ECRL penalty poser, Govt may have to pay fine
Thursday, 31 May 2018


by P. Aruna

PETALING JAYA: Even if the Government chooses to proceed with the East Coast Rail Link (ECRL) project but seeks to renegotiate the terms of the contract, there could be a hefty penalty involved, said lawyers.

Even if the project is not scrapped, there could be penalty charges as the other party would have incurred mobilisation costs, said senior lawyer Philip Koh.

“Yes, there would be a penalty as a matter of principle, as the counter party would have expended financial outlay for its mobilisation costs,” he said.

The Government has announced that it would be scrapping two mega projects – the KL-Singapore High Speed Rail (HSR) and the MRT 3 project – while it continues to review other new and ongoing mega projects in a bid to cut costs.

On the HSR, Prime Minister Tun Dr Mahathir Mohamad had estimated the compensation to the Singapore government to be at RM500mil.

While the fate of the ECRL remains unknown, it is widely expected that the Government will seek to renegotiate terms of the RM55bil project.

At this point the ECRL, for which China’s Exim Bank is forking out 85% of the funding, is about 13% complete.

“A contract under Malaysian law and international commercial law is binding and must be completed, otherwise there will a breach with consequences of liability in damages,” said Koh.

If the parties involved have sovereign entities, or governmental shareholders, then government to government negotiations could be the starting point, he said.

Senior corporate lawyer Datuk Roger Tan, meanwhile, said that as the terms of the contract are unknown to the public, there could be pre-conditions to be satisfied before the contract becomes effective. “If there are such conditions precedent and they have not been satisfied, then the contract will automatically terminate itself upon the expiry of the period, without any liability to pay compensation,” he said.

However, he said, if the contract was unconditional, in that there were no pre-conditions or the conditions had been satisfied, then it can only be terminated through negotiation. He said government to government contracts usually had a mechanism to resolve the dispute up to the ministerial level.

“If the dispute persists, then the heads of governments may have to be involved.

“Despite this, if the impasse continues, then the contract will usually have a clause to allow one party to refer the matter to international arbitration,” he said.

Commercial Law and Public International Law practitioner Datuk S Murugesan said even if the other party agrees to renegotiate terms of the contract, the process could be lengthy.

“However, we must remember that an agreement is already in place now. There is very little we can do if China refuses to re-negotiate,” he said.

If this happens, he said the Malaysian government must fall back to the contract document to decide on its next move. “We must then look at the agreement to see what is the compensation payable in the event of early termination or if there are other mechanism in the agreement that allows for dispute resolution or mediation,” he said.