Energy Charter Treaty Disputes

This assignment delves into the complexities of the Energy Charter Treaty (ECT) and its role in resolving international energy disputes. It examines the treaty's provisions on interpretation, provisional application, and jurisdiction, drawing upon key cases such as Plamadecision, Yukos v. Russia, and the broader context of investment treaty arbitration. The analysis highlights the challenges and implications of applying international law to energy investments within a globalized context.

A critical analysis of the
provisional application of the
ECT in the YUKOS case

TABLE OF CONTENTS
ABSTRACT.....................................................................................................................................1
CHAPTER 1: INTRODUCTION....................................................................................................1
Concept of Provisional Application of Treaty........................................................................3
Overview of Yukos Case........................................................................................................4
CHAPTER 2: PROVISIONAL APPLICATION............................................................................5
Jurisdictional Ascertainment by Tribunal..............................................................................5
Provisional Application of ECT by Russia............................................................................9
Influence of ascertainment of provisional application on results of case.............................10
CHAPTER 3: IMPACT OF THE FINDINGS OF YUKOS CASE..............................................13
Rationale of the topic............................................................................................................13
Consequences of Yukos case in terms of decision by Dutch court......................................15
CHAPTER 4: CONCLUSION......................................................................................................17
REFERENCES..............................................................................................................................19

ABSTRACT
The Energy Charter Treaty (ECT) is a multilateral instrument is helpful to promote the
investment in the sector of energy so as to promote the products and services of the related field.
The Russia is considered as very rich in term of oil and gas and providing easy access for its
members countries effective for operating their business in the right manner. However, the treaty
contain specific aspects related to operation of investment arbitration and their successful
implementation in order to accomplish the specific objectives. It aids to secure the right of
investors and determine the well being of all associated patties in the right manner. Furthermore,
ECT was signed by the Russia Federation but not ratified which does not give rise for investors
to ask for international arbitration. For this purpose, national law must be considered through
which it becomes easy to take the valid and consistent decision as per the Russian Law.
Furthermore, ECT was not considered by the Russia due to its negative impact on progress of the
oil and gas sector of the nation. Owing to this, merely signatory aspects was not considered as
per the Dutch law in providing the protection was major shareholders invested money in the
Yukos.
CHAPTER 1: INTRODUCTION
The Energy Charter Treaty (ECT) is a multilateral instrument which has been drafted
with the intention to promote international cooperation within the energy sector. The Treaty was
verified in December 1994 and finally came into force in the year 1998. On 16th April, 1998 the
Treat came into legal force and constituted to be the legal basis of formulation of an open
international market, with a primary focus on the energy market. It is important to note that the
Treaty along with the attached documents formulates to be the legal basis of operating an energy
market. The Charter process is inclusive of the jurisdictions of enlarged European Union,
Russian Federation, the Caucasus and Central Asia, in addition to Mongolia, Australia and
Japan.1 Till date it has been acceded by about 52 states. Apart from these jurisdictions the Treaty
is open for accession by other nations as well, which are willing to observe all the attached
principles. In respect to the same it can be stated that some other countries such as China, South
1 Secretariat, Energy Charter. 'Energy Charter: About the Charter.' accessed May 7 (2014).
1

Korea, Iran and certain states of ASEAN have reflected a close interest in this process, thereby
further opening up the prospects of extending the geographical scope.2
However, it has been ascertained that one of the issues which is being faced is in respect
to assurance of full implementation of the commitments required to be followed by the
constituent members. Thus, the extent of implementation of the commitments is one of the
primary challenges which is being faced within this regime. The Treaty's focus entails the
requirement of multilateral cooperation in connection to transit, investments, environmental
protection concerns, trade and energy efficiency. In addition to promote these concerns of the
energy market, the Charter process intends to translate the manner in which energy market
operates to evolve it into a non-discriminatory and open market. In pursuance to the same,
Charter has been designed for promotion of energy security with the assistance of development
of more open as well as competitive energy markets. In addition, it is also required by the
Charter that this process of promotion and development shall be undertaken on the basis of the
concept of sustainable development as well as sovereignty over all the energy resources3.
The wide focus of ECT is restricted within four areas and the provisions entailed within
the treaty purports to protect the foreign investments which are received in this market. The
protection measures which are stated within this Treaty for securing the interests of foreign
investors are through extending National Treatment, developing a shield against non-commercial
risks and lastly, most favoured treatment (MFN).4 Further, it intends to establish non-
discriminatory conditions for ensuring free trade of energy materials, related equipments and
products, in accordance to the applicable WTO rules. Moreover, it also provides assurance in
respect to reliability of the energy transportations means such as pipelines or grids, when
undertaking cross border transmission.5 Moreover, it also provides for an effective dispute
2 Laidlaw, Peter C. 'Provisional Application of the Energy Charter as Seen in the Yukos Dispute.' Santa
Clara L. Rev. 52 (2012): 655.
3 Provisional Application of the Energy Charter As Seen in the Yukos Dispute (2012)
<http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi article=1237&context=lawreview> accessed on 22nd
April 2017
4 Charter, Energy. "About the Charter." Energy Charter website, http://www. encharter. org/index.
php (2011).
5 Konoplyanik, Andrei, and Thomas Walde. 'Energy Charter Treaty and its role in international energy.' J.
Energy Nat. Resources L. 24 (2006): 523.
2

