The following Energy practice note Produced in partnership with Nicholas Neuberger of Bracewell LLP and Robert Meade of Bracewell LLP provides comprehensive and up to date legal information covering:
A knock-for-knock clause is a reciprocal agreement to apportion liability for certain losses (usually, death or injury to personnel and damage to property) between contracting parties, supported by mutual indemnities.
A knock-for-knock regime replaces the fault-based liability regime that would otherwise apply at law with the concept that ‘loss lies where it falls’.
They are a common risk allocation mechanism in the offshore oil and gas industry utilised to provide certainty and prevent recourse against other parties.
Knock-for-knock clauses generally maintain the principle that damage and loss to property or personnel suffered by a party’s ‘group’ (as defined in the relevant contract) is borne by that party regardless of fault. The party’s group can be extended to include, in the case of the contractor, its various subcontractors and affiliates, or, in the case of the operator (the entity responsible for the operations relating to an oil and gas well or concession), its various other contractors and affiliates.
Standard form contracts provided by industry bodies (such as LOGIC) are frequently used by parties operating in the offshore oil and gas industry. Even when those standard forms are adopted, bespoke amendments are often made during the negotiation process. This has resulted in a large body of similar, yet different, knock-for-knock clauses being used within the industry. Each must be
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