The Panevezys-Saldutiskis Railway case - Law Journals

ABSTRACT
The article demonstrates some problems related to harmonization of Estonian private laws
during the pre-statehood and early post-statehood periods.
With regard to the Estonian private law developments during the pre-statehood period is
concluded that such developments are closely connected to a nation’s legal consciousness and
identity.
The Estonian private law developments during the early post-statehood period are
characterized through the Panevezys-Saldutiskis Railway case that was brought before the
PCIJ by the Estonian State against the Lithuanian State in 1937, the facts of which case date
back to a legally controversial era after the October revolution that brought principal changes
to Russian private law on what law essentially depended the Estonian private law.
The both periods demonstrate that changes to private law are not only technical, but closely
related to variety of categories starting from the inner sense of morality and ending up with
principles of international law.
KEYWORDS
Private law reforms - Legal consciousness – Identity of a nation - Nationality of claims -
Exhaustion of local remedies

Private Law Consciousness of the Estonian Nation during the
Pre-Statehood and Early Post-Statehood Periods
Some Legal Problems Related to Transformation of Societies and Law Reforms
Introduction
At the time when the last finishing touches are being made to the European Common Frame
of Reference, the aim of this article is to recall some harmonization problems characteristic to
the private law reforms in the Estonian history, related from one side to the internal
developments and from other side to international activities.
The article first focuses on the impact of external factors on the Estonian private law
developments at the pre-statehood period, brings out the problems due to the diverse origin
and content of private law, analyses the impact of those factors on the nation’s consciousness,
and concludes that at the periods of private law reforms should be taken into account that the
average people who mostly are non-lawyers, must be able to become adapted to new laws.
The second part of the article examines the external factors that have influenced the private
law developments at the beginning of the Estonian statehood, points to the impact of
international political reforms on private law developments and the related problems, to the
influence of principles of international law on private law relations, and concludes that also

the principles of international law should be taken into account at the periods of private law
reform.
Hopefully this article assists in creating links between past and present, in raising awareness
of some possible problems related to legal reforms (emphasis on private law reforms) and in
preventing some problems.
1. Estonian Private Law at the Pre-Statehood Period
1.1. Pre-Statehood Legal Developments in Estonian Private Law
A phrase used by Jüri Jaakson with the aim to describe the political history of Estonia, could
be translated „highly motley“, because the Estonian territory has been governed by many
foreign countries that have influenced the development of Estonian law. The following is a
summary of Jaakson’s description of historical influences on Estonian law:
In the 12th Century, Germans transformed to the today’s Estonian territory German legal
concepts that were applied differently in the Estonian towns and countryside. The that time
towns were politically independent, having their own governments, whereas the Estonian
rural areas were governed from one side by the Livonian Order and bishops, and from the
other side by the vassals who had received their land from the Order and bishops. The that
time Tallinn – a town that had great influence on other Estonian towns, belonged to the
Hanseatic League and had borrowed its laws from Lübeck, whereas the Estonian countryside
applied Livonian Ritter- und Landrecht. Thus, it is claimed that already in the 13th Century,

there were two completely independent legal systems in Estonia – one system in towns and
the other in the countryside. 1
In about 1561, the Baltic provinces lost their independence. Since the Estonian areas lacked
their own legislative power, the laws for those areas were adopted by the legislative powers of
the governing states who as a rule were not aware of Estonian laws. Consequently, every new
law taken on the Estonian territory carried in it the influence of the governing state. For a
short period, Estonia was governed by Poland and its laws were influenced by Polish law.
Longer and more significant was later the influence of Swedish law especially in the Estonian
rural areas. Also Russian law had great influence on Estonian laws, although that law did not
have much influence on Estonian civil law. Jaakson considers Roman law very important for
the development of Estonian civil law. In the 16 th and 17 th Centuries, Roman law was
transformed into Estonian laws through Germany and the way it had been transformed into
German law, with emphasis on those areas of law that were not covered with local regulations
– i.e. real right and law of obligation. 2
Therefore, at the very pre-statehood period, Jaakson distinguishes two mainstreams in
Estonian civil law – German law and Roman law: the impact of German law mostly in family
law, the impact of both Roman and German law in the right of succession, and the impact of
Roman law in the real right and especially in the law of obligation. Jaakson has established
the impact of Swedish and Russian law only in rare legal institutes. 3
Reinhold von Samson-Himmelstierna, Estonian lawyer and Livonian District Magistrate,
composed three draft laws on basis of Estonian law - the Baltic Institutions, the Baltic Classes

and the Baltic Civil Law, the first two of which drafts were at 1845 confirmed by Emperor
Nicholas, but the third of which drafts remained unconfirmed.
In 1856, Friedrich Georg von Bunge, a former professor of the University of Tartu, was
proposed to finish the Samson’s work on Baltic civil law codification and to compose the new
draft Baltic Civil Code. According to Jaakson, professor A. Nolde had later established that a
great amount of Baltic civil law had been copied by Bunge from the Mühlenbruch’s, Glück’s,
Mackeldey’s, Unterholzner’s and other authors’ Roman law textbooks, with the aim to avoid
useless changes to the legal terms and constructions of those authoritative at that time
textbooks. In addition, Bunge used textbooks on German and Baltic law, the Prussian 1794
Allgemeines Landrecht, the Austrian 1811 Civil Code and the published in 1860 Saxon draft
Civil Code. 4 The reviewers from the Baltic towns of Bunge’s draft prescribed that
codification of rights should be accurate. The draft that was composed by Bunge in the
German language was later translated into the Russian language by academician Bõtschkov
and announced by the Emperor’s Directive from 12 November 1864. The new law entered
into force on 1 July 1865. 5
From the previous one can see that the new eras, governments and harmonizers have added
new regulations to Estonian laws, resulting in the variety of fragments and incoherence in
those laws, since the roots of those regulations lie in different legal systems. An example -
according to Roman law the legitimate owner had the right to claim his thing from anyone
having that thing, at the same time German law allowed the owner to claim his thing only
from the person to whom he had given the thing. Due to such differences, harmonization of
law was not an easy task. Jaakson explains that Bunge had tried to unify different regulations
of a certain legal institute and to remove the possibly conflicting provisions. Where such

