Skip to main content



Wartsila NSD North America, Inc. v. Hill International, Inc.

530 F.3d 269 (3rd Cir. 2008)

CONTRACTS; EXCULPATION — An exculpatory clause in an agreement becomes unenforceable only where the protected party intentionally, recklessly, or wantonly causes harm or gross negligence, or where the contracting parties had grossly unequal bargaining power, or when the transaction involves the public interest.

An engineering and construction company hired a consulting firm to provide services for the construction of a power plant that the company was building in El Salvador and that had fallen behind schedule. The consulting firm recommended a senior consultant be assigned to the project, and had submitted the consultant’s alleged resume. Their agreement contained an exculpatory clause which insulated the consulting firm from liability for any lost, delayed or diminished profits, or any kind of incidental, special or indirect or consequential damages resulting from the consultant’s performance or failure to perform under the agreement. The company hired the senior consultant as an independent contractor to provide assistance with construction and claims management on the project.

When the project was not completed on time, the company and its subcontractor entered into arbitration, making delay claims against one another. The consultant was a key witness. Eventually, his testimony was impeached on the basis that his resume was inaccurate and overstated. The company withdrew his testimony and also withdrew certain claims. The arbitration panel issued a large award in favor of the subcontractor.

The construction company sued the consulting firm to recoup its losses, alleging the consulting firm furnished a consultant with a fraudulent resume. A jury awarded damages for negligence and breach of contract in favor of the construction company. The consulting firm moved to overturn the verdict based upon the exculpatory clause in the consulting agreement. The lower court found that the exculpatory clause was unenforceable under Maryland law, and in the alternative, the damages incurred by the company were direct, not consequential, and therefore were not covered by the exculpatory clause. The consulting firm appealed.

The Appellate Division upheld the validity of the exculpatory clause. It vacated the lower court’s order and remanded the matter for a retrial solely regarding the direct damages that would be due the construction company because of the consulting firm’s breach of contract. It noted that an exculpatory clause becomes unenforceable only where the protected party intentionally, recklessly or wantonly causes harm or gross negligence, or where the contracting parties had grossly unequal bargaining power, or when the transaction involves the public interest. The Court found no exception applied in this matter. It noted that the jury found the consulting firm was merely negligent, and both parties were represented by experienced businessmen and attorneys at the time they signed the agreement. The Court also found that the lower court erred in determining that all of the damages sought by the company were direct. It saw any damages resulting from the impeachment of the consultant by reason of the fabricated resume as more likely consequential than direct, and the jury did not identify which portion of its award was for direct damages.


MEISLIK & MEISLIK
66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 • info@meislik.com