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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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Tuesday, 13 February 24
WHAT IS THE OUTLOOK FOR THE NATURAL GAS SPOT PRICE IN 2024 AND 2025? EIA
We expect the U.S. benchmark Henry Hub natural gas spot price to average higher in 2024 and 2025 than in 2023, but to remain lower than $3.00 per m ...
Monday, 12 February 24
US THERMAL COAL EXPORTS HIT 5-YEAR HIGHS AND TOP $5 BLN IN 2023 - REUTERS
United States exporters of thermal coal earned more than $5 billion in 2023 as they shipped out more than 32.5 million metric tons of the high-poll ...
Tuesday, 06 February 24
NEW E-FUELS PROJECT TO MAKE INTERNATIONAL SHIPPING CLIMATE-NEUTRAL - RINA
Transport and trade on the ocean blue must be made much greener. This is the goal of the new €17 million European GAMMA project, where compani ...
Tuesday, 06 February 24
INDIA SEES ANNUAL COAL OUTPUT UP 10.9% IN 2024/25 - REUTERS
India expects domestic coal output to increase by 10.9% to 1.13 billion metric tons in the fiscal year ending March 2025, a senior government offic ...
Tuesday, 06 February 24
INDIA'S COAL PRODUCTION INCREASES BY 10.3% TO 99.73 MILLION TONNE IN JANUARY - PTI
The country’s coal output rose 10.3 per cent to 99.73 Million Tonne (MT) in January, over the same month in the previous fiscal.
...
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- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- PetroVietnam Power Coal Import and Supply Company
- Rio Tinto Coal - Australia
- Australian Coal Association
- Straits Asia Resources Limited - Singapore
- Barasentosa Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- Parry Sugars Refinery, India
- Gujarat Sidhee Cement - India
- Merrill Lynch Commodities Europe
- Bukit Asam (Persero) Tbk - Indonesia
- London Commodity Brokers - England
- Borneo Indobara - Indonesia
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- VISA Power Limited - India
- Agrawal Coal Company - India
- Latin American Coal - Colombia
- Petrochimia International Co. Ltd.- Taiwan
- Sree Jayajothi Cements Limited - India
- ASAPP Information Group - India
- TeaM Sual Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Billiton Holdings Pty Ltd - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- Planning Commission, India
- Salva Resources Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Commonwealth Bank - Australia
- Kartika Selabumi Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Indika Energy - Indonesia
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Bhatia International Limited - India
- Madhucon Powers Ltd - India
- Thai Mozambique Logistica
- Energy Development Corp, Philippines
- White Energy Company Limited
- CIMB Investment Bank - Malaysia
- Minerals Council of Australia
- Price Waterhouse Coopers - Russia
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- Power Finance Corporation Ltd., India
- Sindya Power Generating Company Private Ltd
- Mercuria Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Iligan Light & Power Inc, Philippines
- GVK Power & Infra Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Vizag Seaport Private Limited - India
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- Jorong Barutama Greston.PT - Indonesia
- Samtan Co., Ltd - South Korea
- ICICI Bank Limited - India
- Central Java Power - Indonesia
- Essar Steel Hazira Ltd - India
- Global Green Power PLC Corporation, Philippines
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- LBH Netherlands Bv - Netherlands
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CNBM International Corporation - China
- Attock Cement Pakistan Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Savvy Resources Ltd - HongKong
- Sinarmas Energy and Mining - Indonesia
- Sical Logistics Limited - India
- Ceylon Electricity Board - Sri Lanka
- Directorate Of Revenue Intelligence - India
- Bhoruka Overseas - Indonesia
- Aboitiz Power Corporation - Philippines
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Pendopo Energi Batubara - Indonesia
- Parliament of New Zealand
- Siam City Cement PLC, Thailand
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- Energy Link Ltd, New Zealand
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- Mjunction Services Limited - India
- Indonesian Coal Mining Association
- Eastern Energy - Thailand
- Miang Besar Coal Terminal - Indonesia
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Banpu Public Company Limited - Thailand
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- The State Trading Corporation of India Ltd
- Neyveli Lignite Corporation Ltd, - India
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- Independent Power Producers Association of India
- PNOC Exploration Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sojitz Corporation - Japan
- AsiaOL BioFuels Corp., Philippines
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- Semirara Mining Corp, Philippines
- New Zealand Coal & Carbon
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Antam Resourcindo - Indonesia
- Semirara Mining and Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Malabar Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Ministry of Finance - Indonesia
- Coal and Oil Company - UAE
- Aditya Birla Group - India
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Central Electricity Authority - India
- Orica Mining Services - Indonesia
- Singapore Mercantile Exchange
- Thiess Contractors Indonesia
- European Bulk Services B.V. - Netherlands
- McConnell Dowell - Australia
- Edison Trading Spa - Italy
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Mercator Lines Limited - India
- The Treasury - Australian Government
- Standard Chartered Bank - UAE
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Simpson Spence & Young - Indonesia
- Port Waratah Coal Services - Australia
- Toyota Tsusho Corporation, Japan
- Cigading International Bulk Terminal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- Electricity Authority, New Zealand
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- PTC India Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Tamil Nadu electricity Board
- The University of Queensland
- SMC Global Power, Philippines
- Medco Energi Mining Internasional
- Bulk Trading Sa - Switzerland
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Carbofer General Trading SA - India
- Indo Tambangraya Megah - Indonesia
- Coastal Gujarat Power Limited - India
- Bharathi Cement Corporation - India
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Ind-Barath Power Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
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