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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, 08 May 14
'TRIAL BY MEDIA, TRIAL BY LAW' - A REPORT FROM TRACK 1 OF BIMCO'S ANNUAL CONFERENCE DUBAI 2014
KNOWLEDGE TO ELEVATE
Aiming to bring a very different type of event into their annual conference, BIMCO presented ‘Double Jeopardy &n ...
Thursday, 08 May 14
INDONESIAN COAL PRICE REFERENCE IN MAY CRASHES THROUGH $74
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia has revised down again the coal bench mark price by US$ 1.21 / MT to ...
Wednesday, 07 May 14
THE DRY BULK MARKET HAS NOTED ANOTHER WEEKLY POSITIVE GAIN
Chartering (Wet: Softer- / Dry: Stable+)
The Dry Bulk market has noted another weekly positive gain, driven by the Capesize segment, but we ne ...
Wednesday, 07 May 14
SGX ENHANCES ITS COMMODITIES PRODUCT OFFERING
COALspot.com: SGX is building up its bulk commodity product offerings with 9 more derivative contracts over the next 2 months, subject to regula ...
Tuesday, 06 May 14
NEWCASTLE COAL EXPORT SLIPS 7.92% WEEK ON WEEK
COALspot.com: In the week ended 07:00 hours 5 May 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland ...
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- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- Sakthi Sugars Limited - India
- Electricity Authority, New Zealand
- Iligan Light & Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- ICICI Bank Limited - India
- San Jose City I Power Corp, Philippines
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Wood Mackenzie - Singapore
- Bhatia International Limited - India
- Africa Commodities Group - South Africa
- Star Paper Mills Limited - India
- Global Coal Blending Company Limited - Australia
- Jaiprakash Power Ventures ltd
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Samtan Co., Ltd - South Korea
- Savvy Resources Ltd - HongKong
- Bukit Asam (Persero) Tbk - Indonesia
- Singapore Mercantile Exchange
- Romanian Commodities Exchange
- Miang Besar Coal Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- The Treasury - Australian Government
- Gujarat Sidhee Cement - India
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Commonwealth Bank - Australia
- Gujarat Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- Makarim & Taira - Indonesia
- Posco Energy - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Bukit Makmur.PT - Indonesia
- Indo Tambangraya Megah - Indonesia
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- London Commodity Brokers - England
- The University of Queensland
- White Energy Company Limited
- Indian Energy Exchange, India
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
- Mintek Dendrill Indonesia
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Karaikal Port Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- Bayan Resources Tbk. - Indonesia
- Ministry of Transport, Egypt
- South Luzon Thermal Energy Corporation
- Agrawal Coal Company - India
- Directorate Of Revenue Intelligence - India
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Globalindo Alam Lestari - Indonesia
- Latin American Coal - Colombia
- Mercuria Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Semirara Mining and Power Corporation, Philippines
- Renaissance Capital - South Africa
- Tamil Nadu electricity Board
- IHS Mccloskey Coal Group - USA
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Billiton Holdings Pty Ltd - Australia
- Kepco SPC Power Corporation, Philippines
- New Zealand Coal & Carbon
- PTC India Limited - India
- Parry Sugars Refinery, India
- GAC Shipping (India) Pvt Ltd
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- Chamber of Mines of South Africa
- Ceylon Electricity Board - Sri Lanka
- Medco Energi Mining Internasional
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- PowerSource Philippines DevCo
- Georgia Ports Authority, United States
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Petrochimia International Co. Ltd.- Taiwan
- Kideco Jaya Agung - Indonesia
- Standard Chartered Bank - UAE
- Coastal Gujarat Power Limited - India
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- Dalmia Cement Bharat India
- Bhushan Steel Limited - India
- Australian Coal Association
- The State Trading Corporation of India Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kartika Selabumi Mining - Indonesia
- Goldman Sachs - Singapore
- Siam City Cement - Thailand
- MS Steel International - UAE
- GN Power Mariveles Coal Plant, Philippines
- Thai Mozambique Logistica
- Essar Steel Hazira Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Maheswari Brothers Coal Limited - India
- Attock Cement Pakistan Limited
- Madhucon Powers Ltd - India
- Coalindo Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Kaltim Prima Coal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Electricity Generating Authority of Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- Sarangani Energy Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Sical Logistics Limited - India
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Barasentosa Lestari - Indonesia
- Carbofer General Trading SA - India
- Therma Luzon, Inc, Philippines
- Eastern Energy - Thailand
- Economic Council, Georgia
- Gujarat Mineral Development Corp Ltd - India
- Global Green Power PLC Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Altura Mining Limited, Indonesia
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- GVK Power & Infra Limited - India
- Videocon Industries ltd - India
- Edison Trading Spa - Italy
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- Planning Commission, India
- Bharathi Cement Corporation - India
- Simpson Spence & Young - Indonesia
- SMC Global Power, Philippines
- Trasteel International SA, Italy
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- Rio Tinto Coal - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- Deloitte Consulting - India
- Port Waratah Coal Services - Australia
- Mjunction Services Limited - India
- Xindia Steels Limited - India
- Intertek Mineral Services - Indonesia
- CNBM International Corporation - China
- Indonesian Coal Mining Association
- Meralco Power Generation, Philippines
- Lanco Infratech Ltd - India
- Grasim Industreis Ltd - India
- Chettinad Cement Corporation Ltd - India
- Tata Chemicals Ltd - India
- Sindya Power Generating Company Private Ltd
- Cement Manufacturers Association - India
- Meenaskhi Energy Private Limited - India
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- Orica Australia Pty. Ltd.
- Ministry of Mines - Canada
- Alfred C Toepfer International GmbH - Germany
- Central Java Power - Indonesia
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- McConnell Dowell - Australia
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Vedanta Resources Plc - India
- Antam Resourcindo - Indonesia
- Power Finance Corporation Ltd., India
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