As readers will be aware, under English law knock-for-knock provisions ordinarily ensure that each party bears the risk of damage or injury to its own equipment, personnel and property – your property, your people, your problem. If liability from an incident is misdirected, then each party agrees to indemnify the others in order that the division of liability remains in accordance with the contract. Further, it is normally agreed that the knock-for-knock principle applies regardless of fault and/or negligence.
However, in the Norwegian Court of Appeal case Njord B1 the court found that one party was not entitled to rely on the indemnity provision in the knock-for-knock provision because, under Norwegian law, liability in tort(delicit) exists alongside, or in addition to the contractual liability. Hence as one party was found to be grossly negligent, they could not rely on the knock-for-knock provisions to avoid liability.
This judgment thereby upset the widely held view of the offshore industry that the knock-for-knock provisions applied whether there was gross negligence or not.
But in 2015 a case came before the Sunnhordland District Court2 where the knock-for-knock provisions were revisited as a result of a tow (a floating drydock) being lost.
The claimant drydock interests had petitioned for the arrest of a vessel belonging to the defendant owners of the tug when it had called at Norway. Importantly, the parties had no links to Norway and the loss did not occur in Norway.
Both parties agreed that under the towage contract, governed by English law, it was not possible to bring a claim because of the knock-for-knock provisions. Based on Njord B, the claimant argued that the knock-for-knock clause did not apply because the defendant had acted with gross negligence, or acted wilfully, by neglecting to follow instructions that the tow could not be carried out if the wind force was greater than five on the Beaufort scale.
The defendants countered that:
- There was no ground for enforcement.
- The defendants had not tried to evade or considerably impede the claim.
- The claimants had not shown that there was a probable basis for the claim as they had agreed that no liability could be made under the towage contract and no evidence was made regarding the possibility ofdelicit liability under English law.
Alternatively, the defendants argued that instructions had not been given concerning the wind force and that, even if they had, the defendants had not breached them.
The judge concluded that there was no ground for enforcement and, while acknowledging the possibility of tortious liability alongside or in addition to contractual liability, found that no such liability arose in this case, as the towage contract was governed by English law. No evidence had been provided that a similar tortious liability exists in English contract law, the law of the sea, or international maritime law. Based on a strict interpretation of the wording of the towage contract, the petition for arrest was therefore rejected.
On the face of it this decision is helpful for the offshore industry as it returns knock-for-knock to the widely understood position of each party bearing their own risks. However, it is important to note that there was no direct link to Norway. Had the loss occurred in Norwegian waters , or the parties or governing law been Norwegian, then there may have been a different result.