russian Federation. [25] These included – to the extent still relevant at this time – the assertion by the Russian Federation that HVY committed fraud in the arbitration proceedings by submitting false statements and withholding documents (paras. 5.1-5.2). HVY objected to this, including on the ground that the fraud should have been raised in separate revocation proceedings based on Article 1068 DCCP (para. 5.3(b)).
2.9
The Court of Appeal allowed HVY's objection. To that end, briefly put, the Court of Appeal held that the alleged fraud could only be raised in revocation proceedings based on Article 1068 DCCP, and could not still be raised in setting aside proceedings based on Article 1065 DCCP. Although both of these types of proceedings lead to the setting aside of the arbitral award, they are characterised by different time limits and different competent courts. Revocation proceedings may be initiated within three months after discovery of the fraud, even if more than three months have passed since the arbitral award acquired
res judicataeffect. Furthermore, revocation proceedings have only one fact-finding instance: the Court of Appeal. Both the applicable terms and this exclusive jurisdiction of the Court of Appeal would be circumvented if the alleged fraud could still be raised in the setting aside proceedings by means of an increase of claim. Such a consequence is unacceptable (para. 5.7).
res judicataeffect. Furthermore, revocation proceedings have only one fact-finding instance: the Court of Appeal. Both the applicable terms and this exclusive jurisdiction of the Court of Appeal would be circumvented if the alleged fraud could still be raised in the setting aside proceedings by means of an increase of claim. Such a consequence is unacceptable (para. 5.7).
2.1
By interim judgment of 18 December 2018, the Court of Appeal rendered a number of decisions on the further course of the proceedings. [26]
2.11
The merits of the case were assessed by the Court of Appeal in its final judgment of 18 February 2020. [27]
2.12
HVY's grounds for appeal included those directed against the District Court's opinion that the Tribunal lacked jurisdiction because Article 26 ECT – which makes arbitration possible – is contrary to Russian law. The Court of Appeal assessed these grounds for appeal in paras. 4.4,
et seq.
et seq.
Interpretation of the Limitation Clause
2.13
The Court of Appeal assessed whether a valid arbitration agreement had been concluded between the parties (Article 1065(1)(a) DCCP), and ruled that this depended on the interpretation of Articles 26 and 45 ECT in light of the law of the Russian Federation (para. 3.1.2). The position of the Russian Federation is, essentially, that although it signed the ECT, it never ratified that treaty. Although Article 45(1) ECT allows every party that signed the ECT to apply it "provisionally", this is only possible "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations" (referred to hereinafter as the “Limitation Clause”). According to the Russian Federation, the arbitration provision of Article 26 ECT is contrary to the Russian Constitution and to several statutory provisions entailing that disputes of a public law nature cannot be resolved by arbitration.
2.14
HVY took the principal position that the interpretation of Article 26 ECT is about whether the
principleof provisional application is contrary to Russian law. On appeal, HVY argued in the alternative that what matters is whether
provisional applicationof one or more provisions of the ECT cannot be reconciled with the law of a Contracting Party, not whether a specific provision of the ECT is contrary to that law (paras. 3.3.2 and 4.2.2).
principleof provisional application is contrary to Russian law. On appeal, HVY argued in the alternative that what matters is whether
provisional applicationof one or more provisions of the ECT cannot be reconciled with the law of a Contracting Party, not whether a specific provision of the ECT is contrary to that law (paras. 3.3.2 and 4.2.2).
2.15
In paras. 4.4.3-4.4.7, the Court of Appeal held that it was entitled to base its opinion on this alternative position taken by HVY regarding the interpretation of Article 26 ECT, regardless of the fact that this was not put forward in the arbitration proceedings, and therefore that the Tribunal did not base its jurisdiction on it. Any other opinion would make it necessary to set aside an arbitral award because the Tribunal assumed jurisdiction on erroneous grounds, even though the national court was of the opinion that the Tribunal actually had jurisdiction on other grounds. This is contrary to the principle that the national court has final say on this point.
2.16
The Court of Appeal went on to assess HVY's alternative position (paras. 4.5.8-4.5.48). In para. 4.5.48, the Court of Appeal arrived at the conclusion that the Limitation Clause must be interpreted to mean that a signatory State that has not delivered the declaration referred to in Article 45(2)(a) ECT is obliged to apply the Treaty provisionally, except in so far as provisional application of one or more of the provisions of the ECT are contrary to its national law, in the sense that the laws or regulations of that State exclude provisional application of specific provisions or categories of provisions in a treaty. According to the Court of Appeal, provisional application of Article 26 ECT was not proven to be contrary to Russian law (para. 4.6.1). The Court of Appeal superfluously assessed whether, departing from the Russian Federation's interpretation of the Limitation Clause, Article 26 ECT might be contrary to provisions of Russian law (paras. 4.6.2-4.7.65). The Court of Appeal answered that question in the negative.
2.17
According to the Court of Appeal, HVY's grounds for appeal are well-founded in part and cannot support the reasons given by the District Court for its opinion that no valid arbitration agreement had been concluded (para. 4.9.1). Based on the devolutive effect of the appeal, the Court of Appeal assessed whether the other assertions put forward by the Russian Federation, to argue that the Tribunal had no jurisdiction, were well-founded. This concerned the assertions pertaining to (i) the interpretation of Article 1(6) and (7) ECT [28] (the terms "investment" and "investor"); (ii) the interpretation of Article 1(6) and (7) ECT (the legality of the investments); and (iii) the tax measures imposed by the Russian Federation that constituted legitimate exercise of the Russian Federation's authority and that are covered by Article 21(1) ECT.
(i)
Interpretation of Article 1(6) and (7) ECT (investment and investor)
Interpretation of Article 1(6) and (7) ECT (investment and investor)
2.18
The Russian Federation argued that the requirement of Article 26 ECT that there be an investment within the meaning of Article 1(6) ECT had not been satisfied, also arguing that HVY were not investors within the meaning of Article 1(7) ECT, because they were merely sham companies and were controlled by Russian citizens. Also, the capital invested was not foreign, but Russian (paras. 3.3.2 and 5.1.3).
2.19
The Court of Appeal arrived at the opinion in para. 5.1.7.3 that an investment within the meaning of Article 26 ECT exists when a legal person that is incorporated in accordance with the law of one Contracting Party makes an investment in another Contracting Party. To determine the nationality of an investor, it was decided to opt, in the ECT, for "the right of the country according to the laws of which the investor is organised". The authors of the ECT did not want to impose any further requirements on the international nature of the investments. Therefore, the ECT does not require the investor to have actual ties to the country according to the laws under which it is organised (para. 5.7.1.2). In addition, Article 17 ECT does not imply that investments like those made by HVY fall outside the scope of protection of the ECT because they are allegedly "U-turn investments" (paras. 5.1.8.1.,
et seq.).
et seq.).
(ii)
Interpretation of Article 1(6) and (7) ECT (legality of the investments)
Interpretation of Article 1(6) and (7) ECT (legality of the investments)
2.2
The Court of Appeal assessed the Russian Federation's position that the ECT does not offer protection to investments made contrary to the law of the host country (paras. 3.2.3 and 5.1.11.1). According to the Court of Appeal, Article 1(6) ECT does not include any explicit legality requirement. Consequently, an investment is expressly not required to have been made in accordance with the law of the host country. With regard to the access to arbitration referred to in Art. 26 ECT Pro, as well, the text of the ECT does not contain any limitations on this point (para. 5.1.11.5). The Court of Appeal held that the Russian Federation's reliance on Article 1(6) and (7) fails.
(iii)
Tax measures (Article 21 ECT)
Tax measures (Article 21 ECT)
2.21
The Court of Appeal held that Article 21 ECT does not contain any references to the jurisdiction of arbitrators, but only stipulates that the ECT does not grant rights or impose obligations with regard to tax measures. The Tribunal's jurisdiction is exclusively determined by Article 26 ECT. According to the Court of Appeal, because the conditions of Article 26 ECT have been satisfied, the provisions of Article 21(1) ECT do not lead to the conclusion that the Tribunal would lack jurisdiction if a situation were to arise that is covered by Article 21(1) ECT (para. 5.2.5). The Court of Appeal also held that Article 21(1) ECT exclusively pertains to
bona fidetax measures. The Tribunal concluded that there had been no
bona fidetaxation because the measures taken by the Russian Federation were not exclusively intended to collect taxes, but were more likely directed at bankrupting Yukos and removing Khodorkovsky from the political arena (paras. 5.2.15 and 5.2.16).
bona fidetax measures. The Tribunal concluded that there had been no
bona fidetaxation because the measures taken by the Russian Federation were not exclusively intended to collect taxes, but were more likely directed at bankrupting Yukos and removing Khodorkovsky from the political arena (paras. 5.2.15 and 5.2.16).
2.22
The Court of Appeal concluded that none of the grounds put forward by the Russian Federation to argue that there was no valid arbitration agreement could support that conclusion, meaning that there was no cause to set aside the Yukos Awards on the basis of Article 1065(1)(a) DCCP (para. 5.3.1).
2.23
The Court of Appeal, in paras. 6.1,
et seq., went on to discuss the assertions put forward by the Russian Federation in connection with the ground for setting aside based on failure to comply with the mandate (Article 1065(1)(c) DCCP): (a) failure to comply with Article 21(5) ECT; (b) the Tribunal's determination of the damages; (c) the Tribunal decided by means of guessing and exceeding the limits of the legal dispute; (d) the role played by the assistant in the Tribunal; and (e) the lack of reasons.
et seq., went on to discuss the assertions put forward by the Russian Federation in connection with the ground for setting aside based on failure to comply with the mandate (Article 1065(1)(c) DCCP): (a) failure to comply with Article 21(5) ECT; (b) the Tribunal's determination of the damages; (c) the Tribunal decided by means of guessing and exceeding the limits of the legal dispute; (d) the role played by the assistant in the Tribunal; and (e) the lack of reasons.
(a)
Violation of mandate (Article 1065(1)(c) DCCP) due to the failure to comply with Article 21(5) ECT (para. 6.3).
Violation of mandate (Article 1065(1)(c) DCCP) due to the failure to comply with Article 21(5) ECT (para. 6.3).
2.24
In paras. 6.1,
et seq., the Court of Appeal discussed the assertion that, contrary to Article 21(5) ECT, the Tribunal failed to submit the dispute to the relevant competent tax authorities. According to the Court of Appeal, this failure was not serious enough to justify setting aside the arbitral award, because no
prima faciecase was presented that the Russian Federation was in any way prejudiced by this (para. 6.3.2). According to the Court of Appeal, it must be assumed that during the Tribunal's extensive hearing of the dispute, the Russian Federation submitted, or could have submitted, all of the relevant information that the Tribunal also could have obtained by seeking advice from the Russian tax authorities. It is difficult to imagine what additional information the Tribunal could have obtained from the Russian tax authorities that would have led to a different opinion about the "allocation of income from the empty trade companies (...) to Yukos" (para. 6.3.3).
et seq., the Court of Appeal discussed the assertion that, contrary to Article 21(5) ECT, the Tribunal failed to submit the dispute to the relevant competent tax authorities. According to the Court of Appeal, this failure was not serious enough to justify setting aside the arbitral award, because no
prima faciecase was presented that the Russian Federation was in any way prejudiced by this (para. 6.3.2). According to the Court of Appeal, it must be assumed that during the Tribunal's extensive hearing of the dispute, the Russian Federation submitted, or could have submitted, all of the relevant information that the Tribunal also could have obtained by seeking advice from the Russian tax authorities. It is difficult to imagine what additional information the Tribunal could have obtained from the Russian tax authorities that would have led to a different opinion about the "allocation of income from the empty trade companies (...) to Yukos" (para. 6.3.3).
2.25
The Russian Federation also asserted that the dispute should have been submitted to the tax authorities of Cyprus and of the United Kingdom. According to the Court of Appeal, this assertion fails because Article 21(5) ECT merely prescribes that the opinion of the "relevant competent tax authority" must be sought if the issue regards the question of "whether a tax constitutes an expropriation". However, HVY did not assert that the tax measures taken by Cyprus and by the United Kingdom constituted an expropriation (para. 6.3.4). The Court of Appeal went on to rule that the conduct of the Tribunal was not contrary to the prohibition against conjecture, as argued by the Russian Federation (para. 6.3.5).
(b)
Determination of damages
Determination of damages
2.26
In paras. 6.4.1.-6.4.27, the Court of Appeal devoted extensive attention to the Russian Federation's assertion that the Tribunal violated its mandate by awarding damages based on its own new and highly defective calculation method, which deviated from the debate between the parties and in respect of which the parties were not heard, meaning that the decision was a surprise. The Court of Appeal concluded that the decision was not a surprise (para. 6.4.23), and that the manner in which the Tribunal determined the damages did not constitute a violation of the Tribunal's mandate.
(c)
Decision by guesswork and exceeding the limits of the legal dispute
Decision by guesswork and exceeding the limits of the legal dispute
2.27
In paras. 6.5.1-6.5.15, the Court of Appeal assessed the Russian Federation's assertion that the Tribunal's decision was based on its own speculations regarding what the Russian Federation might have done in a fictional scenario rather than on what the Russian Federation actually did. The Court of Appeal arrived at the conclusion that the Russian Federation's arguments failed and that in this respect, the Tribunal did not violate its mandate nor fail to provide valid reasons for its opinion. There is no question of a violation of public policy, either (para. 6.5.15).
(d)
The role played by the assistant in the Tribunal
The role played by the assistant in the Tribunal
2.28
In paras. 6.6.1-6.6.15, the Court of Appeal discussed the Russian Federation's argument that the Yukos Awards should be set aside due to disproportionate involvement of the Tribunal's assistant, Martin Valasek, in drafting those awards (para. 6.6.1). According to the Russian Federation, that involvement violated the principle that the arbitrators must perform their assigned task personally, as a result of which the Tribunal did not adhere to its mandate (Article 1065(1)(c) DCCP). In addition, Valasek's involvement actually meant the involvement of a "fourth arbitrator", as a result of which the Tribunal was composed in violation of the applicable rules (Article 1065(1)(d) DCCP).
2.29
The Court of Appeal rejected this reasoning. The Court of Appeal departed from the assumption that Valasek did actually make a major contribution to the drafting of parts of the text (para. 6.6.5), but this did not mean that he independently took decisions that were part of the arbitrators' essential duties (para. 6.6.10). The fact that the Final Awards were signed by three arbitrators implies that these three rendered those awards, meaning that there had not been an even number of arbitrators (para. 6.6.13). If it were to be assumed that the Russian Federation's assertion that Valasek was only introduced as an assistant and a contact person is correct, then it Tribunal could be said to have failed to fully inform the parties on this point about the nature of Valasek's activities. However, in the given circumstances, this would not constitute such a serious failure to comply with the mandate that it should lead to the setting aside of the arbitral awards (para. 6.6.14.2).
(e)
The lack of reasons
The lack of reasons
2.3
In paras. 8.4.1-8.4.17, the Court of Appeal discussed the Russian Federation's reasoning that the arbitral awards were improperly reasoned (Article 1065(1)(d) DCCP) in respect of the Russian Federation's assertion that Yukos' Mordovian companies were sham companies. The Tribunal arrived at the final conclusion that no evidence of this could be found in the "quite substantial case file", referring to the case file that had been submitted in the tax proceedings conducted by Yukos in Russia. According to the Court of Appeal, this concerned the lack of evidence in that file, and the numerous references made by the Russian Federation to evidence it submitted into those proceedings were irrelevant for that reason (para. 8.4.13). The Court of Appeal arrived at the conclusion that the complaint regarding the reasons for the opinion that there was no evidence submitted demonstrating that the Mordovian companies were sham companies, necessarily failed (para. 8.4.17).
2.31
The Court of Appeal arrived at the conclusion that HVY's grounds for appeal succeeded at least in part, and that the Tribunal had jurisdiction to hear and decide on HVY's claims. The other grounds for setting aside raised by the Russian Federation could not lead to the setting aside of the Yukos Awards (para. 10.1). The Court of Appeal set aside the District Court's judgment and, readjudicating the matter, dismissed the Russian Federation's claims (para. 10.3 and operative part).
2.32
The Russian Federation lodged a timely appeal in cassation against the interim judgment of 25 September 2018 and the final judgment of 18 February 2020, referred to hereinafter as the interim judgment and the final judgment, respectively. HVY asserted a defence and lodged a conditional cross-appeal in cassation. The parties submitted written explanations and presented oral arguments on 5 February 2021, followed by a reply and a rejoinder in writing.
2.33
Within the context of its appeal in cassation, the Russian Federation filed an application seeking (among other things) suspension of the enforcement of the Yukos Awards and an order for HVY to provide security. In a decision dated 25 September 2020, the Supreme Court ruled that it had jurisdiction to take cognisance of this application. [29] The Supreme Court rejected the Russian Federation's application in a decision dated 4 December 2020. [30]
3.Discussion of the principal ground for cassation
3.1
The principal ground for cassation comprises eight grounds for cassation, which are divided into several subgrounds.
Ground for Cassation 1: violation of public procedural policy / exclusivity Article 1068 DCCP
3.2
Ground for Cassation 1is directed against the Court of Appeal's judgment in paras. 5.6-5.8 of the interim judgment and para. 9.7 of the final judgment. Put succinctly, the Court of Appeal found therein that the Russian Federation's objections regarding HVY's alleged fraud in the arbitration proceedings could only be addressed by means of a claim for revocation based on Article 1068 DCCP. The complaints entail that, in doing so, the Court of Appeal failed to appreciate that such fraud should also be able to lead to the setting aside of the arbitral award on the basis of Article 1065(1)(e) DCCP: contrariety with public policy.
3.3
In the discussion of this ground for cassation, I note the following first and foremost. There is no question that public policy has been violated whenever an arbitral award is the result of fraud or deceit perpetrated by one of the parties to the proceedings. After all, there has been no due process in such case. [31] Sanders therefore correctly writes that the grounds for revocation laid down in Article 1068(1) DCCP result in “as many violations of public policy". [32]
3.4
Although the legislature has provided for separate revocation proceedings in which fraud can be raised, this does not mean that these proceedings are to be followed exclusively. The legislative history does not dictate in any way whatsoever that the legislature, by providing for those separate proceedings, wanted to limit the possibilities to address fraud. After all, the claim seeking revocation arises from general civil procedure [33] and might overlap the ordinary legal remedies, such as the possibility to lodge an appeal. The revocation of a court decision (Article 382 DCCP) is an extraordinary legal remedy through which a culpable act of the other party, such as fraud, can be addressed. [34] If an ordinary legal remedy is still available, the ordinary legal remedy takes precedence. Indeed, the claim seeking revocation can only be instituted if the relevant judgment has acquired
res judicataeffect and has done so within three months after the discovery of the fraud (Article 383(1) DCCP). [35] In ordinary civil proceedings, therefore, there are options for addressing that fraud other than through a claim seeking revocation. The added value presented by the revocation proceedings is that they give the injured party the opportunity to present the fraud to the courts after the term for the ordinary legal remedies has expired. Revocation thus constitutes a supplement to the existing ordinary legal remedies.
res judicataeffect and has done so within three months after the discovery of the fraud (Article 383(1) DCCP). [35] In ordinary civil proceedings, therefore, there are options for addressing that fraud other than through a claim seeking revocation. The added value presented by the revocation proceedings is that they give the injured party the opportunity to present the fraud to the courts after the term for the ordinary legal remedies has expired. Revocation thus constitutes a supplement to the existing ordinary legal remedies.
3.5
There are no indications that the legislature intended for the revocation proceedings in arbitration law (Article 1068 DCCP) to be the exclusive remedy for fraud in the proceedings. [36] This cannot be inferred from the fact that the legislature set up separate proceedings for that purpose, because in ordinary civil proceedings the claim seeking revocation co-exists with other legal remedies. The fact that there is only one instance in the revocation proceedings also does not indicate that those proceedings are the only proceedings to be followed. The legislative history does not provide any points of reference for this. It can rightly be argued that the party deciding to present the fraud to the court in the setting aside proceedings thereby “obtains” an additional instance. [37] For this to happen, though, the party must put forward the fraud as a ground in the setting aside summons right away (Article 1064(5) DCCP), within the applicable term of three months after the filing of the arbitral award with the court registry (Article 1064(3) DCCP). Therefore, this party will not be able to benefit from the “extra” term of three months after discovery of the fraud as stipulated in Article 1068(2) DCCP. [38] This means that the risk identified by the Court of Appeal, of the fraud being presented in the setting aside proceedings through a change of claim more than three months after its discovery, is not realistic. After all, the rule of Article 1064(5) DCCP precludes this. [39]
3.6
This brings me to the discussion of the complaints. According to the ground for cassation, the Court of Appeal wrongly ruled, or at least ruled without sufficient reasoning, that factual assertions that could have justified reliance on revocation within the meaning of Article 1068 DCCP do not justify the assertion that an arbitral award obtained on the basis of a fraudulent statement, bribed witnesses and the withholding of fundamental documents must be set aside for violation of public policy (Article 1065(1)(e) DCCP). The Court of Appeal wrongly deprived the Russian Federation of its option to choose freely between a claim on the basis of Article 1065(1)(e) DCCP and a claim on the basis of Article 1068 DCCP, according to the ground for cassation.
3.7
The Court of Appeal held in para. 5.7 that fraud can only be addressed in revocation proceedings under Article 1068 DCCP, because otherwise the term stipulated therein could be circumvented, among other things. It follows from the foregoing that this assumption is, in general, incorrect. This does not mean, however, that the Court of Appeal's final decision is also incorrect. Indeed, according to the Russian Federation, the alleged fraud was discovered after the District Court rendered its judgment on 20 April 2016. [40] It has been established as fact that this was first relied upon in the defence on appeal. [41] The rule of Article 1064(5) DCCP that all grounds for setting aside must be advanced in the summons on pain of forfeiting the right to do so entails that the alleged fraud could no longer be advanced in the setting aside proceedings already pending. After all, this should have been done in the initiating summons, on pain of forfeiting the right to do so. For this reason, the alleged fraud, as the Court of Appeal found, could only be addressed in revocation proceedings and could not be advanced through a defence on appeal in the setting aside proceedings.
3.8
Ground for Cassation 1 fails on account of the foregoing.
Ground for Cassation 2: interpretation of Article 45(1) ECT
3.9
Ground for Cassation 2is directed against the Court of Appeal's interpretation of Article 45(1) ECT. This interpretation is contained in paras. 4.5.1 to 4.5.48 of the final judgment. The ground for cassation is divided into eight subgrounds.
3.1
The main argument of Ground for Cassation 2 is that there is no valid arbitration agreement as required by Article 1065(1)(a) DCCP. According to this ground for cassation, it is true that Article 26 ECT stipulates that disputes on rights arising from the ECT can be subjected to arbitration, but the Russian Federation is not bound by this provision. Although the Russian Federation signed the ECT, it never ratified it. Article 45(1) ECT provides for provisional application of the ECT by States which signed the treaty, but only in so far as such provisional application is not contrary to their domestic legal order. The Russian Federation's view is that the Court of Appeal applied an incorrect standard in this respect by ruling that the point was not whether Article 26 ECT as such was contrary to Russian law, but whether the provisional application of Article 26 ECT was contrary to that law.
Introductory remarks
3.11
Before discussing the complaints of Ground for Cassation 2, I would like to make a few comments about the provisional application of treaties in general and about the provisional application of the ECT in particular. The provisional application of a treaty entails that the treaty is applied before it enters into effect through ratification. Article 25(1) VCLT allows the provisional application of a treaty if the treaty provides for such or if the States participating in the negotiations have agreed such in a different manner. According to Article 25(2) VCLT, unless the treaty provides otherwise or the States participating in the negotiations have agreed otherwise, the provisional application of a treaty or part of a treaty ends for a State if this State informs the other States between whom the treaty is provisionally applied of its intention not to become a party to the treaty. Provisional application may ensure that the desirable effects of the treaty are introduced without the need for often long-term national ratification procedures being completed first. [42] Provisional application is also subject to criticism, because it may conflict with the national ratification procedures and thereby the separation of powers. [43]
3.12
As stated, Article 45 ECT provides for the provisional application of the ECT. [44] The authentic English-language text (Treaty Series 1995, 108) and the Dutch-language translation (Treaty Series 1995, 250) read as follows:
Article 45 Provisional application
1. Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations.
2. a) Notwithstanding paragraph 1 any signatory may, when signing, deliver to the Depositary a declaration that it is not able to accept provisional application. The obligation contained in paragraph 1 shall not apply to a signatory making such a declaration. Any such signatory may at any time withdraw that declaration by written notification to the Depositary.
b) Neither a signatory which makes a declaration in accordance with subparagraph a nor Investors of that signatory may claim the benefits of provisional application under paragraph 1.
c) Notwithstanding subparagraph a), any signatory making a declaration referred to in subparagraph a shall apply Part VII provisionally pending the entry into force of the Treaty for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its laws or regulations.
3. a) Any signatory may terminate its provisional application of this Treaty by written notification to the Depositary of its intention not to become a Contracting Party to the Treaty. Termination of provisional application for any signatory shall take effect upon the expiration of 60 days from the date on which such signatory's written notification is received by the Depositary.
b) In the event that a signatory terminates provisional application under subparagraph a, the obligation of the signatory under paragraph 1 to apply Parts III and V with respect to any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for twenty years following the effective date of termination, except as otherwise provided in subparagraph c).
c) Subparagraph b) shall not apply to any signatory listed in Annex PA. A signatory shall be removed from the list in Annex PA effective upon delivery to the Depositary of its request therefor.
4. Pending the entry into force of this Treaty the signatories shall meet periodically in the provisional Charter Conference, the first meeting of which shall be convened by the provisional Secretariat referred to in paragraph 5 not later than 180 days after the opening date for signature of the Treaty as specified in Article 38.
5. The functions of the Secretariat shall be carried out on an interim basis by a provisional Secretariat until the entry into force of this Treaty pursuant to Article 44 and the establishment of a Secretariat.
6. The signatories shall, in accordance with and subject to the provisions of paragraph 1 or subparagraph 2c) as appropriate, contribute to the costs of the provisional Secretariat as if the signatories were Contracting Parties under Article 37(3). Any modifications made to Annex B by the signatories shall terminate upon the entry into force of this Treaty.
7. A state or Regional Economic Integration Organization which, prior to this Treaty's entry into force, accedes to the Treaty in accordance with Article 41 shall, pending the Treaty's entry into force, have the rights and assume the obligations of a signatory under this Article.
Artikel 45 Voorlopige Pro toepassing
1. Elke Ondertekenende Partij stemt ermee in dit Verdrag voorlopig toe te passen in afwachting van de inwerkingtreding voor deze Ondertekenende Partij krachtens artikel 44, voor zover deze voorlopige toepassing niet strijdig is met haar constitutie, wetten of voorschriften.
2. a. Ongeacht het eerste lid kan een Ondertekenende Partij op het tijdstip van ondertekening bij de Depositaris een verklaring indienen dat zij niet kan instemmen met voorlopige toepassing. De in het eerste lid vermelde verplichting geldt niet voor een Ondertekenende Partij die een dergelijke verklaring aflegt. Die Ondertekenende Partij kan te allen tijde haar verklaring intrekken door middel van een schriftelijke kennisgeving aan de Depositaris.
b. Een Ondertekenende Partij die een verklaring aflegt als bedoeld in het tweede lid, letter a, en investeerders van die Ondertekenende Partij kunnen geen aanspraak maken op de voordelen van voorlopige toepassing krachtens het eerste lid.
c. Ongeacht het tweede lid, letter a, moet een Ondertekenende Partij die een verklaring aflegt als bedoeld in het tweede lid, letter a, Deel VII voorlopig toepassen in afwachting van de inwerkingtreding van het Verdrag voor de Ondertekenende Partij overeenkomstig artikel 44, voor zover die voorlopige toepassing niet strijdig is met haar wetten of voorschriften.
