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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, 27 December 13
THE EXPORT OF UNPROCESSED MINERALS WOULD NOT BE ALLOWED AFTER 12 JAN 2014 - INDONESIAN ENERGY MINISTER
COALspot.com: The government of Indonesia will implement Law No. 4 of 2009 on Mineral and Coal in full and consistently by January 12, 2014, said, m ...
Friday, 27 December 13
INDONESIA SHIPPED 15.75 PERCENT MORE COAL IN NOVEMBER
COALspot.com: Indonesia, the world's 4th largest coal producer and the largest multi grade coal exporter shipped over $2* billion worth of co ...
Thursday, 26 December 13
COAL & OIL GROUP SECURES US$ 250 MILLION FUNDING FOR ITS 1200MW THERMAL POWER PLANT IN INDIA
COALspot.com: Dubai-based Coal & Oil (C&O) Group has announced that it has secured additional funding of approximately Dhs. 1 billion (appro ...
Wednesday, 25 December 13
DRY BULK INDEX LOST SOME GROUND THIS PAST WEEK - INTERMODAL
Chartering (Wet: Firm+ / Dry: Softer - )
The Dry Bulk Index lost some ground this past week, on the back of activity slowing down befor ...
Wednesday, 25 December 13
SHIPPING : AS FAR AS THIS CYCLE IS CONCERNED, 'WE HAVE SEEN THE WORST....!' - JOHN N. COTZIAS
In a week’s time the year comes to an end. Having been a speaker in two seminars over the past 5 days I was able to see the year ending trends ...
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- Trasteel International SA, Italy
- Planning Commission, India
- Electricity Authority, New Zealand
- LBH Netherlands Bv - Netherlands
- Xindia Steels Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indonesian Coal Mining Association
- Jaiprakash Power Ventures ltd
- Borneo Indobara - Indonesia
- Australian Coal Association
- SMC Global Power, Philippines
- Kideco Jaya Agung - Indonesia
- Vizag Seaport Private Limited - India
- Romanian Commodities Exchange
- Ceylon Electricity Board - Sri Lanka
- Electricity Generating Authority of Thailand
- IHS Mccloskey Coal Group - USA
- Gujarat Mineral Development Corp Ltd - India
- Therma Luzon, Inc, Philippines
- Tata Chemicals Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Karaikal Port Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Kepco SPC Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Posco Energy - South Korea
- IEA Clean Coal Centre - UK
- Iligan Light & Power Inc, Philippines
- Ministry of Mines - Canada
- Parry Sugars Refinery, India
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- Independent Power Producers Association of India
- Rashtriya Ispat Nigam Limited - India
- Simpson Spence & Young - Indonesia
- SN Aboitiz Power Inc, Philippines
- Sojitz Corporation - Japan
- Banpu Public Company Limited - Thailand
- Maheswari Brothers Coal Limited - India
- Uttam Galva Steels Limited - India
- Heidelberg Cement - Germany
- PNOC Exploration Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Antam Resourcindo - Indonesia
- Bukit Baiduri Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Commonwealth Bank - Australia
- London Commodity Brokers - England
- The Treasury - Australian Government
- Lanco Infratech Ltd - India
- ASAPP Information Group - India
- Toyota Tsusho Corporation, Japan
- Wilmar Investment Holdings
- Global Business Power Corporation, Philippines
- Meralco Power Generation, Philippines
- South Luzon Thermal Energy Corporation
- Economic Council, Georgia
- Orica Australia Pty. Ltd.
- Krishnapatnam Port Company Ltd. - India
- Jorong Barutama Greston.PT - Indonesia
- The University of Queensland
- Sinarmas Energy and Mining - Indonesia
- Petron Corporation, Philippines
- The State Trading Corporation of India Ltd
- TeaM Sual Corporation - Philippines
- Standard Chartered Bank - UAE
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- Grasim Industreis Ltd - India
- Samtan Co., Ltd - South Korea
- Merrill Lynch Commodities Europe
- Minerals Council of Australia
- Essar Steel Hazira Ltd - India
- Coalindo Energy - Indonesia
- Attock Cement Pakistan Limited
- Bukit Makmur.PT - Indonesia
- Indian Energy Exchange, India
- Directorate General of MIneral and Coal - Indonesia
- Altura Mining Limited, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Interocean Group of Companies - India
- Cement Manufacturers Association - India
- Alfred C Toepfer International GmbH - Germany
- Neyveli Lignite Corporation Ltd, - India
- Metalloyd Limited - United Kingdom
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Bharathi Cement Corporation - India
- Agrawal Coal Company - India
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- Oldendorff Carriers - Singapore
- VISA Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Power Finance Corporation Ltd., India
- Port Waratah Coal Services - Australia
- Thai Mozambique Logistica
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- New Zealand Coal & Carbon
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Chamber of Mines of South Africa
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- Kaltim Prima Coal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Vijayanagar Sugar Pvt Ltd - India
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Larsen & Toubro Limited - India
- PTC India Limited - India
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- GAC Shipping (India) Pvt Ltd
- Indika Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Holcim Trading Pte Ltd - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhushan Steel Limited - India
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Tamil Nadu electricity Board
- Savvy Resources Ltd - HongKong
- Gujarat Electricity Regulatory Commission - India
- Bhatia International Limited - India
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Marubeni Corporation - India
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- Bangladesh Power Developement Board
- Jindal Steel & Power Ltd - India
- Malabar Cements Ltd - India
- Ministry of Transport, Egypt
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- Central Electricity Authority - India
- India Bulls Power Limited - India
- Eastern Coal Council - USA
- Binh Thuan Hamico - Vietnam
- Pendopo Energi Batubara - Indonesia
- Baramulti Group, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Videocon Industries ltd - India
- International Coal Ventures Pvt Ltd - India
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Sical Logistics Limited - India
- Manunggal Multi Energi - Indonesia
- White Energy Company Limited
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- ICICI Bank Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Price Waterhouse Coopers - Russia
- Miang Besar Coal Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- Orica Mining Services - Indonesia
- Madhucon Powers Ltd - India
- MS Steel International - UAE
- Carbofer General Trading SA - India
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- Chettinad Cement Corporation Ltd - India
- CNBM International Corporation - China
- Rio Tinto Coal - Australia
- Straits Asia Resources Limited - Singapore
- Mjunction Services Limited - India
- Medco Energi Mining Internasional
- Bulk Trading Sa - Switzerland
- Kalimantan Lumbung Energi - Indonesia
- Formosa Plastics Group - Taiwan
- Intertek Mineral Services - Indonesia
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Link Ltd, New Zealand
- Deloitte Consulting - India
- Kapuas Tunggal Persada - Indonesia
- Directorate Of Revenue Intelligence - India
- Mercuria Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Star Paper Mills Limited - India
- Kobexindo Tractors - Indoneisa
- Ministry of Finance - Indonesia
- Aboitiz Power Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- Ind-Barath Power Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- Renaissance Capital - South Africa
- Dalmia Cement Bharat India
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