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Chapter 13Maritime Accidents with ParticularEmphasis on Liability and Compensationfor Damage from the Exploitationof Mineral Resources of the Seabed

Tullio Scovazzi

Abstract Maritime casualties can affect both human life and the protection of theenvironment. The United Nations Convention on the Law of Sea binds States toeffectively exercise their jurisdiction and control in administrative, technical, andsocial matters over ships flying their flag, conforming to generally acceptedinternational regulations, procedures, and practices. International rules related tomaritime accidents are also found in a number of specific treaties adopted at eitherthe world or the regional level and relating to both the prevention of accidents andcompensation of damage if an accident has taken place. The paper focuses on the2010 incident caused by the explosion of the Deepwater Horizon platform in theGulf of Mexico.

Keywords Maritime incidents � Prevention � Compensation of damages � Oilexploitation platforms

Contents

13.1 Maritime Casualties in General ................................................................................... 28813.2 The Deepwater Horizon Incident................................................................................. 291

13.2.1 The Facts ......................................................................................................... 29113.2.2 The Response .................................................................................................. 29213.2.3 The Lessons to Be Learned............................................................................ 293

13.3 Treaties on Liability and Compensation for Damage from Offshore Activities ....... 29713.3.1 The World Level............................................................................................. 29713.3.2 The Mediterranean Regional Level................................................................ 297

13.4 The Main Legal Questions........................................................................................... 301

T. Scovazzi (&)Università di Milano-Bicocca, Piazza dell’Ateneo Nuovo 1, 20126, Milanoe-mail: [email protected]

A. de Guttry et al. (eds.), International Disaster Response Law,DOI: 10.1007/978-90-6704-882-8_13,� T.M.C. ASSER PRESS, The Hague, The Netherlands, and the author(s) 2012

287

13.4.1 Compensation for Environmental Damage.................................................... 30113.4.2 Evaluation of Environmental Damage........................................................... 30413.4.3 Compulsory Insurance and Compensation Fund ........................................... 306

13.5 The Initiatives for a New Regime within the European Union ................................. 30913.6 Other Recent Developments ........................................................................................ 31713.7 Conclusive Remarks ..................................................................................................... 319References................................................................................................................................ 320

13.1 Maritime Casualties in General

As other accidents, maritime casualties can affect both human life and the pro-tection of the environment. The United Nations Convention on the Law of Sea(Montego Bay 1982)1 binds States to effectively exercise their jurisdiction andcontrol in administrative, technical, and social matters over ships flying their flag.In particular, under Article 94:

‘3. Every State shall take such measures for ships flying its flag as are necessary to ensuresafety at sea with regard, inter alia, to:

(a) the construction, equipment and seaworthiness of ships;

(b) the manning of ships, labor conditions and the training of crews, taking into accountthe applicable international instruments;

(c) the use of signals, the maintenance of communications and the prevention of collisions.

4. Such measures shall include those necessary to ensure:

(a) that each ship, before registration and thereafter at appropriate intervals, is surveyed bya qualified surveyor of ships, and has on board such charts, nautical publications andnavigational equipment and instruments as are appropriate for the safe navigation of theship;

(b) that each ship is in the charge of a master and officers who possess appropriatequalifications, in particular in seamanship, navigation, communications and marineengineering, and that the crew is appropriate in qualification and numbers for the type,size, machinery and equipment of the ship;

(c) that the master, officers and, to the extent appropriate, the crew are fully conversantwith and required to observe the applicable international regulations concerning the safetyof life at sea, the prevention of collisions, the prevention, reduction and control of marinepollution, and the maintenance of communications by radio’.

1 Hereinafter, UNCLOS.

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In taking the above-mentioned measures, each State is required to conform togenerally accepted international regulations, procedures, and practices (Article 94para 5). As ships navigate through all the oceans and seas of the world, technicalrequirements relating to their design, construction, manning, or equipment need tobe established at a uniform level.

In the case of artificial islands, installations and structures, under Article 60para 3:

‘due notice must be given of the construction of such artificial islands, installations orstructures, and permanent means for giving warning of their presence must be maintained.Any installations or structures which are abandoned or disused shall be removed to ensuresafety of navigation, taking into account any generally accepted international standardsestablished in this regard by the competent international organization. Such removal shallalso have due regard to fishing, the protection of the marine environment and the rightsand duties of other States. Appropriate publicity shall be given to the depth, position anddimensions of any installations or structures not entirely removed’.

As far as the protection of the environment is concerned, the UNCLOS makes adistinction between six different kinds of marine pollution, namely from land-based sources, from activities in the seabed subject to national jurisdiction, fromactivities in the seabed beyond national jurisdiction, from dumping, from vesselsand from the atmosphere. In almost all cases,2 pollution can also result fromunexpected and unintentional events, as envisaged in Article 194 para 3, whichbinds States to take measures designed to minimize to the fullest possible extent

‘(b) pollution from vessels, in particular measures for preventing accidents and dealingwith emergencies, ensuring the safety of operations at sea, preventing intentional andunintentional discharges, and regulating the design, construction, equipment, operationand manning of vessels;

(c) pollution from installations and devices used in exploration or exploitation of thenatural resources of the seabed and subsoil, in particular measures for preventing accidentsand dealing with emergencies, ensuring the safety of operations at sea, and regulating thedesign, construction, equipment, operation and manning of such installations or devices;

(d) pollution from other installations and devices operating in the marine environment, inparticular measures for preventing accidents and dealing with emergencies, ensuring thesafety of operations at sea, and regulating the design, construction, equipment, operationand manning of such installations or devices’.

The UNCLOS also provides that when a State becomes aware of cases in whichthe marine environment is in imminent danger of being damaged or has beendamaged by pollution, it shall immediately notify other States it deems likely to be

2 The exception is pollution from dumping, which is defined as the deliberate disposal of wastesor other matters at sea.

13 Maritime Accidents with Particular Emphasis on Liability and Compensation 289

affected by such damage, as well as the competent international organizations(Article 198). In this case, States in the area affected, in accordance with theircapabilities, and the competent international organizations must co-operate, to theextent possible, in eliminating the effects of pollution and preventing or mini-mizing the damage and shall jointly develop and promote contingency plans forresponding to pollution incidents in the marine environment (Article 199).

International rules related to maritime accidents are also found in a number ofspecific treaties adopted at either the world or the regional level. As regards co-operation in the field of prevention of accidents and their consequences, is itsufficient to mention the Convention Relating to Intervention on the High Seas inCases of Oil Pollution Casualties (Brussels 1969) and its Protocol Relating toIntervention on the High Seas in Cases of Pollution by Substances Other than Oil(London 1973), the Convention on the International Regulations for PreventingCollisions at Sea (London 1972), the Convention for the Safety of Life at Sea(London 1974), the Convention for the Prevention of Pollution from Ships asmodified by the Protocol of 1978 relating thereto (London 1978), the Conventionon Standards of Training, Certification, and Watchkeeping for Seafarers (London1978), the Convention on Maritime Search and Rescue (London 1979), the Con-vention on Salvage (London 1989), the Convention on Oil Pollution Preparedness,Response, and Co-operation (London 1990) and its Protocol on Preparedness,Response, and Co-operation to Pollution Incidents by Hazardous and NoxiousSubstances (London 2000), the Convention on the Removal of Wrecks (Nairobi2007) and the Convention for the Safe and Environmentally Sound Recycling ofShips (Hong Kong 2009).

While it is obvious that to prevent is better than to compensate, also theexistence of an adequate regime to ensure compensation for damage can ultimatelybe seen as an effective tool to discourage actions or omissions that are likely todetermine an incident. In this regard, emphasis should be put on the Convention onCivil Liability for Oil Pollution Damage (Brussels 1969; amended in 1992), theConvention relating to Civil Liability in the Field of Maritime Carriage of NuclearMaterial (London 1971), the Convention on the Establishment of an InternationalFund for Compensation for Oil Pollution Damage (Brussels 1971; amended in1992 and 2003), the Convention on Liability and Compensation for Damage inconnection with the Carriage of Hazardous and Noxious Substances by Sea(London 1996), and the International Convention on Civil Liability for Bunker OilPollution Damage (London 2001).

As it would not be possible to enter into the details of such a complex regime,this paper will focus on the question of compensation of damage resulting from so-called offshore activities that is activities of exploration and exploitation of min-eral resources located in the seabed falling under national jurisdiction.

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13.2 The Deepwater Horizon Incident

Pollution from offshore activities3 is not the most serious cause of degradation ofthe marine environment. Nevertheless, where major incidents occur, also this kindof pollution can create devastating consequences on the marine environment,4 asthe recent disasters of the Deepwater Horizon reminds.

13.2.1 The Facts

On 20 April 2010 the Deepwater Horizon, a semi-submersible rig owned by theAmerican corporation Transocean, exploded while it was drilling for oil from awell called Macondo in the Gulf of Mexico. Because of the explosion, eleven outof the 126 workers on the platform died and several others were injured. TheDeepwater Horizon was located on the continental shelf of the United States,about 49 n.m. south-east of the Mississippi River delta. It was operating under acontract with BP (formerly British Petroleum), a British multinational corporation.

Two days after, the Deepwater Horizon sank in about 5,000 feet (1,500 m) ofwater. Crude oil gushed out of the riser, which is the pipe that connects the well atthe ocean floor to the platform on the surface. For long time any attempts to shutdown the flow failed. Nearly 5,000,000,000 barrels of oil spilled before it waspossible, on 15 July 2010, to cap the well. The discharge of oil disrupted theeconomy of the entire region, damaged fisheries and critical habitats and broughtto light the risks of deepwater drilling for oil and gas.

