Are indirect losses recoverable under an indemnity, where the indemnity is silent on the point?

Indemnities are often used together with warranties and exclusion and limitation of liability clauses to apportion commercial risk. Indemnities, in particular, apportion specific liabilities between the parties and are used in a variety of circumstances.

Indemnities give rise to an ‘on demand’ payment as opposed to a contractual right to sue. Provided that an indemnity relates to a specific loss (often referred to as a claim for a debt), it will not be subject to the usual rules on causation and remoteness of damage, and the requirement to mitigate losses. If, however, the indemnity is for the payment of damages for breach of contract, then these rules may still apply (see Practice Note: Contractual damages—general principles).

In order to identify which losses are recoverable under an indemnity, it is essential to consider what the express terms say and how they will be interpreted in a court of law. The extent of the losses that will be recoverable under an indemnity will depend on how they are defined