'G. Legal Discussion

45. The Terms of Reference stated following issues to be determined:

46. Correlation between the Warranty Period and payment of the Retention Money with respect to the [State X] Act ... on Public Works.

47. Conditions and terms to which the Retention Money should be released to Claimants.

48. Is it acceptable or not acceptable to administer common business practice to public procurements regulations (public procurement), or is there a legal obstacle for acceptance of the regime of common business practice in this particular case?

49. Was the will of the parties to split the agreed 5 years Warranty Period to 12 months basic Defects Liability Period and 48 months additional Warranty Period expressly given at the date of conclusion of the Contract? Examination of the will according to provision ... of [State X] Commercial Code.

Issues to be determined with respect to allegations of the Respondent:

50. Entitlement of Claimants to interest.

51. Is it possible and acceptable, in terms of legal standards, to divide the Warranty Period into basic and additional periods?

52. Is it possible to discuss the business practice in a case where the law stipulates the minimum length of Warranty Period?

53. If the business practice is to be assessed, what would be the method to settle a question what is the Warranty Period used in construction industry?

54. Determine the date of right to pay the 2nd part of Retention Money pursuant to 60.3 of General Conditions.

G.1 Correlation between the Warranty Period and payment of the Retention Money with respect to the Act ... on Public Works.

Related allegations of the Respondent:

Is it possible and acceptable, in terms of legal standards, to divide the Warranty Period into basic and additional periods?

G.1.1 Claimants' position

55. In their Request for Arbitration the Claimants state that pursuant to Sub-Clause 49.1 of the "General Conditions - Part 2.1" the Defects Liability Period, as the period substantial for release of the second half of the Retention Money, shall mean the period named in the Appendix to Tender, i.e. the Period of 12 months.

56. To ensure the fulfilment of Respondent's statutory duties arising under ... the Act ... on Public Works (hereinafter referred to as "Act on Public Works") the Defects Liability Period was extended to additional 48-month Warranty Period, so the entire Warranty Period was 5 years (60 months).

57. The additional 48-month Warranty Period shall start to run upon the expiration of the 12-month Defects Liability Period.

58. Pursuant to the Claimants' opinion, the Act on Public Works does not oblige the Respondent to pay the other half of the Retention Money upon the expiration of the entire Warranty Period of 60 months but the Parties can, at their own discretion, agree on the terms and conditions of the payment.

59. In their Reply to the Respondent's Answer to the Request for Arbitration, the Claimants stated that the Act on Public Works in its mandatory provisions sets forth the requirements of at least 5 years Warranty Period, however, it does not deal with its calculation, therefore the calculation may be agreed upon the Parties separately.

60. The Claimants furthermore stated that they do not deny the obligation to provide at least 5 years Warranty Period but only claims that the Parties can agree on a split of this period in a separate agreement which takes priority over the provisions of [State X] Commercial Code, which would apply only in case there was not a separate agreement between the Parties.

61. It their Final Statement the Claimants pointed out that they do not question the length (duration) of the Warranty Period agreed in the Contract Agreement, but both the Claimants as well as the Respondent agree that the Warranty Period was agreed in the Contract Agreement in total for 5 years (60 months).

62. The Claimants deem that the conflict between Parties arises in part due to the Respondent's insufficient command of the English /ruling/ language which as well as proper understanding of the concepts of liability under the FIDIC Conditions is absolutely necessary for the adjudication of this dispute because the FIDIC General Conditions and FIDIC Special Conditions apply to the regulation and interpretation of those relations existing among the Parties, which the Contract Agreement does not expressly govern and regulate.

63. The Claimants assigned also to the testimonies of witnesses called by the Respondent at the hearing on 7 September 2009 who, due to their own words, relied on the [State X language] version of the Contract Agreement and other documents constituting its integral parts, rather than on the English version of the Contract Agreement.

64. The Claimants emphasized that the Appendix to Tender in the ruling English language expressly distinguishes two terms and expressions, being the duration of the Defects Liability Period and additional Warranty Period.

