You're reading: European court rejects Yukos claims, relief for Russia

STRASBOURG, France - Europe's top human rights court ruled on Tuesday that Russia had not misused legal proceedings to destroy Yukos, once the country's biggest oil firm, in a decision that should satisfy the Kremlin.

But the former managers of the defunct company also hailed the ruling by the European Court of Human Rights, which said Russia had violated their right to a fair trial although it did not rule on their demands for $100 billion in damages.

Yukos, which once pumped more oil than OPEC member Qatar, was crippled with huge back tax claims after its main shareholder, Mikhail Khodorkovsky, fell foul of the Kremlin under Russia’s president at the time, Vladimir Putin.

Unable to pay, Yukos filed for bankruptcy and its assets, some of the best oil fields in Russia, were sold off at state-run auctions, ending up in the hands of Russian state controlled oil companies such as Rosneft.

A spokesman for Putin, who now serves as prime minister, declined to comment immediately but a Justice Ministry official said it was a blow for the former managers of Yukos.

"Few who understand these things would say this is negative for the Russian Federation," said Andrei Fyodorov, a Justice Ministry official who deals with legal issues relating to the court. "I am convinced that our opponents did not expect this.

"I am sure they expected a crushing decision that would grind Russia into dust and that they would be awarded $100 billion and that they can run off to drink coffee. No — everything was very different. It is a very big blow for them."

The court, based in the eastern French city of Strasbourg, said in a statement it had found that Russia "did not misuse legal proceedings to destroy Yukos — but its human rights were violated".

The court said the right to a fair trial had been breached because Yukos has not had enough time to prepare its case and that property rights had been violated during the calculation and imposition of the tax penalties.

But the court’s seven judges unanimously ruled that Russia had not misused the legal proceedings to destroy Yukos and seize its assets.

They also ruled unanimously that they were not ready to make a decision on $100 billion in damages, which Yukos’s former management, including U.S. directors, were seeking for shareholders.

KREMLIN EXPECTED TO BE RELIEVED

Yukos managers said the court had ruled in favour of Yukos, but after deciphering the complicated legal language, political and economic analysts said the decision was better than expected for Russia.

"I think the Kremlin will be relatively relaxed about this decision," said Chris Weafer, chief strategist at Troika Dialog investment bank in Moscow. "What we see at this point is the best possible outcome for the Kremlin in this situation."

Weafer said the worst-case scenario would have been large damages against Russia and scores of negative headlines that would have undermined attempts to improve the perception of Russia’s investment climate.

Khodorkovsky, once Russia’s richest man, was arrested in 2003 and is due to be released in 2016 after Russian courts found him guilty of tax evasion, fraud, money laundering and theft, charges he denies and says were invented by the authorities.

A chemical engineer who served in the Communist Youth League, he started to trade goods as the Soviet Union crumbled but soon began buying up state assets, gaining control of some of Russia’s best oil fields — the basis of Yukos.

Under Khodorkovsky’s management, Yukos became Russia’s biggest private company with a market value of over $40 billion. Shareholders included major U.S. and European funds, some of which lost billions when it was bankrupted.

Either side can refer the decision to the court’s grand chamber where a panel of five judges will consider whether it deserves further examination, the court said.