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Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
Master supply agreements - les régimes de responsabilité contractuelle aux usa
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Master supply agreements - les régimes de responsabilité contractuelle aux usa

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  • 1. 1Les Régimes de ResponsabilitéContractuelle aux USA: l’exemple des―Master Supply Agreements‖Eliot Norman | Avocat, Williams Mullen, Washington DC, USASophie Moysan | Conseiller Spécialisé Senior RC, Marsh FranceAntoine de La Chapelle | Directeur juridique, Groupe Latécoère#20874593
  • 2. Introduction: Le Défi Américain2
  • 3. Your French company, Toulouse Aerospace SA, providesengineering and manufacturing services to supply “lestrappes” and landing gear system for a new type ofcorporate jet manufactured by an American company. Yourbuyer specifies the type of composites to be used for “lestrappes” and which will involve new technologies. Yourcompany signs a 50 page supply agreement that appliesGeorgia law and will be enforced in the federal courts inAtlanta. The deal is worth $25 million dollars.But before you start celebrating, do you know the answers tothe questions on the next page?3
  • 4. Des questions• Will the Georgia courts enforce liquidated damages for delay indeliveries as the exclusive remedy?• Can the buyer be required to assume the risk for use of newcomposite technologies it has specified and you have accepted to usein manufacturing ―les trappes‖?• Can the customer collect lost profits from timely sales of the planes ifToulouse Aerospace is in breach for defects or can the buyer sue onlyfor the costs of repairs?• Can you exclude consequential damages and will your ―limitation ofliabilities‖ clause be enforceable if there is a failure in ―les trappes‖that causes property damage to the jet?• How broad or narrow are your indemnification obligations if a thirdparty asserts a claim against your buyer?• Can you limit your maximum liability in the contract?• Can you use and enforce a ―flow-through‖ clause to impose uponyour Tier 2 subcontractors the same liabilities and obligations thatyou have accepted to provide your American buyer; and• If the contract incorporates by reference the version of Article 2 ofthe Uniform Commercial Code adopted by the Georgia StateLegislature, how will that change the terms of the contract you justspent 100 hours negotiating to protect your French company?4
  • 5. 5/27/20135 5"Règles du jeu équitables??”créer un « levelplaying field »Allocation desrisques
  • 6. 5/27/2013 666Avoir confiance: Voici le petitdéjeuner de vos avocatsaméricains
  • 7. Manufacturing SupplyAgreements: USA Style7
  • 8. Structure du MSA: Master orManufacturing Supply Agreement1. Product specifications2. Delivery times3. Payment terms4. Seller’s limitations of liability and Buyer’s Remedies5. Seller’s Product Warranties and Buyer’s Remedies6. Indemnification7. Insurance8. Termination9. Choice of Law10. Dispute Resolution11. Miscellaneous:8
  • 9. Régime de Responsabilité:au cœur du MSA américain***l’allocation des risques***4. Seller’s limitations of liability and buyer’s remedies– Liquidated damages– Cumulative remedies– Limitations of consequential and indirect damages– Limitations on punitive damages?– Maximum liability– Buyer’s assumption of risk5. Seller’s product warranties and buyer’s remedies6. Indemnification—à l’américaine– Introduction to concept– Distinction between 1st party and 3rd party claims– Model indemnification provisions7. Insurance coverage as a risk allocation tool 9
  • 10. Une précaution• Il faut lire le contrat dans sonintégralité• Pièges: les articles intitulés– « miscellaneous »– « definitions »– « flow-through » ou« incorporation by reference »• RTBC! RTBC!10
  • 11. Limitations of LiabilityLimitation de responsabilité11
