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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, 26 May 14
SUB-BIT FOB INDO COAL SWAP Q1' 15 DELIVERIES CLOSED AT US$ 59.40 PER MT
COALspot.com: Indonesian coal swaps for average Q3’ 2014 lost on day, week and on month according to AsiaClear OTC coal swap's reports re ...
Monday, 26 May 14
Q3 14 CFR SOUTH CHINA COAL SWAPS LOST 2.24% MONTH ON MONTH
COALspot.com: API 8 CFR South China Coal swaps for average Q3 14 deliveries lost 2.24 percent month on month and closed at US$ 73.88 per mt as on F ...
Monday, 26 May 14
NEWBUILDING ORDERING ACTIVITY RISES BY 78% IN DWT TONNAGE OVER THE FIRST 4 MONTHS OF THE YEARS, AS OWNERS INVEST$40.5 BN - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship owners have plunged into newbuilding orders during the first four months of the year, as overall newbuilding business ended for the first four ...
Sunday, 25 May 14
FREIGHT RATES FROM SOUTH KALIMANTAN TO EAST COAST INDIAN PORTS WERE ASSESSED AT $9.50/MT
COALspot.com: The BDI was closed at 964 points down by 6.13 pct week on week. The Cape Index was lost 172 points or 11.24% week on week and closing ...
Saturday, 24 May 14
DRY BULK MARKET'S RECOVERY IS JUST AROUND THE CORNER SAYS SHIPOWNER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Despite the weaker than expected market sentiment in the dry bulk market over the course of the past few months, analysts and shipowners alike appe ...
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- Ministry of Finance - Indonesia
- IHS Mccloskey Coal Group - USA
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- GMR Energy Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Kartika Selabumi Mining - Indonesia
- South Luzon Thermal Energy Corporation
- Kumho Petrochemical, South Korea
- Jorong Barutama Greston.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Tamil Nadu electricity Board
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- VISA Power Limited - India
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- Offshore Bulk Terminal Pte Ltd, Singapore
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- Miang Besar Coal Terminal - Indonesia
- Videocon Industries ltd - India
- Global Coal Blending Company Limited - Australia
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- Sical Logistics Limited - India
- Bayan Resources Tbk. - Indonesia
- McConnell Dowell - Australia
- Electricity Generating Authority of Thailand
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- Sakthi Sugars Limited - India
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- Eastern Coal Council - USA
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- Bulk Trading Sa - Switzerland
- Pendopo Energi Batubara - Indonesia
- ICICI Bank Limited - India
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
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- Bukit Makmur.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
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- Energy Development Corp, Philippines
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- Alfred C Toepfer International GmbH - Germany
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- Gujarat Electricity Regulatory Commission - India
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- New Zealand Coal & Carbon
- Indian Energy Exchange, India
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- Sarangani Energy Corporation, Philippines
- PTC India Limited - India
- Sindya Power Generating Company Private Ltd
- Coastal Gujarat Power Limited - India
- Chamber of Mines of South Africa
- Directorate Of Revenue Intelligence - India
- Billiton Holdings Pty Ltd - Australia
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- London Commodity Brokers - England
- Barasentosa Lestari - Indonesia
- Interocean Group of Companies - India
- Coal and Oil Company - UAE
- Renaissance Capital - South Africa
- Agrawal Coal Company - India
- Meenaskhi Energy Private Limited - India
- Indogreen Group - Indonesia
- Intertek Mineral Services - Indonesia
- TeaM Sual Corporation - Philippines
- SMG Consultants - Indonesia
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- International Coal Ventures Pvt Ltd - India
- India Bulls Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Power Finance Corporation Ltd., India
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- Metalloyd Limited - United Kingdom
- CNBM International Corporation - China
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- Electricity Authority, New Zealand
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- Bhoruka Overseas - Indonesia
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- The State Trading Corporation of India Ltd
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- Formosa Plastics Group - Taiwan
- Anglo American - United Kingdom
- White Energy Company Limited
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- The University of Queensland
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- Gujarat Mineral Development Corp Ltd - India
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- Bharathi Cement Corporation - India
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- IEA Clean Coal Centre - UK
- Singapore Mercantile Exchange
- PowerSource Philippines DevCo
- Jindal Steel & Power Ltd - India
- Parliament of New Zealand
- Merrill Lynch Commodities Europe
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- Samtan Co., Ltd - South Korea
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Africa Commodities Group - South Africa
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- Carbofer General Trading SA - India
- Ceylon Electricity Board - Sri Lanka
- Planning Commission, India
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- Gujarat Sidhee Cement - India
- Price Waterhouse Coopers - Russia
- Sinarmas Energy and Mining - Indonesia
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Indo Tambangraya Megah - Indonesia
- Aditya Birla Group - India
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- Madhucon Powers Ltd - India
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- Economic Council, Georgia
- Deloitte Consulting - India
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- Global Green Power PLC Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Latin American Coal - Colombia
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- SN Aboitiz Power Inc, Philippines
- Wood Mackenzie - Singapore
- Karaikal Port Pvt Ltd - India
- Tata Chemicals Ltd - India
- Parry Sugars Refinery, India
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- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- AsiaOL BioFuels Corp., Philippines
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- Leighton Contractors Pty Ltd - Australia
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- Ministry of Transport, Egypt
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- San Jose City I Power Corp, Philippines
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