Shifts in Compensation for Environmental Damage (Tort and Insurance Law) (Tort and Insurance Law)

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Contents

List of Abbreviations

vii

List of Contributors

xi

I. Introduction Michael Faure and Albert Verheij

1

II. Shifts in Governance: Soil Pollution Albert Verheij

9

III. A Shift toward Alternative Compensation Mechanisms for Environmental Damage? Michael Faure IV. Shifts in Compensation for Environmental Damage: From Member States to Europe Kristel De Smedt V. Shifts in Governance: Oil Pollution Albert Verheij VI. Shifts in Governance in the International Regime of Marine Oil Pollution Compensation: A Legal History Perspective Hui Wang VII. Maritime Oil Pollution: an Empirical Analysis Ruud Hendrickx

73

103

133

197

243

vi

Michael Faure and Albert Verheij

VIII. Shifts in Governance in Compensation for Nuclear Damage, 20 Years after Chernobyl Tom Vanden Borre

261

IX. Concluding Observations Michael Faure and Albert Verheij

313

Index

334

List of Abbreviations

AA

Ars Aequi

Admin. LJ

Administrative Law Journal

ALI-ABA

American Law Institute – American Bar Association

ART

Alternative Risk Transfer

ATSDR

Agency on Toxic Substances and Disease Registry

AVB

Aansprakelijkheidsverzekering Bedrijven

AV&S

Aansprakelijkheid Verzekering & Schade

AVV

Abfallentsorgungs- und Altlastensanierungsverband Nordrheinwestfalen

Baylor LR

Baylor Law Review

BGB

Bürgerliches Gesetzbuch

Bofas

Bodemsaneringsfonds voor tankstations

BR

Bouwrecht

BVerfG

Bundesverfassungsgericht

BW

Burgerlijk Wetboek

CC

Civil Code

CEA

Comité Européen des Assurances

CERCLA

Comprehensive Environmental Response, Compensation, and Liability Act

CLC

International Convention on Civil Liability for Oil Pollution Damage 1969

CMI

Comité Maritime International

viii

Michael Faure and Albert Verheij

COFIZE

Stichting Collectief Financieel Zekerheidsfonds

CRISTAL

Contract Regarding an Interim Supplement to Tanker Liability for Oil Pollution

CWA

Clean Water Act 1977

D

Recueil Dalloz Sirey

Duke Evtl. L & Pol’y F.

Duke Environmental Law and Policy Forum

EELR

European Environmental Law Review

ELD

Environmental Liability Directive

Env. L. Rev.

Environmental Law Review

EPA

Environmental Protection Agency

FC

International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971

GASTULR

Georgia State University Law Review

GG

Grundgesetz

HLJ

Hastings Law Journal

HR

Hoge Raad

IAEA

International Atomic Energy Agency

IBC

Interregionale Bodemsaneringscommissie

Ibs

Interimwet bodemsanering

IMCO

Inter-governmental Maritime Consultive Organization

IMO

International Maritime Organization

IOPC

International Oil Pollution Compensation Fund

J Envtl. For.

Journal of Environmental Forensics

M&R

Milieu en Recht

MSV

Milieuschadeverzekering

NCP

National Contingency Plan

NEA

Nuclear Energy Agency

NGO

Non Governmental Organisation

NJ

Nederlandse Jurisprudentie

NJB

Nederlands Juristenblad

Shifts in Compensation for Environmental Damage

ix

NJW

Neue Juristische Wochenschrift

OPA

Oil Pollution Act 1990

OSIR

Oil Spill Intelligence Report

OSLTF

Oil Spill Liability Trust Fund

OVAM

Afvalstoffenmaatschappij voor het Vlaamse Gewest

P&I Clubs

Protection & Indemnity Clubs

PLI/Real

Practising Law Institute Real Estate Law and and Practice Course Handbook Series

PRL

Police and Regulatory Law

PRP

Potentially Responsible Party

RCRA

Resource Conservation and Recovery Act

Real Est. LJ

Real Estate Law Journal

RECIEL

Review of European Community and International Environmental Law

RvdW

Rechtspraak van de Week

RW

Rechtskundig Weekblad

SARA

Superfund Amendments and Reauthorization Act

SDD

Soil Decontamination Decree

SDR

Special Drawing Rights

SF

Supplementary Fund 2003

SPA

Soil Protection Act

Stb.

Staatsblad

6723,$

6PDOO7DQNHU2LO3ROOXWLRQ,QGHPQLÀFDWLRQ$JUHHPHQW

SUBAT

Stichting Uitvoering Bodemsanering Amovering Tankstations

TBO

Tijdschrift voor Bouwrecht en Onroerend Goed

TK

Tweede Kamer, House of Representatives in The Netherlands

TM

Tijdschrift voor Milieurecht (Belgium)

TMA

Tijdschrift voor Milieuaansprakelijkheid (The Netherlands)

723,$

7DQNHU2LO3ROOXWLRQ,QGHPQLÀFDWLRQ$JUHHPHQW

x

Michael Faure and Albert Verheij

TOVALOP

Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution

TPR

Tijdschrift voor Privaatrecht

Tul. Envtl. LJ

Tulane Environmental Law Journal

USC

United States Code

USCA

United States Code Annotated

VLAREBO

Vlaams reglement betreffende de bodemsanering

WA

Waste Act

Wbb

Wet bodembescherming

WMA

Water Management Act

Wayne LR

Wayne Law Review

WQIA

Federal Water Quality Improvement Act 1970

List of Contributors

Tom Vanden Borre, Commission for the Regulation of Electricity and Gas (CREG), Federal Agency for Nuclear Control (FANC), Institute for Environmental and Energy Law (IMER), University of Leuven, Belgium. Michael Faure, Maastricht Institute for Transnational Legal Research (METRO), Maastricht University, The Netherlands. Ruud Hendrickx, Faculty of Economics, Tilburg University, The Netherlands. Kristel De Smedt, University of Hasselt, Belgium. Albert Verheij, worked on this project while at the Centre for Liability Law, Tilburg University, The Netherlands. He is currently attorney with Stibbe in association with Herbert Smith and Gleiss Lutz, Amsterdam, The Netherlands. Hui Wang, Institute for Environmental and Energy Law, KU Leuven, Belgium.

I. Introduction Michael Faure and Albert Verheij $3UREOHPGHÀQLWLRQ In recent years, one can notice a shift in paradigm with regard to the compensation of damage across the borderline between civil law and public funding. This trend can be discovered in several areas, but more particularly also with respect to environmental damage. It seems that during the ÀUVW years when environmental pollution was “discovered” as a legal problem, compensation was originally considered as a problem of the public at large. As a consequence, the attitude seemed to be to consider pollution a “sin of the past”, largely caused by a previous generation. The present generation should therefore effectively pay for this collective debt of the past. The result of this attitude was that when in the beginning so-called black points (heavily polluted soils) were discovered, largely governments or governmental agencies intervened to take care of the FOHDQXSRIWKHVHSROOXWHGVRLOVLIDWDOO 7KHZD\WRUHPHG\WKHVHÀUVWSROOXWLRQ problems which occurred was therefore basically public in nature. However, in a second wave, a shift took place whereby it was held that it should no longer be the general taxpayer who should bear the costs of environmental pollution, but that an allocation of these costs should be borne by the polluters who caused the damage. The so-called polluter-pays principle became an important tool to justify this shift. In many countries, one could notice evolutions in case law, legislation and legal doctrine towards increasingly laying duties on polluters to compensate the costs caused by their pollution. The form these actions took, however, differed greatly between the legal systems. In some cases, legislation or administrative authorities forced polluters to undertake their clean-up activities themselves, thereby using regulatory solutions under public law. In other cases, environmental agencies undertook clean-up activities themselves but subsequently attempted to recover the clean-up costs from polluters, thereby largely using private legal mechanisms. One can thus argue that in a second stage, DVKLIWWRRNSODFHWRZDUGVDQLQFUHDVLQJÀQDQFLQJRIHQYLURQPHQWDOGDPDJHE\ polluters, largely backed up by the polluter-pays principle. However, it seems that in many legal systems, after that, a third shift took place which resulted

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Michael Faure and Albert Verheij

from a discovery of the limits of applying private law solutions to environmental damage. These limits have various causes. On the one hand, insurers have argued that an expanding environmental liability may become uninsurable. This is related to the fact that often polluters today are held liable for wrongdoings in the past on the basis of the knowledge of today. Effectively, this can amount to a retrospective environmental liability. Also the consequences of causal uncertainty are sometimes shifted to polluters. Hence, polluters may in some cases be held liable for damage they have not (entirely) caused themselves. These and other trends may potentially substantially enlarge the exposure to liability of polluters and therefore the uncertainty for their insurers. In some cases, this uncertainty became so high that insurers argued that environmental damage became an uninsurable risk. On the other hand, private law solutions were not always applicable to environmental damage, more particularly in those cases where an individual polluter cannot be held liable. This can for instance be the case after long-lasting pollution, whereby responsible parties can no longer be LGHQWLÀHGEXWDOVRLQFDVHVZKHUHWKHHQYLURQPHQWDOGDPDJHLVWKDWZLGHVSUHDG that it cannot be attributed to one particular source or polluter. In all of those cases, private law mechanisms like liability law do not offer a remedy. Therefore, in a third phase, one could notice a shift towards alternative compensation mechanisms for environmental damage. In some cases, these took the form of public fund solutions. However, this shift has certainly not come to an end yet since the question what legal instruments should be used when private law remedies fail to provide an adequate answer leads to much dispute. Some will argue that a shift towards more public governance is the optimal solution and will therefore argue in favour of a general environmental fund. Others would on the other hand claim that solutions can be found by improving the working of the private law. They argue that similar problems as with liability will also occur when public fund solutions are introduced. In sum, the compensation of environmental damage has undergone various crucial shifts whereby the evolution does not seem to have come to an end yet.

%5HDVRQVIRUWKLVERRN 2

From the above, it is clear that in many legal systems, but also at the European and international level, various shifts in the compensation of environmental damage have taken place. Indeed, the evolutions sketched above cannot only be discovered at the national level in case law, legal doctrine or legislation. Also at the European level, spectacular shifts have taken place. In that respect, we can for instance refer to the creation of Directive 2004/35 on Environmental /LDELOLW\2IÀFLDO-RXUQDO/RI$SULO 6LPLODUVKLIWVKDYHHTXDOO\ taken place at the international level, more particularly within the international conventions with respect to the compensation for damage caused by oil pollution and in the conventions with respect to nuclear accidents. Legal literature has of course paid attention to all of these various shifts, mainly by describing the shifts and their consequences. However, it seems equally important to address these

Shifts in Compensation for Environmental Damage

3

shifts in the compensation for environmental damage from a more fundamental perspective. Thereby, several questions arise: 1.

What is the precise nature of the shifts? Are the shifts always a shift from private law to public funding or sometimes vice versa? Do the shifts occur in the same direction in the various legal systems, in Europe and at the international level or are there contradicting trends?

2.

What are the precise reasons for the shifts? Obviously, politicians may often provide formal reasons, such as the need to come to a better compensation for victims of environmental damage. However, political theory will predict that in some cases, the importance of various interest groups in the legislative process may probably also explain why certain shifts take place at a particular moment and may equally provide an explanation for the nature of the shifts.

3.

What are the effects of the shifts? In many cases, shifts take place because the legislator expects a certain effect of such a shift. For instance, a shift in the international regime with respect to the nuclear liability of the licensee of a power plant or with respect to the liability of the tanker owner for oil pollution may have as formal goal to increase the compensation available to victims. A question that of course arises is whether that shift is indeed able to realize the desired effects of the shifts. Moreover, the question also arises whether a shift in the compensation regime may have other effects, for instance with respect to the prevention of environmental damage. In some cases, a shift towards an increased liability of the polluter is also motivated by the belief that this increased exposure to liability will provide incentives to the responsible party to avoid pollution in the future. For instance in the White Paper on environmental liability, this incentive effect of a potential liability is explicitly stressed. The question then equally arises (and would be interesting to examine) whether that preventive effect could actually be discovered. In other words: did environmental pollution cases decrease e.g. after a shift to strict environmental liability for polluters? Equally, the question merits attention whether a shift to a particular compensation regime may also have (positive or negative) effects on the prevention. If for instance a shift away from private law (and thus away from individual responsibility of polluters) towards public funding took place, one could fear that this may negatively affect the polluter’s incentives to prevent the pollution. Such a shift could thus in theory lead to more pollution. But is that actually the case?

4.

Finally, a closer look at the shifts in compensation for environmental damage is equally interesting since, at the normative level, the question could also be asked how environmental damage should ideally be compensated.

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Michael Faure and Albert Verheij

In that respect, one could use a normative framework indicating under what kind of circumstances private or public legal instruments might be optimal. However, this is an extremely dangerous exercise since the “optimality” of particular compensation regimes is of course strongly linked to an existing legal cultural framework. This means that a particular solution may well work within the setting of a particular legal framework, but not necessarily in others. 4

It may be clear that many of the interesting questions mentioned above may be a good reason for writing a book on the shifts in compensation in environmental damage. However, it may be equally clear that these questions are that complex and complicated to answer that even within one book, one can only attempt to address a few of them. Most of the contributions in this book therefore limit WKHPVHOYHVWRWKHÀUVWRUWKHVHFRQGTXHVWLRQ2QHFRQWULEXWLRQDOVRDWWHPSWV to identify some of the effects of particular shifts (the third question) but most contributors have expressly refrained from normative statements on what the optimal compensation mechanism would be (the fourth question). Of course in some contributions a few policy recommendations are formulated with UHVSHFWWRVSHFLÀFDUHDVEXWQRDWWHPSWLVPDGHWRLQGLFDWHZKHWKHUJHQHUDO environmental damage should primarily be compensated via public funding rather than through private or vice versa. The reason is obvious: within a book like this, the complicated questions with respect to the shifts in compensation for environmental damage can only be touched upon from some angles and with respect to a few legal systems. In order to provide strong normative and policy recommendations, far more (also empirical) research would be needed which fell largely outside the scope of this book.

&0HWKRGRORJ\ 5

However, as we just described, we do not attempt at all to address, let alone answer, the various complicated questions with respect to the shifts in environmental damage. The contributors to this book have attempted to use a variety of mechanisms and techniques to provide a broad picture of the shifts in compensation for environmental damage.

6

First of all, shifts will be addressed in a variety of national legal systems. For instance with respect to soil pollution, a comparison will be made between Belgium, Germany, the Netherlands and the United States. In addition, as far as compensation for oil pollution damage and for nuclear damage is concerned, shifts at the international level (more particularly in the relevant international conventions) will be addressed. Thus a comparative approach can be adopted which seems particularly useful for the simple reason that the shifts in compensation for environmental damage can of course be discovered in many legal systems. However, the legal instruments chosen, for instance to compensate for historical soil pollution, still seem quite different today. Hence, the shifts in this domain of environmental damage have not all led to the same result. A

Shifts in Compensation for Environmental Damage

5

comparative legal approach addressing some of these different evolutions in various countries can thus prove to be quite valuable and may contribute to explaining why different shifts took place in various countries. Second, the shifts will obviously be analysed using environmental legal doctrine as well. Traditional environmental legal doctrine has for instance indicated SRWHQWLDO EHQHÀWV RI WKH SXEOLF ODZ DSSURDFK IRU UHPHG\LQJ HQYLURQPHQWDO damage and has paid a lot of attention, for example, to the foundations for the polluter-pays principle. Thus the contributors to this book will use some of this environmental legal doctrine in order to describe (question one) and explain (question two) the shifts.

7

Third, some contributions equally use the economic analysis of environmental ODZ(FRQRPLFDQDO\VLVRIODZKDVH[WHQVLYHO\DQDO\VHGWKHFRPSDUDWLYHEHQHÀWV and shortcomings of environmental liability versus other solutions (such as collective mechanisms like funds) to provide compensation for environmental damage. Especially when it comes to answering the third question (effects of WKHVKLIWV DPHUHOHJDODSSURDFKZLOOSUREDEO\QRWVXIÀFHWRSURYLGHDQDQVZHU Economists have paid much attention to desired and undesired effects of changes in legislation with respect to both compensation and prevention. Even though PHDVXULQJHIIHFWVZLOODOZD\VUHPDLQGLIÀFXOWJLYHQWKHGHSHQGHQF\XSRQDYDLOable data, the tools of economists can be quite useful to at least provide some indications of a few effects of particular shifts. Using the economic approach to analyse the effects of a few shifts (more particularly with respect to compensation for marine oil pollution) will thus enable us to address the compensation for environmental damage within a multi-disciplinary framework.

8

')UDPHZRUNRIWKHSURMHFW 7KLV ERRN ÀWV LQWR D ODUJHU UHVHDUFK SURMHFW FDOOHG ´6KLIWV LQ *RYHUQDQFHµ supervised by Prof. Dr. Willem H. van Boom (Erasmus University Rotterdam) and Prof. Dr. Michael G. Faure LL.M. (Maastricht University). This broader project “Compensation for Damage: the Shift from Civil Law to Public Funding and vice versa” consists of a cooperation between scholars from the Erasmus University Rotterdam, Tilburg University and Maastricht University and is H[HFXWHGZLWKÀQDQFLDOVXSSRUWRIWKH1HWKHUODQGV2UJDQLVDWLRQIRU6FLHQWLÀF Research, NWO. The goal of this broader project is to conduct research on the shifts in paradigm with respect to compensation for damage across the borderline between civil law and public funding. Whereas in this particular book attention is paid to shifts in environmental damage, other books address shifts in compensation for occupational health hazards and shifts in compensation for adverse medical events. Another book addresses the shifts in compensation generally, indicating the shifts from private law to alternative arrangements. The project also received the support from the European Centre of Tort and Insurance Law (ECTIL) in Vienna and from the Research Unit for European Tort Law (ETL) of the Austrian Academy of Sciences. For this particular project, a

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Michael Faure and Albert Verheij

cooperation was also sought with the Institute of Environmental and Energy Law of the Law Faculty of the Catholic University of Leuven, which is supervised by Prof. Dr. Kurt Deketelaere. Two collaborators from this institute provided contributions to this book.

(&ROODERUDWRUVLQWKHSURMHFW 10

The academic responsibility and coordination for this part of the project dealing with shifts in environmental damage lies with Prof. Dr. Michael G. Faure LL.M. (Maastricht) and Dr. Albert J. Verheij (Tilburg). The other contributions are drafted by Dr. Ruud Hendrickx (Faculty of Economics, Tilburg University) and by Hui Wang and Dr. Tom Vanden Borre (Institute for Environmental and Energy Law, Catholic University of Leuven, Belgium). Kristel De Smedt also contributed to the book as well (University of Hasselt, Belgium).

)6WUXFWXUHRIWKLVERRN 11

$IWHUWKLVLQWURGXFWLRQ, ÀUVW$OEHUW9HUKHLMZLOOSD\DWWHQWLRQWRVKLIWVLQJRYernance in the compensation for historical soil pollution in Belgium, Germany, the Netherlands and the United States. In that contribution shifts are addressed LQDIHZQDWLRQDOOHJDOV\VWHPVDQGWKHVHVKLIWVDUHQRWRQO\LGHQWLÀHGEXWDQ attempt to provide reasons for the shifts in this important domain is provided by Verheij as well in Chapter II. Next Michael Faure indicates a few shifts towards using alternative compensation mechanisms to deal with environmental damage (III). In this respect attention is more particularly paid to a few compensation mechanisms used in the Netherlands and in Belgium, more particularly voluntary compensation agreements and environmental damage insurance. The shift in this SDSHULVQRWRQO\LGHQWLÀHGDQGH[SODLQHGTXHVWLRQVDQG EXWWRVRPHH[WHQW also normatively evaluated (question 4) using the economic analysis of law.

12

Next the papers address shifts taking place at the European level. This is more particularly the question addressed by Kristel De Smedt, being why, in the area of environmental damage, there has been a shift from the Member States to the European level (IV). Subsequently shifts at an even higher level (international treaties) will be addressed. Albert Verheij addresses the shifts within the international treaties, but also in the voluntary arrangements and in the United States (V). The reasons for the shifts in the compensation in this international oil pollution regime are sketched by Hui Wang (VI). Whereas Albert Verheij WKXVPRVWO\IRFXVHVRQWKHLGHQWLÀFDWLRQRIWKHVKLIWTXHVWLRQ +XL:DQJ pays more attention to the reasons for the particular shift (question 2). Next, Ruud Hendrickx addresses the effects and consequences of the various shifts in the oil pollution regime from an economic perspective (VII). Chapter VIII, by Tom Vanden Borre, deals with the shifts in governance in the compensation for nuclear damage. This particular chapter indicates how compensation for this important damage category has shifted since the early international conventions

Shifts in Compensation for Environmental Damage

7

until today and equally explains some of the reasons behind these shifts. Finally a few concluding observations are provided by the editors of this book, Michael Faure and Albert Verheij (IX). All sections in the book are numbered. The index at the end of the book refers to these marginal numbers.

*:RUGVRIWKDQNV We are grateful to all of the contributors to this book for their willingness to cooperate in examining the shifts in environmental damage on the basis of the pattern and questions provided. We are equally grateful to Prof. Willem van Boom (Erasmus University Rotterdam), one of the general coordinators of the Shifts in Governance project for his enthusiastic support for this research in the domain of environmental damage. More particularly we owe gratitude to the two collaborators of the International Institute for Environmental and Energy Law (Hui Wang and Tom Vanden Borre) for their willingness to participate in this book, even without formally being involved in the project.

13

:HDUHHTXDOO\JUDWHIXOWRWKH'XWFK6FLHQWLÀF5HVHDUFK&RXQFLO1:2 IRU WKHÀQDQFLDOVXSSRUWSURYLGHGWRWKHJHQHUDO6KLIWVLQ*RYHUQDQFHSURMHFWDQG thereby to this book as well. Useful comments on previous versions of various chapters were inter alia received from Mr. Linschoten (COFIZE), Mr. Wim Oosterveen, Donnatienne Ryckbost and Prof. Gerhard Wagner, which we gratefully acknowledge. All of our contacts with the publisher have been arranged through the European Centre of Tort and Insurance Law (ECTIL) which edits the series in which this book is published. We are grateful to the board of ECTIL and more particularly to Donna Stockenhuber M.A. of ECTIL for reviewing the texts before publication and to Dr. Barbara Steininger for coordinating activities. Finally, we owe thanks to Marina Jodogne and Silvia Workum of the Maastricht European Institute for Transnational Legal Research (METRO) and to Mrs. Verwijmeren of Tilburg University for editorial assistance. 7KLVWH[WZDVÀQDOL]HGLQ-XQHVRGHYHORSPHQWVDIWHUWKDWGDWHFRXOG no longer be taken into account.

14

Michael Faure Albert Verheij Maastricht-Tilburg June 2006

II. Shifts in Governance: Soil Pollution Albert Verheij $6RLOSROOXWLRQLQWKH8QLWHG6WDWHV 1. Introduction In 1980 Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) also referred to as the Superfund program in response to serious soil pollution discovered in the city of Love Canal. It should be kept in mind however that CERCLA does not regard the problem of soil pollution alone. An idea of the scope of CERCLA is provided by its subtitle: “An Act to provide for liability, compensation, cleanup, and emergency response for hazardous substances released into the environment and the cleanup of inactive hazardous waste disposal sites.” In the context of this report the focus will be on soil pollution.

15

CERCLA has been controversial from the beginning. It was signed by President Carter on 11 December 1980 and therefore can be listed as one of the last deeds of the Carter administration. CERCLA did not fare well under the Reagan administration and many expected that the Act would not be renewed after expiration date of 1 October 1985.1 CERCLA however has stubbornly resisted most attempts to be obliterated although its taxing authority expired on 31 December 1995 and the Trust (also known as the Superfund) created by the Act ran out of money on 30 September 2003.2

16

The enactment of CERCLA can be regarded as a shift in itself. In the course of years a number of changes were made. Most notably in this respect was the

17

1

2

M.E. Cartwright, Superfund: it’s no longer super and it isn’t much of a fund. CERCLA at 25: a retrospective, and prospective look at the Comprehensive Environmental Response, Compensation, and Liability Act on its 25th anniversary, [2005] Tulane Environmental Law Journal (Tul. Envtl. LJ) 18, 310. M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 300-301.

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Michael Faure and Albert Verheij

Superfund Amendments and Reauthorization Act (SARA) of 1986. Although LPSRUWDQWWKHVHFKDQJHVGRQRWFRQVWLWXWHDVKLIWEXWPHUHO\UHÁHFWWKHH[SHULence of the Environmental Protection Agency (EPA) in administering the Superfund program. The expiration of the taxing authority of the Act in 1995 constituted a second shift since it shifted the responsibility of “orphan sites” from industry to the American taxpayer. This implies that the “polluter-pays principle” was abandoned. A third shift took place however in 2002 with the adoption of WKH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV5HYLWDOL]DWLRQ$FWZKLFK allowed for more room for private and State initiatives and clean-up programs besides the activities of the EPA. In the following the Superfund program and the subsequent shifts that took place will be analysed. 2. Facts and costs 18

$IWHU:RUOG:DU,,WKHJHQHUDWLRQRIKD]DUGRXVZDVWHLQFUHDVHGVLJQLÀFDQWO\ from 500,000 ton per year at the end of the war to 50 times that 50 years later.3 The immediate impetus of CERCLA consisted in the discovery of toxic waste in the community of Love Canal in 1978. It appeared that this community had been built on a toxic waste site. The toxic waste was actually seeping into the basements of the houses after heavy rains. In Love Canal water, air, and soil were contaminated which resulted in a local rise of birth defects, respiratory illness, cancer and miscarriages. The consequence was that 1,000 families had to be relocated.4

19

In 1979 the EPA estimated that the number of hazardous, inactive and uncontrolled waste sites was enormous, namely somewhere between 30,000 and 50,000. Between 1,200 and 2,000 presented a serious risk to public health.5 Average clean-up costs could range from $ 30 million to $ 50 million. These amounts are so huge that insurers have refused to insure environmental risks.6

20

The number of clean-up activities under CERCLA was rather limited in the EHJLQQLQJDVDUHVXOWRISROLWLFDOVWUXJJOHVWKDWWRRNSODFHXQGHUWKHÀUVW5HDJDQ administration.77KHÀUVWKXUGOHZDVWKDW3UHVLGHQW5HDJDQRQKLVÀUVWGD\LQ RIÀFHLPSOHPHQWHGDKLULQJIUHH]HIRUDOOIHGHUDOHPSOR\HHVWKURXJKRXWWKH executive. The consequence of this was that the EPA could not replace staff that UHVLJQHGIURPWKHDJHQF\6HFRQGO\WKHHIÀFDF\RIWKH(3$ZDVXQGHUPLQHG by huge reorganizations that amongst others separated the legal enforcement  $30F0RUURZ&(5&/$/LDELOLW\UHGHÀQHGDQGDQDO\VLVRIWKH6PDOO%XVLQHVV/LDELOLW\ 5HOLHI DQG %URZQÀHOGV 5HYLWDOL]DWLRQ$FW DQG LWV LPSDFW RQ 6WDWH 9ROXQWDU\ &OHDQXS Programs, [2004] Georgia State University Law Review (GASTULR) 20, 1090 footnote 15. 4 A.P. McMorrow, [2004] GASTULR 20, 1090-1091. 5 M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 303. 6 M.E. Hitt, Desperately seeking SARA: preserving the innocent landowner defence to Superfund liability, [1989] Real Estate Law Journal (Real Est. LJ) 18, 10. 7 M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 309-312. 3

Shifts in Compensation for Environmental Damage

11

staff from the technical staff. Since it was believed that CERCLA would not be renewed after the expiration in 1985, the EPA did not want to spend the entire Superfund and by the end of 1982 it had only used $ 88 million of the $ 452 million that was available in the Trust. A number of confrontations between WKHÀUVWDGPLQLVWUDWRURIWKH(3$DQGVHYHUDO6XEFRPPLWWHHVRIWKH+RXVHRI Representatives led in the end to her resignation and to the dismissal of the administrator of the Superfund. In this period only 418 sites of an estimated 14,000 were listed on the Nationals Priorities List. Only 5 of these were claimed to have been decontaminated. Under its second administrator the policy of EPA shifted. Priority was given to enforcement. However, by the end of 1985 only 10 sites had been decontaminated. Despite this dismal beginning the Superfund Amendments and Reauthorization Act (SARA) that President Reagan signed in 1986 broadened the tax base of the Superfund from $ 1.6 billion to $ 8.5 billion.8 This tax authority would expire however by the end of 1995. An attempt to remove this expiration date failed due to opposition in the Senate. However, by the end of the eighties only 64 sites had been cleaned of the 1,200 sites that the EPA had labelled as the most contaminated ones.

21

With the expiration of the tax authority of the Superfund on 31 December 1995 a battle between President Clinton and a Republican controlled Congress took place. Reform of CERCLA was part of the Republican Party’s “Contract with America”.9 These reforms were actively opposed by President Clinton. However he could not persuade Congress to renew the Superfund taxing authority. Despite these struggles under the Clinton administration 7610 clean-ups per year were FDUULHGRXWZKHUHDVXQGHUWKHDGPLQLVWUDWLRQRIKLVVXFFHVVRUWKLVÀJXUHGURSSHG to 43 clean-ups per year. In 2002 the George W. Bush administration made known that it would not attempt to reauthorize the taxing authority of the Superfund.

22

The result of this is that a shift has taken place in the feeding of the Superfund. ,QRILWVÀQDQFLDOUHVRXUFHVFDPHIURPWKHJHQHUDOUHYHQXHVIURP taxpayers). After the expiration of the taxing authority the taxpayer had to foot the entire bill.11$WWKHHQGRI&(5&/$VKRZHGDEXGJHWGHÀFLWRIDTXDUWHU of a billion dollars. That the problem of soil pollution is not yet under control is illustrated by the fact that seventy million Americans live within four miles of a toxic waste site.12

23

8 9 10

11 12

M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 313-314. M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 315-316. A.P. McMorrow, [2004] GASTULR 20, 1094-1095. According to M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 316 in total 86 clean-ups were undertaken. M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 317. M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 318.

12

Michael Faure and Albert Verheij

3. CERCLA 3.1. Background 24

Before the enactment of CERCLA, the legal landscape consisted of the Resource Conservation and Recovery Act (RCRA) of 1976. The aim of the RCRA was merely to prevent current release of hazardous waste by means of an extensive (“cradle to grave”) regulatory scheme administered by the EPA. The RCRA gave the EPA the right to require a responsible party to clean up inactive sites that pose an imminent and substantial hazard to public health.13 Courts have construed this provision to cover a threat to environmental harm.14 The RCRA had two ZHDNQHVVHV,QWKHÀUVWSODFHLWGLGQRWZRUNUHWURDFWLYHO\$QDEDQGRQHGZDVWH site could therefore not be cleaned with the instruments provided by the RCRA. In the second place, the RCRA did not authorize the EPA to clean waste sites itself and subsequently recover costs from the responsible party.15 In short, under the RCRA the EPA regulates the hazardous waste from the moment of its creation to the point in time when it is disposed of. The RCRA did not address the problem of remediation of past contamination and did not allow the EPA to take the initiative. The CERCLA was designed to solve these two problems. The majority of States have adopted legislation that closely resembles CERCLA’s funding and liability provisions.16

25

The CERCLA aimed at two goals: 1) clean-up of existing hazardous waste sites, and 2) prevention of future contamination through liability. As will be shown more elaborately below, the “polluter-pays principle” was at the heart of the Superfund program. First of all, through the liability clauses of CERCLA, secondly through the way the Trust or Superfund that was created by CERCLA ZDVÀQDQFHG,WZDVQDPHO\LQPRVWSDUWQRWÀQDQFHGE\WKHWD[SD\HUEXWE\ industry. As Representative Albert Gore said: “The argument that the federal taxpayers and the chemical companies are equally responsible for cleaning up a mess that was created by decades of recklessness by the industry is unreasonable and unfair.”17 Moreover it was feared that a fund fed by the taxpayer would set an unwelcome precedent: “A largely appropriated fund establishes a precedent adverse to the public interest – it tells polluters that the longer a problem takes to appear, the less responsible they are for paying for the consequences of their actions, regardless of the severity of the impacts. Too often, the general taxpayer is asked to pick up the bill for problems he did not create; when costs can be

13 14

15 16 17

42 USC 6973. D.J. Portelli, SARA slams the door: the effect of Superfund amendments on foreclosing mortgagees, [1987] Wayne Law Review (Wayne LR) 34, 227. D.J. Portelli, [1987] Wayne LR 34, 228. M.E. Hitt, [1989] Real Est. LJ 18, 6. H.R. Rep. No. 96-1016, pt. 1, at 63 (1980).

Shifts in Compensation for Environmental Damage

13

PRUHDSSURSULDWHO\DOORFDWHGWRVSHFLÀFHFRQRPLFVHFWRUVDQGFRQVXPHUVVXFK costs should not be added to the public debt.”18 3.2. The CERCLA liability regime 3.2.1. Responsible parties Under the CERCLA the following classes of potentially responsible parties (PRPs) can be held liable:19

26

current owners or operators of a facility or vessel that releases or threatens to release hazardous substances; past owners or operators of the facility at which the hazardous substances were disposed of; any person who arranged for disposal, treatment, or transportation of hazardous substances; any person who transported these hazardous substances for treatment or disposal. Because current owners can be held liable someone who purchases contaminated property becomes liable even though he had nothing to do with the past contamination. The above-mentioned parties cannot transfer their civil liability WR VRPHRQH HOVH$Q LQGHPQLÀFDWLRQ FODXVH LQ D VDOHV FRQWUDFW FDQQRW ELQG the government when it recovers costs (see below). Of course the buyer can have a cause of action against the seller and can thus protect himself against environmental liabilities created by the seller.

27

Courts have interpreted the list of responsible parties extensively. The amount of potential or actual control seems to be crucial to qualify as a responsible party. Lessor, lessees, and sublessors have been held liable as “owners and operators” for the reason that they had the ability to direct and control management of a SROOXWLQJÀUP20 Even shareholders, directors and important employees have been held personally liable under certain circumstances. Piercing the corporate veil was not necessary since courts have argued that these liabilities follow directly from the wording of CERCLA.

28

An important and controversial feature of CERCLA is that these parties are jointly and severally liable. This is not explicitly stated in the text of CERCLA but judges have almost uniformly interpreted the statute in this way despite the fact that reference to this notion was stricken from the Senate bill.21 The basis for this interpretation is sec. 101(32) of CERCLA which states that “liable” or “liability” under this title shall be construed to be the standard liability which

29

18 19 20 21

S. Rep. No. 848, 96th Cong., 2d Sess., at 72 (1980). 42 USC 9607 (a)(1)-(4). M.E. Hitt, [1989] Real Est. LJ 18, 11. A.P. McMorrow, [2004] GASTULR 20, 1093, footnote 40.

14

Michael Faure and Albert Verheij

obtains under sec. 311 of the Federal Water Pollution Control Act. There is only one exception to joint and several liability under CERCLA and that is when the damage is divisible. 30

A characteristic of CERCLA that is even more controversial is that it imposes a retroactive liability on the parties mentioned above. A party who is held responsible for the entire damage can however seek contribution from the other PRPs.22 There was some discussion whether someone who had been jointly and severally liable for the entire damage could recover as if they were pollution victims23, but most courts have denied this possibility.

31

,WZDVUHJDUGHGXQUHDVRQDEOHLIDOLDEOHSDUW\ZRXOGEHQHÀWIURPWKHMRLQWDQG several liability of CERCLA and non-liable parties.24 In deciding contribution claims the court has to use equitable factors. Some courts apply the “Gore-factors” suggested by the then-representative Albert Gore as an alternative for joint and several liability.25 3.2.2. Strict liability

32

Sec. 42 USC 9607(a) of CERCLA creates a regime of strict liability. This can be inferred from the nature of the defences that a PRP can rely upon, namely:26 1. 2. 

an act of God, an act of war, or ²EULHÁ\VXPPDUL]HG²DQDFWRURPLVVLRQRIDWKLUGSDUW\ZLWKZKRPKH had no legal ties, provided that the PRP can prove that he exercised due care and that he took precautions against foreseeable acts or omissions of third parties. A PRP can only escape liability with reference to this section when each of these causes was the sole cause of the pollution.

3.2.3. Damages and limits 33

353VDUH²EULHÁ\VXPPDUL]HG²OLDEOHIRU27 1. 2.

all costs of removal or remedial action incurred by the US Government or a State; any other necessary costs of response incurred by any other person;

 6HF I  &RXUWV UHFRJQL]HG WKLV ULJKW EXW LW ZDV RQO\ FRGLÀHG ZLWK WKH 6XSHUIXQG Amendment Reauthorization Act (SARA). See further about the SARA infra no. 43. 23 42 USC 9607 (a). 24 See further R.G. Aronovsky, Liability theories in contaminated groundwater litigation, [2000] Journal of Environmental Forensics (J Envtl. For.) 1, 99. 25 See further R.G. Aronovsky, [2000] J Evtl. For. 1, 105. 26 42 USC 9607 (b). 27 42 USC 9607 (a)(4)(A)-(C). 22

Shifts in Compensation for Environmental Damage

3.

15

damages for injury to, or destruction of natural resources, including the reasonable costs of assessing such injury or destruction.

Liability for these costs is limited however in sec. 42 USC 9607 (c)(1), except when the release or threat of release of a hazardous substance was the result of wilful misconduct or wilful negligence, when the primary cause of the (threatened) release was a violation of applicable safety, construction, or operating standards or regulations, or when the PRP fails to provide all reasonable FRRSHUDWLRQUHTXHVWHGE\WKHUHOHYDQWUHVSRQVLEOHSXEOLFRIÀFLDO28

34

$OLDEOHSHUVRQZKRIDLOVZLWKRXWVXIÀFLHQWFDXVHWRSURYLGHUHPRYDORUUHPHGLDO action may be liable for punitive damages in an amount at least equal to, and not more than three times the amount of any costs incurred by the Fund as a result of such failure.29

35

3.2.4. Financial guarantees Owners and operators of vessels over a certain size are under an obligation to HVWDEOLVKDQGPDLQWDLQHYLGHQFHRIÀQDQFLDOUHVSRQVLELOLW\7KLVFDQEHHVWDEOLVKHGLQYDULRXVZD\VLQVXUDQFHJXDUDQWHHVXUHW\ERQGRUTXDOLÀFDWLRQVDVD self-insurer.30 A similar obligation for facilities on land was later promulgated.31 Claimants have a direct action against any guarantor providing evidence of ÀQDQFLDOUHVSRQVLELOLW\32

36

3.2.5. Claimants The executive branch was authorized to implement CERCLA but it has delegated its powers to the Environmental Protection Agency (EPA) which now administers CERCLA. The EPA and States can recover clean-up costs. Private persons are also entitled under CERCLA to recover these costs.33 They cannot however bring suit for other costs such as injury to property or health.

37

The EPA has got three instruments at its disposal. It can: 1) take action itself and seek post-clean-up reimbursement;34 2) obtain a court order to compel PRPs to carry out remedial actions;35 and 3) obtain an administrative order to force PRPs to take clean-up and remedial measures.36

38

28 29 30 31 32 33

34 35 36

42 USC 9607 (c)(2). 42 USC 9607 (d). 42 USC 9608(a). 42 USC 9608(b)(1). 42 USC 9608(c). 42 USC 9607(a) and R.M. Howard, Government cost recovery after the cleanup: do the Superfund amendments give the EPA a license to squander?, [1990] Baylor Law Review (Baylor LR) 42, 63. 42 USC 9604. 42 USC 9606. 42 USC 9606.

16

Michael Faure and Albert Verheij

39

Important to note is that courts have universally decided that clean-up actions by the EPA are not open to judicial review until after they have been completed.37 They have based themselves on the legislative history that indicated that Congress wanted the EPA to clean up hazardous waste sites without being constrained by litigation. PRPs therefore do not have a lot of room for manoeuvring. If they do not agree with the EPA’s plan, they cannot block it. It has been argued that WKLVGRHVQRWSURYLGHDQLQFHQWLYHIRUWKH(3$WRFKRRVHWKHPRVWHIÀFLHQWDQG FKHDSHVWVROXWLRQ7KLVSRLQWLVRQO\HPSKDVL]HGE\DQHVWLPDWLRQRIWKH2IÀFH of Technology Assessment that “it is not uncommon for the government to spend from 100 to 500 percent more than a private client would spend to accomplish the same … cleanup.”38 This is explained by the fact the EPA is very much dependent upon government contractors that are “largely hidden from public scrutiny and accountability”.39

40

The National Contingency Plan (NCP) has been the basis for decision making regarding governmental response actions since 1968. CERCLA determined that, within 180 days after its enactment, the NCP would be revised so that a section of the plan would establish procedures and standards for responding to releases of hazardous substances.40 Response actions by the EPA need to be consistent with the NCP.41 The guidelines of the NCP tend to be vague in order not to provide PRPs with ammunition to challenge the actions of the EPA.42 The EPA uses a Hazard Ranking System to assess the dangers to human health and WKHHQYLURQPHQW2QWKHEDVLVRIWKLVV\VWHPLWLVGHFLGHGZKHWKHUDVSHFLÀF site will be put on the NCP. 3.2.6. Superfund

41

The CERCLA created a Fund (also known as the Superfund) of $ 1.6 billion that was meant to pay for clean-up measures. It was to be funded by two sources: the liability regime created by CERCLA and the tax regime imposed by CERCLA. CERCLA created three taxes: (1) an excise tax on crude oil; (2) an excise tax on primary petrochemicals; and (3) an excise tax on certain inorganic substances.43 As mentioned in the previous paragraph, the taxing authority of the Superfund has not been renewed.

37

38 39 40 41 42 43

M.T. Rosenberg, SARA’s effect on EPA cleanup discretion under Superfund: have the courts gone too far?, [1991] Administrative Law Journal (Admin. LJ) 4, 563. Quoted by R.M. Howard, [1990] Baylor LR 42, 59-60. Quoted by R.M. Howard, [1990] Baylor LR 42, 60. 42 USC 9605. 42 USC 9607(a)(4)(a). R.M. Howard, [1990] Baylor LR 42, 55. M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 308.

Shifts in Compensation for Environmental Damage

17

3.2.7. Relationship to other legislation CERCLA does not pre-empt States to adopt legislation. Most States have adopted laws that are modelled upon CERCLA.

42

4. SARA The Superfund Amendments and Reauthorization Act of 1986 brought about many changes in the CERCLA regime. In the following only those changes that appear relevant for this research will be described.

43

4.1. Taxes SARA – which was signed by President Reagan – increased the tax base of the 6XSHUIXQGVLJQLÀFDQWO\IURPELOOLRQWRELOOLRQ44 Under CERCLA taxes were imposed on the chemical and petroleum industries, but with SARA this taxation scheme was altered in a principle way. A general tax was imposed on all businesses with taxable incomes over $ 2 million. In addition SARA also increases funds from general revenues in order to pay for clean-up measures. It has therefore been argued that the polluter-pays principle is violated.45

44

4.2. Innocent purchase defence As mentioned in the previous paragraph, the defences under CERCLA were very limited. One of those defences was the third party defence. To rely upon this defence the defendant had to meet three elements: (1) he must not be in a (in)direct contractual relationship with the third party that is responsible for the hazardous waste contamination; (2) he must have exercised due care with regard to its hazardous waste; and (3) he must prove that he took precautions against the third party’s acts or omissions and their consequences. The consequence is that someone who purchases contaminated property can become liable even though he had nothing to do with the past contamination. This has to do mainly with the fact that a purchaser has a “contractual relationship” with the seller.

45

This state of affairs was deemed unreasonable and SARA introduced the innocent purchase defence to create a “safe harbour” for purchasers.46 To be innocent – and therefore not liable – a landowner must establish that (1) he acquired the property after hazardous waste had been deposited on it, and that (2) he did not know or have reason to know of the disposal. In order to prove the latter, he must have undertaken all appropriate inquiry into the previous owner and uses

46

44 45 46

M.E. Cartwright, [2005] Tul. Envtl. LJ 18, 313-314. D.J. Portelli, [1987] Wayne LR 34, 241. Section 107(b)(3) of SARA. See further M.E. Hitt, [1989] Real Est. LJ 18, 14-15 and R.J. DelTufo, Can (potentially responsible party) status be avoided? CERCLA and the innocent purchase defence under SARA, [1987] Practising Law Institute Real Estate Law and and Practice Course Handbook Series (PLI/Real) 302, 42-45.

18

Michael Faure and Albert Verheij

of the property in accordance with good customary and commercial practice. In order to determine whether an appropriate inquiry has taken place, SARA instructs the court to consider the following factors: (1) special knowledge or experience of the purchaser; (2) the relationship of the property’s price to its value if uncontaminated; (3) commonly known or reasonably ascertainable information about the property; (4) the obviousness of contamination; (5) the ability to detect contamination by appropriate inspection. Especially this last element is vague and depends very much on the circumstances of the case. Even if the purchaser meets all these criteria, he can still be liable in two situations. First, if he is otherwise liable under CERCLA. Secondly, if he sold the property while knowing of the past pollution without informing the purchaser.47 4.3. The almost innocent landowner48 47

SARA gives the EPA discretionary powers to settle a cost recovery claim with WZRJURXSVRI353V7KHÀUVWJURXSFRQVLVWVRISHUVRQVZKRKDYHFRQWULEXWHGWR the pollution in a very minor way. The second group consists of PRPs who are almost innocent. The difference between this group and the innocent landowners is that the almost innocent PRPs have not conducted an appropriate inquiry. Rather surprisingly the changes brought about by SARA can make foreclosing mortgagees liable.49 4.4. Judicial deference

48

As mentioned in the previous paragraph, judicial review of the actions of the EPA is only possible after they have been completed. SARA introduces a strict standard of review, namely an “arbitrary and capricious-test”. Only in extreme cases will a defendant be able to meet the burden of proof imposed by this test.50 This undermines incentives for cost-effective clean-up measures. 4.5. Clean-up standards

49

SARA introduces tighter clean-up standards. The gist is that all relevant environmental federal and state standards apply, which has the effect that the toughest standard applies.51

47 48 49 50 51

R.J. DelTufo, [1987] 302, 46. Sec. 122. D.J. Portelli, [1987] Wayne LR 34, 223. R.J. DelTufo, [1987] 302, 41and Howard, 42 Baylor L.Rev. 86-88 (1990). R.M. Howard, [1990] Baylor LR 42, 76.

Shifts in Compensation for Environmental Damage

19

4.6. Information explosion52 SARA has created an “information explosion” that will be available in toxic tort litigation and will also give rise to new duties to warn. The Agency on Toxic Substances and Disease Registry (ATSDR) must perform health assessments for each site on the NPL.53 Individuals may petition the ATSDR to carry out such health assessments at other sites.54 The costs of these studies have to be borne by PRPs. SARA also introduces a new section regarding public participation.55 The gist is that the public has the opportunity to comment on the plan by the EPA to settle, to take enforcement action, or to take remedial action. Private citizens can make sure that the government lives up to certain standards by means of a citizen suit which provides compensation for costs and fees.56 It can be expected that this will lead to fewer tort law claims since certain problems will be solved at an earlier stage.

50

 0RWKEDOOLQJSURSHUW\WKHSUREOHPRIEURZQÀHOGV 5.1. The problem 7KH(3$KDVGHVFULEHGVRFDOOHG´EURZQÀHOGVµDV´DEDQGRQHGRUXQGHUXWLOL]HG industrial or commercial properties where redevelopment is hindered by possible environmental contamination and potential liability under Superfund for parties that purchase or operate these sites.”57 It is estimated that there are EHWZHHQ  DQG  EURZQÀHOG VLWHV LQ WKH 8QLWHG 6WDWHV58 The liability regime of CERCLA is blamed as the reason why these sites have not been developed. As pointed out earlier, persons who did not contribute to contamination are nevertheless listed as PRPs by CERCLA.59 The innocent purchaser defence60 has not been enough to persuade project developers to buy these sites. Justly or unjustly the liability risk created by CERCLA is perceived as too threatening. Another cause that is mentioned is the authority the EPA KDVWRLQWHUYHQHLVWKHEURZQÀHOGSURJUDPVRI6WDWHV61 An PRP that has taken clean-up measures that conform to the standards of a State can be forced by the EPA to take additional measures.

52

A. Kanner, Future trends in toxic substances, [1989] American Law Institute – American Bar Association (ALI-ABA) C452, 194. 53 42 USC 9604(i)(6)(A). 54 42 USC 9604(i)(6)(B). 55 42 USC 9617. 56 42 USC 9659(a). 57  (3$2IÀFHRI6ROLG:DVWHDQG(PHUJHQF\5HVSRQVH%URZQÀHOGV*ORVVDU\RI7HUPV 58  )3&ROOLQV7KH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV5HYLWDOL]DWLRQ$FWD critique, [2003] Duke Environmental Law & Policy Forum (Duke Envtl. L & Pol’y F.) 13, 305. 59 See supra no. 27. 60 See supra no. 45. 61 F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 303.

51

20

Michael Faure and Albert Verheij

7KHUHVXOWKDVEHHQWKDWLQVWHDGRIEX\LQJDQGGHYHORSLQJEURZQÀHOGV SXUFKDVHUVKDYHWXUQHGWRVRFDOOHG´JUHHQÀHOGVµ7KHH[LVWHQFHRIEURZQÀHOGV is costly from many perspectives:62 – – ² ² –

It reduces tax revenues. Job opportunities are lost. *UHHQÀHOGVKDYH²DVDPDWWHURIGHÀQLWLRQ²QHYHUEHHQGHYHORSHGDQG the infrastructure is minimal. Development leads to loss of wildlife habitat and lower air and water quality. 'HYHORSPHQWRIJUHHQÀHOGVFUHDWHV´XUEDQVSUDZOµZKLFKLQWXUQFDXVHV PRUHWUDIÀFDQGKHQFHWUDIÀFFRQJHVWLRQ Finally, contamination that is left unattended can, under certain circumstances, increase the clean-up costs in the future.

Apart from being undesirable from an economic and environmental viewpoint, EURZQÀHOGV DOVR UDLVH HQYLURQPHQWDO MXVWLFH LVVXHV 7KH QHJDWLYH LPSDFW RI pollution is very unevenly spread over different groups in society. Environmental justice aims to redress the fact that poor ethnic communities have been most affected by pollution. 52

7KHUHDVRQWKDWRZQHUVRIEURZQÀHOGVDUHQRWIRUFHGWRFOHDQWKHLUSURSHUW\LV a logistical one.63 The EPA is simply not able to investigate all sites. By doing QRWKLQJRZQHUVRIEURZQÀHOGVVLPSO\HVFDSHIHGHUDODWWHQWLRQ 5.2. Attempted solutions

53

,QWKH(3$UHDFWHGWRWKHSUREOHPSRVHGE\EURZQÀHOGVZLWKWKH%URZQÀHOGV,QLWLDWLYH:LWKWKH%URZQÀHOGV,QLWLDWLYHWKH(3$ZDQWHGWRVWLPXODWH 6WDWHVWULEHVFRPPXQLWLHVDQGEXVLQHVVHVWRFRRSHUDWHWRUHGXFHEURZQÀHOGV,W FRQWDLQHGVHYHUDOVSHFLÀFPHDVXUHVWRUHDOL]HWKLVJRDO64 the granting of money WRLQYHVWLJDWHWKHOHYHORISROOXWLRQRIEURZQÀHOGVWKHLVVXLQJRIFRYHQDQWV QRWWRVXHSURVSHFWLYHSXUFKDVHUVRIEURZQÀHOGVWKHEXLOGLQJRISDUWQHUVKLSV amongst stakeholders to come to a coordinated approach to the redevelopment of ERZQÀHOGVDQGWKHFUHDWLRQRIFRPPXQLW\HGXFDWLRQSURJUDPVDQGMREWUDLQLQJ SURJUDPVDLPHGDWEURZQÀHOGFOHDQXS

54

The House Commerce Committee of the House of Representatives65 and the Environmental Financial Advisory Board66 have been highly critical of the UHVXOWVWKDWKDYHEHHQDFKLHYHGE\WKH%URZQÀHOGV,QLWLDWLYH67 The failure of the

62

F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 311-312. F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 312. 64 F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 313. 65  7KH5HDOLW\%HKLQGWKH5KHWRULF(3$·V%URZQÀHOGV,QLWLDWLYH 66  ([SHGLWLQJ&OHDQXSDQG5HGHYHORSPHQWRI%URZQÀHOGV$GUHVVLQJWKH0DMRU%DUULHUV to Private Sector Involvement – Real or Perceived, 1997. 67 See further F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 313-314. 63

Shifts in Compensation for Environmental Damage

21

%URZQÀHOG,QLWLDWLYHZDVSDUWO\GXHWRSRRUPDQDJHPHQWE\WKH(3$$QRWKHU cause was the fact that the EPA overruled the results achieved by Voluntary Clean-up Programs set up by many States. 7KHPRVWUHFHQWDWWHPSWWRVROYHWKHSUREOHPRIEURZQÀHOGVLVWKHSDVVDJHRI WKH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV5HYLWDOL]DWLRQ$FWWKH$FW  on 11 January 2002.68 The Act was backed in Congress by both Republicans and Democrats and seems to enjoy support by all relevant stakeholders such as environmental organizations, business groups, the real estate industry, and VWDWHDQGORFDOHOHFWHGRIÀFLDOV69

55

7KH$FWKDVWZRJRDOV HQFRXUDJHUHGHYHORSPHQWRIEURZQÀHOGVDQG  exempt small businesses from an unfair burden of liability. A variety of measures is introduced by the Act including some changes in the liability regime of CERCLA.70

56

  )LUVWRIDOOERQDÀGHSXUFKDVHUVDUHH[HPSWIURPOLDELOLW\HYHQLIWKH\NQHZ DERXWWKHFRQWDPLQDWLRQSURYLGHG²EULHÁ\VXPPDUL]HG²WKDWWKH\GLGQRW cause, contribute to, or consent to the release of hazardous substances.71 Further the purchaser must show that that he took all reasonable steps regarding all appropriate inquiry, disclosures, prevention of releases, and maintenance of institutional controls. The exemption has no retroactive effect and thus only applies to persons who purchase property after the Act has entered into force. (2) Secondly, the Act also exempts contiguous property owners under the VDPHFLUFXPVWDQFHVDVWKHERQDÀGHSXUFKDVHU72 Such owners – whose land was contaminated by adjacent land – are not regarded as owners for the purpose of the liability clauses of the CERCLA regime. (3) Thirdly, the innocent landowner defence is available to landowners in the same conditions as the contiguous property owners are exempted.73 (4) Fourthly, small businesses that have contributed to the contamination only to a minor extent are exempt from liability as well.74 This exemption can be withdrawn if:75  ² WKHPDWHULDOVFRQWULEXWHGVLJQLÀFDQWO\WRWKHFRVWRIWKHUHVSRQVH action; – the person failed to comply with an information request; or

68 69 70 71 72 73 74 75

PL 107-118. F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 316. See for a clear overview F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 316-320. 42 USCA 9601(40). 42 USCA 9607(q)(C). 42 USCA 9601(35)(B). 42 USCA 9601(o). 42 USCA 9601(o)(1)(A)(B).

22

Michael Faure and Albert Verheij

– the person has been convicted of a criminal violation for the conduct to which the exemption would apply. 57

7KH$FWDOVRFRQWDLQVDZLQGIDOOSURÀWOLHQSURYLVLRQWKDWDXWKRUL]HVWKH(3$WR impose a lien on property in case that increased in value after clean-up measures by the EPA.76 The provision only applies to the situation when the exemptions IRU ERQD ÀGH SXUFKDVHUV DQG FRQWLJXRXV RZQHUV DSSO\ )XUWKHUPRUH WKH$FW SURYLGHV IRU D VLJQLÀFDQW LQFUHDVH RI IXQGV DYDLODEOH IRU WKH UHGHYHORSPHQW RI EURZQÀHOGV IURP   ELOOLRQ WR   ELOOLRQ DQQXDOO\ WKURXJK 77 State governments, tribes, and NGOs can, under certain circumstances, apply for funds. Finally, the Act determines that the EPA will only in exceptional circumstances take enforcement action against a person who cleaned pursuant to a State Program.78 Although the Act has been welcomed by all stakeholders it has been remarked that the emphasis on economic and environmental justice issues might have adverse effects for the extent to which contaminated soil is cleaned.79 States can no longer use intervention by the EPA as a threat and the cost of cleaning will have to be borne to a greater extent by the State and Federal governments LQJHQHUDODQG(3$LQSDUWLFXODU7KHÀQDQFLDOVWUHQJWKRIWKH6XSHUIXQGKDV been undermined by the termination of the tax authority in 1995. 6. Shifts

58

The liability regime of CERCLA has undergone a number of changes. Especially WKH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV5HYLWDOL]DWLRQ$FWRI has brought a lot of changes, some of which can be regarded as shifts. Shifts however are not limited to direct changes in the liability regime. In the following an attempt will be made to identify the shifts that have taken place. 6.1. Federalisation and partial de-federalisation

59

The introduction of CERCLA implied a federalisation of the problem of soil pollution and therefore a shift. This problem was apparently deemed so important that it could not be left to the States. Public worry will undoubtedly have played an important role in the decision to set up such a forceful scheme.80 A factor that might also have played a role is the fact that the Resource Conservation and Recovery Act (RCRA) of 1976 had federalized the matter already. The &(5&/$ZDVPDLQO\GHVLJQHGWRÀOOJDSVLQWKHUHJLPHWKDWKDGEHHQFUHDWHG by the RCRA.

76 77 78 79 80

42 USCA 9607(r)(2). 42 USCA 9604(k)(12)(A). 42 USCA 9607(p)(1). F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 328. As can be inferred from the emotional reactions of people, see L.M. Gibbs, Love Canal: The Story Continues (1998).

Shifts in Compensation for Environmental Damage

23

7KH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV5HYLWDOL]DWLRQ$FWRI SURYLGHG IRU D VLJQLÀFDQW LQFUHDVH RI IXQGV WKDW HQDEOHV 6WDWH JRYHUQPHQWV WULEHVDQG1*2VWRUHGHYHORSEURZQÀHOGV)XUWKHUPRUHWKH$FWSURYLGHVWKDW the EPA will only in exceptional circumstances take enforcement action against a person who cleaned pursuant to a State Program. The Act in other words empowered the States and private persons and thus constituted a partial shift back to de-federalisation.

60

6.2. Strict retroactive liability The introduction of strict and retroactive liability implied an enormous departure from traditional tort law principles (especially the tort of negligence) and can therefore be regarded as a shift. The explanation for this can be found in the enthusiasm for the “polluter-pays principle”. It should be noted however that the liability regime of CERCLA is not only based on this principle even though this is sometimes argued. This is proven by the fact that persons who did not contribute to the contamination could nevertheless be held liable. The innocent landowner defence of the SARA can, from this perspective, be regarded as a return to the “polluter-pays principle”.81 The role played by this principle is however far from clear as will be shown below.

61

6.3. Who foots the bill? Originally CERCLA imposed a tax on polluting industries. This constituted a shift. After only six years, in 1986, SARA broadened the tax base to include all companies of a certain size independent of their contributions to soil FRQWDPLQDWLRQ&RXOGWKHRULJLQDOWD[HVEHHDVLO\MXVWLÀHGZLWKUHIHUHQFHWRWKH “polluter-pays principle”, the broadening of the tax base could only be seen as a violation of this principle and a shift back. The end of the taxing authority of the Superfund in 1995 implied a further shift away from the “polluter-pays principle”. Taxpayers in general will have to shoulder the clean-up costs. This HIIHFWLVPDGHVWURQJHUE\WKH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV Revitalization Act of 2002 that exempted a number of persons from liability and WKXVLQFUHDVHGWKHÀQDQFLDOEXUGHQVRIWKH6WDWHDQG)HGHUDOJRYHUQPHQWV

62

6.4. Cleaning standards &(5&/$ZDVFULWLFL]HGIRULWVLQÁH[LEOHFOHDQXSVWDQGDUGVWKDWGLGQRWWDNHLQWR account the future use of the contaminated soil in question.82 The empowerment of States (de-federalisation) as a result of the Small Business Liability Relief and %URZQÀHOGV5HYLWDOL]DWLRQ$FWRIFRXOGPDNH6WDWH3URJUDPVOHVVHIIHFWLYH83

 $OWKRXJKPDLQO\LQWKHRU\,QSUDFWLFHLWZDVYHU\GLIÀFXOWWRUHO\XSRQWKLVGHIHQFH F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 309 provides some counterarguments however. 83 F.P. Collins, [2003] Duke Envtl. L & Pol’y F. 13, 326. 81 82

63

24

Michael Faure and Albert Verheij

and would therefore in practice lead to a lowering of the standards. This would amount to a shift from a multifunctional standard to a functional one. 6.5. A shift from private to public (law) solutions (or vice versa)? 64

To what extent does the history of CERCLA give evidence of shifts from private to public (law) solutions or vice versa? On a legal level there is clearly a shift away from traditional tort law. The problem of historical soil pollution is not left to the existing tort law, instead a new regime (CERCLA) is created in which the federal government plays an important role. CERCLA is amended, new exceptions to liability are created but these later changes of CERCLA never go so far that the matter is relegated again to the traditional law of tort. Whether this shift away from traditional tort law should be regarded as a shift to public ODZLVDPDWWHURIGHÀQLWLRQZKLFKLVQRWYHU\LQWHUHVWLQJ,IWKLVTXHVWLRQKDV to be answered, it could be said that a complete shift to public law did not take place. The concept of liability was maintained as a governance tool, but it was QRWHQWLUHO\MHWWLVRQHG2QDÀQDQFLDOOHYHOLWKDVEHHQVKRZQWKDWRYHUWKH\HDUV the costs of clean-up measures were increasingly borne by taxpayers. The ending of the tax authority of CERCLA and the increasing number of exemptions from OLDELOLW\DUHFOHDUHYLGHQFHRIWKLVWUHQG)URPDÀQDQFLDOSHUVSHFWLYHLWFRXOG therefore be argued that there is a shift from private solutions (“polluter-pays principle”) to public solutions.

%6RLOSROOXWLRQLQ*HUPDQ\ 1. Introduction 65

In Germany soil protection law was left for the states (Länder) to deal with until the 1990s. A ministerial draft bill of the Soil Protection Act (Bundes-Bodenschutzgesetz) was submitted in 1992 but it took till 1998 before parliament (Bundestag) had given its consent. The Soil Protection Act entered into force on 1 March 1999. Although the Soil Protection Act implied a “federalisation” of soil protection, the states still have room for regulation.

66

The German word for historical soil pollution is Altlasten. It was coined in the VDQGDFFRUGLQJWRRQHGHÀQLWLRQUHIHUUHGWRVRLODQGZDWHUSROOXWLRQHPDQDWing from waste dumping grounds and the waste processing industry that created a GDQJHUWRSXEOLFKHDOWK$FFRUGLQJWRDQRWKHUGHÀQLWLRQAltlasten referred to soil and water pollution resulting from industrial production and both World Wars.84

84

Runderlass des Ministers für Ernährung, Landwirtschaft und Forsten des Landes Nordrhein-Westfalen vom 26 March 1980, II A 2 – 863 – 28815, Min.Blatt NW 1980, 769. H. Ziehm, Die Störerverantwortlichkeit für Boden- und Wasserverunreinigungen (1989), 14. +HFULWLFL]HVWKLVGHÀQLWLRQDVEHLQJWRRQDUURZ

Shifts in Compensation for Environmental Damage

25

3UHVHQWO\WKH6RLO3URWHFWLRQ$FWFRQWDLQVDGHÀQLWLRQ85 Although the creation of the federal Soil Protection Act constitutes the most LPSRUWDQWVKLIWKLVWRULFDOO\WKUHHSKDVHVFDQEHGLVWLQJXLVKHG,QWKHÀUVWSKDVH WKHUHZDVQRVSHFLÀFOHJLVODWLRQ7KHOHJDOIUDPHZRUNFRQVLVWHGRIWKH3ROLFH and Regulatory Law (Allgemeine Polizei- und Ordnungsrecht). This changed with the introduction of the Water Management Act (Wasserhaushaltsgesetz) and the Waste Removal Act (Abfallbeseitigungsgesetz) in 1960 and 1972 respectively, which is therefore regarded as the second phase. The creation of WKH6RLO3URWHFWLRQ$FWIRUPVWKHÀQDODQGWKLUGSKDVH

67

In the following most attention will be given to the Soil Protection Act of 1999 (infra no. 91). Before that some facts and costs will be given (infra no. 69) IROORZHGE\DGHVFULSWLRQRIWKHÀUVWWZRSKDVHVLQIUDQRDQG ,WVKRXOG EHQRWHGWKDWLQSUDFWLFHWKHÀUVWDQGVHFRQGSKDVHRYHUODSVLQFHWKHSUREOHP of soil pollution was only acknowledged in the 1970s. For the sake of clarity however they will be described separately.

68

2. Facts and costs ,WWRRNDZKLOHEHIRUHWKH)HGHUDO/HJLVODWRUFDPHXSZLWKVSHFLÀFOHJLVODWLRQ to protect the soil. Water and air had been the subject of regulation at a much earlier date. The Wasserhaushaltsgesetz that dealt with water was created in 1957 (although it was only in the 1970s that it became an environmental protection law in the true sense of the word) and the Bundesimmisionsschutzgesetz that dealt with air came into force in 1974. One author sees the reason for this delay in the fact that soil pollution is less visible for the public than water and air pollution.86 Another reason that has been given is that the soil is owned by many different persons and that for a long time the presumption subsisted that these owners would take care of it.87

69

,QWKHDEVHQFHRIVSHFLÀFIHGHUDOOHJLVODWLRQWRJHWWRJULSVZLWKWKHSUREOHPRI soil pollution, legislation was created at a state level.88 For the rest the authorities had to fall back upon existing administrative regulation that was not intended to tackle soil pollution but provided a framework for dealing with emergencies and disturbances of public order, the general Police and Regulatory Law (Allgemeines Polizei- und Ordnungsrecht of the several states).

70

Here as elsewhere the public and therefore the politicians and policymakers became aware of the problem of soil pollution after some widely broadcast

71

 6HH3DUVHF6HHIRUWKLVGHÀQLWLRQLQIUDQR H.P. Vierhaus, Das Bundes-Bodenschutzgesetz, [1998] Neue Juristische Wochenschrift (NJW), 1263. 87 M. Kloepfer/C. Franzius/S. Reinert Zur Geschichte des deutschen Umweltrechts (1994), 137. 88 M. Kloepfer/T. Brandner, Umweltrecht (1998), 796. 85 86

26

Michael Faure and Albert Verheij

discoveries of contaminated soil in the 1970s. In 1994 there were 138,722 polluted sites and 244,926 sites of which it was suspected that they were polluted. The estimated costs of cleaning ranged from 17 billion to 390 billion German Marks.89 Contaminated sites in Eastern Germany have added to the already VLJQLÀFDQWHQYLURQPHQWDOSUREOHPVRI:HVWHUQ*HUPDQ\2IWKHDERYHPHQWLRQHG 138,722 polluted sites 60,000 are located in Eastern Germany.90 3. Police and Regulatory Law 72

The Police and Regulatory Laws of the several states (PRL) are a part of German administrative law. The aim of this body of law is to protect society against all NLQGVRILPPHGLDWHGDQJHUVSURYLGHGWKDWQRVSHFLÀFOHJLVODWLRQWRFRPEDWWKRVH dangers exists.91 Sometimes the authorities had to fall back upon the PRL because of the gaps in the existing legal framework (see next paragraph).

73

The PRL is a matter of state law. Each state therefore has its own legislation in this respect. This pluriformity is diminished in practice because the legislation is based on a model law (the so-called Musterentwurf) that the states have issued themselves to provide guidelines for state law.92

74

The most important instrument provided by the PRL is an order (Polizeiverfügung or Ordnungsverfügung) that obliges the addressed person to perform a certain action. In the context of soil pollution, that can be decontamination measures or compensation of costs incurred by the authorities for clean-up measures.93

75

A condition for intervention by the authorities is that public order and security have been breached or are threatened to be breached.94 The scope of protection afforded by the PRL is quite extensive. Among the interests that are protected DUHÀUVWRIDOOSXEOLFLQWHUHVWVVXFKDVWKHLQWHJULW\RIWKHVWDWHDQGLWVRUJDQV and collective interests that are necessary for the community.95 There is a link between the interest of the community and the interests of individuals since a community consists of individuals. Conditions that are necessary for human beings to survive are therefore also conditions to be protected for the sake of the community. With this line of reasoning clean water has been judged an interest that is protected by the PRL even in the absence of immediate danger to public health.96 Secondly, all private rights are directly protected by the

89 90

91 92 93 94 95 96

M. Kloepfer/T. Brandner (supra fn. 88) 792-793. R. Schmidt, Einführung in das Umweltrecht (1995), 181. See for further information the website of the German Federal Environmental Agency (Umweltbundesamt) <www. umweltbundesamt.de>. H. Ziehm (supra fn. 84), 17. H. Ziehm (supra fn. 84), 17. G.A. van der Veen, Bodemsanering en kostenverhaal (1992), 66. H. Ziehm (supra fn. 84), 17. H. Ziehm (supra fn. 84), 18-19. BVerwG, ZfW 1974, 296.

Shifts in Compensation for Environmental Damage

27

PRL, in particular life, health, liberty, honour, and property.97 Authorities are not allowed to intervene on the basis of the PRL when the interests of only one individual are at stake. There must be a public dimension to the threat or to the breach of public order and security. Finally, the integrity of the entire legal order is protected by the PRL.98 The focus of the PRL is on the here and now. The key question is whether there is presently a threat or danger to public order and security. Therefore it is irrelevant when the present threat or danger came into being and whether the past conduct that caused the present threat or danger was unlawful. As a result the person who is obliged by the authorities to put an end to the threat or danger did not necessarily act negligently. In this context there are two problems. There is some tension here with the principle of the rule of law that forbids that laws are applied retroactively. This is especially the case when the conduct that caused the pollution in the past was in accordance with the law or even expressly authorized by a licence issued by the relevant authorities. The second problem is that liability under the PRL needs to be limited if one wants to avoid the consequence that everyone who contributed technically can be held OLDEOH7KHÀUVWSUREOHPLVDSSURDFKHGE\LQWHUSUHWLQJWKHVFRSHRIWKHOLFHQFH Not all licences provide a complete defence against liability based on the PRL and not all licences aim to allow for all consequences of a certain conduct.99 The second problem is addressed in the context of causality. Not all causes carry equal weight, only the legally relevant ones. The prevalent view is that there is a legal cause in the event of a direct causal link (unmittelbare Verursachung). This concept is not to be interpreted in a technical but in a normative way.100 The result is that, in the framework of causality, it is possible to infuse PRL liability with elements of unlawfulness and culpability despite the fact that such FRQFHSWVRIÀFLDOO\SOD\QRUROHDVPHQWLRQHGDERYH7KLVRIFRXUVHOLPLWVWKH effectiveness of the PRL liability.

76

The PRL makes a distinction between persons who are held liable for their conduct (Handlungsstörer) and persons who are held liable in a certain capacity (Zustandsstörer) such as owners and persons who effectively exercise control over a plot of polluted land.101-XVWLÀFDWLRQIRUWKLVODWWHUFDWHJRU\LVWKDWWKHVH SHUVRQVEHQHÀWIURPWKHODQG102 and that they have the possibility to take measures to control the danger posed by the pollution.103 Liability is triggered by the fact

77

97 98 99 100 101 102

103

H. Ziehm (supra fn. 84), 19-20. H. Ziehm (supra fn. 84), 20-23. H. Ziehm (supra fn. 84), 31-34. Van der Veen 1992, p. 83. H. Ziehm (supra fn. 84), 50. C. Bickel, Bundes-Bodenschutzgesetz. Kommentar. (2002), 96. He disagrees with this MXVWLÀFDWLRQVLQFHLWKDSSHQVWKDWRZQHUVRIHFRQRPLFDOO\ZRUWKOHVVREMHFWVDUHOLDEOHIRU the damage they cause. He gives waste and pets as examples. BVerwG, DÖV 1986, 286 and Ziehm 1989, p. 53.

28

Michael Faure and Albert Verheij

that the land poses a threat to or endangers public order and security. How the land got in such a state is irrelevant.104 Liability in other words is strict. This does not mean of course that the owner of polluted land is responsible for all the consequences of pollution. The extent of his liability is to be determined by the concept of causality.105 The issue what role a licence plays can be answered in the same vein as in the case of liability for conduct.106 78

For a clear picture a list of potentially liable parties under the PRL is presented below.107 1. 2. 3. 4. 5. 6.

Previous owner of the polluted soil. Present owner of the polluted soil. Previous enterprise that conducted business on the polluted soil. Present enterprise that conducted business on the polluted soil. Producer of the waste that polluted the soil. Transporter of the waste that polluted the soil.

Ad 1. The previous owner cannot be held liable as a Zustandsstörer, he can only be held liable if his past conduct is the legally relevant cause of the pollution. Ad 2. The present owner can in principle be held liable as a Zustandsstörer. Ad 3. The previous enterprise can be held liable if its past conduct is the legally relevant cause of the pollution. Ad 4. The present enterprise can in principle not be held liable for past pollution with which it had nothing to do. This can only be different if the authorities had already ordered the previous enterprise to take decontamination measures. In that event the duty to comply with such an order will be transferred to the succeeding enterprise.108 Ad 5. The producer of waste can be held liable if his conduct was the legally relevant cause of the pollution. In most cases however the waste became dangerous as a result of treatment by other persons at a later stage and therefore there ZRXOGQRWEHDVXIÀFLHQWGLUHFWFDXVDOOLQN Ad 6. The transporter of waste will not be held liable in most cases. An exception can be the situation that he dumped the waste at a place where that was not allowed or safe.

104 105 106 107 108

H. Ziehm (supra fn. 84), 52. H. Ziehm (supra fn. 84), 52. H. Ziehm (supra fn. 84), 56-57. G.A. van der Veen (supra fn. 93), 91-92. G.A. van der Veen (supra fn. 93), 92.

Shifts in Compensation for Environmental Damage

29

When the authorities can hold different persons liable, the question arises whether they should give priority to certain persons.109 In the past judges used to leave the authorities a wide margin of appreciation but later case law revealed a tendency to give the authorities less discretionary power.110 Factors to be considered in choosing a liable person are speed and effectiveness and the question who committed the latest and most serious fault. One important rule of thumb is the priority of the Verhaltensstörer above the Zustandsstörer, which means that the person who is held liable because of his conduct deserves to be addressed by the authorities before the person who is held liable because of his status (e.g. as an owner).

79

The person who was ordered by the authorities to take decontamination measures or to pay the costs the authorities incurred while taking such measures cannot always recover.111 In the absence of breach of contract or negligence there is no legal basis for recovery. Various routes (for example, unjust enrichment) have been tried but judges have not allowed for this.112 The result can be that the owner of polluted soil who had practically nothing to do with the pollution will have to bear the costs entirely.

80

From the above it can be easily understood why the PRL was not the ideal instrument to deal with soil pollution. In short the focus is on an existing or a threatening danger to public order and security and not every instance of soil pollution will meet this criterion. Furthermore, once the threat or breach is over authorities cannot require further action on the basis of the PRL. Formulated differently, measures that put an end to an immediate danger to public health might be too limited from an environmental viewpoint. Finally, liability under WKH35/LVOHVVREMHFWLYHWKDQLWVHHPVDWÀUVWVLJKWVLQFHQRUPDWLYHHOHPHQWV such as unlawfulness and culpability can play a role in establishing the required legal causal link between a conduct and a threat or danger to public order and security.

81

Important to note is that the regime of the PRL does not implement the “polluter-pays principle”. Owners who had nothing to do with the pollution can be obliged by the authorities to take measures themselves or to pay the costs borne by the authorities. The technical explanation for this is the absence of the general right to contribution from other potentially liable parties. At a more general level the explanation is to be found in the aim of the PRL. The aim is to create a framework to take swift action in the event of an emergency. Effectiveness is the main concern. This is not surprising since the PRL is an administrative law and was not created as a special civil liability regime. This does mean however that the incentives provided by the PRL are not very well targeted at the polluter.

82

109 110 111 112

H. Ziehm (supra fn. 84), 69-73; G.A. van der Veen (supra fn. 93), chapter 4. H. Ziehm (supra fn. 84), 69-73. H. Ziehm (supra fn. 84), 73-76; G.A. van der Veen (supra fn. 93), p. 99-102. BGH 11-6-1981, NJW 1981, p. 2457; BGH 18-9-1986, NJB 1987, p. 187.

30

Michael Faure and Albert Verheij

It has even been said that the choice of the person who is held liable under the PRL is often quite arbitrary.113 4. Waste (Removal) Act and Water Management Act 4.1. Water Management Act 83

Art. 75(4) of the German Constitution authorizes the federal government to legislate with respect to the topic of water. One of the acts114 that was created on this basis was the Water Management Act (WMA)115 which came into effect in 1960.116 It is aimed to prevent and deal with water pollution,117 but certain forms of soil pollution can be addressed as well under this Act. When contaminated soil threatens to pollute the water, the authorities can intervene on the basis of the WMA.118

84

The WMA did not lose its relevance for soil pollution after the creation of the subsequent Waste Removal Act which is 12 years younger. In practice it addresses some issues that fall outside the scope of this later Act. The WMA applies namely – unlike the Waste Removal Act, see infra no. 86 – to old industrial sites that constitute a potential threat to the water. Like the Waste Removal Act, the WMA does not work retroactively so it does not apply to sites that were polluted before 1960.119 It does however apply to pollution caused between 1960 and 1972 (the year the Waste Removal Act came into effect). Since the WMA is aimed to protect a certain medium, it is – unlike the Waste Removal Act, see infra no. 86 – not limited to pollution that was caused by movable objects.

85

The threshold for intervention by the authorities is relatively low and comparable to the criterion of the Waste Removal Act: the likelihood that dangerous substances would get into the water. The aim of intervention poses however certain limits on the possibilities to address the problem of soil pollution. The goal of intervention is to eliminate, in brief, a danger to the quality of the water (Gefahrenabwehr). The WMA will therefore hardly ever allow for complete decontamination of polluted soil. Decontamination will only have to take place – and can only be ordered – insofar as is necessary to prevent water pollution.

113 114

115 116

117 118

119

M. Kloepfer/T. Brandner, (supra fn. 88), 806. R. Schmidt (supra fn. 90), 91. In general one can distinguish between two types of legislation: 1) Wasserwegerecht and 2) Recht der Wasserwirtschaft7KHÀUVWGHDOV²EULHÁ\VDLG – with transportation, the second with the use of water in other ways. The German name is the Wasserhaushaltsgesetz. It has been amended many times since then, the most important one being the amendments of 1986 (BGBl., I, p. 1529). Par. 1a and 2 WMA. Par. 15(6) WA determines that the Waste Act does not touch upon issues that are covered by the WMA. However the WMA is applicable to waste that was stored before 1960 and continued to be stored after 1960.

Shifts in Compensation for Environmental Damage

31

The WMA does not provide a basis for the authorities to recover costs of cleaning measures. Apparently this was not an issue in 1960. However, the Water Protection Acts of the states do contain enabling provisions, allowing public authorities to take protective measures, to recoup monies spent on such measures and to force the Störer to take such measures. In addition, the WMA itself contains a special provision on private liability of water polluters (par. 22 WMA) which is strict and broad in its protective perimeter (including pure economic loss but not ecological damage). 4.2. Waste Removal Act In 1972 the Waste Removal Act120 created a framework for the removal of waste. In 1986 it was changed and renamed the Waste Act121 (WA).122 The WA gives authorities powers regarding rubbish-dumps and waste processing institutions. :DVWHFDQRQO\EHVWRUHGSURFHVVHGDQGGXPSHGRQVSHFLÀFGHVLJQDWHGVLWHVSDU 4(1) WA). The authorities can take measures against illegal sites123 or dumpings and order exploitants of legal sites or dumpings to take certain safety measures to prevent health risks (par. 8(1) and 9 WA).

86

The scope of application of the WA was limited by the concept of waste. Par.  :$GHÀQHGZDVWHDVPRYDEOHREMHFWV124 that the possessor wants to get rid of or that must be removed in an orderly fashion in the interest of the public. 7KLVGHÀQLWLRQGLVWLQJXLVKHVEHWZHHQWZRFDWHJRULHVRIZDVWHVXEMHFWLYHZDVWH (the possessor wants to do away with it) and objective waste that is potentially dangerous to the public interest. The text makes clear that public interest covers ERWKSXEOLFKHDOWKDQGHQYLURQPHQWDOLQWHUHVWV7KHVFRSHRIWKLVGHÀQLWLRQLV seriously limited by the fact that only movable objects can qualify as waste. Waste that has been buried in the ground will have become part of an immovable object and will therefore not be regarded as waste in the sense of the WA. The result of this is that in many cases decontamination of polluted soil cannot be based upon the WA. The authorities will then have to fall back upon the powers they have on the basis of the PRL.

87

Important in the context of this contribution is that par. 10(2) WA gives the power to order certain persons under certain circumstances to decontaminate polluted soil. This possibility depends on the existence of a threat to the public interest. This criterion however is relatively lenient since it requires only that damage to the public interest is likely in future. It is important to note that this goes much further than the PRL that is aimed at elimination of a present danger. The

88

120

The German name is Abfallbeseitigungsgesetz. The German name is Abfallgesetz. 122 This Act was later replaced by the Kreislaufwirtschafts- und Abfallgesetz from 27 September 1994. In the context of this research the focus will be on the old WA however. 123 On the basis of the PRL. 124  $VGHÀQHGE\SDUII%*%Bürgerliches Gesetzbuch = German Civil Code). 121

32

Michael Faure and Albert Verheij

decontamination measures that have to be taken by the WA are not limited to elimination of danger but imply a complete decontamination of polluted soil. 89

Potentially liable to take decontamination measures are all those persons who are responsible for the safety and the management of the rubbish-dump. These can be the owners but also the managers or even former managers. It should be noted that the limitative effect of the concept of waste plays no role here. Not the owner or possessor of the waste is subject to the duty to take decontamination measures, but the owners or managers of the rubbish-dump. In the event that a person does not meet his obligation to take decontamination measures, the authorities can take those measures themselves and subsequently recover the costs.

90

For two reasons the WA is of limited importance in relation to polluted soil. 7KHÀUVWUHDVRQLVWKDWLQGXVWULDOVLWHVIDOORXWVLGHLWVVFRSHRIDSSOLFDWLRQ7KH second reason is that the WA has no retroactive effect. The powers of the WA can therefore not be used to decontaminate legal rubbish-dumps that date from before 1972. This is problematic since many polluted sites are indeed older. 5. Soil Protection Act 5.1. General

91

The aim of the federal Soil Protection Act (SPA) that entered into force on 1 March 1999 was to protect a number of soil functions (par. 1(1) SPA). With soil functions is meant natural functions but also the function of archive of natural and cultural history (par. 1(2) SPA). Finally soil has an economic function. It is used for a variety of purposes such as a storage place for raw materials and land for agricultural and forestry use (par. 2(2)(3) SPA).

92

)LUVWDZRUGRQWKHGHÀQLWLRQRIKLVWRULFDOSROOXWLRQAltlasten) in the SPA. Par. 2(5) SPA distinguishes between closed waste-disposal facilities including land that was used for treatment, storage or dumping of waste (Altablagerungen) and locations where in the past dangerous substances have been used (Altstandorte).

93

Not all pollution and not every threat of pollution is enough to trigger the DSSOLFDWLRQ RI WKH 63$ 3DU   FRQWDLQV D GHÀQLWLRQ WKDW OLPLWV WKH VFRSH of the SPA: harmful changes to the condition of the soil and impingements on soil functions which lead to a hazard (Gefahr),VLJQLÀFDQWGLVDGYDQWDJHV (Nachteile),RUKDYHVLJQLÀFDQWQHJDWLYHLPSDFWBelästigungen) on individuals or on the public at large. A hazard (or danger) has the same meaning as danger in the PRL.125'LVDGYDQWDJHVPHDQÀUVWRIDOOÀQDQFLDOORVVHVEXWLWDOVRUHIHUV to changes in the condition of the soil that would not have been regarded as

125

C. Bickel (supra fn. 102), 26.

Shifts in Compensation for Environmental Damage

33

damage in the traditional meaning of the word. An example is a change in the FRQGLWLRQRIWKHVRLOWKDWPDNHVLWPRUHGLIÀFXOWRULPSRVVLEOHIRUFHUWDLQLQVHFWV WROLYHWKHUH7KLVH[WHQVLYHPHDQLQJRIGLVDGYDQWDJHVLVMXVWLÀHGLQWKHOLJKW RIWKHH[WHQVLYHGHÀQLWLRQRIGHFRQWDPLQDWLRQLQSDU 126 see infra no. 97. 1HJDWLYHLPSDFWÀQDOO\PHDQVQHJDWLYHHIIHFWVRQKHDOWK127 As a result of the ´VLJQLÀFDQWµUHTXLUHPHQWVKRUWWHUPGLVWXUEDQFHVGRQRWVHHPWRIDOOZLWKLQ WKHGHÀQLWLRQRISDU  The scope of the SPA is further limited by par. 3 SPA which determines that the SPA applies to harmful changes in the condition of the soil and historical pollution in the event that 11 subsequently listed acts and regulations based upon WKRVHDFWVGRQRWFRQWDLQVSHFLÀFUXOHVUHJDUGLQJVRLOSROOXWLRQ7KH63$GRHV not exclude the powers of the state to legislate in this domain (par. 11 SPA).

94

The SPA knows three types of measures: prevention of soil pollution, decontamination measures, and precautionary measures (par. 1(2) SPA). In the context of this contribution the focus will be on the cleaning of historical soil pollution.

95

5.2. Prevention and decontamination The SPA contains a general obligation to prevent soil pollution (par. 4(1)). This obligation is imposed on everyone, not only the owner of the land. If the soil was already contaminated in the past, a person must take this fact into account LQGHWHUPLQLQJKLVEHKDYLRXUVRWKDWWKHWKUHVKROGRISROOXWLRQ´VLJQLÀFDQWµ LV not exceeded.128 Negligence is not a prerequisite for a violation of this obligation.129 Violation does require active conduct, abstaining from action does not constitute a violation.130 Par. 4(2) obliges the owner and the occupier to prevent the pollution from causing damage to adjacent property.

96

Par. 4(3) contains an obligation that is very relevant for historical pollution. It states that a class of persons is obliged to take decontamination measures. 'HFRQWDPLQDWLRQPHDVXUHVRUUHPHGLDODFWLRQLVGHÀQHGDV PHDVXUHVWKDW remove or reduce contaminants, 2) measures which prevent or reduce the spread of contaminants, and 3) measures to remove or reduce damaging changes to the physical, chemical or biological quality of the soil (par. 2(7)(1)).

97

The obligation to take decontamination measures rests on the following persons:

98

126 127

128 129 130

C. Bickel (supra fn. 102), 26. K.A. Pape/K. Schillhorn, Legal aspectsof soil pollution and decontamination in Germany, in: R. Seerden/K. Deketelaere, Legal aspects of soil pollution and decontamination in the EU Member States and the United States, 156. K.A. Pape/K. Schillhorn (supra fn. 127), 158. C. Bickel. (supra fn. 102), 69. C. Bickel. (supra fn. 102), 68.

34

Michael Faure and Albert Verheij

1) 2) 3) 4) 5)

the person who caused the pollution (par. 4(3)(1)), the joint and several successor of this person (par. 4(3)(1)), the owner (par. 4(3)(1)), the occupier (par. 4(3)(1)),131 those persons who are responsible for the person who caused the pollution under commercial or company law (par. 4(3)(4)), the former owner who gave up his property (par. 4(3)(4)).132

6)

The purpose of this last category is to make it impossible for an owner to evade his responsibility by simply giving up his property right.133 Finally, par. 4(6) stipulates that also a former owner is obliged to take decontamination measures provided that 1) he transferred his ownership after 1 March 1999, 2) that he knew or should have known about the pollution, and 3) that the buyer bought the property in good faith, meaning that he believed and was entitled to believe that the soil was not contaminated. In determining this all circumstances of the case are relevant. It has been argued that the responsibility of the former owner lacks constitutionality since it violates the guarantee of property (Art. 14 GG Grundgesetz, German Basic Law).134 99

The obligations of the owner of polluted soil have been challenged before the German Constitutional Court.135 It was argued that the owner’s burden of decontamination measures was a violation of Art. 14 I GG (protection of property) since an owner can incur a heavy liability in the absence of fault. The Constitutional Court rejected this line of argument however. It held that liability of owners was supported by other parts of the Constitution namely Art. 2 II 1 GG that guarantees individuals protection by the state and Art. 20a GG that obliges the state to protect the environment. Additionally the Constitutional Court noted that decontamination measures are in the interest of the owner as well since the value of the property will substantially increase. Having said this, the Court went on to say that liability of the owner must nevertheless be in accordance with the proportionality principle. The cost of decontamination measures should be proportional to the increase in value of the property. The Court subsequently gave a number of examples of situations in which liability should be deemed acceptable or not. This is not the case when the pollution has a natural cause. Liability is unacceptable as well in the event that the owner lives on the land and would have to sell it in order to pay for the costs of

131

132

133

134 135

Whether the occupation is lawful or not is irrelevant, what counts is the visible will to exercise control over the land. C. Bickel. (supra fn. 102), 96. Meant is the situation in which the owner literally gives up his property (dereliction). This clause does not cover the situation in which polluted land is sold, that is covered by par. 4(6). C. Bickel. (supra fn. 102), 105. K.A. Pape/K. Schillhorn (supra fn. 127), 162. Critical C. Bickel. (supra fn. 102), 105106. K.A. Pape/K. Schillhorn (supra fn. 127), 163. BVerfG 16-2-2000, NJW 2000, 2573, Anm. C. Bickel.

Shifts in Compensation for Environmental Damage

35

decontamination. Liability becomes acceptable if the owner negligently did not pay attention to the possibility of pollution when he bought the soil. Finally, the Court was of the opinion that it is unacceptable when the owner is liable to an unlimited extent, that is to say when his liability extends the value of the land after it has been decontaminated. A person held liable can recover from other potentially liable parties (par. 24 (2)). This claim is subject to a three year statute of limitations.

100

6. Public-private cooperation As illustrated above the PRL was not the best instrument to deal with historical soil pollution. Therefore, in the 1980s, industry and government attempted to ÀQGRWKHUVROXWLRQVWRGLYLGHWKHÀQDQFLDOEXUGHQHTXLWDEO\,QPDQ\GLIIHUHQW states cooperative solutions have emerged.136 In order to give an impression the H[SHULHQFHVLQ1RUGUKHLQ:HVWIDOHQZLOOEHEULHÁ\VNHWFKHG137

101

In 1988 the Abfallentsorgungs- und Altlastensanierungsverband NordrheinWestfalen (AVV) was created with the amendment of the State Waste Act. The $99ZDVSDUWO\ÀQDQFHGE\PRQH\WKDWKDGWREHSDLGIRUDV\VWHPRIOLFHQFHV However the Constitutional Court judged this licence-system contrary to the Constitution and invalidated it.138 The gist was that the state of NordrheinWestfalen was not allowed to create a threshold in the form of a licence for certain activities because the federal Waste Act did not leave the states with powers to do this.

102

After this decision negotiations took place between representatives of the state of Nordrhein-Westfalen and industry which led to an agreement to cooperate (Kooperationsvereinbarung) by the end of 2002. In this document of 14 November 2002, the state of Nordrhein-Westfalen and a number of companies agreed to pay certain sums of money that would be used to decontaminate historical soil pollution.139 This agreement was valid for 3 years. This agreement was succeeded by an agreement of 1 April 2005140 in which it was determined that industry ZRXOGSD\½PLOOLRQRYHUDQG½PLOOLRQLQ7KHVWDWHZRXOGSD\ ½PLOOLRQSHU\HDURYHUWKLVSHULRG7KHFRQVWUXFWLRQLVWKDWWKHPRQH\LV given to the AVV that is responsible for decontamination measures.

103

136

See for a brief overview M. Kloepfer/T. Brandner, (supra fn. 88), 806-807. See for further information <www.aav-nrw.de>. See for other forms of public private cooperation <www.him-asg.de> (Hessen) and <www.altlasten-bayern.de> (Bayern). 138 BVerfG 29-3-2000, 2 BvL 3/96. 139  ,QGXVWU\DFWXDOO\DJUHHGWRSD\DOLWWOHPRUHWKDQ½PLOOLRQSHU\HDU 140 That went into force retroactively by 1 January 2005. 137

36

Michael Faure and Albert Verheij

7. Shifts 104

In Germany there are in fact only two major changes: the creation of the SPA and the tendency towards public-private cooperation. These changes imply a number of shifts that will be summed up below. 7.1. Shift to the federal level

105

Until the SPA came into force, the main legal framework to fall back upon to deal with soil pollution was the PRL. Every state has its own PRL although the divergence between states is limited since all the state PRLs are based on a model law. From this viewpoint the SPA represents a clear shift to the federal level. It should not be forgotten however that the WA and the WMA were already federal laws. 7.2. Shift to a coherent protection of the soil

106

The PRL is aimed at countering existing or threatening dangers to public order and security and not every soil pollution will meet this criterion. Furthermore, measures that put an end to these dangers are not always enough to clean the environment. In other words the creation of the SPA implied a shift to protection of the soil. This also meant a more conscious answer to the question of who should bear the costs of decontamination measures. The particular focus of the PRL had led in the past to a situation in which it was complained that liability was imposed arbitrarily. 7.3. Shift to privatisation

107

In several states there is a trend toward cooperative solutions in the sense that government and industry agreed to invest money in a scheme to combat historical soil pollution. A reason for this willingness on the part of industry might be found to some extent in the liability that the SPA imposes on owners of polluted property. In other words, in some instances there might be a legal incentive to take measures voluntarily. 7.4. No clear shift in relation to the “polluter-pays principle”

108

It is interesting to see that the “polluter-pays principle” does not play a very clear role in the successive legal instruments that are partly or entirely relevant for the problem of soil pollution. The PRL was meant to deal with immediate dangers and threats and was not designed as a tool to govern clean-up measures. As a result not only polluters but owners as well could be held liable depending on the circumstances. The SPA also imposed liability on owners and an attempt to challenge this in principle before the Constitutional Court failed. Pragmatic FRQVLGHUDWLRQVWRJHWKHUZLWKWKHIDFWWKDWWKHRZQHURISROOXWHGVRLODOVREHQHÀWV IURPFOHDQXSPHDVXUHVVHHPWREHWKHMXVWLÀFDWLRQIRUWKLV

Shifts in Compensation for Environmental Damage

37

&6RLOSROOXWLRQLQWKH1HWKHUODQGV 1. Introduction After the Dutch government was shocked into awareness by the discovery of soil pollution in a populated area in 1980, it passed legislation to allow for recovery of clean-up costs. The story of recovery that enfolds from then on is a dramatic one. In general it can be concluded that the Dutch government was unable to make the polluter pay. The battle was not only between polluters and government but also between government and the Hoge Raad (Supreme Court, HR). The Supreme Court seemed to put itself in the seat of the legislator with the formulation of some very general rules.

109

All in all it took approximately two decades to design the present policy that distributes clean-up costs between the government and polluters and private owners of polluted soil. A major shift has taken place from the “polluter-pays SULQFLSOHµ WR D ODUJHO\ FROOHFWLYHO\ ÀQDQFHG FOHDQXS RSHUDWLRQ$ VHFRQG important shift took place with regard to the aim of clean-up. The aim shifted from total cleaning to what is called functional cleaning.141

110

7KUHHSKDVHVFDQEHLGHQWLÀHG7KHÀUVWSKDVHLVIURPWLOO'XULQJWKLV period the Interimwet Bodemsanering142 1983 (further: Ibs) was in force. The second phase starts in 1994 with the enactment of the Wet Bodembescherming143 (further: Wbb) and ends in 2002. In 2004 the government developed a new policy, which marks the beginning of the third and as yet last phase. As will be shown, the shifts in policy that have taken place do not overlap with statutory change. $QDQDO\VLVRIWKRVHVKLIWVWKHUHIRUHFDQQRWFRQÀQHLWVHOIWRDPHUHGHVFULSWLRQ of the introduction of new legislation.

111

2. Facts and costs144 Soil pollution is a major problem in the European Union. It is estimated that 16% of the soil in Europe is polluted to varying degrees. In the Netherlands the problem of soil pollution became apparent with the discovery of polluted soil in the city of Lekkerkerk in 1980. In Lekkerkerk newly constructed houses were built on soil that had been polluted with chemicals such as benzene and toluene which increase the chances of developing cancer. Several buildings needed to be demolished and all the inhabitants had to be removed. The costs of cleaning the polluted soil amounted to some 160 million guilders.145  6RPHRWKHU²PLQRU²VKLIWVWKDWFDQEHLGHQWLÀHGDVZHOOZLOOUHFHLYHDWWHQWLRQDWDODWHU stage. 142 This could be translated as the Interim Act on the Decontamination of the Soil. 143 This could be translated as the Soil Protection Act. 144  0DQ\RIWKHIROORZLQJÀQDQFLDOGDWDKDYHEHHQDFFHVVHGDWZZZPLOLHXORNHWQO! 145 H.G. von Meijenfeldt, De wettelijke regeling van de bodemsanering (1994), 33. According to <www.milieuloket.nl> all the houses needed to be demolished and the total costs amounted to some 141

112

38

Michael Faure and Albert Verheij

113

Lekkerkerk became a household word but it only proved to be the proverbial tip of the iceberg. Many sites in the Netherlands turned out to be polluted. Major sources of pollution were gas factories that were built in the 19th and 20th century. Most of them closed down in the 1950s but the polluted soil remained. According to some estimates, almost half of the agricultural soil is polluted with remnants of pesticides. The third major source of polluted soil is constituted by the Limburg mining industry despite the fact that most mines FORVHGGRZQPDQ\GHFDGHVDJR3ROOXWHGZDVWHIURPWKHPLQHVZDVXVHGWRÀOO shafts resulting from gravel digging.

114

From the above it is clear that pollution has a long history and many polluting industries and activities have come to an end a long time ago. Environmental concerns are of a more recent date.146 The government did not always have clean hands, in the sixties e.g. it stimulated companies to bury toxic waste so that humans would not come into contact with it.147

115

It is therefore felt by many that the problem of polluted soil should be regarded as an unfortunate inheritance.148 This perspective provides an alternative to the perspective that the polluter should pay for the cost of clean-up. The history of Dutch policy with regard to the clean-up of soil pollution can to a considerable degree be understood as a battle between these two different perspectives, each attempting to monopolize our historical understanding.149

116

&OHDQXSFRVWVLQWKHSHULRGRIDUHHVWLPDWHGDW½PLOOLDUG0RVW of this is used to subsidize clean-up activities by private entities. For the period RIWKHEXGJHWLV½PLOOLDUG150

146

147

148

149

150

½PLOOLRQ7KHIDFWWKDWFOHDQXSRSHUDWLRQVFDQEHOHQJWK\DQGFRVWO\LVDOVRLOOXVWUDWHG E\RWKHURSHUDWLRQV7KHFOHDQXSRIWKH9ROJHUPHHUSROGHUZLOOWDNHÀYH\HDUVDQGZLOOFRVW DSSUR[LPDWHO\½PLOOLRQVHH-*+6HHUGHQHoofdlijnen bodembeschermingsrecht (1st edn. 2003), 104. The book by Rachel Carson, Silent Spring (1st edn. 1962) is often regarded as the beginning of a public awareness of the fragility of nature. See alinea 3.8.5 in HR 30 september 1994, Nederlandse Jurisprudentie (NJ) 1996, 196 (Staat/Shell) and G.J. Niezen, Het verhaal achter het verhaal, [2003] Bouwrecht (BR), 468. This is evidenced by the tenacity with which polluters have fought the State in court when summoned to pay clean-up costs, see further infra no. 130. It should be added that the government recognised from the beginning that it carried responsibility as well. Existing powers were not used effectively and other legal powers not developed to prevent pollution, see House of Representatives (Tweede Kamer, TK) 1980-1981, 16 821, no. 1-3, p. 24. However, this recognition did not prevent the government from adherence to the “polluter-pays principle”. Only at a later stage in the framework of the BSB-operation (see infra no. 151) did the government and the business community arrive at mutual understanding. TK 2004-2005, 30 015, no. 1-2, p. 5.

Shifts in Compensation for Environmental Damage

39

As a result of budget cuts the date by which the clean-up operation should be ÀQLVKHGKDVEHHQSRVWSRQHGIURPWLOOThe Algemene Rekenkamer *HQHUDO$FFRXQWLQJ2IÀFH 151 has critically evaluated the policy of the Ministry of the Environment.152

117

The present aim – that was formulated in 2002153 – is not to eliminate pollution but to bring pollution down to tolerable levels. A total clean-up would be more expensive and was feared to take more than a century. This present aim marks a new approach: the extent to which pollution is tolerable, and therefore the extent to which clean-up is necessary is to be determined by the prospective use of the polluted soil. In case the soil will be used for industrial purposes the level of pollution can remain higher than when it will be used to build houses. In policy memoranda this new approach is described as a shift from multifunctional cleaning (total cleaning) to functional cleaning.

118

3. Statutory changes: WKH,QWHULPZHW%RGHPVDQHULQJ and the :HW%RGHPEHVFKHUPLQJ As mentioned earlier (supra no. 1), shifts in governance were to a large extent not brought about by statutory change but by a change in policy within the existing statutory framework. This paragraph provides an overview of the past and present statutory framework.154

119

The Interimwet Bodemsanering (Ibs) entered into force on 1 January 1983. It was designed – as the name suggests already – as a piece of interim legislation that would be in force for only six years, but it remained in place till 1994. The Ibs was only concerned with the clean-up of polluted soil and was therefore of a repressive nature. It determined that the Provinces155ZRXOGGUDZXSÀYH\HDU plans for the clean-up of polluted soil and gave certain powers to investigate levels of pollution. In the context of this research art. 21 Ibs is of paramount importance. It provides that the State represented by the Minister of the Environment could recover the costs of research and clean-up that were incurred by the Provinces, Municipalities or the State itself. There were two grounds for recovery, tort (art. 21 par. 1 Ibs) and unjust enrichment (art. 21 Ibs par. 2).

