A — The International Fund

Section A — The International Fund

2 The Establishment of the International Fund

Art. 2 so provides:

An International Fund for compensation for pollution damage, to be named ‘The International Oil Pollution Compensation Fund 1992’ and hereinafter referred to as ‘the Fund’, is hereby established with the following aims:

(a) to provide compensation for pollution damage to the extent that the protection afforded by the 1992 Liability Convention is inadequate;

(b) to give effect to the related purposes set out in this Convention.

2 The Fund shall in each Contracting State be recognized as a legal person capable under the laws of that State of assuming rights and obligations and of being a party in legal proceedings before the courts of that State. Each Contracting State shall recognize the Director of the Fund (hereinafter referred to as ‘The Director’) as the legal representative of the Fund.

The Fund must be deemed to have been established concurrently with the entry into force of the Convention, because it is only at that time that art. 2(2) will become effective. Therefore, the 1971 Fund Convention was established on 16 October 1978 and the 1992 Fund was established on 30 May 1996.

3 Scope of Application of the Fund

Art. 3 so provides:

This Convention shall apply exclusively:

(a) to pollution damage caused:

(i) in the territory, including the territorial sea, of a Contracting State, and

(ii) in the exclusive economic zone of a Contracting State, established in accordance with international law, or, if a Contracting State has not established such a zone, in an area beyond and adjacent to the territorial sea of that State determined by that State in accordance with international law and extending not more than 200 nautical miles from the baselines from which the breadth of its territorial sea is measured;

(b) to preventive measures, wherever taken, to prevent or minimize such damage.

The scope of application of the Fund Convention is obviously the same as that of CLC 1992 since it is complementary to it and, therefore, reference is made to the comments on art. II of the CLC.²⁰

4 Structure of the Fund Convention

The Fund Convention consists of three parts: the first contains rules on the payment of compensation to the persons suffering pollution damage; the second contains rules on the contributions necessary in order to set up the fund for the payment of such compensation; the third contains rules on the organisation and administration of the Fund.

5 Rules Governing Payment of Compensation for Pollution Damage

5.1 When payment of compensation is due

Art. 4(1) so provides:

For the purpose of fulfilling its function under article 2, paragraph 1(a), the Fund shall pay compensation to any person suffering pollution damage if such person has been unable to obtain full and adequate compensation for the damage under the terms of the 1992 Liability Convention,

(a) because no liability for the damage arises under the 1992 Liability Convention;

(b) because the owner liable for the damage under the 1992 Liability Convention is financially incapable of meeting his obligations in full and any financial security that may be provided under Article VII of that Convention does not cover or is insufficient to satisfy the claims for compensation for the damage; an owner being treated as financially incapable of meeting his obligations and a financial security being treated as insufficient if the person suffering the damage has been unable to obtain full satisfaction of the amount of compensation due under the 1992 Liability Convention after having taken all reasonable steps to pursue the legal remedies available to him;

(c) because the damage exceeds the owner’s liability under the 1992 Liability Convention as limited pursuant to Article V, paragraph 1, of that Convention or under the terms of any other international Convention in force or open for signature, ratification or accession at the date of this Convention.

Expenses reasonably incurred or sacrifices reasonably made by the owner voluntarily to prevent or minimize pollution damage shall be treated as pollution damage for the purposes of this article.

1. While in art. 2(1)(a) it is stated that the aim of the Fund was to provide compensation to the extent that the protection afforded by the CLC is inadequate, in art. 4(1) it is stated that the obligation of the Fund arises where a person suffering pollution damage has been unable to obtain ‘full and adequate’ compensation.²¹ The double requirement appears to be due to the fact that compensation may be paid in full, but its amount is not adequate or it may instead be adequate but it has not been paid in full.

The three reasons that could have prevented payment of such ‘full and adequate’ compensation enumerated in art. 4(1) will be considered seriatim.

(a¹) The cases in which no liability of the owner arises are those specified in art. III(2) of the CLC²² and the liability of the Fund would exist if the damage resulted from a natural phenomenon of an exceptional, inevitable and irresistible character, was wholly caused by an act or omission done with intent to cause damage by a third party or by the negligence or other wrongful act of any Government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function.

(a²) Two distinct cases in which either the owner or the provider of security have failed to provide full and adequate compensation are mentioned thereunder:

(i) the case where the owner is financially incapable of meeting his obligation in full, and

(ii) the case where the financial security does not cover or is insufficient to satisfy the claims for compensation.

The inability of the owner to meet his obligation in full does not mean that in order that such situation materialises it is necessary that at least the owner must meet his obligation in part: this provision applies both where the obligation is not met in full, or at all.

(b) The compensation was adequate, but was not paid or was not paid in full: the owner or the provider of security have failed to provide full and adequate compensation because the owner is financially incapable of meeting his obligation in full, and the insurance or other financial security does not cover or is insufficient to satisfy the claims for compensation.

(c) The compensation was inadequate. In this case it may be that: (i) it was paid; (ii) it was not paid in full; or (iii) it was not paid at all.

