Hulley v. Russia 2014

Tribunal has chosen to use the average of the values of the index over the period from 6 January 2014 to 24 June 2014 as the basis for its calculations. This average value of the RTS Oil and Gas index is 186.90.2425 The adjustment factor to be applied to determine Yukos’ value as of the later date is therefore x=186.90/267.8=69.79 percent. By applying this factor to the amount of USD 61.076 billion the Tribunal arrives at an equity value of Yukos as of 30 June 2014 in the amount of USD 42.625 billion.2426

1822. The value of Claimants’ 70.5 percent share in Yukos, calculated as a pro rata share of this amount, corresponds to USD (70.5/100)*42.625=30.049 billion.

ii.Dividends and Interest on Dividends

1823. According to the Tribunal’s methodology outlined earlier, the dividends that would have been paid to Yukos’ shareholders from the beginning of 2004 to 30 June 2014 will be assumed to correspond to USD 45 billion. Together with interest, the total amount for this period is USD 51.981 billion.2427

1824. Claimants’ share of this amount corresponds to USD (70.5/100)*51.981=36.645 billion.

iii.Total Damages Suffered by Claimants

1825. The damages suffered by Claimants due to the breach by Respondent of Article 13 of the ECT, based on a valuation date of 30 June 2014, is the sum of the Claimants’ share of the two components calculated above, i.e., 70.5 percent of (42.625 + 51.981), which amounts to USD 66.694 billion.2428

(c)Comparison of the Results Based on the Two Different Valuation Dates

1826. The total amount of Claimants’ damages based on a valuation date of 19 December 2004 is USD 21.988 billion, whereas the total amount of their damages based on a valuation date of 30 June 2014 is USD 66.694 billion. Since the Tribunal has concluded earlier that Claimants are entitled to the higher of these two amounts, the total amount of damages to be awarded

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before taking into account any deductions necessary as a consequence of Claimants’ contributory fault is USD 66.694 billion.

6.Deductions Due to Claimants’ Contributory Fault

1827. As determined earlier,2429 the Tribunal has concluded that the Claimants contributed to the extent of 25 percent to the prejudice they suffered at the hands of the Russian Federation. As a consequence, the amount of damages to be paid by Respondent to Claimants will be reduced by 25 percent to USD 50,020,867,798 and the Tribunal so finds.2430

7.Windfall and Double Recovery

1828. The Tribunal sees no reason to make any further deductions beyond those set out above. In particular, any advantages that Claimants may have obtained through their investments prior to Respondent’s expropriatory actions can not have any impact on the damages they have suffered. The Tribunal sees no risk of “double-recovery” in this regard.

1829. Finally, the rate of return that Claimants may realize on their original investment in Yukos as a result of the damages that the Tribunal has awarded to them for the expropriation of their shares is irrelevant. It is the value of the expropriated investment on the date of the Award rather than the amount originally invested by Claimants that is the basis for the calculation of the damages awarded.

XIII. COSTS

A.INTRODUCTION

1830. The Tribunal notes that Claimants and Respondent have each requested that the opposing party be ordered to pay the full costs of the arbitration.2431

1831. The Tribunal observes that the Treaty contains no provisions on the allocation of the costs of arbitration in the case of a dispute between an Investor and a Contracting Party.2432

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1832. However, Articles 38 to 40 of the UNCITRAL Rules do provide the Tribunal with guidelines with respect to the allocation of costs in arbitration.

1833. Article 38 defines the “costs of arbitration” as follows:

The arbitral tribunal shall fix the costs of arbitration in its award. The term “costs” includes only:

(a)The fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39;

(b)The travel and other expenses incurred by the arbitrators;

(c)The costs of expert advice and of other assistance required by the arbitral tribunal;

(d)The travel and other expenses of witnesses to the extent such expenses are approved by the arbitral tribunal;

(e)The costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable;

(f)Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at The Hague.

1834. Paragraphs 1 and 2 of Article 40 of the UNCITRAL Rules set out the guidelines which will inform the Tribunal in its determination of the apportionment of costs. They read as follows:

1.Except as provided in paragraph 2, the costs of arbitration shall in principle be borne by the unsuccessful party. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.

2.With respect to the costs of legal representation and assistance referred to in article 38, paragraph (e), the arbitral tribunal, taking into account the circumstances of the case, shall be free to determine which party shall bear such costs or may apportion such costs between the parties if it determines that apportionment is reasonable.

1835. On 18 March 2014, the Tribunal requested the Parties to file their claims for costs with appropriate schedules by 17 April 2014 and to submit comments on the opposing Party’s claims by 6 May 2014. The Tribunal wrote:

The Parties are requested to present their claims with schedules showing a breakdown of costs for legal representation and assistance, including lawyers’ fees, experts’ fees and other costs associated with presenting their case. The breakdown of lawyers’ fees should indicate the number of attorneys (together with charge out rates) and the amount of time involved in the discrete phases of these proceedings (Phase 1 being the period up to the

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Interim Awards; Phase 2 being the period after the Interim Awards). It is expected that the breakdowns should be in sufficient detail for the Tribunal to appreciate the work in respect of which the costs were incurred.

