Hulley Enterprises Limited, having its registered office in Nicosia,

Veteran Petroleum Limited, having its registered office in Nicosia,

Yukos Universal Limited, having its registered office in Douglas, Isle of

The Russian Federation was ordered in arbitral proceedings to pay damages to HVY for breaching its obligations under the Energy Charter Treaty (Energy Charter Treaty, hereinafter referred to as the ECT).2 The Russian Federation has brought an action before Dutch courts for the annulment of the relevant arbitral awards (hereinafter also referred to as the ‘Yukos Awards’). The District Court granted the claim based on the absence of a valid arbitration agreement. On appeal, the Court of Appeal overturned the District Court’s judgment and dismissed the Russian Federation’s claims. The Russian Federation filed a cassation appeal against the Court of Appeal judgment.

This case is still governed by the old arbitration law, i.e., by the Book Four (‘Arbitration’) of the Civil Procedure Code as it applied before the introduction of the Law to Modernise Arbitration Law on 1 January 2015.3 Unless otherwise stated, this opinion always refers to the old law. For an introduction to the annulment procedure under Article 1064 et seq of the Civil Procedure Code, I refer to my opinion regarding the request for stay of enforcement submitted by the Russian Federation.4 That application was rejected by the Supreme Court in its decision of 4 December 2020.5

The complaints largely relate to the interpretation of ECT provisions. The Russian Federation argues in cassation that the court based its conclusion that the dispute between HVY and the Russian Federation was covered by the ECT on a misinterpretation of the relevant treaty provisions, such that its finding that there is a valid basis for arbitration is incorrect. The dispute concerns, in particular, the interpretation of the notions of ‘investor’ and ‘investment’ under the ECT, and the scope of Article 45(1) ECT, which provides for the provisional application of the ECT by a State which has signed the ECT but for which the treaty has not yet entered into force. In this introduction I will briefly discuss the purpose and the creation of the ECT, as well as the possibilities that the ECT offers for the settlement of investment disputes. The discussion of the various parts of the principal cassation appeal will be followed by a more detailed discussion of the specific ECT provisions.

The ECT was concluded in Lisbon on 17 December 1994 with the aim of achieving cooperation in the energy sector, in particular between the Member States of the then European Economic Community (EEC, now the European Union) and the states of Central and Eastern Europe, including the present-day Russian Federation.6 The political desire to that effect had previously been expressed in the non-binding European Energy Charter of 1991. The ECT laid down the Energy Charter arrangement in a binding instrument. The ECT entered into force on 16 April 1998 after being ratified by 30 States, including the Netherlands (see Article 44(1) of the ECT). At present, the ECT has been ratified by 51 States and the European Union.7 The Russian Federation signed the ECT on 17 December 1994 but did not ratify it.8 On 20 August 2009, the Russian Federation notified the depositary of the ECT (Portugal) that it no longer intended to ratify the ECT. From that point on, the Russian Federation was no longer bound to provisionally apply the ECT, with the exception of the provisions relating to investment protection and dispute resolution in relation to already existing investments (Article 45(3)(a) and (b) ECT).

The ECT provisions that are the most relevant in this case are those of Part III of the ECT, which relate to ‘Promotion, protection and treatment of investments’. These provisions offer protection for investors who have made an investment in the energy sector in one of the Contracting Parties. They encompass the right to fair treatment and non-discrimination (Article 10 ECT), as well as protection against expropriation (Article 13 ECT).9

The ECT also provides for a mechanism by which investors can enforce compliance with those rights. 10 Article 26 ECT provides that investors may refer a dispute concerning an alleged breach of one of the provisions of Part III of the ECT by a Contracting Party (inter alia) to an arbitration tribunal. Article 26(4) of the ECT mentions three options for dispute resolution:

arbitration at the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC based on the ICSID Convention, 11 provided that both ECT States concerned are parties to the ICSID Convention (or, if one of the States concerned is a party to the ICSID Convention – based on the Additional Facility Rules to that Convention);

arbitration by a sole arbitrator or an ad hoc tribunal established in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), as took place in the present case;

arbitration at the Arbitration Institute of the Stockholm Chamber of Commerce (SCC).

Disputes over rights under the ECT can therefore be brought before various arbitration tribunals. This opinion addresses several decisions by such tribunals. The question arises as to the significance that should be attached to such statements, on which I would note in this introduction as follows.

According to the Vienna Convention on the Law of Treaties (hereinafter: VCLT)12, arbitral case law is not a source of treaty interpretation. However, such case law can provide insight into the way in which a treaty is applied in practice. 13 Arbitral case law may be used to demonstrate the existence of a principle of customary international law, which must be taken into account in treaty interpretation based on Article 31(3) VCLT. Of course, there must also be general state practice which has to be extensive and virtually uniform, accompanied by the legal conviction that such practice is required by international law. 14

Arbitration tribunals are not bound by each other’s rulings, because the principle of binding precedent (stare decisis) does not apply. 15 Decisions may therefore differ from each other (which can, of course, also be explained by the facts and the manner in which the proceedings were pursued). Care should be taken when drawing conclusions based on just one or a few decisions. Furthermore, unanimous decisions carry more weight than those including dissenting opinions. 16

The ICSID Convention provides a procedural framework for settling international investment disputes between States and investors 17 and does not concern disputes between States and their own nationals. 18 The ICSID Convention does not specify when an international investment exists, but leaves this question to the ICSID arbitration tribunals, which usually resolve it based on the investment treaty (often a ‘bilateral investment treaty’ (BIT)) underlying the dispute. The approach of an arbitration tribunal in a case under the ICSID Convention therefore depends on the underlying investment treaty. ICSID tribunals will only assume jurisdiction if the investment also falls within the scope of protection of the ICSID Convention. 19 In practice, therefore, ICSID tribunals sometimes impose stricter requirements than the underlying investment treaties themselves, in particular as regards the notion of ‘investment’. 20 Such requirements may also be stricter than those of other (commercial) arbitration tribunals, whose jurisdiction is not based on the ICSID Convention. 21

The foregoing is important because, in a number of places, the appeal refers to ICSID decisions in support of the assertion that they reflect a generally accepted principle of international investment law (see part 3 of the main plea). In considering this assertion, it should be borne in mind that, in certain respects, the ICSID Convention imposes its own requirements, which may be stricter than those laid down in investment treaties. It is also the case for all arbitral decision that one must always consider whether the approach adopted therein has general application or is based on the particular investment treaty on which the decision is based.

Having made this introduction, I shall now proceed to present the factual background, the procedural history and the discussion of the principal cassation appeal.

In summary, this case is about the following. 22 HVY are, or, at least, were, shareholders in Yukos Oil Company (hereinafter: Yukos), an oil company established in the Russian Federation, which was declared bankrupt on 1 August 2006 and removed from the Russian Trade Register on 21 November 2007.

In 2004, HVY initiated arbitration proceedings against the Russian Federation on the basis of Article 26 ECT. They claimed that the Russian Federation had expropriated their investments in Yukos and failed to protect those investments, contrary to the ECT. HVY requested that the Russian Federation be ordered to pay damages. The place of the arbitration was The Hague.

The arbitral tribunal appointed pursuant to the UNCITRAL Arbitration Rules (‘the Arbitral Tribunal’) ruled in three separate ‘Interim Awards on Jurisdiction and Admissibility’ of 30 November 2009 (the ‘Interim Awards’) on a number of preliminary objections raised by the Russian Federation, including with regard to the Arbitral Tribunal’s jurisdiction. In the Interim Awards, the Tribunal rejected certain jurisdictional and admissibility objections, and reserved other preliminary objections to the merits phase of the proceedings.

In three separate Final Awards of 18 July 2014, 23 the Arbitral Tribunal rejected the remaining jurisdictional and/or admissibility objections of the Russian Federation, found that the Russian Federation had breached its obligations under Article 13(1) ECT, and ordered the Russian Federation to pay HVY damages of, respectively, USD 8,203,032,751 (to VPL), USD 1,846,000,687 (to YUL) and USD 39,971,834,360 (to Hulley), plus interest and costs. In short, the Arbitral Tribunal ruled that by taking a number of tax and recovery measures against Yukos, the Russian Federation led Yukos into bankruptcy for no other purpose than the elimination of Mr Mikhail Khodorkovsky, the chairman of Yukos and one of its shareholders, as a potential political opponent of President Putin, and the acquisition of Yukos’ assets.

In a separate summons dated 10 November 2014, the Russian Federation brought an action against Hulley, VPL and YUL before the Hague District Court and requested that the court annul the Interim Awards and the Final Awards issued by the Arbitral Tribunal in each of the cases. At the Russian Federation’s request, the Court joined the three cases.

On 20 April 2016, by a single judgment in the three joined cases, the court annulled the Interim Awards and the Final Awards for lack of a valid arbitration agreement. 24 HVY appealed that judgment to the Hague Court of Appeal.

By interim judgment of 11 October 2016, the Court of Appeal ordered an interlocutory hearing that took place on 16 January 2017.

By interim judgment of 25 September 2018, the Court decided a number of HVY’s preliminary objections to the examination of certain statements by the Russian Federation. 25 These include (to the extent still relevant) the Russian Federation’s contention that HVY committed fraud in the arbitration proceedings by submitting false statements and withholding documents (paras 5.1-5.2). HVY objected to this, including on the ground that fraud should have been raised in separate revocation proceedings under Article 1068 of the Civil Procedure Code (para 5.3 (b)).

The court upheld HVY’s objection, finding, in summary, that the alleged fraud can only be raised in revocation proceedings under Article 1068 of the Civil Procedure Code and can no (longer) be raised in set-aside proceedings under Article 1065 of the Civil Procedure Code. Although both proceedings result in the annulment of the arbitral award, they are subject to different time limits and the jurisdictions of different courts. A revocation procedure may be initiated within three months of discovery of the fraud, even if more than three months have already elapsed after the arbitral award obtained the authority of res judicata. Furthermore, a revocation procedure has only one court of fact (the Court of Appeal). If the alleged fraud could also be raised in annulment proceedings, both the applicable time limits and this exclusive jurisdiction of the Court of Appeal would be circumvented. That is would be unacceptable (para 5.7).

By interim judgment of 18 December 2018, the Court of Appeal made a number of decisions concerning the further conduct of the proceedings. 26

By final judgment of 18 February 2020, the Court resolved the dispute on the merits. 27

Among other things, HVY complained against the court’s finding that the Arbitral Tribunal lacked jurisdiction, because Article 26 ECT – which allows arbitration – was contrary to Russian law. The Court of Appeal addressed those complaints in paras 4.4 et seq.

The Court of Appeal considered whether a valid arbitration agreement was concluded between the parties (Article 1065(1)(a) of the Civil Procedure Code) and held that this depended on the interpretation of Article 26 and 45 ECT in light of the law of the Russian Federation (para 3.1.2). In short, the Position of the Russian Federation is that it signed the ECT but never ratified it. It is true that Article 45(1) ECT allows each party that signed the ECT to apply it ‘provisionally’, but only ‘to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’ (hereinafter: the ‘Limitation Clause’). According to the Russian Federation, the arbitration provision of Article 26 ECT is contrary to the Russian Constitution and several legal provisions which provide that disputes of a public-law nature are not arbitrable.

Primarily, HVY took the view that, in interpreting Article 26 ECT, the relevant question is whether the principle of provisional treaty application is contrary to Russian law. On appeal, HVY argued, in the alternative, that it is a question of whether provisional application of one or more provisions of the ECT is incompatible with the law of a Contracting Party, and not whether a specific provision of the ECT is contrary to that law (para 3.3.2 and 4.2.2).

In paras 4.4.3-4.4.7, the Court of Appeal considered that it may base its judgment on HVY’s subsidiary argument on the interpretation of Article 26 ECT, despite the fact that this was not raised in the arbitration proceedings and the Arbitral Tribunal therefore did not base its jurisdiction on it. A different view would require the annulment of an arbitral award because the Arbitral Tribunal assumed jurisdiction on incorrect grounds, even though the State court considers that the Arbitral Tribunal had jurisdiction on other grounds. This is contrary to the principle that the State court has the final say on this point.

The Court then considered HVY’s subsidiary argument (paras 4.5.8-4.5.48). In para 4.5.48 the Court concluded that the Limitation Clause must be interpreted as meaning that a signatory State that has not made the declaration referred to in Article 45(2)(a) must apply the ECT provisionally, except to the extent that provisional application of one or more ECT provisions is contrary to national law, in the sense that the laws or regulations of that State exclude the provisional application of a treaty for certain (types or categories of) Treaty provisions. According to the Court of Appeal, it has not been established that provisional application of Article 26 ECT was contrary to Russian law (para 4.6.1). For the sake of completeness, the Court of Appeal examined whether, based on the Russian Federation’s interpretation of the Limitation Clause Article 26 ECT conflicted with provisions of Russian law (Articles 4.6.2-4.7.65). The Court of Appeal answered that question in the negative.

The Court of Appeal thus found that HVY’s appeal was partially well-founded and the reasoning provided by the District Court did not sufficiently support its judgment that no valid arbitration agreement was concluded (para 4.9.1). Given the devolutionary effect of the appeal, the Court further considered whether the other claims put forward by the Russian Federation supported the argument that the Arbitral Tribunal lacked jurisdiction. Those were claims relating to (i) the interpretation of Article 1(6) and (7) ECT 28 (the definitions of ‘investment’ and ‘investor’), (ii) the interpretation of Article 1(6) and (7) ECT (legality of investments), and (iii) the taxation measures taken by the Russian Federation which constitute a legitimate exercise of the Russian Federation’s powers and fall within the scope of Article 21(1) ECT.

The Russian Federation argued that the requirement of Article 26 ECT that there must be an ‘investment’ within the meaning of Article 6(1) ECT was not met, and that HVY are not investors within the meaning of Article 1(7) ECT because they are merely sham companies that are beneficially owned and controlled by Russian citizens. Furthermore, the capital invested was Russian rather than foreign (para 3.3.2 and 5.1.3).

In para 5.1.7.3, the Court of Appeal concluded that an ‘investment’ within the meaning of Article 26 ECT exists where a juridical person established under the law of one Contracting Party makes an investment in another Contracting Party. In order to determine the nationality of an investor, the ECT opted for ‘the law of the country under whose legislation the investor is organised’. The drafters of the ECT did not wish to subject the international character of investments to any other requirements. Thus, the ECT does not require the investor to have an actual relationship with the country under the laws of which it is organised (para 5.7.1.2). Further, it does not follow from Article 17 ECT that investments, such as those made by HVY fall outside the protection of the ECT because they constitute so-called ‘roundtrip investments’ (para 5.1.8.1 et seq).

The Court of Appeal considered the Russian Federation’s position that the ECT does not protect investments made contrary to the law of the host country (para 3.2.3 and 5.1.11.1). According to the Court, Article 1(6) ECT does not contain an explicit legality requirement. It is not expressly required that an investment must have been made in compliance with the host State’s law. Nor does the ECT contain any restrictions in this respect with regard to access to arbitration for the purposes of Article 26 ECT (para 5.1.11.5). The Court rejected the Russian Federation’s reliance on Article 1(6) and (7) ECT.

The Court of Appeal considered that Article 21 ECT contains no references to the jurisdiction of arbitrators, but merely provides that the ECT does not grant rights or impose obligations with regard to taxation measures. The Arbitral Tribunal’s jurisdiction is determined exclusively by Article 26 ECT. According to the Court of Appeal, the conditions laid down in Article 26 of the Treaty have been met, such that the provisions of Article 21(1) ECT cannot lead to the conclusion that the Arbitral Tribunal would lack jurisdiction in the event of a situation covered by Article 21(1) ECT (para 5.2.5). The Court of Appeal further considered that Article 21(1) ECT was only applicable to bona fide taxation measures. The Arbitral Tribunal concluded that there was no bona fide taxation because the measures taken by the Russian Federation were not intended solely to collect tax, but rather to provoke the bankruptcy of Yukos and to remove Khodorkovsky from the political arena (paras 5.2.15 and 5.2.16).

The Court of Appeal concluded that none of the grounds put forward by the Russian Federation to argue that a valid arbitration agreement was lacking was sufficient to support that conclusion, such that there was no ground to annul the Yukos Awards under Article 1065(1)(a) Civil Procedure Code (para 5.3.1).

In para 6.1 et seq, the Court of Appeal then discussed the Russian Federation’s arguments raised under the rubric of the annulment ground of breach of mandate (Article 1065(1)(c) Civil Procedure Code): (a) non-compliance with Article 21(5) ECT, (b) the Arbitral Tribunal’s assessment of damages, (c) the Arbitral Tribunal has decided by guesswork and by venturing outside the limits of the dispute, (d) the role of the Arbitral Tribunal’s assistant, and(e) the absence of reasoning.

In para 6.1 et seq, the Court of Appeal discussed the assertion that the Arbitral Tribunal had failed to submit the dispute to the relevant competent tax authorities contrary to Article 21(5) ECT. The Court of Appeal found that this omission was not sufficiently serious to justify the set-aside of the arbitral award because it has not been demonstrated that the Russian Federation suffered any prejudice as a result (para 6.3.2). According to the Court of Appeal, it must be assumed that during the detailed examination of the dispute by the Arbitral Tribunal, the Russian Federation has either put forward, or had the ability to put forward, all such relevant information as the Arbitral Tribunal could have obtained by seeking advice from the Russian tax authorities. It is not clear what additional information the Arbitral Tribunal could have obtained from the Russian tax authorities that could have led to a different assessment of the “allocation of income from shell trading companies (...) to Yukos” (para 6.3.3).