The damage arising from the incident was estimated by BP to be in excess ofUS$ 40,000,000,000. The environmental consequences of the largest oil spill inthe history of the United States are described as follows by the Commissionappointed by the President of the United States to investigate on the disaster,analyze its causes and effects, and recommend the actions necessary to minimizesuch risks in the future:

(…) ‘although the nation would not know the full scope of the disaster for weeks, the firstof more than four million barrels of oil began gushing uncontrolled into the Gulf—threatening livelihoods, precious habitats, and even a unique way of life. A treasuredAmerican landscape, already battered and degraded from years of mismanagement, facedyet another blow as the oil spread and washed ashore. (…) The costs from this oneindustrial accident are not yet fully counted, but it is already clear that the impacts on the

3 Namely the seabed subject to the regimes of maritime internal waters, the territorial sea and thecontinental shelf, as defined in the UNCLOS.4 On a serious incident that occurred in 1979 during offshore activities on the continental shelf ofMexico see Badenes Casino 2005, 65.


region’s natural systems and people were enormous, and that economic losses total tens ofbillions of dollars’.5

As stated in the report by the Commission, the incident was the result of anumber of concurrent technical factors, such as the insufficient integrity of thewell, the undetected entrance of hydrocarbons into it, the ignition of thesehydrocarbons, and the failure of the blowout preventer:

‘The immediate cause of the Macondo blowout was a failure to contain hydrocarbonpressures in the well. Three things could have contained those pressures: the cement at thebottom of the well, the mud in the well and in the riser, and the blowout preventer. Butmistakes and failures to appreciate risk compromised each of those potential barriers,steadily depriving the rig crew of safeguards until the blowout was inevitable and, at thevery end, uncontrollable’.6

More generally, the operator BP, together with its two main contractors (thecorporations Halliburton and Transocean), were to be blamed for the accident:

‘The immediate causes of the Macondo well blowout can be traced to a series of iden-tifiable mistakes made by BP, Halliburton, and Transocean that reveal such systematicfailures in risk management that they place in doubt the safety culture of the entireindustry’.7

13.2.2 The Response

The response to the disaster mobilized several subjects, namely the FederalGovernment of the United States and the governments of some of its memberStates (Alabama, Florida, Louisiana, and Mississippi), private companies, inparticular BP acting as the ‘responsible party’ under the United States Oil Pol-lution Act of 1990, as well as non-profit organizations, seeking to stop the leakingwell, to limit the damage and to monitor and clean-up the spilled oil.

BP committed to pay all legitimate claims made by the United States and thesubjects affected. After consultation with the United States government, it estab-lished a US$ 20,000,000,000 claims fund. The Gulf Coast Claims Facility(GCCF), an independent facility administered by a Claims Administrator, was setup. The GCCF is the official way for affected individuals and business, includingfishermen, oystermen and tourist operators, to file claims for cost and damages due

5 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, DeepWater, The Gulf Oil Disaster and the Future of Offshore Drilling, Recommendations, 2011, vi.6 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, DeepWater, The Gulf Oil Disaster and the Future of Offshore Drilling, Report to the President, 2011,115.7 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling,Recommendations op. cit. n. 5, vii.

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to the spill.8 Eligible claims include removal and clean-up costs, physical damagesto real or personal property, lost profits or impairment of earning capacity, loss ofsubsistence use of natural resources, and physical injury or death. BP has alsoentered into long-term reputation-building commitments relating to responseprojects, research, and workers compensation.

It appears that GCCF has paid so far more than US$ 5,000,000,000 to more than200,000 claimants. Criticism has however been raised by some individuals orgroups who are not satisfied with the timeliness of compensation received forapproved claims, believe that certain founded claims are being turned away orallege that GCCF is pressing claimants to accept the prompt payment of amountswhich do not correspond to the whole damage suffered.9 A number of claims forcompensation against BP and other defendants are today pending before theUnited States District Court in New Orleans, including a lawsuit for environmentaldamage by the United States Department of Justice.10

13.2.3 The Lessons to Be Learned

A first notable lesson that can be learned from the Deepwater Horizon disaster isthe increased risk of incidents if drilling for oil takes place in deep marine waters.As stated in the Commission report,

‘deepwater energy exploration and production, particularly at the frontiers of experience,involve risks for which neither industry nor government has been adequately prepared, butfor which they can and must be prepared in the future.11

The industry first moved into shallow water and eventually into deepwater, where tech-nological advances have opened up vast new reserves of oil and gas in remote areas—inrecent decades, much deeper under the water’s surface and farther offshore than everbefore. The Deepwater Horizon was drilling the Macondo well under 5,000 feet of Gulfwater, and then over 13,000 feet under the sea floor to the hydrocarbon reservoir below. Itis a complex, even dazzling, enterprise. The remarkable advances that have propelled themove to deepwater drilling merit comparison with exploring outer space. The Commissionis respectful and admiring of the industry’s technological capability’.12

In general, the Commission was of the opinion that there is today a need formore State regulation for the activities carried out by the oil and gas industry:

8 The GCCF does not pay claims brought by the government. The latter sends periodical bills toBP and other responsible parties and is reimbursed by them for response and recovery operations.9 ‘The United States Department of Justice sent a letter to Feinberg [= the GCCF ClaimsAdministrator] on September 17, 2010, urging expediency. In response, the Claims Facility notedthat the large number of fraudulent and undocumented claims have slowed the process’ (ibid. 49).10 The District Judge has set the trial date in February 2012.11 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling,Recommendations op. cit. n. 5, vii.12 Ibid. viii.


‘The oil and gas industry—remarkable for its technological innovation and productivity—needs government oversight and regulation that can keep pace.13

In the years between the Exxon Valdez spill and the spring of 2010, Congress, like muchof the nation, appears to have developed a false sense of security about the risks ofoffshore oil and gas development. Congress showed its support for offshore drilling in anumber of ways, but did not take any steps to mitigate the increased perils that accompanydrilling in ever-deeper water’.14

Other remarks relate to the liability limits provided for in the above-mentionedOil Pollution Act. According to the Commission, it is important that compensationto victims is paid in full and that the process for receiving compensation is swiftand efficient:

‘Oil spills cause a range of harms, both economic and environmental, to individuals andecosystems. The Oil Pollution Act makes the party responsible for a spill liable forcompensating those who suffered as a result of the spill—through property damage, lostprofits, and other economic injuries—and for restoring injured natural resources. The Actalso provides an opportunity to make claims for compensation from a dedicated Oil SpillLiability Trust Fund. The Oil Pollution Act, however, imposes limits on both the amountfor which the responsible party is liable, and the amount of compensation availablethrough the trust fund. In the case of the Deepwater Horizon spill, BP (a responsible party)has placed $20 billion in escrow to compensate private individuals and businesses throughthe independent GCCF. But if a less well capitalized company had caused the spill, neithera multi-billion dollar compensation fund nor the funds necessary to restore injuredresources, would likely have been available. It is critical that compensation to victims bepaid in full, and that the process for receiving compensation is swift and efficient. TheCommission offers recommendations that would increase assurances that responsibleparties are able to compensate victims (and at the same time strengthens incentives toprevent accidents in the first place), and that the Oil Spill Liability Trust Fund provide anycompensation not provided by responsible parties’.15

Under the United States legislation, liability for damages from offshore spills iscapped at US$ 75,000,000. However, there is no limit to damages if it can beshown that the responsible party was guilty of gross negligence or willful mis-conduct, violated a federal safety regulation, or failed to report the incident, or toco-operate with removal activities. Claims up to US$ 1,000,000,000 above the capfor certain damages can be made to, and paid out of, the Oil Spill Liability TrustFund, which is supported by an 8 % per barrel tax on domestic and imported oil.The Oil Pollution Act also requires responsible parties to ‘establish and maintainevidence of financial responsibility’ generally based on a ‘worstcase discharge’estimate. In the case of offshore facilities, necessary financial responsibility rangesfrom US$ 35,000,000 to 150,000,000.16

13 Ibid. 57.14 Ibid. 50. The American supertanker Exxon Valdez ran aground in 1989 in the waters offAlaska. .15 Ibid. 45.16 Ibid. 45.

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An evident concern is that, in the event of future accidents, not all theresponsible parties may have the financial means which were available to BP, oneof the largest oil companies in the world. In the specific case, BP waived itsstatutory US$ 75,000,000 liability limit and accepted to establish a US$20,000,000,000 claims fund. According to the Commission, liability limits presenttwo serious disadvantages, as they provide little incentive for industry to adoptprecautionary measures and do not ensure full compensation for damages:

‘There are two main problems with the current liability cap and financial responsibilitydollar amounts:

– Lack of Adequate Safety Incentives: A threshold problem with any damages cap thatlimits liability well below levels that may actually be incurred is that such a cap distortsthe incentives of industry participants to adopt cost-effective safety precautions.Decisions regarding safety precautions are made for a variety of reasons, some of whichcannot be influenced by policy measures. The relatively modest liability cap andfinancial responsibility requirements provide little incentive for oil companies toimprove safety practices.

– Inadequate Damages Compensation: BP’s damages from the Deepwater Horizon spillwill total in the tens of billions of dollars. The company has already paid claims thatmeasure in the billions, and has waived the statutory $75 million cap. But there is noguarantee that other companies in the future will agree to waive the cap. And if an oilcompany with more limited financial means than BP had caused the Deepwater Horizonspill, that company might well have declared bankruptcy long before paying fully for alldamages. In the case of a large spill, the Oil Spill Liability Trust Fund would likely notprovide sufficient backup. Thus, a significant portion of the injuries caused to indi-viduals and natural resources, as well as government response costs, could gouncompensated’.17

Because of this kind of considerations, the Commission recommended to theUnited States Congress to adopt legislation to ‘significantly increase the liabilitycap and financial responsibility requirements for offshore facilities’:

‘To address both the incentive and compensation concerns noted above, Congress shouldsignificantly raise the liability cap. Financial responsibility limits should also be increased,because if an oil company does not have adequate resource to pay for a spill, the appli-cation of increased liability has little effect: should a company go bankrupt before fullycompensating for a spill, its liability is effectively capped. If, however, the level of liabilityimposed and the level of financial responsibility required are set to levels that bear somerelationship to potential damages, firms will have greater incentives to maximize pre-vention and minimize potential risk of oil spills and also have the financial means toensure that victims of spills do not go uncompensated’.18

To reach this conclusion, the Commission balanced contrary arguments19 andenvisaged other options that could reduce the difficulties to be faced by the oil

17 Ibid. 45.18 Ibid. 46.19 ‘Legislative attempts to raise the cap and financial responsibility requirements to significantlyhigher levels have been met with the argument that these changes will cause insurance carriers to


industry, such as a mutual insurance pool,20 the phasing in of increases in liabilitylimits,21 or partnerships among firms.22 The Commission was confident thatdevelopments in the insurance market would contribute to higher safety standards:

‘If liability and financial responsibility limits are raised, increased liabilities will be borneby insurance carriers, which will have a strong incentive to promote new safety techniquesand methods, as well as to monitor risk. Insurance carriers might insist on certification ofoperators by an independent entity devoted to identifying best safety practices andmonitoring risk, such as a self-policing safety organization for the oil and gas industry.Insurers or a self-policing safety organization for the industry also could provide a guardagainst unqualified companies entering the offshore drilling market’.23