unification of German and Roman laws was sometimes not possible, Bunge had taken to the
draft parallely the provisions of both legal regimes. For example - paragraph 1418 of Roman
law says on the right of security, „if the pledgor’s right on the pledged thing expires, because
of the attainment of the condition or restriction under which the thing belonged to the pledgee,
also the right of security expires“, 6 whereas paragraph 3175 on conclusive conditions says, „if
a conclusive condition arrives, but meanwhile the owner of the thing has transferred to a third
party certain rights on the thing, such rights will remain unaffected“. 7
Thus, it is possible to conclude that very different legal norms have historically governed the
Estonian territories. The article next discusses the influence of such historical developments
on the Estonian consciousness.
1.2. Influence of Pre-Statehood Legal Developments on the Nation’s Legal
Consciousness
How do such pre-statehood legal developments, as referred above, influence the formation of
the legal consciousness of a country and the people living there - firstly, why is monitoring of
the pre-statehood legal developments important? The answer to that question could be that the
concept of law also embraces understanding of law. In turn understanding of law is related to
the language, whereas development of legal language is related to general linguistic
development. Those, in turn, are connected to development of a nation’s consciousness, or to
the way how does the nation understand its closer surroundings and the wider world.

If one examines separately one nation and its legal development, one can see the development
of legal language and law of only o n e nation and cognition and understanding of is and
ought by only o n e nation. But nations are rarely separated. The historical symbols of
language and art used by one nation enable to distinguish between different understandings of
surrounding phenomena by different peoples. Semioticians have, for example, noticed that
different peoples hear differently the voices of animals. For example - the Estonians name the
sound made by barking dogs „Auh!“, the Russians name that same sound „Gav!“, the
Germans name that sound „Waf!“ and so on. Such naming, in turn, starts to influence the way
how people hear dogs barking. And dogs are named with different words by different peoples,
at the same time the use of words for naming dogs by a nation reveals how the nation senses
dogs or what does a nation consider most significant with regard to dogs. As such, the
language already becomes the cause of thinking. This means that a nation experiences the
phenomena that have by language been „cognized and taught as cognizable in certain cases to
it“, 8 or the phenomena of which it knows that the others cognize and experience those. A
child who has been born in the middle of one nation acquires through language the experience
of previous generations. Were the states „closed“ legal systems, such systems would probably
differ from each other to the extent that they would constitute a Babel of legal systems. This
would significantly hinder communication between different nations.
The fact that Estonian law has through history been influenced by different legal systems is
nothing novel in the world, but all Western European states have, for example, directly or
indirectly received Roman law or participated in mutual trade relations.
From one country’s perspective, investigation of historical development of legal terminology
is important also for the reasons that wording of foreign law in the mother tongue helps to

expand one’s understanding of the legal world, to adjust the external consciousness to the
nation’s consciousness and that way to develop both.
It follows that from one side, a language grows out of a nation, but from other side, language
reflects the nation’s development and as one factor connected to that development, a nation
may adopt foreign terms. However, when a nation has already adopted a term, it is difficult
for it to get reused. The Estonian nation has in its history not (easily) got used to many
linguistic developments 9 that reveals that adaptation to new legal terminology may be
problematic also today 10 - for example, if a law does not base on the nation's inner sense of
morality, adaptation to that law could be very complicated. 11
2. Estonian Private Law at the Early Statehood Period
2.1. The Panevezys-Saldutiskis Railway Case
The problems connected to private law reforms at the birth and beginning of the Estonian
State are well illustrated by the Panevezys-Saldutiskis Railway case, that was brought before
the Permanent Court of International Justice (PCIJ) in 1937 by the Estonian State against the
Lithuanian State for the reason that Lithuania, having seized and operated the Panevezys-
Saldutiskis railway, belonging to a company Esimene Juurdeveo Raudteede Selts Venemaal,
had not recognized the proprietary and concessionary rights of that company over the railway.
The PCIJ decided the case without going into the merits with the question, whether the claims
of Esimene Juurdeveo Raudteede Selts Venemaal were justified or not, but based its judgment

on the Lithuania’s objections – which in the author’s opinion was possible due to the that time
vagueness in legal norms and conceptual understandings.
Although the Panevezys-Saldutiskis Railway case was lost by the Estonian State and the laws
referred in this case are mostly outdated by today, the wider problems concerning legal
reforms that arose in this case still have importance. Giving an excellent overview of the that
time political changes in Russia, Lithuania and Estonia - the 1917 October revolution, the
proclamations of independence by Lithuania on 18 February and by Estonia on 24 February
1918, the conclusion of the 3 March 1918 Brest-Litovsk Treaty between Germany and its
allies and confirmation by Russia of the abandonment of Russian sovereignty over the former
Baltic provinces; the signing on the 2 February 1920 of the Treaty of Tartu (the first treaty
concluded by the Russian Socialist Federated Soviet Republic with the new Baltic States,
followed by the Moscow treaties concluded with Lithuania and Latvia on 12 July and 11
August 1920 respectively) - the case directly discusses the international law principles of
nationality of claims, legal succession and exhaustion of local remedies, and indirectly the
validity of contracts and laws during the private law reforms.
2.1.1. The Facts of the Case
On 26 March 1892, at St. Petersburg was founded the „First Company of Secondary Railways
in Russia“. On the same date was issued the Imperial decree that approved the Company’s
Statutes. § 1 of that Statute determined the object of the company as „the construction and
operation of broad and narrow gauge approach and secondary railways in general for public
and private use, and the construction, operation and sale of transportable railways“. 12 § 2 of

