How dispute boards can help Ukraine rebuild quickly

To build back better in Ukraine, which is an essential requirement for international donors and funders helping Ukraine, a swathe of large-scale infrastructure projects will need to be delivered at speed. Delivering the scale of new housing, schools, hospitals, road and rail networks, energy infrastructure, industrial facilities, and other new infrastructure needed in Ukraine, will take an international effort over decades and, we think, cost more than $1 trillion.

The size of the task is enormous and the risk of things going wrong is significant given the complexity of the projects and the involvement of multiple stakeholders from different jurisdictions. There are, though, opportunities for international contractors and developers to help Ukraine – its people, its industry, its economy at large – recover, provided that they can address risks. One of those risks is around disputes. The operation of dispute boards offers a potential solution.

Where disputes arise on major projects, it can lead to a breakdown in working relationships and entrenched positions being taken on matters that require collaboration. It can ultimately cause delay in the performance of works and add cost to those projects. Significant delay could make projects unviable for developers, contractors and/or funders, and would further have both a significant human impact and have an economic cost to Ukraine, which already faces great challenges in restoring and modernising its economy from a war state.

Dispute risk can arise in many forms on major infrastructure projects, particularly where the projects are large and complex, involve multiple parties from different countries, and require speedy delivery.

Disputes can stem, for example, from insufficient planning and design work, the commencement of construction works before the design phase has been completed, and inadequate cost estimations in budgets leading to cost overruns. Disputes are also a feature of poorly managed joint venture (JV) arrangements, which will be vital to infrastructure delivery in Ukraine: disputes commonly arise from poor communication between JV partners, from their disagreement over responsibilities for carrying out works or over funding and other resourcing, and from JV partners’ tendency to retreat into organisational silos or engage in defensive and adversarial behaviour when relations sour.

There is also potential for disputes pertaining to project finance. Funders have a desire to see a fixed budget for projects, so they can understand and value their risk exposure accordingly in loan pricing, but there is a natural tension between that desire and the adoption of collaborative contracting models, which offer real potential in terms of incentivising good performance and sharing risk in the context of rebuilding Ukraine but which are less prescriptive over the way works are to be performed and therefore offer less cost certainty at the outset.

How dispute boards can help

Dispute boards offer a solution in the context of Ukraine’s major rebuild programme, where large and complex projects present the risk of disputes arising.

A dispute board is a contractual form of dispute resolution procedure increasingly being promoted by standard form construction contracts and institutions. It typically consists of one or three members, whose powers to resolve disputes are set out in the contract or relevant dispute board rules. The dispute board may be formed on an ‘ad hoc’ basis when a dispute arises, or at the outset of a project as a ‘standing’ dispute board.

Dispute boards have traditionally fallen into one of three broad categories:

• a dispute review board (DRB), which issues informal advice and non-binding recommendations;
• a dispute adjudication board (DAB), which issues binding decisions;
• a combined dispute board, which carries out both functions.

Dispute boards have been used for years as procedures for enabling issues between parties to major infrastructure projects to be speedily raised and resolved before they get to the point where they would need to be referred to an arbitral tribunal or court.

It has been increasingly common for dispute boards to be included in contracts for the delivery of major nuclear projects in Europe, where quick resolution of issues is absolutely essential – should formal disputes arise and lead to a delay in works, it can cause significant increases in projected capital or operational expenditure and, in those circumstances, jeopardise projects in meeting their objectives.

Dispute boards are also commonly provided for in World Bank-funded energy and infrastructure projects in Africa; in long-term public private partnership (PPP) or private finance initiative (PFI) contracts; and have been important pillars in enabling the delivery of infrastructure necessary to help countries host the Olympic Games.

As well as dispute boards being promoted and provided for by FIDIC, NEC and other bodies behind standard form construction contracts, major arbitral institutions have adopted rules providing for their operation. Their use in resolving and, more importantly avoiding, disputes is gaining significant traction in the industry.

