Contracting: International construction projects in Finland

Finnish law has to be taken into account whenever the construction site is situated in Finland. Local administrative regulations – e.g. concerning construction licences, work safety requirements, or regulations for the benefit of debtors in insolvency cases – always take precedence over conflicting legal provisions in the jurisdiction which otherwise governs the agreement based on the agreement of the parties.

Public licences: the easiest solution is not always the best

The timely issuance of public licences, covering for example

land use planning and building permits

Environmental Impact Assessment and environmental permits

licences for landscaping measures, mobilisation of the site and waste disposal procedures;

import and transport licences which may possibly be required; or

licenses for the storage and handling of dangerous goods

have a direct influence on the project time schedule. A supplier that has accepted responsibility for licensing will have to compensate for the consequences of late delivery if the delay is due to licensing issues.

It is not always feasible to shift responsibility for licence procedures to sub-suppliers. There is a great deal of work which cannot be carried out until the site is landscaped and mobilised and the import, transport and storage of goods is secured. Therefore, the general contractor should consider independently which licences will be needed, what is the quickest and most effective way to obtain them, and how much time should be allowed for the process. One should not make assumptions on these issues based on experiences in one’s home country.

Various issues have a bearing in this regard:

Often the party who has the best technical know-how will also be in a position to prepare application procedures effectively.

On the other hand, a local company acting as applicant might be the most effective door-opener.

The applicable public law may restrict the group of possible applicants.

Some licences can be applied for by way of a simplified procedure if the applicant already holds certain general licences. General operation licences often include licences for transport and storage of dangerous goods, whereas an applicant not holding an operation licence would have to run through the full procedure.

In order to protect business secrets one will often have an interest in the centralised handling of applications.

The issues noted above may sometimes point in different directions. The most effective solution may demand a tailored division of responsibilities in which the internal responsibility is borne by one party, but the external representative function is fulfilled by the other.

Collateral: in a crisis local provisions apply

Whether a collateral is valid is determined in accordance with the law of the country in which the bankruptcy proceedings take place. This applies irrespective of the law which otherwise governs the contractual relationship between the parties.

If one has delivered construction goods or merchandise to Finland under an agreed retention of title clause, it is highly likely that this clause will be ineffective. Finnish law stipulates that construction goods become the property of the buyer at the latest on delivery to the site.

Where transfer of receivables against a third party domiciled in Finland is concerned, the transfer is ineffective if it is not indicated to the third party prior to commencement of bankruptcy proceedings. Identical back-to-back agreements regarding collateral for the down-payment, for the fulfilment of the contract, or for the purchase price, may be effective between the owner and the general contractor, but unenforceable between the general contractor and its sub-suppliers, depending on the domicile of the relevant debtor or the location of the movable property in question.

With regard to bank guarantees, it may be a decisive advantage to the debtor to acquire a court injunction against the guaranteeing bank on the ground that the payment demand under the guarantee represents a misuse of rights. The court in the place of domicile of the guaranteeing bank will be the competent court for such a preliminary procedure. The level of proof required to establish misuse of rights differs from country to country. Therefore, even where the wording of the guarantees is identical, this does not always put the applicant in the same position when it comes to enforcing rights.

Litigation and arbitration procedures: Do not overestimate the home advantage

A general contractor can improve its position by tying together procedures with the buyer on the one hand and with the sub-suppliers on the other hand. This can ensure that an arbitration award rendered between the buyer and the general contractor could become effective back-to-back also between the general contractor and the sub-suppliers.

Such potential synergy effects often remain unused because the ‘home advantage’ is given preference whenever the other party is willing to accept a forum clause. Arbitration in Finland (in English) should be taken into account as a feasible alternative.