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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, 30 January 14
PANAMAX MARKET IS SOFTENING ON LESS ACTIVITY IN BOTH HEMISPHERES - FEARNRESEARCH
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In the Atlantic rates have been slowly sliding but ows can still achieve decent money for TArv´s. USG positions still being fixed in re ...
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The tanker market conditions are expected to remain challenging throughout the year for tanker owners, but even more pressing will be the issue of a ...
Tuesday, 28 January 14
GLOBAL COKING AND STEAM COAL PRODUCTION HAVE GROWN 2% TO 3% TO ABOUT 7.1 BILLION TONNES AS OF THE END OF 2013 - VDKI
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Tuesday, 28 January 14
AUSTRALIAN NEWCASTLE PORT'S WEEKLY COAL EXPORTS JUMP 13.75% WEEK ON WEEK
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Tuesday, 28 January 14
RESOURCE NATIONALISM OR PROTECTIONISM FOR THE MINING AND EXTRACTIVES INDUSTRY - JOHN WHITTAKER & MICHAEL SWANGARD
Resource nationalism or protectionism for the mining and extractives industry as well as soft commodities sector and the oil industry.
‘Res ...
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- PNOC Exploration Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Bukit Makmur.PT - Indonesia
- Meralco Power Generation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Bhoruka Overseas - Indonesia
- Gujarat Sidhee Cement - India
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
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- Oldendorff Carriers - Singapore
- Ministry of Mines - Canada
- Semirara Mining Corp, Philippines
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- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- GMR Energy Limited - India
- Leighton Contractors Pty Ltd - Australia
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- OPG Power Generation Pvt Ltd - India
- The University of Queensland
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- Thai Mozambique Logistica
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- Electricity Authority, New Zealand
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- Petrochimia International Co. Ltd.- Taiwan
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- MS Steel International - UAE
- Siam City Cement PLC, Thailand
- Chamber of Mines of South Africa
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- Kapuas Tunggal Persada - Indonesia
- Globalindo Alam Lestari - Indonesia
- CNBM International Corporation - China
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- Borneo Indobara - Indonesia
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- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- Parliament of New Zealand
- Economic Council, Georgia
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- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
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- Central Electricity Authority - India
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- Malabar Cements Ltd - India
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- New Zealand Coal & Carbon
- Ind-Barath Power Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indonesian Coal Mining Association
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- Kobexindo Tractors - Indoneisa
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- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Metalloyd Limited - United Kingdom
- Formosa Plastics Group - Taiwan
- SMC Global Power, Philippines
- Renaissance Capital - South Africa
- McConnell Dowell - Australia
- Indika Energy - Indonesia
- Ambuja Cements Ltd - India
- Deloitte Consulting - India
- Orica Australia Pty. Ltd.
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Miang Besar Coal Terminal - Indonesia
- Eastern Energy - Thailand
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- Kaltim Prima Coal - Indonesia
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- Ministry of Transport, Egypt
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- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
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- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Toyota Tsusho Corporation, Japan
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Iligan Light & Power Inc, Philippines
- Petron Corporation, Philippines
- Energy Link Ltd, New Zealand
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- Holcim Trading Pte Ltd - Singapore
- Coalindo Energy - Indonesia
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- Marubeni Corporation - India
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- Planning Commission, India
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- Asmin Koalindo Tuhup - Indonesia
- IEA Clean Coal Centre - UK
- Goldman Sachs - Singapore
- Sical Logistics Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Thiess Contractors Indonesia
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- Central Java Power - Indonesia
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- Baramulti Group, Indonesia
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- Electricity Generating Authority of Thailand
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- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- Maharashtra Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Kartika Selabumi Mining - Indonesia
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- Cement Manufacturers Association - India
- Coal and Oil Company - UAE
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Makarim & Taira - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Karbindo Abesyapradhi - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- The State Trading Corporation of India Ltd
- The Treasury - Australian Government
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kepco SPC Power Corporation, Philippines
- Wilmar Investment Holdings
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- SN Aboitiz Power Inc, Philippines
- Edison Trading Spa - Italy
- Straits Asia Resources Limited - Singapore
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Grasim Industreis Ltd - India
- Banpu Public Company Limited - Thailand
- Singapore Mercantile Exchange
- Lanco Infratech Ltd - India
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Romanian Commodities Exchange
- India Bulls Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- LBH Netherlands Bv - Netherlands
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Price Waterhouse Coopers - Russia
- White Energy Company Limited
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Mintek Dendrill Indonesia
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- Semirara Mining and Power Corporation, Philippines
- Anglo American - United Kingdom
- Barasentosa Lestari - Indonesia
- Port Waratah Coal Services - Australia
- South Luzon Thermal Energy Corporation
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