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15 September 2011
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
15 September 2011
Setting the Scene Nigel Chapman
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
Nigel ChapmanPartnerClyde & Co The St Botolph Building138 HoundsditchLondon EC3A 7ARDirect Dial: (0) 20 7876 4501 Fax: (0) 207876 5111Email: nigel.chapman@clydeco.com
The Purpose of TodayThe Purpose of Today
l Examine different regulatory regimes and response procedures in the different jurisdictions
l Compare the different liability regimes in those jurisdictions
l Discuss with panel how those liabilities are likely to play out in relation to insurance and cross liabilities
About TodayAbout Today l Ambitious programme
l Speakers on 5 jurisdictions
üUK – Graeme Baird
üUSA – John Woods
üRussia – John Whittaker
ü Brazil – Stirling Leech
ü Australia – John Edmond
l Jonathan Cassidy of Hess – The challenges operator will face the expectation on Insurers
l Distinguished panel to discuss the considerations that will arise as the affair plays out
Factual ScenarioFactual Scenario
l Summary in packs – for study afterwards
l Responsible to be prepared. Not a prediction
l Deliberately exaggerated in order to create interesting discussion points. Not a realistic stress test
l Not so important what occurs but rather the consideration of the loss, liabilities and cross-liabilities that it creates
IntroductionIntroduction l Humungous development project
l European oil major as operator for international consortium
l 2 gas fields in production. Oil field in course of development
l FPSO and risers in place. Production only weeks away. Handover of FPSO has been made but subsea construction continues
l 5 of 8 wells drilled. 3 completed
l One MODU drilling. One drillship completing
NB: The animation of the hypothetical scenario was played at this point - please see scenario documentation and
pictures for a full understanding of the scene.
SummarySummary l Drillship State of the Art 4 sunk. Her wreck will need to be removed because it compromises FPSO risers
l MODU ‘LITTLE JEWEL’ severely damaged
l 7 dead on drillship, plus 12 seriously injured and 2 salvors dead
l 3 dead on MODU
l Damaged gas lines. Production loss for gas fields
l Damages FPSO risers. Delay in start-up of oil field production
l NB: Potential CBI losses
l Uncontained oil flow and marine pollution clean-up exercise
Clyde & Co LLP is a limited liability partnership registered in England and Wales.
Authorised and regulated by the Solicitors Regulation Authority.
© Clyde & Co LLP 2011
15 September 2011
David Leckie, Clyde & Co
How Realistic is the Scenario?
David LeckiePartnerClyde & Co The St Botolph Building138 HoundsditchLondon EC3A 7ARDirect Dial: (0) 20 7876 4758Fax: (0) 20 7876 5111Email: david.leckie@clydeco.com
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
Risk AssessmentRisk Assessment
lThe regulatory regimes across the globe are fundamentally different and some are deeply flawed
lThere is often a disconnect between international HSE standards and local law regimes
lThe lessons from Piper Alpha were not adopted internationally
lThe response to Macondo is international
11 January 2011
Report to the President
11 January 2011
Report to the President
The flawed US regulatory regime
The flawed US regulatory regime
lThe regulator (MMS) had a conflict of interest
lAbsence of a “risk based”approach
lNo “goal setting” regime
lNo Safety Case regime
Piper Alpha1988Piper Alpha1988
Lord Cullen’s Report
International best practice
Lord Cullen’s Report
International best practice
Health & Safety at Work Act 1974
Offshore Installations Safety Case
Regulations 2005
Offshore Installations (Prevention of Fire &
Explosion and Emergency Response)
Regulations 1995
Pipeline Safety Regulations 1996
Offshore Installations & Pipeline Works (Management & Administration)
Regulations 1995
Management of Health & Safety at Work Regulations 1999
Corporate Manslaughter and Corporate Homicide Act
Offshore Installations & Wells (Design &
Construction, etc) Regulations 1995
Provision & Use of Work Equipment Regulations 1998
OSPRAG CAP
Launched September 2011 Industry designCameron builtOSPRAG owned
• 15,000psi & 250 deg F rated equipment • Modular design, low weight (~38 tonnes) • Water depth > 3048m• Handle 75,000 bbls/day of fluids• Deployable from boat or rig
6 January 20116 January 2011
13 October 2010
GuntherOettinger
EC Policy Paper
13 October 2010
GuntherOettinger
EC Policy Paper
20 May 2011
Consultation closed
20 May 2011
Consultation closed
Health and Safety (Offences) Act 2008
Health and Safety (Offences) Act 2008
15 September 2011
Response: UK / NORTH SEABy Graeme Baird
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
Graeme BairdPartnerClyde & Co The St Botolph Building138 HoundsditchLondon EC3A 7ARDirect Dial: (0) 20 7876 4493Fax: (0) 20 7876 5111Email: graeme.baird@clydeco.com
1. NORTH SEA ENVIRONMENT –OVERVIEW
1. NORTH SEA ENVIRONMENT –OVERVIEW
l Deepwater?
- Majority of North Sea wells are less than 100m.
- But the deepest UK continental shelf well is 1800m
[“DEEPWATER HORIZON” was 1544m].
l Regulation?
- Regulatory regime reviewed in 2010 by Parliament and by the Government in light of “DEEPWATER HORIZON” and found to be basically “fit for purpose” subject to some minor recommendations.