120

151

152

153

154

155

Rapport Voortgang Bodemsanering, TK 2004-2005, 30 015, no. 1-2.The criticism was that after 15 years the government was still unable to come up with a coherent plan and data on the number of land that needs to be decontaminated, the costs of those measures, WKH ÀQDQFLQJ DQG WKH GXUDWLRQ RI WKH HQWLUH RSHUDWLRQ VHH FKDSWHU  &RQFOXVLRQV DQG recommendations). Environmental issues are dealt with by the Ministry of Housing, Spatial Planning and the Environment. This Ministry will be referred to as the Ministry of the Environment. TK 2001-2002, 28 1991, nr. 1. Although it was suggested at an earlier stage see TK 1996-1997, 25 411, nr. 1. This refers to acts passed by parliament. Other types of law fall outside the meaning of this notion. That is to say the Provincial board of deputies, in Dutch Gedeputeerde Staten.

40

Michael Faure and Albert Verheij

Polluters could be held liable when the pollution they had caused constituted a tort. Tort in this context meant primarily156 the tort of negligence of art. 1401 of the old Civil Code (oud Burgerlijk Wetboek, (oud) BW) of 1838 that was then in force.157 Owners and users of the polluted soil could be held liable on the basis of unjust enrichment. Unjust enrichment here does not have an autonomous meaning either but refers to the private law concept of unjust enrichment as developed by the judiciary.158 Clean-up measures that were taken under the Ibs aimed at a situation in which the soil could be used for any purpose. The word used for this goal was therefore multifunctional cleaning. It might therefore be said that a policy of “zero pollution” was pursued. 121

The Wet Bodembescherming (Wbb) goes back to 1986. It was aimed at prevention of soil pollution. The goal was multifunctionality again. The reservoir of unpolluted soil should be preserved so that all options of possible use would remain open. By a change in the law that came into effect on 15 April 1994 the Ibs and the Wbb were merged. Whereas the Ibs gave a lot of powers to the State (central government), the Wbb opted for a more decentralised and privatised approach. This constituted an important shift. A second important shift brought about by the Wbb was the introduction of administrative orders. Art. 21 Ibs was succeeded by art. 75 Wbb. Like art. 21 Ibs, art. 75 Wbb enables recovery of clean-up costs on the basis of tort and unjust enrichment. Apart from a few differences the basic structure is therefore similar to that of art. 21 Ibs.

122

Art. 75 Wbb governs recovery for clean-up costs till the present day. Within this statutory framework a subsequent change in policy took place in 2002.159 In the following paragraphs these three developments will be further analysed. 4. Characteristics of the Ibs and art. 21 Ibs 4.1. Purpose and background

123

In the eighties the cleaning of polluted soil was regarded to be the responsibility RIWKHJRYHUQPHQWDQGWKH,EVUHÁHFWVWKLVYLVLRQE\DVVLJQLQJDFHQWUDOUROH to the government. Art. 2 Ibs determined that the Provincial board of deputies VKRXOGGUDZXSDGHFRQWDPLQDWLRQSURJUDPPHIRUÀYH\HDUV0XQLFLSDOLWLHV must provide information to the Provincial board of deputies on request or by its own accord (art. 3 Ibs). The decontamination programme is then submitted to the Minister of the Environment who decides subsequently which sites 156

157

158

159

But it referred also to strict liabilities especially to art. 1405 (oud) BW (liability of the owner of a building, see under the present Burgerlijk Wetboek (Civil Code, BW) art. 6:174 BW). Strict liability for dangerous substances (art. 6:175 ff) did not exist in those days. It was replaced in 1992. Art. 6:162 succeeded art. 1401. There are no relevant differences between these two articles. The old Civil Code did not explicitly recognise unjust enrichment as a ground for recovery. The present Civil Code contains a special provision in the form of art. 6:212. TK 2001-2002, 28 199, nr. 1.

Shifts in Compensation for Environmental Damage

41

should be further investigated or cleaned and which amounts he will pay to the province or the municipality for the actions to be taken on the basis of the programme (art. 7 Ibs). An important reason for this government oriented approach was that the full size of soil pollution had not yet become apparent. It was estimated that there ZHUHDSSUR[LPDWHO\SROOXWHGVLWHVWKDWFRXOGEHFOHDQHGLQÀYH\HDUVIRUD sum of roughly 3 million guilders per site.160

124

Originally, the bill of the Ibs provided for a system of contributions by the industry for clean-up costs. Parliament however had a strong preference for individual recovery of damages.161 This was motivated by a sense of fairness in general and adherence to the “polluter-pays principle” in particular. The government was cautious in estimating to what extent recovery would actually be possible.162 It argued that especially proof of causality and violation of a duty RIFDUHZRXOGEHGLIÀFXOWWRHVWDEOLVK3DUOLDPHQWRQWKHFRQWUDU\ZDVIDUPRUH optimistic.163 The conservative fraction strongly disagreed with the statement of the government that only in a limited number of cases would recovery be possible. In addition it even pleaded for a compulsory recovery action. This was not supported by other fractions in Parliament however so a certain amount of discretionary power remained on the part of the government regarding recovery actions. That Parliament seriously desired the “polluter-pays principle” to be implemented is underscored by the fact that in 1983 it adopted a unanimous motion in which the government was urged to actively trace down polluters and start recovery actions. In looking back on recovery of clean-up costs over the period 1983-1990 the government later remarked that the expectations regarding art. 21 Ibs became true.164 Against this background the government, when it proposed art. 75 Wbb to succeed art. 21 Ibs, was optimistic that recovery for pollution that had taken place in the distant past would be relatively unproblematic.165 Ironically Parliament was far more critical then, not for practical reasons but for reasons of fairness. This will be described in more detail below in no. 147.

125

In another context the government mentioned that recovery of clean-up costs ZDVQRWRQO\GHVLJQHGWRÀOOWKHWUHDVXU\EXWVHUYHGDWKUHHIROGSXUSRVH)RUWKH future the possibility of recovery worked as a deterrent so that industry would take action to prevent pollution. With regard to the past the threat of recovery ZRXOGÀUVWRIDOOVWLPXODWHFRPSDQLHVWRXQGHUWDNHFOHDQLQJDFWLYLWLHVWKHPVHOYHV Thirdly recovery served to implement the “polluter-pays principle”.166

126

160 161 162 163 164 165 166

H.G. von Meijenfeldt (supra fn. 5), 50. H.G. von Meijenfeldt (supra fn. 5), 35 and 171. TK 1980-1981, 16 821, nr. 3, p. 23 and H.G. von Meijenfeldt (supra fn. 5), 179-180. H.G. von Meijenfeldt (supra fn. 5), 180- 181. H.G. von Meijenfeldt (supra fn. 5), 181. H.G. von Meijenfeldt (supra fn. 5), 177. H.G. von Meijenfeldt (supra fn. 5), 169 and 183.

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Michael Faure and Albert Verheij

127

As mentioned earlier, the costs of cleaning up a polluted site can be enormous and are therefore potentially devastating. To avoid that companies would be driven into bankruptcy by a recovery action, it was explicitly determined in art. 21 Ibs that judges could mitigate damages.167 Although the “polluter-pays principle” was an important rationale of art. 21 Ibs it was not the only one. The power to mitigate damages allowed judges to take into account mitigating circumstances such as a relatively minor contribution to the pollution. Thus it should especially be avoided that economically sound companies that comply with present environmental legislation go bankrupt.

128

The right to recover clean-up costs is concentrated by art. 21 Ibs in the hands of the Minister of the Environment. The Provinces and Municipalities do not have a right to recover damages of their own. The concentration of the right to recover FOHDQXSFRVWVLVPRWLYDWHGE\HIÀFLHQF\:LWKRXWVXFKDFRQFHQWUDWLRQSROOXWHUV would be sued by many different victims of soil pollution.168 Clean-up measures eliminate damage suffered by individuals so that they cannot sue polluters as well. This is both in the interest of polluters and victims. It also prevents a lot of litigation and therefore does not lead to extra costs for the judiciary.169 Although clean-up measures prevent individual pollution victims from bringing an action for damages it should be stressed that art. 21 Ibs is not a form of subrogation. It gives the Minister of the Environment an independent action. He can obtain recovery for damages which the government has suffered; the amount of damages is not the sum total of the individual damage suffered.170

129

The basic characteristics of the Ibs and art. 21 Ibs can be summarized as follows. Firstly it is noteworthy that the government (central, provincial and local) plays a large role. The problem of soil pollution is primarily regarded as a problem that should be solved by and in between these three layers of government. A second feature, in relation to art. 21 Ibs, is centralization. Art. 21 Ibs concentrates the right to recover clean-up costs in the hands of the Minister of the Environment. Finally, art. 21 Ibs implements the “polluter-pays principle” although judges can PLWLJDWHGDPDJHVLIWKHVSHFLÀFFLUFXPVWDQFHVRIWKHFDVHVXSSRUWWKDW 4.2. Art. 21 Ibs in the courts

130

Art. 21 Ibs provides two bases for a recovery action, tort and unjust enrichment. ,QWKHHLJKWLHVWKHÀUVWEDVLVZDVWKHSUHIHUUHGURXWHWRFRPSHQVDWLRQ,QWKH nineties the focus shifted to unjust enrichment as a result of requirements the Supreme Court formulated for a successful action in tort. This shift from tort to unjust enrichment implied also a shift in responsible parties. Whereas

167

168 169 170

See about this H.G. von Meijenfeldt (supra fn. 5), 177 and 210. Art. 6:109 BW provides this in general but a similar article did not exist under the old Civil Code. H.G. von Meijenfeldt (supra fn. 5), 188-189. This last advantage is not mentioned. H.G. von Meijenfeldt (supra fn. 5), 191.

Shifts in Compensation for Environmental Damage

43

compensation on the basis of tort made polluters responsible, the action of unjust enrichment was directed at owners of the polluted soil who were enriched as a result of clean-up measures. In the following a brief overview of the case law of the Supreme Court regarding the action in tort will be given. As mentioned supra in no. 3, art. 21(1) required for a successful action against a polluter that he had committed a tort. What the requirements were for tortious behaviour in the context of soil pollution was not spelled out neither in the text of the law nor in the parliamentary discussion. It fell therefore on the judiciary to clarify the exact circumstances under which polluters could be held liable. The tort of negligence, art. 1401 oud BW (presently art. 6:162 BW), provided WKHEDWWOHJURXQG$FRQFHSWWKDWÀJXUHVSURPLQHQWO\LQWKHFRQWH[WRIWKHWRUW of negligence is the notion of foreseeability. For liability foreseeability in some form or another is required. In relation to soil pollution foreseeability can mean many things: – ² – – – –

foreseeability of the fact that a pollutant has spread over a huge territory over the course of years; IRUHVHHDELOLW\RIWKHIDFWWKDWSROOXWLRQZDVQRWFRQÀQHGWRWKHRZQEXVLQHVV premises but affected others as well; foreseeability of the fact that the government would intervene and suffer damages as a result of cleaning measures; foreseeability of the fact that over the course of years the notion of what constituted a clean environment would evolve and become much stricter; foreseeability of the fact that cleaning up soil pollution would prove to be immensely expensive; foreseeability of the dangers that some chemicals and other substances would pose to man and nature.

The notion of foreseeability is present in many of the elements of the tort of negligence. It plays a role in the standard of care requirement, the duty of care requirement and the causal link requirement. As it happened in the Netherlands most legal attention went to the duty of care requirement.171 For a successful tort action it is required that the plaintiff shows that the defendant owed him a duty of care. The question became whether polluters should have foreseen that at some point the government would take clean-up measures and thus incur costs. Even this seemingly precise question regarding foreseeability has more than one layer depending on the level of abstraction. On an abstract level it could EHDUJXHGWKDWJRYHUQPHQWDOLQWHUYHQWLRQLQWKHÀHOGRISXEOLFKHDOWKDQGWKH environment are not exactly new. In this general sense one could argue that the IRUHVHHDELOLW\UHTXLUHPHQWLVIXOÀOOHG,WFDQDOVREHDUJXHGKRZHYHUWKDWVXFK OHYHORIIRUHVHHDELOLW\LVQRWVSHFLÀFHQRXJK$FFRUGLQJWRWKLVYLHZIRUHVHH-

171

131

In Dutch this is the relativiteitsvereiste LQ WKH SUHVHQW &LYLO &RGH LW LV FRGLÀHG LQ DUW 6:163.

132

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Michael Faure and Albert Verheij

ability in this context means that polluters should have foreseen that government LQWHUYHQWLRQZRXOGWDNHWKHIRUPRISXEOLFO\ÀQDQFHGGHFRQWDPLQDWLRQDFWLRQV It should be noted that a choice for either view does not automatically determine since when exactly polluters are deemed to owe the government a duty of care. When the problem of soil pollution was discussed in international (specialized) publications? When it was mentioned in the national press? When it was debated in Parliament? When the government proposed a bill? Should a distinction EHPDGHEHWZHHQLQWHUQDWLRQDOO\RSHUDWLQJEXVLQHVVHVDQGORFDOÀUPVDQGLI so how? Interestingly during debates in Parliament it was argued on various occasions that the responsibility of the polluter should be limited by means of specifying one or more of the questions regarding foreseeability mentioned above. The government however was reluctant to do this.172 133

Questions as these illustrate the immense complexity of the subject matter. This research does not allow for a detailed discussion of each of these questions but aims at a more profound understanding by focussing on the more important shifts in approach that have taken place. Therefore only the most important decisions of the Supreme Court will be described in the following.

134

7KHÀUVWWLPHWKHIRUHVHHDELOLW\TXHVWLRQZDVUDLVHGEHIRUHWKH6XSUHPH&RXUW was in Staat/Van Amersfoort.173 This case was concerned with pollution of business premises that had taken place in the period 1916-1985. The premises were cleaned by the government and an action (for 3 million guilders) under art. 21 Ibs was brought against the polluter. The question was whether the polluter owed a duty of care to the government. The government argued in general that DUW,EVKDGOHVVUHTXLUHPHQWVWKDQDUWRXG%:VSHFLÀFDOO\LWDUJXHG that it did not have to establish that a duty of care was owed by the polluter to the state. The Supreme Court did not accept this line of argument and ruled in favour of the polluter. A close reading of the parliamentary discussion revealed, according to the Supreme Court, that art. 21 Ibs did not intend to create a cause of action that expanded liability beyond the limits of art. 1401 oud BW. All the requirements of the tort of negligence should therefore be met in order to hold the polluter liable. In this context this meant that the polluter is only liable when it should have realised that the government (central, provincial or local) would take an active part in the decontamination of polluted soil. The recovery action WKHUHIRUHÁRXQGHUHG

135

With this important decision the question when polluters should have realized that the government would take clean-up measures remained unanswered. This issue was tackled in a spectacular way in subsequent decisions by the Supreme Court. In two cases in 1992 the Supreme Court decided that, when a business pollutes its own premises, it does not owe a duty of care when the pollution took

172 173

H.G. von Meijenfeldt (supra fn. 5), 177. HR 9 February 1990, NJ 1991, 462.

Shifts in Compensation for Environmental Damage

45

place before 1 January 1975.174 Before this date it was deemed that it was not foreseeable for polluters that the government would take cleaning measures later on. This date provides a hard and fast rule, no exceptions were formulated by the Supreme Court. Two years later in 1994 the Supreme Court applied the same rule to cases where polluters had polluted soil belonging to third parties.175 With these judgments the Supreme Court had acted like a legislator in order to provide certainty. Recovery for pollution that had taken place before 1 January 1975 had become impossible as a result. As will be seen below, the government tried to overcome this with the introduction of art. 75 Wbb but the additional possibilities that this article enables are very limited indeed. As a result of the limits of cost recovery on the basis of tort, the attention now shifted to unjust enrichment. “Old” polluters had got off the hook and the limitations of the “polluter-pays principle” had become apparent. Attention shifted to other principles.

136

5. Characteristics of the Wbb and art. 75 Wbb 5.1. General remarks Under the Ibs the government was entirely responsible for decontamination of polluted soil. National, provincial, and local government took the lead. They decided which sites should be cleaned and initiated decontamination plans. In other words, the whole process of decontamination was government controlled and in between the three layers of government, the national government played an important role. The approach adopted by the Ibs was therefore characterised as centralised and top down. The “polluter-pays principle” was interpreted in a strict way and was understood to mean only that polluters (under certain circumstances) could be held liable for the clean-up costs of the government. A broader interpretation of this principle (polluters are responsible for the entire clean-up process) was not openly debated.

137

It can only be conjectured why this did not happen. One possible reason might be that the point of departure in the Dutch law of damages is the tortfeasor is only liable in damages. The aim of the Dutch law of damages is therefore to compensate the victim, the tortfeasor is not under an obligation to restore the victim to the state in which he would have found himself in case the tort had not occurred (restitutio in integrum).176

138

This approach was abandoned by the Wbb. Under the Wbb the responsibility shifted from government to citizen, in practice mostly to business. Decontamina-

139

174 175 176

HR 24 April 1992, NJ 1993, 642-643. HR 30 September 1994, NJ 1996, 196-198. Under certain circumstances the victim can ask the court to order the tortfeasor to compensate the victim by means other than by paying damages (s. 6:103 BW), but this is the exception and the judge has a large amount of discretionary power.

46

Michael Faure and Albert Verheij

tion by the government had become an ultimate remedy.177 In order to stimulate private initiative the Wbb has provided some additional powers. This was the ÀUVWVKLIWWKDWWRRNSODFHZLWKWKHLQWURGXFWLRQRIWKH:EE,WZLOOEHIXUWKHU discussed infra no. 143.178 140

The second shift that was brought about by the Wbb was decentralisation from the national to the local authorities. This is visible in art. 75 par. 4 Wbb which determines that provinces and municipalities can recover costs incurred on the basis of tort. They are therefore no longer dependant on action by the national government. This shift is very straightforward and does not need further explanation and, therefore, it will not be discussed in the following.

141

A third shift that took place was not a shift brought about by statutory change but a shift in policy. As a result of the interpretation of art. 21 Ibs by the Supreme Court, the chances for the government to hold businesses liable for clean-up costs on the basis of tort law greatly diminished. Understandably the government tried to obtain compensation by other means. It focused on the possibilities of unjust enrichment and it secondly tried to create a legal basis in the Wbb to implement the “polluter-pays principle” also with regard to historical soil pollution.179 Attempts by the government to recover costs on this basis were more successful than those based on tort (art. 21 Ibs) but by and large it has not proved possible to shift the costs of historical pollution to the business community. Nevertheless it can be argued that the focus on unjust enrichment constitutes a shift. Not on the statutory level but on the level of principles: the “polluter-pays principle” was abandoned as the central guiding principle. The extent to which this happened is a matter of controversy. This shift will be discussed infra no. 147-148.

142

Finally it should be remarked that the goal of multifunctionality remained virtually unchanged under the Wbb.180 True enough, art. 38 par. 3 allowed for exceptions but in practice this did not cause an important change in policy.

177

178

179

180

E. Bauw, Publiek- en privaatrechtelijke aansprakelijkheid in de gewijzigde Wet bodembescherming, [1994] Ars Aequi (AA), 810. This shift is closely connected with talks between government and business in which the former tried to stimulate the latter to take decontamination measures out voluntarily (the so-called “BSB-operation”). This topic will be separately discussed below (infra no.151). C.J. van der Wilt, Het Convenant bodemsanering bedrijfsterreinen. Naar een nieuw systeem van aansprakelijkheid voor historische bodemverontreiniging, [2002] Milieu en Recht (M&R), 27; E. Bauw, Voldoende grond voor verhaal? Ontwikkelingen rond het verhaal van de kosten van bodemsanering, [2003] Aansprakelijkheid Verzekering & Schade (AV&S), 110-113; F.C.S. Warendorf, Ontwikkelingen in de jurisprudentie ten aanzien van art. 75 lid 3 Wet bodembescherming, [2003] Tijdschrift voor Milieuschade en Aansprakelijkheidsrecht (TMA), 63-70. See amongst others A. Bauw, [1994] AA, 813.

Shifts in Compensation for Environmental Damage

47

5.2. Privatisation 5.2.1. Decontamination order To stimulate business in particular and citizens in general to take clean-up measures, the Wbb provided a new instrument, the decontamination order.181 The background of this instrument is the fact that the government had been able to convince an important segment of the business community to undertake clean-up measures voluntarily and at its own expenses. This operation (the BSB-operation182) will be dealt with below (infra no. 151). The problem was that businesses that were unwilling to engage in voluntary clean-up measures would save costs and thus gain a competitive advantage over companies with deeper pockets and/or a greater sense of corporate social responsibility. The connection between the decontamination order and the BSB-operation is apparent in art. 45 par. 3 Wbb which determines that, before giving a decontamination order, the polluter or owner should get the chance to take clean-up measures voluntarily.183

143

A decontamination order can be given to the polluter, the owner of the polluted soil or the holder of a ground lease184 when the pollution is serious. The Minister MXVWLÀHGWKHGHFRQWDPLQDWLRQRUGHUYLVjYLVWKHSROOXWHUZLWKUHIHUHQFHWRWKH ´SROOXWHUSD\VSULQFLSOHµ-XVWLÀFDWLRQIRUJLYLQJDGHFRQWDPLQDWLRQRUGHUWR owners was sought in the fact of ownership. The owner carries both the advantages and disadvantages SURÀMWEHJLQVHO .185 This principle has also served as a theoretical foundation of several strict liabilities in the Dutch Civil Code.186

144

It is important to note that the basis of the duty to take decontamination measures is solely based on the decontamination order and not on any previous breach of a duty of care. In other words the government does not have to prove tortious behaviour on the part of the polluter or owner in order to give a decontamination order. Although special provision is made for innocent owners (sec. 46 Wbb) the ÀQDQFLDOFRQVHTXHQFHVRIGHFRQWDPLQDWLRQRUGHUVDUHFRQVLGHUDEOH,WZDVIRUWKLV

145

181

In Dutch het saneringsbevel, see extensively about this administrative order C.J. van der Wilt, Het saneringsbevel in de Wet bodembescherming, (1rst edn. 2000); The Wbb contains many other administrative orders (art. 43-46 and 49 Wbb) but those are not relevant in the context of this research, see for a short overview J.G.H. Seerden (supra fn. 5), par. 3.4.6. 182 BSB stands for Bodemsanering van in gebruik zijnde Bedrijfsterreinen (decontamination of soil that is in use for industrial purposes). 183 See further C.J. van der Wilt (surpa fn. 42), 49-51. 184  )RUUHDVRQVRIHIÀFDF\WKLVODVWSHUVRQZLOOQRWEHPHQWLRQHGVHSDUDWHO\LQWKHIROORZLQJ Everywhere where owners are mentioned holders of ground lease are included unless mentioned otherwise. 185 See with references C.J. van der Wilt (supra fn. 42), 24-25. 186 E.g. art. 6:174 and 6:179 BW.

48

Michael Faure and Albert Verheij

reason that the Council of State was very critical.187 In short the decontamination order can be viewed as an attempt to circumvent the interpretation of the Dutch Supreme Court of art. 21 Ibs.188 The Supreme Court had decided that before 1 January 1975 businesses could not have been aware that the government in the future would take clean-up measures. For this reason the polluting businesses owed no duty of care to the government and were not liable for the costs of clean-up measures under art. 21 Ibs. The question was whether a decontamination order could be given to a polluter that could not have been liable under art. 21 ,EV7KHDIÀUPDWLYHVWDQFHWKDWZDVWDNHQE\WKHJRYHUQPHQWZDVFRQWURYHUVLDO amongst scholars and in practice decontamination orders for historical pollution (before 1 January 1975) were hardly given and if given were not successful.189 The attempt to avoid bearing the cost of clean-up measures for historical pollution had therefore failed once again and this time for good. 5.2.2. Innocent owners 146

Despite the shift to privatisation in the Wbb, pressure from Parliament has resulted in an interesting arrangement for innocent owners.190 Art. 56 f(f) Wbb pays tribute to the right that everybody has to settle down where he wants (freedom of movement). This right is frustrated when, due to soil pollution, a house can only be sold with a substantial loss. Art. 56 f(f) Wbb provides the following solution. The municipality is, under certain circumstances, obliged to buy the polluted plot of land for a reasonable price, that is to say the market value of the land in the absence of soil pollution. In order to invoke this right, the owner must prove that he is innocent, that is he is not the polluter and that he did not have substantial legal ties with the polluter that would have enabled him to prevent the pollution from taking place. He should also establish that, when he became the owner, he neither knew nor should have known about the pollution. Furthermore, the owner must prove that he cannot sell for a reasonable price. This requirement is met when the house has been on sale three times in a daily newspaper over a period of six months without leading to the sale of the property. 5.3. The end of the “polluter-pays principle” regarding historical pollution

147

Originally the government proposed (in art. 47 of the bill of the Wbb) to extend the possibilities of the government to recover clean-up costs. This extension amounted to an elimination of the requirement that the polluter should owe a duty of care to the government. The interpretation of art. 21 Ibs by the Supreme Court would thus have been undone.191 This met with severe criticism especially

187 188 189

190 191

TK 1993-1994, 23 589, A p. 4-5. See supra no. 134. See amongst others E. Bauw [1994] AA, 816; J.G.H. Seerden (supra fn. 5), 105 and 108; C.J. van der Wilt (supra fn. 42), 288-289 and C.J. van der Wilt, [2002] M&R, 27. E. Bauw, [1994] AA, 814. See supra no. 130.

Shifts in Compensation for Environmental Damage

49

after the Supreme Court decided that before 1 January 1975 polluters could not have been aware that in the future the government would incur clean-up costs. The House of Representatives nevertheless allowed this bill to pass. In the Senate KRZHYHUWKHUHZDVÀHUFHRSSRVLWLRQDQGHYHQWXDOO\WKHJRYHUQPHQWZDVIRUFHG to limit the right to recover clean-up costs.192 Art. 75 par. 6 Wbb determines that when the polluter is not liable because he had no duty of care toward the government, he can nevertheless be held liable if (a) he knew or should have been aware of the serious risks that his activities posed to the environment and (b) KLVFRQGXFWFDQWKHUHIRUHEHTXDOLÀHGDVJURVVO\QHJOLJHQW7KH6XSUHPH&RXUW interprets art. 75 par. 6 Wbb narrowly193 and several scholars have expressed the opinion that cost recovery on this basis has become illusionary.194 It can be concluded that the decontamination costs of historical pollution will be borne by the government. The chances of recovery by means of art. 75 par. 6 Wbb are extremely slim and above (supra no. 145) it was concluded that a decontamination order in those cases is likely to fail as well. With respect to historical pollution, the government has therefore failed to implement the “polluter-pays principle”.

148

6. Public-private projects As mentioned before, decentralization and privatisation is one of the aspects of the Wbb. In the following a number of projects that were set up are described.

149

6.1. SUBAT 195 This project concerns the demolition and clean-up of petrol stations that could not meet certain preventive and qualitative environmental standards.196 SUBAT LV DIRXQGDWLRQWKDWFRRUGLQDWHGDQGÀQDQFHGWKHSURFHVV RI GHPROLWLRQDQG clean-up. It is privately funded by a number of oil companies.1976LQFHDVXIÀFLHQW number of oil companies had to participate in order to avoid market distortions,

192

See E. Bauw, [1994] AA, 817; H.G. von Meijenfeldt (supra fn. 5), 169-178. HR 20 april 2001, NJ 2001, 561; HR 25 oktober 2002, Rechtspraak van de Week (RvdW) 2002, 173. 194 C.J. van der Wilt, [2002] M&R, 27; J.G.H. Seerden (supra fn. 5), 178; E. Bauw, [2003] AV&S, 109; E. Bauw/E.H.P. Brans, Milieuprivaatrecht (3rd edn. 2003), 106. 195 Stands for Stichting Uitvoering Bodemsanering Amovering Tankstations, which can be losely translated as Foundation Implementation Soil Decontamination Demolition Petrol Stations. Background and accomplishments can be found in J.L. Schipper, Tussen wensen, eisen en werkelijkheid. Een verslag van 10 jaar bodemsanering (1st edn. 2001). 196  6HHIRUWKHVHVWDQGDUGV%HVOXLWWDQNVWDWLRQVPLOLHXEHKHHU2IÀFLDO-RXUQDOStaatsblad, Stb.) 1994, 53. 197 See for more details about contributions J.L. Schipper (supra fn. 56), 18. See on Subat also the contribution of M. Faure to this volume. 193

150

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Michael Faure and Albert Verheij

negotiations were tough but ultimately successful.198 Between 1991 and 2001 SUBAT decontaminated 1911199 sites.200 The role of the government is marginal VLQFHLWLVFRQÀQHGWRWKHDXWKRUL]DWLRQDQGLQVSHFWLRQRIFOHDQXSSURMHFWV7KH H[SHFWDWLRQLVWKDW68%$7ZLOOEHÀQLVKHGLQWZRRUWKUHH\HDUV7KHDLPRIWKH cleaning was to make the soil suitable for every kind of use (multifunctional cleaning). Later on, as will be described below, a new approach was adopted aimed at functional cleaning. Also subsidies were given to stimulate voluntary decontamination. This has embittered those who have co-operated from the start. They feel that it is unfair that the government has rewarded those who have taken no initiative to undertake clean-up measures. Schipper even makes a comparison with the American Civil War(!). The casualties among those who KDGEHHQEUDYHO\ÀJKWLQJLQWKHIURQWOLQHVZHUHPXFKODUJHUWKDQWKHFDVXDOWLHV among the soldiers who had stayed strategically behind.201 6.2. BSB-operation 151

The attempts by the government to recover clean-up costs on the basis of art. 21 Ibs created a divide between the government and the business community.202 The BSB-operation (Bodemsanering van in gebruik zijnde bedrijfstereinen) meant a shift to a more co-operative approach. It was now attempted to stimulate companies to decontaminate voluntarily. The talks started in 1987 in the framework of the BOB-commission.203 The Minister of the Environment and Parliament ZHUHQRWVDWLVÀHGZLWKWKHSURSRVDOVWKDWZHUHSUHVHQWHGE\WKLVFRPPLVVLRQ The BOB-commission was succeeded by the BSB-commission and the business community was given a “last chance” to engage voluntarily in clean-up measures. 7KH%6%FRPPLVVLRQSURGXFHGDÀQDOUHSRUWLQ

152

Before discussing the details it is useful to investigate why businesses would want to take clean-up measures voluntarily. The advantages for the government of voluntary clean-up measures by the business community are obvious.

198

199

200

201 202

203

The negotiations started at the end of 1989 and SUBAT became operational on 10 September 1991, see J.L. Schipper (supra fn. 56), 25. Negotiating parties were the Ministries of the Environment and of Economic Affairs and the Treasury, the OCC (Olie Contact Commissie, now VNPI), BOVAG (Bond Van Garagehouders), NOVOK (Nederlandse Organisatie Voor Olie en Kolenhandelaren), and NVE (Nederlandse Vereniging voor Energie this organisation merged with the NOVOK and is now called NOVE (Nederlandse Organisatie Voor de Energiebranche)). J.L. Schipper (supra fn. 56), 112 and 117. The costs amounted to 282 million guilders, see J.L. Schipper (supra fn. 56), 121. It became operational on 10 September 1991. Until 31 August 1993 owners of petrol stations could apply to SUBAT, see J.L. Schipper (supra fn. 56), 21. J.L. Schipper (supra fn. 56), 111. E. Bauw, Afspraken over (on)vrijwillige sanering van bedrijfsterreinen, in: M.V.C. Aalders/ R.J.J. van Acht (ed.), Afspraken in het milieurecht (1992), 111. “Overlegorgaan bodemsanering bedrijfsterreinen” which could be translated as Consultation organ decontamination of business premises.

Shifts in Compensation for Environmental Damage

51

Although voluntary clean-up measures must also be monitored, the costs for the government would be much higher if it would investigate pollution, take cleaning measures and try to recover these costs from the polluters itself. Businesses also SURÀWIURPYROXQWDU\FOHDQXSPHDVXUHVKRZHYHU)LUVWRIDOODFRPSDQ\KDV more control over the process of investigation and clean-up if it carries out these activities itself. In other words it can integrate this process more smoothly in its business activities. Maybe more important is that even if a company is not responsible for the pollution of its business premises, the presence of pollution can cause certain restrictions on the use of those premises. Not only will the pollution diminish the value of the premises, but the government might impose certain restrictions in the interest of public health and the environment (avoidance of spreading of pollution).204 It is pointed out in the report that businesses that engage in voluntary clean-up activities should not be confronted with decontamination orders by the government.205 This however, was not guaranteed E\WKHJRYHUQPHQWGHVSLWHDVSHFLÀFTXHVWLRQWRWKDWHIIHFW206 The BSB-commission makes a number of suggestions. Multifunctionality is the DLPRIGHFRQWDPLQDWLRQPHDVXUHVEXWWKHVSHFLÀFFLUFXPVWDQFHVRIWKHFDVHFRXOG allow for exceptions.207 As to the costs the BSB-commission makes the following remarks. The point of departure is that the costs of pollution investigations should be borne by businesses. In case the business can establish that it did not cause WKHSROOXWLRQLWLVUHDVRQDEOHWKDWSDUWRIWKHÀQDQFLDOEXUGHQLVVKLIWHGWRWKH government.208,QDGGLWLRQWKHJRYHUQPHQWVKRXOGFUHDWHÀVFDOFRQVWUXFWLRQV and credit facilities (by acting as a guarantor). Stimulation of decontamination measures, exchange of information and co-operation should be organised by SURYLQFLDOIRXQGDWLRQVODUJHO\ÀQDQFHGE\LQGXVWU\209

153

The report by the BSB-commission resulted in an agreement between the government and the business community in 2001. The content of this agreement FDQEHEULHÁ\VXPPDUL]HGDVIROORZV7KHRZQHURISROOXWHGEXVLQHVVSUHPLVHV is under a duty to take clean-up measures. In return the government bears part of the costs of these measures.210

154

6.3. Actie Tankslag211 This initiative took place in the 1990s and was aimed at stimulating voluntary clean-up measures by private individuals. Many houses had oil tanks in their gardens and in the course of years many of them had started leaking. Those

 %6%FRPPLVVLRQÀQDOUHSRUW  %6%FRPPLVVLRQÀQDOUHSRUW 206 See with further references E. Bauw (supra fn. 63), 121. 207  %6%FRPPLVVLRQÀQDOUHSRUW 208  %6%FRPPLVVLRQÀQDOUHSRUW 209  %6%FRPPLVVLRQÀQDOUHSRUWDQG 210 See further C.J. van der Wilt, [2002] M&R, 32. 211 Besluit opslaan in ondergrondse tanks 1 July 1988, Stb. 414. 204 205

155

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Michael Faure and Albert Verheij

that had not started leaking posed a potential threat of soil pollution. A system of subsidies was set up in order to stimulate private individuals to remove the tanks and, if necessary, to decontaminate the polluted soil.212 7. Policy changes 156

In the late 1990s a change of policy was prepared that led to a new approach by the government.213 In the context of this research, the following are relevant.214 First of all there is a shift from multifunctional clean-up to functional clean-up. For the future multifunctionality remains the aim. On the level of principles, the “polluter-pays principle” is no longer the only policy guiding principle. Two other principles were introduced, namely the principle that owners bear the fruits but also the risks of their property and the principle that persons who EHQHÀWIURPGHFRQWDPLQDWLRQPHDVXUHVVKRXOGDOVRSDUWO\ EHDUWKHFRVWVRI those measures.215 8. Individual versus collective approach to responsibility

157

Art. 14 of the Ibs bill determined that a levy could be imposed on businesses to UHÁHFWWKHLUUHVSRQVLELOLW\UHJDUGLQJVRLOSROOXWLRQ2QWKHSDUWRIWKHJRYHUQment, a distinction was made between individual and collective responsibility. The imposition of a levy was regarded as way to hold (certain segments of) the business community collectively responsible.216 This met with opposition in Parliament. Especially the conservative faction in Parliament (“VVD”) was of the opinion that, in the absence of tortious behaviour, the costs of decontamination measures ought to be borne by the government and therefore by society as a whole.217 Representatives of employers’ unions remarked in this context that the imposition of a levy would amount to a violation of the “polluter-pays principle”.218 It is clear that the government was inspired in its approach by the American “Superfund”.219 Especially the chemical industry was an intended target for the levy. In a meeting on 8 July 1982 the possibility of a voluntary contribution was discussed but the chemical industry refused to pay such a contribution a few days later.220 In the end the idea of a levy was abandoned.221 The arguments against a levy – that had been summed up by the government 212 213

214 215 216 217 218 219 220 221

See J.G.H. Seerden (supra fn. 5), 92. TK 1996-1997, 25 411, no. 1 and TK 2001-2002, 28 199, no. 1. Which has resulted in the publication of a policy regulation (Beleidsregel kostenverhaal, artikel 75 Wet bodembescherming, State Journal (Staatscourant, Stcr.) 26 April 2002, no. 81, p. 23). See for a more detailed description J.G.H. Seerden (supra fn. 5), 86-90 TK 1996-1997, 25 411, no. 1, p. 10. TK 1981-1982, 16 821, no. 10, p. 32-33. TK 1981, 16 821, no. 6, p. 30-31. TK 1981-1982, 16 821, no. 9, p. 31. TK 1981-1982, 16 821, no. 10, p. 36 and TK 1981-1982, 16 821, no. 14, p. 14. TK 1981-1982, 16 821, no. 18, p. 3. TK 6 October 1982, p. 163 (Parliamentary debates, Handelingen).

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53

when it advanced this idea – were apparently triumphant. Those arguments were that a levy could make Dutch businesses less competitive and that a levy would cause friction with the “originator-principle” (veroorzakersprincipe).222 Interesting is to note that the idea of a levy according to the government was in line with the “polluter-pays principle”. 9. Shifts A number of shifts took place in the Netherlands: – – – – – –

158

a shift of centralisation in the hands of the national government by (art. 21 of) the Ibs and a subsequent shift back to decentralisation by the Wbb, a shift from tort to unjust enrichment as a basis for recovery of clean-up costs, introduction of the decontamination order, a shift in policy from multifunctionality as the aim of decontamination to functional cleaning, a shift from a rather dogmatic adherence to the “polluter-pays principle” to an approach in which two other principles play a role (principle of RZQHUVKLSDQGSULQFLSOHRISURÀW  privatisation of costs of decontamination as illustrated by SUBAT, the BSB-operation, and Actie Tankslag.

In the following these shifts will be summarized. Because of the existence of many connections between them they will not be described separately. 9.1. From a governmental centralised approach to a decentralised and privatised approach Centralisation of cost recovery at the level of the national government was the UHVXOWRIRSWLPLVPDQGFRQVLGHUDWLRQVRIHIÀFLHQF\,WZDVQRWH[SHFWHGWKDWWKH problem of historical soil pollution would be as great as we now know it is and furthermore it seemed wise to concentrate the legal actions in one hand in order to avoid many different law suits by local and provincial governments. When the true size of the problem became apparent decentralisation and privatisation were the logical answers. The government started to stimulate businesses to take clean-up measures themselves. The possibilities to do this however were limited as a result of the interpretation of the law of tort by the Supreme Court.

159

9.2. Failed attempt to shift from tort law It might be said indeed that many endeavours by the government were motivated by a desire to break away from the constraints of tort law. Firstly the introduction of the decontamination order represents (a failed attempt) to force

222

TK 1980-1981, 16 821, no. 1-3, p. 24.

160

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Michael Faure and Albert Verheij

businesses to take clean-up measures even though they could not be held liable for clean-up costs under tort law. It should be noted that the introduction of the decontamination order was also desired by businesses that had taken voluntary clean-up measures and did not want less cooperative businesses to get away with a competitive advantage. Secondly in art. 47 of the bill of the Wbb the government tried (but failed) to extend the possibilities of the government to recover clean-up costs beyond the limits formulated by the Supreme Court in the context of tort law. 9.3. From confrontation to cooperation 161

:KLOH WKH JRYHUQPHQW DW ÀUVW DGRSWHG D FRQIURQWDWLRQDO DSSURDFK XQGHU WKH banner of the “polluter-pays principle” it later chose an approach that was based on cooperation and cost sharing between government and business or private individuals – SUBAT, the BSB-operation and Actie Tankslag are evidence of that. This shift was to a large extent made necessary by the fact that the Supreme Court, by its interpretation of the law of tort, had left the government without weapons to force businesses to take decontamination measures. It is interesting to see that, despite the relatively weak position of the government, businesses had reasons of self interest to participate in cooperative schemes. 9.4. From multifunctional to functional cleaning

162

The change in objective to be realised by cleaning – from total cleaning (multifunctionality as an aim) to functional cleaning – represents an important shift. The background is no doubt the wish to keep the clean-up costs under control. This shift in the overall aim of clean-up measures only took place at the end of WKHVEXWLWFDQEHWUDFHGEDFNWRWKHÀQDOUHSRUWRIWKH%6%FRPPLVVLRQ in 1991 in which exceptions to multifunctional cleaning were advised. One might wonder whether the confrontations between government and business community would have been less vehement or even absent if functional cleaning had been the aim of decontamination from the beginning. 9.5. Failed attempt to impose a levy – the role of the “polluter-pays principle”

163

The episode of the failed attempt to impose a levy illustrates that the exact meaning of the “polluter-pays principle” was not clear. It was a banner under which both the government and opponents to a levy could be found. Essentially the debate was between an individual and a collective concept of responsibility. The notion of individual responsibility eventually got the upper hand given the fact that the levy was never imposed. It should be borne in mind however that the government in other contexts (in the case of SUBAT and the BSB-operation) succeeded in convincing businesses to engage collectively in voluntary decontamination operations. Individual and collective responsibility therefore represent two extreme poles on a continuum. Depending on the issue at hand, the solution arrived at is nearer to the one or the other pole.

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55

'6RLOSROOXWLRQLQ%HOJLXP²)OHPLVK5HJLRQ 1. Introduction Belgium is a federal state consisting of three regions: the Flemish Region, the Walloon Region, and the Brussels Capital Region. The following overview of WKHODZUHJDUGLQJOLDELOLW\IRUWKHFRVWVRIFOHDQLQJXSWKHVRLOLVFRQÀQHGWRWKH )OHPLVK5HJLRQVTXDUHNP 7KHMXVWLÀFDWLRQIRUWKLVOLPLWDWLRQLVWKDW WKH)OHPLVK5HJLRQZDVWKHÀUVWUHJLRQWRDGRSWFRPSUHKHQVLYHHQYLURQPHQWDO legislation in the form of the Decreet betreffende bodemsanering (Soil Decontamination Decree, SDD) of 22 February 1995.223

164

With this Decree the Flemish Government tried to improve the unsatisfying state of the existing environmental liability regime224:

165

– – – ² ² – – –

223

224

225

in the absence of a regulatory standard, the requirement of fault in the tort RIQHJOLJHQFHDUW%HOJLDQ&LYLO&RGH&& ZDVVRPHWLPHVGLIÀFXOW to prove; modern technology cannot be perfectly controlled by man and accidents will happen in the absence of a previous fault; the chain of causality was sometimes deemed to be broken225; WKHVRXUFHRIWKHSROOXWLRQLVVRPHWLPHVGLIÀFXOWWRWUDFHDQGLQGLYLGXDO OLDELOLW\FDQWKHUHIRUHEHGLIÀFXOWWRHVWDEOLVK HQYLURQPHQWDOGDPDJHGRHVQRWDOZD\VÀWLQQLFHO\ZLWKWKHFRQFHSWRI damage that has been developed in the law of torts; there was an unbalance in the sense that the existence or the absence of strict liabilities was not always easy to justify, the strict liability of the guardian (art. 1384 CC) was not tailored to the problem of environmental pollution which resulted in an over-extended liability; and there was no guarantee against insolvency of the polluter.

In the Brussels and Walloon Region similar legislation was adopted later; see the Brusselse Ordonnantie betreffende het beheer van verontreinigde bodems of 13 May 2004, BS 24 June 2004 and the Décret relatif à l’assainissement des sols pollués et aux sites d’activités économiques à réhabiliter of 1 April 2004 respectively. Further information about this legislation can be found in H. Keersmaekers, Nieuwe regels voor verontreinigde gronden in Brussel, [2005]Tijdschrift voor Bouwrecht en Onroerend Goed (TBO), 94-99 and T. Bienstman, Administratieve saneringsplicht en overdrachtsbepalingen in de saneringswetgeving in Vlaanderen, Wallonië en Brussel (Masterthesis University of Gent) 2005. See for a brief description of the law in the other two regions before the aforementioned changes Deketelaere and Deketelaere 2000, p. 29-30. See the explanoratory memorandum by the proposals of the Interuniversity Commission: Voorontwerp Decreet Milieubeleid (1994), 841-842 and M. Faure/D. Grimeaud, in: M. Faure (ed.), Deterrence, Insurability, and Compensation in Environmental Liability. Future Developments in the European Union (2003), 78. See infra nos. 175-176.

56

Michael Faure and Albert Verheij

166

The major shift in Flanders took place when the Soil Decontamination Decree of 22 February 1995 came (for the most part) into force on 29 October 1995. This gave the Afvalstoffenmaatschappij voor het Vlaamse Gewest (Flemish Public Waste Company, OVAM) the powers to pursue an effective policy of decontamination of polluted soil. It should be kept in mind however that the Soil Decontamination Decree creates a distinction between new, historical and mixed soil pollution. New pollution is pollution that took place after 29 October 1995 (the day the Decree came into effect). Historical pollution is pollution that occurred before this date. Mixed pollution refers to pollution that occurred in part before and in part after this date.

167

/LNHLQWKH1HWKHUODQGVWKH%HOJLXPJRYHUQPHQWZDVÀUVWÀUPO\FRPPLWWHGWR the “polluter-pays principle”. The battle between business and government over the question of cost recovery was less drawn out than in the Netherlands but at least as interesting. An important shift took place in 1990 with an amendment of the Waste Decree of 1981 which in effect created a discretionary power to take decontamination measures and to recover the costs of these measures. This amounted to strict retroactive liability. Under pressure of severe criticism, the Soil Decontamination Decree of 22 February 1995 provided a liability regime that was less burdensome for owners and polluters. This can be regarded as a second shift. Other less spectacular although by no means unimportant shifts will be dealt with below.

168

In the following most attention will be given to the Soil Decontamination Decree of 22 February 1995 (infra no. 178 ff). Before that some facts and costs will be given (infra no. 169 ff ) followed by a brief sketch of the legal landscape before the Soil Decontamination Decree came into force (infra no. 171 ff). 2. Facts and costs

169

The turning point in Flanders was the discovery of 16 tons of waste containing cyanic acid in a deserted quarry in Hannêche.226 This led to stricter legislation regarding toxic waste and at a later stage to the Waste Decree of 2 July 1981 (Afvalstoffendecreet) that created the OVAM. The clean-up of the pollution in Hannêche cost the government F 30 million.

170

It was estimated that there are 8,986 potentially polluted sites in Flanders.227 The aim is to have the soil of Flanders cleaned by 2036.228 The costs of this clean-up operation were estimated at F 279,687 million.229 In an evaluation for the period 1996-2001 the OVAM reported that 66 decontaminations have

226

227 228 229

H. Bocken, Milieuwetgeving en onroerende goederen. Aansprakelijkheid voor de kosten van bodemsanering, [1992] Tijdschrift voor Privaatrecht (TPR), 7-88. OVAM Ontwerpplan 1991-1995, p. 16. OVAM, Bodemsanering in Vlaanderen 1996-2001, p. 33. OVAM Ontwerpplan 1991-1995, p. 34 and 79.

Shifts in Compensation for Environmental Damage

57

been completed, that 308 decontamination projects are in progress, and that 624 decontamination proposals have been sanctioned.230 In its annual report for 2004 the OVAM reports that in the period 1997-2004 more than 2000 soil decontamination projects have been sent to the OVAM for approval.231 The soil decontamination projects that were approved by the OVAM in 2004 amount to GHFRQWDPLQDWLRQVFRVWVRIRYHU½PLOOLRQ232 How costly decontamination projects can be is illustrated by the decontamination of the soil of a gas factory in the city of Driest that started in 2004. The expected decontamination costs DUHRYHU½PLOOLRQ233 3. Before the Soil Decontamination Decree of 22 February 1995 3.1. The Waste Decree of 2 July 1981 $ÀUVWVWHSLQWRWKHGLUHFWLRQRIDFRRUGLQDWHGZDVWHPDQDJHPHQWSROLF\ZDV taken with the adoption of the Waste Decree of 2 July 1981. The overall aim of this piece of legislation was to enable safety and prevention measures regarding waste. Art. 54 gave the mayor or the governor of the province the power to order the removal of waste.

171

The OVAM was founded by this Decree but had only limited powers.234 Only ZLWKWKHDPHQGPHQWRIWKH:DVWH'HFUHHLQGLGWKH29$0JHWVSHFLÀF powers.235 Art. 21 par. 2 c – in short – gave the OVAM the authority to remove waste and take clean-up measures H[RIÀFLR. This power related to pollution caused by existing or past businesses (old industrial sites) and could only be exercised after a proper procedure. Either the OVAM or the Flemish Ministry could order a person to take clean-up measures within a certain period. The OVAM could take clean-up measures itself if the person had failed to do so within this period insofar as there was a risk for the environment and public health. The costs of the measures taken by the OVAM could be recovered from the person who had failed to comply. Art. 21 par. 2 c was not only applicable to instances in which the Waste Decree was violated but applicable in all cases of industry-related soil pollution that created a risk to public health and the environment.236

172

This provision was too vague to form the basis of a comprehensive decontaminaWLRQSROLF\E\WKH29$07KHSUREOHPZDVWKDWLWZDVQRWVSHFLÀHGZKHQKRZ

173

230

OVAM, Bodemsanering in Vlaanderen 1996-2001, p. 23. OVAM Jaarverslag 2004, p. 19. 232 OVAM Jaarverslag 2004, p. 20. 233 OVAM Jaarverslag 2004, p. 24. 234  $QGDOVRODFNHGÀQDQFLDOPHDQVVHH+%RFNHQ>@735 235 H. Bocken, [1992] TPR, 24; M. Deketelaere/K. Deketelaere, in: R. Seerden/K. Deketelaere (eds.), Legal aspects of soil pollution and decontamination in the EU Member States and the United States (2000), 26. 236 H. Bocken, [1992] TPR, 25-26. 231

58

Michael Faure and Albert Verheij

and to what extent decontamination should take place.237 Were a threat to public health and the environment required before the OVAM could issue an order or ZDVDWKUHDWWRHLWKHURQHRIWKHWZRLQWHUHVWVVXIÀFLHQW"238 It was even unclear who could be ordered to take clean-up measures, the owner or the operator or both?239 In effect it amounted to strict retroactive liability240 and for that reason was severely criticised in the literature.2417KLVDOOZRXOGEHFODULÀHGLQWKH6RLO Decontamination Decree of 1995. 174

Because the legislative framework provided little direction, in practice local government and the OVAM relied on standards that had been developed abroad such as the Dutch Leidraad Bodemsanering (Guidelines on?? Soil Decontamination).242 The only legal yardstick against which to measure the soil decontamination policy consisted in the principles of good administration (beginselen van behoorlijk bestuur) and the standard of care of the Belgium tort of negligence (art. 1382 CC).243 3.2. Cost recovery in the courts

175

Art. 21 par. 2 c of the Waste Decree explicitly determined that the OVAM could recover the clean-up costs from the person who was obliged to take these measures but who had failed to comply with an order to that effect. This explicit recognition of the possibility to recover costs should be viewed against the background of the case law of the Belgium Supreme Court (Hof van Cassatie) regarding causality.244

176

The Supreme Court decided that, if someone incurs costs as the result of a tortious act245 of someone else, there is no causal link between the act and the costs when there was an obligation to incur these costs. Applied to soil pollution this means cost recovery by the government from the polluter will be problematic since the government is obliged to take decontamination measures.246 However, in later decisions the Supreme Court formulated two exceptions to this rule. The causal chain is not broken in case there exists a secondary duty to take

237 238 239 240 241

242 243 244 245 246

M. Deketelaere/K. Deketelaere (supra fn. 13), 27. H. Bocken, [1992] TPR, 25. H. Bocken, [1992] TPR, 25. M. Faure/D. Grimeaud (supra fn. 2), 80. H. Bocken, De redactie privaatrecht. Wat wij zelf doen, doen wij beter, [1991] Tijdschrift voor Privaatrecht (TPR), 277-280. H. Bocken, [1992] TPR, 27. H. Bocken, [1992] TPR, 28. See for an overview H. Bocken, [1992] TPR, 32-36. Art. 1382 CC. Hof van Cassatie 28 april 1978 RW, 1978-79, 1695 and Hof van Cassatie 7 maart 1979 RW, 1978-79, 2664.

Shifts in Compensation for Environmental Damage

59

action on the part of the person who incurred costs.247 Relevant is also whether SDUWLHVWRDFRQWUDFWRUWKHOHJLVODWRULQWHQGHGFHUWDLQFRVWVWRIDOORQDVSHFLÀF person.248 Bocken argues that although this case law creates uncertainty it should QRWSUHYHQWWKHJRYHUQPHQWIURPUHFRYHULQJGHFRQWDPLQDWLRQFRVWV7KHÀUVW exception can be invoked by the government since the polluter is primarily obliged to take clean-up measures. The second exception is also applicable because of the “polluter-pays principle” that is part of some international treaties and Belgium legislation. Nevertheless, explicit recognition of the possibility of cost recovery by art. 21 par. 2 c of the Waste Decree leaves no doubt as to the right of the government to hold the polluter liable. Art. 21 par. 2 c could therefore be regarded as a shift from tort law (including the case law regarding causality) to a stricter form of liability.

177

4. The Soil Decontamination Decree of 22 February 1995 4.1. General remarks Because of the vagueness of Waste Decree249 and the shortcomings of the existing liability system250, an Interuniversity Commission for reform of environmental law in the Flemish Region was set up by the Flemish Minister for Environmental Policy. The task given to this commission was to come up with proposals for a comprehensive legislative framework for soil decontamination policy. This commission was active between 1989 and 1994 and presented two reports, a ÀUVWUHSRUWLQ'HFHPEHUDQGDÀQDOGUDIWLQ)HEUXDU\%HIRUHWKH SUHVHQWDWLRQRIWKHÀQDOGUDIWWKHSURSRVDOVRIWKHFRPPLVVLRQKDGDOUHDG\EHHQ implemented by the Soil Decontamination Decree of 22 February 1995.

178

The Soil Decontamination Decree (further: SDD) tried to solve the existing problems by, amongst others, making a clear distinction between liability for modern and liability for historical pollution and a summing up of those who would be under an obligation to take clean-up measures. Uncertainties presented by the law of torts in the Belgium Civil Code were overcome and the OVAM was assigned a central place in the new environmental legislative framework. Certain articles were subsequently elaborated by the VLAREBO (Vlaams reglement betreffende de bodemsanering).251

179

247

248 249 250 251

Hof van Cassatie 17 mei 1983 1982-83, nr. 515 and Hof van Cassatie 13 april 1988 RW 1988-89, 1126. Hof van Cassatie 4 maart 1984 RW, 1984-84, 2805. See supra no. 173. See supra no. 165. See further D. Ryckbost, Het Vlarebo. Enkele bedenkingen bij de uitvoering van het bodemsaneringsdecreet, [1996] Tijdschrift voor Milieurecht (TM), 153-170.

60

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Michael Faure and Albert Verheij

7KH VRLO FOHDQXS JRDO DOORZV IRU D FHUWDLQ DPRXQW RI ÁH[LELOLW\ 3RLQW RI departure is art. 8 par. 1 SDD whose aim is to realize so-called standard values (achtergrondwaarden). These standard values have been laid down in Annex 6 of the VLAREBO. This means in effect that the goal must be a contamination-free condition, in other words a multifunctional state of the soil.252 This applies to both new and historical pollution (art. 35 SDD). The following two paragraphs of art. 8 SDD allow for exceptions however. When it is impossible to attain this goal because of the nature of the pollution or the nature of the polluted site253 a less ambitious goal may be pursued, namely to achieve better standards than those that have been laid down in the applicable soil clean-up standards of Annex 4 of the VLAREBO. When this is also not possible, the goal is to avoid the polluted site from causing a serious danger (art. 8 par. 2 SDD). If that cannot be achieved art. 8 par. 3 SDD determines that restrictions on use or other precautionary measures should be imposed. 4.2. Obligation to carry out the clean-up measures

181

A distinction is made between responsibility for taking clean-up measures and WKHÀQDQFLQJRIWKRVHPHDVXUHVRQWKHRQHKDQGDQGWKHOLDELOLW\IRUWKHFRVWVRI WKHVHPHDVXUHVRQWKHRWKHUKDQG7KHÀUVWZLOOQRZEHGHDOWZLWKWKHVHFRQG will be outlined below (infra nos. 186-189).

182

According to art. 10 par. 1 SDD, the operator who engages in an activity for which an environmental permit is required is responsible for taking decontamination measures. If there is no such operator, the owner of the polluted soil is responsible unless he can prove that there is a different person who has control over the site. When he succeeds, the latter is responsible. An important consideration in assigning responsibility was that the person responsible should be easy to trace.254 This is indeed the case with regard to the operator and the owner. Determining who has got de facto control requires an analysis of legal relationships between the owner and a third party and is therefore more complex. This however is the problem of the owner who does not want to be held responsible for clean-up measures. This order of persons responsible for clean-up measures is followed both in the case of new pollution (art. 10 SDD) and in the case of historical pollution (art. 31 SDD). The difference between new and historical pollution is that, in case of new pollution, there is an eo ipso duty to take decontamination measures, whereas in the event of historical pollution such a duty only arises DIWHUDQRWLÀFDWLRQIURPWKH29$0DUWSDU6'' 255

252

253

254 255

D. Ryckbost/S. Deloddere, Bodemsanering in Vlaanderen (1997), 65 and M. Deketelaere/K. Deketelaere (supra fn. 13), 37. Attention should be paid in this context to the best available techniques not entailing excessive costs. D. Ryckbost/S. Deloddere, Bodemsanering in Vlaanderen (1997), 75. See D. Ryckbost/S. Deloddere, Bodemsanering in Vlaanderen (1997), 77 and M. Deketelaere/K. Deketelaere (supra fn. 13), 40-41.

Shifts in Compensation for Environmental Damage

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Art. 10 par. 2 SDD determines that the former article does not apply in the case of what is called the “innocent possessor”. He must meet three cumulative conditions:256 – – –

183

he did not cause the pollution, he was not aware, or could not have been aware of the pollution when he became operator, or owner or when he obtained control, there has not been an installation or activity on the polluted site since 1993 that is included in the list of installations and activities that are regarded as being able to cause pollution (Annex 1 of the VLAREBO).

If the “innocent possessor” meets these conditions, the OVAM will have to carry out the decontamination. The “innocent possessor” does not have to ÀQDQFHWKLVRSHUDWLRQ$UWGHWHUPLQHVWKDWWKHSHUVRQZKRLQFXUUHGFRVWV can recover them if the conditions of art. 25 are met. This will be expounded below (infra no. 188). In case of historical pollution the exemption from responsibility is wider. Art. 31 par. 2 SDD requires that only two conditions are met. The “innocent possesor” must prove that: – –

184

he did not cause the pollution, he was not aware, or could not have been aware of the pollution when he became an operator, or owner or when he obtained control.

The reason why the third condition mentioned in art. 10 par. 2 SDD is left out is that the Annex with potentially dangerous activities and installations did not not exist at that time. In deciding whether the person should have been aware of pollution, the nature of the installation or activity should be taken into account however.257 A private person who bought a historically polluted site before 1 January 1993 and who was or should have been aware of the pollution is exempted from the REOLJDWLRQ WR FDUU\ RXW DQG ÀQDQFH GHFRQWDPLQDWLRQ PHDVXUHV SURYLGHG WKDW he did not use the site for professional or commercial purposes (art. 31 par. 3 SDD).

185

4.3. Liability for costs of clean-up measures258 It was already remarked that the person who is under an obligation to carry out clean-up measures is not automatically the individual that is ultimately liable for

256

257 258

D. Ryckbost/S. Deloddere, Bodemsanering in Vlaanderen (1997), 87 and M. Deketelaere/K. Deketelaere (supra fn. 13), 41. M. Deketelaere/K. Deketelaere (supra fn. 13), 42. D. Ryckbost/S. Deloddere, Bodemsanering in Vlaanderen (1997), chapter 10; M. Deketelaere/K. Deketelaere (supra fn. 13), 45-46 and 48-49; M. Faure/D. Grimeaud (supra fn.

186

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Michael Faure and Albert Verheij

the cost of these.259 The question of who will ultimately bear the decontaminations costs is decided by a set of liability rules (art. 25-27 and 32 SDD). As is the case with the duty to take decontamination measures, a distinction is made between new and historical pollution. 187

For new pollution art. 25 SDD contains a rule of strict liability with respect to the costs of cleaning up and further damage caused by the clean-up activities. Damage caused by the pollution itself, such as damage to health and damage to property is governed by the common law liability (art. 1382 CC and art. 1384 par. 1 CC amongst others260). The strict liability of art. 25 par. 1 SDD rests upon anyone who caused the pollution. Par. 2 of art. 25 SDD determines KRZHYHUWKDWZKHQWKHSROOXWLRQZDVFDXVHGE\DFODVVLÀHGLQVWDOODWLRQRUDFWLYity the operator (licensee) is strictly liable. This is an example of channelling of liability.261 It should be noted that the operator is liable whether or not he FDXVHGWKHHPLVVLRQKLPVHOI,WLVVXIÀFLHQWWKDWWKHHPLVVLRQHPDQDWHGIURP the installation or activity.

188

Art. 26 SDD limits the liability of the “innocent possessor” to the costs necessary to prevent the pollution from spreading or from presenting a danger. This rule forms an exception to art. 1384 par. 1 CC regarding liability of guardians. Art. 32 par. 2 SDD contains a similar provision with regard to historical pollution.

189

Art. 32 par. 1 SDD provides that liability for historical pollution will be determined in accordance with the rules of tort liability which applied before the SDD entered into force. This does not resurrect art. 21 par. 2 c of the Waste Decree of 2 July 1981 because that ceased to exist in 1994 before the SDD came into effect. However, as a result of a transitory provision in the amended Waste Decree, art. 21 par. 2 c continues to apply to clean-up operations that started before 7 May 1994. 5. Public-private projects

190

,QDQXPEHURIDUHDVWKH%HOJLXPDXWKRULWLHVKDYHDWWHPSWHGWRÀQGDOWHUQDWLYH means of funding decontamination operations so that the costs of clean-up would not be solely borne by the government.262 These initiatives are of a relatively UHFHQWGDWHDQGDUHQRWFRQÀQHGWR)ODQGHUVEXWFRQFHUQ%HOJLXPDVDZKROH Therefore they could be regarded as a shift from the regional to the federal level. More importantly, they can also be seen as a shift toward privatisation.

259

260 261

262

2), 80-82. With regard to new pollution art. 11 SDD states explicitly that he can try to recover these costs from someone else. See for a brief overview M. Deketelaere/K. Deketelaere (supra fn. 13), 46-48. Par. 1 and 2 of art. 25 SDD don’t represent alternatives. The application of par. 2 stands in the way of the applicability of par. 1. The word used for the result of these projects is solidarisering van kosten which could be loosely translated as “socialisation of costs”.

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The government merely facilitates certain projects designed to clean historical SROOXWLRQ7KHIXQGVWREH FUHDWHGDUHÀQDQFHGQRWE\WKHJRYHUQPHQWEXW E\LQGLYLGXDOVZKRSDUWLFLSDWHLQDQGSURÀWIURPWKHSROOXWLQJDFWLYLW\DQGE\ industry. In fact this shift amounts to an implementation of the “polluter-pays principle”. 5.1. “Bofas” 263 %RIDV LV D QRQSURÀW PDNLQJ VRFLHW\ vereniging zonder winstoogmerk) that became operational on 26 April 2004. It aims to decontaminate the soil of all the SHWUROVWDWLRQVLQ%HOJLXPE\PHDQVRIORJLVWLFDODQGÀQDQFLDOVXSSRUW7KHVWDUW of Bofas can be traced to its recognition by the IBC (Interregionale Bodemsaneringscommissie, Interregional Soil Decontamination Commission) on 3 March 2004. This recognition is valid for 10 years. There is the possibility of extension IRUÀYH\HDUV7KH,%&KDVWKHSRZHUWRZLWKGUDZWKHUHFRJQLWLRQZLWKLQWKLV period. The IBC consist of six members, two members for each Region, and supervises Bofas. The IBC is based upon the SWA (Samenwerkingsakkoord, the Co-operation Agreement) which was signed by the three regional governments and the federal government. While recognizing that environmental policy is a prerogative of the regions, the SWA is predicated upon the idea that a uniform national approach is desirable in this respect.

191

It is estimated that 4,000 petrol stations will apply to Bofas for support. However until 25 October 2004 only 425 applications had been received. The deadline was 26 March 2005 for petrol stations that had ceased business activities. Petrol stations that remain in business have one year longer to apply.

192

%RIDVLVÀQDQFHGE\DXWRPRELOHGULYHUVDQGWKHSHWUROLQGXVWU\RQDEDVLV The contribution by the automobile drivers is regarded as an application of the “polluter-pays principle”. The contributions of drivers is the following. In case drivers have to pay the maximum price they have to pay 0,30 eurocent per litre petrol and 0,20 eurocent per litre diesel. In practice this means that someone ZKRGULYHVNP\HDUKDVWRSD\½H[WUDSHU\HDU

193

7KHUHDVRQZK\%RIDVLVQRWFRQÀQHGWR)ODQGHUVLVWZRIROG,QWKHÀUVWSODFH duty on petrol was registered and collected at a national level already, secondly, and more importantly, increasing the price of petrol only in Flanders would cause market distortions and create a competitive disadvantage to owners of petrol stations in Flanders.

194

5.2. Oiltanks: Premaz fund $QRWKHUH[DPSOHRIDOWHUQDWLYHZD\VRIÀQDQFLQJGHFRQWDPLQDWLRQPHDVXUHVDUH the attempts to create a fund that supports clean-up of soil that has been polluted by oil tanks owned by individuals and companies (e.g. for heating systems). 263

See <www.bofas.be>. “Bofas” stands for Bodemsaneringsfonds voor tankstations.

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Negotiations have been under way for some time.264 The idea is to create a fund along similar lines as Bofas. 5.3. “Droogkuis” (dry cleaners) 196

For many years dry cleaners have made use of pollutants that are costly to remove. The sector contacted the OVAM in order to create a fund that could support decontamination of polluted soil by individual owners. In 2004 the concept of a Decree was written but it has not yet been discussed in Parliament.265 6. Shifts

197

A number of shifts took place in Belgium – Flanders: – –

centralisation since the creation of the OVAM, a shift to strict retroactive liability by art. 21 par. 2 c Waste Decree 2 July 1981 (this particular article was in force only from 1990-1994), the creation of the SDD: a shift back to fault liability for historical pollution (art. 32 par. 1 SDD) and strict liability for new soil pollution (art. 25 SDD), privatisation of costs of decontamination as illustrated by Bofas, Bofas also represents a shift from the regional to the federal level.

– – –

In the following some of these shifts will be discussed. 6.1. Centralisation 198

Centralisation of the problem of soil pollution took place with the Waste Decree 2 July 1981 which created the OVAM. It took until 1990 however for the OVAM to JHWVSHFLÀFSRZHUV$VDZKROHWKHJRYHUQDQFHRIWKHSUREOHPZDVXQVDWLVIDFWRU\ because the legislative framework did not provide enough guidance. 6.2. Shift from traditional tort law to strict liability and back

199

Art. 21 par. 2 c of the Waste Decree 2 July 1981 amounted to strict retroactive liability. An effective policy of cost recovery by the OVAM was hindered however by the case law of the Supreme Court regarding causality. The liability of art. 21 par. 2 c Waste Decree 2 July 1981 was seen as unjust and the Soil Decontamination Decree of 22 February 1995 determined that liability for historical soil pollution should be based on the traditional tort principle of fault liability (art. 32 par. 1 SDD).

 7KHÀQDOUHSRUWFDQEHFRQVXOWHGDWZZZSUHPD]EH! OVAM Jaarverslag 2004, p. 22.

264 265

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6.3. Bofas: two shifts at the same time The creation of Bofas constitutes a shift from the regional to the national level. This shift was largely motivated by the desire to avoid putting owners of petrol stations in Flanders at a disadvantage compared to their competitors in the other two regions. Furthermore Bofas implies a shift from public to private funding: both the automobile drivers and the petrol industry contribute on a 50/50 basis.

200

(6KLIWVLQJRYHUQDQFH²FRQFOXGLQJREVHUYDWLRQV 1. Introduction ,QWKHSUHFHGLQJSDUDJUDSKVYDULRXVVKLIWVKDYHEHHQLGHQWLÀHGLQWKH8QLWHG States, Germany, the Netherlands and Belgium. This paragraph contains some concluding observations on certain trends or patterns that emerged. In short it might be said that one can see a movement from a principled approach to a more pragmatic approach. When the problem of soil pollution was put on the political agenda at the end of the 1970s and in the early 1980s as a result of widely publicised scandals, policymakers frequently embraced the “polluter-pays principle” as the main guiding principle to deal with the problem of historical soil pollution. In some countries this led to quite far-reaching measures such as strict retroactive liability (the United States and Flanders in Belgium), a collective levy (the United States), and other organized attempts to make the polluter pay WKH1HWKHUODQGV ,QWKLVÀUVWSKDVHWKHDLPRIGHFRQWDPLQDWLRQPHDVXUHVZDV to clean the soil completely so that it could be used in the future for all possible purposes. In the course of time however this approach was gradually abandoned for a more pragmatic approach. Instead of blaming one particular segment of society for the soil pollution (the business community) one can see a shift to a more collective approach in which both the government and the business community (and sometimes consumers as well) make a joint effort to overcome the problems of the past. Since this shift did not take place from one day to another EXWZDVDJUDGXDOSURFHVVLWLVGLIÀFXOWWRLGHQWLI\RQHRUWZRGLVWLQFWFDXVHV It seems reasonable to assume that the shift had both practical and normative FDXVHV,QWKHUHDOPRISUDFWLFDOFDXVHVRQHHQFRXQWHUVWKHGLIÀFXOW\LQSURYLQJ causality, the fact that many polluters could not be found or did not exist anymore. Important here seems to have been also that in the beginning the true size of the SUREOHPZDVQRWJUDVSHG,QWKHUHDOPRIQRUPDWLYHFDXVHVRQHÀQGVWKHQRWLRQ that the consequences of pollution for man and environment were not foreseen in the past and that not only business but also governments (who issued licences) were to blame. These considerations sometimes found their way to the concepts of tort law (especially in the Netherlands) and could thus prove a formidable obstacle to governmental attempts to make the polluter pay. At a more general institutional level, one could remark that democratic systems display a tendency

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toward more pragmatic solutions. This is the big picture, some other dimensions of this shift will be analysed in greater detail below. 2. The role of the “polluter-pays principle” 202

It has been said in the above that in the beginning many policymakers embraced the “polluter-pays principle”. One should be careful however to jump to conclusions here. Although many references to the “polluter-pays principle” can be found, there seems to be an element of rhetoric involved as well. This becomes clear when the liability of owners and users who did not cause pollution is analysed. In all countries this category was generally not exempted from liability. Despite the fact that they did not cause the pollution, they were held liable from the beginning.

203

This situation was made possible by the vagueness of the “polluter-pays principle” which is especially apparent in the Netherlands and Belgium. Does this principle only refer to individual polluters or to an entire industry (the 1HWKHUODQGV  RU GRHV LW HYHQ HQFRPSDVV LQGLYLGXDOV ZKR EHQHÀW IURP WKH polluting activity (see the Bofas in Belgium)? 3. The role of competitive (dis)advantages

204

The reality is that the costs of decontamination measures have consequences for the competitiveness of companies. Many examples can be found of this. ,QJHQHUDOLWLVLPSRUWDQWWKDWFRPSDQLHVFDQEHVXIÀFLHQWO\FHUWDLQWKDWWKHLU competitors incur clean-up costs as well. When companies only operate in a national market, this can be guaranteed if the national or federal government creates regulations or arrangements that apply equally to the entire industry (e.g. Bofas in Belgium). When companies manufacture for the international market, however, this solution is not possible. Unless agreements can be made EHWZHHQJRYHUQPHQWVWKHLQWHUQDWLRQDOHFRQRPLFVLWXDWLRQLQDVSHFLÀFVHFWRU can create certain constraints and impair the willingness of companies to take decontamination measures voluntarily.

205

It is logical that companies that are willing to invest in clean-up measures lobby for regulation in order to make sure that unwilling companies will not have a competitive advantage. It is against this background that one should understand the introduction of the Dutch administrative order by means of which companies could be forced to undertake decontamination measures.

206

It can happen that companies are victimised by a shift from a more principled to a more pragmatic approach. This is illustrated by the decision (related to SUBAT ) by the Dutch government to give subsidies to stimulate the voluntary decontamination and demolition of petrol stations. Companies that voluntarily had undertaken to do this at an earlier date felt “stabbed in the back”. Since a principled approach seems to be more often followed by a more pragmatic one in democratic systems, it is important that policymakers are aware of

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this consequence if they want to avoid giving some companies a competitive disadvantage. 4. Broader societal consequences :KDWLVDOVRFOHDULVWKDWWKHIHDURIOLDELOLW\ZKHWKHUMXVWLÀHGRUQRW FDQFDXVH unwanted consequences. This is most dramatically illustrated by the problem RIWKHEURZQÀHOGVLQWKH8QLWHG6WDWHVZKHUHLQYHVWRUVSUHIHUUHGXQGHYHORSHG VLWHVJUHHQÀHOGV RYHUROGVLWHVEURZQÀHOGV ZKLFKUHVXOWHGLQDOONLQGVRI social, economic and environmental losses. A similar effect is the possibility that polluted soil can trap its owners. Private individuals might not have the means to take decontamination measures while the pollution will prevent them from selling their house for an acceptable price. In order to avoid innocent owners of polluted soil for this reason remaining trapped and unable to move, Dutch OHJLVODWLRQ KDV FUHDWHG D VSHFLÀF SURYLVLRQ ZKLFK LQ VKRUW REOLJHV WKH ORFDO government to buy the soil at a reasonable price, that is to say the market value of the land in the absence of soil pollution.

207

5. Could the market have provided better solutions? In view of the above-mentioned problems of government intervention, the question might be raised whether the market would have done better. This questions seems especially appropriate given the fact that in all countries governments – sometimes after periods of more than twenty years – have chosen to stimulate various forms of private initiative. It is tempting to wonder whether the resources that were used in the previous period could have been put to better use. Of course this question can never be answered with any degree of certainty. The best one can come up with is a number of hypotheses.

208

In trying to arrive at certain tentative conclusions it seems important to note that all along there were incentives for companies to clean their own soil. Those incentives seem to have been the following.

209

– – –

– –

The value of the soil increases after decontamination. Once it is known that the soil is polluted, the owner or operator can be held liable for damage to third parties as a result of the spreading of the pollution (e.g. by means of the groundwater). Even in the absence of liability, the pollution can be such that it places restrictions on the use of the soil. Public authorities may even impose certain UHVWULFWLRQVLIWKDWFDQEHMXVWLÀHGLQWHUPVRISXEOLFKHDOWKRUHQYLURQPHQWDO protection. This all interferes with the business activities. If the business carries out the decontamination itself, this operation can be more easily integrated in the normal business activities. More generally, the reputation of a company might form an incentive to take action.

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Even if the government was unable to make the polluter pay, these incentives have probably played a role in the decision of companies to participate in voluntary clean-up schemes as is illustrated especially in the Netherlands. Of course these incentives are mainly at work with regard to polluted soil that is the property of companies. Their role seems less important in relation to polluted soil that is owned by others. Nevertheless it would have been worthwhile if policymakers from the beginning had designed a policy in which they made better use of these or other existing incentives. In order to avoid knowledge asymmetry, it could have been considered whether in certain areas the government could have FRQÀQHGLWVHOIWRFUHDWLQJWUDQVSDUHQF\HJSXEOLFO\DFFHVVLEOHGDWDEDVHVZLWK information about soil pollution so as to avoid certain people from unwittingly buying polluted property from better informed persons. 6. The complexity of soil pollution

211

The present approach can be succinctly characterized by compromise and realism. Compromise in that the “polluter-pays principle” is no longer the exclusive guiding principle, realism in that the pollution is not completely removed but only insofar as is functional given the prospective use of the soil in question. In retrospect one might wonder why it took so long to arrive at these guiding SULQFLSOHV,WVKRXOGEHUHPHPEHUHGKRZHYHUWKDWZHQRZKDYHWKHEHQHÀWRI hindsight. This and also the complex nature of soil pollution accounts for the relatively slow pace at which the present policy was developed. This complexity FRQVLVWÀUVWRIDOOLQWKHDPRXQWRIDFWRUVLQYROYHGRZQHUVDQGXVHUVRISROOXWHG sites, polluters and different layers of government (municipal, provincial and national government or state and federal government). The category of polluters furthermore does not constitute a homogeneous group. Different types of industry fall within this category. More generally there is the distinction between “big” business and “small” business. An additional complicating factor from the administrative viewpoint is that the problem of soil pollution and clean-up of polluted sites is not the prerogative of one particular branch of government or ministry. It is an issue that has got links with the environment, public health, industry, housing and spatial planning in general, competition law (subsidizing certain industries to clean their polluted property may in certain circumstances constitute unfair competition through state aid) and competitiveness of the national industry (which can be undermined by imposing costly measures to clean the environment). The simple question of which public body should be responsible for what is therefore a particularly thorny one and policymakers have struggled with it considerably for years.

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/LWHUDWXUH8QLWHG6WDWHV R.G. Aronovsky, Liability theories in contaminated groundwater litigation, [2000] Journal of Environmental Forensics (J Envtl. For.) 1, 97-111 M.E. Cartwright, Superfund: it is no longer super and it is not much of a fund. CERCLA at 25: a retrospective, and prospective look at the Comprehensive Environmental Response, Compensation, and Liability Act on its 25th anniversary, [2005] Tulane Environmental Law Journal (Tul. Envtl. LJ) 18, 299 )3&ROOLQV7KH6PDOO%XVLQHVV/LDELOLW\5HOLHIDQG%URZQÀHOGV5HYLWDOL]DWLRQ Act: a critique, [2003] Duke Environmental Law & Policy Forum (Duke Envtl. L & Pol’y F.) 13, 303 R.J. DelTufo, Can (potentially responsible party) status be avoided? CERCLA and the innocent purchase defence under SARA, [1987] Practising Law Institute Real Estate Law and and Practice Course Handbook Series (PLI/Real) 302, 37 L.M. Gibbs, Love Canal: The Story Continues (1998) M.E. Hitt, Desperately seeking SARA: preserving the innocent landowner defence to Superfund liability, [1989] Real Estate Law Journal (Real Est. LJ) 18, 11 R.M. Howard, Government cost recovery after the cleanup: do the Superfund amendments give the EPA a license to squander?, [1990] Baylor Law Review (Baylor LR) 42, 59-60 A. Kanner, Future trends in toxic substances, [1989] American Law Institute – American Bar Association (ALI-ABA) C452, 194 $3 0F0RUURZ &(5&/$ /LDELOLW\ UHGHÀQHG DQG DQDO\VLV RI WKH 6PDOO %XVLQHVV /LDELOLW\ 5HOLHI DQG %URZQÀHOGV 5HYLWDOL]DWLRQ$FW DQG LWV LPSDFW on State Voluntary Cleanup Programs, [2004] Georgia State University Law Review (GASTULR) 20, 1087 D.J. Portelli, SARA slams the door: the effect of Superfund amendments on foreclosing mortgagees, [1987] Wayne Law Review (Wayne LR) 34, 223 M.T. Rosenberg, SARA’s effect on EPA cleanup discretion under Superfund: have the courts gone too far?, [1991] Administrative Law Journal (Admin. LJ) 4, 559

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/LWHUDWXUH*HUPDQ\ C. Bickel, Bundes-Bodenschutzgesetz. Kommentar. (2002), 26, 68-69, 96 M. Kloepfer/T. Brandner, Umweltrecht (1998) M. Kloepfer/C. Franzius/S. Reinert, Zur Geschichte des deutschen Umweltrechts (1994) K.A. Pape, K. Schillhorn, Legal aspects of soil pollution and decontamination in Germany, in: R. Seerden, K. Deketelaere, Legal aspects of soil pollution and decontamination in the EU member States and the United States (2000) R. Schmidt, Einführung in das Umweltrecht (1995) G.A. van der Veen, Bodemsanering en kostenverhaal (1992) H.P. Vierhaus, Das Bundes-Bodenschutzgesetz, [1998] Neue Juristische Wochenschrift (NJW), 1262-1269 H. Ziehm, Die Störerverantwortlichkeit für Boden- und Wasserverunreinigungen (dissertation) (1989)

/LWHUDWXUHWKH1HWKHUODQGV E. Bauw, Afspraken over (on)vrijwillige sanering van bedrijfsterreinen, in: M.V.C. Aalders en R.J.J. van Acht (red.), Afspraken in het milieurecht (1992), 111-124 E. Bauw, Publiek- en privaatrechtelijke aansprakelijkheid in de gewijzigde Wet bodembescherming, [1994] Ars Aequi (AA), 810-820 E. Bauw, Voldoende grond voor verhaal? Ontwikkelingen rond het verhaal van de kosten van bodemsanering, [2003] Aansprakelijkheid, Verzekering & Schade (AV&S), 10-113 H.G. von Meijenfeldt, De wettelijke regeling van de bodemsanering (1994) G.J. Niezen, Het verhaal achter het verhaal, [2003] Bouwrecht (BR), 468-472 J.G.H. Seerden, Hoofdlijnen bodembeschermingsrecht (2003) J.L. Schipper, Tussen wensen, eisen en werkelijkheid. Een verslag van 10 jaar bodemsanering. (2001) C.J. van der Wilt, Het saneringsbevel in de Wet bodembescherming (diss. UvA) (2000)

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C.J. Van der Wilt, Het Convenant bodemsanering bedrijfsterreinen. Naar een nieuw systeem van aansprakelijkheid voor historische bodemverontreiniging, [2002] Milieu en Recht (M&R), 26-32 F.C.S. Warendorf, Ontwikkelingen in de jurisprudentie ten aanzien van art. 75 lid 3 Wet bodembescherming, [2003] Tijdschrift voor Milieuaansprakelijkheid (TMA), 63-70

/LWHUDWXUH%HOJLXP²)OHPLVK5HJLRQ T. Bienstman, Administratieve saneringsplicht en overdrachtsbepalingen in de saneringswetgeving in Vlaanderen, Wallonië en Brussel (Masterthesis University of Gent) 2005 H. Bocken, De redactie privaatrecht. Wat wij zelf doen, doen wij beter, [1991] Tijdschrift voor Privaatrecht (TPR), 277-280 H. Bocken, Milieuwetgeving en onroerende goederen. Aansprakelijkheid voor de kosten van bodemsanering, [1992] Tijdschrift voor Privaatrecht (TPR), 7-88 M. Deketelaere/K. Deketelaere, in: R. Seerden/K. Deketelaere (eds.), Legal aspects of soil pollution and decontamination in the EU Member States and the United States (2000), 25-65 M. Faure/D. Grimeaud, in: M. Faure (ed.), Deterrence, Insurability, and Compensation in Environmental Liability. Future Developments in the European Union (2003) H. Keersmaekers, Nieuwe regels voor verontreinigde gronden in Brussel, [2005] Tijdschrift voor Bouwrecht en Onroerend Goed (TBO), 94-99 OVAM, Bodemsanering in Vlaanderen 1996-2001. Een Evaluatie, 2002 OVAM Jaarverslag 2004 OVAM, Verontreinigde sites. Voorbereiding Ontwerpplan 1991-1995, Mechelen 1990 D. Ryckbost, Het Vlarebo. Enkele bedenkingen bij de uitvoering van het bodemsaneringsdecreet, [1996] Tijdschrift voor Milieurecht (TM), 153-170 D. Ryckbost/S. Deloddere, Bodemsanering in Vlaanderen (1997) Voorontwerp Decreet Milieubeleid H. Bocken, D. Ryckbost and S. Deloddere (rapporteurs), Voorontwerp Decreet Milieubeleid Memorie van Toelichting Deel 9 Titel 1 Aansprakelijkheid en ÀQDQFLsOH]HNHUKHGHQ

III. A Shift toward Alternative Compensation Mechanisms for Environmental Damage? Michael Faure $,QWURGXFWLRQ In this book, many shifts in the compensation of environmental damage have been discussed, largely dealing with the choice between private and public funding. These contributions dealt especially with the question how, for instance for soil pollution, oil pollution damage or nuclear accidents, compensation can be achieved either through private or through public funding. In particular, many of these contributions dealt with the way in which regulators have either facilitated private funding or have intervened to provide (additional layers of) public funding. This paper has a different focus. Indeed, in addition to trends in regulation from private funding to public funding and vice versa also within the private funding itself, several shifts can be observed. These shifts largely FRQFHUQÀQDQFLDOPHFKDQLVPVWKDWKDYHEHHQGHYHORSHGLQWKHPDUNHWWRSURYLGH compensation for environmental harm. Indeed, private actors confronted with HQYLURQPHQWDOGDPDJHFDQRIFRXUVHVHHNDYDULHW\RIÀQDQFLDORURWKHUPHFKDnisms to obtain compensation for that damage. A traditional and well-known mechanism is insurance, where traditionally the distinction was made between two types of insurance arrangements. On the one hand, a private actor who fears the risk of being victimized by environmental harm could seek coverage directly from an insurance company. This type of insurance, whereby a victim seeks LQVXUDQFHFRYHUDJHIRUKLVH[SHFWHGORVVHVLVFRQVLGHUHGVRFDOOHGÀUVWSDUW\ insurance. This is distinguished from the type of insurance whereby a private actor seeks insurance coverage for the risk of having to pay compensation to a third party as a result of being held liable. The latter type of insurance is referred to as third-party or liability insurance. It is remarkable that, since the early days of the discovery of environmental damage (usually after the so-called “black points” ZHUH GLVFRYHUHG LQ WKH V  WKH ÀQDQFLDO PHFKDQLVP WKDW ZDV GHYHORSHG to compensate environmental damage was liability insurance. However, for a

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variety of reasons, which will be discussed below, liability insurance was not able to provide a complete and/or satisfactory cover for environmental harm. As a result, a shift has taken place from liability cover for environmental damage to DYDULHW\RIRWKHUÀQDQFLDOPHFKDQLVPV)RULQVWDQFHWRVRPHH[WHQWFRUSRUDWH actors have decided to simply cover some risks simply themselves, for instance by creating reserves for potential environmental damage.1 Other alternatives have also been developed, such as the creation of ex ante guarantees and deposits. In addition, some modest experiments have taken place (mostly in the U.S.) with the use of so-called Alternative Risk Transfer (ART) which consists basically of using capital markets to cover environmental risks.2 Many other alternatives to liability insurance have been developed as well.3 In this contribution, not all of these possible alternatives to liability insurance can be discussed but we will refer to a more detailed discussion of these alternatives in the literature section. However, it seems interesting to generally focus on, on the one hand, the reasons for moving away from liability insurance and, on the other hand, to focus on two particularly interesting alternatives. The latter alternatives have especially been developed in the Netherlands, the Dutch apparently being front-runners LQWKHGHYHORSPHQWRIQHZÀQDQFLDODQGLQVXUDQFHWHFKQLTXHVWRFRYHUWKHLU environmental risk. However, a shift towards these alternatives can certainly also be found in other legal systems. 213

The two alternative compensation mechanisms that will be examined in more detail in this contribution are, on the one hand, a risk-sharing agreement for soil clean-up and, on the other hand, an environmental damage insurance. Both have been developed within the Netherlands but, as mentioned, it seems that other countries have also followed this example. Therefore, these merit a discussion in a broader context. Moreover, this shift away from liability insurance toward some alternative compensation mechanism of course deserves attention within a context of a book dealing with shifts in the compensation of environmental GDPDJH7KHÀUVWVKLIWWREHH[DPLQHGPRUHFORVHO\KDVDUHODWLYHO\OLPLWHG character and concerns a voluntary agreement drafted by potentially responsible parties for soil pollution as a result of underground storage of oil. The agreement

 7KHVH UHVHUYHV DUH VRPHWLPHV ZURQJO\ TXDOLÀHG DV D IRUP RI ¶VHOILQVXUDQFH·$V ZH argued earlier this is not insurance since in that case there is no risk spreading involved. See M. Faure and D. Grimeaud, Financial Assurance Issues of Environmental Liability, in: M. Faure (ed.), Deterrence, Insurability, and Compensation in Environmental Liability. Future Developments in the European Union (2003), Vienna, Springer, 214-217. 2 For further details, see R.E. Smith, E.A. Canelo and A. De Dio, Reinventing Reinsurance using the Capital Markets, Geneva Papers on Risk and Insurance (1997), 26-37 and F. :DJQHU ¶5LVN 6HFXULWL]DWLRQ$Q$OWHUQDWLYH 5LVN 7UDQVIHU RI ,QVXUDQFH &RPSDQLHV· Geneva Papers on Risk and Insurance (1998), 574-607. 3 For an overview see M. Faure, Alternative Compensation Mechanisms as Remedy for Uninsurability of Liability, The Geneva Papers on Risk and Insurance, vol. 29, no. 3 (2004), 455-489 and M. Faure, De Meerwaarde van het aansprakelijkheidsrecht voor het milieu, in: T. Hartlief and S. Klosse (red.), Einde van het aansprakelijkheidsrecht? (2003), Den Haag, Boom Juridische Uitgevers, 263-273. 1

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is hence limited to this particular sector, but the phenomenon of risk-sharing agreements has a long tradition in the compensation of environmental damage. As some of the other contributions to this volume make clear, compensation, for instance for oil pollution, has always been provided through the so-called Protection and Indemnity Clubs (P&I Clubs) which consist of a mutual risksharing between owners. The second trend, a move away from liability insurance towards so-called environmental damage insurance is interesting as well. The TXHVWLRQPRUHSDUWLFXODUO\DULVHVZK\HQYLURQPHQWDOGDPDJHZRXOGEHGLIÀFXOW to insure under a liability cover (as is often claimed) but would be insurable under an environmental damage insurance (whereby no longer the liability of the operator, but the environmental damage is the object of insurance coverage). The starting point for all of these evolutions is, as mentioned above, the dissatisfaction of some operators with the existing possibilities of liability cover. In some cases, liability cover for environmental harm is not available at all; in RWKHUFDVHVLWLVRQO\DYDLODEOHDWDKLJKSULFH7KHÀUVWTXHVWLRQWKDWWKHUHIRUH arises is what the causes are of some of the dissatisfaction with the current liability cover. Next, some attention will be paid to the risk-sharing agreement for damage caused by underground storage of oil. Then a description and analysis follows of environmental damage insurance, and the paper ends with a few concluding observations.

214

Although the main goal of this contribution is, in keeping with the framework described in the introduction to this volume, primarily to describe some of the VKLIWV WKDW KDYH WDNHQ SODFH WRZDUGV WKHVH DOWHUQDWLYH ÀQDQFLQJ PHFKDQLVPV (Question 1), an attempt to explain why these shifts occurred (Question 2) will also be made. In addition, a normative analysis of these trends will also be provided (Question 4) using the economic analysis of law. To be clear: the shifts discussed in this contribution are not direct shifts caused by either case law or regulation from private toward public funding or vice versa but rather shifts within the market system itself whereby alternatives have been developed. However, for the central topic of this volume, i.e. shifts in compensation for environmental damage, we believe that these are not less important.

215

%3UREOHPVZLWKOLDELOLW\LQVXUDQFH The insurability of environmental damage has been extensively studied in the literature. It is of course not useful to provide a summary of the results of this literature within the scope of this contribution.4 Nevertheless, it seems useful WREULHÁ\VXPPDUL]HWKHPDLQSUREOHPVWKDWDFFRUGLQJWRWKLVOLWHUDWXUHRFFXU when coverage is sought for the liability for environmental damage.

4

A summary of that literature on insurability of environmental harm can inter alia be found in M. Faure and D. Grimeaud, (supra fn. 1), 123-179.

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217

$ÀUVWFODVVLFSUREOHPRIWHQPHQWLRQHGLVWKDWLQVXUHUVZRXOGODFNVXIÀFLHQW information to cover environmental risks. The argument is that there is both factual and legal uncertainty with respect to environmental risks.5 The problem is that, for the working of liability insurance, an insurer needs information concerning the probability that a certain event will occur and on the possible magnitude of the damage. Insurers usually use statistics to obtain this information. Since environmental damage is a relatively new risk, this information may simply not be readily available (or only at high costs). Thus, the environmental risk in general, but more particularly the risk that a potentially responsible party will be held liable to compensate for environmental harm, may be unpredictable. Also insurers have stressed that the main problem with environmental risks is that reliable statistics may be missing, which endangers the insurability of the risk.6 However, the literature has indicated that there is some possibility to deal with this problem of so-called “insurer ambiguity”. In case of uncertainty concerning either the probability of the event or the magnitude of the damage, an insurer can charge a so-called risk premium to account for this unpredictability.7 The H[WHQWRIWKHULVNSUHPLXPFDQWKXVUHÁHFWWKHXQFHUWDLQW\FRQFHUQLQJWKHULVN However, from the moment that there is high uncertainty and the insurer would thus charge a high-risk premium, the demand for insurance might be lowered.

218

A second element, related to the predictability of the risk is that there may be uncertainty as to the precise scope of environmental liability, more particularly when it concerns “environmental damage”. It is sometimes argued that the GHÀQLWLRQRIHQYLURQPHQWDOGDPDJHLVWRRYDJXH7KXVDEURDGOLDELOLW\IRU HFRORJLFDOGDPDJHZRXOGEHGLIÀFXOWWRLQVXUHVLQFHex ante it would be hard WR GHÀQH SUHFLVHO\ WKH VFRSH RI OLDELOLW\8 Indeed, also Rogge, an expert in environmental insurance, held that environmental harm is only insurable if LWLV´LGHQWLÀDEOHDQGPHDVXUDEOHµ9 Related to the vagueness of the concept of ecological damage is the fact that environmental liability insurance may sometimes be confronted with so-called gradual pollution. Traditional liability insurance relates to sudden events, in other words accidents. Pollution cases are RIWHQRIDJUDGXDOQDWXUHZKLFKPDNHVLWPRUHGLIÀFXOWinter alia to determine the precise moment at which the harm occurred.10

5

6

7

8

9 10

See A. Monti, Environmental Risk: A Comparative Law and Economics Approach to Liability and insurance, European Review of Private Law (2001), 59-62. See for instance the contribution by the director of the Belgian Insurance Association (BVVO) J. Rogge, Les assurance on matière d’environnement (1997), 4. See H. Kunreuther, R. Hogarth and J. Meszaros, Insurer Ambiguity and market Failure, Journal of Risk and Uncertainty (1993), 71-87. See in this respect also D. Ranson, Verzekering van milieuaansprakelijkheid, Milieu en Energierecht (MER) (2000), 66-73. See J. Rogge, (supra fn. 6), 6. This problem is further discussed by H. Cousy, Recent Developments in Environmental Insurance, in: F. Abraham, K. Deketelaere and J. Stuyck (eds.), Recent Economic and Legal Developments in European Environmental Policy (1995), 227-241.

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A third problem often mentioned with respect to environmental (liability) insurance is simply the scope of the damage. It is argued that environmental harm can sometimes have a catastrophic nature as a result of which an individual insurer FRXOGQRWKDYHWKHSRVVLELOLWLHVWRSURYLGHVXIÀFLHQWFDSDFLW\7KHWUDGLWLRQDO answers to a lack of insurance capacity are obviously instruments such as coinsurance, re-insurance, and pooling. More particularly, with respect to nuclear insurance, one can notice a pooling of resources by national insurers to cover the nuclear risk.11

219

A fourth problem is that insurers need to deal with the traditional insurance problems of moral hazard and adverse selection. The traditional remedy of risk differentiation of course requires the insurer to obtain adequate information on the risk that the particular insured potential polluter would be held liable towards third parties. To some extent, this risk differentiation can be undertaken by insurers who check the ecological reliability of an insured either by specializing in environmental risk or by relying on audits of third parties to do so. A related problem, in particular concerning liability insurance, is that the insurer is not only required to control the particular environmental behaviour of his insured (in order to control moral hazard), but also to take into account the likelihood that this insured will be held liable by the judge in a particular liability case. Again, given the fact that the environmental liability risk is a relatively new risk and that in many countries case law or legislation has only been developed recently, it may be hard to predict under what circumstances potential injurers who are insured will be held liable.

220

$ÀIWKULVNZLWKHQYLURQPHQWDOOLDELOLW\UHODWHVWRWKHZHOONQRZQSUREOHPRI uncertainty over causation. In case of causal uncertainty, there is always a danger that courts may shift the risk of causal uncertainty to the particular injurer, for instance by shifting the burden of proof and requiring the polluter to show that the particular damage has not been caused by his activity. The danger of this VKLIWLQJRIWKHEXUGHQRIFDXVDOXQFHUWDLQW\LVWKDWWKHLQVXUHURIWKHVSHFLÀF enterprise may be held to compensate for damage which, on the whole, has probably not been caused by the insured party.12

221

$ÀQDOLQDGGLWLRQWRPDQ\RWKHUV SUREOHPZKLFKLVFDXVLQJKHDGDFKHVWRPDQ\ insurers with respect to environmental liability insurance relates to the fact that, as mentioned, environmental liability often does not relate to sudden events, but to a so-called long-tail risk. Problems arise especially when a long period of time occurs between the moment that some (potentially wrongful) emission

222

11 12

See the contribution of Van den Borre to this volume. See in this respect K. Abraham, Environmental Liability and the Limits of Insurance, Columbia Law Review (1988), volume 88, 959-960, M. Katzman, Pollution Liability Insurance and Catastrophic Environmental Risk, Journal of Risk and Insurance, (JRI) (1988), 89-90 and L. Bergkamp, The Proper Scope of Joint and Several Liability, Tijdschrift voor Milieuaansprakelijkheid (TMA) (2000), 154-155.

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took place and the moment that the damage occurs. Even though insurers now increasingly tackle this problem of long time laps through the introduction of a so-called “claims-made” policy,13 even a shift to this method of coverage may not completely protect the insurer, in particular against the tendency of courts to apply liability in a retrospective manner. The latter risk is always inherent in environmental liability cases since the judge will always examine the behaviour of the particular polluter with the knowledge of today, even though the act may have occurred in the distant past. 223

In sum, these and many other features may, so many insurers (but also legal doctrine) hold, make environmental liability a “hard to insure” risk. The insurability is more particularly endangered through factual and legal uncertainty, a lack of statistics, high potential damage and the frequent “long-tail” character of environmental pollution and related causation problems. All of those features, which have been described in the literature in detail, lead to the situation that also traditional remedies to increase the insurability of risks (such as risk difIHUHQWLDWLRQ DUHHLWKHUGLIÀFXOWWRDSSO\RUFDQRQO\EHDSSOLHGDWKLJKFRVWV This obviously leads to the conclusion, not that environmental liability is ipso facto uninsurable, but that the insurability may be endangered. The result is often that insurers may only be willing to cover this risk at a relatively high price, which may then not correspond to a willingness of the insured to pay.14 These problems are unfortunately not merely of a theoretical nature. One could notice in many countries that either insurers were not willing to develop products related to the coverage of environmental liability or that, in countries where environmental liability was insured, insurers either increased the premium or increasingly withdrew from that market. This is precisely the problem which also arose in the Netherlands and, because of this a shift to some alternative mechanisms took place, which will now be further examined.

&5LVNVKDULQJIRUGDPDJHFDXVHGE\XQGHUJURXQGVWRUDJHRIRLO 1. Examples of risk-sharing agreements. 224

Risk pooling by potentially responsible parties has always been advanced in the literature as a mechanism to increase the capacity to cover environmental damage and at the same time provide a better control of moral hazard. Ex ante risk-sharing agreements are, so it has often been held, useful in cases where

13

14

This means that the claim for damages must have been received by the insured or his insurer during the period of insurance cover. See in this respect Hogarth and Kunreuther who showed that the willingness to pay of an insured party may be less than the required risk premium since individuals may underestimate low probability events like environmental liability. See R. Hogarth and H. Kunreuther, Ambiguity and Insurance Decisions, American Economic Review (AER) (1985), volume 75, 386-390 and see M. Katzman, (supra footnote 12), 86.

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there is an uncertain risk and ex ante information on probability and the possible magnitude of the risk is not available. Skogh has stressed that the advantage of an ex ante mutual risk-sharing is that coverage is possible despite the fact that no precise information on the probability of the accident is available. Insurance requires a premium and hence information on the probability and the damage. Mutual risk-sharing is, on the contrary, possible even if that information is lacking. All that is needed is information about the relative contribution of the various parties to the risk.15 Through the sharing of risks, prevention becomes a collective responsibility for all the partners. Mutual risk-sharing will then lead to a mutual monitoring of the risks of the partners involved. Skogh therefore holds that risk-sharing agreements can especially be attractive when 1. Actuarial information to make the risk insurable may be lacking and 2. Mutual monitoring by the operators engaged in the risk-sharing agreement is possible. In other words, one would expect risk-sharing agreements to function well in cases where in fact operators themselves have better information on the relative risks (in order to differentiate the risks and require optimal safety mechanisms) than insurers. One should thus not be surprised that the examples of risk-sharing agreements LQWKHHQYLURQPHQWDOÀHOGFDQLQGHHGEHIRXQGLQDUHDVZKHUHSUREDEO\LQIRUPDtion on the risk is more readily accessible to the industry than to insurers. For instance, the American Price-Anderson Act is largely based on a mutual risk spreading among all nuclear power plants. This Act makes an amount of U.S. $ 9 billion available, which is considerably more than the amounts available under the international liability conventions.16 Another example can be found with respect to the insurance of marine oil pollution.17 Insurance is provided by the so-called Protection and Indemnity Clubs (P&I Clubs). The members of these clubs are the ships’ owners. At the beginning of each year, a “call” is made which should cover the claims and administrative costs.18 P&I Clubs thus IXQFWLRQDVDPXWXDOLQVXUDQFHFRPSDQ\ZKHUHE\SURÀWVDQGORVVHVDUHVKDUHG among the members.