3. a. Een Ondertekenende Partij kan de voorlopige toepassing van dit Verdrag beëindigen door middel van een schriftelijke kennisgeving aan de Depositaris van haar voornemen geen partij bij het Verdrag te worden. De beëindiging van de voorlopige toepassing wordt voor een Ondertekenende Partij van kracht na het verstrijken van zestig dagen na de datum waarop de schriftelijke kennisgeving van die Ondertekenende Partij door de Depositaris is ontvangen.
b. Ingeval een Ondertekenende Partij de voorlopige toepassing van dit Verdrag beëindigt overeenkomstig het derde lid, letter a, blijft de krachtens het eerste lid op die Ondertekenende Partij rustende verplichting om Deel III en Deel V toe te passen ten aanzien van investeringen die tijdens die voorlopige toepassing op haar grondgebied zijn gedaan door investeerders van andere Ondertekenende Partijen, evenwel van toepassing voor die investeringen gedurende twintig jaar na de datum van beëindiging, tenzij anders bepaald in het derde lid, letter c.
c. Het bepaalde in het derde lid, letter b, geldt niet voor de in bijlage PA vermelde Ondertekenende Partijen. Een Ondertekenende Partij wordt van de lijst in bijlage PA geschrapt zodra zij bij de Depositaris een verzoek daartoe indient.
4. In afwachting van de inwerkingtreding van dit Verdrag komen de Ondertekenende Partijen op geregelde tijdstippen bijeen in het kader van de voorlopige Conferentie van het Handvest, waarvan de eerste vergadering uiterlijk 180 dagen na de in artikel 38 vermelde Pro datum van openstelling voor ondertekening van dit Verdrag door het in het vijfde lid bedoelde voorlopige Secretariaat wordt bijeengeroepen.
5. Tot de inwerkingtreding van dit Verdrag overeenkomstig artikel 44 en Pro de oprichting van een Secretariaat worden de taken van het Secretariaat op tijdelijke basis verricht door een voorlopig Secretariaat.
6. In overeenstemming met dan wel onder voorbehoud van de bepalingen van het eerste lid of het tweede lid, letter c, al naar gelang het geval, dragen de Ondertekenende Partijen bij in de kosten van het voorlopige Secretariaat alsof zij Verdragsluitende Partijen in de zin van artikel 37, derde lid, waren. Eventuele door de Ondertekenende Partijen in bijlage B aangebrachte wijzigingen vervallen bij de inwerkingtreding van dit Verdrag.
7. Een Staat of regionale organisatie voor economische integratie die, vóór de inwerkingtreding van dit Verdrag, overeenkomstig artikel 41 tot Pro het Verdrag toetreedt, heeft in afwachting van de inwerkingtreding van het Verdrag de rechten en verplichtingen van een Ondertekenende Partij krachtens dit artikel.
3.13
The objective pursued with provisional application does not follow from the ECT. The literature indicates that provisional application is provided to make an advance start with setting up the institutional framework of the ECT and to create momentum for the energy cooperation that the ECT aims to establish. [45]
3.14
The question that arises in the present case in cassation is how the phrase “to the extent that such provisional application is not inconsistent with its constitution, laws or regulations” from Article 45(1) ECT should be interpreted. Three different interpretations of Article 45(1) ECT were considered in these proceedings. [46]
3.15
The
firstview is that Article 45(1) ECT entails that there is no room for provisional application of the ECT if
the principle of provisional application of a treatyas such is contrary to the law of the signatory, in this case Russian law. In the first instance, this view was principally defended by HVY (see para. 4.5.4 final judgment). This interpretation is referred to as the “all or nothing” approach, also by the Court of Appeal (para. 4.5.10 final judgment). This view is based mainly on the use of the word “such”, which refers back to the first half of the sentence: ‘Each signatory agrees to apply this Treaty provisionally’. [47] In addition, Article 45(1) ECT speaks of the provisional application of “this Treaty” and not just a part of it. [48] The Tribunal adhered to this view. [49]
firstview is that Article 45(1) ECT entails that there is no room for provisional application of the ECT if
the principle of provisional application of a treatyas such is contrary to the law of the signatory, in this case Russian law. In the first instance, this view was principally defended by HVY (see para. 4.5.4 final judgment). This interpretation is referred to as the “all or nothing” approach, also by the Court of Appeal (para. 4.5.10 final judgment). This view is based mainly on the use of the word “such”, which refers back to the first half of the sentence: ‘Each signatory agrees to apply this Treaty provisionally’. [47] In addition, Article 45(1) ECT speaks of the provisional application of “this Treaty” and not just a part of it. [48] The Tribunal adhered to this view. [49]
3.16
In the
secondview, which is defended by the Russian Federation, Article 45(1) ECT is interpreted such that the point is whether a
separate provisionof the ECT is contrary to the law of the signatory. According to this view, Article 26 ECT is contrary to Russian law (para. 4.5.3 final judgment). What speaks in favour of the second view is mainly that in the "all or nothing” approach the phrase “to the extent” from Article 45(1) ECT is effectively rendered meaningless. [50] Those words indicate that variation is possible to the extent to which the States provisionally apply the ECT. [51] The second view, on the other hand, entails that there must be ongoing monitoring into whether or not any provision from the law of a signatory is contrary to the ECT, [52] even though there are no indications that the authors of the treaty intended this. [53] It was also on the basis of this argument that the Tribunal subscribed to the first view in the Interim Awards. In addition, the Tribunal pointed out the principle of international law (laid down in Article 27 VCLT) that States cannot rely on their national law in order to justify their non-implementation of a treaty. [54] In the setting aside proceedings, the District Court subscribed to this second view (see paras. 5.23 of the judgment of 20 April 2016).
secondview, which is defended by the Russian Federation, Article 45(1) ECT is interpreted such that the point is whether a
separate provisionof the ECT is contrary to the law of the signatory. According to this view, Article 26 ECT is contrary to Russian law (para. 4.5.3 final judgment). What speaks in favour of the second view is mainly that in the "all or nothing” approach the phrase “to the extent” from Article 45(1) ECT is effectively rendered meaningless. [50] Those words indicate that variation is possible to the extent to which the States provisionally apply the ECT. [51] The second view, on the other hand, entails that there must be ongoing monitoring into whether or not any provision from the law of a signatory is contrary to the ECT, [52] even though there are no indications that the authors of the treaty intended this. [53] It was also on the basis of this argument that the Tribunal subscribed to the first view in the Interim Awards. In addition, the Tribunal pointed out the principle of international law (laid down in Article 27 VCLT) that States cannot rely on their national law in order to justify their non-implementation of a treaty. [54] In the setting aside proceedings, the District Court subscribed to this second view (see paras. 5.23 of the judgment of 20 April 2016).
3.17
The
thirdview entails that Article 45(1) ECT must be interpreted in such a way that the ECT must be provisionally applied by the signatory, unless provisional application of one or more provisions of the ECT are irreconcilable with national law. [55] According to this view, the issue is not whether or not a provision of the ECT is contrary to national law, but whether the provisional application of a specific provision is contrary to the national law of the signatory. In the appeal of the setting aside proceedings, HVY, in the alternative, adopted this position (para. 4.5.4 final judgment). This view was subscribed to by the Court of Appeal (paras. 4.5.14, 4.5.33 and 4.5.48 final judgment). According to the Court of Appeal, this interpretation does justice both to the phrase “to the extent” and to the phrase “such provisional application”, and therefore does justice to the objections raised to the other two interpretations as well.
thirdview entails that Article 45(1) ECT must be interpreted in such a way that the ECT must be provisionally applied by the signatory, unless provisional application of one or more provisions of the ECT are irreconcilable with national law. [55] According to this view, the issue is not whether or not a provision of the ECT is contrary to national law, but whether the provisional application of a specific provision is contrary to the national law of the signatory. In the appeal of the setting aside proceedings, HVY, in the alternative, adopted this position (para. 4.5.4 final judgment). This view was subscribed to by the Court of Appeal (paras. 4.5.14, 4.5.33 and 4.5.48 final judgment). According to the Court of Appeal, this interpretation does justice both to the phrase “to the extent” and to the phrase “such provisional application”, and therefore does justice to the objections raised to the other two interpretations as well.
3.18
Concluding this explanation, I will now return to the various complaints of the ground for cassation.
3.19
Ground for Cassation 2.1only comprises an introduction and does not contain a complaint.
Ground for Cassation 2.2: Article 26 ECT
3.2
Ground for Cassation 2.2is directed against para. 4.3 (in particular para. 4.3.4) of the final judgment. The Court of Appeal found there that the Russian Federation unambiguously consented to arbitration. The complaint in the ground for cassation is that this finding is incorrect. Article 26 ECT provides that “each Contracting Party” unambiguously consents to arbitration. However, the Russian Federation never became a Contracting Party because it only signed the ECT and never ratified it. As it is unclear whether Article 26 ECT also relates to States that merely signed the treaty (“signatories”), there can be no question of clear and unambiguous consent, according to the ground for cassation.
3.21
Contrary to what is asserted in the ground for cassation, the Court of Appeal did not fail to recognise that an arbitration clause must be agreed upon unambiguously. After all, the Court of Appeal used that standard for assessment purposes in an apparent manner in para. 4.3.4. Furthermore, the Court of Appeal, contrary to what is argued in the ground for cassation, did not fail to recognise that Article 26 ECT only creates obligations for Contracting Parties but not for signatories. The Court of Appeal did not confuse these terms either. Indeed, the Court of Appeal inferred that Article 26 ECT also creates obligations for signatories from Article 45(1) ECT, which provides that signatories are obliged to provisionally apply the provisions of the ECT. Whether that interpretation of Article 45(1) ECT is correct is addressed further by grounds for cassation 2.4,
et seq. The Court of Appeal's finding that “a difference of opinion is possible with regard to the purport of the Limitation Clause and the application thereof in light of the law of the Russian Federation” must not be construed such that it is unclear, according to the Court of Appeal, to what extent a signatory is bound by Article 26 ECT. After all, the Court of Appeal concluded on the basis of an analysis of Article 45(1) ECT that Signatories are required to provisionally apply Article 26 ECT (para. 4.5.48).
et seq. The Court of Appeal's finding that “a difference of opinion is possible with regard to the purport of the Limitation Clause and the application thereof in light of the law of the Russian Federation” must not be construed such that it is unclear, according to the Court of Appeal, to what extent a signatory is bound by Article 26 ECT. After all, the Court of Appeal concluded on the basis of an analysis of Article 45(1) ECT that Signatories are required to provisionally apply Article 26 ECT (para. 4.5.48).
3.22
It follows from the above that ground for cassation 2.2 was asserted in vain.
Ground for Cassation 2.3: jurisdiction of the Tribunal
3.23
Ground for Cassation 2.3is directed against paras. 4.4.3-4.4.6 of the final judgment. The essence of those findings is that there is no reason for setting aside an arbitral award in the event that the arbitral tribunal has assumed jurisdiction on erroneous grounds, but the regular court, on different grounds, arrives at the conclusion that the jurisdiction opinion was correct. According to the Court of Appeal it is unacceptable for the regular court to proceed with assessing the dispute if a valid arbitration agreement is in place merely because the arbitral tribunal, which in this case in fact does not have the final say, based its opinion on jurisdiction on erroneous reasoning (end of para. 4.4.3). The complaint in the ground for cassation is that the legal system of the forum for the setting aside proceedings does not allow this. According to the ground for cassation, HVY were not free to advance new grounds for jurisdiction in the setting aside proceedings, at least not as late as on appeal.
3.24
The basic tenet is that, unlike with the other grounds for setting aside laid down in Article 1065(1) DCCP, [56] the regular court should not observe restraint when it comes to the jurisdiction of the arbitral tribunal. The reason for this is that by agreeing upon arbitration, the parties waive the fundamental right of access to the regular court (Article 6 ECHR). [57] That is why answering the question of whether a valid arbitration agreement has been concluded is ultimately up to the regular court. It is not the arbitral tribunal, but the court, that has the final say in this context. [58] After all, the issue is whether the arbitral tribunal has jurisdiction, and not about what the arbitral tribunal based its jurisdiction on. [59]
3.25
Ultimately, therefore, it is up to the regular court to make a final decision on whether or not the arbitral tribunal has jurisdiction. [60] The regular court may conclude that the arbitral tribunal did have jurisdiction, but perhaps on different grounds than those advanced by the arbitral tribunal itself for its finding of jurisdiction. The ground for cassation essentially defends the view that the court should only be allowed to assess whether the arbitral tribunal assumed jurisdiction on the proper grounds and should set aside the arbitral award if that is not the case, [61] even though it is clear that the arbitral tribunal has jurisdiction on other grounds. This view of the law is incorrect and contrary to the right of access to justice guaranteed by Article 6 ECHR, from which it follows that the regular court has the right to examine the jurisdiction of the arbitral tribunal. This also does justice to the intention of the parties to submit their dispute to arbitration and prevents the parties from still having to conduct proceedings before the regular court while they never intended to do so. [62]
3.26
So the court may supplement the grounds for the jurisdiction of the Tribunal, [63] but it must obviously observe the rules on the supplementation of legal grounds in doing so. In that context, the Russian Federation argued that the Court of Appeal was not allowed to take into account the ground for the Tribunal’s jurisdiction suggested by HVY, because HVY did not advance this ground until the appeal. [64] The Russian Federation thereby fails to appreciate that the Court of Appeal was required to supplement the legal grounds of its own motion if need be, within the scope defined by the grounds for appeal (Article 25 DCCP). [65] It has not been disputed that HVY's grounds for appeal are directed against the way in which the District Court has interpreted Article 45(1) ECT. The Court of Appeal was therefore free to investigate how this provision should be interpreted and to take new legal arguments into account in doing so. [66] I would like to point that in para. 4.4.6 of the final judgment the Court of Appeal qualifies the interpretation propounded by HVY as a purely legal argument. [67] That qualification has not been challenged in cassation. Contrary to what is argued in the ground for cassation, the Court of Appeal was therefore allowed to take into account the legal ground that HVY did not advance until the appeal.
3.27
Furthermore, it cannot be understood how Article 1052(4) and Article 1052(5) DCCP would preclude this supplementation of grounds for jurisdiction. [68] Article 1052(4) DCCP provides that the arbitral tribunal's decision on jurisdiction can only be contested at the same time as a subsequent full or partial final award, with the legal remedies of Article 1064(1) DCCP. Article 1052(5) DCCP concerns the case in which the arbitral tribunal has declared that it lacks jurisdiction, after which the ordinary court has jurisdiction to hear the case. Article 1052(5) DCCP implies that the conclusion of the arbitral tribunal that it lacks jurisdiction is a definitive opinion that cannot be contested before the regular court. [69] The Supreme Court has held that the combination of Article 1052 and 1065 DCCP serves
"to ensure that, if a party wishes to contest the arbitral tribunal’s jurisdiction on account of the lack of a valid arbitration agreement, the arbitral tribunal can decide on its jurisdiction at an early stage in the proceedings to prevent the performance of unnecessary procedural acts as much as possible should a reliance on the lack of a valid arbitration agreement at a later stage (during the arbitration proceedings or before the ordinary court) result in a ruling that the arbitral tribunal has no jurisdiction.” [70]
Whether new factual or legal positions can be put forward in the setting aside proceedings will have to be assessed on a case-by-case basis, also given the requirements of due process of law. [71]
3.28
As an aside, I point out that the explanation to Article 1065a (new) DCCP, in so far as relevant, cannot be interpreted such that it denies the court the opportunity to rectify an erroneous jurisdiction opinion – in the sense that the court can refer the case back to the arbitral tribunal on that ground. The point is that the court will not remit the case if it arrives at the opinion that a valid arbitration agreement is lacking. [72] After all, remission would be pointless in such a case.
3.29
Ground for cassation (no. 28) also argues that the Court of Appeal's opinion in para. 4.4.6 of the final judgment – that HVY should have advanced their new position during the arbitration proceedings or in the first instance – defies comprehension. It follows from the above that this complaint must fail.
3.3
The conclusion is that ground for cassation 2.3 fails as a whole.
Ground for Cassation 2.4: Limitation Clause
3.31
Ground for Cassation 2.4complains that the interpretation given to the Limitation Clause of Article 45(1) ECT by the Court of Appeal is legally incorrect. The ground for cassation summarises the Court of Appeal's interpretation (at 2.4.1) and formulates a number of complaints (at 2.4.2).
3.32
In paras. 4.2.1,
et seq., of the final judgment, the Court of Appeal presented a framework – not disputed in cassation – about the method of interpreting treaties. I will summarise this briefly below. Articles 31 and 32 VCLT provide guidelines for the interpretation of treaty provisions. Treaty interpretation is always aimed at ascertaining the intention of the contracting parties. The text of the relevant treaty provision serves as a guiding principle in that respect (para. 4.2.2). [73] The text must be considered in its context, as well as in light of the object and purpose of the treaty. Pursuant to Article 31(1) VCLT, this interpretation must take place in good faith (para. 4.2.3). According to Article 31(3)(b) VCLT, in addition to the context, any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation must be taken into account as well (para. 4.2.4). Lastly, according to Article 32 VCLT, the preparatory work of the treaty (“
travaux préparatoires”) may be considered. This, however, is a supplementary means of interpretation which is only employed to confirm the interpretation according to Article 31 VCLT or if the interpretation leads to an unclear or unreasonable outcome (para. 4.2.5).
et seq., of the final judgment, the Court of Appeal presented a framework – not disputed in cassation – about the method of interpreting treaties. I will summarise this briefly below. Articles 31 and 32 VCLT provide guidelines for the interpretation of treaty provisions. Treaty interpretation is always aimed at ascertaining the intention of the contracting parties. The text of the relevant treaty provision serves as a guiding principle in that respect (para. 4.2.2). [73] The text must be considered in its context, as well as in light of the object and purpose of the treaty. Pursuant to Article 31(1) VCLT, this interpretation must take place in good faith (para. 4.2.3). According to Article 31(3)(b) VCLT, in addition to the context, any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation must be taken into account as well (para. 4.2.4). Lastly, according to Article 32 VCLT, the preparatory work of the treaty (“
travaux préparatoires”) may be considered. This, however, is a supplementary means of interpretation which is only employed to confirm the interpretation according to Article 31 VCLT or if the interpretation leads to an unclear or unreasonable outcome (para. 4.2.5).
3.33
The ground for cassation (no. 34) complains that the Court of Appeal's interpretation is contrary to the ordinary meaning of the words of Article 45(1) ECT. According to the Court of Appeal, it must be considered whether the laws of a signatory rule out provisional application of certain treaty provisions or a certain category of treaty provisions. The opinion expressed in the complaint is that there is nothing in the wording of Article 45(1) ECT to indicate this.
3.34
Para. 4.5.10 indicates that the Court of Appeal based this interpretation on the ordinary meaning of the words “to the extent” in the text of Article 45(1) ECT. As the Court of Appeal found, HVY asserted the defence in the first instance that, on the basis of Article 45(1) ECT, it must be assessed whether the principle of provisional application of a treaty as such is contrary to the laws of the signatory. The Court of Appeal held in paras. 4.5.10,
et seq., that that interpretation did not do justice to the ordinary meaning of the phrase “to the extent” from that provision. Indeed, that phrase indicates, according to the Court of Appeal, that there may be degrees in the extent to which the provisional application of the ECT must be left out of consideration due to their incompatibility with national laws. Contrary to what is argued in the complaint, the ordinary meaning of the words of Article 45(1) ECT supports the Court of Appeal's interpretation. The complaint does not clarify why the ordinary meaning of these words as established by the Court of Appeal is supposedly incorrect, which is why the complaint fails.
et seq., that that interpretation did not do justice to the ordinary meaning of the phrase “to the extent” from that provision. Indeed, that phrase indicates, according to the Court of Appeal, that there may be degrees in the extent to which the provisional application of the ECT must be left out of consideration due to their incompatibility with national laws. Contrary to what is argued in the complaint, the ordinary meaning of the words of Article 45(1) ECT supports the Court of Appeal's interpretation. The complaint does not clarify why the ordinary meaning of these words as established by the Court of Appeal is supposedly incorrect, which is why the complaint fails.
3.35
The ground for cassation also complains (no. 35) that the interpretation is contrary to the context in which the words “to the extent” are used. The ground for cassation points out that Article 45(2)(c) ECT uses the same words, which in that context, however, refer to specific parts of the ECT, which the Court of Appeal supposedly endorses in para. 4.5.19. According to the complaint, the interpretation of Article 45(1) is inconsistent with this.
3.36
But contrary to the argument in the complaint, there is no question of inconsistency. In para. 4.5.19, the Court of Appeal subscribed to the District Court's opinion that the words “to the extent” in Article 45(1) and Article 45(2)(c) militate against the “all or nothing” approach principally defended by HVY. The Court of Appeal has thus interpreted the provisions consistently. In so far as the complaint is intended to argue that the words “to the extent” in Article 45(2)(c) ECT should be interpreted as referring to specific parts of the ECT, and that the Court of Appeal endorsed this, the complaint is based on an incorrect interpretation of the contested finding.
3.37
The ground for cassation (nos. 36-37) further complains that the Court of Appeal failed to appreciate the rationale underlying limiting the scope of provisional application. According to the ground for cassation, the rationale underlying provisional application is the provision of “a facility for government officials seeking to impart structure to international cooperation and wishing to respect the internal ratification procedures at the same time”. Because of this, Article 45 ECT is consistent with the ECT's object to impart structure to ECT-based international cooperation as soon as possible while establishing, in due time, a sound and binding international legal basis for that cooperation, with the ground for cassation referring to a passage from the Preamble to the ECT.
3.38
This complaint pertains to the way in which the Court of Appeal interpreted Article 45(1) ECT in light of the object and purport of the ECT. In paras. 4.5.22,
et seq., the Court of Appeal found as follows in that regard. The goal of the ECT is to attract investments by creating a stable and safe investment climate and by promoting transparency, legal certainty and investment protection. The provisional application of the ECT is aimed at ensuring that the obligation to create the desired investment conditions would be introduced immediately after signing (para. 4.5.26). According to the Court of Appeal, the interpretation defended by the Russian Federation is less compatible with this goal, because an investor would always have to take into account the possibility that the provisions of the ECT would be prejudiced by national laws and regulations (para. 4.5.26). The principal and alternative interpretations of Article 45(1) ECT advocated by HVY do not involve the drawback of being unclear and unpredictable, according to the Court of Appeal (para. 4.5.27).
et seq., the Court of Appeal found as follows in that regard. The goal of the ECT is to attract investments by creating a stable and safe investment climate and by promoting transparency, legal certainty and investment protection. The provisional application of the ECT is aimed at ensuring that the obligation to create the desired investment conditions would be introduced immediately after signing (para. 4.5.26). According to the Court of Appeal, the interpretation defended by the Russian Federation is less compatible with this goal, because an investor would always have to take into account the possibility that the provisions of the ECT would be prejudiced by national laws and regulations (para. 4.5.26). The principal and alternative interpretations of Article 45(1) ECT advocated by HVY do not involve the drawback of being unclear and unpredictable, according to the Court of Appeal (para. 4.5.27).
3.39
The complaint does not dispute this representation of the object and purport of the ECT in and of itself, but essentially asserts that the goal of the provisional application of the ECT – which is to enable government officials to sign the ECT while simultaneously respecting national ratification procedures – should have been included in the equation as well. The passage from the Preamble (4th paragraph) to the ECT as cited in the complaint reads as follows:
“Recalling that all signatories to the Concluding Document of the Hague Conference undertook to pursue the objectives and principles of the European Energy Charter and implement and broaden their cooperation as soon as possible by negotiating in good faith an Energy Charter Treaty and Protocols, and desiring to place the commitments contained in that Charter on a secure and binding international legal basis”.
3.4
In and of itself, it is correct that the preamble to a treaty is relevant for establishing the object and purport of the treaty in question. [74] To establish which object is expressed in the Preamble, the Preamble must be interpreted according to the rules of Articles 31,
et seq., VCLT. Apparently, the assumption in the complaint is that the cited passage from the Preamble expresses that one of the goals of the ECT is to give governments the time to create a binding legal basis in their own legal order (through ratification). This view cannot be accepted. The final phrase of the fourth paragraph of the Preamble relates to the desire “to place the commitments contained in [the ECT] on a secure and binding
internationallegal basis” (my italics, AG). These words refer to the ECT itself and not to its ratification by the signatories. This is confirmed by the context in which these words are found, given that the ECT constitutes the binding legal basis for obligations already contained in the non-binding European Energy Charter. [75] Neither the Preamble nor the provisions of the ECT indicate that part of the object and purport of the ECT would be to give government officials the time to create a binding domestic legal basis. Even if the Preamble were to be interpreted in the way proposed by the complaint, it would still hold true that the Court of Appeal took this into account in paras. 4.5.34,
et seq. After all, and superfluously at that, the Court of Appeal found in those paragraphs, on the basis of the
travaux préparatoires, that the aim of Article 45(1) ECT was to prevent provisional application from binding signatories to obligations that, under their domestic laws, require ratification. On this basis, the Court of Appeal concluded that Article 45(1) ECT only rules out provisional application if the application of certain ECT provisions, or certain categories of ECT provisions, would be incompatible with national law. The Court of Appeal thus considered the fact that the ECT, or at least Article 45(1), is aimed at offering Signatories leeway to apply the ECT provisionally, with the exception of those provisions which, according to the national laws of those Signatories, can only be binding on the Signatories following ratification. The complaint fails on account of the foregoing.
et seq., VCLT. Apparently, the assumption in the complaint is that the cited passage from the Preamble expresses that one of the goals of the ECT is to give governments the time to create a binding legal basis in their own legal order (through ratification). This view cannot be accepted. The final phrase of the fourth paragraph of the Preamble relates to the desire “to place the commitments contained in [the ECT] on a secure and binding
internationallegal basis” (my italics, AG). These words refer to the ECT itself and not to its ratification by the signatories. This is confirmed by the context in which these words are found, given that the ECT constitutes the binding legal basis for obligations already contained in the non-binding European Energy Charter. [75] Neither the Preamble nor the provisions of the ECT indicate that part of the object and purport of the ECT would be to give government officials the time to create a binding domestic legal basis. Even if the Preamble were to be interpreted in the way proposed by the complaint, it would still hold true that the Court of Appeal took this into account in paras. 4.5.34,
et seq. After all, and superfluously at that, the Court of Appeal found in those paragraphs, on the basis of the
travaux préparatoires, that the aim of Article 45(1) ECT was to prevent provisional application from binding signatories to obligations that, under their domestic laws, require ratification. On this basis, the Court of Appeal concluded that Article 45(1) ECT only rules out provisional application if the application of certain ECT provisions, or certain categories of ECT provisions, would be incompatible with national law. The Court of Appeal thus considered the fact that the ECT, or at least Article 45(1), is aimed at offering Signatories leeway to apply the ECT provisionally, with the exception of those provisions which, according to the national laws of those Signatories, can only be binding on the Signatories following ratification. The complaint fails on account of the foregoing.
3.41
The complaint in the ground for cassation (no. 37) is that the Court of Appeal erred in referring to “transparency” as being one of the goals of the ECT. According to the complaint, Article 45(1) ECT does not say anything about transparency and HVY's assertions to that effect have already been rejected. [76]
3.42
The complaint fails to appreciate that paras. 4.5.22-4.5.27 do not relate to the object of Article 45(1) ECT, but to the object of the ECT as a whole. In para. 4.5.23, the Court of Appeal substantiated, with references to the text of treaty, that transparency is one of the goals of the ECT. As Article 45(1) ECT must be interpreted in light of the object of the ECT, [77] it cannot be understood why the Court of Appeal supposedly erred by incorporating the goal of transparency in the interpretation of that provision.
