Arbitration Panel Holds That the 1994 Energy Charter Treaty Protects Foreign Energy Sector Investments in Former Soviet Union

Skadden, Arps, Slate, Meagher & Flom LLP

John L. Gardiner David Herlihy David Kavanagh QC Bruce Macaulay Karyl Nairn QC Timothy G. Nelson Paul Mitchard QC

In three important decisions published on February 1, 2010, an international arbitration tribunal sitting in The Hague has held that the 1994 Energy Charter Treaty (ECT), a multilateral investment protection covering the energy sector, entitled certain former shareholders in Yukos Oil Corporation OJSC (Yukos) to seek damages against Russia for the alleged loss of their investment.  The Tribunal held that, even though the Russian Parliament (the Duma) never ratified the ECT, it nevertheless was binding on Russia from the date of its signature (in 1994) up to October 18, 2009, because Russia had agreed to be bound through the international law doctrine of “provisional application.” (In August 2009, Russia announced it would not ratify the ECT, and its announcement took effect from October 18, 2009).  The Tribunal's decision has potentially significant ramifications for investors and governments involved in the energy sector, particularly within the former Soviet Union.