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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, 27 February 14
NEWCASTLE COAL EXPORTS SLIP 26.68 PERCENT WEEK ON WEEK
COALspot.com: In the week ended 24 February 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, total 2. ...
Wednesday, 26 February 14
SMALLER SIZE SEGMENTS HOLDING ON TO THEIR LEVELS; CAPES CORRECTING UPWARDS - INTERMODAL
Chartering (Wet: Stable- / Dry: Stable+)
The Dry Bulk market continued to improve this past week, on the back of rates for the smaller size s ...
Tuesday, 25 February 14
GBCE, A COAL UPGRADING TECHNOLOGY DEVELOPER, APPOINTS RICHARD BULMAN AS PROJECT DIRECTOR
Press Release: GB Clean Energy Ltd. (GBCE) announced today the appointment of Richard Bulman as Project Director. In this capacity Mr. Bulman ...
Tuesday, 25 February 14
ULTRAMAXES ARE THE 'WEAPON OF CHOICE' FOR DRY BULK SHIP OWNERS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
It's been a busy start in 2014, as the first month of the year was a rather active in terms of second hand vessel purchases and newbuilding orderin ...
Tuesday, 25 February 14
SGX'S MONTHLY VOLUMES DRASTICALLY INCREASED AND REACHED A RECORD OF 810K TONNES YEAR-ON-YEAR
COALspot.com: SGX Thermal Coal derivatives started the new year with record volumes in January on the back of higher volatility, says SGX.
Accord ...
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- Port Waratah Coal Services - Australia
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- GAC Shipping (India) Pvt Ltd
- PTC India Limited - India
- Rio Tinto Coal - Australia
- Economic Council, Georgia
- Alfred C Toepfer International GmbH - Germany
- Bhatia International Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Toyota Tsusho Corporation, Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- Semirara Mining Corp, Philippines
- Chamber of Mines of South Africa
- Rashtriya Ispat Nigam Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- London Commodity Brokers - England
- GVK Power & Infra Limited - India
- Minerals Council of Australia
- Kepco SPC Power Corporation, Philippines
- Bhushan Steel Limited - India
- Parry Sugars Refinery, India
- Sical Logistics Limited - India
- Siam City Cement PLC, Thailand
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- Oldendorff Carriers - Singapore
- Chettinad Cement Corporation Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Planning Commission, India
- Sindya Power Generating Company Private Ltd
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Ministry of Finance - Indonesia
- Jaiprakash Power Ventures ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Therma Luzon, Inc, Philippines
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Merrill Lynch Commodities Europe
- Aditya Birla Group - India
- Independent Power Producers Association of India
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
- Iligan Light & Power Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Metalloyd Limited - United Kingdom
- The State Trading Corporation of India Ltd
- Riau Bara Harum - Indonesia
- Electricity Generating Authority of Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Price Waterhouse Coopers - Russia
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- Neyveli Lignite Corporation Ltd, - India
- Thiess Contractors Indonesia
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Marubeni Corporation - India
- Bulk Trading Sa - Switzerland
- Sojitz Corporation - Japan
- IHS Mccloskey Coal Group - USA
- Thai Mozambique Logistica
- Eastern Coal Council - USA
- Global Coal Blending Company Limited - Australia
- Standard Chartered Bank - UAE
- Mjunction Services Limited - India
- Global Green Power PLC Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Deloitte Consulting - India
- Bangladesh Power Developement Board
- Indonesian Coal Mining Association
- IEA Clean Coal Centre - UK
- Ministry of Mines - Canada
- Medco Energi Mining Internasional
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Larsen & Toubro Limited - India
- Renaissance Capital - South Africa
- Manunggal Multi Energi - Indonesia
- ASAPP Information Group - India
- Madhucon Powers Ltd - India
- Maheswari Brothers Coal Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Agrawal Coal Company - India
- Parliament of New Zealand
- Lanco Infratech Ltd - India
- Carbofer General Trading SA - India
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Jindal Steel & Power Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Makarim & Taira - Indonesia
- Kumho Petrochemical, South Korea
- Central Java Power - Indonesia
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Ambuja Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Coal and Oil Company - UAE
- MS Steel International - UAE
- Pendopo Energi Batubara - Indonesia
- Ministry of Transport, Egypt
- LBH Netherlands Bv - Netherlands
- Timah Investasi Mineral - Indoneisa
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Uttam Galva Steels Limited - India
- Billiton Holdings Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Commodity Traders Exchange
- Wood Mackenzie - Singapore
- Trasteel International SA, Italy
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Commonwealth Bank - Australia
- Energy Development Corp, Philippines
- Star Paper Mills Limited - India
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Mercuria Energy - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- VISA Power Limited - India
- White Energy Company Limited
- Antam Resourcindo - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sakthi Sugars Limited - India
- Tamil Nadu electricity Board
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- Mercator Lines Limited - India
- Coastal Gujarat Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- The Treasury - Australian Government
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- ICICI Bank Limited - India
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- Indian Energy Exchange, India
- Videocon Industries ltd - India
- San Jose City I Power Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Central Electricity Authority - India
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Bhoruka Overseas - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Australia Pty. Ltd.
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- Attock Cement Pakistan Limited
- Global Business Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Power Finance Corporation Ltd., India
- Coalindo Energy - Indonesia
- Australian Coal Association
- Jorong Barutama Greston.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Barasentosa Lestari - Indonesia
- Kartika Selabumi Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Wilmar Investment Holdings
- Indian Oil Corporation Limited
- Latin American Coal - Colombia
- Georgia Ports Authority, United States
- Malabar Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Heidelberg Cement - Germany
- Karaikal Port Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- Kobexindo Tractors - Indoneisa
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