General damages and indemnities

In general, common law damages for breach of contract are intended to compensate for loss sustained by a party to a contract.

Parties seeking to benefit from an indemnity usually insert indemnities in contracts to increase the level of damages that would otherwise have been payable for particular breaches. In some cases, they make the other party liable to pay damages in circumstances where damages would not otherwise have been payable.

The essential difference between common law damages for breach of contract and damages payable under indemnities, is that common law damages are determined in accordance with the principles of common law, whereas a claim under an indemnity is dealt with in accordance with the agreed terms of the indemnity.

By including an indemnity in a contract, the parties will, by the terms of the indemnity, determine the allocation of risk and responsibilities, as well as the extent of liabilities for losses for matters covered under the indemnity.