Yukos shareholders suffer major blow to demands for compensation from Kremlin

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Shareholders in the collapsed Yukos oil company established by jailed oligarch Mikhail Khodorkovsky have lost a key court battle in their demand for $50bn compensation from the Russian government.

In what is probably the biggest court claim in history, Yukos’s shareholders are seeking money back from the state following what they claim was the illegal seizure of the oil giant by the Kremlin in 2007.

An international arbitration tribunal ruled in 2014 that Yukos’s shareholders should be compensated with $50bn for what it ruled was the Russian Federation’s unfair confiscation of its assets.

The decision resulted in a series of attempts by the shareholders to enforce the ruling by seizing Russian state assets including French payments to the Russian satellite launch programme.

However, the Hague District Court has now overturned the $50bn award, declaring the Permanent Court of Arbitration did not have the authority to adjudicate on the dispute.

That means the shareholders’ attempts to seize perhaps billions of dollars of Russian state assets in the UK and elsewhere are likely to be put on hold. A High Court case to approve UK asset seizures had been scheduled for November.

The Russian state declared in a statement: “The court has ruled that the arbitration tribunal was wrong to consider itself competent to hear the case. And as such, the District Court has thrown out the award in its entirety.”

It added: “The decision is a vindication of the Russian Federation’s long-stated position that the Yukos ‘shareholders’ are not entitled to any amounts.”

Tim Osborne, the London lawyer representing the shareholders said: “I confirm that we will appeal this surprising decision… They just got it wrong.”

The Yukos shareholders are largely made up of six Russian oligarchs’ offshore shell companies and the pension fund of former employees. Several of the oligarchs are former Yukos bosses who have been accused by Russian authorities of embezzlement and other charges but have left the country denying all accusations. These include Leonid Nevzlin, ex vice-president of Yukos.

Mr Khodorkovsky, the former chairman of Yukos, was jailed on fraud, embezzlement and moneylaundering charges stemming from his management of Yukos in a case widely condemned as being politically motivated. He always maintained his innocence and declared himself a prisoner of conscience.

He is not a claimant in the current case, and currently lives in exile in Switzerland having been freed in December 2013.

While the London asset seizure case has yet to begin, the shareholders are in the process of confiscating Russian state property through the French and Belgian courts including a 70m euro plot of land by the Eiffel Tower in Paris.

The UK assets are likely to include bank accounts and property in London.

Under international law, only “non-diplomatic sovereign assets” can be seized. That means while embassies and consulates are off-limits, other state-owned property is fair game.

It is expected that Russia will quickly move to stop the asset seizures currently underway.