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PROFESSIONAL PRACTISE-2
PRESENTATION BY: AYESHA ZAHRA || R. SAI YASWANTH || RIFQUTH SB||
 STRUCTURE OF PRESENTATION
● A GENERAL STUDY ( AIA) IN THE INDIAN CONTEXT CONSTRUCTION CONTRACTS
● JUDICIAL LAWS IN THE INTRODUCTION DAMAGES IN CONSTRUCTION
BUILDING INDUSTRY ROLE OF JURISDICTION CONTRACTS
● CLAIMS - NEGLIGENCE & SEPARATION OF POWER BREACH IN CONSTRUCTION
BREACH OF CONTRACT STRUCTURE OF COURTS CONTRACTS
● VICARIOUS LIABILITY DISPUTE RESOLUTION CALCULATION OF DAMAGES
● DEFENCES TO CLAIMS JUDICIAL REVIEW THE THRESHOLD
● STATUTE OF LIMITATIONS UPHOLDING THE LAW & CONCLUSION
● STATUTE OF REPOSE ENFORCING FUNDAMENTAL
RIGHTS
JUDICIARY UNDER THE INDIAN
CONSTITUTION
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 JUDICIAL CONSCIOUSNESS

Architects, like other professionals, render their services in a difficult and

complex environment. In order to be successful, knowledge of the basic
components of the legal requirements that govern their profession is
essential.
In a very broad sense, issues of law impacting architects can be broken
into two general categories: party disputes and administrative
Party disputes
proceedings.
Party disputes, the focus of this section, occur when problems arise on
a project, such as delays, failures, or potential failures relating to the
work performed, fee controversies, and a long list of other issues. Administrative disputes
Administrative issues arise from regulations developed to implement
civil statutes and other legal requirements, such as the area of
professional licensing.
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 JUDICIAL CLAIMS TO COURT

Statute of Limitations
For instance, generally stated, a claim based upon negligence against a
design professional must be asserted within 3 to 10 years (depending upon
the particular state’s statute) after the completion of the project.

Statutes of Repose Design negligence

Serve to set time limitations under which claims can be made against (STATUTE OF LIMITATIONS)
architects and others.
statutes of repose commence running at the time that the alleged digression is
discovered, and the statutory period for bringing a claim after discovery of the
discretion is typically much shorter than a statute of limitation period. In addition,
there is also a strict cutoff date for rights of action.
For instance, a statute of repose against an architect could run for two years
from the date a plaintiff knew or should have known about a claim, but that
same statute would limit.
Set time limit
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(STATUTE OF REPOSE)
 JUDICIAL CLAIMS TO COURT

Defenses to Claims
In the unfortunate, but not infrequent, event that a dispute does arise
on a construction project, the architect may have a variety of
contractual or statutory defenses to bolster the factual arguments
that may be made. While the law varies from state to state.

Third-Party Actions Defenses to claims

In addition to their obligations for damages to the party with whom
they contract, architects can also be held liable for negligent acts,
errors, or omissions that physically injure or damage third parties
with whom the architect has no contractual relationship. These third
parties include construction workers, passersby, and occupants or users
of projects.
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Third party actions

 JUDICIAL THEORIES FOR ARCHITECTS
Negligence
The two legal theories most often alleged in claims against architects are “negligence” and
“breach of contract.”
Negligence
The existence of negligence is often more difficult to determine than whether a breach of
contract has occurred. Under the law, there are four components that must be proven in
order to prevail when asserting a negligence claim. They are as follows:
● Duty-The architect must owe a legal duty to the person making the claim. In other
words, the architect has a legal obligation to do something or refrain from doing something.
● Breach-The architect fails to perform the duty or does something that should not have
been done.
● Cause-The architect’s breach of duty is the proximate cause of harm to the person making
the claim. That is, was the claimant injured or harmed as a consequence of the act and/or Damages
omission of the architect without any intervening cause?
● Damage-Actual harm or damage must have resulted from the breach.
Damages
If the case were litigated or arbitrated, the judge, jury, or arbitrator would have to decide
what that compensation would entail based upon the arguments set forth by the
litigants.
For instance, if litigation resulted in a finding that an architect improperly designed a set of
stairs that did not meet the applicable building code and those stairs were subsequently
constructed in accordance with those faulty plans, an owner may be entitled to the cost of
removing the stairs and installing another set of stairs that met the applicable code.
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 ROLE OF COURTS

