June 19, 2010, Gulf Of Mexico, Louisiana, USA: Fires burn around the site of the BP Deepwater Horizon rig site
© Eyevine

After years during which BP appeared to be without a friend in the world, the company has at last this week been able to muster some support.

The British government, prominent American business groups and – most importantly – a US federal appeals court, have all spoken out in the company’s defence.

It is too soon to say the end is in sight for BP’s long legal war over the 2010 Deepwater Horizon disaster. The final cost of the spill in the Gulf of Mexico still seems certain to exceed the $42.5bn that the company has set aside so far.

However, the interventions could help BP avoid some of the worst potential consequences it faces. They have also shown how the company is gradually rebuilding its standing in the US.

The UK government’s statement, in a court submission known as an “amicus brief”, was the most eye-catching because David Cameron’s government has so far mostly kept its representations to the Obama administration in support of BP behind the scenes. In the court filing, the UK made its first public warning that jobs and pensions are at stake.

The US court for the southern district of Texas, which is hearing BP’s attempt to overturn a ban on it winning contracts from the federal government, may not find the views of Her Majesty’s Government particularly persuasive.

“It’s relatively unusual for a district court to give much weight to an amicus brief,” says Daniel Jacobs, a former US Department of Justice lawyer now at American University, “and I don’t see a compelling reason for the court to do so here.”

However, the statement may have more influence in Washington. The UK has now made a clear statement that the future of BP is an important national interest, and future decisions by the US government will be judged in that light.

In another joint amicus brief in the same case, American business lobby groups, including the US Chamber of Commerce, the American Petroleum Institute and the National Association of Manufacturers, turned their fire on the Environmental Protection Agency, the US regulator that has imposed the ban on government contracts. The business groups said they were “significantly concerned about the statutory over-reach EPA exhibited in this case”.

Lily Fu Claffee, the US chamber’s general counsel, described the contract ban, which affects BP’s parent company and 21 of its subsidiaries, as “sweeping and unprecedented”. She added: “The EPA’s remarkable over-reach in this instance, if permitted to stand, will inject tremendous uncertainty in government contracting, to the detriment of the public and the contracting community alike.”

While that support for BP suggests it is being recognised again as a regular member of the business community, the case over contracts is of secondary significance in terms of financial impact. BP’s fuel supply contracts with the US defence department were worth about $2bn per year in revenues, and would have had relatively slender margins.

The really important case for the company is the civil action over billions of dollars in damages and penalties now being fought out through the US courts in New Orleans. Here, too, BP has had good news this week.

On Monday, a three-judge panel of the Fifth Circuit appeals court backed BP’s request for an injunction to suspend compensation payments to businesses that had not suffered any losses as a result of the spill. Those payments, made because of what BP argues is a misinterpretation of the settlement for businesses and individuals affected by the spill that it agreed with claimants’ lawyers last year, threatened to send the cost of compensation soaring to perhaps double the $7.8bn that the company initially estimated.

BP has been raising the temperature over those payments with a series of adverts in US newspapers, including one revealing that an escort agency has received more than $173,000 under the settlement.

The question of the interpretation used by Patrick Juneau, the court-appointed compensation claims administrator is not yet resolved. Plaintiffs’ lawyers say he has interpreted the settlement correctly, and accuse BP of trying to back off a commitment it signed up to willingly last year. That argument will be fought out in the appeals court, and may ultimately make its way to the Supreme Court, but BP has at least for the time being been able to stop the flow of cash going out to what it sees as unjustified claimants.

The Fifth Circuit’s backing for BP has also sent a signal about the company’s future prospects in that court, which has been described by its critics as “the most corporation-friendly” or “the most conservative” in the US.

Edith Clement, the appeals judge who has delivered the most strongly-worded opinion in support of BP, has been criticised for sitting on the board of the Foundation for Research on Economics and the Environment, a free-market environmental think-tank, and was seen as a strong contender for appointment to the Supreme Court by George W Bush.

Not every judge in the Fifth Circuit court has a similar background, and contentious cases can go to what is called an “en banc” review by eight or more judges, which could overrule the decisions of the three-judge panel. Still, as BP fights the case over whether it was grossly negligent in the disaster at the district court in New Orleans under Judge Carl Barbier, it knows it can appeal any decision and hope to receive more favourable treatment in the higher court.

The liabilities facing BP as a result of the disaster are still very large and uncertain, and will take years to be fully resolved. The sceptical reaction in BP’s share price, which has gone sideways this week, is understandable. Nevertheless, the company is at least inching in the right direction.


BP’s legal actions and potential liabilities

● Settlement for private sector claims – BP agreed a deal last year to compensate businesses and individuals, but has been arguing over how the settlement is interpreted. Has estimated the cost at more than $9.2bn, and much more than that if court rulings go against it.

● Clean Water Act penalties – Will be set by US court in New Orleans, up to a possible maximum of about $18bn. Will be much lower if BP is judged not to have acted with gross negligence.

● Environmental and economic damages – Will also follow the case in New Orleans. BP is facing environmental damages for harm done to coastal region, and economic claims from states and local authorities that lost tax revenue. Likely to be increased by punitive damages if gross negligence is found. There are also claims from other companies involved in the spill and businesses not covered by the settlement.

● Action against the EPA – BP is taking on the Environmental Protection Agency in an attempt to overturn the ban on benefiting from government contracts.

● Shareholder action – Investors allege that they were misled by BP about its safety, and have brought a case scheduled to come to trial next year.

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