Skip to main content
International Arbitration Forum

Entes Industrial Plants Construction & Erection Contracting Co Inc v Kyrgyz Republic

Case summary

At a glance

Parties
Entes Industrial Plants Construction & Erection Contracting Co. Inc. (Turkey) v. the Ministry of Transport and Communications of the Kyrgyz Republic (enforcement proceedings against the Kyrgyz Republic)
Forum and rules
UNCITRAL Arbitration Rules 1976, ad hoc; seat Bishkek. PCA Secretary-General designated Jan Paulsson as appointing authority
Treaty
Contract clause: Clause 67.3 GCC (FIDIC Civil Engineering Conditions) as modified by Clause 67.3 CPA; Kyrgyz law governs
Tribunal
Michael E. Schneider (Presiding Arbitrator), Turgut Öz, Sergei Lebedev
Sector
Construction; road rehabilitation (Bishkek–Osh Road)
Outcome
Claims upheld in part by unanimous Final Award of 29 September 2015, mainly for prolongation costs. Six smaller claims were dismissed. The Ontario courts recognised the Award but held that Centerra shares held by Kyrgyzaltyn cannot be seized to satisfy it.
Amount
Claimed (Post-Hearing Brief): USD 24,195,975.18 for prolongation costs, plus other claims. Awarded: USD 16,275,156.88 (prolongation costs), USD 59,506 (interest on late payments) and USD 53,968.71 (guardrails), with interest at one-month LIBOR plus 2% from 13 May 2006. The Ministry must also pay USD 225,000, its share of the deposit, and each party bears its own costs.
Court
Ontario Superior Court of Justice (Conway J.); Court of Appeal for Ontario; US District Court for the District of Columbia (petition)

The dispute

On 30 August 1999 Entes, a Turkish contractor, signed a contract with the Kyrgyz Ministry of Transport and Communications to rehabilitate two sections of the Bishkek–Osh Road. The contract price was USD 43,839,882 plus VAT, and the project was funded by a loan from the Overseas Economic Cooperation Fund of Japan. The works were due for completion on 3 December 2002 but finished only on 12 October 2005, 1,043 days late. The causes included design changes, additional works, late instructions, winter shutdowns and the 2005 "Tulip Revolution". The Engineer (Japan Overseas Consultants) accepted all 1,043 days as excusable delay, but found only 153 of them compensable and certified about USD 1.16 million. Entes claimed further prolongation costs and other items under the contract and the Kyrgyz Civil Code. The Ministry argued that the claims were time-barred, that notice had not been given in time, that some claims fell outside the arbitration clause, and that the claims were unsubstantiated.

Key holdings

  1. The claims were not time-barred under the three-year limitation period of the Kyrgyz Civil Code. The Contractor's rights were violated by the Engineer's Determination, notified on 18 May 2006, and the Notice of Arbitration of 15 January 2009 came within three years of it. Award ¶ 179
  2. Failure to give the 28-day notice under Clause 53.1 GCC does not bar the claims. Under Clause 53.4 GCC they may be awarded only to the extent they are verified by contemporary records. Award ¶¶ 185–186
  3. Prolongation costs must be measured by actual costs, not by the contractual Daywork rates. Because the delay was critical to the whole project, the cost of all resources on site counts, and the Respondent's expert's "bottom-up" method was rejected. The Tribunal deducted USD 1,508 per day for profit and overheads in the market rates for the Contractor's own plant, and an abatement of USD 1,980 per day where the delay arose from paid variations. Award ¶¶ 252, 267, 306, 355
  4. Delay caused by additional works and by the 2005 political unrest (a Special Risk under Clause 65 GCC) is compensable. The EOT 2 claim failed for lack of proof of critical delay. Winter breaks are compensable only where compensable delay drove the works into them: the 2002/03 and 2004/05 winters qualified, the 2003/04 winter did not. Total prolongation costs were USD 17,437,027.07, less USD 1,161,870.19 already paid, leaving USD 16,275,156.88. Award ¶¶ 400, 462, 520, 525, 528, 567
  5. The Tribunal allowed interest on late payments of USD 59,506 and USD 53,968.71 for guardrails (measured by full installed length, at USD 20 per metre above 32.8 km). It dismissed the claims for VAT, road and emergency tax, equipment damaged during the unrest, Interakt, the road grader and JASU, some of them as time-barred. Contractual interest at one-month LIBOR plus 2% replaces the Kyrgyz statutory regime, so the 5% fine does not apply. Award ¶¶ 593, 658, 757–759, 779
  6. Costs: the Claimant recovered about two thirds of what it claimed, but many of its claims failed and it changed its position at the hearing. The parties therefore share the arbitration costs equally and bear their own costs. The Ministry must reimburse USD 225,000 of the deposit advanced by the Claimant. Award ¶¶ 773–778
  7. Ontario recognised the Award as a judgment of the court. The Republic's public policy defence failed: its arbitration counsel had given expert evidence in another enforcement case, but this was not the kind of serious misconduct the defence requires, such as fraud or corruption. The Republic was ordered to pay $35,000 in costs. 2016 ONSC 7221 ¶¶ 5–7
  8. The Republic has no exigible interest under s. 18 of the Execution Act in the Centerra Gold shares registered to Kyrgyzaltyn JSC. Under the Agreement on New Terms (governed by New York law), Kyrgyzaltyn unambiguously owns the shares, and there is no express or resulting trust for the Republic. The Court of Appeal dismissed the appeals, applying the standard of palpable and overriding error. 2016 ONSC 4506 ¶¶ 45, 59–60, 67; 2016 ONCA 981 ¶¶ 26, 51, 58–61

Procedural history

  1. 30 August 1999Construction contract concluded.
  2. 18 May 2006The Engineer's Determination certifies part of the Statement at Completion. The Engineer's Decision of 16 October 2006 confirms it, and Entes gives notice of intention to arbitrate on 22 December 2006.
  3. 15 January 2009Notice of Arbitration sent to the Ministry.
  4. 22 December 2009Constitution of the Tribunal completed and procedural directions issued.
  5. 18–21 October 2011Evidentiary hearing in Bishkek; the Claimant's witnesses are heard by video link.
  6. 29 September 2015Unanimous Final Award, announced by video conference.
  7. 11 July 2016Ontario Superior Court refuses to declare that the Republic has an exigible interest in the Centerra shares held by Kyrgyzaltyn.
  8. 16 November 2016Ontario Superior Court recognises the Award as a judgment and rejects the public policy defence.
  9. 29 December 2016Court of Appeal for Ontario dismisses the appeals on the Centerra shares.
  10. 26 September 2018Entes petitions the US District Court for the District of Columbia to confirm the Award against the Kyrgyz Republic under the New York Convention, arguing that monthly compound interest has brought the amount due to nearly USD 2 billion. The published documents do not show the outcome.

Tribunal, counsel and experts

Decided by
For the claimant
Akinci Law Office · Chaffetz Lindsey LLP · Robert Wisner · Stephen J. Brown-Okruhlik
For the respondent
Partner Law Firm · R. Aaron Rubinoff · Joël M. Dubois · John A. Siwiec
For other participants
Matthew J. Latella · Christina Doria · Matt Saunders
Experts
William Kennedy (claimant) · Bryn G. Wiseman (claimant) · John Marshall (respondent) · George Taft (respondent) · Alexander Hamann (tribunal)

Run a conflict check on these names →

Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

Country
Economic sector
Outcome
In favour of Investor