A construction project may involve several layers of contractual relationships, especially when one contractor is replaced by another. But what happens if the previous contractor later challenges that replacement and tries to invalidate the new contract?
This was the situation faced by Salus Legal’s client, a major construction company in Kazakhstan. The matter was handled by the firm’s Dispute Resolution team led by partner Duman Akhmetov. As a result, courts of two instances refused to invalidate the client’s contract and confirmed that the new contractor had acted in good faith.
Background of the Dispute
The client entered a construction project valued at more than US$5 million after the customer terminated its agreement with the previous contractor. The project was then transferred to Salus Legal’s client through a tender process, and a separate construction contract was signed.
The client began performing the works. However, the previous contractor later challenged the termination of its own agreement and succeeded in having that termination declared unlawful.
This created a complicated legal situation: one construction project now involved two contracts. The first was the original contract, whose termination had been found unlawful. The second was the new contract with Salus Legal’s client, which was already being performed.
The previous contractor then brought a separate claim seeking to invalidate the new contract. The argument was that if the termination of the original agreement was unlawful, then the customer had no legal basis to transfer the project to another contractor.
For Salus Legal’s client, the risk was significant. The company had already started the works and invested its own resources into the project. If the contract had been invalidated, the client could have faced serious financial losses.
Defense Strategy
The case required more than a formal legal response. Salus Legal’s team reviewed the full history of the project, including the contractual framework, the reasons for replacing the contractor, the tender procedure, the client’s entry into the project, and the construction and performance documentation.
The litigation strategy was built around the commercial reality of the project as well as the legal position. The team had to show that the dispute over the first contract could not automatically destroy the rights of a new contractor that had entered the project lawfully and in good faith.
The defense was based on four key points:
1. The contracts were legally separate
The fact that the termination of the previous contract was later declared unlawful did not automatically make the new contract invalid. The two agreements had different parties, different legal grounds and separate contractual effects.
The fact that the termination of the previous contract was later declared unlawful did not automatically make the new contract invalid. The two agreements had different parties, different legal grounds and separate contractual effects.
2. The client acted in good faith
When the client signed the contract and entered the project, there was no court decision declaring the previous termination unlawful. The client relied on the customer’s decision, participated through the tender process and had no reason to believe that its contract could later be challenged.
When the client signed the contract and entered the project, there was no court decision declaring the previous termination unlawful. The client relied on the customer’s decision, participated through the tender process and had no reason to believe that its contract could later be challenged.
3. The claimant chose the wrong remedy
Even if the previous contractor believed that its rights had been violated, the proper remedy was not to invalidate a contract with a third party. Its claims should have been directed against the customer, including through a claim for damages.
Even if the previous contractor believed that its rights had been violated, the proper remedy was not to invalidate a contract with a third party. Its claims should have been directed against the customer, including through a claim for damages.
4. The claim attempted to disrupt a project already being performed
By the time the claim was filed, the new contractor had already completed a significant part of the works. In practical terms, the lawsuit was an attempt to return to the project after it had already moved forward with another contractor.
By the time the claim was filed, the new contractor had already completed a significant part of the works. In practical terms, the lawsuit was an attempt to return to the project after it had already moved forward with another contractor.
What Contractors Should Do in Similar Situations
If a contractor’s agreement is challenged in court, the first priority is to document everything: the scope of completed works, the legal basis for entering the project, tender documents, customer instructions, handover acts and all construction-related records.
These documents are essential for showing that the contractor acted lawfully, relied on the customer’s decisions and performed the project in good faith.
Outcome of the Case
The case was heard by the court of first instance and later by the appellate court. Salus Legal represented the client throughout the process, including document analysis, development of the legal position, participation in hearings and defense of the client’s position on appeal.
The court of first instance dismissed the claim in full. The appellate court upheld that decision and confirmed the key findings.
The courts found that:
As a result, the client’s contract remained valid, and the risk of invalidation was fully eliminated.
- the client did not know and could not have known that the termination of the original contract would later be declared unlawful;
- the customer had entered into the new contract lawfully and had not acted with the purpose of avoiding liability;
- the client acted in good faith;
- the project was already at a final stage by the time the claim was filed;
- the unlawful termination of the original contract did not automatically invalidate the contract with the new contractor.
As a result, the client’s contract remained valid, and the risk of invalidation was fully eliminated.
Why This Case Matters
This case is important for contractors working in Kazakhstan’s construction sector. It shows that even where a project involves a legal dispute between the customer and a previous contractor, this does not automatically put the new contractor at risk if it entered the project lawfully and acted in good faith.
Construction disputes of this type require not only knowledge of civil law, but also an understanding of how the project actually works: the contractual structure, tender process, transfer of works, performance documentation and commercial risks.
This approach is central to Salus Legal’s Dispute Resolution practice, which is ranked Tier 2 by The Legal 500.
If your company is facing a contract challenge or is already involved in a construction dispute, Salus Legal can assess the situation and develop a defense strategy tailored to the specifics of the project.
