Supreme Court ratifies Prestige disaster advance compensation scheme

Following the Prestige oil spill in November 2002, the Spanish legislature enacted new regulations on remedies - including economic, labour, social security and tax aids - for the sectors affected by the disaster (Royal Decree-Laws 7/2002, 8/2002 and 4/2003).

Given that ongoing litigation following the Prestige oil spill could have delayed compensation and indemnity payments to affected parties for years, the legislature decided to advance payments to parties keen to receive prompt payment. Royal Decree-Law 4/2003 was adopted for this purpose and was later ratified by a parliamentary resolution on July 8 2003 (published in the Official Gazette on July 16 2003). The regulation was also justified on the grounds that the indemnities to be paid by the protection and indemnity club to which the owners of the Prestige belonged and the International Oil Pollution Compensation Fund under the applicable international conventions (ie, the Civil Liability Convention 1992 and the Fund Convention 1992) would not cover a large part of the damages that had been suffered in Spain following the major oil spill. Royal Decree-Law 4/2003 was later developed by Royal Decree 1053/2003.

The compensation scheme was open to both individuals and companies, provided that they suffered damages that should be compensated pursuant to the Civil Liability Convention and the Fund Convention. It was also foreseen that public bodies (eg, town halls, provinces and autonomous communities) might receive compensation if they adhered to the applicable collaboration agreements.

Article 4 of Royal Decree-Law 4/2003 provides that the compensation will amount to the damages actually suffered as a result of the oil spill. The amount will be calculated in accordance with the criteria followed by the International Oil Pollution Compensation Fund in the application of the Fund Convention.

Pursuant to Royal Decree-Law 4/2003, settlement agreements were entered into by the Treasury and the beneficiaries, which, in return, had to waive their rights to bring any further claim arising from the accident. The state therefore subrogated to the same rights of the party that would have been indemnified pursuant to this system. The beneficiaries had to abandon irrevocably and unconditionally any action or claim which might be pending, and also to waive any future court or out-of-court action or claim arising from or related to the Prestige tanker disaster.

The terms and conditions of the settlement agreements were much criticized in Spain - particularly the waiver to claim future damages. This led some fisherman associations to bring different claims holding that the provisions were unlawful, arguing that the effects of the accident or the damages might also be suffered in the future and that parties that were initially indemnified might suffer damages later on that they would not be able to recover. They further claimed that Royal Decree 1053/2003, developing Royal Decree-Law 4/2003, contained different criteria for the assessment of loss of earnings to those followed by the International Oil Pollution Compensation Fund in applying the Fund Convention, as the legislature was bound by the latter.

The Supreme Court recently issued two decisions holding that Royal Decree 1053/2003 attempted to clarify the appraisal and determination of the amounts to be paid pursuant to the criteria established by the Fund Convention and the Civil Liability Convention. Therefore, its provisions were not inconsistent with those of Royal Decree-Law 4/2003 or with the criteria established by the Fund Convention and the Civil Liability Convention.

With regard to the settlement agreements and the waiver to claim future damages, the Supreme Court held that these agreements would not contravene the principle of freedom of contract established by the Civil Code, whereby Article 1,271 allows parties to negotiate on future goods. In addition, the Supreme Court acknowledged that entering into these settlement agreements was voluntary, as the claimants were not compelled to join or adhere to any scheme for the advance payment of compensation.