  • 12. Liquidated Damages: ModelClauseLiquidated Damages. If the Seller fails to deliver theProducts by the Delivery Date (the "Seller Breach"), theSeller shall pay to the Customer an amount equal to $2500per day for each day a Seller Breach continues (the"Liquidated Damages"). The parties intend that theLiquidated Damages constitute compensation, and not apenalty. The parties acknowledge and agree that theCustomers harm caused by a Seller Breach would beimpossible or very difficult to accurately estimate at thetime of contract, and that the Liquidated Damages are areasonable estimate of the anticipated or actual harm thatmight arise from a Seller Breach. The Sellers payment ofthe Liquidated Damages is the Sellers sole liability andentire obligation and the Customers exclusive remedy forany Seller Breach as defined herein. 12
  • 13. Compare: Liquidated Damages# 2The liquidated damages of any nature (delays, performance,quality) provided for in the MSA do not under anycircumstances constitute the exclusive remedy for the lossand/or damage sustained by the Purchaser as a result of abreach by the Service Provider of its obligations. If the actualloss and/or damage suffered by the Purchaser exceeds theamount of the liquidated damages, the Purchaser shall beentitled to claim for and will be justified to obtain, the amountcorresponding to the entire loss and/or damage, afterdeduction of the amount of liquidated damages already paid bythe Service Provider with regards to the non-compliance havingcaused such prejudice.13
  • 14. “Liquidated Damages”: LesAvantages?• Un Exemple: ― liquidated damages‖ pour des livraisons qui sont enretard.• Seller: reduces its uncertainty by capping its liability, even if the capturns out to be greater than actual damages to Buyer• Buyer: reduces its uncertainty by fixing at least acceptable level ofcompensation• Dispute Resolution: Eliminates calculation of damages, streamlinesdispute resolution to proof of delay only• U.S. Law: Uniform Commercial Code: UCC 2-718 and 2-719.• Drafting Points ; Be specific –fix the amount to the type of breach– State difficulty to estimate damages– Liquidated damages are reasonable estimate of damages– Liquidated damages are the exclusive remedy for the specifiedbreach ( late delivery, defective medical devices etc. )– Avoid right to elect alternative remedies– creates risk thatliquidated damages will be viewed as penalty and unenforceablein at least some states like New York– UCC 2-719 does not favor alternative remedies as in #214
  • 15. Liquidated Damages # 3: SansLimites?• The liquidated damages are intended to representa genuine pre-estimate of the loss and damagelikely to be suffered by the Purchaser in the eventthat they become payable (including direct loss,and also loss of profits, business, contracts,anticipated savings, goodwill on revenue, loss orcorruption of data, and any indirect orconsequential loss or damage).• Should the actual prejudice suffered by thePurchaser exceed the amount of the liquidateddamages, the purchaser shall be entitled toclaim for and would be justified to obtaindamages amounting to the entire prejudicesuffered.15
  • 16. Liquidated Damages:Principes du droit américainStatement:• Most jurisdictions will enforce liquidated damage provisions in supply contractsif :• Actual damages, by their nature, are difficult or impossible to prove withaccuracy; and• The liquidated damage amount is determined to be reasonably related to whatthe actual damage amount could be and is not viewed as a ―penalty‖.Issues:1. How common are liquidated damage provisions in supply contracts—on thesupplier side? On the purchaser side?2. Under what circumstances will courts/arbitrators find actual damages difficultor impossible to determine with precision?3. How ―excessive‖ must liquidated damage amounts be before they will bedetermined to be unenforceable penalties?4. Is it appropriate for a single contract to contain both a liquidated damageprovision and a provision calling for the assessment of actual damages thatexceed the liquidated damage amount?
