FROM THE U.S. GULF OF MEXICO OIL SPILL TO THE SUB SALT LAYER IN BRAZIL: SURVEYING THE LEGAL LANDSCAPE IN THE U.S

Transcription

1 FROM THE U.S. GULF OF MEXICO OIL SPILL TO THE SUB SALT LAYER IN BRAZIL: SURVEYING THE LEGAL LANDSCAPE IN THE U.S. POST-MACONDO AND HOW BRAZILIAN LEGISLATION & ENVIRONMENTAL DAMAGES LIABILITIES ADDRESS OIL & GAS OFFSHORE ACTIVITIES By: Christopher R. Nolan and Lucas Marques 1 Every now and then an event happens in our industry which forces us to take pause, question how it happened, and use the lessons learned to implement change to prevent certain actions from happening again. The April 20, 2010, Deepwater Horizon explosion and blowout is one of them. The Macondo oil spill will likely end up the worst in U.S. history, surpassing the 1989 Exxon Valdez oil spill. Major regulatory steps were taken after the Valdez spill to, in theory, prevent another oil spill from wreaking similar havoc on communities, the environment, fishermen, and businesses. Most notably, the The Oil Pollution Act of 1990 ( OPA ), was enacted. 2 In this article, we will address OPA and other statutes applicable with an oil spill, including Congress reaction to the perceived shortcomings in OPA after the spill. In addition, we consider the key companies involved in the Gulf spill who are waging a battle of words via SEC filings, press releases, internal investigation reports and filings in federal, state, and presumably arbitrations under applicable contracts. The legal arguments at issue will no doubt impact future oil rig operator-company agreements and/or joint operating agreements in the U.S. and around the world, especially in the context of contractual indemnity obligations. Looking to the oil and gas landscape beyond the Gulf of Mexico, the Macondo oil spill and environmental clean-up response has been studied by another oil producing country in the Americas Brazil. The largest country in South America is already a major player in the oil industry and its production is about to increase exponentially. State-owned energy superpower Petroleo Brasileiro S.A. ( Petrobras ) has projected that the current production level of 2.5 million barrels per day could actually double by 2020 when taking into account the pre-salt offshore fields off the coast of Sao Paulo. 3 The offshore discoveries have resulted in new shipbuilding, shipowning, shipyard, crewing and overall maritime sector opportunities. The boom reminds the authors of the oft-quoted Spiderman comics statement: with great power there must also come great responsibility. Said responsibility will necessarily be realized by strengthening Brazilian legislation in an effort to lessen the damage caused by an oil spill. The second portion of this article will consider current oil and gas regulations and what changes may be on the horizon. 1. Laser Focus on the United States A. The Legislative Landscape The key federal statute addressing both liability and recovery following the discharge of oil in the navigable waters of the U.S. is OPA. One of the lessons of the Valdez spill was to have a clearly defined party who is responsible for certain actions and payments after a spill. OPA addressed this issue by imposing strict liability (joint and several) against the Responsible Party, whether it be the vessel or onshore/offshore facility from which oil is leaking or gushing (or the significant threat of such) into U.S. waters. 4 A mobile offshore drilling unit, such as the Deepwater Horizon, is categorized in different ways under OPA depending on if it is in transit when the spill occurs or when drilling on the well site. 5 In the Gulf oil spill, the Responsible Party garnering the most attention is the primary lessee of the Mississippi Canyon Block 252 well, BP Exploration and Production, Inc. ( BP ). Continued on page 12 1 Christopher R. Nolan, Partner, Holland & Knight LLP, can be reached at chris.nolan@hklaw.com. Lucas Marques, senior associate, Law Offices Carl Kincaid, can be reached at lucas@kincaid.com.br. 2 Oil Pollution Act of 1990, Pub. L. No (1990); 33 U.S.C (2006) et seq. OPA is available online through Cornell University Law School at: (last visited Nov. 11, 2010). 3 Full Steam Ahead on a Knife-Edge, TradeWinds, Sept. 10, 2010, at p The term Responsible Party is defined in the first section of the statute, and includes vessels, onshore facilities, offshore facilities, licensees of deepwater ports, pipeline owners or operators, and those with prior affiliation with an abandoned vessel. 33 U.S.C. 2701(32) (2006). 5 Compare, 33 U.S.C. 2704(9)(2) (2006) with 33 U.S.C. 2704(6)(1) (2006). 3

