The European Union’s Offshore Safety Directive – liability and compensation

News / / The European Union’s Offshore Safety Directive – liability and compensation

We spoke at our seminar series last Autumn on the European Union’s Offshore Safety Directive (OSD) and reviewed progress on its implementation. We noted that many Member States had yet to implement it fully. For the UK, on whose legislation much of the OSD regime had been based, the position had been easier but we noted that the OSD might well have further, significant impact in the future. The European Commission is due to report on the implementation of the existing provisions of the OSD across the EU (with or without the UK, as the case may be…) by 19 July 2019.  

In the meantime the Commission was obligated by Article 39 of the OSD to look further into (i) the availability of financial security instruments and the handling of compensation claims within the EU; and (ii) the effectiveness of the liability regimes in the European Union in respect of damage caused by offshore oil and gas operations.  

The Commission duly commissioned and produced its reports and the debate has since been moving through the relevant EU parliamentary committees. The Commission’s report from September 2015 had noted inter alia that (i) the OSD already requires Member States to ensure that prompt and adequate compensation arrangements are in place; (ii) it proposed to wait and see what changes were made by Member States to comply with these existing duties before assessing further legislative steps on liability issues; and (iii) it would ensure that Member States address these issues between now and the report due in 2019. It expressed concern at the “lack of uptake of financial security instruments”.

When we spoke last Autumn the European Parliament’s Resolution was still in draft form. The final Resolution was adopted on 1 December 2016 (2015/2352(INI)). 

The main focus of the Resolution is two-fold:

1.  Implementation of a consistent legal framework at the EU level to deal with liability and compensation; and

2.  Ensuring financial security instruments are in place in all Member States to cover damages including traditional damage claims.

Parliament believes that a European framework is needed ensuring adequate compensation for not only bodily injury and property damage but also pure economic loss. The Commission is asked to consider whether a “horizontal European framework of collective redress” would be a possible solution. There is no call to move from a strict liability regime but the possibility of financial caps is expressly disapproved of.  In particular we note the European Parliament’s reference to a legislative compensation mechanism along the lines of the Petroleum Activities Act in Norway. 

Regarding financial security instruments, the Resolution expresses disappointment in progress so far and calls on the Member States to provide data regarding the uptake of financial instruments covering offshore accidents. Of particular interest to the operator is the call for a limit upon the “externalisation of operators’ liability for accidental pollution to the public purse”. The Resolution refers to the possibility of the establishment of a fund based on fees paid by the offshore industry. The latter would presumably be based, to some degree, on the system established pursuant to the IOPC Fund Conventions.   

In short, the OSD may well prove to have longer-lasting and wider-ranging effects than many have realised. Progress is relatively slow but the potential impact of future legislation in this area, both in terms of security requirements and potential exposure, is significant. 

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