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Offshore Contract Review 17th June 2003 Charles Hedgcock & Barbara Jennings

Offshore Business

· Specialist Operations - Rule 19.11 · Production and Drilling - Rule 19.12

Specialist Operations ­Rule 19.11

"Specialist" operations include: · Construction, including anchor handling · Installation · Maintenance · Removal · Professional oil spill response

Specialist Operations ­ Rule 19.11

· · · · · · · Tugs/offshore supply Diving support Dredgers Cable/pipe layers Heavy lift Construction ROVs

Specialist Operations ­ Rule 19.11

· Some cover from Pool - Proviso

Personal Injury Wreck removal Oil Pollution

· Limited Buy Back ­ no cover for

Failure to perform ­ 19.11(ii) Damage to contract works ­ 19.11.(iii)

Production and Drilling ­ Rule 19.12

· · · · FPSOs Mobile Offshore Drilling Units No cover from pool while operating Limited Buy Back

Contractual Liability Cover

· Usually some cover included in terms · Check terms of entry · But when is contractual cover needed?

Reinsurance

· Pool cheapest for poolable risks · Non-poolable programme - only when necessary

Offshore Philosophy

· Most cover at best price with best security · Constructive use of Pool and separate reinsurance programme · Deliver what we promise · Procedures · Certainty of cover - take no chances

Certainty of Cover

· Careful analysis of risks and contracts ­ standard form contracts? · Time-consuming but safe and secure · Strict internal procedures

Contractual Cover

· Offered where the contract is not acceptable but.....

i) only extends the existing cover ii) costs money, and iii) cover is limited

SO: use acceptable contracts

Knock for Knock

What to look for in the ideal contract

Knock for Knock

Each party liable for his own losses, regardless of cause

Applies to property and personnel, and claims flowing therefrom

Each party indemnifies the other Knock-for-knock contractsBIMCO Supplytime BIMCO Heavycon BIMCO Towcon/Towhire

Definition of Cargo/Property/Towed Object

Should be defined as what it is, not as the property of the contractual partner Heavycon

"the cargo" - as defined in Box 5

Supplytime

"anything towed by the vessel", "any cargo laden upon or carried by the vessel"

Towcon

"the tow" - as defined in Box 4

The Liability Clause

(Heavycon 21.1 and 21.2)

.... the Owners shall be liable for all loss or damage of whatsoever nature to or sustained by the Vessel, any liability in respect of wreck removal....and any liability in respect of any of the Owners' employees, servants, agents.......all of which shall be for the sole account of the Owners without recourse to the Charterers... .... the Charterers shall be liable for all loss or damage or delay of whatsoever nature and howsoever caused to or sustained by the cargo...and any liability in respect of wreck removal.....of the cargo, and any liability in respect of death or injury of any of the Charterers' employees, servants, agents and sub-contractors' personnel....and all liabilities consequent upon loss, damage or delay to the cargo, all of which shall be for the sole account of the Charterers without recourse to the Owners....

Extends to charterer's contractors and subcontractors

Supplytime - Clause 12, Towcon - Clause 18 "the Charterers....their contractors and subcontractors, including their offshore units" (Clause 12.1 and 12.2)

Very wide language ­ includes personal injury Covers claims arising from delay Covers claims arising from wreck removal

Heavycon - of the cargo Towcon - of the tow

Towcon Clause 18.2(b)

The following shall be for the sole account of the Hirer (i)Loss or damage of whatsoever nature, howsoever caused to or sustained by the Tow (ii) Loss or damage of whatsoever nature, howsoever caused to or suffered by third parties or their property by reason of contact with the Tow or obstruction created by the presence of the Tow (iii)Loss or damage of whatsoever nature suffered by the Hirer or by third parties in consequence of the loss or damage referred to....above (iv) Any liability in respect of wreck removal....or in respect of preventing or abating pollution originating from the Tow

Towcon Clause 18.1(b)

The Hirer will indemnify the Owner in respect of any liability....arising from injury or death...to...the Master and members of the crew of the Tow....[and] any other person on board the Tow....

Supplytime Clause 12(b)

Owners shall not be responsible for loss of, damage to, or any liability arising out of anything towed by the Vessel, any cargo laden upon or carried by the Vessel or her tow....or for personal injury or death of the employees of the Charterers ...or of anyone on board anything towed by the vessel....

Indemnity

Contract should provide that each party indemnifies the other Must cover all losses suffered by any party in respect of the cargo/tow/property

not limited to the Charterer's own losses

Should apply even when the loss is caused by the Owner's negligence Need not cover "pure" third party losses

consequential loss

Indemnity (Heavycon)

..the Owners shall be liable for all loss or damage of whatsoever nature to or sustained by the Vessel ...and the Owners shall indemnify, defend and hold the Charterers harmless from and against any and all claims, losses, costs, damages and expenses of every kind and nature including legal expenses arising from the foregoing. ..the Charterers shall be liable for all loss or damage or delay of whatsoever nature and howsoever caused to or sustained by the cargo ... and the Charterers shall indemnify, defend and hold [the Owners] harmless from and against any and all claims, losses, costs, damages and expenses of every kind and nature including legal expenses arising from the foregoing.

Supplytime wording very similar to Heavycon Towcon Clause 18.2(b)

The Hirer will indemnify the Tugowner in respect of any liability....arising out of [Loss or damage of whatsoever nature, howsoever caused to or sustained by the Tow, Loss or damage of whatsoever nature, howsoever caused to or suffered by third parties or their property by reason of contact with the Tow or obstruction created by the presence of the Tow, Loss or damage of whatsoever nature suffered by the Hirer or by third parties in consequence of the loss or damage referred to....above, Any liability in respect of wreck removal....or in respect of preventing or abating pollution originating from the Tow.]

