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Tankers, Big Oil
&
Pollution Liability
Tormod Rafgard
Content from this book may be reprinted as long as it is quoted and author is notified.
Author can be contacted at: [email protected]
TANKERS, BIG OIL & POLLUTION LIABILITY
1
2
Tankers, Big Oil
&
Pollution Liability
Tormod Rafgard
3
INDEX
Tankers, Big Oil & Pollution Liability
Tormod Rafgard
Foreword & Acknowledgements
Glossary
8
10
1. The big bang
i.
Un-loved tankers
ii.
Industry response
iii. Polluter pays?
13
15
16
2. Petroleum and tankers
i.
The emergence of the tanker
ii.
Oil company fleets
iii. Coal or oil?
iv. Independent owners
v.
Initiatives for safety and environment
vi. The Second World War; the dependence on oil
vii. Consumption growth and giant tankers
19
23
25
29
33
37
39
3. IMCO – Safety first!
i.
Early international initiative
ii.
Torrey Canyon
46
48
4. New conventions in 1969:
Tanker owners face pollution liability & intervention of coastal states
i.
Background
58
ii.
An industry divided
62
iii. The Diplomatic Conference – Brussels 1969
64
iv. The “cargo” resolution
73
v.
The intervention convention
75
5. Compensation for oil pollution damage introduced for the oil companies
The 1971 Convention
78
i.
ii.
New incidents
80
iii. Brussels once more, but why relieve the shipowners?
85
iv. Technical co-operation?
88
4
INDEX
v.
vi.
vii.
viii.
ix.
x.
The fee system
Interpretation
Role of the Fund: Substitution & supplementation
Conditional relief
The maximum amount
Administrative matters
89
90
93
99
106
108
6. Tanker accidents accelerate – the Amoco Cadiz oil spill, 1972-1982
i.
Spectacular tanker accidents
109
ii.
Berge Istra
110
iii. Argo Merchant
114
iv. More accidents and reactions
115
v.
The Amoco Cadiz
117
7. Oil prices through the roof
The huge tanker surplus – 1970-1990
i.
The tanker surplus
ii.
Remedial measures
iii. The crisis deepens
iv. Counterproductive measures?
v.
Pricy fuel and dirty tricks
vi. More spills to follow
vii. The slow but strong recovery of the tanker markets
124
127
134
140
142
146
149
8. The 1984 Protocols – A stroke in the air?
i.
Setting the agenda
ii.
Chemicals
iii. What ships, what oil?
iv. Pollution damage – preventive measures
v.
Geographical scope
vi. Exoneration
vii. Channelling
viii. Limitations & Limits
ix. The fees to IOPCF
x.
Simplified updating of limits
xi. Entry into force/ratification
xii. Summary – Aftermath
156
157
159
162
168
170
173
177
184
185
186
187
5
INDEX
9. Exxon Valdez and subsequent incidents in US waters
i.
Exxon Valdez
ii.
Subsequent incidents in US waters
iii. New radical legislation prepared after Exxon Valdez
– The tanker industry in despair
iv. OPA90 & the IMO instruments
v.
Compensation for damage to natural resources
vi. Responsible parties – Channelling of compensation claims
vii. Certificate of Financial Responsibility (COFR)
viii. Prevention is better than cure – Technical requirements
ix. OSLTF in trouble
x.
Deepwater Horizon oil spill
10.
11.
12.
6
195
207
213
221
222
225
229
235
238
239
IMO wakes up
i.
More OPA approaches?
ii.
The Salvage Convention
iii. International Convention on Oil Pollution
Preparedness Response and Co-operation (OPRC)
iv. Resurrection of the Protocols
v.
TOVALOP & CRISTAL out
248
248
254
New serious incidents at tanker terminals & in coastal waters
around the globe, 1991–1992
i.
Haven
ii.
ABT summer
iii. Australia warns against “Ships of Shame” – Kirki
iv. Aegean Sea
v.
Braer
vi. Maersk Navigator
vi. Sea Empress
257
262
263
266
268
273
274
Draconian measures required?
The viability of IMO’s solutions questioned again
i.
Erika
ii.
Castor and Prestige – Place of refuge
iii. Draconian measures required?
iv. Compensation claims against classification societies
v.
IOPCF position
vi. Greek master arrested
280
300
304
306
309
313
244
246
INDEX
13.
14.
Supplementary compensation funds formed
– Private schemes to replace/delay IMO
i.
Review of the current system
ii.
Compensation increased
iii. New Diplomatic Conference – Supplementary Fund
established
iv. STOPIA & TOPIA
316
318
320
321
New big spills in 2007
i.
Volgoneft
ii.
Hebei Spirit
326
328
15.
Tanker owners & their classification societies
330
16.
On reflection
344
Appendices:
Hebei Spirit – Extract of IOPCF annual report, 2009
356
Message from INTERTANKO’s MD in the annual report, 1995,
on his retirement after 25 years
371
Bibliography
376
Index of Ships
Index of Organizations and Key Companies
Index of People
378
380
382
7
FOREWORD & ACKNOWLEDGEMENTS
Foreword & Acknowledgements
In 1969, I was a member of the Norwegian delegation to the IMCO
conference in Brussels to devise a new liability scheme on oil pollution
damage. The conference was called in response to the Torrey Canyon
disaster in the English Channel. This was the first of many oil pollution
accidents that spurred significant, often contradictory, reactions from
various stakeholders with competing interests.
Later in my career, which included my time as the director of the
international tanker owners’ association (INTERTANKO) and serving as a
judge in the Court of Appeals, I was well placed to witness the unwieldy and
cumbersome development of an ever-more complex liability structure. With
so many parties involved, including governmental agencies, oil companies,
environmental protection groups, classification societies, P&I clubs, coastal
states and the shipping industry, it is perhaps no surprise that every accident
seems to result in a scramble to pin the blame on one party, while everyone
else seeks to disclaim responsibility.
Is this an effective and appropriate way of dealing with an important
maritime safety issue? Is it to the benefit of safety at sea to assign blame to
one party while exonerate the whole industry whenever an accident occurs?
When I retired from INTERTANKO in 1995 to become a judge, I began a
project to describe the process. Progress was slow until I was introduced to
the Leif Høegh Foundation, and to Ove - and his brother Westye Høegh, the
two senior members of the Høegh shipping family. Ove Høegh is educated
as a naval officer and holds an MBA from Harvard Business School. Westye
Høegh holds a Bachelor of Law from University of Oslo, and an MBA from
Wharton School, University of Pennsylvania. Both have been senior partners
in the shipping company Leif Höegh & Co., Oslo, Norway. Among many
other positions in maritime and industrial organizations, Ove Høegh has
been the vice chairman - and Westye Høegh the chairman of
INTERTANKO. Westye Høegh has, in addition, been president of The
Norwegian Shipowners' Association, and the chairman of the council of Det
norske Veritas. Our conversations led to a closer co-operation with the Leif
Høegh Foundation, which generously has covered most of the project costs.
8
FOREWORD & ACKNOWLEDGEMENTS
The Foundation holds all copy and distribution rights to this publication
until all costs related to this project have been recovered, after which time I
take over all copy and distribution rights to the paper edition of this
publication.
I believe that this publication is a unique compilation of maritime history,
case studies and anecdotes. I also believe that it is of value not just to
seafarers, but all those involved with sea transportation who are committed
to continuous efforts to reduce the risk of pollution at sea.
I am also grateful to Ove Høegh for introducing me to Dag Bakka Jr., an
experienced author of a number of maritime-related books, who offered
invaluable insights on how to present complex material and contributed
chapter 7vii, which describes the market fluctuations which occurred after
my time in shipping.
I am also deeply grateful to Blue-C, who was responsible for the final review
of my manuscript and to Sax Media & Design for the design and layout.
Their input has helped to create a book whose content I hope does justice to
many contributors who have assisted me so admirably.
Finally I would like to express my gratitude to shipping adviser Jarle
Hammer of HM Strategies for his supply of illustrative graphs on the
developments in the tanker market. Many thanks also to the senior
insurance broker and jurist Sven Moestue for his reflections on explosions in
large tankers and to Supreme Court Justice Lars Oftedal Broch, who has
commented upon chapters four and five.
I am furthermore indebted to the English shipping journalist Michael Grey
who commented upon the very first draft many years ago and again before
the book went to the printers. I am grateful for the participation of many
other people and institutions, who are too numerous to list here.
There is, however, one exception: Warm thanks to my wife, Anne Lise, for
her patience during the years after 1996. I believe that I may have devoted
more time to pollution liability than to my family – a condition I hope to
reverse in the years ahead!
Asker, May 2011
Tormod Rafgard
9
GLOSSARY
GLOSSARY
ABS American Bureau of Shipping
API American Petroleum Institute
APOC Anglo Persian Oil Company
CLC 1969 International Convention on Civil Liability for Oil Pollution
Damage, 1969
CMI Comite Maritime International
CRISTAL Contract Regarding an Interim Supplement to Tanker Liability for Oil
Pollution
CVM Contingent Valuation Methodology
DNV The Norwegian Veritas
ECJ European Court of Justice
EEZ Exclusive Economic Zone
EMSA European Maritime Safety Agency
EPA Environmental Protection Agency
FC 1971 International Convention for the Establishment of International Fund for
Compensation for Oil Pollution Damage, 1971
FOBAS Fuel Oil Bunker and Advisory Service
FOEI Friends of the Earth International
FPSO Floating Production/Storage/Offloading
FSO Floating Storage/Offloading
G.B.P British pounds
HBLS Hydrostatically Balanced Loading Systems
IACS International Association of Classification Societies
IALA International Association of Lighthouse Authorities
ICS International Chamber of Shipping
IMCO Inter-Governmental Maritime Consultative Organization
IMIF International Maritime Industry Forum
IMO International Maritime Organization
INTERTANKO International Association of Independent Tanker Owners
ISM International Safety Management Code
ITF International Transport Workers’ Federation
ITOPF International Tanker Owners Pollution Federation
IUCN International Union for Conservation of Nature and Natural Resources
10
GLOSSARY
IWF International Workers’ Federation
LF Limitation Fund
LLMC Convention on Limitation of Liability for Maritime Claims
MEIF Mandatory Excess Insurance Facility
MHPA Milford Haven Port Authority
NOAA National Oceanic and Atmospheric Administation
NRDA Natural Resource Damage Assessment
NTSB National Transportation Safety Board
OBO Ore-Bulk-Ore
OCIMF Oil Companies International Forum
OCS Outer Continental Shelf
OPA90 Oil Pollution Act
OPEC Organization of the Petroleum-Exporting Countries
OSLTF Oil Spill Liability Trust Fund
PARIS MOU Paris Memorandum on Port State Control
PLATO Pollution Liability Among Tanker Owners
Q.I Qualified Individual
RINA Registro Italiano Navale
SBT Segregated Ballast Tanks
SDR Special Drawing Rights
SF Supplementary Fund
STCV Standards of Training, Certification and Watchkeeping for Seafarers
STOPIA Small Tanker Oil Pollution Indemnification Agreement
SUMED Suez-Mediterranean Pipeline
TAPAA Trans-Alaska Pipeline Authorization Act
TOCA Transfer Of Class Agreement
TOPIA Tanker Oil Pollution Indemnification Agreement
TOVALOP Tanker Owners Voluntary Agreement concerning Liability for Oil
Pollution
ULCC Ultra Large Crude Carriers
UNCTAD United Nations Conference on Trade and Development
UNCITRAL United Nations Commission on International Trade Law
USCG United States Coast Guard
VLCC Very Large Crude Carriers
11
THE BIG BANG
1
THE BIG BANG
In March 1967, aircraft of the UK Royal Air Force and Royal Navy carried
out spectacular aerial bombing as a desperate last resort to stop massive oil
pollution from one of the largest tankers afloat. The name of the grounded
tanker was “Torrey Canyon.”
But bombs could in no way prevent her cargo from polluting the coast of
Cornwall and – on the other side of the English Channel – the beaches of
Brittany in France. More than 100,000 tons of Kuwaiti crude oil leaked out,
oil that refused to catch alight, burn and disappear. Instead the accident
sparked media coverage beyond anything experienced in the shipping industry.
The tanker fleet, which annually had provided consumers around the world
with more than 1 billion tons of oil, came suddenly into focus.
The shipping industry had had its tragic moments and appalling losses of lives
such as the Titanic, but this accident in the spring of 1967 revealed an entirely
new and more damaging capacity for spoiling nature and the environment.
Torrey Canyon – the first “superspill” – ignited the formation of a new kind
of international pressure group: The environmentalists. Changes in international law and the emergence of environmental law as a new branch of
maritime law followed in the footsteps of sudden public interest.
Ordinary people became concerned and angry as the oil spill began to pollute
the coasts. Contaminated coastlines and dying seabirds provoked public outcry
and a demand for “justice.” But who was ultimately responsible?
Many parties were involved – not only the shipowner and the sea transportation industry at large, but also cargo owners and the oil industry, as well as
12
THE BIG BANG
navigation safety agencies and local and national authorities that brought up
the issue with international maritime organizations.
The process Torrey Canyon ignited came – in time – to change the international liability regime for sea transportation through a complex process
driven by a score of different agents. The evolvement of the liability regime
changed the conditions for the shipping industry, not always to the better and
not always with a fair distribution of responsibility.
How could this happen?
I. UN-LOVED TANKERS
Oil is the world’s main energy source, and the shipyards of the world have
been furnishing shipowners and oil companies with a steady flow of large
tankers for more than a century. The quantities of oil that they could carry
meant an increasing pollution potential. Not unexpectedly, a number of serious
pollution accidents followed. Television screens showed golden beaches turned
into dirty, polluted seashores and birds covered by black, greasy oil.
Some tankers became notorious. Names like Torrey Canyon (1967), Argo
Merchant (1976), Amoco Cadiz (1978), Atlantic Empress (1979), Exxon
Valdez (1989), Haven (1991), Kirki (1991), Aegean Sea (1992), Braer (1993),
Sea Empress (1996), Erika (1999) and Prestige (2002) are not easily forgotten.
The largest tankers today can carry 400,000 tons of crude oil, a damage
potential far beyond the Exxon Valdez spill of 36,000 tons. Still, Exxon’s
tanker caused the loudest reverberation ever experienced in the field of
maritime transportation.
Pulitzer Prize-winning journalist Eric Nalder, an investigative reporter from
The Seattle Times, published a terrifying portrait of the oil trade in 1994. One
reviewer of his book, “Tankers full of trouble,” wrote: “Get on board this
ship with Eric Nalder, and you won’t get off until you are sea sick with anger.”
Without subscribing to that opinion, it is easy to agree with Mr. Nalder’s
comments on p. 223: “Even people who hate oil tankers need fuel for their
autos, factories and furnaces. They would raise hell if he spilled any, and they
would be furious if he did not deliver.”
Twenty years before Nalder, another American reporter, Noel Mostert, won
international praise for his book on the gigantic crude carriers that at the time
13
THE BIG BANG
had begun to ply the seas in growing numbers. A full cargo of crude oil on
board a medium-sized tanker was enough to supply the energy needs of a city
of 40,000 people for an entire year when his book “Supership” was published.
In his view, the coming of the large tankers would result in disasters on an
unprecedented scale. But despite all the harsh comments, Mr. Mostert admits
that the world cannot do without them. In “Supership,” published in 1974,
he describes the situation on page 16. To paraphrase: Ships can impact how
people fare in life. They connect people. If ships can make smooth, timely
journeys can greatly impact the people depending on them: The ship’s supplies
can help them to survive. We saw this with oil tankers, getting the necessary
fuel that’s needed worldwide. If we didn’t have the oil tankers, then the world
could grind to a halt. Nothing will change as long as we are so dependent on
oil. But if that changes, then the ships will quickly disappear.
Much has changed since the publication of “Supership,” but oil as energy
and tankers for transportation are as essential to the world today as they were
at that time. Neither has the threat that tankers are imposing on the fragile
marine ecosystem vanished.
Oil leaking from a punctured tank will spread rapidly, cause pollution and
form a threat to the environment. The fact that crude oil is a product of nature
and a part of the environment is of little comfort when birds and beaches are
smeared by ugly layers of oil and marine life is being laid waste.
Notes:
What is referred to as a “tanker accident” need not necessarily relate to a tanker. Motor ships carry
“bunkers” to fuel the ship’s own engine. This heavy diesel oil kept in designated tanks represents a
pollution hazard if it leaks out. In March 1999, a woodchip carrier, New Carissa, stranded and polluted
the coastline of Oregon, in the United States. The ship was a 44,500-tonner on her way to take aboard
a mountain of timber off cuts. More than 1,000 tons of bunkers leaked out and menaced the oysters in
the Oregon waters as they fattened themselves for the tables of fashionable Seattle, Washington, USA.
In the media, New Carissa was presented as a tanker. The public requested effective measures against
such nasty polluting “tankers.” Following the efforts of US authorities, an industry commentator, Aline
de Bievre, claimed that the Torrey Canyon strategy of bombing polluting ships had come back into
fashion. The US Oil Pollution Act of 1990 did not stop the US government from deploying torpedoes
and napalm bombs. The attempts caused the vessel to break in two. In November 2002, a jury found
the operators negligent and awarded the state of Oregon USD 25 million to cover removal expenses.
The tragic saga of New Carissa was described by the exasperated local congressman Peter DeFazio as
“a Stephen King novel.” Source: Lloyd’s List, March 8, 1999.
14
THE BIG BANG
II. INDUSTRY RESPONSE
Two years after the Torrey Canyon accident, a UN body, the Inter-Governmental Maritime Consultative Organization (IMCO), agreed to impose strict
(no-fault) liability for damage polluting tankers caused. To ensure that
pollution victims were compensated, compulsory insurance was introduced
under the terms of the new International Convention on Civil Liability for Oil
Pollution Damage, 1969 (CLC 1969).
IMCO also looked into the role of the owner of the oil cargo. Should the
oil companies contribute to the compensation for the damage caused to victims
of oil spills? In 1971, a supplementary international fund was set up. The Fund
was financed by the oil industry. The new treaty was named International
Tanker Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (FC 1971).
Over the 40 years since the Torrey Canyon disaster, a series of marine accidents
have produced an extensive international regime for the protection of the
environment and the marine bio-diversity. In 2001, the International Maritime
Organization (IMO), as IMCO had been renamed, agreed on a convention
for compensation for pollution caused by bunker oil from all ships, not only
tankers.
Tanker accidents represent some three percent to four percent of the total
marine pollution. Oil from leaking tankers equals about the amount of oil that
seeps to the surface from the bottom of the seven seas every year. The rest
is mainly industrial waste or comes from refineries, terminals, offshore
production and normal ship operation. And one should not forget that most
spills from the world tanker fleet are not the result of accidents, but from
routine operations in connection with loading, discharging, bunkering in ports
or tanker terminals where reception facilities are often lacking.