  • 17. Liquidated Damages:Principes du droit américain.Responses:1. Liquidated damage provisions are quite common, especially on thepurchaser side, where actual damages for breach may be difficult todetermine. Usually the supplier should be able to determine actualdamages if the purchaser defaults.2. Most U.S. courts/arbitrators will try to uphold the intent of the partiesas expressed in the contract so long as some minimal showing ofdifficulty is presented. Such showing will vary depending on whether itis the buyer or seller and what the product or service is.3. Liquidated damage amounts will be seen as a penalty if they aregrossly in excess of what the actual amount might be; as compared tothe cost of the items and the total amount of the contract; andexperience with similar contractual provisions.4. It should be considered inconsistent for a party to a contract to say onthe one hand I need liquidated damages because it is difficult orimpossible to prove actual damages and then to say if I can provedamages in excess of the liquidated amount I want the higher number.Of course, ―everything is up for negotiation between the parties.‖UCC 2-719 may apply to bar enforcement, however. 17
  • 18. Liquidated Damages:Aspects assurantiels• Exclusion standard dans les programmes d’assurance RCdes obligations exorbitantes du droit communExemple d’exclusion :Les obligations exorbitantes du droit commun applicable, c.a.d. lesobligations que les Assurés ont acceptées par convention et quin’auraient pas été mises à leur charge sans cette convention etnotamment les pénalités contractuelles dans la mesure oùelles excèderaient les indemnités résultant de la seuleapplication dudit droit commun ou des accordshabituellement en usage dans les contrats de vente ou deprestations de service du secteur (…)• Exclusion standard dans les programmes d’assurance RCdes préjudices résultant de retard de livraison18
  • 19. Problem: Cumulative RemediesRecours cumulatifs• Typically hidden in « miscellaneous » at the end of thecontract. Often overlooked. « RTBC. »• Cumulative Remedies. ― The rights and remedies inAgreement are cumulative and not in substitution for anyother rights and remedies available at law or in equity orotherwise. ―• Buyer: will wish to reserve rights to pursue other remedies• Seller: will wish to make remedies in contract exclusive andmake the contract the « Entire Agreement » and the « Law ofthe Contract »• Solution?19
  • 20. Cumulative Remedies: Solution• A ―Carve Out‖ = ―une exception‖• Model MSA 17.11 ―All rights and remedies provided inthis Agreement are cumulative and not exclusive, andthe exercise by either Party of any right or remedy doesnot preclude the exercise of any other rights orremedies that may now or subsequently be available atlaw, in equity, by statute, in any other agreementbetween the Parties or otherwise.‖ AND• Model MSA 17.11 ―Notwithstanding the previoussentence, the Parties intend that Buyers rights underSection 6.5 dealing with Liquidated Damages andSection 9.5 (Buyer’s Exclusive Remedy for DefectiveGoods) are Buyers exclusive remedies for the eventsspecified therein.‖20
  • 21. Consequential Damages21
  • 22. John Farmer v. John Deere22
  • 23. Consequentional Damages• Risks for Both Sides (Seller or Buyer)– Consequential: « any loss » that is « a natural andprobable consequence of the breaach »– 2 Tests under UCC 2-715:• #1: did the loss result from « general or particularrequirements and needs » that seller knew of orhad reason to know of at the time of contracting;and• #2 : Did buyer comply with its duty to mitigatedamages « by cover or otherwise ». Failure tomitigate bars recovery of consequential damages.– All these issues are fact specific and expensive to litigate– Courts will usually let these issues go the jury,23
  • 24. L’histoire Triste de SunnyvaleFARMS24
  • 25. Consequential DamagesExamples from Case Law:• John Farmer v. John Deere Tractor• Sunnyvale Farms• Defective valves: $1.5 million to fix, another $2.5 million inlost profits and attorney’s fees• The sinking sailboat• Wall Street Auction-Rate Securities: ( Kajeet v.UBSFinancial Services) $8 million =$81 million in compensatoryfor lost business opportunities• Texaco $20 million over oil lease• The Atlantic City Hotel/Casino• Big Retailer v. JDA Software: $98 million25