In order to avail themselves of these situations, pursuant to art. 4(1)(b) the claimants have the burden of proving that they have taken ‘all reasonable steps to pursue the legal remedies available to them’. This requirement did not exist in the draft submitted to the Conference and was added following a proposal of the Scandinavian delegations.²³ When it was discussed, it met only with the objection of the Polish delegate, who said that it placed too heavy an obligation on the victim of damage by pollution, but the proposal was adopted almost unanimously.²⁴ Indeed, the wording of this condition is so generic, that it might have created many disputes: what in fact are all the legal remedies the victims must adopt prior to being entitled to claim payment from the Fund? And what are the reasonable steps?²⁵ Should the victims proceed judicially against the shipowner and/or the guarantor and unsuccessfully enforce a judgment against any of them? In Landcatch Ltd v International Oil Pollution Compensation Fund and Landcatch Ltd v Braer Corporation and Others — The ‘Braer’²⁶ the Outer House of the Court of Session (Scotland) held:²⁷

On the pursuers’ averment it cannot be said at this stage what the extent of the obligations of the owners or of the insurers will be, still less that those obligations cannot be met in full. Until the liability of the owner or guarantor has been determined under the 1971 Act, it cannot be known whether the Fund will have any liability at all … For these reasons I consider that unless waiver or personal bar applies the court cannot grant decree against the Fund until the condition set out in section 4(1)(1)b) of the 1974 Act has been satisfied.

However from the information available in the IOPC Funds’ Decisions database it appears that the Fund’s governing bodies had adopted a rather pragmatic approach on the assessment of the conditions for the operation of art. 4(1)(b).²⁸

It may be added that the wording of the third case, described as that where the damage exceeds the owner’s liability under the CLC,²⁹ is far from accurate; it is in fact not the damage suffered by ‘any person’, reference to which is made in the chapeau of paragraph 1, that exceeds the owner’s liability, but the global pollution damage caused by an incident.

5.2 When payment of compensation by the Fund is not due

A thorough analysis of the possible exceptions from the general responsibility of the Compensation Fund was made by the Working Group appointed by the Legal Committee of IMCO in the Spring of 1970 on the basis of the questions raised by the Delegations on the Netherlands and Norway.³⁰ Such questions, based on the exclusions of the liability of the owner under the CLC 1969, are reproduced below, followed by views of the Working Group.

Question 1: Should the Fund indemnify the victims in cases where the damage resulted from an act of war, hostilities, civil war or insurrection?

The general view of the Working Group was that the victims should not be entitled to compensation in such cases.

Question 2: Should the Fund indemnify the victims in cases where the damage resulted from a natural phenomenon of an exceptional, inevitable and irresistible character?

The general view of the Working Group was that the victims should be entitled to compensation in these cases.

Question 3: Should the Fund indemnify the victims in cases where the damage was wholly caused by an act or omission done with intent to cause damage by a third party?

The Working Group was of the unanimous view that the victims should be able to claim compensation in such cases.

Question 4: Should the Fund indemnify the victims in cases where the damage was wholly caused by the negligence or other wrongful act of any Government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function?

A large majority of the Working Group considered that the victims should be able to claim compensation in these cases.

Question 5: Should the Fund indemnify the victims in cases where the pollution damage resulted wholly or partially from an act or omission done with intent to cause damage by the person who suffered the damage?

Question 6: Should the Fund indemnify the victims in cases where the pollution damage resulted wholly or partially from the negligence of the person who suffered the damage? The Working Group was of the view that these questions should be answered in exactly the same way as they were dealt with under the 1969 Convention.

Question 7: Should the Fund indemnify the victims in cases where the guarantor may refuse to pay on the grounds that the pollution damage resulted from the wilful misconduct of the owner himself (see Article VII, paragraph 8 of the Civil Liability Convention, 1969)?

The general consensus was that the victims should be entitled to compensation from the Fund in these cases.

Question 8: Should the Fund indemnify the victims in cases where the ship or guarantor is not financially capable of fulfilling the guarantee or indemnifying the victims?

The Working Group considered that the Fund should indemnify the victims in such cases. Question 9: Should the Fund indemnify the victims in cases where quantities of oil of less than 2,000 tons carried aboard a ship causes pollution damage, and the shipowner is not financially capable of indemnifying the victims (see Article VII, 1969 Civil Liability Convention)?

Subject to the outcome of the further consideration to be given by the Working Group to the problems contained in paragraphs 24 to 27 of the Report, the general consensus in the Working Group was that the victims should be entitled to claim compensation in such cases.

There are three provisions in art. 4 that are relevant for the purpose of establishing when payment of compensation is not due by the Fund: those set out in paragraphs 2, 3 and 6. They will be considered seriatim.

2 The Fund shall incur no obligation under the preceding paragraph if:

(a) it proves that the pollution damage resulted from an act of war, hostilities, civil war or insurrection or was caused by oil which has escaped or been discharged from a warship or other ship owned or operated by a State and used, at the time of the incident, only on Government non-commercial service; or

(b) the claimant cannot prove that the damage resulted from an incident involving one or more ships.

