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CONFIDENTIAL
16 April 2018
VIA E-MAIL
Professor Campbell McLachlan, QC
E-mail: [email protected]
Mr. J. William Rowley, QC
E-mail: [email protected]
Professor Brigitte Stern
E-mail: [email protected]
Re: PCA Case 2013-31 Yukos Capital S.àr.l. (Luxembourg) v. The Russian Federation
Dear Mr. Chairman and Members of the Tribunal,
We write in reference to the Respondent's letter to the Tribunal dated 3 April 2018 (“Respondent's First Letter”), the Respondent's second letter to the Tribunal dated 11 April 2018 (“Respondent's Second Letter”) and the Tribunal's invitation to the Claimant dated 4 April 2018 to respond.
The Respondent's First and Second Letters are a back door attempt to re-open jurisdictional issues the Tribunal has already decided in its Interim Award on Jurisdiction dated 18 January 2017 (“Interim Award”). As explained further below, there is no basis for challenging the Tribunal's jurisdiction nor the Claimant's standing at this stage of the proceedings and the Respondent's accusations with respect to the Claimant's “willingness to participate in this arbitration in good faith” are entirely without merit.
1. Background Facts
The Respondent's complaints arise from Yukos Capital S.àr.l's (“YC Lux”) absorption by a BVI entity, Miwok Wealth PIC Ltd (“Miwok”), effected through a cross-border merger on 4 August 2016, following which its name was changed to Yukos Capital Limited (“YC BVI”). As a result, YC BVI is currently a wholly-owned subsidiary of Yukos International UK B.V. (Netherlands) and a wholly-owned indirect subsidiary of Stichting Administratiekantoor
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Yukos International (“Stichting YI”) (Netherlands), replacing YC Lux in the corporate structure as its universal successor.
Other than the above, there have been no changes to the corporate structure, as has been confirmed to the Respondent's counsel.1
2. Timing For Determination of The Tribunal's Jurisdiction
It is generally recognised that the determination whether a party has standing before an arbitral tribunal for the purposes of the tribunal's jurisdiction is made by reference to the date the proceedings are instituted. In the case of the Energy Charter Treaty (“ECT”), a State's consent to arbitration under Article 26 requires only a dispute between a ‘Contracting Party and an Investor of another Contracting Party' and there is nothing in the ECT that requires an Investor to maintain continuous nationality between the commencement of the proceedings and the date of an award or payment of such award. As long as the claimant Investor had the relevant nationality at the time of the alleged breach of the obligation forming the basis of the claim and thereafter when the arbitral proceedings are commenced, the nationality requirement is considered to be satisfied.2 Thus, any change in the juridical person's nationality after the date of commencement of the claim is immaterial for jurisdiction.3 In this regard, therefore, a juridical person may lose the nationality of the original Contracting State subsequent to the commencement of proceedings, and may acquire the nationality of a non-Contracting State or that of the host State, without losing access to investment arbitration.4
As the Vivendi II Tribunal put it concisely:
“The consequence of this rule is that, once established, jurisdiction cannot be defeated. It simply is not affected by subsequent events. Events occurring after
1 Letter from Gibson, Dunn & Crutcher LLP (“Gibson Dunn”) to Debevoise Plimpton LLP dated 23 February 2018 (Annex J to the Respondent's First Letter). ↩
2 Z. Douglas, The International Law of Investment Claims (CUP: 2009), Chp. 7, especially Rule 32 (Annex 1). ↩
3 Vivendi v. Argentina II, ICSID Case No. ARB/97/3, Decision on Jurisdiction, 14 November 2005, ¶ 61 “[...], it is an accepted principle of international adjudication that jurisdiction will be determined in the light of the situation as it existed on the date the proceedings were instituted. Events that take place before that date may affect jurisdiction; events that take place after that date do not.” See also CSOB v. Slovak Republic, ICSID Case No. ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999, ¶ 31: “it is generally recognized that the determination whether a party has standing in an international judicial forum for purposes of jurisdiction to institute proceedings is made by reference to the date on which such proceedings are deemed to have been instituted.” ↩
4 CSOB v. Slovak Republic, ICSID Case No. ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999, ¶¶ 31-33 recognising that subsequent assignments of the rights in the investment do not affect jurisdiction. See also Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Jurisdiction, 21 December 2012, ¶ 256: “In some cases the claimants had divested themselves of or had transferred the rights that had given rise to the dispute after the institution of proceedings. Tribunals have rejected the argument that, as a consequence, claimants in the proceedings were no longer the real parties in interest.” ↩
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the institution of proceedings [...] cannot withdraw the Tribunal's jurisdiction over the dispute.”5
Investment treaty jurisprudence is uniform on this principle6 and the Respondent has failed to identify a single authority that might permit this Tribunal to re-visit its determination on the Claimant's standing or its rationae personae jurisdiction after the initiation of the proceedings.
