Our Partners, T. Kuhendran, Susan Tan Shu Shuen and Koh Shien Lin from our Construction Dispute Resolution practice group, have successfully secured a favourable Partial Award for our client, the Subcontractor in a highly complex arbitration against the Main Contractor arising out of a bespoke Subcontract for the construction of a critical sewerage infrastructure project in Kuala Lumpur (the Project).
On 13.12.2014, the Main Contractor appointed the Subcontractor to execute the works under a Subcontract drafted on bespoke terms, rather than standard form conditions. Disputes subsequently arose concerning fundamental issues of contractual interpretation, specifically whether the Subcontract was design and build or build-only in nature, and whether it was fixed-price lump sum contract, and whether variation orders were required where the finalised design radically departed from the original scope.
The dispute was both legally and factually intricate. There were substantial changes during the final design stage, consultant-driven design delays, and significant increases in scope. The Subcontract continued for a considerable period under a cloud of uncertainty as the parties sharply disagreed on the risk allocation and contractual responsibilities under a non-standard contractual framework.
On 10.6.2016, the Main Contractor issued a Notice of Termination under Clause 23 or alternatively at common law, principally alleging that the Subcontractor had failed to proceed with the works regularly and diligently and breached its purported design obligation. The Subcontractor contended the termination was premature and wrongful, accepted the repudiation and treated the Subcontract as having ended.
The dispute was referred to arbitration before a three-member arbitral Tribunal. Recognising that the heart of the dispute turned on contractual construction, entitlement to extensions of time and the validity of termination, the arbitration was bifurcated into :
(i) Stage 1 – Liability under the Subcontract; and
(ii) Stage 2 – Quantum under the Subcontract and disputes under two related contracts.
The bifurcation was critical as it confined the proceedings to the core issues of contractual interpretation and risk allocation at the first stage, thereby substantially narrowing the scope of any subsequent quantum exercise and preventing unnecessary expenditure of time and costs.
In a Partial Award delivered at the conclusion of Stage 1 of the proceedings, the Tribunal found decisively in favour of the Subcontractor and held that:
(a) The Subcontract was not a design and build contract;
(b) The Subcontract was not a fixed-price lump sum contract;
(c) The Subcontractor was entitled to an extension of time until 10.5.2022 for the overall completion of the Project, including due to substantial increase in scope of works and other extenuating events, and that the Main Contract had unconscionably refused to grant corresponding extensions despite having obtained extensions from the employer for the same delay events; and
(d) The termination of the Subcontract was premature and wrong in law.
This outcome was achieved in a highly complex and factually dense arbitration involving bespoke contractual clauses, competing interpretations of risk allocation, layered delay analyses, and fundamental disputes over the nature of the Subcontract itself. The case turned not on standard form provisions, but on the meticulous construction of negotiated, non-standard terms and the careful forensic analysis of contemporaneous project records. By focusing the Tribunal squarely on the proper interpretation of the Subcontract and dismantling the Main Contractor’s characterisation of the contract as a design and build, fixed-price lump sum arrangement, the team removed the very foundation of the termination case.
During the arbitration, the Main Contractor further contended that adverse inference should be drawn on the basis that certain key and material witnesses said to have been directly involved in the Project were not called to testify. The Subcontractor, which was in receivership, called its Receiver and other factual witness, and relied extensively on contemporaneous documentary evidence. The Tribunal rejected the invitation to draw any adverse inference, holding that the dispute could properly and fairly be determined on the documentary record and contractual analysis.
Notably, the Tribunal observed that the Main Contractor could have resorted to the contractual mechanism of imposing liquidated damages but instead elected to terminate the Subcontract — a course the Tribunal found to be unreasonable in the circumstances. The Subcontractor now advances to the quantum stage with liability firmly determined in its favour.
This matter stands out for its technical depth, its strategic procedural approach, and the Tribunal’s endorsement of a document-driven, legally rigorous resolution of complex construction risk allocation issues.
