The Australian government is now in court over an allegedly "unreasonable" decision to terminate a 99-year lease and expel Russia from its new Canberra embassy site.
In Federal Court proceedings filed on Wednesday, the Government of the Russian Federation seeks orders that it retain hold of and be "granted quiet enjoyment" of the diplomatic site in the suburb of Yarralumla.
The federally-run National Capital Authority opted to tear up the lease on August 16, claiming Russia had delayed constructing its new embassy buildings for years and had breached the lease contract.
A day later, NCA chief executive Sally Barnes said the authority supported a "use it or lose it" policy.
"The block is a premium site in central Canberra, close to Lake Burley Griffin and the Australian Parliament House. On-going unfinished works detract from the overall aesthetic, importance and dignity of the area reserved for diplomatic missions and foreign representation in the National Capital," she said.
On December 24, 2008, Russia was granted access to the land at a rate of $0.05 a year. Conditions included erecting a diplomatic building within 18 months and completing it in three years.
At the time, Russia paid a land premium of $2,750,000 to the NCA.
Construction of a consular building was completed in January this year after spending US$5.5 million on what was called Stage 1 of the project.
In court documents, the Russian government argues the completion of the consular building satisfied the terms of the lease contract and that Australia had "affirmed" the agreement by its conduct after the 36-month period had expired.
"In the circumstances, in purporting to terminate the lease, each of the (Commonwealth of Australia) and NCA has acted unreasonably and not in good faith in issuing the notice of termination," Russia wrote.
With the lease brought to an end, the Russian government would have to forfeit the land, including any buildings, and would have wasted funds on developing the site, it claims.
In response to the lawsuit, the NCA has agreed with the Russian government to "maintain the status quo" regarding the Yarralumla site while the matter is before the courts.
"This agreement means the Russian Federation will remain in occupation of the site. There is a range of agreed conditions in place to protect the site and the Commonwealth from liabilities or loss," an NCA spokesperson said.
Russia's existing embassy in the Canberra suburb of Griffith is not affected by the ongoing dispute.