ADR Journal
Arbitration

Arbitral Tribunal Rules Lviv's Contract Termination with Polish Contractor as Unlawful

Published 2026-04-16 3 min read 1 source

TL;DR

  • Lviv authorities terminated a contract with Polish firm Control Process and seized its bank guarantee.
  • An arbitral tribunal found these actions unlawful and ruled the contract remains valid.
  • The dispute centers on a waste treatment plant project financed with EU and EBRD funds.
  • Despite the rulings, Lviv has not returned the seized funds and delays in project completion persist.

Overview

A recent ruling by an arbitral tribunal has found the termination of a contract and seizure of a bank guarantee by the city of Lviv, Ukraine, against Polish contractor Control Process to be unlawful. The dispute surrounds the construction of a municipal waste treatment facility co-financed by European Union and European Bank for Reconstruction and Development (EBRD) funds, and highlights persistent project and payment challenges.

What Happened

Lviv authorities, acting through municipal entity LKP 'Zielone Miasto,' terminated their contract with Control Process-responsible for constructing a major waste processing plant-and seized a €3.7 million bank guarantee.

This followed public criticism of the Polish contractor over project delays and allegations of excluding city-selected subcontractors; however, an arbitral tribunal found the city's actions unlawful in its April 2024 decision.

Arbitral proceedings established that project delays and payment issues were attributable to the city, not the contractor. Lviv had also previously failed to pay approximately €6.8 million due based on earlier tribunal decisions.

Despite several arbitration victories for Control Process and a legal obligation to allow work to continue, the city has not reversed its actions or returned the seized guarantee, leaving the investment's future uncertain.

Context

The waste processing facility project-approximately 95% complete-was awarded to Control Process via international tender in 2021. The project is one of the largest environmental investments with Polish involvement in Ukraine and is essential for Lviv's municipal waste management.

Investigations by Ukraine's National Anti-Corruption Bureau (NABU) supported the contractor's claims, identifying irregularities in the city's project documentation and process related to building permits. The case drew official interventions from Polish government representatives and heightened scrutiny of the investment environment in Ukraine.

Why It Matters

  • This case signals potential legal and operational risks for foreign contractors working on publicly-funded infrastructure projects in Ukraine.
  • Despite independent arbitration rulings, the lack of enforcement and the city's disregard for decisions may undermine confidence in contractual protections for international investors.
  • Continued delays threaten EU and EBRD co-funded projects and could impact perceptions of Ukraine's reliability as an investment destination.

Sources

Related Stories