A year ago at a Russian justice-system awards ceremony, Russia's representative to the European Court of Human Rights, Pavel Laptev, said: "Members of the press -- write this down: Russia will win the [Yukos] case. It is possible to win under the procedures of the European Court of Human Rights."
Many people have tried to predict the possible outcome of this unprecedented case. I'll try to sum up some of the precedents and look at the arguments experts have put forward, gathering them together in several categories that are principally important for understanding the perspectives of the case now pending before the court.
It should be noted at the outset that the court's decision to partially accept Yukos's so-called corporative claim does not establish the solidity of the company's position, but rather indicates the inadmissibility of some of its claims.
For instance, the court ruled categorically that the absence of an answer from the Tax Ministry to the company's objections to the tax claims against it do not affect the justice of the process and that the ministry was not obligated to consider those objections. The court also rejected the company's complaints regarding its access to justice, guaranteed by Article 35 of the European Convention on Human Rights.
All this indicates that the court views the plaintiff's position as far from clear and that all aspects of the case will be submitted to harsh scrutiny.
Legal Obstacles
One of the most curious aspects of the Yukos case is its continuation even after the company itself was liquidated. In its decision to accept the case, the court cited one precedent involving a similar case (Capital Bank AD v. Bulgaria) and indicated that cases involving the alleged violation of human rights have a moral aspect as well that must be taken into consideration in deciding whether to continue a case even if the plaintiff has ceased its existence. However, in this ruling the court left untouched the principle question regarding the company's efforts to withdraw its complaint, or to try to present an opinion to the court after its bankruptcy procedure came into effect and it was represented not by its previous management but by its receivers.
It is true the court recognized the English lawyer Pierce Gardner as the plaintiff's representative, but it did not settle the matter of the role and claims of Eduard Rebgun, which clearly could affect the final decision. It is not yet clear on what basis Rebgun, who has been recognized as Yukos's legal representative in several countries, including the United States, could be excluded from this case. In this regard as well, the plaintiff may face an unexpected twist.
Strange as it may seem, another hidden obstacle that the Yukos case might run into is the fact that a similar case is being heard in the Permanent Chamber of the International Arbitration Court in The Hague. Point B of Article 35 of the convention says that the court cannot consider any individual complaint if it is essentially analogous to a case that has been considered by the court or which is the subject of another process of international mediation or if it does not contain any new facts related to the matter. Naturally, the question of the extent of the similarity of the facts is deeply subjective and must be considered by the court, but in general it could be argued that the similarities between the two cases are clear.
Punitive Taxation
The Strasbourg court respects the sovereign right of each country to establish the broadest range of taxes, including some that could be considered confiscatory in nature (see, for example, Voggenberger Transport GmbH v. Austria). In another example, a Slovak company tried to contest a decision by tax authorities to render it a tax bill that equaled 500 percent of its annual profit (Fratrik v. Slovakia) -- and it lost! The logic of the European Court of Human Rights is simple -- if you don't like the taxes, don't do business in that country.
Article 1 of the First Protocol establishes that "the previous points do not infringe the rights of states to ensure the fulfillment of those laws they consider necessary to exercise control over the use of property in accordance with the general interest or to ensure the payment of taxes or other duties or tariffs." In short, the matter of taxes is a special reserve in the precedents of the European court.
According to court positions, the practice of exacting taxes must contain a just balance between the interests of the state and those of private interests. On this basis, the court has sometimes even adopted the position of the possibility of the retroactive extraction of taxes (NAP Holdings UK Ltd. v. United Kingdom). What's more, the court takes a negative view toward efforts to efforts to challenge the retroactive adoption of laws in cases when they are part of a state effort to counteract specific tax-evasion schemes.
This aspect is a cornerstone of the Yukos case. If the court decides that Yukos evaded the payment of taxes, but that the state for various reasons did not undertake active measures to prevent this (this is basically the position Russia has argued in its memorandums to the court), then the plaintiff should not have any expectations.
Looking For Compensation
I agree with the view that the main interest of the plaintiff in this case is not the compensation of losses, but gaining real levers of influence over Russia by achieving a ruling that would indicate that Yukos had been destroyed for political reasons.
Today the question of political motivation in the Yukos case seems monstrous. On the one hand, Yukos defenders stress that it has been categorically established. However, to date such political motivation has only been mentioned in the statements of national or international organs or in the decisions of national courts (for instance, a ruling in the Netherlands about control over the company's remaining foreign assets).
In its decision to accept the first case of former Yukos owner Mikhail Khodorkovsky, the court announced that it was necessary to consider the matter, but that it did not contain sufficient information to draw conclusions. The decision to accept the corporate complaint mentions this very sparingly, leaving the question of political motivation open. Again, in this regard, the court has left itself considerable room for maneuver.
