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Brussels, 07.09.2006

SEC(2006) 1131

COMMISSION STAFF WORKING PAPER

Liability and redress regimes in Multilateral Environmental Agreements (MEAs)

COMMISSION STAFF WORKING PAPER

Liability and redress regimes in Multilateral Environmental Agreements (MEAs)

A. Introduction

1. A number of liability and redress regimes have been developed in the context of Multilateral Environmental Agreements (MEAs) in relation to hazardous/potentially hazardous activities. In general, the objective of these regimes is twofold: 1) preventing damage from occurring by acting as a deterrent for those who operate the activity in question; 2) when the damage has nevertheless occurred, ensuring that the damaged environment is restored and victims compensated.

2. These international regimes are implemented by Parties to MEAs via national liability systems. In the European Community, mainly through three legislative instruments are relevant in this context: the Environment Liability Directive (ELD),[1] the Product Liability Directive (PLD),[2] and the 'Brussels Regulation'.[3]

3. Experience demonstrates that the negotiation and entry into force of liability regimes is a rather long and complex process which often proves controversial, mainly because of the important economic interests at stake. Also the preparation of the EC positions in international fora where liability is discussed has in the past proven quite divisive. With this in mind, this paper builds on past experiences to offer a global overview of the main elements that need to be taken into account during international negotiations on environmental liability and redress regimes . An analysis is conducted with a focus on pros and cons of various options and relevant links with the acquis are highlighted. It should be clear that the various elements that compose an international liability and redress regime are closely interlinked and changes in one of them would have repercussions on the others.

4. Aware that each liability and redress regime will be context specific, devised for specific activities and negotiated in a specific forum, this paper does not attempt to develop a one size fit all approach presenting an EC line to take for all negotiations . However, it is hoped that the analysis contained here will be a resource for future negotiations and will greatly facilitate and advance the development of Community positions in that context.

B. The choice of the instrument

(1) A great number of legally binding liability regimes negotiated in the past have either not entered into force (e.g. the Council of Europe Lugano Convention;[4] the Basel Liability Protocol,[5] etc.) or only entered into force with great delay. There may be various reasons for this, depending on the instrument in question, including excessively ambitious provisions, the lack of financial securities, the lack of liability caps, etc.; that made Parties doubt the feasibility and/or benefits of implementing the regime.

(2) Against this background, the EC and its Member States have chosen, in the context of the Cartagena Protocol on Biosafety, to support the development of rules and procedures on liability and redress on the basis of a two-staged approach. That is to develop a regime by means of a non-binding decision of the Conference of the Parties (COP). This decision would subsequently be evaluated and on this basis a legally binding instrument could be considered. This approach is driven by the aspiration to design a regime that is promptly operational though a COP decision and which would apply to all Parties to the Protocol because no ratification is needed.

(3) The two stage approach allows for the development of rules which are ambitious and, at the same time, realistic because based on concrete experience. There is no obligation to move from stage one to stage two and Parties would do it only when they think this is appropriate. One shortcoming of this approach is that the first stage of it may not address adequately the issue of the enforcement across jurisdictions of national liability rules based on a COP decision. If this is the case, this element could be addressed via legally binding rules in the second stage.

(4) It should also be borne in mind that the global acceptance of a two stage approach may be increased by the presence of incentives, including financial incentives, to help developing countries – the majority of Parties to MEAs - enacting national liability rules in the first stage as well as in the second stage, should the latter be reached. However, it should also be clear that Parties to MEAs must comply with their commitments thereunder and that this may not be made conditional upon new claims for financial support.

(5) At present, the two stage approach is also being explored by Parties to the Convention for the protection of the Marine environment and the Coastal region of the Mediterranean.

C. Damage to the environment

(1) One of the most difficult elements of the negotiations of liability and redress regimes under MEAs is the definition of damage to the environment as such definition affects the scope of the regime. The difficulty lies in defining both what damage is and what is encompassed in the notion of environment.

(2) International legal regimes on liability and redress under MEAs hardly ever provide a definition of the environment as a subject of legal protection.

(3) The ELD defines damage as a "measurable adverse change in a natural resource or measurable impairment of a natural resource service which may occur directly or indirectly". Environmental damage covers significant adverse effects on protected species, natural habitats and water, as well as land contamination that creates a significant risk of adverse effects on human health, as qualified under relevant EC legislation.

