Abstract
In the previous chapter, we have maintained that deterrence should be the main goal of liability law especially when both parties to a liability claim are insured. This may not be the case with the oil pollution liability law because the victims of oil pollution are not always insured against the damage from such pollution. As a result, the oil pollution liability regime needs to cater for both goals of liability law: deterrence and compensation. However, the intended goal of the international oil pollution liability regime is to provide adequate compensation against oil pollution damage. In fulfilling this goal, the oil pollution liability regime has succeeded to a great extent.
An earlier version of this chapter was published in Billah (2011), pp. 42–78.
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Notes
- 1.
Oil pollution victims may include local fishermen, the owners of hotels, restaurants and gift shops near a sea beach as well as any government entity in charge of marine resources. See the claim history of any large-scale oil pollution incidents at the IOPC website at http://www.iopcfund.org/. Accessed 01 September 2013.
- 2.
See Brown (1978–1979), p. 111.
- 3.
See the conventions on oil pollution liability: International Convention on Civil Liability for Oil Pollution Damage, 1969, 973 U.N.T.S.3, (1970) 9 I.L.M. 45, as amended by 1992 Protocol, LEG/CONF.9/15 [hereinafter the CLC or the Civil Liability Convention] and International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1971, 16 I.L.M 621 (1972), as amended by 1992 Protocol, LEG/CONF.9/16, and 2003 Protocol, LEG/CONF.14/20 [hereinafter the Fund Convention].
- 4.
This goal is explicitly stated in the preamble to both the CLC and the Fund Convention. The preamble to both conventions reads, “The State Parties to the present Convention…. convinced of the need to ensure that adequate compensation is available….” (Emphasis added). However, the word ‘adequate compensation’ was not defined in any of the conventions. The states parties probably wanted the compensation to be as high as possible.
- 5.
The problem with compensation as primary goal is that it ignores the possible effect of law on the behavior of liable parties in reducing pollution incidents. Consequently, the primary focus of the negotiations leading to the adoption of the CLC and the Fund Convention was on who should pay for oil pollution damage instead of who could be induced through liability to reduce the damage. For an excellent account of the negations, see M’Gonigle and Zacher (1979), Chap. V.
- 6.
See infra Sect. 6.5. The main source of these statistics is the website of the International Ship owners Pollution Federation Ltd (ITOPF) at http://www.itopf.com/information-services/data-and-statistics/statistics/index.html. Accessed 03 September 2013.
- 7.
See Gold (1991), p. 427.
- 8.
See supra Chap. 3.
- 9.
For general limitation of ship owners’ liability, see LLMC 1976. The liability limit of LLMC 1976 was further increased by an average of 2.3 times by a Protocol in 1996 (LEG/CONF.10/DC.2 of May 2, 1996), which came into force on May 13, 2004, See the status of the IMO Conventions at IMO website: http://www.imo.org/About/Conventions/StatusOfConventions/Pages/Default.aspx. Accessed 03 September 2013.
- 10.
From 1978 to 2003, only 125 incidents required compensation from the IOPC Funds. In most of these cases the reason for the Fund’s involvement was the inadequacy of ship owners’ liability limit. See T. Mensah, “The IOPC Funds: how it all started” in IOPC Funds (2003), p. 48. As ship owners are required to purchase compulsory insurance against oil pollution liability, there may be some doubt about the deterrent effect of liability law in the presence of liability insurance. This issue is addressed in the next chapter.
- 11.
Tan (2006), p. 288.
- 12.
See Southport Corporation v. Esso Petroleum Company Ltd, [1953] 2 Lloyd’s Rep. 414 (Trial Div.); [1954] 1 Lloyd’s Rep. 446 (CA); [1955] 2 Lloyd’s Rep. 655 (HL); The Wagon Mound, [1961] A.C. 388 (P.C.); see also Kiern (2000), pp. 490–502.
- 13.
There are three conventions on limitation of liability: (1) International Convention for the Unification of Certain Rules relating to the Limitation of Liability of the Owners of Sea-going Vessels, 1924; League of Nations Treaty Series No. 2763, Vol. CXX, p. 125; (2) and Convention on the Limitation of Liability of Owners of Sea Going Ships, 10 October 1957, 52 U.K.T.S. 355 (1968) and (3) Convention on Limitation of Liability for Maritime Claims, 1976, (1977) 16 I.L.M. 606, as amended by 1996 Protocol, LEG/CONF.10/DC.2.
- 14.
Cleanup alone cost the British and French governments £7.70 million (US$18 million). Although it was impossible to estimate the damage to the environment, total quantifiable cost was £14.24 million. Burrows et al. (1974), p. 258. Ultimately the UK and France settled for slightly over US$7 million. M’Gonigle and Zacher (1979), p. 153.
- 15.
See the Fund Convention, article 4.1 (a)–(c).
- 16.
See article V.1 of the CLC and article 4.4 of the Fund Convention. Under article V.1 of the CLC the calculation is based on the tonnage of the ships and the ship owners’ maximum liability can be SDR89.77 million. However, for owners of ships with 5,000 gross register ton (grt) or less, the maximum is SDR4.51 million. Any ship above 5,000 grt may incur additional liability of SDR631 per ton but the total cannot exceed SDR89.77 million. It is noteworthy that one grt is equivalent to 100 cubic feet of the enclosed space in a ship.
- 17.
Protocol of 2003 to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992 [hereinafter the Supplementary Fund Protocol]; the Protocol can be found in the IMO document: LEG/CONF.14/20.
- 18.
See http://www.imo.org/About/Conventions/StatusOfConventions/Pages/Default.aspx. Accessed 03 September 2013.
- 19.
As of 03 September 2013, there are 29 state parties to the Supplementary Fund; they are mostly from European Union. See at http://www.iopcfunds.org/about-us/membership/map/. Accessed 03 September 2013.