65. This argument presented by the Claimants shall be also supported by the testimony of the Respondent's Witness ... who supervised technical and legal aspects of the construction of the Work, and who was heard that: "The Warranty Period was contractually agreed as a basic and prolonged period. It means that the basic period (Defects Liability Period) was agreed to be 12 months and the prolonged warranty period (Warranty Period) was agreed to be 48 months. In entirety it was 60 months. The problem in this case rests in the terminology and wrong translation of the Contract Agreement into the [State X] language. While the English version expressly distinguishes both alleged periods, the [State X language] version uses only solely one common term 'warranty period' for both of the periods."

66. Finally, as per Claimants' opinion the Defects Liability Period of 12 months and the additional Warranty Period of 48 months in aggregate cover the required warranty (60 months) in a whole and are neither contrary to the Contract nor to the [State X] Act ... on Public-Sector Contracts.

G.1.2 Respondent's position

67. In its Answer to the Claimant's Request for arbitration, the Respondent pointed out that the execution of the Works was dependent on provision of the financial means by the European Investment Bank (hereinafter referred to as "EIB").

68. For provision of the finances the EIB required a state guarantee which could have been provided by the state and the state could have participated on financing the Works only according to the Act on Public Works.

69. Respondent states that pointing out to Annex 2 to the Tender made by the Claimants where is in addition to 12-month Defects Liability Period stipulated 48 months additional guarantee is irrelevant because of following:

70. No legal norm distinguishes basic and additional warranty period;

71. Defects Liability Period is always stipulated by one period of time (Act on Public Works ..., Commercial Code ...);

72. The Act on Public Works, as lex specialis, cogently determines the minimal length of the warranty period to 5 years, which can be never shorter and the Respondent has never expressed intention to divide the warranty period;

73. In direct contractual arrangement - Contract for Work ..., which takes always precedence over indirect ones such as Annexes, the Defects Liability Period was exactly, definitely and indubitably stipulated for 60 months.

74. In reliance on Witness Testimonies and Submissions of Further Evidence, the Respondent states that the Claimants were notified of the discrepancy of the warranty period in the Annex to the Bid and agreed with unambiguous determination of the warranty period, without any splitting, which was also showed by the witness testimony of ... the former Member of Respondent's Board.

75. The Respondent furthermore states that the 60-month Warranty Period was applied by both the Defendant and the Claimants throughout the entire process of work execution, which was confirmed by ...the Respondent's Economical Manager and … the Supervising Manager of the Respondent.

76. The Respondent states that with respect to all above mentioned, all involved parties were, from signature of the Contract, of the opinion that the Retention Money should be released after the expiry of the Warranty Period i.e. 60 months.

77. In reliance on Witness Testimonies and Submissions of Further Evidence, the Respondent also pointed to the witness testimony of ... representative of the technical consultant, who stated that "the essence of the dispute resides in different understanding of the warranty period in Anglo-Saxon legal system and [State X] system of law", i.e. that while the foreign legal system requires the warranty period as the Defects Liability Period of 1(2 years for the engineering structures, the [State X] law requires a 5-year warranty period.

78. The warranty period is determined directly by Act [on Public Works] as lex specialis for the minimum duration of 5 years which is a statutory, basic warranty period, so the parties can determine only longer warranty period or can agree on stricter responsibilities.

79. The Respondent also expressed its opinion that the personal opinion of [representative of the technical consultant] on release of the Retention Money (after the lapse of 12-month Defects Liability Period) cannot have any impact on the decision in this case.

80. In its Final Statement the Respondent emphasized that the entitlement to payment of the 2nd half of the retained money arises pursuant to Clause 60.3 of General Conditions only upon the expiration of the latest of such warranty periods or after completion of all remedying works determined according to Clause 49 and 50 of the General Conditions.

81. The Respondent also stressed out that the Act on Public Works does neither designate two warranty periods nor recognizes a division of the guarantee period; should the lawmaker had the intention to allow the division of the warranty period, this would surely be presented in the mentioned Act.

82. The Respondent pointed to the fact that any legal act stipulates the period for payment of the Retention Money and as the Retention Money are fixed to remedying of the damaged [sic], they cannot be released earlier than the time for remedying damages ceases (5 years from hand over of works).

83. The Claimants have not removed all defects yet.

G.1.3 Discussion and Decision

84. The Sole Arbitrator points out to the fact that this particular issue is only implicitly determined in ... the Act on Public Works only.

