Letters of the Law: 'I' is for Indemnity

by DLA Piper
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A to Z of Construction Law in Qatar Series

Standard form construction contracts contain indemnities. For example, the FIDIC standard forms of contract contain indemnities in relation to loss arising from death, personal injury and damage to property. Often other indemnities are agreed by the parties during negotiations.

What is special about an indemnity clause?

An indemnity provision in a construction contract compensates one party when the other party carries out the action that triggers the application of the indemnity. For example, an indemnity could provide that A will indemnify B against any loss suffered by B if A breaches its contract with B.

The answer to what is special about an indemnity clause is: nothing.

Qatari courts will, generally, treat a claim under an indemnity the same as any other claim for breach of contract. This means that the damages that can be recovered under Qatari law where an indemnity is triggered are the same as those that can be claimed for the same event if it was simply expressed as a normal obligation of the contract. i.e. without the indemnity wording.

A benefit of including indemnity wording is that it does draw the parties attention to the possibility of breach. This in turn should prompt them to think about, and manage from the outset, such matters which may otherwise need unraveling in a dispute following breach. For example, it may prompt the parties to consider: what triggers the application of the indemnity, in what way might the party find itself in breach; what are the nature of the losses the other party may suffer for which they may be entitled to compensation; how much compensation may have to be paid out; and how must the innocent party conduct itself in relation to the events that have triggered the indemnity?

In an indemnity clause the trigger for the application of the indemnity should be clear. In the simple example above, party B will only want to indemnify party A for material breach - and not just any minor or trivial breach. This should be stated. This can make it easier to identify a breach of indemnity than a breach of normal obligation.

Contractors and employers may wish to cap their liability under construction contracts (including the indemnities) to a particular amount and/or to particular losses. It is not unusual to exclude indirect losses (and some of the FIDIC contracts do this) and Qatari law allows for this (other than in the case of fraud or gross mistake). Losses that would generally be recoverable under Qatari law include direct and indirect losses flowing from the event.

A requirement that the party benefiting from the indemnity is required to mitigate any losses it might suffer as a result of the action that triggers it, is also a good idea, but for now the requirement occurs by application of the law in any event.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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