Indemnification provisions and hold harmless provisions are contractual provisions that appear in almost every B2B contract concluded in the international trade. Their use is therefore a kind of standard. Provisions of this type are very common in framework cooperation agreements, distribution agreements and other types of agreements under which the parties provide various services to each other. In practice, a significant part of the negotiations between the parties is devoted to these provisions.
In domestic relations, indemnification provisions are much less frequent, which may be the reason for the lower amount of attention paid to them by Polish entrepreneurs in situations where they appear in a contract negotiated with a foreign partner. Many times these provisions are treated as a typical clause that can be passed over.
Is this attitude correct?
Let’s find out.
The purpose of introducing indemnification provisions and hold harmless provisions to the contract is to spread the risk associated with the conclusion of the contract between its parties.
In most cases, these clauses are used to create a situation in which one of the parties is responsible for compensating the other for damage or loss arising in connection with specific acts or omissions and for transferring the liability related to the occurrence of an event specified in the contract.
Frequently, these provisions regulate issues such as:
In a particular case, the content of the indemnification provisions may be very different, depending on what is the subject of a given contract and what risks are associated with the cooperation between the parties.
While introducing an indemnification provision to a contract, it is worth paying special attention to the question which law is to be applicable. It will affect the meaning of individual terms appearing in the contract and the effects of its conclusion.
Language issues and ensuring that the parties understand the concept in the same way are also important. Interpretation doubts regarding the meaning of individual contractual provisions occur very often, even if the parties communicated in the language adopted by them throughout the cooperation, which is most often English.
Of course. Including such provisions in contracts concluded in domestic trade is based on the principle of freedom of contracting.
It is worth looking at the meaning of indemnification provisions from two perspectives. On the one hand, they allow for agreeing on the scope of contractual risk that a given party is ready to assume in connection with a specific economic cooperation. On the other hand, they are a tool protecting the contracting party against damages and claims that are assumed by the other party. In practice, very often it is the party that can take a reasonable defense against the claim in a more effective way.
An example:
In a sales contract, the seller may be better equipped to defend against any damages, caused by the sold product, compared to the buyer. This is because the seller typically has more resources and expertise to handle any issues that may arise.
No. We shouldn’t certainly ignore them, but make them one of the important points of arrangements with the other party. It is the content of these contractual provisions that may be decisive for shaping the rules of liability of the parties for various events that may occur in connection with the economic cooperation.
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?
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Regardless of the form in which the agreement with a foreign partner is concluded, it is important that the parties agree on the most crucial elements of the contract. Incorporating these clauses will enable the parties to execute the contract in a transparent manner, without any ambiguity or uncertainties.
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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.