Statistics tell us that pollution from tankers is decreasing. Records the International Tanker Owners Pollution Federation (ITOPF) compiled disclosed
that, on the basis of accidental spills, oil lost from tankers in 2009 was at the
lowest level since it began compiling such statistics in 1970. In the same period,
the volume of oil carried by sea has doubled, according to Fearnleys, the Oslo,
Norway-based shipping analysts.
Although we are striving for a zero-tolerance of oil spills, the overwhelming
part of the world’s tanker fleet is operating along the strict regulations
15
THE BIG BANG
imposed by IMO and controlled by Port State Control agencies, charterers
and classification societies. The tanker owners long ago saw the human factor
as a crucial element in maritime safety and observing operational procedures
as paramount.
Notes:
The outcry for compensation against pollution offenders at sea supersedes other types of industrial
accidents. Nearly 3,000 people died during a night in 1984 and some 200,000 were injured in the town
Bhopal in India, where 43 tons of poisonous gas leaked out from a Union Carbide factory. According
to Amnesty International, there have been at least 15,000 related deaths since. The compensation the
corporation offered was a payment of about USD 1,200 to each family. This is a fraction of what Exxon
spent in Alaska after Exxon Valdez. According to Eric Nalder, “Tankers full of trouble,” New York,
1994, p. 222: “Exxon spent forty thousand dollars on the attempted rescue of each and every one of
5,000 oiled sea otters found in Prince William Sound.” Despite the exceptional losses of lives Union
Carbide caused, the press coverage is not comparable with the publicity about Valdez, with no lives lost.
See Dan Kurzman: “A Killing Wind: Inside Union Carbide and the Bhopal Catastophe,” New York,
1987.
III. POLLUTER PAYS?
Thanks to the position the US took, the international community has been
unable since 1969 to agree on how to deal with victims suffering from damages
polluting tankers caused.
The following pages represent a personal journey in search of solutions that
began some 40 years ago. Can we attain cleaner seas, pay adequate compensation and still get cheap gas for our cars and heating oil for our homes?
Having worked with tanker owners from 1965 to 1995, I might seem
presumptuous to believe that an objective picture can be presented. However,
13 years’ work as a judge should hopefully provide sufficient distance to
undertake a more unbiased re-examination. In any case, my ambition is only
to bring to light commercial considerations which otherwise seem disguised
in legal and technical agendas. Sometimes, the forest might be hidden behind
all the trees.
There is very little disagreement about the “polluter-pays principle.” In an
ideal world, a polluter should be easy to identify and be compelled to pay for
the damage with his own money. It seems logical that if the principle is not
applied to cover the costs of the environmental damage, either the environment
has to cure itself by the process of nature, or the coastal state – and ultimately
the taxpayer – has to pay for the damage caused.
In the real world, the situation is more complicated. Principles are fine, but
16
THE BIG BANG
the crucial test is their implementation in practice. In general, a major problem
remains: To find – often hidden behind the curtains – the concurring polluters.
The tanker owner is the easy target. The standards of tankers vary from
vessel to vessel. Most of the tankers in the world fleet are well maintained.
But not all. During the last decade, increased attention has also been paid to
oil companies that select old, low-cost tankers to carry their oil. Thereby,
financial results improve and shareholders are happy to see the dividend going
up. The story about the 24-year-old tanker, Erika, hoisting the flag of Malta
illustrates the role of the other participants involved in the game of marine oil
transportation.
Ship management, manning, operations, maintenance and cargo-handling
are closely interlinked functions that need to be considered in unison if tankers
are to be operated in the optimum manner. A number of initiatives have been
taken to improve safety and avoid pollution. It may be fair to say that the
tanker safety record has improved more or less steadily after the enforcement
of the MARPOL Convention of 1973/78 and a series of mutually reinforcing
industry mechanisms introduced after 1980.
On the surface, the “polluter-pays principle” is just fine. But the quality of the
classification societies, the navigational aids governments provided, together
with the role of the insurers, the pilots and the terminal or harbour masters,
as well as the charterers, are all relevant elements when considering the value
of the “polluter-pays principle.” As important links in the marine safety chain,
they deserve proper attention.
This book seeks to show how the various actors are involved: Cargo owners,
charterers, tanker owners, classification societies, port authorities, terminals,
pilots and the salvage industry. Together, these groups form the links in what
may be seen as the “responsibility chain.”
By focusing on the master of the tanker as the only accountable part, together
with the owner, one is running the risk of contributing to “a culture of blame”
which might hide the real reasons for pollution accidents and the loss of life
at sea. Each of the groups mentioned forms a part of the fabric that controls
a tanker, and it is essential that all parties involved follow up their obligations
of their contribution to the transport chain. If one or more links fails to perform, a serious accident might occur. The Greek shipowner Philip Embiricos,
who for several years was a major “safety spokesman” of the International
Association of Independent Tanker Owners (INTERTANKO), presented his
17
THE BIG BANG
view in the association’s 1997 annual review of “The Chain of Responsibility.”
It is shown below.
ER
CHARTERER
SHIPOW
NER
W
O
O
RG
CA
CL
A
N
S
IE
RTRIT
PO O
TH
U
A
GOVERNMENTS
LAW COURTS
P&I CLUBS, CARGO
AND HULL UNDERWRITERS
PILOTS
SS
SO
CI
ET
IE
S
E
G Y
A TR
V
L US
SA D
N
I
TERMINALS
On the following pages, the focus is on oil tankers – ships that carry or are
designed to carry oil as cargo. Prevention will always be better than cure, but
even so, the reader will find only minor references to the technical discussions
about safety rules and pollution prevention. Information on that important
subject will have to be sought elsewhere.
Instead, the intention is to review the “cure,” which on the following pages is
the development of compensation and liability rules in light of their origin and
a number of spectacular tanker accidents.
Notes:
A report, “Ships of Shame” from the Australian House of Representatives’ Standing Committee on
Transport, sent to the Parliament in December 1992 states (paragraph 25): “While incidents involving
oil tankers have recently received publicity, the Kirki for example, the Committee has not received a
great deal of evidence concerning the operation of oil tankers. It is generally recognised that the condition of oil tankers are better than dry bulk carriers.”
The “polluter-pays principle” is a cornerstone in environmental policies. Its first official mentioning
seems to be in 1972 in a recommendation the OECD Council passed. It is later adopted by a number
of bodies such as IMO and the European Community. It is no legal rule in the strict sense, rather a
policy declaration or a slogan that appeals to common sense: “If you make a mess, it is your duty to
clean it up. If there is damage, you should repair.” It says a lot, but lacks a clear definition and may
perhaps sometimes serve as a soporific for an impatient regulator.
Photographers have been listed whenever possible on photos used in this book. When photos came
directly from a Website where the photographer's name was not available, we have attributed the
photo to that site.
18
PETROLEUM AND TANKERS
2
PETROLEUM AND
TANKERS
I. THE EMERGENCE OF THE TANKER
The 20th century was characterized above all by the introduction of petroleum
as the main energy source. It became the foundation of modern society with
respect to lighting and heating, transport and travel – in other words, to the
very organization of our communities. The laden oil tankers were carriers
of progress, bringing the essential source of energy that would make modern
society function and revolve.
As with every blessing, there are also shadows – one being the emission of
gases that threaten to disturb the very ecological balance of our planet. This
is a major challenge in our time – and as yet unsolved.
Another is the potential for pollution and local biological damage oil
tankers cause. This challenge – perhaps of less importance than the emission
problem – has been dealt with through a gradual process that has managed to
curb oil spills to a minimum and inspire a zero-spill objective.
For almost 150 years, ships have been carrying petroleum, and the story
of tanker shipping is riddled with geopolitical and logistical issues as it grew
to become a global energy lifeline.
The origin of the tanker trade goes back some 150 years and is linked to the
discovery of oil in the US and the invention of paraffin lamps.
Three Americans: Yale professor B. Silliman and businessman George H.
Bissel led by a retired train conductor, Edwin Drake, started the world’s first
19
oil company, The Pennsylvania Rock Oil Company, around 1855. After having
been the laughing stock of the people in the area, Mr. Drake struck oil by
drilling for it on Aug. 27, 1859, close to a small town named Titusville. This
was the first time in history that oil had been produced in this manner. The
daily production was soon 25 barrels. The railroad conductor now became
Colonel Drake and the oil was sold for USD 18 per barrel.
The paraffin lamps not only gave a clear bright light, they were also odourless and smokeless. Furthermore, the petroleum used to fuel them was also
much cheaper than the disgusting, evil-smelling lamps fed by whale oil that
previously had been used. The new illuminator changed people’s way of life
by extending the hours of daylight. Oil turned out to be perfect, not only for
the lamps, but also as lubricants, solvents and in other applications. The
increasing demand for the product turned petroleum into an important new
energy source.
The key to further growth of the American oil industry was transportation.
But to satisfy requests from overseas consumers proved problematic; oil was
a dangerous cargo. When carried in barrels and cases on board ships, it would
often leak out, causing a constant risk of explosion and fire.
The first full cargo of oil to cross the Atlantic was carried in the 224-ton
(350 deadweight tons, or dwt) brig, Elizabeth Watts. An Englishman, Mr. E.A.
Sanders, owned her, and the ship sailed her first voyage from Philadelphia to
London in late 1861. The departure from the American port had difficulties.
Crewmembers considered the new cargo with scepticism, and many deserted.
The captain, Charles Bryant, had to resort to the local bars in Philadelphia,
Pennsylvania, USA, to assemble men “willing” to take the brig to England.
Despite the fact that the crew had been made up of several drunks from waterpoint bars, the passage went well and encouraged an increasing trade. Two
years later, Mr. Gibson of the Isle of Man took a new initiative. He built an
iron hull sailing ship, Ramsey. She could carry oil in bulk and was noted for
her hollow masts which, connected with the specially designed iron tanks,
served as expansion trunks. In addition, general cargo was carried on deck.
On the other side of the North Sea, Norwegian ship-owners entered the
game. The first primitive tanker might possibly have been the iron schooner,
Risobank, built in Inverkeithing, not far from Leith, Scotland, in 1868. The
owner, Emil Salvesen, operated an oil refinery in the little town of Mandal at
the Southern tip of Norway. After some trips, however, the iron schooner
disappeared with the Captain Edmund Eeg and his full crew in stormy winter
weather somewhere off the Norwegian coast. Captain Eeg was the brother of
my great-grandmother, and my one and only family relation in the story you
20
Photo: www.aukevisser.nl
Gluckauf
are about to read!
The next Norwegian effort was undertaken in cooperation with a group of French merchants in the
1870s. Gustav Conrad Hansen of Tonsberg, together
with his captain, Even Tollefsen, had four sailing ships
rebuilt for transportation of oil in bulk by lining the
wooden hull with cement or felt. They had the sides of
the holds double-boarded and sealed. One of the ships
Sveinin
Erik /1879.
Aftenposten / Scanpix
grounded in Delaware© Furulund,
River
Another left the
US with her first cargo, never to be seen again, but the
concept proved reasonably satisfactory.
A German, Mr. Heinrich Riedemann, ordered the first
deep-sea steamship adapted to carrying oil in bulk, similar to the tankers we know today. Launched in June
1886 in Newcastle upon Tyne for a German subsidiary
of Standard Oil, the ship was a significant breakthrough
in the evolution of oil tankers. This true ancestor of
modern tankers was about 3,500 dwt, given the name
Gluckauf and was constructed with a centre bulkhead
and a number of transverse bulkheads placed in pairs.
A steam engine was fitted aft, where it would interfere
least with the cargo. The danger of sparks from the
funnel falling on the deck was thereby somewhat minimised, and the explosion risk reduced. Nevertheless,
German sailors claimed that the tanker rather deserved
the name “Fleigauf” (blow up). When Gluckauf arrived
S.S. Gluckhauf is the ancestor
of the modern tanker.
She was about 3,500 dwt and
constructed with a centre bulkhead and a number of transverse bulkheads placed in pairs.
A steam engine was fitted aft,
where it would interfere least
with the cargo. The danger of
sparks from the funnel falling
on the deck was thereby minimised, and the explosion risk
reduced. Nevertheless,
German sailors claimed that she
deserved the name “Fleigauf”
(blow up).
On her first arrival in New
York, the longshoremen blacklisted her. Oil company personnel refused to supply her with
bunkers. Nevertheless, she
traded for seven years until she
ran aground.
21
in New York to load, the longshoremen blacklisted her, and as oil company
personnel refused to supply her with bunkers, she had to sail up to St. John
to refuel. Three weeks later, she returned to Germany with her first cargo.
Gluckauf traded until 1893, when she ran aground off New York.
When Gluckauf was launched, however, the Swede Ludwig Nobel – brother
of the famous Nobel Prize initiator Alfred Nobel – had already introduced a
revolutionary single-purpose oil carrier. The introduction of the new design
was a consequence of the Nobel brothers’ purchase of land near Baku on the
Caspian Sea, where huge fountains of oil were found in the ground. This made
Russia the world’s largest oil producer for several decades. In 1878, Zoraster
was delivered from Motala Shipyard in Sweden. Contrary to other “tank
ships” built at the time, she was not a dual-purpose ship, but a pure tanker
designed to carry 250 tons of kerosene in 21 vertical cylindrical tanks within
her iron hull. Zoroaster was also unique in the sense that she burnt fuel oil,
not coal, a feature that other tanker owners did not adopt until 40 to 50 years
later. The Nobel design was improved several times and the cylinders removed
so the oil could be carried directly in the iron hull. (“Gold ships,” pp. 18-23).
Tankers were for many years considered to be dangerous ships. A number of
tragic losses occurred both because of design errors and operational errors.
The English directors of the Suez Canal Company had, since the opening of
the canal in 1869, denied the transit of tankers with oil in bulk. Only the
transport of case-oil was permitted. This meant that any bulk oil from the
main source of oil outside America – from Russia to the Far East – had to be
taken all the way round the Cape of Good Hope. As late as 1890, the Suez
management turned down an American request to permit a Standard Oil
tanker to transit the canal.
The leap forward came as a result of the initiative of Sir Marcus Samuel,
the English founder of Shell Oil. Transit through the canal was vital to his plan
of shipping Russian kerosene from the Black Sea to Asia. The 5,000 dwt
Murex-class tankers were constructed in West Hartlepool and built with special water ballast tanks to facilitate de-ballasting in case they went aground.
Their design met all the stringent requirements of Lloyd’s insurers and was
accepted by the directors of the Suez Canal. On her inaugural voyage in 1892,
Murex carried over 4,000 tons of oil through the Suez Canal. Nine similar
Sir Marcus Samuel
Whilst Shell for several years had successfully rejected the competition from Standard Oil, the tide turned in the
early 20th century against the founder, Sir Marcus Samuel. Perhaps preoccupied from his previous concentration
on the development of his oil business by the civic pomp in England after his knighthood and election as the
Major of London, he faced a new ambitious attack from Royal Dutch. This company originated in the West
Indies and had prospered swiftly in the oil business. Dutch trader Jean Kessler developed it. Soon, the company
came up against both Shell and Standard Oil. After a horrendous and intricate struggle, Sir Marcus in 1906 was
22
TANKERS,
OILRoyal
& POLLUTION
LIABILITY
forced
to mergeBIG
with
Dutch on
humiliating terms: Forty-sixty in Dutch favour.
tankers soon followed.
Now Mr. Samuel’s progress endangered the American global trade monopoly that was so cleverly built up
by John Davison Rockefeller and his Standard Oil company. Concerned about the competition from the upstart Shell, Mr. Rockefeller initiated a violent campaign
in London to stop the passage of the Murex tankers
through the canal to the Far East. His lawyers lobbied
the Foreign Secretary, Lord Salisbury, and members of
Parliament as well as some influential English newspapers. But all to no avail. The Rockefeller tankers were
thereby left with a detour of the costly extra 4,000 miles
around Cape of Good Hope, and the Standard Oil’s
monopoly was broken.
Notes:
The size of a tanker is measured in tons. But the definition of tons differs.
In the following, the most common indicator – deadweight ton (dwt) – is
used. This will indicate the maximum number of tons of cargo and fuel
that the tanker in question can carry. An alternative measurement is gross
register ton (grt). Grt represents roughly the cubic capacity of the tanker.
A variation is net register ton (nrt), which is the volume available for cargo
(and passengers). Finally, lightweight ton indicates the weight of the steel.
This measurement is most interesting when tankers are sold for demolition.
John Newton, “A Century of tankers,” published by INTERTANKO,
2002, and Anthony Sampson, “The seven sisters,” Viking Press, 1975. On
Risobank, see A. Weyergang-Nielsen, “Skonnert Riiso-bank,” Norsk
Sjofartsmuseum, 1988 and Rolf Kr. Danielsen, “Frakteskuter og
Fraktemenn.”
Currencies are written with the USD or GBP equivalents in parentheses
based on the exchange rate from the year mentioned.
II. OIL COMPANY FLEETS
The 20th century proved to be an age of petrochemicals,
mass production and automobiles. By the turn of the
20th century, in 1900, 51 percent of the crude oil was
produced in Russia and 43 percent in the US, particularly Texas and California.
The new century produced only one major crisis, but
© The Print Collector / Heritage-Images / Scanpix
John Davison Rockefeller
Mr. Rockefeller was born in
1839. At 33, he founded
Standard Oil Company and
thereby the American oil
industry. At the turn of the
century, he was seen as the
richest man in the world,
with a fortune exceeding
USD 1 billion.
He had expressed the hope to
reach 100 years old, but this
was one of the few ambitions
which did not work out.
He died at the age of 98 at
his estate in Florida.
23
© akg-images / Scanpix
Josef Stalin
Born probably in Georgia in
1879, Josef Stalin was elected
Secretary General of the communist party in 1922. From the end
of the 1920s, he had gotten the
better of all opponents within
the party, not the least Mr. Trotsky. Stalin became the undisputed Dictator of the USSR until
his death in 1953. In his younger
years, from 1886, he was a
revolutionary activist always on
the run; in and out of prison. As
a champion of armed resistance
against the Tsar across Georgia,
he did his very best to sabotage
the oil production in the Baku
area. Time and again the
installations were in flames.
24
several smaller ones. Among the industries that had to
face the turbulence of capitalism and a number of crises
– some of them self-inflicted – was the tanker industry.
During the next hundred years, the tanker market
reflected the fluctuation between periods of demand for
oil transportation and periods of oversupply of tonnage.
In 1903, world trade slumped, and Mr. Samuel found
it impossible to resist the competition of a fast-growing
Dutch competitor, Royal Dutch. Mr. Samuel, who had
then become Sir Marcus, was forced to swallow a bitter
pill and agree with his major competitor in Europe, Mr.
Henry Deterding, to merge with his company, Royal
Dutch. Thereby, in 1906 a new oil giant was born in
Europe: The Royal Dutch Shell group.
