And Essential Elements of International...“EPCIC Contracts Management And Essential Elements of International Contracts Laws” (Held at Kuala Lumpur from May 23 to 25, 2016) Conducted

Workshop for EPCIC Project Managers, Engineers,

Procurement and Contracts Professionals

Of

Oil & Gas Industries and Power Plant Projects

“EPCIC Contracts Management

And

Essential Elements of International

Contracts Laws”

(Held at Kuala Lumpur from May 23 to 25, 2016)

Conducted By:

Jayems Dhingra

Principal Consultant (Tiberias Management Consultants Pte. Ltd.)

EPCIC Contract Management and Essential Elements of Law

© 2016, Copyrights reserved in TMC Pte. Ltd. And or Authors as referred 2 of 129

Guide Book

For

Training Workshop

On

“EPCIC Contract Management and

Essential Elements of International

Contracts Laws”

Author: Jayems Dhingra

Principal Consultant Tiberias Management Consultants Pte. Ltd.

URL: http://www.tiberiasmc.com

15 May, 2016

Copyright and Disclaimers Statement

This publication is copyrights protected. Neither the whole nor any part of this book may

be reproduced, stored or transmitted in any form or by any means without the express

permission of the author. While every effort has been made in the collection, preparation

and presentation of the material in this book, no responsibility can be taken for how this

information is used by the reader, for any change that may occur after the publication or

for any error or omission on part of the authors or publishers. Neither the authors nor

the publishers accept responsibility for any loss suffered by any person who acts or

refrains from acting on any matter as a result of reliance upon any information contained

in this book.

http://www.tiberiasmc.com/



Preface

This guide and work book is meant for the participants of the training workshop held

at Kuala Lumpur from May 23 to 25, 2016. The objective of this workshop is to introduce

essential elements of contract administration and underlying principles of terms & conditions

in the Contracts for “Engineering, Procurement and Construction” (EPCIC) projects.

Undoubtedly, the main focus of EPCIC projects is always on stringent standards of design of

processes, equipment, machinery, plant and construction, besides compliances to various

states, national and international industrial standards, relevant to the construction, the

operations and the management of the plants for “Oil & Gas” industries. The socio-economic

balance of the modern civilization is largely dependent on energy from the hydrocarbons and

the petroleum products, which makes the “Oil & Gas Industry” (O & G) segment, a very

unique, but vulnerable to innumerable factors. The project promoters and the underwriters of

the O & G projects have to mitigate their risks against every type of probable and or

permissible, expected or unexpected events, which may have impact on either the duration

or the functionalities of the deliverables.

So it is only logical that EPCIC Contracts are the most comprehensive documents

from the legal standpoint, as well as in the technical scope. This guide shall not be mistaken

as a lecture on “Contract Law” but instead is intended only to provide the participants with

necessary overview of the articles of the contracts and how they influence the decision

making process, while managing EPCIC projects. Readers interested in additional

knowledge on “Contract Laws and Trade Legislations” are advised to refer to the list of fine

publications in the References Section.

The legal principles of EPCIC contracts are very interesting topics for all

personnel engaged directly or indirectly with the hydrocarbon fuels or the

process industries, and these are applicable to major parts of the world. The

study of the EPCIC Contract Management and Law is not an optional subject but

rather an impregnated and integral part of the project management skills. Often

it can be seen that there is no real difference between the Contract Breakdown

Structure (CBS) and the Work Breakdown Structure (WBS). So when the firms

engaged in EPCIC projects are managing projects, they are also managing

Contracts.

Upon completion of this workshop, participants are expected to have

achieved a general understanding and appreciation of the Articles of the

Contracts, their impact on the project deliverables and how to use the contract

document as the driver for quality assurance and project management.



The participants will become capable of identifying unfair and high risk Articles of

the contract before entering into any agreement. Participants are expected to

become capable of identifying issues leading to disputes and in resolving

disputes amicably. Further this guide also provides an overview of the various

channels of dispute resolution, the costs and the challenges of managing the

disputes in the EPCIC business. This also includes, being able to find and apply

the relevant legislations, the regulations, the codes of practice and the standards

to the existing issues.

The demonstration of some of the principles will be through the worked

examples and practice exercises during the workshop. There are two practice

tests and three case studies during the workshop for self-assessment.

The relevant references of literature and websites are provided at the end

of the guide book, which shall be used extensively to stay updated with the

latest developments in the legal framework, technology and industry worldwide.

************

.



Contents

Chapter

1. A Glance at the Spectrum of Oil & Gas Industry Segments 7

2. Introduction to Contract Terms, Definitions and Application 13

3. EPCIC Contract Formation 21

3.1 Work Breakdown Structure (WBS)

3.2 Contract Breakdown Structure (CBS)

3.3 Organization Breakdown Structure (OBS)

3.4 Responsibility Assignment Matrix (RAM)

3.5 Invitation to Bid

3.6 Bid Evaluation

3.7 Exceptions to and Exemptions in the Contract

3.8 Signing of the Contract

3.9 Contract Documentation

3.10 Managing Contract Deliverables by Milestones

4. Terms and Condition (Articles) of a Contract 33

4.1 Scope of the Contract

4.2 Payment Terms

4.3 Contract Schedule

4.4 Acceptance

4.5 Change Orders

4.6 Insurance

4.7 Indemnities

4.8 Risk Mitigating Strategies

4.9 Liquidated Damages

4.10 Termination

4.11 Force Majeure 48

5. Performance Bonds 55

5.1 Project Performance

5.2 Warranties, and Guarantees

5.3 Calls on Performance Bond



Contents Chapter

6. Delays and Claims 60

6.1 Project Schedule

6.2 “Time is of Essence”

6.3 Extension of Time

6.4 Concurrent Delays

6.5 Substantiation of Claims

7. Channels of Dispute Resolution 66

7.1 Mediation

7.2 Litigation

7.3 Arbitration

7.4 Arbitration Proceedings and Awards

7.5 Enforcement of International Arbitration Awards

References 69

Annex – 1: United Nations Convention on Contracts for the International Sale

of Goods

70

Annex – 2: Glossary of Commonly used Terms and Phrases in Contracts 93

Interactive Workshops 103

Interactive Workshop – 1: Understanding of the Terms of Sale & Purchase 104

Interactive Workshop – 2: Application of the Terms of PO 105

Interactive Workshop 3: Review of Boiler Plate Clauses 109

References Cases & Judgments

Case – 1: Jack-up Drilling Rig Charter Termination Dispute

Case – 2: Gas Transportation Service - Commencement Date Dispute

Case – 3: Informal Agreement executed over a period of time is a Valid Contract

Case – 4: Who to sue for damage to piers, registered Ship owner or Bareboat Charterer?

Case – 5: EPC Services Contract Liability

Brief Notes on Latest Marine & Offshore Cases



Chapter 1

A Glance at the Spectrum of Oil & Gas Industry Segments

The Oil & Gas are the major sources of the daily energy consumption and demand. The first

and foremost source of energy was Coal which till today meets about 25% to 30% of the

global energy needs, while Oil & Gas combined provides 65% and balance by Nuclear &

other renewable sources. The fastest growing energy source is Natural Gas which is

projected to rise to about 30% by 2020 from 21% in Year 2001. With rising oil prices,

transient effect for demand of NG is seen to be rising. The drivers for oil & gas demand are

the high economic growth of developing countries and BRIC (Brazil, Russia, India, and

China) economies. The surge in Oil & Gas demand provides attractive arena for non-

traditional industries to venture into this lucrative segment of industries. In this book the

discussion shall be limited to Oil & Gas industry only, though a reference may be made for

the comparative view of other sources of energy as deemed appropriate. The objectives of

this chapter are to gain an overview of different types of industry participants, hierarchy of

relationships between the participants and inter-industry network of dependencies.

Key Terms and Concepts

Petroleum Fields, Upstream, Downstream, Production Plants, Refineries, Project

Managers, Design Contractors, EPCIC Contractors, Fabricators, Vendors, Supply Chain

Management, Logistics, Transportation and Storage Terminals.

1.1 Overview of Oil & Gas Value Chain

The industry segment as evident in Fig 1.1 from the petroleum field up to the

production terminal for Oil & Gas is termed as upstream segment, while transportation;

product refining and distribution to consumers are downstream segments. The chains of

events need to traverse in a seamless fashion, just like from a drawing board to the field.

This mammoth task is accomplished by series of sub-segments and participant

organizations for achieving one common objective. The need for comprehensive and

detailed contractual relationships besides stringent technical design & control features can

be best appreciated by the fact that if one of the participants fails or lags, then the whole

chain is affected and the project can turn into a failure or become uneconomical.

The difference between Oil and Gas starts after production from the field, whether

the field is located onshore or offshore (In the sea), which is due to different modes of

processing, filtration, handling storage and transportation.



Figure 1.1: Overview of Value Chain for Petroleum Resources

1.2 Transportation and Distribution of Petroleum and Natural Gas

The second most important task after finding the oil & gas reserves and having

explored and brought up to the surface (Drilling & Exploration), is of transporting it for

production (Separation into phases, Filtration etc.), refining (Hydrocarbon products for

different applications) and user segments (Electric Power Plants, Industrial Plants,

commercial and residential consumers) of the industry. The common modes of transportation

from production to distribution centers are made possible by trucks, Rail-roads, River

Barges, Pipelines and Tanker Ships. The choice of the mode of transportation is not always

a consumer’s choice but technically speaking it is based on the criteria of unit cost, time,

reliability, safety, quantity and distances of transportation among other factors like legislative

controls, national regulations and geo-political factors.

The trucking, rail-roads and surface transportation mode is limited by its carrying

capacity and cost of transportation to be useful within the city limits and shorter distances.

The major and most significant mode of transportation is Pipeline Systems and Ships

(Tankers). The comparative transportation cost by various modes for reference is shown in

figure 1.2; however this is not the reflection of actual cost in today’s terms

Oil and Gas pipelines are exceptionally efficient in transportation costs and network

of cross-country pipelines has been increasing much more rapidly in the last decade than in

the whole 20th century. Ships still remain as the only source of transportation for countries

that are not connected by land & pipelines. In USA 70% of petroleum liquid products are

transported by pipelines and 28% by ships. The ratio is quite similar for other countries as

Seismic

Surveys

Exploration & Drilling (Onshore

and Offshore)

Onshore and Offshore Sub-

sea Development

Fabrication

and Rig building

Production &

Well Maintenance

Site Storage

& Transportatio

n

Activities Dependent on Network of Service Providers

Oil & Gas

StorageTermi

nals

Oil & Gas Companies, Refineries, Pipeline

Operators, National grids etc. Downstream Activities and

Participants



well. The Natural Gas and Crude Oil pipelines serve the same purpose except they differ in

type of equipment and operating conditions.

Figure 1.2: Mode of Transportation and Relative Cost

History of Pipelines

The first oil pipeline 175 Km long of 6” diameter, was laid from Bradford to Allentown,

Pennsylvania (North America) in 1879. Initially pipelines were laid by screwed connections

and since the introduction of welding technology in 1920, all pipelines since then are made of

welded steel construction.

1.3 Gas Pipelines for Transmission and Distribution

There is no universal standard for nomenclature of pipeline systems; however ASME and

US Pipeline Legislations have taken the lead in setting several precedents. For study as well

as for industrial projects, codes, practices and standards of leading, US organizations like

ASME, API, and AGA etc are used worldwide. A gas transmission and distribution system

will normally consist of the following components:

Gas Processing and Treatment Plants

Gathering Pipeline Facilities

Production Plants / Compression

Receipt Meter Stations

Petroleum Transportation Costs

0 20 40 60 80 100 120 140 160

Truck

Rail-road

River Barge

Pipeline

Tanker Ships

Cents/1000 Barrel-miles



Lateral Lines

Mainlines

Mainline Control Valves to Regulate Pressure or Flow

Mainline Compression Facilities

Delivery Meter Stations / Custody Transfer / City Gate Stations

Storage Facilities used for Peak Requirements

Figures 1.3 illustrates various components of a natural gas pipeline production, transmission,

storage and distribution.

Figure 1.3: Components of NG Production, Transmission and Distribution System

1.4 Production Storage and Transportation of Oil from Offshore Fields

The presentation of overview of the Oil & Gas value chain in context of offshore field

differs slightly in concept but in terms of technology and industry segments, a range of new

participants are introduced. Figure 1.4 if superimposed on figure 1.1 will complete the Oil &

Gas segment for our consideration in this course.

Thus the contractual context of Oil & Gas segment reveals the participants like Oil

field owners (State or National Oil Company), Licensed developers, seismic surveyors,

drillers, exploration & production contractors, energy transporters, Plant & Machinery

manufacturers, fabricators, construction contractors, material suppliers and full range of

support service providers.

S

S C C C

C

C

M

M

Separation

Gas Well

Compression Metering

To Distribution 1

To Distribution 2

Overpressure protection

Pipe/Bottle Holders

Storage / Cavern



Figure 1.4: Overview of Oil & Gas Value Chain

1.5 Overview of Contractual Relationships

The arrangements for sale, transportation and purchase of Oil & Gas are at the core

of any commercialization of the hydrocarbon and or petroleum reserves development project.

The parties to any of the General Sales Agreement (GSA) and General Transportation

Agreement (GTA) should familiarize themselves of the entire value chain and wider project

issues reflected in figure 1.5, which will in turn determine the structure of the contracts and

agreements.

GSA apart from being the source of revenue, also serve as source of finances for the

seller and or developer to invest in commercializing a natural reserve without which the seller

will not be able to invest in exploration, production and transportation infrastructure nor will

they enter into a GTA with another party. Thus GSA is the critical element which is at the

heart of a wider upstream spectrum to downstream delivery points.

The agreements for oil & gas sales, subject to the context of the project which may

include transportation arrangements to the delivery point, are often defined as midstream

component of an overall project.

Marine & Offshore Value Chain

Tankers MPSV

Seismic

Surveys

Exploration

& Drilling

Sub-sea

Development

Fabrication and

Shipbuilding

Production & Well

Maintenance

Storage & Transportatio

n

Activities Dependent on MPSVs

Termin

als



Figure 1.5: Overview of Commercial Arrangements

Exploration & Production Upstream Transportation

Seller

Buyer

Consumers (Refiners, Power Plants, Retailers)

Downstream

Transportation

Storage

Resale

Licenses /

Permits

Licenses /

Permits

GSA

GTA

GTA

PSC



Chapter 2

Introduction to Contract Terms, Definitions and Application

The term Contract very commonly used in social as well as commercial circles has no formal

or universal definition, but has a certain air of legality to the word Contract as compared to

promise, agreement or Purchase Order and like words. For non-legal and engineering or

medical professionals, the words like MOU, Agreement, LOI, and Purchase Orders etcetera

may sound synonymous to Contracts. This Chapter shall provide conceptual understanding

of some of the commonly used terms so that the readers can use the correct words and

understand the correct meanings when they are dealing with contract management issues.

2.1 Contract

Contract is an agreement between parties, which is enforceable at law. For a contract

to be valid and legally enforceable the following pre-requisites (Shiela Bone, 2001) must be

met:

a) Capacity of the party to contract

b) Intention to contract

c) Consensus ad idem – consensus between the parties as to their future rights and

liabilities, in other words, agreement between parties.

d) Valuable Consideration

e) Legality of purpose – contract is not legal for illegal activities

f) Sufficient certainty of terms - the existence of the contract may be evidenced either

in some standard written or prescribed form or by deed and must be supported by a

valuable consideration

Typical Types of Contracts

Recognizance – An obligation or bond, with or without sureties acknowledged

before a court or authorized officer, and enrolled in a court of record. The

purpose is to secure the performance of some act by the person bound.

Specialty by deed

Simple or parole i.e. in writing or oral

Implied, founded by law on the assumed intention of the parties.

Quasi – founded by law on the circumstances, irrespective of the wishes of the

parties

Examples of Contracts

Contract of sale of land, goods, services

Contract of employment



2.2 Purchase Orders

The purchasing practice varies from state to state and is governed by federal, state

and local statutes, which shall be carefully considered before entering into sales and

purchase agreements. For example Uniform Commercial Code (UCC) covers most of the

transactions involving sale and purchase of goods but it does not cover the purchase of

services or combined contracts of goods and services if services constitute more than 50%

of the contract. In such situations, common law applies.

The United Nations Convention on Contracts for The International Sale of Goods

(CISG, 1996) applies to contracts of sale of goods between parties where places of business

are in different States:

a) Where the States are Contracting States; or

b) When the rules of private international law lead to the application of the law of a

contracting state

Characteristics of Purchase Orders (PO)

PO is generally regarded as a buyer’s offer and becomes legal contract when

accepted by the supplier.

The PO and acknowledgement /acceptance copy can be in standard forms of the

organization.

When seller makes the offer on their standard form and buyer accepts it verbally or in

written, then such an offer becomes a legal contract.

There is no universal agreement on the extent and details of the terms and conditions

printed on the back of the PO form or attached with it.

The PO is intended to include all the terms and conditions surrounding the

transaction, so it is customary to include in the agreement a statement such as

“Acceptance of this order implies acceptance of conditions contained thereon”. The

purpose shall be to make all the conditions legally binding and subject to selective

agreements at the time of dispute or enforcement of the terms of the transaction.

Acceptance of the PO shall be in predefined or mutually agreed form and mode of

communication.

Authority of Seller’s Representative: Generally speaking, a sales person’s ordinary

authority is to solicit orders and send them to the employer for processing and

acceptance. However if the Seller does not authorize its sale person to enter into a

binding contract and although the company may do nothing to lead others to believe

that its representatives have such power, yet if the salesperson does enter into a

contract with a Buyer and Seller does not notify the Buyer within reasonable time that

the salesperson has exceeded his authority, then the contract is likely to be held

valid.



Legal authority of the purchasing officer is in accordance with the instructions given

by his employer. The purchasing officer becomes liable to the employer when

damage occurs through active fault or through negligence.

Personal Liability of the Purchasing Officer: A purchasing officer may be held

personally liable under certain conditions when signing contracts. These are:

1. Making a false statement concerning authority with intent to deceive

or when misrepresentation has the natural and probable

consequence of misleading.

2. Performing a damaging act without authority, even though believing

they have such authority.

3. Performing an act that is itself illegal, even on authority from the

employer.

4. Willfully performing an act that results in damage to anyone.

5. Performing damaging acts outside the scope of their authority even

though the act is performed with the intention of rendering the

employer a valuable service.

In each of the above cases the seller has no recourse against the buyer company because

no valid contract existed between the seller and the buyer firms.

2.3 Agreement

The definition of agreement is simply concurrence of two or more persons in

affecting or altering their rights and duties. But an agreement becomes an act in law

when two or more persons declare their consent as to any act or thing to be done by

some or one of those persons for benefit of the others or one of them. It follows the

same pattern as offer and acceptance in order to become a legally binding contract.

So the requirements for an agreement to be enforceable as a contract are:

a) Concurrence of the parties in a spoken or written form of words as expressing

their common intentions

b) Offer made by one of them and accepted by the other.

c) Distinct intention common to both and known to both, referring to form legal

relationships which will affect the parties

In absence of the prerequisites, each agreement shall be reviewed on its own merits and

subjective to the context of agreements.

Next common phrase “Honor your promise”, A promise by one to another without necessary

ingredients of the Offer & Acceptance, intention to form legal relations etcetera is just a



promise. Promises may be broken without recourse to law and sometimes promises can be

enforced by law, but it all depends on the context and subject matter.

Examples: Promise in email during performance of the Contract, for delivering or altering or

agreeing to alter but later not performing which results in loss to the other party, can be

enforced.

But promise to a treat for night club or dinner but later refusing to pay the bill is not an

enforceable contract.

2.4 Contract Formation

The overview of contract formation is illustrated in Figure 2.1 (Chen-Wishart, 2005)

and is self-explanatory.

2.5 Principles of Contract Law

The definitions of promises, agreements, and enforceable contracts are evaluated

through the legal analysis and are identified as such within the context of the law. It is the

contract law applied by the courts which define how the practice of making agreements

should be conducted and how the performance shall be managed, breaches and disputes

are resolved. The common law countries have adopted contract laws based on English Law

and some have modified certain sections according to the local context, while other countries

have their own regimes to govern substantive issues of the contracts.

But it is generally along the same principles and an overview of contract principles

(Benny & Valerie, 2003) is illustrated in figure 2.2. The related laws in the form of Acts to the

contract law which shall also be given due consideration in managing EPCIC projects are: -

Unfair Contract Terms Act (Cap 396) Ed. 1994

Limitation Act (Cap 163) Ed. 1996

Sale of Goods Act (Cap 393) Ed. 1999

Supply of Goods Act (Cap 393) Ed 1999

Rights of Third Parties Act



Figure 2.1 Overview of Contract Formation



Summary of Contract Principles

Figure 2.2: Contract Formation and Discharge Principles

Formation

No Vitiating Factors

Offer Acceptance Consideration Intention to create

Legal relations

Terms

Contract

Discharged

Precise Performanc

e

Vitiating Factors Incapacity Illegality Misrepresentation Duress Undue influence

Legal relations

Warranty Condition Innominate Term Exemption Clause Termination Clause Force Majeure

Clause

Permissible Exceptions De minimis rule Divisible contracts Substantial Performance Prevented Performance Acceptance of partial

performance

Imperfect Performance Agreement Frustration Breach

Remedies Damages Quantum meruit Specific Performance Injunction

Completed



2.6 Letter of Intent

It is another common practice that a Letter of Intent (LOI) is issued as an acceptance

of the tender bid while contract documents are yet to be prepared. The project owners may

issue the LOI as an assurance to the bidder (Contractor or Supplier) to enable them to

mobilize offsite resources and or commence procurement of long lead items. In general, LOI

may contain a statement that the terms of this letter should not be construed as a legally

enforceable obligation. However subject to facts of the case and the context of its

application, LOI may be treated as an intention to form legal relationships and can be

enforced ,even if the party didn’t have the intent to enter in to a contract when LOI was

issued. Special care shall be taken when accepting LOI that if there are still ongoing

negotiations on the terms of the contract and no agreement has been reached but LOI is

issued for mobilization or procurement.

The party acting on an LOI, shall consider the following guidelines (Chow Kok Fong,

2004) before incurring expense and resources: -

a) The scope of the contract, specifications, drawings with reference number & revision

number and all other documents issued together with the ITB shall be clearly

mentioned in the LOI.

b) The contract sum or price of the works should be stipulated and suitable reference to

the relevant section of the ITB or quotation shall be stated.

c) LOI shall state the date of commencement, access to site if relevant, and date by

which the contract documents shall be executed.

d) The LOI shall also identify the authorized representatives of the parties with respect

to the contract and both parties shall agree with the contents of the letter by signing

on the letter.

e) The party acting on the LOI shall check carefully and act accordingly. If the LOI

contains a condition for example if the works are not commenced or resources are

not mobilized by certain date, then the LOI is expired.

2.7 Letter of Award

The Letter of Award (LOA) is to signify the acceptance of the tender bid on its terms

thereby putting the contract into operation. In majority of EPCIC contracts, ITB documents

contain all forms like Acknowledgement of ITB, LOI and LOA together with full set of terms &

conditions of the contract and specifications, drawings, project management procedures and

site relevant information.

However sometimes LOA envisages that the terms of the contract may be modified

as a part of further negotiations or upon availability of additional design information. Under

such circumstances whether LOA serves the effect of a legal contract is dependant on the



facts disclosed and intention of the parties to be bound by the terms already agreed whether

these conditions represent partial or comprehensive set for the contractual relationship.

2.8 Memorandum of Understanding (MOU)

In the midst of negotiations when parties have reached certain common

understanding but have not defined the full scope and terms of relationships, a document

called MOU is used, though it is not intended to be the final legally binding agreement. For

example when the senior management of the parties has reached an understanding, they

will then sign a MOU which will thereafter be passed on to the relevant representatives of

both parties for drafting the full scope and content of the intended relationships.

As a general rule for common law jurisdictions and under English law, MOU normally

lacks sufficient certainty to be legally binding under the principles of English law. But in

certain jurisdictions this may become enforceable subject to the statement contained in

MOU, and if any expense is incurred as a result of the MOU or at least it may become legally

binding to the extent that parties are obliged to negotiate in good faith and compensate the

other party for cost and expense in the absence of refusal to enter into a final agreement.

