The Ingenieur Vol. 65 Water Power | Page 67

clauses or Indemnity contracts.6 Indemnity clauses are merely provisions in the contract spelling out the various elements of the particular indemnification obligation that is required or agreed to by the parties, eg nature, scope, entitlements, etc. Examples of these have been adverted to before. Contracts of Indemnity Indemnity contracts however are a distinctly separate form of a legal document. Section 77 of the Malaysian Contracts Act 19507 stipulates: ●● ●● A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”. ILLUSTRATION A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of RM200. This is a contract of indemnity. ●● Section 788 further provides for the entitlements of the indemnity holder against the promisor. ●● Often confused with Contracts of Guarantee, a Contract of Indemnity is however different in the following main ways:9 ●● 6 7 8 9 10 11 12 13 14 15 16 under a Contract of Indemnity, the indemnifier’s liability is original and independent: Western Credit v Alberry,10 i.e. the contract ‘gives rise to an independent, stand-alone obligation to keep harmless against loss’: Yeoman Credit Ltd v Latter;11 under a Contract of Guarantee, the guarantor’s (surety’s) liability is collateral to and dependent upon the liability and default of a third person. In short, it exists side by side with another contract (eg, the principal contract between the employer and the contractor): Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pte Ltd;12 mere labeling of the instrument is not conclusive of its nature and legal effect. The instrument has to be construed as a ‘whole’ to establish whether it is in fact a Contract of Indemnity or a Contract of Guarantee. The task is not made any easier since it is common practice for a Contract of Guarantee to also include indemnity clauses;13 under a Contract of Indemnity, the promisee is obliged to show the actual loss or damage suffered by it before it is entitled to be indemnified by the promisor: Sadlers’ Co v Badcock.14 This is not strictly the case for a Contract of Guarantee;15 most insurance contracts are Contracts of Indemnity, the exceptions being life and personal accident policies: Medical Defence Union Ltd v Department of Trade.16 Since the Insurance Contracts are not Contracts of Guarantee, the insurer’s liability is independent of the principal debtor’s default whilst a guarantor’s (or surety’s liability) is collateral in nature; Or Contracts of Indemnity. (Act 136) (Revised 1974). Entitled ‘Rights of Indemnity – holder when sued’. See Chappell, Marshall, Powell-Smith & Cavender Building Contract Dictionary (3rd Edn) pp 206, 207. [1964] 2 All ER 938, CA. [1961] 2 All ER 294, 296, CA. (1991) 23 NSWLR 451; see also Contracts Act 1950 s 79. See Lee Mei Pheng Law of Guarantees p 14. (1743) 2 Atk 554, 1 Wils 10. See paras [2.11]–[2.15] above. [1980] Ch 82 at 89. See also Poh Chu Chai General Insurance Law p 513. 65