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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, 15 November 13
TAIWAN'S PLASTICS GROUP FORMOSA TO IMPORT 1.37 MILLION TONS OF COAL FOR Q1' 14
COALspot.com: Taiwan's Formosa Plastics Group is inviting bids for total 1.37 million mt of coal for 1Q’ 14 for its various plants in Taiwan, ...
Thursday, 14 November 13
KOMIPO TO BUY 270K MT OF SUB-BITUMINOUS COAL FOR Q2' 14
COALspot.com : Korea Midland Power Co., Ltd. has invited bids through International Open Bidding for 140,000 Metric Tons (MT) of sub-bituminous coal ...
Thursday, 14 November 13
PANAMAX : MARKET SHOULD BE AROUND USD 11500 FOR 1 YEAR - FEARNLEYS AS
Handy
The Atlantic market has picked up this week with prompt ships able USG for November dates coming off and chrts need to pay up in order to cov ...
Wednesday, 13 November 13
Y'14 SUB-BIT INDO COAL SWAP MOVING AT SNAIL-SPEED
COALspot.com – Sub-Bit Indonesia coal swap (FOB ) for average Q1’2014 delivery gained 2.95 percept month on month on Friday ...
Wednesday, 13 November 13
Q3' 14 CFR SOUTH CHINA COAL SWAPS CLOSED HIGHER THAN Q1' 14 PRICES
COALspot.com : API 8 CFR South China Coal swaps for average Q1 14 delivery gained 0.55 percept W-W on Friday 8 November 2013. The CFR South China Co ...
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- Gujarat Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- McConnell Dowell - Australia
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Indian Oil Corporation Limited
- Petron Corporation, Philippines
- New Zealand Coal & Carbon
- Eastern Energy - Thailand
- Central Java Power - Indonesia
- Jaiprakash Power Ventures ltd
- Kalimantan Lumbung Energi - Indonesia
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Globalindo Alam Lestari - Indonesia
- Aditya Birla Group - India
- Independent Power Producers Association of India
- Uttam Galva Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- Formosa Plastics Group - Taiwan
- Indogreen Group - Indonesia
- Mintek Dendrill Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Directorate Of Revenue Intelligence - India
- Star Paper Mills Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vijayanagar Sugar Pvt Ltd - India
- Thai Mozambique Logistica
- India Bulls Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Renaissance Capital - South Africa
- Xindia Steels Limited - India
- Latin American Coal - Colombia
- Meralco Power Generation, Philippines
- Bhoruka Overseas - Indonesia
- CIMB Investment Bank - Malaysia
- Attock Cement Pakistan Limited
- OPG Power Generation Pvt Ltd - India
- Mjunction Services Limited - India
- European Bulk Services B.V. - Netherlands
- Indo Tambangraya Megah - Indonesia
- Economic Council, Georgia
- Cigading International Bulk Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- Asmin Koalindo Tuhup - Indonesia
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- SMG Consultants - Indonesia
- Ambuja Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Merrill Lynch Commodities Europe
- Karbindo Abesyapradhi - Indoneisa
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Australian Commodity Traders Exchange
- Bukit Makmur.PT - Indonesia
- Sical Logistics Limited - India
- Dalmia Cement Bharat India
- Global Business Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Kapuas Tunggal Persada - Indonesia
- Tata Chemicals Ltd - India
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Intertek Mineral Services - Indonesia
- Carbofer General Trading SA - India
- Australian Coal Association
- Planning Commission, India
- PowerSource Philippines DevCo
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- Ministry of Finance - Indonesia
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- PNOC Exploration Corporation - Philippines
- White Energy Company Limited
- Meenaskhi Energy Private Limited - India
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Kobexindo Tractors - Indoneisa
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- Binh Thuan Hamico - Vietnam
- Kepco SPC Power Corporation, Philippines
- Trasteel International SA, Italy
- Global Green Power PLC Corporation, Philippines
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- Sree Jayajothi Cements Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Ind-Barath Power Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Sojitz Corporation - Japan
- Mercator Lines Limited - India
- MS Steel International - UAE
- Baramulti Group, Indonesia
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- Semirara Mining and Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Medco Energi Mining Internasional
- Gujarat Mineral Development Corp Ltd - India
- Agrawal Coal Company - India
- Power Finance Corporation Ltd., India
- Iligan Light & Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Tamil Nadu electricity Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coal and Oil Company - UAE
- Essar Steel Hazira Ltd - India
- Chettinad Cement Corporation Ltd - India
- GAC Shipping (India) Pvt Ltd
- Gujarat Sidhee Cement - India
- Karaikal Port Pvt Ltd - India
- Indonesian Coal Mining Association
- Bukit Asam (Persero) Tbk - Indonesia
- Makarim & Taira - Indonesia
- Ceylon Electricity Board - Sri Lanka
- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- Alfred C Toepfer International GmbH - Germany
- Port Waratah Coal Services - Australia
- Borneo Indobara - Indonesia
- Global Coal Blending Company Limited - Australia
- Kaltim Prima Coal - Indonesia
- Madhucon Powers Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Timah Investasi Mineral - Indoneisa
- Romanian Commodities Exchange
- Wilmar Investment Holdings
- Bhatia International Limited - India
- Electricity Generating Authority of Thailand
- Orica Australia Pty. Ltd.
- Sarangani Energy Corporation, Philippines
- Bhushan Steel Limited - India
- SN Aboitiz Power Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Grasim Industreis Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Siam City Cement - Thailand
- AsiaOL BioFuels Corp., Philippines
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- Rio Tinto Coal - Australia
- Parry Sugars Refinery, India
- Edison Trading Spa - Italy
- Marubeni Corporation - India
- TeaM Sual Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Energy Link Ltd, New Zealand
- South Luzon Thermal Energy Corporation
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Energy Development Corp, Philippines
- The University of Queensland
- Riau Bara Harum - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Transport, Egypt
- Jindal Steel & Power Ltd - India
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Chamber of Mines of South Africa
- CNBM International Corporation - China
- VISA Power Limited - India
- Deloitte Consulting - India
- GVK Power & Infra Limited - India
- Metalloyd Limited - United Kingdom
- ASAPP Information Group - India
- Larsen & Toubro Limited - India
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- Central Electricity Authority - India
- Bahari Cakrawala Sebuku - Indonesia
- International Coal Ventures Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Coalindo Energy - Indonesia
- Standard Chartered Bank - UAE
- Samtan Co., Ltd - South Korea
- Thiess Contractors Indonesia
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
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