In last week’s article, we highlighted the importance of insurance coverage and/or financial guarantee for environmental damage that may be caused by the petroleum operations of ExxonMobil’s subsidiaries – Esso Exploration and Production Guyana Ltd (EEPGL), Nexen and Hess. We discussed several matters, including the relevant provision in the 2016 Petroleum Sharing Agreement (PSA); the responsibility of the Environmental Protection Agency (EPA); the issuing of the permit to EEPGL; quantum of insurance taken out by EEPGL; seeking judicial review as to the adequacy of the coverage; the court ruling on the matter; and EPA’s appeal against the ruling.
Last Thursday, Court of Appeal Judge Rishi Persaud granted a stay of execution of the order issued by Justice Sandil Kissoon for the EPA to require EEPGL to provide an unlimited parent company guarantee ‘to indemnify and keep indemnified the Government of Guyana and the Agency against all such environmental obligations together with environmental liability insurance’. According to Justice Kissoon, the failure to comply with the order by 10 June 2023 (Saturday last) would result in the permit issued to EEPGL being suspended.
In today’s article, we highlight the key points relating to the appeal, as argued by both the appellants and the respondents, and the ruling of the Court of Appeal Judge.
Background to the ruling
Article 20.2 of the PSA between the Government of Guyana and Exxon’s subsidiaries requires the latter to effect at all times and during the term of the Agreement, insurance as required by applicable, laws, rules and regulations and in such amount as is customary in the international petroleum industry in accordance with good oil field practice for petroleum operations in progress. This includes pollution caused in the course of petroleum operations for which the Contractor or the operator is responsible.
The applicable laws, rules and regulations are to be found in the Environmental Protection Agency Act (EPA) 1996 and the related regulations. The EPA’s main functions are to: (i) manage, conserve, protect and improve the environment; (ii) prevent or control pollution; and (iii) assess the impact of economic development, and the sustainable use of natural resources.
The EPA’s latest approval to EEPGL was given on 27 October 2022 via Permit No. 20160705 – EEDPF. Condition 14 of the Permit requires EEPGL to provide financial assurance and liability for pollution damage, including: (i) liability for all costs associated with clean up, restoration and compensation for any damage caused by any discharge of any contaminant, including the cost of investigations by the EPA; (ii) insurance to cover well control and/or clean up as well as third party liability; and (iii) undertaking by the parent company/affiliate relating to indemnification of all liabilities under the Permit. (Emphasis added.)
It is important to note that, contrary to the views expressed in certain quarters, the undertaking referred to above is not an insurance policy per se for which a premium is payable. As a group of civil society activists had stated in a letter to the Editor, all that is required is a brief letter from Exxon stating that if an environmental damage occurs, Exxon will bear the additional cost of clean-up and compensation, to the extent that such cost exceeds the amount of insurance coverage. The undertaking therefore does not cost anything and will serve to put pressure on Exxon’s subsidiaries to exercise extreme caution in avoiding an oil spill or other environmental damage resulting from their operations. This is especially so in a period of accelerated production to beat the deadline of 2030 set by the Paris Agreement on Climate Change. That agreement requires countries to reduce their greenhouse gases by 40 percent from 1990 levels. It is also the consensus among international scientists that in order to prevent the worst climate disasters, net human-caused emissions of carbon dioxide need to fall by about 45 percent from 2010 levels by 2030, reaching net zero by 2050. It is indeed an undisputable fact that the build-up of greenhouse gases in the atmosphere is attributable mainly to the burning of fossil fuels.
The forms of financial assurance are to be guided by an estimate of ‘reasonably credible costs, expenses and liabilities’ that may arise from any breaches of the Permit. Additionally, valid and effective environmental liability insurance is to be in place, covering, among others: (i) environmental damage caused during the operations of EEPLG for which it is jointly and severally held responsible; and (ii) the cost of removal of wreckage and clean-up operations. Further, the EPA may require such further amounts, types and coverage of insurance as is customary in the international petroleum industry or as required by applicable law. Any breach of the Permit will result in its immediate cancellation.
By Condition 14.10, EEPLG is to provide the EPA with legally binding agreements in which the parent company and/or affiliated company (including co-venturers) undertake to provide adequate financial resources to pay or satisfy their respective environmental obligations. Finally, EEPLG, its servants and/or agents, shall be liable for any material or serious environmental harm caused by their pollution of the environment, as provided for under the EPA Act.
