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10/03/2006
BRAZIL - QUANTIFICATION OF ENVIRONMENTAL DAMAGES

BRAZIL - QUANTIFICATION OF ENVIRONMENTAL DAMAGES

It is undisputed that evaluation of environmental damage is an extremely complex area. This is clearly reflected in the varied and often controversial material available on the matter, from studies of legal principles to courts precedents on actual pollution cases. Brazil is no exception to this rule.

Prior to the 1980's, Brazilian legislation on pollution was neither extensive nor severe. As far as marine pollution caused by ships was concerned, sanctions against polluters were limited to administrative fines imposed by the Naval authorities through local Port Captaincies. Public actions in the civil sphere were extremely rare. This was due to the lack of specific statutes and of an administrative structure to deal with the problem.

This picture has changed radically since then. The 1990's and early 2000's brought abundant and very aggressive rules (in the ambit of penal, civil and administrative law) in respect of pollution in general and also pollution caused specifically by vessels. At the same time, environmental bodies, as well as Prosecutor Offices in Federal and State spheres, greatly improved their operational structures. As a result, the value of administrative fines escalated and civil actions by Public Prosecutors became the norm.

As a consequence, the problem of quantification of environmental damages became acute. Against this background, the Environmental Body for the State of São Paulo, CETESB, came up with a formula for quantifying environmental damages. Given the good technical reputation of this body and also the leading role of São Paulo in the Brazilian economy (it was also home to the largest Brazilian port, Santos), this formula rapidly spread from its cradle in the administrative sphere and started being used in court cases.

However, as is often the case with mathematic al formulae, the CETESB formula failed to provide a fair assessment of all circumstances involved in pollution cases, both aggravating and mitigating. To make matters worse, its conceptual flaws also caused the resulting values to increase exponentially and absurdly; For example, even when starting from zero pollution (but with the input of other variables at low figures) the formula yields a result of a minimum of over US$ 31,000. If there is no pollution, how can there be any "damage" to compensate for ?

From the very beginning Brazilian lawyers acting for Owners and P&I Clubs have waged a fierce court battle against the application of CETESB's formula, trying to draw the Courts' attention to its flaws and inconsistencies. But the results during more than a decade were unquestionably negative. While compensation figures were in fact eventually reduced in a number of cases on account of defence arguments against the formula these were small claims and the reductions in compensation amounts were granted by the Courts intuitively, because the values initially found seemed excessive, but without any formal criticism of the formula itself. These reductions were seen instead as small corrections required by the particular circumstances of a few cases, leaving intact, or even confirming the validity of, CETESB's formula as a safe criterion for assessing the quantum of environmental damage.

However, this position now seems to have been drastically changed in what has become the most important precedent against CETESB's formula. In a case handled by our firm, involving an oil spill during fuel supply operations, the owners calculated the spill at 30 litres (compared with 273 litres by the Federal Prosecutor Office's assessments). A civil action for compensation for environmental damage ensued and was filed before the 1st Federal Court of Santos. A technical investigation by a court expert was held with a view to quantifying the damage to the environment. Application of the CETESB's formula resulted in the astronomical figure of US$ 912,640,962.56 !

This assessment was strongly opposed and the first instance Court requested a second survey by a different expert. The aim of this second investigation was to consider specifically the criticisms against the CETESB formula.
The results of the second survey were decisively positive. First, the expert recommended a reduction in quantum of the compensation to a symbolic amount - US$ 1.00. In reaching this conclusion the expert took into consideration the small amount of the spill and other factors such as (i) the Member's immediate and effective reaction fighting the oil spill and (ii) the hydrodynamic conditions of the Santos estuary which is capable of supporting small spills without significant alterations to its natural status. In figurative but particularly expressive language the court expert said:

"should it be possible to insert on a ruler 100 centimetres long, in an escalating manner, the maximum amount being the valuation previously proposed (around 1 billion U.S. dollars), it is correct to affirm that the amount to be compensated by the defendant in the particular episode should be far closer to the zero on the ruler than to the end of the scale".1


Additionally, the expert - himself a biologist from CETESB - admitted that even in the administrative sphere CETESB has now ceased to use the formula in question, as it is no longer considered an adequate instrument to evaluate damages arising from oil spills: "CETESB's technical body is firmly convinced that the limitations and technical inconsistencies" (says the report about the formula) "make it difficult to support it and consequently to continue using it"2 .

It is true that these are considerations set out not in a judgment, but, so far, only in a survey report which has yet to be examined by the First Instance Court. However, it will be very difficult for the second survey report not to exert enormous influence on the judge's mind when the time comes to render judgment in the case. And, more than this, it was decidedly good news to have a public mea culpa from CETESB, after all these years of unfair use of such a long-criticised formula. It is expected that the effects of this technical investigation will now slowly spread to other Courts in and out of Santos until the application of CETESB's formula is definitively banished from court practice. The negative experience of this formula will then allow room for other criteria of assessment of environmental damage that may be more just. Hopefully, this is what the future holds, sooner rather than later.

1.Report, court file, folio 454. This conclusion immediately brings to mind what happened in the well-known precedent of the "PATMOS" case which was dealt with by the Italian Courts. In a sense, it must be noted that the Brazilian case went even farther than the Italian one. In Italy, likewise, there were two technical reports and the experts stated that where it was not possible to precisely appraise the damages they would supply the Court with the information necessary to reach a just evaluation. Because of that there was a widespread criticism that the conclusions reached by the said specialists were vague. In Brazil, on the contrary, the expert not only recognised the existing difficulties, but was courageous enough to recommend a symbolic figure, as this was found adequate in the circumstances.
2. Report, court file, folio 454.

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