In an article on the importance of legal fees clauses in contracts, Vinay Industries President (CEO) Haresh V Patel stated that “Legal fees clauses can literally make or break the profitability of any construction, precision manufacturing or civil engineering contract.”
Construction and Manufacturing Companies, Large or Small, and their Employees Must Understand Legal Fees Clauses. As courts are generally inclined to follow the law when it comes to interpreting contract clauses and the law typically provides for successful litigants to obtain their legal fees, litigants in India who do not have legal fees clauses in their contracts that expressly state otherwise generally will not be entitled to recover their legal fees. Because the costs of litigation can be disproportionately large compared to the amount in controversy, having to cover the cost of defending a lawsuit out of pocket can be particularly costly for small businesses and manufacturers like Vinay Industries that import machinery into India and that have limited profit margins.
Consider the following examples. The latter is the result of a contested arbitration award. Contractors and members of the construction industry that manufacture or import construction materials need to keep in mind the importance of legal fees clauses when dealing with their sub-contractors or suppliers. If a contract does not provide otherwise such manufacturers and suppliers cannot claim their legal fees from their suppliers or contractors unless the court finds that the clause entitles them to their legal fees. Legal fees clauses also help companies like Vinay Industries, which imports machines into India and then sells them to customers in India, keep their production costs in India low. The following examples show how legal fees clauses can make a difference:
Long gone are the days of Indian business people who automatically redlined legal fees clauses without giving it a second thought because “the worst can’t happen to us”. In the face of the still growing dispute resolution backlog in India and the attendant risks of delays and higher costs of dispute resolution and enforcement, Indian business persons must take a proactive approach when dealing with their contracts.