225

These are examples where risks are apparently so technical and complicated that the operators themselves, rather than the insurance company, can be judged

226

15

16 17

18

See for instance G. Skogh, Development Risks, Strict Liability and the Insurability of Industrial Hazards, The Geneva Papers on Risk and Insurance (1998), 247-265 and G. Skogh, Mandatory Insurance: Transaction Costs Analysis of Insurance’, in: B. Bouckaert and G. de Geest (eds.), Encyclopedia of Law and Economics, II, Civil Law and Economics (2000), 521-537. See in this respect the contribution of Van den Borre to this volume. See with respect to the liability for oil pollution the contributions of Hui Wang, Albert Verheij and Ruud Hendrickx to this volume. See J. Bongaerts and A. Debièvre, Insurance for Civil Liability for Marine Oil Pollution Damages, Geneva Papers on Risk and Insurance (1987), 145-187 and T.G. Coghlin, Protection and Indemnity Clubs, Lloyds Maritime and Commercial Law Quarterly (1984), 403-416.

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better able to monitor the risk and to require the necessary preventive measures. Mutual risk-sharing via a pool of operators is not only possible with high SURÀOHULVNVVXFKDVRLOSROOXWLRQRUQXFOHDUDFFLGHQWV&RRSHUDWLYHULVNVKDULQJ agreements are also possible to take care of soil clean-up costs.19 In this respect, two Dutch examples are particularly interesting. There is, on the one hand, the foundation for the execution of soil clean-up by fuel outlets, which functioned for a period of more than ten years to deal with historic soil pollution caused by gas stations. This voluntary clean-up was executed by a foundation called SUBAT.20 The goal of SUBAT was to take care of soil clean-up after a fuel outlet had terminated its activities. The condition was that the licensee had to report to SUBAT before August 1993 and had to promise not to start a new outlet on the same premises. This foundation hence dealt with historic soil pollution DQG ZDV ÀQDQFHG WKURXJK D FRQWULEXWLRQ SDLG E\ WKH RLO FRPSDQLHV$ WUXH risk-sharing agreement was subsequently created in the foundation, COFIZE.21 The goal of this COFIZE foundation was rather to grant licensees of fuel outlets DQRSSRUWXQLW\WRIXOÀOOWKHLUOHJDOREOLJDWLRQXQGHU'XWFKODZ WRSURYLGHD ÀQDQFLDO JXDUDQWHH LQ FDVH QRQUHFRYHUDEOH GDPDJH ZDV FDXVHG IURP WKHLU gas station. Whereas the activities of the SUBAT foundation (for historic soil pollution) have almost been terminated, COFIZE is still active today and plays an important role in providing the possibility to licensees of gas stations to meet WKHLUVWDWXWRU\REOLJDWLRQWRSURYLGHÀQDQFLDOVHFXULW\DJDLQVWWKHLULQVROYHQF\ Both initiatives play a modest but interesting role in the compensation of environmental damage and therefore merit some further attention. This attention is all the more warranted since one can notice that both foundations involve some cooperation with the government. This was especially the case under the SUBAT foundation, but also the COFIZE foundation in fact was established to meet a regulatory duty. Moreover, the Ministry of the Environment in the Netherlands H[SUHVVO\GHFODUHGWKDWPHPEHUVKLSRI&2),=(HTXDOVIXOÀOOLQJWKHUHJXODWRU\ REOLJDWLRQWRSURYLGHÀQDQFLDOVHFXULW\+HQFHZLWKLQWKHGHEDWHRQVKLIWVIURP private to public, it is interesting to analyze how these foundations and their DFWLYLWLHVVKRXOGSUHFLVHO\EHTXDOLÀHG0RUHRYHUWKLV'XWFKLQLWLDWLYHVHHPV to have been followed in other countries as well.22 For instance, recently in the Flemish region, a similar initiative to SUBAT came into being: in July 2003 the Flemish parliament agreed to the creation of a so-called “gasoline fund” under the name of BOFAS which, as with SUBAT, provides gasoline stations the possibility to end their activities and subsequently have the soil clean-up ÀQDQFHGWKURXJK%2)$623 The construction of BOFAS is different to SUBAT

19

20 21 22 23

See also the example of a collective risk-sharing agreement for soil clean-up costs in Germany discussed in the contribution of Verheij to this volume. Stichting Uitvoering Bodemsanering Amovering Tankstations. Stichting Collectief Financieel Zekerheidsfonds. See also the German initiative referred to in the previous footnote. See for further information on this foundation Bofas: <www.bofas.be/index.php> and see for details the contribution of A. Verheij on soil pollution (chapter II of this volume).

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in the sense that BOFAS does not prohibit the exploitation of a new fuel outlet on the same premises. 2. SUBAT and COFIZE 2.1. SUBAT The origin of the SUBAT foundation can be found in a plan of the Dutch Ministry of the Environment to initiate a regulation with respect to preventive measures to be followed by gas stations in order to prevent soil pollution. This regulation was already announced at the beginning of the 1990s and was eventually adopted on 20 January 1994.24 This regulation imposed severe conditions on OLFHQVHHVRIJDVVWDWLRQVPDQ\RIZKRPZHUHSUREDEO\QRWDEOHWRIXOÀOOWKHVH new and stringent regulations. However, terminating the activity was in some FDVHVGLIÀFXOWDVZHOOVLQFHWKHQDOLFHQVHHRIDJDVVWDWLRQFRXOGKDYHEHHQ confronted with highly expensive soil clean-up claims. The SUBAT foundation was in fact created more to provide the licensees of (smaller) gas stations with the possibility to terminate their activities themselves without having to pay for the historic soil pollution.25

227

The SUBAT foundation had as its goal to execute the clean-up of gas stations whose activities are terminated and which have voluntarily participated in the foundation and have subsequently been accepted by it. The estimation was that the clean-up of polluted soil by these gas stations would amount to approximately ELOOLRQ*XLOGHUVDSSUR[LPDWHO\½PLOOLRQ 7KH68%$7IRXQGDWLRQ was a cooperation between governments26 and some corporate actors.27 The soil clean-ups executed by SUBAT are paid through a contribution by the oil companies. However, this can implicitly be passed on in the oil price. Hence, it is ultimately the consumer of the gasoline who pays for the clean-up costs for soil pollution.28

228

One of the conditions for SUBAT to intervene was that the owner had to declare that, according to the best of his knowledge, the soil pollution was caused as a

229

24 25

26

27

28

Besluit van 20 januari 1994 houden de regels voor tankstations voor het wegverkeer. Details concerning this foundation can be found in a book published by the foundation ten years after its existence SUBAT, Tussen wensen, eisen en werkelijkheid. Een verslag van tien jaar bodemsanering, Rotterdam, SUBAT, 2001 and in a (critical) contribution E\--%ODQNHQ¶9ULMZLOOLJH·ERGHPVDQHULQJLQGHSUDNWLMNGHVWLFKWLQJ68%$7·Milieu en Recht (1993), 157-161. More particularly the Ministries of the Environment, Economic Affairs and Finances. However, the initiative clearly came from industry. The representative of the ministerial departments merely had a right to give advice during the board meetings. Inter alia large oil companies, the organization for car dealers (BOVAG), the Dutch association of enterprises active in the energy sector and the Dutch association of trade in oil and coal. See J.J. Blanken, (supra footnote 25), 157.

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result of a normal exploitation of the gas station. Art. 5 of the SUBAT conditions explicitly held that the owner remains liable for the clean-up of pollution which has been caused by a use other than the normal use of the gas station. Also art. 10 of the general conditions of SUBAT stipulated that the owner had to terminate his activities within three months after signing the agreement with SUBAT. Moreover, art. 7 of the conditions of SUBAT provided that the owner subrogated the SUBAT foundation in the right to execute rights of recourse against potentially liable third parties. 230

The philosophy of SUBAT was hence clear: owners of gas stations could participate voluntarily, but SUBAT would only take over the soil clean-up on the condition that the particular owner would terminate his commercial activities in that station. Therefore, SUBAT clearly only dealt with clean-up of historic soil pollution. In principle, the issue of liability or negligence was irrelevant. The only condition was, as mentioned, that there had been a normal use of the particular gas station. In addition, art. 11 of the general conditions of SUBAT also provided that the owner was not allowed to open a new gas station later at WKHVDPHORFDWLRQ0RUHRYHU68%$7FDPHLQWRIRUFHLQDQGWKHÀQDOGDWH for owners of gas stations to apply to SUBAT was 31 August 1993. This was the deadline for the application form to demand soil clean-up under SUBAT to EHVXEPLWWHG7KHÀ[HGGHDGOLQHRI$XJXVWZDVGHOLEHUDWHO\FKRVHQ since otherwise there could have been a serious risk that also damage that came into being after the creation of SUBAT would have to be covered (which would thus no longer be historic soil pollution). The deadline was important since, subsequently, increased regulatory duties for gas stations also applied.

231

In practice liability law did not play a role in case of SUBAT. SUBAT examined ex anteZKHWKHUDSDUWLFXODURZQHUIXOÀOOHGWKHFRQGLWLRQVIRUFOHDQXSXQGHU SUBAT and did not exercise his theoretical rights of subrogation.29 The basic idea of SUBAT is obviously that it is a temporary measure: it was meant to provide soil clean-up for historic pollution for those gas stations that applied for intervention until 31 August 1993. Today the activities (clean-up) of SUBAT DUHDOPRVWÀQLVKHG30 so the basic idea is that SUBAT terminates its activities when the clean-up of historic pollution for which it was erected has been completed. 2.2. COFIZE

232

COFIZE is of a totally different nature than SUBAT. Whereas SUBAT was a foundation in which the government also participated (with an advisory vote), IXQGHG WKURXJK FRQWULEXWLRQV IURP LQGXVWU\ WR ÀQDQFH KLVWRULFDO SROOXWLRQ COFIZE has another goal. In principle it only intervenes for the coverage of

29

Interview with Mr. Jan Schipper, director of SUBAT on 4 April 2003.  6WLOOLQRXWRIWKHDSSUR[LPDWHO\FOHDQXSVKDYHWREHÀQLVKHGLQWHUYLHZ with Mr. Linschoten of SUBAT on 4 July 2006).

30

Shifts in Compensation for Environmental Damage

83

WKHÀQDQFLDOJXDUDQWHHWKDWJDVVWDWLRQVDUHVXSSRVHGWRSURYLGHRQWKHEDVLVRI legislation to guarantee that they can meet their obligations. COFIZE hence will ex ante monitor the quality of the gas stations they cover and will in principle only provide coverage when the soil of the particular gas station is considered as clean. The goal of COFIZE has to be seen within the regulatory context in the Netherlands. After the earlier mentioned regulation of 20 January 1994 providing VSHFLÀFUXOHVWRSUHYHQWVRLOSROOXWLRQRFFXUULQJIURPJDVVWDWLRQVVXEVHTXHQW UHJXODWLRQVDOVRLQWURGXFHGVSHFLÀFREOLJDWLRQVWRSURYLGHÀQDQFLDOVHFXULW\ For instance, the earlier mentioned regulation concerning gas stations was amended by a regulation of 12 December 200231 in which a duty to provide ÀQDQFLDOVHFXULW\ZDVIXUWKHUVSHFLÀHG$PRUHJHQHUDOL]HGGXW\RQWKHEDVLV of the Environmental Management Act was introduced with a regulation of 8 February 2003.32 A gas station can participate in the COFIZE foundation to IXOÀOOLWVREOLJDWLRQWRSURYLGHÀQDQFLDOVHFXULW\DVODLGGRZQLQDUWRIWKH regulation concerning gas stations. This regulation provides that the licensee of a JDVVWDWLRQKDVWRSURYLGHÀQDQFLDOVHFXULW\XSWRDQDPRXQWRI½IRU HYHU\XQGHUJURXQGJDVWDQNZKLFKLVVWRUHGXSWRDPD[LPXPRI½ for the entire gas station.33

233

When a gas station has applied for participation within COFIZE, art. C1 of the rules provides that the foundation will examine whether the gas station can obtain coverage under COFIZE. A condition for participation is inter alia that the gas station has to comply with all the conditions imposed according to the regulation concerning gas stations. Moreover, the gas station will in principle only be accepted when it can prove that an assessment has been executed as far as the quality of groundwater and the soil is concerned. The licensee makes a OXPSVXPSD\PHQWRI½DQGD\HDUO\FRQWULEXWLRQRI½IRUHYHU\ WDQNZKLFKLVVWRUHGXQGHUJURXQGZLWKDPD[LPXPRI½34 When certain VDIHW\PHDVXUHVKDYHQRWEHHQWDNHQIRULQVWDQFHWKHUHLVQRÁRRUWKURXJK which liquids cannot leak), the amounts due by the licensee will be higher. The premium is hence in principle the same for all participants (based on the fact that there is an ex ante screening on soil or groundwater pollution) but, based on the absence of certain safety measures, a higher premium can be asked.

234

Art. D1 of the rules provides that COFIZE in principle only covers “unclaimable damage”. The coverage is provided exactly up to the amount for which a licensee ZRXOGKDYHWRSURYLGHÀQDQFLDOVHFXULW\DFFRUGLQJWRWKHUHJXODWLRQ&UXFLDOLV that COFIZE in principle only covers the so-called non-claimable damage. That means that when there is liability of the licensee and the licensee is solvent,

235

 2IÀFLDOMRXUQDO6WDDWVEODG QU  2IÀFLDOMRXUQDO6WDDWVEODG QU 33 Those were the amounts applicable in 2003. 34 These were again the amounts applicable in 2003. 31 32

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in principle COFIZE will not intervene. In this respect, COFIZE in fact only SURYLGHVFRYHUDJHDJDLQVWLQVROYHQF\$FODLPFDQEHÀOHGWR&2),=(E\WKH victim, with the exception of the licensee himself. If the licensee thus wishes WRREWDLQÀQDQFLDOFRYHUDJHIRUWKHHQYLURQPHQWDOGDPDJHKHVXIIHUVKLPVHOI other forms of coverage have to be sought, for instance environmental damage insurance, which will be discussed below. 236

COFIZE thus guarantees solvency of the gas stations after a primary quality control. Since it only provides a solvency guarantee, the price to be paid by the gas station to meets its regulatory duty to provide a guarantee against insolvency is relatively low.35 Art. D2 of the COFIZE rules provides that they will not compensate damage of which it can reasonably be assumed that it is the consequence of either intent or gross negligence of the licensee or the consequence of a willful violation of government regulations by the licensee. The construction of COFIZE is that of a mutual, created by the sector itself. The Minister of the Environment has moreover recognized that joining COFIZE meets the obligation of the gas station to provide a solvency guarantee.

237

Normally COFIZE will only intervene when the activities of the licensee are terminated. If there is no termination of the activities, a claim by third parties will only be allowed when the claimant can prove he has done everything which could reasonably be expected of him to recover damages from the liable party. 7KLVUXOHDJDLQFRQÀUPVWKDW&2),=(RQO\SURYLGHVDVROYHQF\JXDUDQWHH7KH basic idea is that it is still the licensee who is primarily responsible. Until 2006 COFIZE has not had to intervene yet.36 2.3. Analysis

238

The constructions of SUBAT and COFIZE are of course very different. SUBAT is a private fund with government support, at least a foundation in which governPHQWDQGSULYDWHSDUWLHVFRRSHUDWHDQGZKLFKLVÀQDQFHGWKURXJKDWD[RQRLO products. Thus, the creation of SUBAT and the (be it limited in time) possibility to join SUBAT for owners of fuel outlets could be considered as a shift from private to public funding. Indeed, owners who otherwise would be confronted with the costs of soil clean-up now could shift these costs via SUBAT to the JHQHUDOWD[SD\HU7KLVÀQDQFLQJFRQVWUXFWLRQRIFRXUVHUDLVHVTXHVWLRQVIURP an economic perspective, more particularly as far as the effects on prevention are concerned. In principle, from an economic perspective, one would expect DOLDELOLW\RUÀQDQFLQJV\VWHPWREHFRQVWUXFWHGLQVXFKDZD\WKDWOLDELOLW\LV imposed on those who have created the risk. In this particular case, it was the fuel outlets who participated in SUBAT who probably created the risk themselves

35

36

Recently (in 2006) COFIZE could even grant a reduction on the contribution since it did QRWKDYHWRLQWHUYHQHDQGWKXVKDGVXIÀFLHQWIXQGVDYDLODEOHLQWHUYLHZZLWK0U/LQVFKRWHQ of COFIZE on 4 July 2006). Interview with Mr. Linschoten of COFIZE on 4 July 2006.

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and who are subsequently able to shift these costs to the larger community of consumers of gasoline products. However, one has to realize that this regime only applied to historic pollution and moreover also had a temporary nature. Thus, it could be argued that there are probably no negative incentive effects since it is likely that the pollution was caused at the moment that owners of gas stations were or should maybe not have been aware of the wrongfulness of not WDNLQJVXIÀFLHQWPHDVXUHVWRSUHYHQWVRLOSROOXWLRQIURPWKHLUJDVVWDWLRQV37 Since there was thus probably no liability of the licensee at the time of the occurrence of the soil pollution, it can be argued that shifting the costs to the general taxpayer (instead of to the polluter) is not problematic. A retrospective liability could anyway not positively affect the incentives of care of the owner of the gas station.380RUHRYHUWKH68%$7UHJXODWLRQVFOHDUO\VWLSXODWHGDÀQDOGDWHE\ ZKLFKDSSOLFDWLRQVWRMRLQ68%$7KDGWREHVXEPLWWHG7KLVÀQDOGDWHZDVDOVR expressly provided to reduce a moral hazard problem.39 Thus, it would not have been possible, for example, to create additional pollution with the knowledge that it would be possible to shift these costs via SUBAT to the general public of consumers of gasoline products. In sum, the SUBAT construction did not seem to create negative incentives on care. Since it mainly addressed historic pollution, the creation of SUBAT could thus not have affected future behaviour. In fact, many have argued that, if there are no incentive effects from a retrospective liability for historic pollution, such a regime should in principle be avoided. The PRVWORJLFDOGLVWULEXWLRQDOVROXWLRQWRKLVWRULFSROOXWLRQLVWKHQWRVHHNÀQDQFLQJ through the public purse.40 The SUBAT construction in fact redistributes the costs of historic soil pollution to the larger community of consumers of gasoline products which could, from a distributional perspective, certainly be defended. Moreover, a positive incentive effect of the SUBAT construction is obviously that this invited many owners of gas stations to voluntarily join this fund in order to have the possibility of cleaning-up their polluted soils. Owners who were confronted with large historic pollution and who wished to continue their activity would probably one day have to undertake a clean-up of the soil themselves at their own expense or be confronted with the lower value of the land they own. The unique offer by SUBAT provided owners with strong incentives to terminate their activities and have their polluted land cleaned up at the expense of SUBAT. From society’s perspective, the advantage is probably that in this way a large problem of historic pollution could be solved relatively easily, at reasonable costs and within reasonable time without negatively affecting incentives for prevention in the future.

37

38

39 40

Although this of course depends to a large extent on the moment at which the pollution occurred. In 1970 this lacking knowledge was probably not wrongful; but that was of course less the case in 1990. See in this respect L. Kaplow, An Economic Analysis of Legal Transition, Harvard Law Review (1986), volume 99, 509-617. So Mr. J. Schipper, director of SUBAT, during an interview on 4 April 2003. This is also suggested by J. Boyd and R.H. Kunreuther, Retroactive Liability or the Public Purse, Journal of Regulatory Economics (1997), 79-90.

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239

A similar positive conclusion can probably be reached with respect to the COFIZE construction as well, even though this fund is of a totally different QDWXUHWKDQ68%$7,QWKLVFDVHWKHUHLVQRJRYHUQPHQWLQWHUYHQWLRQRUÀQDQFing via the taxpayer. The construction is a risk-sharing agreement, mentioned above, whereby the participating enterprises jointly share the risk that would be created by an abandoned gas station. The way COFIZE is set up shows WKDWSDUWLFLSDWLQJHQWHUSULVHVEHQHÀWIURPDOORIWKHWUDGLWLRQDODGYDQWDJHVRI a risk-sharing agreement. In principle, COFIZE imposes serious requirements on those who wish to become a member. COFIZE moreover declared itself to be specialized in monitoring the quality of groundwater and soil under gas stations, so that sometimes even more stringent conditions are imposed than the government would impose.41 One could thus argue that COFIZE, as a pool RIRSHUDWRUVSUREDEO\SRVVHVVHVVXIÀFLHQWLQIRUPDWLRQLQRUGHUWRH[HUFLVHD mutual monitoring. Poorly managed gas stations will not be allowed within the pool (COFIZE) since this would increase the risk for others. Moreover, there is not only an ex antePRQLWRULQJEXWDOVRDYHULÀFDWLRQRIZKHWKHUWKHJDVVWDWLRQV comply with the government regulations that precisely aim at preventing damage caused by leaks of gasoline products.

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Moreover, COFIZE does not provide coverage for soil clean-up costs, but merely DÀQDQFLDOJXDUDQWHHDJDLQVWLQSUDFWLFH LQVROYHQF\RUDEDQGRQPHQWRIDJDV station by the licensee. The costs of a full insurance cover against soil clean-up would obviously be much higher. From society’s perspective, this is obviously not what is needed. Society wishes to have the guarantee that, in case soil polOXWLRQLVFDXVHGE\DQXQLGHQWLÀHGOLFHQVHH42 or when the licensee shows to be insolvent, funds are available to clean-up the polluted soil. One could argue that there is a moral hazard risk that licensees could shift the risk of their insolvency to COFIZE, so that COFIZE would have an interest in monitoring the solvency of its members. However, it is not the insolvency as such which is the problem but obviously the problem only arises when the insolvent member leaves a gas station with soil pollution. In particular through stringent membership requirements and by requiring a compliance with government regulation aiming at the prevention of soil pollution, this can be prevented as well. In sum, COFIZE seems, as a pool of operators, to provide precisely what the literature expects of these risk-sharing agreements. Through effective mutual monitoring, a risk reduction is effectuated, the members can meet their regulatory requirement to SURYLGHÀQDQFLDOVHFXULW\DWUHODWLYHO\ORZFRVWVDQGVRFLHW\KDVDYRLGHGWKH risk that it is confronted with so-called orphaned soil by insolvent licensees of gas stations.

41 42

So Mr. J. Schipper, director of COFIZE during an interview on 4 April 2003. Practically this can only be possible when the licensee would e.g. leave his gas station and move to the Bahamas.

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Thus, one can understand that some authors, like Bocken, are relatively enthusiastic concerning the risk-sharing agreement provided by COFIZE.43 He, nevertheless, rightly argues that, since the operator himself can bring no claim against the fund, “this solution only provides a basic solution to prevent orphaned sites but leaves it to the operator whether or not to protect his own assets against liability by insurance or other mechanisms”. Thus, the operator may indeed still wish to combine his membership of COFIZE with other solutions such as environmental damage insurance, which will be discussed below.

241

Notwithstanding the positive features of these constructions, some criticism has been formulated in the literature as well. For instance, Blanken was critical with respect to the SUBAT foundation arguing that it contained very stringent conditions that would not comply with Dutch law.44 This points to a more general problem, being that risk-sharing agreements or funds like COFIZE or SUBAT are often monopolies. The consequence is not only that they can indeed unilaterally determine the conditions under which they would be willing to accept certain risks and the level of contributions but also means that they posses the power to exclude certain (high risks). In the absence of alternative constructions, WKHVHRSHUDWRUVZRXOGKDYHGLIÀFXOWLHVLQÀQGLQJDQDOWHUQDWLYHVRXUFHWRPHHW WKHLUREOLJDWLRQWRSURYLGHDÀQDQFLDOJXDUDQWHH7KLVLVDSUREOHPWKDWRIWHQ DULVHVZLWKULVNVKDULQJDJUHHPHQWV)RULQVWDQFHLQWKHQXFOHDUOLDELOLW\ÀHOG pools between insurers are erected at a national level, thus creating national nuclear insurance pools in every country, without any competition taking place between these pools.45 The situation is, at least on paper, somewhat different in the case of oil pollution damage since there are many P&I Clubs where a tanker owner could theoretically seek coverage. However, also between the P&I Clubs an international agreement has been concluded which practically excludes competition.46 Hence, at least from a theoretical perspective, one would prefer a situation where at least some competition between pools exists.

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43

44 45

46

See H. Bocken, Alternative Compensation Systems for Environmental Liabilities, Aida XIth World Congress, New York, 21-25 October 2002, 24. J.J. Blanken, (supra footnote 25), 157-161. See M. Faure and R. Van den Bergh, Aansprakelijkheidsverzekering, concurrentie en ongevallenpreventie, in: T. Hartlief and M.M. Mendel (eds.), Juridische beschouwingen over de maatschappelijke rol van verzekeringen en verzekeringsmaatschappijen (2000), Deventer, Kluwer, 315-342. See in this respect M. Faure and R. Van den Bergh, Objectieve aansprakelijkheid, verplichte verzekering en veiligheidsregulering (1989), Antwerpen, Maklu, 331-336.

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'(QYLURQPHQWDOGDPDJHLQVXUDQFH 1. First-party, direct and third-party insurance 243

$V ZDV PHQWLRQHG LQ WKH LQWURGXFWLRQ ÀUVWSDUW\ LQVXUDQFH LV EDVHG RQ WKH principle that the victim seeks cover directly from the insurer. Such a system can of course hardly be applied to its full extent in the environmental sphere. 7KHRUHWLFDOO\LQSXUHÀUVWSDUW\LQVXUDQFHLWLVWKHYLFWLPZKRWDNHVRXWLQVXUDQFH FRYHUDQGZKRWKHUHIRUHDOVRSD\VWKHSUHPLXP6XFKDSXUHÀUVWSDUW\LQVXUDQFH scheme would probably not be very practical for environmental risks, unless one imagines industrial operators seeking cover, say for the pollution that may occur LQWKHLURZQSODQW,QWKLVFDVHWKHRSHUDWRUZRXOGLQÀUVWSDUW\LQVXUDQFHVHHN FRYHUIRUWKHGDPDJHKHPLJKWVXIIHUKLPVHOI2WKHUZLVHÀUVWSDUW\LQVXUDQFH would mean that private citizens who are afraid of suffering environmental harm, for example in their garden, seek insurance cover themselves.

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+RZHYHUWKHUHLVDQDOWHUQDWLYHZKLFKORRNVOLNHÀUVWSDUW\LQVXUDQFHDQGZKLFK is called direct insurance. In a direct insurance scheme one would imagine the potential polluter, for example, the owner of a particular site, seeking insurance cover which would provide protection also to third parties who could suffer damage resulting from that particular site.

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Such a direct insurance scheme is applied in some countries with respect to occupational health. In this case, for example, the employer would take out insurance cover on behalf of his employees, who could claim directly on the policy. Under direct insurance, the policyholder is not the victim, but the potential injurer. It is, however, not a liability insurance since the trigger to compensate is no longer liability, but the mere existence of damage.

246

)RUHQYLURQPHQWDOULVNVRQHFRXOGWKXVFRQVLGHUERWKSXUHÀUVWSDUW\LQVXUDQFH where potential victims cover losses themselves, and direct insurance, where a SRWHQWLDOSROOXWHUVHHNVLQVXUDQFHFRYHUDJHDOVRWRWKHEHQHÀWRIDWKLUGSDUW\ (the victim). As will be seen below, in practice there may be a combination of ÀUVWSDUW\DQGGLUHFWLQVXUDQFHIRUH[DPSOHZKHUHWKHRZQHURIDSDUWLFXODU site, where, say soil pollution might occur, could seek cover both for his own damage and for the damage that may be caused to third parties.

247

7KHPDLQGLIIHUHQFHEHWZHHQWUDGLWLRQDOOLDELOLW\LQVXUDQFHDQGHLWKHUSXUHÀUVW party or direct insurance is that cover under the latter is no longer for liability. Hence, a consequence (and, insurers claim, an advantage) is that liability is no longer required in order to be able to claim on the policy. Traditional insurance would say that one would need an “accident”. However, it is well known that, given the gradual nature of many pollution cases, these can hardly be considered to be sudden events, which accidents are. Therefore, in environmental insurance, GDPDJHZLOOSUREDEO\VXIÀFHEXWLWZLOOEHLPSRUWDQWWRGHVFULEHFOHDUO\ZKDW constitutes an insured damage which may give rise to a claim on the policy.

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Depending on how this is formulated in the policy, the insured will have to claim that his damage is caused by the insured activity. In the case of direct insurance ZKLFKEHQHÀWVWKLUGSDUW\YLFWLPVSUREOHPVFRXOGDULVHLIWKHUHDUHPXOWLSOH causes. In this case, the victim will obviously have to claim and prove that his damage was caused by the particular insured risk.

248

 $VKLIWWRZDUGVÀUVWSDUW\FRYHU One can now notice in environmental insurance a shift away from traditional OLDELOLW\LQVXUDQFHWRZDUGÀUVWSDUW\DQGHVSHFLDOO\GLUHFWLQVXUDQFHW\SHV,Q 1998 the General Liability Committee of the Comité Européen des Assurances &($  FDUULHG RXW D VWXG\ RQ ÀUVWSDUW\ OHJDO REOLJDWLRQV IRU FOHDQXSV DQG corresponding insurance cover in European countries.47 This study shows that, although the insurance situation between the European countries still differs to a ODUJHH[WHQWÀUVWSDUW\LQVXUDQFHFRYHUVHHPVWREHDYDLODEOHLQVHYHUDO0HPEHU States.48 In one country, that is, the Netherlands, insurers have deliberately FKRVHQWRSURYLGHFRYHURISROOXWHGVLWHVRQDÀUVWSDUW\EDVLV7KHLGHDLVWKDW WKHÀUVWSDUW\FRYHUVKRXOGUHSODFHWUDGLWLRQDOHQYLURQPHQWDOOLDELOLW\LQVXUDQFH Therefore it seems interesting to take a closer look at the insurance situation in the Netherlands.

249

The starting point for the Dutch insurers’ concern lay in the fact that all the theoretical problems discussed above concerning the insurability of environmental liability had also played a major role in the Dutch environmental practice. This related to the fact that environmental risk is an example of a “long-tail risk”, where the insurer today could be confronted with events which occurred in the distant past and would lead to liability of the insured now. Insurers held that this generally endangered the predictability of the risk. Most of these problems were therefore related to the fact that environmental harm does not constitute a sudden event, as is the case with most “traditional” accidents which are insured in liability insurance. Previously the Dutch insurance market covered the environmental risk through a variety of insurance policies, of which the most important were:

250

– –

47

48 49 50

Liability insurance policy (AVB)49 for sudden risks and occupational health risks which were related to the environment; Environment liability insurance (MAS) for risks of a more gradual nature, not including personal injury;50 and

CEA6WXG\RQÀUVWSDUW\OHJDOREOLJDWLRQVIRUFOHDQXSV&RUUHVSRQGLQJLQVXUDQFHFRYHUV in European countries, Paris, CEA, 21 October 1998. See the summary tables in the CEA study, 32. Aansprakelijkheidsverzekering bedrijven. See on that policy J.H. Wansink, De nieuwe milieuaansprakelijkheidsverzekering, Milieu en Recht (1985), 98.

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)LUHLQVXUDQFHIRUFOHDQXSFRVWVDIWHUÀUHVDOWKRXJKWKHSUHFLVHFRYHUDJH of that policy was debated).

251

This environmental liability insurance was provided by an environmental pool, referred to as MAS.51 In the MAS 50 (re)insurers work together to cover environmental liability risks. The MAS was hence constructed as an environmental pool, although the individual insurers which were connected to the MAS contracted individually to the MAS policy under their own name.

252

There was, however, much criticism of that system, which can be summarized as follows. First of all, the whole division of cover between the AVB and the MAS was based on the idea that the AVB would cover sudden risks and the MAS would cover risks of a more gradual nature. As is well known, in practice it was not always possible to make a clear distinction between sudden and gradual risks, which led to uncertainties concerning the scope of the cover of both policies. This was obviously the result of the fact that the Dutch insurers decided not to exclude the environmental risk altogether from the traditional liability insurance of companies (AVB).52

253

The environmental liability policy (MAS) was considered to be rather complicated and had a very complicated procedure for accepting those to be insured. 7KHSROLF\ZDVLQDGGLWLRQUDWKHUH[SHQVLYHDQGKHQFHGLIÀFXOWWRVHOO

254

A further problem was that neither the general environmental liability policy (AVB) nor the environmental liability insurance policy (MAS) provided any cover for damage caused to the insured’s own site. This caused a problem for the insured since, according to the case law of the Dutch Supreme Court, companies could be held liable for pollution of their own site. In addition, the fact that pollution of the insured’s site was not covered inevitably again caused uncertainty as to the scope of the cover. One could imagine cases where, for example, polluted groundwater went from the site of the insured to a neighbouring site. This caused problems since pollution of the neighbour’s site was insured whereas pollution of the insured’s own site was not.

255

Furthermore, there were more uncertainties concerning the question of whether FOHDQXSFRVWVZHUHFRYHUHGXQGHUWKHÀUHLQVXUDQFHSROLF\7KHÀUHLQVXUDQFH FRYHUHGXQGHUFOHDQXSFRVWVDIWHUDÀUHDQ\HQYLURQPHQWDOGDPDJH2IFRXUVH WKLVSROLF\RQO\LQWHUYHQHGEXWRQWKHFRQGLWLRQWKDWWKHUHZDVDSULRUÀUH,QWKH ÀUHLQVXUDQFHSROLF\QRDFFRXQWZDVWDNHQRIWKHIDFWWKDWDIWHUDÀUHVHULRXV

51

Milieuaansprakelijkheidsverzekering Samenwerkingsverband (Environmental Liability Insurance Cooperation). 52  )RUIXUWKHUGHWDLOVRQWKHVHGLIÀFXOWLHVVHH-+:DQVLQN+RHSORWVHOLQJHQRQ]HNHULVGH verzekeringsdekking voor milieuaansprakelijkheidsrisico’s?, Miscellanea. Jurisconsulto vero dedicata, Essays in honour of Professor J.M. van Dunné (1997), Deventer, Kluwer, 451-460.

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soil and water pollution could also occur. It was not always clear whether the VRLO FOHDQXS FRVWV UHVXOWLQJ IURP WKH ÀUH ZHUH DOVR FRYHUHG XQGHU WKH ÀUH insurance. )LQDOO\ OLDELOLW\ FRYHU ZDV GLIÀFXOW EHFDXVH RI DOO WKH WUDGLWLRQDO SUREOHPV UHODWHGWRHQYLURQPHQWDOOLDELOLW\VXFKDVWKHTXHVWLRQZKHWKHUDVSHFLÀFGDPage was indeed caused as a result of an insured risk. Also, case law concerning environmental liability has developed in a way in the Netherlands that had not been foreseen by insurers. Hence, liability risk was increasingly considered unpredictable and therefore uninsurable as far as environmental harm was concerned.53

256

3. Environmental damage insurance: main features 7KHDERYHPHQWLRQHGGLIÀFXOWLHVOHGWKH'XWFK,QVXUHUV$VVRFLDWLRQLQWR present a new product, the environmental damage insurance (MSV).54 This policy has been available since 1 January 1998 and it takes a revolutionary different approach from traditional environmental liability insurance.55

257

This new environmental damage policy provides for various new elements. First of all, it provides integrated cover of all environmental damage, which occurs on or from the insured site. A prerequisite is that pollution of soil or of water is concerned. The integrated cover means that the new environmental damage insurance will replace traditional pollution insurance (for sudden pollution) in the AVB and the liability insurance of the MAS (for gradual pollution).

258

The whole idea is that this cover constitutes direct insurance. In other words, the insured site is insured, even when clean-up costs have been incurred on a third party’s site. Coverage applies as soon as the insured site is polluted as the result of the insured risk, irrespective of whether or not the insured could be held liable for the damage. In some cases, the third party (the victim) can directly claim compensation from the insurer. However, this has to be provided for in the environmental damage insurance policy. The trigger for compensation under this policy is therefore no longer tort law, but the insurance policy as it has been concluded between the insured and the insurance company. This is typically ÀUVWSDUW\LQVXUDQFHRUDVLWLVFDOOHGLQWKH1HWKHUODQGVGLUHFWLQVXUDQFH,WLV

259

53

54 55

See in this respect also the problems with the insurance of environmental liability summarized supra in section 2. Milieuschadeverzekering. For a good description of the new policy see J.H. Wansink, Verzekering en milieuschade als gevolg van vervoer/opslag van gevaarlijke stoffen, Tijdschrift voor Milieuaansprakelijkheid  DVZHOODV&$-DQVVHQ$DQVSUDNHOLMNKHLGYRRUPLOLHXVFKDGHHQÀQDQFLsOH zekerheid naar toekomstig recht: nieuwe oplossingen. Nederlands Recht, in L.F. Wiggers-Rust and K. Deketelaere (eds.), $DQVSUDNHOLMNKHLGYRRUPLOLHXVFKDGHHQÀQDQFLsOH zekerheid (1998), Die Keure-Vermande, 111-112 and P.J.M. Drion, Milieu onder één dak: milieuschadeverzekering (MSV)’, Verzekeringsrechtelijke Berichten (1998/2), 19-21.

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GLUHFWLQVXUDQFHWRWKHH[WHQWWKDWLWDOVREHQHÀWVWKLUGSDUWLHV,WLVLQGHHGQRW the third-party victim who purchases insurance (although the insured may be the victim), but someone who has responsibility for a site on or from which water or soil pollution may occur. 260

Obviously environmental damage insurance cannot set aside tort law, but the main advantage, according to Dutch insurers, is that cover is not triggered on the basis of liability. The advantage from the victim’s point of view is obviously that cover can be provided more rapidly and probably at lower costs than through the court cases, which are necessary as a result of liability law.

261

Environmental damage insurance as provided by the Dutch Insurers Association has several categories with different policies. The insured can opt for various LQVXUDQFHSROLFLHV7KLVREYLRXVO\VKRZVWKDWÀUVWSDUW\LQVXUDQFHEHWWHUHQDEOHV an optimal risk differentiation since every insured will be able to purchase insurance cover according to his own preferences. The damage to the insured location itself is insured. This at least provides cover for clean-up costs and this LVUDWKHUEURDGO\GHÀQHG7KHFRVWRIUHSDLULQJWKHGDPDJHLVDOVRLQFOXGHG6RLO pollution, which is also envisaged, obviously falls within the environmental damage insurance. Note, however, that under this policy only “clean-up” costs are covered.56 The damage caused from the insured site and suffered by third parties is also covered. This clearly provides a broader scope of protection.

262

7KHLQVXUHGUHPDLQVLQSULQFLSOHIXOO\OLDEOHDOWKRXJKWKHWKLUGSDUW\EHQHÀFLary) that would be protected under the new MSV policy could claim directly on the policy and would hence in principle have no interest in using liability law. However, it might be the case that the insured has taken out too limited cover and that, in this particular case, the third party would still (have to) use liability law. In that case the liability itself is not covered (and an insolvency risk remains), but the MSV policy provides for legal assistance in a couple of VSHFLÀFFDVHV57 This is the case if, for example, the sum which is insured under WKH069FRYHUZDVQRWVXIÀFLHQWVD\WRSD\IRUWKHFOHDQXSFRVWVLQFXUUHGE\ the government or if a third party chooses liability law instead of direct action under the MSV policy.58

263

The main feature of the new environmental damage insurance provided in the 1HWKHUODQGVLVREYLRXVO\WKDWLWLVQRORQJHUOLDELOLW\LQVXUDQFHEXWRQO\ÀUVW party (or direct) insurance. The advantage for the insurer (and for the insured) LVWKDWWKHGLIÀFXOWURDGRIOLDELOLW\ODZLVH[FOXGHG:KHWKHUOLDELOLW\ODZZLOO

 $UW,,GHÀQHVDVWKHVFRSHRIFRYHUDJH´,QVXUHGDUHWKHFRVWVRIUHPHGLDWLRQRIWKH insured site. This remediation must apply to a pollution which is the direct and exclusive result of an emission, caused by one of the insured risks …”. 57 This legal aid cover, however, is not applicable if the insured takes out a low amount of cover. 58 See J.H. Wansink, Verzekering en Milieuschade als gevolg van vervoer/opslag van gevaarlijke stoffen, Tijdschrift voor Milieuaansprakelijkheid (1999), 81. 56

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still be used is uncertain. Third parties could still use liability law, although it is easier for victims to use the direct action provided under the MSV policy. There is, however, one important weakness, being the fact that environmental damage insurance is not compulsory. However, environmental (liability) insurance was not mandatory before the introduction of the MSV either. Hence, situations may still arise where companies in the Netherlands have not purchased any insurance coverage at all or situations where only a basic cover was taken out for damage on the particular site, but only to a limited extent for damage to third parties.59 In these cases, third parties claiming against the responsible party might still be confronted with an insolvent polluter. Moreover, the new MSV regime is exclusive, meaning that cover for (sudden) soil and/or groundwater pollution has now been removed from the liability insurance policy. This means that if an insured site and a loss occurred to a third party on another site, this third party would probably use liability law against the polluter. In this particular case the polluter cannot call on his general liability insurance (AVB) since environmental risks have now been removed from that policy as a result of the MSV entering into force.60 4. Analysis ,IZHWXUQEDFNWRWKHVSHFLÀFTXHVWLRQVUHODWLQJWRÀUVWSDUW\GLUHFWLQVXUDQFHLW PD\EHQRWHGWKDWWKH'XWFKVFKHPHLVDSSDUHQWO\DPL[RIÀUVWSDUW\DQGGLUHFW LQVXUDQFH,WLVSULQFLSDOO\ÀUVWSDUW\LQVXUDQFHLQWKHVHQVHWKDWWKHLQVXUHGVLWH of the potential polluter is covered. It is also a direct insurance since the policy provides that not only damage on the insured site itself is covered, but also damage suffered by a third party.

264

The trigger for cover is no longer liability, but damage. There is a clear causation requirement in the policy, since it requires that the pollution must be the direct and exclusive result of an emission caused by one of the insured risks. Moreover, only the costs of remediation of the insured site are covered, which excludes the uncertainties involved in assessing environmental damage. Insofar as the insurance policy also covers the damage suffered by third parties, it effectively functions as a liability cover.

265

7KH DGYDQWDJH IRU WKH LQVXUHG LV FOHDUO\ WKDW KLV ÀUVWSDUW\ LQVXUDQFH QRZ provides cover for damage to the site of the insured as well. This is a major change. Very often public authorities used to force polluters to clean-up their own polluted soils. Formally, this was not construed as liability and therefore no insurance cover was available.

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59

60

In principle, damage caused from the insured site to third parties is always covered, but the amounts of cover may be limited. J.H. Wansink, Verzekering en Milieuschade als gevolg van vervoer/opslag van gevaarlijke stoffen, Tijdschrift voor Milieuaansprakelijkheid (1999), 81-82.

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267

As far as prevention via optimal risk differentiation is concerned, insurers claim that this policy for them has the major advantage that they can adequately control ex ante the quality of particular soil and the production methods applied by the insured. On that basis, an adequate assessment of the risk can be made.

268

However, some company lawyers have been critical of this new insurance product. They argue that, in practice, insurers do not easily provide cover. As a result effectively only the very good risks would be able to receive cover.61 Hence, they claim that one cannot blindly argue that environmental damage insurance is a remedy for all insurability problems relating to environmental ULVNV,QGHHGWKHÁLSVLGHRIDQHIIHFWLYHex ante monitoring is obviously that insurers could choose either only to cover good risks or to cover bad risks only for a high premium. But one can hardly reproach insurers for applying insurance economic principles correctly.

269

Moreover, the advantage for the insured is that, under this environmental damage insurance, damage caused to their own site is also covered, which was obviously not the case under liability insurance.62 If, at the policy level, one concluded that an environmental liability system should be combined with some form of JXDUDQWHHWKDWÀQDQFLDOVHFXULW\ZDVDYDLODEOHRQHVKRXOGDWOHDVWOHDYHWKH RSWLRQ RSHQ WR LQGXVWU\ WR SURYLGH WKLV ÀQDQFLDO VHFXULW\ YLD HQYLURQPHQWDO GDPDJHLQVXUDQFH7KH'XWFKH[DPSOHVKRZVWKDWWKLVÀUVWSDUW\W\SHFRYHUDJH seems able to meet that end.63 Moreover, the example seems to be followed in other countries as well.64

270

However, unavoidably, there are also limitations to this shift towards environmental damage insurance. One question that arises is whether this new type of direct insurance is able to remedy all the problems related to the insurance of

61

J. Niezen, Nieuwe milieuschadeverzekering – geen panacee, Milieu en Recht (1998), 114. 62 H. Cousy, Recent developments in environmental insurance, in F. Abraham, K. Deketelaere and J. Stuyck (eds.), Recent Economic and Legal Developments in European Environmental Policy, 240. 63  $OVR%HUJNDPSDUJXHVVWURQJO\LQIDYRURIÀUVWSDUW\DQGDJDLQVWHQYLURQPHQWDOOLDELOLW\ insurance (L. Bergkamp, The Commission’s White Paper on Environmental Liability: A weak case for an EC Strict Liability Regime, European Environmental Law Review (2000), 112-114). 64  5DQVRQUHSRUWVWKDWDOVRLQ%HOJLXPD¶GLUHFW·HQYLURQPHQWDOLQVXUDQFHZRXOGEHRIIHUHG which would also cover gradual pollution (but would exclude ecological damage). See D. Ranson, Verzekering van milieuaansprakelijkheid, Milieu- en Energierecht (2000), 68. The new policy would also cover, like the Dutch example, remediation costs. It would be offered by AIG and would provide coverage up to 1 million BEF (see H. Kerremans, Aansprakelijkheid voor Milieuschade en verzekeringsmogelijkheden in Milieuzorg in de 2QGHUQHPLQJ,-XULGLVFKHÀVFDOHHQRUJDQLVDWRULVFKHDVSHFWHQ, Antwerpen, Standaard, 537-583.

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environmental liability.65 One could argue that the tricky aspects of environmental liability, such as causal uncertainty and long-tail risks could be dealt with either by the legislator or through adequate policy provisions. Note that as a reaction to the long-tail risk caused under liability insurance, claims-made coverage was introduced. But this also applies in the MSV. Moreover, the risk GLIIHUHQWLDWLRQPD\WKHRUHWLFDOO\EHHDVLHULQÀUVWSDUW\LQVXUDQFHEXWLIOLDELOLW\ insurers monitor potential polluters adequately (and it is doubtful whether that happened in the past), the risk differentiation in environmental liability EHFRPHVDVDGHTXDWHDVLQÀUVWSDUW\LQVXUDQFH2QHKDVWKHLPSUHVVLRQWKDW the real reason that Dutch insurers moved to environmental damage insurance was that they wanted to exclude the uncertainties connected to the involvement of the judge (will there be wrongfulness, liability in this particular case? Will he accept causation or not?). The insurers may now have removed many of these uncertainties, but these will remain for polluters who are still fully exposed to environmental liability. This leads to a particular tricky aspect of the new regime, which really is a source of worry. This is the fact that the environmental damage insurance introduced by the Dutch insurers is a completely voluntary system, introduced without any government intervention. As a result, liability law is not affected by this regime at all. Victims suffering harm as a result of soil pollution can still sue the polluter. If the insured has accepted the possibility of third parties claiming, the victim FDQHYHQFODLPGLUHFWO\RQWKHSROLF\DVWKLUGSDUW\EHQHÀFLDU\,IRQWKHRWKHU KDQG WKH 069 SROLF\ GRHV QRW FRQWDLQ D WKLUGSDUW\ EHQHÀFLDU\ FODXVH WKH victim will, just as is the case today in the Netherlands, have to sue the liable polluter. A problem in this case is, however, as we indicated above, that the MSV is supposed to replace liability insurance, meaning that liability insurance will no longer be available, at least for the environmental risks covered under the MSV. This new MSV is supposed to replace the general liability insurance, at least for the environmental risks covered under the MSV. As a result, industrial operators in the Netherlands today no longer have the possibility of obtaining liability coverage for their environmental risks. Third parties who suffer harm may be protected under the new MSV, but only under the assumption that the 069FRYHUDJHLVVXIÀFLHQWWRFRYHUWKHLUORVVHV,IWKLVLVQRWWKHFDVHWKHWKLUG party will simply have to use tort law and bring a lawsuit against the polluter. But then the problem may arise that this polluter is no longer covered under the liability insurance.667KHYLFWLPWKHQPD\ÀQGKLVGHIHQGDQWWREHLQVROYHQW Hence, the MSV will have to be complemented with solvency guarantees. In that respect the above mentioned COFIZE can again play a role.

65 66

Which we discussed in section 2, supra. Note, however, that the MSV insurer will in that particular case provide legal aid to his insured.

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(&RQFOXGLQJREVHUYDWLRQV 1. From private to public? 272

,QWKLVFRQWULEXWLRQDWWHQWLRQKDVEHHQSDLGWRDVKLIWZKLFKDWÀUVWEOXVKPHUHO\ affects the private law aspect being how private parties can get organized to obtain compensation for environmental damage. However, it appeared that the shifts we found in that respect were not, as it may seem, only within the private law system. To some extent this is the case, for instance when one regards the shift away from the cover of environmental liability towards an environmental GDPDJHLQVXUDQFH$WÀUVWEOXVKWKLVRQO\FRQVLGHUVWKHUHODWLRQVKLSEHWZHHQ the insurer and the insured enterprise and is in that sense a shift within the private system. This does, however, not mean that this shift does not affect the public system or third parties. Indeed, the extent to which environmental damage insurance will be able to provide adequate cover will of course also affect third parties who seek recovery of their environmental damage from a responsible party.

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7KHVKLIWVZLWKLQWKHÀQDQFLQJRIFOHDQXSDFWLYLWLHVIRUVRLOSROOXWHGE\JDVROLQH VWDWLRQVDUHRIDGLIIHUHQWQDWXUH7KHÀUVWVKLIWWRZDUGVDÀQDQFLQJRIKLVWRULF pollution by SUBAT seems to be a shift towards public funding. Even though the foundation which manages the soil clean-up (SUBAT) consists of a privateSXEOLFSDUWQHUVKLSWKHÀQDQFLQJVHHPVWREHFRPSOHWHO\SXEOLFLQQDWXUH,WLV LQGHHGWKHFRQVXPHURIJDVROLQHZKRWKURXJKDWD[ZLOOÀQDQFHWKHFOHDQXS activities organized by SUBAT. The third shift discussed in this contribution, towards a risk-sharing agreement in the form of COFIZE, occurred after SUBAT ÀUVWKDGGHDOWZLWKWKHKLVWRULFSROOXWLRQ$JDLQWKLVDSSHDUVWREHDVKLIWZLWKLQ the private system since private parties can voluntarily join COFIZE in order to provide the statutorily required solvency guarantee. COFIZE is organized as a mutual of operators and thus remains largely private.

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However, the examples show that it is not always easy to draw a clear dividing line between public and private. For instance, SUBAT was based on a public-private partnership in which both industrial operators and governmental agencies participated. Also, the risk-sharing agreement by COFIZE seems a private initiative to which operators can voluntarily participate. However, it was the regulatory context (more particularly the duty to provide a solvency guarantee for operators) that created the setting for the creation of COFIZE. Moreover, the Ministry of the Environment provided a formal statement holding WKDWSDUWLFLSDWLRQLQ&2),=(ZRXOGVXIÀFHDVSURRIRIDVROYHQF\JXDUDQWHH as required by law. This shows that there are apparently grey zones between private and public funding. For instance, in the case of COFIZE, the funding is still private, but there have clearly been regulatory facilitative strategies to support the shift towards this creation of COFIZE.

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2. Remedies for failures of environmental liability insurance? The shifts discussed in this contribution mainly concerned the Netherlands. It is, however, obvious that the shifts discussed here occur in other countries as well. As we have shown, risk-sharing agreements have a longer tradition in compensating environmental damage and in other countries experiments have also taken place with environmental damage insurance. This is probably related to the fact that the reasons for the shifts to these alternatives are not particularly Dutch, but of a far more general nature. All three shifts relate to the desire to provide adequate funding for particular environmental risks at reasonable costs. An important motivation for the shifts seems to be constituted by the problems we summarized in section 2 (supra no. 216-223) with respect to liability insurance. In the Netherlands (but in many other countries as well) environmental liability appears to be a “hard to insure” or even uninsurable risk, which, to a large extent, provides the explanation for the shift towards the alternatives discussed here. One can of course wonder to what extent the shifts towards the instruments we discussed in this contribution are really able to remedy the observed problems with liability insurance. The shift towards SUBAT can to a large extent be explained from that perspective since it focuses on historic soil pollution. Liability insurance can hardly be applied to historic pollution since this would amount to a retrospective liability which is, as mentioned above, often considered uninsurable. The creation of COFIZE does in fact not replace but rather supplements insurance. COFIZE does not provide full cover for soil cleanup costs, but only a solvency guarantee. Hence, this could in theory supplement ÀQDQFLDORULQVXUDQFHDUUDQJHPHQWVRIWKHRSHUDWRULIDYDLODEOH7KHLQWHUYLHZ with the director of COFIZE made clear that such a solvency guarantee could of course also be provided through liability cover, but the costs of this would be prohibitive, at least quite high compared to the relatively modest contribution operators today have to pay for the solvency guarantee under COFIZE.67 The shift toward environmental damage insurance has been mostly explained by problems within liability cover. From the insurers’ perspective, the advantage of cover of environmental damage (instead of covering liability) is of course that an important element of uncertainty can be removed. Whether there will be liability or not is hard to determine (and thus to predict) ex ante by the insurer. It will also depend on the interpretation of the case by the judge. This uncertainty is largely excluded under a cover for environmental damage. In this case, the insurer himself can in principle determine in the policy conditions under what circumstances cover will be provided. The most important trigger for the shifts discussed in this contribution seems thus to be dissatisfaction with insurance cover for environmental liability.

67

The difference is of course that COFIZE merely provides a solvency guarantee and not a IXOOOLDELOLW\FRYHU,IWKHRSHUDWRULVLGHQWLÀDEOHDQGVROYHQWRUKDVRWKHUSRVVLELOLWLHVRI compensating the damage) COFIZE will in principle not intervene.

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3. Prevention? 276

As far as the effects of the shifts are concerned, two questions should of course be raised. First, one could question whether these shifts will ultimately lead to adequate incentives for the prevention of environmental harm and, second, one could examine whether the shifts lead to adequate compensation for victims. As far as prevention is concerned, one would thus require the system to be such that WKRVHZKRFDXVHGWKHSROOXWLRQDUHDOVRH[SRVHGWRWKHÀQDQFLDOFRQVHTXHQFHV in order to provide incentives for prevention. This latter condition is certainly QRWPHWLQWKHFDVHRI68%$7VLQFHDÀQDQFLQJWKURXJKJHQHUDOWD[HVRQRLOKDV taken place. However, SUBAT merely deals with historic pollution. A liability regime could thus never affect incentives for future behaviour. Moreover, SUBAT was only temporary and a strict deadline for joining SUBAT reduced the risk of moral hazard. One can even argue that a positive effect of SUBAT is that the SXELFÀQDQFLQJRIKLVWRULFSROOXWLRQJDYHRSHUDWRUVLQFHQWLYHVWRWHUPLQDWHWKHLU activities which they would otherwise probably not have done (more particularly LIWKH\ZRXOGKDYHWRÀQDQFHWKHFOHDQXSRIKLVWRULFSROOXWLRQWKHPVHOYHV 2I course, one could argue that the owner of the gas station can now take a free ride on the consumer of gasoline. It is indeed the consumer who, therefore, WKURXJKDQLQFUHDVHLQJDVROLQHSULFHVZLOOÀQDQFHWKHFOHDQXSRIWKHKLVWRULF pollution. Nevertheless this pollution may have been caused by the owner of the gas station. However, in that respect it should not be forgotten that the source of the pollution is not always known. It is therefore not always certain that it is the actual owner who caused the pollution. Moreover, since it often concerned historic pollution, that is to say pollution that originated long before stricter regulations to prevent soil pollution from gas stations were implemented, one could argue that the pollution was largely the consequence of a way of working which was customary at that time.

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Regarding both COFIZE and environmental damage insurance, it is argued that a serious risk differentiation is applied. COFIZE only accepts gas stations as participants if they can prove that their soil has been cleaned. Moreover, a strict compliance with regulations aiming at the prevention of soil pollution is required and this compliance is monitored as well. Here the traditional advantage of a risk-sharing agreement applies, being that since COFIZE consists of a partnership of operators, they will have optimal incentives towards mutual monitoring and exclusion of bad risks. The environmental damage insurance is not a risk-sharing agreement but a traditional insurance whereby the risk is shifted to the insurer. However, insurers claim that under this regime they can ex ante monitor much better the quality of the soil that could be polluted under the environmental damage insurance and could, in addition, impose requirements with respect to the prevention of pollution. 4. Compensation?

278

Focusing on the compensation issue, one can argue that, as mentioned, one advantage of SUBAT is, without a doubt, that many so-called black points under

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old gas stations have now been cleaned up at relatively low costs within a short period of time, which would otherwise probably not have occurred. COFIZE in addition provides a solvency guarantee. Thus, victims of soil pollution (often primarily the government) will be sure that they will not be confronted with orphaned sites. The environmental damage insurance of course provides compensation to the extent that a responsible party has concluded to such a FRQWUDFW DQG WKDW WKH LQVXUHU KDV DOVR PDGH WKLUG SDUWLHV EHQHÀFLDULHV RI WKH contract. Of course, it does not provide a full guarantee of compensation, but neither did liability insurance, since there was no mandatory liability cover for environmental harm in the Netherlands either. From the victims’ perspective, the most important question is whether they can call on constructions which guarantee compensation if they suffer harm even if the site were orphaned or the SROOXWHULQVROYHQW,WLVSUHFLVHO\WKLVW\SHRIÀQDQFLDOJXDUDQWHHWKDWLVSURYLGHG through a construction such as COFIZE. The potential polluter may of course have a broader demand than for mere environmental damage insurance. A problem in this respect is indeed that, since the entry into force of the environmental damage insurance, Dutch insurers no longer provide any liability cover. This implies that if an operator were, for example, excluded from the environmental damage insurance, he could not obtain cover for environmental liability either. The fact that Dutch insurers collectively moved from liability to environmental damage insurance of course raises questions concerning the competition in the insurance market. The same problem also arises within the context of constructions such as COFIZE. A problem may indeed arise for the operator who is (probably for good reasons) not allowed to participate in COFIZE. Since COFIZE effectively functions as a monopoly there are no alternatives to which the operator could turn. This raises a more general point: the fact that either insurers (under environmental damage insurance) or pools (like COFIZE) sometimes refuse to accept certain risky operators is as such a normal consequence of the application of principles of risk differentiation. This is, however, more problematic if such an exclusion takes place in a monopolistic context and the operator hence does not have an alternative he could turn to. Competition would be important not only to provide a wide offer of differentiated products for the cover of environmental damage, but of course also to keep the premium (in case of insurance) or the contribution (in case of a pool) competitively low.

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5. Importance of competition policy This shows another important aspect of the debate on shifts in the compensation for environmental damage. Even if shifts seem merely to take place within the private system (like COFIZE or the environmental damage insurance), the government still has an important supplementary role. For instance, an active information policy can play an important role in informing potential operators (and victims) of the various possibilities available in the market to cover environmental risks. In addition, it is well known that all of these alternatives ZLOORQO\SURYLGHVXIÀFLHQWFRYHUDJHDWUHDVRQDEOHSULFHVLIDVXIÀFLHQWGHJUHHRI

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competition in the market exists. If this is not the case, one can fear that product GLIIHUHQWLDWLRQZLOOEHOLPLWHGDQGSULFHVLQHIÀFLHQWO\KLJK$ODFNRIFRPSHWLWLRQ may thus endanger the compensation of the environmental risk. Consequently, there is an important task for the government to supplement even shifts within the private funding system with an effective competition policy. This is necessary WRJXDUDQWHHWKDWDODUJHYDULHW\RIHIÀFLHQWDOWHUQDWLYHSRVVLELOLWLHVIRUFRYHU are indeed available on the market for environmental risk. Thus, even within a system of private funding of environmental damage, facilitative strategies are QHFHVVDU\ ZKHUHE\ WKH JRYHUQPHQW VXSSRUWV DQ HIÀFLHQW IXQFWLRQLQJ RI WKLV private funding. It shows once more that, also in the area of environmental damage, notwithstanding many shifts that have taken place, there will always be grey zones between private and public funding.

/LVWRIUHIHUHQFHV Abraham, K., “Environmental Liability and the Limits of Insurance”, [1988] Columbia Law Review, 959-960 Bergkamp, L., “The Commission’s White Paper on Environmental Liability: A weak case for an EC Strict Liability Regime”, [2000] European Environmental Law Review, 154-155 Bergkamp, L., “The Proper Scope of Joint and Several Liability”, [2000] Tijdschrift voor Milieuaansprakelijkheid, 112-114 %ODQNHQ--´¶9ULMZLOOLJH·ERGHPVDQHULQJLQGHSUDNWLMNGHVWLFKWLQJ68%$7µ [1993] Milieu en Recht, 157-161 Bocken, H., Alternative Compensation Systems for Environmental Liabilities, Aida XIth World Congress, New York, 21-25 October 2002 Bongaerts, J., Debièvre, A., “Insurance for Civil Liability for Marine Oil Pollution Damages”, [1987] Geneva Papers on Risk and Insurance, 145-187 Boyd, J., Kunreuther, R.H., “Retroactive Liability or the Public Purse”, [1997] Journal of Regulatory Economics, 79-90 CEA, 6WXG\RQÀUVWSDUW\OHJDOREOLJDWLRQVIRUFOHDQXSV&RUUHVSRQGLQJLQVXUance covers in European countries, Paris, CEA, 21 October 1998 Coghlin, T.G., “Protection and Indemnity Clubs”, [1984] Lloyds Maritime and Commercial Law Quarterly, 403-416 Cousy, H., Recent Developments in Environmental Insurance, in: Abraham, F., Deketelaere, K., Stuyck, J., (eds.), Recent Economic and Legal Developments in European Environmental Policy (1995), 227-241

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Drion, P.J.M., “Milieu onder één dak: milieuschadeverzekering (MSV)”, [1998] Verzekeringsrechtelijke Berichten 2, 19-21 Faure, M., “Alternative Compensation Mechanisms as Remedy for Uninsurability of Liability”, [2004] The Geneva Papers on Risk and Insurance 29, no. 3 Faure, M., De Meerwaarde van het aansprakelijkheidsrecht voor het milieu, in: Hartlief, T., Klosse, S., (eds.), Einde van het aansprakelijkheidsrecht? (2003) Den Haag, Boom Juridische Uitgevers, 263-273 Faure, M., Grimeaud, D., Financial Assurance Issues of Environmental Liability, in: Faure, M., (ed.), Deterrence, Insurability, and Compensation in Environmental Liability. Future Developments in the European Union (2003) Vienna, Springer, 214-217 Faure, M., Van den Bergh, R., Aansprakelijkheidsverzekering, concurrentie en ongevallenpreventie, in: Hartlief, T., Mendel, M.M., (eds.), Juridische beschouwingen over de maatschappelijke rol van verzekeringen en verzekeringsmaatschappijen (2000), 315-342 Faure, M., Van den Bergh, R., Objectieve aansprakelijkheid, verplichte verzekering en veiligheidsregulering (1989) Antwerpen, Maklu, 331-336 Hogarth, R., Kunreuther, H., “Ambiguity and Insurance Decisions”, [1985] American Economic Review, 71-87 -DQVVHQ&$$DQVSUDNHOLMNKHLGYRRUPLOLHXVFKDGHHQÀQDQFLsOH]HNHUKHLGQDDU toekomstig recht: nieuwe oplossingen. Nederlands Recht, in: Wiggers-Rust, L.F., Deketelaere, K., (eds.), $DQVSUDNHOLMNKHLGYRRUPLOLHXVFKDGHHQÀQDQFLsOH zekerheid (1998) Die Keure-Vermande, 111-112 Kaplow, L., “An Economic Analysis of Legal Transition”, [1986] Harvard Law Review 99, 509-617 Katzman, M., “Pollution Liability Insurance and Catastrophic Environmental Risk”, [1988] Journal of Risk and Insurance Kerremans, H., Aansprakelijkheid voor Milieuschade en verzekeringsmogelijkhHGHQLQ0LOLHX]RUJLQGH2QGHUQHPLQJ,-XULGLVFKHÀVFDOHHQRUJDQLVDWRULVFKH aspecten, Antwerpen, Standaard Kunreuther, H., Hogarth, R., Meszaros, J., “Insurer Ambiguity and market Failure”, [1993] Journal of Risk and Uncertainty, 71-87 Monti, A., “Environmental Risk: A Comparative Law and Economics Approach to Liability and insurance”, [2001] European Review of Private Law, 59-62 Niezen, J., “Nieuwe milieuschadeverzekering – geen panacee”, [1998] Milieu en Recht, 114

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Ranson, D., “Verzekering van milieuaansprakelijkheid” [2000] Milieu en Energierecht, 66-73 Rogge, J., Les assurance on matière d’environnement (1997) Skogh, G., “Development Risks, Strict Liability and the Insurability of Industrial Hazards”, [1998] The Geneva Papers on Risk and Insurance, 247-265 Skogh, G., Mandatory Insurance: Transaction Costs Analysis of Insurance, in: Bouckaert, B., De Geest, G. (eds.), Encyclopedia of Law and Economics, II, Civil Law and Economics (2000), 521-537 Smith, R.E., Canelo, E.A., De Dio, A., “Reinventing Reinsurance using the Capital Markets”, [1997] Geneva Papers on Risk and Insurance, 26-37 SUBAT, Tussen wensen, eisen en werkelijkheid. Een verslag van tien jaar bodemsanering (2001) Rotterdam, SUBAT Wagner, F., “Risk Securitization. An Alternative Risk Transfer of Insurance Companies”, [1998] Geneva Papers on Risk and Insurance, 574-607 Wansink, J.H., “Verzekering en milieuschade als gevolg van vervoer/opslag van gevaarlijke stoffen”, [1999] Tijdschrift voor Milieuaansprakelijkheid, 77-82 Wansink, J.H., Hoe plotseling en onzeker is de verzekeringsdekking voor milieuaansprakelijkheidsrisico’s?, in: Miscellanea. Jurisconsulto vero dedicata, Essays in honour of Professor J.M. van Dunné (1997) Deventer, Kluwer, 451-460 Wansink, J.H., “De nieuwe milieuaansprakelijkheidsverzekering”, [1985] Milieu en Recht, 98

IV. Shifts in Compensation for Environmental Damage: From Member States to Europe Kristel De Smedt $,QWURGXFWLRQ On 21 April 2004, Directive 2004/35/CE on Environmental Liability with Regard to the Prevention and Remedying of Environmental Damage (hereafter Directive or ELD) was adopted.1 According to Art. 19 of the Directive, Member States have until 30 April 2007 to transpose the Directive into national law.

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With the ELD, the Community aims to establish a framework of environmental liability based on the “polluter-pays” principle, to prevent and remedy environmental damage.2 The Directive covers water pollution, damage to the biodiversity, as well as land contamination. Although the title suggests otherwise, the ELD does not offer a real civil liability regime, but a mainly public law regime to be enforced by competent authorities, combined with private law aspects as strict liability and fault-based liability. The ELD imposes liability on the operator of an occupational activity. Strict liability applies to operators of risky or potentially risky activities, which are listed in the annex of the Directive. Fault liability applies to operators of non-listed activities, but only for damage to biodiversity.3 Operators are obliged to prevent environmental damage, if necessary to remedy the damage and to report threatening or actual damage

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1

2 3

Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on Environmental Liability with Regard to the Prevention and Remedying of Environmental Damage (ELD), OJ L 143/56 of 30.04.2004. Art. 1, ELD (supra fn.1). European Commission, Press Release, Making the polluter pay: Commission adopts liability scheme to prevent and repair environmental damage, Brussels, 23 January 2003. See also L. Bergkamp, The European Environmental Liability Directive and its effects on Industry and Economy, in: R. Mellenbergh/R. Uylenburg (eds.), Aansprakelijkheid voor

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to the authorities. The government has the authority to order the operator to take additional measures to prevent or to remedy environmental damage. If the operator does not comply, the competent authority may take the measures itself.4 Through this mechanism the Commission hopes to ensure that the polluter-pays principle enshrined in Art. 174 (2) of the EC Treaty is realised. 5 283

The adoption of the Directive is the endpoint of a cumbersome development process which began at least 15 years ago. Indeed, the development process of WKH'LUHFWLYHJDYHULVHWRPXFKFRQWURYHUV\DQGFRQÁLFW0XFKRIWKHFRQÁLFW addressed the question whether and how far the European Union could go in adopting a European environmental liability regime. Harmonising environmental liability rules indeed touches upon politically sensitive subjects such as subsidiarity and sovereignty. Hence, this triggers the question why there was a need to shift environmental liability rules from the Member States to the European level.

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This question will be the central focus of this contribution. The paper will not provide another assessment of the Directive.6 Rather, it will examine for what reasons it was believed that harmonisation of liability rules in the European Union would better protect the environment from damage occurring and guarantee restoration than national liability rules and whether these reasons DUH MXVWLÀHG IURP DQ HFRQRPLF SHUVSHFWLYH7KDW H[DPLQDWLRQ LV DSSURSULDWH since the European Commission itself also advances economic reasons to justify European action. The methodology that will be used is the economics of federalism. This literature has extensively dealt with the optimal level of regulation within federal systems. Based upon the Tiebout model, a bottom-up approach towards centralization will be adopted.

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7KHDUWLFOHLVVWUXFWXUHGDVIROORZVÀUVWWKH´ERWWRPXSIHGHUDOLVPµRI7LHERXW will be explained (B). Next, the arguments that were provided by the Community to justify the Environmental Liability Directive with regard to the principles of subsidiarity and proportionality will be explained (C) and will be compared with

4 5 6

schade aan de natuur, (2005), Europa Law Publishing, Groningen, 97 or V. Fogleman, The Environmental Liability Directive, [2004] Environmental Liability 3, 103. Art. 5 and 6, ELD (supra fn.1). Preamble no. 18 ELD (supra fn.1), L. Bergkamp (supra fn. 3), 97. For a critical discussion of the ELD, see for instance L. Bergkamp (supra fn.3), 95-150; H. Descamps, De Europese richtlijn milieuschade en haar implementatie: wie doet wat?, in: K. Deketelaere/M. Deketelaere (eds.), Jaarboek Milieurecht, (2005) Leuvem, Die Keure, 3-51; M.G. Faure, De Europese Richtlijn Milieuaansprakelijkheid: kritische inleidende bedenkingen, in: R. Mellenbergh/R. Uylenburg (eds.), Aansprakelijkheid voor schade aan de natuur, (2005), Europa Law Publishing, Groningen, 3-20; V. Fogleman, [2004] Environmental liability 3, 101-115 or G. Wagner, Die gemeinschaftsrechtliche Umwelthaftung aus der Sicht des Zivilrechts, in: R.Hendler, et al., Umwelt- und Technikrecht, sonderndruck aus Umwelthaftung nach neuem EG-Recht. 20. Trierer Kolloquium zum Umwelt- und Technikrecht, 5-7 September 2004, (2005) Erich Schmidt Verlag, Berlin, 73-146.

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the arguments for harmonisation provided by the economic theory of federalism LQWKHHQYLURQPHQWDOÀHOG' 'RWKHDUJXPHQWVSURYLGHGE\WKH&RPPLVVLRQ indeed justify a shift of environmental liability rules from the Member States to the European level from an economic perspective? An answer to this question will be formulated in the conclusion (E).

%%RWWXPXSIHGHUDOLVPRI7LHERXW The optimal level of regulation within federal systems has been addressed in the economics of federalism. The starting point for the analysis is usually the Tiebout Model on the optimal provision of local public goods.7 In 1956, 7LHERXWGHYHORSHGDQLGHDOPRGHORIÀVFDOFRPSHWLWLRQEHWZHHQLQGHSHQGHQW governments. Tiebout stated that, with decentralized – horizontally arranged - competitive governments, well-informed citizens could move along local jurisdictions to select that community with a regulatory combination that best VDWLVÀHG WKHLU SHUVRQDO SUHIHUHQFHV IRU SXEOLF JRRGV *RYHUQPHQWV ZRXOG WU\WRDWWUDFWUHVLGHQWVRQWKHEDVLVRIGLIIHULQJWD[DQGEHQHÀWVWUXFWXUHV$V HYHU\ERG\ZRXOGJRDQGOLYHZKHUHWKHVHWRIUHJXODWLRQVZRXOGÀWEHVWKLVRU her preferences for public goods, competition between local authorities would, under certain restrictive conditions like perfect information and absence of externalities, maximize social welfare.8 Tiebout’s idea is now commonly known as “voting with the feet” by citizens.

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7KRXJKWKH7LHERXWPRGHOZDVGHVLJQHGIRUÀVFDOSROLFLHVDFDGHPLFVFKRODUV LQWURGXFHGWKHPRGHOLQRWKHUÀHOGVRIUHJXODWLRQ9DQGHQ%HUJKIRULQVWDQFH used the Tiebout Model to provide criteria for (de)centralization within the European Union.9

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The basic idea is that, through decentralisation, rules can be adapted to the preferences of the citizens. However, due to externalities and market failure, transaction costs or imperfect information, some decisions might better be decided at a higher level of decision making. The reasons for harmonisation of regulation can be grouped into four main arguments: the transboundary character

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7

8

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C. Tiebout, A pure theory of local government expenditures, [1956] Journal of Political Economy 60, 415. See also R.P. Inman and D.L. Rubinfeld, Federalism, in: B. Bouckaert/G. De Geest, (eds.), Encyclopedia for law and economics, (2000) Edward Elgar Publishing, 661 and R. Van den Bergh, The Subsidiarity Principle in European Community Law: Some Insights from Law and Economics, [1994] Maastricht Journal of European and Comparative Law (MJECL) 1, 337-366. See M.G. Faure, Regulatory Competition versus Harmonisation in EU Environmental Law, in: D. Esty/G. Geradin (eds.), Regulatory Competition and Economic Integration, (2001) Oxford University Press, 263 and M.G. Faure, Product liability and product safety in Europe: harmonisation or differentiation?, [2000] Kyklos 53, 467. R. Van den Bergh, [1994] MJECL 1, 337-366.

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of an externality, the risk of a race-to-the-bottom, market access concerns and the desire to guarantee a minimum level of protection. 289

The Tiebout Model is based on quite restrictive assumptions. Therefore one could question the relevance of this model in real world problems and in particular in providing guidance on the optimal policy level of environmental liability rules in the European Union. Yet, even though this model cannot fully grasp the complex and political decision-making procedures of the Community, the interpretation of the subsidiarity principle by the Community institutions does show many similarities with the bottom-up approach of the economic theory on federalism and the Community institutions clearly involve economic efÀFLHQF\DVDQLQVWUXPHQWWRMXVWLI\KDUPRQLVDWLRQZLWKUHJDUGWRVXEVLGLDULW\10 Therefore, a comparison of the arguments provided for by the Community under the subsidiarity principle and the theoretical model would certainly be MXVWLÀHG,WZRXOGVKRZKRZLQERWKFDVHVWKHEDODQFHEHWZHHQFHQWUDOLVDWLRQ and decentralisation would be sought and might clarify whether and for which UHDVRQV &RPPXQLW\ DFWLRQ LQ WKH ÀHOG RI HQYLURQPHQWDO OLDELOLW\ KDV EHHQ considered appropriate and thus why in this area of environmental liability a shift took place from Member States to the European level.

&6XEVLGLDULW\WKHEDODQFHEHWZHHQVRYHUHLJQW\DQG&RPPXQLW\DFWLRQ 1. Reasons for European action in the ELD 290

The subsidiarity principle, enshrined in Art. 5 of the EC Treaty, states that in areas which do not fall within the Community’s exclusive competence, such as environmental policy, the Community shall take action, in accordance with the principle of subsidiarity, only if and in so far the objectives of the proposed DFWLRQFDQQRWEHVXIÀFLHQWO\DFKLHYHGE\WKH0HPEHU6WDWHVDQGFDQWKHUHIRUH by reason of the scale or effects of the proposed action, be better achieved by the Community.11

291

The subsidiarity principle is connected with the principle of proportionality, which requires that any action by the Community shall not go beyond what is necessary to achieve the objectives of this treaty.12

292

The principles of subsidiarity and proportionality are intended to ensure that decisions are taken as closely as possible to the citizen and that action at ComPXQLW\OHYHOLVMXVWLÀHGZLWKUHVSHFWWRWKHSRVVLELOLWLHVDYDLODEOHDWQDWLRQDO

10 11

12

R. Van den Bergh, [1994] MJCEL 1, 351-352. Art. 5 EC Treaty, italics added. See also J.H. Jans, European Environmental law (2000), Europa Law Publishing, Groningen, 11-12. Art. 5 § 3 EC Treaty.

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regional or local level, which is comparable to the bottom-up approach of the economic theory on federalism.13 Hence, taking decentralisation as a starting point, the subsidiarity principle is directly related to the central question in environmental federalism: for what reasons should decision-making powers be shifted from the Member States to the European level? 14

293


294

Indeed, although the subsequent documents in the ELD adoption process provide arguments for Community action, a clear overview of arguments for DKDUPRQLVHGOLDELOLW\UHJLPHFDQQRWEHIRXQGDQ\PRUHLQWKHÀQDOWH[WRIWKH ELD. Preamble 3 of the ELD states that subsidiarity is met because the ELD’s objective, namely to establish a common framework for the prevention and UHPHG\LQJRIHQYLURQPHQWDOGDPDJHFDQQRWEHVXIÀFLHQWO\DFKLHYHGE\WKH Member States and can therefore be better achieved at Community level by reason of scale or effect.15 The Commission does not explain why it is necessary to establish such a framework or why it cannot be achieved by the Member States. Moreover, the Commission’s reasoning in Preamble 3 is, as Bergkamp and Faure indicate, merely a description of the subsidiarity principle itself and GRHVQRWSURYLGHDQ\MXVWLÀFDWLRQ16

295

Hence, scholars argue that the Commission, the Parliament and the Council have IDLOHGWRIXOÀOWKHVXEVLGLDULW\DQGWKHSURSRUWLRQDOLW\SULQFLSOH)DXUHULJKWO\ indicates that this critique is not merely a scholarly debate, but that ignoring the subsidiarity principle can have substantial negative effects for the European Union. Indeed, such behaviour would encourage Eurosceptics and endanger projects where European action would be desirable.17

296

Yet, in order to examine for what reasons the Community felt the need to harmonise environmental liability rules, the subsequent Commission documents in the ELD decision-making process must be studied.

297

13 14

15 16 17

Europa.eu.int/scadplus/glossary/subsidiarity_en.htm. T. Jeppesen, Environmental Regulation in a Federal System. Framing Environmental Policy in the European Union (2002), Edward Elgar publishing, UK, 2 and R. Van den Bergh, [1994] MJCEL 1, 351. Preamble 3, ELD (supra fn.1). See L. Bergkamp (supra fn. 3), 102 and M.G.Faure (supra fn. 6), 8. M.G. Faure (supra fn. 6), 10. See also L. Bergkamp (supra fn. 3), 102.

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2. Preparatory documents 298

Three subsequent documents in the ELD decision-making process can be referred to in order to examine the reasons for a shift of environmental liability rules from the Member States to the European level: the Commission Green Paper on Remedying Environmental Damage18, the White Paper on Environmental Liability,19 and the Explanatory Memorandum to the Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage.20

299

$ÀUVWVWHSWRZDUGVD(XURSHDQHQYLURQPHQWDOOLDELOLW\UHJLPHGDWHVIURP In the Commission Green Paper on Remedying Environmental Damage of 1993, it was argued that a Community-wide system of civil liability for environmental damage would be based on the concept that a person should rectify the damage that he causes, which is related to the principle of prevention and “polluter-pays” principle in Community environmental policy. Moreover, it was believed that different systems of civil liability for environmental damage among the Member States could lead to distortions of competition and the single market.21

300

After a long period of consultation and studies, the White Paper on Environmental Liability was published in 2000. In the White Paper, the Commission elaborated its reasons for harmonisation of environmental liability rules further. It was argued that a Community-wide system of civil liability for environmental damage would: – –

18

19

20

21 22 23

Realise the three grand environmental principles enshrined in Art. 174 (2) of the EC Treaty: the polluter- pays, precautionary and preventive principles;22 Provide an adequate solution for transboundary damage;23

Commission Communication of 14 May 1993, Green Paper on Remedying Environmental Damage, COM (93) 47. A Green Paper is a communication published by the Commission RQDVSHFLÀFSROLF\DUHDDQGLVLQWHQGHGWRVWLPXODWHDGHEDWHDPRQJWKHLQWHUHVWHGSDUWLHV ,QWKHHQYLURQPHQWDOÀHOGWKHVHSDUWLHVPLJKWLQFOXGHLQGXVWU\DQGHQYLURQPHQWDORUJDQLVDWLRQV$*UHHQ3DSHUGRHVQRWSURYLGHDVSHFLÀFSURSRVDO1HYHUWKHOHVVLQVRPHFDVHV they might provide impetus for subsequent legislation (www.europa.eu.int/comm). Commission Communication of 9 February 2000, White Paper on Environmental Liability, COM (2000) 66. White Papers are documents that contain proposals for Community action LQDVSHFLÀFDUHDZZZHXURSDHXLQWFRPP  Commission Communication of 23 January 2002, Proposal for a Directive of the European Parliament and of the Council on Environmental Liability with regard to the Prevention DQG5HVWRUDWLRQRI(QYLURQPHQWDO'DPDJH&20 ÀQDO2-&( Green Paper on Remedying Environmental Damage, 5-6 White Paper on Environmental Liability, § 3.1,14 White Paper on Environmental Liability, § 6, 28

Shifts in Compensation for Environmental Damage

– ² –

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Ensure decontamination and restoration of the environment and better integration of the environment into other policy areas;24 &RQWULEXWHWRDOHYHOSOD\LQJÀHOG25 Respect the principle of equal treatment.26

The regime of the White Paper was criticised by Member States and industry for reasons of subsidiarity and sovereignty.277KH MXVWLÀFDWLRQV JLYHQ E\ WKH Commission under the subsidiarity principle were questioned28 as well as the need for a harmonised environmental liability directive.29

301

Therefore, at the end of July 2001, the Commission changed its strategy and issued a brief Working Paper30 in which the main features of a proposal for a 'LUHFWLYHRQSUHYHQWLRQDQGUHVWRUDWLRQRIVLJQLÀFDQWHQYLURQPHQWDOGDPDJH were outlined. In the Working Paper the Commission shifted its focus from civil liability and compensation to prevention and restoration of environmental damage. Moreover, the Commission opted for a public law regime that would be enforced by competent authorities instead of a civil liability regime. 31 Nevertheless, as some elements such as fault and strict liability were retained from the White Paper, the proposed regime was a hybrid of private and public law.32 The reactions of the Member States on the Working Paper were moderately positive and it is on the basis of this regime that the Commission continued with the process to adopt the ELD.33 Yet, no arguments were provided to justify Community action.

302

On 21 February 2002, the Commission submitted a Proposal for a Directive to the European Parliament and to the Council, (in accordance with the co-

303

24

White Paper on Environmental Liability, §§ 3.2 – 3.3, 14 White Paper on Environmental Liability, § 3.5, 15 26 White Paper on Environmental Liability, § 5.2, 26 27  +%RFNHQ+HW:RUNLQJ3DSHURQ3UHYHQWLRQDQG5HVWRUDWLRQRI6LJQLÀFDQW(QYLURQPHQWDO Damage. Het Witboek betreffende Milieuaansprakelijkheid terzijde gelegd’, [2001] Tijdschrift voor Milieurecht (TMR) 5, 352. 28 L. Bergkamp, The Commission’s White Paper on Environmental Liability: A Weak Case for an EC Strict Liability Regime, [2000] European Environmental Law Review (EELR), 105-114, 141- 188 29  0* )DXUH DQG . 'H 6PHGW ¶6KRXOG (XURSH +DUPRQLVH (QYLURQPHQWDO /LDELOLW\ Legislation?, [2002] Environmental Liability 9, 217-237 30 European Commission, Environmental Directorate General Working Paper on Prevention DQG5HVWRUDWLRQRI6LJQLÀFDQW(QYLURQPHQWDO'DPDJH(QYLURQPHQWDOOLDELOLW\  31 V. Fogleman, [2004] Environmental Liability 3, 102 and H. Bocken, (2001) TMR 5, 352 32 L. Bergkamp, The Commission July 2001 Working Paper on Environmental Liability: Civil or Administrative Law to prevent and Restore Environmental Harm?, [2001] Environmental Liability 9, 208. See also C. Clarke, The Proposed EC Liability Directive: Half-Way through Co-Decision, [2003] Review of European Community and International Environmental Law (RECIEL), 12 (3), 260 33 H. Descamps (supra fn. 6), 5 and H. Bocken, [2001] TMR 5, 355 25

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decision procedure). The Proposal built further on the Working Paper and in the Explanatory Memorandum of the Proposal, the Commission provides for reasons for harmonisation34. 304

It is argued that Community action is needed: – ²

– – – –

305

to address site contamination and the loss of biodiversity in the Community.35 6LPLODUWRWKHMXVWLÀFDWLRQVLQWKH:KLWH3DSHUDOLDELOLW\UHJLPHZRXOG realise the implementation of the three grand environmental principles enshrined in Art. 174 (2) of the EC Treaty: the polluter-pays, precautionary and preventive principles;36 Not all Member States adopted a liability regime for contaminated land. Without Community action there would be no guarantee that the “polluterpays” principle would be effectively applied across all the Community;37 Member States’ liability regimes for contaminated land do not mandate national authorities to ensure clean up of orphan sites. Hence it cannot be ensured that the objective of restoration is attained;38 Few Member States imposed liability for biodiversity damage;39 Without a harmonised framework at Community level, economic actors could exploit differences in Member States which would result in unfair competition.40

A review of the subsequent documents reveals that, over time, some of the arguments provided by the Commission show consistency, some arguments have been added, and others have disappeared. Moreover, there also seems to be a shift from mainly economic arguments in the White Paper, comparable to the arguments for harmonisation of the economic theory on federalism (for example, the harmonisation for transboundary damage or harmonisation to avoid unequal competition), to an emphasis on the prevention and restoration of environmental damage in the Explanatory Memorandum to the Commission Proposal.

34

35

36

37

38

39

40

Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum. Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 4. Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 4. Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 5. Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 5. Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 6. Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 5.

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Indeed, arguments that are consistently repeated in the subsequent documents are that Community action is needed to ensure the realisation of the environmental principles, enshrined in Art. 174 § 2 EC Treaty, i.e. the precautionary, polluter-pays and preventive principles; the risk of a distortion of competition, and the restoration of environmental damage. The Explanatory Memorandum to the Proposal added that Community action would be needed to address site contamination and the loss of biodiversity in the EU. Moreover, it is argued that not all Member States have liability rules for contaminated land or biodiversity, and the restoration of orphan sites is not always ensured, so that there is no JXDUDQWHHWKDWWKH´SROOXWHUSD\VµSULQFLSOHLVIXOÀOOHGDQGUHVWRUDWLRQLVHQVXUHG without Community action. Remarkable on the other hand, is that Community action for transboundary damage, which might be an argument for harmonisation in the economic theory of federalism, has only been mentioned in the White Paper, but has not been repeated in the Explanatory Memorandum.

306

The arguments advanced by the Commission for harmonisation of environmental liability rules will now be examined. For each argument, it will be examined whether the argument would justify harmonisation from an economic perspective. If appropriate, it will be examined whether the ELD adequately solves the problem for which harmonisation was deemed necessary by the Commission.

307

'$UJXPHQWVIRUGH FHQWUDOL]DWLRQRIHQYLURQPHQWDOOLDELOLW\UXOHV 1. Transboundary character of environmental damage In the White Paper on Environmental Liability the Commission advanced the argument that a Community-wide liability regime would provide an adequate solution for transboundary damage.41 The Explanatory Memorandum of the Proposal to the ELD, does not mention transboundary damage explicitly as a reason for Community action anymore. However, the Directive clearly addresses transboundary damage. Art. 15 of the ELD provides that Member States shall cooperate when environmental damage affects or is likely to affect several Member States.42

308

In the literature on the economic theory on federalism, the transboundary aspect of damage is indeed an argument that might justify (a certain level of) harmonisation.

309

The Tiebout model only holds if decisions of one jurisdiction have no external (negative) effects on other jurisdictions. When policies of a certain jurisdiction have a transboundary effect on a neighboring jurisdiction, these externalities provide an argument for centralization. The reasoning is that internalization

310

41 42

White Paper on Environmental Liability, § 6, 28. Art. 15, ELD (supra fn. 1).

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of transboundary externalities can only be ensured by shifting powers to a higher legal order that has competence to deal with the externality over a larger territory.43 311

Hence, if it were accepted that the Directive rightly deals with transboundary damage, the question obviously arises whether the prevention and restoration of transboundary pollution can be succesfully realised through the Environmental Liability Directive. The answer, however, unfortunately is negative.

312

Indeed, it is very doubtful that the Directive will ensure the restoration of transboundary damage. Art. 15 of the ELD merely provides for “cooperation” between Member States. This includes the appropriate exchange of information with a view to ensuring that preventive action, and if necessary, remedial action is WDNHQLQUHVSHFWRIDQ\HQYLURQPHQWDOGDPDJH,QFDVHD0HPEHU6WDWHLGHQWLÀHV damage within its borders, caused by industry of another Member State, it may seek to recover the costs it has occurred in relation to the adoption of preventive or remedial measures.44 The situation becomes even more complicated, as Art. 8(4) of the ELD states that Member States may allow a permit or state-ofthe-art defence. If the state where the accident happens offers such a defence, LWREYLRXVO\ZLOOEHYHU\GLIÀFXOWIRUWKHLQMXUHG6WDWHWREHFRPSHQVDWHGIRU the damage. Indeed, the lack of an obligation to compensate the injured state may undermine the preventive effect of the liability regime and certainly the restoration of transboundary damage.45

313

The transboundary externalities argument, moreover, provides an explanation for only part of the shift of environmental liability rules from the Member States to the European level. Indeed, whilst certain environmental damage will be inter-state, the Directive also addresses intra-state damage.

314

7KH'LUHFWLYHGHÀQHVHQYLURQPHQWDOGDPDJHDVGDPDJHWRSURWHFWHGVSHFLHV and habitats, commonly referred to as damage to biodiversity, water damage and land damage. There seems little doubt that damage to water might potentially fall under inter-state damage. For land damage, the question is to what extent contaminated sites are transboundary issues? Bergkamp contends that “contaminated sites, subject to very few exceptions, do not have cross-border effect, and

43

44 45

M.G. Faure, How Law and Economics May Contribute to the Harmonisation of Tort Law in Europe, in: R. Zimmermann (ed.), Grundstrukturen des Europäischen Deliktsrechts (2003), 38-39. See also A. Ogus, Competition between national legal systems: a contribution of economic analysis to comparative law, [1999] The International and Comparative Law Quarterly 48, 405. Art. 15 § 1 and § 3, ELD (supra fn. 1), emphasis added. N. Farnsworth, Subsidiarity – A Conventional Industry Defence. Is the Directive on Environmental Liability with regard to Prevention and Remedying of Environmental 'DPDJHMXVWLÀHGXQGHUWKHVXEVLGLDULW\SULQFLSOH">@European Environmental Law Review (EELR), 180.

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therefore should be left to the Member States”.46 In particular, the Commission failed to justify the inclusion of damage to biodiversity. Most Member States do have liability regimes for environmental damage, yet biodiversity is the common element lacking throughout. Farnsworth holds that the Directive might be innovative because it introduces liability for damage precisely in this area.47
315

Indeed, if transboundary environmental damage might be a problem in the European Union but if Member States could adequately deal with pollution within their borders then, according to economic theory and to the subsidiarity SULQFLSOHD(XURSHDQOLDELOLW\UHJLPHZRXOGRQO\EHMXVWLÀHGIRUWUDQVERXQGDU\ environmental damage instead of an overall liability regime. This would result in a so-called “transboundary only” regime.

316

At the European level, this idea of a “transboundary only” regime was rejected, since it was argued in the White Paper on Environmental Liability that this could lead to inequalities in treatment of victims in Member States depending on whether they were victim of a transboundary or a local pollution50.

317

Bergkamp indicates that when referring to equality, the Commission no longer argues within the scope of the subsidiarity principle, but simply pleads for uniformity51$VZLOOEHDUJXHGVXSUDQR;WKLVDUJXPHQWFRXOGÀWLQWRWKH public choice theory which holds that industry in heavily regulated (and probably polluted) areas lobbies (supported by green NGOs) to force their very stringent environmental regulations upon other Member States that might not need such VWULQJHQWPHDVXUHV,QWKDWZD\WKLVLQGXVWU\PLJKWHUHFWDUWLÀFLDOEDUULHUVWR their market entry.

318

Yet the subsidiarity principle has been included in the EC Treaty to prevent (8DFWLRQMXVWLÀHGPDLQO\RQDUHTXHVWIRUXQLIRUPLW\SRVVLEO\E\LQGXVWU\

319

46

47 48 49 50 51

L. Bergkamp, The Proposed Environmental Liability Directive, [2002] European Environmental Law Review (EELR), 296. N. Farnsworth, [2004] EELR, 179. Preamble 1, ELD (supra note 1). N. Farnsworth, [2004] EELR, 179 White Paper on Environmental Liability, 25-26. L. Bergkamp, [2000] EELR, 107.

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in heavily regulated areas.52 As mentioned above, the subsidiarity principle allows the Community to take action if and only insofar as the objectives of the SURSRVHGDFWLRQFDQQRWEHVXIÀFLHQWO\DFKLHYHGE\WKH0HPEHU6WDWHV$VLWLV not proven that uniformity is necessary for the Member States in order to deal effectively with environmental damage, there is no need for full harmonisation. The equality argument is hence not very convincing, neither from an economic, nor from a legal perspective. 320

Summarising, transboundary environmental pollution may occur in certain cases in the EU. However, from an economic point of view, this argument by LWVHOILVQRWVXIÀFLHQWWRMXVWLI\WKHVKLIWRIHQYLURQPHQWDOOLDELOLW\UXOHVIURP the Member States to the European level. The argument could only justify a European “transboundary only” regime but not a full harmonisation. 2. Race-to-the-bottom

321

In the three subsequent documents in the ELD decision-making process, the Commission argued that, without a harmonised framework of liability for environmental damage, economic actors might exploit the differences between Member States which might lead to distortions of competition and the level SOD\LQJÀHOGLQWKHLQWHUQDOPDUNHW53

322

The race-to-the-bottom rationale might be the most heavily debated and most frequently advanced economic argument, also in the European Union, to justify federal environmental liability regulation. The question however arises whether a race-to-the-bottom in environmental quality indeed has to be feared in the EU.54

323

The term race-to-the-bottom refers to an ongoing relaxation of state regulatory standards, caused by interstate competition to attract industry. This relaxation of regulatory standards would result in a reduction of social welfare below the social welfare level that would exist in absence of this race.55 If there is a risk that such destructive competition would arise, there might be an economic argument for centralization as a remedy to prevent states from engaging in this welfare-reducing race-to-the-bottom.

52 53

54

55

L. Bergkamp, [2000] EELR, 107. See Green Paper on remedying Environmental Damage, White Paper on Environmental Liability and the Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum. See also W. E. Oates, Environmental policy in the European Community: Harmonisation or National Standards, [1998] Empirica 25, 1-13. K. H. Engel, State Environmental Standard Setting: Is There a “Race” and Is it “to the Bottom”?, [1997] Hasting Law Journal (HLJ) 48, 274.

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The race-to-the-bottom argument is sometimes confused with the creation of a ´OHYHOSOD\LQJÀHOGµHVSHFLDOO\LQWKH(XURSHDQ8QLRQ,QGHHGIHGHUDOUHJXODtions enacted under a race-to-the-bottom rationale in reality might aim to create a ´OHYHOSOD\LQJÀHOGµRUWKHKDUPRQLVDWLRQRIFRQGLWLRQVRIFRPSHWLWLRQEHWZHHQ states.56 In such case, the aim is much more to reduce interstate competition DQGWKHVLJQLÀFDQFHRIJHRJUDSKLFIHDWXUHVWKDWZRXOGDOORZFHUWDLQVWDWHVWR have lower quality standards than to actually overcome a race-to-the-bottom DVGHÀQHGDERYH7KHSUHYHQWLRQRIORZHUTXDOLW\VWDQGDUGVLVQRWWKHVDPH though as the prevention of a race-to-the-bottom. Lower quality standards FRXOG EH HIÀFLHQW ZKHUHDV D UDFHWRWKHERWWRP ZRXOG UHVXOW LQ HFRQRPLF LQHIÀFLHQF\ZKLFKQHHGVWREHUHPHGLHG,QGHHGWRSUHYHQWVWDWHVIURPXVLQJ WKHLUJHRJUDSKLFDGYDQWDJHDFWXDOO\PLJKWUHGXFHHFRQRPLFHIÀFLHQF\DVLWLV exactly this geographic diversity that allows gains from trade.57 Therefore, the ´OHYHOSOD\LQJÀHOGµDUJXPHQWDWLRQWRMXVWLI\FHQWUDOL]HGUHJXODWLRQLVFULWLFL]HG by various scholars.587KLV´OHYHOSOD\LQJÀHOGµDUJXPHQWDWLRQZLOOEHWDNHQXS again in the next paragraph on market access. This paragraph will concentrate on the race-to-the-bottom argument in its narrow sense.

324

Various scholars have tried to prove theoretically and empirically the existence or the absence of a race-to-the-bottom in environmental regulations. Nevertheless, the results vary and the existence of a race-to-the-bottom in environmental regulations remains debated.59

325

Theoretically, it seems doubtful that a race-to-the-bottom in environmental liability rules would occur. On the one hand, there are more important factors WKDQHQYLURQPHQWDOOLDELOLW\UHJXODWLRQWKDWLQÁXHQFHLQGXVWU\ORFDWLRQGHFLVLRQV and on the other hand, states would hardly have an advantage of a lenient liability regime.60

326

Indeed, in theory, a state could try to attract industry by reducing the burdens that might be imposed on industry through liability rules. For example, a state might impose a higher burden of proof on the victims of environmental damage

327

56

57 58 59

60

M. Faure, How Law and Economics May Contribute to the Harmonization of Tort Law in Europe, in: R. Zimmermann (ed.), Grundstructuren des Europäischen Deliktsrechts (2003), 51-53. See also R. Van den Bergh, Economic Criteria for Applying the Subsidiarity Principle, in: R. Revesz/P.Sands/R.B. Stewart (eds.), Environmental Law, the Economy and Sustainable Development: The United States, the European Union and the International Community (2000), Cambridge University Press, 87. K. H. Engel, [1997] HLJ 48, 293-295. See, for example, M. Faure (supra fn. 56) and R. Van den Bergh (supra fn. 56). See, for example, A. Jaffe/S. Peterson/P. Portney/R. Stavins, Environmental Regulation and the Competitiveness of US Manufacturing: What does the Evidence Tell Us?, [1995] Journal of Economic Literature XXXIII, 157-158 and Y. Xing/C. Kolstad, Do Lax Environmental Regulations Attract Foreign Investment?, [1995] Working Papers in Economics, University of California, 16. M. Faure (supra fn. 56), 49

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or a state might require a clear “cause-damage” relationship. Or a state might neglect the enforcement of its environmental quality standards.61 This behaviour ZRXOGEHGLIÀFXOWWRGHWHFWDQGWRSURYH$NLQGRISROLWLFDOGUDJZRXOGWKHQ exist. The same reasoning could apply to liability rules for soil pollution. A state might indeed impose a higher burden of proof on the victims of soil pollution, or neglect the enforcement of its soil quality standards. Nevertheless, Faure suggests that if environmental liability rules were to have any effect, a race-to-the-top would be more likely than a race-to-the-bottom. Indeed, a lenient environmental liability regulation would limit a state’s possibilities to claim restoration for environmental damage caused by (foreign) industry. Therefore, a lax liability regime might be counter a state’s interests.62 Still, political pressure and the risk of a political drag should not be ignored in the case of environmental liability regulation. 328

:H FDQ QRZ WXUQ WR WKH VSHFLÀF VLWXDWLRQ RI WKH (XURSHDQ 8QLRQ ,W VHHPV doubtful, maybe even more than for environmental regulation in general, that a race-to-the-bottom in environmental liability regulation would take place, especially because Member States hardly gain an advantage from a lenient liability regime. Yet, although there is no evidence of relaxed liability rules, it PLJKWEHSRVVLEOHWKDWVWDWHRIÀFLDOVPLJKWEHOLHYHRUDUHXQGHUSROLWLFDOSUHVVXUH to believe that a stringent liability regime might repulse industry from locating in their Member State and that industry might move to the new Member States. Hence, they might fail to adopt stringent quality standards and a stringent liability regime or neglect the enforcement of this regime. Further research in this area could provide more information on governmental behavior. Nevertheless, it might be doubtful that in Europe, states would engage in a game in which they would strive for a low level of environmental liability and renounce restoration claims in order to attract industry. Moreover, even in the case of a “regulatory chill”, this would not justify full centralization of environmental liability regulation. Some scholars might even doubt whether any federal intervention in environmental liability regimes, like minimum requirements, is necessary. ,QGHHGRWKHUVROXWLRQVWRHQKDQFHWKHHIÀFLHQF\RIHQYLURQPHQWDOOLDELOLW\UXOHV should be examined as well.

329

+HQFHDJDLQDQ(/'PLJKWEHMXVWLÀHGIRUSXUSRVHVRWKHUWKDQWKHSUHYHQWLRQ of a race-to-the-bottom. 3. Market access concerns

330

Connected with the risk of a race-to-the-bottom, the Commission has repeatedly argued that a shift of environmental liability rules from the Member States to

61

62

R. M. Ackerman, Tort Law and Federalism: Whatever happened to Devolution?, [1996] Yale Law and Policy Review, Symposium Issue, 429 M. Faure (supra fn. 56), 49

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the European level would be needed to avoid distortion of competition and to UHDOLVHDOHYHOSOD\LQJÀHOG63 It is sometimes claimed that harmonisation of environmental regulation would be MXVWLÀHGLQRUGHUWRHDVHWKHWHQVLRQVFUHDWHGE\WKHGLIIHUHQFHVLQWKHVWULQJHQF\ of environmental regulations of various jurisdictions, on the one hand through harmonisation of marketing conditions and on the other hand through the reduction of transaction costs through harmonisation of legal rules.