2. PRACTICAL EFFECTS OF UK REGULATORY REGIME
2. PRACTICAL EFFECTS OF UK REGULATORY REGIME
l Dept of Energy & Climate Change – Licensing
l HSE (Dept for Work & Pensions) – Safety
l MCA (Dept of Transport) – Clean-up/Accident Response
Health & Safety at Work Act 1974
Offshore Installations Safety Case
Regulations 2005
Offshore Installations (Prevention of Fire &
Explosion and Emergency Response)
Regulations 1995
Pipeline Safety Regulations 1996
Offshore Installations & Pipeline Works (Management & Administration)
Regulations 1995
Management of Health & Safety at Work Regulations 1999
Corporate Manslaughter and Corporate Homicide Act
Offshore Installations & Wells (Design &
Construction, etc) Regulations 1995
Provision & Use of Work Equipment Regulations 1998
2 cont’d. PRACTICAL EFFECTS OF UK REGULATORY REGIME
2 cont’d. PRACTICAL EFFECTS OF UK REGULATORY REGIME
2 cont’d. PRACTICAL EFFECTS OF UK REGULATORY REGIME
2 cont’d. PRACTICAL EFFECTS OF UK REGULATORY REGIME
Salient Points Relevant to this Incident
1. The oil company should be able to afford clean-up costs and third-party claims up to at least US$250m (verification of financial responsibility through OPOL is a condition of licensing).
2. The oil company must have a pre-approved oil pollution emergency plan (OPEP).
3. Prior to any operations a detailed “safety case” must have been agreed and approved by the HSE highlighting:-
- Potential dangers
- Consequences
- Methods of control
4. The implementation of that “safety case” was the responsibility of the “Safety Case Duty Holder” – on our scenario the drilling contractor as regards the semi-submersible drilling unit.
5. The Duty Holder must have appointed an Offshore Installation Manager (“OIM”) who is a named, identified individual.
6. The operator or license-holder (i.e. the oil company in our example) will have had regular inspections of equipment under the Design and Construction Regulations.
7. HSE impose a regime of regular self-testing of key safety equipment (e.g. the BOP should have been tested every 14 days).
8. The Safety Case Duty Holder and the well operator must have pre-agreed how their respective safety management systems will operate together, who would have primacy in an emergency and who would have overall responsibility.
9. Legal protection for whistle-blowers to encourage safety culture [but Select Committee Review sceptical].
3. IMMEDIATE AFTERMATH –WHO IS GOING TO TURN UP?
3. IMMEDIATE AFTERMATH –WHO IS GOING TO TURN UP?
1. Licence holder (Oil company) will implement own disaster plans, including their Oil Pollution Emergency Plan (“OPEP”)
MCA
May intervene in Rescue &, Pollution Control and/or Wreck Removal
[The new OSPRAG capping device is available if needed]
SOSREP
2. PoliceCriminal law
HSE
3. Contracting parties and their lawyers – Civil liabilities
4. Insurers and their lawyers – Civil liabilities
4. EVIDENCE AND LEGAL ANALYSIS
4. EVIDENCE AND LEGAL ANALYSIS
1. Pre-existing audit trail of regulatory compliance (or non-compliance) any or all of which could be published in the event of a casualty.
2. Witnesses – police interviews under caution.
ü Separate legal representation for individuals who may be “blamed”.
ü Refusal to answer can infer guilt in England (not Scotland).
3. Access to the physical evidence (by surveyors/adjusters etc.) may be delayed or denied by regulators.
4. Documents, logs etc. relating to the casualty are subject to seizure by the Police/HSE.
5. Media involvement. (Leaks or investigative journalism).
6. Witnesses - conventional interviews by parties and/or insurers, but in the context of the above.
7. Contract wordings (N.B. section 2 of the Unfair Contract Terms Act 1977: cannot exclude or restrict lilability for death or personal injury resulting from negligence).
8. Insurance Policy wordings (if finalilsed).
5. POLLUTION COSTS – LEGAL RESPONSIBILITY
5. POLLUTION COSTS – LEGAL RESPONSIBILITY “TORREY CANYON” DISASTER 18 MARCH 1967
5. con’dPOLLUTION COSTS – LEGAL RESPONSIBILITY
5. con’dPOLLUTION COSTS – LEGAL RESPONSIBILITY
l CLC and IOPC for tankers1. Strict liability imposed on owner.
2. Limit payable by owner/club.
3. Excess beyond limit payable by IOPC Fund (via levy on tanker industry).
l OPOL for offshore installations1. Not a fund!
2. Not spelled correctly! [Offshore Pollution Liability Agreement]
3. In theory “voluntary” but in practice not!
4. Oil company agrees strict liability to $250m per incident.
5. OPOL - covers “direct” losses.
6. OPOL - one year time bar.
7. Other OPOL members mutually guarantee the $250m, if oil company defaults.
8. Claims above $250m (a) claimants need to prove negligence (b) recovery subject to solvency of oil company.
6. GROSS NEGLIGENCE UNDER ENGLISH LAW?
6. GROSS NEGLIGENCE UNDER ENGLISH LAW? Criminal Civil
Intent
Wilful misconduct
Recklessness
Negligence Negligence
Innocence Innocence
But see:- J P Morgan Chase v. Springwell Navigation [2008] EWHC 1793 (Comm) (Gloster J)
- Sucden Financial v Fluxo-Cane [2010] EWHC 2133 (Comm) (Blair J)
- Camarata Property v Credit Suisse [2011] EWHC 479 (Comm) Andrew J Smith)
7. TONNAGE LIMITATION UNDER ENGLISH LAW?
7. TONNAGE LIMITATION UNDER ENGLISH LAW?
l 1976 Convention plus 1996 protocols apply.
l Is the owner of a MODU or semi submersible entitled to limit?
- Open question under English law.
- The persons entitled to limit are “shipowners” and “salvors” and “shipowner” is defined under Article 1 to mean
“…the owner, charterer, manager or operator of a sea-going ship”.
l Conduct barring limitation: Article 4 of the Convention states
“A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”.
l Oil pollution claims are specifically excepted from tonnage limitation under the 1976 Convention (see Article 3).
