Cross Indemnification Agreement

Below is an article about a recent decision on the applicability of a cross-compensation clause. There are lessons for companies when entering into new contracts, business lawyers and litigs. A mutual compensation clause (also known as „cross-compensation“ or „knock-for-knock“) is a clause in which each party declares itself prepared to compensate the other party for certain losses for infringement. This means that the loss or damage is where it falls, no matter who is responsible. They appear in many oil and gas contracts. At first glance, the reciprocal nature of these compensations appears to be fair and could make it more difficult to resist in contract negotiations. In reality, it is worth asking whether you really have the same need as the party with which you are negotiating. Are the cost of the service and the value of the contract the same for each party? Is the risk of rupture by the other party low, medium or high? Would the effects of this risk be minimal or significant for your business? (d) Article 20 was not a single-use exclusion clause in which a party, in a stronger negotiating position, only wanted to exclude liability for its own offence. In this case, the parties were also economically strong. This special clause was a „Knock for Knock“ compensation (also known as cross-compensation or mutual compensation). This meant that the loss would remain where it is contractually, regardless of the fault. This was a reciprocal „damage of attitude“ clause.

The owner`s appeal was admitted for several reasons: Transocean Drilling UK Ltd/Providence Resources plc [2016] EWCA Civ 372 e) The trial judge should not have invoked the counter-proferentem rule. (It is the rule that says that if there is any doubt about a contractual provision, it is resolved against the person who relies on it).) The reason is that the rule is used when the language is really ambiguous in the Treaty and the exclusion is unilateral. In this case, it was neither. (c) Other cases in which „consecutive losses“ were taken into account were not very unnecessary, since article 20 did define such losses. The contract was based on the industry LOGIC form, which the parties had adapted. Under clauses 18 and 20, each party contractually obliged to hold the other party unscathed from its own consecutive damages.