331

The realization of free trade could indeed justify the harmonisation of elementary environmental product or process standards, to avoid incompatibilities which would create barriers to entry or distortions of competition in the market. It is however questionable that the realization of free trade would justify the harmonisation of private law.

332

Indeed, it is certainly possible to realize free trade without the total harmonisation of all legal rules, including environmental liability rules. Moreover, equal marketing conditions would not necessarily be achieved through the harmonisation of (environmental) liability rules. As Faure indicates, harmonisation of liability UXOHVLQWKH(8ZRXOGQRWFUHDWHDOHYHOSOD\LQJÀHOGDVWKHUHDUHRWKHUIDU more important factors that determine the conditions of competition.64 Indeed, differences in the availability of natural resources or labour standards would still create variations in marketing conditions. Furthermore, if countries would prefer liability rules to target environmentally-unfriendly products, instead of using regulatory restrictions (which might be under WTO restrictions), this would QRWKDPSHUIUHHWUDGHRQWKHFRQWUDU\LWZRXOGKDYHDVLJQLÀFDQWDGYDQWDJH Indeed, the use of liability rules would prevent disguised protectionism, as a causal link between the environmental harm and the product concerned still must be proven.65 Hence, it seems doubtful that environmental liability rules would act as a trade barrier or cause competitiveness concerns and that a total harmonisation to ensure market access and fair marketing conditions would be necessary. Countries could set their liability rules according to their preferences, and still guarantee market access, whereby disguised protectionism might be prevented.

333

With respect to transaction costs, it must be noted that savings in transaction costs do not require a total harmonisation of a certain liability rule, which might neglect differences in citizen’s preferences. Indeed, it is very well possible that,

334

63

64 65

See Green Paper on remedying Environmental Damage, White Paper on Environmental Liability and the Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum. M. Faure (supra fn. 56), 55 L. Bergkamp, Liability and Environment. Private and Public Aspects of Civil Liability for Environmental Harm in an International Context (2001), Kluwer Law International, The Hague, 381-382

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for a certain tort, the applicable liability rule would be harmonised, for example a negligence rule, but that the content of the due care standard is left at state level, according to the preferences and needs of the citizens. Hence, centralizaWLRQRIDVSHFLÀFOLDELOLW\UXOHIRUFHUWDLQDFWLYLWLHVPLJKWEHFRPELQHGZLWKD GLIIHUHQWLDWLRQRIWKHVSHFLÀFFRQWHQWVRIWKLVUXOH,QWKDWFDVHWUDQVDFWLRQFRVWV could be lowered, and differing preferences could be still respected. Therefore, harmonisation of liability rules in order to reduce transaction costs might allow for a certain level of centralization, but not for full harmonisation.66 335

In sum, from a theoretical point of view, the market access argument would not justify a full harmonisation of environmental liability in the European Union, QHLWKHU WR UHDOLVH D OHYHO SOD\LQJ ÀHOG QRU IRU WKH UHGXFWLRQ RI WUDQVDFWLRQ costs.

336

A careful examination of the ELD indeed reveals that the Directive does not FUHDWHDOHYHOSOD\LQJÀHOGDQGFHUWDLQO\GRHVQRWUHGXFHWUDQVDFWLRQFRVWV$V will be discussed supra no. X as well, the coverage of the Directive is limited, so that, in case of an accident, different regimes may apply to different types of damage and the ELD does not clarify its relation to other liability regimes. Moreover, the ELD has left crucial aspects, such as defences, compulsory insurDQFHEXWDOVRSUHFLVHGHÀQLWLRQVRIGDPDJHRUUHVWRUDWLRQFULWHULDWRWKH0HPEHU States. Member States may also maintain or adopt more stringent provisions in their national law to prevent and restore environmental damage. Consequently, the ELD provides an uncertain framework and if the Directive is implemented, the regime will be less harmonised and might create more uncertainty than its adherents originally might have thought.

337

+HQFHWKHUHVWLOOPLJKWEHVLJQLÀFDQWGLIIHUHQFHVLQWKHLPSOHPHQWDWLRQRIWKH Directive by the Member States; the burden for industry in the different Member 6WDWHVPLJKWGLIIHUVLJQLÀFDQWO\VRWKDWWKH(/'ZLOOQRWLQFUHDVHOHJDOFHUWDLQW\ or realise a reduction in transaction costs.

338

+HQFH WKH DUJXPHQW RI WKH FUHDWLRQ RI D OHYHO SOD\LQJ ÀHOG LV WKHUHIRUH QRW VXIÀFLHQWWRDOORZIRUDKDUPRQLVHG(XURSHDQHQYLURQPHQWDOOLDELOLW\UHJLPH 4. Realisation of the polluter pays, precautionary and preventive principles

339

In all three documents, the Commission holds that Community action is needed to realise the implementation of the three grand environmental principles enshrined in Art. 174 (2) of the EC Treaty: the polluter pays, precautionary and preventive principles.67

66 67

M. Faure, (supra fn. 56), 61 See Green Paper on remedying Environmental Damage, White Paper on Environmental Liability and the Proposal for a Directive on Environmental Liability with regard to

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119

Although from the point of view of the environment the realisation of the polluter pays, precautionary and preventive principles only can be welcomed, the TXHVWLRQDULVHVZKHWKHUWKHUHDOLVDWLRQRIWKHVHSULQFLSOHVMXVWLÀHVWKHVKLIWRI environmental liability rules from the Member States to the European level.

340

It should be made clear that the principles as such do not explain why environmental regulation should be issued at the European level. Indeed, in this respect we should refer to the whole range of regulations that exist already today in the Member States. The Commission offers no evidence that the liability regime of the ELD will ensure that the polluter pays for the damage caused or that the regime creates more incentives for prevention than the existing national liability schemes.68

341

Therefore, the polluter pays, precautionary and preventive principles do not explain or justify, at least from an economic perspective, the need for European action. Yet, as the Directive has been adopted, the question obviously rises whether the ELD indeed realises these principles. Again, the answer is unfortunately negative. Indeed, certain provisions in the ELD might seriously undermine the ability of the Directive to exert a preventive effect and to ensure restoration of damage. In theory, strict liability could be a strong incentive for operators to take all possible risk-minimising measures and it could be a way of implementing the precautionary principle. However, the restricted scope of the Directive, the fact that the burden of proof lies with the authorities, the availability of the permit and the state-of-the-art defence and the absence of mandatory insurance might cause that the ELD does not set a strong incentive for the potential liable operators to invest in risk-minimising measures. Moreover, the risk is real that operators cannot be held liable and that restoration cannot be ensured as Member States do not have any responsibility for prevention and restoration under the ELD regime.

342

In its Explanatory Memorandum to the ELD, the Commission stated that “the SRVLWLYHLQFHQWLYHVSURYLGHGE\OLDELOLW\IRUHIÀFLHQWOHYHOVRISUHYHQWLRQVKRXOG prevail, provided that there is a consistently applied liability policy at Community OHYHO6LJQLÀFDQWGLIIHUHQFHVDPRQJOLDELOLW\VWDQGDUGVDW0HPEHU6WDWHOHYHO could considerably weaken the positive effects of liability on prevention.”69

343

7KH'LUHFWLYHKDVQRWEHHQWUDQVSRVHG\HW7KHUHIRUHDWWKLVVWDJHLWLVGLIÀFXOW WRDVVHVVZKHWKHUWKHIXWXUHV\VWHPVRIWKH0HPEHU6WDWHVZLOOVKRZ´VLJQLÀFDQW differences”. However, remarkable and contradictory to the Commission’s

344

68 69

the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum. L. Bergkamp, [2000] EELR, 108 Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 7. See L. Krämer, Directive 2004/35 on environmental liability and environmental principles, [2004] Tijdschrift voor Milieuaansprakelijkheid (TMA), 132

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own statement is that the Directive precisely establishes the bases for different systems: Art. 16 of the ELD and Art. 176 EC Treaty allow Member States to introduce or maintain more stringent national measures. Member States may thus apply the Directive’s liability system for example to nuclear damage, oil pollution damage, to diffuse pollution and to provide for traditional damage and historical damage (retroactivity) to be covered. Member States may decide whether they introduce joint and several liability or proportional liability (Art. 9) or whether they provide for compulsory insurance (Art. 14). Member States may also provide for an obligation of the administration to pay the costs in case of “orphan damage” (Art. 6(3)); and extend the strict liability regime to all habitats and species (Art. 2 (3) (c). They may or may not allow the “permit defence” (Art. 8 (4) (a)); and may apply the strict liability regime to activities other than those mentioned in annex III, in particular to small and medium-sized companies. Furthermore, as the calculation method for the costs are not precisely laid down, and as the administrations have a large discretion in the assessments of costs, it is likely that the costs will vary considerably within Member States, even for WKHGDPDJHDVGHÀQHGE\WKH'LUHFWLYH70

345

Hence, following the Commission’s own reasoning, the considerable differences LQWKHQDWLRQDOOHJDOV\VWHPVPLJKWVLJQLÀFDQWO\ZHDNHQWKHSUHYHQWLYHHIIHFW of the ELD.71 5. Decontamination and restoration of the environment

346

Repeatedly, the Commission has expressed its expectations that a liability regime would encourage decontamination and restoration of the environment and improve the implementation of EC environmental legislation.72

347

Although one could only cheer this result, these expectations are probably more LGHDOLVWLFWKDQUHDOLVWLF/LDELOLW\LVQHLWKHUDVXIÀFLHQWQRUDQHFHVVDU\LQVWUXPHQW for realising these two objectives.73 Bergkamp points out that the argument that a European liability regime is necessary to ensure the restoration of damaged KDELWDWVLVQRWVXIÀFLHQWDV0HPEHU6WDWHVDUHDOUHDG\UHTXHVWHGWRGRVR74 He suggests that, if the objective of an EU environmental liability regime is the remediation of contaminated land, then EC law should solely impose an obligation on Member States to reach this objective. Consequently, the Member

70

L. Krämer, [2004] TMA, 132.-133 L. Krämer, [2004] TMA, 132. 72 White Paper on Environmental Liability, § 3.1 – 3.2, p. 14, Proposal for a Directive on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage (supra fn. 20), Explanatory Memorandum, 4-6. 73 L. Bergkamp, [2000] EELR, 108. 74  &RXQFLO'LUHFWLYHRQWKHFRQVHUYDWLRQRIQDWXUDOKDELWDWVDQGZLOGIDXQDDQGÁRUD OJ L 206, 7. 71

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States will be free to choose the instruments they will use. This may, but does not have to involve additional liability rules.75 The ELD being adopted, again the question rises whether the Directive does realise decontamination and restoration of the environment? As indicated above, certain provisions in the ELD might seriously undermine the ability of the Directive to ensure the restoration of damage. The restricted scope of the Directive, the fact that the burden of proof lies with the authorities, the availability of the permit and the state-of-the-art defence and the absence of mandatory insurance might lead to a failure of the ELD to achieve restoration as Member States do not have any direct responsibility for prevention and restoration under the ELD regime. Originally Art. 5 of the Commission’s proposal for an environmental liability regime included an obligation for Member States to take, in case of environmental damage, remedial measures and Art. 6 proposed that Member States had to ensure that restoration measures were taken also in those cases where the responsible operator did not cover the necessary costs (“orphan damage”).76 The restoration of orphan damage was an argument for Community action mentioned in the Explanatory Memorandum to the Commission Proposal: “Member States’ liability regimes for contaminated land do not mandate national authorities to ensure clean up of orphan sites and hence do not ensure that the objective of restoration is attained”.77

348

+RZHYHU WKH ÀQDO YHUVLRQ RI WKH (/' GHOHWHG DQ\ OHJDO REOLJDWLRQ RQ WKH Member States to restore the damage to the environment themselves. Hence, the ELD denies the positive effect on prevention and restoration of Member 6WDWHV·UHVSRQVLELOLW\ZKLFKGHÀQLWHO\LVDZHDNQHVVLQWKHUHJLPH7KLVPLJKW somewhat be compensated by the wording of Art. 8 § 2, which stipulates that the competent authority shall recover, inter alia, via security over property or other appropriate guarantees, from the operator who has caused the damage or the imminent threat of damage, the costs it has incurred. In this sense, Art. 8 †DGGUHVVHVWKHLVVXHRIÀQDQFLDOVHFXULW\IURPWKHSRLQWRIYLHZRIWKHSXEOLF interest and aims to protect the competent authority against insolvency of the operator.78

349

75 76

77

78

L. Bergkamp, [2000] EELR, 108 Proposal for a Directive of the European Parliament and of the Council on environmental liability with regard to the prevention and remedying of environmental damage, Explanatory Memorandum, 20 Proposal for a Directive of the European Parliament and of the Council on environmental liability with regard to the prevention and remedying of environmental damage, Explanatory Memorandum, 5 L. Krämer, (2004) TMA, 132. See also B.J. Schueler, De aansprakelijkheid van de overheid als gevolg van de Richtlijn Milieuaansprakelijkheid, in: R. Mellenbergh/ R. Uylenburg (eds.), Aansprakelijkheid voor schade aan de natuur, (2005), Europa Law Publishing, Groningen, 58-72 and H. Bocken, Financial Guarantees in the Environmental Liability Directive: Next Time Better, [2006] European Environmental Law Review (EELR), 1332

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6. Harmonisation to guarantee a minimum level of protection 350

The Treaty on the European Union sets out the aims of European environmental policy. In particular Art. 174 § 2 of the TEU states that “Community policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Community. It shall be based on the precautionary principle and on the principles that preventive action should EHWDNHQWKDWHQYLURQPHQWDOGDPDJHVKRXOGDVDSULRULW\EHUHFWLÀHGDQGWKDW the polluter should pay”.79

351

In the Explanatory Memorandum, the Commission advanced that a Communitywide system of liability is necessary to address site contamination and the loss of biodiversity in the Community. Put differently, a liability regime at European level would be necessary to guarantee a high level of environmental quality in the European Union.

352

However, the reasoning that harmonisation is necessary to ensure a high level of protection or a high level of environmental quality falls beyond the pure economic arguments for harmonisation of liability rules. Some authors stay within the economic reasoning and argue that harmonisation would be MXVWLÀHGLQRUGHUWRJXDUDQWHHDPLQLPXPOHYHORISURWHFWLRQDVXQDFFHSWDEO\ low environmental standards in a certain state could present negative psychic externalities to citizens in other states.80 Other authors consider environmental SURWHFWLRQDVDKXPDQULJKWIUHHGIURPHFRQRPLFMXVWLÀFDWLRQ81

353

The minimum level of protection argument might be accepted, however, as Faure argues, it must be emphasized that the reason for harmonisation would not be EDVHGRQHFRQRPLFHIÀFLHQF\EXWRQWKHGHVLUHWRSURYLGHDPLQLPXPOHYHORI environmental quality and of protection against environmental accidents.82 Yet, it PXVWEHFOHDUWKDWWKHPLQLPXPOHYHORISURWHFWLRQMXVWLÀFDWLRQIRUKDUPRQLVDWLRQ addresses the concern to guarantee all citizens minimum quality standards, which refers to harmonisation of regulation. Therefore, this argument might in some FLUFXPVWDQFHVMXVWLI\WKHKDUPRQLVDWLRQRIUHJXODWLRQEXWLWLVPRUHGLIÀFXOWWR justify the harmonisation of liability rules. It is questionable that the harmonisation of tort law would be the appropriate instrument to achieve such minimum OHYHO RI SURWHFWLRQ ,QGHHG LW PLJKW EH PRUH HIÀFLHQW WR GHYHORS PLQLPXP

79 80

81

82

N. Farnsworth, (2004) EELR, 182. D.C. Esty, Revitalizing Environmental Federalism, (1996) Michigan Law Review, 638-648. See also J. Ferejohn, Political Economy of Pollution Control in a Federal System, in: R. Revesz/P. Sands/R. Stewart (eds.), Environmental law, the economy and sustainable development: the United States, the European Union and the international community (2000), Cambridge University Press, 99-100 K. H. Engel, [1997] HLJ 48, 289. See also C. Kimber, A Comparison of Environmental Federalism in the United States and the European Union, (1995) Maryland Law Review 54, 1690 M. Faure (supra fn. 56), 67

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quality standards that must be achieved, before and after an accident, rather than to harmonise the liability rules itself in the different jurisdictions.83 The type of OLDELOLW\UXOHPLJKWUHÁHFWGLIIHUHQFHVLQSUHIHUHQFHVRIFLWL]HQV0RUHRYHULQ the European Union, for instance, it is doubtful that the different liability rules in some Member States would not provide a minimum level of protection for their accident victims. Hence, there would be no need for harmonisation or tort law. Therefore, regulation or other means, such as the European Convention on Human Rights, could be more appropriate to guarantee such minimum level of protection, rather than the harmonisation of environmental liability rules.84 Hence, although the minimum level of protection argument might in some circumstances justify the harmonisation of regulation, it is doubtful whether it is really necessary to harmonise environmental liability rules. Moreover, as Revesz indicates, it is questionable why environmental quality standards should be harmonised, in order to guarantee a minimum level of protection, if, for example in the European Union, there is no minimum social security, no provision of general health care or no harmonisation of minimum wages.85

354

In sum, as European environmental policy is based on the precautionary principle and on the principles that preventive action should be taken, that environmental GDPDJHVKRXOGEHUHFWLÀHGDWWKHVRXUFHDQGWKDWWKHSROOXWHUVKRXOGSD\$UW § 2), there might be a minimum level of protection argument for enacting the Directive. For example, in hindsight, it could be that the Seveso accident or the Baia Mare accident might have been prevented if stricter legislation had been in place to prevent such accidents. From the wording of Art. 174 § 2 and the application of the precautionary principle in practice, Farnsworth concludes that, if there is a strong assumption that an activity might cause environmental damage, it is better to act before damage materialises, rather than to wait until VFLHQWLÀFHYLGHQFHLVDYDLODEOHWRSURYHWKHFDXVDOFRQQHFWLRQ&RQVHTXHQWO\ he holds that if the precautionary principle is read in conjunction with the subsidiarity principle, this would be an argument for the shift of environmental liability rules from the Member States to the European level.86

355

7. Private interest distortions So far the article examined for what reasons it was believed that harmonisation of liability rules in the European Union would better protect the environment

83 84 85

86

L. Bergkamp (supra fn. 65), 378 M. Faure (supra fn. 56), 68 R. Revesz, Federalism and Environmental Regulation: An Overview, in: R. Revesz/P. Sands/R. Stewart (eds.), Environmental law, the economy and sustainable development: the United States, the European Union and the international community (2000), Cambridge University Press, 68 N. Farnsworth, [2004] EELR, 183

356

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from damage occurring and guarantee restoration than national liability rules DQGZKHWKHUWKHVHUHDVRQVZHUHMXVWLÀHGIURPDQHFRQRPLFSHUVSHFWLYH 357

As appears from above, there are relatively few economic arguments that can be found to justify the shift of environmental liability rules from the Member States to the European level. This was only the case for transboundary damage and even then it was argued that for transboundary damage only a so-called ´WUDQVERXQGDU\RQO\µUHJLPHZRXOGEHMXVWLÀHGUDWKHUWKDQIXOOKDUPRQLVDWLRQ Moreover, it appeared that the Directive would not necessarily remedy this WUDQVERXQGDU\ GDPDJH QRU ZRXOG WKH 'LUHFWLYH FUHDWH D OHYHO SOD\LQJ ÀHOG or reduce transaction costs, which represented another argument advanced by the Commission for the shift of environmental liability rules from the Member States to the European level.

358

Nevertheless, with respect to the goals of European environmental policy, it was argued that there might be a minimum level of protection argument for enacting the Directive.

359

However, there might be other reasons why the European Union would harmonise liability legislation. These reasons can be found in the public choice theory. Public choice theory deals with the role of interest groups in legislation. Lobbying activities at the European level are extremely strong. With respect to European environmental law-making, intensive rent-seeking behaviour by interest groups should not be ignored.

360

From a theoretical point of view, it can be stated that lobbying does not necessarily have to result in lower environmental standards. In particular cases, special interest groups, representing industry, might lobby in favour of a harmonisation at a higher level of environmental protection. Interest groups in areas which are already heavily regulated may have incentives to extend their strict (national) regulations to the European level, forcing foreign competitors to follow the same strict regulation with which they already comply. The result is that industry will OREE\WRHUHFWDUWLÀFLDOEDUULHUVWRHQWU\,QDGGLWLRQJUHHQ1*2VZLOOEHSOHDVHG with this lobby and will obviously support the demand to transfer strict national standards into a European standard.87 Thus, industry in heavily regulated (and probably polluted) Member States might (supported by green NGOs) force their very stringent emission limit values upon their competitors in other Member States, although these Member States probably would not need these stringent environmental limit values if the policy goal were one of reaching uniform environmental quality.

361

It is too early to assess whether the ELD in fact serves the interests of industry. The Community’s objective behind the ELD was that the Community considered 87

These “alliances” between environmentalists and domestic producers are discussed by D. Vogel , Trading Up: Consumer and Environmental Regulation in the Global Economy (1995), 52-55.

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a framework of liability as a useful tool to broaden its instruments for environmental protection.88
88 89

90

91

92

Interview Charles Pirotte, EU Commission, DG Environment CEFIC, EUROPIA, OGP and UNICE, Commission Proposal for a Directive on Environmental Liability, Common proposals from CEFIC, EUROPIA, OGP and UNICE: ´5HFRJQLVLQJWKHGLIÀFXOWLHVRIGHDOLQJZLWKGDPDJHWRWKHHQYLURQPHQWLQDOO0HPEHU States, and bearing in mind the studies and consideration in general by academics, NGOs and European and national authorities to progress this matter, we recognise that the ComPLVVLRQSURSRVDORI-DQXDU\PDNHVDVLJQLÀFDQWFRQWULEXWLRQLQWKLVUHJDUGµ C. Clarke, The Proposed EC Liability Directive: Half-Way through Co-Decision, 2003 Review of European Community and International Environmental Law (RECIEL) 12 (3), 261 Birdlife International, Greenpeace, WWF, Friends of the Earth, EEB (joint declaration), The Directive on Environmental Liability, The European Parliament’s Third Reading Vote, 31 March 2004. Birdlife International, Greenpeace, WWF, Friends of the Earth, EEB (joint declaration), The Directive on Environmental Liability, The European Parliament’s Third Reading Vote, 31 March 2004.

362

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363

Clearly the Union would have been unable to adopt the ELD without the approval of the Member States. The White Paper on Environmental Liability was criticised by the Member States as well. Some of the large Member States, in SDUWLFXODU*HUPDQ\)UDQFHDQGWKH8.ÀUPO\RSSRVHGDQ\(XURSHDQLQLWLDtive to harmonise environmental liability rules for reasons of sovereignty and subsidiarity93. At the end of July 2001, the Commission changed its strategy and issued the Working Paper whereby the Commission shifted its focus from civil liability and compensation to prevention and restoration of environmental damage.94 The reactions of the Member States on the Working Paper were moderately positive and it is on the basis of this regime that the Commission proceeded with the process to adopt the ELD.95

364

Yet, Member States’ opinions on the ELD were diverse and large disagreement EHWZHHQ 0HPEHU 6WDWHV RQ NH\ LVVXHV VXFK DV ÀQDQFLDO VHFXULW\ VXEVLGLDU\ VWDWHOLDELOLW\DQGSHUPLWDQGVWDWHRIWKHDUWGHIHQFHVH[LVWHG7KHÀQDOWH[W of the ELD allows substantial Member State discretion in various provisions. Maybe this made a European environmental liability regime acceptable. It is also remarkable that Portugal and Greece, the only two (pre-accession) Member States who did not have an environmental liability regime in place, did not oppose the Directive on grounds of subsidiarity. Farnsworth argues that they were waiting for Europe to take the lead in this area, so that they would be in a stronger position to develop their own legislation around the Environmental Liability Directive.96

365

In sum, environmental NGOs, industry and Member States, all for their own reasons, welcomed or at least did not oppose a shift of environmental liability rules from the Member States to the European level. Therefore, the interests of all parties in the ELD decision-making process may not be ignored when examining the reasons for a shift of environmental liability rules from the Member States to the European level.

(&RQFOXVLRQ 366

This article tried to examine, from an economic perspective, why there was a need to shift environmental liability rules from the Member States to the European level.

 +%RFNHQ+HW:RUNLQJ3DSHURQ3UHYHQWLRQDQG5HVWRUDWLRQRI6LJQLÀFDQW(QYLURQPHQWDO Damage. Het Witboek betreffende Milieuaansprakelijkheid terzijde gelegd’, [2001] Tijdschrift voor Milieurecht (TMR) 5, 352. 94 European Commission, Environmental Directorate General Working Paper on Prevention DQG5HVWRUDWLRQRI6LJQLÀFDQW(QYLURQPHQWDO'DPDJH (Environmental liability), 2001. 95 H. Descamps (supra fn. 6), 5 and H. Bocken, [2001] TMR 5, 355 96 N. Farnsworth, [2004] EELR, 178 93

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It appears that the arguments for harmonisation, advanced by the Commission, are rather weak to justify the shift of environmental liability rules from the Member States to the European level. Fears of a race-to-the-bottom or unfair marketing conditions due to different liability rules in the Member States do not seem very likely to become true. Moreover, it was shown that the ELD will QRWFUHDWHDOHYHOSOD\LQJÀHOGRUUHDOLVHDUHGXFWLRQLQWUDQVDFWLRQFRVWV7KH only argument, from an economic point of view, was the case of transboundary damage and even then it was argued that only a so-called “transboundary RQO\µ UHJLPH ZRXOG EH MXVWLÀHG UDWKHU WKDQ IXOO KDUPRQLVDWLRQ +RZHYHU LW was shown that the Directive would not necessarily solve this transboundary GDPDJHHLWKHUQRUZRXOGWKH'LUHFWLYHFUHDWHDOHYHOSOD\LQJÀHOGRUUHGXFH transaction costs.

367

The conclusion at the normative level is, however, not necessarily that there should be no European action at all with respect to environmental liability. The main problem is that the Commission fails to explain properly why a harmonised liability regime is necessary or why its goals cannot be achieved by the Member States, as required by the subsidiarity and proportionality principles.

368

The Commission still seems to be stuck in the old integration jargon of “harmonisation of conditions of competition”, whereas that seems to be a weak reason for harmonisation. Indeed, there may be other, non-economic reasons to justify a harmonisation. With respect to the goals of European environmental policy, it was argued that there might be a minimum level of protection argument for enacting the Directive. One could point to the fact that action at the European level with respect to biodiversity damage might lead to a better protection of biodiversity than in the absence of European action.

369

Hence, from an economic point of view, the reasons advanced by the Commission for the ELD seem rather weak, and would not justify a shift of environmental liability rules from the Member States to the European level. The minimum level of protection argument might be accepted. However, it must be emphasized WKDWWKLVUHDVRQIRUKDUPRQLVDWLRQZRXOGQRWEHEDVHGRQHFRQRPLFHIÀFLHQF\ but on the desire to provide a minimum level of environmental quality and of protection against environmental accidents. Yet, the interests of all parties in the ELD decision-making process should not be ignored either to explain the shift of environmental liability rules from the Member States to the European level.

370

Meanwhile, the Directive has entered into force. Interpreting the Directive in light of its aim and general principles of EC environmental law seems the best option to give the ELD the chance to become an effective instrument to ensure prevention and restoration of environmental damage in the European Union.

371

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/LVWRIUHIHUHQFHV Ackerman, R.M., Tort Law and Federalism: Whatever happened to Devolution?, [1996] Yale Law and Policy Review, Symposium Issue, 429. Bergkamp, L., The Commission’s White Paper on Environmental Liability: A Weak Case for an EC Strict Liability Regime, [2000] European Environmental Law Review (EELR), 105-114, 141-188. Bergkamp, L., Liability and Environment. Private and Public Aspects of Civil Liability for Environmental Harm in an International Context (2001), Kluwer Law International, The Hague, 381-382. Bergkamp, L., The Commission July 2001 Working Paper on Environmental Liability: Civil or Administrative Law to prevent and Restore Environmental Harm?, [2001] Environmental Liability 9, 208. See also C. Clarke, The Proposed EC Liability Directive: Half-Way through Co-Decision, [2003] Review of European Community and International Environmental Law (RECIEL), 12 (3), 260. Bergkamp, L., The Proposed Environmental Liability Directive, [2002] European Environmental Law Review (EELR), 296. Bergkamp, L., The European Environmental Liability Directive and its effects on Industry and Economy, in: R. Mellenbergh/R. Uylenburg (eds.), Aansprakelijkheid voor schade aan de natuur, (2005), Europa Law Publishing, Groningen, 97. %RFNHQ++HW:RUNLQJ3DSHURQ3UHYHQWLRQDQG5HVWRUDWLRQRI6LJQLÀFDQW Environmental Damage. Het Witboek betreffende Milieuaansprakelijkheid terzijde gelegd’, [2001] Tijdschrift voor Milieurecht (TMR) 5, 352. %RFNHQ++HW:RUNLQJ3DSHURQ3UHYHQWLRQDQG5HVWRUDWLRQRI6LJQLÀFDQW Environmental Damage. Het Witboek betreffende Milieuaansprakelijkheid terzijde gelegd’, [2001] Tijdschrift voor Milieurecht (TMR) 5, 352. Clarke, C., The Proposed EC Liability Directive: Half-Way through Co-Decision, 2003 Review of European Community and International Environmental Law (RECIEL) 12 (3), 261. Descamps, H., De Europese richtlijn milieuschade en haar implementatie: wie doet wat?, in: K. Deketelaere/M. Deketelaere (eds.), Jaarboek Milieurecht, (2005) Leuvem, Die Keure, 3-51. Engel, K.H., State Environmental Standard Setting: Is There a “Race” and Is it “to the Bottom”?, [1997] Hasting Law Journal (HLJ) 48, 274. Esty, D.C., Revitalizing Environmental Federalism, [1996] Michigan Law Review, 638-648.

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European Commission, Environmental Directorate General Working Paper on 3UHYHQWLRQ DQG 5HVWRUDWLRQ RI 6LJQLÀFDQW (QYLURQPHQWDO 'DPDJH (QYLURQmental liability), 2001. Farnsworth, N., Subsidiarity – A Conventional Industry Defence. Is the Directive on Environmental Liability with regard to Prevention and Remedying RI(QYLURQPHQWDO'DPDJHMXVWLÀHGXQGHUWKHVXEVLGLDULW\SULQFLSOH">@ European Environmental Law Review (EELR), 180. Faure, M.G., Product liability and product safety in Europe: harmonisation or differentiation?, [2000] Kyklos 53, 467. Faure, M.G., Regulatory Competition versus Harmonisation in EU Environmental Law, in: D. Esty/G. Geradin (eds.), Regulatory Competition and Economic Integration, (2001) Oxford University Press, 263. )DXUH 0* DQG . 'H 6PHGW ¶6KRXOG (XURSH +DUPRQLVH (QYLURQPHQWDO Liability Legislation?, [2002] Environmental Liability 9, 217-237. Faure, M.G., How Law and Economics May Contribute to the Harmonisation of Tort Law in Europe, in: R. Zimmermann (ed.), Grundstrukturen des Europäischen Deliktsrechts (2003), 38-39. Faure, M., How Law and Economics May Contribute to the Harmonization of Tort Law in Europe, in: R. Zimmermann (ed.), Grundstructuren des Europäischen Deliktsrechts (2003), 51-53. Faure, M.G., De Europese Richtlijn Milieuaansprakelijkheid: kritische inleidende bedenkingen, in: R. Mellenbergh/R. Uylenburg (eds.), Aansprakelijkheid voor schade aan de natuur, (2005), Europa Law Publishing, Groningen, 3-20. Ferejohn, J., Political Economy of Pollution Control in a Federal System, in: R. Revesz/P. Sands/R. Stewart (eds.), Environmental law, the economy and sustainable development: the United States, the European Union and the international community (2000), Cambridge University Press, 99-100. Fogleman,V., The Environmental Liability Directive, [2004] Environmental Liability 3, 103. Fogleman, V., [2004] Environmental Liability 3, 101-115 or G. Wagner, Die gemeinschaftsrechtliche Umwelthaftung aus der Sicht des Zivilrechts, in: R.Hendler, et al., Umwelt- und Technikrecht, sonderndruck aus Umwelthaftung nach neuem EG-Recht. 20. Trierer Kolloquium zum Umwelt- und Technikrecht, 5-7 September 2004, (2005) Erich Schmidt Verlag, Berlin, 73-146. Fogleman, V., [2004] Environmental Liability 3, 102 and H. Bocken, (2001) TMR 5, 352.

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Inman, R.P. and D.L. Rubinfeld, Federalism, in: B. Bouckaert/G. De Geest, (eds.), Encyclopedia for law and economics, (2000) Edward Elgar Publishing, 661. Jaffe, A./S. Peterson/P. Portney/R. Stavins, Environmental Regulation and the Competitiveness of US Manufacturing: What does the Evidence Tell Us?, [1995] Journal of Economic Literature XXXIII, 157-158. Jans, J.H., European Environmental law (2000), Europa Law Publishing, Groningen, 11-12. Jeppesen, T., Environmental Regulation in a Federal System. Framing Environmental Policy in the European Union (2002), Edward Elgar publishing, UK, 2. Kimber, C., A Comparison of Environmental Federalism in the United States and the European Union, [1995] Maryland Law Review 54, 1690. Krämer, L., Directive 2004/35 on environmental liability and environmental principles, [2004] Tijdschrift voor Milieuaansprakelijkheid (TMA), 132. Krämer, L., (2004) TMA, 132. See also B.J. Schueler, De aansprakelijkheid van de overheid als gevolg van de Richtlijn Milieuaansprakelijkheid, in: R. Mellenbergh/ R. Uylenburg (eds.), Aansprakelijkheid voor schade aan de natuur, (2005), Europa Law Publishing, Groningen, 58-72. Oates, W.E., Environmental policy in the European Community: Harmonisation or National Standards, [1998] Empirica 25, 1-13. Ogus, A., Competition between national legal systems: a contribution of economic analysis to comparative law, [1999] The International and Comparative Law Quarterly 48, 405. Revesz, R., Federalism and Environmental Regulation: An Overview, in: R. Revesz/P. Sands/R. Stewart (eds.), Environmental law, the economy and sustainable development: the United States, the European Union and the international community (2000), Cambridge University Press, 68. Tiebout, C., A pure theory of local government expenditures, [1956] Journal of Political Economy 60, 415. Van den Bergh, R., The Subsidiarity Principle in European Community Law: Some Insights from Law and Economics, [1994] Maastricht Journal of European and Comparative Law (MJECL) 1, 337-366. Van den Bergh, R., Economic Criteria for Applying the Subsidiarity Principle, in: R. Revesz/P. Sands/R.B. Stewart (eds.), Environmental Law, the Economy and Sustainable Development: The United States, the European Union and the International Community (2000), Cambridge University Press, 87.

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Vogel, D., Trading Up: Consumer and Environmental Regulation in the Global Economy (1995), 52-55. Xing, Y./C. Kolstad, Do Lax Environmental Regulations Attract Foreign Investment?, [1995] Working Papers in Economics, University of California, 16.

V. Shifts in Governance: Oil Pollution Albert Verheij $,QWURGXFWLRQ 1. Structure Two developments can account for the present-day risk of severe oil pollution.1 Firstly, after World War II coal was replaced by oil as the main source of energy. Secondly, after the Suez Crisis of 1956 it became clear that an alternative route was needed for the transportation of oil by ship. The route around the Cape of Good Hope would be economical provided that very large ships could be built. 7KLVSURYHGSRVVLEOHDQGWKUHH\HDUVDIWHUWKH6XH]&ULVLVWKHÀUVWVXSHUWDQNHU of 100,000 dwt was developed. The speed of this development is illustrated by the fact that in 1952 the world’s largest tanker was 28,000 dwt whereas in 1966 tankers of over 200,000 dwt came into service.

372

In this paper four different legal regimes that provide for compensation of damage resulting from oil pollution will be examined:

373

–

² – –

1

the International Convention on Civil Liability for Oil Pollution Damage (1969) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 including their subsequent protocols (Chapter B, infra no. 379), WKHYROXQWDU\DJUHHPHQWV729$/23DQG&5,67$/WKDWZDVÀQDOO\ZRXQG up in 1997 (Chapter C, infra no. 453) the American Oil Pollution Act (1990) including the relevant previous legislation (Chapter D, infra no. 485), the European Directive on environmental liability 2004 (Chapter E, infra no. 566).

C. de la Rue/C.B. Anderson, Shipping and the environment (1st edn. 1998), 10-11.

134

374

The same aspects of each regime will be described in order to facilitate comparison. These aspects are: – – ² – – – –

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Michael Faure and Albert Verheij

scope; liability regime (fault or strict liability); GDPDJHVÀ[HGDPRXQWOLPLWDWLRQVNLQGVRIFRPSHQVDEOHGDPDJH  fund; claimants; responsible parties; relationship to other law.

As far as possible at this stage of the research the policy reasons underlying the adoption of the particular the legal instrument will be outlined. The aim hereby is to identify and analyse so-called “shifts in governance”. At the end of each FKDSWHUWKHVKLIWVWKDWKDYHWDNHQSODFHZLOOEHLGHQWLÀHG)LQDOO\LQ&KDSWHU F (infra no. 379) an attempt will be made to draw some general conclusions. Firstly, some general remarks concerning environmental damage are made (infra no. 376). 2. Environmental damage

376

Environmental damage is a term that covers many different heads of damage. For the sake of clarity these different heads of damage will be examined separately in the following. The different kind of damage that can be caused by environmental pollution can be divided into two categories:2 – –

damage caused to persons, and damage caused to the environment as such.

2.1. Damage caused to persons 377

(QYLURQPHQWDOGDPDJHFDQLQWKHÀUVWSODFHLPSDLUWKHKHDOWKRIKXPDQEHLQJV As a result, their earning capacity might be (permanently) reduced. Secondly, HQYLURQPHQWDOGDPDJHFDQOHDGWRORVVRIVXEVLVWHQFHXVH7KLVFDQEHGHÀQHG as the use of natural resources as a source or means of obtaining “the minimum necessities for life”, such as the use of these resources as a food source, as shelter or to make a living. Thirdly, the value of property can diminish in case of pollution by means of e.g. an oil spill. Finally, many different people have an indirect interest in a clean environment and will suffer damage (pure economic loss) in case of pollution. An oil spill that causes pollution to the water and to the beach can lead to a drop in visitors and thus cause damage to restaurant owners,

2

See in this context E.H.P. Brans, Liability for Damage to Public Natural Resources. Standing, Damage and Damage Assessment (1st edn. 2001), chapter 2.

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135

hotel owners, and owners of sports facilities. Such pollution can furthermore FDXVHDORVVRISURÀWVWRWKRVHZKRSDUWLFLSDWHLQWKHÀVKLQJLQGXVWU\ 2.2. Damage caused to the environment 3ROOXWLRQOHDGVLQWKHÀUVWSODFHWRFOHDQXSFRVWV+RZHYHUDIWHUWKHVHFOHDQXS measures have been taken, the condition of the environment is not always the same as prior to the pollution. Further expenses are usually necessary to restore the site to its original state: i.e. restoration costs have been incurred. When restoration is not possible, it might be possible to acquire an equivalent of the polluted site. These costs could also be regarded as restoration costs in a wider sense, but in the following the term restoration costs is only reserved for the situation where restoration is still possible. The reason is that expenses for an equivalent are not always compensated. Sometimes the costs of monitoring the restoration and of assessing the environmental damage are mentioned separately. Here these heads of damage are included in the notion of restoration costs. In the period in which the polluted site has not fully recovered from the pollution, there will be so-called interim losses,3 e.g. people cannot enjoy the beauty of the polluted area. The costs of providing temporary sites that render the same services to the public as the polluted site are also included here.4 Costs to prevent environmental damage when there is a substantial threat of pollution form a separate head of damage.5

378

%,QWHUQDWLRQDOFRQYHQWLRQV 1. Introduction In this chapter two important conventions on liability for oil pollution and their protocols will be outlined: – – – – – –

3

the International Convention on Civil Liability for Oil Pollution Damage 1969 (infra no. 380); the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (infra no. 402); the 1984 and 1992 Protocols (infra no. 413); the 2000 Protocol (infra no. 426); the 2003 Protocol (infra no. 428); recent developments (infra no. 436).

Other terms for this type of damage are “environmental amenities”, “loss of use and enjoyment of the environment”. 4  %HFDXVHWKLVW\SHRIGDPDJHFDQQRWEHHDVLO\WUDFHGWRVSHFLÀFLQGLYLGXDOVLWLVOLVWHG XQGHUGDPDJHFDXVHGWRWKHHQYLURQPHQW7KLVLVLQOLQHZLWKWKH$PHULFDQGHÀQLWLRQRI “natural resource damage”, see E.H.P. Brans (supra fn. 2), 21. 5 In the American Oil Pollution Act these costs are included in the term “removal costs”, see s. 2701(31).

379

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Michael Faure and Albert Verheij

At the end of this chapter the shifts which have taken place will be analysed (infra no. 438). 2. International Convention on Civil Liability for Oil Pollution Damage 1969 (CLC) 2.1. Background 380

Before the CLC came into force in 1975 there was no coherent international framework for compensation of oil pollution damage. There were two interQDWLRQDO FRQYHQWLRQV EXW WKHVH ZHUH FRQÀQHG WR HVWDEOLVKLQJ OLPLWDWLRQV RQ liability.6 Liability itself remained subject to national laws. The Torrey Canyon disaster highlighted the need for comprehensive international legislation and can thus be regarded as the immediate cause of the CLC.

381

What had happened? On 18 March 1967, the Torrey Canyon, 61,263 gross tonnes ran aground some way off the Scilly Isles.7 Hugh amounts of crude cargo oil were released from the vessel and polluted one hundred kilometres of English coastline and 80 kilometres of French coastline. 50% of the bird population on the north coast of Brittany was destroyed as well as 80% of guillemots, auks and SXIÀQV7KHGLVDVWHUFRVWWKH8QLWHG.LQJGRPPLOOLRQSRXQGVDQG)UDQFH 41 million francs. The clean-up costs of the British and French Governments together amounted to 16 million pounds (= 80 million francs). This illustrated that the 1957 Convention on the limitation of ship-owners’ liability, which had not entered into force yet at the time of the oil spill, was outdated. The amount available for compensation under this Convention namely would have been only 18 million francs. In appreciating these amounts it should be kept in mind that the Torrey Canyon was not the largest type of vessel involved in the transport of oil.8

382

7KH&/&ZDVPHDQWWRUHPHG\WKHÁDZVLQWKHH[LVWLQJLQWHUQDWLRQDOIUDPHZRUN that were exposed by the Torrey Canyon disaster. According to its Preamble, the CLC has two objectives, namely to guarantee adequate compensation and to establish uniform rules regarding procedures and liability.

6

7

8

The 1924 Convention on the limitation of ship-owners’ liability and the 1957 Convention RQWKHOLPLWDWLRQRIVKLSRZQHUV·OLDELOLW\7KHÀUVW&RQYHQWLRQFDPHLQWRIRUFHLQ EXWKDGOLWWOHHIIHFWVLQFHLWZDVQRWUDWLÀHGE\WKHPDMRUVKLSSLQJQDWLRQV7KHVHFRQG Convention only came into force in 1968, after the Torrey Canyon disaster of 1967. The following details are given by W. Chao, Pollution from the Carriage of Oil by Sea: Liability and Compensation (1st edn. 1996), 9 and 34. W. Chao (supra fn. 7), 76.

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2.2. Scope and basis of liability The CLC applies to pollution damage caused on the territory including the territorial sea of a contracting state.9 Thus the applicability depends on the place of the damage. An oil spill on the high seas only falls within the scope of the CLC insofar as damage is sustained in the territorial sea of a contracting state.

383

The pollution damage must be caused by the discharge or escape of oil from a ship that carries oil in bulk as cargo.10 If a ship does not carry oil, pollution caused by a discharge of the fuel of the ship does not come within the terms of the CLC. If a ship has a cargo of oil, there is no need to distinguish between oil carried as cargo and oil used as fuel. Such a distinction would cause too many GLIÀFXOWLHVLQGHWHUPLQLQJWKHVRXUFHRIWKHSROOXWLRQGDPDJH11

384

The basis of liability can be found in art. III(1) which provides that the owner of a ship at the time of an incident shall be liable for any pollution damage caused by oil which has been released from the ship as a result of the incident.

385

2.3. Liability regime The liability regime of the CLC is regarded as strict in character. The responsible party can only escape liability if the damage was (wholly12) caused by:13 – – –

an act of war or force majeure14, or a third party who had the intent to cause damage, or a wrongful act of any government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function.

If the damage resulted wholly or partially from an intentional or negligent act or omission of the person who suffered the damage, the responsible party may be wholly or partially exonerated.15

9

10 11 12

13 14 15

Art. II International Convention on Civil Liability for Oil Pollution Damage 1969 (CLC). Art. I(1) and (6) CLC. W. Chao (supra fn. 7), 41. This word is only used with regard to the second and third ground of exemption. Whether the responsible party can escape liability when the damage is not the exclusive result of an act of war or force majeure is doubtful. See for a further analysis W. Chao (supra fn. 7), 60-61. Art. III(2) CLC. Also referred to as an act of God. Art. III(3) CLC. According to Dutch law, an act of God (overmacht) is systematically distinguished from contributory negligence (eigen schuld) . However, such a distinction is not made by the Convention and is therefore not made in the text.

386

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Michael Faure and Albert Verheij

2.4. Damage 387

3ROOXWLRQGDPDJHLVGHÀQHGDV´« ORVVRUGDPDJHFDXVHGRXWVLGHWKHVKLS carrying oil by contamination resulting from the escape or discharge of oil from the ship (…), and includes the costs of preventive measures and further loss or damage caused by preventive measures.”16

388

7KHZRUG´FRQWDPLQDWLRQµLVDYHU\LPSRUWDQWOLPLWLQJHOHPHQWLQWKLVGHÀQLWLRQ,WHOLPLQDWHVGDPDJHFDXVHGE\ÀUHRUH[SORVLRQZKLFKLVWKHUHVXOWRID discharge of oil.17

389

The costs of preventive measures are only compensated if the measures were taken after the incident.18 This means no compensation can be obtained for measures that were so successful that no oil was spilled.19 Prevention should be interpreted strictly, measures only aimed at preventing or minimizing pollution damage count as such. Measures aimed at saving the ship or the cargo are therefore not regarded as preventive measures.20

390

7KHGHÀQLWLRQRIWKH&/&LVUDWKHUYDJXH:KDWGDPDJHIDOOVZLWKLQWKHVFRSH RI WKH GHÀQLWLRQ KDV EHFRPH FOHDU RYHU WLPH ,Q WKH IROORZLQJ D GLVWLQFWLRQ is made between an infringement of individual interests and damage to the environment as such.21 2.4.1. Damage caused to persons

391

First of all, individuals are entitled to compensation of personal injury that was caused by the oil pollution. However, no compensation is allowed for exposure to health risks, anxiety and upset.22 Secondly, subsistence use that is thwarted by the pollution is compensable.23 Thirdly, damage to property will be compensated provided that it is “real”. Brans mentions a case in which the owner of an island demanded compensation for not having been able to sell the island at the price expected before the oil spill.24 The value of his island had been diminished not because it was still polluted after the clean-up, but because it was stigmatized as a result of the spill. The damage suffered was regarded as being psychological in nature and no recovery was therefore allowed.

16 17 18 19 20 21 22 23 24

Art. I(6) CLC. W. Chao (supra fn. 7), 47. Art. I(7) CLC. E.H.P. Brans (supra fn. 2), 315; W. Chao (supra fn. 7), 49. W. Chao (supra fn. 7), 49. See for this distinction supra no. 376. E.H.P. Brans (supra fn. 2), 321. See for an example E.H.P. Brans (supra fn. 2), 340. E.H.P. Brans (supra fn. 2), 320.

Shifts in Compensation for Environmental Damage

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Fourthly, people who are dependent on their earnings from coastal or searelated activities are entitled to compensation of pure economic loss, provided WKDWWKHORVVLVTXDQWLÀDEOHLQHFRQRPLFWHUPV,QWHUHVWLQJO\WKHFRVWRIPHDVXUHV aimed at minimizing negative consumer perceptions (e.g. publicity campaigns) are also compensable.25 2.4.2. Damage caused to the environment Clean-up and restoration costs are regarded as preventive measures and are therefore compensable, provided that they are reasonable. Here again, it is required WKDWWKHORVVLVTXDQWLÀDEOHLQHFRQRPLFWHUPV&ODLPVWKDWZHUHFDOFXODWHGRQ the basis of “abstract methods” instead of on the basis of actual or necessary clean-up and restoration measures have been held inadmissible.26 Finally, the fact that the public cannot make use of the polluted area during restoration does not give rise to a claim under the CLC. Interim damage is therefore not compensated.

392

2.5. Claimants Individuals who suffer the above-mentioned damage and anyone who takes preventive measures (clean-up and restoration measures) is entitled to compensation.27 Within three years after the damage occurred a lawsuit must be ÀOHGRWKHUZLVHWKHFODLPLVORVW,QDQ\FDVHDFODLPLVORVWVL[\HDUVDIWHUWKH incident.28

393

2.6. Responsible parties There has been much debate on the question who should be held liable, the cargo owner or the person responsible for the ship. In the latter case the question arises whether the owner of the ship or the operator of the ship should be held liable.

394

There are strong arguments in support of the view that the cargo owner should be KHOGOLDEOH,QWKHÀUVWSODFHLWLVWKHFDUJRZKLFKFDXVHVWKHSROOXWLRQ6HFRQGO\ WKHFDUJRRZQHUVLQRWKHUZRUGVWKHRLOLQGXVWU\DUHÀQDQFLDOO\PRVWFRPSHWHQW to carry the burden of liability. For practical reasons this view was not adopted however.29 It would be cumbersome for pollution claimants to identify the cargo owner since the cargo can change hands many times during a voyage. Moreover, it would become necessary to distinguish between the pollution caused by the cargo and the pollution caused by the oil in the bunkers used as fuel.

395

25 26 27 28 29

E.H.P. Brans (supra fn. 2), 323. E.H.P. Brans (supra fn. 2), 324 ff. W. Chao (supra fn. 7), 49. Art. VIII CLC. W. Chao (supra fn. 7), 52.

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Michael Faure and Albert Verheij

396

The view was taken that, in accordance with the law of especially France, the custodian should be held liable. Who is the custodian, the operator or the ship-owner? After some debate it was eventually decided that liability should be channelled30 to the ship-owner. The notion of operator was regarded as too vague31ZKHUHDVWKHVKLSRZQHUFRXOGEHLGHQWLÀHGPRUHHDVLO\E\YLFWLPVRI oil pollution. Administrative evidence (who is registered as the owner of the ship?) will be used to determine the ship-owner.

397

The compromise was made however that the liability of the ship-owner should be complemented with a fund – to be established by a separate convention ²ÀQDQFHGE\WKHRLOFRPSDQLHV32 The fund was thus meant to strike a right balance between the liabilities of ship-owners and the oil industry but there were also other reasons, see further infra no. 402

398

According to art. III(5), nothing in the CLC precludes a right of recourse of the ship-owner against third parties.

399

In the event that oil has escaped from two or more ships, the owners of all the ships concerned are jointly and severally liable for the resulting pollution damage (art. IV). Art. V(1) provides for a right to limit liability as a compensation for the stringent basis of liability. It states that the owner of a ship can limit his liability in respect of any one incident to an aggregate amount of 2,000 francs for each ton of the ship’s tonnage. This amount shall not exceed 210 million francs. These limits are higher than those of the 1957 Convention.33 The ship-owner cannot invoke the limitation in case the incident occurred as a result of his actual fault.34

400

Art. VII requires the ship-owner of a ship carrying more than 2,000 tons to PDLQWDLQLQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\7KHUHZDVVRPHRSSRVLWLRQWR this obligation but the United States and France were adamant. They regarded compulsory insurance as an essential part of the liability regime in the absence of which there would be no Convention. Without this obligation there would be no guarantee that victims of pollution would be compensated and strict liability would be nothing but an empty shell.35 § 8 of Art. VII gives the pollution

30 31

32 33 34 35

For channelling see infra no. 401. Especially in the oil industry. W. Chao (supra fn. 7), 54 footnote 104 points out that in the Tanio disaster of 1980 the operation of the Tanio was very complex. The following persons were involved: the owner, a principal bareboat charterer, a second bareboat charterer, a time-charterer and two French companies who supplied the vessel, arranged WKHPDQDJHPHQWDQGVXEFRQWUDFWHGWRÀWRXWWKHYHVVHO W. Chao (supra fn. 7), 53-54. See supra no. 381. Art. V(2). W. Chao (supra fn. 7), 66-67.

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141

FODLPDQWDGLUHFWDFWLRQDJDLQVWWKHLQVXUHURURWKHUSHUVRQSURYLGLQJÀQDQFLDO security. 2.7. Relationship to other law Art. III(4) channels liability to the ship-owner: “No claim for compensation for pollution damage shall be made against the owner otherwise than in accordance with this Convention (italics, AJV). No claim for pollution damage under this convention or otherwise (italics, AJV) may be made against the servants or agents of the owner.” This means that the owner enjoys immunity outside the CLC. His servants enjoy immunity both inside and outside the CLC. As a result, the CLC allows for claims of victims of pollution against other parties, such as the cargo owner and the operator. These claims are subject to national law.

401

3. International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (Fund Convention or FC) 3.1. Objectives An important reason for the decision to create an international fund for oil pollution compensation was the recognition that the CLC does not afford full protection for victims of pollution damage.36 The International Oil Pollution Compensation Fund (the Fund) was eventually created by Art. II(2) FC. In each Contracting State the Fund is regarded as a legal person. It has three organs: the Assembly, the Executive Committee and the Secretariat.37

402

The objectives of the Fund are twofold:38

403

– –

supplementary compensation of victims of oil pollution (infra no. 404), and relief to ship-owners in respect of the burden of liability imposed on them by the CLC (infra no. 407).39

The background of this second objective is that from 1969 to 1972 the proportion of the tankers’ P&I premium representing oil pollution risk increased by 700%. 7KHUHZDVDIHDUWKDWWKHRZQHUVZRXOGVHHNUHIXJHXQGHURWKHUÁDJV40

36

37

38 39

40

See OR 1969, LEG/CONF/C.2/WP.44, WP.45, pp. 606-609 and W. Chao (supra fn. 7), 76-77. Art. XVI International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (FC). See Preamble to the Fund Treaty, Art. II(1) FC and W. Chao (supra fn. 7), 77-78. Connected with this objective is the issue of a fair apportionment of liability between ship-owners and the oil industry. OR 1971, LEG/CONF.2/C.1/WP.3, p. 243 (P&I Club Opinion) and W. Chao (supra fn. 7), 89.

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3.2. Compensation of victims 3.2.1. The Fund as a substitute and a supplement 404

Sometimes the Fund acts as a substitute and sometimes as a supplement.41 Substitute Art. 4(1)(a) provides that the Fund has to pay compensation when the ship-owner cannot be held liable on the basis of the CLC. This can happen when the incident LVFDXVHGE\IRUFHPDMHXUHRUZKHQWKHVKLSFDQQRWEHLGHQWLÀHG,QWKLVFDVH the Fund forms a substitute. Supplement The Fund shall pay compensation in excess of the liability limits of the CLC.42 Here, the role of the Fund is a supplementary one. Substitute and supplement 7KH)XQGVKDOOSD\FRPSHQVDWLRQZKHQWKHVKLSRZQHULVÀQDQFLDOO\LQFDSDEOH RIPHHWLQJKLVREOLJDWLRQVLQIXOODQGDQ\ÀQDQFLDOVHFXULW\UHTXLUHGE\WKH&/& does not fully cover the claims for compensation.43 3.2.2. Exonerations

405

It was said that the ship-owner is exonerated if the damage was (wholly) caused by:44 – – –

406

an act of war or force majeure, or a third party who had the intent to cause damage, or a wrongful act of any government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function.

The Fund can only rely upon an act of war in order to escape liability. The other grounds of exemption45 are not applicable to the Fund. If the Fund would have exonerated in exactly the same circumstances as the ship-owner, its additional value would have been diminished. The drafters of the Fund Convention wanted WKH)XQGWRSOD\DPRUHVLJQLÀFDQWUROH46 In addition to an act of war as a ground

41 42 43 44 45

46

See for a clear exposition W. Chao (supra fn. 7), 80-82. Art. 4(1)(c) FC. Art. 4(1)(b) FC. Art. III(2) and III(3) CLC. Force majeure, intentional act or omission of a third party, wrongful act of any Government or other authority. W. Chao (supra fn. 7), 82.

Shifts in Compensation for Environmental Damage

143

for exoneration, the Fund is under no obligation to pay in case of an unknown source of pollution.47 The Fund is wholly or partially exonerated from liability in case of contributory negligence on the part of the claimant.48 3.3. Relief to ship-owners 3.3.1. The Fund as an insurer and a guarantor of the ship-owner The relief afforded to ship-owners by the Fund Convention takes the form of LQGHPQLÀFDWLRQ7KH )XQG KDV WZR UROHV WKH UROH RI LQVXUHU DQG WKH UROH RI guarantor.

407

Insurer According to Art. V(1), the Fund reimburses the ship-owner (or his insurer) for an amount between 1,500 and 2,000 francs for each ton of the ship’s tonnage or between 125 million francs and 210 million francs. Guarantor The complicated Art. V(2) determines that the Fund can be assigned to role of guarantor on request of the owner of a ship in certain circumstances. The Fund will become a guarantor for a portion of the ship-owner’s liability between 1,500 and 2,000 Poincaré francs. According to Chao, this possibility applies only to ships carrying less than 2,000 tons of oil in bulk as cargo.49 The reason is that these ships are not required to take out insurance which makes sense given that a condition of Art. V(2) is that WKHRZQHUPDLQWDLQVDGHTXDWHLQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\FRYHULQJKLV liability under the CLC. The idea is apparently to encourage these ships to take out insurance. The aim of the condition that they have to maintain insurance is to reduce the chance that the Fund becomes the guarantor of a ship that is in a bad condition. There was some debate on the (dis)advantages of this concept during the conference.50 The gist of the argument seems to be that the opponents pointed at the complicated nature of the concept and the increased administrative burden of the Fund, whereas the supporters argued that the role of guarantor made the Fund party to proceedings against the owner thus giving it direct control over the process of examining claims. That way the Fund could ensure that the damaged awarded to victims would not be excessively high.

47 48 49 50

Art. IV(2)(b) FC. Art. IV(3) FC. W. Chao (supra fn. 7), 90-91. W. Chao (supra fn. 7), 91 who refers to OR 1971, LEG/CONF.2/3, p. 68, 75, 77 and OR 1971, LEG/CONF.2/3/Add.1, p. 143.

408

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Michael Faure and Albert Verheij

3.3.2. Exonerations 409

The Fund is under no obligation to pay damages if the pollution damage was caused by wilful misconduct of the ship-owner himself or if the ship negligently GLGQRWFRPSO\ZLWKWKHUHTXLUHPHQWVRIDQXPEHURIVSHFLÀHGLQWHUQDWLRQDO conventions.51 3.4. Limit on liability

410

Art. 4(4)(a) limits the liability of the Fund to 450 million Poincaré Francs (= 150 million FFr or 30 million pounds). This seemed reasonable since the clean-up costs of the British and French Governments after the Torrey Canyon combined amounted to 16 million pounds (= 80 million francs).52 The Assembly of the Fund can change this limit provided that it does not exceed 900 million Poincaré francs or is lower than 450 million Poincaré francs.53 3.5. Financing of the Fund

411

7KH)XQGLVÀQDQFHGE\LQLWLDODQGDQQXDOFRQWULEXWLRQVE\ELJ54 oil importers in the respective Contracting States. The initial contributions serve as working capital, the annual contributions serve to cover the administrative expenses of the Fund and to pay compensation to victims of oil pollution or to reimburse ship-owners (or their insurers).55 The annual contributions are allocated to two separate funds.562XWRIWKHÀUVWJHQHUDOIXQGDGPLQLVWUDWLYHH[SHQVHVDQG compensation for small incidents are paid. The second fund serves to meet the claims resulting from major incidents.57 In case of a major incident only contributing persons of Contracting States that were party to the Convention at the time of the incident are called upon to contribute. To avoid administrative GLIÀFXOWLHVDGLVWLQFWLRQZDVPDGHEHWZHHQWKHVHWZRIXQGV,IWKHUHLVQRPDMRU oil spill, no annual contribution has to be made.

412

The Contracting State ensures that any person within its territory who is liable to contribute to the Fund appears on a list that is established and maintained by the Director of the Fund.58 Interestingly, a Contracting State can declare that

51 52 53 54

55 56 57 58

Art. V(1) and V(3) FC. See supra no. 381. Art. IV(6) FC. These are the oil importers who import more than 150,000 tonnes per year, see Art. X(1) FC. W. Chao (supra fn. 7), 97. W. Chao (supra fn. 7), 98. Spills that result in claims in excess of 150,000 Poincaré Francs. Art. XV(1) FC.

Shifts in Compensation for Environmental Damage

145

it assumes the obligation that lies upon big oil importers within its territory to contribute to the Fund.59 4. The 1984 and 1992 Protocols 4.1. Introduction The CLC and FC were modelled on the Torrey Canyon disaster. Later disasters with a different character revealed the shortcomings of this liability regime. Most important in the context of this research were:60 ² ² – – ² – –

413

WKHQDUURZGHÀQLWLRQRILQFLGHQW WKHYDJXHGHÀQLWLRQRISROOXWLRQGDPDJH the inadequate limits of liability and compensation, the right to limit liability, WKHLQVXIÀFLHQWFKDQQHOOLQJRIOLDELOLW\ the removal of the secondary function of the 1971 Fund, and the creation of a new fund.

One of the legal conditions for the entering into force of the 1984 Protocols was UDWLÀFDWLRQE\WKH86$DQG-DSDQWKHWZRELJJHVWUHFHLYHUVRIRLOWUDQVSRUWHG by ship.61 The U.S.A. however did not ratify and in 1990 it became clear it would not do so in the future. Given the widespread support for the 1984 Protocols it was decided to continue without the U.S.A. The changes of the 1984 Protocols were largely implemented by the 1992 Protocols.

414

4.2. Changes of the CLC 1HZGHÀQLWLRQRILQFLGHQW 62 The notion of incident was enlarged to include the threat of pollution. Measures to remove such a threat would become compensable as a result.

415

1HZGHÀQLWLRQRISROOXWLRQGDPDJH 63 $YDJXHGHÀQLWLRQRISROOXWLRQGDPDJHKDVYDULRXVGLVDGYDQWDJHV64 Firstly, it can result in speculative claims. Secondly, divergent interpretation by courts in

59

Art. XIV(1) FC. Although no Contracting State has made such a declaration to my knowledge. 60  :&KDRVXSUDIQ 2WKHULVVXHVZHUHWKHGHÀQLWLRQRIVKLSDQGWKHJHRJUDSKLFDO scope. 61 W.J.G. Oosterveen, Verbeterde mogelijkheden voor vergoeding van schade door ongevallen met olietankers, [1997] Ars Aequi (AA), 424-425. 62 W. Chao (supra fn. 7), 145-147. 63 W. Chao (supra fn. 7), 131-132. 64  $OWKRXJKLWKDVWKHDGYDQWDJHRIÁH[LELOLW\DQGJLYHVWKHRSSRUWXQLW\WRH[SHULPHQW

416

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Michael Faure and Albert Verheij

the respective Contracting States could undermine the functioning of the regime since State A would have to contribute to the compensation of claims in State B that would have been inadmissible in State A. 7KHQHZGHÀQLWLRQRISROOXWLRQGDPDJHZDV “(a) loss or damage caused outside the ship by contamination resulting from the escape or discharge of oil from the ship (…) provided that compensation for impairment of the environment other than loss of SURÀWIURPVXFKLPSDLUPHQWVKDOOEHOLPLWHGWRFRVWVRIUHDVRQDEOH measures of reinstatement actually undertaken or to be undertaken; (b) the costs of preventative measures and further loss or damage caused by preventative measures.” 'DPDJHWRWKHHQYLURQPHQWDVVXFKZDVH[FOXGHGE\WKLVGHÀQLWLRQ7KHUHDVRQ was that the marine environment was not considered to have any objective monetary value of its own.65 New limits of liability and compensation 417

Two major disasters, the grounding of the Amoco Cadiz and the Tanio in 1978 and 1980 respectively, showed that the amounts of compensation available to victims were inadequate in case of exceptional incidents. The clean-up costs and SROOXWLRQGDPDJHRIWKHÀUVWGLVDVWHUDPRXQWHGWRPLOOLRQ7KHVHFRQG disaster led to claims of 257 million francs.66

418

Other developments seemed to make revision of the liability limits necessary as well:67 ² ² –

65 66 67

7HFKQLFDOLQQRYDWLRQKDGLQFUHDVHGWKHFRVWRIFOHDQXSPHDVXUHVWRÀYH and-a-half times the value it had been 10 years previously, and tankers had increased in size. ,QÁDWLRQKDGUHGXFHGWKHOLPLWDWLRQDPRXQWVRIWRSHUFHQWRIWKHLU original value. The Torrey Canyon had 110,000 tons weight but since the construction of supertankers began in 1969, after the Six-Day War, the number of supertankers on 15 March 1976 was 689 (46 were over 300,000 tons and

W. Chao (supra fn. 7), 152. W. Chao (supra fn. 7), 133-134. W. Chao (supra fn. 7), 134. It has been argued that there was no need to revise the whole system on the basis of two exceptional disasters, especially since the number of major incidents had decreased considerably since 1979. See M. Rémond-Gouilloud, Leçons d’un QDXIUDJHjSURSRVGHO·LQGHPQLVDWLRQGHVYLFWLPHVGHO·$PRFR&DGL]>@Recueil Dalloz Sirey (D), 136.

Shifts in Compensation for Environmental Damage

147

171 were between 175,000 and 225 tons). During 1976 two tankers of 540,000 tons were built. The amounts of compensation were increased considerably after protracted negotiations in which the United States manifested itself as an important driving force of higher limits.68 The overall limits were increased from $ 10 million (after compensation by the Fund) to 59.7 million SDR for the ship-owners.69 An important other change was the creation of a mechanism to adjust the liability limits without a diplomatic conference being convened.70

419

Right to limit liability Under the CLC of 1969, the owner lost his right to limit liability if the pollution damage was the result of his actual fault. Against the background of higher limits of liability the criterion of actual fault was replaced by the stricter criterion of wilful misconduct. An advantage was that delays caused by the determination of actual fault would be relegated to the past.71 When the pollution is the result of wilful misconduct of the ship-owner, he will most likely lose his insurance cover. Claimants might therefore be discouraged from arguing this.72

420

Further channelling of liability $ÀQDOFRQWURYHUVLDOLVVXHVRFRQWURYHUVLDOLQIDFWWKDWLWZDVWKHPDLQUHDVRQ why the 1984 Protocols never entered into force, was the channelling of liability. Under the CLC of 1969, a ship-owner enjoys immunity outside the CLC and his servants enjoy immunity both inside and outside the CLC.73

421

The 1984 Protocol imposed liability almost exclusively on the ship-owner.74 In order to alleviate his burden, he had a right of recourse against third parties. The advantages of channelling were thought to be the following:75

422

–

it provided the victim of pollution damage with a simple and effective way to obtain compensation quickly,

68

W. Chao (supra fn. 7), 166. W. Chao (supra fn. 7), 165. W. Chao (supra fn. 7), 136 and 167-168. W. Chao (supra fn. 7), 174. W. Chao (supra fn. 7), 181. See supra no. 401. Protected against actions were: servants or agents of the owner or the members of the crew, the pilot who performs services for the ship without being a member of the crew, any charterer, any person performing salvage operations, any person taking preventative measures, all servants or agents of the aforementioned persons. However, these persons are not protected by channelling if the pollution damage was caused by their wilful misconduct. Shipbuilders or ship repairers, the owner or operator of a colliding ship are not protected by the channelling of liability. W. Chao (supra fn. 7), 170.

69 70 71 72 73 74

75

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Michael Faure and Albert Verheij

it avoided overlapping insurance coverage (even the insurers were in favour of channelling).

Chao mentions another argument in favour of channelling: it would preclude contributors to the Fund paying twice for the same pollution damage: one time directly and one time through the contributions to the Fund.76 423

Against the new channelling clause it has been argued that for ship-owners it is YHU\GLIÀFXOWWRVXSHUYLVHWKHLUVKLSV2IWHQWKHRZQHULVQRPRUHWKDQDÀQDQFLDO company that is not involved with the technical management of the ship. It could be wise to give all non-owner operators an incentive in the form of liability.77 The United States refused to ratify mainly because of the channelling clause. A reason for this might have been that States were opposed to channelling because it precludes state legislation. 4.3. Changes to the FC 4.3.1. Removal of the Fund’s secondary function 78

424

The secondary function of the Fund was to alleviate the burden of liability of ship-owners. This was thought necessary because the regime of the CLC of 1969 formed a radical change in the liability regime to which ship-owners were subjected. The changes to the 1984 Protocols were less dramatic and therefore it was decided to abolish the secondary function of the Fund altogether. 4.3.2. New Fund 79

425

The 1984 Protocols created a new fund (the 1984 Fund) besides the 1971 Fund. The main objective of this fund was to provide compensation for pollution damage to the extent that protection afforded by the 1984 Protocol to the CLC was inadequate.807KH)XQGZDVÀQDQFHGE\PHDQVRIDQQXDOFRQWULEXWLRQV The considerable initial contributions to the 1971 Fund were removed since they KDGSURYHGWREHDQREVWDFOHDJDLQVWUDWLÀFDWLRQ 5. The 2000 Protocol: winding up of the 1971 FC

426

On 27 September 2000 the Contracting States to the 1971 FC signed a Protocol that changed Art. 43(1) 1971 FC in order to allow for an early winding up of the 1971 Fund. This article determined that the 1971 Fund ceases to exist when the number of Contracting States falls below three. Since an earlier winding up was deemed necessary, the article was amended so that the 1971 FC ceases

76 77 78 79 80

W. Chao (supra fn. 7), 170. W. Chao (supra fn. 7), 172-173. W. Chao (supra fn. 7), 187-188. W. Chao (supra fn. 7), 188-189. Art. 3 1984 Protocol to the FC.

Shifts in Compensation for Environmental Damage

149

to be in force on the date that the number of Contracting States falls below WZHQW\ÀYHRUWZHOYHPRQWKVIROORZLQJWKHGDWHRQZKLFKWKHWRWDOTXDQWLW\RI contributing oil received in the Contracting States falls below 100 million tons whichever is the earlier. The background of the amendment was that the number of Contracting States KDGGURSSHGVLJQLÀFDQWO\VLQFHWKHDGRSWLRQRIWKH3URWRFROVFDUULHGWKH obligation to denounce the 1971 FC.81$VDUHVXOWRIWKLVWKHÀQDQFLDOEXUGHQ of the Members of the 1971 FC increased in case of a major oil spill. The 1971 FC ceased to be in force on 24 May 2002.

427

6. The 2003 Protocol 6.1. Background 7KHFRPSHQVDWLRQDIIRUGHGE\WKH)&SURYHGLQVXIÀFLHQWLQSUDFWLFH:KHQ the 1992 Protocols entered into force it was thought that “pro-rating” would no longer be necessary. Pro-rating is a consequence of limitation of liability and equal treatment of claimants.82 It simply means that if the total amount of DGPLVVLEOHFODLPVH[FHHGVWKHÀQDQFLDOOLPLWRIWKH)XQGFODLPDQWVRQO\UHFHLYH a percentage of their claims. This implies that if there is a risk of overpayment, the Fund must determine the estimated total costs of the incident. On that basis it can subsequently determine the percentage to which claimants are entitled. The problem is that if the Fund is too prudent, claimants get a small percentage which can have disastrous consequences for them (especially for small companies and private claimants). To avoid these consequences governments have therefore sometimes decided not to pursue their rights to compensation if that would result in the limitation being exceeded.

428

7KHÀUVWDFFLGHQWXQGHUWKH3URWRFROVWKH1DNKRGNDQHDU-DSDQLQ made pro-rating necessary again. The Erika disaster in France in 1999 once again underlined the inadequacy of the regime. In order to achieve full compensation of the victims of oil pollution, these disasters made clear that an additional scheme had to be established. This resulted in the 2003 Protocol which entered into force in March 2005.

429

6.2. Fund The 2003 Protocol establishes a Supplementary Fund (SF) that provides additional compensation to victims of oil pollution if the amount available WRWKHPXQGHUWKH&/&DQGWKH)&LVLQVXIÀFLHQWWRUHFHLYHIXOO

81 82

Art. 31 1992 FC. W.J.G. Oosterveen, Some recent developments regarding liability for damage resulting from oil pollution – from the perspective of an EU Member State, [2004] Environmental Law Review (Env. L. Rev.) 6, 228-229.

430

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Michael Faure and Albert Verheij

compensation.83 Consequently, only Members of the 1992 CLC and the 1992 FC can ratify the 2003 Protocol. 431

A precondition for supplementary compensation out of the SF is that the victim was unable to obtain full and adequate compensation for a so-called established claim under the terms of the 1992 FC.84$QHVWDEOLVKHGFODLPLVGHÀQHGDVDFODLP that has been recognised by the 1992 Fund or has been accepted as admissible by a decision of a competent court that is binding upon the 1992 Fund.85 6.2.1. Limit

432

As a result of the 2003 Protocol liability is limited to 750 million units of account86 including the amount of compensation that was paid under the 1992 CLC and the 1992 FC.87 If the claims against the SF exceed this limit, the amounts available for claimants are diminished proportionately.88 6.2.2. Right of recourse and subrogation

433

The SF acquires by subrogation the rights that the compensated victims may have under the 1992 CLC against the owner or his guarantor or against the 1992 Fund. It is added that the 2003 Protocol does not prejudice any right of recourse or subrogation of the SF against any other persons.89 6.2.3. Revenues

434

The SF is fed by annual contributions by the persons in Contracting States who receive more than 150,000 tons of oil in the relevant calendar year.90 Art. 14 PDNHVDQLPSRUWDQWTXDOLÀFDWLRQKRZHYHU$QQXDOFRQWULEXWLRQVKDYHWREHSDLG only insofar as the Contracting State receives 1 million tons of contributing oil in the relevant calendar year.91 When the aggregate quantity of contributing oil is less than 1 million tons the Contracting State shall pay the annual contribution insofar as no liable person exists.92

435

Art. 18(1) determines that the aggregate amount of the annual contributions in a single Contracting State shall not exceed 20% of the total amount of annual contributions in the relevant calendar year. In case the annual contributions

83 84 85 86

87 88 89 90 91 92

Art. 2(1) 2003 Prot. Art. 4(1) 2003 Prot. Art. 1(8) 2003 Prot. Art. 4(2)(b) 2003 Prot. determines that this amount shall be converted into national currency on the basis of the value of that currency be reference to Special Drawing Rights. Art. 4(2)(a) 2003 Prot. Art. 4(3) 2003 Prot. Art. 9(1), (2) and (3) 2003 Prot. Art. 10(1) 2003 Prot. Art. 14(1) 2003 Prot. Art. 14 (2) 2003 Prot.

Shifts in Compensation for Environmental Damage

151

exceed 20% the contributions in the relevant State shall be reduced pro rata so that their aggregate contributions equal 20% of the total annual contributions to the SF.93 7. Recent developments: STOPIA and TOPIA94 On 3 March 2005 – the day that the 2003 Protocol came into effect – the Small 7DQNHU2LO3ROOXWLRQ,QGHPQLÀFDWLRQ$JUHHPHQW6723,$ WRRNHIIHFW6723,$ 2005 was a voluntary arrangement that attempted to alleviate the additional burden on oil importers created by the Supplementary Fund of the 2003 Protocol. The idea was to provide for a balance in the proportion of claims borne by oil receivers and by ship-owners. STOPIA 2005 increased the limit of liability under the CLC 1992 for small tankers (not exceeding 29,548 gt) from SDR 15.49 million to SDR 20 million. Under STOPIA 2005 the owners and insurers of these small tankers agreed to indemnify the Fund for the difference between the ship-owners limit of liability under the CLC and SDR 20 million.

436

In October 2005 the Assembly of the International Oil Pollution Compensation Fund debated – under pressure from the oil industry – whether the current regime (1992 CLC and 1992 FC and the Supplementary Fund 2003) should be revised. Shortly before this meeting the ship-owners made an offer to share the cost of claims equally with the oil industry. Against this background the Assembly decided to close down the Third Intersessional Working Group and to remove the issue of revision from the agenda. Subsequently two voluntary schemes were DGRSWHG²6723,$DQG723,$7DQNHU2LO3ROOXWLRQ,QGHPQLÀFDWLRQ Agreement) – which intend to ensure that the total cost of oil pollution claims based on the 1992 CLC, the 1992 FC and the 2003 Supplementary Fund are shared equally between ship-owners and the oil receivers.

437

8. Shifts The regime established by the CLC, the FC and their subsequent protocols imply a large number of shifts to: – – – – – – – –

93 94

strict liability, compulsory insurance, direct action against the insurer, limitation of liability, a short limitation period, a fund fed by the oil receiving industry in the Contracting States, (increased) channelling of liability, increased amounts of compensation.

Art. 18(2) 2003 Prot. See <www.imo.org> and <www.intertanko.com>.

438

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Michael Faure and Albert Verheij

The decision not to revise the 1992 CLC, the 1992 FC and the Supplementary Fund 2003 can be regarded as a decision to shift to voluntary agreements such as STOPIA and TOPIA. 8.1. Strict liability, compulsory insurance and direct action 439

Some of these above-mentioned shifts seem to be interrelated. The introduction of strict liability, compulsory insurance and direct action all stem from the desire – expressed in the Preamble to the CLC – to provide pollution victims with adequate compensation. Especially the shift from fault to strict liability and the introduction of compulsory insurance were viewed as closely interlinked by some of the negotiating parties. According to France and the United States strict liability would be meaningless without compulsory insurance. It seems surprising that insurance is not always required. “Small” ships (carrying 2000 tons or less) do not have to be insured although a direct relationship between the size of the ship and the amount of damage done caused is debatable.

440

Compensation should not only be adequate but also expedient. This can be inferred from the discussion concerning who should be held liable. The choice of the ship-owner was largely motivated by the fact that the ship-owner could EHHDVLO\LGHQWLÀHGE\SROOXWLRQYLFWLPV)URPWKHYLHZSRLQWRISUHYHQWLRQWKH ship-owner has no actual control) it would have seemed more logical to impose liability upon the operator but this was rejected given the amount of persons involved which would have been burdensome to the victim.

441

It could therefore be concluded that the introduction of strict liability and compulsory insurance (including a direct action against the insurer) was motivated by the desire to enhance the protection of oil pollution victims. 8.2. Limitation of liability and limitation period

442

However, victims had to pay a price for their improved position. A limit on liability was introduced and the limitation period was shortened. What was FDXVHDQGZKDWZDVHIIHFWVHHPVGLIÀFXOWWRGHWHUPLQH:HUHWKHVHWZRVKLIWV designed to compensate for the above-mentioned three shifts or were the latter three shifts meant to compensate for these two shifts? 8.3. Fund

443

,QWHUHVWLQJLVWKHHVWDEOLVKPHQWRIDIXQGWKDWLVÀQDQFHGE\WKHRLOUHFHLYLQJ LQGXVWU\LQWKH&RQWUDFWLQJ6WDWHV$WÀUVWVLJKWLWVHHPVWKDWSUHYHQWLRQFDQQRW have been a guiding principle here, since the oil industry has little control over the ship compared to the operator or the owner. Prevention can however also work in a more indirect way. The idea seems to be the wish to make the oil industry responsible for oil spills which would provide them with an incentive to insist on good safety measures on board tankers or even to use safer types of tankers.

Shifts in Compensation for Environmental Damage

153

7KHDUJXPHQWWKDWWKHRLOLQGXVWU\EHQHÀWVIURPWKHWUDQVSRUWRIRLOVHHPVOHVV convincing. Other industries that engage in hazardous activities or produce hazardous substances are not held liable in the absence of control merely because WKH\PDNHDSURÀW7KHPDQXIDFWXUHURIDFDULVRQO\VWULFWO\ OLDEOHLQPRVW countries if the car is defective in some way. The oil that is transported by sea is not defective however.

444

In addition there are a number of other arguments. First of all, the oil industry had created CRISTAL, a voluntary compensation scheme initially aimed at compensating individual victims of oil pollution (see infra no. 453). This compensation scheme was intended as an interim scheme in the period before the FC was implemented. By adopting CRISTAL the oil industry had assumed some responsibility already and therefore an obligation to contribute to a fund does not appear far-fetched.

445

Secondly, in the debate on who should be held liable, several countries felt that the cargo owner (oil industry) should be held liable. The decision to make the ship-owner liable was a compromise reached by agreeing that a fund would be established. In other words: the establishment of a fund was (at least partly) a political deal that paved the way for liability of the ship-owner.

446

Thirdly, one aim of the fund was to provide relief to ship-owners who were held liable under the CLC. The reason was that from 1969-1972 their P&I premiums had increased by 700% and there was a fear that ship-owners would seek refuge XQGHURWKHUÁDJV,QRWKHUZRUGVWKHUHZDVDIHDUWKDWWKH&/&UHJLPHPLJKW not be effective. The FC thus supported the CLC regime. This aim of the fund was removed later when more experience had been gained with the regime.

447

Finally, a fund would provide victims with more compensation and is therefore desirable from that perspective.

448

8.4. Channelling of liability Very controversial was the shift toward imposition of almost exclusive liability on the ship-owner. The most important reason seems to have been that it would provide victims with a very simple way to obtain compensation quickly. Channelling seems to imply higher limits on liability since it prevents victims from suing other parties.

449

The second argument in favour of channelling was the avoidance of overlapping insurance coverage. Even insurers supported channelling. It should be noted that this latter advantage is (at least partly) offset by the right of recourse of the ship-owners although the obvious advantage is that potential liability has a preventive effect on the behaviour of third parties.95

450

95

M. Faure/D. Grimeaud, in: M. Faure (ed.), Deterrence, Insurability, and Compensation in Environmental Liability. Future Developments in the European Union (2003), 165-166.

154

Michael Faure and Albert Verheij

8.5. Amounts of compensation 451

Liability limits of the CLC were raised in the light of technological developments and new serious disasters. Additional compensation should be available from DIXQGLQFDVHWKHVHOLPLWVSURYHGWRRORZLQDVSHFLÀFFDVH7KHODVWVWHSLQ this direction has been the proposed creation of a Supplementary Fund by the 2003 Protocol that would provide victims with additional compensation in the event that the compensation provided by the 1992 CLC and the 1992 FC were LQVXIÀFLHQW 8.6. STOPIA and TOPIA

452

The parties to the international oil conventions and their subsequent protocols were under pressure from the oil industry to change the regime again. However an offer on the part of the ship-owners and their insurers to voluntarily put in place a contractually binding scheme that would alleviate the burden of the oil receivers persuaded them to abandon the plans to revise the system. This implies a shift from the instrument of international conventions to voluntary agreements by private actors. It illustrates that, since revising international treaties can be a complicated affair under certain circumstances, voluntary agreements can be an alternative. It might be conjectured that the voluntary compensation schemes that were created before the CLC and the FC entered into force, and which will be discussed in the following chapter, were at least in part motivated by the hope that they would prevent the creation of international conventions.

&9ROXQWDU\FRPSHQVDWLRQVFKHPHV729$/23DQG&5,67$/ 1. Introduction 453

The Torrey Canyon disaster not only moved states to negotiations that ultimately resulted in the CLC and the FC but also triggered a response by tanker owners and the oil industry. Two interlinked voluntary compensation schemes were established that would remain in place for more than two decades until they were ÀQDOO\ZRXQGXSLQ7KHFRPSHQVDWLRQVFKHPHVHWXSE\WKHWDQNHURZQHUV was called the “Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution” (TOVALOP), while the oil industry created a compensation fund under the “Contract Regarding an Interim Supplement to Tanker Liability for Oil Pollution” (CRISTAL).

454

During their existence TOVALOP and CRISTAL have been altered many times. These alterations were in line with changes on the international level. Three different periods can be distinguished: ²

7KHÀUVWSHULRGEHIRUHWKH&/&DQGWKH)&FDPHLQWRIRUFHLQDQG 1978 respectively;

Shifts in Compensation for Environmental Damage

– –

155

the second period after the CLC and the FC came into force until 1987 when TOVALOP and CRISTAL were altered in response to the 1984 Protocols (which never entered into force); the third and last period 1987 till 1997.

It should be stressed that TOVALOP and CRISTAL are voluntary compensation schemes. This means that they do not create a right to compensation (a cause of action). Under TOVALOP for example, participating tanker owners are bound vis jYLVHDFKRWKHUWRFRPSHQVDWHWKLUGSDUWLHVXQGHUFHUWDLQFLUFXPVWDQFHVEXWWKDW does not mean that those third parties are legally entitled to compensation.96

455

In the following TOVALOP (no. 457) and CRISTAL (no. 471) will be described successively while distinguishing between these three different periods. At the end of this chapter it will be analysed to what extent one or more shifts have taken place (no. 480).

456

2. TOVALOP 2.1. General TOVALOP served different purposes. It was partly intended to serve as a model for what would become the CLC.97 Since models can also be persuasive if they are merely put down on paper, there must have been another reason and indeed there is one. It can be found in the Preamble to TOVALOP where the following was stated: “The Parties to this Agreement are Tanker Owners whose vessels are engaged in the transportation of Oil in bulk by sea, and who recognize that Coast Lines may on occasion sustain Damage by Pollution as a result of Oil discharged when marine casualties occur. They are further aware of the fact that traditional maritime laws and practice do not always provide an adequate means for reimbursing Governments which incur expenditures.” It seems that the uncertainty caused by a multitude of different national laws in the absence of a uniform legal regime was an important reason why tanker owners created TOVALOP. It is in the interest of business that there is certainty as to the liability that might be incurred.98 The fact that a certain amount of compensation would become available would prevent litigation and would relieve pressure by public opinion on national governments to implement legislation unilaterally. This would give time for the creation of an international

96 97 98

W. Chao (supra fn. 7), 122-126; C. de la Rue/C.B. Anderson (supra fn. 1), 240-241. W. Chao (supra fn. 7), 102; C. de la Rue/C.B. Anderson (supra fn. 1), 229. W. Chao (supra fn. 7), 102.

457

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Michael Faure and Albert Verheij

system.99 The logic of all this implied that TOVALOP would be designed as an interim compensation scheme until an international convention entered into force. As will be shown, it continued long after an international compensation system had been established. 2.2. First period: 1969-1978 458

,QWKLVÀUVWSHULRGRI729$/23VKLSRZQHUV100 and governments could obtain compensation of their clean-up costs. The former were reimbursed by their P&C insurer, the latter could hold ship-owners liable unless they could prove that the oil spill was not caused by their fault. Thus the burden of proof was reversed. The result of this system was that governments and ship-owners were encouraged to respond quickly to oil pollution.

459

When the CLC came into force in 1975 the necessity of TOVALOP was called into question since it had been intended as an interim solution. Because many states, representing 40% of the world tanker tonnage, were not party to the CLC, TOVALOP had not outlived its original purpose. It was therefore decided to continue and to bring TOVALOP into line with the CLC. This would provide ship-owners and their insurers with the desired degree of certainty regarding their liability.101 2.3. Second period: 1978-1987 TOVALOP,102 as changed after the CLC came into force will be outlined below (infra no. 460). 2.3.1. Scope

460

TOVALOP applies only when the CLC does not apply. Relevant is furthermore, unlike the CLC, not the territory where the pollution occurred but the ship that caused the discharge. A ship falls within the scope of TOVALOP if it belongs to a ship-owner or bareboat charterer who is a member of TOVALOP. 2.3.2. Liability 103 regime

461

The liability regime is strict in character. The responsible party can only escape liability if the pollution results from:

99 100 101 102

103

C. de la Rue/C.B. Anderson (supra fn. 1), 15. Ship-owners and tank owners are used as synonyms here. W. Chao (supra fn. 7), 105. This version of TOVALOP is sometimes referred to as the TOVALOP Standing Agreement to distinguish it from the TOVALOP Supplementary Agreement that was designed in 1987 in response to the 1984 Protocols. It has been remarked already that TOVALOP does not create a cause of action so that the term liability is misleading here.

Shifts in Compensation for Environmental Damage

– – – –

157

an act of war, hostilities, civil war, insurrection, force majeure, an act or omission done with intent to cause damage by a third party, a wrongful act of any government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function.

If the damage resulted wholly or partially from an intentional or negligent act or omission of the person who suffered the damage, the responsible party may be wholly or partially exonerated. 2.3.3. Claimants Both governments and individuals are entitled to compensation.

462

2.3.4. Damages According to Clause I(k), pollution damage includes clean-up costs, preventive measures, damage caused by preventive measures and threat removal costs. Damage which is remote or speculative is explicitly excluded. Limits of liability are set at $160 per limitation ton or $16.8 million whichever is less. These limits remain in place even if the conduct of the ship-owner that caused the spill can EHTXDOLÀHGDVJURVVQHJOLJHQFHRUZLOIXOPLVFRQGXFW104 When the ship-owner takes preventive or threat removal measures, the costs he thus incurs are treated as a claim by a pollution victim. This means that these costs are added to the claims of other with respect to determining whether the total amount of claims exceeds the limit.105

463

2.3.5. Responsible parties Ship-owners and bareboat charterers are responsible parties under TOVALOP. If more ships are involved, TOVALOP imposes joint and several liability. In RUGHUWRMRLQ729$/23DVKLSRZQHUPXVWJLYHHYLGHQFHRIÀQDQFLDOVHFXULW\ in order to meet his obligations under TOVALOP.106 Claimants have no direct action against the insurer of the ship-owner.

464

A very important aspect of TOVALOP is that a claimant who accepts compensation from a ship-owner settles all his claims against anyone connected with the vessel.107 In this way ship-owners avoid the risk of being sued on the basis of national law. The result is that claimants have to choose. Either they accept a swift settlement for a limited amount of money, or they try to obtain full damages

465

104 105 106 107

W. Chao (supra fn. 7), 110. C. de la Rue/C.B. Anderson (supra fn. 1), 238. Clause II(B)(3). Clause VII(D). See further W. Chao (supra fn. 7), 110-111 and C. de la Rue/C.B. Anderson (supra fn. 1), 239-240.

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by means of the law of tort. The latter option might turn out to be a lengthy one which is full of uncertainties. 466

1RVSHFLÀFDWWHQWLRQZDVJLYHQWRWKHULJKWRIUHFRXUVHRIWKHVKLSRZQHUZKR pays compensation. The House of Lords108 decided that ship-owners did not have a right of recourse. After this decision the TOVALOP Standing Agreement – as it was called – was changed to the effect that payments could be made conditional upon the claimant assigning his rights to the tanker owner.109 2.4. Third period: 1987-1997 2.4.1. Background

467

7KH RLO LQGXVWU\ ZDV QRW VDWLVÀHG ZLWK WKH  3URWRFROV EHFDXVH LQ WKHLU view, the respective contributions of the oil industry and the ship-owners were not balanced. The limit of liability for ship-owners was based on the tonnage of the ship. Small ships had lower limits of liability than large ships. The result was that when the FC applied, the starting point of compensation by the Fund was earlier. The oil industry advanced that there was no relationship between the tonnage of a ship and the amount of pollution damage. It was in favour of a À[HGOLPLWIRUDOOVKLSV110 The oil industry attempted to redress the balance of WKHÀQDQFLDOEXUGHQV7KH\SURSRVHGWKH3ROOXWLRQ/LDELOLW\$JUHHPHQWDPRQJ Tanker Owners (PLATO) but this was rejected by the tanker owners. At the end of the day tanker owners and the oil industry arrived at a compromise and created a new version of TOVALOP, the TOVALOP Supplementary Agreement.

468

The result was that in this period there were two agreements: the TOVALOP Standing Agreement and the TOVALOP Supplementary Agreement (TS). The ÀUVWZDVWKHROG729$/23WKDWZDVLQIRUFHLQWKHSUHYLRXVSHULRGDQGZRXOG remain so in this period. The TOVALOP Supplementary Agreement changes the TOVALOP Standing Agreement in certain respects. The TS applies when the discharge of oil is caused by a tanker entered in the TOVALOP Standing Agreement carrying oil belonging to a member of CRISTAL. Otherwise the TOVALOP Standing Agreement applies. 2.4.2. Scope

469

The TS applies worldwide, irrespective of the application of the CLC and the FC.111

108 109 110 111

[1989] Lloyd’s List Reports, House of Lords (Lloyd’s Rep., H.L.), 1, 10 (Esso Bernica). W. Chao (supra fn. 7), 111-112 and C. de la Rue/C.B. Anderson (supra fn. 1), 240-241. W. Chao (supra fn. 7), 159 and 191. W. Chao (supra fn. 7), 196.

Shifts in Compensation for Environmental Damage

159

2.4.3. Damages 7KHGHÀQLWLRQRISROOXWLRQGDPDJHZDVH[SDQGHGLQ76&RPSHQVDEOHEHFDPH costs as a result of reasonable and necessary measure to restore or replace polluted natural resources.112 In 1994 the limits of liability were increased to the level of the CLC.113

470

3. CRISTAL 3.1. General CRISTAL was intended as an interim scheme during the period when the FC had not yet been implemented. Its aim was to provide supplementary compensation to TOVALOP or to the CLC when it replaced TOVALOP.

471

3.2. First period: 1971-1978 $WÀUVWWKHSXUSRVHRI&5,67$/ZDVWRFRPSHQVDWHLQGLYLGXDOYLFWLPVRIRLO pollution. Ship-owners and governments could not obtain compensation. Only clean-up costs were recoverable to a maximum of $30 million from which compensation obtained under TOVALOP and other regimes was deducted. Within this period CRISTAL was revised in several ways the most important of which was the decision to compensate ship-owners for their clean-up costs.

472

3.3. Second period: 1978-1987 3.3.1. Scope CRISTAL applies in countries that are not a party to the FC provided that the polluting oil is owned by a member of CRISTAL and that the tanker in question is owned or bareboat-chartered by a member of TOVALOP.114

473

3.3.2. Fund The Fund only intervenes if claimants have exhausted all other means of obtaining full compensation.115 In other words, it is a fund of last resort. As a result the compensation process is not very swift.116 The Fund is exempted from liability in exactly the same instances as the shipowner under TOVALOP. The Fund is therefore only a supplementary one. In this respect if differs from the IOPC Fund that also functions as a substitute. Oil company members of

112 113 114 115 116

W. Chao (supra fn. 7), 197-198. W. Chao (supra fn. 7), 201. CRISTAL 1978 Clause IV(B). CRISTAL 1978 Clause IV(F)(1), (2). W. Chao (supra fn. 7), 118-119.

474

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Michael Faure and Albert Verheij

CRISTAL contribute to the Fund in two ways: an initial contribution and a periodic contribution. 3.3.3. Claimants 475

Governments, individuals, and ship-owners are entitled to compensation from the fund. 3.3.4. Damages

476

Compensable damages are pollution damage and the costs of preventive and threat removal measures. Pollution measures are clean-up costs and other GDPDJH LQFXUUHG E\ LQGLYLGXDOV VXFK DV ORVV RI SURÀW DQG SK\VLFDO GDPDJH Ship-owners receive compensation between $120 and $160 per ton or between $10 million and $16.8 million whichever is the lower amount. The maximum amount payable under CRISTAL is $36 million.117 3.4. Third period: 1987-1997 3.4.1. Scope

477

The TS applies worldwide, irrespective of the application of the CLC and the FC.118 3.4.2. Damages

478

/LNHLQWKH76WKHGHÀQLWLRQRISROOXWLRQGDPDJHZDVH[WHQGHGWRLQFOXGHUHDVRQable and necessary measures to restore or replace polluted natural resources. 3.4.3. Claimants

479

Governments, individuals, and ship-owners are entitled to compensation from the fund. CRISTAL members who contributed to the FC fund after an incident can get this contribution back from the CRISTAL fund.119 4. Shifts

480

The following shifts have taken place in TOVALOP and CRISTAL: – – – –

117 118 119

TOVALOP: strict liability; TOVALOP: compensation of individuals; TOVALOP and CRISTAL: from safety valve to alternative regime; CRISTAL: mechanism to adjust outcome of the CLC/FC regime.

CRISTAL 1978 Clause IV(1). W. Chao (supra fn. 7), 203. W. Chao (supra fn. 7), 207.

Shifts in Compensation for Environmental Damage

161

4.1. TOVALOP: strict liability Before the CLC entered into force, TOVALOP introduced a reversal in the burden of proof. After the CLC came into effect, TOVALOP shifted to a strict liability standard. The purpose of this was to bring the TOVALOP regime into line with WKHLQWHUQDWLRQDOUHJLPH7KLVDOLJQPHQWZDVEHQHÀFLDOWRVKLSRZQHUVDQGWKHLU insurers since they could ascertain the extent of their liability better.120

481

4.2. TOVALOP: compensation of individuals $WÀUVW729$/23RQO\VRXJKWWRFRPSHQVDWHJRYHUQPHQWVDQGVKLSRZQHUV for their clean-up costs. The purpose was to encourage a rapid response in case of an oil spill.121 Later on in the second period, after the CLC came into force, TOVALOP also provided for compensation of individuals. As with the shifts to strict liability, this shift was also motivated by the desire to create more certainty with regard to the extent of liability.122

482

4.3. TOVALOP and CRISTAL: from safety valve to alternative regime $WÀUVW729$/23DQG&5,67$/ZHUHPHDQWDVLQWHULPUHJLPHVWKDWZRXOGEH in force only as long as it would take to create a comprehensive international regime by means of a convention. That both voluntary agreements remained in SODFHPXFKORQJHUZDVWKHUHVXOWRIWKHIDFWWKDWDVLJQLÀFDQWQXPEHURIVWDWHV did not ratify the CLC and the FC as a result of which 40% of the world’s tanker tonnage fell outside this regime.123 Later on, since 1987, both agreements apply worldwide, irrespective of the application of the CLC and the FC.

483

4.4. TOVALOP and CRISTAL: mechanism to adjust outcome of the CLC/FC regime Not all states that were party to the CLC/FC regime became party to its subsequent changes. In the event of pollution in a country that is only party to the CLC 1969 and the FC 1971, the industry schemes were used to re-apportion the burden of claim settlements between the shipping and oil industries so that it would conform to the balance struck by the CLC 1992 and the FC 1992.124

120 121 122 123 124

W. Chao (supra fn. 7), 105. W. Chao (supra fn. 7), 104. W. Chao (supra fn. 7), 105. W. Chao (supra fn. 7), 105. C. de la Rue/C.B. Anderson (supra fn. 1), 245.

484

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Michael Faure and Albert Verheij

'8QLWHG6WDWHVWKH2LO3ROOXWLRQ$FWDQGSUHYLRXVOHJLVODWLRQ 1. Introduction 485

The Oil Pollution Act (OPA) was enacted in response to a number of major oil spills: Exxon Valdez (1989), American Trader (1990) and World Prodigy (1990).125 It replaces the liability regimes for oil pollution that existed under the: – – – –

Water Quality Improvement Act of 1970 and the subsequent Clean Water Act of 1977, Deepwater Port Act of 1974, Trans-Alaska Pipeline Authorization Act of 1973, and Outer Continental Shelf Lands Act Amendments of 1978.

OPA also repealed the Limitation of Liability Act that frustrated the right to compensation in a number of cases. 486

OPA has four major themes: prevention, federalization, the idea that the polluter pays, and anti pre-emption.126 The latter means that states are not prohibited to legislate in the area as well. OPA is described infra no. 522 and the shifts are DQDO\VHGLQIUDQR)LUVWVRPHDWWHQWLRQZLOOEHSDLGEULHÁ\WRWKHDERYH mentioned previous legislation (infra no. 487). 2. Previous legislation 2.1. Water Quality Improvement Act of 1970 and Clean Water Act of 1977 2.1.1. Background

487

Various Acts have attempted to improve the quality of the navigable waters of WKH8QLWHG6WDWHV0RVWRIWKHPGLGQRWSURYLGHVSHFLÀFUXOHVIRUOLDELOLW\DVD result of oil pollution caused by ships.127&LYLOOLDELOLW\ZDVÀUVWLQWURGXFHGE\ the Clean Water Restoration Act of 1966 which established liability for the cost of clean-up measures.128 The liability regime of this Act was not very effective

125 126

127

128

E.H.P. Brans (supra fn. 2), 71. J.A. Zimmermann, Inadequacies of the oil pollution act of 1990: why the United States should adopt the Convention on Civil Liability, [2000] Fordham International Law Journal, 1520. See previous legislation such as the New York Harbor Act of 1886, the Refuse Act of 1899, the Oil Pollution Act of 1924 (which was amended by the Clean Water Restoration Act of 1966), the Federal Water Pollution Control Act of 1948 (and the amendments of this act in 1956 and 1961), and the Water Quality Act of 1965. See C. de la Rue/C.B. Anderson (supra fn. 1), 8-9. This Act amended the Oil Pollution Act of 1924.

Shifts in Compensation for Environmental Damage

163

because the polluter:129 – ² – –

was only liable when the spill was the result of wilful or gross negligence; ZDV XQGHU QR REOLJDWLRQ WR PDLQWDLQ LQVXUDQFH RU RWKHU ÀQDQFLDO VHFXrity; was only liable to the government for the cost of clean-up measures, third parties were not entitled to compensation; could limit his liability.

A very important step forward was taken by the Federal Water Quality Improvement Act (WQIA) of 1970. The regime of this Act became the model for subsequent oil pollution laws and there are remarkable similarities between the WQIA and the Oil Pollution Act of 1990.130 The WQIA and the subsequent Clean Water Act of 1977 (CWA) merit separate attention.

