A sanction clause in a contract is a provision that requires the defaulting party to award some kind of compensation to the innocent party in the event of an infringement. Compensation for violations can sometimes be a difficult process that requires costly and laborious litigation. To minimize load and costs, you can include a penalty in your contract. However, they should be aware that a sanction clause cannot be applicable if it does not meet certain requirements. Therefore, you should put yourself on notice when designing one. Otherwise, a sanction clause cannot be considered enforceable. Some or all events involving a deduction may be considered offences (see Box 5.31), but these are not the only potential offences likely to occur to the private partner. In addition, it is necessary to encourage delivery in projects other than through availability payments, particularly in the case of customer payment projects in which no direct payment is made by the government to the private partner, which can be withheld or deducted. In some cases, it may be necessary to go directly to formal criminal proceedings, but it must be recognized that both the violation and the manner in which it is dealt with can influence future relationships and performance. “Partnership” in a PPP is important and, if any minor breach is formally dealt with and results in penalties, the scope for innovation and risk-taking is reduced. Therefore, the introduction of credits as an intermediate step for sanctions is good practice.
The public procurement authority must be aware of the nature of the relationship it wishes to be and how it should be reflected in the context of offences and sanctions. This is a condition imposed on a party that states that it is necessary for the party to fulfil the condition, since one of the main conditions of the contract is that it be included in the agreement. As a general rule, the parties will endeavour, through trade agreements, to agree on terms that will determine the extent of financial liability of one of the parties in the event of default. These clauses are called liquidation clauses and are often used in oil and gas, manufacturing and construction contracts when the performance of the parties` obligations is often set within tight deadlines and can have negative consequences. For example, parties to a construction contract may agree that if a party does not provide materials in time to delay the project, it pays a fixed amount of money per day until delivery. For a variety of reasons, it may be advantageous to use liquidated compensation clauses. However, notwithstanding the contractual provisions, the courts have indicated that they will conduct a full review of the nature and content of the merger when deciding whether to impose a primary or secondary obligation. Therefore, in order to ensure that the provisions do not fall within the scope of the sanction clause rule, the parties should structure the provisions as primary obligations while reasonably enacting provisions to ensure that they are not considered a disguised and therefore unenforceable sanction clause.
If your company has a contractual dispute or related matters in progress, please contact our team of experts from Diesselbstwegen in Derby, Leicester or Nottingham for advice on 0800 024 1976 or via our online form. The court departed from the “true pre-estimate” rule in Dunlop. On the contrary, they recognized that if an innocent party could prove that it had used a clause in a contract to protect a legitimate interest and that the sentence was not exorbitant or indecent, it should not be a true pre-readability of the damages. The Court held that the real consideration was “whether the impugned provision is a secondary obligation that imposes a disproportionate prejudice on the offender in relation to a legitimate interest of the innocent party in enforcing the primary duty.”