- 20.
Protocol of 1984 to Amend the International Convention on Civil Liability for Oil Pollution Damage, 1969; Protocol of the 1984 to Amend the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1971; reprinted in (1984) 15 J. Mar. L. & Com. 613 and 623 respectively. These protocols never came into force due to the US’s non-ratification, but were reintroduced in 1992 with modification in the entry-into-force requirement.
- 21.
- 22.
There were four federal statutes in this regard: s.311 of the Federal Water Pollution Control Act, Pub. L. No. 92-500, 85 Stat. 816 (1972); the Deep-Water Port Act, Pub. L. No. 93-627, 88 Stat. 2126 (1974), the Outer Continental Shelf Lands Act Amendments, Pub. L. No. 95-372, 92 Stat. 674 (1978), the Trans-Alaska Pipeline Authorization Act, Pub. L. No. 93-153, 87 Stat. 589 (1973). See Ayorinde (1994), pp. 69–70. See also Kiern (2000), p. 507.
- 23.
A total of 37,000 tons of crude oil were spilled on the pristine water of Prince William Sound, Alaska. Although it is the largest ship-sourced oil spill in the US, it ranks only 35th in major oil spills worldwide. See http://www.itopf.com/information-services/data-and-statistics/statistics/index.html. Accessed 03 September 2013. Its total economic cost is estimated over $12 billion. Kiern (2000), pp. 481–482.
- 24.
PL 101-380 (HR 1465). It was enacted on August 18, 1990.
- 25.
“Vessel” is defined in the OPA to include “every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water, other than a public vessel.” §2701(37). (Emphasis added). On the other hand, in the CLC and the Fund Convention it is defined to include only oil tankers and other ships which are adapted to carry oil and are actually carrying oil. See articles I.1 of the CLC as well as 1.2 of the Fund Convention. The latter adopted the same definition as that of the CLC by cross-reference.
- 26.
While international regime covers only pollution from “persistent oil” such as crude oil, fuel oil, heavy diesel oil, and lubricating oil (art.I.5 of the CLC), the OPA includes pollution damage occurring both from persistent and non-persistent oil.
- 27.
This is because per ton liability for oil pollution from a tanker cannot be less than US$3,000 for single-hull tankers or US$1,900 for double-hull tankers. Under the original OPA, per ton liability could not be less than US$1,200 for any kind of tanker. See Coast Guard and Marine Transportation Act of 2006, PL 109-241, which increased the limit of liability provided in the OPA. On the other hand, under the CLC liability could be less than SDR 450 for a large tanker of 200,000 tons because the maximum liability for a tanker owner under the CLC cannot exceed SDR 89,777,000. See proviso to article V(1)(b) of the CLC.
- 28.
See article V.2 of CLC and 33 USC § 2704 (c) (1) (a) and (b).
- 29.
See Chao (1996), p. 241.
- 30.
See supra note 27. The concept of maximum ceiling on liability was something new at that time for maritime liability law. Such ceiling did not exist in the then existing general liability law, the 1957 Convention, and its predecessor the 1924 Convention. It even did not appear in the IMO’s Legal Committee’s draft CLC. It was proposed in the 1969 IMO conference by the UK delegation and the proposal was probably inspired by the existence of similar measure in the tanker-owners’ private agreement, TOVALOP, designed to provide governments’ clean-up cost for oil pollution. See M’Gonigle and Zacher (1979), pp. 158–159, 173.
- 31.
26 U.S.C. § 9509 (c)(2)(A).
- 32.
See the Report to Congressional Committees by the US Government Accountability Office (2007), p. 28; available at www.gao.gov/cgi-bin/getrpt?GAO-07-1085. Accessed 03 September 2013.
- 33.
Among these incidents are the Amoco Cadiz in France in 1978, the Erika again in France in 1999, and the Prestige in Spain in 2002. See the IOPC Fund’s website for detail accounts of these incidents at http://www.iopcfund.org/. Accessed 03 September 2013.
- 34.
The limit in the Supplementary Fund is SDR 750 billion.
- 35.
‘Insurance’ in its narrower sense means only commercial insurance. See Vance (1908), pp. 2–3.
- 36.
Under the CLC, the owners of tankers over 2,000 gross registered tons (grt) are required to carry insurance, while under the OPA insurance is compulsory on any ship over 300 grt. See article VII.1 of the CLC and § 2716 of the OPA. Although the provisions give ship owners option to have other financial security or guarantee instead of insurance, in terms of their effect they all are similar to that of insurance i.e., the guarantee of compensation against oil pollution damage. Consequently, we treat them all as insurance in their functional sense. Such insurance proceeds are exclusively available for the oil pollution compensation. See article VII.9 of the CLC.
- 37.
The concept of compulsory insurance existed in the 1962 Convention on the Liability of Operators of Nuclear Ships, Brussels, May 25, 1962, (1963) 57 AJIL 268. As can be seen from the name of the convention, the ships on which compulsory insurance was imposed under it were not ordinary merchant ships. See A. Popp, “The Civil Liability and Fund Conventions: model compensation schemes” in IOPC Funds (2003), p. 82. See also Røsæg (2000).
- 38.
Although compulsory insurance is mainly thought of as providing protection for victims of accidents, it also protects the injurer from the ruinous effect of high liability. See the judgment of Stuart-Smith L.J. in Richardson v. Pitt-Stanley [1995] 2 W.L.R. 26 (CA), where he rationalized the provision of compulsory workmen compensation insurance as a protection for employers by saying that “a small or even medium-sized employer may be faced with disastrous consequences for his business … if he is faced with a large claim by an injured workman, which will make large inroads into his resources”. In the same case, the dissenting justice Sir John Megaw opined that it was the “protection to a particular class of individuals, the employees” which was the purpose of compulsory insurance. Cited in O’Sullivan (1995), pp. 242–243. (Emphasis added).
