One aspect of Megacorp’s business is oil and gas exploration. They have decided to
branch out into ‘fracking’ but have no direct experience of this method of extraction
of oil and gas.
As part of a series of contracts with a number of firms they approach Billy Bob plc,
a small Texas firm with considerable experience of the methods of water and
chemical injection and removal required for ‘fracking.’
Please advise on the following points on the basis that the contract will include the
provision of services and transfer of ownership in goods.
(1) What steps should Megacorp take to protect their legal position before a
formal contract is agreed with Billy Bob? It is important to note that Billy
Bob has a very low capital base but the majority shareholder is a major
Texas oil company.
(2) Megacorp’s business plan requires a tight time schedule as ‘fracking’ is
politically contentious and may be made illegal at some time in the future.
Please advise on any necessary time clauses required.
(3) With regard to the supply of equipment by Billy Bob to Megacorp under the
contract please advise on: quality, price and passing of property clauses.
(4) Billy Bob wish to include the following exclusion clause:
1. The supplier passes on to the buyer all rights afforded by his own supplier in
place of any other conditions, guarantees, liabilities or warranties expressed or
implied statutory or otherwise and in no event shall the sellers be liable for any loss
injury or damage howsoever caused.
2. The supplier will repair or replace goods defective solely by reason of faulty
materials or workmanship in construction
3. Liability for loss of profit or for any category of loss, however caused, shall be
excluded. The supplier will not be liable for damage which arises from any stoppage
or breakdown of the goods or in any other way from the performance of the goods
in operation or any damage to the plant.
(5) As the work may be interrupted by demonstrators or by government
intervention, Megacorp require some contractual protection. How can this be done
and what are the risks if it is not?
(6) Billy Bob have a poor environmental record in Texas and have a number of
convictions for environmental offences. Megacorp require advice on the drafting of
any clauses in the contract which deal with possible claims for damages against