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Tuesday, 11 March 14
HOLD HARMLESS CLAUSES ARE NOT ALWAYS MUTUAL! - ITIC
 KNOWLEDGE TO ELEVATE
ITIC provides an insurance related contract review service to all of its members. As the leading professional indemnity insurer for the offshore and hydrographic sector, we are often asked to review contracts which contain a mutual hold harmless or knock for knock clause. We are usually told that the presence of this clause in a contract means the risk of a claim is either significantly reduced or even non-existent! No contract is completely risk free. However, if the clause is worded carefully, and is balanced between both contracting parties, it is good contractual risk management and can help to reduce the chance of a successful claim of negligence against you.
A mutual hold harmless indemnity regime provides that each party to the contract agrees to take responsibility for, and to indemnify the other, against injury and loss to its own personnel and property and its own ‘consequential losses’. This is intended to be effective even if the accident and related losses are caused by negligence.
The mutual hold harmless clause in the LOGIC standard form contracts, does seek to create balance. However, in many of the contracts we review, the party with the greater bargaining power will naturally seek to swing the balance back to their favour. Consequently, there are a number of pitfalls to consider. We shall provide a few of these below. This shall be viewed from an English law and a professional indemnity insurance perspective.
Insurance
First, when asked to review contracts with a mutual hold harmless clause, ITIC would suggest that your other insurers are notified. Potentially you are signing away the recovery rights of both your property and employers’ liability insurer. Therefore, you should seek authority from them before signing a contract containing a mutual hold harmless clause.
They may not be mutual
It is staggering how often we see contracts where “the consultant shall indemnify the company against any and all losses,” but there is no reciprocal benefit to the consultant. Furthermore, the clause can be more beneficial to one party, as one side may be carrying out all of the work, using only their employees and property. The clause should be read carefully to ensure there is a mutual provision.
Third party damage
The mutual hold harmless clauses seen by ITIC, although setting out the losses suffered to the property or employees of the contracting parties, will often leave the distribution of third party liabilities unclear. If, for example, you act as a hydrographic consultant on a survey vessel, you should be protected from third party claims arising from the operation of the vessel. The consultant should not be responsible for potentially multi-million dollar pollution liabilities, or collision damages to third party property. These should fall upon the party who has insurance for these liabilities, such as the vessel’s protection and indemnity or hull and machinery cover.
Gross Negligence
The hold harmless regime provides that neither party shall be liable to the other even where the loss occurred is due to the negligence of one party. However, in some cases we see the clause is amended to state this does not apply in instances of “gross” negligence. Therefore, if one of the parties is found to be grossly negligent they will not be held harmless. This might be fine if the contract was pursuant to Norwegian or US law.
Unfortunately, there is no true concept of gross negligence under English law. You should always operate under the assumption that you are negligent or you are not. Baron Rolfe, in - Wilson v Brett (1843) - stated that he “could see no difference between negligence and gross negligence; that it was the same thing, with the addition of a vituperative epithet.” In other words “gross” did not add anything to the standard negligence test. That being said, if gross negligence is included in a contract, a tribunal will attempt to interpret it. The leading decision comes from Lord Mance in - The Hellespont Ardent (1997) – in which he found that gross negligence: is “conduct so seriously negligent that the defendant should not be entitled to rely on the exemption clause.” He further added that it is “very much a matter of degree and judgment,” and, “all the circumstances must be weighed and balanced.” It should be pointed out that Lord Mance was interpreting a contract pursuant to New York law. Therefore, his words are not binding, and his interpretation on gross negligence may not be followed by subsequent tribunals.
The line between negligence and gross negligence can become blurred, and cases will turn on the facts and expert evidence. Moreover, tribunals may have differing opinions on how to apply the test against the facts, reaching differing decisions. On balance, the inclusion of gross negligence within a hold harmless clause in a contract pursuant to English law can lead to uncertainty and increased litigation costs.
Finally, it is understandable that contracting parties do not want the other to rely on a hold harmless clause, as a shield for reprehensible behaviour, beyond the ordinary test of negligence. However, as the line is blurred between that of negligence and gross negligence, a more delineated position to take, is between that of wilful default/misconduct and negligence.
Indirect damages
A further and final point we see, is how consequential or indirect losses are defined in the mutual hold harmless clause. It is usual that these losses are excluded under contract. However, the distinction between indirect and direct loss can be complicated. The famous case of Hadley v Baxendale [1854] found that direct losses were those which arise naturally from the breach of contract, and is therefore foreseeable and recoverable. Whereas, indirect losses were recoverable, but only if they were reasonably foreseeable by both parties, as a possible result of a breach, at the time of contracting.
A common misconception is that all “loss of profits” are indirect losses. This is wrong. Loss of profits can be either direct or indirect, depending on the facts of the case. The following is taken from the hold harmless clause of a contract we have reviewed recently:
“ The consultant nor the company shall be liable to the other… for any consequential indirect damage, that may be suffered by the other.”
This clause could pose problems in the event of a claim, as it only excludes “consequential indirect damages.” Following Hadley v Baxendale, dependant on the facts, loss of profit can either be a direct or indirect result of the breach. If, for example, a consultant was providing design work for sub-sea equipment and carried out the design negligently, not only could this cause damage to property, but also lost drilling time, leading to lost revenue and profit. In this example, a tribunal could find the loss of profit arose naturally from the breach, and therefore, is a direct loss not excluded under the above hold harmless clause. Taking into account the current day rates of drill rigs, this could form a substantial part of any claim.