85. ... the Act on Public Works entails the obligation of the Employer (i.e. Respondent) to "reserve a right to retain minimally 5% and maximum 10% from the agreed price until the time the contractor proves fulfilment of qualitative parameters at hand-over or take-over of the public work or its integral part".

86. According to ... the Act on Public Works, the Employer (i.e. Respondent) is obliged to "require a warranty period of minimally 5 years for the construction part or longer for its selected part".

87. The Act on Public Works does not in particular regulate the conditions regarding the exact time and manner of Retention Money release.

88. The Act on Public Works does not recognize limitation of the release of the Retention Money with lapse or length of the warranty period.

89. Interpretation of ... the Act on Public Works, allows an explicit conclusion that the builder is entitled to release the Retention Money at the hand-over of the public work in case it accomplishes the defined qualitative parameters, i.e. the Act on Public works does not impose [on] the builder an obligation to wait until the warranty period will lapse.

90. It is absolute and logic that the qualitative parameters of the Project shall be indicated prior the lapse of the warranty period - at the handover of public works or its integral parts.

91. To the contrary, the warranty period shall never start to lapse prior the hand-over of public work or its integral parts.

92. As in the Contract Agreement the Parties agreed on the manner of release of the Retention Money (Clause 60.3 of the General Conditions Part 2.1), such liberty of the contract must be observed.

93. Pursuant to the opinion of the Sole Arbitrator, a link between the lapse of the whole warranty period and the release of the Retention Money cannot be explicitly deducted from the respective provision of the Act on Public Works.

94. Contractual agreements of the Parties comply with the requirements of the Act on Public Works when in Clause 9 of the Contract Agreement states the Warranty Period to 60 months [sic], and do not act contra provisions of this Act when in Annex 2 to the Contract Agreement Appendix to Tender they agree on the split of the warranty period to 12-month (basic) Defects Liability Period and 48-month (additional) Warranty Period, which in total represent the 60-month warranty period, requested by the law.

95. With respect to the mentioned, the Retention Money can be released at any time post accomplishment of the Work with contractually agreed conditions.

96. It is a purpose of the Retention Money to provide guarantee to the contractor that in case the works will not be finished in compliance with qualitative parameters, so that the hand-over and take-over will not be confirmed by the engineer and the builder will not be willing to remove all declared defects, such finances can be used to employ third persons to remove such defects of Work (visible at the hand-over).

97. Without a doubt, the time period for release of the Retention Money can be shorter than the warranty period.

98. As reasoned above, release of the Retention Money prior the lapse of the whole Warranty Period is not in conflict with the Act on Public Works; neither circumvents nor contravenes the purpose of law.

99. The division of the Warranty Period into two parts (regardless how they are called - split/additional), where after the lapse of the first one the Retention Money will be paid, is possible.

G.2 Conditions and terms under which the Retention Money should be released to Claimants

Related allegations of the Respondent:

Determine the date of right to pay the 2nd part of Retention Money pursuant to 60.3 of the General Conditions.

G.2.1 Claimants' position

100. In their Request for Arbitration, the Claimants stated that pursuant to Sub-Clause 60.3 of the General Conditions - Part 2.1 the Engineer confirmed the payment of one half of the Retention Money, amount of which was specified in the Appendix to Tender, upon the issue of the Taking-Over Certificate with respect to the entire Work.

101. The second half of the Retention Money should have been certified for payment by the Engineer upon expiration of the 12-month Defects Liability Period as defined in the Appendix to Tender, which pursuant to Sub-Clause 49.1 shall be calculated from the date of completion of the Work certified by the Engineer.

102. Individual substantially completed sections or parts of the Work were taken over by the Engineer upon their completion pursuant to Sub-Clause 48.1 and Sub-Clause 48.2 of the General Conditions - Part 2.1 in connection to Sub-Clause 48.1 of the Special Conditions - Part 2.2

103. As stated in Sub-Clause 48.2 in connection with Sub-Clause 49.1 of the General Conditions - Part 2.1, in the event of more than one certificate having been issued by the Engineer, the Defects Liability Period shall be calculated from the respective dates so certified.

104. Claimants hold the opinion the 12-months Defects Liability Period, on the expiration of which the Respondent's duty to pay the other half of the Retention Money applies, started to run with respect to individual sections or parts of the Work on the dates of the hand over was certified by the Engineer.

