Admiralty Law Part 16
Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series the basis and elements of Admiralty Law will be explored.
Liability For Marine Pollution
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1992 Civil Liability Convention
The 1992 CLC and the 1992 Fund Convention apply to oil pollution damage caused in the territory, including the territorial sea, of a contracting state, and to damage caused within 200 miles from the coast. It also covers the costs of preventive measures ‘wherever taken’, i.e. in areas beyond national jurisdiction or even in jurisdictional areas of non-contracting states, provided their role is to protect the coasts of contracting states.
The 1992 CLC/Fund apply to spills by persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil, whether carried on board a ship as cargo or in the bunkers of a ship.
The 1992 CLC covers ships defined as ‘any sea-going vessel and any seaborne craft of any type whatsoever’. The 1992 CLC further restricts its application to ships ‘constructed or adapted for the carriage of oil in bulk as cargo’, thus giving emphasis to the requirements of approval of ships as physically suitable for the carriage of oil.
The 1992 CLC applies always to ships which are only capable of carrying oil in bulk. In addition, the 1992 CLC extends the scope of coverage to oil spillage from Oil/Bulk/Ore ships (OBOs) which arguably fulfil the requirement to be constructed for the carriage of oil, provided that these vessels are laden with oil or that they are on their first voyage after the carriage of oil and they have oil residues from the previous voyage on board.
The application of the 1992 CLC will also turn upon whether the structure under discussion is ‘carrying oil in bulk as cargo’. The notion of carriage usually involves transportation rather than containment, thus making it strongly arguable that where the intention is storage rather than carriage the 1992 CLC would be inapplicable. The IOPC Fund has extensively discussed the possibility of expanding its coverage after the Greek Supreme Court held that the Slops, a decommissioned tanker used for storage of oil, was covered by the definition of ship. -
Who Is Liable?
The 1992 CLC imposes strict liability on the owner of the ship causing pollution damage. The owner is defined as the registered owner or, in the absence of registration, the persons(s) owning the ship.
Strict liability in this context means the claimant needs only to prove that the pollution damage suffered was caused by a type of oil covered by the 1992 CLC which came from a ship covered by the Convention.
There is no need to prove fault of the shipowner. The shipowner can avoid liability only under some limited exceptions. Strict liability does not prevent the shipowner from claiming against the party responsible for the pollution damage, nor does it remove the defence of contributory negligence by any victim of pollution damage.
No liability for pollution damage will attach to the owner if they prove that the damage resulted from an act of war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional, inevitable and irresistible character; or was wholly caused by a third party’s act or omission done with intent to cause damage. Furthermore, no liability attaches where the oil pollution 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. -
Pollution Damage
‘Pollution damage’ is defined as loss or damage outside the oil-carrying ship caused by contamination resulting from the escape or discharge of oil from the ship, wherever this escape or discharge may occur. It includes the costs of preventive measures and further loss or damage caused by preventive measures. These measures are defined as reasonable measures taken by any person after the incident occurred to prevent or minimise pollution damage.
Under the 1992 CLC the definition of ‘pollution damage’ also includes the stipulation that compensation for impairment of the environment, other than for loss of profit from such impairment, shall be limited to costs of reasonable measures of reinstatement actually undertaken or to be undertaken. The wording of the pollution damage definition and in particular the ‘loss of profit’ arising from the impairment of the environment creates rights for recovery of economic losses which are otherwise not recoverable under English law.
The IOPC Fund practice is that loss of earnings caused by oil pollute on suffered by persons whose property has not been polluted (pure economic loss) may be covered. For example:- loss of earnings by fishermen whose nets were not contaminated but who may be prevented from fishing because of the pollution of the area they normally fish
- loss of income by hotel owners located close to a contaminated public beach
- costs of marketing campaigns to prevent or reduce economic losses by counteracting the negative publicity arising from a major pollution incident.
The discrepancy between the common law position and the IOPC Fund practice has led to litigation in order to clarify the extent to which the common law rule of non-recovery has been modified by the introduction of the 1992 CLC/Fund legal framework into English law.
The English courts have imposed limits to the types of pure economic losses claimed by demanding a requirement for a direct link between the economic loss and the claimant’s activity within the polluted area.
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Liability Of The Insurer
The 1992 CLC provides for a direct right of action by third party claimants against the insurer or other person providing financial security for the owner’s liability for pollution damage. This ensures that recovery may be available even if the owner is not financially capable of paying.
Insurers are entitled to the same exceptions of liability the shipowner is entitled to and, in addition, can avoid liability if they can show that the pollution damage resulted from the wilful misconduct of the owner.
However, the insurer is not entitled to rely on any other contractual defence which they might have been entitled to take in proceedings brought by the owner against them.
