documenting major projects – some wildcard issues · documenting major projects – some wildcard...

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Documenting Major Projects –Some Wildcard Issues

Stephen Webb, Dan Brown and Kate PapailiouThursday 7 March 2013

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Agenda

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Governing law and dispute forum

'Innocuous' boilerplate clauses

Force majeure

Liability regimes

Default and termination

DOCUMENTING MAJOR PROJECTS 7 March 2013

Governing law and dispute forum

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Tactics in contract negotiation phase

English v. New York v. Australian v. local law

Foreign enforceability of arbitration awards v. court

judgments (New York Convention v. Hague Convention)

Chinese contractors / suppliers and PRC or Hong Kong

law performance bonds

Joinder of disputes in connected contracts

DOCUMENTING MAJOR PROJECTS 7 March 2013

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Boilerplate - good faith

Scenario

MoUs to establish framework for negotiation and definitive agreements

Essentially non-binding except for good faith obligation

Issues

Delay, uncertainty and loss of momentum

Approach

Consider whether to include or not in MoUs / Heads of Agreement

Exclude – either expressly or by reserving complete discretion

Define or identify things which not bad faith (particularly long-term contracts)

UK governing law – express obligation to negotiate in good faith unenforceable;limited duty re exercise of powers (not objective reasonableness)

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Boilerplate - conditions precedent

Scenario

Various CPs to financial close / completion

Each party to use reasonable endeavours to satisfy

CPs include approvals, FIRB, feasibility studies, signing other agreements

Issues

Reservation of discretion within CPs

Reasonable endeavours obligation to satisfy

For whose benefit and who has to satisfy

Approach

Consider need for absolute discretion

Define limits of reasonable endeavours:

not applicable to discretional CPs

must a party agree to conditions or assume obligations / liability?

Identify for whose benefit


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Force Majeure

Scenario

Power Project

Fuel Supply Agreement

Issues

Dealing with aftermath of FM

Substitute performance / solesource

Impact of commercial decisions/ curtailment


Force Majeure


Issue Owner Approach

Dealing with aftermath of FM • Ensure that FM provisions deal with aftermath of event• If you require supplier to make up for failure to supply during

FM – ensure Contract says so• If you do not want to accept supply when your operations are

affected by FM – ensure Contract says so• If you do address aftermath – is this consistent with other

mechanisms

Substitute performance / solesourcing

• Counterparties should not be excused from performancebecause subcontractor / supplier suffers FM

• Reasonable endeavours to comply with affected obligation• Source from third parties (where commercially reasonable)

Impact of commercial decisions /curtailment

• Allocation of partial supply - pro-rata, chronologically or inaccordance with industry practices

• Contract must be clear about process in these circumstances

Consistency of FM regimes acrossProject documents

• Ensure FM arrangements are consistent• Narrower relief through downstream documents• Express right to FM relief if FM occurs under upstream

documents

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Liability

Scenario

Power Project

EPC Contract

Issues

Consequential loss

Gross negligence


Liability


Consequential loss exclusion • Consequential loss has quite a broad definition inAustralia – everything that is not the "normalmeasure"

• Prudent to expressly agree what losses are notconsequential losses

• Include all loss / liability expressly set out inContract (ie: loss arising from damage caused bydefects)

• Include all loss / liability arising under other Projectdocuments due to contractor's act, omission,breach or default

Liability for gross negligence • Common law meaning not clear – so define it• Ideally – low threshold (ie: close to negligence)• Seeing more disputes based on Contractor's

alleged gross negligence


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Default and termination



Events of default Whether to codify termination regime Ability to terminate where LD or liability cap reached Deemed repudiation - protect loss of bargain damages

Termination forconvenience

Preserve absolute discretion and without liability Ensure triggered for ineffective termination for cause Payment – work to date and reasonable direct costs Termination payment is sole remedy Include power to de-scope or move work elsewhere

Financiers' rights Obligation to enter into financier tripartite

Consequences Rights to set-off and call on security Transition arrangements (training / spares / cooperation) Rights to IP Novation of key subcontracts Payment of termination compensation

Other topics?

Balance sheet and credit agency treatment of counterpartydebt e.g. PPAs and GSAs

Prevention principle under (usually) construction contracts -the ease of invalidating LDs

Joinder of disputes across multiple or interlinked contracts

Tax splitting of construction and supply contracts

Change of control


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Questions?


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