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Indemnification and hold harmless provisions – should we be afraid of them?

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.

Indemnification and hold harmless provisions – what is their goal?

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.

What can be included in an indemnification provision?

Frequently, these provisions regulate issues such as:

  • an obligation by one party to the other one to compensate for damages, costs and expenses that may occur in connection with the events specified in the contract;
  • regulating the rules of liability for any claims that a given party may have against the other;
  • undertaking by one of the parties towards the other to protect it against specific claims by third parties (e.g. resulting from defects in things or infringement of copyright).

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.

Important! Applicable law and language issues

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.

Can an indemnification provision be included in a contract concluded between Polish entrepreneurs?

Of course. Including such provisions in contracts concluded in domestic trade is based on the principle of freedom of contracting.

Practical meaning

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.

Should we therefore be afraid of indemnification provisions?

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

02

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