Contractual relations, in the case of a turnkey construction contract, the contractor assumes all responsibilities for construction and its provision and must deliver the facility ready for operation to the customer in accordance with the terms of the contract

The Limited Liability Partnership "Zhol Zhondeushi Company" (renamed to "I" LLP) and KAZ LLP (KAZ) (hereinafter referred to as the Consortium, the customer) appealed to the court to JSC "N" (hereinafter referred to as JSC, the contractor) to compel them to consider and approve the consolidated calculation and local estimates for the start-upcommissioning of the Arkalyk-Shubarkol railway line construction project. The claim was denied by the decision of the specialized inter-district Economic Court of Astana on July 24, 2017. By the resolution of the Judicial Board for Civil Cases of the Astana City Court dated October 11, 2017, the court's decision was overturned and a new decision was made to satisfy the claim. The JSC is responsible for reviewing and approving the consolidated calculation and local estimates for commissioning work on the Arkalyk-Shubarkol railway line construction project. The Judicial Board for Civil Cases of the Supreme Court overturned the decision of the appellate instance, upholding the decision of the court of first instance on the following grounds. The Court found that the Consortium and JSC had concluded an agreement dated May 28, 2012 No. 3-TSZHDS (hereinafter referred to as Agreement No. 3) and an agreement dated June 28, 2012 No. 6–TSZHDS (hereinafter referred to as Agreement No. 6) on long-term procurement of turnkey construction of the Arkalyk railway line.Shubarkol". According to the terms of contract No. 3, the contractor has committed to perform work on the construction of facilities at the Arkalyk-Maybulak station site in the amount of 70 150 284 895 tenge, including value added tax (hereinafter – VAT). By an additional agreement dated September 8, 2015, the value of contract No. 3 was reduced to 57,413,327,171 tenge, including VAT. Under the terms of contract No. 6, the contractor undertook obligations to carry out work on the construction of the ArkalykShubarkol railway line: facilities at the Shubarkol station-Maybulak station in the amount of 49 500 117,036 tenge including VAT. By an additional agreement dated September 9, 2015, the contract amount was increased to 53,898,240,139 tenge, including VAT. The Consortium stated in the claim that the design and estimate documentation (hereinafter referred to as the PSA) for the construction of facilities did not include the costs of commissioning. The Court of first instance, rejecting the claim, proceeded from the fact that, under the terms of the contracts, the general contractor assumed the obligation to build and deliver the facility ready for operation, including testing and commissioning. The obligation has been assumed to develop a PSA in accordance with the design assignment and the feasibility study. The Court of appeal, overturning the court's decision and satisfying the claim, motivated by the fact that, according to the assignment for the development of the PSD of construction sites, the plaintiff is required to determine the amount of commissioning work with estimates for their implementation.

The consolidated estimate is subject to industry and state expertise after consultation with the defendant, which has not been reviewed or approved by him. However, it is impossible to agree with such conclusions of the court of appeal, since they are based on the incorrect application of substantive law and do not correspond to the circumstances of the case. In accordance with paragraph 3 of Article 651 of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the Civil Code), under a turnkey construction contract, the contractor assumes all responsibilities for construction and its provision and must deliver the facility ready for operation to the customer in accordance with the contractual terms. According to paragraph 1 of Article 654 of the Civil Code, the contractor is obliged to carry out construction and related work in accordance with the project documentation defining the scope, content of work and other requirements for work, and the estimate determining the price of work. In the absence of other instructions in the contract, it is assumed that the contractor is obliged to perform all the work specified in the project documentation and in the estimate (design and estimate documentation). By virtue of paragraph 4 of Article 652 of the Civil Code, the contract may provide for the transfer of possible construction risks to the contractor (turnkey construction). It was established that during the PSA examination at the RSE Gosexpertiza, the commissioning work was excluded, and therefore the estimated documentation for these works was not reviewed and accepted for production. The letter dated November 5, 2013, referred to by the court of appeal, cannot be taken into account as reliable and admissible evidence. Due to the lack of funds at the joint-stock company, it was decided to divide the construction of the facility into the 1st and 2nd stages of construction. The contracts for the 1st stage were fulfilled and the construction was put into operation by the act of the state acceptance commission, and the construction of the 2nd stage was excluded, as it does not affect the safety of railway transport. Therefore, the applicant's arguments deserve attention that the approval of the consolidated calculation and local estimates for commissioning will entail a subsequent increase in the amount of contracts and additional costs, as evidenced by the correspondence of the parties on compensation for the costs incurred for commissioning. Construction contracts were concluded in accordance with the Rules for the Procurement of Goods, Works and Services of JSC National Welfare Fund C and organizations, fifty or more percent of the voting shares (participation interests) of which are directly or indirectly owned by JSC C on the right of ownership or trust management through an open tender.

Thus, the judicial board considers the arguments of the petition that the project includes funds from the republican budget to be justified, which in turn already excludes unforeseen costs. For the reasons outlined above, given that the case does not require the collection and additional verification of evidence, the circumstances of the dispute have been fully established, but the court of appeal made an error in evaluating evidence, interpreting and applying substantive law, the judicial board believes that the appeal decision should be overturned while upholding the decision of the court of first instance. By virtue of Article 109 of the Civil Procedure Code of the Republic of Kazakhstan, a state fee paid when submitting a petition to the Supreme Court of 50% of the state fee rate established in paragraph 1 of Article 610 of the Code of the Republic of Kazakhstan "On Taxes and Other Mandatory Payments to the Budget" (Tax Code) is subject to collection from the Consortium in favor of the applicant. of a non-property nature, in the amount of 601 tenge. At the same time, when submitting the application, the JSC paid an excessive state fee to the budget in the amount of 602 tenge, which is subject to refund by virtue of Article 108 of the Tax Code. 

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