(4) Sometimes damage is defined as 'remediation costs'. The scope of remediation costs may to some extent be better predictable than a vague notion of damage, as 'damage to the environment'.

(5) The notion of damage generally includes also 'interim losses'. The latter are defined in the ELD as losses which result from the fact that the damaged natural resources and/or services are not able to perform their ecological functions or provide services to other natural resources or to the public until the primary or complementary measures have taken effect.

(6) There is a recent trend in discussions on liability regimes to include thresholds of damage. However, thresholds have not, so far, been explicitly included in the text of civil liability regimes. Thresholds may take the form of a non-determined qualitative adjective, such as ‘significant’ or ‘measurable’. As mentioned above, this is also the case of the ELD. Such an approach leaves the application of a threshold to practice and, ultimately, to judicial institutions. When quantitative thresholds are considered, important elements such as baselines and criteria for the measurement of such thresholds would also need to be addressed.

(7) In negotiating liability regimes, it is generally useful to develop criteria and guidelines for the assessment of 'environment/natural resource damage'. A lack of guidance on the assessment of damage, could - because of the complexity of the issue - influence the motivation of the parties to claim compensation, hold the polluter liable and redress the damage.

D. 'Traditional damage'

(1) Liability regimes under MEAs generally address, as a result of an adverse environmental impact, so called 'traditional damage', i.e. personal injury and loss of or damage to property. These notions are common features of civil liability regimes in many countries and are frequently applied by national courts. In this case, the principle of restitution in kind generally applies. If the restitutio in integrum (in full) is not possible, monetary compensation will be provided for and this is what happens in most cases. The inclusion of this element in the scope of a liability regime is motivated by the willingness to achieve a comprehensive regime that would effectively address all consequences of adverse environmental impacts.

(2) A distinction need to be made between damage resulting from personal injury and damage to property ( damnus emergens ) and pure economic loss or loss of profit that has its origin in the harmful event ( lucrum cessans ). The classic example of the latter is the loss of profit of the tourist sector in a place where environmental damage has taken place. The trend in most recent international rules on liability is also to cover pure economic damage (e.g. the '1992 Oil Pollution Fund Convention'). In these cases, special attention needs to be devoted to clarifying the issue of causation and how remote/connected the damage and the loss of profit should be.

(3) The ELD does not include traditional damage. The directive does not give rise to private parties’ compensation rights as a consequence of environmental damage. These rights may only arise under the legislation of the Member States of the EC (Art. 3.3). This is explained in the preamble to the ELD (recital 14) which states that "the Directive (…) does not apply to cases of personal injury, to damage to property, or to any economic loss and does not affect any right regarding these types of damage”. In these cases, actions can be brought before Member States’ courts under national civil liability law. Instead, traditional damage is fully covered by the Product Liability Directive which however does not cover pure economic loss.

E. Valuation of damage to the environment

(1) The valuation of damage to the environment in monetary terms only becomes an issue if there is no requirement to repair the damage by means of measures of reinstatement. In such a situation, it may be considered to require the payment of compensation in lieu . Such an approach, however, raises complex matters, e.g. the determination of the value of damaged components of the environment, the allocation of funds generated, and the administrative structure and costs required for such allocation. For these reasons, reinstatement is to be preferred .

(2) Regarding measures of reinstatement, a distinction should be made between situations where it is possible to restore the damaged environment to the conditions that existed before the damage occurred and situations where that is not possible.

(3) One of the objectives of any liability and redress regime in this context should be primary restoration . This means that environmental damage is restored by replacing the same components of the environment at the same place, or in a condition which leads, solely by virtue of the dynamics of the ecosystem, to a status deemed equivalent or superior to the baseline condition. If this is not possible, reinstatement by equivalent, or complementary remediation, would be the preferred method . Depending on the circumstances, complementary remediation could include: (a) remedial action to replace the damaged environment components by other components at the same location; or (b) remedial action in relation to the same or other components at another location.

F. The standard of liability: a civil liability approach

(1) The standard of liability is closely connected with the scope and nature of the defences available to the person to whom liability has been channelled. Most liability regimes under MEAs are based on a civil law approach. In this case, possible standards of liability are the following:

- Fault-based liability. This standard of liability presupposes the intentional fault or negligence of the actor in relation to an event that causes damage.

