SHANGHAI INTERNATIONAL MARITIME FORUM 2005

OIL POLLUTION FROM SHIPS – CURRENT LEGAL ISSUES

By Colin de la Rueand Peter Murray

Ince & Co

INTRODUCTION

COMPENSATION FOR POLLUTION FROM SHIPS’ BUNKERS

Sometimes it comes as a surprise to people to hear that pollution from ships' bunkers can be nearly as serious a problem as major cargo spills from tankers.

There are various reasons why this is so. For one thing, bunker spills can of course occur not only from tankers but from most of the world's fleet. Dry cargo ships and other non-tankers are much more numerous than tankers, and bunker spills are therefore a common source of oil pollution from ships.

Although only oil tankers can cause very large spills, many bulk carriers and container ships carry bunker fuel of 10,000 tonnes or more, and these are larger quantities than many of the world's tankers carry as cargo.

Most importantly, ships' bunkers normally consist of heavy fuel oils, which in general are highly viscous and persistent. A relatively small quantity of highly persistent bunker fuel can be disproportionately damaging and costly to remove in comparison, for example, with a substantial cargo of light crude oil.

Another point to bear in mind is that, if a ship is causing or threatening to cause oil pollution, it is a matter of indifference to the public and the media what type of ship she may be. Take for example the case of the New Carissa incident off the US West Coast a few years ago. This ship was a wood-chip carrier which ran aground presenting a threat of bunker pollution, but in most press reports she was referred to as a tanker. The response of the US authorities was on a par with a major tanker incident and the costs have been enormous.

In March 2001 a major development occurred when agreement was reached at an IMO Diplomatic Conference in London on the text of the new International Convention on Civil Liability for Bunker Oil Pollution Damage. As it will not come into force for some years it is worth first reviewing the current legal position.

Current position

The only international conventions currently in force which have any bearing on liability for bunker spills are the Civil Liability and Fund Conventions.

In China, where the Civil Liability Convention 1992 is in force, a spill of persistent bunker oil from anoil tanker will be covered by the CLC regime. Under CLC 69 this was only the case if the tanker was laden, but under CLC 92 the Convention applies regardless of whether there was cargo on board at the time of the spill. As a result, the owner of the ship will be strictly liable for pollution damage caused by the spill, and claims may also be brought directly against the insurer.

It should be stressed however that CLC 92 applies only to spills from oil tankers. It will not apply to bunker spills from other types of vessel such as dry cargo ships, LNG or LPG carriers, passenger ships, or other vessels not engaged in the carriage of bulk oil. Spills from such vessels account for about 60% of all serious oil pollution incidents. In such cases rights to compensation fall outside the international regime and depend on national laws.

In some maritime states, but not others, bunker spills are specifically covered by national legislation of one sort or other.

Some CLC states have enacted legislation which extends parts of CLC to oil pollution from vessels other than tankers. This often means that bunker spills from non-tankers as well as tankers are governed by similar strict liability regimes and are subject to the same limited exceptions from liability.

However the basis of liability is only one aspect of the subject. Limitation of liability is an important element on which no consistent approach has been taken. In some countries statutory liability for bunker spills can be limited on the same basis as in CLC, whilst in others it is subject to whatever general regime applies with respect to limitation of liability for maritime claims. Various different regimes are in force.

Another important feature of CLC is its system of compulsory insurance, which includes rights of direct action against the insurer. This system is workable only because it is an international one, and because the insurer's exposure is capped by a clear limit which applies even if the owner's right of limitation is lost. It is not easy to extend the same arrangements beyond the boundaries of the convention, and consequently there are few parts of the world outside the USA where compulsory insurance against pollution liabilities is required for ships other than tankers.

The risk of claims going unpaid after a bunker spill, due to the absence of adequate insurance arrangements, is normally only a very small one. However there have been one or two cases in which governments have had difficulty in recovering their response costs. This played a part in stimulating proposals for a new international convention on liability and compensation for pollution from ships' bunkers.