- 39.
See infra note 45.
- 40.
- 41.
- 42.
Even though under the general maritime law a ship’s liability is now calculated based on the tonnage of the ship, the only asset a plaintiff can get hold of may be the damaged ship in the absence of compulsory insurance.
- 43.
See Tan (2006), p. 34.
- 44.
Per Lord Watson in Sailing Ship “Blairmore” Co. Ltd. v. Macredie [1898] AC 593, 603 (HL).
- 45.
On the basis of the US Limitation of Liability Act, 46 USC § 183, under which liability is based on the value of the ship and the pending freight after an incident, the liability of the ship owner was held by a US district court to be US$50, the value of the single salvaged lifeboat. See In re Barracuda Tanker Corp. (The Torrey Canyon), 281 F.Supp. 228 (SDNY 1968), rev’d on other grounds, 409 F.2d 1013 (2d Cir. 1969). See Kiern (2000), p. 503. The corporate structure of the Torrey Canyon also illustrates the ‘corporate veil’ concept in its extreme. The ship was registered in Liberia and owned by a Bermudian company, the Barracuda Tanker Corporation, which was a corporate creation of the Union Oil, an American company. The ship was then bareboat-chartered to the Union Oil, which in turn voyage-chartered it to a UK company, the British Petroleum. See M’Gonigle and Zacher (1979), pp. 149–150; Tan (2006), pp. 288–289.
- 46.
Article VII.10 of the CLC.
- 47.
Article VII.11 of the CLC.
- 48.
- 49.
- 50.
- 51.
Article 5 of Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea, 1974; (1975) 14 I.L.M., as amended by its 2002 Protocol, LEG/CONF.13/20 [hereinafter the PAL 1974].
- 52.
Article VII of the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996, 35 I.L.M. 1406 [hereinafter the HNS Convention]; Art.7 of International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, LEG/CONF 12/19 [hereinafter the Bunkers Convention].
- 53.
See OECD (2004), p. 62.
- 54.
Bunker Convention entered into force on Nov. 21, 2008; see the status of the conventions at http://www.imo.org/About/Conventions/StatusOfConventions/Pages/Default.aspx. Accessed 03 September 2013.
- 55.
Article 7(1) of Bunkers Convention. Insurance is required for any ship over 1,000 grt; Bunker Convention entered into force on Nov. 21, 2008; see the status of the conventions at http://www.imo.org/About/Conventions/StatusOfConventions/Pages/Default.aspx. Accessed 03 September 2013.
- 56.
Oil pollution from the bunkers of tankers is already covered by the CLC; see the definition of ‘oil’ in article I.5: “‘Oil’ means any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil, whether carried on board a ship as cargo or in the bunkers of such a ship”. (Emphasis added).
- 57.
See article 7.12 of the Bunkers Convention. Like the similar provision in article VII.11 of the CLC, this provision prevents competitive advantage of ships flying the flag of non-contracting states over the ships from contracting states. See Zhu (2007), p. 34.
- 58.
This is because unlike the CLC or the HNS Convention, the Bunkers convention does not envisage an exclusive fund for bunker oil pollution. Liability for bunker oil pollution would be treated like any other liability of ship owner under general liability conventions in terms of priority of payment from the liability fund. See Wu (2002), p. 564; see also articles VII.9 of the CLC and 12.9 of the HNS Convention.
- 59.
See art. 2(1)(a) and (b) of LLMC 1976; see also Griggs et al. (2005), pp. 134–136.
- 60.
See the Hague-Visby Rules; the Hamburg Rules. The liability limit under the cargo conventions is further subject to the limit under LLMC 1976 as cargo is only one of many possible property claims to be met from the general limitation fund set up according to LLMC 1976.
- 61.
The Bunkers Convention entered into force on 21 November 2008; see supra note 54. However, the claimants for non-bunker oil pollution may encounter difficulties to obtain compensation despite compulsory insurance because they would not be able to bring direct action against the insurer. See infra Sect. 6.3.2.
- 62.
Article VII.8 of the CLC.
- 63.
See Hazelwood (2000), p. 141. See also West Wake Price & Co. v. Ching [1957] 1 W.L.R. 45 at 49; Ali Galeb Ahmed, et al. v. American Steamship Owners Mutual Protection and Indemnity Association Inc. et al. [1978] A.M.C. 586; Weeks v Beryl Shipping Inc. (1988) 845 F. 2d. 304; these cases were cited in Hazelwood (2000), p. 141 note 4.
- 64.
- 65.
Article VII.8 of the CLC provides, “Any claim for compensation for pollution damage may be brought directly against the insurer or the person providing financial security for the owner’s liability for pollution damage.” (Emphasis added).
- 66.
Røsæg (2000), p. 10.
- 67.
Article VII.8 of the CLC.
- 68.
Article VII.8 of the CLC. Wilful misconduct appears to be different from conducts barring limitation of liability under Article V.2 of the CLC. The latter conducts are ship owner’s “personal act or omission, committed with the intent to cause [pollution] damage, or recklessly and with knowledge that such damage would probably result.” Ship owners’ personal act or omission to cause pollution damage does not appear to be a defence for the insurer against a pollution victim’s claims. In this respect, wilful misconduct seems to be a more serious offence than a personal act or omission with the intent to cause damage. Yet, for the purpose of denying the right to limited liability, wilful misconduct appears to be a lesser fault than personal act or omission as only the latter deprives the ship owner the right to limit liability. In practice and in their ordinary meaning, they may be one and the same thing. In that case, there seems to be some contradictions or oversight in Article VII.8 of the CLC because one conduct is a defence and the other is not. Similar comments can be made also with regard to ‘a reckless conduct,’ another conduct barring the right of limitation. However, if these conducts also amount to wilful misconduct, victims of pollution will lose the right of direct action against insurers more often than would be the case otherwise.
