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Dispute Resolution in Poland Issues and new developments in dispute resolution in Poland.

Resolving and avoiding construction disputes – ‘constructively’

morek Posted in Arbitration, Investment Arbitration

I am one of tens or perhaps even hundreds of thousands Poles whose professional lives are strictly related to the fact that Poland has earned the fame of being the largest “construction site in Europe”. As an attorney it is my bread and butter to work with construction firms as their legal advisor and counsel. From time to time, I have an opportunity to look at similar cases from different angles as an independent arbitrator or a mediator. My experiences, apart from the particularities of individual cases, are not always ‘constructive’. I gnash my teeth every now and then when I see how often construction disputes are indeed resolved – ‘unconstructively’. Examples are multiple; many will be shared and discussed in future posts on this blog.

To begin with, I have chosen a topic that is important and current (for reasons to be revealed at the end of this post), and more importantly illustrates some fundamental drawbacks of a systemic nature. The topic is known in the engineering / construction law community under the acronyms DAB/KRS. If this brings to mind associations of a popular 1980s Polish reggae band or the registry courts, rather than of the construction practice, it confirms my fear that the topic has been gravely and undeservedly neglected and abandoned in Poland.

Domestic “adaptations” of FIDIC Conditions (separate from other model contracts), promoted mainly by public employers, in most cases resigned from – internationally highly valued – mechanisms supporting effective pre-arbitration or pre-litigation dispute resolution. In international settings, such mechanisms are known under different names as: Dispute Review Boards (DRB), Dispute Adjudication Boards (DAB), Combined Dispute Boards (CDB), or simply as mediation or other ADR (Alternative Dispute Resolution). Their purpose and benefits come down to ‘constructive’ resolution of disputes which unavoidably arise when a contract is underway, by an employer and a contractor, with the minimum necessary time and costs, and with participation of a panel of professional and independent experts who are appointed for the duration of a contract or ad hoc.

In most cases, such a process may lead to the parties’ consent and agreement. If this cannot be achieved, the process will end with a ‘recommendation’ or ‘a decision’ of the panel. Its legal character may be diverse, however, it never closes the door to court or arbitral proceedings. While in some instances they appear more akin to mediation, in others they are more like quasi-arbitration. Such variety fits well with the flexibility and individually adoptable (‘tailed-made’) character of ADR.

Resolving disputes ‘in real time’, i.e. immediately after they arise during the contract time, is particularly important for construction practice. It is well know that sometimes even apparently trivial problems, related to limited scope of works etc., may evolve and result in far-reaching and devastating consequences. They tend to engage more than two parties and the contract between them (multi-party & multi-contract disputes).

There is plenty of empirical evidence that confirms the high effectiveness of such early dispute resolution schemes. According to Dr. Cyril Chern, member of the Advisory Panel of the Dispute Board Federation, “the statistics show that if there is an operational Dispute Board in existence on a project, close to 99% of all disputes referred to it will be successfully resolved within less than 90 days and at a cost of about 2% of the amount of the dispute” (C. Chern, The Dispute Board Federation and the Role of Dispute Boards in Construction – Benefits without Burden, Revista del Club Español del Arbitraje, Volume 2010, Issue 9, p. 5).

The Dispute Boards were first introduced and developed in the 1970s in the US. The first broadly discussed case was the Eisenhower Tunnel in Colorado. This successful model was replicated e.g. in the projects related to the Mount Baker Ridge Highway Tunnel (Seattle, Washington) and the Chambers Creek Tunnel (Tacoma, Washington). Soon thereafter, Dispute Boards began operating internationally. In 1995 FIDIC first introduced the concept of a dispute board into its contracts in its conditions of contract for design-built and turnkey projects (the ‘Orange Book’). In the very same year, the World Bank made DRBs mandatory for all IBRD-financed projects over US$50m. In 1997 the Asian Development Bank and EBRD followed with similar decisions. Since 2000 the AAA provides its services in respect of Dispute Boards, and the ICC since 2004. They were followed by a number of smaller arbitral institutions.

The list of investment projects, including those well known also to the general audience in which Dispute Boards were effectively used, is long and still expanding. Just as a few examples include:

  • the Hong Kong Airport Project, one of the largest hubs;
  • the Ertan Project, the hydroelectric power plant involving a dam, tunnels and an underground power house complex, in Sichuan Province, China;
  • the Channel Tunnel Rail Link Project in the United Kingdom.

It is much preferable to prevent disputes or their escalation than to resolve them. It is better to ‘avoid’ than to ‘cure’. Thus far, those catch phrases (however true indeed!) have not gained much recognition in my homeland, Poland. The standard is very low and simplistic. In most cases, it comes down to the choice of a common court that is competent for the seat of the employer. Is there a chance for change? Time will tell. Some circumstances appear to support such change.

On April 26-27, 2012, for the first time, Poland will host the international conference “FIDIC Contracts” organized under the well-established aegis of the “FIDIC CEE Users’ Conference”. The conference is organized by the Court of Arbitration at the Polish Chamber of Commerce, together with the Fédération Internationale Des Ingénieurs–Conseils with the support of the Polish Association of Consulting Engineers and Experts and K&L Gates. Undoubtedly, this presents a superb opportunity to discuss whether the role of dispute avoidance and early dispute resolution mechanisms could be enhanced. Hopefully, it will also create some constructive climate for significant change.