FIDIC-related disputes in Ukraine: judicial practice and legal implications

Concluding construction contracts based on the standards of the International Federation of Consulting Engineers (FIDIC) remain uncommon in Ukraine. A few large-scale infrastructure projects that were undertaken before the war, however, did use these templates. Due in part to the unfamiliarity of contracting parties and authorities with FIDIC provisions, the disputes that do arise often present unique legal and procedural challenges within the Ukrainian jurisdiction.

When such disagreements escalate, they are frequently subject to arbitration regimes prescribed by the contracts. The selected cases examined in this article, however, illustrate rare instances in which FIDIC-related disputes have been brought before Ukrainian courts, offering insight into how local judicial bodies interpret and apply these internationally recognised contractual frameworks.

In an environment where local regulations and established practices often deviate from FIDIC’s requirements, particularly in areas such as cost adjustments, taxation consequences, and termination clauses, these cases underscore the complex interplay between national law and the provisions of standard construction forms. While each dispute has its own background, together they share common themes: the management of contractual risks, the enforceability of international obligations in the face of domestic legal constraints, and the balancing act between lenders’ requirements and state budgeting processes. As these disputes progress through various judicial levels, including Ukraine’s Supreme Court, they highlight both the opportunities and challenges that accompany the adoption of international contract standards in a developing legal market.

By examining the arguments raised by contractors, state agencies, and the courts, this overview provides a comprehensive lens through which parties engaging in FIDIC-based undertakings in Ukraine may better appreciate the judicial treatment of key contractual provisions.

Case 1: Adjustments for changes in costs under FIDIC contract (Yellow Book, 1999) questioned by the State Audit Service of Ukraine

This case involves the Municipal Enterprise "Dniprovskyi Metro" of the Dnipro City Council (plaintiff) against the Eastern Office of the State Audit Service, an agency responsible for overseeing public finances (defendant). The dispute arose from a scheduled audit of the Dnipro Metro’s financial and economic activities, which resulted in a demand for reimbursement of approximately EUR 11 million in alleged state budget losses incurred during metro construction between 2017 and 2020. The plaintiff challenged the legality of this demand, arguing that the terms of the FIDIC contract had not been properly considered.

The construction was financed through loans from the EBRD and EIB provided to the Ukrainian government, which in turn granted a subvention to the plaintiff, who acted as the employer. The contractor was a Turkish company from the Limak Group.

Case number: 160/12986/21

State Audit Service’s argument

The agency argued that the plaintiff violated Ukrainian legislation by failing to adhere to national standards (DSTU) and other domestic regulations. It concluded that the adjustments made to the contract price contravened Ukrainian laws, specifically DSTU B D.1.1-1:2013 “Rules for Determining the Cost of Construction” and Cabinet of Ministers Resolution No. 668 of 01 August 2005, which sets out general terms for construction contracts. These rules are mandatory for state and municipal construction projects.

Dniprovskyi Metro’s argument

The plaintiff asserted that the contract terms allowed for cost adjustments and included a relevant cost indexation schedule. It argued that DSTU standards and related regulations were not mandatory in this instance due to the use of FIDIC contract terms, which should take precedence.

Furthermore, the plaintiff maintained that the loan agreements between the EBRD/EIB and the Ukrainian government—each ratified by law—constituted international agreements that prevail over national legislation. These agreements required the use of FIDIC contract terms for the project.

Conclusion

The Supreme Court upheld the parties’ right to agree on and implement price adjustments under a FIDIC contract. Its decision highlighted the complex interplay between international agreements and domestic legislation. The case underlines the importance of aligning publicly funded construction projects with both international and national legal frameworks. Parties to similar contracts should consider enhancing price adjustment clauses to explicitly exclude the application of statutory regulations that restrict changes to construction budgets.

Case 2: Analysis of FIDIC contract terms in the Supreme Court’s VAT decision

The State Tax Service failed to apply specific regulations concerning VAT liabilities under a FIDIC contract, although the contract was of a long-term nature. The Supreme Court decisions relate to disputes between the State Tax Service (defendant) and a Turkish company from the Onur Group (plaintiff). The disputes concern several road construction agreements, two of which were concluded between Ukravtodor (State Road Agency of Ukraine) and the plaintiff using FIDIC proformas.

The case focused on interim payments under long-term contracts, the legality of VAT assessments applied to those payments, and a fine of approximately UAH 6 million (EUR 128,000) for delayed tax invoice registration.

Case numbers: 380/13261/23 and 380/18012/23

State Tax Service’s argument

The Tax Service, which lost in lower courts, argued that the courts misapplied the Ukrainian Tax Code, it asserting that agreements between Onur JSC and its counterparties were not long-term contracts as defined by the Tax Code. The agency maintained that the staged nature of the work required the declaration of VAT liabilities on each payment.

Relying on the Public Procurement Law No. 922-VIII, the defendant argued that the agreements, covering multiple road sections, should be considered as made up of multiple deliverables, thus disqualifying them from treatment as long-term contracts for VAT purposes.

Onur’s argument

Onur JSC maintained that the agreements were based on FIDIC forms and qualified as long-term contracts under Article 187.9 of the Tax Code. Hence, VAT liabilities should arise upon the actual transfer of completed works, evidenced by Taking-Over or Performance Certificates (sub-clauses 10.1 and 11.9 of the FIDIC Red Book).

Onur also emphasised that the contract's special provisions explicitly excluded partial or section-based acceptance, which is otherwise permitted under Clause 10.2 of FIDIC.
The court noted that international financing projects must follow procedures of the respective institutions and not domestic procurement law.

Conclusion

The Supreme Court upheld the lower courts’ rulings, recognising the contracts as long-term and subject to special VAT treatment. The tax notice-decisions were declared unlawful, and the fine was annulled.

Given the significant financial implications, parties to FIDIC-based contracts should assess their agreements carefully to determine if they meet the criteria for long-term contracts under Ukrainian tax law.

Case 3: Termination due to force majeure and the arbitration clause (Clauses 19.6 and 20.6, FIDIC 1999 Red Book)

This case concerns the reconstruction of the M-05 Kyiv–Odesa highway, contracted by the State Agency for the Restoration and Development of Infrastructure to Onur Taahhut following a public tender. The project was based on the 1999 FIDIC Red Book and financed by EBRD and EIB loans, with VAT covered by the Ukrainian state budget.

The dispute, concerning over UAH 1 billion (EUR 21.2 million), initially saw the Commercial Court of Kyiv rule in favour of the plaintiff. The appellate court reversed this, however, dismissing the claim. The case is now before the Supreme Court.

Case number: 910/3022/24

Plaintiff’s argument

Onur Taahhut terminated the contract on 23 December 2022 due to force majeure (i.e. Russian invasion, martial law, and prolonged work suspension). The engineer (Dohwa Engineering) confirmed the validity of the termination and issued a final payment certificate for EUR 21,246,165.07 (plus VAT). Onur claimed that the defendant failed to pay for completed works as certified.

Defendant’s argument

The agency claimed that, following the cancellation of EBRD/EIB funding, no funds were available, and the contract lacked state budget support. It also invoked the arbitration clause, arguing that the dispute should be resolved under ICC arbitration rules, not by Ukrainian courts. Additionally, the agency challenged the sufficiency of Onur’s documentation and translations.

First instance court’s reasoning

The court ruled in favour of the plaintiff, citing:

• Valid termination under Clause 19.6.
• The final certificate as conclusive evidence of payment due.
• ECHR case-law rejecting “lack of funds” as a defence for non-performance.
• Arbitration clause lacked specificity to override domestic jurisdiction.
• Procedural objections were not raised in a timely manner.

Appellate court’s reasoning

The appellate court reversed the decision, holding that:

• The arbitration clause was valid and enforceable under ICC rules.
• The defendant raised objections based on Article 226 of the Commercial Procedure Code in a timely fashion.
• Onur failed to provide sufficient primary evidence.
• Lack of financing rendered payment obligations budgetary and conditional on allocation.
• Evidence submitted (e.g. translations) did not meet legal standards.

Conclusion

This case illustrates the legal tension between force majeure claims, payment enforcement, and arbitration clauses in FIDIC contracts. While the lower court prioritised contractual fairness and performance certification, the appellate court focused on strict compliance with arbitration clauses and evidentiary standards. The Supreme Court must now reconcile these views and clarify the approach to FIDIC dispute resolution in Ukraine.

For more information on regulations in Ukraine’s construction sector, contact your regular CMS advisor or local CMS experts: Natalia Kushniruk, Mykhaylo Soroka, Maksym Morozov.