In arbitral proceedings, the Russian Federation was ordered to pay damages to HVY for breach of its obligations under the Energy Charter Treaty (hereinafter: ECT).2 The Russian Federation brought a claim for setting aside the relevant arbitral awards (hereinafter also the 'Yukos Awards’) before the Dutch court. The District Court awarded the claim on the grounds of the absence of a valid arbitration agreement. On appeal, the Court of Appeal annulled the District Court's judgment and as yet rejected the Russian Federation's claims. The Russian Federation has lodged an appeal in cassation against the judgment of the Court of Appeal.
Energy Charter Treaty, with Annexes, Treaty Series 1995, 108 (English and French texts, with corrections in Treaty Series 1995, 250), and Treaty Series 1995, 250 (Dutch translation).
a) arbitration at the International Centre for Settlement of Investment Disputes (ICSID) in Washington, on the basis of the ICSID Convention11, provided that both ECT states concerned are parties to the ICSID Convention (or, if one of the states concerned is party to the ICSID Convention, on the basis of the Additional Facility Rules to that Convention);
b) arbitration by a single arbitrator or an ad hoc tribunal established in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), as has been done in the present case;
c) arbitration at the arbitration institute of the Stockholm Chamber of Commerce (SCC).
This approach was worded as follows in Phoenix Action, Ltd v. The Czech Republic, ICSID Case No. ARB/06/5, 15 April 2009, para. 96: "At the outset, it should be noted that BITs, which are bilateral arrangements between two States parties, cannot contradict the definition of the ICSID Convention. In other words, they can confirm the ICSID notion or restrict it, but they cannot expand it in order to have access to ICSID. A definition included in a BIT being based on a test agreed between two States cannot set aside the definition of the ICSID Convention, which is a multilateral agreement. As long as it fits within the ICSID notion, the BIT definition is acceptable, it is not if it falls outside of such definition. (...)".
The presentation of the facts is derived from paras. 2.2-2.6 of the final judgment of the Court of Appeal of The Hague of 18 February 2020, ECLI:NL:GHDHA:2020:234, as challenged in cassation. Also see my opinion (ECLI:NL:PHR:2020:1082) at paras. 2.1-2.31 prior to the Supreme Court's decision of 4 December 2020, ECLI:NL:HR:2020:1952, RvdW 2021/2.
The arbitral tribunal appointed pursuant to the UNCITRAL Arbitration Rules (hereinafter: the Tribunal) ruled in three separate Interim Awards on Jurisdiction and Admissibility of 30 November 2009 (hereinafter: the Interim Awards) on a number of preliminary defences raised by the Russian Federation, including in relation to the Tribunal's jurisdiction. In the Interim Awards, the Tribunal rejected certain defences on jurisdiction and admissibility and ruled with respect to other preliminary defences that the decision on them would be stayed until the merits phase of the proceedings.
In three separate Final Awards of 18 July 2014,23 the Tribunal rejected the Russian Federation's remaining defences on jurisdiction and/or admissibility, found that the Russian Federation had breached its obligations under Article 13(1) ECT, and ordered the Russian Federation to pay HVY damages amounting to USD 8,203,032,751 (to VPL), USD 1,846,000,687 (to YUL) and USD 39,971,834,360 (to Hulley), respectively, plus interest and costs. The Tribunal ruled, briefly stated, that the Russian Federation, by taking a number of tax and recovery measures against Yukos, had aimed at the bankruptcy of Yukos, with no other purpose than to eliminate Mr Mikhail Khodorkovsky, the chairman of Yukos and one of its shareholders (hereinafter: Khodorkovsky), as a potential political opponent of President Putin and to acquire Yukos' assets.
Hulley Enterprises Limited (Cyprus)/The Russian Federation, UNCITRAL, PCA Case No. AA 226, Final Award; Veteran Petroleum Limited (Cyprus)/The Russian Federation, UNCITRAL, PCA Case No. 2005-05/AA228, Final Award; Yukos Universal Limited (Isle of Man)/The Russian Federation, UNCITRAL, PCA Case No. 2005-04/AA227, Final Award.
By separate summons of 10 November 2014, the Russian Federation summoned Hulley, VPL and YUL before the District Court of The Hague and requested the District Court to set aside the Interim Awards and Final Awards rendered by the Tribunal in each of their cases. These three cases were consolidated by the District Court at the request of the Russian Federation.
