Welcome everyone to this beautiful season of Christmas . My prayer is that the good lord will continue to protect us in all our efforts in life and may our expectations never be cut short. Happy New Year to you my dear. May you have a blissful and fruitful new year.
I want to appreciate you for making out time to read this post.
Lets talk on the principle and legal implication of a third party practice in Nigeria.
Who is a third party?
A third party is a person who is responsible to another persons act in tort or liable to a damage caused by another .
Example a:
Where Mr A. Insures his car against accident and Mr A causes damage to the car owned by Mr B. Mr B will hold mr A for the act but because Mr A. Insured his car against accident, he will hold the insurance company to indemnify Mr B.
Example b:
Where an employee of a banks does a wrong to a customer, the bank will be held liable for the act of the employee .
* What are the circumstances that give rise to a third part?
The circumstances that third-party practice applies are:
1. Indemnity
Where a company signs or inserts an indemnity clause on its contract agreement to be responsible for the act of its members or employees.
2. insurance.
Where an insurance company undertakes to indemnify a person against fire insurance or to compensate a third-party against car accident insurance ,it also applies in health insurance and risk insurance.
3. Contract agreement
It is an express or implied agreement of parties to indemnify the other for the act of a third-party base on the breach of a term in the condition of the contract.
e.g. where a tenant bring in a mad man or an insane patient to his house and damage to the house or to a person by the insane person, the tenant will be held liable.
* What is the limit of liability against a third-party?
There is no limit to liability against a third-party claim but parties can insert an express or implied terms to limit the liability of of a third-party.
This has been the case over the years.
In commercial transaction a risk is prone to liability. Performance or non performance of the contract may give rise to a range of legal liabilities, including for example breach of contract, negligence, misrepresentation, infringement of intellectual property rights, breach of statutory duty, regulatory offences and defamation. In the absence of an effective limitation of liability clause, there is no financial limit on the damages a counter party can recover from your client. At the very least this could lead to financial pain and in a worst case scenario it could put your client out of business entirely. For these reasons, it is very important to ensure that commercial contracts include some form of limitation, and that these limitations are both effective and enforceable.
Issues to consider
These steps should be followed when considering how to protect a party from unlimited liability – generally the supplier of goods or services:
Identify the risks.Consider other ways to minimise the risks.Consider what insurance is available.Decide which liabilities to exclude, cap or accept.Draft an enforceable limitation clause.
Identifying the risks
In order to limit liability effectively a commercial lawyer needs to be aware of all of the possible risks in a transaction. It is essential to discuss these in detail with the client in respect of each particular contract. Questions to ask the client include:
What could realistically go wrong?How much might it cost?How likely is it to happen?How will the client deal with the risk if it arises?Is the risk acceptable for this deal?
Common risks to consider include:
Insolvency. How financially robust is the counterparty?Breach of contract. How likely is a failure of performance by the counterparty?Non-contractual liability. eg Are there concurrent duties in tort and contract, as in most professional services contracts?Misrepresentation. How reliable is the information exchanged in the negotiation? Can claims made by representatives be substantiated or verified?Claims by non-parties. Will this transaction expose a party to claims by third parties such as end users, visitors, contractors, sub-contractors, the public? Is there a risk of liability for defective products, negligence, nuisance, occupiers’ liability or infringement of intellectual property rights?Contribution claims. In a multi-party transaction, each party should consider its position in relation to the others. eg A contractor may limit its own liability to the customer, but that will not help if the other contracted parties (jointly responsible for the project) have unlimited liability to the customer and can claim a contribution from you if it all goes wrong.Vicarious liability. What actions or omissions of other people (staff, agents, sub-contractors) might a party be liable for?Economic risk. What changes in prices, exchange rates, wages or other factors might affect the profitability of the contract?Regulatory risk. Is there a risk that a default might put either party in breach of regulations, leading to regulatory action and penalties?Tax. Is there a risk that the arrangement may create unforeseen tax consequences?
Exclude, cap or accept?
The risks a party wholly excludes. eg A supplier will often seek to exclude loss of profits, loss of sales or business, loss of contracts, loss of anticipated savings, loss of data and loss of goodwill.The limits the parties place on other risks. eg A party might propose an overall cap on liability, or different caps for different types of loss. In addition, either party might want to list expressly liabilities which the supplier accepts subject to the caps.The risks each party accepts without limit. Examples are liabilities a party cannot limit, such as fraud or death and injury caused by negligence, or failing to give good title to goods. A party may also accept unlimited liability for other losses within its exclusive control, or by giving an indemnity against those losses.
Capping liability
For risks that are not wholly excluded it is sensible to introduce a financial cap on liability, or different caps for different types of loss. The supplier will want to ensure that the cap is appropriate for the value it will get from the transaction.
A useful starting-point for negotiations is the contract price, if there is one, or an estimate of the total contract value, or a percentage of the contract value (we have seen from 25% to 150%). However, the cap need not be a fixed sum or a formula, as long as it will be clear how to calculate it. A cap could also limit losses to the proceeds of an insurance policy.
Caps can be structured in a variety of ways:
A single figure which applies for the duration of the contract.An annual cap which renews each year.An amount linked to the sums paid under the contract.The higher of a fixed sum and a percentage of the sums paid under the contract.
Combinations of the above can be used. eg An annual cap could be a percentage (which could exceed 100%) of the sums paid in a year.
A cap may apply to each claim (or series of connected claims) or it may be an overall cap. Alternatively there can be a combination, such as a cap of #50,000 per claim or series of connected claims, subject to an overall cap. Caps for property damage and other liabilities may be different to reflect the relevant insurance policies.
* What are the possible defences available to a third-party claim.
conventionally used to refer to arguments used to persuade the court to conclude that the third party is not to be blamed, whether the case be that of common law tort or that of crime.
There are fundamental defences used in torts:
a. Consent-where the plaintiff had agreed beforehand to do the acts. This is a case of volenti non fit injuria.
b.in the case where the plaintiff himself is the wrongdoer (i.e.) where the cause of action arose out of the plaintiff’s illegal activities or caused the damages himself. c. The defence of vis major, or Act of God, where the damage caused is out of the control of both the plaintiff and defendant. d. Inevitable Incident describe the next defence, in which the best has been done in order to prevent the incident, but it could not be averted.
e. Breach of conditional principle or breach of fundamental terms of contract.
e. necessity
f. requirement by statutory authority. In these, the defendant acts in the interests of his own by either following a rule or carrying out an act without which his private interests would have been hampered. The third-party may not be held responsible in the above mentioned circustances.
Please you are free to ask question on this topic or on any law related issues.
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