Federal Court finds offshore oil field operator liable in negligence for death and loss of seaweed crops in Indonesia
Sanda v PTTEP Australasia (Ashmore Cartier) Pty Ltd (No 7) [2021] FCA 237
Summary
On 19 March 2021, the Federal Court of Australia held that the operator of the Montara oil field breached its duty of care towards thousands of seaweed farmers in Indonesia by causing, or materially contributing to, the death and loss of seaweed crops via a large oil spill in 2009.
Background
The respondent, PTTEP Australasia (Ashmore Cartier) Pty Ltd, operated the offshore Montara oil field in the Territory of Ashmore and Cartier Islands, approximately 250km northwest of the Western Australian coast in Australian territorial waters.
The respondent relied upon three control barriers to prevent the uncontrolled release of oil from a particular oil well (the H1 Well), of which each was deficient, none had been tested and one had not been installed.
On 21 August 2009, each of the control barriers failed, causing a blowout that released oil from the H1 Well into the ocean for a period of over 10 weeks.
Daniel Sanda, a seaweed farmer from Rote Island in Indonesia, was the lead applicant in a representative proceeding against the respondent in the Federal Court. The proceeding was joined by more than 15,000 Indonesian seaweed farmers (the Group Members), each of whom alleged that oil from the spill had reached Rote Island and the Kupang region and damaged or destroyed their seaweed crops, causing them to lose their livelihoods.
The respondent conceded that it was negligent in sealing and operating the H1 Well and that it was required to comply with certain statutory obligations in carrying out petroleum exploration and recovery operations.[1] However, the respondent denied that the oil that had flowed out of the H1 Well:
reached the coastal areas of the Rote/Kupang region, approximately 240km north-west of the Montara oil field; and
could have caused the damage to the seaweed crops alleged by the applicant and Group Members.
Decision
Did the oil reach the Rote/Kupang region?
Justice Yates was satisfied that oil from the H1 Well blowout reached the coastal areas of the Rote/Kupang region. Particularly significant in this regard was evidence from lay witnesses (including the applicant and other Group Members) as to the arrival of waxy material floating along the shoreline in September or October 2009, indicating that the witnesses had observed a “single, strikingly unusual, and unique event in that region at that time”.[2]
Did the oil cause or materially contribute to the loss of seaweed crops in the Rote/Kupang region?
The question of whether the oil caused or materially contributed to the loss of seaweed crops in the Rote/Kupang region depended on complex technical evidence and modelling. Justice Yates held that there was “no…plausible explanation for [the] widespread loss” of the crops other than the oil spill.[3]
Although it was not possible to determine the precise mechanism by which the crops died, Justice Yates noted that:
(a) the lay evidence demonstrated that the crop death coincided with the arrival of the oil; and
(b) the expert evidence discounted the possibility of any other factor (such as natural oil seeps, ship traffic or climate change impacts) having caused or materially contributed to the crop death.
Did the respondent owe a duty of care to the applicant and the Group Members?
Justice Yates held that the respondent owed a duty of care to the applicant and the Group Members because it was reasonably foreseeable to a person in the respondent’s position at the time that a failure to properly seal the H1 Well could result in an uncontrolled release of oil that could cause loss or damage in the Rote/Kupang region, including to the marine ecosystem and the commercial enterprises relying on that ecosystem (such as seaweed farming).[4]
The respondent had relied upon its Oil Spill Contingency Plan (OSCP) to argue that it was not reasonably foreseeable that residents of the Rote/Kupang region were vulnerable to oil spill impacts. The OSCP had been prepared in accordance with offshore petroleum regulations and was approved by the Commonwealth Department of the Environment and Water Resources. It modelled the trajectory of what was assumed to be the “worst-case scenario” oil spill event (albeit not resulting from an uncontrolled well blowout) over a period of seven days and concluded that the shorelines of Australia, Timor and Indonesia were at “no risk whatsoever” from oil spill impacts.[5]
However, Justice Yates held that the respondent could not absolve itself of its duty of care purely because it had chosen not to model the loss of oil from an uncontrolled well blowout, possibly lasting several weeks, in the OSCP. In other words, the respondent’s failure to model the “actual risk…posed by its negligent conduct” did not mean that this risk was not reasonably foreseeable.[6]
Justice Yates also dealt with the policy consideration of indeterminacy, which can militate against recognising a duty of care in cases involving pure economic loss where a respondent may be liable for an indeterminate amount of damages for an indeterminate time to an indeterminate class of persons. However, His Honour noted that the limits of the physical consequences of the respondent’s conduct can almost always be sufficiently identified where (as here) the case involves a duty to avoid physical harm, rather than merely to avoid pure economic loss.[7]
Did the respondent breach its duty of care?
