Central and the Eastern Europe States is a major round for international Investment arbitration, and while they may not receive as much recognition as the western region, it is important that investors hoping to invest there know exactly how the majority of the States, especially the major ones, handle foreign investment matters.
The major type of investment in the region is construction, and as expected, most Arbitral practices in CEE are related to construction disputes. While there are other commercial disputes that require the intervention of the tribunal, construction cases are the ones that usually require an international arbitration hearing.
Liquidated damages are the major cause of construction disputes in CEE regions, and this goes a long way to show the major focus CEE practices on construction contracts. Most foreign investors, especially those that are non-European members, pay lots of attention to the arbitral clause concerning liquidated damages in a contract. This is due to the complexity that could quickly come up and leave investors at a loss.
The Best and worst Central and Eastern Europe States for Award Enforceability
With construction identified as the major type of investment in CEE by foreign states, it is very important to know how the different countries in the region handle investment arbitration as a whole. This section will consider the best and worst CEE states in terms of their friendliness in enforcing Investment arbitration awards. This will give foreign investors a clear picture of what they should expect when considering their investment options.
Romania is considered the best state for investment arbitration in the country. The ICC and SCC Arbitration centers are the major handlers of investment arbitration case that deal with Romania. On the other hand, the Romania court has granted enforceability of awards even when it seems to go against the state or a local company. The few cases where enforceability has been denied is if there are inconsistencies in arbitration cause or the country’s public policy was violated.
The main legal framework that concerns arbitration in the country is entrenched in the Romania Civil Procedure Code. Article 1111 is responsible for the regulation of international investment arbitration.
There are certain conditions for an investment arbitration award to be valid and enforceable, and they include standard UNICTRAL Model Law like
• The arbitration clause must be considered arbitrable
• The clause must be in writing
• The arbitration clause must not be inconsistent or violate the public policy of Romania
Bulgaria is statistically among the friendliest investment arbitration states in CEE. While the states do not have all the amazing international recognition like other bigger states, there is no doubt about its willingness to enforce investment arbitration awards even if the investor seeking such is non-European.
Arbitration as an international means of resolving disputes in Bulgaria was established in 1892 through the First Civil Procedure Act. Bulgaria gives Arbitrators and Arbitration extensive jurisdictions and independence to decide and issue awards. Enforceability is usually a formal procedure, and question can only be raised if a party seek an annulment.
Even when seeking an annulment, the chance of success is extremely low. The country courts will only consider such if there is any real breach in the arbitral procedure or a significant breach in the country policy.
Poland has enjoyed a very good reputation as a home for award enforceability and is one of the CEE regions where Investors easily seek solace. The country has very impressive statistics of award enforceability, with research and statistics averaging up to 93%. This means that at least 93% of cases that have had awards issued were successfully enforced by the courts. This number includes all types of international Arbitration cases, including investment arbitration.
The Polish courts will only reject enforcement of an arbitration award for majorly the reasons Romania and Bulgaria also reject awards, so investors do not really have many concerns. However, they must always ensure that their clauses follow all the right implementations during drafting.
Russia is considered the least friendly state in CEE, which is majorly due to its rejection of awards enforceability against the state Government. A poll on international arbitration in Russia showed that 80% of arbitration cases with awards issued are enforced. The remaining 20% have remained pending or outrightly rejected. Russia will easily enforce an award that targets a foreign company than those that target its local companies and government.
The opinion about Russia is that the Courts are under government control, and as such seeking enforceability against the latter through the judicial system is almost impossible. Despite the 2016 Russia Arbitration Reform and revision, this issue has remained prevalent in the country.
The statistics in the CEE region when it comes to investors getting awards enforced shows that the region is in a balance. However, major countries in the region have been shown to be friendly to arbitration awards to a good extent. Even Russia, which is considered the most hostile to award enforceability, also does considerably well in enforcing awards.
However, it is important that investors get a very good expert arbitration team to offer expert services regarding investment in CEE before they o ahead with their business.
Rättsakuten is a major arbitration institution with top experts that can be trusted to deliver amazing services to investors looking to invest in CEE. You can contact the firm for more inquiries regarding investment arbitration and everything you need to know.
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.