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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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Thursday, 27 February 14
NEWCASTLE COAL EXPORTS SLIP 26.68 PERCENT WEEK ON WEEK
COALspot.com: In the week ended 24 February 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, total 2. ...
Wednesday, 26 February 14
SMALLER SIZE SEGMENTS HOLDING ON TO THEIR LEVELS; CAPES CORRECTING UPWARDS - INTERMODAL
Chartering (Wet: Stable- / Dry: Stable+)
The Dry Bulk market continued to improve this past week, on the back of rates for the smaller size s ...
Tuesday, 25 February 14
GBCE, A COAL UPGRADING TECHNOLOGY DEVELOPER, APPOINTS RICHARD BULMAN AS PROJECT DIRECTOR
Press Release: GB Clean Energy Ltd. (GBCE) announced today the appointment of Richard Bulman as Project Director. In this capacity Mr. Bulman ...
Tuesday, 25 February 14
ULTRAMAXES ARE THE 'WEAPON OF CHOICE' FOR DRY BULK SHIP OWNERS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
It's been a busy start in 2014, as the first month of the year was a rather active in terms of second hand vessel purchases and newbuilding orderin ...
Tuesday, 25 February 14
SGX'S MONTHLY VOLUMES DRASTICALLY INCREASED AND REACHED A RECORD OF 810K TONNES YEAR-ON-YEAR
COALspot.com: SGX Thermal Coal derivatives started the new year with record volumes in January on the back of higher volatility, says SGX.
Accord ...
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- The University of Queensland
- Electricity Generating Authority of Thailand
- Indika Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Power Finance Corporation Ltd., India
- Bukit Makmur.PT - Indonesia
- ICICI Bank Limited - India
- Kideco Jaya Agung - Indonesia
- SMC Global Power, Philippines
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- Simpson Spence & Young - Indonesia
- Aditya Birla Group - India
- Central Java Power - Indonesia
- European Bulk Services B.V. - Netherlands
- Tata Chemicals Ltd - India
- Karaikal Port Pvt Ltd - India
- Wood Mackenzie - Singapore
- AsiaOL BioFuels Corp., Philippines
- Billiton Holdings Pty Ltd - Australia
- Grasim Industreis Ltd - India
- Ind-Barath Power Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Global Business Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Bhushan Steel Limited - India
- Straits Asia Resources Limited - Singapore
- Semirara Mining and Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- Ministry of Finance - Indonesia
- Global Coal Blending Company Limited - Australia
- GAC Shipping (India) Pvt Ltd
- Thai Mozambique Logistica
- Formosa Plastics Group - Taiwan
- Aboitiz Power Corporation - Philippines
- CIMB Investment Bank - Malaysia
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
- Essar Steel Hazira Ltd - India
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- Chamber of Mines of South Africa
- Orica Mining Services - Indonesia
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Latin American Coal - Colombia
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Samtan Co., Ltd - South Korea
- Rio Tinto Coal - Australia
- MS Steel International - UAE
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Baramulti Group, Indonesia
- Videocon Industries ltd - India
- SMG Consultants - Indonesia
- Planning Commission, India
- Bharathi Cement Corporation - India
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Thiess Contractors Indonesia
- Heidelberg Cement - Germany
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- Global Green Power PLC Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- GVK Power & Infra Limited - India
- GMR Energy Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parry Sugars Refinery, India
- Indonesian Coal Mining Association
- Sojitz Corporation - Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bulk Trading Sa - Switzerland
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Mercator Lines Limited - India
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
- Africa Commodities Group - South Africa
- Siam City Cement PLC, Thailand
- Australian Coal Association
- Carbofer General Trading SA - India
- Kapuas Tunggal Persada - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Trasteel International SA, Italy
- Altura Mining Limited, Indonesia
- Goldman Sachs - Singapore
- Energy Development Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- White Energy Company Limited
- SN Aboitiz Power Inc, Philippines
- Coal and Oil Company - UAE
- Directorate General of MIneral and Coal - Indonesia
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- McConnell Dowell - Australia
- Bukit Baiduri Energy - Indonesia
- Bangladesh Power Developement Board
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Posco Energy - South Korea
- Deloitte Consulting - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Oldendorff Carriers - Singapore
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- San Jose City I Power Corp, Philippines
- Pendopo Energi Batubara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Eastern Coal Council - USA
- Malabar Cements Ltd - India
- Star Paper Mills Limited - India
- Minerals Council of Australia
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Tamil Nadu electricity Board
- Jaiprakash Power Ventures ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Indogreen Group - Indonesia
- Antam Resourcindo - Indonesia
- PTC India Limited - India
- Mercuria Energy - Indonesia
- Independent Power Producers Association of India
- Attock Cement Pakistan Limited
- Maheswari Brothers Coal Limited - India
- Anglo American - United Kingdom
- Medco Energi Mining Internasional
- South Luzon Thermal Energy Corporation
- Kumho Petrochemical, South Korea
- Makarim & Taira - Indonesia
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- Singapore Mercantile Exchange
- LBH Netherlands Bv - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- Savvy Resources Ltd - HongKong
- Ministry of Mines - Canada
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
- Coalindo Energy - Indonesia
- New Zealand Coal & Carbon
- Therma Luzon, Inc, Philippines
- IEA Clean Coal Centre - UK
- Miang Besar Coal Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Manunggal Multi Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- Mjunction Services Limited - India
- Marubeni Corporation - India
- Renaissance Capital - South Africa
- Barasentosa Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Indian Oil Corporation Limited
- Toyota Tsusho Corporation, Japan
- Uttam Galva Steels Limited - India
- Jindal Steel & Power Ltd - India
- Intertek Mineral Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Standard Chartered Bank - UAE
- Xindia Steels Limited - India
- Agrawal Coal Company - India
- Banpu Public Company Limited - Thailand
- Lanco Infratech Ltd - India
- Siam City Cement - Thailand
- Kobexindo Tractors - Indoneisa
- CNBM International Corporation - China
- Bahari Cakrawala Sebuku - Indonesia
- India Bulls Power Limited - India
- Economic Council, Georgia
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Romanian Commodities Exchange
- Sical Logistics Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
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