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Smile please – Say Fees!

 

Oil companies are huge, and the industry as a whole is even bigger, they hunt in packs and they are murderously dangerous beasts, you are a very brave or foolish man who challenges them.

As I mentioned previously in “Tony Hayward all washed up?”  if anyone imagined that President Obama’s loud and public intervention in the tragedy that is the Gulf oil spill is going to help,  they haven’t met too many corporate lawyers in their lives.  The thought that matters are going to be swiftly and firmly dealt with was never a reality.  It’s only now becoming clear just how muddy the legal fights are going to be.

The first question in any legal case is “Where is it going to be held?”  Jurisdiction is important, and there may well be fights here before we even begin.  To the ordinary man this would seem a daft question.  Standing on the shores of the Gulf he can see the oil at his feet.  Here is where the mess is, so any trial should be here too, he thinks. Well, no actually, and far from it.

A trial, and all who take part in it, has to be obviously clear of prejudging the issues and not to have any financial interest in the outcome.  Fair enough, but how many Judges in those Gulf states have shares in any one of the companies involved.  Blue chip companies the lot of them, they will be among any accountant’s first choice for a solid safe share portfolio.  And one single solitary share is enough to disbar a judge from taking part.  He would have to excuse himself which in legal terms is termed “to recuse”.  A term we will hear a fair amount of soon enough I think.  Allied with the fact that most Gulf states insist that Judges are property owners, and property prices have taken their hit with everything else,  maybe none of them could stand. As to juries, well if they have claims in, or are affected, or have a brother or sister or second cousin three times removed who works for a company affected,  they could be barred too.

So we will be off to somewhere else then won’t we?.  Somewhere more expensive. Who said New York?  Sure I heard you say that.  See, the costs have risen already, and they ain’t even filed yet.

Transocean, who own the rig and who endlessly claim “It wasnae me – a big oil company did it and ran away” are already in the business of trying to limit their potential losses.  They have asked a judge to limit all claims against it to a paltry total of $27,000,000 by claiming the rig is an American “ship” and therefore protected by an 1851 Marine Act limiting liabilities.  The judge has graciously suspended 100 claims (as at time of writing) to go off and decide on that.  Tell me this won’t lumber its joyless way to the Supreme Court.  So don’t expect much money out of them for a while.

If that doesnt work they sit wide open to the 1990 Oil Pollution Act which caps at £$75,000,000 plus the cost of the clean-up.  The 1990 Act took twenty years to deal with Valdeze and the interest, for lawyers at least, will be to see how far “protection” can be pushed.  Decades, probably. 

But it’s BP who stand most in the firing line.  Nice and easy then, there they are, off you jolly well go.  Sue them.  Only you’ve probably guessed, it’s not quite that simple.  You see BP isn’t some enormous monolithic block of a company.  It doesn’t work like that at all.  Its lots of little (well quite large, but in comparison to the whole, little) companies.  Dozens of them, all separate, all with their own liability, and all separate legal identities all kept away from each other to preserve and protect mummy bear.  They relate to each other in a mesh of connections that is beyond complex.  There is a BP Garages company, and a BP Refining Company, and oh yes, a BP Holdings North America Inc” with holdings of $50 billion in long term assets.  The one that is incorporated outside America, but has its assets with an American subsidiary called ” BP America”.  That’ll be the one then.  Hoped for more?  Yeah, thought you might.  No use challenging this structure to get at mummy bear either as the concept is an American one and real popular with lots of those truly huge corporations.

We know BP is hiring Investment Advisors to assist in managing the liabilities!

But that doesn’t matter!  There is all that lovely money safely tucked up in Barak Obama’s mattress, in that Escrow account.  Well, no, not there either.  Seems that the partners of BP in all this mess might not want to come in on the Escrow thing, and they could challenge BP committing them to it.  Another legal challenge!  Add to that that Escrow is an American idea and BP is governed by English law and may be acting ultra vires (outside its powers) therefore not allowed to do it, and you have another action over in London.  Well we wouldn’t want to miss out would we?

Just go bust and bugger the lot of them?.  There is precedent for the corporate suicide model as with the asbestos industry.  BP could then buy back the subsidiary, or the subsidiary in bankruptcy, and cleanse the liability.  It would cost, but it would work.  They wouldn’t be popular, but hey could they get lower in your ratings?

And, we are only assuming that BP is actually to blame.  President Obama may have done everyone a huge disservice by stating so categorically, and so publically on so many occasions that without doubt this all lies at BP’s door.  He may have prejudiced any potential case and made any trial hopelessly compromised.  He certainly hasn’t helped.

Now, I am no apologist for BP by any means, but as yet it is most certainly not clear who is at fault here : BP, Transocean, Cameron,  Halliburton or all of them in different proportions.  Sure BP is paying out masses of money and fronting up the operation, but if it turns out someone else was substantially to blame then watch the skies fall on them.

Whatever, by August they will have drilled the relief wells and the damage will begin to be containable.  They will be in a better position to know themselves where they stand and then the fun – politically – will really begin.

Copyright David Macadam 2010

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