Original version by Eibe Riedel August 2006; reviewed by Eibe Riedel November 2024.

A.  Background to the Case

1  In 1892, the First Company of Secondary Railways in Russia (‘First Company’) was founded in St Petersburg as a private joint-stock company for the construction and later operation of various railway lines within the Russian Empire. One of these lines was the Panevezys-Saldutiskis line located in Lithuania. During the 1917 Russian Revolution all assets of the First Company were nationalized (Expropriation and Nationalization; Property, Right to, International Protection). As a result of the Treaty of Peace between Austria-Hungary, Bulgaria, Germany and Turkey, and Russia (Brest-Litovsk, Peace of (1918)), Lithuania, Estonia, and Latvia became independent states, Russia subsequently renouncing her sovereignty over these Baltic provinces (Baltic States; Peace Treaties; Territorial Integrity and Political Independence). In 1919, Lithuania took possession of the Panevezys-Saldutiskis railway line in her authority.

2  Some months later, the Soviet government concluded the Peace Treaty between Estonia and the Soviet Republic of Russia (1920) by which Russia renounced all claims to the property of private persons and companies operating in Estonian territory that had been nationalized. Russia also undertook to hand over all shares of companies which had undertakings in Estonian territory, in so far as such shares may be at the disposal of the Russian government. The treaty laid down, however, that Estonian rights were in no case to extend to branches of such companies beyond Estonia’s frontiers. Furthermore, the registered office of the First Company was transferred to Estonia, the company assuming the Estonian name Esimene Juurdeveo Raudteede Selts Veenemaal (‘Esimene Company’). Until 1933, the Esimene Company, arguing that it was the same entity as the Russian First Company, repeatedly applied to the Lithuanian government to have the Panevezys-Saldutiskis line restored to it, or, failing that, to receive fair compensation. Lithuania, on the other hand, having solicited the advice of her Council of State, rejected these claims on the ground that the Esimene Company was not entitled to the rights of the First Company which, she contended, no longer existed. Estonia then intervened on behalf of the Esimene Company and protracted negotiations ensued (Diplomatic Protection). When these finally failed in 1937, Estonia brought the case before the Permanent Court of International Justice (PCIJ).

3  Estonia submitted that Lithuania wrongfully refused to recognize the rights of the Esimene Company in the Panevezys-Saldutiskis line and was thus bound to compensate the company for the injury suffered. Lithuania, in turn, raised two preliminary objections: firstly, that Estonia had no standing to pursue the matter, as under international law ‘a claim must be a national claim not only at the time of its presentation but also at the time when the injury was suffered’ (Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Judgment) (1939) 6), and, secondly, that the rule of international law requiring exhaustion of local remedies had not been observed (Local Remedies, Exhaustion of).

B.  Ruling of the PCIJ

4  By an order of 30 June 1938 in Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Preliminary Objections) the Court joined both objections to the merits. In its judgment of 28 February 1939 it stated that by taking up a case on behalf of its nationals a state is in reality asserting its own right:

But the Court then rejected the first objection as not being a preliminary one because the allegation that the claim lacked national character was inseparably tied to the merits, particularly to the question of ownership of the railway line. The case was, however, dismissed on the second objection, the court holding that local remedies available in Lithuania had not been exhausted. In a much-quoted dissenting opinion, Judge van Eysinga disputed the emergence of a general nationality of claims rule without exceptions, as the majority decision seemed to imply and expressed the opinion that this rule should be modified in cases of state succession, as in the case at hand (State Succession in Matters Other than Treaties; State Succession in Treaties).

C.  Continuing Relevance of the Case

5  Although the case was never decided on the merits, its importance lies in clearly affirming the local remedies rule and in raising and developing the nationality of claims rule that was later to become the key issue in the Nottebohm Case and the Barcelona Traction Case. The former has since been invoked in several cases before the International Court of Justice (ICJ), most recently in the LaGrand Case (Germany v United States of America) decided by the ICJ in 2001, and the Arrest Warrant Case (Democratic Republic of the Congo v Belgium) concerning an arrest warrant by Belgian authorities against the Congolese Foreign Minister at the time. The latter principle, the nationality of claims rule or principle of effective nationality, was substantiated in the Nottebohm Case of 1955 in so far as the petitioner in an international law dispute who draws upon diplomatic protection by a certain state in the face of an unfavourable act by another state is obliged to demonstrate that there is a genuine link between the petitioner and the state whose diplomatic protection the petitioner claims to enjoy.

6  In terms of general procedural aspects, the Panevezys-Saldutiskis Railway case established a basic definition of preliminary objections as objections that are ‘submitted for the purpose of excluding an examination by the Court of the merits of the case, and being one upon which the Court can give a decision without in any way adjudicating upon the merits’ (Panevezys-Saldutiskis Railway (Judgment) 22). Questions surrounding the timing and scope of preliminary objections have since been the subject of a variety of cases before the ICJ. As the Barcelona Traction Case decided in 1970 demonstrates, one of the core problems concerning preliminary proceedings was whether the merits of a case may in fact be dealt with at the preliminary stage. In 1972, the Rules of Court of the ICJ (‘ICJ Rules’) were amended to provide the Court with the power to declare that a preliminary objection ‘does not possess, in the circumstances of the case, an exclusively preliminary character’ (Art. 79(7) ICJ Rules; International Court of Justice, Rules and Practice Directions). The 1978 version of the ICJ Rules upheld this principle, and in Article 79(7) ICJ Rules applied this more flexible approach towards preliminary objections by stating that the Court is to render its decision ‘by which it shall either uphold the objection, reject it, or declare that the objection does not possess, in the circumstances of the case, an exclusively preliminary character’ (note: in the current ICJ Rules, following an amendment of 2001, this provision is now found in Art. 79ter(4) ICJ Rules).

7  The power to declare a preliminary objection not exclusively preliminary was first exercised by the ICJ in the Military and Paramilitary Activities in and against Nicaragua Case (Nicaragua v United States of America) of 1986. The ICJ has further dealt with preliminary objections in 1996 in the Application of the Convention on the Prevention and Punishment of the Crime of Genocide Case (Bosnia and Herzegovina v Serbia and Montenegro), in 1998 in the Lockerbie Cases (Libyan Arab Jamahiriya v United Kingdom and United States of America) on questions of interpretation and application of the Convention for the Suppression of Unlawful Acts Against the Safety of Civil Aviation arising from the aerial incident at Lockerbie, and in 1998 and 2002 in the Land and Maritime Boundary between Cameroon and Nigeria Case (Cameroon v Nigeria) concerning the land and maritime boundary between these two countries.