3.43
The ground for cassation (nos. 38-42) complains about the Court of Appeal's finding that there is insufficient evidence of established state practice indicating an interpretation different from its own (paras. 4.5.28-4.5.33). The complaint refers to several statements, which the Court of Appeal has failed to recognise, that supposedly demonstrate such state practice.
3.44
Article 31(3)(b) VCLT stipulates that in addition to the context, account must also be taken of “any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation”. This requires all Contracting Parties to have accepted this practice in the application of the relevant treaty, either explicitly or implicitly. [78] State practice is also relevant when it has developed after the conclusion of the treaty (“subsequent practice”).
3.45
The complaint refers to several statements from which a state practice is said to follow that is incompatible with the interpretation of Article 45(1) ECT as advocated by the Court of Appeal. Reference is made, for example, to a 1994 statement by the European Council, the European Commission and the then-Member States (the “1994 EU Joint Statement”), stating that Article 45 ECT “(...) does not create any commitment beyond what is compatible with the existing order of the Signatories”. The Court of Appeal discussed this statement in para. 4.5.29 and held that it was not incompatible with HVY's alternative interpretation. The ground for cassation complains that this interpretation by the Court of Appeal is incorrect and that Article 45(1) ECT should be construed such that the Russian Federation's interpretation is correct.
3.46
Contrary to what the Russian Federation argues, the Joint Statement can be read in such way that Article 45(1) ECT does not create any obligation that is incompatible with the domestic legal order of the Signatories, in the sense that the provisional application of ECT provisions incompatible with that domestic legal order is excluded. Even if the Joint Statement were interpreted in the manner advocated by the Russian Federation, it would only concern a statement by the then-EC Member States. It does not demonstrate that all then-Contracting Parties of the ECT, let alone all current Contracting Parties of the ECT, endorsed this interpretation. I would like to point out that, strictly speaking, the Joint Statement was issued before the date on which the ECT was concluded, so that, if only for that reason, there can be no question of a “subsequent practice”. The complaint therefore fails.
3.47
The ground for cassation (no. 41) also complains that in paras. 4.5.31 and 4.5.32 the Court of Appeal erroneously and/or without comprehensible reasoning held that, put succinctly, statements by Dutch officials, by the Finnish government, and by the Foreign Secretary of the United Kingdom were supposedly incompatible with the Court of Appeal's interpretation of Article 45 ECT.
3.48
This complaint does not hold water, either. The Court of Appeal's finding on the Finnish government's statement is correct in light of the aforementioned rule that state practice is only relevant when endorsed by all Contracting Parties. The same applies to the Court of Appeal's findings about comments by Dutch officials. Contrary to what is argued in the complaint, [79] the Court of Appeal did not find that these statements were incompatible with the interpretation of Article 45(1) ECT endorsed by the Russian Federation, but rather – and rightly – that these were not indicative of a state practice as referred to in Article 31(3)(b) VCLT. The Court of Appeal rightly found that these statements (including the statement by the Foreign Secretary of the United Kingdom) were not part of state practice, but were part of the
travaux préparatoires, which were taken into account in that context.
travaux préparatoires, which were taken into account in that context.
3.49
The ground for cassation (no. 42) also asserts that the interpretation accepted by the Court of Appeal essentially dictates that some EC Member States must provisionally apply the ECT in its entirety. According to that interpretation, the ground for cassation asserts, representatives of those States supposedly exceeded their internal powers.
3.5
The ground for cassation essentially asserts that the interpretation of Article 45(1) ECT as accepted by the Court of Appeal would have consequences for certain Contracting Parties that are irreconcilable with the domestic laws of such Contracting Parties. This reasoning cannot be accepted. In paras. 4.5.9-4.5.33, the Court of Appeal interpreted Article 45(1) ECT on the basis of the standard of Article 31 VCLT. The Court of Appeal, starting from the ordinary meaning of the text, considered that provision in its context and in light of the object and purport of the ECT. The question of whether the interpretation arrived at through the application of Article 31 VCLT is irreconcilable with the domestic legal order of Contracting Parties is not part of the rule of interpretation contained in Article 31 VCLT. What
ispossible on the basis of Article 32(b) VCLT, however, is for a treaty provision to be interpreted on the basis of the
travaux préparatoiresin the event that the application of Article 31 VCLT leads to a result that is manifestly absurd or unreasonable. To the extent that the ground for cassation should be interpreted such that the interpretation by the Court of Appeal is absurd or unreasonable, the Court of Appeal substantiated its interpretation in paras. 4.5.34,
et seq., with references to the
travaux préparatoires.
ispossible on the basis of Article 32(b) VCLT, however, is for a treaty provision to be interpreted on the basis of the
travaux préparatoiresin the event that the application of Article 31 VCLT leads to a result that is manifestly absurd or unreasonable. To the extent that the ground for cassation should be interpreted such that the interpretation by the Court of Appeal is absurd or unreasonable, the Court of Appeal substantiated its interpretation in paras. 4.5.34,
et seq., with references to the
travaux préparatoires.
3.51
The ground for cassation (nos. 43-49) directs a complaint against paras. 4.5.34-4.5.40, where the Court of Appeal devoted attention to the
travaux préparatoiresto the ECT.
travaux préparatoiresto the ECT.
3.52
In para. 4.5.35, the Court of Appeal superfluously held that the
travaux préparatoiresconfirmed its opinion on the interpretation of Article 45(1) ECT. According to Article 32 VCLT, recourse may be had to the
travaux préparatoireswhen the interpretation according to Article 31 VCLT is manifestly absurd or unreasonable. This is not the case, opined the Court of Appeal. As the complaints about the application of Article 31 VCLT fail, the Court of Appeal had no need to take recourse to the
travaux préparatoires, meaning the opinion expressed thereon in para. 4.5.35 was rendered superfluously. This means that the complaints directed thereagainst lack interest.
travaux préparatoiresconfirmed its opinion on the interpretation of Article 45(1) ECT. According to Article 32 VCLT, recourse may be had to the
travaux préparatoireswhen the interpretation according to Article 31 VCLT is manifestly absurd or unreasonable. This is not the case, opined the Court of Appeal. As the complaints about the application of Article 31 VCLT fail, the Court of Appeal had no need to take recourse to the
travaux préparatoires, meaning the opinion expressed thereon in para. 4.5.35 was rendered superfluously. This means that the complaints directed thereagainst lack interest.
3.53
The conclusion is that all complaints in ground for cassation 2.4 fail.
Ground for Cassation 2.5: “not inconsistent” in Article 45(1) ECT
3.54
Ground for Cassation 2.5relates to the interpretation of the words “not inconsistent” in Article 45(1) ECT. It is argued in the ground for cassation that the Court of Appeal, in addition to its own interpretation of the treaty, developed an alternative interpretation in paras. 4.5.41-4.5.47 and 4.7 of the final judgment. According to the ground for cassation, this alternative interpretation entails – contrary to what the Court of Appeal held in paras. 4.5.1-4.5.40 – that in the context of Article 45(1) ECT it should be assessed whether provisions from the ECT are contrary to the domestic legal order of the Signatory, in which respect the ECT must always be regarded as part of said legal order. This interpretation is incorrect, asserts the ground for cassation, because the Court of Appeal erred in assuming that Article 26 ECT was applicable in the Russian legal order. Referred to as an example is para. 4.7.49, in which the Court of Appeal held that the question of whether the Tribunal has jurisdiction must be assessed on the basis of Article 26 ECT and not on the basis of Russian law. Supposedly, in so doing, the Court of Appeal assumed that arbitration could be based on Article 26 ECT and that that provision was therefore applicable in the Russian legal order, which must still be proven, however.
3.55
In para. 4.5.41, the Court of Appeal held as follows:
“The meaning of the words ‘not inconsistent’ follows from the Court of Appeal's interpretation of the Limitation Clause. That interpretation is about whether there are national laws or regulations that exclude provisional application of certain treaty provisions or certain categories of treaty provisions. If the latter is the case, then the provisional application of those types or categories of treaty provisions is ‘inconsistent’ with national law.”
3.56
In paras. 4.5.42,
et seq., the Court of Appeal superfluously devoted attention to the debate conducted by the parties on the question of how the phrase “(not) inconsistent” must be interpreted, starting from the Russian Federation's interpretation of Article 45(1) ECT, in which respect it must be examined whether a provision of the ECT is contrary to the laws of a Signatory. In para. 4.5.48, the Court of Appeal reached the conclusion that Article 45(1) ECT must be interpreted to mean that a signatory State that has not delivered the declaration referred to in Article 45(2)(a) ECT is obliged to provisionally apply the Treaty, except in so far as provisional application of one or more of the provisions of the ECT are contrary to its national law, in the sense that the laws or regulations of that State exclude provisional application of the Treaty for specific treaty provisions, or types or categories of treaty provisions. Based on this interpretation, the Court of Appeal ruled that the provisional application of Article 26 ECT is not contrary to the “constitution, laws or regulations” of the Russian Federation (para. 4.6.1). Para. 4.6.2 indicates that the Court of Appeal superfluously examined in para. 4.7 whether Article 26 ECT is contrary to the laws of the Russian Federation when adhering to the Russian Federation's interpretation of the Limitation Clause of Article 45(1) ECT.
et seq., the Court of Appeal superfluously devoted attention to the debate conducted by the parties on the question of how the phrase “(not) inconsistent” must be interpreted, starting from the Russian Federation's interpretation of Article 45(1) ECT, in which respect it must be examined whether a provision of the ECT is contrary to the laws of a Signatory. In para. 4.5.48, the Court of Appeal reached the conclusion that Article 45(1) ECT must be interpreted to mean that a signatory State that has not delivered the declaration referred to in Article 45(2)(a) ECT is obliged to provisionally apply the Treaty, except in so far as provisional application of one or more of the provisions of the ECT are contrary to its national law, in the sense that the laws or regulations of that State exclude provisional application of the Treaty for specific treaty provisions, or types or categories of treaty provisions. Based on this interpretation, the Court of Appeal ruled that the provisional application of Article 26 ECT is not contrary to the “constitution, laws or regulations” of the Russian Federation (para. 4.6.1). Para. 4.6.2 indicates that the Court of Appeal superfluously examined in para. 4.7 whether Article 26 ECT is contrary to the laws of the Russian Federation when adhering to the Russian Federation's interpretation of the Limitation Clause of Article 45(1) ECT.
3.57
The Court of Appeal superfluously delivered paras. 4.5.42-4.5.47 because they were only included for paras. 4.7,
et seq. – which were also included superfluously. The complaints of Ground for Cassation 2.5 therefore fail for lack of interest.
et seq. – which were also included superfluously. The complaints of Ground for Cassation 2.5 therefore fail for lack of interest.
Ground for Cassation 2.6: Article 26 ECT inconsistent with Russian law?
3.58
Ground for Cassation 2.6is directed against para. 4.7, where the Court of Appeal addresses the question of whether Article 26 ECT is contrary to the laws of the Russian Federation.
3.59
In the discussion of Ground for Cassation 2.5, I already noted that para. 4.7 was included superfluously, which is evident from para. 4.6.2. Therefore, the complaints of the ground for cassation lack interest and need not be discussed. Incidentally, the complaints also relate to the interpretation and application of Russian law and fail against the provisions of Article 79(1), opening words and (b), of the Judiciary Organisation Act, and the appeals on issues of fact that cannot be assessed without also involving an assessment of the accuracy of the Court of Appeal's finding on the substance and interpretation of Russian law. [80]
Ground for Cassation 2.7: questions referred to the ECJ for preliminary rulings?
3.6
Ground for Cassation 2.7does not contain an independent complaint, but asserts that the Supreme Court must refer questions on the interpretation of Article 45(1) ECT and Article 26 ECT to the ECJ for preliminary rulings. According to this ground for cassation, the Court of Appeal should have concluded that there was no clear and unambiguous consent to arbitration from the Russian Federation, in which respect reference is made to Grounds for Cassation 2.2, 2.4, 2.5 and 2.6. It is also stated in the ground for cassation that it would be contrary to EU law for a judicial institution of a Member State to accept an interpretation of a mixed treaty, such as the ECT, that is not in line with the common interpretation of the Commission, the Council and the Member States. As multiple interpretations of Article 45(1) ECT are possible, there is no question of an “
acte clair” or an “
acte éclairé”, according to the ground for cassation.
acte clair” or an “
acte éclairé”, according to the ground for cassation.
3.61
A mixed agreement is a treaty that has been entered into by both the EU and the Member States pursuant to a shared competence (see Article 4 TFEU). Both the EU and the separate EU Member States are parties to the ECT, because some of the subjects arranged in the ECT are part of the competence of the Member States. [81] Established case law dictates that an international agreement concluded by the EU constitutes an act by one of the institutions of the EU within the meaning of Article 267, first paragraph at (b) TFEU, so that the ECJ has jurisdiction to hand down a ruling on the interpretation of such an agreement. The provisions of such an agreement are an integral part of the legal order of the EU. [82]
3.62
The question arises as to whether the ECJ has jurisdiction to interpret a mixed agreement in its entirety or that the jurisdiction is limited to certain subjects of that agreement and, if that is the case, what the demarcation criterion is. It can be inferred from ECJ case law that a question about a mixed agreement that has been referred to the ECJ for a preliminary ruling must relate to a subject in respect of which the EU has exercised its powers internally to a sufficient extent. I will explain this in the following.
3.63
The ECJ in various decisions assumed jurisdiction to interpret mixed agreements. However, it was not always clear in which instances the Court's involvement was necessary. The Court provided clarity about this in the
Merck Genéricoscase by concluding that the Court's authority to give a preliminary ruling in respect of mixed agreements only concerns the spheres in which the EU has exercised its powers at internal level to a sufficient extent. [83]
Merck Genéricoscase by concluding that the Court's authority to give a preliminary ruling in respect of mixed agreements only concerns the spheres in which the EU has exercised its powers at internal level to a sufficient extent. [83]
3.64
In its judgment in the matter of
Lesoochranarske VLK, the ECJ continued building upon this case law. [84] This case concerned the question of whether a provision of the Aarhus Convention [85] had direct effect, which led to the question of whether the Court actually had the authority to issue a preliminary ruling on the relevant provision. The Court held as follows:
Lesoochranarske VLK, the ECJ continued building upon this case law. [84] This case concerned the question of whether a provision of the Aarhus Convention [85] had direct effect, which led to the question of whether the Court actually had the authority to issue a preliminary ruling on the relevant provision. The Court held as follows:
"30. The Aarhus Convention was signed by the Community and subsequently approved by Decision 2005/370. Therefore, according to settled case-law, the provisions of that convention now form an integral part of the legal order of the European Union (see, by analogy, judgment of 10 January 2006, Case C-344/04
IATA and ELFAA[2006] ECR I-403, paragraph 36, and 30 May 2006 Case C-459/03
Commission v Ireland[2006] ECR I-4635, paragraph 82). Within the framework of that legal order the Court therefore has jurisdiction to give preliminary rulings concerning the interpretation of such an agreement (see, inter alia, judgments of 30 April 1974, Case 181/73
Haegeman[1974] ECR 449, paragraphs 4-6, and 30 September 1987, Case 12/86
Demirel[1987] ECR 3719, paragraph 7).
IATA and ELFAA[2006] ECR I-403, paragraph 36, and 30 May 2006 Case C-459/03
Commission v Ireland[2006] ECR I-4635, paragraph 82). Within the framework of that legal order the Court therefore has jurisdiction to give preliminary rulings concerning the interpretation of such an agreement (see, inter alia, judgments of 30 April 1974, Case 181/73
Haegeman[1974] ECR 449, paragraphs 4-6, and 30 September 1987, Case 12/86
Demirel[1987] ECR 3719, paragraph 7).
31. Since the Aarhus Convention was concluded by the Community and all the Member States on the basis of joint competence, it follows that where a case is brought before the Court in accordance with the provisions of the EC Treaty, in particular Article 234 EC thereof, the Court
has jurisdiction to define the obligations which the Community has assumed and those which remain the sole responsibility of the Member States in order to interpret the Aarhus Convention(see, by analogy, judgments of 14 December 2000, Joined Cases C-300/98 and C-392/98
Dior and Others[2000] ECR I-11307, paragraph 33, and 11 September 2007, Case C-431/05
Merck Genéricos – Produtos Farmacêuticos[2007] ECR I-7001, paragraph 33).
has jurisdiction to define the obligations which the Community has assumed and those which remain the sole responsibility of the Member States in order to interpret the Aarhus Convention(see, by analogy, judgments of 14 December 2000, Joined Cases C-300/98 and C-392/98
Dior and Others[2000] ECR I-11307, paragraph 33, and 11 September 2007, Case C-431/05
Merck Genéricos – Produtos Farmacêuticos[2007] ECR I-7001, paragraph 33).
32.
Next, it must be determined whether, in the field covered by Article 9(3) of the Aarhus Convention, the European Union has exercised its powers and adopted provisions to implement the obligations which derive from it. If that were not the case, the obligations deriving from Article 9(3) of the Aarhus Convention would continue to be covered by the national law of the Member States.In those circumstances, it would be for the courts of those Member States to determine, on the basis of national law, whether individuals could rely directly on the rules of that international agreement relevant to that field or whether the courts must apply those rules of their own motion. In that case, EU law does not require or forbid the legal order of a Member State to accord to individuals the right to rely directly on a rule laid down in the Aarhus Convention or to oblige the courts to apply that rule of their own motion (see, by analogy,
Dior and Others, paragraph 48 and
MerckGenéricos – Produtos Farmacêuticos, paragraph 34).
Next, it must be determined whether, in the field covered by Article 9(3) of the Aarhus Convention, the European Union has exercised its powers and adopted provisions to implement the obligations which derive from it. If that were not the case, the obligations deriving from Article 9(3) of the Aarhus Convention would continue to be covered by the national law of the Member States.In those circumstances, it would be for the courts of those Member States to determine, on the basis of national law, whether individuals could rely directly on the rules of that international agreement relevant to that field or whether the courts must apply those rules of their own motion. In that case, EU law does not require or forbid the legal order of a Member State to accord to individuals the right to rely directly on a rule laid down in the Aarhus Convention or to oblige the courts to apply that rule of their own motion (see, by analogy,
Dior and Others, paragraph 48 and
MerckGenéricos – Produtos Farmacêuticos, paragraph 34).
33. However, if it were to be held that the European Union has exercised its powers and adopted provisions in the field covered by Article 9(3) of the Aarhus Convention, EU law would apply and it would be for the Court of Justice to determine whether the provision of the international agreement in question has direct effect.
34.
Therefore, it is appropriate to examine whether, in the particular field into which Article 9(3) of the Aarhus Convention falls, the European Union has exercised its powers and adopted provisions to implement obligations deriving from it(see, by analogy,
MerckGenéricos – Produtos Farmacêuticos, paragraph 39).
Therefore, it is appropriate to examine whether, in the particular field into which Article 9(3) of the Aarhus Convention falls, the European Union has exercised its powers and adopted provisions to implement obligations deriving from it(see, by analogy,
MerckGenéricos – Produtos Farmacêuticos, paragraph 39).
35. In that connection, it must be observed first of all, that, in the field of environmental protection, the European Union has explicit external competence pursuant to Article 175 EC, read in conjunction with Article 174(2) EC (see,
Commission v Ireland, paragraphs 94 and 95).
Commission v Ireland, paragraphs 94 and 95).
36. Furthermore, the Court has held that
a specific issue which has not yet been the subject of EU legislation is part of EU law, where that issue is regulated in agreements concluded by the European Union and the Member State and it concerns a field in large measure covered by it(see, by analogy the judgment of 7 October 2004, Case C‑239/03
Commission v France[2004] ECR I‑9325, paragraphs 29 to 31).”
a specific issue which has not yet been the subject of EU legislation is part of EU law, where that issue is regulated in agreements concluded by the European Union and the Member State and it concerns a field in large measure covered by it(see, by analogy the judgment of 7 October 2004, Case C‑239/03
Commission v France[2004] ECR I‑9325, paragraphs 29 to 31).”
(my italics, AG)
3.65
This case law indicates that if the EU has established provisions for the implementation of a mixed agreement, the ECJ has jurisdiction to interpret the agreement. [86] Indeed, in such case there is a need for a uniform interpretation of the relevant EU law and clarity about the division of powers between the EU and the Member States. It is not in dispute that the ECJ is authorised to express an opinion on its own jurisdiction.
3.66
The extent to which EU legislation exists that implements the ECT or specific provisions thereof is relevant to the present case in cassation. While there is extensive EU legislation on energy that mainly provides for the organisation of the internal market for gas and electricity, networks and other infrastructure, energy efficiency and sustainable energy, there is no EU legislation that aims to provide investment protection to businesses in the energy sector, including oil companies. [87] To my knowledge, only a single instrument was adopted, namely the – now-lapsed – Council Regulation (EC) No 701/97 of 14 April 1997 amending a programme to promote international cooperation in the energy sector (“Synergy programme”). [88] This Regulation aimed to streamline the international cooperation between the EC and third countries in the field of energy. The Regulation did not contain any indications that substantive provisions of the ECT were thereby implemented for what is now the EU.
3.67
In its judgment of 6 March 2018 (
Slovak Republic v. Achmea), the ECJ held that Article 8 (the arbitration clause) of the bilateral investment treaty between the Netherlands and the Slovak Republic was contrary to Articles 267 and 344 TFEU. [89] To this end, the Court ruled that questions regarding the interpretation or application of EU law may also play a role in arbitration proceedings based on the BIT. As EU law is part of the laws applicable in the Member States, an arbitral tribunal constituted on the basis of Article 8 BIT must apply EU law. According to the Court of Appeal, a situation in which such arbitral tribunals are unable to refer questions to the Court for a preliminary ruling because they are not part of the judicial organisation of the Member States is inconsistent with Articles 267 and 344 TFEU. The
Slovak Republic v. Achmeajudgment relates solely to investment arbitrations in which a Member State is a defendant. The outcome of the judgment is that Member States can no longer consent to arbitration beforehand on the basis of a BIT and thereby waive the jurisdiction of their regular courts. The
Slovak Republic v. Achmeajudgment has caused the basis for intra-EU investment arbitration to lapse. [90]
Slovak Republic v. Achmea), the ECJ held that Article 8 (the arbitration clause) of the bilateral investment treaty between the Netherlands and the Slovak Republic was contrary to Articles 267 and 344 TFEU. [89] To this end, the Court ruled that questions regarding the interpretation or application of EU law may also play a role in arbitration proceedings based on the BIT. As EU law is part of the laws applicable in the Member States, an arbitral tribunal constituted on the basis of Article 8 BIT must apply EU law. According to the Court of Appeal, a situation in which such arbitral tribunals are unable to refer questions to the Court for a preliminary ruling because they are not part of the judicial organisation of the Member States is inconsistent with Articles 267 and 344 TFEU. The
Slovak Republic v. Achmeajudgment relates solely to investment arbitrations in which a Member State is a defendant. The outcome of the judgment is that Member States can no longer consent to arbitration beforehand on the basis of a BIT and thereby waive the jurisdiction of their regular courts. The
Slovak Republic v. Achmeajudgment has caused the basis for intra-EU investment arbitration to lapse. [90]
3.68
On 15 January 2019, 22 Member States of the EU issued a declaration on the consequences of the
Achmeajudgment for arbitration on the basis of the ECT. [91] In this declaration, they stated, among other things, that arbitration between an EU Member State and an investor from another EU Member State was contrary to EU law as a consequence of this judgment. [92] In the context of the ongoing negotiations about the modernisation of the ECT, the European Commission made a proposal to amend Articles 26 and 27 ECT. Further to this, Belgium requested the ECJ on the basis of Article 218(11) TFEU to provide an opinion on whether arbitration between Member States on the basis of Article 26 ECT was compatible with EU law. [93] Both the January 2019 declaration and Belgium's request for an opinion relate to the proposals for a new, modernised ECT. Applicable to the present case is the ECT as adopted in December 1994, so that neither the January 2019 declaration nor the December 2020 request for an opinion are relevant at this time.
Achmeajudgment for arbitration on the basis of the ECT. [91] In this declaration, they stated, among other things, that arbitration between an EU Member State and an investor from another EU Member State was contrary to EU law as a consequence of this judgment. [92] In the context of the ongoing negotiations about the modernisation of the ECT, the European Commission made a proposal to amend Articles 26 and 27 ECT. Further to this, Belgium requested the ECJ on the basis of Article 218(11) TFEU to provide an opinion on whether arbitration between Member States on the basis of Article 26 ECT was compatible with EU law. [93] Both the January 2019 declaration and Belgium's request for an opinion relate to the proposals for a new, modernised ECT. Applicable to the present case is the ECT as adopted in December 1994, so that neither the January 2019 declaration nor the December 2020 request for an opinion are relevant at this time.
3.69
It is also worth noting that the Cour d’appel de Paris intended in 2017 to refer questions to the ECJ for a preliminary ruling on the interpretation of the ECT – including Article 1(6) thereof – in a case related to the present arbitration. [94] As regards the jurisdiction of the ECJ, the Cour d’appel confined itself in its judgment to concluding that mixed treaties are part of the European legal order. [95] However, these proceedings at the Cour d’appel were withdrawn. [96]
3.7
By order of reference of 24 September 2019, the Cour d’appel de Paris, in a different dispute (
Republic of Moldova v. Komstroy), asked the ECJ questions about the interpretation of Article 1(6) and Article 26(1) ECT. [97] These questions arose in the context of the question of whether an
ad hocarbitral tribunal constituted on the basis of Article 26(3) ECT has jurisdiction to resolve a financial dispute on payment of a claim in connection with an agreement regarding the sale of electricity. Put succinctly, the facts of this case are as follows. In 1999, a Ukrainian electricity producer (Ukrenergo) sold electricity to the Energoalians company, a Ukrainian distributor of electricity, which then resold the electricity to Derimen, a company with its registered office in the British Virgin Islands. Derimen in turn resold the electricity to Moldtranselectro, a Moldovan state-owned company. The volumes of electricity to be supplied were established on a monthly basis between Moldtranselectro and Ukrenergo and the electricity was supplied as far as to the Ukrainian side of the Ukraine-Moldova border. Energoalians was to be paid by Derimen for the electricity supplied and Derimen in turn was to receive payment from Moldtranselectro. On 1 January 2000, Moldtranselectro's debt to Derimen amounted to over USD 18 million. Moldtranselectro satisfied only part of its payment obligation to Derimen, so that a debt of over USD 16 million still remained. Derimen assigned its claim against Moldtranselectro to Energoalians, which attempted to collect the claim from Moldtranselectro and to that end instituted proceedings before the Moldovan court and later before the Ukrainian court. Energoalians took the position that Moldova breached certain obligations under the ECT and to that end instituted arbitration proceedings on the basis of Article 26(3) ECT. The company Komstroy is the legal successor to Energoalians. The
ad hocarbitral tribunal in Paris ruled that Moldova failed to comply with its obligations under the ECT and ordered it to pay a certain amount. Moldova subsequently filed a claim with the French court to set aside the arbitral award for violation of public policy, namely the jurisdiction of the
ad hocarbitral tribunal. In the end, the Cour d’appel [98] submitted the following questions to the ECJ:
Republic of Moldova v. Komstroy), asked the ECJ questions about the interpretation of Article 1(6) and Article 26(1) ECT. [97] These questions arose in the context of the question of whether an
ad hocarbitral tribunal constituted on the basis of Article 26(3) ECT has jurisdiction to resolve a financial dispute on payment of a claim in connection with an agreement regarding the sale of electricity. Put succinctly, the facts of this case are as follows. In 1999, a Ukrainian electricity producer (Ukrenergo) sold electricity to the Energoalians company, a Ukrainian distributor of electricity, which then resold the electricity to Derimen, a company with its registered office in the British Virgin Islands. Derimen in turn resold the electricity to Moldtranselectro, a Moldovan state-owned company. The volumes of electricity to be supplied were established on a monthly basis between Moldtranselectro and Ukrenergo and the electricity was supplied as far as to the Ukrainian side of the Ukraine-Moldova border. Energoalians was to be paid by Derimen for the electricity supplied and Derimen in turn was to receive payment from Moldtranselectro. On 1 January 2000, Moldtranselectro's debt to Derimen amounted to over USD 18 million. Moldtranselectro satisfied only part of its payment obligation to Derimen, so that a debt of over USD 16 million still remained. Derimen assigned its claim against Moldtranselectro to Energoalians, which attempted to collect the claim from Moldtranselectro and to that end instituted proceedings before the Moldovan court and later before the Ukrainian court. Energoalians took the position that Moldova breached certain obligations under the ECT and to that end instituted arbitration proceedings on the basis of Article 26(3) ECT. The company Komstroy is the legal successor to Energoalians. The
ad hocarbitral tribunal in Paris ruled that Moldova failed to comply with its obligations under the ECT and ordered it to pay a certain amount. Moldova subsequently filed a claim with the French court to set aside the arbitral award for violation of public policy, namely the jurisdiction of the
ad hocarbitral tribunal. In the end, the Cour d’appel [98] submitted the following questions to the ECJ:
“Must Article 1(6) of the Energy Charter Treaty be interpreted as meaning that a claim which arose from a contract for the sale of electricity and which did not involve any contribution on the part of the investor in the host State can constitute an ‘investment’ within the meaning of that Article?
