Subsoil User's Liability: Three Case Studies

This article concerns several interesting cases from the Signum Law Firm's recent practice. At first glance, they appear to be common cases involving environmental damage compensation, damages from inappropriate mineral resource usage, and income owed from gas production. However, they all have certain common elements. This does not claim to be an objective, comprehensive analysis. We hope that the information on current court practices will be helpful when similar disputes arise.

CASE STUDY 1: Compensation for Environmental Damage from Mineral Resource Production

Introduction

The client's deposit infrastructure development provides for oil platform construction, as well as for construction of associated access roads. In order to carry out this construction, the client hired contractors.

The work included sub-grade flooring and subsequent soil compaction and graveling. The project documentation stipulated use of either imported soil or "local" soil from side thrusts for the sub-grade compaction. During construction, the land was leveled (any protruding areas were leveled , and any concave areas were filled in, using soil left over from leveling the protrusions).

Based on the results of a survey on subsoil user activities, the Ecology Department (ED, or Claimant) filed a claim against the subsoil user asking for compensation for environmental damage caused by unauthorized production of COMR from 2012-2014. The claim is for .9 bln. tenge.

Claimant's Position

The ED gave the following reasoning for their position:

(1) The contractors used "local" soil for their work, i.e., they produced COMR without a permit.

(2) ED does not deny that the alleged violation of the law, which resulted in environmental damage, was not perpetrated by the subsoil user himself, but by his contractors. Nevertheless, ED concludes that COMR production was carried out by the subsoil user's contractors on the subsoil user's contracted land with the user's knowledge. They further assert that COMR was intended to meet the user's needs. As such, ED believes that the subsoil user is responsible for his contractors' production of COMR.

(3) The unauthorized COMR production resulted in environmental damage.

According to Article 108 of the Environmental Code, an economic assessment of the damage caused by illegal subsoil use has been determined in accordance with the rules for economic assessment of environmental pollution damage (under Resolution №535, 27 June 2007).

In accordance with Paragraph 16 of these rules, an economic assessment of the damages caused by unauthorized COMR production is ten times the COMR's value. The cost of the COMR is officially based on the average market price for commercial product use (over a period not to exceed a quarter) starting from the date of the violation detection.

Subsoil User's Position

The subsoil user stated the following:

(1) The damage should be compensated by the person causing the damage. ED does not deny that the subsoil user did not directly remove the soil, and every activity that ED considers be illegal subsoil use was carried out by a third party.

According to Article 917 of the Civil Code, damages caused by illegal actions must be paid for by the person who caused the damage. According to Article 321 of the Environmental Code, the perpetrators of environmental offenses must pay for all the damage they have incurred. (2) The subsoil user is not liable for actions of a third party, unless those actions...