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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, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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- Power Finance Corporation Ltd., India
- Electricity Generating Authority of Thailand
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- Thiess Contractors Indonesia
- Sakthi Sugars Limited - India
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Grasim Industreis Ltd - India
- Sarangani Energy Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- Central Electricity Authority - India
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- Asmin Koalindo Tuhup - Indonesia
- Therma Luzon, Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Intertek Mineral Services - Indonesia
- Jaiprakash Power Ventures ltd
- Price Waterhouse Coopers - Russia
- Iligan Light & Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- Tata Chemicals Ltd - India
- Salva Resources Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement - Thailand
- Semirara Mining Corp, Philippines
- Electricity Authority, New Zealand
- Directorate Of Revenue Intelligence - India
- Mintek Dendrill Indonesia
- Dalmia Cement Bharat India
- Georgia Ports Authority, United States
- Chamber of Mines of South Africa
- Indo Tambangraya Megah - Indonesia
- Indogreen Group - Indonesia
- Star Paper Mills Limited - India
- Port Waratah Coal Services - Australia
- Bhatia International Limited - India
- Orica Australia Pty. Ltd.
- IEA Clean Coal Centre - UK
- India Bulls Power Limited - India
- Ministry of Mines - Canada
- Coal and Oil Company - UAE
- Kumho Petrochemical, South Korea
- Samtan Co., Ltd - South Korea
- Ind-Barath Power Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Chettinad Cement Corporation Ltd - India
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Ministry of Transport, Egypt
- Vizag Seaport Private Limited - India
- Coalindo Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Minerals Council of Australia
- Mercator Lines Limited - India
- Global Coal Blending Company Limited - Australia
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Lanco Infratech Ltd - India
- Kobexindo Tractors - Indoneisa
- Interocean Group of Companies - India
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- Eastern Coal Council - USA
- Anglo American - United Kingdom
- Independent Power Producers Association of India
- Oldendorff Carriers - Singapore
- Kideco Jaya Agung - Indonesia
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- ASAPP Information Group - India
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Mjunction Services Limited - India
- Savvy Resources Ltd - HongKong
- The Treasury - Australian Government
- Sical Logistics Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Africa Commodities Group - South Africa
- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Karbindo Abesyapradhi - Indoneisa
- Thai Mozambique Logistica
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Madhucon Powers Ltd - India
- Orica Mining Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Indonesian Coal Mining Association
- Mercuria Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Aboitiz Power Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Kartika Selabumi Mining - Indonesia
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Marubeni Corporation - India
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- Videocon Industries ltd - India
- Gujarat Electricity Regulatory Commission - India
- Global Business Power Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rio Tinto Coal - Australia
- PNOC Exploration Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Toyota Tsusho Corporation, Japan
- Karaikal Port Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Xindia Steels Limited - India
- Miang Besar Coal Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vedanta Resources Plc - India
- Indika Energy - Indonesia
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Sindya Power Generating Company Private Ltd
- Bukit Makmur.PT - Indonesia
- Siam City Cement PLC, Thailand
- Bayan Resources Tbk. - Indonesia
- The State Trading Corporation of India Ltd
- Malabar Cements Ltd - India
- Agrawal Coal Company - India
- Kepco SPC Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Borneo Indobara - Indonesia
- Globalindo Alam Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- VISA Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Attock Cement Pakistan Limited
- Planning Commission, India
- Antam Resourcindo - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- ICICI Bank Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CIMB Investment Bank - Malaysia
- Romanian Commodities Exchange
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- Wood Mackenzie - Singapore
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- MS Steel International - UAE
- Tamil Nadu electricity Board
- Parliament of New Zealand
- New Zealand Coal & Carbon
- Heidelberg Cement - Germany
- Kohat Cement Company Ltd. - Pakistan
- Australian Coal Association
- Petron Corporation, Philippines
- Aditya Birla Group - India
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- Metalloyd Limited - United Kingdom
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Trasteel International SA, Italy
- Timah Investasi Mineral - Indoneisa
- Gujarat Sidhee Cement - India
- TeaM Sual Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- SMC Global Power, Philippines
- Renaissance Capital - South Africa
- GMR Energy Limited - India
- Indian Energy Exchange, India
- PTC India Limited - India
- Ceylon Electricity Board - Sri Lanka
- GVK Power & Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Altura Mining Limited, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Sojitz Corporation - Japan
- Directorate General of MIneral and Coal - Indonesia
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