Background Section 1
6.Section 1 provides for the United Kingdom to implement the Supplementary Fund Protocol and any new instruments which modify or replace the existing oil pollution compensation regime.
7.Chapters 3 and 4 of Part 6 of the MSA 1995 respectively implement the International Convention on Civil Liability for Oil Pollution Damage 1992 (“the Liability Convention”) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992 (“the Fund Convention”). These instruments form the basis of the international regime for compensation for oil pollution from ships. Oil is defined in the Liability Convention as meaning any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil. This definition applies throughout the regime. Ships are also defined in the Liability Convention, with the effect that the regime generally applies only to oil tankers.
8.The Liability Convention makes shipowners strictly liable (i.e. liable even in the absence of fault) for pollution damage arising from the carriage of oil in bulk as cargo by sea. The limit of liability ranges from £3.7 million(1) to £74 million depending on the tonnage of the ship. Owners of ships registered in States that are party to the Liability Convention, or operating in waters of such States, and carrying more than 2,000 tons of oil as cargo are required to maintain insurance to meet their limit of liability.
9.The Fund Convention provides additional compensation when the amount available under the Liability Convention is not sufficient to meet the costs of damage arising from an incident. The Fund also provides compensation if liability is not established under the Liability Convention. This additional compensation is paid by major receivers of oil (more than 150,000 tonnes per annum) in the States that are party to the Fund Convention. The Fund is administered by a Director and a Secretariat and its headquarters are situated in London. In many of the 135 incidents in which the Fund has been involved since it was established in 1978 most compensation for eligible claims has been paid without claimants having to take legal action.
10.The overall amount of compensation available through the Liability and Fund Conventions is £166 million per incident. The international regime greatly simplifies the process of obtaining compensation for claimants and in most cases without the need for victims to take legal action. However, in a small number of recent cases, the total cost of damage arising from an incident has exceeded this amount. More frequently, full payment of claims has been delayed because of the need to ensure that the overall amount of compensation available is not exceeded. The total cost of damage arising from an incident may not be known for several years. One of the underlying principles of the regime is that all claims are treated equally. In order to ensure that all claimants receive payment for the same proportion of their claim, compensation is often paid at a reduced rate until the overall cost of the incident is known. Claims from the most recent major spill (the Prestige, affecting Spain, France and Portugal in 2002) will greatly exceed the total amount available with the effect that claimants will receive around 30% of the amount claimed.
11.In May 2003 a protocol to the Fund Convention was adopted at the International Maritime Organization. The Protocol, known as the Supplementary Fund Protocol, was published and presented to Parliament as Command Paper 6245. The Protocol provides further compensation, up to an overall total of £614 million, in the event that the costs of damage arising from an incident exceed the compensation available under the Liability and Fund Conventions. This additional compensation will be subject to the same procedural and administrative rules as the underlying regime. States must be party to the underlying regime in order to become a party to the Supplementary Fund Protocol although the Protocol is an optional third tier for those States who feel they need the higher level of compensation and who accept that their contributors may have to meet a supplementary call for levies for compensation payments following major incidents in any State party to the Protocol.
12.The United Kingdom was not among the first phase of ratifying States which brought the Protocol into force in March 2005. The United Kingdom's exposed coastline is vulnerable to spills from tankers and three of the world's worst oil spills have occurred in United Kingdom waters (the Torrey Canyon, Isles of Scilly 1967; the Braer, Shetland 1993; and the Sea Empress, Milford Haven 1996).
13.EU Council Decision 2004/246/EC of 4 March 2004 ("the Council Decision") authorised Member States to ratify the Supplementary Fund Protocol within a reasonable time and if possible before June 2004. Without the power in section 1 of the Act the United Kingdom has been unable to fulfil this obligation. The Government's proposal to implement the Protocol was the subject of a public consultation in 2004 (Copies of that consultation are available on the DfT website www.dft.gov.uk).
14.The international oil pollution compensation regime is reviewed and amended from time to time. This can result in the development of new treaties, as in the case of the Supplementary Fund Protocol. Any review would be unlikely to lead to any major alteration in the legal structure that currently exists under the present regime. A review would be likely to consider the balance of financial contribution made under the regime by shipowners and the oil industry. It would also be likely to address a number of specific administrative issues to improve the operation and effectiveness of the Fund.