Liability and Compensation for Ship-Source Pollution (Måns Jacobsson)
LIABILITY AND COMPENSATION FOR SHIP-SOURCE POLLUTION
9.1 The Development of the International Regimes
There are three international regimes governing liability and compensation for marine pollution dealing respectively with tanker oil spills, spills of bunker oil, and damage caused by hazardous and noxious substances carried by sea.
Compensation for pollution damage caused by spills from oil tankers is governed by an international regime elaborated under the auspices of the International Maritime Organization (IMO) in the wake of the Torrey Canyon oil spill in 1967. The framework for the regime was originally the 1969 International Convention on Civil Liability for Oil Pollution Damage1 (1969 Civil Liability Convention) and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage2 (1971 Fund Convention). These Conventions entered into force in 1975 and 1978 respectively.
This ‘old’ regime was amended in 1992 by two Protocols,3 and the amended Conventions are known as the 1992 Civil Liability Convention and the 1992 Fund Convention. The 1992 Conventions provide higher limits and an enhanced scope of application. The 1992 Conventions entered into force in 1996.
It should be mentioned that in 1984 an attempt was made to revise the 1969 and 1971 Conventions by the adoption of two Protocols, but the 1984 Protocols never entered into force. The 1992 Protocols are identical to the 1984 Protocols except for the entry into force conditions.4
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 20035 (the Supplementary Fund Protocol) which entered into force in 2005. Only States parties to the 1992 Fund Convention may become parties to the Protocol.
The 1992 Conventions have become a truly global regime, having been ratified by a large number of States. As of 31 December 2015, 134 States were parties to the 1992 Civil Liability Convention, and 114 States were parties to the 1992 Fund Convention. Thirty-one States had ratified the Supplementary Fund Protocol. The old regime based on the 1969 and 1971 Conventions has thus been largely replaced by the regime established by the 1992 Conventions.
As of 31 December 2015, there were, however, still thirty-four States that remained parties to the 1969 Civil Liability Convention. The 1971 Fund Convention ceased to be in force on 24 May 2002. Before the 1971 Fund could be wound up, all pending compensation claims resulting from incidents occurring prior to that date had to be settled and all remaining assets distributed to the 1971 Fund contributors. The 1971 Fund was dissolved with effect from 31 December 2014.6
It should be noted that the United States have not become a party to the Civil Liability and Fund Conventions, but have adopted their own legislation in the form of the Oil Pollution Act 1990 (OPA-90).7 The People’s Republic of China is a party to both the 1992 Civil Liability Convention and the 1992 Fund Convention, but has limited the application of the latter Convention to the Special Administrative Region of Hong Kong.8
In 1995 the IMO Legal Committee began work on a convention dealing with liability and compensation for pollution damage caused by spills of bunker oil, and this work led to the adoption, in 2001, of the International Convention on Civil Liability for Bunker Oil Pollution Damage9 (Bunkers Convention). The Convention entered into force in 2008 and, as of 31 December 2015, eighty-one States had ratified it.
The IMO Legal Committee had already started work on the elaboration of a convention dealing with liability and compensation for damage caused by hazardous and noxious substances other than oil in the late 1970s. A draft convention was submitted to a Diplomatic Conference held in 1984, but this Conference failed to adopt a convention. It was not until 1996 that a new Diplomatic Conference succeeded in adopting a convention on the subject: the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 (normally known as the HNS Convention).
As a number of States considered that there were serious obstacles to their ratifying the HNS Convention, the Convention did not enter into force. In 2010 a Diplomatic Conference adopted a Protocol to the HNS Convention for the purpose of eliminating these obstacles. As of 31 December 2015, no State had ratified the 2010 Protocol, which consequently has not yet entered into force.
9.2 The Regime Relating to Liability and Compensation for Tanker Oil Spills
The 1969 and 1992 Civil Liability Conventions govern the liability of shipowners for oil pollution damage. The Conventions lay down the principle of strict liability for shipowners and create a system of compulsory liability insurance. Shipowners are normally entitled to limit their liability to an amount which is linked to the tonnage of the ship. The 1971 and 1992 Fund Conventions, which are supplementary to the respective Civil Liability Conventions, establish a regime for compensating victims through an international fund when the compensation under the applicable Civil Liability Convention is inadequate.
The Supplementary Fund Protocol adds a third layer of compensation for pollution damage in States parties to the Protocol when the amount of compensation available under the 1992 Conventions is inadequate to compensate all established claims in full.
Each of the Fund Conventions and the Supplementary Fund Protocol establish 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. These three organizations are normally collectively referred to as the IOPC Funds. As mentioned above, the 1971 Fund was dissolved with effect from 31 December 2014, and thereafter the expression the IOPC Funds relates only to the 1992 Fund and the Supplementary Fund.
The 1992 Fund has an Assembly, which is composed of representatives of all Member States. The Assembly is the supreme organ governing the Fund, and it holds regular sessions once a year. When the Assembly is unable to obtain a quorum, an Administrative Council is convened to act on behalf of the Assembly. 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 was governed by an Administrative Council, composed of all States which at any time were parties to the 1971 Fund Convention.
The 1992 Fund and the Supplementary Fund have a joint Secretariat located in London (United Kingdom). Until 31 December 2014 that Secretariat administered also the 1971 Fund. The Secretariat is headed by a Director and has some thirty staff members.
Since their establishment, the 1971 and 1992 Funds have been involved in approximately 150 incidents. Some of these incidents have given rise to thousands of compensation claims.10 So far, the Supplementary Fund has not been involved in any incidents.
The present section is focused on the ‘new’ compensation regime under the 1992 Conventions and the Supplementary Fund Protocol, but on a number of points comparison is made with the ‘old regime’ under the 1969 Civil Liability Convention and the 1971 Fund Convention.
