In the UK, the High Court issued judgment at the end of March in the civil litigation to decide on liability following the 2005 explosion at the Buncefield oil storage depot. The judgment raises a number of practical management issues to be considered by anyone operating a facility covered by the Control of Major Accident Hazards Regulations 1999 (COMAH) or simply managing hazardous substances in significant quantities. This article provides an overview of the judgment and outlines significant issues to consider.
In the March 20, 2009 judgment, the oil company Total was found to have been negligent and liable in nuisance to claimants inside and outside the perimeter of the site. In addition, Chevron (who was Total's joint venture partner) was found not liable to contribute. The way is open for thousands of reported claimants to seek hundreds of millions in damages. The insurers covering some of the other companies involved at the site (who had already paid out some claims) may try to recover some of the money paid out.
The prosecutions for any criminal liabilities arising as a result of this incident have not yet been heard. The Health & Safety Executive is prosecuting Hertfordshire Oil Storage Ltd (HOSL) under the Control of Major Accident Hazards Regulations 1999 (COMAH). HOSL was the Total/Chevron joint venture company at the time. Interestingly, the HSE is not proceeding against Total and this anomaly may not be explained until the criminal proceedings are heard.
Furthermore, the calculation and recovery of damages will take some time following the High Court judgment, but some parts of the judgment have dealt with pure economic loss suffered by some of the claimants. This has always been more difficult to recover under English law than recovering compensation for physical damage. The intricacies of the shareholdings, joint venture agreements and employee relationships in this case are extremely complex and much of the High Court judgment was tied up with them.
The judgment has pointed to a number of practical management issues to be considered by anyone operating a facility covered by COMAH or simply involving hazardous substances in significant quantities. Some of these are just applied common sense and most are not new law, but, as a result of this verdict, note:
- The use of joint venture companies will not automatically shield joint venturers from civil liability, particularly when one of them continues to employ the employees and control how they work. Total had vicarious liability for the negligent acts of Total's employees at Buncefield, even though the site was under the control of the joint venture company. Total, not HOSL, employed and supervised the relevant employees.
- Clients using joint venture companies in this situation need to make it clear internally to staff, to the organisations that deal with them, and to all relevant authorities, who is operating their site. In this case, some of the documents produced at court referred to the joint venture company as operator and some referred to Total. It was Total who prepared the COMAH safety report and sent it to the HSE without even supplying a copy to the joint venture company. Total's own employees were inconsistent and unclear. Paperwork and actions must be both clear and consistent.
- Clients need clear written instructions for their operations, even for operations that are thought to be routine. The paperwork needs to be in good order. The judge gained a clear impression from the evidence that practices within the Buncefield control room were sloppy (at best). He pointed to an overall lack of planning and monitoring of the oil filling operations. He said that written instructions would form the standards for supervisors to be trained, monitored and disciplined. Where these were missing, he could only conclude the company's practices were poor.
- Do not think that you can rely on a contract clause to be indemnified against your own negligence. A long history of cases has made this very difficult to achieve, especially where the indemnity wording is in general terms. The judge held that Total could not rely on the general indemnity provisions in the joint venture and associated agreements to cover them for their negligence.
- If you have a contract to operate a facility where you do not have any ownership or are not entitled to possession of the facility, then you are unlikely to be able to recover the loss of profits or additional operating costs if the facility is damaged by the negligence of a third party. In this case, Shell had a contract to run and operate a pipeline from Buncefield to supply aviation fuel to various airports including Heathrow. They used the pipeline but did not own it and were not "in possession," so could not recover compensation for being unable to supply that fuel, or for the additional costs of supplying some fuel by road. They could recover the cost of the lost fuel arising as a result of the explosion. When negotiating contracts for vulnerable facilities, realise the consequences of the structure of the arrangement, and remember to draft contract clauses to cover your position.
- Operating within the scope of a permit where hazardous substances are used or stored will not provide a defence against all the possible criminal sanctions or potential civil liabilities that can arise if hazardous substances escape and cause damage.
- In addition to the existing range of common law claims and criminal liabilities, new regulations (the Environmental Damage (Prevention and Remediation) Regulations 2009) have just come into force for England. They deal with the remediation of environmental damage to natural habitats and cover removal of the threat of that damage. Liabilities under these Regulations will only apply to damage occurring after 1 March 2009 in England. Similar Regulations will apply to the rest of the UK shortly. Operators of sites containing significant amounts of hazardous substances might care to note that the duties imposed by these Regulations include notifying the relevant regulatory authorities of environmental damage or the imminent threat of it, and include taking the steps necessary to remediate any damage caused or to prevent it happening altogether.
Environmental liabilities in the UK overlap. In this case, the joint venture and associated agreements were complicated by various corporate takeovers in the past. What was clear was that Total had been negligent. All COMAH site operators and anyone working with significant quantities of hazardous substances should make sure that adequate systems are in place to operate safely, and that these are written down and clearly communicated to all staff.