July 7, 2013 8:42 pm

BP attacks method used to claim oil spill payouts

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BP will on Monday tell judges at the US appeals court in New Orleans that the compensation settlement it agreed last year over the 2010 Deepwater Horizon disaster is being misinterpreted in a way that means businesses are receiving “absurd” payments.

The oil company is attempting to block what it describes as “inflated” compensation payments to businesses, which could add billions of dollars to the cost of the settlement that it initially estimated at $7.8bn.

The company said in a statement that the misinterpretation of the settlement had “ignited a feeding frenzy among trial lawyers attempting to secure money for themselves and their clients that neither deserves”.

At a brief hearing on Monday morning, it will face lawyers for plaintiffs seeking compensation over the spill, who argue that the settlement is being interpreted correctly by Patrick Juneau, the court-appointed claims administrator.

A lawyer for Mr Juneau is also expected to speak in defence of his interpretation.

BP’s earlier attempts to challenge Mr Juneau’s methodology for assessing losses were rejected by the US District Court, also in New Orleans, and the company is appealing against that decision.

The plaintiffs’ lawyers said on Sunday: “The notion that BP is somehow trying to portray itself as a victim is not credible.”

The heart of the case is the definition of revenue used when calculating losses deemed to be results of the spill. Under the settlement, businesses do not need to prove in detail that the spill caused their losses, only – in most cases – demonstrate a sharp drop in revenue in a period of their choosing following the disaster.

BP argues that the use of cash inflows and outflows makes it too easy to cherry-pick a period that will show large losses. Businesses with lumpy cash receipts can select a period with high income before the spill, and then low or no income after the spill, to inflate their claims.

Mr Juneau’s use of cash flows in his calculations of losses is at odds with economic reality, BP argues.

A group of leading accounting professors has filed a brief to the appeals court, arguing in support of that view, saying: “Identifying revenues and expenses requires more than a mere consideration of cash receipts and disbursements. Any judicial decision to the contrary is in conflict with well-established accounting principles.”

BP said: “We are asking the Fifth Circuit to follow established legal principles of contract law and interpret the agreement as written and intended: paying only those claimants who suffered actual losses.”

The plaintiffs’ lawyers, however, argue that looking at cash flows is the only “objective” way to determine losses.

Steve Herman and Jim Roy, the co-chairmen of the steering committee of the plaintiffs’ lawyers, said in a statement that the court had rejected BP’s argument multiple times.

They added: “The settlement agreement states in explicit, painstaking detail – and was confirmed multiple times by BP – that if a claimant has a loss as defined by the agreement’s objective formulas, that loss was caused by the spill. Period. End of story.”

The appeal court has not given an indication of how long it might take to reach a decision.

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