Indeed, a contrary proposition would mean that an investor has to maintain the qualifying nationality for an ECT claim not only when it suffered the injury and brought the claim but also until an award is rendered (and by logical extension until any such award is paid in full), which may take years, sometimes decades. Such an investor would, over that time, have to ignore all commercial and legal realities that might warrant the conduct of its business in a different way. Imposing such a requirement would have severe and far reaching consequences that nationality rules under investment treaties, including the ECT, never intended.
As the Respondent is aware, the Claimant was a Luxembourg entity from the date of its incorporation in 2003 until 2016, i.e., (i) when the Investments were made, (ii) when the Respondent's violations of the ECT occurred and the losses were sustained, and (iii) when the ECT claim was brought in 2013. Therefore, any changes post-claim to YC Lux's corporate personality are irrelevant. For the same reasons, so too is the timing of the notification of these changes to the Respondent, which is subject to legal privilege in any event.7
3. YC BVI Can Continue YC Lux's ECT Claim
As noted in Gibson Dunn's Letter of 23 January 2018 to the Respondent's counsel,8 under the laws applicable to the cross-border merger (i.e., Luxembourg and BVI), YC BVI is the universal successor to YC Lux by operation of law. YC BVI thus became the owner of all rights and property and subject to all liabilities, obligations and penalties of YC Lux without further action. In this regard, this is not a case where an investor transferred its investment to a third party; it is merely a corporate restructuring within a group of companies. The subject Investment remains with the Claimant; the only change is that the Claimant has been merged
5 Vivendi v. Argentina II, ICSID Case No. ARB/97/3, Decision on Jurisdiction, 14 November 2005, ¶ 63. ↩
6 See the footnotes 3 to 5 above; see also Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v. Belgium), Judgment, 14 February 2002, I.C.J. Reports 2002, p. 3, ¶ 26; Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, ¶ 396; C. Schreuer, The ICSID Convention: A Commentary, (CUP: 2009) pp. 91-93 (Annex 2): “It is an accepted principle of international adjudication that jurisdiction will be determined by reference to the date on which the judicial proceedings are instituted. This means that on that date all jurisdictional requirements must be met. It also means that events taking place after that date will not affect jurisdiction.” ↩
7 The relevant documents with regard to the cross-border merger are a matter of public record in both the Luxembourg and BVI corporate registers as is evident from the Respondent's Second Letter, Annex A. ↩
8 Annex C to the Respondent's First Letter. ↩
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into another company within the same corporate structure under the ultimate ownership and control of Stichting YI. The same result would have been achieved had Miwok been merged into YC Lux, the only difference being the nationality of the merged entity—which nationality is now irrelevant for the purposes of this Tribunal's jurisdiction.9
Further, the cross-border merger documents unequivocally confirm YC BVI's standing to continue the ECT claim. The Respondent has annexed copies of the Joint Cross-Border Merger Proposal and Articles of Merger10 to its Second Letter, which documents detail the terms of the merger together with other relevant information. For the benefit of the Tribunal, we attach to this Letter the following documents, also publicly available from the commercial registers of Luxembourg and the BVI:
As referenced in the Joint Cross-Border Merger Proposal,11 under Article 261 of the Luxembourg Company Law (Annex 5) and Section 171 of the BVI Business Companies Act (Annex 4), “[u]pon the Merger, [YC BVI became] the owner, without further action, of all the rights and property of [YC Lux] and bec[a]me subject to all liabilities, obligations and penalties of [YC Lux]”. In addition, the BVI Business Companies Act (Annex 4) and Section 1.13 of the Joint Cross-Border Merger Proposal provide that:
“In accordance with the BVI Act, where a merger occurs: (a) no conviction, judgement ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against a constituent company or against any member, director, officer or agent thereof, is released or impaired by the merger; and (b) no proceedings, whether civil or criminal, pending at the time of a merger by or against a constituent company, or against any member, director, officer or agent thereof, are abated or discontinued by the merger but (i) the proceedings may be enforced, prosecuted, settled or compromised by or against the Surviving Company or against the member, director, officer or agent thereof as the case may be; or (ii) the Surviving Company may be substituted in the proceedings for a constituent company.”12
9 Technically, the Claimant could as a legal formality change its domicile to an ECT jurisdiction in order to cure any perceived “deficiency”; this fact too illustrates the baseless nature of the Respondent's Letters and Requests. ↩
10 See Annex A to the Respondent's Second Letter. ↩
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Similar scenarios of universal succession during the pendency of a claim have been recognised by previous tribunals. For example, in Vivendi v. Argentina II, the original claimant CGE changed its name to Vivendi S.A during the course of the ICSID proceedings. Vivendi SA then merged with several other companies in the group to form Vivendi Universal, which by operation of law then held the shares in the Argentinian subsidiary that formed the basis for the investment treaty claim by CGE. The Vivendi v. Argentina II Tribunal agreed that Vivendi Universal was the successor of CGE and as such the proper claimant to continue the claim.13 The same principles apply here since the juridical person of YC Lux continues to live in YC BVI together with all of its rights, obligations and liabilities.
