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

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

Facts and Procedure

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

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 (Directive 75/442 has since been replaced by Directive 2006/12/EC, but the relevant provisions in this context are the same.)

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

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

Questions referred to the ECJ and judgment

The questions referred to the ECJ were :

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

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

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

Relevant provisions of (EC) Directive 75/442

Article 1 of the Directive provides :

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

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

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

Article 15 of the Directive states:

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

- the holder […], and/or

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

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

ECJ judgment

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

Ince & Co - International Law Firm

Insider Trading

Introduction - Insider trading is a term subject to many definitions and connotations and it encompasses both legal and prohibited activity. Insider trading takes place legally every day, when corporate insiders – officers, directors or employees – buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading. In simple terms ‘insider trading’ buying or selling a security, in breach of a fiduciary duty or other relationship of trust, and confidence, while in possession of material, non-public information about the security

Thus , in nutshell , insider trading is the buying , selling or dealing in securities of a listed company by a director , member of management , employee of the company , or by any other person such as internal auditor , advisor , consultant , analyst etc, who has knowledge of material inside information which is not available to general public

Examples of insider trading -

1. Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;
2. Government employees who learned of such information because of their employment by the government; and
3. Other persons who misappropriated, and took advantage of, confidential information from their employers.

Other persons who misappropriated, and took advantage of, confidential information from their employers.

Therefore, preventing such transactions is an important obligation for any capital market regulatory system, because insider trading undermines investor confidence in the fairness and integrity of the securities markets.

For instance, prior knowledge of a bonus issue would result in the insider acquiring a significant exposure in particular scrip, knowing that his holding would increase significantly after the bonus is announced.

The first country to tackle insider trading effectively however was the United States. In the USA, the Securities and Exchange Commission is empowered under the Insider Trading Sanctions Act, 1984 to impose civil penalties in addition to criminal proceedings. Most countries have in place suitable legislation to curb the menace of insider trading.

In India, SEBI (Insider Trading) Regulations 1992, framed under Section 11 of the SEBI Act, 1992, are intended to prevent and curb the menace of insider trading in Securities. Now SEBI has with effect from 20th February 2002 amended these Regulations and rechristened them as SEBI 9 Prohibition of Insider Trading Regulation, 1992. These Regulation have been further amended in November 2002

Rational Behind Prohibition of Insider Trading

The smooth operation of the securities market and its healthy growth and development depends on a large extend on the quality and integrity of the market .Such a market can alone inspire confidence in investors

Insider trading leads to loose of confidence of investors in securities market as they feel that market is rigged and only the few, who have inside information get benefit and make profits from their investments. Thus, process of insider trading corrupts the ‘level playing field’

Hence the practice of insider trading is intended to be prohibited in order to sustain the investor’s confidence in the integrity of the security market.

In Samir C Arora Vs. SEBI

It was observed that activities like insider trading fraudulent trade practices and professional misconduct are absolutely detrimental to the interests of ordinary investors and are strongly deprecated under the SEBI Act, 1992 and the Regulations made there under. No punishment is too severe for those indulging such activities.

The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, does not directly define the term “insider trading”. But it defines the terms-

. insider” or who is an “insider;
. who is a “connected person
. What are “price sensitive information”.

Insider -According to the Regulations “insider” means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access, connection, to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information;

Connected person - The Regulation defines that a “connected person” means any person who- (i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956) of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act or (ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company whether temporary or permanent and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company;

Price Sensitive Information means any information, which relates directly or indirectly to a company and which if published, is likely to materially affect the price of securities of company.

American insider trading law

The United States has been the leading country in prohibiting insider trading and the first country to tackle insider trading effectively. Thus it is important to discuss insider trading in American perspective. While Congress gave us the mandate to protect investors and keep our markets free from fraud, it has been our jurists, albeit at the urging of the Commission and the United States Department of Justice, who have played the largest role in defining the law of insider trading.

