By Professor Michael G. Faure
As the attack on the Twin Towers on 9/11 has shown, terrorism can lead to large-scale damage, massive property damage, thousands of cases of personal injury, pain and suffering and enormous consequential damage, including billions in lost profits. After 9/11 many law suits were filed seeking compensation of damages totalling over 1 billion US$. Among the parties sued in these law suits were not only public authorities, but also security firms and an aircraft manufacturer. The magnitude of this litigation caused concerns in the US over unlimited liability of security firms which was believed to create disincentives for firms to develop and introduce new security technology. In response to these issues the US introduced its US Safety Act, a regime intended to offer security companies protection against liability exposure.
In a book called Civil liability in Europe for terrorism-related risk, Cambridge, Cambridge University Press, 2015, (http://www.cambridge.org/nl/academic/subjects/law/tort-law/civil-liability-europe-terrorism-related-risk?format=HB&isbn=9781107100442) Lucas Bergkamp, Michael Faure, Monica Hinteregger and Niels Philipsen examine the exposure of operators of facilities such as airports, train stations, nuclear power plants and the security industry to liability. After the terrorist attacks in Paris, Madrid, London and Brussels, also in Europe concerns have arisen about a potential liability exposure for terrorism-related damage which has been called “enterprise-threatening”. The book analyses civil lability for terrorism-related risk under international and European Union law and the law of several representative Member States. The book also compares the liability environment in Europe to the situation in the US which, as noted, thought it necessary to provide for liability protection for industry through specific legislation.
The international liability treaties do not specifically deal with liability for damage caused by terrorists and neither does European Union legislation. As a result liability for damage caused by terrorists is chiefly a function of national law. The facility operator may be liable towards victims under fault-based liability rules or under strict liability if the activity is deemed “hazardous”. In theory also a security firm could be liable, but the burden of proof lies with the victim. Despite suggestions to the contrary the authors found no evidence of an impending liability crisis in the security industry. Assertions of potentially “enterprise-threatening” liability exposure are not consistent with the liability standards under the law of the examined legal systems. Thus far facility operators and security firms have not been held liable for damage caused by terrorist attacks in Europe. It is therefore concluded that no urgent EU measures are necessary.
However, although the case for a liability limitation for the security industry is therefore weak, civil liability for terrorism-related risk is an issue that does require the attention of policy-makers. Policy-makers should take time to analyse the liability exposure of operators and security firms. It is particularly important to verify any malfunctioning of the markets for terrorism-related insurance and public procurement of security services. To prevent specific problems of liability rules to the case of terrorism the EU could consider drafting a recommendation or communication concerning the promotion of the insurability of terrorism-related risk. In developing policy on this issue, the government should keep in mind that its primary responsibility is to prevent terrorist attacks from occurring and liability for damage caused by such attacks can contribute to accomplishing this objective.read more
By Professor Michael G. Faure
Following the great east earthquake in Japan in March 2011, five years ago now, the subsequent accident at the Fukushima nuclear power plant shocked the world and triggered fierced debates on the future of nuclear energy in many countries. Not so long ago yet another earthquake took place close to the same area, reminding the potentially devastating effects of tsunamis, but especially of nuclear accidents. One of the questions that always arises in the context of a nuclear accident of the Fukushima type is why nuclear operators are largely protected as a result of outdated international conventions that seriously limit their exposure to liability. Those conventions, but also many national legislations, in fact provide a hidden subsidy to the nuclear industry as a result of which they only pay for a small amount for the losses they cause.
In the 1960s international conventions were created of which the main goal was to protect the (American) owners of the nuclear material that was delivered to European nuclear operators. Since liability was exclusively channelled towards operators in Europe only operators and no longer other parties could be held liable for potential damage. The international conventions imposed very low caps on the liability of the operator. After the Chernobyl accident (which happened on 26 April 1986) new conventions came into being that were supposed to increase the amount of compensation. Although Chernobyl already is more than 30 years ago, most of those new conventions have not entered into force yet. Moreover, when they will enter into force the amount available will only be 1,5 million Euro. Recent estimates of the damage caused by the Fukushima incident hold that the total amount of the damage could be as high as 170 billion Euro. This clearly shows that operators today are not liable for the consequences of the accident. Moreover, an important part of the damage is compensated through public funding, which means that the general public (the tax payers) pay the compensation.
This financial limit on the liability of nuclear power plant operators has several negative effects. One problem is that obviously insufficient compensation will be available for victims if a nuclear accident happens. A second problem is that since operators are not fully exposed to the total costs of the accidents they may cause, they also will not demand insurance cover for those amounts and hence they de facto pay too low premium. A third related consequence of this subsidization of nuclear power is that the relative price of nuclear power is too low, as nuclear operators are not forced to incorporate the full social costs of their activity into their prices. This may constitute a distortion of competition towards other energy forms that do not enjoy similar subsidies. Given the high subsidies the price of nuclear power also does not reflect the social costs as a result of which the demand for nuclear power will be too high. Finally and perhaps most importantly, the fact that nuclear operators are not fully liable for the consequences of a nuclear accident may lead to too low investments in prevention. In a provocative article Harvard Professor Mark Ramseyer argued that the Tokyo Electric Power Company (TEPCO), the operator of the Fukushima plant on purpose built the nuclear facility in an earthquake area, knowing that they are protected through the limited liability and can hence throw the consequences of their activity on society.
