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Dangers of joint ventures highlighted by Buncefield verdict

06 May 2009

In March, the High Court ruled that the oil company Total was liable for the damage caused by the explosion at the Buncefield oil depot in Hertfordshire, on Sunday, December 11th 2005, which could be heard from 200km away. This ruling has implications for practitioners in terms of health and safety cases, civil liability and commercial/contractual drafting.

Dangers of joint ventures highlighted Buncefield verdict
Dangers of joint ventures highlighted Buncefield verdict

The trial focused on whether Total alone should bear the cost of compensating the victims or whether Hertfordshire Oil Storage Limited (HOSL), the nominated operating company, and Chevron, should share in the cost. Total initially denied responsibility but later admitted that the explosion had partly been the fault of the supervisor on duty at the time and that the damage caused was foreseeable. Total claimed that Chevron should share responsibility for the incident while Chevron, which denies liability, said Total was in day-to-day control at the site.

Following the ruling, Total was sued for around £750 million. Total's UK arm had been negligent in failing to prevent the blast and should alone bear the cost of compensating victims. Chevron, the US oil giant that owns 40% of the tank farm, was cleared of any liability. Total's head office staff had contributed to the explosion by failing to put in place an adequate system for preventing the overfilling of the oil tanks.

The key message behind this decision is that it is not possible simply to hide behind corporate structures or contractual arrangements which designate certain parties as having certain specific roles.

If the true intention of parties to a joint venture is to share responsibility for any negligence in the course of their operations then they need to consider what they can do in a strategic and operational sense to ensure that the arrangement is reflected in practice.

The Buncefield verdict has highlighted a number of practical management issues in relation to health and safety practices, as well as operating structure. Companies setting up joint venture companies in this situation need to make clear who is operating the site. This must be clear and consistent in all documentation and communication. Crucially, it must be consistent with what happens in practice.

Companies need clear written instructions for their operations, even for operations that are thought to be routine. The paperwork needs to be in good order. The judge gained a clear impression from the evidence given that practices in the Buncefield control room were not adequate, this was reflected in the absence of written tank-filling procedures for use in the control room following a near miss in August 2003. Written instructions should form the standards for supervisors to be trained, monitored and disciplined, and in the absence of such written instructions the judge found that Total's procedures were poor.

Operating within the scope of a permit where hazardous substances are used or stored will not provide a defence against all the possible criminal sanctions or potential civil liabilities that can arise if hazardous substances escape and cause damage.

If the Buncefield incident occurred now, then there may have been further penalties for the companies involved under the Environmental Damage (Prevention and Remediation) Regulations 2009 which have just come into force.

They deal with the remediation of environmental damage to natural habitats and cover removal of the threat of that damage. Liabilities under these Regulations will only apply to damage occurring after 1 March 2009, in England.

Buncefield is not the only example of the dangers of joint ventures in the oil and gas industry. There have been a number of incidents internationally over the years that have resulted in companies putting their legal teams against each other. A joint venture between BHP and Esso, also ended badly. Esso was the operational partner and BHP was a financial partner. Esso was prosecuted and sued for damages, and consequently, BHP sued Esso for revenue losses, and furthermore, Esso sued BHP for a share of the costs of litigations.

One of the key messages arising out of the facts of Buncefield and the BHP/Esso conflict is that any companies that form a joint venture and want to assign the health and safety responsibilities to the joint venture company must have appropriate policies in place, clearly setting out both the arrangements and responsibility for health and safety.

They must then ensure they are implemented.

The court will always look to see who had ‘actual control', and therefore any policy that sets out the tasks and duties needs to be a genuine reflection of what actually happens on the ground. The Environmental Damage (Prevention and Remediation) Regulations 2009 supports this and the enforcing authority is able to serve a notice on only one operator even if the damage has also been caused by other operators. Any operator in this situation may be able to reclaim contribution from any other liable operator if he thinks it appropriate to do so. If operators fail to comply with a remediation notice, then the enforcing authority will have power to carry out works and to reclaim the costs from the operator.

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