14/08/2025
Indemnities:
Indemnities and Ambiguity
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 an earlier note, we introduced the characteristics of a contractual indemnity.
This note considers the commercial reality of ambiguities in indemnity clauses.
Indemnity clauses are often ancillary clauses contained within a broader commercial contract. The purpose of such a clause is to re-allocate certain risks associated with the commercial dealing.
It may be tempting in business, during the contract negotiation stage of a deal, to resist using express and clear language when prescribing the allocation of risk and liability within the contract, so as not to jeopardise the friendliness of the negotiations and dealings between the parties.
Such an approach may be fine, provided parties understand how these clauses will ultimately be interpreted down the track, should things go wrong.
Where an ambiguity arises as to the meaning of an indemnity clause or part of an indemnity clause (that is, there is more than one meaning that is fairly open to it) indemnity provisions are construed in favour of the indemnifier (they get the benefit of the doubt, and the indemnified party will be left with the liability for the loss of the third party).
If you are the indemnifier, ambiguity works in your favour. On the other hand, if you are the party being indemnified and you are relying on the protection of these clauses for the viability of a deal, it is important to ensure the terms of the indemnity clauses in your contract are drafted clearly and without ambiguity.
Having said that, it is difficult to say what is ambiguous and what is not. There is no test that can be applied except that of the person who is dealing with it. What seems ambiguous to one reasonable mind, may not seem ambiguous to another.
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