William Vivian John

Partner
Luthra & Luthra
Law Offices
Luthra & Luthra Law Offices
Clauses in EPC contracts

Indian Contract Act, 1872
Sections 73, 74

Case Law Principles
Indian & English

Back to the Contract












Contract Law Professor: How would you go give
someone an orange?
Student: Heres an orange.
Professor: No! No! Think like a lawyer!
Student: Okay, then Id say:
I hereby give and convey to you all and
singular, my estate and interests, rights,
claim, title, claim and advantages of and in,
said orange, together with all its rind, juice,
pulp, and seeds, and all rights and
advantages
with full power to bite, cut, freeze and
otherwise eat, the same, or give the same
away with and without the pulp, juice, rind
and seeds, notwithstanding anything to the
contrary herein before or hereinafter or in any
deed, or deeds, instruments of any nature or
kind whatsoever
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Liquidated Damages
If the Contractor [fails to do x], he shall pay, Owner by
way of liquidated damages and not by way of penalty,
[amount].

The Contractor acknowledges that the liquidated
damages are reasonable and a genuine pre-estimate
of the loss and damage that will be suffered by the
Owner.

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Limitation of Liability
The aggregate liability of the Contractor shall not
exceed a sum equal to the Contract Price, except for
[exceptions]

Neither party shall be liable to the other for any
indirect, remote, special, or consequential damages
provided, such limitation shall not apply to [carve-
outs]
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Section 73.
Provides for: compensation for loss or damage caused
which
(a) naturally arose in the usual course of things, or
(b) which the parties knew to be a likely result, when
they made the contract.
No compensation for remote and indirect loss or
damage.

Expln - In estimating loss or damage means which
existed of remedying the inconvenience caused by non-
performance must be taken into account.

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A. Compensation

Restitution not Penalty

Pecuniary difference between the existing state
of plaintiff and that which it would have been had
the contract been performed.
[Subbarama Sastri AIR 1987 SC 1257]

Easier said than done


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B. General v. Special
naturally arose, usual course (General damages)
parties knew to be likely (Special damages)
[Special circumstances, whether the party knew or not]
[Hadley v. Baxendale 1854]

Why? You need to know how far you will fall. Parties
should have opportunity to price risk while contracting

C. Loss of Profit?
[State of Kerala v. Bhaskaran AIR 1985 Ker 49]
Loss of profit can be reasonable forseeable consequence

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D. Caused: Actual Loss
No loss, no compensation. Cant bluff !
[Asiatic Steam Navigation AIR 1941 Sind 146]
no evidence of damages v. difficulty in
assessing damages
Plaintiff to prove his case but the court cannot
decline to estimate damage. Must look at all facts
and circumstances to get to a measure.

E. Duty to Mitigate
means to remedy the inconvenience
[Murlidhar Chironjilal AIR 1963 SC 332]


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Section 74.
When the contract contains a sum named to be paid in
case of breach
or any other stipulation by way of penalty then,
whether or not actual damage or loss is proved,
plaintiff is entitled to reasonable compensation not
exceeding the sum named or penalty stipulated

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A. Reasonable Compensation not Exceeding..
[Fateh Chand AIR 1963 SC1405]


B. Whether or not Actual Damages are Proved..
[Maula Bux AIR 1970 SC 1955]
Does not mean damages have not occurred
Applies where damages are difficult to assess
Where loss can be determined, party must lead
evidence for loss


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C. Genuine Pre-estimate of Loss

[ONGC v. Saw Pipes AIR 2003 SC 2629]

D. Burden of Proof
Party claiming compensation has to prove loss
[Maula Bux]
But if it is a genuine pre-estimate of loss, the
other party has to prove that it is not reasonable
compensation [ONGC]


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E. Earnest Money
Nominal amount of being earnest to complete
the contract
If reasonable, can be forfeited
If not reasonable, treated under S.74

F. Time is of the Essence v. Liquidated Damages
S. 55 Contract Act
[Hind Construction Contractors (1979) 2 SCC 70]

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Liquidated Damages
Wording is important
[However, wording is not everything]

Specific breach

Limitation of Liability

Consequential damages specify

Is it enforceable?
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YOU!
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