488

2.1.2. Water Quality Improvement Act of 1970131 Background The Torrey Canyon disaster in 1967 highlighted inadequacies of the federal pollution control programmes132 and in particular the Oil Pollution Act of 1924 ZDVUHJDUGHGDVLQVXIÀFLHQW,WRQO\DSSOLHGWRGLVFKDUJHVE\YHVVHOVWKDWZHUH grossly negligent or wilful.

489

Liability regime The liability regime under this Act was strict. The responsible party could only exempt himself from liability in case of: – – – –

490

an act of war, an act of God, negligence on the part of the US government, or an act or omission (either negligent or not) of a third party.

Damages Only clean-up costs were compensable under the WQIA. Liability was limited to $100 per gross ton or $14 million whichever is less except when the oil spill was caused by the wilful misconduct of wilful negligence of the responsible party.

129

C. de la Rue/C.B. Anderson (supra fn. 1), 9. C. de la Rue/C.B. Anderson (supra fn. 1), 22. 131  3XE/ 1R  FRGLÀHG DW  86&  HW VHT  7KH :4,$ UHSHDOHG WKH 2LO Pollution Act of 1924 as amended by the Clean Water Restoration Act of 1966. See C. de la Rue/C.B. Anderson (supra fn. 1), 22-23. 132 House Report No. 91-127 March 25, 1969, p. 2692. 130

491

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Michael Faure and Albert Verheij

Fund 492

The WQIA created a revolving fund containing $35 million to pay for governmental clean-up measures, reimburse responsible parties under certain circumstances for the removal costs they incurred, and to pay administrative costs of federal agencies. Claimants

493

Only the Government was entitled to compensation. Private claimants could not sue for damages on the basis of this Act. Responsible parties

494

The WQIA imposed liability on the owner or operator of any vessel from which oil was discharged.

495

Vessels over 300 gross tons are under an obligation to provide evidence of ÀQDQFLDOUHVSRQVLELOLW\XSWRWKHVWDWXWRU\OLPLWVRIOLDELOLW\7KHJRYHUQPHQW had a direct action to insurers. In such a situation they could rely on all defences that they could invoke against the insured.

496

Responsible parties could bring contribution claims against third parties who are responsible for the discharge. The government could bring an action against them as well. Relationship to other law

497

State law was not pre-empted by the WQIA. Private claimants could therefore attempt to recover under state law. 2.1.3. Clean Water Act of 1977 Liability regime 133

498

The liability is strict in the sense that the owner or operator is only exempted if he can prove that a discharge was caused solely by an act of God, an act of war, negligence on the part of the United States Government, or an act or omission of a third party. Damages 134

499

Clean-up costs and the cost of restoring or replacing natural resources are FRPSHQVDEOH7KHWHUP´QDWXUDOUHVRXUFHVµLVQRWGHÀQHGLQWKLVODZ

133 134

33 U.S.C. 1990 s. 1321(f). C. de la Rue/C.B. Anderson (supra fn. 1), 24.

Shifts in Compensation for Environmental Damage

165

Claimants Only the government is entitled to damages. Private parties have no standing.

500

Responsible parties Owners and operators of vessels, onshore and offshore facilities are liable to the United States Government for the costs of the removal of the pollution. Liability is limited except in the case of wilful misconduct. The limitations are as follows: – –

for the owner or operator of an inland barge, $ 125 per gross ton or $ 125,000 whichever is greater, in the case of any other vessel, $ 150 per gross ton or $ 250,000 whichever is greater;135 for the owner or operator of an onshore or offshore facility, $ 50 million.136

The discharger could not credit his clean-up expenditures against his liability to the government. Thus there was no incentive for clean-up measures that exceeded the CWA limits.137 Fund Sec. 1321(k) establishes a revolving fund in the Treasury to carry out actions to remove water pollution. The fund is maintained at a level of $ 35 million.

501

Trustee The president or the authorized representative of any state acts as a trustee on behalf of the public.138

502

Relationship to other law State legislation is not pre-empted.139

503

2.2. Deepwater Port Act of 1974 2.2.1. Background of deepwater ports Deepwater ports were constructed in order to facilitate transportation of oil by supertankers. The increased capacity of a supertanker compared to a conventional

135 136

137 138 139

33 U.S.C. 1990 s. 1321(f)(1). 33 U.S.C. 1990 s. 1321(f)(2) and (3). The President of the U.S.A. is authorized to establish a limit of liability for onshore and offshore facilities that is less than $ 50 million provided that the limit will not be less than $ 8 million, see 33 U.S.C. 1990 1321(q). C. de la Rue/C.B. Anderson (supra fn. 1), 38. 33 U.S.C. 1990 s. 1321(f)(5). 33 U.S.C. 1990 s. 1321(r).

504

166

Michael Faure and Albert Verheij

tanker enables them to transport oil at a lower per barrel cost.140 A supertanker can only safely enter a harbour that has a considerable water depth (90 to 100 feet).141 Most ports did not meet this requirement. It was decided to construct “supertanker terminal facilities in natural deepwater offshore” (deepwater ports). Supertankers would no longer be required to enter a harbour at the coast but instead they could enter an offshore deepwater port. From there the oil would be transported to the coast by submarine pipelines.142 The alternative to deepwater ports was dredging (the entrance to) the harbours but a deepwater port was deemed to be safer because deepwater ports would reduce oil pollution WRWKHHQYLURQPHQW´7DQNHUWUDIÀFLQFRQJHVWHGKDUERXUVDQGSRUWVVKRXOGEH reduced (…) As a result the risk of collision and the number of cargo transfer and other chronic spills should be minimized.”143 However, it was recognized that an increase in the number of supertankers as a result of the construction of deepwater ports would increase the risk of a catastrophic super-spill.144 505

7KHLPSOHPHQWDWLRQRIDVSHFLÀFOLDELOLW\UHJLPHZDVGHHPHGQHFHVVDU\EHFDXVH H[LVWLQJ86ODZVZHUHWRROLPLWHGLQJHRJUDSKLFDODQGÀQDQFLDOVFRSHDQGWKH International Convention on Civil Liability for Oil Pollution Damage and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage had not yet come into force.145

506

The Senate Committees146 explicitly expressed the intention to address the need to establish a comprehensive system of liability for pollution from all ocean-related sources in the coming term, but they believed that standards of liability should be developed to serve in the interim.147 2.2.2. Responsible parties

507

The following limits of liability were established for the following responsible parties: – –

140

141 142 143 144 145 146 147

$ 100,000,000 for deepwater port licensees, $ 150/gross ton or $ 20,000,000, whichever is less, for owners and operators of vessels using deepwater ports.

The average size of tankers used was 30,000-35,000 deadweight tons. Supertankers range in size from 200,000 to 500,000 deadweight tons. Such vessels may be 1,200 feet long, have a draft from 60 to 80 feet, and have 4 to 10 times the capacity of tankers of conventional size, see Senate Report 93-1217 (1974), p. 7533. Senate Report 93-1217 (1974), p. 7533. Senate Report 93-1217 (1974), p. 7534. Senate Report 93-1217 (1974), p. 7542. Senate Report 93-1217 (1974), p. 7542. Senate Report 93-1217 (1974), p. 7542. The Committees on Commerce; Interior and Insular Affairs; and Public Works. Senate Report 93-1217 (1974), p. 7543.

Shifts in Compensation for Environmental Damage

167

2.2.3. Fund It was felt that damage in excess of these limits should be met by those who EHQHÀWIURPGHHSZDWHUSRUWV7KHUHIRUHD'HHSZDWHU3RUW/LDELOLW\)XQGZDV established.148 This fund is liable without limit for all the damage suffered by any person who is not compensated by the owner or operator of the vessel or the licensee of the deepwater port. It was remarked in this context “(…) that no person with a legitimate claim for damages as a result of a discharge of oil or natural gas associated with a deepwater port should be barred from full compensation for damages because of an arbitrary limit on the amount of compensation available per incident.”1497KHIXQGLVÀQDQFHGE\DFHQWVSHU barrel fee on each barrel of oil transported through a deepwater port collected from the owner.

508

2.2.4. Claimants In addition to private persons the Deepwater Port Act 1974 authorizes the Secretary of the Department of Transportation to recover such sums as may be necessary for the Federal and State governments to restore the polluted environment. The underlying idea was that because valuable public resources could be damaged, restoration and therefore the cost of restoration should be encouraged.150

509

2.2.5. Relationship to other law 151 Pre-emption was thought necessary given the unlimited liability provided by the Deepwater Port Act 1974. Moreover, citizens should be able to sue for damages caused by a deepwater port in cases where States would obtain a license to own, construct and operate deepwater ports. States should not be able to exempt themselves from liability in their Constitutions or other laws.152

510

2.3. Trans-Alaska Pipeline Authorization Act of 1973 2.3.1. Background The Trans-Alaska Pipeline Authorization Act provided a framework for the delivery of oil and gas from Alaska’s North Slope to domestic markets. This was considered to be in the national interest because of growing domestic shortages and increasing dependence upon insecure foreign sources.153

148 149 150 151 152 153

Senate Report 93-1217 (1974), p. 7543. Senate Report 93-1217 (1974), p. 7544. Senate Report 93-1217 (1974), p. 7544. Senate Report 93-1217 (1974), p. 7544. Senate Report 93-1217 (1974), p. 7544. 43 U.S.C.A. par. 1651.

511

168

Michael Faure and Albert Verheij

2.3.2. Liability 512

Sec. 204(C)(1) determined (insofar as is relevant here): “Notwithstanding the provisions of any other law, if oil that has been transported through the Trans-Alaska Pipeline is loaded on a vessel at the terminal facilities of the pipeline, the owner and operator of the vessel (jointly and severally) and the Trans-Alaska Pipeline Liability Fund established by this subsection, shall be strictly liable (…) for all damages, including clean-up costs sustained by any person or entity, public or private (…), as the result of discharges of oil from such vessel.” 2.3.3. Limits and fund 154

513

Liability arising out of any one incident shall not exceed $ 100,000,000. The owner and operator of the vessel are jointly and severally liable for damages up to $ 14,000,000. The Trans-Alaska Pipeline Liability Fund is liable for a maximum of $ 100,000,000. If the total claims allowed exceed $ 100,000,000, WKH\VKDOOEHUHGXFHGSURSRUWLRQDWHO\7KH)XQGLVÀQDQFHGE\DIHHRIFHQWV per barrel that is collected from the owner of the oil at the time it is loaded on the vessel.155 2.3.4. Relationship to other law

514

6WDWHVDUHHQWLWOHGWRDGRSWOHJLVODWLRQLQWKHÀHOGRIVWULFWOLDELOLW\RUWRLPSRVH additional requirements.156 2.4. Outer Continental Shelf Lands Act Amendments of 1978 2.4.1. Background 157

515

An increase in the domestic demand for energy made the United States increasingly dependent upon imports of oil from foreign nations. In order to develop domestic sources of energy supply, the Outer Continental Shelf Lands Act Amendments of 1978 was enacted. The purpose of this Act was to establish policies and procedures of managing the oil and natural gas resources of the Outer Continental Shelf. The aim of the Act was to strike a balance between energy resource development and the protection of the human, marine, and coastal environments. An oil spill liability fund had to be established “(…) to pay for the prompt removal of any oil spilled or discharged as a result of activities on

154

S. 204(C)(3). S. 204(C)(5). 156 S. 204(C)(9). 157  6HH3/ VDQGZKLFKVXPVXSWKHÀQGLQJVDQGSXUSRVHVRIWKH Act. 155

Shifts in Compensation for Environmental Damage

169

the Outer Continental Shelf and for any damages to public or private interests caused by such spills or discharges.”158 2.4.2. Liability Sec. 304(a) determines, in short, that the owner and operator of a vessel or of an offshore facility which is the source of oil pollution shall be jointly, severally, and strictly liable for all loss for which a claim may be asserted under sec. 303 of this title. Sec. 303(a) lists the damage that is compensated under this Act, namely: – –

516

removal costs; and damage, including (a) injury to, or destruction of, real or personal property; (b) loss of use of real or personal property; (c) injury to, or destruction of, natural resources; (d) loss of use of natural resources.

2.4.3. Limits and fund Sec. 304(b) installs limits of liability:159 – –

517

in the case of a vessel, $ 250,000 or $ 300 per gross ton, whichever is greater, in the case of an offshore facility, the total removal and clean-up costs, and an amount limited to $ 35,000,000.

An Offshore Oil Pollution Compensation Fund is established in the Treasury of the United States in an amount not to exceed $ 200,000,000.160,WLVÀQDQFHGE\ the collection of a fee that does not exceed 3 cents per barrel which is imposed on the owner of the oil when the oil is produced.161 The Fund is liable without any limitation for the losses mentioned in sec. 303(a) to the extent that these losses are not otherwise compensated.162

518

2.4.4. Trustee 163 The President of the United States or a State are appointed as trustees of natural resources over which the Federal Government or the State exercise a certain amount of control. In case of injury to, or destruction of, natural resources they can sue for damages. The money thus recovered must be used to restore, rehabilitate, or acquire the equivalent of such natural resources.

158 159 160 161 162 163

PL 95-372 (1978), s. 102(8). Apart from certain exceptions. S. 302(a). S. 302(d)(1). S. 304(f). S. 303(b)(3).

519

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Michael Faure and Albert Verheij

2.4.5. Relationship to other law 520

6HFF SURYLGHVWKDWWKLV$FWVKDOOQRWEHLQWHUSUHWHGWRSUHHPSWWKHÀHOGRI liability or preclude any State from imposing additional requirements or liability for any discharge of oil resulting in damages or removal costs. 2.5. Limitation of Liability Act 164

521

This Act was enacted in 1851 and intended to promote investment in the shipbuilding and shipping industry. Ship-owners could limit their liability to the value of the vessel and the freight. This value was determined at the end of the voyage. In case a ship ran aground, the value of the shipwreck and of the freight was the yardstick. Limitation of liability was not possible in case of privity or knowledge of negligence causing the damage on the part of the ship-owner. This Act was criticised since the unpredictable outcomes it produced proved to be an obstacle to compensation. It was repealed in 1990 with the enactment of OPA. 3. Oil Pollution Act 3.1. Scope and basis of liability and scope

522

The basis for liability under OPA is found in Sec. 2702(a) which states: “Notwithstanding any other provision or rule of law, and subject to the provisions of this Act, each responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages (…) that result from such incident.” Liability under OPA is thus limited to oil pollution damage to navigable waters, adjoining shorelines, and the exclusive economic zone.165 A further limitation seems that liability can only arise in case of damage to so-called “natural resources”. “Natural resources” however, is a very broad term, which includes ODQGÀVKZLOGOLIHELRWDDLUZDWHUJURXQGZDWHUGULQNLQJZDWHUVXSSOLHVDQG other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States, any State or local government, or Indian tribe, or any other foreign state.166 In short, all natural resources that are subject to a certain amount of administrative control. “Natural resources” encompass therefore both public and private property.

164 165

166

C. de la Rue/C.B. Anderson (supra fn. 1), 26-28. The Exclusive Economic Zone generally extends seaward 200 miles from the coastline of the United States, see further s. 2701(8). S. 2701(20).

Shifts in Compensation for Environmental Damage

171

3.2. Liability regime The defences to liability under OPA are so limited that the liability can be qualiÀHGDVVWULFW5HVSRQVLEOHSDUWLHVFDQRQO\HVFDSHOLDELOLW\LQFDVHWKH\FDQVKRZ that the discharge of oil was caused solely167 by an act of God, an act of war, or the act or omission of a third party, other than an employee or agent of the responsible party or a third party whose act or omission occurred in connection with any contractual relationship with the responsible party.168 In case of an act or omission of a third party, the responsible party has to establish that he, in short, exercised due care with respect to the oil concerned and took precautions against foreseeable acts or omissions of the third party.169 A responsible party cannot call on these three defences if he fails or refuses: – ²

523

to report the incident, WR SURYLGH DOO UHDVRQDEOH FRRSHUDWLRQ ZLWK WKH UHVSRQVLEOH RIÀFLDOV LQ connection with the removal activities.170

A responsible party does not escape liability by the single fact that a claimant is partly responsible himself for the discharge of oil and the ensuing damages. This only happens when the incident was caused by the gross negligence or wilful misconduct of the claimant.171

524

3.3. Damages Sec. 2702(a) determines that liability exists for the removal costs and damDJHV%RWKWHUPVDUHVXEVHTXHQWO\VSHFLÀHGLQVHFE ,QWKHIROORZLQJD distinction is made between an infringement of individual interests and damage to the environment as such.172

525

3.3.1. Damage caused to persons First of all, individuals can recover damages for injury to, or economic losses resulting from destruction of, real or personal property, which shall be recoverable by a claimant who owns or leases that property.173 Secondly, individuals are entitled to compensation of subsistence use, without regard to the ownership or

167

168 169

170 171 172 173

A combination of these three events is also possible of course see s. 2703(a)(4). What is meant here is that the responsible party is not himself to blame for the discharge of oil. S. 2703(a). However, the responsible party who successfully argues that a third party was responsible is not exempted from liability altogether. He must pay damages but then has a right to seek recovery from the third party (s. 2702(d)(1)(B)). S. 2703(c). S. 2703(b). See for this distinction supra no. 376. S. 2702(b)(2)(B).

526

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Michael Faure and Albert Verheij

management of the resources.174 Thirdly, individuals can claim compensation of GDPDJH´« HTXDOWRWKHORVVRISURÀWVRULPSDLUPHQWRIHDUQLQJFDSDFLW\GXH to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by any claimant.”175 527

Finally the public is compensated for the fact that it cannot make use of the natural resources during the restoration (so-called interim losses). 176 However an individual member of the public cannot recover his personal interim loss. Only trustees can recover these damages on behalf of the public at large under the head of compensation of diminution in value of those natural resources pending restoration.177

528

The desirability of compensating this type of damage is a hotly debated issue, an important reason being that it cannot be calculated very precisely. Especially the “contingent valuation methodology” is controversial. This methodology essentially comes down to asking people how much they would be willing to pay to preserve certain natural resources. As Bergkamp observes: “the fundamental problem with this valuation methodology is that [it] tries to produce an economic, monetary valuation of inherently non-economic values using a non-economic method that relies on answers to hypothetical questions about how much people would be willing to pay, rather than actual payment or other observable market behaviour.”178 3.3.2. Damage caused to the environment

529

,Q WKH ÀUVW SODFH WUXVWHHV FDQ EH FRPSHQVDWHG IRU WKH UHPRYDO FRVWV WKH\ incurred.179 A person who incurs these costs for an act consistent with the National Contingency Plan is also entitled to compensation.180 Removal costs DUH GHÀQHG DV ´«  WKH FRVWV RI UHPRYDO WKDW DUH LQFXUUHG DIWHU D GLVFKDUJH of oil has occurred or, in any case in which there is a substantial threat of a discharge of oil, the costs to prevent, minimize, or mitigate oil pollution from such an incident (…)”.181

174 175 176 177 178

179

180 181

S. 2702(b)(2)(C). S. 2702(b)(2)(E). E.H.P. Brans (supra fn. 2), 73-74. S. 2706(d)(1)(B). L. Bergkamp, The proposed environmental liability directive, [2002] European Environmental Law Review (Env. L. Rev.), 333-334. S. 2702(b)(1)(A). The removal costs can be incurred under The Intervention on the High Seas Act 33 U.S.C. sec. 1471 et seq., and under the Water Pollution Control Act (also known as the Clean Water Act) sec. 33 U.S.C. 1321. S. 2702(b)(1)(B). S. 2701(31).

Shifts in Compensation for Environmental Damage

173

Secondly, trustees can obtain compensation for damage to natural resources.182 This includes the following heads of damage:183 – –

530

the reasonable costs of assessing the damage;184 the costs of restoring, rehabilitating, replacing, or acquiring the equivalent185 of, the damaged natural resources.

The government of the United States, a State, or a political subdivision thereof can, in the third place, recover damages equal to the net loss of taxes, royalties, UHQWV IHHV RU QHW SURÀW VKDUHV GXH WR WKH LQMXU\ GHVWUXFWLRQ RU ORVV RI UHDO property, personal property, or natural resources.186

531

Finally, a State or a political subdivision thereof can get compensation of the net costs of providing increased or additional public services during or after removal DFWLYLWLHV([DPSOHVDUHWKHFRVWVRISURWHFWLRQIURPÀUHRUKHDOWKKD]DUGV187

532

3.3.3. Limits on liability Sec. 2704 establishes limits on liability.188 These are as follows.189 For a tank vessel the greater of $ 1,200 per gross ton, or in the case of a vessel greater than 3,000 gross tons, $ 10,000,000, or in the case of a vessel of 3,000 gross tons or less, $ 2,000. For any other vessel, $ 600 per gross ton or $ 500,000 whichever is greater. For an offshore facility except a deepwater port, the total of all removal costs plus $ 75,000,000, and for any onshore facility and deepwater port, $ 350,000,000. These limits are higher than the limits contained in the Clean Water Act. Under this Act the limit was $ 150 per gross ton or $ 250,000, whichever was greater.190

533

These limits do not apply if the event was caused by gross negligence or wilful misconduct of, or the violation of an applicable Federal safety, construction, or operating regulation by, the responsible party, including his agent, employee, or person acting pursuant to contractual relationship with him.191 The President of the United States can adjust the liability limits if he deems it necessary.192

534

182 183 184

185 186 187 188 189 190

191 192

S. 2702(b)(2)(A). S. 2706(d). S. 2706(e) requires the promulgation of assessment regulations within 2 years after August 1990. However, these regulations were not promulgated before 1996. This will have to be done in case the polluted natural resources are beyond restoration. S. 2702(b)(2)(D) S 2702(b)(2)(F). Interest is not subject to these liability limits, s. 2705(b)(5). S. 2704(a). See the old 33 U.S.C. 1321(f) and A.J. Rodriguez /A.C. Jaffe, The Oil Pollution Act of 1990, [1990] Tulane Maritime Law Journal, 16. S. 2704(c)(1). S. 2704(d)(3).

174

Michael Faure and Albert Verheij

535

Finally Sec. 2704(c)(3) provides that notwithstanding the previous limitations, the owner or the operator of an Outer Continental Shelf facility or a vessel carrying oil from such a facility shall be liable for all removal costs incurred by the United States or by any state or local governmental entity. In these cases there is no limit of liability.

536

The above-mentioned limits are not necessarily absolute since OPA explicitly allows States to impose additional liability in case of oil pollution.193 3.4. Claimants

537

There are two categories of claimants, private parties and trustees. Private parties can get compensation for the individual damage they suffer. They are not authorized to seek damages for damage of the natural resources as such. Only trustees can institute such a claim. The reason is that private parties are not obliged to use the recovered sums for restoration purposes. Private parties can therefore seek recovery for damage resulting from the destruction of real RUSHUVRQDOSURSHUW\GDPDJHVIRUORVVRIVXEVLVWHQFHXVHDQGIRUORVVRISURÀWV and earning capacity due to the destruction of real property, personal property or natural resources.194

538

7KH FODVVHV RI FODLPDQWV ZKR PD\ UHFRYHU IRU ORVV RI SURÀWV XQGHU 23$ LV QRWFOHDU8QGHUPDULWLPHWRUWODZRQO\FRPPHUFLDOÀVKHUPHQZHUHHQWLWOHG to compensation in case of pollution. OPA expands on this but the legislative history does not clarify which classes of claimants are entitled to compensation DVZHOOVLQFHWKHRQO\H[DPSOHJLYHQLVWKDWRIFRPPHUFLDOÀVKHUPHQZKRVXIIHU damage.195

539

Trustees can seek recovery for the other remaining damages listed above. OPA provides for a designation of Federal Trustees, State Trustees, Indian Tribe Trustees and Foreign Trustees.196 Trustees are bound to use the sums recovered to meet the cost of restoring, rehabilitating, replacing, or acquiring the equivalent of, WKHGDPDJHGQDWXUDOUHVRXUFHVIRUWKHEHQHÀWRIWKHHQYLURQPHQW$Q\DPRXQWV in excess of these costs have to be deposited in a revolving trust account.197 3.5. Responsible party/parties

540

The responsible party is practically always obliged to submit evidence of ´ÀQDQFLDOUHVSRQVLELOLW\µVXIÀFLHQWWRPHHWWKHPD[LPXPDPRXQWRIOLDELOLW\

193

194 195

196 197

S. 2718(c). Of course not all States have adopted additional legislation. See further C. de la Rue/C.B. Anderson (supra fn. 1), Appendix 11. S. 2702(b)(2)(B, C and D). See further A.J. Rodriguez /A.C. Jaffe, [1990] Tulane Maritime Law Journal, 15 and E.H.P. Brans (supra fn. 2), 75-76. S. 2706(b). S. 2706(f).

Shifts in Compensation for Environmental Damage

175

to which he could be subjected under OPA.198 “Financial responsibility” can be established by various methods: evidence of insurance, surety bond, guarantee, OHWWHU RI FUHGLW TXDOLÀFDWLRQ DV D VHOILQVXUHU RU RWKHU HYLGHQFH RI ÀQDQFLDO responsibility.199 The claimant has a right of direct action against the guarantor RIÀQDQFLDOUHVSRQVLELOLW\200 OPA imposes joint, and several liability201 on the following responsible parties:202 – – – – – –

541

persons owning, operating, chartering a vessel, persons owning, operating an onshore facility, the lessee or permit holder of an offshore facility, the licensee of a deep water port, persons owning or operating a pipeline, in the case of an abandoned vessel, onshore facility, offshore facility, deepwater port, the persons who would have been responsible parties immediately prior to the abandonment of the vessel or facility.

Remarkable is that cargo owners escape liability under OPA despite the fact that WKH\EHQHÀWIURPWKHWUDQVSRUWDWLRQRIRLODVZHOO 3.6. Fund 3.6.1. Background The Oil Spill Liability Trust Fund is established in the Treasury of the United States and consolidates overlapping federal oil spill liability funds that existed under the Federal Water Pollution Control Act, the Deepwater Port Act of 1974, the Outer Continental Shelf Lands Act Amendments of 1978, and the Trans-Alaska Pipeline Authorization Act.

542

3.6.2. Revenues The Oil Spill Liability Trust Fund has received and receives revenues from the following sources:203 – ²

198 199 200 201 202 203

amounts transferred from the oil spill liability funds that were terminated by OPA, DEDUUHOWD[RQGRPHVWLFDOO\SURGXFHGRLODQGLPSRUWHGRLOUHÀQHGLQ the United States,

S. 2716(a). S. 2716(e). S. 2716(f). S. 2702(a). S. 2701(32). 26 U.S.C. s. 9509(b).

543

176

– – –

Michael Faure and Albert Verheij

penalties, cost recoveries for damage to natural resources under OPA, interest earned on fund investments.

3.6.3. Uses of the fund 544

The Oil Spill Liability Trust Fund is available to trustees and private parties for the payment of removal costs, the costs of assessing natural resource damage and the costs of implementing plans for the restoration, rehabilitation, replacement, or acquisition of the equivalent of damaged resources.204 An important purpose of the fund is to provide compensation where the responsible party cannot be identiÀHGRULVXQDEOHWRSD\RUZKHUHWKHOLDELOLW\OLPLWVDUHH[FHHGHG205 Payment of a claim by the fund is subject to the United States Government acquiring by subrogation all rights of the claimant to recover from the responsible party.206 3.6.4. Limits 207

545

The maximum amount which may be paid from the fund shall not exceed $ 1,000,000,000 with respect to a single event. Claims for natural resource damage assessments in relation to a single event shall not exceed $ 500,000,000. Except in the case of payments of removal costs, a payment may be made from the fund only if the amount available after payment is not less than $ 30,000,000. 3.6.5. Procedure

546

%HIRUHDFODLPLVSUHVHQWHGWRWKHIXQGLWPXVWÀUVWEHSUHVHQWHGWRWKHUHVSRQVLEOH party. If the responsible party denies liability or if there is no settlement within 90 days, the claimant can choose between going to court or presenting his claim to the fund.208 3.7. Relationship to other law

547

OPA explicitly allows states to impose additional liability or requirements.209

204

205 206 207 208 209

S. 2712 (a). Certain administrative, operational and personal expenses can also be paid for by the fund. E.H.P. Brans (supra fn. 2), 78. S. 2712(f). 26 U.S.C. s. 9509(c)(2). S. 2713(c). S. 2718(c). In some States there is indeed no cap on liability. See further C. de la Rue/C.B. Anderson (supra fn. 1), Appendix 11.

Shifts in Compensation for Environmental Damage

177

3.8. Safety regulation A very important element of OPA is that it mandated the design of double hull tankers and the phasing out of single hull tankers.210

548

4. Shifts 4.1. Previous statutes and OPA compared

WQIA

CWA

Deep Water

TransAlaska

Outer Cont

OPA

Liability regime: strict

x

x

x

x

x

x

Claimants: trustees/government

x

x

x

x

x

x

x

x

x

x

Claimants: private persons Fund: limited

x

x

Fund: unlimited

x x

x x

Responsible parties: limited liability

x

x

x

x

x

x

Damages: clean-up

x

x

x

x

x

x

x

x

x

x

x

x

x

x

x

Damages: restoration Damages by private persons Damages: interim

x

Pre-emption No pre-emption

x x

x

x

x

x

A comparison between OPA and its preceding statutes leads to the following observations. There are a number of elements that all statutes have in common. First of all, all liability regimes were strict in character. Secondly, trustees or the government always had a right of action. Thirdly, all legislation provided for the establishment of a fund. Fourthly, the liability of the responsible party or parties was always limited.

210

See for information about the phase-out schemes www.intertanko.com.

549

178

Michael Faure and Albert Verheij

550

)XUWKHUPRUHWKHUHLVDVWURQJWHQGHQF\LQWKLVÀHOGagainst pre-emption. Only the Deepwater Port Act 1974 pre-empts states from adopting legislation. It should be noted that this feature undermines the establishment of a limit on the liability of the responsible party. If states are not pre-empted, they are entitled to adopt higher or no limits themselves as indeed has happened in some states.211

551

The following (partial) shifts seem to have taken place: – – ² –

a shift to federalization; a shift from a narrow to an extensive class of claimants, DVKLIWWRVWULFWOLDELOLW\ÀQDQFLDOJXDUDQWHHVGLUHFWDFWLRQDQGWKHFUHDWLRQ of a fund, and a shift to compensation of interim damage.

4.2. Shift: Federalization 552

The enactment of federal legislation discussed in this chapter can only in part be regarded as a shift from the state to the federal level. With the exception of the Deepwater Port Act 1974 states are not pre-empted and the adopted legislation does not create a uniform (harmonized) system. The shift to the federal level has WKHUHIRUHQRWEHHQFRPSOHWH0LQLPXPVWDQGDUGVLQWKHÀHOGRIHQYLURQPHQWDO liability for oil pollution are provided. This can be regarded as a shift from the state to the federal level. At the same time, states are not prohibited from enacting OHJLVODWLRQLQWKLVÀHOGZKLFKJRHVIXUWKHUWKDQWKRVHPLQLPXPVWDQGDUGV

553

Anti pre-emption seems to have had a political motivation. On behalf of the state of Florida it was remarked that pre-emption would “(…) leave the states utterly at the mercy of the Congress to act for them in protecting Florida citizens and their property. This trend, toward making the states little more than historical curiosities totally dependent on the national government for essentials of economic, political and now environmental life (…)”.212

554

The partial shift to the federal level was motivated by the geographical and ÀQDQFLDOOLPLWVRIH[LVWLQJOHJLVODWLRQ(VSHFLDOO\WKHSUHGHFHVVRURIWKH:4,$ was restrictive in that liability depended on wilful or gross negligence of the SROOXWHU6LQFHUHVSRQVLEOHSDUWLHVZHUHXQGHUQRREOLJDWLRQWRPDLQWDLQÀQDQFLDO LQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\WKHDOUHDG\ OLPLWHGULJKWWRFRPSHQVDWLRQ became an empty shell. These inadequacies were highlighted by the Torrey Canyon disaster in 1967. The WQIA made some radical changes. Implicitly the polluter-pays principle was implemented and measures were taken to ensure that compensation would in fact be paid.

211 212

Therefore limitations on liability have not been regarded as separate shifts. Hearings before the Subcommittee on Oceans and International Environment of the Foreign Relations Committee, U.S. Senate 93 Congress, 1 Sess, p. 192 (17,18/4/1073) (source: W. Chao (supra fn. 7), 220 footnote 24 and p. 221 footnote 32).

Shifts in Compensation for Environmental Damage

179

4.3. Shift: From a narrow to an extensive class of claimants The aim of the oldest legislation (WQIA and CWA) was to provide the government with means to recover costs incurred in clean-up and restoration measures. 1RWWKHLQWHUHVWRIWKHLQGLYLGXDOSROOXWLRQYLFWLPVEXWWKHÀQDQFLDOLQWHUHVWVRI the government and the collective interest in a clean environment were protected. This implies a shift from tort law to public law.

555

Later on, however private pollution victims were not forgotten. From the Deepwater Port Act 1974 onward they became entitled to compensation as well. 7KXVWKH\EHQHÀWHGIURPWKHVDPHDGYDQWDJHVQRWDEO\VWULFWOLDELOLW\ DVWKH government. This constituted a departure from traditional tort law.

556

 6KLIW6WULFWOLDELOLW\ÀQDQFLDOJXDUDQWHHVGLUHFWDFWLRQIXQG The position of the oil pollution victim under OPA is much stronger compared to his position under traditional tort law as a result of strict liability, obligatory ÀQDQFLDOJXDUDQWHHVRIWKHUHVSRQVLEOHSDUW\GLUHFWDFWLRQDJDLQVWWKHÀQDQFLDO guarantor and the existence of a fund.

557

These departures from traditional tort law constitute a shift. This shift did not take place with the enactment of OPA in 1990 but goes back much further. OPA especially seems to be modelled on the WQIA of 1970. This Act created VWULFWOLDELOLW\DQREOLJDWLRQWRSURYLGHHYLGHQFHRIÀQDQFLDOUHVSRQVLELOLW\DQG a direct action.

558

With regard to funds, it should be noted that they seemed to have changed LQFKDUDFWHURYHUWLPH7KHÀUVWIXQGVRIWKH:4,$DQGWKH&:$VHHPHGWR have the function to provide the government with enough money to be able to act adequately after a spill. It was not a true compensation fund to which the government could turn to get compensation above the established limits on OLDELOLW\,QWKRVHHDUO\GD\VWKHIXQGZDVQRWIHGE\DVSHFLÀFWD[7KHIXQGV HVWDEOLVKHGE\WKHVXEVHTXHQWIRXUDFWVZHUHPDLQO\RUDWOHDVWSDUWO\ ÀQDQFHG E\VSHFLÀFWD[HV

559

² – – ²

WKHIXQGRIWKH'HHSZDWHU3RUW$FWZDVÀQDQFHGE\DFHQWVSHU barrel fee collected from the owner, the Trans-Alaska Pipeline Authorization Act of 1973 imposed a fee of 5 cents per barrel on the owner of the oil, the Outer Continental Shelf Lands Act Amendments 1978 imposed a fee of 3 cents per barrel on the owner of the oil, and WKH2LO6SLOO/LDELOLW\7UXVW)XQGFUHDWHGE\WKH23$ZDVSDUWO\ÀQDQFHG by a 5 per cent barrel tax.

7KURXJKWKHVHWD[HVSDUWLHVZKREHQHÀWIURPWKHWUDQVSRUWDWLRQRUSURGXFWLRQ of oil indirectly compensate pollution victims. The fund is not just there for the EHQHÀWRISROOXWLRQYLFWLPVDWWKHVDPHWLPHLWFRQVWLWXWHVDPHFKDQLVPWRKROG WKRVHZKREHQHÀWIURPWKHWUDQVSRUWDWLRQRUSURGXFWLRQRIRLOUHVSRQVLEOHDV

560

180

Michael Faure and Albert Verheij

well. This seems to be bound up with the assignment of rights to private persons. The funds are designed to provide compensation in excess of liability limits. Since the government does not want to pay for damage caused by others, the IXQGLVIHGE\VSHFLÀFWD[HVLPSRVHGRQWKRVHZKREHQHÀWIURPWKHSURGXFWLRQ and transportation of oil as well. 561

The motivation for the shift described above is not entirely clear. The legislative history does not make explicit why certain constructions were adopted. More general considerations and aims can be found however. The liability regime of the Deepwater Port Act 1974 was said to have three objectives: 1) 2)

3)

562

“to provide the fullest and most expeditious compensation possible; to distribute the burden of risk equitably among deepwater port licensees, the owners and operators of vessels using deepwater ports, and the consumLQJSXEOLFZKRZLOOXOWLPDWHO\EHQHÀWIURPWKHXVHRIVXSHUWDQNHUVDQG deepwater ports; and to impose standards of liability that will induce maximum effort to prevent the discharge of hazardous substances into the marine environment without LPSRVLQJVWDQGDUGVRIÀQDQFLDOUHVSRQVLELOLW\WKDWLPSDLUFRPSHWLWLRQIRU deepwater port licenses.”213

&RXOGWKHDERYHTXRWDWLRQEHUHJDUGHGQRWRQO\DVDVSHFLÀFPRWLYDWLRQIRUWKH Deepwater Port Act 1974 but also as a general motivation for the shift under GLVFXVVLRQVWULFWOLDELOLW\ÀQDQFLDOJXDUDQWHHGLUHFWDFWLRQIXQG "7KHPRWLYDtion for the regime of the Deepwater Port Act 1974 could then be generalized as follows: – – –

full and expedient compensation, equitable distribution of the burden of risk between those involved in the dangerous activity and the public, and prevention without impairing competition for alternatives to the dangerous activity.

,WVHHPVSRVVLEOHWRJHQHUDOLVHZLWKRQHLPSRUWDQWTXDOLÀFDWLRQ,QWKHOHJLVODWLYH history of the Deepwater Port Act 1974 due attention was paid to the position of private pollution victims. The aim to provide full and expedient compensation must be viewed against that background. It therefore seems that an important motivation of the regime of the Deepwater Port Act 1974 was to protect the interests of private persons. However, it should be borne in mind that the major part of this shift already took place with the enactment of the WQIA in 1970. That Act was not aimed at improving the position of private pollution victims since only the government was entitled to compensation. The rather surprising conclusion therefore seems to be that, whatever the reasons for this shift, protection of private persons was not one of them. The government primarily sought

213

Senate Report 93-1217 (1974), p. 7543.

Shifts in Compensation for Environmental Damage

181

to improve its ownSRVLWLRQYLVjYLVSROOXWHUVZKLOHOHDYLQJSULYDWHSHUVRQV at the mercy of tort law and state statutes. Later on in subsequent legislation SULYDWHSHUVRQVEHQHÀWHGDVZHOOIURPWKHUHJLPHWKDWZDVÀUVWGHYHORSHGLQ the WQIA, but this was not a factor that the federal legislator had in mind while constructing the regime of the WQIA. 4.5. Shift: Interim damage Why exactly trustees can demand compensation of interim damage has not been discovered so far. It might be conjectured that this departure from traditional tort law was motivated by the desire to provide full compensation. This aim was already expressly formulated in the Deepwater Port Act of 1974. It was stated that one of the purposes of the liability regime was “to provide the fullest and most expeditious compensation possible”.

563

Compensation of interim damage is especially interesting since this damage FDQQRWEHOLQNHGWRVSHFLÀFLQGLYLGXDOV,WLVGDPDJHRIWKHSXEOLFDWODUJH,Q that respect the demarcation line between a claim for compensation of interim damage by a trustee and a public prosecutor who demands the imposition of a ÀQHRQEHKDOIRIWKHSXEOLFLVQRWYHU\FOHDU7KLVPLJKWJLYHULVHWRWKHLGHDWKDW interim damages are punitive in nature. That the rationale of interim damages is to punish the responsible party is also expressed in the following quote: “If the resource is fully restored, what are past lost use and non-use monies for? The answer is that they are surplus to the actual cost of restoration and are punitive damages… Trustees are going to attempt to compute the value to the squirrel of having to eat acorns instead of walnuts while restoration is occurring, or WKHYDOXHWRDURELQRIHDWLQJEXJVLQVWHDGRIZRUP²DQGWRÀOHFODLPVIRUWKH robin’s pain and suffering.”214

564

4.6. Shift: From single to double hull tankers The obligation to build double hull tankers and to gradually phase-out single hull tankers constituted an important shift that had huge consequences. In itself this can be regarded as a shift from private to public law. Instead of relying on the incentive of liability, preventive measures are prescribed. On the whole this illustrates that it is not easily possible to say that OPA was a shift from private to public law or vice versa. OPA is the result of an eclectic approach. All measures that seemed helpful to combat oil pollution were taken. With the enactment of OPA Congress did not choose a private or public law solution.

214

Statement of G. Mannina, Director, Coalition for NRD Reform, before the U.S. Senate Committee on Environment and Public Works, September 4, 1997, source: J. Boyd, A PDUNHWEDVHGDQDO\VLVRIÀQDQFLDOLQVXUDQFHLVVXHVDVVRFLDWHGZLWK861DWXUDO5HVRXUFH Damage liability, in: M. Faure (ed.), Deterrence, insurability, and compensation in environmental liability. Future developments in the European Union (1st edn. 2003), 275 footnote 861.

565

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Michael Faure and Albert Verheij

((XURSHDQ'LUHFWLYHRQ(QYLURQPHQWDO/LDELOLW\ 215 1. Introduction 566

European attention on the importance of civil liability has been developing over the years. As always disasters have acted as a catalyst. European action has been triggered by the oil pollution caused by the Amoco Cadiz (1978), the Erika (1999) and the Prestige (2002). Several periods can be distinguished.216 Whereas in the beginning the emphasis was on preventive measures, later on the importance of civil liability was stressed. The European Union (EU) no longer relied on the existing international regime but assumed a more active role.

567

Action was taken on two levels. On the international level (the CLC/FC regime), the EU stimulated higher liability limits which resulted in the 2000 and the 2003 Protocols. On the European level, steps have been taken since the 1980s to establish a European environmental liability regime. Especially important were the Green Paper in 1993217 and the White Paper in 2000.218 This has resulted in the recently published European Directive on Environmental Liability219 (referred to as the Directive).

568

The aim of the Directive is to prevent and remedy environmental damage through the furtherance of the polluter-pays principle and in line with the principle of sustainable development. The Member States have to comply with the Directive by 30 April 2007. 2. Scope and basis of liability

569

The Directive applies to environmental damage that is caused by certain occupational activities.220 Occupational activity LV GHÀQHG DV ´DQ\ DFWLYLW\ carried out in the course of an economic activity, a business or an undertaking, LUUHVSHFWLYHO\RILWVSULYDWHRUSXEOLFSURÀWRUQRQSURÀWFKDUDFWHUµ221

570

The notion of environmental damageLVFODULÀHGLQDUW ,WPHDQVGDPDJH to protected species and natural habitats,222 water damage223 and land damage. Air is not protected independently but only insofar as it is affected indirectly

215

See for a discussion of the Environmental Liability Directive also the contribution in the previous chapter by Kristel De Smedt. 216 See for a clear historical overview M. Faure/H. Wang, Liability for oil pollution – the EU approach, [2004] Env Liability 2, 55-67. 217  &20 ÀQDO 218  &20 ÀQDO 219 Directive 2004/35/CE, Pub L 143/56 (30-04-2004). 220 Art. 3. 221 Art. 2(7). 222  7KHVHDUHIXUWKHUGHÀQHGLQRWKHUGLUHFWLYHVVHHDUW  223  7KLVLVIXUWKHUGHÀQHGLQ'LUHFWLYH(&VHHDUW E 

Shifts in Compensation for Environmental Damage

183

by pollution to any of these three categories.224 Protected species and natural KDELWDWVDQGZDWHUPXVWEHVLJQLÀFDQWO\DGYHUVHO\DIIHFWHGE\WKHSROOXWLRQ /DQGGDPDJHPXVWFUHDWHDVLJQLÀFDQWULVNWRKXPDQKHDOWK The Directive does not apply in the event of an act of war or an act of God, or when the liability falls within the scope of a number of international conventions listed in annex IV and V of the Directive.225 The Directive does not apply to damage caused before 30 April 2007 (the date on which the Member States have to comply with the Directive226) or to damage caused subsequent to 30 $SULOLIVXFKGDPDJHZDVWKHUHVXOWRIDVSHFLÀFDFWLYLW\WKDWWRRNSODFH DQGÀQLVKHGEHIRUH$SULO227

571.

The basis of liability can be found in art. 8. The point of departure is that the operator shall bear the costs for the preventive and remedial actions taken pursuant to this Directive.

572

3. Liability regime The liability regime does not provide one single standard for liability. Sometimes WKHOLDELOLW\FDQEHTXDOLÀHGDVVWULFWLQFKDUDFWHULQRWKHUFLUFXPVWDQFHVWKH responsible party can only be held liable in the event of negligence. One must distinguish between occupational activities listed in annex III to the Directive and other occupational activities.228 The Directive allows Member States in certain circumstances to exempt the operator from liability where he demonstrates that he was not at fault.

573

3.1. Occupational activities listed in annex III The operator who engages in an occupational activity listed in annex III is strictly liable for environmental damage. Art. 8(1) provides: the operator shall bear the costs of preventive and remedial actions. According to art. 8(3), he is exempted from liability only when he can prove that the damage was caused by: – –

a third party and occurred despite the fact that appropriate safety measures were in place; or compliance with a compulsory order or instruction emanating from a public authority.

In such cases operators can recover the costs they incurred from their Member States.

224 225 226 227 228

Pre-amble no. 4. Art. 4(1), (2) and (5). Art. 19(1). Art. 17. Art. 3(1).

574

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Michael Faure and Albert Verheij

3.2. Other occupational activity 575

When the occupational activity that caused the environmental damage is not listed in annex III to the Directive, the operator can only be held liable for the costs of preventive and remedial actions if he has been at fault or negligent.229 At ÀUVWVLJKWWKLVVHHPVVXSHUÁXRXVVLQFHWRUWODZLQDOO0HPEHU6WDWHVSURYLGHV the same standard. The importance however lies in the fact that the responsible party is liable for certain costs (see infra no. 577-588) which is by no means certain in many Member States.230 3.3. Option for Member States

576

Member States may allow the operator not to have to bear the costs of remedial actions if he proves not to be at fault in the case of (shortly formulated):231 – –

an authorized emission, or when the operator demonstrates that his behaviour was not considered OLNHO\WRFDXVHHQYLURQPHQWDOGDPDJHDFFRUGLQJWRWKHVWDWHRIVFLHQWLÀF technical knowledge at that time.

4. Damages 577

The Directive only provides for the compensation of damage caused to the environment.232 The operator is liable for the costs of preventive and remedial actions.233 Preventive measures234 are any measures aimed at preventing or minimizing an imminent threat of environmental damage.235 “Remedial measures” means measures that serve to restore, rehabilitate or replace damaged natural resources or to provide an equivalent alternative to those resources as foreseen in annex II to the Directive. Annex II distinguishes between remediation of water or protected species or natural habitats on the one hand and remediation of land damage on the other hand. In the former case annex II distinguishes between “primary remediation”, “complementary remediation”, and “compensatory remediation”. Primary remediation returns the damaged natural resources to the original condition, complementary remediation compensates for the fact that the primary remediation does not result in fully restoring the environmental damage, and compensatory remediation compensates for interim losses which is revolutionary in Europe. It does not include compensation to members of the 229 230 231 232 233 234

235

Art. 3(1)(b) jo art. 8(1). E. Bauw/E.H.P. Brans, Milieuprivaatrecht (3rd edn. 2003), 36. Art. 8(4). See supra no. 376 . Art. 8(1). The Directive seems to use “actions” and “measures” as synonyms see art. 2(10) and (11) and art. 8(1). Art. 2(10).

Shifts in Compensation for Environmental Damage

185

public. In the case of remediation of land damage, the measures ensure that the ODQGQRORQJHUSRVHVDQ\VLJQLÀFDQWULVNRIDGYHUVHO\DIIHFWLQJKXPDQKHDOWK With regard to land therefore, the primary aim is not to restore it to its original state and no interim losses are compensable. “Costs” means costs which are needed to ensure the proper and effective implementation of this Directive, it includes the following items:236 – – – – –

578

costs of assessing environmental damage; costs of imminent threat of environmental damage; costs of alternatives for action as well as the administrative, legal, and enforcement costs; costs of data collection and other general costs; costs of monitoring and supervision.

5. Claimants The most important claimant is the so-called competent authority. Member States PXVWGHVLJQDWHRQHRUPRUHFRPSHWHQWDXWKRULWLHVUHVSRQVLEOHIRUIXOÀOOLQJWKH duties provided for in the Directive.237 Art. 8(2) determines that any competent authority shall recover the costs it has incurred in relation to the preventive or remedial actions taken under this Directive.238 Given the central role played by the state239 the regime of the Directive has been characterised as an administrative law regime rather than a civil liability regime.240 The Directive does not give private parties a right of compensation.241 Only operators are, under certain circumstances, entitled to compensation for the costs of preventive or remedial measures. Art. 8(3) determines that operators are not liable for the costs of such measures if the damage was caused by a third party or resulted from compliance with a compulsory order. In such cases Member States are required to take the appropriate measures to enable the operator to recover the costs incurred.

580

Although they are not entitled to damages, natural and legal persons (including Non-Governmental Organisations) are, under certain circumstances, entitled to submit a request for action to the competent authority.242 The competent authority will consider this request for action if the submitted information in a plausible manner shows that environmental damage exists. In that event it will give the

581

236 237 238 239 240 241 242

Art. 2(16). Art. 11. Art. 8(2). E. Bauw/E.H.P. Brans (supra fn. 249), 31. L. Bergkamp, [2002] European Environmental Law Review (Env. L. Rev.), 295. Art. 3(3). Art. 12(1).

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Michael Faure and Albert Verheij

responsible party the opportunity to give his opinion.243 The natural and legal persons who have submitted a right to request for action have access to a court or impartial public body to review the legality of the decisions of the competent authority.244 The Directive does not provide the responsible party with a right to initiate judicial review.245 582

The Commission offers the following explanation for giving certain natural and legal persons a right to a request for action and a right to initiate judicial review: “Given that environmental assets (…) are often not subject to proprietary rights that would serve as incentives to proper implementation and enforcement of WKHSURSRVHGUHJLPHSURYLVLRQVDUHPDGHWRDOORZTXDOLÀHGHQWLWLHVDORQJVLGH WKRVHSHUVRQVZKRKDYHDVXIÀFLHQWLQWHUHVWWRUHTXHVWWKHFRPSHWHQWDXWKRULW\ to take appropriate action and possibly challenge their subsequent action or inaction.”246 In other words, the standing of certain natural and legal persons is regarded necessary to ensure effective implementation of the Directive. It should be noted that the rights of certain natural and legal persons are not limited to unowned natural resources.247

583

7KHOLPLWDWLRQSHULRGRIUHFRYHU\RIFRVWVLVÀYH\HDUVIURPWKHGDWHRQZKLFK SUHYHQWLYHRUUHPHGLDOPHDVXUHVKDYHEHHQFRPSOHWHGRUÀYH\HDUVIURPWKH GDWHRQZKLFKWKHOLDEOHRSHUDWRURUWKLUGSDUW\KDYHEHHQLGHQWLÀHGZKLFKHYHU is later.248 The Directive does not apply to damage if more than 30 years passed since the event that caused the damage.249 6. Responsible party

584

The responsible party under this Directive is the operator of the occupational activity. 2SHUDWRULVGHÀQHGDV´« DQ\QDWXUDORUOHJDOSULYDWHRUSXEOLFSHUVRQ who operates or controls the occupational activity (…).”250 Where the national legislation so provides, operator also means the person who has decisive economic power over the technical functioning of an occupational activity.251 This includes the holder of a permit or authorization or the person registering or notifying such an activity.

585

The operator is under an obligation to take the necessary preventive and remedial actions in the event of an imminent threat or occurrence of environmental

243 244 245 246 247 248 249 250 251

Art. 12(3). Art. 13(1). See for criticism L. Bergkamp, [2002] Env. L. Rev., 338-340. Explanatory Memorandum, p. 3. L. Bergkamp, [2002] Env. L. Rev., 339. Art. 10. Art. 17. Art. 2(6). Art. 2(6).

Shifts in Compensation for Environmental Damage

187

damage.252 The competent authority can demand from the operator that he takes preventive or remedial actions. If he fails to do so, the competent authority may take the necessary measures itself.253 The operator is under no obligation to insure himself against liability. The 'LUHFWLYHFRQÀQHVLWVHOIWRGHWHUPLQLQJWKDW0HPEHU6WDWHVVKDOOWDNHPHDVXUHV WRHQFRXUDJHWKHGHYHORSPHQWRIÀQDQFLDOVHFXULW\LQVWUXPHQWVZLWKWKHDLPRI enabling operators to meet their responsibilities.254

586

The Directive does not prejudice the right of the operator to limit his liability in accordance with the Convention on Limitation of Liability for maritime Claims of 1976 or the Strasbourg Convention on Limitation of Liability in Inland Navigation of 1988 (including any future amendment to these Conventions).255

587

7. Relationship to the law of the Member States The regime established by the Directive provides a minimum standard, art. 16 states explicitly that the Directive does not prevent Member States from PDLQWDLQLQJRUDGRSWLQJPRUHVWULQJHQWSURYLVLRQVLQWKLVÀHOG

588

8. Shifts With the Directive the following (partial) shifts have taken place: – – – – –

589

a shift to the European level, a shift to strict liability and channelling to operator, a shift to designation of competent authorities, a shift to standing of natural and legal persons (including NGOs), a shift to interim damages.

8.1. Shift to European level The shift to the European level is partial since the Directive only provides for a minimum standard. Member States are free to adopt more stringent national legislation.256 The arguments given by the Commission for the creation of a European liability regime are the following: – – –

252 253 254 255 256

without a EU regime, operators of activities that are potentially dangerous to the environment could exploit legal differences between Member States; not all Member States have adequate legal instruments in place; liability is necessary to prevent future pollution;

Art. 5(1) and 6(1). Art. 5(5) and 6(3). Art. 14(1). Art. 4(3). See above nr. 588.

590

188

–

Michael Faure and Albert Verheij

national legislation does not address orphan sites. 257

These arguments have been (severely) criticised by scholars.258 Firstly, it should be noted that not all pollution has cross-border effects (e.g. contaminated sites). Secondly, the decision to move a business to another EU country is a complex one and does not depend only on the environmental liability regime. Finally, existing orphan sites do not always fall within the scope of the Directive. Against this background it can be concluded that the decision to create a European liability UHJLPHLQWKHÀHOGRIHQYLURQPHQWDOGDPDJHZDVODUJHO\SROLWLFDO 8.2. Strict liability and channelling to operator 591

The strict liability of the operator is motivated with reference to the polluter-pays principle as laid down in art. 174(2) EC.259 In the Explanatory Memorandum it is stated that, according to this principle, the operator who caused the (threat of) pollution should bear the costs of preventive or remedial measures whenever that is possible.260 Since the operator is the polluter, channelling of liability to the operator is a logical consequence.

592

$MXVWLÀFDWLRQIRUDGRSWLQJDVWDQGDUGRIVWULFWOLDELOLW\LVWKHIDFWWKDWFHUWDLQ occupational activities create risks. Such activities are listed in an Annex. For other activities fault is required for liability. Finally, the White Paper mentioned as an argument in favour of strict liability the fact that it is often hard for plaintiffs to establish fault on the part of the polluter.261 8.3. Designation of competent authorities

593

The designation of competent authorities seems to be motivated by two FRQVLGHUDWLRQV,QWKHÀUVWSODFHWKHQDWXUHRIWKHLQWHUHVWDWVWDNHWKHLQWHUHVW in a clean environment) is a public good and therefore the state has the prime responsibility to take protective measures.262 In the second place, because of lack of ownership, private parties do not always have standing.263 This is especially the case with regard to biodiversity damage. This argument was advanced in order to motivate the right to request action by NGOs but it applies equally well to the designation of governmental competent authorities.

 &20 ÀQDO([SODQDWRU\0HPRUDQGXPSS9HU\FULWLFDORQWKLVPRWLYDWLRQ is Bergkamp, [2002] Env. L. Rev., 294-314. 258 M. Faure/K. de Schmedt, Should Europe Harmonise Environmental Liability Legislation?, [2001] Env Liability 5, 217-237; L. Bergkamp, [2002] Env. L. Rev., 296-305. 259  &20 ÀQDO([SODQDWRU\0HPRUDQGXPS 260  &20 ÀQDO([SODQDWRU\0HPRUDQGXPS 261  &20 ÀQDOS 262  &20 ÀQDOS 263  &20 ÀQDOS 257

Shifts in Compensation for Environmental Damage

189

Private parties are not entitled to damages on the basis of the Directive. This meant a departure from the White Paper. Two reasons for this changed position were given. Firstly, the Commission argued that compensation of private parties under the Directive does not appear necessary to achieve “ambitious environmental objectives” and to implement “to a meaningful extent” the polluter-pays and preventive principles. Secondly, it was remarked that national legal systems are quite well developed in this respect.264

594

8.4. Standing of natural and legal persons (including NGOs) The Commission remarked that NGOs should be able to act on behalf of the environment given the absence of proprietary interests.265 While in the White Paper NGOs could sue polluters directly,266 the proposal for a directive and the directive itself only provide NGOs with a right to request the competent authority to take action. The Commission does not give arguments for this change. In the White Paper it was argued that there are limits to the availability of public resources and that it is important if the public feels responsible and is able to act on its own behalf.267 A reason for this change of mind could have been opposition from industry.268

595

8.5. Interim damage 1RFOHDUDQGVSHFLÀFUHDVRQVKDYHEHHQIRXQGIRULQFOXVLRQRIWKLVW\SHRIORVV It might be conjectured that the polluter pays-principle at least partly accounts for compensation of interim damage. However, this fails to explain why interim damage is compensated in the event of pollution of water, protected species, or natural habitats, but not in the event of pollution of land. A further analysis reveals that the water, protected species, and natural habitats that are protected by WKH'LUHFWLYHDUHGHÀQHGE\RWKHUGLUHFWLYHVDOUHDG\7KHVHGLUHFWLYHV²DWOHDVW partially – aim at the protection of natural resources of which the preservation was deemed to be in the public interest.

596

)6KLIWVLQJRYHUQDQFH²FRQFOXGLQJREVHUYDWLRQV 1. Introduction At the end of this paper some general conclusions will be drawn on the basis of comparing the (shifts of) three liability regimes, the CLC/FC, the OPA, and the recent European Directive. The structure is as follows. After a comparison

 &20 ÀQDOSS  &20 ÀQDOS 266  &20 ÀQDOS 267  &20 ÀQDOS 268  &20 ÀQDOS 264 265

597

190

Michael Faure and Albert Verheij

of (the shifts of) the three regimes (infra no. 598), some attention will be paid to a shift that did not take place (infra no. 604). Finally some attention will be paid to the impact of politics as a shaping force of the regimes described in this paper (infra no. 608). 2. Comparison

Liability regime: strict

CLC/FC

OPA

EU

x

x

x

Liability regime: fault

x

Claimants: trustees/government

x

x

Claimants: private persons

x

x

Fund: limited

x

x

x

x

x

Fund: unlimited Responsible parties: limited liability Responsible parties: unlimited liability

x

2EOLJDWRU\ÀQDQFLDOJXDUDQWHHV

x

x

Direct action

x

x

Damage: clean-up

x

x

x

Damage: restoration

x

x

x

Damage by private persons

x

x

Damage: interim

x

x

No pre-emption/harmonisation

x

x

Partial pre-emption/harmonisation

x

598

The above table shows that the regime of the CLC/FC and the OPA have quite a lot in common while the regime of the Directive stands apart. Expressed in numbers: the CLC/FC and the OPA have 10 elements in common, whereas the CLC/FC and the Directive have 4 elements in common and the OPA and the Directive have 6 elements in common.

599

7KLVTXDQWLWDWLYHLPSUHVVLRQLVFRQÀUPHGE\DTXDOLWDWLYHDQDO\VLV7KHEDVLF structure of both the CLC/FC and the OPA is similar. Both regimes allow for claims of private pollution victims, have strict liability, with a guarantee of

Shifts in Compensation for Environmental Damage

191

ÀQDQFLDOUHVSRQVLELOLW\DGLUHFWDFWLRQOLPLWDWLRQRQOLDELOLW\DQGDIXQG7KH main difference seems to be that, in addition, the OPA allows for compensation of interim damage whereas under the CLC/FC this type of loss is not compensable. In comparison, the Directive does not allow for claims of private pollution victims, does not establish an over all standard of strict liability, does not put a cap RQOLDELOLW\GRHVQRWLPSRVHDQREOLJDWLRQWRJXDUDQWHHÀQDQFLDOUHVSRQVLELOLW\ creates no direct action and does not establish a fund. The main elements which it shares with the OPA are the creation of competent authorities (in fact trustees) and the fact that interim damage is compensable. In addition both the OPA and the Directive only provide for a minimum standard (national) states being free WROHJLVODWHLQWKHVDPHÀHOG,QWKLVODWWHUUHVSHFWWKH&/&)&JRHVIXUWKHUWKDQ both the OPA and the Directive. The responsible person in the CLC/FC cannot be held liable outside the CLC/FC regime. Contracting States are in that respect “pre-empted” to use the American vocabulary.

600

All in all one could say that in the approach of the EU there is less emphasis on state intervention. Unlike in the CLC and the OPA there is no obligation to insure and therefore no necessity to create procedures and penalties to enforce this obligation. The background of this is that, according to the Commission, the proposed regime entails “a certain number of novelties” for insurers and other ÀQDQFLDOVHFXULW\SURYLGHUV7KH&RPPLVVLRQWKHUHIRUHZDQWVWRDOORZLQVXUHUV some time to adjust to the new situation.269 Nevertheless, the Commission seems convinced that effective regulatory incentives that stimulate operators WRÀQDQFLDOO\DVVXUHWKHLUOLDELOLWLHVDUHFUXFLDOWRWKHGHYHORSPHQWRIOLDELOLW\ policies.270

601

The Directive is old-fashioned with regard to the interests of private persons. Like the oldest relevant American statutes (the WQIA and the CWA), private pollution victims are not entitled to compensation. This might271 create inequality between citizens in different Member States. The Commission does not express concern that business will exploit these differences.

602

 &20 ÀQDOS:LWKUHIHUHQFHWRWZRVWXGLHVWKH&RPPLVVLRQLVRSWLPLVWLF DERXWLQVXUDELOLW\RIOLDELOLW\IRUELRGLYHUVLW\GDPDJHVHH&20 ÀQDOSS ,QVXUDQFHRIFOHDQXSFRVWVLVSUHVHQWO\FRYHUHGLQ(XURSHVHH&20 ÀQDOS 7. T. Hartlief/M. Faure, Nieuwe risico’s en vragen van aansprakelijkheid en verzekering (1st edn. 2002), 201 et seq and M. Faure, Deterrence, insurability, and compensation in environmental liability. Future developments in the European Union (1st edn. 2003), 185 et seq point at some dangers of compulsory insurance, among others the risk that the legislator becomes dependent upon the insurance market. 270  &20 ÀQDOS 271 I have no overview of tort law in all the Member States and this inequality is therefore nothing but a hypothesis.

269

192

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Michael Faure and Albert Verheij

Has there been a general shift from private law to public law? So generally VWDWHGWKLVTXHVWLRQGHÀHVDQDIÀUPDWLYHRUQHJDWLYHDQVZHU&HUWDLQLVWKDW WUDGLWLRQDOWRUWODZZDVGHHPHGLQVXIÀFLHQWWRREWDLQFRPSHQVDWLRQLQWKHHYHQW of environmental damage. The legislation that was adopted however made use of concepts that came into being in tort law, e.g. strict liability272 and act of God, act of war, act of third party, contributory negligence of the victim, and calculation of traditional damage (injury, property damage, costs of remedial measures, costs of preventive measures). In that respect there is continuance. However, the creation RIWUXVWHHVIXQGVDQREOLJDWLRQWRJLYHHYLGHQFHRIÀQDQFLDOUHVSRQVLELOLW\DQG a direct action can be regarded as shifts from private to public law. 3. United States: no shift to internationalisation

604

The United States has declined to ratify the CLC or its Protocols. The adoption of OPA therefore constitutes a conscious decision against internationalisation. It was decided that a shift from the national (State and Federal) level to the international level was not desirable. Opposition of representatives of U.S. coastal states, who were against UDWLÀFDWLRQEHFDXVHWKH&/&ZRXOGSUHHPSWVWDWHODZSOD\HGDGHFLVLYHUROH here as well.273 Other factors that played a role were:274 – – –

605

the limits of the CLC were considered to be too low; the problem of oil pollution was thought to be too urgent to await the realization of an international regime; the economic position of the country was considered to be strong enough to act unilaterally.

This has been criticized. There are several arguments in favour of the CLC.275 – – ² –

272

273 274 275

276

An international system spreads the risks and costs of oil pollution damage over a large number of nations. OPA applies only to assets in the United States. Ship-owners without assets subject to United States jurisdiction will therefore escape liability. ,IWKH8QLWHG6WDWHVKDGUDWLÀHGWKH&/&WKHIXQGOLPLWVZRXOGKDYHEHFRPH higher so that greater compensation would have been provided. OPA does not create a uniform system since States are not pre-empted. The contradictory system that results could lead to a delay in the settlement of claims.276

Strict liability constitutes a departure from the fault principle but cannot be regarded as shift to public law. Forms of strict liability have been present through history despite 19th enchantment with the fault principle. W. Chao (supra fn. 7), 221; C. de la Rue/C.B. Anderson (supra fn. 1), 22. C. de la Rue/C.B. Anderson (supra fn. 1), 21-22. J.A. Zimmermann, [2000] Fordham International Law Journal, 1531 and further sums up the arguments with references to other authors. W. Chao (supra fn. 7), 261.

Shifts in Compensation for Environmental Damage

–

193

Because the States are not pre-empted they may impose liability at will, this will lead to “blatant inequality”.277

$QDUJXPHQWLQIDYRXURI23$LVWKDWLWH[SOLFLWO\GHÀQHVFODLPDQWVDQGVHWV IRUWKJXLGHOLQHVIRUWKHDGMXGLFDWLRQ/HJDOFRQÁLFWVDUHPRUHHDVLO\UHVROYHG than under the CLC. However, De la Rue and Anderson conclude that OPA-90 failed to create a simpler, clearer and more predictable legal and regulatory system.278

606

Controversial was what the effect would be of the fact that ship-owners without assets in the United States could not be held liable. On the one hand it was possible that major ship-owners would protect themselves against liability by chartering small one-vessel companies. Not only would liability thus be limited to an amount determined by oil transport companies, but the risk of accidents might rise because smaller shipping companies might be less concerned with safety regulations and the environment than bigger ones.279 On the other hand, it ZDVDUJXHGWKDWWKH23$UHTXLUHPHQWWKDWVKLSRZQHUVVKRZHYLGHQFHRIÀQDQFLDO responsibility to satisfy liability may prevent small ships from entering.280 At ÀUVWVXEVHTXHQWHYHQWVVHHPHGWRSXWWKHSHVVLPLVWVLQWKHULJKWZKHQ6KHOO boycotted U.S. waters after the enactment of OPA.281 However, safety seems to have increased in the longer run. The United States play such an important role in the transportation of oil that shippers have to comply in order to stay in competition. Important to mention is also the fact that OPA mandated the design of double hull tankers and the phasing out of single hull tankers. The standards of OPA are therefore felt throughout the world.282 Research conducted by the United States Department of Energy has found that ship-owners have made an attempt to change operational procedures, safety provisions and inspection routines.283

607

277

W. Chao (supra fn. 7), 261. C. de la Rue/C.B. Anderson (supra fn. 1), 68-69. 279 W. Chao (supra fn. 7), 272. 280 D. Kopec/P. Peterson, Crude legislation: liability and compensation under the Oil Pollution Act of 1990, [1992] Rutgers LJ 23, 627. 281 Shell Halts Call at US Mainland, Lloyd’s List, June 12, 1990 (source: W. Chao (supra fn. 7), 272 footnote 40). 282 J.D. Morgan, The Oil Pollution Act of 1990: a look at its impact on the oil industry, [1994] Fordham Environmental LJ 6, 11. 283  2IÀFHRI'RPHVWLF ,QWHUQDWLRQDO(QHUJ\3ROLF\8QLWHG6WDWHV'HSDUWPHQWRI(QHUJ\ Transporting U.S. Oil Imports: The Impact of Oil Spill Legislation on the Tanker Market, prepared by the Petroleum Industry Research foundation, June 1992 (source: J.A. Zimmermann, [2000] Fordham International Law Journal, footnote 264 and C. de la Rue/C.B. Anderson (supra fn. 1), 67 footnote 273). See also B.L. Lamb/D.M. Bover, An update on the Oil Pollution Act of 1990, Marine Tech. 157 (April 1995) (source: C. de la Rue/C.B. Anderson (supra fn. 1), 68 footnote 278). D. Bryant, Noises off, The Baltic (July 1996) notes that between 1978 and 1990, an average of 150,430 barrels of oil were spilled into 278

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4. The political factor 608

In explaining the regimes described in this paper, the political factor should not be underestimated.284 A few examples will illustrate this. Limited liability LQWKH&/&DQGWKH23$VHHPVWRKDYHEHHQWKHUHVXOWRILQÁXHQFHE\VSHFLDO interest groups. Political considerations can produce indirect results. The issue of pre-emption in the U.S.A. provides a good example. States do not want to be pre-empted by federal legislation and as a result the OPA contains an anti pre-emption clause. The consequence is that the limit on liability established by OPA can be circumvented by state legislation. The (presumed) political LQÁXHQFHRIVSHFLDOLQWHUHVWJURXSVLVWKXVSDUWO\RXWZHLJKHGE\WKHSROLWLFDO LQÁXHQFHRI6WDWHV

609

7KHUROHRI1*2·VXQGHUWKH'LUHFWLYHLVOHVVVLJQLÀFDQWWRWKHUROHWKDWKDGEHHQ DVVLJQHGWRWKHPSUHYLRXVO\LQWKH:KLWH3DSHU%XVLQHVVLQÁXHQFHKDVSUREDEO\ played a role here. Purely political consideration might account for the fact the the Directive does not provide private victims with a right to compensation.

610

7KHH[LVWHQFHRISROLWLFDOLQÁXHQFHLVQRWQHFHVVDULO\DOZD\VLQWKHLQWHUHVWRI business. The fact that NGOs according to the Directive have limited standing LQWKHÀUVWSODFHFDQVHUYHDVDQH[DPSOH&RPSHQVDWLRQRILQWHULPGDPDJHERWK in the U.S.A. and in the European Union is another example.

611

From the above it should not be concluded that the discussed compensation schemes are entirely the product of special interests. Some of the shifts that have taken place can be satisfactorily explained with reference to the limits of the traditional law of tort. A public interest explanation seems plausible there. A notable example is the establishment of trustees and competent authorities under OPA and the recent European Directive respectively. Tort law is traditionally aimed at protecting individual interests whereas the interest in a clean environment constitutes a collective interest. In the absence of ownership, the law of tort does not provide much protection. This makes the creation of a trustee or a competent authority necessary.

/LVWRIUHIHUHQFHV E. Bauw/E.H.P. Brans, Milieuprivaatrecht (3rd edn. 2003) L. Bergkamp, The proposed environmental liability directive, [2002] European Environmental Law Review, 294-314 and 327-341

284

US waters each year. Since 1991, this average has been reduced to 20,400 barrels, an 86.5% reduction (source: C. de la Rue/C.B. Anderson (supra fn. 1), 68 footnote 278). See with regard to the Paris Convention on Nuclear Liability T. Vanden Borre, (IÀFLsQWH preventie en compensatie van catastroferisico’s. Het voorbeeld van schade door kernongevallen (1st edn. 2001), 101-111 and also M. Faure (supra fn. 229), 202-204.

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T. Vanden Borre, (IÀFLsQWHSUHYHQWLHHQFRPSHQVDWLHYDQFDWDVWURIHULVLFR·V+HW voorbeeld van schade door kernongevallen (1st edn. 2001) -%R\G$PDUNHWEDVHGDQDO\VLVRIÀQDQFLDOLQVXUDQFHLVVXHVDVVRFLDWHGZLWK US Natural Resource Damage liability, in: M. Faure (ed.), Deterrence, insurability, and compensation in environmental liability. Future developments in the European Union (1st edn. 2003), 258-302 E.H.P. Brans, Liability for Damage to Public Natural Resources. Standing, Damage and Damage Assessment (1st edn. 2001) W. Chao, Pollution from the Carriage of Oil by Sea: Liability and Compensation (1st edn. 1996) M. Faure (ed.), Deterrence, insurability, and compensation in environmental liability. Future developments in the European Union (1st edn. 2003) M. Faure/D. Grimeaud, in: M. Faure (ed.), Deterrence, Insurability, and Compensation in Environmental Liability. Future Developments in the European Union (2003), 7-67 M. Faure/K. de Schmedt, Should Europe Harmonise Environmental Liability Legislation?, [2001] Environmental Liability 5, 217-237 M. Faure/H. Wang, Liability for oil pollution – the EU approach, [2004] Env Liability 2, 55-67 T. Hartlief/M. Faure, Nieuwe risico’s en vragen van aansprakelijkheid en verzekering (1st edn. 2002) D. Kopec/P. Peterson, Crude legislation: liability and compensation under the Oil Pollution Act of 1990, [1992] Rutgers LJ 23, 597-632 J.D. Morgan, The Oil Pollution Act of 1990: a look at its impact on the oil industry, [1994] Fordham Environmental LJ 6, 1-11 W.J.G. Oosterveen, Verbeterde mogelijkheden voor vergoeding van schade door ongevallen met olietankers, [1997] Ars Aequi (AA), 423-431 05pPRQG*RXLOORXG/HoRQVG·XQQDXIUDJHjSURSRVGHO·LQGHPQLVDWLRQGHV victimes de l’Amoco-Cadiz, [1979] Recueil Dalloz Sirey (D) 1, 133-138 C. de la Rue/C.B. Anderson, Shipping and the environment (1st edn. 1998) A.J. Rodriguez /A.C. Jaffe, The Oil Pollution Act of 1990, [1990] Tulane Maritime Law Journal, 1-28 J.A. Zimmermann, Inadequacies of the oil pollution act of 1990: why the United States should adopt the Convention on Civil Liability, [2000] Fordham International Law Journal, 1499-1539

VI. Shifts in Governance in the International Regime of Marine Oil Pollution Compensation: A Legal History Perspective Hui Wang $,QWURGXFWLRQ The legal regime with respect to the civil liability for marine oil pollution at the international level was originally established through two international conventions, being the International Convention on Civil Liability for Oil Pollution Damage 1969 (the 1969 CLC) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (the Fund Convention 1971). These two conventions have established some principles of the international oil pollution compensation regime which have basically remained unchanged through history. These mainly include the strict liability of the shipowner up to a certain limit and the compulsory insurance and channelling of liability to the registered shipowner. 7KHVH FRQYHQWLRQV KDYH EHHQ PRGLÀHG VHYHUDO WLPHV ² LQ   DQG 2000 – following the occurrence of some major oil spill incidents. As a result, the scope of compensation was expanded and the limitation of liability was increased. Most recently in 2003, a Supplementary Fund Protocol was adopted and a Supplementary Fund was established.

612

As indicated by Verheij, since the establishment of such a regime and during its evolvement in history, there have indeed been important shifts in governance WDNLQJSODFHLQWKHPDULQHRLOSROOXWLRQUHJLPH7KHUHDUHÀUVWRIDOOVKLIWV within the private law mechanism. Indeed, in the particular case of marine oil pollution compensation, the original general principles in tort do not fully apply. For instance, the common law principle of tort (e.g. trespass, negligence and nuisance in English law) was not applicable to oil pollution compensation as a result of the 1969 CLC, which imposed a strict liability on the tanker owner.

613

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Such a shift to strict liability often takes place with respect to environmental damage. Another example of a shift is that the principle of compensation to the full amount was abandoned as the liability of the tortfeasor (in the case of oil pollution usually the tanker owner) is limited to a certain amount via the so-called limitation of liability provision. However, this limitation amount has been increased several times, more particularly in the 1992 and 2000 Protocols. This may lead to the question if such a trend of an increasing limitation of liability would lead to a shift back to the principle of restitutio in integram. A third example is that in the oil pollution compensation regime, it is only the registered shipowner that can be held liable where the liabilities of all the other (potentially liable) parties are excluded due to a channelling provision. Such a shift from the actual tortfeasor to the statutory channelled person occurs not only in the regime of oil pollution compensation, but also in the international conventions on nuclear liability.1 614

Moreover, there seems to be a shift from private law to public law since part of the compensation is contributed by the oil industry through the International Oil Pollution Compensation Fund (the IOPC Fund, or the Fund) established under WKH)XQG&RQYHQWLRQDQGWKH)XQGLVÀQDQFHGE\WKHOHYLHVRQWKHRLOLPSRUWHUV in the member states. Prior to the establishment of the Fund, the only source of compensation under the international regime was the limited liability undertaken by the tanker owner who is of course a private party. The compensation through the Fund is not private in the sense that it is not the private party (the individual oil cargo owner) who pays for the damage compensation, but the organization called the IOPC Fund, which is an inter-governmental organization. It therefore seems to be a shift from private compensation to public funding. However, one may question if the Fund is “public” in nature since it receives contributions from the oil industry, not from the government, although it is administered by an intergovernmental organization. The duty imposed on the state by the Fund is only to submit the list with names and addresses of the oil companies who DUHWREHFRQWULEXWRUVWRWKH)XQGQRWWRGLUHFWO\ÀQDQFHWKH)XQG6RWKHUHLV at least some kind of shift from private to collective compensation, although it might be doubtful if such a shift is indeed from private to public funding.

615

Regulations concerning optimal tanker designs, port state control and clasVLÀFDWLRQVRFLHW\DUHMXVWH[DPSOHVRIVDIHW\PHDVXUHVUHFHLYLQJPRUHDWWHQWLRQ in recent legislation. These regulations, aiming at oil pollution prevention ex ante, may also indicate a shift from private law to public law. Moreover, the sanctions under criminal law may even strengthen such a shift. However, this will be beyond the scope of this paper.

616

There have existed some voluntary schemes developed by the industry since 1969. However, they were abolished in 1997 for keeping uniformity in the

1

Paris Convention on Third Party Liability in the Field of Nuclear Energy, 1960 and Vienna Convention on Civil Liability for Nuclear Damage.

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international conventions. This may constitute another shift from a private compensation instrument to a public instrument, in the sense that industry agreements are private in nature while international conventions among states are at least to a certain extent public. Since the major shifts in governance in the area of oil pollution compensation KDYHEHHQLGHQWLÀHGDQGDQDO\]HGLQWKHSDSHUE\9HUKHLMWKHJRDORIWKLVSDSHU is to examine what are the reasons for such shifts from a historical perspective. Particular attention will be drawn to the changes in the scope of compensation (in particular with regard to environmental damage), and the change in the roles the parties play when a certain shift takes place (who pays for compensation and who receives compensation).

617

It should be noted that although these international conventions on marine oil pollution compensation were widely accepted by many nations, the U.S. which has played an active role in the discussion concerning the conventions, never UDWLÀHGDQ\RIWKHP,QVWHDGLWKDVDGRSWHGLWVRZQIHGHUDOOHJLVODWLRQWKH2LO Pollution Act of 1990 (OPA 90). The OPA 90 contains a few principles which may be so different than the international conventions and may thus constitute a shift towards another direction. Hence, the shifts discussed in this paper are mainly focused on those under the international regime, and the shifts under the U.S. regime are beyond the scope of this paper.

618

This paper will be structured in such a way: after a short introduction in Part A, the legal history of the coming into being and the recent developments of the LQWHUQDWLRQDOUHJLPHZLOOEHEULHÁ\H[DPLQHGLQ3DUW%ZKHUHE\WKHKLVWRULFDO background for the shifts taking place with respect to international oil pollution compensation regime will be provided. Then the particular historical reasons for the shifts of strict liability, limitation of liability, channelling of liability and the shift from private compensation to public funding will be addressed in detail in Parts C, D, E and F respectively. Finally in part G, we will make some concluding remarks.

619

%/HJDOKLVWRU\ In order to better understand the historical reasons for the shifts in governance with respect to the international marine oil pollution compensation regime, we ZLOOÀUVWSUHVHQWDEULHIRYHUYLHZRIWKHKLVWRU\DQGWKHGHYHORSPHQWRIWKH international oil pollution compensation regime. 1. The 1969/1971 regime 1.1. TOVALOP The public awareness of the risks of oil pollution was stimulated by the wellknown Torrey Canyon oil spill in 1967, which triggered intense discussions at

620

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Michael Faure and Albert Verheij

different levels. During the wake of such intense discussion, the industry reacted very quickly with the adoption of a voluntary scheme, the Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution (TOVALOP).2 When TOVALOP came into effect on 6 October 1969, at least 55% of the gross UHJLVWHUHGWRQQDJHRIWKHZRUOG·VSULYDWHO\RZQHGWDQNHUÁHHWZDVHQUROOHGLQ this industry scheme,3 and within six months its membership has risen to 80% of the world’s tonnage. In ten years, TOVALOP grew to cover 97% of the world’s tankers, 195.5 million gross registered tonnage in the form of 6,600 tankers participating in the Agreement. 4 621

TOVALOP was based on fault liability with a reversal of the burden of proof. This meant that the shipowner had to prove absence of fault to escape liability. Under the TOVALOP, when a participating tanker spilled, or threatened to spill persistent oil (whether as cargo or fuel), the tanker owner or the bareboat charterer would either take appropriate actions or reimburse governments and others who incurred reasonable costs in responding to the incident or who suffered pollution damage. Another important feature of TOVALOP was that WKHSDUWLFLSDQWVKDGWRSURYLGHHYLGHQFHWRVKRZWKHLUÀQDQFLDOFDSDELOLW\WR meet their responsibilities. This was generally done by insurance through entry in a P&I Club.

622

TOVALOP was welcomed by the shipping industry since it removed a number of uncertainties which existed before.5 The industry even hoped that by offering on a voluntary basis the payment of reasonable costs for preventive and clean-up measures, it could prevent the introduction of strict liability into the envisaged international liability regime.6 The industry was also afraid that the

2

3 4

5

6

The TOVALOP was signed by seven major oil companies, including BP Tanker Company Ltd., Esso Transport Co. Inc., Gulf Oil Corp., Mobil Oil Corp., Shell International Petroleum Co. Ltd., Standard Oil Co. of California and Texaco Inc. There are also some smaller FRPSDQLHVVXFKDV7ULQLGDG&RUS$WODQWLF:KLFKÀHOG&R6WDQGDUG2LO&RPSDQ\DQG Hess and Chemical Corp. Payment for Oil Pollution Scheme, [1969] Marine Pollution Bulletin 17, 18. Supra fn. 2, [1969] Marine Pollution Bulletin 17, 17. G. Becker, Acronyms and Compensation for Oil Pollution Damage from Tankers, [1983] Texas International Law Journal 18, 475-481. G. Becker/P. Ghee, The Development of TOVALOP and the 1978 Changes, in: Ten Years of TOVALOP (1979), 6; C. M. Lemos, Some Shipowners’ Views on TOVALOP and the Federation, in: Ten Years of TOVALOP (1979), 10. Explanatory Notes, TOVALOP and CRISTAL (Revised Edition, 1994), 3; M. Moller, Some Shipowners’ Views on TOVALOP and the Federation, in: Ten Years of TOVALOP (1979), 10; H. Tanikawa, A Revolution in Maritime Law: A History of the Original Legal Framework on Oil Spill Liability and Compensation, in: The IOPC Funds’ 25 Years of Compensating Victims of Oil Pollution Incidents (2003), 53.

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usefulness of such an industry scheme would be eroded by the prospect of the international conventions.7 1.2. 1969 CLC Not long after the TOVALOP had entered into force, the Inter-governmental Maritime Consultative Organization (the IMCO) convened in Brussels a Diplomatic Conference in November 1969, which has produced the 1969 CLC.

623

It should be noted that the Comité Maritime International (known as the CMI) has played an important role in promoting the international convention. The CMI is an international organization of national associations of maritime law in different countries. It was formally established in 1897.8 Though working as a QRQJRYHUQPHQWDORUJDQL]DWLRQGXHWRLWVH[SHUWLVHWKH&0,KDVZLGHLQÁXHQFH in respect of the area of maritime legislation.9

624

The leading role of the CMI in the area of shipping-related legislation changed in 1968 when the Belgian Government joined the UN.10 CMI (de facto the Belgian government) used to be responsible for convening inter-governmental conferences to adopt or amend conventions on maritime issues produced by the CMI. But in 1968 the Belgian government handed over the power of convening diplomatic conferences to the competent agency of the UN, which is the International Maritime Organization as will be discussed below.

625

The International Maritime Organization (the IMO, formerly known as the Intergovernmental Maritime Consultative Organization, referred to as the IMCO) was established in 1948 as a special agency of the United Nations to deal with shipping related issues.11 The IMO is now recognized worldwide as the empowered

626

7

See particularly the view expressed by A. Hetherington, The Growth of the Federation and the Establishment of Other Compensation Agreements, in: Ten Years of TOVALOP (1979), 3-4. 8  7KHÀUVWFRQIHUHQFHRIWKH&0,ZDVKHOGRQ-XQHZKLFKLVRIWHQFRQVLGHUHGWKH starting time of the CMI. However, according to Patrick Griggs, in the archives of the Belgian Maritime Law Association, a circular letter dated 2 July 1896 from the CMI can be found. This letter announced the creation of the CMI and proposed the constitution in each maritime nation of an Association of Maritime Law. 9 The CMI has produced (before the existence of the International Maritime Organization) VRPH LQÁXHQWLDO OHJDO UXOHV IRU WKH PDULWLPH DFWLYLW\ IRU LQVWDQFH ZLWK UHVSHFW WR WKH contract of maritime transportation, salvage and assistance at sea, and with respect to the limitation of the shipowners’ liability. 10 P. Griggs, Uniformity of Maritime Law – A CMI Perspective, Legislative Approaches in Maritime Law, in: Proceedings from the European Colloquium on Maritime Law (2000), 14-15. 11 Art. 1 (a) of the Convention on the Inter-governmental Maritime Consultative Organization (adopted on 6 March 1948, entered into force on 17 March 1958), provides that the organization is responsible for “technical matters of all kinds affecting shipping engaged in international trade, to encourage and facilitate the general adoption of the highest

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organization to legislate on maritime shipping related issues. It enjoys a large QXPEHURIPHPEHUVWDWHVDQGLWVFRPSHWHQFHZDVSDUWLFXODUO\FRQÀUPHGLQWKH United Nations Convention on the Law of the Sea 1982 (UNCLOS).12 627

Soon after the Torrey Canyon incident, the CMI established an International Torrey Canyon Sub-Committee and Working Group to study the private law issues as indicated by the Torrey Canyon incident, and at the Tokyo Conference in $SULOLWSURGXFHGDÀUVWGUDIWRIWKH&/&ZKLFKZDVVXEPLWWHGWRWKH/HJDO Committee of the Diplomatic Conference of the IMCO for consideration.13

628

After lengthy discussion at the 1969 conference, the CLC, which abandons the traditional concept of fault liability and imposes strict liability instead, was ÀQDOO\DGRSWHGLQ'HFHPEHU7KHVWULFWOLDELOLW\LPSRVHGH[FOXVLYHO\RQ the shipowner seems to be a burden to the industry, but this was offset by the mechanism of limitation of liability. Compulsory insurance was designed as an effective tool to ensure the implementation of the Convention.

629

7KHGHFODUHGDLPRIWKHFRQIHUHQFHEHLQJVXIÀFLHQWFRPSHQVDWLRQRIRLO pollution victims, was not reached in all cases at least it could not be reached through the CLC alone. The 1969 conference therefore also passed a Resolution which required that some form of an international compensation fund supplementary to the CLC regime should be considered and established. 1.3. CRISTAL

630

The prospect of another convention, involving a levy on cargo owners was of great concern to the oil companies who transport millions of barrels of oil around the world every day. Envisaging the establishment of an international compensation fund convention, the oil industry developed another voluntary agreement, the so-called CRISTAL, being the Contract Regarding an Interim Supplement to Tanker Liability for Oil Pollution. It came into effect in 1971.14

SUDFWLFDEOHVWDQGDUGVLQPDWWHUVFRQFHUQLQJPDULWLPHVDIHW\HIÀFLHQF\RIQDYLJDWLRQDQG prevention and control of marine pollution from ships.” The name of the Organization was changed to International Maritime Organization in accordance with an amendment to the Convention which entered into force on 22 May 1982. 12  $UW LQ$QQH[9,,,RIWKH81&/26&RQYHQWLRQVSHFLÀFDOO\PHQWLRQHGWKH,02DQG FRQVLGHUHGLWWKHH[SHUWRUJDQL]DWLRQLQWKHÀHOGRIQDYLJDWLRQLQFOXGLQJSROOXWLRQIURP ships and by dumping. In many other articles of the UNCLOS Convention, it referred to the “competent international organization” which is acknowledged worldwide to be the IMO. For a more detailed discussion on the competence of the IMO, see C. Henry, The carriage of Dangerous Goods by Sea, the Role of the International Maritime Organization in International Legislation (1985), 37-57. 13 C. De La Rue, Oil Pollution from Ships – Review of the Civil Liability and Fund Conventions, CMI Yearbook (2003), 576-580. 14 A. Hetherington, The Growth of the Federation and the Establishment of Other Compensation Agreements, in: Ten Years of TOVALOP (1979), 3.

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CRISTAL was a contract among oil cargo interests. Any company engaged in WKHSURGXFWLRQUHÀQLQJPDUNHWLQJVWRULQJRUWUDGLQJRIRLORUZKLFKUHFHLYHG oil in bulk for its own consumption or use could become party to CRISTAL. CRISTAL maintained a fund of money from which claims would be met. Parties to CRISTAL were called upon to make contributions to this fund in proportion to the quantities of crude and fuel oil that each receives by sea. The CRISTAL Fund had amounts from between 3 to 5 million US dollars at its disposal.15

631

The prime function of CRISTAL was to supplement the pollution damage compensation available under TOVALOP, the CLC or other compensation regimes. Before a claimant could recover under CRISTAL, he had to make reasonable efforts to recover from other possible sources of compensation. Hence, CRISTAL was designed as a residual scheme. 16

632

1.4. 1971 Fund As mentioned before, realizing that the liability system as designed in the 1969 CLC could not secure full and adequate compensation in all cases, the 1969 conference passed a Resolution on the Establishment of an International Compensation Fund for Oil Pollution Damage. To this end, a conference was held in Brussels from 29 November to 18 December 1971, which resulted in the adoption of the 1971 Fund Convention. This will be discussed further below.

633

2. Amendments to the voluntary agreements The industry schemes, TOVALOP and CRISTAL, due to wide acceptance by industry, provided a worldwide voluntary scheme of compensation for pollution damage caused by tankers for a long period. The 1969 CLC and the 1971 Fund Convention inherited the principle of cost sharing between the shipping and the oil industries developed by the industry schemes TOVALOP and CRISTAL.17

634

When the 1969 CLC came into force in 1975, the question arose as to whether the voluntary schemes would still be useful and necessary to continue their H[LVWHQFH7KHLQGXVWU\GHFLGHGWRUHYLVHWKH729$/23WRUHÁHFWWKHSULQFLSDO provisions of the CLC.18 As a result, when the revised TOVALOP came into force in June 1978, the fault liability rule under the original TOVALOP was shifted

635

15 16

17

18

See E. Gold, Handbook on Marine Pollution (1985), 117. CRISTAL was considered as an important precedent in the literature since it showed that also the oil industry could, under pressure of the public opinion, take responsibility for oil pollution damage. See E. Gold (supra fn. 15), 26. Similar opinion was expressed by A. L. Doud, Compensation for Oil Pollution Damage: Further Comment of the Civil Liability and Compensation Fund Conventions, [1973] Journal of Maritime Law and Commerce (JMLC) 4, 541. E. Røsæg, The Impact of Insurance Practices on Liability Conventions, in: Proceedings from the European Colloquium on Maritime Law (2000), 125. G. Becker/P. Ghee (supra fn. 5), 6.

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to strict liability to be in line with that under the CLC. However, some features of TOVALOP still remained although they are not included in the CLC. These mainly concern the coverage of bareboat charterers as well as actual owners, application to tankers in ballast as well as laden vessels, and application to pure threat of an oil spill in addition to pollution damage caused by an actual spill. 3. 1984 Protocols/1992 Protocols 3.1. 1984 Protocols 636

Since the adoption of the CLC and the Fund Convention the gross volume of spilled oil declined in the 1970s. However, some serious oil spill incidents occurred – the Amoco Cadiz in 1978 and the Tanio in 1980 both happened off the French coast of Brittany. These incidents highlighted the shortcomings of WKHLQWHUQDWLRQDOUHJLPHLQSDUWLFXODUZLWKUHJDUGWRWKHLQVXIÀFLHQF\RIWKH amount of compensation available in case of a major oil spill. It was therefore decided that the Conventions should be revised in order to enhance the protection of the victims of oil pollution and to encourage more states to participate in the international regime.19 A diplomatic conference was organized under the auspices of the IMO, which produced the 1984 Protocols to the CLC and the Fund Convention.

637

In the 1984 Protocols, the level of compensation was raised to a higher level (increased the limit of liability of the shipowner under CLC and higher amount of the IOPC Fund), the scope of application was expanded (expanded geographic scope of compensation, compensation for restoration of natural resources, ecoQRPLFORVVHVDQGSUHYHQWLYHPHDVXUHV DQGDVLPSOLÀHGDPHQGPHQWSURFHGXUH was adopted to expedite future increases of the limitation amount.

638

The United States is one of the largest consumers of oil in the world and it also KDVDODUJHWDQNHUÁHHW7KXVLWZDVYHU\DFWLYHLQWKHZKROHSURFHVVRIGHEDWH and negotiation for the international conventions. However, in the U.S. many individual states had adopted their own legislation on oil pollution liability, some of which contain principles that are different to the international regime (for instance, some states have adopted unlimited liability in their oil pollution legislation). Thus the state representatives were strongly against preemption of the international conventions over state law, arguing that better protection of the interests of the states could only be realized through individual state legislation. When the Exxon Valdez incident happened in Alaska in 1989, under the pressure of public awareness of the dramatic damage caused by oil pollution incidents, the U.S. government ended the political debate quickly with the adoption of “comprehensive” federal oil spill legislation, the Oil Pollution Act 1990. The OPA contains provisions on the compensation regime and the liability system

19

M. Jacobsson, The International Compensation Regime 25 Years On, in: The IOPC Funds’ 25 Years of Compensating Victims of Oil Pollution Incidents (2003), 13.

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which are incompatible with the international regime as far as some important principle issues are concerned.20 Hence, the adoption of national legislation in the form of OPA closed the door for the U.S. to join the international regime and as a result, the 1984 Protocols could never come into force.21 3.2. 1992 Protocols The changes agreed in the 1984 Protocols (particularly the increase in compensation amounts) were urgently needed, as demonstrated by several major oil spill incidents. Moreover, there was a growing sentiment, especially among some European states, that the international system should be updated to avoid the threat of further regional schemes like the one adopted by the U.S. France played an important role in the revision process because it had suffered the greatest exposure to the risks of oil spills.

639

Hence, another diplomatic conference was organized in 1992 to meet the requirements of modifying the 1969 CLC and the 1971 Fund Convention. This Conference adopted two Protocols, known as the 1992 Protocols. They are almost identical in substance to the 1984 Protocols but with a change to the entry into force provision, which eliminated the need for U.S. participation. The 1992 Protocols thus have retained the basic structure and essential principles of the original instruments. The main changes dealt with increasing the amount of compensation, extending the scope of application to include the Exclusive Economic Zone and clarifying the term “pollution damage”. The 1992 Protocols entered into force on 30 May 1996.22

640

4. Disappearance of TOVALOP and CRISTAL The international regime established through the CLC and the Fund Convention ZDVUDWLÀHGE\PRUHDQGPRUHVWDWHV7KHFRPSHQVDWLRQSURYLGHGWKURXJKWKH international conventions, although not satisfactory, was still considered to serve the goal of victim compensation relatively well, thus the industries agreed that the oil pollution compensation could be better tackled under one international regime as a whole and the continuing existence of the voluntary schemes could act as a disincentive for States that had not yet been parties to the international conventions.23 Thus in November 1995 a decision was made that these voluntary

20

21

22

23

A. Popp, Oil Spills – Who Pays for them and How much? An Overview of the International Compensation System, (2002). For further discussion on shifts in the U.S. oil pollution compensation regime, see the paper by Verheij in this book. For an excellent overview of the contents and importance of the 1992 Protocols see E. Brans, Liability for Ecological Damage under the 1992 Protocols to the Civil Liability Convention and the Fund Convention, and the Oil Pollution Act of 1990, [1994] Tijdschrift voor Milieuaansprakelijkheid (TMA), 61-67 and 85-91. M. Jacobsson (supra fn. 19), 19-20.

641

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VFKHPHVKDGIXOÀOOHGWKHLUIXQFWLRQDVLQWHULPPHDVXUHVDQGWKH\VKRXOGEH abrogated on 20 February 1997. 5. Winding up of the 1971 Fund 642

As from 16 May 1998, parties to the 1992 Conventions ceased to be parties to the 1969 CLC and the 1971 Fund Convention due to a mechanism of compulsory denunciation of the old regime established in the 1992 Conventions.24 As a result, no state can be party to both 1969/1971 Conventions and to the 1992 Conventions at the same time. However, the co-existence of two Funds was still problematic.

643

The number of member states to the 1971 Fund was decreasing since then, and HVSHFLDOO\ZKHQVRPHPDMRUFRQWULEXWLQJVWDWHVOHIWWKH)XQGDQGUDWLÀHG the 1992 Fund, the states remaining in the 1971 Fund were confronted with ÀQDQFLDOGLIÀFXOW\25 This was because the contribution from oil levies, which ZDVGLYLGHGEHWZHHQWZR)XQGVKDVWRDODUJHH[WHQWZHDNHQHGWKHÀQDQFLDO viability of the Funds and hence lowered the chance of full compensation in case of a major oil spill. If an incident happened involving the 1971 Fund, it would mean that either there would be too few or even no contributors in the remaining member states, or the remaining states would have to pay a much greater contribution.26

644

In order to avoid the damaging consequences, in 2000, the IMO amended some provisions of the Fund Convention so that the 1971 Fund would cease to be in force when the number of Contracting Parties fell below 25 or the total quantity of contributing oil received in the remaining Contracting States fell below 100 million tons, whichever was earlier. As a result, the 1971 Fund Convention

24

25

26

Art. 31 of the 1992 Fund Convention on the “Denunciation of the 1969 and 1971 Conventions” stipulated that 6 months after entry into force requirements under the 1992 Protocol DWOHDVW6WDWHVKDYHUDWLÀHGWKH3URWRFRODQGWKHWRWDOTXDQWLW\RIFRQWULEXWLQJRLOKDV UHDFKHGPLOOLRQWRQV DUHIXOÀOOHGWKHSDUWLHVWRWKH3URWRFROVVKRXOG´GHQRXQFH the 1971 Fund Convention and the 1969 Liability Convention”. However, it should be noted that, according to Art. 30 of the 1992 Fund Convention, it would enter into force PRQWKVDIWHUWKHDIRUHPHQWLRQHGUHTXLUHPHQWVDUHIXOÀOOHG In this respect, the declaration made by Italy to denunciate the 1971 Fund on 8 October  DQG WR SDUWLFLSDWH LQ WKH  )XQG LQ 6HSWHPEHU  KDV D VLJQLÀFDQW LPSDFW on the development of the Funds as Italy was a major contributor to the 1971 Fund. As stipulated in the Fund Convention, the levy per ton of contributing oil is calculated on the basis of the total quantity of contributing oil received in all Member States. When Italy left the 1971 Fund, the total quantity of contributing oil would fall from 250 million tons to 110 million tons, which means the remaining States would have to pay a much greater contribution (if an incident ever happens involving the 1971 Fund). This fear was expressed by some delegations during the Executive Committee meeting between 18 and 22 October 1999 of the Fund.

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ceased to be in force on 24 May 2002 when the number of member states to the 1971 Fund fell below 25.27 6. 2000 Protocols and 2003 Protocol The adequacy of the 1992 Conventions came under the spotlight again following some serious oil spill accidents such as the Nakhodka in 1997, the Erika in 1999 and the Prestige in 2002. Due to the fact that the European waters are dense WUDIÀFURXWHVDQGVRPDQ\VHULRXVRLOVSLOOVRFFXUUHGLQ(XURSHDQZDWHUVWKH European Union has played an increasingly active role in the recent evolvement of the international regime on marine oil pollution compensation.

645

6.1. EU activism The EU oil trade is the largest in the world, 90% of the total oil trade with the European Union is carried out by sea transportation, and its crude oil imports represent about 27% of the total world trade.28 On the other hand, the coasts in Europe are extremely vulnerable to pollution risks. 29 Hence, the EU has always been striving for a better protection of the European waters from the risks of pollution, especially oil pollution. However, the general approach of the EU until 1993 was to rely on the Member States to ratify various international maritime conventions. However, the EU realized the ineffectiveness of the international conventions adopted by the IMO and changed its approach in 1993 with the publication of the Communication on Safe Seas and started to take its own initiatives for legislation at a European level.30

646

6XFKDFWLRQVRIWKH(8RQLWVRZQLQLWLDWLYHZHUHLQWHQVLÀHGPRUHSDUWLFXODUO\ since the Erika incident on 12 December 1999. In reaction to the Erika incident, the EU adopted two sets of legislative proposals in March and December 2000,

647

27 28

29

30

This is when the United Arab Emirates denunciated the 1971 Fund Convention. EUROSTAT and OECD/IEA statistics, Journal de la Marine Marchande; and COM  ÀQDO&RPPXQLFDWLRQIURPWKH&RPPLVVLRQWRWKH(XURSHDQ3DUOLDPHQWDQG the Council on the Safety of the Seaborne Oil Trade, 21 March 2000, 8. Some 70% of the European Union’s oil imports are transported along the Brittany coast and through the English Channel. Hence it happened that the same regions were hit again and again by oil pollution damage. For a more detailed analysis, see COM (2000) 142 ÀQDO0DUFK On 24 February 1993, the European Commission published the long-awaited CommunicaWLRQRQ6DIH6HDV&20 ÀQDO,QWKH&RPPXQLFDWLRQWKH&RPPLVVLRQDQDO\]HGWKH situation of maritime safety in Europe and outlined a framework for a common maritime policy. The basic principles of the policy include the convergent implementation of existing international rules, the uniform enforcement of international rules by the Port States and the reinforcement of the EU’s role as the driving force for rule making at the international OHYHO6HYHUDOLPSRUWDQWOHJLVODWLYHDFWVZHUHSURSRVHGDQGDGRSWHGLQWKHIROORZLQJÀYH years as an implementation of the action programme attached to the Communication. They are considered the core of the EU’s maritime safety policy today.