However, it appears that efforts to raise the limit of liability have so far metwith the concerns of independent operators smaller than BP, who fear to be unableto afford higher insurance premiums. The main pending legislative proposal in theUnited States is the Securing Protections for the Injured from Limitations ofLiability Act (SPILL), which would have the effect of repealing limitations andexpanding recovery for injured claimants. The American Senate upheld a modifiedversion of the SPILL, known as Fairness in Admiralty and Maritime Law Act

(Footnote 19 continued)drop oil pollution coverage, leading to an exodus of small and independent companies from theoffshore drilling market. The counter-argument is that oil companies should bear the social costsof their activities, and if those costs are too large or unpredictable to be insurable, then it isappropriate that these companies exit the market. There is legitimacy to aspects of both argu-ments. A company should not be able to cause billions of dollars of damage and walk away,simply because its operations contribute to the economy of the Gulf. Nor should smaller com-panies that can demonstrate the ability to drill safely and to pay for damages resulting from alarge spill be forced out of the market. However, smaller companies that cannot demonstratefinancial responsibility and meet risk requirements set and monitored by the Department of theInterior or a third party should not be allowed to make others pay for the costs of their accidents’.(ibid. 47).20 ‘One option for keeping competent independents in the market is a mutual insurance pool.Under such an arrangement, individual companies engaged in offshore drilling would paypremiums into a pool, which would pay out damages caused by a company as a result of a spill. Apossible downside is that the mutual pool could have the effect of undercutting incentivesindividual firms might otherwise have to improve safety practices—but this problem could beaddressed, for example, by tying premium levels to the financial and safety risk posed by anindividual company’s activities. This option would allow companies to demonstrate financialresponsibility for the cost of spills, at least to the limit paid out by the pool’. (ibid. 47). .21 ‘Another option would be to phase in increases in the liability cap and financial responsibilityrequirements, which would allow the insurance industry a period of adjustment. Although anyincrease in liability limits and financial responsibility requirements would test the capacity of theoffshore drilling insurance market, over time such a change would almost certainly stimulate anincrease in insurance capacity. A phased-in approach would allow Congress to re-assess anyconcerns about limited capacity in the insurance industry in light of actual experience’ (ibid. 47).22 ‘Finally, regardless of how insurance is provided, smaller firms could be encouraged topartner with firms with greater financial resources. It should be noted that ‘joint ventures’between larger and smaller companies already exist; thus a policy change may not be necessary toencourage such arrangements’ (ibid. 47).23 Ibid. 49.

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(FAMLA), which excludes from limitation claims for wages, personal injury, andwrongful death, as well as claims relating to oil drilling or exploration or thedischarge of oil from a vessel or offshore facility. Further, the Consolidated Land,Energy and Aquatic Resources Act (CLEAR) was approved in 2010 by the Houseof Representatives. This Act would remove the Oil Pollution Act limits for off-shore facilities. None of these bills has been passed into law so far.24

13.3 Treaties on Liability and Compensation for Damagefrom Offshore Activities

13.3.1 The World Level

So far, offshore activities are not covered by any global or regional environmentalliability and compensation regime established under an international treaty. Theonly treaty concluded to deal with this subject matter, that is the Convention on CivilLiability for Oil Pollution Damage resulting from Exploration for and Exploitationof Seabed Mineral Resources (London 1977) which was intended to apply to theNorth Sea, the Baltic Sea, and the Northern Atlantic Ocean, has not entered intoforce and is not likely to do so. It provided for the channeling of liability on theoperator (Article 3), the right of the latter to limit his liability (Article 6), and hisobligation to maintain an insurance or other financial security (Article 8).25

13.3.2 The Mediterranean Regional Level

A few provisions on liability and compensation for damage from offshore activ-ities can be found at the Mediterranean regional level. One of the instrumentsconcluded within the framework of the Convention for the Protection of theMarine Environment and the Coastal Region of the Mediterranean (Barcelona1976, amended in 1995)26 is the Protocol concerning Pollution Resulting fromExploration and Exploitation of the Continental Shelf, the Seabed and its Subsoil(Madrid, 14 October 1994).27 The Offshore Prot. was opened for signature inMadrid on 14 October 1994 and entered into force on 24 March 2011. It is today

24 Foley 2001, 515. .25 However, ‘where the operator is a State Party, the operator shall not be required to maintaininsurance or other financial security to cover its liability’ (Article 8 para 5).26 Hereinafter: Barcelona Conv.27 Hereinafter: Offshore Prot. The adoption of appropriate measures in this field is envisaged byArticle 7 of the Barcelona Conv. The Offshore Protocol is the result of preparatory works whichhave lasted for several years and were carried out on the basis of a project drafted by theInternational Juridical Organization for Environment and Development (IJO), a non-


binding on six parties, namely Albania, Cyprus, Libya, Morocco, Syria, andTunisia.

The Offshore Prot. is an advanced instrument from the point of view of anenhanced protection of the marine environment.28 The general undertaking of theparties is to take, individually or through bilateral or multilateral co-operation, allappropriate measures to prevent, abate, combat, and control pollution resultingfrom the activities covered by the Protocol.29 This objective can be achieved, interalia, ‘by ensuring that the best available techniques, environmentally effective andeconomically appropriate, are used for this purpose’ (Article 3 para 1).

Several provisions of the Offshore Prot. set forth obligations with respect toactivities carried out by operators, who often are private persons, either natural orjuridical.30 The definition of ‘operator’ (Article 1.g) has a broad content. Itincludes not only the persons who are authorized to carry out activities or carry outactivities (e.g., the holder of a license), but also any person who does not hold anauthorization but is de facto in control of activities.

All activities in the Offshore Prot. area,31 including erection on site of instal-lations, are subjected to the prior written authorization from the competentauthority of a party (Article 4). Before granting the authorization, the authoritymust be satisfied that the installation has been constructed according to interna-tional standards and practice, and that the operator has the technical competenceand the financial capacity to carry out the activities. The authorization is refused ifthere are indications that the proposed activities are likely to cause significantadverse effects on the environment that could not be avoided by compliance withspecific technical conditions.

Detailed provisions of the Offshore Prot. are devoted to safety measures,contingency planning, notification, and mutual assistance in cases of emergency,

(Footnote 27 continued)governmental organization having its seat in Rome. See Treves 1978, 827; Sersic 1989, 161;Scovazzi 1995, 543.28 It is composed of a preamble and 32 articles, distributed in six sections relating to thefollowing matters: General provisions; Authorization system; Wastes and harmful or noxioussubstances and materials; Safeguards; Co-operation; Final provisions. Seven annexes and anappendix complete the instrument.29 The activities to which the Protocol applies are defined in quite broad terms by Article 1.d: ‘(i)Activities of scientific research concerning the resources of the seabed and its subsoil; (ii)Exploration activities: Seismological activities; surveys of the seabed and its subsoil; sampletaking; Exploration drilling; (iii) Exploitation activities: Establishment of an installation for thepurpose of recovering resources, and activities connected therewith; Development drilling;Recovery, treatment and storage; Transportation to shore by pipeline and loading of ships;Maintenance, repair and other ancillary operations’.30 These obligations are to be understood in the sense that parties are bound to take theappropriate measures in order to ensure that the operators comply with the provisions of theOffshore Prot.31 According to Article 2 para 1, the Offshore Prot. applies to the seabed under any legal condition,be it the continental shelf or the seabed under the territorial sea or the internal maritime waters. TheParties may also extend its application to wetlands or coastal areas (Article 2 para 2). .

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monitoring, removal of installations, specially protected areas. Duties of co-operation among the parties are envisaged with respect to studies and researchprograms, formulation of rules, standards, and recommended practices and pro-cedures, scientific and technical assistance to developing countries, mutualinformation, and prevention of transboundary pollution.

Of particular interest for the purpose of this study is Article 27, relating toliability and compensation. The first paragraph of Article 27, as it is provided inother treaties relating to the protection of the environment, sets forth a futureundertaking by the Parties to co-operate in the drafting of appropriate rules andprocedures:

‘The Parties undertake to co-operate as soon as possible in formulating and adoptingappropriate rules and procedures for the determination of liability and compensation fordamage resulting from the activities dealt with in this Protocol in conformity with Art. 12of this Convention’.32

An obligation to co-operate is not devoid of legal meaning. It implies a duty toact in good faith in pursuing a common objective and in taking into account thepositions expressed by the other interested States. This kind of behavior is likely tolead to the conclusion of an agreement. As remarked by the International Court ofJustice in the judgments of 20 February 1969 on the North Sea Continental Shelfcases,

‘The parties are under an obligation to enter into negotiations with a view to arriving at anagreement, and not merely to go through a formal process of negotiation (…); they areunder an obligation so to conduct themselves that the negotiations are meaningful, whichwill not be the case when either of them insists upon its own position without contem-plating any modification of it’.33

The second paragraph of Article 27 sets forth three provisional, but substantive,obligations. Waiting for the adoption of appropriate rules and procedures on lia-bility and compensation, the parties to the Offshore Prot. are bound to takemeasures to ensure that, first, liability is channeled on the operators, second, theypay compensation in a prompt and adequate manner and, third, they have andmaintain compulsory insurance or other financial guarantee:

‘Pending development of such procedures, each Party

32 Under Article 12 of the original 1976 text Barcelona Conv. ‘the Contracting Parties undertaketo co-operate as soon as possible in the formulation and adoption of appropriate procedures forthe determination of liability and compensation for damage resulting from the pollution of themarine environment deriving from violations of the provisions of this Convention and applicableprotocols’. After the amendments of 2005, the corresponding Article 16 of the present BarcelonaConv. provides as follows: ‘The Contracting Parties undertake to cooperate in the formulationand adoption of appropriate rules and procedures for the determination of liability andcompensation for damage resulting from pollution of the marine environment in theMediterranean Sea Area’.33 ICJ Rep. 1969, para 85 of the judgment.


(a) shall take all measures necessary to ensure that liability for damage caused by activitiesis imposed on operators, and they shall be required to pay prompt and adequatecompensation;

(b) shall take all measures necessary to ensure that operators shall have and maintaininsurance cover or other financial security of such type and under such terms as theContracting Party shall specify in order to ensure compensation for damages caused by theactivities covered by this Protocol’.