- Strict liability. This standard is based on the fact that the actor’s act (or omission) caused the damage and there is no need to prove his fault or negligence. This means prima facie liability, but the actor can generally rely on a limited set of defences. Important differences exist among strict liability regimes in relation to the number and the scope of the defences allowed.

- Absolute liability. This standard of liability only requires the establishment of a causal link between an act - or omission - and the damage, and does not allow for defences.

(2) The choice for a particular standard of liability or a combination of standards depends on the objective and functions of the liability and redress regime, and is therefore to be made on a case by case basis.

(3) A combination of liability standards is also possible, for example, in case of potentially hazardous activities (activities that involve risks which cannot be fully controlled/eliminated), the imposition of a strict standard of liability on the operator is justified and quite common in the international context. This could be completed by liability in case of damage caused by negligent or reckless action (fault-based liability) by other actors for the same type of activities or for different activities.

G. The administrative approach under the ELD

(1) As anticipated above, the ELD does not provide for a classic ‘civil liability regime’ by which an injured party can claim compensation before a court of law. Instead, the ELD focuses on the prevention and remediation of environmental damage by imposing a number of obligations on operators and on public authorities.

(2) The ELD is based on the “polluter pays principle”: it stresses the need for the operator to take all necessary preventive and remedial measures and to bear their costs (Articles 5 and 6).

(3) Competent (public) authorities play a fundamental role in order to ensure that environmental damage is prevented and repaired and have specific duties under the ELD. These include the duty to establish which polluter has caused the damage (or the imminent threat of damage), to assess the significance of the damage, to determine which remedial measures should be taken (Article 11). Competent authorities may also take themselves the necessary preventive or remedial measures on a subsidiary basis (Articles. 5.4 and 6.3) and then recover the costs from the operator.

(4) The ELD administrative approach is complementary to the civil liability approach described above.

(5) In relation to the standard of liability, the ELD is based on a combination of approaches: strict liability is provided for environmental damage caused by hazardous activities listed in annex III and fault liability for damage to protected species and habitats caused by any other occupational activity not listed therein. The PLD provides for strict liability.

H. The channelling of liability

(1) The notion of channelling comes into play when the standard of liability is not based on fault i.e. in the case of strict liability. In those instances, the liable person is not identified on the basis of his/her faulty behaviour and liability is normally channelled in accordance with the polluter-pays principle.

(2) Accordingly, primary liability for damage to the environment should rest with the person or persons responsible for the carrying out of an action that may be directly or indirectly at the origin of the damage even if they are not at fault. The channelling of liability to States under whose jurisdiction or control the activities in question are carried out would undermine the application of the polluter-pays principle unless the State itself is acting as an economic actor in control of the activity in question.

(3) If the liability and redress regime is more oriented to prevention, liability could be channelled to the person who is in the best position to prevent damage-causing events or that would be at the origin of the initial events that may finally lead to such damages. Such person may, however, not always be easily identifiable in the jurisdiction where the damage occurred or may not be financially solvable. If the regime is more oriented to the reparation of damage suffered by the victims and the environment, then liability could be channelled to whomever, being to some extent responsible for the event or process at the origin of the damage, would be more easily identifiable, judicially accessible or financially solvable.

(4) Therefore, the actual person to whom primary liability should be channelled will vary in view of his/her involvement in the harmful event and may include, depending on the activities at stake and the circumstances of the case, one or more of the following: the producer; the developer; the permit holder; the exporter; the carrier; the notifier; the importer; etc.

(5) An important question is whether liability should be channelled to a single person or to multiple persons. The channelling to multiple persons will result in the need for multiple coverage for liabilities arising out of a single incident, will require a bigger share of the capacity of the relevant securities market and hence increase the costs of covering such liabilities. On the other hand, the channelling of liability to multiple persons would enhance the options for claimants to recover damages and the possibility that damage is eventually made good, especially when no compulsory insurance is provided for.

(6) The introduction of additional tiers of liability of other persons involved in the harmful event could be envisaged if the damage is not or only partly redressed by the person to whom primary liability has been channelled , notably if:

(a) no primary liable person can be identified;

(b) the primary liable person escapes liability on the basis of a defence;

(c) a time limit has expired;

(d) a financial limit has been reached;

(e) financial securities of the primary liable person are not sufficient to cover liabilities;

(f) the provision of interim relief is desired.