the Company’s Statute allowed the company to construct and operate railways of every kind
and type on its own account and at its own risk throughout the Russian Empire. 13 The
registered offices of the company were established at St. Petersburg. On 27 June 1894 was
issued the Imperial decree that authorized the company to construct and operate a railway
between the station at Svetziany (on the St. Petersburg-Warsaw railway), and the station at
Panevezys (on the Libau-Romny railway). 14 The company also owned other lines, included
the lines in the Russian Empire, included the Baltic provinces and the Ukraine. Later, several
amendments were made to those statutes. Then, in October 1917, the October revolution
began. As a consequence of the nationalization process following the revolution, on 14
December 1917 was issued the Central Executive Committee’s decree on nationalization of
banks that gave the Soviet Government the shares, assets and liabilities of the companies in
Russia, included the First Company of Secondary Railways. 15
On 16 February 1918, Lithuania proclaimed its independence and on 24 February 1918,
Estonia proclaimed its independence. On 3 March 1918, the Brest-Litovsk Treaty was
concluded between Germany and its allies and Russia confirmed the abandonment of Russian
sovereignty over the former Baltic provinces and Lithuania, 16 which remained under the
occupation of German troops. 17
On 28 June 1918 was issued the decree that confiscated private property in the Russian
territory to the ownership of the Russian Socialist Federated Soviet Republic, included all the
undertakings of private and secondary railway companies whether in operation or under
construction. 18 Subject to the approval of the Council of Commissaries of the People, the
Commissariat of the People for Communications was made responsible for the organization
of administration of the nationalized undertakings in the railway sector. The administrators

were in the service of the Russian Socialist Federated Soviet Republic and criminally liable
for negligence. All moneys personally belonging to the Board members, shareholders and
eleven owners of nationalized undertakings were provisionally attached. From now on, the
nationalized undertakings were taken as leased rent free to the former owners, the latter still
financing them and receiving the revenues as before. 19
On 4 September 1918 was adopted the decree replacing the Boards of the former private
railways by a liquidation commission for each line. 20 On 4 March 1919 was adopted the
decree annulling the shares of the nationalized or sequestrated undertakings’ joint-stock
companies. 21
Since September 1919, the Panevezys-Saldutiskis railway that lay in the Lithuanian State’s
new territory became the Lithuanian Government’s possession. 22
On 2 February 1920, the Russian Socialist Federated Soviet Republic signed its first treaty
with the new Baltic States - the Treaty of Tartu with Estonia. 23 On 29 March 1920 were
exchanged the ratifications of the Treaty of Tartu. On 12 July 1920, the Russian Socialist
Federated Soviet Republic concluded with Lithuania the Treaty at Moscow 24 and on 11
August 1920 signed with Latvia the Treaty at Moscow. 25
Differently from the two last referred treaties, the Treaty of Tartu inter alia contained detailed
provisions on the private property in the Estonian territory. From those provisions, the
judgment in the Panevezys-Saldutiskis Railway case focuses on the property of joint-stock
companies. The judgment refers to Article XI of the Treaty of Tartu as follows, “all the rights
of the Russian Treasury to the movable and immovable property of individuals which

previously did not belong to her, in so far as such property may be situated in Estonian
territory” 26 - meaning that all such property became the „sole property of Estonia“ 27 and was
freed from all obligations as from the Central Executive Committee’s decree on
nationalization of banks from 14 December 1917. 28 The judgment also refers to Article XI of
the Treaty of Tartu that provides, “The Russian Government will hand over to the Estonian
Government inter alia the shares of those joint-stock companies which had undertakings in
Estonian territory, in so far as such shares may be at the disposal of the Russian
Government” 29 by the 14 December 1917 decree on nationalization of banks. And,
and,
“Similarly, the Russian Government agrees that the registered offices of the joint-
stock companies above mentioned shall be regarded as transferred to Reval and that
the Estonian authorities shall be entitled to amend the statutes of such companies in
accordance with the rules to be laid down by those authorities,” 30
“the above-mentioned shares shall only confer on Estonia the rights in respect of
those undertakings of the joint-stock companies which may be situated in Estonian
territory and that in no case shall the rights of Estonia extend to undertakings of the
same companies outside the confines of Estonia”. 31
As one of „the joint-stock companies which may be situated in Estonian territory“ the Treaty
of Tartu names the First Company of Secondary Railways. 32

From other side, since a general statute on State succession is absent in international law, such
treaties as the Treaty of Tartu may provide that at the time of formation of states the
individuals in the territory of the new state acquire that new state’s nationality, but the Treaty
of Tartu does not say that directly - instead the treaty regulates other aspects of state
succession law, such as passing of debts to Estonia. 33 Thus, one cannot claim the intention
and relatedly the effect of the Treaty of Tartu being the establishment of the nationality link.
In October 1920, Poland began to possess some kilometres of the Panevezys-Svetziany
railway line that belonged to Lithuania. On 7 April 1920, after the Treaty of Tartu had entered
into force, the Estonian Government gave its first regulations on the joint-stock companies
(the statutes of which companies had been approved by the Russian Government) that owned
undertakings or property in the Estonian territory, but had not registered themselves under
Estonian laws. The decree required from such companies holding of general meetings within
two months after the decree in order to avoid lapsing the powers of the Board of Directors, the
consequent overtaking of the companies by the curators and the possible liquidation. 34 On 1
October 1921, Estonia gave an ordinance that prohibited a company being subject to
curatorship if its shareholders’ general meeting had elected its officers in accordance to the
statutes approved by the former Russian Government and had its statutes registered under
Estonian law. 35 On 21 May 1922, the District Court of Tallinn-Haapsal order placed the
curatorship over the “First Company of Secondary Railways in Russia” that had been
sequestrated on 7 April. 36 The Company’s first meeting after the July 1917 meeting took place
at Riga under Latvian law, not at Estonia under Estonian law and during that meeting at Riga
the Board of directors was instructed to take necessary steps in order to reacquire the
possession of and to operate the company’s property in Lithuania and Poland. It was decided
that a Latvian company would be formed. 37

