July 10, 2006
New legal threat over Yukos sale
The Kremlin will face yet another legal headache on Tuesday over its role in the break-up of Yukos after US attorneys began an arbitration proceeding in Spain on behalf of Spanish investors who were allegedly hurt by the Yukos affair.
The move represents the latest attempt by foreign investors to shower Russian officials with litigation over the forced sale of the oil company to Rosneft, the Russian energy company that is preparing for an initial public offering in London and Russia on Friday, which could value the group at up to $80bn.
For American lawyers working on the case, the claim is part of a wider scheme to win some legal precedents in Europe and the US to further their well-funded campaign.
Although it is far from clear how fruitful the arbitration will be, the threat of ongoing litigation wherever Yukos shareholders were hurt will hang over the initial public offering of state-owned Rosneft, which has priced its shares at between $5.85 and $7.85.
Thomas Johnson, an attorney at Covington & Burling who represents US shareholders and an unnamed Spanish fund that were allegedly hurt by the Yukos sale, said a bilateral investment treaty that exists between Spain and Russia would require Russia to submit to compulsory arbitration in response to the claim by the Spanish investor.
"The Russians have been told to expect extensive litigation - this is just another step in that process," Mr Johnson said.
The attorney added that the so-called "demand letter" on behalf of a Spanish client was "the tip of a very large iceberg".
"The actions of the Russian federation with respect to Yukos have cost foreign investors between $20bn and $40bn," he said.
The arbitration is expected to proceed in Sweden following a three-month notice period, and will be decided by three arbiters - with one official chosen by each party and one who is mutually agreed upon.
In a separate legal action initiated in the US, Mr Johnson said plaintiffs were set to respond to a motion by the Russian Federation to dismiss a lawsuit filed against them by the end of July. Russian officials named in the suit, including Viktor Khristenko, the energy minister, have retained Washington-based Baker Botts to represent them in the case.
Although all of the legal claims are being brought in the name of relatively small investors, the legal campaign is being funded by the group formerly known as Menatep, the majority shareholder of Yukos, which was controlled by the company’s former chief executive, Mikhail Khodorkovsky, who is serving a prison sentence for fraud.