In that respect, therefore, the applicable law to the cross-border merger is determinative of the legal consequences that follow. Indeed, tribunals routinely give effect to the applicable provisions of domestic law under international law.14
In sum, both Luxembourg and BVI law recognise the universal succession of YC BVI to YC Lux. There are no grounds for this Tribunal to disregard the express statutory framework applicable to the merger and the legal consequences that flow from it.
4. There is No Change of Control of the Claimant
The Respondent alleges that “it is unclear whether the alleged re-domiciliation in a non-ECT territory was prompted or accompanied by a change in the Claimant's ownership or control” and request disclosure of “all corporate records evidencing ownership, management, control of Yukos Capital S.à r.l. (now Yukos Capital Limited) from the date of the Notice of Arbitration to present”.
This assertion itself implicitly acknowledges that YC Lux's merger into YC BVI is irrelevant to the question of jurisdiction under Article 26, going as it does only to the denial of benefits provisions of Article 17. And none of this is unclear. The Claimant has confirmed to the Respondent's counsel15 that Stichting YI still indirectly owns and controls YC BVI and Section 1.2 of the Joint Cross-Border Merger Proposal further affirms that YC BVI became a wholly-
13 Vivendi v. Argentina II, ICSID Case No. ARB/97/3, Decision on Jurisdiction, 14 November 2005, ¶¶ 82-87. ↩
14 For example, in Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/04/14, Award, 8 December 2008, the tribunal found that German law recognized the partial legal succession of a spun-off entity and decided that it was vested with the authority to add the new entity as a co-claimant with or substitute for the original claimant. Similarly, the tribunal in Noble Energy, Inc. and Machalapower Cia. Ltda. v. The Republic of Ecuador and Consejo Nacional de Electricidad, ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008 gave effect to the provisions of Delaware law when the original investor was universally succeeded by its parent through a merger, see ¶ 107. ↩
15 See Gibson Dunn Letter dated 23 February 2018 (Annex J to the Respondent's First Letter). ↩
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owned subsidiary of Yukos International UK B.V.16 Stated differently, the merged entity merely replaced YC Lux in the existing corporate structure.
In addition, as the Tribunal will recall, the basis for the Respondent's Article 17 challenge on denial of benefits was not the lack of ownership or control by an entity with a qualifying nationality but that the individual directors of Stichting YI controlled YC Lux. This argument was rejected by the Tribunal in the Interim Award. The Respondent never questioned that YC Lux was indirectly owned and controlled by Stichting YI, nor could it. There is no basis for the Respondent to request documents to re-try its case on Article 17, given that YC BVI remains under the indirect ownership and control of Stichting YI.
For the above reasons, Respondent's unsubstantiated requests for the production of documents relating to the ownership and control of YC Lux and/or YC BVI after the filing of the ECT claim should be dismissed. The same is the case for the requests in the Respondent's Second Letter for documentation in relation to entities such as Luxtona LLC and Yukos Hydrocarbons Limited, which have no relevance to these matters and as to which the Respondent does not even attempt to explain their relevance. The Claimant further considers that the Respondent should be directed to bear the Claimant's costs in responding to its Letters.
5. The Merger Can Have No Impact on Collection of Costs
The Respondent further alleges that there are “legitimate concerns about [the Claimant's] good faith, including its willingness and ability to pay any adverse costs orders now that it is outside of the ECT's jurisdictional reach”. This, of course, has nothing to do with jurisdiction and/or denial of benefits.
In any event, it is unclear to the Claimant how an entity's re-domiciliation outside an ECT Member State is relevant for the purposes of payment of any adverse cost order. The Claimant's current domicile, the British Virgin Islands, is a party to the 1958 New York Convention for the Recognition and Enforcement of Arbitral Awards17 and any costs orders that may be issued by the Tribunal against YC BVI will be enforceable in precisely the same way as if the Claimant's domicile remained in Luxembourg.
Furthermore, as noted previously, YC BVI has assumed all assets and property of YC Lux through a universal succession and the Respondent is in the same position it would have been in had the merger not taken place. Any adverse costs orders can be enforced against YC BVI in lieu of YC Lux by operation of BVI law and the terms of the merger.
16 See Annex A to the Respondent's Second Letter. ↩
17 The BVI became a party to the New York Convention in May 2014. ↩
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Yours sincerely,
Signature
Gibson, Dunn & Crutcher LLP
Enclosures
c.c.: Mr. Jack Wass (Email: [email protected])
Tribunal Secretary
Dr. Dirk Pulkowski (Email: [email protected])
Ms. Gaëlle Chevalier, (Email: [email protected])
PCA
Mr. Peter H. Goldsmith (Email: [email protected])
Ms. Samantha Rowe (Email: [email protected])
Mr. Conway Blake (Email:[email protected])
Debevoise & Plimpton LLP
Ministry of Justice of The Russian Federation (Email: [email protected])
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