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WASHINGTON, DC, April 8, 2009 — Covington & Burling LLP has secured a major victory in an international arbitration against Russia on behalf of Spanish holders of Yukos American Depositary Receipts (ADRs). The decision on jurisdiction, under the rules of the Arbitration Institute of the Stockholm Chamber of Commerce, is expected to have important implications for future investment arbitrations against Russia.
The arbitration involves claims under the Spain-Russia Bilateral Investment Treaty ("BIT") by a number of Spanish investment funds seeking damages arising from the Russian government's uncompensated expropriation of the Yukos Oil Company. This case will have significance for Yukos ADR holders in all countries that have BITs with Russia. The losses of Yukos ADR holders in such countries exceed $10 billion.
On March 20, the three-person tribunal ruled that the dispute fell within the scope of the arbitration clause in the Spain-Russia BIT, and that it therefore had jurisdiction. In so doing, the tribunal rejected the reasoning of previous tribunals that have considered almost identical jurisdictional language in other Russian BITs -- language which appears in a majority of Russia's investment treaties. Those previous decisions held that the language in question -- granting arbitral jurisdiction to decide disputes concerning “the amount or method of payment” of compensation due -- does not grant jurisdiction to decide whether challenged conduct constitutes an expropriation. The tribunal’s closely-reasoned decision rejecting this restrictive interpretation is a significant setback to recent Russian efforts to limit access to international arbitration by foreign investors.
The Covington arbitration team was led by partner O. Thomas Johnson, Jr., with assistance from special counsel Marney Cheek and associate Jonathan Gimblett. Jorge Capell, a partner of Cuatrecasas, Gonçalves Pereira in Madrid, acted as co-counsel.