Justice Kissoon orders Exxon to provide unlimited insurance coverage within 30 days to Guyana

May 04, 2023 Court Stories, ExxonMobil, Features / Columnists, News, Oil & Gas

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…failure to comply will result in suspension of permit

Kaieteur News – High Court, Justice Sandil Kissoon on Wednesday ordered the Environmental Protection Agency, (EPA) to issue an Enforcement Notice to Esso Exploration and Production Guyana Limited (EEPGL) and its parent company, Exxon Mobil to ensure it provides unlimited insurance coverage to safeguard Guyana against the devastating effects of an oil spill within the next thirty days.

A written copy of ruling seen by this newspaper stipulates that failure to comply with the court order will result in the suspension of the environmental permit.  The ruling comes months after President of the Transparency Institute of Guyana Inc (TIGI), Frederick Collins and another citizen, Godfrey Whyte, took the EPA to court to enforce a critical clause in the Liza Phase One renewed environmental permit issued to EEPGL.

The case was filed in the High Court on September 13 by Attorneys Seenath Jairam, SC, Melinda Janki, and Abiola Wong-Inniss. In the case, Mr. Collins, a former insurance professional said, “an oil spill would be devastating for our country and Region as many Guyanese and Caribbean peoples depend on the ocean for their livelihoods. That is why we have decided that the time has come to take matters to the court for relief.”  The litigants said that their resort to the court is to make sure that the company takes full financial responsibility in case of harm, loss and damage to the environment.

Derelict submission

In a strongly-worded ruling, Justice Kissoon noted that the EPA had shelved its statutory responsibilities in exchange of a derelict and submissive deposition, leaving “Guyana and its people in grave potential danger of calamitous disaster.”

According to the judge, the circumstances of the case exposed the existence of an egregious state of affairs that engulfed the EPA in a quagmire of its own making. Justice Kissoon emphasised that while the EPA was given the exclusive statutory responsibilities entrusted to it by Parliament under the Environmental Protection Act 1996 and the Environmental Protection Regulations 2000 to ensure due compliance by EEPGL with Condition 14 of the renewed environmental permit issued on the 31/05/22, it has relegated itself “to a state of laxity of enforcement and condonation compounded by a lack of vigilance,” leaving the nation at the mercy of a potential oil spill disaster.

As a result, the judge held that in the course of these proceedings, the Court found EEPGL engaged in a course of action “made permissible only by the omissions of a derelict, pliant and submissive Environmental Protection Agency.”Additionally Justice Kissoon noted that the EPA made attempts to cover for the oil subsidiary in that before and subsequent to the filing of the proceedings, it refused to disclose any information as to the status of compliance by ESSO with its financial assurance obligations for pollution damage set out at Condition 14 of the renewed permit.

“The Agency sought refuge in silence, avoidance, concealment and secrecy notwithstanding the grave potential danger and consequences to the State and citizens if an event occurred at the Liza Phase 1 Petroleum Production facilities in the Stabroek Offshore Guyana in absence of such financial assurances mandated by the Environmental Permit at Condition 14,” the judge outlined in the ruling.

He noted too that the position of the Agency and its Executive Director Kemraj  Parsram is wholly erroneous and misconceived. “As a matter of law, even where there is in existence an express prohibition against disclosure contained in the subject legislation of the public authority, such disclosure is construed as subject to the public interest, safety or protection of the environment,” he said.

The judge continued “…the approach adopted by the EPA, in the course of these proceedings, was inconsistent with its mandate and statutory functions, which is one of transparency and accountability to engender trust and confidence of the citizens and members of the public on whose behalf and in whose interest it carries out its functions as a Public Authority in the public interest.”

DISHONEST ATTEMPT

It was also determined that the EEPGL engaged in a disingenuous attempt calculated to deceive, when it sought to dilute its liabilities expressed in clear terms at Condition 14 of the renewed environmental permit while at the same time speeding ahead with production at the Liza Phase 1 Petroleum Production Project in the Stabroek Block Offshore Guyana.

In his estimation, the judge found that ESSO was never in doubt as to what its liabilities are as captured under Condition 14 of the renewed permit for the Liza Phase 1 Petroleum Production facility as the stipulations were neither, unusual, unique nor unauthorised in the industry.

He said “It was simply as a matter of law, fact, and consequence the norm that prevails which bound ESSO as singularly and exclusively responsible for all liabilities without restriction ….from its operations at the Liza Phase 1 Petroleum Production facilities, in the Stabroek Block offshore Guyana”

According to the judge, these included all activities connected to the operations as stipulated in condition 14 of the environmental permit extending to all activities incidental to the drilling activities.

Equally,  he said is the associated financial assurance obligations imposed on ESSO by Condition 14:10 of the  renewed permit in the form of environmental liability insurance together with an unlimited parent company guarantee agreement are but the legitimate consequence flowing from its uncapped and unlimited liabilities in an event of pollution as encapsulated in the permit, to provide such financial assurance, in the form of insurance and an unlimited parent company guarantees to cover its responsibilities.

As a consequence, the court determined that the insurance obtained by the EEPGL from its Affiliate Company, AON UK Ltd, both for the Liza Phase 1 and Phase 2 projects does not satisfy the stipulation and obligation set out at Condition 14:5 of the environmental permit or even what is considered environmental liability insurance in accordance with international industry standards.

“The Court divested its mind of the fact that the Permit Holder was the subsidiary of the oil major with a wealth of experience, talent and expertise in the area of this activity whilst the Liza Phase 1 Development Project appears to have been among the second such permit issued by the EPA.”

