Repeated positive outcome for Lithuanian investor in investment arbitration against Republic of Latvia

After protracted efforts, Lithuanian investor E energija will finally receive compensation of EUR 3.1 million for being forced out of the heat supply market in Latvia.

By a decision of 8 April 2020, a special committee of the International Centre for Settlement of Investment Disputes (ICSID) rejected an application by Latvia to annul the award of 2018 by the ICSID arbitral tribunal. As a result, the award is now final, recognising that Latvia violated the bilateral investment protection treaty between Lithuania and Latvia.

Course of arbitration

You may already know from our previous newsflashes that the arbitral award in the E energija case was the first award ‒ on the merits ‒ in the ICSID case against Latvia. After arbitration lasting eight years, the arbitral tribunal ordered Latvia to compensate the Lithuanian investor for losses unjustly caused with regard to investments in Rēzekne city central heating companies. As a result of arbitrary actions by Rēzekne municipal institutions ‒ namely, cancelling licences previously issued to E energija’s subsidiary “Latgales enerģija”, as well as seizing assets and investments in the heating network ‒ the Lithuanian investor was forced to leave the market and abandon its investments.

E energija was unable to successfully protect its rights in the Latvian courts, so it filed a request for arbitration with ICSID in 2012. In its award, ICSID concluded that by allowing these actions and transferring the business to a municipal company, Latvia had violated the bilateral investment protection treaty between Latvia and Lithuania.

Although Latvia had the opportunity to voluntarily enforce the award in 2018, it tried to avoid doing so by applying to annul the award. Nevertheless, the committee ‒ specially set up to review this issue ‒ unequivocally recognised that the awarwd was lawful and the application submitted by Latvia would be rejected. In its decision, the committee likewise acknowledged that Latvia has to cover all costs related to reviewing the application.

So finally we see some closure for a dispute that started in 2008 when Rēzekne municipality unlawfully took over assets transferred by E energija to its subsidiary “Latgales enerģija”.

Our team

During the entire international arbitration, the client was represented by Sorainen in Latvia and London law firm Vinson & Elkins RLLP. In this final stage, the Sorainen team was led by Sorainen Dispute Resolution practice partner Valts Nerets, supported by senior associate Agita Sprūde with international public law specialist Daniel Kaasik and legal assistant Elvis Grinbergs.

Client’s comment

The CEO of E energija, Gediminas Uloza, stresses that “the committee’s decision is good news for all foreign investors. This shows that international investment protection mechanisms are working. If the national courts do not adequately protect the investor from arbitrary actions by different local authorities, the State may be obliged to compensate for losses suffered by the investor. We are very pleased to be able to put an end to this long-standing arbitration and to focus solely on expanding the business and are grateful for a team of great professionals who led our case during the arbitration proceedings, especially Valts Nerets from Sorainen Latvia, as well as Alexander Slade from Vinson & Elkins, UK”.