By Felix Ayanruoh

The thought of the devastating and horrible impact of the BP Deep-Water Horizon Oil Spill in the Gulf of Mexico seemed almost unimaginable. Scenarios unfolding more frequently in the Niger Delta region than we’d like to believe asseverates two major questions regarding oil pollution that Nigerians have an obligation to answer.

First, can a disaster comparable to the one in the Gulf of Mexico happen here? The answer, of course, is yes — whether caused by negligent acts or some other event or series of events. Nature is unpredictable and human beings are fallible. It could happen.

The second question is whether it makes sense to enact an anti-indemnity law to check liability and risk issues and thus alleviating the terrible problem occurring in the Niger Delta region. Is the law worth enacting?

Environmental devastation in the Niger Delta region is common place with no remedy in sight. The British Broadcasting Corporation (BBC) in 2009 described Nigeria as, the “world pollution capital”. Recent oil spills in the region – 27 out of the 34 oil spills reported in 2012, occurred in Bayela State, calls to question the frequency and magnitude of these occurrences, effectiveness of our legal regime and the plight of citizens of this region.

In order for sustainable development to take place in the oil and gas industry, the legal system places at the disposal of parties the right to contract. The law, however, cannot possibly anticipate the content of an infinite number of atypical transactions into which these parties may need to enter. Legal framework, therefore, has to give the parties freedom of contract.

Standardized contracts have thus become a necessary tool in eliminating or controlling unanticipated incidents in litigation. The use of indemnity clauses is one of the tools used by international oil companies in petroleum exploration and development.

The principle of indemnity under common law doctrine allows liabilities to be transferred from one party to another. This includes (i) a duty to make good any loss, damage or liability another has incurred (ii) The right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty and (iii) reimbursement or compensation for loss , damage, or liability.

This clause makes the party giving the indemnity liable to pay compensation for loss or damage that arises from a specific event. It is a means of shifting the financial consequences of an event to another party. The parties may give “cross-indemnities” for loss or damage to their own personnel and equipment under a so-call “knock-for-knock” provision which means that each will be responsible for injury, loss or damage for their own personnel and equipment.”

Aside from the knock-for knock provision there is also the fault based provision. This is where the assuming party is indemnified for loss caused by his own negligence, strict liability, or other fault. Knock-for-knock indemnities or control based indemnities; unlike the fault based indemnity reduces and sometimes eliminates high cost of litigation between parties to the contract. Responsibility is resolved by looking into the express term in the contract and identifying the assuming party under the circumstance. However, these clauses also indemnify a party against its own negligence.

Recent oil field contracts have included gross negligence as negligence in indemnity provisions. This drafting technique while beneficial to oil majors and large service companies, local companies with limited resources and victims of these spills are at the receiving end.

For this reason the courts have consistently held that indemnity provisions that are contrary to public policy are unenforceable – they injure the public welfare or interest, or are contrary to public decency, sound policy, and good morals.

Several states in the Unites States place restriction on oilfield service contracts with indemnity clauses. Four states, Louisiana, Texas, New Mexico and Wyoming have statutes prohibiting certain indemnity provisions in oilfield service contracts otherwise known as anti-indemnity Acts.

The provisions of the four acts are similar in restricting indemnity provision in oilfield agreements. These laws were designed to prevent large oil owners 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.

In a nutshell, these laws provides that agreements relating to wells for oil, gas, or water, or to mine for a mineral that attempts to indemnify a party from its own negligence and also resulting from personal injury or death or property damages among others is void and unenforceable.

Apart from restricting the use of these clauses, the Texas statute in a remedial measure allows the insurance against own negligence by mandating the Operator to be named as an additional insured. An indemnity agreement is permissible if the parties agree in writing that the indemnity obligation will be supported by liability insurance coverage to be furnished by the party giving the indemnity.

Felix.ayanruohlaw.gmail.com