Indemnity versus warranty
These two terms are often used loosely, but they do different work. A
warranty is a contractual statement of fact; if it turns out to be false, the
other party can claim damages for breach, subject to ordinary contract law
principles on causation and mitigation. An indemnity is a standalone promise
to compensate for a specified loss, often triggered by a third-party claim,
and can bypass some of the defences available to a breach of warranty claim.
Which one a contract uses, and how it is worded, changes what a party
actually has to prove to recover.
Limitation of liability
An uncapped indemnity in a contract worth a modest annual fee can expose a
service provider to losses many times the value of the engagement. Liability
clauses typically cap total exposure at a multiple of fees paid, exclude
indirect and consequential loss, and carve out certain categories, such as
confidentiality breaches or gross negligence, from the cap entirely. Which
carve-outs are acceptable depends heavily on which side of the contract a
client sits on, and we advise accordingly rather than proposing the same
clause regardless of position.
Force majeure and its limits
A force majeure clause excuses performance where an event genuinely beyond a
party’s control makes performance impossible, not merely more expensive or
inconvenient. Poorly drafted clauses either list events too narrowly, leaving
genuine disruptions uncovered, or too broadly, giving a party an easy excuse
to walk away from a bad bargain. We draft these clauses with a specific
notice procedure and a cap on how long non-performance can continue before
either party can terminate.
Governing law and seat
Parties frequently agree governing law and jurisdiction clauses at the very
end of negotiation, without much thought, sometimes defaulting to whichever
side’s lawyer sent the first draft. This clause determines which
substantive law applies to the contract and, if arbitration is chosen, which
courts can support or supervise the arbitral process under the Arbitration
and Conciliation Act 1996. It deserves more attention than it usually gets,
because by the time it matters, renegotiating it is no longer an option.
