ECHR orders Russia to pay €1.9bn in Yukos compensation

Russia has been ordered to pay €1.9bn (£1.5bn) in compensation to shareholders of Yukos by the European Court of Human Rights (ECHR), the largest ever award for pecuniary loss.

It is the second colossal Yukos-related bill for Russia in under a week following a Hague tribunal’s decision to award a record $50bn in damages and $60m in costs to shareholders of the defunct oil company (28 July 2014).

Monckton Chambers’ Piers Gardner single-handedly represented the shareholders throughout the battle. He was directly instructed for the entirety of the six-year case following Yukos’ liquidation (20 September 2011).

The Russian Federation turned to Brick Court Chambers silk Michael Swainston QC leading set-mates Paul Wright, Maya Lester and Stephen Midwinter while Devereux Chambers’ Timothy Brennan QC provided tax advice. Russia also instructed its counsel team directly.

The decade-long war between the oil giant and the Russian Federation began in 2003 when the government arrested former owner Mikhail Khodorkovsky for fraud and tax evasion. Yukos was eventually wound up in 2007 after declaring bankrupcy, with the majority of its assets expropriated to Rosneft, a company owned by an ally of Vladimir Putin.

Yukos argued that the state had unlawfully seized it after imposing unlawful taxes on the company. Today the ECHR ruled that Russia had imposed unlawful penalties on the company and unlawfully intefered with its rights under Article 1, Protocol 1 of the European Convention on Human Rights.

It is the second ECHR win in for Gardner, after the ECHR ruled that the Russian government had breached its rights in 2011 (20 September 2011). Then the court ruled that the Russian Federation had not abused its legal system in order to destroy the company. However the nine-judge panel found that Russia violated three articles of the European Convention on Human Rights.

In separate proceedings in the Hague this week Shearman & Sterling triumphed for shareholders when a Hague tribunal held that Russia’s actions amounted to an “unlawful expropriation” and that the country had breached its obligations under the Energy Charter Treaty.

Russia was ordered to pay $50bn in damages to Yukos shareholders and 75 per cent of the $80m in fees charged by Shearman over the nine-year arbitration.

The company was a major Russian taxpayer whose primary subsidiary once produced the same amount of oil as the whole of Libya. Khodorkovsky, once Russia’s richest man, spent 10 years in jail after being convicted of fraud and tax evasion. He was not part of the legal action.