Marine Pollution (Compensation)

From Max-EuP 2012

by Nicolai Lagoni

1. Tendencies of the development of the law

The shipwreck of the Torrey Canyon on 18 March 1967 was the first major tanker casualty in maritime history. About 120,000 tonnes of crude oil were spilled which caused tremendous oil pollution along the coasts of England and France. The Torrey Canyon incident brought to public attention the environmental dangers of the transport of oil by sea and the necessity of international rules regarding the liability in the case of such spills. At that time the English law still provided for a limitation of the shipowner’s liability to the value of his ship and the cargo after the incident; the sole remaining item of the Torrey Canyon after the casualty was a lifeboat. The International Maritime Organization (IMO) put the issue of civil liability for oil pollution on its agenda and two years later the International Convention on Civil Liability for Oil Pollution Damage of 1969 (CLC) was adopted. But before the CLC entered into force in 1975, it was clear that the costs of cleaning up an oil pollution incident could by far exceed the shipowner’s limitations of liability provided in the CLC. Therefore, the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage of 1971 was elaborated under the auspices of IMO, and the International Oil Pollution Fund (IOPC Fund) was set up in London when the 1971 Fund Convention entered into force in 1978.

The international regime of compensation for oil pollution damage consisting of the CLC and the related 1971 Fund Convention was amended in 1992 by two Protocols: The Protocol of 1992 to amend the International Convention on Civil Liability for Oil Pollution Damage (1992 Civil Liability Convention—1992 CLC) and the Protocol of 1992 to amend the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution (1992 Fund Convention), which set up a new fund. Both Protocols entered into force on 30 May 1996. Under a Supplementary Fund Protocol of 2003 a Supplementary Fund was established on 3 March 2005 as a third tier of the oil pollution compensation regime. The Supplementary Fund, membership of which is optional for any contracting state of the 1992 Fund, shall compensate oil pollution damage for incidents occurring after the Protocol of 2003 has entered into force for the contracting state if the damage exceeds the existing ceilings of the 1992 Fund.

As the 1971 Fund Convention has ceased to be in force since 24 May 2002 and most Contracting States have denounced the CLC, the regime presently in force (status as of 31 May 2011) consists of the 1992 CLC with 124 Contracting States (96.62 per cent of the world tonnage) and the 1992 Fund Convention with 106 contracting states (94.30 per cent of the world tonnage) as amended by the Fund Protocol of 2003 with 27 Contracting States (21.42 per cent of the world tonnage).

Whilst in national law liability had generally been based on fault, the 1969 Civil Liability Convention internationally set forth the principle of strict liability of the shipowner for oil pollution damage caused in the territory, territorial sea or the exclusive economic zone (EEZ) of a contracting party to the CLC. The shipowner’s liability is ‘channelled’ so that under the Convention claims can be made only against the registered owner of the tanker. His liability is however ‘capped’, which means that he is normally entitled to limit his liability to an amount which is linked to the tonnage of his ship. On 1 November 2003 the liability amount of the shipowner under the 1992 CLC was increased by more than 50 per cent, ranging now from 4.51 million to 89.77 million Special Drawing Rights (SDR) defined by the International Monetary Fund (IMF). The owner of a tanker carrying more than 2,000 tonnes of persistent oil is obliged to maintain liability insurance under the 1992 CLC.

The IOPC Funds pay compensation to any person suffering oil pollution damage in any one of three circumstances. First, if the damage exceeds the shipowner’s liability under the 1992 CLC. Secondly, if the shipowner is liable under the 1992 CLC but financially incapable of meeting his obligations in full and any financial security that is provided under the terms of the Convention does not cover or is insufficient to cover the claims. Thirdly, if the claimant has been unable to obtain full and adequate compensation for the damage he has suffered from the oil spill because no liability arises under the 1992 CLC.

Pursuant to the 1992 Fund Convention the compensation which may be claimed for a single incident, less the compensation paid by the shipowner, has been increased from 60 million SDR to 135 million SDR. For any incident occurring after 1 November 2003, up to 203 million SDR may be claimed as compensation. The Supplementary Fund shall additionally cover oil pollution damage up to an amount of 750 million SDR per incident.

Like their predecessor, the 1992 Fund and the Supplementary Fund are normally financed by levies paid by all persons in a contracting state who receive annually more than 150,000 tonnes of contributing oil (crude oil and heavy fuel oil) by sea. But the contracting state may declare that it will itself assume the obligation to pay the contributions. In the latter situation the contributions to the Supplementary Fund are calculated on the basis of at least 1 million tonnes per year.

