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Belgian Court Unfreezes Russian Assets in Yukos Case

June 13, 2017 10:18 AM
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Paul Lefebvre

IADC member Paul Lefebvre, a partner at Hanotiau & van den Berg, was appointed as lawyer of the Russian Federation in order to lift attachment on Russian-owned real estate and bank accounts in Brussels that were frozen two years ago at the request of one of the former majority shareholders in Yukos.

On June 8, 2017, the Brussels Court of First Instance rendered a pair of decisions. 

Read below for the article that was originally published with Global Arbitration Review.

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A Belgian court has ordered the lifting of attachments on Russian-owned real estate and bank accounts in Brussels that were frozen two years ago at the request of one of the former majority shareholders in Yukos.

In a pair of decisions yesterday, an attachment judge at the Brussels Court of First Instance ruled that Isle of Man-registered Yukos Universal lacked a valid enforceable title for the attachments following the annulment of its Energy Charter Treaty award against Russia by a Dutch first-instance court last year.

The judge found that a 1925 bilateral treaty between Belgium and the Netherlands required her to recognise the Dutch annulment decision even though it is still being appealed in the Netherlands and the award has already been declared enforceable by the courts in Belgium.

Yukos Universal has 14 days from notification to release the assets, which include two houses, an apartment and a plot of land in an upmarket area of Brussels, which are thought to be worth several million euros in total. Two of the properties are registered to Russian news agencies RIA Novosti and TASS, respectively.

The assets also include €640,000 in Russian funds held in bank accounts at BNP Paribas Fortis and ING Belgium, including an account in the name of the Russian Centre for Science and Culture in Brussels and third-party accounts holding rental deposits.

Yesterday’s decisions were issued by Judge Caroline Cnop, the same judge who in January 2016 lifted a garnishment that had been obtained by the Micula brothers in support of ICSID enforcement proceedings against Romania. In that case, she similarly held that the investors lacked a “current” enforceable title because of the European Commision’s findings that their ICSID award amounted to illegal state aid. That decision is available here in redacted form; an appeal is pending before the Brussels Court of Appeal.

A diplomatic incident

The latest proceedings stem from efforts by Yukos’ former majority shareholders to collect on a US$50 billion Energy Charter Treaty (ECT) award against Russia. An UNCITRAL tribunal seated in The Hague issued the award in 2014 over the “politically motivated” expropriation of the country’s largest oil company, which had been bankrupted in 2006 after being hit with back tax claims and fines of US$24 billion.

Yukos Universal obtained an ex parte order recognising the ECT award from the president of the Brussels Court of First Instance in June 2015, on the basis of which the company applied in the same month to bailiffs to attach Russian assets in Belgium. The attachments caused diplomatic tensions, with Russia warning it might take retaliatory measures against Belgian assets on its own soil.

Applying to lift the attachments, Russia argued that Yukos Universal lacked an enforceable title for the attachments because of the April 2016 decision by the District Court of The Hague annulling the award.

The state also argued that it had not been validly notified through diplomatic channels about the transformation of conservatory attachments on the bank accounts into executory attachments; and that the attached assets either benefited from sovereign immunity as property of Russia or were owned by third parties.

In her decisions yesterday, Judge Cnop did not address the sovereign immunity question but upheld Russia’s arguments with respect to Yukos Universal’s enforceable title, which she said consisted of the ECT award and the Belgian recognition order of June 2015.

Judge Cnop observed that the ECT award had been annulled in the Dutch legal order by a judgment that was provisionally enforceable. The award had therefore immediately ceased to have legal effect in the Netherlands, irrespective of the appeal of the annulment decision that the Yukos former majority shareholders have lodged with the Court of Appeal in The Hague.

She held that the Dutch set-aside decision should be recognised in Belgium pursuant to a 1925 bilateral treaty between Belgium and the Netherlands facilitating the mutual recognition of judgments and arbitral awards.

But the judge rejected Russia’s arguments that it had not been validly notified; as well as a request by RIA Novosti and TASS for damages to compensate the injury they had allegedly suffered because of the attachments.

Russia’s case was prepared and pleaded by Hanotiau & van den Berg partner Paul Lefebvre and senior associate Magali Servais, along with independent avocat Yves Herincx.

Counsel to Russia say that Judge Cnop's findings are “in line with consistent Belgian jurisprudence”, pointing to two decisions issued by the president of the Court of First Instance of Antwerp in June 2016 and May this year, which also held that the annulment of the ECT award in Netherlands meant attachments on the basis of the award could not be permitted.

Those decisions sprang from ex parte requests by the University of Kaliningrad for orders to protect the sailing ship Kruzenshtern from potential attachment during a visit to Belgium. Yukos Universal had not sought such an attachment and was not given an opportunity to be heard.