As it can be seen, the Offshore Prot. does not allow the so-called ‘self-insur-ance’, a dubious euphemism that simply means the absence of any insurance orfinancial security to cover compensation for damage.

The strict character of the obligation set forth in Article 27 para 2, may,together with other reasons, explain why it took more than 16 years for the Off-shore Prot. to enter into force and why it is now binding only on six parties. In fact,at the time of signature of the Offshore Prot., the European Community (now theEuropean Union)34 and France entered a reservation, ‘‘pending consideration’’,with specific regard to para 2 of Article 27.

Today the limited number of parties to the Offshore Prot. does create evidentproblems. It is unfair to burden the parties with legal obligations that make off-shore activities more expensive for those who operate on their continental shelvesand that are not applicable in the case of other Mediterranean coastal States. Thereis a need to avoid that the stricter measures adopted by some coastal States arefrustrated by a tolerant and insufficient regime applied in other neighboring States.As damage caused by marine pollution cannot be confined within the boundariesartificially drawn by man at sea, the consequences of an incident could affect ahigh number of States, including those that have adopted a more precautionaryattitude.

The only equitable development is to do every effort to achieve the broadestpossible participation to the Offshore Prot. and to formulate and adopt the‘appropriate rules and procedures’ provided for in Article 27 para 1 to ensure that auniform regime is in place for the whole Mediterranean seabed and marineenvironment. In fact, a set of Guidelines for the Determination of Liability andCompensation for Damage Resulting from Pollution of the Marine Environment inthe Mediterranean Sea Area has been adopted on 18 January 2008 at the 15thordinary meeting of the Parties to the Barcelona Conv. But they have a generalcharacter, applying to ‘to the activities to which the Barcelona Convention and anyof its Protocols apply’ (Guideline A para 4), and are not specific to offshoreactivities.35

34 The attitude of the European Union, at least as far as the European Commission and theEuropean Parliament are concerned, has today changed (see infra Sect. 13.5).35 Scovazzi 2009, 183.

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13.4 The Main Legal Questions

13.4.1 Compensation for Environmental Damage

One of the main legal questions to be addressed when discussing the regime ofliability for activities hazardous for the environment is linked to the distinctionbetween traditional and environmental damage.

Traditional damage is intended as the damage suffered by persons, either naturalor juridical, such as individuals and private or public entities, including the State. Itcan consist in bodily injuries or loss of life, in loss or deterioration of property, in lossor reduction of earnings, as well as in the cost of measures undertaken to clean up,restore, and reinstate the impaired environment. This damage, however consistent itmight be, can be calculated in precise monetary terms. There is no doubt thattraditional damage must be compensated by the liable person.36

But the discussion is open as regards the extent to which the other kind ofdamage, that is environmental damage, should be compensated. This damage,which is typical in cases of pollution of natural components, including marinewaters, is suffered by the environment as such (per se) and is given by a negativechange in the quality of a natural component. It can consist in the value of thediminution of the quality of natural components during the time when restorationis pending (compensation for interim damage) or in the cost of compensation byequivalent action to be taken elsewhere if the polluted environment cannot fullyreturn to its previous condition (compensation for irreparable damage). This kindof damage cannot be calculated in precise monetary terms.

As far as international law is concerned, the treaties that establish uniform civilliability regimes for certain potentially polluting activities, such as the exploitationof atomic energy, shipping, carriage of dangerous goods, or transboundary trade ofhazardous wastes, follow a scheme usually based on strict liability, the channelingof liability on the operator, the right of the latter to limit liability to a predeter-mined amount, his obligation to maintain an insurance or other financial securityand, in some cases, the creation of an international fund to provide compensation ifthe protection already afforded is inadequate. However, these treaties are oftenbased on the assumption that compensation must be restricted to damage that canbe determined in precise monetary terms. For example, under the InternationalConvention on Civil Liability for Oil Pollution Damage (London 1992), ‘pollutiondamage’ means

‘(a) loss or damage caused outside the ship by contamination, resulting from the escape ordischarge of oil from the ship, wherever such escape or discharge may occur, provided thatcompensation for impairment of the environment other than loss of profit from such

36 The adjective ‘traditional’ simply means that there is no discussion that this kind of damagecan be compensated under well established general principles of law, which have existed forhundreds, if not thousands, of years in the legislation of most countries.


impairment shall be limited to costs of reasonable measures of reinstatement actuallyundertaken or to be undertaken;

(b) the costs of preventive measures and further loss or damage caused by preventivemeasures’. (Article 1 para 6).37

However, it is a matter of fact that some national enactments take the differentapproach that also damage to the environment that cannot be evaluated in precisemonetary terms shall be compensated. For instance, under the United States OilPollution Act of 1990 (s.1002(a)) each responsible party is liable for the ‘removalcosts’ and ‘damages’. The definition of ‘damages’ (s.1002(b)(2)) includes differententries of traditional damage, as well as the following entry of environmental damage:

‘Natural Resources—Damage for injury to, destruction of, loss of, or loss of use of, naturalresources, including the reasonable costs of assessing the damage, which shall berecoverable by a United States trustee, a State trustee, an Indian tribe trustee, or a foreigntrustee’.38

Under s.1006(d)(1) of the Act the measure of natural resource damages is:

A. ‘the cost of restoring, rehabilitating, replacing, or acquiring the equivalent of, thedamaged natural resources;

B. the diminution in value of those natural resources pending restoration; plusC. the reasonable cost of assessing those damages’.

A claim to recover damage to natural resources is presented by the UnitedStates Government (or the other public entities specified in the Act) as a ‘trustee ofnatural resources’ (s.1006(b)(1)). Any costs related to natural resources damageare to be determined with respect to plans that the trustee is called to develop andimplement (s.1006(d)(2)).

Relevant for the purpose of compensation for environmental damage is alsoDirective 2004/35/EC of the European Parliament and the Council of 21 April 2004on environmental liability with regard to the prevention and remedying of envi-ronmental damage.39 This instrument makes a distinction between ‘primary reme-diation’, that is ‘any remedial measure which returns the damaged natural resourcesand/or impaired services to, or towards, baseline condition’, ‘complementaryremediation’, that is ‘any remedial measure taken in relation to natural resources

37 A similar approach is followed, inter alia, in the 1996 International Convention on Liabilityand Compensation for Damage in Connection with the Carriage of Hazardous and NoxiousSubstances by Sea, in the 1999 Protocol on Liability and Compensation for Damage Resultingfrom Transboundary Movements of Hazardous Wastes and their Disposal and in the 2001International Convention on Civil Liability for Bunker Oil Pollution Damage.38 The term ‘natural resources’ is defined as including ‘land, fish, wildlife, biota, air, water,ground water, drinking water supplies, and other such resources belonging to, managed by, heldin trust by, appertaining to, or otherwise controlled by the United States (including the resourcesof the exclusive economic zone), any State or local government or Indian tribe, or any foreigngovernment’ (s. 1001, 20).39 Official Journal of the European Union No L 143 of 30 April 2004.

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and/or services to compensate for the fact that primary remediation does not result infully restoring the damaged natural resources and/or services’ and ‘compensatoryremediation’, that is ‘any action taken to compensate for interim losses of naturalresources and/or services that occur from the date of damage occurring until primaryremediation has achieved its full effect’ (Annex II, para 1, sub-paras a, b, and c).40

The approach taken by the United Nations Compensation Commission, estab-lished under United Nations Security Council Resolution 687 (1991) after the endof the illegal invasion and occupation of Kuwait by Iraq, also provides animportant contribution to the trend to take into consideration compensation forinterim and irreparable environmental damage.41 In the report and recommenda-tions presented in 2005, the Panel of the Commission in charge of the issue ofdepletion of, or damage to, natural resources42 reached the following conclusions:

‘The Panel does not consider that there is anything in the language or context of SecurityCouncil resolution 687 (1991) or Governing Council decision 7 that mandates or suggestsan interpretation that would restrict the term ‘environmental damage’ to damage to naturalresources which have commercial value.43

Furthermore, the Panel does not consider that the fact that the effects of the loss of ordamage to natural resources might be for a temporary duration should have any relevanceto the issue of the compensability of the damage or loss, although it might affect the natureand quantum of compensation that might be appropriate. In the view of the Panel, it is notreasonable to suggest that a loss that is documented to have occurred, and is shown to haveresulted from the invasion and occupation of Kuwait, should nevertheless be deniedcompensation solely on the grounds that the effects of the loss were not permanent’.44

The Panel paid little consideration to the different approach adopted in anumber of international treaties establishing uniform regimes of liability andcompensation:

40 Interim losses are defined in the Directive as ‘losses which result from the fact that thedamaged natural resources and/or services are not able to perform their ecological functions orprovide services to other natural resources or to the public until the primary or complementarymeasures have taken effect. It does not consist of financial compensation to members of thepublic’. (Annex II, para 1, sub-para d).41 The Commission (decision 7 of 1991) allowed compensation for losses or expenses resultingfrom ‘(a) Abatement and prevention of environmental damage, including expenses directlyrelating to fighting oil fires and stemming the flow of oil in coastal and international waters; (b)Reasonable measures already taken to clean and restore the environment or future measureswhich can be documented as reasonably necessary to clean and restore the environment; (c)Reasonable monitoring and assessment of the environmental damage for the purposes ofevaluating and abating the harm and restoring the environment; (d) Reasonable monitoring ofpublic health and performing medical screenings for the purposes of investigation and combatingincreased health risks as a result of the environmental damage; and (e) Depletion of or damage tonatural resources’.42 Doc. S/AC.26/2005/10 of 30 June 2005.43 Ibid. para 55.44 Ibid. para 56.


