€1.57 Billion to Spain and France in Compensation for Prestige Oil Spill

The 1976 tanker Prestige, which broke up and sank after she was refused entry to a harbour of refuge in November 2002, resulted in one of the worst environmental disasters in European history, polluting nearly 2,000 miles of French, Spanish and Portuguese coastline and wildlife, and adversely affecting the fishing industry.

It’s been a long saga, but today the Spanish Supreme Court upheld a decision handed down by the Provincial Court of A Coruña in November 2017 which requires The London P&I Club and the Prestige‘s Captain Apostolos Ioannis Mangouras to pay nearly €1.6 billion in damages to the Spanish government.

France is also set to receive €65 million and Xunta de Galicia €1.8 million.

Who is an “operator” under OPA 1990? Dumb barges and dumb tug.

 

Who is an “operator” under OPA 1990? Dumb barges and dumb tug.

 

In January 2013, a tugboat owned by Nature’s Way was moving two oil-carrying barges owned by Third Coast Towing down the Mississippi River. The barges were “dumb” barges lacking the ability for self-propulsion or navigation. The barges collided with a bridge, resulting in one of the barges discharging over 7,000 gallons of oil into the Mississippi. Nature’s Way and its insurer, and Third Coast Towing and its insurer were all designated by the Coast Guard as “responsible parties” under the 1990 Oil Pollution Act (‘OPA’). Nature’s Way subsequently spent over $2.99 million on the clean-up, and various governmental entities spent over an additional $792,000. In May 2015, Nature’s Way submitted a claim to the National Pollution Funds Center (NPFC) seeking reimbursement of over $2.13 million on the grounds that its liability should be limited by the tonnage of the tugboat and not the tonnage of the barges and also claiming relief from any obligation to reimburse the government for the additional $792,000-plus. Those claims were denied by the NPFC based upon its determination that Nature’s Way was an “operator” of the oil-discharging barge at the time of the collision.

 

The District Court held that Nature’s Way was an “operator” and its decision has been upheld by the Court of Appeals for the Fifth Circuit in US v Nature’s Way 21 Sept 2018. Case: 17-60698. OPA does not define the term “operator” but the Supreme Court in United States v. Bestfoods, 524 U.S. 51, 66 (1998) analysed the definition of the term in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as follows:

In a mechanical sense, to “operate” ordinarily means “[t]o control the functioning of; run: operate a sewing machine.” American Heritage Dictionary 1268 (3d ed. 1992); see also Webster’s New International Dictionary 1707 (2d ed. 1958) (“to work; as, to operate a machine”). And in the organizational sense more obviously intended by CERCLA, the word ordinarily means “[t]o conduct the affairs of; manage: operate a business.”

 

Applying that analysis, the ordinary and natural meaning of an “operator” of a vessel under the OPA would include someone who directs, manages, or conducts the affairs of the vessel, and would thereby include the act of piloting or moving the vessel. Nature’s Way undisputedly had exclusive navigational control over the barge at the time of the collision, and, as such, it was a party whose direction (or lack thereof) caused the barge to collide with the bridge. It was, therefore, “operating” the barge at the time of the collision based on the ordinary and natural meaning of the term.

 

The Fifth Circuit rejected Nature’s Way’s argument that its conduct in moving the barge was more akin to the “mere mechanical activation of pumps,” and it could not be deemed to have been “operating” the barge because it was merely moving the barge as per Third Coast’s directions, and it did not exercise control over its environmental affairs or inspections.

Nature’s Way directed precisely the activity that caused the pollution—it literally was the party that crashed the barge into the bridge. It was clearly “operating” the barge at the time of the collision and therefore constituted a “responsible party” under OPA.

 

“Everywhere you go, you can be sure with Shell.” No arguable duty of care in respect of Nigerian oil pollution leaks.

 

The issue of a parent company’s potential direct liability in tort in respect of acts of one of its subsidiary companies has recently come before the Court of Appeal in Okpabi v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria Ltd , [2018] EWCA Civ 191. The Nigerian claimants suffered from harm from pollution arising from oil leaks from Nigerian land pipelines due to the illegal process of “bunkering” by which oil is stolen by tapping into the pipelines.

The claimants wanted to sue  Shell’s Nigerian subsidiary SPDC, who operated the pipelines, in the English courts rather than in Nigeria. To this end they sued the English holding company, Royal Dutch Shell (‘RDS’), in the English courts. RDS would now serve as an ‘anchor defendant’ and the claimants obtained leave to serve SPDC out of the jurisdiction under para 3.1 of Practice Direction 6B, on the ground that there was between the claimant and RDS a real issue which it was reasonable for the court to try and the claimant wished to serve SPDC as a necessary or proper party to that claim.

RDS applied under CPR Part 11(1) for orders declaring that the court had no jurisdiction to try the claims against it, or should not exercise such jurisdiction as it had. At first instance Fraser J found that there was no arguable duty of care owed by the parent company Royal Dutch Shell Plc to those affected by the operations of its subsidiary in Nigeria.( [2017] EWHC 89 (TCC), noted in this blog on 2 February 2017. The governing law would be that of Nigeria, but the issue was decided under English law, because the legal experts for the parties were agreed that the law of Nigeria would follow, or at least include as an essential component, the law of England in this respect.

The Court of Appeal has now upheld the decision by a 2-1 majority, Sales LJ dissenting. The Court of Appeal applied the three stage Caparo Industries v Dickman test for assessing novel duties of care[1990] 2 AC 605 (HL) which set out three requirements, all of which had to be satisfied. (1) Was it foreseeable that if the defendant failed to take reasonable care, the plaintiff would be injured by the acts or omissions of the defendant (the foreseeability factor)? (2) Was there a relationship between the plaintiff the defendant characterized by the law as one of “proximity” or of being “neighbours” one to another (the proximity factor)? (3) as a matter of legal policy it would be fair and just to impose a duty of care on the defendant (the policy factor)? The duty of care argued for by the claimants foundered on the proximity requirement.

The claimants’ based their case on the duty of care owed by RDS to them on the fact that

“… [RDS] exerts significant control and oversights over [SPDC’s] compliance with its environmental and regulatory obligations and has assumed responsibility for ensuring observance of proper environmental standards by [SPDC] in Nigeria. [RDS] carefully monitors and directs the activities of [SPDC] and has the power and authority to intervene if [SPDC] fails to comply with the Shell Group’s global standards and/or Nigerian law.”

The claimants relied on five main factors to demonstrate RDS’s arguable control of SPDC’s operations: (1) the issue of mandatory policies, standards and manuals which applied to SPDC, (2) the imposition of mandatory design and engineering practices, (3) the imposition of a system of supervision and oversight of the implementation of RDS’s standards which bore directly on the pleaded allegations of negligence, (4) the imposition of financial control over SPDC in respect of spending which, again, directly relevant to the allegations of negligence and (5) a high level in the direction and oversight of SPDC’s operations.

Having reviewed the evidence submitted by the claimants Simon LJ concluded that none of the claimants’ five factors, either individually or cumulatively demonstrated a sufficient degree of control of SPDC’s operations in Nigeria by RDS to establish the necessary degree of proximity. There was no arguable case that RDS controlled SPDC’s operations, or that it had direct responsibility for practices or failures which were the subject of the claim. Simon LJ noted an important distinction between a parent company which controls, or shares control of, the material operations on the one hand, and a parent company which issues mandatory policies and standards which are intended to apply throughout a group of companies in order to ensure conformity with particular standards. “The issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary) such as to give rise to a duty of care in favour of any person or class of persons affected by the policies. [88]”.

A similar point was made by Sir Geoffrey Vos. The issue of mandatory policies, standards and manuals were of a highlevel nature and did not indicate control; control rested with SPDC which was responsible for its own operations.

“The promulgation of group standards and practices is not, in my view, enough to prove the “imposition” of mandatory design and engineering practices. There was no real evidence to show that these practices were imposed even if they were described as mandatory. There would have needed to be evidence that RDS took upon itself the enforcement of the standards, which it plainly did not. It expected SPDC to apply the standards it set. The same point applies to the suggested “imposition” of a system of supervision and oversight of the implementation of RDS’s standards which were said to bear directly on the pleaded allegations of negligence. RDS said that there should be a system of supervision and oversight, but left it to SPDC to operate that system. It did not have the wherewithal to do anything else.[205]”

 

Opkabi is one of three transnational tort claims involving attempts to sue a foreign subsidiary company using the English parent company as an ‘anchor’ defendant. In Lungowe v Vedanta and AAA v Unilever the court accepted that there was an arguable case that the anchor defendant owed a duty of care, although in AAA the claim foundered on the lack of foreseeability of the harm suffered by the claimants at the hands of third parties in the post-election violence in Kenya after the 2007 elections. An appeal is due to be heard later this year.

As a sidenote, in similar proceedings brought against SPDC in the Netherlands, using RDS as an ‘anchor defendant’, the Dutch Court of Appeal in December 2015 concluded that the claims against RDS were not bound to fail. They reasoned.

“Considering the foreseeable serious consequences of oil spills to the local environment from a potential spill source, it cannot be ruled out from the outset that the parent company may be expected in such a case to take an interest in preventing spills (or in other words, that there is a duty of care in accordance with the criteria set out in Caparo v Dickman [1990] UKHL 2, [1990] 1 All ER 56), the more so if it has made the prevention of environmental damage by the activities of group companies a spearhead and is, to a certain degree, actively involved in and managing the business operations of such companies, which is not to say that without this attention and involvement a violation of the duty of care is unthinkable and that culpable negligence with regard to the said interests can never result in liability.”

 

The claimants’ solicitors in Opkabi, Leigh Day, have indicated their intention to apply for leave to appeal to the Supreme Court.

 

 

Scope of OPA expanded. The US Foreign Spill Protection Act 2017.

 

On 12 December 2017 President Donald Trump signed into law the Foreign Spill Protection Act of 2017. This  amends the Oil Pollution Act of 1990 to make foreign facilities that are located offshore and outside the exclusive economic zone (EEZ) liable for removal costs and damages that result from oil spills that reach (or threaten to reach) U.S. navigable waters, adjoining shorelines, or the EEZ. Specifically, the following parties may be held liable: (1) the owners or operators of the foreign facilities, including facilities located in, on, or under any land within foreign countries; and (2) the holders of a right of use and easement granted under applicable foreign law for the area in which the facility is located. The Act extends to abandoned foreign facilities. The Act also expands the definition of  an “offshore facility” under the Clean Water Act so as to cover facilities seaward of the US EEZ. The expansion applies to the  subsections of s.311 of the Clean Water Act relating: to administrative and civil penalties for spills of oil and/or other hazardous substances; federal removal authority; civil enforcement ; the savings clause for existing state, local and federal law.

Parents and subsidiaries. No liability in tort for Nigerian pipeline pollution.

When will a parent company be liable in tort in respect of acts of one of its subsidiary companies? Fraser J has provided some answers to this question in Okpabi v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria Ltd,  [2017] EWHC 89 (TCC). The case involved pollution claims arising from oil leaks from Nigerian land pipelines due to the illegal process of bunkering by which oil is stolen by tapping into the pipelines. The principal target was Shells’ Nigerian subsidiary SPDC who operated the pipelines but the claimants wanted the case to be heard in the English courts rather than in Nigeria. To do this they brought proceedings against the English holding company, Royal Dutch Shell, which would serve as an “anchor defendant” to allow claims against SPDC to be joined to those proceedings. In a jurisdictional challenge by the two defendants the issue arose as to whether there was an arguable duty of care on the part of RDS to the claimants under Nigerian law which for these purposes was the same as English common. If not, there would be no ‘anchor defendant’ and SPDC’s applications challenging jurisdiction would succeed, due to the lack of connection of the claims against SPDC with this jurisdiction.

