MOSCOW, November 5 (RAPSI, Vladimir Yaduta) – The US Court of Appeals for the Second Circuit has upheld a decision passed in October 2013 by a federal district court in New York to award about $186 million to Yukos Capital S.a.r.l., an affiliate of now-defunct Yukos Oil Company, according to court documents obtained by RAPSI.

Yukos Capital sought enforcement of an arbitration award it had won in the International Court of Arbitration of the International Chamber of Commerce (ICC) against Russia’s OAO Samaraneftegaz that was a wholly-owned Yukos Oil subsidiary from 2001 until 2007. It is now part of Rosneft,  Russian state-controlled oil giant.

The companies’ original dispute arose from a July 2004 loan agreement. According to the US court documents, Yukos Capital had lent Samaraneftegaz 2,415,890,000 rubles. The loan agreement had stipulated that all relevant disputes should be dealt with by the ICC. “It is undisputed that Samaraneftegaz failed to make any payments on the Loans, including interest when due and principal upon notice of default,” the decision of the federal district court in New York reads.

Yukos Capital initiated ICC arbitration proceedings against Samaraneftegaz to resolve the loan dispute in January 2006.

The dispute fell in the favor of Yukos Capital. According to the US court documents, “In its August 15, 2007 award, the tribunal ordered Samaraneftegaz to pay Yukos Capital the outstanding RUR 2,415,980,000.00 due under the Loans, contractual interest in the amount of RUR 664,821,971.00, interest at a rate of 9% on the award until payment, $ 435,000 USD for arbitration fees and costs, and $284,474.54 USD for Yukos Capital’s legal costs and expenses.”

When Yukos Capital sought enforcement of the award in Russia in 2010, a Samara commercial court refused, holding that Samaraneftegaz had not been notified of the progress of the arbitration proceedings. Furthermore, the court found that enforcement of the award would violated Russian public policy.

Meanwhile, Samaraneftegaz’s sole shareholder Neft-Aktiv had sued in 2007 to invalidate the original loan agreement – arguing that the loans had in fact been “sham transaction[s] intended to conceal the actual relations between the parties in the form of an illegal transfer [by] OJSC Samaraneftegaz of its funds in favor of [Yukos Capital] and subsequent return of the abovementioned amounts to OJSC Samaraneftegaz in the form of a loan.”

In 2012, a Samara court invalidated the loans, finding that they had been “financed from funds taken away earlier from OJSC Samaraneftegaz in the course of implementation of transfer pricing mechanisms.” Yukos Capital failed in its later efforts to appeal the judgment.

Samaraneftegaz appealed from a judgment enforcing an arbitration award in favor of Yukos Capital. The company argued that the district court erred by refusing to dismiss the case for forum non conveniens; exercising personal jurisdiction over Samaraneftegaz; failing to apply the exceptions to enforcement set forth in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and converting the award from Rubles to Dollars using the exchange rate as of the date of the arbitration award.

The court of appeals dismissed the arguments presented by Samaraneftegaz.