Understanding Anglo-American contract models (part 7)
20 October 2020
This blog aims to clarify the difficulties related to indemnification provisions in Anglo-American contract models. A good understanding of this issue is of great importance because an indemnification clause regulates non-party and party claims for inaccurate statements of facts and non-performance. It is, however, a complicated matter to grasp for drafters in civil-law jurisdictions because they are frequently (unknowingly) confronted with an Anglo-American contract model which is incorrectly drafted from the start. This is due to the fact that Anglo-American contract models generally provide for indemnification as the exclusive remedy yet overwhelmingly uses represents and warrants (not to be confused with statements of fact relating to goods). This is remarkable because the phrase represents and warrants is used to assert facts by parties which may give rise to a tort-based claim for misrepresentation, a contract-based claim for breach, or both. Aside from this thorny issue, there are a significant number of other issues related to the phrase represents and warrants when the contract is governed by common law. For example, a contract governed by U.S. law stipulates that the manufacturer of widgets represents that it shall promptly replace defective widgets. This is not a statement of fact, but it imposes an obligation. Hence, an aggrieved buyer is merely entitled to claim for damages. To avoid any ambiguity, civil law (and common law) drafters may consider to use states when introducing statements of fact in a contract and to be explicit about the available remedial measures. Another issue which merits particular attention is that many contract drafters are under the impression that indemnification solely relates to non-party claims. A leading common law dictionary is clear on the matter by referring to losses suffered because of third party or one’s own act or default. There is, however, a split of authority in common law courts as to whether an indemnification provision also applies to party claims. To be on the safe side, it is recommended to clarify the scope of an indemnification provision.
Questions about drafting, reviewing and negotiating international commercial contracts? All you need to do is send an e-mail with your question to Paula Kemp, p.kemp@banning or call me at +31 657576290. Wherever you live (or are currently vacationing!) we are looking forward to helping you out!
The eighth blog in our Understanding Anglo-American contract models series discusses the intricacies of a guarantee provision.
Paula Kemp received her master’s degree from the University of Groningen, the Netherlands in 2011. The same year, she started to work as a lawyer (licensed). In 2015, Paula moved to Singapore to expand the international practice and she jumped at the opportunity to start a PhD in her field of interest. After three years working in Singapore, Paula moved back to the Netherlands and continues to work as a lawyer with a focus on international commercial contracting. Paula received her PhD from Leiden University on 23 January 2020.