June 27, 2017

June 27, 2017

Subscribe to Latest Legal News and Analysis

June 26, 2017

Subscribe to Latest Legal News and Analysis

Return of Arbitration to Road Construction Disputes in Poland

In February 2017, the Polish Ministry of Infrastructure and Construction announced the introduction of the “New standards in road construction” aimed primarily at regulating the balanced division of risks in roads construction contracts. Among many changes that have been made to the new model of public procurement contracts in road construction, special attention should be paid to returning – after many years of absence – arbitration as the preferred method of settling disputes between public investors and general contractors in Poland.

Forwarding disputes with contractors to the common courts

Years ago, the conditions of construction contracts executed by the largest public infrastructure investor in Poland, the General Directorate for National Roads and Motorways (“GDDKiA”) stipulated that all disputes should be resolved by way of arbitration. This solution was a model reflection of dispute resolution methods adopted in the internationally applied FIDIC Conditions of Contract. However, before signing a large number of contracts under the 2008-2012 Road Construction Program (the largest program for road investments in Poland so far), all provisions in the standard conditions of contract regarding dispute resolution were replaced by one simple statement that reads as follows: “Any dispute that may arise in connection with the implementation of this contract will be resolved by the common court”.

Consequently, due to the scale of the phenomenon and the importance for the functioning of the construction industry, the Polish common courts had to deal with a real “tsunami of construction disputes” related to the construction of roads and motorways for EURO 2012 which was organized by Poland and Ukraine. As a result of jurisdictional competence connected with the address of GDDKiA’s headquarters, the wave of disputes was strongest in the XXV Civil Division of the Regional Court in Warsaw. This department has recorded a strong increase in cases over the past few years, out of which a majority comprises disputes with GDDKiA’s participation. Only in 2015, an increase of 16% was recorded (the highest among all civil divisions of the Regional Court in Warsaw – the largest common court in Poland).

To illustrate this phenomenon, it is worth pointing out that at the end of 2016, the General Solicitor’s Office of the Republic of Poland (representing GDDKiA in most disputes) conducted 418 court proceedings involving GDDKiA, with the total value of claims amounting to PLN 6.1 billion (approx. EUR 1.5 billion). Although in 2016 the number of new cases concerning GDDKiA was statistically slightly lower than the number of completed cases, the value of new cases was however substantially higher than the value of completed cases (respectively, 110 new cases totaling approx. PLN 600 million [approx. EUR 150 million] and 117 completed cases with the total value of claims of approx. PLN 430 million [approx. EUR 107 million])

After the initial organizational difficulties associated with the sudden deluge of construction disputes, a number of institutional changes were made to the XXV Civil Division of the Regional Court in Warsaw to improve the speed and efficiency of the proceedings with participation of GDDKiA. Despite the fact that infrastructure litigation is characterized by a considerable value of claims, the complexity of factual issues (including technical or architectural) and legal issues, and extensive evidence, disputes related to the implementation of road investments continue over the years, which translates directly into the condition of the entire road construction industry in Poland.

It is worth pointing out that in previous years only a marginal number of cases involving GDDKiA – disputes with contractors, were decided by the arbitration courts. Over the past three years (2014 – 2016) only seven arbitration proceedings have been settled with a total value of claims amounting to approx. PLN 30 million (approx. EUR 7.5 million).

New standards of settlement in road construction disputes

In the Ministry of Infrastructure and Construction’s recently announced “New standards in road construction” policy, the return of road construction disputes to the arbitration courts instead of the common courts has been regulated, which in fact has been postulated for years by representatives of the road construction market in Poland. This modification aims primarily at speeding up the settlement of disputes between public investors and general contractors.

One of the first contracts taking into account the above change is, for example, the conditions of contract for the Via Baltica route – design and construction of the S61 expressway Ostrów Mazowiecka – Szczuczyn: sections: “Śniadowo” junction (with junction) – “Łomża Południe” junction (without the junction), with a length of approx. 16.9km [S61] (Polish section of the Via Baltica – S61 route – is itself part of the European E67 route which runs from Prague to Helsinki, covering 970 km.)

