Indemnity

An indemnity is a promise to compensate another party in the light of certain events occurring which cause that party to incur a loss. As an example, indemnity provisions may help a buyer cover any costs that they incur as a consequence of their supplier performing poorly. Indemnities are typically sought against suppliers making mistakes in advice or guidance, negligence, breach of confidentiality or another’s intellectual property rights, or breach of contract. Conversely, buyers often include a ‘hold harmless’ indemnity clause to prevent the supplier from claiming damages from the buyer for losses incurred by the supplier. If the clause is drafted using the terms ‘indemnify’ or ‘hold harmless’, then the Courts may interpret the clause as an obligation on the other party to prevent loss. The use of terms such as ‘make good’ or ‘compensate’ are more likely to be interpreted as obligations to compensate the buyer for actual loss.