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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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Sunday, 05 January 14
API 8 CFR SOUTH CHINA COAL SWAP FOR Q3 DELIVERY CLOSED $ 80.05, A $ 0.90 LOWER THAN Q1 PRICE
COALspot.com : API 8 CFR South China Coal swaps for average Q1’ 14 delivery lost 1.40 percept day on day closed at US$ 80.95 per mt as o ...
Sunday, 05 January 14
CENTRAL BUREAU OF INVESTIGATION OF INDIA REGISTERS CASES IN CONNECTION WITH ALLEGED SUPPLY OF LOW QUALITY INDONESIAN COAL BY A PRIVATE COMPANY TO NTPC & NSPCL
COALspot.com: The Central Bureau of Investigation of India has registered two cases regarding alleged supply of low quality imported Indonesian coal ...
Saturday, 04 January 14
THE INDONESIAN GOVERNMENT TO DOWNSIZE ITS COAL PRODUCTION TARGET TO 400 MMT THIS YEAR
COALspot.com: Indonesia to downsize its coal production target to 400 million tons in 2014, lower than the production in 2013, which stood at 421 mi ...
Friday, 03 January 14
IN 2013 RBCT HAS, FOR THE FIRST TIME, EXPORTED MORE THAN 70 MILLION TONS OF COAL
COALspot.com: South Africa's Richards Bay coal terminal, the world’s largest single coal exporting terminal shipped 6.788 million tonnes of c ...
Wednesday, 01 January 14
COAL & OIL TO SET UP ANOTHER 1,600 MW POWER PLANT IN INDIA - VENKATARAMANI
COALspot.com: Dubai-based Coal & Oil (C&O) Group is planning to make additional investment of around US$ 1.61 billion to set up 1,600 mega w ...
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- Bahari Cakrawala Sebuku - Indonesia
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- Chettinad Cement Corporation Ltd - India
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- PTC India Limited - India
- Romanian Commodities Exchange
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Sindya Power Generating Company Private Ltd
- Larsen & Toubro Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Edison Trading Spa - Italy
- Grasim Industreis Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Agrawal Coal Company - India
- Vizag Seaport Private Limited - India
- Directorate Of Revenue Intelligence - India
- Tamil Nadu electricity Board
- Aditya Birla Group - India
- Banpu Public Company Limited - Thailand
- International Coal Ventures Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Samtan Co., Ltd - South Korea
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- Pendopo Energi Batubara - Indonesia
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- Sarangani Energy Corporation, Philippines
- Global Business Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Carbofer General Trading SA - India
- White Energy Company Limited
- Baramulti Group, Indonesia
- Meralco Power Generation, Philippines
- Anglo American - United Kingdom
- European Bulk Services B.V. - Netherlands
- ICICI Bank Limited - India
- Riau Bara Harum - Indonesia
- Bangladesh Power Developement Board
- Bayan Resources Tbk. - Indonesia
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- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Kepco SPC Power Corporation, Philippines
- Heidelberg Cement - Germany
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- Ministry of Mines - Canada
- Rio Tinto Coal - Australia
- Mjunction Services Limited - India
- Intertek Mineral Services - Indonesia
- Renaissance Capital - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- India Bulls Power Limited - India
- CIMB Investment Bank - Malaysia
- Videocon Industries ltd - India
- Posco Energy - South Korea
- Energy Link Ltd, New Zealand
- GAC Shipping (India) Pvt Ltd
- Interocean Group of Companies - India
- Indika Energy - Indonesia
- Planning Commission, India
- Coalindo Energy - Indonesia
- Central Java Power - Indonesia
- Price Waterhouse Coopers - Russia
- ASAPP Information Group - India
- Siam City Cement PLC, Thailand
- Globalindo Alam Lestari - Indonesia
- Electricity Authority, New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- Trasteel International SA, Italy
- Medco Energi Mining Internasional
- Jaiprakash Power Ventures ltd
- Mintek Dendrill Indonesia
- Parliament of New Zealand
- IEA Clean Coal Centre - UK
- Uttam Galva Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
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- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Bulk Trading Sa - Switzerland
- Parry Sugars Refinery, India
- Sree Jayajothi Cements Limited - India
- Antam Resourcindo - Indonesia
- Minerals Council of Australia
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
- Savvy Resources Ltd - HongKong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Standard Chartered Bank - UAE
- PowerSource Philippines DevCo
- SN Aboitiz Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Bhatia International Limited - India
- Wood Mackenzie - Singapore
- Madhucon Powers Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Australian Commodity Traders Exchange
- South Luzon Thermal Energy Corporation
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- Simpson Spence & Young - Indonesia
- Gujarat Electricity Regulatory Commission - India
- AsiaOL BioFuels Corp., Philippines
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- Thiess Contractors Indonesia
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- Petron Corporation, Philippines
- Eastern Energy - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Central Electricity Authority - India
- Ministry of Transport, Egypt
- Commonwealth Bank - Australia
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- SMC Global Power, Philippines
- Oldendorff Carriers - Singapore
- Attock Cement Pakistan Limited
- Bharathi Cement Corporation - India
- MS Steel International - UAE
- Merrill Lynch Commodities Europe
- Formosa Plastics Group - Taiwan
- The Treasury - Australian Government
- Ministry of Finance - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Mercator Lines Limited - India
- Ambuja Cements Ltd - India
- VISA Power Limited - India
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- Singapore Mercantile Exchange
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- Billiton Holdings Pty Ltd - Australia
- Indogreen Group - Indonesia
- Mercuria Energy - Indonesia
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Wilmar Investment Holdings
- Gujarat Mineral Development Corp Ltd - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- Independent Power Producers Association of India
- Goldman Sachs - Singapore
- New Zealand Coal & Carbon
- Sakthi Sugars Limited - India
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
- Indo Tambangraya Megah - Indonesia
- Timah Investasi Mineral - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Electricity Generating Authority of Thailand
- Indian Oil Corporation Limited
- Directorate General of MIneral and Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Kobexindo Tractors - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- Energy Development Corp, Philippines
- GVK Power & Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Kalimantan Lumbung Energi - Indonesia
- Coal and Oil Company - UAE
- Cement Manufacturers Association - India
- Borneo Indobara - Indonesia
- Gujarat Sidhee Cement - India
- Kaltim Prima Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- London Commodity Brokers - England
- Metalloyd Limited - United Kingdom
- Coastal Gujarat Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
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