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Government Liable for $99 Million in Breach of Contract Damages Under Indemnification Clause

Client Alert | 1 min read | 07.24.18

On July 18, 2018, the Federal Circuit affirmed the U.S. Court of Federal Claims’ decision in Shell Oil Co., et al. awarding $99.5M to Shell and other oil companies for the government’s breach of World War II-era contracts for high-octane aviation gasoline production (previously discussed here, and here).

The case began when the U.S. and California sued the oil companies under CERCLA for costs of cleaning up acid sludge caused by the gasoline production. After being found liable under CERCLA, the companies filed claims against the government at the COFC for reimbursement of their CERCLA costs under the theory that the government had breached the “Taxes” clauses in their contracts, which, they argued, required the government to pay “any” charges related to gasoline production. In a decision which may encourage other contractors to pursue recovery under similar contract provisions such as “hold harmless” clauses in facilities contracts, and indemnification clauses authorized under Public Law 85-804, the Federal Circuit ruled that the COFC properly determined that the government breached the Taxes clause, and affirmed the award of $99.5M in damages (including nearly $31 million in interest on the companies’ claims).

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Client Alert | 4 min read | 08.13.26

Supreme Court Confirms Contractual Loss of Bargain Without Repudiatory Breach

English law has long treated the choice between terminating for repudiatory breach and exercising a contractual termination right as consequential. Under the Financings[1] causation principle, a party exercising a contractual right for a non-repudiatory breach could recover losses accrued to the date of termination — but nothing more. Loss of bargain was out of reach unless the breach went to the root of the contract. A practical workaround, confirmed in Lombard,[2] was to designate the relevant obligation as a condition, elevating any breach to repudiatory status, but that device carries significant strategic risk if the termination is later found to have been wrongful....