Is knock for knock always bullet-proof?

When it comes to the loss of a tow at sea, this story takes some beating. It’s also a sad tale, since damages for total loss and a wreck removal came to around $20m. Simon Tatham takes up the narration…

Reminiscent of an Alistair Maclean novel, but without the heroes, this is a very short summary of what happened when a 1981 US built pusher-tug was hired to tow an old North Sea rig, to Singapore via Cape Town.

The pusher-tug, rated at 15,200bph, was recently out of lay-up and reclassified, and the rig was laid up near Rio and heavily fouled under water.

In the (pre-2008 version) TOWCON, her bollard pull and length of tow wire were overstated whilst her working rpm was never fully established. These tugs do not have a flared bow and are not ideal for deep-sea towage. A fitness to tow certificate was issued to underwriters by warranty surveyors.

The distance to Cape Town is around 3400 miles and it was estimated that speeds of 2.5-5 knots would be achieved. The tug bunkered, but not fully, in preparation and the tow got under way. The tug struggled, and speeds of less than 2 knots were achieved. Very soon, and certainly by day 7, it was clear that the tug would run out of fuel in the S. Atlantic, well short of Cape Town. At least 3-4 knots was required. But still they pressed on.

A month before the Cape Town ETA the tug was in serious difficulty and then the tow was released. The rig eventually grounded on the island of Tristan da Cunha and was later removed and scuttled. The tug was eventually refueled by a sister vessel and headed up to Dakar (no doubt sensibly avoiding the famous ship arrest regime in S. Africa).

The TOWCON’s standard terms provided that the tug owner would exercise due diligence to make the tug seaworthy and use best endeavours to perform the tow. Making his judgment, Mr Justice Teare (the former Lloyds Arbitrator) was highly critical of the tug owner, finding that their failure on both counts caused the loss.

The TOWCON, however, contained its well-known knock for knock clause (clause 18 – since reinforced in the 2008 version).  Under this, loss or damage of whatsoever nature however caused or sustained to the tow is to be for the sole account of the hirer. Indirect and consequential losses are also mutually excluded and the right to limit liability reserved. The tug owner invoked the protection of these provisions. Clearly this was the real battle ground – could the hirers and their underwriters break through the knock for knock in such a case? Most would agree that this was a tow that should never have left port, or even have been contemplated.

To the chagrin of subrogated underwriters, the judge followed precedent: that the knock for knock agreement “is a crude but workable allocation of risk and responsibility” and should be upheld despite the tug owner’s failure to measure up to the fundamentals of their primary obligations. Commentators continue to hold to the view that the clause will be effective even in cases of the most serious breach, but further challenge does seem inevitable.

Simon Tatham

Simon Tatham is a partner at Tatham Law and founder member of the service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine