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HUGHES COMMUNICATIONS GALAXY, INC.

, PLAINTIFF –APPELLANT

VERSUS

UNITED STATES DEFENDANT – CROSS APPELLANT

Nos. 005109, 00-5119

Decided: November 13, 2001

INTRODUCTION

Hughes communications Galaxy Inc. entered into a Launching Services Agreement


(LSA) which required NASA to use to use its “best efforts” to launch ten of Hughes’
HS-393 satellites on space shuttles. The Launch Service Agreement required NASA
to use its best efforts until it launched all ten satellites before September 30, 1994.

However, Hughes Case against the United States government arose out of a change
in space policy ordered by President Reagan in 1986, 15thAugust as a result of the
“Challenger Disaster”. The challenger disaster took place in 1986, 28th January where
the space shuttle challenger broke apart 73 seconds into its flight killing all 7crew
members. The failure was caused by disintegration of the space craft joints which
was not designed to handle the unusually cold conditions that existed at the launch.
Consequently NASA shuttle fleet was reduced and the President made an order
stopping NASA from being in the business of launching commercial space craft.

The said new policy, limited the government’s launch of satellites to those that were
shuttle-unique or that had national security or foreign policy missions. This
undoubtedly led to the U.S government’s breach of a commercial satellite launch
service with Hughes Communications Galaxy Inc. forcing Hughes to make other
arrangements to launch its own satellites. In that regard, Hughes incurred costs
when he resorted to the ELV (Expendable Launch Vehicle) launches which provided
an alternative to shuttle launch services under the LSA.

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Hughes brought an action against the US government for breach of contract and for
taking its property without providing just compensation.

COURT DECISION.

The court held that Hughes claim for taking of its property was not proper. Hughes
had voluntarily entered into those terms of contract. Indeed, “the concept of a taking as a
compensable claim theory has limited application to the relative rights of party litigants when those
rights have been voluntarily created by contract. In such instances, interference with such contractual
rights generally gives rise to a breach claim not a taking claim.” Taking claims rarely arise

under government contracts because the Government acts in its commercial or


proprietary capacity in entering contracts, rather than in its sovereign capacity.
Accordingly, remedies arise from the contracts themselves, rather than from the
constitutional protection of private property rights.

On the question of best efforts obligations by NASA, the Court of Federal Claims
correctly reasoned, Hughes could not have reasonably expected NASA priorities to
elevate commercial satellites above other goals for the remainder of the contract
period. The LSA itself specifically included a 1982 listing of priorities, but said
nothing about the 1984 policy and without the 1984 policy in the contract, NASA's
could not be held liable for the best efforts obligation.

On the issue of damages, the court rejected the Government’s cross appeal that
Hughes should only be able to recover damages for the three HS 393’S actually
launched and instead awarded Hughes damages for its increased costs for obtaining
substitute launch services.

CONCLUSION

The Best Effort Obligation.

The Launch Service Agreement between the parties to this suit was a best effort
contract. By its nature, such a contract requires the contractor to use its best efforts to
provide the goods or services at the stated price. 1 The obligations imposed under a

1
General Dynamics Corp. V United States, 671 F. 2d 474.480 (ct.1982).

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best effort contract are different from contracts that guarantee performance. If
despite the contractor’s best efforts, it cannot meet its contractual requirements, the
other party has obtained precisely what it bargained for, that is, the contractor’s
efforts. Best efforts standard was held to be equivalent to that of good faith.2 Such a
standard is defined in terms of the facts and the field of law involved. This means
that the best effort contract requires the promisor to perform the contract to the best
effort of its abilities. In that regard, NASA was as matter of obligation required to
use its best efforts to launch ten Hughes Satellites, so that Hughes receives benefits
of the bargain it struck with the government. Thus the difference between the
contract price and the contract cover. In this particular case, Hughes decided to
launch the JCSAT–1 satellite, a particular HS–393, on an ELV several months before
President Reagan's announcement in 1986 that NASA would no longer launch
commercial satellites on shuttles and therefore, NASA only breached its best efforts
obligation after President Reagan's announcement.

In that regard, there is need to look into the rationale behind the decision by the U.S
government to suspend shuttle operations which led to the breach of the contract in
question.

Damages

“The general rule in common law breach of contract cases is to award damages
sufficient to place the injured party in as good a position as he or she would have
been had the breaching party fully performed” San Carlos Irrigation & Drainage
Distribution v. United states, 111 F.3d 1557, 1562 -63 (Fed. Cir 1997). A plaintiff
must show that but for the breach, the damages alleged would not have been
suffered “Moreover, the damages must have been foreseeable at the time the parties
entered the contract, which requires that they b” natural and proximate result of the
breach” Locke v United States, 151 Ct C 262, 283, F. 2d 521, 526 ( Ct.Cl. 1960). The
LSA itself further limits damages to “direct damages only and excludes
consequential damages from any recovery The LSA states that damages “shall be

2
Triple-A Baseball Club Associates V. Northeastern Basebal, Inc.,832F.2d 214, 225(1 st Cir.1987).

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limited to direct damages only and shall not include any loss of revenue, profits or
other indirect or consequential damages”.

On the question whether Hughes proved damages by showing whether it incurred


increased costs in launching satellites on ELVs, rather than on shuttles

Hughes presented two main methods for calculating the increased costs and the
court found that even using its best efforts, NASA would have only launched five
HS–393s. Accordingly, the court only awarded Hughes increased costs for five
satellites, rather than ten. The court awarded Hughes $102,680,625 in damages for its
increased launch costs and refused to award Hughes reflight insurance costs and
increased launch insurance costs for the five satellites.

Whether the government had produced enough evidence to reduce its damages by
the amount Hughes had passed on to its customers in increased prices

The Court of Federal Claims awarded Hughes its increased costs of “cover if a seller
breaches a contract for goods, the buyer may “cover” or, in other words, obtain
substitute goods from another seller. The Court of Federal Claims specifically found
that no credible evidence supported the Government's attack on the HS–601 as a
reasonable substitute. The Government argued that at the time of contracting, the
Government could not have foreseen “the demise of the HS–393” as a result of its
breach and hence compensates Hughes for increased launch costs

As discussed above the increased costs represents direct damages incurred by


Hughes in obtaining substitute launch services.

The above shows there are no doubt that there was a breach of contract by NASA to
the detriment of the plaintiff. As a result of the Challenger Explosion and the
Presidential order to stop launching commercial space NASA breached the
parameters set out in the LSA, which encapsulated among others that damages
were to be limited to direct damages only and should not include any loss of
revenue, profits or other indirect or consequential damages.

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The law of contract is applicable to air and outer space law notwithstanding the
exceptional circumstances that lead to breach of the same contract. This is seen in
this case where Hughes were able to recover damages that had been reduced into
writing in the LSA, despite that the sovereign act defence cited in Horowitz v United
States (1925) where United States as a contractor will not be held responsible for the
acts of United States as sovereign. ( Atlas Corp v United Stated 1990)

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GROUP ONE MEMBERS

CHRISTINE MUMBUA KIOKO 1027778

KEVIN NYARIKI SIRO 1028012

KAREN W MIRICHO 1027745

DICKSON CHUMA 1027529

BRIAN KIAMA 1027496

BRENDA ATIENO ODHIAMBO 1027921

IVY WANJIRU KIMOTHO 1027910

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