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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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Wednesday, 31 January 24
CHINA'S INNER MONGOLIA COAL OUTPUT HIT 1.21B TONS IN 2023 - XINHUA
North China’s Inner Mongolia autonomous region churned out 1.21 billion tons of coal in 2023 as it strives to guarantee the country’s e ...
Wednesday, 31 January 24
GAS EXPORTS COST U.S. CONSUMERS MORE THAN $100 BILLION OVER 16-MONTH PERIOD - IEEFA
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Tuesday, 30 January 24
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Demand
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Friday, 26 January 24
RED SEA DIVERSIONS ADD NEARLY A MILLION DOLLARS PER VOYAGE TO SHIPPING COSTS WHILE DOUBLING TRANSIT TIME - LSEG
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Friday, 26 January 24
HARD COAL GUARDIAN ANGEL OF THE ENERGY SUPPLY - GERMANY COAL IMPORTERS ASSOCIATION
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- Samtan Co., Ltd - South Korea
- Timah Investasi Mineral - Indoneisa
- San Jose City I Power Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Standard Chartered Bank - UAE
- The Treasury - Australian Government
- Edison Trading Spa - Italy
- Salva Resources Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- Semirara Mining Corp, Philippines
- Vizag Seaport Private Limited - India
- Trasteel International SA, Italy
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- OPG Power Generation Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Indian Energy Exchange, India
- Sree Jayajothi Cements Limited - India
- Orica Mining Services - Indonesia
- Intertek Mineral Services - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- GMR Energy Limited - India
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- Indogreen Group - Indonesia
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- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Sojitz Corporation - Japan
- Simpson Spence & Young - Indonesia
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- Savvy Resources Ltd - HongKong
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- TeaM Sual Corporation - Philippines
- SN Aboitiz Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Bharathi Cement Corporation - India
- Bhatia International Limited - India
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- Holcim Trading Pte Ltd - Singapore
- Videocon Industries ltd - India
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercator Lines Limited - India
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- White Energy Company Limited
- Aboitiz Power Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Sical Logistics Limited - India
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Cement Manufacturers Association - India
- Bayan Resources Tbk. - Indonesia
- Thiess Contractors Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- Attock Cement Pakistan Limited
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- Altura Mining Limited, Indonesia
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- IEA Clean Coal Centre - UK
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Electricity Authority, New Zealand
- Chettinad Cement Corporation Ltd - India
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Banpu Public Company Limited - Thailand
- Electricity Generating Authority of Thailand
- LBH Netherlands Bv - Netherlands
- Heidelberg Cement - Germany
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Energy Link Ltd, New Zealand
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- Lanco Infratech Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Krishnapatnam Port Company Ltd. - India
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Africa Commodities Group - South Africa
- Indonesian Coal Mining Association
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- Latin American Coal - Colombia
- European Bulk Services B.V. - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Parry Sugars Refinery, India
- Alfred C Toepfer International GmbH - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- VISA Power Limited - India
- Vedanta Resources Plc - India
- Larsen & Toubro Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bulk Trading Sa - Switzerland
- Bhushan Steel Limited - India
- Iligan Light & Power Inc, Philippines
- Interocean Group of Companies - India
- Madhucon Powers Ltd - India
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Commonwealth Bank - Australia
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- Chamber of Mines of South Africa
- Aditya Birla Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Manunggal Multi Energi - Indonesia
- Bangladesh Power Developement Board
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- Global Coal Blending Company Limited - Australia
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- Central Java Power - Indonesia
- Eastern Energy - Thailand
- Bukit Makmur.PT - Indonesia
- Wilmar Investment Holdings
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- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- PetroVietnam Power Coal Import and Supply Company
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Borneo Indobara - Indonesia
- Carbofer General Trading SA - India
- Romanian Commodities Exchange
- Eastern Coal Council - USA
- Sinarmas Energy and Mining - Indonesia
- Ministry of Mines - Canada
- The University of Queensland
- GAC Shipping (India) Pvt Ltd
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- Sindya Power Generating Company Private Ltd
- Gujarat Sidhee Cement - India
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- Riau Bara Harum - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- South Luzon Thermal Energy Corporation
- Makarim & Taira - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
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- Mintek Dendrill Indonesia
- Therma Luzon, Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Sarangani Energy Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Cigading International Bulk Terminal - Indonesia
- Minerals Council of Australia
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- Deloitte Consulting - India
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- Parliament of New Zealand
- Marubeni Corporation - India
- ICICI Bank Limited - India
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- Wood Mackenzie - Singapore
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- Indika Energy - Indonesia
- Thai Mozambique Logistica
- Kumho Petrochemical, South Korea
- India Bulls Power Limited - India
- PTC India Limited - India
- MS Steel International - UAE
- GVK Power & Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- CNBM International Corporation - China
- Kepco SPC Power Corporation, Philippines
- ASAPP Information Group - India
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Merrill Lynch Commodities Europe
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