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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, 24 February 14
DRY BULK MARKET TO IMPROVE OVER THE COURSE OF 2014, BUT OVERSUPPLY STILL AN ISSUE SAYS BIMCO'S CHIEF SHIPPING ANALYST
As a gruelling first quarter edges closer to the end, dry bulk ship owners are looking at an improved second quarter demand, which, coupled with slo ...
Monday, 24 February 14
INDONESIAN SUB-BITUMINOUS COAL SWAP FOR DELIVERY APRIL - JUNE 2014 SLIDES TO $ 58.60 PMT
COALspot.com – Indonesia, the world’s the largest exporter of the thermal coal's swaps for delivery April - June 2014 slide week ended ...
Monday, 24 February 14
Q1 2015 DELIVERY COAL SWAP CLOSED AT 2.62% HIGHER THAN Q2 2014 CLOSING SWAPS
COALspot.com: API 8 CFR South China Coal swaps for average Q2 14 deliveries lost 2.68 percent month on month and closed at US$ 76.20 per mt as on Fr ...
Saturday, 22 February 14
SHIPPING POISED TO RALLY AFTER SEVERAL WEEKS OF DROP
COALspot.com: The freight market was steady to firm with the dry bulk index up by 6.24 pct closing at 1,175 points week on week and the cape index w ...
Saturday, 22 February 14
POTEN RAISES THE QUESTION OF ACCURACY IN CALCULATING TANKER FREIGHT RATES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
As the tanker market has grown in complexity over the course of the past few years, the question of whether the traditional methods of assessing rat ...
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- Directorate General of MIneral and Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Kaltim Prima Coal - Indonesia
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Bayan Resources Tbk. - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Central Electricity Authority - India
- LBH Netherlands Bv - Netherlands
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Kideco Jaya Agung - Indonesia
- Coastal Gujarat Power Limited - India
- Ministry of Mines - Canada
- Wilmar Investment Holdings
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Orica Mining Services - Indonesia
- Star Paper Mills Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement - Thailand
- Borneo Indobara - Indonesia
- Australian Coal Association
- Kobexindo Tractors - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Latin American Coal - Colombia
- Wood Mackenzie - Singapore
- Goldman Sachs - Singapore
- PNOC Exploration Corporation - Philippines
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Jindal Steel & Power Ltd - India
- Eastern Energy - Thailand
- Kumho Petrochemical, South Korea
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Toyota Tsusho Corporation, Japan
- Meenaskhi Energy Private Limited - India
- Aditya Birla Group - India
- Commonwealth Bank - Australia
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Salva Resources Pvt Ltd - India
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Altura Mining Limited, Indonesia
- Port Waratah Coal Services - Australia
- Sojitz Corporation - Japan
- Videocon Industries ltd - India
- Antam Resourcindo - Indonesia
- Thiess Contractors Indonesia
- Petron Corporation, Philippines
- Bhushan Steel Limited - India
- Iligan Light & Power Inc, Philippines
- Eastern Coal Council - USA
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- Semirara Mining and Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- Globalindo Alam Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Singapore Mercantile Exchange
- Straits Asia Resources Limited - Singapore
- Romanian Commodities Exchange
- Semirara Mining Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Sarangani Energy Corporation, Philippines
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- Planning Commission, India
- Standard Chartered Bank - UAE
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- SMC Global Power, Philippines
- Indika Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- ICICI Bank Limited - India
- Indogreen Group - Indonesia
- IEA Clean Coal Centre - UK
- Electricity Generating Authority of Thailand
- SN Aboitiz Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Sakthi Sugars Limited - India
- Maheswari Brothers Coal Limited - India
- New Zealand Coal & Carbon
- Rashtriya Ispat Nigam Limited - India
- Krishnapatnam Port Company Ltd. - India
- Leighton Contractors Pty Ltd - Australia
- The State Trading Corporation of India Ltd
- Sindya Power Generating Company Private Ltd
- Independent Power Producers Association of India
- Kohat Cement Company Ltd. - Pakistan
- Bulk Trading Sa - Switzerland
- GAC Shipping (India) Pvt Ltd
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Indo Tambangraya Megah - Indonesia
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Cement Manufacturers Association - India
- Metalloyd Limited - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Chamber of Mines of South Africa
- Banpu Public Company Limited - Thailand
- Georgia Ports Authority, United States
- International Coal Ventures Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- Ambuja Cements Ltd - India
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- Coal and Oil Company - UAE
- Bukit Makmur.PT - Indonesia
- CNBM International Corporation - China
- Pipit Mutiara Jaya. PT, Indonesia
- Xindia Steels Limited - India
- SMG Consultants - Indonesia
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Parry Sugars Refinery, India
- Indian Energy Exchange, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sical Logistics Limited - India
- Electricity Authority, New Zealand
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- VISA Power Limited - India
- PTC India Limited - India
- Pendopo Energi Batubara - Indonesia
- Lanco Infratech Ltd - India
- ASAPP Information Group - India
- Grasim Industreis Ltd - India
- Billiton Holdings Pty Ltd - Australia
- MS Steel International - UAE
- Deloitte Consulting - India
- Mjunction Services Limited - India
- Ind-Barath Power Infra Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- GVK Power & Infra Limited - India
- McConnell Dowell - Australia
- The Treasury - Australian Government
- Africa Commodities Group - South Africa
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Interocean Group of Companies - India
- Indonesian Coal Mining Association
- Asmin Koalindo Tuhup - Indonesia
- Posco Energy - South Korea
- Energy Development Corp, Philippines
- Merrill Lynch Commodities Europe
- Aboitiz Power Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Essar Steel Hazira Ltd - India
- Meralco Power Generation, Philippines
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Directorate Of Revenue Intelligence - India
- Bahari Cakrawala Sebuku - Indonesia
- Samtan Co., Ltd - South Korea
- Indian Oil Corporation Limited
- Formosa Plastics Group - Taiwan
- Mercuria Energy - Indonesia
- Vizag Seaport Private Limited - India
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Parliament of New Zealand
- Price Waterhouse Coopers - Russia
- Jaiprakash Power Ventures ltd
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- Maharashtra Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
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