The saga in the case of the defunct Yukos oil company is far from over after the Russian Constitutional Court (RCC) in its decision of 19 January 2017 ruled that Russia was not bound to enforce the ECtHR decision on the award of pecuniary compensation to the company’s ex-shareholders, as it would violate the Constitution of the Russian Federation (CRF). The protracted argument between the Yukos oil company’s ex-shareholders and Russia has spanned over a decade before the ECtHR. In its judgment of 20 September 2011, the ECtHR found that Russia acted in breach of Art. 6 of the ECHR by failing to accord sufficient time to Yukos for preparation of its case before national courts. Further to this, the ECtHR found two breaches of Article 1 of Protocol I, in particular with respect to the assessment of penalties by the Russian tax authorities in 2010-2011 and their failure to “strike a fair balance” in the enforcement proceedings against Yukos. The issue of just satisfaction was settled in the 2014 ECtHR judgment that awarded 1,9 billion EUR in pecuniary damages to be paid by Russia to the Yukos ex-shareholders. It is an unprecedented amount of compensation that has ever been awarded in the context of human rights litigation, which makes Russia’s annual budget of 7,9 mil EUR allocated for enforcement of the ECtHR decisions look like a drop in the ocean. Following Russia’s unsuccessful appeal attempts in the ECtHR, the Russian Ministry of Justice brought the case before the RCC arguing against enforcement of the ECtHR judgment.
Uncertain Relationship Between International and Russian Law
The constitutional provisions on the relationship between international and Russian law are far from clear. As a general rule, the primacy of international treaties and agreements could be inferred from Art. 15(4) of the CRF:
If an international treaty or agreement of the Russian Federation provides for other rules than those envisaged by law, the rules of the international agreement shall apply.
The latest decisions of the RCC raise an important question on the relationship between international treaty law and Russian law, given its findings on the primacy of the Constitution if there exists a conflict between the rules of international and national law. However, the reading of Art. 15(4) suggests that international law enjoys primacy over Russian law, including its federal law and the CRF. At least, this was a common understanding as to how the provision should be construed before the RCC rendered its 2015 decision on enforcement of the ECtHR decisions, and another decision in Anchugov and Gladkov, in which it found “impossible” to enforce the decision of the ECtHR on the basis of its non-compliance with the CRF (see blog here and here). The 2015 decision, in which the RCC in abstracto ruled on the primacy of the CRF, was largely a response to the 2014 ECtHR judgment that obliged Russian authorities to make payments to the Yukos ex-shareholders and, in doing so, stirred strong resistance among representatives of the Russian political elite (see blog). In December 2015, the Law on the RCC was amended, granting the RCC powers to rule on enforcement of the decisions of international human rights bodies.
RCC’s Reading of the VCLT and Jus Cogens
In order to substantiate its position on the primacy of the CRF over the ECHR in part where there exists a conflict between two legal instruments, the Majority in Yukos invoked the VCLT. In its peculiar reading of Art. 26 and Art. 53 of the VCLT, the RCC argues that the principle of state sovereignty and non-interference in internal matters of a state constitutes jus cogens and therefore allows for derogation from the pacta sunt servanda principle. This is a distorted reading of jus cogens, as it does not grant unfettered sovereignty to states but in fact restrains state behavior, in particular in the field of human rights. Further to this, the RCC refers to Art. 46 of the VCLT, arguing that the meaning assigned by the ECtHR to the Convention is different from the one envisioned by its object and purpose, thereby violating the CRF. The reasoning, however, does not tally well with 46(2) of the VCLT that requires the violation of internal law, which could invalidate state consent to be bound by a treaty, to “be objectively evident to any State conducting itself in the matter in accordance with normal practice and in good faith”.
RCC’s Decision Highlights
The subsequent parts of the RCC’s judgment dealt with interpretation of Art. 113 of the Russian Tax Code that provides for a statutory time-bar to hold a person accountable for tax offences. The RCC upheld its earlier decision of 14 July 2005 that the statutory time-bar was not applicable to “dishonest taxpayers”. The RCC also referred to the historical context of 90s marred by economic instability that led to the reform of the Russian tax system in early 2000, which aimed to guarantee the compliance of the biggest taxpayers with its obligations. The RCC found that, despite the ECtHR award of pecuniary damages to Yukos, such damages had been the result of the company’s illegal activities. More specifically, it held that Yukos took advantage of “sophisticated unlawful schemes” to avoid paying taxes and left behind an unsettled debt that had the “destructive effect” on Russia’s economy. In light of this, the RCC concluded that enforcement of the ECtHR decision would contravene the constitutional principles of equality and fairness in the area of taxation. Finally, in a rather conciliatory tone, the RCC held that it did not exclude the possibility of Russia demonstrating a good will and agreeing to pay some ex-shareholders who incurred financial loss as a result of the actions of the company’s management.
Flawed Judicial Reasoning?
The decision is problematic in many aspects and one can easily be lost in the jungle of intricate legal questions on the relationship between Russian tax legislation, the Constitution and the ECHR. The most problematic is the RCC’s interpretation of Russia’s international treaty obligations. Technically, any international agreement or treaty that Russia has ratified could be challenged on the basis of its failure to comply with the CRF, given far reaching repercussions of the RCC’s 2017 and 2016 decisions. This would lead to the lack of predictability at the international level as to whether Russia, as a party to any treaty, will honor its obligations under international law. The interpretation of the principle of sovereignty as belonging to jus cogens that justifies Russia’s non-compliance with its international treaty obligations is a misreading of fundamental principles, upon which international law is erected. Also, Art. 113 of the Tax Code on the statute of limitations in tax proceedings has been elevated to the constitutional law status and construed by means of invoking overly broad and abstract principles of equality and fairness in the matters of taxation. As it stands, the decision of the RCC is an example of poor judicial reasoning.
Was the RCC an Appropriate Venue?
A rare glimpse of hope is the dissenting opinion of Judge Yaroslavtsev. He questions the appropriateness of bringing the matter before the RCC. He points to the available referral mechanism provided for in Art. 43 of the ECHR, which entitles any party to the case, in exceptional circumstances, to refer the case to the Grand Chamber. He criticized the Ministry for seeking “simplified” ways to resolve the impasse. In his opinion, the RCC cannot exercise its jurisdiction, as it would contravene the principle of nemo judex in propria causa (no one should be a judge in his own case). This is due to the fact that the ECtHR judgment in Yukos was to a great extent based on the 2005 RCC’s decision on retroactive application of tax legislation. Therefore, he directed the Ministry – instead of seeking “easy ways”– to continue the dialogue with the CoE Committee of Ministers in order to find the solution.
What’s Next? Selective Enforcement, Amendment of the Constitution, or Exit from the CoE?
The RCC decision was followed by a relatively mild reaction of the CoE that expressed its concern over Russia’s refusal to implement the judgment as threatening “the very integrity and legitimacy of the system of the ECHR” and urging the Russian government “to change the federal law to accommodate for the RCC’s powers to prevent the implementation of the judgments of the ECtHR”. In fact, the law has already been changed in 2015 granting such powers to the RCC, so it is the CRF that has to be amended accordingly in the part on the RCC’s powers as well as the primacy of international law. However, this is not an “elegant” solution to the problem, as such constitutional amendments would render the authority of the ECtHR subsidiary to the interpretation of the RCC that would cherry pick decisions to be enforced. The exit of Russia from the CoE would also be unfortunate, as the decisions of the ECtHR have had a catalyzing effect on the development of the legislative and judicial practices in Russia. The Majority ruling in Yukos leaves a serious rupture beyond repair in relations between Russia and the ECtHR.