CHARTING A NEW COURSE – PROMOTING THE DEVELOPMENT OF AN INTERNATIONAL CONVENTION ON LIABILITY AND COMPENSATION RELATING TO TRANSBOUNDARY DAMAGE FROM OFFSHORE OIL AND GAS ACTIVITIES

Steven Rares*
1	I have spoken previously about the need for an international convention to regulate liability and compensation in respect of transboundary loss and damage as a consequence of offshore oil and gas activities.  Most maritime lawyers understand the practical attraction of such a public law instrument.  
2	However, the hydrocarbon industry and numerous States have chosen to adopt the apocryphal ostrich-like response to danger of putting their heads in the sand.  Perhaps, this is an attempt to search in new places.  But the reasons for the opposition to, or lack of interest in, any international convention on this issue are not transparent or obvious: it may be that it is in their “too hard basket” for political or economic reasons. 
3	The opposition to a convention may be a symptom of what Professor Nicholas Gaskell has called the “disaster reaction syndrome” namely, there needs to be (another) major catastrophe caused by an (insolvent) offshore facility, that will have an impact equivalent to the oil spills from the grounding of Torrey Canyon in 1967 or the offshore platform blowout from Deepwater Horizon in 2010, to spur the complacent into action. 
4	An international instrument creating generally accepted public international law norms and rights and obligations enforceable in private law actions is a necessity.  The adoption of a convention will help to ensure that all persons, including littoral States, who are adversely affected by pollution damage from blowouts or oil spills from fixed platforms, can claim and be paid fair and adequate compensation in a timely fashion.  
What an international convention should look like
5	As I have explained in the past, in my view, an international convention will need to develop rules and criteria on the following issues:
(1)	Identifying the persons liable and the basis for liability. This involves whether liability should be imposed on one or more of an operator, owner, licensee or others with a commercial interest in the operation of the offshore facility.   
(2)	Whether liability should be strict, rather than fault-based? 
(3)	To what sum should liability be limited? 
(4)	What level of insurance or financial security should each person with liability obligations be required to maintain?
(5)	What categories of loss or damage should be compensable: environmental damage, property damage, personal injury, including pure psychiatric harm, and or pure economic loss? 
(6)	Who or what class of person or persons and Governmental interests or States can claim compensation? 
(7)	Should there be a further fund set up (like the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (Fund Convention) and the Protocol of 2003 to the Fund Convention (2003 Protocol)) to provide compensation in circumstances where, for example, the relevant insurance or financial security required is inadequate to pay the whole of the compensation due?  
(8)	Rules for conferring jurisdiction on the courts or tribunals of each State party and for the recognition and enforcement of judgments or awards given under the convention. 

The International Maritime Organization
6	It is as surprising, as it is lamentable, that the International Maritime Organization (IMO) appears, presently, to be closed to the possibility of developing an international convention dealing with the consequences of blowouts and oil spills from offshore oil and gas facilities.  Over the last several years, in a breathtaking failure of leadership, the IMO has vacated the field that it proudly led in developing the 1969 (CLC 1969) and 1992 International Conventions on Civil Liability for Oil Pollution Damage (CLC 1992).  Instead, the IMO recently opted to promote the use of non-legal instruments, such as its guidance, to “assist” States to formulate their own national legislation, bilateral or regional instruments on this issue. 
7	The American movie mogul, Sam Goldwyn, once allegedly said that “a verbal contract is not worth the paper it’s written on”.  Nor is the IMO’s guidance.  It consists of mere aspirational talking points, is not binding and is inadequate to the task.  The guidance merely provides for a “non-normative checklist of possible elements”, which are very broad and lack any specific criteria or rules on liability and compensation.  It is a collection of platitudes.  The so-called “guidance” is a far cry from what is needed to achieve uniformity and certainty of enforceable rights and obligations that can be created by an international convention. 
8	The CLC 1969, CLC 1992, the Fund Convention and 2003 Protocol have governed the liability of the international shipping industry and, in particular ship owners, for half a century.  Those conventions have provided certainty that they can, and must insure, their limited but strict liability that applies when their ships leak oil.
