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Legal Aspects of Contract

Class 5

Damages in Contract
• Example/ Situation
• Tata-Docomo Dispute: Tata expressed inability
to buy back DoCoMo’s 26 per cent share in the
joint venture (JV) as per the JV Agreement
• Failure of Tata to perform the term in the JV
Agreement led to dispute
• $ 1.18 billion damage to be paid to Docomo

• In case of breach of contract terms parties can claim for Damages • Damages. The suffering party’s right to compensation .Cont.

5 billion • As per the media. Indian government is in favour of moving to electric locomotives and wanted to cancel the contract with GE .GE contract example • General Electric was awarded a contract to make 1000 diesel locomotive by Indian government • The contract value is roughly around $2.

Cont.” said an official who did not want to be quoted. it would be liable to pay GE damages that would include compensating investment made by the company. . • “The company has placed supply order of about $1 billion with its suppliers who would raise claims on GE which in turn would seek that from the government. • In case the government decides to scrap the project.

• Example: A company was to supply power to its contractor for a construction job. . The contractor is claiming the money from the company. The contractor hired a generator set.Cont. • It cost the contractor 2 lakhs. • The company failed to provide it.

• Can the contractor claim damages? • Can the contractor claim the entire additional expense incurred as damages? • Is damages limited to Business to Business contracts? .Cont.

• Based on loss suffered by the innocent party ▫ Additional expenses incurred.Rs.Cont. 2 lakh in this case ▫ Loss of profit-Profit which the contract would have gained • Damages could be claimed in both Business to Business (B2B) and Business to Consumer (B2C) contracts .

2017 • As per the contract.Liquidated Damages • Example/Situation: Mega Builders Ltd entered into a contract with Great Steel Ltd to procure steel required for construction • Great Steel Ltd is to provide steel by 15th December. they have to pay damages of Rs. 5 lakh per week . if Great Steel Ltd fails to do so.

Cont. • Pre-determined amount for damages to be paid is mentioned in the contract • What is the benefit of pre-determining the damages to be paid? .

• Avoid dispute and court proceedings • Clarity on the amount to be paid • Caps the maximum damage to be paid in case of default .Cont.

supply the stores/services and conduct trials.” . at his discretion. installation of equipment.BARC Contract Template-LD Clause • “In the event of the CONTRACTOR’s failure to submit the Bonds. • The BARC may also deduct from the CONTRACTOR as agreed. Guarantees and Documents. the BARC may.5% of the contract price of the delayed/undelivered stores/services mentioned above for every week of delay or part of a week. training. etc as specified in this contract. subject to the maximum value of the Liquidated Damages being not higher than 5% of the value of delayed stores/services. withhold any payment until the completion of the contract. liquidated damages to the sum of 0.

• Mega Pipes Ltd.Cont. was required to supply pipes for oil exploration to English Petroleum within a period of 6 months from the time of entering into contract • Mega Pipes failed to deliver on time due to labour problem and a major repair work at their factory • Liquidated damage clause in the contract capped the damages at $2 million .

• Due to the delay of three months in delivering the pipes. the English petroleum is now claiming that they had loss of $4 million as damages • Should Mega Pipes pay $ 4 million as damages? .Cont.

18 crore. MHA issued instructions to BSF. • Border Security Force has failed to levy over Rs 2 crore of liquidated damages on HAL for delay in supply of a Dhruv helicopter by 19 months. to initiate action for liquidated damages as per the provision contained in Memorandum of Understanding . • Failure of BSF to invoke provisions of the agreement led to non-levy of liquidated damages of Rs 2.Cont. After the issue was raised in audit.

. • Indicting NHAI for undue favour to a developer on a stretch.NHAI suffers Rs 400 cr loss on non- recovery of damages from builders: CAG • National Highways Authority of India (NHAI) suffered losses of about Rs 400 crore on various counts including undue favour to developers by not recovering damages for project delays. government auditor CAG has said. CAG in its latest report said it cost NHAI a loss of nearly Rs 100 crore.

consumer interest protection compensation are usually possible in B2C contracts • In case of B2B certain of situations are looked into ▫ Punitive/Exemplary damage-discretion of court of law ▫ Payment for negligence leading to public health or environmental disaster. Bhopal gas tragedy .Contractual Damages • Mental agony.Eg.

. dispute LD clause.Takeaway points for Managers on LD Anticipate the Using a trade Win-win major losses and parameter would situations reduce create reasonable be beneficial.

000 kg of steel to Best Infrastructure Ltd by 1st October.Force Majeure • Example/Situation: Great Steel Ltd was supposed to provide 10. 2017 • Due to heavy flooding and cyclone the Great Steel is not in a position to honour the contractual obligation • Great Steel Ltd informed Best Infrastructure that flooding and cyclone are events beyond their control .

Cont. • Force Majeure.Impossibility of performance of contract due to unforeseen event/ situation beyond the control of the parties • Releases both the parties from contractual obligation • Also referred to as ‘Act of God’ • What events should a Force Majeure clause include? .

• Pursuant to the JV Agreement. .Situation • A joint venture was formed in India between HY Cars of South Korea and MH Cars of India. HY Cars informed MH Cars that they would like to pull out of the JV for reason of force majeure as their business in South Korea is affected by war. both HY Cars and MH Cars invested around Rs.100 crore each into the joint venture • Recently.

• Force majeure events should be defined in the contract • In case force majeure events are not defined. it could lead to legal dispute .Cont.

Reliance Force Majeure example (Source: Reuters) • “India’s Reliance Industries has declared force majeure on gasoline exports from its Jamnagar site • The force majeure follows an unspecified issue at a gasoline-producing plant • Force majeure is typically declared when matters deemed beyond a refinery’s control disrupt supplies. allowing it to void some of its contractual obligations to customers.” .

This needs to be considered by parties entering into agreements.Is act of terrorism a force majeure event? Force majeure and terrorism • The unfortunate new reality post 9/11 and 26/11 is that terrorism is a very real threat and may unfortunately no longer be considered as an unforeseen possibility. thereby making it more difficult for parties to claim Force Majeure. contracting parties may now consider amending standard force majeure provisions by including “acts of terrorism” as an enumerated Force Majeure event . • Thus.