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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, 17 January 14
SPOT COAL PRICE TRENDS IN US VARY ACROSS KEY BASINS DURING 2013, SAYS EIA
COALspot.com: Spot steam coal price trends in US varied across key basins in 2013, a latest EIA report says. Compared with 2012, while total coal de ...
Thursday, 16 January 14
PANAMAX : THE GAP BETWEEN SPOT AND PERIOD HAS INCREASED IN BOTH HEMISPHERES - FEARNRESEARCH
Handy
In the Atlantic we have seen rates slowly sliding on lack of enough fresh business. USG/Continent still paying excess 28k and seems on an upw ...
Thursday, 16 January 14
SHIP OWNERS SCRAP 1,119 SHIPS DURING 2013 ON THE BACK OF OVERSUPPLY ISSUES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Scrapping of older vessels is still the best bet that ship owners can make, in order to improve their newer vessels' fortunes, amid an oversupply o ...
Wednesday, 15 January 14
KOREA MIDLAND POWER CO INVITES BIDS FOR 360K MT OF SUB-BITUMINOUS COAL FOR ITS BORYEONG PLANT
COALspot.com : Korea Midland Power Co., Ltd. has invited bids through International open bidding for 360,000 Metric Tons (MT) of sub-bituminous ...
Wednesday, 15 January 14
CFR SOUTH CHINA COAL SWAPS FALL BY 6.57% MONTH ON MONTH
COALspot.com : API 8 CFR South China Coal swaps for average Q1’ 14 delivery lost 6.57 percept month on month and closed at US$ 78.90 per mt as ...
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- GVK Power & Infra Limited - India
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- PNOC Exploration Corporation - Philippines
- Antam Resourcindo - Indonesia
- Savvy Resources Ltd - HongKong
- Sical Logistics Limited - India
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- Indogreen Group - Indonesia
- Aboitiz Power Corporation - Philippines
- Price Waterhouse Coopers - Russia
- Cement Manufacturers Association - India
- Posco Energy - South Korea
- Videocon Industries ltd - India
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- Australian Coal Association
- SMC Global Power, Philippines
- Formosa Plastics Group - Taiwan
- San Jose City I Power Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sakthi Sugars Limited - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Indian Oil Corporation Limited
- IHS Mccloskey Coal Group - USA
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wood Mackenzie - Singapore
- Semirara Mining and Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Marubeni Corporation - India
- SMG Consultants - Indonesia
- McConnell Dowell - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Interocean Group of Companies - India
- Ind-Barath Power Infra Limited - India
- Deloitte Consulting - India
- Dalmia Cement Bharat India
- Iligan Light & Power Inc, Philippines
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Global Green Power PLC Corporation, Philippines
- Vedanta Resources Plc - India
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Madhucon Powers Ltd - India
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- GMR Energy Limited - India
- Maheswari Brothers Coal Limited - India
- Billiton Holdings Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- OPG Power Generation Pvt Ltd - India
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Minerals Council of Australia
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Electricity Authority, New Zealand
- Uttam Galva Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- The Treasury - Australian Government
- Metalloyd Limited - United Kingdom
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
- Kumho Petrochemical, South Korea
- Vizag Seaport Private Limited - India
- Planning Commission, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- ASAPP Information Group - India
- Oldendorff Carriers - Singapore
- Anglo American - United Kingdom
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- Chamber of Mines of South Africa
- Georgia Ports Authority, United States
- Jindal Steel & Power Ltd - India
- Tata Chemicals Ltd - India
- PowerSource Philippines DevCo
- Aditya Birla Group - India
- Alfred C Toepfer International GmbH - Germany
- ICICI Bank Limited - India
- IEA Clean Coal Centre - UK
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- Lanco Infratech Ltd - India
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- The University of Queensland
- Asmin Koalindo Tuhup - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Eastern Energy - Thailand
- Mintek Dendrill Indonesia
- Intertek Mineral Services - Indonesia
- Bharathi Cement Corporation - India
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Coastal Gujarat Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- Heidelberg Cement - Germany
- Ministry of Transport, Egypt
- Barasentosa Lestari - Indonesia
- Banpu Public Company Limited - Thailand
- Indo Tambangraya Megah - Indonesia
- Medco Energi Mining Internasional
- Thiess Contractors Indonesia
- Trasteel International SA, Italy
- GAC Shipping (India) Pvt Ltd
- Ceylon Electricity Board - Sri Lanka
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- CNBM International Corporation - China
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- Simpson Spence & Young - Indonesia
- Altura Mining Limited, Indonesia
- Central Java Power - Indonesia
- Binh Thuan Hamico - Vietnam
- Meenaskhi Energy Private Limited - India
- Samtan Co., Ltd - South Korea
- Orica Mining Services - Indonesia
- New Zealand Coal & Carbon
- Commonwealth Bank - Australia
- Renaissance Capital - South Africa
- Eastern Coal Council - USA
- Goldman Sachs - Singapore
- Latin American Coal - Colombia
- Singapore Mercantile Exchange
- MS Steel International - UAE
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Sarangani Energy Corporation, Philippines
- Independent Power Producers Association of India
- Sinarmas Energy and Mining - Indonesia
- Electricity Generating Authority of Thailand
- Xindia Steels Limited - India
- Standard Chartered Bank - UAE
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- TeaM Sual Corporation - Philippines
- Bhushan Steel Limited - India
- Malabar Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- Coal and Oil Company - UAE
- Globalindo Alam Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- London Commodity Brokers - England
- Grasim Industreis Ltd - India
- Mercuria Energy - Indonesia
- Port Waratah Coal Services - Australia
- Therma Luzon, Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Petron Corporation, Philippines
- Sojitz Corporation - Japan
- Kartika Selabumi Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Larsen & Toubro Limited - India
- Power Finance Corporation Ltd., India
- CIMB Investment Bank - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- LBH Netherlands Bv - Netherlands
- Carbofer General Trading SA - India
- White Energy Company Limited
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Sindya Power Generating Company Private Ltd
- Krishnapatnam Port Company Ltd. - India
- Essar Steel Hazira Ltd - India
- Baramulti Group, Indonesia
- Riau Bara Harum - Indonesia
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