In a recently delivered judgment, the English Admiralty Court took a close look at the scope of the ”knock-for-knock” provisions contained within the BIMCO standard form towage contract, code name TOWCON.
The case in question ”A Turtle”[1] involved the tow of a semi-submersible rig from Macae, Brazil, to Singapore with an intended bunker call at Cape Town. The tug “Mighty Deliverer” was contracted to perform the tow.,
Pursuant to warrantees within the insurance policy of the rig, the planning of the tow was to be approved by a warrantee surveyor nominated by the owners of the rig. The tug owners prepared a detailed plan addressing, amongst other things, the tow connection arrangements, length of tow line, intended engine revolutions and the intended track of the voyage. After some discussion the plan was approved by the warrantee surveyor. Within that plan an assumption was made that the passage of the tow to Cape Town would take 45 days proceeding at 3~4 knots and consuming 3 tonnes per day. Based upon this assumption the tug was provided with sufficient bunkers including a five day reserve.
On the 6 March 2006 the tow sailed from Macae following a course agreed within the towage plan. It was quickly determined that the tug was having difficulty reaching its intended engine revolutions of about 100 rpm reporting by the 13 March having achieved only 75 rpm. The average speed recorded was 1.7 knots with a fuel consumption of 3.5 tonnes per day. At this point the tug had some 162.8 tonnes of MDO remaining giving a further 46.5 days of steaming at a consumption of 3.5 tonnes per day, insufficient to complete the Atlantic leg of the tow. Despite this the tug owners gave the rig owners an ETA at Cape Town of 6 May based upon an average speed of 2.2 knots, being a further 54 days steaming. By the 29 March the situation had not materially improved and the tug owners took the decision to replenish bunkers mid-Atlantic by intercepting the tow with another owned tug, the ‘”Ruby Deliverer”. Owing to a number of logistical difficulties the “Ruby Deliverer” failed to reach the reported location of the tow until 15 May; however, in order to conserve what fuel remained the “Mighty Deliverer”, had been compelled to cast-off the rig two weeks earlier.
The two tugs subsequently searched for the rig without success and finally abandoned their efforts on the 24 May, thereafter proceeding to Cape Town. On the 5 June the tug owners gave notice to the owners of the rig that they considered themselves released from the towage contract. On the 7 June the rig was found hard aground on the remote island of Tristan da Cunha. Salvage proved impossible and in February 2007 the rig was finally scuttled at sea under a wreck removal contract.
In considering these events, the judge had little hesitation in concluding the actions of the tug owners to be the primary cause of the loss of the rig. Expert evidence from both parties agreed that as part of the pre-tow planning proper analysis should have been undertaken to determine the required towing power taking into account the resistance of the rig, the characteristics of the tug itself and comparing this with the tug’s available bollard pull. From this it should have been determined the likely speed of the tow, the expected fuel consumption and realistic minimum fuel requirements. The Judge concluded there was no evidence of such analysis having taken place and therefore no basis for the assumed tow speed of 3~4 knots as stated within the towage plan. In this respect the Judge concluded the tug owners had failed to demonstrate they had exercised due diligence to make the tug seaworthy prior to the commencement of the tow and were in breach of their TOWCON obligations to do so.
Further, having embarked on the voyage it had quickly become apparent the tow was not achieving the performance contemplated in the towage plan. Despite this and faced with the prospect of not being able to transit the South Atlantic the tug owners gave no consideration to returning to a South American port. The Judge found the tug owners had failed to use their best endeavours to perform the voyage as required in Part 1 of the TOWCON printed form.
Tug owners argued the knock-for-knock provisions of clause 18 protected them from the rig owners’ substantial claims. Clause 18 within Part II of the printed form provides respective indemnities and hold harmless provisions between the tugowner and the tow, including but not limited to injuries to crew and other persons, damage to the respective units, damages or losses suffered by third parties, consequential losses and wreck removal. Effectively, the purpose of the clause is to establish a regime whereby each party will bear their own losses regardless of the cause or the extent to which the loss resulted from the negligence of the other contracting party.
The rig owners in turn put it to the court that there had to be some limit on the scope and effect of the clause, particularly where there was such a fundamental failure on the part of the tug owners that went to the very core of the voyage and its prospects of success.
In reaching its decision the court took a close look at the purpose of clause 18 and its ‘knock-for-knock’ provisions. Following earlier precedent the court defined the clause as one seeking to allocate risk on a no fault basis, with the various types of risk being well defined and wide reaching. The words “whether or not the same is due to breach of contract, negligence or any fault” and “howsoever caused” make it clear that the allocation of risk was intended to be on a no fault basis. The commercial purpose of this is simply to permit the parties to insure against those risks in a more predetermined manner.
The Judge therefore found that notwithstanding the obligations of tug owners to exercise due diligence to tender the tug in a seaworthy condition, the purpose of clause 18 was to exempt tug owners from liability for breach of that obligation where the losses, damage or liabilities incurred were within the scope of those which rig owners had, by virtue of agreeing to clause 18, agreed to be for their own account. In this instance the Judge found that the nature of the loss claimed fell within the type of loss the rig owner had agreed to accept.
The Court did however agree that a limit to the scope of clause 18 should apply, but only to the extent a party seeking to rely upon the protection afforded by that clause had completely abandoned its obligations under the TOWCON contract and the loss flowed from that abandonment. Factually, the Court was unable to determine the abandonment of the search for the rig as being causative of its loss, whereas at the time of the release of the tow the intention still remained to re-fuel and resume the voyage. The Court found the tug owners could avail themselves of the protection of clause 18.
The position in the United States is markedly different despite its traditions of freedom of contract. Stemming from a 1955 US Supreme Court decision in Bisso v. Inland Waterway Corp[2], the use of so called exculpatory clauses is specifically invalidated in law in the context of towage. The Bisso decision was based upon two principles of Public Policy, to;-
a) discourage negligence by making a wrong doer financially liable for damages, and;
b) protect parties from monopolistic practices.
Through a number of challenges over the years the Bisso Rule has been defined and restricted to that of towing business conducted within American waters only. The knock-for-knock clause found in both Bimco’s Towhire and Towcon has been upheld where the tow envisages an international origin or destination. Similarly, the use of a tug and barge to carry cargo for a third party under contract remains a contract of affreightment and any clauses seeking to limit or exclude liability therein will be upheld, including those by incorporation such as US COGSA. Salvage contracts equally fall outside the scope of the Bisso Rule.
The decision of Bisso has been widely predicted over the years to be overturned but despite knock-for-knock clauses being in common use in the offshore exploration/oil industry and in other fields, and frequently upheld in the US courts, Bisso remains steadfast. While it remains, in matters of towage confined to US waters, the exculpatory clauses much in common use today will be invalid before the US courts.
[1] [2008] EWHC 3034 (Admlty)
[2] Bisso v Inland Waterway Corp., 114, 118F.Supp. 713 (E.D. La); aff'd 211 F.2d 401; rev'd 349 U.S. 85, 1955 A.M.C. 899 (1955)