15 September 2011
Response: United States (Gulf of Mexico)John M. Woods
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
John M. WoodsPartnerClyde & Co US LLP
The Chrysler Building405 Lexington Avenue – 16th FloorNew York, New York 10174Direct Dial: (212) 710-3915Fax: (212) 710-3950Mobile: (917) 294-4698
Email: john.woods@clydeco.us
40
Relevant TopicsRelevant Topics l Overview of the Events
l Overview of the Regulatory Framework
l Insurance Issues
l Jurisdiction and Applicable Law
l General Liability
l Personal Injury
l Pollution and the Environment
l Possibility of Punitive Damages
l Criminal Liability
41
Overview of the EventsOverview of the Events l Resulting Damages
ü Extensive damage to “Little Jewel”
ü Loss of “State of the Art 4”
ü 3 dead on “Little Jewel” drill floor, 7 killed/12 injured/2 drowned on “State of the Art 4”
ü Uncontrolled flow of oil from well 4 for 2 weeks
ü Damages to the gas/oil fields – BOP, christmas tree, risers, flow lines, etc.
ü Loss of production/business interruption due to damages suffered, action by regulators, repair times, need to employ new drilling/work vessels, etc. (approx. 6 months)
l Issues Regarding Potential Liabilities
ü As between the operator and the contractors, who is responsible for the hurried nature of the activities which led to the incident?
ü Due to a mix of personnel on board, how should responsibility for “operator error” on “Little Jewel” be allocated?
ü Role of potential negligence in the taking of emergency measures which may have contributed to the chain of events (potential lack of preparation for emergency situations)
ü Products liability actions against maker of “Little Jewel” draw works control software and maker of well 4 subsea control valve
42
Overview of the Regulatory Framework
Overview of the Regulatory Framework
l Federal Government
ü Agencies within the Department of the Interior (MMS/BOEMRE)
- After DEEPWATER HORIZON, MMS was heavily criticized for having “conflicting missions” and was split into three new sub-agencies and re-named
- New BOEMRE (Bureau of Ocean Energy Management, Regulation and Enforcement) –Comprised of the following:
- Bureau of Ocean Energy Management
- Bureau of Safety and Environmental Enforcement
- Bureau of Natural Resources Revenue
ü United States Coast Guard – Operates the National Response Center (NRC). Responsible for oversight and/or carrying out the National Contingency Plan (NCP).
ü Congress – Responsible for fact-gathering and legislation in the wake of incidents (Exxon Valdez and DEEPWATER HORIZON)
ü FBI – Will be involved in the criminal aspects of the incident
l State Government – Involvement likely if incident occurs in state territorial waters and/or if injury or harm may be suffered by the state or the state’s citizens (“Jindal’s Berms”)
l Both a vessel’s flag state and classification society would also have various oversight responsibilities.
43
Insurance IssuesInsurance Issues l Applicable Coverages
ü Mega Corp (“Little Jewel”)
- H&M, loss of hire
- $1 billion liability coverage
ü Offshore SA (“State of the Art 4”)
- H&M, loss of hire
- $1.5 billion liability coverage
ü European Oil Major (“Humungous”)
- Package Policy – Standard EED, physical damage to “Humungous” and gas field infrastructure, liability coverage up to $500 million, LOPI up to $500 million
- CAR Policy together with ALOP up to $250 million
- DIC cover and excess liability coverage up to $2 billion
l Key Issues
ü Does any entity have “additional assured” status with respect to any other insurance policies?
ü How do the contracts between the European Oil Major and the contractors (Mega Corp, Offshore SA, European EPIC Contractor, etc.), allocate responsibility for the resulting harms suffered? (Look for “knock-for-knock” indemnity provisions.)
ü Are there any applicable waivers of rights of subrogation?
ü If applicable, state laws may limit validity of contractual indemnification provisions on public policy grounds (Texas Oilfield Anti-Indemnity Act)
ü If punitive damages are assessed, are such damages covered? (Assuming the facts do not trigger any bases for denial of coverage.)
44
Jurisdiction and Applicable LawJurisdiction and Applicable Law
l Admiralty Jurisdiction
ü TEST
- Location (navigable waters)
- Connection with maritime activity (potential to disrupt maritime commerce and substantial relationship to a traditional maritime activity)
ü Federal maritime law (a/k/a general maritime law or federal common law) and statutes
l OCSLA Jurisdiction
ü TEST
- Location (operation on the outer continental shelf involving exploration/production of minerals)
- Case arises in connection with said operation/exploration activities
ü Law of the adjacent state used as surrogate federal law if (1) action arises on a OCSLA situs, (2) federal maritime law does not apply of its own force, and (3) state law is not inconsistent with federal law
l When both are applicable, federal maritime law will govern
ü This is typically the case when in respect of floating platforms (vessels) such as DWH
ü OCSLA was enacted during the era of jack-ups (non-vessels) – Provided for state law as surrogate federal law and adoption of the LHWCA for injured rig workers who were not considered Jones Act seamen
l Federal Maritime Law v. State Law
ü Uniformity v. State/Local Rights
ü State law more likely to apply when incident occurs in state territorial waters, involves non-seafarers, in non-commercial situations, etc. and may be more generous in respect of non-pecuniary damages
45
General LiabilityGeneral Liability l Limitation of Liability Act of 1851
ü U.S. is not a signatory to international conventions
ü Vessel owner may limit liability to the value of the vessel (and any freight then pending) post-incident
ü Any negligence/unseaworthiness must be without the privity/knowledge of the vessel owner/manager
ü Limitation action concursus – Stays prosecution of other actions against the vessel owner and permits the vessel owner to conduct one defense in one forum
ü Insurers may benefit from limitation
l COLREGS (1972 International Regs. for Preventing Collisions at Sea)
ü “Rules of the Road” along with the Inland Rules of Navigation and state rules for state inland waters
ü Certain COLREGS may be at issue during the chain of events involving “Little Jewel,” “State of the Art 4,” the FPSO “Humungous,” and the two un-named work vessels
l The Pennsylvania Rule (The Pennsylvania, 86 U.S. (19 Wall.) 125 (1873))
ü Presumption of fault on the part of a party to a collision which breached a statutory provision
l Proportional Fault (United States v. Reliable Transfer Co., Inc., 421 U.S. 397 (1975))
ü Liability is assessed in proportion to the parties comparative degrees of fault.
