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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, 14 April 14
CHINA'S MEASURES TO STIMULATE ECONOMY'S GROWTH COULD OFFER ROOM FOR STABILITY IN SHIPPING MARKETS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Since the outbreak of the 2008-crisis, the shipping industry, in most of its aspects, i.e. dry bulk and tanker markets alike, has been dealing w ...
Sunday, 13 April 14
INDONESIA TO INDIA FREIGHT MARKET DECLINE CONTINUES
COALspot.com: The freight market continued to drop this week and BDI almost touched 1000 points. BDI closed at 1002 points fell 16.85 pct week o ...
Saturday, 12 April 14
HOW DO YOU CALCULATE LOSS OF EARNINGS FOLLOWING A COLLISION? - INCE & CO
KNOWLEDGE TO ELEVATE
The recent case of Astipalaia vs Hanjin Shenzhen [2014] EWHC 120 (Admlty) has revisited the existing case law on asses ...
Friday, 11 April 14
US COAL PRODUCTION IN MARCH INCREASED 9.69% TO 82.6 MMST MONTH ON MONTH
COALspot.com – United States the world's second largest coal producer, produced approximately 19.10 million short tons (mmst) of coal ...
Thursday, 10 April 14
DRY BULK MARKET IS RISING CLAIMS BIMCO - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Despite the recent fall of the Baltic Dry Index (BDI), when one compares the first quarter of 2014, to similar quarters of the recent past, it i ...
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- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- Therma Luzon, Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Kepco SPC Power Corporation, Philippines
- VISA Power Limited - India
- Orica Australia Pty. Ltd.
- Grasim Industreis Ltd - India
- Latin American Coal - Colombia
- Edison Trading Spa - Italy
- Bhatia International Limited - India
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Wilmar Investment Holdings
- ASAPP Information Group - India
- Coastal Gujarat Power Limited - India
- GVK Power & Infra Limited - India
- Parliament of New Zealand
- The Treasury - Australian Government
- TNB Fuel Sdn Bhd - Malaysia
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- Australian Coal Association
- Marubeni Corporation - India
- Georgia Ports Authority, United States
- Mercator Lines Limited - India
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- PowerSource Philippines DevCo
- Bhushan Steel Limited - India
- Electricity Generating Authority of Thailand
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- Alfred C Toepfer International GmbH - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- The State Trading Corporation of India Ltd
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- Mintek Dendrill Indonesia
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- ICICI Bank Limited - India
- Sree Jayajothi Cements Limited - India
- Sojitz Corporation - Japan
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- Cement Manufacturers Association - India
- Romanian Commodities Exchange
- Chamber of Mines of South Africa
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- LBH Netherlands Bv - Netherlands
- Independent Power Producers Association of India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
- Borneo Indobara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Global Coal Blending Company Limited - Australia
- Lanco Infratech Ltd - India
- Kobexindo Tractors - Indoneisa
- Sindya Power Generating Company Private Ltd
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- MS Steel International - UAE
- SN Aboitiz Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Medco Energi Mining Internasional
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Maharashtra Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Commonwealth Bank - Australia
- Meralco Power Generation, Philippines
- Power Finance Corporation Ltd., India
- Xindia Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- GN Power Mariveles Coal Plant, Philippines
- PTC India Limited - India
- Indika Energy - Indonesia
- SMG Consultants - Indonesia
- Central Java Power - Indonesia
- Ambuja Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Savvy Resources Ltd - HongKong
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- Goldman Sachs - Singapore
- Global Business Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- Sical Logistics Limited - India
- Vizag Seaport Private Limited - India
- Metalloyd Limited - United Kingdom
- Deloitte Consulting - India
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Singapore Mercantile Exchange
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Gujarat Electricity Regulatory Commission - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Transport, Egypt
- Australian Commodity Traders Exchange
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- Salva Resources Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Ceylon Electricity Board - Sri Lanka
- Altura Mining Limited, Indonesia
- Madhucon Powers Ltd - India
- Economic Council, Georgia
- Cigading International Bulk Terminal - Indonesia
- Coalindo Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Mjunction Services Limited - India
- Aditya Birla Group - India
- Rio Tinto Coal - Australia
- Mercuria Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Larsen & Toubro Limited - India
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- Indo Tambangraya Megah - Indonesia
- Indogreen Group - Indonesia
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Pendopo Energi Batubara - Indonesia
- Manunggal Multi Energi - Indonesia
- Africa Commodities Group - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karaikal Port Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- San Jose City I Power Corp, Philippines
- Sarangani Energy Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Tamil Nadu electricity Board
- Kideco Jaya Agung - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Intertek Mineral Services - Indonesia
- Antam Resourcindo - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Riau Bara Harum - Indonesia
- Tata Chemicals Ltd - India
- Standard Chartered Bank - UAE
- Coal and Oil Company - UAE
- Indian Oil Corporation Limited
- Interocean Group of Companies - India
- Baramulti Group, Indonesia
- Directorate Of Revenue Intelligence - India
- Attock Cement Pakistan Limited
- Energy Development Corp, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- White Energy Company Limited
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Finance - Indonesia
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- Globalindo Alam Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- The University of Queensland
- Planning Commission, India
- Bhoruka Overseas - Indonesia
- Banpu Public Company Limited - Thailand
- Thai Mozambique Logistica
- Toyota Tsusho Corporation, Japan
- Carbofer General Trading SA - India
- Wood Mackenzie - Singapore
- Gujarat Sidhee Cement - India
- Eastern Coal Council - USA
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Electricity Authority, New Zealand
- Thiess Contractors Indonesia
- Rashtriya Ispat Nigam Limited - India
- Heidelberg Cement - Germany
- Holcim Trading Pte Ltd - Singapore
- CNBM International Corporation - China
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Kartika Selabumi Mining - Indonesia
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