Conversely , ‘ wilful misconduct ’ has been given effect by the English courts . In summary , it arises where a person deliberately or recklessly carries out a wrongful act , or wrongfully omits to do something , either knowing that it will cause harm or where they are reckless as to whether harm will occur . Whether an act has been deliberate or reckless and the standard to which the parties are to be held is unclear and will depend on the context . Is the relevant threshold any wilful misconduct ? Or just certain types of misconduct ? Therefore , as with ‘ gross negligence ’, defining ‘ wilful misconduct ’ in the contract provides certainty by enabling the parties to specify the threshold at which the knock-for-knock clause will no longer apply .
References :
Lewis v Great Western Railway Co ( 1877 ) 3 QBD 195
Consequential loss in the context of knock-for-knock clauses
It is common in the offshore energy industry for the knock-for-knock regime to cover ‘ consequential loss ’, where each party indemnifies and holds harmless the other party from its own consequential losses . Sometimes , the term ‘ consequential loss ’ is left undefined . On other occasions , the types of loss that fall within ‘ consequential loss ’ are extensively listed . Both approaches leave scope for dispute and , therefore , uncertainty . Which approach is preferable will depend on the circumstances .
The term ‘ consequential loss ’ will not be interpreted in isolation but will be construed in the context of the entire contractual liability regime . Traditionally , the interpretation of ‘ consequential loss ’ was limited to excluding indirect loss . However , recent cases have placed emphasis on the proper construction of the provision in question , meaning that ‘ consequential loss ’ may include both types of loss referred to in Hadley v Baxendale .
Drafting considerations
When drafting knock-for-knock clauses the following points should be considered :
• how far do the indemnities in the knock-for-knock clause extend ? Should they be limited to the contracting parties themselves or should their subcontractors , affiliates , directors and employees also have the benefit of them ?
• should the indemnities cover claims for loss suffered by third parties ?
• what types of loss are covered by the knock-for-knock regime ? Should it be limited to death / personal injury and damage to property ? Should it also include losses resulting from environmental harm ? What about loss of profit , loss of use or ‘ spread costs ’ ( the latter was the focus of the Transocean case )? If the types of loss covered by the clause are listed , consider how the ejusdem generis rule will operate
• do the parties intend to limit the application of the knock-for-knock regime in circumstances where the loss results from one party ’ s negligence ? If so , this must be expressly stated . Where this is the intention , do the parties wish the threshold to be common law simple negligence ? Or do they wish to impose a higher contractual threshold such as ‘ gross negligence ’? If so , how should that term be defined ?
• should an additional limitation to the application of the knock-for-knock regime be imposed in circumstances where the loss results from one party ’ s wilful misconduct ? If so , should ‘ wilful misconduct ’ be defined to tailor it to the parties ’ specific requirements ?
• will the clause be acceptable to the parties ’ insurers ?
• how should claims be regulated ? Do the indemnifying parties have any rights to assume the conduct of any claims ? If so , on what terms ?
• as with all indemnities the parties should also consider the following questions : Should the indemnified party achieve 100 % recovery ? Is the indemnified party under an obligation to mitigate its losses ? Should the rules on remoteness of damage apply or should the indemnified party be able to recover ‘ unforeseeable ’ losses ? Express drafting should be included to cater for these situations in a way that reflects the parties ’ intentions
The purpose of the knock-for-knock regime must always be remembered : To provide certainty by minimising the scope for dispute and lengthy adversarial proceedings concerning fault and liability .
References :
Star Polaris LLC v HHIC-PHIL INC [ 2016 ] EWHC 2941 ( Comm )
Hadley v Baxendale [ 1843-60 ] All ER Rep 461
2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [ 2020 ] EWHC 972 ( TCC ), [ 2021 ] 1 All ER 527
References :
Transocean Drilling UK Ltd v Providence Resources plc [ 2016 ] EWCA Civ 372