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Ähnlich wie Gazeta.ru article (translated). Russia Might Wish To Protect Its Finances Due To Yukos Case eng - valery tutykhin
Ähnlich wie Gazeta.ru article (translated). Russia Might Wish To Protect Its Finances Due To Yukos Case eng - valery tutykhin (20)
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Gazeta.ru article (translated). Russia Might Wish To Protect Its Finances Due To Yukos Case eng - valery tutykhin
- 1. 1 translated from the original article published in Russian by Gazeta.ru (http://www.gazeta.ru/business/2015/07/17/7644217.shtml) Russia Might Wish to Protect its Finances Due to Yukos Case Russia needs to take action to avoid arrest of payment flows on its debt securities Rustem Faliakhov, 20 July 2015, 10:11 Payments under Russian state bonds may be at risk if Yukos shareholders win litigation in the USA and United Kingdom. The government needs to take action to avoid repeating Argentina’s destiny. Gazeta.ru asked Valery Tutykhin, partner at John Tiner & Partners (Geneva, Switzerland) to assess the prospects of compensation claims against Russia under ex-‐Yukos shareholders’ legal action. Valery Tutykhin, partner at John Tiner & Partners (Geneva) is one of the managers in Black Eagle Litigation Fund, a distressed assets and litigation financing business. Its focus is on asset tracing and recovery and investment into corporate conflict situations. – What are the chances of compensation being received from Russia under ex-‐Yukos shareholders’ legal action? – I believe Russia’s legal team and whoever was making legal decisions for Russia in Yukos proceedings under the Energy Charter made a big mistake by allowing themselves to be pulled into this international arbitration. And not just being pulled in, but actively taking part in it, even appointing an arbitrator from their side. – But Russian officials may have been acting under the assumption that Russia signed but not ratified the Energy Charter, which is used by Yukos shareholders to claim compensation. So there was still a chance to prove there is no basis for compensation? Russia does not have to recognize the Energy Charter, does it? – Not exactly. If you are actively taking part in an arbitration, you effectively recognize this arbitration. That’s the problem. You accept that it exists for you as a competent authority for settling the dispute.
- 2. 2 – So it looks like Russia made it much simpler for its opponents to claim compensation. But isn’t the Energy Charter arbitration a higher international instance in any case – is it above national courts? Do all its rulings have to be enforced automatically? – It is not above national courts. It’s a kind of contractual institution. For example, I lend you money and we agree that if you don’t repay in time, I will not go to the state court, because I don’t want to show publicly that I have that much money. And you don’t want to show that you have a dispute with me. So we agree to go to a private court. And that private court will decide on our dispute. There is no institution above Russia here. Russia is sovereign, just like the US, Britain, or any other country. There are no courts above any state. The states create contractual institutions among themselves. And the states will follow their awards as long as they want to and as far as they consider those awards right or practical to enforce. That’s what international law in practice is based on. Nobody is above the states. So in this situation Russia, as a state, in its free will had expressed its consent. And I think it was a great mistake of those who formulated the legal position on the Russian side. – Then can you explain how arbitration rulings, like the one made for Yukos, are enforced? – There is a New York Convention of 1958, Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Russia is party to that Convention, and so are more than 150 other countries. According to the Convention, properly issued arbitration awards are mandatory for implementation – i.e. enforcement – in all states that are parties to this New York Convention. Provided that… and then there are several conditions. The first condition is that the party must be duly notified about the case. The second is that the implementation of the ruling must not contravene the public order in the country where you are seeking the enforcement of the award. And so on. But what happened in the Yukos case? The issue of Energy Charter’s applicability to the Russian Federation is arguable. And Russia’s winning or losing this arbitration doesn’t make it any less arguable. Because Russia did sign this Charter but did not ratify it. And this ambiguous status would have ideally enabled Russia to ignore the procedure completely. If Russia refused to get into the arbitration and lost, Yukos people would be facing a giant issue of trying to enforce the arbitral award in each individual country. In each country they would have to prove a most complex doctrinal issue of Russia being actually bound by the dispute resolution provisions of the Energy Charter. This would have been a real nightmare, trust me. Suppose the plaintiffs would file for recognition in a US court. Suppose they find a building in the US owned by some Russian state enterprise, some foreign state property, and decide to arrest it. In that case Russia would say: sorry, we never recognized that arbitration, so you can’t enforce its award against us. What would Yukos do then? They would have to go to a court of general jurisdiction somewhere in Texas or California – wherever that property would be, and try to prove that the
- 3. 3 Energy Charter’s dispute provisions are actually binding on Russia. And a court of general jurisdiction is much less competent in these issues, by the way, than the specialized arbitration, which is specifically geared to deal with this kind of questions. And that would be a case lasting years. Another point. If Russia refused to join that arbitration and lost, it could then try to dismiss the Yukos award in a US court as politically motivated, however remote that argument could be. In other words, Russia could argue that enforcing this award in the US would contravene public order. Again, that could make the lawsuit last forever. But that is theory, and in practice – I repeat – Yukos claimants received a privilege to address one signle forum on the issue of the Energy Charter’s applicability to Russia and have that issue resolved once and for all. – How will the compensation claim process go now, in your opinion? – I would predict that now courts in the US, Europe, wherever the claimants will apply, would probably order to enforce the arbitration ruling against Russia. But that’s not the problem. The problem is what property they can actually seize to meet their financial claim. – If they can still find property they can claim against… – Theoretically, the claimants can find such property. The practice of enforcing claims against state property is changing now. Do you remember that old man Nassim Gaon, who was running all over the world trying to claim $640 million from Russia? How much time did he spend on that? I think some 15 years. Any results? – Franz Sedelmayer was also trying to claim compensation… – He did actually get something, something minor. Gaon got next to nothing. But things are changing. There’s a fund I’m related to, that works a lot on government debt, we closely monitor the practice. And I would say the era when nothing could be done to collect from a sovereign state, despite having a judgement, is now ending. – How come? – It’s ending due to a series of precedents that were set in America in 2012-‐2014. These precedents matter not just for the US jurisdiction. Do you know the story of Argentina sovereign debt litigation? – Some investors there did not agree to write off their part of the debt and wanted to be paid in full, without a discount. – Right, and by that time Argentina did not have any property abroad that could easily be arrested. There was a bizarre case of an Argentinian warship arrested in Ghanian waters in 2012. The claimants were also trying to arrest dinosaur bones Argentina sent to some exhibition in Europe. But this is all not serious.