The market crash in 1929 due to prolonged lack of investors confidence in the securities market followed by Great Depression of US Economy , led to the enactment of Securities Act of 1933 in which Section 17 of the contained prohibitions of fraud in the sale of securities which were greatly strengthened by the Securities Exchange Act of 1934The 1934 Act addressed insider trading directly through Section 16(b) and indirectly through Section 10(b).Section 16(b) of the Securities Exchange Act of 1934 prohibits short-swing profits (from any purchases and sales within any six month period) made by corporate directors, officers, or stockholders owning more than 10% of a firm’s shares. Under Section 10(b) of the 1934 Act, SEC Rule 10b-5 prohibits fraud related to securities trading. Further the Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 provide for penalties for illegal insider trading to be as high as three times the profit gained or the loss avoided from the illegal trading. Much of the development of insider trading law has resulted from court decisions. In SEC v. Texas Gulf Sulphur Co, a federal circuit court stated that anyone in possession of inside information must either disclose the information or refrain from trading. (1966)

In 1984, the Supreme Court of the United States ruled in the case of Dirks v. SEC that tippees (receivers of second-hand information) are liable if they had reason to believe that the tipper had breached a fiduciary duty in disclosing confidential information and the tipper received any personal benefit from the disclosure. (Since Dirks disclosed the information in order to expose a fraud, rather than for personal gain, nobody was liable for insider trading violations in his case.)

The Dirks case also defined the concept of “constructive insiders,” who are lawyers, investment bankers and others who receive confidential information from a corporation while providing services to the corporation. Constructive insiders are also liable for insider trading violations if the corporation expects the information to remain confidential, since they acquire the fiduciary duties of the true insider.

In United States v. Carpenter (1986) the U.S. Supreme Court cited an earlier ruling while unanimously upholding mail and wire fraud convictions for a defendant who received his information from a journalist rather than from the company itself. The journalist R. Foster Winans was also convicted.

“It is well established, as a general proposition that a person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit that knowledge or information for his own personal benefit but must account to his principle for any profits derived there from.” However, in upholding the securities fraud (insider trading) convictions, the justices were evenly split.

In 1997 the U.S. Supreme Court adopted the misappropriation theory of insider trading in United States v. O’Hagan, 521 U.S. 642, 655 (1997),. O’Hagan was a partner in a law firm representing Grand Met, while it was considering a tender offer for Pillsbury Co. O’Hagan used this inside information by buying call options on Pillsbury stock, resulting in profits of over $4 million. O’Hagan claimed that neither he nor his firm owed a fiduciary duty to Pillsbury, so that he did not commit fraud by purchasing Pillsbury options.

The Court rejected O’Hagan’s arguments and upheld his conviction. The “misappropriation theory” holds that a person commits fraud “in connection with” a securities transaction, and thereby violates 10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information. Under this theory, a fiduciary’s undisclosed, self-serving use of a principal’s information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of the information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company’s stock, the misappropriation theory premises liability on a fiduciary-turned-trader’s deception of those who entrusted him with access to confidential information.

The Court specifically recognized that a corporation’s information is its property: “A company’s confidential information…qualifies as property to which the company has a right of exclusive use. The undisclosed misappropriation of such information in violation of a fiduciary duty…constitutes fraud akin to embezzlement – the fraudulent appropriation to one’s own use of the money or goods entrusted to one’s care by another.”

In 2000, the SEC enacted Rule 10b5-1, which defined trading “on the basis of” inside information as any time a person trades while aware of material nonpublic information — so that it is no defense for one to say that she would have made the trade anyway. This rule also created an affirmative defense for pre-planned trades.

In May of 2007, representatives Brian Baird and Louise Slaughter introduced a bill entitled the “Stop Trading on Congressional Knowledge Act, or STOCK Act.” that would hold congressional and federal employees liable for stock trades they made using information they gained through their jobs. The bill would also seek to regulate so called “Political Intelligence” firms that research government activities and sell the information to financial managers.

Insider trading in India

In India Regulation 3 of the SEBI Regulations seeks to prohibit dealing, communication and counseling on matters relating to, insider trading. Regulation 3 provides that no insider shall either on his own behalf of any other person deal in securities of a company when in possession of any unpublished price sensitive information on communicate, counsel or procure, directly or indirectly any unpublished price sensitive information to any person, who while in possession of such unpublished price sensitive information shall not deal in securities. However, these restrictions are not applicable to any communication required ordinary, course of business or profession or employment or any law.

Further 3 A prohibits any company from dealing in the securities of another company or associate of that other company while in possession of any unpublished price sensitive information.

Insider Trading Regulations have been tightened by SEBI during February 2002. New rules cover ‘temporary insiders’ like lawyers, accountants, investment bankers etc.

Directors and substantial shareholders have to disclose their holding to the company periodically. The New Regulations have added relatives of connected persons, as well as, the companies, firms, trust, etc. in which relatives of connected persons, bankers of the company and of persons deemed to be connected persons hold more than 10% .The definition of relative, under the New regulations is in line with that of the Companies Act, 1956, which ranges from parents and siblings to spouses of siblings and grandchildren. The term “connected person” is defined to mean either i) a director or deemed to be a director, ii) occupies the position as an officer or an employee or having professional or business relationship whether temporary or permanent, with the company. Thus, there are two categories of insiders:

Primary insiders, who are directly connected with the company and secondary insiders who are deemed to be connected with the company since they are expected to have access to unpublished price sensitive information. The jurisprudential basis for the ‘person-connected’ approach seems to be founded in the equitable notions of fiduciary duty.

The secondary insider, who would have traded with an unfair informational advantage, may escape from being caught simply because there can be no trace of how he derived this information in the first place. Insider by reason of his connection with the company. In reality, much of the flow of the price-sensitive information often does not operate by way of such established networks of relational links between individuals. Very often, such price-sensitive information is communicated and spread out through very loosely connected and informal networks of brokers, clients and even between friends and through electronic networks etc. or an elaborate nexus of company official, brokers, traders. These individuals are very often privy to strategic policy decisions or developments that may influence the valuation of a company’s scrip on the bourses

Duties/ Obligations Of the listed company under the SEBI (Prohibition of Insider Trading) Regulations, 1992

1. To appoint a senior level employee generally the Company Secretary , as the Compliance Officers;
2. To set up an appropriate mechanism and to frame and enforce a code of conduct for internal procedures,
3. To abide by the Code of Corporate Disclosure practices as specified in Schedule ii to the SEBI (Prohibition of Insider Trading)Regulations , 1992
4. To initiate the information received under the initial and continual disclosures to the Stock Exchange within 5 days of their receipts;
5. To specify the close period;
6. To identify the Price Sensitive Information
7. To ensure adequate data security of confidential information stored on the computer;

To prescribe the procedure for the pre- clearance of trade and entrusted the Compliance Officers with the responsibility of strict adherence of the same

The penalties /punishments can be imposed in case of violation of SEBI (Prohibition of Insider Trading) Regulations, 1992

1. SEBI may impose a penalty of not more than Rs 25 Crores or three times the amount of profit made out of insider trading; whichever is higher; or

2. SEBI may initiate criminal prosecution; or

3. SEBI may issue orders declaring transactions in securities based on unpublished price sensitive information; or

4. SEBI may issue orders prohibiting an insider or refraining an insider from dealing in the securities of the company

Conclusion -The new 2002 regulations in India have further fortified the 1992 regulations and have increased the list of persons that are deemed to be connected to Insiders. Listed companies and other entities are now required to frame internal policies and guidelines to preclude insider trading by directors, employees, partners, etc. In the past, it has been observed that insider trading legislation is ineffective and difficult to enforce and has little impact on securities markets. Low enforcement rates and few convictions against insiders have been cited as evidence of this ineffectiveness. Irrespective of whether or not the SEBI was bestowed with wide ranging powers, it has been a clear failure when it came to the task of administering the law.

The importance of policing insider trading has also assumed international significance as overseas regulators attempt to boost the confidence of domestic investors and attract the international investment community. So, SEBI now should take the role of a regulator only. Special Courts could be set up for faster and efficacious disposal of cases.

