Oil Pollution by Ships and the Adequacy of International Conventions on Compensation

Francis Lansakara

Oil Pollution by Ships and the Adequacy of International Conventions on Compensation

Francis Lansakara*

Compensation for ship base pollution is covered under Civil Liability Conventions and Fund Conventions.There are also other civil liability instruments such as EU’s Environmental Liability Directive(ELD)and Oil Pollution Act of USA 1990(OPA).Most maritime nations are signatory to international conventions developed since 1969 with amendments and protocols.

Oil Pollution by Ships;Compensation;International Conventions

Ⅰ.Introduction

Oil pollution damages caused by ships are compensated under various civil liability conventions.The acceptable method of compensation is to restore the damaged environment and the affected to its previous position or baseline condition;however it is not always being possible under the existing civil liability compensation instruments available to ship base pollution because,there are limitation as to what extent restoration of the damaged environment and compensation for losses are admitted.

The discussion centers on adequacy of the international civil liability instruments which are measured by taking into account extent of cover,comparison with existing legal principles recognized by civilized nations as well as regional and state acts or directives.

Ⅱ.Legal Instruments and Their Development

There are international,regional and national laws covering oil pollution compensation.Due to international nature of shipping,save for few,many rely on international conventions when claims arise on ship base pollution.

1992 Civil Liability Convention(1992 CLC)and 1992 Fund Convention (1992 Fund)in force since 1996 have been ratified by more than 90%of maritime nations.①CLC 1992 Protocol number of contracting states 123,world shipping tonnage 96.7%covered.1992 Fund number of contracting states 105,world shipping tonnage 94.5%covered.2001 Civil Liabilities For Bunker Oil Pollution contracting states 58,world shipping tonnage 88.6%covered.They have since developed further by ratification of new amendments and protocols.Under the 1992 CLC ship owners are required to have sufficient financial security and the amount of security required varies with the gross tonnage of the ship;for example a ship of more than 140000 gross tonnage required security limit is about 90 million Special DrawingRights(SDR)①The Convention applies to all seagoing ships carrying oil as cargo,but only ships carrying more than 2,000 tons of oil are required to maintain insurance in respect of oil pollution damage.Compensation limits under 1992 Protocol amended in 2000 to higher limits.Exchange rate of Special Drawing Rights(SDR)decided by International Monetary Fund.1 SDR=15.1 Gold Francs;1SDR=1.27 USD..Those unable to obtain adequate or any compensation from the 1992 CLC may claim against the 1992 Fund.The contributors to the fund are all persons who receive oil by sea in contracting states and the fund is obliged to pay compensation to those claimants from the contracting states.②1992 Fund Convention Article 4(4)203 million SDR or 300.74 Million SDR;2003 Protocol Supplementary Fund 750 million SDR.Subject to conditions laid down by International Oil Pollution Compensation (IOPC)Funds③Conditions for compensation base on IOPC guidelines see case review.from 203 million to maximum of 300.74million SDR available for claims including claims under 1992 CLC.Those eligible claimants under 2003 Supplementary Fund have a limit up to 750 million SDR.④Eligible only those from contracting states of 2003 Supplementary Fund,limited to EU and Japan.

International conventions on civil liability developed since 1969 include new amendments and protocols.⑤1969 Civil Liability Convention 1971 Fund Convention compensation limited about 60 million SDR.They were replaced by 1992 CLCand 1992 Fund&2003 Supplementary Fund.Developments from 1969 to 1992 CLC include among other things clarification of nature of damage such as“impairment of environment exclude loss of profits”,⑥1992 CLC Article 1 paragraph 6(a)changes from 1969 CLC definition.expansion of the area of compensation from territorial sea to exclusive economic zone,⑦1992 CLC Article 2 include exclusive economic zone up to 200nm,changes from 1969 definition limited to territorial waters only up to 12 nm.application of the convention also to unloaded tankers with cargo residue on board,⑧1992 CLC Article 1(1)an improved version to 1969 CLC.allowing the claims possible on preventive measures taken when there is an imminent threat but without occurrence of a real pollution,⑨1992 CLC Article ll(b)an improved version to 1969 CLC.increasing the limits of liability, departure from“actual fault”or“privity”⑩rule and inclusion of“personnel actof omission”.①1969 Civil Liability Convention 1971 Fund Convention compensation limited about 60 million SDR.They were replaced by 1992 CLC and 1992 Fund;2003 Supplementary Fund limits to 750 million SDR compare to 1971 Fund 60 million SDR;1992 Article 5(2)“personnel act of omission”liability limits difficult to break compare to 1969 CLC.Article 5 paragraph 2“privity of the owner”easier to break the limits.

There are other civil liability instruments such as Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004(ELD),implemented since 30thApril 2007②Directive 2004/35/CE Article 19-Implementation;Article 20-Entry into force;In force in UK 1 March 2009.and applied to all the 27 EU nations and,Oil Pollution Act of USA 1990(OPA 1990)and Trust Fund applied under the US jurisdiction.

Under the ELD recovery③Directive 2004/35/CE Article 2(14)(15)-Definitions.or reinstation of the damaged environment to baseline condition is required and it also encourages the development of financial security mechanism.④Article 14-Financial Security.Since it is relatively new and these developments are still in progress,ship base pollution covered under international conventions is expressly excluded from ELD.⑤Directive 2004/35/CE Article 4 paragraph 2;Annex IV.

Oil Pollution Act 1990 of USA⑥Section 2702 Oil Pollution Act 1990 USA.(OPA 1990),which came into force after the major oil spill in Alaska,⑦1989 Exxon Valdez.applies to United States jurisdiction and allows large tankers carrying oil to limit their liabilities to$1900 per gross ton or 16 million whichever greater⑧33 USC 2704..It also contains a Trust Fund⑨26 USC 9509.of one billion US dollars paid by petroleum taxes to compensate for those unable to obtain adequate or any compensation from the OPA 1990.

International conventions maximum compensation is limited to 750 million SDR,which only apply to those from contracting states signatory to supplementary fund,while others will be limited to about 300 million SDR.Limitation is difficult to break because owner’s personnel act of omission cases is very rare and most of the shipping accidents are caused by the servant of the owners unless there is a failure in the senior management which is also a contributing factor.Large oil pollution claims which exceed SDR 750 million will not receive full compensation.

Ⅲ.Interpretation of Pollution Damages

How these provisions are interpreted legally plays an important role in terms of claims satisfaction.Under the common law principles reasonable measures for reinstatement has limited effect excluding those too remote.①Since 1961 the general rule is that the remoteness of the damage is that the defendant would only be liable if he could reasonably have foreseen the kind of damage suffered by the claimant-case Wagon Mount No.1[1961]AC.388(PC).Under the 1992 CLC environmental damage compensation is limited to costs incurred for reasonable measures to reinstate the contaminated environment, excluding economic losses,.②1992 Civil Liability Convention Article 1 paragraph 6(a)Loss of damage caused outside the ship by contamination resulting from the escape or discharge of oil from the ship, whichever such escape or discharge may occur,provided that compensation of impairment of the environment other than loss of profit from such impairment shall be limited to cost of reasonable measures of reinstatement actually undertaken or to be undertaken.Those unable to obtain adequate or any compensation under civil liability compensation regimes are covered by Fund Convention③1992 Fund Convention&2003 Supplementary Fund.subject to given provisions and limits④1992 Fund Convention.Article 4 paragraph 1(a)because no liability arises under the 1992 Civil Liability Convention;(b)because owner liable for the damage under the 1992 civil liability convention is financially incapable of meeting his financial obligations in full..The type or amount of compensation will be based on legal principles of“reasonableness”and“not too remote”,which will cover loss or damages to fishing industry,tourism and property damage such as mariculture⑤Mariculture is a specialized branch of aquaculture involving the cultivation of marine organisms for food and other products in the open ocean.and oyster farming;shellfish gathering;fishing boats;fish and shellfish processors.

Although the European Environmental Directive(ELD)has adopted the principle of restoration,liabilities that arise from International Civil Liability and Fund Conventions are excluded⑥Directive 2004/35/CE Article 4 paragraph 2;Annex IV.as long as the member states are party to those conventions.Although ELD has broadly explained the definition of“restoration of the damaged environment”the member states will not be able to enjoy benefit in case of a ship base pollution.