resolution mechanism for participating states or investors and host states. Lastly, it requires the
members states to promote energy efficiency and undertake every possible attempt for reducing
the environmental impact of the processes of energy production as well as usage.
However, Russia withdrawals from the ECT in order to protect its own right and
determining the growth in term of oil and gas sector. This aids to meet the expectations of all
related stakeholders or protecting them effectively for the investment purpose in the country.
Also, country just develop own regulation for securing the right of involved parties. However,
the country found that ECT is biased towards the consumers and members stated6. However, it is
already rich in context of oil and gas through which it becomes easy to protect the right of
investors and stop the free transit of oil and gas from central Asia to Europe. Currently the
country is getting the gas from Uzbekistan, Turkmenistan and Kazakhstan before making the
decision related to sale to Europe as Russian gas. Thus, it does not consider highly beneficial to
ratify the ECT7.
Concept of Provisional Application of Treaty
Article 45 of ECT specifically provides for provisional application of the Treaty within a
jurisdiction. In accordance to Article 45 (1) the signatories were empowered to provisionally
apply the Treaty till the time it comes into force within their respective jurisdiction.8 Moreover, it
has been subjected to a proviso, in accordance to which the provisional application shall be
completely in compliance with its constitution, laws and regulations. It is important to note that
provisional application under Article 45 of ECT was possible only during the initial years when
it was open for signature i.e. during the time period of 17th December 1994 to 16th June 1995.
During those years when the treaty was open for signing, each of the signatories were required to
file a declaration to the effect of in ability to accept provisional application under Article 45 of
6 Kryvoi, Y.,The Yukos Arbitration Decision in a Nutshell (2015)
<http://www.cisarbitration.com/2015/06/19/the-yukos-arbitration-decision-in-a-nutshell/> accessed on 22nd
April 2017
7 Russia's withdrawal from the Energy Charter Treaty (2017)
<http://www.nortonrosefulbright.com/knowledge/publications/22691/russias-withdrawal-from-the-energy-charter-
treaty> accessed on 22nd April 2017.
8 The Energy Charter Treaty (September 2004) <http://www.ena.lt/pdfai/Treaty.pdf> accessed on 11th April
2017
3

ECT.9 The Russian Federation and Belarus were the only two nations, who did not file such a
declaration and thus, allowed provisional application of the Treaty. Until June 2013, 5 of the
original signatories did not ratify the Charter, out of which only Russian Federation and Belarus
are the two nations which have accepted provisional application.10 However, in pursuance to the
existing legal concerns, the legal rights arising out of such a provisional application is open to
interpretation. Thus, this is one of the aspects of international law in consonance to provisions of
ECT which is unclear and needs an authoritative judicial consideration.
In furtherance to the same, it was officially communicated by Russian Federation on 20th
August 2009 that the nation no longer intends to ratify the Treaty and attain the title of
Contracting Party to ECT. As stated in Article 45 [3(a)] of ECT, communication of such a
notification has the effect of terminating the provisional application of ECT within Russia,
within a time period of 60 days from the receipt of such a notification. In consequence to such a
termination the Nation shall also not be required to adhere by the Protocol of Energy efficiency
as well as other environmental aspects. Thus, currently Belarus is the only nation which is
entitled for provisional application of this Treaty, in accordance to Article 45 of ECT. The
following discussion shall be focused upon different aspects of Yukos Universal Ltd. v. The
Russian Federation (2009) (hereinafter called as the Yukos Case).
Overview of Yukos Case
Yukos was one of the Joint Stock company established in 1993 and further privatilzed in
1995 with primary operations in the Oil and Gas Sector. The main production susbsidiary was in
the name of Yuganskneftegaz (YNG). By the year 2002 Yukos captured the position of largest
corporate in Russia and was also listed as one of the top 10 corporates of the world in the sector
of oil and gas. It has been complained by the claimant that various measures were undertaken by
Russia since July 2003 to declare Yukos as bankrupt in the year 2006.11 In pursuance to the
same, its name was also struck off in November 2007, along with nationalization of all its assets.
9 Gardiner, Richard K. Treaty interpretation. (Oxford University Press, USA, 2015).
10 The Energy Charter Treaty (2015)
<http://www.energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/> accessed on 11th April
2017
11 Yukos v. Russia: Issues and legal reasoning behind US$50 billion awards (2014)
<https://www.iisd.org/itn/2014/09/04/yukos-v-russia-issues-and-legal-reasoning-behind-us50-billion-
awards/> accessed on 18th April 2017
4

