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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, 11 December 13
BDI REACHED A PEAK OF YEAR RECORD OF 2,237 POINTS WHICH IS A SIGNIFICANT CHANGE IN MARKET CONDITIONS
Getting closer to the end of 2013, it is important that we have a review of the course the market has taken these past 12 months by looking at the B ...
Tuesday, 10 December 13
HNL, AN INDIAN STATE-OWNED NEWSPRINT PAPER MAKER SEEKS 50K TONS OF INDONESIAN 5600 COAL
COALspot.com: Hindustan Newsprint limited (HNL), an Indian state owned news print paper producer invited bids to supply 50,000MT of min 5,200kcal/kg ...
Tuesday, 10 December 13
COLOMBIAN THERMAL COAL EXPORTS SLIPPED 25.54% M-M IN OCTOBER'13
COALspot.com: Colombia's Thermal coal exports in October dropped 25.54% month on month to 5,990,815.13 million mt, according to data from mining de ...
Tuesday, 10 December 13
NEWCASTLE COAL EXPORTS PLUNGE W-O-W
COALspot.com: In the week ended December 9, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled 2.50 ...
Monday, 09 December 13
SOUTH AFRICA'S RICHARDS BAY COAL EXPORTS IN NOVEMBER DECLINED 14.43% M-M
COALspot.com: South Africa's Richards Bay coal terminal exported 6.224 million tonnes of coal in November, declining by 1.05 million tons from the ...
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- Power Finance Corporation Ltd., India
- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Merrill Lynch Commodities Europe
- Kideco Jaya Agung - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Chettinad Cement Corporation Ltd - India
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Grasim Industreis Ltd - India
- OPG Power Generation Pvt Ltd - India
- White Energy Company Limited
- Siam City Cement PLC, Thailand
- San Jose City I Power Corp, Philippines
- Medco Energi Mining Internasional
- Banpu Public Company Limited - Thailand
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Goldman Sachs - Singapore
- Metalloyd Limited - United Kingdom
- Marubeni Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Uttam Galva Steels Limited - India
- TeaM Sual Corporation - Philippines
- Electricity Generating Authority of Thailand
- Planning Commission, India
- Videocon Industries ltd - India
- Independent Power Producers Association of India
- GAC Shipping (India) Pvt Ltd
- Sakthi Sugars Limited - India
- Latin American Coal - Colombia
- Semirara Mining and Power Corporation, Philippines
- Parry Sugars Refinery, India
- Indika Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Renaissance Capital - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Price Waterhouse Coopers - Russia
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Tamil Nadu electricity Board
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Savvy Resources Ltd - HongKong
- Riau Bara Harum - Indonesia
- Bharathi Cement Corporation - India
- Dalmia Cement Bharat India
- Xindia Steels Limited - India
- Maheswari Brothers Coal Limited - India
- SMG Consultants - Indonesia
- Borneo Indobara - Indonesia
- Tata Chemicals Ltd - India
- ICICI Bank Limited - India
- Sojitz Corporation - Japan
- Singapore Mercantile Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Electricity Regulatory Commission - India
- Deloitte Consulting - India
- Coal and Oil Company - UAE
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chamber of Mines of South Africa
- Baramulti Group, Indonesia
- Manunggal Multi Energi - Indonesia
- Indonesian Coal Mining Association
- Agrawal Coal Company - India
- Billiton Holdings Pty Ltd - Australia
- Indian Oil Corporation Limited
- Ministry of Mines - Canada
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement - Thailand
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Madhucon Powers Ltd - India
- Electricity Authority, New Zealand
- The Treasury - Australian Government
- Sree Jayajothi Cements Limited - India
- Global Coal Blending Company Limited - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bhushan Steel Limited - India
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Meenaskhi Energy Private Limited - India
- Ambuja Cements Ltd - India
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Global Business Power Corporation, Philippines
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- India Bulls Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Ind-Barath Power Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- VISA Power Limited - India
- Kartika Selabumi Mining - Indonesia
- Minerals Council of Australia
- IEA Clean Coal Centre - UK
- Vizag Seaport Private Limited - India
- Port Waratah Coal Services - Australia
- Kapuas Tunggal Persada - Indonesia
- Australian Coal Association
- Timah Investasi Mineral - Indoneisa
- MS Steel International - UAE
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Sical Logistics Limited - India
- Central Java Power - Indonesia
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- Bulk Trading Sa - Switzerland
- Edison Trading Spa - Italy
- Carbofer General Trading SA - India
- Vedanta Resources Plc - India
- Iligan Light & Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Vijayanagar Sugar Pvt Ltd - India
- GVK Power & Infra Limited - India
- Karaikal Port Pvt Ltd - India
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Economic Council, Georgia
- Australian Commodity Traders Exchange
- Central Electricity Authority - India
- Neyveli Lignite Corporation Ltd, - India
- Altura Mining Limited, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Formosa Plastics Group - Taiwan
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Straits Asia Resources Limited - Singapore
- ASAPP Information Group - India
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Orica Mining Services - Indonesia
- Kobexindo Tractors - Indoneisa
- Rio Tinto Coal - Australia
- Mjunction Services Limited - India
- Sinarmas Energy and Mining - Indonesia
- Posco Energy - South Korea
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- Cement Manufacturers Association - India
- Sarangani Energy Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- Bhatia International Limited - India
- Ceylon Electricity Board - Sri Lanka
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Mercuria Energy - Indonesia
- Interocean Group of Companies - India
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jaiprakash Power Ventures ltd
- Binh Thuan Hamico - Vietnam
- South Luzon Thermal Energy Corporation
- SN Aboitiz Power Inc, Philippines
- Commonwealth Bank - Australia
- Indian Energy Exchange, India
- Romanian Commodities Exchange
- Gujarat Mineral Development Corp Ltd - India
- The University of Queensland
- Oldendorff Carriers - Singapore
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
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