English Appendix
Erika a New Liability Era?
Many leading figures in France, Europe and around the world have hailed the verdict handed down by the courts. It is not so much the sums involved but more so the fact that damage to the natural heritage has been taken into account. What should we make of all this?
FRANÇOIS SETTEMBRINO
Risk Management
The declaration by one of the Total lawyers, suggesting
that the worldwide oil sector had better
give urgent attention to France’s singular way of
understanding maritime transport, is food for thought.
Let’s see why.As a result of various oil spills and slicks the
major oil companies have changed their way of transporting
their costly (very costly) black gold. In the past most of
the major oil-company groups used to run their own huge
fleets and were therefore responsible for the ships they
owned. As these ships got bigger and bigger, the spills
and accidents made a correspondingly bigger splash in
the press. Public outrage grew and the oil companies
shied away from direct transport, chary of besmirching their
image and reputation. They therefore phased out their
own fleets of oil tankers and contracted the transport of
their oil with independent shipping companies. Under maritime
law, therefore, these ship operators then became the
only party liable for the oil transport.
Should any accident occur, the oil company was no longer liable. Furthermore, to play safe they operated only with companies running ships with a valid seaworthiness certificate, set down in writing.The ship operators interested in carrying out this transport had to trim their prices to be selected. But prices could be trimmed only by cutting back on expenses, for example, by keeping old ships in service, held together by little more than rust and a lick of paint. Certification costs and corners could also be cut by turning only to the least scrupulous and fussy inspection societies.A little gift often worked wonders and everyone was happy, starting with the oil companies, whose transport arrangements became less burdensome, and continuing with the ship operators and middlemen, who had lots of work.
Until now the oil-spill judgments handed down by
numerous courts had taken into account only the
material and hence financial damage suffered by the
victims.All the rest, regarded as intangible and belonging
to nobody,was not worthy of any compensation. But
ideas have been evolving in the wake of the widespread
and deep-seated change of mindset.This has been
dubbed as the precautionary principle and there were
fears that a too strict application of it might well balk
any scientific progress. Since we can never see into the
future, it was thought better not to run any risks.The
principle might better have been baptised under another
name, calling it rather the prudence and prevention
principle. It is indeed in such a manner that the
precautionary principle has often been understood and
interpreted.
All this is reflected in the court judgment.The commercially powerful are duty bound to bring all their skills and learning to bear on any situation, in this case to weigh up the intrinsic quality of the means of transport offered, bearing in mind the hazardousness of the cargo. Total has hence been punished for a lack of prudence in choosing the transporter; the judgment clearly says that the operation should have been rejected on the grounds of the extreme risk of using an over-age ship.The ship owner and operator also come into the equation but to some extent they are bailed out by the international certification society.A moot point here is whether the continual selling and reselling of the ship might have been first and foremost a ruse to throw people off the scent.
This whole clique of oil and shipping agents has been found guilty, though an appeal might yet throw a spanner in the works. Be that as it may, at last due attention has been paid to the damage caused to nature. Is this really so new? Apparently not because any private individual might sue and win his/her case for nuisance caused by noise or bad smells or even scenic damage. There is really not much difference between these cases and environmental damage; the harm to the community is just as real, albeit harder to pin down and evaluate.
What does all this mean? Well, the first conclusion
that springs to mind is that hiding behind maritime law
will no longer wash.Things were very different when this law was drawn up. Ships carried above all goods,
called, as the case may be, colonial foodstuff, some metal
and ores, animals and fruits.When the transporting ship
sank the only party to suffer was the ship owner and the
owners of the transported goods.When a cargo of grain
went down, the fish pitched in gleefully.The machines
and metals of the time rusted peacefully away on the bed
of the sea and the ship carcass quickly became a home
for underwater fauna, for fish and molluscs.The situation
today is very different: today’s cargos are highly toxic
products or machinery full of heavy metals and even oil.
The victims are no longer only the owners, since these
are insured (for how much longer?); the main victim
now is mankind and the whole environment.
The recent judgment has put all these injustices to right and heralds a new way of seeing things. Let’s see what we should make of all this in light of the «Companies Act 2006 ».
How would oil company executives fare if a judgment was now handed down under the aegis of the Companies Act 2006 in an Erika-like oil spill? This new law came into force in the UK on 1 October 2007 but it could send tremors through company law.
The Companies Act comprises 200 sections to
replace the common law that had hitherto held sway,
interpreted in light of court judgements.This case law
has now been replaced by codified provisions of strict
interpretation, legislating down to the finest detail.
Company executives are therefore faced with sweeping
changes and will have to bring themselves into line.This
does not mean that case law is going to disappear but it
will no longer be able to change the established rules.
These new rules have not overridden the old ones but
have made them more explicit and precise.
First and foremost,we will look at the powers granted to executives.These famous powers are defined in the articles of association themselves, which lay down what can and cannot be done. In any decision executives must ensure that they do not exceed their authority and that they act within the rules.When oil companies decided to transport their cargos only with third parties, did those who took this decision have sufficient powers to do so?