The remaining assets were acquired by state owned entities in the name of Gazprom and Rasneft.
The primary allegations in the present case are in relation to violation of provisions of ECT,
through initating a criminal prosecution against the corporate as well as its management. The
CEO of Yukos, Mikhail Khodorkovsky was charged and convicted for the criminal activities of
embezzelment, forgery, tax evasion and fraud. It was also determined some other executives of
the corporate fled from the nation to avoid any form of charges against them.12
During the arbitration proceedings it was alleged by Russia that the CEO was an
'oligarch' and further indicated towards involvement in other illegal activities. It was further also
stated by Russia that Yukos can be characterized as a 'criminal enterprise' which has been
involved in the specific activities of embezzlement, tax evasion, tax fraud and avoidance of other
compliances to eliminate enforcement of other aspects of tax laws, including transfer pricing.13
The alleged intention behind indulgence in all these activities is to divert all the proceeds to
offshore shell entities which are owned the mentioned oligarchs.
On the other hand, it was claimed by claimants that Russia by using its powers imposed
tax re-assessments, fines, VAT charges and asset freezes, apart from threatening to to revoke the
permit and annulling an important merger with Sibneft. It was also alleged by the claimants that
they were also coerced to sell away YNG, one of the most important entities looking into
production facilities. It was further alleged by the claimant that these measures amounted to
violation of the requirements of ECT, in the form of Fair and Equitable Treatment (FET) as
enunciated in Article 10 (1) and indirect expropriation of investment made by the claimants
under Article 13 (1).
CHAPTER 2: PROVISIONAL APPLICATION
Jurisdictional Ascertainment by Tribunal
The arbitration tribunal while dealing with matter, declared the Jurisdictional issue
through the interim award. The primary question which was considered by the tribunal was the
manner in which Article 45(1) and Article 45(2) shall be read. The Russian Federation suggested
following a piecemeal approach, in pursuance to which each of the provision of ECT shall be
12 Blyschak, Paul M. 'Yukos universal v. Russia: Shell companies and treaty shopping in international energy
disputes.' Rich. J. Global L. & Bus. 10 (2010) 179.
13 Brauch, Martin Dietrich. 'Yukos v. Russia: Issues and legal reasoning behind US $50 billion awards.'
(Investment Treaty News, 2014).
5

compared with the prevailing legal framework in the signatory nation. On the other hand, it was
recommended by the claimants that the tribunal shall adopt the principles enunciated under the
Provisional Application approach, in accordance to which it shall only be assessed if the
principle of provisional application is in consistence with the constitution as well as legal
framework applicable in the respective signatory nation.14
In accordance to the opinion of Russian Federation, Article 45(1) and 45(2) are
completely exclusive to each other and provides two distinct regimes. Thus, it was alleged by
them that interpretation of the concerned articles shall be undertaken in an exclusive manner.
The specific assertions made by the Russian Federation in regard to interpretation of these
provisions were:
 A piecemeal comparison of the provisions of ECT shall be undertaken to ascertain the
inconsistency existing in the laws, in accordance to Article 45 (1).
 On the other hand, Article 45 (2) requires the nation to make a separate declaration in
order to opt out of provisional application of the provisions of ECT.15
On the basis of these assertions it can be stated that the Russian Federation pertinently
pointed out towards the exclusive nature of these two articles of 45(1) and 45(2). However, in
the opinion of Claimants Article 45(1) is substantive in nature, capable of being invoked only
after satisfying the requirements enumerated in Article 45 (2). Thus, in view of this nature
Article 45 of ECT provides for a single regime encompassing two provisions.16 The former
provision purports to cover the substantive aspect of provisional application, whereas the other
provision provides for procedural aspects. While analysing specific aspects at the interim stage,
the tribunal at the first instance addressed the sub-issue of the requirement of making a
declaration under Article 45(2) of ECT, with the purpose of invoking the provision of Article
45(1). Further, the tribunal considered that requirement of signatories to give any form of notice
14 Laidlaw, Peter C. 'Provisional Application of the Energy Charter as Seen in the Yukos Dispute.' Santa Clara
L. Rev. 52 (2012) 655.
15 Olson, Cody. 'Enforcement of International Investment Arbitration Awards Against the Russian
Federation.' Am. Rev. Int'l Arb. 22 (2011) 711-711.
16 The Yukos Interim Awards on Jurisdiction and Admissibility Confirms Provisional Application of Energy
Charter Treaty (2010) <https://www.asil.org/insights/volume/14/issue/23/yukos-interim-awards-jurisdiction-
and-admissibility-confirms-provisional> accessed on 18th April 2017
6