On 20 April 2016, in one judgment rendered in the three consolidated cases, the District Court set aside the Interim Awards and the Final Awards because of the absence of a valid arbitration agreement.24 HVY filed an appeal against this judgment with the Court of Appeal of The Hague.
According to the Court of Appeal, HVY's grounds of appeal were therefore well-founded, in part, and the District Court's reasoning could not justify its decision that no valid arbitration agreement had been concluded (para. 4.9.1). Given the devolutive effect of appeal, the Court of Appeal assessed whether the Russian Federation's other statements in support of its claim that the Tribunal had no jurisdiction are well-founded, i.e. the statements pertaining to (i) the interpretation of Article 1(6) and (7) ECT28 (the terms "investment" and "investor"), (ii) the interpretation of Article 1(6) and (7) ECT (the legality of the investments), (iii) the taxation measures imposed by the Russian Federation, which are a legitimate exercise of the authority of the Russian Federation falling within the scope of Article 21(1) ECT.
The Court of Appeal concluded that none of the grounds argued by the Russian Federation for the absence of a valid arbitration agreement support such a conclusion, so that there is no reason to set aside the Yukos Awards pursuant to Article 1065(1)(a) DCCP (para. 5.3.1).
In paras. 6.6.1-6.6.15, the Court of Appeal addressed the Russian Federation's argument that the Yukos Awards should be set aside due to the disproportionate involvement of Martin Valasek, the assistant to the Tribunal, in their drafting (para. 6.6.1). According to the Russian Federation, this involvement violated the principle that arbitrators must personally perform the task assigned to them, meaning that the Tribunal had failed to comply with its mandate (Article 1065(1)(c) DCCP). In addition, Valasek's involvement is said to mean that there effectively had been a "fourth arbitrator", meaning that the Tribunal's composition was inconsistent with the applicable rules (Article 1065(1)(d) DCCP).
The Court of Appeal rejected this argument. Although the Court of Appeal presumed that Valasek had made significant contributions to the drafting of parts of the text (para. 6.6.5), this did not mean that he had independently taken decisions which are part of the essential task of the arbitrators (para. 6.6.10). The fact that the Final Awards were signed by the three arbitrators implies, that it was they who rendered them, which means there was not an even number of arbitrators (para. 6.6.13). If the Russian Federation's statement that Valasek was only introduced as an assistant and contact person is assumed, by way of presumption, to be correct, it can be concluded that the Tribunal failed to fully inform the parties on this point of the nature of Valasek's work. However, under the circumstances, this does not constitute such a serious violation of the mandate that it should lead to the setting aside of the arbitral awards (para. 6.6.14.2).
The Court of Appeal concluded that HVY's grounds of 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 put forward by the Russian Federation cannot lead to the setting aside of the Yukos Awards (para. 10.1). The Court of Appeal annulled the judgment of the District Court and, adjudicating the matter anew, rejected the Russian Federation's claims (para. 10.3 and operative part).
The Russian Federation filed an application in the context of its appeal in cassation for (inter alia) the suspension of enforcement of the Yukos Awards and for HVY to be ordered to provide security. By decision of 25 September 2020, the Supreme Court decided that it has jurisdiction to hear this application.29 By decision of 4 December 2020, the Supreme Court rejected the Russian Federation's application.30
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 Depository 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 Depository.
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 Depository 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 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 Vil 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 lil 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 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 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 het Verdrag toetreedt, heeft in afwachting van de inwerkingtreding van het Verdrag de rechten en verplichtingen van een Ondertekenende Partij krachtens dit artikel.
Also see the Interim Awards, para. 304, Baltag. op. cit., p. 41.
Also see the decision in ICSID arbitration: loannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, para. 210; Interim Awards, para. 307 et seq.
Also see the Interim Awards, para. 311 et seq.
See, for example, the Russian Federation's position as presented in para. 294 of the Interim Awards.
Interim Awards, paras. 312-315.
"to ensure that, if a party wishes to contest the jurisdiction of the arbitral tribunal because of the absence of a valid arbitration agreement, the arbitral tribunal can make a decision on the matter at an early stage of the proceedings, thus avoiding as far as possible unnecessary procedural steps if a reliance made later (in the arbitral proceedings or before the ordinary courts) on the absence of a valid arbitration agreement would nevertheless lead to the decision that the arbitral tribunal has no jurisdiction."70
Whether new factual or legal statements may be put forward in the setting-aside proceedings will have to be assessed in each specific case, also in view of the requirements of due process.71
"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".
