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European court upholds part of Yukos complaint against Russia

https://www.chemnet.com   Sep 21,2011 Platts
The European Court of Human Rights ruled Tuesday that Russia treated the defunct Russian oil giant Yukos unfairly in some of its tax proceedings against the company, but cleared the Russian authorities of trying to deliberately destroy Yukos and seize its assets.

In a long-waited judgment which is not final and does not deal with the question of compensation, the court ruled that Yukos had insufficient time to prepare its defense case in 2000 against tax assessment proceedings.

The court also ruled that initial calculation and enforcement of tax penalties was disproportionate and too swift, forcing it to auction its key operating unit Yuganskneftegaz.

"Their speed and the selection of Yuganskneftegaz for sale for initial payment of taxes were inflexible and dealt a 'fatal blow' to the company and so were disproportionate," Yukos said in a statement.

The court dismissed, however, charges that Yukos had been treated differently from other companies, that the final enforcement proceedings were disproportionate, and that it has misused the proceedings to destroy Mikhail Khodorkovsky's former oil company.

Russia welcomed the court's ruling on Yukos, saying it exonerated it of charges is set out to destroy the company

In a statement, Russia's Justice Minister said the court had not found drawbacks in Russian authorities' actions that could prove that the state misused legal procedures with the aim to expropriate Yukos' property and destroy the company,

The court has not supported Yukos claims that Russia's actions against the company were "selective," the ministry said.

"The court has fully rejected accusations that Russia's actions against Yukos were politically motivated and repressive in nature as well as allegedly discriminative towards the company," it said.

INTERFERENCE

Former Yukos shareholders are pursuing legal action to retrieve more than $100 billion in compensation for what they call the illegal dismantling of the company.

The shareholders first made an initial application in 2004 and the court last held a hearing on the merits of the case in Strasbourg in March 2010.

Yukos contends the Russian state acted illegally when it unleashed a barrage of measures against what was then Russia's biggest company, starting with injunctions in 2000 and culminating with the company's liquidation in 2007.

In the enforcement of the Yukos' debt resulting from a 2000-2003 tax assessment, the court said the seizure of assets, an enforcement fee of 7% of the total debt, and the forced sale of Yuganskneftegaz all interfered with Yukos's rights under EU protection of property rules.

"Given that the sums that were already owed by Yukos in July 2004 made it rather obvious that choosing to auction OAO Yuganskneftegaz first was capable of dealing a fatal blow to Yukos's ability to survive the tax claims and to stay in business," the court said.

Rosneft bought the main upstream and downstream assets formerly owned by Yukos through a number of state-organized auctions related to Yukos' bankruptcy. The acquisitions made Rosneft Russia's largest crude producer.

Yukos has fought Rosneft in courts in Russia, the UK and the Netherlands in recent years.

In the most recent case in 2010, Yukos successfully fought off an appeal by Rosneft to have the award of $400 million in arbitration awards to Yukos overturned.

Yukos has long argued it was unable to get a fair trial in Russia.

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