The phrase in sub-paragraph 2 ‘shall incur no obligation’ is tantamount at the same time to exoneration from liability and to exclusion from the scope of application. The exclusion in sub-paragraph (a) in respect of pollution damage resulting from act of war, hostilities, civil war or insurrection corresponds to the exoneration from liability of the owner under art. III(1)(a) of the CLC, whilst in respect of pollution damage caused by oil which has escaped or been discharged from a warship or other ship owned or operated by a State and used only on Government non-commercial service it corresponds to the exclusion of those ships from the scope of application of the CLC pursuant to its art. XI.

The exclusion of any obligation in sub-paragraph (b) where the claimant cannot prove that the damage resulted from an incident involving one or more ships, apart from the unusual negative formulation of the rule, does not find any corresponding provision in the CLC, but it is clear that also under the CLC the claimant has the burden of proving that the pollution causing the damage has been due to an incident involving two or more ships, reference to which is made in art. IV of the CLC. Since the burden of proof is on the claimants, their entitlement to compensation from the Fund arises first upon proof by them that one of the conditions indicated in paragraph 1 exists and secondly upon proof that damage resulted from an incident involving one or more ships. It is only upon such evidence having been provided that the defence indicated in paragraph 2(a) may be raised.

3 If the Fund proves that the pollution damage resulted wholly or partially either from an act or omission done with the intent to cause damage by the person who suffered the damage or from the negligence of that person, the Fund may be exonerated wholly or partially from its obligation to pay compensation to such person. The Fund shall in any event be exonerated to the extent that the owner may have been exonerated under article III, paragraph 3, of the 1992 Liability Convention. However, there shall be no such exoneration of the Fund with regard to preventive measures.

This defence is also based on the identical defence available to the owner pursuant to art. III(3) of the CLC 1992. The purpose of the subsequent reference to that provision, that appears as a repetition of the same rule already enunciated in the first sentence, is probably that of relieving the Fund of the burden of proof placed on it by the first sentence and allowing it to obtain the same result by proving that the owner had been exonerated (wholly or partially) from liability pursuant to art. III(3) of the CLC.

6 The Assembly of the Fund may decide that, in exceptional cases, compensation in accordance with this Convention can be paid even if the owner of the ship has not constituted a fund in accordance with article V, paragraph 3, of the 1992 Liability Convention. In such case paragraph 4(c) of this article applies accordingly.³¹

It is difficult to understand the logic of this provision, since pursuant to the preceding paragraph 1 the Fund is required to pay adequate compensation if the owner is incapable of meeting his obligation in full and in such event it is hardly conceivable he will constitute a fund in accordance with art. V(3) of the CLC.

The provisions of art. 4(2) and (3) previously considered cover the situations dealt with in questions 1, 5 and 6. The provisions of art. 4(1) expressly or impliedly cover the situations dealt with in questions 2, 3, 4, 7 and 8, for in all the situations envisaged thereunder the Fund must pay compensation to any person suffering pollution damage. It is suggested that art. 4(1) also impliedly affirms the obligation of the Fund in respect of damage caused by oil carried in a quantity of less than 2,000 tons, irrespective of whether the carrying capacity of the ship is below or above 2,000 tons: in art. 4(1) reference is made under (b) to the situation where the insurance or financial security does not cover the claims for compensation.

5.3 The amount of compensation available under the Fund Convention

Art. 4(4) so provides:

4

(a) Except as otherwise provided in sub-paragraphs (b) and (c) of this paragraph, the aggregate amount of compensation payable by the Fund under this article shall in respect of any one incident be limited, so that the total sum of that amount and the amount of compensation actually paid under the 1992 Liability Convention for pollution damage within the scope of application of this Convention as defined in article 3 shall not exceed 203,000,000 units of account.

(b) Except as otherwise provided in sub-paragraph (c), the aggregate amount of compensation payable by the Fund under this article for pollution damage resulting from a natural phenomenon of an exceptional, inevitable and irresistible character shall not exceed 203,000,000 units of account.

(c) The maximum amount of compensation referred to in sub-paragraphs (a) and (b) shall be 300,740,000 units of account with respect to any incident occurring during any period when there are three Parties to this Convention in respect of which the combined relevant quantity of contributing oil received by persons in the territories of such Parties, during the preceding calendar year, equalled or exceeded 600 million tons.

(d) Interest accrued on a fund constituted in accordance with article V, paragraph 3, of the 1992 Liability Convention, if any, shall not be taken into account for the computation of the maximum compensation payable by the Fund under this article.

(e) The amounts mentioned in this article shall be converted into national currency on the basis of the value of that currency by reference to the Special Drawing Right on the date of the decision of the Assembly of the Fund as to the first date of payment of compensation.

The provisions comprised in paragraph 4 will be considered seriatim.

The provision in sub-paragraph (a)