By 1901, the Russian oil fields around Baku at the
Caspian Sea produced half of the world’s oil, and the
Nobel Prize, established that year, was founded on its
profits. A pipeline was built to Batumi, a subtropical
port at the Black Sea, where the crude oil was refined
and exported in tankers. In the years to follow, the oil
installations in the area became sabotage targets of the
growing revolutionary forces including Bolsheviks and
Mensheviks, who fought each other, but both in determined opposition against the ruling Tsar Nicholas II.
Ethnic killing, burning, raping, shooting and throat
cutting were the order of the days. A ruthless young
Georgian who called himself Soso or Koba – until after
the Russian revolution in 1917 when he took the name
Josef Stalin – was in charge of the Bolsheviks. When the
Red Armies seized all oil properties, Russia’s share of
world oil production was reduced to four percent by
1920. The violence had not scared the French Rothschild family from investing heavily in oil production in
Baku until the family in 1912, with huge profits, sold
out to Royal Dutch Shell. A third of the production was
still controlled by the Nobels, who in 1920 sold their
rights to Exxon, which had worked hard to negotiate a
deal with the Bolsheviks. But the Russians succeeded to
generate chaos in the Western oil industry for several
years.
Compared with Mr. Rockefeller’s Standard Oil Empire, which controlled virtually all oil exports from the
US, Russian interests had a minimal stake in the world’s
tanker fleet. Foreign companies owned the tankers loading its oil at its terminals.
New oilfields were discovered around the world.
First, in 1909 in the Middle East, in particular in Persia.
Two years later, export was in full swing. Mexico
became more and more important as an oil producer
and climbed to the world’s third-largest producer in
1912. By 1927, Venezuela had become the secondlargest oil exporter in the world.
Shipowners in general had continuing reluctance
towards the oil trade that was still considered dangerous. On May 1, 1907, the Anglo-Saxon tanker Silverlip
exploded while on passage from Singapore to the UK
with an oil cargo. Of the crew of 53, five died. The rest
survived and were saved by a nearby steamer. In 1909,
a fatal tanker explosion occurred in the port of Marseilles when an underwriter representative accompanied
by the chief officer went onboard a three-masted oil
carrier, Jules Henry, to examine the vessel and to ensure
that the tanks were empty. A terrific explosion followed
immediately after one tank was opened, and the men
were violently thrown backwards. They escaped death,
but more than eight crew members were killed.
Note:
See Mike Ratcliff, “Liquid: Gold Ships,” pp. 58, 60 and 66, Simon Sebag
Montefiore, “Young Stalin,” pp. 90-100 and Robert W. Tolfe, “The Russian Rockfellers,” pp. 50-61 and pp. 150-164, Stephen Howard, “Sea
Shell,” p. 53.
III. COAL OR OIL?
The tankers had up to the new century been supplied
with steam from coal-fired boilers. However, oil could
be used for firing the boilers, and the first oil-burning
tanker, built in 1887, carried fuel oil in her double
Reza Khan Pevlevi
Reza Khan Pevlevi seized power
in 1921 and became the Shah of
Iran four years later. He started
as a private soldier and was
succeeded by his son,
Mohammed Reza, in 1941.
Commercial oil production had
begun in Iran at the turn of the
century, initiated by British
interest. It is claimed that this oil
saved the British naval fleet
during two world wars. The
Iranian oil was in the hands of
BP and made the company a
scapegoat for everything that
went wrong in the country. From
a turbulent political situation
emerged in 1951 an exotic
leader, Dr. Mossadeq, calling for
nationalisation. The shah fled
the country but returned when
Mossadeq resigned after international pressure. But the shah was
forced to flee for good when the
Islamic revolution broke out in
1978 and Imam Khomeini
established the current Iranian
Republic.
25
Rudolf Diesel
Rudolf Diesel was born in 1858
in Paris with German parents. He
invented the diesel motor. The
advantage of oil instead of coal
was gradually accepted by ship
owners, and the first diesel
tankers built used inexpensive
refinery waste as fuel for their
auxiliary boilers. From the 1920s,
the dominance in shipbuilding,
including tankers, changed from
steam-powered to diesel-powered
ships. Oil was cleaner, easier to
store and much easier to handle
by ship personnel. Any discussion
of the potential oil pollution risk
was absent. In 1913, Rudolf
Diesel disappeared mysteriously
when crossing the English
Channel.
© Pressens Bild / Scanpix Sweden / Scanpix
bottom. It proved to be no success, as she was converted to coal after her
maiden voyage.
The reluctance of shipowners to move from coal to oil was not based on higher
prices or scepticism to quality; it was simply the availability. Coal was to be
had everywhere. Oil was not. Oil-burning merchant ships could be used only
where they could re-fuel and were dependent on the growth of the fuel oil
supply and depot network.
The German engineer Rudolf Diesel had invented an internal combustion
engine that could operate on liquid fuel, and this technology was first used in
ocean-going ships in 1912, with the Selandia of the East Asiatic Company of
Copenhagen. Gradually, the advantage of oil was increasingly accepted, and
the first diesel tankers built used inexpensive refinery waste as fuel for their
auxiliary boilers. From the 1920s, the dominance in shipbuilding, including
tankers, changed from steam- to diesel-powered ships. Oil was, after all, much
cleaner and easier to handle. Additional benefits were lower manpower
requirements and faster turnarounds in ports. Finally, the weight of bunker
oil compared with coal meant a savings of 25 percent.
Neither was it unimportant that the top executives in Shell had been campaigning for the Royal Navy to switch from coal to oil. A key man in the battle
was Winston Churchill, who arrived in the Admiralty in 1911. He was soon
convinced that oil was to be the fuel for the future. However, he regarded Shell
as a foreign company due to the Dutch majority ownership, and to Sir Marcus’
dismay, he convinced the Admiralty that the Government should buy 51
percent of the Anglo Persian Company in 1913. The price was a bargain: GBP
2 million (USD 3.13 million).
The world tanker fleet was dominated by oil company ownership in the
first decade of the new century. The Anglo American Oil Company, a British
subsidiary of Standard Oil, was a major tanker owner at the time. So was the
Anglo-Saxon Petroleum Company, which had been formed after an amalgamation of Shell and Royal Dutch Oil. At the time, the most economical size
of tankers was thought to be around 9,000 dwt. But soon the size increased
to 12,000 dwt and then to 15,000 dwt. Independent tanker owners played a
modest role in the tanker transportation.
Winston Churchill
Winston Churchill, born in 1874, became known as the man who stopped Hitler 70 years later. His first important commission in England came at a time when the international situation was pregnant with peril. In 1911,
he was appointed Minister of the naval forces. Interested in new strategic ways to beat the enemy, he was among other initiatives - eager to introduce oil as the alternative to coal for the English war ships. In World
War II, when England in 1940 was the only nation fighting against Hitler-Germany, Winston Churchill made
a comeback as Prime Minister, leading the war against the Nazis.
He was defeated in the election after the war, but re-elected again in 1951. He died in 1965.
27
Halfdan Wilhelmsen
Halfdan Wilhelmsen was born
in Tonsberg, Norway, in 1864.
When he grew up, he witnessed
the stagnant and difficult market
for sailing vessels. He bought his
first 1,800-ton steamer in 1886.
The family company already
operated a wide range of vessels,
including liners. In 1912 and
1913, Mr. Wilhelmsen became
the first important independent
tanker owner when he bravely
ordered four tankers, each
10,000 dwt, to carry oil for
Californian oil interests. More
soon followed. In the years to
come, a number of other
Norwegian shipowners followed
suit. At the time of his death in
1923, the family owned 40
percent of the Norwegian tanker
fleet. The company is still one of
the major Norwegian shipping
companies, but has disposed of
its tanker fleet.
28
In 1912, the first independent tanker owner arrived
at the scene in great style. Halfdan Wilhelmsen of Wilh
Wilhelmsen ordered four tankers, each 10,000 dwt, to
carry oil for Californian oil interests. In the years to
come, a number of other Norwegian shipowners followed. At the time of Wilhelmsen’s death in 1923, his
company owned 40 percent of the Norwegian tanker
fleet.
On Aug. 15, 1914, the Panama Canal was opened
for navigation. A Shell ship, Eburna, was the first to
cross from the Caribbean to the Pacific. On the very
same date, England declared war on Germany, and the
First World War began. This soon showed how vital oil
and tanker transportation were. Sailing ships were
already outdated, and the British Navy had switched
from coal to oil when the war broke out. By 1914, the
navies and the motorised army would be helpless without oil. So was aerial warfare - still in its infancy - at sea
and land, but observation and fighter airplanes were
built in increasing numbers.
Oil supplies became the essential ingredient of success. Their supplies were dependent on safe crossings of
the oceans of a large fleet of tankers from the oil fields
to manufacturers and battlefields at the other end. This
proved to be a bloody business. The German Navy
achieved success by mines planted in coastal fairways
and particularly by use of its submarines. During the
war, nearly 2,500 merchant ships were destroyed,
including a large number of tankers, and more than
14,000 sailors lost their lives.
What in the end saved Britain and her allies was that
the US entered the war in 1917 and introduced the convoy system at sea. Tankers and other merchant ships
were sent across the ocean, in particular from the US,
to Europe in convoys protected by warships. However,
this slowed down the transportation and meant a
further stimulus to tonnage demand. US yards entered
into a massive construction programme to replace the
lost fleet. Germany was at the time facing an accelerat-
ing oil crisis, and their frightening U-boats were in desperate need of fuel.
By far the biggest supply came from the US. A quarter of all oil came from
one source alone: Exxon. Britain had also access to oil from BP’s sources at
Abidjan, whilst oil Shell supplies came from various supply depots around the
world. The ability to keep the tankers with their oil cargoes going was a major
factor in the victory of the allies. After the end of the war, the British foreign
minister, Lord Curzon, put it this way: “The Allies floated to victory on a wave
of oil.”
An immediate trade bonanza followed the war, and the years 1916 to 1920
had the highest tramp freight rates so far recorded. The bonanza collapsed in
the autumn of 1920, and the Great War turned out to be the divide between
the optimistic pre-war climate in industrial countries and the uneasy, economically unstable, socially explosive and eventually depressive period of 1920 to
1940.
The German fleet, which had been the second largest after the British, was
now effectively destroyed. The Eagle Oil Transport Company operating in
Mexico ordered 25 new tankers to be built in 1919. This fleet included several
18,000 to 19,000 tonners, the largest built so far. Through its tanker company,
Anglo Saxon purchased 23 tankers in 1919. A further batch of 17 tankers was
built from 1920 to 1922. Other oil companies followed suit.
Notes:
Born in England, William Knox D’Arcy moved to Australia when he was 17. He returned to England
in 1889. Through his representatives, he managed in 1901 to negotiate a concession for two years of
drilling in Persia and has since been remembered as the father of the entire oil industry in the Middle
East. The concession included areas that are now Iraq, but excluded the Northern Provinces to avoid
Russian irritation. The Persians were given some shares, a cash payment and 16 percent of the net profit.
Business went up and down until 1909, when the Anglo Persian Oil Company (APOC) was founded
and Mr. D’Arcy was made a director. APOC later became BP. See “BP Our Industry,” London, 1947,
and “Adventure in Oil – the Story of BP,” London, 1959.
For a table including the historical currency exchange rates (except for Euros) used in this book, see
http://fx.sauder.ubc.ca/etc/USDpages.pdf
IV. INDEPENDENT OWNERS
The new element in the post-war period was the entry of the independent
tanker owners. So far, shipowners generally had been reluctant to order ships
for the oil trade that oil companies fully controlled, from drilling rigs all the
way to the petrol station. Tankers were expensive and confined to one cargo
29
Leif Høegh
Educated as an economist, Leif
Høegh found that the shipping
industry was the area for his
interest in finance and economic
cycles. He started his own
company in 1927 at the age of
31.
Høegh then emerged as an entrepreneur in oil transportation.
He also took an active part in
international shipping politics
after the Second World War,
promoting the views of Norwegian ship-owners. By his death
in 1974, Leif Høegh & Co. was
one of the largest privately
owned shipping companies in
Europe. Under the leadership of
his two sons, the company
remains a major marine transporter in a wide range of
products including liquefied
natural gas.
30
only and at the mercy of a small number of charterers.
In an otherwise stagnant world trade, oil was the
only commodity to show increasing quantities. This
proved to be a strike of luck to the Norwegian shipping
community, where a great number of building contracts
had been arranged from 1925 to 1930 and largely secured by a 10-year time charter to the oil companies. Financing was largely raised through starving
shipbuilders.
By 1932, the Norwegian tanker fleet had jumped to
18 percent of the world fleet. Such strong growth would
not have been possible without a change of philosophy
by Shell (The Anglo Saxon Petroleum Company) and
other oil majors. Instead of building tankers for its own
account, it preferred to charter independent tankers to
cover the peaks of transportation needs. Better to leave
it to the independent tanker sector to take the risk of a
sudden downturn than to run that risk for its own company.
Shell came into the market with a chartering programme for 10 years, and practically the whole programme was taken by Norwegian owners. Leif Høegh
was one of the newcomers in the tanker market who –
with the encouragement of the well-established Danish
shipowner A.P. Moller – grabbed the opportunity when
more oil companies followed suit. This demonstrated
that the oil industry was willing to pay for flexibility
and avoid the risk of having to lay up their own fleets
when demand slumped. Other owners joined in, and
extensive new building of tankers created a huge surplus
of tonnage in the 1930s. Success leads to excess.
The Great Depression meant a terrible slump with
falling freight rates. By 1933, an estimated 15 percent
of the world tanker fleet was laid up, with as much 40
percent of independently-owned tonnage out of service.
Action was needed for co-operation among tanker owners. In 1932, an enterprising British gentleman, Harry
T. Schierwater of United Molasses (later Athel Line)
A. P. Moller
A.P. Moller established the
company in 1904 together with
his father, and formally adopted
the Maersk name for his shipping operations in 1928. Five
tankers soon joined the company’s 35-vessel fleet. By the
end of the 1930s, the fleet had
swelled to 46 vessels.
His son Maersk McKinney
Moller joined the company in
1940 at the age of 26 and was
named a company partner.
Today, the company is known
throughout the world as a diversified conglomerate operating in shipping, oil and gas,
shipbuilding, super markets, IT
and other industries. Unravelling the financial situation of
the shipping giant is a formidable exercise. In our context, it
might be sufficient to state that
Maersk Tankers remains one of
the world’s largest tanker operators, with a fleet of some 100
tankers. Maersk McKinney
Moller was a member of
INTERTANKO’s Executive
Committee during the first year
of its operation.
took the initiative to set up a tanker-pooling arrangement. He saw that the depressed rates were in the interest of neither the independents nor the oil companies, which controlled 55 percent of the tonnage supply. By introducing a
levy on the employed tankers in the scheme, owners of laid-up tonnage could
be given a subsidy in the best interest of all members.
The plan materialized in 1934. It was actively supported by Mr. Moller
and Mr. Dagfinn Paust, of Norway, who together with Mr. Schierwater
stressed that the moderate ambition of the scheme was to ensure survival of
the tanker industry and not to strive for excessive freight rates that in any case
would be unrealistic. The scheme faded away at the time of the beginning of
the Second World War, when economic activity recovered.
Opinions differ with respect to the impact of the scheme. There were
constant discussions between members about how to organize the pooling
31
arrangement during its existence, not least about the size
of the levy and the subsidies to owners with laid-up
tankers. One other difficult question was how to deal
with new buildings. The Norwegians became increasingly unhappy, and when freights boomed in 1937, they
suggested suspending the whole plan; a proposal rejected by 18 votes to six.
John Kulukundis
A partner of Retymnis & Kulukundis Ltd., John Kulukundis
was the chairman of the Greek
Shipping Co-Operation Committee (founded in London in
1935) when INTERTANKO
was established in Oslo in the
fall of 1970. He and other
family members had left Greece
to establish their own shipping
business in London and soon
became a solid part of the Greek
community here during the
1930s. They became more
prominent after World War II.
Mr. Kulukundis volunteered to
join an interim committee of the
new association and was a member of the first INTERTANKO
Executive Committee. He was a
believer in a closer co-operation
between tanker owners, and did
not hesitate to stress the similarities in the background of Greek
and Norwegian shipping, both
originating from modest places
at the coast or islands of the two
countries.
32
Greek owners did not participate in Mr. Shierwater’s
scheme. Their fleet had lost more than two thirds of
their tonnage by 1919. Nevertheless, from 1914 to
1938, the fleet soared from 13th to ninth place among
the maritime nations and represented the second-largest
dry cargo tramp fleet after Britain. The dynamic Greeks
had not yet taken an interest in tanker shipping. In any
case, the leading company, Rethymnis & Kulukundis
(R&K), operated not only its own large fleet from its
base in London, but also ships from other companies
based in the UK as well as Greece. When the depression
was at its deepest from 1932 to 1933, the global shipping crisis sent 27 percent of all dry cargo vessels into
lay-up in 1932. In 1935, the Greeks established a minimum-rate-scheme for dry cargo ships with support from
shipowners of other nationalities. The co-operation survived till 1939, administered by the Greek Shipping Cooperation Committee in London. The Committee has
since remained intact and played an important role in
shipping policy matters to this day.
At the beginning of the century, the world tanker fleet
had included about 145 tankers in international trade.
The average size of tankers built at the time was some
8,000 dwt, and the world total tonnage included half a
million dwt, no more than the carrying capacity of only
one large super tanker built in the early 1970s.
By 1939, the tanker fleet comprised some 1,731
vessels of 11.4 million gross tons (16.1 million dwt).
The oil companies possessed the most of the British and
US fleets, whereas the Norwegian held 18.5 percent and
were thus the largest group of independent owners. And in addition, tanker
shipping had proved the most profitable of all shipping segments between the
wars. A well-managed tanker delivered in 1928 to 1930 on a 10-year time
charter at the going charter rate would yield an annual profit of 29 percent
on the investment over the period, compared to the interest rate of three percent for bank deposits. No wonder other European owners were keen to join
the tanker trade.
The main oil supplier to the international tanker trade at that time was the
Caribbean area (predominantly Venezuelan production), with the US next and
the Middle East in the third place. Russia still had its huge oil reserves, but
had faded out as a participant in the international picture. The old sea trades
from the Black Sea had dried up and were replaced by greater volumes of
export from the Americas.
V. INITIATIVES FOR SAFETY AND
ENVIRONMENT
Until the coming of steam power in shipping in the 19th century, protection
against wind and waves, losses of ships and men at sea had generally been
seen as beyond mortal control.
But some regulatory efforts had been made as early as 1288 by the
Hanseatic League. This league, which included some Germanic trading towns
with branches all over the Baltic and North Sea, dominated European shipping
at the time. To prevent unsafe overloading of ships, one of the most important
members, Visby, introduced load line regulations for every Hanseatic “cog”
and imposed substantial penalties for any shipowner who ignored them. Some
100 years later, the Venetians enforced similar load lines for every galley hoisting the flag of their Mediterranean republic.