Further, in determining the stipulation at Condition 14 of the permit, Justice Kissoon noted the Court examined the document as a whole.

He said the Court reviewed the language contained in the permit, the terms, the context, the meaning and the usage thereof, attributing the literal meaning to the terms used considering the scope and magnitude of the activity permitted by the environmental authorisation as set out on the face of the permit.

“The Court found that the duties, the liabilities and the obligations of Esso as stipulated at Condition 14 of the permit were set out in clear and unambiguous terms, in simple language that boded no uncertainty or lent itself to ambiguity. The Court  found too the unlimited liability which is exclusively that of the Permit Holder, Esso, is by no means unusual in any sense, since Esso, together with its co-venturers, are engaged in Petroleum Production Activities in the Stabroek Block, for profit,” he added.

The judge noted that at Condition 14:01 of the permit, the permit holder assumed unlimited liability for all costs of clean up, restoration and compensation for any damage from any discharge of any contaminant.

He said Condition 14 holds the Permit Holder accountable for all costs, damages and liabilities caused by any event occurring in the course of its operations. Condition 14.03 provides: “The forms of financial assurance shall be guided by an estimate of the sum of the reasonably credible costs, expenses and liabilities that may arise from any breaches of this Permit. Liabilities are considered to include costs associated with responding to an incident , clean up and remediation and monitoring…”

 EXXON LIABLE

In concluding the case, the Court noted that Parent Company Guarantee as mandated by Condition 14 should be in place. It was therefore determined that “If the unthinkable occurs, and there is an event in the Stabroek Block resulting in the release of hydrocarbons then Esso, and to the extent that it is unable to do so as it is largely an assetless subsidiary without financial resources, then EXXON, the Parent Company comes into play.”

The court noted that EXXON continues to derive a benefit from the operations of its subsidiary and will cover the liabilities and obligations of Esso as stipulated at Condition 14:01.  As such, Justice Kissoon reasoned that “If, however, that event occurs and there is no uncapped Parent Company Guarantee in place to indemnify the State, then the State is liable for all that occurs. It is simply not open to the permit holder to say it is engaged in a frolic of its own, aided and abetted by the EPA, to unilaterally, arbitrarily and unlawfully cap its unlimited liability and financial assurance.

Justice Kissoon emphasised therefore that a Parent Company or Affiliate Company indemnity or guarantee to the extent of $2 billion does not fulfill the obligations of the permit holder at Condition 14:10 and, in such circumstances, Esso will remain in breach. “There is no hurdle to the provision of the unlimited parent company guarantee and the unlimited affiliate company guarantee agreements stipulated at Condition 14:10 of the Permit,”

ORDER

As a result of his determination, Justice Kissoon granted the following reliefs:

(1) A declaration that the EPA is in breach of its statutory duty by its failure and/or omissions to enforce compliance by EEPGL of its Financial Assurance obligations stipulated at Condition 14:10 of the environmental permit to provide an unlimited Parent Company Guarantee Agreement and/or Affiliate Company Guarantee Agreement to indemnify and keep indemnified the Agency and the Government of Guyana against all environmental obligations within the Stabroek Block, Offshore Guyana.

(2) A declaration that EEPGL has failed to comply with its Financial Assurance obligation stipulated at Condition 14:10 of the environmental permit to provide an unlimited Parent Company Guarantee and Indemnity Agreement and/or unlimited liability Affiliate Company Guarantee Agreement, to indemnify and keep indemnified the Agency and the Government of Guyana against the environmental obligations from their activities in the Stabroek Block, Offshore Guyana.

(3) A declaration that Condition 14 of the environmental permit imposes on EEPGL, unlimited and uncapped liability for all costs associated with clean up, restoration and compensation for all damages caused by any discharge of any contaminant arising from its exploration, development and petroleum production activities within the Stabroek Block, Offshore Guyana.

(4) A declaration that the EPA is in breach of its statutory duty by its failure and/or omissions to enforce compliance by EEPGL Limited of its Financial Assurance obligations stipulated at Condition 14:05 of the environmental permit  to provide environmental liability insurance of a type and nature stipulated in Condition 14 and to have an independent insurance consultant retained by the Agency to review and examine the insurance package to ensure its conformity with Condition 14 of the environmental permit.

(5) A declaration that Esso Exploration and Production Guyana Limited has failed to comply with its Financial Assurance obligation stipulated at Condition 14:05 of the environmental permit to provide environmental liability insurance of such type and in such amount as is customary in the international petroleum industry from an insurance company of standing and repute that equates to Grade A Plus as envisaged by Condition 14:05. 56

(6) An Order of Mandamus directed to the EPA to issue an Enforcement Notice pursuant to Section 26(1) and (2) of the Environmental Protection Act, on or before 9/05/23, directed to EEPGL to perform its obligations under Condition 14:10 and 14:05 of the Environmental Permit to provide, within 30 days thereafter, on or before 10/06/23, the unlimited liability Parent Company Guarantee Agreement and/or unlimited liability Affiliate Company Guarantee to indemnify and keep indemnified the Government of Guyana and the Agency against all such environmental obligations within the Stabroek block, together with Environmental liability insurance as is customary in international petroleum industry in accordance with the Conditions at 14:05 (i), (ii), (iii), (iv), (v) and (vi) from an insurance company standing and repute that equates to Grade A Plus as envisaged by Condition 14:05  failing which the stands suspended.

Additionally, costs were awarded to the applicants in the sum of $1.5 million.

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• Attorney-at-Law, EPA Director, High Court, Justice Sandil Kissoon, Kemraj Parsram, Melinda Janki

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