Dispute resolution in oil pollution cases
Are there alternatives to litigation in national courts?
Former Director, International Oil Pollution
Following the grounding of the tanker Torrey Canyon off the south coast of England in 1967 which caused massive pollution in England and also affected France, the international community started to address issues of liability and compensation for pollution damage caused by tanker oil spills. In 1969 a Diplomatic Conference held under the auspices of the International Maritime Organization adopted the International Convention on Civil Liability for Oil Pollution Damage (1969 Civil Liability Convention). As a complement to that Convention, a second Convention was adopted in 1971, the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (1971 Fund Convention).
The 1969 and 1971 Conventions were revised in 1992 by the adoption of two Protocols,1 and the revised Conventions2 are known as the 1992 Civil Liability Convention and the 1992 Fund Convention. The 1992 Conventions, which provide higher limits of compensation and a wider scope of application than the original Conventions, were intended to replace the 1969 and 1971 Conventions.
A third tier of compensation in the form of a Supplementary Fund was established by means of a Protocol to the 1992 Fund Convention adopted in 2003 (Supplementary Fund Protocol).3
1 Protocol of 1992 to amend the International Convention on Civil Liability for Oil Pollution Damage, 1969 and Protocol of 1992 to amend the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1971.
2 International Convention on Civil Liability for Oil Pollution Damage, 1992 and International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992.
3 Protocol of 2003 to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992.
Each of the Fund Conventions and the Supplementary Fund Protocol established an intergovernmental organization to administer the compensation regime created by the respective treaty, the International Oil Pollution Compensation Funds 1971 and 1992 (hereinafter referred to as the 1971 Fund and the 1992 Fund, respectively) and the International Oil Pollution Compensation Supplementary Fund; the three organizations are normally collectively referred to as the IOPC Funds. The organizations, which are administered by a joint Secretariat headed by a Director, have their headquarters in London.
As at 1 October 2009, 123 States were Parties to the 1992 Civil Liability Convention, and 104 States were Parties to the 1992 Fund Convention. To date, 24 States had ratified the Supplementary Fund Protocol.4
The 1969 Civil Liability Convention has been denounced by a large number of States but there are still 37 States Parties to that Convention. The 1971 Fund Convention ceased to be in force on 24 May 2002 and does not apply to incidents occurring after that date. However, before the 1971 Fund can be wound up, all pending claims resulting from incidents occurring before that date have to be settled.
The issue discussed in this chapter is whether there are alternative methods to litigation in national courts that could result in speeder claims settlements in oil pollution cases and contribute to uniformity of interpretation and application of the treaties, e.g. through arbitration, mediation or conciliation or a special international tribunal.
Main features of the international regime5
The 1992 Conventions and the Supplementary Fund Protocol apply to pollution damage caused by spills of persistent oil from tankers and suffered in the territory – including the territorial sea – of a State Party to the respective treaty, or in the exclusive economic zone (EEZ) or equivalent area of such a State.6 ‘Pollution damage’ includes the cost of ‘preventive measures’, i.e. reasonable measures to prevent or minimize pollution damage.
The 1969 and 1992 Civil Liability Conventions govern the liability of shipowners for oil pollution damage. They place strict liability on the registered owner of the ship from which the oil originated. The owner has only very limited defences, i.e. that the damage was caused by an act of war or a similar act or by a
4 Lists of the States Parties to the 1969 and 1992 Civil Liability Conventions, the 1992 Fund Convention and the 2003 Supplementary Protocol are reproduced on the IOPC Funds’ website at: www.iopcfund.org, under the headings About the IOPC Funds, Facts and Figures.
5 Information on the international compensation regime is available on the IOPC Funds’ website. For a description of the international regime, see M. Jacobsson, ‘The International Liability and Compensation Regime for Oil Pollution from Ships International Solutions for a Global Problem’, Tulane Mar.L.J. 32, 2007, pp. 1–34; M. Jacobsson, ‘L’expérience française du FIPOL’, DMF, 2007 p. 968.
6 The 1969 and 1971 Conventions only applied to pollution damage in the territory – including the territorial sea – of a State Party.
Shipowners are normally entitled to limit their liability to an amount which is linked to the tonnage of the ship and which under the 1992 Civil Liability Convention starts at $US7.1 million (4.51 million SDR) for small ships and increases on a linear scale to $US142 million (89.77 million SDR) for large ships; the limits under the 1969 Civil Liability Convention are considerably lower.7
Shipowners are obliged to maintain insurance to cover their potential liability under the applicable Civil Liability Convention.8 In nearly all major oil pollution cases the insurer is one of Protection and Indemnity Association (P&I Clubs) belonging to the International Group of P&I Clubs.9 Claims for pollution damage can be brought directly against the insurer.
The 1971 and 1992 Funds provide additional compensation to victims of oil pollution damage in a State Party to the respective Fund Convention who cannot obtain full compensation for the damage under the applicable Civil Liability Convention.