The definitions of the basic concepts in the Civil Liability and Fund Conventions are not very detailed, and the Conventions contain only a few provisions on the procedures to be followed in the handling of compensation claims. This has made it possible for the governing bodies of the IOPC Funds to develop the international regime in the light of the experiences gained from major oil spills.
There are relatively few court cases on the interpretation and application of these treaties. The governing bodies of the IOPC Funds (ie the governments of the States parties to the Fund Conventions) have, however, in dealing with particular incidents, had to take a position on the interpretation of various provisions in the treaties. In connection with the settlement of compensation claims, the governing bodies have developed certain principles as regards the interpretation of the definition of ‘pollution damage’.
Important decisions by the governing bodies are set out in the IOPC Funds’ Annual Reports and (from 2009) in the yearly publication ‘Incidents involving the IOPC Funds’. There is also a database on practically all decisions by the governing bodies available on the IOPC Funds’ website at <http://www.iopcfund.org>. The position taken by the governing bodies on a number of issues are reflected in this section.11
The 1992 Fund has published a Claims Manual that contains general information on how claims should be presented, and sets out the general criteria for the admissibility of various types of claims.12 Guidelines for presenting and assessing claims in the fisheries and tourism sectors have also been published.13 Guidelines for presenting claims for clean-up and preventive measures were published in 2015. There is also a document containing guidance for Member States to facilitate the claims handling process. These publications are available on the IOPC Funds’ website.
It should be noted that the definitions of various basic concepts in the Civil Liability Conventions (Art. I, V.9 and V.10) are by reference included in the Fund Conventions (Art. 1.2, 1.4 and 1.5) and the Supplementary Fund Protocol (Art.1.5, 1.6 and 1.7).
Information on the international compensation regime and the IOPC Funds is available on the above-mentioned website, which contains a list of the States Parties to the 1992 Conventions, the 1969 Civil Liability Convention and the Supplementary Fund Protocol.14
9.2.2Geographical scope of application
Whereas the scope of application of the 1969 Civil Liability and 1971 Fund Conventions is confined to the territory (including the territorial sea) of a State Party, the 1992 Conventions and the Supplementary Fund Protocol apply to pollution damage 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 (Art. II).15 The criterion for applicability is thus a geographical one, ie the place of the damage. The nationality of the ship involved in the oil spill is irrelevant for this purpose.
The Conventions also apply to reasonable measures, wherever taken, to prevent or minimize pollution damage.
The 1992 Conventions apply to incidents occurring in inland waters (whether tidal or not), provided the vessel in question falls within the definition of ship, ie is a seagoing vessel.16
Measures taken within the territorial waters of a State not party to the respective Civil Liability and Fund Conventions to prevent pollution damage in a State Party fall in principle within the scope of application of the Conventions.17
9.2.3Definition of ship18
In the 1969 Civil Liability Convention and the 1971 Fund Convention the concept of ‘ship’ is defined as any seagoing vessel and any seaborne craft of any type whatsoever actually carrying oil in bulk as cargo (Art. I.1). Oil tankers in ballast fall therefore outside these Conventions.
The definition in the 1992 Conventions is wider, and refers to any seagoing vessel and any seaborne craft of any type whatsoever constructed or adapted for the carriage of oil in bulk as cargo.19 The 1992 Conventions apply in general to oil tankers but not to spills from dry cargo ships, passenger ships, and other non-tankers.
The definition of ‘ship’ does not require that the craft should have any means of steering or propulsion. The Civil Liability and Fund Conventions would therefore in principle apply to barges and other craft without such means, provided they fulfil the requirement of being seagoing.20
The 1992 Fund Executive Committee has taken the view that, if a vessel was actually operating at sea at the time of the incident, the vessel should be considered seagoing and therefore fall within the definition of ship in the 1992 Conventions.21
There is a proviso to the definition in the 1992 Conventions to the effect that a vessel capable of carrying oil and other cargoes is to be considered as a ship only when it is actually carrying oil in bulk as cargo and during any voyage following such carriage, unless it is proved that it has no residues of such carriage of oil in bulk aboard. The proviso, which was drafted with combination carriers (ie ships that are designed to carry oil cargoes on some voyages and dry bulk cargoes on others) in mind, has given rise to uncertainty as to its interpretation. The 1992 Fund Assembly has taken the view that the expression ‘other cargoes’ should be interpreted to include all cargoes other than persistent oil and not only solid bulk cargoes; consequently the proviso applies not only to combination carriers but also to tankers capable of carrying clean-oil cargoes (ie cargoes of non-persistent oil) or other chemicals as well as cargoes of persistent oil. The Assembly has also decided that the expression ‘any voyage’ should be interpreted literally and not be restricted to the first ballast voyage after the carriage of a cargo of persistent oil. The burden of proof that there were no residues of a previous persistent oil cargo on board would normally fall on the shipowner.22
Important questions of principle as to the interpretation of the definition of ‘ship’ in the 1992 Conventions had to be considered in relation to the Slops incident which occurred in Greece in 2000. The Slops had originally been designed and constructed for the carriage of oil in bulk as cargo, but had undergone a major conversion in the course of which its propeller had been removed and its engine deactivated and officially sealed, and the craft had thereafter been permanently at anchor and used exclusively as a waste storage and processing unit. Taking the view that the carriage of oil as envisaged in the 1992 Conventions involved the notion of transport, the 1992 Fund Executive Committee decided that, since the Slops had not been engaged in the carriage of oil in bulk as cargo, it should not be regarded as a ship for the purpose of the 1992 Conventions.23