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the so-called Erika I package31 and Erika II package,32 which has considerably reinforced its legislative arsenal in order to better protect European waters against the risks of accidental oil spills. 648

In the Erika I package, the European Commission developed three criteria to examine whether the existing liability and compensation system is wholly satisfactory, and the international regime was critically reviewed applying these criteria.33 In the Erika II package, the Commission proposed to set up a European )XQG´WKH&23()XQGµ ZLWKDQXSGDWHGFHLOLQJRI½ELOOLRQLQVWHDGRI½ million under the international conventions).34 Moreover, the Commission raised the issue that the scope of application of the international conventions in the sense of pollution damage covered should be extended, and that the balance of responsibilities of all parties involved should be re-examined.

649

Before the Erika measures could come into force, another major oil spill with the Prestige occurred on 19 November 2002 off the Spanish coast. The European Commission in reaction adopted a Communication on improving safety at sea on 3 December 200235 whereby the measures in Erika I and II packages were to be strengthened, especially concerning the prospect of a regional compensation fund. It was very likely at the time that in case of failure of the proposal at international level, the EU would have to address the question within the EU framework, like the model of the US system.36 However, the Council would prefer to deal with such an issue at international level and the idea of a regional compensation fund was also opposed by the industry. The industry, particularly the International Group of P&I Clubs were of the view that the current international compensation regime has been quite successful and to amend the Convention in substance would destroy the system.37

 &20 ÀQDO&RPPXQLFDWLRQIURPWKH&RPPLVVLRQWRWKH(XURSHDQ3DUOLDPHQW and the Council on the Safety of the Seaborne Oil Trading, 21 March 2000. 32  &20 ÀQDO&RPPXQLFDWLRQIURPWKH&RPPLVVLRQWRWKH(XURSHDQ3DUOLDPHQW and the Council on a Second Set of Community Measures on Maritime Safety following the Sinking of the Oil Tanker Erika, 6 December 2000. 33  &20 ÀQDO0DUFK 34 See in this respect the amended proposal for a regulation of the European Parliament and of the Council on the Establishment of a Fund for the Compensation of Oil Pollution Damage in European Waters and Related Measures, 2IÀFLDO-RXUQDO C227 E/487 of 24 September 2002. 35 Communication on Improving Safety at Sea in Response to the Prestige Accident, 3 December 2002. 36 In the context of the 1990 Oil Pollution Act (OPA 1990), the United States has decided not to join the international arrangement, but has set up its own system with a compensation fund of US$ 1 billion. 37 92FUND/WRG.3/1417, Review of the International Compensation Regime, submitted by the International Group of P&I Clubs, on 20 January 2003. It was argued that the widespread adoption of the Conventions is not likely to be achieved by new instruments in the short term. 31

Shifts in Compensation for Environmental Damage

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6.2. 2000 Protocols According to the amendment procedure in the CLC 1992, the limits can be increased by not more than 50% of the existing limit depending on a number of factors.38 Hence, at the IMO Legal Committee meeting in October 2000, due to the activism of the EU countries, especially in view of the criticism of the Erika I proposal, resolutions were passed to increase the limits of the 1992 CLC and the Fund Convention by 50%, with effect from November 2003.

650

6.3. 2003 Protocol The proposal of a third tier of compensation originally developed by the (XURSHDQ&RPPLVVLRQLQWKH(ULND,,SURSRVDOZDVFRQÀUPHGE\WKH,02DW the London Diplomatic Conference in May 2003 through the adoption on 16 May 2003 of the Protocol on the Establishment of a Supplementary Fund for Oil Pollution Damage. It established a supplementary fund with 750 million SDR (at the time of adoption this corresponded to approximately US$1,000 million). The establishment of the Supplementary Fund has broken the original balance between the shipping and the oil industry in the way they contribute to the whole international compensation regime.

651

7. Current situation of the international conventions As of 9 March 2006, there are 40 states party to the 1969 CLC whereas the number of states party to the 1992 CLC is 105.39 The number of states party to the 1992 Fund increased to 93 and will reach 98 by 21 November 2006. As of 9 March 2006, there were 15 states party to the 2003 Supplementary Fund (Belgium, Denmark, Finland, France, Germany, Ireland, the Netherlands, 38

Art. 15(5) reads: “When acting on a proposal to amend the limits, the Legal Committee shall take into account the experience of incident and in particular the amount of damage resulting therefrom, changes in the monetary values and the effect of the proposed amendment on the cost of insurance. It shall also take into account the relationship between the limits in Article V (1), of the 1969 Liability convention as amended by this Protocol and those in Article 4 (4), of the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992.” Art. 15(6)(b) reads: “No limit may be increased so as to exceed an amount which corresponds to the limit laid down in the 1969 Liability Convention as amended by this Protocol increased by 6 per cent per year calculated on a compound basis from 15 January 1993.” Art. 15(6)(c) reads: “No limit may be increased so as to exceed an amount which corresponds to the limit laid down in the 1969 Liability Convention as amended by this Protocol multiplied by 3.”

39

Among the 105 member states to the 1992 CLC, 93 states are parties to both 1992 CLC and 1992 Fund Convention (in addition, there are 5 states that will join both Conventions by 21 November 2006), 12 states are parties to 1992 CLC, but not parties to 1992 Fund Convention (in addition, there are 4 states that will join the 1992 CLC by 11 October 2006). Information from the website of the IOPC Fund: <www.iopcfund.org/facts.htm>. Last accessed on 31 March 2006.

652

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Michael Faure and Albert Verheij

Norway, Portugal, Spain, Sweden, Japan, Italy, Lithuania and Barbados), and two more states will join by 3 June 2006 (Croatia and Slovenia).40 It is obvious from the number of member states remaining within the 1969 CLC that it is losing power. 653

As a result of the 2003 Protocol, the oil industry has to contribute to the Supplementary Fund (although on a voluntary basis) in addition to the 1992 Fund, whereas the shipping industry only has to assume liability under the CLC Conventions. Thus the question arises if this means the oil industry will contribute more to the oil pollution costs than the shipping industry, or if there is a tendency to shift the responsibility for compensating oil pollution victims more to one industry instead of the scheme of cost sharing, and what the reasons are for such a shift.

654

In March 2005, at the Assembly of the 1992 Fund, the International Group of P&I Clubs (the International Group) offered to increase the limitation amount for small tankers under the 1992 CLC on a voluntary basis. This is known as 6723,$ WKH 6PDOO 7DQNHUV 2LO 3ROOXWLRQ ,QGHPQLÀFDWLRQ$JUHHPHQW 7KH STOPIA entered into force on 3 March 2005 (when the Supplementary Fund Protocol entered into force). Under this agreement, for pollution damage which occurs in a State that is a party to the Supplementary Fund Protocol, the limitation amount undertaken by the shipowner will be increased if the ship is insured by one of the P&I Clubs that are members of the International Group.

655

In October 2005, the International Group made another proposal at the Assembly of the 1992 Fund to extend the scope of STOPIA to all States which are parties to the 1992 CLC and to establish a scheme called TOPIA, the Tanker Oil Pollution ,QGHPQLÀFDWLRQ$JUHHPHQW723,$ 7KURXJKWKH723,$WKH&OXEVZRXOG indemnify 50% of the compensation paid by the Supplementary Fund. After informal meetings between the International Group on behalf of the shipping industry and the Oil Companies International Marine Forum (OCIMF), in February 2006, the International Group developed a revised STOPIA, known as STOPIA 2006, and a second agreement TOPIA 2006. These agreements entered into force on 20 February 2006. The STOPIA 2006 is different to the original STOPIA to the extent that the former only applied to pollution damage in the member states of the Supplementary Fund, whereas the new agreement also applies to pollution damage in all other 1992 Fund member states. Under the TOPIA 2006, 50% of the compensation paid by the Supplementary Fund ZLOOEHLQGHPQLÀHGE\WKH,QWHUQDWLRQDO*URXS

40

Supra fn. 39, the website of the IOPC Fund: <www.iopcfund.org/facts.htm>. Last accessed on 31 March 2006.

Shifts in Compensation for Environmental Damage

211

8. Summary 6RIDUZHKDYHEULHÁ\UHYLHZHGWKHKLVWRU\RIKRZWKHLQWHUQDWLRQDOUHJLPHRQ marine oil pollution compensation was established through the two international conventions and how they evolved in all the protocols, taking into account the LQÁXHQFHRIWKHYROXQWDU\LQGXVWU\VFKHPHV)URPVXFKDQRYHUYLHZZHPD\ ÀQGVRPHKLVWRULFDOUHDVRQVIRUWKHVKLIWVLQWKHGRPDLQRIPDULQHRLOSROOXWLRQ compensation, as indicated by Verheij.

656

First, catastrophic oil spill incidents often act as an impetus for changes to the international oil pollution compensation regime. Thus one direct reason for the shifts in governance in such a regime is the serious oil pollution incidents which revealed the inadequacy and shortcomings of the existing system.

657

Second, there is a shift from private to public in a number of aspects of the marine oil pollution compensation regime. One is that the public institution (the IMO) has replaced the private institution (the CMI) to play the role of a legislator. Another example of such shift is that the compensation regime has gone through a change from industry scheme (which is private) to the international convention scheme (which is, to a certain extent, public in nature). 7KHUDWLÀFDWLRQRILQWHUQDWLRQDOFRQYHQWLRQVLVDORQJSURFHVV,WWRRN\HDUV for the 1969 CLC and 7 years for the Fund Convention 1971 to come into force. The voluntary schemes on the other hand have the advantage of speedy reaction and adaptation to the changing situation. Thus, before the international conventions could take effect, the industry schemes to a large extent solved the problem of compensation for oil pollution victims at least on an interim basis, DQGWKH\VHUYHGDVDVWRSJDSPHDVXUHWRÀOOLQWKHJDSVH[LVWLQJLQQDWLRQDODQG international legislation. Moreover, the international conventions were indeed built on the models of the industry schemes, thus the industry schemes also SOD\HGDQLPSRUWDQWUROHEHKLQGWKHVFHQHVLQUHDSSRUWLRQLQJWKHÀQDQFLDOEXUGHQ of oil spills between the shipping and the oil industries.41 However, in the long run the international conventions can be more effective in the sense that they impose a responsibility on the contracting countries for the implementation of the conventions at national level. This compulsory effect is lacking in the voluntary industry schemes.

658

There is also a shift concerning the marine oil pollution regime in that the legislation was promoted from domestic or regional level to international level. In this respect, the role of the European Union is a good illustration. The general approach of the EU prior to 1993 was that marine oil pollution is an international problem which could be better and more effectively tackled at the international level. Thus the EU mainly built its legislation on the basis of IMO Conventions and Resolutions. However, the EU changed its approach in 1993. This is because, despite the stringent rules established in the international

659

41

C. De la Rue/C. Anderson, Shipping and the Environment Law and Practice (1998), 4.

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conventions, due to the lack of international overall monitoring or sanctions, the international conventions are not effectively implemented throughout the world.42 The European Community has a greater chance of more detailed, effective and quicker legislation being adopted at a EU level. The EU through its special institution can make the international legislation binding to the Member States. When the states do not apply the rules, they will have to appear before the Court of Justice and may be convicted, and failure to comply will lead to penalties. However, the idea of keeping international uniformity obviously gains priority over the regional action in this particular context of marine oil pollution compensation. Under the pressure that the EU would set up its own regional FRPSHQVDWLRQIXQGWKH,02ÀQDOO\DGRSWHGDWKLUGWLHURIFRPSHQVDWLRQWKH Supplementary Fund in 2003. 660

Until now, we have analyzed the international oil pollution compensation regime from a historical perspective. Now we will address the individual shifts to see how they were formulated in history and why they are evolving in such a way.

&6KLIWWRVWULFWOLDELOLW\ 1. Description of the shift 661

Prior to the Torrey Canyon incident in 1967, there was no uniform legal approach or any international legal regime regulating liability and compensation for oil pollution. It was mainly up to national law to decide on how to compensate pollution victims. In most countries, liability for marine oil pollution was grounded on tort law principles.43 The tort laws of different countries of course varied from country to country. In some jurisdictions, proof of negligence was required, while in others the occurrence of pollution damage regardless of QHJOLJHQFHPLJKWEHVXIÀFLHQW44 Moreover, the TOVALOP industry scheme, which prevailed for a long time, adopted fault liability.

662

The 1969 CLC adopted strict liability of the registered shipowner. It therefore constitutes a shift from a general tort rule (most national law) or fault liability (as adopted by the original TOVALOP) to strict liability (under the CLC).

42

43

44

V. Power, EC Shipping Law (2nd ed. 1998), 14. See in this respect, for instance, the fact that the EC Commission is empowered to pursue the Member States for failure to notify, to adequately transpose into national law or to implement directives. C. De la Rue/C. Anderson (supra fn. 41), 8; P. Griggs, Common Law and Civil Law: A CMI Perspective, in: E. Van Hooydonk (ed.), English and Continental Maritime Law, After 
Shifts in Compensation for Environmental Damage

213

2. Foundation of the strict liability on the shipowner 2.1. Introduction At the 1969 conference preparing for the CLC, the issue concerning the applicable liability rule was formulated in two questions for discussion, being what should be the basis or the nature of liability (should it be based on strict or fault liability) and on whom the liability should be imposed (should it be imposed on WKHSDUWRIWKHFDUJRRURQWKHVKLS 5HDOL]LQJWKHGLIÀFXOW\LQGHFLGLQJRQVXFK principle issue, the Legal Committee provided two alternatives in its proposal due to the complicated nature of the issue: Alternative A was fault liability on the shipowner with a reversal of the burden of proof, which was actually based on the CMI model (and the same as in TOVALOP); Alternative B was strict liability which was originally proposed by the French delegation.45 In addition to such a division, some delegations were in favour of cargo liability.

663

2.2. Major debates 2.2.1. Strict liability on the cargo Countries like Ireland, the Netherlands and Denmark advocated strict liability on the part of cargo.46 These are mainly countries with big shipping industries or those with long and exposed coastlines. The main arguments in favour of strict liability on the part of the cargo as presented at the conference can be summarized as follows:

664

First, the activity of maritime transport of oil is not dangerous in itself, but it is the goods carried that pose the risks of causing damage.47 It is thus a risk inherent in the cargo, not in the ship. Moreover, as stated by the Irish delegate, pollution damage caused by oil cargo can be much greater than that caused by the ship itself.48

665

6HFRQGRLOFRPSDQLHVDUHWKHPDLQEHQHÀFLDULHVRIWKHDFWLYLW\RIRLOVKLSSLQJ hence, it was considered equitable for the cargo interest to be held liable. The fact that more large-size tankers were built (thus posing an increased risk of pollution to the marine environment) came from the need of the oil companies to expand their own business.49 The increasing oil pollution risks thus stem from

666

 /(*&21)6HSWHPEHU2IÀFLDO5HFRUGVRIWKH,QWHUQDWLRQDO/HJDO&RQIHUHQFH on Marine Pollution Damage 1969 (OR 1969), 458-460. 46  $V IRU 'HQPDUN LWV ÀUVW SUHIHUHQFH ZRXOG KDYH EHHQ IDXOW OLDELOLW\ EXW LW VXSSRUWHG strict liability on cargo in view of reaching a compromise agreement. For detail, see page 645. 47 OR 1969, 626-628. 48 OR 1969, 449. 49 OR 1969, 623-624. The Indian delegation was also one of the supporters of cargo liability. 45

214

Michael Faure and Albert Verheij

the growing need of oil transport by sea, being the “industrial risks”.50 As it was an “industrial risk” created primarily in the interest of the oil industry as a whole, the cargo owner would be the appropriate party to assume liability.51 667

Third, although fault liability was the most common regime in all systems of law at the time, there were often cases where the tanker was not to blame and had no fault. On the other hand, the parties who suffer pollution damage are often parties who were not involved in maritime transport. The factor of “fault” or “negligence” would leave the innocent victims or particularly the public authorities who have taken measures to eliminate or prevent pollution damage ZLWKLQVXIÀFLHQWFRPSHQVDWLRQ 52 Alternatively, when the tanker belonged to a single-ship company, the insolvent tanker owner might not be able to pay compensation with his very limited assets. In such cases, it would be very likely that either the shipowner would not be held liable under existing law since he was not at fault, or the shipowner was insolvent. Hence it was argued that to hold the cargo owner strictly liable will avoid such complications and provide adequate compensation to the victims.53 )RXUWKDOVRVXJJHVWHGE\6ZHGHQWKHÀQDQFLDOFDSDFLW\RIWKHRLOFRPSDQLHV LVUHODWLYHO\ODUJHDQGWKH\FDQEHWWHUGHDOZLWKWKHÀQDQFLDOEXUGHQLQFOXGLQJ the insurance obligation that will be imposed by the convention.54 The Danish delegate pointed at the fact that the insurance costs at present already amounted to 12% to 30% of the ship’s operation costs. To hold the shipowner liable would impose too great a burden on the shipowner and hence be unfair.55

669

Fifth, the ship’s fault- based liability was considered a principle of law which should not be deviated from without valid reason.56 In order to ensure uniformity with existing maritime law, the Irish delegate considered it appropriate to retain the fault liability of the ship, while imposing strict liability on the cargo.57 The Irish delegate proposed that liability should be primarily laid on the “shipper” (hence on the part of the cargo), but if the shipowner fails to identify the party liable, he will be considered the “constructive shipper” and resume liability;58 moreover if the ship is at fault, the cargo can recover from the ship. Hence the cargo should resume strict liability, while the liability of the ship remains fault-based.59

50 51 52 53 54 55 56 57 58 59

OR 1969, see for instance the opinions of the Netherlands, 439-440. OR 1969, 626. OR 1969, 439-440. OR 1969, 626. OR 1969, 634. OR 1969, 628. OR 1969, 628. OR 1969, 449. OR 1969, 451. OR 1969, 447.

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The Irish proposal to introduce liability on the “shipper” was criticized by the UK DQG)UHQFKGHOHJDWLRQVZKRKHOGWKHÀUPYLHZWKDWOLDELOLW\VKRXOGEHLPSRVHG on the shipowner.60 In reply to the comments from the UK that it would be GLIÀFXOWWRLGHQWLI\WKHVKLSSHULQSUDFWLFHWKH,ULVKGHOHJDWHGHIHQGHGWKDWWKH shipper remained “a constant factor known to the (tanker) owner even if not to the victim”, and he proposed a sanction in the Convention in order to ensure that WKHVKLSSHUZRXOGEHLGHQWLÀHG61 The Swedish delegate, in defense of imposing liability on the shipper, argued that the master of the ship would always have information on who the shipper is despite the practice that ownership of cargo might change during a voyage.

670

Faced with the criticism that the shipowners would lose incentives to take preventive measures if liability were imposed on the cargo, the Swedish delegate stated that the unlimited liability of the shipowner would expose him to great risk, whereby the shipowners could still have certain incentives for taking preventive measures.

671

2.2.2. Strict liability on ship This scheme of imposing strict liability on the shipowner was drawn upon the proposals made by the French delegation, and it gained wide support within the Committee. Countries like Spain, the U.S., UK, Poland, Australia, United Arab Republic, Belgium and Germany were all in favour of this alternative. The arguments presented by them as reasons against cargo liability were as follows:

672

First, the French delegate argued that the risk of oil pollution was not only created by the nature of the goods, but also by the particular form of carriage, being maritime transport with tankers.62 However, whether there is a safer means of transportation of oil remains a technical question. (As far as maritime transport of oil by tankers is concerned, safety standards can be improved to reduce the chances of an oil spill incident.)

673

Second, according to the French delegation, the existing fault liability system was LQVXIÀFLHQWFRQVLGHULQJWKHPDJQLWXGHRIWKHSRWHQWLDOGDPDJHWKHH[LVWLQJODZ based on fault could not provide adequate compensation since such liability was restricted. The tanker involved was not always at fault, and the proof of fault in FDVHRIRLOSROOXWLRQZDVH[WUHPHO\GLIÀFXOW63 It was also argued that the concept of fault varies in different legal systems.64 On the other hand, strict liability of the shipowner would be the only guarantee for an optimal compensation.

674

60 61 62 63 64

OR 1969, 626. OR 1969, 635. OR 1969, 639. OR 1969, 681. OR 1969, 642.

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Michael Faure and Albert Verheij

Third, as argued by the French delegate, although the oil companies had a VWURQJÀQDQFLDOFDSDFLW\WKH\FRXOGVWLOODYHUWWKHFODLPVE\OHJDOGHYLFHVHJ establishment of subsidiary companies) to become insolvent.65 675

Fourth, as pointed out by the UK delegate, a good compensation system should give incentives to prevent casualties. The shipper (and the cargo owner) could exercise no control over the cargo while it was on the high seas, the carrier would be the only one who had the capacity to prevent casualties on the high seas. If liability were to be imposed on the part of cargo, the master or his crew who have the actual control over the cargo will be given no incentive to take due care.66

676

Fifth, the liability of the shipper would be too complicated to be applied. The ÀUVWSUREOHPZRXOGEHWKHGLIÀFXOW\LQLGHQWLI\LQJWKHUHDOFDUJRRZQHUDVWKH ownership might change during a voyage, which is considered normal practice.67 As we have mentioned before, the ownership of cargo is evidenced by the bill of lading. As a negotiable document, the bill of lading may change hands while the cargo is still at sea and this leads to the change of ownership. It would be YHU\GLIÀFXOWIRUWKHYLFWLPVWRLGHQWLI\LQZKRVHKDQGVWKHELOORIODGLQJZDV when an incident happened. If the victims wanted to identify the shipper (in the case where the Irish proposal on the shipper’s liability is accepted), they would have to consult the contract of sale, although this type of contract cannot be invoked by them, given privity of contract.68 In contrast, the shipowner would be PRUHHDVLO\LGHQWLÀHGDVDUJXHGE\WKH8.GHOHJDWH7KHVHFRQGSUREOHPDULVHV when bunker was involved as argued by the French delegation. Once bunker is LQYROYHGLWZRXOGEHGLIÀFXOWWRGLVWLQJXLVKZKHWKHUWKHRLOFDUJRRUWKHEXQNHU was the source of the pollution.69 It would be unfair if the cargo owner were to be held liable for the pollution damage caused by bunker. Hence, imposing liability RQWKHSDUWRIFDUJRZRXOGLQGHHGFDXVHGLIÀFXOWLHVLQDSSOLFDWLRQ70

677

Sixth, according to the UK and French delegations, the Irish proposal to impose OLDELOLW\RQWKHVKLSSHUZRXOGFDXVHGLIÀFXOWLHVUHJDUGLQJLQVXUDQFH71 There would be a danger of double insurance because the shipper would take out liability insurance under the Convention and the shipowner would take out insurance for his normal liability and against default by the shipper. Moreover, the Irish proposal made no use of the existing mechanism of P&I Clubs of the shipowners.72

65 66 67 68 69 70 71 72

OR 1969, 639. OR 1969, 638. US, 457-458. C. Wu, Pollution from the Carriage of Oil by Sea: Liability and Compensation (1996). OR 1969, 639. Bunker is fuel oil. OR 1969, 638. OR 1969, 638-639. According to the UK delegate, the “best channel for providing compensation was one which was simple in application, made use of existing procedures and offered an incentive to

Shifts in Compensation for Environmental Damage

217

2.2.3. Fault liability on the shipowner Fault liability with a reversal of the burden of proof on the shipowner was introduced in Alternative A in the draft. There seemed to be only very few delegations supporting fault-based liability. These included, inter alia, the delegations from Finland, Japan, UK, Liberia and the USSR.

678

First, according to the observation of the USSR delegation, most of the recent oil spill disasters were caused by negligence of the operator of the ships rather than by natural causes, and hence fault-based liability will be most suitable as a remedy for this situation.73 Moreover, the USSR delegation considered that the principle of fault was broadly recognized in international maritime law and the only exception was the International Convention Relating to Liability of Operators of Nuclear Ships, where the “objective liability” of the operator was MXVWLÀHGE\´VSHFLDOFDXVHVµUHODWHGWRQXFOHDUGDPDJHVXFKDVWKHLPSRVVLELOLW\ to exercise control over nuclear energy, and the exceptional extent of nuclear damage; while in case of oil pollution, there were no such causes.74

679

Second, fault liability with a reversal of the burden of proof “will result in a substantial improvement in the position of the claimant” as the shipowner would bear the onus of proof.75

680

However, such reversal of the burden of proof was criticized particularly by the U.S. delegate, who argued that under this scheme, the shipowner as the one who had actual control over the ship could easily prove that he had no fault on his part or his agent during the operation of the ship. In that case the burden to prove the shipowner’s fault would be shifted back to the claimant. Hence, the burden of proof would ultimately lie with the victims.76

681

Third, as argued by the Norwegian delegate, in order to get the highest insurance coverage, the liability should be based on fault.77

682

2.2.4. Joint liability The Canadian delegation proposed a joint liability between the cargo and the ship. Its idea was that the parties engaged jointly in the maritime venture should jointly share the responsibility and thus the liability should be shared between the shipowner and the shipper.78$FFRUGLQJWRWKH&DQDGLDQSURSRVDOÀUVWOLDELOLW\

73 74 75 76 77 78

prevent casualties”. According to him, the Irish proposal to impose liability on the shipper did not satisfy these criteria. See OR 1969, 638. OR 1969, 463, 640. OR 1969, 510. OR 1969, 463. OR 1969, 630. OR 1969, 633. OR 1969, 633.

683

218

Michael Faure and Albert Verheij

would be imposed on the ship up to certain limit; above this limit, liability would lie on the cargo. If the ship was not at fault, the cargo would then be responsible for the entire damage. Hence, this proposal provided strict liability on both ship DQGFDUJRZLWKWKHVKLSLQWKHÀUVWLQVWDQFHDVVXPLQJOLDELOLW\0RUHRYHUWKH Canadian delegation pointed out that the limitation of liability placed on the cargo should be very high. 79 Although the liability imposed on the cargo would increase the price of oil, according to the Canadian delegation, the added cost would be minimal (only 0.04%).80 However, the joint liability scheme did not gain too much support among the delegations. 2.3. Decision-taking concerning the strict liability of the tanker owner 684

The delegations spent days of lengthy discussions on the nature of the liability to be imposed and on whom it should be imposed. However, they could not reach any agreement and the opinions of delegations largely divided among four schemes, as we have shown above. For instance, the French and the U.S. delegations supported strict liability on the part of the ship; the Irish and Danish delegations supported strict liability on the cargo; Japan was in favour of fault liability on the ship81; Canada proposed a joint liability system.

685

7KLVZDVDOVRVKRZQE\WKHUHVXOWRIWKHÀUVWWZRURXQGVRIYRWHVHLWKHUWKHUH was no substantial majority in favour of any of the plans, or too many countries DEVWDLQHGIURPYRWLQJ5HDOL]LQJWKHGLIÀFXOW\LQUHDFKLQJDJUHHPHQWRQWKH liability rules, these two questions were put to the vote separately. After two rounds of votes, still no agreement could be reached concerning the principle and imposition of liability. The conference thus came to an impasse.

686

On 13 November 1969 the Belgian delegation submitted a proposal on the establishment of an international compensation fund.826HHLQJWKHGLIÀFXOW\LQ reaching an agreement, many delegations turned their attention to the Belgian proposal of a compensation fund, although the mechanism of the fund had not yet been fully examined at that stage.

687

Some delegations hoped that the problems concerning the adequate compensation of the victims and the liability system would be solved automatically by the fund.83 There were also delegations who adopted a more cautious view concerning the fund.84 They realized that such a fund was a new idea, and it

79 80 81 82

83 84

OR 1969, 651. OR 1969, 633. OR 1969, 626. The idea of an international compensation fund was originally developed by the French legal experts. OR 1969, 553, 635. Greece also advocated such a fund, see OR 1969, 627. E.g. Sweden, OR 1969, 665. Spain, OR 1969, 665; the UK, the U.S, the USSR, OR 1969, 685.

Shifts in Compensation for Environmental Damage

219

needed further exploration.85 However, most delegations expressed a willingness to make concessions. It seems the prospect of a fund made a compromise more likely. This is probably due to the potential for adaptation of the fund. Thus the proposal of the fund seemed to mark the turning point of the whole conference and broke the deadlock. As part of the liability will be borne by the oil industry through the compensation fund, the liability regime of strict liability on the shipowner was soon adopted.

688

3. Concluding remarks In both the CMI draft and the voluntary TOVALOP industry scheme, the liability regime was a fault-based liability of the shipowner with a reversal of the burden RISURRI$OWKRXJKWKHVHWZRUHJLPHVKDGDJUHDWLQÁXHQFHRQWKH&/&WKH ÀQDOO\DGRSWHGOLDELOLW\UXOHLQWKH&/&ZDVVWULFWOLDELOLW\RIWKHVKLSRZQHU Thus there is within private law a clear shift from the general tort principle or the prevailing fault-based liability to strict liability.

689

This shift to strict liability did not come because it can provide better protection to the oil pollution victims as claimed to be the goal of the international regime, but it seems more related to the political element of the debate and negotiation process at the international diplomatic conference. Different states obviously had different interests at stake and thus they lobbied for different regimes. The idea of strict liability gained support among numerous countries, especially countries with long coastlines that were thus more exposed to larger pollution risks. France, for instance, has been active in promoting strict liability as it has witnessed some serious oil spills. Fault-based liability on the other hand was VXSSRUWHGE\PDQ\FRXQWULHVZLWKODUJHWDQNHUÁHHWVZKRGLGQRWZDQWWRVHH a too severe liability imposed on their shipping industries. Another example is that countries like Ireland, the Netherlands, Denmark, Greece and Norway all advocated imposing the liability on the cargo.86 These countries have a large VKLSSLQJLQGXVWU\DQGODUJHWDQNHUÁHHWVDQGLWZLOOEHLQWKHLULQWHUHVWWRKROG the cargo liable for oil pollution damage. Japan on the other hand lobbied for ship liability.87 If we look at the oil import volume of Japan, we will probably understand why, as a major oil import country, it has an interest in lobbying for ship liability.

690

In order to strike a balance between the competing interests, strict liability was agreed upon, but under the condition that the oil industry would contribute to the costs of oil pollution as well, and that the harsh effect imposed on the shipping industry as a result of the strict liability would be alleviated or mitigated through

691

85 86 87

USSR, UK, OR 1969, 684. OR 1969, 628. OR 1969, 626.

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some other shift such as the limitation of liability. Thus, the shift to strict liability actually came as a result of a political compromise.

'6KLIWWROLPLWHGOLDELOLW\ 1. Description of the shift 692

There is a second shift with respect to the marine oil pollution compensation regime, being a shift towards a limit on liability. Traditionally in maritime law DÀQDQFLDOOLPLWKDVDOZD\VEHHQLPSRVHGRQWKHVKLSRZQHUVDQGWKHLUUHSUHsentatives). There were international conventions on the limitation of liability of shipowners in 192488 and 195789. The limitation of liability obviously goes against the basic concept in tort law of restitutio in integram. However, such a limitation mechanism in maritime law was originally developed to encourage shipowners to invest in the highly risky maritime activities.

693

:KHQWKHOLPLWDWLRQRIOLDELOLW\PHFKDQLVPÀUVWFDPHLQWREHLQJIRULQVWDQFH in the 1924 and 1957 Limitation Conventions, the effect of such limited liability only concerned the contractual parties, whereby the shipowner or his representatives could invoke the limit against the cargo owner. In the 1969 CLC, the shipowner can invoke the right to limit his liability against victims of oil pollution who normally do not stand in a direct contractual relationship with the shipowner.

694

Thus the shift in governance in the context of marine oil pollution compensation as provided in the CLC is not only a deviation from the principle of restitutio in integram in tort law, but also that the effect of the limited liability is shifted IURPRQO\DIIHFWLQJWKHFRQWUDFWLQJSDUWLHVWRLQÁXHQFLQJWKHWKLUGSDUW\YLFWLPV of oil pollution. 2. Foundation of limitation of liability 2.1. Discussion on limitation of liability as a principle

695

It may seem strange that, at the 1969 conference, there was little debate on whether to accept the limitation of liability as a principle, and it was mainly MXVWLÀHGLQRUGHUWRREWDLQLQVXUDQFH+RZHYHUZKHQWKHOLPLWDWLRQTXHVWLRQZDV raised, the insurance issue was actually never discussed. There seemed to be a JHQHUDODJUHHPHQWDPRQJWKHGHOHJDWLRQVWKDWVRPHIRUPRIÀQDQFLDOJXDUDQWHH would be necessary for the implementation of the convention. Having witnessed

 ,QWHUQDWLRQDO&RQYHQWLRQIRUWKH8QLÀFDWLRQRI&HUWDLQ5XOHV5HODWLQJWRWKH/LPLWDWLRQ of the Liability of Owners of Sea-going Vessels, 1924 (1924 Limitation Convention). 89 International Convention relating to the Limitation of the Liability of Owners of Sea-going Ships, 1957 (1957 Limitation Convention). 88

Shifts in Compensation for Environmental Damage

221

JUHDWGLIÀFXOW\LQH[HFXWLQJFRPSHQVDWLRQGXHWRDODFNRIÀQDQFLDOJXDUDQWHHDV the shipowner is very likely to be insolvent, most delegations agreed to make the insurance mechanism compulsory to guarantee the compensation of victims.90 Almost all the delegations, implicitly or explicitly, agreed that the insurance shall be based on the amount of limitation of liability decided in the CLC. Some delegations, more particularly, Norway, the U.S. and the UK argued that the shipowner’s liability must be limited to a certain amount which corresponded with the available insurance coverage taking into account the restricted insurance market capacity.91 Without the statutory limitation on liability, compulsory insurance would be impossible.92 Thus, the general view of these delegations was that the system of limitation of liability was needed for the mechanism of compulsory insurance.

696

In addition, the limitation of liability was also put forward as a compromise to mitigate the heavy burden imposed on the tanker owner by the strict liability regime.93 This compromise solution was proposed by the UK delegation. It was probably due to the long history of the limitation system in maritime law and the time pressure to adopt an international regime that the limitation as a principle was not debated in depth. The main discussion at this stage simply concerned WKHVSHFLÀFDPRXQWRIWKHOLPLW

697

2.2. Discussion on the amount of limitation ,QWKHGUDIWFRQYHQWLRQSURYLGHGE\WKH/HJDO&RPPLWWHHQRVSHFLÀFÀJXUHZDV mentioned. It only stated that the shipowner is entitled to limit his liability to a FHUWDLQDPRXQWSHUWRQRIWKHVKLS·VWRQQDJHEXWWKHH[DFWÀJXUHRIWKHOLPLWDWLRQ amount remained to be determined at the conference.94,WZDVYHU\GLIÀFXOWWR GHFLGHRQWKHVSHFLÀFDPRXQWRIWKHOLPLWDWLRQVLQFHQXPHURXVIDFWRUVKDGWR be taken into account, as acknowledged by the delegations:

698

First of all, this amount should provide adequate compensation to the victims which corresponds with the magnitude of the damage, as victim compensation was set out to be the aim of such an international regime. It was realized that the OLPLWDWLRQDPRXQWXQGHUWKHH[LVWLQJV\VWHPZRXOGEHLQVXIÀFLHQWFRPSDUHGZLWK the growing size of tankers.95 The limitation amount established under the envisaged convention should cover at least all or substantially all losses.96 Second, as argued by some delegations, this amount should be the maximum amount

699

90 91 92 93 94 95 96

C. Wu, supra fn. 68, 30. OR 1969, 633. OR 1969, 487. OR 1969, 727. OR 1969, 440. Norway, Ghana, OR 1969, 658. U.S., OR 1969, 489.

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Michael Faure and Albert Verheij

that is insurable, given the fact that the insurance capacity is not unlimited,97 taking into account the acceptance of insurers and the ability of shipowners to pay the premium.98 Third, the costs for cleaning up the oil pollution should also be taken into consideration.99 Moreover, it was also pointed out that an excessively high limit might put smaller ships at a disadvantage, while a too low limit might favour larger ships. Thus the limit should not cause injustice to ships of different sizes.100 There was also a view that the limitation amount should vary depending on the different liability system to be adopted. 101 A strict liability could justify a low limitation amount considering the restricted capacity of the insurance market (if compulsory insurance was adopted) whereas a fault liability could imply a high limitation amount.102 700

+RZHYHULWZDVGLIÀFXOWWRGHYHORSREMHFWLYHFULWHULDZKLFKFRXOGEHZLGHO\ accepted to decide on the amount of the limit. Different delegations gave different interpretations of “adequate compensation”. Some were of the opinion WKDWZKHQWKHFRPSHQVDWLRQVXIÀFHVLQPRVWFDVHVWKLVZRXOGEHTXDOLÀHGDV “adequate compensation”; some considered that major oil spills should also receive adequate compensation which might be at a much higher level than an average spill incident. Moreover, there was no conclusive evidence proving the inherent link (or lack of such inherent link) between the mechanism of limited liability and insurance. As a result, different delegations proposed different ÀJXUHVIRUWKHOLPLWDWLRQRIOLDELOLW\

701

For instance, Denmark proposed to maintain the limit of 1,000 francs contained in the 1957 Convention;103 the UK proposed an amount equal to two times the limit under the 1957 Convention;104 the French delegation originally considered WKDWWKHOLPLWDWLRQÀJXUHXQGHUWKH&RQYHQWLRQLVREYLRXVO\LQVXIÀFLHQW in case of a major oil spill as shown by the Torrey Canyon case, hence, the delegation proposed a higher amount of 3,000 francs.105

702

Later, the UK proposed a compromise scheme to limit the shipowner’s liability at 1,900 francs ($125) per ton with a ceiling of 210 million francs ($14 million).106 7KH )UHQFK GHOHJDWH WKHQ FRQVLGHUHG WKLV D UHGXFHG ÀJXUH ZKLFK VKRXOG EH acceptable and he proposed a minor change from 1,900 francs to 2,000 francs

97 98 99 100 101 102 103 104 105

106

UK, OR 1969, 727. Japan, OR 1969, 438. Norway, OR 1969, 440. India, OR 1969, 732. US, OR 1969, 487-488. Norway, OR 1969, 440; US, OR 1969, 478, 488-489. OR 1969, 479. OR 1969, 487. OR 1969, 481. Australia proposed 3100 FFR or a higher limitation amount, OR 1969, 503. OR 1969, 596, 726.

Shifts in Compensation for Environmental Damage

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as this would be more practical.107 Although the limitation amount proposed by WKH8.ZDVFRQVLGHUHGE\VRPHOLNH&DQDGD DWRRORZÀJXUHLWZDVKRSHG that with the prospect of the fund the international regime could ultimately provide full indemnity. 7KH OLPLWDWLRQ ÀJXUH RI  IUDQFV SHU WRQ ZLWK D FHLOLQJ RI  PLOOLRQ IUDQFVZDVWKXVDGRSWHG7KLVÀJXUHKDVGRXEOHGWKHOLPLWDWLRQDPRXQWXQGHU the 1957 Limitation Convention, but it was still considered acceptable by most of the delegations since it would not be too high to stop the major maritime countries from ratifying the convention. The limitation of liability with such an amount came together with the strict liability on the shipowner as a compromise solution.108

703

3. Upgrading of the limitation of liability Under Art. V (1) of the 1969 CLC, the shipowner was entitled to limit his liability “in respect of any one incident to an aggregate amount of 2000 francs for each ton of the ship’s tonnage”. The overall limit of any incident is 210 million francs.

704

Some major oil spill incidents, including the Amoco Cadiz in 1978, have caused damage of an amount higher than the limited amount in the 1969 CLC. As a UHVXOWWKH&/&KDVLQFUHDVHGWKHÀQDQFLDOOLPLWVWRWKHDPRXQWVZKLFK were originally agreed in the 1984 Protocol and that amount (together with the LQFUHDVHGFRPSHQVDWLRQXQGHUWKH)XQG ZDVFRQVLGHUHGDWWKHWLPHVXIÀFLHQW to cover most of the oil spill incidents.109 However, the Erika incident in 1999 DJDLQ VKRZHG VXFK D OLPLWHG DPRXQW ZDV IDU IURP VXIÀFLHQW KHQFH LW ZDV increased by 50.37% in the 2000 Protocol. The amounts in the 2000 Protocol, in comparison with those under the 1992 CLC, are as follows:

705

– –

–

107 108 109

For a ship not exceeding 5,000 gross tonnage: liability is limited to 4.51 million SDR (US$ 5.78 million) (compared with 3 million SDR under the 1992 CLC); For a ship of 5,000 to 140,000 gross tonnage: liability is limited to 4.51 million SDR (US$ 5.78 million) plus 631 SDR (US$ 807) for each additional gross ton over 5,000 (compared with 3 million SDR plus 420 SDR for each additional gross ton under the 1992 CLC); For a ship over 140,000 gross tonnage: liability is limited to 89.77 million SDR (US$ 115 million) (compared with 59.7 million SDR under the 1992 CLC).

OR 1969, 730. OR 1969, 738. Art. V of the 1992 CLC.

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Michael Faure and Albert Verheij

4. Concluding remarks 706

The principle to limit the liability of the shipowner was easily accepted at the 1969 conference, even without discussing the legitimacy of shifting the effect of the limitation against innocent third party victims.

707

Compared with the prior situation where the liability of the shipowner was based on general tort principles or fault, the strict liability imposed on the tanker owner by the convention was rather harsh. The limitation of liability was thus welcomed because it could, to a certain extent, alleviate the severe impact on the shipowner through the shift to strict liability. Therefore, the limitation of liability is considered a mechanism of cost sharing between all those involved LQDQGEHQHÀWLQJIURPWKHPDULWLPHDFWLYLW\UDWKHUWKDQLPSRVLQJDOOWKHORVVHV on one single party.110

708

Another argument introduced by the delegations at the 1969 conference to justify the limitation of liability was that the limitation could make the shipowner’s liability insurable as it introduces an element of predictability.111 However, this argument seems doubtful as the liability can be unlimited while the amount of insurance can be restricted to a certain amount.

709

The limitation adopted in the 1969 CLC almost doubled the then existing limit under the 1957 Convention, but the limitation amount has been substantially increased since then. It is very interesting to notice that victim compensation was set out as the goal of the international convention, but in order to strike the balance so that it can be widely accepted by the major maritime nations, a paradoxical limitation of liability was introduced. However, even more SDUDGR[LFDOO\WKLVDPRXQWZDVFRQWLQXDOO\FULWLFL]HGIRUEHLQJLQVXIÀFLHQWDQG thus needed to be updated. Thus, one may wonder what the rationale is behind the limitation of liability and if there should be a limit at all.

(6KLIWWRFKDQQHOOLQJ 1. Description of the shift 710

The general principle in tort law is that the tortfeasor who has caused the damDJHVKRXOGEHKHOGOLDEOH7KH&/&VSHFLÀFDOO\SURYLGHGWKDWRQO\WKH registered shipowner is responsible for the pollution damage, and his liability is only restricted to the liability under the CLC. Moreover, the shipowner is not

 7KHPRGHUQWKHRU\RQOLPLWDWLRQRIOLDELOLW\MXVWLÀHVWKHOLPLWDWLRQDVDPHDQVWRDFKLHYH “an equitable distribution of the risks inevitably attached to a maritime adventure”. R.C. Seward, The Insurance Viewpoint, in: The Limitation of Shipowners’ Liability: The New Law (1986), 185. 111 The same view was held by R.C. Seward, see supra fn. 110, 163. 110

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subject to claims based on general tort principles, while the charterer and the servant who might actually contribute to the damage are explicitly excluded from any responsibility. This is the so-called channelling of liability. In the 1992 CLC, the channelling as a principle still remains, but the parties whose liabilities are excluded are listed in the convention. In addition to the 1969 version where only “the servants or agents” of the owner are excluded, more parties are named in the exclusion list. The shift which has taken place here is again a shift within the private law system and aims at directing the liability at one particular party instead of holding the (actual) injurer (polluter in this case) liable. 2. Foundation of channelling 2.1. Origin of the channelling 7KH FRQFHSW RI FKDQQHOOLQJ ÀUVW DSSHDUHG LQ WKH QXFOHDU FRQYHQWLRQV This idea came as a political compromise.112 During the negotiations on the nuclear conventions, the U.S., as the big nuclear producer which of course did not want to be burdened by the potential responsibility, urged its European partners to make the operator of the nuclear installation exclusively liable. As a result, in both the Paris Convention on Third Party Liability in the Field of Nuclear Energy 1960 and the Vienna Convention on Civil Liability for Nuclear Damage, the liability for nuclear damage is solely borne by the operator of the nuclear installation. Thus the nuclear industry in the U.S. is protected from potential liability by the mechanism of channelling.113

711

2.2. Channelling in case of oil pollution It seems the channelling of liability in marine oil pollution compensation as a principle was easily accepted without debate. There were only different opinions on how to apply the idea of channelling in the oil pollution cases, being if the liability were to be channelled to the operator or to the shipowner, and which parties are to be excluded from liability. For instance, the U.S. delegation considered that the operator should also be excluded from the potential liable parties114 and the Dutch delegation suggested that independent contractor should be precluded as well.115 One may trace some discussion on the channelling in the preparatory work of the CMI.

712

At the beginning of the Tokyo conference at the end of March 1969, the draft proposed by the CMI contained in Art. 3 a provision on channelling. It stated:

713

112

113

114 115

T. van den Borre, (IÀFLsQWH 3UHYHQWLH HQ &RPSHQVDWLH YDQ &DWDVWURSKHULVLFR·V ² +HW Voorbeeld van Schade door Kernongevallen (2001), 751-765. M. Faure, Causal Uncertainty, Joint and several Liability and Insurance, in: H. Koziol/J. Spier (eds.), Tort and Insurance Law, Vol.10, 93. OR 1969, 464. OR 1969, 462.

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“No claim for pollution damage may be made against the owner otherwise than in accordance with this Convention. No claim for such damage, under this Convention or otherwise, may be made against the ship itself, the servants or agents of the owner or against a demise, time or voyage charterer of the ship or the servant or agents of any of them. Nothing in this Article shall prejudice any right of recourse of the owner.”116 714

Lord Devlin at the Tokyo Conference pointed out that there was a political reason behind such an article, being that it ensures that the victim will not bring a lawsuit against, in particular, the charterer under general principles of law. 117 In practice, the charterers are often oil companies who charter (rent) the ship on a regular basis (either on the basis of trip or a longer term, or in the form of the so-called bareboat charter). Hence, the channelling actually provides protection to the oil industry by excluding their liability.

715

Channelling as a principle was generally accepted and the main discussion at the 1969 conference was which parties should be freed from liability. It was once suggested that all the parties who have a contractual relationship with the shipowner should be excluded. However, this suggestion was not adopted. In the IMCO draft Convention, only “the servants or agents of the owner” were excluded, and the charterers were not mentioned. However, there was no discussion on this issue. 3. Shift in channelling 3.1. 1969 CLC

716

Art. III (4) stipulated that no claims for pollution damage under the CLC or otherwise “may be made against the servants or agents of the (ship)owner”. As WKHGHÀQLWLRQRIWKH´RZQHUµLQ$UW, VSHFLÀHG´RZQHUµLV´WKHSHUVRQRU persons registered as the owner of the ship or, in the absence of registration, the person or persons owning the ship”.118 As a result, the claim for compensation for pollution damage is “channelled” to the registered shipowner. However, this does not preclude the right of recourse actions of the shipowner against third parties.119

116 117 118

119

CMI Documentation 1969 III Tokyo (1), 44. CMI Documentation 1970 I Tokyo (4), 10, 12. Art. I (3) of the 1969 CLC. It also provides that, in case of a state owned ship operated by a company which is registered as the ship’s operator, such company shall be considered “owner” for the purpose of this Convention. Art. III (5) of the 1969 CLC.

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3.2. 1992 CLC At the 1984 conference, the principle of channelling was questioned by some delegations. A joint and several liability between the shipowner and the bareboat charterer was proposed in order to better protect the victims of oil pollution.120 However, most of the delegations were afraid that abolishing the channelling would deviate so far from the original balance established by the 1969/1971 UHJLPH DQG ZRXOG FDXVH GLIÀFXOWLHV LQ LQVXUDQFH RU DGPLQLVWUDWLRQ 0DQ\ delegations agreed with the draft provided by the Legal Committee whereby parties who were protected by the channelling provision were listed. It was argued that the advantage of such a list was that it would encourage parties in the list to take preventive measures and execute salvage operations.

717

$VDUHVXOWWKHÀQDOO\DGRSWHG&/&LQ$UW,,, OLVWHGWKHSDUWLHVWKDW should be exempt from liablity. These include:

718

“(a) the servants or agents of the owner or the members of the crew; (b) the pilot or any other person who, without being a member of the crew, performs services for the ship; (c) any charterer (howsoever described, including a bareboat charterer), manager or operator of the ship; (d) any person performing salvage operations with the consent of the owner or on the instructions of a competent public authority; (e) any person taking preventive measures; (f) all servants or agents of persons mentioned in subparagraphs (c), (d) and (e)”. 4. Concluding remarks Instead of holding the tortfeasor (the party who has actually caused oil pollution) liable, the CLC directed the liability exclusively at the registered shipowner even ZLWKRXWOHJDOMXVWLÀFDWLRQ,WVHHPVWKDWWKHH[LVWHQFHRIDFKDQQHOOLQJSURYLVLRQ LQWKHQXFOHDUOLDELOLW\FRQYHQWLRQVKDVFOHDUO\LQÁXHQFHGWKHGHVLJQRIWKH&/& The draftsmen of the CLC simply borrowed the idea of channelling from the nuclear industry without questioning if the application of the same principle in GLIIHUHQWVHFWRUVZDVMXVWLÀHG7KHUHDVRQIRUWKHDGRSWLRQRIWKHFKDQQHOOLQJ provision in the nuclear conventions was to protect the interest of the nuclear producer in the U.S., similarly the adoption of channelling in the oil pollution 120

Advocates for joint and several liability included, inter alia, Greece, Brazil and the U.S. delegations.

719

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Michael Faure and Albert Verheij

compensation regime also contains a certain political element – to protect the interest of the oil industry, at least not infringed upon under the CLC. 720

Problems exist as to the formulation of the provision in this proposed article. The aim of the channelling provision is to make one party solely liable and thus exclude all others. This might have the advantage of simplifying the situation VLQFHWKHUHLVRQO\RQHSDUW\VSHFLÀHGLQWKHFRQYHQWLRQWREHKHOGOLDEOHDQG the possibility of double insurance can be avoided. If the charterers are faced with potential liability, they will take out insurance. Thus double insurance will occur – both the shipowner and the charterer will take out insurance against oil pollution liability.121 This is of course what the draftsmen of the CLC tried to avoid through the channelling system. However, it does not seem possible to UHDFKDJRDORIVLPSOLÀFDWLRQEHFDXVHWKH&/&JDYHWKHVKLSRZQHUWKHULJKWRI recourse action. Thus, the shipowner is entitled to bring a lawsuit against the parties who were intended to be excluded under the convention, for example, the charterer. This seems to be contradictory to the original idea of channelling which was to hold one party solely liable and to exclude the liability of the oil industry in particular.

721

The change in form of this shift does not make so much difference in substance. 6XFKDUHYLVLRQPD\UHODWHWRWKHFRPSOH[LW\RIPDULWLPHSUDFWLFHZKHUHGHÀQLWLRQVRIGLIIHUHQWSDUWLHVDUHQRWDOOXQLÀHGLQWKHFRQYHQWLRQV$OWKRXJKLWZDV formally argued that the channelling provision has worked well during the past years and thus should be kept, the conservative attitude of the legislator actually shows the dependency on the past experience.

)6KLIWWRDFRPSHQVDWLRQIXQG 1. Description of shift 722

As mentioned before, the international regime on marine oil pollution comSHQVDWLRQKDVJRQHWKURXJKVHYHUDOVKLIWVZLWKLQWKHÀHOGRISULYDWHODZDVD result of the 1969 CLC. The compensation regime has been shifted to a strict liability exclusively imposed on the shipowner up to certain amount. However, the adoption of the CLC was based on the prospect of the establishment of an international compensation fund contributed by the oil industry. Against this background, a diplomatic conference was held in 1971, which adopted the Fund Convention 1971. The IOPC Fund established under the Fund Convention received contributions from levies on oil receivers. For oil pollution damage not covered by the CLC, or when the liable shipowner is insolvent, or when the damage exceeds the shipowner’s limited liability under the CLC, the Fund will pay compensation.

121

CMI Documentation 1970 I Tokyo (4), 10.

Shifts in Compensation for Environmental Damage

229

Although the Fund was designed as a secondary remedy supplementary to the CLC, the existence of the Fund constitutes a shift from private compensation through the individual shipowners towards collective compensation through the IOPC Fund, which is public to a certain extent.

723

2. Establishment of the 1971 Fund The functions of the Fund as embodied in the 1969 Resolution were to provide FRPSHQVDWLRQWRYLFWLPVRIRLOSROOXWLRQDQGWRUHOLHYHWKHDGGLWLRQDOÀQDQFLDO burden of the shipowner. However, concerning the second function, relief to the shipowner, diverging opinions emerged at the 1971 conference. It was also agreed in the 1969 Resolution that the Fund should supplement the CLC. At the 1971 conference the discussion was centred on the extent to which the Fund should and could perform the supplementary function. Related issues including the scope of compensation of the Fund (under what conditions the Fund should intervene and the exemptions of the Fund) and the amount of compensation were also debated.

724

2.1. Functions of the 1971 Fund The majority of the delegations were in favour of the relief function of the Fund and only a few delegations raised objections against the relief of the shipowner as a principle. The main opponents included the UK, the U.S., the Netherlands and the Federal Republic of Germany. 122 According to the proponents of the relief function of the Fund, the major concern at that stage was to bring the CLC into force. In order to gain as broad an acceptance as possible, the acceptance by maritime nations was of great importance. Thus the shipowners, being relieved IURPWKHDGGLWLRQDOÀQDQFLDOEXUGHQLPSRVHGE\WKH&/&ZRXOGEHFUXFLDO for those states.123 Moreover, the dual functions had already been decided in the 1969 Resolution which should be binding for this conference. These delegations considered the two functions of the Fund as promoted in the 1969 Resolution a well-balanced compromise which should thus be maintained.

725

7KHUHZDVDOVRDQRSLQLRQWKDWWKHDZDUGRIWKHLQGHPQLÀFDWLRQWRWKHVKLSRZQHU should be conditional on the compliance with safety standards. However, there was slight divergence concerning the type of safety standards to be followed. One opinion held that it should be limited to only the obligatory standards, another held that the recommendations from IMO should also be included. The idea of including safety standards was also rejected by some delegations based on the argument that it would impose an excessively heavy burden on the Fund. They believed that the primary function of the Fund was to provide compensation,

726

 6HHSDUWLFXODUO\2IÀFLDO5HFRUGVRIWKH&RQIHUHQFHRQWKH(VWDEOLVKPHQWRIDQ,QWHUQDWLRQDO Compensation Fund for Oil Pollution Damage 1971 (OR1971), Germany, 3; UK, 11; U.S., 11. 123 See for instance Denmark, OR 1971, 2; Norway, OR 1971, 42. 122

230

Michael Faure and Albert Verheij

not to check the compliance of safety standards. Later in the report from the Working Group such provision was deleted.124 727

At a later stage, another argument was put forward that whether to accept the relief to the shipowner relates to the amount of relief to be provided through the Fund.125$WWKDWWLPHWKHDPRXQWRIFRPSHQVDWLRQDQGLQGHPQLÀFDWLRQKDG not yet been discussed.

728

It was raised that the cost factor should be taken into account when designing the Fund. This seems reasonable from an economic point of view, but it was rejected by some delegations based on the claim that the cheaper transportation of oil should not be the goal of the Fund. Probably urged by the idea of facilitating WKHUDWLÀFDWLRQSURFHVVRIWKH&/&DJUHHPHQWRQWKHGXDOIXQFWLRQVRIWKH)XQG was quickly reached. 2.2. Scope of compensation of the Fund

729

As for the scope of compensation of the Fund, there were discussions on when the Fund should intervene and when not (the exemptions of the Fund). Realizing the inadequacy of the CLC, the 1969 conference decided that the Fund should EHGHVLJQHGWRÀOOLQWKHJDSVOHIWE\WKH&/&,VVXHVFRQFHUQLQJZKDWJDSV ZHUHWREHÀOOHGDQGKRZWRÀOOWKHVHJDSVZHUHGHEDWHGDWWKHFRQIHUHQFH especially related to the provisions on when the Fund should intervene and the exemptions of the Fund. Some delegations were anxious to see that all damage not covered by the CLC would be compensated through the Fund, others took a more cautious view that it would be administratively easier to keep these provisions more in line with the CLC.

730

There was general agreement among the delegations that the Fund should intervene in the cases that are not covered by the CLC, i.e. where the CLC does not apply, where the damage exceeds the limited liability of the shipowner under the CLC,126 or where both the shipowner and his insurer are insolvent.127 Some delegations also made the point that the Fund should not intervene in cases that entail high administration costs.128 On the other hand, as pointed out E\WKH86GHOHJDWLRQWKH)XQGVKRXOGQRWÀOOLQWKHJDSVEHWZHHQWKH&/& and other conventions. Otherwise, if the gaps were bridged anyway by the Fund Convention, it would serve as a disincentive for wider acceptance of the CLC.129 As a result, when the damage exceeds the limit of liability under the 1957 Convention, the Fund will not provide compensation.130

124 125 126 127 128 129 130

OR 1971, 479-483. OR 1971, 492,501. See particularly Danish delegation, OR 1971, 51. See particularly the opinions of the UK, OR 1971, 59. Norway, OR 1971, 313. OR 1971, 59. Art. 4(1), paragraph 3 of the 1971 Fund Convention.

Shifts in Compensation for Environmental Damage

231

As to the exemptions of the Fund, the questions under debate were if the Fund should extend the compensation to so far that all damage not compensated under the 1969 CLC should be covered by the 1971 Fund. Only few delegations, represented by the U.S., took the radical approach that the Fund should close gaps as far as possible, while most of the other delegations held a relatively FRQVHUYDWLYHYLHZWKDWWKHJDSVVKRXOGEHÀOOHGRQO\WRFHUWDLQH[WHQW$PDMRU concern of the delegations was still to ensure the widest possible acceptance of the Convention while not imposing an excessive administrative burden. Some very conservative delegations considered that the exemptions of the Fund should be consistent with those of the CLC.

731

Possible exemption items purported by the delegations include acts of war, IRUFHPDMHXUHXQLGHQWLÀHGVKLSVDQGZLOOIXODFWRUIDXOWRIWKLUGSDUWLHV)LUVW for “an act of war, hostilities, civil war or insurrection” as exemption of the Fund was generally agreed by most delegations. Ireland and the U.S. were the representatives that were against such an exemption. 131 It was considered not reasonable for the private industries or consumers of oil to bear the risk of war, but rather this should be a risk borne by governments.132 “Act of war” was often excluded from other international conventions, e.g., the conventions on nuclear liability.133 Moreover, if the Fund had to pay for pollution caused by an act of war, it would place an intolerably heavy burden on the Fund as it would incur high insurance costs.134 Even more problematic, the current insurance market does not cover war damages.135 Some delegations also expressed the fear that imposing compensation for war damage on the Fund would prevent the major oil importing states from accepting the Convention.136 As a result, the U.S. proposal to include the act of war into the compensation scope of the Fund was rejected when voted upon.137

732

Second, for “a natural phenomenon of an exceptional, inevitable and irresistible character”, which is one exemption under the CLC, most delegations preferred to see this excluded from the scope of compensation of the Fund as well.138 As argued by the French delegation, since shipowners under the CLC were to be relieved from paying compensation for damage caused by factors outside their control, the same should be applicable to the Fund.139 The Japanese delegation

733

131

132 133 134 135 136 137 138

139

This was supported by countries including Singapore, Bulgaria, Portugal and Lebanon. P342, 344, 347-350. Japan, OR 1971, 54-55; Italy, OR 1971, 342. France, OR 1971, 342-343. France, OR 1971, 342-343. Belgium, OR 1971, 345. Ireland, OR 1971, 344. 25 against, 10 in favour and 7 abstentions. OR 1971, 347-350. These include, for instance, Denmark, Sweden, the UK, the Netherlands, Norway, Japan and Greece. OR 1971, 342-343.

232

Michael Faure and Albert Verheij

considered that the exoneration from force majeure is a normal feature of liability conventions and insurance policies.140+RZHYHUWKLVZDVÀQDOO\GHOHWHG 734

7KLUGIRUXQLGHQWLÀHGVRXUFHVRISROOXWLRQGDPDJHWKHGHOHJDWLRQVKDGGLYHUJing opinions on whether the Fund should compensate. The UK, Norway and Japan considered this should not be covered by the Fund, while Sweden held the opposite view. The Danish delegation considered that pollution damage to a ODUJHH[WHQWLVFDXVHGE\DQXQLGHQWLÀHGVRXUFHDQGWKH)XQGVKRXOGFRYHUVXFK a case.141 But, according to the UK delegation, it was mainly minor accidents where the sources are unknown, but with a very large oil spill, it is likely that WKHVRXUFHZLOOEHIRXQG7RSD\IRUXQLGHQWLÀHGSROOXWLRQGDPDJHZLOOUHVXOWLQ the Fund incurring high administrative costs.142 The Greece delegation pointed RXWWKDWWKH86SURSRVDOWRPDNHWKH)XQGFRPSHQVDWHIRUXQLGHQWLÀHGVRXUFHV of pollution damage is mainly based on humanitarian considerations. Although it might not always be easy to identify the source of pollution, to insist on LGHQWLÀFDWLRQZRXOGSURYLGHDEHWWHUVROXWLRQWKDQWRSODFHWKHHQWLUHEXUGHQ on the Fund.143

735

Fourth, for willful acts or fault of third parties, there was some debate as well. The Netherlands and Japan agreed that the Fund should not compensate in case of third party willful acts or omissions.144,WZDVÀQDOO\GHFLGHGWKDWWKH contributory negligence and the intentional act of the claimant can also lead to whole or partial exoneration of the Fund’s payment of compensation to the victims.145

736

The U.S. adopted a drastic approach arguing that the Fund should provide maximum possible compensation to the victims, rather than merely being an instrument to enable the CLC to come into force.146,QWKHÀQDOL]HGSURYLVLRQRQ WKHH[HPSWLRQVRIWKH)XQGRQO\DFWRIZDUDQGXQLGHQWLÀHGVRXUFHSROOXWLRQ damage was included. 2.3. Amount of compensation of the Fund

737

When the amount of compensation was under discussion, many delegations considered that the amount of 450 million francs as an overall ceiling (which was twice as much as the damage caused by the Torrey Canyon), given past H[SHULHQFH ZDV VXIÀFLHQW DW OHDVW IRU WKH WLPH EHLQJ7KXV WKH  PLOOLRQ francs was accepted with an absolute majority.147

140 141 142 143 144 145 146 147

OR 1971, 54-55. OR 1971, 51. OR 1971, 334. OR 1971, 342. OR 1971, 352. Art. 4 (3) of the 1971 Fund Convention. OR 1971, 312, 333. 33 in favour, 3 against, and 3 abstentions, OR 1971, 370-374.

Shifts in Compensation for Environmental Damage

233

Most of the delegations agreed that there should be an amendment procedure for the Assembly to increase the amount of compensation afforded by the Fund. In view of the amendment procedure, the 450 million francs was again FRQÀUPHGWREHDGHTXDWHDWWKDWWLPH7KHUHZHUHKRZHYHUVHYHUDOGHOHJDWLRQV against the amendment procedure. For instance the USSR, the UK and Romania FRQVLGHUHGWKDWWKHDPHQGPHQWSURFHGXUHZDVQRWQHFHVVDU\DQGQRWMXVWLÀHG even unconstitutional. However, it was decided that the Assembly of the Fund could decide to increase the amount up to 900 million francs, taking into account the experience of incidents and the damage therefrom and the changes in monetary value.148

738

3. 1992 Fund and 2000 Protocol 3.1. Increased amount The 1992 Fund Convention has remained the basic structure of the 1971 Fund, but with a substantially increased amount of compensation and an extended scope of compensation corresponding with the changes in the 1992 CLC. The aggregate amount of compensation for any one incident payable by the 1992 Fund was increased to 135 million SDR, and the maximum amount of compensation can be increased to 200 million SDR.

739

As mentioned before, in reaction to the European Commission’s criticism regardLQJWKHLQVXIÀFLHQF\RIWKHLQWHUQDWLRQDOFRPSHQVDWLRQUHJLPHIROORZLQJWKH Erika incident, the IMO decided in 2000 to increase the compensation amount to the maximum amount possible at the time, which is an increase of 50.37% of the existing limit. As a result, the aggregate amount of compensation from the Fund, as provided in the 2000 Protocol, was increased to 203 million SDR in respect of any incident and could be increased to 300.74 million SDR. The increase may seem impressive, but before the 2000 Protocols entered into force in 2003, the Prestige incident in 2002 again cast doubts on whether the regime could provide a satisfactory solution in case of disaster oil spills.

740

3.2. Removal of the relief function Another important change of the 1992 Fund was that the function of providing relief to the shipowner was removed. It was unanimously agreed at the 1984 FRQIHUHQFHWKDWWKHIXQGSURYLGLQJUHOLHIWRWKHVKLSRZQHUZDVQRORQJMXVWLÀHG thus it was removed.149

148

The aggregate amount of 900 million francs was decided through voting with 18 in favour, 5 against and 12 abstentions. OR 1971, 370-374. 149  2IÀFLDO5HFRUGVRIWKH,QWHUQDWLRQDO&RQIHUHQFHRQ/LDELOLW\DQG&RPSHQVDWLRQIRU'DPDJH in Connexion with the Carriage of Certain Substances by sea 1984 and the International Conference on the Revision of the 1969 Civil Liability Convention and the 1971 Fund Convention 1992 (OR 1984), 512.

741

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Michael Faure and Albert Verheij

3.3. Contribution to the Fund 742

Since there were already discussions at the 1969 Conference on the establishment of an international fund, the basic idea of it being funded by contributions from WKHRLOLQGXVWU\ZDVDJUHHGXSRQZLWKQRGLIÀFXOW\

743

,QRUGHUWREHDEOHWRSD\FRPSHQVDWLRQDQGLQGHPQLÀFDWLRQWKH)XQGQHHGV to receive contributions from the oil receivers. The contribution is levied on those who receive in a calendar year more than 150,000 tons of “contributing oil” in a port or terminal in the territory of a Member State after sea transport.150 ´&RQWULEXWLQJRLOµLVGHÀQHGLQ$UW RIWKH)XQG&RQYHQWLRQWRLQFOXGH “crude oil” and “fuel oil”.151 The contributing oil of one party shall be counted to include the quantity of contributing oil received by his “associated person” (includes subsidiary or commonly controlled entity) in the same State. As a result, when the aggregate quantity of contributing oil from one party and his “associated persons” in the same Contracting State has exceeded 150,000 tons, this will render the party liable to contribute to the Fund.

744

As there was consideration that the good functioning of the Fund should be ensured by contributions that are fairly distributed around the world,152 in the 1992 Fund Convention, an Art. 36 TER was added in the 1992 Fund Convention stating that the aggregate amount of the annual contributions from one single State shall not exceed 27.5% of the total amount of annual contributions. Otherwise, the contributions of all contributors in that State shall be reduced pro rata till their aggregate contribution equals 27.5%, and accordingly, contributions from other States should be increased pro rata so as to ensure that the total amount of contributions will reach the required amount of contributions decided by the Assembly. This operation will continue “until the total quantity of contributing oil received in all Contracting States in a calendar year has reached 750 million tons or until a period of 5 years after the date of entry into force of the said 1992 Protocol has elapsed, whichever occurs earlier”.153

150 151

152 153

Art. 10 (1) of the 1971 Fund Convention. According to Art. 1 (3) (a) “Crude Oil” means any liquid hydrocarbon mixture occurring naturally in the earth whether or not treated to render it suitable for transportation. It also includes crude oils from which certain distillate fractions have been removed (sometimes referred to as “topped crudes”) or to which certain distillate fractions have been added (sometimes referred to as “spiked” or “reconstituted” crudes. (b) “Fuel Oil” means heavy distillates or residues from crude oil or blends of such materials intended for use as a fuel for the production of heat or power of a quality equivalent WR ´$PHULFDQ 6RFLHW\ IRU 7HVWLQJ 0DWHULDOV 6SHFLÀFDWLRQ IRU 1XPEHU )RXU )XHO 2LOµ (Designation D 396-69) or heavier. Japanese delegation raised such issue at the 1984 conference. Art. 36 TER (4) of the 1992 Fund Convention.

Shifts in Compensation for Environmental Damage

235

The Japanese oil industry is by far the largest contributor to the 1992 Fund. In the year 2003, the contribution from the Japanese industry accounted for 20% of the total contributions.154

745

3.4. Obligation on the member states The Contracting State shall ensure the submission of an oil report with the name and address of the persons liable to contribute to the Fund and the data concerning the quantity of contributing oil.155 The Fund Convention also stipulated that the Contracting State should “ensure” that the obligation to contribute to the )XQGLQUHVSHFWRIRLOUHFHLYHGZLWKLQLWVWHUULWRU\LVIXOÀOOHGDQGLWVKRXOGWDNH any appropriate measures to ensure the effective execution of such obligation, including imposing sanctions in national law.156 However, it should be noted that the contribution is paid by the individual oil receivers and a Member State is not responsible for the payment unless it has voluntarily accepted such responsibility under Art. 14 of the Fund Convention.157

746

With respect to the obligation of the Contracting State to submit an oil report, the 1992 Fund Convention added, in Art. 15, a paragraph concerning the cases ZKHUHWKHQRQVXEPLVVLRQRUODWHVXEPLVVLRQFDXVHGÀQDQFLDOORVVHVIRUWKH Fund. In such a case, the State shall be held liable to compensate the Fund for such loss.

747

4. 2003 Supplementary Fund As explained in Part B, the IMO adopted a Supplementary Fund under pressure from the EU to set up a regional compensation fund. The Supplementary Fund will not replace the existing Fund, being the 1992 Fund, but only make additional compensation available to victims in the States which accede to the Protocol. The compensation amount available under the Supplementary Fund is 750 PLOOLRQ6'5DSSUR[LPDWHO\½ ZKLFKLVFORVHWRWKHDPRXQWSURSRVHGLQ WKH&23()XQG½ELOOLRQ ,WZDVDOVRWKDQNVWRWKHDFWLYLVPRIWKH(8WKDW the Supplementary Fund Protocol entered into effect on 3 March 2005.

154

155 156 157

M. Jacobsson (supra fn. 19), 16. According to the statistics in 2003, the other major contributors are as follows: Italy (11%), Republic of Korea (10%), the Netherlands (8%), France (8%), United Kingdom (6%), Singapore (5%), Spain (5%) and Canada (5%). Art. 15 of the 1971 Fund Convention. Art. 13 of the 1971 Fund Convention. Art. 14 of the 1971 Fund Convention provided that the Contracting State “may” declare that it assumes itself obligations that are incumbent under this Convention on any person who is liable to contribute to the Fund. Such a declaration shall be made in writing and shall specify which obligations are assumed. Once a State has made such a declaration, it is bound by the declaration and hence the State’s immunity that it would otherwise be entitled to shall be waived by such declaration. The word “may” implied that such a declaration is facultative, and not an obligation on the State.

748

236

749

Michael Faure and Albert Verheij

The advantage of the Supplementary Fund might be that there would be no need for pro-rata payments as under the 1992 Fund.158 According to the Director of the 1992 Fund, Måns Jacobsson, the amount available under the Supplementary Fund could ensure that ,“in practically all cases”, it would be possible from the outset to pay an amount of compensation for claims in states equal to 100% of the damage.159 However, as yet the assessment of the impact of the Supplementary Fund is purely theoretical, and it will not be fully realized until there is an oil spill which is of a large enough scale to bring the Fund into action. 5. Concluding remarks

750

7KHDGYHQWRIWKH)XQG&RQYHQWLRQDFWXDOO\IRXQGLWVURRWVLQWKHFRQÁLFWV at the 1969 Conference. If it were not the prospect of an international fund, the 1969 Conference would have failed to adopt any instrument at all.160 The 1969 CLC did not provide a satisfactory solution to the existing request of providing compensation to victims of oil pollution damage.161 The victims could not receive full compensation in all cases (especially in case of a serious oil spill incident) due to the existence of the limitation of liability, while the shipowners were confronted with more radical liability (strict liability) and a heavy ÀQDQFLDOEXUGHQFRPSDUHGZLWKWKHVLWXDWLRQEHIRUHWKHDGRSWLRQRIWKH CLC where the liability was often based on fault.1627KLVFRQÁLFWRILQWHUHVWV was compromised and remedied by the idea of an international compensation fund whereby the cargo owner also contributed to the compensation regime. This was adopted at the 1971 Fund Convention.

751

It is very obvious that the 1971 Fund was tailored to supplement the provisions of WKH&/&$VDUHVXOWWKHVDPHGHÀQLWLRQVZHUHDGRSWHGWRNHHSFRQVLVWHQF\ and the liability of the Fund starts when the liability under the CLC ends.163 Such a scheme remained for the 1992 Conventions.

752

The Fund was originally established to complement the regime under the CLC whereby the shipowner is strictly liabile only up to certain amount, which cannot provide full compensation to the oil pollution victims in case of catastrophic spills. It seems the shift to the Fund is a step towards full compensation. However, WKURXJKWKHDERYHDQDO\VLVRQWKHKLVWRULFDOEDFNJURXQGZHPD\ÀQGRXWWKDWWKH Fund was actually designed to strike a balance between the competing interests of the shipping and the oil industry.

158 159 160 161 162

163

M. Jacobsson (supra fn. 19), 22. Press Statement of the IOPC Fund, 7 December 2004. D. Abecassis, The Law and Practice relating to Oil Pollution from Ships (1978), 220. See the discussion in part II. H. Tanikawa, A Revolution in Maritime Law: A History of the Original Legal Framework on Oil Spill Liability and Compensation, in: The IOPC Funds’ 25 Years of Compensating Victims of Oil Pollution Incidents (2003), 53. D. Abecassis, The Law and Practice relating to Oil Pollution from Ships (1978), 221.

Shifts in Compensation for Environmental Damage

237

7KHDLPRIWKH)XQGWRUHOLHYHWKHVKLSRZQHUIURPWKHKHDY\ÀQDQFLDO burden imposed by the 1969 CLC was removed in the 1992 Fund Convention. This shows the change of social needs and the re-allocation of balances between the shipping and the oil industry. The distribution issue also plays an important role here. It is not only the distribution between different industries, but also among different states. The shipping and the oil industries, as the two main industries involved in oil transportation at sea, have built up a system where the costs are shared between them. This is especially strengthened by the recent development of the establishment of the Supplementary Fund. The shipping industry, in order to re-strike the balance, provided the STOPIA and TOPIA 2006. It is also provided in the STOPIA and TOPIA 2006 that further study on the incidents of oil spills between 2006 and 2016 shall be carried out. The goal of such research is to reach an equal sharing of oil spill costs between the two industries. Another example of the distribution issue is embodied in the 1992 Fund Protocol where an upper limit of the contribution from one state was introduced. This came as a result of the lobbying of the Japanese who have always been a major contributor to the Fund. Such a change is to distribute the costs among states.

753

Moreover, the shift to the public instrument is also embodied particularly in the amendment made to the 1971 Fund through the 1992 Protocol. The responsibility imposed on the public instrument, being the state, is greater than the original 1971 version in the sense that the state should compensate for the loss caused by its delay in submitting the list of oil contributors.

754

*&RQFOXVLRQ The international marine oil pollution compensation regime provides a few generally interesting conclusions for the shifts in governance project. For instance, the history of the oil pollution conventions makes clear that shifts often took place as a result of sudden events, more particularly spectacular cases of oil pollution. It was often those cases that triggered the shift from private to public funding (i.e. the establishment of the IOPC Fund) or shifts within the private funding system (i.e. increasing the limit on liability). Hence, the legislator in this particular domain apparently does not base particular shifts on a clear idea of whether funding should preferably take place from private rather than from public sources.

755

The history of the conventions shows that this choice is often more the result of lobbying and competing interests of various powerful lobby groups. Moreover, the oil pollution case also shows that some shifts were merely copied from other international regimes, in this particular case, the nuclear liability conventions. For instance, the channelling of liability was, without much discussion, copied from the nuclear liability conventions, and also the limitation of liability on the shipowner was implemented as a kind of natural phenomenon in maritime law. Again this shows that, whereas one can academically develop criteria for

756

238

Michael Faure and Albert Verheij

the ideal legal framework providing optimal funding and compensation, the SROLWLFDOSURFHVVKDUGO\VHHPVWRWDNHLQWRDFFRXQWFULWHULDVXFKDVHIÀFLHQF\ or effectiveness. Rather it seems that the relative strength and political power of the parties involved in the lobbying will determine what shifts take place and how these are shaped. 757

Finally, the oil pollution case also nicely illustrates that states and more particularly state delegations at the convention, of course represent the point of view of the major interest groups within their country. Hence, even though neither the shipping industry nor the oil companies were formally involved in the drafting of the conventions, one can clearly see that the conventions are the results of a compromise which results from the way in which the various states represented the interest of the involved industries.

758

$ÀUVWVKLIWZKLFKFDQEHLGHQWLÀHGFRQFHUQVWKHPDLQSOD\HUZKRRUJDQL]HVWKH conferences. This consists of a shift from a private organization (CMI) to a public organization (IMO). Such a shift from a non-governmental to a governmental organization represents a shift from a private law to a public law instrument. The international oil pollution compensation regime has also gone through a change in mechanism from voluntary industry schemes to international conventions. The reason behind such shifts is that the maritime world stresses the importance of international uniformity. Although such a striving for uniformity in legal rules PD\EHQHLWKHUHIÀFLHQWQRUHIIHFWLYHLWGRHVPRWLYDWHFKDQJHLQWKHLQWHUQDWLRQDO oil pollution regime. For instance, at the threat of the EU setting up a regional compensation fund, the international conventions were amended to take into account the needs of the EU and to avoid further regional action.

759

The shifts within private law, including the shift to strict liability while capping at a certain amount, and the shift to public law, being the shift to the compensation fund, were the result of a political compromise. It was already realized at the 1969 conference that a new convention without support from the major maritime nations would be meaningless since it would inevitably impose liability on the shipping industry or shipping-related interests. Therefore, the negotiation of the international convention was a compromise considering the interests of these coastal states and shipping nations, as wide acceptance by a large number of shipping states was necessary for the new convention to become effective. Hence, the whole process to bring about the international convention was not a purely legal discussion, but more the result of a balance struck between all the interests involved – the oil, the shipping and the insurance industries. It is probably more a political than a legal process.164

164

See also: N. Gaskell, Decision Making and the Legal Committee of the International Maritime Organization, Legislative Approaches in Maritime Law, in: Proceedings from the European Colloquium on Maritime Law (2000), 41-91.

Shifts in Compensation for Environmental Damage

239

The strict liability on the shipowner was argued by those with interests in shipping to be too severe, and the limitation was needed to mitigate such harshness. Moreover, the shipping industry alone would not agree to assume liability unless the oil industry shared the costs as well. The Fund was thus designed to strike the balance between the shipping and the oil industry.165

760

The goal of the 1969 CLC was set to achieve full compensation for oil pollution victims, but the adopted limitation of liability is obviously against such a principle. Since the liability is capped at a certain amount, full compensation might be impossible in case of catastrophic oil spill when the actual damage is greater than the limited amount. The long maritime tradition to limit the liability RIWKHVKLSRZQHUWRDFHUWDLQDPRXQWKDVLQÁXHQFHGWKHGHVLJQRIWKHRLOSROOXtion compensation regime, thus the limited liability was unanimously accepted. Moreover, the limitation of liability was considered necessary since it could mitigate the severe strict liability imposed on the shipowner by the CLC.

761

However, it seems paradoxical that the shift to limited liability was included in the 1969 CLC, but that the limitation amount has been increased several times since its adoption. This was mainly because some catastrophic oil spill incidents are indeed of a greater scale than the limited amount, and in order to reach the goal of full compensation of oil pollution victims, the limitation amount was UDLVHGWRWKHOHYHOZKLFKZDVFRQVLGHUHGVXIÀFLHQWDWWKHWLPH7KHTXHVWLRQZDV asked since the limitation amount was raised so high that the limitation could be abolished as a principle.

762

A shift in liability to one exclusive party seems most problematic. The shift FDPHDVWKHGUDIWVPHQZHUHLQÁXHQFHGE\WKHQXFOHDULQGXVWU\7KHFKDQQHOOLQJ PD\ KDYH WKH DGYDQWDJH RI HDV\ LGHQWLÀFDWLRQ RI WKH UHVSRQVLEOH SDUW\ However, when the parties are protected from assuming liability under the channelling provision, they may lose the incentive to take preventive measures at all. Therefore, channelling is often criticized especially by economists as EHLQJLQHIÀFLHQW$QGDJDLQKLVWRU\KDVVKRZQWKDWGHVSLWHWKHFULWLFLVPRI channelling, it was nevertheless established and kept through history, mainly as a result of political concession.

763

165

The wide acceptance of the CLC was considered largely due to the supplementary fund. See C. De La Rue, Review of the Civil Liability and Fund Conventions, in: CMI Yearbook (2003), 579.

240

Michael Faure and Albert Verheij

/LVWRIUHIHUHQFHV D. Abecassis, The Law and Practice relating to Oil Pollution from Ships (1978), 220, 221. G. Becker, Acronyms and Compensation for Oil Pollution Damage from Tankers, [1983] Texas International Law Journal 18, 475-481. G. Becker/P. Ghee, The Development of TOVALOP and the 1978 Changes, in: Ten Years of TOVALOP (1979), 6. A.L. Doud, Compensation for Oil Pollution Damage: Further Comment of the Civil Liability and Compensation Fund Conventions, [1973] Journal of Maritime Law and Commerce (JMLC) 4, 541. M. Faure, Causal Uncertainty, Joint and several Liability and Insurance, in: H. Koziol/ J. Spier (eds.), Tort and Insurance Law, Vol.10, 93. N. Gaskell, Decision Making and the Legal Committee of the International Maritime Organization, Legislative Approaches in Maritime Law, in: Proceedings from the European Colloquium on Maritime Law (2000), 41-91. E. Gold, Handbook on Marine Pollution (1985), 26, 117. P. Griggs, Uniformity of Maritime Law – A CMI Perspective, Legislative Approaches in Maritime Law, in: Proceedings from the European Colloquium on Maritime Law (2000), 14-15. P. Griggs, Common Law and Civil Law: A CMI Perspective, in: E. Van Hooydonk (ed.), English and Continental Maritime Law, After 115 Years of 0DULWLPH /DZ 8QLÀFDWLRQ D 6HDUFK IRU 'LIIHUHQFHV EHWZHHQ &RPPRQ /DZ and Civil Law (2003), 162. A. Hetherington, The Growth of the Federation and the Establishment of Other Compensation Agreements, in: Ten Years of TOVALOP (1979), 3-4. M. Jacobsson, The International Compensation Regime 25 Years On, in: The IOPC Funds’ 25 Years of Compensating Victims of Oil Pollution Incidents (2003), 13, 16, 19-20, 22. S. Mankabady (ed.), The International Maritime Organization (1986), 378. M. Moller, Some Shipowners’ Views on TOVALOP and the Federation, in: Ten Years of TOVALOP (1979), 10. C. M. Lemos, Some Shipowners’ Views on TOVALOP and the Federation, in: Ten Years of TOVALOP (1979), 10. A. Popp, Oil Spills – Who Pays for them and How much? An overview of the International Compensation System, (2002).

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241

V. Power, EC Shipping Law (2nd ed. 1998). E. Røsæg, The Impact of Insurance Practices on Liability Conventions, in: Proceedings from the European Colloquium on Maritime Law (2000), 125. C. De La Rue, Oil Pollution from Ships – Review of the Civil Liability and Fund Conventions, CMI Yearbook (2003), 576-580. C. De La Rue/C. Anderson, Shipping and the Environment Law and Practice (1998), 4, 8. R.C. Seward, The Insurance Viewpoint, in: The Limitation of Shipowners’ Liability: The New Law (1986), 114, 163, 185. H. Tanikawa, A Revolution in Maritime Law: A History of the Original Legal Framework on Oil Spill Liability and Compensation, In: The IOPC Funds’ 25 Years of Compensating Victims of Oil Pollution Incidents (2003), 53. C. Wu, Pollution from the Carriage of Oil by Sea: Liability and Compensation (1996).

2IÀFLDOGRFXPHQWV 2IÀFLDO 5HFRUGV RI WKH ,QWHUQDWLRQDO /HJDO &RQIHUHQFH RQ 0DULQH 3ROOXWLRQ Damage 1969. 2IÀFLDO5HFRUGVRIWKH&RQIHUHQFHRQWKH(VWDEOLVKPHQWRIDQ,QWHUQDWLRQDO Compensation Fund for Oil Pollution Damage 1971.

VII. Maritime Oil Pollution: an Empirical Analysis Ruud Hendrickx $,QWURGXFWLRQ Oil pollution is a dirty affair. Not only does it damage the natural environment, EXWLWDOVRLQÁLFWVHFRQRPLFKDUPHJRQÀVKHULHVDQGWKHWRXULVPLQGXVWU\6R when an accident occurs, costs are made in the form of a clean-up operation and compensation to the economic victims. There are several ways in which these ÀQDQFLDOFRQVHTXHQFHVRIDQRLOVSLOOFDQEHDUUDQJHG,QWKLVSDSHUZHDQDO\VH the effects of one particular system, the 1990 US Oil Pollution Act (OPA).

764

We perform a brief empirical study1 of maritime oil pollution. We consider two DVSHFWVWKHSK\VLFDODVSHFWWKHQXPEHURIRLOVSLOOV DQGWKHÀQDQFLDODVSHFW (compensation payments for oil pollution). We study whether trends can be observed in these two quantities over time. For the physical aspect of our study, we use data from the Oil Spill Database. This database is maintained by the Oil Spill Intelligence Report (OSIR), which began publication in 1978. The data in our study relate to the period 1978-1997 and are taken from Etkin (1999). The main international compensation mechanisms for oil spills have been the 1971 and 1992 International Oil Pollution Compensation Funds (IOPC). Since most of the claims on the 1992 IOPC are still (partially) pending, we shall focus on the 1971 IOPC. The data are taken from the IOPC 2003 Annual Report.

765

The IOPC Funds were set up following the 1969 International Convention on Civil Liability for Oil Pollution Damage (CLC), which involves most major economies in the world. One notable absence, however, is the United States.

766

1

All statistical analyses in this paper have been performed using EViews 4.0 ©.

244

Michael Faure and Albert Verheij

Hence, oil pollution victims in the US cannot claim compensation on the IOPC Funds and have to rely on local mechanisms (both at state and federal level). In 1990, several pieces of existing legislation in the US were combined and replaced by the OPA. This Act serves three main purposes: the introducWLRQ RI D FHUWLÀFDWLRQ V\VWHP IRU RLO WDQNHUV VWLSXODWLQJ VRPH WHFKQRORJLFDO requirements);a shift towards a stricter liability regime in case of an accident, and the introduction of a compensation fund (the Oil Spill Liability Trust Fund, OSLTF) to compensate victims of accidents for which the perpetrator cannot EHLGHQWLÀHGRULVXQDEOHWRSD\ For the OSLTF, we also analyse some empirical data from 1998-2002, which are taken from National Pollution Funds Center (2002) 767

The shift in governance that the OPA brought about is the main topic of this paper. In our concluding section, we look at the empirical evidence from the previous sections and attempt to answer the question of what consequences the introduction of the OPA has had for oil spills and oil spill victims.

768

Systematic oil spill data (OSIR) are available from 1978 onwards and we will focus on this period for most of the paper. However, the various sources we use relate to different time periods, making some extrapolations necessary. In addition, some of the sources only provide partial information for free. Given the nature of our project, we have chosen to restrict ourselves to data that are in the public domain.

769

This paper is organised as follows. Section 2 contains some background information concerning the volume of oil exports and the number of tankers in use. In section 3 we analyse the OSIR data and test for trends in the oil spill data. Section 4 discusses compensation from the 1971 IOPC Fund, while the OSLTF is the topic of section 5. We conclude with a discussion on the shift in governance caused by the OPA in section 6.

%%DFNJURXQGGDWD 770

To put our analysis of oil spills into context, we depict in Figure 1 the total amount of world oil exports in the period 1960-2003 (OPEC (2003)).

771

$VFDQEHVHHQIURP)LJXUHRLOH[SRUWVGHFOLQHGLQWKHÀUVWKDOIRIWKHV Two main factors account for this decrease: a hike in the US dollar price of crude oil at the end of the 1970s (cf. OPEC (2003)) and the increasing value of the US dollar relative to other Western currencies during this period. $IWHUWKH3OD]D$FFRUGLQ6HSWHPEHUZKHUHWKHÀQDQFHPLQLVWHUV RI WKH ZRUOG·V ÀYH ELJJHVW HFRQRPLHV VXFFHVVIXOO\  WRRN PHDVXUHV WR EULQJ downward pressure on the dollar, oil exports started rising again and have increased for most of the time since.

Shifts in Compensation for Environmental Damage

245

)LJXUH:RUOGH[SRUWVRIFUXGHRLODQGUHÀQHGSURGXFWV

The vast majority of exported oil is transported by oil tankers, although in recent years, the use of pipelines has increased. The total number of oil tankers in the period 1979-2003 is depicted in Figure 2 (OPEC (2003)). It follows a similar pattern to the export volumes in Figure 1, but the increase in tanker capacity is much slower than the increase in the total volume of oil exports. Apart from a partial substitution by transport through pipelines, this is an indication of DQLQFUHDVHLQWKHDYHUDJHVL]HRIRLOWDQNHUVRUDPRUHHIÀFLHQWXVHRIWKHVH vessels. In any case, the number of tonne-miles transported by sea appears to have risen.

Figure 2: Total number of oil tankers

772

246

Michael Faure and Albert Verheij

&2LOVSLOOTXDQWLWLHV 773

In this section we look at the number of oil spills as observed by the Oil Spill Intelligence Report (OSIR). OSIR has been gathering statistics on oil spills of at least 10,000 gallons (34 tonnes) since 1978. A brief discussion on OSIR can be found in Etkin/Welch (1997). The data we use in our analysis (Etkin (1999)) relate to the period 1978-1997 and can be found in Table 1 in the Appendix. The Oil Spill Database contains oil spill cases from various source types: not only spills resulting from tanker accidents, but also spills from pipelines, on- and offshore facilities, etc. In fact, spills from non-vessel sources are more numerous than spills from vessel sources. However, since separate data on vessel spillages only are not publicly available, we use the aggregate statistics by OSIR as the best available proxy for spills from tankers.2

774

The total amount of oil spilled is depicted in Figure 3. Etkin (1999) notes that a small number of big oil spills make up the brunt of total oil pollution, as can be readily observed in Table 1. Moreover, the occurrence of spills is greatly skewed by major incidents like the 1991 Gulf War. Because the variability in total spills is far greater than the variability in export volumes, the relative oil spill rate (as a percentage of total tonnage transported) follows a similar pattern to the absolute spills in Figure 3. Figure 3: Total amount of oil spilled

2

Due to differences in preventive legislation and technology, one cannot readily assume that vessel spills and non-vessel spills develop similarly over time. Hence, the OSIR data might well yield imprecise results.

Shifts in Compensation for Environmental Damage

247

In order to obtain a representative picture of the evolution of the occurrence of oil spills, we shall consider only the category of oil spills between 10,000 and 100,000 gallons each, which constitute the smallest spills in the database. Although these smaller scale spills represent a small fraction of total pollution, they should give a good indication of any trend in the number of accidents ZLWKRXWEHLQJWRRJUHDWO\LQÁXHQFHGE\H[WUHPHHYHQWV

775

The number of spillages between 10,000 and 100,000 gallons each is depicted in Figure 4. Indeed, this time series is less erratic than the aggregate volume series, which is to a large extent determined by a few big spills.

776

Figure 4: Number of oil spills of 10,000-100,000 gallons each

The number of cases peaked in 1990, reaching 307. The average over the whole time period is around 197 cases per year. Two remarkable features are apparent from Figure 4: ² –

777

WKH SUHVHQFH RI SRVLWLYH ÀUVWRUGHU DXWRFRUUHODWLRQ LH KLJK DQG ORZ quantities of spills seem to be clustered instead of randomly distributed over the whole time period; a distinct downward trend in the number of occurrences since 1990.

We shall deal with these two features separately. First of all, the apparent DXWRFRUUHODWLRQ7HVWLQJIRUWKHSUHVHQFHRIÀUVWRUGHUDXWRFRUUHODWLRQ\LHOGVD

778

248

Michael Faure and Albert Verheij

Q-statistic of 6.09, so the null hypothesis of a random walk can be comfortably UHMHFWHG DW  VLJQLÀFDQFH OHYHO ,QGHHG HVWLPDWLQJ D PRGHO ZLWK RQO\ WKH FRQVWDQWWHUPDQGWKHÀUVWWLPHODJ\LHOGVDKLJKO\VLJQLÀFDQWDQGODUJHFRHIÀFLHQW of 0.83.3 So, if in a particular year the amount of spills is high, it is very likely that this amount will also be high in the next year. Or, very roughly put, this means that 83% of the number of spills in a particular year can be predicted by what happened the year before while the remaining 17% is the result of random ÁXFWXDWLRQV(YLGHQFHRIKLJKHURUGHUDXWRFRUUHODWLRQLVDEVHQW One obvious explanation for the presence of positive autocorrelation is that whenever a new piece of legislation concerning oil spills is enacted or whenever a safer transport technology becomes available, its effects do not only have an impact on the current year, but on subsequent years as well. E.g., the enactment in 1990 of the US Oil Pollution Act, which shifted the liability regime in case RIDQDFFLGHQWLVOLNHO\WRKDYHKDGDVLPLODULQÁXHQFHRQWKHQXPEHURIVSLOOV in 1991 as on spills in subsequent years. 779

1H[WZHZDQWWRWHVWZKHWKHUWKHGRZQZDUGWUHQGVLQFHLVVLJQLÀFDQW)RU this, we estimate the following model: yt = B0 + B1 * yt-1 + B2 * (1-dt) * (t – 1990) + B3 * dt * (t – 1990), where yt denotes the number of spills in year t (ranging from 1979 to 1997) and dtLVDGXPP\YDULDEOHHTXDOOLQJLIW! DQGRWKHUZLVH7KHÀUVWWLPH lag of the dependent variable is included to allow for the autocorrelation. The FRHIÀFLHQWB2 represents the time trend of the number of oil spills prior to 1990, while B3 represents its trend from 1990 onwards.

780

Using least squares yields the following estimation results: Variable

Estimate

Standard error

B0

120.01

53.28

B1

0.57

0.21

B2

4.51

2.78

–15.13

4.53

B3 2

adj. R

0.61

7KHÀJXUHVVKRZWKDWSULRUWRWKHWUHQGLVVOLJKWO\LQFUHDVLQJWKRXJKQRW VLJQLÀFDQWDWOHYHO7KHGRZQZDUGWUHQGIURPRQZDUGVLVTXLWHUDSLG DWFDVHVSHU\HDUDQGKLJKO\VLJQLÀFDQWWKHWVWDWLVWLFLV²  3

The estimated equation, using least squares, is yt = 29.18 (48.53) + 0.83 (0.23) * yt-1, where yt represent the number of spills at time t and the standard errors are between brackets. The implied long-run average of spills equals 29.18 ÷ (1 – 0.83) = 167.53.

Shifts in Compensation for Environmental Damage

249

Etkin (1999) cautions that the downward trend could well be a cyclic rather than a structural phenomenon. Indeed, if the effect of autocorrelation is not taken into account, the downward trend would be even more pronounced at nearly 20 cases per year (t-statistic –4.29). The high R2 of our regression (with only 19 REVHUYDWLRQV DQGKLJKVLJQLÀFDQFHRIWKHHVWLPDWHIRUB3 allow us to conclude with some conviction that after properly allowing for autocorrelation, there is a GHÀQLWHGRZQZDUGWUHQGLQWKHQXPEHURIVSLOOVIURPRQZDUGV*LYHQWKH increase in total oil exports and the number of tankers during this period, this is a clear indication that oil transport has become safer. In fact, the estimated rate of decline is such that the number of spills would have turned negative as early as 2000. More recent data are not yet available to assess how much this downward trend has slowed down in recent years. We should reiterate that the data analysed here only relate to the number of spills between 10,000 and 100,000 gallons each. However, from Table 1 in the $SSHQGL[RQHPLJKWFRQFOXGHZLWKVRPHFRQÀGHQFHWKDWWKHHYLGHQFHRID GRZQZDUGWUHQGREVHUYHGIRUWKLVVXEVDPSOHRIFDVHVZKLFKLVOHVVLQÁXHQFHG by extreme events) can be extended to the wider sample of cases.

781

'2LOSROOXWLRQFRPSHQVDWLRQ,23&)XQG In this section, we shall consider compensation payments from the 1971 International Oil Pollution Compensation (IOPC) Fund. This fund has handled a total of 107 cases, 91 of which have resulted in a payment of compensation. Unfortunately, for each case IOPC provides only the date of the accident and not the date(s) of compensation. Probably, the time interval between accident and payment of compensation is correlated with the size of the compensation: it is reasonable to suppose that large claims take longer to settle than smaller claims.4 Hence, comparisons over time between the amounts involved could be somewhat distorted by such a bias. One additional complication is that a number of cases are still (partially) pending. We have chosen to include these outstanding claims as if they were already fully awarded. Since we use a logarithmic transformation of the payments and on a logarithmic scale the amounts involved in these pending claims are relatively small, this should not make a great difference to the analysis. Also, given the relatively few cases in the second half of the sample which have resulted in no compensation payment at all, one can safely assume that the majority of the pending cases result in at least a partial compensation payment and hence, that their inclusion in the analysis should not greatly distort the ÀJXUHVRQWKHWRWDOQXPEHURIFDVHV

4

In fact, IOPC is performing a study on the speed with which claims are handled.

782

250

Michael Faure and Albert Verheij

783

We have converted each compensation amount into US dollars, using for each accident the exchange rate on 31 December of the year of its occurrence. We used the Bank of England (2005) for the currencies available there and for other rates we used OANDA.com (2005).5 The dollar amounts paid in the 91 cases are listed in Table 2 of the Appendix. For a more detailed description of the cases, the reader is referred to IOPC (2003). Since the compensation data are greatly skewed, ranging from $624 to $216m, we have transformed the data using the logarithm. A histogram of the log compensation payments is depicted in Figure 5.

784

In Figure 6, we depict a regional breakdown of the 1971 IOPC Fund payments. A majority of claims emanate from accidents in Asia. Nearly half of all claims UHVXOWIURP-DSDQHVHRLOVSLOOVLGHQWLÀHGVHSDUDWHO\LQWKHFKDUW ZKLOHDIXUWKHU 16% of claims relate to other Asian countries, most notably South Korea. Europe makes up about a quarter of all claims, while the remainder is shared by the Americas, Africa and the Middle East. The 1971 IOPC Fund does not apply in the United States, which explains the relative absence of the Americas in the FODLPVÀJXUHV

# observations

Figure 5: Histogram of log compensation payments from 1971 IOPC Fund

5

For the Algerian Dinar (1986) and the UAE Dirham (1987), we used the earliest available exchange rate (on 23 October 1993).

Shifts in Compensation for Environmental Damage

251

Figure 6: 1971 IOPC Fund payments by region

2IWKHVL[UHJLRQVLGHQWLÀHGDERYH-DSDQLVVSHFLDOLQWKHVHQVHWKDWRQDYHUDJH WKH FODLPV IURP WKDW UHJLRQ DUH VXEVWDQWLDOO\ DQG VLJQLÀFDQWO\  ORZHU WKDQ FODLPVIURPWKHRWKHUÀYHUHJLRQV2QHSUREDEOHH[SODQDWLRQLVWKDWDVDUHVXOW of geological factors, Japan is mainly served by smaller tankers. The relatively low limit of liability for such tankers leads to a higher proportion of accidents leading to (small) claims on the Fund.

785

Scattering log payments against time yields Figure 7. Note that each observation corresponds to a particular case and there may be multiple observations in a single year. No clear pattern in compensation payments emerges from the picture. Both the number of payments and the amounts compensated seem to rise slightly over time, but these increases seem modest.

786

In order to obtain a clearer picture of the amounts involved, we depict in Figure 8 the number of payments per year and in Figure 9 the log of the aggregate payments in each year.6 As was the case for the number of incidents in the previous section (from OSIR), a change seems to occur around 1990. This time, however, we witness a slight increase in the number of cases until 1997, as well as a large increase in the amounts of money involved.

