This clause decides who pays government fines and penalties if the contract work violates laws or regulations. For example, if a manufacturing company fails to follow environmental regulations and the government fines them £100,000, this clause says whether the manufacturer or the company that hired them pays that fine. This is high-risk because regulatory fines can be enormous—environmental, labor, and safety violations routinely result in six or seven-figure penalties. In most jurisdictions, you cannot completely shift regulatory fines to someone else if you're the one who actually broke the law; courts and regulators view this as unfair because it removes the incentive to follow the law.
Never agree to pay regulatory fines for violations you didn't cause or control—it's unfair and often unenforceable. Instead, require the other party to warrant (promise) they'll follow all applicable laws, and include a clause that says they'll indemnify you (reimburse you) if their violation causes you to be fined. If you're the one doing the regulated work, accept responsibility for fines caused by your own actions, but push back against fines caused by the client's instructions or failure to provide required information.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause decides who pays government fines and penalties if the contract work violates laws or regulations.
Why should I care about this clause?
For example, if a manufacturing company fails to follow environmental regulations and the government fines them £100,000, this clause says whether the manufacturer or the company that hired them pays that fine.
What are my options?
This is high-risk because regulatory fines can be enormous—environmental, labor, and safety violations routinely result in six or seven-figure penalties.
How does this affect small businesses?
In most jurisdictions, you cannot completely shift regulatory fines to someone else if you're the one who actually broke the law; courts and regulators view this as unfair because it removes the incentive to follow the law.