The Russian Federation further argued that the dispute should also have been referred to the tax authorities of Cyprus and the United Kingdom. According to the Court of Appeal, this view is unavailing because Article 21(5) ECT only requires that advice be sought from the ‘relevant competent tax authority’ with regard to the question ‘whether a tax constitutes an expropriation’. However, HVY did not argue that taxation measures taken by Cyprus or the United Kingdom were an expropriation (para 6.3.4). Furthermore, the Court of Appeal considered that the Arbitral Tribunal’s conduct did not conflict with the prohibition of prejudgment, as argued by the Russian Federation (para 6.3.5).

In para 6.4.1-6.4.27, the Court of Appeal paid close attention to the Russian Federation’s contention that the Arbitral Tribunal violated its mandate by awarding damages on the basis of its own new and highly flawed calculation method which deviated from the parties’ dispute and on which the parties have not been heard, such that there was a surprise decision. The Court concluded that there had been no surprise decision (para 6.4.23) and that the manner in which the Arbitral Tribunal had determined damages did not constitute a breach of the Arbitral Tribunal’s mandate.

In paras 6.5.1-6.5.15, the Court of Appeal considered the Russian Federation’s assertion that the Arbitral Tribunal had based its decision on its own speculations about the Russian Federation’s hypothetical actions in a counterfactual scenario instead of its actual actions. The Court concluded that the Russian Federation’s arguments were beside the point and that the Arbitral Tribunal had not breached its mandate or failed to provide valid reasoning for its decision in this respect. Nor had there been a violation of public policy (para 6.5.15).

In paras 6.6.1-6.6.15, the Court of Appeal discussed the Russian Federation’s argument that the Yukos Awards should be annulled because of the disproportionate involvement of the Arbitral Tribunal’s assistant Martin Valasek in drafting them (para 6.6.1). According to the Russian Federation, such involvement was contrary to the principle that the arbitrators must perform the task assigned to them personally, such that the Arbitral Tribunal had failed to comply with its mandate (Article 1065(1)(c) Civil Procedure Code). Furthermore, Valasek’s involvement would in fact be tantamount to having a ‘fourth arbitrator’, meaning that the Arbitral Tribunal was composed contrary to the applicable rules (Article 1065(1)(d) Civil Procedure Code).

The Court of Appeal rejected this argument, holding that, even assuming that Valasek had greatly contributed to drafting parts of the text (para 6.6.5), this did not mean that he had made decisions himself (para 6.6.10). The fact that the Final Awards were signed by three arbitrators demonstrates that they were the persons who made it, such that there had not been an even number of arbitrators (para 6.6.13). If one assumes that the Russian Federation’s assertion that Valasek was only introduced as an assistant and contact person is correct, then one can acknowledge that the Arbitral Tribunal had failed to fully inform the parties of the nature of Valasek’s work in this respect. However, in the circumstances, this does not constitute so serious a breach of mandate that it must lead to the annulment of the arbitral awards (para 6.6.14.2).

In paras 8.4.1-8.4.17, the Court of Appeal considered the Russian Federation’s arguments that the arbitral awards were based on insufficient reasoning (Article 1065(1)(d) Civil Procedure Code) with respect to the Russian Federation’s contention that Yukos’ Mordovian companies were sham companies. The Arbitral Tribunal concluded that there was no evidence for this anywhere in ‘the massive record’ (referring to the record of the tax proceedings conducted by Yukos in Russia). According to the Court of Appeal, the issues concerned the lack of evidence in that record, and the Russian Federation’s numerous references to the evidence that it had submitted in the arbitration proceedings are therefore irrelevant (para 8.4.13). The Court of Appeal thus rejected the complaint as to the reasoning of the finding that no evidence was provided that the Mordovian companies were sham companies (para 8.4.17).

The Court of Appeal concluded that HVY’s complaints were at least partially successful and that the Arbitral Tribunal had jurisdiction to hear and decide on HVY’s claims. The other annulment grounds raised by the Russian Federation could not lead to the annulment of the Yukos Awards (para 10.1). The Court of Appeal overturned the District Court’s judgment and, deciding de novo, dismissed the Russian Federation’s claims (para 10.3 and dictum).

The Russian Federation filed a (timely) cassation appeal against the interim judgment of 25 September 2018 and the final judgment of 18 February 2020, hereinafter referred to respectively as the interim judgment and the final judgment. HVY filed a defence and lodged a conditional cross-appeal. The parties submitted written comments and made oral submissions on 5 February 2021, which were followed by a written reply and rejoinder.

As part of its appeal in cassation, the Russian Federation (among other things) requested a stay of enforcement of the Yukos Awards and an order for HVY to provide security. By order of 25 September 2020, the Supreme Court ruled that it had jurisdiction to hear this request. 29 By order of 4 December 2020, the Supreme Court rejected the Russian Federation’s request. 30

The main cassation plea consists of eight parts, which break down into various sub-parts.

Part 1 targets the Court of Appeal’s ruling in para 5.6-5.8 of the interim judgment and para 9.7 of the final judgment, wherein, the Court considered, in short, that the Russian Federation’s objections concerning the alleged fraud committed by HVY in the arbitration proceedings could only be raised by way of a revocation claim under Article 1068 Civil Procedure Code. According to the complaints, this finding of the Court of Appeal overlooks that such fraud should also lead to the annulment of the arbitral award based on Article 1065(1)(e) Civil Procedure Code (conflict with public policy).

My discussion of this part will start with the following observation. There is no doubt that when an arbitral award was arrived at as a result of fraud or deception by one of the parties to the proceedings, the manner in which the award was created is contrary to public policy. After all, such a case is not one of fair trial. 31 As Sanders correctly points out, the revocation grounds under Article 1068(1) Civil Procedure Code give rise “to as many cases of conflict with public policy”. 32

Although the legislator has provided for a separate revocation procedure in which fraud can be raised, this does not mean that such procedure is the only one to be followed. It is by no means apparent from the legislative history that, by setting up that separate procedure, the legislator sought to limit the possibilities of raising fraud in any way. The claim for revocation stems from general civil procedural law,33 and may also overlap with ordinary remedies such as appeals. Revocation of a court ruling (Article 382 Civil Procedure Code) is an extraordinary remedy permitting a party to raise the culpable conduct, such as fraud, on the part of the other party. 34 If an ordinary remedy is still available, then such ordinary remedy must take precedence. After all, the remedy of revocation is only available once the relevant judgment has become final, and then only within three months after the fraud was discovered (Article 383(1) Civil Procedure Code). 35 Thus, in ordinary civil proceedings, the possibility of raising fraud is not limited to a revocation claim. The added value of the withdrawal procedure is that it allows the injured party to submit the fraud to the court after the expiry of the ordinary appeal period. In this way, revocation supplements the existing ordinary remedies.

There is no indication that the legislator had wanted to see the revocation procedure (Article 1068 Civil Procedure Code) as the exclusive procedural remedy for fraud in arbitration law. 36 This cannot be inferred from the fact that the legislator has set up a separate procedure for this purpose, since, in ordinary civil procedure law, the remedy of revocation exists side by side with other remedies. Nor does the exclusivity of the revocation procedure follow from the fact that it is only open in a single instance. No support for this can be found in the legislative history. It can rightly be argued that the party who chooses to submit the fraud to the court in the annulment proceedings thereby ‘gains’ an additional instance. 37 At the same time, however, such party must immediately raise the fraud as a ground in its annulment summons (Article 1064(5) Civil Procedure Code) within the applicable period of three months after the deposit of the arbitral award at the registry (Article 1064(3) Civil Procedure Code). That party will therefore not be able to benefit from the ‘extra’ period of three months after the discovery of the fraud, as provided in Article 1068(2) Civil Procedure Code. 38 This means that the risk identified by the court that fraud may still be raised in the annulment procedure more than three months after it had been discovered is not a real one. That would be precluded by the rule in Article 1064(5) Civil Procedure Code. 39

This brings me to the discussion of the complaints. According to the part, the Court of Appeal committed an error of law or was insufficient in its reasoning when deciding that factual statements capable of supporting a request for revocation within the meaning of Article 1068 Civil Procedure Code were not capable of supporting the argument that an arbitral award obtained by means of a fraudulent misstatement, witness bribery and withholding of essential evidence must be annulled for breach of public policy (Article 1065(1)(e) Civil Procedure Code). The Court of Appeal wrongly deprived the Russian Federation of its freedom to choose between a claim under Article 1065(1)(e) Civil Procedure Code and a claim under Article 1068 Civil Procedure Code, so the part argues.

In para 5.7, the Court of Appeal considered that fraud could only be raised in a revocation procedure under Article 1068 Civil Procedure Code because the converse would mean circumventing the deadline provided therein. It follows from the foregoing that this assumption is generally incorrect. However, this does not mean that the final decision arrived at by the Court of Appeal is also incorrect. According to the Russian Federation, the alleged fraud was discovered after the judgment of the District Court (of 20 April 2016). 40 It is common ground that this was first invoked in the answer to the appeal. 41 The rule of Article 1064(5) Civil Procedure Code that all annulment grounds will be waived unless raised in the summons means that the alleged fraud can no longer be raised in the course of already pending annulment proceedings. That should have been done, on pain of forfeiture, in the initiating summons. For that reason, in line with the Court of Appeal’s conclusion, the alleged fraud indeed could be raised only in revocation proceedings, and not in the answer in the annulment proceedings.

Part 1 must therefore fail.

Part 2 attacks the Court of Appeal’s interpretation of Article 45(1) of the ECT contained in paras 4.5.1 through 4.5.48 of the final judgment. The part is divided into eight subparts.

In essence, part 2 argues that there is no valid arbitration agreement as required by Article 1065(1)(a) Civil Procedure Code in this case. According to the part, even though Article 26 ECT does provide that disputes concerning the rights arising from the ECT may be subject to arbitration, the Russian Federation is not bound by that provision because the Russian Federation only signed, but never ratified the ECT. Article 45(1) ECT provides for provisional application of the ECT by States that signed the treaty, but only to the extent that such provisional application is not inconsistent with their domestic legal order. According to the Russian Federation, the Court of Appeal applied the wrong standard in this respect by ruling that the question was not whether Article 26 ECT itself was contrary to Russian law, but whether the provisional application of Article 26 ECT was at odds with it.

Before discussing the complaints in part 2, I would like to make several comments on the provisional application of treaties in general and on the provisional application of the ECT in particular. Provisional application of a treaty means that the treaty is applied before it enters into force through ratification. Article 25(1) VCLT allows a treaty to be applied provisionally, if the treaty so provides, or if the negotiating States have in some other manner so agreed. According to Article 25(2) VCLT, unless the treaty otherwise provides or the negotiating States have otherwise agreed, the provisional application of a treaty or a part of a treaty with respect to a State shall be terminated if that State notifies the other States between which the treaty is being applied provisionally of its intention not to become a party to the treaty. Provisional application permits the desired effects of the treaty to enter into force without the need to go through (often lengthy) national ratification procedures.42 Provisional application is also criticised for conflicting with national ratification procedures and thus with the separation of powers. 43

As mentioned, Article 45 ECT provides for the provisional application of the ECT. 44 In its authentic English text (Trb. 1995, 108) and in Dutch translation (Trb. 1995, 250), the provision reads as follows:

Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations. 2. a)

Pending the entry into force of this Treaty the signatories shall meet periodically in the provisional Charter Conference, the first meeting of which shall be convened by the provisional Secretariat referred to in paragraph 5 not later than 180 days after the opening date for signature of the Treaty as specified in Article 38.

The functions of the Secretariat shall be carried out on an interim basis by a provisional Secretariat until the entry into force of this Treaty pursuant to Article 44 and the establishment of a Secretariat.

The signatories shall, in accordance with and subject to the provisions of paragraph 1 or subparagraph 2c) as appropriate, contribute to the costs of the provisional Secretariat as if the signatories were Contracting Parties under Article 37(3). Any modifications made to Annex B by the signatories shall terminate upon the entry into force of this Treaty.

A state or Regional Economic Integration Organization which, prior to this Treaty’s entry into force, accedes to the Treaty in accordance with Article 41 shall, pending the Treaty’s entry into force, have the rights and assume the obligations of a signatory under this Article.

The objective pursued by the provisional application does not follow from the ECT’s text. According to commentators, provisional application was provided in order to be able to set up the institutional framework laid down in the ECT, and to create momentum for the ECT’s objective of energy cooperation. 45

The cassation case concerns the question of interpretation of the phrase ‘to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’ in Article 45(1) ECT. Three different interpretations of Article 45(1) ECT have been considered in these proceedings. 46

The first view is that Article 45(1) ECT means that there is no place for the provisional application of the ECT if the principle of provisional application of treaties is, as such, contrary to the law of the Signatory State (in this case, Russian law). This is primarily the view HVY advanced at first instance (see para 4.5.4 of the final Court of Appeal judgment). The Court of Appeal described this interpretation as the ‘all-or-nothing’ approach) (see para 4.5.10 of the final Court of Appeal judgment). This view is mainly based on the use of the word ‘such’, which refers back to the first half of the sentence: ‘Each signatory agrees to apply this Treaty provisionally’. 47 In addition, Article 45(1) ECT refers to the provisional application of ‘this Treaty’ and not only a part thereof. 48 This was the view adopted by the Arbitral Tribunal. 49

According to the second interpretation, advanced by the Russian Federation, the proper interpretation of Article 45(1) ECT is that the question is whether an individual provision of the ECT is contrary to the law of the Signatory Party. According to this view, Article 26 ECT is contrary to Russian law (para 4.5.3 of the final Court of Appeal judgment). The main argument for the second view is that the ‘all-or-nothing’ approach would render meaningless the words ‘to the extent’ in Article 45(1)ECT. 50 Those words indicate that there may be variation in the extent to which states provisionally apply the ECT. 51 On the other hand, the second view implies that it must be checked every time whether any provision in the law of the Signatory Party is contrary to the ECT, 52 while there are no indications that the treaty’s drafters intended this. 53 It was partly based on this argument that the Arbitral Tribunal supported the first view in the Interim Awards. In addition, the Arbitral Tribunal pointed to the principle of international law (laid down in Article 27 VCLT) according to which States may not invoke their national law in order to justify their failure to perform a treaty. 54 In the annulment proceedings, the District Court followed the second view (see para 5.23 of the judgment of 20 April 2016).

The third view is that Article 45(1) ECT must be interpreted as meaning that the ECT must be applied provisionally by the Signatory, unless the provisional application of one or more provisions of the ECT is incompatible with domestic law. 55 In this approach, the question is not whether a particular provision of the ECT is contrary to domestic law, but whether the provisional application of a specific provision is contrary to the domestic law of the Signatory Party. HVY took that view (in the alternative) in the annulment appeal proceedings (para 4.5.4 of the final Court of Appeal judgment). The Court of Appeal agreed with that view (paras 4.5.14, 4.5.33 and 4.5.48 of the final Court of Appeal judgment). According to the Court of Appeal, that interpretation does justice both to the phrase ‘to the extent’ and ‘such provisional application’, and thus addresses the objections that have been raised against the two other interpretations.

Having set out the above, I now return to the various complaints of the part.

Part 2.1 contains only an introduction and no complaints.

Part 2.2 targets para 4.3 (specifically, sub-para 4.3.4) of the final Court of Appeal judgment, where the Court of Appeal ruled that the Russian Federation unequivocally consented to arbitration. The part complains that this ruling is incorrect. Article 26 ECT provides that ‘each Contracting Party’, i.e. contracting State, unconditionally consents to arbitration. However, the Russian Federation never became a Contracting Party because it had only signed, and never ratified, the ECT. Given that it is not clear whether Article 26 ECT also applies to states that have merely signed the treaty (“Signatories”), there can be no clear and unambiguous consent, so the part argues.

Contrary to the arguments raised in the part, the Court of Appeal has not disregarded the need for unambiguous consent to an arbitration clause. Indeed, in paras 4.4.3-4.4.7, the Court of Appeal expressly applied that requirement. Furthermore, contrary to what the part argues, the Court has not ignored that Article 26 ECT only creates obligations for Contracting Parties and not also for Signatories. Nor has the court confused the two notions. Indeed, the Court of Appeal derives its finding that Article 26 ECT also creates obligations for Signatories from Article 45(1) ECT, which provides that Signatories shall apply the provisions of the ECT provisionally. Whether that interpretation of Article 45(1) ECT is correct is addressed in greater detail in parts 2.4 et seq. The Court of Appeal’s finding that ‘there may be differences of views about the scope of the Limitation Clause and its application in the light of the law of the Russian Federation’ should not be understood as meaning that, according to the Court of Appeal, it is unclear to what extent a Signatory is bound by Article 26 ECT. After all, the Court of Appeal does, based on an analysis of Article 45(1) ECT, arrive at the conclusion that Signatories are bound to apply Article 26 ECT provisionally (para 4.5.48).

It follows from the above that part 2.2 fails.

Part 2.3 targets paras 4.4.3-4.4.6 of the final Court of Appeal judgment. The core of the findings there is that there is no reason to annul an arbitral award in circumstances where, even though the arbitral tribunal accepted jurisdiction on incorrect grounds, the state court considers that the decision on jurisdiction was correct on other grounds. The Court of Appeal found it unacceptable for the dispute to revert to the state court even though there is still a valid arbitration agreement for the sole reason that the arbitral tribunal, which has no final say on the matter, had applied incorrect reasoning in support of its jurisdictional decision (para 4.4.3, conclusion). The part complains that this is contrary to the statutory system of the annulment proceedings. According to the part, it was not open to HVY to raise new grounds of jurisdiction in the annulment proceedings, in any event not as late as the appeal.

