Enforceability of Limitation of Liability Clauses
Limitations of Liability
Parties in Hawaii may include contractual language limiting their respective liabilities. For example, in City Express, Inc. v. Express Partners, 959 P.2d 836 (Haw. 1998), the court recognized that design professionals are entitled to contractually limit their liability and therefore, in the context of construction litigation, where a party is in privity of contract with a design professional, economic loss damages are limited to contractual remedies. Id. at 40. Hawaii courts uphold these provisions on the theory that “‘[c]ontracting parties are free to adjust their respective obligations to satisfy their mutual expectations.’” Id. (citing Am. Towers Owners Ass’n v. CCI Mech., Inc., 930 P.2d 1182, 1190 (Utah 1996), abrogated on other grounds by Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234 (Utah 2009)).
Parties to sales contracts may also limit their liability and exclude warranties absent unconscionability. Haw. Rev. Stat. §§ 490:2-316, 490:2-719(1)-(3) (West 2021); Earl M. Jorgensen Co. v. Mark Constr. Inc., 540 P.2d 978, 982-83 (Haw. 1975) (upholding limitation of liability clause in a contract between construction company and steel company for sale of steel). Courts in Hawaii define unconscionability as “an absence of meaningful choice on the part of one of the parties together with contract terms unreasonably favorable to the other party.” Strojny v. PermaDri, Inc., No 11-00131 LEK-KSC, 2012 WL 4718099, at *17 (D. Haw. Sept. 30, 2012) (quoting Joaquin v. Joaquin, 698 P.2d 298, 304 (Haw. 1985)).
Hawaii courts strictly construe exculpatory clauses but will generally uphold them unless the clause is: “(1) violative of a statute, (2) contrary to a substantial public interest, or (3) gained through inequality of bargaining power.” Laeroc Waikiki Parkside, LLC v. K.S.K. (Oahu) Ltd. P’ship, 166 P.3d 961, 981 (Haw. 2007); Narayan v. Ritz-Carlton Dev. Co., Inc., 400 P.3d 544, 554 (Haw. 2017) (invalidating damages provision that prevented arbitrator from awarding punitive, exemplary, or consequential damages based on procedural unconscionability due to unequal bargaining power, nature of arbitration provision and unfair surprise where arbitration provision was buried in separate document); Krohnert v. Yacht Sys. Hawaii, Inc., 664 P.2d 738, 744 (Haw. Ct. App. 1983) (“It is true that a party can contract to exempt himself from liability for harm caused by negligence.”). In Krohnert, the court invalidated an exculpatory provision that shielded a professional marine surveyor from liability from his own negligence because the parties had not “clearly and unequivocally” agreed to the clause. Krohnert, 664 P.2d at 745.
Haw. Rev. Stat. Ann. § 431:10-222 (West 2021) voids indemnity agreements in certain construction contracts when they purport to indemnify the promisee against liability for bodily injury and damage to property resulting from the promisee’s sole negligence or willful misconduct. A subcontractor’s promise to indemnify a general contractor against liability resulting from the subcontractor’s negligence is not void under Section 431:10-222. Espaniola v. Cawdrey Mars Joint Venture, 707 P.2d 365, 370 (Haw. 1985) (interpreting predecessor statute). In Arthur v. State of Hawaii, Dep’t of Hawaiian Home Lands, 377 P.3d 26 (Haw. 2016), the court held that the statute, which bars indemnification of claims for sole negligence or willful misconduct, by implication voids a duty to defend such claims. Id. at 28; GGA, Inc. v. Kiewit Infrastructure W. Co., CV 18-00110 JMS-WRP, 2020 WL 369643, at *26 (D. Haw. Jan. 22, 2020) (granting summary judgment that insurer had no duty to defend where indemnity clause violated Hawaii law and insurer entitled to reimbursement for having successfully defended insured).
Enforceability of Waiver of Consequential Damages Clauses
Hawaii courts have not directly addressed the issue of the enforceability of a waiver of consequential damages in construction or engineering services contracts, but it appears that they may likely enforce such clauses because they enforce limitation of liability clauses in other contexts. See, e.g., City Express, Inc. v. Express Partners, 959 P.2d 836, 840 (Haw. 1998) (citation and quotation marks omitted) (“Contracting parties are free to adjust their respective obligations to satisfy their mutual expectations.”). It also appears that Hawaii courts may likely analyze contract clauses that purport to waive consequential damages in the same manner as other exculpatory clauses. “[A]s a general rule, [e]xculpatory clauses will be held void if the agreement is (1) violative of a statute, (2) contrary to a substantial public interest, or (3) gained through inequality of bargaining power.” Laeroc Waikiki Parkside, LLC v. K.S.K. (Oahu) Ltd. P’ship, 166 P.3d 961, 981 (Haw. 2007) (citation and quotation marks omitted); see Narayan v. The Ritz-Carlton Dev. Co., Inc., 400 P.3d 544, 553–54 (Haw. 2017) (finding the contractual provision preventing an arbitrator from awarding punitive, exemplary, or consequential damages to be substantively unconscionable where the defendant had unequal bargaining power and noting that “Hawai’i law disfavors limiting damages for intentional and reckless conduct.”).
