Construction Arbitration in Central and Eastern Europe: Contemporary Issues

Central and Eastern Europe

The construction arbitration scene in Central and Eastern Europe has evolved over the years. In the early 1990s and the cold war, the region enjoyed vast investment, with the SCC and VIAC taking center stage as arbitration seats.

However, it is 2022 now, and a lot has changed, and CEE is no different than any other part of Europe. In reality, the region has been considered to carve its own way from the rest of Europe when it comes to international arbitration.

arbitration dispute

Construction Arbitration in the area has flourished as foreign investors have continued to carry out commercial projects in the country. However, it is essential to note that it is not just a fairy tale ride for foreign construction firms in the region. So how is construction Arbitration in the region as of 2022? This article will address the question by citing the major foundations of construction-related disputes.

  1. Arbitration is Still the Best Option

    Arbitration still remains the major player in resolving construction disputes in the CEE. While many commercial disputes seem to have other tools to resolve contractual disputes, construction contracts are quite complex and may involve more than two firms. So When disputes arise, it is more likely to be a Bilateral Chain arbitration dispute or a Bilateral web dispute.

    Chain Bilateral and GOCD

    The Bilateral chain dispute arises when an employer gives a firm a project and subcontracts other firms (bilateral chain contract). If the employer has an arbitration clause with the main firm and disputes arise due to one of the subcontracted firms failing to deliver, then a Bilateral chain dispute is said to have arisen.

    In that case, all firms involved in the contract could be taken to arbitration, including those subcontracted firms that were not a signatory to the clause. This is possible through the Group of Companies Doctrine.

    GOCD

    The GOCD allows the tribunal to involve non-signatory subcontracted firms in a construction contract in a dispute when they play a relevant role in causing the dispute. This principle goes against the need for a party to be a signatory of a clause before they can be made to answer fat the tribunal containing that clause. The GOCD has continued to raise debate, and this has made both courts and tribunals approach the contract with subcontracting differently. Below are two cases where the OCD was made both relevant and irrelevant.

    Alcatel, an incorporated company with ABS and AME as its subsidiary, entered an agreement with Amkor, a united states incorporation for the production of microchips. ABS/AME were the bodies that entered the agreement with Amkor and not Alcatel group itself. On the other hand, Amkor also had two subsidiaries that were not part of the contract or the arbitration clause but also carried out the chip production with their parent company.

    Disputes arose when Amkor subcontracted a Korean Company Anom to deliver the chips while the former worked on the design. ABS/AME, after receiving the chips stated that they were faulty and activated the arbitration agreement against Amkor, its two subsidiaries and Anom.

    Amkor subsidiaries, however, challenged the arbitration clause at court and stated that they were not signatories to the agreement and, as such, an arbitral tribunal jurisdiction cannot establish such jurisdiction. The French court affirmed the subsidiaries’ claim and stated the tribunal could not carry out jurisdiction over the non-signatory parties’ courtesy of the arbitration clause.

    The above case showed that the GOCD is not a rule of thumb principle as foundational international arbitration requirements could override it.

    On the other hand, the Pujol case saw the French Court state that the arbitral tribunal had the jurisdiction to include non-signatory subsidiaries as long as they were actively involved in the contract and could have played a significant role in causing the dispute.

    Web Bilateral and GOCD

    In the Web Bilateral contract, an employer employs different firms for a particular project and has different arbitration clauses. Suppose a delay in one firm leads to the main employer not meeting up with the expectation of another firm that finishes its own project on time. In that case, an arbitration dispute may arise between the firm and the employer whose contract was breached.

    When such happens, it is possible for the employer to take the firm which started the delay in the first place to the tribunal as well. However, a question that has risen in CEE international arbitration is whether the tribunal could handle a chain arbitration in one seating when there are different clause agreements. The group of companies’ contract Doctrine answers the question.

    The Group of Companies Doctrine

    This particular doctrine gives an Arbitration tribunal the jurisdiction to handle different arbitration disputes from the same project in one sitting when the different clauses are closely related or when the fault of another firm in the projects leads to accrued losses for another firm. The tribunal will need to consider whether the clauses are intertwined before it can adopt this doctrine. If each clause is independent and a particular dispute that arises does not affect another contract, there is no need to involve a separate party.
  2. Enforceability Has Been Fair

    Enforcement of Construction Arbitration in Central and Eastern Europe is in the balance. Most states in CEE ascribe to the New York Convention and the Geneva Convention. There are 19 eastern European Countries that ascends to the New York Convention, while at least 17 CEE ascribe to the Geneva Convention. When a construction arbitration award has been issued, most CEE countries are obliged to enforce them as long as they do not breach the NYC or the GC. With fairness to CEE, enforcement has been fair, and it has not been entirely far away from how other European countries in other regions carry out enforcement.

    Conclusion

    Construction arbitration in CEE is complicated, just like it is anywhere in the world, due to the globalization of contracts and the involvement of many companies in completing a project. More often than not, you will need an expert to help you draft a clear, concise construction arbitration clause to protect your interest at all times.

    Rättsakuten is one of those companies with expert arbitrators that you can trust to give you the best services. You can contact the firm for inquiries on construction arbitration in CEE and how you can prepare.

    About Rättsakuten

    Rättsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rättsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals.

Fredrik Jörgensen

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