- 69.
See article 12 (8) of the HNS Convention, article 5.10 of 2002 Protocol to PAL 1974 and article 7.10 of the Bunkers Convention.
- 70.
Article 7.10 of the Bunkers Convention.
- 71.
Because when both injurers and victims can buy liability insurance and first party insurance respectively, the appeal for liability law as a means of compensation greatly disappears. The only justified goal of liability in the presence of widespread insurance is the creation of deterrence, which would lead to the reduction of negligently-caused accidents. See Shavell (2004), pp. 267–269, 635–638.
- 72.
It is noteworthy here that compensation does not affect the goal of deterrence if compensation is fully borne by the party who can cost-effectively prevent or reduce oil pollution. On how to balance both deterrence and compensation goals through liability law, see generally Trebilcock (1989), pp. 19–54.
- 73.
- 74.
Supra notes 40 and 41 with accompanying texts.
- 75.
Article VII.4 of the CLC.
- 76.
Article VII.11 of the CLC.
- 77.
For example, under the MARPOL 73 flag States are required to issue certificates of compliance with regard to the conformity of a ship to the construction and design provisions. Similarly, it is also the duty of the flag State to issue certificate confirming that the tank size of the tankers conforms to the MARPOL provisions. See also article 217(3) of United Nations Convention on the Law of the (LOSC), United (1982) 21 I.L.M. 1261, which requires flag States to ensure the existence of necessary certificates on board their ships: “States shall ensure that vessels flying their flag or of their registry carry on board certificates required by and issued pursuant to international rules and standards….”
- 78.
Article VII.2 of the CLC.
- 79.
The major oil importers are now the USA, Japan, China, Italy, and South Korea. With the exception of the US, the rest of the countries are parties to the CLC. See the list of countries parties to the CLC/Fund Convention at the IOPC Fund website at http://www.iopcfunds.org/about-us/membership/map/. Accessed 03 September 2013.
- 80.
However, in the USA similar certificate is also required under the OPA. See 26 U.S.C. § 9509 (c)(2)(A).
- 81.
Article VII.7 of the CLC.
- 82.
Although it is true that oil spill due to a ship owner’s negligence may give rise to more harm and lead to higher liability than would be the case for a similar accident involving non-oil cargo, there is no justifications in shifting the liability to cargo owners i.e., the oil companies for ship owners’ negligence. Once the cargo is in the ship, oil companies have no control over its care. Despite this, during the negotiations of the CLC and the Fund Convention some states wanted to impose liability on the oil industry because of the inherent nature of the oil cargo to cause higher damage. For example, the Danish delegate reasoned during 1969 conference, “Maritime transport was not dangerous in itself: it was only dangerous if the goods carried were dangerous and it was therefore normal to impose liability on the cargo for any damage caused to a third party. The industry which made a profit from that business should also accept the risks entailed.” IMCO (1973), p. 628. On the other hand, Canada’s main concern was adequate compensation for oil pollution regardless of who would pay for it. See M’Gonigle and Zacher (1979), p. 172.
- 83.
Article 4 (1) (b) of the Fund Convention.
- 84.
Article 4(1) (c) of the Fund Convention.
- 85.
This may also occur if a tanker does not have insurance at all because insurance is not compulsory on the tankers of 2,000 grt or below.
- 86.
For example, oil pollution caused by an exceptional natural phenomenon. See article III.2 (a) of the CLC.
- 87.
- 88.
Article 10 of the Fund Convention.
- 89.
Some suggested imposing differentiated levies on oil companies based on actual incidents involved in the carriage of each company’s oil. The justification for this suggestion is that such differentiation will force the oil companies to charter ships of best qualities and to avoid chartering sub-standard ships as a means of cutting the cost of chartering at the expense of safety. See Tan (2006), pp. 342–343. The benefit of such mechanism would be indirect. On the other hand, inducing ship owners to proper maintenance of their ships would be direct and more efficient. For comments on similar suggestions about the identical contribution formula to oil industry’s private agreement i.e., CRISTAL (Contract Regarding an Interim Settlement of Tanker Liability for Oil Pollution, (1971)10 I.L.M. 137), to compensate oil pollution damage, see M’Gonigle and Zacher (1979), p. 182 note 105.
- 90.
Hazelwood (2000), p. 122.
- 91.
- 92.
In the 1992 IOPC Fund, only in the year 2000, £3.7 m was credited back to the contributors from the unused contributions of 1999.
- 93.
Article 4 (1)(a) of the Fund Convention.
- 94.
This situation is expressly mentioned in article III.2 (a) of the CLC as an exonerating factor for ship owner’s liability. Its absence among exonerating factors in the Fund Convention is deliberate as article 4 (4) (b) of the convention describes the conditions for the Fund to pay compensation in such situation.
- 95.
The liability of the Fund in these two situations is by implication as they are not mentioned among the exonerating situations. This is also clear from the negotiation of the parties at the 1971 Conference, during which some states including Canada and the US demanded that the Fund should cover all cases of oil pollution damage not covered by the CLC. However, as a compromise the Fund is exonerated only from liability for oil pollution from unknown sources (mysterious spill) or when the cause of the damage is war or war-like situation. See M’Gonigle and Zacher (1979), pp. 184–185.
- 96.
Article 9.2 of the Fund Convention.
- 97.
It is noteworthy here that the liability of the Fund to its maximum limit applies per natural disaster regardless of the number of shipping incidents from the same disaster. See article 4.4(b) of the Fund Convention. M’Gonigle and Zacher (1979), p. 185.