ELD elaborates damages inclusive of protective species,natural habitat, water damage and land damage recoverable to the extent that it satisfies the base line condition;and US Oil Pollution Act 1990 also has explained the com-pensation in a much broader manner,including removal cost in accordance with national emergency plan and the damages consisting of natural resources,property,revenue losses to government or authority,profits and earning capacity, which are some of the key areas a claimant can recover.①33 USC 2702.

Interpretation of the pollution damages under the 1992 CLC and Fund are limited by their provisions to restore the damaged environment;fishing and tourism industry directly affected are compensated subject to limitation of the fund,without taking into account damages to marine ecosystem.

Ⅳ.Other Issues Under 1992 CLC Affecting Oil Pollution Claims

Under the 1992 CLC the ship owner has the right to limit liability.If a party wishes to break the limit the burden of proof lies with him to prove owners personnel act②1992 CLC Article 5 paragraph 2 The owner shall not be entitled to limit his liability under this Convention if it is proved that the pollution damage resulted from his personal act or omission,committed with the intent to cause such damage,or recklessly and with knowledge that such damage would probably result.UK ratified the convention under MSA 1995 S157(3).or omission with intent or that the owner had knowledge that this accident would result.Most shipping cases are due to fault of the servant of the owner;however it is also known the failure in the senior management may be a contributing factor.Safety management system such as ISM could be proof of management failure that can be ascribed to owners.The person allowed to limit under these conventions is the registered owner③1992 article 1 paragraph(2)(3)“Person”means any individual or partnership or any public or private body,whether corporate or not,including a State or any of its constituent subdivisions.The“owner”means the person or persons registered as the owner of the ship or in the absence of registration,the person or persons owning the ship.However in the case of a ship owned by a State and operated by a company which in that state registered as ships operator,“owner”shall mean such company.of the ship only,demise charter or manager excluded therefore.Those excluded parties if become liable will use lower limits available under tonnage limitation (1976 LLMC④Article 3(b)1976 LLMC Claims excepted-Oil Pollution damage within the meaning of the International Conventions on Civil Liability for Oil Pollution.).The owner also has the exception if he could prove that the accident was solely caused intentionally by a third party,⑤In the Prestige case ABS relied on this option court decision still pending(IOPC annual report 2008 page 102 of 213).which is likely toimprove his defense since third parties are not specified①1992 CLC Article 3(2)(b)Act of third party but,who are the third parties not defined.under the 1992 CLC.

OPA 1990 uses the term responsible person②33USC2701(32)“responsible party”means in the case of a vessel,any person owning, operating,or demise chartering the vessel.instead of the owner,which gives the claimant a wider choice and right to a higher claim limit.The third party option is much limited③33 USC 2703(a)(3)third parties excluding owners’servants and agents.and gross negligence④33 USC 2704(c)Exceptions to limitation of liability in case of gross negligence or willful misconduct;violations of applicable federal laws.of lower category will lose the right to limit,all of which are in favor of the claimant.

All the known cases of major oil pollutions compensated under IOPC owners were allowed to limit liabilities,including large pollution by“Prestige”and the available defense options including limited definition given in identifying the owner affect the admissibility of the claim.

Ⅴ.Review of Cases

Since the development of international conventions claims were made against owners and the Fund,unless covered under USA laws.Due to lengthy procedure of maritime claims most cases may still have pending claims.

Amoco Cadiz

Date 16.3.1978

Oil spill quantity 240 000 MT

Ship owners were not allowed to limit liability⑤1851 Limitation of Liability Act 46 USC section 183.

Amount paid:200 million US dollars

Claim:more than 2 billion US dollars

USA Jurisdiction

Exxon Valdez

Date 24.3.1989

Oil spill quantity 107 000MT

Amount paid:3.0 billion US Dollars

Claim:5 billion US Dollars

IOPC 1992 Convention

Erika

Date 12.12.1999

Oil spill quantity about 20 000 MT

Ship owners were allowed to limit liability

Amount paid:129 million Euros.

Claim:400 million Euros

Prestige

13.11.2002

Ship owners were allowed to limit liability

Oil spill quantity about 63000 MT

Amount paid:142.4 million Euros.

