Corporations are increasingly using standard form agreements to conduct business with their suppliers. If your client is faced with a standard form agreement, there are several pitfalls to watch for, not least of which is an unlimited indemnity.
A standard form agreement provides several benefits to the corporation that drafts it. First, management and the corporation’s lawyers predetermine what terms and level of risk the corporation is willing to accept. Second, it eliminates the need for protracted contractual negotiations. Third, it minimizes the legal costs associated with back-and-forth negotiations. If the standard form agreement is accepted, further legal review by the corporation’s lawyers will not be required.
However, a standard form agreement often contains terms that are not commercially reasonable from the supplier’s perspective. If the agreement contains an indemnity, signing it may significantly increase the risk to your client.
Consider the general measures of damages (in Ontario) for: (a) breach of contract, which is the amount of money that would place the plaintiff in the position that the plaintiff would have been in had the contract been performed; (b) a tort, which is the amount of money that would place the plaintiff in the same position as if the tort had not occurred.
However, regardless of whether a breach of contract or a tort is involved, not all damages are recoverable in Ontario.
Courts award damages to a plaintiff that are reasonable, are not too remote, and are based on legal precedent.
For example, while damages directly flowing from a breach of contract are recoverable, pure economic loss is usually not. Also, claims in tort for lost profits, lost sales, reputational harm, and other economic injuries not accompanied by harm to person or property are difficult to obtain because of a multi-step legal test which a plaintiff must fulfill. In all cases, reasonable steps must be taken to mitigate losses or the damages may be denied.
A contractual indemnity typically waives all these safeguards. The corporation will be indemnified against all losses and damages suffered or incurred as a result of the acts or omissions by your client as described in the indemnity.