or declaration, when intending to receive benefits of the Limitation Clause as enunciated under
Article 45(1).
The interpretation of this situation was commenced by the tribunal by considering Article
31 and 32 of Vienna Convention on Law of Treaties (VCLT). It was opined by the tribunal in
this respect that the approach being suggested by Russian Federation is unambiguous in nature.
In other words, the piecemeal approach was preferred by the court which enunciated the idea of
two separate regimes being provided by Article 45 of ECT.17 It was specifically opined by the
court that it was unnecessary to pursue the travaux preparatories, attached with VCLT.
Therefore, it was opined that the Limitation Clause as provided by ECT is self-executing in
nature, while the other provision is liable to be invoked as a separate measures by the concerned
nations. In addition to these ascertainments, it has been opined by the court that if the tribunal
had followed the travaux preparatories of VCLT, it would have definitely concluded existence of
a single regime for being pursued by the signatory nations.
Furthermore, it was declared by the arbitral tribunal that a plain reading of Article 45(1)
directly concludes that the meaning of the wording of the concerned article along with the
practice prevalent in other signatory nations, leads to a conclusion that there does not exist any
form of requirement to make a formal declaration in any form.18 Finally, the Tribunal assessed
the Limitation Clause and the manner in which it shall be interpreted. The method of Principle
analysis as well as comparison on the basis of piecemeal approach was considered. As stated the
issue was analysed in three successive stages, wherein the requirement of Russia to make a
declaration in pursuance to Article 45 (2) was ascertained for enjoying the benefits under Article
45 (1) or the Limitation Clause. By stating that there was no need to make any such declaration,
it was also established that there existed two exclusive regimes in Article 45 for provisional
application. Thus, it was established that the declaration referred under Article 45 (2) is not any
form linked to the Limitation Clause in Article 45 (1).19 The tribunal took assistance from Article
17 Provisional Application Of The Energy Charter Treaty: Article 45(1) “Limitation Clause” (2010)
<http://kluwerarbitrationblog.com/2010/02/16/provisional-application-of-the-energy-charter-treaty-article-
451-limitation-clause/> accessed on 18th April 2017
18 Abi-Saab, Georges. "The appellate body and treaty interpretation." Treaty interpretation and the Vienna
Convention on the Law of Treaties: 30 years on. (Brill, 2010).
19 Dörr, Oliver, and Kirsten Schmalenbach, eds. Vienna Convention on the Law of Treaties: a commentary.
(Springer Science & Business Media, 2011).
7

31 and 32 of VCLT for understanding the manner in which treaty shall be interpreted. Moreover,
special reliance was placed on ordinary meaning of the provisions of Treaty, along with the fact
that the common practice which has been followed by other signatories was not on delivering a
declaration for placing reliance on the Limitation Clause. It was noted by the Tribunal that six
states, namely Austria, Italy, Luxembourg, Portugal, Romania, and Turkey placed reliance on the
Limitation Clause and did not make any prior declaration in pursuance to Article 45 (1).
Further, the examination of Limitation Clause by the Tribunal led to the conclusion that
the stand of the claimants was correct in connection to application of âall-or-nothingâ approach,
in pursuance to which either the Charter would be applied in its entirety or not at all. The
Tribunal in pursuance to this opinion as well as after referring to VCLT, agreed to the fact that
Russia had given its consent for application of the treaty in its entirety.20 However, the whole
application of Treaty shall be in a provisional manner till the time it is not ratified by the nations.
Further, it was also opined that this stand shall be final, unless the basic principle related to
provisional application is in itself inconsistent with the applicable rules, regulations and the
constitution of the treaty.
The decision of the arbitral tribunal in respect to the given facts of the case, has provided
a landmark judgement for reinforcing the binding nature which is attached with international
law. A reference can be made to the principle of Pacta Sunt Servanda, which has been
enunciated in Article 27 of the VCLT. This is one of the cardinal principles which states that a
State under general circumstances is prohibited to take recourse under domestic law, on failing to
abide by the requirements of international laws. This principle has been entailed in one of the
most definitive authority in the form of VCLT. Through Article 26 it is also stated by VCLT that
every treaty having a binding effect shall also be required to perform in good faith. In pursuance
to the same every state is under an obligation to undertake essential steps to stay in compliance
with the primary object as well as purpose of the concerned treaty.21 It is an unacceptable
practice to invoke restrictions entailed within the domestic laws for allowing themselves to not
comply with the obligations imposed under the Treaty, which has been duly ratified. The shelf
cases (1969) had clearly established that a treat could be ratified only after consent of the
20 Hofmann, Nathalie. "Interpretation Rules and Good Faith as Obstacles to the UK's Ratification of the CISG
and to the Harmonization of Contract Law in Europe." Pace Int'l L. Rev. 22 (2010) 145.
21 Hofmann, Nathalie. "Interpretation Rules and Good Faith as Obstacles to the UK's Ratification of the CISG
and to the Harmonization of Contract Law in Europe." Pace Int'l L. Rev. 22 (2010) 145.
8