In the context of transactions for the sale of goods, the Hawaii Uniform Commercial Code allows a buyer to recover consequential damages from the seller under appropriate circumstances. See Haw. Rev. Stat. Ann. §§ 490:2-711 – 490:2-714, 490:2-715(2). However, Hawaii code section 490:2-719 permits the buyer and the seller to contract to limit or exclude consequential damages unless the contractually specified limitation or exclusion is unconscionable or where the circumstances cause the contractually specified limited or exclusive remedy to fail of its essential purpose.
Limitations of liability are not considered unconscionable unless they involve “an absence of meaningful choice on the part of one of the parties together with contract terms unreasonably favorable to the other party.” Strojny v. PermaDri, Inc., No 11-00131 LEK-KSC, 2012 WL 4718099, at *17 (D. Haw. Sept. 30, 2012) (quoting Joaquin v. Joaquin, 698 P.2d 298, 304 (Haw. 1985)). A limitation of remedy clause fails in its essential purpose and is of no effect when goods contain latent defects that are not discoverable within reasonable time such that there is no minimum adequate remedy provided as required by the Hawaii Uniform Commercial Code, or when a party obligated to provide a limited remedy, by its action or inaction, causes the remedy to fail. Earl M. Jorgensen Co. v. Mark Const., Inc., 540 P.2d 978, 986 (Haw. 1975).
Application of Economic Loss Doctrine
Hawaii courts recognize the economic loss doctrine and apply it in the contexts of products liability, construction cases, and suits against design professionals. A plaintiff may not recover for purely economic losses on a products liability, negligent design, or manufacture theory unless there is personal injury or damage to other property. Ass’n of Apt. Owners v. Venture 15, Inc., 167 P.3d 225, 245, 285–88 (Haw. 2007); see also City Express, Inc. v. Express Partners, 959 P.2d 836, 839 (Haw. 1998) (no recovery for economic loss when in contractual privity with design professional). Additionally, even in the absence of contractual privity, negligence claims based on violations of contract specifications are barred by the economic loss doctrine. Hawaii Motorsports Inv., Inc. v. Clayton Grp. Servs., No. CIV. 09-304, 2009 WL 3109941, at *4-*5 (D. Haw. Sept. 25, 2009) (holding that claims for recovery under a theory of negligence are barred when defendant’s duties are owed to a third party by contract); Leis Family Ltd. P’ship v. Silversword Eng’g, 273 P.3d 1218, 1224 (Ct. App. 2012) (in professional negligence action regarding design of thermal energy system, “application of the doctrine [is not foreclosed] in the absence of privity of contract”). Indeed, in the construction context, “[e]ven in the absence of privity of contract between the design professional and a project owner, the law does not impose a duty in tort if it would ‘disrupt the contractual relationships between and among the various parties.’” Leis Family Ltd. P’ship, 273 P.3d at 1225.
Hawaii’s economic loss doctrine does not bar homeowners from pursuing a negligence claim against a builder who allegedly violates an applicable building code. Venture 15, 115 P.2d at 288. In addition, the doctrine does not bar claims for negligent misrepresentation or fraud. State ex rel. Bronster v. U.S. Steel Corp., 919 P.2d 294, 302-03, 318 (Haw. 1996) (holding that economic loss rule did not bar recovery by the State of Hawaii against a steel manufacturer who had made direct representations that its product was appropriate for the construction of a sports stadium).
Enforceability of No Damages for Delay Clauses
No Hawaii court has addressed the enforceability of “no damages for delay” clauses. However, Haw. Code R. 3-125-7(4)(A) provides that contractors on public projects are entitled to price adjustments for suspensions of work as long as the suspension is beyond the control of the contractor.