9	The IMO’s guidance is not a solution, but an evasion of its responsibility and leadership role.  It is only a matter of time before the world will witness another significant hydrocarbon blowout, spill or leakage, such as occurred in the 2009 Montara and the 2010 Deepwater Horizon events.  The Australian Maritime Safety Authority estimated that the oil or sheen from the Montara blowout covered a total surface area of around 90,000 square kilometres.
10	Recently, for example, in late 2016, around 670,000 gallons (or 2.5 million litres) of oil spilled in the Gulf of Mexico from a fractured underwater pipeline in the Delta House floating production facility.  In addition, late last year, 250,000 litres of oil spilled into the ocean off Newfoundland on Canada’s East Coast from a subsea flowline connecting Husky Energy’s White Rose Field and its storage vessel, SeaRose.  Whilst neither incident was of similar scale to that of the Montara and Deepwater Horizon blowouts, or appear to have involved transboundary damage, they demonstrate the ever-present risk that pollution from an offshore accident can affect more than one littoral State and its citizens, businesses and environment. 
11	In our current age of ever more unusual natural phenomena, it is not far to seek possible situations in which transboundary pollution can occur and, possibly, also be worsened by the forces of nature.  Early in September 2019, Hurricane Dorian, a category five storm and one of the largest hurricanes on record, hit the Bahamas and then proceeded to wreak havoc as it moved north-west across the Gulf of Mexico and then north-east following the coast along the south-eastern United States and up to Canada.  Although Hurricane Dorian did not live up to the weather forecasting abilities of the President of the United States, it may not be long before he shows King Canute a thing or two when seeking to put South Carolina back onto the track of a disaster that was going to miss it.  Suppose that the path of Hurricane Dorian went over a blowout similar in scale to Deepwater Horizon’s, what might have happened to the leaked oil or hydrocarbon pollution as the hurricane moved in its northerly path? 
12	Offshore facilities can be both fixed and floating but pollution released from any blowout or spill is not obedient to sovereigns, like King Canute, or even Presidents, and dissipates with the four winds and the currents.  
13	The bottom line is that so long as there is offshore oil and gas activity, there will be an ever-present risk of a blowout or spill.  That risk may be accentuated if market demand drives offshore activity.  Recently, McKinsey & Co predicted that floating-rig demand will grow 6% p.a. between 2019 and 2027.  In addition, there is growing interest and activity in hydrocarbon exploration and exploitation in more remote locations and hostile environments, such as the Arctic.  A blowout or spill in the Arctic could have very serious effects on the region’s wildlife, environment and indigenous peoples. And, as always with such events, the clean-up effort and cost may also be significant.  
14	Gone are the days when in response to Torrey Canyon stubbornly continuing to leak oil off the English Coast, Whitehall adopted a novel, but unrepeated, solution.  Torrey Canyon ran aground on 18 March 1967 and began spilling her cargo of 120,000 tonnes of crude oil.  On 28 March 1967, after other methods had failed, the Royal Navy and Royal Air Force launched a full scale attack on the ship dropping 62,000lbs, or 28 tonnes, of bombs, about a quarter of which missed, and 5,200 gallons or about 23,500 litres of petrol on her.  The armed services also fired 11 rockets at the wreck and dropped large quantities of napalm on her.  The BBC reported that:
[d]espite direct hits, and a towering inferno of flames and smoke as the oil slick began to burn, the tanker refused to sink.

15	To add insult to the British forces’ injury, the mission that day was called off when particularly high spring tides put out the flames.  The Home Office issued a disappointed statement acknowledging this set back, which ended by observing that: “We cannot say at this stage what the next step will be”.  However, the BBC reported on 29 March 1967:
It was decided at first light this morning to carry on bombing.  Holiday makers gathered on the cliffs to watch the towering column of flames and smoke which could be seen up to 100 miles away.

16	Sadly, the British Government’s provision of this spectacle was to little avail.  In the end, the spilled unburnt oil created a 270 square mile (or about 700 square kilometres) slick that contaminated 120 miles of the Cornish coast and 50 miles of the coast of Normandy.  At the time, this was the biggest oil spill in history.  The clean-up efforts took months and reportedly cost the British and French Governments over USD16 million.
17	It may be a sign of changing times, but the Australian Government did not seem to think of using the military in the same way to deal with the oil spills from the Montara platform or the Shen Neng 1 running aground in 2010 on the Great Barrier Reef.