Must Article 26(1) of the Energy Charter Treaty be interpreted as meaning that the acquisition, by an investor of a Contracting Party, of a claim established by an economic operator which is not from one of the States that are Parties to that Treaty constitutes an investment?
Must Article 26(1) of the Energy Charter Treaty be interpreted as meaning that a claim held by an investor, which arose from a contract for the sale of electricity supplied at the border of the host State, can constitute an investment made in the area of another Contracting Party, in the case where the investor does not carry out any economic activity in the territory of that latter Contracting Party?”
3.71
In this case, AG Szpunar submitted his Opinion on 3 March 2021. [99] The Advocate General first addressed the jurisdiction of the ECJ and noted in that regard that "this could be discussed, as it concerns the interpretation of an international treaty in the context of a dispute that, at least
prima facie, has all the characteristics of a situation that can be referred to as being “purely external”. AG Szpunar concluded that the ECJ has jurisdiction to give preliminary rulings because the provisions of the ECT in respect of which an interpretation is sought may also apply in situations that fall within the legal order of the EU, for which reason the EU has an interest in the uniform interpretation of the relevant provisions. [100] Incidentally, AG Szpunar indicated that he had to “tone down [this finding] right away” (para. 46), asking the ECJ to consider providing clarity about the consequences of the
Achmeajudgment for the applicability of Article 26 ECT (para. 48). He concluded that it was not a foregone conclusion that Article 26 ECT could never be applied within the EU as a consequence of the
Achmeajudgment, because questions regarding the compatibility of provisions of the ECT with EU law can also arise in national court proceedings (para. 90). As concerns the jurisdiction of the ECJ, AG Szpunar concluded that Article 26 ECT was incompatible with EU law in so far as this provision provided recourse to an arbitral tribunal, so that such a system for dispute resolution could not be applied within the legal order of the EU (para. 98). The Advocate General believed that the possibility could not be excluded that the substantive provisions of the ECT, including Article 1(6) ECT (the definition “investment”) and Article 26 ECT, may apply within the legal order of the EU (para. 99). What is striking, by the way, is that AG Szpunar did not devote any attention to ECJ case law, which dictates that the ECJ has jurisdiction to interpret a mixed agreement if the EU has established provisions for implementation.
prima facie, has all the characteristics of a situation that can be referred to as being “purely external”. AG Szpunar concluded that the ECJ has jurisdiction to give preliminary rulings because the provisions of the ECT in respect of which an interpretation is sought may also apply in situations that fall within the legal order of the EU, for which reason the EU has an interest in the uniform interpretation of the relevant provisions. [100] Incidentally, AG Szpunar indicated that he had to “tone down [this finding] right away” (para. 46), asking the ECJ to consider providing clarity about the consequences of the
Achmeajudgment for the applicability of Article 26 ECT (para. 48). He concluded that it was not a foregone conclusion that Article 26 ECT could never be applied within the EU as a consequence of the
Achmeajudgment, because questions regarding the compatibility of provisions of the ECT with EU law can also arise in national court proceedings (para. 90). As concerns the jurisdiction of the ECJ, AG Szpunar concluded that Article 26 ECT was incompatible with EU law in so far as this provision provided recourse to an arbitral tribunal, so that such a system for dispute resolution could not be applied within the legal order of the EU (para. 98). The Advocate General believed that the possibility could not be excluded that the substantive provisions of the ECT, including Article 1(6) ECT (the definition “investment”) and Article 26 ECT, may apply within the legal order of the EU (para. 99). What is striking, by the way, is that AG Szpunar did not devote any attention to ECJ case law, which dictates that the ECJ has jurisdiction to interpret a mixed agreement if the EU has established provisions for implementation.
3.72
In the remainder of his Opinion, AG Szpunar focused on the question of whether a claim under an agreement to supply electricity can be regarded as an investment within the meaning of Article 1(6) ECT, as that provision stipulates further conditions for such. The Advocate General concluded that that was not the case in
Moldova v. Komstroy. [101] An agreement to supply electricity is a simple commercial transaction that is not covered by the definition of “investment” within the meaning of Article 1(6) ECT and does not arise from an agreement relating to an investment. [102]
Moldova v. Komstroy. [101] An agreement to supply electricity is a simple commercial transaction that is not covered by the definition of “investment” within the meaning of Article 1(6) ECT and does not arise from an agreement relating to an investment. [102]
3.73
Assuming that the ECJ will adhere to AG Szpunar's opinion and find that it has jurisdiction to hear questions regarding the interpretation of the ECT – and I repeat that it is up to the ECJ to rule on its jurisdiction – it still holds true, in full, that the referral of questions to the ECJ for preliminary rulings must also be necessary for the settlement of the complaints. With regard to the present case, I am of the opinion that the referral of questions to the ECJ for preliminary rulings is not necessary for the settlement of the complaints in Ground for Cassation 2. I explain this as follows. Grounds for Cassation 2.2 and 2.3 relate to questions of Dutch arbitration law and civil procedure. Grounds for Cassation 2.5 and 2.6 are directed against the Court of Appeal's findings in the final judgment, which were included superfluously and fail for that reason alone. Ground for Cassation 2.4 concerns the interpretation of Article 45(1) ECT. The ground for cassation contains complaints that, while they may be formulated as appeals on issues of law, are actually appeals on issues of fact about the way in which the Court of Appeal dealt with certain arguments. As I have discussed in this Opinion, these complaints must fail because they are premised on an erroneous interpretation of the contested judgment (see the discussion of Ground for Cassation 2.4.2). I have also demonstrated that the complaints in the ground for cassation relate to the failure to appreciate the state practice, because there is no evidence of any such state practice. Complaints (see paras. 42,
et seq., of the Initiating Document) have been directed against a superfluous finding as well. It follows from all this that the referral of questions to the ECJ for preliminary rulings is not necessary for the outcome of the opinion on Ground for Cassation 2.4. To this I add that, in international law, a provision on the provisional application of a treaty (such as Article 45 ECT) is a frequently occurring provision, for which, in general, no EU legislation exists. And the present dispute is not about the provisional application of the ECT in the EU or in an EU Member State, but in the Russian Federation.
et seq., of the Initiating Document) have been directed against a superfluous finding as well. It follows from all this that the referral of questions to the ECJ for preliminary rulings is not necessary for the outcome of the opinion on Ground for Cassation 2.4. To this I add that, in international law, a provision on the provisional application of a treaty (such as Article 45 ECT) is a frequently occurring provision, for which, in general, no EU legislation exists. And the present dispute is not about the provisional application of the ECT in the EU or in an EU Member State, but in the Russian Federation.
3.74
The conclusion is that the referral of questions to the ECJ for preliminary rulings is not necessary for the settlement of the Russian Federation's complaints in cassation.
3.75
Ground for Cassation 2.8reiterates the assertion that there is no clear and unambiguous consent to arbitration on the part of the Russian Federation. The ground for cassation does not contain a separate complaint and builds upon the previous grounds for cassation, meaning a separate discussion can be omitted.
Ground for Cassation 3: interpretation of Article 1(6) and (7) ECT (investment and investor)
3.76
Ground for Cassation 3is directed against para. 5.1 of the final judgment, where the Court of Appeal interpreted the terms “investment” and “investor” within the meaning of Article 1(6) and (7) ECT. According to the ground for cassation, this interpretation is incorrect. The Russian Federation opines that HVY are not actually foreign investors and that their investments do not qualify as foreign investments, but are actually “U-turn constructions” – investments made by investors who are in fact controlled by citizens of the host country, in this case the Russian Federation. The ground for cassation is directed against a large number of complaints against the Court of Appeal's dismissal of the Russian Federation's argument.
Introductory remarks
3.77
Before discussing the complaints of this ground for cassation, I would like to make a number of introductory remarks. In so far as relevant, Article 1(6) and (7) ECT read as follows in the authentic English-language text:
Article 1 Definitions
As used in this Treaty:
(...)
6. “Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:
a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;
b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;
c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;
d) Intellectual Property;
e) Returns;
f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.
(...)
7. “Investor” means:
a) with respect to a Contracting Party:
(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;
(ii) company or other organization organized in accordance with the law applicable in that Contracting Party;
b) with respect to a “third state”, a natural person, company or other organization which fulfils, mutatis mutandis, the conditions specified in subparagraph a) for a Contracting Party;
In the Dutch translation:
Artikel 1 Definities Pro
In dit Verdrag wordt verstaan onder:
(...)
6. „investering": elke vorm van activa die een investeerder in eigendom heeft of waarover hij direct of indirect zeggenschap heeft, met inbegrip van:
a. lichamelijke en onlichamelijke en roerende en onroerende zaken alsook andere rechten, zoals huur-, hypotheek-, retentie- en pandrechten;
b. een vennootschap of onderneming, of aandelen of andere vormen van vermogensdeelneming in, en obligaties en andere schuldbewijzen van een vennootschap of onderneming;
c. aanspraken op geld en aanspraken op prestaties volgens een contract met een economische waarde en in verband met een investering;
d. intellectuele eigendom;
e. opbrengsten;
f. een bij wet of contract of uit hoofde van overeenkomstig de wet verleende licenties en vergunningen verleend recht een economische activiteit in de energiesector te ondernemen.
(...)
7. „investeerders":
a. van een Verdragsluitende Partij,
i. natuurlijke personen die het staatsburgerschap of de nationaliteit bezitten van of permanent verblijven op het grondgebied van die Verdragsluitende Partij conform haar toepasselijke wetgeving;
ii. vennootschappen of andere organisaties opgericht conform op het grondgebied van die Verdragsluitende Partij toepasselijke wetgeving;
b. uit een derde land, natuurlijke personen, vennootschappen of andere organisaties die mutatis mutandis voldoen aan de onder a. aan Verdragsluitende Partijen gestelde voorwaarden;
3.78
Strictly speaking, Article 1(6) ECT does not contain a definition of the term “investment”, but stipulates that “every kind of asset” can qualify as an investment, providing a non-exhaustive list of assets that in any event can be regarded as investments. [103] The definition of the term “investor” in Article 1(7) ECT is linked to that of “investment” [104] : an investor is a natural person or legal entity that owns or controls such an investment. [105] If the investor is a legal entity, the legal entity in question must be incorporated under the laws of a Contracting Party. [106] This test is also referred to as the “incorporation test” and is distinct from other points of reference for the “nationality” of a legal entity, such as the place where the board of the legal entity is established or the nationality of the shareholders. [107] Article 1(6) ECT qualifies shares as an investment, meaning shareholders are protected by the ECT as well, even if the company they invested in is not regarded as an investor itself. [108]
3.79
Article 26 builds upon the terms “investment” and “investor”. [109] This Article provides that arbitration is open in “[d]isputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former (...)”. (in Dutch:
‘Geschillen tussen een Verdragsluitende Partij en een investeerder van een andere Verdragsluitende Partij over een investering van deze laatste op het grondgebied van eerstgenoemde Partij (_)’). Article 26 ECT thus requires,
first, that there be an investment,
second, that this investment be made by an investor based in a Contracting Party and,
third, that this investment be made in the Area of a Contracting Party other than the one where the investor is based.
‘Geschillen tussen een Verdragsluitende Partij en een investeerder van een andere Verdragsluitende Partij over een investering van deze laatste op het grondgebied van eerstgenoemde Partij (_)’). Article 26 ECT thus requires,
first, that there be an investment,
second, that this investment be made by an investor based in a Contracting Party and,
third, that this investment be made in the Area of a Contracting Party other than the one where the investor is based.
3.8
The question that Ground for Cassation 3 essentially addresses is whether the ECT implies even more requirements with regard to investments or whether the cross-border nature thereof is evident from Article 1(6) and (7) and Article 26 ECT. For instance, the ground for cassation asserts (at 3.2.3), among other things, that the ECT only protects international investments and therefore does not protect “U-turn constructions”, nor investments made by investors having no genuine connection to the State in which they are established (“letterbox companies”). Furthermore, not only the place of establishment of the investor should be assessed, but so should the party/parties controlling such investor (“piercing the corporate veil”, Ground for Cassation 3.4). An investment could only be said to exist if the investor actually made an economic contribution in the host country (Ground for Cassation 3.3).
3.81
The Court of Appeal's approach can be summarised as follows. According to the Court of Appeal, it is not in dispute that HVY are companies “organised in accordance with the law applicable in that Contracting Party”. Textually speaking, therefore, the requirements that Article 1(7) ECT imposes on investors within the meaning of the ECT (para. 5.1.6) have been satisfied. The shares in Yukos, which are owned by HVY, qualify as an “investment” within the meaning of the ECT. After all, “investment” is understood to mean “every kind of asset, owned or controlled directly or indirectly by an Investor”, while “shares” are part of the non-exhaustive list of “assets” in Article 1(6) ECT. Additionally, the Court of Appeal held that, in a textual sense, the requirement of Article 26 ECT that there be a dispute between a “Contracting Party” (the Russian Federation) and investors from “another Contracting Party” (HVY, companies under the laws of Cyprus and the Isle of Man) “relating to an Investment of the latter in the Area of the Former” had also been met (para. 5.1.6). According to the Court of Appeal, there is no reason to interpret these provisions such that additional requirements should be imposed on the international nature of the investments. The object and purport of the ECT do not lead to a different opinion, according to the Court of Appeal (para. 5.1.7.3).
3.82
Concluding these introductory remarks, I will now return to the discussion of the ground for cassation and the complaints it contains.
3.83
Ground for Cassation 3.1is an introduction and does not contain any complaints.
Ground for Cassation 3.2: “U-turn construction”
3.84
Ground for Cassation 3.2is directed against the Court of Appeal's finding in paras. 5.1.5-5.1.8 and argues that the ECT does not protect domestic investments, even if these investments were made by sham companies (via a “U-turn construction”). This ground for cassation is divided into four subgrounds (3.2.1-3.2.4).
3.85
Ground for Cassation 3.2.1is a summary of the Court of Appeal's assessment and does not contain a complaint.
3.86
Ground for Cassation 3.2.2complains that the Court of Appeal wrongly based its interpretation of the terms “investment” and “investor” on a purely grammatical interpretation of only part of the relevant text of the ECT, namely the definitions of Article 1(6) and (7) ECT. According to the ground for cassation, such an interpretation is contrary to Article 31(1) VCLT.
3.87
This complaint lacks a factual basis. The Court of Appeal did not base its interpretation of the terms “investor” and “investment” on a purely grammatical interpretation of Article 1(6) and (7) ECT. In para. 5.1.6, the Court of Appeal found that the language of these provisions, according to the ordinary meaning thereof, serves as the premise for the interpretation. The Court of Appeal thereby applied the correct standard in accordance with Article 31(1) VCLT. In paras. 5.1.7.1-5.1.7.4, the Court of Appeal subsequently discussed arguments of the Russian Federation relating to the context in which Article 1(6) and (7) ECT should be considered, as well as to the object and purport of the ECT. The Court of Appeal thus applied the correct standard in accordance with Article 31 VCLT as well. The fact that the Court of Appeal used the elements of context, object and purport of the ECT on the basis of the arguments advanced by the Russian Federation makes sense and does not indicate that the Court of Appeal failed to consider these elements as equal to the textual interpretation.
3.88
The ground for cassation also complains that in para. 5.1.8.11 the Court of Appeal attributed too little significance to the subsequent state practice, which entails that a large number of parties to the ECT in later investment treaties excluded investments via the U-turn construction from the scope of application.
3.89
The Court of Appeal's opinion is correct because, as the Court of Appeal itself also held, this did not concern a state practice in respect of the implementation or interpretation of the ECT, but choices that States made upon entering into new treaties. That is not where the focus of Article 31 VCLT lies. [110] Therefore, this complaint fails as well.
3.9
Ground for Cassation 3.2.3directs a number of complaints against the Court of Appeal's interpretation of the terms “investment” and “investor”.
3.91
Ground for cassation (nos. 111-112) argues that, by attributing meaning to the definition of the term “investment” in Article 1(6) ECT, the Court of Appeal failed to appreciate the ordinary meaning of that term – and thus that of the term “investor” as well. According to that ordinary meaning, a case only involves an investment if a party makes an economic contribution (in the host country, in this case the Russian Federation) and is exposed to a certain risk during a certain period of time. This was not the case here, according to the ground for cassation. The Court of Appeal rejected this position in paras. 5.1.9.1-5.1.9.5. That is what Ground for Cassation 3.3 is directed against (see below).
3.92
The complaint fails to recognise that the definition of a term in a treaty according to Article 31(4) VCLT is given special meaning in the interpretation of that term. That paragraph provides:
A special meaning shall be given to a term if it is established that the parties so intended.
Therefore, a term from a treaty can be given a special meaning – that is to say a meaning different from the ordinary meaning – if it is established that the contracting parties intended to give that special meaning to that term. The most obvious evidence for such an intention is the inclusion of a definition. [111] It may be, therefore, that a treaty provides a definition of a certain term that differs from its ordinary meaning. In that case, that definition and not the ordinary meaning must serve as a premise, as is evidenced by Article 31(4) VCLT. Therefore, the Court of Appeal in this case rightly used the definition of the term “investment” in Article 1(6) ECT as a premise. The case law referred to in the ground for cassation is irrelevant because it does not relate to the ECT, but to other investment treaties and to the ICSID Convention. [112] To the extent that an ordinary meaning of the term “investment” could be distilled from that case law, such meaning does not apply to the ECT, as that treaty has its own definition of the term “investment”. The complaints fail on this basis.
3.93
The ground for cassation (nos. 113-115) also complains that the Court of Appeal failed to recognise the object and purport of the ECT in interpreting the terms “investment” and “investor”. The ground for cassation indicates that the object and purport of the ECT are to promote international investments. Supposedly, the Court of Appeal erred in holding in para. 5.1.7.3 that this did not allow the conclusion that the ECT imposes further requirements on the foreign nature of an investment.
3.94
The Court of Appeal held in para. 5.1.7.3 that the purport of the ECT did indeed include the promotion of international cooperation in the field of energy and the protection of international investments. However, the Court of Appeal did not find that further requirements which requirements do not ensue from the language of Article 26 ECT and Article 1(6) and (7) ECT should be imposed on the foreign nature of an investment. According to the Court of Appeal, the language of those provisions is sufficiently clear on its face: according to this language, an investment is covered by the scope of Article 26 ECT if the legal entity making the investment has been incorporated in accordance with the law applicable in the one Contracting Party [113] and the investment as referred to in Article 1(6) ECT is made in another Contracting Party. With this finding, the Court of Appeal did not err in its interpretation of the law. After all, in the interpretation of a treaty provision account must be taken of the object and purport of that treaty, but that does not mean that the object and purport can serve as a foundation for an interpretation that is not supported by the formulation of the treaty provision. The object and purport serve as a means to establish the meaning of the words of a provision – which serve as the guiding principle – but are not more important than those words; they cannot negate those words. [114] This means that the Court of Appeal could find that, although part of the ECT's purport is to protect international investments, the words of the relevant provisions do not offer any support for the view that additional requirements can therefore be imposed on the international nature of the investments or the nationality of an investor. This complaint of the ground for cassation fails for that reason.
3.95
The ground for cassation (no. 114) complains that the Court of Appeal failed to appreciate the context of Article 1(6) and (7) ECT. According to the ground for cassation, it follows from Articles 10, 13, 17 and 26 ECT, as well as from the Understanding with respect to Article 1(6) ECT, that letterbox companies without substantial activities (in the State in which they are established) are not entitled to protection under the ECT if these letterbox companies are controlled by foreign investors from a third State. According to the complaint, investments by a host country's own citizens must perforce fall outside of the scope of the ECT as well.
3.96
To support the argument, the complaint refers to Article 10(3) ECT. Article 10(3) ECT makes a clear distinction between the foreign investors and a Contracting Party's “own investors”, according to the ground for cassation. I quote Article 10(3) ECT and, for a proper understanding thereof, Article 10(2) ECT as well, in the authentic English-language text and in the Dutch translation:
Article 10 Promotion, protection and treatment of investments
2. Each Contracting Party shall endeavour to accord to Investors of other Contracting Parties, as regards the Making of Investments in its Area, the Treatment described in paragraph 3.
3. For the purposes of this Article, “Treatment" means treatment accorded by a Contracting Party which is no less favourable than that which it accords to its own Investors or to Investors of any other Contracting Party or any third state, whichever is the most favourable.
Artikel 10 Bevordering Pro, bescherming en behandeling van investeringen
2. Elke Verdragsluitende Partij streeft ernaar investeerders van andere Verdragsluitende Partijen wat betreft het doen van investeringen op haar grondgebied de in het derde lid omschreven behandeling toe te kennen.
3. In dit artikel wordt onder „behandeling" verstaan een behandeling toegekend door een Verdragsluitende Partij die niet minder gunstig is dan die welke zij toekent aan haar eigen investeerders of aan de investeerders van een andere Verdragsluitende Partij of een derde staat, al naar gelang welke behandeling het gunstigst is.
As the ground for cassation asserts, this article does indeed make a distinction between a Contracting Party's own investors and investors of other Contracting Parties or third countries. In that sense, this provision only protects cross-border investments. The provision does not demonstrate, however, why requirements should be imposed on the international nature of an investment or the nationality of an investor other than the requirements arising from Article 1(6) and (7) ECT. The subground for cassation does not explain this in more detail, either.
3.97
The complaint also refers to Article 13 ECT to substantiate the assertion that only cross-border investments are protected by the ECT. Article 13 ECT protects investments from expropriation, except in specific cases in which expropriation is justified. Like Article 10 ECT, Article 13(1) ECT provides that “Investments of Investors of a Contracting Party in the Area of any other Contracting Party”. The provision thus clarifies that the goal is to protect cross-border investments, but does not contain any indications that, because of that, additional requirements should be imposed on the international nature of an investment or an investor.
3.98
The complaint also refers to the Understanding with respect to Article 1(6) ECT. [115] It reads as follows:
‘For greater clarity as to whether an Investment made in the Area of one Contracting Party is controlled, directly or indirectly, by an Investor of any other Contracting Party, control of an Investment means control in fact, determined after an examination of the actual circumstances in each situation. In any such examination, all relevant factors should be considered, including the Investor’s
(a) financial interest, including equity interest, in the Investment;
(b) ability to exercise substantial in influence over the management and operation of the Investment; and
(c) ability to exercise substantial in influence over the selection of members of the board of directors or any other managing body.
Where there is doubt as to whether an Investor controls, directly or indirectly, an Investment, an Investor claiming such control has the burden of proof that such control exists’.
This Understanding builds upon Article 1(6) ECT, which defines an investment as “every kind of asset, owned or controlled directly or indirectly by an Investor”. The Understanding thus offers the party applying the ECT further points of reference for ascertaining who has “control” over a certain investment. The Understanding does not play any role if it is clear that an asset is “owned by” an investor. As the Court of Appeal held in para. 5.1.7.4, it is established as fact in this case that the Yukos shares are owned by HVY. Therefore, there was no reason to further examine on the basis of the Understanding who has control over the shares.
3.99
Article 17 ECT, also referred to in the complaint, is the denial of benefits clause. This provision under certain circumstances provides for the non-application of Part III of the ECT (pertaining to the promotion, protection and treatment of investments). To the extent relevant, Article 17, in the authentic English-language text, reads as follows:
Each Contracting Party reserves the right to deny the advantages of this Part to:
1 .a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized; (...).
In the Dutch translation:
Elke Verdragsluitende Partij behoudt zich het recht voor de voordelen van dit Deel te ontzeggen aan:
1 . een rechtspersoon, indien staatsburgers of onderdanen van een derde staat eigenaar zijn van of zeggenschap hebben over een dergelijke rechtspersoon en indien die rechtspersoon geen wezenlijke zakelijke activiteiten heeft op het grondgebied van de Verdragsluitende Partij waar hij is opgericht, (...).
As the Court of Appeal held in para. 5.1.8.4, Article 17 ECT gives Contracting Parties the right to deny a accurately defined category of investors the protection of a large part of the ECT, namely investors who are formally established in the Area of a Contracting Party but who, substantively speaking, are predominantly connected to a non-Contracting Party. [116] Contrary to what is asserted in the complaint, Article 17 ECT does not provide that such investors
mustbe denied protection, but the provision entails that those investors are in principle protected by the ECT
unlessa Contracting Party decides otherwise. [117] Article 17 ECT therefore does not contain a rule stipulating that investments which are not truly international, but are international only in a formal sense, do not enjoy protection under the ECT.
mustbe denied protection, but the provision entails that those investors are in principle protected by the ECT
unlessa Contracting Party decides otherwise. [117] Article 17 ECT therefore does not contain a rule stipulating that investments which are not truly international, but are international only in a formal sense, do not enjoy protection under the ECT.
3.100 The ground for cassation (nos. 115-117) also complains that the Court of Appeal erred in ruling that “little significance” could be attributed to the state practice relied upon by the Russian Federation, because that state practice did not concern the interpretation and application of the ECT, but the choices made afterwards upon the conclusion of new treaties. The complaint asserts that this finding is incorrect for several reasons: (i) the Court of Appeal started from an incorrect, merely grammatical interpretation of the ECT, (ii) significance most certainly can be attributed to treaties concluded after the signing of the ECT, and (iii) the Court of Appeal disregarded the desire of the Contracting Parties to clarify the ECT.
3.101 The Court of Appeal rejected the Russian Federation's reliance on the state practice, because the meaning of Article 1(6) and (7) ECT is already clear and does not exclude U-turn investments. This opinion can independently support the Court of Appeal's conclusion. According to the interpretation criterion of the VCLT, state practice is considered only in the event that the text and context of the treaty lead to an unclear outcome. This is not the situation in the present case, so that the Court of Appeal need not take state practice into account. I would note that the sources referred to in the ground for cassation (no. 116) in support of the state practice are not examples of this, because these consist of arbitration case law, an investigative report, and a motion of the Dutch House of Representatives about the exclusion of letterbox companies from trade agreements. [118] These documents do not indicate that the Contracting Parties systematically interpret the ECT such that U-turn constructions are not protected. In all other respects, the complaint builds upon the previous complaints. The complaint therefore fails.
3.102 The ground for cassation (nos. 117-120) also relies on recent proposals by the ECT Secretariat and the European Commission to clarify Article 1(6) and (7) ECT. These proposals are relevant for the interpretation of those provisions, according to the ground for cassation, because it concerns a clarification thereof and not an amendment. The ground for cassation reiterates that letterbox companies without substantial activities in the country where they are established are not covered by the definition of “investment”.
