Rights of Recourse

Who’s liable for damaged goods or service in the supply chain? Here is what to consider before entering into business.

In the supply of any goods or services, there is usually a supply chain. It can be very short, dealing directly with a customer, or a very long chain involving numerous raw material suppliers, processors, agents, wholesalers, retailers and consumers with each link in the chain being responsible and paid accordingly for their work. Ideally, it’s key that each link in the longer supply chains retain responsibility for their work and any liabilities incurred are met by the party responsible.

Rights of recourse is when one party enforces another party to accept its legal liabilities and responsibilities in a contract or something similar. It is the right to have recourse to the responsible party.

These rights come about when one party in a contract may become subject to a claim or liability from the fault of another party. The innocent party will be able to pass the liability/claim over to, or receive reimbursement from, the party at fault.

The reason that rights of recourse are so important is due to the relationship between two parties. If one party is at fault, they should be liable for their actions and the consequences that may follow them – particularly if the fault involves money. Attempts to remove or limit the rights of recourse typically mean that one party is seeking to advantage themselves within the agreement by avoiding liabilities/responsibilities.

Rights of recourse are important from an insurance perspective, particularly in public liability and product liability. To give you an example, if a retailer waives its rights of recourse against a manufacturer, then the retailer will become the manufacturer as far as responsibility is concerned.

Rights of recourse will automatically be put in place, whether they are specified or not. They will have to be removed or amended by mutual agreement, such as a contract or terms of business. It is important to consider the rights of recourse when you are deciding acceptance on a contract.

To sum up… check your agreement! In common law, everyone is responsible for their own actions. Rights of recourse are automatically in place whether specifically stated or not and have to be removed or amended by agreement. This will normally be in writing as a contract or terms of business and rights of recourse can quite often be referred to as an Indemnity Agreement or a Hold Harmless Agreement.