2 FROM THE U.S. GULF... Continued from page 3 Under OPA, the Responsible Party has unlimited exposure for removal costs, subject to limited defenses. In connection with offshore drilling units like the Deepwater Horizon, OPA provides for a $75 million per incident cap for economic loss damages suffered by, for example, shrimpers, hoteliers,etc. affected by the spill. 6 The $75 million cap, however, may be lifted if the responsible party acted in a grossly negligent manner or with willfull misconduct or if a federal safety or operating regulation is violated. And although BP has voluntarily waived the $75 million OPA cap on its liability, said cap may be a critical issue for other responsible parties. OPA is normally considered in tandem with the Shipowner s Limitation of Liability Act of (the Limitation Act ). Under the Limitation Act, the owner of the drilling rig can limit its liability to the value of said rig post-incident plus freight then pending. Although the post-accident value of the Deepwater Horizon rig is little or nothing with it sinking after the April 20 explosion, the owner would be responsible for personal injury claims valued at the gross tonnage of the rig multiplied by $420. The pending freight, the lease or charter payments, was valued by the Deepwater Horizon owner, Transocean Ltd., at $26.7 million according to the limitation petition filed in Houston soon after the oil spill. Additional federal statutes provide for civil and criminal penalties, including the Clean Water Act, 8 the Migratory Bird Treaty Act, 9 the Endangered Species Act, 10 and the Rivers and Harbors Act of But the ire of the public and Congress are focused on perceived OPA and Limitation Act shortcomings. While the Gulf oil spill has resulted in recognizing certain inadequacies with the oil spill laws, the Congressional response has been disproportionate. The 24-hour-a-day BP well cam showing oil spewing into the Gulf certainly heightened Americans disgust and lawmakers reacted by holding a bevy of hearings in both the House of Representatives and Senate. This resulted in a number of bills by both political parties, mostly focusing on OPA. The $75 million limitation provision for a deepwater oil rig such as the Deepwater Horizon is the most likely legislative amendment to be eventually passed. The scope of amendment, however, has varied widely. Democrats have proposed bills calling for the cap to rise, retroactively, from $75 million to $10 billion, 12 while another proposal seeks a retroactive change to unlimited liability. 13 Republicans have blocked the bills, though one senator did propose a bill which would have eliminated the $75 million cap for the Gulf oil spill only. 14 In the end, the insurance and marine industry have provided compelling testimony that uncapped liability will result in an uninsurable market. This cannot be. As such, the increase of the $75 million cap to a sum certain is the most likely result. Congress has also taken the opportunity to consider cleaning up maritime rulings and statutes which it has not paid much attention to in the past. This includes removing the limitation on obtaining punitive damages in maritime cases, the outright repeal of the Limitation Act, amending the Death on the High Seas Act and Jones Act to permit non-pecuniary damages for loss of care, comfort, and consortium and most recently, the Oil Spill Victims Redress Act, which would reaffirm the ability of victims of oil spills to seek redress from companies besides those deemed Responsible Parties under OPA in state court using state laws. All of these bills and proposals failed to be voted on in both the House and Senate before the November 2010 mid-term elections. And nothing was passed during the lame-duck session port-election. As such, substantial legislative change will not occur until the 112 Sesssion of Congress conmmences in B. The Legal Landscape While the political fate of certain provisions of OPA, the Limitation Act and other statutes are unsettled at this time, hundreds of lawsuits against BP and other blamed companies have been filed. The legal battles between companies blamed for the oil spill rage on in court filings and press releases. BP s co-lessees for the Macondo well site are Anadarko Petroleum Corp. ( Anadarko ) and Mitsui Oil Exploration Co. ( Mitsui ), which hold 25% and 10% stakes, respectively. 15 The joint operating agreement co-lessees have U.S.C. 2704(a)(4) U.S.C (2006) et seq U.S.C (2006) et seq U.S.C. 703 (2006) et seq U.S.C (2006) et seq U.S.C. 401 (2006) et seq. 12 Big Oil Bailout Prevention Trust Fund Act of 2010, S. 3306, 111 th Cong. ( ); Big Oil Bailout Prevention Act of 2010, H.R. 5214, 111 th Cong. ( ). 13 Big Oil Bailout Prevention Unlimited Liability Act of 2010, S. 3472, 111 th Cong. ( ). 14 Acceptance of Offer on Liability and Expedited Claims at Mississippi Canyon 252 Act, S. 3461, 111 th Cong. ( ). 15 The joint operating agreement between the parties was made public by Anadarko in its 8-K S.E.C. filing dated June 21, 2010.