  • 26. Types of Consequential Damages:as a result of seller’s breachWhat Conclusions can we draw from these examples?• #1: Buyer’s lost profits on other contracts (yes if foreseeable)• Distinguish Buyer’s lost profits on the contract itself with Buyer’slost profits as direct damages: ex. Joint Venture to mine Bauxiteor sell cell phone services• loss of goodwill: very rare• diminution in value of the business: rare• buyer liability to customers, can include death of child whereseller breached implied warranty of merchantability• defending claims by buyer’s customers = attorney’s fees?• Interest on money borrowed by buyer• Loss of investment opportunities?• Conclusion: ―l’imagination au pouvoir‖ 26
  • 27. Negotiation of Limitations onConsequential Damages• Closely review list of potential damages to see what can belimited• Adapt the limitation of liability to specific contract terms orpurchase orders vs contract as a whole• Limitations: reciprocal or unilateral?• Exclusions from Limitations:– Liability for indemnification– Liability for breach of confidentiality– Liability for IP violations• Comes down to calculation of amount of each party’sconsequential damages, assuming worst case scenario.• Not limited to Buyer: Seller is entitled as well toconsequential damages, as with requirements contract:example, factory in Houston.• Insurance Coverage? Problematic and industry/product 27
  • 28. Limitations on Liability:Consequential Damages• « In no event shall either party be liable to the otherfor incidental, consequential or special loss ordamages of any kind, however, caused, or anypunitive damages »• « Except for damages payable in connection witha party’s indemnification obligations (which mayincude liability for consequential damages owed bythe indemnified party to a third party), neither partyshall have any liability to the other party for anyspecial, indirect, consequential, exemplary,punitive or incidental damages suffered by suchother party… »• ***Difficulties in enforcement of LimitationsProvisions (Texaco Decision)28
  • 29. Limitation on Consequential/Indirect DamagesModel MSA: 11.1. NO LIABILITY FOR CONSEQUENTIALOR INDIRECT DAMAGES.• [EXCEPT FOR EXPRESS OBLIGATIONS TO MAKE PAYMENT UNDER THISAGREEMENT,• EXCEPT FOR LIABILITY FOR INDEMNIFICATION,]• EXCEPT FOR LIABILITY FOR BREACH OF CONFIDENTIALITY OR• EXCEPT FOR LIABILITY FOR INFRINGEMENT OR MISAPPROPRIATION OFINTELLECTUAL PROPERTY RIGHTS,IN NO EVENT SHALL SELLER BE LIABLE FOR CONSEQUENTIAL,INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, PUNITIVE ORENHANCED DAMAGES , LOST PROFITS OR REVENUES OR DIMINUTIONIN VALUE , ARISING OUT OF OR RELATING TO ANY BREACH OF THISAGREEMENT, REGARDLESS OF(A) WHETHER SUCH DAMAGES WERE FORESEEABLE,(B) WHETHER OR NOT SELLER WAS ADVISED OF THE POSSIBILITY OF SUCHDAMAGES AND(C) THE LEGAL OR EQUITABLE THEORY (CONTRACT, TORT OR OTHERWISE)UPON WHICH THE CLAIM IS BASED, AND NOTWITHSTANDING THE FAILUREOF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE.29
  • 30. Consequential DamagesAspects assurantiels:ambiguïté terminologique• Notion de dommages immatériels dans les programmes d’assurance RCde Droit français : un dommage immatériel peut être : Un IMMAT. CONSECUTIF (consequential loss) = un dommageimmatériel consécutif à un dommage corporel ou matériel garanti,OU Un IMMAT. NON CONSECUTIF ou DINC (pure financial loss) =un dommage immatériel non consécutif à un dommage corporelou matériel garanti, c.a.d. : soit un dommage immatériel non consécutif à un dommagecorporel ou matériel, soit un dommage immatériel consécutif à un dommagecorporel ou matériel non garanti30
  • 31. Consequential DamagesAspects assurantiels: ambiguïtéterminologique• Les concepts suivants des Master Supply Agreements US : Incidental damages, consequential damages, secondary damages,indirect damages loss of use, loss of revenue, loss of profit IMMAT.CONSECUTIFS si consécutifs à un dommage corporelou matériel garanti IMMAT. NON CONSECUTIFS (DINC) si pas consécutifs à undommage corporel ou matériel (garanti)31
  • 32. Consequential DamagesAspects assurantiels: ambiguïtéterminologiqueImmatériels Non Consécutifs (DINC)- exemple :• Du fait d’un lot de composants défectueux livré par unéquipementier aéronautique (problème identifié àl’occasion d’une opération de grande maintenance sur unmoteur), toute une série de moteurs qui avaient étéavionnés et étaient en exploitation doivent être déposéspour remplacement des composants défectueux. Aux yeux de l’assureur RC Produit Aéronautiquede l’équipementier, les frais de retrait engagéspar le motoriste constituent des DINC car ils nesont pas consécutifs à un dommage matériel oucorporel32