concerned parties.22 Thus, ratification of a treaty makes all the provisions binding in nature and
requires execution of the same in good faith. This approach can be seconded by the principle on
the basis of which contract law operates and makes the concerned parties liable for their actions.
Thus, a Treaty is also similar to a contract which is entered between parties making them bound
to perform each of the obligations in the stipulated manner. Applying this principle on facts of
the Yukos case, it was concluded by the Tribunal that to allow Russia from not abiding by the
obligations required under the principle of provisional application on the basis of their domestic
law, shall directly have the effect of undermining the fundamental principle of creating binding
nature of provisional application.23
Provisional Application of ECT by Russia
After ascertainment of the separate legal regimes and the requirement for declaration
under the Treaty, the Tribunal considered whether the Russian Legal System allowed the concept
of provisional application or if the domestic law of nation contradicted application of a treaty in
this manner. After analysing all the relevant laws and the applicable practices, it was ascertained
by the Tribunal that this concept was completely in compliance with the legal laws and
regulations as well as the Constitution of Russia.24 This could also be clearly demonstrated by the
long tradition which the nation has been following in respect to provisional application ODF
other 45 treaties. In pursuance to these determinants it was opined by the Tribunal that Russia
was under an obligation to provisionally apply each of the Articles of ECT, which also included
the dispute resolution provision25.
Furthermore, it was argued by Russia that under provisional application of the treaty they
are liable to apply treaty provisions, provisionally, only to the extent they are consistent with the
22 Schreuer, Christoph. "Diversity and harmonization of treaty interpretation in investment arbitration." Treaty
Interpretation and the Vienna Convention on the Law of Treaties: 30 Years on. (Brill, 2010).
23 Schreuer, Christoph. "Diversity and harmonization of treaty interpretation in investment arbitration." Treaty
Interpretation and the Vienna Convention on the Law of Treaties: 30 Years on. (Brill, 2010).
24 Waibel, Michael. "Demystifying the art of interpretation." European Journal of International Law 22.2
(2011) 571-588.
25 The Yukos Saga Continues (2016)
<http://www.hendersonchambers.co.uk/wp-content/uploads/2016/04/Alerter-from-Matthieu-Gregoire-
Yukos-Saga-Continues-April-21-2016.pdf> accessed on 22nd April 2017
9

specific domestic Russian law.26 Moreover, it was stated that the dispute resolution provisions
entailed in ECT are not consistent with the already existing domestic laws of the nation. Thus, in
pursuance to the same, it was argued by the nation that they are not liable to comply with this
particular provision of ECT. The entire argument of Russia was negated by the Tribunal in light
of the rule that provisional application of the treaty is attached with the approach of 'all-or-
nothing', in pursuance to which either all the provisions of the Treaty shall be applicable on a
provisional basis or the Articles are not made applicable on a provisional basis at all. Moreover,
it was stated by the court that provisional application is not dependent on the consistency of these
clauses with the respective state's domestic law, but on the fact that the concept itself is in
compliance with the legal framework for the concerned state. In furtherance to same, the fact that
on 18th October 2009 Russia terminated the provisional application was also considered by the
Tribunal. In pursuance to the same, it was stated that this termination shall have no effect on the
above conclusion in respect to validity of provisional application of the treaty.27 Moreover, it was
stated that the investments made prior to the date of termination shall continue to benefit from
the specific protections enumerated in the treaty for a period of twenty years. Thus, till October
19, 2029 the investment made by the entities in the present case shall be entitled to invoke the
provisions under the Treaty, and caters to all the investors existing within the energy sector of
Russia by giving them due protection under the treaty. The primary rationale behind application
of this rule is that every investor makes an investment for a long term, and relying on the
protections which they can avail under the application of the respective treaty. In the present case
as well the investment in the oil and gas sector has been made in pursuance to the specific
provisions which are applicable through ECT.28 Thus, it shall be considered unfair for the
investors or parties to instantaneously remove the application of the treaty. Therefore, in light of
analysis of all these laws and rules, it was ruled that this is a case wherein the legal framework of
Russia is not contrary to the concept of provisional application, and in light of the same the
Tribunal upheld the jurisdiction.
26 Dolzer, Rudolf, and Christoph Schreuer. Principles of international investment law. (Oxford University
Press, 2012).
27 Mortenson, Julian Davis. "The Travaux of Travaux: Is the Vienna Convention Hostile to Drafting
History?." American Journal of International Law 107.4 (2013) 780-822.
28 Cannizzaro, Enzo, and Mahnoush H. Arsanjani. The Law of Treaties Beyond the Vienna Convention. (Oxford
University Press, 2011).
10

