Tomorrow the ECHR will publish its judgment with regard to the YUKOS case. YUKOS alleged that Russia violated Article 6 of the Convention, Article 1 of Protocol No. 1, taken alone and in conjunction with Articles 1, 13, 14 and 18 of the Convention, and Article 7 of the Convention. YUKOS claimed for damages amounting to over USD 98 billion. In anticipation of tomorrow’s judgment I would like to recap the key facts of this case and the results of the Court’s admissibility decision.[1]
The YUKOS case was originated in an application against Russia lodged with the Court on 23 April 2004 shortly after YUKOS was targeted by the Russian authorities with tax and enforcement proceedings, which eventually led to its liquidation. The application was declared by the Court partly admissible on 29 January 2009. The Court held hearings on the merits on 4 March 2010 at 2:30 pm.
The facts of the case
YUKOS was one of the largest producers of petroleum products in Russia. It was a publicly-traded private open joint-stock company incorporated under the laws of Russia and registered in Nefteyugansk, Tyumen Region. Initially it was established by the Russian Government in 1993 as a holding company to acquire and control a number of stand-alone entities specializing in oil production. The company was fully State-owned until the mid-1990s when, through a series of tenders and auctions, it was privatized.
Starting in November 2002, YUKOS was subject to a series of tax inspections and court proceedings as a result of which it was found guilty of repeated tax fraud, in particular for having used an illegal tax evasion scheme in 2000-2003. It was ordered to pay additional taxes, penalty interest, and fines exceeding an overall sum of approximately EUR 13 billion, surcharged fines of approximately EUR 6 billion, and further enforcement penalties for non-performance of the obligation to pay the above liabilities. The court proceedings against YUKOS also resulted in deprivation of its right to control, charge or dispose of any of its assets and the forced sale of its principal and most valuable production subsidiary OAO Yuganskneftegaz.
In November 2004 Russian authorities decided to sell 78.79 percent of the shares in OAO Yuganskneftegas at an auction. A winner of the auction was OOO Baykalfinansgrup. Later OAO Rosneft, the Russian state-owned oil company, acquired OOO Baikalfinansgrup and thus took control of OAO Yuganskneftegas, which constituted most of YUKOS assets.
The applicant company was declared insolvent on 4 August 2006 and liquidated on 12 November 2007.
Alleged violations and Court’s admissibility decision
A. Alleged violations of Article 6 (right to a fair trial):
1. YUKOS tax liability case for the year 2000 was not tried by a tribunal established by law because it should have been tried in Nefteyugansk (where the company was registered), rather than in Moscow.
The Court rejected this complaint as ill-founded and considered the application of the real seat doctrine by Russian courts as reasonable in this case.
2. The Russian Tax Ministry did not reply to YUKOS’ request to clarify the 2000 audit report.
The Court rejected this complaint as ill-founded and noted the alleged lack of answer by the Ministry had not affected the fairness of the subsequent proceedings as such.
3. The proceedings before the domestic courts were tainted with a number of procedural defects which made them unfair and as a whole unlawful. In support of this claim YUKOS referred inter alia to the following facts: there was no equality between the parties and no adversarial process; YUKOS did not have enough time to prepare for the trial; the court refused YUKOS requests to adjourn the proceedings; the court gave its judgment without having studied all evidence.
The Court found this part of application admissible noting that it raises serious issues of fact and law under the Convention, the determination of which requires an examination of the merits.
4. The 2001-2003 Tax Assessments were not imposed by a court and that such extrajudicial enforcement of the tax assessment was incompatible with the right of access to court and the right to fair proceedings.
The Court rejected this complaint as ill-founded observing that YUKOS had the right to appeal against the 2001-2003 Tax Assessments, which it eventually did.
B. Alleged violations of Article 1 of Protocol No. 1 (protection of property) to the Convention, taken alone and in conjunction with Articles 1 (obligation to respect human rights), 13 (right to an effective remedy), 14 (prohibition of discrimination) and 18 (limitation on use of restrictions on rights) of the Convention:
1. The 2000-2003 tax assessments decisions were disproportionate in so far as they were likely to ruin the company, and were arbitrary, discriminatory and given in bad faith;
2. The whole “enforcement” of the supposed tax liability was deliberately set up with a view to preventing the applicant company from repaying its debts. The forced sale of OAO Yuganskneftegaz was unlawful, arbitrary and disproportionate;
3. The attachment of YUKOS assets was arbitrary and that it prevented the applicant company from repaying the debt;
4. The prosecution for the year 2000 was time-barred.
The Court found these claims admissible noting that they raise serious issues of fact and law under the Convention, the determination of which requires an examination of the merits.
C. Alleged violation of Article 7 (no punishment without law) of the Convention:
1. The Tax Assessments for the years 2000-2003 were not based on any reasonable and foreseeable interpretation of the domestic law;
2. The imposition of double penalties for the years 2001-2003 amounted to a retrospective penalty, since it was unforeseeable at the date when the liability was incurred.
The Court found these claims admissible noting that they raise serious issues of fact and law under the Convention, the determination of which requires an examination of the merits.
[1] The facts of the case and the results of the Court’s admissibility decision presented below were taken from the ECHR decision of 29 January 2009 as to the admissibility of Application No. 14902/04 by OAO NEFTYANAYA KOMPANIYAYUKOS against Russia.
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