On 4 August 1923, Estonia adopted a law requiring that in accordance with § 19 of the Czar’s
concession from 1897, all railways of the “First Company of Secondary Railways in Russia”
„in the territory of the Estonian Republic shall be bought out and become the property of the
Treasury as from 1 October 1923”. 38
On 7 September 1923, the Estonian Government authorized the company’s general meeting.
On 2 November 1923, the curators’ meeting took place at Tallinn with the aim to revise and
amend the statutes in accordance with Estonian law and so that the powers belonged to the
Estonian company. 39 The registered offices of the company were fixed in Tallinn. On 8
November 1923, the new statutes were approved and on 23 November 1923, these statutes
were registered. – And the Estonian State considered that now the company had transformed
into an Estonian company having its registered offices in Estonia under the name of the
Esimene Juurdeveo Raudteede Selts Venemaal. 40 On 10 March 1924, at Tallinn, this company
held its general meeting, which meeting authorized the Board of Directors to sell the lines in
Lithuania, Latvia and Poland. The general meeting on 3 October 1924 discussed the question
of the Panevezys-Saldutiskis railway. 41
On 5 March 1925, the Lithuanian Government was sent a request to give instructions for
handing the Panevezys-Saldutiskis railway over to its legal owners. 42 The PCIJ established no
evidence of an answer to that request. Only on 14 November 1931, the company’s Board sent
to the Lithuanian Government a memorandum with a petition, stating that the Esimene
Juurdeveo Raudteede Selts Venemaal was the former Russian company that was transformed
into an Estonian company with the same titles and rights. The company claimed fair

compensation for the Panevezys line of which it considered itself an owner unjustifiably
deprived of its ownership. 43
On 20 May 1932, the company’s Board of Directors addressed the Lithuanian Government a
petition, consenting in it to the non-restitution of the line and expressing the hope that there
would be found some equitable method for compensation. 44 The Esimene Juurdeveo
Raudteede Selts Venemaal did send further petitions. 45
On 25 January 1933, the Lithuanian Government asked from the Lithuanian Council of state
(the latter being an advisory body), whether the Esimene’s claims were justified. The opinion
was negative. 46
Thereafter, on 15 September 1933 and 25 October 1933, the Esimene Juurdeveo Raudteede
Selts Venemaal presented further petitions, to which the Lithuanian Government replied
refusing to admit the claim of the company to the rights of the former company, because the
Lithuanian Government considered the former company unexisting. 47
Negotiations took place between the Estonian and Lithuanian Governments at Kaunas, and on
7 September 1934, 14 September and 3 December 1936 the company proposed that the
Lithuanian Government purchased its line. 48
On 30 December 1936, the Lithuanian Government sent a letter, where it classified the matter
a civil law one under the jurisdiction of the Lithuanian courts. On 1 February 1937, the
Estonian Government supplemented its claims by arguing a violation of the 13 January
Commercial Convention between Estonia and Lithuania and a denial of justice. On 5 May

1937, the Lithuanian Government answered to the Estonian Government’s modified claims
that it could not entertain them. 49
On 20 August 1937, the Estonian Government informed the Lithuanian Government that it is
going to bring the case before the PCIJ. Lithuania replied that the friendly relations between
Estonia and Lithuania could lead to a friendly settlement in the case, would the Esimene
Juurdeveo Raudteede Selts Venemaal not win the case before the Lithuanian courts. 50
2.1.2. The Initial Claims
On 2 November 1937, the Estonian Government filed an application with the Registrar of the
PCIJ against the Lithuanian Government, asking the PCIJ to adjudge and declare that the
Lithuanian Government had wrongfully refused of recognition of the rights of the Esimene
Juurdeveo Raudteede Selts Venemaal Company as owners and concessionaires of the
Panevezys-Saldutiskis railway line, and to compensate that company for the illegal seizure
and operation of this line from 1919. 51 The Estonian Government also asked the PCIJ to
adjudge and declare that the Lithuanian Government was under an obligation to make good
the prejudice, which had thus been sustained by the Esimene Juurdeveo Raudteede Selts
Venemaal Company, and which was estimated at the sum of Gold Lits 14,000,000, plus
interest at 6 % per annum as from 1 January 1937. 52
As there were no permanent Estonian judges in the PCIJ, and under Article 31 of the Statute
of the PCIJ the State was allowed to nominate a judge, the Estonian Government nominated a
judge ad hoc Otto August Strandman to the PCIJ. 53 Strandman was an Estonian Statesman -

his position in the Panevezys-Saldutiskis case was one episode in his famous life, also other
aspects of which life were related to both internal and international representation of the
state’s interest. 54
In its Memorial to the PCIJ, the Estonian Government modified its claims on compensation,
asking,
„[t]hat the Lithuanian Government is under an obligation to make good the prejudice
which has been thus sustained by the Esimene Juurdeveo Raudteede Selts Venemaal
Company and which is estimated at I) the sum of 6,850,000 Gold Lits representing
the value of the railway, plus II) the sum representing the annual payments due for
the operation of that line by the Lithuanian authorities from the date of seizure to the
date of payment, the annual payments being reckoned at the uniform rate of six per
cent of the value of the railway fixed above.“ 55
On 15 March 1938, the Lithuanian Government filed two preliminary objections to the
Estonian Government’s claims. These objections claimed the non-observance of the Estonian
Government, firstly, of the international law rule that a claim must be a national claim both at
the time of its presentation, as well as at the time of the injury, secondly, of the international
law rule of exhaustion of local remedies. The Lithuanian Government was of opinion that the
claims of the Estonian Government „could not be entertained“. 56
From its side, the Estonian Government asked the PCIJ to overrule the preliminary objections
of the Lithuanian Government on the ground that the Lithuanian Government was not entitled