Then in such jurisdictions a specific statement shall be included in the MOU.

When individual clauses of MOU or similar documents have expressed certainty and

are supported by consideration, then the parties may expressly or by implication agree that

they shall be legally binding. Typical examples are confidentiality clauses and exclusive

negotiation rights.

*******

Quiz

If a clause states that parties are obliged to exercise best or reasonable endeavors to reach

an agreement, can this be enforced under common law?



Chapter 3

EPCIC Contract Formation

3.0 General

Irrespective of nature of projects and variety of contracts to be awarded by EPCIC

contractors or energy companies, more than 90% time is spent in meticulous planning of the

work packages and structuring them into bid packages. The most common and universal

process for initiating contracts is through ITB (Invitation to Bid), RFQ (Request for Quotation)

and followed by bids / quotation evaluation, negotiations and finally signing of the contracts.

The systematic management structure of Oil & Gas industry, rapid developments of

technology and relatively young industry with few concentrated regions in the world has

managed to minimize number of litigation cases. In contrast in civil construction industry,

there will hardly be any project without one or two parties being engaged in the litigation

route.

The reason for low record of litigation in Oil & Gas is also due the fact that the gap

between the bargaining powers of the parties is exceptionally wide and secondly the

contracting structure is well regulated and dictated by the major energy groups which does

not provide room for renegotiations on the terms and conditions. In this context it is of

paramount importance that EPCIC contractors shall understand the project scope and

contractual context in unison so as to mitigate their risks or exposure while ensuring

sustainable growth. The contract management is not only the responsibility of legal

departments of the company but is also as much an equal responsibility for engineers who

take all challenges to produce the most demanding designs, structures and long term assets.

This chapter shall be read as an interface between legal framework and engineering

disciplines. The objective is to manage contract and project as one and not two independent

tasks. This is possible through proven project management technologies used for several

complex and mega projects.

3.1 Work Breakdown Structure (WBS)

The Work Breakdown Structure (WBS) displays and defines the product to be

developed or produced by hardware, software, support, and/or service element, and

relates the work scope elements to each other and to the end product(s). The

framework of the WBS defines all contractual authorized work. A WBS is developed

during the proposal. If you are answering an ITB or RFQ, the guide to submit a bid or

proposal may be formally provided by the ITB documents and/or the contract

documents, which will include WBS.



After Contract award, the Project Manager expands the WBS into a Contract Work

Breakdown Structure (CWBS) as the initial step in the planning process. WBS

expansion will extend the CWBS to a minimum of one level below the negotiated

external reporting level. This sets up the framework for work scope definitions and

assignments to the functional organizations responsible for performing the work. The

extended CWBS must include the levels at which required reporting information is

summarized for submittal to the customer. One and only one CWBS exists for each

contract.

3.2 Contract Work Breakdown Structure

The adequate number of levels of each CWBS leg extension is determined by the

contractual work scope, the negotiated Cost Performance Report (CPR) or Cost/Schedule

Status Report (C/SSR) reporting level, the Electronic Data Processing (EDP) System's

capability coupled with the Project Manager's management style.

Design of the WBS

The WBS is normally designated as the first three levels of the extended CWBS. The

WBS is used to report program status externally to the customer. The CWBS is used

internally to plan the program in detail and to collect status information on periodic bases.

The intent of WBS development is to keep performance measurement reporting

requirements at a reasonable technical data information level using common sense. Once

cost collection begins at a CWBS element designated as a Task Plan (TP) that part of the

WBS format becomes almost impossible to alter. This is due to the multiple collection points

from which the actual cost expenditure data originates. It is important for the individuals

assigned with the responsibility of developing the WBS and CWBS to exercise a great

amount of patience. This development proceeds back and forth in an iterative consultation

pattern with the Project Management Office and the Functional Managers. Once the CWBS

is cast, it is an impractical or infeasible job to undo.

The individuals who are assigned the responsibility for development of the WBS/CWBS

should concentrate their efforts on properly designating the location of each segment of the

contractual work statement. The use of the CWBS as an accounting function should be

viewed as a secondary purpose. The intent is to prevent the use of the TECHNICAL

STATUS of the program and/or contract as a "CPA Style" accounting system. Keep in mind,

that the company has an accounting system to perform all of the proper accounting functions

and recording of details. The Performance Management System does not need to have or

display all of the accounting details.



Basic Rules Governing WBS/CWBS Development

There can be one and only one WBS for the contract.

The Customer, not the contractor, is the primary owner of the WBS.

The CWBS is a natural extension of the WBS.

The CWBS is a negotiated item during contract negotiations.

Level three of the WBS is the normal reporting level of external contractual

information.

The reporting level for contractual information is negotiated at the time of contract

negotiation using the WBS format. Once negotiated, each reporting element should

be clearly marked on the CWBS diagram.

Once created, the WBS will exist for the life of the contract.

Only a formal contract change will effect a change in the WBS.

When the customer directs the WBS change, the Project Management Office (PMO)

makes the changes to the WBS documents (i.e., WBS/CWBS diagram, WBS Index,

WBS Dictionary, WBS list, etc.).

Once cost collection begins at a CWBS element designated as a Task Plan, that part

of the structure becomes almost impossible to alter. This is due to the multiple

collection points from which the cost data originates. That is why everyone must

exercise a great deal of patience while the WBS and CWBS are being constructed.

Once cast, the CWBS is a tough job to undo.

The CWBS is a deliverable Contract Data Requirements List (CDRL) data item.

The CWBS is not a "people" organization chart; it is a work scope chart.

While the CWBS elements at the Task Plan level contain financial data, the CWBS is

not the "official" book of accounting records for the contract. However, the Task Plan

data contained within the CWBS framework must be reconcilable to books of record.

The resource charges into the CWBS must go directly into a single Task Plan

element. The resource charges are not split between two or more Task Plan

elements.

The WBS/CWBS will serve multiple functions within the program. Design of the

WBS/CWBS must accommodate the requirements for Design To Cost (DTC), Life

Cycle Cost (LCC), Engineering Bill(s) of Material (EBOM), Manufacturing Bill(s) of

Material (MBOM), as well as the product structure of the end items in one format. The

hardware WBS segment will be system oriented during RDT&E (or Full Scale

Development [FSD]) and MBOM oriented during Full Scale Production [FSP].

Each subcontractor’s effort will be assigned to a single WBS element. Minor

subcontractors (i.e., subcontractors with either little or no technical, schedule, and/or



cost risk) may be grouped together under a single CWBS element, but they are to be

singularly identified, tracked, and monitored for performance measurement.

All contract work, in terms of contract line items and contract end items plus other

contractual references, is identified against the CWBS. This information is

documented in the CWBS Dictionary.

Cost Performance Report

The reporting Level for the Cost Performance Report (CPR) is a negotiable item and

it is very high on the list of items to be negotiated with the customer during contract

negotiations. The CPR reporting level is not necessarily at the same level within each WBS

leg. For example, Prime Mission Equipment (PME) will normally be at level 3 while Data is at

level 2.

Keep in mind; a request for reportable data below WBS level three does not improve

the management of a project, be it from within the facilities or from without. The degree of

care exercised by the PMO, in the proper extension of the work scope and project schedules

into Task Plans, is what improves the quality of the reportable data. The CPR cost and

preparation time however, go up exponentially for each layer of detail added to the reporting

requirement.

It is a false belief that if the project is cut up into little bitty pieces, some great invisible

hand, called "control", comes into play from on high and manages the project itself. People

determine if a project achieves its end goals, not a Management Information System. The

theory that more management data equates to better management control has been proven

false many times over in the last twenty years of performance measurement systems history.

A Customer Work Scope Tree

Project control emanates from how well the contractual work scope is defined. The

greater the risk, the more careful one must be in defining the work scope. Time is the second

unit of control. The more that each project function understands the true duration of the time

it takes to go from step one to step two of the work scope, the better the plan and the better

the control. The third element comes into play when the resources to be used are identified

by the managers which will execute the plan. Formal work scope definition and

communication, proper timed elements tied to each work scope, and resource availability, is

the correct order of planning. This planning will determine how well the project is managed

and performance is measured.



Benefits of WBS and CWBS

i. The WBS is first and foremost a technical data gathering structure, deployed so that

the achievement in technical progress can be measured and analyzed against a

formal baseline plan.

ii. The WBS aids the customer in understanding the status of the project as time

elapses.

iii. The WBS aids the customer's customer in understanding the status of the project.

iv. All managers, internal and external need to use the planning and status information

within the WBS structure to aide in the adjustment to the current program paths and

for maximizing the attainment of short term and long term goals.

3.3 Organization Breakdown Structure

The individuals assigned the responsibility for WBS/CWBS development should

never lose sight of the fact that the WBS is used for TECHNICAL PLANNING and STATUS

ACHIEVEMENT. The individuals assigned the responsibility for the development of the

WBS/CWBS should not use the structure as an organization chart of people or as a detailed

accounting system. A people organization chart (called the Organization Breakdown

Structure (OBS) in this System Description) and a detail accounting system already exist and

function very well for their intended purposes.

The time spent on defining and negotiating the final CWBS is essential to Project

Management Office and the customer. Internally, the Project Managers Office will never be

able to spend enough time defining, and redefining the boundaries of the work scope;

communicating, communicating and re-communicating the boundaries of the work scope;

and setting and resetting the time scales for accomplishment of the detail work scopes.



3.4 RESPONSIBILITY ASSIGNMENT MATRIX (RAM)

A structure called the Responsibility Assignment Matrix (RAM) is developed by integrating

the Organization Breakdown Structure (OBS) with the Contract Work Breakdown Structure

(CWBS). This matrix displays the CWBS on one axis and the OBS on the second axis.

The proper integration of the two structures (CWBS and OBS) into the RAM will create a

home for each work statement of the contract and provide a disciplined framework so that

organizing, planning, budgeting, measurement monitoring, and reporting of the performance

measurement can be correctly implemented.

Each intersection point on the RAM defines a possible requirement for one or more

specific scopes of contractual work to be performed by the responsible functional

organization. This intersection point, envisioned as a third axis within the RAM, defines a

point where one or more Task Plans may be formed and a point at which work is organized,

scheduled, budgeted and its progress monitored, measured and reported. The fourth axis of

the RAM when properly implemented allows for the use of a unique Task Plan for each

phase of the contract as it progresses through time.

By inserting the budgets defined for each Task Plan into the designated location of

the RAM the "Dollarized" RAM is created. This budget information is normally summed up in

the beginning from the Task Plan level through each level of the RAM. The information is

then displayed for audit purposes during System Implementation reviews for the customer.

The dollarized RAM is a mechanical method of footing and cross footing all of the distributed

budgets to assure the Project Management Office that the budgets have been properly

allocated.



3.5 Invitation to Bid (ITB)

The common concept for ITB is that invitation can be sent to pre-selected vendors or

through general notification. But it is prudent that the conditions of subcontracting and vendor

selection in the main contract with Client of the EPCIC contractor be reviewed and complied

with. Some of the contracts already include pre-qualified vendors and nominated

subcontractors, while others stipulate a requirement that vendors and subcontractors list be

submitted for client approval prior to releasing the ITB. Non compliance to this requirement,

even if not objected during the commencement of the project, gives Clients the right to reject

all deliveries at a later stage at the expense of the EPCIC contractor.

Guidelines for Managing ITB

1. The bid packages are developed in accordance with CWBS and not further

broken down for soliciting lowest possible prices.

2. The list of vendors is pre-qualified and approved by relevant authorities as

stipulated in the Master Contract.

3. The project specific and site environmental data is disclosed in the ITB.

4. All documents which shall be used in the formation of contract shall be

disclosed in the ITB. Introduction of new information or changes from original

data will result in either variations or cancellation of the original bids, thereby

resulting in unnecessary expense.

5. The party inviting tender bids is merely indicating an intention to receive offers

for the construction of a particular plant, structure or works and should not

make any false representation which may give impression of forming

contractual relationships of any sort.

3.6 Evaluation of Bids

The party inviting the tenders may have a moral duty to evaluate all offers or bids

received in response to the ITB but no legal obligation as the inviting party is only expressing

intention to receive offers. But if the conditions of tender or ITB are such that lowest or

highest bidder will be considered and is expressively stated in the terms of the tender bid

preparation, then such a condition can be enforced by law.

However, when tenders are invited on some expressed or implied terms that the

bidder has an assurance that his bid will be evaluated, but due to some reasons, the inviting

party did not evaluate and rejected the bid, then it is actionable in contract. This principle is

based on the authority of the English Court of Appeal, ruling, that based on the facts, it must

be implied as a condition of tender that if a bidder submitted a conforming tender before the

deadline he would be entitled, as a matter of contractual right, to have his tender opened and

considered along with any other tenders that were considered.



The judgment of LJ Bingham in Blackpool and Flyde Aero v Blackpool Borough

Council [1990] 3 All ER 25 at 30, noted the following observations:

“A tendering procedure of this kind is, in many respects, heavily weighed in favor of

the inviter. He can invite tenders from as many or as few parties he chooses. He

need not tell any of them who else or how many others, he has invited. The invitee

may often be put to considerable labor and expense in preparing a tender, often

without recompense if he is unsuccessful. The invitation to tender itself, in a complex

case, involves time and expense to prepare but the inviter does not commit himself

to proceed with the project, whatever it is; he need not accept the highest tender; he

need not accept any tender; he need not give reasons to justify his acceptance or

rejection of any tender received.”

Guidelines in Evaluation of Tender Bids

1. The inviting party shall refrain from making express or implied promises as to

the evaluation process and award on the basis of compliance to some

specific condition. But a general criteria for the benefit of transparency and

developing mutual trust, is a common practice of international organization.

2. The inviter shall acknowledge the receipt of tender and when the award is

made to the successful bidder, shall inform all the unsuccessful bidders.

3. The tenders if received with qualifications shall be carefully evaluated. If the

qualifications are acceptable then the same shall be inserted in the contract

documents. The party who remains silent on the qualifications and proceeds

with the evaluation resulting in ultimate award of the tender and signing of

contract is deemed to have accepted the qualifications.

4. The additional information released during the tendering process before

closing of the tender shall be documented and distributed to all invited

parties. If additional information is released during evaluation stage but

before the award of tender, it shall also be distributed to all bidders who have

submitted their bids in response to ITB.

5. The acceptance of an offer shall be in a clear and unambiguous statement

which must be communicated to the bidder before a contract can be formed.

The Contracts Act 1950 of Malaysia has codified this requirement, which

stipulates that “performance of the conditions of a proposal is an acceptance

of the proposal”.



3.7 Exceptions to and Exemptions in the Contract

The parties to a contract have to pay considerable attention to the clause which tends

to limit the liability of either party or exclude responsibility from certain scope, negligence or

otherwise. The most commonly used exclusion clauses are “Limitation of Liability” due to any

breach of contract, delays and injuries or loss due to action or inaction of either party.

Review the following examples to differentiate between exception and exemption:

Limitation of Liability

1. Sellers liability to Buyer for any direct loss arising out of or in connection with this Agreement

and/or the Goods, other than delays in delivery of the Goods dealt with in LD clause, whether

such claims be brought in contract, tort or otherwise, shall be limited to [5% of the aggregate

price of the Goods].

2. Seller excludes all liability to Buyer for any consequential or indirect loss, including but not

limited to, loss of profit, loss of use, loss of contract, loss of production loss of revenue,

business interruption or increased cost of working arising out of or in connection with this

Agreement and/or the Goods, other than delays in delivery which are dealt with in LD clause.

Excluding Responsibility

1. While the Supplier will endeavor to meet estimated dates for delivery of equipment and

performance of services, the Seller undertakes no obligation to deliver or perform by such

dates, and the Supplier shall not be liable for any damage resulting from any failure to deliver

or perform by such dates howsoever caused.

2. In any event, and notwithstanding anything contained in this Contract, in no circumstances

shall the Supplier be liable, in contract, tort (including negligence or breach of statutory duty)

or otherwise howsoever, and whatever the cause thereof, (i) for any increased costs or

expenses, or (ii) for any loss of profit, business, contracts, revenues, or anticipated savings, or

(iii) for any special, indirect or consequential damage of any nature whatsoever

Exceptions in the Bid Documents

1. The offer is in exact accordance with the specifications, drawings, terms and

conditions and other requirements of the ITB subject to availability of manpower and

facilities at the time of award of the Contract.

2. The prices in this offer shall be firm for the duration of schedule in the ITB and

extension of duration for whatsoever causes; prices shall be subjected to revision as

per the price escalation for increase of more than 1% of current rates.

3. This bid is in strict compliance with the ITB documents assuming that the soil

condition is free from rocks for pipe laying works.



The clauses as shown in the examples here if remain unnoticed, can undermine or totally

defeat an innocent party’s expectations, depriving him of compensation or performance

resulting from the breach of the other. The courts over the period have developed special

rules for interpretation to narrow the scope of exemption clauses even if they are properly

incorporated. There are numerous authorities and rules of the courts in different jurisdictions

regarding interpretation of exclusion clauses which:

a) Exclude liability altogether

b) Merely limit liability

c) Exempt from liability for negligence

d) Exempt liability for indirect or consequential loss

The courts view the clauses with less scrutiny which have defined and agreed limits to

liability as compared to those which exclude liability. But for clauses which exclude

negligence, the courts consider them severity. When drafting such clauses, reference shall

be made to Unfair Contract Terms Act (UCTA) and municipal regulations governing the

contract.

3.8 Signing of Contract

The opening statement of a contract and the last statement at the end of the contract

articles signify the signing of the contract. These two spots are rarely given any special

consideration or second thought when parties are negotiating the contract. Ironically when a

dispute is germinated and the ADR (Alternative Dispute Resolution) process or litigation has

to commence, these two spots make a major impact on the entire dispute resolution process.

The parties shall carefully observe and agree on the following elements of the

contract signing spots, just after the closing statement “In witness whereof, the parties hereto

have caused this Contract to be duly executed the day and year first above written”: -

a) The word “Authorized Representatives” and “Designation” of the

signatories is inserted.

b) Place (City, Country) where signatories have signed the contract must

be entered

c) Date of Signature

d) Full particulars of the witnesses shall be recorded with witness

signatures.

In the opening statement of the contract, date and full identification of the parties is usually

recorded together with registered addresses and corporate registration numbers, but the

statement shall also be followed by the words,



“In consideration of the mutual covenants herein contained….”

In case of Standard Forms of Contracts such wordings will be included but parties have to

ensure in the context of the contractual relationships, appropriate dates and places are

recorded. A small mistake here can provide avenues of delays in commencement for ADR

process to the disadvantage of the innocent party due to ambiguous legal regimes for

international projects.

3.9 Contract Documentation

In EPCIC contracts, it is a common practice that all documents related to the project

scope be recorded in the ITB, and a statement with the list of documents in order of

precedence shall form the part of the contract. The parties shall carefully review each

document stated in such a list to ensure its relevance and impacts in the extreme case

scenario. Sometimes specifications of products not within the scope of the Contract are also

included for reference, but the intention of the party drafting contract is to pass the risk of

ensuring compatibility between the bidder’s supplies and supplies of other systems or client

equipments & plants. If the bidding party finds its relevance uncertain, then it should be

excluded from the contract documents.

For example, the parties hereby agree as follows:

“The following documents shall be deemed to form and to be read and construed as part

of this Contract”:

This Contract

Appendix 1: Company’s General Terms and Conditions of Contracts and Purchase

Exhibit 1: Scope of Works

Exhibit 2: List of Drawings

Exhibit 3: Master Schedule

Exhibit 4: Milestones Schedule

Exhibit 5: Contractor’s Schedule of Rates for Additional Works

Exhibit 6: Project Quality Plan and Work Procedures

Exhibit 7: Project Management Organization

Exhibit 8: Forms to be used for the project

In case of lump sum contract, the payment schedule will be linked to the milestones and for

unit rates based contract, the rate schedule shall also form part of the contract.



3.10 Managing Contract Deliverables by Milestones

In Oil & Gas industry this has been a well established practice that, LD clauses are

defined according to each milestone besides overall LD clause in the contract. Some of the

international oil companies also offer incentives for early accomplishment of milestones. This

is the most effective interface between technical disciplines of project management and

commercial disciplines of contract management.

A milestone based project management schedule with specific responsibility

assignment approach shall ensure not only which milestone is achieved at what time but also

who is responsible for achieving it. Furthermore the firm can ensure that the milestone owner

is given full authority and is free from external constraints in achieving it. Typical overview of

milestone planning approach is demonstrated by an example in figure 3.1.

This demonstrates importance of milestones in essence that if one milestone is delayed, how

its effect will have impact on other milestones.

Commence Plant Erection Phase 31 Sept 04

Hook up dwgs issued 31 Aug 04

Bulk Materials PO issued 7 Aug 04

Complete civil structure works, Plant Dwgs issued 21 July 04

Plant Erection Dwgs released 15 Jun 04

Complete piling works, Appoint M & E Cont 7 Jun 04

Construction Dwgs released 2 May 04

Appoint Civil contractor and commence work 31 Mar 04

Issue ITB for civil contractors 25 Feb 04

Site Plans development, Govt approval 15 Jan 04

Brief Description Civil

Construction Procurement Engineering

Planned

Date

Figure 3.1: Milestone Plan: Phase-I of Refinery Project

E

P

C

C

C

C2

C

P

P

P

E

E

E

E



Chapter 4

Terms and Conditions (Articles) of a Contract

There is no standard limit on how many and which terms to include in the contract. The law

of contract in most of the jurisdictions provides freedom to the parties to the contract and

does not interfere in how parties want to do their business or form relationships, as far as

such collusion of minds does not violate public policies and other laws of the jurisdiction. The

Contract Law Acts provide framework for resolution of disputes between the parties and

protect the injured parties from unfair treatment. Some of the critical clauses and guideline

on interpretation are discussed here.

A. Critical Clauses for Project Progress

4.1 Scope of the Contract “Extent of the Contract” - Article 2. 2.1 The CONTRACTOR shall perform the WORK and the repair or replacement of defective

parts of the WORK during the guarantee period and except insofar as the CONTRACT otherwise specifies, shall provide all labor, materials, constructional facilities, temporary works, services, drawings and everything whether of a permanent or temporary nature required for the WORK, all as is provided for in, or reasonably to be inferred from, the CONTRACT.

2.2 The PURCHASER on its part shall supply the CONTRACTOR with three copies of the

SPECIFICATION, one reproducible and one print of the DRAWINGS and certain mechanical or structural parts to be used in the construction of and to be incorporated in the FABRICATION all as detailed in Exhibit F.

“Items And Services To Be Supplied By Purchaser” - Article 3. 3.1 The PURCHASER undertakes to make all reasonable efforts to provide the relevant

information to the CONTRACTOR in such time and order as is given in the Master Plan (Exhibit G).

3.2 In the event that the CONTRACTOR is behind the fabrication schedule with the

FABRICATION and is delayed in its opinion because of late delivery by PURCHASER of said items, then the ENGINEER, if he so agrees, shall issue a CHANGE adjusting the COMPLETION DATE in accordance with the agreed delay.

3.3 CONTRACTOR shall not be entitled to an adjustment of the CONTRACT PRICE under

the provisions of this article except where, in its absolute sole discretion, PURCHASER

agrees that such adjustment is appropriate.



The phrases in italics and underlined are subject to misuse and shall be negotiated

aggressively. Caution shall be observed when guarantee period defects are also integral to

the basic scope of the contract.

4.2 Payment Terms

Article 4 - Contract Price and Payment Terms 4.1 The CONTRACT PRICE is the sum named in the AGREEMENT, or such adjusted sum

as may be determined under the provisions of the CONTRACT, to be paid by the PURCHASER in consideration of the proper fulfillment by the CONTRACTOR of all its obligations under the CONTRACT.

4.2 Subject to the provisions in sub-article 4.1, the CONTRACT PRICE shall remain firm for

the duration of the CONTRACT and is not subject to amendment due to fluctuations in the cost of materials, labor, fuel or power, equipment rental and other things used or consumed in the WORK.