Influence of ascertainment of provisional application on results of case
The basic aim of the ECT is the promotion of international investment and offering
extensive co-operation for the energy industry. It is made possible with the help of stimulating
the foreign direct investment and global trade whereby investors receive the fair treatment.
According to the case scenario, Russia did not abide by the full treaty still, it agreed on some
clauses which aids to provide the protection.29 For this purpose, all associated parties in Yukos
could seek for the payments from Russian government. It is because there were major
stakeholders of the Yukos such as GML which sued the organization for greater than $100
billion whereas $25 billion was the estimated amount of stakeholders. Owing to this, it was
known as the world's largest-even arbitration case. For this purpose. GML proposed two major
provision with regard to the case where the first one reflects that all investors must be
compensated failure in case their assets are seized in an unfair manner.30 It further shows that
treaty is not affecting or preventing the right of government to seize the commercial assets. The
second provision is about investors right to seek arbitration for varied claims such as signatory
government and ruling which are legally bind through involved parties along with enforcement
of the same by both parties. However, it is subject to any appeal. The case handled by court came
up with findings that Russia is depriving the mentioned oil and gas company in the series of
politically motivated attacks wherein it breached the Article 13(1) related to the Energy Charter
Treaty. The state tries best to acquire the valuable assets of the organization but did not focus on
the motive to collect the tax. On a critical note, it is has two distinctive features. First, the Treaty
i very important for Russia to follow the regulation imposed under the ECT so as to ensure the
protection of investors and promote the finance effectively.31 This in turn all the settlement is
done in accordance with the mentioned regulation so as to determine the betterment of all
involved or associated parties under the treaty.
It was asserted by Russia that claimants were in fact did not qualify for being considered
as investor, as they were operating in the form of shell entities and were controlled by Russia.
However, with reference to the case of Plama v. Bulgaria, stated that the only requirement which
29 Cannizzaro, Enzo, and Mahnoush H. Arsanjani. The Law of Treaties Beyond the Vienna Convention. (Oxford
University Press, 2011).
30 Aust, Anthony. Modern treaty law and practice. (Cambridge University Press, 2013).
31 Hobér, Kaj. "Investment arbitration and the energy charter treaty." Journal of International Dispute
Settlement 1.1 (2010) 153-190.
11

shall be fulfilled to consider an entity as a qualifying protected investor is that it shall e
organized in pursuance to the legal framework of a Contracting Party.32 In pursuance to the same,
it was observed that the claimants were in fact organized under the legal framework of Cyprus
and hence, shall be considered as protected investor, without considering the nationality of the
controllers. The ascertainment of Tribunal that ECT shall be provisionally applicable on Russia,
had the impact of allowing the jurisdiction of the court to decide the dispute. Moreover, in
pursuance to the decision, Russia shall be under an obligation to resolve the disputes between
them and claimants through the dispute resolution mechanism enumerated in ECT.33
Article 26 of the ECT provides that all the disputes between the contracting states shall
be resolved in accordance to the specific mechanism provided in the treaty. However, it has been
argued by Russia that the Article further excludes the application of the dispute resolution
mechanism from the jurisdiction with provisional application of the treaty. However, the
Tribunal negated the validity of this argument on basis of the principles of VCLT, in accordance
to which it has been stated that even if the state has agreed for provisional application the dispute
resolution mechanism shall be applied on the concerned parties.34 Similar view was upheld in the
case of Plama Consortium Ltd. v. Republic of Bulgaria35 it was established by the Tribunal that
Article 26 shall be made provisionally applicable on the state, whose ratification is still due.
32 Gardiner, Richard K. Treaty interpretation. (Oxford University Press, USA, 2015).
33 Hadfield, Amelia, and Adnan Amkhan-Bayno. "From Russia with cold feet: EU-Russia energy relations, and
the Energy Charter Treaty." International Journal of Energy Security and Environmental Research 1 (2012)
1-16.
34 Arsanjani, Mahnoush H., and W. Michael Reisman. Provisional Application of Treaties in International Law:
The Energy Charter Treaty Awards. Na, 2011.
35 Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Decision on Jurisdiction
(Feb 8, 2005) <<http://www.worldbank.org/icsid/cases/plamadecision.pdf>.
12

CHAPTER 3: IMPACT OF THE FINDINGS OF YUKOS CASE
Rationale of the topic
The role of Energy Charter Treaty is very important for the countries like Russia in order
to promote the investment in the same sector and meet the requirement related to same sector for
varied stakeholders. This treaty is beneficial for investors and several countries for meeting the
requirement related to energy sector. However, the potential issues is being faced in term of its
implementation. Furthermore, Yukos case affected the treaty of Russia with Energy sector under
EU that had negative impact on the mutual energy relationship. It happened due to different
interest of country regarding the energy policy and from the EU.36 Here, they were not able to
comply or work in accordance with divergent approaches of the Russia and EU with regard to
mutual energy relationship. This topic has been selected due to discuss the disputed issues with
regard to treaty. However, Yukos breached the regulation or duty mentioned under the Energy
Charter Treaty. Though, treaty considers to regulations related to protection of investors in term
fo investment under the energy sector. However, Russia adopted unethical practices and did not
follow the regulatory framework associated with the same condition. At this juncture, Russian
Federation was to ensure collecting taxes rather declaring the bankruptcy of Yukos. On the
contrary reality was like Federation considered the benefit of state only and related companies of
the same.37 Owing to this, current topic has been selected to understand the impact of treaty and
its direction outcome for the investors associated with the organization. By selecting the topic, it
would become easy to take the corrective measures in the well being investors and modifying the
certain aspects of ECT.
Furthermore, the case of Yukos reflects that negative impact on the right of shareholders
or investors. It is because their rights were not considered and the aspects related to ECT has not
been included. Owing to this, appropriate measures can be applied for protection of investors and
better implementation of ECT in countries so as to meet the expectations of all stakeholders in
the right manner.38 However, the case represent the major issue that Russian Federation is
whether acting in good faith in context of various tax reassessments and inspection proceedings
36 Laidlaw, Peter C. "Provisional Application of the Energy Charter as Seen in the Yukos Dispute." Santa Clara
L. Rev. 52 (2012) 655.
37 Hollis, Duncan B. The Oxford guide to treaties. (Oxford University Press, 2012).
38 Weeramantry, J. Romesh. Treaty interpretation in investment arbitration. (OUP Oxford, 2012).
13

