Indemnification provisions and hold harmless provisions of B2B contracts in international trade regulate the issues of liability of the parties related to possible damages of the products that may occur on the buyer’s side.
These provisions are referred to as “indemnification provisions” and “hold harmless provisions”.
Let’s see what their role is on the practical example.
Let’s imagine the following situation: a new type of interactive toy for children is about to be introduced to the European market. The manufacturer has subjected the toy to numerous tests and trials, including in terms of its safety. All legal requirements were complied with, before the toy was placed on the market. The sale of the toy on the European market was to be handled by a Polish company owned by Adam. It has obtained an exclusivity clause for distribution.
As a result of errors during the production process, a batch of toys has a significant defect. One of the small elements of the toy can be easily detached and causes a danger to children. Despite the actions aimed at withdrawing the defective batch of the product from the market, damage and harm can still occur.
Firstly, it’s important to assess whether the faulty product qualifies as a hazardous product, meaning it fails to provide the expected level of safety during the regular use. If so, the responsibility of the producer would be involved.
Furthermore, the extent and parties responsible for any damages caused by the defective product largely depend on the specific terms and conditions mentioned in the agreement between the parties involved, including the indemnification provisions. The scope of liability of the manufacturer and Adam will therefore depend on what the parties agreed in the contract.
The purpose of introducing indemnification provisions and hold harmless provisions to the contract is precisely to spread the risk associated with the conclusion of the contract between parties. They may regulate issues such as a commitment by one party to the other to protect it against specific claims by third parties, including those resulting from defects in things and their consequences, such as damage or harm.
For this reason, indemnification provisions are often among the most important points in negotiations between the parties regarding the conclusion of a B2B contract in international trade.
Joanna Lubecka
attorney
However, when there is a dispute in the court, the basic practical difficulty leads to answering the question - where will such a dispute take place. In the contractor country or abroad? Can it be secured somehow?
One of the most important points that needs to be clarified in a B2B contract concluded with a foreign contractor are the terms of payment of the agreed remuneration. Payment after delivery of the subject of the contract or prepayment? And if so, what should be its amount? Which solution to choose? Read below.
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Case study. Check what Adam forgot when negotiating a contract with a foreign contractor
Although the indicated issues should be clearly regulated in each contract on the basis of which the guarantee is granted, in the case of foreign deliveries they are particularly important.
Below you will find some useful information on how to negotiate contracts concluded with a foreign business partner.
The purpose of the NDA is to secure the confidential nature of information that is provided to the other party in connection with the commencement of negotiations, determining the terms of possible cooperation between the parties, the concluded contract, cooperation or employment.
The standard practice is to start reading each document from the beginning. In the case of B2B contracts concluded with a foreign contractor, it is worth reversing this order.