Oil Pollution Compensation Claims - Where Is The Line?
Steamship Mutual
Published: June 01, 2003
June 2003
(Sea Venture Volume 21)
In a recent decision the English Court of Appeal was asked to consider a claim for compensation arising out of the Sea Empress oil spill in 1996 1.
A claimant company based in Devon processed whelks for export, in particular, to a Korean buyer with which it had a long term contract. The whelks used in this process were principally Welsh and came from the Milford Haven area. The claimant had contracted with 8 fishing vessels in the area to take such whelks as they could catch.
The Sea Empress ran aground at St Ann Head, Milford Haven on 15th February 1996 and 72,000 tonnes of crude oil escaped into the sea. Following the spill there was a fishing ban in the sea around Wales extending from St David's Head in the west to the Gower Peninsular in the east. The ban lasted from February to August 1996 and included the whelk fisheries from which the claimants sourced their whelks. The Korean buyers had expressly said that they would not accept any other type of whelk and there were no feasible alternative sources for this type of whelk in any other part of the country.
Working from the estimated quantities of whelks which would have been caught during the period of the ban by the vessels with which the claimant had contracted it calculated that it had suffered a loss of more than £600, 000.
The claim for compensation was made against the International Oil Pollution Compensation Fund (the Fund) under the s 153 Schedule 4 to the Merchant Shipping Act 1995 which provides:
"(1) Where, as a result of any occurrence taking place while a ship is carrying a cargo of persistent oil in bulk, any persistent oil carried by the ship (whether as part of the cargo or otherwise) is discharged or escapes from the ship, the owner of the ship shall be liable, (except as otherwise provided by this Chapter), -
(a) for any damage caused in the territory of the United Kingdom by contamination resulting from the discharge or escape; and
(b) for the cost of any measures reasonably taken after the discharge or escape for the purpose of preventing or reducing any such damage in the territory of the United Kingdom; and
(c) for any damage caused in the territory of the United Kingdom by any measures so taken.
……..
(4) For the purposes of this Chapter, where more than one discharge or escape results from the same occurrence or from a series of occurrences having the same origin, they shall be treated as one; but any measures taken after the first of them shall be deemed to have been taken after the discharge or escape.
(5) The Law Reform (Contributory Negligence) Act 1945 and, in Northern Ireland, the Law Reform (Miscellaneous Provisions) Act (Northern Ireland) 1948 shall apply in relation to any damage or cost for which a person is liable under this section, but which is not due to his fault, as if it were due to his fault."
S.170 of Schedule 4 to the 1995 Act contains the following definitions:
"(1) "damage" includes loss; …".
S.157 enables the shipowner to limit liability under s.153, in the absence of actual fault or privity, and s.175 makes the Fund liable for pollution damage in the territory of the United Kingdom if the person suffering the damage has been unable to recover full compensation because the damage exceeds the shipowner's liability under s.153 as limited by s.157.
This claim was brought against the Fund pursuant to these provisions.
In reaching their decision the Court of Appeal judges placed a lot of emphasis on the Scottish Inner House decision in a case called Landcatch2 . The claim in that case was denied. The claimants in this case did not argue that the Landcatch decision was wrongly decided but sought to differentiate their claim from that of the Landcatch claimants.
The issue to be decided was whether the loss of profits claim constituted damage (which includes "loss" - s170 (1) - see above) for the purposes of s153 (1) of Schedule 4 to the 1995 Act.
A substantial part of the leading judgement by Lord Justice Mance reviewed and endorsed the Landcatch decision. The question was whether this particular claim fell within the line of claims which the legislation intended to compensate.
Before reaching an overall conclusion the following issues were decided by the Court:
1. The statute cannot be interpreted to allow all claims for economic loss which would not have been incurred "but for" the contamination. It is not sufficient merely to show that the damage is the ultimate cause of the loss; The issue of causation should not be considered in abstract but rather in the context of the proper scope of the statutory liability.
2. The scope of liability under the legislation is not indeterminate. The language and structure of s1(1) shows that claims were intended to be localised and confined to the area of contamination.
3. The Fund's liability must ultimately be limited otherwise the compensation regime would be unworkable. Hence the need to draw the line on the type of cases for which compensation is available.
4. The legislation is to be interpreted in accordance with established principles of law. Equally, therefore, liability is to be determined in accordance with these principles. This means that in a claim for economic loss, such as this, "necessary proximity" has to exist between the parties in order for a claimant to bring himself within the category of cases in which such losses are recoverable.
Following the common law position, Mance LJ quoted from the House of Lords decision in the "Aliakmon"3 :
"….there is a long line of authority for a principle of law that, in order to enable a person to claim in negligence for loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss of or damage to it."
5. There must be close physical involvement with the contaminated waters: In the Landcatch case it was stated that compensation under the legislation was not limited to claims arising from damage caused directly by contamination (e.g. fouling of property) but also claims such as a fisherman's loss through being unable to fish in his traditional waters. As Lord McCluskey said in Landcatch: "…the immediate, direct and, in such a case, the only cause…" of the fisherman's loss was the contamination because of the fisherman's direct interest in such waters. In this case, Mance LJ re-emphasised the need for close physical involvement with the contaminated waters. He said:
"It is difficult to see how the present [claimant] in Exmouth, Devon can claim any matchingly close involvement with the contaminated waters off Dyfed. It is true that it has a strong economic interest in such waters continuing to be available for fishing by its local Welsh fishermen suppliers, and so in continuing to be able to process and profit out of the Korean contracts. But that is a much less direct and physical link with the contaminated waters or with any whelks which may have been contaminated."
Following this logic Mance LJ went on to decide:
"Despite the difficulty of drawing the line in any case such as the present, I consider, at the end of all the arguments, that the [claimant] falls on the wrong side of it. It was not engaged in any local activity in the physical area of the contamination. Its interest was in landed whelks, not in the whelks in their natural habitat. The contamination has prevented local fishermen, whose physical activities are closely affected by the contamination of the waters and of whelks, from supplying the appellant with the landed whelks for which it had contracted. The appellant's resulting loss arises from its inability to carry out processing and packing and deliveries of processed and packed whelks at points far away from the contaminated areas. I consider that this is a form of secondary economic loss, which is outside the intended scope of a statute which is closely focused on physical contamination and its consequences."
Lord Justice Chadwick, in agreeing with Lord Justice Mance, said:
"It is important to have in mind that the appellant, in the present case, did not suffer loss as a result of the contamination of any whelks in which it had a property interest; or as a result of any operation which it was carrying on (or would, but for the [fishing ban], have been carrying on) within (or at a place closely associated with) the designated area."
With this decision the Court of Appeal has confirmed that compensation for economic loss is within the scope of the legislation but it has also highlighted the need for a close physical connection between the claimant's loss and the area of contamination. While it may not be possible to say precisely where the line is drawn for claims of this nature, the decision confirms that the common law principles of proximity and the need for a direct interest in the area affected by contamination are essential elements of a successful claim.
1.R J Tilbury & Sons (Devon) Ltd v The International Oil Pollution Compensation Fund 1971. Court of Appeal. 7 February 2003.
2.Landcatch Ltd v International Oil Pollution Compensation Fund [1998] 2 Ll.R. 552 (Lord Gill); Ll.R. 316 (Inner House).
3.Lee & Sullivan Ltd. v Aliakmon Shipping Co. Ltd [1986] AC 785. Also cited: Candlewood Navigation Corp. Ltd. V. Mitsui OSK Lines [1986] AC 1
