In most cases, the definition of the trigger should be simple. However, the payment element is often a matter of negotiation. For example, the indemnified party will often want to have the right to reimburse all legal and professional costs and expenses incurred in defending a claim (look for the phrase “full indemnity basis”), while the indemnifying party will only want to pay “reasonable” costs and expenses. This may mean that compensation depends on the actual payment by the indemnified party to the person for whom it is responsible. In this case, the plea arises only when the exempt party has made the payment to the person to whom he is liable. With caution! When it comes to compensation clauses, the devil is really in the details. If the buyer did not find this information during their due diligence, they now understand this as a result of the disclosure and can decide how to respond, including by seeking protection in the form of compensation. Without insurance, there is a risk that the compensation will act as aid on paper and will not result in financial compensation for the damage actually suffered. Does it make sense for you to compensate for the loss of my compensation for you? The distinction between compensation and damages is subtle and can be distinguished by taking into account the roots of the law of obligations: how to pay money if the defendant is not at fault? The contract before termination is voidable, but not void, so a legally valid contract exists for a certain period of time. Meanwhile, both parties have legal obligations. If the contract is to be declared null and void from the outset, the obligations fulfilled must also be remunerated.

Therefore, the costs of compensation result from the plaintiff`s obligations (temporary and fulfilled) and not from a breach of its obligations by the defendant. [5] It would be wrong to say that awarding compensation is like signing a blank cheque for damages. Going back to the buyer/manufacturer example, a retailer who purchases goods from a factory may be required to sign a indemnification clause in their contract stating that the retailer must compensate for the losses incurred by the factory if they decide not to take the goods. If the retailer has a reputation for being unreliable or financially unstable, the factory may require them to take out liability insurance. This insurance ensures that the factory receives payment, whether or not the retailer can pay. Liability insurance serves as a guarantee of compensation. It is quite common to see the phrase “costs (including reasonable legal fees)” in the list of losses that can be recovered in a indemnification clause. Following the recent case of Euro-Asian Oil v.

Credit Suisse, it appears that the term “reasonable legal costs” in the context of a resulting dispute will have a specific meaning. In this case, the hotel is protected against loss, either by John directly or by a third party, the travel agency. The warranty only comes into effect if the primary obligation set out in the indemnification clause (in which case John pays for damages caused by him) cannot be fulfilled. Compensation and guarantees are not scenarios of one or the other; Instead, they provide protective layers. The Court of Appeal concluded that the links in this award were increasingly broad and ended with the words “in connection with”, which represent as broad a link as usually found. The degree of causal link required is therefore under our control and is determined by the words used in the drafting of the compensation. What cannot be excluded or limited are claims caused by civil fraud. And it is more difficult to succeed in a claim if the indemnified party caused the damage suffered (for itself). You will indemnify the indemnified person for any loss or liability suffered by a person against certain events under the Indemnification Terms. Where our contract attorneys act on behalf of the party providing the compensation, the extent of the losses is limited as much as possible and only to direct losses.

You must also explicitly consider the wording so that a mitigation obligation does not apply. Reciprocal language could be included in a standard provision, such as: “The recovery of either party under compensation under this Agreement is subject to the obligation to mitigate the losses suffered.” Or perhaps you could include language in the specific set-off clause itself: “. compensate Party B (which is not obliged to mitigate its losses)… ». Compensation is a promise usually made in a contract to pay money for the event of a particular event. Indemnification protects a party to a contract from financial losses related to certain contingencies – usually those that would result from the conduct of the other party or over which the other party has control. This is what claims are supposed to protect themselves from: they offer a remedy to protect themselves from losses. An insurance contract is a type of indemnity contract. As I said, it appears that under the indemnification agreement, the party can only recover the costs incurred at its fair and reasonable discretion. First, you should consider having an explicit mitigation obligation.

This could be achieved through a standard clause in the agreement, which applies on a reciprocal basis to all compensations in the respective agreement. For example, “Each party will use reasonable efforts to mitigate its losses under this Agreement, including any loss under the indemnities set forth in this Agreement. Or it could be worded in such a way that it applies only to a certain compensation: “The indemnified party is not entitled to compensation under clause [x] unless it takes reasonable steps to mitigate its losses. If you pay compensation, the concern is that any resulting claim would result in a debt claim (so the principles of mitigation and isolation would not apply), and so you should try to design explicitly so that mitigation and remoteness apply! Indemnification is a contractual agreement between two parties that establishes a form of insurance compensation for damage and loss. In a compensation contract, a party undertakes to offer financial compensation for any loss or damage caused by another party and to assume legal responsibility for any damage suffered. A claim for compensation arising from a clause in a contract creates a promise from a person: an increasingly common example of a simple indemnification clause is in the registration documentation for gyms open 24 hours a day, where often no staff member works while gym visitors are on the gym floor. These agreements usually contain phrases such as “Use of fitness equipment is at your own risk and XYZ Gym assumes no responsibility for any injury or death caused by its use.” However, if you are seeking such compensation, keep in mind that it is not necessarily enforceable. .