Ince & Co - the Erika: Potential Unlimited Liability for Producers of Waste

On 16 January 2008, the Paris Tribunal de Grande Instance upheld the majority of these claims and found Total (jointly with owners, managers, and Class) liable to pay €192m in compensation. This judgment has been extensively commented on worldwide.


On 24 June 2008, in an offshoot of The Erika main proceedings which had gone relatively unnoticed so far, the European Court of Justice (“ECJ”) rendered a judgment (C-188/07) which results in Total SA, which was not the named Charterer of The Erika, being potentially exposed to unlimited liability for the “waste” disposal costs, as “producer” of “waste”.


Facts and Procedure


The City Council of Mesquer (“Mesquer”), a small village in southern Brittany had its coast affected by The Erika oil spill.


In addition to joining in the main claim before the Tribunal de Grande Instance of Paris, Mesquer commenced a distinct claim based on “waste” disposal and the “polluter pays” principle under French statute 75-633 (article L 541-2 of the Code de l’Environnement) which implements Directive (EC) 75/442. (Directive 75/442 has since been replaced by Directive 2006/12/EC, but the relevant provisions in this context are the same.)


Mesquer argued that Total, as the owner and producer of “waste” within the meaning of EC Directive 75/442, should pay all the costs arising out of the disposal of that “waste” which had washed ashore, notwithstanding any relevant international or domestic legislation limiting/excluding Total’s liability.


After being defeated in first instance (Tribunal de Commerce de Saint-Nazaire) and on appeal (Cour d’Appel de Rennes), Mesquer’s claim reached the Cour de Cassation (French Supreme Court) which referred the case to the ECJ for a preliminary ruling on (EC) Directive 75/442.


Questions referred to the ECJ and judgment


The questions referred to the ECJ were :


(1) Does heavy fuel oil sold as a combustible fuel fall within the definition of “waste” under article 1(a) of (EC) Directive 75/442;


(2) Does heavy fuel oil that is accidentally spilled into the sea following a shipwreck fall to be classified as “waste” within EC Directive 75/442;


(3) Does the producer/seller of the heavy fuel oil carried on board a chartered ship which breaks down and releases her cargo have to bear the cost of disposing of the “waste” thus generated?


Relevant provisions of (EC) Directive 75/442


Article 1 of the Directive provides :


(a) “waste” shall mean any substance or object in the categories set out in Annex I which the holder discards or intends or is required to discard.


(b) “producer” shall mean anyone whose activities produce “waste” (“original producer”) [...]


(c) “holder” shall mean the producer...or the... person who is in possession of it.


Article 15 of the Directive states:


In accordance with the ‘polluter pays’ principle, the cost of disposing of waste must be borne by:


- the holder [...], and/or


- the previous holders or the producer of the product from which the waste came.


Directive 75/442 has since been replaced by Directive 2006/12/EC, but the relevant provisions in this context are the same.


ECJ judgment


The ECJ, in its judgment dated 24 June 2008, answered “no” to question (1) and, in essence, “yes” to questions (2) and (3). It held:


(1) Heavy fuel oil sold as a combustible fuel does not constitute “waste” under the Directive where it is exploited or marketed on economically advantageous terms and is capable of actually being used as fuel without requiring prior processing;


(2) Hydrocarbons accidentally spilled at sea following a shipwreck, mixed with water and sediment and drifting along the coast of a member state until being washed up on that coast, constitute “waste” where they are no longer capable of being exploited or marketed without prior processing;


(3) The Courts of member states may regard the seller of the hydrocarbons and Charterer of the ship as producer of that “waste” and, thereby, as a “previous holder” if he contributed to the risk that the pollution would occur.


The ECJ did not say when fuel oil which had leaked from The Erika had become “waste”, but gave the test to be applied i.e. the lack of commercial exploitability/marketability without prior processing.


The Court recognized that Member States are parties to the Civil Liability and Fund Conventions 1992, and that these require their national legislation to give effect to exemptions and limitations of liability which they contain.