  • 33. Consequential DamagesAspects assurantiels:ambiguïté terminologique• Dans les polices RCG de Droit français (hors produits aéro) : La couverture des IMMAT. CONSECUTIFS est généralementacquise Celle des IMMAT. NON CONSECUTIFS (DINC) : n’est pas systématique est souvent sous-limitée est onéreuse• Dans les polices CGL US Seuls IMMAT. CONSECUTIFS COUVERTS : la privation d’usage(« Loss of Use ») de bien matériellement endommagés Les Pure Financial Losses ne sont généralement pas couverts• Dans les polices RC Aéronautique, en standard Seuls les IMMAT. CONSECUTIFS sont couverts Les IMMAT. NON CONSECUTIFS (DINC) ne sont pas couverts(pour les équipementiers aéro, possibilités limitées de couverture des DINC & frais deretrait, en extension au programme EAPLS de Marsh)33
  • 34. Other Limitations ofLiabilityAutres Limitations deresponsabilité34
  • 35. Punitive Damages• Definition• What effect ? Clause limiting punitivedamages in a contract?• Judicial limitation on punitive damages• Statutory limitations– Consider choice of law as to the law ofthe state that will apply35
  • 36. Punitive DamagesAspects assurantiels• Problématique d’assurabilité dans certains EtatsUS  affirmative cover difficile à obtenir• Programmes RCG de Droit Français :– Silent coverou– Exclusion• Programmes CGL US :– Silent cover– Most favored venue clause– Wrap Bermudien36
  • 37. Responsabilité maximale pourles dommages et intérêts:Negotiating Points• Goal: eliminate damages that aredisproportionate in relation to economicsof transaction• Must consider whether consistent with orcontrary to liquidated damages clause• Flat $ dollar amount or• Multiple of prices paid under contract37
  • 38. Responsabilité maximaleModel MSA 11.2 MAXIMUM LIABILITY FOR DAMAGES.[EXCEPT FOR [OBLIGATIONS TO MAKE PAYMENT UNDERTHIS AGREEMENT,] [LIABILITY FOR INDEMNIFICATION,]LIABILITY FOR BREACH OF CONFIDENTIALITY, ORLIABILITY FOR INFRINGEMENT OR MISAPPROPRIATIONOF INTELLECTUAL PROPERTY RIGHTS,] IN NO EVENTSHALL [SELLERS/EACH PARTYS] AGGREGATELIABILITY ARISING OUT OF OR RELATED TO THISAGREEMENT, WHETHER ARISING OUT OF OR RELATEDTO BREACH OF CONTRACT, TORT (INCLUDINGNEGLIGENCE) OR OTHERWISE, EXCEED [[NUMBER ORPERCENTAGE OF] THE TOTAL OF THE AMOUNTS PAID[AND AMOUNTS ACCRUED BUT NOT YET PAID] TOSELLER PURSUANT TO THIS AGREEMENT [IN THE[NUMBER] [YEAR/MONTH] PERIOD PRECEDING THEEVENT GIVING RISE TO THE CLAIM [OR $[AMOUNT],WHICHEVER IS [GREATER/LESS]]. 38
  • 39. Exceptions à uneresponsabilité plafonnée• May accept maximum liability for sometypes of breaches• Seller accepts exceptions to Cap for– Breach of obligations relating tointellectual property, indemnification,confidentiality– Gross negligence willful misconduct,intentional acts– Any personal injuries resulting fromseller’s negligence39
  • 40. Limitations de responsabilité:Assumption of Risk:• Model MSA 11.3. ASSUMPTION OF RISK. WITHOUT LIMITINGTHE GENERALITY OF THE FOREGOING, BUYER ASSUMESALL RISK AND LIABILITY FOR THE RESULTS OBTAINED BYTHE USE OF ANY GOODS IN THE PRACTICE OF ANYPROCESS, WHETHER IN TERMS OF OPERATING COSTS,GENERAL EFFECTIVENESS, SUCCESS OR FAILURE, ANDREGARDLESS OF ANY ORAL OR WRITTEN STATEMENTSMADE BY SELLER, BY WAY OF TECHNICAL ADVICE OROTHERWISE, RELATED TO THE USE OF THE GOODS.• Will bar claims in tort by buyer40
  • 41. Seller’s ProductWarranties and Buyer’sRemedies under theUCC (UniformCommercial Code)Garantie des produits duvendeur et recours del’acheteur au titre de l’UCC. 41
  • 42. Allocation des risques: UCCExpress Product Warranties• This is an area where product warranties are created bylaw and not by contract• Uniform Commercial Code (UCC) Articles 2 and 2A apply:• Express Warranty: Seller can create it by affirming factsabout the goods, making a promise about the goods ,describing the goods and providing a sample.• To limit this area of liability, sellers specify in the MSA:– the duration of each express warranty,– conditions that invalidate it and– exclusive remedies for breach of the warranty.,42
  • 43. Décharge dans le cadre degarantie “implicite” desproduits• UCC Articles 2 and 2A read into supply agreements impliedwarranties of merchantability and fitness for a particularpurpose.• Parties should always disclaim these implied warranties,which can contradict the express warranties andspecifications in the contract• The UCC requires this type of clause for the disclaimer to beeffective , disclaiming any express warranties not expresslystated in the contract and all implied warranties• See Model MSA43
