1 Introduction

The oil and gas industry is a hazardous one. The activities involved in exploring for, producing, transporting and processing volatile hydrocarbons are attended by a whole host of risks: to people, property, the environment and the valuable commodity itself. These activities also frequently require co-operative working by large numbers of contractors whose interests may be adversely affected in the event of an accident causing damage to property or personnel, or economic loss, and the commercial framework of contracts governing these operations is complex. Not all of these contractors will be in a direct contractual relationship with each other, and not all of them will necessarily be in a direct contractual relationship with the operator. The oil and gas industry has developed a number of contracting practices to allow it to manage these physical2 risks. Generally speaking, up- and midstream oil and gas contracts seek to depart quite radically from the common law’s presumptions about how such risk should be allocated.3 As Parchomovsky and Stavang note in Chapter 3 of this work, “the gas and oil industry has largely opted out from standard tort liability”. Three vehicles are commonly used to achieve this re-allocation of risk: (1) indemnity and hold harmless clauses; (2) clauses which exclude or limit liability for what are commonly, if rather loosely, described as “consequential losses”; and (3) overall limitations on liability. Each will be discussed in turn.