The starting point is that, unlike with other grounds for annulment under Article 1065(1) Civil Procedure Code, 56 the state court must not exercise restraint on the point of the arbitral tribunal’s jurisdiction. The reason for this is that, by agreeing to arbitration, the parties waive their fundamental right of access to the state court (Article 6 ECHR). 57 The answer to the question whether a valid arbitration agreement has been concluded is therefore ultimately entrusted to the state court. Not the arbitral tribunal, but the judge has the final say in this regard. 58 It is a question of whether the arbitral tribunal has jurisdiction and not of the foundation on which the arbitral tribunal based its jurisdiction. 59

It is therefore ultimately up to the state court to make a final decision on whether or not the arbitral tribunal had jurisdiction. 60 The state court may find that the arbitral tribunal did have jurisdiction, but on different grounds than those on which the arbitral tribunal itself based its jurisdictional decision. The part essentially defends the view that the court should only be permitted to test whether the arbitral tribunal assumed jurisdiction on the correct grounds and annul the arbitral award if that is not the case, 61 even though it is clear that the arbitral tribunal had jurisdiction on other grounds. That legal position is incorrect and contrary to the right of access to justice secured by Article 6 ECHR, based on which the state court may examine the jurisdiction of the arbitral tribunal. This also does justice to the intention of the parties to submit their dispute to arbitration and prevents the parties from having to litigate in the public court contrary to their own wishes. 62

The court may therefore supplement the grounds for the arbitral tribunal’s jurisdiction, 63 but, in doing so, must, of course, comply with the rules on adding legal bases. In that regard, the Russian Federation argued that the Court of Appeal should disregard the basis for the Arbitral Tribunal’s jurisdiction proposed by HVY because HVY only raised that ground for the first time in its appeal. 64 In doing so, the Russian Federation overlooks that the Court of Appeal had the duty, within the scope of the dispute created by the complaints, to supplement the legal bases, if necessary of its own motion (Article 25 Civil Procedure Code). 65 It is not disputed that HVY’s complaints are directed against the way in which the District Court interpreted Article 45(1) ECT. The Court of Appeal was therefore free to examine how this provision should be interpreted, taking into account new legal arguments. 66 I would point out that in para 4.4.6 of the final judgment, the Court of Appeal qualified the interpretation put forward by HVY as a purely legal argument. 67 That qualification was not disputed in cassation. Contrary to what the part claims, the Court of Appeal was thus entitled to take into account this legal ground, which HVY raised, for the first time, in the appeal.

Moreover, it is not apparent that Article 1052(4) and (5) stands in the way of such addition of jurisdictional grounds. 68 Article 1052(4) Civil Procedure Code provides that arbitral decision on jurisdiction can only be challenged on the grounds under Article 1064(1) together with the subsequent full or partial final award. Article 1052(5) Civil Procedure Code concerns the situation where the arbitral tribunal has declined jurisdiction, thus reviving the jurisdiction of the ordinary court to hear the case. It follows from Article 1052(5) Civil Procedure Code that the arbitral tribunal’s finding that it lacks jurisdiction is final and cannot be challenged before the public court. 69 The Supreme Court considered that the combination of Article 1052 and 1065 Civil Procedure Code is intended

As an aside, I would point out that the explanatory memorandum to Article 1065a (new) Civil Procedure Code, insofar as relevant, cannot be read as precluding the court from correcting an incorrect decision on jurisdiction (given that it can remit the case back to the arbitral tribunal on that ground). The point is that the court may not remit the case if it finds that there is no valid arbitration agreement, 72 given that, in such a case, a remission would be pointless.

The part (para 28) further argues that the Court of Appeal’s finding in para 4.4.6. of the final judgment that HVY should have raised its new position in the arbitration or, at the latest, at first instance, is not understandable. That complaint fails for the reasons already set out above.

The conclusion is that part 2.3 must fail as a whole.

Part 2.4 complains that the Court of Appeal’s interpretation of the Limitation Clause in Article 45(1) ECT is legally incorrect. The part summarises this interpretation adopted by the court (in para 2.4.1) and formulates a number of complaints (in para 2.4.2).

In para 4.2.1 et seq of the final judgment, the Court of Appeal has stated the basis for the method treaty interpretation. This was not contested in cassation and I shall briefly summarise it. Articles 31 and 32 VCLT provide guidance on the interpretation of treaty provisions. The interpretation of a treaty is always aimed at finding out the intention of the treaty parties. In this regard, the text of the relevant treaty provision plays the leading role (para 4.2.2). 73 The text must be considered in its context, as well as in the light of the object and purpose of the treaty. Pursuant to Article 31(1) VCLT, such interpretation must take place in good faith (para 4.2.3). According to Article 31(3)(b) VCLT, in addition to the context, there must be taken into account any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation (paras 4.2.4). Finally, according to Article 32 VCLT, recourse may be had to the preparatory work of the treaty (travaux préparatoires). However, this is a supplementary means which is reached for only in order to confirm the interpretation under Article 31 VCLT or if the interpretation leads to an ambiguous or unreasonable outcome (paras 4.2.5).

The part (para 34) complains that the court’s interpretation is contrary to the ordinary meaning of the wording of Article 45(1) ECT. According to the Court of Appeal, it must be considered whether the law of a Signatory excludes the provisional application of (a particular category of) certain provisions of the Treaty. According to the complaint, nothing in the wording of Article 45(1) ECT indicates this.

Based on para 4.5.10, it appears that the Court of Appeal based this interpretation on the ordinary meaning of the words ‘to the extent’ in the text of Article 45(1) ECT. As the Court of Appeal reasoned, HVY argued at first instance that the test under Article 45(1) ECT was whether the principle of provisional application of a treaty as such is contrary to the law of the Signatory Party. In para 4.5.10 et seq, the Court of Appeal held that such an interpretation did not do justice to the ordinary meaning of the words ‘to the extent’ contained in that provision, given that, in the Court of Appeal’s view, those words indicate the possibility of gradations in the extent to which the provisional application of the ECT must be excluded because of incompatibility with domestic law. Contrary to the complaint’s arguments, the ordinary meaning of the wording of Article 45(1) ECT does support the Court of Appeal’s interpretation. The complaint does not clarify why the ordinary meaning of those terms established by the Court of Appeal is incorrect and thus fails.

The part (para 35) also complains that the interpretation is contrary to the context in which the words ‘to the extent’ are used. According to the part, Article 45(2)(c) ECT uses the same terms, in that context, however, referring to specific parts of the ECT, which is said to be supported by the Court of Appeal in para 4.5.19. According to the complaint, the interpretation of Article 45(1) ECT is therefore not consistent.

However, contrary to the complaint’s assertions, there is no such inconsistency. In paras 4.5.19, the Court of Appeal subscribed to the District Court’s judgment that the words ‘to the extent that’ in Article 45(1) and Article 45(2)(c) ECT militated against the ‘all-or-nothing” approach primarily pursued by HVY. The Court of Appeal therefore interpreted the two provisions consistently. Insofar as the complaint means to argue that the words ‘to the extent that’ in Article 45(2)(c) ECT must be interpreted as referring to specific parts of the ECT, and that the Court of Appeal allegedly endorsed that view, it is based on a misreading of the disputed finding.

The part further argues (paras 36-37) that the Court of Appeal misunderstood the rationale for limiting the scope of provisional application. According to the part, the rationale for provisional application is to provide ‘a tool for government officials who want to implement international cooperation while respecting domestic ratification procedures’. This fits Article 45 ECT within the ECT’s objective of implementing international cooperation under the ECT as soon as possible while, on the other hand, establishing (in due course) a secure and binding international legal framework for that cooperation (whereby the part refers to a passage from the ECT’s Preamble).

This complaint relates to the way in which the Court of Appeal has interpreted Article 45(1) ECT in the light of the ECT’s object and purpose. In para 4.5.22 et seq, the Court considered the following. The ECT’s objective is to attract investment through a stable and safe investment environment and by promoting transparency, legal certainty and investment protection. The provisional application of the ECT is intended to ensure that the obligation to create the desired investment conditions would arise immediately after signature (paras 4.5.26). According to the Court of Appeal, the interpretation supported by the Russian Federation is less compatible with this objective, because an investor would always have to keep in mind that the provisions of the ECT may be prejudiced by national laws and regulations (para 4.5.26). HVY’s primary and subsidiary interpretation of Article 45(1) ECT do not have that disadvantage of ambiguity and unpredictability, according to the Court of Appeal (para 4.5.27).

The complaint does not in itself dispute this description of the ECT’s object and purpose, instead essentially arguing that the objective of the ECT’s provisional application - namely to enable government officials to sign the ECT while also respecting national ratification procedures - should also have been taken into account. The passage from the Preamble (4th paragraph) of the ECT cited by the complaint reads as follows:

In itself, it is true that the Preamble to a Treaty is relevant for the determination of that treaty’s object and purpose. 74 In order to determine the purpose expressed in the Preamble, the Preamble must be interpreted in accordance with the rules laid down in Article 31 et seq VCLT. It appears that the complaint assumes that the cited passage of the Preamble states that the ECT’s purpose is to provide governments with the time to create a binding legal basis for applying the treaty within their own legal order (through ratification). This view cannot be accepted. The final sentence of the fourth paragraph of the Preamble concerns the desire to establish the commitments contained in the ECT ‘on a sound and binding international legal basis’ (emphasis added, A-G). These words refer to the ECT itself and not to its ratification by the signatory States. This is confirmed by the context in which these words are used: the ECT is the binding legal basis for the commitments already included in the non-binding European Energy Charter. 75 It does not follow either from the preamble or from the provisions of the ECT that it is part of the ECT’s object and purpose to give government officials the time to create a binding domestic legal basis. Even if the Preamble is to be interpreted in the manner advocated by the complaint, the Court of Appeal has still taken it into account in para 4.5.34 et seq. In those paragraphs of its judgment, the Court ex abudanti cautela considered based on the travaux préparatoires that the purpose of Article 45(1) of the ECT is to prevent signatory States from being bound, by provisional application, to obligations which are subject to ratification under their national law. On that basis, the Court concluded that Article 45(1) ECT only excluded provisional application if such application was incompatible with national law for certain (categories of) of ECT provisions. The Court of Appeal has therefore taken into account that the ECT, and, in any event, Article 45(1) thereof, has the purpose of allowing the Contracting Parties to apply the ECT provisionally, with the exception of those provisions to which, under their domestic law, the Contracting Parties may only bind themselves after ratification. For these reasons, the complaint fails.

In para 37, the part complains that the Court of Appeal was wrong to name ‘transparency’ among the ECT’s objectives. According to the complaint, Article 45(1) ECT says nothing about transparency and HVY’s arguments to that effect have already been rejected. 76

However, the complaint overlooks that paras 4.5.22-4.5.27 do not concern the objective of Article 45(1) ECT, but, rather, the objective of the ECT as a whole. In para 4.5.23 the Court of Appeal set out, with references to the treaty text, that transparency was one of the ECT’s objectives. Given that Article 45(1) ECT must be interpreted in the light of the ECT’s object and purpose, 77 it is not clear why it would be incorrect for the Court of Appeal to have involved the purpose of transparency in the interpretation of that provision.

The part (paras 38-42) complains about the Court of Appeal’s finding that no sufficient showing was made of the existence of (established) state practice that would entail a different interpretation than the court’s (paras 4.5.28- 4.5.33). The complaint points to several statements that allegedly demonstrate such practice and were disregarded by the Court of Appeal.

Article 31(3)(b) VCLT provides that, together with the context, there shall also be taken into account ‘any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation’. This requires all Contracting Parties to have accepted that practice in the application of the relevant treaty, either expressly or implicitly. 78 Furthermore, state practice is relevant if it has developed after the conclusion of the treaty (‘subsequent practice’).

The complaint points to several statements allegedly demonstrating state practice that is incompatible with the Court of Appeal’s proposed interpretation of Article 45(1) ECT. For instance, it refers to a declaration by the European Council, the European Commission and the then Member States from 1994 (the ‘1994 EU Joint Statement’), which stated that Article 45 ECT ‘(...) does not create any commitment beyond what is compatible with the existing order of the Signatories’. The Court of Appeal discussed this statement in para 4.5.29 and considered that it was not incompatible with HVY’s alternative interpretation. The part complains that the Court of Appeal’s interpretation is inaccurate and that Article 45(1) ECT must be interpreted in line with the Russian Federation’s interpretation.

Contrary to the Russian Federation’s arguments, the Joint Statement can be read to mean that Article 45(1) ECT does not create any obligation that is incompatible with the internal legal order of Signatory Parties in the sense that it excludes the provisional application of ECT provisions that are incompatible with the domestic legal order. Even if the Joint Statement were to be interpreted as advocated by the Russian Federation, it is only a statement by the then EC Member States. This does not show that all the then ECT contracting States (let alone all the current contracting States) subscribe to this interpretation. I also wish to point out that, strictly speaking, the Joint Statement was issued before the date the ECT was concluded and, for that reason alone, therefore cannot qualify as ‘subsequent practice’. The complaint thus fails.

Para 41 of the part further complains that in paras 4.5.31 and 4.5.32 of its judgment, the Court of Appeal wrongly or without sufficient reasoning found (in summary) that statements by Dutch officials, the Finnish government and the UK Foreign Secretary were allegedly compatible with the Court of Appeal’s interpretation of Article 45 ECT.

This complaint too is untenable. The Court’s findings regarding the Finnish Government’s declaration were made precisely in the light of the already mentioned rule that state practice is only relevant if it is endorsed by all contracting States. The same applies to what the Court found in respect of the comments made by Dutch officials. Contrary to the complaint, 79 the Court did not consider that those declarations were compatible with the interpretation of Article 45(1) ECT endorsed by the Russian Federation, but (rightly) held that they did not indicate state practice as referred to in Article 31(3)(b) VCLT. The Court rightly considered that those statements (including those of the UK Foreign Secretary) did not amount to state practice, but, rather, formed part of the travaux préparatoires, and have been taken into account in that context.

The part further argues in para 42 that the interpretation adopted by the Court means that some EC Member States have to apply the ECT provisionally in its entirety. According to that interpretation, so the part argues, representatives of those states must have exceeded their internal powers.

Indeed, the part argues that the interpretation of Article 45(1) ECT adopted by the Court of Appeal would have consequences in certain contracting States that are incompatible with the domestic law of those States. That argument cannot be accepted. In paras 4.5.9-4.5.33, the Court of Appeal has interpreted Article 45(1) ECT based on the standard of Article 31 VCLT, considering that provision based on the ordinary meaning of its wording in its context and in the light of the ECT’s object and purpose. The question whether the interpretation arrived at pursuant to Article 31 VCLT is incompatible with the domestic legal order of the contracting States is not part of the interpretation rule under Article 31 VCLT. However, based on Article 32(b) VCLT it is possible to interpret a treaty provision on the basis of the travaux préparatoires if the application of Article 31 VCLT leads to a manifestly absurd or unreasonable result. To the extent that the part should be read in the sense that the Court of Appeal’s interpretation is absurd or unreasonable, it is recalled that the Court of Appeal supported its interpretation with references to the travaux préparatoires (paras 4.5.34 et seq).

The part (paras 43-49) complains about paras 4.5.34-4.5.40 of the judgment, wherein the Court of Appeal addressed the ECT’s travaux préparatoires.

In paras 4.5.35, the Court of Appeal, for the sake of completeness, considered that the travaux préparatoires confirmed its judgment on the interpretation of Article 45(1) ECT. According to Article 32 VCLT, the travaux préparatoires only come into play when the interpretation reached on the basis of Article 31 VCLT is manifestly absurd or unreasonable. According to the court, this is not the case. Given that the complaints about the application of Article 31 VCLT fail, the Court of Appeal was not required to investigate the travaux préparatoires, such that the opinion concerning the travaux in para 4.5.35 was given merely for the sake of completeness. The consequence thereof is that the complaints targeting that opinion are beside the point.

The conclusion is that all complaints in part 2.4 fail.

Part 2.5 concerns the interpretation of the words ‘not inconsistent’ in Article 45(1) ECT. This part asserts that, in addition to its own treaty interpretation, the Court of Appeal allegedly developed an alternative interpretation in paras 4.5.41-4.5.47 and 4.7 of the final judgment. According to the part, that alternative interpretation (contrary to what the Court of Appeal has considered in paras 4.5.1-4.5.40) is that the test in the context of Article 45(1) ECT should be whether ECT provisions are contrary to the domestic legal order of the Signatory, whereby the ECT must itself be regarded as forming part of that legal order. The part argues that such interpretation is incorrect because the Court of Appeal has wrongly assumed that Article 26 ECT was applicable in the Russian legal order. By way of example, the part refers to para 4.7.49, in which the court considered that the question of the Arbitral Tribunal’s jurisdiction must be determined based on Article 26 ECT and not under Russian law. In doing so, the Court of Appeal is said to have assumed that arbitration can be founded on Article 26 ECT and that, therefore, that provision is applicable in the Russian legal order; however, that still remains to be proved.