Justice Yates found that the respondent had breached its duty of care because the risk of harm resulting from the respondent’s conduct (in failing to properly seal the H1 Well) was foreseeable. In particular, this failure created “a very high risk of blowout … [with] the known potential for a substantial and uncontrolled release of hydrocarbons to the environment, which would continue for some weeks”.[8]
Justice Yates also reiterated that the OSCP, which did not model an uncontrolled well blowout, could not rule out the risk of harm from such a blowout to the commercial enterprises relying on the marine ecosystem in the Rote/Kupang region.
What damages should be awarded to the applicant?
Having established the respondent’s liability in negligence, Justice Yates noted that the applicant suffered a very significant loss of income due to the destruction of his seaweed crops. However, the applicant’s evidence of this loss was based upon estimates, rather than records of actual income, given that seaweed farming in the region was “a very simple rural industry in a developing country”.[9] Justice Yates therefore discounted the applicant’s damages by 40% due to the uncertainty associated with this evidence, awarding the applicant almost 253,000,000 Indonesian rupiahs (being just short of A$23,000.00) plus interest.
Justice Yates did not award any damages to the Group Members in this decision. The Federal Court had only extended the applicable limitation period under the Limitation Act 1981 (NT) (which had lapsed) for the applicant,[10] such that the other Group Members would have to prove their own loss in separate proceedings to obtain relief. However, His Honour held that an appropriate measure of damages for the Group Members would be the difference between their net income from seaweed production and the net income that they would have earned but for the respondent’s negligence during the period in which the loss was suffered.
Commentary
The Federal Court’s decision is an important development in cross-border human rights cases. It confirms that companies in Australia may owe a duty of care to people in other jurisdictions that are impacted by their operations. The case also illustrates how tort law has the potential to hold companies accountable for adverse human rights and environmental impacts abroad, as well as providing pathways to remedy for victims of human rights abuses.
This case also forms part of an emerging trend of environmental class actions, being one of the first of these actions to be successful at trial. It signals that, in the context of a duty to avoid physical harm, a representative proceeding based on negligence will not necessarily fail purely on the grounds of indeterminacy. This is particularly significant in the environmental context where a potential source of harm may migrate from one jurisdiction to another, enlarging the size of the class of persons that may be affected.
Further, the Federal Court’s decision emphasises that a respondent will not necessarily avoid liability in negligence where it has modelled a different risk of harm to that which actually eventuates. The actual risk of harm posed by the respondent’s conduct may still be reasonably foreseeable despite the respondent having assessed the potential risk of harm in the assumed “worst-case scenario”, even where that risk assessment was required to be prepared under statute and received regulatory approval.
The full ramifications of the Federal Court’s decision are yet to be seen. Although they remain statute-barred for now, claims for damages by the other Group Members could run into multi-million dollar figures. However, the respondent has also signalled that it may appeal the Federal Court’s decision.
The full text of the decision is available here.
Jayson Broadway is a Solicitor at King & Wood Mallesons.
[1] Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth), s 569.
[2] Sanda v PTTEP Australasia (Ashmore Cartier) Pty Ltd (No 7) [2021] FCA 237 (Sanda v PTTEP Australasia), [829].
[3] Sanda v PTTEP Australasia, [1009], [1010].
[4] Sanda v PTTEP Australasia, [1040].
[5] Sanda v PTTEP Australasia, [50].
[6] Sanda v PTTEP Australasia, [1039].
[7] Sanda v PTTEP Australasia, [1043].
[8] Sanda v PTTEP Australasia, [1048].
[9] Sanda v PTTEP Australasia, [1053].
[10] Sanda v PTTEP Australasia (Ashmore Cartier) Pty Ltd (No 3) [2017] FCA 1272.