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Offshore Contracts. Knock-for-Knock Regime - Series 2



Since the knock-for-knock regime is aiming to provide a practical scheme, the claims are not usually included within. Claims and dispute resolution needs to be dealt with the usual way and discover the root cause for the same. Nevertheless, there is no one size fits all, and each prospect needs to be looked at individually. 

In some agreements, there are specifically excluded claims, where the agreement usually specify claims excluded from the knock-for-knock scheme. In this case, these claims are to be managed with the usual fault-based legal regime. Accordingly, the parties may wish to have extended liability that goes over the knock-for-knock regime and cover claims that are not covered by the scheme. 

A close look at some of the clauses from the knock-for-knock regime become clear that the same does not always provide full coverage or a proportioned approach. In such cases the clause state that each party shall indemnify and ''hold harmless'' other party from liabilities arising from such claims, or arising out of the party's performance. 

Whilst knock-for-knock regime aiming to simplify the agreement between the parties needs to be checked if a certain claim is not excluded from the same scheme. Loss, damage to property and personnel injuries can be the outcome of various factors. 

When we look at negligence as a clause, most parties would like to be covered under a knock-for-knock scheme to seek the protection of the clause. Hence the regime has been created to protect the blameable party from obtaining liability based on his activity. It should be remembered, however, that under the common law, the clause that intent to remove party's liability, when is created by the party's negligence, to make the clause enforceable, then the same needs to state this clearly and without ambiguity. 

Hence, it is not an easy question to answer if the knock-for-knock regime scheme is encompassing a wide range of wording, so that the party seeking indemnity due to breach, but has granted to carry out under the contract. Moreover, would the regime apply in cases of critical failures? In these and other cases contracts comprising a knock-for-knock regime, furnishing that each party give consent to carry out responsibility for their property and group. It appears that the exact scope of protection that knock-for-knock clauses provide would heavily depend on the combination of words used to define the clauses with the nature and magnitude of the breach. In the same light, it can be expected that the court wouldn't allow a party to rely on 100 % protection of a knock-for-knock clause that may turn up as deliberate misconduct or despair of the party seeking the coverage. A more challenging situation may arise if the misconduct is interpreted by a foreign court as gross negligence, which English civil law interprets as negligence. Therefore, the contract needs to delineate and differentiate between negligence and gross negligence. The knock-for-knock clause in the contract is likely to regulate the loss, damage and injury in any form caused by negligence. Nevertheless, the exact distinction between wilful misconduct and negligence, which is challenging to be established, is less promising to be governed by a knock-for-knock scheme. 

Also, the knock-for knock clauses are well implemented in offshore contracts with the main purpose to protect the parties, however, they should not be accepted as one size fits all. In reality, there are different forms of the scheme, with exact wording to perform certain protection of the particular contract. 

Veselin Shivachev 

Vedera Consulting 







info@vedera-ccm.com
+44 (0) 2381941164

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