The origin of modern safety regulations for shipping is, however, found in
England. The Merchant Marine Act passed by Parliament in 1854 represented
an attempt to regulate the liability of shipowners towards third-parties. Marine
safety issues were addressed when the act was amended in 1876.
Out of scandalous circumstances in the shipping trade in the UK and other
maritime countries, and as a mere reaction to the prevailing unfettered
capitalism, time was finally ripe for the growth of social conscience. The
introduction of genuine maritime safety regulations was promoted by a
33
Samuel Plimsoll
Samuel Plimsoll was born 1824 in
Bristol. He got involved in the
coal trade in London, where he
prospered in business whilst he at
the same time passionately took
up the cause of the seamen.
Elected to Parliament in 1868, he
gave a people’s voice to the abuses
they suffered.
Unscrupulous owners had for
some time bought up rotten ships
and insured them at the highest
possible level before sending them
to sea with not much hope of a
safe return. The first lines in the
preface of his famous book, “Our
Seamen: An Appeal,” published in
1873 reads: “Every-body knows
that there is a great loss of life on
our coasts annually, and nearly
everybody deplores it. I am sure
that if the English public equally
knew how much of this loss is
preventable, and the means of
preventing it, no long time would
elapse before means would be
taken to secure this end.”
© Science Photo Library / Scanpix
“Everybody knows that there is a great loss of life on
our coasts annually, and nearly everybody deplores it.
I am sure that if the English public equally knew how
much of this loss is preventable, and the means of
preventing it, no long time would elapse before means
would be taken to secure this end.”
Mr. Plimsoll and Mr. Hall fronted the efforts to protect
seamen from a number of shipowners who at the time
were running “coffin ships.” Heavily over-insured, the
ships were sent to sea without much hope of a safe
return.
According to “Our Seamen – An Appeal,” 1,333 seamen lost their lives on British ships during short voyages
from domestic ports in 1867. In 1869, the number was
933, and in 1871, 626 people died. Lives lost on the
high seas were not included in these figures. There were
nine sources of the disasters: Under-manning, bad
stowage, deck loading, deficient engine power, over-insurance, defective construction, improper lengthening,
over-loading and want of repair.
The Liverpool Shipowners Association readily supported these points of view:
© Heritage / Scanpix
shipbuilder and shipowner from Newcastle upon Tyne,
James Hall. His expertise was unquestioned, and
Samuel Plimsoll effectively lobbied his arguments within
and outside Parliament.
In the preface of his book, “Our Seamen – An
Appeal,” published in London in 1873, Mr. Plimsoll
started out as follows:
Coffin ships
Girl: “O, dear Jack! I can’t help
crying, but I’m so happy to
think you’re not going in one of
those dreadful ships!”
Jack: “No, no lass – never
more! – Thanks to our friend
Master Plimsoll, God bless
him!”
Sailors from other maritime
countries were less fortunate.
Thus due to resistance from
ship-owners including the
Norwegian Veritas, it took 30
more years before Plimsoll lines
were made compulsory in
Norway. In the meantime,
hundreds of seamen perished
while shipowners received
generous compensation from
the insurance industry for their
lost vessels.
“While the constrictions upon loading will not affect
those who already load their ships reasonably, it
will act as a decided check on the unscrupulous
Owner or Charterer and will tend, by the greater
safety which will follow, to reduce the general rate
of Marine Insurance.”
35
It would be an overstatement to claim that the bill was supported by the
shipping industry as a whole. But with regard to the interpretation of the
current slogan, “the polluter pays,” the 140-years-old reference to charterers
is noteworthy.
Thus it was largely Mr. Hall and his spokesman, Mr. Plimsoll’s, doing that
the amended Merchant Marine Act in 1876 laid down that any merchant vessel must bear a mark on her sides, indicating the maximum depth to which
she might be safely loaded in salt water.
In our own time, we have seen that the result of strict national regulations is
the transfer of ships to other flags. The reaction of many British shipowners
some 150 years ago is therefore hardly surprising. Vessels were sold to owners
located in other countries where load line restrictions were still unknown. It
was a golden chance for ambitious foreign captains to have a modest start on
their own.
The 1890s saw a heated public debate on maritime safety and working
conditions for seafarers in other European countries, broadly inspired by the
general movement for social improvement. Marine safety bills arose from this,
including provisions for load lines, which were introduced in Norway in 1910.
But a disaster was needed to bring about a break-through for international
co-operation. In 1913, the year after the Titanic disaster, representatives of 13
countries met in London to develop uniform standards for passenger ships and
radio requirements for cargo ships. World War I prevented immediate
progress, but the work was followed up after the war and resulted in the 1929
convention titled “International Convention for the Safety of Life at Sea”
(SOLAS). It laid down rules and recommendations on ship strength, navigation
and communication equipment, fire-preventing measures as well as port state
control. The convention entered into force in 1933 and still exists under the
same name, despite being subject to numerous changes and improvements during later years.
Mr. Plimsoll’s ground work was given the final stamp of approval when
maritime governments agreed on the “International Load Line Convention of
1930.”
The need to protect the marine environment was given no attention to speak
of prior to the Great War. At best, it was regarded as a local problem. Thus
the efforts to avoid and minimise pollution risk can be traced back only some
90 years, once again with the UK in the driving seat when Parliament passed
The Oil in Navigable Waters Act in 1922. The law forbade – under a penalty
36
of 100 pounds – the discharge of oil or oily water into its territorial waters.
But the act of 1922 was an eye-opener for other countries. Four years later,
an international conference was held in Washington, D.C., to work out an
agreement on marine pollution regulations, but with no success.
England, Belgium, Norway, Netherlands, the US and Sweden did, however, agree to prohibit discharge of oil in a zone within 50 miles of shore. A
special committee was set up by the League of Nations and a draft convention
on pollution prevention came to light in 1935. At the time, oil accounted for
approximately 20 percent of total volumes carried at sea. Nevertheless,
progress was slow. A planned conference to consider the draft had still not
been held when World War II broke out in 1939.
Note:
See the letter from Liverpool in the “Shipping and Mercantile Gazette” of June 7, 1870, printed in Mr.
Plimsoll’s “Our Seamen – An Appeal,” pp. 70-71, published in London in 1873. See also Lloyd’s List
250th Anniversary Special Supplement, pp. 93-100, on the development of safety regulations.
VI. THE SECOND WORLD WAR;
THE DEPENDENCE ON OIL
After the German war machine had crushed France in June 1940, the UK was
isolated from the rest of the world and faced a serious threat of invasion. Availability of fuel oil to feed the Royal Navy and the Royal Air Force seemed even
more important than during the First World War. Once more, tanker transportation became a most vital element in warfare. On every front, the war was
once again fought and won on oil.
In 1939, the main oil supply to Great Britain still came from the Gulf Coast
of the US. However, Iranian oil was rapidly becoming more important. Huge
oil reserves had also been found in several other countries around the Persian
Gulf, but development of the fields had been slow. By 1939, only Iraq, Saudi
Arabia and Bahrain were oil exporters of some minor consequence, representing a few percent of the international seaborne trade.
Germany had relied on overland imports of Romanian oil and the domestic
production of synthetic fuel. When Adolf Hitler’s armies – supported by
Romanian troops – invaded the USSR in June 1941, one of the targets was
the rich oil fields of the Caucasuses. When he one year later in desperate need
of oil ordered his armies to push for the oil fields, the battle of Stalingrad was
in effect the battle for Baku.
37
Tankers in convoys crossing the Atlantic had so far been a relatively easy
target for German U-boats and aircraft. It became apparent that the menace
of the submarines was so scary that the shortest route for tankers was not only
the quickest but also the safest. Thus Britain, later joined by its allies, decided
on a short-haul policy, meaning that oil for the war effort should come from
the eastern seaboard of North and South America, rather than all the way
from the Persian Gulf.
At the beginning of 1943, Britain’s oil stock was at its lowest level ever. The
peak of destruction of tankers was reached during the summer of 1942. From
then on, the loss-rate improved as the submarine menace was gradually mastered, thanks to the introduction of heavily guarded convoys and providing
long-range aircraft protection. Another factor of importance was the cracking
of the U-boat radio codes.
During the 1940s, most of the leading Greek shipowners left Greece and
broke their relations with the Government at home. They left for London, but
also, increasingly, for New York. The Greek merchant navy – mainly dry cargo
ships – was reduced, with 72 percent at the end of the war. The exodus to
other maritime centra did not come to an end after the war. Instead, the owners
settled down and developed valuable contacts with charterers including the
major oil companies.
After the German invasion in 1940, the Norwegian Government escaped
to London, and here requisitioned about 1,000 ships under the Norwegian
flag in ports all around the world. In consultation with the UK Government,
Nortraship – the acronym of The Norwegian Shipping & Trade Mission – was
set up in London and New York and assigned the task of operating the national fleet for the duration of the war. At the end of the war, the Norwegian
owners had lost about 40 percent of their tanker tonnage.
Merchant fleets under British and American command also suffered huge
losses. Thus the main priority for the shipbuilding sector in the free countries
was to replace the huge quantities of tonnage lost without delay. The shipyards
in the US took the lead and were soon capable of replenishing the massive
losses sustained round the theatre of war. In 1942, the US government instigated an emergency building-programme. By 1945, about 500 units of a new
type of standard tanker – the 16,600-ton T2 – had been built.
Thanks to the large emergency shipbuilding programmes, the world tanker
fleet by 1950 stood at 26 million dwt, significantly larger than the 16.6 million
dwt fleet of 1938.
38
Notes:
A condition for an effective war machine was to keep the oil coming to the theatre of war. At a critical
moment during the World War I, the Commander of the Allied Forces, Marshall Foch, declared: “We
must have oil or we will lose the war.” John Newton, “A Century of Tankers,” p. 42.
The Greek Shipping Cooperation Committee was formed in London in 1935, and includes shipowners
of Greek origin with offices in London and New York. London was the shipping centre of the world.
The infrastructure offered unique opportunities for personal contacts with charterers, countless insurers,
banks, top law firms, good schools and brokers, etc. The meeting place for all was the Baltic Exchange,
which after some years became open to foreigners. The Greeks that had set up their offices here were
steadfast in their position: Shipping regulations must be implemented in a uniform, non-discriminatory
way by all nations. See G. Harlaftis: “A history of Greek-Owned Shipping,” London & New York,
1996.
The Norwegian Shipping and Trade Mission (Nortraship) was set up ultimo April 1940 after the German
invasion of Norway. Most of the Norwegian fleet was outside the country’s territorial waters. The British
government wanted to bring the fleet under the British flag to avoid the Germans taking control. Representatives of the Norwegian government in cooperation with shipowners succeeded, however, in negotiating an agreement under which a Norwegian state-owned company, Nortraship, was established
with offices in London and New York. The mission became a valuable partner in the allied efforts to
bring about the capitulation of Nazi Germany.
VII. CONSUMPTION GROWTH
AND GIANT TANKERS
The post-war decades saw a strong growth in the consumption of oil and, with
it, oil transportation. The volume of oil carried by sea was doubled in the
1950s and again in the 1960s. From 255 million tons carried in 1950, the
volume passed 1,240 million tons in 1970 and culminated at 1,625 million
tons in 1974.
From a minor share of the global trade volumes, oil and oil products grew
to about 50 percent in the 1950s. However, the growth rate was even greater
in terms of ton/miles, driven by the longer distances involved from the Persian
Gulf and later to the US and Japan. From 1962 to 1970, the volume of oil
carried grew by 122 percent, while the actual transportation in ton/miles grew
by 174 percent.
When the war ended, the prospects for the tanker trade looked good, although
much would depend on the realisation of the US T-2 tanker fleet. In 1947, the
US government agreed to confine the majority of the vessels to the reserve
fleet, while a number were offered for sale at reasonable prices. Owners with
no relations to their national government, like the Greek Aristotle Onassis,
were, however, not taken into consideration by the US authorities. Onassis
was furious when his father-in-law, Stavros Livanos, was offered seven ships.
39
© Pressens Bild / Scanpix Sweden / Scanpix
Aristotle Onassis
Born in Saloniki in 1906 but
growing up with his family in
Smyrna, Aristotle Onassis – due
to the political unrest – left for
Buenos Aires as a youngster.
He became a Greek shipping
legend. He placed the Greek
tanker industry in the forefront
when he in 1953 launched a
super tanker of 45,230 dwt and
named her Tina Onassis, after
his wife. Sixteen years later, he
launched a super tanker four
times the size of Tina – the
Olympic Athlete, weighing
216,490 dwt. He became a
world celebrity until his death in
1975, not only because of the
huge fortune he built up, but
also because of his relationships
with famous women.
40
In Norway, owners were frustrated in the early 1950s
when the socialist government intervened and placed a
veto against further contracting of new buildings. Foreign currency should be used for “better purposes,”
stated the government. However, after a few years the
interdict was lifted.
Brisk contracting by Scandinavian and Greek owners
led to a shift in the global tanker fleet. In 1938, independent owners had controlled 39 percent of the fleet;
this share increased to 58 percent by 1968. In the meantime, the US had for the first time became a net importer
of oil in 1948.
The “seven sisters,” the five US major oil companies
Chevron, Esso, Mobil, Texaco and Gulf, together with
BP and Shell, were now firmly established throughout
the Middle East. The oil reserves here were so huge that
nobody could have dreamed of what was hidden under
the sand before 1939. In 1960, Middle-East oil repre-
sented 24 percent of the world oil production (four percent in 1940). The sisters dominated world production,
distribution and sales.
Unable to operate profitably under the Jones Act provisions (requiring American crew and conditions for
American-flag vessels), the US oil companies began to
register ships under “free flags” in the 1930s. In the beginning, the Panamanian flag was the clear choice.
Later, Liberia and Honduras offered their flags as well,
and the PanLibHon fleet became a well-known concept.
The idea was quickly adopted by Greek and other owners operating out of shipping centres like New York.
Under a “free” flag, there would be no governmental
and labour union interference, nor any tax liability.
The International Transport Workers’ Federation
(ITF) strongly opposed the new trend. In April 1958, a
Greek owner of one of the largest tanker fleets in the
world, Stavros Niarchos, took the unusual step of sending a letter to the editor of The Times in London to defend the free flag policy. Some six months later, a
Norwegian, Erling D. Naess, who had left his home
country for New York in the 1920s, was elected chairman of a new association, The American Committee for
Flags of Necessity, to coordinate policies.
One of the supporters was the Texas oil magnate
Daniel K. Ludwig, who became the world leader by
building the largest tankers afloat. His tankers were
built in Japan, whose terms were most favourable to
foreign shipowners. In 1955, the Imperial Japanese
Naval Dockyard at Kure delivered a number of tankers
to Mr. Ludwig. Among them were the 56,000 dwt Sinclair Petrolore, and four years later, the 103,000 dwt
Universe Apollo.
When the Suez Canal was nationalized by the Egyptian
President Nasser in 1956, Britain and France did not
hesitate to take military action to take in the waterway.
The outcome was no success, because of the lack of
© Topham Picturepoint / Scanpix
Stavros Niarchos
Stavros Niarchos was born in
1909 in Athens. It was with
him and his compatriot and
competitor Ari Onassis that
the Greeks entered the tanker
business in a big way after
World War II. Niarchos built
his first super tanker in 1952
and later operated more than
80 tankers worldwide. By the
mid ’60s, the Greek-controlled
tanker fleet was the biggest in
the world. Before he died in
1996, he went through several
marriages. He was also wellknown as the owner of a large
collection of impressionist and
post-impressionist paintings
and for his highly successful
stables of race horses.
41
Erling D. Naess (right)
Next to him is Jan Hudig of Van
Ommeren, Netherlands – the first
chairman of Intertanko, Oslo
Erling Dekke Naess rose to prominence in shipping as a deputy director of the agency in New York which
operated the Norwegian fleet during
World War II (Nortraship), and for
initiating the Federation of AmericanControlled Shipping that enabled
American and foreign interests to
register their ships in Liberia, Panama
and other low-cost countries. This
was, however, regarded as unfair
competition by his fellow countrymen, and he became unpopular at
home. Nevertheless, he was more
than welcomed when he, during the
shipping crisis in the 1970s, persuaded the Norwegian government
to establish a free registry for vessels
flying the Norwegian flag. Mr. Naess
died in his home in Bermuda in 1993
at the age of 91. His company,
Anglo-Norness Shipping Company,
was sold in 1968 before the shipping
markets collapsed.
Foto: Norsk Handels og Sjofartstidene
American support, and the waterway remained closed for about six months.
The effect on European oil supplies was immediate. Shipments of Middle East
oil had to be diverted around the Cape, tanker freight rates skyrocketed and
the Western economic dependence on Middle East oil became very apparent.
Independent shipowners, however, enjoyed a tanker boom with ample opportunities for profitable time charters for years ahead.
By 1961, the USSR produced as much as 60 percent of the oil produced in
the Middle East and had replaced Venezuela as the second-largest oil producer
after the US. Increased oil demand had driven the oil and tanker industries to
place building orders with European and Japanese shipyards for more and
larger tankers than ever seen before.
Between 1956 and 1958, the tanker fleet again grew through new building
and led to a moderate-to-weak market for the first part of the 1960s. Technical
advances in shipbuilding and deeper ports and terminals opened for larger
ships, creating economies of scale in shipping. In 1956, a tanker of 33,000
tdw would be considered large; but by 1962 the Nissho Maru of 130,500 tdw
set a new scale. In a rapid succession of larger vessels, the Idemitsu Maru set
a world record of 206,000 in 1966. Two years later, Universe Ireland set a
new record of 326,000 tdw. Other owners, notably aspiring Greeks, picked
up second-hand vessels from Scandinavians at low prices and extracted some
more profitable years from them. In 1960, Jacob Stolt-Nielsen acquired a conventional second-hand 13,000 tdw tanker and had her converted for the parcel
trade: An embryo of what was to become the company Stolt Tankers.
There were other alternatives, as well. Some owners turned to smaller
tankers built to carry several cargoes on one keel, known initially as parcel
tankers, to serve the growing market for oil products, vegoil and chemicals.
Of greater significance to the crude oil trade, however, was the trend for combined carriers – vessels capable of carrying dry cargo and oil in the same holds
(or tanks). The Ore-Oil carrier had been in use since the 1950s, designed to
carry ore in the centre holds and oil in the wing tanks. In the early 1960s, the
concept was improved through the Class’ acceptance of gas-tight hatch sealing,
allowing Ore-Oil carriers to carry oil in the centre compartments, as well.
Opinion is divided as to the origin of the Ore-Bulk-Ore (OBO) carrier, but the
pioneer role is widely attributed to Mr. Naess, who had the first OBO built
by AG Weser in 1965, the 71,000 tdw Naess Norseman. Scandinavian owners,
in particular, came to invest heavily in OBO carriers.
As it was 12 percent to 15 percent more expensive to build than a tanker
of the same size, the economic viability of the OBO largely depended on the
43
owners being able to utilize its flexibility and shift between dry and wet cargoes. By 1974, the OBOs comprised 22 million dwt, or 14.5 percent of the
tanker fleet.