to put those objections forward as preliminary objections, and alternatively, that they were not
well-founded. 57
2.1.3. Order of 30 June 1938
Basing on the oral arguments made on behalf of Estonia by Agent Baron Boris Nolde 58 and
the arguments on behalf of Lithuania by Agent André Mandelstam on 13, 14, 15, 17 and 18
June 1938 (both submitted the arguments in oral and written form), 59 the PCIJ made an order
of 30 June 1938 on preliminary objections, joining the Lithuanian objections to the merits of
the proceedings „in order that it may adjudicate in one and the same judgment upon these
objections and, if need be, on the merits“, 60 although the PCIJ had a choice under Article 62
(5) of the Statute of the PCIJ either to decide on preliminary objections or on merits. The
Court decided that way, because it considered the objections closely related to the merits of
the case. 61
1. The Claims
2.1.4. Judgment of 28 February 1939
The PCIJ made the judgment in the case Panevezys-Saldutiskis in the year of 1939, during
which year the PCIJ made altogether only three judgments. 62

In the case Panevezys-Saldutiskis the applicant hold its claims. 63 Public sittings were held on
20, 24, 25, 27 and 30 January. The final submissions of the Estonian Government were to
dismiss the counter-claim of the Lithuanian Government and to adjudge and declare,
„That the Lithuanian Government had wrongfully refused of recognition of the rights
of the Esimene Juurdeveo Raudteede Selts Venemaal Company as owners and
concessionaires of the Panevezys-Saldutiskis railway line, and to compensate that
company for the illegal seizure and operation of this line”. 64
And as modified in the Memorial,
„[t]hat the Lithuanian Government is under an obligation to make good the prejudice
which has been thus sustained by the Esimene Juurdeveo Raudteede Selts Venemaal
Company and which is estimated at (1) the sum of 6,850,000 Gold Lits representing
the price of the railway, plus (2) interest on this sum calculated at the rate of six per
cent per annum from the date of seizure to the date of payment; That the above
payment shall be made in the course of the month following the delivery of the
judgment by means of a payment in pounds sterling to the account of the Estonian
State Bank (Eesti Pank) with the Royal Scotland Bank in London, for the
compensation of the Esimene Juurdeveo Raudteede Selts Venemaal Company; That
the said payment will involve total and final release of the Panevezys-Saldutiskis
railway and all the movable and immovable property appertaining thereto from all
mortgages or liens which may belong to the bondholders of the First Company of
Secondary Railways in Russia (or the Esimene Juurdeveo Raudteede Selts Venemaal
Company)“. 65

By that, the Estonian Government asked for a statement of law declaring Lithuania’s refusal
to recognize the Company’s rights illegal, and compensation for the illegal seizure and
operation of the line - the latter acts in the Estonian Government’s opinion comprised
international responsibility as infringements of the property rights of the Esimene Juurdeveo
Raudteede Selts Venemaal, and consequently infringements of Estonia’s own right. 66 The
damage had also twin sides – first, dispossession of property and second, deprivation of the
enjoyment of the concession. 67
In its Counter-Memorial, the Lithuanian Government asked the PCIJ to dismiss the case, or
alternatively to claim the „sum of 7,337,271 Lits 98 cents, with interest at 6 % per annum as
from 1 September 1938, until the day of payment“ 68 from the Estonian Government. In its
Reply, the Estonian Government asked the Court to overrule the counter-claim; and in its
Rejoinder, the Lithuanian Government maintained its submissions. 69
The article next investigates, whether the claims brought by the Estonian State were justified?
2. The First Preliminary Objection - Nationality of the Claim for Damages
Although the Lithuanian Government did not contest the illegal seizure and operation of the
railway line and was insecure in how much would the nationality rule depend on the
establishment of the legal personality of the company, 70 the PCIJ started with examining the
Lithuanian Government’s preliminary objections.

Concerning the first preliminary objection - the nonobservance of the international law rule
that a claim must be a national claim both at the time of its presentation, as well as the time of
the injury - the PCIJ was of opinion that a bond of nationality conferred the State the right to
intervene on behalf of its own nationals and that this rule and the right of diplomatic
protection were the rules of international law. But in this case the question was, whether
Estonia, under international law, could grant diplomatic protection to a company
retrospectively, reaching the time the company lacked Estonian nationality.
No document or other legal event revealing the intent by the Parties to exclude the
international law rule that a claim must be a national claim both at the time of its presentation,
as well as at the time of the injury, was presented to the PCIJ. As referred above, the Treaty of
Tartu did not contain provisions on conferral of nationality on individuals. Nor had the
Estonian State and the Lithuanian State concluded an agreement authorizing an international
tribunal to adjudicate the claims concerning certain companies without the bond of
nationality. Although Estonia made a claim that the Treaty of Tartu could have had the effect
of conferring nationality, the PCIJ did not wish to discuss the question whether the Treaty of
Tartu had such effect, nor did the Court discuss the effect of the Soviet Government’s
measures on Russian companies at the time of the revolution (which measures ceased the
existence of the company). The PCIJ established that at the time of claiming the injury, the
company possessed Estonian nationality, but the PCIJ could not establish that the Estonian
company was the successor to the Russian company, or that at the time suffering the injury,
the company had already acquired Estonian nationality. 71 Therefore the PCIJ decided that the
State was not entitled to claim the injury done to the national of another state.