3 exchanged a number of letters between counsel and Congress concerning responsibility for the oil spill and just as important, how much money Anadarko and Mitsui should be paying for the oil spill removal costs, economic loss damages, and eventually, the $20 billion trust fund BP established after reaching an agreement with the Obama administration. 16 While Mitsui has taken a lower profile, Anadarko has been very critical of BP. In an issue statement dated June 18, 2010, contained in its 8-K submission to the S.E.C. on June 21, 2010, Anadarko s CEO states, [t]he mounting evidence clearly demonstrates that this tragedy was preventable and the direct result of BP s reckless decisions and actions. Frankly, we are shocked by the publicly available information that has been disclosed in recent investigations and during this week s testimony that, among other things, indicates BP operated unsafely and failed to monitor and react to several critical warning signs during the drilling of the Macondo well. BP s behavior and actions likely represent gross negligence or willful misconduct and thus affect the obligations of the parties under the operating agreement. Addressing legal responsibilities set forth in the operating agreement, he further stated, [u]nder the terms of the joint operating agreement ( JOA ) related to the Mississippi Canyon block 252 lease, BP, as operator, owed duties to its co-owners including Anadarko to perform the drilling of the well in a good and workmanlike manner and to comply with all applicable laws and regulations. The JOA also provides that BP is responsible to its co-owners for damages caused by its gross negligence or willful misconduct. 17 The final sentence by Anadarko squarely focuses on the indemnity obligations under the JOA. Transocean has also focused on BP s indemnity obligations in their contract. In its 10-Q quarterly report to the S.E.C., filed on August 4, 2010, Transocean provided a copy of the contract between the parties and summarized the contractual indemnity obligations as follows: [c]ontractual indemnity Under our drilling contract for Deepwater Horizon, the operator has agreed, among other things, to assume full responsibility for and defend, release and indemnify us from any loss, expense, claim, fine, penalty or liability for pollution or contamination. There was a caveat provided, however: Given the potential amounts involved in connection with the Macondo well incident, the operator may seek to avoid its indemnification obligations. In particular, the operator, in response to our request for indemnification, has generally reserved all of its rights and stated that it could not at this time conclude that it is obligated to indemnify us. We believe this reservation of rights is without justification and that the operator is required to honor its indemnification obligations contained in our contract and described above. 18 BP has not addressed its indemnity defenses in the same fashion. Its S.E.C. filings are more conservative and public statements vague as to the particularities of its legal defenses. In its much discussed 193-page internal investigation report, BP does not address legal standards or indemnity levels of fault. Its main focus is on BP s contractors such as Transocean, Halliburton Energy Services, Inc. ( Halliburton ) which performed cement jobs on the well, and Cameron International Corp. ( Cameron ), who provided the blowout equipment aboard the rig. In particular, Transocean and Halliburton rig worker decisions during the period before the blowout are highlighted as a key cause for the oil spill. 19 Anadarko s statements concerning gross negligence and willful misconduct, and Transocean s statements concerning full indemnification, are significant. They are a result of the indemnity obligations within their respective contracts. For example, in reviewing the December 9, 1998, contract between BP and Transocean made available by Transocean in its public filing, Transocean s public statements of full contractual indemnity can be assessed against the applicable clause itself to determine if it is a legitimate summary of the risk allocation between the parties. Section 24.2 of the contract, under the title Pollution, addresses BP s indemnity obligations to Transocean in the context of a pollution blow out and are limited to Transocean s negligent conduct only. 20 However, even if the contractual indemnity provided by BP covered levels of Transocean conduct including gross negligence, recklessness or willful misconduct, whether such a broad indemnity would be enforced in the arbitration between the two companies (the contract has a Houston arbitration clause and general maritime law choice of law clause) is an open question. Express contractual indemnity clauses are generally enforceable under the general maritime 16 The New York Times has compiled a number of the letters addressing the parties legal positions and invoices from BP to its co-lessees concerning how much money it believes they should be paying for removal costs. The letters are available at: (last visited Nov. 11, 2010). 17 Anadarko s 8-K filing is available on its website: (last visited Nov. 11, 2010). 18 Transocean s 10-Q filing is available at: (last visited Nov. 11, 2010). 19 BP s internal investigation team report is available on its website at: (last visited Nov. 11, 2010). 20 Bp-Transocean Contract pp , available at (last visited Nov. 11, 2010). 13