18	It would be naïve to think that any international convention would have no practical benefit simply because a region or facility may be thought to be “immune” from any offshore accident causing transboundary damage.  
19	The problem with adopting a piecemeal approach is that it leads to piecemeal results.  The use of bilateral or regional conventions, or of non-binding, unilateral legislation based on suggestions such as the IMO’s guidance, will result in a lack of international uniformity in setting compensation regimes and limits and in ensuring that awards of damages are predictable and enforceable immediately.  
A sequel of the Montara blowout
20	The experience from the CLC 1969, CLC 1992 and the Fund Convention has been of a relatively smooth, clear process.  There now exists a well-trodden path that enables persons who allege that they have suffered loss or damage from oil pollution from a ship, to establish their claims for compensation within a predictable and efficient assessment process.  
21	An international convention is likely to lessen or overcome the difficulties and delays in seeking compensation, such as those allegedly experienced by Governments and persons who claim that their land, waters, property and or businesses suffer transboundary or other damage as a consequence of a blowout or oil spill from an offshore hydrocarbon facility.  
22	For example, in 2009, the Montara blowout caused an oil spill in Australia’s Exclusive Economic Zone (EEZ).  The offshore well was owned by a Thai company, PTT Exploration and Production PCL (PTTEP), and operated by its Australian subsidiary, PTTEP Australasia (Ashmore Cartier) Pty Ltd (PTTEP AU).  The spill allegedly caused transboundary damage in Indonesian and East Timorese waters. 
23	Since 2009, the Indonesian Government has, unsuccessfully, sought compensation from the Thai government and PTTEP AU itself.  In 2014, Indonesia formally requested Australia’s cooperation in obtaining appropriate compensation from the responsible parties given the difficulties it had experienced in seeking recovery.  In 2017, the Indonesian Government commenced proceedings in an Indonesian court against PTTEP and PTTEP AU seeking USD2.1 billion in compensation but it withdrew the proceeding in 2018.  And right now, my colleague in the Federal Court of Australia, Justice Yates, is in the midst of a 10-week hearing of a private class action filed against PTTEP AU for negligence on behalf of what the media estimates suggest are about 15,000 Indonesian seaweed farmers who are claiming a substantial total amount of compensation for loss of income.  The lawyers for the seaweed farmers estimate that, if successful, compensation of more than AUD200 million will be assessed.  The seaweed farmers have to prove, first, that the oil that they claim affected their crops came from the Montara facility and, secondly, the operator’s negligence caused the blowout.  The hearing resumes in October and December 2019.  Such litigation is costly, time- and resource-consuming, and its outcome is ever uncertain until settled or judgment is given.
Patchwork of national laws and regional agreements 
24	The offshore industry and persons with claims against parties operating in it for loss or damage caused by pollution from a blowout currently face the prospect of dealing with individual cases within a patchwork of national laws and regional agreements.  These laws may not be comprehensive and may require a claimant to prove the liability of the operator or owner.  Moreover, even if the claimant is successful in proving his, her or its case, there may not be any compensation available if the defendant is not solvent or adequately insured.  And, the mere fact that the court in which the proceeding is heard, gives a verdict for one side or the other, does not guarantee that the successful party’s result can be enforced in any other jurisdiction. 
25	The absence of a coherent, common legislative framework to regulate the making of claims for compensation for loss or damage arising from hydrocarbon spills that are or have the potential to cause environmental, property or economic damage in more than one State, and the ability to enforce internationally any domestic award or judgment of a tribunal or court, is likely to lead to injustice and inconvenience.  Unless a claimant is well-resourced or can bring litigation as a class action under the domestic law of one State, it will be very difficult, not to say expensive, to take and get useful results from domestic proceedings without an international convention regulating such claims.  As experience under the CLCs has shown, littoral businesses, such as fishermen, seaweed farmers, tourist facilities including restaurants and hotels, and ports, often suffer significant damage from oil spills.  Moreover, the potential for a blowout from an offshore facility to release a very large amount of hydrocarbon into the sea could result in the interruption of established sea routes for cargo or passenger trade that could also give rise to claims for compensation. 
