Contract: Sanctions. Force Majeure. Insurance

LIST OF WORDS

1. to be in force

2. a delay in delivery

3. force majeure/Act of God

4. to release the goods for shipment/documents

a release note for shipment

5. to reciprocate hospitality

6. a shipping specification

7. to be similar/up/equal to sample

8. a breach of contract

the non-breaching party

9. non-monetary relief

10. pecuniary compensation

11. expectation damages / “benefit of the bargain” damages

12. general/actual damages

13. liquidated/stipulated damages

14. reliance damages

15. restitution damages

16. special/consequential damages

17. punitive/exemplary damages

18. to indemnify

indemnification

19. a draft contract

20. a proposal form

21. the policy holder

22. uberrimae fidei

23. status quo ante

24. the foreseeability rule

25. to precede

the day preceding

Read the dialogue and answer the questions that follow. Find some proverbs and sayings and tell in what situations they are used in the dialogue. What are their Russian equivalents? Is it worth using proverbs and sayings at business talks? Why, why not?

Mr C: — Mr Cramer Mr B: — Mr Balashov

Mr C: –So one of the clauses for today is sanctions. If you don’t mind, I’ll begin. I looked through the draft contract again yesterday evening and have to point out the following: the Sanctions Clause says, “Should the delay in delivery exceed 4 months, the Buyers shall have the right to cancel the contract or its part”. I wouldn’t like to have any delays in deliveries at all, but if it happens, I can’t possibly sit on the fence doing nothing for four months.

Mr В.: –Whatever do you mean by “doing nothing”?

Mr C.: –I mean we need machinery, so I’d prefer having the right to cancel the order after two months of delay, which will enable us to urgently place our order elsewhere.

Mr В.: –I see. But that’s our usual provision. As long as I remember it has never come to the cancellation of the contract.

Mr C.: –The more so. Could you agree to this alteration?

Mr B.: –Well, Mr Cramer, if it's that important to you — if you insist.

Mr C.: –I do, Mr Balashov.

Mr B.: –All right. Anything else?

Mr C.: –Otherwise the clause looks OK to me. Now the Force Majeure Clause. It says: “If the above circumstances last over 6 months, each party shall have the right to cancel the Contract”. Again I’d ask you to make it 3 months instead of 6.

Mr В.: –I’m afraid, Mr Cramer, I can’t agree to that. It’s a fact. The limit of 3 months may sometimes be applied, let’s say, to commodities or various raw materials and the like. As to machinery and equipment it’s usually 6 months. Why do you object anyway? You’re trying to be overcautious. Aren’t you overdoing it a bit?

Mr C.: –A burnt child fears the fire, Mr Balashov.

Mr B.: – (smiling broadly) You’re no longer a child, Mr Cramer. And don’t be pessimistic. What’s the matter with you today? You need something to cheer yourself up.

Mr C.: –If that’s a hint for a coffee break, I take it.

Mr В.: –Good, but what about your objection, Mr Cramer?

Mr C.: –On second thoughts I may have been too cautious. Let’s leave it as it is — 6 months.

Mr C.: – (after a 30 minutes’ interval) I feel much better now.

Mr В.: –So do I. I like a cup of coffee in the middle of my morning’s work – it’s a good stimulant, isn’t it?

Mr C.: –I’m with you there. A cup of coffee a day keeps all your worries away, as the English say. And let's hope for the best that no Act of God will touch us.

Mr B.: – (smiling) God forbid! Where are we now?

Mr C.: –I’ve got another remark to make. I suggest that the Force Majeure Clause should include the following words: “Manufacturing difficulties such as shortage of raw materials, electric power, labour shall not release the Sellers from responsibility for non-delivery or for delay in delivery of the goods under this Contract”.

Mr B.: –Pardon. Could I have it again, please?

Mr C.: –Here you are (handing him a sheet of paper). Read it for yourself.

Mr B.: – (after reading it) I don’t think we may have anything against it.

From my point of view the addition of these words won’t make the contract any worse. Satisfied, Mr Cramer?

Mr C.: –Yes, quite.

Mr B.: –I hope we can consider all the points, I mean, clauses agreed upon. Remarks will pour forth from you today, Mr Cramer, as if from a horn of plenty. Is it at last exhausted?

