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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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Friday, 28 February 14
PTBA TO INCREASE ITS COAL TERMINAL'S LOADING CAPACITY TO 25 MILLION TONS PER ANNUM BY JULY 2014
COALspot.com: PT. Bukit Asam (PTBA), the Indonesian government owned coal miner operates several coal mining units in Sumatera as well as in Kaliman ...
Friday, 28 February 14
U.S PRODUCED 1.9% LESS COAL WEEK ON WEEK
COALspot.com – United States the world’s second largest coal producer, produced approximately 18.8 million short tons (mmst) of coal in ...
Friday, 28 February 14
DRY BULK MARKET SLOWLY BUT STEADILY FINDS ITS FOOTING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market, hit by the low seasonal demand which is a typical characteristic of the first quarter of each year, is beginning to emerge from ...
Thursday, 27 February 14
PANAMAX : MARKET CONTINUED TO DECLINE IN THE ATLANTIC
Handy
The Atlantic handy/supra market experienced a downward trend this week but not a dramatic one. TA rates are down around USD 800 w-o-w lead b ...
Thursday, 27 February 14
SHIPPING LOANS WORTH $5 BILLION HAVE CHANGED HANDS OVER THE PAST YEAR, AS FUNDS INVEST IN SHIPPING - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Funds investing in shipping has been the "talk of the town" over the past couple of years, as institutional investors, private equity and ...
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- Aboitiz Power Corporation - Philippines
- Thiess Contractors Indonesia
- Romanian Commodities Exchange
- Kartika Selabumi Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- Wilmar Investment Holdings
- Straits Asia Resources Limited - Singapore
- Formosa Plastics Group - Taiwan
- Vizag Seaport Private Limited - India
- Sarangani Energy Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- Bharathi Cement Corporation - India
- Directorate Of Revenue Intelligence - India
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Ministry of Finance - Indonesia
- Indian Energy Exchange, India
- PowerSource Philippines DevCo
- The University of Queensland
- Binh Thuan Hamico - Vietnam
- India Bulls Power Limited - India
- Indonesian Coal Mining Association
- Sical Logistics Limited - India
- Mjunction Services Limited - India
- Mintek Dendrill Indonesia
- Videocon Industries ltd - India
- Sakthi Sugars Limited - India
- Agrawal Coal Company - India
- Grasim Industreis Ltd - India
- Renaissance Capital - South Africa
- Indian Oil Corporation Limited
- Jorong Barutama Greston.PT - Indonesia
- Kepco SPC Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- IEA Clean Coal Centre - UK
- Timah Investasi Mineral - Indoneisa
- Power Finance Corporation Ltd., India
- Eastern Coal Council - USA
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- Tata Chemicals Ltd - India
- Borneo Indobara - Indonesia
- CNBM International Corporation - China
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Indogreen Group - Indonesia
- Carbofer General Trading SA - India
- Energy Development Corp, Philippines
- The Treasury - Australian Government
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- Ind-Barath Power Infra Limited - India
- Meralco Power Generation, Philippines
- Electricity Generating Authority of Thailand
- Parry Sugars Refinery, India
- Miang Besar Coal Terminal - Indonesia
- Chamber of Mines of South Africa
- VISA Power Limited - India
- Xindia Steels Limited - India
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- Sinarmas Energy and Mining - Indonesia
- Semirara Mining Corp, Philippines
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Cement Manufacturers Association - India
- ASAPP Information Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Minerals Council of Australia
- Banpu Public Company Limited - Thailand
- Parliament of New Zealand
- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- Leighton Contractors Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Riau Bara Harum - Indonesia
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- Antam Resourcindo - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- New Zealand Coal & Carbon
- Commonwealth Bank - Australia
- Heidelberg Cement - Germany
- Independent Power Producers Association of India
- Samtan Co., Ltd - South Korea
- Larsen & Toubro Limited - India
- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Metalloyd Limited - United Kingdom
- Kobexindo Tractors - Indoneisa
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- Economic Council, Georgia
- Australian Commodity Traders Exchange
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- ICICI Bank Limited - India
- Intertek Mineral Services - Indonesia
- Barasentosa Lestari - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Edison Trading Spa - Italy
- PTC India Limited - India
- Rio Tinto Coal - Australia
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- GVK Power & Infra Limited - India
- Jindal Steel & Power Ltd - India
- MS Steel International - UAE
- Kideco Jaya Agung - Indonesia
- Bukit Baiduri Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Petron Corporation, Philippines
- Deloitte Consulting - India
- Siam City Cement PLC, Thailand
- Rashtriya Ispat Nigam Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- PNOC Exploration Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Bhatia International Limited - India
- Meenaskhi Energy Private Limited - India
- Mercator Lines Limited - India
- Sindya Power Generating Company Private Ltd
- European Bulk Services B.V. - Netherlands
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- OPG Power Generation Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Bukit Asam (Persero) Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Alfred C Toepfer International GmbH - Germany
- GMR Energy Limited - India
- White Energy Company Limited
- Australian Coal Association
- McConnell Dowell - Australia
- Semirara Mining and Power Corporation, Philippines
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Bahari Cakrawala Sebuku - Indonesia
- Karaikal Port Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bulk Trading Sa - Switzerland
- Sojitz Corporation - Japan
- Manunggal Multi Energi - Indonesia
- Thai Mozambique Logistica
- Globalindo Alam Lestari - Indonesia
- GAC Shipping (India) Pvt Ltd
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- Posco Energy - South Korea
- Merrill Lynch Commodities Europe
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Coalindo Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMC Global Power, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Therma Luzon, Inc, Philippines
- Aditya Birla Group - India
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Altura Mining Limited, Indonesia
- AsiaOL BioFuels Corp., Philippines
- TeaM Sual Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Jaiprakash Power Ventures ltd
- Cigading International Bulk Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Makarim & Taira - Indonesia
- Planning Commission, India
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- Oldendorff Carriers - Singapore
- The State Trading Corporation of India Ltd
- Siam City Cement - Thailand
- Electricity Authority, New Zealand
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Central Java Power - Indonesia
- Kumho Petrochemical, South Korea
- Gujarat Mineral Development Corp Ltd - India
- Mercuria Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Billiton Holdings Pty Ltd - Australia
- LBH Netherlands Bv - Netherlands
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- International Coal Ventures Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
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