In paras 4.5.41, the Court of Appeal held as follows:

In paras 4.5.42 et seq, the Court of Appeal, for the sake of completeness, addressed the parties’ debate on the question of how to interpret ‘(not) inconsistently’, based on the Russian Federation’s interpretation of Article 45(1) ECT, which requires an examination of whether an ECT provision is contrary to the law of a signatory State. In para 4.5.48, the Court of Appeal came to the conclusion that Article 45(1) ECT must be interpreted as meaning that a signatory State that has not made the declaration referred to in Article 45(2) ECT is bound to apply the Treaty provisionally, except to the extent the provisional application of one or more provisions of the ECT is contrary to domestic law, in the sense that the laws or regulations of that State exclude the provisional application of a treaty for certain (types or categories of) treaty provisions. Based on this interpretation, the Court of Appeal ruled that the provisional application of Article 26 ECT was not contrary to the ‘constitution, laws or regulations’ of the Russian Federation (para 4.6.1). Para 4.6.2 shows that the Court of Appeal has, for the sake of completeness, investigated, in para 4.7, whether Article 26 ECT would be contrary to the law of the Russian Federation if one adopted the Russian Federation’s interpretation of the Limitation Clause in Article 45(1) ECT.

The Court of Appeal’s considerations in paras 4.5.42-4.5.47 were given for the sake of completeness only, given that they have been made for the purposes of paras 4.7 et seq, which were themselves only for the sake of completeness. As a result, the complaints of part 2.5 fail due to lack of interest.

Part 2.6 targets para 4.7, in which the Court of Appeal addresses the question whether Article 26 ECT 26 ECT is contrary to the Russian Federation’s law.

As already pointed out when discussing part 2.5, para 4.7 contains reasoning adopted obiter, which is clear from para 4.6.2. The complaints of the part therefore lack interest and require no discussion. In addition, the complaints in part relate to the interpretation and application of Russian law and run up against the provisions of Article 79(1), introductory part and (b), of the Judicial Organisation Act, as do the complaints of insufficient reasoning that cannot be decided without assessing whether the Court of Appeal correctly ruled on the content and interpretation of Russian law. 80

Part 2.7 contains no independent complaints, but argues that the Supreme Court must refer preliminary questions to the CJEU about the interpretation of Articles 45(1) ECT and 26 ECT. According to the part, the court should have concluded that there was no clear and unambiguous consent of the Russian Federation to arbitration, for which reference is made to parts 2.2, 2.4, 2.5 and 2.6. The part also argues that it would be contrary to EU law for a Member State court to adopt an interpretation of a mixed agreement such as the ECT that is not in line with the common interpretation of the Commission, the Council and the Member States. Given that different interpretations of Article 45(1) ECT are possible, there is no case of ‘acte clair’ or an ‘acte éclairé’, so the part argues.

A mixed agreement is a treaty concluded by both the EU and the Member States by virtue of shared competence (see Article 4 TFEU). Both the EU and the individual EU Member States are parties to the ECT, because the subjects covered by the ECT partly fall within the competence of the Member States. 81 It is settled case law that an international agreement concluded by the EU constitutes an act of one of the EU institutions within the meaning of Article 267, first paragraph (b) TFEU, such that the CJEU has jurisdiction to rule on the interpretation of such an agreement. The provisions of such an agreement form an integral part of the EU legal order. 82

The question arises whether the CJEU is competent to interpret a mixed agreement in its entirety or whether its jurisdiction is limited to certain subject-matter of that agreement, and, if so, what is the delimitation criterion. It can be inferred from CJEU case law that a question referred for a preliminary ruling with respect to a mixed agreement must relate to a subject-matter on which the EU has sufficiently exercised its competences internally. I expand on this further below.

In several judgments, the CJEU accepted jurisdiction to interpret mixed agreements. However, it was not always clear in which cases it was necessary to involve the Court. The Court clarified the position in Merck Genéricos case, where it found that the preliminary jurisdiction of the Court with regard to mixed agreements only concerns those areas in which the EU has sufficiently exercised its internal competences. 83

The CJEU expanded on this it the Lesoochranárske VLK case. 84 That case concerned the question whether a provision of the Aarhus Convention 85 had direct effect, which raised the question whether the Court had jurisdiction to give a preliminary ruling concerning the relevant provision. The Court held as follows:

This jurisprudence shows that, if the EU has adopted provisions to implement a mixed agreement, the CJEU has jurisdiction to interpret that agreement, 86 given that, in such a case, there is a need for a uniform interpretation of the relevant EU law, and for clarity about the division of competences between the EU and the Member States. There is no doubt that the CJEU has the power to decide on its own competence.

For the case at issue in cassation, it matters to what extent there is EU legislation implementing the ECT or its specific provisions. While there is extensive EU legislation in the energy field that provides in particular for the organisation of the internal market for gas and electricity, networks and other infrastructure, energy efficiency and renewable energy, there is no EU legislation that aims to provide investment protection to energy companies, including oil companies. 87 To my knowledge, the ECT gave rise to the adoption of only one instrument, namely Council Regulation (EC) No 701/97 of 14 April 1997 establishing a programme to promote international cooperation in the energy sector (the ‘Synergy programme’), which has meanwhile expired. 88 The aim of that Regulation was to streamline the EC’s international cooperation with third countries in the field of energy. The Regulation did not contain any indication that it implemented the substantive provisions of the ECT for (what is now) the EU.

In its judgment of 6 March 2018 (Slovakia v Achmea), the CJEU ruled that Article 8 (the arbitration provision) of the bilateral investment treaty between the Netherlands and Slovakia was contrary to Articles 267 and 344 TFEU. 89 The Court based this finding on the consideration that BIT proceedings could also implicate questions of interpretation and application of EU law. Since EU law is part of the law in force in the Member States, a tribunal established on the basis of Article 8 of the BIT would have to apply EU law. According to the Court, there is conflict with Articles 267 and 344 TFEU if such arbitral tribunals cannot refer questions for preliminary ruling to the Court because they are not part of the judicial system of the Member States. The Slovakia v Achmea judgment only relates to investment arbitrations in which a Member State is a respondent. The judgment’s implications are that Member States may no longer provide advance consent to arbitration on the basis of a BIT and thus waive the jurisdiction of their own state courts. Slovakia v Achmea judgment has removed the basis for intra-EU investment arbitration. 90

On 15 January 2019, 22 EU Member States issued a statement on the significance of the Achmea judgment for arbitration under the ECT, 91 wherein they opined, inter alia, that, as a result of this judgment, arbitration between an EU Member State and an investor from another EU Member State was contrary to EU law. 92 In the context of the ongoing negotiations on the modernisation of the ECT, the European Commission has made a proposal to amend Articles 26 and 27 ECT. As a result, Belgium requested from the CJEU an opinion under Article 218(11) TFEU on the question whether arbitration between Member States on the basis of Article 26 ECT was compatible with EU law. 93 Both the January 2019 declaration and Belgium’s request for an Opinion relate to the proposals for a new, modernised ECT. The present case is governed by the ECT as adopted in December 1994, such that neither the January 2019 declaration nor the December 2020 request for an Opinion are relevant here.

It is also worth noting that, in 2017, the Paris Court of Appeal intended to submit questions to the CJEU on the interpretation of the ECT (including Article 1(6)) in a case related to the present arbitration. 94 As regards the jurisdiction of the CJEU, the Paris Court of Appeal merely considered in its judgment that mixed agreements form part of the European legal order. 95 However, those proceedings before the Paris Court of Appeal were withdrawn. 96

By order for reference of 24 September 2019, the Paris Court of Appeal referred questions to the CJEU in another case (Republic of Moldova v Komstroy) concerning the interpretation of Articles1(6) and 26(1) ECT. 97 Those questions were raised in the context of the question whether an ad hoc arbitral tribunal established under Article 26(3) ECT had jurisdiction to settle a financial dispute concerning the payment of a claim relating to an agreement on the sale of electricity. In short, the facts of that case were the following. In 1999, a Ukrainian electricity producer (Ukrenergo) sold electricity to Energoalians, a Ukrainian electricity distributor, which then resold the electricity to Derimen, a company based in the British Virgin Islands. Derimen in turn resold the electricity to Moldtranselectro, a Moldovan public company. The volumes of electricity to be supplied were determined monthly between Moldtranselectro and Ukrenergo and deliveries were made to the Ukrainian side of the Ukrainian-Moldovan border. Energoalians was to be paid for the delivered electricity by Derimen, which was itself meant to receive payment from Moldtranselectro. On 1 January 2000, Moldtranselectro’s debt to Derimen amounted to more than USD 18 million. Moldtranselectro only met its payment obligation towards Derimen in part, leaving a debt exceeding USD 16 million. Derimen transferred its claim against Moldtranselectro to Energoalians, which sought to recover the claim from Moldtranselectro and brought proceedings to that end before the Moldovan courts and later before the Ukrainian courts. Energoalians took the view that Moldova breached certain ECT obligations and, consequently, initiated arbitration proceedings on under Article 26(3) ECT. Komstroy was the legal successor of Energoalians. The ad hoc arbitral tribunal in Paris ruled that Moldova had failed to meet its obligations under the ECT and ordered it to pay a certain amount. Moldova then brought an action before the French courts for the annulment of the arbitral award on the grounds of breach of public policy, namely the jurisdiction of the ad hoc arbitral tribunal. Ultimately, the Paris Court of Appeal 98 posed the following questions to the CJEU:

On 3 March 2021, A-G Szpunar delivered his Opinion in this case. 99 The A-G first addressed the CJEU’s jurisdiction, and observed that it ‘could be the subject of debate, since this case is concerned with the interpretation of an international convention, in a dispute which, at least at first sight, appears to be what might be called a “purely external” situation.’ A-G Szpunar concluded that the CJEU has jurisdiction to answer the questions referred for a preliminary ruling, since the provisions of the ECT whose interpretation is sought may also apply in situations falling within the EU legal order and, for that reason, the European Union has an interest in a uniform interpretation of the provisions in question. 100 At the same time, A-G Szpunar stated that he ‘must, however, qualify that statement’ (paragraph 46) and suggested that the Court should clarify the implications of the Achmea judgment on the applicability of Article 26 ECT (paragraph 48). In his view, it was not a foregone conclusion that Article 26 ECT could never apply within the EU, because questions concerning the compatibility of ECT provisions with EU law could also be raised in domestic court proceedings (paragraph 90). A-G Szpunar concluded with regard to the Court’s jurisdiction that Article 26 ECT was not compatible with EU law in that it provides for recourse to an arbitral tribunal, with the result that such a dispute settlement mechanism cannot apply within the EU legal order (paragraph 98). At the same time, the A-G considered that it could not be excluded that the substantive provisions of the ECT, including Article 1(6) ECT (the definition of ‘investment’), and Article 26 ECT could be applicable in the EU legal order (paragraph 99). It is also notable that A-G Szpunar has not addressed the CJEU case law holding that the Court has jurisdiction to interpret a mixed agreement if the EU has adopted implementing provisions.

In the remainder of his Opinion, A-G Szpunar focussed on the question whether a claim under a contract for the supply of electricity could be regarded as an investment within the meaning of Article 1(6) ECT, in so far as that provision imposes further conditions in that respect. The A-G concluded that this was not the case in Moldova v Komstroy. 101 An agreement to supply electricity was a simple commercial transaction which did not fall under the definition of ‘investment’ within the meaning of Article 1(6) ECT and does not arise from an agreement relating to an investment. 102

Assuming that the CJEU follows A-G Szpunar’s opinion and finds itself competent to take cognisance of questions of interpretation from the ECT – and I would reiterate that it is up to the CJEU to decide on its own jurisdiction – it would still be true that a referral of questions for a preliminary ruling would still require that this is necessary for the resolution of the complaints. For the present case, I am of the opinion that it is not necessary to refer questions for a preliminary ruling in order to deal with the complaints in part 2. My explanation is the following. Parts 2.2 and 2.3 relate to questions of Dutch arbitration and civil procedure law. Parts 2.5 and 2.6 are directed against the court’s findings in the final judgment that were only obiter and fail for that reason alone. Part 2.4 relates to the interpretation of Article 45(1) ECT. The part contains complaints that, although formulated as complaints as to law, actually are complaints as to reasoning, concerning the manner in which the Court of Appeal dealt with certain arguments. As already discussed above, such complaints fail because they are premised on an incorrect interpretation of the disputed judgment (see the discussion of part 2.4.2). As also demonstrated, the complaints of the part relating to the alleged disregard of state practice fail because no such state practice has been shown to exist. Complaints (see para 42 et seq of the Initiating Submission) also target obiter findings. It follows from the above that no referral of questions for a preliminary ruling is required to reach a decision with respect to part 2.4. I would add that, in international law, a provision on the provisional application of a treaty (such as Article 45 ECT) is a common provision on which there is generally no EU legislation. The present dispute also does not concern the provisional application of the ECT in (a member state of) the EU, but, rather, in the Russian Federation.

The conclusion is that the submission of questions to the CJEU for a preliminary ruling is not necessary in order to decide on the Russian Federation’s cassation complaints.

Part 2.8 reiterates the view that there is no clear and unambiguous consent of the Russian Federation to arbitration. The part contains no separate complaint and elaborates on the preceding parts, such that a separate discussion can be omitted.

Part 3 targets para 5.1 of the final judgment, in which the Court of Appeal interpreted the terms ‘investment’ and ‘investor’ for the purposes of Articles 1(6) and (7) ECT. According to the part, that interpretation is incorrect. According to the Russian Federation, HVY are not true foreign investors and their investments do not qualify as foreign investments, but, rather, as so-called ‘round-trip investments’, i.e., investments made by investors who are in fact controlled by nationals of the host country (in this case the Russian Federation). The part raises a large number of complaints against the Court of Appeal’s rejection of the Russian Federation’s position.

Before discussing the complaints of this part, I wish to make some preliminary remarks. To the extent relevant, the authentic English version of Article 1(6) and (7) ECT reads as follows:

Strictly speaking, Article 1(6) ECT contains no definition of the notion of ‘investment’, but provides that ‘every kind of asset’ can qualify as an investment and contains a non exhaustive list of assets that in any case qualify as investments. 103 The definition of ‘investor’ in Article 1(7) ECT is linked to that of ‘investment’: 104 an investor is an individual or entity who owns or controls such an investment. 105 Where the investor is a legal entity, the requirement is for that entity to be incorporated under the law of a contracting State. 106 This test is sometimes referred to as ‘the incorporation test’, and is distinguished from other connecting factors for the ‘nationality’ of a legal entity, such as the place where the management of the legal entity is located, or the nationality of its shareholders. 107 Article 1(6) ECT classifies shares as an investment, such that shareholders are protected by the ECT even if the company in which they have invested does not itself qualify as an investor. 108

Article 26 ECT further develops the notions of investment and investor. 109 In provides that arbitration is available in ‘disputes between a Contracting Party and an Investor in another Contracting Party relating to an Investment of the latter in the Area of the former (...)’. Article 26 ECT thus requires, first, that there be an investment, second, that the investment be made by an investor that is established in a contracting State, and, third, that such investment be made in the territory of a contracting State other than that in which the investor is established.

The central question raised by part 3 is whether the ECT contains further requirements with regard to investments or their cross-border nature than appears from Articles 1(6) and (7) and 26 ECT. So, the part argues, inter alia (para 3.2.3), that the ECT only protects international investments and therefore does not protect ‘round-trip investments’, or investments made by investors who have no substantial connection with the State in which they are established (‘letterbox companies’). Furthermore, the criterion should be not only the investor’s place of establishment, but also who controls the investor (‘piercing the corporate veil’, part 3.4). An investment is alleged to exist only if the investor has made a real contribution to the economy of the host State (part 3.3).

The Court of Appeal’s approach can be summarised as follows. According to the Court of Appeal, it is not in dispute that HVY are companies ‘organised in accordance with the law applicable in that Contracting Party’. From a textual point of view, this means that the requirements of Article 1(7) ECT for an entity to qualify as an ‘investor’ for the purposes of the ECT are met (paras 5.1.6). The Yukos shares in HVY ownership qualify as ‘investment’ within the meaning of the ECT, since ‘investment’ is understood to mean ‘every kind of asset, owned or controlled directly or indirectly by an Investor’, while shares are included in the non-exhaustive list of ‘assets’ in Article 1(6) ECT. The Court of Appeal further considered that, from a textual point of view, the requirement of Article 26 ECT of a dispute between a ‘Contracting Party’ (the Russian Federation) and investors from ‘another Contracting Party’ (HVY, companies under the law of Cyprus and the Isle of Man) ‘relating to an Investment of the latter in the Area of the Former’ is also met (paras 5.1.6). According to the Court of Appeal, there is no reason to interpret these provisions as imposing further requirements on the international character of the investments. Nor does the object and purpose of the ECT lead to a different conclusion, according to the Court of Appeal (paras 5.1.7.3).

After these introductory remarks, I return to the discussion of the part and the complaints that it contains.

Part 3.1 is limited to an introduction and contains no complaints.

Part 3.2 targets the Court of Appeal’s ruling in para 5.1.5-5.1.8 and argues that the ECT does not protect domestic investments, even if these investments were made by sham companies via a ‘Round-trip Structure’. This part splits into four subparts (3.2.1-3.2.4).

Part 3.2.1 is a summary of the court’s assessment and does not contain any complaints.

Part 3.2.2 complains that the Court of Appeal wrongly based its interpretation of the notions of ‘investment’ and ‘investor’ on a purely literal interpretation of only a part of the relevant ECT text, namely the definitions contained in Article 1(6) and (7) ECT. According to the part, such an interpretation conflicts with Article 31(1) VCLT.