The Greek Supreme Court considered, however, that the requirement to be ‘actually carrying oil in bulk as cargo’ in the proviso to the definition of ship referred only to combination carriers. The Court held that the Slops should be regarded as a ship as defined in the 1992 Conventions, since it had the character of a seaborne craft which, following its modification into a floating separating unit, stored oil products in bulk and, furthermore, it had the ability to move by self-propulsion or by way of towage as well as the ability to carry oil in bulk as cargo, without it being necessary for the incident to have taken place during the carriage of the oil in bulk as cargo, that is, during a voyage.24
The 1992 Fund Assembly has had to consider whether, and if so to what extent, the 1992 Conventions applied to offshore craft, namely floating storage units (FSUs), and floating production, storage, and offloading units (FPSOs). The Assembly decided that offshore craft should be considered as ‘ships’ under the 1992 Conventions only when they carry oil as cargo on a voyage to or from a port or terminal outside the oil field in which they normally operate. It was also decided that offshore craft would fall outside the scope of the 1992 Conventions when they leave an offshore oil field for operational reasons or simply to avoid bad weather. The Assembly emphasized that the decision as to whether the 1992 Conventions applied to a specific incident would be taken in the light of the particular circumstances of the case.25
Another question that has arisen is under which conditions permanently and semi-permanently anchored vessels engaged in ship-to-ship oil transfer operations should be regarded as ‘ships’ under the 1992 Civil Liability and Fund Conventions. The 1992 Fund Assembly decided in 2006 that such vessels should be regarded as ships only when they carried oil as cargo on a voyage to or from a port or terminal outside the location in which they normally operated, but that in any event the decision as to whether such a vessel fell within the definition of ship should be made in the light of the particular circumstances of the case.26 In 2010 the Assembly decided that ‘mother’ vessels involved in extended ship-to-ship or floating storage operations were to be considered ‘ships’ under the Conventions and that consequently spills from such vessels would be covered by the 1992 Conventions.27
In October 2011, the 1992 Fund Assembly established a Working Group with the mandate to study certain issues relating to the interpretation of the definition of ‘ship’ in the 1992 Civil Liability Convention. On the basis of the Working Group’s Final Report, in October 2015 the 1992 Fund Administrative Council adopted an illustrative list of vessels falling clearly within or outside that definition.28
The Civil Liability Conventions do not apply to warships or other ships owned or operated by a State and used, at the time of the incident, only on government non-commercial service (Art. XI.1).
9.2.4Definition of oil
There is no clear definition of the concept of ‘oil’ in the 1992 Conventions. It is simply provided that oil means ‘any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil’ (Art. I.5).29 Spills of non-persistent oil, for example, gasoline, light diesel oil, and kerosene, are therefore not covered by the Conventions.30
The provision makes it clear that spills of non-mineral oils, for instance, palm oil and whale oil, fall outside the 1992 Conventions.
It should be noted that the definition of oil in the 1969 Civil Liability Convention is not restricted to mineral oils and does specifically include whale oil (Art. I.5). The 1971 Fund Convention confined, however, the definition to persistent hydrocarbon mineral oils (Art. 1.2).
The reason that the Conventions are restricted to persistent oils is that such oils are slow to dissipate when spilled into the environment and therefore require clean-up, whereas non-persistent oils normally evaporate quickly after an oil spill, so that no clean-up is necessary.
It appears that the distinction between persistent and non-persistent oil has not given rise to any difficulties in the application of the Conventions.31
The Conventions apply to spills of persistent oil whether the oil is carried in a ship (as defined) as cargo or in the bunkers of such a ship.
In order for the Conventions to apply, the oil must be carried on board a ship at the time of its escape into the sea. This appears to imply that the oil must not only be on board the ship but also be there for the purpose of transport, but it does not mean that the ship must be under way at the time of the oil spill for the Conventions to apply.32
9.2.5 Concept of damage
220.127.116.11 Types of damage covered
An oil pollution incident can generally result in five types of damage:
•costs of clean-up operations at sea and on shore
•economic losses suffered by fishermen and those engaged in mariculture
•economic losses in the tourism sector
•costs for reinstatement of the environment
18.104.22.168 Property damage
Pollution incidents often cause damage to property; the oil may contaminate fishing boats, fishing gear, yachts, piers, and embankments. Costs for cleaning polluted property are admissible for compensation under the Conventions. If the polluted property (eg fishing gear) cannot be cleaned, the cost of replacement qualifies for compensation, subject to deduction for wear and tear.
22.214.171.124 Preventive measures
‘Pollution damage’ includes the cost of ‘preventive measures’, that is, reasonable measures to prevent or minimize pollution damage, as well as loss or damage caused by preventive measures (Art I.6 and I.7).
Preventive measures may, for instance, consist of the deployment of vessels to combat the oil spill at sea or the use of booms to contain the oil or to protect vulnerable resources, seawater intakes of industrial plants or mariculture facilities. Clean-up operations at sea or onshore have generally been considered to fall within the concept of preventive measures.
Preventive measures only qualify for compensation if taken in order to prevent or minimize damage which falls under the Conventions, including within its geographical limits.33
Expenses incurred for preventive measures are recoverable under the 1992 Conventions even when no spill occurs, provided the measures are taken after an ‘incident’ has taken place.34 The definition of ‘incident’ in the 1992 Conventions is fairly broad, namely ‘any occurrence, or series of occurrences having the same origin, which causes pollution damage or creates a grave and imminent threat of causing such damage’ (Art. I.8). The issue of whether in a particular situation there was a grave and imminent threat of damage could give rise to disputes.
