Judge stays order for EEPGL to provide unlimited guarantee

…but instructs company to lodge US$2B guarantee pending appeal

By Feona Morrison

Though Appellate Judge Rishi Persaud has stayed a High Court order for ExxonMobil’s local affiliate, Esso Exploration and Production (Guyana) Limited (EEPGL), to provide an unlimited parent company guarantee for oil operations it is engaged in with its co-venturers offshore Guyana, he has ordered the company to lodge a US$2B guarantee pending the hearing and determination of an appeal against the lower court’s decision.
In his ruling issued on Thursday on a preliminary matter regarding the merits of the appeal filed by the Environmental Protection Agency (EPA), which is centred around the Environment Permit granted to Esso pursuant to the Environmental Protection Act, the Judge noted that his order for Esso to provide the guarantee is in “an effort to allay any anxiety as to any impending doom”.
Further, he instructed the oil company to provide same within 10 days, failing which the stay, which he granted in the interest of justice, stands dismissed.
While pointing out that he did not consider the emotive, patriotic, and political arguments advanced by lawyers during a May 31 hearing on the preliminary issue, since they are peripheral and ultimately for the full Bench to consider, he pointed out that EPA’s appeal is a straightforward issue of law, and is one which has a good prospect of success.

Analysis
In analysing the main issue raised in the appeal, Justice Persaud said that Condition 14 (3) of the Environmental Permit provides a formula that guides the form, quantity, and quality of the financial insurance. He said it must be guided by an estimate of reasonably credible costs, and is not expected to be addressed in estimable costs which can be recovered by civil action.
“The conflation of Condition 14 (1), which provides for all costs with the necessity of assurance under Condition 14 (3), and held to be unlimited, is, on the face of it, problematic. The seeming use of Condition 14 to interpret and extend the clear wording of the Environmental Protection Act and Condition 14 (3) of the permit seems to be impermissible,” he reasoned.
He said the general obligation for liability for all costs, which the permit holder has acknowledged in no uncertain terms, must be read separately from the precise requirements for assurances.
To do otherwise would amount to a complete disregard for the purport and intent of the governing Act, Justice Persaud said.
He added that Condition 14 (4) authorises the EPA to ask for further forms of assurance, if necessary.
“The inference, to my mind, is obvious. By Condition 14 (5), there is a requirement for environmental liability insurance in the amount that is customary in the petroleum industry. There is a further requirement that such insurance is procured from an insurance company graded A+ by the business bureau, or the equivalent as is deemed appropriate by the [EPA], and shall include, but not be limited to, insurance in respect to items set out in Conditions 1 to 6 of the permit,” Justice Rishi Persaud noted.

Misconstrued, cause for concern
In this regard, Justice Persaud concluded, “It seems, on the face of it, that [Justice Kissoon] misconstrued the processes in relation to the acquisition of insurance, and ignored the [EPA’s] discretion under Condition 14 (5) to consider any rating equivalent, as it deems appropriate.”
He pointed out that Justice Kissoon’s coercive order against the EPA is a cause for concern.
“It is well established that, in judicial review proceedings, a court is restricted to a consideration of whether the procedural requirements in the exercise of regulatory power was followed, and not its decision…” he said.
According to him, in this particular case, it seems that EPA can be considered “an expert body”, which ought to have prompted judicial restraint. He added, “Surely, that body [EPA] is better placed to evaluate such complex and non-legal matters within its expertise.”
Additionally, he was keen to point out that Justice Kissoon’s order “may have coerced” the EPA to perform an act that is not within the parameters of the governing legislation; that is, the requirement for unlimited insurance.
Although the Judicial Review Act gives wide powers to a Judge, Justice Persaud emphasised that he doubts this legislation was intended to facilitate the substitution of a Judge’s discretion for that of an expert body, and to empower that Judge to compel an act which falls outside of the scope and ambit of the legislation under consideration; in this case, the Environmental Protection Act.
Addressing whether there are any risks associated with the granting or refusal of the stay requested by the EPA, he referred to the affidavit submitted by ExxonMobil (Guyana) President Allistair Routledge, which according to him, “paints a damning picture.”
“The revenue loss to the permit holder, and more importantly to the State of Guyana, may have serious implications and devastating consequences in the event of a permit suspension. The seeming uncertainty as to what unlimited insurance may entail, and the timeframe ordered to provide such insurance, makes these events likely,” the Judge pointed out.
The prejudicial effects are palpable, while, on the other hand, it is generally accepted that the event of a well blowout or some associated environmental disaster is unlikely, noted Justice Persaud.
The Full Bench of the Court of Appeal is expected to sit soon to hear the EPA’s substantive appeal, as lawyers have implored the court to deal with the matter expeditiously.
On May 3, Justice Kissoon issued an order, inter alia, directing the EPA to issue ExxonMobil’s local affiliate, EEPGL, with an Enforcement Notice on or before May 9, for the company to provide, within 30 days, unlimited Parent Company Guarantee Agreement and/or unlimited liability Affiliate Company Guarantee, together with environmental liability insurance, as is customary in the international petroleum industry.
EPA Executive Director Kemraj Parsram has confirmed that the Agency had issued EEPGL with the Enforcement Notice. But since Justice Kissoon’s order has been suspended, the oil company no longer has until today to comply with that notice.
The High Court order has its origin in a case filed in September 2022 by President of the Transparency Institute of Guyana Inc (TIGI), Frederick Collins, and Guyanese citizen Godfrey Whyte, who had moved to the court to get the EPA to enforce the liability clause in the permit.
They wanted the court to ensure EEPGL takes full financial accountability in the case of harm, loss, and damage to the environment from a well blowout, oil spill, or other failures.

