Construction contracts come with different types of limitation clauses that is designed to protect parties involved in the contract from being exposed to astronomical compensation for damages. Limitations on construction contract clauses are very important of the Serbia and Montenegro construction arbitration. It ensures that the arbitral institution does not o above a particular compensation percentage when the losses caused by a party are circumstantial or unplanned.
This article will be considering the Limitation on Construction Clauses in Serbia and the Limitation on Construction Clauses in Montenegro due to both States’ respective similar laws and legal frameworks. At the end of this article, Investors or contracting parties looking to carry out projects in these states will know what they need to do when drafting limitation clauses.
What is Limitation on Construction Clauses According to Serbia and Montenegro Laws
Limitation clauses in contracts are mutually set up liability caps by parties entering a contract to protect themselves from being exposed to the full liabilities of various claims that one may take against the other in the instance there is a dispute. Limitation clauses are extremely important as far as construction arbitration is concerned in both countries as it restricts how much damages a party can be charged by the institution when its action causes loss for the other party.
Limitation clauses also work well for reducing the number of liquidated damages that one party may pay the other following missing deadlines in completing a project.
The next section will consider how valid and effective construction clauses can be in Serbia and Montenegro, considering certain major metrics.
The Scope of Limitation Clause in Serbia and Montenegro
CAPS ON LIABILITY
The most important part of the limitation clause as far as both countries are concerned is how caps on liability are decided. The parties involved in a construction contract can decide to choose the type of liability cap they believe is significant to offset each other losses while not opening the other excessive damages compensation. However, it is also important to know that the International Federation of Consulting Engineers (FIDIC) states two standard ways to set caps on liability.
In its SubClause 17.6, the body states that a contractor will only be liable for damages stated in a contract or the accepted contract amount. The clause excludes the contractor from paying for damages due to the other party incurring loss for the use of any works, loss of any contract, loss of profit, and circumstantial or indirect loss.
The other liability cap presented in the body Subclause 8.7 excludes a contractor from being liable for delay damages that are more than the supposed earning that the contractor is expected to earn. The clause also stated that other losses incurred from incurring loss for the use of any works, loss of any contract, loss of profit, and circumstantial or indirect losses would be limited to the amount listed in the contract or no more than the contract expected payment.
Considerations to Liability Cap
Liability caps must be carefully drafted with precise wordings with parties having full independence and rights to set the cap that they feel is in line with the liabilities they seek to exclude. However, the fact that parties get to set their liability limitations does not mean that the arbitral institutions will enforce them. The tribunal gives parties room to challenge caps liabilities they had agreed to in certain circumstances. Some of the reasons usually root from the issue of the liability being far larger than the damage or certain circumstances that do not justify its use.
Some of the Rounds With which Liability Can be Challenged Include
This is when the liability cap being south against a defaulting party is far larger than the damages the claimants open to losses seek. In this kind of situation, the respondent could challenge the agreed liability as unjust and cruel. The arbitral institution has the jurisdiction to review the liability cap when such a situation is present.
Violation of the Principle of Equality of Mutual Consideration
Suppose certain understanding and terms that both parties have in written form in the limitation clause mandate them to follow certain rules and allow room for dialogue before seeking damages. In that case, a break in that understanding could lead to the respondent party challenging the claimants’ move for damages. Mutual understanding is a very important part of the liability cap and must be written in clear specific terms in a limitation cap to hold water.
This is unplanned and unprecedented work that causes a delay in the project’s completion. For example, a weak soil structure putting a project in jeopardy can lead to a delay in the work process of the contractor as they need to consider their options and long-term consequences. If an employing firm seeks the damages allowed in a limitation clause, the respondent has enough round to challenge the move in the arbitral tribunal.
This article has considered the validity and effectiveness of construction clauses in the Serbia and Montenegro construction arbitration space. The topic is extremely vast, but this scope has given a good idea of what is expected for people seeking to set liability caps and limitation clauses in their contracts.
Limitation clauses generally require the service of expert arbitrators as they help contractors draft the right piece that protects their interests. Rättsakuten is a top arbitration institution that handles limitation clauses and ensures that their clients are fully protected by inputting right and precise wordings. Clients can contact the firm here for inquiries.
Rättsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rättsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals