Despite the advantages of a no blame culture, no blame regimes in alliance agreements do raise legal or commercial trade-offs that need to be well recognised and understood:
1) The fact that parties cannot exclude all their liability, even if that is their commercial intention, e.g., liability to third parties, which arises under statute: Although an alliance agreement can regulate the liability between the Participants, it cannot restrict the rights of third parties who may wish to bring a claim against one or more of the Participants.
2) Issues with obtaining insurance: For example, given that insurance policies are triggered on the existence of a liability, such policies will not respond where a Participant is not liable for any loss. This has given rise to the development of alliance-specific, project-based insurance policies.4
3) Whether no blame regimes will be construed as legally ineffective, on the basis that the jurisdiction of the courts cannot be ousted: This is because the no blame clauses claim to prevent the alliance Participants from litigating for breach of contract or other legal wrongs associated with the project - which is against public policy. In Dobbs versus the National Bank of Australasia Ltd (1935, 53 CLR 643), Justices Rich, Dixon, Evatt and McTiernan said regarding, parties attempting to oust the court's jurisdiction:
'... It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the courts to enforce them'.
This means that an undertaking by alliance Participants not to sue may be legally void, to the extent that it purports to prohibit litigation in relation to wrongs.
As well as the legal issues, there are also a number of practical implications of a no blame approach. Under such a regime, the Owner Participant is effectively ultimately liable for the behaviour and performance of the Non-Owner Participants. These are beyond its control. If Non-Owner Participants fail to perform their obligations in line with the alliance agreement, or the delivery of the project does not meet the required standard, the Owner Participant has no legal recourse against the Non-Owner Participants (except in cases of fraud or wilful default). This means that the impact of deficient performance rests with insurers, the Owner Participant and/or the Non-Owner Participants, via the Risk or Reward regime. (Section 4.6 has a more detailed discussion of Risk or Reward regimes.)
The legal and commercial implications of no blame should also be addressed by carefully considering the extent to which alliance Participants can resort to litigation. For instance:
• Will only wilful defaults give the alliance Participants the right to resort to litigation?
• Will the Participants have legal rights to enforce confidentiality undertakings or intellectual property warranties (even if only infringed by conduct that is not 'wilful')?
• What other processes (if any) must the alliance Participants go through before the right to litigate is available to them?
These matters need to be individually agreed and included in the alliance agreement. The alliance Participants' decision on these issues must also be considered in the context of the insurance policies put in place under the alliance agreement, as the decisions may have a significant impact on whether or not those policies will respond to events or claims as anticipated.5 Ideally, insurance advisers should be involved in discussions during the commercial workshop stage, so that the implications of the no fault - no blame regime are well understood and to ensure that insurers 'sign-up' to this value proposition before the terms of the alliance are implemented.
The approach to subcontracts for the project may also be structured to address the risks which may arise in connection with the no fault - no blame principle. In particular, the alliance agreement may reserve the Owner's right to enter into any subcontracts for delivery of the works (either in its own name, or by appointing one of the Non-Owner Participants as an agent of the Owner to enter into the subcontracts on its behalf), rather than leaving subcontracts to be entered into directly by the Non-Owner Participants. This enables the Owner to preserve its contractual rights under the subcontracts, which will often be traditional 'risk transfer' contracts. In addition, this approach gives greater control to the Owner to ensure that the Non-Owner Participants comply with any applicable procurement rules.
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4 See National Alliance Contracting Guidance Note 2: Insurance in Alliance Contracting: Selling Insurable Risks
5 See National Alliance Contracting Guidance Note 2: Insurance in Alliance Contracting: Selling Insurable Risks