The maximum amount payable by under the 1992 Conventions for incidents occurring before 1 November 2003 is $US213 million (135 million SDR), including the sum actually paid by the shipowner/insurer under the 1992 Civil Liability Convention. This maximum amount was increased by some 50 per cent to $US320 million (203 million SDR) for incidents occurring on or after that date. The amount available under the 1969 and 1971 Conventions was significantly lower, $US95 million (60 million SDR).
The Supplementary Fund makes additional compensation available so that the total amount payable for any one incident for pollution damage in a State that is a Member of that Fund is $US1,180 million (750 million SDR), including the amount payable under the 1992 Civil Liability and Fund Conventions.
If the total amount of the established claims exceeds the total amount of compensation available under the treaties applicable to the incident in question, the compensation paid to each claimant will be reduced proportionally.
The courts in the State or States where the pollution damage occurred have exclusive jurisdiction over actions for compensation under the Conventions and the Protocol against the shipowner, the insurer and the Funds. A judgment that has been rendered by a court competent under the applicable treaty and which is enforceable in the state of origin and is in that state no longer subject to ordinary
7 The unit of account in the Civil Liability and Fund Conventions and in the Supplementary Fund Protocol is the Special Drawing Right (SDR) as defined by the International Monetary Fund. In this chapter, the SDR has been converted into US dollars at the rate applicable on 1 October 2009 (1 SDR = $US1.577270).
8 The insurance requirement does only apply to ships carrying more than 2,000 tonnes of persistent oil as cargo.
9 The International Group of P&I Clubs is a group of thirteen mutual insurers that collectively provide liability insurance for about 90 per cent of the world’s ocean-going tonnage.
The 1992 Fund has an Assembly which is composed of representatives of all Member States. The Assembly is the supreme organ governing the 1992 Fund and it holds regular sessions once a year. The Assembly elects an Executive Committee comprising 15 Member States. The main function of this Committee is to approve settlements of compensation claims. The Supplementary Fund has its own Assembly composed of representatives of its Member States. During the winding up period, the 1971 Fund is governed by an Administrative Council composed of all States which at any time were Parties to the 1971 Fund Convention.
The Funds are financed by contributions levied on any person who has received in the relevant calendar year more than 150,000 tonnes of crude oil and heavy fuel oil in ports or terminal installations in a state which is a Member of the respective Fund after carriage by sea.
Experience gained from the application of the regime
Since the 1971 Fund Convention entered into force in 1978, the 1971 and 1992 Funds have been involved in some 140 oil pollution incidents. So far the Supplementary Fund has not been involved in any incidents. Tens of thousands of compensation claims have been submitted to the Funds under the Civil Liability and Fund Conventions, and the Funds have made compensation payments totalling some $US940 million.
The overwhelming majority of these claims have been settled amicably and court actions against the Funds have been taken in respect of only a very low number of incidents. The Funds have however increasingly become involved in complicated and lengthy court proceeding brought by individual claimants in national courts. Such proceedings normally delay claims settlements and litigation in national courts could also lead to lack of uniformity in the application and interpretation of the Conventions.
Oil spills from tankers give rise to the following main categories of compensation claim:
(a) damage to property;
(b) costs of clean-up and measures to prevent or minimize pollution damage;
(c) loss of income in the fisheries, mariculture and tourism sectors; and
(d) environmental damage.
Claims may, for example, be presented by States and other public bodies for costs of clean-up and preventive measures and by individuals and private bodies for damage to property or losses in their businesses. In major oil spills in recent years the great majority of claimants have been individuals and private businesses in the fisheries and tourism sectors.
The governing bodies of the Funds, i.e. the respective Assemblies and Executive Committees, have taken the view that a compensation claim is admissible only if it falls within the definitions of ‘pollution damage’ and ‘preventive measures’ laid down in the Conventions as interpreted by the Funds’ governing bodies and that claimants have to substantiate their losses by documentation or other evidence. The governing bodies have expressed the opinion that a uniform interpretation of the definition of ‘pollution damage’ is essential for the functioning of the regime of compensation established by the Conventions.10 These bodies have also emphasized the importance of national courts in the States Parties to the Conventions giving due consideration to the decisions of the Funds’ governing bodies as regards the interpretation of the Conventions and of claimants for oil pollution damage being given equal treatment as regards compensation in all States Parties.11
The importance of uniformity of application is obvious. It is important from the point of view of equity that claimants are treated in the same manner independent of the State where the damage was sustained. In addition, the oil industry in one Member State contributes to financing the compensation of costs of clean-up operations incurred and economic losses suffered in other Member States.
The fact that compensation claims under the treaties setting up the international regime that cannot be settled out of court are decided by national courts could result in differences in respect of interpretation and application of the treaties. Nevertheless, it has so far been possible to maintain a fairly high degree of uniformity in the application of the treaties, but this is mainly due to the fact that national courts have only been called upon to take decisions on the application and interpretation of the Conventions in relatively few cases; the vast majority of all compensation claims have been decided by the governing bodies of the Funds, or by the Director as authorized by these bodies. The governing bodies have over the years laid down criteria for the admissibility of compensation claims and taken a number of decisions of principle on the interpretation of important provisions in the Conventions and these principles have been applied consistently by the Funds independent of the country where the damage was caused.