This complaint lacks factual basis. The Court of Appeal did not base its interpretation of the terms ‘investor’ and ‘investment’ on a purely literal interpretation of Article 1(6) and (7) ECT. In paras 5.1.6, the Court of Appeal held that the starting point for the interpretation was the ordinary meaning of the text of the relevant provisions. In doing so, the Court of Appeal applied the correct standard in accordance with Article 31(1) VCLT. In paras 5.1.7.1-5.1.7.4, the Court of Appeal then addressed Russian Federation’s arguments regarding the context in which Article 1(6) and (7) ECT should be read, and the ECT’s object and purpose. Here, too, the Court of Appeal applied the correct standard in accordance with Article 31 VCLT. The fact that the Court of Appeal applied the elements of context and ECT object and purpose on the basis of the arguments put forward by the Russian Federation is logical, and does not indicate that the Court of Appeal failed to treat those elements as having equal weight as the textual interpretation.

The part also complains that, in para 5.1.8.11, the Court of Appeal gave too little weight to subsequent state practice of a large number of ECT parties which had excluded round-trip investments from the scope of their later investment treaties.

The Court of Appeal’s judgment is correct because, as the court itself held, this is not state practice regarding the application or interpretation of the ECT, but, rather, regarding the choices that states have made when concluding new treaties. This falls outside the scope of Article 31 VCLT 110 Accordingly, this complaint, too, must fail.

Part 3.2.3 raises a number of complaints targeted at the Court of Appeal’s interpretation of the notions of ‘investment’ and ‘investor’.

The part (paras 111-112) alleges that in determining the meaning of the definition of ‘investment’ in Article 1(6) ECT, the Court of Appeal disregarded the ordinary meaning of that notion (and, with that, of the notion of ‘investor’). In accordance with that ordinary meaning, an investment exists only if a party, during a certain period, makes an economic contribution to the host country (in this case, the Russian Federation) and runs a certain risk. According to the part, this has not occurred in this case. The Court of Appeal rejected this position in paras 5.1.9.1-5.1.9.5, which are also the target of part 3.3 (see below).

The part disregards that, in accordance with Article 31(4) VCLT, a definition of a term in a treaty assigns a special meaning to that term. That paragraph provides:

The part (paras 113-115) further complains that the Court of Appeal disregarded the object and purpose of the ECT in interpreting the terms ‘investment’ and ‘investor’. The part points out that the object and purpose of the ECT lies in stimulating international investment, and argues that the Court of Appeal wrongly found in para 5.1.7.3 that this does not lead to the conclusion that the ECT poses further requirements as to the foreign nature of an investment.

In paras 5.1.7.3, the Court of Appeal held that the ECT’s object did, among other things, indeed encompass the promotion of international cooperation in the field of energy and the protection of international investments. However, the Court of Appeal did not consider this to mean that the foreign character of an investment had to be subject to further requirements other than the requirements derived from the wording of Articles 26 ECT and 1(6) and (7) ECT. According to the Court, the wording of those provisions is sufficiently clear: according to their terms, an investment falls within the scope of Article 26 ECT if the legal entity making the investment is established under the law of one contracting State 113 and the investment within the meaning of Article 1(6) ECT occurs in another contracting State. This conclusion shows no error of law on the part of the Court of Appeal. While the treaty’s object and purpose must be taken into account when interpreting it, that does not mean that such object and purpose can lead to an interpretation that is not supported by the wording of the treaty provision. Object and purpose serve as a means of determining the meaning of the wording of a provision (which are primary), but do not carry more weight than the wording; they cannot undo the wording. 114 Accordingly, the Court of Appeal was entitled to rule that, although the ECT’s object includes the protection of international investments, the wording of the relevant provisions does not support the view that this entails additional requirements for the international character of the investments or the nationality of the investor. Accordingly, this part of the complaint fails.

The part (para 114) complains that the Court of Appeal disregarded the context of Article 1(6) and (7) ECT. According to this part, Articles 10, 13, 17 and 26 ECT as well as the ‘Understanding’ to Article 1(6) ECT mean that letterbox companies without substantive activities in the State in which they are established do not enjoy protection under the ECT if such letterbox companies are controlled by foreign investors from a third State. The complaint argues that investments made by the nationals of the host state itself must, a fortiori, fall outside the scope of the ECT.

In support of this argument, the complaint points to Article 10(3) ECT, which it says makes a clear distinction between the foreign investors and the ‘own investors’ of a Contracting Party. I shall quote Article 10(3) ECT, and, for the proper understanding thereof, also paragraph 2 of the same Article, in the authentic English text and in the Dutch translation:

In support of its argument that the ECT only protects cross-border investments, the part also refers to Article 13 ECT. Article 13 ECT protects investments from expropriation, except in specific cases where expropriation is justified. Like Article 10, Article 13(1) ECT provides that this protection applies to ‘Investments of Investors of a Contracting Party in the Area of any other Contracting Party’. The provision thus makes clear that the objective is to protect cross-border investments, but also contains no indication that additional requirements should therefore be imposed on the international character of an investor’s investment.

The complaint also refers to the ‘Understanding’ to Article 1(6) ECT, 115 which reads as follows:

Article 17 ECT, also referred to in the complaint, is the so-called ‘denial of benefits clause’. The provision provides that, in certain circumstances, Part III of the ECT (on investment promotion, protection and treatment) shall not apply. The relevant part of the authentic English text of Article 17 reads as follows:

The part (paras 115-117) also complains that the Court of Appeal wrongly held that the state practice relied on by the Russian Federation carries ‘little weight’, because such state practice did not concern the interpretation and application of the ECT, but, rather, the choices that were subsequently made at the conclusion of new treaties. The complaint argues that this ruling is incorrect for several reasons: (i) the Court of Appeal proceeded on an incorrect, merely literal interpretation of the ECT, (ii) the conclusion of treaties after the signing of the ECT does carry weight, and (iii) the Court of Appeal ignored the intent of the contracting States to clarify the ECT.

The Court of Appeal rejected the Russian Federation’s state practice argument because the meaning of Article 1(6) and (7) ECT was already clear and did not exclude roundtrip investments. That holding is capable of independently supporting the Court of Appeal’s conclusion. According to the interpretation rule of the VCLT, state practice only comes up for consideration if the text of the treaty and the context lead to an ambiguous result. Since this is not the present case, the Court of Appeal was not required to address state practice. I note that the sources mentioned in the part (para 116) in support of state practice do not constitute examples thereof because they are arbitral decisions, a research paper and a motion of the Lower House of Parliament to exclude letterbox companies from trade agreements. 118 These documents do not demonstrate that the Contracting States structurally interpret the ECT as not protecting roundtrip structures. For the rest, the complaint builds on previous complaints. The complaint therefore fails.

The part (paras 117-120) also relies on the recent proposals of the ECT Secretariat and the European Commission to clarify Article 1(6) and (7) ECT and argues that such proposals are relevant for the interpretation of those provisions because they concern a clarification rather than an amendment. The part reiterates that letterbox companies without substantial activities in the country where they are established do not fall under the definition of ‘investment’.

As already noted, state practice can only be taken into account when interpreting a treaty if the practice in question is one developed within the relevant treaty’s framework. 119 The proposals invoked by the part relate to a potential new treaty and are therefore, in principle, irrelevant. 120 In addition, Article 31 VCLT requires that the state practice to be implicitly accepted by all the parties to the treaty. That too is not the case here, given that the proposals in question came from the European Commission and the European Council, which only represent some of the parties to the ECT. Against that background, the observations in the documents referred to in the part cannot be regarded as an indication that the notions of ‘investment’ and ‘investor’ are already being interpreted in the proposed manner and the documents merely refer to a codification of such interpretation. 121 Rather, the documents show that the European Commission and the European Council are of the opinion that the current ECT is no longer adequate and requires modernisation to be brought in line with the changed principles of investment protection. For example, in its Recommendation, the European Commission states:

These documents do not indicate any established state practice that involves additional requirements being imposed on ‘investors’ and ‘investments’ within the meaning of the ECT. Rather, they indicate that such requirements at present do not yet apply, but should, according to the EU Member States, be imposed in the future.

The part (para 121) complains that the Court of Appeal disregarded clear rules and fundamental principles of international law. According to the part, this concerns a principle of investment law under which international investment treaties are meant to (i) protect international investments and (ii) protect effective investors and not those who are only investors ‘on paper’. That would be the case if the real economic investor is a national of the host country, such that, in essence, the investment is a domestic once. The Russian Federation substantiates the existence of that principle by references to arbitral case law. In paras 5.1.8.65.1.8.10, the Court of Appeal discussed the arbitral awards relied on by the Russian Federation and held that no principle of investment law as advocated by the part (part 122) could be inferred from them.

It is correct that, in accordance with Article 31(3) VCLT, principles of international law may play a role in treaty interpretation. The purpose of that provision is to be able to interpret the treaty against the background of the system of international law of which it forms part. 125 This may include norms derived from other treaties or from customary international law. 126 Of course, the norm must be relevant to the interpretation of the treaty in question. This may, for instance, be the case if the norm to be taken into account is from a treaty to which all the States parties to the treaty being interpreted are also parties, or the norm qualifies as international customary law. 127 The ‘general principles of law recognized by civilized nations’ as referred to in Article 38(1)(c) of the Statute of the International Court of Justice may also be relevant, for instance, the principle of good faith. 128 The terms used may have the meaning which has been accepted in customary international law or in accordance with the general principles of law. 129

In support of its position that the court disregarded international law, the Russian Federation has invoked a principle of international investment law, the existence of which is allegedly evidenced by the aforementioned arbitral case law. The content of the principle is alleged to be that only genuinely international investments deserve protection, such that it is not sufficient for the investor to be formally established in a country other than the country where the investment was made (the host country); it is also necessary to establish whether the ‘real economic investor’ is a national of that host country (a case of ‘round-trip’ investment). It follows that the principle (in so far as it exists) can be relevant only if it represents a principle of customary international law or a rule of treaty law relevant to the interpretation of the ECT. In my opinion, neither is the case. I expand on this below.

As the Court of Appeal has held, part of the arbitral case law was delivered under the ICSID Convention. As stated my introduction (para 1.10), the ICSID Convention has its own scope of application. The ICSID Convention expressly concerns international investment, while leaving it to ICSID tribunals to flesh out that notion. In practice, therefore, ICSID tribunals sometimes impose stricter requirements than do the underlying investment treaties themselves; this concerns, in particular, the notion of ‘investment’ (see discussion of part 3.3). 130 Such requirements may also be stricter than those of other (commercial) arbitration tribunals, which do not base their jurisdiction on the ICSID Convention. 131 All this means that to the extent that ICSID tribunals have, in certain cases, imposed stricter requirements on the international character of investments than apply under the ECT, it does not follow that the ECT also ought to be interpreted more strictly: such stricter requirements emanate from the ICSID Convention and/or the underlying bilateral investment treaty. The fact that all such treaties set different requirements for the international character of an investment 132 also means that one cannot speak of a rule of international customary law. 133 It is therefore not at all clear why the ECT would have to be interpreted in accordance with the rules of the ICSID Convention or other investment treaties. On the contrary, the various treaties have their own definitions, which in practice can also give rise to different outcomes. Furthermore, in the Plama v Bulgaria award delivered on the basis of the ECT, the ICSID Tribunal ruled in line with Article 1(7) ECT (see para 3.110 below).

Accordingly, in so far as the various arbitral decisions do imply stricter requirements regarding the international nature of an investment (an argument which the Court of Appeal consistently rejected), such requirements are not relevant to the ECT, because the case law at issue relates to other treaties. This is the case for most of the decisions cited by the part. Thus, the decision in Loewen v United States of America related to NAFTA, 134 whereas Phoenix v Czech Republic, 135 Occidental v Ecuador, 136 Spectrum de Argentina S.A. v Argentina, 137 and STAD GmbH v Bulgaria138 all relate to the ICSID Convention and various bilateral investment treaties. The Lemire v Ukraine case concerns the BIT between the United States and Ukraine. 139 These arbitral decisions are not relevant to the interpretation of the ECT.

Incidentally, in paras 5.1.8.10, the Court of Appeal considered the arbitral case law (submitted by HVY) that was, in fact, made based on the ECT. In Plama v Bulgaria, the ICSID Tribunal held that, in accordance with the definition in Article 1(7) of the ECT, it is irrelevant who owns and/or controls the investing company. According to the tribunal, the only relevant fact was that the investing company (Plama Consortium) was established in accordance with the law of Cyprus. 140 According to the Court of Appeal, the arbitral awards in Charanne v Spain 141 and Isolux v Spain 142 are therefore consistent with this (see paras 5.1.8.8 and 5.1.8.10 ). With regard to the Alapli v Turkey award, the Court of Appeal considers that it does indicate that round-trip structures do not deserve protection; however, in view of the division between the arbitrators on this point, the award does not demonstrate a generally accepted principle to that effect. 143 That reading of the various arbitral awards is not disputed by the plea.

It follows from the foregoing that the complaint that the Court of Appeal has erred with respect to international law must fail. I would also add for the sake of completeness that the commentary on the ECT that I reviewed likewise does not support the Russian Federation’s view that the international character of the investments is subject to greater demands. 144 The imposition of such greater demands was also denied by the ICSID Tribunal in the Plama v Bulgaria award cited above. As pointed out in commentary, the effect of this ruling is that letterbox companies do have the ability to claim protection under the ECT, but, at the same time, based on Article 17 ECT, the contracting States may limit such protection to investors that have a substantive link with the country in which they are established (the ‘denial of benefits clause’), and thus exclude letterbox companies. 145 As long as the contracting States have not made use of this possibility, letterbox companies remain included within the ECT’s scope. 146

Part 3.2.4 complains about para 5.1.8.8, in which the Court of Appeal held that it was not sufficiently explained why Khodorkovsky et al can be regarded as ‘beneficial owners’ of the Yukos shares and why HVY only held such shares for the benefit of Khodorkovsky et al. The part argues that, in view of Articles 149 and 154 Civil Procedure Code, this position is either incorrect or incomprehensible, because this point is not in dispute between the parties.

The complaint fails due to lack of interest; the disputed legal reasoning does not relate solely to the question whether Khodorkovsky et al were the beneficial owners of Yukos shares and HVY, but primarily to the question whether this is relevant for the application of the ECT. In this paragraph of the judgment, the Court of Appeal rejected the Russian Federation’s assertion that the ECT distinguished between the formal and the actual owner, in the sense that only the latter had locus standi (see paras 5.1.8.7). The Court of Appeal concluded that there was no such rule, and supported that conclusion by a reference to Charanne v Spain. The part does not dispute that opinion.

I conclude that all the complaints in part 3.2 fail.

Part 3.3 targets paras 5.1.9.1-5.1.9.5 and complains that the Court of Appeal wrongly rejected the Russian Federation’s position that HVY’s shares in Yukos could not be considered an ‘investment’ under the ECT because HVY did not make an actual economic contribution to the Russian Federation. The part complains that the Court of Appeal wrongly found that the Russian Federation had not demonstrated the existence of such an internationally recognised legal principle of investment law (No. 126) and that the Court of Appeal wrongly adopted a purely literal interpretation of the ECT’s notions of ‘investment’ and ‘investor’ (para 127). According to the part, the Court of Appeal wrongly considered that the requirement of economic contribution only applied to ‘investment’ as referred to in the ICSID Convention, and not to the ECT (para 129).

To the extent that the complaints build on the previous parts, they fall together. With regard to the complaint in para 129, I reiterate that the ICSID Convention has its own scope of application, which led the ICSID tribunal in the Salini Costruttori SpA v Morocco award 147 to set out the criteria to determine whether there is an ‘investment’. These Salini criteria are stricter than those under the ECT. 148 One such criterion is that the investment must contribute to the economic development of the host country (see para 5.1.9.2 of the final Court of Appeal judgment). Given the existence of the differences between the Salini criteria and the ECT criteria, investors who believe that their rights under the ECT have been breached should carefully consider whether to submit their claim at ICSID, given the risk that ICSID might decline jurisdiction. 149 It is therefore clear and accepted in practice that the ICSID Convention is interpreted differently from the ECT. There is also no indication in the ECT’s text that the definition of ‘investor’ (or other terms) in the ECT should be interpreted in accordance with that of the ICSID Convention.

As already noted above, the ECT does not provide a real definition of the notion of ‘investment’, instead providing a non-exhaustive list of assets identified as such. This raises the question of how to determine whether assets that are not on listed in Article 1(6) ECT must be treated as ‘investments’. In this context, commentators note that interpretations of the notion of ‘investment’ as developed outside the ECT, e.g., under the ICSID Convention, may be useful. 150 There are also some ECT cases in which the definition of ‘investor’ was based on the Salini case law under the ICSID Treaty. 151 Thus, the majority of the arbitrators in Alapli v Turkey ruled that the ECT required ‘a meaningful contribution’ by the investor in the host state. According to them, this was not the case, because the claimant had not invested its own money, but had acted as a mere ‘conduit’. 152 This view was disputed in a dissenting opinion by another arbitrator on the ground that the ECT did not contain such a requirement. 153 In other cases, it was expressly held that the Salini criteria could not play a role in ECT context. In Anatolie Stati and Others v Kazakhstan, the Tribunal considered that the ECT contained an ‘extremely broad definition’ of the notion of ‘investment’, and if an asset was covered by Article 1(6) ECT, the criteria developed in the context of another treaty were no longer relevant:

The conclusion is that ICSID case law, and, in particular the Salini case, does not indicate the existence of a principle of international investment law that should also be taken into account when interpreting the ECT. Arbitral case law is too divergent for that to be the case. Moreover, there are only a few awards (of which one is not unanimous) in which this position was taken, such that no decisive significance can be attributed thereto. I also refer to my observations in para 1.8 of this Opinion regarding the significance of arbitral case law in the context of treaty interpretation.