In addition, it should be borne in mind that some international liability regimes only set minimum standard and do not exclude more stringent national laws whilst others establish standards from which national law cannot derogate, not even in order to provide more favourable treatment to the victims.

(7) In the ELD, strict liability is channelled to the operator that must take all necessary preventive and remedial measures and bear their costs. The operator is defined in a broad manner as "any natural or legal, private or public person who operates or controls the occupational activity or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of such an activity has been delegated, including the holder of a permit or authorisation for such an activity or the person registering or notifying such an activity". This definition potentially encompasses all categories mentioned above in paragraph 4.

(8) The PLD provides for the liability of the producer, the supplier and/or the exporter. This may entail joint and several liabilities when two or more persons are liable for the same damage as a result of the provisions of the directive.

I. Exemptions from liability

( 1) Liability and redress regime that impose strict liability generally provide for a limited set of exemptions in order to exclude liability for damage that is the result of certain events beyond the actors’ control.

(2) The following exemptions are generally included: an act of God/force majeure; an act of war or civil unrest; the intervention by a third party and compliance with compulsory measures imposed by a public authority.

(3) Other defences that can be found in international and national liability and redress regimes include: permission of an activity by means of an applicable law or a specific authorisation issued to the operator (permit defence); and the state-of-the-art defence for activities that were not considered harmful according to the state of scientific and technical knowledge at the time they were carried out.

(4) The ELD provides for all the above mentioned exemptions. However, the state of the art and permit defences are optional and may be allowed by Member States only with respect to remedial costs and when operators demonstrate that they were not at fault or negligent. The PLD includes a number of exemptions specific to products and also provides for the 'state of the art' and 'compliance with compulsory measures' exemptions.

J. Time limits to liability

(1) The limitation of liability in time is a common feature of liability and redress regimes to ensure legal certainty by reducing the risk of liability for the person who may be held liable and by avoiding legal proceedings when the evidence has become unreliable.

(2) A time limit within which an action may be brought, i.e. an absolute time limit, should result from the nature of the activities covered and the type of damage they may cause. International liability and redress regimes provide for absolute time limits up to 30 years. It should be taken into consideration that harmful effects on the environment may only manifest themselves after a long period.

(3) Absolute time limits are distinct from the period during which a victim should be allowed to bring a claim after the emergence of the damage and the identification of the liable person. International liability regimes provide for relative time limits up to 5 years.

(4) A liability regime will generally contain both absolute and relative time limits to liability, adapted to the specific circumstances of the case.

(5) Under the ELD, a competent authority is entitled to initiate proceedings for cost recovery against the operator or, where appropriate, against a third party, in relation to measures taken in pursuance of the directive, within five years from the date on which those measures have been completed or the liable operator, or third party, has been identified, whichever is the later. The ELD also provides for an absolute time limit as it does not apply when more than thirty years have passed since the harmful event that caused the damage occurred. The PLD provides for a relative time limit of three years and an absolute time limit of ten years.

K. Limits in amount to liability

(1) The limitation of liability in amount is used in some liability and redress regimes that are based on strict liability to reduce the risk for the person to whom liability has been channelled. By so doing, the potential effects of liability regimes on economic sectors are limited and liability rules may become more easily acceptable. Liability limitations may be excluded in case of fault-based liability systems (e.g. for reckless behaviour).

(2) In international civil liability and redress regimes, financial limits have been adopted in the form of fixed maximum limits, providing total harmonisation of national limits (a roof), or minimum limits, providing partial harmonisation of national limits (a floor).

(3) Where present, financial limits are introduced taking into consideration the nature of an activity and the possible magnitude of the damage it may cause. Financial limits may differ according to the type and/or scale of the activity and could also be set at different levels for different types of damage. The liable person can usually not avail herself of any financial limits if the harm is caused by an act or omission done with the intent of doing harm or as a reckless conduct.

(4) While caps protect the operators of economic activities, the absence of financial limits may better ensure full restoration of the environment and compensation of the victims. Therefore, it s e ems that the choice between having a cap or not and its level must be made on case by case basis balancing the need to protect the environment and the victims of the harmful effect on the one hand and the legal certainty necessary for economic operators on the other.