787

6

Since there were no payments related to accidents in 1999, the log aggregate payment for WKDW\HDULVQRWGHÀQHG

252

Michael Faure and Albert Verheij

Figure 7: Scatter of 1971 IOPC log payments against time

Figure 8: Number of payments from 1971 IOPC Fund

Shifts in Compensation for Environmental Damage

253

Figure 9: Log aggregate payments from 1971 IOPC Fund

To test for a trend change in compensation payments after 1990, we estimate the following model twice:

788

yt = B0 + B1 * (1-dt) * (t – 1990) + B2 * dt * (t – 1990), where dtHTXDOVLIW! DQGRWKHUZLVH,QWKHÀUVWPRGHO\t equals the number of payments made in year t and in the second model it equals the log aggregate payment in year t. In order to compare properly with the OSIR volume data in the previous section, we only use the 19 observations from 1979 to 1997 to estimate the parameters in our two models. The estimation results for the two models are given below: Number of cases Variable

Aggregate payments

Estimate

Standard error

Estimate

Standard error

B0

4.09

0.88

15.04

0.86

B1

0.11

0.14

0.01

0.14

0.49

0.24

0.69

0.23

B2 Adj. R

2

0.31

0.39

As was to be expected from the pictures, the R2 for these two estimations is considerably lower than for the OSIR data. In both current models, there is no

789

254

Michael Faure and Albert Verheij

evidence for residual serial correlation in the compensation data. Apparently, given the trend, high and low observations are quite randomly spread over the sample period. 790

A remarkable feature of the compensation payments is their stationary character until 1990, as can be seen from the very low t-values for B1. After 1990, both the number of cases and total payments rise rapidly. So although OSIR observes a drop in the number of spills during the early nineties, the number of compensation payments from the 1971 IOPC Fund actually increased during this period. Of course, the analysis is somewhat biased by our assumption that all pending cases result in at least a partial payment of compensation, but the magnitude of the change in trend measured above provides a solid basis for the conclusion that the number of compensation payments has risen since 1990. The increase in compensation activity by the 1971 IOPC Fund despite a declining number of accidents is the more remarkable since the introduction of the 1992 IOPC Fund has added another major source for compensating oil claims. We will discuss this phenomenon in our concluding section.

(2LOSROOXWLRQFRPSHQVDWLRQ2LO6SLOO/LDELOLW\7UXVW)XQG 791

The 1990 US Oil Pollution Act set up a fund, the Oil Spill Liability Trust Fund (OSLTF), to compensate victims of oil pollution in US navigable waters. The OSLTF covers spills from various sources and only partially relates to damage caused by maritime vessel spills. In this section, we discuss some (very aggregate) data concerning claims on the OSLTF. First of all we should stress that, contrary to the 1971 IOPC Fund, the OSLTF does not deal exclusively with spills from oil tankers. In fact, between 1990 and 2002, in only around 2% of cases in which the source of the spill could be established, were oil tankers the culprits, accounting for less than 4% of total costs (NPFC (2002)). With this caveat in mind, however, it is still interesting to compare the claims on the OSLTF with the 1971 IOPC Fund discussed in the previous section. In Figure 10 we depict the total number of claims on the OSLTF for ÀQDQFLDO\HDUVWR7KHDPRXQWVSDLGLQWKLVSHULRGDUHGHSLFWHGLQ Figure 11. In total, around two thirds of all claims have been fully or partially paid by the OSLTF.

792

7KHWZRÀJXUHVSUHVHQWDVRPHZKDWGLIIHUHQWSLFWXUHIURPWKRVHLQWKHSUHYLRXV section. On the one hand, the number of claims on the OSLTF fell between 1998 and 2002, whereas the number of claims on the 1971 IOPC Fund increased between 1990 and 2001 (Figure 5). On the other hand, the total amounts compensated have steadily increased, as was also the case for the 1971 IOPC fund (Figure 6).

Shifts in Compensation for Environmental Damage

255

Figure 10: Claim submissions to OSLTF

Unfortunately, not many detailed OSLTF data are publicly available to properly test for these trends or to pinpoint their underlying causes. However, we can XVHWKHÀJXUHVSUHVHQWHGKHUHWRDQDO\VHWKHFRQVHTXHQFHVRIWKHVKLIWFDXVHG by OPA’s introduction. This will be the subject of the next section. Figure 11: Amounts paid from OSLTF

793

256

Michael Faure and Albert Verheij

)6KLIWVLQJRYHUQDQFH 794

In this concluding section we analyse some of the effects of the introduction of compensation funds for oil pollution victims. Since the Oil Spill Intelligence Report data only became available in 1978, we cannot measure the impact of WKHLQWURGXFWLRQRIWKHÀUVWPDMRUFRPSHQVDWLRQIXQGWKH,QWHUQDWLRQDO Oil Pollution Compensation (IOPC) Fund. Two of the instruments provided for by the 1990 Oil Pollution Act (OPA) ZHUHDFHUWLÀFDWLRQV\VWHPWRLPSURYHRLOWDQNHUVDIHW\DQGWKHVHWXSRIDQHZ compensation fund (the Oil Spill Liability Trust Fund, OSLTF) for oil damage LQFDVHWKHSROOXWDQWFDQQRWEHLGHQWLÀHGRULVXQDEOHWRSD\,QDGGLWLRQOLDELOLW\ IRURLOSROOXWLRQKDVEHFRPHVWULFWHU7KHHIIHFWVRIWKHVHVKLIWVDUHGLIÀFXOWWR measure separately. However, together with the IOPC data, we can draw some conclusions on the effect of the introduction of the OPA.

795

First of all, we summarise the main evidence from the previous sections: 1. 2.

 

 6.

7. 8. 796

Total oil exports have risen steadily in the past half-century, except in the early 1980s as a result of a price spike. The total number of oil tankers has also increased from the mid-1980s. However, this increase is far slower than the rise in export volumes, indicatLQJDPRUHHIÀFLHQWXVHRIWKHVHYHVVHOVRUDQLQFUHDVHLQWKHLUDYHUDJH capacity. 0DMRULQFLGHQFHVGRPLQDWHRLOVSLOOYROXPHÀJXUHVGUDZQIURPWKH2LO Spill Intelligence Report, OSIR). &RQVLGHULQJPLQRUVSLOOÀJXUHVWRQQHVHDFK DVDSUR[\ for total systematic (i.e., not disturbed by extreme events like the 1991 *XOI:DU RLOVSLOOVZHGUDZWKHÀUPFRQFOXVLRQWKDWRLOVSLOOLQFLGHQFHV have declined rapidly since the early 1990s. 7KHUHLVDSRVLWLYHDXWRFRUUHODWLRQLQWKHPLQRUVSLOOÀJXUHVLH\HDUVRI many incidents and years of few incidents tend to be clustered. The 1971 IOPC Fund has handled 107 cases in total, 91 of which resulted in a compensation payment. The majority of cases concerns Asia (most notably Japan) and, to a lesser extent, Europe. There are not many claims resulting from spills in Africa, the Americas and the Middle East. Both the number of claims on the 1971 IOPC and the amounts awarded were stationary until approximately 1990 and increased substantially afterwards. The amounts paid by the OSLTF increased between 1998 and 2002, although the number of claims dropped during this period.

Without any doubt, oil spills have become less frequent since 1990. The OSIR data, which exhibit this trend, are of a high quality and are updated scrupulously. Since the number of tonne-miles of oil tanker transportation has risen during this period, this implies that oil tankers must have become safer. Improving the safety of oil tankers is a matter of technology. This technological improvement is driven by two main factors: political and economic. A

Shifts in Compensation for Environmental Damage

257

political impetus is provided by means of new legal requirements on tankers. An important economic argument for researching and implementing new technologies is the costs of not doing so, e.g., the costs that result from accidents that would have been avoided by using newer technology. On both counts, the 1990 OPA should be a contributing factor to the decline LQWKHQXPEHURIRLOVSLOOV7KHFHUWLÀFDWLRQV\VWHPZKLFKDPRQJRWKHUWKLQJV made double hulls mandatory, has had a direct impact on all oil tankers entering US navigable waters. The positive effects of this measure, as a result, stretch beyond the US jurisdiction. In addition, the shift to a stricter liability regime in case of an accident constitutes an economic incentive to improve safety. The impact of the introduction of the OSLTF is less clear. Because this fund deals ZLWKVSLOOFDVHVLQZKLFKWKHSROOXWDQWFDQQRWEHLGHQWLÀHGRULVXQDEOHWRSD\ LWSURYLGHVQRLQFHQWLYHWREXLOGVDIHURLOWDQNHUV7KHUHLVKRZHYHUDÀQDQFLDO link, since one of the revenue sources of the OSLTF are the cost recoveries for damages. So, it is the strict liability regime feeding the fund that does the job, not the fund in itself. The question remains why both the 1971 IOPC Fund and the OSLTF saw higher compensation payments during the 1990s. Below, we list some possible explanations: 1.   4. 5. 6.

Clean-up operations have become more expensive. Under pressure from environmental groups and public opinion, they have become more meticulous. ,QÁDWLRQLQWKHFRPSHQVDWLRQDPRXQWVIRUHFRQRPLFGDPDJH )RUDKLJKHUSURSRUWLRQRIVSLOOVWKHSROOXWHUFDQQRWEHLGHQWLÀHG3XW cynically, as a result of stricter liability, polluters might have improved their skill of concealing their identity.) A higher proportion of polluters are unable to pay for the damages they are liable for. Lower liability limits (under the CLC), so a larger proportion of costs is borne by the fund. Victims have become more active in seeking compensation.

Liability limits have not decreased and there is no evidence that the proportion RIP\VWHU\VSLOOVDQGLQVROYHQWSROOXWHUVKDVULVHQ,QÁDWLRQVHHPVWRKDYHEHHQ the main force behind increasing compensation levels, possibly together with greater awareness of claim possibilities.

797

258

Michael Faure and Albert Verheij

/LVWRIUHIHUHQFHV Bank of England, Monetary & Financial Statistics Interactive Database – interest & exchange rates data (2005), <www.bankofengland.co.uk>. D. Etkin, Historical overview of oil spills from all sources (1960-1998), [1999] Proceedings of the 1999 International Oil Spill Conference, 1097-1102. D. Etkin/J. Welch, Oil Spill Intelligence Report International Oil Spill Database: trends in oil spill volumes and frequency, [1997] Proceedings of the 1997 International Oil Spill Conference, 949-951. International Oil Pollution Compensation Funds, Annual Report 2003 (2003), <www.iopcfund.org>. National Pollution Funds Center, Year in Review FY2001-FY2002 (2002), <www. uscg.mil/hq/npfc>. OANDA.com, FXHistory: historical currency exchange rates (2005), <www. oanda.com>. OPEC, Annual Statistical Bulletin 2003 (2003), <www.opec.org>.

Shifts in Compensation for Environmental Damage

259

$SSHQGL[ Table 1: Occurrence of oil spills (Source: Etkin (1999)). 10,000-100,000 gallons each

100,000-1m gallons each

1m-10m gallons each

More than 10m gallons each

Total

Year

Spills

Tonnes

Spills

Tonnes

Spills

Tonnes

Spills

Tonnes

Spills

1978

181

23,430

66

62,629

19

208,728

8

623,680

302

918,467

1979

194

25,065

78

72,133

23

314,837

8

1,050,908

346

1,462,943

1980

232

27,835

62

56,922

19

187,255

3

304,626

382

576,638

1981

193

22,010

55

48,034

3

41,790

1

106,003

288

217,837

1982

176

48,119

52

48,119

6

43,674

0

0

284

139,912

1983

176

18,915

46

46,895

15

190,095

4

640,476

270

896,381

1984

181

17,442

59

48,320

7

58,425

0

0

257

124,187

1985

155

15,478

53

52,296

4

44,017

1

72,626

218

184,417

1986

194

19,377

56

67,827

5

69,571

2

27,306

316

184,081

1987

230

23,583

52

55,017

8

60,299

0

0

318

138,899

1988

198

22,262

76

74,833

7

53,408

2

182,660

289

333,163

1989

229

23,355

62

66,339

10

99,899

2

105,442

306

295,035

1990

307

32,034

75

76,955

9

81,862

0

0

395

190,851

1991

230

21,430

53

52,405

7

53,926

3

1,010,204

306

1,137,965

1992

244

23,471

61

52,336

5

48,855

3

424,830

321

549,492

1993

242

23,917

49

49,770

10

99,588

1

85,034

308

258,309

1994

228

24,227

60

58,622

8

97,908

2

141,497

308

322,254

1995

164

17,060

50

52,967

2

8,751

0

0

220

78,778

1996

118

14,496

50

46,609

3

29,455

2

108,279

202

198,839

1997

61

6,864

49

51,830

9

106,830

0

0

136

165,524

1

1

Tonnes

Includes incidents (>10,000 gallons) where no amount was provided or FRQÀUPHG

260

Michael Faure and Albert Verheij

Table 2: US$ amounts paid from 1971 IOPC Fund (Source: IOPC (2003), converted to US$ by author; spill incident dates indicated) 27-02-79

22-03-79

21-06-79

08-12-79

09-01-80

07-03-80

03-06-80

22,341,564

681,727

771,635

47,411

465,724

52,636,652

864,897

21-08-80

21-11-81

22-11-81

03-03-82

31-03-82

03-04-82

01-12-82

984,575

37,704

467,953

4,676,088

292,031

1,482,593

2,404

21-06-83

13-08-83

22-12-83

26-08-84

05-11-84

05-03-85

02-08-85

6,214

145,716

116,901

71,087

402,689

112,397

937,682

03-01-86

09-01-86

18-12-86

21-12-86

06-02-87

25-08-87

18-12-87

1,484,584

624

301,245

3,357,554

421,687

422,468

13,857

31-01-88

12-03-88

10-12-88

15-05-89

18-05-89

15-06-89

28-06-89

216,130

52,723

3,353,640

7,567

144,494

4,914

63,291

28-10-89

05-04-90

11-04-90

12-04-90

14-05-90

27-07-90

16-10-90

23,308

42,438

349,202

9,956

2,855,618

8,943

11,004,749

05-11-90

07-03-91

05-04-91

10-04-91

11-04-91

12-04-91

27-12-91

494,233

1,489,711

52,302

1,347,350

66,493,087

720,111

13,557

09-06-92

03-12-92

05-01-93

16-01-93

12-04-93

31-05-93

23-07-93

37,850

139,498,575

77,986,315

95,149

272,227

9,910,349

139,219

27-09-93

09-10-93

11-06-94

17-10-94

31-10-94

08-11-94

27-06-95

23,531,130

14,734,516

19,935

7,019,450

43,419

2,962,505

56,094

23-07-95

03-08-95

04-08-95

03-09-95

21-09-95

17-11-95

15-02-96

143,580,896

2,433,670

108,151

3,899,495

35,032,438

13,223,851

57,484,367

06-03-96

09-08-96

15-08-96

02-01-97

25-01-97

28-02-97

27-03-97

20,933

4,688,063

912,340

215,714,569

67,236

120,532,375

3,443,652

01-04-97

03-04-97

27-05-97

02-07-97

07-08-97

15-10-97

07-11-97

280,840

4,527,818

47,000,000

11,311,663

2,884,274

10,921,477

160,500

07-01-98

08-06-98

24-01-00

17-09-00

03-10-00

14-04-01

28-05-01

55,847,464

17,690

1,742,208

5,780,048

45,139,686

1,519,031

965,582

VIII. Shifts in Governance in Compensation for Nuclear Damage, 20 Years after Chernobyl Tom Vanden Borre1 $,QWURGXFWLRQ 2006 is an important year as 20 years have passed since the nuclear accident in Chernobyl. Indeed, on 26 April 1986 a major accident occurred in the Chernobyl nuclear power plant near Kiev (former Soviet Union). As is often the case with catastrophes, the key question is whether or not we learned some lessons from it. From a legal perspective it is interesting to examine whether this accident had any impact on the compensation system available to victims of a nuclear accident. Two decades after the Chernobyl accident we should ask ourselves what legal position the victims of the Chernobyl accident were in, and what the position of victims would be today.

798

This contribution examines the development of the international compensation system for nuclear damage, i.e. the treaties on civil liability for damage caused by nuclear accidents in “land-based” nuclear facilities – in this paper we will QRWDQDO\VHWKHFRQYHQWLRQVDGGUHVVLQJVSHFLÀFQXFOHDUOLDELOLW\LVVXHVLQFDVH of transport. As we will discuss, the international compensation system, which originates from the early sixties, consists of two treaty regimes. Those two UHJLPHVKDYHEHHQVLJQLÀFDQWO\PRGLÀHGDVDUHVXOWRIWKH&KHUQRE\ODFFLGHQW a new and independent regime has even been added. In this article we will analyse the main features of the original conventions and the most important changes following the modernisation of these conventions. In other words, did the Chernobyl accident lead to a shift in governance in the international nuclear compensation system? If so, we should examine the nature of the shift and we VKRXOGDQDO\VHZKHWKHURUQRWYLFWLPVFDQEHQHÀWIURPWKLVVKLIW

799

1

 7KHYLHZVDQGRSLQLRQVH[SUHVVHGLQWKLVDUWLFOHUHÁHFWRQO\WKHSHUVRQDOYLHZRIWKHDXWKRU and do not present in any way the view of the organisations the author is working for.

262

800

Michael Faure and Albert Verheij

The features of the international nuclear compensation scheme will be contrasted to the nuclear compensation regime established in the United States, which is not a member of any of the nuclear liability conventions. This comparison is particularly interesting because, as we will see, the American and the international scheme initially – meaning around 1960 – had designed quite a similar compensation system for nuclear damage. Knowing that the US played an important role in the establishment of the international nuclear liability conventions, this is not surprising. However, almost 50 years after these compensation systems have seen the light, they are not that similar anymore. Clearly, a shift has taken place under both systems; in this article we will examine the extent and the nature of the shift under both compensation systems. The origins of international nuclear liability law are addressed infra no. B. Secondly, an overview is given of the different compensation regimes (infra no. C ). After that the compensation regime provided for by the international nuclear liability conventions will be analysed (infra no. D). The national compensation regime of the United States will then be discussed (infra no. E). The comparison of both regimes is dealt with in the concluding remarks (infra no. F).

%2ULJLQVRILQWHUQDWLRQDOQXFOHDUOLDELOLW\ODZ 801

In the 1950s, many Western countries chose to use nuclear energy to cover their energy needs. In order to have access to the necessary technology and know how, they had no choice than to rely on American knowledge and technology. The American nuclear industry was willing to supply the West-European market, but was opposed to bearing liability for possible nuclear accidents in Europe. For WKDWUHDVRQWKHÀUVWELODWHUDODJUHHPHQWVEHWZHHQWKH86DQG(XURSHFRQWDLQHG a so-called “hold-harmless” clause; under such a clause, the (European) nuclear operator held the (American) supplier harmless for all claims resulting from his activities. The American companies were, however, unsure whether this “hold-harmless” clause2SURYLGHGVXIÀFLHQWDQGDGHTXDWHSURWHFWLRQ7KH86 “Atomic Industrial Forum” therefore conducted a comprehensive legal study on the possible liability claims that victims of a nuclear incident in Europe could submit against American suppliers of material that was used in nuclear installations where the incident took place. The study not only focused on the question whether the American suppliers could be held liable, but also on whether

2

 6HHLQWHUDOLD5*DXWURQ/DUHVSRQVDELOLWpFLYLOHHWODSURWHFWLRQÀQDQFLqUHHQUDLVRQ des risques atomiques aux Etats-Unis, in: H. Puget, Aspects de droit de l’énergie atomique (Centre français de droit comparé: Tome II, 1967), 59 et seq.; M. Isenbergh, La loi américaine sur l’énergie atomique, in: H. Puget, Aspects de droit de l’énergie atomique (Centre français de droit comparé: Tome II, 1967), 279 et seq.; A.W. Murphy, Third Party Liability of Suppliers in International Nuclear Transactions, in: J.L. Weinstein (ed.), Progress in Nuclear Energy. Law and Administration (Pergamonn Press: Vol. 3, 1962), 166 et seq.; J.P. Piérard, Responsabilité civile: énergie atomique et droit comparé (Bruylant, Bruxelles: 1963), 263 et seq.

Shifts in Compensation for Environmental Damage

263

the European victims had a right to claim compensation in the US and on ways for the American suppliers to avoid such liability. The results of the analyses of the Atomic Industrial Forum were published in two remarkable reports: the “Preliminary Report on Financial Protection against Atomic Hazards” (hereinafter called “the Preliminary Report”)3 and another report entitled “International Problems of Financial Protection against Nuclear Risk” (hereinafter called “the Harvard Report”).4 Both reports are important because they advanced several principles which, later on, have been introduced in the international nuclear civil liability conventions. It is also interesting to note that the draft text of the Paris Convention was printed as an annex to the Harvard Report.

802

1. The Preliminary Report According to the authors of the Preliminary Report, the major problem in assessing the potential liability in case of a nuclear accident was the lack of NQRZOHGJH FRQFHUQLQJ WKH QXFOHDU ULVN7KH 5HSRUW LGHQWLÀHG WKH IROORZLQJ groups as being affected by the risks associated with the peaceful uses of nuclear energy: the nuclear industry, private insurers, the government and the victims of a nuclear accident.

803

The biggest risk for the nuclear industry – being not only the operators of a nuclear power plant, but everyone involved with the design and construction of an installation – was that a potential liability claim after a nuclear accident would be many times the amount available on the insurance market.5 6 The insurance LQGXVWU\FRXOGQRWRIIHUVXIÀFLHQWFRYHUJLYHQWKHLQVXIÀFLHQWFDSDFLW\RQWKH insurance market and given the lack of data on the probability of a nuclear acFLGHQWWKHUHIRUHLWZDVGLIÀFXOWWRFDOFXODWHWKHLQVXUDQFHSUHPLXP7 Thus, the possibilities for a nuclear operator to spread his risk were limited to the means available on the insurance market; consequently, for that part of the damage that was not covered by insurance, he could be held liable with his entire assets.8

804

Given the “undisputed fact that there is a vital national interest in the development of atomic power”9 it was said to be logical that also the authorities (government)

805

3 4 5 6

7

8 9

Prepared by the experts of Columbia University and published in March 1956. Prepared by Harvard Law School and published in 1959. Preliminary Report, 5. At that time, it was uncertain whether the liability was to be established under the negligence rule (“fault liability”) or strict liability (E.B. Stason, S.D. Estep and W.J. Pierce, Atoms and the Law (Ann Arbor: 1959), 772). These problems rose irrespective as to whether the insurer would provide coverage for the nuclear operators’ liability or as to whether people would want to buy a coverage for their own damage (Preliminary Report, 15). Preliminary Report, 11. Preliminary Report, 16.

264

Michael Faure and Albert Verheij

had an important role to play. The government indeed needed not only to make sure that a potential liability claim did not hinder the development of the nuclear industry, but also needed to protect the safety and the security of the population. The authors of the Preliminary Report wrote that “teamwork between GovernPHQWDQGLQGXVWU\« LVWKHNH\WRRSWLPXPSURJUHVVHIÀFLHQF\DQGHFRQRP\ in this area of atomic endeavour”.10 Therefore, it was concluded, a government SURJUDPKDGWREHFUHDWHGLQRUGHUWRPHHWWZREDVLFUHTXLUHPHQWVÀUVWWKH protection of the industry against unknown liability claims and second, the need to protect the public against the damage they would suffer. It was pointed out that this program would be “pragmatic and responsive to changing needs”.11 806

As to the extent to which the government needed to intervene, it was stressed that the government should not become a competitor to the insurance industry. The latter should take coverage up to the amount available on the insurance market. However, the authors of the Report added that a limitation of liability would only be acceptable if there was an additional compensation available, on top of the liability amount.12 Any damage in excess of that amount should be covered by the government. It was even noted that as long as the entire economy of a country would not suffer from this, the public authorities should offer entire compensation. Thus the authors of the Preliminary Report were in favor of an unlimited government intervention.13 The role of the government did not need to be seen as an insurance from the government, but as an indemnity. The aim of this “Indemnity Program” was to prevent private companies from not investing in nuclear activities for fear of an enormous liability claim.14 This program could, according to the authors of the Preliminary Report, be motivated by the responsibility of the government towards victims of a nuclear accident and by the interest of the government in a growing American nuclear industry.15

807

The Preliminary Report concluded that the interests of both the industry and the public could be met by limiting the amount of liability of the nuclear operator and by providing for public funds for all damage not covered for by the operator (or his insurer). Here we see that the Preliminary Report directly LQÁXHQFHG WKH SULQFLSOHV RI LQWHUQDWLRQDO QXFOHDU OLDELOLW\ ODZ WKH VSUHDG RI WKHULVNÀQDQFLDOEXUGHQ EHWZHHQWKHJRYHUQPHQWDQGWKHLQGXVWU\DQGWKH limitation of the liability of a nuclear operator up to the amount available on the insurance market.

10

Preliminary Report, 17. Preliminary Report, 24. 12 Preliminary Report, 26. 13 Preliminary Report, 30. 14  5/RZHQVWHLQ,QGHPQLÀFDWLRQDJDLQVWOLDELOLW\IRUQXFOHDUDFFLGHQWVLQOLFHQVHGDWRPLF energy activities, in: J.L. Weinstein (ed.), Progress in Nuclear Energy Law and Administration (Pergamonn Press: vol. 3, 1962), 238. 15 Preliminary Report, 32-33. 11

Shifts in Compensation for Environmental Damage

265

The conclusions of this Report were also followed by several countries that are not Party to any of the international nuclear liability conventions, e.g. by the United States. By adopting the Price-Anderson Act in 1957, the US clearly followed the conclusions of the authors of the Preliminary Report. Also the temporary aspect of the government indemnity was taken into account since the Price-Anderson Act must be renewed every 10 years.16 2. The Harvard Report According to the Harvard Report, the American industry could play an important role in the development of nuclear energy in the whole world; on the other hand, the American companies that would support the nuclear energy industry were exposed to considerable risks.17 It was feared that victims of nuclear incidents in Europe would sue American companies for resulting damages in the US. The Report indicated that these companies could indeed be held liable for defects of the material/products delivered to the operator (product liability).18 7KH+DUYDUG5HSRUWLGHQWLÀHGWKUHHUHDVRQVZK\WKHVHFRPSDQLHVVKRXOGQRW be held liable.

808

First, in case of a nuclear incident, the suppliers feared being prosecuted instead of or jointly with the nuclear operator, even if their role was limited to FDOFXODWLRQVRUVXSHUYLVLRQRIVSHFLÀFSDUWVRIWKHUHDFWRUEHFDXVHWKHYLFWLPRI a nuclear incident could be compelled to sue as many companies as possible. It would most certainly be lucrative for a West European victim to sue American suppliers in the US. No company that directly or indirectly participated in the construction of a nuclear installation was under general tort law absolutely immune for possible liability claims. This could, according to the Harvard Report, result in substantial legal problems,19 and subsequently lead to lengthy trials of which a large part would be futile.20

809

Secondly, according to the Harvard Report, it would be unfair to hold the suppliers liable since, after the delivery of goods and services, they generally lose control thereover. Things that are well designed could become dangerous if improperly used.21 The operator is thus in a better position to control the risk than the different suppliers are.

810

16 17 18 19

20 21

The Price-Anderson Act will be analysed under infra no. E of this contribution. Harvard Report, 5. Exposé des Motifs to the Paris Convention (1964), Motif 17. In particular, problems of an international private law nature: competent court, applicable law and enforceability of foreign judgments in the US. At the same time, there existed the risk that a victim would try to avoid the law of the installation State by “forum-shopping”. Harvard Report, 57. Ibid., 52.

266

Michael Faure and Albert Verheij

811

Thirdly, it was considered that the operators were more capable of obtaining insurance. By concentrating liability on the operator, pyramidal insurance costs could be avoided.22 This means that, if every supplier had to buy a separate insurance coverage, this would result in disproportionally high premiums. That is why the costs will be substantially decreased if the operator is responsible for its own liability as well as that of the suppliers. The concentration of liability at the level of the operator would minimise not only the procedural costs but the insurance costs as well.

812

For the above-mentioned reasons, the ideal solution proposed by the authors of the Harvard Report was to make all liability claims against “atomic suppliers” impossible by legislative intervention. To abolish every legal claim against the supplier would be “the most simple and most effective solution”.23 According to the Harvard Report, the new social and economic circumstances – inter alia resulting from the peaceful use of nuclear energy – necessitated such a legislative intervention; these circumstances were more important than legal dogmatic objections.24 According to the Report, the most adequate solution consisted of twelve measures25 which eventually were largely adopted by the nuclear liability conventions (channelling of liability, strict liability, limitation of the liability amount, limitation of the liability in time, the mandatory insurance of liability and the exclusive competence of the court of the country where the incident occurred, etc.). As will be discussed more in detail below, not all nuclear power generating countries are members of one of the international conventions; some of them however, have adopted the same or at least very similar principles in their national nuclear liability law.

813

Both the Harvard and the Preliminary Report constitute the basis for the creation of a compensation system in case of nuclear damage caused by a nuclear accident. This compensation regime was adopted by several countries either independently from the international compensation system or as part of the international conventions (and thus by implementing their obligations under the conventions). For the sake of this analysis, we will discuss one national system on the one hand and the international system on the other – although the latter needs implementation at national level as well. Hereunder a schematic overview of the different compensation regimes for damage caused by nuclear accident is given.

22

23 24 25

Ibid., 57; N. Pelzer, Channelling: Concept and Policy under the Paris and the Vienna Conventions, in: Training Seminar on Nuclear Law (Bratislava: OECD, 1994), 9. Exactly the same reasoning is found in the Exposé des Motifs, Motif 18. Harvard Report, 59. Ibid. Harvard Report, 12.

Shifts in Compensation for Environmental Damage

267

&6FKHPDWLFRYHUYLHZRIWKHGLIIHUHQWFRPSHQVDWLRQUHJLPHVIRUQXFOHDU GDPDJH In the beginning of the development of private nuclear industry, two international regimes were created that regulate the civil liability for damage caused by nuclear accidents, i.e. that create compensation mechanisms for nuclear damage.26 The ÀUVWWUHDW\UHJLPHKDVEHHQHVWDEOLVKHGXQGHUWKHDXVSLFHVRIWKH2(&'1XFOHDU Energy Agency (NEA) and consists of the Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960 (hereinafter referred to as “the Paris Convention”) and the Brussels Supplementary Convention to the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 31 January 1963 (hereinafter referred to as “the Brussels Supplementary Convention”). The 3DULV&RQYHQWLRQLQWURGXFHVWKHÀYHPDMRUSULQFLSOHVRIWKHLQWHUQDWLRQDOQXFOHDU liability conventions.27 The Brussels Supplementary Convention provides for additional compensation of damage in case the coverage of the operator under WKH3DULV&RQYHQWLRQLVLQDGHTXDWHRULQVXIÀFLHQW28

814

The second nuclear liability treaty regime has been developed under the aegis of the International Atomic Energy Agency (IAEA): the Vienna Convention on Civil Liability for Nuclear Damage of 21 May 1963 (hereinafter referred to as “the Vienna Convention”). The Vienna Convention introduces, as does the Paris &RQYHQWLRQWKHÀYHPDMRUSULQFLSOHVRILQWHUQDWLRQDOQXFOHDUOLDELOLW\ODZ

815

7KH1($WUHDW\UHJLPHLVUHJLRQDOO\FRQÀQHGLH:HVWHUQ(XURSH6ORYHQLD and Turkey), while the IAEA treaty regime is worldwide in scope.

816

7KHUHKDYHEHHQQRVLJQLÀFDQWFKDQJHVWRWKHGLIIHUHQWQXFOHDUOLDELOLW\WUHDWLHV until after the Chernobyl accident. The accident triggered a revision process for both the NEA and IAEA regime, resulting in the adoption, on three different dates, of several new international conventions.29 First, the Joint Protocol Relating to the Application of the Vienna Convention and the Paris Convention

817

26

27 28

29

For a useful overview, see, inter alia, Liability and Compensation for Nuclear Damage: An International Overview (OECD: 1994). Cf. infra no. 825 ff. Both the Paris and Brussels Supplementary Conventions have been supplemented by a few additional protocols. The Protocol to the Paris Convention of 16 November 1982 adjusts VRPHRIWKHGHÀQLWLRQVDQGLPSRVHVOLDELOLW\RQWKHRSHUDWRUIRUGDPDJHWRWKHPHDQVRI transport; the Protocol to the Paris Convention of 16 November 1982 changes the unit of account into SDR and increases the liability amounts of the three tiers from the initial 120 million up to 300 million SDRs. Although the basic text is always that of the Paris Convention, when referred to the latter it will include the additional protocols as well. In this respect, see, inter alia, M. Lagorce, Bilan et perspectives de la Convention de Paris et de la Convention complémentaire de Bruxelles après les Protocoles de 1982, in: Nuclear Accidents: Liability and Guarantees (OECD-IAEA: 1993), 24 et seq. After the Chernobyl accident several conventions concerning nuclear safety issues have been adopted as well. In this article, we only discuss the international conventions dealing with nuclear liability and compensation.

268

Michael Faure and Albert Verheij

(hereinafter called “the Joint Protocol”) was adopted on 21 September 1988. This Protocol, as such, does not modify any of the conventions, but links the territorial scope of the Paris and Vienna Conventions. The second result of the revision exercise was that, on 12 September 1997, two new legal instruments were opened for signature in the IAEA regime: the Protocol to Amend the 1963 Vienna Convention on Civil Liability for Nuclear Damage (hereinafter called: “the Protocol to the Vienna Convention”) and the Convention on Supplementary Compensation for Nuclear Damage (hereinafter called: “the Convention on Supplementary Compensation”). Whereas the Protocol to the Vienna ConvenWLRQ²TXLWHORJLFDOO\²PRGLÀHVWKH9LHQQD&RQYHQWLRQWKH&RQYHQWLRQRQ Supplementary Compensation is an independent “stand-alone” convention, since any country can join the Convention without having to be a Party to the Paris or Vienna Convention.30 Finally, the revision process of the NEA regime resulted in the opening for signature of two new instruments on 12 February 2004: the Protocol to amend the Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960 (hereinafter referred to as “the Protocol to the Paris Convention”) and the Protocol to amend the Convention of 31 January 1963 supplementary to the Convention of 29 July 1960 on Third Party Liability in the Field of Nuclear Energy (hereinafter called “the Protocol to the Brussels Supplementary Convention”). As we will see furtheron, so far only the Joint Protocol and the Protocol to the Vienna Convention have entered into force. 818

In order to be able to make the distinction between the different treaties, it is XVHIXOWRGLVWLQJXLVKWKHQXFOHDULQWHUQDWLRQDOOLDELOLW\UHJLPHRIWKHÀUVWJHQHUDtion on the one hand (being the Paris Convention, the Brussels Supplementary Convention and the Vienna Convention) and the nuclear international liability regime of the second generation on the other hand (all the other Conventions mentioned above). Whereas the nuclear liability conventions of the first generation consisted of three conventions, the nuclear liability conventions of WKHVHFRQGJHQHUDWLRQDGGHGÀYHPRUHWUHDWLHV7KXVDVDUHVXOWRIWKHUHYLVLRQ process, the international nuclear compensation system consists of no less than eight international conventions. The table hereunder gives an overview of the different conventions. The least one can say is that the revision of the international nuclear liability conventions did not really simplify the international compensation system for nuclear damage. One can indeed say that there is a labyrinth of international conventions dealing with nuclear liability issues.31 Confronted with a nuclear liability claim, a judge will have to assess if and to what extent the international conventions are applicable. It is quite likely to assume that not all States will

30 31

Cf. infra no. 884 ff. N.L.J.T. Horbach, Lacunae of International Nuclear Liability Agreements, in: N.L.J.T. Horbach (ed.), Contemporary Developments in Nuclear Energy Law. Harmonising Legislation in CEEC/NIS (Kluwer Law International: 1999), 81.

Shifts in Compensation for Environmental Damage

269

join all conventions and therefore the establishment of the rights and obligations XQGHUWKHLQWHUQDWLRQDOFRPSHQVDWLRQVFKHPHPLJKWEHYHU\GLIÀFXOW Overview of the international nuclear liability conventions

NEA regime

IAEA regime

First generation

Second generation

Paris Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960

Protocol to amend the Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960 of 12 February 2004

Brussels Supplementary Convention to the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 31 January 1963

Protocol to amend the Convention of 31 January 1963 supplementary to the Convention of 29 July 1960 on Third Party Liability in the Field of Nuclear Energy of 12 February 2004

Vienna Convention on Civil Liability for Nuclear Damage of 21 May 1963

Protocol to Amend the 1963 Vienna Convention on Civil Liability for Nuclear Damage of 12 September 1997

—

Joint Protocol Relating to the Application of the Vienna Convention and the Paris Convention of 21 September 1988

—

Convention on Supplementary Compensation for Nuclear Damage of 12 September 1997

Adherence to the international nuclear liability conventions (both NEA and IAEA regime), and thus to the international nuclear compensation scheme, is far from general. McRae calculated that of the 10 countries with the largest installed nuclear capacity,32 one half are members of the international scheme.33 34 Overall, the nuclear power generating countries that operate outside the international compensation regimes account for more than half of worldwide

32

33 34

Canada, France, Germany, Japan, the Republic of Korea, the Russian Federation, Sweden, Ukraine, the United Kingdom and the United States. France, Germany, Sweden, Ukraine and the United Kingdom. B. McRae, Overview of the Convention on Supplementary Compensation, in: Reform of Civil Nuclear Liability (OECD: 2000), 175.

819

270

Michael Faure and Albert Verheij

installed capacity.35 It also has to be noted that to date mainly non nuclear power generating countries feel reluctant to join either the Paris or Vienna Convention EHFDXVHLQWKHLUYLHZWKHVH&RQYHQWLRQVGRQRWVXIÀFLHQWO\DGGUHVVWKHFRQFHUQV of the victims of a nuclear accident.36 820

The provisions of the different international nuclear liability conventions are not applicable as such but impose on the Contracting Parties the requirement to undertake the necessary arrangements in their national legal system. Thus there is, to a certain extent, quite some harmonisation in the different national laws implementing the international conventions. This basically holds true for WKHÀYHSULQFLSOHVRIQXFOHDUOLDELOLW\ODZ

821

This does not mean that the legislation in States that are not Party to any of the nuclear liability conventions is that much different. Indeed, States such as Japan, the Republic of Korea and the People’s Republic of China, are not Party to any nuclear liability convention, but generally have incorporated the conventions’ principles (including legal channelling of strict liability exclusively to the installation operator) into their domestic laws. The United States is not Party to any nuclear liability convention; its domestic nuclear liability law (the Price-Anderson Act) however incorporates all principles of those conventions, except the – important – principle of legal channelling.

822

So, if a nuclear accident takes place in a certain country, it has to be established whether or not that country is Party to any of the Conventions. If not, the national compensation system will determine to what compensation victims are entitled. If the country is party to any of the conventions, it still will have to be established to which conventions and how it is implemented into national ODZ:KHUHDVLQWKHQXFOHDUOLDELOLW\FRQYHQWLRQVRIWKHÀUVWJHQHUDWLRQWKHUH were two different regimes (NEA and IAEA), the conventions of the second generation, in fact, added a third and independent regime (under the aegis of the IAEA): the Convention on Supplementary Compensation. +HUHXQGHUZHZLOOÀUVWDQDO\VHWKHFRPSHQVDWLRQUHJLPHSURYLGHGIRULQ the international nuclear liability conventions (infra no. D). After that, we will study the American compensation regime (infra no. E). Also the evolution of both compensation mechanisms over the years will be discussed.

'7KHFRPSHQVDWLRQUHJLPHSURYLGHGIRULQWKHLQWHUQDWLRQDOQXFOHDU OLDELOLW\FRQYHQWLRQV 823

In the international compensation regime as introduced by the Paris and Brussels Supplementary Convention on the one hand and by the Vienna Convention RQWKHRWKHUDGLVWLQFWLRQLVWREHPDGHEHWZHHQWKHFRQYHQWLRQVRIWKHÀUVW

35 36

Ibidem. Ibidem.

Shifts in Compensation for Environmental Damage

271

generation (the original Conventions) (1) and the conventions of the second generation (2), i.e. the conventions dealing with nuclear liability issues that have been created after the Chernobyl accident. Finally a more detailed analysis of the conventions will be made (3). 1. Compensation regime in the international nuclear liability convenWLRQVRIWKHÀUVWJHQHUDWLRQ As already mentioned, two different international nuclear liability conventions were created in the early sixties. Whereas the IAEA regime (Vienna Convention) only provided for a compensation regime consisting of private funds, the NEA UHJLPHSURYLGHGIRUDWZRWLHUV\VWHPDÀUVWWLHURISULYDWHIXQGV3DULV&RQYHQtion) and a second tier of public funds (Brussels Supplementary Convention).

824

1.1. Private funds Both the Paris and the Vienna Convention provide for a compensation system WKDWLVÀQDQFHGE\SULYDWHPHDQV7KHFRPSHQVDWLRQV\VWHPLQWURGXFHGLQWKH 3DULVDQG9LHQQD&RQYHQWLRQVLVEDVHGXSRQÀYHSULQFLSOHVVWULFWOLDELOLW\FKDQnelling of all liability to the nuclear operator, limitation of liability, compulsory insurance and exclusive jurisdiction.37

825

Strict liability According to Art. 3 of the Paris Convention, the operator of a nuclear installation shall be liable for: damage to or loss of life of any person; and damage to or loss of any property other than the nuclear installation itself and any other nuclear installation, including a nuclear installation under construction, on the site where that installation is located; and any property on that same site which is used or to be used in connection with any such installation. This liability is established upon proof that such damage or loss was caused by a nuclear accident in such installation or involving nuclear substances coming from such installation. What should be considered as damage to persons or property and the extent to which compensation will be recoverable, is in view of the very wide divergence of legal principles and jurisprudence in the law of torts in European countries, left to be decided by the competent court in accordance with the national law applicable.38 The nature, form and extent of the compensation, within the limits of this Convention, as well as the equitable distribution thereof, shall be governed by national law (Art. 11 of the Paris Convention).

826

Thus, a victim wanting to introduce a claim against a nuclear operator does not have to prove a fault committed by the operator. This type of liability is

827

37

38

Our analysis hereunder is based on the provisions of the Paris Convention, but as the Vienna Convention introduces the same principles, the result of the analysis is valid for both Conventions. Exposé des Motifs, No. 39.

272

Michael Faure and Albert Verheij

generally known as strict liability. However, the Convention leaves in place liability of “any individual for damage caused by a nuclear incident for which the operator, by virtue of Art. 3(a)(ii)(1) and (2) or Art. 9, is not liable under the Paris Convention and which results from an act or omission of that individual done with intent to cause damage”. 828

Art. 3(a)(ii)(1) and (2) refer to damage to the nuclear installation(s) itself and on-site property, whereas Ar. 9 refers to situations of force majeure which is, H[FHSWLIIXUWKHUFRQÀQHGE\QDWLRQDOODZOLPLWHGWRQXFOHDULQFLGHQWVGLUHFWO\ GXHWR´DQDFWRIDUPHGFRQÁLFWKRVWLOLWLHVFLYLOZDULQVXUUHFWLRQRUDJUDYH natural disaster of an exceptional character”.39 Therefore, in such cases, the operator is not liable, nor will its liability insurance coverage be triggered for compensating damage as a result of these events. In this respect, is has to be noted that the nuclear liability regime in the Paris Convention provides for a quite stringent liability of the operator, given the fact that the operator will still be liable in cases where, under general tort law, classic exonerations would apply. According to the Exposé des Motifs of the Paris Convention: “the absolute liability of the operator is not subject to the classic exonerations such as force majeure, Acts of God or intervening acts of third persons, whether or not such acts were reasonably foreseeable and avoidable. (…) The only exonerations lie in the case of damage caused by a nuclear incident directly due to certain GLVWXUEDQFHVRIDQLQWHUQDWLRQDOFKDUDFWHUVXFKDVDFWVRIDUPHGFRQÁLFWDQG hostilities, of a political nature such as civil war and insurrection, or grave natural disasters of an exceptional character, which are catastrophic and completely unforeseeable, on the grounds that all such matters are the responsibility of the nation as a whole.”. Note that based on these elements, it seems evident that a nuclear operator is liable for damage caused by terrorism.40

829

The Exposé des MotifsRIWKH3DULV&RQYHQWLRQTXDOLÀHVWKLVW\SHRIOLDELOLW\DV absolute liability. This type of liability was motivated by the fact that already in WKHÀIWLHVWKHUHZDVDORQJHVWDEOLVKHGWUDGLWLRQRIOHJLVODWLYHDFWLRQRUMXGLFLDO interpretation that a presumption of liability for hazards created arises when a person engages in a dangerous activity. It was further noted that, because of the special dangers involved in the activities within the scope of the Convention and WKHGLIÀFXOW\RIHVWDEOLVKLQJQHJOLJHQFHLQYLHZRIWKHFRPSOH[WHFKQLTXHVRI atomic energy, this presumption has been adopted for nuclear liability.41

830

It can be argued that since the operator of a nuclear installation cannot successfully invoke exonerations that are valid under ordinary tort law, we are

 :HÀQGDVLPLODUSURYLVLRQLQ$UW,9D RIWKH9LHQQD&RQYHQWLRQ´1ROLDELOLW\XQGHU this Convention shall attach to an operator for nuclear damage caused by a nuclear incident GLUHFWO\GXHWRDQDFWRIDUPHGFRQÁLFWKRVWLOLWLHVFLYLOZDURULQVXUUHFWLRQµ 40 N. Horbach, O. Brown and T. Vanden Borre, Terrorism and Nuclear Damage Coverage, [2002] Journal of Energy and Natural Resources Law, vol. 20, 231 et seq. 41 Exposé des Motifs, No. 11. 39

Shifts in Compensation for Environmental Damage

273

dealing with an absolute liability. However, nuclear liability under the Paris and the Vienna Conventions is certainly not entirely absolute, given the fact that the nuclear operator will not be liable in a – limited – number of cases of force majeure. Channelling of liability to the nuclear operator Art. 6 of the Paris Convention reads:

831

The right to compensation for damage caused by a nuclear incident may be exercised only against an operator liable for the damage in accordance with this Convention […]. Except as otherwise provided in this Article, no other person shall be liable for damage caused by a nuclear incident […]. 7KLVGHÀQLWLRQFRQWDLQVWZRHOHPHQWV)LUVWWKHRSHUDWRUFDQLQFDVHRIDQXFOHDU DFFLGHQWDVGHÀQHGSXUVXDQWWRWKH3DULV&RQYHQWLRQRQO\EHKHOGOLDEOHXQGHU the conditions of the Convention and, secondly, no one else but the operator42 is liable since the operator does, in principle, not have any right of recourse. This means that the Paris Convention constitutes the only legal basis for the victim to claim compensation for damage suffered as a result of a nuclear accident; victims cannot call upon other legal provisions, especially those based on general tort law. Due to the exclusion of another basis for a liability claim,43 victims of nuclear incidents can only sue the nuclear operator. This type of liability is therefore also referred to as “exclusive liability”.44 According to the Exposé des Motifs, it is essential to the notion of channelling liability onto the operator that “no actions may lie against any other person and in particular, any person who has supplied any services, materials or equipment in FRQQHFWLRQZLWKWKHSODQQLQJFRQVWUXFWLRQPRGLÀFDWLRQPDLQWHQDQFHUHSDLURU operation of a nuclear installation”.45 Indeed, under ordinary tort law, should an incident arise due to a defect in design or in material supplied, a person suffering damage may well have a right of action against the supplier, for example, on the basis of the so-called product liability.

832

Two primary factors have motivated this legal channelling of all liability onto the operator as distinct from the position under the ordinary law of torts. Firstly, LWZDVGHHPHGGHVLUDEOHWRDYRLGGLIÀFXOWDQGOHQJWK\TXHVWLRQVRIFRPSOLFDWHG

833

42

43 44

45

The operator is the person designated by the competent authorities as the operator of a nuclear installation. See Art. 1(a) of the Paris Convention. N. Pelzer (supra fn. 22). See inter alia, J. Schwartz, International Nuclear Third Party Liability Law: The Response to Chernobyl, in: International Nuclear Law in the Post-Chernobyl Period (OECD-NEA, 2006), 40. Exposé des Motifs, Motif 17.

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Michael Faure and Albert Verheij

legal cross-actions to establish in individual cases who is legally liable. Secondly, it was argued that such channelling would obviate the necessity for all those who might be associated with the construction or operation of a nuclear installation other than the operator himself to buy insurance also, and thus allows a concentration of the insurance capacity available.46 834

In the doctrine a distinction is traditionally made between economic or indirect channelling and legal or direct channelling of liability.47 Legal channelling means that only one single, designated person is liable for all damage caused by a certain activity or fact, even if other persons have caused the damage. A claim against these other persons is legally impossible, precisely because of the fact that liability is completely concentrated on one person – therefore channelling is also often referred to as exclusive liability or concentrated liability. Economic channelling means that the person causing the damage is in principle liable, but that only one designated person will bear the eventual economic burden of that damage.48

835

Another element of the legal channelling of liability in the international nuclear liability conventions is that the operator of a nuclear installation has in principle no right of recourse for amounts paid by it or its insurer to victims of a nuclear incident. This was motivated by the fact that if recourse actions by the operator against suppliers in respect of any sums which the operator has paid as compensation were possible, each supplier would have to insure himself against the same risk already covered by the operator’s insurance and this would, according to the authors of the Convention, involve a costly duplication of insurance with QREHQHÀWWRYLFWLPV49

836

There are only two exceptions to the channelling. Firstly, the operator possesses pursuant to Art. 6(f) a right of recourse with respect to the person who by his or her conduct (act or omission) intentionally caused damage by a nuclear incident.

46 47

48

49

Exposé des Motifs, Motif 15. H. Cousy, Een nieuwe vorm van schuldloze aansprakelijkheid: Aansprakelijkheid YRRUVFKDGHYHURRU]DDNWGRRUKHWYUHHG]DDPJHEUXLNYDQNHUQHQHUJLH¶$QHZIRUPRI faultless liability: Liability for damage caused by the peaceful use of nuclear energy’), [1974-1975] Jura Falconis, 44; W. Daubler, Haftung für gefährliche Technologien: Das Beispiel Atomrecht¶/LDELOLW\IRU'DQJHURXV7HFKQRORJ\7KHH[DPSOHRIQXFOHDUODZ·  (Heidelberg: Juristischer Verlag, 1962); P.C. Mohr, Die Kanalisierung der Haftung under besondere Berücksichtigung des Atomrechts (Berlin: Walter de Gruyter & Co., 1970); H.D. Mosthaf, Wirtschaftlich oder rechtlich kanalisieren? Eine Streitfrage der Kernhaftung, [1967] Versicherungsrecht, 9, 167 et seq. For more details, see T. Vanden Borre, Channelling of liability: a few juridical and economic views on an inadequate legal construction, in: N.L.J.T. Horbach (ed.), Contemporary Developments in Nuclear Energy Law. Harmonising Legislation in CEEC/NIS (Kluwer Law International: 1999), 13 et seq. Exposé des Motifs, Motif 18.

Shifts in Compensation for Environmental Damage

275

Secondly, the operator has a right of recourse if and to the extent that it is so expressly provided by contract. Limitation of liability According to Art. 7 of the Paris Convention, the maximum liability of the operator in respect of damage caused by a nuclear accident shall be 15 million SDRs RU6SHFLDO'UDZLQJ5LJKWV½PLOOLRQRUPLOOLRQ86' 50 However, the Steering Committee of the NEA recommended Contracting Parties to set a maximum liability of not less than 150 million SDRs51½PLOOLRQRU 217.13 million USD). Art. 7 of the Paris Convention allows for any Contracting Party to establish by legislation a greater or lesser amount taking into account WKHSRVVLELOLWLHVIRUWKHRSHUDWRUWRREWDLQLQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\ Any Contracting Party, having regard to the nature of the nuclear installation or the nuclear substances involved and to the likely consequences of an incident originating therefrom, may establish a lower amount, provided that in no event DQ\DPRXQWVRHVWDEOLVKHGVKDOOEHOHVVWKDQPLOOLRQ6'5V½PLOOLRQ  In a Recommendation, the Nuclear Energy Agency recommends that if a lower liability amount is established, the Contracting Party should take the necessary steps to make public funds available to satisfy any claim for compensation in excess of the lower amount, up to the amount established for nuclear operators generally.52 It is striking that, according to the wording of Art. 7 of the 1960 Paris Convention, a maximum liability was introduced. In practice, many countries did not implement this provision too strictly by either imposing a higher amount RIOLDELOLW\HJLQ%HOJLXPDQDPRXQWRI½PLOOLRQZDVVHW RUHYHQE\ introducing a system of unlimited liability (Germany). Thus, contrary to the strict wording of Art. 7 of the Paris Convention, several Contracting Parties took the liberty of going beyond the “maximum limit” set in the Convention (15 million SDRs) and maximum limit of the Recommendation of the NEA Steering Committee mentioned earlier (150 million SDRs).

837

The limitation of liability was considered to be necessary in order not to obstruct the development of nuclear industry. The Exposé des Motifs reads that “unlimited liability could easily lead to the ruin of the operator without affording any substantial contribution to compensation for the damage caused”.53 The reason for this limitation was therefore purely economical: the liability of the operator

838

50

51

52

53

The exact value of the SDR is determined by the International Monetary Fund (IMF) and is published on its website. For this article, we used the exchange rate of 20 March 2006: 6'5 ½ 86' Recommendation of the Steering Committee of 20 April 1990, NE/M(90)1, Paris Convention: Decisions, Recommendations, Interpretations, Paris, OECD/NEA, 1990, p. 13. Recommendation of the Council with respect to the Paris Convention of 29 July 1960 in Third Party Liability in the Field of Nuclear Energy, 16 November 1982, C(82)181. Exposé des Motifs, Motif 45.

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Michael Faure and Albert Verheij

was limited to the amount for which the insurance market was able to provide coverage.54 839

The liability of the operator is also subjected to a time limit. According to Art. 8 of the Paris Convention, the right to claim compensation will be extinguished if an action is not brought within ten years from the date of the nuclear accident. The Contracting Parties have nevertheless the option to establish a period longer than ten years, provided that the operator’s liability is covered by insurance or DQ\RWKHUÀQDQFLDOJXDUDQWHH

840

Especially concerning bodily injury, some damage may not become apparent until several years after the exposure to ionising radiation. Apparently the drafters RIWKH3DULV&RQYHQWLRQWULHGWRÀQGDQHTXLOLEULXPEHWZHHQWKHLQWHUHVWVRIWKH QXFOHDURSHUDWRUVDQGWKHLQWHUHVWVRIYLFWLPV´2SHUDWRUVDQGWKHLUÀQDQFLDO guarantors will naturally be concerned if they have to maintain, over long periods of time, reserves against outstanding or expired policies for possibly large but unascertainable amounts of liability. On the other hand, it is unreasonable for YLFWLPVZKRVHGDPDJHPDQLIHVWVLWVHOIODWHWRÀQGQRSURYLVLRQKDVEHHQPDGH for compensation to them”.55

841

$ IXUWKHU FRPSOLFDWLRQ LV WKH GLIÀFXOW\ RI SURRI LQYROYHG LQ HVWDEOLVKLQJ RU denying that delayed damage was, in fact, caused by the nuclear incident. However, the Conventions do not address the problem that victims face when trying to establish the causal link between their bodily injury and exposure to ionising radiation. Compulsory insurance

842

To cover his liability, the operator is required to have and maintain insurance or RWKHUÀQDQFLDOVHFXULW\RIWKHDPRXQWRIKLVOLDELOLW\DQGRIVXFKW\SHDQGWHUPV as the competent public authority shall specify (Art. 10 of the Paris Convention). 7KLVÀQDQFLDOVHFXULW\PD\EHLQWKHIRUPRIFRQYHQWLRQDOÀQDQFLDOJXDUDQWHHV or ordinary liquid assets, insurance coverage or other. Also a combination of LQVXUDQFHRWKHUÀQDQFLDOVHFXULW\DQG6WDWHJXDUDQWHHPD\EHDFFHSWHG,WLVIRU the competent public authority to determine the type and terms of the insurance RU RWKHU ÀQDQFLDO VHFXULW\ ZKLFK WKH RSHUDWRU ZLOO EH UHTXLUHG WR KROG 7KH competent public authority must ensure that insurance policies are satisfactory in that they do not contain clauses which might render them ineffective, for H[DPSOHWKDWWKHLQVXUHURURWKHUÀQDQFLDOJXDUDQWRUFDQQRWSXWXSDQ\GHIHQFHV such as non-payment of premiums against persons seeking compensation.56

54

55 56

N. Pelzer, Begrenzte under unbegrenzte Haftung im deutschen Atomrecht (Nomos: 1982), 13. Exposé des Motifs, Motif 47. Exposé des Motifs, Motif 49.

Shifts in Compensation for Environmental Damage

277

Such insurance generally is provided for by nuclear insurance pools.57 The insurance of nuclear risks by nuclear insurance pools should be regarded as a bundling of resources at a national level. Such bundling allows the creation of a supply to the demand of insurance coverage58 of damage resulting from nuclear incidents. As a result, small insurance companies can participate in the LQVXUDQFHRIQXFOHDUULVNVZLWKRXWSXWLQJWKHLURZQÀQDQFLDOFDSDFLW\DWULVN In this way, the market can provide for insurance coverage for risks that would surpass the capacity of one individual member of the pool. Indeed, through the existence of such pools, every insurance company that wishes so can conclude a contract with the pool in which it will be decided which part of the coverage that company will insure. Every pool member declares each year for which amount it is willing or able to provide insurance coverage. The capacity of the pool is therefore equal to the contributions of all its members. In case payments have to be made, each member of the pool will have to contribute a ratio of its participation as contractually agreed with the pool. Re-insurance of the nuclear risk will take place among pools.59 According to the insurers, this strategy results in a two-fold advantage. Since every member of the pool knows exactly for which amount it will be responsible, members are willing to insure a much larger part of the nuclear risk than with respect to conventional industrial risks. Moreover, re-insurance is directly established between the different national pools without intervention of third parties, which minimizes the costs.60

843

Several countries have their own national nuclear insurance pool; the effect is that, as far as third party liability is concerned, a Belgian nuclear operator can only buy insurance with the Belgian pool, the German operator with the German pool, etc. Even if the nuclear operators tender for the most favourable insurance

844

57

58

59

60

See, inter alia, W.E. Belser, Über die Zweckmäßigkeit der Poolung von Atomrisiken, [1959] Versicherungswirtschaft, 18, 572 et seq; J.C. Dow, Nuclear Energy and Insurance (Witherby & Co.: 1989); Nuclear Power: Insurance and the Pooling System, Special Edition of the Nuclear Pools’ Bulletin (1992); S.M.S. Reitsma, Nuclear Insurance Pools: History and Development, in: Nuclear Accidents: Liability and Guarantees (OECD-IAEA: 1993), 341et seq. Most pools provide for coverage for third party liability as well as damage to the operator itself. The (mandatory) liability insurance of the operator covers in general the compensatory consequences of extra-contractual liability of the operator of a nuclear installation for damage resulting from a nuclear incident, even if the incident was directly due to a grave natural disaster. This policy should be clearly separated from the policy covering potential damage to the operator itself. That is why a large number of insurance companies worldwide had to interfere as reinsurer in respect of the Three Mile Island accident in 1979 (J.C. Dow, The Organisation and Development of International Liability Capacity and National Market Pools with Special Reference to New Nuclear Countries, in: Nuclear Third Party Liability and Insurance: Status and Prospects, München Symposium IAEA/NEA (IAEA/OECD: 1985), 172 et seq). The two American pools were reinsured with most other pools in the world. Nuclear Power: Insurance and the Pooling System, Special Edition of the Nuclear Pools’ Bulletin (1992); S.M.S. Reitsma (supra, fn. 57), 345.

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offer, they only seem to receive offers from their national pool. The monopolistic position of the nuclear insurers has been heavily critised in literature.61 Exclusive jurisdiction 845

According to Art. 13(a) of the Paris Convention, jurisdiction over actions under Art. 3, 4, 6(a) and 6(e) shall lie only with the courts of the Contracting Party in whose territory the nuclear incident occurred. Where a nuclear incident occurs outside the territory of the Contracting Parties, or where the place of the nuclear incident cannot be determined with certainty, jurisdiction over such actions shall lie with the courts of the Contracting Party in whose territory the nuclear installation of the operator liable is situated.

846

The competent court shall thus deal with all actions which might be brought against an operator, either directly by persons suffering damage (Art. 3) or by RWKHUSHUVRQVZKRPLJKWEHOLDEOHXQGHULQWHUQDWLRQDODJUHHPHQWVLQWKHÀHOG of transport or under the legislation of a non-Contracting State (Art. 6 d and e). The forum for actions in recourse by an operator under Art. 6(f) or for actions for contribution by an operator against other operators in the case of joint and VHYHUDO OLDELOLW\ LV QRW À[HG LQ WKH &RQYHQWLRQ DQG ZLOO EH GHFLGHG XSRQ E\ national law. The main reason for establishing one exclusive competent court seems to be to ensure that the maximum amount of liability will not be exceeded: according to the Exposé des Motifs, a fair distribution of the available amount for compensation would result in insoluble problems if the claims with respect to one nuclear incident could be brought before different courts. The purpose was to ensure unity of jurisdiction in order to prevent the sum of awards of compensation by various courts from exceeding the operator’s liability and also to promote equitable adjudication of various claims.62

847

In order to simplify the enforcement of judicial decisions, Art. 13(d) provides that judgments entered by the competent court after trial, or by default, shall, when they have become enforceable under the law applied by that court, become enforceable in the territory of any of the other Contracting Parties as soon as the formalities required by the Contracting Party concerned have been complied with. 7KHVHDUHWKHÀYHSULQLFSOHVRIQXFOHDUOLDELOLW\LQWURGXFHGE\WKH3DULV DQG9LHQQD&RQYHQWLRQVWKLVV\VWHPVKLIWVWKHÀQDQFLDOEXUGHQRIWKHOLPLWHG  liability to one person: the nuclear operator. Therefore it can be considered as DV\VWHPRISULYDWHIXQGLQJ+RZHYHUWKH1($UHJLPHDOVRXQGHUWKHÀUVW generation conventions) consists of another convention which provides for the availability of public funds. 61

62

M. Faure, Restrictions of competition on insurance markets and the applicability of EC antitrust law, [1995] Kyklos, 48, 65 et seq.; M. Faure, Economic Models of Compensation caused by nuclear accidents: some lessons learned from the revision of the Paris and Vienna Conventions, [1995]European Journal of Law and Economics, 21 et seq. Exposé des Motifs, Motifs 54-57.

Shifts in Compensation for Environmental Damage

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1.2. Public funds: the 1963 Brussels Supplementary Convention The aim of the 1963 Brussels Supplementary Convention is to supplement the compensation system provided in the Paris Convention “with a view to increasing the amount of compensation for damage which might result from the use of nuclear energy for peaceful purposes”.63

848

According to Art. 3 of the Brussels Supplementary Convention, the Contracting Parties undertake that compensation in respect of damage caused by a nuclear DFFLGHQWVKDOOEHSURYLGHGXSWRWKHDPRXQWRIPLOOLRQ6'5VSHULQFLGHQW½ 356.7 million or 434.27 million USD). Such compensation shall be provided:

849

–

² ²

up to an amount of at least 5 million SDRs, out of funds provided by LQVXUDQFH RU RWKHU ÀQDQFLDO VHFXULW\ VXFK DPRXQW WR EH HVWDEOLVKHG E\ the legislation of the Contracting Party in whose territory the nuclear installation of the operator liable is situated; EHWZHHQWKLVDPRXQWDQGPLOOLRQ6'5V½PLOOLRQ RXWRISXEOLF funds to be made available by the Contracting Party in whose territory the nuclear installation of the operator liable is situated; EHWZHHQDQGPLOOLRQ6'5V½PLOOLRQ RXWRISXEOLFIXQGV to be made available by the Contracting Parties according to a formula for contributions which is based on the GNP and the thermal capacity of the reactors.

The 1963 Brussels Supplementary Convention thus introduces two additional WLHUVRIFRPSHQVDWLRQIRUFRYHULQJQXFOHDUGDPDJHRQWRSRIWKHÀUVWWLHURI SULYDWHIXQGVSURYLGHGIRUE\WKH3DULV&RQYHQWLRQ,QGHHGWKHÀUVWWLHURIWKH Brussels Supplementary Convention is the liability (insurance coverage) of the nuclear operator as established under the Paris Convention. On top of that amount, the Brussels Supplementary Convention provides for two additional tiers of public funds: one “national” public fund to be made available by the Installation State and one international solidarity fund to be made available by all Conctracting Parties. For this purpose, each Contracting Party shall either: establish the maximum liability of the operator, pursuant to the Paris Convention, at 300 million SDRs, and provide that such liability shall be covered by the insurance of the nuclear operator; or establish the maximum liability of the operator at an amount at least equal to the insurance of the nuclear operator and provide that, in excess of such amount and up to 300 million SDRs, public funds shall be made available by some means other than as cover for the liability of the operator. Therefore, the Installation State has two options. First, it can limit the nuclear operator’s liability to an amount of (at least) 175 million SDRs. In that case, it will not have to make “national” public funds available in the second tier. Second, the State can limit the nuclear operator’s liability to a lower amount; in this case, it will

63

Consideration of the Brussels Supplementary Convention.

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KDYHWRPDNH´QDWLRQDOµSXEOLFIXQGVDYDLODEOHLQRUGHUWRIXOÀOOLWVREOLJDWLRQ under Art. 3, b) ii) of the Brussels Supplementary Convention to have 175 million SDRs available in the second tier. This means that under the Brussels Supplementary Convention, the Installation State can shift its obligation to make public funds available under the second tier entirely to the nuclear operator. It cannot escape from its obligation to make public funds available in the third tier – this is indeed a collective tier of all Contracting Parties. 851

However, the Convention does not say anything about the way the Contracting Parties must make public money available or about whom eventually must bear the costs of it. The Convention basically states that a Contracting Party must pay “up front”, i.e. must make money available. The Convention does not say DQ\WKLQJDERXWWKHRULJLQVRIWKLVSXEOLFPRQH\²LWFRQWDLQVQRGHÀQLWLRQRI public money – offering quite some options to Contracting Parties to decide for WKHPVHOYHVZKHWKHURUQRWWRVKLIWWKHÀQDQFLDOEXUGHQRIPDNLQJSXEOLFPRQH\ available to parties involved in the nuclear risk. It is thus possible that a country that is making public money available as part of its obligations under the Brussels Supplementary Convention either uses taxpayers’ money or provides for a regime whereby the costs of making the public money available are recuperated from PDUNHWSDUWLHVRURWKHUJURXSVWKDWQDWLRQDOSROLF\PDNHUVKDYHLGHQWLÀHG We therefore make a distinction between the external payment of the public funds under the Convention (i.e. the obligation of making public money available as provided for in the Convention(s)) on the one hand and the internal payment according to national law provisions (i.e. installing a mechanism to recuperate or not the sums the State has made available) on the other. A country that is Party to the Brussels Supplementary Convention will always have to provide IRUWKHH[WHUQDOSD\PHQWEXWLWFDQSURYLGHIRUVSHFLÀFSURYLVLRQVLQLWVQDWLRQDO law. Basically, it can decide to recuperate the sums it has made available under the Brussels Supplementary Convention; by doing so, the country can shift the ÀQDQFLDOEXUGHQRILWVLQWHUQDWLRQDOREOLJDWLRQVXQGHUWKHWKLUGWLHUWRDQ\SHUVRQ This is and remains an internal policy issue that can never exempt a country to escape from its obligation to contribute to the third tier, using public money.

852

Under the Brussels Supplementary Convention, the Contracting Parties are obliged to make the sums available after an accident has occurred and only LQVRIDUDVWKHDPRXQWRILQVXUDQFHRIWKHQXFOHDURSHUDWRUOLDEOHLVQRWVXIÀFLHQW to compensate all the damage. The Convention does not create an international fund as such. All arrangements concerning the payment of the sums foreseen in the Convention will have to be made after the accident. According to Art. 10 of the Brussels Supplementary Convention, the Contracting Party whose courts have jurisdiction are required to inform the other Contracting Parties of a nuclear incident and its circumstances as soon as it appears that the damage FDXVHGE\VXFKLQFLGHQWH[FHHGVRULVOLNHO\WRH[FHHGPLOOLRQ6'5V½ 202.13 million). Similarly, the Contracting Parties shall “without delay make all the necessary arrangements to settle the procedure for their relations in this connection”.

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2. Compensation regime provided for in the international nuclear liability conventions of the second generation Above (supra no. C) we already gave an overview of the nuclear liability conventions of the second generation. In this section the content of these conventions will be analysed. Before entering into the analysis, it will be made clear why WKHFRQYHQWLRQVRIWKHÀUVWJHQHUDWLRQQHHGHGWREHFKDQJHGLQIUDQR  The new conventions will be discussed by establishing the changes of the new regime as far as private funding (infra no. 2.2) and public funding (infra no. 2.3) is concerned.

853

2.1. Need for the second generation conventions The radioactive fall-out of the Chernobyl accident affected big parts of the KievChernobyl region and affected most European countries as well. Most damage in (XURSHDQFRXQWULHVZDVLQÁLFWHGE\HFRQRPLFORVVHVGXHWRFRQWDPLQDWHGIRRG and animals and by preventive measures taken by European governments.64

854

As far as the liability for the accident is concerned, the operator could be held liable under national Soviet law based on negligence (fault liability).65 However, the former Soviet Union was not member to any of the nuclear liability convenWLRQVWKLVSUREDEO\H[SODLQVZK\QRQHRIWKHDIIHFWHG6WDWHVÀOHGDQRIÀFLDO claim against the former Soviet Union for compensating the loss suffered in its territory.66 Even if the former Soviet Union had been a member to the Vienna Convention, it became clear that not all damage could have been compensated for. E.g. the Soviet authorities questioned the necessity of the preventive measures taken by several countries. Another problem was that western European countries participated in the Paris Convention which operates (or operated at that time)67 independently from the Vienna Convention. The transboundary HIIHFWVRIWKHDFFLGHQWUHYHDOHGWKHGHÀFLHQFLHVRIWKHH[LVWLQJWUHDW\UHJLPHV in case of widespread transboundary damage. Also the limited geographical scope, limiting the liability to nuclear damage in signatory States appeared to be detrimental to a comprehensive model of liability and compensation for damage caused by a nuclear accident. Finally, the limited amounts of compensation and the limited liability (in amount and in time), appeared to be problematic given the potential astronomic size of a nuclear accident. Thus the Chernobyl accident clearly showed the importance of having a wide international acceptance of the international compensation regime and of the adequacy of that regime. Those

855

64

65

66 67

Report on the radiological impact of the Chernobyl accident in OECD countries, [1987] Nuclear Law Bulletin, 30; One decade after Chernobyl, summing up the consequences of the accident (IAEA: 1996). A.I. Iorisch and O.A. Supataeva, The problems of Russian legislation on liability for Nuclear Damage, in: Nuclear Accidents: Liabilities and Guarantees (OECD: 1993), 70 et seq. N.L.J.T. Horbach (supra fn. 31), 55. Cfr. the analysis of the Joint Protocol (infra no. 860 ff).

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two issues are, quite evidently, closely related. The need to modernise the international nuclear liability conventions resulted in the start of the negotiations to revise the conventions, shortly after the accident.68 856

Initially, a lot of attention was given to the possibility of establishing a new convention addressing “the principles of international liability for nuclear damage under the law of State responsibility concerning international claims against States”.69 Several proposals have been made as to a global convention on State responsibility for transboundary damage; however, it appears that States have been quite reluctant to accept an international convention providing for strict State responsibility for transboundary nuclear damage.70 In this respect, several States argued that the need for such a liability regime could be obviated by creating a global system of supplementary compensation similar to the one created by the Brussels Supplementary Convention. Several approaches of supplementary compensation have been discussed, such as the establishment of additional tiers of compensation by the Installation State, or pooling of operators.

857

Despite all political good will to improve victims’ situation and to adapt the H[LVWLQJFRQYHQWLRQVWKHZKROHUHYLVLRQSURFHVVWRRNTXLWHVRPHWLPH7KHÀUVW modest step was relatively easy to take, namely the linking of the territorial VFRSHRIWKH3DULVDQG9LHQQD&RQYHQWLRQV-RLQW3URWRFRO 7KHÀUVWUHDO result of the revision of the nuclear liability conventions was the adoption, on 12 September 1997 of two new legal instruments: the Protocol to the Vienna Convention and the Convention on Supplementary Compensation. The Protocol to the Vienna Convention entered into force on 4 October 2003, but had only OLPLWHGVXFFHVVRQO\ÀYHVFRXQWULHVZHUHPHPEHUVDWWKHHQGRI71 The Convention on Supplementary Compensation was even more limited since at the end of 2006 it was not yet in force – only three countries had signed the &RQYHQWLRQZKHUHDVWKHHQWU\LQWRIRUFHUHTXLUHVWKDWDWOHDVWÀYH6WDWHVZLWK a minimum of 400,000 units of installed nuclear capacity have deposited their LQVWUXPHQWRIUDWLÀFDWLRQ,WWRRNVHYHUDOPRUH\HDUVWRUHYLVHWKHFRQYHQWLRQV of the NEA regime: on 12 February 2004, the Protocol to the Paris Convention and the Protocol to the Brussels Supplementary Convention were opened for signature.

858

Since the international conventions of the second generation provide both for private and public funding, the changes to both types of funding will be analysed. 68

69

70 71

In this article, we only focus on the developments on nuclear liability issues. Therefore, we do not mention the conventions on nuclear safety, etc. “The Question of Liability for Damage arising from a Nuclear Accident”, IAEA Doc., GOV/INF/2306. G. Handl, Towards a global system of compensation for transboundary QXFOHDUGDPDJHUHÁHFWLRQVRQWKHLQWHUUHODWLRQVKLSRIFLYLODQGLQWHUQDWLRQDO6WDWHOLDELOLW\ in Nuclear Accidents: Liabilities and Guarantees (OECD: 1993), 497 et seq. N.L.J.T. Horbach (supra fn. 31), 59. Argentina, Belarus, Latvia, Morocco, Romania.

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2.2. Private funds As far as private funding of the compensation of nuclear damage is concerned, the nuclear liability conventions of the second generation have linked the private funding (infra no. 2.2.1), and have changed the relevant provisions of the Vienna Convention (infra no.2.2.2) and of the Paris Convention (infra no. 2.2.3).

859

2.2.1. Linking the private funding: the 1988 Joint Protocol In order to resolve the problem that the IAEA and NEA regimes were not linked, the Joint Protocol Relating to the Application of the Vienna Convention and the Paris Convention was adopted on 21 September 1988. The aim of this Protocol is to “establish a link between the Vienna Convention and the Paris Convention by PXWXDOO\H[WHQGLQJWKHEHQHÀWRIWKHVSHFLDOUHJLPHRIFLYLOOLDELOLW\IRUQXFOHDU GDPDJHVHWIRUWKXQGHUHDFK&RQYHQWLRQDQGWRHOLPLQDWHFRQÁLFWVDULVLQJIURP the simultaneous applications of both Conventions to a nuclear incident”.72

860

According to Art. II.a of the Joint Protocol, the operator of a nuclear installation situated in the territory of a Party to the Vienna Convention shall be liable in accordance with that Convention for nuclear damage suffered in the territory of a Party to both the Paris Convention and the Protocol. Art. II.b of the Joint Protocol states the same for the liability of the operator of a nuclear installation situated in the territory of a Party to the Paris Convention: he shall be liable in accordance with that Convention for nuclear damage suffered in the territory of a Party to both the Vienna Convention and the Protocol.

861

$UW,,,RIWKH-RLQW3URWRFROSUHYHQWVFRQÁLFWVLQWKHDSSOLFDWLRQRIWKH3DULV and Vienna Conventions by stating that either the Vienna Convention or the Paris Convention shall apply to a nuclear incident to the exclusion of the other. In the case of a nuclear incident occurring in a nuclear installation, the applicable Convention shall be that to which the State is a Party within whose territory that installation is situated (Art. III.2 of the Joint Protocol).

862

Thus, the Joint Protocol creates a link between the territorial scope of the Paris and Vienna Conventions. The Protocol does not amend in any way the text of the Conventions. It has to be noted that the Joint Protocol, which entered into force on 27 April 1992, had limited success, especially due to the different liability levels between the Paris and Vienna Conventions. Indeed, as the level provided for in the Paris Convention is higher than the amount provided for in the Vienna Convention, Parties to the Paris Convention are somehow reluctant to sign the Joint Protocol.73

863

72 73

Considerations of Joint Protocol. The last available status on the website of the International Atomic Energy Agency states that 7 States that are Party to the Paris Convention signed the Joint Protocol (Denmark, Finland, Germany, Greece, Italy, the Netherlands, Norway and Sweden).

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2.2.2. In the IAEA regime: Protocol to the Vienna Convention 864

The Protocol to the Vienna Convention has a triple goal: to provide for a broader scope, an increased amount of liability of the operator of a nuclear installation and enhanced means for securing adequate and equitable compensation.

865

,QGHHGZHVHHWKDWXQGHUWKH3URWRFROWRWKH9LHQQD&RQYHQWLRQDEURDGHUGHÀQLtion of “nuclear damage” is introduced. Nuclear damage does not only mean loss of life or personal injury or loss of or damage to property, but also economic loss; the costs of measures of reinstatement of impaired environment, unless VXFKLPSDLUPHQWLVLQVLJQLÀFDQWORVVRILQFRPHGHULYLQJIURPDQHFRQRPLF interest in any use or enjoyment of the environment, incurred as a result of a VLJQLÀFDQWLPSDLUPHQWRIWKDWHQYLURQPHQWWKHFRVWVRISUHYHQWLYHPHDVXUHV and further loss or damage caused by such measures; any other economic loss, other than any caused by the impairment of the environment, if permitted by the general law on civil liability of the competent court.74

866

Important as well is the extension of the scope of the Convention: according to the new Art. I A of the Vienna Convention, it shall apply to nuclear damage wherever suffered. However, the legislation of the Installation State may exclude from the application of the Convention damage suffered in the territory of a non-Contracting State or in any maritime zones established by a non-Contracting State in accordance with the international law of the sea.75

867

Art. 7 of the Protocol amends Art. V of the Vienna Convention with regard to the limited amount of liability. It states that the liability of the operator may be limited by the Installation State for any one nuclear incident, either to not less than 300 million SDRs; or to not less than 150 million SDRs provided that in excess of that amount and up to at least 300 million SDRs public funds shall be

74

75

“Measures of reinstatement” means any reasonable measures which have been approved by the competent authorities of the State where the measures were taken, and which aim to reinstate or restore damaged or destroyed components of the environment, or to introduce, where reasonable, the equivalent of these components into the environment. The law of the State where the damage is suffered shall determine who is entitled to take such measures. “Preventive measures” means any reasonable measures taken by any person after a nuclear incident has occurred to prevent or minimize damage subject to any approval of the competent authorities required by the law of the State where the measures were taken. “Reasonable measures” means measures which are found under the law of the competent court to be appropriate and proportionate having regard to all the circumstances, for example the nature and extent of the damage incurred or, in the case of preventive measures, the nature and extent of the risk of such damage; the extent to which, at the time they are taken, such measures are likely to be effective; and the relevant VFLHQWLÀFDQGWHFKQLFDOH[SHUWLVH6HH$UW,RIWKH3URWRFROWRWKH9LHQQD&RQYHQWLRQ Such an exclusion may apply only in respect of a non-Contracting State which at the time of the incident has a nuclear installation in its territory or in any maritime zones established by it in accordance with the international law of the sea; and does not afford equivalent UHFLSURFDOEHQHÀWV

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made available by that State to compensate nuclear damage; or for a maximum of 15 years from the date of entry into force of the Protocol, to a transitional amount of not less than 100 million SDRs in respect of a nuclear incident occurring within that period. An amount lower than 100 million SDRs may be established, provided that public funds shall be made available by that State to compensate nuclear damage between that lesser amount and 100 million SDRs. $VSHFLÀFSURYLVLRQLVDOVRLQWURGXFHGIRUVPDOOHUQXFOHDULQVWDOODWLRQV the Installation State, having regard to the nature of the nuclear installation or the nuclear substances involved and to the likely consequences of an incident originating therefrom, may establish a lower amount of liability of the operator, provided that in no event shall any amount so established be less than 5 million SDRs, and provided that the Installation State ensures that public funds shall be made available up to an amount of 300 million SDRs. The Protocol to the Vienna Convention also provides for the possibility of introducing unlimited liability. The amended Art. VII reads that in such a case, WKH,QVWDOODWLRQ6WDWHPD\HVWDEOLVKDOLPLWRIWKHÀQDQFLDOVHFXULW\RIWKHRSHUDWRU liable, provided that such limit is not lower than 300 million SDRs.

868

$QRWKHULPSRUWDQWPRGLÀFDWLRQFRQFHUQVWKHOLPLWDWLRQRIWKHOLDELOLW\RIWKH nuclear operator in time. Thus, a new Art. VI of the Vienna Convention is introduced, according to which, rights of compensation shall be extinguished if an action is not brought within thirty years from the date of the nuclear incident with respect to loss of life and personal injury and within ten years from the date of the nuclear incident with respect to other damage. If, however, under the law of the Installation State, the liability of the operator is covered by LQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\LQFOXGLQJ6WDWHIXQGVIRUDORQJHUSHULRG the law of the competent court may provide that rights of compensation against the operator shall only be extinguished after such a longer period which shall not exceed the period for which his liability is so covered under the law of the Installation State.

869

2.2.3. In the NEA regime: Protocol to the Paris Convention To a large extent, the Protocol to the Paris Convention introduces the same (or at least very similar) changes to the Paris Convention as does the Protocol to the 9LHQQD&RQYHQWLRQ$ÀUVWLPSRUWDQWHOHPHQWLVWKHQHZGHÀQLWLRQRIQXFOHDU damage which will include economic loss, the costs of measures or reinstatement of impaired environment as well as the costs of preventive measures. The major difference with the Protocol to the Vienna Convention is that the Protocol to the Paris Convention does not include any reference to “other economic loss”.76

76

See also J. Schwartz (supra fn. 44), 54-55; apparently, the Contracting Parties are of the RSLQLRQWKDWWKLVW\SHRIGDPDJHLVFRYHUHGE\DQ\RIWKHRWKHUVSHFLÀHGFDWHJRULHVRI damage.

870

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871

The Protocol to the Paris Convention introduces a new liability limit in the Paris Convention: according to the new Art. 7 of the Convention, each Contracting Party shall provide under its legislation that the liability of the operator in respect of nuclear damage caused by any one nuclear incident shall not be less than ½PLOOLRQ1RWHWKDWZKHUHDVWKH3DULV&RQYHQWLRQRIPHQWLRQHGD maximum liability amount, the Protocol imposes a minimum liability amount (“not less”). However, having regard to the nature of the nuclear installation involved and to the likely consequences of a nuclear incident originating therefrom, a Contracting Party may establish a lower amount of liability for that installaWLRQSURYLGHGWKDWLQQRHYHQWVKDOODQ\DPRXQWVRHVWDEOLVKHGEHOHVVWKDQ½ 70 million. A similar possibility of establishing a lower amount exists for the carriage of nuclear substances; in that case the amount shall not be less than ½PLOOLRQ

872

The Protocol to the Paris Convention also introduces new prescription periods, and thus changes the limitation of liability in time. According to the new Art. 8 of the Paris Convention, the right of compensation under the Convention shall be subject to prescription or extinction if an action is not brought within thirty years from the date of the nuclear incident with respect to loss of life and personal injury and within ten years from the date of the nuclear incident with respect to other nuclear damage. National legislation may, however, establish a longer period provided that the Contracting Party within whose territory the nuclear installation of the operator liable is situated has taken measures to cover the liability of that operator in respect of any actions for compensation which commenced after the expiry of the period.

873

According to the new Art. 8, d) of the Paris Convention, national legislation may establish a period of not less than three years for the prescription or extinction of rights of compensation under the Convention, determined from the date on which the person suffering nuclear damage had knowledge, or from the date on which that person ought reasonably to have known of both the nuclear damage and the operator liable, provided that the 10 or 30-year periods are not exceeded.

874

In order to cover his liability, the nuclear operator is required to have and PDLQWDLQLQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\RIWKHDPRXQWRIKLVOLDELOLW\DQG of such type and terms as the competent public authority shall specify. A new element is that the new Art.10, b) of the Paris Convention states that where the liability of the operator is not limited in amount, the Contracting Party within whose territory the nuclear installation of the liable operator is situated shall HVWDEOLVKDOLPLWXSRQWKHÀQDQFLDOVHFXULW\RIWKHRSHUDWRUOLDEOH7KLVOLPLW FDQKRZHYHUQRWEHORZHUWKDQ½PLOOLRQRURUDVWKHFDVHPD\ be). It can be considered as being an important step forwards that the revised Paris Convention provides for the possibility of having unlimited liability; as already indicated above, under the 1960 Paris Convention, mention was made of a maximum liability.

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2.3. Public Funds Under the compensation system provided for by the nuclear liability conventions of the second generation, three conventions make public funds available: the Protocol to the Vienna Convention, the Protocol to the Brussels Supplementary Convention and the Convention on Supplementary Compensation.

875

2.3.1. In the IAEA regime: Protocol to the Vienna Convention Whereas the compensation regime of the 1963 Vienna Convention only provided for private funds to be made available, the Protocol to the Vienna Convention explicitly provides for the possibility to make public funds available. The availability of public funds under the Protocol of the Vienna Convention is directly linked to the amount to which the operator is liable. Indeed, the new Art. V of the Vienna Convention allows the determination of not less than three different liability amounts; only if the amount thus set is not “high enough”, has the Contracting Party to make public funds available up to a certain amount.

876

Thus, the Installation will not have to make public funds available if it introduces a liability limit of 300 million SDRs or, during the phase-in period, of 100 PLOOLRQ6'5V+RZHYHULQWKUHHVSHFLÀFFDVHVZLOOWKH,QVWDOODWLRQ6WDWHKDYH to make public funds available:

877

– –

–

during the transitional period the liability limit is set to an amount lower than 100 million SDRs: obligation to make public funds available up to 100 million SDRs; after the transitional period, the liability limit is set at an amount lower than 300 million SDRs, but at least 150 million SDRs: in excess of that amount and up to at least 300 million SDRs public funds shall be made available; if it concerns a smaller nuclear installation: Installation State may establish a liability limit of 5 million SDRs, provided that it ensures that public funds shall be made available up to an amount of 300 or 100 million SDRs.

Under the Protocol of the Vienna Convention the Installation State only has an obligation to make public funds available if it sets a low liability amount. This means that a State has the possibility to shift the compensation of the liability entirely to the nucelar operator. The Protocol to the Vienna Convention does not provide for a solidarity fund of a collective tier between the Contracting Parties as is the case under the Brussels Supplementary Convention.

878

2.3.2. In the NEA regime: Protocol to the Brussels Supplementary Convention The most important change to the Brussels Supplementary Convention states that the Contracting Parties undertake that compensation in respect of nuclear GDPDJH VKDOO EH SURYLGHG XS WR WKH DPRXQW RI ½  PLOOLRQ SHU QXFOHDU incident.

879

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This amount consists of three tiers: ² ² ²

XSWRDQDPRXQWRIDWOHDVW½PLOOLRQIXQGVSURYLGHGE\LQVXUDQFHRU RWKHUÀQDQFLDOVHFXULW\RURXWRISXEOLFIXQGVSURYLGHGSXUVXDQWWR$UW 10(c) of the Paris Convention; EHWZHHQWKLVDPRXQWDQG½PLOOLRQSXEOLFIXQGVWREHPDGHDYDLODEOH by the Contracting Party in whose territory the nuclear installation of the operator liable is situated; EHWZHHQ½PLOOLRQDQG½PLOOLRQRXWRISXEOLFIXQGVWREH made available by all the Contracting Parties according to the formula for contributions.

Thus, this Article basically says that the total amount of compensation consists RIWKUHHWLHUVDÀUVWWLHUWREHSDLGE\WKHQXFOHDURSHUDWRUDVHFRQGWLHUWREH paid by the Installation State and a third tier to be paid by all Contracting Parties. The new Art. 12 determines the formula for the contribution of each Contracting Party in the third tier: –

–

881

as to 35%, on the basis of the ratio between the gross domestic product at current prices of each Contracting Party and the total of the gross domestic SURGXFWVDWFXUUHQWSULFHVRIDOO&RQWUDFWLQJ3DUWLHVDVVKRZQE\WKHRIÀFLDO statistics published by the OECD for the year preceding the year in which the nuclear incident occurs; as to 65%, on the basis of the ratio between the thermal power of the reactors situated in the territory of each Contracting Party and the total thermal power of the reactors situated in the territories of all the Contracting Parties. For the purposes of this calculation, a reactor shall only be taken LQWRFRQVLGHUDWLRQDVIURPWKHGDWHZKHQLWÀUVWUHDFKHVFULWLFDOLW\DQGD reactor shall be excluded from the calculation when all nuclear fuel has been removed permanently from the reactor core and has been stored safely in accordance with approved procedures.77

As is the case with the “original” Brussels Supplementary Convention, the Convention as amended by the Protocol also leaves the Contracting Party a certain freedom about the way these amounts are made available. However, the wording of the new Art. 3 is not very accurate. It reads that “a Contracting Party shall either: i)

77

establish under its legislation that the liability of the operator shall not be less than the amount referred to in paragraph (a) of this Article, and provide that such liability shall be covered by all the funds referred to in paragraph (b) of this Article; or

 )RUWKHSXUSRVHVRIWKH&RQYHQWLRQ´WKHUPDOSRZHUµPHDQVL EHIRUHWKHLVVXHRIDÀQDO operating licence, the planned thermal power; ii) after the issue of such licence, the thermal power authorised by the competent national authorities.

Shifts in Compensation for Environmental Damage

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ii)

establish under its legislation the liability of the operator at an amount at least equal to that established pursuant to paragraph (b)(i) of this Article or Art. 7(b) of the Paris Convention, and provide that, in excess of such amount and up to the amount referred to in paragraph (a) of this Article, the public funds referred to in paragraphs (b)(i), (ii) and; (iii) of this Article shall be made available by some means other than as cover for the liability of the operator, provided that the rules of substance and procedure laid down in this Convention are not thereby affected.” What this Article tries to say is that the Installation State can escape from its duty to put public money available in the second tier. Indeed, if the law of the ,QVWDOODWLRQ 6WDWH VWLSXODWHV WKDW WKH RSHUDWRU LV OLDEOH XS WR DQ DPRXQW RI ½ 1,200 million or higher78, the State is not obliged to make public funds available under the second tier. This is important since the Protocol to the Brussels Supplementary Convention, just like the 1963 Brussels Supplementary Convention, gives the Installation State the possibility to shift its obligation to make public funds available under the second tier entirely to the nuclear operator. However, under the system of the Brussels Supplementary Convention, a Contracting Party will not be able to escape from its obligation to make public funds available under the collective third tier. If a nuclear accident occurs and LIWKHGDPDJHH[FHHGV½PLOOLRQWKHQDOO&RQWUDFWLQJ3DUWLHVQHHGWR contribute according to the formula of Art. 12. This part of the burden cannot be shifted to the nuclear operators, at least concerning the “up front” payment”. As already indicated, a country has the possibility to recuperate the sums it had to make available79. This holds true for the original Brussels Supplementary Convention as well as for the amended Convention.

882

2.3.3. In the new independent international scheme: the Convention on Supplementary Compensation The idea of creating a supplementary compensation mechanism is far from new. At the 1963 Diplomatic Conference on the adoption of the Vienna Convention the issue of international compensation was raised. The Conference indeed adopted a resolution asking the IAEA to establish a Standing Committee whose task would be (amongst others) “to study the desirability and feasibility of setting up an international compensation fund for nuclear damage and the manner in which such a fund would work”.80 As already indicated, the issue of a collective funding mechanism was highly debated during the revision process. Eventually it was decided to opt for a mechanism providing for supplementary compensation of both domestic and transboundary damage through contributions by all

78

79 80

It is also possible that the law of the Installation State provides for a system of unlimited OLDELOLW\EXWDFRPSXOVRU\LQVXUDQFHXSWRDQDPRXQWRI½PLOOLRQRUKLJKHU Cf. supra, no. 851. IAEA legal series, No. 3, p. 515.

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state parties “on the basis of international solidarity rather than state liability”.81 As the new convention aimed at encouraging non-nuclear States to join the new FRQYHQWLRQLWZDVVRRQIHOWSROLWLFDOO\GLIÀFXOWWRDVNWKHVH6WDWHVWRFRQWULEXWH to a fund which would be largely used to compensate for the damage suffered in the Installation State. It was then suggested, by way of incentive for non-nuclear States to join the new convention, that the new convention would only cover transboundary damage; this was however not acceptable for several nuclear states. Later on, the compromise was found that the new global international fund should be used in part to compensate transboundary damage and in part to compensate damage in the Installation State. 884

Whereas a State can – quite logically – only adhere to the Protocol of the Vienna Convention if that State is also Party to the Vienna Convention, the Convention on Supplementary Compensation is an independent legal instrument. A State does not need to be Party to the Vienna or Paris Convention in order to become a Party to the Convention on Supplementary Compensation; it is enough that its national law is in accordance with the principles of international nuclear liability ODZ+RZHYHULIWKDW6WDWHKDVDQXFOHDULQVWDOODWLRQRQLWVWHUULWRU\DVGHÀQHG in the Convention on Nuclear Safety of 17 June 1994, it must be a Contracting State to that Convention.82

885

As far as the scope of the Convention is concerned, Art. II.2 of the Convention for Supplementary Compensation stipulates that the system of the Convention shall apply to nuclear damage for which an operator of a nuclear installation used for peaceful purposes situated in the territory of a Contracting Party is liable under either the Paris or Vienna Conventions or national law. The Convention does not apply to nuclear damage caused by incidents in a military nuclear installation.

886

As far as the geographical scope is concerned, the Convention remains silent. The fact that Art. II.2 refers to the liability under either one of the Conventions, either under national law, the scope of application of the Convention on Supplementary Compensation depends on the scope of application of the applicable civil liability system. However, it is clear that the Convention on Supplementary Compensation applies as soon as the incident causing nuclear damage occurs in an installation situated in the territory of a Contracting Party to the Convention on Supplementary Compensation. In this respect it is irrelevant whether the operator is liable under the Paris Convention, under the Vienna Convention

81

82

V. Boulanenkov, Main features of the Convention on Supplementary Compensation for nuclear damage – an overview, in: Reform of Civil Nuclear Liability (OECD: 2000), 165; some authors also qualify the Brussels Supplementary Convention as being a system of solidarity rather than liability, see R. Dussart Desart, The Reform of the Paris Convention on Third Party Liability in the Field of Nuclear Energy and of the Brussels Supplementary Convention, [2005] Nuclear Law Bulletin, 75, 26. Art. XVIII.1 of the Convention on Supplementary Compensation.

Shifts in Compensation for Environmental Damage

291

RUXQGHUQDWLRQDOODZ$VIDUDVWKHÀUVWWLHURIFRPSHQVDWLRQLVFRQFHUQHGWKH Installation State may exclude nuclear damage suffered in a non-Contracting Party.83 The purpose of the Convention is to supplement the system of compensation provided under national law which either implements the Paris or Vienna Conventions, or which is in accordance with the principles of international nuclear civil liability law. Basically, the Convention on Supplementary Compensation provides for a two tier system of compensation in respect of nuclear damage. 7KHÀUVWWLHUKDVWREHPDGHDYDLODEOHE\WKH,QVWDOODWLRQ6WDWHWKHVHFRQGWLHULV an international fund with contributions being made by the Contracting Parties. Thus the Convention creates an obligation for the Installation State to make a ÀUVWWLHUDYDLODEOHDQGDQREOLJDWLRQIRUDOO&RQWUDFWLQJ3DUWLHVWRFRQWULEXWHLQ the second tier.

887

According to Art. III.1.a of the Convention on Supplementary Compensation, the Installation State shall ensure the availability of at least 300 million SDRs ½PLOOLRQ 7KLVSURYLVLRQSURYLGHVIRUDQREOLJDWLRQRIWKH,QVWDOODWLRQ State to ensure that 300 million SDRs are available; the Installation State is free to choose how this amount is funded (private insurance, regional agreement, …). A State meets its obligation under Art. III.1.a of the Convention on Supplementary Compensation when it imposes a nuclear liability on the operator for the entire amount. So, as such this Article does not oblige a State to make public funds available; the State shall only be obliged to make public funds available VKRXOGWKHIXQGLQJPHFKDQLVPLWKDVSURYLGHGIRUDSSHDUVWREHXQVXIÀFLHQW84 This mechanism is thus similar to the one in the second tier of the Brussels 6XSSOHPHQWDU\&RQYHQWLRQVLQFHWKHÀQDQFLDOEXUGHQRIWKLVWLHUFDQHQWLUHO\ be shifted to the nuclear operator. The Convention provides for a phasing-in mechanism, allowing a Contracting Party to establish a transitional amount of at least 150 million SDRs in respect of a nuclear incident occurring within that period. This phasing-in mechanism is only available for a maximum of 10 years from the date of the opening for signature of this Convention. So, irrespective of the fact that the Convention on Supplementary Compensation is not yet in force, the phasing-in period expires in September 2007.

888

According to Art. II.1.B of the Convention on Supplementary Compensation, WKH&RQWUDFWLQJ3DUWLHVVKDOOEH\RQGWKHDPRXQWDYDLODEOHXQGHUWKHÀUVWWLHU make available public funds according to the following formula:

889

–

83 84

the amount which shall be the product of the installed nuclear capacity of that Contracting Party multiplied by 300 SDRs per unit of installed capacity; and

Art. III. 2 of the Convention on Supplementary Compensation. B. McRae (supra fn. 34), 179.

292

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Michael Faure and Albert Verheij

the amount determined by applying the ratio between the United Nations rate of assessment for that Contracting Party as assessed for the year preceding the year in which the nuclear incident occurs, and the total of such rates for all Contracting Parties to 10% of the sum of the amounts calculated for all Contracting Parties.

Given the fact that countries with nuclear power also have high United Nations rates of assessment, the formula should ensure that more than 95% of this second WLHUZLOOEHÀQDQFHGE\QXFOHDUSRZHUJHQHUDWLQJFRXQWULHV85 Of course, the total amount of such compensation will depend on the number of States which are Party to the Convention at the time of the nuclear accident. Basically, this formula provides the basis for an international fund of approximately 300 million SDRs.86 890

The application of this formula is softened in two ways. First, States on the minimum United Nations rate of assessment with no nuclear reactors shall not be required to make contributions (Art. IV, b) of the Convention for Supplementary Compensation). Secondly, there is a cap for the contribution to be made by an individual State party (Art. IV, c) of the Convention for Supplementary Compensation). This cap does not apply to the Installation State.

891

The formula is for each nuclear reactor situated in the territory of the Contracting Party, 1 unit for each MW of thermal power. It is remarkable that the formula to calculate a Party’s contribution in the second tier refers to a nuclear reactor and not to a nuclear installation. According to Art. 1, d of the Convention for Supplementary Compensation, a nuclear reactor means “any structure containing nuclear fuel in such an arrangement that a self-sustaining chain process of QXFOHDUÀVVLRQFDQRFFXUWKHUHLQZLWKRXWDQDGGLWLRQDOVRXUFHRIQHXWURQVµ7KLV GHÀQLWLRQLVLGHQWLFDOWRWKHGHÀQLWLRQRIWKH9LHQQD&RQYHQWLRQ+RZHYHUWKH &RQYHQWLRQIRU6XSSOHPHQWDU\&RPSHQVDWLRQGRHVQRWFRQWDLQDQ\GHÀQLWLRQ of a “nuclear installation”, as opposed to the Vienna and Paris Conventions.87

892

The allocation of the funds available under the second tier has been subject of intensive negotiation. According to Art. XI of the Convention for Supplementary

85 86 87

B. McRae (supra fn. 34), 180. B. McRae (supra fn. 34), 176. Under Art. b ii of the Paris Convention, a nuclear installation means: “reactors other than those comprised in any means of transport; factories for the manufacture or processing of nuclear substances; factories for the separation of isotopes of nuclear fuel; factories for the reprocessing of irradiated nuclear fuel; facilities for the storage of nuclear substances other than storage incidental to the carriage of such substances; and such other installations in which there are nuclear fuel or radioactive products or waste as the Steering Committee for Nuclear Energy of the Organisation shall from time to time determine; any Contracting Party may determine that two or more nuclear installations of one operator which are located on the same site shall, together with any other premises on that site where radioactive material is held, be treated as a single nuclear installation.”

Shifts in Compensation for Environmental Damage

293

Compensation, the funds of the second tier shall be distributed as follows: 50% of the funds shall be available to compensate claims for nuclear damage suffered in or outside the Installation State; 50% of the funds shall be available to compensate claims for nuclear damage suffered outside the territory of the Installation State to the extent that such claims are uncompensated from the former amount. Pursuant to Art. VI of the Convention for Supplementary Compensation, the Contracting Party whose courts have jurisdiction shall inform the other Contracting Parties of a nuclear accident as soon as it appears that the damage caused by VXFKDFFLGHQWH[FHHGVRULVOLNHO\WRH[FHHGWKHDPRXQWDYDLODEOHXQGHUWKHÀUVW tier. Thus, the Convention on Supplementary Compensation does not require that Parties to it should set aside the funds prior to an accident. The Convention is also quite vague on the procedure to be followed once it is established that the damage will exceed 300 million SDRs: the Contracting Parties shall “without delay” make all the necessary arrangements to settle the procedure.

893

3. Analysis In the compensation scheme elaborated by the international conventions on FLYLOOLDELOLW\RIWKHÀUVWJHQHUDWLRQWZRGLIIHUHQWUHJLPHVZHUHFUHDWHGWKH1($ and the IAEA regime. Whereas the NEA regime provided for the availability of both private and public funds (Paris Convention and Brussels Supplementary Convention respectively), the IAEA regime only provided for a private funding PHFKDQLVP7KLVSULYDWHIXQGLQJPHFKDQLVPZDVDQGLV EDVHGRQÀYHPDMRU principles of international nuclear liability law: strict liability, channelling of liability to the nuclear operator, limitation of liability, compulsory insurance and exclusive jurisdiction. The Chernobyl accident highlighted the need to revise these conventions. This resulted in the nuclear liability and compensation conventions of the second generation, amending the conventions of the ÀUVW JHQHUDWLRQ 3URWRFRO WR WKH 3DULV &RQYHQWLRQ 3URWRFRO WR WKH %UXVVHOV Supplementary Convention and Protocol to the Vienna Convention), linking the NEA and IAEA regime (Joint Protocol) and adding a new and indepedent convention (Convention on Suppplementary Compensation).

894

As far as the private funds are concerned, the most striking element in the nuclear liability conventions of the second generation is the considerable increase of the OLDELOLW\RIWKHQXFOHDURSHUDWRUXQGHUWKH3URWRFROWRWKH3DULV&RQYHQWLRQWR½ 700 million, or 116 times higher than the initial lowest liability limit of the 1960 3DULV&RQYHQWLRQ7KH½PLOOLRQLVDERXWIRXUWLPHVWKHUHFRPPHQGDWLRQ of the NEA under the 1960 Paris Convention. Also in the Vienna Convention the liability amount has increased considerably, though less spectacular: about 40 times higher than the limit set in 1963.

