Does it get you where you wanna go … with a warranty (and indemnity)? **

Previous posts have considered various aspects of warranties and indemnities (as usual, if you would like access to these and can not locate them easily please contact me).

Generally, the scope of recovery and damages that may be obtained will be greater where an indemnity is provided.

This is because an indemnity is effectively a promise to either reimburse or make good relevant issues if they arise.

Furthermore, indemnities:

1. Do not require the person giving the indemnity to have actually caused the loss – in other words, regardless of how the loss arises, liability will be triggered.
2. Common law rules that normally limit the scope of liability, such as remoteness or an obligation to mitigate losses, do not apply in relation to indemnities.

In contrast, a warranty only provides a promise that certain statements are correct. Practically this means:

1. A party seeking to claim in relation to a breach of warranty must do so by seeking damages.
2. The common law principles mentioned above of remoteness and an obligation to mitigate potential losses do apply.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For trainspotters, ‘does it get you where you wanna go ... with a warranty’ is a line from a song named ‘Days That Used To Be’ by Neil Young and Crazy Horse from their seminal 1990 album ‘Ragged Glory’.

Listen here:

Warranties and indemnities: don’t wanna fight**

Previous posts have considered various aspects of warranties and indemnities.

Generally, the scope of recovery and damages that may be obtained will be greater where an indemnity is provided.

This is because an indemnity is effectively a promise to either reimburse or make good relevant issues if they arise.

Furthermore, indemnities:

1. Do not require the person giving the indemnity to have actually caused the loss – in other words, regardless of how the loss arises, liability will be triggered.
2. Common law rules that normally limit the scope of liability, such as remoteness or an obligation to mitigate losses, do not apply in relation to indemnities.

In contrast, a warranty only provides a promise that certain statements are correct. Practically this means:

1. A party seeking to claim in relation to a breach of warranty must do so by seeking damages.
2. The common law principles mentioned above of remoteness and an obligation to mitigate potential losses do apply.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Alabama Shakes song ‘Don’t wanna fight’.

View here:

Does it get you where you wanna go … with a warranty (and indemnity)? **

Previous posts have considered various aspects of warranties and indemnities (see -What is a warranty?, Indemnities).

Generally, the scope of recovery and damages that may be obtained will be greater where an indemnity is provided.

This is because an indemnity is effectively a promise to either reimburse or make good relevant issues if they arise.

Furthermore, indemnities:

1. Do not require the person giving the indemnity to have actually caused the loss – in other words, regardless of how the loss arises, liability will be triggered. 
2. Common law rules that normally limit the scope of liability, such as remoteness or an obligation to mitigate losses, do not apply in relation to indemnities. 

In contrast, a warranty only provides a promise that certain statements are correct. Practically this means:

1. A party seeking to claim in relation to a breach of warranty must do so by seeking damages.
2. The common law principles mentioned above of remoteness and an obligation to mitigate potential losses do apply. 

** For trainspotters, ‘does it get you where you wanna go ... with a warranty’ is a line from a song named ‘Days That Used To Be’ by Neil Young and Crazy Horse from their seminal 1990 album ‘Ragged Glory’ – listen here – www.youtube.com/watch?v=SQeM2yLSiss

Image courtesy of Shutterstock

We do not give legal advice’- Part I

Following on from a previous post All Care, No Liability, as promised, this week's post provides an example of the type of exclusion wording that most online providers of legal documents provide.

Any adviser looking to facilitate legal solutions for their clients should understand the consequences of this style of exclusion, particularly in relation to their own professional indemnity insurance arrangements.

The example exclusion wording is as follows –

By using our service agree that:

1. we cannot, and do not, give you legal advice;
2. the company that owns and operates this service is not a law firm;
3. our service provides information to help you answer the questions and to order a product and that that information is information only, not advice; 
4. we cannot and do not warrant that a product you decide to order is appropriate or suits your needs; 
5. we cannot and do not warrant that your use of our service is appropriate or suits your needs; 
6. the legal, commercial and taxation effects of a product vary and a product's suitability will, therefore, vary according to particular circumstances; 
7. only you know the purpose for which you intend to apply a product you order and that we are not responsible for the choice you make regarding the same; 
8. you must consult a lawyer for advice concerning the suitability of a product you order using our service; 
9. the documents you buy from us and the material on our website is only general; they are not prepared by us and we do not endorse them, rather we disclaim any responsibility for them; 

As there are so many exclusions generally set out on this type of service, the summary will be continued again next week.

We are excited to be presenting half and full day Estate Planning Roadshow in Brisbane, Sydney, Melbourne, Adelaide and Perth that will explore a range of planning opportunities in this space.

For your limited opportunity to access special early bird pricing for our Roadshow, download the brochure here.

