The phrase that constrains instead of widening
It is common to indemnify against losses arising directly or indirectly from an event, on the assumption that "directly or indirectly" captures the widest range of consequences. In Capita (Banstead 2011) Ltd v RFIB Group Ltd [2015] EWCA Civ 1310, the Court of Appeal held that this language imports the Hadley v Baxendale remoteness test - it covers the second limb (losses in the parties' reasonable contemplation) but cannot reach losses more remote than that test allows.
So the words drafters use to expand coverage actually limit it: losses that could not have been foreseen are excluded, even though "directly or indirectly" was meant to capture everything.
The causal-language spectrum
Causal connectors carry different breadth. Roughly, from narrower to broader: "caused by", then "arising from", then "arising out of", then "in connection with". None of these, by itself, removes the remoteness limit - and "directly or indirectly" actively imports it. If you want the indemnity to reach unforeseeable losses, the connector alone will not do it.
Choose the connector deliberately, and do not assume a broad-sounding phrase defeats remoteness.
Drafting for losses regardless of foreseeability
If you genuinely want coverage of unforeseeable losses, say so. Indemnify against losses, costs, claims, and expenses arising out of or in connection with the trigger event, "whether or not foreseeable at the date of this Agreement". The express "whether or not foreseeable" is what displaces the remoteness limit; a causal phrase will not.
Conversely, if you are the indemnifying party and want the remoteness limit to apply, "directly or indirectly" is, perhaps counter-intuitively, helpful to you.
Contributory negligence cannot reduce a debt
There is a related advantage for a debt-style indemnity. The Law Reform (Contributory Negligence) Act 1945 lets an award of damages be reduced for the claimant's own fault, but it operates on claims for damage - not on a claim in debt. So where the indemnity is a true debt claim, the indemnifier cannot cut what it owes by pointing to the indemnified party's contributory negligence.
Contributory negligence is in any event a narrow defence in contract: the Court of Appeal in Forsikringsaktieselskapet Vesta v Butcher [1988] 2 All ER 43 held it is available only where the breach is of a duty of care concurrent with a duty in tort, not for a strict obligation such as a covenant to pay. So drafting the indemnity as a debt takes contributory negligence off the table - an advantage many overlook.
What to check in review
Read the causal language against what the parties actually want. If the indemnity says "directly or indirectly" but the intent was to cover all consequences including unforeseeable ones, the clause underperforms - add "whether or not foreseeable". If the intent was to keep the remoteness limit, the phrase does the job. Either way, do not treat the connector as cosmetic; it decides how far the indemnity reaches.
And remember the debt-versus-damages point: these remoteness and contributory-negligence advantages depend on the indemnity being a debt in the first place.
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Practical checklist
- Avoid "directly or indirectly" if you want to cover unforeseeable losses - it imports remoteness (Capita (Banstead 2011) v RFIB [2015] EWCA Civ 1310).
- To cover unforeseeable losses, add expressly "whether or not foreseeable at the date of this Agreement".
- Choose the causal connector deliberately; none alone removes the remoteness limit.
- Remember contributory negligence reduces an award of damages, not a debt (Law Reform (Contributory Negligence) Act 1945).
- These advantages depend on the indemnity being a debt - check that first.
- In review, match the causal wording to whether you want the remoteness limit in or out.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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