The International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001

In order to fill the remaining gap in the international pollution regimes IMO decided in 1996 to prepare a draft Bunker Pollution Convention to govern bunker spills from all vessels not covered already by CLC. This work culminated in the Diplomatic Conference held in London in March 2001, when the final text of a convention was agreed.

The Convention will come into force internationally twelve months after it has been ratified by 18 states, including 5 states each with not less than 1 million gross ton of registered ships.

Three key features of the Convention are firstly strict liability, secondly compulsory insurance, and thirdly limitation of liability. These three corner stones follow a pattern which in many respects is similar to that of CLC, though there are some important differences. Most of these boil down to the fact that the Bunker Pollution Convention is a single-tier compensation regime – i.e., there is no provision for supplemental compensation above the shipowner’s liability limit from an additional source comparable to the IOPC Funds.

Liability for bunker oil pollution

Taking firstly the liability provisions, these impose strict liability for “pollution damage”, defined as in CLC. The limited exemptions from liability also match those in CLC. However there are important differences concerning the identity of the party liable. CLC imposes liability solely on the “registered owner” of the vessel and excludes liability, whether under the Convention or otherwise, of various parties including managers, operators, charterers, salvors, pilots, and the owner’s servants or agents. This so-called “channelling” of liability to the registered owner is a feature of CLC which simplifies the liability regime, makes efficient use of insurance capacity, and is acceptable thanks to the fact that in many cases supplemental compensation is available from the IOPC Funds should adequate compensation not be obtainable from the owner of the ship. By contrast, the Bunker Pollution Convention is a single-tier regime and measures have been taken to preserve rights of recovery from other parties in addition to the registered owner. Liability is imposed on the “shipowner”, defined as meaning “the owner, including the registered owner, bareboat charterer, manager and operator of the ship”. Each of these parties may be held jointly and severally liable under the Convention.

In the same vein, the Bunker Pollution Convention differs from CLC in that it does not contain “channelling” provisions excluding claims against parties other than the owner. Considerable efforts were made to persuade the Conference that the Convention should give “responder immunity” to salvors, in order to encourage a prompt and effective response to an incident. Nonetheless, in the absence of a second tier fund, the mood of many delegations was to preserve recovery rights against all possible sources of compensation, including any salvor whose negligence caused or contributed to the pollution. In the event a compromise was adopted in the form of a Resolution calling upon States Parties when implementing the Convention, to consider the need to introduce responder immunity in their domestic legislation.

At the Diplomatic Conference a proposal was made that parties other than the registered owner should be exposed to claims if, and only if, the owner failed to satisfy them. Unfortunately, time constraints prevented this proposal from being explored and it had to be withdrawn. In practice it is likely that in most cases claims will be met from insurance taken out by the owner, so that they do not need to be enforced against other parties. However, until a claim has been paid there will be nothing to stop claimants from bringing proceedings jointly against other parties as well as the owner.

Compulsory insurance and financial security

Turning to compulsory insurance and financial security, the detailed requirements are very similar to those in CLC. Ships must carry on board a certificate issued by the flag state administration attesting that appropriate insurance or other financial security is in place to cover any liabilities incurred by the shipowner under the Convention. The shipowner or other guarantor named in the certificate is directly suable, and may not rely upon policy defences other than wilful misconduct of the shipowner.

In this area the main differences from CLC are of a more practical nature. Whilst it is one thing for flag state administrations and P&I Clubs to handle the paperwork required to certificate a few thousand oil tankers, the world’s non-tanker fleet is far larger and the administrative burden involved is correspondingly greater. The Convention therefore contains provisions designed to avoid this burden becoming unnecessarily great.

One of these is a restriction on the size of vessel to which the certification requirements apply. Naturally enough, states with vulnerable coastlines but few ships flying their flag were keen to see the requirements applied to as many potentially polluting vessels as possible. By contrast, flag states with large numbers of ships on their books were keen to see a minimum tonnage figure which was not too low. In the end a compromise figure of 1,000 gross tons was agreed.

