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Warranties v Indemnities

Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 12:48 pm

I don't know if all indemnities are treated the same, but as an example:

An employee signs a settlement agreement with an employer that includes a tax indemnity clause that not only makes the employee liable for any tax owed but for any fines incurred by the employer as a result of the tax not being paid.

A year later HMRC come along and take a look at the employers books and realise that tax should have paid on the settlement agreement. They tell the employer that if they don't pay the tax within a month they will be fined.

The employer forgets to pay the tax bill due to their own negligence and is now liable to pay the extra fine. But the settlement with the employee says that the employee is liable for any fines the employer may incur in relation to the tax bill.

Does this mean that the employer can pass this fine (incurred due to their own negligence by not keeping to the time limit HMRC set) on to the employee on the basis of the tax indemnity clause?

Or as per:
atticus wrote:It's about what caused the loss. Simple rules of causation.


The employee certainly did not cause this loss. It was caused by the employers negligence, so even though the indemnity clause holds the employee responsible for fines and penalties, I'm assuming the employee cannot be held responsible for fines incurred because the employer did not keep to the deadline given by HMRC?
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 1:56 pm

You have your answer.

I see that yet again this is about a particular settlement agreement. This person should be getting advice from someone who is made aware of the whole picture.
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Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 2:03 pm

Yes of course. The settlement agreement analogy is just an example as a means for discussion.
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Re: Warranties v Indemnities

Postby theycantdothat » Tue May 16, 2017 3:25 pm

I use the word "wrongdoing" in its widest possible sense.

As to the specific example you give I cannot see how the requirement to reimburse the fine is anything other than an unfair term.
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 3:52 pm

This indemnity (as with most) does not deal with breaches of contract. It applies if a specified contingency occurs.
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Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 4:02 pm

It would to my mind be unreasonable to expect someone to pay a fine for something that they had no control over.

I find reading legislation quite tough but I'm assuming you'd be relying on section 2 of the Unfair Contract Terms as a defence should you find yourself in such a situation re: the tax indemnity fine scenario above?

2 Negligence liability.

(1)A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.

(2)In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.

(3)Where a contract term or notice purports to exclude or restrict liability for negligence a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 4:04 pm

You should probably look at section 3.

This is not a case of breach of contract, or of negligence. That is not what triggers liability under the indemnity.

There is further legislation since 1977.
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 4:09 pm

An indemnity is not a fine. It is a promise to pay if a specified event occurs.
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Re: Warranties v Indemnities

Postby Scienke » Tue May 16, 2017 4:15 pm

atticus wrote:You should probably look at section 3.

This is not a case of breach of contract, or of negligence. That is not what triggers liability under the indemnity.

There is further legislation since 1977.


I can only think of the consumer rights act but I wouldn't have thought that would apply in all scenarios.
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Re: Warranties v Indemnities

Postby atticus » Tue May 16, 2017 4:18 pm

Look at it from the other end. Understand what an indemnity is, and in what circumstances it may be called on.
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