In their separate opinion, judges M. de Visscher and Count Rostworowski agreed with the
Court, establishing that the Estonian Government had not proven that the company was
Estonian already in 1919, but that the company turned Estonian with the Treaty of Tartu of 2
February 1920 and consequently „the bond of nationality required by international law to
have existed at the time the injury was suffered, was manifestly lacking“. 72 These judges
further explained that the question of nationality is separate from the question of identity
(established towards the company with the historical documents starting with the Imperial
decree) and affects a company the same way as an individual – „an individual whose identity
since suffering injury had never been disputed, would be equally without title to claim the
diplomatic protection of a State, if, at the time the injury was sustained, he was not a national
of that state“. 73 Of same opinion is judge Erich in his dissent, explaining that the claim of
nationality „does not affect the claim itself“ 74 – a claim that an individual may possess may be
materially well-founded, but in order to bring an action against a foreign state through a state,
the state that brings such action on behalf of such individual must be „duly qualified“ to do
so. 75
The most radical of the judges seems to be judge Hudson who explains that „absence from the
claim of a certain „nationality“ does not affect the claim itself“. 76 Also judge Jonkheer van
Eysinga firstly reminds that the claim of nationality was an unwritten rule of international
law, and secondly asks for proof on existence of that rule. He argues that if debts of one state
can pass over to another state, why then couldn’t nationality pass over to another state,
although he admits that in such cases a relevant agreement could be concluded. Judge Eysinga
then asks for the roots of the claim of nationality and finds those from the jurisprudence of the
Claims Commissions (Mixed Commissions) having been set up by a treaty usually at the
times of injustices, when many nationals had suffered injury. 77 Judge Eysinga explains, „such

treaties have in view only the nationals of the two parties who have suffered injury, but not
non-nationals“ who in order to bring a claim to the commission „get themselves naturalized“ 78
or use a non-national to bring claims on their behalf. 79
The author of this article is of opinion that the separate opinions and dissents in the case
Panevezys-Saldutiskis do not exclude the possibility that the Estonian State could have had
the position of an intervening state in this case on behalf of the company, had the company
been able to be party to the case. The company could not be a party at the PCIJ, but the article
further investigates, whether it could be a party to a case at a local court?
3. The Second Preliminary Objection - Exhaustion of Local Remedies Rule
The Lithuanian Government’s second preliminary objection was based on the international
law rule of exhaustion of local remedies. The Estonian State did not contest the existence of
that rule, but claimed that the case fell within the admitted exceptions to the rule. The
Estonian Government first took it established that the Lithuanian courts lacked the jurisdiction
to solve the matter; second, that the Lithuanian highest court had already given a decision on
one point in the case. The PCIJ was of opinion that the case was under Lithuanian law and
thus belonged under the jurisdiction of the Lithuanian courts who had not clearly expressed
their lack of jurisdiction, and that „the Estonian company had not instituted any legal
proceedings before the Lithuanian courts in order to establish its title to the Panevezys-
Saldutiskis railway“. 80

As for the statement that a Lithuanian court had already pronounced on a similar matter in the
decision of the Lithuanian highest court of 26 March 1934 in the case Jeglinas vs. the Esimene
Juurdeveo Raudteede Selts Venemaal that was referred in the Panevezys case - in the Jeglinas
case the Lithuanian court had not recognized the continuity between the Russian and the
Estonian companies,
“… since, as may be seen from the evidence produced by the defendant, no company
exists in Estonia in whose name the bond was issued and whose statutes were in force
in 1892, but there is a company newly founded under the name of Esimene Juurdeveo
Raudteede Selts Venemaal …”. 81
But the PCIJ did neither consider it useful to discuss the question of whether the Esimene
Juurdeveo Raudteede Selts Venemaal was a newly established company or the successor of
the Russian company, nor derive an exception to the exhaustion of remedies rule from the
Jeglinas case, because the PCIJ considered the subject-matter of the cases being different.
While the Lithuanian court in Jeglinas had concentrated on the identity issue, the PCIJ in
Panevezys concentrated on the nationality issue. Although the exhaustion of local remedies
rule was not considered a rule of thumb in international law, 82 the PCIJ found the second
preliminary objection well founded, and declared that the Estonian claim could not be
entertained. 83
2.1.5. On the Justifiability of the Judgment in the Light of Criticism toward Private Law
Reforms

The author of this article is of opinion that the result of the case Panevezys could have
depended on the question whether the nationality requirement amounts to merits, but the PCIJ
just avoided going into merits in this case, as if afraid of finding a link of nationality from
indirect activities. The PCIJ also avoided going into merits with the exhaustion of local
remedies rule. The recommendation made by the Lithuanian State that the claim could have
been brought to an internal court by the company itself, seems justified. Parallelly arises the
question why didn’t the company use that possibility to bring the claim to a national court?
Why didn’t the Estonian State recommend that possibility to the company, although it was
established that the damage was suffered since 1919 – after the proclamation of the
independence of the Lithuanian State and the Estonian State, after what time it could have
been possible to approach the courts of the referred states. Could the problem lie here in the
company’s controversial documents concerning its nationality – Namely, although the order
from 21 May 1922 of the District Court of Tallinn-Haapsal placed over the First Company of
Secondary Railways in Russia the curatorship, the Company’s first meeting after its July 1917
meeting took place at Riga, basing on Latvian, not Estonian law, and the decision to form a
Latvian company was taken at that Riga meeting. 84
Only on 8 November 1923 were the Company’s new statutes approved at Tallinn, those
statutes having been registered on 23 November 1923, only after which date the company
acquired the Estonian nationality and the status of an Estonian company.
Such problems that emerged in the Panevezys-Saldutiskis case illustrate some of the technical
difficulties that one may face during private law reforms.

3. Conclusions
The article examined the Estonian private law developments during the pre- and post-
statehood periods.
With regard to the Estonian private law developments during the pre-statehood period can be
concluded that such developments have an important place in formulation of a nation’s legal
consciousness and that the „motley“ political history and the consequent variety of legal
regimes and private law regulations, and the inconsistencies in those regulations, resulting in
the variety of fragments and unclarities do not only characterize the problems faced by the
Estonian private individuals, but individuals of all European states. From one side, legal -
included private law - reforms are in all states indispensable responses to technical, scientific
and other developments, such as trade, requiring reception or harmonization of certain areas
of law at certain periods. 85 In addition, globalization is characterized by cultural and historical
peculiarities, for example, by different religious beliefs.
Form other socio-legal angle, a nation (that mostly consists of non-lawyers) during a certain
period becomes used to detailed regulations of the real right, family law, law of obligation and
other private law institutes. Such nation conforms to those details and also becomes used to
behave in accordance with those detailed regulations. That way, a state’s practices get rooted
and connected to a nation’s identity. Consequently, as private law is initially connected to a
concrete nation and a concrete time, parallelly to facilitating trade and cultural development,
private law reforms change the well-established legal practices and legal culture that has been
rooted and connected to a nation’s identity. As that way private law reforms bring changes to