Strict Interpretation of Contract
Hawaii courts strictly interpret contracts. It is well-settled that, when interpreting a contract, “courts should not draw inferences from a contract regarding the parties’ intent when a contract is definite and unambiguous.” Williams v. Aona, 210 P.3d 501, 515 (Haw. 2009) (quoting United Pub. Workers, AFSCME, Local 646, AFL-CIO v. Dawson Int’l, Inc., 149 P.3d 495, 508 (2006)). Instead, contractual terms should be interpreted according to their plain, ordinary meaning and accepted use in common speech. Hawaiian Ass’n of Seventh-Day Adventists v. Wong, 305 P.3d 452, 461 (Haw. 2013). The court should look no further than the four corners of the document to determine whether an ambiguity exists. Id. Ambiguity exists in a contract when its terms are reasonable susceptible to more than one meaning. Provident Funding Associates, L.P. v. Gardner, 488 P.3d 1267 (Haw. 2021). The parol evidence rule bars the use of any extrinsic evidence to vary or contradict any terms of an unambiguous contract. Hawaiian Ass’n of Seventh-Day Adventists, 305 P.3d at 461. However, where the agreement is ambiguous or incomplete or where there is any doubt or controversy as to the meaning of the language, Hawaii courts are permitted to consider parol evidence to explain the intent of the parties and circumstances under which the agreement was executed. Id. at 461-62. Whether a contract is ambiguous depends on whether or not particular words or phrases in and of themselves are uncertain or doubtful in meaning, but a simple disagreement as to the meaning of a contract or its terms does not absolutely render language ambiguous. Foundation Intern., Inc. v. E.T. Ige Const., Inc., 78 P.3d 23, 33-34 (Haw. 2003). In interpreting a contract, while Hawaii courts follow the general rule that ambiguities will be construed against the drafter, this rule has been held inapplicable when the contract has been negotiated between two parties of equal sophistication and bargaining power. Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 839 P.2d 10, 25 n. 5 (Haw. 1992).
Prompt Payment Requirements (Public/Private)
Hawaii Public – Haw. Rev. Stat. §§ 103-10, 103-10.5 (2022) (owner to prime 30 days after invoice; prime to sub 10 days after payment; interest on monies owed to prime at prime rate plus 2%; interest on monies owed to sub at 1.5% per month).
Hawaii Private – Haw. Rev. Stat. § 444-25 (2022) (prime to sub 10 days after invoice or after receipt of payment from owner, whichever is later, but may be contingent upon receipt of funds held in escrow or trust if disclosed on bid solicitation; interest at 1.5% per month).
False Claims Statute
Haw. Rev. Stat. Ann. §§ 46-171 to 46-181, 661-7, 661-21 to 661-31 – Hawaii has two primary false claims statutes. One applies to false claims submitted to counties (Id. § 46-171), and the other applies to false claims submitted to the state (Id. § 661-21). The prohibited acts in the two statutes mirror the FCA. The statutes differ from the FCA because they: (1) allow for joint and several liability for acts committed by two or more persons, and (2) impose liability upon those persons who benefit from the inadvertent submission of a false claim, discovery of the falsity of the claim, and subsequent failure to disclose this fact within a reasonable period of time after discovery. Id. §§ 46-171(a)(7), (c); 661-21(a)(7), (c). The penalties under the two statutes are the same as those under the FCA. Id. Hawaii imposes a civil penalty range of $5,500 to $11,000 and treble the amount of damages sustained by the state. Id. § 46-171(a).
Hawaii law also provides a third separate statutory provision (applicable to false claims submitted to the state) that penalizes any person who intentionally submits a false claim, or commits fraud in the proof, statement, establishment, or allowance of any claim. Id. § 661-7. The statutory penalty is a forfeiture of the claim. Id. § 661-7(a). The provision also provides that any person who intentionally submits a false claim to the state for an amount less than $5,000 is liable for civil penalties of: (1) interest on the amount of excess payments at the maximum legal rate in effect on the date the payment was made; (2) an amount not to exceed double the amount of the excess payment; and (3) $1,000 for each fraudulent claim made against the state. Id. § 661-7(b).
Licensing Requirements for Construction Managers
The State of Hawaii does not explicitly require construction managers to be licensed; however, general contractors are required to be licensed at the state level. See Haw. Rev. Stat. Ann. § 444-9. Some construction management duties may fall under the statutory definition of a “contractor.” Hawaii statutes define a “contractor” as “any person who by oneself or through others offers to undertake, or holds oneself out as being able to undertake, or does undertake to alter, add to, subtract from, improve, enhance, or beautify any realty or construct, alter, repair, add to, subtract from, improve, move, wreck, or demolish any building… .” Id. § 444-1. Thus, construction managers that fall under such definition are required to be licensed.