46
Personal InjuryPersonal Injury l The Death on the High Seas Act (DOHSA)
ü Enacted in 1920 to provide for families of sailors and seamen who died in international waters (but DOHSA applies to any person)
ü Family of deceased may recover pecuniary damages if wrongful act, negligence or default (generally of the vessel/vessel owner) caused death on the high seas beyond a marine league (3 nautical miles) from the shore of any state
ü Challenges due to DEEPWATER HORIZON incident – Permit non-pecuniary damages also?
l The Jones Act (Merchant Marine Act of 1920)
ü Enacted in 1920 to promote the U.S. Merchant Marine
ü Seaman’s Rights
- Injured sailors may make claims and collect from their employers for negligence and/or unseaworthiness
- Right to trial by jury in state or federal court
- May sue for, in addition to maintenance and cure, pain and suffering, mental anguish, lost wages/earning capacity, medical expenses, disfigurement, etc.
l OCSLA/LHWCA
ü If any killed or injured workers are not considered vessel crew (Jones Act seamen), the OCSLA makes the LHWCA applicable (a workers’ compensation scheme)
l General Maritime Law v. State Law
ü Uniformity v. State/Local rights
ü Admiralty Jurisdiction equals Federal Jurisdiction
ü Savings to Suitors Clause – Saves all other remedies to which suitors are otherwise entitled (key benefit is jury trial in state court applying federal maritime law “Reverse Erie Doctrine”)
ü Maritime but local principles
- When there are gaps in the general maritime law, state law may be used to fill them in if not inconsistent with federal law
- Use of state law must not prejudice the general maritime law or prevailing principles of uniformity
47
Pollution and the EnvironmentPollution and the Environment
l Oil Pollution Act of 1990 (OPA ’90)
ü “Responsible Party” for a vessel/facility from which oil is discharged (or substantial threat of discharge) is liable for damages and removal costs
ü Third party defense if Responsible Party can show that spill was caused by the sole fault of a third party
ü Limitation on Liability – Greater of a fixed cap amount or an amount per gross ton
- (1) Oil cargo tank vessel, greater than 3,000 gross tons, single hull (including double sides only or double bottom only) – Greater of $3,200 per gross ton or $23,496,000
- (2) Tank vessel, greater than 3,000 gross tons, other than a vessel referred to in (1) –Greater of $2,000 per gross ton or $17,088,000
- (3) and (4) – Addressing vessels similar to (1) and (2), but less than or equal to 3,000 gross tons
- (5) Any other vessel – Greater of $1,000 per gross ton or $854,400
ü COFRs up to the maximum applicable amount based on tonnage or a fixed cap
ü OPA ’90’s limitation aspects are based on a vessel’s tonnage/capacity – OPA ’90 was not meant for use in respect of uncontrolled flow of oil from a well in which there can be no effective estimation of volume based on vessel size
ü National Pollution Funds Center (NPFC) and the Oil Spill Liability Trust Fund
ü DWH Erosion of some OPA ’90 provisions
- OPA ’90 causation for the recovery of damages held to be somewhere between “but for”cause and “proximate cause”
- Found that in OPA ’90 cases, rule of Robins Dry Dock (purely economic losses not recoverable under general maritime law without physical harm to claimant’s property) did not apply
ü Permits fines and even prison terms for noncompliance.
ü OPA ’90 does not pre-empt application of any state pollution statutes
48
Possibility of Punitive DamagesPossibility of Punitive Damages
l Can be available under general maritime law in cases involving gross negligence or willful/wanton/reckless conduct
ü Recent Supreme Court Townsend case – Held that Jones Act preserved comment law right to punitive damages in case involving willful failure to pay maintenance and cure for a Jones Act seaman
l South Port Marine, LLC v. Gulf Oil Ltd., 234 F.3d 58 (1st Cir. 2000) -- OPA ‘90's failure to mention punitive damages interpreted to mean that punitive damages are excluded under OPA ’90.
l Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008) -- Clean Water Act's (CWA is predecessor to OPA ‘90) failure to mention punitive damages interpreted to mean that punitive damages are preserved.
l On 26 August 2011, Judge Barbier, in respect of Deepwater Horizon, held that despite applicability of OPA ‘90, claims for punitive damages are available for general maritime law claimants against Responsible Parties.
l Related issue: Are punitive damages insurable? -- Generally, they are less likely to be insurable pursuant to U.S. law as compared with U.K. law. However, the egregious act(s) which may trigger punitive damages may also trigger denial of coverage under policy exclusions.
49
Criminal LiabilityCriminal Liability l May be against:
ü Master/Crew
ü Corporation
ü Corporate Officers/Directors
l Mens Rea
ü Conviction generally requires some sort of culpable mens rea such as willful/knowing conduct, negligence, criminal negligence, recklessness, wilful ignorance, etc.
ü However, criminal portions of environmental statutes may also be with strict liability
ü Knowing violations may often mean increased penalties/jail time
l Examples
ü Environmental: Refuse Act, Clean Water Act, OPA ’90, CERCLA, Migratory Bird Treaty Act, etc.
ü General Criminal: Criminally negligent homicide, reckless endangerment/manslaughter, criminal mischief, etc.
l Conviction may result in unlimited civil liability under OPA ’90, punitive damages in civil suits, and have preclusive effect in subsequent civil actions subject to a lower burden of proof.
50
U.S. Statutory CitationsU.S. Statutory Citations
l Outer Continental Shelf Lands Act
ü 43 U.S.C. §§ 1331-1356
l Limitation of Liability Act of 1851
ü 46 U.S.C. §§ 30501-30512
l COLREGS (1972 International Regs. for Preventing Collisions at Sea)
ü 33 U.S.C. §§ 1601-1608
ü 33 C.F.R. Parts 80-82
l Death on the High Seas Act (DOHSA)
ü 46 U.S.C. §§ 30301-30308
l Jones Act (Merchant Marine Act of 1920)
ü Seaman’s Rights Provision at 46 U.S.C. §30104
l Longshore Harbor Workers’ Compensation Act
ü 33 U.S.C. §§ 901-950
l Oil Pollution Act of 1990 (OPA ’90)
ü 33 U.S.C. §§ 2701-2761
l Refuse Act
ü 33 U.S.C. § 407
l Migratory Bird Treaty Act
ü 16 U.S.C. § 707
Questions?