1836. As requested, the Parties filed their cost claims on 17 April 2014 and submitted comments on the opposing side’s cost claims on 6 May 2014.

B.CLAIMANTS’ POSITION

1.Claimants are Entitled to Recover All Costs Incurred in Connection with these Arbitrations

1837. Claimants note that Article 40 of the UNCITRAL Rules “establishes two approaches with respect to costs.”2433 Firstly, Article 40(1) establishes a “clear presumption” that the losing party pays all costs referred to in Article 38(a) to (d) and (f)—“loser pays” or “costs follow the event.”2434 Secondly, Article 40(2) requires that, when allocating costs for legal representation referred to in Article 38(e), tribunals take into account “the circumstances of the case.”2435

1838. Claimants submit that Respondent should bear all costs set out in Article 38(a) to (d) and (f), namely the fees and expenses of the Tribunal and the PCA (including those of the PCA’s Secretary-General).

1839. Claimants aver that Respondent was the unsuccessful party in the jurisdiction and admissibility phase. Claimants assert that they “prevailed on every single issue that was finally decided in the jurisdiction and admissibility phase of these arbitrations.”2436 They consider that Respondent should bear the fees and expenses of the Tribunal and the PCA related to that phase.

1840. Claimants submit that they should prevail at the merits stage as well and that Respondent should bear the fees and expenses of the Tribunal and the PCA related to that phase.2437

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1841. According to Claimants, no circumstances in this case require the Tribunal to depart from the starting point of “costs follow the event”; to the contrary, they argue, the circumstances in this case “only further necessitate” an order of costs in favour of Claimants.2438

1842. Claimants submit that, taking into account the circumstances of the case—and in particular the Parties’ success in the arbitrations, their conduct during the proceedings, and the actual measures of Respondent which gave rise to the dispute—Respondent should bear all of Claimants’ costs of legal representation and assistance.

1843. Claimants contend that where the investor prevails in an investor-State arbitration, an order that the State pay the investor’s costs of legal representation is based on the principle of reparation, which mandates that the investor be fully compensated for its losses, including those incurred as a result of having to litigate.2439

1844. According to Claimants:

In the present case, the Respondent’s approach to these proceedings has been to raise (and re-raise) as many objections, arguments and issues as possible, no matter how irrelevant or implausible they may be, in the hopes of delaying the proceedings and somehow burying or obfuscating the straightforward facts of the case.2440

1845. Claimants opine that Respondent’s “obstructionist conduct” in this case should lead the Tribunal to order it to pay all costs of legal representation.2441

1846. Claimants submit that “in no other case has the need to take into account the underlying conduct of the host State been more relevant than in these arbitrations.”2442 Claimants argue

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that Respondent’s conduct “has been decried by every single court or tribunal, organization, and independent observer outside Russia” and “must be sanctioned in full.”2443

2.Claimants’ Costs are Reasonable

1847. Pursuant to the Tribunal’s directions, Claimants presented a summary of the costs they have incurred in connection with these arbitrations on a per-phase basis:2444

Table 1: The Claimants’ costs for legal representation incurred in Phase 1

Shearman & Sterling LLP Fees and Expenses

USD 482,260.11

Grand Total (Phase 1)

USD 27,960,598.79 GBP 996,962.10

89The deducted amounts comprise: (i) experts’ fees and expenses advanced by Shearman & Sterling LLP and subsequently reimbursed by the Claimants (deducted to avoid double-counting of those amounts); and (ii) the fees and expenses of persons consulted by the Claimants, but who did not tender testimony.

. . .

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1849. Claimants submit that their costs in the merits phase are reasonable given:

(i) the large number of issues raised by the Respondent in the merits phase, (ii) the numerous expert statements tendered by the Respondent, (iii) the volume of procedural issues that arose in the course of the proceedings attributable solely to the Respondent, and (iv) the matters and amounts at stake in the arbitrations.2446

1850. Claimants request interest on any cost award at a rate of LIBOR + 4 percent compounded annually.2447

3.Claimants’ Comments on Respondent’s Submission on Costs

1851. Claimants summarize their comments on Respondent’s Submission on Costs as follows:

Respondent has elected not to provide a “breakdown of costs”, as directed by the Arbitral Tribunal. Its so-called “Schedule of Costs” cannot in any way facilitate the Tribunal’s task in reaching its decision on costs, including in assessing the reasonableness of either of the Parties’ claimed amounts. Moreover, the Respondent’s argument that each Party should bear its own costs is based on a flawed presentation of investment treaty case law and a blatantly self-serving description of the Respondent’s conduct throughout these arbitrations. At the same time, the Respondent’s position speaks volumes as to its true conviction (or lack thereof) in its defenses to the Claimants’ claims. Had the Respondent truly believed that the Claimants, Yukos and/or related persons and entities had engaged in large-scale criminal conduct—ranging from embezzlement and money laundering to tax fraud and even murder—it would have insisted that its full costs be shouldered by the Claimants, instead of proposing, as it has done now, that it bear its own costs in defending the Claimants’ claims.2448