I conclude that all the complaints in part 3.3 fail.

Part 3.4 targets paras 5.1.8-5.1.11 and complains that the Court of Appeal and the Tribunal should have looked ‘beyond the purely formal corporate structure’ of HVY because these companies were only set up to commit and conceal illegal acts, including tax evasion. It is a principle of international law that where companies have been abused in such a way, the corporate structure must be disregarded (piercing/lifting the corporate veil). In this case, so the part argues, this has the consequence that HVY cannot be treated as an ‘investor’ within the meaning of the ECT, because they cannot be considered to have been incorporated, respectively, in accordance with the law of Cyprus or the Isle of Man as required by Article 1(7) ECT.

The Court of Appeal rejected this argument of the Russian Federation on three grounds. First, according to the Court of Appeal, no such principle has been demonstrated (paras 5.1.10.1-5.1.10.2). Second, there are no indications that Article 1(7) ECT provided any basis for the application of this doctrine in the sense advocated by the Russian Federation. Third, the doctrine of ‘ piercing the corporate veil’ relates to the determination of liability and cannot be used to challenge a tribunal’s jurisdiction (para 5.1.10.4).

The factual premise of the complaints is that HVY were allegedly only established in order to conceal illegal activities. This has not been established. 155 Accordingly, in cassation, a hypothetical factual assumption must be made that HVY were indeed established in order to conceal the specified illegal activities.

The complaints of the part are based on the doctrine of ‘piercing/lifting the corporate veil’. As the Court of Appeal correctly held, this term’s primary significance is in the context of liability of legal entities. ‘Piercing the corporate veil’ means that one must look beyond legal personality so that the shareholders may be held liable instead of only the legal entity itself. 156 The term sometimes takes on a broader meaning and is used to denote other situations in which the legal personality of an entity is discarded and one instead looks at who controls it. 157 The ECT recognises the principle of ‘piercing the corporate veil’ in this broad sense, for instance, in Article 26(7), which makes it possible to extend the legal protection of Article 26 ECT to investors established in the country where the investment was made, provided that they are controlled by investors from another contracting state. In such a case, the decisive questions is thus not who the investor is and where it is established, but, rather, by whom it is controlled. 158 This is a way of looking beyond the investor/company, but – contrary to the view set out above – this is done for the benefit of the person controlling the investor.

The part relies on an interpretation of the notion of ‘piercing the corporate veil’ in international law according to which judges and arbitral tribunals must allegedly look beyond corporate entities that are abused in order to commit illegal acts. Such entities must therefore be denied protection under (investment) treaties. Strictly speaking, this is not a case of ‘piercing the corporate veil’ because that view does not involve looking through the company at its shareholders; instead, the company is deemed entirely non-existent regardless of who controls it. However, the part invokes a principle of international law to that effect.

In support of the existence of such a principle, the part refers to the International Court of Justice (ICJ) Barcelona Traction judgment. 159 The question in that case was whether Belgium could bring proceedings before the ICJ against Spain, on behalf of the Belgian shareholders of Barcelona Traction, a Canadian company. The ICJ therefore had to assess, among other things, whether company shareholders could sue based on allegedly unlawful acts vis-a-vis the company. The ICJ proceeded on the premise that the company was independent with regard to its shareholders, but also considered that this was possibly subject to exceptions in certain circumstances, in particular where the company has been unable to protect the rights of those who entrusted their financial resources to it. 160 According to the ICJ, such cases constitute and exception to the principle of corporate autonomy:

The ICJ acknowledged the existence of the possibility of ‘piercing the corporate veil’ in international law, including ‘to prevent the misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance’, but, at the same time, found that there was room for this only in exceptional circumstances. The ICJ did not therefore go as far as the part alleges (para 132), since nothing in the judgment states that courts and arbitral tribunals are ‘required’ to look beyond the corporate entities that have been abused for ‘fraud or malfeasance’. Nor does it follow from the judgment that the corporate entity can also be disregarded in its entirety, as the part argues.

Nor is it the case that the ICSID arbitral awards cited by the part (and the Court of Appeal) (Cementownia v Turkey, 161 Phoenix v Czech Republic and Alapli v Turkey) confirm the existence of any rule that arbitral tribunals are required to look beyond corporate entities if they were misused for illegal activities. The scope of these decisions is more limited, viz that, in certain circumstances, ECT protection may be denied to claimants who have acquired shares in companies for the sole purpose of gaining access to the arbitration procedure. These are not cases in which the claimant entity is ‘disregarded’ because it was not established in accordance with the law of a contracting state, but, rather cases where there is no investment for the purposes of Article 1(6) ECT. 162 Furthermore, while the ICSID tribunal in these cases did hold that acquiring shares in a foreign company in order to gain access to investment arbitration can be unacceptable, it also held that it was necessary to distinguish this from bona fide transactions, which greatly depends on the circumstances of the case. 163 Thus, while ICSID jurisprudence does, to a certain extent, recognise the doctrine of piercing the corporate veil, it has, to date, only applied this doctrine in a specific situation that is not at issue in the matter now in cassation. 164

As correctly held by the Court of Appeal, Article 1(7) ECT provides no basis to ‘disregard’ corporate entities in a manner advocated by the part. I would reiterate that Article 1(7) ECT merely imposes the formal requirement that a company be incorporated in accordance with the law of a contracting state. Such language provides no basis to ‘disregard’ a corporate entity set up under the law of a contracting state by not treating it as an investor, be it because it was established for unlawful purposes or otherwise. 165 The part (para 137) further argues that Article 1(7) ECT provides an express basis for the application of the doctrine of ‘piercing the corporate veil’, which exists in the law of Cyprus and Isle of Man (where HVY are established); it does not, however, allege that, under those states’ laws, this doctrine is applied in the manner advocated by the part. To the extent that the part intends to argue that the Court of Appeal misapplied foreign law on this point, such a complaint would fail either based on Article 79(1)(b) of the Judicial Organisation Law of for lack of factual basis, since this question was not discussed before the courts of fact (the part fails to cite the location in the procedural documents stating the parties’ positions on these points).

My conclusion is that the complaints of part 3.4 must thus fail.

Part 3.5 argues that the court’s interpretation is incompatible with EU law. According to the part, the Court of Appeal should have referred questions about Article 1(6) and (7) and Article 26 ECT to the ECJ, and, in the context thereof, includeв all the issues in dispute in this case.

I refer to my discussion of part 2.7. There is no need to refer questions for a preliminary ruling if the answer to those questions is not necessary for the resolution of the dispute. This is also the case with regard to part 3. The various complaints in this part fail for a variety of reasons: partly for lack of factual basis, partly because they rely on sources that are not relevant for the interpretation of the ECT under the interpretation rules of the VCLT, and partly because the complaints in question are unsuccessful complaints as to reasoning.

Part 4 likewise refers to the interpretation of the notions of ‘investment’ and ‘investor’ in Article 1(6) and (7) ECT; it argues that illegal investments do not qualify thereunder, such that the Arbitral Tribunal was not competent to hear HVY’s claims. In addition, the part argues that the Arbitral Tribunal’s award is contrary to public policy because it permits HVY to benefit from unlawful acts. The part is divided into four subparts (3.2.1-3.2.4).

Section 4.1 contains no complaints, but provides an overview of the illegal acts allegedly committed by HVY. In this regard, the Russian Federation makes the following allegations:

The Russian Federation argued that the Arbitral Tribunal should have declined jurisdiction because of the illegality of HVY’s investments. According to the Russian Federation, investment arbitrations generally accept that treaty protection does not extend to investments made in breach of the host State law even if the relevant treaty does not contain a provision expressly excluding such investments from the scope of the ECT. 166

In summary, the Court of Appeal considered that there is indeed a principle of international investment law under which investments made contrary to the host country’s law are not protected. However, this concerns cases of illegality at the time of making the investment, not thereafter (paras 5.1.11.2). In the event that this is established, the Court of Appeal held that, in determining the consequences, a distinction must be made between (a) investment treaties in which the definition of the term ‘investment’ includes the phrase ‘in accordance with the law’ or wording to similar effect; and (b) investment treaties in which this is not the case. With respect to the first category of treaties, an illegal investment falls entirely outside the scope of the treaty: it simply does not qualify as an ‘investment’. The ECT does not contain such an express legality requirement. For treaties of this kind, there is no generally accepted legal principle under which an arbitral tribunal would have to decline jurisdiction in the event of an illegal investment (paras 5.1.11.4-5.1.11.5). According to the Court of Appeal, the wording of Articles 1(6) and 26 of the ECT are determinative. Given that such wording lacks an express legality requirement, it cannot be held that a finding of illegality of an investment would entail a lack of jurisdiction of the arbitral tribunal. While it can be held that the investment cannot benefit from the ECT’s substantive protections, that is a different matter. For the sake of completeness, the Court of Appeal referred to the Arbitral Tribunal’s ruling according to which the illegal activities in the course of Yukos privatisation and HVY’s acquisition of Yukos shares were not sufficiently connected. The Court of Appeal thus found that the existence of an illegal investment was not established.

Part 4.2 complains that the Court of Appeal failed to recognise that (the definition of investment in) the ECT implies a legality requirement because the ECT does not protect investments that have been illegally acquired and retained. The part relies on the ordinary meaning of the term ‘investment’, as well and the context and object and purpose of the ECT, as well as arbitral jurisprudence.

In paras 5.1.11.5 et seq, the Court of Appeal, found that the ECT contained no express legality requirement, such as a phrase to the effect that the investment must be made ‘in accordance with the law’ or similar. The part does not argue that the ECT actually contains such wording, 167 but rather puts forward that it is implicit in the ECT, and refers (in para 154), in particular, to the introduction to the ECT by the ECT Secretariat. 168 In para 5.1.11.2, the Court of Appeal held that there was a principle of international investment law under which investments made contrary to the law of the host country are not protected. In paras 5.1.11.3 (in conjunction with para 5.1.11.5), the Court of Appeal held that the ECT’s definition of ‘investment’ did not include the phrase that the investment must have been made ‘in accordance with the law’. According to the Court of Appeal, this has no consequences for the Arbitral Tribunal’s jurisdiction to take cognizance of the claims based on the ECT due to the distinction the Court had made earlier between treaties that do and do not contain an express legality requirement. The part does not dispute the need for such a distinction, such that, to that extent, the part must fail.

Arbitral case law likewise does not show the Court of Appeal’s decision to be incorrect. While it can indeed be inferred from such case law that the ECT does contain an implicit legality requirement, that does not have the consequence of depriving the arbitral tribunal of jurisdiction. 169 Among the relevant cases in this regard is the decision of the ICSID tribunal in the case of Plama v Bulgaria mentioned above, that was also discussed by the Court of Appeal in para 5.1.11.4. In that case, Bulgaria claimed that there was no investment for the purposes of the ECT because the investor concealed the persons controlling it. The tribunal rejected this argument in the context of the assessment of its jurisdiction and held that the definition of Article 1(6) ECT is satisfied where there is a property right or a contract claim, even if such right or claim is ‘defeasible’. 170 Subsequently, the tribunal considered this argument again in its assessment of the claim on the merits. In that context, the tribunal found, among other things, that the ECT did not protect investments that were made contrary to the law. Consequently, the claim was dismissed. 171 This approach was also followed in the decision of the arbitral tribunal in Blusun v Italy, also concerning the ECT (see para 5.1.11.4), as well as in the decision of the arbitral tribunal in Anatolie Stati and Others v Kazakhstan. 172

There are also arbitral decisions that took a different approach, but those cases did not concern the ECT. In addition, some of those decisions relate to treaties that contain an express legality requirement. 173 The case law according to which an arbitral tribunal should always decline jurisdiction in the event of an illegal investment even if the relevant treaty does not contain an express legality requirement therefore cannot serve as the basis for any general rule. It is true that certain arbitral awards have found that the illegality of investments, without more, deprives the arbitral tribunal of jurisdiction, 174 but, in such cases, the requirement is that illegal conduct must have taken place at the time of making the investment, e.g. because fraud was committed in the course of registration for a tender. 175 However, according to the arbitral tribunal in Phoenix v Czech Republic, only manifest illegality would lead to a lack of jurisdiction. 176 In Mamidoil Jetoil v Albania, the arbitral tribunal considered that, in principle, States do not have to accept arbitral jurisdiction when it comes to illegal investments, but that this is different when that State has shown willingness to legalise such investments. 177 In Saur International v Argentina, the tribunal likewise held that while illegal investments were not protected, that this did not entail a lack of jurisdiction. 178

It follows from the foregoing that arbitral case law provides different answers to the question whether the illegality of an investment deprives the arbitral tribunal of jurisdiction (in cases where no legality requirement is contained in the relevant treaty). Some arbitral tribunals answer this question in the affirmative, while others take a more nuanced approach. The decisive factor, however, is that there are no decisions that would interpret the ECT in such a way that the illegality of an investment entails a lack of jurisdiction. Commentary likewise emphasises that the ECT does not contain a legality requirement that would have consequences for an arbitral tribunal’s jurisdiction to decide claims based on the ECT. 179 I therefore consider that one cannot speak of a generally accepted legal principle according to which an arbitral tribunal must decline jurisdiction in the event of an illegal investment. In ECT context, it has always been held that the illegality of an investment, at most, plays a role in deciding the merits of the case.

For these reasons, part 4.2 fails.

Part 4.3 is comprised of two parts and argues that illegal acts must be taken into account.

Part 4.3.1 targets paras 5.1.11.7-5.1.11.9 and paras 9.8.5-9.8.10, in which the Court of Appeal ruled on fraud and corruption in the acquisition of a majority stake in Yukos. In summary, the part complains that the Court of Appeal proceeded based on an error of law, or, alternatively, issued an incomprehensible judgment, in that it only looked at the transactions through which HVY acquired Yukos shares. According to the part, in answering the question whether an investment was legally acquired, the Court of Appeal should not have limited itself to an assessment of the last transaction in a chain of transactions, but should also have taken into account what preceded HVY’s acquisition of the shares. Among other things, the part argues that it is relevant that bribes were paid to Yukos directors (the so-called ‘Red Directors’) before it was privatised, and that the illegally acquired Yukos shares were moved from one (sham) company to another in order to conceal their illegal acquisition.

The part lacks interest because, as it appears from para 5.1.11.6, paras 5.1.11.75.1.11.9 are obiter dictum. In addition, the complaint fails because the circumstance that an investment was made contrary to the law of the host State is only relevant if the conflict is linked to the making of the investment. 180 The Court of Appeal has therefore correctly proceeded from that premise in para 5.1.11.2. The Court of Appeal was thus right to have considered whether there has been illegal conduct on the part of HVY at the time of their investment (para 5.1.11.8) and not also the acts at the time of the acquisition of the Yukos shares by third parties in 1995/1996. Nor is the Court of Appeal’s judgment incomprehensible. For good order, I also note that the Court of Appeal has reviewed the claim that YUL was involved in paying bribes to the ‘Red Directors’ and dismissed it as irrelevant. The Court of Appeal’s ruling that only the acquisition of Yukos shares by HVY, and not previous transactions, ought to be taken into account, implies a rejection of the proposition that HVY helped to conceal the earlier illegal acquisition of those shares. The part therefore fails.

Part 4.3.2 targets the Court of Appeal’s finding that HVY illegal acts after the investment was made are irrelevant for the Arbitral tribunal’s jurisdiction.

This part too must fail because the Court of Appeal’s premise is precisely that only illegal conduct at the time of the making of the investment can deprive the Arbitral Tribunal of jurisdiction. The arbitral award in Hesham Talaat M. Al-Warraq v Indonesia to which the part refers (para 164 and footnote 341 ) does not lead to a different conclusion. This is because the award relates to an investment treaty that, unlike most investment treaties, contained an express provision requiring investors to respect the host State’s laws. 181 It cannot therefore serve as the basis for any general rule that illegal conduct entails a lack of arbitral jurisdiction even if it takes place after the investment was made.

Part 4.4 targets paras 9.8.5-9.8.10 in which the Court of Appeal rejected the Russian Federation’s argument that the Final Awards are contrary to public policy because they involve protecting the results of the aforementioned illegal conduct. Following an introduction (in para 4.4.1), the part (para 4.4.2) complains that the Court of Appeal has failed to recognise that it was contrary to national and international public policy for treaty-based claims in respect of an illegally acquired or illegally exploited investment to qualify for protection, or, alternatively, the Court of Appeal’s judgment was not sufficiently reasoned.