IN THE INDIAN
CONTEXT
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 INTRODUCTION

● The constitution of India is the largest Constitution of the world. It provides

● three main organs upon which the democracy functions. These three organs
include
● (a) Legislature
● (b) executive
● (c) Judiciary.
● Legislature is the lawmaking body.
● There are two houses i.e. Lok sabha (The Lower House) and the Rajya Sabha
(The Upper House).
● Executive is another important organ of the constitution. Indian constitution
● The role played by the Executive includes the enforcement of the law. If the law is
not enforced literally then the Judiciary has the power to punish the guilty.
● So, very important role is played by the judiciary i.e. to punish the guilty or the
wrongdoer.
● It is, therefore, expected from the judiciary to play its role very cautiously and
impartially so that justice should not be denied to anyone on the ground of sex,
caste, creed or religion.
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 ROLE OF JUDICIARY
● The Indian Constitution protects the citizens
from any partial judgment.
● That’s why supreme power is given to the
Judiciary to make decisions based on the rule of
law.
● The courts in India neither are nor controlled by
the government and they do not represent any
political authority.
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 SEPARATION OF POWER

● This independence of Judiciary calls for

‘Separation of Power’. This basically means
that both the legislature and executive
are not allowed to interfere in the
functioning of the Judiciary.

● So, in order to successfully execute their

independent authority, the judges of both
the Supreme Court and the High Courts
must be appointed without any influence on
interference from other branches of the
government or from private or partisan Power house
interests
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 STRUCTURE OF COURTS

● The Judiciary is one of the three linchpins of a democracy, the

other.
● Two being the legislature and the executive.
● All three work in the concert to ensure that the democratic
system works efficiently.
● However, the executive and the legislature need checks on their
power. Judiciary has many important roles to fulfill which
includes:
1) To act as guardian and interpreter of the
constitution.
2) To protect fundamental and other rights of the
citizens of India Judiciary of india
3) To fulfill the duty imposed on the shoulders of
judiciary, the judicial system is divided into three
levels of Courts in India.
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 STRUCTURE OF COURTS
● Supreme Court: This is
the Apex Court in a
country. All other Courts
including High Courts and
the District Courts are
subordinate to it.
● The decisions made by the
Supreme Court stands
above all other subordinate
courts.
● Decision passed by the
Supreme Court is final and
binding on the parties.
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● District Court: It is the lowest
court situated in every district
of each State.
● This is where most citizens go
to for any dispute in their city
or religion.
● High Court: Each state has its
own High Court,’ which is most
certainly the highest judicial
authority of the state.
● Any person aggrieved by the
order of the District Court can
appeal to the high Court for its
grievances.
 DISPUTE RESOLUTION

Dispute resolution through courts

● The courts also have the right to punish people for
the crimes they commit.
● Almost every social situation which needs a rule is
managed by the Judiciary. So, whenever there is a
dispute, the courts intervene in providing solutions.
Whether that dispute may be between citizens,
citizens and government or between two
governments or even the central and state
government, the State is responsible for dispute
resolution.
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 JUDICIAL REVIEW

Final hold by Judiciary

● The judiciary has the final hold on the
Constitution of India. As such, if there is
any violation of the fundamentals of the
Constitution, the court can even
overwrite laws passed by the Parliament.
● This process is called Judicial Review
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 UPHOLDING THE LAW & ENFORCING FUNDAMENTAL RIGHTS

Indian Judiciary courts primarily take

● Almost all fundamental rights of Indian Citizens oath on Bhagavath geeta
are defined in our Constitution.