4.3 The CONTRACT PRICE shall be paid in installments and on the terms as set forth in

Exhibit C. 4.4 All payments shall be made within 45 days of the date of receipt by the PURCHASER of

the Contractor’s invoice, accompanied by documentation in accordance with sub-article 4.3.

4.5 Without prejudice to any other remedy which the PURCHASER may have, it shall be

entitled to deduct from any moneys due to the CONTRACTOR under the CONTRACT, all costs, damages or expenses for which the CONTRACTOR is liable to the PURCHASER under the terms of the CONTRACT.

The PURCHASER or the CLIENT or their authorized representatives shall have the right to inspect, during business hours, all books, records, accounts and documents of the CONTRACTOR and its subcontractors insofar as they relate to reimbursable charges and costs under the CONTRACT. Such books, records, accounts and documents shall be preserved and made available for a period of two years after the date of the Final Acceptance Certificate.

This paragraph 4.5 and extension of it provides supremacy to the Purchaser over Contractor

and is the non-stop bone of contention between the parties. This should never be agreed

and subject to the jurisdiction may also be argued to term it as in violation of UCT Act.

The price adjustment due to escalation of fuel and steel material prices is many times

contended unsuccessfully under Force Majeure but it is prudent practice to include an

independent article to address inflation and price escalation due to market factors.



4.3 Contract Schedule

Article 10 “Completion Date, Scheduling and Control” 10.1 The CONTRACTOR shall commence the FABRICATION immediately after the date of

the CONTRACT and shall complete same not later than the COMPLETION DATE. 10.2 The COMPLETION DATE is the date stated in the Special Conditions of Contract or such

adjusted date as may be established pursuant to the provisions of sub-article 10.6. The CONTRACTOR shall at all times, control the progress of WORK on the

FABRICATION to achieve an actual completion on or before the COMPLETION DATE determined in accordance with the CONTRACT.

10.3 The CONTRACTOR shall be responsible for scheduling, progress reporting, forecasting, and controlling the actual completion. The Contractor’s schedules, progress reports, schedule forecasts and schedule control activities shall be approved by the ENGINEER.

The CONTRACTOR shall prepare and submit to the PURCHASER a report of progress

every week. The report shall contain a description of work accomplished during that time, a schedule showing the percentage of progress realized for each work item. The CONTRACTOR shall include any other details relevant to the WORK, as required in the Co-ordination Procedures.

All the Contractor’s calculations and documents supporting said schedules, reports and

forecasts shall be made available to the ENGINEER. 10.4 The CONTRACTOR shall provide an updated detailed schedule of the WORK as soon as

feasible as and in any event not later than 15 calendar days after the date of the CONTRACT. Said detailed schedule shall be in sufficient detail to identify all major activities and constraints along the critical and sub-critical paths.

10.5 After the ENGINEER has approved the aforesaid detailed schedule, the CONTRACTOR

shall use it as the basis for progress reporting, schedule forecasting and schedule control-ling. At regular intervals, the CONTRACTOR shall revise said detailed schedule to include the effects of CHANGES and to reflect actual progress of the WORK and shall prepare schedule forecasts that predict the date for the completion of the WORK.

10.6 The COMPLETION DATE shall be subject to adjustment for CHANGES. If a CHANGE

results in a revision of the COMPLETION DATE, such date shall be adjusted by the number of days, authorized in the CHANGE ORDER issued by the ENGINEER.

10.7 If the CONTRACTOR fails to complete the FABRICATION by the date specified in

accordance with sub-article 10.2. The CONTRACTOR shall pay the PURCHASER the liquidated damages stated in the Special Conditions of Contract for each day which shall elapse between the COMPLETION DATE and the actual date of completion of the FABRICATION or confirmed by the ENGINEER in the Certificate of Completion and Delivery issued under sub-article 11.4.

The clauses in bold are meant to assist efficient project management as well as interface

with contract management.

Contractually, there are two approaches of monitoring schedule, and the choice is linked to

Payment Terms and LD clause.

a) By Each Major Activity, then claim on percentage completion basis, or



b) By milestone so irrespective of the material and labor incurred, the Contractor

can only get paid when the milestone is reached. If for one document or small

flaw, the milestone is not achieved technically, then even if project is near

completion but yet it is considered far from completed as specified.

4.4 Acceptance Criteria

Article 11- “Transfer Of Title and Acceptance” 11.1 (a) Title to the FABRICATION or any materials, consumable equipment, goods or other

items supplied by the CONTRACTOR and forming a part thereof shall pass to the PURCHASER on whichever of the following dates first occurs:

(i) the date on which the FABRICATION or such items are delivered to the

CONTRACTOR or otherwise identified to the CONTRACT, (ii) the date payment with respect to the FABRICATION or such items is made, (iii) the date of issuance of the Certificate of Completion and Delivery, or (iv) the date upon which the CONTRACT shall terminate for any reason. (b) The transfer of title to the FABRICATION and such items as specified above shall in

no way affect the Purchaser’s rights or remedies as set forth in other provisions of the CONTRACT.

(c) At any time the CONTRACTOR shall deliver the uncompleted or completed

FABRICATION and/or VESSEL to the PURCHASER at the place of delivery upon the Purchaser’s written notification that it desires to take delivery thereof. In no event shall a discussion over the value of CHANGES or extra work permit the CONTRACTOR to retain possession of the FABRICATION after such notification.

The PURCHASER may enforce its rights hereunder by all legal means and the

CONTRACTOR shall be liable for all damages which the PURCHASER may suffer as a result of the Contractor’s refusal to deliver the FABRICATION in accordance with this sub-article (c). Notwithstanding the above, no such delivery shall be made until payment has been made to the CONTRACTOR of such portions of the CONTRACT PRICE and for agreed CHANGES which have been invoiced and are due for payment at the date of the Purchaser’s notification. Delivery of the FABRICATION under this sub-article shall in no way prejudice the Contractor’s rights to receive full payment of the portion of the CONTRACT PRICE which has been earned and to claim additional compensation for CHANGES or extra work pursuant to Article 28.

11.2 Notwithstanding the provisions of sub-article 11.1, the CONTRACTOR shall be

responsible for all damages to and loss of all items furnished by the CONTRACTOR and any item furnished to the CONTRACTOR by the PURCHASER to enable the CONTRACTOR to complete the FABRICATION, and for all temporary structures and facilities and for all parts of the FABRICATION completed or in progress, until the Certificate of Completion and Delivery of the FABRICATION has been issued by the ENGINEER, or until delivery under sub-Article 11.1 (c) above, whichever is earlier.

11.3 The CONTRACTOR agrees that if so directed by the ENGINEER, the CONTRACTOR

will promptly undertake, prior to completion and delivery of the FABRICATION, under the



terms and conditions of the CONTRACT, the reconstruction, repair or replacement of any of those things for which the CONTRACTOR is responsible, pursuant to sub-article 11.2. that may have been damaged, destroyed or lost through any cause whatsoever.

11.4 As soon as the FABRICATION has been completed, tested and delivered to the

satisfaction of the ENGINEER and in accordance with the provisions of the CONTRACT included but not limited to the issue of an unqualified "Certificate of fitness", and as soon as the CONTRACTOR has signed the Waiver of Liens and Claims, the ENGINEER shall issue a Certificate of Completion and Delivery. This certificate shall in no way release the CONTRACTOR of its outstanding obligations under the CONTRACT.

11.5 The CONTRACT shall not be considered completed until a Final Acceptance Certificate

has been issued by the ENGINEER in accordance with sub-article 16.8 confirming that the Contractor’s obligations under the CONTRACT have been fully met.

3.3 The CONTRACTOR warrants good title to the FABRICATION, free and clear from all

liens, charges and other encumbrances, in respect of the WORK and of all materials,

consumables, equipment, goods and other items supplied by the CONTRACTOR

forming a part thereof. The CONTRACTOR shall discharge or cause to be discharged

all such liens, claims and other encumbrances. The PURCHASER may withhold final

payments as are owed to the CONTRACTOR until the CONTRACTOR provides such

discharges. The CONTRACTOR shall indemnify the PURCHASER against costs and

expenses incurred as a result of such liens, claims and expenses, including but not

limited to, the discharge thereof by the PURCHASER after due notice to the

CONTRACTOR.

First an ordinary acceptance clause has been linked very intelligently to the “Transfer of

Title” clause without making payment for the completed works; which then brings in the

responsibility of indemnity. With such an acceptance clause, even the most proficient EPCIC

contractor will encounter a difficult time in accomplishing the subject matter when faced with

a bureaucratic representatives of the clients.

Exercise – 1

Read each clause under this Article and identify words or acts or tasks which are incapable

of putting into practice.



4.5 Change Orders and Variations

Article 4 “Changes” 4.1 Changes to the WORK

The ENGINEER has the right to make CHANGES to the WORK, whether by additions, modifications, or omissions thereto and CONTRACTOR shall, subject to the provisions of this AGREEMENT, perform CHANGES to the WORK. The CONTRACTOR shall make such CHANGES to the WORK whether by additions, modifications or omissions thereto as from time to time and at any time instructed by the ENGINEER, subject to the provisions hereunder. CONTRACTOR shall make no CHANGE in the WORK unless the ENGINEER has given its written authority to proceed in accordance with the provisions hereunder.

4.2 Identification and Notification If the ENGINEER initiates a change in the work or if the CONTRACTOR considers a change in the work is required due to the Engineer’s action or otherwise CONTRACTOR shall promptly identify and notify the ENGINEER of any increase or decrease in the time CONTRACTOR will take to complete the WORK and/or any increase or decrease in the amount CONTRACTOR considers should be payable to CONTRACTOR pursuant to this AGREEMENT. Any such notification shall be called an Identification of Change (hereinafter “IOC”). In the IOC CONTRACTOR shall state the reason for the change, the scope of work covered by the change, commencement date for the change and the estimated effect both in cost and time to complete the work associated with the change.

4.3 Submission of IOC The IOC shall be countersigned by the ENGINEER to acknowledge receipt. Such signature will not constitute approval. DRAWING revisions, SPECIFICATION, letters, facsimiles, minutes of meetings or other data which, are alleged by CONTRACTOR to form the basis of the change, are to be documented and attached to the IOC. Following signature of the IOC by the ENGINEER, CONTRACTOR shall:

4.3.1 Where any increase or decrease in costs is stated as being recovered or deducted as a lump sum CONTRACTOR shall promptly, submit to the ENGINEER a fully supported cost estimate for the work which shall encompass but not necessarily be limited to: a) A breakdown of estimated man-hours and costs by trades. b) A breakdown of costs, quantities, material take-off and other such data for all

additional materials required. c) Details of the cost of applicable plant and equipment. d) All other cost elements not covered in a), b) and c) above.

4.3.2 Where any increase or decrease in costs is stated as being recovered or deducted based

on the Schedule of Rates, Prices and Sums (Exhibit D) CONTRACTOR shall promptly, submit to the ENGINEER a fully supported cost estimate for the work which shall encompass but not necessarily be limited to:

a) A breakdown of the estimated quantities and/or units priced in accordance with the

Schedule of Rates, Prices and Sums.



b) A breakdown of items and/or units, together with the proposed costs, of any part of the

work which is not deemed to be included in a) above. In the case of Third Party supplied material, equipment, services and the like, i.e. cost plus items, CONTRACTOR shall attach copies of relevant purchase orders, Vendor quotations and the like. Should the cost plus items form part of an agreed IOC, then CONTRACTOR shall, upon completion of the work, provide copies of the applicable invoices, relative to the foregoing, together with proof of payment.

c) All other cost elements not covered in a), and b) above.

4.3.3 Where any increase or decrease in costs is stated as being recovered or deducted based

on reimbursable rates i.e. trade discipline man-hours and/or equipment and/or material CONTRACTOR shall maintain complete records of the resources utilized for the work. These records will be submitted to the ENGINEER for counter signature on a daily basis.

4.3.4 The ENGINEER shall have the right to dispute Contractor’s evaluation of the IOC. The

ENGINEER shall independently evaluate the costs of the work covered by the IOC and the final sum agreed for the IOC shall be the subject of negotiation between the parties hereto but payment shall be dependent upon the issue of a CHANGE Order. Payment of the CHANGE Order will be in accordance with Exhibit C (Terms of Payment).

4.4 Authorization to Proceed Authorization for the CONTRACTOR to proceed with the work will be given by the ENGINEER through a written acceptance of the IOC. This acceptance shall not be deemed to be agreement by the ENGINEER that the proposed work identified in the IOC amounts to a CHANGE in the WORK. The work detailed in the IOC shall be presumed to be covered by the CONTRACT and in the WORK. Only where the CONTRACTOR establishes, to the Engineer’s satisfaction, that the work detailed in the IOC does not form part of the WORK shall the ENGINEER be under any obligation to consider making any additional payment therefore to CONTRACTOR. During any discussion as to whether the WORK described in the IOC constitutes a change in the WORK or the amount of compensation thereof, the CONTRACTOR shall implement such WORK with due diligence and without any delay. CONTRACTOR shall measure the work and record appropriate equipment, plant, trade discipline man-hours, material usage and other costs with work sheets to be signed by the ENGINEER. CONTRACTOR accepts that this signature by the ENGINEER does not constitute acceptance of the change, only an acknowledgement for the record. Acceptance of a CHANGE can only be confirmed by the issue of a CHANGE Order. CONTRACTOR shall maintain records in respect of lump sum IOC’s in the same detail as though the work was being done on a reimbursable basis as referred to above.

4.5 CHANGE Orders The ENGINEER will consider all IOC requests for a CHANGE order. Where the ENGINEER, at it’s own discretion, considers that CONTRACTOR has established a CHANGE in the WORK, the ENGINEER will issue a CHANGE Order to CONTRACTOR referencing the relevant IOC(s) and showing the effect on the CONTRACT PRICE and if applicable the COMPLETION DATE. CHANGE Orders (two originals) shall be signed by both the ENGINEER and CONTRACTOR with an original being retained by each party after signature.



4.6 Invoicing Invoicing of the CHANGE Order(s) will be in accordance with Exhibit C (Terms of Payment) and be fully supported to the Engineer’s satisfaction. Each supporting document shall have a CHANGE Order and IOC reference and be subject to approval by the ENGINEER.

4.7 Non-Issuance of CHANGE Orders No CHANGE Orders will be issued and/or IOC’s accepted if the same arises from failure to support the IOC with adequate cost estimates or a failure by CONTRACTOR to have acquired any information relating to the WORK or, do or omit to do any things in relation to the WORK which would have been acquired or done, or omitted to be done, by any experienced and prudent contractor in order to properly fulfill its obligations hereunder, subject always to the Contractor’s right to contest such determination under Article 28.

The change order process is an expensive task in this contract and is subject to multiple

reviews, sources of disagreements and or disputes. Such lengthy clauses shall be avoided in

EPCIC contracts as otherwise it acts as a potential source of delays and disputes.

B. Limiting Your Liability

4.6 Indemnities

The clients are not only concerned by rectification of defects and replacements of

materials/parts but they want to be ensured that they are well compensated for any other

loss or damage caused either as a result of the defect or as a result of the failure of the party

to perform the contract properly or at all. A contract of services also entails inclusion of the

indemnification clause for loss or damage caused by negligent performance. But in their

intent to secure themselves from over imaginary possibilities, some contract drafters get

carried away in lengthy and all encompassing indemnity clauses. The Article 12 of a contract

illustrates one such case:

Article 12- Indemnities 12.1 The CONTRACTOR shall be responsible for and shall indemnify, defend and save

harmless the PURCHASER, PURCHASER's other contractors, the ENGINEER and the CLIENT and their owned, controlled affiliated subsidiaries, associated, interrelated and operated companies and the stockholders, directors, officers, agents, employees and the representatives of each from and against claims by all persons, including but without limitation the CONTRACTOR's officers, agents, employees, representatives or sub-vendors, or by any third parties and against any and all judgments in respect thereto on account of personal injury or death or on account of damage or destruction or loss to any property including but not limited to the PURCHASER's, the Client’s and the CONTRACTOR's property arising out of any act or omission of the CONTRACTOR, its officers, employees, agents, representatives or sub-vendors even if contributed to or caused by the negligence of the PURCHASER, the CLIENT or their employees, agents or



representatives; however, the CONTRACTOR shall not be responsible for any injury, death, or property damage caused by the sole negligence of the PURCHASER, the CLIENT and their employees, agents or representatives.

12.2 The CONTRACTOR's responsibility for damage, destruction or loss of property and injury

to or death of persons as set forth in sub-article 12.1 includes, but is not limited to damage, destruction, loss, injury or death caused in whole or in part by any defect in materials belonging to or provided by the CONTRACTOR or furnished to the CONTRACTOR for incorporation in or use in accomplishing the WORK or any act or omission of any employee of the PURCHASER while acting under the direction or control of the CONTRACTOR or its sub-vendors and, on their behalf, carrying out the WORK.

12.3 The CONTRACTOR shall indemnify and keep indemnified the PURCHASER and

CLIENT against all claims, demands, proceedings, costs, charges and expenses in respect of the CONTRACTOR's other obligations under the CONTRACT.

ALTERNATIVE to Article 12

SC7 - INDEMNITIES Article 12 of the General Conditions is replaced in its entirety by the following text: 12.1 CONTRACTOR shall indemnify and save harmless the PURCHASER, the CLIENT and

their respective affiliates, subcontractors, officers, agents, representatives and employees (the "Indemnities") against all loss, damage, liability and claims in respect of personal injury or death of the employees or agents of CONTRACTOR or its subcontractors or for loss or damage to any property of CONTRACTOR or its subcontractors and the objects of the FABRICATION and all property of PURCHASER or CLIENT (including the SYSTEM ) when they are in the care, custody or control of CONTRACTOR or its subcontractors arising during or as a result of CONTRACTOR's performance of the WORK regardless of the passive, concurrent or active negligence of the Indemnities.

12.2 Subject to Special Condition 7 paragraph 12.1 above and Article 16 of the General

Conditions, PURCHASER shall indemnify and save harmless the CONTRACTOR and their respective affiliates, subcontractors, officers, agents, representatives and employees (the "CONTRACTOR Indemnities") against all loss, damage, liability and claims in respect of personal injury or death of the employees or agents of PURCHASER or CLIENT or for loss or damage to any property of PURCHASER or CLIENT arising during CONTRACTOR's performance of the WORK, including the objects of the FABRICATION and all property of PURCHASER or CLIENT (including the SYSTEM) when they are no longer in the care, custody or control of the CONTRACTOR or its subcontractors, regardless of the passive, concurrent or active negligence of the CONTRACTOR Indemnities.

In no event shall the CONTRACTOR be responsible for any consequential or special losses, damages or expenses, including but not limited to loss of time, loss of profit in earning or otherwise.

12.3 CONTRACTOR shall be responsible for, indemnify and hold harmless the Indemnities from all claims, losses, damages, costs (including legal costs), expenses and liabilities of every kind and nature resulting from:

(a) Personal injury, including fatal injury and disease to and\or



(b) Loss or damage to property of,

third parties arising out of or in connection with the performance of the CONTRACT whether or not the negligence or breach of duty of Indemnities contributed to such personal injury, loss or damage unless the injury and/or damage referred to in SC. 7 Articles 12.3 (a) and (b) above is caused by the gross negligence or willful default of the Indemnities. The indemnity and hold harmless obligations of this clause shall be limited to USD 2,000,000 and in excess of such liability shall be governed by applicable law.

The examples of some suitable clauses to be adopted for indemnities are:

The Supplier undertakes that it will indemnify the Customer against all proceedings, costs,

expenses, liabilities, injury, death, loss or damage arising out of the breach or negligent

performance or failure in performance by the Supplier of the terms of this Agreement.

a) “The Supplier shall indemnify and keep the Customer fully indemnified against all

liabilities, costs and expenses in relation to death or injury to persons or loss of or

damage to tangible property to the extent that such death, injury, loss or damage is

attributable to the [wilful or negligent] acts or omissions of the Supplier, its officers,

employees, agents or sub-contractors.

The remedies contained in this Clause are without prejudice to and in addition to any

warranties, indemnities, remedies or other rights provided by law or statute or under any

other provision of this Agreement for the benefit of the Buyer.”

b) “The Contractor shall indemnify and keep the Customer fully indemnified against all

liabilities costs and expenses in respect of claims brought against the Customer by third

parties in relation to death or injury to persons or loss of or damage to property where,

and to the extent that such death, injury, loss or damage is attributable to the [wilful or

negligent] act or omission of the Contractor its employees agents or sub-contractors.

PROVIDED HOWEVER that the Customer:

(i) Promptly notifies the Contractor of such claims;

(ii) Allows the Contractor if the Contractor so requests to conduct and control (at the

Contractor’s sole cost and expense) the defense of such claims and any related

settlement negotiations; and

(iii) affords all reasonable assistance to the Contractor (at the Contractor’s sole cost

and expense) and makes no admission prejudicial to the defense of such claims.

The remedies contained in this Clause are without prejudice to and in addition to any

warranties, indemnities, remedies or other rights provided by law and/or statute and/or

under any other provision of this Agreement for the benefit of the Buyer.”



4.7 Insurance

The insurance covers are one of the strategies for mitigating risks due to remote,

uncertainties and uncontrollable events but the probability of occurrence of such events

exists. The insurance companies shall undertake the risks but will include certain protection

clauses as they would like the insured to share some burden of the risk as well. When

reviewing or drafting the contracts, insurance responsibilities, costs and limitations of cover

shall be well communicated to the entire project team.

Article 13 – “Insurance” 13.1 The CONTRACTOR at its sole cost and expense shall procure, maintain and continue in

force throughout the execution of the WORK, with insurance companies and on policy forms acceptable to the PURCHASER, the type and minimum amounts of insurance coverage set forth in Exhibit H.

13.2 The CONTRACTOR shall submit to the ENGINEER copies of all insurance policies or

certificates for approval. In the event that the cover or the policies are not approved by the ENGINEER, the CONTRACTOR shall remedy all deficiencies at the CONTRACTOR's own cost and to the satisfaction of the ENGINEER.

13.3 The CONTRACTOR shall provide that, (a), its insurers waive all rights of subrogation

against the PURCHASER; and the CLIENT and that its insurance policies contain explicit clauses to that effect, or (b) such policies are amended to name the PURCHASER and CLIENT as co-insured to the extent such policies are applicable to the CONTRACT, all as specified in Exhibit H.

13.4 The CONTRACTOR shall ensure that all subcontractors employed by it in the

performance of the CONTRACT shall have insurance coverage at least equal to that required of the CONTRACTOR herein.

13.5 The PURCHASER shall ensure that the CONTRACTOR and its subcontractors shall

benefit as co-insured from any insurance coverage taken out by the PURCHASER or the CLIENT with respect to the WORK.

There are more than one insurance covers in any project and some overlap is unavoidable.

But there should not be any gap which creates unexpected exposure to the risk, which can

be mitigated.



4.8 Risks Mitigation Strategies

In general, there are several ways to mitigate the potential impact of risks:

Accept the risk: One of the primary functions of management is managing risk. Some

risks are minor because their impact and probability of occurrence is low. In this case,

consciously accepting the risk as a cost of doing business is appropriate, as well as

periodically reviewing the risk to ensure its impact remains low.

Eliminate the risk: It is possible for a risk to be associated with the use of a particular

technology, supplier, or vendor. The risk can be eliminated by replacing the

technology with more robust products and by seeking more capable suppliers and

vendors.

Share the risk: Risk mitigation approaches can be shared with trading partners and

suppliers. A good example is outsourcing infrastructure management. In such a case,

the supplier mitigates the risks associated with managing the infrastructure by being

more capable and having access to more highly skilled staff than the primary

organization. Risk also may be mitigated by transferring the cost of realized risk to an

insurance provider.

Control/mitigate the risk: Where other options have been eliminated, suitable controls

must be devised and implemented to prevent the risk from manifesting itself or to

minimize its effects.

C. Exit Clauses

4.9 Liquidated Damages

The LD clause as it is commonly termed is to protect the Seller from unlimited exposure in

the event of delay in deliveries or schedules and it shall not be construed in the contract as a

punitive damage. The Contract Laws of most of the international jurisdictions do not allow

punitive claims on either party. The right to punish any party is of the proper courts of the

jurisdiction. The LD clause is a fair estimate of the losses which Buyer will incur if the

deliveries are delayed. By mutual consent the parties can agree to the limit which Seller is

willing to pay, beyond which if delays continue to occur, Buyer will then be exposed to losses

and or expense at his own risk. Some clauses do provide Termination of the contract when

delay has exceeded certain limits.



The simplest version of LD clause is as illustrated herein.

SC. 6 – “LIQUIDATED DAMAGES”

“The liquidated damages for the failure to complete the FABRICATION by the COMPLETION

DATE shall be 0.05% of the CONTRACT PRICE for each calendar day of delay up to a

maximum of 10% of the CONTRACT PRICE”.

However, if it can be shown that the sum in question is not a genuine pre-estimate of loss,

and then two possibilities arise. If LD is higher than the loss suffered, then courts will

consider this as a punitive charge or penalty. However, if it can be shown that the sum in

question is much less than the likely loss arising from the breach, then it will generally be

assumed that parties had this situation in contemplation and that the clause is actually not

meant to provide compensation or penalty but instead to act as a limitation of liability.

Following can be considered as most commonly used and fair clause (Richard Christou,

2005) for Sellers contracts.

“Subject to Clause .......... (force majeure) [and provided that the Purchaser can show that he has suffered loss] if delivery is delayed then the Contractor shall pay to the Purchaser a sum calculated at the rate of [0.25 per cent] of the Contract Price [of the goods in delay] for each [day] [week] between the delivery date in the Contract for the relevant goods and the actual date of their delivery up to a maximum of [five per cent] of the Contract Price [of the goods in delay] Such sum shall be paid as liquidated and ascertained damages by the Contractor to the Purchaser [in full and final settlement and satisfaction of the Contractor’s entire liability for any loss, damages, costs or expenses suffered or incurred by the Purchaser arising from such delay].”

4.10 Termination

Article 23 – “Termination”

23.1 In addition to the ENGINEER's right to remove the CONTRACTOR from any part of the WORK pursuant to Article 15, the PURCHASER may at any time terminate the CONTRACT in the following cases:

(a) if the CONTRACTOR shall neglect to perform the CONTRACT with due

diligence and expedition, or shall refuse or neglect to comply with any reasonable orders given to it in writing by the ENGINEER in connection with the performance of the CONTRACT, or shall contravene the provisions thereof; in such case, the PURCHASER shall give 10 days notice in writing to the CONTRACTOR to make good the neglect, refusal or contravention stated in said notice.

i. Should the CONTRACTOR fail to comply with the notice within the 10

days then the PURCHASER shall have the right to terminate the CONTRACT forthwith by a second notice in writing to the



CONTRACTOR without prejudice to any rights which may have accrued there under to either party prior to such termination.

(b) if the CONTRACTOR shall become bankrupt or insolvent, or have a receiving

order made against it, or compound with its creditors, or being a corporation commence to be wound up not being a members voluntary winding up for the purpose of amalgamation or reconstruction, or carry on its business under a receiver for the benefit of its creditors or any of them, or be the object of a similar proceeding under the bankruptcy or insolvency laws of the country where the CONTRACTOR is incorporated, the PURCHASER shall have the right to terminate the CONTRACT forthwith by notice in writing to the CONTRACTOR or to the receiver or liquidator or to any other legal representative of the CONTRACTOR.

23.2 In the event of termination pursuant to sub-article 23.1, the PURCHASER

shall be entitled to retain until the end of the guarantee period and apply any balance which may be otherwise due under the CONTRACT by it to the CONTRACTOR, or such part thereof as may be necessary, to meet the cost of completing the WORK and the supervision thereof. If such costs shall exceed the balance due to the CONTRACTOR, the CONTRACTOR shall pay such excess costs to the PURCHASER.

23.3 If the ENGINEER has suspended all the remaining WORK pursuant to Article

22, the CONTRACTOR may give written notice to the PURCHASER stating its intention to terminate the CONTRACT provided at least twelve months have elapsed since the effective date of said suspension and the ENGINEER has not given notice to the CONTRACTOR within said period to resume the WORK. The CONTRACTOR shall then have the right to terminate the CONTRACT if at least 30 calendar days have elapsed since receipt by the PURCHASER of said notice without the ENGINEER having given notice to the CONTRACTOR to resume said suspended part of the WORK.

23.4 The PURCHASER may at any time terminate the CONTRACT for reasons

other than those contained in sub-article 23.1 by giving the CONTRACTOR written notice to that effect. The CONTRACTOR shall cease all the WORK forthwith on receipt of said notice or on the date of termination specified therein.

23.5 In the event of termination pursuant to sub-article 23.3 or 23.4, the

PURCHASER shall pay the CONTRACTOR and the CONTRACTOR shall accept as full and final settlement of all payments by the PURCHASER to the CONTRACTOR under and in connection with the CONTRACT the proportion of the CONTRACT PRICE equivalent to that part of the WORK certified complete, all reasonable costs incurred by the CONTRACTOR in securing and protecting the FABRICATION against loss, damage or deterioration, the cost of materials and equipment already purchased and not subsequently sold, any reasonable charges by suppliers and subcontractors for cancellation of purchase orders already placed, and any other reasonable costs for terminating the CONTRACT, less the amount of any payments already made to the CONTRACTOR by the PURCHASER.

23.6 If the CONTRACT is terminated, then the CONTRACTOR shall deliver to

PURCHASER all completed and partially completed portions of the FABRICATION as directed by the ENGINEER, and the CONTRACTOR shall



execute and deliver to the PURCHASER all documents required by the PURCHASER and take all steps necessary to vest fully in the PURCHASER the rights and benefits of the CONTRACTOR under any existing agreements with subcontractors, sub-vendors, renters of construction tools and equipment and others.

23.7 In the event of termination pursuant to sub-article 23.1 PURCHASER shall

have the right to complete the FABRICATION, and so that end PURCHASER shall have the right to free, unhindered access to that part of CONTRACTOR's site where the FABRICATION has hitherto been performed, to use such of the facility, constructional plant and temporary works as may be required for such completion against payment of reasonable compensation therefore upon completion of the FABRICATION, and to bring onto CONTRACTOR's site such equipment and materials as may be required for such completion and for removal of the FABRICATION from said site.

23.8 Except as provided for in the CONTRACT, in the event of termination

hereunder, the CONTRACTOR and the PURCHASER shall each be released and discharged from any claims by one against the other in connection with the terminated CONTRACT. The PURCHASER shall not be held liable for damages or loss of anticipated profits on account of such termination.

The termination for breach of contract is normally provided in the Contract but conditions like

above for not taking instructions from the Purchaser, leads to termination is to be frowned

upon before accepting or signing such contracts.



4.11 Force Majeure

The innovative term of the contracts very commonly used but easily misunderstood is the

clause which relieves parties from incurring liabilities due to the occurrence of events beyond

the control of the parties to the contract.

4.11 (a) Principle of Force Majeure Clause

The underlying principle of this clause consists of three parts:

a) Whenever an event or a circumstance occurs which prevent the party relying on this

clause, from performing its contractual obligations, then that party should be relieved

from the liabilities, which might otherwise be consequent upon the failure of that party

to perform those obligations.

b) But this doesn’t release the party from requirement to perform the obligation itself but

postpones to the future until force majeure event is cleared or the duration has

exceeded pre-agreed period.

c) The costs and or expenses incurred by the affected Party due to or arising out of the

force majeure event and costs & expenses of the other Party are borne by the

respective parties unless otherwise provided in the contract.

Though the principle of Force Majeure is to provide relief from liabilities but no release from

obligations, but the application of this clause depends largely on how it is constructed in a

specific contract between the parties.

4.11 (b) Force Majeure Events or Circumstances

The most commonly known events termed as Force Majeure events can be grouped under

three generic categories: -

1. Universal Force Majeure Events: The events which have impact on the entire

geographical region, nation or nations, such as

Wars or political hostilities between the nations linked to the Contract and or

contracting parties.

Natural calamities like earthquakes, hurricanes, typhoons, cyclones, storms, floods,

volcano eruptions, tidal waves, landslides or other weather conditions etcetera not

included in the normal planning of the project.

Embargos, Sanctions, riots, social unrest, revolution, Coup d'état, unstable civil

administration or Political Systems, Acts of rulers, requirements or orders of

government authorities in the country, acts of terrorism, insurrection, mobilization,



civil wars, radiation leaks (Nuclear plants disaster), chemical accidents/ attacks,

plague or other epidemics, quarantines etcetera.

2. Systematic Force Majeure Events: The events which have direct impact on the

industry segment in which the contract and the contracting parties are operating. The

typical examples are: -

Delays or failures in international transportation chain due to strikes, lockouts or other

reasons directly interrupting transportation link of the supply chain, including delays

due to strikes at factories of major equipment suppliers to the industry segment.

Sudden shortage of raw materials, escalation of prices of essential commodities

beyond known trends, failure of financial markets, changes in foreign exchange

regime etcetera.

Failure of industry specific infrastructure, sabotage, fire or explosions.

3. Unique Force Majeure Events: The events or circumstances having direct

correlation to the performance of the contract between the parties. These are the

events for which neither party is responsible and is in a position to control it i.e.

beyond the control of the parties. Such events are reasonably identified prior to the

signing of the contract and are defined within the clause of Force Majeure events.

The typical examples for Offshore & Marine Industry projects can be: -

Strikes in the Shipyards/ fabrication yards, their sub-contractors and suppliers

Prolonged failures in supply of utilities like Oil, Gas, Electricity and Water

Delays caused by Classification Societies, Statutory Authorities or like entities, in

approval of drawings and documents necessary for the performance of the contract.

Accidents like fire, collapse, fall of major structures like cranes, fatal injuries resulting

in “Stop Work Orders” by relevant authorities, collisions or stranding, sinking of

vessel etcetera.

Delay in painting processes due to weather conditions

Two days of continuous heavy rainfall affecting the performance of the contract.

Delays in deliveries by Sub-Contractors and Suppliers beyond the Control of the

Main Contractor.

A delay in Party’s other commitments resulting from any of the Force Majeure

conditions, which in turn cause delay to the performance of this contract.

Shortage of manpower due to change in legislation for foreign workers employment

in the jurisdiction.

Standby rates for drilling rig during any period of time that Contractor is unable to

conduct operations due to adverse sea or weather conditions.



Reduced Standby Rate. In the event that operations are continuously suspended for

a duration of seven (7) days or more due to adverse weather conditions.

Breakdown of Drilling Equipment / Rig: First twenty four (24) cumulative hours per

calendar month that operations are suspended due to mechanical breakdown of

Contractor's equipment or due to any failure by Contractor to furnish any item which

Contractor is obliged to furnish and shall continue for a maximum period of twenty

four (24) hours after which no remuneration shall be paid until the resumption of

operations.

Force Majeure Rate. The force majeure rate shall be payable pro rata after the first

three days of any period in which operations are suspended due to a force majeure

cause as set forth in the Contract and shall continue until resumption of operations

hereunder or until this Contract is terminated in accordance with the provisions of the

Contract.

In case of GSA or GTA, failure of reserves likes oil and gas from the reservoir.

In addition to listing of the events allowed under force majeure relief, the contracts

depending on the nature of obligations may also provide another list of events, which will be

excluded as a force majeure relief event. The extracts of commonly excluded items from

GSA & GTA are briefly described here, which can also be adopted in other O & M industries.

Events Excluded from Force Majeure Relief

a) Events within the control of the effected party: Any event which was within the

ability of the affected party to prevent or to curtail is not construed as open to force

majeure relief. For example events caused by party’s own negligence or willful

misconduct or failure to take all reasonable and prudent steps for prevention.

b) Market changes and uneconomic performance: The changes in the market

conditions or general economic environment which render the party’s performance of

its obligations under the contract unprofitable, will not afford force majeure relief.

c) Payment failure: The failure to make payment when it is due will typically not render

force majeure relief. This condition is sometimes further refined to express clarity that

exclusion applies only in respect of a lack of available funds and does not extend to a

total inability to make payment when all available methods of payment are incapable

of being utilized.

d) Reservoir Failure: In the context of GSA or GTA, the exclusion of a failure of the gas

reservoirs applies as a ground for force majeure relief will be subject to whether the

GSA is supply based contract or depletion based contract. In case force majeure



relief is available for reservoir failure, then it might be limited to only physical damage

or events to which neither party was aware of at the time of signing of the contract.

e) Facilities: Parties may agree to a defined list of facilities in upstream and

downstream infrastructure, failure of any of those shall be considered as force

majeure relief event instead of blanket coverage of all facilities.

f) Change of Applicable Law: When the party to a contract is a government-linked

entity and could directly or indirectly prompt a change in applicable law in its country

of origin then that party in theory could render the contract un-performable. That

party could have an economic incentive for such an action in favor of securing more

advantageous arrangements elsewhere.

g) Third Parties: A party may not be able to claim force majeure relief in respect of a

failure of that party to perform its obligations which is caused by any act or omission

of a third party except where that third party has specifically been recognized by the

terms of the contract.

h) Associated Crude Oil or Condensation Production: In case of seller, GSA may

provide that any interruption to the delivery of gas which is caused by a

corresponding interruption of associated crude oil or condensate production, will not

entitle the seller to force majeure relief.

i) Impositions of Sanctions or failure of Consents: GSA and GTA will usually

provide that a party can’t claim force majeure relief in respect of sanctions imposed

upon the party by a governmental authority for a failure to comply with the applicable

law or regulation or for a failure of the party to obtain or maintain any necessary

consents or approvals.

j) Warranties: In some agreements a party may be expressly denied the ability to claim

force majeure relief for liability for breach of warranty, where warranty given becomes

untrue or inaccurate on the basis that better option is that warrantor must satisfy itself

as to the complete veracity of the warranty prior to giving it and of the likelihood of

continuing veracity in respect of continuing warranties and will have an absolute

liability for any breach of warranty.

4.11 (c) Application of Force Majeure

When a party is affected by a force majeure event, then the affected party can claim relief to

an obligation only to the extent that the affected party is unable to perform that obligation

rather than to the entire obligation under the Contract. This is based on the theme that the

events or circumstances must be genuinely out of the control of the party and it must



prevent, impede or delay the affected party from performing the obligation for which relief is

sought. Some typical examples of relief for different type of projects are listed here for

illustration: -

Shipbuilding, Fabrication and Onshore Construction Projects

Loss of time due to force majeure events is termed as permissible delay thus extending

the schedule accordingly without imposing LD for the days agreed as permissible delays.

Termination of the Contract if delays exceed beyond the pre-agreed period due to force

majeure events.

Charter of Offshore Support Vessels (“OSV”)

Termination of Charter, if a force majeure condition prevents or hinders the performance

of the Charter Party for a period exceeding 15 consecutive days from the time at which

the impediment causes the failure to perform if notice is given without delay or, if notice

is not given without delay, from the time at which notice thereof reaches the other party.

Suspension of hire unless the event occurred due to predefined conditions in the Charter

Party.

Drilling Rig Time Charter / Term Contract

Parties to meet and determine appropriate measures to be taken if the force majeure

event exceeds seven days. No payment shall be made during the duration of force

majeure event.

Standby Rate agreed in the contract shall apply if Rig is unable to operate due to

adverse weather conditions. Reduced Standby Rate of adverse conditions continues

beyond seven days.

Force Majeure Rate. The force majeure rate ... shall be payable pro rata after the first

three days of any period in which operations hereunder are suspended due to a force

majeure cause as set forth in Clause 27 and shall continue until resumption of operations

hereunder or until this Contract is terminated in accordance with the provisions of Clause

28."

Termination if force majeure event exceeds 30 days.

Gas Sales Agreement (GSA) and Gas Transportation Agreement (GTA)

If force majeure affects the Buyer then, Buyer is entitled to adjust the Annual Contract

Quantity (ACQ) for force majeure affecting either party. Seller is free to sell to third

parties when Buyer is affected by force majeure and by same logic; Buyer is entitled to

buy from others when Seller is affected by force majeure.



In case of GTA, Shipper will be entitled to an adjustment to the ship or pay quantity with

the transporter (Pipeline Operator) for force majeure affecting either party. Also shipper

may be entitled to find alternative transportation arrangements and transporter may be

free to find alternative shipper for the duration of the force majeure event.

If the force majeure event continues for longer duration and resumption of normal

condition is unlikely, then it may be open for the unaffected party or both parties to

terminate the GSA or GTA. This period could be determined on the pre-agreed basis or

when a certain threshold quantity of gas has not been delivered or taken delivery of or

transported over that period.

4.11 (d) Administration of Force majeure Event

Each contract irrespective of the nature of entities or scope of the contract, if define the force

majeure clause in the contract will also provide procedure for implementation and or

management of the force majeure event. The key components of the administrative

procedure are defined here as a guideline, which can be easily combined as one paragraph

in the contract.

1. Notification: The affected party must notify the other party of the occurrence of an

alleged event of force majeure as soon as the event occurs and not later than the

period provided in the contract for example within 3 days or within 24 hours or within

7 days etcetera. The notification must contain full details of the event and of the steps

which are being and which will be taken to overcome the impact of force majeure

event. The affected party must continue to notify the other party of the continuance of

the event of force majeure.

2. Remediation: The affected party must as a condition of securing force majeure relief

take steps to overcome the event of force majeure, acting usually to the standard of a

reasonable and prudent operator. This will usually mean that the Party will not be

obliged to incur extraordinary expenses or to take unreasonable steps in order to

overcome the force majeure event.

3. Burden of Proof: The affected party has the burden of proof to establish the validity

of the claim for force majeure relief so as to prove that its non-performance of an

obligation was beyond its reasonable control.

4. Access to facilities: The contract may afford rights of access and inspection of each

other’s facilities in order to assess any claimed events of force majeure where those

facilities are affected.



5. Tolerance Limits: The contract may contain certain limits on impact of the force

majeure events such as for delays or performance obligations, which fall within the

tolerance limits, cannot be claimed as force majeure relief.

6. Notification of cessation: The affected party must also notify the other party, as

soon as the conditions of force majeure event cease to exist.

7. Compliance to Administrative Procedure: The contract may also provide a

condition for force majeure relief that the affected party must comply with the

requirements of the administrative regime.



Chapter 5

Performance Bonds

Unlike sales of standard goods and hardware items, often project equipments, plants,

machinery and structures are bespoke items and can only be delivered once satisfactorily

completed. During the process of conceptualization to fabrication / manufacture to

installation, commissioning and handing over, there are various potential risks and hazards

to which both seller and buyer are equally exposed. Buyer would like to ensure that he gets

the goods delivered as agreed while Seller wants to ensure that he gets paid according to

each stage as agreed. So buyer can stop short of delivery for lack of funds while Seller can

refuse production for need of funds. Either party has to perform the covenants of the

contract. The performance monitoring tools in the project management systems should be

designed within the contractual context so that commercial as well as technical objectives of

all parties are fulfilled at the completion of the project. Buyers in EPCIC contracts devote

maximum time on two most powerful tools; performance reporting & evaluation and

performance bond. The retention money is to ensure performance during defect liability

period. Payments are released based on performance and LD is imposed based on delays.

5.1 Performance Monitoring

What to monitor?

You can control what you can measure!

You can measure only what you can perform!

Each variable in the following equation is subjected to regular measurements and reporting..

Cost + Resources + Schedule + Quality + Ý= Output

The following most popular tools are discussed during the workshop:

Cash Flow – Envelope Diagram

PEM Pyramid

Milestone Network

Earned Value

QHSE Reports + HAZOP Reports



5.2 Guarantees and Warranties

What is a guarantee?

A guarantee is most often issued by the manufacturer of goods such as electrical equipment, or by a company that has provided a service, such as replacement windows. It is normally provided free of charge at the time you buy the goods or services. A guarantee is considered in law to be an agreement to provide some benefit for a set period of time in the event of the goods or services being defective. Usually, the guarantee undertakes to carry out free repairs for problems that can be attributed to manufacturing defects. Manufacturers are not legally obliged to provide you with a guarantee, but if they do, it must be in plain English and clearly explain how to make a claim.

What is a warranty?

A warranty provides the same sort of cover that a guarantee does, but often you have to pay extra for it - for example, many electrical stores offer a warranty for cover against the cost of repairs and replacement parts for up to five years after purchase. Effectively, these sorts of warranties are insurance policies, issued by and underwritten by insurance companies. Just to confuse matters, these can sometimes be known as 'extended guarantees' or 'extended warranties'!

The EPCIC contracts specifically provide clauses to cover both. Article 16 – “Warranties and Guarantees” 16.1 The CONTRACTOR warrants that the WORK, including all equipment, materials and

workmanship furnished by it and its subcontractors and sub-vendors shall comply in every respect with the SPECIFICATION and DRAWINGS and further that the WORK is free of defective materials or workmanship and is complete without any omissions.

16.2 The CONTRACTOR shall be responsible for making good with all possible speed any

omissions and defects, or damage resulting from such omissions and defects, in the WORK or any portions thereof which may appear or occur during the guarantee period. The guarantee period shall be for a minimum of 18 months after the date of the Certificate of Completion and Delivery or 12 months after the installation of the SYSTEM has been completed on SITE whichever period expires the earlier, subject to any longer period stated in the Special Conditions.

16.3 If any such omission or defect shall appear or such damage occur, the ENGINEER shall

give notice to the CONTRACTOR thereof stating the nature of the omission, defect or damage. The CONTRACTOR guarantees to PURCHASER that it shall, upon receipt of such notice, promptly make good or replace as the ENGINEER may direct any damaged or defective items or omissions or items not complying with the SPECIFICATION and DRAWINGS or any omissions there from. The aforesaid work shall be accomplished to the ENGINEER's satisfaction at the CONTRACTOR's expense. All repairs and replacement parts of the CONTRACTOR shall carry the same warranties and guarantees as in this Article 16 from the date of the repair or replacement.

16.4 If the CONTRACTOR after receiving the notice pursuant to sub-article 16.3. fails to make

good, replace or repair the defective material or workmanship, or remedy the omission or if in the ENGINEER's opinion a critical need exists for an immediate replacement of part or material or repair of defective workmanship, or an immediate remedy of the omission, the PURCHASER may procure those materials, parts or equipment or perform repairs



from any available source at a reasonable price. The CONTRACTOR shall reimburse the PURCHASER for all such costs in that event.

16.5 The successive payments to the CONTRACTOR do not indicate by any means the

acceptance of the WORK or any part thereof. Prior to issuance of the Certificate of Acceptance and Delivery, the ENGINEER has the right to reject any part of the WORK until the CONTRACTOR repairs or replaces the defects.

16.6 Under no circumstances shall the CONTRACTOR be liable for the PURCHASER's loss

of profits or consequential damages resulting from fulfillment of the CONTRACT, except to the extent of any agreed liquidated damages provided for in the CONTRACT.

16.7 Damage caused by normal wear and tear, insufficient maintenance and incorrect operation by the PURCHASER or the CLIENT is specifically excluded from the CONTRACTOR's obligations under this Article.

16.8 When the CONTRACTOR has fulfilled all its obligations under this Article, the ENGINEER

shall issue the Final Acceptance Certificate as per sub-article 11.5. within 28 calendar days after the expiration of the guarantee period as defined in sub-article 16.2. provided always that in the opinion of the ENGINEER the CONTRACTOR has fulfilled all its obligations under the CONTRACT.

The highlighted phrase in 16.6 should always be inserted to limit the exposure against

consequential damages.



5.3 Call on Performance Bond

Most EPCIC contracts require a contractor to furnish a bond or guarantee as a means

to secure the performance of the contract or to afford additional means of recourse to cover

losses arising from the default of the contractor or due to an event during the contract. The

bonds are also requested at the time of tendering so that the lowest bidder should not

withdraw his offer before the award of the contract. Sometimes during the defect liability

period, bonds are also required as a condition of the contract. These bonds can be provided

by a Bank acceptable to the client or by insurance companies. The standard form of

performance bond which forms part of the tender documents and the contract shall be

reviewed carefully. The on call unconditional bonds imply that Client can make a call anytime

for any breach or minor delay in performance during the validity period of the Bond.

The restraints on the calls on performance bond are provided under unconscionability

acts in equitable jurisdictions but the contractor must prove his case.

