It is common practice in the United Kingdom Continental Shelf (UKCS) for operators to enter into a mutual hold harmless regime with their contractors under which the operator takes the risk of injury or damage to its people and property and those of its co-venturers while the contractor takes similar risks in relation to itself and its sub-contractors. This avoids the need for each contractor to obtain insurance, which might well be prohibitively expensive, against the risk of damaging the platform or injuring its crew, and minimises both negotiation and litigation costs. A recent case has demonstrated that the scheme of mutual hold harmless indemnities for people will operate as intended but, at the same time, has highlighted the need for clear and precise drafting of such indemnities.
In the case of Campbell -v- Conoco (UK) Ltd [2001] All ER(D)303(Nov) the court ruled that the wording "injury ... suffered by Personnel ... as a result of or arising out of or in connection with the performance or non-performance of the contract" contained in the indemnity in question was sufficient to include the Claimant's injury although it did not arise from his work. In addition, the court ruled that the words "all liability for any injury" were sufficient to include a claim based on a back-to-back indemnity.
The Claimant, an employee of Salamis SGB Limited ("Salamis"), sustained serious personal injuries while working on the Britannia North Sea Oil platform occupied by Conoco (UK) Ltd. ("Conoco"). Britannia Operator Limited ("Britannia") had entered into a main contract with Amec Process and Energy Limited ("Amec") for the hook-up and commissioning of a platform. Britannia was acting under the contract as agent "for and on behalf of" the co-venturers, which included Conoco. Amec entered into a sub-contract with Salamis for the provision of scaffolding, painting, insulation and fire-proofing services associated with the hook-up and commissioning workscope. The Claimant's injury was caused when he was struck on the back by the sudden venting of compressed air from a diesel line while he was working below deck carrying out fire-proofing. The escape of compressed air was in no way related to the Claimant's work.
Judgment in favour of the Claimant was originally awarded against Conoco and Britannia, who in turn brought a claim against Amec, who admitted liability under the terms of the indemnity given to Britannia/Conoco in the main contract. Amec in turn brought a second claim against Salamis under the "mirror" indemnity in their sub-contract.
The relevant clause in the sub-contract between Amec and Salamis, which mirrored that in the main contract between Britannia and Amec, was as follows:
"[Salamis] hereby agrees to indemnify and hold harmless [Amec] against all liability for and all claims arising in respect of any injury, death, sickness or ill health caused to or suffered by [Salamis] and any Personnel as a result of or arising out of or in connection with the performance or non-performance of the Contract regardless of the cause or reason therefor and regardless of the negligence or breach of statutory duty of [Amec] and against all costs, charges, expenses, damages and proceedings incurred in connection with such claims or liabilities howsoever arising"
Salamis sought to avoid liability on the basis that the relevant clause did not extend to (1) circumstances where the Claimant's injury had no nexus with the sub-contract work and/or (2) a claim in contract for an indemnity by a claimant which was itself an indemnifier.
The court (Mr Justice Garland) dismissed Salamis's argument that the indemnity did not extend to circumstances where the Claimant's injury had no nexus with the sub-contract work. An indemnity which includes the indemnified's own negligence required careful scrutiny, but if the words with respect to indemnification for negligence were clear, as they were in this case ("regardless of the negligence or breach of statutory duty of [Amec]"), there was then no justification for imposing a strained or artificially restrictive interpretation on the words "as a result of or arising out of or in connection with". The Claimant did suffer injury "as a result of or arising out of or in connection with the performance or non-performance of the Contract".
The second argument put forward by Salamis, that the indemnity did not extend to a contractual claim by Amec to be indemnified in turn against its contractual obligation to provide indemnity to Britannia/Conoco, was similarly dismissed. The judge held that the second line of the indemnity should be read disjunctively to cover both "all liability for any injury" and "all claims arising in respect of any injury". The words "all liability for any injury" would include Amec's claim based on their indemnity to Britannia/Conoco for Britannia's/Conoco's liability to the Claimant for his injuries.
Other relevant points made in the judgment were that:
- The words "howsoever arising" qualified "costs, charges" etc. and not "claims or liabilities" – in this respect the clause could have been better drafted, but did provide Amec with recourse to Salamis for the damages awarded to the Claimant against Britannia/Conoco.
- The question of whether, under construction of the insurance clause, Amec were bound to procure insurance against its liabilities under the indemnity was left over by the judge for further submissions.
This case therefore highlights several important points with regard to drafting indemnities:
1. Ensure that an indemnity is not simply limited to "claims" but also liabilities, costs, expenses etc., as "claims in respect of personal injury" may not cover a claim under a subcontract for an indemnity given to the "company" in the "main contract".
2. Ensure that the indemnity is not simply given in connection with incidents "arising from the work" as this may be too restrictive - the use of wording such as "as a result of or arising out of or in connection with the Contract" should be wide enough to capture any incidents in connection with the Contract. Note that the words "in respect of" may not be as wide as "in connection with" - see the case of Burns v Shuttlehurst and others (CA) The Times 12 January 1999 which concerned a claim for an indemnity under an insurance contract. As such, when drafting indemnities, it is advisable to insert the words "as a result of or arising out of or in connection with [the contract]" to ensure that all incidents are captured.
3. The case upholds the existing authority (in particular the judge referred to the Orbit Valve case) on drafting indemnities and emphasises the need for clear and precise drafting. In particular, indemnities should be clearly expressed to be irrespective if negligence or breach of duty (statutory or otherwise) if that is what is intended.
For further information on the case or on the drafting of indemnities in oil and gas contracts, please contact Penelope Warne at penelope.warne@cms-cmck.com or Norman Wisely at norman.wisely@cms-cmck.com or by telephone on +44 (0)1224 622002.
