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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
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Friday, 26 July 24
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Tuesday, 02 July 24
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Friday, 28 June 24
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- Eastern Energy - Thailand
- Ministry of Finance - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Sinarmas Energy and Mining - Indonesia
- PowerSource Philippines DevCo
- Directorate General of MIneral and Coal - Indonesia
- Marubeni Corporation - India
- Simpson Spence & Young - Indonesia
- Port Waratah Coal Services - Australia
- Pendopo Energi Batubara - Indonesia
- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Bayan Resources Tbk. - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Kaltim Prima Coal - Indonesia
- Borneo Indobara - Indonesia
- Energy Development Corp, Philippines
- India Bulls Power Limited - India
- Bharathi Cement Corporation - India
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- Uttam Galva Steels Limited - India
- Sindya Power Generating Company Private Ltd
- Ministry of Mines - Canada
- GAC Shipping (India) Pvt Ltd
- Grasim Industreis Ltd - India
- Formosa Plastics Group - Taiwan
- Minerals Council of Australia
- Coalindo Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Posco Energy - South Korea
- The University of Queensland
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Tata Chemicals Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- GVK Power & Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Vedanta Resources Plc - India
- Coal and Oil Company - UAE
- The State Trading Corporation of India Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Kideco Jaya Agung - Indonesia
- Ind-Barath Power Infra Limited - India
- Globalindo Alam Lestari - Indonesia
- Semirara Mining Corp, Philippines
- Therma Luzon, Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- ICICI Bank Limited - India
- Vizag Seaport Private Limited - India
- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Makarim & Taira - Indonesia
- Sojitz Corporation - Japan
- Mintek Dendrill Indonesia
- Barasentosa Lestari - Indonesia
- Bulk Trading Sa - Switzerland
- Meralco Power Generation, Philippines
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- Kohat Cement Company Ltd. - Pakistan
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Sidhee Cement - India
- Binh Thuan Hamico - Vietnam
- PTC India Limited - India
- Heidelberg Cement - Germany
- Orica Mining Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Rio Tinto Coal - Australia
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indogreen Group - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sree Jayajothi Cements Limited - India
- Toyota Tsusho Corporation, Japan
- Kumho Petrochemical, South Korea
- Commonwealth Bank - Australia
- CNBM International Corporation - China
- GN Power Mariveles Coal Plant, Philippines
- Georgia Ports Authority, United States
- Agrawal Coal Company - India
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Electricity Generating Authority of Thailand
- McConnell Dowell - Australia
- Malabar Cements Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- SMC Global Power, Philippines
- Trasteel International SA, Italy
- Economic Council, Georgia
- Kalimantan Lumbung Energi - Indonesia
- Metalloyd Limited - United Kingdom
- White Energy Company Limited
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Goldman Sachs - Singapore
- Mercuria Energy - Indonesia
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Sarangani Energy Corporation, Philippines
- Renaissance Capital - South Africa
- Billiton Holdings Pty Ltd - Australia
- Australian Commodity Traders Exchange
- Global Green Power PLC Corporation, Philippines
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Attock Cement Pakistan Limited
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Africa Commodities Group - South Africa
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- Riau Bara Harum - Indonesia
- Price Waterhouse Coopers - Russia
- Thai Mozambique Logistica
- Manunggal Multi Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Medco Energi Mining Internasional
- Essar Steel Hazira Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Eastern Coal Council - USA
- MS Steel International - UAE
- Carbofer General Trading SA - India
- Sical Logistics Limited - India
- Edison Trading Spa - Italy
- Mercator Lines Limited - India
- VISA Power Limited - India
- Aboitiz Power Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- IEA Clean Coal Centre - UK
- Ambuja Cements Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhushan Steel Limited - India
- Wilmar Investment Holdings
- Savvy Resources Ltd - HongKong
- Independent Power Producers Association of India
- Miang Besar Coal Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- GMR Energy Limited - India
- Bhoruka Overseas - Indonesia
- ASAPP Information Group - India
- Star Paper Mills Limited - India
- Oldendorff Carriers - Singapore
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- Maheswari Brothers Coal Limited - India
- Krishnapatnam Port Company Ltd. - India
- Central Electricity Authority - India
- Straits Asia Resources Limited - Singapore
- SN Aboitiz Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Lanco Infratech Ltd - India
- Timah Investasi Mineral - Indoneisa
- Cement Manufacturers Association - India
- Indian Oil Corporation Limited
- Maharashtra Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- SMG Consultants - Indonesia
- Coastal Gujarat Power Limited - India
- Australian Coal Association
- Antam Resourcindo - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement - Thailand
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- Deloitte Consulting - India
- Merrill Lynch Commodities Europe
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Chamber of Mines of South Africa
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Central Java Power - Indonesia
- Global Business Power Corporation, Philippines
- Parliament of New Zealand
- Thiess Contractors Indonesia
- Parry Sugars Refinery, India
- Wood Mackenzie - Singapore
- OPG Power Generation Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
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