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Title: Unbalanced indemnities : a comparative analysis of risk allocation in oilfield service contracts in Malaysia, the UK and USA
Author: Wan Zahari, Wan Mohd Zulhafiz Bin
ISNI:       0000 0004 5914 7816
Awarding Body: University of Aberdeen
Current Institution: University of Aberdeen
Date of Award: 2016
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Oil and gas projects are risky ventures. As a result, the contractual allocation of liabilities between the project parties becomes an issue of paramount importance. The allocation of their respective shares of liability in accidents is typically carried out under standard industry contracts which have been established over many years. However, as a consequence of the private and government litigation arising from the Macondo oil spill in the Gulf of Mexico in 2010 as well as revised perceptions of risk exposure, evidence suggests that operators generally are seeking to modify the established approach to liability allocation through individual contract negotiations with contractors. This scenario has significant and potentially adverse financial implications for the contractors and for the long-term competitiveness and sustainability of the industry. This work focusses in particular upon the law of Malaysia. It will argue that there is a need to develop a legal mechanism that will achieve a fair distribution of risk between operators and contractors ("a balanced risk allocation mechanism"). This research considers the viability of having a balanced legal mechanism in Malaysia. In so doing, it will draw on the US and UK legal practice on risk allocation and indemnity and hold harmless clauses in oilfield service contracts. Malaysia does not have any specific indemnity law and legal mechanism to govern liability and the risk allocation between operators and contractors in oilfield service contracts. Since Malaysia is a Commonwealth country, it is relevant to make reference to the UK legal practice in this matter. Moreover, Malaysia is also a common law jurisdiction, which also shows why it is appropriate to make reference to the UK legal practice. In the same vein, some US states have implemented Oilfield Anti-Indemnity Acts such as Texas, Louisiana, Wyoming and New Mexico. This research will focus on two states in particular; Texas and Louisiana. These states long experience of oil and gas operations means it is sensible to have regard to them. This research will conduct a comparative analysis of the legal practice in the UK and the US with regards to the mechanism for controlling unfair risk allocation and imbalanced indemnity and hold harmless clauses in oilfield service contracts. The analysis of this issue will consider the issues pertaining to freedom of contract and inequality of bargaining power in the Malaysian regime. An empirical study will be conducted to the Malaysian oil and gas industry to investigate this problem. This research will examine the legal mechanisms regulating indemnity and hold harmless clauses as applied by the UK oil and gas industry in the North Sea through statutory and judicial control. This research will also investigate the possibility of applying such mechanisms in Malaysia in a manner consistent with the current Malaysian laws. This will be done through a comparison of the standard contractual provisions used in the offshore petroleum industry in the United Kingdom Continental Shelf and the contractual provisions used in the Malaysian industry. The comparison will consider issues pertaining to contract law (and a little of the tort law regime) in Malaysia. This research will examine the application of the knock-for-knock indemnity regime as practised in the UK. It will also examine the feasibility of implementing the Industry of Mutual Hold Harmless Deed ("IMHH") in the Malaysian oil and gas industry. Currently, the IMHH applies to the UK's territory of the North Sea and the Irish Sea. It was created to support and effectively manage the inherent risks in offshore activities in the oil and gas industry. The IMHH works on the basis that a company is considerably in a better position to protect its own people and equipment. Therefore, the company will indemnify and insure its own people and equipment. In this regard, companies are more certain of the risks they must insure. This practice could avoid multiple insurance policies on the same risk. However, it is important to note that the IMHH does not cover an individual contract. Hence, the original IMHH model would be ineffective to an indemnity clause between operators and contractors under one individual contract. Thus, some modification of the IMHH model should be made in order to accommodate such circumstances. Lastly, this research will also examine the viability of enacting an Anti-Indemnity Act in Malaysia. Several states in the US place restrictions on oilfield service contracts with indemnity clauses. As mentioned earlier, this research will focus on two US states, namely Texas law and Louisiana law. These laws were designed to prevent large oil companies and oilfield operators demanding their contractors indemnify them not only against negligence on the part of the contractor, but also any possible negligence of third parties, including their own. The methodology employed in this research will be a combination of empirical, doctrinal and comparative analysis which will be carried out in a descriptive, analytical and prescriptive manner.
Supervisor: Not available Sponsor: Malaysian Ministry of Higher Education ; International Islamic University Malaysia
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Liability for oil pollution damages ; Financial risk management ; Oil fields