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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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Wednesday, 01 January 14
DRY BULK CARRIER OWNERS ANTICIPATING AN EVEN STRONGER 2014 YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
To begin with, The Hellenic Shipping News Worldwide team would like to wish you all a Happy and Prosperous 2014! We begin the New Year with our firs ...
Tuesday, 31 December 13
INDONESIA'S COAL PRODUCTION COULD HIT 450 MMT IN 2014 - ICMA
COALspot.com: Indonesia, the fourth largest coal producer and largest coal exporter in the world, to increase coal output in year 2014 instead of th ...
Tuesday, 31 December 13
U.S. COAL PRODUCTION INCREASED WEEK ON WEEK, EIA SAYS
COALspot.com – United States the world’s second largest coal producer, produced approximately 19.5 million short tons (mmst) of coal in ...
Tuesday, 31 December 13
MORE THAN $21 BILLION INVESTED IN SECOND HAND SHIP PURCHASES IN 2013
One thing that was apparent in the sale and purchasing markets during 2013 was the ship owners' larger appetite for vessel acquisitions, as most so ...
Monday, 30 December 13
INDONESIAN COAL TO BE PART OF INDEX DETERMINING POWER TARIFFS - BUSINESS STANDARD
In a significant move, power sector regulator CERC has decided to provide 50 per cent weightage for Indonesian coal in the benchmark index that is u ...
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- Grasim Industreis Ltd - India
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Therma Luzon, Inc, Philippines
- Altura Mining Limited, Indonesia
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Mintek Dendrill Indonesia
- South Luzon Thermal Energy Corporation
- Central Java Power - Indonesia
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Eastern Coal Council - USA
- Uttam Galva Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Videocon Industries ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Parliament of New Zealand
- Salva Resources Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- Coastal Gujarat Power Limited - India
- Central Electricity Authority - India
- TNB Fuel Sdn Bhd - Malaysia
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- Cigading International Bulk Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- White Energy Company Limited
- McConnell Dowell - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Gujarat Sidhee Cement - India
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- Gujarat Mineral Development Corp Ltd - India
- Energy Link Ltd, New Zealand
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Ind-Barath Power Infra Limited - India
- Vizag Seaport Private Limited - India
- Ambuja Cements Ltd - India
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Toyota Tsusho Corporation, Japan
- Africa Commodities Group - South Africa
- CNBM International Corporation - China
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Carbofer General Trading SA - India
- Ceylon Electricity Board - Sri Lanka
- Jorong Barutama Greston.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Planning Commission, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thiess Contractors Indonesia
- Billiton Holdings Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Formosa Plastics Group - Taiwan
- International Coal Ventures Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Economic Council, Georgia
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- Antam Resourcindo - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tata Chemicals Ltd - India
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Kapuas Tunggal Persada - Indonesia
- Karaikal Port Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- Agrawal Coal Company - India
- Timah Investasi Mineral - Indoneisa
- Xindia Steels Limited - India
- Sical Logistics Limited - India
- GVK Power & Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Coalindo Energy - Indonesia
- Lanco Infratech Ltd - India
- Posco Energy - South Korea
- Indian Energy Exchange, India
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Siam City Cement - Thailand
- Orica Australia Pty. Ltd.
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- London Commodity Brokers - England
- Coal and Oil Company - UAE
- ASAPP Information Group - India
- Anglo American - United Kingdom
- LBH Netherlands Bv - Netherlands
- Edison Trading Spa - Italy
- Petron Corporation, Philippines
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Kaltim Prima Coal - Indonesia
- Malabar Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- Orica Mining Services - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Aboitiz Power Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Bangladesh Power Developement Board
- Indian Oil Corporation Limited
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Siam City Cement PLC, Thailand
- CIMB Investment Bank - Malaysia
- Kepco SPC Power Corporation, Philippines
- The University of Queensland
- IHS Mccloskey Coal Group - USA
- Electricity Authority, New Zealand
- Jaiprakash Power Ventures ltd
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Kohat Cement Company Ltd. - Pakistan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- Ministry of Finance - Indonesia
- Indika Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- GMR Energy Limited - India
- Mjunction Services Limited - India
- Bukit Makmur.PT - Indonesia
- Georgia Ports Authority, United States
- Essar Steel Hazira Ltd - India
- Commonwealth Bank - Australia
- Simpson Spence & Young - Indonesia
- Renaissance Capital - South Africa
- European Bulk Services B.V. - Netherlands
- Kumho Petrochemical, South Korea
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Bhushan Steel Limited - India
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Oldendorff Carriers - Singapore
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Chettinad Cement Corporation Ltd - India
- The Treasury - Australian Government
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Indo Tambangraya Megah - Indonesia
- SMC Global Power, Philippines
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- Mercator Lines Limited - India
- Independent Power Producers Association of India
- Thai Mozambique Logistica
- Price Waterhouse Coopers - Russia
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Mercuria Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- TeaM Sual Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Merrill Lynch Commodities Europe
- Chamber of Mines of South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Borneo Indobara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cement Manufacturers Association - India
- Eastern Energy - Thailand
- Sinarmas Energy and Mining - Indonesia
- Larsen & Toubro Limited - India
- OPG Power Generation Pvt Ltd - India
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- Parry Sugars Refinery, India
- Makarim & Taira - Indonesia
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Global Business Power Corporation, Philippines
- PTC India Limited - India
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