Mr C.: – (laughing) I don’t know about the horn, but I am a bit exhausted, aren’t you?

Mr B.: –I’d rather say I feel a bit tired, but far from exhausted. So we’ve completed a good job, haven’t we?

1. Why do you think Mr Cramer has so many questions?

2. Why does he object to 4 months of delay being allowed before the contract can be cancelled?

3. Why does Mr Balashov agree to reducing the period to two months?

4. Are Force Majeure circumstances in our contracts and in those of foreign firms alike? What is the difference?

5. Why doesn’t Mr Balashov agree to the alteration suggested by Mr Cramer to the Force Majeure Clause?

6. What addition does Mr Cramer suggest to the Force Majeure Clause and why?

1. Read the first two paragraphs of the text. Which of the key terms in the second paragraph is a synonym for damages? And what do we mean by the word damage?

2. Read through the whole text quickly and decide whether these statements are true or false.

1. According to the foreseeability rule, damages are awarded when it can be proven that harm or injury could have been seen or known in advance by the breaching party when the agreement was made.

2. Reliance damages are recovered when the breaching party is forced to give up profits it acquired under the breached contract.

3. Exemplary damages are collected from the breaching party as a kind of
punishment for particularly objectionable behaviour.

When there has been a breach of contract, the non-breaching party will often seek remedies available under the law. This area of the law, known as ‘remedies’, is a broad area, but can be summarised generally.

Most remedies involve money damages, but non-monetary relief is also available in some cases. The basic remedy for breach of contract in the Anglo-American legal system is pecuniary compensation to an injured party for the loss of the benefits that party would have received had the contract been performed. Some examples of this kind of remedy include expectation damages or “ benefit of the bargain ” damages. Certain damages are recoverable regardless of whether the loss was foreseeable, while the recovery of other damages hinges on foreseeability. Where the damage is the direct and natural result of the breach, the breaching party will be held liable to pay damages for such without regard to the issue of foreseeability. When lawyers plead these damages in court, they commonly refer to general damages. However, where the damage arises due to the special circumstances related to the transaction in question, damages are limited by the foreseeability rule, which states that they are only recoverable when it can be established that the damage was foreseeable to the breaching party at the time the contract was entered into. When lawyers plead these damages in court, they commonly refer to special or consequential damages. Where it is not possible to prove expectation damages, the non-breaching party can seek reliance damages, where the compensation is the amount of money necessary to compensate him for any expenses incurred in reasonable reliance on the contract. The non-breaching party is thus returned to the status quo ante with no profit or benefit from the contract.

Another measure of damages is restitution damages, which compel the breaching party to give up any money benefit it obtained under the breached contract. Restitution damages are, for example, awarded when one party (the breaching party) completely fails to perform its obligations under the contract.

The parties to a contract may, however, agree at the time they enter into the contract that a fixed sum of money shall be awarded in the event of a breach or to a formula for ascertaining the damages or for certain other remedies, e.g. right of repair. This type of damages is known as liquidated damages or stipulated damages.

In some cases, a party will be able to obtain punitive or exemplary damages through the court which are designed to punish the breaching party for conduct which is judged to be particularly reprehensible, e.g. fraud. This type of damages is normally only awarded where specifically provided by statute and where a tort in some way accompanies the breach of contract.

Where monetary damages would not be an adequate remedy, such as in a case where two parties enter into a real-estate contract and the seller decides to sell to a third party, the court may order specific performance. Specific performance involves an order by the court compelling the breaching party to perform the contract.

Finally, there are other remedies available; for example, if there has been a default by one party, the other party may rescind or cancel the contract. This constitutes an undoing of the contract from the very beginning. In addition, legislation such as sale of goods legislation also allows for various remedies, including a right to reject goods in certain cases and a right to return or demand repair or replacement.

Ex. 1. Match the verb-noun collocations (1-5) with their synonyms (a-e).

1. incur damages	a. agree on
2. stipulate damages	b. get back
3. ascertain damages	c. bring on
4. recover damages	d. expect
5. anticipate damages	e. determine

Ex. 2. Choose the correct word or phrase to complete each sentence in this clause.

