The International Group has released a notice via all clubs under which members of those clubs were advised that new fines would be applicable in California from January 1st 2021 for ship sourced oil pollution damage in Californian State waters. For Members trading to California, these legislative changes will result in:
- A doubling of certain existing fines up to a maximum of $1m for each violation, with each day or partial day of a violation being considered a separate violation.
- The courts being empowered to impose a new additional fine of up to $1,000 per gallon of oil spilled in excess of 1,000 gallons.
In each case a fine could be imposed if the violator knowingly caused (or reasonably should have known that their actions would lead to) an oil spill into Californian State waters.
On September 24th 2020 the Governor of California signed Californian Assembly Bill (AB) 3214 into law, which provides for such increased penalties and fines by means of amendments to California’s LempertKeene-Seastrand Oil Spill Prevention and Response Act. Under the current Act, such civil and criminal penalties can be imposed under various statutes, with Government Code §8670.3 defining liable persons as an individual, trust, firm, joint stock company, or corporation including government corporations, partnerships, and associations. This therefore includes shipowners, operators and Masters amongst other parties involved in the transportation chain.
The original draft Assembly Bill set out to:
(1) Increase the level of Californian State certification of financial responsibility (COFR) – that a tank or non-tank vessel operating in Californian waters must demonstrate in order to cover damages caused by an oil spill – from $1bn to $2bn for tank vessels and $300m to $600m for non-tank vessels.
(2) Double the existing level of certain criminal fines that should be imposed in the event of an oil spill.
(3) Empower the courts to impose an additional criminal fine of up to $10,000 per gallon of oil spilt.
In each case, the liability would be determined on the basis that the violator knowingly caused, or reasonably should have known that their actions would lead to, an oil spill in Californian State waters. Under California law, the phrase, “reasonably should have known,” has been equated with a simple negligence standard.
IG Clubs do not issue the Federal or State COFRs that tank and non-tank vessels are required to obtain in order to trade to the US, but the IG Clubs do provide cover for oil pollution damage of up to $1bn per ship per incident (and which covers third party claims as well as fines where they fall under the Club Rules) that is needed in order to obtain a COFR.
However, following direct representations from the IG and local shipowner and energy organisations to the Bill sponsor, the proposed COFR increases were removed from the draft Bill. The Bill sponsor also reduced the potential per gallon fine from up to $10,000 per gallon down to a maximum of $1,000 per gallon in excess of 1,000 gallons spilt. The Group said that it had not been possible to remove this from the legislation in its entirety or reduce it further. The Bill sponsor also retained the doubling of existing criminal fines.
The International Group, in co-operation with the International Chamber of Shipping (ICS), subsequently made direct representation to the Governor of California to veto AB 3214. The International Group and the ICS also engaged local interests and sought to engage maritime labour unions to make similar representations given the implications for a wide number of parties both domestically in California and internationally.
The Governor did not exercise his right to veto and signed the legislation into law on September 24th, with an effective date of January 1st 2021.
The increased/new criminal fines under the Act may be imposed where the violator:
- Knowingly fails to follow the direction or orders of the administrator in connection with an oil spill.
- Knowingly fails to notify the Coast Guard that a vessel is disabled within one hour of the disability and the vessel, while disabled, causes a discharge of oil that enters marine waters.
- Knowingly engages in or causes the discharge or spill of oil into waters of the state, or a person who reasonably should have known that he or she was engaging in or causing the discharge or spill of oil into waters of the state.
- Knowingly fails to begin clean-up, abatement, or removal of spilled oil as required.
A person convicted of violating any of the above prohibited acts shall be subjected to a fine of not less than $10,000 and not more than $1m for each violation with each day or partial day of a violation being considered a separate violation.
There are various existing civil and criminal fines which may be imposed.
The legislation further provides that the court can impose a fine of up to $1,000 per gallon spilled in excess of 1,000 gallons of oil. In relation to paragraphs 1, 2 and 4 above, these fines may only apply where conduct is intentional. However, paragraph 3 refers not only to knowing conduct, but also to ‘…a person who should have reasonably known…’ such that under California law a shipowner might be exposed to fines for violation of this provision even in the event of simple negligence on their part.
The International Group Clubs said that it was considering the potential impact on cover for pollution risks of this new legislation, bearing in mind the potential for very substantial fines to be issued against a polluter. IG said that it would advise Members further in that regard.