‘The panel does not consider that this finding is inconsistent with any principle or rule ofgeneral international law. In the view of the Panel, there is no justification for the con-tention that general international law precludes compensation for pure environmentaldamage. In particular, the panel does not consider that the exclusion of compensation forpure environmental damage in some international conventions on civil liability andcompensation is a valid basis for asserting that international law, in general, prohibitscompensation for such damage in all cases, even where the damage results from aninternationally wrongful act’.45

According to the Panel, a fundamental principle of justice was at stake:

‘Where the [wrongful act] itself is of such a nature as to preclude the ascertainment of theamount of damages with certainty, it would be a perversion of fundamental principles ofjustice to deny all relief to the injured person, and thereby relieve the wrongdoer frommaking any amend for his acts. In such case, while the damages may not be determined bymere speculation or guess, it will be enough if the evidence shows the extent of thedamages as a matter of just and reasonable inference, although the result may beapproximate’.46

In the case of irreparable damage, the Panel recommended compensation byequivalent, charging Iraq, for instance, for the cost of the establishment andmanagement for 30 years of a coastal protected area:

‘The Panel finds that a coastal preserve would provide appropriate compensation for theloss of shoreline resources resulting from Iraq’s invasion and occupation of Kuwait. Apreserve sited in shoreline habitats similar to those that have been damaged would provideecological services similar in kind to those that were lost. In view of the Panel, such apreserve is feasible, cost-effective and poses a low risk of adverse impacts’.47

13.4.2 Evaluation of Environmental Damage

A different, although related, question is how to evaluate environmental damage,as it cannot be determined in precise monetary terms. Doubts and concerns havebeen expressed about the complexity and reliability of a number of methods usedfor calculating such kind of damage. For instance, in the United States

‘alternatives to valuing the environment for the purpose of assessing claims include theprice that the environmental resource commands in the market, the economic valueattached to the use of environmental resources (such as methods of costing travel relyingon expenditures made by an individual to visit and enjoy a resource, or a hedonic pricingmethod which takes the extra market value enjoyed by a private property with certainenvironmental amenities and assumes that public resources with comparable amenitieshave similar economic values), or contingent valuation methods to measure the

45 Ibid. para 58.46 Ibid. para 80.47 Ibid. para 451.

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willingness of individuals to pay for environmental goods such as clean air or water or thepreservation of endangered species (usually taken from public opinion surveys)’.48

Annex II to the above-mentioned European Union Directive 2004/35 developsthe following considerations:

‘When determining the scale of complementary and compensatory remedial measures, theuse of resource-to-resource or service-to-service equivalence approaches shall be con-sidered first. Under these approaches, actions that provide natural resources and/or ser-vices of the same type, quality and quantity as those damaged shall be considered first.Where this is not possible, then alternative natural resources and/or services shall beprovided. For example, a reduction in quality could be offset by an increase in the quantityof remedial measures (para 1.2.2).

If it is not possible to use the first choice resource-to-resource or service-to-serviceequivalence approaches, then alternative valuation techniques shall be used. The com-petent authority may prescribe the method, for example monetary valuation, to determinethe extent of the necessary complementary and compensatory remedial measures. Ifvaluation of the lost resources and/or services is practicable, but valuation of thereplacement natural resources and/or services cannot be performed within a reasonabletime-frame or at a reasonable cost, then the competent authority may choose remedialmeasures whose cost is equivalent to the estimated monetary value of the lost naturalresources and/or services.

The complementary and compensatory remedial measures should be so designed that theyprovide for additional natural resources and/or services to reflect time preferences and thetime profile of the remedial measures. For example, the longer the period of time beforethe baseline condition is reached, the greater the amount of compensatory remedialmeasures that will be undertaken (other things being equal)’. (para 1.2.3).

The already mentioned Panel of the United Nations Compensation Commissionrecognized that

‘there are inherent difficulties in attempting to place a monetary value on damaged naturalresources, particularly resources that are not traded on the market. With specific regard toHEA [= Habitat Equivalency Analysis], the Panel recognises that it is relatively a novelmethodology, and that it has had limited application at the national and internationallevels. The Panel is also aware that there are uncertainties in HEA calculations, especiallyfor establishing a metric that appropriately accounts for different types of service lossesand for determining the nature and scale of compensatory restoration measures that areappropriate for damage to particular resources. For these reasons, the Panel considers thatclaims presented on the basis of HEA or similar methodologies of resource valuationshould be accepted only after the Panel has satisfied itself that the extent of damage andthe quantification of compensation claimed are appropriate and reasonable in the cir-cumstances of each claim. However, the Panel does not consider that these potentialdifficulties are a sufficient reason for a wholesale rejection of these methodologies, or forconcluding that their use is contrary to international law principles’.

It is likely that the elaboration of reliable and predictable criteria for theevaluation of environmental damage will become one of the main questions to be

48 Sands 2003, 884.


addressed in the near future at the international level, including in the case ofdamage resulting from offshore activities.

13.4.3 Compulsory Insurance and Compensation Fund

In domestic legislation the most usual kind of liability for polluting activities isstrict liability, instead of fault based liability. For instance, under the alreadymentioned European Union Directive 2004/35, the operator of activities causingsignificant environmental damage to protected species, natural habitats, or water isstrictly liable to prevent and remedy the damage and to bear the full costs of it.49

However, the laws of different countries greatly vary as to whether there shouldbe a limitation to the liability to the benefit of the person, such as the operator, thelicensee, or the shipowner, on whom liability is channeled. If liability is limited, itis usual to establish a compensation fund for cases in which the amount ofcompensation exceeds the limitation or the responsible cannot be identified. Forinstance, under the United States Oil Pollution Act, liability for damages fromoffshore spills is capped at US$ 75,000,000 and claims up to US$ 1,000,000,000above the cap are paid out of the Oil Spill Liability Trust Fund.

National legislation can also establish that the operator has to be insured or hasto establish an adequate financial guarantee. A certain margin of flexibility may beenvisaged in this regard. This is the case, for instance, of the legislation of Norway(Pollution Control Act No. 6 of 3 March 1981) that provides as follows:

‘A permit granted in accordance with this Act or regulations issued pursuant thereto mayinclude the condition that security shall be provided in respect of possible liability to paycompensation pursuant to this chapter.

The pollution control authority will decide what security shall be required.The pollution control authority may issue regulations relating to the duty to provide

security for specified types of activities.The King may issue provisions concerning the establishment of separate compensation

arrangements to cover claims of the types to which this chapter applies, includingfinancing, the duty to make financial contributions, the right to bring civil action and thesettlement of claims’.50

49 Under the Directive, operators who carry out certain dangerous activities, as listed in AnnexIII, are strictly liable (without fault) for environmental damage. Operators carrying out otheroccupational activities are liable for any fault-based damage they cause to nature. Operators maybenefit directly from certain exceptions and defenses (for example force majeure, armed conflict,third party intervention) and defenses introduced via transposition (for example permit defense,state of the art defense). Operators have to take preventive action if there is an imminent threat ofenvironmental damage. They are likewise under an obligation to remedy environmental damageonce it has occurred and to bear the costs (polluter-pays principle). In specific cases where theoperators fail to do so, or are not identifiable, or have invoked defenses, the competent authoritymay carry out the necessary preventive or remedial measures.50 Para 63. The Norwegian relevant legislation also includes the Petroleum Activities Act No. 72of 29 November 1996.

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On the question of financial security European Union Directive 2004/35 followsa gradual approach:

‘1. Member States shall take measures to encourage the development of financial securityinstruments and markets by the appropriate economic and financial operators, includingfinancial mechanisms in case of insolvency, with the aim of enabling operators to usefinancial guarantees to cover their responsibilities under this Directive.

2. The Commission, before 30 April 2010 shall present a report on the effectiveness of theDirective in terms of actual remediation of environmental damages, on the availability atreasonable costs and on conditions of insurance and other types of financial security for theactivities covered by Annex III. The report shall also consider in relation to financialsecurity the following aspects: a gradual approach, a ceiling for the financial guarantee andthe exclusion of low-risk activities. In the light of that report, and of an extended impactassessment, including a cost-benefit analysis, the Commission shall, if appropriate, submitproposals for a system of harmonized mandatory financial security’.51

In October 2010, the European Commission presented the report mentioned inArticle 14 para 2.52 It was drafted after consultation of government experts andother stakeholders, such as insurers, brokers, banks, financial institutions, and non-governmental organizations. As regard the development of financial securityinstruments at the national level (Article 14, para 1), it appeared that

‘eight Member States have introduced mandatory financial security entering into force atdifferent dates up to 2014: Bulgaria, Portugal, Spain, Greece, Hungary, Slovakia, CzechRepublic and Romania. These systems are subject to risk assessment of relevant sectorsand operators, and dependent on various national implementing provisions providing forissues such as ceilings, exemptions, etc. However, mandatory financial security is delayedin all three countries where it was supposed to come into effect in 2010 (Portugal, Spain,Greece) because essential provisions are not yet in place. The remaining Member Statesrely on voluntary financial security’.53

One of the most difficult issues in the implementation of the Directive is relatedto the complex technical requirements linked to the evaluation of damagedresources or services.54 As regards the question of insurance,

‘Operators aware of their environmental liabilities have tended to cover the resulting risksthrough a mix of environmental insurances such as General Third Party Liability—GTPL,Environmental Impairment Liability—EIL or other stand-alone insurance products.Operators were using to a much lesser extent other financial security, such as captives,bank guarantees, guarantees and funds.55

51 Article 14.52 Doc. COM(2010) 581 final of 12 October 2010.53 Ibid. 4.54 ‘The competent authorities judged that the most difficult issues were the complex technicalrequirements linked to the economic evaluation of damaged resources/services and environmen-tal remediation methods, as well as the lack of binding thresholds for key terms such as‘significant damage’. However, Member States have started to develop guidelines and arebuilding up their knowledge based on these questions’. (Ibid. 5).55 Ibid. 6.


