Indemnity clauses and disclaimers: do they stand up to scrutiny?

Indemnities are in principle legally valid in South Africa, but whether they are enforceable depends on the particular circumstances of the case

The recent tragic drowning of a Parktown Boys High School pupil on a school adventure outing has highlighted the public’s need to understand the purpose and significance of indemnity forms, which are used often, in a range of circumstances, from parking garages to adventure sports.

South African law recognises the validity of indemnity clauses but they may be challenged under certain circumstances. There is a distinction between an indemnity form and a disclaimer notice.

An indemnity form, such as the one that participants in adventure activities are usually required to sign, is not designed to protect the person who signs it. It is primarily intended to protect the person who is providing goods or services from being held legally liable for the consequences of actions taken or not taken in providing that service to the person who signs the form.

Indemnity clauses vary widely. Some contain a simple statement that “liability is excluded” while others are more formal agreements, exempting the service provider from specified consequences, if they arise. There are also forms which indemnify the provider of the service against a claim by a third party arising from the service provided. For example, a tour operator offering a trip to a school group of learners may require the school to indemnify it against claims made by the parents of those learners in the event that they sustain injury on the trip. Those claims would then have to be borne by the school itself.

Under the Consumer Protection Act (CPA), if an agreement falls within the definition of a 'consumer agreement', it may not contain terms which are deemed to be unfair, unreasonable or unjust.  For example, clauses which exclude liability for gross negligence are prohibited under the CPA.

There is an important legal distinction between “gross negligence” and “negligence”. Gross negligence is a complete failure to take care. Negligence is subject to the “reasonable person” test, which is: “how would a reasonable person view and respond to a particular situation?”

Whether negligence negates the enforceability of an indemnity contract will depend on the circumstances. In theory it is still possible that liability for some types of conduct may be excluded by agreement between persons - even if that conduct turns out to be negligent in the circumstances.

But ultimately, to find out whether an indemnity form or contract holds water, one usually needs a court to pronounce on its validity. There are many factors which the court takes into account, including the nature of the underlying contract or activity and the relevant bargaining positions of each party. The CPA requires terms which limit or exclude liability of suppliers to be brought to the attention of consumers in a very specific, highlighted way. Indemnity clauses mostly fall into that category.

While adults can sign away rights and assume risks, it could be argued that the risk of personal injury or death to a minor cannot be excluded through a contract concluded by a parent or someone else. This argument has not yet been finally decided by the South African courts.

Disclaimer signs are different. This is when an exclusion of liability clause is published in a 'notice' and meant to be applicable to all. They are designed to regulate the terms of use of a public space or building which is frequented by members of the public. Whether or not these notices or signs will be enforceable -  enabling one party to escape liability for harmful consequences caused to another - will depend on the circumstances and the extent to which it complies with the law, including the CPA.

Indemnity clauses are the most complex to rule on. South African courts take into account public policy, seen in the light of the Constitution, when determining whether a particular indemnity undertaking is enforceable in certain circumstances and whether negligence or fault on any person's part should exclude the enforceability of that clause in a given case.