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BP (LSE:BP.) will have to shoulder compensatory damages claimed by third parties against its’ contractor, Transocean, in relation to the 2010 oil spill incident on the Gulf of Mexico.
Judge Carl Barbier of the US District Court in New Orleans ruled yesterday in a 30-page document, that BP is to indemnify Transocean for their part of the Drilling Contract signed by both parties for the building of a mobile offshore drilling unit (“MODU”), known as the Deepwater Horizon.
The ruling came as a partial summary judgement appealed by Transocean, a Swiss-based offshore oil drilling company, and UK-based BP to resolve whether BP must defend and compensate Transocean from pollution claims asserted by third parties.
The motion is part of the series of legal battles arising from the 2010 explosion and fire on the Deepwater Horizon rig set up by Transocean for BP’s Macondo well that claimed the lives of 11 individuals and caused the biggest oil spill in US history.
The incident sparked hundreds of lawsuits against BP and Transocean from both private and government agencies, in violation of the Oil Pollution Act (“OPA”) and Clean Water Act (“CWA”) of the US Federal State that resulted to billions of dollars of clean-up costs. BP has already set up some US$20 billion fund for the catastrophe, however, it filed a case to make Transocean also liable for the damages.
Rulings
The Court upheld Transocean’s arguments that the contractor is covered under the drilling contract it has with BP in as far as the cause of the incident is below the surface.
BP contested these claims as void, citing that gross negligence on the part of Transocean nullified the contract. The Court denied the argument.
According to Judge Barnier, no precedent can be found pointing the prohibition of a party from being indemnified because of gross negligence as against public policy, if the contract stipulates that the same is covered.
Not a Total Victory
Nonetheless, the ruling did not in any way free Transocean from other damages.
The Court said that Transocean may be held liable for punitive damages as the drilling contract does not transfer the liability to BP, as that would defeat the purposes of the OPA and CWA.
“To require a party, without recompense, to shoulder the burden of egregious conduct by another and hence permit that other to avoid punitive damage liability would make a mockery of the very concept”, the ruling said.
“In situations where the defendant’s conduct is so extreme as to merit an award of punitive damages, the cost of such must be placed upon the party responsible, and not transferred to a party innocent of any wrongdoing.”
Deferred Decisions
Several decisions were withheld by the court pending hearing the arguments for it.
The decision did not declare that Transocean was grossly negligent, nor did it held liable for punitive damages or civil damages.
The Court also did not decide whether there was a breach of contract or not and denied Transocean’s argument that it be indemnified for attorney’s fees in hearing the issues on indemnification.
Conflicting Sides
Both BP and Transocean expressed opinions in favour of their companies.
BP saw the ruling as a delegation of responsibility and accountability for the actions that led to the accident.
“Today’s ruling makes clear that contractors will be held accountable for their actions under the law… As we have said from the beginning, Transocean cannot avoid its responsibility for this accident,”
Through an email statement, Transocean said it is “pleased to see its position affirmed, consistent with the law and the long-established model for allocating risks in the offshore oil and gas industry.”
Company Spotlight
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References
↑ Company History
↑ United States District Court Eastern District of Louisiana As to Transocean and BP’s Cross-Motions for Partial Summary Judgment Regarding Indemnity
↑ Transocean Company Profile
↑ BP Company Profile
↑ Gulf of Mexico oil spill: BP loses bid to make others pay compensation
↑ BP must cover some Transocean liabilities for oil spill
↑ BP Business Portfolio
