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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, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
...
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- Vizag Seaport Private Limited - India
- Energy Link Ltd, New Zealand
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- TeaM Sual Corporation - Philippines
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- Indian Oil Corporation Limited
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- Thiess Contractors Indonesia
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Central Electricity Authority - India
- Eastern Coal Council - USA
- Minerals Council of Australia
- GN Power Mariveles Coal Plant, Philippines
- South Luzon Thermal Energy Corporation
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- Bayan Resources Tbk. - Indonesia
- Orica Australia Pty. Ltd.
- Krishnapatnam Port Company Ltd. - India
- Mercator Lines Limited - India
- Vedanta Resources Plc - India
- Meralco Power Generation, Philippines
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- Intertek Mineral Services - Indonesia
- Central Java Power - Indonesia
- Oldendorff Carriers - Singapore
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Australian Coal Association
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- Larsen & Toubro Limited - India
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- Jorong Barutama Greston.PT - Indonesia
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- Kaltim Prima Coal - Indonesia
- Kumho Petrochemical, South Korea
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- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
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- Banpu Public Company Limited - Thailand
- Cigading International Bulk Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
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- Wilmar Investment Holdings
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- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Grasim Industreis Ltd - India
- European Bulk Services B.V. - Netherlands
- McConnell Dowell - Australia
- Deloitte Consulting - India
- Merrill Lynch Commodities Europe
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- Price Waterhouse Coopers - Russia
- Karbindo Abesyapradhi - Indoneisa
- Bhatia International Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Eastern Energy - Thailand
- ICICI Bank Limited - India
- Economic Council, Georgia
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
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- Simpson Spence & Young - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- The University of Queensland
- ASAPP Information Group - India
- Sakthi Sugars Limited - India
- Attock Cement Pakistan Limited
- Latin American Coal - Colombia
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- Directorate Of Revenue Intelligence - India
- White Energy Company Limited
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- Anglo American - United Kingdom
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- Australian Commodity Traders Exchange
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- Therma Luzon, Inc, Philippines
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- The Treasury - Australian Government
- Parry Sugars Refinery, India
- Toyota Tsusho Corporation, Japan
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- Siam City Cement PLC, Thailand
- Indian Energy Exchange, India
- Binh Thuan Hamico - Vietnam
- Singapore Mercantile Exchange
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Port Waratah Coal Services - Australia
- India Bulls Power Limited - India
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- PNOC Exploration Corporation - Philippines
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- Timah Investasi Mineral - Indoneisa
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- Samtan Co., Ltd - South Korea
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- Edison Trading Spa - Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- MS Steel International - UAE
- Planning Commission, India
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- Sical Logistics Limited - India
- The State Trading Corporation of India Ltd
- Indo Tambangraya Megah - Indonesia
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- Ind-Barath Power Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Chamber of Mines of South Africa
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- Mintek Dendrill Indonesia
- Bulk Trading Sa - Switzerland
- PowerSource Philippines DevCo
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- Jaiprakash Power Ventures ltd
- Videocon Industries ltd - India
- IEA Clean Coal Centre - UK
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- Sojitz Corporation - Japan
- Wood Mackenzie - Singapore
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- Savvy Resources Ltd - HongKong
- Indogreen Group - Indonesia
- Bangladesh Power Developement Board
- Power Finance Corporation Ltd., India
- Bukit Makmur.PT - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Xindia Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Indonesian Coal Mining Association
- Malabar Cements Ltd - India
- Baramulti Group, Indonesia
- Ministry of Mines - Canada
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