- 98.
The deterrent effect of liability is compromised when a potentially liable person who can take care to prevent or to reduce the loss does not have to pay for full liability because other parties such as the IOPC Fund foot the bill.
- 99.
‘Externality’ is the cost to third parties arising from the transaction between the parties to a contract, e.g., financial damage to fishermen from oil pollution. For the definition of ‘externality,’ see d’Arge and Hunt (1972), pp. 266–267.
- 100.
Mitchell (1994), pp. 74–75.
- 101.
See generally Calabresi (1970), pp. 70–72.
- 102.
See article 14 of the HNS Convention. The HNS Fund would cover damages up to SDR 250 million including SDR 100 m from ship owners.
- 103.
See Tan (2006), p. 336.
- 104.
See generally Tan (2006), p. 334 et seq.
- 105.
The ship broke into two with 30,000 tons of heavy fuel oil. It spilled 19,800 tons of oil. A total of 7,131 claims for compensation were made for a total of €388.9 m. The total compensation paid is €129.7 m. See the IOPC Fund website at http://www.iopcfunds.org/incidents/incident-map/#1999-235-December. Accessed 03 September 2013.
- 106.
See supra note 16 with accompanying text. This amount is, however, in combination with SDR 230 m from the IOPC Fund and SDR 89.77 m from ship owners.
- 107.
Even though no incident requiring compensation from the Supplementary Fund has yet occurred since its coming into existence on 03 March 2005, the contracting states or the oil companies in those states have been levied £0.0017223 per ton of contributing oil on 01 March 2007 for meeting the Supplementary Fund’s administrative expenses. IOPC (2013), p. 7.
- 108.
Article 10 of the Supplementary Fund Protocol.
- 109.
See article 14.1 of the Supplementary Fund Protocol.
- 110.
Article 14.2 of the Supplementary Fund Protocol.
- 111.
92FUND/A.6/4; 92FUND/WGR.3/9, 7.2.26 at pp. 19–20.
- 112.
Article 10 (1) of the Fund Convention.
- 113.
IOPC (2001), p. 165.
- 114.
It is noteworthy here that oil pollution compensation covers not only losses suffered by individual victims but also environmental damage and the expenses for preventive measures to reduce or eliminate the environmental damage from spilled oil. See article I.6 of the CLC on the definition of ‘pollution damage’. In fact, compensation for environmental damage represents the highest cost in total payouts for oil pollution.
- 115.
One of the factors for the widespread acceptance of the Fund Convention is that the governments of the contracting states do not have to contribute any money to the IOPC Fund. It is only oil companies in the states on whom the burden falls. See Tan (2006), pp. 332–333.
- 116.
As of 03 September 2013, there are 29 state parties to the Supplementary Fund. They are mostly from European Union. See at http://www.iopcfunds.org/about-us/membership/map/. Accessed 03 September 2013.
- 117.
Torrey Canyon, Amoco Cadiz, Exxon Valdez, Erika, Nakahodka and Prestige all occurred on the waters of the developed countries.
- 118.
M’Gonigle and Zacher (1979), pp. 115, 185–187, 233.
- 119.
Article I.5 of the CLC defines “oil” as “any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil, whether carried on board a ship as cargo or in the bunkers of such a ship.” (Emphasis added). The same definition is included in article 1.2 of the Fund Convention by reference. Canada’s proposal to define ‘oil’ under the Fund Convention more widely to include ‘liquid hydrocarbon of any kind’ was opposed by the oil industry and many oil-importing countries on the ground, inter alia, that such wide definition would cause the involvement of the Fund in a large number of minor oil spill cases. See LEG/CONF.2/C.1/SR.3 in IMCO (1978), pp. 320–321.
- 120.
An American proposal to require the IOPC Fund to pay compensation for ‘mysterious’ spills also rejected by the oil industry and their supporters on the same ground that it would necessitate frequent involvement of the Fund for many small spills. Yet, the Scandinavian proposal (LEG/CONF.2/C.1/WP.26) to limit the Fund’s contribution only to cases of oil pollution damage exceeding 15 million francs (US$1 m) was also rejected. See IMCO (1978), pp. 355–365, 384–388; M’Gonigle and Zacher (1979), pp. 185–187 and note 118.
- 121.
S. 77 of Marine Liability Act, 2001, c. 6.
- 122.
- 123.
Although the entry into force of the Bunker Convention will address the problem to a large extent, the convention does not apply to smaller ships with 1,000 or less gross tons. See article 7.1 of the Bunker Convention.
- 124.
See Chap. 3 for the effect of limited liability on deterrence.
- 125.
From the inception of the IOPC Fund in 1978–2003, only 125 incidents necessitated the involvement of the Fund; most of the payments were due to the inadequacy of ship owners’ limitation amount. See T. Mensah, “The IOPC Funds: how it all started” in IOPC Funds (2003).
- 126.
From 1978 to 2003 in the 125 incidents affecting 20 countries involving the payment from the Fund, it paid more than US$700 million. See T. Mensah, “The IOPC Funds: how it all started” in IOPC Funds (2003).
- 127.
See Sect. 3.3.2.1.
- 128.
See Shavell (2004), pp. 238–239.
- 129.
See OECD (2004).
- 130.
For example, the Exxon Valdez incident cost the highest amount of liability, despite its being only the 35th largest world-wide oil spills in terms of volume. The total economic cost was estimated over US$12 billion. Kiern (2000), pp. 481–482.
- 131.
The official records of maritime liability conferences, organized to adopt liability conventions, are full with this objection. See, e.g., IMO (1983), pp. 112–113, where the International Chamber of Shipping (ICS) said, “…the main justification of limitation of liability today is the insurability of the risk with its two elements, the availability of cover and economic cost.” (Emphasis added.)