1852. Claimants assert that comparing the comprehensive presentation of their costs for legal representation with Respondent’s “opaque” Schedule of Costs would be “akin to comparing apples and oranges.”2449 Even then, Claimants maintain that their costs would still be reasonable. In particular, Claimants note that “in ordering respondent States to bear investors’ costs, investment treaty tribunals have found that it is not unusual for claimants’ costs to be higher than those of respondents, given that, inter alia, the burden of proof generally falls on claimants.”2450

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C.RESPONDENT’S POSITION

1.Equal Apportionment is an Appropriate Exercise of the Tribunal’s Discretion on Costs

1853. Respondent notes that, while Article 40(1) of the UNCITRAL Rules states that the costs referred to in Article 38(a) to (d) and (f) should “in principle be borne by the unsuccessful party,” it gives the Tribunal the discretion to “apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.” Respondent asserts that Article 40(2) grants the Tribunal “complete discretion” in its apportionment of the Parties’ costs of legal representation.2451

1854. Respondent argues that the following factors should inform the exercise of the Tribunal’s discretion:

(a)whether the dispute involved novel and complex questions of law and a long and complex procedure such that it would be unfair to penalize a non-prevailing party for maintaining its positions with an adverse costs award;

(b)the constructive and professional conduct of the parties and their positive impact on the tribunal’s settlement of the dispute, which militates in favor of equal apportionment of costs;

(c)any bad faith, unreasonable or unnecessarily burdensome conduct of a party for which the other party should be compensated;

(d)whether the non-prevailing party succeeds in some respects during the arbitration with legal, factual or procedural arguments, making it inappropriate to award the ultimately successful party its costs; and

(e)the nature of the dispute resolution mechanism and the traditional position under public

international law and in investor-state arbitration that parties “bear their own costs of legal representation and assistance.”2452

1855. Respondent submits that, in light of the above-mentioned factors, the “appropriate approach here is for each side to bear its own costs.”2453 Further:

If, in the exercise of its discretion, the Tribunal decides that equal apportionment of costs in these cases is not appropriate, and that the costs incurred by the prevailing party should be borne by the unsuccessful party, Respondent would then request that Claimants should bear Respondent’s costs based upon the relative success of the parties in these arbitrations on issues of jurisdiction, the merits and Claimants’ demand for damages. It is clear from

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the Procedural Orders issued throughout the proceedings and from the Interim Awards on Jurisdiction and Admissibility that neither side has been fully successful.2454

2.Schedule of “Types of Costs” Incurred by Respondent

1856. Respondent submits a schedule indicating the “types of costs” incurred by Respondent in defense of Claimants’ claims.

A. Tribunal and PCA Fees and Expenses

Initial and supplemental deposits paid to the PCA

TOTAL € 3,950,000

B. Attorneys’ Fees and Expenses

Phase 1

For the period from February 3, 2005 to November 30, 2009:

Review of Claimants’ Notifications of Claim dated October 27, 2004; review of Claimants’ Statements of Claim dated February 3 and February 14, 2005; preparation of Respondent’s Statements of Defense dated October 15, 2005; preparation of Respondent’s First Memorials on Jurisdiction and Admissibility dated February 28, 2006; review of Claimants’ Counter-Memorials on Jurisdiction and Admissibility dated June 30, 2006; preparation of requests for disclosure, preparation of documents and responses to Claimants’ requests for disclosure, review of documents produced by Claimants; preparation of Respondent’s Second Memorials on Jurisdiction and Admissibility dated January 31, 2007; review of Claimants’ Rejoinders on Jurisdiction and Admissibility dated June 1, 2007;

Correspondence and various procedural submissions with the Tribunal and Claimants’ counsel;

Attendance at hearings of October 31, 2005, December 1, 2007, May 8-9, 2008 and from November 17 to December 1, 2008.

Lawyers Involved in Phase 1

Partners (5), billing range $700-900/hour, in excess of 3,500 hours Associates (15), billing range $300-$625/hour, in excess of 12,000 hours

Paralegals/stagiaires/trainees (10), billing range $125-$225/hour, in excess of 5,000 hours

Phase 2

For the period from November 30, 2009 until the present:

Review of Claimants’ Memorial on the Merits dated September 16, 2010; preparation of Respondent’s Counter-Memorial on the Merits dated April 4, 2011; preparation of requests for disclosure, preparation of documents and responses to Claimants’ requests for disclosure, review of documents produced by Claimants; preparation of Respondent’s Short Submission on Bifurcation of Liability and Quantum and on Referral under Article 21 of the ECT dated April 29, 2011; preparation of Respondent’s First and Second Submissions on Confidentiality dated January 18 and February 2, 2012; review of Claimants’ Reply on the Merits dated March 15, 2012;

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