- 4. 4 Problem with government-‐owned assets is that they are mainly located within its country. Outside, if there are any funds in any accounts, for example – these are reserves of the Central Bank of that country. But Central Banks are usually considered separated from the state. Besides, the correspondent accounts in Central Banks hold funds deposited by the clients of commercial banks which keep their money in the Central Bank. It means that to a certain extent, these are people’s funds. So they cannot be attached in a claim against the government. – How is it possible then to protect the interests of those who can’t get their money from sovereign states? – Creative lawyers are constantly thinking of new ways to address the issue, they sue and they set precedents. When Argentina became so maliciously incooperative on its debts, despite the court rulings, the courts started inventing new ways to protect the interests of those it wouldn’t pay to. Some very creative people from NML Capital, a fund suing Argentina, created a precedent. The court could not arrest Argentina’s property, as there was none outside Argentina by that time. But the court could order injunctive relief. Thus the court prohibited all third parties in the financial sector: banks, investment companies, brokers, even financial consultants – to receive and process payments related to Argentina’s government debt. This ban is not supposed to be lifted until Argentina starts making payments to the claimants – bondholders who did not agree to restructure and write off their debts. In other words, the US court made a ruling on a claim against Argentina, but the ruling is not exactly against Argentina, it is addressed to third parties. – As a result, Argentina was cut off from the capital markets … – Right, and then it quickly slipped into a technical default. President Kirchner was screaming in the UN that this is financial terrorism by the US. The dispute still goes on. But actually, the American court didn’t do anything illegal. I mean it didn’t do anything that could not fit in the legal framework. It’s just that the NML lawyers saw this as an opportunity in 2012. And they litigated a precedent. – Now, how does that relate to Yukos story? – My fund is not dealing with Russia’s debts, so I can say without a conflict of interest. Russia must take urgent measures to minimize any possible consequences of a similar action. The government should protect its international financial flows. I would pay special attention to Russia’s debt securities, for which the paying agents are financial institutions located in the US and UK. This includes well-‐known Western global banks represented in Russia. Look at the last page of each prospectus for Russian government bonds, it lists them all. – So, Yukos claimants can freeze payments of coupons and principal that are distributed by Western intermediary banks on Russia’s behalf, and order those funds to be transferred to the ex-‐ Yukos shareholders’ accounts instead?
- 5. 5 – Yes, that’ a risk. – Where else can the claimants seize government money? – There is a multitude of such nodes within the global financial system. I don’t want to give hints. Just the most obvious point – government securities. In the scenario I outlined it is, though, clear that the holders of Russian government bonds, which include international financial institutions as well, won’t like Yukos getting between them and their money. In that sense, they are with Russia. And Russia can take preventative action to cover these risk spots that can come under blow because of the American precedent of 2012. – What specific action needs to be done, in your opinion? – Make all the foreign banks who act as agents in servicing payments on the Russian government debt move all these payment flows to their correspondent accounts with Russian state banks. And pay coupons and principal of the debt only through these accounts, not via their London and New-‐ York accounts. – Can claimants arrest Russian property while the country attends international exhibitions? There was an expo just recently in Milano… – What can you get from an expo? Those are just mockups, they are worth pennies. Doesn’t make sense from the financial point of view. Unless they want to blow out a PR issue of this. – What about military expos? Like, arresting Russian airplanes, helicopters, ships? – No chance. First of all, Russia probably sells weapons through some companies, not directly as a sovereign. As for exhibitions, those exhibited items could be owned by any random third party. You won’t be able to prove anything. But the main principle, the general rule is that military equipment cannot be arrested. If you touch that, you are five minutes short of an act of war. You can’t arrest a warship in any decent court. Not in Bristol, not in Rotterdam, not in New-‐York – not anywhere else. Military property is beyond limits, so is diplomatic property. But with financial flows, you have to be very careful.