The Czech state potentially faces a 995 million koruna ($54.4 million) arbitration dispute from Cyprus-registered Forminster Enterprises Ltd. over a troubled business deal earlier this decade, the Czech finance ministry's spokesman said Wednesday.

Forminster, an investment vehicle with unknown ownership, claims the Czech Republic has broken a treaty between itself and Cyprus on mutual protection of investments. The company seeks losses from a Czech court earlier this decade freezing its stake in the Kotva department store in downtown Prague.

Despite the court order to freeze its stake, the Cyprus-registered company in 2005 sold its stake in Kotva to Irish property company Markland Holdings Ltd. for EUR56 million.

The finance ministry said the two sides have through April to negotiate a resolution before Forminster could actually file an arbitration case in the courts.

The case revisits the disputed ownership of Kotva that started in the 1990s when the store, a Prague landmark from the 1970s, was privatized in a series of murky dealings.

Other investors in past years have also sought damages from their often failed dealings in the store's ownership.

The department store is currently undergoing a major renovation in part fueled by the arrival of a newly built shopping center across the street and amid the overall improvement of Prague's downtown.

Finance Ministry Web site: www.mfcr.cz

-By Sean Carney, Dow Jones Newswires; +420 222 315 290, sean.carney@dowjones.com

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