LEGAL PROPOSITION

Ans 1 The principles settled by the courts for payment of carrying cost/interest for any
'Change in Law' compensation under an Agreement may vary depending on the jurisdiction
and the specific terms of the agreement. However, in general, courts may consider the
following principles:
1. The principle of "reasonable compensation": The compensation for any change in law
should be reasonable and should compensate the affected party for the actual losses
incurred due to the change in law.
2. The principle of "mitigation": The affected party must take reasonable steps to
mitigate their losses, which may include seeking alternative sources of financing or
taking other actions to reduce the impact of the change in law.
3. The principle of "causation": The affected party must demonstrate a causal link
between the change in law and the losses incurred.
4. The principle of "certainty": The affected party must demonstrate the losses incurred
with reasonable certainty.
In general, if an agreement does not contain any provision for carrying cost/interest for a
change in law compensation, the court may still award such compensation if it is deemed
reasonable under the circumstances. However, the specific facts of the case and the
governing law will ultimately determine whether carrying cost/interest can be disallowed
in such situations.
The case law to depict the above problem can be stated as in the case Construction &
Design Services v. Delhi Development Authority6, the apex court reconfirmed that the
court must determine the reasonable compensation and then grant it to the injured party. It
held as follows:
"Applying the above Principle to the present case, it could certainly be presumed that
delay in executing the work resulted in a loss for which the respondent was entitled to
reasonable compensation. Evidence of precise amount of loss may not be possible but in
the absence of any evidence by the party committing breach, the court has to proceed on
guesswork as to the quantum of compensation to be allowed in the given circumstances.
Since the respondent also could have led evidence to show the extent of higher amount
paid for the work got done or produce any other specific material but it did not do so, we
are of the view that it will be fair to award half of the amount claimed as reasonable
compensation."
Ans 2 The methodology and basic principles for the award of a claim of loss of profit for
breach of contract may vary depending on the jurisdiction and the specific terms of the
contract. However, in general, courts may consider the following principles:
1. The principle of causation: The claimant must establish a causal link between the
breach of contract by the other party and the loss of profit suffered by the claimant.
2. The principle of foreseeability: The loss of profit claimed must have been foreseeable
at the time the contract was entered into.
3. The principle of mitigation: The claimant must take reasonable steps to mitigate the
loss of profit, such as seeking alternative business opportunities.
4. The principle of certainty: The loss of profit claimed must be capable of being
estimated with reasonable certainty.
Courts may consider various methods to determine the amount of loss of profit suffered,
including:
1. The "but for" method: This involves comparing the actual profits earned by the
claimant with the profits that would have been earned "but for" the breach of contract
by the other party.
2. The "reliance" method: This involves awarding damages to the claimant to put them
in the position they would have been in if the contract had not been breached. This
may include compensation for expenses incurred in reliance on the contract.
3. The "market-based" method: This involves determining the market value of the lost
opportunity and awarding damages based on that value.
It is generally not possible to make an award for loss of profit without evidence of suffering a
loss. Recognized formulas under the law may be used to calculate the amount of loss, but the
claimant must still provide evidence of actual loss suffered due to the breach of contract.
Since Section 74 awards reasonable compensation for damage or loss caused by a breach of
contract, damage or loss caused is a sine qua non for the applicability of the Section.
However, as long as it serves a compensatory function, liquidated damages should be allowed
without the requirement to prove exact losses.
Thus, where a sum is named in a contract as a liquidated amount payable by way of damages,
the party complaining of a breach can receive as reasonable compensation such liquidated
amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be
such by the court. In cases where the amount fixed is in the nature of penalty, only reasonable
compensation can be awarded not exceeding the penalty so stated. In both cases, the
liquidated amount or penalty is the upper limit beyond which the court cannot grant
reasonable compensation.
The expression "whether or not actual damage or loss is proved to have been caused thereby"
means that where it is possible to prove actual damage or loss, such proof is not dispensed
with. It is only in cases where damage or loss is difficult or impossible to prove, that the
liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be
awarded.
Ans 3
The principle of "liquidated damages" allows the parties to a contract to agree upon a
predetermined sum of damages in the event of a breach of contract by one of the parties. The
purpose of liquidated damages is to provide a measure of certainty and predictability for the
parties in the event of a breach, and to avoid the need for costly and time-consuming
litigation to determine the actual cost of damages suffered.
Regarding the proof of inbuilt or apparent losses, it is well-settled that if the parties have
agreed to a liquidated damages clause, the party seeking to enforce the clause does not need
to prove the exact cost of damages suffered due to the breach. Instead, the party seeking to
enforce the clause must establish that the liquidated damages are a genuine pre-estimate of
the loss likely to be suffered due to the breach.
In the case of Maula Bux vs Union of India (1969), the Supreme Court of India held that if
the parties have agreed to a liquidated damages clause, the party seeking to enforce the clause
does not need to prove the actual loss suffered. The court stated that the test is whether the
stipulated amount is a genuine pre-estimate of the loss likely to be suffered due to the breach.
Similarly, in the case of Fateh Chand vs Balkishan Das (1963), the Supreme Court of India
held that if the parties have agreed to a liquidated damages clause, the party seeking to
enforce the clause does not need to prove the actual loss suffered. The court held that the test
is whether the liquidated damages are a genuine pre-estimate of the loss likely to be suffered
due to the breach.
In summary, if the parties have agreed to a liquidated damages clause, the party seeking to
enforce the clause does not need to prove the exact amount of damages suffered due to the
breach. Instead, the party seeking to enforce the clause must establish that the liquidated
damages are a genuine pre-estimate of the loss likely to be suffered due to the breach.
However, the court may still examine whether the amount of liquidated damages is
reasonable in the circumstances of the case. Thus, it is the nature of the Liquidated Damages
clause that needs to be considered, that is, whether it's a genuine pre-estimate of loss occurred
on breach of contract or whether it is in form of penalty and deterrent in nature.