The insurance industry reacted positively to the introduction of the ELD [= EnvironmentalLiability Directive]. Significant work on what the ELD means for the insurance sector hasbeen carried out and widely disseminated. The industry has gradually developed productsfor ELD, either specific ‘stand alone’ solutions, or top-ups to existing liability products.Work is in hand on practical implementation issues such as underwriting and claimsmanagement, as are efforts to develop a database of case studies to share experiences.However, there remains uncertainty at this early stage as to the readiness of existingproducts to deal with ELD cases. The insurance industry also reported that the recenteconomic crisis had resulted in a temporary drop in the industry’s capacity to provide ELDcover. It can be concluded that the transposition of the ELD was slow and that imple-mentation methods vary widely across the EU. This divergence delayed the developmentof financial security options at national level. Although the wide variety of nationalimplementation methods may impair the effectiveness of the Directive, it is extremelydifficult to verify exactly how’.56

As regards other types of financial security,

‘there is a general focus on insurance products as a way to cover ELD liabilities, althougha range of alternatives exist. In connection with other environmental legislation, such asthat on waste management, significant experience has been gained with non-insuranceinstruments (bonds, bank guarantees, funds, captives, etc.). These instruments require littlechange to make them suitable for ELD-related liabilities. It should be noted that somealternative instruments are more appropriate for large operators with numerous operationsthan for SMEs [= small or medium enterprises]. The suitability of financial securityinstruments will depend on their efficiency in terms of remediation costs covered, theiravailability to operators, and their effectiveness for preventing pollution. No availableinstrument appears to fulfil all three requirements for all ELD liabilities and all the sectorsconcerned, so the choice of instrument will vary across operators’.57

In the light of the present situation, the opinion of the European Commission isthat ‘all mandatory financial security schemes should employ a form of gradualapproach, provide for the exclusion of low-risk activities, and include ceilings forfinancial guarantees’.58 According to the European Commission, the introductionof a harmonized system of mandatory financial security is not yet justified today.However, it is important to remark that initiatives in this direction could be jus-tified in the specific case of oil spills from offshore activities:

56 Ibid. 7.57 Ibid. 8.58 Ibid. 8. In particular ‘No financial security system, be it insurance, bank guarantee or a trustfund, will provide unlimited liability. Therefore, ceilings apply both to voluntary and mandatoryfinancial security mechanisms. A ceiling for the financial guarantee could be introduced wherethe risk of damage occurring above that ceiling is considered as low, and depends on the location,type and size of the operation. Spain introduced ceilings to the liability cover their operators needof up to a maximum of € 5 million. In other countries ceilings are arranged between insurers andoperators. Insurance companies can also introduce ceilings to the liabilities they wish to cover,subsequently setting limits to the premiums to be paid but also in the coverage that theirguarantee provides. The previous ceilings apply when determining the maximum coverage of thepolicies. In practice, there are also reimbursement ceilings of ELD policies, which currently rangebetween € 1 million and € 30 million’.

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‘Because of the lack of practical experience in the application of the ELD, the Com-mission concludes that there is not sufficient justification at the present time for intro-ducing a harmonised system of mandatory financial security. Developments in thoseMember States that have opted for mandatory financial security, including the gradualapproach, and in the Member States that have not introduced obligatory financial security,will have to be further monitored before reliable conclusions can be drawn. The Com-mission will also actively monitor recent developments such as the oil spill in the Gulf ofMexico, which may provide the justification for an initiative in this area’.59

The European Commission will also focus on some issues that call forimmediate attention, including the question of sufficiency of actual financialceilings set for established financial security instruments with regard to accidentsof potential large scale:

‘The ability of existing financial security instruments to cover massive incidents needs tobe assessed in connection with applicable financial ceilings and the potential of differenttypes of instruments, such as funds, insurance, guarantees, etc. In this context, the reviewwill aim at discovering the most efficient ways of ensuring sufficient financial resources incase of large scale incidents that involve responsible parties with mediocre or even lowfinancial capacity’.60

13.5 The Initiatives for a New Regime within the EuropeanUnion

The Deepwater Horizon incident prompted initiatives for legislative improvementalso within the European Union framework. On 7 October 2010, the EuropeanParliament adopted a Resolution on European Union action on oil exploration andextraction in Europe, based, inter alia, on the following considerations:

‘Whereas in the light of the Deepwater Horizon oil spill in the Gulf of Mexico it isimperative for the EU and its Member States urgently to examine all aspects of oilextraction and exploration in the European Union and to take all necessary steps thereafterto ensure that such an environmental catastrophe will not occur in EU waters;

Whereas the highest levels of precaution, environmental protection and safety and securityof oil operations in Europe are the principles of paramount importance which mustunderpin all EU action in this area;

Whereas efforts are underway to extend oil drilling and exploration into deeperand more remote parts of the sea, which involve greater risks in terms of managingand monitoring operations’.61

59 Ibid. 10. On the Gulf of Mexico incident see supra Sect. 13.2.60 Ibid. 11.61 Preamble.


According to the European Parliament, offshore activities can be considered as‘hyper-hazardous’ and, as such, require mandatory environmental impact assess-ment (EIA):

[The European Parliament] ‘calls on the Commission, in its current review of the Envi-ronmental Impact Assessment Directive, to ensure that all seabed activities are subjectedto a mandatory assessment, that the quality of EIAs is guaranteed and that hyper-haz-ardous activities such as seabed drilling are not permitted to proceed where an EIAindicates that risks cannot be satisfactorily mitigated’.62

A particularly strict legislation should regulate offshore activities and shouldalso insure ‘‘full liability’’ for ‘‘any damage’’, including environmental damage:

[The European Parliament] ‘considers furthermore that any legislative proposals mustensure a comprehensive legal framework which:

prevents as far as possible potentially hazardous seabed activities from causing damage tothe marine and coastal environments;guarantees that full liability rests with the polluter in relation to any damage caused bysuch activities, including damage to the terrestrial and marine environments and to theglobal climate;secures the protection of European biodiversity in marine and coastal environments;ensures that, before any economic activity is planned, independent experts conduct anenvironmental impact assessment’.63

The concerns expressed by the European Parliament are duly reflected in the2010 Communication from the Commission to the European Parliament and theCouncil, Facing the Challenge of the Safety of Offshore Oil and Gas Activities.64

The Communication acknowledges the present increase of offshore activities,including in the Mediterranean,65 the risks that such activities entail,66 as well as

62 Para 14.63 Para 14.64 Doc. COM(2010) 560 final of 12 October 2010.65 ‘The number of offshore installations in the North East Atlantic alone exceeds 1,000.Furthermore, while installations in the Black and Baltic Seas still only amount to single digits,there are currently over 100 installations operating in EU waters in the Mediterranean and plansto start new exploration are reported in the Maltese and Cypriot sectors. Oil and gas explorationor production also takes place in the close vicinity of the EU, off the coasts of Algeria, Croatia,Egypt, Israel, Libya, Tunisia, Turkey and Ukraine’. (ibid. 2).66 ‘The European offshore oil and gas industry has not been immune to severe accidents in thepast, as the Piper Alpha and Alexander Kielland in the North Sea have shown. As a result, anumber of European countries have introduced in recent years strict safety requirements andregulatory regimes. Yet the experience of the Deepwater Horizon needs to lead to sincerereflection also in Europe on whether the current regulatory frameworks and practices are adequatein terms of safety and emergency preparedness and response. Such a reflection is also warrantedby the transformation of the European oil and gas industry in response to the progressivedepletion of ‘easy’ oil and gas reservoirs. Exploration is moving towards more complexenvironments characterised by high pressure/high temperature reservoirs, deeper waters and/orextreme climatic conditions that may complicate the control of subsea installations and incident

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the need to ensure the fullest protection of human health and the environment.67

The Commission looks forward to the establishment of a future uniform regime atthe European Union level:

‘A number of particular best practices exist in Member States and industry already inrelation to safety, preparedness and response. However, the challenge posed by the risk ofa large offshore accident requires that state of the art practices become the normthroughout the EU and its waters. Such a uniform high level of safety will elicit full publicconfidence and can underpin EU efforts to ensure high levels of safety, preparedness andresponse also beyond European borders, both in other jurisdictions and in internationalwaters’.68

Rules in this field cannot be the result of either voluntary initiatives by theindustry69 or heterogeneous initiatives by single Member States.70 There is a needfor a uniform European regime that includes adequate financial security instru-ments to cover major incidents:

‘The risks at stake, the need for legal certainty and the principles of ‘better regulation’speak in the Commission’s view in favour of a single new piece of specific legislation foroffshore oil and gas activities, possibly supported by soft legal measures (guidelines). (…)

Licensing stands out as the first key tool to ensure the safety of new drilling activities incomplex environments. The Treaty on the Functioning of the European Union (TFEU)establishes, in the context of the establishment and functioning of the internal market and

(Footnote 66 continued)response. At the same time, production facilities in maturing fields are ageing and often takenover by specialist operators with smaller capital bases’. (ibid. 3).67 ‘The EU has an interest in maintaining indigenous oil and gas production for security ofenergy supply reasons as well as for keeping jobs and business opportunities in the Europeaneconomy. Whilst risks cannot be totally eliminated in most human activities, including in theoffshore hydrocarbon industry, the safety and integrity of operations and assurances of maximumprotection of European citizens and the environment must be guaranteed’. (ibid. 3).68 Ibid. 4.69 ‘Improving the safety of citizens and the protection of the environment cannot rely onindustry’s discretionary initiative and self-regulation alone. The regulatory regime must ensurethat industry complies with clear, robust and ambitious rules allowing only safe and sustainableoperations. In addition, the regime must provide for a high level of transparency enabling theindustry and public authorities to demonstrate to any interested party that activities that carryrisks to life, environment or property are appropriately managed and controlled’. (ibid. 4).70 ‘While international regimes for offshore oil and gas operations are either not fully developedor lack effective enforcement mechanisms, the situation in Europe is largely determined byprovisions in the national legislation of individual Member States, as EU legislation either doesnot cover various relevant aspects of the sector or provides only performance minima. Provisionswhich apply to offshore activities are also often spread across different EU legislative measures.This results in licensing, operational safety and environmental protection regimes which varyfrom one Member State to the next. This heterogeneity complicates the understanding andmanagement of health, safety and environmental risks in Europe and increases costs forcompanies. Importantly, it risks slowing down coordinated response to accidents affecting severalMember States as technical standards, data formats and response procedures vary across Europeand within the same sea basin’. (ibid. 4).


with regard for the need to preserve and improve the environment, a Union policy onenergy. It also recalls that Member States have the right to determine the conditions forexploiting their energy resources, their choices between different energy sources and thegeneral structure of their energy supply, without prejudice to the environmental policy ofthe Union. The existing EU legislation on licensing deals only with competitive aspects oflicensing procedures to ensure equal access to national bidding rounds for entities acrossthe EU.

Consequently, each Member State issues licences and other approvals necessary for theexploration and production of hydrocarbon resources within its territory and in watersfalling under its jurisdiction, setting its own requirements for license awards. Nevertheless,the approvals by individual Member States to drill off their shores may have a significantimpact on other Member States. The environmental, economic and social damages causedby a major oil spill affect marine and coastal areas irrespective of national borders.

It is therefore crucial that licensing procedures anywhere in Europe conform to certainbasic common criteria. National licensing procedures in all Member States should bereviewed to reflect recognized best practices and to include EU-wide obligations forsafety, health and environmental performance, risk management and independentverification.

