Key Findings: Civil liability, financial security and compensation claims for offshore oil and gas activities in the EEA

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1 Preventing major offshore accidents & limiting their consequences Key Findings: Civil liability, financial security and compensation claims for offshore oil and gas activities in the EEA Ivan PEARSON European Commission Directorate General for /B3 Courtesy of Wintershall 03/07/14 Liability under the Offshore Safety Directive Articles 4(1) to 4(3): stringent licensing conditions take into account all possible liabilities Article 4(3) requires Member States to: "establish procedures for ensuring prompt and adequate handling of compensation claims including for transboundary incidents" "facilitate the deployment of sustainable financial instruments and other arrangements" Articles 7 and 38: extend ELD, make licensees strictly liable for "environmental" damage 2 1

2 Article 39 of the Offshore Safety Directive Reporting on: "the availability of financial security instruments" Article Deadline 39(1) 31/12/2014 "the handling of compensation claims" 39(1) 31/12/2014 "assessment of the effectiveness of the liability regimes in the Union" including "an assessment of the appropriateness of broadening liability provisions" "the appropriateness of bringing certain conduct leading to a major accident within the scope of [the] Directive on the protection of the environment through criminal law" 39(2) 19/07/ (3) 31/12/ Report Details Contractors: BIO by Deloitte, Stevens and Bolton LLP Comprehensive group of stakeholders consulted Builds on earlier report by Maastricht University Broad review of all primary legislation 4 2

3 Key Finding 1: Civil liability handled very differently across the EEA 3 categories of civil liability: 1. Bodily harm 2. Property damage 3. Economic loss Claims for bodily injury and property damage are provided for Some claimants face a heavy burden in establishing liability for "pure economic loss" 5 Liability Regime Case: Norway The 1997 Petroleum Act Clearly establishes liability for bodily harm, property damage and economic loss (including pure economic loss) Liability is strict Liability channelled to the licensee Specific provisions for claims from fishermen 6 3

4 Liability Regime Case: Denmark, France, Iceland and the Netherlands (inter alia?) Bodily harm, property damage and economic loss available through either Civil code Specific legislation However, some restrictions apply Proof of negligence Proof that damage was 'direct' Some ambiguity in legal text 7 Offshore Pollution Liability Association Ltd (OPOL) Industry mutual agreement Operators accept strict liability for damage and loss, including pure economic loss Required by UK Authorities Accepted as proof of financial capacity by Irish Authorities Issues: Operators decide whether claims are valid US$125 million liability cap on compensation Untested 8 4

5 Other EU Member States Limitations to civil liability exist Economic loss limited through the "exclusionary rule" Economic loss limited on the grounds of directness Fault-based proof of negligence Claims likely to fail Fishermen who lost revenue due to a fishing ban Hotels that suffered cancellations Businesses that supplied, processed or sold seafood Courtesy of The Guardian 9 Key Finding 2: Few compensation mechanisms in the EEA Exception: Norway Petroleum Activities Act codifies rules for managing aggregated claims and compensation to fishermen Legislation explicitly provides for transboundary claims from Denmark, Finland and Sweden Part IV of the OPOL rules also extensively outlines a claims procedure 10 5

6 The legal basis for transboundary compensation within the EEA exists* Conflict of laws 1. Which court should try the case? 2. What law should be applied? 3. Will a judgment be recognised or enforced in another country? 'Rome II' - Council Regulation (EC) No. 864/2007 on the law applicable to non-contractual obligations Claimants can choose which law applies Uncertainty: Economic loss, continental shelves and exclusive economic areas The Nordic Environmental Protection Convention, 1974 Claimants have no choice on which law applies Already reflected in Norwegian Petroleum Activities Act 11 Key Finding 3: Financial security instruments are available, but the demand isn't there Instruments available on the market First-party: Self-insurance, captives, parent-company guarantees Third-party: Pools, insurance, bonds, bank guarantees 10 EEA member countries specify insurance as financial security for compensation (7 do not specify anything) As liability for pure economic loss often does not exist, it follows that insurance coverage for it does not exist either 12 6

7 A corollary finding Preliminary research indicates that the extension of the civil code beyond the 12 nautical mile limit of territorial waters is based on precedence in a number of Target States. Further research is needed to ensure there is no legal loophole that may prevent redress for civil damage resulting from offshore activities on the continental shelves or exclusive economic areas in some countries. 13 Recap: Key Findings Civil liability for offshore oil and gas accidents is currently handled differently across the EEA. In particular, certain economic loss claims would fail in many EEA Member Countries. Few EEA member countries have compensation mechanisms for offshore oil and gas accidents in place. Although there is currently a lack of financial security instruments in the EEA to cover damage from the worst offshore accidents, this is more likely due to a lack of demand for such instruments than the inability of the market to provide them. 14 7

8 Thank you for your attention 15 8