(5) The ELD does not provide for any financial limit even though this possibility is open for competent authorities in specific cases. The PLD provides that producer's total liability for damage resulting from a death or personal injury and caused by identical items with the same defect may be fixed by the Member States to no less than seventy million euros.

L. Settlement of claims

(1) Civil law procedures are generally available at domestic level to settle claims between operators and victims. In case of transboundary disputes, the general rules of private international law will apply.

(2) Resorting to special tribunals, such as the Permanent Court of Arbitration and its Optional Rules for Arbitration of Disputes Relating to Natural Resources and/or the Environment may be considered in specific cases such as when a large number of victims are affected. However, the costs involved with arbitration may reduce its accessibility.

(3) In the administrative approach taken by the ELD, decisions of public authorities imposing preventive or remedial measures need to be motivated and notified to the addressees that should be informed of the legal remedies available to them and of their time limits. In case of transboundary damage, specific rules on co-operation among Member States are provided for.

M. Recognition and enforcement of judgments

(1) Civil liability and redress regime for environmental damage provide for the mutual recognition of judgements and for an expeditious procedure for securing the enforcement of judgements and court settlements. In this connection, some additional issues such as the attribution of jurisdiction and the regulation of lis pendens and related actions are generally addressed.

(2) The attribution of jurisdiction as well as the recognition and enforcement of judgements between EC Member States in commercial and civil matters fall under the exclusive competence of the EC following the adoption of EC Regulation 44/2001 in December 2000 and its entry into force in 2001.[6]

(3) The objectives of Regulation 44/2001 are to determine the international jurisdiction[7] of the courts in the Member States which are bound by it[8] and to facilitate recognition and enforcement of judgments issued in another Member State by creating a simple and uniform procedure and by limiting the grounds on which recognition and enforcement of a foreign judgment can be refused. The Regulation applies only in civil and commercial matters;[9] it does not apply if a State or public authority introduces an action in the exercise of its public power. EC Regulation 44/2001 also minimises the possibility of concurrent proceedings and that irreconcilable judgements are given in two Member States by setting necessary mechanisms for resolving cases of lis pendens and related actions.

(4) In general, the inclusion of provisions on jurisdiction as well as recognition and enforcement of judgements in environment liability and redress regimes is essential for the operability of the regime in the context of both transboundary damage and damage that occurs at national level but is caused by operators based under another jurisdiction .

N. The right to bring claims ( locus standi )

(1) For claims based on civil liability, the right to make claims is governed by the applicable domestic law on procedural matters. The procedural rules of the applicable domestic law vary from jurisdiction to jurisdiction and will continue to do so, unless domestic laws are harmonized in this respect by means of an international instrument.

(2) Under civil liability rules, the injured person should have the right of action ( locus standi ).

(3) In this respect, one issue that merits attention is whether claims may also be made by claimants, including stakeholders, who act in the general interest ( actio popularis ). In general, provisions granting legal standing should be developed according to the types of damage covered and the objective of the liability and redress regime.[10]

(4) In the ELD, the competent authorities are given the power to require the operator to take all necessary preventive and remedial measures and to bear their costs. Therefore the ELD relies largely on the competent public authorities to implement its liability scheme, and does not enable legal or natural persons affected by environmental damage to sue polluters directly . Instead, it provides natural and legal persons with a right to require the competent authority to act according to the obligations set under the Directive and to challenge through a review procedure the competent authority’s decisions, acts or failures to act (Articles 12 and 13). Natural or legal persons will have to demonstrate that: a) they are affected or likely to be affected by environmental damage; or b) that they have a sufficient interest in environmental decision-making relating to damage; or c) they have to allege the impairment of a right. What constitutes a ‘sufficient interest' and ‘impairment of a right’ is to be determined by Member States. NGOs promoting environmental protection and meeting any requirements under national law shall be deemed to fulfil the above-mentioned conditions.

O. State liability vis-à-vis State responsibility

The origin of liability of a State may be (a) an internationally wrongful act (State responsibility) or (b) liability for acts not prohibited by international law (State liability).