“I am very pleased that the basic rules of justice have finally gained the upper hand in this case,” said Andrey Kondakov of Russia’s International Centre for Legal Protection in a press release about yesterday’s rulings.

Counsel to Yukos Universal in the Belgian proceedings, Hakim Boularbah of Liedekerke Wolters Waelbroeck Kirkpatrick says Judge Cnop adopted “highly questionable reasoning” with regard to Yukos Universal’s enforceable title. He says it ignores the legal effect of the Belgian recognition order, according to which “the awards must be regarded as valid and enforceable in Belgium as long as that order has not been revoked.”

He adds that the Belgian court dealing with the recognition has “exclusive jurisdiction” to determine the consequences of the setting aside of the award in the Netherlands, if any.

The attachment judge did not address the validity of the Belgian recognition order, which was upheld by the Belgian Court of First Instance last December. Russia is pursuing two appeals in relation to that decision before the Brussels Court of Appeal, and a further action before the Belgian Supreme Court.

Boularbah says Judge Cnop’s finding that Russia was validly notified during the attachment process will be “crucial” with regard to the admissibility of one of those appeals, in which Russia has also raised arguments that it was not properly served with documents.

Among the other issues in dispute in the enforcement proceedings is whether Russia is time-barred by the 1925 Dutch-Belgian treaty from challenging the recognition order, with the state arguing that the treaty has been superseded by EU legislation.

The parties are also at odds over whether the proceedings are governed by Belgium’s 2013 arbitration law, which requires appeals from the Court of First Instance to go directly to the Supreme Court. Yukos Universal argues that the pre-2013 regime applies because the ECT arbitration commenced before the new legislation’s entry into force.

New hurdles for creditors

Yukos Universal can still appeal the latest decisions and seek to renew the attachments. However, it will face greater hurdles than before thanks to an amendment to the Belgian Judicial Code passed in August 2015, which has curbed the ability of creditors to attach the assets of sovereign states. A similar law was passed in France late last year.

The legislation, widely seen as a response to the diplomatic crisis caused by the freezing of Russian assets two years ago, requires creditors seeking to attach a sovereign state’s assets to obtain prior authorisation from an attachment judge before applying to a bailiff; and imposes stricter conditions that must be fulfilled before such assets can be attached.

The law did not have retroactive effect, meaning it did not apply to attachments Yukos Universal had already obtained. 

In April, Belgium’s Constitutional Court rejected most of a challenge to the new law brought by Yukos Universal and distressed-debt investor NML Capital, who had argued that it breached principles of equality and non-discrimination by treating creditors of foreign states differently from other types of creditors.

With regard to bank accounts, Yukos Universal and NML also argued that the law unfairly reversed the burden of proof by requiring creditors to demonstrate the existence of funds suitable for garnishment before they could obtain discovery from the banks to support their case.

But the Constitutional Court said the difference in treatment was justified by the law’s intended aim of fostering international comity and avoiding diplomatic incidents.

The court did strike down a requirement in the law that a sovereign state must have “specifically” consented to the seizure of an asset, finding that this went further than the position in customary international law. However, that finding will have no bearing on the Yukos case as the ECT does not contain a waiver of immunity from execution.

In the Belgian attachment proceedings

Counsel to the former majority shareholders in Yukos

  • Liedekerke Wolters Waelbroeck Kirkpatrick

Partner Hakim Boularbah and senior attorney Olivier van der Haegen in Brussels

Counsel to Russia

  • Hanotiau & van den Berg

Partner Paul Lefebvre and senior associate Magali Servais, with support from partners Niuscha Bassiri and Albert Jan van den Berg and counsel Maarten Draye in Brussels

  • Independent practitioner Yves Herincx in Brussels

Counsel to RIA Novosti

  • Janson Baugniet

Cedric Alter in Brussels

Counsel to TASS

  • Billiet & Co

Johann BillietPhilippe Billiet and Jean-François Tossens in Brussels

Counsel to Belgium

  • Xirius

Alain Verriest and Anne-Sophie Verriest in Brussels

 

Before the Belgian Constitutional Court

Counsel to NML Capital

  • LMBD Prioux

Fabrice Mourlon Beernaert and Pia Gennari Curlo in Brussels

Counsel to Yukos Universal Limited

  • Liedekerke Wolters Waelbroeck Kirkpatrick

Partners Hakim BoularbahNicholas Angelet and Frank Judo in Brussels

Counsel to the Belgian Council of Ministers

  • Xirius

Emmanuel JacubowitzAnthony Poppe and Clémentine Caillet in Brussels

 

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