  • 44. Décharge dans le cadre de garanties“implicites” des produitsMODEL MSA 9.5. DISCLAIMER OF OTHER REPRESENTATIONSAND WARRANTIES; NON-RELIANCE. EXCEPT FOR [THEEXPRESS REPRESENTATIONS AND WARRANTIES SET FORTHIN SECTION 9.2 AND ]THE PRODUCT WARRANTY SET FORTH INSECTION 9.3, (A) NEITHER SELLER NOR ANY PERSON ONSELLERS BEHALF HAS MADE OR MAKES ANY EXPRESS ORIMPLIED REPRESENTATION OR WARRANTY WHATSOEVER,EITHER ORAL OR WRITTEN, INCLUDING ANY WARRANTIES OFMERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,TITLE[,] [OR] NON-INFRINGEMENT [OR PERFORMANCE OFGOODS OR PRODUCTS TO STANDARDS SPECIFIC TO THECOUNTRY OF IMPORT], WHETHER ARISING BY LAW, COURSEOF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADEOR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED,AND (B) BUYER ACKNOWLEDGES THAT IT HAS NOT RELIEDUPON ANY REPRESENTATION OR WARRANTY MADE BYSELLER, OR ANY OTHER PERSON ON SELLERS BEHALF,EXCEPT AS SPECIFICALLY PROVIDED IN SECTIONS 9.2 AND 9.3OF THIS AGREEMENT.44
  • 45. Seller’s Product WarrantiesAspects assurantielsNe sont pas couverts dans les programmes d’assurance RC :• Le défaut de performance• Les dommages au produit livré lui même• Les préjudices résultant de la non-conformité apparente du produit• Les obligations contractuelles exorbitantes du droit commun• La Contractual Liability (programmes d’assurance US)45
  • 46. Indemnificationa l’americaine46
  • 47. 4 types of indemnifications• Common Law• Implied• Statutory (rare)• Contractual47
  • 48. American Indemnification• A l’origine dans le droit commun américain:l’american indemnification transfère laresponsabilité de la partie qui doit payer lesdommages et intérêts à une tierce partie, vers lapartie qui est principalement responsable et quidevrait assumer la perte totale.• Les concepts d’indemnification définis par le droitcommun sont souvent appliqués par les tribunauxlorsque le contrat est vague ou équivoque.48
  • 49. Common Law IndemnificationOften a tort concept, Common LawIndemnification transfers liability from the one whohas been compelled to pay damages to the onewho is primarily responsible and should bear theentire loss.Common Law Indemnity concepts are oftenapplied by courts when contract is ambiguous orlacks specifics on issue 49
  • 50. L’indemnification americain:Eviter une “indemnificationimplicite.”• Illinois Decision (7th Circuit Court of Appeals (JudgePosner):• ―But even if the parties fail to include an indemnityprovision in their contract, if it is apparent that theywould have done so had the point occurred to themthe courts will read it into their contract unless it isdisclaimed. Contract completion is a standard functionof common law courts‖.• Key requirement: parties already had a relationshipwhen the tort giving rise to the liability occurred.Function of doctrine: fill out the contract; it is not tocreate a contract where none existed.• New York law: disagrees, no impliedindemnification50
  • 51. American Indemnification byStatute• None as applies to commercialtransactions• Only in special cases do statutes apply• Example. NYC must by law indemnifyits employees against claims broughtagainst them in the course of theirduties as policemen, subwayconductors, etc.51
  • 52. American Indemnification isContractual• Thus, a necessity to include it or disclaim it• Any disclaimer must be explicit and specifically refer toobligation of indemnification.• Next Fundamental Question: What Type ofIndemnification?– Third Party—indemnify against• Liability, loss or claims• Example, claims from ultimate purchaser ofcorporate jet– First Party- Indemnify against• any loss arising out of the Seller’s breach of contract• Example, claims from buyer, lost profits arising out ofdefects in ―les trappes‖ which caused buyer to losesales52
  • 53. Le Danger:53L’indemnificationLimitations de responsabilité
  • 54. Example of 1st and 3rd Partyclaims54Battelle Memorial Institute v. Nowsco Pipeline Services56 F. Supp. 2d (S.D. Ohio 1999)―COMPANY and PARTICIPANT agree, for themselves and fortheir successors and assigns, and heirs and administrators, torelease, indemnify and hold harmless BATTELLE and GRI,their divisions, affiliates, officers, trustees, agents andemployees, from all liability, damages, claims, suits or otherconsequences (including but not limited to personal injury ordeath) caused by or arising out of this Agreement and theaccess granted thereby.‖•Held to apply to both first party and third party claims.
