China rules that non-spilling ship liable for pollution damage

In the case of the March 2013 collision between CMA CGM Florida and the Chou Shan the People’s Republic of China (PRC) Supreme Court has ruled that the non-spilling ship was liable for pollution damage, reports UK P&I Club.

On March 19th 2013 the CMA CGM Florida collided with MV Chou Shan in the estuary of the Yangtze River, resulting in a serious rupture to the hull of the Florida, followed by a substantial bunker oil spill into the sea.

Shanghai Salvage Bureau and some local SPROs mobilized by the local MSA participated in the emergency response and pollution clean-up operations. These parties subsequently claimed against the two colliding vessels for cost recovery.

The claims went through first and second instance trials before the Chinese courts. Disagreeing with the court judgements, the claimants applied for retrials by the PRC Supreme Court.

On November 20th 2019 the Supreme Court overruled the first and second instance judgements.

Mr CHEN Xiangyong, Senior Partner of Wang Jing & Co, supplied UK P&I Club with a summary of the Court’s reasoning and the key points in these judgements:

1) Shanghai Salvage Bureau claimed their emergency response costs as salvage costs which should not be limitable.

Analyzing the purposes, the nature, the work items of operation and the actions taken by Shanghai Salvage Bureau, and in appraising whether the colliding vessels were in peril and in need of salvage at the material times, the Supreme Court separated the emergency response costs into salvage costs and clean-up costs.

The Court decided that the heads of claim for salvage costs against the salved vessel (the Florida) were not limitable, whilst the heads of claim for clean-up costs should be limitable.

The Club further noted that the Chou Shan was not liable for the salvage costs, which were not limitable, since she was not the salved target.

In the judgement dealing with the local MSA’s costs claim, the Supreme Court considered that the Florida was not at any point in peril of sinking, becoming a wreck, stranding or being abandoned as a constructive total loss following the collision.

Actions taken by the MSA were therefore more in the nature of precautionary measures taken for pollution clean-up purposes rather than for salvage. Therefore the MSA’s argument that their claim should be regarded as salvage in nature would not be supported.

2) In the absence of explicit agreements on fee rates (for both salvage costs and clean-up costs), the Supreme Court supported in principle Shanghai Salvage Bureau’s request for SCOPIC tariff, plus 25%, subject to the defendants producing evidence to show that the actual costs were lower than the SCOPIC tariff.

In the judgements on the SPROs’ claims, the Supreme Court referred to the judgement in the Shanghai Salvage Bureau claim and adopted the SCOPIC tariff to determine the SPROs’ claimable clean-up costs. This, the court said, would apply a more internationally acceptable fee rate and standardize the fee rates for pollution clean-up costs arising from the same incident.

3) While the Court confirmed the general understanding that the Florida, as the leaking vessel, should be held liable for clean-up costs and pollution damage in full, despite the apportionment of collision liability, the judgements were novel in explicitly concluding that Chou Shan, the non-leaking vessel, should also assume liability. This was based on the collision liability apportionment for clean-up costs and pollution damage.

The Supreme Court’s reasoning was:

The Bunker Convention merely expresses that the leaking vessel shall be liable for pollution damage. It does not explicitly exclude other possible liable parties. As such, it would not be appropriate to infer that no other party apart from the leaking vessel could be held liable.

Therefore it was not necessarily the case that pollution damage claimants could not claim compensation directly against other liable parties.

The Bunker Convention only regulates liabilities for pollution damage on the part of leaking vessels. In order to consider whether a non-leaking vessel might be held liable for pollution damage in circumstances where the oil spill resulted from a collision incident involving a non-leaking vessel, it would be the domestic governing law, rather than the Bunker Convention that would be applicable.

UK Club noted that the PRC Maritime Code did not deal with compensation liability (particularly in pollution damage claims) when the claim was for costs incurred by a third party, as opposed to the two colliding parties. Hence it is Article 68 of the PRC Tort Law that prevails.

In applying Article 68, the Supreme Court ruled that the Chou Shan, as the non-leaking vessel should be liable for 50% of the claim for the clean-up costs, which was pro-rata to her collision liability.

Since both colliding vessels had set up tonnage limitation funds in China, logically the pollution claimants could either claim 100% of their clean-up costs against the limitation fund set up by the leaking vessel, or claim 50% (or any other apportionment) of their clean-up costs against each of the two limitation funds. However, in no event shall the total compensation that the pollution claimants obtain from both limitation funds exceed 100% of the clean-up costs claimed.

4) The Supreme Court held that the clean-up operations by the SPROs were precautionary measures taken for pollution clean-up purposes, as stipulated in the Bunker Convention, and costs incurred thereby should thus be subject to the tonnage limitations. However, the PRC Supreme Court did not discuss in the judgements whether or not the SPROs’ pollution clean-up cost claims should be subject to tonnage limitations when clean-up agreements had been concluded between the SPROs and Owners.

UK Club said that the important outcome from these Supreme Court judgements lay in the Court’s decision that the non-leaking vessel should be held liable for pollution damage and clean-up costs in proportion to her collision liability apportionment, even while the leaking vessel shall remain fully liable, and total compensations payable to the pollution claimants shall not exceed their proven loss amount.

“As Members are aware, over the years there have been various discussions generating different viewpoints on whether non-leaking vessels should be held liable for pollution damage arising from maritime accidents involving non-leaking vessels. Undoubtedly therefore, the conclusions reached in these Supreme Court judgements will serve as highly relevant, helpful and authoritative guidance to the Chinese courts when considering bunker pollution claims and limitation claims for many years to come”, the Club said.

UK P&I Club thanked Chen Xiangyong, Senior Partner of Wang Jing & Co, China for the above article.