26	In addition, where one State incurs clean-up costs for a spill from an offshore hydrocarbon facility located outside its jurisdiction, that State may not be able to recover those costs, if the facility’s operator or owner does not have any presence within its jurisdiction or is not amenable to its sovereign legal process. 
27	The offshore oil and gas industry has an entrenched international character and is a major participant in international trade and commerce.  In the last 50 years, multinational businesses, both private and State-owned, have become a feature of commerce throughout the world.  The regulation of corporate juggernauts is an ongoing concern of sovereign States.  One only has to think of the issues that have arisen about the collection of taxation from the operations of large technology companies with so-called commercial or head offices in low tax nations in which those companies have no actual operations that produce the physical good or service.  Transfer pricing by multinationals often can facilitate tax avoidance, at best, or tax evasion, at worst, in States in which the businesses’ substantive profits are earned.  Likewise, there is a limited ability of any one Government to regulate aspects of the internet, including the dark web, and the more innocent activities of enterprises, such as Google and other search engines that offer not just access to information but to products and services of all kinds.  Any attempt at such international regulation, other than by a nation State in its own jurisdiction, is fraught with difficulty, not least because of western democratic values of freedom of speech, religion and opinion, underpinned by the First Amendment in the Bill of Rights in the Constitution of the United States of America. 
28	However, the regulation of offshore hydrocarbon facilities under an international convention that includes provisions governing liability for pollution damage and the payment of compensation, is likely to be much more straightforward than in other areas of multinational activity.  After all, there are conventions governing much of the international shipping industry, including setting standards for the construction of particular types of vessels, the prevention of pollution, the treatment and payment of seafarers, the carriage of goods by sea, and the enforcement of maritime claims.  There is also UNCLOS which regulates activity in the Area under Pt XII and, in particular, Art 235, that is the portions of the world’s oceans that are not within any nation’s territorial waters or jurisdiction. 
29	The current void in regulation of compensation for loss or damage caused by, or also created with, the operation of an offshore hydrocarbon facility has created an unacceptable risk that persons injured as a result of a blowout or spill, including one or more governments, will have no, or no effective, recourse against the person responsible.  The magnitude of that risk can be seen from the 2018 annual report of BP.  There, BP stated that it had incurred costs to that time (including fines) in consequence of the Deepwater Horizon incident totalling about USD67 billion.  That is a staggering sum.  It included about USD14.34 billion for spill response costs, USD8.525 billion for environmental costs, USD4 billion for penalties, and USD42.4 billion for litigation and claim costs. 
30	There are not many corporations with the financial strength of BP.  And, as we know, exploration activity is both risky and expensive.  Many exploration ventures fail financially because they do not find what they are looking for before running out of funds, and such ventures may not properly cap well heads when leaving the field of operation; others fail because they cannot support the infrastructure necessary to exploit a discovery or resource.  An international convention to regulate pollution from these situations offers the prospect of a guaranteed source of payment of compensation and a workable means for claimants to obtain it.  
31	Nation States have a real exposure to meet expenses in the order of magnitude that BP faced (of over USD22.5 billion) in clean-up and environmental costs because they may have to deal with the direct, physical consequences of a blowout.  The above experience of BP demonstrates the magnitude of the potential risk to a littoral State from a transboundary incident (there, nearly USD23 billion) in the absence of an international convention that assures the availability of at least a minimum insurance fund and the possibility of a top up fund like the Fund Convention.  Thus, if an owner or operator is unable to meet its liability, it will fall on each littoral State whose land and waters are polluted to bear the burden of the clean-up and environmental costs.  In addition, a State may have to take action, even in the UNCLOS area, to ensure the safe passage of ships and safety in offshore oil and gas activities to avert the risks of fire or damage to property and life. 
32	Had there not been substantial owners and operators of the Montara and Deepwater Horizon platforms, the Governments affected would have had to meet the cost of cleaning up both the spills themselves and the environmental damage.  Yet, the potential of having to pay such costs has not been enough to stimulate the IMO into preparing a convention.  It could be inferred that the States that oppose developing a convention fear that it might have the potential to dampen offshore oil and gas activity.  Yet, as UNCLOS requires in Art 235(1), States are responsible for fulfilling their international obligations concerning the protection and preservation of the marine environment.  If a State that cannot meet the cost of cleaning up a major oil spill can permit an offshore facility to operate and its operator, too, cannot meet those costs, self-regulation (as is the IMO’s position) will leave the marine environment in peril. 
