A1.1. What is damages and liquidated damages in a contract?

Liquidated damages may be referred to in a specific contract clause to cover circumstances

where a party faces a loss from assets that do not have a direct monetary correlation. For
instance, if a party in a contract were to leak supply chain pricing information that is vital to a
business, this could fall under liquidated damages.

Liquidated damages are meant as a fair representation of losses in situations where actual
damages are difficult to ascertain. In general, liquidated damages are designed to be fair, rather
than punitive.

2. Can the damages be pre-determined in a contract?

Damages on breach of contracts are considered to be advantageous than other remedies that may be
available to parties suffering losses from breach of contracts. Liquidated damages play a significant role
in cases where it is difficult to ascertain the quantum of damages since that is pre-determined by
inserting a clause on “liquidated damages” in the contract itself. Such clauses for liquidated damages
aim at prevention of litigation to the extent possible. This would also help in reducing the burden to
prove actual damage suffered pursuant to a breach, in order to claim damages. Liquidated damages are
preferred when the parties wish to affix some assurance or security in the event of breach of contracts.

YES, It can be pre determined by inserting clause in the contract.

As in the problem The manager from the contract team, clearly mentioned that the Liquidated
Damages clause about 5% in the General Conditions of Contract provision help in ensuring these
issues are tackled.

3. Can ONGC claim the LD amount for delay in the supply of the casing pipe?
Is Saw Pipes argument valid?

Applying all the facts that LD damages can be pre determined by inserting LD
clause in the contract. There can also be exclusion of the right to claim damages by
express terms or that in case of breach of contract, there would not be payment of
compensation but refund of payments already made.
A2.1. Is there any upper limit cap on the LD percentages in B2B contract?

2. What is force majeure event in a contract?

Contractual perspective, a force majeure clause provides temporary reprieve to a party from
performing its obligations under a contract upon occurrence of a force majeure event.

A force majeure clause typically spells out specific circumstances or events, which would qualify
as force majeure events, conditions which would have be fulfilled for such force majeure clause
to apply to the contract and the consequences of occurrence of such force majeure event

3. Should ‘change of law/policy’ be considered as force majeure event? Provide

reason from the angle of a business manager

Typical force majeure clauses excuse non- or delayed performance due to events beyond the
party’s control, usually including governmental action. Change in law clauses typically enables a
contractor to recover the increased cost, and the principal to recover the decreased cost, in
performance due to a change in law. Depending on the definitions, governmental action in
the force majeure clause may be the same as a change in law under that clause, or they may be
different. Even if they are the same, the effects might be different and the force majeure clause
might encompass the effects as well the cause.

According to Business manager Knowing and applying all the facts above since the steel material
supplier to Saw Pipes was affected by Steel Mill strikes in Europe which is beyond their control and
they can treat it as force majeure event.

4. How will you draft a suitable force majeure clause for your organization?

Force Majeure Clause 

1. Either party would be relieved from its duty to perform its obligations under this
contract and such non-performance would not amount to breach of contract, if it is caused
by prevention or impediment in performance of obligation by a Force Majeure event.
2. “Force Majeure” means a situation or the occurrence of an event that prevents or
impedes either party from performing one or more of its obligations under this contract, if
such situation or event was beyond the reasonable control of either party and shall include:
a.  war (whether declared or not), hostilities, invasion, act of foreign enemies, civil
unrest, riot, or act of terrorism, sabotage or piracy;
b. trade restriction, embargo, sanction having effect of substantially modifying the
underlying assumptions of the transaction;
c. plague, epidemic, pandemic, or outbreak of a communicable disease leading to
extraordinary restrictions including quarantine or movement of people or goods;
d. natural disaster or extreme natural event;
e. explosion, fire, complete break-down of transport, telecommunication,
information system or fuel, electricity or source of energy;
f. strike, lockout,
 g. issuance of advisory, notification, guideline, or legislation by relevant
government or legislative authority restricting normal trade and business activities,
movement and storage of goods and people for any reason whatsoever which could not
have been in reasonable contemplation of parties                           
3. The party claiming to be impacted by force majeure must give written notice to the
other party within 15 days of occurrence of the force majeure event or situation.
4. Consequence of Force Majeure will only apply from the time of receipt of notice of force
majeure by the other party. Rights accrued to either party (including payment obligations)
prior to the invocation of Force Majeure shall remain enforceable.
5. If the Force Majeure event or situation lasts for 15 days, the non-affected party shall
have a right to terminate. If the same continues beyond 30 days, ether party may terminate
the contract. Termination under this contract shall be effective only by way of a written
notice to the other party.