14/08/2025
Indemnities:
Characteristics of an indemnity
This note forms part of a series of notes about indemnities. For more in this series, or for notes in other series or on other relevant topics of interest, please see: www.geoffreywakerandassociates.com.au
In our series of notes about proportionate liability legislation in Western Australia, we introduced the concepts of joint and several liability and proportionate liability, and the provision in The Civil Liability Act 2002 (WA) (‘CLA’) for limited contracting out of certain Parts of the CLA, including those sections prescribing a scheme of proportionate liability. This ‘contracting out’ can be done through written agreement with express provisions in which certain parts of the CLA are ‘excluded, modified or restricted’.
This note touches on the characteristics of a contractual indemnity which make indemnities useful for that purpose.
An indemnity contract (often an ancillary clause contained in a contract) may be described as a kind or class of contract that has the object or purpose, when it is in operation, of one party (referred to as the indemnifier) assuming the primary liability owed by the other party (the indemnified party) to make good the financial position of a third party.
This type of indemnity provision (sometimes referred to as a ‘bare indemnity’) has been characterised as a species of financial accommodation to support the credit risk of the indemnified party and to hold harmless the third party suffering the loss. The indemnifier takes on the primary liability for the loss of the third party (in contrast to a contract of guarantee, where the guarantor assumes a secondary or collateral liability that arises only if the party with the primary liability defaults).
Its character as an indemnity, and the identification of the parties’ mutual rights and obligations, are ascertained by construing the particular clause according to its natural and ordinary meaning, in the context of the contract as a whole, to arrive at its proper interpretation.
To the extent that an indemnity clause has more than one meaning that is fairly open by reason of the application of other rules of construction of contracts, indemnity provisions are to be construed in favour of the indemnifier.
Doubt as to the true meaning of an indemnity clause, or a phrase within an indemnity clause, may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application.
By contrast with the operation of the ‘bare indemnity’ above, if a contractual provision makes plain, by express and specific language that undoubtedly conveys the intention of the parties that the indemnity applies to liabilities arising from the default or breach of duty of the indemnified party, then the provision will operate as what may be referred to as a reflexive indemnity, on the basis that it operates in relation to a liability stemming from the indemnified party’s own default as both an indemnity and a release.
Next in this Series on indemnities:
‘Indemnities – Indemnities and Ambiguities.
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