The Paris examination found the termination of the contract with Rosatom by the Finns unlawful

The Dispute Review Board (DRB) at the International Chamber of Commerce in Paris (International Chamber of Commerce, ICC) declared unlawful the actions of the Finnish company Fennovoima Oy to terminate the contract with Rosatom for the construction of the Hanhikivi-1 nuclear power plant in Finland, reported the Russian state corporation on December 15.

DRB also recognized the illegality of the Finnish company’s statements about the refusal to accept the work performed by RAOS Project Oy (part of “Rosatom”) as a supplier under an EPC contract.

A press release from Rosatom notes that the DRB found that the illegal termination of the contract by Fennovoima constituted a material breach of the terms of the contract. This gives RAOS Project the right to claim damages from Fennovoima, the state corporation said.

DRB is a non-profit organization dedicated to promoting dispute prevention and resolution. The mechanism for applying to the DRB is provided by the contract between Fennovoima and RAOS Project. The working procedure of the independent expert body DRB is determined by the rules of the ICC.

The amount of damage will be determined in the course of additional proceedings, the state corporation explains. The release states that the unilateral decision of the Finnish shareholders of Fennovoima to terminate the contract came at a time when the project was showing significant progress. “In early 2022, Fennovoima representatives made public statements that the licensing process was “at the finish line”, the transfer of licensing documentation to the Finnish regulator to assess the possibility of issuing a construction license was planned to be completed in the coming months; in parallel, work was actively carried out at the construction site to ensure readiness for the start of full-scale construction,” Rosatom notes.

Rosatom emphasizes that the DRB conclusion was issued by an “independent panel of recognized international experts” and expresses a “balanced and objective position” in relation to the Hanhikivi project. “Rosatom State Corporation intends to continue to protect its interests until its requirements are fully met,” the statement says.

The Hanhikivi-1 NPP project provides for the construction of a single-unit nuclear power plant with a capacity of 1200 MW based on the Russian-designed VVER 1200 generation 3+ reactor at Cape Hanhikivi (Northern Ostrobothnia, Finland). The customer, owner and operator of the nuclear power plant is the Finnish design company Fennovoima Oy. According to the EPC contract signed in December 2013, RAOS Project acted as the general supplier of Hanhikivi-1 NPP. The cost of the project with the participation of Rosatom was estimated at 7-7.5 billion euros. Construction was expected to start in 2023, with the plant commissioning taking place in 2029.

In May 2022, Fennovoima terminated the contract with the RAOS Project. Fennovoima said “work has been dragged out in recent years” and fighting in Ukraine has exacerbated the situation. On May 24, Fennovoima withdrew its application for a license to build a nuclear power plant.

At the end of August, Rosatom filed six lawsuits against Fennovoima for a total of $3 billion. Before that, also in August, the Finnish company filed a lawsuit against the state corporation for a total of about 2 billion euros. Joachim Specht, CEO of Fennovoima, explained that this amount, in particular, includes the return of an advance payment of 800 million euros and interest payments of 200 million euros.

The state corporation already had experience in recovering funds from a nuclear power plant customer under a terminated contract. In 2016, arbitration at the International Chamber of Commerce in Geneva awarded compensation to Rosatom in a similar proceeding with the Bulgarian National Electric Company due to the cancellation of the Belene nuclear power plant project.

The initial amount of the Bulgarian claim was about 1 billion euros, but the arbitration ruled that the customer of the nuclear power plant must pay Atomstroyexport (a Rosatom structure that builds nuclear power plants abroad) compensation in the amount of 620 million euros. The arbitration satisfied the basic requirements for payment for the work and ordered equipment, and also demanded that the Bulgarians compensate for interest and legal costs.

Georgy Shashero, a lawyer at the A1 Bar Association, notes that the DRB opinions are usually not mandatory, but recommendatory in nature. “But market practice under normal circumstances (before February 24, 2022) has been that parties to complex construction contracts, given the complexity of EPC transactions, have generally always followed the conclusions of the DRB without further challenging the findings of the dispute resolution board in the courts. or in arbitration,” he notes.

Therefore, according to Shashereau, based on the results of the DRB conclusion, Rosatom will most likely try to agree on the amount of compensation through negotiations directly with Fennovoima. If a compromise cannot be reached, proceedings to enforce the conclusions of the opinion will be conducted in court or arbitration. Such procedures usually take six months to two years, he notes. “At the same time, according to established practice, it is very difficult to challenge the conclusions of the DRB in subsequent proceedings in arbitration or in court,” the lawyer adds.

Nihad Kasumov, a lawyer at Business Council LLC, adds that the parties conducted proceedings at DRB as agreed between themselves in the main contract, so Rosatom should not have problems with recovering losses in the subsequent stages of the proceedings. And the possibility of challenging the conclusion of the DRB, he said, may be final under the terms of the contract. Pen & Paper senior partner Anton Imennov believes that the issue of liability has already been resolved on the merits, and the only question is the amount of compensation.

The amount of damage, according to Shashereau, will be determined based on the provisions of the contract, as well as applicable law. “With a high degree of probability, it will include both reimbursement of Rosatom’s expenses already incurred in the course of work on the project (actual damage), as well as lost profits if Rosatom can prove its size,” says the lawyer.

Kasumov adds that the amount of damage may also include a claim from third parties to Rosatom to collect interest for late obligations. But all circumstances must be documented by Rosatom, he says. Imennov indicates that the amount of damages will be determined based on the results of the examination. “Usually both parties present their expert opinions, experts can be called and questioned by arbitrators (Dispute Resolution Board),” explains the lawyer

The press service of Rosatom declined to comment further.