● In case, any citizens feel that any of such rights

are violated, they can approach their local High
Courts or the Supreme Court under Articles 226
or 32 of the Constitution
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 JUDICIARY UNDER THE INDIAN CONSTITUTION

● Its achievement has been significant in all areas of the nation’s life.
As it is one of the powerful institutions of the world, it decides Indian Judiciary one of the powerful institutions.
cases touching all facts of human life and relationship.
● It is the guardian of the human rights, protector of the constitution
and promoter of the peace, cordiality and balance between
different organs of the government.
● The Constitution of India which was drafted by the Constituent
Assembly and which came into force on 26 th January 1950
contains number of provisions that deal with structure, functions
and power of the judiciary.
● It introduced a unified system in all the States and Union
Territories.
● It virtually introduced a three tier judicial system viz. the Supreme
Court, the High Courts in every States and Union Territories
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 JUDICIARY UNDER THE INDIAN CONSTITUTION

● However, in India, the judiciary has come to exercise vast

powers of Judicial Review in respect of the legislative and
executive functions of the State and of the judicial actions of
the Judiciary. The Supreme Court and High Court in India not
only act as the arbiters to determine or resolve the disputes
that may arise between the Centre and State but it also
protect and enforce the fundamental rights of the citizens
against arbitrary action of the States.
● They also interpret the laws made by the legislature.
● The verdict of the Supreme Court is final if by any act of the
legislature or Executive, any Fundamental rights or Indian Judiciary has independent powers.
human rights are abridges.
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 JUDICIARY UNDER THE INDIAN CONSTITUTION

In nutshell, the judiciary generally performs one or many of the

following functions in constitutional democracies:-
● Interpreting the constitution with due difference to the
wishes of the framers of the constitution
● Upholding the federal principle of maintaining the balance
between the various organs of the government or between
center and the states.
● Guarding and protecting the fundamental rights of the
citizens.
● Applying and interpreting the laws made by the legislature.
● Under Article 32 and 226 the Supreme Court and the High
Court respectively has the power to issue writs or orders for
achieving the objectives of those articles.
● Through Public Interest Litigations, Judiciary has the
power to ask the government about the implementation
of the schemes run by the government
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 CONSTRUCTION CONTRACTS
Contracts are Executed
● Construction contracts are entered into between one or more owners and
one or more contractors for development and construction in terms of the
owner's specifications.
● One of the most common forms of such contracts are the Engineering,
Procurement and Construction contracts ("EPC Contracts") which are
executed between the principal employer (or the client) and the contractor.
● There are various types of disputes which may arise out of such contracts
but such disputes are typically due to delay in execution of the work by the
contractor, premature termination of the contract by the principal
employer or any other form of breach of contract by either of the parties.
● Since a large majority of the EPC contracts are for turnkey projects of a
very high value and time is the essence of the contracts, the contractor is
obligated to deliver the agreed upon project within a fixed time frame and
budget.
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 CONSTRUCTION CONTRACTS

● Any delay or breach results in huge losses for the affected

party.
● Thus, the affected party in such cases seek damages suffered
owing to the non-performance or breach or termination of the
contract as the case maybe.
● In any dispute arising out of construction contracts the
damages that are typically claimed are loss of profit, loss of
opportunity, overheads and such damages are difficult to
establish based on documentary evidence.
● In such cases reliance is placed on well-established
engineering concepts and formulae.
● The aim of this paper is to look into the methodologies adopted Contract papers act as proof for any
by courts and arbitrators alike and to evaluate if there is a disputes occur to the courts.
broad consensus on standard of proof in any given situation.
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 DAMAGES VIS Á VIS CONSTRUCTION CONTRACTS
● Section 37 of the Indian Contract Act, 1872 (hereinafter referred to as the
"Contract Act") mandates that every party to a contract must perform or offer
to perform their contract unless they are discharged of their obligations.
● Hence, once the contractor or the principal employer is in breach of their
obligations a claim against them for specific performance or damages, as the
case maybe, would lie.

● Breach of a contract typically triggers Section 55 read with Sections 51 to 54,

Section 73 and Section 74 of the Contract Act.
● However, the terms and conditions of the contract will determine the exact
quantum of damages payable. Construction Contract
● There are contracts where the terms and conditions provide for a
predetermined amount in the event of any breach and contracts where no
such predetermined amount is provided for.
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 BREACH IN CONSTRUCTION CONTRACTS
● In some contracts, at the time of execution, the parties agree to an amount of compensation
payable in the event there is any breach of the contract, by way of liquidated damages.
● The Black's Law Dictionary defines a liquidated damages clause as

"a contractual provision that determines in advance the measure of damages if a party
breaches the agreement".
Breach
● In such cases, where the amount payable in the event of breach of contract is predetermined,
the Court may award any sum of money which is reasonable, but not exceeding the amount
agreed to between the parties.
what quantum should be specified in the liquidated damages clause and whether the entire amount stipulated in the liquidated
damages clause may be awarded in case of breach.