The tanker market remained at a low level from 1958, but firmed slowly with
increasing seasonal variation from 1962. Large and efficient ships were able
to show reasonable results, until the disappointing winter market of 1966 and
1967. This was no wonder, as the tanker fleet was growing vigorously. From
1960 to 1966, the fleet grew from 33.6 to 60.2 million dwt – by 79 percent.
Even at a time when the Western economies were growing quickly, this supply
was outstripping demand.
Under these circumstances, a “Tanker Recovery Plan” – modelled after the
pre-war Schierwater plan – was introduced in September 1962, after initiatives
by Norwegian and UK owners in particular. This time, however, no support
from the oil companies was forthcoming, and the initiative faded away.
Just as the dismal summer market dipped to the lowest level in five years and
several tanker owners were beginning to worry, Israel launched a surprise attack on Egypt on June 5, 1967. The ensuing closure of the Suez Canal led to
an immediate demand for tanker tonnage as the seaboards from the Arabian
Gulf to the West became dramatically longer.
The spot market went from sky-high virtually overnight, as all excess
capacity was absorbed. This time the Suez Canal remained closed; it was
reopened only in 1975. Borne by a strong rise in oil consumption, the tanker
market remained buoyant from 1967 to 1974, broken by weaker periods in
1969 and 1972.
In a tanker market without the physical restraints of the Canal, the largest
vessels would offer the best economy. This led to a contracting boom for very
large crude carriers (VLCCs) of more than 200,000 dwt. In December 1969,
there were 90 VLCCs in service; in addition, some 200 were under construction around the world. Independent tanker owners were responsible for twothirds of the orders, and the financially much stronger oil companies for one
third.
The period from 1967 to 1973 was one of growth beyond precedent; the
oil trade was doubled and so was the tanker fleet.
44
Notes:
After World War II, the International Workers Federation (IWF) and European maritime nations attacked the practice to register ships under “Flags of Convenience.” It was seen as a way to avoid decent
wages and working conditions. According to Naess, the battle reached a crescendo in 1958, when the
American Committee for Flags of Necessity was formed and in 1960, when the International Court of
Justice said that IMCO should recognize Liberia and Panama as full members. ITF suffered a further
blow in 1963, when the US Supreme Court endorsed the principle that the law of the flag state should
govern the internal affairs on a ship. Currently, however, ITF, in cooperation with the UN and port
states, is represented worldwide and controls that international standards are complied onboard. See
E.D. Naess, “The Great PanLibHon Controversy,” Gower Press Limited, Epping, Essex, 1972, and
“Autobiography of a Shipping Man,” Seatrade Publications Ltd., 1977.
Tankers “super sized” with the building in France at Chantiers de l`Atlantique of four 550,000-dwt
tankers delivered between 1976 and 1979 and scrapped between 1985 and 2003. Source: Lloyd’s List,
May 13, 2009.
At the time of writing (2010), it is reported the microstate Marshall Islands has passed the Bahamas
and is now in tonnage terms the third-largest flag registry after the market leaders, Panama and Liberia.
HM Strategies
TANKER SPOT RATES M. E. GULF – WEST 1967–1975
HM Strategies
TANKER SPOT RATES M.E.GULF - WEST 1967–1975
350
Worldscale Points. Medium-size vessels
Monthly Average
Graph by Shipping Adviser Jarle Hammer
300
250
200
150
100
50
0
1967
1968
1969
Note: 1967 and 1968 converted from Intascale
1970
1971
1972
1973
1974
1975
Compiled by HM Strategies from Fearnley data
Tanker freight rates multiplied six times over in just two months in connection with the closure of the Suez Canal in
1967 and kicked off a strong rush in new tanker building orders. Some very turbulent years followed in the tanker
market. The reopening of the Canal had limited impact on a tanker market flooded by way too many vessels.
45
IMCO – SAFETY FIRST!
3
IMCO – SAFETY
FIRST!
I. EARLY INTERNATIONAL INITIATIVE
The United Nations’ special agency, IMCO, was established in 1948. It was
charged with the international co-ordination and responsibility for maritime
safety and environmental protection of the seas. To get the organization on
its feet took many years. In many quarters, there was considerable suspicion
about the role of a new international governmental organisation. What would
happen to the traditional freedom of the seas? An announced international
meeting in 1953 might have been the start, but a reserved attitude by important maritime nations, including Norway and Sweden, delayed progress.
Finally, in 1959, the first IMCO Assembly met in London and could begin its
work with the Dane, Ove Nielsen, as the first Secretary-General.
In November 1950, a tanker named Inverpool stranded in the river Ribble in
the North West of England because of a steering failure under the force of a
very heavy sea. The master discharged 400 tons of fuel oil into the sea to
lighten and refloat the vessel. The result was serious pollution of the seaside.
The local authority sued the tanker owner, Esso Petroleum, for compensation for the pollution damage. The investigation revealed that the master of
the tanker, whilst being aware of a steering gear failure at an early stage,
nevertheless decided to proceed to port. In his view, the weather made it impossible to anchor and to turn about. Such action – he claimed – would have
been even more dangerous than to proceed. The judge found that the choice
of the lesser of two evils could not be considered to be careless.
Neither did the plaintiff succeed to prove that the captain had been
negligent when he decided to jettison some of the oil cargo in order to try to
refloat the vessel, which was in serious danger of breaking. The Court of Ap-
46
peal reversed the decision. The case went all the way to the House of Lords,
who, five years after the event, ruled in favour of Esso. Here the plea of
negligence failed and the question of unseaworthiness was not pleaded.
Other governments now recognized the potential pollution threat. In 1954,
The International Convention for the Prevention of Pollution of the Sea by
Oil was adopted, once again based on an initiative of the UK. However, the
agreed instrument did not focus only on tankers. It also applied to ships in
general and was aimed at the prevention and reduction of operational oil spills
such as discharge of oily residues.
Priority was given to protect the marine environment with preventive measures. These included new international rules to promote safer navigation,
restrictions on discharges from ships, improved technical standards, as well
as instructions for – and supervision of – ship personnel. The first important
result of IMCO’s work was visible in 1960, when the group reached a
consensus on revising and improving the old SOLAS convention.
During the same year, the five-year-old tanker Sinclair Petrolore, built in Japan
for the account of Mr. Ludwig, exploded and spilled her entire oil cargo in the
South West Atlantic Sea, off Brazil. This spill still figures in the list of the major
tanker spills and may have caused far more concern in the US than in Brazil.
In any case, the US Congress appointed a special committee to consider tanker
hazards in general and to investigate this particular accident. However, few
realized the potential pollution threat from tanker accidents, and the
incident seemed soon forgotten.
Eight years later, IMCO sent a questionnaire out to member states to obtain
information on their experiences regarding oil spills from tankers during the
last decade. Brazil said that there had not been any pollution event of importance.
But in some quarters, there was concern.
In March 1961, the chairman of IMCO’s Coordination Committee on Oil
Pollution at Sea complained about the general “indifference” to the potential
pollution problems. Some very important shipping nations, such as Liberia,
the US, Panama and Japan, representing nearly 40 percent of the tanker fleet,
had not even bothered to ratify the 1954 Convention for the Prevention of
Pollution of the Seas. Strong-willed IMCO, however, continued its work and
obtained increasing support. The results became apparent in 1962, when the
1954 Oil Pollution Convention was improved. Then in 1966, a new International Convention on Loads Lines (ICLL) replaced the 1930 rules to secure
safer and better loading practices.
The oil and tanker industry seemed fairly relaxed. In its comprehensive
47
annual tanker reports in the early 1960s, the London tanker broker John I.
Jacobs & Company Limited referred to the building of a number of large
tankers in Japan. Many aspects related to the building orders were commented
upon in some detail. However, the pollution risk in case of a major accident
was not given particular attention. Tankers were still not subject to specific
rules with respect to liability for pollution damage potential.
Like the Titanic, it needs the catalyst of a major disaster to bring about an
international response. Such an accident occurred in March 1967, with the
stranding and loss of the Torrey Canyon.
Note:
See John I. Jacobs Reports, Dec. 31, London, 1959, 1965, 1966 and June 30, 1968, and M. Ratcliff:
“Liquid Gold Ships.”
II. THE TORREY CANYON
There is hardly any better illustration of the international dimension of the
tanker trade than the Torrey Canyon.
The tanker hoisted the Liberian flag, but was named after one of three
small oil companies, which in 1890 had been wedded into the Union Oil Company of California. In 1967, this fast-growing corporation was the fourthlargest oil concern in the US. Formerly, the Liberian-flag tanker was owned
by a Bermuda company, the Barracuda Tanker Corporation, a financial offshoot of Union Oil. The owner’s principal officers resided in New York. Together with two other large tankers, Sansinena and Lake Palourde, Torrey
Canyon was built at the Newport News yard in the late 1950s. In 1965, the
two last mentioned tankers were enlarged in Japan by widening and lengthening their hulls, thus doubling each original cargo-carrying capacity to nearly
120,000 tons. In this operation the stern sections had been cut off and floated
into a dry-dock, where they were welded to a new stretched hull, thereby creating vessels of much larger dimension. Torrey Canyon was insured in London
and crewed by 36 Italians, including Captain Pastrengo Rugiati and his officers.
In early February 1967, Torrey Canyon was unemployed and had for several days been offered on the market at a low rate for a single voyage from
the Persian Gulf to Europe. Finally on the suggestion of the London broker
firm John I. Jacobs & Company, BP chartered Torrey Canyon.
The voyage that made the name of Torrey Canyon notorious began at
48
Torrey Canyon
The super tanker Torrey Canyon
is shown here as the salvors
found her in March 1967, when
the British government faced a
formidable situation. Two days
after the grounding, a naval
commander in Plymouth saw
three choices: “We can blow the
bastard up – We can empty her –
We can salvage her.” Removing
the oil proved to be impossible.
Then one pinned the hope on
Dutch salvage efforts only to experience that the captain of the
team, Captain Stal, was killed
following explosions as sparks
had ignited the explosive mix of
crude vapour in a tank. The
salvage efforts were given up.
The massive pollution that
followed represented a quantity
never envisioned before and
sparked media coverage of a
dimension never before experienced in the shipping industry.
© Science Photo Library / Scanpix
Kuwait’s Mena al Ahmadi terminal, where she loaded a cargo of 118,000 tons
of crude oil to be discharged in the UK at the tanker terminal in Milford
Haven. On her way to the terminal, the tanker passed the Canary Islands on
March 14. That day, Captain Rugiati had plotted a course to take the tanker
– which steamed on her automatic pilot – five miles west of a cluster of islands,
the Scillies off Lands End in Cornwall. On Saturday, March 17, everything
was in order. But then, the Captain received a radio message from BP’s agent
in Milford that if he did not arrive at Milford Haven around 11 p.m. Saturday
night, his deeply laden tanker would miss high water and be unable to enter
the harbour at the agreed time. Such delay would imply several days at anchor
due to the considerable fluctuations of the tide.
In the early morning of the March 18, whilst the Captain was still in his
cabin, the chief officer, Silvano Bonfiglio, reported that the tanker had been
forced by wind and current to the east of the islands into confined, rocky waters. On request, Bonfiglio confirmed that the present course, “would permit
the ship to pass eastward of the Scillies.” It was decided to not change the
course. When the master arrived on the bridge around 7 a.m., the large tanker
was going full-speed ahead. A change at that stage could have delayed the ship
and now, all being well, perhaps half an hour was saved.
But nothing went well. The tide in the passage rises and falls up to 16 feet,
and some rocks were only a few feet below sea level at high water. When the
captain an hour or so later regretted his decision and wanted to alter course
again, it was too late; two or three fishing boats in the confined waters gave
him little choice. Signals and warning flares sent up from the Seven Stones
light vessel seemed to be ignored.
The tanker ran aground in the morning around 9 a.m. Saturday, March
18, 1967. At a speed of 17 knots, she struck hard on the Pollard Rock on the
Seven Stones Reef, between the Isles of Scilly and Lands End. Oil immediately
began to spew out from the ruptured tanks. Not only was the ship aground
on a hard rock, but her hull had been deeply penetrated in a number of places.
Most of the oil spill damage affected the south western tip of Britain, but the
following week even the French coast became seriously polluted. In the confusion, the UK Government had failed to inform the French authorities. Here,
information about the accident was obtained from the master of one of the
French fishing vessels in the area.
Beyond all reasonable doubt, it was soon apparent that the liability rules
of maritime law were hopelessly inadequate to deal with the potential damage
represented by the new generation of tankers.
50
© T. Haugen
Torrey Canyon
BP requested local tugs, fishing boats and a small
coaster to assist and arranged for the Grangemouth refinery to provide large quantities of industrial detergents. Simultaneously, pumps, compressors and other
equipment were airlifted to Cornwall in order to refloat
the tanker. In the evening of the first day, naval vessels
– joined by chartered commercial vessels – began to
spray detergents in the hope that this would disperse the
oil.
Within hours of the grounding, Dutch salvage firm
N.V. Bureau Wisjmuller was rushing its tug Utrecht to
the area. The intention was to empty the damaged compartments with pressurized air, thus reducing the level
of oil and water in each tank. The salvage expert, Hans
B. Stal, hoped that he could refloat the ship off the rocks
now that it had regained buoyancy. He had to take into
As a desperate last resort to stop
one of the largest tankers afloat
from polluting the coast of Brittany in France and Cornwall in
Britain, aircrafts from the UK
Royal Air Force and the Royal
Navy spectacular carried out
spectacular aerial bombing. But
the cargo onboard the American-owned Liberia tanker would
not catch alight and disappear.
Bombed and broken, showing
the explosion damage directly
forward of the funnel, the cargo
of 118,000 tons continued to
leak out. The “super spill”
ignited radical changes in international maritime law, in particular with respect to liability for
oil pollution damage.
51
account that sparks could ignite the potentially explosive mix of crude vapour
in the tanks.
Captain George King, manager of BP’s shipping department in London,
has in his book, “A Love of Ships,” (pp. 243-247) described the actions taken
from that critical Saturday morning in March when a junior minister for the
Navy, Maurice Foley, was ordered to Plymouth to coordinate the operation
and to take political charge of admirals and generals. That same evening, Foley
asked the Prime Minister Harold Wilson for GBP 500,000 (close to USD 1,4
million) to guarantee the supply of detergents and ships capable of spraying
it. King was requested to accompany the junior minister by helicopter to the
wrecked tanker in order “to make a more accurate appreciation of the position.”
On Monday, two days after the accident, the 49-year-old vice president of
Union Oil, Matthew Thompson, arrived in Plymouth and was also airlifted
to the wreck.
In Parliament, the Minister of Defence Denise Healey assured the nation that
more than 20 ships would be on the job on Tuesday.
That day, a heavy explosion in the stern was closely followed by a second
explosion. At first, it seemed that the entire salvage crew had been miraculously saved. But then, Mr. Stal was found seriously injured in the water. He
had been struck by wreckage that came like a projectile over the heads of the
nearby crewmen to where he was standing. Thirty-six-year old Mr. Stal was
rushed to a hospital in Penzance, but died before arrival. It was decided to
evacuate all hands to a standby tug.
The assisting vessels that were spraying detergents did some good, but not a
great deal. The press reported that officials in Whitehall had suggested that
the tanker should be towed far out in the Atlantic and sunk. But the government maintained it had no such right without the owner’s consent, and Union
Oil would agree only if the company was paid the value of the ship, which
was still regarded considerable, perhaps USD 10 million.
The following Sunday, The Sunday Telegraph warned that the whole coast of
Southern Britain was threatened by horrible, thick, black oil. The same day,
cabinet members seriously discussed for the first time bombing the tanker.
Such action had never before been taken in peacetime.
On Monday, March 27, despite all human effort, Torrey Canyon died on the
52
Seven Stones Reef, after breaking her back whilst four tugs were trying to pull
her off the rocks. As the aft of the ship slided backwards, oil gushed from her
torn hull.
In the hope that the estimated 40,000 tons of remaining crude oil would be
burnt off, eight Royal Navy Buccaneers and three RAF Hunters armed with
bombs and rockets were despatched to destroy her. There was little success on
the first day. The cargo disclosed obstinate reluctance to catch alight. The next
day, napalm was used after some oil had been released by the high-explosive
bombs. This worked better and managed to start a fire, which was visible from
the mainland nearly 20 miles away. The fire was, however, extinguished a few
hours later when the weather cleared up. New attempts were made, but the
ship was now fast breaking up. On the Friday, the attacks were abandoned.
Most of the oil left in the tanks had, by then, been burned.
In the meantime, naval forces continued to carry out extensive spraying of
the oil slicks with chemicals. Chemical and mechanical means were also used
in an attempt to clean the large stretches of beaches in the area. According to
the subsequent report from the UK government, 80,000 to 100,000 tons of
the crude cargo had leaked out and polluted beaches of Cornwall, Devon and
the Channel Islands.
It took time before the French government reacted. After all, the wreck was
located about 180 kilometres from its shore. But when Torrey Canyon broke
her back and the hope of salvage was abandoned, the office of Georges Pompidou appreciated that a threat of serious pollution damage to French soil
could not be discounted. But all the efforts of the government, people and
available equipment, as well as a massive turnout of volunteers, could not prevent the coast of Brittany from being seriously polluted.
BP, as charterers of the ship, had nominated Milford Haven as the terminal
where the oil cargo should be discharged at an agreed time. The potential delay
would be for the account of the owners. Moreover, the owner would be unable
to use his valuable asset for more profitable purpose. To get the tanker to the
discharging port on time and safely is what the master is paid for.
An investigation the Board of Enquiry performed, set up by the Liberian
government, ascribed blame for the accident to the captain. The investigators
gave little attention to the possibility that there might have been something
wrong with the ship itself and in particular with the steering mechanism. Captain Rugiati was found to have set an imprudent course in an effort to save
53
1979: Betelgeuse – 50 people killed
San Pedro
1976: Sansinena – 9 people killed
1968: General Colocotronis – heavy pollution
1968: Ocean Eagle – heavy pollution
Major incidents 1968–1979
time and “he alone had made the decision to go between the Isles of Scilly and
Seven Stones.”
By blaming him, the board absolved the owner of “actual fault or privity.”
The report could not have served Union Oil better had it been written by the
company’s own lawyer. Richard Petrow, in his book, “The Black Tide,” concludes that the Board thereby “helped the owners and insurers save more than
GBP 6 million (about USD 16,600,000).”
However, the captain had an outstanding record as a seaman. On that day
in March, he had been on the ship for one year without leave. Without hesitation, he had stayed onboard Torrey Canyon to the last moment despite being
pressed to leave earlier. He later explained that he was under pressure from
BP’s agents to reach Milford Haven as soon as possible. He had tried to alter
the course, but had to give up due to several fishing boats in the narrow
waters. One may speculate whether the Master’s navigation error can be
explained by fatigue or perhaps by stress to reach the terminal in time. In any
case, Captain Rugiati lost his license and never sailed again.
