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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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Tuesday, 23 May 23
INDIA: COAL OUTPUT UP 8.9%, SUPPLY RISES 11.7% IN APRIL - FINANCIAL EXPRESS
India’s coal production jumped 8.85% to 73.14 million tonne (MT) in April 2023 and the total coal despatch during the month went up 11.66% to ...
Tuesday, 23 May 23
CHINA COAL OUTPUT UP 4.5 PCT IN APRIL - XINHUA
China’s raw coal output posted stable expansion in April, official data showed.
The country produced 380 million tonnes of raw ...
Saturday, 20 May 23
NON-OPEC OIL SUPPLY DEVELOPMENT - OPEC
In 2022, non-OPEC supply is estimated to have increased by 1.9 mb/d y-o-y. Out of this, US liquids production increased by 1.2 mb/d, mainly on the ...
Saturday, 20 May 23
GLOBAL COAL TRADE HAS REALLY PICKED UP PACE IN RECENT MONTHS, NOW FULLY BACK TO PRE-COVID LEVELS - BANCHERO COSTA
Global coal trade has really picked up pace in recent months, and is now fully back to pre-Covid levels. In Jan-Apr 2023, total global seaborne coa ...
Saturday, 20 May 23
MARKET INSIGHT - INTERMODAL
India is one of the world's largest coal producers and one of the world's largest importers of coal. The country uses coal mainly for power ...
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- Vijayanagar Sugar Pvt Ltd - India
- Marubeni Corporation - India
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- GAC Shipping (India) Pvt Ltd
- Xindia Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Samtan Co., Ltd - South Korea
- Madhucon Powers Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Oldendorff Carriers - Singapore
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Africa Commodities Group - South Africa
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Bukit Baiduri Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Siam City Cement PLC, Thailand
- Attock Cement Pakistan Limited
- Australian Coal Association
- Sindya Power Generating Company Private Ltd
- Tamil Nadu electricity Board
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- Meenaskhi Energy Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- Independent Power Producers Association of India
- ICICI Bank Limited - India
- Minerals Council of Australia
- SMC Global Power, Philippines
- Sarangani Energy Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- Power Finance Corporation Ltd., India
- Parry Sugars Refinery, India
- Bahari Cakrawala Sebuku - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Australia Pty. Ltd.
- San Jose City I Power Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- TeaM Sual Corporation - Philippines
- Uttam Galva Steels Limited - India
- Metalloyd Limited - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Sojitz Corporation - Japan
- AsiaOL BioFuels Corp., Philippines
- Indonesian Coal Mining Association
- Eastern Energy - Thailand
- Cement Manufacturers Association - India
- PNOC Exploration Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Mintek Dendrill Indonesia
- Vedanta Resources Plc - India
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Larsen & Toubro Limited - India
- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
- Makarim & Taira - Indonesia
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- Salva Resources Pvt Ltd - India
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- Maharashtra Electricity Regulatory Commission - India
- Parliament of New Zealand
- Kideco Jaya Agung - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Commonwealth Bank - Australia
- Karbindo Abesyapradhi - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- Energy Development Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- Indika Energy - Indonesia
- Ministry of Mines - Canada
- CIMB Investment Bank - Malaysia
- Riau Bara Harum - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- IEA Clean Coal Centre - UK
- New Zealand Coal & Carbon
- PTC India Limited - India
- Simpson Spence & Young - Indonesia
- Aboitiz Power Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Sical Logistics Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Binh Thuan Hamico - Vietnam
- Indogreen Group - Indonesia
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Savvy Resources Ltd - HongKong
- Mjunction Services Limited - India
- European Bulk Services B.V. - Netherlands
- Electricity Authority, New Zealand
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- Medco Energi Mining Internasional
- Interocean Group of Companies - India
- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Jaiprakash Power Ventures ltd
- Vizag Seaport Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Manunggal Multi Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Borneo Indobara - Indonesia
- International Coal Ventures Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Latin American Coal - Colombia
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- PowerSource Philippines DevCo
- Edison Trading Spa - Italy
- Bukit Makmur.PT - Indonesia
- The Treasury - Australian Government
- Electricity Generating Authority of Thailand
- Central Java Power - Indonesia
- Star Paper Mills Limited - India
- Central Electricity Authority - India
- Iligan Light & Power Inc, Philippines
- Anglo American - United Kingdom
- White Energy Company Limited
- Videocon Industries ltd - India
- Bhatia International Limited - India
- LBH Netherlands Bv - Netherlands
- Jindal Steel & Power Ltd - India
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Chamber of Mines of South Africa
- Sinarmas Energy and Mining - Indonesia
- Planning Commission, India
- Wilmar Investment Holdings
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- Formosa Plastics Group - Taiwan
- Kartika Selabumi Mining - Indonesia
- Agrawal Coal Company - India
- Bangladesh Power Developement Board
- Goldman Sachs - Singapore
- India Bulls Power Limited - India
- GVK Power & Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Essar Steel Hazira Ltd - India
- Thiess Contractors Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Coastal Gujarat Power Limited - India
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- Maheswari Brothers Coal Limited - India
- Toyota Tsusho Corporation, Japan
- Coalindo Energy - Indonesia
- Tata Chemicals Ltd - India
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- Bulk Trading Sa - Switzerland
- Thai Mozambique Logistica
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Business Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- Renaissance Capital - South Africa
- Therma Luzon, Inc, Philippines
- Deloitte Consulting - India
- Meralco Power Generation, Philippines
- Timah Investasi Mineral - Indoneisa
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