Claims:Spain 1.02 billion;France 109 million and;Portugal 2 million Euros

Hebei Spirit

7.12.2007

Ship owners were allowed to limit liability Amount paid:17 billion Korean Won

Amount claim:329 billion Korean Won

All the cases were decided under the 1992 CLC;it was common ships owners were allowed to limit their liabilities,not all the claims were satisfied subject to admissibility of the claims,and therefore actual damages were much higher.Ship owners and responsible parties settlements outside the IOPC Fund and others were not taken as part of the paid amount.Punitive damages①Exxon Valdez case punitive damages were reduced to$507 million.were not included as compensation.

Ⅵ.Summary and Conclusion

The development of international conventions have made progress in increasing the limits of liability,extending the area of damage from 12 nautical mile zone to 200 nautical mile zone.They have also made the liabilities difficultto break,which will give advantage to the polluter.Existing provisions do not address issues of damage to marine ecosystem and restoration of the damaged environment to base line condition.

OPA and ELD address the similar issues to a greater extent,although ELD cannot be applied to ship base oil pollution covered under the international conventions.

Existing supplementary fund limitation of 750 million SDR applies to most EU nations and Japan and claimants from other contracting states are limited to 300 million SDR.Except EU,Japan and USA,claimants from all other contracting states suffer to a greater extent in the case of large scale oil pollution. The issue of restoration of the damaged environment is not fully addressed by these conventions.

The question of adequacy shall base on restoration of the damaged environment to base line condition and,to pay reasonable compensation on economic losses.Polluter pays principle,precautionary measures and restitution are some of the fundamental instruments available under the international law and recognized by many civilized nations including EU and United States.These consist of protecting species of natural habitats,water damages,land damages and reinstating them to baseline condition base on best available information.

To sum up the discussion on the adequacy of international conventions on compensation,we have the following findings:

Progress has been made in development of international conventions and funds,but there is difficulty in adopting international conventions and international laws.

Difficulty in breaking the liability limits in case of gross negligence.

The introduction of new measures and repetition of the same:introduction of protocols and amendments still fails to compensate fully.

Not in line with internationally recognized principles:principle of restoration,polluter pays principle and precautionary measures are not fully addressed.

Adaptation of ELD to counter previous pollution incidents but repetition is still possible:EU countries affected by international conventions unable to enjoy the benefits of ELD provisions.

Comparing compensation methods of OPA and IOPC,we can see there is a considerable gap of about 20 years:OPA 1990 broader concept is still not adopted by international conventions to this date.

With the above assessment it is reasonable to conclude that internationalcivil liability conventions on oil pollution are inadequate in their available funds and provisions to fully reinstate the damaged environment and to allow broader compensation for economical losses in the case of ship base oil pollution of considerable scale.

(Editor:SU Baoqing)

*Francis Lansakara,Master Mariner,LLM.E-mail:filicia@singnet.com.sg.

Under the 1992 Civil Liability Convention(1992 CLC)compensation is limited to costs incurred for reasonable measures to reinstate the damaged environment,excluding loss of profits.1992 CLC also gives the owner the right to limit in most cases.Economic damages are being considered under Fund Convention and the Fund was set up to facilitate those unable to get any compensation or adequate compensation from the 1992 CLC.The 1992 Fund and 2003 Supplementary Fund contributed by oil receivers of the contracting states are also limited to maximum of 750 million Special Drawing Rights including claims under 1992 CLC.Other than limitation in funds there are certain legal principles considered when admitting whether a claim is“reasonable”and“not too remote”;therefore economic losses not directly connected to an oil spill area are not admissible.However European Environmental Directive(ELD)and OPA explain the compensation in a much broader manner.Right to limit liability which is difficult to break,available defense options and,limited definition given in identifying the owner may also affect the admissibility of the claim under the conventions.Review of several cases in the past shows funds available under the Conventions and how claims were admitted under the International Oil Pollution Convention(IOPC)guidelines.

This paper discusses related conventions’development,limits imposed,available legal principles on compensation and lessons learnt from past cases andbased on their outcome it assesses the adequacy of these conventions on compensation.