Disclosure Letter: share purchase

When do I use this document?

• for an indemnity clause to be included in a contract
• for a contract governed by English law

What are the key features?

• alternative forms of indemnity wording:
  • indemnity from one party in favour of the other party
  • mutual indemnity from both parties in favour of the other
• indemnity for breach of the underlying contract
• indemnity for potential loss arising from a third party claim
• wording for conduct of third party claims

What else do I need to know?

An indemnity is a contractual undertaking given by one party (the indemnifier) in favour of another party (the indemnified party or beneficiary) under which the indemnifier agrees to pay to the indemnified party the amount of any loss or damage which the indemnified party suffers as a consequence of a specified event.

The specified event might be:

• the breach of contract by the indemnifier
• liability of the indemnified party to a third party in relation to a specified event or circumstance
• a claim by a third party for loss or damage caused by the indemnifier’s breach of contract

Unlike other contractual obligations (and depending on the wording of the indemnity), an indemnity is not subject to legal rules and limitations regarding to the foreseeability of loss or the remoteness of damages which can be recovered by the beneficiary.  In addition, the beneficiary is not legally obliged to mitigate its loss.

As a result and in exchange for agreeing to give the indemnity, the indemnifier may require that the beneficiary takes certain actions in relation to a claim or event which might give rise to a claim under the indemnity being made.  These actions include:

• the notification of a claim from a third party in relation to the indemnified obligation
• an obligation on the indemnified party to take action required by the indemnifier to defend a third party claim
• allowing the indemnifier to take legal action in the name of the indemnifier to defend the third party claim