Knock-For-Knock Liability - Does It Work In The German Market?

Due to the large number of offshore windfarm projects having already been completed or being under construction in the German Exclusive Economic Zone, we expect that German courts and arbitral tribunals will be dealing with a number of disputes related to the underlying contracts in the coming years.

Many of these contracts are based on standard forms such as the BIMCO SUPPLYTIME 2005 or 2017, the BIMCO WINDTIME or LOGIC contracts, all of which have been developed against the background of English law. All of the above standard forms contain so called "knock-for-knock" clauses, which set out a liability regime for all dealings between the contractual parties. Under this liability regime, damages and losses are not covered by the party at fault but rather by each party incurring the respective loss, irrespective of the nature or cause of the damage. This is based on the assumption that any such losses and damages can and will be insured and thus attempts to make the execution of the contract more cost and time effective.

While this risk allocation is a well-established means in the offshore wind industry in countries such as the UK, this liability regime is still fairly unknown to German courts. Accordingly, there are a number of issues, which need to be taken into consideration by the parties during the negotiations and before signing the contract on the basis of BIMCO SUPPLYTIME 2005 / 2017 (in the following referred to as "BIMCO SUPPLYTIME") or other industry standard forms with German law applicable to the contract.

German courts have very little practical experience with the interpretation of the BIMCO SUPPLYTIME and its terms. In addition, the applicable German law of time charter parties (sec. 557 et seqq. of the German Commercial Code, "HGB") is relatively new (entering into force in April 2013), so that very little case law in relation to the underlying statutory law exists. Consequently, German courts will stick to the established legal concepts to determine the validity of a knock-for-knock clause under German law. For that purpose, a German court will evaluate whether the clause is part of general terms and conditions (I.) and if yes, whether the clause can be considered reasonable (II.). And finally, the court will check whether the clause contains liability exclusions that are not allowed under German law, irrespective of whether the clause is part of general terms and conditions (III.).

1. Are knock-for-knock clauses General...