895

In this respect some important differences between the Paris and Vienna Conventions remain: whereas the liability amount under the revised Vienna &RQYHQWLRQLV½PLOOLRQWKH´QHZµOLDELOLW\DPRXQWXQGHUWKH3DULV

896

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Michael Faure and Albert Verheij

&RQYHQWLRQZLOOEH½PLOOLRQRUURXJKO\WKHWKUHHIROGRIWKHDPRXQWXQGHU the Vienna Convention. In October 2006, the Protocol to the Paris Convention had not entered into force yet. However, according to a Council Decision of 8 March 2004, Member States which are Party to the Paris Convention shall WDNHQHFHVVDU\VWHSVWRGHSRVLWVLPXOWDQHRXVO\WKHLULQVWUXPHQWVRIUDWLÀFDWLRQ of the Protocol with the Secretary General of the OECD “within a reasonable time and, if possible, before 31 December 2006”.88 897

,WLVGLIÀFXOWWRSUHGLFWDVWRZKHWKHURUQRWWKH3URWRFROZLOOLQGHHGEHUDWLÀHG by all EU-Member States by the end of 2006, thus leading to the entry into force of the Protocol. What is certain, is that different nuclear insurance pools claim WKDWLWZLOOEHDOPRVWLPSRVVLEOHWRLQVXUHDQDPRXQWRI½PLOOLRQ2WKHU pools seem to be more optimistic about the insurability of this amount. There seem to be reasons that might explain the different attitude of different pools. Basically, these reasons refer to differences in the national law system. One of those differences deals with the aggregate liability level that might differ from one country to another: some countries apply a rule according to which the total liability amount must be available immediately after an accident (thus offering protection should two consecutive accidents occur). However, it is e.g. also possible to apply the aggregate either to the duration of the insurance contract or to the entire exploitation period of the nuclear installation. Another difference has to do with the way the capacity of the nuclear pools is used by the nuclear operators. Every nuclear insurance pool, like any conventional insurer, has a certain capacity available. This amount can be used by the nuclear operator, either for insuring his third party liability or for insuring his own material and property damage. If a nuclear operator does not insure his property damage with the pool, the latter has more capacity available to insure third party liability. Thus, despite the undisputible fact that the international nuclear liability conventions offer the advantage of harmonising national nuclear liability law, some important differences remain and can, partially, explain differences in levels of insurance capacity. However, the problem remains that, as far a nuclear liability cover is concerned, the insurance is organised in national insurance pools which are monopolists in their national markets. At the time when the European electricity market was not yet liberalised, this was not too problematic since the nuclear operator was very often also in a monopolistic position. As European nuclear operators are active in an increasingly competitive market, they become more sensitive to the costs of nuclear insurance coverage.

898

The public funding in the NEA compensation regime comes into play as soon DVWKHPRQH\DYDLODEOHLQWKHSULYDWHIXQGLQJLVQRWVXIÀFLHQWWRFRYHUIRUDOOWKH

88

Council Decision of 8 March 2004 authorising the Member States which are Party to the Paris Convention of 29 July 1960 on Third Party Liability in the Field of Nuclear Energy to ratify, in the interest of the European Community, the Protocol amending that Convention, or to accede to it, OJ, 1 April 2004, L 97/53.

Shifts in Compensation for Environmental Damage

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damage suffered after a nuclear accident. If one takes into account the recommendation of the NEA Steering Committee to set a maximum liability of not less than 150 million SDRs89½PLOOLRQRUPLOOLRQ86' RQH FDQDUJXHWKDWWKH1($FRPSHQVDWLRQUHJLPHRIWKHÀUVWJHQHUDWLRQLQFOXGHGD ÀIW\ÀIW\EDODQFHEHWZHHQSULYDWHDQGSXEOLFIXQGLQJWRWDOOLQJ½PLOOLRQ  The NEA compensation regime of the second generation does not really alter WKLVVLWXDWLRQRXWRIDWRWDODPRXQWRI½ELOOLRQ½PLOOLRQZLOOEHSXEOLF IXQGLQJDQG½PLOOLRQSULYDWHIXQGLQJ Under the IAEA regime of the second generation, an entirely new public funding mechanism is created via the Convention on Supplementary Compensation. Pursuant to that Convention, Contracting Parties make public money available XSWRPLOOLRQ6'5V½PLOOLRQ +RZHYHULWLVTXHVWLRQQDEOHZKHWKHU this Convention, having the ambition to provide for a global compensation system in case of nuclear damage,90 will be able to attract global support. As mentioned earlier, the money of the second tier will to a large extent have to be provided by countries having nuclear power plants. It seems however that several countries are reluctant to join the Convention because they would have to explain to their national parliaments that taxpayers’ money shall be used for compensating victims living on the other side of the globe, meaning that there is no mutual risk exposure.91 Moreover, the Convention seems to grant a preferential treatment to damage suffered outside the Installation State; some countres apparently consider this to be a kind of discrimination that is hard to justify.92 It is striking that the nuclear liability conventions of the second generation are considered not to be based on a system of international State liability, but on “solidarity”.93 This is of course a surprising statement since the Conventions oblige States to make public money available irrespective of their behaviour and thus irrespective of any fault or negligence. In our view there is not much (if any) difference between State liability and State solidarity: in both cases the State is obliged to pay for (a part of) the damage. Perhaps the word “liability” was too sensitive from a political viewpoint. So, under the international compensation system, the public funding is either newly created or kept at the same level as in 1963 in relative terms. In absolute terms, there is however an important shift towards public funding in

89

90

91

92 93

Recommendation of the Steering Committee of 20 April 1990, NE/M(90)1, Paris Convention: Decisions, Recommendations, Interpretations, Paris, OECD/NEA, 1990, 13. Cf. the considerations of the Convention: “desirous of establishing a worldwide liability regime to supplement and enhance these measures (…)” (our italics). N. Pelzer, Learning the Hard Way: Did the Lessons Taught by the Chernobyl Nuclear Accident Contribute to Improving Nuclear Law?, in: International Nuclear Law in the Post-Chernobyl Period (OECD-NEA, 2006), 114. R. Dussart Desart (supra fn. 81), 31. V. Boulanenkov (supra fn. 81), 165; also see the considerations of the Convention: “(…) to promote a higher level of nuclear safety in accordance with the principles of international partnership and solidarity”..

899

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Michael Faure and Albert Verheij

both international regimes of the second generation: under the Brussels Supplementary Convention the public intervention has more than doubled94 and under the IAEA regime no public intervention existed under the conventions RIWKHÀUVWJHQHUDWLRQ 900

Under these Conventions a clear distinction needs to be made between the (individual) obligations of the Installation State and the (collective) obligations of all Contracting Parties. As the obligation of the Installation State is to guarantee a certain amount of compensation, it can escape from its obligation to make public funds available by making the nuclear operator liable for the total amount. If, in the NEA regime, the liability of the operator is set at an amount of at least 175 PLOOLRQ6'5V½PLOOLRQ D&RQWUDFWLQJ3DUW\WRWKH%UXVVHOV6XSSOHPHQWDU\ Convention will not have to make money available in the second tier; it thus can shift the compensation of the second tier entirely to the nuclear operator. The same holds true for the conventions of the second generation providing for public funding. According to the Protocol to the Brussels Supplementary Convention, the Installation State will have no obligation to make public funds available in the second tier if the law of the Installation State states that the nuclear operator is OLDEOHXSWRDQDPRXQWRI½PLOOLRQ$3DUW\WRWKH3URWRFRORIWKH9LHQQD Convention and to the Convention on Supplementary Compensation can escape from its individual obligation to make public funding available by making the nuclear operator liable for an amount of 300 million SDRs.95

901

The situation is different for the collective tier in the Brussels Supplementary Convention and the Convention on Supplementary Compensation. All Contracting Parties to these Conventions undertake to make public funds available up to a certain amount;96 they all contribute according to a certain formula taking into account, inter alia, the installed nuclear capacity of all Contracting Parties. The Brussels Supplementary Convention and the Convention on Supplementary Compensation however do not allow to shift this collective public funding. A State Party to either Convention can, indeed, not escape from its external, i.e. YLVjYLVWKHLQWHUQDWLRQDOFRPPXQLW\REOLJDWLRQWRFRQWULEXWHLQWKHFROOHFWLYH tier. The Conventions do, however, not say anything about possibilities to UHFXSHUDWHWKHÀQDQFLDOEXUGHQRIWKLVREOLJDWLRQWRPDUNHWSDUWLFLSDQWVHJWR the nuclear operator or the nuclear suppliers). Therefore, if a State wishes to do VRLWFDQSXWLQSODFHLQLWVQDWLRQDOODZDSURYLVLRQVKLIWLQJWKHÀQDQFLDOEXUGHQ

 ,QWKHVHFRQGWLHURIWKH,QVWDOODWLRQ6WDWHWKHDPRXQWURVHIURP½PLOOLRQWR½ PLOOLRQLQWKHWKLUGWLHUWKH&ROOHFWLYH6WDWH)XQGZHQWIURPDSSUR[LPDWHO\½PLOOLRQ WR½PLOOLRQVHHWDEOHLQIUDQR  95 Art. 7 of the Protocol to the Vienna Convention and Art. III of the Convention on Supplementary Compensation. 96  1DPHO\PLOOLRQ6'5V½PLOOLRQ DFFRUGLQJWR$UWRIWKH%UXVVHOV6XSSOHPHQWDU\&RQYHQWLRQ½PLOOLRQDFFRUGLQJWR$UWRIWKH3URWRFROWRWKH%UXVVHOV Supplementary Convention; and 300 million SDRs according to Art. III of the Convention on Supplementary Compensation. 94

Shifts in Compensation for Environmental Damage

297

of its obligation to someone other than the taxpayer. It can indeed provide for an internal mechanism making persons other than the taxpayers pay.97 A country would thus act as primary insurer, recovering payments and/or premiums from the market participants. Whether a lot of countries do have the intention to fully VKLIWWKHÀQDQFLDOEXUGHQRIWKHFROOHFWLYHWLHUVLVKDUGWRWHOO$OVRIRUVHYHUDO authors,98 it seems evident that States make taxpayer’s money available as part of a nuclear compensation system. In our view making public money available for compensation of damage caused by activities of a private (nuclear) operator is inconsistent with an economic analysis: several authors rightly argue that by limiting the nuclear operator’s liability and by making public money available, the negative external effects of nuclear electricity production are not fully internalised99 and that the nuclear industry is being subsidised.100 This is in other words the economic interpretation of the polluter pays principle.101 It is a pity that the nuclear liability conventions of the second generation not only continue to provide for this subsidy, but provide for additional public funding and thus subsidies. Also the limitation of the nuclear operator’s liability can be considered as being a subsidy to the nuclear industry. It even seems that the reluctance of several countries to join any of the international nuclear liability conventions is linked to the limited liability; these countries do not see any reason why the compensation right of victims should be restricted now that the nuclear industry has matured.102 Moreover, States like Austria, Germany, Sweden and Japan have adopted a system of unlimited liability for nuclear damage in their national legislation.103

902

Despite all these critical considerations, we can also point out several positive elements about the new Conventions. They indeed ensure that more money is available for victims, that more people are entitled to compensation and that more damage can be compensated.104 If we focus on the available compensation we see that, as soon as all the nuclear liability conventions of the second

903

97 98 99

100

101

102 103

104

Cf. supra, no. 851. See Pelzer (supra fn. 92), and Dusart Dessart (supra fn. 81), M. Faure, and R., Van den Bergh, Liability for nuclear accidents in Belgium from an Interest Group Perspective, [1990] International Review of Law and Economics, 10, 241 et seq; M. Radetzki, Limitation de la responsabilité civile nucléaire: causes, consequences et perspectives,[1999] Bulletin de Droit Nucléaire, 63, 7 et seq. T. Vanden Borre, (IÀFLsQWHSUHYHQWLHHQFRPSHQVDWLHYDQFDWDVWURIHULVLFR·V²KHWYRRUEHHOG van schade door kernongevallen (Intersentia: 2001), 763. M. Faure, Deterrence, Insurability and Compensation in Environmental Liability (Springer: 2003), 33. J. Schwartz (supra fn. 44), 59. Austria has even abolished the channelling of liability; see M. Hinteregger, The New Austrian Act on Third Party Liability for Nuclear Damage, [1998] Nuclear Law Bulletin, 62, 27. J. Schwartz (supra fn. 44), 47 et seq.

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Michael Faure and Albert Verheij

JHQHUDWLRQHQWHULQWRIRUFHLQWKH1($UHJLPHDQDPRXQWRI½ELOOLRQZLOO EHDYDLODEOHDVFRPSDUHGWR½PLOOLRQLQ$OWKRXJKWKHUHLVDOVRDQ important increase in the IAEA regime, the amount available under the amended Vienna Convention equals the amount set by the Brussels Supplementary Convention in 1963. Despite the increased amount, also insurers recognize that the compensatory limits of the Paris and the Vienna Conventions, and of the Brussels Supplementary Convention and the Convention on Supplementary Compensation “fall short of the requirements of reality by several orders of magnitude”.105 904

The table hereunder gives a schematic overview of the available amounts in the LQWHUQDWLRQDOFRPSHQVDWLRQV\VWHPIRUQXFOHDUGDPDJHRIWKHÀUVWDQGVHFRQG generation.

First generation

Second generation

Nuclear operator

5.9

700

Installation State

202.13

500

Collective State Fund

148.62

300

356.7

1,500

Nuclear operator

4.2

178.35

Collective State Fund

–

178.35

4.2

356.7

What convention

Who pays?

Paris Convention Brussels Supplementary Convention

Total NEA regime Vienna Convention

Total Vienna Convention Convention of Supplementary Compensation

Total CSC

Operator/installation State

356.7

Collective State Fund

356.7 713.4

$PRXQWVLQPLOOLRQ½

105

G.C. Warren, Nuclear damage under the 1997 Protocol: conventional thinking ?, in: Reform of Civil Nuclear Liability (OECD: 2000), 89.

Shifts in Compensation for Environmental Damage

299

The table shows us that under the new international compensation system for nuclear damage there will be more compensation available for victims of a nuclear accident once all nuclear liability conventions of the second generation enter into force. It also indicates the increase in public funding in absolute and relative terms. This holds true for the NEA regime as well as for the IAEA regime.

($QDWLRQDOFRPSHQVDWLRQUHJLPHWKH3ULFH$QGHUVRQ$FW In the United States, nuclear liability is governed by the Price-Anderson Act, adopted in 1957. The initial Price-Anderson Act, just like the international compensation regime, wanted to spread the risk of the nuclear activities between WKHSULYDWHLQGXVWU\RQWKHRQHKDQGDQGWKHQDWLRQWKDWEHQHÀWVIURPWKHGHYHOopment of nuclear energy on the other. The nuclear operator needed to buy all the insurance coverage then available, which at the time was 60 million USD. On top of that amount, the government agreed to make available an amount of 500 million USD. Several authors agreed that the Price-Anderson Act created a favourable climate for the (American) nuclear industry.106 Thus, the major part of the compensation scheme provided for by the 1957 Price-Anderson Act consisted of public funds.

905

$VDOUHDG\PHQWLRQHGDVSHFLÀFIHDWXUHRIWKH3ULFH$QGHUVRQ$FWLVWKDWLWLV revised every decade or so.107 The Price-Anderson Act today has the practical effect of imposing strict liability for nuclear incidents. This is realised via the extraordinary nuclear occurrence (ENO);108 in case of a nuclear accident, the Nuclear Regulatory Commission is given the power to determine whether or not there is an extraordinary nuclear occurrence.109 If that is the case, the nuclear operator will not be able to invoke certain defenses that are available under federal or state (tort) law.110 Under the “omnibus” coverage feature of Price-Anderson, the system covers “anyone liable”111IRU´SXEOLFOLDELOLW\µ´3XEOLFOLDELOLW\µLVGHÀQHGLQ the Act as “any legal liability arising out of or resulting from a nuclear incident

906

106

E.B. Stason, S.D. Estep and W.J. Pierce (supra fn. 6), 572 and 780. It has indeed been revised in 1966, 1975, 1988 and 2005. 108 ENO was introduced in the Price-Anderson Act in 1966. 109  7KLVLVGHÀQHGDV´DQ\HYHQWFDXVLQJDGLVFKDUJHRUGLVSHUVDORIVRXUFHVSHFLDOQXFOHDU RUE\SURGXFWPDWHULDOIURPLWVLQWHQGHGSODFHRIFRQÀQHPHQWLQDPRXQWVRIIVLWHRUFDXVing radiation levels offside which the Nuclear Regulatory Commission determines to be substantial, and which the Commission determines has resulted or will probably result in substantial damages to persons offsite or property offsite”. 110 See inter alia: D. Berkovitz, Price-Anderson Act: Model Compensation Legislation? – The Sixty-Three Million Dollar Question [1989] Harvard Environmental Law Review (vol. 13, 1), 13 et seq; O.F. Brown, Nuclear Liability Coverage Developments in the United States of America, in: Nuclear Inter Jura 1993 (INLA 1993, II.5.6), 4 et seq. 111 42 US Code6HFWLRQW GHÀQLQJ´SHUVRQLQGHPQLÀHGµ  107

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Michael Faure and Albert Verheij

or precautionary evacuation …”.1127KHRQO\H[FHSWLRQVLQWKDWGHÀQLWLRQDUH for “claims arising out of an act of war,” worker’s compensation claims, and claims for damage to on-site property at a licensed nuclear facility.113 Thus, unlike the international compensation regime, the Price-Anderson Act has a system of economic channelling and not legal channelling. Like the international compensation system, the Price-Anderson Act also limits the liability of the nuclear operator. 907

An important step in shifting the burden to the operator was made in 1975. Although the total compensation amount was at that time kept at the same level as in 1957, it was decided that the part composed of public funds needed to disappear gradually. The Joint Committee on Atomic Energy argued that in WKHHDUO\\HDUVWKHQXFOHDULQGXVWU\ZDVQRWFDSDEOHRIEHDULQJWKHÀQDQFLDO burden arising from nuclear electricity production but that after several years the industry should take its responsibilities; this could be achieved by shifting the burden of the government towards the industry.114 This was achieved by introducing a new tier in the compensation scheme, the so-called retrospective premium7KLVLVDSUHPLXPWREHÀQDQFHGE\DOO American nuclear operators which have received a licence from the US Nuclear Regulatory Commission (NRC); in case the damage exceeds the amount of the nuclear operator’s individual liability coverage of 60 million USD, the retrospecWLYHSUHPLXPFRPHVLQWRSOD\,WLPSOLHVDQDGGLWLRQDOÀQDQFLDOSURWHFWLRQSHU power plant and per incident, payable in annual installments up to a certain maximum amount per incident per power plant. Basically, the 1975 amendment to the Price-Anderson Act gradually replaced the public funding by a collective tier of all US licensed nuclear operators. The NRC was given the power to determine the amount of this premium; in 1975 this premium was thus set at 5 million USD. It was also decided that

112 113

114

42 US Code Section 2210(w). The ANI Facility Form nuclear liability policy currently may not cover “any legal liability” except for the exceptions in the statute: The policy provides it will “…pay on behalf of the named insured all sums which the insured shall become legally obligated to pay as covered damages because of bodily injury or property damage, or as covered environmental cleanup costs because of environmental damage [emphasis added].” ANI Nuclear Energy Liability Policy (Facility Form) Amendatory Endorsement NE-71 (1/1/90). “Covered environmental FOHDQXSFRVWVµDUHGHÀQHGDV´«RQO\WKRVHHQYLURQPHQWDOFOHDQXSFRVWVZKLFKDUHLQFXUUHG directly for monitoring, testing for, cleaning up, neutralizing or containing environmental damage as the result of an extraordinary nuclear occurrence or transportation incident; but covered environmental cleanup costs do not include on-site cleanup costs.” Id. In other words, the ANI policy already is written to exclude such environmental damages as those resulting from a simple “nuclear incident” and those to res nullius or res communis. This could result in a situation where the facility operator would be liable, but not have primary insurance from ANI therefore. In this situation, coverage could be provided by retrospective assessments from all power plant operators. Report No. 94-648, House of Representatives (1975), 9; Senate Report No. 454, 99th Congress, 1st Session (1975) 10.

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the individual liability insurance coverage of each nuclear operator should be consistent with the evolution on the American nuclear insurance market. The 1975 amendments to the Price-Anderson Act resulted in the fact that in 1982 there was a total shift to private funding in the American compensation scheme for nuclear damage. At that time, the operators had to buy an individual LQVXUDQFH FRYHUDJH RI  PLOOLRQ 86' ÀUVW WLHU RI WKH 86 FRPSHQVDWLRQ system); similarly, an amount of 400 million USD of retrospective premiums was available (second tier). Thus, in 1982 the American nuclear compensation scheme offered exactly the same amount as in 1957 (560 million USD), but LQLWZDVHQWLUHO\ÀQDQFHGE\SULYDWHIXQGVERWKWKHLQGLYLGXDODQGWKH collective tier had to be provided for by the nuclear operators. Thereafter, the amount increased as new nuclear reactors became operational.

908

The last change to the Price-Anderson Act was made in 2005.115 The liability of the individual operator amounts to 300 million USD. However, the amount available in the second (collective) tier, is set at 95.8 million USD, plus an extra 5% for legal costs, with a maximum of 15 million USD per reactor per year. Given the fact that in 2005 104 reactors had a licence, the total available DPRXQWLQWKH86LVELOOLRQ86'PLOOLRQ86'RIÀUVWWLHU billion USD of the second tier). The US is, however, not the only country in the world to have such a two tier system. In Germany, the liability of the nuclear operator is unlimited;116 there LVKRZHYHUDOLPLWWRWKHLQVXUDQFHUHTXLUHPHQWXSWR½ELOOLRQ117 of which ½PLOOLRQLVWREHSURYLGHGE\HDFKLQGLYLGXDORSHUDWRU118 The other part is to be provided collectively by the operators of all 17 nuclear reactors.

909

Recently, the US took an important step towards ratifying the Convention of Supplementary Compensation. On 3 August 2006, the US Senate indeed adopted an Act to implement the Convention on Supplementary Compensation. The aim of the Act is to establish a funding mechanism under the Price-Anderson Act for the US contribution to the international nuclear liability compensation system. ,WLVDOVRVDLGWKDW´&6&EHQHÀWV86VXSSOLHUVZKRIDFHSRWHQWLDOO\XQOLPLWHG liability for nuclear accidents outside the coverage of the Price-Anderson Act by replacing potentially open-ended liability with a predictable regime”.119 Also important is that the Act requires the nuclear suppliers to participate in a retrospective risk pooling program to cover the costs of the US contribution pursuant to the Convention on Supplementary Compensation. This means that, according to the Act, the US Treasury will pay to the fund provided for by the

910

115 116 117 118

119

See “Legislative updates”, NEA News (2005), 23.2, 32. § 31, (1) of the German Atomic law (“Atomgesetz”). § 13, (3) of the German Atomic law (“Atomgesetz”). P. Dangelmaier, Nuclear liability insurance in the Federal Republic of Germany, in Nuclear Accidents. Liabilities and Guarantees (OECD-IAEA: 1993), 428 S. 3879, Senate, 109th Congress, 2nd Session, 3.

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Convention; however the costs will be reimbursed by a payment program that suppliers have to set up. Thus, the obligation of the US under the Convention will be shifted to market participants, in this case the nuclear suppliers. Here, we indeed see that there is a difference between the external and internal funding issue of making public money available.120 This illustrates that the fact that a country has an external obligation to make public funds available does not necessarily mean that eventually the taxpayer will have to pay for this. 912

The fact that the US Senate has passed this law makes it quite likely that the US will eventually ratify the Convention on Supplementary Compensation. This is a remarkable evolution for various reasons. First, it will change US policy by entering the international nuclear liability regime (only Convention on SupSOHPHQWDU\&RPSHQVDWLRQ 7KHIDFWWKDWWKH86UDWLÀHVWKH&RQYHQWLRQZLOO in itself not be enough for the entry into force of the Convention; it is however a very important step and might motivate other States to join the Convention as well. E.g. if Japan were to become a member, this would trigger the entry into force of the Convention on Supplementary Compensation. Second, it is LPSRUWDQWEHFDXVHWKH86LPPHGLDWHO\VKLIWVWKHÀQDQFLDOEXUGHQLWZLOOKDYH under the collective tier of the Convention to the private sector (the nuclear suppliers). The US thus clearly has a policy not to make the taxpayer pay for its international obligations.

)&RQFOXGLQJUHPDUNV 913

The analysis in this contribution indicated that the international compensation system for nuclear damage and the American compensation system were initially (i.e. in the early sixties) almost identical: a small part of the total compensation was paid by the nuclear operator and a much bigger part of the total compensation was paid by public funds. The basic question we addressed in this article is whether in the past few years, there has been an important shift in governance in these compensation schemes. Over the years there has been, under both schemes, a shift in the compensation system for nuclear damage. This shift had to do with the part of the total compensation to be paid by private and by public funding on the one hand and with the amount to which the nuclear operator is liable on the other.

914

As far as the international compensation system is concerned, one could argue that there has been an important shift in governance in international nuclear OLDELOLW\ODZLQWKH\HDUVIROORZLQJWKH&KHUQRE\ODFFLGHQW1ROHVVWKDQÀYH international conventions dealing with nuclear liability issues have seen the light in that period: the Joint Protocol linking the Vienna and Paris Convention, the Protocol amending the Vienna Convention, the Convention on Supplementary Compensation, the Protocol amending the Paris Convention and the Protocol

120

Cf. supra, no. 851.

Shifts in Compensation for Environmental Damage

303

amending the Brussels Supplementary Convention. Basically, there are two new legal instruments (Joint Protocol and the Convention on Supplementary ComSHQVDWLRQ WKHRWKHUWKUHHDPHQGWKHFRQYHQWLRQVRIWKH´ÀUVWJHQHUDWLRQµ $ÀUVWHOHPHQWZKLFKLVVWULNLQJZKHQDQDO\VLQJWKLVVKLIWLVWKDWLWGLGQRWVHHP to be easy to make the shift: the Chernobyl accident happened in 1986 and only a moderate step forward was relatively quickly taken, being the 1988 Joint 3URWRFRO:HKDGWRZDLW\HDUVWRUHDFKDQDJUHHPHQWRQWKHÀUVWZDYHRI nuclear liability conventions: on 12 September 1997 the Protocol to the Vienna Convention and the Convention on Supplementary Compensation were opened for signature. After that, we had to wait another 7 years for the second wave of second generation nuclear liability conventions. 18 years after the Chernobyl accident, the Protocols to the Paris and to the Brussels Supplementary Convention were opened on 12 February 2004. The least one can say is that it does not seem to be easy to reach an international agreement on nuclear liability issues.

915

Secondly, it is regretful that, especially since the conventions of the second generation, the international compensation system is becoming more of a jungle rather than a coherent set of legal rules. It is not excluded that States wanting to join the international nuclear liability regime are wondering which Convention(s) they should choose – in a way the different Conventions compete with each other.121$OUHDG\WKHFRPSHQVDWLRQV\VWHPXQGHUWKHÀUVWJHQHUDWLRQFRQYHQtions was complex given the difference between the NEA and IAEA regime in terms of public funding. This was aggravated by the creation of two entirely new conventions of which one deals exclusively with the private funding (Joint Protocol) and the other with the public funding (Convention on Supplementary Compensation). Given the sovereignty of every State to decide for itself whether to sign and ratify an international convention, the determination of the rights and obligations of every State and of every individual victim has become very complicated in the international compensation scheme. As the public funds of the international system only have to be made available after an accident has occurred, this might be detrimental to victims, certainly as soon as one has to call upon the collective public tiers of the Brussels Supplementary Convention and of the Convention on Supplementary Compensation. On top of that, we can question whether the Parties to the Brussels Supplementary Convention are keen on signing the Convention on Supplementary Compensation given the fact WKDWERWK&RQYHQWLRQVKDYHGLIIHUHQWDOORFDWLRQUXOHVGLIIHUHQWEHQHÀFLDULHV etc.122

916

Thirdly, it is rather unfortunate to see that 20 years after the Chernobyl accident, only the 1988 Joint Protocol and the Protocol to the Vienna Convention have entered into force. Although one could argue that the Joint Protocol amends the Paris and Vienna Conventions by extending their territorial scope, given the lack

917

121 122

N. Pelzer (supra fn. 92), 112. R. Dussart Desart (supra fn 81), 30.

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of enthusiasm of the countries to the Paris Convention, the real effect of the Joint Protocol is rather limited. Thus, 20 years after the Chernobyl accident the major shift in the international nuclear compensation system remains virtual. 918

Compared to the international compensation scheme for nuclear damage, the shift of the American system has been real. As to the content of these changes, the least one can say is that the shift in governance was quite different to the shift of the international nuclear liability conventions. As indicated above, the shift in the international nuclear compensation system is virtual. So, basically there has not been a shift in governance and the position of victims has hardly improved – the amounts of third party liability cover has increased, but it is GLIÀFXOW WR VD\ WKDW WKHUH KDVH EHHQ DQ LPSRUWDQW VKLIW LQ JRYHUQDQFH 7KLV is remarkable since both compensation systems have the same origins, c.q. are based on the Preliminary Report and the Harvard Report. An important element in the Preliminary Report was that it was said that the compensation systems should be pragmatic and responsive to changing needs. By amending the Price-Anderson Act on a more or less regular basis, this suggestion of the Preliminary Report was followed.

919

The shift in the Price-Anderson Act consisted of abolishing the public intervention in compensation for nuclear damage as established by the 1957 Price-Anderson Act by shifting this burden to the nuclear operators (and thus private funding). Moreover, the change to the Price-Anderson Act went far beyond that: after having shifted the burden entirely to the nuclear operators from 1982 onwards, the liability amounts have increased considerably. Initially a total amount of 560 million USD was available; in 2005 the total compensation was more than 10 billion USD, or about 18 times higher than in 1957. This is a considerable amount given the fact that the costs of a major nuclear accident in the United States have been estimated between 10 and 20 billion USD.123 ,WLVDOVRFOHDUWKDWWKH86VWLFNVWRLWVSROLF\WRVKLIWWKHÀQDQFLDOEXUGHQ to the private industry: when ratifying the Convention on Supplementary Compensation, the US Treasury will recuperate the US obligations under the convention from the nuclear suppliers, avoiding that the taxpayer would have to pay for it. Under such a system, there is an internalisation of external costs. ,QRXUYLHZLWZDVEDVLFDOO\WKHÁH[LELOLW\RIWKH3ULFH$QGHUVRQ$FWWKDW facilitated the shift in the American compensation regime for nuclear damage. 7KDQNVWRWKLVÁH[LELOLW\WKH$PHULFDQOHJLVODWRUGLGH[DFWO\ZKDWWKHDXWKRUVRI the Preliminary Report had in mind, namely that the government could only make public funds available for a limited period in time. Initially, the US compensation system consisted of a two-tier system of combined private and public funding; WKDQNVWRWKHÁH[LOLELW\RIWKH3ULFH$QGHUVRQ$FWWKLVZDVUHSODFHGE\DWZR WLHUV\VWHPIXQGHGHQWLUHO\E\SULYDWHPRQH\DÀUVWLQGLYLGXDOWLHUDQGDVHFRQG collective tier of all US licensed nuclear operators. The US approach is also more

123

G.C. Warren (supra fn. 108), 89.

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consistent with the economic analysis, although still today the Price-Anderson Act limits the liability of the nuclear operator. The shift to public funding in the international compensation regime for nuclear damage is regrettable. It is not in line with the conclusions of the Preliminary Report upon which both the American national compensation system and the international compensation system of the different conventions are based. This shift is also not in line with the principle of full internalisation of costs. In the international nuclear liability compensation system there is not even the slightest attempt to reduce the public funding. Although the contributions in relative terms UHPDLQPRUHRUOHVVWKHVDPHWKHUHZLOOEHDVLJQLÀFDQWLQFUHDVHLQDEVROXWH terms once all conventions of the second generation enter into force.

920

In this article, we however argue that it is possible to shift the entire public funding obligations of a country to the private industry: the invidual tier can be shifted by making the nuclear operator liable for the amounts provided for by the conventions; the collective tiers can indirectly be recuperated, like the US intends to do. One could therefore argue that given the possibility for any country WRUHFXSHUDWHWKHÀQDQFLDOEXUGHQRILWVREOLJDWLRQVXQGHUWKH&RQYHQWLRQVLW is not really public money that is being made available and that there is no externalisation of costs and no subsidies. It is however far from sure that a lot of countries will follow the example of the US. Secondly, if a lot of countries do recuperate, this immediately raises the question about the added value of &RQYHQWLRQVPDNLQJÀUVWSXEOLFPRQH\DYDLODEOHDQGVHFRQGUHFXSHUDWLQJWKDW money from (private) parties. It could be easier abolishing these public funding mechanisms by increasing directly the obligations on private funding, unless one FRQVLGHUVWKDWWKHUHDUHVSHFLÀFDGYDQWDJHVLQDFRPSHQVDWLRQV\VWHPZKHUHE\ the State acts as primary insurer or whereby the State advances compensation payments to victims. In our view, the advantages of different kinds of compensation funds, etc. is an entirely different issue.124

921

6SHFLÀFDWWHQWLRQVKRXOGEHJLYHQWRDQLPSRUWDQWHOHPHQWLQWKH3URWRFROWR amend the Paris Convention. As discussed, the Protocol dramatically increases WKHOLDELOLW\DPRXQWRIWKHQXFOHDURSHUDWRUWR½PLOOLRQ:LWKRXWDQ\GRXEW this is a huge amount – in the US the individual liability of the operator is 300 million USD, or roughly half the amount under the amended Paris Convention. It is not clear as to whether the European nuclear insurance industry is capable of insuring such an amount; it seems that there are a lot of differences between countries. Basically, the European nuclear industry can only buy nuclear liability insurance coverage via the national nuclear insurance pools; these are HDFKPRQRSROLVWVLQWKHLURZQPDUNHWV,WWKXVVHHPVGLIÀFXOWWRDVVHVVLIWKH allegations of (some) European nuclear insurers that it is impossible to insure

922

124

On different kinds of compensation funds, see M. Faure/T. Hartlief, Compensation Funds versus Liability and Insurance for remedying Environmental Damage, [1996] Review of European Community and International Environmental Law, 5, 321 et. seq.

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½PLOOLRQDUHFRUUHFW7KLVZKROHGLVFXVVLRQPLJKWEHDIDFWRUH[SODLQLQJ why the Protocol to the Paris Convention is not in force yet. 923

We see that 20 years after the Chernobyl accident, the American compensation system has improved; the shift in the international system is far less positive. Even if the nuclear liability conventions of the second generation enter into force, a victim of a nuclear accident in the US will by far be better off than the victim of a nuclear accident in Europe. The Vienna Convention offers a total FRPSHQVDWLRQDPRXQWRI½PLOOLRQPLOOLRQ86' WKDWLVDERXWWLPHV lower than that available in the US (even after being amended by the Protocol to the Vienna Convention). The entry into force of the NEA-conventions will LQFUHDVHWKHWRWDOFRPSHQVDWLRQDPRXQWIRUYLFWLPVWR½ELOOLRQELOOLRQ USD); this is still about 7 times lower than the amount generated under the 2005 Price-Anderson Act.

924

2XUDQDO\VLVFOHDUO\HVWDEOLVKHGWKHDGYDQWDJHVRIDÁH[LEOHLQVWUXPHQWGHDOLQJ with nuclear liability. It might therefore be a good idea to amend the internaWLRQDOVFKHPHDFFRUGLQJO\'HVSLWHWKHFXUUHQWGHÀFLHQFLHVRIWKHLQWHUQDWLRQDO compensation system for nuclear damage, we do believe that victims would EHQHÀWIURPRQHJOREDOFRPSHQVDWLRQUHJLPH,GHDOO\DOOFRXQWULHVVKRXOGMRLQ such a convention because this would guarantee equal treatment of all victims, irrespective of the place where they suffer nuclear damage. We can only conclude that the nuclear liability conventions of the second generation do not seem to overwhelm countries with enthusiasm, given the fact that only the Protocol to WKH9LHQQD&RQYHQWLRQLVLQIRUFH²LQÀYH FRXQWULHV

925

Therefore, we call for a shift of the international nuclear compensation scheme from public to private funding. However, the different international conventions on nuclear liability and compensation, and even more so those of the second generation, make it quite complicated to operate such a shift. Indeed, the current international nuclear compensation system provides for public money that is being made available; a State has two ways to shift to private funding. A State can directly shift its individual obligation as Installation State to the nuclear operator by making the operator liable for a high enough amount. It can only shift its collective obligation as part of an international compensation fund E\ÀUVWPDNLQJSXEOLFPRQH\DYDLODEOHDQGVXEVHTXHQWO\E\SURYLGLQJIRUDQ internal compensation mechanism, like the US intends to do.

926

Shifting the individual obligation as Installation State towards the nuclear operators can be realised by gradually phasing-out the public funding and by replacing it via a collective second tier of nuclear operators, like in the US.125 7KLVVKRXOGQRWEHWRRGLIÀFXOWVLQFHLQ:HVWHUQ(XURSHDQFRXQWULHVDORQH there are 135 nuclear reactors in operation – this is more than the current 104 reactors in the second tier of the US compensation system. If all these operators

125

See our proposal made in our PhD: T. Vanden Borre (supra fn. 101), 719 et seq.

Shifts in Compensation for Environmental Damage

307

VKRXOGFRQWULEXWHRU½PLOOLRQLQWKHVHFRQGWLHURQHWHQWKRIWKHFXUUHQW DPRXQWRIWKHVHFRQGWLHULQWKH86 DQDPRXQWRI½ELOOLRQRISULYDWH funding would be immediately available in the second tier. It even seems that there is nothing in the Protocol to amend the Paris Convention that would RSSRVHVXFKDVROXWLRQLQRUGHUWREHDEOHWRFRYHUWKH½PLOOLRQ,QGHHG according to the amended Art. 10, a) of the Paris Convention, the operator shall, in order to cover the liability under the Convention, be required to have DQGPDLQWDLQLQVXUDQFHRURWKHUÀQDQFLDOVHFXULW\RIVXFKW\SHDQGWHUPVDVWKH competent public authority shall specify. Hence, such a solution would require at least a co-ordinated approach between the competent public authorities of the countries involved. Similarly, such a shift can even be started under the current Protocol to the Brussels Supplementary Convention: this Convention offers the Installation State the possibility to shift its contribution in the second tier entirely to the nuclear RSHUDWRUE\À[LQJDOLDELOLW\OLPLWRI½PLOOLRQRUPRUH(YHQPRUHLGHDOO\ this goal can be achieved by introducing an unlimited liability and by obliging the RSHUDWRUWRKDYHDPLQLPDOÀQDQFLDOFRYHURIWKLVOLDELOLW\XSWRDQDPRXQWRIDW OHDVW½PLOOLRQ6KRXOGWKH(80HPEHU6WDWHVIROORZWKH&RXQFLO'HFLVLRQ of 8 March 2004126, they might as well decide at the same time to shift their State liability under the second tier of the Brussels Supplementary Convention to the nuclear operators. This would be consistent with what the authors of the principles of nuclear liability law had in mind (Preliminary Report) and with the economic analysis as well. This would indeed be an important step towards internalisation of the external costs of nuclear electricity production. ,WKDVWREHFOHDUWKDWHVSHFLDOO\ZKHQVKLIWLQJWKHHQWLUH½PLOOLRQ in the NEA system to the nuclear operators, our proposal to install a collective tier of nuclear operators might be quite useful. It is remarkable that also insurers supported the adoption of the principles of the Price-Anderson Act in the international conventions.127 It took the US about 25 years to phase-out all public funding in their nuclear compensation regime. In the 20 years following the Chernobyl accident, the international compensation regime lost precious time. Rather than phasing-out the public funding in the nuclear compensation scheme, the international system even increased public funding and thus maintained the principle of State liability. As the Protocol to the Brussels Supplementary Convention and the Convention on Supplementary Compensation permit an easy shift of State liability in the second tier to the nuclear operators, the shift can already start.

927

In a second phase it might be useful that all countries that contribute in the collective tier of the Brussels Supplementary Convention and/or the Convention on Supplementary Compensation take a coordinated approach as to whether or QRWWKH\VKLIWWKHÀQDQFLDOEXUGHQRIWKLVFROOHFWLYHWLHUVWRWKHQXFOHDURSHUDWRUV

928

126 127

Cf. supra fn. 88. G.C. Warren (supra fn. 108), 95.

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suppliers etc. A major problem today is that the conventions today leave a lot of freedom to the Contracting Parties on this issue. This might lead to different apporaches in neigbouring countries, whereby some countries continue to provide for subsidies to the nuclear industry and others do not. This will cause market distortions that are not consistent with a liberalised electricity market. Finally, one could question the principle of making public money available for producing nuclear electricity and thus the added value of the collective tier in the Brussels Supplementary Convention and the Convention on Supplementary Compensation. A complete shift to private funding would imply questioning the future of both these conventions, and questioning the possibility for limiting a nuclear operator’s liability under the Paris and Vienna Conventions.

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/LVWRIUHIHUHQFHV W.E. Belser, Über die Zweckmäßigkeit der Poolung von Atomrisiken, [1959] Versicherungswirtschaft, 18, 572. D. Berkovitz, Price-Anderson Act: Model Compensation Legislation? – The Sixty-Three Million Dollar Question [1989] Harvard Environmental Law Review (vol. 13, 1), 13. V. Boulanenkov, Main features of the Convention on Supplementary Compensation for nuclear damage – an overview, in: Reform of Civil Nuclear Liability (OECD: 2000), 165. T. Vanden Borre, Channelling of liability: a few juridical and economic views on an inadequate legal construction, in: N.L.J.T. Horbach (ed.), Contemporary Developments in Nuclear Energy Law. Harmonising Legislation in CEEC/NIS (Kluwer Law International: 1999), 13. T. Vanden Borre, (IÀFLsQWHSUHYHQWLHHQFRPSHQVDWLHYDQFDWDVWURIHULVLFR·V²KHW voorbeeld van schade door kernongevallen (Intersentia: 2001), 763. O.F. Brown, Nuclear Liability Coverage Developments in the United States of America, in: Nuclear Inter Jura 1993 (INLA 1993, II.5.6), 4. H. Cousy, Een nieuwe vorm van schuldloze aansprakelijkheid: Aansprakelijkheid YRRUVFKDGHYHURRU]DDNWGRRUKHWYUHHG]DDPJHEUXLNYDQNHUQHQHUJLH¶$QHZ form of faultless liability: Liability for damage caused by the peaceful use of nuclear energy’), [1974-1975] Jura Falconis, 44. P. Dangelmaier, Nuclear liability insurance in the Federal Republic of Germany, in Nuclear Accidents. Liabilities and Guarantees (OECD-IAEA: 1993), 428; N. Pelzer, (supra fn. 53). W. Daubler, Haftung für gefährliche Technologien: Das Beispiel Atomrecht¶/Lability for Dangerous Technology: The example of nuclear law’), (Heidelberg: Juristischer Verlag, 1962). J.C. Dow, Nuclear Energy and Insurance (Witherby & Co.: 1989); Nuclear Power: Insurance and the Pooling System, Special Edition of the Nuclear Pools’ Bulletin (1992). R. Dussart Desart, The Reform of the Paris Convention on Third Party Liability in the Field of Nuclear Energy and of the Brussels Supplementary Convention, [2005] Nuclear Law Bulletin, 75, 26. M. Faure, Deterrence, Insurability and Compensation in Environmental Liability (Springer: 2003), 33.

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M. Faure/T. Hartlief, Compensation Funds versus Liability and Insurance for remedying Environmental Damage, [1996] Review of European Community and International Environmental Law, 5, 321 et. seq. M. Faure, Economic Models of Compensation caused by nuclear accidents: some lessons learned from the revision of the Paris and Vienna Conventions, [1995]European Journal of Law and Economics, 21. M. Faure, Restrictions of competition on insurance markets and the applicability of EC antitrust law, [1995] Kyklos, 48, 65. M. Faure/R. Van den Bergh, Liability for nuclear accidents in Belgium from an Interest Group Perspective, [1990] International Review of Law and Economics, 10, 241. 5*DXWURQ/DUHVSRQVDELOLWpFLYLOHHWODSURWHFWLRQÀQDQFLqUHHQUDLVRQGHV risques atomiques aux Etats-Unis, in: H. Puget, Aspects de droit de l’énergie atomique (Centre français de droit comparé: Tome II, 1967), 59. G. Handl, Towards a global system of compensation for transboundary nuclear GDPDJHUHÁHFWLRQVRQWKHLQWHUUHODWLRQVKLSRIFLYLODQGLQWHUQDWLRQDO6WDWHOLability, in Nuclear Accidents: Liabilities and Guarantees (OECD: 1993), 497. M. Hinteregger, The New Austrian Act on Third Party Liability for Nuclear Damage, [1998] Nuclear Law Bulletin, 62, 27. N.L.J.T. Horbach, Lacunae of International Nuclear Liability Agreements, in: N.L.J.T. Horbach (ed.), Contemporary Developments in Nuclear Energy Law. Harmonising Legislation in CEEC/NIS (Kluwer Law International: 1999), 55, 59, 81. N. Horbach/O. Brown/T. Vanden Borre, Terrorism and Nuclear Damage Coverage, [2002] Journal of Energy and Natural Resources Law, vol. 20, 231. A.I. Iorisch/O.A. Supataeva, The problems of Russian legislation on liability for Nuclear Damage, in: Nuclear Accidents: Liabilities and Guarantees (OECD: 1993), 70. M. Isenbergh, La loi américaine sur l’énergie atomique, in: H. Puget, Aspects de droit de l’énergie atomique (Centre français de droit comparé: Tome II, 1967), 279. M. Lagorce, Bilan et perspectives de la Convention de Paris et de la Convention complémentaire de Bruxelles après les Protocoles de 1982, in: Nuclear Accidents: Liability and Guarantees (OECD-IAEA: 1993), 24. B. McRae, Overview of the Convention on Supplementary Compensation, in: Reform of Civil Nuclear Liability (OECD: 2000), 175-176, 179-180.

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P.C. Mohr, Die Kanalisierung der Haftung under besondere Berücksichtigung des Atomrechts (Berlin: Walter de Gruyter & Co., 1970); H.D. Mosthaf, Wirtschaftlich oder rechtlich kanalisieren? Eine Streitfrage der Kernhaftung, [1967] Versicherungsrecht, 9, 167. A.W. Murphy, Third Party Liability of Suppliers in International Nuclear Transactions, in: J.L. Weinstein (ed.), Progress in Nuclear Energy. Law and Administration (Pergamonn Press: Vol. 3, 1962), 166. N. Pelzer, Begrenzte under unbegrenzte Haftung im deutschen Atomrecht (Nomos: 1982), 13. N. Pelzer, Learning the Hard Way: Did the Lessons Taught by the Chernobyl Nuclear Accident Contribute to Improving Nuclear Law?, in: International Nuclear Law in the Post-Chernobyl Period (OECD-NEA, 2006), 114. J.P. Piérard, Responsabilité civile: énergie atomique et droit comparé (Bruylant, Bruxelles: 1963), 263. M. Radetzki, Limitation de la responsabilité civile nucléaire: causes, consequences et perspectives, [1999] Bulletin de Droit Nucléaire, 63, 7. S.M.S. Reitsma, Nuclear Insurance Pools: History and Development, in: Nuclear Accidents: Liability and Guarantees (OECD-IAEA: 1993), 341. J. Schwartz, International Nuclear Third Party Liability Law: The Response to Chernobyl, in: International Nuclear Law in the Post-Chernobyl Period (OECD-NEA, 2006), 40 G.C. Warren, Nuclear damage under the 1997 Protocol: conventional thinking ?, in: Reform of Civil Nuclear Liability (OECD: 2000), 89.

IX. Concluding Observations Michael Faure and Albert Verheij $/LPLWV In the introduction we made clear that an attempt to identify shifts in the compensation for environmental damage is quite an ambitious task. Already in the introduction, we stressed therefore that the various questions that emerge from an examination of these shifts are so complex that they can of course not all be analysed, let alone answered. Therefore, it is on the one hand tempting, but on the other hand dangerous to make generalizations with respect to the shifts in environmental damage merely on the basis of the few studies contained in this volume. Even though various aspects of environmental damage (soil clean-up, oil pollution, nuclear accidents) and various levels of government (evolutions in national legal systems as well as in conventions) were analysed, we should still realize that this only represents a fraction. Other shifts have undoubtedly taken place with respect to compensation for environmental damage in other legal systems as well: these could not be discussed within the framework of this volume.

929

However, we do not want to end this book with the weak conclusion that therefore no generalisations are possible at all. Within the framework of these limitations, one can still examine whether, with respect to the various questions posed in the introduction, the contributions presented in this volume have to some extent been able to provide an answer. The reader should thus, however, be aware that the context within which these concluding observations are formulated is quite VSHFLÀFDQGOLPLWHG&RQFOXVLRQVFDQREYLRXVO\RQO\EHPDGHRQWKHEDVLVRI the contributions provided in this volume and should therefore be read with that particular limited context in mind. It is precisely for that reason that it may be SRVVLEOHWRSURYLGHVRPHLQGLFDWLRQRIWKHLGHQWLÀFDWLRQRIWKHVKLIWVTXHVWLRQ 1) and the reasons for these shifts (question 2) but it is much harder to provide any information on the effects of the shifts (question 3). Any statement on the optimal compensation regime (question 4) is therefore unavoidably dangerous since not only the material available is too limited, but also the normative goals

930

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Michael Faure and Albert Verheij

and starting points one has with respect to the compensation of environmental damage may be quite different and culturally-bound as well.

%,GHQWLI\LQJWKHVKLIWV 931

Notwithstanding the limits just mentioned, it is possible, on the basis of the contributions to this volume, to indicate at least what trends in the compensaWLRQIRUHQYLURQPHQWDOGDPDJHKDYHEHHQLGHQWLÀHGLQWKHVHFRQWULEXWLRQV,WLV striking that there are apparently not always clear shifts from private to public funding or vice versa. 1. Shifts in private law

932

Important shifts took place, for instance, within the private system itself. In the papers of Albert Verheij, dealing with the compensation for soil pollution damage in Belgium, Germany, the Netherlands and the US, he noticed that, even though there are of course important differences as well, in many legal systems a clear shift could be seen within the private law system from a negligence towards a strict liability rule for damage caused by soil pollution. Of course, the precise contents and conditions of the rule could still differ (the scope of the strict liability under CERCLA in the US appeared, for instance, to be far more important than e.g. in Germany) and also the legal form could differ. In some cases, the shift towards strict liability was the result of a clear decision of the legislator; in other cases it was initially the result of changes and evolutions in case law (for instance in the Netherlands). Nevertheless, it seems striking WKDWWKLVÀUVWVKLIWZLWKLQWKHSULYDWHODZV\VWHPDWOHDVWDVIDUDVWKHV\VWHPV discussed in this volume are concerned, seems to go in one direction, more particularly in the direction of a strict liability rule. Moreover, this shift was apparently not limited to the national legal systems. In the papers dealing with the international conventions, more particularly the contribution by Hui Wang on oil pollution compensation and in the contribution by Tom Vanden Borre RQQXFOHDUOLDELOLW\LWZDVHTXDOO\PDGHFOHDUWKDWWKHÀUVWLPSRUWDQWFKDQJH when the conventions came into being consisted in a shift in the tort system. The most important shift caused by the convention was a move away from the traditional negligence rule in tort towards strict liability, all be it that in both cases, as Hui Wang and Tom Vanden Borre indicate, the strict liability regime ZDVOLPLWHGDVDUHVXOWRIDÀQDQFLDOFDSRQWKHOLDELOLW\RIWKHQXFOHDUSRZHU plant operator and the tanker owner. 2. From private to public

933

$VHFRQGW\SHRIVKLIWKDVHTXDOO\EHHQLGHQWLÀHGLQVRPHRIWKHFRQWULEXWLRQ and seems to be more complex. This concerns a shift towards an increasing role of government or governmental agencies in providing compensation to victims of pollution damage. Albert Verheij in his contribution dealing with soil pollution damage describes that, in many legal systems, for instance in the Flemish

Shifts in Compensation for Environmental Damage

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Region and in the Netherlands, government agencies received formal tasks, usually as a result of statutory interventions to carry out clean-up activities. In a way, the government therefore intervenes in providing an additional layer of compensation for pollution victims. However, one can doubt whether this really constitutes a true shift. It does in the sense that where the private law system IDLOHGIRULQVWDQFHEHFDXVHDSROOXWHUFRXOGQRWEHLGHQWLÀHG WKHJRYHUQPHQW would intervene to provide compensation. On the other hand, the public compensation systems for clean-up of soil pollution usually do not exclude tort law. On the contrary, as Albert Verheij describes, most legal systems expressly provide a right for the government to use the private law in order to recover the clean-up costs incurred. Thus the tort system is not abolished, but the public compensation system provides an additional layer. Moreover, one can notice a shift towards government agencies using private law to obtain compensation for incurred costs. The latter tendency also shows that there is not always a clear cut dividing line between what is a private funding or what is public funding. In some cases, the government may primarily compensate or proceed to clean up a polluted soil, but may in a second stage use the private law to recover the costs incurred. Hence, one can in that case equally notice a shift towards a mix of public and private funding. 3. Shifts to additional layers of (public) funding 7KHVDPHGLIÀFXOW\LQLGHQWLI\LQJDVKLIWRFFXUVZLWKUHVSHFWWRDWKLUGVKLIWZKLFK more particularly occurred in the international oil pollution and nuclear liability regime, which consists of a shift towards additional layers being provided by states or even all contracting states together on top of traditional private law regimes. Tom Vanden Borre describes how, in the nuclear liability area again, a mix of private and public funding is applied whereby in case the damage is higher than the limited liability of the licensee, the state will intervene up to the amount laid down in the convention. A similar shift has also occurred in the international oil pollution area as described by Albert Verheij, Ruud Hendrickx and Hui Wang, more particularly with the institution of the international oil pollution compensation fund as a result of the Fund Convention in 1971. With respect to the fund, Hui Wang rightly indicates that one can doubt whether this actually constitutes a shift toward public funding. The IOPC fund is of course instituted as a result of a convention and regulations that force the oil receiving states to contribute to the IOPC fund (in that sense, it is public), but the actual ÀQDQFLQJWDNHVSODFHWKURXJKDWD[RQWKHUHFHLYLQJRLOZKLFKLVPRUHSULYDWH LQ FKDUDFWHU RU DW OHDVW WKH ÀQDQFLQJ LV $JDLQ WKLV ,23& IXQG VKRZV WKDW there is probably a grey zone between private and public funding and that one VKRXOGSUREDEO\QRWWU\WRGRJPDWLFDOO\ÀWDOOVKLIWVLQWRHLWKHUWKHRQHRUWKH other category.

934

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4. Shifts in levels of governance 935

$ ÀIWK LQWHUHVWLQJ VKLIW LQ LWVHOI FRQVWLWXWHV RI FRXUVH WKH VKLIW EHWZHHQ WKH different levels of governance. These obviously do not necessarily consist of shifts between private or public funding, but rather from the national towards the European or even the international level. The contributions dealing with oil pollution damage and nuclear liability make clear that in fact already at the early GHYHORSPHQWRIHQYLURQPHQWDOODZDQGRIWHQORQJEHIRUHWKHÀUVWVKLIWVRFFXUUHG in the national legislation) as far as these two important domains are concerned, important shifts took place in the 1960s. Since both the risk of a nuclear accident as well as oil pollution damage are typically considered examples of transboundary environmental harm, it is no surprise that more particularly for these domains, conventions came into being that caused the major shifts we discussed before. The logic of the system is of course that states shifted their competences to the LQWHUQDWLRQDOOHYHOE\DJUHHLQJWRWKHFRQYHQWLRQVEXWWKHQDIWHUUDWLÀFDWLRQRI course adapted their national legislation to comply with the obligations under the convention. Ultimately, the shifts were therefore still effectuated in national law as well. A similar shift can be discovered as well recently in Europe as far as the well-known environmental liability directive of 2004 is concerned, which is discussed in the contribution by Kristel De Smedt. There, one could equally argue that a shift away from the legislation of the national Member States to the European level occurred, at least as far as the domain of environmental liability DVGHÀQHGLQWKHGLUHFWLYHLVFRQFHUQHG

936

It is remarkable that the contributions of Albert Verheij and Tom Vanden Borre make clear that not all the legal systems discussed in the various contributions have joined in this tendency towards “internationalization” as far as nuclear liability and oil pollution damage are concerned. More particularly, the United States always joined the conferences preceding the coming into being of the international conventions and even actively participated. However, in both cases, they decided not to join the international regime but to adopt national legislation, more particularly the Price-Anderson Act with respect to nuclear liability and the Oil Pollution Act with respect to oil pollution damage. 5. Shifts in the international level

937

Fourth, Hui Wang, Ruud Hendrickx and Albert Verheij equally made clear that also in the international conventions, more particularly with respect to compensation for oil pollution damage, many shifts have also taken place. In these cases, it usually concerned shifts both in the private and in the public system in the sense that every time the CLC and fund convention were adapted to provide higher amounts of compensation after a new catastrophe with a major oil tanker had again demonstrated the inadequacy of the previously adopted amounts. A similar shift is equally discovered by Tom Vanden Borre in his contribution dealing with nuclear liability. Where the conventions started in the 1960s with relatively ORZÀQDQFLDOOLPLWVRQWKHOLDELOLW\RIWKHOLFHQVHHRIDQXFOHDUSRZHUSODQWDQG modest amounts of contribution by the contracting states, later amendments to

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the Paris and Vienna conventions caused important shifts, not so much between private or public funding but rather within the systems whereby the amounts of compensation provided were further increased every time. The shift consists in the desire to provide full compensation to victims. This implies a return to the full compensation principle that underlies tort law. The limitation of liability loses its meaning as the point from which damage should be borne by victims themselves. Here it should be kept in mind that a limitation that is too low might even undermine the purpose of a compensation system altogether. Equal treatment requires the liable person or institution to estimate the amount of damage before determining how much every individual claimant will get. Wrong estimates can lead to awards that are too low which might drive victims to the edge of bankruptcy.

938

One can further hypothesize that the present importance that is attached to full compensation might also be a result of a better insight into the true costs of pollution. Cultural factors, such as increased concern for the environment, might play a role here as well.

939

6. Shift to self regulation The papers of Albert Verheij and Hui Wang illustrate an important shift from national legislation to (international) self-regulation. After the Torrey Canyon oil disaster in 1967 tanker owners created the Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution (TOVALOP). This avoided the risk of lawsuits in many different jurisdictions after an oil spill but there are also indications that the tanker owners hoped that a voluntary compensation scheme would weaken the necessity for an international treaty or at least the introduction of strict liability. More recently we see that the creation of STOPIA and TOPIA LQÁXHQFHGWKH,02WRWDNHIXUWKHULQLWLDWLYHVWRFKDQJHVWKHLQWHUQDWLRQDO oil conventions and their protocols.

940

In other words, shifts can be triggered by the fear that another shift will take place, and a shift may not happen simply because another shift has already taken place. There is a certain amount of “competition”, one might say, between different legal instruments: voluntary arrangements (self-regulation), national legislation and international conventions. This will be illustrated as well below.

941

7. Various shifts through different instruments 7KHVKLIWVWKDWKDYHEHHQLGHQWLÀHGLQWKHGLIIHUHQWFRQWULEXWLRQVDQGZKLFK were summarized here are of course often of a totally different nature. Most of the shifts probably occurred within the private law system; sometimes shifts occur from private to public funding whereby (more particularly in the area of soil pollution damage) an increasing government intervention can be observed, however without abolishing the private law system. In other cases again the shift occurred from the national to other (European, international) levels of

942

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governance. Moreover, also the instruments to realize the shifts can be different, as more particularly Albert Verheij showed in his contribution concerning the evolutions with respect to soil clean-up. In some cases, there is a clear legislative intervention to realize a shift. In other cases, the shift evolves more gradually, more particularly as a result of changes in case law. The latter shift may be as important in practice and as effective as well. However, it may be clear that when a shift results from case law, it is not always as easy to clearly identify a shift, since changes in case law often are of a more gradual nature. Moreover, somehow dependent upon the legal culture of the particular legal system LQYROYHGLWPD\DOVREHPRUHGLIÀFXOWWRLGHQWLI\WKHUHDVRQVIRUWKHVKLIWWKDQ when a legislator clearly expresses why a certain shift occurs. Also, changes occurring through case law can (again depending upon the legal culture in the particular system) under some circumstances be less stable and therefore more dynamic and vulnerable to change than changes by the legislator. Hence, it is not only important to attempt to identify the shift itself, but also to pay some attention to the instrument chosen to realize the shift, since this may provide some indication of the stability of the shift.

&5HDVRQV 943

,QWKHGLIIHUHQWFRQWULEXWLRQVWKHDXWKRUVQRWRQO\LGHQWLÀHGWKHVKLIWVEXWDOVR paid attention to some of the possible reasons for these shifts. In this respect, the different contributions made clear that a distinction should be made between a formal goal as stated by the legislator (either at the national or at the international level) on the one hand and the possible underlying reasons for the shift on the other hand. One could in this respect equally rely upon the traditional distinction between the question whether the shift occurs in the public interest (according to the public interest reasons stated by the legislator) or whether a particular shift may pursue other goals, more particularly serving the private interest.

944

Relying upon that framework, the authors claimed that in many cases, a solid public interest reason for some particular shift could be found or was at least provided by the legislator. The most popular reason for particular shifts in this respect can of course be found on the one hand by the reference to the need for victim protection and on the other hand by reference to the polluter-pays principle. Legislators will often explain that a shift is necessary to provide better compensation to victims of pollution damage. This argument was for instance also used for the introduction of the international regimes in the domains of nuclear and oil pollution liability. At the same time, the polluter-pays principle is often invoked, for example, to defend shifts towards strict liability for soil pollution damage.

945

,Q VRPH FDVHV RQH PD\ HYHQ ÀQG FRPELQDWLRQV RI JHQXLQH SXEOLF LQWHUHVW reasons and private interest goals. For instance, one could argue that the formal argument for the shift in private law towards strict liability for soil pollution GDPDJHDVLGHQWLÀHGHJE\$OEHUW9HUKHLMLQWKHGLIIHUHQWUHJLPHVKHGLVFXVVHG

Shifts in Compensation for Environmental Damage

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with respect to soil pollution damage) can indeed be explained as a mechanism on the one hand to enable victims to obtain easier compensation (removing the need to prove fault) and as a mechanism to provide polluters with appropriate incentives to prevent environmental damage. However, one could equally argue that the government itself may also have an interest in defending the polluter-pays principle and using it in the way it did in the particular countries since it allows government to shift part of the public spending to responsible parties, thereby increasing the public budget. Often, the private interest character of a shift becomes clearer when the details of the regime are analysed. This is for instance the case when Hui Wang addresses the oil pollution damage regime and Tom Vanden Borre examines the shifts in the nuclear liability regime. It then becomes clear that the shift in the international conventions towards strict liability with compulsory insurance may provide a guarantee to the victims of adequate compensation. At the same time, these contributions equally make clear that the liability of the tanker owner (for oil pollution damage) as well as of the licensee of a nuclear power plant (for nuclear damage) was limited to extremely low amounts. The result was thus that, since the national state and the contracting states took over a part of the duty to compensate the victims in case of a nuclear accident, in fact a state subsidy is provided. The main reason for the shift that occurred with the creation of the Paris and Vienna conventions with respect to nuclear liability may thus be that this was a way for the nuclear industry to generate a state subsidy, even though this is obviously not the formal reason which is stated in the conventions.

946

Also, Albert Verheij indicates that in some of the shifts he described, for instance ZLWKUHVSHFWWRRLOSROOXWLRQGDPDJHWKHLQÁXHQFHRILQGXVWU\FDQEHGLVFRYHUHG ZKHUHE\SDUWLFXODUIHDWXUHVWKDWEHQHÀWLQGXVWU\FDQWKXVEHXQFRYHUHGDVWKH result of effective lobbying by the particular interest groups. In some other cases, as Albert Verheij equally indicates, mere political factors may explain a certain evolution or shift. For instance, the fact that the US refused to join the international oil pollution regime but rather preferred to enact in 1990 the Oil Pollution Act after the EXXON Valdez incident in Alaska was largely the result of a struggle for power between the States and the federal level in the US. Since the States feared that joining the international convention would pre-empt the 6WDWHV·ULJKWVRQKDYLQJWKHLUVWDWHOHJLVODWLRQDVZHOOWKH86ÀQDOO\GHFLGHGQRW to join the international regime but rather to opt for national legislation.

947

This example of the American Oil Pollution Act, enacted after the EXXON Valdez incident, shows another important feature, related to the reasons for the shift. This concerns the fact that many contributions make clear that shifts to a particular regime very often do not occur on the basis of well-thought legal or economic considerations or after thorough research showed that a particular regime would be better able to reach the goals of the legislator. In fact, shifts often occur when a political need is felt for these shifts. As far as the environmental area is concerned, one can note that many shifts occurred after particular incidents. Albert Verheij’s contribution with respect to the

948

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Michael Faure and Albert Verheij

various legislation concerning soil pollution damage makes clear that incidents in particular countries initiated legislative changes, but the same is true with respect to the changes in the international regimes as well. Hui Wang indicates that after every new spectacular oil pollution incident, new amendments were enacted since every larger incident again made clear that the previously agreed FRPSHQVDWLRQ DPRXQWV GLG QRW VXIÀFH WR SURYLGH FRPSHQVDWLRQ$OVR 7RP Vanden Borre shows how after Chernobyl, the initiative was taken to amend the international nuclear liability conventions to guarantee higher amounts of compensations. This shows that even though there may be formal reasons for a particular shift, the timing of that shift is often a matter of political priority which is in practice often determined by particular environmental incidents to which politicians react. 949

(YHQWKRXJKPDQ\SRLQWDWWKHLQÁXHQFHRILQGXVWULDOLQWHUHVWJURXSVZKLFK lobby in favour of legislation that serves their needs, examples are also provided where apparently a countervailing power is provided, either from the public at large which demands a higher level of compensation for environmental damage or from particular NGOs. The latter can sometimes provide an effective countervailing power for lobbying by industry. Albert Verheij provides in this respect the example that apparently both in the US as well as in the recent EU regime a compensation for so-called interim damage has been accepted, even WKRXJKWKLVFOHDUO\GRHVQRWEHQHÀWWKHLQWHUHVWVRILQGXVWU\7KLVFDQSUREDEO\ be considered as a success for the NGOs involved.

950

Finally one can also point at the fact that, as far as the contents of the shifts is concerned, there seems to be a certain “path dependency”, meaning that OHJLVODWRUVDUHDSSDUHQWO\HDVLO\WHPSWHGWRIROORZDFKRVHQSDWKEHFDXVHLWÀWV into the existing institutional structures. For instance, as far as the oil pollution regimes are concerned, Hui Wang nicely explains that the so-called channelling of the liability to the tanker owner was largely inspired by the nuclear liability conventions which equally included a channelling of liability. Hence, a particular institutional arrangement that is chosen is apparently copied in other arrangements as well.

'(IIHFWV 951

Only few of the papers provided in this volume dared to measure or provide any insights into the effects of a particular shift. An obvious reason why so little information on these effects could be obtained is related to the traditional problem of a lack of data. It is in this respect remarkable that governments apparently initiate a whole variety of shifts, claiming that these shifts will have particular effects, e.g. better prevention of environmental harm or providing better compensation to victims, whereas apparently very little effort is undertaken by these governments to acquire data (or make these available) which would enable a test as to whether the effects hoped for by the legislator are effectively reached.

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6RPHHIIHFWVRIVKLIWVLQWKHLQWHUQDWLRQDORLOSROOXWLRQUHJLPHDUHLGHQWLÀHG and discussed by Ruud Hendrickx. He argues that the reduction of oil pollution incidents occurred mostly from regulation aiming at increased safety standards rather than from changes in the liability regime itself. Since the American Oil Pollution Act of 1990 contained both a liability regime as well as new safety requirements for tankers, Ruud Hendrickx holds that this regime was more effective in improving tanker safety (and thus reducing the number of oil pollution incidents) than a liability regime (the CLC convention) which would merely focus on compensation. In general, Ruud Hendrickx holds that more particularly the 1990 OPA has led to a reduction of the number of oil spills. Ruud Hendrickx also provides some modest evidence as far as the effects of the regime on compensation are concerned. It appears that out of the 107 cases handled by the 1971 IOPC fund, 91 resulted in compensation payments. The sad story is of course that the numbers do not show what the sixteen incidents ZHUHZKHUHFRPSHQVDWLRQRXWRIWKH,23&IXQGFRXOGQRWEHVXIÀFLHQW2QH can imagine that this concerns the catastrophic type of oil pollution incidents (like Erica and Prestige).

952

(3ROLF\FRQFOXVLRQV 1. Bound to legal culture and preferences One obviously has to be extremely careful in drawing any conclusions on what would be an optimal compensation regime for environmental damage on the basis of the contributions provided in this book. That is obviously not what will be attempted at this stage. In order to say anything on “optimality” of the UHJLPHÀUVWWKHSDUWLFXODUJRDOVRIOHJLVODWLRQZRXOGKDYHWREHLGHQWLÀHG,Q that respect, the preferences of citizens may well be quite diverging. Moreover, what is optimal in one particular legal context may not necessarily by optimal in another. There is often an important “path dependency” in the particular solution chosen by the legislator in a particular legal system. It is that particular legal cultural context that often determines why, for instance in Flanders with respect to soil pollution damage, other solutions were chosen than in the Netherlands or in Germany and why for instance the US chose other solutions for oil pollution or nuclear liability than the international regime. One obviously has to be extremely careful in formulating any conclusion on the optimality of any particular regime without taking this particular cultural legal context into account.

953

Against this background it is interesting to see that there is still a distinct degree of convergence between the different compensation systems. In the context of oil pollution, for example, strict liability is the norm. In the context of soil pollution, we see that in the Netherlands, Belgium, Germany and the US there is a trend toward public-private cooperation.

954

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Michael Faure and Albert Verheij

2. Optimal compensation and prevention 955

0RUHRYHULIRQHZRXOGZLVKWRGUDZDQ\SROLF\FRQFOXVLRQVRQHVKRXOGÀUVW have to identify what one wishes to achieve at all with the compensation of environmental damage. The answer to this is probably not merely that one wishes to achieve a full compensation for victims of pollution damage. The IRUPXODWLRQRIWKHSROLF\JRDOLVSUREDEO\PRUHEDODQFHGIRUWKHÀUVWVLPSOH reason that full compensation alone may be too costly to achieve and moreover, full compensation may not necessarily be optimal as far as prevention is concerned. One would thus probably identify a policy goal as reaching an optimal prevention and compensation of environmental damage preferably at WKHORZHVWFRVWSRVVLEOH$GLIÀFXOW\LQWKDWUHVSHFWLVRIFRXUVHWKDWWKHDQDO\VLV in this volume was merely limited to the instruments providing compensation for environmental damage. As far as prevention is concerned, a lot more and different well-known instruments are available. In that respect, one can also point at interesting shifts from traditional liability rules and command and control type instruments towards more economically oriented instruments such as environmental taxes and even emission trading. These shifts in instruments to prevent environmental damage were, however, not the focus of the contributions in this YROXPH$OUHDG\IRUWKDWUHDVRQRQHVKRXOGQRWDWWHPSWWRGUDZDQ\ÀUPSROLF\ conclusions of optimal instruments of compensation if this cannot be related to the effects on prevention. However, the various contributions to this volume have at least implicitly and sometimes explicitly provided some indication with respect to for instance the question what instruments of compensation may in a particular context be preferable. Some of these issues related to policy can of course be summarized here, even though these are in no way an attempt to formulate more general conclusions with respect to the optimal compensation for environmental damage. 3. Example: Polluter-pays principle

956

In order to provide a few examples of some policy conclusions that could be drawn (if one wishes) from the contributions in this volume, one could, for example, point at the fact that apparently in many countries, the polluter-pays principle has been used to justify strict liability regimes in relation to oil pollution damage and historic soil pollution, but that one can wonder whether the SROOXWHUSD\VSULQFLSOHFDQDVVXFKSURYLGHDYDOXDEOHMXVWLÀFDWLRQIRUVRPH of the shifts that have been based on that principle. One problem is that it is still not that clear what the precise contents of the polluter-pays principle are. Some use the polluter-pays principle when referring to one particular polluter, for instance a tanker owner, others use it to refer to an entire industry, e.g. the chemical industry. In other cases, one can wonder whether the polluter is equally the consumer who enables the tanker owner to continue his polluting activity, which would thus equally include for instance car drivers or the oil industry. Second, one could argue that the polluter-pays principle is so vague that it often does not provide very clear and precise guidance as to the legal rule that should follow from it. One can therefore also notice that, even though the

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SROOXWHUSD\VSULQFLSOHKDVEHHQXVHGDVDIRUPDOMXVWLÀFDWLRQIRUVRPHVKLIWV it is in practice not always followed. For instance, as far as the international oil pollution regime is concerned, not only the tanker owners “pay”, but also the oil industry contributes to the IOPC fund and (via the tax system) also the FRQVXPHUVRIRLO$OVRDVIDUDVWKHÀQDQFLQJRIVRLOFOHDQXSLVFRQFHUQHGRQH notices that in many cases also owners of polluted soil, who have not caused the pollution themselves (and thus are in that technical sense not the polluters), can be held to compensate for the damage caused by the soil pollution. This simple example shows, not so much that changes that were initiated with a reference to the polluter-pays principle would necessarily be undesirable, but rather that shifts sometimes occur for formal reasons (as in this particular case a call on the polluter-pays principle) that can hardly support those shifts. 4. Example: Effectiveness of soil clean-up policy The effectiveness of soil clean-up policy did leave something to be desired as is shown in the paper of Albert Verheij. The government, and especially in The Netherlands and the US, adopted a confrontational approach. Under the banner of the polluter-pays principle they tried to make industry pay for the costs of soil pollution. This approach did not prove very effective - it merely resulted in polarization and did not result in much cleaned soil. In the course of years governments found out that they could not do the job alone and therefore they shifted from a confrontational approach to a cooperative approach in which WKHÀQDQFLDOFRVWVRIFOHDQXSPHDVXUHVDUHERUQHE\JRYHUQPHQWDQGLQGXVWU\ together. In all countries various cooperative schemes have been set up. The incentives for industry to participate in such schemes (e.g. increase of property value, etc.) had been present all along and one might wonder whether governments should have taken advantage of that earlier. The question arises whether this is an instance in which reliance on market based incentives would have worked better than the threat of liability. Would it not have been preferable if JRYHUQPHQWVKDGFRQÀQHGWKHPVHOYHVWRPDNHLQIRUPDWLRQRQSROOXWHGODQG available to the public in order to avoid asymmetric information?

957

In should be added in this context that, in the US, fear of liability has created a disincentive to invest in property. This has led to the problem of the so-called EURZQÀHOGVDEDQGRQHGRUXQGHUXWLOL]HGLQGXVWULDORUFRPPHUFLDOSURSHUWLHV where redevelopment is hindered by possible environmental contamination and potential liability. This illustrates that policymakers have to take serious “defensive” reactions when they create liabilities. When trying to predict such reactions it might be helpful to distinguish between environmental objects that are subjected to private property rights and are traded and environmental objects that are not traded. It seems reasonable to assume that defensive reactions are PRUHOLNHO\LQWKHÀUVWFDWHJRU\

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5. Example: Financial limits on liability 959

Another example of a modest policy conclusion that follows from the various contributions dealing with oil pollution and nuclear liability is that apparently, if one believes in a preventive function of liability, a move to a strict liability regime may make sense since it forces responsible parties to fully internalize the costs of their activities. However, as the international regimes show, the strict OLDELOLW\ VKRXOG WKHQ SUREDEO\ EH DFFRPSDQLHG ZLWK D GXW\ WR VHHN ÀQDQFLDO guarantees in order to remedy the potential insolvency problem that may occur with potentially large damage, as in the case of oil pollution or nuclear accidents. However, the various shifts in the international regime also made clear that when such a strict liability regime is introduced, it is very questionable whether there VKRXOGEHDÀQDQFLDOFDSRQWKHOLDELOLW\RIWKHSDUWLFXODURSHUDWRURUWDQNHU RZQHU7KHÀQDQFLDOFDSVRPRVWRIWKHFRQWULEXWRUVGHDOLQJZLWKWKLVLVVXH in this volume seem to argue, seems to immediately remove both the desired incentive effect of the strict liability and the compensation to the victim. Another, related, policy point following from the contribution by Michael Faure is that WKHÀQDQFLDOJXDUDQWHHSURYLGHGVKRXOGRIFRXUVHQRWQHFHVVDULO\WDNHWKHIRUP of compulsory liability insurance. Alternatives such as environmental damage insurance may in some particular cases be as effective or even more effective than liability. This would thus at a policy level call for some caution: rather than strictly imposing a duty to insure, the legislator might probably want to impose DGXW\XSRQWKHSRWHQWLDOO\UHVSRQVLEOHSDUW\WRVHHNÀQDQFLDOFRYHUDJHWKHUHE\ SURYLGLQJDORWRIÁH[LELOLW\DVIDUDVWKHSDUWLFXODUPHFKDQLVPFKRVHQWRIXOÀOO WKLVGXW\WRREWDLQDÀQDQFLDOJXDUDQWHHLVFRQFHUQHG 6. Example: Limits of internationalization

960

As has been shown by Albert Verheij and Hui Wang, the transboundary nature of oil pollution has been an incentive to create compensation schemes at a supranational level. This solution however seems to cause problems of its own. The number of countries and stakeholders can lead to compromises and slow decision-making. A certain amount of “competition” between compensation systems therefore seems desirable. This is illustrated by the fact that changes in the international oil conventions were to a large extent triggered by threats of an alternative compensation mechanism (see the paper of Hui Wang). The 1992 Protocols were to a large extent the result of a growing sentiment among several states that the international system should be updated in order to avoid other regional schemes. The threat of the EU to set up a European Fund modelled on the US Oil Pollution Act played an important role in the 2000 and 2003 Protocols.

961

It should also be noted here that – unlike in other areas – there is no substantial reason to assume that different “competing” compensation systems will lead to “a race for the bottom”. On the contrary, it seems reasonable to expect that in the event of a great discrepancy between maximum amounts of compensation, there is a chance that the “bad risks” (unsafe ships) will be driven into the jurisdiction

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that has the compensation system that provides the lowest compensation. An indication – but not more than that – of this hypothesis can be found in the fact that the compensation provided by the US Oil Pollution Act and the 2003 Protocol are of the same level. 7. Supplementary role for the state? $ÀQDOIHDWXUHRQZKLFKVRPHSROLF\UHFRPPHQGDWLRQVZHUHSURYLGHGLQDIHZ contributions related to a potential role for the state. This is related to a typical feature of environmental damage, being that the amount of the damage in that particular case can often be extremely high. Extremely high damage is often not insurable on traditional insurance markets. Even with the availability of reinsurance, it may still be impossible to provide full coverage of the damage. The examples of the nuclear liability and the oil pollution damage show that in that case combinations are possible between private and public funding. Some part of the funding is in those cases provided by the potentially responsible party (and his insurer) but some part of the compensation is taken over by the state as well. However, also as far as the way in which this state intervention is organized today some modest recommendations for change could be formulated. Indeed, the way in which the state intervention is today organized for instance in the nuclear liability regime is the well-known “Santa Claus” model: the state merely provides additional coverage without charging any price for the coverage provided. The result is of course that then this state compensation is indeed a subsidy, with all of the disturbing consequences, for instance related to WKHIDFWWKDWWKHSULFHRIWKHQXFOHDUHQHUJ\ZLOOQRWUHÁHFWWKHWUXHVRFLDOFRVWV In this respect, the compensation of environmental damage may probably learn IURPUHFHQWHYROXWLRQVIRUH[DPSOHLQWKHGRPDLQRIÀQDQFLDOFRPSHQVDWLRQ provided in cases of some other catastrophes, as with the terrorism risk. In some of these cases, there is state intervention, but the state charges a price for the additional coverage provided. Similar models are followed for instance with the &DOLIRUQLDHDUWKTXDNHDXWKRULW\DQGZLWKWKHQDWLRQDOÁRRGLQVXUDQFHSODQLQ the US. The advantage of these models is that the private solution is followed as long as possible and public compensation is only added on where necessary and according to a realistic price. In these cases, the government would no longer distort the functioning of ordinary markets, but would rather facilitate the working of insurance markets more particularly in cases where large damage cannot be insured given the magnitude of the potential risk. Probably this mix of private and public funding is an interesting example for the future development of the compensation for environmental damage, showing once more that there are not necessarily Chinese walls between private and public funding but that, in some cases, shifts towards an optimal mix of public and private funding may be indicated as well.

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Michael Faure and Albert Verheij

)(SLORJXH 963

At the end of a book where changes with respect to environmental damage have EHHQDQDO\]HGLQWHUPVRI´VKLIWVµZHDUHDEOHWRFULWLFDOO\UHÁHFWRQWKHTXHVWLRQ whether thinking about changes in compensation for environmental damage should indeed be analyzed in terms of “shifts in governance”. In other words: does it have any added value to address these changes in the compensation for environmental damage within this theoretical framework of “shifts”?

964

Before answering this question it is important to recall that the shifts terminology should be understood as part of the (largely economic) debate on the LQ HIÀFLHQF\RIVWDWHLQWHUYHQWLRQ:KHQGRHVWKHPDUNHWSURYLGHVDWLVIDFWRU\ solutions and when does market failure make state intervention in one form or another necessary? In the context of tort law this discussion, especially in the 1970s, caused many scholars to analyze whether tort law should be replaced by insurance or welfare state like alternatives. In this discussion there is a clear dichotomy between the private and the public, in other words between private and public governance. Whether this dichotomy still corresponds with the complexities of today’s legal system and therefore provides a useful analytic tool deserves a nuanced answer.

965

On the one hand, we believe that the shifts analysis indeed provides a different and, according to us, useful framework for analyzing changes in compensation systems. In particular, it enables and forces the researcher to focus more clearly on the question whether a particular compensation regime is funded privately or publicly. In the myriad of legal concepts and changes the shifts analysis helps WRIRFXVRQWKHUHDOO\VLJQLÀFDQWFKDQJHVWKDWLVWRVD\RQWKHTXHVWLRQZKR shoulders the burden of compensation.

966

On the other hand, our research makes clear however that a shifts analysis should QRWEHFRQÀQHGWRWKHVKLIWEHWZHHQSXEOLFDQGSULYDWHJRYHUQDQFH6KLIWVZLWKLQ the private law are important to identify as well. This reveals that a focus on only the “big” shifts between private and public law can be misleading.

967

Furthermore, it is important when analyzing the reasons for a particular shift to distinguish clearly between reasons formally provided by the legislator on the one hand and the probably true reasons on the other hand. For instance, we LQGLFDWHGWKDWIRUPDOO\PDQ\VKLIWVDUHMXVWLÀHGRQWKHEDVLVRIWKHSROOXWHUSD\V principle, whereas the actual shift does not always correspond with this principle at all. Moreover, the various contributors to this volume were also able to show that shifts do not always take place for reasons of public interest, but sometimes serve private interests (as well). More importantly, we of course do realize that legislators often take initiatives for shifts for a great deal of different reasons than those which would be the criteria for a particular shift from a mere academic perspective. Politicians of course do not always take the initiative for a shift on the basis of academic criteria but, as many contributions showed, because particular incidents occurred that makes political action necessary. This equally

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shows that one has to be slightly relativistic as far as an ex post analysis of the various shifts is concerned. It is rather tempting and seemingly easy to try to explain shifts today as rational decisions of politicians, aiming at providing better compensation for victims of pollution damage. Political reality is of course, as many examples showed, totally different. Driven by political needs (incidents, public pressure etc.) or by private interests, initiatives towards certain shifts may be taken which do not always correspond with formal criteria. The overall picture that emerges therefore seems to be that an analysis in terms of shifts has several advantages. This should not blind us however from the fact that the compensation systems that we have analyzed were not created with this concept in mind. As noted many of the compensation schemes were set up in response to highly publicized environmental disasters. The politicians who created those systems did not think in terms of publicly or privately governed compensation schemes, they simply wanted to put in place a scheme that seemed promising in terms of compensation and prevention. The researcher should therefore be careful not to regard every legal change a shift in one direction or another. In this context it should be mentioned that, as indicated, there are many grey zones between public and private governance as well as a mix between the two. Against this background, future research should not primarily be concerned with the question whether public or private governance is optimal but with the question what the optimal mix is in terms of compensation and prevention.

968

As far as formal criteria to evaluate a shift are concerned, one would of course hope that a legislator has ex ante a particular idea in mind of what to reach with a particular shift. As far as environmental damage is concerned, one would hope that the legislator initiates a shift since this would either provide compensation for victims or a better prevention of environmental harm and preferably both. It was striking to note that in fact very little information is available on the effects of particular shifts. This leads to the rather stunning conclusion that apparently in many countries (and at the international level) a variety of initiatives and shifts are undertaken on the basis of assumptions about their alleged effects whereby it is almost never tested whether the legislative measure or international convention has indeed led to the effects desired by the legislator.

969

Finally, we showed that thinking in terms of shifts does not necessarily lead to different or strong conclusions at the normative level. Some modest recommendations for policy change were formulated in a few contributions and were summarized above. However, we feel that the most important policy change and a consequence of thinking about environmental damage compensation in terms of shifts is the point mentioned just above, being that too many shifts apparently take place on the basis of presumed effects, whereby these effects are never analyzed or tested. Therefore, if there were one strong normative conclusion resulting from analyzing changes in the compensation for environmental damage in terms of shifts, it should be a strong recommendation to the legislator to take a serious initiative towards data collection so that in the future not only ex ante expectations on assumed effects of shifts can be based on data, but that ex post

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it would also be possible to test whether the shifts undertaken by the legislator could actually lead to the consequences the legislator hoped to achieve.

Index Abfall(beseitingungs)gesetz 86ff Absolute liability 829 Actie tankslag 155 Adverse selection 220 Afvalstoffendecreet 169, 171ff Allgemeines Polizei- und Ordnungsrecht 67, 70, 72ff Altlasten 66 ART (Alternative risk transfer) 212 Asymmetric information 957 Aansprakelijkheidsverzekering bedrijven 250-258, 263, 272 Bofas 191, 200 Bottom-up federalism 286-289 %URZQÀHOGVII Brussels Supplementary Convention to the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 31 January 1963 814, 818, 848ff BSB operation 151 Bundes-Bodenschutzgesetz 65, 91ff

CEA (General Liability Committee of the Comité Européen des Assurances) 249 CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) 15ff – claimants 37ff – damages 33ff – responsible parties 26ff Channelling (of liaibility) 396, 413, 421ff, 438, 449, 489, 591, 612-613, 710-721, 756, 763, 831ff, 950 Chernobyl 798, 854, 894, 914 Chinese walls 962 CLC (Civil Liability Convention) 380ff, 612-613, 623, 627629, 633-640, 650, 652-655, 658, 662, 663, 689, 693-696, 704-705, 709-710, 716-720, 722-725, 728-733, 736, 739, 750-753, 761, 762, 766, 937, 953 – claimants 393 – damages 387 – protocols 1984 and 1992 413ff – protocol 2003 428ff – responsible parties 394

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Claims made – policy 220 – coverage 270 CMI (Comité Maritime International) 624-625, 627, 658, 689, 712-714, 758 COFIZE (Stichting Collectief Financieel Zekerheidsfonds) 226, 232-41, 273-79

Directive 2004/35/EC on Environmental Liability with Regard to the Prevention and Remedying of Environmental Damage (Environmental Liability Directive or ELD) 281-282 Double hull tankers 548, 565, 607 Droogkuis 196 Dutch insurers organization 261

Co-insurance 219 Compensation funds 921 Competition 242, 279-80 Competitiveness 204 Compulsory insurance 842ff

Economic channelling 834, 906 Emission trading 955 Environmental damage 376ff

Concentration of liability 811

EPA (Environmental Protection Agency) 19, 24, 37, 38

CRISTAL (Contract Regarding an Interim Supplement to Tanker Liability for Oil Pollution) 373, 445, 453ff, 471ff, 630-632, 634-635, 641

European Directive on Environmental Liability 2, 373, 566, 597 – claimants 579 – damages 577 – responsible parties 548

Convention on Civil Liability for Nuclear Damage of 21 May 1963 815, 818, 825

Exclusive liability 831

Convention on Supplementary Compensation for Nuclear Damage of 12 September 1997 817, 818, 883ff, 899, 900, 915

Exoneration from (nuclear) liability 828 Extraordinary nuclear occurrence 906

Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960 814, 818, 825

FC (Fund Convention) 402ff, 612, 614, 629, 633-634, 636, 642645, 652-655, 722-754, 937

CWA (Clean Water Act) 485, 498ff, 549

Financial guarantee 226, 232, 240, 242, 278, 959 Financial security 842

Data collection 970 Deepwater Port Act

504ff, 550

Direct action 399, 438, 439, 455, 540, 551, 557, 597

Foreseeability 131 Functional cleaning 110, 118, 162

Shifts in Compensation for Environmental Damage

Funding – private 212, 215, 226, 238, 272-275 – private/public 273, 274 – public 212, 215, 238, 273, 274, 280

331

– market 838, 907 – third party 243-248 – traditional liability insurance 218, 220, 247, 249, 252, 256-258, 277 Insurer ambiguity 217 Insurers 1

Green Paper on Remedying Environmental Damage 299

Interim losses 378, 527, 577 Internalisation of external effects 902, 919, 920, 926

Harvard Report 918 Hold harmless clause 801 IBC (Interregionale Bodemsaneringscommissie) 191 Ibs (Interimwet bodemsanering) 120, 123ff IMCO (Inter-Governmental Consultative Organization) 623, 626, 627, 715 IMO (International Maritime Organization) 626, 636, 644, 646, 650, 651, 658, 726, 740, 748, 758 Incentives (for prevention) 238, 277 Innocent owner 146 Innocent possessor 183 Innocent purchase defence 45 Insurance – capacity of 219, 224, 833, 897 – costs 811 – direct 244-249, 259, 264, 270 – environmental damage insurance 257-280 ²ÀUVWSDUW\ 264-270, 280

International Nuclear Energy Agency 815 IOPC (International Oil Pollution Compensation Fund) 474, 782, 952, 956 Joint Protocol Relating to the Application of the Vienna Convention and the Paris Convention of 21 September 1988 817, 860ff Jurisdiction of nuclear damage 845ff Legal channelling 834 /HYHOSOD\LQJÀHOG Liability for damage caused by terrorism 828 Limitation of liability 612-613, 619, 628, 637, 654, 683, 692-709 – nuclear 807, 837ff Limitation of Liability Act 485, 521 Long-tail (risk) 250, 222-223, 270 Maritime oil pollution 765

332

MAS (Environment liability insurance) 250-258 Maximum liability 837 Monopoly 242 Moral hazard 220, 224, 238, 239, 276 Multifunctional cleaning 118 NGO 949 Nuclear Energy Agency 814 Nuclear insurance pools 843, 897, 922 Nuclear liability 936, 937, 962 OPA (Oil Pollution Act) 485, 521, 522ff, 549, 766, 936, 947, 948, 952, 960 – claimants 537ff – damages 525ff – responsible parties 540ff OSIR (Oil Spill Intelligence Report) 773 OSLTF (Oil Spill Liability Trust Fund) 792 Outer Continental Shelf Lands Act 549, 515ff OVAM (Afvalstoffenmaatschappij voor het Vlaamse Gewest) 166, 172

Michael Faure and Albert Verheij

Premaz fund 195 Prevention

3, 8, 955

Price-AndersonAct 807, 905ff, 919, 936 Private interest 943, 945 Product liability 808, 832 Proportionality principle 291 Proposal for a Directive of the European Parliament and of the Council on Environmental Liability with regard to the Prevention and Restoration of Environmental Damage 303 Protection and indemnity clubs (P&I Clubs) 213, 225, 242, 621, 649, 654, 677 Protocol to Amend the 1963 Vienna Convention on Civil Liability for Nuclear Damage of 12 September 1997 817, 818, 864ff, 876, 896, 915 Protocol to Amend the Convention of 31 January 1963 Supplementary to the Convention of 29 July 1960 on Third Party Liability in the Field of Nuclear Energy of 12 February 2004 817, 818, 879ff, 900, 915 Protocol to Amend the Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960 of 12 February 2004 817, 818, 870ff, 895, 915, 922 Public choice theory 359

Polluter pays, precautionary and preventive principles 339-342

Public interest 943, 944

Polluter pays principle 1, 82, 108, 110, 163, 167, 202, 944, 956, 967

Race to the bottom 323, 961

Preliminary Report 918, 920

Restitutio in integrum 138

Re-insurance 219

Shifts in Compensation for Environmental Damage

Retrospective premium 907 Retrospective risk program 910 Risk differentiation 220, 223, 270, 277, 279 – optimal 261, 267 Risk pooling 224 Risk sharing agreement 213-214, 224-226, 239-243, 273, 275, 277

333

Strict liability 612, 613, 622, 628, 635, 661-691, 759-761, 944, 945, 946, 956, 959 – nuclear damage 826 SUBAT (Stichting Uitvoering Bodemsanering Amovering Tankstations) 150, 226-232, 238, 242, 273-274, 276-278 Subrogation (right of) 231 Subsidiarity principle 290 Subsidies 902, 921, 928, 946

Safety regulation 548, 607 Safety standards 952 SARA (Superfund Amendments and Reauthorization Act) 15, 21, 43ff Self regulation 940 Shifts – additional layers of funding 934 – international level 937 – levels of governance 935 – private law 932 – private to public 933 – self regulation 940 Soil pollution 212-213, 226-230, 233, 238-240, 246, 259, 261, 275-278 – clean up 213, 226-231, 238, 240, 249-250, 255, 259, 261262, 266, 273, 275-276 – historic 226-227, 230-232, 238, 273, 275-276

Subsistence use 377 Suez crises 372 Superfund 15ff Supertanker 372, 418, 504, 561 Supplementary Fund 430, 436 Terrorism

962

Tiebout model 286-289 TOPIA (Tanker Oil Pollution ,QGHPQLÀFDWLRQ$JUHHPHQW  436, 940 TOVALOP (Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution) 373, 453ff, 620-622, 632, 634-635, 641, 661-663, 689, 940 Trans-Alaska Pipeline Authorization Act 511ff, 549

Solidarity 883, 899 Solvency guarantee 236-237, 271, 273-275, 278 STOPIA (Small Tanker Oil Pollution ,QGHPQLÀFDWLRQ$JUHHPHQW  436, 940

Uncertainty – causal 221,270 – risk 217 – scope of liability 218, 254, 275 Unjust enrichment 120, 136

334

Unlimited liability 868 Unpredictability 217

Michael Faure and Albert Verheij

Wbb (Wet bodembescherming) 121, 137ff White Paper on Environmental Liability 200

VLAREBO (Vlaams reglement betreffende de bodemsanering) 179 Wasserhaushaltsgesetz 83ff

Working Paper on Prevention and 5HVWRUDWLRQRI6LJQLÀFDQW Environmental Damage 302 WQIA (Federal Water Quality Improvement Act) 487, 489ff, 549

Publications Principles of European Tort Law Volume 1: The Limits of Liability: Keeping the Floodgates Shut. Edited by Jaap Spier. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-0169-1. 1996, 162 pp.

Volume 5: Unification of Tort Law: Damages. Edited by Ulrich Magnus. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-1481-5. 2001, 255 pp.

Volume 2: The Limits of Expanding Liability. Eight Fundamental Cases in a Comparative Perspective. Edited by Jaap Spier. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-0581-6. 1998, 244 pp.

Volume 6: Unification of Tort Law: Strict Liability. Edited by Bernhard A. Koch and Helmut Koziol. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-1705-9. 2002, 444 pp.

Volume 3: Unification of Tort Law: Wrongfulness. Edited by Helmut Koziol. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-1019-4. 1998, 144 pp.

Volume 7: Unification of Tort Law: Liability for Damage Caused by Others. Edited by Jaap Spier. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-2185-4. 2003, 335 pp.

Volume 4: Unification of Tort Law: Causation. Edited by Jaap Spier. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-1325-8. 2000, 161 pp.

Volume 8: Unification of Tort Law: Contributory Negligence. Edited by Ulrich Magnus and Miquel Martín-Casals. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-2220-6. 2004, 300 pp.

336

Volume 9: Unification of Tort Law: Multiple Tortfeasors. Edited by W.V. Horton Rogers. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-2319-9. 2004, 313 pp.

Publications

Volume 10: Unification of Tort Law: Fault. Edited by Pierre Widmer. Kluwer Law International, The Hague. Hardbound. ISBN 90-411-2098-X. 2005, 391 pp.

Tort and Insurance Law Volume 1: Cases on Medical Malpractice in a Comparative Perspective. Edited by Michael Faure and Helmut Koziol. Springer, Vienna/New York. Softcover. ISBN 3-211-83595-4. 2001, 331 pp.

Volume 5: Deterrence, Insurability and Compensation in Environmental Liability. Future Developments in the European Union. Edited by Michael Faure. Springer, Vienna/New York. Softcover. ISBN 3-211-83863-5. 2003, 408 pp.

Volume 2: Damages for NonPecuniary Loss in a Comparative Perspective. Edited by W.V. Horton Rogers. Springer, Vienna/New York. Softcover. ISBN 3-211-83602-0. 2001, 318 pp.

Volume 6: Der Ersatz frustrierter Aufwendungen. Vermögens- und Nichtvermögensschaden im österreichischen und deutschen Recht. By Thomas Schobel. Springer, Vienna/New York. Softcover. ISBN 3-211-83877-5. 2003, 342 pp.

Volume 3: The Impact of Social Security on Tort Law. Edited by Ulrich Magnus. Springer, Vienna/New York. Softcover. ISBN 3-211-83795-7. 2003, 314 pp. Volume 4: Compensation for Personal Injury in a Comparative Perspective. Edited by Bernhard A. Koch and Helmut Koziol. Springer, Vienna/New York. Softcover. ISBN 3-211-83791-4. 2003, 501 pp.

Volume 7: Liability for and Insurability of Biomedical Research with Human Subjects in a Comparative Perspective. Edited by Jos Dute, Michael G. Faure and Helmut Koziol. Springer, Vienna/New York. Softcover. ISBN 3-211-20098-3. 2004, 445 pp. Volume 8: No Fault Compensation System in the Health Care Sector. Edited by Jos Dute, Michael G. Faure and Helmut Koziol. Springer, Vienna/New York. Softcover. ISBN 3-211-20799-6. 2004, 492 pp.

Publications

337

Volume 9: Pure Economic Loss. Edited by Willem H. van Boom, Helmut Koziol and Christian A. Witting. Springer, Vienna/New York. Softcover. ISBN 3-211-00514-5. 2004, 214 pp.

Volume 14: Financial Compensation for Victims of Catastrophes. Edited by Michael Faure and Ton Hartlief. Springer, Vienna/New York. Softcover. ISBN 3-211-24481-6. 2006, 466 pp.

Volume 10: Liber Amicorum Pierre Widmer. Edited by Helmut Koziol and Jaap Spier. Springer, Vienna/New York. Softcover. ISBN 3-211-00522-6. 2003, 376 pp.

Volume 15: Entwurf eines neuen österreichischen Schadenersatzrechts. Edited by Irmgard Griss, Georg Kathrein and Helmut Koziol. Springer, Vienna/New York. Softcover. ISBN 3-211-30827-X. 2006, 146 pp.

Volume 11: Terrorism, Tort Law and Insurance. A Comparative Survey. Edited by Bernhard A. Koch. Springer, Vienna/New York. Softcover. ISBN 3-211-01867-0. 2004, 313 pp. Volume 12: Abschlussprüfer. Haftung und Versicherung. Edited by Helmut Koziol and Walter Doralt. Springer, Vienna/New York. Softcover. ISBN 3-211-20800-3. 2004, 180 pp. Volume 13: Persönlichkeitsschutz gegenüber Massenmedien/The Protection of Personality Rights against Invasions by Mass Media. Edited by Helmut Koziol and Alexander Warzilek. Springer, Vienna/New York. Softcover. ISBN 3-211-23835-2. 2005, 713 pp.

Volume 16: Tort Law and Liability Insurance. Edited by Gerhard Wagner. Springer, Vienna/New York. Softcover. ISBN 3-211-24482-4. 2005, 361 pp. Volume 17: Children in Tort Law. Part I: Children as Tortfeasors. Edited by Miquel Martín-Casals. Springer, Vienna/New York. Softcover. ISBN 3-211-24480-8. 2006, 476 pp. Volume 18: Children in Tort Law. Part II: Children as Victims. Edited by Miquel Martín-Casals. Springer, Vienna/New York. Softcover. ISBN 3-211-31130-0. 2006, 315 pp. Volume 19: Tort and Regulatory Law. Edited by Willem H. van Boom, Meinhard Lukas and Christa Kissling. Springer, Vienna/New York. Softcover. ISBN 3-211-31133-5 (forthcoming).

338

Publications

European Tort Law Yearbook European Tort Law 2001. Edited by Helmut Koziol and Barbara C. Steininger. Springer, Vienna/New York. Softcover. ISBN 3-211-83824-4. 2002, 571 pp.

European Tort Law 2003. Edited by Helmut Koziol and Barbara C. Steininger. Springer, Vienna/New York. Softcover. ISBN 3-211-21033-4. 2004, 493 pp.

European Tort Law 2002. Edited by Helmut Koziol and Barbara C. Steininger. Springer, Vienna/New York. Softcover. ISBN 3-211-00486-6. 2003, 596 pp.

European Tort Law 2004. Edited by Helmut Koziol and Barbara C. Steininger. Springer, Vienna/New York. Softcover. ISBN 3-211-24479-4. 2005, 674 pp.

Principles of European Tort Law Text and Commentary. Edited by the European Group on Tort Law. Springer, Vienna/New York. Softcover. ISBN 3-211-23084-X. 2005, 282 pp.