FORM OF PERFORMANCE BOND

TO:

Whereas you concluded CONTRACT N ______ dated _________________ with _______________________ (hereinafter called the CONTRACTOR) for the ________________________ (hereinafter called the CONTRACT ). Whereas, under the CONTRACT, CONTRACTOR is obligated to furnish you a performance bond for 10 % of the Lump Sum Price. Now therefore, at the request and for the account of CONTRACTOR, we, _________ Bank, hereby irrevocably and unconditionally undertake to pay to you without delay on your first written demand any amount up to a total maximum amount of ____________________________ in words Such demand must specify that CONTRACTOR has breached its contractual obligations under the CONTRACT. We agree that you shall not be required to pursue any claim against CONTRACTOR before making any demand on us and we shall make payment hereunder notwithstanding any objection by CONTRACTOR. Our obligations hereunder shall not be diminished or otherwise affected by any alteration, modification or amendment of the CONTRACT. The amount of this bond shall be automatically reduced to 50% of its original amount upon issuance of the CERTIFICATE OF COMPLETION AND DELIVERY under the CONTRACT as



proven to us by a copy of such Certificate signed by you and the provision by the CONTRACTOR to you of such documents as you may specify but not later than sixty (60) days prior to such delivery (including without limitation as built drawings and certificates), such provision of documents to be shown to us by your signed statement to that effect. This guarantee shall enter into force upon its date. It shall expire at the end of the guarantee period under the CONTRACT but not later than ____________________. (Insert date which is the end of the maximum expected guarantee period plus 60 days. Upon expiry, this guarantee shall be returned to us BANK

The bold statement above may not always be found in various Standard Performance Bond

Forms” but it is good to insert such a statement.

Interactive Workshop - 1

1. Your major equipment vendor has not delivered the equipments as

promised and has exceeded the delivery date beyond six months.

You have conducted the visit and investigation of the progress at

his overseas manufacturing plants and are convinced that he is

unable to deliver the equipment even after 12 months. You have

decided to terminate the contract but have already paid 50% of

contract value US$1.2 million in progress payments. Draft a letter

of demand to the Insurance Company who has issued the

Unconditional Performance Bond.

2. What is your opinion that you will be able to get the 10%

Performance Bond value in next seven days as per the terms of

the performance bond?

3. What actions can be taken by the Seller?



Chapter 6

Delays and Claims

6.1 Project Schedule

The Master schedule and table of milestone form the integral part of the contract and as such

,any deviation from these gives rise to either breach of contract or failure to meet the

covenants in the contract. Some contracts include clauses as illustrated below to emphasize

that delays will not be accepted.

Commitment to the Work and Schedule “CONTRACTOR shall not undertake any large-scale project similar to the WORK that will affect the SCHEDULE and COMPLETION DATE of the WORK. The CONTRACTOR’s facilities and resources planned for the WORK shall not be diverted to other works in the CONTRACTOR’s yard unless such diversions do not affect the progress of the WORK and/or such facilities or resources are no more required for the execution of the WORK. The resources shall include but not necessarily be limited to management, supervision, labor, construction plant, equipment, materials (temporary and permanent) and the like.”

Delivery or Completion is Express Condition of the Contract (See example)

a) Time and Place: Contract stipulates that the project shall be delivered on or before

1st March 2007 or such later date to which the requirement of delivery is postponed

pursuant to such terms … in the Contract.

The Contractor’s obligation to complete the works within the time stipulated

in the Contract operates on the premise that the Buyer does not do anything

which has the effect of impeding the Contractor’s progress.

The Buyer must for example afford the Contractor sufficient possession of

equipments or machineries at site which will afford him to properly proceed

with the works [as stipulated in the Contract under the scope of Buyer

Furnished Equipments (BFE)].

Similarly if the Classification Society acting as independent engineering

entity for the benefit of the Buyers, does not provide approval of drawings or

provides information whenever necessary at appropriate time for the

Contractor to sustain progress of the works, then it is considered as an act of

prevention.

6.2 “Time is of Essence”

When the Contract states that all time schedules stated in the Contract are of the

essence and Contractor shall at all times comply with the work schedule, milestone

dates and shall achieve delivery within Delivery Date.



In general, the statement “Time is of Essence” amounts to nothing more than

just a well intended exhortation to the Contractor to apply him diligently to

complete the works in time.

Time should not be held to be of the essence unless the following conditions

are present:

i) The parties must have expressly stipulated in the Contract that conditions

as to time should be strictly complied with,

ii) The nature of the subject matter of the Contract and the surrounding

circumstances demonstrate that time should be considered to be of the

essence.

iii) The party who has been subjected to unreasonable delay gives notice to

the party in default making time of the essence.

6.3 Extension of Time

The time extensions clauses render two benefits. First it affects the extent to which a

contractor could be made liable for LD in the event of the delay. An extension of time

sets a new date for completion and LD starts only after the delays beyond the extended

date. Secondly where time has been extended by reasons of delays attributable to some

act of prevention by the Buyer or some other excusable event, the contractor is afforded

the basis to claim for time related damages and disruption losses. In case of one sample

Contract: -

The Buyers have been the cause of delays on more than one occasion and

have also prevented the Contractor from progressing with normal works, so

LD can not be claimed.

Due to disruption of works on account of defective BFE, the Contractors

have incurred losses and costs for a range of items like overheads, project

management costs, services, facilities, utilities, insurance covers for

extended periods, supervisors and support staff deployed for the project.

The aggrieved Contractor can also claim for loss of profit during this period.

It has been held before under common law, that if there is a delay arising

from some breach committed by the Buyer and if this breach is not a cause

for which extension of time may be granted under the contract, then courts

will hold the LD clause to be inoperative and the Contractor will not be

bound by any previously determined completion dates, but will instead be

obliged only to complete the works within a reasonable time.



6.4 Concurrent Delays

Implied Conditions of the Contract

a) Time set at Large: It is a commonly used term related to time which means that

when a party fails to perform by the date stipulated in a contract in which time is

purportedly to be of essence, and yet the innocent party on becoming aware of this

still permits the time to go by. In such a situation, as a general principle, time is set at

large and the innocent party is only entitled to expect performance within a

reasonable time.

b) Concurrent Causes of Delay: The situations where there are two or more causes of

delays operating at a particular point of time and at least one of these qualifies as an

event for which extension of time is allowed under the Contract. The case law

authority suggests that if there are two causes of concurrent delay and one of which

is relevant and other is not relevant, then the contractor is entitled to extension of

time for the delay due to the relevant event not withstanding the concurrent effect of

the other event.

c) Delays to Critical Path Events: The delay in any one of the activities on the critical

path would prolong the overall completion period of the project. The Builder is entitled

to “float time” allowed in the Contract to complete the work initially included in the

Contract and any float time which he has within that overall time is for him to use to

make up for any delays on his part in executing the works. It is arguable that the float

time is in principle not available for accommodating variations and delays emanating

from the Buyer, or other delay events for which the Builder is entitled to extension

under the Contract.

6.5 Substantiation of Claims

The examples are discussed during the workshop. The documentary evidence shall

be compiled and presented for claiming against Force Majeure clause as stipulated

in the following Article

FORCE MAJEURE “Force Majeure” as used in this CONTRACT shall mean all causes resulting in delay which are beyond the control of CONTRACTOR and which are not in any way caused by the willful act, fault or neglect of the CONTRACTOR and shall include, but not be limited to,

(i) Acts of God (except inclement weather or storms of the ordinary seasonable nature);

(ii) Earthquakes, hurricanes, lightning or floods; (iii) Wars;



(iv) Expropriation or intervention of civil or military authorities or other departments, agencies or instrumentalities of government;

(v) Explosions or fires; and (vi) Riots, insurrections, strikes (other than those of CONTRACTOR’s and/or its

subcontractors own personnel) sabotage, blockades, embargoes, excessive port delays or epidemics.

Force Majeure does not include financial distress of either party, late delivery of equipment or materials unless itself caused by Force Majeure, late performance by a subcontractor unless itself caused by Force Majeure, or adverse but normal weather for the location in question. In the event that the performance of WORK by CONTRACTOR to complete the SYSTEM shall be delayed, hindered or prevented by reason of Force Majeure, the CONTRACTOR shall immediately notify PURCHASER in writing of the existence of said Force Majeure event within twenty-four (24) hours (or such longer period as is reasonable in the circumstances) from the time and date of commencement of said delay, hindrance or prevention. Said notice shall include CONTRACTOR’s plans to eliminate or mitigate the effects of the Force Majeure to minimise the impact on any COMPLETION DATE, and an estimate of the problem overall effect thereof on the COMPLETION DATE. Failure to send such timely notice shall be deemed to be a waiver by CONTRACTOR of the right to assert that Force Majeure excused such delay, hindrance or prevention. CONTRACTOR shall exercise due diligence to prevent, eliminate or overcome such cause and to resume performance of all WORK. After the delay, hindrance or prevention ends, CONTRACTOR shall give PURCHASER written notice of the time and date said condition ended and the probable extension of any COMPLETION DATE, if any, caused by such delay, hindrance or prevention.” Delays in delivery and use of “Delivery Terms for Sellers of Goods (INCO Terms)”

INCO Terms are internationally accepted commercial terms defining the respective roles of

the buyer and seller in the arrangement of transportation and other responsibilities, and

clarify when the ownership of the merchandise takes place. They are used in conjunction

with a sales agreement or other method of transacting the sale. Below is an example of how

INCO Terms work in action. The definitions provided here are the most common uses of

each term, but are not the only way these terms are used. Pay close attention to the location

listed for each term, as this indicates where payment details change from Shipper to

Consignee.

Guide to INCO Terms - The chart shows graphically under what circumstances the shipper

pays, and under what circumstances the consignee pays.

Terms

EXW (Ex Works) - (factory, mill, warehouse: your door) Title and risk pass to buyer including

payment of all transportation and insurance cost from the seller's door. Used for any mode of

transportation.



FCA (Free Carrier) - (pick a place after your origin to start) Title and risk pass to buyer

including transportation and insurance cost when the seller delivers goods cleared for export

to the carrier. Seller is obligated to load the goods on the Buyer's collecting vehicle; it is the

Buyer's obligation to receive the Seller's arriving vehicle unloaded.

FAS (Free Alongside Ship) - (port, after all origin port charges) Title and risk pass to buyer

including payment of all transportation and insurance cost once delivered alongside ship by

the seller. Used for sea or inland waterway transportation. The export clearance obligation

rests with the seller.

FOB (Free On Board) - (port-same as FAS) Risk pass to buyer including payment of all

transportation and insurance cost once delivered on board the ship by the seller. Used for

sea or inland waterway transportation.

CFR (Cost and Freight) - (destination port-paid to arrival at destination port) Title, risk and

insurance cost pass to buyer when delivered on board the ship by seller who pays the

transportation cost to the destination port. Used for sea or inland waterway transportation.

CIF (Cost, Insurance and Freight) - (destination port-same as CFR, but includes insurance)

Title and risk pass to buyer when delivered on board the ship by seller who pays

transportation and insurance cost to destination port. Used for sea or inland waterway

transportation.

CPT (Carriage Paid To) - (place at destination-includes all destination port charges) Title,

risk and insurance cost pass to buyer when delivered to carrier or seller who pays

transportation and insurance cost to destination. Used for any mode of transportation.

CIP (Carriage and Insurance Paid To) - (place at destination-same as CPT, but includes

insurance) Title and risk pass to buyer when delivered to carrier by seller who pays

transportation and insurance cost to destination. Used for any mode of transportation.

DAF (Delivered to Frontier) - (border of country-same as paid by seller to border-all other

charges to buyer) Title, risk and responsibility for import clearance pass to buyer when

delivered to named border point by seller. Used for any mode of transportation.

(Border of country-same as paid by seller to border-all other charges to buyer) Title, risk and

responsibility for import clearance pass to buyer when delivered to named border point by

seller. Used for any mode of transportation.

DES (Delivered Ex Ship) - (on board ship to destination port) Title, risk, responsibility for

vessel discharge and import clearance pass to buyer when seller delivers goods on board

the ship to destination port. Used for sea or inland waterway transportation.

DEQ (Delivered Ex Quay i.e. Duty Paid) - (destination port-includes duties and taxes, but not

destination charges or delivery) Title and risk pass to buyer when delivered on board the ship

at the destination point by the seller who delivers goods on dock at destination point cleared

for import. Used for sea or inland waterway transportation.



DDU (Delivered Duty Unpaid) - (consignee door-excluding duties and taxes, and customs

clearance) Title, risk, and responsibility for vessel discharge and import clearance pass to

buyer when seller delivers goods on board the ship to destination port. Used for sea or inland

waterway transportation.

DDP (Delivered Duty Paid) - (consignee door-includes all charges origin to destination) Title

and risk pass to buyer when seller delivers goods to named destination point cleared for

import. Used for any mode of transportation.

Note: EXW, CPT, CIP, DAF, DDU and DDP are commonly used for any mode of

transportation. FAS, FOB, CFR, CIF, DES, and DEQ are used for sea and inland waterway.



Chapter 7

Channels of Dispute Resolution

7.1 Mediation

Traditionally, the route for resolving disputes has been through litigation, with the

parties using the Court forum to obtain a definitive outcome to their differences.

Whilst litigation remains an effective method of dispute resolution, it does have its

disadvantages. For example, it can be time-consuming and costly, and often results in lost

man-hours for key personnel in the business. In small organizations in particular, this may

have dire financial consequences for the business as a whole. Whilst litigation will normally

result in a definitive outcome, its adversarial nature does little to promote future commercial

relations between the parties.

The ultimate outcome of the litigation process can be inflexible as it is dependant on

the interpretation of the applicable law, and is limited by the powers of the Court. This can

sometimes result in the individual needs of the parties being left unaddressed.

In contrast, mediation can offer the parties flexibility, both through the process itself

and also the likely outcome. Mediation provides a “without prejudice” forum (if the parties are

unable to reach a settlement, concessions made by parties during the process cannot be

referred to in any later Court proceedings) through which issues can be identified and

discussed, promoting communication between the parties (which can often mean that a

commercial relationship is salvaged).

The mediation process is informal in comparison to Court proceedings. The parties

are directly involved in the proceedings and the decision-making process, working alongside

their legal representatives. The mediator, whilst normally possessing some expertise in the

area of the dispute, will not necessarily have a formal legal background. Rather than

dictating the outcome, his or her role is to encourage a dialogue between the parties and to

explore ways in which the dispute can be resolved.

Mediation is not constrained by formal rules, as is the case with the Court. Whether,

and when, it takes place, is up to the parties. This means that, if both parties are willing and

co-operative, their dispute may be resolved sooner than would be possible through the Court

process, and hence more cost-effective.

A full Chapter on mediation is included with the notes for reference and for those who would

like to learn more about mediation of commercial disputes.



7.2 Litigation

The submission of your disputes and or claims to the courts of the jurisdiction or legal

forum chosen by the parties is called litigation. The court process varies with each

jurisdiction and accordingly, the Rules of Courts apply in addition to the terms & conditions of

the contract agreed between the parties. The contracts are governed by the substantive laws

of the contract at the time of signing the contract and agreed between the parties.

7.3 Arbitration

The arbitration is an Alternative Dispute Resolution process instead of submitting the

dispute to the courts; parties choose to submit their dispute to the tribunal of arbitrators. The

arbitrational is appointed by the parties while Judges in the courts are not appointed by the

parties. So in the case of Arbitration, the party autonomy is maintained. But arbitration or

ADR route is only available if the parties have expressed agreement in writing after the

dispute has risen or it was already included as a condition in the contract.

Arbitration is preferred over the courts in international disputes as it is quicker, it can

be held anywhere in the world, irrespective of the site of dispute and awards are final, which

can’t be challenged unless for special circumstances. There are more than 150 countries

who are signatory to the New York United Nations Convention on the Recognition and

Enforcement of Foreign Arbitral Awards (10th June 1958). Once the winning party has

received the award, then it can be enforced in the home country of the loosing party as well

as, subject to the context of the case, in third countries where the loosing party has any

assets.

In contrast to litigation through courts jurisdiction, it is a mammoth task to first serve

the writs on each party out of jurisdiction and then enforcement of awards is subject to

reciprocal agreements between the countries concerned.

Typical example of an arbitration clause is as follows: -

Arbitration Clause Any dispute arising out of or in connection with this CONTRACT which is not resolved by the parties to this CONTRACT shall be resolved by three (3) arbitrators through final and binding arbitration under the rules of UNCITRAL, by three (3) arbitrators appointed in accordance with such rules. The claimant(s) shall appoint one arbitrator and the respondent(s) shall appoint one arbitrator. The two arbitrators so appointed shall appoint a third arbitrator, who shall act as the presiding arbitrator. If the parties cannot agree on an arbitrator, the appointing authority shall appoint the arbitrator or arbitrator(s). The arbitration shall take place in London, England, and the language of the arbitration shall be English. The London Court of International Arbitration shall administer the arbitration and shall act as the appointing authority when the rules or this provision require an appointing authority to act. The arbitrators shall take into account principles of legal privileges, such as those involving the confidentiality of communications between a lawyer and a client. The parties waive any



right to seek rulings from any court on issues of law that arise during the arbitration and to challenge the award on the grounds that the arbitrators made errors of law. Judgement upon the award may be entered in any court of competent jurisdiction. The arbitrators shall render any monetary award, including reasonable attorneys' fees and other costs of arbitration, in U.S. dollars. The parties waive any right to punitive or other exemplary damages allowable by common law or statute. Any statutes of limitations which would apply in an action at law on a similar claim shall apply to all arbitrations hereunder. The right to arbitrate shall survive the termination or completion of the CONTRACT.

In the event of reference to arbitration of any differences arising out of matters occurring prior to completion of the WORK as defined in the CONTRACT, CONTRACTOR shall not interrupt the WORK, but the arbitration award shall include a finding, if appropriate, as to the extent, if any, to which the COMPLETION DATE should be adjusted.

7.4 Arbitration Proceedings and Awards

This is discussed during the workshop.

7.5 Enforcement of International Arbitration Awards

This is discussed in the presentation slides and during the workshop.



References

1. Arbitration Act 2005, Laws of Malaysia Act 646

2. Contracts Act 1950, Act 136 (Amended up to 1st Jan 2006) Laws of Malaysia

3. Malaysia Digital Signature Act 1997

4. Singapore Electronic Transactions Act 2010

5. Benny S Tabalujan & Valerie Du Toit-Low (2003), “Singapore Business Law”,

Business Law Asia, Singapore.

6. Beale, H. G. et al (2008). “Chitty on Contracts”, Volume I & II, Sweet & Maxwell,

Thomson Reuters Limited, London, UK.

7. Chow Kok Fong, (2004), “Law and Practice of Construction Contracts”, Sweet &

Maxwell Asia, Singapore

8. Mindy Chen-Wishart, (2005), “Contract Law”, Oxford University Press, Oxford (UK)

9. Peter Roberts (2004), “Gas Sales and Gas Transportation Agreements: Principles and

Practice”, Sweet & Maxwell, London (UK).

10. Richard Christou (2005), “Boilerplate: Practical Clauses”, Sweet & Maxwell, London

(UK).

11. Sheila Bone (2001), “Osborne’s Concise Law Dictionary”, Sweet & Maxwell, London

(UK).

12. FIDIC – Conditions of Contract for EPCIC/Turnkey Projects, First Edition 1999



Annex – I

United Nations Convention on Contracts for

the International Sale of Goods



United Nations Convention on Contracts for the International Sale of Goods

Contents

PREAMBLE PART I. Sphere of application and general provisions

CHAPTER 1. Sphere of application

CHAPTER II. General provisions

PART II. Formation of the contract PART III. Sale of goods CHAPTER I. General provisions

CHAPTER II. Obligations of the seller

Section I. Delivery of the goods and handing over of documents

Section II. Conformity of the goods and third party claims Section III. Remedies for breach of contract by the buyer

CHAPTER III. Obligations of the buyer Section I. Payment of the price

Section II. Taking delivery CHAPTER IV. Passing of risk CHAPTER V. Provisions common to the obligations of the seller and of the buyer

Section I. Anticipatory breach and installment contracts Section II. Damages Section III. Interest Section VI. Preservation of the goods

PART IV. Final provisions

.....................................

PREAMBLE

The States Parties to this Convention,

Bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order,

Considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States,

Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade,

Have agreed as follows:



Part I. Sphere of application and general provisions

CHAPTER 1. SPHERE OF APPLICATION

Article 1

(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States:

(a) when the States are Contracting States; or

(b) when the rules of private international law lead to the application of the law of a Contracting State.

(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.

(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.

Article 2

This Convention does not apply to sales:

(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;

(b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.

Article 3

(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.

(2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.

Article 4

This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:

(a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold.



Article 5

This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person.

Article 6

The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.

CHAPTER II. GENERAL PROVISIONS

Article 7

(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Article 8

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

Article 9

(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.

(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.

Article 10

For the purposes of this Convention:

(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence.

Article 11



A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

Article 12

Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.

Article 13

For the purposes of this Convention "writing" includes telegram and telex.

Part II. Formation of the contract

Article 14

(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

Article 15

(1) An offer becomes effective when it reaches the offeree.

(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

Article 16

(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.

(2) However, an offer cannot be revoked:

(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

Article 17

An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.

Article 18

(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.



(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.

(3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.

Article 19

(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counteroffer.

(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

Article 20

(1) A period of time of acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree.

(2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows.

Article 21

(1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect.

(2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect.

Article 22

An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.



Article 23

A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.

Article 24

For the purposes of this Part of the Convention, an offer, declaration of acceptance or any other indication of intention "reaches" the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.

Part III. Sale of goods

CHAPTER I. GENERAL PROVISIONS

Article 25

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

Article 26

A declaration of avoidance of the contract is effective only if made by notice to the other party.

Article 27

Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.

Article 28

If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.

Article 29

(1) A contract may be modified or terminated by the mere agreement of the parties.

(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.

CHAPTER II. OBLIGATIONS OF THE SELLER

Article 30

The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.



Section I. Delivery of the goods and handing over of documents

Article 31

If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:

(a) if the contract of sale involves carriage of the goods--in handing the goods over to the first carrier for transmission to the buyer;

(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place--in placing the goods at the buyer's disposal at that place; (c) in other cases--in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.

Article 32

(1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not dearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods.

(2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation.

(3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance.

Article 33

The seller must deliver the goods:

(a) if a date is fixed by or determinable from the contract, on that date; (b) (b) if a period of time is fixed by or determinable from the contract, at any time within that period

unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract.

Article 34

If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.

Section II. Conformity of the goods and third party claims

Article 35

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:



(a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

Article 36

(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.

(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.

Article 37

If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.

Article 38

(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.

(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.

(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.

Article 39

(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.



Article 40

The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.

Article 41

The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by article 42.

Article 42

(1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:

(a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or

(b) in any other case, under the law of the State where the buyer has his place of business.

(2) The obligation of the seller under the preceding paragraph does not extend to cases where:

(a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.

Article 43

(1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim.

(2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it.

Article 44

Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice.

Section III. Remedies for breach of contract by the seller

Article 45

(1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may:

(a) exercise the rights provided in articles 46 to 52;

(b) claim damages as provided in articles 74 to 77.



(2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies.

(3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract.

Article 46

(1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.

(2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter.

(3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.

Article 47

(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.

(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.

Article 48

(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.

(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.

(3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision.

(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer.

Article 49

(1) The buyer may declare the contract avoided:

(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or



(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.

(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:

(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made; (b) in respect of any breach other than late delivery, within a reasonable time:

(i) after he knew or ought to have known of the breach;

(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or (iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performances.

Article 50

If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.

Article 51

(1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform.

(2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract.

Article 52

(1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery.

(2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate.

CHAPTER III. OBLIGATIONS OF THE BUYER

Article 53

The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.



Section I. Payment of the price

Article 54

The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.

Article 55

Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.

Article 56

If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight.

Article 57

(1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller:

(a) at the seller's place of business; or

(b) if the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place.

(2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract.

Article 58

(1) If the buyer is not bound to pay the price at any other specific time he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents.

(2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price.

(3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.

Article 59

The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller.



