Notwithstanding… as used in contracts is a preposition to indicate that the phrase or provision that follows limits or qualifies another provision (to which notwithstanding points).
In the following example, notwithstanding points to the preceding sentence, which is then limited as regards the term within which errors must be reported (i.e. not monthly but promptly):
Monthly, Supplier shall report to Customer on the service levels achieved by it. Notwithstanding the previous sentence, Supplier shall promptly notify Customer of each Crucial Error or Major Error in the software.
In another example, this limitation (or rather: carve-out) works slightly different:
11.3 Any liability of Supplier pursuant to this Agreement shall in no event exceed EUR 2,000,000.
12.5 Notwithstanding Section 11.3, Supplier shall defend and indemnify Customer against all liability resulting from the use of the Product in violation of any intellectual property rights of a third party…
In the example, the liability of Supplier pursuant to the indemnity in Section 12.5 may well exceed the maximum amount of Section 11.3. This is the effect of the word notwithstanding. In other words, the Supplier must indemnify Customer even to extent that the claim against Customer exceeds the amount of two million euro.
An interesting detail of the same example is whether Supplier will also be exposed to liability vis-à-vis Customer once such an indemnity (in excess of two million euro) has been effected: whilst Section 12.5 operates independent from Section 11.3, this latter section appears to include any liability based on Section 12.5.
Actual meaning. The use of the word notwithstanding in contracts does not differ from its plain and ordinary English meaning. Notwithstanding has the following meanings:
in spite of,
without regard to or impediment by other things,
all the same,
in any case,
in any event,
none the less,
Like subject to, the word notwithstanding creates a priority of provisions.
Best practice – lex specialis. Consider not using notwithstanding. Often, a drafter uses notwithstanding anything [herein] to the contrary to protect a significant provision against a conflicting provision, whichever provision that may be. In many cases, notwithstanding is redundant. As with subject to, it would be difficult for a party to argue that a clause inserted notwithstanding another provision was not intended to operate in deviation or as limitation of the other provision despite its clear wording. The argument would be that a specific rule prevails over a general principle (lex specialis derogat legi generali).
Best practice – no notwithstanding the foregoing. Whilst notwithstanding the foregoing might seem relatively benign, in that the provision that is undercut would seem to be close at hand, the foregoing could conceivably refer to the previous sentence, to the entirety of the preceding part of the body of the contract, or to something in between.
Notwithstanding and subject to. Although the meaning of subject to is essentially the same as that of notwithstanding, the former appears in the superseded clause and the latter in the prevailing clause. The important effect is that the reader of subject to is put on notice that another provision may prevail, whilst the reader of the same clause would not be aware of such prevailing provision if that prevailing provision only indicates the priority by notwithstanding.
The use of notwithstanding might result in (unintended) ambiguities; when a third contract clause refers to a section that is itself subordinate to another clause, which uses notwithstanding: in that case it might be uncertain whether the prevailing clause (i.e. in which the reference notwithstanding was made) is intended to be captured by such third contract clause.
If the section referred to in the third contract clause is subordinated to another clause by using subject to, the ambiguity does not occur because in that case it is clear that the subordinated section is limited by that other clause as well (since the subordinated clause says so itself). Compare the following examples:
9.1 During the term of this Agreement and for a period of 12 months thereafter, Agent shall refrain from, directly or indirectly, for itself or for the benefit of others, being involved in the development, manufacture, sale, representation, marketing or distribution of any products of other persons than Principal which are substantially similar to or competing with the Products. 9.2 Notwithstanding Section 9.1, during the term of this Agreement and for a period of 18 months thereafter, Agent shall refrain from, directly or indirectly, acting as an agent or representative for or on behalf of or otherwise for the benefit of XXX, YYY or ZZZ, or such other third party as Principal notifies Agent from time to time for this purpose.
… 13.1 If a Party acts (or fails to act) in breach of Sections 2.4, 3.3 or 9.1, it shall forthwith, without any further action or formality being required, become liable to the other Party for an immediately due and payable penalty of EUR 25,000 for each such breach and for an additional penalty of EUR 10,000 for each day such breach continues, without prejudice to such other Party’s right to damages.
In the preceding example, it is questionable if a breach of section 9.2 is also subject to the penalty of section 13.1. (It does not seem so, unless the breach would be a breach of section 9.1 as well.) The penalty clause does apply if sections 9.1 and 9.2 are modified as marked:
9.1 Subject to section 9.2, dDuring the term of this Agreement and for a period of 12 months thereafter, Agent shall refrain from, directly or indirectly, for itself or for the benefit of others, being involved in the development, manufacture, sale, representation, marketing or distribution of any products of other persons than Principal which are substantially similar to or competing with the Products. 9.2 [delete Notwithstanding Section 9.1, d]During the term of this Agreement and for a period of 18 months thereafter, Agent shall refrain from, directly or indirectly, acting as an agent or representative for or on behalf of or otherwise for the benefit of XXX, YYYY or ZZZ, or such other third party as Principal notifies Agent from time to time for this purpose.
Finally, a subtle difference may be the sense of equality of provisions conveyed by notwithstanding, whilst subject to unequivocally subordinates one clause to another, the notwithstanding does not necessarily imply that the referenced clause is overlapping or contradictory.