(1) State responsibility in relation to MEAs may arise if Parties fail to comply with the provisions of the MEA in question, or with the provisions of other treaties or rules of customary international law relevant for the implementation of that MEA. The general rules on State responsibility are found in the articles of the International Law Commission on the Responsibility of States for Internationally Wrongful Acts, which by and large reflect customary international law. Therefore, there will generally be no need to develop special rules on State responsibility for environmental damage when negotiating liability regimes under MEAs in addition to the general applicable international rules .

(2) State liability in relation to environmental damage would arise if a State could be held liable for damage resulting from all activities, including non-governmental activities, within its jurisdiction or control. Primary State liability is only provided for in one treaty, i.e. the 1972 Convention on International Liability for Damage Caused by Space Objects. At the time, primary State liability for activities in outer space was accepted, because all such activities were conducted by governments. With the advent of commercial activities in outer space, this system has come under pressure.

(3) The application of the polluter-pays principle is not compatible with the introduction of a system of State liability for environmental damage unless the State itself is acting as an economic operator. However, in cases in which, despite the application of the rules and procedures on liability and redress, including the additional available tiers, the environmental damage has still not been redressed, a residual State liability may be considered as a last resort .

(4) In this respect, the ELD provides that the competent authorities may also take themselves the necessary preventive or remedial measures on a subsidiary basis (Arts. 5.4 and 6.3) when the operator does not do it, cannot be identified or is not required to bear the costs under the Directive. This is without prejudice to the right of recourse against the operator.

P. Financial securities

(1) The coverage of liability, for instance by means of the establishment of financial securities or by other types of guarantees, deserves attention and should be addressed in the negotiations of a liability and redress regime for environmental damage. The lack of adequate financial securities is often indicated as one of the reasons why existing environmental liability regimes have not entered into force.

(2) The ELD requires Member States to take measures to encourage the development of financial security instruments and markets. The Commission report on the effectiveness of the ELD, due by 30 April 2010, will also address this issue.

Insurance

(3) The insurability of a particular category of damage depends on a lot of variables and it is difficult to assess it in a merely theoretical manner. It is the insurance and financial markets that will decide in practice whether they are willing to provide coverage for a certain risk. Such willingness will first depend on their ability to anticipate with an acceptable margin of uncertainty the probability distribution of risks, and thus both their possible payments, margins and benefits. If they do not have enough information, markets will tend to impose security margins and only accept insuring possible damages if huge risk premiums are included in insurance prices. Insurability is ultimately the 'willingness to insure' of the financial and insurance market. Taking into account this limitation, some observations can nevertheless be made on issues which influence insurability.

(4) The 'reinstatement of the environment' is often the preferred option. Insurance practice in relation to damage to natural resources shows that liability is usually insured as ' remediation costs'. The scope of remediation costs may to some extent be better predictable than a vague notion of damage, as 'damage to the environment'. Thus, when the remedy to be provided is a duty to pay for reasonable and proportional remediation costs, practice shows that policies covering remediation costs are possible.

(5) There are a number of issues that policy makers could consider when developing rules and procedures on liability in order to facilitate insurability. These include:

- To be cautious with a shift of the burden of proof as far as causation is concerned;

- Joint and several liability systems as well as multiple channelling may decrease insurability as one party may be held liable independently of its role in the activity that caused the damage;

- Retrospective liability may be uninsurable;

- The introduction of financial caps to liability may not be necessary to increase insurability, since insurers could put themselves a financial limit on liability; caps may lead to under-compensation and violate the polluter pays principle. An option may be a combination of financial caps on liability and minimum limits of compulsory financial security (e.g. Kiev Protocol on civil liability).

- Involvement and participation of all relevant stakeholders and actors in the insurance market is essential from the early stages of the development of rules and procedures on liability in order to ensure that the development of the rules and of the market can proceed in parallel.

(6) Even when all the theoretical conditions for an optimal insurability of environmental damage liability can be met, insurance doctrine has indicated that in many countries the environmental liability market is still relatively under-developed .

(7) Finally, to increase the insurability and capacity of financial compensation a co-operation between insurance undertakings or industrial operators may be helpful. This could for instance be the case for the co-operation between insurers to acquire adequate and reliable statistics on risks and to create a larger capacity via e.g. pooling.