The oil spillage represented a quantity never envisioned before. The UK government reported that claims had been entered against the owner for some
54
GBP 3.25 million (about USD 9 million) for the cost of preventive measures.
But figures for the damages Torrey Canyon caused differ. A study issued by
the staff of the US General Accounting Office estimated the clean-up costs of
the UK Government and France to be more than USD 16 million, and the
estimated damage to private property, fishing and marine life exceeded that
figure many times over.
It was claimed that 50 percent of the bird population on the northern coast
of Brittany disappeared. The oil later disappeared both in the UK and in
France. However, the detergents injected were regarded to be a more lasting
problem. Two and a half years after the accident, the International Group of
Protection and Indemnity Clubs (the insurers) claimed that the action taken
to stop the leakage was “fantastic and hopelessly inadequate” and increased
clean-up expenses out of all proportion.
The representatives of Union Oil had made every effort to save the ship and
prevent the bombing. They had a responsibility to the underwriters and could
not simply abandon the ship and claim full compensation. Later they argued
that most of the damage was caused by the bombing of the stranded tanker
by the Navy and the Air Force. The oil company had no assets in the UK and
failed to appear in court as defendant. However, the lawyer of the UK government gambled that the company’s “sister ship,” Lake Palourde, might call
the port of Singapore. His legal mind opened a new jurisdiction when, by a
fatal mistake of the Union Oil management, the tanker arrived in that harbour
in July. Now Britain had something at hand and Lake Palourde was promptly
arrested. The tanker was valued at some USD 17 million. The ship was released when a bond of USD 8 million was put up to cover the damages Torrey
Canyon caused.
The governments of the UK and France presented their claims in an American district court that, however, applied the limitation provision in the antiquated US Limitation of Liability Act of 1851. This meant that the exposure
of Union Oil would be confined to the value of the vessel after the casualty.
The tanker had sunk and the remaining lifeboat was said to be worth no more
than USD 100. According to the 1851 act, limitations would be broken only
if the damage was found to be caused by “the shipowner’s privity or knowledge of negligence.” The European governments in no way accepted the finding of the court view and appealed to the US Court of Appeals for the Second
Circuit. Now they were more successful. Contrary to the findings of the Liberian Board, the appeal court concluded that the damages following the grounding were not necessarily caused by activities related to navigation, but could
55
be caused by Union Oil’s “involvement in the original design and manufacture
of the vessel.”
This meant that the claim for compensation fell outside the jurisdiction of
the US Limitation of Liability Act of 1851. However, no final verdict was rendered, as the litigation was settled in 1969. An agreed compensation of about
USD 8 million to 9 million was divided equally between England and France.
The court proceedings were thereby discontinued. The owners had reason to
be satisfied; the Liberian Board had dismissed the idea that there was any personal fault on their part, and the Court of Appeals had not reached any other
final decision. Moreover, the insurance disbursement they received from the
hull insurers for the loss of Torrey Canyon amounted to USD 8.25 million,
the largest amount for a single loss ever experienced by The American Hull
Insurance Syndicate. This amount equalled roughly the settlement agreed upon
with the two governments.
The only available asset from the ill-famed tanker is reported to have been one
of the lifeboats worth USD 100. This is almost true, though not quite. When
the pollution liability questions were discussed a year later, the representatives
of the oil companies and the independent owners were unable to agree on an
industry recommendation. The sub-committee’s chairman, a lawyer from BP,
found the situation so impossible that he decided to withdraw from the chairmanship. As a consolation and as thanks for his energetic efforts, he was given
a ship’s bell – the bell of Torrey Canyon that had been recovered.
The killing of fish, fowl and marine vegetation, the polluted beaches, and the
damage on local economies started a discussion on liability for marine oil pollution damage. This would become a theme for discussions that would go beyond the century. Torrey Canyon became the symbolic warning of the threat
to the environment represented by large tankers. Statistically, every feature
seemed to be on a record scale – the largest ship ever wrecked, the largest oil
spill ever known, the largest hull claim ever presented. Subsequent to the
grounding on the Seven Stones Reef, tankers and the pollution risk were
brought into the public eye. For the first time owners of oil tankers were confronted with high-profile media attention – all negative. The industry was
made to understand how such an accident could present sensational material
for the media, significant enough to alarm public opinion. Environmental issues became a part of the political agenda, and the tanker and oil industry
found themselves in a new uncomfortable position.
56
Other incidents followed. In March 1968, two more tankers grounded, caused
pollution and confirmed the potential threat from oil carriers. The Liberian
tanker Ocean Eagle broke in two in the waters of Puerto Rico and caused
heavy pollution of San Juan Harbour, whilst only four days later a Greek
tanker, General Colocotronis, struck a reef off the Bahamas and polluted recreational beaches. The oil penetrated deep into the sand.
Other tankers were disabled because of explosions.
In the years that followed, it became clear that tankers were most vulnerable
when the cargo tanks were empty, because the fumes are more explosive than
the liquid. To prevent explosions, inert gas – which contains less than five percent oxygen – should be ducted into the empty portion of the tanks to prevent
explosion. There were no mandatory regulations at the time that required such
inert gas systems, and a number of tanker owners hesitated to spend money
on such safety devices. One of them was Union Oil, which once more found
itself in serious trouble when a stupendous explosion ripped its third tanker,
Sansinena, apart and killed nine people and injured eight more. The fatal incident happened at the oil company’s berth in San Pedro, California, where
the 13-year-old tanker was to discharge a cargo of Indonesian crude oil. The
ship’s mid-deck cabin was hurled into the air together with the occupants: The
mate and a radio officer. Windows were shattered two miles away. Together
with the unforgivable explosion of Betelgeuse in 1979, when 50 people were
killed, the two accidents were contributory to IMCO’s belated efforts to
introduce mandatory requirements to install inert gas systems. The implementation was delayed nearly a decade.
Notes:
On Torrey Canyon, see Welty & Taylor: “Black Bonanza,” New York. 1950, Richard Petrow: “The
Black Tide,” London, 1968; E. Covan: “Oil and Water London,” 1969; Plymouth Laboratory: “Torrey
Canyon - Pollution and Marine Life,” London, 1969; Crispin Gill, Frank Booker and Tony Soper: “The
Wreck of the Torrey Canyon,” N. Mostert: “Supership,” New York, 1974; E. Nalder: “Tankers Full of
Trouble,” New York, 1992; G. King: “A love of ships,” Hampshire, 1999; and Bradford Mitchell and
Robert Dwelly: “Touching the Adventures and Perils - American Hull Insurance Syndicate 1920 –1970,”
New York, 1970.
57
NEW CONVENTIONS IN 1969
4
New Conventions
in 1969:
Tanker owners face pollution liability
& intervention of coastal states
I. BACKGROUND
Limitation of liability has been regarded as essential to contain the exposure
in potential risky business ventures. Ships and cargoes are exposed to weather
conditions which human beings have no control over, and transportation of
goods at sea has always been a particularly hazardous profession.
It is arguable that limitation of liability has been a condition for growth of
international trade through generations. The legal position of shareholders in
joint stock companies might be seen as the basis for our capitalistic business
society.
In shipping, the origin of the limited liability seems to go way back to ancient Rome. Here, owners of ships trading to foreign shores often left it to a
trusted person to take command of the ship and its crew. According to the
law, the owner could be held liable for the damage caused by the master to
third-parties. If the master was his slave or a family member, the owner could
fulfil his obligations by abandoning the master to the damaged party. In doing
so, he had honoured his obligation to pay compensation. This peculiar rule
was apparently based upon a notion that nothing could cause damage beyond
its own value.
In the 11th century, an initiative was taken in France to collect judgements on
58
maritime legal disputes. The collection became known as “Rooles de Oleron.”
It is not quite clear to what extent the shipowner’s liability was limited under
these rules. But 200 years later when the maritime law prevailing in the
Mediterranean was codified in “Consulato Del Mare,” the shipowner’s exposure was limited to the value of his ship. When Venice, as the first case of extreme capitalism, matured into decay, it was outranked by the Dutch Republic.
But the respective codifications formed the basis for further development of
maritime law in Europe together with the rules agreed later – just after the
year 1400 – by the Hanseatic League. In Denmark/Norway, the shipowner’s
right to limit his liability was set out expressly in law from 1561.
In 1734, Parliament passed this principle as the first English Act. It contained in its preamble the consideration that “it is of the greatest consequence
and importance to this Kingdom to promote the increase of the number of
ships and to prevent any discouragement to merchants and others from being
interested and concerned therein.” A hundred years later, competition from
ships under other flags was invoked as the main justification for the limitation
principle.
On the other side of the Atlantic, support for “legal parity” with other maritime nations was growing. The limited liability principle for shipowners was
laid down in the US Limitation of Liability Act enacted in 1851. Absent from
any privity or knowledge of any specific damage potential of the ship in concern, the shipowner’s third party liability was limited to the value of his interest
in the ship plus the pending freight. The act should “encourage shipbuilding
and induce capitalists to invest money in this branch of industry.”
It would be to the benefit of the international shipping industry if the
maritime law of the various seafaring nations could be harmonized and simplified. With industry support, an international group of respected maritime
lawyers, the Comite Maritime International (CMI), founded in Belgium in
1897, provided their governments with various draft conventions suggesting
unification of several aspects of the legal systems. CMI believed that maritime
legislation should be declared with input from shipowners, merchants, underwriters, average adjusters, bankers and “other persons” engaged in the maritime trade.
Full recognition of the advantages of an international liability system, which
could contribute to equal competitive conditions, took considerable time. A
quarter of a century passed before the first international convention on
shipowners’ liability for damage to third parties was concluded in Brussels in
59
1924. The liability was based on the size/tonnage of the ship in question. The
limitation amounts were some eight pounds sterling per ton or, alternatively,
the value of the ship plus 10 percent. For damage to people, the liability was
set somewhat higher. The shipowner was exonerated of any claims if no fault
or negligence could be shown on the part of the ship.
After World War II, renewed efforts resulted in the International Convention
on Shipowners’ Liability of 1957. This general convention on third-party liability covers both compensation for personal injury and compensation for
damage to the property of third parties. Pollution damage as such was not
specifically addressed. The first treaty to introduce a dedicated regime for damage caused by pollutants came about in 1962: The Convention on the Liability
of Operators of Nuclear Ships.
The 1957 convention continued to base the liability on negligence. The limitation rules could be invoked only when the damage was a result of the fault
of master and/or crew. The compensation to be paid depended on the size of
the ship and was limited to 1,000 Poincare francs (about USD 67 per net registered ton). A net ton equals a gross ton minus the space for the engine room.
For personal injury, the liability limit was doubled. Under French law, the liability was linked to the custody of the vessel rather than ownership alone.
Inspired by the French delegation, it was also agreed that the charterer, the
manager and the operator of a ship were exposed to the same liability rules.
But if the damage was caused by the responsible party’s personal “fault or
privity,” he became, in principle, fully liable.
The Liability Convention of 1957 did not enter into force before May 1968.
Thus, if a shipowner had failed to say that his vessel was not seaworthy or
not in class, he would also risk that his insurance cover was revoked. At that
point in time, the grounding of the Torrey Canyon had made it nonsensical as
far as compensation for pollution damage was concerned.
Following the Torrey Canyon disaster in March 1967, legal issues were included in IMCO’s working agenda and an extraordinary Council meeting was
summoned in May. It was decided to set up a Legal Committee to supply a
paper on the traditional concept of the freedom of the seas with emphasis on
a states’ access to intervene and protect their coastlines against a leaking tanker
outside their territorial waters. A large majority of governments were convinced that shipowners’ liability limits were far too low to cover third- party
pollution claims and to compensate governments for the clean-up costs. Thus,
60
the committee should also reconsider the shipowner’s traditional legal right
to limit his liability – a principle confirmed in a convention passed only 10
years earlier, but at a time when pollution damage problems were given little
or no attention.
Governments were requested to assist the new committee by providing a
summary of relevant national legislation and regulatory practice that could
serve as a basis for future discussion. Furthermore, a questionnaire was sent
to members to obtain information on major incidents of marine pollution in
their territorial waters in the period from 1959 to 1969.
But only a few governments replied. Even France, which had suffered badly
from the pollution the Torrey Canyon caused, did not respond. Denmark,
India and the USSR were among seven other countries with nothing to report.
Norway did not seem to answer the questionnaire at all. Greece reported six
minor incidents, four of which had caused no pollution damage at all. The interpretation of the term major incident obviously differed from country to
country. The other 14 countries reporting back to IMCO were Belgium,
Canada, Federal Republic of Germany, Hong Kong, Japan, Korea, Kuwait,
Netherlands, Poland, Singapore, Spain, Sweden, Syria and the US.
Among the 47 reported incidents, 21 occurred between March 1967 and July
1969.
However, the most notorious oil spill so far was not from a tanker, but from
the offshore oil-drilling rig the Santa Barbara. In January 1969, the blowout
from the rig, operated by none other than Union Oil, spewed about a million
gallons of oil – about 3,250 tons – into the sea between five and six miles from
the Californian shore. Another two million gallons were lost over the succeeding months. The oil was dispersed over 800 square miles of ocean and 100
miles of coastline. Seepage was observed as late as October 1970, according
to a report prepared for the US Federal Water Quality Administration.
The blowout caused the same anxieties about the effect on the environment
as Torrey Canyon. The same controversies about how to remedy the pollution
damage came to light, including disagreement on the wisdom of applying
chemical dispersants to the slick. There were heroic attempts to save seabirds,
of which a great number died – estimates vary between 4,000 and 6,000. This
accident, and other spills to follow in American waters, prompted high pressure on federal and state legislators to deal with the environmental problem
on home ground, rather than wait for an international agreement. A marine
mammal expert at the University of Guelph in Ontario, Mr. David Aubin,
61
noted the divide between public and scientific perceptions. He reported: “Studies that found minimal effects (of the oil spill) were dismissed by the public as
inadequate, whereas media reports were often overstated and sensational, and
found little favour with the scientific community.”
It soon became clear that the intensity of news coverage of an oil spill could
be predicted by the proximity of media centres to the scene.
Notes:
The first international efforts to introduce unified rules on shipowner’s liability were taken long before
1957 and resulted in a convention of 1924. It entered into effect in 1931, but was not ratified by the
important shipping nations and has been seen as a failure. There have been speculations that the reason
was that it was conceived by France, not England – “the not invented here factor?” Liability rules per
se were left to national law. It focused on the limitation aspect. See Wu Chao, pp. 33 and 62-65.
II. AN INDUSTRY DIVIDED
Looking to public demand that victims of oil pollution should be fairly compensated, the industry’s traditional limited liability system became full of peril.
The industry was composed of two groupings: The oil companies and the
independent tanker owners. In terms of economic strength, the many independent owners were not comparable with the major oil companies. The
largest fleets owned by independent shipowners at the time included the Onassis group, Mr. Niarchos and Mr. Lemos representing Greece; Sigval Bergesen
d.y.; Hilmar Reksten and Anders Jahre from Norway; A.P. Moller from
Denmark; Chee-Jva Tung from Hong Kong; and Mitsui OSK, N.Y.K and
Japan Line from Japan.
Most independent owners, regardless of the size of their tanker fleets, came
gradually to the conclusion that if no international agreement was reached on
pollution liability, individual governments could be prompted to legislate unilaterally. IMCO seemed the lesser of two evils.
The major oil companies were cargo owners, charterers and major tanker
owners, as well. The policies of “The seven sisters” were traditionally against
intervention of governments in any sector of their global activities. They
prepared a third alternative that could work only if it was supported by the
oil and tanker industry as a whole.
Consequently, representatives of the independent tanker owners were invited
to take part in preparing a private alternative compensation scheme. After a
while, representatives of shipowner’s mutual insurance associations, the inter-
62
national P&I clubs, were brought into the discussion. The aim was to form a
voluntary international agreement offering better compensation to pollution
victims through increased insurance coverage.
The P&I Clubs presented their findings in a letter to IMCO from Annar
Poulsson, the managing director of the Norwegian club, Skuld. Here it was
stressed that the Torrey Canyon was the only major incident and that serious
oil pollution incidents caused by tankers were rare. Their arguments were
confirmed by the replies from the various governments to the IMCO
questionnaire. Furthermore, one would have to take full account of the limited
capacity of the insurance market. It was also argued that the clean-up after an
oil spill could be undertaken at far less cost than had been expended in the
Torrey Canyon case. Reference was made to documentation that disclosed
that there were only two other tanker spills for which the cost had reached
the liability limits of the International Convention on Ship-owners’ Liability
of 1957. Out of 1,040 registered spills, the maximum oil spilled in any one
incident – except Torrey Canyon – was 20,000 tons. With the same exception,
the maximum single clean-up cost experienced came to USD 800,000.
Against this background, tanker owners as well as cargo owners were in
agreement that there was no reason to set aside the principles that shipowners’
liabilities for pollution damage should remain limited and based on fault.
With the formation of IMCO’s Legal Committee, one wondered whether CMI
would play a less important role in the future.
CMI, however, lived up to expectations. One of its sub-committees, chaired
by Lord P.C. Devlin, President of the British Maritime Law Association, had
in a relatively short time drawn up a new draft convention on compensation
for pollution damage. As could be expected, the draft was based on traditional
maritime law. After having been approved in Tokyo in the spring of 1969, the
document was submitted to IMCO and became a basis for its further work.
The International Chamber of Shipping (ICS) also had consultative status in
IMCO. Members were national shipowner associations from a large number
of countries. By and large, ICS supported the principles CMI promoted. Moreover, ICS had for many years contended that the larger tankers did not mean
an increased pollution risk. Reference was made to the fact that most tanker
accidents had happened in congested waters. Practically all of the pollution
cases recorded had taken place at or very near port entries or near terminal
facilities. In 1971, ICS again argued that there was “no evidence that the
increase in the size of tankers by itself has created a greater risk of polluting
63
accidents. Indeed, to increase the size of tankers means that fewer ships are
needed to carry the same amount of oil cargo and accordingly the risk is
reduced.”
Among the independent tanker owners, there were strong voices claiming
that it was the oil cargo that represented the pollution risk and not the tankers
as such. Moreover, the oil industry had far deeper pockets than the fragmented
tanker industry. ICS was therefore under obligation as a shipowner organization to promote the view of shipowners, it was argued.
The view of the oil majors was that the shipowner, who was in control of
his ship, was responsible for safe navigation. Owners should live up to their
responsibility and accept to compensate victims alone if and when a pollution
accident occurred. Consequently, the oil companies argued that any form of
cargo liability should be rejected by ICS.
Under these circumstances, ICS seemed to be of little help to either party.
Before long, two new industry organizations came forward. The oil industry
established the Oil Companies International Maritime Forum (OCIMF), while
the independent tanker owners set up the INTERTANKO in Oslo, Norway.