105. Neither the Act on Public Works nor the Contract Agreement determine that the other half of the Retention Money shall be paid only upon the expiration of the 60-month Warranty Period, but to the contrary the Parties expressly agreed on a 12-month Defects Liability Period.

106. All above stated was repeatedly emphasized in Claimants' Reply to the Respondent's Answer to the Request for Arbitration.

107. In their Final Statement Claimants alleged that the Respondent's defence by referring to the provisions of the Act on Public Works is not relevant, because the Act on Public Works does not stipulate that the expiration of the Warranty Period is a condition to the payment of the other half of the Retention Money but, on the contrary, it imposes an obligation to retain at least 5% of the agreed Contract Price only until the Contractor proves upon the hand-over and take-over of a public work (the Work) that all quality requirements were duly met.

108. The Claimants presented their opinion that the [State X] laws are less strict than the Contract Agreement, because under applicable [State X] legal rules the Respondent would have to pay the Retention Money immediately after the Contractor proves that all quality requirements were met (i.e. upon the acceptance of the Work without any defects, or after the elimination of defects identified upon the take-over), rather than upon the expiration of 12 months as agreed in the Contract Agreement.

109. The Defects Liability Period is under the common law (on which the FIDIC Conditions rely) the period for the elimination of defects disclosed upon the hand-over and take-over of the Work (i.e. other than latent defects), the Warranty Period of 60 months is the period for the elimination of latent defects.

110. As per the Claimants' statement, the Work was handed over without defects, and defects mentioned by the Respondent were solely latent defects identified only after the hand-over of the Work, which have been (and if need will be) eliminated within the Warranty Period under the Contract, which the Claimants have never questioned or refused.

111. In the Claimants' opinion such argument is well supported by the witness testimony of ... Project Manager and Chief Constructor Inspector called by the Respondent who stated that when the Claimants were asked to remove defects they did it in due time and that he has no knowledge about any written appeals on usage of the Retention Money in case of not removing defects by the Claimants.

G.2.2 Respondent's position

112. In its Answer to the Claimants' Request for Arbitration, the Respondent stated that according to point 60.3 (b) of the General Conditions the second half of the Retention Money is to be paid upon expiration of the Defects Liability Period, which is, pursuant to the Act on Public Works, 60 months.

113. Respondent furthermore stated that even the EIB, as the financing bank, despite it was not within their competence but in the competence of the technical consultant, in their letter ..., suggested not to waive its rights for the Retention Money and that they would be very concerned if the Respondent would release the Retention Money earlier.

114. The technical consultant of the Respondent in his Standpoint as of March 15, 2006 alleged that clause 9 of the Contract for Work conforms to the Act on Public Works the length of the Defects Liability Period 60 months and for this period the Claimants have to provide the financial guarantee.

115. Respondent claims that the Retention Money is the only instrument to protect its position and any premature release of the Retention Money would weaken its position and rights.

116. As the Respondent argues, the Claimants fail in doing remedies of defects and defects under the claim have not been remedied so far. So there exists a reasonable concern that the Respondent will have to apply clause 64.1 of the General Conditions (usage of the Retention Money in case of not removing defects).

117. The Respondent is of the opinion that the Defects Liability Period will expire by the lapse of 60 months from the date of signing the Hand-Over and Take-Over Protocols, if appropriate remedying defects, provided that such defects will emerge during the Defects Liability Period.

118. In reliance on Witness Testimonies and Submission of Further Evidence, the Respondent emphasized that the basic prerequisite to pay the Retention Money is the removal of the defects, which results also from ... the Commercial Code, pursuant to which the Employer is entitled not to pay (retain) a part of the price for work, corresponding to its claim for a discount from the price for work, until the defective part has not been remedied.

119. In its Final Statement the Respondent pointed out that the moment for payment of the Retention Money comes after remedying of the latest damage and the retention bond is to serve the purpose, in order to oblige the Claimants to remove damages in a timely manner and was motivated by payment of the Retention Money.

120. Respondent also declares that the Claimants in the given Project remove damages neither immediately, nor without undue delay but only after verbal and written warnings that for remedying will be used the Retention Money.

