Pollution Compensation - Global Regime under Threat

The principle that shipowners can limit liability for oil pollution is the quid pro quo for payment of compensation regardless of fault 

March 2017 marked the 50th anniversary of the ‘Torrey Canyon’ oil spill, off the south west coast of the United Kingdom. This is generally regarded as the first major pollution incident involving a Very Large Crude Carrier (VLCC) or what the public continues to regard as a ‘super tanker’. In the same way that the loss of the ‘Titanic’ directly led to the adoption of the original SOLAS Convention, the ‘Torrey Canyon’ was the catalyst that led to the adoption of MARPOL and IMO’s focus on environmental protection. 

ICS has attached its name to an exhibition entitled ‘50 years working together: Government and Industry collaboration to address the risk of oil pollution from ships’, which is expected to remain on display at IMO throughout much of 2017. The dramatic reduction in the number of serious oil spills since the adoption of MARPOL is indeed impressive. However, while the goal of the industry is zero accidents and zero pollution, ships will always operate in an environment presenting a high degree of physical risk. Although the number of serious pollution incidents that occur today is very low indeed, the possibility remains that occasional oil spills will regrettably continue to occur. 

A largely unsung achievement of IMO, which also followed on from the ‘Torrey Canyon’, was the adoption of the Civil Liability Convention (CLC) in 1969 and the International Oil Pollution Compensation Fund (FUND) Convention in 1971. 

These important IMO Conventions have established a very effective global system for ensuring that those affected by oil pollution from tankers will receive high levels of financial compensation without undue delay, the costs being shared by the shipping industry and cargo receivers. 

An essential feature of the IMO compensation regime is that shipowners and their insurers accept strict liability for any pollution damage that may be caused, regardless of actual fault. Compensation payments can thus be made swiftly, without protracted legal arguments. However, the important trade-off for strict liability is that shipowners are able to limit their liability, in order that they can obtain the necessary insurance cover. 

Disturbingly, this tried and tested, and very successful global system is now under threat from unilateral action. 

ICS and the International Group of P&I Clubs (which represents third party liability insurers mutually owned by shipping companies) are very concerned by recent developments that threaten the stability of the international regime for oil pollution compensation, and fear that a tipping point may have been reached. 

These developments include the controversial decision of the Spanish Supreme Court, in January 2016, relating to the ‘Prestige’ incident of 2002, and the enactment of a new domestic law in France, in August 2016, providing for unlimited liability for environmental damage. This latter development followed on from the decision of the French Supreme Court in 2012 on the ‘Erika’ incident of 1999. 

The court decisions in both cases are inconsistent with the fundamental principles of the IMO Civil Liability and FUND Conventions and threaten to disturb the balance of interests on which the international oil spill compensation system is based.

At the October 2016 session of the International Oil Pollution Compensation Funds (IOPCF) governing bodies, ICS made a strong statement in support of a submission by the International Group of P&I Clubs concerning the Spanish Supreme Court’s findings in respect of the Master and the shipowner’s insurer. 

The Spanish Supreme Court had overturned the decision of a lower trial court and held that the Master was guilty of the crime of reckless damage to the environment and that, as a result, the shipowner was not entitled to limit its liability under the IMO Civil Liability Convention. The shipowner’s insurer was also held directly liable above the CLC limit, for up to US$1 billion (the limit of cover provided by the International Group of P&I Clubs for oil pollution damage). 

The Spanish and French government delegations made lengthy interventions at the October IOPCF meeting disagreeing with the industry’s position. However, several other governments indicated that they share many of the industry’s concerns about the proper implementation of the Civil Liability Convention and the consequences for the shipping and insurance industries of the French and Spanish decisions, as well as for the long term interests of future pollution victims. 

In April 2017, ICS made a further submission to the IOPC Funds governing bodies on the wider implications of the Spanish Supreme Court judgement, and other national court decisions that are inconsistent with the IMO liability Conventions. 

Somewhat more positively, in December 2016, the French Shipowners’ Association helpfully arranged a seminar to discuss the implications of the new French law which provides for unlimited liability for environmental damage, bearing in mind that liability and compensation for such damage from shipping incidents are already covered by the IMO Conventions to which France has subscribed. The French Government representative at the meeting indicated that although the new law was intended to supplement both the EU Environmental Liability Directive and the international regime, the IMO Conventions would continue to take precedence in accordance with France’s constitution. However, the French Ministry of Justice has yet to confirm this. 

Meanwhile, ICS members have concluded that there is a need for greater ratification by governments of the 2003 Supplementary Fund Protocol, noting that of 114 States Party to the FUND Convention, only 31 are Parties to the Supplementary Fund. This is of concern because the Protocol which was adopted after the ‘Prestige’ and ‘Erika’ incidents provides for much higher limits of liability. 

If the Protocol was in force in a nation which suffered a future pollution incident, it is likely that the higher levels of compensation available would discourage the types of claims seen with the ‘Erika’ and ‘Prestige’ cases, and the unhelpful actions that have been taken by the Spanish and French courts. 

Throughout 2017, ICS will continue to liaise with governments and IMO in order to stress the great importance of safeguarding the international regime on liability and compensation for pollution damage. ICS will also emphasise the need for more governments to ratify the 2003 Supplementary Fund Protocol in order to increase the compensation amounts that would be available in the event of future incidents.

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