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Covington and Baker Botts act as Yukos minority shareholders defeat Russia

Baker Botts was defeated again in the long-running Yukos saga as Covington & Burling succeed in having a Russian jurisdictional challenge dismissed by a Swedish court.

After a five-year wrangle over the jurisdiction of an arbitration tribunal administered by the Stockholm Chamber of Commerce, a Swedish court has dismissed Russia’s challenge that former head of arbitration at Freshfields and co-founder of Three Crowns Jan Paulsson, Toby Landau QC of Essex Court Chambers and Judge Brower of 20 Essex Street had no authority to decide a dispute brought against Russia by a group of Spanish investors. It also concluded that despite Russia’s objections, the Spanish funds should be awarded costs.

The challenge was unusual in that most states can only challenge the jurisdiction of arbitration tribunals following an award, which did not come until 2012. Russia sought a declaratory judgment action asking to declare that the tribunal lacked jurisdiction and the challenge was escalated to the Supreme Court, which decided in 2012 that the challenge could proceed.

‘The writing is on the wall. Once again, Russia has been held accountable for its actions,” said Covington & Burling’s partner Marney Cheek who represented the Spanish investors. ‘Now that the Swedish court has rejected Russia’s challenge, we call upon Russia to accept its international responsibility to compensate Yukos investors.’

Partner Jonathan Gimblett who worked alongside Cheek added: ‘This decision is significant because it suggests that Russia will have no more success avoiding its treaty obligations in appeals to national courts than it had in the underlying arbitrations.’

The tribunal was challenged in the local courts in 2009 after deciding they had authority concerning the dispute brought under the Spain-Russia bilateral investment treaty. The tribunal went on to award the investors $2m in damages after unanimously concluding that Russia expropriated Yukos, a figure that has since risen to $3m as the unpaid award has accrued interest. Covington & Burling’s Washington, DC-based partners Marney Cheek and Gimblett represented the Spanish investors alongside co-counsel Kaj Hobér of Mannheimer Swartling Advokatbyrå, Paulo Fohlin of Advokatfirman Odebjer Fohlin and Silvia Dahlberg of Advokatfirman Vinge.

London-based partner Jay Alexander of Baker Botts, which also represented Russia in its recent defeat to a group of majority shareholders that left Russia facing a $50bn bill, represented the state alongside local firm Lindahl.