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MATTER:

Dispute resolution of the thermal power project EPC Contract, valued at up to 438 million USD (2017)

CLIENT:

A subsidiary of Vietnam Electricity Group

BACKGROUND:

The Client, a subsidiary of Vietnam Electricity Group, is the Employer of a thermal power plant project in the North (“Thermal Power Plant”), having 2 machine assemblies (machine assembly No. 3 and No. 4) with a power sum of 600MW/year, of which investment principle approval was approved by the Prime Minister in 2003 and of which construction investment project was approved in 2006. In November 2006, the Client signed an EPC Contract with a Chinese Contractor (“Main Contractor”) on the design, execution, procurement, installment, and test on completion of the Thermal Power Plant, the contract price being of 420 million USD, time for completion (PAC) of the machine assembly No. 3 was agreed to be in February 2010 (corresponding to 32 months of execution) and the machine assembly No. 4 was agreed to be in July 2010 (corresponding to 37 months of execution). The financial funding arrangement to pay for the EPC Contract was consisting of a 85% import-export financing loan from a Chinese Bank (“Financing Bank”) and 15% of equity.

In April 2007, the Client and the Financing Bank signed a commercial loan contract allocating an amount of nearly 356 million USD to pay 85% of the EPC Contract price which had been signed with the Main Contractor. However, until October 2010, such the loan agreement took effects. Therefore, in July 2011, the Client and the Main Contractor signed an Addendum to amend the EPC Contract, accordingly amending (i) the date of resume of the project execution: June 1, 2011; (ii) Issuance of PACs for machine assembly No. 3 by December 31, 2012, at the latest; (iii) Issuance of PACs for machine assembly No. 4 by May 31, 2013, at the latest; (iv) the Contract price increased to USD 438 million (with the gap being of USD 18 million). This addendum will be effective upon fully satisfaction of the followings: (i) this addendum is executed by the parties; (ii) this addendum is approved by the authorities (“the Addendum”).

However, the completion of the Project was behind the agreed schedule, the PAC issuance date of machine assembly No. 3 was nearly 2 years behind the schedule as agreed by the provisions of the EPC Contract (Machine assembly No. 3 was actually granted to the PAC on January 1, 2014).

In 2017, both parties were proceeding the procedures for payment and finalization of the EPC Contract, the Client claimed the Main Contractor that the time for completion was behind the schedule and asked the Main Contractor to pay Liquidated Damages of 5% of the EPC Contract price. The Main Contractor made an encounter claim that due to the delayed approval of the Addendum, the Main Contractor shall be entitled to claim for an extension of the time for completion under the EPC Contract and claim the Client to pay for costs and expenses incurred during pending the approval of Vietnam authorities to commence all on-stie execution activities.

The Client appointed ATIM LAW FIRM as their legal advisor to thoroughly review the EPC Contract and other supported documents and to advise the Client to respond the Main Contractor's claims on additional expenses and extension of time for completion.

LEGAL ISSUES:

The Main Contractor’s claim on extension of time for completion with the reason that the Employer was delayed in obtaining approvals of the Vietnamese authorities for the Addendum and failed to provide evidences proving that financial arrangements has been available for payment under the EPC Contract. In this regard, ATIM LAW FIRM found several legal issues that the Client should pay attention to as follows:

• In fact, it took a quite long time for the Client to obtain the necessary approvals from the Vietnamese authorities for the Addendum, accordingly, it took 04 months to get the approval of the Client’s Board of Directors, then the Client continued to report to the Ministry of Industry and Trade where the Ministry of Industry and Trade continued forwarding to the Prime Minister, so the time continued to last longer.
• Meanwhile, the EPC Contract and the Addendum left the authority and the timeline to get approvals blank. Under laws of Vietnam, which is the governing law, timeline to obtain approvals should be specified in the Client’s Charter and internal regulations. According to the Client’s Charter, the Board of Directors has the authority to approve. However, the Charter also kept silent on the timeline to deliver the approval. On the other hand, laws of Vietnam had no specific regulation regulating the Client’s obligation to report to the Ministry of Industry and Trade or asking the Prime Minister’s opinion.

SOLUTIONS:

ATIM LAW FIRM's lawyer reviewed the EPC Contract and other related documents, along with the study of laws and regulations, opined the Client on its advantages and disadvantages in dealing with the Main Contractor's claims and consulted how to build arguments to protect the Client’s benefit against those claims, more specifically as follows:

• With respect to the claim on extension of time for completion with the reason that the Employer delayed in obtaining the approval of the Vietnamese authorities for the Addendum, ATIM LAW FIRM realized that the Client should base on the following strengths to develop and strengthen argument against the Main Contractor’s claims. Accordingly, the Addendum only adjusted the final deadline for granting PACs of 2 machine assemblies. For the rest of the EPC Contract, which have been effective previously, will continue to be in effect, the parties must continue to perform even if the Addendum has not been approved, except for those where there is a previous written order to suspend the execution sent out by the Employer under the EPC Contract. Therefore, if the Main Contractor argues that the delay in in approving the Addendum by the authorities resulted in the delay in the validity of the PAC timeline provision and because of that, the Main Contract was unable to continue the execution of the works, such the argument will be supported by no basis. The amendment and approval of the PACs deadline of the 2 units is not suspension order or do not leads to delay in the Main Contractor's obligation in continuously execution.
• With respect to the claim on extension of time for completion with the reason that the Employer failed to present evidences proving that financial arrangements has been available for payment under the EPC Contract, ATIM LAW FIRM opined that the Client should base on the following material issues to develop and strengthen argument against the Main Contractor’s claims. Accordingly, the delay in approving the Addendum will be constituted a failure in presenting evidences proving that financial arrangements being available for payment under the EPC Contract and the Main Contractor will has the right to claim  for extension or suspension upon satisfaction of the followings: (1) during the time when the Addendum was being approved, the Main Contractor sent a written request to the Employer to ask financial arrangement evidences; and (2) the Employer failed to provide upon exceeding 28 days from the date of receipt of this request.

RESULTS:

ATIM LAW FIRM delivered the advice and helped the Client to develop arguments and determine resolution against the Main Contractor’s claims and the Main Contractor agreed with these resolutions