In order for the preventive measures to qualify for compensation, the measures must be reasonable. The governing bodies of the IOPC Funds have repeatedly stated that whether or not a measure is reasonable should be determined on the basis of objective criteria in the light of the facts available at the time of the decision to take the measures. The fact that a Government or a public authority decided to take certain measures does not, in the view of these bodies, in itself mean that the measures are reasonable for the purpose of compensation under the Conventions. Claims for costs of preventive measures are not admissible if it could have been foreseen that the measures taken would be ineffective. On the other hand, the fact that the measures proved to be ineffective is not in itself a reason for rejection. The costs incurred, and the relationship between these costs and the benefit derived or expected, should in the opinion of the governing bodies also be reasonable (principle of proportionality).35
In 2006, the 1992 Fund Assembly decided not to widen the criteria for the admissibility of claims for the costs of preventive measures so as to include social and/or political considerations. It also decided that when considering the reasonableness of such measures, account should be taken of the potential environmental damage which could be caused if the measures were not taken.36
The Funds have accepted to pay compensation for reasonable costs of cleaning and rehabilitation of contaminated birds and mammals, provided the measures were taken by qualified personnel and there was a reasonable chance that the animals would actually survive the process.37
In many countries clean-up operations are carried out by public authorities using permanently employed personnel or vessels and vehicles owned by these authorities. There has never been any doubt that reasonable ‘additional costs’ incurred by the authorities, ie expenses that arose solely as a result of the incident and the relating operations and which would not have been incurred had the incident not taken place, are to be compensated pursuant to the Conventions. An important question is whether compensation is payable under the Conventions also for so-called ‘fixed costs’, that is, costs that would have arisen for the authorities even if the incident had not occurred, such as normal salaries for permanently employed personal. The IOPC Funds’ governing bodies have decided that a reasonable proportion of fixed costs qualify for compensation, provided that these costs correspond closely to the clean-up period in question and do not include remote overhead charges.38
Salvage operations may in some cases include an element of preventive measures. The IOPC Funds’ governing bodies have taken the position that the costs incurred for such operations qualify in principle for compensation under the Civil Liability and Fund Conventions if the primary purpose of the operations was to prevent pollution damage (‘primary purpose test’); should the operations have another purpose, such as saving the ship or cargo, they would not fall within the definition of preventive measures and the costs incurred would not be admissible under the Conventions. The governing bodies have further decided that if the operations were undertaken for the purpose of both preventing pollution and saving the ship or cargo, but it is not possible to establish with any certainty the primary purpose (‘dual purpose test’), the costs should be apportioned between pollution prevention and salvage. It has also been decided that compensation for the costs of the operations should not be assessed on the basis of the criteria applied for determining salvage awards, but the compensation should be limited to costs incurred, including a reasonable element of profit.39
Loss or damage caused by reasonable preventive measures is also compensated under the 1992 Conventions (Art. 1.6(b)). For example, if clean-up operations result in damage to roads, piers and embankments, the cost of the resulting repairs will be compensated.40
126.96.36.199 Consequential and pure economic loss
Persons whose property has become contaminated by oil may suffer loss of earnings, for example a fisherman who is unable to fish while his fishing gear is being cleaned (consequential economic loss). Such losses qualify for compensation in most jurisdictions, and this is also the case under the Civil Liability and Fund Conventions.
Persons whose property has not been damaged can also suffer losses. A fisherman whose gear did not get damaged may have had to abstain from fishing for a period of time to avoid having his nets contaminated. An hotelier or restaurateur whose premises are close to a polluted public beach may suffer losses because the number of guests decreases during the period of contamination. Such losses are in common law jurisdictions referred to as pure economic loss. In most common law jurisdictions the courts have been very reluctant to accept claims for pure economic loss. In many countries outside the common law system the legal situation is unclear. In some of these countries pure economic loss is not considered to be a separate type of damage. The courts outside the common law system may apply the criterion of foreseeability and remoteness or require that there is direct link of causation between the damage and the defendant’s action, and that the damage must be certain and quantifiable in monetary terms.
The Civil Liability and Fund Conventions do not explicitly indicate whether pure economic loss qualifies for compensation under the Conventions. The relevant provisions in the Civil Liability and Fund Conventions (‘loss or damage caused outside the ship by contamination’) have however been consistently interpreted by the governing bodies of the IOPC Funds to cover in principle pure economic loss, and these bodies have developed certain criteria for the admissibility of claims for such losses, in particular that there must be a sufficiently close link of causation between the contamination and the loss. A claim is not admissible just because an oil spill has occurred; the starting point is the pollution and not the incident.