G.2.3 Discussion and Decision

121. The Sole Arbitrator asserts that reply to this allegation has been partly given in the previous discussion.

122. Clause 60.3(a) of the General Conditions stipulates the obligation of the Respondent to release one half of the Retention Money with respect to the hand-over and take-over of the whole of Works/its integral parts.

123. The Defects Liability Period starts to lapse at the moment of the hand-over and take- over of the Works or their integral parts, and upon the expiration of the Defects Liability Period the obligation for release of the other half of the Retention Money accrues.

124. Defects Liability Period is defined in Sub-Clause 49.1 of the "General Conditions - Part 2.1" due to which "the expression Defects Liability Period shall mean the period named in the Appendix to Tender", i.e. the Period of 12 months …

125. The only Condition for release of the Retention Money is, pursuant to the Act on Public Works, meeting the requirements of the qualitative parameters of the Works or its integral part.

126. Time limit for the release is, in the Act on Public Works, regulated only implicitly and determined negatively, i.e. permitting to refrain from the payment until the qualitative parameters of the Works will be met, approved by certification of the Engineer.

127. The Employer (Respondent) is obliged to release the Retention Money unless the Works show apparent (not latent) defects at the hand-over.

128. On the contrary, in case the Works do not show apparent defects, i.e. they conform to the required and contractually agreed qualitative parameters, the Employer is obliged to take the Works or the integral parts over and release the Retention Money without an undue delay or in the agreed period.

129. The Sole Arbitrator agrees with the legal opinion of the Claimants on the issue of release of the Retention Money, expressed on page 4 sect 2 of their Final Statement, that in view of the fact that according to the Act on Public Works, the Respondent shall be obliged to pay the Retention Money at the moment the qualitative parameters of the Work are proved (i.e. at the take-over of works without any apparent defects or after removal of defects determined at the take-over) and not after the lapse of the 12 months Defects Liability Period as stipulated by the Contract, the [State X] legal regulation is less strict than the contractual agreements adopted by the Parties.

130. Provided that all qualitative parameters for the take-over of the Works were met, the Respondent should have paid the second half Retention Money to the Claimants after the lapse of the agreed 12-month Defects Liability Period

131. The fact that the whole of the Works were certified by the Engineer was not disputed between the Parties.

G.3 Is it acceptable or not acceptable to administer [sic] common business practice to state offers regulations (public procurement), or is there a legal obstacle for acceptance of the regime of common business practice in this particular case?

Related allegations of the Respondent:

Is it possible to discuss the business practice in a case where the law stipulates the minimum length of Warranty Period?

If the business practice is to be assessed, what would be the method to settle a question what is the Warranty Period used in construction industry?

G.3.1 Claimants' position

132. In their Request for Arbitration the Claimants have pointed out to several cases in which the Retention Money was released prior [to] expiration of the entire Warranty Period but upon expiration of the basic Defects Liability Period despite the fact that in addition to the basic Defects Liability Period an extended Warranty Period was agreed.

133. Claimants hold the opinion that it is a usual practice and quite common in the construction engineering industry that, in cases where basic Defects Liability and additional Warranty Periods are agreed, the Retention Money is released upon the expiration of the basic Defects Liability Period.

134. In the Reply to the Respondent's Answer to the Request for Arbitration the Claimants stated that they do not seek the Payment of the Retention Money with reference to the common business practices but only aim to point to the standard split of the Defects Liability Periods, in the construction engineering industry, for purposes of payment of the other half of the Retention Money.

G.3.2 Respondent's position

135. In its Answer to the Claimant's Request for Arbitration, the Respondent stated that the Defects Liability Period was stipulated in compliance with the Act on Public Works and therefore reviewing the Defects Liability Period in accordance with the common business practice is excluded.

136. Respondent also alleges that common business practices can, according to … the … Commercial Code, apply only on condition that the contract does not tackle the given problems and in case they are not contrary to those relevant provisions of law which have mandatory character.

137. In the given case it is excessive to deal with the common business practices because the Defects Liability Period is determined in the direct contractual agreement and in compliance with the cogent provisions of the Act on Public Works to 60 months.

138. The Respondent also indicated that as the Works were financed and depended on the state budget and public investments, the rules of the Contract Agreement were determined by the Act on Public Works and so the business practice is here excluded.