Thank You.
John M. WoodsPartnerClyde & Co US LLP
The Chrysler Building405 Lexington Avenue – 16th FloorNew York, New York 10174Direct Dial: (212) 710-3915Fax: (212) 710-3950Mobile: (917) 294-4698
Email: john.woods@clydeco.us
15 September 2011
Response: Russia
By John Whittaker
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
John WhittakerPartnerClyde & Co The St Botolph Building138 HoundsditchLondon EC3A 7ARDirect Dial: (0) 20 7876 4909Fax: (0) 20 7876 5111Email: john.whittaker@clydeco.com
OverviewOverview
1. Basic Geographic Concept
2. International Conventions
3. Local Regulatory Regime
4. Oil Spill Response Plans and Activation
5. Court System/Civil Claims
6. Administrative Offences Code
7. Criminal Code Offences
Basic Geographical Concepts
Basic Geographical Concepts
l Territorial Sea – out to 12 nautical miles from coast
l Inland sea – bay, estuary, lagoon
üCaspian
l Exclusive Economic Zone – out to 200 nautical miles from coast
l Continental Shelf – Exclusive Economic Zone + any further “natural extension of mainland”
üUp to 350 nautical miles
üNatural prolongation of the land territory to the continental outer edge
International Conventions International Conventions l Convention for the Prevention of Pollution of the Sea by Oil
1954
l Convention on Civil Liability for Oil Pollution Damage 1969/1992
l Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971/1992
l Convention for the Prevention of Pollution from Ships 1973 / Protocol 1998
l United Nations Convention on the Law of the Sea 1982
l Convention on Oil Pollution Preparedness, Response and Cooperation 1990
l Protocol of 1996 to amend Convention on Limitation of Liability for Maritime Claims 1976
l Convention on Civil Liability for Bunker Oil Pollution Damage 2001
Oil Spill Response PlansRegulations
Oil Spill Response PlansRegulations
l Resolution of RF Government No. 613 of 21.08.2000
- On Urgent Measures to Prevent & Respond to Accidental Oil & Oil Product Spills
l Resolution of RF Government No. 240 of 15.04.2002
- Concerning the Procedure for Implementing Prevention & Response Measures for Oil & Oil Product Spills on the Territory of the RF
l Order of the RF Ministry for Civil Defence, Emergencies & Natural Disasters No. 621 of 28.12.2004
- Concerning Rules for Preparing & Obtaining Approval of Prevention and Response Plans for Oil or Oil Spills on the Territory of the RF
l Federal Law No. 116-FZ of 21.07.1997
- On the Industrial Safety of Hazardous Industrial Objects
*Please note that this list is not exhaustive. These are very detailed and will highlight the key features
OSRPOSRP
l State Level
ü Local
üRegional
ü Federal
Obligation on the State to have OSRP
l Organisations/Oil companies
ü “Oil Operations” widely defined
üGeographical responsibility irrespective of source or fault and to widest extent of any potential oil spill
Extract from Law 613 of August 613
Extract from Law 613 of August 613
“Plan for Prevention and Elimination of oil and oil products spills at the sea on the Federal level is developed by the State Marine Emergency and Rescue-Coordination Service of the Russian Federation subject to an agreement of the Federal Mining and Industrial Inspectorate of Russia, Ministry of Energy of the Russian Federation, Ministry of Defence of the Russian Federation, Ministry of Agriculture of the Russian Federation and subject to an approval of the Ministry of Transport of the Russian Federation, the Ministry of the Russian Federation for Civil Defence, Emergencies and Disaster Management and the Ministry of Natural Resources of the Russian Federation.”
OSRP for organisationsOSRP for organisations
l Details and specific guidelines
ü Measures to avert oil spills
ü Response in terms of personnel and equipment
ü OSRP must correspond to the maximum extent of oil pollution
ü Other objectives
- Developing procedures for coordination
- System of training and certification
- Monitoring changed circumstances
ü OSRP must be subject to expert review, in conjunction with authorities
ü OSRP must set out financial resources – including insurance
ü Right to conduct scheduled or unscheduled inspections
ü Obligation to carry insurance (Federal Law No. 225-FZ of 27.07.2010
ü Also compulsory insurance of 70m roubles (Article 15 and Appendix 1 to Federal Law No. 116 of 21.07.1997 (As Amended))
ü Also “different financial resources to prevent and respond to an oil spill”. As I have mentioned this point is very much on the radar.
l Validity – 3 years but plans are updated in the light of changed circumstances
OSRP CasualtyOSRP Casualty
l Tier 1 – 500 tons
üLocal Significance
l Tier 2 – 500 – 5,000 tons
üRegional Significance
l Tier 3 - +5,000 M/T
üFederal Significance
At any time an oil spill emergency may be upgraded by the Ministry of Civil Defence and Emergencies
l Likelihood of state investigations at administrative/criminal level
Court SystemCourt System l Civil Law system, limited case law, not binding
l Law unsettled, under constant reform
l Justice is swift – deadlines and hearing are short
l Interim orders are available (including freezing and attachment orders)
l Limited disclosure
l Highly formal – original documents and certified and notarised translations
l Supreme Court of Russian Federation
l State Arbitration Court of the relevant circuit
l State Court of Appeal
l State Arbitration Court
Note: “Arbitration Court” is “Arbitrazh Court” not to be confused
l Personal experiences – fought and won cases without paying a bribe
But don’t believe anything you read!
