At the start of September the latest chapter in the British Petroleum Deepwater Horizon oil spill tale began to unfold.
BP has been apportioned 67 per cent of the blame for the incident, with Transocean (the rig’s operator) taking on 30 per cent and Halliburton, which had performed work on the rig, the remaining three per cent. Judge Carl J Barbier of the United States District Court for the Eastern District of Louisiana published his finding in the Phase One trial (which relates to the cause of the accident and the allocation of fault – see box) under the Clean Water Act.
More crucial was the Court’s finding on cause. The Court concluded that BP was grossly negligent and engaged in wilful misconduct, which carries with it a maximum penalty of US$4,300 per barrel – opening the door to potentially US$18bn of penalties, on top of the US$43bn the firm has already paid out, or accounted for. However, its findings that Transocean and Halliburton were just negligent – and subject to penalties of US$1,100 per barrel – sets BP apart as being more culpable and has raised concerns over the basis of this conclusion.
‘It’s hard to reconcile that BP alone was found grossly negligent with the factual findings that multiple actions by employees of three different companies all contributed to the accident,’ says Geoff Morrell, Head of US Communications and External Affairs at BP.
‘I do not think the opinion of the court reflects an anti-British or anti-foreign corporation bias,’ says Gene Smary, a partner in Warner Norcross & Judd in Grand Rapids, Michigan, and Secretary of the IBA’s Section on Energy, Environment, Natural Resources and Infrastructure Law. While the court made it clear why it found BP to be grossly negligent, I suspect there will be reasoned disagreement over the finding of mere negligence for the other defendants,’ he adds.
‘The culpability of making a mistake is different when you’re responding to a crisis. This led to some of the difference in determining the level of culpability’
Founder, Lawyers for Clean Energy
When contacted, Halliburton and Transocean declined to comment on this view of the verdict. However, in an earnings call in May, Transocean CEO Steven Newman said the firm was ‘confident’ on the merits of its case, noting that no new facts had been presented during the trial. He added: ‘We have not been found guilty of any post-incident misconduct’.
In the finding, Judge Barbier lists the acts that led him to the conclusion that BP had been grossly negligent, including making decisions based on profits. He adds: ‘These instances of negligence, taken together, evince an extreme deviation from the standard of care and a conscious disregard of known risks.’
When addressing Transocean’s conduct, Barbier writes: ‘The Court has identified several instances where Transocean’s conduct fell below the standard of care… However, BP had a hand in most of these failures.’
Brian Orion, founder of the San Francisco-based law firm Lawyers for Clean Energy, says that BP ‘made the decisions that ultimately led to the blowout, so is more culpable’ than Transocean, despite the fact that the latter was operating the rig at the time of the spill.
Deepwater Horizon oil spill
Transocean CEO Steve Newman notes that the ruling ‘has again ratified the industry-standard allocation of liability between drilling contractors and the owners and operators of oil wells’.
Orion argues that it is the timing of the decisions made by the companies involved that affects the degree to which they are liable: ‘The Court notes that most of Transocean’s mistakes were made under a time constraint after the crisis began’, he says, ‘while BP’s were made without any such time pressure. The culpability of making a mistake is different when you’re responding to a crisis. This led to some of the difference in determining the level of culpability.’
‘Certainly elapsed time was a significant factor to the court – over an hour from error to intentional act with regard to BP, only a few minutes with regard to another defendant – and the Court noted that several of BP’s decisions were profit-driven,’ says Smary.
As for Halliburton, while the court found its behaviour egregious, its shortcomings ‘didn’t lead to the disaster, or they did in a very tangential way’, says Orion. ‘In our system, it’s not enough to be a bad actor – the bad acting has to lead to a bad act.’
BP Deepwater Horizon: a guide to the litigation
The civil trial (reference MDL 2179) for the 20 April 2010 spill is split into two phases. Phase One relates to the cause of the accident and the allocation of fault, while the Phase Two trial deals with the efforts to stop the spill and the quantity of oil spilled.
The 4 September finding relates to the Phase One trial. A ruling in the Phase Two trial is yet to be issued, but is expected this year, as it will inform the penalty phase – the trial for which is scheduled to start 20 January 2015. This will determine the total civil penalties BP must pay under the Clean Water Act – potentially as much as $18 billion.
Payments for business and economic loss are ongoing, as part of the British firm’s settlement with the Plaintiffs’ Steering Committee, which is acting on behalf of individual and business plaintiffs in MDL 2179. However, litigation is ongoing as BP challenges a Fifth Circuit Court ruling against reviewing the cause of claimants’ losses.
A separate trial (reference MDL 2185), regarding investors’ losses owing to the April 2010 incident, is set to begin on 18 May 2015, subject to ongoing appeals regarding certification of the class. The investors – including pension funds – allege that BP misrepresented the risks of its offshore drilling. There is also a track relating to shares in BP employee savings plans. Initially dismissed in 2012, in July it was remanded to the district court following an appeal.
‘Halliburton is pleased with [the] ruling, which, coupled with our earlier announced settlement with the plaintiffs’ class, means the Macondo case is essentially over for Halliburton,’ the firm says.
‘The judge recited a significant amount of evidence to support the finding of gross negligence,’ says Paul Gutermann, a partner at Akin Gump in Washington DC. ‘An American company would have been treated in exactly the same way.’
The Clean Water Act, which the case was brought under, is one of the oldest environmental statutes in the US, he says, but has been amended over the years. The penalties for gross negligence were amended after the Exxon Valdez oil spill in Alaska in 1989, to levy a steeper penalty per barrel.
‘Something like what happened in the Gulf is an incident that the Congress envisioned when it passed the amendments to the Act,’ Gutermann says.
The statute sets forth several factors on which the court is to rely in setting the penalty for BP’s gross negligence. The finding adds: ‘The Court does not decide at this time which factors to apply and the final per barrel penalty amount.’
Gutermann says there are a variety of factors that could affect the penalty levied, including the seriousness of the spillage, the degree of culpability – which the gross negligence ruling weighs heavily on – and any other penalties levied for the same incident. Furthermore, he adds that the court is allowing evidence of previous environmental violations committed by BP.
‘I would imagine that BP is going to focus on its efforts to set up the fund for the victims and remediate conditions to the Gulf,’ says Gutermann.
Katie Kouchakji is a freelance journalist and can be contacted on firstname.lastname@example.org