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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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Monday, 30 June 14
WEEKLY CFR SOUTH CHINA COAL SWAPS DECLINE CONTINUES; Q1'15 LOST US$ 4.55 PMT IN A WEEK
COALspot.com: API 8 CFR South China Coal swap for delivery in Q3 fell US$ 5.25 month on month on Friday, dipping under $69 a tone. The CFR South Ch ...
Monday, 30 June 14
INDO - INDIA FREIGHT RATES CONTINUE TO WEAK
COALspot.com: The latest dry Index shows that average all-in spot freight declined, the Panamax and Supramax slipping by 9.11 percent and 4% respec ...
Friday, 27 June 14
DRY BULK MARKET STILL LOOKING FOR UPSIDE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has kept up its lacklustre performance during the past week, as evidenced by the course of the Baltic Dry Index (BDI). The BDI ...
Thursday, 26 June 14
PANAMAX : A PACIFIC ROUND PAYS AROUND US$ 3K DAILY - FEARNLEYS AS
Handy
In the Atlantic there has been little activity which again has caused rates to slip across all trades. TA´s are now down to US$ 5,500 ...
Thursday, 26 June 14
KOMIPO INVITES BIDS FOR TOTAL 750K MT OF BITUMINOUS COAL FOR 3CY
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) has issued a new tender for supply of total 250,000 MT of bituminous co ...
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- GVK Power & Infra Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Port Waratah Coal Services - Australia
- Orica Mining Services - Indonesia
- Parliament of New Zealand
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Holcim Trading Pte Ltd - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- Pendopo Energi Batubara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Edison Trading Spa - Italy
- Indika Energy - Indonesia
- Posco Energy - South Korea
- Interocean Group of Companies - India
- Africa Commodities Group - South Africa
- The State Trading Corporation of India Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Coastal Gujarat Power Limited - India
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indonesian Coal Mining Association
- Siam City Cement PLC, Thailand
- White Energy Company Limited
- McConnell Dowell - Australia
- Energy Development Corp, Philippines
- Dalmia Cement Bharat India
- Gujarat Electricity Regulatory Commission - India
- Borneo Indobara - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Alfred C Toepfer International GmbH - Germany
- Savvy Resources Ltd - HongKong
- Essar Steel Hazira Ltd - India
- Banpu Public Company Limited - Thailand
- Mercuria Energy - Indonesia
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Rio Tinto Coal - Australia
- Miang Besar Coal Terminal - Indonesia
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- Baramulti Group, Indonesia
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Global Coal Blending Company Limited - Australia
- VISA Power Limited - India
- Attock Cement Pakistan Limited
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Commonwealth Bank - Australia
- Ceylon Electricity Board - Sri Lanka
- TeaM Sual Corporation - Philippines
- Coalindo Energy - Indonesia
- Ambuja Cements Ltd - India
- London Commodity Brokers - England
- Grasim Industreis Ltd - India
- Chamber of Mines of South Africa
- Merrill Lynch Commodities Europe
- Leighton Contractors Pty Ltd - Australia
- New Zealand Coal & Carbon
- Maharashtra Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Central Electricity Authority - India
- PTC India Limited - India
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Tata Chemicals Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Intertek Mineral Services - Indonesia
- Indo Tambangraya Megah - Indonesia
- Chettinad Cement Corporation Ltd - India
- SMG Consultants - Indonesia
- Deloitte Consulting - India
- Timah Investasi Mineral - Indoneisa
- Oldendorff Carriers - Singapore
- Riau Bara Harum - Indonesia
- Sindya Power Generating Company Private Ltd
- Karaikal Port Pvt Ltd - India
- Trasteel International SA, Italy
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Sree Jayajothi Cements Limited - India
- Bhushan Steel Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Kobexindo Tractors - Indoneisa
- LBH Netherlands Bv - Netherlands
- Tamil Nadu electricity Board
- Sical Logistics Limited - India
- International Coal Ventures Pvt Ltd - India
- Mintek Dendrill Indonesia
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- Vedanta Resources Plc - India
- GMR Energy Limited - India
- Therma Luzon, Inc, Philippines
- Power Finance Corporation Ltd., India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- Thiess Contractors Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Videocon Industries ltd - India
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Australian Coal Association
- Gujarat Mineral Development Corp Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
- Independent Power Producers Association of India
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Ind-Barath Power Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Planning Commission, India
- Indian Oil Corporation Limited
- Eastern Energy - Thailand
- Barasentosa Lestari - Indonesia
- Xindia Steels Limited - India
- ASAPP Information Group - India
- Thai Mozambique Logistica
- Jindal Steel & Power Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Finance - Indonesia
- Electricity Generating Authority of Thailand
- Iligan Light & Power Inc, Philippines
- Energy Link Ltd, New Zealand
- MS Steel International - UAE
- Star Paper Mills Limited - India
- The Treasury - Australian Government
- Formosa Plastics Group - Taiwan
- CNBM International Corporation - China
- Renaissance Capital - South Africa
- Vizag Seaport Private Limited - India
- ICICI Bank Limited - India
- The University of Queensland
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- South Luzon Thermal Energy Corporation
- Globalindo Alam Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- Australian Commodity Traders Exchange
- Wilmar Investment Holdings
- Lanco Infratech Ltd - India
- Sakthi Sugars Limited - India
- Meralco Power Generation, Philippines
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- Coal and Oil Company - UAE
- Anglo American - United Kingdom
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Heidelberg Cement - Germany
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Samtan Co., Ltd - South Korea
- Metalloyd Limited - United Kingdom
- Aditya Birla Group - India
- Mercator Lines Limited - India
- CIMB Investment Bank - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- India Bulls Power Limited - India
- Wood Mackenzie - Singapore
- Global Business Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Agrawal Coal Company - India
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Bangladesh Power Developement Board
- Jorong Barutama Greston.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Gujarat Sidhee Cement - India
- Malabar Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- Orica Australia Pty. Ltd.
- Manunggal Multi Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
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