Hold Harmless Indemnity – Subsidiary and Affiliate

Farstad, chartered their vessel to Asco UK Ltd, (a wholly owned subsidiary of ASCO plc). Under the charterparty, both Companies agreed to indemnify and hold each other harmless in relation to certain liabilities. Farstad further agreed to indemnify Asco UK Ltd’s “Affiliates”.

Enviroco (another wholly owned subsidiary of ASCO plc) was contracted to clean the oil tanks of the vessel. In the process of such work, a fire occurred causing the death of one of Enviroco’s employees and substantial damage to the vessel. Farstad sued Enviroco for the losses it allegedly suffered. Enviroco relied on the indemnity clauses in the charterparty on the basis that it was an “Affiliate” of Asco UK Ltd because each of them was a subsidiary of ASCO plc.

Before the incident, ASCO plc had given the Bank of Scotland security over its shares in Enviroco by registering the shares in the name of the bank (or its nominee).

The Court of Appeal held that as the shares in Enviroco were registered in the name of the bank’s nominee company at the time of the fire, ASCO plc was not a member of Enviroco. As Enviroco was not a subsidiary of ASCO plc it could not rely upon the indemnity clauses. Recently, the Supreme Court have unanimously dismisses Enviroco’s appeal.  

Source:
Farstad Supply A/S (Respondent) v Enviroco Limited (Appellant) [2011] UKSC 16
http://www.supremecourt.gov.uk/decided-cases/docs/UKSC_2010_0008_Judgment.pdf

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