In addition to the aforementioned regime established in international law, a voluntary compensation arrangement has been set up on a contractual basis in 2006 by the International Group of P&I Clubs. This group of mutual insurers, which provide liability insurance for about 98 per cent of the world’s tanker tonnage, concluded the Small Tankers Oil Pollution Indemnification Agreement (STOPIA) 2006 and the Tanker Oil Pollution Indemnification Agreement (TOPIA) 2006, which came into force on 20 February 2006 for the contracting parties. Under both agreements the 1992 Fund and the Supplementary Fund are partly indemnified by the tanker owners in the case of a pollution incident. Under STOPIA 2006 the limitation amount for tankers up to 29,548 tons has been raised on a voluntary basis to 20 million SDR for oil pollution damage in Contracting States of the 1992 Fund Convention. Under TOPIA 2006 the Supplementary Fund is entitled to indemnification of 50 per cent of the compensation paid by it if a ship covered by the agreement is involved in the incident.

The mentioned conventions and agreements, however, apply only to seagoing vessels adapted or constructed for the carriage of persistent oil in bulk as cargo, including the bunker oil carried by them for their propulsion, whereas oil pollution damage caused by other vessels is not covered. But large container ships, for example, often carry several thousand tonnes of heavy crude oil for their own operation in their bunkers. For this reason the International Convention on Civil Liability for Bunker Oil Pollution Damage was adopted under the auspices of IMO in 2001; it entered into force on 21 November 2008 and presently has 58 states parties (as of 31 May 2011) with a combined gross tonnage of 88.06 per cent of the world tonnage. The Bunker Oil Convention provides for strict liability of the shipowner, including the registered owner, bareboat charterer, manager and operator of the ship, for loss or damage caused outside the ship by the escape or discharge of bunker oil from the ship. The damage includes the costs of preventive measures and further loss or damage caused by such measures. Excluded is damage resulting from acts of war or from exceptional natural phenomena, intentionally caused damage by a third party or damage caused by negligence of a Government. If two or more ships are involved in a pollution incident, the shipowners shall be jointly and severally liable. In the case of an incident causing pollution from bunker oil, the shipowner and the person or persons providing insurance or other financial security have the right to limit their liability under any national or international regime such as, for example, the 1996 Protocol to the Convention on Limitation of Liability for Maritime Claims.

On the regional level the EU has adopted several measures and provisions relating to marine pollution. In 2002, the Council authorized the Member States to ratify or accede to the Bunker Oil Convention. Directive 2004/35 on Environmental Liability with regard to the prevention and remedying of environmental damage applies also in the EEZ and on the continental shelf of the Member States; it does not apply, however, when the international conventions on civil liability for marine pollution compensation are applicable. The European Court of Justice has held that the 1975 Council Directive on waste is applicable to hydrocarbons that are accidentally spilled through a shipwreck causing the pollution of the coastline of a Member State. The vendor of hydrocarbons and charterer of the ship carrying them may be regarded as producer of these wastes if he contributed to the risk that the pollution caused by the shipwreck would occur, in particular if he failed to take measures to prevent such an incident; such measures could include the choice of the ship. If such costs are not borne by the IOPC Funds, or the ceiling for compensation has been reached, the court held that the domestic law of a Member State has to make provision that such costs are borne by the producer of the product from which the waste originated. In accordance with the ‘polluter pays’ principle, however, the producer shall only be liable to bear such costs if he has contributed by his conduct to the risk that the pollution caused by the shipwreck would occur (ECJ, Case C-188/07 – Commune de Mesquer/Total France SA [2008] ECR I-4501 paras 77 ff).

2. Structures of regulations in uniform law

The conventions for the compensation of marine pollution contain certain provisions which are similar to each other. They establish strict liability of the ‘shipowner’ which generally means the registered owner, but in the Bunkers Convention also the bareboat charterer, manager and operator of the ship are included. Strict liability, however, does not apply if the shipowner proves that the damage was caused by force majeure or was wholly caused by an act or omission done with the intent to cause damage by a third party or the negligence or other wrongful act of a Government or other authority in the exercise of the maintenance of navigational aids. The conventions provide for a limitation of the strict liability. Compensation is limited to a certain amount depending on the tonnage of the vessel. The shipowner is entitled to limit his liability if he sets up a fund in the amount of his liability. This fund will be distributed among the claimants in proportion to the amounts of their claims. The limitations of liability will not be applicable if it is proved that the pollution damage resulted from a personal act or omission of the shipowner, committed with the intent to cause such damage or recklessly and with knowledge that such damage would probably result.

