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Rules have come into effect for the compensation of damage from spills of oil and oil products

Pepeliaev Group advises that, on 1 January 2021, Russian Government's Resolution No. 2295 dated 28 December 2020 (the “Resolution”) came into effect[1] to establish specific rules for compensating damage from the spills of raw hydrocarbons and hydrocarbon products.

The Resolution was part of the legislative reform to prevent and respond to spills of oil and of oil products. For more detail please follow our alerts here and here. The reform was implemented following several catastrophic oil spills which took place in 2020 and caused a massive public outcry.

The Resolution builds on articles 77, 78 and 79 of Federal Law No. 7-FZ “On the protection of the environment” dated 10 January 2002, while specifying and supplementing the rules according to which damage to the environment should be compensated in the event of spills of oil and of oil products.

1. Parties who caused the damage

The Resolution applies to ‘operating organisations’, i.e. companies that carry out their activities in the following areas:
  • the geological surveying, exploration and production of raw hydrocarbons;
  • the transportation, storage and sale of raw hydrocarbons and hydrocarbon products.
comment.jpgIt should be noted that, as clarified by the Russian Supreme Court, the obligation to compensate damage to the environment can be imposed on an operating organisation if the damage, its extent and a cause-and-effect link have been established between the actions (omission) of the operating organisation and the damage done. The general rule has it that an operating organisation is obliged to compensate the damage done where such organisation is at fault[2]

2. Compensation of the expenses of public-law entities and organisations on oil spill response

The Resolution provides that, in addition to damage caused to the environment, an operating company will be also obliged to compensate the expenses on engaging additional capabilities of the unified national system for preventing and responding to emergency situations (RSES) to carry out measures to respond to spills of oil and oil products[3]

The RSES unites management bodies and the capabilities of federal and regional executive authorities and local authorities which are competent to handle issues connected with the protection of the population and territories against emergencies[4]

Additional capabilities of the Russian Ministry of Emergencies are most often employed to respond to emergencies in the event of spills of oil. According to the Rules, an operating organisation will be obliged to compensate expenses incurred by the state budgets of various levels and by organisations connected with such deployment. It is worth mentioning that the Resolution does not specify a list of such expenses.

comment.jpgPreviously, the legislature did not provide for such an obligation of the party that caused the damage. Yet, there are court cases when public-law entities have succeeded in recovering from the person at fault expenses on responding to the emergency and eliminating its consequences, according to the rules of Chapter 59 of the Russian Civil Code[5]. Further, the amount of such collected expenses was taken into account to reduce the amount of monetary compensation of damage calculated according to the rates and methods when it is recovered from the party who caused the damage[6]

3. Determining the size of damage to the environment through a spill of oil and oil products

The following should be taken into account when the extent of damage to the environment is determined[7]:
  • expenses on restoring the damaged environment taking into account the losses incurred, including lost profit, as well as the plans for remediation and other restoration work;
  • the rates and methods that have been approved in the established manner for assessing the extent of damage to the environment, including damage to: 1) forests and natural features in them, 2) soils, 3) water bodies, 4) water bioresources, 5) hunting resources, 6) plants listed in the Red Book of Russia for endangered species.
comment.jpgOn the whole, the content of clause 4 of the Rules reiterates para 2 of article 78 of Law No. 7-FZ[8], except for one thing, the conjunction ‘and’ between the expenses on restoring the damaged environment and the rates and methods for assessing the size of such damage, instead of ‘if there is none’ in the provision of the Law. However, this subtle difference is significant. 

The above provision of Law No. 7-FZ stipulates that the extent of damage should be determined using the rates and methods only if there are no actual expenses, i.e. when an enterprise did not take any measures to eliminate the damage done. Consequently, the law establishes: 1) alternative methods for having the damage compensated (expenses on restoring the environment or monetary compensation); 2) the priority of in-kind compensation of harm over monetary compensation. 

On the one hand, clause 4 of the Rules contradicts the law and the clarifications of the Russian Supreme Court[9], while, on the other hand, it is in line with the position of the Federal Service for Supervision of Natural Resources (abbreviated in Russian as ‘Rosprirodnadzor’) regarding the need to simultaneously restore the damaged environment and pay monetary compensation of the damage assessed using the rates and methods[10]

The list of facilities protected by environmental legislation in clause 4 of the Rules with respect to which rates and methods have been approved for assessing the extent of damage probably points to the need to assess the extent of damage with respect to each facility protected by environmental legislation that has been damaged as a result of a spill of oil and oil products[11].
 

4. The deadline for paying compensation for damage to the environment and the RSES’s expenses and the right to relief in court

An operating organisation is obliged to pay compensation for damage and the expenses on engaging the RSES’s capabilities within a month after it receives a relevant demand from state supervisory authorities[12].
It is entitled to challenge in court: 1) the obligation to compensate the damage, and 2) the extent of the damage[13].

comment.jpgAccording to the Rules, the expenses on engaging the RSES’s capabilities should be paid separately from, i.e. in addition to, the payment of the amount of damage. 

