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Mass damage cases in the energy industry: Rapid claims mechanisms Michael Faure & Franziska Weber 4 th July 2014.

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Presentation on theme: "Mass damage cases in the energy industry: Rapid claims mechanisms Michael Faure & Franziska Weber 4 th July 2014."— Presentation transcript:

1 Mass damage cases in the energy industry: Rapid claims mechanisms Michael Faure & Franziska Weber 4 th July 2014

2 Faculty of Law Overview 1.Introduction 2.Efficiency Criteria 3.Case study: Assessing the GCCF 4.Design Suggestions 5.Conclusions 2

3 Faculty of Law 1. Introduction Case example: oil pollution  Compensation schemes for the aftermath of disasters Central problem: lengthy mass litigation 3

4 Faculty of Law 2. Efficiency Criteria Costs of accident law – Calabresi‘s framework  Primary costs  Secondary costs  Tertiary costs 4

5 Faculty of Law 2. Efficiency Criteria Starting point:  Forms of alternative dispute resolution (ADR) work faster and reduce follow-on damage  hence reduce primary costs  ADR is cheaper to administer  hence reduces tertiary costs  Consider: Incentives structure of stakeholders in law enforcement 5

6 Faculty of Law 2. Efficiency Criteria: 6 Victim - Rational apathy/ frivolous lawsuits - Free- riding Enforcers - Capture - Agency Issues Administration - Informa- tion asymmetry - Error costs

7 Faculty of Law 2. Efficiency Criteria 1.Victims‘ incentives  Court: substantial damage  cost: the duration?  Few resources (eg advance payments)  Relaxed (ADR) procedural rules invite frivolous lawsuits  Free-riding less an issue with individual damage claims  Grouping claims reduces costs, RA, FR & may allow for information to enter the enforcement response  Additional problems? 7

8 Faculty of Law 2. Efficiency Criteria 2. Enforcers‘ incentives  Capture plays more in non-judicial structures  Composition/financing/appeal  What about thegroup representatives?  Consider: error costs (spreading)  P/A problem  in particular mass cases  No further development of the law with ADR 3. Administrative costs -Higher for masses; higher in court  From the outset: ADR assumed to be less costly to administer 8

9 Faculty of Law 2. Efficiency Criteria Essential trade-off  Balancing speed vs. thoroughness of the procedure  Potential tortfeasor needs to be incentivized to take optimal care  Ensuring compensation = Design ADR in a way to use its advantages without falling victim to its flaws 9

10 Faculty of Law 3. Case study: Assessing the The Gulf Coast Claim Facility (GCCF)  Case: Deepwater Horizon Oil Spill Accident  Private claims facility  A settlement structure under OPA  Claimant has the option to file with the GCCF or in court  Independent trustees & administrator  Payments made: US$10.7 billion of available US$20 billion  Currently closed: residual cases in court 10

11 Faculty of Law 3. The GCCF: Analysis  In essence: fast compensation at modest administrative costs  Potential to forestall follow-on damages  Easy forms, no lawyer, at victims‘ choice  Parallel court proceedings  Frivolous complaints  Taking care of independence  Governing structure  Involving victims in setting up the protocol (clear, predictable criteria)  But? 11

12 Faculty of Law 3. The GCCF: Outcome … A meaningful step to achieve the best of both worlds … 12

13 Faculty of Law 4. Design suggestions: “Speed versus accuracy“  Two-step system: „time an issue vs. no issue“  Funds need to be ensured, preferably by tortfeasor himself  Assessment of claims: tort law criteria  Standardization of various types of payments  Case-by-case basis  Court: an option  Ensure deterrence function  Consider potential opportunistic behaviour of the victims  set clear eligibility criteria  Role for courts: marginal review 13

14 Faculty of Law 5. Conclusion  Importance of law enforcement  Necessity to provide speedy compensation (for a certain category of victims)  Need for an enforcement solution that incorporates „the best of both worlds“  More payments to victims that for the administration ….  Experimentation phase 14


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