Another provision in the same category is the exclusion of vessels engaged purely on “domestic voyages”. There was some debate at the Conference as to how this term should be defined. Some states with complex archipelagic waters (such as the Philippines and Indonesia) pointed out that inter-island voyages might readily go outside the 12 mile limit of the territorial sea, and were therefore keen to see the exclusion applying to any voyages within the EEZ. However in some parts of the world, such as the Mediterranean, the EEZ of adjacent states can readily overlap and there could be a risk of pollution in adjacent states. The Conference therefore concluded that the exclusion had to be limited to voyages within the territorial sea.

The expected administrative burden has also had its effect on the entry-into-force requirements. Flag states were naturally concerned that the work of certification should not become necessary until the Convention had achieved reasonably widespread support. This resulted in the need for ratification by a relatively high number of states, at least five of which must have substantial fleets.

Limitation of liability

As always, insurance guarantees are available only if they are subject to clear limits. Consequently, as with CLC, the right of the shipowner and his insurer to limit liability goes hand in hand with the imposition upon them of strict liability and the compulsory insurance provisions. In the Bunker Pollution Convention the right of limitation is set out in Article 6, which provides:-

“Nothing in this Convention shall affect the right of the shipowner and the person or persons providing insurance or other financial security to limit liability under any application national or international regime, such as the Convention on Limitation of Liability for Maritime Claims 1976 as amended”.

This arrangement differs from the limitation regime in CLC, in that it does not provide for a free-standing limitation fund dedicated to pollution claims. Instead the liability limit is linked to that applying under the national or international regime, if any, which applies in the State concerned in relation to liability generally for maritime claims. LLMC 76 has become the most widespread international regime of this type.

This form of linkage was the most financially effective arrangement, particularly as the liability limits under LLMC 76 were due to be raised when the 1996 Protocol to LLMC came into force. The Conference adopted a resolution urging States to ratify or accede to the 1996 Protocol, thereby increasing the fund available for all claims, including those for bunker pollution. The Protocol came into effect in May 2004 but is still only in force in a limited number of states.

Unfortunately Article 6 is not as clear on all points as some people might have wished. One of the concerns is that LLMC 1976 does not explicitly grant a right of limitation for pollution claims. It may be that many typical claims for pollution, such as for property damage and clean-up costs, would fall within the wording of one or other of the different categories of claim which are subject to limitation under the 1976 Convention. However there are others where the position may not be so clear, for example typical claims for pure economic loss by parties such as fishermen and hoteliers. These can often form a significant proportion of the overall cost of a spill.

It should also be noted that limitation for clean-up costs would probably have to be claimed under the same provision as that dealing with wreck removal. In some states this provision has been removed in national laws, due to a policy of unlimited liability for wreck removal.

In the UK, where strict liability for bunker spills was introduced some years ago, steps have been taken to eliminate uncertainties of this kind. The technique used was to stipulate that all claims for bunker oil pollution were to be deemed to be claims for property damage within the meaning of Article 2.1(a) of the 1976 Convention: see Merchant Shipping Act 1995, s.168. At the Diplomatic Conference attention was drawn to this problem and proposals made to deal with it, but these were not pursued and the text of Article 6 was adopted unchanged. This leaves uncertainties which may one day have to be tested. It may then be helpful to have in mind the reasons why no amendment was made. One was sheer lack of time at the Conference, but another is that it was apparently viewed as unnecessary by delegations representing States Parties to LLMC 76. It seems that most delegates took the view, rightly or wrongly, that no particular problem arose in their respective national laws. Certainly it was the expectation and intention of the Conference that any liability under the Bunker Pollution Convention would be subject to limitation under LLMC 76, where this is the applicable limitation regime.

It is therefore very much to be hoped that this will be borne in mind should the point ever need to be tested, and that States will consider putting the matter beyond doubt when enacting the Convention in their national laws.

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