Alternatives to insurance

(1) Financial security should not necessarily be liability insurance ; policy makers could indicate that a wide variety of mechanisms may be used to ensure financial security provided that they are considered adequate. When administrative authorities impose a duty to provide financial security, they should make sure that sufficient varieties of financial securities exist on financial and insurance markets in order to avoid that governments or administrative authorities would become dependant upon the financial or insurance industry, which would then effectively become the licensor of industrial activities.

(2) Alternatives to liability insurance include self-insurance; risk sharing agreements; ex ante guarantees and deposits into an environmental savings account. It has to be borne in mind that these instruments may not answer the risk of insufficient security in the case of major risks/disasters.

(3) At the policy level, it may not be necessary to make a decision in favour of any of those instruments provided that the financial security offered is effective to guarantee that money will ultimately be available when it will have to be used, i.e. when environmental damage appears.

(4) Another issue which is worth considering is the damage materializing after the causing activity ceased its operation and the financial security is no longer available. In practice, the only way to address this type of "post-closure" liability is through a (private or public) fund.

Q. Complementary capacity building measures

(1) The vast majority of Parties to MEAs are developing countries whose capacity to implement these treaties is limited and very much reliant upon developed countries' support. Therefore, the EU should always work to ensure that the capacities of developing countries are taken into account during MEAs negotiations.[11]

(2) It is therefore important to consider the relationship between domestic liability regimes and international rules and procedures on environmental liability and redress. Domestic regimes should provide the framework for the implementation of international rules and procedures and it is through capacity building that domestic regimes could be initiated or further developed.

( 3) The development of specific complementary capacity building measures based on domestic needs and priorities for the design and implementation of domestic rules and procedures on liability and redress should be an important element of the negotiation of international regim es. These complementary measures may include technical and financial support, training, contributions in kind, model legislation, etc.

R. Supplementary collective compensation arrangements

(1) In exceptional cases of major accidents or disasters, supplementary collective arrangements to compensate for certain damages that would not be redressed otherwise could be explored . The presence of such arrangements could also facilitate the acceptance of the two stage approach as described in the section on the choice of instrument above.

(2) These arrangements could include a public fund financed with contributions by Parties to the MEAs in question; private funds financed by the economic sector to which the activity that may cause the damage belongs, or a combination of both i.e. a public/private fund. In negotiations in the context of MEAs, inspiration could therefore be drawn, where appropriate, from international instruments already adopted in other economic sectors, such as liability regimes for oil pollution damage and nuclear liability regimes .

[1] Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage, OJ L143/56. See further on this section G below.

[2] Directive 85/374/EEC on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products, OJ L210/29, as later amended.

[3] Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L12/1. Also relevant in this context are Council Framework Decision 2003/80/JHA on the protection of the environment through criminal law, OJ L 29/55; and the Commission amended proposal for a Regulation on the law applicable to non-contractual obligations, COM(2006)83 final.

[4] Convention on Civil Liability for Damage resulting from Activities Dangerous to the Environment, Lugano, 1993, not yet in force.

[5] Protocol on Liability and Compensation for Damage Resulting from Transboundary Movements of Hazardous Wastes and Their Disposal, Basel, 1999, not yet in force

[6] See also the Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters, Lugano, 1998, that extends the 'Brussels Regulation' regime to Switzerland, Norway and Iceland.

[7] Under Regulation 44/2001 the competent jurisdiction is generally based on principle of the defendants’ domicile, alternative grounds of jurisdiction are provided for well-defined cases i.e. for the place where an harmful event occurred (Art 5.3). Special rules for jurisdiction are also laid down for specific matters i.e. relating to insurance and consumer contracts.

[8] Regulation 44/2001 is not binding upon Denmark. The relations between Denmark and the other MS are governed by the Brussels Convention. However, see also Council Decision of 20 September 2005 on the signing, on behalf of the Community, of the Agreement between the European Community and the Kingdom of Denmark on jurisdiction and the recognition and enforcement of judgments in civil and commercial matter.

[9] Revenue, customs or administrative matters are excluded and the Regulation does not apply to the status or legal capacity of natural persons, matrimonial matters, wills and succession; bankruptcy; social security; arbitration.

[10] In this connection see the 'Aarhus Convention', United Nations Economic Commission for Europe (UNECE) Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters of 25 June 1998; entered into force on 30 October 2001; http://www.unece.org/env/pp/documents/cep43e.pdf.

[11] Commission Communication 'Policy Coherence for Development' COM (2005) 134 final.