the well-established legal practices and legal culture, they cause problems to individuals due
to unclarities and absence of established practice.
As individuals get used to new civil laws and learn to behave and expect behaviour according
to those new laws during a certain length of time, changes to the rooted behavioural models
require time for being accepted and that time of changes may provide insecurity, and there
exists a danger that if the citizens refuse to accept civil law norms, one cannot talk of rule of
law based state any more. 86 From other angle, civil laws strongly influence the citizens’ inner
sense of morality and justice and consequently it is possible that even after having been
modified or nullified during the periods of societal and state transformations, they frequently
continue to be carried on in people’s minds and behaviour.
Estonian private law developments during the early post-statehood period are well reflected
by the Panevezys-Saldutiskis Railway case, the facts of which case date back to a very
interesting and legally controversial era - the period after the October revolution in Russia –
that brought vast principal changes to Russian private law (on which law the Estonian private
law essentially depended). Close to that October revolution period remain the births of the
three Baltic States, where already the consequent treaties and acts inter alia contained new
private law norms that due to the revolutionary changes taking place in Russia could no
longer base on the „old“ Russian law. An important area in the Panevezys-Saldutiskis
Railway case relates the interpretation of private law norms in the light of the principles of
international law - nationality of claims, and exhaustion of local remedies.
The main conclusions of this article are that changes to private law are not only technical, but
as closely related to individuals’ daily life, they are growing out of the nation, and should be

ecognized by the nation – this should be borne in mind during private law reform periods
both from the linguistic as well as legal angle. In addition should be borne in mind that private
law developments are in addition to general principles of law influenced by general principles
of international law.
Notes
1 J. Jaakson, „Referaat. Meie tsiviilõiguste puudustest ja nende puuduste kõrvaldamisest. Esimene
Õigusteadlaste päev Tartus 19. ja 20. aprillil 1922.a.“, [Protokollid] // Õigus, (1922-7), 193–208.
2 Ibid.
3 Ibid.
4 Ibid.
5 Ibid.
6 Ibid.
7 Ibid.
8 Uku Masing, Keelest ja meelest (Tartu: Ilmamaa 2004), 28.
9 Aime Vettik, Rein Kull, Tagasivaade eesti õigussõnavara kujunemisloole (1920-1940) (Tallinn:
Eesti Teaduste Akadeemia Emakeele Selts 2002), 34.
10 See inter alia S. Cassese, „The Globalization of Law“, International Law and Politics, Vol. 37
(2005), 973-993.
11 On the basic values in private law see Martijn W. Hesselink, CFR & Social Justice. A short study
for the European Parliament on the values underlying the draft Common Frame of Reference for
European private law: what roles for fairness and social justice? (University of Amsterdam: Centre
for the Study of European Contract Law. Working Paper Series No. 2008/08), 46.
12 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, Series A/B, No. 76, p. 8.
13 Ibid.
14 Ibid.
15 Ibid.
16 As separated in the text ibid.
17 Ibid.
18 Ibid.
19 Ibid.
20 Ibid.
21 Ibid.
22 Ibid.
23 League of Nations (LN) Treaty Series, Vol. XI, pp. 29-71 as referred in Panevezys-Saldutiskis
Railway, 28 February 1939, PCIJ, Judgment, Series A/B, No. 76, p. 11.
24 LN Treaty Series, Vol. III, pp. 105-137 as referred ibid, p. 11.
25 LN Treaty Series, Vol. II, pp. 195-231 as referred ibid, p. 11.
26 LN Treaty Series, Vol. XI, pp. 29-71 as referred ibid, p. 11.
27 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76, p. 11.
28 Ibid.
29 LN Treaty Series, Vol. XI, pp. 29-71 as referred in Panevezys-Saldutiskis Railway, 28 February
1939, PCIJ, Judgment, PCIJ Series A/B, No 76, pp. 11-12.
30 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76, p. 12.

