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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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Saturday, 08 March 14
LETTERS OF INDEMNITY - SKULD
KNOWLEDGE TO ELEVATE
In today's trading market, owners are frequently requested to accept a letter of indemnity (LOI) in exchange for complying ...
Friday, 07 March 14
DRY BULK MARKET TO BENEFIT FROM CHINA'S GDP GROWTH TARGET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
With the dry bulk market freight rates finally making waves, China's aim of 7.5% GDP growth for 2014 mean once again positive news for the shipping ...
Friday, 07 March 14
RBCT, WORLD'S LARGEST COAL EXPORTING TERMINAL SHIPPED 1.78% LESS COAL MONTH ON MONTH
COALspot.com: South Africa's Richards Bay Coal Terminal (RBCT) the single largest export coal terminal in the world, shipped 4.487 million tons of ...
Friday, 07 March 14
INDONESIA SHIPPED 7% LESS COAL IN JANUARY 2014 COMPARED TO ITS DECEMBER EXPORTS
COALspot.com: Indonesia, the world 4th largest coal producer and the Global largest multi grade coal exporter shipped around $1.8* billion ...
Friday, 07 March 14
INDONESIA TO PRODUCE 421 MMT OF COAL IN 2014
Coalspot.com: Indonesia finally agreed to increased 2014 coal output by as much as 6 percent to 421 million metric tons from its previous plan, a se ...
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- Jorong Barutama Greston.PT - Indonesia
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- Cement Manufacturers Association - India
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Medco Energi Mining Internasional
- CNBM International Corporation - China
- OPG Power Generation Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Straits Asia Resources Limited - Singapore
- Therma Luzon, Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Siam City Cement PLC, Thailand
- Australian Coal Association
- Kepco SPC Power Corporation, Philippines
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- MS Steel International - UAE
- Vedanta Resources Plc - India
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- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
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- Heidelberg Cement - Germany
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- Eastern Coal Council - USA
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- GVK Power & Infra Limited - India
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- Electricity Authority, New Zealand
- Parliament of New Zealand
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- Offshore Bulk Terminal Pte Ltd, Singapore
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- The Treasury - Australian Government
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- Banpu Public Company Limited - Thailand
- Meralco Power Generation, Philippines
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- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
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- Edison Trading Spa - Italy
- Energy Link Ltd, New Zealand
- SMG Consultants - Indonesia
- Chamber of Mines of South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Indian Oil Corporation Limited
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- ICICI Bank Limited - India
- Economic Council, Georgia
- Billiton Holdings Pty Ltd - Australia
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- LBH Netherlands Bv - Netherlands
- Eastern Energy - Thailand
- Sojitz Corporation - Japan
- Directorate General of MIneral and Coal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- GN Power Mariveles Coal Plant, Philippines
- European Bulk Services B.V. - Netherlands
- Central Electricity Authority - India
- Petron Corporation, Philippines
- Rio Tinto Coal - Australia
- Lanco Infratech Ltd - India
- Planning Commission, India
- Kartika Selabumi Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Malabar Cements Ltd - India
- Semirara Mining Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Wilmar Investment Holdings
- Bukit Baiduri Energy - Indonesia
- ASAPP Information Group - India
- Sical Logistics Limited - India
- Goldman Sachs - Singapore
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- Metalloyd Limited - United Kingdom
- South Luzon Thermal Energy Corporation
- Ceylon Electricity Board - Sri Lanka
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- Trasteel International SA, Italy
- Power Finance Corporation Ltd., India
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
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- GAC Shipping (India) Pvt Ltd
- Antam Resourcindo - Indonesia
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- SN Aboitiz Power Inc, Philippines
- Ministry of Mines - Canada
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- Energy Development Corp, Philippines
- Mercator Lines Limited - India
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Oldendorff Carriers - Singapore
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- Xindia Steels Limited - India
- Kobexindo Tractors - Indoneisa
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- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Baramulti Group, Indonesia
- Ministry of Finance - Indonesia
- International Coal Ventures Pvt Ltd - India
- The University of Queensland
- Gujarat Mineral Development Corp Ltd - India
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- Indonesian Coal Mining Association
- Sindya Power Generating Company Private Ltd
- IEA Clean Coal Centre - UK
- SMC Global Power, Philippines
- Mercuria Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Electricity Generating Authority of Thailand
- Simpson Spence & Young - Indonesia
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- New Zealand Coal & Carbon
- Altura Mining Limited, Indonesia
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- Singapore Mercantile Exchange
- White Energy Company Limited
- Coalindo Energy - Indonesia
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- IHS Mccloskey Coal Group - USA
- Karaikal Port Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Posco Energy - South Korea
- Port Waratah Coal Services - Australia
- Orica Mining Services - Indonesia
- Siam City Cement - Thailand
- Global Business Power Corporation, Philippines
- Indogreen Group - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Barasentosa Lestari - Indonesia
- Samtan Co., Ltd - South Korea
- Intertek Mineral Services - Indonesia
- Makarim & Taira - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Jindal Steel & Power Ltd - India
- The State Trading Corporation of India Ltd
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Deloitte Consulting - India
- Minerals Council of Australia
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- Ministry of Transport, Egypt
- Bharathi Cement Corporation - India
- Tamil Nadu electricity Board
- Bulk Trading Sa - Switzerland
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Wood Mackenzie - Singapore
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Standard Chartered Bank - UAE
- PNOC Exploration Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- Pipit Mutiara Jaya. PT, Indonesia
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- Jaiprakash Power Ventures ltd
- Thiess Contractors Indonesia
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- Global Green Power PLC Corporation, Philippines
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