Question 4

Explanation

(a) Indemnity

An indemnity is an express term that obliges one party to compensate the other party for any loss or damage that they may suffer as a result of the contract. It is used to address the risk of liability arising from third-party claims or breaches of contract. In procurement and supply, indemnity should be used when one party wants to protect themselves from potential claims or losses that are beyond their control or responsibility.

For example, a construction contract may include an indemnity clause that requires the contractor to indemnify the client for any damage to the property or injury to the workers caused by the contractor’s negligence or fault.

(b) Exclusion of liability

An exclusion of liability is a clause in a contract that eliminates the responsibility of one party for certain kinds of losses or damages that may result from the contract. It is a way of protecting the party who has an obligation to perform something (the obligor) from being liable if something beyond their control prevents them from fulfilling their obligation. A common example of an exclusion of liability is a force majeure clause, which frees the parties from their contractual duties in case of extraordinary events, such as natural disasters, pandemics, or wars.

For example, a supplier of goods may want to include a contract clause which excludes the liability for late delivery due to any cause beyond the seller’s reasonable control, including but not limited to fire, flood, storm, earthquake, war, riot, civil commotion, strike, lockout, industrial action, embargo, governmental action, or regulation.

(c) Retention of title

A retention of title is an express term that stipulates that the ownership of the goods sold under the contract remains with the seller until the buyer pays the full price. This clause addresses the risk of non-payment or insolvency of the buyer. It is often used when the seller wants to secure their right to reclaim the goods if the buyer fails to pay or becomes insolvent. Buyer, on other hands, may wish to extend the payment term in exchange.

Example: A supply contract may include a retention of title clause that states that the supplier retains title to the goods until the buyer pays all outstanding invoices.

(d) Termination clause

A termination clause is a provision in a contract that defines the circumstances and outcomes of ending the contract before its full performance. It is a way of managing the uncertainty and potential losses that may arise from the contract being frustrated, breached or impossible to perform. A good termination clause should clearly state the reasons for terminating the contract and the obligations and liabilities of each party after termination. It should also protect the interests of both parties and avoid disputes.

For example, a termination clause may allow the buyer to cancel the contract with a supplier who fails to deliver the goods on time or of the required quality, and to recover any damages or costs incurred as a result.

(e) Arbitration clause

An arbitration clause is a clause in a contract that obliges the parties to settle any conflicts arising from the contract by arbitration, instead of going to court. Arbitration is a different way of resolving disputes, which is faster and cheaper than conventional litigation and the final decision is still enforceable by law. The parties can choose how the arbitration will be conducted, such as the language, the mode of communication, and the attendance of the parties. This clause is especially useful for international trade disputes where the parties are from different countries with different legal systems.

Example: An international trade contract may include an arbitration clause that specifies the rules, venue, and language of arbitration, as well as the number and qualifications of arbitrators.