4 law. 21 However, circuit courts applying federal maritime law have uniformly held gross negligence, willful misconduct, and intentional (e.g., criminal) conduct to invalidate an exemption from liability in an indemnity clause. 22 Royal Ins. Co. v. American Rigging Co., is the seminal opinion addressing the competing public policy interests in connection with this issue. The original policy that led courts to enforce exculpatory clauses in indemnity provisions was freedom of contract. 23 However, this concern and others were outweighed by the court s overriding interest in being consistent with other circuit courts which distinguished between negligent and grossly negligent conduct in the context of indemnity. Moreover, excluding grossly negligent conduct from indemnity obligations was consistent with well-settled legal principles: We are persuaded, however, that a party to a maritime contract should not be permitted to shield itself contractually from liability for gross negligence. This position is endorsed by the First and Fifth circuits, see La Esperanza, 124 F.3d at 19; Todd Shipyards, 674 F.2d at 411, supported by sound public policy, see Rest. (2d) Contracts 195(1) & cmt. a (1979) ( A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy... The law of torts imposes standards of conduct for the protection of others against unreasonable risk of harm. One cannot exempt himself from such liability for harm that is caused either intentionally or recklessly. ), and consistent with well-settled principles of contract law, see 6A Corbin on Contracts 1472 (1962 ed. & Supp.1999) ( It is generally held that those who are not engaged in public service may properly bargain against liability for harm caused by their ordinary negligence; but such an exemption is always invalid if it applies to harm wilfully inflicted or caused by gross or wanton negligence. ); 8 Williston on Contracts 19:23 (4th ed. 1998) ( An attempted exemption from liability for... a future willful or grossly negligent act is generally held void... ); Prosser & Keeton, Torts 68, at 484 (5th ed.1984) ( such agreements generally are not construed to cover the more extreme forms of negligence, described as willful, wanton, reckless or gross ). A rule reflecting these commonly-understood contract principles preserves the simplicity and practicality of admiralty law. Kermarec, 358 U.S. at , 79 S.Ct Unfortunately, the public may not find out how the indemnity battle between BP and Transocean is resolved as the dispute will likely be heard in a private arbitration pursuant to venue clause in their contract. And the parties, one being one of the largest oil producing companies and the other the largest oil rig operating company, have an incentive to settle the dispute in order to maintain their otherwise extensive working relationship. Nevertheless, one lesson for all offshore companies, banks investing in said companies, and other financial entities is the risk allocation scheme in the contractual indemnity clauses are being re-examined. Steps can be taken to ensure greater clarity should an oil spill result in indemnity claims and cross claims. II. Laser Focus on Brazil The catastrophic oil spill in the Gulf continues to have an impact far beyond United States borders. In particular, it illustrated in Brazil a necessity for improving its internal oil and gas legislation, particularly in respect to environmental aspects, operational safety strategies of the offshore facilities and regulations of new technologies to prevent environmental accidents, as well as the establishment of further guarantees for emergencies and damages reparation. Although the Brazilian environmental authorities have already established regulations and licenses that are specific to the oil and gas offshore industry, several aspects of Brazil s current legal model are based on an old scenario which does not reflect the current developments of the country s oil industry. In respect to penalties, for instance, the legislation stipulates fines up to R$ 50,000,000 (US$30,000,000), which were deemed appropriate at the time the regulations were enacted. 25 However, these amounts are currently inadequate in the context of damages that may be caused by accidents of large proportions, taking the Gulf spill as an example, which could occur in view of the rapid developments in the exploration of huge sub-salt reserves in Brazil. Over the last few years, Brazil has been one of the most prolific areas for oil exploration and a strategic Hardy v. Gulf Oil Corp., 949 F.2d 826, 834 (5 th Cir. 1992). 22 Royal Ins. Co. v. American Rigging Co., 194 F.3d 1009, 1016 (9th Cir. 1999) (denying enforcement of indemnity for grossly negligent conduct and listing other circuit courts which have reached the same conclusion); Becker v. Tidewater Inc., 586 F.3d 358, 367 (5 th Cir. 2009) (recognizing unenforceability of indemnity for grossly negligent conduct); Houston Exploration Co. v. Halliburton Energy Servs., Inc., 269 F.3d 528, 531 (5th Cir.2001) (same); Todd Shipyards Corp. v. Turbine Serv., Inc. 674 F.2d 401, 411 (5th Cir.1982) (same) F.3d at Id. at Law no. 9,966/2000, Article 25, paragraph 2 (Braz.).