The 1992 CLC prohibits claims for pollution damage against crewmembers and other servants or agents of the owner, the pilot (or any other person who, without being a member of the crew, performs services for the ship), any charterer, any manager or operator of the ship, any person performing salvage operations with the consent of the owner or on the instructions of a competent public authority, and any person taking preventive measures to avoid oil pollution damage.
Servants or agents of the charterer, manager, operator, salvor or other person taking oil pollution prevention measures are also protected. Thus, for any pollution damage claim the shipowner or their insurer are the only persons a claimant may sue under the 1992 CLC. -
Limitation Of Liability
Owners of ships covered by the 1992 CLC and their insurers are entitled to limit their liability for oil pollution damage. The liability of the insurer is always limited and the insurer can always constitute a limitation fund even if the owner is itself unable to limit liability.
Only acts or omissions of the owner may remove the owner’s right to limit liability under the 1992 CLC. Where, as is the usual case, the shipowner personally is not directly involved in the running of the ship, a search for the ‘alter ego’ of the shipowner in respect of the particular act or omission needs to be undertaken. This must be resolved on a case-by-case basis depending on the structure of each company and the way responsibilities are distributed within each company either by the company’s constitution or by statutory responsibility or by fact.
The conduct required for the shipowner’s act is intention to cause damage, or, recklessness coupled with knowledge that such damage would probably result – a very difficult test to fulfil. -
Role Of The 1992 IOPC Fund
The creation of the 1971 and the 1992 IOPC Fund Conventions crystallised the undertaking of the oil industry and, in particular, oil importers to contribute to the compensation for oil pollution damage.
The management and organisation of their contribution is effected by the creation of an intergovernmental organisation: the IOPC Fund. The 1992 IOPC Fund covers situations in which the owner’s liability is excluded under Art.III(2) of the 1992 CLC. Thus, the Fund will pay out where the pollution damage was caused by:
“a natural phenomenon of an exceptional, inevitable and irresistible character”
or was
“wholly caused by an act or omission done with intent to cause damage by a third party.”In addition, the IOPC Fund will pay 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.”
Thus, in the situations mentioned above, although the shipowner will not be liable, an equal amount of compensation will be provided by the IOPC Fund.
The IOPC Fund also covers oil pollution liability in cases where, and to the extent that, the shipowner and their insurer are financially incapable of providing the required compensation under the 1992 CLC or where the damages exceed the owners’ liability.
In situations where there is oil pollution damage but the vessel that caused the oil spill has not been identified, the claimant can still be compensated by the IOPC Fund if it can prove that the oil that caused the damage came from at least one ship. Thus, the Fund is liable for compensation from ‘mystery’ oil spills where the ship that caused the damage is not identified.
However, the IOPC Fund will not be liable where the damage arises from acts of war, hostilities, civil war, insurrection or from a governmental ship used in a governmental mission, or where the claimant cannot prove that the damage resulted from a ship.
The limits of liability payable under the 1992 Fund and the 1992 CLC are available as an overall total amount against which recovery is possible. In other words, the limits of liability established by the Fund include the owners’ limits of liability under the 1992 CLC. This means that whether the shipowner pays their part or whether they do not pay anything, the overall available compensation will be the same. Thus, in cases where the shipowner pays their part the IOPC Fund will ‘top-up’ the amount, while in other cases the whole compensation will be paid by the IOPC Fund.
The 1992 IOPC Fund is supported financially by every oil importer who has imported within a year 150,000 tons or more of contributing oil into a contracting state.
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2003 Supplementary Fund
The 2003 Supplementary Fund was created following major oil incidents at the Spanish and French coasts which made clear that the limits of liability under the two-tier system of the 1992 CLC and Fund were inadequate, especially for coastal areas where the clean-up costs were expensive. Following very strong political pressure from the EU, the IMO quickly developed a third tier of compensation which is available but not compulsory for all parties to the 1992 CLC and the IOPC Fund Convention.
The 2003 Supplementary Fund increases the compensation available to victims of oil pollution damage to a total of 750 million SDR. This third tier of compensation is available only to those contracting states of the 1992 IOPC Fund which are also contracting states to the 2003 Supplementary Fund. -
2001 Bunker Pollution Convention
The 1992 CLC/IOPC Fund framework applies only to pollution damage from bunker oil and cargo for tankers carrying persistent oil. Thus, pollution damage for bunker oil from other ships was not subject to any international convention until the entry into force of the 2001 Bunker Oil Pollution Convention (2001 BOPC).The 2001 BOPC is modelled on the 1992 CLC but has significant differences. The 2001 BOPC establishes strict liability for the registered owner, bareboat charterer, manager and operator of the ship in respect of oil pollution damage from bunker oil. It also establishes compulsory insurance for the registered owner and direct action of third party claimants against the insurer.
