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===Liability under an {{tag|indemnity}}=== | ===Liability under an {{tag|indemnity}}=== | ||
Since it isn't necessarily triggered by a {{tag|breach of contract}}, nor is the value of indemnity constrained by ordinary contract law principles for damages. (That is not to say you don't have to prove loss, though: beware indemnities that look like [[penalty clause]]s.) | Since it isn't necessarily triggered by a {{tag|breach of contract}}, nor is the value of [[indemnity]] constrained by ordinary contract law principles for damages. (That is not to say you don't have to prove loss, though: beware indemnities that look like [[penalty clause]]s.) | ||
Now we have already established that you want to reallocate this risk away from the party who would naturally bear it. That person will ask itself, as should you, could my agreeing to this indemnity, in the immortal words of Cardozo J in [https://en.wikipedia.org/wiki/Ultramares_Corp._v._Touche ''Ultramares Corporation v. Touche''] open the floodgates leading to "liability in an indeterminate amount for an indeterminate time to an indeterminate class"? | Now we have already established that you want to reallocate this risk away from the party who would naturally bear it. That person will ask itself, as should you, could my agreeing to this indemnity, in the immortal words of Cardozo J in [https://en.wikipedia.org/wiki/Ultramares_Corp._v._Touche ''Ultramares Corporation v. Touche''] open the floodgates leading to "liability in an indeterminate amount for an indeterminate time to an indeterminate class"? | ||
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Actually a little side bar here: The more open-ended the wording of your indemnity, the more prone the courts are to restrict its extent along the lines of ordinary contractual principals of remoteness of damage - see ''[http://www.olswang.com/articles/2015/03/ocq-mar-2015-indemnities/ Total Transport Corporation v Arcadia Petroleum Ltd (The Eurus)]'' Good note that from Olswang, by the way. There, the Court of Appeal held that an obligation to pay "any time, costs, delays or loss" ''caused by a party's breach'' only covered losses flowing directly from the breach or that were in the contemplation of the parties when they made the contract.'' | Actually a little side bar here: The more open-ended the wording of your indemnity, the more prone the courts are to restrict its extent along the lines of ordinary contractual principals of remoteness of damage - see ''[http://www.olswang.com/articles/2015/03/ocq-mar-2015-indemnities/ Total Transport Corporation v Arcadia Petroleum Ltd (The Eurus)]'' Good note that from Olswang, by the way. There, the Court of Appeal held that an obligation to pay "any time, costs, delays or loss" ''caused by a party's breach'' only covered losses flowing directly from the breach or that were in the contemplation of the parties when they made the contract.'' | ||
===The difference between an [[indemnity]] and a [[reimbursement]] obligation=== | |||
You will sometimes see indemnities mentioned in the same breath as obligations to “reimburse” extraordinary costs an agent incurs in carrying out services for its client. You might think, based on the discussion above, that the two ideas bear some similarities — albeit that reimbursement obligations seem benign, and indemnities toxic. You would be right about that. They are so similar, in fact that some commentators, including this one, would call them identical. | |||
Indeed, calling an indemnity a reimbursement obligation points up the difference between a good one and a bad one quite nicely: compare: | |||
*“You must reimburse me for any taxes I am charged on securities I hold in custody for you” — to which a sensible reaction, is “ok boss; seems fair enough”; with. | |||
*“You must reimburse me for any costs, expenses, foregone profits, lost business opportunities I suffer — on my say so — as a result of carrying out my services for you” — to which a sensible reaction is, “sorry but what planet are you on because it doesn’t resemble any I’ve come across in this arm of the galaxy.” | |||
===Indemnities and Guarantees=== | ===Indemnities and Guarantees=== | ||
An [[indemnity]] is nonetheless a useful back-up to a [[guarantee]] because: | An [[indemnity]] is nonetheless a useful back-up to a [[guarantee]] because: | ||