 

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

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

Facts and Procedure

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

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

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

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

Questions referred to the ECJ and judgment

The questions referred to the ECJ were :

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

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

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

Relevant provisions of (EC) Directive 75/442

Article 1 of the Directive provides :

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

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

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

Article 15 of the Directive states:

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

- the holder […], and/or

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

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

ECJ judgment

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

Ince & Co - International Law Firm

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

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

Facts and Procedure

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

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

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

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

Questions referred to the ECJ and judgment

The questions referred to the ECJ were :

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

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

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

Relevant provisions of (EC) Directive 75/442

Article 1 of the Directive provides :

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

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

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

Article 15 of the Directive states:

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

- the holder […], and/or

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

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

ECJ judgment

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

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

Ince & Co - International Law Firm

Every hotel, restaurant, bar and nightclub in California is warned repeatedly how dangerous it is to their reputation, income, liability and their Alcohol Beverage and Control License if they serve alcohol to a minor. The knowledge of this danger has recently been enforced in the minds of hotel and restaurant owners in the Coachella Valley cities of La Quinta, Palm Springs, Palm Desert, Rancho Mirage, Indio, Coachella and Cathedral City.

 

But the lesson learned in the Coachella Valley holds true also for restaurants and hotels in Anaheim, Long Beach, San Diego, Orange County, Santa Ana, Irvine, Huntington Beach, orange, Costa Mesa, Carlsbad, Santa Monica, Newport Beach, Buena Park, the Inland Empire area of Rancho Cucamonga, Riverside, and Temecula and up the coast to Ventura, Oxnard, Santa Barbara and San Luis Obispo as well.

 

In August two restaurants in the Coachella Valley, one in Rancho Mirage and another in La Quinta had their liquor licenses suspended for 30 days after serving alcohol to minors. Both restaurants chose to shut down and use the time for remodeling.

 

It’s bad enough if the Alcohol and Beverage Control Board catches a restaurant serving alcohol to a minor, but what is unusual in these two cases is how the restaurants were caught and sad what happened to the minors.

 

In the case of the Rancho Mirage restaurant, the minor died in a car accident. In the La Quinta incident, the minor jumped to his death from a pickup truck.

 

It gets even worse. In the Rancho Mirage restaurant case, the minor was riding in a car with a friend who had also been drinking but who was not a minor. Both died when their vehicle hit a curb and rolled over. Both had been drinking at the restaurant. The older of the two had a blood alcohol reading of 0.23. The minor had a blood alcohol reading of 0.12. The legal limit in California is 0.08.

 

In the La Quinta restaurant incident, the 19 year-old minor had dinner with his girlfriend, with the twenty-two year-old male driver of the vehicle, the driver’s wife and their two year-old child.

 

At some point, it was reported, the driver of the pickup truck struck his wife. The minor then threatened to jump from the vehicle if the driver continued to fight with his wife. The minor kept his promise while the truck was driving between 30 to 40 miles per hour.

 

The La Quinta restaurant was also hit with a two year probation, which if violated, could lead to the revocation of their liquor license.

 

This litany of events does not even consider what number of civil lawsuits may be filed as a result of these two incidents, the grief of the families of those who died, or the losses the two restaurants can expect to incur as a result of the inattention of their employees.

 

When a restaurant or hotel serves an adult, in California there is generally no responsibility if that adult is later involved in a drunk driving accident. There are no actions taken by the California Department of Alcoholic Beverage Control. Not so when the restaurant or hotel serves alcohol to an intoxicated minor. Then all bets are off.

 

If you have a food & wine, liquor, alcohol or hotel, restaurant, bar or nightclub legal issue in San Diego, Palm Springs, Orange County or anywhere in Southern California, we have the knowledge and resources to be your Newport Beach Hotel & Restaurant Lawyers, and Palm Desert Wine & Alcohol Attorneys. For this reason, be sure to hire a California law firm with real estate lawyers who can represent you from Palm Springs, San Luis Obispo, Laguna, Newport and Huntington Beach, Corona del Mar, Anaheim, Irvine, La Jolla, Santa Barbara, Temecula, Cambria, Paso Robles, Palm Desert, Yorba Linda, Carlsbad, San Diego, Costa Mesa, Westminster, and Murrieta, to Indian Wells and La Quinta.

 

If you have an food and wine, alcohol, liquor or hotel, restaurant, bar or nightclub legal issue, and need to know your rights, call the Law Offices of R. Sebastian Gibson, or visit our website at http://www.sebastiangibsonlaw.com  and learn how we can assist you. You can also call us to speak directly to Sebastian Gibson on the phone about your legal matter.