What are the commonly employed operative clauses within a commercial contract?

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i. Limitation of Liability

A liability clause, also known as a Limitation of Liability is a provision in a contract that serves as a disclaimer, outlining the specific circumstances in which the party making the disclaimer can be held responsible for losses or damages. Additionally, it establishes the extent to which damages can be sought in particular situations. Essentially, the limitation of liability clause outlines the terms under which one party agrees to compensate the other in the event of specific occurrences outlined in the agreement. This provision restricts both the amount and the categories of damages that can be claimed from the party responsible.

The inclusion of a limitation of liability clause serves as an effective means to address specific unforeseen events. Typically assumed by one party, often the service provider, this clause holds significance for the following reasons:

? By restricting its liability, the party can broaden its permissible risk exposure within a specific agreement.

? It enables the anticipation of the highest possible exposure and potential contingent liabilities.

? The party can proactively secure sufficient insurance coverage to mitigate any potential liabilities.

In Lily White v. R. Munuswami AIR 1966 Mad 13, the Madras High Court refused to enforce a clause limiting the liability of a dry cleaner, which was printed on the reverse of the bill handed over to the customer, to 50% of the market price or value of the articles. The court found the terms of limitation of liability against public policy, public interest, and the fundamental principles of the law of contract viewing such conditions as flagrant infringement of the law relating to negligence.

ii. Indemnity Clause

While the above overview provides a general insight into the essential elements of an indemnification clause, the specific terms may vary depending on the unique provisions within each agreement. These key components include:

? Indemnification event: Identifies the circumstances or events that trigger the indemnification obligation.

? Indemnifying party: Designates the party obligated to compensate the indemnified party.

? Indemnified party: Denotes the party receiving compensation from the indemnifying party.

? Amount of indemnification: Specifies the maximum compensation offered by the indemnifying party.

? Time limit for indemnification: Establishes a deadline for the indemnifying party to fulfill its obligation.

? Scope of indemnification: Describes the types of losses or damages covered under the indemnification obligation.

? Exclusions: Lists exceptions to the indemnification obligation.

? Subrogation: Defines the extent to which the indemnifying party may pursue third parties for reimbursement.

In Jaswant Singh vs. Section of State14 BOM 299, the Bombay High Court recognized that the rights of an indemnity holder closely resemble those of a surety according to Section 141 of the Contract Act, 1872. The court's ruling emphasized that when the indemnifier gains entitlement to all the securities held by the creditor against the principal debtor, whether or not the principal debtor was aware of it, the indemnifier assumes a position akin to that of a surety. In such cases, the individual agreeing to repay is deemed to inherit all the methods and measures by which the initial payer secured themselves against any losses or damages or arranged for compensation for their losses or damages upon reimbursement.

iii. Non-solicitation clause

Non-solicitation clauses are contractual provisions with legal validity that forbid the solicitation or negotiation by one party. These clauses are commonly employed in agreements between companies or individuals to prevent the unauthorized approach to employees and customers. Specifically, non-solicitation clauses are designed to hinder competitors from enticing away the most skilled employees or valuable customers. The primary objective of incorporating a non-solicitation clause is to shield a business from potential harm caused by competitors, clients, or other entities attempting to lure away crucial employees or contractors, which could have a detrimental impact on the business's operations. Typically, non-solicitation clauses are implemented at the outset of a contractual relationship, such as when employees sign these clauses and other related documents at the commencement of their employment or during the separation process.

In the case of Wipro Ltd. v. Beckman Coulter International SA (102006 (131) DLT 681), the Delhi High Court examined the validity of a non-solicitation clause present in a commercial agreement between the involved parties. This clause prohibited the parties from enticing each other's employees to leave their current employment and join the opposing party, but it did not restrict employees of either party from voluntarily leaving their positions and joining the other. The court reasoned that since the restriction specifically targeted the contracting parties, it should be interpreted more leniently than a similar restriction found in an employment contract. Consequently, the court concluded that the non-solicitation clause did not constitute a restraint on trade, business, or profession and, therefore, was not rendered void under Section 27 of the Indian Contract Act, of 1872.

iv. Confidentiality Clause

A confidentiality clause in a contract serves to prohibit the parties involved from disclosing personally identifiable information to the public, market competitors, or any third parties. The specific confidential information protected by such a clause may vary depending on the company and industry, encompassing elements like:

? Confidential business information disclosed during discussions, analyses, proposals, and negotiations

? Inventions

? Personally identifiable information concerning employees and clients

? Trade secrets

These confidentiality clauses find application in any contract where individuals such as employees, partners, or other parties are exposed to sensitive or confidential information that should remain undisclosed to the public, third parties, or competitors. The scope of a confidentiality clause is typically defined in terms of both time and the type of information covered. As business interactions become more intricate, such as in mergers, acquisitions, and joint ventures, contracts tend to grow in complexity or extend over longer durations.

In Zee Telefilms Ltd. v. Sundial Communications (P) Ltd. 2003 SCC Bom 344 held the confidentiality clause in question was deemed to be more extensive than copyright law, which only applies when a work is permanently recorded. The plaintiff had conceived a concept registered with the Film Producer's Association in 2002, sharing it with the defendant under the agreement not to breach confidentiality by using or disclosing the material. Subsequently, the plaintiff discovered that the defendant was deliberately delaying negotiations and ultimately chose not to enter into a contract. Later on, the defendant independently pursued a project based on the same concept. The plaintiff argued a clear violation of confidentiality and copyright infringement.

The defendant defended their actions by asserting, firstly, that copyright law does not cover abstract ideas or concepts, and secondly, that the plaintiff's idea was neither original nor novel, making it exempt from the law of confidence. The Bombay High Court, however, concluded that while copyright protects against the entire world, the law of confidence applies specifically when information is shared in good faith with a particular individual through oral or written communication. Even if the case did not fall under copyright law, the court deemed it a breach of confidence and ruled in favor of the plaintiff.

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