Articles and Publications – Page 16

Anti-Indemnity Statutes: A Threat to Limitation of Liability Clauses?

Dec 01 2007

By K&L Gates attorneys Richard F. Paciaroni and Janet M. Serafin

Limitation of liability clauses are frequently relied upon in design and/or construction contracts to manage risk by limiting the damages recoverable from contractors and design professionals. Historically, these clauses have generally been upheld, particularly when the contracting parties are both sophisticated entities. However, a growing concern over the trend of design professionals requiring contracting partners to indemnify them, despite the former’s own negligence, caused most states to adopt anti-indemnity statutes. What remains somewhat uncertain is how these anti-indemnity laws affect the enforceability of limitation of liability clauses. Two recent cases have invalidated a limitation of liability clause under the relevant anti-indemnity statute. While these cases still represent the minority view, they beg the question of the prudence of continued reliance on such clauses, particularly in jurisdictions which have not yet ruled on the issue.

Allocation of Risk in Today’s Non-Residential Construction Marketplace

Dec 01 2007

By K&L Gates attorneys John R. Dingess and Kari M. Horner

In December 2006, the Connecticut Department of Transportation (“ConnDOT”) was surprised by the lack of contractor response to its request for proposals for a $400-million plus, seven-year project to build a ten-lane bridge replacement for the Pearl Harbor Memorial Bridge on Interstate 95. Not a single contractor bid on the project.

Contractors were likely hesitant to build on the Pearl Harbor Memorial Bridge project because of uncertainties and difficulties in predicting labor and material costs for a seven-year project. One surety commented that the length of the project also contributed to the "risk profile" of the project. Another deterrent was the fact that the contract terms placed most of the risk on contractors, while also imposing high liquidated damages for failing to meet milestones. In response to the lack of bids, ConnDOT may break up the project or re-allocate the risk to lessen the risk burden on the contractors.

The Termination for Convenience Clause: A Powerful Weapon in Contractual Disputes

Dec 01 2007

By K&L Gates partner Jason L. Richey

Imagine a contractor who has done an outstanding job of building a magnificent skyscraper in the heart of one of the world’s largest cities. The skyscraper is 65% complete, expected to be finished on time and within budget. The contractor has not defaulted, and proudly touts that this construction project will be the centerpiece of the company’s accomplishments. Suddenly, the owner of the project notifies the contractor that it has been terminated from the job for the owner’s convenience. To complete the skyscraper, the owner replaces the contractor with one of its competitors. Can the owner unilaterally terminate the contractor even though the contractor was not in default? If so, what compensation is the contractor entitled to recover? The answer to these questions lies within the termination for convenience provision which has become increasingly common in private construction contracts.

Waiving Good-Bye to Consequential Damages: Drafting Effective Waivers in Today’s Marketplace

Dec 01 2007

By K&L Gates attorneys Jason L. Richey and William D. Wickard

Contractual provisions that mutually waive the rights of the owner and contractor to recover consequential damages have become common-place in today’s construction contracts. Effective waivers will expressly define the type of consequential damages the provision is intended to bar. Such a provision will allow courts and arbitration panels to dismiss all or part of a construction case at an early stage if the waiver clearly bars a demand for certain types of consequential damages. However, a broad consequential damages waiver that is improperly drafted may cause contractors and owners to expend significant time and money defending claims that seek damages for delay, lost profits or other damages commonly thought to only be “consequential.”

Contractual Indemnity Clauses In Construction Contracts

Dec 01 2007

By K&L Gates attorneys Timothy L. Pierce and R. Michael Viayra, Jr.

Express indemnity clauses are a common component in virtually all construction contracts, yet they are routinely included in such contracts without a full understanding of the risk transfer objectives of the parties or whether the indemnity clause fulfills those objectives. Indemnity clauses are risk transfer provisions whereby one party seeks to shift the risks of claims on a construction project down the line to the entity closer to the actual work. Typically such clauses transfer risk from the owner to the general contractor and subsequently to the subcontractors. This article examines the forms of indemnity clauses, issues often not specifically addressed in such clauses, jurisdictional limitations on indemnity provisions and the influence such clauses may have on additional insured coverage. Finally guidance is provided on ways to negotiate more effective indemnity clauses.

