UVA Law Professor Helps Win Case Against Russian Government's Seizure of Oil Company
A University of Virginia law professor served as a consultant and expert witness in a successful multimillion dollar arbitration case against the Russian government over its seizure of the assets of Yukos Oil Co., which was among the world's largest oil and gas companies.
Paul Stephan, an expert in international business and Soviet- and post-Soviet legal systems, assisted the law firm Covington & Burling in its efforts on behalf of Spanish investors who suffered losses in the Russian government's action against Yukos between 2004 and 2007.
An international tribunal on July 20 sided with the Spanish investors, finding that the Russian government issued illegitimate tax bills to Yukos, which led to enforcement actions and ultimately the company's bankruptcy. Yukos, which at the time was valued at $60 billion, was destroyed and its assets were placed under the control of state-owned energy firms Rosneft and Gazprom.
"The assertion [was] that the tax case brought against Yukos that wiped the company out was mostly bogus and pretextual," Stephan said. "Both the claims themselves and the process were designed not to collect revenues but to strip the company of its assets."
The international tribunal, which was under the jurisdiction of the Stockholm Chamber of Commerce, found 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."
The tribunal's ruling was announced publicly late last week.
The arbitration ruling is the second by an international tribunal to find that Yukos investors are entitled to compensation. In September 2010, a tribunal sided with an investor in the United Kingdom on similar grounds.
Covington & Burling brought on Stephan to assist with the case in 2008. Stephan is an expert in Russian tax law, as he worked from 1993-98 on behalf of the U.S. Treasury in its efforts to help the Russian government design a tax system.
Stephan consulted with the law firm on issues of Russian tax law and helped select Russian expert witnesses. He traveled to Russia on a number of occasions to interview witnesses. And he took part in the international tribunal's proceeding in London in October 2011.
The Russian government is likely to challenge the international tribunal's findings, he said.
"Russia has questioned whether the arbitral tribunal understood its jurisdiction correctly and applied the right legal standards," he said. "The Swedish domestic courts are where those challenges are taken. I know that there is an ongoing proceeding in the Swedish courts involving the U.K. tribunal, which involved identical issues."
Moving forward, he added, there are obvious challenges associated with enforcing any arbitral ruling against Russia, not the least of which is the country's sovereign immunity.
A much larger proceeding involving the Energy Charter Treaty and Yukos investors in Europe and Russia is also underway, Stephan said.
"The stakes [in that proceeding] are billions, as opposed to the English and the Spanish proceedings, where we're talking about seven figures," he said.