Indemnity Clauses

An indemnity clause is a contractual arrangement whereby one person agrees to fully compensate the other (usually including his lawyer's fees) in the event the other party in a contract loses money.

Without an indemnity clause, if A who is a party to a contract breaches a clause, B will have to show that B's losses were caused by A's breach (causation). B will also be required to show that the loss was not remote and was contemplated by the parties to the contract. B will also have to show that he made attempts to lessen or minimise his losses by taking active steps.

The indemnity clause therefore overcomes the above obstacles by removing the requirement for B to prove the above. All B needs to do is to show that he suffered loss and A has to compensate A regardless of the reason or whether it is indeed A's fault or not.

In view of the above, parties should, when negotiating contracts, try to avoid (as far as possible) giving the other party an indemnity.