- 132.
Oil pollution liability regime addresses oil pollution damage from tankers only. See article I.1 of the CLC.
- 133.
The Administrator of Ship-source Oil Pollution (2006), p. 37.
- 134.
See the following link for the website of the International Shipowners Pollution Federation Ltd (ITOPF) at http://www.itopf.com/information-services/data-and-statistics/statistics/index.html. Accessed 03 September 2013. See also Huijer (2005).
- 135.
See ITOPF website; Huijer (2005).
- 136.
See ITOPF website; Huijer (2005).
- 137.
See ITOPF website; Huijer (2005). As for similar progress in the USA, see the statement of the US Coast Guard’s Commandant, Mr. James Loy, in Joint Hearing on Oil Pollution Act of 1990 Before the Subcommittee on Coast Guard and Maritime Transportation and Water Resources and Environment of the House of Commons on Transportation and Infrastructure, 106th Cong. (1999).
- 138.
See supra note 45 with accompanying text about the widespread practice of forming ‘one-ship’ corporation and its consequent evasion of ship owners’ liability.
- 139.
The cost for optimal care cannot be more than expected liability because optimal care, by definition, is care which costs less than the ‘probability-discounted’ i.e., expected liability. See Calabresi and Hirschoff (1972), pp. 1056–1057. However, the cost of optimal care might appear higher due to the lower probability of being held liable or the higher probability of escape from paying for liability judgment. See Shavell (2004), pp. 230–232, 387–401.
- 140.
See article VII.8 of the CLC and supra the discussion on direct action against insurer.
- 141.
See generally Abraham (1986), p. 15.
- 142.
These mechanisms make the insured as ‘co-insured’ or ‘self-insured’ by making the insured bear at least partially the risk of the loss or liability. See Arrow (1974), pp. 141–143.
- 143.
See the following link from the website of Oil Companies International Marine Forum (OCIMF) at http://www.ocimf.com/SIRE/Introduction. Accessed 03 September 2013.
- 144.
They are: Small Tanker Oil Pollution Indemnification Agreement (STOPIA) 2006 and the Tanker Oil Pollution Indemnification Agreement (TOPIA) 2006. These agreements were in operation since 20 February 2006. Under the first agreement, ship owners’ International Group of P&I clubs (the Group) will bear the liability up to SDR 20 million for oil pollution from any ship with total tonnage of 29,584 or less in the contracting states to Fund Convention despite the lower limit of ship owners’ liability under the CLC. Under the latter, the Group will indemnify the Supplementary Fund 50 % of the payment for oil pollution arising from any ship covered by the Group. See IOPC (2013), pp. 7–8.
- 145.
Coase (1960), pp. 1–23.
- 146.
Calabresi (1970), p. 172.
- 147.
Both oil companies and ship owners have their own organizations protecting their respective interests in any international forum and bilateral meeting. Oil Companies International Marine Forum (OCIMF) represents the former, while International Chamber of Shipping (ICS) is the main voice of the latter.
- 148.
Only 125 oil spills involved contributions from the IOPC Fund during 1978–2003. Not in all the cases the contributions from the Fund were due to the limited liability of ship owners, although most of them were so. See T. Mensah, “The IOPC Funds: how it all started”, in IOPC Funds (2003), p. 48.
- 149.
As ship owner’s liability is strict under the CLC, the issue of negligence arises indirectly. For connection between premium and care level, see Shavell (2004), pp. 261–265.
- 150.
See article III.1 of the CLC.
- 151.
- 152.
- 153.
See Shavell (1987), pp. 11–17.
- 154.
For example, if a ship is not equipped with a properly-functioning radar or up-to-date chart, or the master of the ship is not well-trained, the ship is more likely to be stranded in shallow water or hit a rock and spill oil.
- 155.
See M’Gonigle and Zacher (1979), pp. 150–151.
- 156.
Article III.2 of the CLC.
- 157.
See Tan (2006), pp. 139–140.
- 158.
1973 International Convention for the Prevention of Pollution form Ships, 12 I.L.M. 1319, as amended by its 1978 Protocol, 1341 U.N.T.S. 3; 17 I.L.M. 546 (1978). Subsequent amendments will be noted below.
- 159.
Discharge provisions are related to the amount of oil, mixed with waste water, which can be released on various zones of the sea by ships as part of their operation such as ballast, bilge waste, or tank-washing.
- 160.
1954 International Convention on the Prevention of Pollution of the Sea by Oil, 327 UNTS 3, as amended in 1962, 600 UNTS 332, in 1969, 9 ILM 1, and in 1971, 9 ILM 25.
- 161.
Tanker Facts 2007 in Annual Review and Report 2006/2007 (INTERTANKO, 2007), available at http://www.intertanko.com/about/annualreports/2006/index.html. Accessed 28 March 2008. Data on small tankers is difficult to obtain as most of them are engaged in coastwise navigation.
- 162.
- 163.
- 164.
Regulation 13 of Annex I to MARPOL 73. In its 1978 Protocol, SBT was required for all new tankers over 20,000 dwt.
- 165.
- 166.
- 167.
Regulation 13E of Annex I to MARPOL 73/78.
- 168.
- 169.
- 170.
§4115 of the Oil Pollution Act of 1990, PL 101-380 (HR 1465), codified as 46 U.S.C. §3703a.
- 171.
Tan (2006), p. 141.
- 172.
1992 Amendments to the Annex of the Protocol of 1978 relating to MARPOL, 1973, Resolution 52(32) of the Marine Environment Protection Committee (MEPC).
- 173.