Source: EBRD
Civil Claims 1Civil Claims 1 l Claims would be made under Chapter 59 of the Russian Civil Code requires casual connection between wrongdoer’s behaviour and loss sustained but liability is strict.
ü DEATH – Claimant(s) will be relatives/dependants
- Funeral
- Reasonable, as incurred
- Moral damages – what are they?
- Discretionary
- US$10,000 – US$50,000 per close relative but could be higher (Claimants would include spouse, children and other dependants)
- Material economic damages
- Deceased yearly income divided by qualifying dependants and the deceased itself (children up to 18/23; widow (+55))
- Multiply share for each claimant to the extent of dependency/life expectancy e.g. woman life expectancy is deemed 75 years
- Future loss of earnings extremely limited
ü Claims may also be made by qualifying relatives to ‘Fund of Social Security’(FSS)
ü Claims may also be made against compulsory insurers (Federal Law No. 225-FZ of 27.07.2010)
Civil Claims 2Civil Claims 2 l Personal Injury – Strict Liabilityü Medical expenses
ü Moral damages/lump sum payment
ü In aviation context, for example, US$32,000 brain damage
- Generally limited loss of future earnings
Claims may also be made against compulsory insurers
l Environmental Damage – Strict liability under Article 1079 Civil Codeü Persons who are jointly responsible are liable jointly & severally (Article
1080 Chapter 59)
l Stateü Claimants would be state agencies depending on how damage is
sustained e.g. land/water
ü Relevant state agency depends on whether claim being dealt with at local level
l Privateü Claims may also be brought by private individuals/organisations and in
some circumstances directly against insurers
ü Claims against insurers of owners of vessel
Administrative Offence Code Administrative Offence Code
l Chapter 8 – Offences concerning Environment Protection & Wildlife Management
• Fines / suspension of activity / confiscation of vessel / instrument / tool used to commit offence
l Chapter 9 – Offences in Industry, Construction & Energetics
• Article 9.1 - Failure to meet requirements concerning industrial safety – fines / suspension of activity
l Chapter 19 – Offence against Government procedures
• Article 19.4, 19.5, 19.6, 19.7 – Failure to follow lawful order / direction of state supervision, eliminate cause and conditions conducive to Admininstrative Offence, to submit data - fines
l Chapter 20 – Offences encroaching upon Public Order & Security
• Article 20.6 – Failure to meet the Demands of Norms and Rules Regarding Prevention and Elimination of Emergency Situations –fines
Criminal Code Criminal Code l Chapter 26 – Ecological Crimes
ü Article 246 - Violation of the Rules for Environmental Protection During the Performance of Works – up to 5 years imprisonment / disqualification to specified offices / engage in specified activities up to 3 years, or without disqualification
ü Article 250 – Pollution of water
ü Article 247 - Violation of the Rules for Dealing with Environmentally Hazardous Substances and Waste
- Article 247.2 – pollution of environment - deprivation of liberty up to 5 years
- Article 247.3 – death or mass disease due to negligence – deprivation of liberty up to 8 years
ü Article 253. Contravention of the Laws of the Russian Federation on the Continental Shelf and on the Exclusive Economic Zone of the Russian Federation
- Article 253.1 - contravention of the rules for operating erected structures –fine / disqualification to hold specified office / engage in specified activities for a term up to 3 years years.
- Article 253.2 - investigation, exploration, and development of the natural resources of the continental shelf / exclusive economic zone of RF without relevant permits – fine / corrective labour for a term of up to 2 years, with disqualification to hold specified offices or to engage in specified activities for a term of up to 3 years, or without such disqualification.
SAN FRANCISCO
CARACAS
RIO DE JANEIRO
LONDON& GUILDFORD
NANTES BELGRADE
MOSCOW
ST PETERSBURG
PIRAEUS
DOHA
ABU DHABIDUBAI
SINGAPORE
HONG KONG
SHANGHAI
MUMBAI
RIYADH
DAR ES SALAAM
NEW YORK
PARIS
NEW DELHI
NEW JERSEY
TORONTO
MONTREAL
Clyde & Co world mapClyde & Co world map
Thank you
Associated Offices
Clyde & Co Offices
15 September 2011
Response: Brazil
By Stirling Leech
The Challenges Presented by a Major Offshore Energy Disaster Played Out in Five Jurisdictions
Stirling LeechPartnerClyde&CoAv. Rio Branco 257/808, Centro,Rio de Janeiro, BrazilDirect Dial: +55 21 2217-7719/6Fax: +55 21 2217-7720Email: stirling.leech@clydeco.com
OverviewOverview 1. Regulatory Framework
l Activity of exploration and production of oil and gas and offshore activity highly regulated.
l Civil, Administrative and Criminal rules and laws abound.
l Law of December 1997 that regulates safety of navigation in Brazilian waters defines vessels as including floating platforms and fixed rigs.
l No specific marine law as such
ü 1850 Commercial Code
üNew Civil Code
üNavy Regulations
ü Environmental Laws
ü 2000 Oil Law
OverviewCont’d. OverviewCont’d.
2. Players
l Port Captain Inquiry
ü Statements
üCollection of documents
ü Aims to determine causes of casualty and its effects, and name those possibly responsible
l The Maritime Tribunal
ü Administrative tribunal
ü Follows on from Port Captain inquiry
ü Administrative sanctions e.g. fines on skipper/Captain, suspend licence
ü Findings persuasive for civil court purposes but refutable
ü Appeal to same tribunal
OverviewCont’d.OverviewCont’d.
l Civil Court
ü State or Federal Court
üDo not have Anglo Saxon “precedent” system
ü Appeals possible
ü Slow, unpredictable
l Criminal Courts
ü State, Federal, Municipal
ü E.g. if pollution, deaths, personal injury involved
l Federal Government (monopoly over E&P activities)
l National Petroleum Agency for WaterwayTransportation (ANTAQ)
l IBAMA (Environmental Authority
l Petrobras
Law & JurisdictionLaw & Jurisdiction
l Brazilian civil and administrative court jurisdictionapplies to an incident occurring within 200 nautical miles of the coastline.
l Outside 200 miles, theoretically flag statejurisdiction.
l Brazilian Courts will assume jurisdiction for anyfact or act occurring in Brazil, or in case ofdomicility of Party in Brazil.
l In our case many rigs in Brazilian waters more than 200 miles offshore
l If there is a foreign jurisdiction/arbitration clause, tendency is to accept this, although difficult in a case of this magnitude, especially if Brazilianentity involved.