At the ICC infrastructure and dispute resolution conference in Belgrade in November 2024, there was a recognition of disputes boards as a modern form of, and important procedure for, dispute resolution – and a real call to arms for stakeholders involved in major projects to make use of them.

In recent times, we have seen the remit of dispute boards expanding beyond the traditional scope of advisers and decision-makers to reflect the complex challenges that parties can face when delivering major projects. In the context of Ukraine, it can therefore be envisaged that dispute boards could be an effective forum for monitoring compliance with ESG matters or for policing against corruption risk.

Dispute boards are, however, often thought about in respect of single projects – not in the context of such a major undertaking as the rebuilding of Ukraine’s built environment, which will entail a plethora of large, complex, and very different types of projects. It is one thing for parties in one project to select an expert or panel of experts to sit on a dispute board; it is quite another matter to ensure resourcing and proper governance of that resourcing for dispute board panels across a mega-project the size of the rebuild programme in Ukraine.

Whatever dispute resolution model is favoured, the Ukrainian authorities will need to ensure it leads to speedy resolution of issues. One of the advantages of the statutory adjudication regime in the UK is that decisions are made quickly that parties can comply with, enabling projects to remain on-track and avoid lengthy delays that present a threat to cash flow.

An option that Ukrainian authorities could consider, if it does not favour the dispute boards model, is the establishment of a specialist court to handle cases specific to the rebuild programme. Specialist judges would be appointed to resolve disputes in areas where they have some expertise, but parties would not have a say on their appointment.

Potential complications could arise in respect of who is appointed to the list of judges, however – multilateral development banks and other regional financial institutions, which will likely play a major role in delivering the finance necessary to underpin redevelopment in Ukraine, may want a say, as well as the Ukrainian authorities. Concerns over judicial independence may also need to be considered – proposals for a new court for resolving investment disputes in the EU have so far stalled due to concerns that EU member states would appoint, and pay the salaries of, the judges that would sit in court to hear complaints from investors about the actions of those states.

An uptick in investment treaty arbitrations is likely

Investment disputes are another form of dispute we are likely to see arise in the context of Ukraine’s rebuild programme, with scope for foreign investors to recover fair market value for what they have lost because of unfair or discriminatory conduct of the state, under international investment treaties.

By raising investment claims, investors can have their case heard and adjudicated on by a neutral tribunal, and not the courts of the state they have raised claims against. They can provide investors with scope to recover more damages than they can obtain under contractual claims against counterparties. Ukraine is a party to many bilateral investment treaties – including with Turkey, Germany, and France, among other countries where international contractors that could be engaged on rebuild Ukraine projects are based.

Investment claims could arise from, for example, the operation of unpredictable, non-transparent legal frameworks, or from a shifting of the goal posts midway through a project – such as through alterations to regulations or removal of investment incentives, such as tax breaks. We have also seen foreign investors raise claims of discrimination under investment treaties because they feel they are treated differently from other investors – including because of their nationality. More broadly, where actions by the state run contrary to the legitimate expectations of foreign investors and this amounts to unfair or arbitrary treatment, there may be grounds for a claim under investment treaties.

Investment claims often go together with contractual claims, though they typically lag behind and are commonly seen as an option of last resort in the event other efforts at obtaining redress fail. That said, such is the scale and nature of development expected in Ukraine, there will inevitably be an increase in the number of commercial disputes, and we expect this will result in an uptick in the number of investment treaty arbitrations arising from projects in Ukraine in the years ahead.

It is important investors exploring opportunities in the context of rebuilding Ukraine check what treaties there are in place and the protections they provide. Not all treaties are created equal – some have better protections than others. Further, some treaties may be signed but not in force, such as the Ukraine-Turkey bilateral investment treaty. Other bilateral investment treaties like the Italy-Ukraine bilateral investment treaty may be terminated. There may be ways for investors to structure their participation or investment in Ukraine via a holding structure in another jurisdiction to ensure they are protected under an investment treaty. To benefit from investment treaties, investors must change their corporate structure before a dispute with the state is foreseeable.