See Regulation 13G of the Annex I to MARPOL73/78. Although the US was the initiator of the 1992 amendments to MARPOL 73/78, it expressed its reservation not to be bound by the amendments, citing mainly the inconsistencies between the amendments and its OPA. Because the OPA requires that all new tankers be fitted only with double hulls, while Regulation 13 F requires that vessels above 600 tons have either double hull or alternative design providing with equal protection. The US’s reservation in fact led to the faster retrofitting of the existing tankers with double hull because most major tankers cannot afford to ignore the domestic law of the US, the world’s largest consumer of oil. See Ayorinde (1994), pp. 75–76; Tan (2006), p. 146.
- 174.
See Tan (2006), p. 146.
- 175.
See Regulation 13G as amended by 2001 amendments to the Annex of the Protocol of 1978 relating to MARPOL, 1973, Resolution MEPC.95 (46). See also Tan (2006), pp. 147–149. It is noteworthy that all these amendments to MARPOL 73/78 quickly came into force because MARPOL 73/78 contains tacit acceptance procedures. Under these procedures an amendment would be presumed accepted after 10 months from its adoption unless there is objection to the amendment by at least one-third of the parties or by the parties whose combined merchant fleets constitute not less than 50 % of the gross tonnage of the world’s merchant fleet. However, a state can express its intention that it would be bound only by its express approval. See art. 16(2)(f)(ii), (iii) and 16(2)(g); Mitchell (1994), pp. 98, 114.
- 176.
See 2003 amendments to the Annex of the Protocol of 1978 relating to MARPOL, 1973, Resolution MEPC.111(50). See also Tan (2006), pp. 150–151.
- 177.
See M’Gonigle and Zacher (1979), pp. 102–106.
- 178.
The 1971 amendments to OILPOL 54 are reprinted in (1972) 11 ILM 267.
- 179.
Regulation 3 of Annex C to the OILPOL 54.
- 180.
Article VI bis (1)(b) of the OILPOL 1954. These amendments were carried forward to the MARPOL 1973 with the modification of the dates. MARPOL also contains similar enforcement strategy for fitting the new tankers with SBT. See Annex I, regulations 1(6), 13, 24. Mitchell (1994), pp. 98, 102–103.
- 181.
M’Gonigle and Zacher (1979), pp. 106, 235–236.
- 182.
M’Gonigle and Zacher (1979) at p. 106.
- 183.
COW reduces oil pollution by replacing sea water with oil to wash oil tanks because the used oil will be refined as opposed to the used seawater which is usually thrown back to the sea. Another method to reduce operational discharge widely used in 1960s and 1970s is load-on-top (LOT). Under this process, oil mixed ballast water was retained in the tanks until the oil floats to top. The water was then decanted from the bottom and fresh load of oil is taken on top of the oil from the ballast. Clark (2001), pp. 65–67. LOT was introduced through the 1969 amendments to the OILPOL 54, (1970) 9 ILM 1. See M’Gonigle and Zacher (1979), pp. 96–102.
- 184.
The reason they are most likely not accidental is that an accident would also cause damage to the vessel and the vessel would be easily detected. An undetected source of discharge indicates that the vessels left the scene harmless after the discharge, indicating the absence of any accident.
- 185.
Although Canada together with other coastal states in the 1971 IMO Conference advocated for the provision of compensation by the IOPC Fund for such spills, the proposal was not adopted due to strong resistance from the oil companies which argued that the source of such pollution is mainly bunker oil as opposed to their oil cargo. See M’Gonigle and Zacher (1979), p. 185; Tan (2006), pp. 304–305.
- 186.
See The Administrator of Ship-source Oil Pollution (2006).
- 187.
In fact, a similar proposal was made during the negotiations in the 1969 IMO conference leading to the adoption of the CLC. See LEG/CONF/C.2/WP.46; cited in M’Gonigle and Zacher (1979), pp. 204–205 and note 14.
- 188.
Mitchell (1994), p. 76.
- 189.
McDorman (2000), p. 210. State can grant nationality to any ship, provided that there is ‘a genuine link between the state and the ship’. This principle is now codified in article 91(1) of the LOSC. The condition of ‘genuine link’ was subject of considerable contentions among states and academics in the context of ‘flag of convenience.’
- 190.
For example, Liberia is the flag state for about 30 % of the world’s oil tankers. Yet, geographically it does not lie in the major tanker routes and suffers little from oil pollution. Mitchell (1994), p. 76. Mitchell succinctly expressed similar lack of incentive and authority by flag and coastal states to prevent oil pollution, “While nations with incentives to control pollution lack the authority to do so, those with the authority may lack the incentives.” Mitchell (1994), p. 76.
- 191.
Tan (2006), pp. 24, 179, 203.
- 192.
See generally Hare (1997), pp. 571–594.
- 193.
This is recognized in the preamble of all the MOUs in the following wording, “Mindful that the principal responsibility for the effective application of standards laid down in international instruments rests upon the authorities of the state whose flag a ship is entitled to fly…” See the preamble to the Paris MOU.
- 194.
See article XI of the OILPOL 1954 and articles 4 and 9(3) of the MARPOL 1973. See also article 5(4) of the MARPOL 1973, which allowed the contracting states to enforce the convention on ships from non-contracting states “as may be necessary to ensure that no more favourable treatment is given to such ships” (i.e., to prevent any competitive advantage).
- 195.
See articles 2, 19, 24, 211(4), 218 and 220 of the LOSC. This also alleviates the problem of non-ratification by a flag state of international instruments with the safety and pollution prevention standards in order to give its ships competitive advantage. This is because a port state can enforce its laws implementing the international instruments on any ships voluntarily entering its ports regardless of the fact whether the ships’ flag states are parties to the those instruments. See McDorman (2000), p. 212.
- 196.