Note:
The 1962 Convention on the Liability of Operators of Nuclear Ships sought to make the operator of
the nuclear-powered ship liable for any release of radioactivity regardless of whether the ship was at
fault or not. Britain was the driving force in the drafting, and legislation was prepared in February 1964.
In the fall, the Conservative Government lost the election, and the matter was dropped. Neither the US
nor Russia has ratified.
III. THE DIPLOMATIC CONFERENCE
– BRUSSELS 1969
In the meanwhile, deliberations in the IMO Legal Committee had produced
two new draft conventions: One on the pollution liability problem, the other
on the coastal states’ right to intervene against polluting tankers on the high
sea.
Following an invitation from the Belgium Government, a diplomatic conference convened at the Palais des Congress in Brussels from Nov. 10 to 28,
1969. Albert Liar, head of the Belgian delegation and president of CMI, was
elected president of the conference. Fifty-three countries were represented.
Also present, as observers, were six governments and 11 organizations with
consultative status, including ICS, CMI and OCIMF.
A second committee, with the Secretary General of CMI, Dr. Walter Muller
64
(Switzerland), as president, should deal with liability for pollution damage
caused by tankers. This turned out to be even more controversial than the
question of the intervention issue.
On the first day, Mr. Liar invited comments upon procedural issues. How
should the conference organize its work? But the President could not stop the
head of the Canadian delegation, Donald Jamieson, Minister of Transport,
who insisted to speak right away on the fundamental question for the conference, “the responsible party.” Referring to the documents sent to and distributed at the conference, Mr. Jamieson paid no attention to the plea from the
chair that he was out of order. In his view, the documentation was off the
mark. It stated:
“The striking feature in the documents … was the lack of any allusion to the
liability of the petroleum industry in Canada’s opinion, pollution was
mainly attributable to the nature of the substance carried and was only
incidentally the carrier’s fault. Maritime law had always drawn a distinction
between the cargo and the ship. … the notion of joint enterprise applied also
to marine pollution. Just as they shared the profits from carrying oil in bulk,
charterers and oil companies ought likewise to share the liabilities inherent
in that form of transport. The sharing of liability went hand in hand with
the sharing of losses resulting from a joint act that caused damage.
According to the principles in Regulation A of the York Antwerp
Regulations, 1950, the cargo should contribute towards an adequate
compensation for the losses suffered by the victim and that contribution
should also serve to make good the loss which the victim suffered owing
to the operation of the limited liability.”
His delegation accordingly proposed that liability for damage caused by
pollution should be shared; the shipowner should be liable to a given figure,
and the charterer liable for the balance.
During the subsequent discussion, the Irish representative, J.N. McGovern
of Irish Shipping Limited, said that:
“In the opinion of his country, from the point of view both of expedience
and of principle, liability should be on the cargo. It was the cargo which
caused the type of damage, not the ship, as was clear from the Torrey
Canyon case. … The cargo interest might include a variety of people – such
as the shipper, the receiver, or the owner for the time being of the cargo.
The liability could not be placed on the owner, since ownership could
65
change during a voyage … The shipper, however, did not change and was a
constant factor. … The Irish Government had accordingly proposed an
amendment embodying the principle that the owner should either identify
the shipper or himself be deemed to be the shipper.”
The delegation of the Netherlands, Mr. van Rijn Alkemade, wished to associate
itself with Ireland. In the paper submitted to IMCO prior to the Conference,
the Netherlands had pointed out that the risk created by massive transport of
oil in bulk was not in the first place created by the carrier, but by the technical
development in transportation, made primarily in the interest of the oil industry as a whole. This “‘industrial risk’ should be borne by the oil industry rather
than by the carrier.”
Mr. L.M.S. Rajwar of India pointed out that the big international oil companies, which had the resources to build up a fund to meet the claims for oil pollution, had the maximum ability to shoulder the burden of liability. He
therefore proposed that the major burden should fall on the oil companies.
The carrier, of course, would continue to shoulder its limited existing liability
based on fault.
Mr. Ulf Nordenson of Sweden echoed the support for cargo liability. He
stated that oil pollution was not a typical maritime risk, but one created by
the vices of the product itself. Mr. M.J. Kerry of the UK eloquently presented
the opposite view, that liability should be imposed on the shipowner alone
with no involvement of the owner of the oil cargo. He stressed that unlike the
shipowner, the shipper and the cargo owner could not exercise any control
over the cargo while it was on the high seas. Furthermore, it was difficult to
identify the cargo owner, particularly as the cargo might change ownership
during the voyage.
In any case, the preparatory work on imposition of liability on the cargo was
not sufficiently advanced to make it possible for a convention based on that
principle to be drawn up in the short time at the disposal of the conference.
The UK government did not however, “rule out the possibility of further
investigation into potential ways of providing for damage not covered by
maritime law as amended by the Convention. However, it regarded that as
something which might be done at a later stage.”
The US, France and a number of other delegations had strict liability on the
shipowner as their first choice. The French delegation’s spokesman, Monsieur
66
Claude Douay, (Conseiller Juridique du Secretaire general de la Marine
Marchande), became his country’s most active voice on legal matters in
IMCO/IMO for many years. He strongly stressed that compensation must be
made available also in cases where the ship could not be blamed for the
accident. If the liability continued to be based on fault, the shipowner may
claim that no fault is committed, with extensive litigation as the result. Such
cost should not be borne by the victim. Thus: “It was essential to provide
higher compensation which was guaranteed and always available. Liability
must therefore be based on risk, not on fault.”
Whilst identification of the operator could cause severe problems, the identification of the registered owner was claimed to be unproblematic, and Lord
Devlin of the UK, also speaking as the chairman of CMI’s committee, favoured
the simple solution. In one intervention on the subject, he stressed that: “The
best channel for providing compensation was one which was simple in application, made use of existing procedures and offered an incentive to prevent
casualties.”
Mr. Douay, in a lengthy statement, claimed that: “Shipowners’ strict liability
would be in accordance with the ordinary law applied to carriage and with
ordinary maritime law, and would enable the Convention under consideration
and the 1957 and 1924 Conventions to be applied simultaneously in cases
where pollution damage was accompanied by ordinary damage.”
Several maritime countries, such as Japan, Liberia, Norway, the UK and
the USSR and others shared the view that liability on shipowners should be
maintained on the traditional fault basis.
In a vote on a provisional basis at the end of the first week of the conference, a clear majority supported the view that the shipowner should be liable
for pollution damage. But the delegations of Belgium, Denmark, Finland,
Greece, India, Ireland, the Netherlands, Portugal, Sweden and Switzerland all
voted in favour of the Irish view that strict liability on the cargo should be the
first choice.
After three weeks of heated discussions and voting article by article, a compromise text was worked out.
The traditional concept of liability based on fault was abandoned. Thus
the tanker owner became obliged to pay compensation for the damage caused
regardless whether the pollution had occurred due to negligence on the part
of his ship or not.
There were, however, a few exceptions. The most important were that the
67
owner was exonerated if he could prove that the damage was caused by:
“an act of war” or wholly by “a natural phenomenon of an exceptional, inevitable and irresistible character” or “damage caused with intent by a third
party” or “failure of governmental authority to maintain navigational aids.”
(Article III 2)
On the other hand, shipowners were allowed to continue to limit their
liability. The protection afforded to victims in terms of compensation, was –
further to a proposal from France – set at 2,000 Francs per ton according to
the size of the tanker in question, or a maximum 210 million francs. These
levels, which were agreed by 35 votes to three with three abstentions, corresponded to the capacity of the insurance market. The 2,000 Francs was twice
the amount available for property damage under the 1957 general liability
convention and the USD 14 million were estimated to be very close to the damages Torrey Canyon caused. The right to limitation assumed that the pollution
incident was not a result of the shipowner’s personal fault or privity. If he was
personally to blame, the shipowner would face an unlimited liability.
From day one, it was clear to everybody that a new instrument which imposed
a strict and higher liability on the shipowner would not be workable unless
ways were found to enable him to obtain insurance against the potential claims
for pollution damage.
Norway had argued that insurance coverage differed greatly according to
the nature of liability. To get the highest coverage in the market, any new
liability for pollution damage should be based on fault. But the spokesmen of
France and the US in particular insisted that the convention would be
unacceptable and unworkable unless it was based on strict liability. Moreover,
strict liability had to be combined with compulsory insurance coverage. With
no such principle, a victim might be faced with an insolvent debtor.
The French representative pointed out:
“There would also be such things as flags of convenience, and people
using these would be able to evade their responsibilities, to leave
compulsory insurance out of the convention would be tantamount to
saying there should be no convention.”
Also, Ireland maintained that compulsory insurance would be an indispensable ingredient in the liability system to be introduced. Compulsory insurance
was the second innovation of the new convention. By 30 votes to three with
three abstentions, it was decided that all tankers carrying more than 2,000
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tons of oil in bulk as cargo should be required to take out insurance and carry
a certificate to confirm that insurance was available.
Marine liability insurance had traditionally been placed by shipowners with
their P&I clubs on a mutual basis. Cooperation with the clubs was accordingly
seen as a must, and the P&I representatives played a key role before and
during the conference.
One insurance aspect of particular importance to the clubs was to maintain
the established “pay-to-be-paid” principle. The rules of the P&I clubs did not
allow a victim to claim compensation directly against the shipowner’s club.
The shipowner had traditionally been primarily liable to the claimant, but was
indemnified by the insurer in respect of claims he had paid. Indemnification
based on this well-established principle, based on English common law, was
seen as a cornerstone for the whole mutual marine liability system. In the next
round, after the shipowner had paid up or satisfied the claimant in some other
way, the shipowner would turn to his club to be re-imbursed. In other words,
there was no “direct action.”
Most P&I clubs were domiciled in London, and it was the UK delegation that
spoke most warmly in favour of “pay to be paid.”
Mr. Kerry of the UK stressed the importance of avoiding direct
recourse to the insurer.
“That was not in order that the insurance company might avoid payment,
but because if the claimant were to go to the insurer directly, the insured
party would lose all interest in defending the case, the result of which would
be to make it more difficult for the insurer to defend himself against
frivolous claims. Insurance would thus become much more expensive and
the capacity of the market would tend to shrink.”
Should “direct action” be adopted in other insurance markets, insurance cost
would not only increase generally, but also make it more difficult to obtain, it
was argued.
Professor K. Spiliopoulos of Greece was one of many who could not accept
this view. In his defence for the new principle, he pointed out that “in view of
the fact that the Committee had accepted the principle of compulsory insurance, it must also accept direct recourse so that the victims could be adequately
protected.”
Mr. McGovern stressed once more that direct recourse was essential. The
main reason was that no funds otherwise might be available because of the
69
many “one ship companies” which had limited funds. He could not agree with
the view Mr. Kerry expressed that the insured party would take no interest
in the claim, because that party would still have an interest in the cost of his
insurance premiums, which was directly related to the claims he made.
The direct action principle was then approved. The victim’s right should
not depend upon the relations between the insurer and the insured.
Other insurance aspects were also discussed at length. The conference
decided that the insurer could invoke the liability limits and the same defences
as the shipowner was entitled to. The insurers should be exonerated if the
damage was caused intentionally by the shipowner and, finally, they were
entitled to limit their liability if the incident was a result of the owner’s actual
fault or privity.
The victim of pollution damage had to claim compensation within three
years of the date when the pollution damage occurred. His claim was otherwise extinguished. It was agreed that claims for pollution damage could not
be directed against servants of the owner or any of his agents. This means that
“even when at fault, the servants and agents were immune against compensation claims for pollution damage.” Such immunity was not provided for other
parties. Hence victims might pursue claims against such other parties – including charterers and cargo owners – outside the conventions under ordinary national law. Finally, the shipowner’s right to recourse against third-parties and
claim compensation under general law was expressly confirmed in Article III
in fine.
In summary, the liability deliberations may be said to have resulted in a
compromise – tanker owners would have to face a strict no-fault liability, combined with compulsory insurance, but were allowed to limit their liability at
fixed monetary levels. The USD 14 million ceiling obviously favoured the
largest tankers, as it meant that the liability increase – based on the tonnage
of the tanker – stopped at approximately 200,000 dwt. But a large number of
delegates realized that the compensation from shipowners now established
provided only insufficient compensation. These considerations would eventually lead to a supplementary agreement regarding contributions from the cargo
interests. But at this stage, the time for the conference was running out.
Aside from the key provisions on liability, the Convention needed a framework, meaning that certain key concepts had to be defined.
The target was oil tankers. Thus “ships” were defined as ships that actually
carried oil in bulk as cargo. In other words, only loaded tankers. This meant
70
that a tanker on its ballast voyage with no cargo onboard was not covered by the convention. Pollution
caused by leaking bunker tanks from a tanker in ballast
would be treated in the same way as bunker oil leaking
from a dry cargo ship and would not entitle victims to
compensation under the new rules. Warships and noncommercial ships on governmental service were also excluded.
The scope of the convention was further limited to
persistent mineral oil, including the bunker oil in a
loaded tanker (such as crude oil, heavy diesel oil, fuel
oil and lubricating oil). Non-persistent oil and light
products were excluded, as they were believed to evaporate or be eliminated by nature itself. But whale oil was
included in the definition further to a proposal from the
Japanese delegation. Rikiwo Shikama explained that
whale oil was also carried in bulk and had the same persistence and viscosity as heavy oil.
The definition of oil is inextricably linked with the
definition of pollution damage. Pollution of the
environment affects everybody. It is an event whereby
substances are introduced into the environment that
adversely affect the balance of nature or the well-being
of people in general.
The draft definition of pollution damage submitted to
the Conference was narrower. Its aim was to provide a
clear framework for compensation to be paid for the
damage caused by the escape or discharge of oil from
tankers. From recent experience, the delegates knew
that the spreading of chemicals to alleviate the effects
of an oil spill had caused considerable harm to life in
the sea. In the debate about an appropriate wording, the
German delegation argued that the party responsible for
the pollution damage should also be made responsible
for the loss of marine life caused by any preventive
measures. This was agreed, and the resulting definition
of pollution damage read as follows:
© Portrait
Per Gram
Per Gram was the Managing
Director of the Northern Shipowners Defence Club in Oslo.
He was an active participant in
CMI, Bimco’s Documentary
Council and Chairman of the
Documentary Committee of
INTERTANKO from its inception in 1974 until his death in
1984. He was ahead of his time
when he in this capacity initiated a close cooperation with
Chase Manhattan Bank to find
a solution to the problem of
missing bills of lading in ports;
a problem which exposed
shipowners to enormous financial risks. An electronic solution
was presented to the industry
but failed to obtain sufficient
support. Also noteworthy is his
work for Scandinavian tanker
owners to present a solution
that would enable governments
to realize the resolution passed
by the IMO Conference in
Brussels in 1969 to establish an
international Fund which could
top up tanker owners’ liability
for oil pollution damage.
71
“Loss or damage caused outside the ship carrying oil by contamination
resulting from the escape or discharge of oil from the ship wherever such
escape or discharge may occur, and includes the cost of preventive measures
and further loss or damage caused by preventive measures.”
By referring to “contamination,” the convention eliminated damage caused
by an explosion or fire related to an incident. Some delegations felt that this
limitation was most unfair. France had, for example, in a submission to IMCO,
stated that “It would be immoral … not to compensate victims in cases of explosion or fire causing loss of life and resulting from an escape or discharge of
oil.”
In her book “Pollution from the Carriage of Oil by Sea,” (p.48) Wu Chao
argued that the option clearly made pollution law look like an extravagance,
because bodily injury suffered by man would be treated less favourably than
damage to the environment. It is difficult to not agree. With the new limits,
CLC doubled the amount of compensation available under the 1957 convention on the shipowner’s general liability. This meant that the compensation
for damage by oil would exceed the compensation for a dead seaman resulting
from other shipping accidents. The fact that damage to the environment was
given such generous compensation compared with bodily injury has been
explained by the intervention of the media and the resulting public pressure.
Such considerations may, however, be rather rash, as catastrophic accidents
should not be swept away, even if damage to people generally may be given
priority.
CLC 69 would be applicable only when the territory (and the territorial sea)
of a contracting state is contaminated. Pollution damage on the high seas was
excluded despite the strong argumentation from Canada’s Mr. Max Wershof,
who claimed that there were places outside the territorial sea where damage
to fishing interests could be catastrophic. A clear majority agreed, however,
with Mr. Douay, who reported that a working group, which had dealt with
the problem, did not want to reopen this question, as damage occurring on
the high seas was, as a rule, “relatively small compared with damage to
national territory or in the territorial sea.”
The French spokesman was one of the leading and most engaged of those at
the Conference and had also been so in the preparatory discussions within
IMO’s Legal Committee. He spoke very fast but also very clearly. In the cor-
72
ridors of the conference hall, the discussion of possible compromises was the
ever-recurrent theme. In addition, the speech-making capabilities of Mr. Douay
were also frequently commented upon. Chatting over a cup of tea, a blond,
robust, but smart interpreter was asked how in the world she managed to
translate Mr. Douay so efficiently. It sometimes even seemed that she was
ahead of him, Captain Holt of the Norwegian delegation said to her. “Well,”
she replied, “you know I have heard him so many times in London, that I
have a pretty good feeling for what he is going to say!”
Notes:
The Official Records of the International Legal Conference on Marine Pollution Damage, 1969, printed
in London 1973, provide a comprehensive report (819 pages) on the participation, documentation and
deliberations by the IMCO Conference in Brussels from Nov. 10 to 29, 1969. See in particular the following pages in the Report: pp. 7, 8, 49-52, 60, 79, 84, 85, 100, 102, 185, 198, 199, 439-40, 537, 623,
624, 626, 632, 633, 635, 638, 639, 643, 647, 703-707, 713, 730-738, 748, 749 and 761. Ref French
comments p. 446.
The Records pp. 36-49 also contain the text of the IMCO questionnaire sent out to member states asking
them to report spills as well as the replies. See also the review of subsequent spills in “Tanker Spills Prevention by Design” issued by the National Research Council, Washington, D.C., 1991, pp. 16-19.
The dollar figures are the approximate equivalents of the CLC figures that were expressed in gold francs.
The International Group of P&I clubs includes 13 underwriting clubs that provide liability coverage
for about 90 percent of the world’s ocean-going fleet. Each club is a non-profit entity providing coverage
for shipowner and charterer members against third-party liability. The members, who represent all maritime transport, control the club’s activities through a committee elected by the membership. The insurance coverage provides protection against a wide range of risks such as pollution damage, injury to the
crew and passengers, cargo loss and damage. The clubs also provide advisory services.
IV. THE “CARGO” RESOLUTION
What about the suggested supplementary regime sponsored by the cargo owners?
