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Yukos Wins Partial Victory Over Russia in European Court

A European court handed a partial victory to former managers of Yukos Oil Co., ruling that Russia had violated the company’s rights while rejecting a political motivation behind tax claims that led to its bankruptcy.

Russia infringed on the company’s property rights with penalties imposed concerning the 2000-2001 tax assessments and left Yukos inadequate time to prepare a case, precluding a fair trail, the European Court of Human Rights said.

“The crux of Yukos’s case was essentially the speed with which it was required to pay and the speed with which the auction had been carried out,” the Strasbourg, France-based court said in a statement on its website today.

Yukos’s main assets, now owned by state-run OAO Rosneft, were seized and auctioned off by the government in 2004 to settle more than $30 billion of tax claims. Yukos owner Mikhail Khodorkovsky, who is in prison serving 13 years for crimes including tax evasion and fraud, maintains the charges were fabricated because he opposed then-President Vladimir Putin. Putin, now prime minister, has denied any involvement in the case.

The court said it wasn’t prepared to decide on a demand for compensation in excess of $100 billion by Russia’s once-largest oil producer. The same court awarded Khodorkovsky almost 25,000 euros ($34,200) in May, saying he was held in “inhuman and degrading conditions.”

‘Partial’ Victory

“For Khodorkovsky, to see the European Court of Human Rights rule that the case against his company was lawless with human rights violated on several counts was certainly a victory, if a partial one,” said Masha Lipman, an analyst at the Carnegie Moscow Center research group.

“The retroactive change in the rules” and “the consequent doubling of the penalties due” violated the company’s rights, according to today’s ruling.

Yukos failed to prove the tax case against it was politically motivated, the court said. The May 31 ruling on Khodorkovsky’s complaint had also dismissed claims that his arrest on fraud charges was politically driven, saying the accusations required incontestable proof.

“The ultimate resolution on the damages is yet to come and I think ultimately that that will be resolved in favor of Yukos stakeholders,” Bruce Misamore, former chief financial officer of Yukos, said on a webcast press conference today.

Yukos had asked for 81 billion euros in reparations, according to the court.

No ‘Disproportionate Burden’

The judges allowed the rest of the tax assessments for 2000 to 2003 to stand, saying they were “not particularly high and nothing suggested that the rates of the fines or interest payments imposed an individual or disproportionate burden.”

“I don’t see any direct consequences for the image of Russia as a state,” Konstantin Kosachyov, the head of the Russian lower house of parliament’s foreign affairs committee, said. “The European Court of Human Rights rejected the main claims by Yukos lawyers that the process was politicized.”

Lawyers in Russia will analyze the ruling to ensure procedural violations from the Yukos case aren’t repeated in other legal cases, Kosachyov said.

Dmitry Peskov, Putin’s spokesman, and Natalya Timakova, spokeswoman for President Dmitry Medvedev, declined to comment by phone.

The court’s decision was a compromise, according to Carnegie’s Lipman.

“A ruling in favor of the plaintiffs as far as compensation is concerned would have had too strong political repercussions that the court is probably not prepared for,” she said. “That was bound to very seriously deteriorate Russia’s relations with the West because of the size of the compensation.”

The case is: OAO Neftyanaya kompaniya YUKOS v. Russia, 14902/04, European Court of Human Rights.

To contact the reporters on this story: Heather Smith in Paris at hsmith26@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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