Speaker 1: Hello everyone, today I would be discussing how to spot red flags while reviewing contracts. Now there are various clauses which when read on the face of it would not really give you an idea of how they are unable to protect your client's interests. On the face of it they may appear fair but they are not. Now I would be discussing a bunch of clauses so as to give you an idea of what are the kinds of things you should keep your eye open for. Now the first is duration of a contract. So here I have presented a clause which is from a fixed term agreement wherein there is automatic renewal after the first initial term which is 12 months until and unless either the party provides a written notice in advance to the other party that they do not want the said renewal. Now on a bare reading of the same this may appear to be very convenient but it's not because what if due to any administrative or technical reason the party who does not want the renewal is not able to give the said notice. So if the contract goes on automatically renewing itself it would cause undue hardship to both the parties. So whenever you come across a term such as automatic renewal you should immediately replace it with something like it should be renewed if both the parties consent to such renewal in writing otherwise it would end on the effective date or it would end on the day it was supposed to end after the expiry of the term. Now indemnity clause. Now indemnity clause is very important because it also leads to a lot of monetary risk for the parties. Now here imagine you are the lawyer for the vendor. Now this clause says that the vendor would indemnify and hold harmless the customer against any and all claims arising from breach of the contract by the vendor. This is a one-sided clause where only the vendor is required to discharge indemnity obligations. Secondly, it's widely worded because it says any and all claims arising from breach of the contract by the vendor. Now the breach of the contract is a very wide term so any claim which arises from breach of the contract the vendor would be required to indemnify the same. So this would lead to a huge risk for your client, the vendor. How can you review this? Firstly, you can make it mutual. So put in either party instead of only the vendor. This is going to put obligations on both the parties. Secondly, narrow down the scope of indemnity. Do not make it arise from a blanket breach of the contract. You should include specific claims such as I have included here breach of confidentiality, breach of intellectual property obligations, breach of any applicable law. Now these specific grounds on which indemnity can be claimed depend upon the content and the context of the contract. Do not again include specific claims as a way of maybe copy pasting from some other indemnity clause you see. You need to see what are the interests of your client, what is the aim and purpose of the contract you are reviewing and then include certain grounds which you think should be covered by indemnity. Now also if you are the vendor's loyal and it's a one-sided indemnity clause then you should also make sure that there are not a lot of grounds which are covered under the indemnity clause. Now dilution. So what if your client and the customer have unequal bargaining power? What if the customer doesn't agree? They say no, I am not going to indemnify you, there's not going to be a mutual indemnity clause and the vendor wants the contract at any cost. How would you then protect your client's interest? You should dilute the indemnity clause in such circumstances by including certain qualifiers. So for instance if you look at the reviewed clause here, in model 1 you will see intended breach of the contract by the vendor in the last line. This shows that only those breaches which were intended on the part of the vendor would be considered for the purposes of triggering the indemnity clause. Similarly in model 2 you would read in the last line the term gross negligence of the vendor. Again this gross negligence qualifies the obligation of the vendor. So only if there is a gross negligence on the part of the vendor which led to the breach of the contract then only the vendor would be required to indemnify the customer. So therefore these qualifiers or phrases which dilute the indemnity clause have the consequence of firstly mitigating the risk of your client and secondly offsetting the liability of the vendor to the customer because then the customer would be required to prove that it was an intentional breach or that the breach was caused due to gross negligence of the vendor. If the opposite party or the customer does not have a lawyer who actually looks through these nitty gritties they would think that yes the vendor is required to indemnify me I am safe but they wouldn't really see that you know there are these qualifiers included here which in effect are going to protect the interest of your client and not theirs. Now limitation of liability. Limitation of liability limits the monetary liability of the parties. Now again if you are the lawyer of the vendor and the limitation of liability clause is one sided and says that only the liability of the customer would be limited what can you do? So there are two things one you can either make this limitation of liability clause mutual and say that liability of both the parties under this contract would be limited secondly you can make a exception here you can carve out the indemnity obligation from the limitation of liability clause. So you can say except the indemnity obligations liability of the customer under this contract shall be limited to the value of the contract. This means that everything else would be limited except the indemnity obligations. Why should you do this? Because indemnity leads to uncapped and unlimited liability. So therefore if the indemnity obligations are mutual. So for instance if both the vendor and the customer have indemnity obligations towards each other then the indemnity obligations should be carved out because otherwise capping them may cause a huge monetary loss. On the other hand if it's a one sided indemnity clause and if you as a vendor do not have the right to claim indemnity from the customer then you should not carve out indemnity obligations and if you are the lawyer for the customer and if you have a one sided right to claim indemnity then you should carve out indemnity from the limitation of liability clause. In short if you are entitled to indemnity carve it out from the limitation of liability clause as limiting indemnity may cause you undue monetary loss. Now IP indemnity. So a lot of times IP indemnity is included as a separate clause especially in SAAS agreements. So it would say that the vendor while performing services would not infringe upon third party's intellectual property. Now it also calls upon the vendor to indemnify, defend and hold harmless the customer against any claim arising out of any third party claim of infringement of IP. Now firstly you can make this mutual. If you cannot make it mutual then you can dilute the same by again including qualifiers such as knowingly infringe or intentional infringement. So usage of such qualifiers is again going to mitigate the risk of your client and offset your liability to the customer because then they will have to prove that you were knowingly infringing or misappropriating or that you were intentionally infringing the IP. So the intention and the knowledge would need to be proved. So hence if there's an unequal negotiation or bargaining path one can always use these qualifiers to mitigate the risk. However what you need to see while reviewing a contract is that what are the different words or phrases or language which is basically putting an extra onerous burden on your client and how can you offset this burden or reduce this burden. So that is how you need to actually look at the red flags contained in the contract. Hopefully you found this session helpful. Please do let me know through your comments on this video or through DMs on LinkedIn and please let me know if there's any other topic you would want me to talk about. Thank you. Have a nice day. Stay safe. Stay well.