The 2001 BOPC does not affect any right of limitation of liability established in national legislation or by international conventions, although it does give a clear suggestion to parties that the 1996 Protocol to the 1976 Convention on Limitation of Liability for Maritime Claims (1996 LLMC) provides the best background for its application.
While the 2001 BOPC applies to all ships, compulsory insurance applies only to the registered owner of ships larger than 1,000 grt. The amount for which this insurance is required corresponds to the limits of liability available to the shipowner under applicable national law but may not exceed the 1976 LLMC limits, as amended.
The 2001 BOPC covers only hydrocarbon mineral oils used or intended to be used for the operation or propulsion of the ship as fuel or lubrication, as well as the residues from the use of such oil. These are defined as ‘bunker oil’.The 2001 BOPC covers pollution damage defined in the same terms as under the 1992 CLC. Any seagoing vessel and seaborne craft of any type whatsoever are covered by the 2001 BOPC definition of a ship. The shipowner is strictly liable for pollution damage from bunker oil spilled. However, the definition of shipowner includes the registered owner, the bareboat charterer, the manager and the operator of a ship. The same exceptions of liability under the 1992 CLC also apply in the strict liability established under the 2001 BOPC.
The channelling of claims within the 2001 BOPC is restricted to the shipowner only, thus the protection is not extended to other entities as under the 1992 CLC. However, the UK enactment excludes from liability any servant or agent of the owner and any person engaged in any capacity on board or performing any service for the ship; salvors, their servants and agents and any person involved in pollution prevention or mitigation activities and their servants or agents.
Arguably the most significant difference between the 2001 BOPC and the 1992 CLC concerns the limits of liability. The 2001 BOPC does not have specific limits of liability for bunker pollution damage, and nor does it earmark a fund for this purpose. Instead it generally preserves the shipowner’s right to limit liability. Thus, compensation for bunker pollution damage is payable by the general limitation fund under the 1996 LLMC if the specific pollution claim is covered by its provisions.
More importantly, there is no second tier of compensation as that developed by the 1992 Fund Convention. As a result, if the liability of the shipowner is exempted or if the shipowner and their insurer are out of business, the claimant will not be compensated under the regime.
A claimant under the 2001 BOPC can directly sue the insurer whether or not the shipowner is solvent or is in breach of its insurance contract and therefore cannot recover under it. Nevertheless, the insurer is entitled to limit liability even if the shipowner is not. The insurer can invoke all the defences the shipowner would have invoked in an action against the shipowner. In addition, the insurer may avoid liability if the pollution was a result of wilful misconduct by the shipowner. Defences that could have been invoked under the insurance contract – for example, misrepresentation, breach of the obligation of good faith, etc. – would not allow the insurer to avoid liability against third parties under the 2001 BOPC.
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Hazardous And Noxious Substances Convention 2010
Liability for damage arising from the carriage of hazardous and/or noxious cargo is presently, under English law, based in tort. Limitation of such liability is currently covered by the 1996 LLMC for those claims covered by the wording of Art.2. Pure economic losses arising from the escape of HNS cargo is currently non-recoverable.
The 1996 International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (the 1996 HNS Convention) was designed for the purpose of establishing strict liability and providing compensation in respect of such damage.
The 1996 HNS Convention was modelled in many aspects on the 1992 CLC/Fund system. A two-tier system, expressing the joint responsibility of the shipowner (first tier) and the importers/traders (second tier) was devised. However, instead of having two independent conventions the HNS opted for one convention dealing with both tiers. The choice to bundle together the liability of the shipowner with that of the importer was made in spite of the very important practical difference between the oil trade and the trade in hazardous and noxious substances.
However, the 1996 HNS Convention faced significant practical difficulties related to the HNS Fund and failed to come into force. Following extensive discussions within the IOPC Fund the 2010 HNS Protocol was adopted in May 2010. The 2010 HNS Protocol attempts to resolve the most pressing problems with the 1996 HNS Convention, all of which relate to the HNS Fund, but it remains to be seen whether the amendments will persuade states to bring the revised HNS 2010 into force. Because the HNS 2010 is not in force yet it will not be discussed in detail.In June 2016 the European Parliament passed resolution P8_TA(2016)0259 responding to the submitted European Council decisions in December 2015 (decisions 13806/15 and 14112/15), authorizing EU member states to ratify or accede to the HNS 2010. The European Parliament’s resolution suggests a reasonable framework for signing up by member states, not longer than two years from the time the European Council’s decision enters into force.
It should be noted, however, that in addition to pollution damage it also covers loss of life on board and outside the ship as well as property damage outside the ship, thus having significantly broader application than the 1992 CLC.
If you have any questions or require any additional information, please contact our lawyer that you usually deal with.