The licensing regime needs to be backed up by an unequivocal liability regime which mustinclude adequate financial security instruments to cover major incidents. The existingfinancial security instruments need to be assessed with regard to financial ceilings and maybe usefully complemented by other risk-coverage instruments, such as funds, insurance,guarantees, etc’.71

The future regime must be based on high levels of safety and environmentalprotection:

‘To guarantee maximum safety and a level playing field for industrial operators, therequirements applicable to industry through goal-setting or, where appropriate, prescrip-tive legislation need to be designed according to uniform criteria, inspired by the state ofthe art in the sector and must be rigorously enforced. These requirements must include, inaddition to the financial and technical capability, key features to protect the health andsafety of workers on offshore installations, guarantee the integrity of installations, providea high level of protection of the environment, and prevent and respond to accidents.

Not only future operations and installations but also existing ones must consistentlyconform to the highest levels of safety and protection. Maintenance should includerequirements for regular upgrading of installations as technology evolves.

The existing environmental legislation addresses a number of issues relevant to offshoreinstallations (e.g., environmental impact assessment) and certain aspects of offshoreoperations (e.g., emissions from platforms). Yet the installations are not covered by EUlegislation on pollution control and major accident hazards which was mainly designed toaddress land-based installations and risks of major accidents on land’.72

71 Ibid. 4.72 Ibid. 6.

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It is not surprising that, moving from these assumptions, the Commissionenvisages the future participation to the Offshore Prot. by the European Union andits Member States:

‘In the Mediterranean Sea, a large part of the marine space is made up of High Seas andco-operation between the authorities of riparian States needs to be reinforced.

The EU should therefore seek that regulatory frameworks and industry supervision injurisdictions neighbouring European waters provide equally high levels of safety andprotection. There is a good example of the benefits from regional co-operation betweencompetent authorities in the North Sea.

The potential of regional conventions should be explored. This includes re-launching, inclose co-operation with the Member States concerned, the process towards bringing intoforce the protocol combating pollution from offshore activities in the Mediterranean. Thiswould allow involving the already existing Regional Marine Pollution EmergencyResponse Center for the Mediterranean Sea (REMPEC) in offshore emergency prevention,preparedness and response. Bilateral co-operation, particularly with southern Mediterra-nean States involved in offshore extraction activities can also be enhanced, notablythrough Action Plans and instruments under the European Neighbourhood Policy(ENP)’.73

In October 2011, the European Commission made the subsequent step bypresenting a proposal for a Regulation of the European Parliament and of theCouncil on Safety of Offshore Oil and Gas Prospection, Exploration and Pro-duction Activities,74 to fill the gap created by the lack of specific offshore oil andgas legislation by the European Union. The explanatory memorandum points outthe dimension of the risk and the lack of adequate regulation:

‘The risk of a major offshore oil or gas accident occurring in Union waters is significantand the existing fragmented legislation and diverse regulatory and industry practices donot provide for all achievable reductions in the risks throughout the Union.

73 Ibid. 12.74 Doc. COM(2011) 688 final of 27 October 2011. According to the subsidiarity principle, theneed for legislative action at the European Union level is explained as follows: ‘Companiesoperate and drilling rigs like Deepwater Horizon are being moved across borders but face verydifferent regulatory regimes along the lines of national jurisdictions. Recent reactions of theMember States suggest, that without Union action these differences are going to exacerbate ascountries mainly only in the most advanced regions individually plan improvements whileinternational initiatives make very slow progress. Moreover, without Union action, existingdifficulties for comparing industry performance and sharing of intelligence and incident data willremain. Action by Member States alone would be inadequate to achieve consistent protection(including liability for pollution) of the environment, a common good, a commitment of theUnion and its Member States as per the Marine Strategy Framework Directive’. (ibid. 10). Theinstrument lastly quoted is Directive 2008/56/EC of 17 June 2008, establishing a framework forCommunity action in the field of marine environmental policy. .


The existing regulatory framework and operating arrangements do not provide for themost effective emergency response to accidents wherever they occur in Union waters, andthe liabilities for clean-up and conventional damages are not fully clear.75

The likelihood and consequences of major offshore incidents remain significant every-where in the Union based on national reports, and risk analysis conducted by the Com-mission in 2011. Offshore production occurs increasingly also in the Mediterranean, theBlack and even the Baltic Seas where some countries in some of these marine regions haveless experience in regulating offshore operations. Still, even in the advanced regions(mainly North Sea) national action has failed to achieve common standards and compa-rability of data’.76

In this field, the disparities in laws and practices among Member States,including as regards liability provisions, also reflect the lack of relevant instru-ments of international law.77 One of the general objectives of the proposal is to‘improve and clarify existing Union liability and compensation provisions’.78 Inthis connection, the proposal aims at expanding the territorial applicability ofenvironmental liability 2004/35, currently limited to the coastal strip and territorialsea in relation to water damage, to cover also all marine waters under the juris-diction of the Member States. It foresees stronger and risk based assessment oftechnical and financial capacity. No ‘export’ of risk would be allowed:

‘Union based companies should endeavour, and are expected, to follow the policiesoutlined in this regulation and not lower standards when operating outside the Union’.79

An interesting remark relates to some different reactions to the online publicconsultation on the proposal:

‘While acknowledging improvement needs in general terms, the industry was the mostconservative towards regulatory changes while preferring goal setting approaches andindustry initiatives. On the other hand NGOs and the specialised companies (e.g., clas-sification societies) were the most active in calling for changes at Union level)’.80

As far as liability and compensation are concerned, the preamble of the pro-posal of regulation points out that ‘under existing liability regimes, the responsibleparty may not always be clearly identifiable and/or may not be able, or liable, to

75 Ibid. 2.76 Ibid. 10.77 ‘There are considerable disparities and fragmentation amongst Member States’ laws andpractices applying to offshore activities (e.g., licensing, liability provisions, equipment safetystandards, public transparency and information sharing). This reflects the virtual absence ofinternational law instruments and gaps in relevant Union law’. (ibid. 3).78 The others are to ‘1. Ensure a consistent use of best practices for major hazards control by oiland gas industry offshore operations potentially affecting Union waters or shores; 2. Implementbest regulatory practices in all European jurisdictions with offshore oil and gas activities; 3.Strengthen Union’s preparedness and response capacity to deal with emergencies potentiallyaffecting Union citizens, economy or environment’. (ibid. 3).79 Ibid. 6.80 Ibid. 5.

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pay all the costs to remedy the damage it has caused’ (para 8) and that ‘thecompetent authority is required to consider the technical and financial risks, andwhere appropriate, the previous record of responsibility, of applicants seekingexclusive exploration and production licenses’. (para 9). It is also clearly stated(para 38) that marine waters covered by the sovereignty or jurisdiction of Euro-pean Union Member States form an integral part of the four marine regions,namely the Baltic Sea, the North-east Atlantic Ocean, the Mediterranean Sea, andthe Black Sea, and that, for this reason, coordination should be strengthened withthird countries having sovereignty or jurisdiction over waters in such marineregions. Appropriate co-operation frameworks include regional sea conventions,such as the Barcelona Conv. The preamble (para 39) acknowledges that, in relationto the Mediterranean Sea, the necessary actions are being undertaken for theaccession of the European Union to the Offshore Prot.

The proposal, which is mainly focused on prevention of accidents, channelsliability on the ‘licensee’, defined as the holder of an authorization to carry outoffshore operations:

‘The licensee is liable for the prevention and remediation of environmental damage,pursuant to Directive 2004/35/EC, caused by offshore oil and gas activities carried out bythe licensee or any entity participating in the offshore oil and gas operations on the basis ofa contract with the licensee. The consenting procedure for operations pursuant to thisRegulation shall not prejudice the liability of the licensee’.81

The financial capacity of the licensee must be taken in consideration at themoment of granting an authorization:

‘In particular, when assessing the technical and financial capacity of the entities that applyfor authorisation for offshore oil and gas activities, due account shall be taken of the risk,hazards and any other relevant information related to the area concerned and the particularstage of exploration and production operations and also of the applicants’ financialcapacities, including any financial security and capacity to cover liabilities potentiallyderiving from offshore oil and gas activities in question, in particular liability for envi-ronmental damages’. (Article 4, para 2).

Neither compulsory insurance nor a compensation fund are envisaged in theproposal. However, analysis and studies in this field are expected on the basis of aprudent approach that does not exclude further developments:

‘As no existing financial security instruments, including risk pooling arrangements, canaccommodate all possible consequences of extreme accidents, the Commission shouldproceed with further analysis and studies of the appropriate measures to ensure adequatelyrobust liability regime for damages related to offshore oil and gas operations, requirementson financial capacity including availability of appropriated financial security instrumentsor other arrangements’.82

Due emphasis is given in the proposal to co-operation with third States,especially within the framework of regional sea conventions:

81 Article 7.82 Preambular para 48.


‘The Commission, in close co-operation with the Member States, shall promote co-operation with third countries that undertake offshore oil and gas operations in the samemarine regions as Member States including, where appropriate, within the framework ofregional sea conventions.

The Commission shall assess the safety of oil and gas operations in the waters of the thirdcountries adjacent to waters of Member States and support a coordinated approach tomutual exchange of experience and promotion of preventive measures and regionalemergency response plans.

