Interpreting indemnities

GYM PLC v GYM Offshore Wind Farm (High Court) [2020]

Indemnities seem to be extremely fashionable but, as this case demonstrates, great care needs to be taken with their drafting, particularly given that the courts will look to interpret them restrictively if there is any ambiguity as to their scope


The Gwynt y Mor Wind Farm had been developed off the coast of Anglesey. In 2015 the defendants agreed to sell the business of owning, maintaining and operating the electrical link between the wind farm and the National Grid to the claimant. The sale Agreement contained the following indemnity:-

“"If any of the Assets are destroyed or damaged prior to Completion then the [defendants] shall indemnify the [claimant] against the full cost of reinstatement of any Assets affected by Pre-Completion Damage."

The sale Agreement was executed but with a period of one week between contract signature and completion. Completion occurred in February 2015. In March 2015 one of the undersea cables failed and a second one failed in September 2015. The cost of repairs was in the region of £15million.

It seems to have been accepted that the cables had been corroding for many months if not years, probably due to defects during the manufacturing process.

A claim was made based on the indemnity.

The sale Agreement itself went through at least 18 drafts and was 157 pages long. It said that save as expressly provided, risk [in the Assets] would pass to the claimant at Completion.

The defendants warranted that “No defect or damage has been discovered in relation to [the cables] that is reasonably likely to cause material disruption to the offshore transmission system”.


Because the defendants raised an argument for the ‘rectification’ of the Agreement, the parties adduced extensive evidence of their pre-contract negotiations during the trial. The judge said that he had been careful to exclude the evidence of pre-contractual negotiations when considering the proper interpretation of the Agreement since such evidence is strictly inadmissible in relation to questions of interpretation.

The judge concluded that the indemnity related only to damage occurring between the execution of the sale Agreement and Completion. The vendors had given a warranty in relation to the period up to the execution of the sale Agreement and the indemnity covered the period between execution of the sale Agreement and Completion.

The judge acknowledged that the drafting of the indemnity did not set a “starting point” for the period during which any damage would be covered by the indemnity. It merely referred to damage “prior to Completion”, which would in theory cover the historic damage to the cables. However, he said it was important to look at the clause as a whole and interpret it at the point the parties signed the sale Agreement. In particular, he focussed on the tense of the verb in the indemnity.

The fact that the parties had used the word “are” in the indemnity suggested that it was forward-looking and covered only damage that occurred after the sale Agreement was signed. If the parties had intended to cover damage that occurred before the sale Agreement was signed, it was suggested they would have used the formulation: “If any of the Assets have been damaged or destroyed…” In fact, he said, even then the indemnity might not have been clear enough to capture historic damage and it might have needed to refer explicitly to damage occurring “before this Agreement”.

Interestingly, the judge noted that the indemnity appeared in the sale Agreement immediately after the clause dealing with signature and before the clause dealing with completion. This suggested that the indemnity was intended to deal with matters arising between those two events.

Finally, he noted that the sale Agreement contained a warranty by the sellers confirming there had been no damage to any assets (including the cables). He said this warranty would have been “rendered pointless” if the indemnity effectively covered the same ground. He agreed that sometimes an agreement will contain warranties and indemnities that cover similar ground, but that it would be “remarkable” for the parties so carefully to structure and limit a warranty only to neuter it with an all-embracing indemnity.

Points to Note:

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