With Hong Kong still lacklustre in comparison to its industrious past, Asia's regional markets are now the destinations of choice for construction practices eager for growth

'Integrated resorts' lead Singapore construction boom

Law firms in Singapore are rubbing their hands together with delight as the jurisdiction's real estate and construction boom continues to flood practices with work, led by the large-scale integrated resort or IR projects which have now moved into high gear.

"The recent construction boom is huge in terms of the total value of contract packages awarded - this hasn't been seen in Singapore and probably won't be seen again for a long, long time," says WongPartnership partner Christopher Chuah.

The two resort projects - Marina Bay Sands and Resorts World Santosa - are mixed-use developments containing casinos and will be completed by 2009. The wave of front-end construction work has benefited many firms in the market, with Harry Elias Partnership, WongPartnership, KhattarWong and Drew & Napier just some of the firms acting.

Harry Elias Partnership, acting for Marina Bay Sands, has put 15-20 lawyers from six practice groups to work on the project, which it has said is the single largest brief in its history. WongPartnership, acting for Resorts World, has 12 lawyers involved in the work. KhattarWong's construction and engineering practice is also benefiting from supporting bids by contractors for work on the projects - which is only expected to grow.

The resorts are by no means the sum total of work firms are doing in the sector, which is busy across the board. With Singapore in the midst of a real estate boom, residential and commercial developments have increased in number significantly, as investors seek to capitalise on rising prices. Singapore is also in the midst of another major project - the construction of a business hub and financial district, which includes a number of office buildings, and the bids for the new Singapore Sports Hub PPP are in their final stages.

With construction in full swing, the only setback has been the decision by the Indonesian government to impose a sand export ban or 'sand ban', which has hit the Singapore construction industry heavily due to its reliance on imports from Indonesia.

The result of the ban has been an increase in contentious work for firms, as concrete suppliers were stuck with fixed price contracts that were no longer profitable due to a sharp increase in the price of sand. WongPartnership is advising on a number of these cases, with the first ruling on such a case - NCC International AB v Alliance Concrete Singapore Pte Ltd (2007) - going in favour of the concrete supplier, though the case has now gone to the Court of Appeal.

Macau roulette wheels spinning over casino disputes

As grand casino developments continue to rise at phenomenal rates and adorn Macau's Ko Tai Strip with a new Las Vegas-like glamour, the gaming revenues of the jurisdiction have risen with them, surpassing the volume of its US counterpart, thanks to Chinese gamblers.

With eyes the shape of dollar signs, licence holders have set their projects on aggressive timetables, with each day of potential gaming valued in cases at around the US$1m mark. As a result, the biggest issue facing lawyers in regards to the large batch of Macau casino projects is this million- dollar question: will one of them run late? Should this eventuate, lawyers are expecting a mighty, high value dispute to ensue. Contractors have been forced to respond to this possible eventuality by writing liability caps into their contracts, to limit their still hefty liability should one of the projects actually run late.

The Sands Casino, on which Minter Ellison advised Las Vegas Sands Corporation, made use of a technique not seen in Asia before - construction management - whereby the owner lets contracts directly to about 20 or so trade contractors. The usual technique involves appointing a main contractor who takes on contractual responsibility and pairs work out to sub-contractors, which often results in disputes up and down the chain. With the project completed successfully on time, this method has proven effective so far, and there has been no resultant wave of dispute work for law firms.

However, this rosy picture may be unlikely to continue. The Macau construction boom is still in the early stages of its cycle, and it is usually at the end of the cycle that real disputes arise. Also, with money flowing to the contractors, they are perhaps more interested in getting the job done on time and getting on to the next one, rather than dealing with the issues they may have with their employers, though these issues still exist.

A Macau arbitration is an interesting possibility for the future. At present, no dispute has gone all the way through to final arbitration in Macau, and most contracts name either Hong Kong or Singapore as the preferred venue for resolution. However, some do name Macau, and it is believed it is only a matter of time until one ends up as the first precedent. Pinsent Masons, which has an agreement with a Macau qualified lawyer, believes it is in a prime position to capture such a dispute should one arise in the near future.

With disputes not yet coming their way, front-end construction work has been the mainstay of business for firms like Minters and Pinsent Masons. Specialist firm Pinsent Masons has been representing contractor and consultant clients working on the long line-up of casino projects. This has included contract drafting and ongoing projects advice.

