Pactora Clause Guide
Indemnities
An indemnity is a promise by one party to compensate the other for specific losses, costs, or claims — even if those losses weren't caused by a breach of contract.
This guide was written by Sneha Ganapavarapu, a qualified lawyer with experience in commercial contracts across technology, IP, and energy sectors. All legal sources are linked. This is general legal information, not legal advice. Always consult a qualified solicitor before signing any contract that matters to your business.
Plain English
What it is
An indemnity is a promise by one party to compensate the other for specific losses, costs, or claims — even if those losses weren't caused by a breach of contract. Indemnities sit outside the limitation of liability clause and can override it.
For UK freelancers & small businesses
What reasonable looks like
Mutual indemnities for specific, defined scenarios — typically IP infringement and data protection breaches.
Narrow and specific in scope.
Subject to a cap or connected to the limitation of liability clause.
Watch out for
Red flags
Broad indemnity covering any claim arising from your work.
One-sided indemnity running only in favour of the other party.
Indemnity that is uncapped and survives termination indefinitely.
Indemnity that includes consequential loss.
England & Wales
Market standard UK position
Mutual, specific, capped indemnities.
IP indemnity is common and reasonable.
Broad general indemnities are not market standard for freelancer or SMB contracts.
Other jurisdictions
How this differs outside England & Wales
The guide above reflects England & Wales law and market practice. If your contract is governed by another jurisdiction, the following differences may apply.
Germany (AGB-Recht)
Broad indemnities in standard-form contracts (AGB) are subject to §§ 305–310 BGB. A blanket indemnity that shifts open-ended liability may be void as an unreasonable standard term. Individually negotiated indemnities (Individualvereinbarungen) have considerably more freedom.
France (clause pénale)
Article 1231-5 of the Civil Code allows French courts to revise penalty and indemnity clauses that are grossly excessive or derisory — this applies even in B2B commercial contracts. A recurring theme in French litigation is judicial reduction of indemnity obligations on appeal.
India (Indian Contract Act 1872)
Section 124 ICA defines indemnity narrowly as a promise to save the promisee from third-party claims, not first-party losses. Parties relying on broad indemnity drafting should ensure the clause explicitly covers direct-loss scenarios, otherwise courts may construe the obligation narrowly.
Scotland
Indemnity law in Scotland follows the same broad principles as England & Wales. The Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 s.10 governs penalty clauses, and UCTA 1977 applies to exclusion of liability for implied terms.
Legal advice triggers
Ask your lawyer if…
The indemnity is broad rather than specific.
The indemnity is uncapped.
The indemnity is one-sided.
You are being asked to indemnify a large corporate for any claim arising from your services.
References
Legal sources
Farstad Supply AS v Enviroco Ltd [2011] UKSC 16 — Supreme Court authority on construction of indemnity clauses and knock-for-knock provisions.
Caledonia North Sea Ltd v British Telecommunications plc [2002] UKHL 4 — House of Lords on indemnity clause construction and scope.
Unfair Contract Terms Act 1977 s.4 — indemnity clauses in consumer and non-negotiated contracts subject to reasonableness test.
Read more
Further reading
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Related clause guides
Limitation of Liability
A limitation of liability clause caps how much one party can owe the other if something goes wrong.
IP Ownership
The intellectual property ownership clause determines who owns the work product created under the contract.
Data Protection
The data protection clause sets out how personal data is handled under the contract, who is the data controller, who is the data processor, and what obligations each party owes under UK GDPR and the Data Protection Act 2018.
Termination
The termination clause sets out the conditions under which either party can end the contract, how much notice is required, and what happens when the contract ends.
Dispute Resolution
The dispute resolution clause sets out the process parties must follow before and during a formal legal claim — including escalation steps, arbitration or court proceedings, and any time limits on bringing a claim.
Auto-Renewal
An auto-renewal clause rolls the contract over automatically at the end of its term unless one party actively opts out within a specific cancellation window.
Fee Increases
A fee increase clause lets the supplier raise their prices during the contract term, typically linked to an index such as CPI or at the supplier's discretion.
Payment Terms
Payment terms set out when invoices fall due, what happens if payment is late or disputed, and whether the supplier can suspend services over an unpaid bill.
Assignment and Change of Control
These clauses govern who you can end up contracting with if either business is sold or restructured, and whether a funding round or acquisition could trigger the other side's exit rights.
Governing Law
The governing law clause determines which country's laws interpret the contract and which courts have jurisdiction over disputes — which directly affects your cost of enforcement.
Confidentiality
The confidentiality clause (or NDA) sets out what information must be kept secret, how long that obligation lasts, and the limited circumstances in which disclosure is permitted.