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The Yukos Case. Can the West Really Arrest Russian Property?


Dmytro Shemelin, Lawyer at Ilyashev & Partners Law Firm
Source: The Liga

What is really going on with Russian assets in France and Belgium, explains the lawyer Dmytro Shemelin

Information on the possible arrests of Russian assets in Belgium and France is still inconsistent – as it probably should be during a well-planned sudden operation. Suffice to say that even the Russian Interfax considered that enforcement of the judgment of the European Court against Russia began, while we are talking about execution of the famous USD 50 bln awards of investment tribunal.

What happened?

In Belgium, local courts directed to the companies and organizations registered in their state a requirement to report on the Russian state assets, so that they could be arrested for execution of an arbitration award in favor of Yukos Universal Limited.

Meanwhile in Belgium they mean neither freezing of assets (first they need to find it) nor collection from the Russian companies (they are not liable for the debts of the state). If an entity has no state-owned assets (or the assets protected by the immunity), it simply informs about it and leaves the “danger zone”.

On the contrary, in France, as reported by Andrey Kostin, President and Chairman of VTB, accounts of Russian companies in the subsidiary of VTB Bank were indeed arrested. Mr. Kostin informed that the accounts of diplomatic missions have already been duplicated, which means that the other accounts (at least potentially) are treated as the objects for collection.

Is it dangerous for Russian assets abroad?

In terms of actual loss of control over assets – not yet. At the moment there is no information that Yukos did something that goes beyond the standard sanctions against the state. Accordingly, Yukos can face all the difficulties, which had already been repeatedly mentioned.

Russia is most likely to have abroad not so many assets, which are not protected by diplomatic or sovereign immunity. For this reason, at present cases of successful recovery under the arbitral award against Russia can be counted on fingers.

Further, the more actively Yukos tries to recover assets, the more carefully Moscow will hide them in the formally independent companies. It is not so difficult to do, so as part of the standard collection schemes Yukos can only rely on suddenness, which by nature is rapidly depleted.

Will recoveries last?

Potentially, awards (there are three of them) in the case of Yukos can be enforced in any state which is a party to the New York Convention of 1958, and currently there are more than 140 of such countries. So there is a good scope of work. Previously, the representatives of Yukos expressed intention to enforce also in the USA and Germany.

An important advantage of Yukos is that each state has own rules of imposition of enforced collection on the state-owned assets (although they have much in common). Roughly speaking, if the English court refuses to collect money of Gazprom under the debts of Russia, you can try in a French court, then in German, American, Dutch, and so on – as long as you have enough money for lawyers. In each case, a new court will hear the case on recovery anew, according to its laws and case law, as well as its prejudices and political considerations.

What further steps can be expected from Yukos?

It is clear that all of the above is well-known to the lawyers of Yukos and was taken by them into account. It is unlikely that they would have started enforcement without having a pair of creative ideas.

At present the whole Russian defense in such cases is based on one fundamental principle – severable responsibility of the state and legal entities established by it. It is impossible to recover the debts of the state from the state-owned company unless you prove that such company is an “instrument” of the state and is used to achieve its goals and mandates.

Until now, it was very difficult to prove, because in addition to the corporate control it was necessary to demonstrate a quite close operational control over the activities of the company and/or performance by the company of functions specific to the state.

In matters of immunity the states have always been guided by the principle of reciprocity: today Belgium invents a pretext for seizure of assets of the French companies for public debt – of course, tomorrow France will do the same with the Belgian companies. Then on the quiet somebody will want to do the same, and as a result we get the First World War.

However, at present these considerations with regard to Russia are not so convincing. In the motion for imposition of arrest Yukos mentions that Russia directly refused to execute judgments of the European Court – thereby Yukos probably wants to show that Russia has placed itself outside international law. If Russia disregards international law, why international law should protect it? – Yukos will ask.

The situation with reciprocity is similar, the “club members” do not impose economic sanctions against each other and respect decisions of the collective bodies in which they participate. If Russia wants to disregard the international community, why not the community takes a chance to reciprocate and arrange a show trial? If the club expels any intruder, it only consolidates the gentlemen.

What can Russia do?

Today, it can take advantage of the world practice of sovereign immunities, judicial conservatism and the principle of reciprocity. Against it – its reputation and desire of many countries to arrange a demonstration flogging by the peaceful economic means under the completely legitimate pretext. Resolution of the conflict is expected in the near future.

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