Whoever owns a ship of a certain tonnage must maintain a financial security in the amount of his possible liability for marine pollution. The flag state and the port states ensure that this obligation is complied with. Such financial security may either be insurance or a bank guarantee or a guarantee of a similar financial institution accepted by the appropriate authority of the flag state.

Additionally, the conventions deal with the statute of limitations and with issues of jurisdiction. Article X of the 1992 CLC even contains provisions on the recognition and enforcement of judgments rendered in accordance with the convention.

As the conventions do not determine the compensation to be paid, the general principles of the national law in question apply in this regard.

The conventions apply to the territory, including the territorial sea, and to the EEZ of the states parties. If a state party has not established an exclusive economic zone, the conventions apply beyond the territorial sea to a zone extending not more than 200 nautical miles from the baselines from which the breadth of its territorial sea is measured. Hence the damage must have occurred in the territory or the maritime zones of the states parties. There is no beneficiary in the case of oil pollution of the High Seas which does not result in damage to rights of other individuals or of the international community as a whole (see the ILC Draft on the Responsibility of States for Internationally Wrongful Acts of 2001). As a result, the conventions apply in the case of damage to life or health of human beings, physical damage to the coasts or navigable waterways and damage to fisheries; but damage incurred by tourism is also compensated for. Loss of profit may also be claimed, but mere chances of profit are excluded. Damage to nature as such is not compensated for; no one owns nature. However, impairment of the environment other than the loss of profit from such impairment is compensated for, but compensation is limited to costs of reasonable measures of reinstatement actually undertaken or to be undertaken. The costs of preventive measures, which are defined as reasonable measures taken by any person after an incident has occurred to prevent or minimize pollution damage, are also compensated for.

3. Uniform law projects

It is envisaged to extend the system of compensation for oil pollution damage to damage caused by other substances, in particular to those caused by hazardous and noxious substances other than hydrocarbon mineral oil. The International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (HNS) was adopted in 1996 under the auspices of IMO. The Legal Committee of IMO has tried to increase acceptance of this convention, and the Council of the European Union has authorized the Member States to ratify or accede to it. The HNS Convention will enter into force after ratification by at least 12 states if certain conditions are fulfilled. As of 31 May 2011, 14 states have ratified, but the conditions have not been fulfilled. Hazardous and noxious substances are chemicals in liquid or solid form, which may be transported in bulk or packaged form, as well as residues of such chemicals. The Convention regulates strict liability and compulsory insurance of the shipowner, who may again limit his liability. It establishes the International Hazardous and Noxious Substances Fund (HNS Fund) to provide compensation for damage to the extent that the protection afforded under the Convention is inadequate or not available.

The regional Convention on Civil Liability for Damage resulting from activities dangerous to the Environment, adopted at Lugano by the Council of Europe on 21 June 1993, might also be relevant with regard to compensation for marine pollution. The Lugano Convention shall enter into force after three ratifications. It will apply to incidents occurring in the territory of the contracting states including the territorial sea except, however, to damage arising from maritime transport.


David W Abecassis, Richard L Jarashow and Robert M Jarvis, Oil Pollution from Ships (1985); Wu Chao, Pollution from the Carriage of Oil by Sea (1996); Rainer Altfuldisch, Haftung und Entschädigung nach Tankerunfällen auf See (2006); Ling Zhu, Compulsory Insurance and Compensation for Bunker Oil Pollution Damage (2007); Meltem Deniz Güner-Özbek, The Carriage of Dangerous Goods by Sea (2007); Peter Ehlers, ‘Origins and Compensation of Marine Pollution—A Survey’ in Jürgen Basedow and Ulrich Magnus (eds), Pollution of the Sea—Prevention and Compensation (2007) 113-127; Måns Jacobsson, ‘The International Oil Pollution Compensation Funds and the International Regime of Compensation for Oil Pollution Damage’ in Jürgen Basedow and Ulrich Magnus (eds), Pollution of the Sea—Prevention and Compensation (2007) 137-150; Colin de la Rue, Shipping and the Environment (2nd edn, 2009); Jürgen Basedow, Ulrich Magnus and Rüdiger Wolfrum (eds), The Hamburg Lectures on Maritime Affairs 2007 & 2008 (2009).

Retrieved from Marine Pollution (Compensation) – Max-EuP 2012 on 22 May 2022.

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