"We've also been advising clients on the kind of issues that come up as they move into that new jurisdiction," Hong Kong partner Jon Howse says. These issues are not always purely construction-related, with employment and labour a burning issue in Macau due to a severe labour shortage and the need to import labour to meet the needs of large projects. This involves dealing with labour quotas and required work permits. In one case, the firm advised on the unfortunate fatal accident of a subcontractor employee in Macau.

Peaks and troughs belie broader Southeast Asian momentum

The Southeast Asian construction market has been tagged by some Hong Kong-based lawyers over the past few years as being 'in the doldrums' when compared to markets like Mainland China and Macau. Of course, the Hong Kong construction market itself is not much hotter, with Macau now the lifeblood of Hong Kong contractors.

However, some lawyers disagree with this prognosis. "Given the nature of the region, there's plenty of work to be done and people are busily investing in Southeast Asia," says Bangkok-based Herbert Smith partner Alastair Henderson. "Country by country, there are cyclical trends, but as a region, it's still an attractive place." Henderson says the last five years have seen high demand for construction legal services.

As with Singapore, which experienced a depressed period for a number of years, the market has recently turned around on the back of a series of mega-projects, and will likely be riding high on the back of this construction wave for the next two years. Thailand at present is at the other end of the scale, with investor interest having been hit by the seemingly unstable political environment following the 2006 Thai military coup.

Vietnam has made up for the lack of interest in Thailand, with many companies redeploying resources due to a promising pipeline of large projects and a favourable new company law.

The Philippines is another market suffering due to perceived political instability, which is turning off investors inexperienced in the market. However, SyCip Salazar Hernandez & Gatmaitan construction partner Rocky Reyes says that the next wave of much-needed infrastructure development is just around the corner, and that the three-year window between mid-year elections could provide a period of confidence. "There's a 'wait and see' attitude for many projects here in the Philippines," Reyes says. "There's a big appetite for these new projects in Asia, so the competition is tight for investment dollars with countries such as Vietnam, Thailand and Indonesia," he says.

Another black mark against the Philippines is its disputes regime, which allows the Construction Industry Arbitration Commission (CIAC) exclusive jurisdiction over disputes, regardless of whether a foreign venue has been stipulated in the contract as the agreed resolution location. In some cases, foreign parties are being forced into a local resolution.

From a legal perspective, Henderson says it is the overlay of political and other issues in Southeast Asia that makes it more interesting and complicated to negotiate as a practising lawyer, and despite the peaks and troughs across the region's diverse markets, it still holds a lot of promise. "It's a bit like a tide - it flows and ebbs in each market, but generally across the region, there's a significant volume of work."

Towards a 'project counsel' role?

With lawyers often employed in a piecemeal fashion by clients on construction projects, often leading to dealing with disputes after the fact, there is an indication that some clients may be choosing to use law firms more proactively and on an ongoing basis throughout larger-scale projects - no doubt at the urging of their regular counsel.

Pinsent Masons partner Jon Howse says that a 'project counsel' style role has developed in Hong Kong and the regions over the past three years, where the firm has been brought in by typically international contractors at the drafting and negotiation stage and has been invited to come in as part of the team as the project unfolds, dealing with issues such as risk management, letting sub-contracts and environmental issues, and as with most construction work, dealing with claims as they come in, usually at the end of the process.

"Five or six years ago we might have been brought in at the end when claims couldn't be settled, but increasingly, people are coming to us and saying 'help us develop the claims', if it's for the contractor, or 'deal with the claims' for the employer, to make sure that we get out proper financial entitlements as the project works through, and hopefully we'll resolve things without a massive arbitration at the end," Howse says. "The message we've been banging on to our clients is that one hour at the right time writing a letter that's properly worded and protects their position is worth 20 hours later on in an arbitration, arguing about the letter that said the wrong thing."

WongPartnership's Christopher Chuah says the firm has also been involved in 'project counsel' style appointments, though these are usually for larger projects, such as work the firm has done in China, where it has managed work from reception to delivery.

Herbert Smith has also managed construction projects in Southeast Asia on this basis, although Henderson says he would not necessarily call them 'project counsel' roles. "Clients who want you at the front-end will usually want you to help all the way through," he says. However, he says that front-end appointments are less common in the region than in more developed markets, as clients operating in these regional jurisdictions may find it hard to support the additional legal expense of a 'project counsel' style appointment. ALB