When considering whether the criterion of a sufficiently close link of causation is fulfilled, the IOPC Funds’ governing bodies take into account the following elements:
•the geographic proximity between the claimant’s business activity and the contaminated area
•the degree to which a claimant’s business is economically dependent on an affected resource
•the extent to which a claimant has alternative sources of supply or business opportunities
•the extent to which a claimant’s business forms an integral part of the economic activity within the area affected by the spill.41
The IOPC Funds’ governing bodies have taken the view that measures to prevent or minimize pure economic loss could be considered as falling within the definition of ‘preventive measures’. Such measures could, for instance, be aimed at counteracting the negative impact of an oil pollution incident on the local industry in the fishery and tourism sectors. The governing bodies have decided that in order to qualify for compensation the measures should fulfil the following requirements:
•the cost of the measures is reasonable
•the cost of the measures is not disproportionate to the further damage or loss which they are intended to mitigate
•the measures are appropriate and offer a reasonable prospect of being successful
•in the case of a marketing campaign, the measures relate to actual targeted markets.42
To be admissible, the costs should relate to measures to prevent or minimize pure economic losses which, if sustained, would qualify for compensation under the Conventions. Claims for the cost of marketing campaigns or similar activities are accepted only if the activities undertaken are in addition to measures normally carried out for this purpose.43
188.8.131.52 Environmental damage
In several cases involving the 1971 Fund, claims were presented for damage to the marine environment as such or otherwise of a non-economic nature. The 1971 Fund’s governing bodies insisted repeatedly that such claims were not admissible under the 1969 Civil Liability and 1971 Fund Conventions, and took the view that compensation could only be granted to a claimant who had suffered a quantifiable economic loss,44 a position that in some cases was not accepted by national courts.45
For the purpose of clarifying that claims for damage of a non-economic nature are excluded, a proviso was inserted in the Civil Liability Convention (Art. I.6(a)) and by reference in the Fund Convention through the 1992 Protocols thereto to the effect that compensation for impairment of the environment other than loss of profit from such impairment shall be limited to costs of reasonable measures of reinstatement actually undertaken or to be undertaken (Art. 1.6 (a)). Claims for damage to the marine environment per se are therefore not admissible under the Conventions, but only claims for the economic consequences of such damage, for example losses suffered by fishermen or businesses in the tourism industry resulting from damage to the marine environment. The proviso also excludes damage calculated on the basis of theoretical models or of a punitive character. The governing bodies of the 1992 Funds have repeatedly emphasized that claims for such damage are not admissible under the 1992 Civil Liability and Fund Conventions.46
It should be emphasized that measures of reinstatement of the environment qualify for compensation only if they are reasonable. As for the concept of reasonableness, reference is made to what is stated above in respect of preventive measures (Section 184.108.40.206).
Studies are sometimes required to establish the nature and extent of environmental damage caused by an oil spill and to determine whether or not reinstatement measures are necessary and feasible. Such studies will not be necessary after all spills, and will normally be most appropriate in the case of major incidents where there is evidence of significant environmental impact. The Funds have decided that they may contribute to the costs of such studies provided that they concern damage which falls within the definition of pollution damage in the Conventions, including reasonable measures of reinstatement of the contaminated environment. The Funds will require that the studies are likely to provide reliable and useful information and that they are carried out with professionalism, scientific rigor, objectivity, and balance. The scale of the studies should be in proportion to the extent of the contamination and predictable effects.47
Under the Civil Liability Conventions the registered owner of a tanker has strict liability (ie is liable also in the absence of fault) for pollution damage caused by oil spilled from the ship as a result of an incident (Art. III.1). The shipowner is exempt from liability under the Convention (Art. III.2) only if he proves that:
(a)the damage resulted from an act of war, hostilities, civil war, insurrection, or a natural phenomenon of an exceptional, inevitable and irresistible character,48 or
(b)the damage was wholly caused intentionally by a third party, or
(c)the damage was wholly caused by the negligence of public authorities in maintaining lights or other navigational aids.49
The exemption under (a) applies when the damage resulted from an act of war or similar act or a grave natural disaster. It is suggested that this exemption would apply if such an act was the dominant or proximate cause of the damage even if other factors contributed to the damage. It is also suggested that if, for instance, the incident was due to a major tsunami but negligence on the part of the crew contributed to the extent of the damage, the shipowner would still be exempt from liability.
For the exemptions under (b)—which appears to cover acts of terrorism and piracy—and (c) to apply, the damage must have been wholly caused by the intentional act of the third party or the negligence of the public authority. It is submitted that these exemptions would not apply if there were any contributory negligence, even minor, on the part of the shipowner. The expression wholly caused may cause difficulties in interpretation.50
If the damage resulted wholly or partially 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 shipowner may be exonerated wholly or partially from liability against that person, but his liability to other persons is not affected (Art. III.3). This defence could, for instance, be invoked against a claim by a government authority for clean-up costs if the incident was not wholly but only partially caused by its negligence in the maintenance of navigational aids.
An incident involving more than one ship may cause pollution damage. In such a case, the shipowners of all ships concerned are jointly and severally liable for all such damage that is not reasonably separable, unless they may invoke one of the exemptions from liability referred to above (Art. IV).
9.2.7Limitation of liability
Under certain conditions, shipowners are entitled to limit their liability under the 1969 or 1992 Civil Liability Convention to an amount which is linked to the tonnage of the vessel. The limitation amounts under the 1992 Convention are—after increases by 50.73 per cent with effect from 1 November 2003—as follows:51
(a)for a ship not exceeding 5,000 units of gross tonnage, 4,510,000 Special Drawing Rights (SDR) (US$6.2 million);
(b)for a ship with a tonnage between 5,000 and 140,000 units of tonnage, 4,510 000 SDR (US$6.2 million) plus 631 SDR (US$874) for each additional unit of tonnage; and
(c)for a ship of 140,000 units of tonnage or over, 89 770 000 SDR (US$124 million).52
Claims that fall within the scope of the 1992 Civil Liability Convention may in certain cases also be subject to limitation of liability under the 1969 Civil Liability Convention. If, for instance, a ship registered in a State party to the 1969 Civil Liability Convention but not party to the 1992 Civil Liability Convention causes damage falling under the latter Convention in a State party to both the 1992 Civil Liability Convention and the 1969 Convention, the latter State will have to respect the shipowner’s right to limit his liability under the 1969 Convention which provides for much lower limits than the 1992 Convention.53
Claims for pollution damage subject to the 1992 Civil Liability Convention may in some cases be subject to limitation under older conventions dealing with global limitation of maritime claims, ie Conventions on that subject of 1957 or 1924.54 If, for instance, a ship registered in a State party to the 1957 Convention but not party to the 1992 Civil Liability Convention causes damage falling under the latter Convention in a State party to both the 1992 Civil Liability Convention and the 1957 Convention, the latter State will have to respect the shipowner’s right to limit his liability under the 1957 Convention which provides for much lower limits than the 1992 Convention (Art. XII).55
This problem does not arise in respect of the 1976 Convention on Limitation of Liability for Maritime Claims56 (LLMC) (in its original version or as amended by the 1996 Protocol thereto), since the 1976 Convention excludes from its scope of application ‘claims for pollution damage within the meaning of the 1969 Civil Liability Convention or any amendment or Protocol thereto which is force’ (Art. 3(b)).57
Under the 1969 Civil Liability Convention, as under the 1957 Limitation Convention referred to above, the shipowner loses the right to limit his liability if the incident occurred as a result of his actual fault or privity. The 1992 Civil Liability Convention introduced the same much more restrictive test as the 1976 LLMC. The shipowner is thus, under the 1992 Convention, deprived of the right to limit his liability if it is proved that the pollution damage resulted from the shipowner’s personal act or omission, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result (Art. V.2).
