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Warranties v Indemnities

Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 4:20 pm

atticus wrote:You should probably look at section 3.



3 Liability arising in contract.

F4(1)This section applies as between contracting parties where one of them deals F4... on the other’s written standard terms of business.

(2)As against that party, the other cannot by reference to any contract term—

(a)when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or

(b)claim to be entitled—

(i)to render a contractual performance substantially different from that which was reasonably expected of him, or

(ii)in respect of the whole or any part of his contractual obligation, to render no performance at all,

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

[F5(3)This section does not apply to a term in a consumer contract (but see the provision made about such contracts in section 62 of the Consumer Rights Act 2015).]


The bits in bold?

Nobody could be reasonably expected to pay a fine they had no way of avoiding because someone else had preventing the fine from occurring.
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 4:22 pm

Right. Do any of those circumstances apply here. If you think they do, why do you think they do?

Where do fines come into this?
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Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 4:38 pm

Fines come into the scenario re the tax indemnity. Making the employee liable for any penalties or fines in relation to a tax payment.

It is the word any that intrigues me.

If you signed this clause then it may be reasonable for the employee to accept liability if HMRC say to the employer "you owe us 2k in tax for that settlement agreement and because you didn't pay it we are going to fine you a further £100".

Unreasonable would be the previously mentioned scenario where the employer was told to pay within a month or accept a fine. Only for the employer not to pay within the month and then try to pass the fine onto the employee.

My best guess is that section 3 of the unfair terms act is where your defence would come from if the employer tried to pass on the fine they had negligently failed to pay?
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 5:09 pm

Sorry, I misunderstood. I thought you were describing the indemnity as a fine.

Back to s3. Is the employer trying to change its contractual performance? I repeat that you need to understand what an indemnity is. Here the employer will have performed its obligation to make a termination payment. It does not seek to change that.
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Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 6:28 pm

atticus wrote:Sorry, I misunderstood. I thought you were describing the indemnity as a fine.

Back to s3. Is the employer trying to change its contractual performance? I repeat that you need to understand what an indemnity is. Here the employer will have performed its obligation to make a termination payment. It does not seek to change that.


My definition of an indemnity is where one party gives an assurance to another party that they will cover a particular loss if it were to arise.

An employee signs a settlement agreeing to be liable for any penalties or fines in relation to a tax payment.

The employer then negligently incurs a fine completely outside of the employees control that is related to that tax payment.

The employer then tries to use the wording of the settlement to get the employee to pay the negligently incurred fine by pointing out that the employee has agreed to be " liable for any penalties or fines in relation to a tax payment". Emphasing the word "any' in the contract to try to get the employee to shell out.

I think the employer would be trying to change its contractual performance. But even if he weren't, I can't see how their actions would ever be deemed reasonable.
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 7:05 pm

The time to consider an indemnity is at the time of being asked to give it. Assess the risk. I have explained elsewhere the main questions in relation to tax indemnities in settlement agreements.

A claim under an indemnity is not an attempt to change the performance due by the person receiving the indemnity. Nor is it an attempt to limit liability for breach of contract or negligence. There is no breach of contract or negligence. UCTA 1977 does not apply.

We have talked about the issues of causation.
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Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 7:28 pm

I think I'm chasing my tail in this one but the bottom line seems to be
atticus wrote:It's about what caused the loss. Simple rules of causation.
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