When drafting indemnities and guarantees, parties should take heed of the differences between the two.
In particular, parties should consider the following:
(a) Whether parties intend:
i. for the promisor’s obligation to hinge upon a default of the principal contract (thus rendering the contract between the parties a guarantee, rather than an indemnity); or
ii. for the promisor’s obligation to be separately and independently enforced (this being a characteristic of an indemnity, rather than a guarantee); and,
(b) Whether parties intend for a variation of the principal contract to have the effect of discharging the promisor’s obligations (this again being a characteristic of a guarantee, as distinct from an indemnity).
The latest judgment of the Admiralty Court at Kuala Lumpur in GJ Consultancy Sdn Bhd v Gan Teck Lim [2021] MLJU 933 examines the scope of indemnities and guarantees, and the differences between the two.
In doing so, the Admiralty Court undertook a detailed examination of the documents in question and relied on leading Common Law authorities, which were read with provisions of the Malaysian Contracts Act.
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