Former shareholders in Yukos, the defunct Russian energy giant, today began a $50 billion (£33 billion) legal fight against the Russian government in what is believed to be the biggest commercial lawsuit ever brought.

The landmark case will be closely followed by energy companies around the world in the hope that it will provide greater legal protection for trillions of dollars worth of investments in Russia and other resource-rich countries.

GML, formerly Group Menatep, claims that Yukos, once the largest energy company in Russia, was unlawfully seized by the Kremlin in an orchestrated political campaign.

It is seeking compensation under the Energy Charter Treaty (ECT), an international legal framework signed by 52 countries that came into force in April 1998.

The two-week hearing, held in private at an arbitration tribunal in The Hague, will determine whether Russia, which has provisionally applied the ECT but not ratified it, is bound by its terms. Four other countries have signed but not ratified the treaty: Australia, Belarus, Iceland and Norway.

Tim Osborne, a director of GML, said that Russia was attempting to avoid its legal obligations in a bid to avoid compensating the Yukos shareholders. “Russia was desperate to have the treaty in force when it wanted foreign investment but now it doesn’t want to be hidebound by rules it previously agreed to,” Mr Osborne said.

If the tribunal rules that it has jurisdiction over GML’s claim, another hearing will be held at a later date to determine its merits. More significantly, lawyers said, such a ruling would establish a precedent that would expose Russia and the other states that have not ratified the ECT to lawsuits from investors who believe they have been treated unfairly.

Lawyers said the need for greater legal certainty for foreign investors was imperative with more than $25 trillion expected to be spent on energy supply infrastructure by 2030, according to International Energy Agency estimates.

“This is a truly significant case,” Stephen Jagusch, an energy arbitration expert at Allen & Overy, the “magic circle” law firm, said. “In the scheme of things, GML’s claim is actually a drop in the ocean.”

GML's 51 per cent stake in Yukos was left worthless after the oil company was declared bankrupt in 2006. Unable to meet crippling demands for back taxes, its most valuable asset, Yuganskeneftgaz, was confiscated by Russian authorities and sold to Rosneft, the state-controlled oil company. Its founder, Mikhail Khodorkovsky, was jailed.

GML, which ended its ties with Mr Khodorkovsky in 2005, initially claimed compensation of $28 billion but that estimate has been revised upwards due to the higher price of oil. Mr Osborne, a London-based solicitor, said its claim was now worth at least $50 billion and could be worth as much as $100 billion.

GML, which is based in Gibraltar and still has real estate and other investments in Western Europe, is controlled by Leonid Nevzlin, a Russian businessman in self-imposed exile in Israel.

Mr Nevzlin left Russia after Yukos was dismantled and is wanted there in connection with criminal charges. As with Mr Khodorkovsky, he claims the charges are politically motivated. His fortune was once estimated by Forbes magazine to be worth $2 billion (£1.4 billion).

GML has hired one of Europe’s top arbitration lawyers, Emmanuel Gaillard, of Shearman & Sterling, to lead its case. However, it faces a protracted legal fight. Even if its claim succeeds in arbitration it would struggle to recover any damages.

Although GML could pursue Russian assets through courts in Europe and the US, which tend to honour arbitral awards, that could take decades. “In the short term, an award would be almost impossible to enforce,” Matthew Weiniger, a partner at Herbert Smith, the City law firm, said.

The ECT specifies arbitration as the standard procedure for resolving disputes between foreign investors and the governments of member states. According to the ECT Secretariat, there have been 20 such cases against states including Hungary, Georgia and Turkey.

Arbitration clauses have become increasingly common in large commercial contracts as many investors regard tribunals as more independent and predictable than pursuing a claim through domestic courts. Investors also often prefer arbitration to litigation because hearings are held in private and awards are final.

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