3.103 As already noted, state practice can only be considered in the interpretation of a treaty if the case concerns a practice that has been developed in the context of the treaty in question. [119] The proposals relied upon in the ground for cassation pertain to a potential new treaty and are therefore, in principle, irrelevant. [120] Article 31 VCLT also requires that a state practice has been accepted at least implicitly by all Contracting Parties. There is no question of this here either, as the situation involves proposals by the European Commission and the European Council, which represent only some of the parties to the ECT. Against this background, the comments in the documents referred to in the ground for cassation cannot be construed as indications that the terms “investment” and “investor” are already being interpreted in that proposed fashion at this time, meaning it would only concern a codification of that interpretation. [121] The documents imply, instead, that the European Commission and the European Council are of the opinion that the current ECT is no longer appropriate and should to be modernised in order to tie in with evolved principles of investment protection. For example, the European Commission stated the following in its Recommendation:
‘Since the 1990s (most of) the ECT provisions have not been revised. This became particularly problematic in the context of the ECT provisions on the protection of investment, which do not correspond to modern standards as reflected in the EU’s reformed approach on investment protection. Those outdated provisions are no longer sustainable or adequate for the current challenges; yet it is today the most litigated investment agreement in the world.” [122]
The following, among other things, can be read in the European Council's negotiation directives:
‘The negotiations should bring the ECT provisions on investment protection in line with the modern standards of recently concluded agreements by the EU and its Member States and adjust the ECT to new political and economic global changes (including in the energy sector).
The Investment Protection standards under the Modernised ECT should continue to aim at a high level of investment protection, with provisions affording legal certainty for investors and investments of Parties in each other's market.
The modernised ECT should provide clear definitions of covered investments and investors. The definition of investor should explicitly exclude investors and businesses that are lacking substantive business activities in their country of origin, in order to clarify that mailbox companies cannot bring disputes under the ECT.’ [123]
The following proposal to amend Article 1(7) ECT was included in a Working Document of 20 April 2020:
‘(7) “Investor” means:
(a) with respect to a Contracting Party:
(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law
[Footnote 1];
[Footnote 1];
(ii) a company or other organisation organised in accordance with the law applicable in that Contracting Party
and engaged in substantive business activities [Footnote 2]in the territory of that Contracting Party;
and engaged in substantive business activities [Footnote 2]in the territory of that Contracting Party;
[Footnote 1: (...)]
[Footnote 2: In line with its notification of the Treaty establishing the European Community to the WTO (WT/REG39/1), the European Union understands that the concept of "effective and continuous link" with the economy of a Member State of the European Union enshrined in Article 54 of the TFEU is equivalent to the concept of "substantive business activities"]’. [124]
3.104 These documents are not indicative of an established state practice entailing that additional requirements are imposed on “investors” and “investments” within the meaning of the ECT. They rather indicate that such requirements do not yet apply at this time, but according to the EU Member States they ought to be imposed in the future.
3.105 The ground for cassation (no. 121) complains that the Court of Appeal ignored clear rules and fundamental principles of international law. According to the ground for cassation, this involves a principle of investment law dictating that international investment treaties aim (i) to protect international investments and (ii) to offer protection to actual investors and not to those who are only investors “on paper”. This is the case if the actual, beneficial investor is a national of the host country and the investment is essentially a domestic investment. The Russian Federation substantiated the existence of this principle with references to arbitration case law. In paras. 5.1.8.6-5.1.8.10, the Court of Appeal discussed the arbitral awards relied on by the Russian Federation and ruled that no principle of investment law can be derived therefrom, as defended by the ground for cassation (no. 122).
3.106 It is correct that principles of international law may play a role in treaty interpretation on the basis of Article 31(3)(c) VCLT. The purpose of this provision is to enable interpretation of the treaty against the background of the system of international law of which it is part. [125] This may concern rules from other treaties or rules of customary international law. [126] Naturally, the rule must be relevant to the interpretation of the treaty in question. This may be the case, for instance, if the rule to be considered is from a treaty to which all States that are parties are also parties to the treaty to be interpreted or if that rule can be regarded as customary international law. [127] “General principles of law recognized by civilized nations” as referred to in Article 38(1)(c) of the Statute of the International Court of Justice may be relevant as well. An example of this includes the principle of good faith. [128] The formulations used may have a meaning that is accepted in customary international law or according to general principles of law. [129]
3.107 The Russian Federation substantiated the assertion that the Court of Appeal failed to appreciate international law by invoking a principle of international investment law, the existence of which supposedly follows from the aforementioned arbitration case law. This principle supposedly entails that only truly international investments deserve protection, meaning that it is not enough for the investor to be formally established in a country other than the country where the investment was made (the host country), but that it must be established whether the “actual, beneficial investor” is a citizen of that host country (in which case it involves a U-turn investment). It follows from this that this principle, to the extent that it really exists, can only be relevant when it concerns a principle of customary international law or a rule of treaty law that is relevant to the interpretation of the ECT. In my opinion, neither is the case. I will explain this in more detail below.
3.108 As the Court of Appeal found, some of the arbitration case law was rendered on the basis of the ICSID Convention. As I wrote in my introduction (para. 1.10), the ICSID Convention has its own scope of application. The ICSID Convention expressly relates to international investments, in which respect it has been left to the ICSID tribunals to impart further substance to this notion. In practice, ICSID tribunals sometimes impose more stringent requirements than the underlying investment themselves, in particular when the term “investment” is concerned (see the discussion of Ground for Cassation 3.3). [130] Those requirements may also be more stringent than those of other commercial or other arbitral tribunals which do not base their jurisdiction on the ICSID Convention. [131] All of this means that the imposition by ICSID tribunals in certain cases of more stringent requirements on the international nature of an investment than those imposed by the ECT does not mean that the ECT should therefore be interpreted more strictly as well. After all, those more stringent requirements follow from the ICSID Convention and/or from the underlying bilateral investment treaty. The fact that all these treaties impose different requirements on the international nature of an investment [132] also indicates that no rule of customary international law can be said to exist. [133] Therefore, it is also unclear that the ECT should be interpreted in accordance with the rules from the ICSID Convention or the rules from other investment treaties. Quite the contrary. The various treaties all have their own definitions, which in practice may give rise to different outcomes. Incidentally, the ICSID tribunal in the judgment rendered on the basis of the ECT in
Plama v. Republic of Bulgariaruled in line with Article 1(7) ECT (see para. 3.110, below).
Plama v. Republic of Bulgariaruled in line with Article 1(7) ECT (see para. 3.110, below).
3.109 In so far as more stringent requirements with respect to the international nature of an investment can be inferred from the various arbitral awards – the Court of Appeal always rejected that argument – those requirements are irrelevant to the ECT, because the relevant case law relates to other treaties. That is the case for most awards referred to in the ground for cassation. For example, the award in
Loewen v. United States of Americapertains to the NAFTA, [134] and the cases
Phoenix v. Czech Republic, [135] Occidental v. Ecuador, [136] TSA Spectrum de Argentina S.A. v. Argentine Republic [137] and
ST-AD GmbH v. Republic of Bulgaria [138] pertain to the ICSID Convention and various bilateral investment treaties. The
Lemire v. Ukrainecase relates to the BIT between the United States and Ukraine. [139] These arbitral awards are irrelevant to the interpretation of the ECT.
Loewen v. United States of Americapertains to the NAFTA, [134] and the cases
Phoenix v. Czech Republic, [135] Occidental v. Ecuador, [136] TSA Spectrum de Argentina S.A. v. Argentine Republic [137] and
ST-AD GmbH v. Republic of Bulgaria [138] pertain to the ICSID Convention and various bilateral investment treaties. The
Lemire v. Ukrainecase relates to the BIT between the United States and Ukraine. [139] These arbitral awards are irrelevant to the interpretation of the ECT.
3.110 In para. 5.1.8.10, it should be noted, the Court of Appeal took into account the arbitration case law cited by HVY, which was in fact rendered on the basis of the ECT. In
Plama v. Republic of Bulgaria, the ICSID tribunal held that under the definition of Article 1(7) ECT, it is irrelevant who owns and/or controls the investing company. According to the tribunal, it was only relevant that the investing company (Plama Consortium) was incorporated under the laws of Cyprus. [140] The Court of Appeal's view is that the arbitral awards in
Charanne v. Kingdom of Spain [141] and
Isolux v. Kingdom of Spain [142] are consistent with this (see paras. 5.1.8.8 and 5.1.8.10). According to the Court of Appeal, while the award in the
Alapli v. Republic of Turkeycase indicates that U-turn constructions deserve no protection, the discord among the arbitrators in this respect indicates that there is no question of a generally accepted principle of such purport. [143] This interpretation of the various arbitral awards is not contested by the ground for cassation.
Plama v. Republic of Bulgaria, the ICSID tribunal held that under the definition of Article 1(7) ECT, it is irrelevant who owns and/or controls the investing company. According to the tribunal, it was only relevant that the investing company (Plama Consortium) was incorporated under the laws of Cyprus. [140] The Court of Appeal's view is that the arbitral awards in
Charanne v. Kingdom of Spain [141] and
Isolux v. Kingdom of Spain [142] are consistent with this (see paras. 5.1.8.8 and 5.1.8.10). According to the Court of Appeal, while the award in the
Alapli v. Republic of Turkeycase indicates that U-turn constructions deserve no protection, the discord among the arbitrators in this respect indicates that there is no question of a generally accepted principle of such purport. [143] This interpretation of the various arbitral awards is not contested by the ground for cassation.
3.111 The foregoing indicates that the complaint that the Court of Appeal failed to appreciate international law fails. I also note, superfluously, that the literature on the ECT that I have consulted does not contain any support for the Russian Federation's view that additional requirements must be imposed on the international nature of the investments. [144] In the aforementioned
Plama v. Republic of Bulgariadecision, the ICSID tribunal ruled that such additional requirements are not imposed. The literature indicates that the consequence of that decision is that letterbox companies may claim protection under the ECT, but that on the basis of Article 17 ECT (the denial of benefits clause), Contracting Parties can limit that protection to investors with a significant connection to the country in which they are established and can thereby exclude letterbox companies from that protection. [145] As long as Contracting Parties have not availed themselves of that possibility, letterbox companies are also covered by the scope of the ECT. [146]
Plama v. Republic of Bulgariadecision, the ICSID tribunal ruled that such additional requirements are not imposed. The literature indicates that the consequence of that decision is that letterbox companies may claim protection under the ECT, but that on the basis of Article 17 ECT (the denial of benefits clause), Contracting Parties can limit that protection to investors with a significant connection to the country in which they are established and can thereby exclude letterbox companies from that protection. [145] As long as Contracting Parties have not availed themselves of that possibility, letterbox companies are also covered by the scope of the ECT. [146]
3.112
Ground for Cassation 3.2.4complains about para. 5.1.8.8, in which the Court of Appeal found that insufficient explanation was provided as to why Khodorkovsky et al. could be regarded as “beneficial owners” of the Yukos Shares and why HVY were only holding the shares for Khodorkovsky et al. The ground for cassation argues that this finding is incorrect in view of Articles 149 and 154 DCCP, or at least incomprehensible, because the parties supposedly agree on this.
Ground for Cassation 3.2.4complains about para. 5.1.8.8, in which the Court of Appeal found that insufficient explanation was provided as to why Khodorkovsky et al. could be regarded as “beneficial owners” of the Yukos Shares and why HVY were only holding the shares for Khodorkovsky et al. The ground for cassation argues that this finding is incorrect in view of Articles 149 and 154 DCCP, or at least incomprehensible, because the parties supposedly agree on this.
3.113 The complaint fails due to lack of interest. After all, the contested finding does not pertain exclusively to the question of whether Khodorkovsky et al. are the “beneficial owners” of the Yukos Shares and of HVY, but relates primarily to the question of whether this is relevant to the application of the ECT. In this finding, the Court of Appeal rejected the Russian Federation's assertion that the ECT makes a distinction between the legal and beneficial owner, in the sense that only the latter has legal standing (see para. 5.1.8.7). The Court of Appeal concluded that no such rule exists and substantiated that conclusion by citing the
Charanne v. Kingdom of Spaincase. Incidentally, the ground for cassation does not contest this conclusion.
Charanne v. Kingdom of Spaincase. Incidentally, the ground for cassation does not contest this conclusion.
3.114 I arrive at the conclusion that all the complaints in Ground for Cassation 3.2 fail.
Ground for Cassation 3.3: actual economic contribution to the economy of the host country
3.115
Ground for Cassation 3.3is directed against paras. 5.1.9.1-5.1.9.5 and complains that the Court of Appeal erred in rejecting the Russian Federation's assertion that HVY's shares in Yukos could not be regarded as an “investment” under the ECT, because HVY made no actual economic contribution to the Russian Federation. The ground for cassation complains that the Court of Appeal erred in holding that the Russian Federation had not demonstrated the existence of such an internationally recognised legal principle of investment law (para. 126) and that the Court of Appeal erred in starting from a purely grammatical interpretation of the terms “investment” and “investor” from the ECT (no. 127). According to the ground for cassation, the Court of Appeal erred in holding that the requirement of the economic contribution only applied to an investment as referred to in the ICSID Convention and not to the ECT (no. 129).
Ground for Cassation 3.3is directed against paras. 5.1.9.1-5.1.9.5 and complains that the Court of Appeal erred in rejecting the Russian Federation's assertion that HVY's shares in Yukos could not be regarded as an “investment” under the ECT, because HVY made no actual economic contribution to the Russian Federation. The ground for cassation complains that the Court of Appeal erred in holding that the Russian Federation had not demonstrated the existence of such an internationally recognised legal principle of investment law (para. 126) and that the Court of Appeal erred in starting from a purely grammatical interpretation of the terms “investment” and “investor” from the ECT (no. 127). According to the ground for cassation, the Court of Appeal erred in holding that the requirement of the economic contribution only applied to an investment as referred to in the ICSID Convention and not to the ECT (no. 129).
3.116 In so far as the complaints build upon the previous grounds for cassation, they must share their fate. With regard to the complaint in para. 129, I repeat that the ICSID Convention has its own scope of application, which has caused the ICSID tribunal to formulate criteria in the decision in
Salini Costruttori SpA/Morocco [147] to establish whether a case involves an investment. These
Salinicriteria are more stringent than the ECT criteria. [148] One of those criteria is that with the investment a contribution must be made to the economic development of the host country (see paras. 5.1.9.2,
et seq. of the final judgment). Given the differences that exist between the
Salinicriteria and the ECT criteria, investors who believe that their rights under the ECT have been violated must carefully consider whether they wish to submit their claim to the ICSID, because there is a risk that the ICSID will decline jurisdiction. [149] It is therefore clear and accepted in practice that the ICSID is interpreted differently than the ECT. The text of the ECT also does not contain any indications that the definition of “investor” or other terms from the ECT should be interpreted in line with the definition in the ICSID Convention.
Salini Costruttori SpA/Morocco [147] to establish whether a case involves an investment. These
Salinicriteria are more stringent than the ECT criteria. [148] One of those criteria is that with the investment a contribution must be made to the economic development of the host country (see paras. 5.1.9.2,
et seq. of the final judgment). Given the differences that exist between the
Salinicriteria and the ECT criteria, investors who believe that their rights under the ECT have been violated must carefully consider whether they wish to submit their claim to the ICSID, because there is a risk that the ICSID will decline jurisdiction. [149] It is therefore clear and accepted in practice that the ICSID is interpreted differently than the ECT. The text of the ECT also does not contain any indications that the definition of “investor” or other terms from the ECT should be interpreted in line with the definition in the ICSID Convention.
3.117 As I have already noted, the ECT does not offer a real definition of the term “investment”, but instead provides a non-exhaustive list of assets that are designated as such. This raises the question of how to ascertain whether assets not appearing in the list of Article 1(6) ECT should be designated as investments. In this context, it is noted in the literature that conceptions of the term “investor” developed outside of the ECT, such as in the context of the ICSID Convention, could be helpful. [150] There are also a number of decisions in ET cases in which, for the definition of “investor", alignment was sought with the
Salinicase law under the ICSID Convention. [151] For example, the majority of the arbitrators in the
Alapli v. Republic of Turkeycase held that the ECT requires the investor to make “a meaningful contribution” in the host country. According to them, there was no question of this, because the claimant had not invested any of its own money, but had merely acted as a “conduit”. [152] One of the other arbitrators challenged this view in a dissenting opinion, based on the circumstance that no such criterion could be found in the ECT. [153] In other case law, it was expressly ruled that the
Salinicriteria cannot play a role in the context of the ECT. In
Anatolie Stati et al. v. Kazakhstan, the tribunal held that the ECT had an “extremely broad definition” of the term “investment” and that when an asset is covered by Article 1(6) ECT no more significance accrues to criteria developed in the context of a different treaty:
Salinicase law under the ICSID Convention. [151] For example, the majority of the arbitrators in the
Alapli v. Republic of Turkeycase held that the ECT requires the investor to make “a meaningful contribution” in the host country. According to them, there was no question of this, because the claimant had not invested any of its own money, but had merely acted as a “conduit”. [152] One of the other arbitrators challenged this view in a dissenting opinion, based on the circumstance that no such criterion could be found in the ECT. [153] In other case law, it was expressly ruled that the
Salinicriteria cannot play a role in the context of the ECT. In
Anatolie Stati et al. v. Kazakhstan, the tribunal held that the ECT had an “extremely broad definition” of the term “investment” and that when an asset is covered by Article 1(6) ECT no more significance accrues to criteria developed in the context of a different treaty:
"806. (...) Guidelines and tests of criteria developed in this jurisprudence on the ICSID Convention and similar treaties, therefore, cannot be used as long as any right or activity is clearly covered by the wording of the above definition in ECT cases. Therefore, the so-called
Salinitest, controversial and much discussed both by the Parties in this case and otherwise in ICSID and similar arbitrations, even if applied as a flexible guideline rather than as a strict jurisdictional requirement, cannot be used for the definition of investment under the ECT or, likewise, in the present case. The Tribunal, thus, sees no need to examine the various criteria discussed for the
Salinitest.’ [154]
Salinitest, controversial and much discussed both by the Parties in this case and otherwise in ICSID and similar arbitrations, even if applied as a flexible guideline rather than as a strict jurisdictional requirement, cannot be used for the definition of investment under the ECT or, likewise, in the present case. The Tribunal, thus, sees no need to examine the various criteria discussed for the
Salinitest.’ [154]
3.118 The conclusion must be that the ICSID case law, in particular regarding
Salini, does not indicate the existence of a principle of international investment law that should also be considered in the interpretation of the ECT. The arbitration case law is too diverse for that. Moreover, there are only a few decisions – one of which was not unanimous – in which this position was taken, so that no decisive importance can be attributed to them. I also refer to what I noted at 1.8 of this Opinion about the significance of arbitration case law in the context of treaty interpretation.
Salini, does not indicate the existence of a principle of international investment law that should also be considered in the interpretation of the ECT. The arbitration case law is too diverse for that. Moreover, there are only a few decisions – one of which was not unanimous – in which this position was taken, so that no decisive importance can be attributed to them. I also refer to what I noted at 1.8 of this Opinion about the significance of arbitration case law in the context of treaty interpretation.
3.119 My conclusion is that the complaints of Ground for Cassation 3.3 fail.
Ground for Cassation 3.4: piercing the corporate veil
3.12
Ground for Cassation 3.4is directed against paras. 5.1.8-5.1.11 and complains that the Court of Appeal and the Tribunal should have pierced the veil of HVY's “purely formal corporate structure”, because these companies were only incorporated for the purpose of perpetrating and concealing illegal conduct, including tax evasion. It is a principle of international law that the corporate veil must be pierced/lifted wherever companies have been abused in such a way. In this case, this leads to the consequence that HVY cannot be qualified as investors within the meaning of the ECT, because, according to the ground for cassation, they cannot be regarded as having been incorporated in accordance with the laws of Cyprus or the Isle of Man, as required by Article 1(7) ECT.
Ground for Cassation 3.4is directed against paras. 5.1.8-5.1.11 and complains that the Court of Appeal and the Tribunal should have pierced the veil of HVY's “purely formal corporate structure”, because these companies were only incorporated for the purpose of perpetrating and concealing illegal conduct, including tax evasion. It is a principle of international law that the corporate veil must be pierced/lifted wherever companies have been abused in such a way. In this case, this leads to the consequence that HVY cannot be qualified as investors within the meaning of the ECT, because, according to the ground for cassation, they cannot be regarded as having been incorporated in accordance with the laws of Cyprus or the Isle of Man, as required by Article 1(7) ECT.
3.121 The Court of Appeal rejected this argument by the Russian Federation on three grounds. First of all, opined the Court of Appeal, there is no evidence of any such principle (paras. 5.1.10.1-5.1.10.2). Second, there are no indications that Article 1(7) ECT offers a basis for the application of this doctrine in the sense advocated by the Russian Federation. Third, the doctrine of piercing the corporate veil pertains to the determination of liability and cannot be used to challenge the jurisdiction of the Tribunal (para. 5.1.10.4).
3.122 The complaints start from the factual premise that HVY were incorporated solely for the purpose of concealing illegal activities. This has not been established as fact. [155] Therefore, the starting point assumed as a hypothetical factual premise is that HVY were indeed incorporated for the purpose of concealing said illegal activities.
3.123 The complaints of the ground for cassation are founded on the doctrine of piercing/lifting the corporate veil. As the Court of Appeal found, this term does indeed primarily have meaning in the context of the liability of legal entities. If the corporate veil is pierced, the legal personality is disregarded so that the shareholders can be held liable instead of just the legal entity. [156] The term is sometimes given a broader meaning and is used to indicate other situations in which the legal entity is disregarded and the party exercising control over the legal entity is examined. [157] For instance, the ECT features the principle of piercing the corporate veil in this broader meaning: Article 26(7) ECT makes it possible to expand the legal protection of Article 26 ECT to investors established in the country where the investment was made, provided they are controlled by investors from another Contracting Party. In that case, it is therefore not decisive who the investor is or where the investor is established, but who exercises
de factocontrol over the investor. [158] That way, the legal personality of the investor/company is disregarded, but this time – unlike in the view just described – in favour of the parties controlling such investor/company.
de factocontrol over the investor. [158] That way, the legal personality of the investor/company is disregarded, but this time – unlike in the view just described – in favour of the parties controlling such investor/company.
3.124 The ground for cassation relies upon an interpretation of the notion of piercing the corporate veil in international law, supposedly entailing that courts and arbitral tribunals should disregard the legal personality of corporate entities that have been abused for illegal conduct. Supposedly, those entities should therefore be denied protection under investment and other treaties. Strictly speaking, there is no question of a corporate veil being pierced in that case, because, in that view, the legal personality of the company is not disregarded in order to "look through" it to the shareholders, but the company is considered not to exist at all, without there being any further relevance to who controls such company. However, the ground for cassation relies on a principle of international law with that purport.
3.125 To substantiate the existence of such a principle, the ground for cassation refers to the decision rendered by the International Court of Justice (ICJ) in the
Barcelona Tractioncase. [159] That case was about whether Belgium was entitled to institute proceedings before the ICJ against Spain for the benefit of Belgian shareholders of Barcelona Traction, a Canadian company. Therefore, the ICJ had to assess, among other things, whether a company's shareholders could conduct litigation on the basis of alleged unlawful acts committed against the company. The ICJ started from the assumption that the company was independent from its shareholders, but also held that exceptions to this were possible under certain circumstances, particularly in the event that the company proved unable to protect the interests of those who entrusted their financial resources to it. [160] In such situations, according to the ICJ, an exception is made to the principle of the independent existence of the company:
Barcelona Tractioncase. [159] That case was about whether Belgium was entitled to institute proceedings before the ICJ against Spain for the benefit of Belgian shareholders of Barcelona Traction, a Canadian company. Therefore, the ICJ had to assess, among other things, whether a company's shareholders could conduct litigation on the basis of alleged unlawful acts committed against the company. The ICJ started from the assumption that the company was independent from its shareholders, but also held that exceptions to this were possible under certain circumstances, particularly in the event that the company proved unable to protect the interests of those who entrusted their financial resources to it. [160] In such situations, according to the ICJ, an exception is made to the principle of the independent existence of the company:
"56. (...) Here, then, as elsewhere, the law, confronted with economic realities, has had to provide protective measures and remedies in the interests of those within the corporate entity as well as of those outside who have dealings with it: the law has recognized that the independent existence of the legal entity cannot be treated as an absolute. It is in this context that the process of "lifting the corporate veil" or "disregarding the legal entity" has been found justified and equitable in certain circumstances or for certain purposes. The wealth of practice already accumulated on the subject in municipal law indicates that the veil is lifted, for instance, to prevent the misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as a creditor or purchaser, or to prevent the evasion of legal requirements or of obligations.’
The ICJ held that such an exception can also play a role in international law. But the ICJ did emphasise the exceptional nature of the process of lifting the veil:
"58. In accordance with the principle expounded above, the process of lifting the veil, being an exceptional one admitted by municipal law in respect of an institution of its own making, is equally admissible to play a similar role in international law. It follows that on the international plane also there may in principle be special circumstances which justify the lifting of the veil in the interest of shareholders.’
3.126 In international law, the ICJ recognised the possibility of piercing the corporate veil, among other things “to prevent the misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance”, but also held that there is only leeway for doing so in exceptional circumstances. The ICJ therefore did not go as far as the ground for cassation (no. 132) asserts, because the decision contains no stipulation that courts and arbitral tribunals are supposedly “obliged” to disregard the legal personality of companies that have been abused for “fraud or malfeasance”. Moreover, the decision also does not indicate that a company can be taken out of the equation altogether, as asserted in the ground for cassation.
3.127 The arbitral ICSID awards referred to by the ground for cassation and the Court of Appeal (in
Cementownia v. Republic of Turkey [161] , Phoenix v. Czech Republicand
Alapli v. Republic of Turkey)also do not contain any indication of a rule stipulating that arbitral tribunals are obliged to disregard the legal personality of companies in the event that they have been abused for illegal activities. These awards have a more limited meaning. They entail that, under certain circumstances, claimants who acquired shares in companies for the sole purpose of gaining access to the arbitration proceedings can be denied protection under the ECT. In that case, the legal personality of the claimant company is not “disregarded” because it was supposedly not incorporated in accordance with the laws of a Contracting Party, but there is no situation involving an investment within the meaning of Article 1(6) ECT. [162] Also, while the ICSID tribunal did conclude in these cases that the acquisition of shares in a foreign company in order to obtain access to investment arbitration may be unacceptable, it also held that a distinction from
bona fidetransactions must be made and that this depends strongly on the circumstances of the case. [163] This ICSID case law thus recognises, to a certain extent, the doctrine of piercing the corporate veil, but to date has only applied this in a specific situation, which does not arise in the case at issue in cassation. [164]
Cementownia v. Republic of Turkey [161] , Phoenix v. Czech Republicand
Alapli v. Republic of Turkey)also do not contain any indication of a rule stipulating that arbitral tribunals are obliged to disregard the legal personality of companies in the event that they have been abused for illegal activities. These awards have a more limited meaning. They entail that, under certain circumstances, claimants who acquired shares in companies for the sole purpose of gaining access to the arbitration proceedings can be denied protection under the ECT. In that case, the legal personality of the claimant company is not “disregarded” because it was supposedly not incorporated in accordance with the laws of a Contracting Party, but there is no situation involving an investment within the meaning of Article 1(6) ECT. [162] Also, while the ICSID tribunal did conclude in these cases that the acquisition of shares in a foreign company in order to obtain access to investment arbitration may be unacceptable, it also held that a distinction from
bona fidetransactions must be made and that this depends strongly on the circumstances of the case. [163] This ICSID case law thus recognises, to a certain extent, the doctrine of piercing the corporate veil, but to date has only applied this in a specific situation, which does not arise in the case at issue in cassation. [164]
3.128 As the Court of Appeal rightly held, Article 1(7) ECT does not provide any basis for “disregarding” the legal personality of companies in the manner defended by the ground for cassation. I note once again that Article 1(7) ECT only imposes the formal requirement that a company be incorporated according to the laws of a Contracting Party. These formulations do not offer any basis for “disregarding” the legal personality of a company incorporated according to the laws of a Contracting Party by not considering this company as an investor – because it was incorporated for illegal purposes or for a different reason. [165] The ground for cassation (no. 137) also asserts that Article 1(7) ECT offers an explicit basis for the application of the piercing the corporate veil doctrine existing in the legal system of Cyprus and the Isle of Man, where HVY have their registered offices, but does not assert that this doctrine under the laws of those States is implemented in the manner defended by the ground for cassation. In so far as the ground for cassation seeks to complain that the Court of Appeal incorrectly applied the foreign law in this respect, the complaint fails on the basis of the provisions of Article 79(1)(b) of the Judiciary Organisation Act or for lack of a factual basis, because this question was not addressed in the fact-finding instances (the ground for cassation does not refer to sources in the procedural documents that supposedly contain assertions in this connection).