5 market for foreign companies. Findings in the sub-salt layer off the coast of the states of Rio de Janeiro and São Paulo fostered the potential for substantial additional oil and natural gas production in Brazil. In fact, discoveries of huge oil deposits in the sub-salt layer have placed the Brazilian market in a privileged global position and may turn Brazil into one of the world s largest oil producers. In this sense, taking advantage of the break of the Government s monopoly in the oil industry established by the Petroleum Law, 26 big oil players have joined with Petrobrás, the state-owned oil company, for the exploration of Brazil s deepwater oil market. Coincidentally, BP had just entered Brazil s deepwater oil market before the Deepwater Horizon incident and the public and industry concern was heightened in the Brazilian media post-gulf spill. Brazilian authorities arranged to discuss such issues at a meeting held in Rio de Janeiro, which concentrates 80% of the country s oil exploration. Five workgroups were created to gather information on accident prevention and strategies to contain and minimize the impacts of possible leaks. The Brazilian Institute of Environment and Natural Renewable Resources IBAMA and the Oil & Gas General Coordination s technicians traveled to the Gulf of Mexico and gathered information with the U.S. Environmental Protection Agency. In addition, the National Agency for Petroleum, Gas and Biofuels - ANP has sent questionnaires to the companies operating in Brazil with the purpose of dealing with a safety plan for oil operations off the Brazilian coast. The intention is to create mechanisms for mapping and preventing the possible risks in oil rigs, as well as an instrument for crisis management. In this sense, the Ministry of the Environment together with the Armed Forces Higher Command and the Brazilian Navy s Management of Ports and Coast are working extensively in a National Contingency Plan for Oil Spills following the U.S. model adopted for the operations and management of the Gulf crisis. Therefore, in view of the great oil discoveries in the sub-salt layer and the peculiarities of its exploration, a massive debate is being held over the legislation and rules that must be put in place to organize these new aspects of oil exploration in Brazil. The proposal for the Brazilian National Contingency Plan for Oil Spills, which also intends to regulate the use of new technologies for fighting oil pollution incidents, is expected to be concluded in In addition, the Gulf oil spill also spurred the Brazilian government to make immediate 26 Law no. 9,478/1997 (Braz.). 27 Law no. 6,938/1981 (Braz.). 28 Brazilian Federal Constitution art. 225, p. 3rd (Braz.) (emphasis added). changes in the sub-salt regulatory framework, especially to establish an allocation of funds forecast, intended to prevent incidents in the oil and gas exploration. Despite the steps being taken as noted above, in the environmental field polluter s liability is not a new concept in Brazilian law. The Brazilian legislative and judiciary powers already recognize an environmental protection posture with a tendency towards application of environmental principles such as precaution, prevention and sustainable development. The polluter pays principle is also applied, meaning that the polluter is strictly liable for repairing the damage, independently of willful misconduct or fault. This is the subject of the Brazilian National Policy on the Environment, 27 the purpose of which was to impose on the polluter the obligation to recover and indemnify damages caused to the environment or to affected third parties, stating that the polluter is liable independent of liability for damages caused. Besides the Law of the Brazilian National Policy on the Environment, several other regulations are applicable on the subject of sea pollution, including the international conventions that were ratified by the Brazilian government, such as for example CLC 69, the London Convention of 1972, MARPOL 73/78, and OPRC 90. Although other Conventions were not ratified in Brazil, like the OILPOL 54; SOLAS 1960; INTERVENTION 1969; IOPC FUND 1971; 1974 PARIS CONVENTION; 2000 HNS PROTOCOL, these international rules have several environmental law principles in common, which are protected by the Brazilian Federal Constitution, as well as by infraconstitutional laws and subsidiary environmental rules. Having been enacted in 1988, the latest Constitution of the Federal Republic of Brazil is the first Brazilian Constitution to preserve and provide in its own text for environmental protection, stipulating in article 225 that All have the right to an ecologically balanced environment, which is for common use of the people and essential to a healthy quality of life, and it is the duty of the Public Authorities and the community to protect it and preserve it for the present and future generations. The Federal Constitution also stipulates that the conduct and activities that are considered damaging to the environment shall subject the violators, whether individuals or legal entities, to criminal and administrative penalties, independent of obligation to repair damages caused. 28 The 1988 Federal Constitution represents a great advance in environmental concern in Brazil. 15