All third-party losses

Heavycon Clause 21.2 ..the Charterers shall be liable for all loss or damage or delay of whatsoever nature and howsoever caused to or sustained by the cargo ... and all liabilities consequent upon loss, damage or delay to the cargo...and the Charterers shall indemnify, defend and hold [the Owners] harmless from and against any and all claims, losses, costs, damages and expenses of every kind and nature including legal expenses arising from the foregoing.

Towcon Clause 18.2(b)

The Hirer will indemnify the Tugowner in respect of any liability adjudged due to a third party or any claim by a third party arising out of such loss or damage {ie damage to the tow etc}.....

Supplytime Clause 12(b)

...the Charterers shall indemnify, protect, defend and hold harmless the Owners from any and against all claims... and liabilities whatsoever arising out of or in connection with such loss, damage, liability, personal injury or death.

Even if arising out of negligence

Towcon Clause 18.2(b) The following shall be for the sole account of the Hirer.......whether or not the same is due to breach of contract, negligence or any fault on the part of the Tugowner, his servants or agents Heavycon Clause 21.2 ...the Charterers shall be liable for all loss or damage or delay of whatsoever nature and howsoever caused to or sustained by the cargo... Supplytime Clause 12(b) .....even if such loss, damage, liability, injury or death is caused wholly or partially by the act, neglect or default of the Owners, their employees, contractors or subcontractors....

Consequential losses

Liability for consequential losses should be excluded under the contract

Supplytime Clause 12(c)

Neither party shall be liable to the other for and each party agrees to....indemnify the other against, any consequential damages whatsoever arising out of or in connection with the performance or non-performance of this Charter Party, including, but not limited to, loss of use, loss of profits, shut-in or loss of production...

Towcon Clause 18.3

Warranty of Seaworthiness

Heavycon Clause 2.2

At the commencement of the voyage the Owners shall exercise due diligence to make the vessel seaworthy

Supplytime Clause 3(b)

The Owners shall before and at the date of delivery of the Vessel and throughout the Charter Period exercise due diligence to make and maintain the Vessel tight, staunch, strong in good order and condition.....

Towcon Clause 13

The Tugowner will exercise due diligence to tender the Tug..... in a seaworthy condition....

Absent an express obligation, the courts may imply one Indemnity must apply regardless of any breach of the warranty

Heavycon Clause 21.2: Notwithstanding anything else contained herein, the Charterers shall be liable for all loss or damage or delay of whatsoever nature and howsoever caused to or sustained by the cargo. Towcon Clause 18.2(b): The following shall be for the sole account of the Hirer without any recourse to the Tugowner....whether or not the same is due to any breach of contract, negligence or any fault on the part of the Tugowner...

Supplytime Clause 12(b): .....Notwithstanding anything else contained herein.....the Owners shall not be responsible for loss of, damage to, or any liability arising out of anything towed by the Vessel, any cargo laden upon or carried by the Vessel or her tow.....even if such loss, damage, liability, injury or death is caused wholly or partially by the unseaworthiness of any vessel.....

Limitation of Liability

Club rules provide that a member must limit his liability

Rule 16.2.1 Unless and to the extent that the Board otherwise determines, under no circumstances shall the recovery by a Member or any other person exceed: i) the amount to which the Member is entitled to limit his liability: ii) the amount to which the Member would have been entitled to limit his liability under any relevant law or statute had he so petitioned.

Loss of the right to limit can prejudice cover

cover for amounts in excess of the tonnage limitation amount is at discretion of the Board

Limitation of Liability

Contract must expressly preserve Owner's right to limit liability

Otherwise, indemnity provision may constitute a waiver

Heavycon Clause 28

Any provisions to the contrary in this contract notwithstanding, the Owners shall have the benefit of all limitations of, and exemptions from, liability accorded to the Owners or chartered Owners of vessels by any applicable statute or rule of law for the time being in force.....

Towcon Clause 18.4 is similar

A reciprocal preservation of the right to limit is acceptable

Towcon Clause 12(d): Nothing contained in this Charter Party shall be construed or held to deprive the Owners or Charterers, as against any person or party, including as against each other, of any right to claim limitation of liability ...

Why?

The Charterer can only limit when he is standing in the shoes of the Owner, so the right to limit does not avail him as against the Owner himself

It may cause a problem if the contractual partner limits as the owner of the tow

Charterer as Co-Assured

Contracts may require Charterer to be named on Owner's cover

Club can only add non-affiliated charterers as Coassureds, and contract must be k-f-k "Misdirected arrow" cover - no cover in their own right (Rule 8.2.2)

Wording should make clear that cover is for Owner's liabilities under the contract only

Heavycon Clause 22.2: The Owners shall arrange at their expense such insurance as required to protect the Charterers against the Owners' liabilities under Clause 21.1 (the liability and indemnity clause)

Supplytime Clause 14(a)

(i) The Owners shall procure.... the insurances set forth in Annex B (which normally includes P&I cover) (ii) The Charterers shall upon request be named as coinsured. The Owners shall upon request cause insurers to waive subrogation rights against the Charterers...Coinsurance and/or waivers of subrogation shall be given only insofar as these relate to liabilities which are properly the responsibility of the Owners under the terms of this Charter Party.

Waiver of subrogation - only in respect of risks which are for the member under the contract

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