Understanding Indemnities Under English Law: 

Indemnities are a common but often misunderstood feature of commercial contracts. They can significantly shift the balance of financial risk between parties, particularly in high-value, regulated, or cross-border transactions. This article outlines the current position under English law, explores how indemnities differ from general damages claims, and highlights recent developments that may affect how indemnities are interpreted and enforced.

What Is an Indemnity?

Under English law, an indemnity is a contractual promise by one party (the indemnifier) to compensate the other (the indemnified) for loss or liability arising from a specified event. In principle, unlike a general claim for breach of contract, indemnities may provide for compensation without the need to prove a breach or foreseeability of loss.

In essence, an indemnity is a risk-allocation tool to shift the risk the party that is best placed to mitigate that riosk.

Key Legal Principles

Indemnities Are Interpreted Strictly
English courts interpret indemnity clauses in accordance with their natural meaning, using the usual principles of contractual construction. However, because indemnities often operate to allocate risk beyond ordinary breach claims, courts will not readily imply wider meanings or assume obligations beyond the wording used.

Proof of Loss vs. Debt Obligation
A claim under an indemnity may avoid some of the limitations of general damages claim: If the indemnity is constructed so that it gives rise to a debt claim,  the party claiming under the indemnity may not need to prove actual loss. If however the indemnity is not constructed as a debt claim there may be not difference between the claim under the indemnity and a normal damages claim. Whether the indemnity amounts to a debt claim or not will depend on how the clause is drafted.

Mitigation of Loss
Whether the indemnified party has a duty to mitigate their loss depends on how the indemnity is framed. Courts typically consider whether the indemnity is a "true indemnity" (i.e. a standalone obligation to pay), in which case the duty to mitigate may not apply. However, if the clause is effectively compensatory in nature, the duty to mitigate might still be relevant.

Third-Party Claims
Indemnities are often used to protect against liabilities to third parties. In such cases, courts may require:

• Proper notice of the third-party claim,
• Evidence that the indemnified party acted reasonably in settling or defending the claim, and
• Proof that the claim falls within the scope of the indemnity.

Recent Judicial Commentary and Trends

There has been no dramatic shift in the law of indemnities in the past year, but several cases have reaffirmed and clarified the following principles:

• Clarity is Crucial: Courts remain unwilling to expand indemnity obligations beyond what is expressly agreed. In Equitix v Fox [2024], the Court of Appeal reiterated that “commercial certainty requires precision,” particularly where indemnities are used to allocate risk between sophisticated parties.
• No Automatic Right to Recover: The case of Harrington & Co v Delta Rail [2023] reinforced that an indemnity does not always guarantee full recovery. The scope of the clause, and whether it covers the type of loss claimed, will be closely scrutinised.
• Liability for Legal Costs: Courts continue to distinguish between indemnities that include legal fees and those that do not. If the indemnity is silent on legal costs, recovery is not guaranteed—even if costs were incurred in defending a third-party claim.

Drafting Tips: Making Indemnities Work

To ensure an indemnity is enforceable and achieves its intended purpose, consider the following:

• Be specific about what is covered—losses, liabilities, third-party claims, legal fees, etc.
• Include procedural requirements, such as notice of claims, cooperation obligations, or settlement approvals.
• Clarify whether mitigation applies and whether proof of loss is needed.
• Define the scope clearly: is it limited to direct losses, or does it include consequential losses?
• Use consistent language, especially where the contract includes both indemnities and limitation of liability clauses.

Limitation and Interaction with Other Clauses

Indemnities often interact with limitation of liability clauses, exclusion clauses, and warranties. Under English law, unless expressly stated otherwise, indemnities may still be subject to general limitations of liability (such as caps or exclusions). Drafting must be deliberate and coordinated to avoid internal conflicts or unintended gaps.

Conclusion

Indemnities remain a powerful tool for managing contractual risk under English law—but they must be approached with care. Recent cases confirm that courts will enforce clear and precise indemnity provisions but will not stretch their meaning beyond the language used.

Well-drafted indemnities can provide certainty, protect against third-party exposure, and reduce litigation risk. However, they are not a substitute for comprehensive contract management or proactive risk allocation elsewhere in the agreement.

If you would like support drafting or reviewing indemnities in your commercial contracts, our team would be pleased to assist.