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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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Sunday, 16 April 23
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Sunday, 16 April 23
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Tuesday, 11 April 23
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- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Thiess Contractors Indonesia
- Global Business Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Sindya Power Generating Company Private Ltd
- Marubeni Corporation - India
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Jindal Steel & Power Ltd - India
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Aboitiz Power Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Sarangani Energy Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Billiton Holdings Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Riau Bara Harum - Indonesia
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Holcim Trading Pte Ltd - Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Energy Exchange, India
- Posco Energy - South Korea
- Standard Chartered Bank - UAE
- PetroVietnam Power Coal Import and Supply Company
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Bangladesh Power Developement Board
- Orica Mining Services - Indonesia
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Vedanta Resources Plc - India
- GMR Energy Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Uttam Galva Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Maheswari Brothers Coal Limited - India
- Gujarat Sidhee Cement - India
- Parry Sugars Refinery, India
- ASAPP Information Group - India
- McConnell Dowell - Australia
- Bharathi Cement Corporation - India
- San Jose City I Power Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Coalindo Energy - Indonesia
- Larsen & Toubro Limited - India
- CNBM International Corporation - China
- Indogreen Group - Indonesia
- Goldman Sachs - Singapore
- Georgia Ports Authority, United States
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Pendopo Energi Batubara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Coal and Oil Company - UAE
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- TNB Fuel Sdn Bhd - Malaysia
- Energy Development Corp, Philippines
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- VISA Power Limited - India
- PNOC Exploration Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Oldendorff Carriers - Singapore
- Electricity Generating Authority of Thailand
- Videocon Industries ltd - India
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- Mercuria Energy - Indonesia
- ICICI Bank Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sree Jayajothi Cements Limited - India
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Romanian Commodities Exchange
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- Eastern Energy - Thailand
- Metalloyd Limited - United Kingdom
- Borneo Indobara - Indonesia
- Coastal Gujarat Power Limited - India
- Iligan Light & Power Inc, Philippines
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Vizag Seaport Private Limited - India
- PTC India Limited - India
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- New Zealand Coal & Carbon
- Australian Commodity Traders Exchange
- Planning Commission, India
- TeaM Sual Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- SMC Global Power, Philippines
- Deloitte Consulting - India
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Salva Resources Pvt Ltd - India
- Parliament of New Zealand
- Savvy Resources Ltd - HongKong
- Barasentosa Lestari - Indonesia
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Kalimantan Lumbung Energi - Indonesia
- Madhucon Powers Ltd - India
- Tata Chemicals Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Kaltim Prima Coal - Indonesia
- Xindia Steels Limited - India
- Star Paper Mills Limited - India
- Global Coal Blending Company Limited - Australia
- Singapore Mercantile Exchange
- Therma Luzon, Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Globalindo Alam Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Meralco Power Generation, Philippines
- GVK Power & Infra Limited - India
- Latin American Coal - Colombia
- Banpu Public Company Limited - Thailand
- Ind-Barath Power Infra Limited - India
- Power Finance Corporation Ltd., India
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Interocean Group of Companies - India
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Altura Mining Limited, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Agrawal Coal Company - India
- LBH Netherlands Bv - Netherlands
- Global Green Power PLC Corporation, Philippines
- Independent Power Producers Association of India
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- IEA Clean Coal Centre - UK
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Bhushan Steel Limited - India
- Cement Manufacturers Association - India
- Karbindo Abesyapradhi - Indoneisa
- Grasim Industreis Ltd - India
- Wilmar Investment Holdings
- Malabar Cements Ltd - India
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Economic Council, Georgia
- Thai Mozambique Logistica
- European Bulk Services B.V. - Netherlands
- Port Waratah Coal Services - Australia
- Mercator Lines Limited - India
- Makarim & Taira - Indonesia
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- Simpson Spence & Young - Indonesia
- Attock Cement Pakistan Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- Siam City Cement - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kobexindo Tractors - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Manunggal Multi Energi - Indonesia
- Australian Coal Association
- Mjunction Services Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- India Bulls Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Chamber of Mines of South Africa
- Orica Australia Pty. Ltd.
- Ministry of Transport, Egypt
- Bulk Trading Sa - Switzerland
- Energy Link Ltd, New Zealand
- Antam Resourcindo - Indonesia
- Rio Tinto Coal - Australia
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