Damages in Maritime Project Contracts: The “Knock for Knock” RULE; when negligence does not matter

In both project cargo shipping and offshore installation projects (offshore wind, oil & gas) it is crucial to understand the rules governing liability in the event of damage, the fundamental principle being the “Knock for Knock” (“KFK”) rule.

While in some contracts (HEAVYLIFT) the negligent party is liable for damages, in other contracts – HEAVYCON, PROJECTCON, SUPPLYTIME – the rule is that each party to the contract is liable for its own damage to its property and/or its personnel, even if caused by the negligence of the other party. Negligence does not matter; this is what the KFK rule summarises.

Example: Under HEAVYCON, the project cargo suffers serious damage due to the negligence of the shipowner, and an operator of the charterer is injured. Under the KFK rule, the charterer cannot claim damages from the shipowner. Moreover, if the charterer’s operator sues the shipowner, the charterer must indemnify him, even if the shipowner was negligent. This rule is reciprocal, if the damage was to the ship due to the charterer’s negligence, the shipowner should bear the cost of the damage.

The “KFK” rule was developed in London during World War II when, in response to the threat of German U-boats, British ships sailing in the dark with all lights off increased the incidence of collisions between ships. To avoid costly and protracted litigation for damages, operators accepted the KFK principle. This rule has been taken up by the offshore and project cargo shipping industry.

To cover these damages, each party must take out own damage and/or liability insurance. High excesses expose the operator to a high risk, therefore we recommend negotiating to exclude the KFK rule for the first tranche of damages, the equivalent of the excess.

In conclusion, operators in the maritime project sector should be aware of this KFK rule by taking advice to cover their risks.