In accordance with the provisions of Subsection 20.6 of the conditions of contract, any disputes that may arise out of the performance of the contract shall be settled by the arbitration court indicated by the contractor prior to the signing of the contract from the following list of Polish arbitration courts: (i) Court of Arbitration at the Polish Chamber of Commerce in Warsaw, (ii) Court of Arbitration at the Association of Consulting Engineers and Experts in Warsaw, (iii) Court of Arbitration at the Polish Confederation Lewiatan, (iv) and the Court of Arbitration at the Regional Chamber of Legal Advisers in Warsaw.

Dispute resolution will be governed by the rules of the specific arbitration court applicable on the date of execution of the contract, provided that: (i) the dispute is resolved by three arbitrators; and (ii) the arbitration will take place in Poland, under Polish law, in the Polish language, as the language of the contract.

It is worth pointing out that pursuant to Subsection 20.4 of the conditions of contract, a dispute between the parties may be submitted to arbitration only in the absence of the investor’s or general contractor’s acceptance of the settlement of the arbitration commission dispute adjudication board appointed by the parties.

Advantages of arbitration

Arbitration is essentially a dispute resolution method that eliminates most of the disadvantages associated with the functioning of the common courts – particularly in Poland.

One of the main assumptions of arbitration, which is its advantage over court proceedings, is its speed. Indeed, the manner of regulating the proceedings by the rules of arbitration courts resolves many of the problems that contribute to lengthy court proceedings in Poland. Arbitration is, in principle, one instance proceedings, unlike the two-instance model of court proceedings in Poland. Furthermore, proceedings before the arbitration court are largely deformalized, for example: as regards communication between the parties and the arbitral tribunal; co-decision making on the number of pleadings and deadlines for their submission or the possibility of using private court experts, whose finding, remuneration and meeting of the deadline the party referring to such evidence is responsible for.

In practice, arbitration proceedings are also cheaper than court proceedings. This is caused by the relatively low level of fees and tariffs in Polish arbitration courts – and such choice is made by the general contractor in accordance with the conditions of contract. At the same time, the costs of legal representation will generally be lower due to the shorter and less formal nature of the proceedings.

Additionally, unlike the generalist model of the preparation of the judges of the Polish common courts, outstanding professionals are usually responsible for settlement of disputes in arbitration courts – both lawyers and engineers – who are generally chosen in accordance with the autonomous will of the parties to the proceedings. Such solution usually eliminates the need to seek expert advice that is often very expensive and leads to drawn-out proceedings, while allowing for a comprehensive and thorough resolution of the case.

It is worth pointing out that in accordance with the Polish Civil Procedural Code, after the court has recognized an arbitration award or has declared its enforceability, the arbitration award is legally binding as the judgment of the common court. Such a solution provides in principle a useful tool for the prompt institution of the enforcement proceedings.

Taking into account the above, it can be stated that arbitration constitutes an extremely attractive alternative to the common courts, especially for the road construction industry, which in recent years has become one of the most important areas of Poland’s economy. The return of arbitration as a preferred dispute resolution method to the model conditions of contract applied by GDDKiA will certainly have a positive impact on the efficiency and effectiveness of the disputes – between the public investors and general contractors – which are inevitable in this industry.

Copyright 2017 K & L Gates

TRENDING LEGAL ANALYSIS


About this Author

Lukasz Gembis, KL Gates, Warsaw, public procurement lawyer, commercial arbitration attorney, Poland
Associate

Łukasz Gembiś is an Associate in the Warsaw office's Dispute Resolution Practice. His practice focuses on commercial and construction litigation (i.a. the FIDIC contracts), public procurement law, as well as commercial arbitration. His practice also includes regulatory matters, criminal litigation and corporate disputes.

48-22-653-4280