According to settled case law, annulment of an arbitral award based on Article 1065(1)(e) of the Civil Procedure Code is only possible if the content or execution of the award is contrary to mandatory law of so fundamental that compliance therewith may not be precluded by restrictions of a procedural nature. 182 The part argues in essence that the Final Award violates a fundamental rule of mandatory law according to which goods or rights obtained through illegal conduct must not be protected. This argument was presented by the Russian Federation in the arbitration proceedings under the ‘unclean hands’ rubric. In support, the part refers to arbitral case law including the Paris Court of Appeal judgment in the matter of Kyrgyzstan v Belokon, where the enforcement of an arbitral award was refused because the alleged investor was guilty of money laundering. 183 The part also refers to various treaties against corruption and money laundering as well as commentary arguing that corruption is contrary to international public policy. 184

The part ignores the core of the Court of Appeal’s judgment in para 9.8.5 et seq, as well as the core of the Arbitral Tribunal’s decision as summarised by the Court of Appeal. 185 The Court of Appeal has not ignored the fact that the protection of goods or rights acquired through illegal acts (such as corruption) may constitute a breach of international public policy. The essence of the Court of Appeal’s opinion is that, insofar as such illegal acts have taken place, they cannot be blamed on HVY, or at least are not related to their investments. After all, the illegal acts have in part been committed after HVY made their investment, and in part by others before HVY became Yukos shareholders. Nor was there, according to the Arbitral Tribunal and the Court of Appeal, any evidence of a link between the illegal conduct and HVY’s investment. In their judgment, there is therefore no question of illegal conduct such as corruption or money laundering committed by HVY itself in the course of making the investment. Nor do the sources mentioned by the part imply that illegal conduct is also relevant if it did not involve the investor or was not committed when making the investment. For example, the award in World Duty Free v Kenya referred to in the part (para 166) relates to bribery of the Kenyan president by the investor’s chief executive officer, 186 and the judgment in Kyrgyzstan v Belokon – to alleged money laundering by the investor. The part’s complaints cannot overcome the above.

Part 4.4.3 targets para 9.8.8, in which the Court of Appeal discussed para of the 1370 Final Awards. The Court of Appeal held that the Arbitral Tribunal found that a number of the alleged illegal actions had occurred before HVY became a shareholder and that they were consequently carried out by others, such as Bank Menatep and Khodorkovsky et al. According to the Court of Appeal, the Arbitral Tribunal therefore found nothing other than that Bank Menatep and Khodorkovsky et al were different (juridical) persons in relation to HVY, and that HVY could not be held liable for acts committed by others before HVY became shareholders. According to the Court of Appeal, this finding is correct and has not been contested by the Russian Federation with sufficient reasons. The part complains that this decision is incomprehensible because the Russian Federation did contest the finding of the Arbitral Tribunal with reasons. The part further argues that the Court of Appeal should have examined this issue ex officio because it concerns a possible violation of international public policy.

In discussing this complaint, I note that, in para 9.8.8, the Court of Appeal did not make any findings of its own, but merely acknowledged the findings of the Arbitral Tribunal. The Court of Appeal has thus responded to the Russian Federation’s complaint about the Arbitral Tribunal’s finding. According to the Court of Appeal, such complaint lacked factual basis because the judgment of the Arbitral Tribunal must be interpreted differently. The Court of Appeal’s statement that the Arbitral Tribunal’s decision was correct and has not been contested was therefore made obiter dicta, as the Court of Appeal itself stated (‘in so far as this issue could even arise in this annulment dispute’). This alone is sufficient to defeat the part. For the rest, I note that the complaints also fail on the merits. The ruling of the Arbitral Tribunal accepted by the Court of Appeal merely provides (in the undisputed account given by the Court of Appeal) that a number of the alleged illegal acts had taken place before HVY became shareholders and that such acts were therefore committed by others, such as Bank Menatep and Khodorkovsky et al. The allegations contained in the part essentially suggest that HVY were controlled by Khodorkovsky et al. Such allegations do not, without more, affect the Arbitral Tribunal’s factual findings. The Court of Appeal was therefore justified in ruling that the Russian Federation has failed to contest the finding with sufficient reasons. The part (paras 177-178) further points to certain alleged inconsistencies in the Final Awards. Thus, the Arbitral Tribunal is alleged in several places to have taken into account that Khodorkovsky et al indirectly owned shares in Yukos. In para 9.8.9, the Court of Appeal explained this in the sense that this was not incompatible with the finding that HVY and Khodorkovsky et al were legally separate entities. That judgment is not incomprehensible because the Court of Appeal has thereby expressed the fact that HVY as companies must be distinguished from their controlling persons.

Part 4.5 argues that the Court of Appeal’s interpretation of Articles 6(1) and Article 26 ECT is contrary to EU law and that the Supreme Court must refer questions to the CJEU for a preliminary ruling on the issues raised in parts 4.2, 4.3 and 4.4.

With reference to what I have said with regard to part 2.7, with regard to part 4, I am likewise of the opinion that a reference for a preliminary ruling is not necessary for the outcome of the appeal in cassation. Section 4.2 fails because it does not substantively challenge the judgment of the Court of Appeal and because it invokes a generally accepted legal principle the existence of which has not been established. Section 4.3 only contains complaints as to reasoning. Section 4.4 relates to Dutch arbitration law, namely Article 1065(1)(e) of the Civil Procedure Code, and, moreover, proceeds from an incorrect reading of the Court of Appeal judgment.

The conclusion is that part 4 must fail as a whole.

Part 5 breaks down into four sub-parts and complains about para 6.3 of the final judgment, in which the Court of Appeal considered that it would not attach any consequence to the fact that the Tribunal failed to consult the relevant (Russian) tax authorities. According to the part, the Arbitral Tribunal was obliged to do so based on Article 21(5) ECT. By failing to consult the tax authorities, the Tribunal is alleged to have breached its mandate, such that the arbitral awards must be set aside based on Article 1065(1) Civil Procedure Code. Accordingly, the part argues, the award is contrary to public policy (Article 1065(1)(e) Civil Procedure Code).

The Tribunal considered that referral of the case to the Russian tax authorities would be ‘an exercise in futility’, because the parties had already been given a very extensive opportunity to submit their views on whether the tax measures constituted expropriation to the Arbitral Tribunal. 187 In para 6.3, the Court of Appeal considered that Article 21(5) ECT does, in principle, require the tax authorities to be consulted, but that the Tribunal’s failure to do so is not sufficiently serious to set aside the Final Awards because the Russian Federation has not suffered any prejudice as a result given that it has had the opportunity to put forward all the relevant information in detail.

In their written comments, HVY argue that the complaints in part 5 lack interest. They point out that, in paras 5.2.11 et seq, the Court of Appeal held that Article 21 ECT as a whole is not applicable to the measures that HVY had challenged in the arbitration proceedings. According to the Court of Appeal (paras 5.2.16 et seq), the taxation measures cannot be recognised as bona fide, whereas Article 21(1) ECT is only meant to apply to bona fide measures. HVY argue that, since the rule in Article 21(1) ECT (the ‘carve-out’ for taxation measures) does not apply, it follows that the exception to that rule in Article 21(5) ECT (the ‘claw-back’) is likewise irrelevant. 188 Although HVY correctly point to the Court of Appeal’s judgment on Article 21(1) ECT, it cannot be said that the complaints about the interpretation of Article 21(5) ECT lack interest because the findings concerning the applicability of Article 21(5) ECT do not form the basis for the decision on whether or not the Arbitral Tribunal breached its mandate by failing to comply with the obligation under Article 21(5) ECT. The considerations about Article 21(1) ECT appear in a different context, and, in particular, that of the question whether Article 21(1) ECT is relevant for the Tribunal’s jurisdiction (which the Court of Appeal answered in the negative – paras 5.2.4 et seq). For this reason, the complaints in part 5 shall be addressed.

According to Article 1065(1)(c) Civil Procedure Code, there could be a breach of mandate, i.a., if the Arbitral Tribunal acted contrary to the agreed rules of procedure or the legislative arbitration rules. 189 The general restraint to be observed dictates that, in order justify set-aside, the breach of mandate must be sufficiently serious. 190 The decisive factor is whether the decision would have been different if the arbitrators had complied with their mandate. 191 The court enjoys discretion in determining whether the breach of mandate is sufficiently serious to justify the annulment of the arbitral award.

With regard to the ground for set-aside under Article 1065(1)(e) Civil Procedure Code, the following applies. 192 Public policy has a substantive and a procedural aspect. A breach of substantive public policy exists if the content of the arbitral award is contrary to mandatory law of such a fundamental nature that compliance therewith cannot be precluded by limitations of a procedural nature. 193 As this standard clearly shows, the court must exercise restraint when applying this annulment ground. A breach of procedural public policy exists if the manner in which the award was made is contrary to fundamental principles of due process, for instance, in the event of a breach of the adversarial principle, 194 or if it appears that (one of) the arbitrators was not impartial or independent. 195 Here too, the court necessarily has discretion.

Parts 5.1. and 5.1.1 contain an introduction and no complaint.

Part 5.2 makes various complaints against para 6.3 and breaks down into six subparts (parts 5.2.1-5.2.6).

Part 5.2.1 complains that, in para 6.3, the Court of Appeal wrongly disregarded the binding nature of the duty to refer in Article 21(5)(b)(i) ECT or, alternatively, failed to recognise that such duty was not subject to any ‘futility exception’. In doing so, the Court of Appeal has, inter alia, failed to properly apply the treaty interpretation rules under Articles 31 and 32 VCLT.

My comments on this part are as follows. Article 21 ECT relates to taxation measures. 196 The authentic English text and Dutch translation of Article 21 ECT read as follows:

Article 21(1) ECT provides that the ECT does not affect the Contracting States’ power to take taxation measures. In principle, such measures thus fall outside the material scope of the ECT (which is why this is also referred to as a ‘carve-out’). However, there are exceptions to this rule (the so-called ‘claw-backs’). One of them, laid down in Article 21(5) ECT, provides that taxation measures may not constitute expropriation that is contrary to Article 13 ECT. In that case, a taxation measure can constitute a breach of the ECT. 197 Article 13 ECT relates to expropriations and, in the authentic English version and Dutch translation, reads as follows:

Article 21(5)(b)(i) ECT confers on the tax authorities of the relevant Contracting Party (‘the relevant Competent Tax Authority’) a role in assessing whether the taxation measures taken constitute a prohibited expropriation within the meaning of Article 13 ECT. The investor concerned or the contracting state must consult the relevant tax authorities. If they fail to do so, the body called upon to settle the dispute (such as, in this case, the Arbitral Tribunal) must refer the question of whether there is prohibited expropriation within the meaning of Article 13 ECT to the relevant tax authorities. The wording of Article 21(5)(b)(i) ECT is ‘shall make a referral’; this indicates an obligation on the part of the body seised. 198 Such wording does not indicate any discretion on the part of the body in this regard. 199 However, Article 21(5) ECT does not attach any consequences to the failure to consult the tax authorities. 200

At the same time, Article 25(1) ECT does provide that the body resolving the dispute is not bound by the tax authorities’ conclusions. According to Article 25(1)(b)(iii), the body ‘may take into account’ the conclusions of the tax authority on the question whether the measures represent an expropriation. With regard to whether the measures are discriminatory, the body must (‘shall’) ‘take into account’ the tax authorities’ conclusions when forming its judgment, but there is no requirement to adopt such conclusions. The final assessment of whether the taxation measure constitutes expropriation or is discriminatory is a matter for the body called upon to settle the dispute. 201 Article 21(5)(b)(iv) ECT further provides that the tax authorities’ conclusions need not be awaited if it was not received after six months. According to that provision, the involvement of the tax authorities shall under no circumstances lead to a delay in the settlement of the dispute. Commentary points out that all of this indicates that the tax authorities’ role is to facilitate the decision-making by the body called upon to settle the dispute, and that the words ‘shall make a referral’ in Article 21(5)(b)(i) ECT are intended to enable the tax authorities concerned to express their views, but not to create additional hurdles to jurisdiction or admissibility. 202 Failure to consult the tax authorities cannot lead to a termination or interruption of the dispute resolution proceedings. 203

It is clear that even if the Arbitral Tribunal in this case had consulted the relevant tax authorities, it would not have been bound such authorities’ conclusions. According to the text of Article 21(5)(b)(iii) and (iv) ECT, an arbitral tribunal need not await the opinion of the tax authorities if this leads to a delay in the proceedings. It is therefore unlikely that consulting the tax authorities would have led to the Arbitral Tribunal to reach a different view. The argument based on a breach of mandate therefore cannot succeed. The obligation to consult the tax authorities lacks both the weight and the binding force for the arbitrators to be guilty of a serious breach of their mandate for failure to comply with it where (as in this case) they already consider themselves sufficiently informed. The question of whether Article 21(5) ECT implies a ‘futility exception’ 204 therefore requires no separate discussion.

The above defeats part 5.2.1 in its entirety.

Part 5.2.2 targets para 6.3.2 of the final Court of Appeal judgment, in which the Court of Appeal considered that the Russian Federation has not suffered any prejudice from the Arbitral Tribunal’s refusal to refer the case to the tax authorities. The part complains that this reasoning is speculative and incorrect.

In para 6.3.2, the Court of Appeal held that the Russian Federation was, per se, correct to point out that the obligation to refer under Article 21(5) ECT was binding on the Arbitral Tribunal. As demonstrated by the discussion of part 5.2.1, that obligation is not so binding that a refusal to comply with it would, without more, entail a serious breach of mandate. The question of whether the Russian Federation has been adversely affected by the Arbitral Tribunal’s refusal to refer the matter to the Russian tax authorities therefore requires no discussion. The complaints raised in this regard are also based on the assumption that consultation of the tax authorities could or should have led to a different decision by the Arbitral Tribunal. However, as I have noted above, the Arbitral Tribunal would not have been bound by any of the tax authorities’ conclusions and would not have been obliged to take into account the conclusions as to whether there has been an expropriation. Part 5.2.2 therefore fails.

Part 5.2.3 targets para 6.3.3, in which the Court of Appeal, inter alia, held that the information that the Arbitral Tribunal could have obtained by means of a reference to the Russian tax authorities is unlikely to have led to a different outcome. The part argues that this view is unacceptably speculative, including in the light of the Russian Federation’s position that the tax authorities would have supported its view.

The complaint ignores the fact that, as I have already explained, Article 21(5) ECT does not require an arbitral tribunal to follow the conclusions obtained from the tax authorities. Moreover, the Court of Appeal cannot fairly be accused of making a ‘speculative’ judgment. This is because Article 1065(1)(c) Civil Procedure Code, after all, required the Court of Appeal to consider whether the Arbitral Tribunal would have reached a different decision. Any judgment on the issues can necessarily only be formed by way of speculation as to the question what the Arbitral Tribunal would have decided if it had more or different information. This is another reason why the part must fail.

Part 5.2.4 complains about para 6.3.4, in which the Court ruled that there was no basis for also referring the dispute to the tax authorities in Cyprus and the United Kingdom (where HVY are located). According to the Court of Appeal, it has not been argued that any taxation measures taken by Cyprus or the United Kingdom constituted expropriation, whereas Article 21(5) ECT only requires the relevant tax authorities to be consulted in cases of that kind. The part argues that this ruling of the Court of Appeal was both ultra petita and in conflict with Article 21 ECT.

Article 21 ECT does not provide that the tax authorities of all the countries concerned must always be approached. Rather, Article 21(5)(b)(i) ECT requires only the ‘relevant Competent Tax Authority’ or ‘relevant Competent Tax Authorities’ to be consulted. It does not further define what authorities are ‘relevant’. As the Court of Appeal held in para 6.4.3, given the context in which the term ‘relevant’ appears, it makes sense to interpret it is as meaning ‘capable of providing information with respect to the question whether there has been a (discriminatory) expropriation’. Furthermore, it is clear that it is up to the arbitral tribunal to determine, in a specific case, what tax authorities are ‘relevant’. The background of the reference to ‘Competent Tax Authorities’ in plural in Article 21(5)(b)(ii) and (iv) is that the definition of ‘Competent Tax Authority’ in Article 21(7) ECT refers to ‘a double taxation agreement’. In such cases, it makes sense to consult both the authorities of the investor’s country of residence and those of the host member state (with the aim of finding a solution to the tax issues between those authorities). It thus does not follow from Article 21(5) ECT that the tax authorities of all the States concerned should always be consulted, even if they are not considered ‘relevant’ in a particular case. The Court of Appeal has not gone ultra petita by interpreting and applying Article 21(5) ECT ex officio. The remainder of the part builds on previous complaints and must share their fate. Part 5.2.4 thus fails.

Part 5.2.5 complains that the Court of Appeal rejected the Russian Federation’s appeal by analogy with the prohibition of prejudgment originating from Dutch civil procedure law. The part argues that the Arbitral Tribunal breached that prohibition of prejudgment by deciding in advance that consulting the Russian tax authorities would be futile.

It has not been established that the Arbitral Tribunal was bound by such a prohibition on prejudgment. The only basis the part invokes for a binding application of the prohibition on prejudgment is a reference to the obligation contained in Article 21(5) ECT; however, it cannot be inferred from that provision that it implies a prohibition on prejudgment. The part provides no further explanation. Accordingly, this part of the complaint fails.

Part 5.2.6 argues that the Supreme Court should refer a question for a preliminary ruling on the correct interpretation of Article 21(5)(b)(i) ECT to the CJEU.

With reference to my comments with regard to part 2.7, with regard to part 5, I likewise believe that no preliminary reference to the CJEU on the interpretation of Article 21 ECT is necessary for the outcome of the cassation appeal. After all, in the disputed judgment, the Court of Appeal ruled in line with the Russian Federation’s arguments that the Arbitral Tribunal had acted contrary to Article 21(5) ECT. However, the Court of Appeal did not consider this violation of the mandate to be sufficiently serious to justify setting aside the Yukos Awards. The success or failure of the cassation complaints about that judgment therefore turns not on the interpretation of Article 21(5) ECT, but, rather, on the question whether the Court of Appeal’s rulings are comprehensible within the framework of Article 1065(1)(c) Civil Procedure Code. There is therefore no need for a preliminary reference.