General Liability (Civil) General Liability (Civil)
l Assuming act or ommission, causation and loss, rightto indemnification.
l Contractual and extra contractual liability.
l Liability usually fault based (subjective liability)
l However, strict liability (independent of fault applies:
- Specific cases in law
- When activity, by its nature, involves risk for others
l Strict liability applies in case of:
ü Product liability (goods or services placed in the market)
ü Exploitation of oil and gas
ü Transport and storage of fuels
General Liability (Civil)Cont’d.
General Liability (Civil)Cont’d.
l In non-strict liability cases, no liability where:
- Exclusive fault of victim
- Fortuitous case or force majeure
- Exclusion clause in contract (in some cases)
l Exclusion, indemnity and hold harmless clauses
- Contracts likely to be subject to English or US law, even involving Petrobras, but if not:
- Huge controversy in Brazilian law as to whether such clauses are enforceable
- Likely such clauses of any description not enforceable in situations involving:
- Product Liability
- Consumer Code
- Transportation and storage of fuels
General Liability (Civil)Cont’d.
General Liability (Civil)Cont’d.
l Meaning of gross negligence
l Law 9.537/97 (article 34) - Regulates the safety of navigation in Brazilian territorial waters
l Joint and severally liable (assuming fault):
- the owner of the vessel, or its legal representative
- the owner or builder of the construction
- the person or entity which owns the field
- the actual offender (e.g.the charterer or operator of the vessel; the concessionaire or company authorized to perform activities pertinent to the oil industry; the Master or crew of the vessel; the port operator; the cargo owner; the insurer; the salvage company; and other parties eventually involved)
l Cross claims / set off / subrogation
Quantum &LimitationQuantum &Limitation
l Generally the indemnity is fixed in accordance with the extent of thedamage
l Right of indemnification for material damage, moral damage (non-physical damage to person), (and loss of image/reputation)
l Material damage can include direct / indirect loss, consequentialloss and loss of profit
l Interest plus monetary correction (and sucumbencia) on top
l Damages – compensatory, not punitive
- Not generally at very high levels
l Limitation clauses – same treatment as exclusion clauses
l Brazil has not ratified the 1957 Convention on Limitation of Liability, nor the 1976 Convention on Limitation of Liability
l Nor are these provisions incorporated into Brazilian law.
l Brazil did ratify the 1924 Brussels Convention on Limitation ofLiability
l Brazil has also ratified the Civil Liability (CLC) Convention 1969
PersonalInjury & DeathClaimCont’d.
PersonalInjury & DeathClaimCont’d.
l 2002 Civil Code (articles 948, 949 and 950)
l Requires proof of fault normally
l Personal injuries
ü costs of treatment
ü loss of profits (during the period of convalescence)
ü other damages suffered, as proved by the victim (e.g. moral damages)
ü compensation (pension) in case of injuries prevent the victim ofexercising his profession or reduces his ability to work
l Death claims
ü costs of funeral and family's mourning
ü food provision to people who the depended on the dead, taking into account the probable duration of life of the victim
l But remember the strict liability provisions
PollutionLiabilities &EnvironmentalIssues
PollutionLiabilities &EnvironmentalIssues
l Criminal, Civil and Administrative Liability –
l Administrative liability (Law 9.605/98, article 70)
ü any action or omission that violates the legal rules of usage, usufruct, promotion, protection and recovery of the environment
ü strict liability
ü federal, state or municipal governments can levy penalties and fines
l Civil liability
ü strict liability
ü no limitation of liability (theory of risk)
ü joint and severally liability
ü possible civil public lawsuit (brought by government, quasi-public company, or defense associations)
ü CLC Convention ’69
ü No voluntary scheme such as OPOL
Pollutionliabilities andenvironmentalissuesCond't.
Pollutionliabilities andenvironmentalissuesCond't.
l General Criminal liability
lNormally based on fault
ü can be attributed to an individual or corporate entity
ü penalties: fines, restriction of rights (including the suspension of activities, rendering of community services, funding of environmental projects, contributions to environmental and cultural public entities), and incarceration
l Pollution Criminal liability
lArguably criminal liability without fault
BrazilGeneral Pointsof Interest
BrazilGeneral Pointsof Interest
l Oil & Gas exploration and production and offshoreactivities technically first class
l This incident likely to be in deepwater
l The law and regulations governing offshore activity in this area highly complex and often confusing andcontradictory
l Process of law not first class
l Some aspects of the ‘P36’ incident still ramble on in theCourts.
l Bureaucracy is high, also getting money in and out ofBrazil not a straigtforward process
l Petrobras Delivery Plan for 2020
ü 65 new drilling rigs
ü 568 new supply and special vessels
ü 94 new production platforms
Response – Australia
83
John Edmond, Partner, Allens Arthur Robinson
1. Regulatory Framework
• Environmental Law
• Criminal Law
• Civil Law; TPA and Proportionate Liability
• Insurance Contracts Act 1984
84
2. Experience
Montara Commission of Inquiry 2010
Australian Approach to commissions of inquiry
85
3. Law and Jurisdiction
• Insurers
• Contracting Parties
86
Coffee Break
Welcome back!
Yes
YES but often circumstances under CAA 2010
NO
NO
Fault based under
OPGGS Act
2006
Efficient & experienced
Yes
High
Australia
YesYesYesYesCriminal liability
YES but not EG: personal Injury
Difficult in this situation
Yes, save for gross negligence or wilful misconduct
As a general rule, yes, subject to the precise wording. Liability to an injured party for personal injury/death cannot be excluded.
