Shearman & Sterling has triumphed in a decade-long arbitration battle for Yukos shareholders against the Russian state – but at what cost?
Litigation is expensive – but turning to arbitration instead is seldom any cheaper. That has been proven in spades by the decision last week of a tribunal sitting in the Hague to award damages of $50bn and costs of $60m against Russia, ending a 10-year dispute between the state and the majority shareholders of dissolved oil company Yukos (28 July 2014).
The respondents described Shearman’s costs as “plainly excessive”. The total amount billed by the firm on its behalf and that of its experts was $76.63m plus an additional £1.1m, over nine years of arbitration. The tribunal reduced this to the $60m which Russia must pay, owing to the fact that the damages awarded were reduced significantly from the original claim of over $110bn and that the claimants’ experts “were of limited assistance” to the tribunal.
Costs schedules submitted show that in Phase 1, from the beginning of the arbitration until the tribunal handed down interim awards in November 2009, Shearman charged a total of $25.86m. Additional experts’ fees came to $2.58m plus £997,000 paid to Wilberforce Chambers’ trust specialist Brian Green QC.
The phase 1 costs included 4,376 hours worked by four legal assistants at a charge-out rate of between $160 and $200 an hour, plus 52,077 hours worked by 21 ‘attorneys’ charged out at between $235 and $995 an hour.
In phase 2, until the end of the arbitration, costs rose. Shearman charged a total of $44.3m with expert fees amounting to $7.4m, largely to consulting firm Navigant, plus £69,500 paid to Gray’s Inn Tax Chambers’ Philip Baker QC. A witness was paid $70,000 in compensation for time and expenses, bringing the total costs for phase 2 to $51.67m.
During that period seven legal assistants worked a total of 4,888 hours at a rate of between $205 and $255, with another 27 attorneys working a total of 70,525 hours. Charge-out rates rose to between $290 and $1,065 in that period.
In comparison, the respondents’ costs set out in the tribunal decision are far less detailed. In phase 1, five partners worked “in excess of 3,500 hours” at rates of $700 to $900 an hour. A further 15 associates, charged at between $300 and $625, worked over 12,000 hours and 10 paralegals and trainees worked over 5,000 hours at $125 to $225 an hour.
In phase 2, the five partners worked over 7,000 hours at a rate of between $775 and $900 an hour. A total of 20 associates worked more than 25,000 hours at a rate of between $375 and $675, and 15 paralegals and trainees spent over 10,000 hours on the case and were charged out at $150 to $275 an hour.
In total, respondents’ legal fees amounted to $27m, with a further $4.5m on experts’ fees and expenses. The tribunal criticised the respondents for the lack of detail in the schedule, noting that it “does not adequately assist the Tribunal in assessing the reasonableness of the Parties’ respective costs.”
It added that the amount of time and effort put into bringing and defending the claim demonstrated the importance which both sides attached to the arbitration.
“The quality of the written and oral pleadings was outstanding. Counsel of both Parties are commended for their high professionalism,” the tribunal added. “In the circumstances, it is unsurprising that the cost submissions of the Parties, as to their amounts, should reflect the very considerable work which each Party was required to expend in order to, on the one hand, press its claims and, on the other hand, defend itself.”
The arbitration costs totalled $8.44m, including €5.2m in fees and €189,300 in expenses for the three tribunal members.
The tribunal said it would see “no reason” why the respondents should not bear the total costs of the arbitration, and ordered Russia to reimburse the claimants’ €4.24m share of the costs.
The damages and the costs award merely add to the millions already shelled out by Yukos, shareholders and Russia in various disputes relating to the dissolution of the oil giant in 2007 and the arrest of former owner Mikhail Khodorkovsky in 2003.
Khodorkovsky, represented by Canadian lawyer Bob Amsterdam, was sentenced to nine years in prison in 2005 (31 May 2005). Amsterdam went on to fight several battles in different jurisdictions for the oligarch, who was pardoned by Russian president Vladimir Putin and freed in December last year. Khodorkovsky was not involved in the arbitration case.
In 2006 lawyers acting for Yukos failed in an application for judicial review of the IPO of Rosneft, which bought a key oil-producing asset from Yukos (18 July 2006). A separate dispute between Yukos and Rosneft is still in the High Court in England, with Yukos trying to recoup interest from arbitral awards paid in the Netherlands following am overturned decision by an arbitration court in Moscow.
Meanwhile Yukos took a case against Russia to the European Court of Human Rights, winning a partial victory in 2011 (20 September 2011).
Yukos may have been defunct for seven years, but its value to lawyers keeps on proving itself.