The Ukrainian city broke the contract with the Polish company and seized the guarantees. Court: this is lawlessness
The matter became famous after the letter from the mayor of Lviv, Andriy Sadowy, to Prime Minister Donald Tusk in August last year. Sadowy called on the Prime Minister to intervene. He complained about the Polish contractor of an important investment for the city, wrote about the delay in implementation and that it was a “test for further Ukrainian-Polish economic partnership.”
Waste processing plant it was to cost a total of EUR 36.6 millionfor which funds were provided by the European Union and the city. Of this amount The European Bank for Reconstruction and Development provided a loan of EUR 10 million and a loan of EUR 14.5 millionso the contract operated on international procedures. According to the Lviv authorities, the contractor delayed putting the investment into operation and, contrary to the contract, did not allow contractors sent by the city to carry out the construction. The truth turned out to be different. This is the result of the decisions in subsequent arbitrations, which Lviv loses. The authorities of the Ukrainian city are reacting nervously.
A series of court victories
This concerns the construction of a waste processing installation in Lviv and an agreement between the municipal company LKP “Zielone Miasto” (the ordering party) and the Polish company Control Process (the contractor). The project is one of the largest environmental investments carried out with the participation of Polish contractors in Ukraine and was intended to relieve Lviv of the costs of transporting garbage far outside the city after the city landfill exceeded the standards.
The interior of the plant built by Control Process in Lviv
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Control Process / Control Process
The Polish company has just won its seventh hearing before a FIDIC arbitrator (International Federation of Consulting Engineers) regarding this investment. And instead of serving the inhabitants of Lviv and reducing their bills, it is waiting for further court decisions.
The last decision in favor of the Polish company was announced on April 5 by arbitrator Anthony Edwards, acting as part of the Dispute Adjudication Board (DAB). It was established in accordance with FIDIC rules by the president of this institution, Alfredo Ingletti. The arbitrator was not rejected on time by any of the parties to the dispute, although in the proceedings itself the authorities of Lviv and “Zielone Miasto” ultimately refused to participate, questioning its jurisdiction.
What did the arbitrator find?
The arbitration showed that termination of the contract by Lviv on March 23 this year. was unlawful and is invalid. Lviv even pointed to attempts to block the activation of the guarantee, including an attempt to block guarantee payments in arbitration at the International Chamber of Commerce (ICC) in Paris, as one of the reasons for terminating the contract. Yes, yes, despite unfavorable arbitration decisions indicating that delays were due to his actions, not the contractor's, and to non-paymentLviv decided to terminate the contract, but also activated one of the bank guarantees from ING Bank Śląski (EUR 3.7 million paid to Lviv on March 4). The Polish company did not manage to block the payment in court.
Page 1 of the arbitrator's decision in the case of Control Process vs. Lviv of April 5, 26
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Control Process
Meanwhile, according to the referee, this is exactly what it is activation of the guarantee by Lviv violated amendment No. 8 to the contract and was contrary to the previous DAB decision. The Polish bank had to pay out the guarantee, but Lviv used it illegally – this is what the arbitrator said. Moreover, Lviv did not pay the Poles EUR 4.6 million in accordance with the previous DAB judgment and EUR 2 million for delays.
The contractor employs over 700 employees. It is unable to independently finance an infrastructure project worth EUR 34 million when the Ordering Party withholds over EUR 6 million in adjudicated and certified amounts and at the same time invokes the Contractor's bank guarantee
– we read in the arbitrator's decision.
It was further stated that the works were suspended by Control Process legalresulted from non-payment and non-implementation of DAB decisions, and it did not constitute a breach or basis for termination of the contract. As Control Process representatives unofficially guess, the purpose of terminating the contract is probably to move the arbitration to Kiev instead of to Paris, where the case will ultimately be heard.
Will Poles return to construction?
