Indemnity clause

[RickJohnJones]

Hi,
I am an engineer so apologies in advance if the question is stupid and/or in the wrong forum.

Full background further below. But in summary, I am looking for clarification, pointers or suggestions on this paragraph, especially the second part about indemnifying (highlighted).

"By this Agreement, and conditional on the transfer of the IP and delivery of the Deliverables, the Parties release each other from any and all claims, causes of action, demands and liabilities of whatever nature which either Party had in the past, has now or may have in the future arising from or related to the Contract. The Parties further release and indemnify each other from any and all claims, causes of action, demands and liabilities of whatever nature which may arise from either Party’s obligation to any and all third parties under the Contract."

Three questions:

1. I don't understand that paragraph at all. What does it mean?

2. If I sign a document containing that, can it backfire in any way? Can it make me liable in any way?

3. If yes, what reason, excuse or example can I provide to my client to remove it from the document?

Just to provide the full background...

I have done engineering design work for a client for a small amount of money and in order to get paid they insist I sign a release contract to give them all IP and design items. They have been misleading with words in correspondence in the past to get lots of extra work for free so I want to be extra cautious with anything I sign.

Thank you in advance
Rick

 

[Bob Morgan]

Firstly, why is this Contract/Agreement/Clause appearing upon the ‘Cusp’ of being paid? – Why were the Contract Conditions not established prior to Engagement and Submission of Deliverables? (All assuming that I am reading this correctly.)

Secondly, for a number of years my Professional Indemnity (PI) Insurer has directed that we steer away from Client Contracts and Conditions of Engagement, unless absolutely necessary – Relying instead upon Industry/Professional Forms of Contract, that have been tried and tested.

Thirdly, and prior to acceptance, we are duty bound to advise our Insurer of the Contract. Expressions such as ‘The Architect shall Warrant and Guarantee’ and ‘The Architect shall Indemnify’ are TRIGGERS! – Unless they are removed, our Insurer informs us 'Politely' that “You’re on your own!”

In your instance it appears that ‘Release’ and ‘Indemnify’ are being used erroneously – Especially when used in the same sentence. Upon first impression it would look as though one of the ‘Smart and Clever People’ has been tampering with a Contract.

My rules with Agreements and Contracts have always been;

1. Never put anything in to a Contract that cannot be enforced!
2. Never start work until the Contract is in place!
3. Never Litigate unless they have either Money or Assets!

If you have PI Cover, obtain the Insurer’s opinion – That usually costs nothing at all. Otherwise use a Lawyer with Contract Experience in your own particular field. Possibly, your own Professional Association/Society could provide this too.

In quite a few instances I have had Clients state “This is our Standard Agreement! – It cannot be changed!” OR “No one has ever queried this before!” Should either of those be the case, then ‘Walk Away!’

 

[RickJohnJones]

Thank you Bob for the detailed and very informative reply!! Very much appreciated feedback!!!

I think that removing "indemnify" but keeping "release" is ok and should not cause any issues. Correct?

Thank you again

 

[Bob Morgan]

Thank you Bob for the detailed and very informative reply!! Very much appreciated feedback!!!

I think that removing "indemnify" but keeping "release" is ok and should not cause any issues. Correct?

Thank you again

I would go along with that - Much will depend on how your Client/Customer reacts to that. However, it could help your case in trying to point out how 'Inane' their clause sounds! With the final paragraph of your response stating "And, I look forward to receiving payment by return!"

 

[eteb3]

Whether this is a practically attractive option, I don't know, but you had a contract as soon as they agreed that you should do the work you offered to do - presumably as detailed in email discussions, if not more formally. This release was not part of that contract, and to my mind you could insist on payment without this release.

they insist I sign a release contract to give them all IP and design items

But the bits you quote are not you giving them the IP: they are conditional on (= kick in only after) you giving them the IP, which must therefore be in another document (or possibly in the same one elsewhere).

To my amateur eyes, the bits you quote look to be doing something quite different: it seems to me it's a clean break, 'we have no claims against each other from now on' clause. The bit you've bolded appears to oust the Contracts (Rights of Third Parties) Act 1999: if they want a clean break as the unbolded bit suggests, then it's no good having a clean break just between the two parties; you must also consider third parties (who used never to be able to sue on a contract they weren't party to, but for 20 years or so have been able to in limited circumstances).

On my amateur reading, 'release' means you're giving up any claim you may have against them at the moment of signing, but not until the condition is met that all IP is transferred.

'Indemnify' is stronger: I agree with Bob Morgan that the wording is odd, but it looks to me that it may amount to saying that if a third party claims against them under the contract, and wins damages, you will pay those damages. (It seems it works vice versa too, so your protection is as strong as your jeopardy, at least on paper.)

Just a small (ahem) suggestion if you are minded to sign this (and I think it would amount to a variation of contract, and is not required): I would demand an insertion after the word Deliverables of something along the lines of "and full and prompt settlement of all monies and other consideration due from the client". Otherwise once you've transferred the IP (ie, fulfilled the 'conditional upon') you will thereby have released them from your claim to be paid for your work...

They may be snakes, or they may not know what they're doing. Either way, it looks like they win more than you do from that so-called 'release'.

Caveat: I'm not a lawyer, and the above should not be construed as advice.