  • 55. Lessons from Battelle Institute• Clearly Limit Indemnification to 3rdParty Claims only• See MSA Model 10.1.• You will need language instead thatsays:– « Seller indemnifies Buyer solely for lossesarising out of a Third Party Claim directlycaused by a [material] breach of thecontract by Seller, subject to certainexceptions, etc. »55
  • 56. Indemnification: “First NewJersey Decision”• “[Dome] hereby covenants and agrees toindemnify and hold [First Jersey] harmless fromand against any and all claims, actions,judgments, damages, losses, liabilities, costs andexpenses of any nature whatsoever (includingwithout limitation attorneys fees), arising directlyor indirectly from, out of or incident to thisAgreement and/or oral instructions delivered to[First Jersey] pursuant to this Agreement. Thisindemnity shall exclude only intentional anddeliberate misconduct on [First Jerseys] part.• Attention a cette sorte d’exclusion !! 56
  • 57. Les 4 Points Importants :• Limitations de l’indemnification aux réclamations detiers « Seller indemnifies Buyer solely for losses arisingout of a Third Party Claim directly caused by a breach ofthe contract by Seller, subject to certain exceptions,etc. »• L’ interprétation correcte des termes d’une claused’indemnification americain: : for example la differenceentre: « duty to indemnify, duty to defend, duty to holdharmless »• Les exceptions ou « carve-outs »– les consequential damages de l’acheteur!!– les dommages couverts par l’assurance– les dommages couverts par un autre forme deréparation sous le contrat• Comment imposer un « cap » sur l’indemnification ??? 57
  • 58. Comment utiliser « American-styleIndemnification » àvotre avantage58
  • 59. Indemnification: Negotiation PointsIndemnification can be the most important risk allocation tool, willusually be heavily negotiated.Some pointers for your checklist:• Avoid mutuality, use separate provisions to reflect differentlevels of risk between buyer and seller. Too confusing.• Consider role of insurance: limit indemnity obligation to lossesnot covered by insurance proceeds received by indemnifiedparty;• Buyer will want to be indemnified for all losses ―relating to‖.Seller will want to limit to those ―solely resulting from‖ or―caused by‖• Seller will want ―loss‖ to include only judicial awards, buyer willwant broadest possible definition of ―loss‖• Buyer will resist limiting indemnification to losses arising out of―material‖ breach of seller’s representations, will wantindemnification for all claims relating to the contract.• Seller will want to negotiate a CAP or Maximum on payment ofthird-party claim liabilities.59
  • 60. USA Indemnification: Definitions and TheirPractical Consequences• Seller shall ―indemnify, defend and [hold harmless] ‖ : means act ofmaking good the loss of the other party and defending the party,including hiring and paying the party’s attorneys.• Hold Harmless can mean the additional requirement of makingadvance payment for covered unpaid expenses as they incurred. It isbracketed in MSA 10.1 and should be avoided if possible.• Write EXCLUSIONS into your Indemnification Provisions!• Whether claim is valid or not , seller pays reasonable costs ofdefending.• Loss: you must define it (example 10.1.) in a way that makes economicsense in your deal. Do not leave undefined. Generally means ―Buyeractually spending money‖• Damages, leave undefined or clarify? Be consistent. Do damagesexclude consequential damages in 11.1 and then agree to indemnifybuyer for consequential damages in 10.1.?• ―relating to is broader than ―arising out of ― or ―resulting from‖: becareful not to open the door to claims not directly related to the sale ofyour products.60