Lviv's correction notes concerned, according to the arbitrator, issues that had already been resolved or were sub judice, i.e. beyond public discussion as a result of court decisions, and were based on unrealistic deadlinesthereby violating amendments No. 8 and No. 9 to the contract. They are because of this Never mind and could not constitute grounds for terminating the contract. It was also pointed out that there were problems with registering documentation in the Ukrainian system they cannot charge the contractor (more on this below when discussing support from NABU).
Read also: The defeat of Lviv in a dispute with a Polish company. A devastating verdict, the Ukrainian anti-corruption bureau supports Poles
Lviv did not return the guarantee. However, as a result of the decision, the Poles are to continue working on the construction site. The construction site on the Polish side is close to completion. Control Process is only waiting for the work on the Ukrainian side necessary to close the investment to be completed.
— The decision clearly indicates that the ordering party's actions aimed at terminating the contract were unlawful, and the termination of the contract itself is invalid. The referee also confirmed that the ordering party is responsible for delays in project implementation [miasto Lwów — red.] – Krzysztof Chabier, project director from Control Process, tells Business Insider.
The Dispute Adjudication Board (DAB) is an independent body that resolves disputes in international construction contracts. Its decisions are binding and subject to immediate execution in accordance with the terms of the contract.
The decision also provides for: obligation to pay the contractor receivables under the contract in the amount of approximately EUR 6.8 million.
The project continues, the contract remains in force
All this means that the contract remains in force and should continue to be implemented. The contract concerns the construction of a mechanical-biological municipal waste processing (MBT) installation for the city of Lviv and was concluded in 2021 after an international tender procedure in accordance with the rules of financing institutions. Unofficially, we learned that the favorite of the city of Lviv was another company, but after the appeal, the Poles won.
The plant is currently approximately 95 percent complete. and is in the final stage of implementation, the company reports. The degree of its readiness is also visible to the naked eye in the photographic documentation sent.
The plant in Lviv built by Polish Control Process is waiting for launch
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Control Process / Control Process
NABU on the side of the Polish company
The National Anti-Corruption Bureau of Ukraine (NABU) also got involved in the case and sent an official state expert (Kirylo Yuriovich Uskov) to investigate the matter. And this one found serious violations.
His expert opinion clearly stated that the design documentation for the construction of the plant was illegally divided into three stages (construction phases) and introduced into the State Electronic Construction System in a manner contrary to Ukrainian regulations.
The interior of a waste treatment plant in Lviv
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Control Process / Control Process
“The artificial division into three stages was not of a technical nature, but of a formal and administrative nature and aimed to circumvent the building permit system and create the basis for the implementation of works by third parties.” – said the expert.
The city authorities argued that the Polish contractor would not allow companies selected by Lviv to enter the construction site. But he couldn't let them in, because in the contract he was responsible for those parts of the construction.
Paweł Kowal's office: we intervened
The investment is financed by European institutions, including the European Union and European countries, including Poland, with the participation of the European Bank for Reconstruction and Development, which supervises the use of these funds. We asked the government's Council for Cooperation with Ukraine whether it responded to Lviv's actions.
“The case has been known to the Chairman of the Council for Cooperation with Ukraine, Paweł Kowal, for two years. The Polish contractor, like other entrepreneurs who found themselves in a difficult situation, received support – in some areas it turned out to be effective. Chairman Paweł Kowal intervened in this matter with representatives of the highest authorities of Ukraineinformed the relevant institutions in Poland about its condition, and supported talks leading to an amicable resolution of disputes surrounding the investment. He also remains in contact with the entrepreneurs who run it, we read in the response.
“In practice, the manner of implementing the issued decision will be a signal to financing institutions regarding the level of investment security on the Ukrainian market,” we read in the Control Process commentary. “Control Process remains ready to continue and complete the project and launch it for the residents of Lviv,” it added.
– Our goal is to complete this investment and put it into use for the residents of Lviv – Wojciech Wiatr, president of Control Process, tells Business Insider. – The project is already at the final stage of implementation and we are ready to complete it efficiently in accordance with the applicable contract – he sums up.
Author: Jacek Frączyk, editor of Business Insider Polska