3.129 The conclusion is that the complaints of Ground for Cassation 3.4 fail.
Ground for Cassation 3.5: questions referred to the ECJ for preliminary rulings regarding Article 1(6) and (7) and Article 26 ECT?
3.13
Ground for Cassation 3.5argues that the Court of Appeal's interpretation is incompatible with EU law. According to the ground for cassation, the Court of Appeal should have referred questions about the interpretation of Article 1(6) and (7) and Article 26 ECT to the ECJ for preliminary rulings and in this context should have incorporated all matters addressed in this case.
Ground for Cassation 3.5argues that the Court of Appeal's interpretation is incompatible with EU law. According to the ground for cassation, the Court of Appeal should have referred questions about the interpretation of Article 1(6) and (7) and Article 26 ECT to the ECJ for preliminary rulings and in this context should have incorporated all matters addressed in this case.
3.131 I refer to what I have noted at the discussion of Ground for Cassation 2.7. There is no reason to refer questions to the ECJ for a preliminary ruling if the answer to that question is not necessary for the assessment of the dispute. That is the case with regard to Ground for Cassation 3 as well. The various complaints of this ground for cassation fail for various reasons, partly for lack of a factual basis, partly because they rely on sources that, according to the rules of interpretation of the VCLT, are irrelevant to the interpretation of the ECT, and partly because the complaints are appeals on issues of fact, which fail.
Ground for Cassation 4: interpretation of Article 1(6) and (7) ECT (legality of the investments)
3.132
Ground for Cassation 4also relates to the interpretation of the terms “investment” and “investor” of Article 1(6) and (7) ECT and argues that illegal investments are not covered by those terms, so that the Tribunal did not have jurisdiction over HVY's claims. In addition, the ground for cassation asserts that the Tribunal's finding is contrary to public policy, because it ensures that HVY can benefit from unlawful conduct. The ground for cassation is divided into four subgrounds.
Ground for Cassation 4also relates to the interpretation of the terms “investment” and “investor” of Article 1(6) and (7) ECT and argues that illegal investments are not covered by those terms, so that the Tribunal did not have jurisdiction over HVY's claims. In addition, the ground for cassation asserts that the Tribunal's finding is contrary to public policy, because it ensures that HVY can benefit from unlawful conduct. The ground for cassation is divided into four subgrounds.
3.133
Ground for Cassation 4.1does not contain any complaints, but provides an overview of the illegal acts allegedly perpetrated by HVY. In that regard, the Russian Federation adopted the following position:
Ground for Cassation 4.1does not contain any complaints, but provides an overview of the illegal acts allegedly perpetrated by HVY. In that regard, the Russian Federation adopted the following position:
1) HVY illegally acquired the shares in Yukos, namely by rigging auctions and paying bribes (Ground for Cassation 4.1.2);
2) Hulley and VPL were incorporated to evade dividend withholding tax, and YUL assisted in this as well (Ground for Cassation 4.1.3);
3) Yukos evaded taxation in the Russian Federation by using sham companies in tax havens (Ground for Cassation 4.1.4);
4) HVY have obstructed access to justice further to this illegal conduct by destroying evidence and by diverting funds abroad (Ground for Cassation 4.1.5).
3.134 The Russian Federation has argued that the Tribunal should have declined jurisdiction because of the illegality of HVY's investments. In investment arbitrations, opines the Russian Federation, it is generally accepted that treaty protection does not extend to investments which have been made in contravention of the law of the host state, even if the relevant treaty does not contain a provision which explicitly excludes such investments from the application of the ECT. [166]
3.135 The Court of Appeal held, in summary, that there was indeed a principle of international investment law under which illegal investments made contrary to the law of the host country are not protected. It must, however, concern instances in which illegal conduct was perpetrated upon making the investment; not thereafter (para. 5.1.11.2). In the event that this is established as fact, the Court of Appeal's view is that, in respect of the consequences, a distinction must be made between (a) investment treaties in which the definition of the term “investment” contains a phrase indicating that the investment must have been made “in accordance with the law” or words of a similar purport, and (b) investment treaties in which this is not the case. With regard to the former category of treaties, an illegal investment falls entirely outside of the scope of the treaty: in that case, the situation does not involve an investment. The ECT does not contain such an explicit legality requirement. For such treaties, no generally accepted principle of law exists that stipulates that an arbitral tribunal should decline jurisdiction in the event of an illegal investment (paras. 5.1.11.4-5.1.11.5). According to the Court of Appeal, the wording of Article 1(6) and Article 26 ECT is decisive. As these articles do not contain an explicit legality requirement, it cannot be held that an illegal investment does not fall within the jurisdiction of the tribunal. However, it could possibly be held that the investment cannot benefit from the substantive protection of the ECT, but that is something else entirely. As an aside, the Court of Appeal referred to the Tribunal's ruling that the illegal conduct in the privatisation of Yukos and the acquisition of the shares in Yukos by HVY are too far removed from one another. Therefore, the Court of Appeal's view is that the existence of an illegal investment has not been established.
Ground for Cassation 4.2: existence of legality requirement
3.136
Ground for Cassation 4.2argues that the Court of Appeal failed to recognise that the definition of "investment" in the ECT implies a legality requirement, because the ECT does not protect investments that have been illegally acquired and maintained. The ground for cassation relies on the ordinary meaning of the definition of "investment" and on the context, object and purpose of the ECT, as well as on arbitration case law.
Ground for Cassation 4.2argues that the Court of Appeal failed to recognise that the definition of "investment" in the ECT implies a legality requirement, because the ECT does not protect investments that have been illegally acquired and maintained. The ground for cassation relies on the ordinary meaning of the definition of "investment" and on the context, object and purpose of the ECT, as well as on arbitration case law.
3.137 The Court of Appeal held in para. 5.1.11.5 that the ECT did not include an explicit legality requirement, such as a phrase stipulating that the investment must have been made "in accordance with the law" or words to that effect. The ground for cassation does not argue that such words are included in the ECT, [167] but instead advocates the view that they are implied in the ECT, citing(in para. 154), among other things, an introduction to the ECT by the ECT Secretariat. [168] The Court of Appeal held in para. 5.1.11.2 that there was a principle of international investment law under which illegal investments made contrary to the law of the host country did not deserve protection. The Court of Appeal held in para. 5.1.11.3 (read in conjunction with para 5.1.11.5) that the definition of "investment" laid down in the ECT did not include a phrase stating that the investment must have been made "in accordance with the law". According to the Court of Appeal, this did not affect the Tribunal's jurisdiction to hear claims brought on the basis of the ECT because of the distinction made earlier between the treaties that do or do not include an explicit legality requirement. The ground for cassation does not dispute that such distinction should be made, and consequently the ground for cassation fails in this respect.
3.138 What is more, arbitration case law does not show that the opinion rendered by the Court of Appeal is incorrect. It can be deduced from arbitration case law that the ECT includes an implicit legality requirement but not that this should lead to a lack of jurisdiction of the tribunal. [169] Relevant in this context are, among other things, the decisions rendered by the ICSID tribunal in the
Plama v. Republic of Bulgariacase referred to earlier, discussed by the Court of Appeal in para. 5.1.11.4. In those proceedings, Bulgaria argued that the matter did not involve an investment within the meaning of the ECT, because the investor had concealed under whose control it was operating. The tribunal rejected this argument in the context of the assessment of its jurisdiction and held that the definition of Article 1(6) ECT would be satisfied by a contractual or property right, even if this right were defeasible. [170] The tribunal subsequently considered this argument when assessing the claim on its merits. The tribunal held, among other things, that the ECT did not protect investments made in contravention of the law. The claim was subsequently dismissed. [171] This approach was also followed in the tribunal's decision in the
Blusun v. Italian Republiccase, which also concerned the ECT (see para. 5.1.11.4), and in the tribunal's decision in the
Anatolie Stati et al. v. Republic of Kazakhstancase. [172]
Plama v. Republic of Bulgariacase referred to earlier, discussed by the Court of Appeal in para. 5.1.11.4. In those proceedings, Bulgaria argued that the matter did not involve an investment within the meaning of the ECT, because the investor had concealed under whose control it was operating. The tribunal rejected this argument in the context of the assessment of its jurisdiction and held that the definition of Article 1(6) ECT would be satisfied by a contractual or property right, even if this right were defeasible. [170] The tribunal subsequently considered this argument when assessing the claim on its merits. The tribunal held, among other things, that the ECT did not protect investments made in contravention of the law. The claim was subsequently dismissed. [171] This approach was also followed in the tribunal's decision in the
Blusun v. Italian Republiccase, which also concerned the ECT (see para. 5.1.11.4), and in the tribunal's decision in the
Anatolie Stati et al. v. Republic of Kazakhstancase. [172]
3.139 There have been arbitral awards that have taken a different approach, but these cases do not relate to the ECT. Moreover, some of these awards relate to treaties that include an explicit legality requirement. [173] Therefore, no general rule can be derived from this case law that would always require an arbitral tribunal to decline jurisdiction in the case of an illegal investment, even if the treaty in question does not contain an explicit legality requirement. It is true that some arbitral awards have held, without further ado, that illegality renders the arbitral tribunal incompetent, [174] but then it is required that the investment was made illegally, for example, because fraud was committed in bidding for a tender. [175] However, the tribunal handling the
Phoenix v. Czech Republiccase stated that only manifest illegality can lead to a lack of jurisdiction. [176] In the
Mamidoil Jetoil v. Republic of Albaniacase, the tribunal held that, in principle, States do not have to accept jurisdiction from an arbitral tribunal if illegal investments are involved, but that this is not the case if that state has shown willingness to legalise the investments. [177] In the
SAUR International v. Argentine Republiccase, it was also held that illegal investments are not protected, but this did not result in the consequence of a lack of jurisdiction. [178]
Phoenix v. Czech Republiccase stated that only manifest illegality can lead to a lack of jurisdiction. [176] In the
Mamidoil Jetoil v. Republic of Albaniacase, the tribunal held that, in principle, States do not have to accept jurisdiction from an arbitral tribunal if illegal investments are involved, but that this is not the case if that state has shown willingness to legalise the investments. [177] In the
SAUR International v. Argentine Republiccase, it was also held that illegal investments are not protected, but this did not result in the consequence of a lack of jurisdiction. [178]
3.140 It follows from the above that arbitration case law offers different answers to the question of whether the illegality of an investment should lead to the lack of jurisdiction of the arbitral tribunal (in those cases where no legality requirement is included in the relevant treaty). Some arbitral tribunals answer this question in the affirmative, while other arbitral tribunals take a more nuanced approach. The decisive factor, however, is that there have been no awards in which the ECT has been interpreted as meaning that the illegality of an investment leads to lack of jurisdiction. The literature also stresses that the ECT does not include a legality requirement which could impact the competence of an arbitral tribunal to decide on claims brought on the basis of the ECT. [179] In my opinion, therefore, it cannot be said that a generally accepted principle of law exists whereby an arbitral tribunal must decline jurisdiction in the event of an illegal investment. In the context of the ECT, it has always been considered that the illegality of an investment can, at most, play a role in the assessment of the merits of the case.
3.141 The foregoing demonstrates that Ground for Cassation 4.2 fails.
Ground for Cassation 4.3: illegal conduct
3.142
Ground for Cassation 4.3can be divided into two parts and argues that illegal conduct should be taken into account.
Ground for Cassation 4.3can be divided into two parts and argues that illegal conduct should be taken into account.
3.143
Ground for Cassation 4.3.1is directed against paras. 5.1.11.7-5.1.11.9 and paras. 9.8.5-9.8.10, where the Court of Appeal ruled on fraud and corruption in the acquisition of a majority stake in Yukos. The ground for cassation argues, put succinctly, that the Court of Appeal erred in its interpretation of the law, or delivered an incomprehensible ruling, by examining only the transactions that led to HVY acquiring the shares in Yukos. According to the ground for cassation, when answering the question of whether an investment had been legally acquired, the Court of Appeal should not have limited itself to an assessment of the last transaction in a chain of transactions, it should also have taken into account the events preceding the acquisition of the shares by HVY. It is important to note that bribes were paid to the directors of Yukos before it was privatised (the "Red Directors"), and that the illegally acquired Yukos shares were transferred from one sham company to another in order to conceal their illegal acquisition, or so it is argued in the ground for cassation.
Ground for Cassation 4.3.1is directed against paras. 5.1.11.7-5.1.11.9 and paras. 9.8.5-9.8.10, where the Court of Appeal ruled on fraud and corruption in the acquisition of a majority stake in Yukos. The ground for cassation argues, put succinctly, that the Court of Appeal erred in its interpretation of the law, or delivered an incomprehensible ruling, by examining only the transactions that led to HVY acquiring the shares in Yukos. According to the ground for cassation, when answering the question of whether an investment had been legally acquired, the Court of Appeal should not have limited itself to an assessment of the last transaction in a chain of transactions, it should also have taken into account the events preceding the acquisition of the shares by HVY. It is important to note that bribes were paid to the directors of Yukos before it was privatised (the "Red Directors"), and that the illegally acquired Yukos shares were transferred from one sham company to another in order to conceal their illegal acquisition, or so it is argued in the ground for cassation.
3.144 The ground for cassation lacks relevance because it is clear from para. 5.1.11.6 that paras. 5.1.11.7-5.1.11.9 were rendered superfluously. The argument also fails, because the fact that an investment was made in contravention of the law of the host country is only relevant if that contravention is related to the making of the investment. [180] Thus, the Court of Appeal rightly took this as a premise in para. 5.1.11.2. It is therefore correct that the Court of Appeal examined whether there was evidence of illegal conduct by HVY at the time of their investment (para. 5.1.11.8) and did not also examine the conduct at the time of the acquisition of the shares in Yukos by others in 1995/1996. Moreover, the ruling of the Court of Appeal is not incomprehensible. For the record, I also note that the Court of Appeal assessed the assertion that YUL was involved in paying bribes to the Red Directors and dismissed it as irrelevant. The Court of Appeal's ruling that only the acquisition of the shares in Yukos by HVY should be examined, and not earlier transactions, implies a rejection of the argument that HVY helped conceal the earlier illegal acquisition of those shares. The ground for cassation therefore fails.
3.145
Ground for Cassation 4.3.2is directed against the Court of Appeal's ruling that illegal conduct by HVY after the investment was made is not relevant to the jurisdiction of the Tribunal.
Ground for Cassation 4.3.2is directed against the Court of Appeal's ruling that illegal conduct by HVY after the investment was made is not relevant to the jurisdiction of the Tribunal.
3.146 This ground for cassation also fails because the Court of Appeal's premise – that only illegal conduct at the time the investments were made would lead to a lack of jurisdiction of the Tribunal – is correct. The arbitral award rendered in the case
Hesham Talaat M. Al-Warraq v. Republic of Indonesiato which the ground for cassation (para. 164 and footnote 341) refers does not lead to a different conclusion. The award relates to an investment treaty which, unlike most investment treaties, includes an express provision requiring investors to respect the laws of the host country. [181] Therefore, no general rule which implies that illegal conduct after the making of an investment also leads to a lack of jurisdiction of an arbitral tribunal can be derived from this.
Hesham Talaat M. Al-Warraq v. Republic of Indonesiato which the ground for cassation (para. 164 and footnote 341) refers does not lead to a different conclusion. The award relates to an investment treaty which, unlike most investment treaties, includes an express provision requiring investors to respect the laws of the host country. [181] Therefore, no general rule which implies that illegal conduct after the making of an investment also leads to a lack of jurisdiction of an arbitral tribunal can be derived from this.
Ground for Cassation 4.4: violation of public policy
3.147
Ground for Cassation 4.4is directed against paras. 9.8.5-9.8.10, where the Court of Appeal rejected the allegation made by the Russian Federation that the Final Awards are in violation of public policy because the result of these awards is that the aforementioned illegal conduct is protected. After an introduction (under 4.4.1), the ground for cassation argues (under 4.4.2) that the Court of Appeal failed to recognise that it is contrary to national and international public policy to consider claims concerning an illegally acquired or illegally exploited investment brought on the basis of a treaty to be eligible for protection, or at least that the Court of Appeal's ruling was insufficiently substantiated.
Ground for Cassation 4.4is directed against paras. 9.8.5-9.8.10, where the Court of Appeal rejected the allegation made by the Russian Federation that the Final Awards are in violation of public policy because the result of these awards is that the aforementioned illegal conduct is protected. After an introduction (under 4.4.1), the ground for cassation argues (under 4.4.2) that the Court of Appeal failed to recognise that it is contrary to national and international public policy to consider claims concerning an illegally acquired or illegally exploited investment brought on the basis of a treaty to be eligible for protection, or at least that the Court of Appeal's ruling was insufficiently substantiated.
3.148 According to established case law, setting aside an arbitral award on the basis of Article 1065(1)(e) DCCP is permissible only if the contents or enforcement of the award would contravene mandatory law of such a fundamental nature that its enforcement may not be prevented by constraints of a procedural nature. [182] In essence, the ground for cassation argues that the Final Award violates a fundamental rule of mandatory law, according to which there is no protection for property or rights that have been obtained by illegal means. This argument was advanced by the Russian Federation in the arbitration proceedings under the heading "unclean hands". In substantiation thereof, the ground for cassation refers to arbitration case law, included the award rendered by the Cour d’appel de Paris in the
Kyrgyz Republic v. Belokoncase, in which enforcement of an arbitral award was refused because the alleged investor was guilty of money laundering. [183] The ground for cassation also refers to various treaties against corruption and money laundering, and to literature that argues that corruption is contrary to international public policy. [184]
Kyrgyz Republic v. Belokoncase, in which enforcement of an arbitral award was refused because the alleged investor was guilty of money laundering. [183] The ground for cassation also refers to various treaties against corruption and money laundering, and to literature that argues that corruption is contrary to international public policy. [184]
3.149 The ground for cassation ignores the essence of the Court of Appeal's ruling in paras. 9.8.5,
et seq., and also the essence of the Tribunal's ruling, as summarised by the Court of Appeal. [185] The Court of Appeal did not fail to recognise that protecting property or rights which have been obtained by illegal conduct (such as corruption) can be contrary to international public policy. The essence of the Court of Appeal's opinion is that, in so far as such illegal conduct had taken place, HVY cannot be blamed for such conduct, or at least not in connection with their investments. Indeed, the illegal conduct took place in part after the investment was made by HVY and in part by others before HVY became shareholders in Yukos. Nor was there any evidence of a link between the illegal conduct and HVY's investment, according to the Tribunal and the Court of Appeal. Therefore, pursuant to this ruling there was no question of illegal conduct, such as corruption or money laundering, by HVY themselves at the time the investment was made. From the sources cited in the ground for cassation, it cannot be deduced that illegal conduct is also relevant where the investor is not involved or the conduct was not committed in the making of the investment. For example, the judgment in the
World Duty Free Company v. Republic of Kenyacase referred to in the ground for cassation (para. 166) pertains to bribery of the Kenyan president by the investor's chief executive officer, [186] and the judgment in the
Kyrgyz Republic v. Belokoncase pertains to alleged money laundering by the investor. The complaints of this ground for cassation fail on the basis of the above.
et seq., and also the essence of the Tribunal's ruling, as summarised by the Court of Appeal. [185] The Court of Appeal did not fail to recognise that protecting property or rights which have been obtained by illegal conduct (such as corruption) can be contrary to international public policy. The essence of the Court of Appeal's opinion is that, in so far as such illegal conduct had taken place, HVY cannot be blamed for such conduct, or at least not in connection with their investments. Indeed, the illegal conduct took place in part after the investment was made by HVY and in part by others before HVY became shareholders in Yukos. Nor was there any evidence of a link between the illegal conduct and HVY's investment, according to the Tribunal and the Court of Appeal. Therefore, pursuant to this ruling there was no question of illegal conduct, such as corruption or money laundering, by HVY themselves at the time the investment was made. From the sources cited in the ground for cassation, it cannot be deduced that illegal conduct is also relevant where the investor is not involved or the conduct was not committed in the making of the investment. For example, the judgment in the
World Duty Free Company v. Republic of Kenyacase referred to in the ground for cassation (para. 166) pertains to bribery of the Kenyan president by the investor's chief executive officer, [186] and the judgment in the
Kyrgyz Republic v. Belokoncase pertains to alleged money laundering by the investor. The complaints of this ground for cassation fail on the basis of the above.
3.15
Ground for Cassation 4.4.3is directed against para. 9.8.8, in which the Court of Appeal discussed para. 1370 of the Final Awards. The Court of Appeal held that the Tribunal ruled that a number of the alleged illegal actions took place before HVY became shareholders, and that consequently these were committed by others, such as Bank Menatep or Khodorkovsky et al. Accordingly, in the opinion of the Court of Appeal, the Tribunal merely held that Bank Menatep and Khodorkovsky et al. were different legal and/or natural persons than HVY, and that actions performed by others before HVY became shareholders could not be imputed to HVY. This opinion is correct according to the Court of Appeal, and was not disputed by the Russian Federation, or at least not with sufficient substantiation. This ground for cassation complains that this opinion is incomprehensible, because the Russian Federation most certainly disputed the Tribunal's opinion with sufficient argumentation. This ground for cassation also asserts that the Court of Appeal should have assessed this issue of its own motion, because it concerns a possible violation of international public policy.
Ground for Cassation 4.4.3is directed against para. 9.8.8, in which the Court of Appeal discussed para. 1370 of the Final Awards. The Court of Appeal held that the Tribunal ruled that a number of the alleged illegal actions took place before HVY became shareholders, and that consequently these were committed by others, such as Bank Menatep or Khodorkovsky et al. Accordingly, in the opinion of the Court of Appeal, the Tribunal merely held that Bank Menatep and Khodorkovsky et al. were different legal and/or natural persons than HVY, and that actions performed by others before HVY became shareholders could not be imputed to HVY. This opinion is correct according to the Court of Appeal, and was not disputed by the Russian Federation, or at least not with sufficient substantiation. This ground for cassation complains that this opinion is incomprehensible, because the Russian Federation most certainly disputed the Tribunal's opinion with sufficient argumentation. This ground for cassation also asserts that the Court of Appeal should have assessed this issue of its own motion, because it concerns a possible violation of international public policy.
3.151 In the discussion of this complaint, I note that the Court of Appeal did not give its own opinion in para. 9.8.8, but established what the Tribunal had found. Accordingly, the Court of Appeal responded to a complaint by the Russian Federation regarding the Tribunal's opinion. According to the Court of Appeal, that complaint lacked a factual basis because the Tribunal's opinion should have been interpreted differently. The Court of Appeal's finding that the Tribunal's opinion was correct and had not been disputed was therefore included superfluously, which the Court of Appeal also noted in its finding ("in so far as this could even be addressed in these setting aside proceedings"). The ground for cassation fails as a whole for this reason alone. In other respects, I note that the complaints also fail substantively. The Tribunal's opinion, with which the Court of Appeal concurs, only entails (in the undisputed representation of the Court of Appeal) that a number of the alleged illegal actions took place before HVY became shareholders, and that consequently these were performed by others, such as Bank Menatep or Khodorkovsky et al. The assertions mentioned in this ground for cassation entail that HVY were controlled by Khodorkovsky et al. These assertions in themselves do not detract from the Tribunal's finding of fact. Therefore, the Court of Appeal could rule that the Russian Federation had not disputed the finding, or at least not with sufficient substantiation. This ground for cassation (paras. 177 and 178) also refers to some alleged inconsistencies in the Final Awards. Allegedly, in several sections, the Tribunal took into account that Khodorkovsky et al. indirectly owned the shares in Yukos. The Court of Appeal provided an explanation for this in para. 9.8.9, entailing that this was not irreconcilable with the finding that HVY and Khodorkovsky et al. were separate legal entities. This finding is not incomprehensible, as with this finding the Court of Appeal expressed that HVY as companies should be distinguished from the persons controlling them.
Ground for Cassation 4.5: questions referred to the ECJ for preliminary rulings regarding Article 1(6) and (7) and Article 26 ECT?
3.152
Ground for Cassation 4.5argues that the Court of Appeal's interpretation of Article 1(6) and Article 26 ECT is contrary to EU law and that the Supreme Court should refer questions regarding the issues raised in Grounds for Cassation 4.2, 4.3 and 4.4 to the ECJ for preliminary rulings.
Ground for Cassation 4.5argues that the Court of Appeal's interpretation of Article 1(6) and Article 26 ECT is contrary to EU law and that the Supreme Court should refer questions regarding the issues raised in Grounds for Cassation 4.2, 4.3 and 4.4 to the ECJ for preliminary rulings.
3.153 With reference to what I noted with regard to Ground for Cassation 2.7, I believe also with regard to Ground for Cassation 4 that referral of questions for preliminary rulings is not necessary for the outcome of the proceedings in cassation. After all, Ground for Cassation 4.2 fails because, essentially, it does not contest the Court of Appeal's finding and relies on a generally accepted principle of law, the existence of which has not been demonstrated. Ground for Cassation 4.3 only contains appeals on issues of fact. Ground for Cassation 4.4 pertains to Dutch arbitration law, namely to Article 1065(1)(e) DCCP, and is moreover based on an incorrect interpretation of the Court of Appeal's finding.
3.154 The conclusion is that Ground for Cassation 4 fails as a whole.
Ground for Cassation 5: Article 21(5) ECT
3.155
Ground for Cassation 5is divided into four subgrounds for cassation and complains about para. 6.3 of the final judgment, in which the Court of Appeal held that it would not attach any consequences to the fact that the Tribunal did not consult the relevant Russian tax authorities. According to this ground for cassation, the Tribunal was obliged to do so on the basis of Article 21(5) ECT. By not consulting the tax authorities, the Tribunal violated its mandate, such that the arbitral awards should be set aside on the basis of Article 1065(1)(c) DCCP. According to this ground for cassation, the arbitral awards are contrary to public policy for that reason, too (Article 1065(1)(e) DCCP).
Ground for Cassation 5is divided into four subgrounds for cassation and complains about para. 6.3 of the final judgment, in which the Court of Appeal held that it would not attach any consequences to the fact that the Tribunal did not consult the relevant Russian tax authorities. According to this ground for cassation, the Tribunal was obliged to do so on the basis of Article 21(5) ECT. By not consulting the tax authorities, the Tribunal violated its mandate, such that the arbitral awards should be set aside on the basis of Article 1065(1)(c) DCCP. According to this ground for cassation, the arbitral awards are contrary to public policy for that reason, too (Article 1065(1)(e) DCCP).
3.156 The Tribunal held that referring the case to the Russian tax authorities would be "an exercise in futility", because the parties had already been given ample opportunity to present their views to the Tribunal on the question of whether the tax measures entailed an expropriation. [187] In para. 6.3, the Court of Appeal held that, in principle, Article 21(5) ECT mandatorily prescribes that the tax authorities must be consulted, but that the Tribunal's omission was not sufficiently serious to set aside the Final Awards because the Russian Federation was not prejudiced by this, as it was able to extensively present all relevant information.
