The 1 clause a lawyer will never leave out of a contract

What is the one clause a lawyer will never leave out of a contract?  Interesting.  Well stick around and I’ll tell you.

Hi everyone, Simon here from the Contract Company. Contracts, that’s what we do all day, every day, and sometimes every night, lucky us.

Righto, what is the one clause a lawyer will never leave out of a contract? If a lawyer is drafting a contract for you to receive services, so let’s say you’re paying someone and they are providing services to you, then the one clause a lawyer will never leave out of that contract, if they know what they’re doing, is an indemnity clause.

The Indemnity Clause

So the party who’s receiving the services will always want an indemnity from the person providing the services. Why is that?

Well, the attitude from this person is if I’m paying you money and you’re providing services to me, if you cause me any loss while you’re providing those services, then you should indemnify me for that loss.

So what does that mean? It basically means if this person causes this person a loss because they do something like… Let’s say they’re doing some sort of IT data system or services, and they delete some data.

And this person then, you know, has to spend money to get the data, either, get it found or get it recreated somehow.  Then this person says, “You should pay me.” And that’s what the indemnity clause does.

So that is the one clause a lawyer will always make sure is in a contract where a person is receiving services.

Now on the other side of the score, when a person is providing services, if you’re acting for this guy, then the one clause the lawyer will always make sure is in that contract for a person providing services to someone else, is they’ll have a limitation of liability clause.

Limitation of Liability Clause

So what the limitation of liability clause does is, this person basically says, “Look, I’m happy to provide my IT services to you “and you pay me. “And to the extent I cause you loss, “then I will indemnify you.”

But if, well they just want the value of their contract limited, Sorry, the risk under the contract, if I can get my words out, they want the risk under the contract limited.

So in other words, if this contract is worth $500,000 to them, they don’t want their liability or the amount they could potentially pay out under the contract to be, say, $10 million. It’s disproportionate.

So what this person always wants, a service provider always wants some sort of limitation or cap on the maximum amount they could ever be exposed to pay out. Does that make sense?

So in other words, there’s no point entering into a contract where they potentially make, you know, $400,000 at a 30% profit margin when the risk that they could be sued would be for an amount of $50 million. It’s just disproportionate. So they’ll always try to limit their liability.

So that’s the one clause that a lawyer will always ensure is in a contract. When a person is receiving services, it’s an indemnity clause, when a person’s providing services, it’s a limitation of liability clause. Hope that helps.

Feel free to share this with someone you think could benefit from listening to this. Otherwise, any questions, please get in touch with us, simon@contractcompany.com.au or 1800355455. Thanks very much.

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