Management of Data Centres in Singapore - Key Legal Issues Part 3 - Managing Potential Disputes as a Data Centre Operator

In Part 3 of this series of articles, we provide some perspectives on potential disputes arising out of operating data centres.

Data centres are designed to operate around the clock. Any disruption to the services at the data centre can result in critical loss of data, corruption of files as well as damaged equipment, all of which could prove to be costly for data centre operators. Even a momentary break in electricity supply to a data centre can result in severe consequences, especially where any disruption is calculated in the milliseconds.

Similarly, the cooling capacity of the data centre spaces is also important to ensure energy efficiency and prevent the servers from overheating. Prolonged or sustained failures of the cooling systems can cause overheating and damage to sensitive IT equipment.

As such, it is critically important that data centre operators ensure from the outset that necessary steps are taken to safeguard and prevent any disruptions to the power supply and cooling systems.

In Global Switch (Property) Singapore Pte Ltd v Arup Singapore Pte Ltd [2019] SGHC 122 (“Global Switch”), the Singapore High Court dealt with a claim by Global Switch (Property) Singapore Pte Ltd (“GSS”) against its M&E consultant, Arup Singapore Pte Ltd (“Arup”) for damages of over S$23.8 million arising from a disruption to power supply. It transpired that in May 2013, GSS’ data centre experienced a disruption of the utility mains power supply. The backup electrical systems that were designed to provide uninterrupted conditioned power to the IT systems became overloaded and this resulted in the failure of the IT equipment of some of GSS’ data centre customers.

This particular dispute involved a scrutiny of the contract for the provision of power supply to the data centre and subsequent discussions between the parties to vary the contract.

The Power Supply Issue

The contract between GSS and Arup originally obliged Arup to provide 4,000 kW of power, subject to a diversity factor of 0.9 (i.e. 3,600 kW). As a result of certain cost and space constraints imposed by GSS, Arup was only able to provide 2,800 kW of power. Arup sought to argue that the contract had been varied to lower its obligation to provide power from 3,600 kW to 2,800 kW of power. GSS disagreed and argued that Arup’s obligation to provide 4,000 kW of power under the contract was unchanged.

The Court found that the contract had indeed been varied as argued by Arup and that GSS had in fact participated in the decision-making process to vary the contract. Furthermore, the Court found that the cost and space constraints imposed by GSS at the data centre made it implausible for Arup to have been able to provide more than 3,600 kW of power.

The takeaway for data centre operators is that in the process of negotiating the provision of power supply of the data centres with contractors, operators should be clear about the parameters and specifications that they require, such as the required wattage as well as diversity factors. These requirements should be clearly recorded in the contract. Operators should also communicate clearly with their contractors in the event of any variance or change in requirements during the lifespan of the project and keep proper records of all such communications. Operators should also document any variations or changes in accordance with contractual requirements.

Dealing with customers’ requirements

One issue that GSS had to deal with during the operation of the project was a requirement by a potential new customer at the time for power in excess of 2,800 kW. Quentin Loh J found that GSS must have realised that the 2,800 kW available to them would not have been enough to service its new customers, which led to GSS attempting to find solutions to increase the power supply available. This became a cause of much friction between the parties as GSS sought answers from Arup as to why 4,000 kW of power had not been provided.

In this respect, data centre operators should be aware of both the maximum power that their equipment can provide and the average load that their systems can handle. It is important for data centre operators to understand the capabilities of their own data centres as this will allow them to avoid overpromising to their existing customers and/or potential customers.

Fit-for-purpose argument

Yet another issue that arose was an implied term that Arup should have provided sufficient power such that the data centre was “fit-for-purpose”.

This argument was flatly rejected by the Court. If data centre operators have any specific standards or requirements that they want their contractors to comply with, they would do well to ensure that these standards or requirements are expressly provided for within the contract itself. The risk in failing to make such standards or requirements clear within the contract itself is that data centre operators would then need to rely on the difficult task of implying such terms into the contract.

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute as legal advice and is intended to provide general information only. Information in this article is accurate as of 14 June 2023.

Authors: Jonathan Choo (Partner), Adly Rizal (Senior Associate) and Lieu Kah Yen (Trainee).

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