It is clear that a court decision that somehow leaves aside the matter of political motivation in the Yukos case and looks only at procedural violations in the trials will hardly bring the plaintiff any benefit. Judging by the way in which the Russian Supreme Court acted in the case of former Yukos finance-arm head Platon Lebedev (formally overturning the rulings contradicting the findings of the European Court of Human Rights but not giving the defense anything other than moral satisfaction), Russia's Supreme Arbitration Court will likely act similarly.
The European Court of Human Rights, under Article 41 of the convention, has the right to order compensation for losses, which is the basis of Yukos's demand for $100 billion. But it should be noted that the application of this article is far from consistent, and its principles vary from case to case.
In the case of The Former King of Greece and Others v. Greece (which is cited several times in the Yukos brief), the court, in assigning damages, took into consideration the fact of "a fundamental change in the constitutional structure" and named a sum "reasonably close" to the actual losses. In general the court's practice shows that it is based on the principles of calculating the value of the "confiscated" property at the moment it was seized, taking into account the sums already paid by the government and considering the extent to which the actions of the plaintiff contributed to the losses incurred.
This makes the matter of compensation in the Yukos case incredibly complicated, since formally more than $30 billion was paid for the "confiscated" Yukos shares, both during the sale of Yuganskneftegaz and in the bankruptcy process (in the form of the payment of debts). In addition, a key question in the matter is the evaluation of the scheme Yukos used to optimize its taxes. If the court considers the creation and use of such schemes to be in violation of Russia law of the period in which they functions and concludes that in the end their use led to the tax debts that were hastily presented to the company, then the chances for a positive decision on the question of compensation are very dubious.
It must also be recalled that there is practically no one to pay the compensation to. Neither Pierce Gardner nor the former subsidiaries of Yukos have any right to receive compensation and no former shareholders have appealed to the court.
In short, the Yukos case must overcome some quite serious legal hurdles. And the overcoming of each of them will either create a new precedent or fundamentally alter an existing one. And if the plaintiff hits just one of these hurdles, it could mean the complete collapse of the case and the rendering of decision that, while formally critical of Russia for the violations it allowed, does not create any particular problems for Moscow.
Nonetheless, the endless delays in the matter seem to indicate Moscow's concern and lack of confidence in the outcome of the case. Among experts there are rumors that Russia has undertaken urgent measures to boost its legal team and we will soon see new stars in Strasbourg.
But the intrigue remains. The European court might fail to put a big, fat period at the end of the matter of former Yukos shareholders seeking their property. This case could end with a big, fat comma. And for Russia, that could mean that the nightmarish saga of the Noga case could seem like a children's fairytale in comparison.
Dmitry Gololobov is a former Yukos lawyer who is now living in the United Kingdom. The views expressed in this commentary are the author's own and do not necessarily reflect those of RFE/RL
Many people have tried to predict the possible outcome of this unprecedented case. I'll try to sum up some of the precedents and look at the arguments experts have put forward, gathering them together in several categories that are principally important for understanding the perspectives of the case now pending before the court.
It should be noted at the outset that the court's decision to partially accept Yukos's so-called corporative claim does not establish the solidity of the company's position, but rather indicates the inadmissibility of some of its claims.
For instance, the court ruled categorically that the absence of an answer from the Tax Ministry to the company's objections to the tax claims against it do not affect the justice of the process and that the ministry was not obligated to consider those objections. The court also rejected the company's complaints regarding its access to justice, guaranteed by Article 35 of the European Convention on Human Rights.
All this indicates that the court views the plaintiff's position as far from clear and that all aspects of the case will be submitted to harsh scrutiny.
Legal Obstacles
One of the most curious aspects of the Yukos case is its continuation even after the company itself was liquidated. In its decision to accept the case, the court cited one precedent involving a similar case (Capital Bank AD v. Bulgaria) and indicated that cases involving the alleged violation of human rights have a moral aspect as well that must be taken into consideration in deciding whether to continue a case even if the plaintiff has ceased its existence. However, in this ruling the court left untouched the principle question regarding the company's efforts to withdraw its complaint, or to try to present an opinion to the court after its bankruptcy procedure came into effect and it was represented not by its previous management but by its receivers.
It is true the court recognized the English lawyer Pierce Gardner as the plaintiff's representative, but it did not settle the matter of the role and claims of Eduard Rebgun, which clearly could affect the final decision. It is not yet clear on what basis Rebgun, who has been recognized as Yukos's legal representative in several countries, including the United States, could be excluded from this case. In this regard as well, the plaintiff may face an unexpected twist.
Strange as it may seem, another hidden obstacle that the Yukos case might run into is the fact that a similar case is being heard in the Permanent Chamber of the International Arbitration Court in The Hague. Point B of Article 35 of the convention says that the court cannot consider any individual complaint if it is essentially analogous to a case that has been considered by the court or which is the subject of another process of international mediation or if it does not contain any new facts related to the matter. Naturally, the question of the extent of the similarity of the facts is deeply subjective and must be considered by the court, but in general it could be argued that the similarities between the two cases are clear.
