Covington Wins Major Victory for Spanish Funds in Claim Against Russia Over Nationalization of Yukos Oil

Covington Wins Major Victory for Spanish Funds in Claim Against Russia Over Nationalization of Yukos Oil

July 26, 2012

WASHINGTON, DC, July 26, 2012 — An international tribunal ordered the Russian government to compensate a group of Spanish investors for the losses they suffered when Russia seized the Yukos Oil Company, one of the largest oil and gas companies in the world.

The Spanish investors sought compensation under the bilateral investment treaty between Spain and the Russian Federation. The panel ruled that the Russian government issued illegitimate tax bills and, through a series of enforcement actions and eventual bankruptcy, placed Yukos’ assets under state control. State-owned Rosneft and Gazprom received the vast majority of Yukos’ assets. The tribunal valued Yukos at more than $60 billion at the time the company was nationalized.

“This case stands for an important principle: If Russia violates its treaty obligations and harms investors, there will be consequences,” said Marney Cheek, a partner at Covington & Burling LLP who represents the Spanish investors. “The panel’s decision holds Russia accountable and awards compensation to the former shareholders of Yukos.”

The tribunal concluded “that Yukos' tax delinquency was indeed a pretext for seizing Yukos assets and transferring them to Rosneft. . . . [T]his finding supports the Claimants' contention that the Russian Federation's real goal was to expropriate Yukos, and not to legitimately collect taxes.”

“This ruling vindicates the rights of Spanish investors, and, indeed, all investors in Yukos,” said Ms. Cheek.

Thousands of investors worldwide owned shares in Yukos. This is the second ruling by an international tribunal holding that these investors are entitled to compensation. An investor from the United Kingdom prevailed in a similar proceeding in September 2010.

The arbitration proceeding, Quasar de Valores SICAV S.A., et al. v. The Russian Federation, was filed in March 2007 under the jurisdiction of the Stockholm Chamber of Commerce. A tribunal of three distinguished jurists issued a unanimous award: Jan Paulsson (chair) of Freshfields Bruckhaus Deringer; Toby Landau QC, of Essex Chambers; and Judge Charles Brower of the Iran-United States Claims Tribunal.

Covington & Burling and Spanish firm Cuatrecasas, Gonçalves Pereira represented Claimants.

The Covington team included former partner O. Thomas Johnson, Jr., as well as Marney Cheek, Jonathan Gimblett, David Pinsky, Alexia DePottere-Smith, Alex Canizares, Fritz Scanlon, and Alex Berengaut. Mr. Johnson retired from Covington in April 2012.