The International Court of Justice (ICJ) in Nicaragua v. USA, 1986 I.C.J. 14, at 111 stated that “by virtue of its sovereignty that the coastal state may regulate access to its port.”; cited in McDorman (2000), p. 218. See also McDorman (1997), pp. 305–322. A port or coastal state’s sovereignty on its territorial water is, however, subject to the right of ‘innocent passage’ by foreign ships. See article 5(2) of Geneva Convention on the Territorial Sea and Contiguous Zone, April 29, 1958, 516 U.N.T.S. 205; articles 2, 19, 24, 211(4), 218 and 220 of the LOSC.
- 197.
Although the LOSC recognizes that the passage of a foreign ship can be denied in case of pollution (i.e., the passage is not innocent), the pollution has to be “wilful and serious”. This is very restrictive condition as a discharge of oil from ships can hardly be both wilful and serious at the same time. This is because while accidental discharges are serious, they are not wilful. On the other hand, operational discharges are wilful but are not usually serious when taken separately. The second limitation on port- or coastal-states’ jurisdiction is that they cannot impose on foreign ships stricter regulation than “generally accepted rules and standards” with regard to construction, design, equipment and crewing. See articles 2, 19, 24, 211(4), 218 and 220 of the LOSC; see also M’Gonigle and Zacher (1979), pp. 244–245.
- 198.
See article XI of the OILPOL 1954 and articles 4 and 9(3) of the MARPOL 1973; article 17 of the Geneva Convention on the Territorial Sea and Contiguous Zone. See generally M’Gonigle and Zacher (1979), Chap. VI.
- 199.
McDorman (2000), pp. 207–209, 211. This was clear from the IMO’s survey in 1961 on 12 states which had been parties to the OILPOL 54 for 4 years. Among them, Belgium, Ireland, and Sweden reported no violation of the convention on their territorial waters. France and the Netherlands had reported only one offence each. UK and Germany, however, had reported 83 % of about 600 offences, while Canada, Denmark, and Norway reported modest enforcement. M’Gonigle and Zacher (1979), p. 220, notes 43 and 44, citing 1962 CONF/2.
- 200.
The first regional MOU was signed in Paris by the EU port states in 1982: Memorandum of Understanding on Port State Control in Implementing Agreement on Maritime Safety and Protection of the Marine Environment, (1982) 21 I.L.M. 1. This was followed by similar MOUs in the port states in other regions such as 1992 Latin American MOU, 1993 Tokyo MOU, 1997 Mediterranean MOU, and 1998 Indian Ocean MOU. All these MOUs follow a similar pattern as that of Paris MOU. See McDorman (2000), pp. 208–209.
- 201.
Mitchell (1994), pp.105, 108.
- 202.
S. 2.1 of both the Tokyo and Paris MOUs.
- 203.
Under the Tokyo MOU (Asia-Pacific region), the target is set at 75 % of the total number of ships operating in the region. See s.1.4 of the Tokyo MOU. On the other hand, Paris MOU sets the goal of inspecting 25 % of the ships entering the ports in the region; s 1.3. This has, however, led inspection of 90 % of the vessels using the ports under Paris MOU. Kiehne (1996), p. 219. Both the Paris and the Tokyo MOUs provide a list of factors to target vessels for inspection on a priority basis. See s.1 of Annex 1 to the Paris MOU and ss.3.3.1 and 3.3.2 of the Tokyo MOU.
- 204.
Ss. 1.5 and 4.1 of the Tokyo MOU and s.1.4 of the Paris MOU.
- 205.
Ss.3.6 and 3.7 of the Tokyo MOU.
- 206.
International Safety Management Code (ISM). ISM Code was made part (Chap. IX) of the International Convention for the Safety of Life at Sea, 1974, 1184 U.N.T.S. 2 [hereinafter 1974 SOLAS Convention] by its 1994 amendment. McDorman (2000), p. 214.
- 207.
See ss.3.10.5 and 3.12 of the Paris MOU. The list of banned ship is posted at http://www.parismou.org/Inspection_efforts/Bannings/Banning_list/. Accessed 03 September 2013.
- 208.
For example the Tokyo MOU requires compliance with the following conventions: the International Convention on Load Lines 1966 and its 1988 Protocol, the 1974 SOLAS Convention, together with its 1978 and 1988 Protocols, 17 I.L.M. 579, the MARPOL 73/78, the International Convention on Standards for Training, Certification and Watch-keeping for Seafarers, 1978 (STCW), the Convention on the International Regulations for Preventing Collisions at Sea, 1972 (COLREG), 1050 U.N.T.S. 16, the International Convention on Tonnage Measurement of Ships, 1969, T.I.A.S. No. 10,490, and the Merchant Shipping (Minimum Standards) Convention, 1976 (ILO Convention No. 147), 15 I.L.M. 1288. S. 2.1 of the Tokyo MOU. However, each state can enforce only the instruments it ratified and thus binding upon it (s.2.4). States cannot require more rigorous standards for foreign ships than those for its own ships (s.2.6).
- 209.
This is specifically recognized in the preamble of all the MOUs.
- 210.
Both the Paris and the Tokyo MOUs’ websites contain search database for inspected ships. The websites are http://www.parismou.org/ and http://www.tokyo-mou.org/. Accessed 03 September 2013. There is also a new database, Equasis, which combines the information on substandard ships from various MOU regions into one source. See http://www.equasis.org/EquasisWeb/public/HomePage. Accessed 03 September 2013. See also Mitchell (1994), pp. 105–106.
- 211.
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Billah, M.M. (2014). Role of Insurance in Providing Adequate Compensation for Oil Pollution Damage and in Reducing Oil Pollution Incidents. In: Effects of Insurance on Maritime Liability Law. Springer, Cham. https://doi.org/10.1007/978-3-319-03488-1_6
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