The claimants argued that Royal Dutch Shell owed a direct duty of care to them, relying heavily on the Court of Appeal’s decision in Chandler v Cape [2012] 1 WLR 3111, in which a parent company was found to owe such a duty to employees of its subsidiary company. They alleged that RDS had failed to ensure that repeated oil leaks from SPDC’s infrastructure were expeditiously and effectively cleaned up so as to minimise the risk to the claimants’ health, land and livelihoods and, further, had failed to take appropriate measures to address the well-known systemic problems of its operations in Nigeria which led to repeated oil spills.

Fraser J applied the threefold Caparo test to finding the existence of a duty of care.

1. The damage should be foreseeable; 2. There should exist between the party owing the duty and the party to whom it is owed a relationship of proximity or neighbourhood; 3. The situation should be one in which it is “fair, just and reasonable” to impose a duty of a given scope upon the one party for the benefit of the other.

The second and third of these limbs were problematic for the claimants. The evidence from those at SPDC’s evidence was to the effect that it, rather than RDS, took all operational decisions in Nigeria, and RDS performed nothing by way of supervisory direction, specialist activities or knowledge, that would put RDS in any different position than would be expected of an ultimate parent company. It was SPDC that had the specialist knowledge and experience – as well as the necessary licence from the Nigerian authorities – to perform the relevant activities in Nigeria that formed the subject matter of the claim.

Nor could a duty of care be said to arise from public statements by made both by the Shell Group and by RDS about the Group’s commitment to environmental issues, and the organisation of the Shell Group, such statements being a function of the listing regulations of the London Stock Exchange.  First these statements were qualified by the following wording “Royal Dutch Shell plc and the companies in which it directly and indirectly owns investments are separate and distinct entities. But in this publication, the collective expressions “Shell” and “Shell Group” may be used for convenience where reference is made in general to those companies. Likewise, the words ‘we’, ‘us’, ‘our’ and ‘ourselves’ are used in some places to refer to the companies of the Shell Group in general. These expressions are also used where no useful purpose is served by identifying any particular company or companies.” Second, it was highly unlikely that compliance with such disclosure standards mandated for listing on the London Stock Exchange could of itself be characterised as an assumption of a duty of care by a parent company over the subsidiary companies referred to in those statements.

As regards Chandler v Cape, the claimant there was a former employee, which, by definition, involved a closer relationship than parties affected by operational activities. A duty of care was more likely to be found in respect of employees, a defined class of persons, rather than others not employed who are affected by the acts or omissions of the subsidiary.  None of the four factors identified by Arden LJ in Chandler as leading to a duty of care on the parent company was present here. 1. RDS was not operating the same business as SPDC. 2. RDS did not have superior or specialist knowledge compared to the subsidiary SPDC. 3. RDS could have only a superficial knowledge or overview of the systems of work of SPDC.  4. RDS could not be said to know that SPDC was relying upon it to protect the claimants.

Accordingly, there was no arguable duty of care on the part of RDS and with the disappearance of the anchor defendant the claims against SPDC could not proceed in England. The claimants’ solicitors, Leigh Day, have stated that they will appeal.

 

What’s in a name? From DECC to DBEIS to OGA.

On 1 October 2016 the Energy Act 2016 (Commencement No.2 and Transitional Provisions) Regulations 2016 (the “Regulations”) will bring into force most of the sections of the Energy Act  2016 which relate to oil & gas operations. Various powers will be transferred from the former Department of Energy and Climate Change (‘DECC’) – which became the Department for Business, Energy & Industrial Strategy (‘DBEIS’) over the summer – to the Oil and Gas Authority (‘OGA’). The powers transferred will be the licensing and regulatory powers, and decommissioning powers, under the Petroleum Act 1998, as well as certain powers relating to assessment of offshore tax liability. DBEIS remains the principal environmental regulator for the offshore oil and gas industry and the changes should not materially affect the operation of the Offshore Safety Directive Regulator (‘OSDR’), responsible for overseeing industry compliance Offshore Safety Directive 2013. The OSDR is a partnership between the Health and Safety Executive and DBEIS.

