Indemnity

Have you recently booked into a Hotel, or been admitted into Hospital? You were most likely to have signed an indemnity.

An indemnity, also known as a disclaimer or an exemption is a manner in which to limit or avoid liability on the part of a person or a company. The protected party therewith protects itself from claims such as loss, injury or damage. An indemnity is usually found in a written agreement or in specific indemnity forms.

An indemnity can sometimes have worrisome or unfair consequences for the aggrieved Party. Make sure that you carefully peruse such agreement or form. In Afrox Healthcare BRK v Strydom (2002) the Court found that a person who signs a written agreement without reading it does so at their own risk and is subsequently bound by the provisions contained therein as if they were aware of them and had expressly agreed thereto.

However it does not mean that an indemnity will always be upheld. It will always depend on the circumstances of the specific case. In the above mentioned Strydom matter; the Court, although it upheld the indemnity clause, made a remark that exclusion of gross negligence in an indemnity may be contrary to public policy.

In Naidoo v Birchwood Hotel (2012) Judge Heaton Nicholls highlighted two vital legal points:

–        “Public policy in South Africa, which includes the notions of fairness, justice and reasonableness, would prevent the enforcement of a contractual term (such as an indemnity clause) if its enforcement would be unjust or unfair.

–        The court could not let blind reliance on the principal of freedom of contract override the need to ensure that contracting parties must have access to courts, if they so need.”

When determining enforceability of such clauses the Court mainly considers whether the clause is against public policy. In the above-mentioned Naidoo matter, the Court applied the test used in Barkhuizen v Napier (2007) (CC) when the Court stated the following regarding public policy:

“Public policy represents the legal convictions of the community; it represents those values that are held most dear by the society. Determining the content of public policy was once fraught with difficulties. That is no longer the case. Since the advent of our constitutional democracy, public policy is now deeply rooted in our Constitution and the values that underlie it. Indeed, the founding provisions of our Constitution make it plain, our Constitutional democracy is founded on, among other values, the values of human dignity, the achievement of equality and the advancement of human rights and freedoms, and the rule of law. And the Bill of Rights, as the Constitution proclaims, is a cornerstone of that democracy, it enshrines the rights of all people in our country and affirms the democratic [founding] values of human dignity, equality and freedom.

… Thus a term in a contract that is inimical to the values enshrined in our Constitution is contrary to public policy and is, therefore, unenforceable.”

In the Naidoo matter the Court found against the hotel by stating that exemption clauses that exclude liability for bodily harm in hotels and other public places have the effect, generally, of denying a claimant judicial redress.

The Consumer Protection Act, which came into effect on 1 April 2011, was created to promote and advance the social and economic welfare of consumers in South Africa. This Act includes certain consumer rights that may have an impact on the validity of certain indemnity clauses.

Section 48 of the above-mentioned Act contains a general prohibition on unfair, unreasonable and unjust contract terms and also prohibits any agreement that requires a consumer to waive any rights, assume any obligations or waive any lability of a supplier on terms that are unfair, unreasonable or unjust.

Section 48 lists the following characteristics of unfair or unenforceable indemnity clauses:

• Terms that are extensively in favour of the person other that the consumer
• Terms that are so adverse to the consumer as to be inequitable;
• If the consumer relies upon a false, misleading or deceptive representation or statement of opinion provided by or on behalf of the supplier, to the detriment of the consumer

In some cases the Act requires that the consumer’s attention should be specifically drawn to certain clauses and that the risk involved should be explained by the suppliers. The Act also requires indemnity clauses to be in plain language and prohibits indemnities to protect suppliers in the event of gross negligence.

In conclusion it is clear that although indemnities have had some turbulent treatment by the Courts in the past, the Consumer Protection Act has brought some much-needed clarity. From the Act, it is clear that indemnities are not precluded from being used, but rather under strict requirements before it may be enforceable.

Michelle Soutter

Practising Attorney