Meanwhile, this provision contradicts the law[14] and the methods for assessing damage[15]. It is also at odds with the position of the Russian Supreme Court, stating that the compensation of damage at the rates and methods established in a due manner constitutes an enhanced financial liability that is imposed taking into consideration not only the financial but also the environmental damage caused to nature[16]. In other words, the payment of monetary compensation for damage assessed using the rates and methods ensures complete compensation of damage, including all expenses connected with its restoration. 

Moreover, it is proposed that enterprises defend their rights in court after they pay the above amounts of damage and the RSES’s expenses indicated in a demand from competent authorities. It should be noted, however, that the Rules do not provide for any financial liability for missing the deadline for paying the amounts of damage and expenses. 

What to think about and what to do

We recommend that companies processing raw hydrocarbons and products made from them read the Resolution closely and take on board the requirements set forth in it when they plan and carry out their business operations. 
 

Help from your adviser

Pepeliaev Group's experts are ready to provide comprehensive legal support to companies regarding any matters connected with the compensation of damage to the environment.



[1] The Russian Government’s Resolution No. 2295 dated 28 December 2020 “On the procedure for companies engaged in the geological surveying, exploration and production of raw hydrocarbons, as well as the processing (production), transportation, storage and sale of raw hydrocarbons and hydrocarbon products to compensate damage to the environment, health, life or property of individuals or the property of legal entities, from spills of oil and oil products, and to compensate expenses on engaging extra capabilities of the unified national system for preventing and responding to emergency situations to carry out measures to respond to spills of oil and oil products”.
[2] Clauses 7 and 8 of Resolution No. 49 of the Plenum of the Russian Supreme Court dated 30 November 2017 “On certain aspects of applying legislation on the compensation of damage to the environment”
[3] Clause 3 of the Rules for companies engaged in the geological surveying, exploration and production of raw hydrocarbons, as well as the processing (production), transportation, storage and sale of raw hydrocarbons and hydrocarbon products to compensate damage to the environment, the health, life or property of individuals, or the property of legal entities from spills of oil and of oil products, and to compensate expenses on engaging additional capabilities of the unified national system for preventing and responding to emergency situations to carry out measures to respond to the spills of oil and of oil products, as approved by the Resolution (the “Rules”).
[4] Article 4 of Federal Law No. 68-FZ dated 21 December 1994 “On the protection of the population and territories against natural and man-made emergencies”.
[5] See, for example, Resolution No. F04-6418/2017 of the State Commercial Court for the West Siberian Circuit dated 22 February 2018 in case No. А27-5489/2017.
[6] See, for example, the Resolution of the State Commercial Court for the Far Eastern Circuit dated 28 January 2019 in case No. А51-10212/2016.
[7] Clause 4 of the Rules.
[8] Federal Law No. 7-FZ “On the protection of the environment” dated 10 January 2002.
[9] According to clause 17 of Resolution No. 49 of the Russian Supreme Court dated 30 November 2017, compensation of damage in the form of monetary compensation is applied when it is impossible to restore the environment completely and only to that extent.
[10] See, for example, Ruling No. 457-PEK15 of the Russian Supreme Court dated 24 December 2015 in case No. А54-503/2014.
[11] Thus, for instance, under case No. A75-474/2019, monetary compensation was recovered from an enterprise for the damage caused to animals by a spill of oil on the forest site, in addition to the previously recovered compensation to the forest as an ecosystem under case No. A75-21624/2017.
[12] Clause 5 of the Rules.
[13] Clause 6 of the Rules.
[14] Article 78(1)(2) of Law No. 7-FZ provides for two methods for determining damage to the environment: 1) based on the actual expenses to eliminate the damage; 2) based on rates and methods. No separate compensation of expenses of state authorities and public-law entities is envisaged since the first and the second methods imply that the damage is compensated in full, including all expenses involving the elimination of the damage as required by article 77(1) of Law No. 7-FZ.
[15] For example, according to clause 6 of the Methodology for assessing the extent of the damage caused to water bodies through the violation of water legislation as approved by Order No. 87 of the Russian Ministry of the Environment and Natural Resources dated 13 April 2009, the extent of the damage should be assessed based on the amount of expenses necessary to establish the fact of damage and eliminate its reasons and consequences.
[16] Resolution No. AKPI19-1029 of the Russian Supreme Court dated 20 March 2020 dismissing an application to have invalid clauses 2 and 10 of the Methodology for assessing the extent of damage to soils as a protected environment as approved by Order No. 238 of the Russian Ministry for the Protection of the Environment and Natural Resources dated 8 July 2010 and Annex 1 to it (Rates) for the assessment of damage caused to soils as a protected environment in the event that top soil is contaminated, damaged or destroyed).

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