Compensation clauses are common in many agreements, from share purchase contracts to software licenses to contracts for the supply of goods and services. Compensation is often the only clause that a customer really wants to have and that a supplier really does not want to give; so much time (and money) has been spent negotiating them, often in circumstances where it is inappropriate to use it. Compensation is a commitment of a party to compensate for the loss incurred as a result of a specific event, known as a „trigger event.“ As a general rule, a contracting party is required to reduce losses resulting from an offence. However, this obligation is unlikely to apply to a party seeking compensation (unless the compensation expressly requires it to reduce losses). Indeed, the mitigation obligation is due to the damage resulting from the retaliation of the contract. In the case of compensation, the offence in question is the denial of compensation and not the event that creates the right to compensation. In this context, it could be said that a party cannot be expected to claim a breach of compensation, if that loss is exactly the amount for which it should be compensated. Compensation is common in stock purchase contracts (usually known as SPA). With respect to regulatory violations, one of the most important cases is Safeway Stores v Twigger. Safeway was a supermarket chain; Twigger and others were a group of former directors and collaborators who exchanged information on economically sensitive prices on several occasions. Following a request from the OFT (as at the time), Safeway admitted to violating the Competition Act 1998 and the OFT imposed a fine. Safeway then attempted to be compensated by the criminals, but Twigger argued that ex turpi causa applied and that any recovery in compensation was contrary to that maxim. Ensure that compensation obligations can be met The awarding party may argue against the principle that there is no obligation to reduce losses in compensation.
Indeed, courts generally apply a strict interpretation of the compensation clauses, so that they extend only to obligations that have reasonably arisen. However, any party that compensates should consider including the requirement that the party receiving the award should take appropriate steps to mitigate its loss following a breach of contract. Do you need a contract lawyer to help them get compensation or defend liability? If you grant compensation, there is reason to be concerned that any resulting entitledness would lead to a right to claim (so that the principles of mitigation and removal would not apply) and, therefore, you should try to design explicitly so that the reduction and distance apply! Depending on the context, third-party detention allowances are in principle acceptable (e.g.B. compensation for third-party intellectual property rights in software development contracts and compensation for third-party claims for personal or material damages in manufacturing and construction contracts).