31
Ibid.
32
Ibid.
33
Panevezys-Saldutiskis Railway, PCIJ, Dissenting Opinion by Jonkheer van Eysinga, PCIJ Series
A/B, No 76, p. 32.
34
Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76 pp. 12-
13.
35 Ibid., p. 13.
36 Ibid.
37 Ibid.
38 Ibid.
39 Ibid.
40 Ibid., pp. 13-14.
41 Ibid., p. 14.
42 Ibid.
43 Ibid.
44 Ibid.
45 Ibid.
46 Ibid.
47 Ibid.
48 Ibid., p. 15.
49 Ibid.
50 Ibid.
51 Panevezys-Saldutiskis Railway, PCIJ, Separate Opinion by M. de Visscher and Count
Rostworowski, PCIJ Series A/B, No. 76, p. 27.
52 Panevezys-Saldutiskis Railway, 30 June 1938, PCIJ, Order (Preliminary Objections), PCIJ Series
A/B, No. 75, p. 54.
53 Ibid.
54 Otto August Strandman, Estonian lawyer, Statesman and diplomat, Doctor Honoris of the
University of Tartu (1928), was born on 30 November 1875 at Kadrina (Eesti Entsüklopeedia Vol. 8
(Estonian Encyclopaedia) (Tallinn: Eesti Entsüklopeediakirjastus), 659). His father was Hans
Strandman, a teacher at Undla Commune Castle of Neerut, Vandu village school, mother Ann
Strandman (born Appfelbaum) (Eduard Leppik, Otto Strandmani genealoogia (Imavere 2005), 7, 20).
Starting in 1899 from the Faculty of Law of the University of Tartu, Otto Strandman graduated in
1903 from the University of Peterburg (Eesti Entsüklopeedia Vol. 8, op. cit.). In 1903, Strandman was
a court candidate at Tallinn, in 1904 a lawyer. In 1904, Strandman was elected to the Tallinn City
Council (Leppik, op. cit., 21). From 1905 to 1909, Strandman was in exile to Switzerland, because he
had favoured the idea to give Estonia the status of an autonomous state (Tiit Made, Rahvusvahelised
suhted. Leksikon (International Relations. Lexicon) (Tallinn: Valgus 2002), 935). In 1908, Strandman
married Lydia Hindrikson at Narva. In 1909, they had a daughter Hella and in 1910, a son Hans, who
both in 1913 died in diphtheria. In 1914, daughter Lydia was born. In 1917, Strandman became the
Prosecutor of the Tallinn Circuit Prosecution Authority (Leppik, op. cit., 28, 22). From 1917 to 1918,
Strandman was the Chairman of the Estonian Provisional District Government. From 1918 to 1924,
Strandman performed several Ministerial tasks: in 1919 Strandman was the Prime Minister (Eesti
Entsüklopeedia Vol. 8, op. cit.) and Defence Minister, from 1920 to 1921 Foreign Minister, in 1924
Foreign Minister and Finance Minister (Made, op. cit.). From 1927 to 1929 Strandman was an
Ambassador to Poland (parallelly to Czechoslovakia and Romania), from 1929 to 1931, the Head of
State, from 1933 to November 1939, Ambassador to France (parallelly to Belgium and Vatican).
Strandman was the Deputy to the I-IV Riigikogu (the Estonian Parliament) and at 1921, the Speaker of
the Riigikogu. Strandman was one of the founders and leaders of the Estonian Radical-Socialist Party
that was later changed to the Labour Party (ibid. and Eesti Entsüklopeedia Vol. 8 op. cit.). In 1936,
Strandman criticized the Silent Era that was established by Konstantin Päts (who was the Estonian
Prime Minister in the tasks of the Head of State at that time and since 1938, the first Estonian
President), after what Strandman left to Paris. He returned from Paris to Kadrina in 1939 (Made, op.
cit.). After having received an invitation for appearance to the People’s Commisariat for Interior

Affairs (NKVD), he committed a suicide (ibid. and Eesti Entsüklopeedia Vol. 8, op. cit. Also H.
Tuulik, J. Valge, „Otto Strandman 1875-1941“, Looming (1989-7), 963-973, 973).
55 Panevezys-Saldutiskis Railway, 30 June 1938, PCIJ, Order (Preliminary Objections), PCIJ Series
A/B, No. 75, p. 54.
56 Ibid., p. 55.
57 Ibid., p. 54. See also M. O. Hudson, „The Seventeenth Year of the Permanent Court of International
Justice“, The American Journal of International Justice (1939-1), 1-11, 5.
58 A Member of the Permanent Court of Arbitration at the Hague, Professor of international law at the
University of Petrograd and Under-Secretary of State for Foreign Affairs. See Baron Boris E. Nolde,
Russia in the Economic War (New Haven: Yale University Press, 1928), iii.
59 Panevezys-Saldutiskis Railway, 30 June 1938, PCIJ, Order (Preliminary Objections), PCIJ Series
A/B, No. 75, p. 55.
60 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76 p. 7.
61 Panevezys-Saldutiskis Railway, 30 June 1938, PCIJ, Order (Preliminary Objections), PCIJ Series
A/B, No. 75, p. 56. See also M. O. Hudson, „The Eighteenth Year of the Permanent Court of
International Justice“, The American Journal of International Justice (1940-1), 1-22, 4.
62 See ibid., where those judgments have been referred as follows: judgment of 28th February in the
Panevezys-Saldutiskis Railway case (Estonia vs. Lithuania); preliminary objection of 4th April in the
case Electricity Company of Sofia and Bulgaria (Belgium vs. Bulgaria) and judgment of 15th June in
the Société commerciale de Belgique case (Belgium vs. Greece).
63 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76, p. 6.
64 Ibid.
65 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76 p. 8.
66 Panevezys-Saldutiskis Railway, PCIJ, Separate Opinion by M. de Visscher and Count
Rostworowski, PCIJ Series A/B, No. 76, p. 26-27.
67 Ibid., p. 27.
68 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76 p. 7.
69 Ibid.
70 Ibid.
71 Ibid., pp. 16-17.
72 Panevezys-Saldutiskis Railway, PCIJ, Separate Opinion by M. de Visscher and Count
Rostworowski, PCIJ Series A/B, No. 76, p. 27.
73 Ibid., p. 27.
74 Panevezys-Saldutiskis Railway, PCIJ, Dissenting Opinion by M. Erich, PCIJ Series A/B, No. 76, p.
49.
75 Ibid.
76 Panevezys-Saldutiskis Railway, PCIJ, Dissenting Opinion by M. O. Hudson, PCIJ Series A/B, No
76, p. 49.
77 Panevezys-Saldutiskis Railway, PCIJ, Dissenting Opinion by Jonkheer van Eysinga, PCIJ Series
A/B, No 76.
78
Ibid.
79
Ibid.
80
Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76, p. 22.
81
Ibid.
82
Panevezys-Saldutiskis Railway, PCIJ, Dissenting Opinion by M. O. Hudson, PCIJ Series A/B, No
76, p. 48.
83 Panevezys-Saldutiskis Railway, 28 February 1939, PCIJ, Judgment, PCIJ Series A/B, No 76. See
also Hudson, op. cit.
84 Ibid.
85 V. Hasselblatt, „Baltimaade õiguste ühtlustamine“, Õigus, (1931-X), 73-75.
86 J. Uluots, „Tsiviilseadustiku eelkava alusmõtteist. Kokkuvõte referaadist“ in IX Õigusteadlaste
Päeva protokollid, 1930, „Õiguse“ erilisa (Tartu: Õigus 1930).