The European Court of Human Rights has ordered that the Russian
Federation pay record damages of €1.8 billion to all of
Yukos’ former shareholders.
This follows an award in July of approximately US$50 billion
dollars in damages against the Russian Federation in an Energy
Charter Treaty claim (the “ECT claim
for more information.
Unsuccessful Article 6 claim
In the latest proceedings, Yukos claimed €38
billion in damages in relation to violations of the right to a fair
trial under Article 6 of the European Convention on Human Rights
”). The European court
decided that there was no causal link between the breach of Article
6 by the Russian courts and the damage suffered by Yukos.
Breach of property rights
However, Yukos did successfully claim damages for violations of its
property rights under protocol 1, Article 1 of the convention (the
The scope of the Protocol is wider than often assumed. It can cover
shares, goodwill to business, ownership of a debt and even court or
arbitral awards. The key is that the property violated has an
The court found that the inflated and disproportionate tax
assessments imposed upon Yukos and the ensuing enforcement
proceedings ultimately led to the liquidation of Yukos, which
resulted in losses for its shareholders.
This is the largest award of damages in the court’s history.
That said, there is a large disparity between this €1.8
billion sum and the sum of US$50 billion dollars awarded in the ECT
The court has been more conservative in its judgment. It awarded
damages based on the penalties unlawfully imposed by Russia in
Yukos’ 2000 and 2001 tax assessments. It also awarded damages
for what it considered to be disproportionate enforcement
In the ECT claim, the damages represented the arbitral
tribunal’s assessment of the value of Yukos (i.e. its share
value and potential dividends), rather than any penalties or fees
imposed on it.
The decision illustrates that investors may have more than one
method of recourse against a state if they have their rights
Individuals and companies investing in European countries
(including Russia) benefit from the provisions of the ECHR
protecting property, which includes shares and contractual rights.
However, the more conservative approach of the European Court of
Human Rights in assessing damages means that parties are well
advised to consider the full range of investment protections before
and after making investments, including contractual remedies, local
laws, bilateral investment treaties and multilateral investment
treaties (such as the ECT).
The Russian Federation could yet refer the case to the
court’s Grand Chamber for review, so further developments are