Yas Banifatemi and Emmanuel Gaillard of Shearman & Sterling announce a $50 billion arbitral award against the Russian Federation on July 28 at the firm’s London office. ()
As specialists in the somewhat rarefied world of international arbitration, Emmanuel Gaillard and Yas Banifatemi of Shearman & Sterling aren’t often in the public eye.
But there’s no way to shun publicity when you win a $50 billion judgment, as the Paris-based duo revealed they had done on Monday in the long-running arbitration over Russia’s treatment of OAO Yukos Oil Company. Their clients, the men who once controlled Yukos, are happy to trumpet the historic win. So Gaillard and Banifatemi are savoring an unusually high-profile victory, even as they prepare for years of follow-on litigation with the Russian government to enforce the arbitral award.
“It has been a round of applause,” Gaillard said of the last few days, which have included a press conference at the firm’s London office and several television interviews. “We got many e-mails of congratulation, and not just from the legal community. That’s unusual for us. And that’s been super nice.”
In a decision rendered on July 18 and made public on Monday, a tribunal established under the auspices of the Permanent Court of Arbitration in The Hague ruled that Vladimir Putin’s government bankrupted Yukos and raided its assets in violation of international law. The panel awarded $50.02 billion to GML Ltd., an investment vehicle for former Yukos majority shareholders. It’s the largest arbitration award in history by a long shot, and arguably the largest business judgment ever.
Created by government decree in the early 1990s, Yukos grew to become Russia’s most profitable private company and a major oil producer. Its leader and largest shareholder was Mikhail Khodorkovsky, an emerging political figure and billionaire in Russia.
Russian authorities arrested Khodorkovsky for tax fraud in late 2003. They also hit Yukos with heavy fines for back taxes beginning in 2004. By 2007, Khodorkovsy was in a Siberian prison, and the Russian government had auctioned off most of Yukos’ assets to the state-owned oil company OAO Rosneft. President Putin said the actions were necessary to root out corruption at Yukos, but many observers saw the dismantling of Yukos as transparently political.
GML, the successor of the holding company through which Khodorkovsky controlled Yukos, commenced an arbitration against the Russian Federation in 2005. GML alleged that Russia violated a provision of the Energy Charter Treaty that obliged signatory governments to treat private investors fairly. GML is now owned by five of Khodorkovsky’s close associates, including Israel-based businessman Leonid Nevzlin. (Khodorkovsky ceded his majority stake to Nevzlin, a former Yukos executive, in 2005.) Gaillard and Banifatemi have represented GML from the beginning, racking up more than $80 million in fees.
The arbitration climaxed in an October 2012 trial at the Peace Palace in The Hague. Gaillard and Banifatemi were first and second chair, respectively, and their star witness was a former economic adviser to Putin who resigned over the Yukos affair. They argued against teams of lawyers from Cleary Gottlieb Steen & Hamilton and Baker Botts, who asserted that Putin’s tax fines were justified.
The former Yukos shareholders sought $114 billion in damages from the tribunal. They didn’t get everything they wanted, but Gaillard and Banifatemi secured an award of staggering proportions and a clear repudiation of Russia’s actions.
“Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a state-controlled company and incarcerate the man who gave signs of becoming a political competitor,” the arbitrators wrote in their 615-page decision.
The work is far from over. Securing payment from Russia could mean years of enforcement proceedings, possibly targeting state-owned entities like Rosneft. “We’ll go for assets where they’re available,” Banifatemi told Goldhaber. “If that means Russian state-owned entities, so be it.”