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Image courtesy of Shutterstock

Things to consider in relation to indemnities

Following on from recent posts, this week's post is again extracted (with thanks) from the Chairman's Red Book.

© Stuart Key | Dreamstime.com

The courts have recently applied a restricted view on the use of indemnities and in some cases, have failed to acknowledge the validity of broad, all-encompassing indemnities.  Notwithstanding this, claims under clearly expressed indemnities are generally upheld.

The following issues should be considered by anyone providing an indemnity -

1. the limitation of the loss (i.e. direct loss only and not consequential loss);
2. the scope of the indemnity (e.g. 'loss in connection with' compared to 'loss caused solely by');
3. excluding liability under the indemnity where the liability arises as a result of the indemnified party's default or negligence, or limiting it to the extent it has been contributed to by the party;
4. making the indemnity subject to any exclusions or limitations of liability within the agreement;
5. requiring the indemnified party to mitigate its loss; and
6. including a right for the indemnifying party to defend any claim for which it will be liable as a result of the indemnity.

It is common practice for a buyer to request a separate tax indemnity in share sale agreements.  This is primarily so that the respective obligations of the parties in relation to tax, including as to timing, are clearly and specifically identified. 

It is also common for 'gross up' provisions to be included in these indemnities which account for the tax payable in respect of warranty payments.  Consideration should be given to whether it is appropriate for the parties to agree contractually that any warranty payments are to be treated as a reduction of the purchase consideration.

You might also be interested in The Chairman’s Red Blog, which is a supporting resource for the book.

Until next week.

Indemnities

Following on from recent posts, this week's post is again extracted (with thanks) from the Chairman's Red Book.

© Stuart Key | Dreamstime.com

An indemnity is an undertaking to meet a specific potential liability, or to hold someone 'harmless', on the happening of a particular event, similar to the obligations of an insurer on the happening of an insurable event.  Indemnities provide a clear allocation of risk in respect of an event.

The scope of the indemnity provided under an agreement should be carefully considered by the indemnifying party and the trigger for the indemnity clearly understood.  Depending on the wording of the indemnity, the amount that is claimable under an indemnity may not be limited by the usual common law requirement of remoteness, or any requirement of the indemnified party to mitigate loss. 

Similarly, the indemnity may be open ended and not subject to any limitation or exclusion under the agreement, and in some cases the event need not have been caused by any wrong of the indemnifying party.

Next week’s post will look at some of the issues to consider in relation to indemnities.

You might also be interested in The Chairman’s Red Blog, which is a supporting resource for the book.

Until next week.

Gap between indemnity and insurance policy

Following on from recent posts, this week's post is again extracted (with thanks) from the Chairman's Red Book.

Given the specific wording of insurance policies and the fact that the deeds of access and indemnity often use general wording, it is clear that there are some forms of liability against which a company will be required to indemnify its directors under the deed of access, insurance and indemnity where the company will not be covered by insurance.

© Dominik Michálek | Dreamstime.com

One example is when a director seeks legal advice in anticipation of a claim, which may or may not be made against the director in the future.  The D&O policy will only respond to cover legal costs once the claim is made.  A gap may also occur because the insurance policy provides cover for a maximum sum whereas the indemnity offered by the company is unlimited.

You might also be interested in The Chairman’s Red Blog, which is a supporting resource for the book.

Until next week.

Deeds of access, insurance and indemnity

Following on from last weeks' post, this week's post is again extracted (with thanks) from the Chairman's Red Book.

Under deeds of access, insurance and indemnity, the company usually agrees to:

1.    indemnify the director to the extent permitted by law;

2.    maintain, and pay the premium on a D&O policy covering the director;

3.    maintain a copy of all board papers; and

4.    give the director access to the board papers and other documents of the company.

Access to board papers and company documents is essential for a director to discharge their obligations.

Most companies and directors put in place such agreements on a uniform basis for each director. 

Where deeds are required for other executives (non directors) they may require some modification.  For example, these officers will typically not be entitled to access the board papers.

You might also be interested in The Chairman’s Red Blog, which is a supporting resource for the book.

Until next week.

Trustee indemnity case - Appeal

Even though the post last week touched on a court case that was relatively widely reported, the importance of the streaming decision meant I felt it appropriate to profile.

This week another court decision caught my eye, even though it was simply in relation to the granting of leave to appeal a previous decision.

Many readers will have noticed the 'Bruton Holdings' case from earlier in the year. In that case, a single court judge held that a corporate trustee was not indemnified by a trust for expenses incurred in (successfully) challenging the Tax Office. The lack of indemnity was largely based on the fact that the expenses were incurred after it had ceased to be trustee of the trust.

An appeal has now been granted against the original decision on the basis that -

(a) the issues are of general importance to the powers and rights of trustees; and
(b) the state of the law regarding the powers and rights of bare trustees is not settled.

Until next week.