In many countries the life time of the first generation nuclear power plants has been extended. That can undoubtedly also increase the risks. Policy-makers should realise that times have changed: whereas in the 1960s an argument could be made that the newly established nuclear industry needed a support from the regulator in the form of a limitation of liability the same argument cannot be made any longer 60 years later, especially after the experiences with Chernobyl and Fukushima. The lesson from Fukushima should therefore be clear: the limitations on the liability of nuclear power plant operators whether they appear in national legislation or in international conventions should be abrogated and power plant operators should be fully exposed to unlimited liability in case of a nuclear accident, of course supported with financial guarantees.read more
By Professor Michael G. Faure
To an increasing extent many EU Member States are victim of a variety of natural disasters, including heavy rainfall, flooding, earthquakes, volcano eruptions and tsunamis. During the period 1970-2007 there has been a substantial increase in the losses due to natural catastrophes. Even recently Italy was hit again by an earthquake causing substantial losses. A major problem is that after every new natural disaster politicians often have the tendency to play Santa Claus and provide substantial amounts of compensation to victims. Those ex post payments are problematic from various perspectives: 1. Since victims will be counting on ex post compensation by the government those payments will reduce the incentives of victims to invest in ex ante prevention, for example by not-building in flood prown areas or by avoiding to put valuables in the basement. 2. Ex post government compensation will also negatively affect the incentives to purchase insurance: solidarity kills market insurance. As a result of generous ex post compensation potential victims will not be willing to buy insurance cover for natural disasters. Why should victims pay premiums for insurance cover if they can freeride on the state?read more
Last Tuesday was the Empirical Legal Studies (ELS) conference organized at the Dutch Supreme Court (‘Hoge Raad’) in the Hague by the Nederlands Studiecentrum Criminaliteit en Rechtshandhaving (NSCR). All of a sudden, ELS is everywhere in the Netherlands. Last July, there was the first European Conference on Empirical Legal Studies in Amsterdam. Recently the Empirical Legal Studies initiative (ELSi), hosted by the Ius Commune Research School, came on the block. Now the NIELS conference. And upcoming January, a conference will be held by the VSR.
What particularly seems to be becoming more popular, is to talk about ELS – there is no evidence for an increase of the number of empirical legal studies that are conducted in the Netherlands. Some evidence by one of the presenters at Tuesday’s conference even suggested that the number of journal articles that present original empirical research (i.e. through data collection by the researcher / author himself or herself) has remained constant over the years. This observation is surprising, as multidisciplinary research may attract more funding, Ministries are calling for more empirical research, scholars seems to welcome more empirical legal research, and all of the Judiciary Council’s research is empirical. Moreover, empirical legal research that is conducted in the Netherlands is primarily done by researchers who have a social scientific background, with or without a law degree (Elbers 2016; for English summary click here).
Why is ELS seemingly on the rise but not resulting in more empirical research? One explanation is that there are other forces in play. While ELS is becoming more popular, the Dutch bar association has imposed stricter requirements as to the courses and topics Dutch law schools should teach. As a result, the vast majority of the course credits are and should be assigned to courses in private law, criminal law, and administrative and constitutional law.
It is a widespread belief that the bar requires Dutch law schools to only teach doctrinal scholarship to students. I doubt whether this belief is correct. Teachers may have more flexibility than they think regarding exposing students to different perspectives and approaches than merely a doctrinal approach, as long as they focus on the topics the bar wants them to focus on (e.g. tort law, criminal law). The issue, therefore, may not be so much the bar and its requirements, but the perception of legal academia of what the bar requires law schools to do.
Consequently, there are two conditions for empirical legal scholarship to flourish in the Netherlands. First, it will only evolve if teachers no longer believe that courses have to be taught doctrinally. Second, law schools need to stop believing that they need to hire doctrinally oriented teachers (at every level, from lecturer to professor) to teach their courses. This means that the success formula for empirical legal research in the Netherlands may ultimately be rather simple: just do it.read more
The EU&ME Summit (part of the Europe Calling! initiative) held on 9 December 2016 to celebrate the 25th Anniversary of the Maastricht Treaty was the event of the season. As an American that somehow wandered into this event, I was quite amused by Maastricht’s Mayor, Annemarie Penn-te Strake, and her welcoming speech that – among other delights – quoted former US President George Bush, who stated that the birth of the EU was something that was great for the entire world. As a happy migrant living in the Netherlands and working in the EU, I wholeheartedly concur with our former President and I feel extremely privileged – not just for having attended the summit, but more generally – to be living and working in Maastricht, the birthplace of the EU.read more