139. In the Final Statement the Respondent provided that the business practice must not contravene any legal norm of the statutory force of the law relating to subject matter and contents of the Contract and even divergent understanding of the Warranty Period in Anglo-Saxon legal system and in [State X] legal order cannot debit [sic] but must be in compliance with the [State X] legal order.

140. The impediment to adopt mode of the common business practice ... was directly reflected in the Contract arrangement.

G.3.3 Discussion and Decision

141. With regard to this issue the Sole Arbitrator points to the fact that Claimants themselves, in their Reply to the Respondent's Answer to the Request for Arbitration, consider/aimed to refer to the common business practice only as to an instrument designed to support their claim in respect to the split of the Warranty Period and other arguments directly referring to the law or the contract itself.

142. Reference to the common business practices shall be considered as a supportive but not the main and only argument.

143. In this regard, neither the Sole Arbitrator finds solving this issue to be crucial for rendering an award.

144. Application of common business practices within business relationships recognizes the ... Commercial Code as amended ... which states following "Common business practices, generally observed in the particular line of business, unless contradicting the contents of the contract or law, shall also be taken into account when determining the rights and duties ensuing from a certain contractual relationship".

145. It is evident that application of the common business practices in the field of state commissions is not excluded by the law.

146. Although the common business practices have, according to ... Commercial Code, only a subsidiary character they shall be binding without a need of their further contractual probation, provided that they do not contradict the law or content of the contract and are commonly used in a certain business sector.

147. The Sole Arbitrator is not associated with a view of the Respondent who contends that while the contract is governed by/subordinated to the Act on Public Works and with respect to the fact that the Works were financed from the state budget and public finances, the common business practice cannot be applied in this case, and does not see any legal substance which would support the Respondent's point.

148. The Sole Arbitrator holds the opinion that such conclusion has a ratio neither in the Commercial Code nor in ... the Act on Public Works.

149. Imperativeness of the Act on Public Works, which determines the Warranty Period minimum to 5 years, does not, in any case, underlie the release of Retention Money to [sic] lapse of the whole Warranty Period.

150. The Parties to the Contract were entitled to willingly agree on the release of Retention Money, directly in the Contract or in Annexes to the Contract.

151. In opinion of the Sole Arbitrator, Clause 60.3 of the General Conditions Part 2.1 explicitly states that the second half of the Retention Money shall be released/certified by the Engineer after the lapse of the Defects Liability Period of 12 months as defined in the Annex 2 Appendix to Tender.

152. Provided that [sic] the current wording of the Contract Agreement evokes opposite attitudes, there is nothing to prevent the common business practices to be applied at reviewing the issue of release of the Retention Money.

153. As per the evidence ..., the Claimants proved that in other similar cases (state commissions) which were governed by the Act on Public works, the Retention Money was released prior [to] the lapse of the whole Warranty Period of 60 months.

154. The state commissions presented in the Request for Arbitration under evidence ... are, due to the knowledge of the Sole Arbitrator, road construction works in [State X] of significant importance, so it is reasonable to assume that if, in these cases, the Retention Money was released prior the lapse of the whole Warranty Period, it can be deemed as a common business practice.

155. The Sole Arbitrator is of the opinion that mandatory provisions of the Act on Public works do not exclude application of the common business practices to public works in questions not regulated by the Act, such as the issue of Retention Money release.

G.4 Was the will of the parties to split the agreed 5-year Warranty Period to 12-month basic Defects Liability Period and 48-month additional Warranty Period expressly given at the date of conclusion of the Contract? Examination of the will according to ... the ... Commercial Code.

G.4.1 Claimants´ position

156. The Claimants claim that from the beginning of negotiation regarding the Tender there was a will of both Parties to split the Warranty Period to 12 months basic Defects Liability Period and 48-month Warranty Period.

157. For this reason the Parties proceeded with signature of the Appendix to Tender which constitutes an integral part of the tender/Contract and clearly distinguishes between the basic period as a basis for release of the Retention Money and the additional Warranty Period to comply with the Act on Public Works which requires the 60-month Warranty Period.

158. The Claimants presented that they have never denied that 60-month Warranty Period was agreed.

G.4.2 Respondent's position

159. The Respondent declares that there was not a free will of the Parties to divide the Warranty Period.

160. The Respondent furthermore indicates that Claimants agreed with mode of [the Act on Public Works], evidence of what can be found in the Contract Agreement, in Annex 3 to the Contract, in Addendum 3 to the Contract as well as in individual hand-over and take-over protocols, where the Warranty Period is defined en bloc and which is their only and undisputed demonstration of their free will.