The clause should be amended to state loss of profits are excluded, whether direct or indirect.
Conclusion
ITIC’s advice is that you carefully review your hold harmless clauses to ensure that they are actually mutual and of benefit to you.
Source: ITIC / Hellenic Shipping
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Friday, 02 August 24
COAL MARKET DEVELOPMENTS: FALLING PRICES AMID RECORD-HIGH OUTPUT - WORLD BANK
Coal prices inched up in May (m/m) following an 8 percent decline in 2024Q1. The Australian and South African benchmarks have plummeted more ...
Friday, 26 July 24
FUELEU MARITME IS COMING. IS YOUR CHARTERPARTY READY? - GARD
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Thursday, 04 July 24
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Tuesday, 02 July 24
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Friday, 28 June 24
KOSPO INVITED BIDS FOR 400,000 MT OF MINIMUM 4000 NCV COAL FOR FIVE YEARS
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- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Bangladesh Power Developement Board
- SN Aboitiz Power Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Bharathi Cement Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Central Electricity Authority - India
- Therma Luzon, Inc, Philippines
- Formosa Plastics Group - Taiwan
- Gujarat Sidhee Cement - India
- Iligan Light & Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- South Luzon Thermal Energy Corporation
- Power Finance Corporation Ltd., India
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- Vedanta Resources Plc - India
- Binh Thuan Hamico - Vietnam
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Latin American Coal - Colombia
- Indian Oil Corporation Limited
- Holcim Trading Pte Ltd - Singapore
- Renaissance Capital - South Africa
- LBH Netherlands Bv - Netherlands
- Samtan Co., Ltd - South Korea
- Sical Logistics Limited - India
- Coastal Gujarat Power Limited - India
- Global Green Power PLC Corporation, Philippines
- Sakthi Sugars Limited - India
- Borneo Indobara - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Global Coal Blending Company Limited - Australia
- European Bulk Services B.V. - Netherlands
- CIMB Investment Bank - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- SMG Consultants - Indonesia
- Merrill Lynch Commodities Europe
- Petrochimia International Co. Ltd.- Taiwan
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Leighton Contractors Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Bukit Baiduri Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Tamil Nadu electricity Board
- GAC Shipping (India) Pvt Ltd
- Madhucon Powers Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- GMR Energy Limited - India
- The Treasury - Australian Government
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Edison Trading Spa - Italy
- Meenaskhi Energy Private Limited - India
- Rio Tinto Coal - Australia
- Directorate Of Revenue Intelligence - India
- PNOC Exploration Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meralco Power Generation, Philippines
- Globalindo Alam Lestari - Indonesia
- Chamber of Mines of South Africa
- Energy Development Corp, Philippines
- Ind-Barath Power Infra Limited - India
- Kumho Petrochemical, South Korea
- Sojitz Corporation - Japan
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Thai Mozambique Logistica
- Siam City Cement PLC, Thailand
- Miang Besar Coal Terminal - Indonesia
- Tata Chemicals Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Larsen & Toubro Limited - India
- Petron Corporation, Philippines
- Ambuja Cements Ltd - India
- Cement Manufacturers Association - India
- Maharashtra Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Electricity Authority, New Zealand
- SMC Global Power, Philippines
- Wilmar Investment Holdings
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercuria Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Orica Mining Services - Indonesia
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- Marubeni Corporation - India
- CNBM International Corporation - China
- Chettinad Cement Corporation Ltd - India
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- Vijayanagar Sugar Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Planning Commission, India
- Sarangani Energy Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Aditya Birla Group - India
- Deloitte Consulting - India
- Coalindo Energy - Indonesia
- Minerals Council of Australia
- Neyveli Lignite Corporation Ltd, - India
- Jaiprakash Power Ventures ltd
- Australian Commodity Traders Exchange
- Carbofer General Trading SA - India
- Commonwealth Bank - Australia
- India Bulls Power Limited - India
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Vizag Seaport Private Limited - India
- New Zealand Coal & Carbon
- Antam Resourcindo - Indonesia
- Romanian Commodities Exchange
- Barasentosa Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Baramulti Group, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Orica Australia Pty. Ltd.
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kohat Cement Company Ltd. - Pakistan
- Metalloyd Limited - United Kingdom
- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- Indian Energy Exchange, India
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Jindal Steel & Power Ltd - India
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- Sindya Power Generating Company Private Ltd
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhatia International Limited - India
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- Videocon Industries ltd - India
- PTC India Limited - India
- Ceylon Electricity Board - Sri Lanka
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Alfred C Toepfer International GmbH - Germany
- Attock Cement Pakistan Limited
- Bhushan Steel Limited - India
- Australian Coal Association
- Kaltim Prima Coal - Indonesia
- Indo Tambangraya Megah - Indonesia
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- Interocean Group of Companies - India
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Finance - Indonesia
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- Oldendorff Carriers - Singapore
- Eastern Coal Council - USA
- GN Power Mariveles Coal Plant, Philippines
- Independent Power Producers Association of India
- Thiess Contractors Indonesia
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Central Java Power - Indonesia
- Riau Bara Harum - Indonesia
- Wood Mackenzie - Singapore
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Port Waratah Coal Services - Australia
- Intertek Mineral Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
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