AB Lietuvos Dujos (Company) is a joint stock company registered by the Lithuanian state and subsequently privatised. In 2004, Gazprom, Ruhrgas and the Republic of Lithuania (originally through its State Property Fund, which was later replaced by the Ministry of Energy (Ministry)), entered into the Shareholders' Agreement (SHA). The SHA recorded the terms and conditions of the parties’ joint actions in the management of the Company and contained an arbitration clause referring disputes to arbitration in Stockholm, under the Arbitration Rules of the SCC Arbitration Institute (SCC Arbitration Rules).

In 1999, Gazprom and the Company concluded a long-term agreement on the supply of gas for Lithuania for 2000 to 2015 (Long-Term Agreement). This Long-Term Agreement continued when Gazprom became a shareholder in the Company.

In December 2010, the members of the Company’s board appointed by Gazprom and Ruhrgas voted in favour of a Board resolution approving the execution of an addendum to the Long-Term Agreement (Addendum). The Addendum concerned the gas supply price for the year 2011. Lithuania’s representative on the Company’s Board voted against this resolution, but it was adopted in accordance with the terms of the SHA and subsequently executed.

The tribunal (Mr. Yves Derains (Chairman), Ms. Sophie Nappert and Ms. Sophie Lamb) ordered Lithuania to withdraw some of the claims brought in the Lithuanian court and to limit other requests so as not to jeopardise the rights and obligations established in the SHA.

The tribunal noted that it was common ground between the parties that the obligation to submit disputes to arbitration included a duty not to submit such disputes to state courts (the so-called negative effect of the arbitration clause). Likewise, it was common ground that bringing disputes which fall under the scope of an arbitration clause before state courts would constitute a breach of such an arbitration clause.

The tribunal noted that the object of the Investigation Proceedings was not whether the provisions of the SHA had been respected by the shareholders, but involved the actions of the company, its governing bodies or members of its governing bodies and the fiduciary duty owed by such members to the company. Therefore, the legal relationship involved in the Investigation Proceedings was not grounded in the SHA. However, this did not mean that an application for investigation proceedings could never result in the breach of an arbitration agreement in a shareholders’ agreement.

The tribunal found that the wording "[a]ny claim, dispute or contravention in connection with this Agreement, or its breach, validity, effect or termination…" in the arbitration clause showed that the parties clearly intended that all disputes between them in connection with the SHA should be resolved by arbitration, whether contractual or non-contractual.

Further, the tribunal agreed with Gazprom that good faith did not allow a party to an arbitration agreement to resort to legal artifice in order to circumvent that agreement and to submit to a state court a dispute the substance of which fell within the scope of that agreement.

In the tribunal’s view, for an application for investigation proceedings to constitute a breach of the arbitration clause, two cumulative conditions must be met, namely the:

In order for the tribunal to make a determination in this respect, the substance of the dispute submitted before the Lithuanian Court had to be taken into consideration, although the identity of the parties also could not be ignored. In the tribunal’s view, the relevant question was whether requesting the investigation of third parties would jeopardise the rights of other shareholders under the SHA. The Ministry’s contention that an arbitration agreement did not cover disputes with third parties was therefore misplaced.

Nor did the tribunal accept as relevant the Ministry’s argument with respect to the alleged exclusive jurisdiction of the Lithuanian courts. The tribunal emphasised that, if a request was within the exclusive jurisdiction of the Lithuanian courts, it would not circumvent the arbitration clause, because the remedies sought could not be obtained through arbitration. Thus, the relevant issue was the remedies requested before the state court that could also be obtained through arbitration. The same observation applied to the arbitrability of the issues in front of the Lithuanian Court and to the public interest involved therein.

The tribunal concluded that an application before the Lithuanian courts pursuant to the Lithuanian Civil Code could, in principle, amount to bringing a dispute to Lithuanian state court which fell within the scope of the arbitration agreement in the SHA, and therefore could constitute a breach of the SHA.

On the facts of this case, the tribunal found that, in some respects, the substance of the action before the Lithuanian Court was governed by the SHA. Therefore, a decision of the court would affect the rights of the parties to the SHA to have the disputes "in connection with" the SHA settled by arbitration. In particular, the tribunal found that the Ministry could not resort to state courts to order the Company to renegotiate the terms agreed with Gazprom on the purchase of natural gas. Further, the Ministry could not request the Lithuanian courts to compel the Company to establish new rules relating to the procedure of gas purchases and transit negotiations, or the manner in which they should be approved by the Company’s management bodies, as these matters were governed by the SHA. Likewise, the Ministry could not request Lithuanian courts to modify the shareholders’ rights to vote as established in the SHA.

As regards the rights of the Lithuanian court under the Civil Code to "oblige a legal person to take or not take certain actions", the tribunal found that the provision was very broad and reiterated that the Ministry could not apply to the Lithuanian Court, or any state court, for relief that would jeopardise the rights and obligations established in the SHA.

In other respects, the tribunal found that the Ministry’s requests either did not concern matters governed by the SHA or the measures requested could not have been obtained through arbitration. For example, the Ministry could not be prevented from requesting that the Lithuanian Court:

In light of its findings, the tribunal ordered the Ministry to withdraw certain requests made before the Lithuanian Court and to limit another request to measures that would not jeopardise the rights and obligations established in the SHA, and that could not be requested before an arbitral tribunal constituted pursuant to the arbitration clause in the SHA.

As regards Gazprom’s claim for damages, the tribunal concluded that it was impossible to quantify the amount of costs incurred by Gazprom. The tribunal also found that there was no evidence that part of the damages incurred by the Company as a result of the Lithuanian proceedings was or would be ultimately borne by Gazprom. Consequently, no damages were awarded.

The parties were ordered to bear their own costs and equally share the costs of the tribunal and the SCC Institute.

The tribunal’s decision provides valuable guidance on the definition of a breach of an arbitration agreement and its consequences. The tribunal gave primary importance to the effect of the Investigation Proceedings in the Lithuanian courts on the rights and obligations of the parties under the SHA, irrespective of the legal basis of those proceeding. The tribunal therefore enforced the duty of the parties to the SHA not to submit disputes under that agreement to state courts. The tribunal reasoned that there is a breach of the arbitration agreement where the relief sought in investigation proceedings modifies a shareholders’ agreement or otherwise affects the rights of the parties, and the party requesting the court proceedings can obtain the relief sought through arbitration. In the tribunal’s own words, a party to an arbitration agreement must not resort to a legal artifice by formulating its action from different grounds in order to circumvent the agreement.

Although the tribunal also gave some importance to the wording of the arbitration clause in the SHA, those considerations do not seem decisive for the legal issues at hand. The rights and obligations that were found to be at stake were those directly regulated in the SHA. Therefore, disputes which affect those rights and obligations should, strictly speaking, be considered as disputes arising under the SHA and not as non-contractual disputes "in connection with" the SHA.

It can otherwise be noted that Swedish arbitration law does not give considerable importance to the wording of an arbitration agreement. A clause which does not clearly restrict the jurisdiction of the arbitral tribunal is generally given the maximum scope, irrespective of its wording. The scope of an arbitration agreement with respect to related matters is instead determined on basis of its substance.

The tribunal’s findings also give effect to the dual nature of an arbitration agreement as both a procedural and a substantive agreement, a breach of which principally entitles the non-breaching party to request specific performance and damages. The right of a party to rely on consequences of a breach of contract in accordance with general principles of contract law in connection with a breach of an arbitration agreement is well established in Swedish law.