"The meaning of the words 'not inconsistent' follows from the Court of Appeal’s interpretation of the Limitation Clause. This interpretation concerns whether national laws or regulations exist that exclude provisional application for certain treaty provisions or types or categories of such provisions. If the latter is the case, provisional application of those treaty provisions, or types or categories of such provisions, is 'inconsistent' with national law."
"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, Case C-344/04 IATA and ELFAA [2006] ECR I-403, paragraph 36, and 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, Case 181/73 Haegeman [1974] ECR 449, paragraphs 4 to 6, and 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, Joined Cases C-300/98 and C-392/98 Dior and Others [2000] ECR I-11307, paragraph 33, and 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).
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, MerckGenéhcos - Produtos Farmacéuticos. 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).
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, Case C-239/03 Commission v France [2004] ECR I-9325, paragraphs 29 to 31)."
(my italics, Advocate General)
"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?"
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
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;
A special meaning shall be given to a term if it is established that the parties so intended.
A term from a treaty can therefore be understood as bearing a special (as opposed to an ordinary) meaning if it has been established that the contracting parties intended to give that term a special meaning. The most obvious evidence of such an intention is the inclusion of a definition.111 It is therefore possible for a treaty to give a certain term a definition that differs from the term's ordinary meaning. In that case, interpretation must be based on that definition and not on the ordinary meaning, as evidenced by Article 31(4) VCLT. The Court of Appeal was therefore right in this case to use the definition of the term 'investment' in Article 1(6) ECT as a basis. The case law referred to in the ground is not relevant, as it does not relate to the ECT but to other investment treaties and to the ICSID Treaty.112 In so far as it would even be possible to derive any ordinary meaning of the term 'investment' from the case law in question, that meaning would not apply to the ECT, as that treaty has its own definition of the term 'investment'. The complaints fail for this reason.
Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, para. 107 et seq. (Netherlands-Turkey BIT); KT Asia Investment Group B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/09/8, para. 161 et seq. (Netherlands- Kazakhstan BIT); MNSS B. V. and Recupero Credito Acciaio N. V. v. Montenegro, ICSID Case No. ARB(AF)/12/8, para. 189 (Montenegro-Netherlands BIT); Christian Doutremepuich and Antoine Doutremepuich v. Republic of Mauritius, PCA Case No. 2018-37, Award on Jurisdiction, para. 111 et seq. (France-Mauritius BIT); Romak S.A. (Switzerland) v. The Republic of Uzbekistan. UNCITRAL, PCA Case No. AA280, Award, para. 173 et seq. (Switzerland-Uzbekistan BIT); GEA Group Aktiengesellschaft v. Ukraine. ICSID Case No. ARB/08/16, para. 137 et seq. (Germany-Ukraine BIT).
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, 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 argued in the ground, this Article does indeed distinguish between a Contracting Party's own investors and investors of any other Contracting Party or any third country. In that sense, this provision only protects cross-border investments. However, it is not evident from the provision that different requirements should therefore be imposed on the international character of an investment or the nationality of an investor than the requirements ensuing from Article 1(6) and (7) ECT. The ground does not explain this in greater detail either.
"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 influence over the management and operation of the Investment; and
(c) ability to exercise substantial 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 on Article 1(6) ECT, which defines an investment as "every kind of asset, owned or controlled directly or indirectly by an Investor". The Understanding therefore offers the party applying the ECT further guidelines to determine who controls a certain investment. The Understanding plays no role when 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 in this case that the Yukos shares are owned by HVY. There was therefore no reason to further investigate, on the basis of the Understanding, who controls the shares.
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 states the right to deny the protection of a large part of the treaty to a precisely defined category of investors, i.e. investors who are established in a contracting state only on formal grounds, but are to a large extent materially linked to a non-contracting state.116 Contrary to the argument put forward in the complaint, Article 17 ECT does not provide that the protection of the ECT must be denied to such investors, but rather entails that, in principle, those investors are protected by the ECT unless a contracting state decides otherwise.117 Thus, Article 17 ECT does not contain a rule entailing that investments that are not genuinely international, but only international in formal terms, are not entitled to ECT protection.
