Basic Scheme of Knock for KnockThe underlying principles of a "knock for knock"scheme are well established. Each of the Company and the Contractoragrees to save, indemnify and hold harmless the other, theiraffiliates and other group members against any claims orliabilities arising in respect of: (i) damage to property owned,hired or leased by it; and (ii) injury to any of its personnel.Although this is not usually expressly stated, the effect will beto exclude any liability on the part of the Contractor for damageor injury caused to Company Group property and personnel and viceversa. In the absence of such indemnities, the rights and obligationsof the parties will be determined by the terms of their contract orby the general principles of tort (negligence) liability applicablein the country where the damage occurs. The effect therefore of anindemnity expressed to apply irrespective of negligence is toreverse the legal position applicable in most jurisdictions thatthe party at fault in causing the damage or injury is liable. Undera "knock for knock" scheme, each party is obliged to meetany claims arising from damage to its property and personnel evenif the damage is caused by fault on the part of others. Such indemnities in common with exclusion and limitation clausesare interpreted restrictively under English law and, in the case ofambiguity, will be construed in the manner least favourable to theparty seeking its protection. In particular an English court orarbitration tribunal will be reluctant to conclude that one partyintended to indemnify the other against the consequences of its ownnegligence, unless the indemnity clearly states that this is to bethe case. The Extent of the Groups One of the principal purposes of such indemnities is to limitthe substantial risks involved in any significant off shore projectto a level acceptable to most contractors and to avoid the need formultiple and overlapping layers of insurance by permitting theCompany and the various contractors to carry insurance coveringtheir own equipment and personnel rather than the damage thisequipment and personnel can cause. Any significant off shoredevelopment will however involve numerous contractors andsubcontractors and the "knock for knock" scheme willusually be extended to all members of each party's group. Thusthe Contractor and the Company indemnify each other against anyclaims arising in connection with damage to property or injury topersonnel of any member of their respective groups, including ifthey fall within the group any subcontractors and agents. Thus, if the Contractor is held liable for damage caused toproperty belonging to a member of the Company's Group, theCompany will be obliged to indemnify the Contractor against thisliability. The Company Group member may be entitled to bring itsclaim against the Contractor but will, where it is operating undera parallel indemnity scheme with the Company, be obliged toindemnify the Company against its liability to the Contractor,thereby rendering the process circular. The ambit of the...
The Hidden Dangers Of 'Knock for Knock' Indemnities
|Author:||Mr David Gardner|
|Profession:||Curtis Davis Garrard|
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