The European Union 
33	Interestingly, over the last several years, the European Union has been giving thought to issues of regulation of liability and compensation in the offshore oil and gas industry.  Unlike the IMO, it has not closed the door to an international instrument although it has not progressed one either. 
34	In 2013, the European Parliament made the Directive on Safety of Offshore Oil and Gas Operations (the 2013 Directive) that is largely precatory about what its individual member States should or might do about imposing liability and safety standards.  The Directive is silent on compensation. 
35	The European Commission commissioned two reports, the first in 2013 and the second in 2014 (the Deloitte report).  Both reports highlighted the inconsistent regulation of liability and compensation across different national legal systems and regional agreements, as well as the lack of availability of different financial and insurance market instruments (including pooling mechanisms) to cover liability.
36	For example, the Deloitte report found that some States in the European Economic Area excluded compensation for pure economic loss, some had laws that may not extend to their continental shelf and EEZ where most offshore oil and gas operations took place, and no State (other than Norway) had legislation dealing with compensation claims relating to offshore oil and gas accidents.  
37	In 2015, the European Commission published a report to the European Parliament and Council on civil liability, compensation and financial security.  It adopted a “wait and see” approach – that is, it would wait to see if and how member States transposed the list of wishes in the 2013 Directive into their national laws before the EC would analyse the effectiveness of those liability provisions and the availability of means to secure payment of compensation. 
38	In December 2016, the European Parliament passed a resolution in which, among other matters, stated that it: 
[a]lso regrets the fact that the way civil liability is handled varies considerably from one Member State to another; stresses that there is no liability in many of the Member States with offshore and gas activities for most third-party claims for compensation for traditional damage caused by an accident, no regime in the vast majority of Member States for compensation payments, and no assurance in many Member States that operators or liable persons would have adequate financial assets to meet claims; stresses, moreover, that there is often uncertainty as to how Member States’ legal systems would deal with the diversity of civil claims that could result from offshore oil and gas incidents; believes, therefore, that an European framework is needed, which should be based on the legislation of the most advanced Member States, should cover not only bodily injury and property damage but also pure economic loss, and should ensure effective compensation mechanisms for victims and for sectors that may be severely affected (e.g. fisheries and coastal tourism); calls in this respect on the Commission to assess whether a horizontal European framework of collective redress would be a possible solution, and to pay particular attention to this when drawing up the OSD implementation report.

39	The European Parliament’s resolution concluded by inviting the European Commission and member states “to continue examining the possibility of an international solution” in order to ensure “a global level playing field”.  This was because it recognised that oil and gas companies operating in the European Union were active across the world and that there should be one global regulatory and compensatory solution. 
40	Whether each of the European Uunion’s member States is open to the European Parliament’s suggestions and decides to follow them by legislative action remains to be seen. 
Charting a new course
41	The present, unfortunate reality is that while the IMO is uniquely well placed to promote and formulate an international convention to address the consequences of offshore facility blowouts and spills, it presently considers that “no further work” is required in this area and its strategic plan for 2018 to 2023 omits any reference to it. 
42	Accordingly, in my view, the CMI must now consider what other international body may be an appropriate forum to prepare and promote the adoption of a convention. 
UNCITRAL
43	One option is UNCITRAL.  It has, as its object, the “promotion of the progressive harmonization and unification of the law of international trade”.  A means of achieving this object is preparing or promoting the adoption of new international conventions and promoting the codification and wider acceptance of international trade terms in collaboration, where appropriate, with organisations operating in the field.   
44	As the European Parliament suggested, the lack of an international regime on liability and compensation for damage arising from offshore facilities may be thought to have an impact on international trade.  There is international trade in the exploration for, as well as the development and exploitation of, offshore hydrocarbon reserves throughout the world’s marine environments.  There seems to be a case that this issue falls within the purview of UNCITRAL. 
45	CMI and UNCITRAL have collaborated productively in the past and are doing so at the present time.  First, the successful development of the Rotterdam Rules, which the CMI initially drafted, demonstrates the capacity for a strong working relationship between the two bodies. 
46	Secondly, the CMI has been collaborating, since 2018, with UNCITRAL (through its Working Group VI) on cross-border issues relating to the judicial sale of ships, specifically reviewing the “Beijing Draft” of the convention on that issue that the CMI adopted.  Initially, the CMI had approached the IMO Legal Committee, unsuccessfully, to include the judicial sale of vessels on its agenda, before approaching UNCITRAL.  After that rebuff, in seeking to encourage UNCITRAL to take leadership on this issue in 2017, the CMI stressed the significance of UNCITRAL’s “universal” coverage in terms of States that participate in its negotiations and the fact that UNCITRAL is a specialist organisation for private international trade and commercial law.
47	In May 2019 in New York, Working Group VI reported with its comments on the draft judicial sale convention.  Currently, a revised draft is being worked on, which will be the subject of further discussion at the next working group meeting in Vienna in November this year.
48	This recent and current experience suggests that it would be appropriate for the CMI to approach UNCITRAL to explore whether it would be interested in developing an international convention on compensation for transboundary loss or damages caused by offshore hydrocarbon facilities, with the CMI’s assistance.  And, as I have explained, there is a plethora of international views about “guidance” that can be provided to UNCITRAL if it takes up the challenge. 
United Nations Environment Programme 
49	Another option is for the CMI to approach the United Nations Environment Programme (UNEP).  Its main functions include promoting international cooperation in the field of the environment and recommending policies to that end, as well as reviewing the “world environmental situation to ensure that emerging environmental problems of wide international significance” receive appropriate consideration by governments. 
50	Any offshore oil and gas accident is likely to have significant impacts on at least local, if not more widely-spread, ecosystems and environments.  The potential to address the lack of an international regime on liability and compensation (particularly for environmental damage) relating to such accidents could be of interest to UNEP, which may wish to fill the gap, so as to ensure environmental integrity.
51	Indeed, UNEP is familiar with offshore oil and gas activities.  For example, the Barcelona Convention was developed under the auspices of UNEP.  That obliges States to take all appropriate measures to prevent, abate and combat pollution of the Mediterranean Sea Area resulting from exploration and exploitation of the continental shelf, the seabed and its subsoil. Article 16 provides that:
The Contracting Parties undertake to cooperate in the formulation and adoption of appropriate rules and procedures for the determination of liability and compensation for damage resulting from pollution of the marine environment in the Mediterranean Sea Area.  

52	Pursuant to the States party’s obligation under Art 16 of the Barcelona Convention, the UNEP-Mediterranean Action Plan (UNEP-MAP) developed, between 1978 and 2008, regional guidelines for a civil liability and compensation regime with respect to the Mediterranean Sea Area.  UNEP adopted these guidelines in 2008, but they remain unenforceable, just like the 2013 Directive and the IMO’s guidance.  
53	All this would suggest that UNEP may be wise to assist in promoting a convention with the CMI. 
Conclusion
54	Obviously, what I am suggesting requires political will and diplomatic finesse to coalesce if it is to be achieved.  We live in an age where modern communications and transport has linked the human race as never before.  Likewise, industrial and technological advances in this age have presented mankind with new challenges, such as those we face from climate change.  
55	The risks and perils of exploration and exploitation of offshore hydrocarbon resources are pellucid; so is the present dependence of most of the world on resources of that kind to supply it with energy and lubrication.  We know blowouts and spills happen.  Indeed, human experience is that accidents happen, many caused by a failure to apply previous experience.  
56	International politics is showing increasing signs of isolationism.  That portends badly for the future, where international comity and cooperation in addressing the issues of our age should hold centre stage.  Inaction on the development of an international convention on offshore hydrocarbon blowouts and spills serves no one’s long-term interest.  The presence of new insurers to support cover under such a convention would bring new eyes to the management of the risks of a disaster and may help to avert, or lessen, the impact of what might otherwise develop as a massive blow to the environment in the next Deepwater Horizon type of offshore catastrophe.  As Brutus said in Shakespeare’s Julius Caesar:
There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

57	This is the time to take the tide to fortune, which at least the European Union’s more representative institutions think worthwhile, in the shape of a new convention, hopefully, with UNCITRAL’s support.