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have imposed a liability anyway. But it
is not safe to assume a Court will apply
the indemnity in a way you might see as
‘fair’. Generally it will be taken by a Court
to mean what it says, even if that makes
you in effect a kind of insurer for your
customer.
Sometimes, sensible limits on the scope
of the indemnity can be negotiated and
dealt with by wording added to the
clause to soften its effects. You might
consider a rider along these lines:
"...except to the extent the costs, claims,
demands, expenses, losses or other
consequences are indirect, consequential,
special, exemplary or incidental loss or
damage, and except to the extent that
any of them is caused or contributed to
by the default or negligent or wrongful
act or omission of the Customer or the
Customer’s servants or agents."
Another difficulty that can arise with an
indemnity is where a party such as the
Contractor has liability insurance that
may be prejudiced by the assumption
of an obligation under an indemnity. A
public liability policy can be expected
to exclude liability assumed by way of
contract, unless that liability would have
existed in the absence of that contract.
Similarly with a professional indemnity
policy – the following is a sample of the
wording in such a policy:
‘the Insurer will not be liable for any
liability assumed by the Insured under
any express warranty, guarantee, hold
harmless agreement, indemnity clause or
the like unless such liability would have
attached to the Insured in the absence of
such agreement.’
These limitations provide a strong basis
for an argument by the Contractor to the
effect it has all reasonable and prudent
insurances – so why should it assume
a liability under the contract beyond its
liability at general law, against which it
cannot insure itself?
The above provides a flavour of the
negotiations and arguments that might
take place in trying to modify a widely
worded indemnity so it is far more
reasonable. But is that practicable?
If your commercial position is strong, the
best answer to a request for an indemnity
is often a flat ‘no’.
Where parties of about equal standing are
negotiating a major commercial contract,
the lawyers will be involved and it can
be expected the limits of indemnities
sought will be the subject of significant
negotiation. But all of that takes time and
costs money!
But when you do not have the luxury of
time for such negotiations, you do not
want to spend the money on such an
exercise, and the other party is pressing
you to sign, because these are ‘our
standard terms, everyone accepts them’,
you may feel you have no choice but to
accept you have lost the risk allocation
game if you want the business.
Where you deal with certain parties
on a regular basis, you might consider
negotiating with them an overall rider on
your liability under any indemnities you
are giving under their standard forms.
But you had better make sure the person
you are negotiating with has the power
within their organisation to make such an
agreement, particularly if you are relying
on just an exchange of emails!
This article is intended as a source of
information only. Please first obtain
professional advice.
Contact – Oliver Shtein, Executive
Lawyer, Bartier Perry on 02 8281 7868 or
oshtein@bartier.com.au
INDUSTRY in FOCUS
15
HIRE AND RENTAL NEWS • MAY 2016
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