● The Supreme Court has considered this substantially in Kailash Nath Associates v. Delhi Development Authority and Another
wherein it was observed that the party complaining of the breach can receive the entire amount stipulated in the liquidated
damages clause only if it is a genuine pre-estimate of damages suffered. While assessing the quantum of damages suffered, the
Court has jurisdiction to award amounts as it deems reasonable but not exceeding the limit stipulated in the contract.
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 BREACH IN CONSTRUCTION CONTRACTS
● The Court went on to observe that while Courts have the jurisdiction to grant reasonable compensation, the
liquidated damages as stipulated for in the contract would be the upper limit and the Court cannot award any
compensation beyond that upper limit.
● The Supreme Court's view in Kailash Nath (supra) appears to suggest that even
in situations where the contracting parties have bargained for a reasonable
pre-estimate as measure of damages (i.e. liquidated damages) the party alleging
breach is still required to satisfy the adjudicator of the loss suffered and possibly
to some extent the quantum of it.
● Is this a departure from trends established earlier? In the not so distant past, the
Supreme Court held that in contracts containing a liquidated damages clause

"it would be difficult to prove exact loss or damage which the parties suffer because of Damages for Contracts
the breach thereof. In such a situation, if the parties have pre-estimated such loss after
clear understanding, it would be totally unjustified to arrive at the conclusion that
party who has committed breach of the contract is not liable to pay compensation. It
would be against the specific provisions of Sections 73 and 74 of the Indian Contract
Act."
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 CALCULATION OF DAMAGES USING FORMULAE
The Supreme Court's ruling in the AT Brij Case was one of the first instances where the Court
observed that while adjudicating upon the claim for loss of profit it would not be necessary to
go into the minutest details of the work executed but a broad evaluation of the same would be
sufficient. The Court went on to observe, placing reliance on Hudson's Building and Engineering
Cost Calculation
Contracts that "in major contracts subject to competitive tender on a national basis, the evidence
given in litigation on many occasions suggests that the head office overheads and profits is between 3
to 7 per cent of the total price of cost".

Subsequently, a comprehensive deliberation on some of the formulae which can be relied upon
by parties for the purpose of calculation of damages was discussed by the Supreme Court in
McDermott International Inc. v. Burn Standard Co. Ltd.20 (hereinafter 'McDermott Case'). The
Court recognized the following formulae:

"(a) Hudson Formula: In Hudson's Building and Engineering Contracts, Hudson formula is stated in
the following terms:

'(Contract head office overhead and profit percentage) X (Contract sum/Contract period) X (Period
of delay)'
In the Hudson formula, the head office overhead percentage is taken from the contract. Although the
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Hudson formula has received judicial support in many cases, it has been criticized principally because it
adopts the head office overhead percentage from the contract as the factor for calculating the costs and
this may bear little or no relation to the actual head office costs of the contractor.
 CALCULATION OF DAMAGES USING FORMULAE
(b) Emden Formula: In Emden's Building Contracts and Practice, the Emden formula
is stated in the following terms:

'(Head office overhead and profit/100) X (Contract sum/Contract period) X (Period of

delay)'

Using the Emden formula, the head office overhead percentage is arrived at by
dividing the total overhead cost and profit of the contractor's organization as a whole
by the total turnover. This formula has the advantage of using the contractors actual
head office and profit percentage rather than those contained in the contract. This
Contract Cases
formula has been widely applied and has received judicial support in a number of
cases including Norwest Holst Construction Ltd. v. Cooperative Wholesale Society
Ltd., decided on 17 February, 1998, Beechwood Development Company (Scotland)
Ltd. v. Mitchell, decided on 21 February, 2001 and Harvey Shoplifters Ltd. v. Adi Ltd.,
decided on 6 March, 2003.
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 CALCULATION OF DAMAGES USING FORMULAE
(c) Eichleay Formula: The Eichleay formula was evolved in America and derives its name from a case heard by Armed Services Board of Contract
Appeals, Eichleay Corp. It is applied in the following manner:

Step 1

(Contract billings/Total billings for contract period) X (Total overhead for contract period) = Overhead allocable to the contract

Step 2 Damage Calc.

