Liquidated Damages: A different kind of Cure We have seen that the exporter sometimes cures a defect by offering the

buyer a reduction in price and the size of the discount is dependent on negotiation. - A liquidated damages clause is valuable to both sides. It is a sellers guaranty that in case the goods does not conform with the contract, the contract price is reduced in a fair and reasonable way. The exporter is also protected from to be penalized by total loss of contract, if the exporter loses money, the loss is kept within reasonable limits. Therefore, it is the best way of avoiding disputes. - The performance figures that are typically subject to a liquidated damages clause are output ( for example of a generator, a pumping system, or a manufactoring system), consumption (fuel consumption of an engine, raw materials, consumption of an industrial process) and efficiency (reduction in levels of pollution, emission of waste gas). For instant, in one contract stated: In the event of late Delivery for reasons other than force majeure as defined below, the Seller shall pay as liquidated damages and not as a penalty the sum of 0.5% of the price payable under clause 9 below. Payment of liquidated damages shall be due without the Buyer having to furnish proof of any loss, damage or injury. Cost, Defects and the results of defects. A defects liability provision usually requires the exporter to cure defects at his own risk and cost. Occasionally a warranty dicated by a strong exporter is less generous to the buyer: perhaps the buyer must pay for the shipping of replacement parts, or for sending a repair team to the site, sometimes the buyer must compensate the exporter for any increase in the price of replacement parts. Such demand are unusual, and the buyer is probably right to refuse them. In any case, the sums involved are small. In fact, the major risk for the exporter is not the cost of repairing and replacing defective goods, the big risk is that the exporter is asked to compensate the buyer for consequential damage or consequential loss. It includes direct losses and indirect losses or consequential losses. So, Which costs must the exporter pay? The answer is: it denpends on applicable laws stated in contract. - In Germany, the BGB allows a claim for all direct costs including uncovering, making good and so on. - In the United States, the UCC allows recovery of all losses including incidental and consequential damages. However, like most aspects of their contractual relationship, the exporters liability for the buyers loss is disposive: the 2 sides must negotiate the issue and the parties must address it carefully in their negotiations.