Directors cannot delegate their powers. Even if the case in hand calls for the opinion of experts on the matter, the directors are still bound to back their own judgment.This question had already cropped up when companies were preparing for Y2K. It then turned out that no director had specific IT powers and responsibilities and therefore had to fall back on expert advice, but these experts never had decision-taking powers. Likewise, oil companies are always facing difficult decisions. For example, should their transport arrangements be confined to shipping companies running only double-hulled ships? This reduces cargo space and raises unit cost.This could be offset by choosing bigger ships but their draught might prevent them from entering some ports. Here again, experts opinion is highly desirable but directors can never offload their own responsibility onto them.Their opinion is the only one that counts.
Conflicts of interest need to be abolished. Directors cannot accept situations in which their own interests run counter to the company’s.There is similarly a need to eschew all situations in which a wheel-oiling gift or other perk might weigh on their decisions. It is the board’s remit to decide what is acceptable. But this is something of a grey area. Even where real graft or corruption is still some way off, where should the line be drawn? Is an executive negotiating a million-euro deal entitled to stay in a luxury hotel at company expense while the negotiations last? It’s all a question of degree, and the cases that hit the headlines are at least eyebrowraising; in the end, the courts must decide.
It would need only one shareholder, albeit a small one acting privately, to bring a suit for this to be heard in court. Nonetheless, it is up to the court to decide whether the action should go ahead.Take the case of a small shareholder that decides to sue an oil company executive on valid grounds and the judge allows the suit to go ahead.The executive’s situation would soon become awkward because the shareholders no longer need a majority to act.
Especially after some of the most eye-catching clashes we have seen, the auditors have still obtained by inter-party agreement a limitation of their liability.This is all to the good for them, but once more the buck stops with the company executives.We’ll see how this pans out.
The biggest change refers to the directors’
obligation not only to watch out for the interests of the
company they run, something that is far from new, but
also to have larger goals than mere company success.The
hardest pill to swallow is the fact that the future is
brought for the first time into the trawl of directors’
concerns. Success, or rather the quest of success, cannot
exonerate them from their obligations towards their
personnel, their clients, the community as a whole and,
of course, the environment. It is without doubt in this
new concept of directors’ obligations where the greatest
innovation lies. Hitherto, the company’s concerns
consisted in keeping the shareholders sweet; little heed
was paid to worker dismissals and their impact on the
larger community or environmental atrocities. Only
results counted; short-sighted financiers made sure that
results were always the overriding concern.This new
way of looking at things belongs to the well-named
concept of Corporate Governance, but it has also been
enshrined in very detailed legislation. If directors were
to be accused at any one time of not taking this into
account, they would have to prove that the interests of
all concerned were in fact taken on board, even if they
might not coincide with the immediate interests of the
company, otherwise they would be adjudged liable.
In the Erika case the judgment given in France falls more or less in line with this approach.When arrangements are being made for transporting hazardous cargo, due attention must be paid to future consequences even if the transporter is a priori considered to be liable. But now that extremely harmful products, materials and commodities are being transported, it is no longer on, quite honestly, to continue with the old rules.The sickening sight of oil slicks has outraged public opinion, and legislators and judges have done the rest.As always, such a great shaking up of ideas has taken its time. Under the aegis of the Companies Act a trial in a British court would probably have had the same outcome as the French trial.
To harmonise all this the European Commission or Parliament is highly likely to pass rules applicable throughout the Union.A quick comparison of Belgium’s concept of Corporate Governance with Great Britain’s suffices to show how far we still have to do down this road. Patience, everything comes in due time.
As already pointed out above, the biggest lesson to
be drawn from this new legislation is the inclusion of
future concerns and duration in the decisions taken.This
new forward-looking concept takes in the interests of
personnel, clients, suppliers, co-contractors and
subcontractors, without forgetting that the company
should behave as a citizen. Nor is this all, for executives
also have to watch out for their good image and the
firm’s reputation and adapt their behaviour to suit.What
is totally new is the obligation to care for the
environment, previously considered as not belonging to
anyone and as such eligible for no compensation, when
in fact it belongs to everyone. It is for this single reason
that regions and local districts are compensated for
damage suffered, for example, by their image; e.g.,
beaches covered with fuel oil are shunned by holiday
makers.Associations most directly related with the
protection of nature, such as WWF, have therefore
received compensation payments.
Evidence that duration and passing time can no longer be ignored comes hard and fast from all sides. Carmakers, for example, have managed to use an increasing percentage of recyclable material in their vehicles and do not hide the fact. Long gone is the day when the car purchaser/owner was deemed to be the only liable party. Quite on the contrary, there is an ever greater concern for end-of-life products; witness the selective sorting process of any private individual nowadays.
Senior managers go under various names in different countries: administradores, bestuurders, directors, officers,Vorstand Mitglied, etc. In fact it is not the name that counts but rather the executive function. Directors and executives can no longer expect their companies to deal single-handedly and ad infinitum with any suit lodged against them or pay any damages on their behalf. It now behoves them to ensure that they have everything covered, insurance-wise, whatever the cost, including sufficient protection of their own property against third parties and against their own company.The terms and conditions of the insurance policies clearly need to be examined down to the finest print to ensure they do not fall foul of any coverage loophole, exclusion or policy expiry. Few insurance companies offer really wide-ranging coverages and those that do charge dauntingly high premiums.
The Companies Act comprises over two hundred different articles and we have dealt with only some of them for the purposes of this article.When will this new code be brought in here? No one knows, but it’s best to be ready just in case