with regard to Yukos. The second issues associated with the topic was related to certain actions
taken by Rosneft which could be attracted to the Russian Federation.39 It has direct impact on the
performance of the businesses operating with the mentioned corporation and negative affect the
earning of investors or major shareholders of the company. At this juncture, The Russian
Federation replied that they did not do the same and this fact was decided by the tribunal that
many evidences are presented for the attribute of Rosneft's action to the Russian Federation. At
the same time, tribunal agree for the fact that Federation of Russia expropriated investors of
shareholders instead of legitimately used their power. At this juncture, the decision was passed
by the tribunal for the Federation that they need for pay for the damages caused to each party
involved under the case. Accordingly total damages for over $50bn for their majority of the
stakeholders.40 This would be more effective for meeting the expectations in regard to return for
the varied stakeholders. Not only this, but the Russian Federation was also liable to pay for the
$60m in legal fees and EUR 4.2m in arbitration costs.
Furthermore, essay covers the lessons learnt from the largest award given to the Russian
Federation through arbitral tribunal. It shows that arbitration community must consider such
kind of condition and accordingly ensure the well being of investors with the modification of
international law. However, it is already written under the ECT to provide the protection of
investor for any country or state but such kind of cases shed light on tightening the investment
practices in a more effective manner. However, the strong countries are weakening the nation or
state which has poor rule of law.41 For this purpose, focus is laid on international law with regard
to investment through which investors can get their return back in certain time span so as to meet
their expectations effectively. Apart from this, varied aspects such as creeping expropriation,
arbitrability of tax disputes and the attribution of the activities related to state owned companies
to the states have been considered. This would be effective to understand the role of ECT
regulation for safe investment activities and arbitration procedures in the right manner.
Therefore, findings of the essay would be effective to understand the impact of tribunal
decision on the subsequent jurisprudence of arbitration tribunals. Apart from this, current topic is
39 Zhang, Sheng. "The Energy Charter Treaty and China: Member or Bystander?." The Journal of World
Investment & Trade 13.4 (2012) 597-617.
40 Brölmann, Catherine M. "Specialized rules of treaty interpretation: international organizations." (2012).
41 Dolzer, Rudolf, and Christoph Schreuer. Principles of international investment law. (Oxford University
Press, 2012).
14

important for resolving such kind of state conflicts related to important sector as energy one for
protecting the right of shareholders or investors effectively. Moreover, the rationale behind
selecting this topic is the getting the information related to actual fact behind the Yukos case of
Russia in context of ECT that whether it effectively cater the need of related stakeholders or not.
In this manner, valid information are collected and timely results of the case are presented for the
better understand related to end results of the case. Apart from this, the case is under debate due
to the major issue that treaty was signed by the Russia but not ratified the the same. For this
purpose, provision application is com has two distinctive features. First, the Treaty iplicated and
its all aspects in context of investment arbitration is under issues.42 For this purpose, the topic
have been selected for detail disclosed with regard to case and importance of the ECT in context
of several states.
Consequences of Yukos case in terms of decision by Dutch court
The results of the Yukos case considered to be in context of stakeholders involved as it
was based on the ECT. However, the major issue is related to ratification and signing of the ECT
and accordingly
country become liable to follow the same.43 The case of Russian Federation was the same that
they did not ratify the treaty because it was just signed by them. For this purpose, decision of the
Dutch court reflects that dispute resolution procedure or provision of ECT did not applied on the
Russian Federation due to non-ratification. Owing to this, the award worth US$50 Billion
imposed on Yukos was set aside by the court. This gives rise to emergence of debate over the
provisional application of such kind of treaties in circumstances as with Russian Federation. The
major reason behind the same is follows which is considered in accordance with the Article 45 of
the ECT. This reflects that provision application of the ECT's extent would based on the
consistency of each individual provision with the regulation or constitution of the signatory
state.44 Here, shareholders of the Yukos were relying on the views of tribunal but the provision
was not consistent with the national law. For this purpose, reconciliation of Russian law would
42 Fleuren, Joseph. "The application of public international law by Dutch courts."Netherlands International Law
Review 57.02 (2010) 245-266.
43 Alkema, E. A. "International Law in Domestic Systems." Electronic Journal of Comparative Law 14 (2010).
44 Brauch, Martin Dietrich. "Yukos v. Russia: Issues and legal reasoning behind US $50 billion
awards." Investment Treaty News (2014).
15