Tomorrow the movie ‘Deepwater Horizon’ opens worldwide. A must-see for all concerned with offshore oil and gas operations.

Safe berths, charters and occupiers’ liability in the US

An otherwise unremarkable, but bitterly fought, safe berth / occupiers’ liability case from the Eastern District of Pennsylvania a few weeks ago. A tanker, the Athos I, was owned by Frescati, time-chartered to a tanker pool Star, and voyage-chartered by them to Citgo, an oil company, to carry a crude oil cargo from Venezuela to its own facility at Paulsboro, NJ (opposite Philadelphia). On the way in to the berth she hit an abandoned anchor, was holed, and oil escaped costing tens of millions to clean up. Could Frescati sue Citgo, the voyage (sub)charterers, for repair costs to the vessel (which actually they scrapped) plus the other costs incurred? Yes. The safe berth warranty was broken by Citgo. Interestingly the courts had earlier held that this enured to the benefit of Frescati, disponent owner under the time charter to Star, as a third-party beneficiary (In re Frescati Shipping Co Ltd, 718 F.3d 184, 200 (3d Cir. 2013): something lawyers in England might care to bear in mind, especially where a mesne charterer is bankrupt). In addition there was an occupiers’ liability claim against Citgo for negligence, which also succeeded, the court making it clear that there could be a pro-active duty to check for hidden hazards using things like sonar side-scans. Frescati recovered the clean-up costs they had paid, plus the repair costs, even though no repairs had in fact been done (the vessel having been scrapped); the latter point confirming that the rule as repair costs is much the same both sides of the Atlantic.

See In re Petition of Frescati Shipping Co Ltd, Civil Action Nos. 05-cv-305 (JHS), 08-cv-2898 (JHS), ED Pa, 25 July, 2016.

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The EU Referendum. Part Three. Losing our Directives?

 Since 2000 the EU has become increasingly active in the maritime sphere as regards safety and the environment. This has led to a series of Directives, set out below, which will cease to have effect under the implementing statutory instruments in the UK on repeal of the European Communities Act 1972.

First off, there is the series of Directives generated under the third maritime safety package, known as ERIKA III, which entered into force on 17th June 2009.

–  Directive 2009/21/EC on compliance with flag state requirements

– Directive 2009/15/EC and Regulation (EC) No. 391/2009 on common rules and standards for ship inspections and survey organisations

–  Directive 2009/16/EC on port State control

– Directive 2009/17/EC establishing a Community vessel traffic monitoring and information system

– Directive 2009/18/EC establishing the fundamental principles governing the investigation of accidents in the maritime transport sector

– Directive 2009/20/EC on the insurance of shipowners for maritime claims

This gives Member States the power to expel from their ports vessels which do not have a certificate showing liability for maritime claims up to the limits in the 1976 LLMC as amended by the 1996 Protocol.

Erika III also produced a Regulation.

Regulation (EC) No. 392/2009 on the liability of carriers of passengers by sea in the event of accidents. This brought the 2002 Protocol to the Athens Convention into force within the EU in 2012. The UK has ratified the Protocol and on 28 May 2014 brought it into domestic law through a statutory instrument The Merchant Shipping (Convention Relating to the Carriage of Passengers and their Luggage by Sea) Order 2014 deriving from the powers conferred by sections 183(4) and (6) and 184(1) and (3) of the Merchant Shipping Act 1995

 Other notable Directives in the maritime sphere are

Directive 2005/35/EC of the European Parliament and of the Council of 7 September 2005 on shipsource pollution and on the introduction of penalties for infringements

This criminalises ship source pollution in cases of ‘serious negligence’ and was the subject of a decision of the ECJ in 2008 in the Intertanko case C-308/06 in which it decided that the legality of the Directive could not be assessed in the light of either MARPOL or UNCLOS.

Directive 2012/33/ on the Sulphur Content of Maritime Fuels.

