Indemnity Note For Contractors And Consultants

  1. The fundamentals - What is an indemnity?

    1.1 An indemnity is a promise by one party, the contractor, to reimburse the other (a 'beneficiary' (such as the employer)) for loss or damage sustained by the beneficiary in respect of a particular risk/matter. 1.2 It can include loss directly incurred by the beneficiary as well as losses incurred by reason of the beneficiary's liability to third parties, for example, under third party agreements.

  2. An 'indemnity' is not the same as a 'warranty' - why is this important?

    2.1 A warranty in a contract is a statement: (a) This statement is given by the contractor to an employer as an assurance in respect of a matter in the contract. For example, the contractor undertakes to design the works using a particular standard of skill and care, or agrees not to use certain prohibited products. 2.2 What happens when a warranty is breached by a contractor? (a) The pay-out by the contractor is subject to certain rules: If breached a 'warranty' gives rise to a right to sue for damages for breach of contract. (b) The employer will need to establish a causal link between the contractor's breach and the loss the employer has suffered. Then it will need to show that the loss was not too remote (that the loss arose naturally from a breach and was in the reasonable contemplation of both parties). Finally, that it was careful not to incur additional costs (i.e. mitigation is needed). (c) A claim for breach of contract runs from the date of breach. This is important, see below, as to why. 2.3 What happens if the beneficiary calls on the indemnity? (a) The contractor may have just given the employer a blank cheque: an indemnity allows a beneficiary to recover the amount necessary to make good the liability or defect (i.e. this can lead to a debt claim). (b) The beneficiary will not have to show that it has in fact suffered the loss as a result of the liability / defect. Although, this is arguable (see last section on 'court practice'). (c) A claim under an indemnity starts to run from the date the indemnified loss is established. This can be later than under a breach of contract claim. So, the employer can have more time to bring an indemnity claim.

  3. If agreeing an indemnity, clear wording is needed

    3.1 An indemnity will be given its 'natural and ordinary' meaning. When interpreting a contractual indemnity clause, the court will consider its meaning from the point of view of a reasonable person. The document's interpretation will therefore depend on what a reasonable person would consider at the time the indemnity was...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT