“Significant” guidance document issued on oil pollution liability

A guidance document, formally published on October 12th, on what constitutes a “ship” under the civil oil pollution liability rules from 1992, has been described as a “significant” move forward by broker Marsh.

The broker noted that the International Oil Pollution Compensation (IOPC) Funds held their annual assemblies in April and that one of the main topics was to further clarify to which vessels the International Convention on Civil Liability for Oil Pollution Damage, 1992 (1992 CLC) applies.

IOPC Funds set up a working group in 2011 to consider which vessels fall clearly within the definition of “ship” under Article I(1) of the 1992 CLC, thus determining whether the registered owner of the vessel would have strict liability for “pollution damage” under the 1992 CLC and be entitled to limit owner-liability.

The decision to seek clarity was in response to a ruling from the Greek Areios Pagos in 2006 in the Slops case, in which the 1992 Fund rejected claims arising from a spill from a waste oil reception facility (Slops), formerly a tanker, which was anchored permanently with its engine deactivated.

The court decided that Slops was a “ship” under the 1992 CLC and therefore triggered compensation to be paid by the IOPC Funds.

In October 2015, the recommendations of the working group were accepted and a guidance was released on March 24th, 2016 for consideration. At the April meeting the guidance was approved with minor editorial corrections. On October 12th, 2016 it was formally published (see http://www.iopcfunds.org/publications/ ).

The guidance sets out a “hybrid approach” to be used as a tool in deciding classification.

It provides two illustrative lists of vessels that clearly are or are not ships under the 1992 CLC definition (i.e., vessels unaffected in any way by the 2006 court ruling).

Then, where the situation was potentially ambiguous, it used the maritime transport chain as a basis for a case-by-case analysis.

The owners of vessels that fall clearly within the definition of “ship” according to the guidance, and which carry more than 2,000 tons of oil in bulk as cargo, are required to maintain insurance or another form of financial security to cover their liability for pollution damage under the 1992 CLC.

Vessels or craft which do not fall within the definition of a “ship” are not so required (although they may be required so to do under local laws).

Therefore, said Marsh, “some owners may no longer need to pursue their protection and indemnity (P&I) insurer to issue the relevant Blue Card, which forms the basis of the flag state’s CLC certificate. Attention should be given to crude oil storing units, in particular, as to where they fall within these definitions.”

The guidance excludes vessels involved in the exploration, production, or processing of oil from the definition of a “ship.” Accordingly, these vessels would have no liability, nor would they have the right to limitation under the 1992 CLC.

However, as Marsh notes, strict liability for (oil) pollution in the offshore oil and gas sector arises under the field licence/ national law. “The contract between the field operator and the FPSO/FSO/ FSU contractor would typically impose a similar responsibility on both parties for any pollution from their respective properties and sometimes beyond.”

The broker concluded that it remained to be seen whether courts in various jurisdictions will take the advice of the IOPC Funds and use their definition of a “ship” when ruling on cases.

FPSO/FSO/FSU owners are occasionally required to maintain CLC Blue Cards, which their P&I insurers, depending on circumstances, have normally agreed to issue. “Whether the guidance will affect this practice is uncertain, but it would appear unlikely”, said Marsh.

The International Group of P&I Clubs was heavily involved with the consultation at the IOPC Funds, and it may comment further on the matter moving forward. Marsh said that the guidance “marks a significant milestone, concluding more than five years of consultation on the subject”.

The broker concluded that: “As a guidance document, it is not an authoritative interpretation of the relevant international conventions. A competent court in a member state may or may not give weight to the contents of the guidance; therefore its actual usefulness to the industry is yet to be seen, perhaps not before a significant oil pollution incident from an offshore vessel or craft occurs.”