Allocating Risk In Today’s Marketplace: Tracking Trends in The Insurance Arena Affecting Contractors

Dec 01 2007

By K&L Gates attorneys Joseph L. Luciana, III and Thomas C. Ryan

Proper risk allocation is critical to the ultimate success of a construction project. And, the cornerstone of proper risk allocation for any construction project is a well-conceived and appropriately tailored insurance program. Too often, the concept of insurance remains an afterthought because contracting parties blindly rely on standard language in form agreements prepared earlier without fully investigating and understanding the current insurance market conditions. Moreover, most contractors do not want to consider the possibility of a disaster or another party’s failure to perform that may have project-wide implications.

Power of Court to Uphold Arbitral Award on Alternative Grounds

Oct 24 2007

CTI Group Inc. v. Transclear SA (The Mary Nour), 2007 WL 3001775, [2007] EWHC 2340 (Queen’s Bench Div., Commercial Court)

This case arose out of the non-delivery by the sellers of a quantity of cement. The sellers had argued that the contract had been frustrated by the actions of the Mexican cement cartel. The Tribunal held that the contract had been frustrated but, if they were wrong on that, the buyers had a valid claim for damages. The buyers appealed to the English High Court on the main finding of frustration of contract. The appeal succeeded, the High Court finding the wrong legal test for frustration had been applied.
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Court Intervenes Where Arbitrator Held Not to Have Power to Act Effectively

Oct 18 2007

Pacific Maritime (Asia) Ltd. v. Holystone Overseas Ltd., 2007 WL 2944844, [2007] EWHC 2319 (Queen’s Bench Div., Commercial Ct.)

Pacific sold an accommodation vessel to Holystone under an agreement which made special provision for the return of a block of accommodation or its equivalent to Pacific. Under s.44 of the Arbitration Act 1996 (the “Act”), and in advance of commencement of arbitration, Pacific applied for and obtained a freezing order on the grounds of Holystone’s failure to provide a replacement accommodation block. Arbitration then commenced and Holystone applied for the discharge of the freezing order partly on grounds that the arbitrator had jurisdiction to grant the relief Pacific wanted. Read More

Considerations in Exercise of Court’s Power to Grant Anti-Suit Injunction

Aug 08 2007

(1) Starlight Shipping Co. (2) Overseas Marine Enters. Inc. v. (1) Tai Ping Ins. Co. (2) Int’l Econ. & Trading Corp., Wugang Group, 2007 WL 2186944, [2007] EWHC 1893 (Queen’s Bench Div., Commercial Ct.)

In this case, the owner (Starlight) and the manager of a ship (Overseas) applied for an injunction restraining proceedings brought by the respondent insurer (Tai Ping) in the Maritime Court of Wuhan in China. Starlight had chartered its vessel subject to an arbitration agreement which was incorporated into a bill of lading to which a sub-charterer (Wugang) had then become a party. The ship and cargo were lost en route from Brazil to China. Tai Ping commenced proceedings for recovery of sums paid in indemnification of Wugang. Starlight and Overseas disputed jurisdiction of the Chinese court on grounds of breach of the arbitration agreement, and sought an injunction in the English Commercial Court in restraint of those proceedings. Tai Ping and Wugang argued that they were not bound by the arbitration agreement as a matter of Chinese law. Read More

Existence of Dispute for Purposes of Obtaining Stay of Judicial Proceedings

Aug 07 2007

Loon Energy, Inc. v. Integra Mining, 2007 WL 2139992, [2007] EWHC 1876 (Queen’s Bench Div., Commercial Ct.)

In this case, the court considered the application of s.9 of the Arbitration Act 1996 which requires it to stay its proceedings if the dispute before it is one falling within the scope of an arbitration clause. Loon sought and obtained specific declarations in relation to oil exploration rights under English law contracts. In the meantime, Integra launched arbitration in accordance with the terms of a Texas law confidentiality agreement into which the parties had entered prior to concluding the English law contracts. Loon amended its own claim for relief to include a declaration that the confidentiality agreement had been superseded. Integra sought to stay Loon’s application under s.9. Loon countered that at the time it issued its own claims there was no dispute in existence in relation to the confidentiality agreement and that therefore there was no obligation on the court under s.9. Read More

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