Section II. Taking delivery

Article 60

The buyer's obligation to take delivery consists:

(a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and

(b) in taking over the goods.

Section III. Remedies for breach of contract by the buyer

Article 61

(1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may:

(a) exercise the rights provided in articles 62 to 65;

(b) claim damages as provided in articles 74 to 77.

(2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies.

(3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract.

Article 62

The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.

Article 63

(1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations.

(2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance.

Article 64

(1) The seller may declare the contract avoided:

(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or

(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed;

(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so:



(a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or

(b) in respect of any breach other than late performance by the buyer, within a reasonable time:

(i) after the seller knew or ought to have known of the breach; or

(ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period.

Article 65

(1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him.

(2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding.

CHAPTER IV. PASSING OF RISK

Article 66

Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.

Article 67

(1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk.

(2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.

Article 68

The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller.



Article 69

(1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery.

(2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place.

(3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract.

Article 70

If the seller has committed a fundamental breach of contract, articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach.

CHAPTER V. PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER

Section I. Anticipatory breach and installment contracts

Article 71

(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:

(a) a serious deficiency in his ability of perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract.

(2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller.

(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance.

Article 72

(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.

(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.

(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.

Article 73

(1) In the case of a contract for delivery of goods by installments, if the failure of one party to perform any of his obligations in respect of any installment constitutes a fundamental breach of contract with respect to that installment, the other party may declare the contract avoided with respect to that installment.



(2) If one party's failure to perform any of his obligations in respect of any installment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future installments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.

(3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract.

Section II. Damages

Article 74

Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

Article 75

If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.

Article 76

(1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance.

(2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods.

Article 77

A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

Section III. Interest

Article 78

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.



Section IV. Exemption

Article 79

(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

(2) If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:

(a) he is exempt under the preceding paragraph; and

(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

(3) The exemption provided by this article has effect for the period during which the impediment exists.

(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such nonreceipt.

(5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention.

Article 80

A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission.

Section V. Effects of avoidance

Article 81

(1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.

(2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.

Article 82

(1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.

(2) The preceding paragraph does not apply:



(a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission; (b) the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or (c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.

Article 83

A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention.

Article 84

(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.

(2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them:

(a) if he must make restitution of the goods or part of them; or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods.

Section VI. Preservation of the goods

Article 85

If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.

Article 86

(1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller.

(2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph.

Article 87

A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable.



Article 88

(1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party.

(2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell.

(3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance.

Part IV. Final provisions

Article 89

The Secretary-General of the United Nations is hereby designated as the depositary for this Convention.

Article 90

This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties, to such agreement.

Article 91

(1) This Convention is open for signature at the concluding meeting of the United Nations Conference on Contracts for the International Sale of Goods and will remain open for signature by all States at the Headquarters of the United Nations, New York until 30 September 1981.

(2) This Convention is subject to ratification, acceptance or approval by the signatory States.

(3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature.

(4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations.

Article 92

(1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention.

(2) A Contracting State which makes a declaration in accordance with the preceding paragraph in respect of Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect of matters governed by the Part to which the declaration applies.

Article 93

(1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its



territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time.

(2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends.

(3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends.

(4) If a Contracting State makes no declaration under paragraph (1) of this article, the Convention is to extend to all territorial units of that State.

Article 94

(1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations.

(2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States.

(3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration.

Article 95

Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1) (b) of article 1 of this Convention.

Article 96

A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State.

Article 97

(1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval.

(2) Declarations and confirmations of declarations are to be in writing and be formally notified to the depositary.

(3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its



receipt by the depositary. Reciprocal unilateral declarations under article 94 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary.

(4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary.

(5) A withdrawal of a declaration made under article 94 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article.

Article 98

No reservations are permitted except those expressly authorized in this Convention.

Article 99

(1) This Convention enters into force, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including an instrument which contains a declaration made under article 92.

(2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, with the exception of the Part excluded, enters into force in respect of that State, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, acceptance, approval or accession.

(3) A State which ratifies, accepts, approves or accedes to this Convention and is a party to either or both the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Formation Convention) and the Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the same time denounce, as the case may be, either or both the 1964 Hague Sales Convention and the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect.

(4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part II of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Sales Convention by notifying the Government of the Netherlands to that effect.

(5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part III of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect.

(6) For the purpose of this article, ratifications, acceptances, approvals and accessions in respect of this Convention by States parties to the 1964 Hague Formation Convention or to the 1964 Hague Sales Convention shall not be effective until such denunciations as may be required on the part of those States in respect of the latter two Conventions have themselves become effective. The depositary of this Convention shall consult with the Government of the Netherlands, as the depositary of the 1964 Conventions, so as to ensure necessary co-ordination in this respect.



Article 100

(1) This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1) (b) of article 1.

(2) This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1.

Article 101

(1) A Contracting State may denounce this Convention, or Part II or Part III of the Convention, by a formal notification in writing addressed to the depositary.

(2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary.

DONE at Vienna, this day of eleventh day of April, one thousand nine hundred and eighty, in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic.

IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed this Convention.



Annex – II

Glossary of Commonly used Terms

and Phrases in Contracts



Glossary of Terms and Phrases

Terms Meanings / Definitions

A fortiori Much more. With stronger reasons.

Ab initio From the beginning.

Adversarial This is the system used in England and Wales, by which a legal action is

conducted. It is in essence, a contest between two parties decided by a neutral

third party.

Affirmation The substitute for a religious oath because an oath is against the witness’s beliefs

or because he has none.

Anton Pillar Order The High Court has inherent power to make an order for the detention and

preservation of the subject matter of a cause and the documents relating thereto

which an order may compel one party to permit the party to enter his present

premises.

Arbitration The reference of a dispute or difference between two or more parties for a

determination, after consideration of the evidence adduced and arguments of all

parties, by a person or persons validly appointed acting judicially

Arbitration Agreement An oral or written agreement between the parties to submit present or future

differences to arbitration, whether an Arbitrator is named therein or not. If the

agreement is in writing in accordance with Section 5 of the Arbitration Act 1996,

then the provisions of that statute will apply.

Arbitrator A person to whom the dispute is referred to for settlement, and who is acting in a

judicial capacity. Sometimes two or more Arbitrators are appointed and, in the

case of an even number (rarely more than two) being appointed, an additional

person may be appointed as an umpire.

Award The decision published by either the Arbitrator(s) or Umpire after considering all

the evidence adduced by the parties and which should dispose of the items in

dispute which have been referred to him (them) for a decision.

Bundle of Documents These are clear, legible, photographic copies of original documents collected

together and exhibited in bundle or bundles. The letters must be arranged in the

correct sequence, earliest at the top. Any letter containing several pages must be

paged consecutively at the centre bottom. They must be firmly secured.

Burden of Proof Lies on the party asserting the issue or the question in dispute. When (or if) that

party had produced sufficient evidence for this assertion to be presumed true,

the other party then has the burden to produce evidence to rebut the

presumption.

Claimant The equivalent in arbitration of a plaintiff in litigation.

Common Law Decisions of the courts, i.e. judge-made law and subject to the doctrines of

precedents.

Costs Follow the Event This is the normal situation in the award of costs. The event is the resolution of

the dispute by the Tribunal. The party who succeeds will normally be awarded his

costs, that is, the losing party pays his costs.




Costs of the Arbitration Defined in Section 59 of the Arbitration Act 1996

Costs in the Arbitration :

Costs in the Cost

The costs are at the Arbitrator’s discretion and can be taxed by him or the High

Court

Counterclaim It very often happen that the Respondent not only wishes to defend the claim by

the Claimant, but also to decide to bring a cross-action against him. This is called

a counterclaim. It would in theory, be possible for him to bring a completely

separate action, and to apply for the causes to be heard together. But in practice,

in order to save expense and time, the Respondent raises his cross-action by the

counterclaim to his defence.

Court When referred to in arbitration matters, “the Court” generally means the High

Court. There are however, some exceptions to this – in agricultural matters and

small claims, “the Court” is the County Court. In appeal cases, “the Court” may be

the Court of Appeal or the House of Lords, or in the case of EC matters, the

European Court of Justice.

Deposition A statement on oath by a witness in Court or in arbitration: or, evidence in

writing before a magistrate or judge, and signed by the witness and a magistrate.

It saves calling a witness from abroad, or safety, or because he is sick.

Disclosure of Documents When the submissions to the Arbitrator have been completed, the issues are

defined and the parties have to prove their case. Evidence is assembled. The

parties may agree to the exchanged documents and facts. If not, the Arbitrator

has the power to order disclosure of documents.

Domestic Arbitration

Agreement

An arbitration agreement to which none of the parties is :

an individual who is a national of, or habitually resident in any state

other than the United Kingdom, or

a body corporate which is incorporated in, or whose central control and

management is exercised in, any state other than the United Kingdom,

and under which the seat of the Arbitration is in the United Kingdom.

(Section 85 Arbitration Act 1996)

Estoppel The rule of evidence of which preludes a person from denying the truth of some

statement formally made by him, or the existence of fact which he has made by

words or conduct led others to believe in. If a person by the representation

induces another to change his position on the faith of it, he cannot afterwards

deny the truth of his representation.

Extrinsic Evidence Evidence on matters not stated in or not referred to in an agreement recorded in

writing, but which could explain or vary its meaning. Not generally admissible but

there are many exceptions, e.g. to show the real nature of the agreement.




Infra Later

Injunction An order or decree by which by which a party to an action is required to do, or

refrain from doing a particular thing. Injunctions are either restrictive

(preventative) or mandatory (compulsive). With regards to time, injunctions are

either interlocutory (or interim) or perpetual. A perpetual injunction is granted

only after the Plaintiff has established his right in the action or threatened

infringement of it by the Defendant; an interlocutory injunction may be granted

at any time after the issue of the writ to maintain things in status quo.

Inquisitorial This is the procedure used in civil law jurisdictions. The Tribunal takes a much

more active part in the proceedings than it does in the Adversarial System,

while the lawyers take amore muted role.

Inter alia Amongst others

Interlocutory Proceedings Steps taken during the course of an action and incidental in the principal object

of the action, namely the judgement. Thus, interlocutory applications in an

action include all steps taken for the purpose of assisting either party in the

prosecution of his case; or of protecting or otherwise dealing with the subject-

matter of the action, or of executing the judgement when obtained.

Interrogatories A party to any action may apply to a Master by summons or by notice under the

summons for directions for an order giving him leave to serve interrogatories on

any other party and requiring the other party to answer them an affidavit.

Jurisdiction The ability conferred on a person by law to determine the legal relationship of

others.

Liberty to Apply It is usual for the Arbitrator to write at the end of each Order “Liberty to either

party to apply”. Either party can bring any matter covered by the order before

the Arbitrator so that further or amended directions may be issued.

Mareva Injunction Where an action for debt due or owing is brought against a Defendant who is

not within the jurisdiction but who assets in this country, the court may grant

an ex parte or interim injunction to restrain the Defendant from moving the

assets from the jurisdiction pending trial.

Masters of the Supreme

Court

These consist of Masters in the Chancery Division, of the Queen’s Bench

Division, of the Supreme Court. The jurisdiction of a Master is, with some

exceptions that of a Judge in Chambers and normally his decisions can be

appealed to the Judge.

Mutatis Mutandis Means “the necessary changes being made” or “consideration of the respective

differences”.

Not fit for Counsel The Arbitrator adjudges that the issue was not sufficiently difficult or important

for the Counsel’s presence to be sensible. It does not mean that both or one

party cannot use the Counsel, but the Arbitrator will reflect the unfitness in his

direction of costs. If the Arbitrator adds the words “not fit for Counsel” to his

Award, the Taxing Master will reject Counsel’s fee as part of the party’s costs.




Obiter Dicta An observation by a judge on a legal question which is not binding as a precedent.

Official Referees Circuit Judges appointed with special responsibilities for inter alia. Construction

industry disputes usually involving large numbers of documents

Parties The persons in dispute who have agreed to refer their disputes to Arbitration. (A

party may be an individual or a corporation or other legal and entities)

Pleadings Pleadings are statements in writing served by each party alternately on his

opponent stating the facts relied onto support his case and giving such details as

his opponents need to know in order to prepare his case to answer.

Power to Correct Slips Section 57 of the Arbitration Act 1996 gives the Arbitrator9s) the powers to

collect accidental slips or omissions in an award or clarify or move any ambiguity

in the award (unless the parties agree otherwise)

Precedent A judgement or decision of a Court of Law decided as an Authority for deciding a

similar set of facts; a case which serves as an authority for the Legal Principle

embodied in its decision. The Common Law has developed by broadening down

from precedent to precedent.

Privileged Documents Classes of documents which need not be discovered by the other party by

operation of the law of Evidence.

Quantum The amount of damaged claim in Arbitration.

Ratio Decidendi The reason of a judicial decision

Real Evidence Anything tending to prove, or disprove, a fact or situation. Real evidence are

objects for a court to see, but not documents. It could be a dog whose disposition

is at issue, or the building where the events took place, or photographs or tapes,

or the demeanour of a witness.

Reference The term usually applied to the particular matter in difference between the

parties.

Remit The Court’s statutory jurisdiction to send back to the Arbitrator his award for his

reconsideration.

Respondent A person who is claimed against in an Arbitration.(Defendant in litigation)

Serious Irregularities Failure to conduct the reference in the manner expressly or impliedly prescribed

by the submission; to behave in a way regarded by the Courts as contrary to

Public policies; to behave in a way which is. Or gives the appearance of being

unfair; failing to hear both parties or necessary evidence or arguments in the

absence of one party. (Previously “misconduct”)

Statute Act of Parliament




Stay of Proceedings Suspension of proceedings in an action which may be temporary or until

something requisite or orders is done or permanently where to proceed would be

improper. In Arbitration, this is suspension of proceedings in a Court action

brought by one of the parties where there is an Arbitration clause in the

underlying contract.

Steps in the Proceedings A “Step in the Proceedings” means an action which impliedly affirm the

correctness of the proceedings and the Defendant’s willingness to be bound by

the Court’s decision. (Will normally means that a stay then cannot be obtained)

(1) Subpoena ad

Testificandum

(2) Subpoena duces

Tecum

A subpoena to compel a witness to attend in Court, or before an Examiner or

Referee to give evidence (1), or to bring certain documents (2). Subpoena means

“under penalty”, and is a right requiring the person to attend at a specified time

and place to give evidence (Latin)

Supra Above

Taxing of Costs The process of examining, and if necessary, reducing the bills of costs of a party in

whose favour costs have been awarded in an arbitration.

Tribunal A body or bodies with judicial or quasi judicial functions set up by statutes, e.g. :

Arbitrator(s).

Umpire A person appointed to settle the disputes between the parties in lieu of the

appointed Arbitrators when they are unable to agree upon an award.

Without Prejudice This can be put on Letters when attempting to settle a dispute and which will

result in that Letter being privileged. i.e. : That is not to be shown to the

Arbitrator unless both parties agree otherwise.



Plain English for Latin Expressions

Latin Expression English description

Ab Initio From the inception

Actus Reus Guilty act

Ad Hoc For this specific purpose

Ad Idem Of same mind / in agreement

Ad Infinitum Without limit / without end

Ad tem For the suit

Amicus Curiae A person assisting the court

Ante Before

Audi Alteram Partem Right to be heard

Bona Fide In good faith

Caveat Emptor Buyer beware

Causa Causans The immediate cause

Causa Sine Qua Non A cause without which the thing or event cannot happen

Certiorari A form of judicial review where a court considers a legal

decision of an administrative tribunal, judicial office or

organization. The review court then decides whether the

decision was regular

Compos Mentis Of sound mind

Contra Proferentem An ambiguity in a document is resolved against the person

who drafted the document

Coram Before/in the presence of a person

C.A.V (Cur.Adv.Vult) The court has taken time to consider its judgement

De Bene Esse Something that is done provisionally

De Facto In fact / in reality

De Jure By right / as a matter of law

De Minimis Something so insignificant that a court may disregard it

when deciding a case

De Novo For new

Ejusdem Generis A word of general meaning following a list of specific

examples is to be read not in its wildest meaning, but is

instead to be limited to matters of the same class or nature

as the examples listed

Erratum An error

Ex Ante Before the event

Ex Debito Justitiae Something that is due as a matter of right

Ex Gratia As a matter of favour / without obligation / not legally

necessary




Ex Officio By virtue of the office

Ex Parte By one party only

Ex Post Facto After the event

Forum Conveniens Appropriate forum

Forum Non Conveniens Inappropriate forum

Functus Officio Office terminated (having discharged duty)

Habeas Corpus Produce the person / for production of the person

Ibid In the same place. The term is often used in footnotes to

refer to a work cited in the previous footnote(s)

Ignorantia Juris Non Excusat Ignorance of the law is no excuse

In Camera In private

In Curia In open court

In Extenso At full length

In Limine Something to be decided by the court before proceeding

further

In Pari Delicto Equally at fault

In Pari Materia On the same subject / relating to the same matter

In Personam Against the person

In Re In the matter of

In Rem Against / in respect of the thing

Infra Below

Inter Alia Amongst other things

Inter Alios Amongst other persons

Inter Partes Among parties

Inter Se Among / between themselves

In Situ In its original situation

Intra Within

Intra Vires Within the power of

Ipso Facto By the fact

Jurat Certificate of person empowered to administer oath or

administration

Lex Law / body of laws

Lex Causae Law applicable to a claim

Lex Domicilii Law of a country where a person has a permanent and fixed

home

Lex Fori Law of the court hearing the claim

Lex Loci Law of the place where something has happened

Lex Loci Deliciti Law of the place where he wrong is commited

Lex Situs Law of the place where the property is situated




Lex Loci Solutionis Law of the place where the contract is to be performed

Locus in Quo The place in which

Mala Fides In bad faith

Mandamus Procedure by which a higher court orders a lower court or

government official to perform its or his duties in the correct

manner according to law

Men Rea Guilty mind

Mutatis Mutandis With the necessary modifications

Nemo Judex In Parte Sua No man should judge a case in which he is party

Non Compos Mentis Of unsound mind

Non Est Factum Not his deed. A plea that an agreement (originally a deed)

mentioned in the pleading was not the act of the defendant

Novus Actus Interveniens An intervening cause that disturbs the natural cause of

events between the wrongful act and the final injury

Obiter Dictum Observations made in a judgement other than on the point

decided

Pari Delicto Of equal fault

Pari Passu Equally without preference

Per As stated by / statement made by

Per Curiam By the court

Per Incuriam Through inadvertence

Per Pro (pp) Through another

Post After

Praecipe A written order to the court registry for inspection or issue

of a document

Prima Facie On its face

Pro Rata Proportionate division according to interest

Pro Tanto To the extent of

Pro Tempore (Pro Tem) For the time being or temporarily

Qua In the capacity of

Quantum Meruit The reasonable value of services performed by one person

for another, as assessed by the court, in the absence of an

agreement

Quantum Valebat The reasonable value of goods and materials supplied by one

person for another, as assessed by the court, in the absence

of an agreement

Quaere To raise as a question or an issue




Ratio Decidendi Point decided

Res Integra A new or undecided question of law

Res Judicata An issue already adjudged upon

Res Ipsa Loquitur The thing speaks for itself

Restitutio In Integram Restoration to the previous condition

Semble It appears

Sine Die Without any fixed date

Sub Judice In the course of trial

Subpoena Ad Testificum An order to testify

Subpoena Duces Tecum An order to produce documents

Sui Generis Something od its own kind / peculiar

Sui Juris Of full age and capacity

Supra Above

Ultra Vires Beyond the power

Vide See / refer to

Volenti Non Fit Injuria A person who knowingly accepts a risk or dangerous

situation cannot claim compensation for any resulting injury

Voire Dire The hearing of evidence and argument in the course of a trial

to decide whether a prior statement or other piece of

evidence is admissible



Interactive Workshops



Interactive Workshop – 1: Understanding of the Terms of Sale & Purchase

In groups of three to five participants, conduct a comparative review of a Sample

Purchase Order Terms and Conditions as provided during the course, with UN CISG

(Annex – I).

Identify the following:

a) Common Articles found in CISG and the Sample PO

b) Articles similar to CISG

c) Articles not found in CISG but are in the Sample PO

d) Articles in CISG but not found in the PO

e) Recommend amendments to the PO Terms in context of

a EPCIC Contract and CISG for purchase of equipments

as stated.



Interactive Workshop – 2: Application of the Terms of PO

The Buyer has placed order for US$350,000 for servicing, repairs, supply of parts and

installation of a derrick on board the Jackup Rig waiting to be chartered by March 2007. The

delivery period of the PO states not later than July 2006. Due to site conditions and due to

delays by the Seller, derrick couldn’t be delivered until March 2007 and then after frustrations

Buyer engaged alternative vendors to complete the works and rig charter commenced in

May 2007.

Buyer sued the Seller for all losses due to loss of hire @US$120K/day from 1st March

till 15th May 2007 and all costs paid to alternative vendors. Seller claims he is only liable for

LD and no other damages. Seller alleges due to Buyers delays of site access, time was at

large so he is not obliged to complete within the agreed date.

Make your own assumptions where insufficient facts are known and argue the case till

decision is made by the group majority vote.

Terms & Conditions of the Purchaser

1. Offers

1.1. Offers shall be submitted without charge. Any deviations from the enquiry shall be expressly stated. 1.2. The Buyer has the right to accept any offer or to reject all offers. 2. Orders

Only written orders are binding on the Buyer. 3. Confirm of orders

The Buyer’s confirmation of order form shall be signed and returned not later than 14 days after receipt of same. Failing this, The Buyer reserves the right to revoke the order.

4. Delivery, delivery time and effects of delays

4.1. The goods shall be properly packed and marked, and shall be delivered at the time stipulated at the agreed destination.

4.2. If it has been agreed that the Seller is to erect the equipment or that functional tests are to be carried out

in connection with the delivery, delivery is not deemed to be completed until the tests or the erection work have been carried out and the Buyer has confirmed acceptance of delivery in writing.

4.3. The Seller shall immediately notify the Buyer in writing if there is reason to believe that the agreed

delivery time cannot be met. Such notification shall state the cause of the delay and the likely overrun of the delivery time. The Seller is liable for direct and indirect losses suffered by the Buyer which could have been avoided if the Seller had given the Buyer such notification in due time.

4.4. If delivery does not take place at the agreed time, the Buyer has the right to cancel or to maintain the

order. Contracts for delivery of goods which the Seller shall make specially for the Buyer according to the Buyer’s specifications or descriptions, and which the Seller cannot dispose of in any other way without substantial losses, may only be cancelled by the Buyer if the delay constitutes a material breach of the contract. When maximum liquidated damages have accrued, the Buyer is always entitled to cancel the contract irrespective of the kind of goods in question. If the goods delivered have defects to the extent that they cannot be used for the intended purpose, this shall be deemed to be equal to delay.

4.5. In case of delay, liquidated damages accrue at the rate of 0.2% per calendar day of the total amount of

the order until delivery takes place or the Buyer cancels the order. Liquidated damages shall nevertheless not exceed 10% of the total amount of the order. The total amount of the order means the sum of the amount of the main order and any additional orders under the same order number.



Liquidated damages shall not accrue if the Seller can demonstrate that the delay is caused by force majeure.

4.6. In case of negligence on the part of the Seller or someone for whom the Seller is responsible, the Buyer

is, as an alternative to liquidated damages, entitled to indemnification for direct and indirect losses incurred as a result of delay.

4.7. The Seller shall do his utmost to reduce the delay and damage resulting there from. If the Seller invokes

force majeure, satisfactory documentation to the effect must be submitted. 5. Quality assurance and control

5.1. The Seller shall have a satisfactory quality assurance system appropriate to the kind of goods in question. The Buyer shall at any time have the right to make inspections and tests at the Seller’s premises and/or the premises of any sub-contractor in order to make sure that the goods are being made in accordance with the agreed quality assurance system and otherwise in accordance with the order. The Seller is obligated to assist in carrying out such tests. The Buyer may likewise demand that test records, material certificates and calculations are presented.

