Energy Charter Treaty update: Arbitral Tribunal finds Russia bound by ECT and Swiss RUE notifies Ukranian Government of claim (Arbflash, January 2010)

Arbitral Tribunal finds Russia bound by Energy Charter Treaty

The Tribunal in the expropriation proceedings brought by shareholders of Yukos against Russia has ruled that the case can proceed. The claim, brought under the investment protection provisions of the Energy Charter Treaty (the ECT), is said to be one of the largest claims ever at an estimated value of US$100bn. The central allegation is that Russia unlawfully expropriated their investments by directing the might of its state apparatus to forcing Yukos into bankruptcy.

Russia signed the ECT but never ratified it, applying it on a "provisional" basis only, until a few months ago when it decided not to ratify and withdrew from the ECT altogether. Russia argued that, as a non-ratifying state, it was not bound by the investment protection provisions. The Tribunal held that Russia was bound by the relevant provisions of the ECT notwithstanding its provisional application of the ECT, and that the shareholders are entitled to ECT protection for 20 years following Russia terminating its provisional status.

This is a very significant decision with potentially great precedential value for other parties which may have claims against the Russian Government and who were uncertain of their ability to invoke ECT protection following Russia's withdrawal from that Treaty.

Swiss RUE notifies Ukranian Government of claim under ECT

In another ECT-related dispute, the shareholders of Swiss gas supply company, RosUkrEnergo (RUE) notifed the Ukranian Government on 26 November 2009 of their intention to make a claim under the ECT for 11bn cubic metres of gas allegedly expropriated by state-owned Naftogaz. The claim is being pursued by Centragas, an Austrian company which jointly owns RUE with Gazprom. Centragas claims that Naftogaz expropriated the gas in January 2009 while in storage pending its transit to Europe. Naftogaz denies the allegation, maintaining that the gas was purchased fair and square from Gazprom, RUE's co-owner. Earlier in 2009, Ukraine and Russia resolved the gas pricing dispute between them, ending weeks of supply cuts affecting thousands in Europe and the Balkans. Part of that deal is reported to have involved removing RUE as intermediary between Naftogaz and Gazprom.

Under Article 26 of the ECT, an aggrieved investor has the option of taking legal action in the domestic courts of the Contracting State involved, following a previously agreed dispute resolution procedure or initiating international arbitration. The latter option includes having a claim heard in the Stockholm Chamber of Commerce, ICSID in Washington or by an ad hoc tribunal under the UNCITRAL rules. Centragas is yet to specify the forum in which it intends to make its claim.

Please click on the links below for the other articles in the January 2010 Arbflash:

• EU: Impact of West Tankers felt with English Court of Appeal judgment in the "Wadi Sudr" 
• Singapore High Court considers use of other institutional rules by SIAC
• English Commercial Court considers question of venue of arbitration
• Indian Supreme Court opens door to setting aside arbitration clauses
• Malaysian Federal Court considers enforcement of New York Convention awards
• Scottish Parliament passes Arbitration Bill
• Update on the review of Australian international arbitration legislation
• Issues for experts acting under the ICC Rules for Expertise or the ICC Rules of Arbitration
• Centre for Effective Dispute Resolution (CEDR) publishes rules on settlement in international arbitration
• Disputes service to act as online consultant on arbitral appointments
• New arbitration and ADR consultant appointed for ICC
• Moser appointed by World Bank as arbitration adviser in Cambodia
   

Contact

Ronnie King
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This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.