Indemnity Clauses in Singapore Contracts: What You Are Actually Promising
The indemnity clause is often the longest sentence in a commercial contract and the one least read before signing. It usually sits near the end, after the price and the delivery terms, and it tends to be accepted as standard. An indemnity can make your business pay for losses you did not cause, in amounts nobody estimated, years after the work is done. If you are about to sign a supply, services, licensing or share purchase agreement, this is the clause worth reading twice.
This is general information, not legal advice. What a particular indemnity covers depends on its exact wording and on the rest of the contract.
What Is an Indemnity?
An indemnity is a promise by one party (the indemnifier) to make good a specified kind of loss suffered by the other party (the indemnified party). A typical clause says the supplier will “indemnify and hold harmless” the customer against losses, liabilities, costs and claims arising from, say, a breach of the contract or a claim by a third party.
The difference from an ordinary claim for breach of contract is where the argument starts. A breach claim starts with the breach and then asks what loss it caused. An indemnity claim starts with the clause and asks whether a loss of the kind it describes has occurred. If the clause is wide, that can reach losses a breach claim would not, which is why indemnities are valuable to the party receiving them and risky for the party giving them.
Indemnity or Guarantee? The Difference Matters
The law treats indemnities and guarantees differently, even though people often use the words interchangeably. In Liberty Sky Investments Ltd v Goh Seng Heng [2019] SGHC 40, the High Court explained that an indemnifier’s liability is primary and independent, while a guarantor’s liability is secondary and depends on the liability and default of the principal debtor.
That difference has practical effects:
- Writing. Under section 6(b) of the Civil Law Act 1909, no action can be brought on a promise to answer for the debt, default or miscarriage of another person unless it, or a note of it, is in writing and signed. The High Court in Liberty Sky noted that an indemnity, unlike a guarantee, need not be evidenced in writing.
- Dependence on the main contract. A guarantee generally stands or falls with the underlying obligation. An indemnity is an independent obligation of its own.
- The label is not decisive. Whether a document is a guarantee or an indemnity is a matter of construction in each case. Calling a clause an “indemnity” does not make it one.
Directors should take particular care here. A personal “indemnity” signed to help your company win a contract or a facility may be a personal promise to pay, whatever happens to the company.
How Singapore Courts Read Indemnity Clauses
Because an indemnity can impose heavy liability, the courts read it strictly. In HSBC Institutional Trust Services (Singapore) Ltd v DNKH Logistics Pte Ltd [2022] SGHC 248, the High Court said indemnity clauses are to be construed strictly, and a party who wants its liability indemnified must say so in clear words.
The same case applied the principles from Canada Steamship Lines Ltd v The King [1952] AC 192: if one party is to indemnify the other against the consequences of the other’s own negligence, the clause should say so in clear terms. General words such as “any and all losses howsoever arising” may not be enough to make you pay for the other side’s own mistakes.
For the party receiving the indemnity, strict reading is a warning: if you want cover for a particular risk, name it. For the party giving it, strict reading helps, but only up to the point where the words are clear. Clear words will generally be enforced.
Where the Unfair Contract Terms Act Steps In
The Unfair Contract Terms Act 1977 limits what a contract can do in specific situations:
- Consumers. Under section 4, a person dealing as consumer cannot be made to indemnify another person against liability for negligence or breach of contract, except so far as the term satisfies the requirement of reasonableness.
- Death and personal injury. Under section 2(1), a person cannot exclude or restrict liability for death or personal injury resulting from negligence.
- Standard terms. Under section 3, where one party deals on the other’s written standard terms of business, the other cannot rely on a term excluding or restricting its liability for its own breach, except so far as the term is reasonable.
The reasonableness test in section 11 asks whether the term was fair and reasonable to include, given what the parties knew or ought reasonably to have known when the contract was made. Some contract types are carved out of these sections by the Act’s First Schedule, so check whether your contract falls within them before relying on the Act.
The Clauses to Check Before You Sign
Before signing, work through these points in order:
- What triggers it. Is the indemnity limited to claims by third parties (for example, an intellectual property infringement claim against your customer), or does it cover the other party’s own direct losses from any breach? The second is far wider.
- What losses it covers. “Losses, liabilities, damages, costs and expenses” is broad. Check whether it reaches loss of profit, indirect loss and legal costs, and whether that matches the exclusions elsewhere in the contract.
- Whose fault it covers. Does it extend to losses caused by the indemnified party’s own negligence or breach? If you are giving the indemnity, you usually want it expressly excluded.
