Court Orders Russia To Pay $US50 Billion To Shareholders Of Defunct Oil Giant Yukos

Khodorkovsky YukosREUTERS/Axel SchmidtFreed Russian former oil tycoon Mikhail Khodorkovsky (center). Khodorkovsky was pardoned in 2013 by Russian President Vladimir Putin after 10 years in jail.

MOSCOW — The Hague’s arbitration court ruled on Monday that Russia must pay a group of shareholders in defunct oil giant Yukos around $US50 billion for expropriating its assets, a big hit for a country teetering on the brink of recession.

The Hague court said it had awarded shareholders in the GML group just under half of their $US114 billion claim, going some way to covering the money they lost when the Kremlin seized Yukos, once controlled by Mikhail Khodorkovsky.

Tim Osborne, director of GML, welcomed the award, which he said was the largest ever, as “very favourable.”

But Foreign Minister Sergei Lavrov said Moscow would most likely appeal the decision, underlining that the shareholders, who have battled through the courts for a decade, will have to fight further to receive the compensation.

“The Russian side, those agencies which represent Russia in this process, will no doubt use all available legal possibilities to defend its position,” he said when news of the award leaked ahead of the official announcement. The ruling hits Russia at a time when it faces international sanctions about its role in Ukraine and anger over the downing of a Malaysian airliner over eastern Ukraine, where Moscow-backed rebels are fighting a separatist campaign. The country is also grappling with slowing economic growth.

The Permanent Court of Arbitration in the Hague announced that Russia must pay the compensation to subsidiaries of Gibraltar-based Group Menatep, a company through which Khodorkovsky, once Russia’s richest man, controlled Yukos.

Group Menatep now exists as holding company GML, and Khodorkovsky is no longer a shareholder in GML or Yukos. Khodorkovsky, who is not a party to the action, was arrested at gunpoint in 2003 and convicted of theft and tax evasion in 2005. His company, once worth $US40 billion, was broken up and nationalised, with most assets handed to Rosneft, a company run by Igor Sechin, an ally of President Vladimir Putin. Rosneft was not immediately available for comment.

Its shares were down 0.6 per cent at 8:30 a.m. GMT, while the RTS index of Russian shares was down 1.8 per cent. Separately, The European Court of Human Rights (ECHR) in Strasbourg is expected on Thursday to announce a decision on Yukos’s multi-billion-dollar claim against Russia, ruling on “just satisfaction” or compensation, a Yukos spokeswoman said.

Yukos’s application in the ECHR, which is on behalf of all Yukos shareholders, argued that Yukos was unlawfully deprived of its possessions by the imposition of bogus taxes and a sham auction of its main asset.


In a case that Kremlin critics said offered a stark example of Putin’s increasingly autocratic rule, Khodorkovsky was arrested at gunpoint in 2003 and convicted of theft and tax evasion in 2005. Putin justified the move by saying: “A thief must be in jail,” quoting a popular Soviet blockbuster.

Putin pardoned Khodorkovsky in December after he had spent 10 years in jail. He now lives in Switzerland.

The newspaper Kommersant, which earlier reported the Hague ruling, said the court ruled that Russia had infringed an international energy charter, adopted in 1991, that envisaged legal issues for investments in energy sectors. The court also ruled, according to the newspaper, that Russia had to start paying the compensation by Jan. 2 next year, or face growing interest on the fine.

It cited GML director Osborne as saying GML will force Russia to pay out the compensation “if it wouldn’t make payments within the court-defined timeframe”.

Any funds won will be shared amongst the shareholders. The biggest ultimate beneficial owner is Russian-born Leonid Nevzlin, a business partner who had fled to Israel to avoid prosecution. He has a stake of around 70 per cent. 

A spokesperson for Nevzlin declined to comment. The other four ultimate beneficial owners, each of whom owns an equal stake, are Platon Lebedev, Mikhail Brudno, Vladimir Dubov and Vasilly Shaknovski. After he was jailed, Khodorkovsky ceded his controlling interest in Menatep, which owned 60 to 70 per cent of Yukos, to Nevzlin. GML shareholders are not expecting to claim twice, so if they receive monies pursuant to one case it would reduce their claim under the other, Osborne has previously told Reuters.

(Reporting by Tom Miles in Geneva, Vladimir Soldatkin and Megan Davies in Moscow, Tova Cohen in Tel Aviv, reporting by Thomas Escritt and Anthony Deutsche in Amsterdam, Editing by Elizabeth Piper and Will Waterman)

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This article originally appeared at Reuters. Copyright 2014. Follow Reuters on Twitter.

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