6 The awareness of problems concerning the environment is rising in Brazil and several projects of law were under analysis by the Brazilian Congress. However, much like the Exxon Valdez spill in the U.S. provided the impetus for the passage of OPA, countries do not act until an oil spill wreaks havoc and the public mandates new measures. In Brazil, after more than a decade of debate, Law no. 9,966/2000 came into being having its text approved by Congress soon after an oil spill from a Petrobrás pipeline on January 18, 2000 in Guanabara Bay, in the city of Rio de Janeiro. Known as the Oil Law, it is seen as a remedy to regulate the prevention, control and inspection of pollution caused by the discharging of oil and other dangerous substances in waters under Brazilian jurisdiction. It establishes liability to the following parties: the shipowner; their legal representative; the ship operator; the company authorized to exercise activities pertaining to the oil industry; the vessel s Master or crewman; the representatives of the port, terminal, platform, shipyard or the marina; and also the cargo owner. Such regulation also establishes the applicable fines, varying from a minimum of R$ 7,000 (US$4,000) up to a maximum of R$ 50,000,000 (approximately US$30,000, ). 30 In addition to the Oil Law, several other internal legislations deal with environmental protection in Brazil, ascertaining liabilities, establishing fines and penalties and regulating the polluter s obligation of repairing and indemnifying the damages caused to the environment as well as to third parties. Liability for environmental pollution in Brazil is apparent in three different spheres; common civil liability, the administrative liability and criminal liability: (1) Administrative liability: Arises when there is a violation of environmental administrative rules from conduct that is considered damaging to the environment. As provided in article 70 of the Law of Environmental Crimes an environmental administrative infraction is deemed to be any action or omission that violates the legal rules of usage, usufruct, promotion, protection and recovery of the environment. 31 Administrative liability is strict, that is, it arises independently of the fault of the agent and it also remains even if no damage is caused to the environment. The simple act of violating the administrative rules generates liability to the violator, independently of the occurrence of environmental damage. In terms of administrative violations, federal, state and municipal governments have concurrent responsibilities for protecting the environment and can levy penalties and fines under what is called the power of police. Such penalties can vary from simple warnings to daily fines in total up to R$ 50 million (US$30 million), in addition to the seizure of the vessel, suspension of the activity, restriction of rights, and loss or restriction of tax benefits, among others. Administrative liability also admits the possibility of accumulation of penalties in the event of simultaneous commission of two or more violations; in the event of reoccurrence, penalties may double or even triple the original amount. 32 Alter-ego liability is also possible under the law. The application of administrative penalties does not exempt the violator from eventual criminal sanctions, nor does this exempt the violator from legal liability for damages caused to the environment and to public or private assets. In this sense, criminal liability may also apply in the event of environmental damages resulting from the practice of a fact foreseen as crime or contravention, as disciplined in the Law of Environmental Crimes. 33 (2) Criminal law liability: Based on the fault of the causing agent and criminal penalties can lead to fines or restriction of rights to the offender, including the suspension of activities, rendering of community services, funding of environmental projects, contributions to environmental and cultural public entities, incarceration, and others. Criminal liability can also be attributed to corporate entities in Brazil. In particular, the Superior Court of Justice has already decided that the greatest responsible parties for damage to the environment are companies, collective entities through their industrial and commercial activities ( ) the criminal responsibility of the corporate entity for environmental violations arises, therefore, not only as punishment for environmentally damaging activities, but as a means to prevent the practice of such crimes, an essential function of the environmental legislation that calls out for conservation. 34 (3) Civil liability: Despite of the Brazilian system being based on fault, in respect to environmental issues strict liability is applied and contrary to administrative fines environmental legal liability in the civil sphere is not limited by law for indemnification. Limitation of liability as set forth in the CLC-69 is not Varying in accordance with the indexation rate. 30 Law no. 9,966/2000 (Braz.). 31 Law no. 9,605/1998 (Braz.) (emphasis added). 32 Id. 33 Law no. 9,605/1998 (Braz.). 34 Special Appeal no /2005 (Braz.).

