Lithuanian court refuses to recognize award on grounds of public policy (Article V(2)(b))

On 17 December 2012, the Court of Appeal of Lithuania refused to recognize an award rendered by an arbitral tribunal at the Arbitration Institute of Stockholm Chamber of Commerce (“SCC”) finding that some of the claims in an investigation proceeding initiated before the local courts by the Ministry of Energy of the Republic of Lithuania (the “Ministry”) against a local gas company should be submitted to arbitration.  The Court of Appeal stated that it would be contrary to Lithuanian and international public policy to enforce an arbitral award that, in its view, had limited the Ministry’s capacity to bring its dispute to court and had limited the courts’ jurisdiction to hear it.

By way of background, on 25 March 2011, the Ministry had seized the local courts seeking to initiate an investigation against AB Lietuvos Dujos, a gas company in Lithuania, and some members of the company’s organs.  In turn, on 29 August 2011, Gazprom – which is a shareholder in the company together with the Government of Lithuania and E.ON – filed an arbitration claim with the SCC against the Ministry, requesting the arbitral tribunal to order the Ministry to terminate the investigation proceedings on the ground that they were contrary to the arbitration agreement in the Shareholders’ Agreement of AB Lietuvos Dujos.  The tribunal ruled partly in favour of Gazprom and ordered the Ministry to withdraw some of the claims that were before the local courts.

Gazprom sought to have the tribunal’s award recognized and enforced in Lithuania.  The Court of Appeal refused to do so pursuant to Articles V(2)(a) and (b) of the New York Convention.   In relation to the “public policy” ground for refusal, the Court of Appeal noted the local court’s finding that it had jurisdiction over the dispute and that, despite this ruling, the arbitral tribunal held that it was competent to hear certain aspects of the case.  The Court of Appeal considered that, in these circumstances, recognizing the award “would mean that it would become mandatory in the Republic of Lithuania”, with the effect of limiting “the legal capacity of legal entities participating in [court] proceedings”, as well as “the jurisdiction of national courts.” According to the Court of Appeal, “[t]his would result not only in violation of a number of constitutional principles regarding the right of an individual to the hearing of the case in an objective, impartial and fair court […], but also of the sovereignty of the state […] which would be certainly contrary to the public order of the Republic of Lithuania as well as the international public order.”