161. With regard to the will, the Respondent also points to the binding force of the signed individual documents determining the contents of the Contract for Work which shall be, due to clause 5.2 of the General Conditions, as follows:

1) Contract for Work (when completed)

2) Notice of acceptance of an offer

3) Offer

4) Part 2.2 of these "Conditions"

5) Part 2.1 of these "Conditions"

6) Another document constituting the integral part of the Contract for Work,

so the Contract for Work stipulating 60-month Warranty Period takes precedence over Offer and Annex 1 to Offer.

G.4.3 Discussion and Decision

162. A principal and definite response to the issue of contractual will of the Parties can be seen in Clause 9 of the Contract Agreement and in Annex to the Contract Agreement No: ... Appendix to Tender.

163. Clause 9 of the Contract Agreement undoubtedly and explicitly determines the Warranty Period to 60 months.

164. In addition, the 60-month Warranty Period is specified in Appendix to Tender.

165. Appendix to Tender refers in definition of the Defects Liability Period to Sub-Clause 49.1 and furthermore stipulates the length of the Defects Liability Period to 12 months with a "Note" below which clearly, simply and comprehensibly states following: "In addition to the Defects Liability Period the Contractor shall provide a Warranty Period of 48 months in accordance with Act … on Public Works starting on the date of expiration of the Defects Liability Period".

166. Such "Note" which precises and specifies the contractual agreement regarding the Warranty Period cannot be omitted and, due to the opinion of the Sole Arbitrator, there is no doubt that the "Note" forms also an integral part of the Contract.

167. Appendix to Tender was signed and sealed without any doubt or objections by statutory bodies of the Parties to the Contract, in frame of their rights and legal competencies.

168. Therefore, the Sole Arbitrator had no suspense about the authenticity and propriety of Appendix to Tender, which eventually had never been questioned in the case by either party.

169. Hence, the Sole Arbitrator considers to be proven that: (1) the will of the Parties to split the defined 5 years warranty to two separate periods - the 12-month Defects Liability Period and the 48-month Warranty Period - was present, (2) the sum of these periods represents 60 months (5 years), which is in compliance with the requirement of [the Act on Public Works] as well as with the Contract Agreement.

170. The length of the Warranty Period in duration of 60 months was never contested by either Party.

171. In terms of law it is irrelevant whether the two defined periods are called basic Defects Liability Period and additional Warranty Period, but important are the duration of 5 years and the proven split of this period into two separate parts.

172. Pursuant to the opinion of the Sole Arbitrator, by the agreement on the 12-month Defects Liability Period lapse of which was the basis for release of the Retention Money, the Claimants accepted and entered into a disadvantageous position.

173. Such disadvantageous position of the Claimants resided in the fact that despite they could have requested for release of the Retention Money upon the issue of the hand-over and take-over of the Works or their integral parts by the Engineer, to which they were entitled acc. to ... the Act on Public Works, they agreed on the 12-month Defects Liability period upon expiration of which the money should have been released to the Claimants.

174. Inexpedience [sic] of the Claimants´ position resided in the fact that in the prolonged period of retention their liability was by no means decreased.

175. Hence, in first 12 months the Warranty Period de facto went along with the Defects Liability Period, whereby prolonged to additional 48 months in the "Note" of Appendix to Tender.

176. If, at the semantic and grammatical interpretation of the Contract Agreement, both Parties in Appendix to Tender agreed on the wording "in addition provide a Warranty Period" it is absolute and beyond any questions that the Parties were aware of the "basic" (first) 12-month Defects Liability and 48-month "additional" (second part of the) Warranty Period, which in total represented 60 months/5 years.

177. Pursuant to ... the Commercial Code, a demonstration of will shall be interpreted according to (1) the intention of the acting person, if this intention was known or must have been known to the party to which the demonstration of will was directed; (2) if it is impossible to interpret the demonstration of will under paragraph 1, the demonstration of will is interpreted according to the meaning, which, as a rule, is assigned to it by a person of the same status as the status of the person to which the demonstration of will was directed; (3) the terms used in business shall be interpreted according to the meaning business circles usually attribute to them; (4) the demonstration of will including terms (expressions) that may lead to different interpretations, shall, if in doubt, be interpreted to the disadvantage of the party first using the said terms in negotiations.