Are exclusion clauses enforceable?
NO but Moral Damages
NoYesNoPunitive damages
YESNoYesIt depends on the definition of a vessel? Is drilling ship/Little Jewel a vessel?
Limitation of liability for operators of vessels
StrictStrictStrict up to OPA 90 limit
Strict up to OPOL limit
Fault based thereafter
Pollution Liability –strict or fault based
Mixed bagSlow & unpredictable
Efficient & experienced
Efficient & experienced Legal process
YesYesYesYesStandard response procedures in place?
HighHighHighHighExtent of govt involvement
RussiaBrazilUSUK
June 15, 2009
How would an oil major respond and what is the expectation on Insurers?
15 September 2011, London
June 15, 2009
Try not to act like a headless chicken!
• Contact key people inside the organisation – CFO, Legal, Operations etc;
• Contact all brokers and notify all relevant insurers
• Contact Legal department to start looking at contractual indemnities
• Coordinate with co-venturers’ insurance departments and their insurers to optimise selection of loss adjusters
• Set up lines of communication with insurers (via loss adjusters). Discuss insurers’ information requirements quickly
• Think about the “day job” - review remaining workload – re-allocate amongst colleagues, external service providers, brokers etc.
• Make sure that Insurance is part of the coordinated team managing the incident and its’ aftermath – Insurance, Legal, PR, Government Affairs, HR, Operations, Projects, Finance etc.
• Meet key underwriters to seek assurance that claims will be swiftly paid when requested
• Be aware of likely delays in information transmission due to public authority involvement (HSE, Police, Regulators etc.)
June 15, 2009
Insurance Department Activity and Contacts
• Ability to manage events and control contact with brokers, insurers and loss adjusters
• Ability to manage other insurance activities during a crisis event
• Liaison with Legal Dept, Government Affairs, Public Relations, Accounting, Senior Management, HSE etc.
• Presentations to senior management, claims preparation for multiple classes of insurance
• Corporate Reporting lines – CEO, CFO, Public Relations, Legal etc.
• Public scrutiny – Greenpeace and other NGOs
• Manage internal expectations on insurance claims strategy
• Prepare for multi-year involvement in claims handling
Legal Dept
Government
Liaison
Senior
Management
Operational
Management
Co-venturer
Insurance
Teams
Captive
Managers
OIL
Loss
Adjusters
Brokers –
Various
Insurance
Department
June 15, 2009
Insurance Policy Issues
• Policy stacking – maximising use of each policy –
- OEE v TPL v P&I v OIL (PD/OEE/Pollution)
• Adequacy of limits – piggy back on contractor insurance
- Additional Named Insured status?
• Sheer number of insurers to notify and keep updated
• Pre-agreed loss adjusters – to represent reinsurers too
- perceived conflict of interest?
• Claims Procedures – pre-agreed?
• Claims cut through clauses – are they legal for the jurisdiction
of the “Humungous Loss”?
• Fronting issues – claims proceeds paid via a small local insurer
– credit risks?
June 15, 2009
Issues – Contracts and Reporting Lines
• Contracts
– Indemnity provisions – Mutual Hold Harmless or contractor indemnity regime? Do indemnities flow via the Operator?
– Willful Misconduct – will Operator’s and Contractors’insurance policies operate?
– Non-vitiation clauses to protect the Operator/co-venturers
– Limitations of liability
• Reporting Lines
– Liaison with co-venturers and their insurers/brokers/loss adjusters
– Updates to senior management on claims progress
– Updates for insurers on all losses – first and third party
• UKCS
– OPOL losses – direct compensation and pollution clean-up - $250mm voluntary strict liability, not an overall liability cap. Not funded up front.
June 15, 2009
So what do we expect from Insurers?
• A partnership approach towards claims settlements
• Remember a phrase from personal insurance – Treating Customers Fairly (TCF). “Contra proferentem”
• Ideally liability underwriters won’t reach straight for their lawyers when a large claim is notified to them
• Specific needs for help from insurers will include assistance with claims handling
• Stage payments for claims, with limited paperwork required to support payments
• Policy limits in the “Humungous” loss may well be breached - can underwriters be more relaxed about claims adjusting?
• Subrogation – be aware of insurers’ need to investigate – don’t prejudice their rights
• Root cause analysis by the business and regulators (HSE) -needs loss adjuster involvement for insurers.
• Insurers need to understand that PR, Stock Market rules and internal legal vetting may slow the issuance of relevant information
June 15, 2009
Thank You !
Insurances in PlaceInsurances in Place
1. MODU and Drilling Operators
- H&M, plus loss of hire (maybe)
- P&I entries
- CGL liability – typical values between $500M and $1B
- Contingent COW (maybe) – typical value $100M
2. Oil Major
- H&M and P&I for FPSO
- CAR for oil field construction with DSU and liability section
- Operating policy for fields with OEE & LOPI sections
Typical values: COW $300M, LOPI $500
- General liability cover – typical value: +/- $1B
3. Other Relevant Covers?
- D&O
- Workers compensation/ employers’ liability
Some ThoughtsSome Thoughts l The PD and BI losses are large but contained –maybe $3.5B to $4B
l The liabilities are much more open-ended. GL policies typically exclude blow-out/pollution risk, but size of PD & BI alone is worth a big fight
l The operator is very exposed and will look to make recovery from other parties/ other insurers wherever he can
l Drilling contractor solvency at stake
l Jurisdiction is crucial
l Prevention is better than cure and (ultimately) cheaper but increases base unit cost –commercial expediency vs cost of safety
l The more challenging the environmental the greater the potentiality, even if the probability is low. That is a question for governments as much as the industry
Have We Learnt Anything?
Have We Learnt Anything?
Probably nothing new….
… but hopefully food for thought.
Thank you.
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