  • 61. 10.1 Model Indemnification(Exclusion)• [Notwithstanding anything to the contraryin this Agreement, this Section 10.1 doesnot apply to any Claim (whether direct orindirect) for which a sole or exclusiveremedy is provided for [or barred] underanother section of this Agreement,including Section 4.4, Section 4.6,Section 9.5[,/ and] Section 9.8 [andSection 10.3].] and Section 11.161
  • 62. 10.2 Exceptions and Limitations onIndemnification• 10.2. Exceptions and Limitations on Indemnification. Notwithstandinganything to the contrary in this Agreement, an Indemnifying Party isnot obligated to indemnify or defend (if applicable) an IndemnifiedParty against any Claim if such Claim or corresponding Losses ariseout of or result from[, in whole or in part,] the Indemnified Partys orits Personnels:– ***[negligence/gross negligence] or more culpable act oromission (including recklessness or willful misconduct); [or]***– bad faith failure to [materially] comply with any of its obligationsset forth in this Agreement[./; or]– [use of the Goods in any manner not otherwise authorized underthis Agreement [or that does not materially conform with anyusage [instructions/guidelines/specifications] provided bySeller].] (improper testing of “les trappes”)• Compare with ―First Jersey Bank‖62
  • 63. Indemnification / Pactes de garantieAspects assurantiels• Exclusion standard des Programmes d’assurance RC des« obligations que les Assurés ont acceptées par convention etqui n’auraient pas été mises à leur charge sans cetteconvention »• Contractual Liability exclusion des programmes CGL US63
  • 64. Insurance Considerations• Specify types of insurance and minimum limits: CGL(commercial general liability); umbrella liability, AviationProduct Liability• Address whether parties may self-insure• Describe whether and on what terms the insured party mustadd the other party as additional insured or provideevidence of insurance64
  • 65. Insurance Considerations• Type d’assurance (RCG – RC Produit Aéronautique – RCProduit Spatial)– exclusion systématique des produits aéro et spatiauxdans les polices RCG• Trigger– base réclamation pour les polices RCG française / baseoccurrence en standard aux USA (souvent exigée dansla MSA)• Assuré Additionnel• 30 days advance notice• Renonciation à recours de l’assureur /Waiver of subrogation65
  • 66. La Prochaine Fois:Duty to Defend = Power toControl les litiges• Means we will also address these importantpoints• Choice of law: which state law applies?• Dispute resolution• Control of attorneys defending your position• Insurance• Additional details and points concerningindemnification66
  • 67. 67Some Final General PointsGestion des contrats• « Americanize » vos contrats! Et RTBC! RTBC !• Examinez avec soin les contrats commerciaux américains ;sollicitez des conseils juridiques pour interpréter et faireappliquer les contrats• Comprenez vos droits et responsabilités, respecter les termes ducontrat et les droits de demande de modifications• Sachez quelles lois s’appliquent• Comprenez les conditions particulières des contrats passés avecle gouvernement fédéral• Autres options de résolution des litiges contractuels aux États-Unis :• Médiation & Arbitrage ;• Il est souvent moins cher et plus rapide de passer par letribunal fédéral dinstance américain « U.S. District Court »
  • 68. 68Les résultats souhaités seront obtenus parla bonne gestion du ―régime deresponsabilité‖ dans vos contratsamericains
  • 69. 69DES QUESTIONS ?Coordonnées pour toute demande dinformations :Eliot NormanWilliams Mullen1666 K St. N.W. Suite 1200Washington, D.C. 20006Ligne directe : 001.804.420.6482enorman@williamsmullen.comwww.williamsmullen.comSophie MoysanMarshTour Ariane, La Défense 992088 Paris, La DéfenseLigne directe : 01.41.34.50.72sophie.moysan@marsh.comwww.marsh.frAntoine de La ChapelleGroupe Latécoère135, rue Périole BP 2521131079 TOULOUSE CEDEX 5Ligne Directe :antoine.de_la_chapelle@latecoere.frwww.latecoere.fr/

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