Indemnities appear in many kinds of commercial contract. Sophisticated indemnity régimes are common, for example, in contracts in the construction and energy and resources industries. The decision of the Supreme Court in Farstad Supply AS
v. Enviroco Ltd (The Far Service)
addresses two interesting and important issues arising from the use of contractual indemnities. One issue concerns the effect of an undertaking by a party, A, to “defend, indemnify and hold harmless” another, B. Many lawyers would regard this as a typical (albeit repetitive) opening to an indemnity clause providing protection against claims by or liabilities to a third party, C.2
It may come as a surprise to learn that in The Far Service
such a clause was held to operate as an exemption clause which excluded B’s liability to A. The other issue concerns the effect of a contractual defence on a third party’s right to claim contribution under statute. That is, assuming B and C are potentially liable as wrongdoers in relation to a loss suffered by A, but a contract between A and B provides B with a defence to A’s claim, can C still obtain contribution from B?