The Court observed that the EU is not a party to the Conventions and that they did not, therefore, preclude the Community from legislating in different terms if it saw fit to do so. Nonetheless, although its remarks on the relationship between the Conventions and the Directive may be open to more than one interpretation, it expressed the view that they were compatible in as much as the Directive did not prevent national laws based on the Conventions from providing for limitations or exceptions of liability of the Owner and Charterer.



Accordingly the Court expressed the view that the Directive provided a remedy in cases where full compensation could not be obtained under the international compensation regime, or from the charterer of the ship due to his liability being excluded by CLC 92. In such cases Member States’ national laws must provide for the “producer” of the product from which the “waste” came to pay for the costs of disposal if he has contributed by his conduct to the risk that the pollution will occur, for example by lack of diligence in the choice of carrier.


Conclusion


This ECJ judgment is binding upon Member States’ Courts. How the ECJ judgment is implemented in the domestic laws of Member States, and applied by their courts, remains to be seen; but it is clear now that the “producer” of a product which is carried by sea and which, having become “waste”, accidentally washes ashore is exposed to a risk of unlimited liability if by his conduct he has contributed to the risk.


Whatever the precise legal relationship may be between the Directive and international conventions, in practice claimants seeking compensation have no incentive to bring a claim under the Directive, and to assume the burden of proving that the defendant’s conduct contributed to the risk of pollution, if an adequate remedy is available under international strict liability regimes.


Consequently, where the damage results from a spill of persistent oil from a tanker, claimants have no such incentive unless - as in The Erika - the established claims exceed (or may exceed) the maximum amount of available compensation. This amount has been increased considerably by the entry into force in 2005 of the Supplementary Fund Protocol, which applies in most EU member states. Under the Protocol the ceiling is now SDR 750 million, over five times the amount available to The Erika claimants under the 1992 Fund Convention.


In rare cases where the compensation limit is exceeded, the Directive may provide a further remedy against other defendants. Whilst the ECJ judgment is not totally clear on this issue, the court apparently accepted that liability under the Directive of the charterer could be excluded in such a case by the “channelling” provisions in CLC 92, but that it could be imposed on other parties who are not similarly protected, e.g. the shipper of the goods.


The prospect of liability being incurred under the Directive in such a case is greater if courts take a restrictive approach to the interpretation of the “channelling” provisions in CLC 92, following the judgment in The Erika case given in January 2008 by the Paris Criminal Court. The Court refused to allow Total to benefit from the exemption of liability of the charterer, on the grounds that the entity within the Total Group which vetted the ship was neither the charterer, nor (apparently) considered to fall within the exemption available for the servant or agent of the charterer.


A spill of non-persistent oil falls outside the international compensation regime. Though incidents of this kind are less damaging to the environment and have not led to claims on a par with spills of persistent oil, in theory the Directive could provide a remedy against the shipowner as well as the charterer and shipper, in the absence of domestic laws to the contrary.


The Directive could also be relevant in cases involving bunker spills, especially as the Bunkers Convention 2001, which comes into force in November 2008, does not contain any “channelling” provisions excluding the liability of a charterer. Generally the cargo owner will not be the owner of the bunkers, but liability could be incurred by the Charterer in addition to the owner if he is considered to have acted negligently in approving the vessel for charter. If he is permitted to limit his liability in accordance with the 1976 Limitation Convention then for these purposes his liability should be aggregated with that of the Owner: in that case only a single limit applies and it is doubtful whether the liability of the charterer adds to the recovery ultimately made by the claimants.


In summary, it is probably only in rare cases that the Directive and ECJ decision will materially affect existing compensation arrangements, but the judgment is not completely clear on all points and there is every prospect of reliance being placed upon it in any litigation following an oil spill in Europe.


At present it seems likely that those most at risk of incurring liability under the Directive are those in the same position as Total in The Erika, namely oil companies which owned the spilt cargo and are held to have contributed to the risk of pollution by their participation in the decision to charter the vessel.

Ince & Co - International Law Firm