On 5 August 2016, Russian businessman and former co-owner of the Lithuanian Bank Snoras, Mr. Vladimir Antonov, filed a claim against the Republic of Lithuania (represented by the Ministry of Justice) for an amount exceeding 40 billion Rubles (more than 500 million Euro) in the Moscow State Arbitration Court (Case No. А40-165646/2016).
The basis of the claim currently is not publicly available. However, the immediate question raised by these proceedings is whether or not there is a legal basis for a claim to be brought against a sovereign state in a Russian state court and how it might affect investor-state arbitration provisions in an applicable treaty.
Mr Antonov is claiming 20.2 billion Rubles in respect of losses arising out of the nationalisation of Bank Snoras, and 19.9 billion Rubles as compensation for damage to his business reputation. The complaint also includes a claim for a declaration that information disseminated by the President of Lithuania, and published by certain mass media, is untrue.
The Moscow State Arbitration Court has registered the case and, almost immediately (on 12 August 2016), granted the plaintiff’s application for interim measures, and thereby prohibited the sale of real estate mortgaged to Bank Snoras and located in the Moscow Region.
In 2006, Russia signed the UN Convention on Jurisdictional Immunities of States and Their Property (2004) (hereinafter “the Convention”), but it has yet to ratify it. Instead, at the end of 2015, Russia adopted Federal Law No. 297-FZ “On the jurisdictional immunities of foreign states and the property of a foreign state in the Russian Federation”, which came into force on 16 January 2016 (hereinafter “the Law”). The Law is generally in line with the object and purpose of the Convention, but it includes minor differences, which may have significant implications.
Under the Law, a foreign state has no immunity from court proceedings with respect to disputes relating to damage to life, health, property, honour and dignity as well as business reputation, if damage has arisen from an act or other circumstances, which took place in Russia in full or in part (Article 11 of the Law).
It could, therefore, be the case that the plaintiff relied on Article 11 of the Law as a basis for his claims, and will try to convince the Court that the claim relates to damages that have arisen from facts which occurred (at least in part) on Russian territory.
In this context, the Court likely will need to address the question of the relationship between Article 11 of the Law and Article 10 of the Bilateral Investment Treaty between Lithuania and Russia dated 29 July 1999 (hereinafter “the BIT”). The BIT provides for the resolution of BIT disputes between a covered investor and a host state through international arbitration (a choice between arbitration under the rules of the Stockholm Chamber of Commerce and the International Chamber of Commerce), or in the state courts of the respondent, but not in the state courts of the investor’s state (in this case, Russia).
According to the Russian Constitution, obligations under international treaties prevail over municipal law, but it remains to be seen if the Court will decide that Article 11 of the Law applies in the circumstances and that Article 10 of the BIT is inapplicable to the circumstances of this particular case.
Lithuania did not appear at a preliminary hearing on 22 September 2016, but it did file a motion for the termination of the proceedings or leaving the claim untried. At the same time, the Court ruled that Lithuania had been duly notified of the preliminary hearing (which is essential in this case), but it nonetheless postponed the preliminary hearing until 24 October 2016 and ordered the Russian plaintiff to present his position in respect of Lithuania’s motion for termination of the proceedings.
In the context of continuing court proceedings, it should be noted that, from the perspective of the Russian court, Lithuania may lose its immunity if it accepts the Court’s jurisdiction, e.g., through a declaration or a written notice to the Court, unless it takes action exclusively to declare its jurisdictional immunity (Article 5 of the Law).
This case warrants close monitoring, given that it is the first (and likely not the last) case regarding the application of the Law that entered into force in 2016 and might lead to arbitration under the Lithuania-Russia BIT.”