The Administrative Law Chamber of the Supreme Court of Estonia has ruled that the Ministry of Economic Affairs and Communications' termination of the public passenger rail service contract concluded in 2009 with the privately-owned rail service operator Edelaraudtee in 2014 was lawful.
According to the Supreme Court, the unilateral early termination of the agreement was supported by important public interest in replacing outdated passenger trains with new ones.
In the administrative case that reached the country's top court, the Ministry of Economic Affairs and Communications and Edelaraudtee were at odds regarding whether the ministry had terminated the public passenger rail service contract concluded between the two parties in a lawful manner, as well as what damages the state would be required to compensate to the company.
An administrative court had partly satisfied Edelaraudtee's appeal and ordered the state to pay the company compensation for direct material damages. A circuit court had found that the state had no basis for terminating the contract, and also ordered that Edelaraudtee AS be compensated for loss of income and paid interest on late payments.
The Ministry of Economic Affairs and Communications thereafter appealed the circuit court's decision to the Supreme Court, which ruled that the ministry had lawfully terminated the contract with Edelaraudtee.
In this dispute, the unilateral early termination of the agreement was supported by important public interest in replacing outdated passenger trains with new ones, and parties to the contract had taken this possibility into account already when concluding the contract.
The Supreme Court explained that by giving a public task to the private sector, the state is not relieved of the responsibility to ensure the quality of the fulfillment of the public task, including passenger transport. At that, the court continued, it is important that excessively strict restrictions on the termination of the contract or compensation obligations not unduly impede the improvement of the quality of passenger transport. Likewise, the income calculations of the private sector should not prevent the replacement of obsolete infrastructure with new infrastructure.
Thus, when it comes to an administrative agreement regulating the fulfillment of a public task, it is always necessary to fairly assess public interest compared to private interest, and take into account that significant public interest can be grounds enough for the unilateral termination of a contract.
Pursuant to the agreement concluded between the two parties, the Supreme Court considered the compensation of only direct material damage to Edelaraudtee AS justified. The top court partially annulled the ruling of the circuit court, and sent the matter to district court for review in order to determine the extent of damages.
Editor: Aili Vahtla