Introductory remarks
3.157 HVY have asserted in their written explanation that the complaints in Ground for Cassation 5 lack interest. They pointed out that the Court of Appeal ruled in paras. 5.2.11,
et seq., that Article 21 ECT does not apply at all to the measures raised by HVY in the arbitration proceedings, which finding has not been disputed. After all, according to the Court of Appeal in paras. 5.2.16,
et seq., the tax measures cannot be considered
bona fide, while Article 21(1) ECT exclusively refers to
bona fidemeasures. HVY assert that since the rule of Article 21(1) ECT (the carve-out for tax measures) does not apply, the exception to that rule contained in Article 21(5) ECT (the claw-back) is not relevant, either. [188] Although HVY rightly refer to the Court of Appeal's finding on Article 21(1) ECT, it cannot be said that the complaints regarding the interpretation of Article 21(5) ECT lack interest. After all, the findings regarding the applicability of Article 21(1) ECT do not serve as a foundation for the finding on the question of whether the Tribunal violated its mandate by failing to meet the obligation contained in Article 21(5) ECT. The findings regarding Article 21(1) ECT apply to a different context, namely that of the question of whether Article 21(1) ECT has consequences for the Tribunal's jurisdiction (which question the Court of Appeal answered in the negative in paras. 5.2.4,
et seq.). That is why the complaints of Ground for Cassation 5 are addressed.
et seq., that Article 21 ECT does not apply at all to the measures raised by HVY in the arbitration proceedings, which finding has not been disputed. After all, according to the Court of Appeal in paras. 5.2.16,
et seq., the tax measures cannot be considered
bona fide, while Article 21(1) ECT exclusively refers to
bona fidemeasures. HVY assert that since the rule of Article 21(1) ECT (the carve-out for tax measures) does not apply, the exception to that rule contained in Article 21(5) ECT (the claw-back) is not relevant, either. [188] Although HVY rightly refer to the Court of Appeal's finding on Article 21(1) ECT, it cannot be said that the complaints regarding the interpretation of Article 21(5) ECT lack interest. After all, the findings regarding the applicability of Article 21(1) ECT do not serve as a foundation for the finding on the question of whether the Tribunal violated its mandate by failing to meet the obligation contained in Article 21(5) ECT. The findings regarding Article 21(1) ECT apply to a different context, namely that of the question of whether Article 21(1) ECT has consequences for the Tribunal's jurisdiction (which question the Court of Appeal answered in the negative in paras. 5.2.4,
et seq.). That is why the complaints of Ground for Cassation 5 are addressed.
3.158 Based on Article 1065(1)(c) DCCP, a violation of the mandate, among other things, may be deemed to have occurred when the Tribunal acts contrary to the agreed procedural rules or statutory arbitration rules. [189] The violation of the mandate would have to be serious enough to justify setting aside, which follows from the restraint to be generally observed. [190] The decisive factor is whether the decision would have been different if the arbitrators had complied with their mandate. [191] The court has discretion in assessing whether the violation of the mandate is serious enough to justify the setting aside of the arbitral award.
3.159 The following applies with regard to the ground for setting aside of Article 1065(1)(e) DCCP (violation of public policy). [192] Public policy has a substantive and a procedural aspect. A situation involves a violation of substantive public policy when the substance of the arbitral award is contrary to mandatory law that is of such a fundamental character that its observance cannot be impeded by restrictions of a procedural nature. [193] This standard alone indicates that this ground for setting aside must be applied with restraint. A situation involves a violation of procedural public policy if the way in which the award was arrived at is contrary to fundamental principles of procedural law, for example if the principle of hearing both sides has been violated, [194] or if it turns out that one or more of the arbitrators have not been impartial or independent. [195] In this respect, too, the court necessarily has discretion.
3.16
Grounds for Cassation 5.1 and 5.1.1comprise an introduction and do not contain a complaint.
Grounds for Cassation 5.1 and 5.1.1comprise an introduction and do not contain a complaint.
Ground for Cassation 5.2: mandatory nature of Article 21(5) ECT
3.161
Ground for Cassation 5.2presents various complaints directed against para. 6.3 and is divided into six subgrounds (Grounds for Cassation 5.2.1-5.2.6).
Ground for Cassation 5.2presents various complaints directed against para. 6.3 and is divided into six subgrounds (Grounds for Cassation 5.2.1-5.2.6).
3.162
Ground for Cassation 5.2.1complains that the Court of Appeal, in para. 6.3, wrongly disregarded the mandatory nature of the obligation to refer contained in Article 21(5)(b)(i) ECT, or failed to recognise that no "futility exception" applies in this regard. Consequently, the Court of Appeal, among other things, failed to properly apply the rules of interpretation of Articles 31 and 32 VCLT.
Ground for Cassation 5.2.1complains that the Court of Appeal, in para. 6.3, wrongly disregarded the mandatory nature of the obligation to refer contained in Article 21(5)(b)(i) ECT, or failed to recognise that no "futility exception" applies in this regard. Consequently, the Court of Appeal, among other things, failed to properly apply the rules of interpretation of Articles 31 and 32 VCLT.
3.163 I note the following with regard to this ground for cassation. Article 21 ECT pertains to tax measures. [196] The authentic English text and the Dutch translation of Article 21 ECT read as follows:
Article 21 Taxation
1. Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency.
2. Article 73 shall apply to Taxation Measures other than those on income or on capital, except that such provision shall not apply to:
a) an advantage accorded by a Contracting Party pursuant to the tax provisions of any convention, agreement or arrangement described in subparagraph 7a)(ii); or
b) any Taxation Measure aimed at ensuring the effective collection of taxes, except where the measure of a Contracting Party arbitrarily discriminates against Energy Materials and Products originating in, or destined for the Area of another Contracting Party or arbitrarily restricts benefits accorded under Article 73.
3. Article 102 and 7 shall apply to Taxation Measures of the Contracting Parties other than those on income or on capital, except that such provisions shall not apply to:
a) impose most favoured nation obligations with respect to advantages accorded by a Contracting Party pursuant to the tax provisions of any convention, agreement or arrangement described in subparagraph 7a)(ii) or resulting from membership of any Regional Economic Integration Organization; or
b) any Taxation Measure aimed at ensuring the effective collection of taxes, except where the measure arbitrarily discriminates against an Investor of another Contracting Party or arbitrarily restricts benefits accorded under the Investment provisions of this Treaty.
4. Article 292 to 6 shall apply to Taxation Measures other than those on income or on capital.
5. a) Article 13 shall apply to taxes.
b) Whenever an issue arises under Article 13, to the extent it pertains to whether a tax constitutes an expropriation or whether a tax alleged to constitute an expropriation is discriminatory, the following provisions shall apply:
(i) The Investor or the Contracting Party alleging expropriation shall refer the issue of whether the tax is an expropriation or whether the tax is discriminatory to the relevant Competent Tax Authority. Failing such referral by the Investor or the Contracting Party, bodies called upon to settle disputes pursuant to Article 26(2)c) or 27(2) shall make a referral to the relevant Competent Tax Authorities;
(ii) The Competent Tax Authorities shall, within a period of six months of such referral, strive to resolve the issues so referred. Where non-discrimination issues are concerned, the Competent Tax Authorities shall apply the non-discrimination provisions of the relevant tax convention or, if there is no non-discrimination provision in the relevant tax convention applicable to the tax or no such tax convention is in force between the Contracting Parties concerned, they shall apply the non-discrimination principles under the Model Tax Convention on Income and Capital of the Organisation for Economic Cooperation and Development;
(iii) Bodies called upon to settle disputes pursuant to Article 26(2)c) or 27(2) may take into account any conclusions arrived at by the Competent Tax Authorities regarding whether the tax is an expropriation. Such bodies shall take into account any conclusions arrived at within the six-month period prescribed in subparagraph b)(ii) by the Competent Tax Authorities regarding whether the tax is discriminatory. Such bodies may also take into account any conclusions arrived at by the Competent Tax Authorities after the expiry of the six-month period;
(iv) Under no circumstances shall involvement of the Competent Tax Authorities, beyond the end of the six-month period referred to in subparagraph b)(ii), lead to a delay of proceedings under Articles 26 and 27.
6. For the avoidance of doubt, Article 14 shall not limit the right of a Contracting Party to impose or collect a tax by withholding or other means.
7. For the purposes of this Article:
a) The term “Taxation Measure" includes:
(i) any provision relating to taxes of the domestic law of the Contracting Party or of a political subdivision thereof or a local authority therein; and
(ii) any provision relating to taxes of any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound.
b) There shall be regarded as taxes on income or on capital all taxes imposed on total income, on total capital or on elements of income or of capital, including taxes on gains from the alienation of property, taxes on estates, inheritances and gifts, or substantially similar taxes, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.
c) A “Competent Tax Authority" means the competent authority pursuant to a double taxation agreement in force between the Contracting Parties or, when no such agreement is in force, the minister or ministry responsible for taxes or their authorized representatives.
d) For the avoidance of doubt, the terms “tax provisions" and “taxes" do not include customs duties.
In the Dutch translation:
Artikel 21 Belastingen Pro
1. Behalve als bepaald in dit artikel worden door geen enkele bepaling van dit Verdrag rechten verleend of verplichtingen opgelegd met betrekking tot belastingmaatregelen van de Verdragsluitende Partijen. In geval van onverenigbaarheid van dit artikel met andere bepalingen van dit Verdrag heeft dit artikel, wat de onverenigbaarheid betreft, de voorrang.
2. Artikel 7, derde lid, is van toepassing op andere belastingmaatregelen dan belastingen op inkomen of kapitaal, met dien verstande dat de bepalingen van die artikelen niet van toepassing zijn op:
a. een voordeel dat een Verdragsluitende Partij heeft toegekend overeenkomstig de belastingbepalingen van een verdrag, overeenkomst of regeling als bedoeld in het zesde lid, letter a), onder ii), van dit artikel; of
b. een belastingmaatregel die ten doel heeft de doeltreffende inning van belastingen te waarborgen, behalve indien die maatregel van een Verdragsluitende Partij een willekeurige discriminatie tussen energiegrondstoffen en energieprodukten van een andere Verdragsluitende Partij of een willekeurige beperking van de krachtens de betreffende bepalingen van artikel 7, derde lid, toegekende voordelen inhoudt.
3. Artikel 10, tweede en zevende lid, zijn van toepassing op andere belastingmaatregelen van de Verdragsluitende Partijen dan belastingen op inkomen of kapitaal, met dien verstande dat geen van deze bepalingen:
a. ertoe strekt dat verplichtingen tot toepassing van het meestbegunstigingsbeginsel worden opgelegd met betrekking tot voordelen die een Verdragsluitende Partij heeft toegekend overeenkomstig de belastingbepalingen van een verdrag, overeenkomst of regeling als bedoeld in het zevende lid, letter a), onder ii), van dit artikel of als uitvloeisel van het lidmaatschap van een regionale organisatie voor economische integratie; of
b. van toepassing is op een belastingmaatregel die ten doel heeft de doeltreffende inning van belastingen te waarborgen, behalve indien de maatregel een willekeurige discriminatie tussen investeerders van de Verdragsluitende Partijen of een willekeurige beperking van de krachtens de investeringsbepalingen van dit Verdrag toegekende voordelen inhoudt.
4. Artikel 29, tweede tot en met zesde lid, is van toepassing op andere belastingmaatregelen dan belastingen op inkomen of kapitaal.
5. a. Artikel 13 is Pro van toepassing op belastingen.
b. Wanneer in het kader van artikel 13 een Pro geschil rijst, voor zover het betrekking heeft op de vraag of een belasting een onteigening vormt, dan wel of een belasting waarvan wordt beweerd dat deze een onteigening vormt, discriminerend is, geldt het volgende:
i. De investeerder of de Verdragsluitende Partij die aanvoert dat er sprake is van onteigening legt het geschil over de vraag of de maatregel een onteigening dan wel discriminerend is, voor aan de bevoegde belastingautoriteiten. Laat de investeerder of de Verdragsluitende Partij dit na, dan leggen de instanties die worden verzocht geschillen te beslechten overeenkomstig artikel 26, tweede lid, letter c), of artikel 27, tweede lid, het geschil voor aan de bevoegde belastingautoriteiten.
ii. De bevoegde belastingautoriteiten streven ernaar om het aldus voorgelegde geschil binnen een periode van zes maanden te regelen. Indien het gaat om een geschil inzake non-discriminatie, passen de bevoegde belastingautoriteiten de bepalingen inzake non- discriminatie van het relevante belastingverdrag toe, of passen zij, indien er geen non- discriminatiebepaling voorkomt in het op de belasting van toepassing zijnde relevante belastingverdrag of indien er geen belastingverdrag tussen de betrokken Verdragsluitende Partijen van kracht is, de non-discriminatiebeginselen overeenkomstig het modelverdrag van de OESO betreffende belastingen op inkomen en kapitaal toe.
iii. . De instanties die worden verzocht geschillen te regelen overeenkomstig artikel 26, tweede lid, letter c), of artikel 27, tweede lid, kunnen rekening houden met eventuele conclusies van de bevoegde belastingautoriteiten over de vraag of de belasting een onteigening is. Die instanties houden rekening met eventuele binnen de bij letter b), onder ii), voorgeschreven termijn van zes maanden door de bevoegde belastingautoriteiten getrokken conclusies over de vraag of de belasting discriminerend is. Deze instanties kunnen ook rekening houden met eventuele na het verstrijken van de voorgeschreven periode van zes maanden door de bevoegde belastingautoriteiten getrokken conclusies.
iv. . In geen geval mag de betrokkenheid van de bevoegde belastingautoriteiten na het einde van de bij letter b), onder ii), bedoelde periode van zes maanden leiden tot een vertraging van de procedures ingevolge de artikelen 26 en 27.
6. Voor alle duidelijkheid wordt bepaald dat artikel 14 het Pro recht van een Verdragsluitende Partij om een belasting op te leggen of te innen via bronheffing of andere middelen niet beperkt.
7. Voor de toepassing van dit artikel:
a. omvat de term „belastingmaatregel":
i. de bepalingen betreffende belastingen van de interne wetgeving van de Verdragsluitende Partij of van een staatsrechtelijke onderverdeling of een plaatselijke autoriteit ervan; en
ii. de bepalingen betreffende belastingen van verdragen ter voorkoming van dubbele belasting en van internationale overeenkomsten of regelingen waaraan de Verdragsluitende Partij gebonden is.
b. worden als belastingen op het inkomen en het vermogen beschouwd alle belastingen die worden geheven op het gehele inkomen, op het gehele vermogen of op bestanddelen van het inkomen of vermogen, met inbegrip van belastingen op winsten uit de vervreemding van eigendom, onroerend-zaakbelasting, successierechten, belastingen op schenkingen of in wezen soortgelijke belastingen, belastingen op het totaalbedrag van de door ondernemingen betaalde lonen of salarissen, alsmede belastingen op de waardevermeerdering van vermogen.
c. wordt onder „bevoegde belastingautoriteit" verstaan de bevoegde autoriteit overeenkomstig een overeenkomst inzake dubbele belasting tussen de Verdragsluitende Partijen, of, bij ontstentenis van een van kracht zijnde overeenkomst de/het voor belastingen bevoegde minister of ministerie of hun gemachtigde vertegenwoordigers.
d. voor alle duidelijkheid wordt bepaald dat de termen „belastingbepalingen" en „belastingen" geen betrekking hebben op douanerechten.
3.164 Article 21(1) ECT provides that the ECT will not affect the Contracting Parties' powers to take tax measures. In principle, such measures therefore fall outside of the ECT's material scope (which is why this is also referred to as a "carve-out"). However, there are exceptions ("claw-backs") to this rule. One exception, which is laid down in Article 21(5) ECT, entails that the tax measures may not constitute an expropriation that is contrary to the conditions of Article 13 ECT. In that case, a tax measure may, in fact, constitute a violation of the ECT. [197] The authentic English text and the Dutch translation of Article 13 ECT, which pertains to expropriation, read as follows:
Article 13 Expropriation
1. Investments of Investors of a Contracting Party in the Area of any other Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as “Expropriation") except where such Expropriation is:
a) for a purpose which is in the public interest;
b) not discriminatory;
c) carried out under due process of law; and
d) accompanied by the payment of prompt, adequate and effective compensation.
Such compensation shall amount to the fair market value of the Investment expropriated at the time immediately before the Expropriation or impending Expropriation became known in such a way as to affect the value of the Investment (hereinafter referred to as the “Valuation Date").
Such fair market value shall at the request of the Investor be expressed in a Freely Convertible Currency on the basis of the market rate of exchange existing for that currency on the Valuation Date. Compensation shall also include interest at a commercial rate established on a market basis from the date of Expropriation until the date of payment.
2. The Investor affected shall have a right to prompt review, under the law of the Contracting Party making the Expropriation, by a judicial or other competent and independent authority of that Contracting Party, of its case, of the valuation of its Investment, and of the payment of compensation, in accordance with the principles set out in paragraph 1.
3. For the avoidance of doubt, Expropriation shall include situations where a Contracting Party expropriates the assets of a company or enterprise in its Area in which an Investor of any other Contracting Party has an Investment, including through the ownership of shares.
In the Dutch translation:
Artikel 13 Onteigening Pro
1. Investeringen van investeerders van een Verdragsluitende Partij op het grondgebied van een andere Verdragsluitende Partij mogen niet worden genationaliseerd, onteigend of onderworpen aan maatregelen met een soortgelijk effect als nationalisatie of onteigening (hierna te noemen „onteigening"), behalve wanneer de onteigening:
a. geschiedt in het algemeen belang;
b. niet discriminerend is;
c. geschiedt met inachtneming van een behoorlijke rechtsgang; en
d. gepaard gaat met de betaling van prompte, adequate en doeltreffende compensatie.
Die compensatie is gelijk aan de billijke marktwaarde van de onteigende investering op het tijdstip vlak voordat de onteigening of op handen zijnde onteigening zodanig bekend werd dat de investeringswaarde werd beïnvloed (hierna te noemen: de „datum van de waardebepaling").
Deze billijke marktwaarde wordt op verzoek van de investeerder berekend in een vrij inwisselbare valuta volgens de voor die valuta op de datum van de waardebepaling geldende marktwisselkoers. De compensatie omvat tevens rente over de periode tussen de onteigenings- en de betalingsdatum, welke berekend wordt tegen een commercieel, op marktbasis vastgesteld tarief.
2. De betrokken investeerder heeft recht op onverwijlde toetsing, krachtens het recht van de Verdragsluitende Partij die de onteigening verricht, van zijn zaak, de waardebepaling van zijn investeringen en de betaling van compensatie overeenkomstig de beginselen neergelegd in het eerste lid, door een gerechtelijke of andere onafhankelijke bevoegde instantie van die Partij.
3. Voor alle duidelijkheid wordt bepaald dat onteigening ook de gevallen omvat waarin een Verdragsluitende Partij de activa onteigent van een vennootschap of onderneming op haar grondgebied waarin een investeerder van een andere Verdragsluitende Partij een investering, ook indien via aandelenbezit, heeft.
3.165 Article 21(5)(b)(i) ECT assigns a role to the tax authorities of the relevant Contracting Party ("the relevant Competent Tax Authority") in the assessment of the question of whether the tax measures taken constitute a prohibited expropriation within the meaning of Article 13 ECT. The relevant investor or the Contracting Party must consult the relevant tax authorities. If they fail to do so, the body called upon to settle the dispute (for example, the Tribunal in this case) must refer the issue of whether it concerns a prohibited expropriation within the meaning of Article 13 ECT to the relevant tax authorities. Article 21(5)(b)(i) ECT speaks of "shall make a referral", which indicates an obligation on the part of the body addressed. [198] It does not appear from this wording that the body has discretion in this regard. [199] However, Article 21(5) ECT attaches no consequences to a refusal to consult the tax authorities. [200]
3.166 Article 25(1) ECT does, however, clearly provide that the body settling the dispute is not bound by the conclusions of the tax authorities. According to Article 25(1)(b)(iii), the body "
maytake into account" any conclusions arrived at by the tax authorities regarding the question of whether the measures constitute an expropriation. As regards the question of whether the measures are discriminatory, the body "shall take into account" the findings of the tax authorities in forming its opinion, but there is no requirement that these findings must be adopted. The ultimate assessment of whether the tax measure constitutes an expropriation or is discriminatory is up to the body called upon to settle the dispute. [201] Article 21(5)(b)(iv) ECT also provides that the tax authorities' advice need not be awaited if it has not been received after six months. According to this provision, under no circumstances may consulting the tax authorities lead to a delay of the settlement of the dispute. The literature also points out that all of this indicates that the role of the tax authorities lies in facilitating the decision-making process of the body addressed and that the words "shall make a referral" in Article 21(5)(b)(i) ECT serve to give the relevant tax authorities the opportunity to give their opinion, but not to create additional jurisdiction or standing thresholds. [202] Failure to consult the tax authorities cannot result in the termination or interruption of the settlement of the dispute. [203]
maytake into account" any conclusions arrived at by the tax authorities regarding the question of whether the measures constitute an expropriation. As regards the question of whether the measures are discriminatory, the body "shall take into account" the findings of the tax authorities in forming its opinion, but there is no requirement that these findings must be adopted. The ultimate assessment of whether the tax measure constitutes an expropriation or is discriminatory is up to the body called upon to settle the dispute. [201] Article 21(5)(b)(iv) ECT also provides that the tax authorities' advice need not be awaited if it has not been received after six months. According to this provision, under no circumstances may consulting the tax authorities lead to a delay of the settlement of the dispute. The literature also points out that all of this indicates that the role of the tax authorities lies in facilitating the decision-making process of the body addressed and that the words "shall make a referral" in Article 21(5)(b)(i) ECT serve to give the relevant tax authorities the opportunity to give their opinion, but not to create additional jurisdiction or standing thresholds. [202] Failure to consult the tax authorities cannot result in the termination or interruption of the settlement of the dispute. [203]
3.167 It is clear that even if it had consulted the relevant tax authorities, the Tribunal in this case would not have been bound by the findings of those authorities. It follows from the text of Article 21(5)(b)(iii) and (iv) ECT that a tribunal need not await the advice of the tax authorities if this would result in a delay of proceedings. Therefore, it is not plausible that consulting the tax authorities would have resulted in a different finding by the Tribunal. Reliance on setting aside on account of violation of the mandate cannot succeed for that reason. The obligation to consult the tax authorities is not compelling or mandatory to the extent that arbitrators would seriously violate their mandate if they failed to comply with this if they already consider themselves sufficiently informed (as in this case). The question of whether Article 21(5) ECT has a "futility exception" [204] therefore need not be discussed separately.
3.168 Ground for Cassation 5.2.1 fails entirely based on the foregoing.
3.169
Ground for Cassation 5.2.2is directed against para. 6.3.2 of the final judgment. In this paragraph, the Court of Appeal held that the Russian Federation was not prejudiced by the Tribunal's refusal to refer to the case to the tax authorities. The ground for cassation complains that this reasoning is speculative and erroneous.
Ground for Cassation 5.2.2is directed against para. 6.3.2 of the final judgment. In this paragraph, the Court of Appeal held that the Russian Federation was not prejudiced by the Tribunal's refusal to refer to the case to the tax authorities. The ground for cassation complains that this reasoning is speculative and erroneous.
3.170 In para. 6.3.2, the Court of Appeal held that the Russian Federation itself rightly pointed out that the obligation to refer contained in Article 21(5) ECT was mandatory for the Tribunal. However, as follows from the discussion of Ground for Cassation 5.2.1, this obligation is not mandatory to the extent that a refusal to comply with it automatically results in a serious violation of the mandate. The question of whether the Russian Federation was prejudiced by the Tribunal's refusal to submit the issue to the Russian tax authorities therefore need not be discussed. What is more, the complaints presented in this context are based on the assumption that consulting the tax authorities could or should have led to a different decision by the Tribunal. However, as I noted before, the Tribunal would not have been bound by the findings of the tax authorities, nor obligated to adopt the conclusions on whether there is an expropriation. Ground for Cassation 5.2.2 therefore fails.
3.171
Ground for Cassation 5.2.3is directed against para. 6.3.3, in which the Court of Appeal held, among other things, that the information that the Tribunal could have obtained by means of a referral to the Russian tax authorities presumably would not have led to a different opinion. According to the ground for cassation, this finding is impermissibly speculative, also in light of the Russian Federation's position that the tax authorities allegedly supported its view.
Ground for Cassation 5.2.3is directed against para. 6.3.3, in which the Court of Appeal held, among other things, that the information that the Tribunal could have obtained by means of a referral to the Russian tax authorities presumably would not have led to a different opinion. According to the ground for cassation, this finding is impermissibly speculative, also in light of the Russian Federation's position that the tax authorities allegedly supported its view.
3.172 The complaint fails to recognise that, as I explained above, Article 21(5) ECT does not require the tribunal to follow the findings of the tax authorities. In addition, the Court of Appeal cannot be accused, with good reason, of having rendered a "speculative" opinion. After all, in the context of the assessment of Article 1065(1)(c) DCCP, the Court of Appeal had to assess whether the Tribunal would have arrived at a different opinion. Such opinion can only be formed by speculating as to what the Tribunal would have decided if it had had additional or different information. For that reason, too, the ground for cassation fails.
3.173
Ground for Cassation 5.2.4complains about para. 6.3.4, in which the Court of Appeal ruled that there was no reason to also submit the dispute to the tax authorities in Cyprus and the United Kingdom (where HVY are established). According to the Court of Appeal, it was not argued that tax measures of Cyprus or the United Kingdom constituted an expropriation, while Article 21(5) ECT prescribes only for those cases that the relevant tax authorities must be consulted. According to this ground for cassation, the Court of Appeal exceeded the limits of the legal dispute with this finding and, moreover, acted contrary to Article 21 ECT.
Ground for Cassation 5.2.4complains about para. 6.3.4, in which the Court of Appeal ruled that there was no reason to also submit the dispute to the tax authorities in Cyprus and the United Kingdom (where HVY are established). According to the Court of Appeal, it was not argued that tax measures of Cyprus or the United Kingdom constituted an expropriation, while Article 21(5) ECT prescribes only for those cases that the relevant tax authorities must be consulted. According to this ground for cassation, the Court of Appeal exceeded the limits of the legal dispute with this finding and, moreover, acted contrary to Article 21 ECT.
3.174 Article 21 ECT does not imply that the tax authorities of all countries involved must always be addressed. After all, Article 21(5)(b)(i) ECT provides that the "relevant Competent Tax Authority" or "relevant Competent Tax Authorities" must be consulted. The article does not specify which authorities are "relevant". In view of the context in which the term is used, interpreting "relevant" as "able to provide information on the question of whether there is an expropriation or discriminatory expropriation" is obvious, as the Court of Appeal held in para. 6.4.3. In addition, it makes sense that it is up to the tribunal to assess which tax authorities are relevant in a specific case. The background to the reference to "Competent Tax Authorities" (plural) in Article 21(5)(b)(ii) and (iv) ECT is that, in the definition of "Competent Tax Authority" in Article 21(7) ECT, reference is made to "a double taxation agreement", i.e. to treaties to prevent double taxation. In such cases, it is obvious that the authorities of the investor's country of establishment as well as the those of the host country are consulted (with the objective of coming to a solution to the tax problems between these authorities). Thus, Article 21(5) ECT does not imply that the tax authorities of all states involved should always be consulted, even if they are not considered "relevant" in a specific case. The Court of Appeal did not exceed the limits of the legal dispute by interpreting and applying Article 21(5) ECT of its own motion. In other respects, the ground for cassation builds upon previous complaints and shares the same fate. Ground for Cassation 5.2.4 therefore fails.
3.175
Ground for Cassation 5.2.5complains that the Court of Appeal rejected the Russian Federation's reliance on analogy with the forecast prohibition from Dutch civil procedure. According to this ground for cassation, the Tribunal violated this forecast prohibition by ruling in advance that consulting the Russian tax authorities would be pointless.