This came into effect on 1 January 2015 and requires ships sailing in the English Channel, the North Sea and the Baltic Sea (the North European emission control area) to use bunker oil with a maximum 0.1% sulphur or apply alternative methods in order to achieve the same effect.

Directive 2013/30/EU on the safety of offshore oil and gas operations and amending Directive 2004/35/EC

This was the EU response to the ‘Deepwater Horizon’ blowout in 2010. The Directive aims to prevent the occurrence of a ‘Deepwater Horizon’ in offshore installations in the EU but also addresses, in part, the response should such an incident occur, through three provisions. First, art. 38 extends the territorial scope of the Environmental Liability Directive 2004 (the ‘ELD’) from coastal waters to waters within the exclusive economic zone or the continental shelf of Member States, up to 370 km from shore. Second, art.7 requires Member States to ensure that the licensee is financially liable for the prevention and remediation of “environmental damage” – i.e. damage falling within the ELD – caused by offshore oil and gas operations carried out by, or on behalf of, the licensee or the operator. Third, art.4 requires Member States “to require the licensee to maintain sufficient capacity to meet their financial obligations resulting from liabilities for offshore oil and gas operations.” and, when granting or transferring licenses, to take due account of, inter alia, “the applicant’s financial capabilities, including any financial security, to cover liabilities potentially deriving from the offshore oil and gas operations in question including liability for potential economic damages where such liability is provided for by national law”. These provisions came into effect on 19 July 2015.

It is, of course, open for Parliament to provide for the continuation of the statutory instruments implementing these Directives.

The House of Commons Briefing Paper of 30 June suggests (p14):

There might be some over-arching legislation saying, for example, that all UK laws implementing any EU Directive were repealed (perhaps with specified exceptions); or that they would all remain in force (again perhaps with exceptions). If the ECA were repealed, any secondary legislation based on s2(2) ECA would need to be saved from lapsing if it was to continue in force. EU Regulations, which are directly applicable (i.e. they do not need further implementation in the UK to come into force) will cease to have effect if the UK were to repeal the ECA.

There is no reason why EU-based UK law could not remain part of UK law, but the Government would have to make sure it still worked without the UK being in the EU.

The Government would probably come up with a mechanism for allowing changes to be made to secondary legislation (Statutory Instruments) made under the ECA or other ‘parent’ acts. There could also be general amendments, such as replacing references to ‘the Commission’ or ‘Council’ with references to ‘the Secretary of State’.

The devolved legislatures would have to deal with EU legislation they have transposed into Scottish, Welsh or Northern Irish laws. It would also be necessary to amend the relevant parts of the devolution legislation, which might require a Legislative Consent Motion under the Sewel Convention.

UK Referendum Result. Implications for shipping law?

As a result of the vote to leave the EU,  the UK will cease to be a member of the EU probably around November 2018 after the new prime minister has invoked article 50 and Parliament has repealed the European Communities Act 1972. How will this affect shipping law?

Substantively, not a great deal. English dry shipping is based on common law, and a few key statutes, such as COGSA 1992, and the implementation of international carriage conventions through domestic legislation – such as COGSA 1971 with the Hague-Visby Rules. Nothing European here, so no change.

With  wet shipping, the CLC and the Fund are part of our national law through domestic law implementing international conventions. Similarly,  the Wreck Removal Convention, the Salvage Convention, and the 1976 Limitation Convention. Again, nothing European here, so plus ca change.

However, procedurally,  we are very much affected by European legislation – and this is something we shall return to in a later post. As a starting point, bear in mind the two sources of EU legislation.

  • Directives which are implemented by and Act of Parliament. On our leaving the EU it will be up to Parliament to decide whether to repeal or amend the implementing legislation.
  • Directives which are implemented as statutory instruments pursuant to s.2 of the European Communities Act 1972. These will cease to be a part of national law once the European Communities Act 1972 has been repealed. If we want to keep them we need to enact them as part of our domestic law.
  • Regulations which have direct effect. These will cease to be a part of national law once the European Communities Act 1972 has been repealed. If we want to keep Regulations we need to enact them as part of our domestic law.