Contractor understands and acknowledges that time shall be ¹⁾ on / (of) / in the essence of this contract and agrees that the damages that may ²⁾ cause / result from / bring about any delay in finishing the work or parts ³⁾ thereby / thereof / therein will be difficult, if not impossible, to ⁴⁾ change / avoid / ascertain. Thus, Contractor agrees that if the work and all parts thereof are not completed ⁵⁾ in / at / on or before the dates stipulated for completion thereof, as extended in the manner specified ⁶⁾ herein / hereof / hereafter, Contractor ⁷⁾ shall / may / should pay to owner as stipulated, agreed and liquidated damages and not as a penalty, the amount stated on the cover sheet for each calendar day in which the work or any portion thereof remains uncompleted after such completion date as so extended.

Ex. 3. Complete the passage about insurance using the correct word from the box.

to avoid, wager, premium, interest, voidable, to indemnify, to take, proposal form

Insurance is acontract whereby the insurer, in return for a sum of money called the ¹⁾ ______, contracts with the insured to pay a specified sum on the happening of a specific event, for example death or accident, or ²⁾ ______ the insured against any loss caused by the risk insured against, for example fire.

It differs from a ³⁾ ______ in that, although risk is the essence of the contract, the insured takes out insurance to guard against the risk of loss, whereas in a wager the contract itself creates the risk. In insurance the insured must therefore have some ⁴⁾ ______ apart from the contract, i.e. an insurable interest.

Many insurance contracts provide that the answers submitted by the insured in his ⁵⁾ ______ are 'the basis of the contract'. This has the effect that all the terms of the contract are treated as conditions and the insurers will be able ⁶⁾ ______ liability if the proposal form is incorrect, even if the wrong answer was given innocently and does not relate to a material fact.

All contracts of insurance are uberrimae fidei. They are therefore ⁷⁾ ______ at the option of the insurer for non-disclosure of any material fact which was known, or ought to have been known, to the insured at the time of making the contract.

A fact is material if it would influence the judgement of a prudent insurer in deciding whether ⁸⁾ ______ the risk, and if so at what premium and on what conditions.

Ex. 4. Choose the best alternative to complete each sentence.

1. Insurance companies can be considered as professional ______ takers.

a. life

b. risk

c. chance

d. misfortune

2. Some of the language in insurance ______ is incomprehensible to most ordinary people.

a. premiums

b. policies

c. rates

d. invoices

3. The company will ______ the policy-holder against loss of or damage to the insured vehicle.

a. identity

b. respect

c. indemnify

d. engage

4. Insurance companies like you to ______ your claim as soon as possible.

a. process

b. submit

c. assure

d. proceed

5. Go to an insurance ______ and see if you can get a better deal.

a. breaker

b. broker

c. speculator

d. merchant

6. In these inflationary times it is important to-keep the value of your policy closely ______ to the value of your property.

a. adapted

b. linked

c. indicated

d. dependent

7. His insurance company had told him not to admit ______ even though it was clearly his fault.

a. legality

b. likelihood

c. liability

d. crime

8. My insurance company offers a wide ______ of cover.

a. range

b. branch

c. rank

d. standard

9. My endowment policy will ______ when I’m sixty-five.

a. ripen

b. mature

c. flourish

d. break

10. ______ insurance originated in the fifteenth century.

a. Boat

b. Sea

c. Navy

d. Marine

11. The ______ form you fill in is the basis of your contract with the insurance company.

a. proposition

b. application

c. enrolment

d. proposal

12. The insurance will be ______ if you omit any relevant information.

a. void

b. valid

c. invaluable

d. priceless

13. You' re allowed 30 days’ ______ for the payment of the renewal premium.

a. grace

b. favour

c. way

d. permission

14. Make sure all this equipment is insured ______ accidental damage.

a. over

b. against

c. with

d. from

Ex. 5. The words in the right have their letters in the wrong order. Rearrange the letters so that they’re in the correct order.

