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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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Thursday, 12 June 14
HANDY : TA MARKET IS CONTINUING SOUTH WITH A DECREASE OF 26% W-O-W
Handy
The week started off with holidays in most European countries and the TA market is continuing south with a decrease of 26% w-o-w. We do see ...
Thursday, 12 June 14
CONSOLIDATION IS THE ' NAME OF THE GAME' WHEN IT COMES TO SHIPYARDS ACROSS ASIA - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Intense competition, a swelling of new greenfield shipyards over the past few years mainly in China, especially prior to the 2008 global financial ...
Wednesday, 11 June 14
INDONESIA'S COAL EXPORT VOLUME AND REVENUE SLIPS 2.75% AND 6.73% RESPECTIVELY IN APRIL
COALspot.com: Indonesia, one of the world's largest coal producer and the global largest multi grade coal exporter shipped around $1.8* b ...
Wednesday, 11 June 14
BPI TOUCHING A NEW LOW FOR THE YEAR
The Dry Bulk market closed off the week positively, on the back of firming Capesize rates, while the market overall continues to face a very challe ...
Monday, 09 June 14
GOVT GETS TOUGH ON ILLEGAL MINING, SUSPENDS LICENSES - THE JAKARTA POST
The government has temporarily suspended the licenses of 62 mineral and coal transportation companies as part of its efforts to curb illegal mining ...
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- Mjunction Services Limited - India
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- Asia Pacific Energy Resources Ventures Inc, Philippines
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- Planning Commission, India
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- Kaltim Prima Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Electricity Generating Authority of Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TeaM Sual Corporation - Philippines
- Riau Bara Harum - Indonesia
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- Parliament of New Zealand
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- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Maharashtra Electricity Regulatory Commission - India
- Meralco Power Generation, Philippines
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- Intertek Mineral Services - Indonesia
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- CNBM International Corporation - China
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- Indian Oil Corporation Limited
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- Ambuja Cements Ltd - India
- Price Waterhouse Coopers - Russia
- Vizag Seaport Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Standard Chartered Bank - UAE
- Ministry of Mines - Canada
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- Indian Energy Exchange, India
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Power Finance Corporation Ltd., India
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- Pipit Mutiara Jaya. PT, Indonesia
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- Wilmar Investment Holdings
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- Chamber of Mines of South Africa
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- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Indogreen Group - Indonesia
- Kideco Jaya Agung - Indonesia
- Bukit Makmur.PT - Indonesia
- Deloitte Consulting - India
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- IHS Mccloskey Coal Group - USA
- Ministry of Finance - Indonesia
- Siam City Cement - Thailand
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- Grasim Industreis Ltd - India
- Oldendorff Carriers - Singapore
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- Billiton Holdings Pty Ltd - Australia
- Electricity Authority, New Zealand
- Pendopo Energi Batubara - Indonesia
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Independent Power Producers Association of India
- The University of Queensland
- Coal and Oil Company - UAE
- Formosa Plastics Group - Taiwan
- Global Coal Blending Company Limited - Australia
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- Manunggal Multi Energi - Indonesia
- International Coal Ventures Pvt Ltd - India
- Parry Sugars Refinery, India
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- GN Power Mariveles Coal Plant, Philippines
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- Baramulti Group, Indonesia
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- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Gujarat Electricity Regulatory Commission - India
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- Anglo American - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- Sojitz Corporation - Japan
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- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- Orica Australia Pty. Ltd.
- Tamil Nadu electricity Board
- Commonwealth Bank - Australia
- Ministry of Transport, Egypt
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- SMC Global Power, Philippines
- Economic Council, Georgia
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- Salva Resources Pvt Ltd - India
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- White Energy Company Limited
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- McConnell Dowell - Australia
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- Videocon Industries ltd - India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Cigading International Bulk Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Minerals Council of Australia
- Energy Development Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- London Commodity Brokers - England
- Sical Logistics Limited - India
- Australian Coal Association
- Bukit Baiduri Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- Indonesian Coal Mining Association
- Samtan Co., Ltd - South Korea
- Eastern Energy - Thailand
- Edison Trading Spa - Italy
- Medco Energi Mining Internasional
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- Mintek Dendrill Indonesia
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