Another Victory for Knock-for-Knock Clauses

Originall published in Lloyd's List, 29 June 2010

In the recent case of Farstad Supply AS v Enviroco Ltd and another (The Far Service) [2010] UKSC 18, when deciding whether the defendant was entitled to claim a contribution from a third party the Supreme Court had to consider the meaning and effect of a knock-for-knock provision commonly encountered in offshore contracts between the claimant and the third party.

This case concerned an oil rig supply vessel, Far Service, which was chartered by the claimant, Farstad Supply, on a long-term charter contract to Asco UK, the third party, for work in the oil rig supply industry.

While the vessel was in port, Asco instructed the defendant, service company Enviroco, to clean out some of the tanks on board the vessel.

On Asco's instructions, the master started the engines in preparation to shift to another berth. At the same time an employee of Enviroco inadvertently opened a valve releasing oil into the engine room near hot machinery which ignited and caused a fire, badly damaging the vessel.

Farstad brought a negligence action against Enviroco in Scotland. Enviroco denied liability and argued that both Farstad and Asco had materially contributed to the incident and were contributorily negligent. As such any award of damages should be apportioned between itself and Asco and that Asco should be ordered to make a contribution pursuant to s3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 (the 1940 Act).

Farstad stated a preliminary plea, arguing that Asco could not be liable to Farstad because of clause 33.5 of the charterparty between Farstad and Asco. Therefore Enviroco would not be entitled to a contribution from Asco.

Clause 33.5 of the charterparty provided as follows:

"Subject to Clause 33.1, the Owner [Farstad] shall defend, indemnify and hold harmless the Charterer [Asco]... from and against any and all claims, demands, proceedings and causes of action resulting from loss or damage in relation to the vessel (including total loss) or property of the owners, including personal property of owner's personnel or of anyone for whom the owner may be responsible on the vessel, irrespective of the cause of loss or damage, including where such loss or damage is caused by, or contributed to, by the negligence of the charterers..."

At first instance, Lord Hodge held that Enviroco was not entitled to a contribution from Asco. This was reversed on appeal and Farstad appealed to the...