Contribution and indemnity

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What is ‘contribution and indemnity’ in commercial cases?

‘Contribution and indemnity’ are concepts used to identify which defendant (or third party) is liable for a plaintiff’s loss, usually in a tort or contract case. 

Contribution

Contribution refers to the dividing up of a plaintiff’s damages between two, or multiple parties found liable.  

Between defendants: Multiple defendants may seek contribution from each other where the defendants are jointly sued. Often they are sued in tort, but it is not limited to tort.

Third parties: Generally, a defendant is jointly and severally liable for a plaintiff’s loss. A defendant may join a third party where the defendant is entitled to contribution or indemnity from the third party.

That third party may or may not be directly liable to the plaintiff, but for whatever reason, the plaintiff has not named them as a defendant in the proceeding.  

Indemnity

Indemnity occurs when a defendant is entitled to recover from another defendant or third party the total amount of damages it had to pay the plaintiff. The contribution to be recovered may amount to a complete indemnity. ‘Partial indemnity’ does not exist: either another party is responsible for the damages amount, or it is not. 

Indemnity is usually only available if a certain type of relationship exists between the parties. For example, relationships that allow one person to collect indemnity from another include:

  • When the two parties have an express agreement that one will indemnify the other;

  • When a contract makes one party responsible for indemnifying another such as an insurance contract or guarantee;

  • Where there is a statutory right of indemnity, for example suppliers are indemnified by manufacturers under s 274 of the ACL; and

  • Where tort law creates a right of indemnity. 

The full article (2163 words) considers:

  • Wrongs Act

  • “Liable parties”

  • “Same damage”

  • History of Part IVAA and relationship to proportionate liability

  • Practical tips for bringing a contribution claim

    • between defendants

    • against a third party

    • against a fourth party

  • Limitation issues

  • Application to commercial cases

  • Contractual indemnity

  • Contribution in context:

    • Manufacturers and suppliers

    • Professional negligence

    • Building and construction

    • Employment