- The cap. Does the limitation of liability clause apply to the indemnity, or is the indemnity carved out and uncapped? An uncapped indemnity inside an otherwise capped contract is easy to miss.
- Notice and conduct of claims. For third-party claims, the indemnifier will want prompt notice, the right to run the defence, and a bar on the other side settling without consent.
- Mitigation. Consider an express obligation on the indemnified party to take reasonable steps to reduce the loss.
- Duration. Does the indemnity survive termination, and for how long? A time limit for bringing claims gives both sides certainty.
- Insurance. Ask your broker whether your policy covers liability you take on under a contractual indemnity, before you agree to it.
Common Places Indemnities Appear
- Supply and services agreements: indemnities for defective goods, third-party claims and intellectual property infringement.
- Share and business purchase agreements: specific indemnities for known risks, such as a pending dispute or a tax exposure, alongside the warranties.
- Leases and licences: indemnities from the tenant or licensee for damage and third-party claims arising from its use of the premises.
- Director and personal indemnities: promises by individuals to back a company’s obligations, which deserve the closest reading of all.
Our guide to breach of contract in Singapore covers what happens when a contract is broken and there is no indemnity to rely on.
What If an Indemnity Claim Is Made Against You?
Read the clause against the claim before you respond. Check whether the loss claimed falls within the words used, whether the trigger has actually occurred, whether notice was given as the contract requires, and whether any cap, exclusion or time limit applies. If a third-party claim is involved, check whether you have the right to take over its defence, and assert it early.
Time limits also apply. Claims founded on a contract are generally subject to the 6-year limitation period in section 6(1)(a) of the Limitation Act 1959. When time starts to run on an indemnity can depend on the wording and on when the loss is incurred, so take advice rather than assume. Disputes over indemnities are handled by our civil litigation team.
Frequently asked questions
What is an indemnity clause?
A contract term in which one party promises to make good a specified kind of loss suffered by the other. The claim turns on whether a loss of the kind the clause describes has occurred, so a widely drafted indemnity can reach further than an ordinary claim for breach of contract.
What is the difference between an indemnity and a guarantee in Singapore?
An indemnifier’s liability is primary and independent. A guarantor’s liability is secondary and depends on the principal debtor’s default. A guarantee must be in writing and signed under section 6(b) of the Civil Law Act 1909, and the High Court has noted that an indemnity need not be.
Can an indemnity cover the other party’s own negligence?
Yes, but Singapore courts construe indemnity clauses strictly and expect clear words for this. Applying the Canada Steamship principles, a clause intended to cover the indemnified party’s own negligence should say so expressly. General wording may not be enough.
Does the Unfair Contract Terms Act apply to indemnity clauses?
In some cases. Section 4 prevents a consumer from being made to indemnify another against liability for negligence or breach of contract unless the term is reasonable. Other sections control exclusions of liability, particularly on standard terms. Some contract types are excluded by the Act’s First Schedule.
Should an indemnity be capped?
That is a commercial decision, but it should be a deliberate one. Many contracts cap general liability and then carve indemnities out of the cap. If you are giving an indemnity, check whether it is capped, and whether your insurance covers the exposure if it is not.
Is a personal indemnity from a director enforceable?
Generally yes, if properly given. It can make the director personally liable, independently of the company. Whether a document is an indemnity or a guarantee depends on its construction, and a guarantee must meet the writing requirement in the Civil Law Act 1909.
Speak with our corporate team
We review and negotiate commercial contracts for Singapore businesses, including the indemnity, limitation of liability and warranty provisions that decide who carries the risk. Read more about our corporate and SME practice. Send us the draft before you sign and we will tell you what the indemnity commits you to and what to push back on.
Call (65) 6557 0215 or email contactus@dllclegal.com. We typically respond within minutes during business hours.
This article is general information about indemnity clauses in Singapore contracts and is not legal advice. The effect of any clause depends on its exact wording and the rest of the contract, and the law develops through new decisions, so confirm the current position on Singapore Statutes Online or with a lawyer before acting. For advice on your specific matter, consult an Advocate & Solicitor.
Statutory and case references: Civil Law Act 1909, section 6(b); Unfair Contract Terms Act 1977, sections 2, 3, 4, 11 and the First Schedule; Limitation Act 1959, section 6(1)(a); Liberty Sky Investments Ltd v Goh Seng Heng [2019] SGHC 40; HSBC Institutional Trust Services (Singapore) Ltd v DNKH Logistics Pte Ltd [2022] SGHC 248; Canada Steamship Lines Ltd v The King [1952] AC 192.