COMPENSATION

The Civil Liability and Fund Conventions

The international compensation regime for damage caused by spills of persistent oil from laden tankers was based initially on two IMO Conventions - the 1969 International Convention on Civil Liability for Oil Pollution Damage (1969 CLC) and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (1971 Fund Convention). This 'old' regime was amended in 1992 by two Protocols, which increased the compensation limits and broadened the scope of the original Conventions. In October 2000 agreement was reached on increasing the limits of the 1992 CLC and Fund Convention by a little over 50% with effect from 1st November 2003. In May 2003 a Supplementary (‘third tier’) Fund was established at the IMO through a new Protocol that will increase the amount of compensation in States that ratify it to about US$1,160 million (including the amounts paid under the 1992 CLC and Fund Convention).

The 1969 CLC entered into force in 1975 and lays down the principle of strict liability (i.e. liability even in the absence of fault) for tanker owners and creates a system of compulsory liability insurance. Claims for compensation for oil pollution damage (including clean-up costs) may be brought against the owner of the tanker which caused the damage or directly against the owner's P&I insurer. The tanker owner is normally entitled to limit his liability to an amount which is linked to the tonnage of the tanker causing the pollution.

The 1971 Fund Convention provided for the payment of supplementary compensation to those who could not obtain full compensation for oil pollution damage under the 1969 CLC. The International Oil Pollution Compensation Fund (1971 IOPC Fund) was set up for the purpose of administering the regime of compensation created by the Fund Convention when it entered into force in 1978. By becoming Party to the 1971 Fund Convention, a country became a Member of the 1971 IOPC Fund. Payments of compensation and the administrative expenses of the 1971 IOPC Fund were financed by contributions levied on companies in Fund Convention countries that received crude oil and heavy fuel oil after sea transport.

In 1992, a Diplomatic Conference adopted two Protocols amending the 1969 CLC and 1971 Fund Convention, which became the 1992 CLC and 1992 Fund Convention. These 1992 Conventions, which provide higher limits of compensation and a wider scope of application than the original Conventions, entered into force on 30th May 1996. As in the case of the original Conventions, the tanker owner and P&I insurer are liable for the payment of compensation under the 1992 CLC, and oil receivers in countries that are party to the 1992 Fund Convention are liable for the payment of supplementary compensation through the 1992 IOPC Fund. As more States ratified or acceded to the 1992 Conventions, the original Conventions rapidly lost significance and the 1971 Fund Convention was terminated altogether on 24th May 2002.

The Supplementary Fund Protocol will enter into force three months after it has been ratified by at least eight states which have received a combined total of 450 million tons of contributing oil in a calendar year. These conditions were fulfilled on 3rd December 2004 when the Protocol had been ratified by Denmark, Finland, France, Germany, Ireland, Japan, Norway and Spain. The Supplementary Fund will therefore come into force on 3rd March 2005.

MAXIMUM AMOUNTS OF COMPENSATION AVAILABLE UNDER THE CONVENTIONS (EXPRESSED IN US$ MILLIONS - rates as at January 2005)

Note: The limits of liability under the various regimes are based on specified units of account (Special Drawing Right - SDR). The value of an SDR in terms of a national currency varies. For the purpose of this composition all the limits are expressed in US dollars, based on a rate of exchange of 1 SDR=US $ 1.54 (January 2005). The maximum amount of compensation potentially available under each of the various regimes is, in many cases, inclusive of amounts that would be payable under another regime. For example, the maximum amount of compensation available under the 1992 Fund Convention is inclusive of compensation payable by the tanker owner under the 1992 CLC. The maximum amounts listed above should therefore not be aggregated when determining the total amount of compensation which may be available in a specific incident.

Oil spill compensation in countries which have not ratified the international Conventions

Some countries which have not ratified the international compensation Conventions will have their own domestic legislation for compensating those affected by oil spills from tankers. Some of these may be highly specific, such as the Oil Pollution Act of 1990 in the USA, whereas other countries may rely on broader laws originally developed for other purposes.

• Further sources of information on oil spill compensation

Bunker Spills Convention

Recognition of the problems that can be caused by spills of heavy bunker fuel from non-tankers led to the adoption of the International Convention on Civil Liability for Bunker Oil Pollution Damage at a Diplomatic Conference in March 2001.

This IMO Convention seeks to ensure that adequate compensation is promptly available to persons who are required to clean up or who suffer damage as a result of spills of ships' bunker oil, who would not otherwise be compensated under the 1992 CLC. Although strict liability under the Bunker Spills Convention extends beyond the registered owner to the bareboat charterer, manager and operator of the ship, the Convention only requires the registered owner of ships greater than 1,000 GT to maintain insurance or other financial security. The level of cover must be equal to the limits of liability under the applicable national or international limitation regime, but in no case exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims, 1976, as amended.

The Bunker Spills Convention will enter into force 12 months after it has been ratified by 18 States, including five States with ships whose combined gross tonnage is not less than one million GT. As at 30 November 2004, only 5 States had ratified the Convention.

HNS Convention

The International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious substances by Sea (HNS Convention) was adopted by the IMO in May 1996. It aims to ensure adequate, prompt and effective compensation for damage that may result from shipping accidents involving hazardous and noxious substances.

The Convention entitles claimants to compensation for loss or damage to persons, property and the environment caused by incidents involving cargoes of oil, gases and chemicals, plus other substances which are hazardous in packaged form. Pollution damage caused by persistent oils already covered by the CLC and Fund Convention is excluded, as is damage caused by radioactive materials and coal.

The HNS Convention is modelled on the CLC and Fund Convention. Thus, the shipowner (and his P&I insurer) is strictly liable to pay the first tier of compensation whereas the second tier comes from a fund levied on cargo receivers in all Contracting States on a post-event basis.

Shipowner liability ranges from SDR 10 million (about US$ 15 million) for ships up to 2,000 GT, rising linearly through SDR 82 million (about US$ 126 million) for ships of 50,000 GT, to a maximum of SDR 100 million (about US$ 154 million) for ships over 100,000 GT. It is compulsory for all ships over 200 GT to have insurance to cover the relevant amount.

An HNS Fund (which will most likely be administered by the secretariat of the 1992 IOPC Fund) provides compensation up to a total of SDR 250 million (US$ 385 million), inclusive of shipowner liability but irrespective of ship size. The HNS Fund will comprise four separate accounts for oil, LPG, LNG and a general account for other HNS substances such as bulk solids and chemicals. Each separate account will meet claims attributable to the relevant cargo without cross subsidisation and will be funded in proportion to total receipts of relevant cargoes in Contributing States.

The HNS Convention will enter into force 18 months after ratification by 12 flag States, including four States each representing 2 million GT and Port States importing an annual aggregate of 40 million tonnes of chemicals and other solid bulk materials which are hazardous in packaged form. As at 30 November 2004, the HNS Convention had only been ratified by Angola, Morocco, the Russian Federation, St Kitts and Nevis, Samoa, Slovenia and Tonga.

Other International Maritime Conventions

Other Conventions with relevance to marine pollution include the International Convention for the Prevention of Pollution from Ships, 1973, as amended by the Protocol of 1978 ("MARPOL") and the International Convention on Oil Pollution Preparedness, Response and Cooperation, 1990 ("OPRC 90").

• Further information on other maritime Conventions