Transcript Document

Mass damage cases in the energy industry:
Rapid claims mechanisms
Michael Faure & Franziska Weber
4th July 2014
Overview
1.
2.
3.
4.
5.
Introduction
Efficiency Criteria
Case study: Assessing the GCCF
Design Suggestions
Conclusions
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1. Introduction
Case example: oil pollution
 Compensation schemes for the aftermath of
disasters
Central problem: lengthy mass litigation
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2. Efficiency Criteria
Costs of accident law –
Calabresi‘s framework
 Primary costs
 Secondary costs
 Tertiary costs
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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
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- Freeriding
- Capture
- Agency
Issues
Administration
- Rational
apathy/
frivolous
lawsuits
Enforcers
Victim
2. Efficiency Criteria:
- Information
asymmetry
- Error
costs
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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?
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2. Efficiency Criteria
2. Enforcers‘ incentives
 Capture plays more in non-judicial structures
 Composition/financing/appeal
 What about thegroup representatives?
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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
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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
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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
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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?
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3. The GCCF: Outcome
… A meaningful step to achieve the
best of both worlds …
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4. Design suggestions:
“Speed versus accuracy“

Two-step system: „time an issue vs. no issue“
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Funds need to be ensured, preferably by tortfeasor himself
Assessment of claims: tort law criteria
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Ensure deterrence function
Consider potential opportunistic behaviour of the victims
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Standardization of various types of payments
Case-by-case basis
Court: an option
set clear eligibility criteria
Role for courts: marginal review
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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
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