9.2.8Constitution of limitation fund
In order to be entitled to limitation of liability, the shipowner must, under the Civil Liability Conventions, establish a limitation fund corresponding to the limit of his liability by depositing that amount in court or by producing a guarantee acceptable to the court (Art. V.3).58 The limitation fund should be constituted with the competent court (or other competent authority) in one of the States parties where an action for compensation has been brought against the shipowner under the Convention or, if no such action has been brought, with any court in one of the States parties where such an action can be brought under the Convention.
In some jurisdictions the courts accept that the limitation fund is constituted by means of a letter of guarantee, for instance by a Protection and Indemnity Association (P&I Club), whereas in other jurisdictions the limitation amount will have to be paid into the court.
The Conventions do not address the question of whether any provision for interest should be included in the limitation fund, so this issue will have to be decided in accordance with the applicable national law.
The insurer of the owner of the ship liable for the pollution is entitled to constitute a limitation fund having the same effect as if it were constituted by the shipowner. The insurer may constitute such a fund even if the shipowner is not entitled to limit his liability, but in such a case the constitution of the fund shall not prejudice the rights of any claimants against the shipowner (Art. V.11).
Under the 1969 Civil Liability Convention there is no exception to the shipowner’s obligation to constitute a limitation fund. In view of the fact that the establishment of such a fund could impose a disproportionate burden on the shipowner or his insurer, the 1971 Fund did, however, waive that requirement in a number of cases where the limitation amount was very low. The 1992 Fund Convention expressly authorises the 1992 Fund to do so in exceptional cases (Art. 4.6).
Where the shipowner or any of his servants or agents or the insurer has paid compensation for pollution damage before the limitation fund is distributed, he acquires by subrogation, up to the amount he has paid, the rights which the person so compensated would have enjoyed under the Civil Liability Convention (Art. V.5). The same right of subrogation may also be exercised by any other person in respect of any amount of compensation for pollution damage he has paid, but only to the extent that such subrogation is permitted under the applicable national law (Art. V.6).
When distributing the limitation fund, the court may set aside part of the fund to protect the interests of those who have outstanding claims (Art. V.7). The court would, in such cases, make an interim distribution of the limitation fund.
Claims for expenses reasonably incurred or sacrifices reasonably made by the shipowner voluntarily to prevent or minimize pollution damage shall rank equally with other claims against the limitation fund (Art. V.8).
When a shipowner who is entitled to limit his liability has constituted a limitation fund, no person having a compensation claim for pollution damage arising out of the incident may exercise any rights against other assets of the shipowner in respect of that claim. In addition, the court in any State party shall order the release of any ship or other property belonging to the shipowner which has been arrested in respect of a claim for pollution damage arising out of that incident, and any bail or other security furnished to avoid such arrest shall also be released. This applies, however, only if the claimant has access to the court administering the limitation fund and the fund is actually available in respect of his claim (Art. VI).
9.2.9Channelling of liability
The 1969 and 1992 Civil Liability Conventions contain provisions on so-called ‘channelling of liability’.
Claims for pollution damage under the 1969 and 1992 Civil Liability Conventions can be made only against the registered owner of the ship concerned (Art. III.1). Claims may not be pursued against the shipowner otherwise than in accordance with the respective Convention (Art. III.4). Except as set out below, this does not in principle preclude victims from claiming compensation outside the Convention from persons other than the shipowner, but such claims cannot be based on the Convention but must be based on the applicable national law.
The 1969 Civil Liability Convention provides that no claims for pollution damage may be brought against the servants or agents of the shipowner. The 1992 Civil Liability Convention goes further and prohibits not only claims against the servants or agents of the shipowner or the members of the crew, but also claims against the pilot or any other person who, without being a member of the crew, performs services for the ship. The 1992 Convention also prohibits claims against any charterer (including a bareboat charterer), manager, or operator of the ship, against any person performing salvage operations with the consent of the shipowner or on the instructions of a competent public authority and against any person taking preventive measures, as well as claims against the servants or agents of these persons. This prohibition does not apply if the damage resulted from the personal act or omission of the person concerned, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result (Art. III.5).59
The owner of a ship registered in a State party to one of the Civil Liability Conventions and carrying more than 2,000 tonnes of persistent oil as cargo is obliged to maintain insurance or other financial security to cover the liability under the applicable Convention (Art. VII.1).
A certificate attesting that insurance or other financial security in accordance with the applicable Civil Liability Convention is in force shall be issued for each ship to which the insurance provisions apply. For ships registered in a State party to the Convention, the certificate shall be issued by the competent authority of that State. For ships not registered in a State party, the competent authority of any State party may issue the certificate. The certificate shall be carried on board the ship (Art. VII.2 and VII.5).