"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
In the European Council's negotiating directives the following can be read:
"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
A Working Document dated 20 April 2020 includes the following proposal to amend Article 1(7) ECT:
(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] ;
(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;
[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
As the Court of Appeal held, part of the arbitral case law was rendered on the basis of the ICSID Convention. As I wrote in my introduction (no. 1.10), the ICSID Convention has its own scope of application. The ICSID Convention explicitly pertains to international investments, leaving it to the ICSID tribunals to flesh out this term in more detail. In practice, ICSID tribunals sometimes impose stricter requirements than the underlying investment treaties themselves, in particular with regard to the term 'investment' (see the discussion of ground 3.3).130 These requirements may also be stricter than those of other (commercial) arbitral tribunals, which do not base their jurisdiction on the ICSID Convention.131 All this means that to the extent that in certain cases ICSID tribunals have imposed stricter requirements on the international nature of an investment than the ECT, this does not mean that the ECT should therefore also be interpreted more strictly. After all, those stricter requirements ensue from the ICSID Convention and/or from the underlying bilateral investment treaty. It also follows from the fact that all these treaties impose different requirements on the international nature of an investment132 that it is not possible to speak of a rule of customary international law.133 Nor is it clear therefore that the ECT should be interpreted in accordance with the rules from the ICSID Convention or from other investment treaties. On the contrary, the various treaties have their own definitions, which in practice may also give rise to different outcomes. Incidentally, in the award in Plama/Bulgaria rendered on the basis of the ECT, the ICSID tribunal decided in line with Article 1(7) ECT (see no. 3.110 below).
This approach was worded as follows in Phoenix Action, Ltd v. The Czech Republic, ICSID Case No. ARB/06/5, 15 April 2009, para. 96: "At the outset, it should be noted that BITs, which are bilateral arrangements between two States parties, cannot contradict the definition of the ICSID Convention. In other words, they can confirm the ICSID notion or restrict it, but they cannot expand it in order to have access to ICSID. A definition included in a BIT being based on a test agreed between two States cannot set aside the definition of the ICSID Convention, which is a multilateral agreement. As long as it fits within the ICSID notion, the BIT definition is acceptable, it is not if it falls outside of such definition. (...)".
TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, 19 December 2008; ICSID National Gas S.A.E. v. Arab Republic of Egypt, ICSID Case No. ARB/11/7, 3 April 2014, para 136. See also para. 5.1.8.9 of the Final Judgment, unchallenged in cassation.
Anthony C. Sinclair, 'The substance of nationality requirements in investment treaty arbitration', ICSID Review - Foreign Investment Law Journal 2005, p. 378 et seq. (in a similar sense the same author in 'Investment Protection for "Mailbox Companies" under the 1994 Energy Charter Treaty', Transnational Dispute Management 2005). In Plama/Bulgaria (cited above, para. 147 et seq.), the ICSID tribunal decided that contracting states will have to inform investors in advance of a decision pursuant to Article 17 ECT, and that states may not resort to this as late as in arbitration proceedings in order to achieve inadmissibility of the investor’s claim. See also Sinclair, op. cit., ICSID Review 2005, p. 387: "The decision in Plama on the right-to-deny-benefits provision has practical consequences. It follows that ECT Article 17 can offer a good defence for host States to claims brought by 'mailbox’ companies, but a State must exercise its right prior to the time the investment is made."
The complaint fails for a lack of interest. This is because the challenged legal finding does not exclusively pertain to the question of whether Khodorkovsky et al. are the 'beneficial owners' of the Yukos shares and of HVY, but primarily relates to the question of whether this is relevant for the application of the ECT. In this finding, the Court of Appeal rejected the Russian Federation's statement that the ECT makes a distinction between the formal and material owner, in the sense that only the latter has legal standing (see para. 5.1.8.7). The Court of Appeal concluded that such a rule does not exist, and substantiated that conclusion by referring to Charanne/Spain. Incidentally, the ground does not challenge that conclusion.
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco (Decision on Jurisdiction), ICSID Case No. ARB/00/4, 23 July 2001, International Legal Materials 2003, pp. 609-624.