(Allocable overhead/Total days of contract) = Daily overhead rate

Step 3

(Daily contract overhead rate) X (Number of days of delay) = Amount of unabsorbed overhead

This formula is used where it is not possible to prove loss of opportunity and the claim is based on actual cost. It can be seen from the formula that
the total head office overheads during the contract period is first determined by comparing the value of work carried out in the contract period for
the project with the value of work carried out by the contractor as a whole for the contract period. A share of head office overheads for the
contractor is allocated in the same ratio and expressed as a lump sum to the particular contract. The amount of head office overhead allocated to the
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particular contract is then expressed as a weekly amount by dividing it by the contract period. The period of delay is then multiplied by the weekly
amount to give the total sum claimed. The Eichleay formula is regarded by the Federal Circuit Courts of America as the exclusive means for
compensating a contractor for overhead expenses."
 APPLYING THE FORMULAE
"standard formulae adopted for computing loss of profits or overheads are essentially
tools used for computing the extent of overheads in profits. Undoubtedly, in a given
set of facts, the said formula may be effectively used for computing the amounts of
overheads/profits.

However, that cannot lead to the conclusion that in all cases, the Arbitral
Tribunal would be bound to accept computation of overheads/loss of profits
based on standard formulae and the claimant is absolved from producing any
other material to establish its claims of loss on account of overheads/loss of
profits. Whether it is apposite to use the standard formulae in a given case is
also required to be established by the contractor. This would necessarily
require the claimant to produce some material to justify norms as adopted in
the standard formula relied upon by him.

A claimant is also required to establish as a matter of fact that it had incurred Arbitral formulae application
expenditure on overheads attributable to the works executed during the extended
period."
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 THE THRESHOLD
Judicial precedents seem to be in favor of weighing evidence both qualitatively and
quantitatively alongside the use of mathematical formulae.
However, taking into consideration the challenges faced in matters of execution of complex
contracts one needs to test evidentiary thresholds against practical considerations and further
taking into account that a party whose contractual rights have been violated be compensated
adequately.

The Court, while upholding the award, held that as the claim was owing to delay and the delay in
handing over the construction site had been established, the threshold of evidence for the Contract Termination
purposes of application of the formula for calculation of damages had been reached. The Court
observed:

"The AT referred to the Standard Data Book for Analysis of Rates (First Revision) 2003 of MORTH
in calculating the overhead charges for 12 months' delay. It also referred to the Hudson formula.
This was on the basis of the basic foundational facts having been established by the Respondent
regarding the delay in the construction activity as far as handing over of the site to it by the
Petitioner was concerned. The failure to hand over the required site to the Respondent by the
Petitioner is a finding of fact. The view taken by the AT was reasonable in the circumstances."
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the courts recognize the fact that it is not possible for a contractor in a large scale contract to
prove each item of cost and therefore as long as it is proved that the claimant has incurred
unrealized costs due to repudiation or unjustified termination of the contract, he may rely on
well-established formulae to compute and claim damages suffered.
 CONCLUSION

● If the breach is not accompanied by a loss to the other party, the question of awarding damages or of
applying one formula or the other does not arise.
● The arbitrator even if by applying guesswork and relying upon rough and ready formula arrives at a
figure then the same would not be interfered by Courts but there has to be some reasoning based upon
facts and evidence as to why a claim has been allowed.
● Thus, while it may not be possible to prove each item of cost incurred but that does not absolve the
affected party from the burden of proving that there has in fact been some loss that has been suffered.
● The burden of proof would not be so high as to prove the exact figure of the damages that is being
claimed but it has be sufficient to evidence that loss has indeed been suffered and that there is a
necessity to resort to the use of well-established formulae to arrive at a figure which would be just and
equitable in the given facts and circumstances.
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 QUESTIONS

1. What are the six Judicial Claims To Court By An Architect Or An Architectural Firm?
2. Explain The Two Judicial Theories For Architects.
3. Explain the structure of Indian courts.
4. What are construction contracts?
5. What is “Contract Act” ?
6. Explain the Breaching of contracts.
7. What are the formulas used in calculating Damage losses?
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