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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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Saturday, 08 March 14
LETTERS OF INDEMNITY - SKULD
KNOWLEDGE TO ELEVATE
In today's trading market, owners are frequently requested to accept a letter of indemnity (LOI) in exchange for complying ...
Friday, 07 March 14
DRY BULK MARKET TO BENEFIT FROM CHINA'S GDP GROWTH TARGET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
With the dry bulk market freight rates finally making waves, China's aim of 7.5% GDP growth for 2014 mean once again positive news for the shipping ...
Friday, 07 March 14
RBCT, WORLD'S LARGEST COAL EXPORTING TERMINAL SHIPPED 1.78% LESS COAL MONTH ON MONTH
COALspot.com: South Africa's Richards Bay Coal Terminal (RBCT) the single largest export coal terminal in the world, shipped 4.487 million tons of ...
Friday, 07 March 14
INDONESIA SHIPPED 7% LESS COAL IN JANUARY 2014 COMPARED TO ITS DECEMBER EXPORTS
COALspot.com: Indonesia, the world 4th largest coal producer and the Global largest multi grade coal exporter shipped around $1.8* billion ...
Friday, 07 March 14
INDONESIA TO PRODUCE 421 MMT OF COAL IN 2014
Coalspot.com: Indonesia finally agreed to increased 2014 coal output by as much as 6 percent to 421 million metric tons from its previous plan, a se ...
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- Pipit Mutiara Jaya. PT, Indonesia
- Price Waterhouse Coopers - Russia
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- Indogreen Group - Indonesia
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- CIMB Investment Bank - Malaysia
- Siam City Cement - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Independent Power Producers Association of India
- Leighton Contractors Pty Ltd - Australia
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Trasteel International SA, Italy
- South Luzon Thermal Energy Corporation
- Maharashtra Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- SMG Consultants - Indonesia
- Africa Commodities Group - South Africa
- Globalindo Alam Lestari - Indonesia
- Therma Luzon, Inc, Philippines
- Indika Energy - Indonesia
- Medco Energi Mining Internasional
- Edison Trading Spa - Italy
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Latin American Coal - Colombia
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- Deloitte Consulting - India
- Mjunction Services Limited - India
- CNBM International Corporation - China
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- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Makmur.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Global Green Power PLC Corporation, Philippines
- SMC Global Power, Philippines
- Aditya Birla Group - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
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- Toyota Tsusho Corporation, Japan
- Posco Energy - South Korea
- Malabar Cements Ltd - India
- Port Waratah Coal Services - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Planning Commission, India
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- Australian Coal Association
- Oldendorff Carriers - Singapore
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- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- TeaM Sual Corporation - Philippines
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- Alfred C Toepfer International GmbH - Germany
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- Riau Bara Harum - Indonesia
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Thiess Contractors Indonesia
- Electricity Authority, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- Bukit Baiduri Energy - Indonesia
- The Treasury - Australian Government
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- Formosa Plastics Group - Taiwan
- Bhatia International Limited - India
- Energy Development Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- White Energy Company Limited
- PNOC Exploration Corporation - Philippines
- Videocon Industries ltd - India
- Binh Thuan Hamico - Vietnam
- Vijayanagar Sugar Pvt Ltd - India
- Bhushan Steel Limited - India
- Tamil Nadu electricity Board
- Ministry of Finance - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Power Finance Corporation Ltd., India
- OPG Power Generation Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- Kartika Selabumi Mining - Indonesia
- Xindia Steels Limited - India
- Bangladesh Power Developement Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- Chamber of Mines of South Africa
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- Krishnapatnam Port Company Ltd. - India
- Intertek Mineral Services - Indonesia
- MS Steel International - UAE
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- Coalindo Energy - Indonesia
- Meralco Power Generation, Philippines
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Holcim Trading Pte Ltd - Singapore
- Central Electricity Authority - India
- GVK Power & Infra Limited - India
- Sojitz Corporation - Japan
- Samtan Co., Ltd - South Korea
- McConnell Dowell - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TNB Fuel Sdn Bhd - Malaysia
- Wood Mackenzie - Singapore
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Standard Chartered Bank - UAE
- Mercuria Energy - Indonesia
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- Bhoruka Overseas - Indonesia
- Parliament of New Zealand
- Bayan Resources Tbk. - Indonesia
- Timah Investasi Mineral - Indoneisa
- Renaissance Capital - South Africa
- Barasentosa Lestari - Indonesia
- Semirara Mining Corp, Philippines
- PowerSource Philippines DevCo
- Australian Commodity Traders Exchange
- Directorate Of Revenue Intelligence - India
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Merrill Lynch Commodities Europe
- Global Business Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Ministry of Transport, Egypt
- Indo Tambangraya Megah - Indonesia
- Eastern Coal Council - USA
- The University of Queensland
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- Jindal Steel & Power Ltd - India
- Minerals Council of Australia
- Uttam Galva Steels Limited - India
- Coal and Oil Company - UAE
- Neyveli Lignite Corporation Ltd, - India
- Directorate General of MIneral and Coal - Indonesia
- Carbofer General Trading SA - India
- Interocean Group of Companies - India
- Salva Resources Pvt Ltd - India
- Agrawal Coal Company - India
- Miang Besar Coal Terminal - Indonesia
- Vizag Seaport Private Limited - India
- Manunggal Multi Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- AsiaOL BioFuels Corp., Philippines
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- Siam City Cement PLC, Thailand
- Semirara Mining and Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Commonwealth Bank - Australia
- Sindya Power Generating Company Private Ltd
- Sree Jayajothi Cements Limited - India
- Sakthi Sugars Limited - India
- Anglo American - United Kingdom
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- Antam Resourcindo - Indonesia
- Meenaskhi Energy Private Limited - India
- Makarim & Taira - Indonesia
- Simpson Spence & Young - Indonesia
- London Commodity Brokers - England
- Wilmar Investment Holdings
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Banpu Public Company Limited - Thailand
- GMR Energy Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
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- Romanian Commodities Exchange
- Coastal Gujarat Power Limited - India
- Goldman Sachs - Singapore
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