Canadian Lawyer

26 F E B R U A R Y 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m Discussion on Customized Indemnification Clauses A contractual indemnification clause (or indemnity) is an express agreement by one party to compensate another party for certain costs and expenses. It is often coupled with a duty to defend and hold the indemnified party harmless. Indemnification provisions are used in many commercial agreements, including sale of goods and services, acquisition, outsourcing, distribution and franchise, confidentiality, and consulting agreements. Although commonly used, indemnification provisions can be complex and are often one of the most highly negotiated provisions in a contract. Through a well-drafted indemnity, parties can: • Customize risk allocation between themselves to shift the burden of loss and the cost of defending third party claims. • Compensate the indemnified party for risks it did not assume and expenses that may not be recoverable at common law such as legal fees. • Minimize the uncertainty regarding the scope of future potential liabilities. • Reduce the likelihood of litigation concerning the allocation of liability between the parties and the remedies available. For an indemnifying or breaching party, a carefully crafted indemnification provision can enable it to cap its liability or limit its liability with materiality qualifiers and liability baskets or thresholds. If used improperly, an indemnification provision can subject a party to continuing liability for circumstances outside of its control. by Sharmila K. Irvine, Commercial Transactions Practice Lead, Practical Law Canada Sharmila joined Practical Law Canada after serving as General Counsel for a North American conglomerate, the Norstar and Concordian Group, where she had carriage of all legal matters. Previously, she was Assistant General Counsel to a large multinational, the Miller Group. Prior to that, Sharmila held the position of Director of Legal and Regulatory Affairs and Corporate Secretary for a North American data and telecommunications company. Sponsored by

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