 

[Newchodge]

DO NOT SIGN THIS.

You currently have a contract (unwritten) that you will be paid on completion of the work agreed.

It is beyond stupidity to consider signing a clause that you do not understand and that purports to amend the existing agreement between the 2 parties.

Tell them to do one and issue your invoice for work completed.

 

[The Byre]

"By this Agreement, and conditional on the transfer of the IP and delivery of the Deliverables, the Parties release each other from any and all claims, causes of action, demands and liabilities of whatever nature which either Party had in the past, has now or may have in the future arising from or related to the Contract. The Parties further release and indemnify each other from any and all claims, causes of action, demands and liabilities of whatever nature which may arise from either Party’s obligation to any and all third parties under the Contract."

1. Once the deliverables and IP have changed hands, all demands and obligations by both parties are dissolved.

2. Both parties indemnify one another from claims made by third parties that arise from the supply of deliverables and IP.

My 30 cents worth - (1) this could be taken to include not having to pay! It must be altered. (2) You agree to protect the client from any claims by others such as including IP from others in the deliverables.

I would insert a paragraph outlining penalties or property withheld in case of non-payment. The second sentence - it's up to you. You must know if there is anything dogy or unoriginal in the deliverables.

It sounds as if they are being too clever by half and/or have a really crap lawyer.

 

[RickJohnJones]

Thank you all for all those replies and info, much appreciated!

 

[2020Lawyer2020]

The Byre's is particularly useful. It is very hard as a lawyer to advise on just a clause eg there is another clause dealing with IP which we have not seen and there is a reference to The Contract but we have not seen the definition of that. It might mean the Contract of which this a clause. The sentence refers to the Agreement and the Contract so it may be there are two separate things.

Also a lawyer would need know what the contract is eg if it is selling the assets of a business that is different from a contract where someone is just providing services for fees. You see on sales of assets these kinds of clauses to deal with eg one person seller responsible for debts etc up to sale of assets and buyer after. We kind of need to know the context/type of contract better to advise.

 

[obscure]

I have to agree with the above posters. You must not sign this.

The Parties further release and indemnify

This makes no sense. These are opposites/mutually exclusive. You can't be released from any and all obligations to the other party while at the same time having to indemnify them. They clearly don't know what they are doing and arguing with idiots can often be difficult. If they insist on some sort of clause then you must get a lawyer.

Having said that I go with the suggestion others have made. You already have a legally binding contract to do the work and be paid. You are under no obligation to enter into a new agreement or change the terms of the old one. Tell them politely that you won't be signing.

 

[eteb3]

This makes no sense. [Release and indemnity] are opposites/mutually exclusive.

I basically agree, and clearly the wording is hopeless. But seems to me the release may be read as being of any personal claim, and indemnity of a claim from a third party. So both of the following:

1. 3rd Party sues Worker, and Worker would have a consequential claim against the Client: Worker has released the Client from this claim.
2. 3rd Party sues Client, damages awarded against Client, Worker must indemnify Client (i.e., reimburse them).

That's despite the contradiction in the strict sense: I've seen judgments where the court bemoans sloppy drafting, but wearily sets about deciding what the true intention of the parties was from the nonsense in front of them.

 

[billybob99]

Tell them you need to be paid first so you can buy a very expensive pen to sign it.

 

[Deleted member 169416]

Hi

We agree with the comments above regarding “release and indemnify” contradicting each other, so is difficult to advise on how this would be interpreted if there was a claim.

However, we just wanted to add a couple of further comment that you may wish to consider:

• We would expect there to be a cap on this as we never advise clients sign up to uncapped liability (of course this may be elsewhere in the documents).
• You also mention that the client wants you to sign over all IPR - you should consider carefully whether this is appropriate.
  o This is generally only applicable where the Deliverables are entirely bespoke for the client in question.
  o If you have “pulled anything out of the cupboard” you should not assign this, as the effect of an assignment would mean that you/ any clients you have used these aspects in respect of, would then be in breach of this clients intellectual property.

Hope that helps

 

[Paul Norman]

This wording is ambiguous, perhaps even contradictory. It might mean nothing. It might mean a financial disaster.

Badly worded contracts, the meaning of which is not obvious, are not helpful. And introducing clauses changing a contract when the work is complete and due for payment is not ethical.

Get the payment issue sorted. Then deal with this. I suspect that insisting on this course of action will further expose your customer and force them to admit they have no intention of paying without this goal post moving contest.

 

[Newchodge]

Hi

We agree with the comments above regarding “release and indemnify” contradicting each other, so is difficult to advise on how this would be interpreted if there was a claim.

However, we just wanted to add a couple of further comment that you may wish to consider:

• We would expect there to be a cap on this as we never advise clients sign up to uncapped liability (of course this may be elsewhere in the documents).
• You also mention that the client wants you to sign over all IPR - you should consider carefully whether this is appropriate.
  o This is generally only applicable where the Deliverables are entirely bespoke for the client in question.
  o If you have “pulled anything out of the cupboard” you should not assign this, as the effect of an assignment would mean that you/ any clients you have used these aspects in respect of, would then be in breach of this clients intellectual property.

Hope that helps

Can you suggest why the OP should even be considering this contract when the woek has already been comleted and payment is due?