A recent Court of Appeal decision
serves as a reminder of the importance of clear drafting in
contracts. Specifically, it highlights the need for explicit
language if a contractual indemnity is intended to apply even in
cases where the indemnified party was negligent or otherwise at
fault.
The decision also underlines the
potential risk for companies of simply relying on trade or industry
association standard terms and conditions without taking legal
advice on their scope and effect.
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In Jose vs MacSalvors Plant
Hire Ltd a driver had been provided by a plant hire company to
a hirer of a crane as part of a crane hire agreement, which was
subject to the Construction Plant Hire Association’s (CPA) Model
Conditions for Plant Hire 2001, with Crane Supplementary
Conditions.
When the crane driver was injured
during the hire term, he claimed for damages against the hire
company, alleging that negligence and breach of statutory duty by
the company had led to the accident.
The hire company settled the claim
with the driver, then brought a claim against the hirer to
indemnify them under the CPA Model Conditions.
The Court of Appeal held that the
hirer was not liable to indemnify the hire company for damages paid
to the driver on the basis that clauses 8 and 13 (transferring risk
to the hirer and an indemnity clause respectively) of the CPA
Model Conditions did not apply where the injury was caused
by the company’s own negligent acts.
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By GlobalDataAlthough the indemnity in clause 13
appeared to be comprehensive, there is an established legal
principle that a party should not be indemnified against its own
negligence unless the clause makes this expressly clear.
The specific lesson of this case
for companies that hire out their equipment under the CPA Model
Conditions is that, if damage or injury is suffered by a third
party during a hire contract resulting from the hire company’s
negligence or breach of regulations, it cannot rely on the
provisions of the CPA Model Conditions to recover from the hirer
any compensation paid out to the third party. If such wide
protection were intended, the contract would need to be amended to
make this explicit.
Equipment owners using the CPA
Model Conditions for hiring equipment should consider whether the
allocation of risk highlighted by this case causes any exposure for
the business.
Particular care should always be
taken with indemnities or limitations or exclusions of liability
where, if the clause is unclear, there will often be a bias against
the party seeking to rely on it.
Also, where a limitation or
exclusion of liability appears in standard terms and conditions, it
may need to satisfy a test of reasonableness under the Unfair
Contract Terms Act in order to be enforceable.
This case is also a reminder that
businesses should not rely on trade or industry association
standard terms without considering whether all of the terms
properly reflect their requirements, including whether they achieve
the effect that the express words would suggest.
The author is a partner at the
law firm Shoosmiths