No obligation
The EPA and Attorney General Anil Nandlall, SC, have maintained that the Environmental Permit granted to EEPGL imposes no obligation on the company to provide an unlimited parent company guarantee agreement and/or affiliate company guarantee agreement.
If Justice Kissoon’s ruling is not quashed, the Government fears it could have profound ramifications and grave economic and other impacts on the public interest and national development.
In arguing for the stay of execution, EPA lawyer Sanjeev Datadin had said that the order for “Unlimited guarantee makes a mockery of the clear words in the permit”, adding that the permit refers to a “fixed sum”, and not an unlimited guarantee.
Datadin had submitted, “Unlimited has come about through a misinterpretation. The court has invented an unlimited guarantee…and [held] this incorrect interpretation as a weapon…”
By making such a coercive order, Datadin noted, Justice Kissoon had usurped the functions of the EPA under the Environmental Protection Act, and bypassed all the other options available.
Esso’s Senior Counsel, Edward Luckhoo, had contended that Condition 14 of the Environmental Permit does not require an unlimited guarantee. Maintaining that Justice Kissoon had misinterpreted the clear language of this Condition, he had said that what the permit does provide for is an estimate of a finite sum, noting that the formula for arriving at that sum is set out therein.

Catastrophic effects
But Senior Counsel Seenath Jairam, who is among the lawyers representing Whyte and Collins, begged to differ, arguing that a stay of execution should not be granted because the chance of EPA’s grounds of appeal succeeding is like a “snowball in hell fire”.
To make his case in regard to the need for an unlimited parent company guarantee, he had highlighted that an oil spill could have catastrophic effects on the environment.
“Esso has been carrying out oil operations in the open high sea without financial guarantee. An oil spill could send back Guyana to the Ice Age if there is no insurance, because it is not easy to contain.”
Jairam had reasoned that from practicality and common sense, insurance does not cover all your damages, hence the need for a parent company guarantee which, according to him, “does not cost [Exxon] a cent, but just requires it to show that it has the financial capacity to restore and rehabilitate the environment in the event an oil spill occurs.”
According to Jairam, the permit mandates that Exxon and its co-venturers shall be jointly and severally liable for any loss or damage, or pollution to the environment. In the absence of such a guarantee, he had argued, the permit should have already been cancelled by the EPA.

Disingenuous attempt
On the issue of whether the EPA acted in breach of its statutory duty and unreasonably permitted Esso to carry out petroleum production operations in the absence of compliance with the terms of the permit, Justice Kissoon had ruled that the Agency has committed an illegality, acted unlawfully, ultra vires, unreasonably, in defiance of logic, irrationally, and without any jurisdiction.
He found, inter alia, that Esso was engaged in a “disingenuous attempt” which was calculated to deceive when it sought to dilute its liabilities and settled obligations stipulated and expressed in Condition 14 of the permit, while simultaneously optimising production in the Stabroek Block.
“The insurance obtained by the EEPGL from its affiliate company AON UK Ltd, both for the Liza Phase 1 and Phase 2 Projects, does not satisfy the stipulation and obligation set out at Condition 14:5 of the Environmental Permit, or even what is considered environmental liability insurance according to international standards of the petroleum industry,” Justice Kissoon had said.