In practice, the insurer issues the shipowner with a certificate in standard form (known as ‘the blue card’). The shipowner submits this document to the competent authority, which issues a certificate of insurance in the form prescribed in the Convention.60
A State party to the 1969 or 1992 Civil Liability Convention shall not permit a ship under its flag subject to the insurance requirements to trade unless a certificate has been issued. When entering or leaving a port or terminal installation of a State party to one of these Conventions, such a certificate is also required for ships flying the flag of a State which is not a party thereto (Art. VII.10 and 11).
Claims for pollution damage under the Civil Liability Conventions may be brought directly against the insurer of the shipowner’s liability for pollution damage (so called direct action) (Art.VII.8). In cases of direct action under these Conventions, the insurer has more limited defences than those available under general legislation in many jurisdictions.61 The insurer may invoke the defences (other than bankruptcy or winding up of the shipowner) which the shipowner would have been entitled to invoke, but may not invoke defences that he would have been entitled to invoke in proceedings brought by the shipowner against him, ie defences based on the insurance policy. The insurer may, however, invoke that the pollution damage resulted from the wilful misconduct of the shipowner. In addition, the insurer is entitled to limitation of liability even if the shipowner has been deprived of such right (Art. VII.8).
The proliferation in recent years of acts of terrorism and piracy has caused difficulties for insurers of third party liability under certain maritime conventions. After the terrorist attack on the World Trade Center in New York on 11 September 2001, the P&I Clubs excluded acts of terrorism from their standard cover. Shipowners instead included cover for terrorism as part of their war risks policy.
As mentioned above, the shipowner is under the Civil Liability Conventions, as under several other maritime liability conventions, exonerated from liability for damage wholly caused by an intentional act of a third party. The fact that the shipowner may be liable for damage caused by acts of terrorism in cases where there was contributory negligence, perhaps even minor, on the part of the shipowner, has in recent years given rise to considerable concern on the part of shipowners and P&I Clubs, since this is a risk which the Clubs no longer cover. The P&I Clubs have, however, continued to certify that cover is in place under the Civil Liability Conventions for damage resulting from acts of terrorism. This is subject to the requirement that the shipowner has war risks cover on standard terms with a separate limit for P&I liabilities.62
9.2.11The IOPC Funds’ obligations
The 1992 Fund shall pay compensation to those suffering pollution damage covered by the 1992 Civil Liability Convention in a State party thereto who do not obtain full compensation from the shipowner and his insurer in the following cases (Art. 4.1):
(a)no liability arises for the shipowner under the 1992 Civil Liability Convention; or
(b)the shipowner is financially incapable of meeting his obligations under the 1992 Civil Liability Convention in full and his insurance does not cover or is insufficient to satisfy the compensation claims; or
(c)the damage exceeds the shipowner’s liability as limited under the 1992 Civil Liability Convention or under any other Convention which was in force or open for signature or ratification on 27 November 1992 (the date when the 1992 Civil Liability Convention was adopted).
It should be noted that the 1992 Fund is only obliged to pay compensation under item c) if the shipowner is entitled to limit his liability.
As mentioned above, the shipowner could in certain circumstances be entitled to limit his liability under the 1969 Civil Liability Convention or under Conventions of 1957 or 1924 dealing with global limitation of liability for maritime claims. These treaties provide for limits that are significantly lower than those provided for under the 1992 Civil Liability Convention. In such cases, the 1992 Fund will provide compensation to the extent that the aggregate amount of the established claims exceeds the limit applicable to the ship in question under any such convention (Art. 4.1(c)). As previously mentioned, this problem does not arise in respect of the 1976 LLMC (in its original version or as amended by the 1996 Protocol thereto) since the 1976 Convention excludes from its scope of application ‘claims for pollution damage within the meaning of the 1969 Civil Liability Convention or any amendment or Protocol thereto which is force’ (Art. 3(b)).63
The 1992 Fund will provide additional compensation up to a maximum of 203 million SDR (US$280 million)64 for each incident, including any amount paid by the shipowner and his insurer (Art.4.4(a)).65 However, if the pollution damage resulted from a natural phenomenon of an exceptional, inevitable, and irresistible character, in which case the shipowner would be exonerated from liability, that amount applies to all pollution damage resulting from the phenomenon and is not available for each incident caused by that phenomenon (Art. 4.4(b)).
The 1971 Fund Convention contains corresponding provisions regarding the 1971 Fund’s obligation to compensate victims who did not obtain full compensation under the 1969 Civil Liability Convention. The maximum amount available under the 1971 Fund Convention was however only 60 million SDR (US$84 million), including the amount paid under the 1969 Civil Liability Convention. As mentioned above, the 1971 Fund Convention ceased to be in force in 2004, and the 1971 Fund was dissolved with effect from 31 December 2014.
The Supplementary Fund provides additional compensation for pollution damage in States parties to the Supplementary Fund Protocol if the aggregate amount of the established claims exceeds, or there is a risk that it will exceed, the amount available under the 1992 Conventions (Art. 4.1). The maximum amount payable under the Protocol is 750 million SDR (US$1 040 million) for each incident, including the amounts available under the 1992 Conventions (Art. 5.2).
Only those claims may be pursued against the Supplementary Fund which have been recognized by the 1992 Fund or been accepted as admissible by a decision of a competent court binding on the 1992 Fund not subject to ordinary forms of review. A further condition is that the claim would have been fully compensated if the limit in respect of the amount available for compensation under the 1992 Fund Convention had not been applied to the incident in question (‘established claim’; Supplementary Fund Protocol Arts 1.8 and 4.4).
If the total amount of the established compensation claims exceeds the amount available for compensation under the applicable treaties, all claims will be reduced proportionally (Art. 4.5).