178. The High Court of Justice of [State X] in its judgment ... stated that "pursuant to [the above-mentioned provision of the Commercial Code,] at interpretation of the parties' will a proper consideration must be taken to all circumstances related to declaration of the will, including negotiations of the parties at the time the contract was concluded as well as the practice and consequent behaviour of the parties".

179. In terms of examination of the contractual will with respect to the issue of retention, the Sole Arbitrator emphasizes that also negotiations of the Parties shall be duly considered when interpreting the demonstration of will the Parties had at the time of signing the Contract Agreement ...

180. The significance of negotiations in terms of interpretation of the Parties demonstration of will and knowledge of their content are, pursuant to ... the Commercial Code, able to assist in understanding the pure intention of the Parties.

181. The Sole Arbitrator points attention to the fact, which neither of the Parties questioned, that it was never subject to the negotiations that the Retention Money will/shall be released only after the expiration of the whole Warranty Period of 60 months.

182. If it were contrary, the Claimants would have de facto agreed that throughout the whole 5-year period they would credit the Respondent up to the amount of the unreleased Retention Money.

183. The Sole Arbitrator deems that such will/intention could not be declared by either Party.

184. Neither of the Parties ever specified the exact date the Claimants are entitled for release of the Retention Money.

185. It could be de iure presumed that the Parties demonstrated a will to follow requirements of the Act on Public Works (pursuant to which the retention should have been released at accomplishment of the Works with qualitative parameters), in case not agreed differently in the Contract (12 months).

186. The Sole Arbitrator repeatedly points to the fact that he concurs with the Claimants´ opinion, declared on page 1 of its Final Statement, that the conflict between the Parties regarding the sense and interpretation of the Contract resides in the Respondent's insufficient command of the English language as well as due [to] the lack of knowledge and misunderstanding of the legal concepts of liability under the common law on which the FIDIC Conditions (that forms an integral part of the Contract ...) are based.

187. The above-presented opinion is supported by the witness statements heard by the Sole Arbitrator at the Hearing ...

188. The witnesses ... (both employees of the Respondent) confirmed that at their work they obeyed only the [State X language] translation of the Contract and FIDIC but not the ruling English version.

189. The witness ... (the employee of the Respondent's consultant - the company ...) proposed and called by the Respondent, was heard at the examination that:

(1) the Warranty Period was contractually agreed as a basic and a prolonged period. It means that the basic period (Defects Liability Period) was agreed to 12 months and the prolonged Warranty Period (Warranty Period) to 48 months,

(2) the problem in this case rests in the terminology and a wrong translation of the Contract to the [State X] language. While the English version expressly distinguishes both alleged periods, the [State X language] version uses solely one common Term "Warranty Period",

(3) FIDIC requires the Defects Liability Period of 1 to 2 years for engineering structures to identify and remove defects, the [State X] law requires the Warranty Period of 5 years. This was the reason for prolongation of the contractual Warranty Period,

(4) The English version of the Contract prevails upon the [State X language] version.

(5) The Warranty Period is 60 months, but it must be distinguished from retention.

190. The Sole Arbitrator emphasizes that he has no doubt about the competence and capability of the witness [referred to in the preceding paragraph].

191. As a consultant of the Respondent he was present at the Parties' interaction throughout every phase of elaborating the Contract and execution of Works and therefore had an excellent knowledge of the whole situation and undoubtedly enough experience in that certain sphere.

192. Neither of the Parties raised significant objections to the content of the Minutes of the Hearing, so the witness statements may be, in their abridged version, considered veritable.

193. The Sole Arbitrator is of the view that the will of the Parties demonstrated at the signature of the Contract Agreement was to conform to the requirements regulated by the Act on Public Works, stipulating the 60-month Warranty Period and simultaneously, for the purpose of defining the decisive date for release of the Retention Money, agree on division of the Warranty Period to basic (12-month Defects Liability Period) and additional (48-month Warranty Period), with regard to which the period for release of the Retention Money, defined in ... the Act on Public Works was prolonged to 12 months.'

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