Punitive Taxation
The Strasbourg court respects the sovereign right of each country to establish the broadest range of taxes, including some that could be considered confiscatory in nature (see, for example, Voggenberger Transport GmbH v. Austria). In another example, a Slovak company tried to contest a decision by tax authorities to render it a tax bill that equaled 500 percent of its annual profit (Fratrik v. Slovakia) -- and it lost! The logic of the European Court of Human Rights is simple -- if you don't like the taxes, don't do business in that country.
Article 1 of the First Protocol establishes that "the previous points do not infringe the rights of states to ensure the fulfillment of those laws they consider necessary to exercise control over the use of property in accordance with the general interest or to ensure the payment of taxes or other duties or tariffs." In short, the matter of taxes is a special reserve in the precedents of the European court.
According to court positions, the practice of exacting taxes must contain a just balance between the interests of the state and those of private interests. On this basis, the court has sometimes even adopted the position of the possibility of the retroactive extraction of taxes (NAP Holdings UK Ltd. v. United Kingdom). What's more, the court takes a negative view toward efforts to efforts to challenge the retroactive adoption of laws in cases when they are part of a state effort to counteract specific tax-evasion schemes.
This aspect is a cornerstone of the Yukos case. If the court decides that Yukos evaded the payment of taxes, but that the state for various reasons did not undertake active measures to prevent this (this is basically the position Russia has argued in its memorandums to the court), then the plaintiff should not have any expectations.
Looking For Compensation
I agree with the view that the main interest of the plaintiff in this case is not the compensation of losses, but gaining real levers of influence over Russia by achieving a ruling that would indicate that Yukos had been destroyed for political reasons.
Today the question of political motivation in the Yukos case seems monstrous. On the one hand, Yukos defenders stress that it has been categorically established. However, to date such political motivation has only been mentioned in the statements of national or international organs or in the decisions of national courts (for instance, a ruling in the Netherlands about control over the company's remaining foreign assets).
In its decision to accept the first case of former Yukos owner Mikhail Khodorkovsky, the court announced that it was necessary to consider the matter, but that it did not contain sufficient information to draw conclusions. The decision to accept the corporate complaint mentions this very sparingly, leaving the question of political motivation open. Again, in this regard, the court has left itself considerable room for maneuver.
It is clear that a court decision that somehow leaves aside the matter of political motivation in the Yukos case and looks only at procedural violations in the trials will hardly bring the plaintiff any benefit. Judging by the way in which the Russian Supreme Court acted in the case of former Yukos finance-arm head Platon Lebedev (formally overturning the rulings contradicting the findings of the European Court of Human Rights but not giving the defense anything other than moral satisfaction), Russia's Supreme Arbitration Court will likely act similarly.
The European Court of Human Rights, under Article 41 of the convention, has the right to order compensation for losses, which is the basis of Yukos's demand for $100 billion. But it should be noted that the application of this article is far from consistent, and its principles vary from case to case.
In the case of The Former King of Greece and Others v. Greece (which is cited several times in the Yukos brief), the court, in assigning damages, took into consideration the fact of "a fundamental change in the constitutional structure" and named a sum "reasonably close" to the actual losses. In general the court's practice shows that it is based on the principles of calculating the value of the "confiscated" property at the moment it was seized, taking into account the sums already paid by the government and considering the extent to which the actions of the plaintiff contributed to the losses incurred.
This makes the matter of compensation in the Yukos case incredibly complicated, since formally more than $30 billion was paid for the "confiscated" Yukos shares, both during the sale of Yuganskneftegaz and in the bankruptcy process (in the form of the payment of debts). In addition, a key question in the matter is the evaluation of the scheme Yukos used to optimize its taxes. If the court considers the creation and use of such schemes to be in violation of Russia law of the period in which they functions and concludes that in the end their use led to the tax debts that were hastily presented to the company, then the chances for a positive decision on the question of compensation are very dubious.
It must also be recalled that there is practically no one to pay the compensation to. Neither Pierce Gardner nor the former subsidiaries of Yukos have any right to receive compensation and no former shareholders have appealed to the court.
In short, the Yukos case must overcome some quite serious legal hurdles. And the overcoming of each of them will either create a new precedent or fundamentally alter an existing one. And if the plaintiff hits just one of these hurdles, it could mean the complete collapse of the case and the rendering of decision that, while formally critical of Russia for the violations it allowed, does not create any particular problems for Moscow.
Nonetheless, the endless delays in the matter seem to indicate Moscow's concern and lack of confidence in the outcome of the case. Among experts there are rumors that Russia has undertaken urgent measures to boost its legal team and we will soon see new stars in Strasbourg.
But the intrigue remains. The European court might fail to put a big, fat period at the end of the matter of former Yukos shareholders seeking their property. This case could end with a big, fat comma. And for Russia, that could mean that the nightmarish saga of the Noga case could seem like a children's fairytale in comparison.
Dmitry Gololobov is a former Yukos lawyer who is now living in the United Kingdom. The views expressed in this commentary are the author's own and do not necessarily reflect those of RFE/RL