The conclusion is that part 5 must fail.

Part 6 is divided into two sub-parts and, in summary, targets the involvement of the Arbitral Tribunal’s assistant (secretary), Valasek, in drafting the arbitral awards. According to the Russian Federation, such involvement was contrary to the principle that the arbitrators must perform the mandate they were charged with personally, such that the Arbitral Tribunal has failed to comply with its mandate (Article 1065(1)(c) Civil Procedure Code). Furthermore, Valasek’s involvement is allegedly tantamount to having a ‘fourth arbitrator’, such that the Arbitral Tribunal was also composed contrary to the applicable rules (Article 1065(1)(d) Civil Procedure Code). The Court of Appeal rejected this argument in paras 6.6.1-6.6.15.

Part 6.1 does not contain any complaints, but describes the background to the complaints and summarises the contested ruling of the Court of Appeal.

Part 6.2 contains three complaints: (i) a complaint about the Court of Appeal’s rejection of the Russian Federation’s offer to prove Valasek’s contribution to the decision-making process by witness examination (para 6.2.1); (ii) a complaint that the Court of Appeal’s ruling is contrary to Articles 1065(1)(b) and 1026(1) Civil Procedure Code which provide that an arbitral award may not be made by an even number of arbitrators (para 6.2.2); and (iii) a complaint that the Court of Appeal’s ruling has disregarded various (unwritten) procedural rules (para 6.2.3).

The part raises the question of the extent to which arbitrators can delegate (parts of) their work to a secretary or assistant without breaching the principle that they must perform their duties personally, 205 and without the secretary acting as a de facto ‘fourth arbitrator’. Specifically, the question arises to what extent a secretary may draft the decisive of carrying portions of the award.

Different views exist on this issue. 206 Some authors have pointed out that there is a risk of unacceptable involvement of the secretary in the arbitral tribunal’s decision-making unless there is careful supervision. 207 Nevertheless, Born concludes: ‘the better view is that there is no per se prohibition on secretaries or junior lawyers performing such tasks, provided that the members of the tribunal carefully review and make appropriate use of any preparatory work.’ 208

There is no generally accepted rule or practice according to which it is always unacceptable for the drafting of substantive parts of an arbitral award to be entrusted to a secretary. 215 For that to be the case, it must also be established that this breaches the boundaries flowing from the principle of proper performance of arbitrators’ duties. This can be, for instance, if it appears that the arbitral tribunal has blindly adopted the text drafted by the secretary, or that the secretary was involved in the decision-making in an unacceptable manner. As applies to any appeal on one of the annulment grounds under Article 1065 Civil Procedure Code, the burden of proof with regard to such facts lies with the person who invokes the alleged breach of mandate by the arbitrators. 216 Proving such facts is never easy, but this is justified by the very serious nature of the allegation against the arbitrators (neglecting their personal duty), as well as the restraint generally to be observed when applying Article 1065(1)(c) Civil Procedure Code.

The absence of a generally accepted rule on this issue explains why some arbitration rules regulate it specifically. The Court of Appeal’s ruling (para 6.6.14.1) – undisputed in cassation – was that the UNCITRAL regulations applicable in this case contain no rules on this point, such that it remains the arbitrators’ discretion to what extent they delegate certain tasks to their secretary, provided they respect the principle of personal performance of their mandate. According to the Court of Appeal, it has not been established that the arbitrators have violated this principle, and, even if Valasek had provided the draft texts for the carrying portions of the award, this does not per se mean that he was also the person who made the decisions in question (para 6.6.14.1, final sentence). According to the Court of Appeal, it has not been established that the taking of substantive decisions relevant to the arbitral awards was delegated to Valasek, or that Valasek had the final responsibility for (certain parts of) the awards. The Court of Appeal thus found no breach of mandate for the purposes of Article 1065(1)(c) Civil Procedure Code.

Having set out the above, I shall now discuss the part’s complaints.

Part 6.2.1 complains about para 6.6.5, in which the Court of Appeal rejected the Russian Federation’s offer of proof. The Russian Federation proposed to examine Valasek regarding ‘the hours he declared and his contributions to the Arbitral Tribunal’s decision-making process’, and, further, to examine two expert witnesses. 217

The Court of Appeal rejected this offer of evidence, because it accepted the assumption that Valasek had ‘made major contributions to the drafting of Chapters IX, X and XII of the Final Award, by providing (draft) texts that arbitrators then incorporated in whole or in part in the arbitral awards’. Accordingly, the offer of proof was no longer relevant. The complaint purports to argue that the Court of Appeal should nevertheless have allowed the production of evidence because of the apparent possibility that, by submitting the text in question, Valasek also influenced the final decision-making of the Arbitral Tribunal. Essentially, the part argues that the Court of Appeal understood the Russian Federation’s offer of proof too narrowly. However, such a complaint must fail given that it is in the Court of Appeal’s discretion to interpret the documents on the record. 218

Part 6.2.2 also complains that, in para 6.6.13, the Court of Appeal rejected the argument under Articles 1065(1)(b) and 1026(1) Civil Procedure Code. The argument is that, due to Valasek’s involvement, the Yukos Awards were de facto issued by four instead of three arbitrators, which amounts to a breach of the above provisions. The Court of Appeal has ruled that the Yukos Awards were signed by the three appointed arbitrators, such that the requirements of those provisions were met. It is alleged that, in doing so, the Court of Appeal interpreted those provisions too narrowly, because they are aimed, inter alia, at preventing a fourth person acting as a de facto arbitrator.

Article 1026(1) Civil Procedure Code provides that the arbitral tribunal must consist of an odd number of arbitrators. Article 1065(1)(b) Civil Procedure Code further provides that an arbitral award may be set aside if the arbitral tribunal was not validly constituted. The part argues that Article 1026(1) Civil Procedure Code not only imposes the formal requirement that the arbitral tribunal must have an odd number of arbitrators, but is also intended to prevent the involvement in the decision-making of a fourth person. Neither the commentary, nor legislative history gives any indications that the provision must be understood in this manner. 219 In principle, it can be assumed that the signature of an arbitral award enables one to deduce which arbitrators made the award, just as, in the case of state courts, the signature under a judicial decision demonstrates which judges have rendered that decision. 220 If the signature shows that the award was made by an odd number of arbitrators, the requirement of Article 1026(1) Civil Procedure Code is met. Of course, all this does not alter the fact that it is undesirable for a fourth person to actually act as an arbitrator by influencing the decision in the arbitration proceedings. This was not lost on the Court of Appeal which, in para 6.6.14 et seq clearly investigated whether the arbitrators had delegated a part of their personal mandate to Valasek. For these reasons, the complaint fails.

Part 6.2.3 cites five complaints (indicated by letters a to e). I shall now briefly discuss these complaints.

The first complaint (under a) targets the court’s rejection of the Russian Federation’s argument that there is an (unwritten) rule that a secretary may not draft substantive parts of an arbitral award. According to the complaint, the Court of Appeal failed to recognise that such a delegation of substantive tasks to a secretary may only take place with the express consent of the parties. The second complaint (under b) targets the Court of Appeal’s decision in para 6.6.14.2 that the Arbitral Tribunal has not seriously violated its mandate by not ‘fully’ informing the parties about Valasek’s drafting tasks.

The two complaints can be discussed together. As I already mentioned, there is no unwritten. In so far as the two complaints argue that the Court of Appeal has disregarded the importance of transparency on the part of the Arbitral Tribunal when delegating substantive tasks, in para 6.6.14.2, the Court of Appeal acknowledged that the Arbitral Tribunal should have fully informed the parties on this point, but considered that this breach of mandate was not sufficiently serious to justify the annulment of the arbitral awards. This is fatal for both complaints. Furthermore, the court’s judgment is not incomprehensible.

The third complaint (under c) argues that, in para 6.6.14.1, the Court of Appeal has wrongly decided that only a specific provision in the applicable arbitration rules can preclude the delegation of substantive tasks by arbitrators to an assistant.

This complaint is based on an incorrect reading of para 6.6.14.1. It is not correct that the Court of Appeal found that the arbitrators’ power to delegate tasks were limited exclusively by the arbitration rules. According to the Court of Appeal, in the absence of specific party agreements, and as long as the substantive decisions are taken by the arbitrators themselves, it remains in the Arbitral Tribunal’s discretion to what extent an assistant or secretary is used in the drafting of the arbitral award. The arbitrators must therefore always respect the principle of personal performance of their mandate. The Court of Appeal has clearly investigated whether the course of events was in conflict with this principle, and answered that question in the negative. The complaint therefore fails.

The fourth complaint (point (d)) targets para 6.6.14.1 and complains about the holding that a (sufficiently serious) violation of the mandate can only exist if the arbitrators have left the taking of substantive decisions or the final responsibility for the award entirely to their assistant.

In the light of the positions in the commentary set out above, the Court of Appeal’s opinion is neither incorrect nor incomprehensible, such that the complaint fails.

The fifth complaint (e) argues that the principle of personal performance of the mandate would be entirely hollowed out if arbitrators could delegate the drafting of the entirety of their awards to a secretary, with the only proof that they performed their mandate personally being comprised in the fact that they signed the award.

The complaint builds on the previous complaints. The fact that the arbitrators have signed the award can provide evidence that the arbitral tribunal was correctly composed, but do not, without more, prove that the principle of personal performance of the mandate has been respected. That principle remains in full force, on the understanding that it must be established that it has not been complied with in a specific case. As is clear from my discussion of this part, the mere fact that a secretary had drafted substantive parts of the award is not sufficient to conclude that the principle of personal performance of the mandate has been breached. The complaints in part 6.2.3 cannot overcome this.

The conclusion is that part 6 must fail.

Part 7 is divided into two parts and targets paras 8.4.13 through 8.4.16 of the final judgment. Those holdings relate to the argument that the arbitral awards were not properly reasoned as to the Russian Federation’s assertion that Yukos’s Mordovan companies were ‘shams’. The Arbitral Tribunal concluded that ‘the extensive record’ contained no evidence of this. According to the Court of Appeal, the Arbitral Tribunal was referring to the record of the tax proceedings that Yukos had conducted in Russia (para 8.4.13). According to the part, this ‘attempted remedial action’ is contrary to Articles 19 and 24 of the Civil Procedure Code and, moreover, incomprehensible.

Before proceeding to address the complaints, I note the following (see also the Court of Appeal’s undisputed assumption in para 8.1.2). The Russian Federation has invoked the annulment ground under Article 1065(1)(d) Civil Procedure Code. As the Supreme Court held, annulment on this ground is only possible in the absence of reasoning, and thus not in cases of defective reasoning. 221 Reviewing the propriety of the reasoning of the arbitral award is, after all, tantamount to a substantive reconsideration of that award, which the courts lack the jurisdiction to do. However, there may be cases where a statement of reasons may be provided, but does not contain any plausible explanation for the decision in question. 222 In such cases, annulment based on Article 1065(1)(d) Civil Procedure Code will be justified, although the court must exercise this power with restraint, in the sense that it must intervene in arbitral decisions only in egregious cases. 223 There is thus a high threshold for annulment under Article 1065(1)(d) Civil Procedure Code.

In summary, the context of the complaints of part 7 is the following (for a more detailed account, see paras 8.4.2 et seq of the final Court of Appeal judgment). In the arbitration proceedings, HVY argued that the additional imposition of taxes on Yukos was fabricated and amounted to an expropriation. The Russian Federation argued that HVY should have been aware that Yukos’ use of the tax exemption in low-tax regions (including Mordovia) was contrary to the prevailing ‘bad faith taxpayer doctrine’. The Arbitral Tribunal considered the issue whether there had been bad faith. The Tribunal then ruled that ‘the massive record’ contained no evidence of this assertion that Yukos’ Mordovan companies were ‘shams’ (Final Awards, paragraph 639). In the annulment proceedings, the Russian Federation argued that this finding was insufficiently reasoned, because such evidence had, in fact, been submitted in the arbitration proceedings. The Court of Appeal rejected this argument on the basis that, according to the Court of Appeal, it was clear that, by ‘the massive record’, the Arbitral Tribunal was referring to the record available in the tax proceedings that Yukos had conducted in Russia (para 8.4.13). The Court of Appeal further substantiated this in paras 8.4.1.4-8.4.16 by pointing out that the Arbitral Tribunal’s finding was made under the rubric of the issue whether the Russian tax proceedings complied with ‘due process’.

Part 7.1 contains only an introduction and no complaints. Part 7.2 is divided into four sub-sections with complaints.

According to part 7.2.1, the judgment of the Court of Appeal is incompatible with Articles 24 and 19 Civil Procedure Code because the Court of Appeal’s interpretation that ‘the massive record’ referred to the tax record and not the arbitration record was not argued by either party.

This complaint fails. The Court of Appeal was faced with the question how the relevant finding of the Arbitral Tribunal was to be interpreted. The Court of Appeal thus had the discretion to interpret that finding otherwise than argued by the parties. The interpretation advocated is not, as such, a fact; rather, it constitutes the precise issue on which the Court of Appeal was asked to rule. Accordingly, this is not a case of prohibited addition to the factual basis (Article 24 Civil Procedure Code) or a breach of the adversarial principle (Article 19 Civil Procedure Code).

Part 7.2.2 complains about the Court of Appeal’s finding, at the end of para 8.4.13, that the Russian Federation did not argue that the evidence that it presented in the arbitration proceedings had also been presented in the tax proceedings. According to the part, there was no reason for the Russian Federation to argue so because it was an ‘obvious fact’. Furthermore, according to the part, it was clear that various pieces of evidence submitted in the arbitration proceedings came from the tax proceedings.

The holdings contested by the part build on the Court of Appeal’s rejection of the Russian Federation’s argument that it had provided evidence of bad faith on the part of Yukos/HVY in the arbitration proceedings. In line with this, the Court of Appeal ruled that such evidence was irrelevant, since the question was whether or not that evidence was submitted in the tax proceedings, which the Russian Federation never alleged. Absent the Russian Federation’s specific allegations in this respect, the Court of Appeal was not required to conduct its own investigation into whether particular pieces of evidence had also been submitted in the tax proceedings. If the Court of Appeal were to do so, it would have ventured ultra petita and, moreover, added to the factual basis by itself putting forward certain facts and then taking them into account. The complaint fails at this juncture.

Part 7.2.3 argues that, on points other than the Mordovan sham companies (namely the use of sham companies in Lesnoy and Trekhgorny), the Arbitral Tribunal has not attached any significance to the tax record as such and instead adhered to the ‘Audit Reports’ and ‘Decisions’ of the Russian tax authorities. According to the part, the Russian tax record was not even available to the Arbitral Tribunal. Furthermore, there are also several tax files, such that one cannot speak of a ‘massive record’ in the singular. The complaint argues that this makes the corresponding finding of the Court of Appeal incomprehensible.

Even on several readings of this part, I was unable to understand what it is that the part actually purports to argue. Insofar as the part purports to argue that the Court of Appeal has failed to recognise that the Arbitral Tribunal’s award was incomprehensible and therefore contrary to Article 1065(1)(d) Civil Procedure Code, the complaint fails because that argument was not put to the courts of fact (where it was, in fact, argued that the reasoning defect was comprised in the fact that the evidence had actually been provided). Insofar as the part purports to argue that the Court of Appeal’s reading in para 8.4.13 is illogical because the Arbitral Tribunal could have meant the words ‘the massive record’ as referring to the tax record, that complaint likewise fails because those arguments have not been put to the courts of fact (where the arguments put were different). Furthermore, the Court of Appeal supported its reading with detailed arguments in paras 8.4.14-8.4.16. Those considerations are not disputed.

Finally, part 7.2.4 targets para 8.4.16. This part assumes that, in this holding, the Court of Appeal provided ‘secondary’ reasoning for its rejection of the arguments under Article 1065(1)(e) Civil Procedure Code, whereby the Court of Appeal allegedly “cast aside” its earlier rejection (para 8.4.13).

The part overlooks that the disputed Court of Appeal ruling does not provide ‘secondary’ reasoning, but, rather, holds, obiter, that even if the Russian Federation’s proposed reading of paragraph 639 of the Final Awards were correct, that would not affect the ultimate conclusion of the Arbitral Tribunal. The obiter nature of this holding is apparent from the fact that, in para 8.4.13, the Court of Appeal expressly adopts a different reading of the Arbitral Tribunal’s decision. The complaints fail against this.

As demonstrated above, the complaints in part 7 are unavailing.

Part 8 of the plea contains a residual complaint that builds on parts 1 to 7. The part argues that if one or more of parts 1 to 7 were to succeed, the damages awarded by the HVY by the Arbitral Tribunal and reinstated by the Court of Appeal could not be maintained.

Given that parts 1 to 7 have failed, this residual complaint requires no discussion.

The conclusion is that the principal cassation appeal must be dismissed.

HVY lodged a conditional cross-appeal in cassation against both the interim judgment and the final judgment of the Court of Appeal. The cross-appeal plea in cassation contains three parts, all of which are filed on the condition that one or more of the complaints of the principal cassation appeal of the Russian Federation would succeed. Given that the main cassation appeal fails, the conditional cross-appeal in cassation requires no discussion.