ABSTRACT
In the field of marine and offshore projects (as in many areas of infrastructure and construction projects on land), especially those serving the oil and gas industry, there is frequently a complexity of operations and a multiplicity of contractors and subcontractors coupled with very high values of property at risk, and with difficult and challenging operating conditions. These conditions pose significant operating risks to personnel, equipment and plant, and the infrastructure and commercial operation of the large-scale projects themselves, with potentially huge and wide-ranging financial liabilities in the event of mishap, whether due to human error or breach of contract. 1 These features and the particular risks involved, together with the potential liabilities, have resulted in the offshore industry adopting a variety of attempted con tractual solutions based essentially on the contractual pre-allocation of the risks involved between the parties, tied into suitable insurance packages. The most familiar is the mutual hold harmless indemnity regime, frequently referred to as the knock-for-knock regime, 2 under which each party to an offshore construction, operating or other form of offshore contract agrees to bear responsibility for, and to indemnify the other against, injury and loss to its own personnel, property and any other specified losses (typically ‘consequential’ losses by which the parties seek to exclude liability for each other’s loss of profit or other forms of economic loss) by a set of interdependent cross-indemnities. The system of cross-indemnities is usually intended to be effective regardless of cause or of fault on the part of either party and therefore are commonly designed to be effective irrespective of whether losses arise due to the negligence, breach of contract or breach of statutory duty of a Contracting Party. However, exception may be made in certain forms of contract for specified causal situations, for example, where the loss or liability is due to ‘gross negligence’ or ‘wilful default’. The topics of consequential loss exclusions and of gross negligence and wilful default derogations from a general scheme of mutual indemnification raise particular questions of construction; these are addressed in separate chapters in this book 3 and are therefore not touched on in this chapter. 4
