Q. I recently sold my business and the contract contains a clause which says that I have to "indemnify" the buyer if any claims are made against the business relating to the periods when I was in charge. Such a claim has been made (a spurious claim in my view) and the buyer wants to simply roll over and settle it. Is it right they can claim the monies from me if they don't dispute the claim?
A. An indemnity is a promise by one party to meet a specific potential legal liability of another if a particular situation occurs. Indemnities are commonly used in commercial contracts to cut through the complicated legal rules which would otherwise govern what one party can claim from another in the event of, for example, a breach of contract.
The specific answer to your question depends entirely upon how the indemnity is worded. If it has been properly drafted it will contain provisions setting out how such claims are to be conducted. For example, it could say that the buyer has to consult you before settling a claim or it may even give you the right to take over and fight the legal action. The wording of an indemnity can be complicated and if it isn't clear to you from reading the indemnity and you would like me to review it for you please let me have a copy.
Speaking generally, you should always think carefully before entering into a commercial contract that includes an indemnity. It is vital that you fully understand the implications of what you are being asked to sign as indemnities are often drafted in such a s way as to greatly increase the potential liability of one of the parties to the contract.