1. The details of an agreement with an insurance company are shown in a written insurance ______. (lypico)

2. Insurance arrangements are made through ______. (ksborre)

3. Professionals, like those in 2, are usually able to obtain the best insurance ______. (saert)

4. An all ______ policy specifies the hazards that are covered by that policy. (isksr)

5. A loss by one shipper, but which is shared by all the shippers with cargoes on the same carrying vessel, is the general ______. (gaevrae)

6. A partial loss of a consignment, which may not affect other consignments on the same carrying vessel, is a ______ average. (Auipratclr)

7. A policy with a risks clause covers the goods against theft, short delivery, breakage and leakage, other forms of damage and so on. (liapsec)

8. Regular shippers may often take out a ______ insurance policy, which gives automatic cover for a fixed value of shipments, depending on the previous year’s values, if the insurance company is told when each shipment is made. (ilatfogn)

9. A flexible type of insurance, for twelve months and at agreed rates, is ______ cover. (poen)

10. Ships' cargoes are covered by ______ policies. (rmenai)

Ex. 6. Fill in the correct prepositions in the following force majeure clause clause.

Should circumstances arise which prevent either ¹⁾ ___ the Parties ²⁾ ___ complete or partial fulfilment ³⁾ ___ their obligations ⁴⁾ ___ this Contract, such as fire, calamity, war, military operations ⁵⁾ ___ any nature, blockade, export or import prohibitions or other circumstances beyond the control ⁶⁾ ___ the Parties concerned, the date ⁷⁾ ___ fulfilment ⁸⁾ ___ their obligations will be postponed in proportion with the time ⁹⁾ ___ which these circumstances exist. If the above circumstances are ¹⁰⁾ ___ force ¹¹⁾ ___ over 6 months, each ¹²⁾ ___ the Parties shall have the right to refuse ¹³⁾ ___ fulfilment ¹⁴⁾ ___ their obligations ¹⁵⁾ ___ the Contract and ¹⁶⁾ ___ this case neither ¹⁷⁾ ___ the Parties shall be entitled to make a claim ¹⁸⁾ ___ the other Party ¹⁹⁾ ___ any possible losses. The Party which has thus been deprived ²⁰⁾ ___ the possibility fulfilling the obligations ²¹⁾ ___ this Contract should immediately notify the other Party ²²⁾ ___ the beginning or cessation ²³⁾ ___ the circumstances which prevent the performance ²⁴⁾ ___ the Contract obligations. Certificates issued ²⁵⁾ ___ the Chambers ²⁶⁾ ___ Commerce ²⁷⁾ ___ the countries ²⁸⁾ ___ the Sellers or ²⁹⁾ ___ the Byers respectively shall be accepted as a proper evidence ³⁰⁾ ___ the existence ³¹⁾ ___ the above circumstances and ³²⁾ ___ their duration.

Ex. 7. Translate these word combinations using your active vocabulary.

1. письмо-жалоба в связи с задержкой с открытием аккредитива, 2. если задержка в поставке превысит два месяца, 3. (не) возражать против размещения заказа у другой фирмы, 4. быть обеспокоенным их настоятельной просьбой, 5. сделать небольшое сообщение о нехватке продовольственных товаров, 6. срочно разрешить оборудование к отгрузке, 7. оказывать радушное гостеприимство, 8. при условии, что вы не будете касаться этих вопросов, 9. просим вас срочно сообщить нам, 10. выдать отгрузочные документы против платежа, 11. разрешение на отгрузку последнего станка, выданное представителем покупателя, 12. соответствовать техническим условиям контракта, 13. Этот заказ больше недействительный, 14. касаться ряда срочных вопросов в своем сообщении, 15. отвечать за недопоставку товара, 16. В скольких экземплярах обычно выписывается разрешение на отгрузку товара? 17. возглавлять транспортный отдел, 18. не соответствовать спецификации покупателя, 19. передавать свои права и обязанности третьим лицам, 20. из-за несоответствующей маркировки, 21. нести неожиданные тяжелые потери, 22. Когда вступает в силу этот закон? 23. Право какой страны будет регулировать контракт? 24. Что (какой срок) считается задержкой в поставке? 25. деятельность, предшествующая ведению переговоров, 26. Почему этот документ стал недействительным? 27. выслать отгрузочные спецификации в двух экземплярах, 28. полностью соответствовать образцу, 29. что касается заранее согласованных и оцененных убытков, 30. относительно будущих переговоров, 31. иметь равную силу, 32. комментировать двухнедельное пребывание делегации в стране, 33. настаивать на выяснении и урегулировании данного вопроса сегодня, 34. прийти к соглашению об окончательном исполнении контракта досрочно.

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