NDA legal indemnification

[Tom Lucas]

Hi

I am being asked to sign an NDA in relationship to any confidential information supplied to me by a large company as part of a contract.

Receving Party would be me - a sole trader.
The Disclosing Party is them - a massive international Company not based in the UK.
I required the NDA to be subject to English Law.

Liability for Breach of Contract

Since the nature of Confidential Information, the liquidated damages can’t cover the damages incurred by breach of this Agreement. In order to protect both Parties’ interests, both Parties agree if the Receiving Party breaches any term of this Agreement, the Disclosing Party has the right to (a) demand the Receiving Party to cease any conducts; and (b) obtain indemnity from the Receiving Party, including but not limited to attorney fee, expense for unauthorized-used information and other relative expense.

On no account would I intentionally breach the NDA, but originally there was no limit to liability and it made me unconformable so I got them to add a liability limit I am conformable with:

In no event shall either party’s total liability exceed [redacted] GBP under this Agreement, unless otherwise provided by applicable laws.

Does this clause now sound reasonable?
Not sure what "obtain indemnity" means - I don't mind if proven in a UK court I am in breach I have to pay damages/legal costs. That sounds fair.
But if the company decided themselves I was in breach, without it being proven in court, what does it mean for me by "obtain indemnity"?

[Tom Lucas]

And obviously if I were to do something criminal, I wouldn't expect to be protected by liability limits - so "unless otherwise provided by applicable laws." doesn't worry me.

[atticus]

For a start, you have been presented with a US document. The spelling and reference to attorney fees give that away.

If you are happy with the limit, request the deletion of "unless otherwise provided by applicable laws".

What is the governing law of the contract? If necessary ask for it to be changed to the laws of England and Wales, and for the courts of England and Wales to have jurisdiction to hear disputes.

[Tom Lucas]

For a start, you have been presented with a US document. The spelling and reference to attorney fees give that away.

If you are happy with the limit, request the deletion of "unless otherwise provided by applicable laws".

What is the governing law of the contract? If necessary ask for it to be changed to the laws of England and Wales, and for the courts of England and Wales to have jurisdiction to hear disputes.

Thanks for the reply.

It's a global company not based in the UK (but not US either).

I specifically made them state the contract/NDA is governed under English Law.

I think it's "obtain indemnity" I don't understand, and in what event that could happen. This would require a court to find against me before I'd actually have to pay costs/damages?

If so, I'm OK with that.

[atticus]

it gives the right to be compensated in full (subject to the cap) for losses caused by unauthorised disclosure.

[Tom Lucas]

it gives the right to be compensated in full (subject to the cap) for losses caused by unauthorised disclosure.

And they would need to prove this in court?

If they would, I'm not worried about it.

[atticus]

Of course. Let's hope your insouciance does not turn out to be naïve.

[R0b]

Personally, I wouldn't accept an NDA containing an indemnity and in fact I very rarely see one in my experience, but I could write a whole chapter on why I wouldn't accept an indemnity under an NDA.

As Atticus has said, an indemnity is to protect a party from suffering financial loss if certain events occur. It's a promise to pay money if that event happens and the party has suffered loss because of it. For that reason, an indemnity can be construed as a debt rather than damages (compensation) for a breach of contract. The difference being that for a debt, a party simply needs to show the debt is owed and you will be responsible whereas damages will arise from a breach of contract which will require the injured party to show there has been a breach caused by you which resulted in them suffering loss and that they have also taken reasonable steps to mitigate that loss. Indemnities don't usually require mitigation of loss unless it is explicitly contractualised. This also applies to foreseeability of losses where a court will not allow losses for a breach of contract if they were not foreseeable but this does not apply to indemnity obligations.

Also, you have to bear in mind that confidential information does not typically last forever, yet the contract may be drafted in such a way to still hold you responsible if you disclosed the information despite it being public knowledge.

If I were going to accept an indemnity in an NDA I would be looking to water it down to include one or more of the following:

- Any losses must be direct losses flowing from the breach but excluding losses relating to profits, indirect or consequential, revenue, damage to reputation, business opportunities, goodwill etc.

- all reasonable steps must be taken to mitigate any loss.

- liability should be limited to an amount you ought to reasonably pay having regard to your responsibility for that loss or damage and you will not be liable for losses that are attributable to other persons. In other words, if the customer employee is partly responsible for the loss, there should be a reasonable deduction made for that employee's partial liability.

- limit the attorney fees to reasonable fees incurred. Most courts do not allow lawyer fees to be recovered 100% because they usually are not proportionate or reasonable. IF you agree to 100% of the fees they may be way over the top someone would charge and you have no recourse.