Expenses reasonably incurred or sacrifices reasonably made by the shipowner voluntarily to prevent or minimize pollution damage shall be treated as pollution damage, and the shipowner can therefore claim compensation from the Fund involved (Art. 4.1).
In order to enable the competent Fund to determine whether it will become involved in a particular incident, it must be established whether the shipowner is entitled to limitation of liability. It may, however, take many years before the courts have finally decided this issue. The policy of the 1971 and 1992 Funds has been not to wait for the court’s decision on this point, but to commence compensation payments when the payments by the shipowner/insurer have reached the limitation amount. The Fund acquires by subrogation the claimants’ right against the shipowner, and the Fund would therefore be entitled to recover the sums above the limitation amount it has paid to victims in the event that the shipowner were to lose the right to limitation of liability.
Difficulties have arisen in some incidents involving the 1971 Fund and/or the 1992 Fund where the aggregate amount of the claims arising from a given incident exceeded the maximum amount available for compensation under the applicable Conventions, or where there was a risk that this would occur. Under the Fund Conventions, the Funds are obliged to ensure that all claimants are given equal treatment (Art. 4.5). The Funds have had to strike a balance between the importance of paying compensation to victims as promptly as possible and the need to avoid an over-payment situation. In a number of cases, the Funds have therefore had to limit payments to victims to a percentage of the agreed amount of their claims (so called ‘pro-rating’). The P&I Club involved has in such cases normally limited its payments to the same percentage of the agreed amount. In some major incidents the Government of the State involved has facilitated compensation payments by undertaking ‘to stand last in the queue’ in respect of its compensation claims and those of other public bodies, that is, not to pursue such claims if and to the extent the presentation of such claims would result in the total amount of all claims arising out of the incident exceeding the maximum amount available for compensation.
In most cases it eventually became possible to increase the level of compensation payments to 100 per cent, once it had been established that the total amount of admissible claims would not exceed the amount available for compensation. The delay in payment of part of the compensation has, however, in many cases caused financial hardship to victims, for example to fishermen and small businesses in the tourism industry.
The Supplementary Fund Protocol will greatly improve the situation for victims in States becoming parties to it. In view of the very high amount available for compensation of pollution damage in these States, it should in practically all cases be possible to pay all established claims in full from the outset.
9.2.12The IOPC Funds’ defences
The grounds for exemption of liability of the Funds are much narrower than those of the shipowner. The Funds are thus exempt from liability only if the pollution damage resulted from an act of war, hostilities, civil war, or insurrection or was caused by a spill 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 (Art. 4.2(a)).
Unlike the shipowner, the Funds are therefore liable to pay compensation if the incident was caused by a grave natural disaster, for instance, a major tsunami. Furthermore, the Funds are not exempt from liability in cases where the incident was wholly caused by an intentional act by a third party, for example, by an act of terrorism or piracy, unless the act falls within the concept of acts of war, hostilities, civil war, or insurrection. The line between acts of war and similar acts, on the one hand, and acts of terrorism, on the other, could sometimes be blurred, for example in case of so-called state-sponsored terrorism.
The 1992 Fund is not liable to pay compensation if the claimant cannot prove that the damage resulted from an incident involving one or more ships as defined in that 1992 Civil Liability Convention, that is, in general terms an oil tanker (Art. 4.2(b)). This provision raises the question of whether the 1992 Fund is under an obligation to pay compensation for spills from unidentified ships. The 1992 Fund Executive Committee has taken the view that the 1992 Fund Convention applies to spills of persistent oil even if the ship from which the oil came cannot be identified, provided that it is shown to the satisfaction of the Fund or a competent court that the oil originated from a ship as defined in the 1992 Civil Liability Convention, that is, normally, a tanker. In such cases, the 1992 Fund would have to compensate the entire damage, since there would not be any shipowner who could be held liable.66
As a result of the restrictions with respect to the claims that may be pursued against the Supplementary Fund mentioned above, the Supplementary Fund will be exempt from liability if the 1992 Fund is so exempt (Supplementary Fund Protocol Arts 1.8 and 4.4).
With respect to contributory negligence on the part of the claimant, the Funds have in principle the same defence as the shipowner. However, the Funds are not entitled to invoke contributory negligence as grounds for total or partial exoneration in respect of preventive measures (Art. 4.3).
9.2.13Increase of the limitation amounts
The 1992 Civil Liability and Fund Conventions and the Supplementary Fund Protocol provide for a simplified procedure for amendments to the limits laid down in the treaties (known as ‘the tacit acceptance procedure’) (Art. 15, Art. 33, and Art. 24 of the final clauses, respectively). Under that procedure, amendments to these limits may be decided by the IMO Legal Committee by a two-thirds majority, and such an amendment is deemed to have been accepted unless within a period of eighteen months (twelve months as regards the Supplementary Fund Protocol) at least one-quarter of the States parties communicate their objection to the IMO. An amendment deemed to have been accepted enters into force for all States parties, including for those that have opposed the amendment, eighteen months (twelve months as regards the Supplementary Fund Protocol) after its acceptance.
There are certain restrictions on the amendments that may be made to the limits. Firstly, no amendments may be considered less than five years (three years as regards the Supplementary Fund Protocol) from the date of the entry into force of the previous amendment. Secondly, no limit may be increased so as to exceed an amount which corresponds to the original limit increased by 6 per cent per year calculated on a compound basis from the date when the Convention or Protocol was opened for signature (ie 15 January 1993 for the 1992 Conventions and 31 July 2003 for the Supplementary Fund Protocol). Finally, no limit may be increased so as to exceed the original limit multiplied by three.