Understanding Construction and Energy Projects in India, Malaysia  and Indonesia & Resolving Disputes

THE PANEL DISCUSSION:

Noyan Göksu, Partner, Göksu | Ayd?n Attorneys at Law

Opening Remarks

• There is a growth of Turkish contractors from South-East Asia. One of the first contractors entered in India in 2001, followed by the others. Turkish contractors are all across the globe and a gradual increase of their presence and work is finally being seen in India, Malaysia, and Indonesia as well.

Shemane Chan, Partner, Rajah & Tann

Key points for Malaysia

• Malaysia has a projected growth of over 10% and has major infrastructure projects in the pipeline including the Kuala Lumpur-Singapore high speed rail project and the new financial city in Kuala Lumpur.
• While doing cross-border construction and energy projects in Malaysia, watch for their licensing requirements and approvals; provisional licenses followed by permanent licenses; and the different levies.
• Besides, the FIDIC contract forms are unusual; and if they are used, they are heavily modified in terms of risk allocation.

Ng Kim Beng, Partner, Rajah & Tann

Challenges in Indonesia and resolving disputes

• Doing construction and energy projects in Indonesia comes with its own set of challenges. These include difficulties in transportation, customs clearance, unclear laws and diverging positions on interpretation of laws, corruption, delays and disputes.
• Indonesia is not pro-arbitration and usually prefers mediation and conciliation unless there is absolute necessity to resort to arbitration. One would often find a multi-tiered arbitration clause. The government contracts and other Indonesian contracts usually have an arbitration clause to be referred to their -BANI Arbitration Institution (Badan Arbitrase Nasional Indonesia). In 2016, a new institution from within BANI was formed to deal with domestic and international commercial arbitrations. Now there are two BANIs and on-going lawsuits in Jakarta about which one is the “proper” BANI. This creates an uncertainty for contracts signed previously which have BANI clauses. Bearing this in mind, selecting the Singapore International Arbitration Centre would be a good solution to avoid such future controversies.

Prateek Bagaria, Partner, Singularity Legal

Common types of disputes under bilateral investment treaties

• Disputes among joint venture partners are also seen frequently. When we get into a deal, we believe everything will stay hunky-dory. However, it is very important to have tight contractual protections in your JV contracts with local players and managers, who may use their local presence to your detriment. Call/put options and drag/tag along clauses are hence strongly advisable. These clauses can easily be put into contracts before the deal is signed; however, they become almost impossible after the dispute has arisen. 
• In addition to the usual protections against incidents like expropriation or war loss, bilateral investment treaties come to rescue innocent third parties in cases of corruption. In countries where corruption is common, foreign investors might find themselves in situations where their projects are stalled because of corruption allegations against a local JV partner or a contractor. For example, a funder might later find out that the project was awarded to the contractor for its close ties with the government. In that case, chasing the corrupt party would make no economic sense because the party’s assets would have already been targeted by other courts.
• Nevertheless, state liability can be affixed for corruption under BITs. The investor would argue that it had no involvement in the corruption and it was the state itself which, through its officials, awarded the project without the contractor meeting the requirements. The trend in investment arbitration is that tribunals tend to refuse to hear claims if the claimant has engaged into corruption. We strongly advise investors to keep away from corruption so that they preserve their position as innocent third parties in a future dispute.

Colin Russell, Regional Director, Quantum Global Solutions

Key points to consider for a successful claim

• A lot of terms need to be kept in mind during the negotiations. The contracts should provide for procedure for submitting claims in a joint venture, and limited cases where additional costs would be granted.
• Sufficient and contemporaneous records are vital to a successful claim. It is important to maintain records like site diaries, daily/weekly reports, minutes of the meetings, and date stamped photos. The parties should avoid complicated, non-clear and emotional correspondences; and adhere to simple and professional language. All of these are helpful evidence to support the claim.

Pranav Mago, Head of South Asia, Singapore International Arbitration Centre (SIAC)

SIAC, SIMC, and the importance of the seat of arbitration

• Dispute resolution clauses should be kept as simple as possible. SIAC offers efficient case management support along with the scrutiny of awards. Compared to other institutions, SIAC is the cheapest yet no less responsive. SIAC’s arbitration costs including arbitrator fees are calculated on an ad valorem basis, that is, based on the amount in dispute. Therefore, choosing SIAC arbitration makes a lot of sense for high-stake contracts like construction and energy deals.

• As Singapore International Mediation Centre (SIMC) works in close cooperation with SIAC, and with the growing choice of mediation being a preferred dispute settlement mechanism; SIAC offers the parties the option to mediate after the commencement of arbitration through the Arb-Med-Arb protocol. This is very helpful because if there is a dispute with the settlement agreement itself, the agreement can be enforced under the New York Convention as an arbitral award.
• Choosing the right seat for your arbitration is critical but it does not mean that hearings must take place at the seat. Hearings can take place anywhere else, including via video conference. SIAC supports the use of technology in conducting arbitration if it is the parties’ preference.