Indemnity clauses: a cautionary tale for businesses

Mario Rashid-Ring

The recent NSW Court of Appeal Decision, CSR Limited v Adecco (Australia) Pty Ltd, illustrates the risks of an ambiguously drafted indemnity clause, as well as the circumstances in which a Court may determine if an indemnity clause continues to operate after the formal expiration of a fixed term contract.  

Background

On 1 April 2000, Adecco provided labour hire services to CSR Limited & Holcim (Australia) (CSR). The services were provided on a two year fixed term contract (the Agreement) which was to expire on 31 March 2002 but was mutually extended until 31 July 2002. 

The Agreement contained the following indemnity clause:

23.2.   Any loss of or damage to property of CSR, real or personal caused or contributed to by the Supplier or its employees, agents, sub-contractors or Temporary Staff.

Notwithstanding any other provision of this Agreement, the Supplier indemnifies CSR against:

23.2.1.   any claim by Temporary Staff for personal injury and/or property damage arising out of or in connection with the performance of Assignment duties where;  and

23.2.2.   any liability to any person (including the Supplier and any workers compensation insurer claiming in the name of the Supplier) in respect of or in connection with such personal injury and/or property damage.

CSR could extend the Agreement for a further two year term, and between 1 August 2002 and May 2004 the parties attempted to negotiate the terms of this extension. During this time, Adecco continued to supply labour to CSR, and CSR continued to pay for those services. 

Whilst the extension to the Agreement was being negotiated, Mr Frewin, a truck driver employed by Adecco, suffered a personal injury as a consequence of driving a defective truck at a CSR concrete plant. 

Mr Frewin commenced proceedings against Adecco, seeking damages for personal injury caused by driving and he subsequently joined CSR as the second and third defendants. CSR filed a cross-claim against Adecco, claiming indemnity pursuant to clause 23.2 of the Agreement.

On 14 October 2015, Mr Frewin’s claim was settled, leaving CSR’s entitlement to be indemnified by Adecco to be determined by the Court.

CSR submitted that despite the Agreement being “formally” expired at the time of Mr Frewin’s injury, an implied contract on the same terms as the Agreement continued to operate up until March 2003 (the period when Mr Frewin was injured).

The decision

In the first instance, the Court found that there wasn’t implied contract after the expiration of the fixed term of the Agreement. CSR appealed. 

The NSW Court of Appeal reached a different decision, finding that there was an implied contract and that implied contract continued on the same terms as the Agreement up until March 2003. 

In reaching this decision, the Court considered a number of issues and made various determinations including:

Lessons to be learned 

It is critical to ensure that agreements, and in particular indemnity clauses, are drafted in unambiguous terms, and that the distinction between “caused by” and “arising out of” and “in connection with” is understood by the parties.

It is also necessary for parties to be mindful of when an agreement is set to expire, and to consider whether:

Coleman Greig can assist you to draft clear and unambiguous indemnity clauses, to better understand the consequences of an indemnity clauses in your contract, and advise you in relation to disputes involving the interpretation or construction of indemnity clauses. 

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