Increases in Compensation for Oil Pollution Damage

December 2001

(Sea Venture Volume 20) (Updated June and November 2003)

Until recent years the compensation regimes established by the 1969 International Convention on Civil Liability for Oil Pollution Damage (CLC) and 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution (Fund Convention) and their 1992 Protocols had successfully compensated claims arising in respect of oil pollution damage to which they applied. However, following two major oil pollution incidents – the Nakhodka in 1997 off Japan and the Erika off the coast of France in 1999 – there is concern that claims may exceed the compensation available under these regimes and, accordingly, increasing the levels of compensation has become a pressing issue.

CLC

Amendments approved in October 2000 increase the compensation limits under the 1992 Protocol to the CLC by just over 50%. The amendments were introduced pursuant to existing CLC provisions designed to deal with inflation, rather than as result of any fundamental change. The increased levels come into force on November 2003 unless before that date objections are received from one quarter of contracting states.

The table below sets out the compensation levels currently payable under the 1992 Protocol and those which will apply once the amendments come into force:

Vessel Gross Tonnage

Limit of Liability under 1992 Protocol

Limit of Liability under Amendments to 1992 Protocol

Not Exceeding 5,000

3 million SDR (US$ 3.85 million)

4.51 million SDR (US$ 5.79 million)

5,000 to 140,000

3 million SDR (US$ 3.85 million) plus 420 SDR (US$ 539) for each additional gross tonne over 5,000

4.51 million SDR (US$ 5.79 million) plus 631 SDR (US$ 810) for each additional gross tonne over 5,000

Over 140,000

59.7 million SDR (US$ 76.6 million)

89.77 million SDR (US$ 115 million )

(1 SDR = 1.28302 US$ as at 10.10.01. Source: International Monetary Fund )

There are currently 73 contracting states to the 1992 CLC Protocol. There are, however, still more than 50 contracting states to the original 1969 CLC which imposes a maximum level of liability of only 14 million SDR (US$ 18 million) . At a Diplomatic Conference of September 2000 dealing with the revision of the winding up of the 1971 Fund (see below) IMO member states were urged to adopt the 1992 CLC Protocol.¹

 

IOPC Funds

The IOPC Funds provide a second tier of compensation over and above the CLC compensation regime in those countries which have signed or acceded to the Fund Convention in addition to the CLC. While compensation payable under the CLC regime is dependant on the size of the vessel, compensation available under the Fund is not dependant on vessel size but is subject only to an overall maximum limit

Current CLC/Fund Compensation Limits

Source of Compensation

1969 CLC/1971 Fund

1992 Protocol/1992 Fund

CLC regime (shipowner’s liability)

133 SDR (US$ 170) per GT subject to a maximum 14 million SDR (US$ 17.9 million)

Upto 5,000 GT: 3 million SDR (US$ 3.85 million)

5,000 to 140,000 GT: 3 million SDR plus 420 SDR (US$ 539) for each additional GT over 5,000.

Over 140,000 GT: 59.7 million SDR (US$ 76.6 million)

Total Available Fund (including shipowner’s liability)

60 million SDR (US $ 76.9 million)

135 million SDR (US$ 173 million)

 

The 1971 Fund

The original terms of the 1971 Fund Convention dictated that it would remain in force until the number of contracting states fell below 3. However, in recent years it was anticipated that the Fund would become unworkable long before this point.

At a Diplomatic Conference convened by IMO in September 2000 at the request of the IOPC Fund executive committee it was agreed that the Convention would be amended so that it ceases to be in force:-

• when the number of Contracting States falls below twenty five, or
  
• twelve months after the Director of the IOPC Fund notifies the IMO that the total quantity of contributing oil received in the remaining Contracting States falls below 100 million tonnes, whichever is the earlier.

On 24 May 2002 the denunciation of the 1971 Fund Convention by the United Arab Emirates comes into effect, at which point the number of 1971 contracting states falls below 25 and the 1971 Fund ceases to operate. Thereafter, only the higher compensation limits under the 1992 Fund will apply. However, this second tier of compensation will only be available in those countries that have signed or acceded to the 1992 Protocol to the Fund Convention. It is, therefore, anticipated that the remaining 1971 Fund Convention contracting parties will accede to the 1992 Protocol in due course. If they fail to do so, after 24 May 2002 no second tier of compensation will be available in these countries.

 

The 1992 Fund

Amendments to the 1992 Fund were also approved at IMO in October 2000. The same increase of just over 50% has been applied, increasing the maximum amount of compensation payable, including the limit established under the CLC amendments, to 203 million SDR (US$ 260 million) from 135 million SDR (US$ 173 million) for a single incident. This increased limit also comes into force on 1 November 2003 unless objections from one quarter of contracting states are received before then.

Update - June 2003 - "Sea Venture" Vol.21

Update - November 2003 - Increased Limits In Force

Optional Third Tier

The Fund Assembly has given consideration to increasing the level of compensation even further by means of a supplementary Fund (a third tier) which would provide compensation over and above the 1992 Fund limit for pollution damage in those states which wish to participate. As with the 1992 Fund, the supplementary fund would be financed by oil receiving countries. However, participation would be optional so that contributions to the supplementary fund would only be payable by participating oil received in states.In October 2001 the Fund Assembly approved the text of a draft Protocol to implement the optional third tier. The draft will be submitted to IMO with a request to convene a Diplomatic Conference to consider the draft Protocol at the earliest opportunity. It has been left to the Diplomatic Conference (due to convene in 2003) to determine the increased compensation level which will apply under this optional regime.

 

Europe – COPE

Meanwhile, the European Commission have also been considering implementing a system to top up the compensation available under the existing CLC and Fund regimes – a fund for Compensation of Oil Pollution in European waters (the COPE Fund). This fund would have the effect of increasing the total compensation available for a spill in European waters to €1000 million (about US$900 million) – an extra US $640 million over and above the CLC/Fund maximum.

European oil receiving states would be expected to contribute to COPE in addition to the 1992 Fund. EU states and industry are not enthusiastic about a separate EU-based compensation regime which might encourage other regions to implement their own top-up scheme and in doing so, undermine the IMO CLC/Fund regime which has worked successfully until now.

ICS and other industry interests have, therefore, argued that any supplementary arrangements should first be considered against the existing CLC /Fund background and the Fund proposals for an optional third tier (see above). It is believed that the European Commission will not take further steps to implement COPE pending a decision on the IOPC Fund proposals.

 

International Group and Shipowner Associations Proposals

A proposal to increase voluntarily the minimum limit of shipowners’ liability under the 1992 CLC Protocol in those countries which adopt the proposed IOPC Fund optional third tier is being considered by shipowners' interests. Details have yet to be finalised, but the purpose of this suggested voluntary increase is to demonstrate shipowners’ support for the existing regime, the commitment of shipowners to the notion of sharing and in recognition of the potential increased burden for contributing oil receivers under the proposed IOPC Fund optional third tier and to avoid the necessity to amend the CLC and Fund Conventions.

 

 

 

¹ Click relevant year to see lists of contracting states under the 1969 CLC and 1992 Protocol.
² This issue is discussed in greater detail in the Pollution section of the Steamship website Articles: "The Changing Membership of the IOPC Funds".
³ This Protocol was brought into effect using the tacit acceptance procedure so that the amendment was deemed to have been accepted six months from the date on which it adopted in the absence of objections from at least one third of the Contracting States.