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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, 06 February 14
PANAMAX: FAR EAST IS ALMOST ABSENT AND ATLANTIC ON SLOW STEAM
Handy
Due to ongoing Chinese New Year the market is still quiet. Slowly we can see some fresh coal cargos entering the market with second half Feb/ ...
Wednesday, 05 February 14
DRY BULK MARKET HAS LOST FURTHER GROUND THIS PAST WEEK - INTERMODAL
COALspot.com: The Dry Bulk market has lost further ground this past week as activity ex-Far East disappeared into the Chinese holidays and owners id ...
Wednesday, 05 February 14
MARKET INSIGHT - TASOS PAPADOPOULOS
KNOWLEDGE TO ELEVATE
COALspot.com: Let's take a break from market prospects, numbers, order book etc. and shed some light on the conclusions of ...
Tuesday, 04 February 14
NEWCASTLE PORT'S WEEKLY COAL EXPORTS HIT NEW HIGH OF 3.53 MMT
COALspot.com: In the week ended 3 February 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled ...
Monday, 03 February 14
SUB-BIT INDONESIA COAL SWAP GAINED WEEK ON WEEK
COALspot.com – Swaps prices gained for thermal coal loading from Indonesia, the world’s largest exporter of the fuel, according SGX.
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- Electricity Authority, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Electricity Generating Authority of Thailand
- GVK Power & Infra Limited - India
- White Energy Company Limited
- Oldendorff Carriers - Singapore
- Toyota Tsusho Corporation, Japan
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- IHS Mccloskey Coal Group - USA
- Essar Steel Hazira Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Indogreen Group - Indonesia
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- European Bulk Services B.V. - Netherlands
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Power Finance Corporation Ltd., India
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- Eastern Energy - Thailand
- Xindia Steels Limited - India
- Sindya Power Generating Company Private Ltd
- Salva Resources Pvt Ltd - India
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- San Jose City I Power Corp, Philippines
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- Wood Mackenzie - Singapore
- The University of Queensland
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- Standard Chartered Bank - UAE
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- Iligan Light & Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
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- Port Waratah Coal Services - Australia
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- The State Trading Corporation of India Ltd
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- Indian Oil Corporation Limited
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- Bhoruka Overseas - Indonesia
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Ind-Barath Power Infra Limited - India
- Attock Cement Pakistan Limited
- Sojitz Corporation - Japan
- Savvy Resources Ltd - HongKong
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Siam City Cement PLC, Thailand
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- Altura Mining Limited, Indonesia
- Edison Trading Spa - Italy
- India Bulls Power Limited - India
- Minerals Council of Australia
- McConnell Dowell - Australia
- Australian Commodity Traders Exchange
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- Chamber of Mines of South Africa
- Billiton Holdings Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- SMC Global Power, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sakthi Sugars Limited - India
- Planning Commission, India
- Gujarat Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Mjunction Services Limited - India
- PetroVietnam Power Coal Import and Supply Company
- CNBM International Corporation - China
- GMR Energy Limited - India
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Samtan Co., Ltd - South Korea
- Agrawal Coal Company - India
- Makarim & Taira - Indonesia
- Therma Luzon, Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Vedanta Resources Plc - India
- Goldman Sachs - Singapore
- Marubeni Corporation - India
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- Directorate Of Revenue Intelligence - India
- Energy Development Corp, Philippines
- Bhatia International Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Miang Besar Coal Terminal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- International Coal Ventures Pvt Ltd - India
- TeaM Sual Corporation - Philippines
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- Petron Corporation, Philippines
- Sical Logistics Limited - India
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- Ministry of Finance - Indonesia
- Straits Asia Resources Limited - Singapore
- Cement Manufacturers Association - India
- Global Business Power Corporation, Philippines
- ICICI Bank Limited - India
- Ceylon Electricity Board - Sri Lanka
- Posco Energy - South Korea
- Banpu Public Company Limited - Thailand
- Directorate General of MIneral and Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Africa Commodities Group - South Africa
- Mercator Lines Limited - India
- Siam City Cement - Thailand
- MS Steel International - UAE
- SN Aboitiz Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- VISA Power Limited - India
- Rio Tinto Coal - Australia
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- Baramulti Group, Indonesia
- Ministry of Mines - Canada
- IEA Clean Coal Centre - UK
- Krishnapatnam Port Company Ltd. - India
- Coastal Gujarat Power Limited - India
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Renaissance Capital - South Africa
- Neyveli Lignite Corporation Ltd, - India
- Parliament of New Zealand
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- Carbofer General Trading SA - India
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- SMG Consultants - Indonesia
- Star Paper Mills Limited - India
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- Formosa Plastics Group - Taiwan
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Chettinad Cement Corporation Ltd - India
- Medco Energi Mining Internasional
- Mercuria Energy - Indonesia
- Economic Council, Georgia
- Malabar Cements Ltd - India
- London Commodity Brokers - England
- Sree Jayajothi Cements Limited - India
- Antam Resourcindo - Indonesia
- CIMB Investment Bank - Malaysia
- Global Coal Blending Company Limited - Australia
- Simpson Spence & Young - Indonesia
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- Bhushan Steel Limited - India
- Larsen & Toubro Limited - India
- Kaltim Prima Coal - Indonesia
- Deloitte Consulting - India
- Semirara Mining Corp, Philippines
- PowerSource Philippines DevCo
- GN Power Mariveles Coal Plant, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kumho Petrochemical, South Korea
- Aditya Birla Group - India
- PTC India Limited - India
- Indian Energy Exchange, India
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
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