If a third party brings a claim against the Authority, and the Authority has the benefit of an indemnity owed to it by the Contractor then the Contractor will have an interest in how the Authority defends the claim. Equally the same will apply in reverse if the claim is against the Contractor, when it has an indemnity from the Authority. Therefore it is in both parties interest to have a clear procedure to adopt when such claims arise.
Under the WIDP Contract (Clause 63), certain provisions apply if a third party brings a claim against one of the parties to the Contract, and that party (the Beneficiary) considers it has the benefit of an indemnity owed to it by the other party (the Indemnifier).
First the Beneficiary is required to notify the Indemnifier within the stated timescales and to provide further information as required. If it appears that all (rather than part only) of the liability arising out of the claim may be covered by the terms of the indemnity, the Indemnifier can, at its own cost, take over the conduct of that claim and dispute it in the name of the Beneficiary. The Beneficiary must give reasonable cooperation, access and assistance for these purposes.
There are a number of safeguards built into the Indemnifier's conduct of the claim (Clause 63.1.3). These include:
• keeping the Beneficiary fully informed with the progress of the claim; and
• seeking the Beneficiary's agreement to any decision to settle the claim.
There are certain circumstances in which the Beneficiary may take over the conduct of the claim for itself. These are where:
• the Indemnifier could not take over the conduct of the claim (for example because only part of the liability is covered by the terms of the Indemnifier's indemnity);
• the Indemnifier fails to tell the Beneficiary it intends to manage the claim within the stated timescale of twenty Business Days of the Beneficiary's notice;
• the Indemnifier tells the Beneficiary it does not wish to take over the conduct of the claim; and
• the indemnifier fails to comply with the safeguards referred to above within 20 Business Days of notice from the Beneficiary.
Under the WIDP Contract (Clause 63.1.5), the Beneficiary can choose to take over the conduct of any claim that the Indemnifier would otherwise be entitled to manage. If this right is activated with the appropriate notice, the Beneficiary loses all rights to call on the indemnities that would otherwise have applied.
Under Clause 63.1.6, there are special rules that prevent the Beneficiary from being paid twice in respect of the same matter - through payments due under an indemnity and then later through a separate means of recovery. If there have been such double payments, the WIDP Contract sets out a process for repaying a sum of money to the Indemnifier.
Given the extensive contractual requirements relating to claims the Contract Management Manual should highlight the contractual provisions and set out the process for the Contract Management Team to seek input from the Legal Department.