The Hague's Permanent Court of Arbitration (PCA) ruled in 2014 that Russia must pay damages to the shareholders after finding that the Russian Federation breached its international obligations under the Energy Charter Treaty when it liquidated and part-nationalised the former Yukos Oil Company in 2007.
This week, however, the Hague District Court overturned the award (link on Dutch) on the grounds that Russia had signed but never ratified the Energy Charter Treaty.
Tim Osborne, the lawyer representing the shareholders, said in an emailed statement that his clients will appeal the decision.
"We will appeal this surprise decision by The Hague Court and have full faith that the rule of law and justice will ultimately prevail," he said.
In the same statement Emmanuel Gaillard, head of the international arbitration group at Shearman & Sterling, who acted as lead counsel in the arbitration proceedings, said: "The arbitral tribunal was composed of three international law experts of the highest calibre who were unanimous in their reasoning. I am confident that today’s decision will be reversed on appeal."
Yas Banifatemi, the partner in charge of Shearman & Sterling’s public international law practice, said that the claimants would continue their efforts to enforce the ruling of the arbitral trial.
"Under the 1958 New York convention, enforcement courts will be at liberty to assess the award for themselves, irrespective of what the Dutch courts have to say on the matter," she said.
Arbitration expert Peter Rosher of Pinsent Masons, the law firm behind Out-Law.com said: "This does seem like a surprising turn of events in what is fast becoming quite a saga. The legal issues, which are complex, look like they are becoming increasingly coated politically."
In its 2014 ruling, the PCA issued lengthy awards in favour of three separate groups of former shareholders in what was once Russia's largest oil company in terms of daily production, which was bankrupted as a result of a series of tax claims issued by the Russian government in 2003. State-owned companies Rosneft and Gazprom received the vast majority of Yukos' assets when the company, which was worth more than $60 billion at the time, was liquidated.
In its rulings, the tribunal found that Yukos was "the object of a series of politically-motivated attacks by the Russian authorities that eventually led to its destruction". As part of its aims "to bankrupt Yukos, assign its assets to a state-controlled company" and imprison its owner, Mikhail Khodorkovsky, Russia illegally expropriated the investors' assets, it said.
Former shareholders Hulley Enterprises Ltd of Cyprus, Isle of Man-based Yukos Universal Ltd and Cyprus' Veteran Petroleum Ltd began their arbitration cases in 2005 under the Energy Charter Treaty, an international agreement which sets rules for cross-border energy co-operation. Russia signed the treaty in 1994 but never ratified it, and withdrew in 2009.
The PCA ordered the Russian Federation to pay over $50bn in damages to the shareholders as well as 75% of their legal fees, with interest due annually if payment is not made by 15 January 2015. However, the awards were reduced by 25% to reflect the fact that "certain facets" of the tax optimisation scheme used by Yukos had made its shareholders "vulnerable" to enforcement action by the Russian authorities.