Ground for Cassation 5.2.5complains that the Court of Appeal rejected the Russian Federation's reliance on analogy with the forecast prohibition from Dutch civil procedure. According to this ground for cassation, the Tribunal violated this forecast prohibition by ruling in advance that consulting the Russian tax authorities would be pointless.
3.176 It has not been established that the Tribunal was bound by such forecast prohibition. The only substantiation offered in this ground for cassation with regard to the Tribunal being bound by the forecast prohibition is a reference to the obligation contained in Article 21(5) ECT. However, it cannot be inferred from this provision that this obligation implies a forecast prohibition. The ground for cassation does not explain this in more detail, either. This complaint of the ground for cassation fails for that reason.
3.177
Ground for Cassation 5.2.6argues that the Supreme Court of the Netherlands should have referred a question regarding the correct interpretation of Article 21(5)(b)(i) ECT to the ECJ for a preliminary ruling.
Ground for Cassation 5.2.6argues that the Supreme Court of the Netherlands should have referred a question regarding the correct interpretation of Article 21(5)(b)(i) ECT to the ECJ for a preliminary ruling.
3.178 With reference to what I noted with regard to Ground for Cassation 2.7, also with regard to Ground for Cassation 5, I believe that the referral of a question regarding the interpretation of Article 21 ECT to the ECJ for a preliminary ruling is not necessary for the outcome of the proceedings in cassation. After all, in the contested judgment, the Court of Appeal ruled in line with the Russian Federation's argument that the Tribunal acted contrary to Article 21(5) ECT. However, the Court of Appeal did not consider this violation of the mandate sufficiently serious to set aside the Yukos Awards. Consequently, whether or not the complaints in cassation directed against this finding succeed does not depend on the interpretation of Article 21(5) ECT, but on whether the Court of Appeal's considerations in the context of Article 1065(1)(c) DCCP are comprehensible. Therefore, there is no need to refer questions for a preliminary ruling.
3.179 The conclusion is that Ground for Cassation 5 fails.
Ground for Cassation 6: the role of the secretary of the Tribunal
3.18
Ground for Cassation 6is divided into two subgrounds and concerns, briefly put, the involvement of the Tribunal's assistant (secretary), Valasek, in drafting the arbitral awards. According to the Russian Federation, that involvement violated the principle that arbitrators must perform their assigned task personally, as a result of which the Tribunal did not adhere to its mandate (Article 1065(1)(c) DCCP). In addition, Valasek's involvement actually entailed the involvement of a "fourth arbitrator", as a result of which the Tribunal was composed in violation of the applicable rules (Article 1065(1)(d) DCCP). The Court of Appeal rejected this position in paras. 6.6.1-6.6.15.
Ground for Cassation 6is divided into two subgrounds and concerns, briefly put, the involvement of the Tribunal's assistant (secretary), Valasek, in drafting the arbitral awards. According to the Russian Federation, that involvement violated the principle that arbitrators must perform their assigned task personally, as a result of which the Tribunal did not adhere to its mandate (Article 1065(1)(c) DCCP). In addition, Valasek's involvement actually entailed the involvement of a "fourth arbitrator", as a result of which the Tribunal was composed in violation of the applicable rules (Article 1065(1)(d) DCCP). The Court of Appeal rejected this position in paras. 6.6.1-6.6.15.
3.181
Ground for Cassation 6.1contains no complaints, but describes the background to the complaints and summarises the Court of Appeal's contested finding.
Ground for Cassation 6.1contains no complaints, but describes the background to the complaints and summarises the Court of Appeal's contested finding.
Ground for Cassation 6.2: delegation to the secretary of the Tribunal
3.182
Ground for Cassation 6.2contains three complaints: (i) a complaint (at 6.2.1) regarding the Court of Appeal's rejection of the Russian Federation's offer to prove Valasek's contribution to the decision-making process by hearing witnesses, (ii) a complaint (at 6.2.2) that the Court of Appeal's finding is contrary to Article 1065(1)(b) DCCP, read in conjunction with Article 1026(1) DCCP, which provide that an arbitral award may not be rendered by an even number of arbitrators, and (iii) a complaint (at 6.2.3) that the Court of Appeal failed to recognise various rules of procedure, or unwritten rules of procedure, in its finding.
Ground for Cassation 6.2contains three complaints: (i) a complaint (at 6.2.1) regarding the Court of Appeal's rejection of the Russian Federation's offer to prove Valasek's contribution to the decision-making process by hearing witnesses, (ii) a complaint (at 6.2.2) that the Court of Appeal's finding is contrary to Article 1065(1)(b) DCCP, read in conjunction with Article 1026(1) DCCP, which provide that an arbitral award may not be rendered by an even number of arbitrators, and (iii) a complaint (at 6.2.3) that the Court of Appeal failed to recognise various rules of procedure, or unwritten rules of procedure, in its finding.
Introductory remarks
3.183 This ground for cassation raises the question of the extent to which arbitrators may delegate all or part of their activities to a secretary or assistant without jeopardising the premise that they must perform their tasks personally [205] and without the secretary actually acting as a "fourth arbitrator". Specifically, the question arises as to what extent a secretary may draft the decisive or supporting parts of the award.
3.184 There are various views on this matter. [206] Some authors have pointed out the risk that the secretary may be involved in the tribunal's decision-making process in an unacceptable manner if this is not carefully supervised. [207] Nonetheless, Born concluded:
‘the better view is that there is no per se prohibition on secretaries or junior lawyers performing such tasks, provided that the members of the tribunal carefully review and make appropriate use of any preparatory work.’ [208]
Peters concurs with this and believes that it is no problem for secretaries to write arbitral awards, or parts thereof, provided that they so on the instructions and under the responsibility of the tribunal, and the tribunal does not use the texts without question. [209] Smakman has taken a similar position. [210] Sanders is of the opinion that "the reasoning of the award or parts thereof (...) is exclusively the task of the tribunal, which will provide such reasoning in its own wording". [211] Von Hombracht-Brinkman distinguishes between cases where the tribunal consists entirely or partly of lawyers and cases where it does not, and considers that the drafting of an award by a secretary is only acceptable in the latter case. [212] Partasides considers it undesirable, but not by definition unacceptable, that a secretary writes a draft of the decision, but also states that this strongly depends on the circumstances. Moreover, in his opinion, it is up to the arbitrator to take decisions in this regard. [213] Polkinghorne and Rosenberg have a strong opinion on this: according to them, it is not permissible for a secretary to write substantive parts of the award. [214]
3.185 There is no generally accepted rule or practice that entails that instructing a secretary to draft substantive parts of an arbitral award is unacceptable in all cases. [215] For such to be deemed unacceptable, it would also have to be established that limits arising from the principle of proper fulfilment of duties by arbitrators have been exceeded in this regard. This may be the case, for example, if it becomes evident that the tribunal used the texts written by the secretary without question, or if the secretary was wrongfully involved in the decision-making process. As applies to every reliance on the grounds for setting aside of Article 1065 DCCP, the burden of proof with regard to such facts lies with the party invoking the alleged violation of the mandate by the arbitrators. [216] It will not be easy to prove such facts, but this is justified by the seriousness of the accusation being levelled at the arbitrators (neglecting their personal task) and by the restraint that must generally be observed in the case of reliance on Article 1065(1)(c) DCCP.
3.186 The absence of a generally accepted rule on this subject explains why some arbitration rules contain specific rules in this regard. The Court of Appeal held, which has not been disputed in cassation, that the UNCITRAL rules applicable in this case contain no rules on this point (para. 6.6.14.1), so that it has been left to the discretion of arbitrators to decide to what extent they delegate specific tasks to their secretary, in which context they must respect the basic principle of personal performance of their duties. The Court of Appeal's position was that there was no evidence that the arbitrators violated this basic principle and that even if Valasek provided draft texts for supporting parts of the award, this does not mean that he also took decisions himself (end of para. 6.6.14.1). According to the Court of Appeal, no evidence was adduced that the task of taking substantive decisions relevant to the arbitral awards was delegated to Valasek, or that Valasek was ultimately responsible for the awards, or specific parts thereof. Therefore, in the opinion of the Court of Appeal, there is no violation of the mandate within the meaning of Article 1065(1)(c) DCCP.
3.187 Concluding this explanation, I will now discuss the three complaints of the ground for cassation.
Ground for Cassation 6.2.1: rejection of Russian Federation's offer of proof
3.188
Ground for Cassation 6.2.1complains about para. 6.6.5, in which the Court of Appeal rejected the Russian Federation's offer of proof. The Russian Federation offered to have Valasek examined as a witness with regard to "the hours charged by him and his contributions to the decision-making process of the Tribunal", and to have two expert witnesses examined. [217]
Ground for Cassation 6.2.1complains about para. 6.6.5, in which the Court of Appeal rejected the Russian Federation's offer of proof. The Russian Federation offered to have Valasek examined as a witness with regard to "the hours charged by him and his contributions to the decision-making process of the Tribunal", and to have two expert witnesses examined. [217]
3.189 The Court of Appeal rejected this offer of proof, because it presumed that Valasek made "significant contributions to the drafting of Chapters IX, X, and XII of the Final Award by supplying the arbitrators with draft texts which they fully or partially incorporated into the arbitral awards". As a result, furnishing evidence was no longer an issue. Apparently, the complaint intends to argue that the Court of Appeal should nevertheless have allowed the furnishing of evidence, as it is possible that, by providing the aforementioned texts, Valasek also influenced the Tribunal's ultimate decisions. In fact, the ground for cassation complains that the Court of Appeal interpreted the Russian Federation's offer of proof too restrictively. However, such complaint must fail, as the interpretation of procedural documents is reserved to the Court of Appeal. [218]
Ground for Cassation 6.2.2: even number of arbitrators?
3.19
Ground for Cassation 6.2.2complains that the Court of Appeal, in para 6.6.13, rejected the reliance on Article 1065(1)(b) DCCP, read in conjunction with Article 1026(1) DCCP. This reliance entails that, in fact, due to Valasek's involvement, the Yukos Awards were allegedly rendered by four, instead of three arbitrators, which is contrary to the above-mentioned provisions. The Court of Appeal held that the Yukos Awards were signed by the three arbitrators appointed, so that the requirements of these provisions have been met. According to this ground for cassation, in doing so the Court of Appeal interpreted these provisions too restrictively, because they also aim to prevent a fourth person from actually acting as an arbitrator.
Ground for Cassation 6.2.2complains that the Court of Appeal, in para 6.6.13, rejected the reliance on Article 1065(1)(b) DCCP, read in conjunction with Article 1026(1) DCCP. This reliance entails that, in fact, due to Valasek's involvement, the Yukos Awards were allegedly rendered by four, instead of three arbitrators, which is contrary to the above-mentioned provisions. The Court of Appeal held that the Yukos Awards were signed by the three arbitrators appointed, so that the requirements of these provisions have been met. According to this ground for cassation, in doing so the Court of Appeal interpreted these provisions too restrictively, because they also aim to prevent a fourth person from actually acting as an arbitrator.
3.191 Article 1026(1) DCCP provides that the tribunal must be composed of an odd number of arbitrators. Article 1065(1)(b) DCCP provides that an arbitral award may be set aside if the tribunal was composed in violation of the applicable rules. This ground for cassation argues that Article 1026(1) DCCP not only sets the formal requirement that the tribunal must be composed of an odd number of arbitrators, but also aims to prevent the involvement of a fourth person in the decision-making process. There are no indications in the literature and legislative history that this provision must indeed be interpreted in this manner. [219] In principle, it can be assumed that the signature of an arbitral award demonstrates which arbitrators have rendered the award, just as in the government judicial system, where the signatures on a judicial decision demonstrate which judges rendered that decision. [220] If the signature demonstrates that the award was rendered by an odd number of arbitrators, the requirement of Article 1026(1) DCCP has been met. Of course, this does not detract from the fact that it would be undesirable if a fourth person in fact acted as an arbitrator by exerting influence on the decision in the arbitration proceedings. The Court of Appeal did not fail to recognise this, but clearly assessed in paras. 6.6.14,
et seq., whether the arbitrators delegated part of their personal mandate to Valasek. The complaint fails on account of the foregoing.
et seq., whether the arbitrators delegated part of their personal mandate to Valasek. The complaint fails on account of the foregoing.
Ground for Cassation 6.2.3: role of the secretary
3.192
Ground for Cassation 6.2.3raises five complaints (designated by letters (a) through (e)). I will briefly discuss these complaints.
Ground for Cassation 6.2.3raises five complaints (designated by letters (a) through (e)). I will briefly discuss these complaints.
3.193 The first complaint
(at a)is directed against the Court of Appeal's rejection of the Russian Federation's argument that there is a rule, or an unwritten rule, that entails that a secretary is not allowed to write substantive parts of an arbitral award. According to the complaint, the Court of Appeal failed to recognise that such delegation of substantive tasks to a secretary is only allowed with the explicit consent of the parties. The second complaint
(at b)is directed against the Court of Appeal's decision in para. 6.6.14.2 that the Tribunal had not seriously violated its mandate by not "fully" informing the parties about Valasek's drafting task.
(at a)is directed against the Court of Appeal's rejection of the Russian Federation's argument that there is a rule, or an unwritten rule, that entails that a secretary is not allowed to write substantive parts of an arbitral award. According to the complaint, the Court of Appeal failed to recognise that such delegation of substantive tasks to a secretary is only allowed with the explicit consent of the parties. The second complaint
(at b)is directed against the Court of Appeal's decision in para. 6.6.14.2 that the Tribunal had not seriously violated its mandate by not "fully" informing the parties about Valasek's drafting task.
3.194 Both complaints can be discussed together. As I explained before, there is no unwritten rule. In so far as both complaints argue that the Court of Appeal failed to recognise the importance of transparency by the Tribunal in delegating substantive tasks, it holds true that the Court of Appeal acknowledged in para. 6.6.14.2 that the Tribunal should have fully informed the parties on this point, but ruled that this violation of the mandate was not serious enough that it justified the setting aside of the arbitral awards. Both complaints fail for this reason. In other respects, the Court of Appeal's opinion is not incomprehensible.
3.195 The third complaint
(at c)argues that the Court of Appeal erred in deciding in para. 6.6.14.1 that only a specific provision in the applicable arbitration rules can preclude the delegation of substantive tasks by arbitrators to an assistant.
(at c)argues that the Court of Appeal erred in deciding in para. 6.6.14.1 that only a specific provision in the applicable arbitration rules can preclude the delegation of substantive tasks by arbitrators to an assistant.
3.196 This complaint is based on an incorrect interpretation of para. 6.6.14.1, as the Court of Appeal did not find that the arbitrators' authority to delegate tasks was limited only by the arbitration rules. The Court of Appeal's view was that, in the absence of specific agreements between the parties and as long as the substantive decisions are taken by the arbitrators themselves, it has been left to the discretion of the Tribunal to decide to what extent an assistant or secretary is used in drafting the arbitral award. The arbitrators must therefore always respect the basic principle of personal performance of duties. The Court of Appeal clearly assessed whether the course of affairs was in conflict with this, and answered this question in the negative. The complaint therefore fails.
3.197 The fourth complaint
(at d)is directed against para. 6.6.14.1 and complains about the opinion that a violation, or sufficiently serious violation, of the mandate can exist only if the arbitrators have fully left the substantive decisions or the ultimate responsibility for the award to their assistant.
(at d)is directed against para. 6.6.14.1 and complains about the opinion that a violation, or sufficiently serious violation, of the mandate can exist only if the arbitrators have fully left the substantive decisions or the ultimate responsibility for the award to their assistant.
3.198 In light of the views in the literature described above, the Court of Appeal's opinion is neither incorrect nor incomprehensible, for which reason this complaint fails.
3.199 The fifth complaint
(at e)entails that the principle of personal performance of duties would be reduced to nil if arbitrators were able to delegate the writing of their awards entirely to a secretary, in which respect the only proof that they performed their duty themselves would be the fact that they signed the award.
(at e)entails that the principle of personal performance of duties would be reduced to nil if arbitrators were able to delegate the writing of their awards entirely to a secretary, in which respect the only proof that they performed their duty themselves would be the fact that they signed the award.
3.200 This complaint builds upon the previous complaints. That the arbitrators signed the award may constitute evidence of the fact that the tribunal was composed in the correct manner, but does not automatically prove that the principle of personal performance of duties was respected. That basic principle continues to apply unabridged, on the understanding that it must be established that this principle was not complied with in a specific case. As is clear from my discussion of this ground for cassation, the principle of personal performance of duties is not violated merely because substantive parts of the arbitral award were written by a secretary. All complaints of Ground for Cassation 6.2.3 fail on this basis.
3.201 The conclusion is that ground for cassation 6 fails.
Ground for Cassation 7: lack of reasoning?
3.202 Ground for Cassation 7 is divided into two subgrounds and is directed against paras. 8.4.13 and 8.4.16 of the final judgment. Those opinions relate to the argument that the arbitral awards were not properly reasoned in respect of the Russian Federation's assertion that Yukos' Mordovian companies were shams. The Tribunal arrived at the final conclusion that no evidence of this could be found in the "massive record". According to the Court of Appeal, the Tribunal was referring here to the case file assessed in the tax proceedings that Yukos conducted in Russia (para. 8.4.13). According to this ground for cassation, this "attempt at repair" is contrary to Articles 19 and 24 DCCP, and furthermore incomprehensible.
Introductory remarks
3.203 I note the following prior to discussing the complaints (see also the Court of Appeal's undisputed preliminary remark in para. 8.1.2). The Russian Federation relied on the ground for setting aside contained in Article 1065(1)(d) DCCP. Setting aside on this ground is only possible when reasons are lacking and therefore not in case of flawed reasoning, according to the Supreme Court. [221] This is because verifying the soundness of the reasoning of the arbitral award could amount to a substantive reassessment of that award, which the court is not competent to do. There can be cases where, although reasons were stated, they do not contain any convincing argument for the specific decision. [222] Setting aside on the basis of Article 1065(1)(d), DCCP is then justified, even if the court must exercise this authority with restraint, in the sense that it must only intervene in arbitral awards in exceptional cases. [223] Therefore, a high threshold applies to setting aside on the basis of Article 1065(1)(d) DCCP.
3.204 Briefly put, the context of the complaints of Ground for Cassation 7 is as follows (for a more elaborate representation, see paras. 8.4.2,
et seq., of the final judgment). In the arbitration proceedings, HVY argued that the additional tax assessment imposed on Yukos was fabricated and was tantamount to an expropriation. The Russian Federation argued that HVY should have known that the manner in which Yukos used the tax exemption in low-tax regions, including Mordovia, was contrary to the applicable bad faith taxpayer doctrine. The Tribunal assessed whether evidence of bad faith had been furnished. The Tribunal then ruled that 'the massive record' contained no evidence of this assertion that Yukos' Mordovian companies were shams (para. 639 Final Awards). In the setting aside proceedings, the Russian Federation asserted that this opinion had been insufficiently substantiated, as such evidence had in fact been submitted in the arbitration proceedings. The Court of Appeal rejected this argument, as, in its opinion, it was clear that, with "the massive record", the Tribunal was referring to the case file assessed in the tax proceedings that Yukos conducted in Russia (para. 8.4.13). The Court of Appeal further substantiated this in paras. 8.4.1.4-8.4.16 by pointing out that the Tribunal's opinion revolved around the question of whether there was due process in the Russian tax proceedings.
et seq., of the final judgment). In the arbitration proceedings, HVY argued that the additional tax assessment imposed on Yukos was fabricated and was tantamount to an expropriation. The Russian Federation argued that HVY should have known that the manner in which Yukos used the tax exemption in low-tax regions, including Mordovia, was contrary to the applicable bad faith taxpayer doctrine. The Tribunal assessed whether evidence of bad faith had been furnished. The Tribunal then ruled that 'the massive record' contained no evidence of this assertion that Yukos' Mordovian companies were shams (para. 639 Final Awards). In the setting aside proceedings, the Russian Federation asserted that this opinion had been insufficiently substantiated, as such evidence had in fact been submitted in the arbitration proceedings. The Court of Appeal rejected this argument, as, in its opinion, it was clear that, with "the massive record", the Tribunal was referring to the case file assessed in the tax proceedings that Yukos conducted in Russia (para. 8.4.13). The Court of Appeal further substantiated this in paras. 8.4.1.4-8.4.16 by pointing out that the Tribunal's opinion revolved around the question of whether there was due process in the Russian tax proceedings.
3.205
Ground for Cassation 7.1comprises an introduction and does not contain any complaints.
Ground for Cassation 7.2is divided into four subgrounds with complaints.
Ground for Cassation 7.1comprises an introduction and does not contain any complaints.
Ground for Cassation 7.2is divided into four subgrounds with complaints.
Ground for Cassation 7.2.1: irreconcilability with Articles 19 and 24 DCCP?
3.206 According to
Ground for Cassation 7.2.1the Court of Appeal's opinion is irreconcilable with Articles 24 and 19 DCCP, as the Court of Appeal's interpretation that "the massive record" refers to the tax file and not to the arbitration file has not been defended by either party.
Ground for Cassation 7.2.1the Court of Appeal's opinion is irreconcilable with Articles 24 and 19 DCCP, as the Court of Appeal's interpretation that "the massive record" refers to the tax file and not to the arbitration file has not been defended by either party.
3.207 This complaint fails. After all, the question of how the relevant opinion of the Tribunal had to be interpreted was submitted to the Court of Appeal. That is also why the Court of Appeal was free to interpret this opinion differently from the interpretation defended by the parties. As such, the interpretation as defended is not a fact, but precisely the issue on which the Court of Appeal was requested to rule. Therefore, there is no prohibited supplement to the factual basis (Article 24 DCCP) or a violation of the principle of hearing both sides of the argument (Article 19 DCCP).
Ground for Cassation 7.2.2: evidence in tax proceedings
3.208
Ground for Cassation 7.2.2complains about the Court of Appeal's finding at the end of para. 8.4.13 that the Russian Federation did not assert that the evidence it submitted in the arbitration proceedings had also already been submitted in the tax proceedings. According to this ground for cassation, the Russian Federation had no reason to assert this, as this was a "clear fact". In addition, according to the ground for cassation, it was clear that various pieces of evidence submitted in the arbitration proceedings originated from the tax proceedings.
Ground for Cassation 7.2.2complains about the Court of Appeal's finding at the end of para. 8.4.13 that the Russian Federation did not assert that the evidence it submitted in the arbitration proceedings had also already been submitted in the tax proceedings. According to this ground for cassation, the Russian Federation had no reason to assert this, as this was a "clear fact". In addition, according to the ground for cassation, it was clear that various pieces of evidence submitted in the arbitration proceedings originated from the tax proceedings.
3.209 The findings that are disputed in this ground for cassation build upon the Court of Appeal's rejection of the Russian Federation's argument that evidence of bad faith on the part of Yukos/HVY was submitted in the arbitration proceedings. In line with this, the Court of Appeal ruled that the aforementioned pieces of evidence were irrelevant, as the issue was whether they had been submitted in the tax proceedings, which the Russian Federation did not assert. Without assertions by the Russian Federation to this end, the Court of Appeal was not required to independently assess whether specific pieces of evidence had also been submitted in the tax proceedings. If the Court of Appeal had in fact made such assessment, it would have exceeded the boundaries of the legal dispute and, moreover, supplemented the factual basis by establishing facts itself and taking these facts into account. The complaint fails on this basis.
Ground for Cassation 7.2.3: significance of tax file
3.21
Ground for Cassation 7.2.3asserts that the Tribunal followed the Audit Reports and Decisions by the Russian tax authorities on points other than the Mordovian shams (i.e. the use of shams in Lesnoy and Trekghorny) and attached no significance to the tax file as such. According to the ground for cassation, the Tribunal also did not have the Russian tax files. What is more, there are several tax files, meaning there is not one "massive record" (singular). According to the complaint, that is why the interpretation of this opinion by the Court of Appeal is incomprehensible.
Ground for Cassation 7.2.3asserts that the Tribunal followed the Audit Reports and Decisions by the Russian tax authorities on points other than the Mordovian shams (i.e. the use of shams in Lesnoy and Trekghorny) and attached no significance to the tax file as such. According to the ground for cassation, the Tribunal also did not have the Russian tax files. What is more, there are several tax files, meaning there is not one "massive record" (singular). According to the complaint, that is why the interpretation of this opinion by the Court of Appeal is incomprehensible.
3.211 Even after repeated reading of this ground for cassation, it is unclear to me what argument is being made in this ground for cassation. In so far as this ground for cassation is meant to argue that the Court of Appeal failed to recognise that the Tribunal's opinion is incomprehensible and therefore does not meet the requirements of Article 1065(1)(d) DCCP, the complaint fails, because this argument was not presented in the fact-finding instances (where it was argued, after all, that the lack of reasoning lay in the fact that evidence had most certainly been submitted in the arbitration proceedings). In so far as this ground for cassation is meant to argue that the Court of Appeal's interpretation in para. 8.4.13 was illogical, because, with "the massive record", the Tribunal could not be referring to the tax file, this complaint also fails because these reasons were not presented in the fact-finding instances (where a different argument was put forward, after all). Furthermore, the Court of Appeal extensively substantiated its interpretation with arguments in paras. 8.4.14-8.4.16 These findings have not been disputed.
3.212 Finally,
Ground for Cassation 7.2.4is directed against para. 8.4.16. This ground for cassation assumes that, in this finding, the Court of Appeal provided "alternative" reasoning for its rejection of the reliance on Article 1065(1)(e) DCCP while "brushing aside" its previous rejection (paras. 8.4.13,
et seq.).
Ground for Cassation 7.2.4is directed against para. 8.4.16. This ground for cassation assumes that, in this finding, the Court of Appeal provided "alternative" reasoning for its rejection of the reliance on Article 1065(1)(e) DCCP while "brushing aside" its previous rejection (paras. 8.4.13,
et seq.).
3.213 This ground for cassation fails to recognise that, in the contested finding, the Court of Appeal did not provide "alternative" reasoning, but superfluously found that even if the interpretation of para. 639 of the Final Awards defended by the Russian Federation was correct, it would not affect the Tribunal's ultimate conclusion. That this is a superfluous finding is evident from the fact that the Court of Appeal explicitly assumed a different interpretation of the Tribunal's opinion in para. 8.4.13. The complaints fail on this basis.
3.214 It follows from the above that the complaints of Ground for Cassation 7 were presented in vain.
Ground for Cassation 8: catch-all complaint
3.215
Ground for Cassation 8contains a catch-all complaint that builds upon Grounds for Cassation 1 through 7. This ground for cassation asserts that if one or more of the Grounds for Cassation 1 through 7 are successful, the damages awarded to HVY by the Tribunal, and protected by the Court of Appeal, cannot be upheld.
Ground for Cassation 8contains a catch-all complaint that builds upon Grounds for Cassation 1 through 7. This ground for cassation asserts that if one or more of the Grounds for Cassation 1 through 7 are successful, the damages awarded to HVY by the Tribunal, and protected by the Court of Appeal, cannot be upheld.
3.216 As Grounds for Cassation 1 through 7 fail, this catch-all complaint need not be discussed.
Conclusion regarding the principal appeal in cassation
3.217 The conclusion is that the principal appeal in cassation must be dismissed.
4.Discussion of the conditional cross-appeal in cassation
4.1
HVY have lodged a conditional cross-appeal against both the interim judgment and the final judgment. The conditional cross-appeal in cassation is divided into three grounds for cassation, all of which were brought forward subject to the condition that one or more complaints of the Russian Federation's principal appeal in cassation are successful. Since the principal appeal in cassation is unsuccessful, the conditional cross-appeal in cassation need not be discussed.
5.Conclusion
The opinion is that the principal appeal in cassation must be dismissed.
The Procurator General at the
Supreme Court of the Netherlands
AG
Signed Opinion Procurator-General
Signatures
Vlas, Professor P.