5.2. If at any time workmanship should prove to be deficient or in any other way unsatisfactory, the Seller is

responsible for making the improvements which are necessary or which the inspector demands. The costs of making and checking the improvements are for the Seller’s account.

6. Erection

Erection work shall not be part of the contract unless expressly aged. In such cases the following terms shall apply:

6.1. In adequate time before the erection, the Seller shall present a plan for the assistance to be rendered by

the Buyer according to the Contract. 6.2. If the erection is carried out according to an agreed firm price, such price shall include all expenses and

services not expressly excluded from the order. The price shall also include a test run and commissioning where this is understood to be included by the parties.

6.3. The erection work shall be carried out within the framework of the regulations imposed by public

authorities, the working arrangement, the working regulations and the safety and control procedures applicable at the site. The Buyer may demand that the Seller or his representative as well as the Seller’s employees sign the Buyer’s standard confidentiality and liability undertakings.

6.4. During and in connection with erection work, the Seller shall take out necessary and sufficient insurance

coverage for work and materials up until the time of delivery, as well as liability insurance covering possible injuries to the Buyer or third persons as well as possible property damage until the time of delivery, all to the extent that this is not covered by the Buyer’s own policies. Upon the Buyer’s request, the Seller is obligated to have the Buyer made loss payee under such insurance policies.

7. Documentation Of Insurance

At the request of the Buyer, the Seller shall deliver original insurance certificates including conditions for the insurances he is obligated to take out under the contract.

8. Drawings and documentation

8.1. All documentation such as certificates, drawings, instructions, etc., specified in the order, are deemed to be part of the order.

8.2. The Buyer has the right to receive one copy and one transparent copy of all component and detailed

drawings of the various parts of the goods, and two copies of all other documentation necessary for the erection, operation and maintenance, as well as material certificates and lists of spare parts with manufacturers’ identification. Failing agreement to the contrary such documentation shall be submitted at the same time as the goods are delivered. foundation and erection drawings shall be submitted in adequate time before delivery of the goods, so as not to delay the Buyer’s preparatory work at the erection site.

9. Defects, complaints and effects of defects

9.1. The goods delivered shall meet the specifications of the order, including the agreed performance and consumption figures and shall not have defects of any kind. Furthermore, the technical standard shall conform to what by modern technique can be demanded of design and first class workmanship, and the major spare parts for the goods shall be available throughout the normal lifetime of the goods, limited upwards to ten years. Utilization and possible resale of the goods shall not conflict with any regulations imposed by public authorities nor with any third party’s patent and/or other intellectual property rights.



The Seller’s responsibility to deliver goods meeting the requirements of the contract is not limited in any way by any inspections carried out by the Buyer prior to delivery in accordance with Art. 5 nor by the Seller providing drawings, goods or samples for checking prior to delivery.

9.2. After delivery the Buyer shall, as soon as reasonable under the circumstances, check the goods. The Buyer is not obligated to check the goods before they have arrived at the premises where they are to be used according to the understanding of the parties, nor before any erection work according to Art. 6 has been completed. the Buyer’s obligation to check the goods similarly applies when the Seller has made good defects.

9.3. The Buyer shall submit a complaint in writing within a reasonable time after he has discovered a defect. The period allowed for complaints expires 24 months after delivery. For replaced or repaired parts an equivalent period for complaints applies from the time of such replacement or repairs. The period allowed for complaints does not run as long as the goods delivered are inoperative as a result of repairs necessary for the goods to meet the requirements of the contract.

9.4. If defects should occur within the period allowed for complaints, the Seller shall immediately, or at a later date if the Buyer has a valid reason for demanding such postponement, make good such defects. This shall be done without any cost to the Buyer.

9.5. If the Seller does not make good defects within a reasonable time, the Buyer is entitled to arrange for the execution of whatever work he deems necessary for the Seller’s account and risk. The same shall apply if it will otherwise cause considerable inconvenience to the Buyer to wait for the Seller to make good the defects. In such cases the Seller shall be informed immediately.

9.6. If the goods have defects which are not fully made good according to the above provisions, the Buyer shall be entitled to a reduction in price.

9.7. Should the goods have material defects of a kind that cannot be made good within reasonable time, the Buyer has the right to cancel the contract and to be indemnified for his direct losses. The same applies if the goods otherwise have material defects which have not been made good within a reasonable time.

9.8. Should the Buyer suffer indirect losses as a result of defects in the goods, he shall be entitled to indemnification for such losses in case of negligence on the part of the Seller or someone for whom the Seller is responsible.

10. Terms of payment

10.1. Unless otherwise agreed, payment shall be made 30 days after the end of the month during which delivery took place, with the provision that the earliest date of payment shall be 30 days after receipt of a correct invoice. All invoices shall be marked with order number and any other references requested by Buyer. Invoices shall clearly indicate to what the amount refers.

10.2. For goods made to order the Seller shall provide an unconditional bank guarantee covering 10 percent

of the total amount of the order. The bank guarantee shall be issued by a bank approved by the Buyer and shall be valid until expiry of the time allowed for complaints.

11. Changes

11.1. Within the limitations of what the parties could reasonably expect when the contract was entered into, the Buyer has the right to prescribe qualitative or quantitative changes to the goods or the Seller’s services or a change in delivery time.

11.2. The Seller shall receive credit for his additional work in implementing such changes, as well as for the

direct costs incurred by him, in accordance with the cost the profit level on which the original purchase price was based. If such changes should lead to savings for the Seller, such savings shall similarly be deducted from the purchase order.

11.3. Should the parties fail to agree concerning the increase or reduction in the purchase price as a result of

such changes, the Seller should nevertheless implement the changes without awaiting the final outcome of the dispute.

12. Confidentiality

12.1. All industrial secrets belonging to the Buyer and otherwise all descriptions, patterns, models, etc., which the Seller has received from the Buyer in connection with the execution of the order, shall be treated as confidential and shall not be reproduced or used for any other purpose than the execution of the order.



The Seller is liable for any damage the Buyer may suffer as a result of an infringement of these obligations. On demand the Seller shall without delay return all documents received.

12.2. The Seller shall not take any photographs on or of the Buyer’s property. 12.3. Without the Buyer’s prior written consent, the Seller shall not issue any press releases or otherwise

advertise in connection with the order he has received. 13. Applicable law and legal venue

13.1. These general conditions of purchase shall apply to the contract, together with any additions or changes thereto which have been agreed to by the parties in writing. The version of Inco terms in effect at the time of entering into the contract shall apply. The contract shall be governed by the laws of Norway.

13.2. A party may only, bring a dispute in connection with the contract before the appropriate court of the

other party’s legal domicile. The Seller also agrees to have litigation brought before the Bergen City Court.

Exercises

1. Identify clauses with uncertain and ambiguous meanings.

2. Identify the legal forum for dispute resolution if the project is

undertaken in Malaysia by Malaysian contractor.



Interactive Workshop 3: Review of Boiler Plate Clauses

Sample of Clauses from a Contract between Malaysian Parties

1. Identify the traps in this clause.

All disputes arising in connection with or arising out of the CONTRACT shall be settled by arbitration. Arbitration shall be conducted in London, by an arbitration tribunal of three arbitrators. The award of the arbitrators shall be final and binding to both parties.

2. Is the legal regime well defined for the project to be executed in Malaysia and the

Contractor is also from Malaysia?

APPLICABLE LAW THE VALIDITY AND INTERPRETATION OF THIS CONTRACT AND THE LEGAL RELATIONS OF THE PARTIES THERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH LAWS OF ENGLAND, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR TO THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.

3. Review the Boiler Plate Clauses as per sample given separately.

******************



Caution:

The Case extracts in this section are incomplete and only certain statements have been extracted for

discussion purpose. Readers interested in the full judgments may refer to the complete Judgment

Orders as published.

Case – 1: Jack-up Drilling Rig Charter Termination Dispute (16th November 2001)

AMOCO (UK) EXPLORATION COMPANY (Claimants)

V

BRITISH AMERICAN OFFSHORE LIMITED (Defendants)

Mr Justice Langley:

INTRODUCTION

1. By a contract dated September 26, 1997 the Defendant ("BAO") as "Contractor" agreed with

the Claimant ("Amoco") to provide a Jack-up Drilling Unit known as the Rowan Gorilla V

("RGV") to "drill, test (as required), complete suspend, and/or abandon" one or more wells in

the North Sea. The contract was to continue for at least one year. The operating hire rate was

$175,000 per day. At the time the RGV was under construction in America. The contract

contemplated that the RGV would arrive in Rotterdam between August 1 and October 15

1998. In the event it arrived in Rotterdam on December 15, 1998. BAO claims that the RGV

came on hire under the contract from 18.30 on December 25. Amoco says it never came on

hire and the condition of the RGV together with the delay was such that Amoco was entitled to

terminate the contract. Amoco did purport to terminate the contract on January 19, 1999.

2. The central question in these proceedings is whether Amoco was entitled to terminate the

contract either under its express provisions or at common law. Amoco claims a Declaration

that its termination was valid. If it was, Amoco claims damages for wasted costs (the

quantification of that claim being excluded from the present trial). Amoco makes no claim for

damages for any breach of contract on any basis other than entitlement to terminate the

contract. BAO counterclaims for Declarations that the termination was invalid and for a daily

rate under the contract from December 25, 1998 to October 22, 1999 (the date when BAO

accepted what it says was Amoco's repudiation of the contract) and for damages at the same

rate thereafter until 25 December, 1999, or the expiry of the 1 year term. That claim is for a

principal sum of approximately US $65m. In addition BAO claims the balance of a fee payable

under the contract for mobilization of the RGV from America to Rotterdam and reimbursement

of costs incurred in mobilization from Rotterdam to the first intended drilling location which in

the event was to be the Arbroath field. The Arbroath platform is situated some 130 miles east

of Aberdeen. The RGV cost some $225m to design and build.



TERMINATION AT COMMON LAW

3. Although detailed submissions have been made on this issue I think, so that the consideration

of the technical issues and evidence can be seen in context, I only need to set out briefly what

Amoco would need to establish in order to succeed in its case that it was entitled at common

law to terminate the contract.

4. In opening Amoco's case, Mr Barnes accepted that the language used by Diplock LJ in Hong

Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26 at pages 72 to 73 was an

appropriate description of the question which the court had to ask itself, namely, adjusting the

words to the circumstances of this case, whether, at the date Amoco purported to rescind the

contract, any delay or default due to BAO which had already occurred and any further delay

which was likely to occur in rectifying that default, and the conduct of BAO in relation to those

defaults, were "when taken together such as to deprive" Amoco "of substantially the whole

benefit which it was the intention of the parties Amoco should obtain" from the contract.

5. As I have already indicated (paragraph 92), BAO did not in the event (and rightly in my

judgment) submit that the right to terminate at common law was wholly excluded by reason of

the contract containing its own termination provisions. BAO (and Amoco) did of course submit

that those and other provisions of the contract were both definitive of the "benefit" which it

was intended that Amoco should obtain from the contract and indicative of the extent of the

gravity of any default which would be necessary to justify termination at common law. As it

was put in Amoco's Closing Submissions "the contractual provisions give a pointer to what the

parties regarded as the commercial realities". The benefit to Amoco was the provision for a

period of one year commencing on the commencement date of a drilling unit equipped and

manned so as to be capable of drilling in the Arbroath field to seek to achieve further

production from the field.

6. The Contract itself contained its own scheme for compensating Amoco for reduced efficiency

or performance by reduction in the operating rate for the period of the reduction in efficiency

or performance (Appendix 10) and by a breakdown rate reduced to a nil rate after 48 hours. It

also contained in Clause 28.1 its own provisions for termination which were effective after a

breakdown of sufficient gravity to cause BAO to be unable to perform its obligations under the

contract lasting 30 days or a major fault causing a suspension of operations for more than 30

days. Those provisions themselves must in my judgment form part of an appreciation of the

benefit the parties were intended to derive from the contract. Thus circumstances otherwise

within the scope of the termination provisions but falling short of the precise terms would in

my judgment not give rise to the right to terminate at common law for the very reason that the

parties agreed when and how such circumstances should have that consequence: see

Lockland Builders Ltd v Rickwood (1995) 46 Con LR 92 (CA). The provisions are ones for the

benefit of both parties not just for the benefit of Amoco involving as they do time and notice

constraints. For present purposes loosely expressed what I think that comes to is that to

justify termination at common law something "worse" or not addressed by those provisions



would be required. No doubt it was in recognition of that requirement that Amoco's case

sought to emphasize the safety considerations involved in the jacking system and well control

equipment and the alleged refusal or failure of BAO to explain matters or rectify them. As Mr

Barnes put it in Opening, Amoco's case was that on 19 January 1999 it was not safe to take

the RGV out to the Arbroath platform and BAO was refusing to make it safe to do so. In

Amoco's written closing reply submissions the "core reasons why Amoco terminated the

contract" are said to have been:

"The reoccurrence of the well control and jacking system failures - despite BAO's

assurances - meant that there were serious issues to be addressed

before the rig could be used. Both operator experts agreed that

Amoco had legitimate concerns. But BAO maintains, even now, that

it had met its obligations and that there was no more to be done."

7. This formulation illustrates another area of difference in the parties' submissions. BAO submits

that repudiation by "renunciation" of a contract is different in principle from what may be

termed repudiation by non-performance. Amoco submits that the two at least overlap. The

question is discussed in Chitty on Contracts Vol. 1, para 25-017 and following. I do not think it

necessary to analyze this further in the circumstances of this case. An express refusal to

perform a contract or part of it may be repudiatory; likewise in my judgment a refusal to

remedy or acknowledge a breach of contract may (as Amoco submits) be repudiatory. But in

either case to be so it must amount to conduct which objectively is characterised as evincing

an intention no longer to be bound by the contract such as to deprive the other party of

substantially the whole benefit which it was to obtain from the contract. In that context, I think,

for example, questions may arise as to the other party's failure to invoke contractual rights

such as a right to require work to be done and as to whether a refusal to acknowledge or

remedy a breach is a reasonable assertion of rights under the contract rather than a

repudiation of it. Certainly it cannot be right to seek to characterise a statement of belief that

equipment is fit for its purpose as a refusal to perform obligations unless perhaps it can be

shown to have been dishonest or unreasonably held: see Woodar v Wimpey [1980] 1 WLR

277. Ultimately it is a question of degree requiring consideration of all the circumstances. That

is, I think, the effect of Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC

757 where the "individual demerits" of the owners conduct were such that it was held to go "to

the root" of the particular contract and particularly so because it went to an immediate

commercial need of the charterers for the bills of lading which the owners were refusing to

provide.



OVERALL CONCLUSIONS

8. It is Amoco's basic case that at 19 January the RGV was unsafe and unusable because of two

"show stoppers":

i) The history of events concerning the jacking system which "called for a full

investigation in order to determine the integrity of the system and the risks of jacking

alongside the platform" and BAO's response to and explanations of the events which it

is alleged was inadequate and inaccurate insofar as it was communicated to Amoco;

and

ii) The well control system which was contaminated and could not be relied upon to

prevent a blow-out that could have led to disaster. It should have been stripped down

and BAO refused to do so.

9. It is also Amoco's case that the delays and lack of crew training are part of the background

which made the show stoppers "all the more serious in their effects, and contributed to

Amoco's loss of confidence in BAO".

10. Amoco's case fails on the facts at every point. But for termination, the jacking system would

readily have been established to be (as it was) both safe for Arbroath and indeed capable of

meeting its performance criteria had that been thought material. In all probability the jacking

system would have been proved by performance. So also the well control system, at least

when first required for use, would have been shown to be fully and safely functional. Indeed

that was the case on 19 January save that the pressure control problems manifested at items

66 and 67 needed to be resolved "prior to spud". The rig would have passed Mr O'Brien's tests

or the tests would have revealed any continuing problems which could readily have been

addressed. In no relevant sense did BAO behave "intransigently" nor refuse to carry out work

nor provide inaccurate information. Whilst Amoco's case of loss of confidence is I think

contrived it was certainly not justified. The complaints about delay and crew training have no

contractual relevance nor do they have any place in the context of repudiation or otherwise.

Even had I accepted Amoco's factual and expert case in its entirety it would have been

reasonably arguable that no repudiation had occurred. That case at its highest is that some 6

weeks to 3 months would have been required to put the matters now complained of right and

to establish that the RGV was (as it was) safe and fit for drilling at Arbroath. Moreover there

was good reason to believe that such would be the outcome of any further work. The

contamination would have been addressed as Amoco claim it should have been. The jacking

system would have been expected to pass and would have passed any reasonable test. In the

context of a 12 month contractual commitment but a drilling opportunity limited to some 7½

months it must I think be very questionable whether even such circumstances would meet the

test of repudiation. Be that as it may on the facts as I find them to be such a case is of course

hopeless.

11. There was in addition no right to terminate the contract under Clauses 23.1.1 and 28.1.d) at

least because:



i) As regards the well control system BAO did not fail to conduct its operations in a

diligent skilful and workmanlike manner nor could Amoco reasonably have concluded

that it had;

ii) No adequate notice was given by Amoco of any such failures now relied upon;

iii) BAO did not in any event fail or refuse to remedy any failure or to proceed diligently to

do so within the meaning of the Clauses.

12. There was no right to terminate under Clause 28.1.b) at least because :

i) The 30 day period had not expired;

ii) No relevant breakdown had occurred;

iii) In any event the well control equipment was not broken down at 19 January following

the successful test on 16 January.

Lessons for Contract Managers

a) Date of commencement of a contract shall be specific and unequivocal.

b) Scope of the Contract for which payment has to be made, shall be clearly

defined whether for delivery of equipment or service or both or

commencement of certain measurable operations.

c) Termination of contract shall be in the first instance through the enforcement

of rights of the parties in the Contract before applying common law principles.

d) Report and register objections to the deviations from schedule as and when

incurred instead of complaining at a later date when dispute occurs.

e) Simple reporting of a delay event is not a sufficient an defense but action

shall be taken either to revise the contract (rates if possible) or actionable

steps failing which the party has a right to recourse.

Questions

1. What are the pre-conditions for termination of a contract under common law?

2. What is the difference between rescinding the Contract and terminating the Contract?

3. What were the right steps or articles in favor of BAO?



Case – 2: Gas Transportation Service - Commencement Date Dispute

Amoco (UK) Exploration Company etc. and Others

v.

Teesside Gas Transportation Ltd and

v.

Imperial Chemical Industries Plc and others [2001] UKHL 18 (4th April, 2001)

1. The Central Area Transmission System ("CATS") is a 36 inch pipeline, 255 miles long,

together with ancillary installations, which carries natural gas from various points in the

Central Graben of the North Sea to Teeside. It was built by a consortium of four oil and gas

exploration and development companies (who have been called "the CATS Parties") between

1990 and 1993 and is operated by one of them, Amoco (UK) Exploration Co ("the CATS

Operator"). The first use of the pipeline was to carry gas from the Everest and adjacent

Lomond field (also owned by the consortium companies) for delivery to a power station at

Teeside. But its capacity was much larger than was necessary to carry the Everest/Lomond

gas and the CATS Parties were in a position to offer spare capacity to others.

2. These appeals concern an agreement by which the CATS Parties agreed to allow a company

called Teeside Gas Transportation Ltd ("TGTL"), (originally a joint venture between ICI and

Enron Corporation of Texas but now a wholly owned subsidiary of Enron) to use part of the

pipeline capacity. It was called the Capacity Reservation and Transportation Agreement

("CRTA") and was executed on 10 September 1990, before the pipeline had been built. By

clause 3.1, the CATS Parties undertook to construct the system so as to be capable of

carrying gas for TGTL by 1 April 1993. The agreement reserved to TGTL the right to deliver to

the pipeline a defined quantity of gas which the CATS Parties would carry as part of a

commingled flow to Teeside and there redeliver the appropriate share to the shore

installations of TGTL. TGTL was to be entitled to use the capacity from a date on or after 1

April 1993 (defined in the agreement as "the Commencement Date") until 1 October 2018.

3. The significance of the Commencement Date was two-fold. First, by clause 6.1 the

CATS Parties came under an obligation, subject to compliance by TGTL with various

conditions, to accept and redeliver its gas:

"6.1 With effect from the Commencement Date and for each Day thereafter during the term of

this Agreement, the CATS Parties shall provide the Transportation Service in respect of

Capacity Gas delivered from a Designated Field(s). The Transportation Service shall mean a

service whereby, subject to the other terms and conditions of this Agreement and the

Allocation Provisions, the CATS Parties shall:

(a) accept during each Day at the relevant Entry Point Capacity Gas delivered from a

Designated Field(s) complying with the Notified Specification up to the Notified Rate;

(b) transport such Capacity Gas through the CATS Transportation Facilities;



(c) redeliver Capacity Redelivery Gas complying with the Redelivery Specification to [TGTL]

on behalf of the relevant Capacity Users at the relevant Redelivery Point…"

Secondly, as from the Commencement Date TGTL came under an obligation in accordance with

clause 7.4 to make quarterly "send-or-pay" payments, at the rate of about £8m a quarter, whether it

used the capacity or not:

"7.4 An amount (hereinafter referred to as the "Send-or-Pay Payment") shall be payable by

[TGTL] to the CATS Parties for each quarter effective from 6 am on the Commencement Date

until 6 am on 1 October, 2013…"

4. On 30 March 1993 the CATS parties notified TGTL that the conditions for the

Commencement Date had been satisfied. The notification therefore took effect on 1 April

1993. Thus Enron appeared to be committed over a long period to fixed payments, negotiated

at then prevailing rates, for the purchase of gas and the use of the pipeline. In respect of the

pipeline, it would have to make send-or-pay payments for about three years before it could

make any use of the reserved capacity.

5. In February 1995 TGTL, which had already paid about £45m in send-or-pay payments,

gave notice that it would not pay any more. It also asked for its previous payments to

be refunded. The grounds were that, for various reasons, the conditions for the

Commencement Date had not been satisfied. The main, and now the only surviving

reason is that the CATS Transportation Facilities were not "available to perform the

Transportation Service" within the meaning of condition (c) on 1 April 1993 or

thereafter.

6. On 6 March 1995 the CATS Parties commenced proceedings claiming a declaration that

TGTL was liable to make send-or-pay payments from 1 April 1993 and payment of arrears.

They commenced separate proceedings against ICI and Enron as guarantors. After 1 April

1996 TGTL amended its defence to claim that not only was it not liable for any send-or-

pay payments but that it was also entitled to cancel the whole agreement. This was

because clause 2.4 (a) provided that if the Commencement Date had not occurred on or

before 1 April 1996, TGTL should have the right to terminate. By the time the case came to

trial, this date had passed and TGTL was claiming that there had not yet been a

Commencement Date. The GSAs contained provisions which entitled Enron indirectly to

terminate them if the CRTA came to an end. In separate proceedings tried with this action,

Enron claimed to have exercised these rights as well.

7. When the action came before Langley J, TGTL was contending that there were four reasons

why condition (c) had not been satisfied. First, the designated re-delivery point at Teeside had

not been constructed. Secondly, the entry point at which TGTL proposed to tie in its pipeline

from the J-Block fields was not in a fit state to receive it. Thirdly, the specification of the

Everest/Lomond gas passing through the system, and with which TGTL's gas (if they had

been delivering any) would have been commingled, meant that the CATS Parties would not



have been able to redeliver TGTL's gas at the appropriate specification. Fourthly, there would

have been too much mercury in the gas. Langley J heard evidence and argument on

these matters over 38 days and in what the Court of Appeal rightly described as a

masterly judgment, dismissed them all. He held on the facts that none of the alleged

defects could be said to have made the Transportation Facilities "unavailable" to

provide the Transportation Service.

8. My Lords, the decision of the Court of Appeal was mistaken both in construing the Agreement

as if it was a 'press button' contract and in failing to give effect to the judge's findings of fact.