be considered for the purpose of resolving the dispute. Moreover, as per the Article 26 of the
ECT contain the dispute settlement provision which must be consistent with national law of the
Russia. For this purpose, incompatibility of Article 26 with Russian law will be accepted only in
case of provision associated with treaty is prohibited under the national law. Owing to this,
Dutch law disagree for the same term and stated that provision application of the article 26 no
any legal method can be used for the settlement procedure in case the terms are contrary of the
Russian law. Here, it is important to consider the basic aspect for the purpose of neglecting the
wider one.45 Furthermore, the Dutch court does not consider the foreign law as the fact of the
question but the nation law is considered in more wider aspect. For this purpose, it is for the
investors to decide the national law is compatible with the one they are demanding for.46 For
example, in case Russian law did not provide arbitration dispute for the investors and state in
term of independent legal basis. For this purpose, Article 26 ECT will not be applied and Russian
law will be considered also the compatibility would be considered in the major aspect.
Moreover, Dutch court further considered provisional application of Article 26 could
applied in accordance with signed ECT. It has been found that signing of treaty would be enough
for setting the consent to international arbitration in some specific kind of circumstances.
However, Dutch court viewed that now any either Federation of Russia or Vienna Convention
can render the independent basis for resolving the unlimited provisional binding force considered
under the ECT. In addition to this, Dutch court also approved that a matter of Russian
constitutional law which reflects that treaties supplement or different from national Russian law
will not be applied in accordance with signature and ratification only. For this purpose, it is
important to consider the national law and accordingly provide the protection for the associated
investors in case of bankruptcy or other related cases of law.47 Therefore, Dutch court has set this
award aside due to debate in the mentioned context. This would be effective to find the most
effective solution of the case and accordingly provide the remedies for the affected parties. At
this juncture, decision is considered as the remarkable through which same issues considered
under the tribunal are composed under the arbitration practitioners and international public law.
45 Roe, Thomas, and Matthew Happold. Settlement of investment disputes under the Energy Charter Treaty.
(Cambridge University Press, 2011).
46 Schreuer, Christoph. "Jurisdiction and applicable law in investment treaty arbitration." (2014).
47 Millar, Thomas Bruce, ed. Current international treaties. Vol. 6. (Routledge, 2015).
16

CHAPTER 4: CONCLUSION
It can be stated from analysis of various aspects of the arbitral tribunal and the applicable
legal framework that the decision is well-reasoned and sufficiently detailed to address several
jurisdictional provisions enumerated in ECT. One of the primary rationale behind the same is
that the Tribunal successfully placed reliance on the principles of VCLT as well as the
jurisprudence attached with application of ECT. The fact that the concept of provisional
application of the treaty was accepted by the Tribunal has presented an enhanced understanding
as well as application of the principles surrounding the treaty law. Moreover, it has also
established a strong precedence in respect to application of the principle of Pacta Sunt Servanda
as enumerated by VCLT, through stating that the domestic laws shall not in any form underpin
the obligations required to be followed under the treaty.
Provisional Application upheld in Yukos case shall reduce the gap between the collective
action which is undertaken between the signature as well as entry into force of a Charter. Thus,
in pursuance to this decision the contracting parties shall be under an obligation to bear the
requisite costs which is imposed by the obligations of ECT from the time of signing. Some of the
specific issues which have been addressed are the defection risks which exist in pursuance to the
provisional application of the treaty. Moreover, even if the obligations required to be followed
are not considered as binding or affirmative, the probability of the risk of defection increases
manifold. However, in accordance to the decision of Tribunal in Yukos case, the concerned
states shall be entitled to enjoyment of all the benefits which are contained in the treaty, and at
the same time shall be required to abide by all the obligations.
However, the recent judgement of the Dutch court on the facts of Yukos has completely
overturned the situation, wherein it has been specifically directed by the court to set aside the
award which was granted to the claimants of the case. It was decided by the court that the dispute
resolution mechansim provided in ECT shall not be applicable to Russia, as the states had only
signed the treaty and not ratified it. The rationale which has been stated to set aside the arbitral
award is that there did not exist any arbitration agreement between the parties and the Tribunal
by assuming the jurisdiction had, in fact, exceeded it. The court in the decision has considered all
the substantial issues, to make a conclusion which is entirely opposite to the opinion of the
arbitral tribunal. In consequence to this decision of the Dutch court the status of application of
the laws has become unclear and uncertain. Moreover, it has also been observed that there are
17

certain domestic courts which are willing to apply the legal principles in accordance to the
arbitral award, notwithstanding the fact that the same has been set aside. Considering the
immense amount of ambiguity associated with the case and enforcement of the award in different
jurisdictions, it most likely that the decision of the court shall be subjected to further appeal. In
consequence of which the dispute in the Yukos case and the international law shall remain
unsettled and is poised to continue for more time.
18

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