7 applicable in Brazil. Reparations are proportional to the severity of the damage pursuant to the principle of full responsibility. In addition, the Theory of Total Risk may be applied, not allowing exemptions from liability in view of the principle that those who make a profit with the activity must assume its onuses. A civil public lawsuit may be brought by the federal government, state, municipality or by quasi-public companies and environmental defense associations, against those responsible for the damages and even the insurer and the salvage company can be held civilly liable, as well as any other parties eventually involved in the harmful event. Besides the action of the public entities regarding administrative, criminal and civil liabilities for environmental damages, marine casualties may also result in several other judicial claims brought by private parties. Such claims may lead to arrest proceedings, heavy cargo and insurance claims, fishermen claims, indemnities to the victim s family in case of casualties, salvage claims,; general average claim, and other third party lawsuits. A marine casualty such as the one that happened in the Gulf can lead, in Brazil, to several distinct types of liability, spreading into diverse spheres, also involving a great number of interested parties. Brazilian legislation establishes a multitude of inspecting agencies (Environmental Agency, Petroleum Agency, Navy Authority, and state and municipal environmental authorities), all of which have jurisdiction to apply severe and concomitant penalties as a result of pollution, against all parties directly and indirectly involved, under a joint and strict liability regime. In addition, various numbers of private judicial claims can arise from a maritime casualty, with no limitation provisions under the Brazilian Civil Code, which establishes that the indemnification is measured by the extent of the damage. 35 Contrary to the English system and the Hague Rules, the Brazilian Civil Code provides that shipmasters actions cannot be considered autonomous from the shipowners that elect them, insofar as employers are liable for their representatives actions. 36 This means that the owner of the vessel is responsible for the actions of the Master and crewmembers even in the event of losses or damages resulting from their nautical management of the vessel. III. Conclusion The Gulf oil spill served as a warning in Brazil in view of the growing offshore exploration in the country s territorial waters and also due to the involvement of several private foreign companies in such activity. It affected the policy of exploratory concessions in the developed countries, increasing the costs and regulations. Brazilian authorities are focusing the attention to improving the internal oil and gas legislation in order to organize the sector and protect not only the country s economy, but also the environment, including the enactment of new regulations for the oil and gas industry, which include the increase of applicable of fines in the event of pollution. Among such regulations is the National Contingency Plan which has been under discussion for almost a decade and may be accelerated in view of the Gulf spill. The existing Individual Contingency Plans, for each platform for instance, provided by the current legislation are not sufficient and there is an urgent need for a plan of national level in the event of oil spills in Brazil. Such Plan must consolidate the tasks and competency of each company, entity and authority involved in the event of an oil spill, especially for incidents that involve the limits and jurisdiction of more than one state or authority. Unfortunately, accidents do happen, even when all caution is observed. The risks are even higher with this new model of exploration in the Brazilian sub-salt layer, where there are even more technical aggravating conditions than in the Gulf of Mexico. Brazilian sub-salt oil and gas exploration is located in deeper waters, farther from the shore than where Deepwater Horizon was drilling. With high temperatures and great concentration of carbon dioxide, damage to drilling equipment is possible. In addition, the risk of fissures in the sub-salt layer itself, due to its specific characteristics, also intensifies the environmental risks of such operations. When major maritime casualties or marine environmental incidents occur it is important to have a rapid response team of specialists, marine experts, attorneys and other professionals ready not only for a first response at the site, but also before the local authorities, national government hearings, as well as judicial litigation. The Gulf oil spill has caused a re-examination of all aspects of oil and gas exploration, from contractual/indemnity obligations, to legislative safeguards, to spill response and prevention. With this increased focus, good can come in Brazil from the hard lessons being learned in the U.S. 35 Civil Code art. 944 (Braz.). 36 Civil Code art. 932, III, (Braz.). 17