9. 60. Finally, I should mention cl.7.5. This was of the nature of an off-hire clause. The

respondents argued that it lent support to their submitted construction of the Commencement

Date definition. I consider that it had an opposite effect. Cl.7.5 provided the respondents with

a measure of protection after they had started to make the 'send-or-pay' payments; it was

thus adverse to their submission that unexpressed implications needed to be read into the

definition. On their substantive argument, the respondents fared no better. Cl.7.5 is drafted by

reference to the phrase "unable or fail to redeliver". This phrase, on any view, raises the same

considerations as I have discussed earlier. The respondents' case fails for the same reasons

of law and fact. But there was a further difficulty for the respondents in relation to the use of

the word "fail" in cl.7.5. It is not necessary to express a concluded view but it is probable that

"fail" is used in this clause in a more restricted sense as is shown by 7.5.(b)(i)(C). However,

the respondents simply have not got the findings of fact to enable them to succeed on any

reading of cl.7.5.

10. For these reasons and those given by my noble and learned friends, I would allow these

appeals and make the orders proposed.


a) Review the notice when served and conduct an audit of all the events which must be

triggered and which should have been completed before the Notice is served.

b) Ensure there is a provision for exit if the unexpected adversity continues beyond a certain

tolerable period.

c) If a specific technical criterion has to be achieved before acceptance of the plant, then it must

be separately defined in the Contract. The commercial words can not be negated by using

technical deficiencies as defense.

Questions

1. Why Teeside objected after payment of ₤45m?

2. Which other definitions of the terms in the Contract could have been included in the GTA?



Case – 3: Informal Agreement executed over a period of time is a Valid Contract

Masjaya Trading Sdn.Bhd

vs.

Kedah Cement Sdn. Bhd - K-02-542-1997 [2004] MYCA 22 (31 May 2004)

Facts and background

1. The defendant manufactures cement in Pulau Langkawi. It had to get its cement from its

factory and onto ships that called at the jetty at Telok Ewa for onward carriage. In 1984 it

engaged the plaintiff to transport the cement. It was an informal arrangement. In 1985, the

arrangement was formalised. The defendant entered into three written contracts with the

plaintiff. These are dated 2 October 1985, 16 November 1985 and 9 January 1986. Save for

the rate of the charges, all three contracts contain almost the same terms. For the present,

nothing turns on any difference between their contents. But there are some significant

features about the contractual relations as well as the surrounding circumstances that require

mention.

2. First, the plaintiff undertook the principal obligation of packing, stacking and transporting the

manufactured cement from the defendant’s factory to the loading main and jetty at Telok Ewa

and to load it onto vessels. Second, the plaintiff was to provide qualified and experienced

workers to perform its primary obligation. Third, the plaintiff was to provide 8 lorries to

transport the defendant’s cement from the factory to the jetty. Fourth, the contracts did not

provide the period during which they were to remain in force. Fifth, none of the contracts

contained any provision for their termination. Sixth, the contracts did not provide the

mechanism by which they were to be performed. However, the learned judge found as a fact –

a finding which we accept as entirely accurate – that although there was no term to that effect,

a practice was established whereby the defendant would inform the plaintiff each time a ship

called at Telok Ewa. The plaintiff would then send its lorries and its workers to the defendant’s

factory to carry out its task of packing, stacking and transporting the cement to the jetty.

Seventh, there is evidence that from time to time the defendant complained to the plaintiff about

the quality of the latter’s service. But nothing came out of it. Despite making complaints, the

defendant entered into each of the successive three contracts.

3. Aalthough the defendant in September 1986 gave notices to terminate the contracts; it

withdrew these when challenged by the plaintiff.

4. The contractual relationship continued until late December 1986. At that point in time, when a

vessel called at the jetty, the defendant failed to inform the plaintiff in the usual way. Instead, it

engaged another transporter to provide it the identical service that it had engaged the plaintiff to

perform. The defendant took the position that it had opened to tender the services it required

and that some other transporter had successfully bid for that tender.

5. The plaintiff treated the defendant’s act as a wrongful repudiation and brought an action for

breach of contract.



6. The main – and indeed the only – plank of the plaintiff’s case was that it was a term of the

contracts that it had the exclusive right to pack, stack and transport the defendant’s cement. It

was therefore not lawfully open to the defendant to engage another transporter. The contracts

did not contain an express term to that effect. But the plaintiff’s argued that such a term ought

to be implied. The plaintiff also argued that the contracts were permanent and could not be

terminated save by mutual consent. The learned judge rejected both arguments. He found for

the defendant and dismissed the claim. The plaintiff then appealed to this Court.

…… Further extracts

7. In the present case, we feel the learned judge, with respect, fell into error by adopting too rigid,

too straight jacketed a view of the case.

8. There is no doubt in our minds whatsoever that if he had adopted a more liberal, a broad-

brush, approach to the facts he would have seen at once that this was a case in which the

parties conducted themselves in such a way towards each other as to show that they did intend

the plaintiff to have an exclusive contract. Accordingly, in our opinion, the defendant was, on

this alternative basis, guilty of breach of contract for reneging on the term as to exclusivity that

had become introduced into the contracts by its conduct.

9. Mr. Lazar submits that we ought not to permit the plaintiff to succeed on the footing of estoppel

because it was not pleaded. It is true that the plaintiff’s pleaded case does not expressly raise

estoppel. However, all the facts relevant facts on which an estoppel may arise were pleaded.

That is sufficient. An express plea is not necessary: Boustead Trading (1985) Sdn Bhd v

Arab-Malaysian Merchant Bank Bhd; Lever Bros Ltd v Bell [1931] 1 KB 557, per Scrutton

LJ at pp 582–583. It was therefore open to the learned judge to find for the plaintiff on the

basis of estoppel. He did not. We must.

-------- Further Extracts

10. Before we conclude, there is one observation of some importance we wish to make. This

case illustrates the danger of dealing with issues of law in watertight compartments

without regard to particular facts. It also illustrates the danger of treating judicial

guidelines laid down from time to time for the purpose of determining contractual intention

as if they are words in an Act of Parliament. They are not. Whenever contractual

intention is in issue, there is no substitute for a meticulous examination of the facts.

Conclusion

11. For the reasons already given, this appeal was allowed. Judgment was entered for the

plaintiff as prayed for in its statement of claim. The suit was then remitted to the Senior

Assistant Registrar of the High Court to assess the damages sustained by the plaintiff by

reason of the defendant’s breach of contract. Other orders that are usually consequent

upon a successful appeal were also made.




a) Unwritten practices taken for granted during repeated Contracts can be held as implied terms

of the Contract.

b) It is essential before taking any action against the other party; a notice must be served of the

intended action.

c) Repeated default notices or complaints of quality or service or delays but no action taken by

the innocent party against the defaulting party, implies acceptance.

Questions

1. What happens when termination clause is not included in the Contract?

2. What are the consequences when period or duration of service agreement in not stated?

3. Are there any agreements which continue in perpetuity?



Case – 4: Who to sue for damage to piers, registered Ship owner or Bareboat Charterer?

BP Exploration Operating Co Ltd. v. Chevron Transport (Scotland) [2001] UKHL 50 (18th October, 2001)

Facts and Background

1. On 28 February 1990 the vessel Chevron North America berthed at the Sullom Voe terminal

in Shetland for the purpose of loading crude oil from the terminal into her cargo tanks. The

terminal is owned and operated by BP Exploration Operating Co Ltd ("BP"), who are the

appellants in these appeals. BP aver that the following day the average wind speed increased

to about 40 knots with gusts up to 62 knots as the weather conditions deteriorated, and that

the four loading arms on the jetty to which the vessel was attached sustained irreparable

damage when the vessel's mooring winches rendered and she moved off the berth. They say

that each of the loading arms required to be replaced at a total cost for parts of about £1m

and that the removal of the existing loading arms and the installation of the new ones cost

about £1.5m. They also say that they incurred interest and finance charges, loss of

management time and associated expenditure for the period during which the jetty was out of

operation amounting to about £0.5m. Following upon this incident BP raised the three

separate actions of damages which are now before your Lordships' House in these appeals.

2. On 21 February 1995 BP raised their first action against Chevron Shipping Co ("Shipping"), a

corporation formed under the laws of California. Shipping are designed in the instance of the

summons as the owners of the vessel Chevron North America. In article 1 of the

condescendence it is averred that Shipping are the owners, managers and operators of the

vessel, that the master was employed by them and that he was acting for them and on their

behalf at the time of the incident. These averments were at first admitted by Shipping in their

defences, but on 12 June 1995 they withdrew these admissions. BP say that their solicitors

were then told by Chevron's solicitors that the vessel was owned by Chevron Tankers

(Bermuda) Ltd ("Tankers"), a company incorporated under the laws of Bermuda. In response

to this change of position BP introduced averments into this action to the effect that Shipping

are personally barred from asserting that they are not the owners of the vessel and do not

bear responsibility for its on-board equipment and its operations and crew.

3. On 16 June 1995 BP raised their second action against Tankers. They aver that Tankers are,

or any rate at the time of the incident were, the owners of the vessel, that the master was

employed by them and that he was acting for and on their behalf at that time. On 18 August

1995 Tankers lodged defences to this action in which they admit that they are the owners of

the vessel. But they aver that at the time of the incident she was the subject of a bareboat

charterparty in terms of which the charterers were Chevron Transport Corporation

("Transport"), a company incorporated under the laws of Liberia. They also claim that any



obligation on their part to make reparation to BP has prescribed in terms of section 6 of the

Prescription and Limitation (Scotland) Act 1973 as the action was raised against them after

the expiration of the prescriptive period of five years.

4. On 28 September 1995 BP raised their third action against Transport. They aver that

Transport were at all material times the bareboat charterers of the vessel, that the master was

employed by them and that he was acting for them and on their behalf at the time of the

incident. In their defences to this action Transport admit that they were the bareboat

charterers of the vessel, that the master was employed by them and that he was acting on

their behalf. But they too claim that any obligation on their part to make reparation to BP has

prescribed in terms of section 6 of the 1973 Act as the action was raised against them after

the expiration of the prescriptive period.

5. Each of these three actions contains three separate grounds of fault, and each of them

contains three separate grounds on which BP claim that they have a title to sue for the loss

and damage. BP's first case of fault is that the accident was caused by the defenders' breach

of their contract with them as the operators of the terminal. Their second case of fault is that it

was caused by the defenders' negligence and that of the master for whose actions they were

responsible. They aver that they have a title to sue both for breach of contract and on the

ground of negligence in their capacity as the operators of the terminal, and that all the other

participants in the terminal have assigned their rights to them in respect of the loss and

damage. BP also aver that the jetty to which the loading arms were attached was constructed

on land owned by the Crown Estates Commissioners and leased to Shetland Islands Council

by whom their respective rights of action, if any, to sue for the loss and damage caused to

their property have been assigned to them. BP's third case of fault is that the loading arms

formed part of the property of Shetland Islands Council as the harbour authority, that the

defenders are liable under section 74 of the Harbours, Docks, and Piers Clauses Act 1847

(10 & 11 Vict c 27) and that the harbour authority's right to payment under this provision has

also been assigned to them.

6. In the courts below all three defenders were represented by the same counsel. Although the

actions have not been formally conjoined, it was envisaged that in the event of a proof being

allowed in more than one action they would be heard together. But the defenders submitted to

the Lord Ordinary that Tankers and Transport should be assoilzied from the claims made

against them on the ground that any rights against them had prescribed. They submitted that

BP's averments of personal bar against Shipping were irrelevant and that, as this was the

only basis upon which Shipping were said to be liable as owners of the vessel, the action

against Shipping should be dismissed. They also submitted that BP's averments in support of

their claims in each action that the defenders were liable for breach of contract and in

negligence were irrelevant. With regard to the claims made in each action based on section

74 of the 1847 Act, they submitted that the averments in support of the cases against

Shipping and Tankers on this ground too were irrelevant as the vessel was subject to a

demise charter to Transport at the time of the incident.



7. The Lord Ordinary (Dawson) 2000 SLT 201 allowed a proof before answer in all three actions.

After hearing reclaiming motions for the defenders in each action the First Division (the Lord

President (Rodger) and Lords Sutherland and Cowie) 2000 SLT 1374 recalled the Lord

Ordinary's interlocutors. The Lord President, who delivered the opinion of the court, dealt with

the issues which were argued in the Inner House in the following order: (1) the plea relating to

prescription in the action against Transport; (2) the plea relating to prescription in the action

against Tankers; (3) the plea of personal bar in the action against Shipping; (4) the averments

about the employment of the master in the actions against Shipping and Tankers; (5) the

averments as to breach of contract and delict in the actions against Shipping and Tankers;

and (6) the statutory case made against Shipping and Tankers under section 74 of the 1847

Act. The court sustained the plea of prescription in the action against Transport and

dismissed that action. It also held that the statutory case made under section 74 of the 1847

Act in the actions against Shipping and Tankers was irrelevant, and the averments in support

of it were excluded from probation. All the other issues raised in regard to these two actions

were allowed to go to proof before answer.

Appeal Outcome

“ As to the point of general importance raised on section 74 of the Harbours, Docks and Piers Clauses

Act 1847 it is apparent that the "owner" of a vessel in different statutory contexts can, as the

authorities cited to your Lordships show, sometimes include or mean a demise charterer. It seemed to

me however clear on the submissions of Mr Campbell QC (and the speech of my noble and learned

friend Lord Hobhouse of Woodborough makes it abundantly clear) that in section 74 of that Act

"owner" has its natural meaning of the registered owner. Any other construction defeats the purpose

of seeking to provide a clear-cut method of recovery without proof of negligence on the part of the

owner whilst maintaining a claim in negligence against the master or person having charge of the

vessel which does damage to the harbour or docks. On this point I accordingly differ from the opinion

of the Inner House and I would allow the appeal on this point in the action against Transport.”


a) Before engaging the legal counsel, make sure the counsel and not only the law firm is

experienced in maritime collision disputes.

b) Act fast and be aware of the “Time Limitation Acts”.

Questions

1. Why BP has to sue three companies and for three different charges?



Case – 5: EPC Services Contract Liability

ConocoPhillips Petroleum Company UK Limited (formerly Phillips Petroleum Company

United Kingdom Limited) Claimant

-and-

(1) Snamprogetti Limited

(2) Snamprogetti International S.A. Defendants

Introduction

1. This claim relates to a gas rig in the Hewett field in the North Sea. The claimant, which I shall call

Phillips, bore the name Phillips Petroleum Company United Kingdom Limited at the start of these

proceedings. On 28th November 2002 it changed its name to ConocoPhillips Petroleum Company

UK Limited. The first defendant, Snamprogetti Limited, which I shall call Snamprogetti, is a

company that carries out engineering design. The second defendant, Snamprogetti International

S.A., is sued as guarantor of the liabilities of the first defendant.

2. Snamprogetti undertook with Phillips to provide engineering services, including specification of

equipment, for the introduction of offshore compression facilities for gas from wells known as Upper

Bunter wells. Those facilities were to be installed on an existing platform in the North Sea known as

platform 52/5A. The contract in question is dated 6th July 1994 and is known as contract UK 0601.

The claim is for damages for breach of that contract, plus a small sum said to be due under it. As

originally pleaded, the claim for damages was quantified at £5,394,747. By an amendment made

shortly before the start of the hearing, the claim was particularized at £3,405,702.58.

3. Phillips shared the expenses of and revenue from the production and sale of gas from the Hewett

field with six other companies owning rights to the gas in the field. Those companies have been

called the co-venturers. Phillips had (by a small margin) the largest share in the co-venture. Under

an agreement with them entitled the Unit Operating Agreement Phillips was designated as Unit

Operator. The Unit Operator was required under that agreement to pay all unit expenses and was

entitled to reimbursement from each co-venturer in proportion to its participation in the co-venture.

For the incurring of large expenses, Phillips required the specific authority of the co-venturers.

4. The purpose of the new compression facilities on platform 52/5A was to extract gas from the Upper

Bunter wells at a greater rate than would otherwise be possible, in order to meet maximum

demands for gas in some of the winter months. Platform 52/5A also received gas from wells known

as Zechstein wells. Those wells contained gas at a high pressure, enabling it to flow at sufficient

rates without further compression on that platform. The Upper Bunter gas was described as sour

gas (in contradistinction to sweet gas) because it contained traces of hydrogen sulphide.



5. There was a 24-inch diameter undersea pipeline, known as the sea line or the H line, from 52/5A to

another platform, 48/29, known as the field terminal platform. Lines from other wells in the Hewett

field converged at that platform. A compressor known as the alpha compressor was situated on the

field terminal platform. The compression facilities on the field terminal platform had been designed

by Snamprogetti. There were two 30-inch lines, the A line and the B line, from the field terminal

platform to an onshore terminal at Bacton, in Norfolk. The A line was reserved for sweet gas, i.e

gas containing no sour gas. The gas from the A and B lines was commingled at Bacton. At Bacton

the gas was compressed to a pressure of some 1000 pounds per square inch (psi) for delivery to

British Gas. Snamprogetti was also carrying out work in relation to the facilities at Bacton. There

was at one time a proposal, not implemented, for ‘offshore commingling’. That proposal was to

allow the A line also to be used for gas containing sour gas.

6. The following is an outline of the works that the compression project involved. The Upper Bunter

gas was compressed by a centrifugal compressor, which I call the main compressor. The main

compressor was driven by a gas turbine co-axial with it. The fuel for the gas turbine was Zechstein

gas. Before being fed to the gas turbine, that fuel was compressed by a reciprocating compressor. I

call that compressor the fuel gas compressor. The main compressor and turbine and associated

pipework were assembled on a skid offshore. The fuel gas compressor and its associated pipework

were assembled offshore on another skid. The skids were then fitted to the 52/5A platform, the fuel

gas compressor skid being borne by the main compressor skid. Other pipework, connections,

gauges and so on were fitted on the platform. The offshore work was carried out by a contractor,

AMEC Process and Energy Limited (“AMEC”).

7. During the course of commissioning, in April 1996, the works were stopped by Phillips. At the end

of May 1996 a hazard and operability review (“HAZOP”) was carried out. Such a review is a normal

part of the procedure to verify the safety and integrity of a process design. Snamprogetti had

carried out two such reviews in the course of the detailed design of the 52/5A compression

facilities. But this one was ordered specially by Phillips. It was conducted under an independent

chairman by Baker Jardine and Associates Limited. Representatives of Phillips and of

Snamprogetti attended. It made a number of recommendations concerning the compression

facilities. Following the Baker Jardine HAZOP Phillips decided to carry out extensive works on the

compression facilities. Phillips required, and obtained, authorization from the co-venturers for the

necessary expenditure. Those works were carried out by a contractor known as KYE Limited

(“KYE”). With the object of ensuring that those facilities would be in commission by the end of

October 1996, Phillips decided to use a support vessel, Seafox by name, to enable the work to

proceed as quickly as possible. A substantial part of the damages claim is for the costs of hiring

Seafox.



What quality of work on the part of the defendant did the contract demand?

9. By the contract, Snamprogetti undertook among other things to carry out preliminary engineering,

including review of the design basis memorandum. It undertook the preparation of specifications

and drawings, and to prepare all detailed design drawings. It undertook to provide procurement

services, including invitations to bid and technical and commercial evaluations of bids, and to

inspect equipment and materials supplied by vendors. It undertook to review factory witnessed test

procedures and to verify the acceptability of those tests. The contract contained a long list of

services to be undertaken by Snamprogetti, of which the foregoing is a short extract.

3.2 The Contractor shall be wholly and exclusively responsible for all design and

procurement requirements for the successful completion of the Work and such responsibility

shall not be affected or diminished by any inaccuracy or insufficiency in the Scope of Work or

in the Design Basis Memorandum.

3.3 The Contractor confirms that prior to Contract Award it has verified the accuracy of the

Scope of Work and the Design Basis Memorandum and subject to Clause 3.4, the Contractor

shall be liable for any errors or omissions therein, which an experienced contractor should

have been aware of and the Contractor shall not be entitled to Change Request under clause

22.

3.4 The Company shall not be liable for any inaccuracy or insufficiency in the information

available or used by the Contractor which affects the performance of the Work except in the

event that and insofar as such information is supplied by the Company under this contract

and it is practicable for the Contractor to check such information and the Contractor is not

required to check such information.

3.5 In performing the Work the Contractor shall observe and exercise the standards of skill,

care and diligence adhered to by recognised first class contractors performing work of a

similar nature.

3.6 The Contractor warrants that it has the required skills and capacity to perform, and that it

shall perform the Work in a professional manner utilizing sound engineering and management

procedures in accordance with all applicable Regulations, accepted industry practices and in

accordance with the provisions of the Scope of Work and the Design Basis Memorandum.

………………………… Further Extracts



Claim against the second defendant

610. There was a claim against Snamprogetti International S.A. under a guarantee dated 28th

February 1994. The claim was for £5,394,747.42, or alternatively £4,032,612 plus an unquantified

element not exceeding £75,000, or alternatively such sum as Snamprogetti was liable for in

damages to Phillips. There was a dispute about the construction of the guarantee. But it was

conceded that the liability of the second defendant did not exceed that of the first defendant.

611. Since I have found a net sum to be due to the first defendant, there is no liability on the second

defendant.

Decision

612. I find the loss to be £97,052. The damages under the claim will be 72.65225 per cent. of that

amount, i.e. £70,510. The sum due under the counterclaim is £250,455. There will be judgment in

favour of Snamprogetti for the balance, £179,945. The claim against the second defendant is

dismissed.


Please discuss in your groups and list at least five lessons learned.

Questions

Please list questions which you may have based on the background of this case



Brief Notes on Latest Marine & Offshore Cases (Source: REED SMITH RICHARDS BUTLER LLP)

LIABILITY UNDER GUARANTEE In Kellogg Brown & Root Inc v (1) Concordia Maritime Ag (2) Stena Bulk AB (3) Concordia

Maritime AB (4) Northern Marine Management USA LLC (Formerly Universe Tankships

(Delaware) LLC) – Lawtel 4.1.07

1. The Claimant claimed that the first Defendant was liable for certain costs under a guarantee

relating to the sale of a very large capacity carrier for conversion into a floating production

storage and offtake vessel.

2. The agreement for sale of the vessel was on amended Norwegian Sale Form terms.

3. The agreement provided that the extent of steel to be renewed in the conversion yard to meet

the Petrobras specifications was to be capped at a cost to the buyer of 150 tonnes and that

any additional steel required would be for seller's account.

4. The Claimant claimed that it had been required to renew substantially in excess of 150 tonnes

in order to meet the applicable Petrobras specifications and that the Defendant was liable

under the guarantee for the cost of all steel replacement in excess of the initial 150 tonnes.

5. The Defendant's case was that much of the replacement steel was required because the

Claimant misunderstood or misapplied the Petrobras specifications.

6. The Claimant also made claims of negligent misstatement and collateral warranty based on

certain statements allegedly made by other defendants associated with the Defendant during

the negotiations leading up to the sale agreement.

7. There was a dispute about the meaning of "original plate thickness" in the Petrobras

specifications.

8. The Commercial Court held that none of the Defendants were liable to the Claimant for

negligent misstatement. Any representations had been made on behalf of the relevant seller

company.

9. The Defendants did not voluntarily assume a duty of care and did not assume or undertake

responsibility to the Claimant, applying an objective test.

10. The contractual context and the opportunity to secure contractual safeguards militated against

any duty of care on the part of the Defendants.

11. As to collateral warranty, the parties did not intend that any pre-contractual statement would

have contractual effect.

12. It held that Petrobras took a conservative approach to bottom pitting repairs. To construe

"original plate thickness" as meaning "as built thickness" would reflect a more conservative

approach. That was the correct construction in the circumstances.



13. It was consistent with the specifications and the ordinary meaning of the word "original". The

reference thickness was not changed following a technical query by the Claimant. It had not

been unreasonable and/or unfair and/or negligent of the Claimant to fail to agree less onerous

criteria with Petrobras before the Claimant had in fact done so.

14. The Claimant was entitled to recover from the First Defendant in respect of the plate replaced

at a first dry docking and did not act unreasonably and/or unfairly and/or negligently in failing

to defer carrying out any renewals at the first dry docking until the plate had been re-

inspected.

15. The Claimant acted reasonably in proceeding with a second dry docking based on the first

inspection.

16. The quantity of steel renewals that could be recovered under the guarantee after taking

account of the requirements of the vessel's classification society was 1,200 tonnes.

17. It also held that there was no implied term that to the extent that any concession to the

Petrobras specifications was obtained which increased the Claimant's own costs of

completing the work, that additional cost would be recoverable under clause 4.1 of the

agreement.

***********