An arbitral tribunal by the World Bank International Centre for Settlement of Investment Disputes (ICSID) has made an award in an investment dispute between energy group E energija (Lithuania) and the Republic of Latvia. This is the first decision on the merits in an ICSID case against the Republic of Latvia, and the only ICSID case lost by a Baltic State in the last ten years. After proceedings that had taken five years, ICSID has made an award that orders Latvia to compensate EUR 3.7 million to E energija for abuse of its investment in the district heating business.

In 2005, the private district heating company Latgales energija, owned by E energija, entered into a 30-year lease agreement of municipal district heating infrastructure with Rçzekne municipality. However, in 2008 the newly-elected Rçzekne municipality decided to revoke the licence, seize the assets and investments in the heating network without compensation and transfer them to a municipal company.

In 2012, after failing to obtain protection of investor’s rights in the Latvian courts, E energija appealed to ICSID for issue of arbitration proceedings against the Republic of Latvia. The decision of the arbitral tribunal to compensate for the abuse and transfer of business to the municipal company is unambiguous: the tribunal confirmed that Latvia had violated the Latvia-Lithuania bilateral investment treaty.

”By this decision, international arbitration has confirmed that the state is responsible for abuse of investors and acts by a municipality and ultimately the state is obliged to pay compensation for the investments,” commented Virginijus Strioga, CEO of E energija Group.

The claimant was represented by Sorainen Latvia and Vinson & Elkins RLLP, a London law firm specialising in international arbitration and High Court litigation. Sorainen Dispute Resolution partner Agris Repšs led the Sorainen team consisting of of counsel Mârtiòš Paparinskis, senior associate Valts Nerets, and associates Agita Sprûde and Linda Reneslâce.

George Burn, a lead counsel of V&E’s team at the time of arbitration (now partner at Berwin Leighton Paisner LLP) commented to Global Arbitration Review: “The decision, although a very long time coming, is good for E energija.  The Tribunal confirmed that this small, entrepreneurial company was badly treated by the relevant municipal authorities in Latvia. The figure of compensation is lower than perhaps it should be, some of the Tribunal’s determinations being a little uncommercial, but overall this is a positive result.  It is also very satisfying to have achieved the successful presentation of an investor-State case with a relatively small damages target on terms that worked for the client and the lawyers alike.  Without the pragmatism of E energija, their local lawyers from Sorainen Latvia and the Salans/V&E team, and in particular the excellent work of Alex Slade at V&E and Agris Repšs at Sorainen, the claim would have been unlitigated.  I would not say this would work in all investment cases, many of which will remain expensive to litigate, but for this type of case and this type of client, this decision shows that smaller claims can be litigated without compromising on quality”.

The case has already attracted considerable attention from the international media.