On 14 September 2015 the Commission published its long-awaited report on Liability, Compensation and Financial Security for Offshore Accidents in the European Economic Area. The overall verdict is that broadening liability provisions through EU legislation is not appropriate at this time. The report was published pursuant to Article 39 of Directive 2013/30/EU, better known as the “Offshore Safety Directive”, which required the Commission to submit to the European Parliament and to the Council a report on its assessment of the effectiveness of the liability regimes in the Union in respect of the damage caused by offshore oil and gas operations, including an assessment of the appropriateness of broadening liability provisions. Under Article 39 of the Offshore Safety Directive, the Commission was also required to examine the appropriateness of bringing certain conduct leading to a major accident within the scope of the Environmental Crime Directive (Directive 2008/99/EC of the European Parliament and of the Council of 19 November 2008 on the protection of the environment through criminal law).
The report draws on studies performed for the Commission by the University of Maastricht, as well as by Deloitte and Stevens & Bolton, LLP. It addresses three broad issues, namely: (1) the appropriateness of criminal liability for offshore accidents and resulting damage; (2) the effectiveness of civil liability regimes in Member States (including environmental remediation); and (3) financial security instruments used in Member States, and their availability.
In respect of the first of these issues, the conclusion reached is that at this point, most Member States have not yet implemented the pertinent provisions of the OSD and therefore it is too early to properly assess whether EU criminal law measures would be essential to ensure effective offshore safety in the Union. For these reasons, the Commission cannot yet provide a full report on the appropriateness of bringing certain conduct leading to a major accident within the scope of the Environmental Crime Directive. Of course, in the UK, the majority of matters covered by the Offshore Safety Directive already attract criminal liability.
On the second issue, the report concludes that there are significant differences regarding the standard of liability (strict or fault-based) and the extent of liability for economic loss as between Member States. In the UK and Cyprus, for instance, the report notes that “pure” economic loss is not recoverable although where physical damage has been suffered, economic loss may also be included in the damages claim. The latter issue has particular implications for the fishing and tourism industries, as well as other sectors that rely on the good condition of the shared marine environment for doing business, but which may not suffer physical damage. The report notes that no clear case can be made at the present time that any of the current approaches to civil liability in the Member States is less effective than others in ensuring offshore safety. It also accepts that limits to liability are a practical necessity. However, it holds up the Norwegian model of strict liability for damage caused by offshore pollution including pure economic loss as laudable and suggests that Member States “should consider adopting provisions specifically for economic sectors most vulnerable to offshore accidents without introducing the widespread uncertainly on financial responsibility levels that might impede the development of offshore oil and gas resources”.
In respect of financial security instruments used in Member States, the report concludes that while there is a broad variety of products available to hedge oil and gas companies’ operating risk, there is currently a lack of uptake of financial security instruments to cover all damage from the most infrequent and costly offshore accidents. It suggests a variety of possible reasons for this but notes in any event that the situation is likely to change as a result of the requirement in the Offshore Safety Directive for Member States to take account of financial capabilities of license applicants and the requirement of the Offshore Protocol of the Barcelona Convention (which has recently become part of EU law) for Parties to ensure that operators have insurance cover or other financial security for damage caused by activities covered by the Protocol. The report concludes that the market is therefore likely to develop in future.
In respect of the UK regime, where the regulator requires membership of the OPOL scheme, the report comments that the current $250 million cap on reimbursement may not cover all damage and loss from the worst accidents. (The report does not refer to the additional financial responsibility which must be demonstrated to DECC by licensees undertaking drilling activities and which does address the rare cases where the OPOL limits may not be sufficient). The report notes that the decision whether to require membership of schemes such as OPOL which contains an element of mutualisation of risk is best left to Member States, commenting that in some circumstances such schemes might lead to an unjustified cross-subsidization of risk and a potential moral hazard.
The report also considers how compensation claims are handled in Member States. Only two states, Norway and the UK, currently have specific schemes for offshore incidents but the Offshore Safety Directive will require all Member States to put in place procedures to ensure the prompt and adequate handling of claims. In relation to the UK’s OPOL scheme, the report suggests that one shortcoming is that the liable operator decides in the first instance whether claims against it are applicable. It goes on to suggest that generally for compensation procedures independent claims handling is to be preferred.
The Commission is likely to watch Member States closely in the period up to publication of its first Implementation Report on the Offshore Safety Directive, due by 19th July 2019. It remains to be seen whether at that time, the Commission will consider that further changes or measures are required to ensure the harmonisation of criminal liability in respect of failures to comply with the Offshore Safety Directive, civil liability (including liability for “pure” economic losses), and the availability of financial security instruments across Member States.