According to Black`s Law Dictionary (10th edition of 2014), compensation is an „obligation to obtain losses, damages or liabilities from someone else.” In essence, compensation is a promise to reimburse a person for damage suffered by that person. The obligation to compensate is often limited to the rights of third parties. In addition, there is generally a „defence component” of compensation that requires the party to compensate to take over the defence of the right on behalf of the compensated party. Below are some of the common issues relating to compensation in supply contracts: in addition to taking careful account of the scope of the compensation obligations themselves, it is also important to address compensation procedures: it is always necessary to ensure the interaction of risk allocation rules in a contract. If the .B agreement contains broad compensation which indicates that the compensated party compensates the party compensated for all losses resulting from certain grounds, and also contains an exclusion from any injury which provides that neither party is liable for the consequent damages to the other party, that the agreement presents an intrinsic inconsistency which is not a good part, since none can remain unscathed (i.e. the compensated party does not know whether its reputation or other consequential damages, for example, are compensated, and the unscathed party does not know whether it is responsible). Another example: third-party claims can normally be classified as consecutive damages. In the case of an agreement involving both compensation for third-party claims and an exclusion of prejudice, the agreement involves an internal conflict that may leave it to a judge or jury to determine the outcome envisaged by the parties. It is therefore important to ensure that contracts explicitly address how compensation clauses and injury exclusions interact with each other. How does compensation differ from a guarantee? A guarantee and compensation are two different tools that serve two different purposes.
In short, compensation is a powerful risk-allocation tool that deserves critical attention and attention, both in substance and administratively. If you are interested in a free copy of the Supply Chain Desk reference containing this and other items, please send your name, organization and postal address to firstname.lastname@example.org (depending on availability).