As I have already noted, the ECT does not offer a real definition of the term, 'investment', but instead offers a non-exhaustive list of assets designated as such. This raises the question of how to assess whether assets that are not included in the list of Article 1(6) ECT should be considered an investment. In this respect, it has been noted in the literature that interpretations of the term 'investment' that developed outside the ECT, as in the context of the ICSID Treaty, could be of use.150 There are also a number of decisions in ECT cases in which the definition of 'investor' was had been aligned with the Salini case law under the ICSID Treaty.151 For example, the majority of the arbitrators in Alapli/Turkey decided that the ECT requires "a meaningful contribution" by the investor in the host state. This was not the case in their opinion, because the claimant had not invested its own money, but had only acted as a "conduit".152 One of the other arbitrators challenged this view in a dissenting opinion on the ground that no such a criterion can be found in the ECT.153 In other case law, it was explicitly decided that the Salini criteria cannot play a role in the context of the ECT. In Anatolie Stati and Others/Kazakhstan, the tribunal held that the ECT has an "extremely broad definition" of the term 'investment' and that if an asset is covered by Article 1(6) ECT, criteria developed in the context of another treaty no longer have any significance:
"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 Salini test, 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 Salini test."154
See the aforementioned judgments Alapli/Turkey and Isolux/Spain; Hobér, pp. 73-78 (in particular p. 75).
Alapli/Turkey, cited above, paras. 337-350. See Geraets & Reins, op. cit., pp. 35-36.
"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 could also play a role under international law. The ICJ did however emphasise the exceptional nature of the process involved in 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."
In addition, although the ICSID tribunal held in these cases that acquiring shares in a foreign company in order to gain access to investment arbitration can be unacceptable, it also held that a distinction should be made between bona fide transactions, and that this is highly dependent on the circumstances of the case.163 This ICSID case law therefore acknowledges, to a certain extent, the doctrine of piercing the corporate veil, although it has only applied it to date in a specific situation that does not appear in the case at issue in cassation.164
This also applies to the other judgments cited on appeal (see Defence on Appeal, no. 712). These decisions acknowledge the existence of the doctrine of piercing the corporate veil, but place it in the context of liability. They give no indication that the doctrine should be applied in the way that the ground contends. See ADC Affiliate Ltd v. Hungary, ICSID Case No. ARB/03/16, 6 October 2006, para. 358; Rumeli Telekom AS et al. v. Kazakhstan, ICSID Case No. ARB/05/1, 29 July 2008, para. 328; Saluka Investments v. Czech Republic, Partial Award, UNCITRAL, 17 March 2006, para. 230.
Ground 3.5 argues that the Court of Appeal's interpretation is incompatible with EU law. According to the ground, the Court of Appeal should have submitted questions to the ECJ for a preliminary ruling on the interpretation of Article 1(6) and (7) and Article 26 ECT, addressing, in this respect, all the issues that have been raised in this case.
1) HVY acquired the shares in Yukos illegally, namely by manipulating auctions and paying bribes (ground 4.1.2);
2) Hulley and VPL were incorporated for the evasion of dividend tax, in which YUL also participated (ground 4.1.3);
3) Yukos evaded tax in the Russian Federation by using sham companies in free tax regions (ground 4.1.4);
4) HVY impeded the course of justice in response to this illegal conduct by destroying evidence and channelling funds abroad (ground 4.1.5).
Nor does arbitration case law give any indication that the Court of Appeal's decision is incorrect. It can be inferred from arbitral case law that the ECT contains an implicit legality requirement, but not that this should lead to a lack of jurisdiction on the part of the arbitral tribunal.169 Relevant in this context are, inter alia, the decisions of the ICSID tribunal in the aforementioned case Plama v. Bulgaria, which the Court of Appeal discussed in para. 5.1.11.4. In those proceedings, Bulgaria argued that there was no investment within the meaning of the ECT because the investor had concealed who was controlling it. The tribunal rejected this argument in the context of the assessment of its jurisdiction, and decided that the definition in Article 1(6) ECT has been met if there is a right of ownership or a contractual claim, even if this right or entitlement is "defeasible".170 The tribunal then went on to address this argument anyway in the assessment of the claim on the merits. There, the tribunal held, inter alia, that the ECT does not protect investments made in breach of the law. The claim was thereupon denied.171 This approach was also taken in the decision of the arbitral tribunal in the case Blusun v. Italy, which also involved the ECT (see para. 5.1.11.4), as well as in the decision of the arbitral tribunal in the case Anatolie Stati and others v. Kazakhstan.172
See the following cases: Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/11/12, 10 December 2014, paras. 322 et seq. (BIT Germany-Philippines); Inceysa Vallisoletana, S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, 2 August 2006, paras. 195 et seq. (BIT El Salvador-Spain); Gustav F W Harvester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, 18 June 2010, para. 126 (BIT Germany-Ghana); Phoenix v. Czech Republic, cited above, paras. 56 and 101 (BIT Czech Republic-lsrael).
Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, 1 February 2016 (Decision on Jurisdiction), paras. 301 et seq. See also Alasdair Ross Anderson v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, 19 May 2010, paras. 55 et seq., UNCITRAL, Oxus Gold pic v. The Republic of Uzbekistan, 17 December 2015 (Award), paras. 706 et seq.
As in, for example, the case Inceysa Vallisoletana. S.L. v. Republic of El Salvador, cited above, paras. 235-237, in particular.
See, inter alia, Oxus Gold plc v. Uzbekistan, cited above, para. 707 (with references to Gustav F W Harvester v. Ghana and Inceysa Vallisoletana v. El Salvador, cited above). The judgment of the ECJ, 14 March 2019, case C-724/17, ECLI:EU:C:2019:204 (Vantaan kaupunki v Skanska Industrial Solutions Oy and others), para. 46, that the ground cites (no. 159, footnote 337), is irrelevant in this respect because the judgment pertains to the specific context of corporate liability for violations of EU competition rules.
Hesham Talaat M. Al-Warraq v. Republic of Indonesia, UNCITRAL, 15 December 2014 (Final Award), paras. 631 et seq. The ground mistakenly refers to the award on jurisdiction of 21 June 2012 in that case, sub-chapters 634-637, although that award does not have sub-chapters 634-637, which means that the probable intention was to refer to the Final Award of 15 December 2014.
Ground 4.4 is directed against paras. 9.8.5-9.8.10, in which the Court of Appeal rejected the Russian Federation's argument that the Final Awards were contrary to public policy because in consequence thereof, the aforementioned illegal acts are protected. After an introduction (in 4.4.1), the ground complains (in 4.4.2) that the Court of Appeal failed to recognise that it is contrary to national and international public policy to offer protection to treaty claims which concern investments that have been illegally acquired or exploited, or that the Court of Appeal's decision is at any rate insufficiently substantiated.
Ground 4.4.3 is directed against para. 9.8.8, in which the Court of Appeal discussed sub-chapter 1370 Final Awards. The Court of Appeal held that the Tribunal had decided that a number of the alleged illegal actions took place before HVY became a shareholder and that, as a result, they had been carried out by other parties, such as Bank Menatep and Khodorkovsky et al. According to the Court of Appeal, the Tribunal had thus decided nothing more than that Bank Menatep and Khodorkovsky et al. were other legal entities or persons than HVY, and that HVY could not be held liable for actions carried out by others before HVY became a shareholder. According to the Court of Appeal, this decision is correct and it has not been challenged by the Russian Federation, or at least not with sufficient substantiation. The ground complains that this decision is incomprehensible because the Russian Federation did indeed dispute the Tribunal’s decision with substantiation. The ground argues, furthermore, that the Court of Appeal should have investigated this issue ex officio because it concerns a possible violation of international public policy.
In discussing this complaint, I note that the Court of Appeal did not render its own decision in para. 9.8.8, but established what the Tribunal had held. The Court of Appeal was thus responding to a complaint by the Russian Federation about the Tribunal's decision. According to the Court of Appeal, that complaint lacks a factual basis because the Tribunal's decision needs to be interpreted differently. The Court of Appeal's finding that the Tribunal's decision is correct and has not been challenged was therefore rendered superfluously, which is what the Court of Appeal also held ("in so far as it could even be tested in the present setting-aside proceedings"). The ground already fails entirely for this reason. I note that the substance of the complaints also fails in all other respects. The Tribunal's decision, with which the Court of Appeal concurs (in the uncontested view of the Court of Appeal), merely implies that a number of the alleged illegal actions took place before HVY became a shareholder and that, as a result, these actions had been carried out by other parties, such as Bank Menatep and Khodorkovsky et al. The statements that the ground enumerates basically imply that HVY were controlled by Khodorkovsky et al. These statements do not themselves do anything to detract from the Tribunal's factual determination. The Court of Appeal was therefore able to decide that the Russian Federation had not challenged the decision, or at least not with sufficient substantiation. The ground (nos. 177 and 178) also points out certain alleged inconsistencies in the Final Awards. The Tribunal had allegedly taken into consideration at various places that Khodorkovsky et al. owned the shares in Yukos indirectly. In para. 9.8.9, the Court of Appeal has given an explanation for this, which entails that this was not incompatible with the determination that HVY and Khodorkovsky et al. are separate legal entities. That decision is not incomprehensible because the Court of Appeal was thus expressing that HVY need to be distinguished, as companies, from those who control them.