Passing the Risk, Not the Cash:
How an indemnity clause allocated loss in Ria Financial Services Australia Pty Ltd v Relius International Pty Ltd [2026] NSWSC 141
The recent decision in Ria Financial Services Australia Pty Ltd v Relius International Pty Ltd [2026] NSWSC 141 highlights the important role that indemnity clauses play in allocating risk between contracting parties. This case demonstrates that an indemnity may extend to losses caused by the criminal acts of an unidentified third party.
Facts
Ria Financial Services Australia Pty Ltd (Ria) operates an international money transfer business. A core part of Ria’s operations involves engaging local agents to collect customer funds and facilitate money transfers on its behalf pursuant to an Agent Agreement.
The dispute in this matter arose when Ria’s agent, Relius International Pty Ltd (Relius) collected customer funds (in cash) on trust for Ria (Trust Funds) but failed to remit the Trust Funds to Ria. Relius alleged that the Trust Funds were stolen by an unidentified third party who impersonated an employee of the cash-in-transit (CIT) company scheduled to collect the Trust Funds that same day.
At the time the Trust Funds went missing, the second defendant and guarantor, Mohamad Addouj claimed that he handed over the Trust Funds to someone we now know to be the ‘impersonator’. By the time the real CIT company attended Relius’ premises, the Trust Funds had long disappeared.
As Slattery J observed “these proceedings present a familiar dilemma: which of two innocent parties will bear the loss caused by the criminal activity of a third-party”.
The Outcome
Slattery J found wholly in favour of Ria. Relius and Mr Addouj (in his capacity as guarantor) were held liable to Ria for the full amount of the missing Trust Funds. Central to his Honour’s decision was the application of the indemnity clause in the Agent Agreement which states that:
[Relius] will indemnify RIA and must keep RIA indemnified against any damage liability or loss RIA might sustain as a direct or indirect consequence of any fraud, embezzlement, robbery, misappropriation or loss of any Trust Funds before they are deposited.
The key legal issue was whether this indemnity applied where the loss was caused by a third-party criminal act, particularly in circumstances where the conduct of both contracting parties may have contributed to the loss of the Trust Funds.
How are indemnity clauses interpreted?
Slattery J noted the various common approaches to the construction of indemnities that have developed over the years, with earlier cases focusing on the specific wording of phrases.
However, the modern approach to construction is broader. Rather than applying a formulaic approach to the presence or absence of certain phrases in the terms under consideration, the court interprets indemnity clauses by reference to the terms of the contract and commercial context (see Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; (2014) 251 CLR 640).
Ria’s indemnity clause
Applying these legal principles, Slattery J held that the indemnity clause in the Agent Agreement was expressed in terms sufficiently broad enough to capture the loss suffered by Ria. The indemnity applied to any “damage, liability or loss” Ria might sustain as a “direct or indirect consequence” of fraud, theft or misappropriation of Trust Funds. The inclusion of the word ‘indirect’ was significant. It indicated that the indemnity was intended to operate even where the loss arose by the conduct of the indemnified party (i.e. Ria).
Further, the words ‘fraud’ and ‘theft’ were broad enough to capture any dishonest event answering that description. As long as the dishonest taking of the Trust Funds caused loss, these words did not limit who committed the dishonest act or how it was facilitated.
Key Takeaways
While businesses must ensure they maintain sound policies and procedures, mistakes and unforeseen events are inevitable. Well-drafted indemnity clauses provide a valuable safety net by ensuring risk is allocated clearly between the contracting parties.
While it may be convenient to draft broad, all-encompassing indemnities, care must be taken to strike the right balance to ensure the clause remains enforceable.
Paul Hutchinson (now of Modus Law) acted for the plaintiff, Ria in these proceedings.
Written by:
Jenny Lin, Senior Associate
Jenaya Gladman, Paralegal