Professional Liability Guide

PROFESSIONAL LIABILITY GUIDE

CHAPTER 2 – CONTRACTUAL INDEMNITIES AND LIMITATIONS

Contractual indemnities What is a contractual indemnity?

In Andar Transport Pty Ltd v Brambles Ltd , 152 Kirby J described indemnity clauses as ‘provisions that purport to exempt one party from civil liability which the law would otherwise impose upon it. They are provisions that shift to another party the civil liability otherwise attached by law to the first party. ’ 153

Indemnities alter, by way of contract, the parties’ common law or statutory liability.

An indemnity is enforceable only according to its terms. Therefore, recovery under an indemnity involves examining (i) what loss has been sustained by the party seeking to enforce the indemnity and (ii) whether that loss arises out of an indemnified event.

Types of indemnities The three most common types of indemnities are:

ƒ bare indemnity. A bare indemnity exists where Party A agrees to indemnify Party B from all liability incurred in connection with a specified event or circumstances without any limitation. Such a clause can often be silent about whether it indemnifies Party B from loss arising from its own acts or omissions. Given its breadth, it is possible that a bare indemnity may have the effect of a reflexive/reverse indemnity (see next point). ƒ reverse or reflexive indemnity. A reverse or reflexive indemnity requires one contracting party, B, who has successfully sued another (but defaulting) contracting party, A, to indemnify Party A. It is distinguishable from a bare indemnity in that the parties intend it to apply to a liability arising between them from the indemnified party’s default (e.g. a breach of duty or breach of contract). 154 Put simply, a reflexive or reverse indemnity involves party A indemnifying party B against loss incurred because of Party B’s own acts or omissions. ƒ proportionate or limited indemnity. This is the opposite of a reverse indemnity. Party A indemnifies Party B against losses except those incurred because of Party B’s own acts or omissions. Proportionate indemnities are commonplace in contracts, yet they do no more than state (or enshrine a reversion to) the common law position; they do not assist a party in respect of liability flowing from that party’s own acts or omissions. ƒ third-party indemnity , where party A indemnifies Party B against liability to or claims by Party C ƒ financing indemnity , where party A indemnifies Party B against loss incurred if Party C fails to honour the financial obligation (i.e. the primary obligation) to Party B (most often, coupled with a guarantee) ƒ party–party indemnities , where each party to a contract indemnifies the other for losses occasioned by the indemnifier’s breach of the contract. Less common types of indemnities include:

152 (2004) 217 CLR 424. 153 Ibid 452. 154 Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009) 41 WAR 263, 277.

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