PPP Law, 3-Airport High Speed Rail: Arbitration as Effective Tool to Resolve Disputes

Wirot Poonsuwan

A potential dispute in the 3-airport high-speed rail concession contract is looming.

The concession contract has most likely left out a large crucial chunk: revenue sharing by the concessionaire on the joint track the concessionaire is obligated to build to be co-used by the 3-airport high-speed rail, the northern high-speed rail and the northeastern high-speed rail between the central rail hub of Bang Sue in Bangkok and the Don Muang International Airport, as well as on the inner-city Red Line mass transit, both supplemental projects to avoid duplication and overlapping construction costs of various rail projects.
The concessionaire might be entitled to ask a basic question whether it is required to build the joint track and the Red Line at all, judging from the fact that another key project document, the Request for Proposal (“RFP”) for the 3-airport high-speed rail project omits these two obligations altogether from the list of the private sector’s obligations contained in the Instruction to Tenderers.
Concession vs Request for Proposal

One would expect to find answers to the two uncertainties above concerning the revenue sharing and the obligation to build by reviewing the concession contract. And if the answers are not there, they would wish to seek clarity from the RFP.

Unfortunately in this case, neither the concession nor the RFP can offer any help.

There is nothing conclusive in either document. The concession and the RFP fail to specify the concessionaire’s right to finance, operate, maintain and carry on its commercial operation on the joint track and the Light Red Line and Dark Red Line.

A big empty hole in the concession can be found that could lead to arguments from one side against the other over whether the private sector has the right to finance, operate, maintain, collect revenue from the rail service and from the related commercial development on and surrounding the joint track and the Red Line, or over another consequential question whether the private sector is required to transfer the ownership of these additional related projects to the state project owner after completion of the construction.

The RFP is equally vague, inconsistent and contradictory to itself on the particular issues.

Not Included Is Excluded

A Thai court precedent has laid down a principle that anything a contract does not include means it has excluded, notwithstanding an absence of the explicit exclusion language.

The judicial precedent rules that such implicit exclusion is clear and there is no need for the contract to be interpreted by testimony from individual witnesses or by introducing other documentary evidence to the contrary.

Depending on how the concessionaire wants to construct its position, it could argue that since the RFP does not include its obligations to design and build the joint track and the Red Line, it has no such obligation.

Can the concessionaire rely on the court precedent above to say that since the RFP does not include the obligation it means the obligation has certainly been excluded from the concession? The answer is it could.

Compared with the RFP, the concession contract stipulates the obligation of the concessionaire to design and build quite distinctly.
Both documents are contradictory to each other on this obligation of the private sector to build the joint track and the Red Line. The RFP omits the obligation, but the concession confirms it.

Concessionaire’s Risks Are Lending Banks’ Exposures

The inconsistencies between the concession contract and the RFP pose financial, legal and project risks to the concessionaire. A syndicate of the lending banks, with the ultimate project financing cash flow pinned upon the well-being of the concessionaire and the project, in principle and in reality, assumes such risks in totality.

When the RFP and the concession are in conflict, it could be messy to prove in court and arbitration which document represents the true intentions of the concessionaire and the state project owner.

It is not helpful that the other rights and obligations purportedly belonging to the concessionaire are absent from both the concession contract and the RFP in unison: finance, transfer, operate, maintain and share revenue on the joint track and the Red Line.
Amend Concession to Solve Problem

The best solution for both parties to solve the issue of discrepancies is to amend the concession contract to clarify the issue permanently for their own benefits and for the sake of the lending banks. This would be the recommended remedy for all the stakeholders to mitigate their risks.

This path should be taken despite any grandeur obstacles in place, such as another Cabinet approval for the concession amendment.
In a friendly non-litigation and non-arbitration environment, it is more practical for both parties to attest to the same joint true intentions by amending the concession contract to declare their joint single intention on the issue.

If left untouched, the issue could avalanche into a dispute for litigation or arbitration. 

Proof of Both Parties’ Joint Single True Intention

A passive approach by both parties accepting the status quo and doing nothing to clarify the issue of contention as to how much the concession covers has shown its possibility to develop into a significant controversy at some point when the relationship sours.
At that point, proving the joint true intention of both sides can be inconceivable as the claimant or the respondent would stand firm for its own interpretation of the concession and the RFP.
It would be an uphill task for both sides to prove what their joint true intention was at the time of making the concession contract when they are at odds with each other in an antagonistic win-or-lose scenario.
The common ground would be shrinking fast.
Polarizing Views in Contention
A legal battle, a harsh landing for litigation or lighter skirmishes in sporadic arbitration cases, would perhaps see each side stand firm on its position of interpreting the concession and RFP in its favor with little regard to the other. Either side would claim that a position favorable to it is the joint true intention of both parties, just to win the case.

As an illustration, in order to free itself from any obligation to build the auxiliary, the concessionaire would argue in one extreme that, since it cannot ascertain its right to receive revenue from the fare and commercial operation of the joint track and the Red Line, its intention is to have none of the obligations to design, build, finance, transfer, operate and maintain the two support infrastructure projects at all and this is the joint attention of both parties by way of the RFP excluding the obligation.

What Owner Could Oppose

To contest the private sector’s claim of a concession free of the concessionaire’s obligation to build the supplemental facilities, the state owner of the project would, on the other hand, oppose that view and seek to dislodge the concessionaire’s claim by making the case for an inclusive concession with the private sector’s obligations to build, transfer and operate.

The owner would contend that the RFP is no longer relevant and is replaced and revised by the concession.

Polarizing its position in the other direction, the owner could theoretically counter –argue that the concessionaire definitely has the obligation to design and build the joint track and the Red Line but would not have the rights to operate, maintain, collect the fare and revenue from the rail service and commercial operation as the concession has “excluded” those rights per the court precedent originally cited by the concessionaire above, using the concessionaire’s own weapon against the concessionaire in a reverse effect.
Go for Arbitration, Shun Litigation

In the case where a dispute arises early on during the concession period, don’t wrangle each other out in court. Litigation is hostile, takes long years, and signifies a finality, not conducive to future cooperation.

It is not too late for both sides to agree on arbitration at the time of a dispute.

Although the concession contract openly authorizes litigation in a Thai court as a means to solve their disputes, this is a 50-year collaborative concession, which has just started and calls for a positive working relationship between both sides.

A softer solution in the name of arbitration is wiser and better suited to the characteristics of the concession contract.

Wirot Poonsuwan is Senior Counsel and Head of Special Projects at Bangkok law firm Blumenthal Richter & Sumet and can be contacted at wirot@brslawyers.com.

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