EEPLG provided insurance coverage for US$600 million which was accepted by the EPA. However, the two civil society activists – President of Transparency Institute of Guyana Inc., Frederick Collins, and another concerned citizen – felt that the extent of the insurance coverage was not adequate to cover any major oil spill or other environmental damage that may be caused by the operations of EEPLG. Accordingly, they sought the intervention of the court to force the EPA to enforce the liability clause in the permit it had issued to EEPLG. They argued that:
The agency, through its human minds, including its officers has failed or omitted to carry out or to show that it has carried out its legal duties and/or obligations thereby amounting to misfeasance in public office by them and by failing or omitting to act, has acted unreasonably, irregularly or improperly and/or has abused its power.
Justice Kissoon found that EEPGL was engaged in a “disingenuous attempt” calculated to deceive when it sought to dilute its liabilities and settled obligations stipulated and expressed in clear unambiguous terms at Condition 14 of the Environmental Permit while at the same time optimising production. He stated that the EPA has abdicated the exclusive statutory responsibilities entrusted to it by Parliament under the EPA Act and its Regulations of 2000 to ensure due compliance by EEPLG. He further stated that the Agency was ‘putting this nation and its people in grave potential danger of calamitous disaster’ and that it has found itself in a quagmire of its own making.
Justice Kissoon then ruled that the EPA must order EEPLG to provide an unlimited parent company guarantee ‘to indemnify and keep indemnified the Government of Guyana and the Agency against all such environmental obligations together with environmental liability insurance from an insurance company with standing and repute that equates to Grade A Plus’. The failure to comply with the Order by 10 June 2023 would result in the Permit being suspended.
The EPA appealed Justice Kissoon’s ruling and requested a stay of the said ruling. However, Court of Appeal Judge Rishi Persaud declined the request on the ground that he was expected to conclude the matter on or before 10 June 2023. Meanwhile, the EPA indicated that it has complied with the court order by issuing an Enforcement Notice to EEPLG to provide the required parent company guarantee in the event of an oil spill or other damage to the environment.
Court of Appeal ruling
Last week, Court of Appeal Justice Rishi Persaud heard arguments from the EPA requesting a stay of execution of the order issued by Justice Kissoon to suspend EEEPGL’s permit if it does not provide the EPA with a parent company guarantee against any major oil spill or other environmental damage by 10 June 2023. In arguing against the stay of execution, the two civil society activists are of the firm view that an oil spill would be devastating for not only the country but the Region as well since many Guyanese and Caribbean peoples depend on the ocean for their livelihoods.
The EPA’s argument is that the Order that was issued is too narrow and hinges on the interpretation of Condition 14 of the permit. Through their lawyer, Sanjeev Datadin, the Agency stated that ‘the ills that may befall Guyana or the catastrophe that may result are irrelevant. The overarching issue is what the parties meant when they intended at the time they entered the agreement’. He argued that Condition 14.3 of the permit provides for an estimate which an average or finite sum, not unlimited assurance. Mr. Datadin further stated the option of litigation is always an avenue that is open to the Government if the amount is not satisfactory and that in any event, if loss is suffered, recourse is always to the court. He further argued that through its order to suspend the permit, the court has usurped the authority of the EPA.
The respondents, through their lawyer Senior Counsel Seenath Jairam, expressed the view that the trial judge correctly interpreted the terms and conditions of the permit. Mr. Jairam stated that:
If there is an oil spill – we have seen examples in the world, the Court can even take judicial notice of the kind of devastation it will cost. I dare say, and I say this with reluctance, an oil spill can set Guyana back to the ice age if there is no assurance…Accidents on the high seas cost billions upon billions, a US$2B (parent guarantee) would be a drop in the ocean.
Mr. Jairam referred to Condition 14. 1 of the permit providing for EEPGL to be liable for all costs relating to the clean-up or damage to the environment as a result of an oil spill. He emphasized too that the permit holder is liable to provide forms of financial assurance to cover all the legitimate liabilities under the permit.
Having heard the arguments from both sides, Court of Appeal Judge Rishi Persaud granted EEPGL a stay of execution of the order by the High Court that it supply an “unlimited” financial guarantee for its Liza-1 operations. The stay of execution is to last until the full hearing and determination of the appeal. He also ordered that EEPGL to lodge a US$2 billion security deposit within the next 10 days, failing which the stay will be dismissed. Justice Persaud also indicated that he believes that the appeal lodged by EPA has prospects of succeeding.
