BP blow in legal fight over gulf spill

BP has suffered a setback in its attempt to make Transocean, the drilling contractor, pay for the full costs of the Deepwater Horizon disaster in the Gulf of Mexico in 2010.

Judge Carl Barbier, who will hear the case for damages and civil penalties resulting from the spill, ruled on Thursday that BP should have to pay damages for losses suffered as a result of oil spilt below the surface, even if Transocean were found to have been grossly negligent in the disaster.

However, he said Transocean should still be liable for any civil penalties under the Clean Water Act and punitive damages under the Oil Pollution Act, which could potentially run into the tens of billions of dollars.

On Friday BP said in a statement to the stock exchange that it had so far paid more than $7.8bn in claims to individuals, businesses and governments relating to the disaster.

The decision left both sides claiming they had been vindicated.

“Today’s ruling makes clear that contractors will be held accountable for their actions under the law,” BP said immediately after the decision. “While all official investigations have concluded that Transocean played a causal role in the accident, the contractor has long contended it is fully indemnified by BP for the liabilities resulting from the oil spill. The court rejected this view.”

Transocean said: “This [ruling] confirms that BP is responsible for all economic damages caused by the oil that leaked from its Macondo well and discredits BP’s ongoing attempts to evade both its contractual and financial obligations.”

Transocean, which owned the Deepwater Horizon rig, had argued in the New Orleans court that the terms of its contract with BP protected it from almost all the costs arising from the disaster.

Under the contract, BP agreed to “protect, release, defend, indemnify and hold harmless” Transocean from “all claims, demands, causes of action, damages, costs, expenses ... judgments and awards of any kind of character, without limit and without regard to the cause or causes thereof” even in the event of Transocean being found to have acted with gross negligence.

Judge Barbier agreed with the view that that language meant that Transocean should not have to pay damages to third parties who lost money because of the spill.

However, he said that public policy considerations, including the need to deter future spills, meant that Transocean should not be allowed to escape possible penalties and punitive damages sought by the US government.

At a court hearing last week, a lawyer for the US Department of Justice argued that BP, Transocean and Anadarko Petroleum, a partner of BP’s that had a 25 per cent stake in the Macondo well, should all be liable for Clean Water Act penalties.

Those penalties are up to $1,100 per barrel of oil spilt, or $4,300 per barrel if resulting from gross negligence. The US government has also previously told the court it aims to prove “wilful misconduct” by Transocean. That implies a potential maximum penalty, based on the highest official estimate of the size of the spill, of about $20bn.

However, the judge has the discretion to award a lower figure, based on factors including the apportionment of blame for the accident, and the company’s ability to pay, which will be greater for BP than for Transocean. While BP’s market capitalisation is about $140bn, Transocean’s is less than $15bn.

The shares, which have risen by a third since their recent low in October, fell more than 1 per cent to 471p on Friday.