Oil and Gas Law: Contractual Risk Management (Oil Pollution, petrol, contract law, environmental management, energy: Macondo Deepwater Horizon Oil Spill ... Oil and Gas Law in a nutshell Book 1) by Johnathan Borg

Author:Johnathan Borg [Borg, Johnathan]
Language: eng
Format: azw3
Published: 2016-02-15T05:00:00+00:00

Conclusion

In conclusion, when discussing management of contractual risks, it becomes clear that the allocation of liability plays a critical role in eliminating contractual risks. Indemnity provisions proved their effectiveness in securing financial risks, providing parties with confidence of their risks allocation. The core idea underlying indemnity is not about avoidance of liability, which is how it might be interpreted by some courts, but rather the sharing of the responsibility between the parties in order to minimize risks, achieving better collaboration. As was indicated by Judge Barbier in BP/Transocean, ‘simply shift the source of compensation without restricting the injured party’s right to cover.’[74]

During Macondo and Piper Alpha litigation, indemnities were tested both from contractor and operator sides, with the intention to shift the allocation of liabilities. As a result of aforementioned litigation processes, the concept of indemnities has been accepted, proving its reliability in mitigating contractual risks, assuming that its wording is precise, unambiguous and does not contradict with applicable national legislation.

Both post-disaster litigation brought changes to the concept of allocation of liabilities and indemnities between contractor and operator. First of all, relationship between contractor and operator will become more tense in terms of negotiating allocation of liabilities. Additionally, understanding the post-Macondo offshore industry, by insurers will likely result in the increase of premiums. Secondly, despite operators being the ones who bear the major responsibility for incidents, they are no longer the only ones who have full responsibility for catastrophic outcomes of disasters. Consequently, contractors may now be held liable to satisfy penalties and fines imposed under the national environmental laws, not to mention criminal liability, which cannot be indemnified.

Finally, risk-reward expectations were shifted for both parties because the traditional command and control approach to liability was not applicable. Therefore, more time will be spent on negotiating liability and indemnity provisions, leading to even fewer instances of commercial arrangements being left out of contract drafting.

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