The Commission shall promote high safety standards for offshore oil and gas operations atinternational level at appropriate global and regional fora, including those related to Arcticwaters’.83

Also the European Parliament, in the Resolution adopted on 13 September 2011on Safety of Offshore Oil and Gas Activities, based itself on a broader vision offuture developments in the field of liability and compensation, including thepossible establishment of a compensation fund. By this recent instrument theParliament

‘Urges Member States, when considering financial guarantee mechanisms, including thenecessity of third-party insurance, to pay due attention to set insurance rates on the basis ofthe real risk arising from drilling and exploitation difficulties, so as not to price small-andmedium-sized operators out of the market whilst ensuring that liability coverage ismaintained;Stresses that while in principle financial guarantees can be provided through eitherinsurance or industry mutualisation, it is important to ensure that operators demonstratethat financial guarantees are in place to cover the full cost of clean-up and compensation inthe case of a major disaster, and that risks and liabilities are not externalised to smallercompanies that are more likely to declare insolvency in the event of an accident; calls forany joint schemes to be established in a manner that maintains incentives for avoidingrisks and adheres to the highest possible safety standards in individual operations;

Recognises the merit of communal funds such as OPOL in the North Sea and calls for suchfunds to be established in each EU sea area; calls for membership to be mandatory foroperators and for legal certainty to be ensured so as to provide a safety-net mechanismdesigned to reassure the Member States, the maritime sector, in particular fishermen, andtaxpayers84;Stresses that the voluntary nature of schemes such as OPOL limit their legal control andtherefore believes that these funds would be strengthened by being a mandatory licencerequirement;Stresses that contributions should be based on, and consistent with, both the level of risk atthe site concerned and contingency plans;Considers that the scope of the Environmental Liability Directive should be extended sothat the ‘polluter pays’ principle and strict liability apply to all damage caused to marinewaters and biodiversity, so that oil and gas companies can be held accountable for any andall environmental damage they cause, and can assume full liability;Calls for a revision of the Environmental Liability Directive to extend its coverage to allEU marine waters in line with the Marine Strategy Framework Directive;

83 Article 28 paras from 1 to 3.84 As regards the OPOL see infra Sect. 13.6.

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Calls on the Commission, under the Environmental Liability Directive, to lower damagethresholds and to enforce a strict liability regime covering all damage to marine waters andbiodiversity;Takes the view that the Commission should examine whether a compensation fund for oildisasters can be created within the framework of environmental liability, which wouldcontain binding financial security provisions;Recommends that Member States consider adopting and strengthening deterrents againstnegligence and non-compliance such as fines, withdrawal of licences, and criminal lia-bility for employees; points out however, that such a regime existed in the USA prior tothe Deepwater Horizon spill;Stresses that the financially liable parties should be established without ambiguity prior todrilling’.85

The European Parliament also stresses the need to avoid the ‘export of risk’ byEuropean Union companies and recalls the importance of becoming party to theOffshore Prot. It

‘Urges the industry to employ at least EU environmental and safety standards or theirequivalent wherever in the world they are operating; is aware of the enforcement issues ofmandating EU-based companies to operate globally according to EU standards, but callson the Commission to examine what mechanisms might be appropriate to ensure that EU-based companies operate globally according to at least EU safety standards; believescorporate responsibility should also be a key driver in this area and that Member Statelicensing regimes could take global incidents involving companies into considerationwhen awarding licenses, provided these incidents are accompanied by thorough reviews;calls on the Commission to promote the use of these high standards along with globalpartners; (…)86;

Stresses the importance of bringing fully into force the un-ratified 1994 MediterraneanOffshore Protocol, targeting protection against pollution resulting from exploration andexploitation’.87

13.6 Other Recent Developments

The catastrophic effects of the Deepwater Horizon incident stimulated also in otherfora further consideration of the risks posed by potentially dangerous activitiesfrom the perspective of both prevention and compensation.

The Parties to the Convention for the Protection of the Marine Environment ofthe North East Atlantic (Paris 1992; so-called OSPAR Convention) adopted in2010 a Recommendation on the Prevention of Significant Acute Oil Pollution fromOffshore Drilling Activities, whereby they established a process to review existing

85 Paras from 69 to 79.86 Para 80.87 Para 83.


regulatory mechanisms and associated guidance and to take in the near futureadditional action, if needed.

The Guidelines for the Development of Domestic Legislation on Liability,Response Action, and Compensation for Damage Caused by Activities Dangerousto the Environment, adopted in February 2010 in Bali by the UNEP GoverningCouncil88 can provide useful models for further normative developments in thefield of liability and compensation. They allow compensation for different types ofdamage, among which ‘‘environmental damage’’89 is included, but only insofar asthis is provided by domestic law (Guideline 8 para 2).90 They channel liability onthe operator, without however excluding the liability of other subjects:

‘1. The operator should be strictly liable for damage caused by activities dangerous to theenvironment.

2. Without prejudice to paragraph 1, any person should be liable for damage caused orcontributed to by not complying with applicable statutory or regulatory requirements orthrough wrongful, intentional, reckless or negligent acts or omissions. A violation of aspecific statutory obligation should be considered fault per se’.91

States are called to encourage or require that the operator is covered byinsurance or other financial guarantees:

‘The operator should, taking into account the availability of financial guarantees, beencouraged or required to cover liability under guideline 5, paragraph 1, for amounts notless than the minimum specified by law for the type of activity dangerous to the envi-ronment concerned and should continue to cover such liability, during the period of thetime limit of liability, by way of insurance, bonds or other financial guarantees.

88 The UNEP Guidelines are annexed to the Nusa Dua Declaration.89 ‘The term ‘‘environmental damage’’ means an adverse or negative effect on the environmentthat: (a) Is measurable taking into account scientifically established baselines recognized by apublic authority that take into account any other human-induced variation and natural variation;(b) Is significant, which is to be determined on the basis of factors such as: (i) Long-term orpermanent change, to be understood as change that may not be redressed through natural recoverywithin a reasonable period of time; (ii) Extent of the qualitative or quantitative changes thatadversely or negatively affect the environment; (iii) Reduction or loss of the ability of theenvironment to provide goods and services, either of a permanent nature or on a temporary basis;(iv) Extent of any adverse or negative effect or impact on human health; (v) Aesthetic, scientificand recreational value of parks, wilderness areas and other lands’. (Guideline 3.3).90 As explained in the commentary to the UNEP Guidelines, ‘in addition, as regardsenvironmental damage, domestic legislation might acknowledge such loss as being an intrinsicpart of any approach to comprehensive legislation on liability, response action and compensationfor environmental damage. Should domestic legislation incorporate such a comprehensive focus,domestic law might also put in place an appropriate mechanism for the assessment or valuation ofcompensation as a result of the loss of the use of the natural resources concerned’. (doc. UNEP/GCSS.XI/INF/6/Add.2 of 19 January 2010, 2).91 Guideline 5 paras 1 and 2.

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The competent public authority should periodically review the availability ofand the minimum limits for financial guarantees, taking into account the views ofrelevant stakeholders, including the specialized and general insurance industry’.92

Limitation of liability is envisaged under certain conditions93 and domestic lawmay provide for a special fund or collective compensation mechanism:

‘Given that the operator might be unable to meet his or her liability or that actual damagesmight exceed the operator’s limit of liability, domestic law may provide for closure ofpotential compensation gaps by way of special funding or collective compensationmechanisms’.94

The Deepwater Horizon incident called for response also by the oil industry, inthe form of increased co-operation to review the safety of drilling practices andcontingency plans, as well as to meet financial responsibilities for potentialcleanup and compensation costs arising from a major oil spill. For instance, theUnited Kingdom Oil Spill Prevention and Response Advisory Group (OSPRAG)has reviewed the functioning of the Offshore Pollution Liability AssociationLimited (OPOL), an oil industry body set up in 1975 which administers a strictliability compensation scheme to which all British offshore operators are parties.95

In the event of a default by an operator, OPOL provides for a mutual guaranteefrom all of its other members for the settlement of claims up to a determined limit.In August 2010, the OPOL members increased the limit from US$ 120,000,000 to250,000,000. According to OSPRAG, the current OPOL limit is an appropriateone, as only a small number of wells are likely to have a potential exposure abovethis level. Additional financial means to meet these instances are expected to bedeveloped through OSPRAG financial responsibility guidelines that have yet to befinalized.

13.7 Conclusive Remarks

It is frequently said that many progressive developments in environmental law arethe consequence of the lessons learned from disasters that heavily affect theenvironment and, in several cases, human life as well. This could happen also inthe case of the Deepwater Horizon incident.

The rush towards drilling in deep waters is not likely to be halted by recentincidents, despite a number of declarations advocating for a moratorium. But the

92 Guideline 11 paras 1 and 2.93 ‘Liability pursuant to guideline 5, para 1, may be limited in accordance with criteriaestablished under any applicable domestic classification scheme for activities dangerous to theenvironment. (…) There should be no financial limit on liability arising under guideline 5, para2’. (Guideline 10 paras 1 and 3).94 Guideline 10 para 2.95 See OSPRAG, Strengthening UK Prevention and Response—Final Report, September 2011.


public has developed an aversion to further risk of major incidents. The intentionto do something to guarantee safety in oil drilling has been manifested withinactors that play a pivotal role in the oil production and marketing, such as theUnited States and the European Union. So far offshore oil drilling has been largelycharacterized by self-regulation by operators, including ‘self-insurance’ for futuredamage. This also explains why there is a persistent lack of a binding instrumentapplicable on the world scale and relating to liability and compensation for thiskind of activities.

The main lesson to be drawn from the Deepwater Horizon incident is thatcompensation is to be paid in full and through a swift and effective process.Present limitations to liability and ceilings of compensations funds, if any, areinsufficient to cover the damage arising from a catastrophic event. The situation is,however, likely to change following a widespread call for more regulation at boththe international and the domestic level. An evident legal gap needs to be filled andexperts concur that this should be done without delay.96

References

Badenes Casino M (2005) Ixtoc-1. In: Juste Ruiz J, Scovazzi T (eds) La práctica internacional enmateria de responsabilidad por accidentes industriales catastróficos, Tirant Lo Blanch,Valencia 65

Billé R, Druel E, Rochette J (2001) Advancing the Oceans Agenda at Rio ? 20: Where We MustGo. IDDRI (Institut du Développement Durable et des Relations Internationales) Policy BriefNo. 5

Chabason L (2011) Offshore oil exploitation: A new frontier for International EnvironmentalLaw, IDDRI Working Paper No. 11

Foley VJ (2001) Post-deepwater horizon: the changing landscape of liability for oil pollution inthe United States, 74 Albany Law Review, 515

Sands P (2003) Principles of international environmental law, 2nd edn. Cambridge UniversityPress, Cambridge

Schoenbaum T (2012) Liability for damages in oil spillaccidents: Evaluating the USA andinternational law regimes in the light of Deepwater Horizon, 22 Journal of EnvironmentalLaw 1

Scovazzi T (1995) The fifth protocol to the Barcelona convention on the protection of themediterranean, 10 Int J Marine Coastal Law, 543

Scovazzi T (2009) The Mediterranean guidelines for the determination of environmental liabilityand compensation: the negotiations for the instrument and the question of damage that can becompensated, 13 Max Planck Yearbook of United Nations Law, 183

Sersic M (1989) Draft protocol for the protection of the Mediterranean sea against pollutionresulting from offshore activities, Marine Policy Reports 161

Treves T (1978) La pollution résultant de l’exploration et de l’exploitation des fonds marins endroit international, 24 AFDI 827

96 See Chabason 2011, 3; Billé et al. 2001, 1.

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