Question

In 500 words discuss what a party must do in order to be able to rely on an exclusion clause.

Answer 1

An exclusion helps a party have a waiver from all technical and financial liability in certain conditions that may arise during or after the execution of a contract. Thus it is a term in a contract which seeks to exclude or limit the liability of one of its parties. So that a party can rely on an exclusion clause, the clause must be comprehensive in its coverage of all exceptional cases that might arise before commencement, during execution or after conclusion of the contract that may unjustly put technical or financial liability upon the party leading to financial penalties, fines or partial or complete rework at no extra cost to the other party. For benefit of clarity we shall call the party seeking exclusion clause as Party A. Thus so that the exclusion clause developed as a part of contract's terms and conditions is comprehensive in coverage of all eventualities it must account for:

1. Scope of Work: The scope of work in contract must be fixed before execution of contract begins. In-case during the execution phase there is a change in scope of work Party A should be liable for additional payment as well as additional amount of time to be able to complete the work. In-case this is not defined at the stage of writing of contract it may lead to the Party B forcing additional work at no additional cost upon Party A. To keep the exclusion clause relevant it must also be defined within the scope of work as to what shall be the method of change of scope of work. In-case a change post commencement of execution brings about a windfall change in the quality of output then the exclusion clause must account for change in quality of output as acceptable to Party B. If this is not mentioned then Party B may force Party A to deliver determined quality of work even after change of scope which has mutually not been agreed upon. Thus exclusion clause must imbibe sufficient flexibility for change in scope of work with respect to cost time and quality.

2. Force Majeure Condition - force majeure conditions are situations when events like civil disturbance like riots, wars, local resistance, protest to projects; natural calamities like floods, earthquake, rains and so on delay the execution of work and Party A is unable to complete work on time as a result of force majeure conditions. If force majeure conditions are not mentioned in exclusion clause then irrespective of any of the force majeure conditions Party B may force upon Party A, the completion of work as per the original terms and conditions of contract within the stipulated timelines which may not be possible and as a result, Party A may attract liquidated damages penalties with no fault of its own. The exclusion clause therefore must include force majeure conditions and consequent waiver from performance timelines for Party A.

3. Transportation - Transportation related delays are sometimes a feature of execution of contract. the supply items required in the execution of contract get delayed as a result of shipping off items especially those items which exchange hands more than once from factory works to loading to local transport, local transport to international shipping, to customs clearance, to local transport up to site, unloading of supplies at site and so on. Since three to four parties are involved in transportation arrangements specially in case of international shipping of supplies in the execution of a contract there can be delays which are not directly attributable to Party A. Also delays may happen at custom clearance junctions where arrival of paperwork work and clearances take time. As a result in case of inordinate delay in these procedures Party A may stand liable for or delays if the same are not a part of the exclusion clause. Therefore an exclusion clause in a contract must also account for delays with respect to transportation and legal clearances at international and regional borders as applicable.

4. Miscellaneous / Procedural Delays - Many times in the execution of a contract, there are activities which are a linear progression of completion of one task buy Party B or its affiliates followed by completion of successive task by Party A. Such as design of an equipment which is done by Party B and the approved design is handed over to Party A fore execution. If there is inordinate delay in furnishing of designs then it can lead to delay in your product or project development by Party A. Therefore exclusion clause must account for this kind of delay as a condition for waiver from any kind of liability. Another such instance can be provision of right of usage of project area or material that would have to be provided by Party B so that Party A can commence work. In case there is delay in provision of this area under right of usage it can delay the project. Therefore exclusion clause must cover for this kind of delay. One more instance in miscellaneous or procedural delays can be delays in external audits. Any work undertaken by Party A is subject to periodic audits buy Party B or any of its affiliates. Thus external audits must be done as per the conditions of contract and clearances must be given from time to time to Party A to continue to execute the work until completion. Delay in these kinds of clearances can lead to slippage in eventual timelines of project. Therefore exclusion clause must also account for this kind of work which is not in scope of Party A but Party B.

5. Performance Guarantee - any contract has a performance guarantee term in built into the service life of project/ product. An exclusion clause must account for no additional responsibility on part of Party A beyond the performance guarantee period of the product or service that has been delivered as a part of the contract.

Therefore an exclusion clause in view of above characteristics would look like "Party A shall not be liable for any kind of financial penalties, fines or technical work arising as a result of reasons not attributable to Party A. Thus delays as a result of change of scope of work post finalization of contract, force majeure conditions, delays in shipping, delays in legal clearances like customs and road permits that may be required from time to time during execution of project and other procedural delays that are not directly attributable to Party A shall not bring about any kind of financial liability or technical re work responsibility upon party a during the execution of contract and after the completion and verification of contract to specification post the performance guarantee period".

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