White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
Sydney Office - GPO Box 2506, SYDNEY New South Wales 2001 Australia
Telephone: Melbourne Office - +61 3 9629 3709 Sydney Office - +61 2 9233 2600
Facsimile: Melbourne Office - +61 3 9629 3217 Sydney Office - +61 2 9233 3044
Email: wcl@computerlaw.com.au Internet: http://www.computerlaw.com.au

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The key differences between an indemnity and ordinary contract term (if breached) are:

  • scope of liability
    • Indemnities are normally drafted much more widely to cover third parties and circumstances beyond the ordinary breach circumstances.
    • In some circumstances they apply even when there is no breach of contract by the party required to pay, pursuant to the contract, at all.
    • The triggering event may well be the act of a third party.
    • A well known instance of this is that of guarantees in which one party indemnifies a second party for the default or breach of a third party.
  • scope of damages
    • Liability in damages for an ordinary contractual breach is limited to loss and damage which is foreseeable and arises due to the breach.
    • This is not the case with indemnities.
    • For instance it is in some cases possible to be indemnified for your own negligence or wrongful act.
  • limitation periods
    • For an ordinary breach of contract, proceedings must be commenced within the statute of limitation period 1) of the loss or damage arising.
    • This does not apply for an indemnity which is continuing obligation and may survive the termination of the agreement.
  • Indemnities also have the following additional problems:
    • Liability for an indemnity is often not as a matter of contractual interpretation limited by Limitation of Liability clauses;
    • Agreeing to an indemnity may invalidate your insurance policy and or permit a basis on which the insurer make reject a claim;
    • You should obtain your insurer’s consent in relation to any indemnity offered; and
    • An indemnity may invalidate the contractual rule of the need to mitigate any losses.
  • Where offered for a claim the process by which the claim is resolved and who controls same should be set out.
1) This is usually 6 years unless agreed otherwise or subject to legislation. Please email us if would like a quote to ascertain the relevant limitation period for your claim and specific circumstances

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  This website is a guide only and should not be used as a substitute for proper legal advice.
  Readers should make their own enquiries and seek appropriate legal advice.
  For legal advice please email wcl@computerlaw.com.au