The United Arab Republic had prepared a draft resolution presented by
Mr. A.A.K. Mohamed suggesting that “some form of supplementary scheme
in the nature of a supplementary Fund is necessary to ensure that adequate
compensation will be available to victims of large scale pollution incidents…
” but that the time available “did not make it possible to give full consideration
to such a scheme. … A draft Convention to be submitted to an International
Conference … to be convened, if possible, in 1973.”
Also, the Netherlands followed up the comments submitted to the conference where it, amongst other things, was stated:
73
“A solution placing liability on the cargo, if this could be worked out
satisfactory, would probably meet with less difficulties than one putting the
burden of strict liability on the carrier ... Whereas it is generally accepted in
the nuclear field that liability should attach not to the carrier but to the
operator of the nuclear installation who manufactured the obnoxious
material, it is equally appropriate that in the field of the oil industry, liability
should rest on producers, owners or receivers of potentially
obnoxious cargo.”
Because of the widespread sympathy for shifting the burden, or some of the
burden of compensation to the oil industry, hectic meeting activity outside the
conference rooms finally produced results.
In his capacity as a prominent figure both within CMI and the influential
UK delegation, Lord Devlin became the key person in the efforts to find a solution that the delegates could live with. Several suggestions were outlined to
him by Sweden’s Mr. Nordenson, who co-operated closely with Professor
Allan Philip of the Danish delegation, as well as the delegations from Finland
and Norway.
On the Nov. 24, a draft resolution was presented by Denmark, Finland,
Norway and Sweden proposing that an international oil pollution compensation fund, financed by the oil industry, should be established. After consultations, the draft was withdrawn and a new amended draft to the same effect
appeared the following day. Professor Allan Philip, who introduced its text,
explained that the sponsors had tried to combine their earlier draft with the
one from the United Arab Republic. The new draft was meant to be a compromise. The sponsors had voted for the introduction of strict liability on the
shipowner, as the UK suggested, despite the fact that several other countries
had disagreed. In an effort to obtain satisfaction for the victim of oil pollution
damage, the sponsors hoped that other delegations would now reciprocate by
voting for the draft resolution. Mr. Scheffer, head of the delegation of the
Netherlands, expressed his support for the precise text of the Scandinavian
resolution. So did a number of delegations, including the USSR, Germany,
Liberia, India and others.
The delegations of the US, France, the Federal Republic of Germany,
the UK and others then expressed that whilst they all preferred the compromise
proposal from the United Arab Republic, they could also support the
Scandinavian proposal. Lord Devlin went along and declared that: “On the
understanding that the delegates were free to put forward any ideas for a
solution and were at present committed to none, the UK delegation welcomed
74
the idea of entrusting the task to IMCO and hoped that its efforts would be
successful.”
The resolution was thereby agreed on. IMCO was requested “to convene not
later than the year 1971” and the International Legal Conference to consider
and adopt a compensation scheme to be organised by an international fund.
IMCO was charged with preparing a draft for a supplementary convention.
In its work, one should take into account as a foundation that victims should
be fully and adequately compensated under a system based upon strict liability.
The main function of the Fund should be to compensate victims who could
not obtain full compensation for pollution damage under CLC 1969.
However, there was also an extra provision to the effect that the Fund
“should in principle relieve the shipowner of the additional burden imposed
by the present convention.” The implementation of this last part of the
controversial resolution would prove to be strongly opposed by the international oil companies in the years ahead.
The Norwegian delegation to the 1969 Conference included representatives
of the national shipowners’ association. On their return, the Norwegian
Shipowners’ Association decided to set up a committee to prepare the ground
for a realization of the Fund Resolution. The new committee was chaired by
one of the delegates, Per Gram, who was an internationally recognized expert
on maritime law.
The committee, which after some time became known as the Fund Committee, worked closely with its government and fellow associations in the other
Scandinavian countries in order to present a viable scheme by 1971.
Note:
The author was a delegate to the ’69 Conference, and later undertook the job as secretary to the
committee mentioned.
V. THE INTERVENTION CONVENTION
Whilst the discussion in Brussels in November 1969 on pollution liability in
Committee II of the Conference proceeded, Committee I considered the draft
on the public law aspects. This draft was designed to permit Coastal States to
take steps to combat the pollution of their shores even beyond the limits of
their territorial seas.
Under international law, the right for the UK government to intervene
75
against a foreign tanker outside the three-mile territorial waters limit, including
bombing the wreck, had been questionable. In many quarters, it was felt that
the action taken by the UK government in March 1967 could be seen to have
been a radical departure from the traditional principle of freedom of the high
seas and could establish a dangerous precedent in international law. But with
the growing number of large tankers, it was unlikely that the Torrey Canyon
incident would be an isolated event. Soon there might be a need for a coastal
state to act against a foreign vessel to protect its shores against an imminent
threat of pollution. The catastrophe galvanised the desire for an agreement.
Prime Minister Wilson was at his cottage on the Scillies for his traditional
holiday that Easter morning when seas were rocky and Torrey Canyon
grounded. He later warned the owner that the tanker would not be allowed
entry in to UK territorial waters. Nor would other Channel States wish the
giant ships welcome. Wilson’s statement was widely interpreted as a strong
signal to the owners to give up the tanker to permit the Air Force and the Navy
to destroy her. After eight days, it became clear that the ship had broken its
back. The subsequent decision made two days later to bomb the wrecked
Liberian tanker was widely criticized. The shipping industry was concerned,
and the French government made no secret of its view, that the bombing added
to further pollution of the French coast.
At the 1969 Conference, a special committee, with George Maslov of Sovinflot, USSR as president, had been given the task of working out an international agreement embodying acceptable principles and ways for Coastal
States to prevent or mitigate oil pollution damage arising from a tanker in distress. In this forum, the delegation of the UK argued that its actions in March
1967 were justified because of the principle that every coastal state was entitled
to exercise the right of self-protection. A clear majority of the governments
present supported this view, but considered it necessary that the right should
be most carefully worded.
After nearly three weeks of discussion, participants reached agreement.
Governments should be allowed to take action to end serious pollution threats
to their coastline when the accident occurred outside their territorial waters.
Measures could be taken “on the high seas as may be necessary to prevent,
mitigate or eliminate grave and imminent danger to their coastline or related
interests from pollution or threat of pollution of the sea by oil, following upon
a maritime casualty or acts related to such casualty, which may reasonably be
expected to result in major harmful consequences.”
The scope of the new instrument named “International Convention
Relating to Intervention on the High Seas in cases of Oil Pollution Casualties
76
of 1969” was not confined to tankers, but applied to all seagoing commercial
vessels that represented “a grave and imminent” pollution threat. The
Convention entered into force in 1975.
Notes:
In 1973, IMO adopted a protocol for the Intervention Convention whereby the right to intervene was
extended to casualties involving substances other than oil when they are liable to create hazards to
human health, to harm marine life or to living resources in the sea. To assist coastal states, a list of the
relevant substances was worked out and agreed upon. The Protocol entered into force in 1993. In 1996,
the list was revised and entered into force the following year. See Z. Oya Ocayir: “Liability for Oil Pollution and Collisions” pp. 175-177.
77
COMPENSATION FOR OIL POLLUTION DAMAGE INTRODUCED FOR THE OIL COMPANIES
5
Compensation for oil
pollution damage
introduced for
the oil companies
I. THE 1971 CONVENTION
IMCO’s Sir Colin Goad, who had become Secretary General in 1968, left
Brussels with the challenge to work out a scheme that would provide an oil
industry-financed fund that would secure extra compensation for pollution
damage. The Resolution required that the preparatory work had to be
finalized within two years.
Since 1969, representatives of the industry had presented their private compensation schemes to IMCO that would, it was argued, serve as intermediate
solutions until the governmental instruments could be implemented. The P&I
clubs had been involved in the preparations. A most important participant
was the recently established Oil Companies International Forum (OCIMF).
The ICS thereby soon came between a rock and a hard place as independent
tanker owners had responded by setting up INTERTANKO.
Independent tanker owners with large fleets had one by one been subject
to effective lobbying by the major oil companies. They were persuaded to
support a scheme called Tanker Owners Voluntary Agreement concerning
Liability for Oil Pollution (TOVALOP), to be administered by the International Tanker Owners Pollution Federation, Ltd. in London. The scheme
was signed in March 1969 by the seven major oil companies (“the seven
sisters”) and was meant to provide compensation to governments for clean-
78
up costs and damages tankers caused. The liability was based on fault in line
with traditional maritime law.
Shipowners recognised that the governmental procedures to ratify international instruments were slow. Such delays might result in worldwide
frustration and lead some governments with long coastlines to work out their
own legislation. The consequence of this scenario would be most uncertain.
Hopefully the private schemes would prevent unilateral action.
The shipowners’ liability under TOVALOP was originally limited to the
lesser of USD 100 per gross ton or USD 10 million per incident. The resourceful oil industry was moreover in a position to present a new supplementary
scheme, Contract Regarding an Interim Supplement to Tanker Liability for
Oil Pollution (CRISTAL).
The signatory oil companies that represented most of the oil transported
by sea agreed to provide supplementary compensation. The oil scheme intervened, however, only in very few cases, and the compensation paid never
exceeded USD 30 million per incident, i.e., the difference between the aggregate amount of compensation available from TOVALOP and all other sources.
One of the many conditions for rendering compensation was that the tanker
that caused the spill was a member of TOVALOP and that it carried a cargo
a CRISTAL member owned.
According to one oil industry official, the intention was: “to defer governments from legislating unilaterally in the first place, but, if this could not be
done, then at least to try to persuade them by example to legislate sensibly.”
Notes:
Many documents used as sources for this book use only first initials for people’s names. Thus, first
initials were used here when the full first names were not available.
The International Chamber of Shipping (ICS) is based in London and is the association of national
shipowner associations around the world. It represents the interests of all forms of shipping: Dry bulk
carriers, tankers regardless of whether the owner is an oil company or independent, passenger ships,
container ships and liner ships. A major focus of ICS is IMO’s work to promote safety and protect the
marine environment. It has had consultative status in IMO since this organisation was set up in 1958.
The “seven sisters” was the popular name for the major oil companies at the time. These giant corporations included Exxon (or Esso), Shell, BP, Gulf, Texaco, Mobil and Chevron (Socal). See Anthony
Sampson: “The Seven Sisters,” 1975.
Wu Chao, pp. 115-128, sets out an historical introduction to CRISTAL.
See the oil industry representative’s comments on TOVALOP/CRISTAL in the US General Accounting
Office’s “GAO/ID-83-19,” Feb. 3, 1983, pp. 7 and 9.
79
II. NEW INCIDENTS
Whilst the preparations for the next IMCO conference went on, the mass production of super tankers continued, and new oil spills caught the attention of
the media.
In 1970, the tanker Antonio Lavalleja grounded and spilt 38,000 tons of
crude in Algerian waters, whilst the Norwegian five-year-old tanker Polycommander burst into flames, spilling 16,000 tons of oil in Spanish waters
and killing 23 crewmembers. After a collision the same year between two other
crude carriers - Allegro and Pacific Glory in the British Channel - the cleanup operation was undertaken at low cost and claimed to be perfect.
But the liability limitations of CLC69 were exceeded when a third tanker, the
Arrow, stranded in a cold-water environment off Nova Scotia. The belated attempts were not more effective than in the Torrey Canyon case.
The most serious incident happened, however, in February 1971 when the
Liberian tanker Wafra grounded and spilt 62,000 tons of crude due to engine
room failure off Cape Algulhas, the southernmost point of Africa. A single
tank in a super tanker had a larger cargo-carrying capacity than an old-fashioned T-2 tanker could hold all together. Moreover, because of economic considerations, the super tankers were built with a thinner and less robust steel
skin than in the past. Wafra was owned by an American oil company affiliated
with Getty Oil and caused the largest spill since Torrey Canyon. The crew
piled mattresses, planks, etc., into the cracks in the hull in a desperate effort
to stop the leaks, but in vain. The water rose and destroyed the tanker’s
propulsion power. The area where the accident occurred was one of the principal breeding grounds for birds and penguin species of the Antarctic. Volunteer workers from Cape Town saved 1,000 penguins cleaning the sea birds of
the oil that clogged their feathers.
The public as well as the industry had then already been rocked by mysterious
explosions on board three new VLCCs all within a period of 18 days.
Marpessa, the largest vessel ever lost – owned by Shell, London – exploded
and sank off Senegal on her maiden voyage. Two men were killed. Two more
lives were lost when a second Shell tanker, Mactra, exploded in the Mozambique Channel. Finally, the Norwegian super tanker, Kong Haakon VII, owned
by Hilmar Reksten, met her destiny after an explosion off Monrovia on
Africa’s west coast, but with no loss of life. These two disabled tankers blackened by fire nevertheless managed to reach port having suffered less critical
weakening of their structures than the Marpessa.
80
The tankers in question were all returning to the loading area in ballast
condition, and the explosions seemed to have occurred whilst their tanks had
been cleaned by mechanical rotating water guns. Whole deck areas of the
tankers, 400 metres long, were ripped off by the explosions as though attacked
by a giant can opener. Questions were asked about whether the explosions
were connected with discharge of static electricity caused by the cleaning procedures.
Within the industry, every effort was made to find the reasons for the
disasters, and IMCO was presented with new problems to be studied in its
technical bodies. Eventually the discussions resulted in requirements for the
installation of inert gas systems in the tanks for tankers over a certain size.
Explosion in large tankers
A personal experience by Sven Moestue:
“In the summer 1969, the Norwegian tanker Silja, 95.000 dwt, collided outside Genova, Italy, with the French liner vessel Ville de Majunga. The collision
caused a series of explosions onboard the Norwegian tanker; she sunk six minutes afterwards with the loss of most of her crew.
I wondered what caused this. Did it mean that all large tankers were dangerous? I had several clients with similar and even larger tankers.
As claims a representative in Norway for the UK Club, I became involved
in the settlement for loss of lives. Ville de Majunga was entered in the UK Club
and Silja in Gard. The French vessel did have the right of way, but was held
partly to blame for having failed to blow a warning signal, as required by the
navigation code. According to an international agreement, each vessel had to
pay 50 percent of the loss of lives, regardless of the degree of blame. A settlement was agreed amicably.
I started to study the possible cause of these dramatic explosions. My brother,
an oil engineer with the Esso (Exxon) refinery in Norway, gave me some valuable information: He explained that there must have been an explosive atmosphere in the tanks after discharge in Genova. To create such an atmosphere
you need only four percent to six percent oil or gas. The rest is air. Empty
tanks are especially dangerous with larger tankers, as the larger content of air
makes them prone to having an explosive atmosphere.
81
I learned about the fire triangle: To create a fire or explosion (rapid fire),
you need three elements:
1) oil
2) air
3) ignition source
Loss prevention onboard tankers had focused on eliminating the ignition
sources, but what if a collision caused the ignition?
Did this mean that large tankers could not collide with empty tanks? Obviously. This was clearly demonstrated by the Silja accident.
How could we eliminate this risk? We cannot take the remaining oil away
from the tanks, so the answer must be to take away the air. It turned out that
the industry had already found a system for blowing air out of the tanks and
replacing it with inert gas – nitrogen – from the exhaust boilers or from separate inert gas boilers. BP used this system on all their tankers.
This was the obvious answer to eliminate the risk.
I proceeded to warn all my clients with large tankers, explained my findings
and urged them to put in the inert gas system. The response was good everywhere except with my biggest client: Hilmar Reksten.
The ownership had recently changed Hilmar’s technical director. The outgoing director had ordered the inert gas system for all the ships, but the new
director had cancelled the order. My message was most unwelcome. We were
on collision course, and I had to tread very carefully. He decided to eliminate
the collision risk by filling the wing tanks with ballast water.
Early in December 1969, Shell’s Marpessa, 235,000 dwt, exploded and sank.
The vessel was doing tank washing at the time. High-speed water hoses were
used to clean the tanks for remaining oil. It was a common procedure at the
time.
I got in touch with my brother again: Could the tank washing create an
ignition? Yes, the oil industry had a long experience with static electricity.
Sudden explosions had occurred when oil was pumped too rapidly through
the line. Bombarding the remaining oil with high-speed water could very likely
be the cause of the explosion.
My principal client, Hilmar Reksten, called. He was quite upset by the loss of
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Marpessa. He had several similar ships. What was happening? I had to give
him the story.
Had I written a letter on the subject?
No, I explained that the matter was a bit delicate in-house. He ordered me
to write a letter explaining everything I knew about this matter, which I did.
Ten days later, his own Kong Haakon VII and Shell’s Mactra exploded on the
same day, both doing tank washing at the time.
Kong Haakon VII was saved because the first explosion came in the centre
tank and spread to the wing tanks when the ballast water had been emptied.
Thus she was not cut in two pieces, but the damage was extensive.
I was called in together with the shipbuilder to discuss the matter and the
repairs. The shipbuilder told me that the owners of Silja, having two large
tankers on order, had turned down the inert gas system. After hearing my story,
he said he would order the inert gas system for all the new buildings at his
yard.
The international press was alerted, and Shell called a meeting at the Shell
Theatre in London. Hilmar Reksten asked me to attend together with its technical staff. Prior to the meeting in Shell Theatre, we had meetings, first with
BP alone, and then jointly with Shell and BP.
During the first meeting, there was total agreement about the cause of the
accident and the remedy to eliminate the risk. During the Shell meeting, it was
different. Shell said that they had developed a blowing air system to avoid
having an explosive atmosphere. The explosions on Marpessa and Mactra
were caused by the crew not following their instructions. I said this theory
could not be right and urged them to convert to the inert gas system. This was
a question of pride and money. They had 20 ships that needed the system installed. They elected to stick by their blowing system. BP said nothing. After
the meeting, I asked BP why they had not supported me. They replied like
well-behaved civil servants: “Shell has lost two of their ships. We did not want
to put salt into their wounds.”
The meeting in Shell Theatre was a big to-do, where Shell explained to the
world press that they had done nothing wrong. Their blowing system was
good if operated properly by the crew. They would now give more specific
instructions to avoid similar accidents.
Quite a number of tanker owners understood that the inert gas system was
83
the right answer and acted accordingly. One leading underwriter in London
gave a premium rebate for tankers with the inert gas system. He was highly
criticized by his colleagues. The feeling was that this was a matter for owners
and classification societies.
The matter was discussed in the International Chamber of Shipping with
an opinion of making the system mandatory. Shell refused to agree, and the
mandatory requirement was delayed for 10 years, up to 1980.
My relations with the Hilmar Reksten ownership soured after the Kong
Haakon VII accident, and two years later I lost contact with them. (For me
this was an element of luck. I developed other business, whilst the ownership
went bust after the oil crisis in 1973.)
Several years later, the Norwegian owner Sigval Bergesen d.y. lost contact with
the 230,000 dwt ore/oil carrier Berge Istra. Two survivors were picked up
from a raft weeks later. They reported that the vessel had exploded. Laden
with iron ore, she went straight down. The two survived because they were
painting on deck near to the life raft. The vessel had the inert gas system
installed, but this had been turned off as they were doing some welding on
pipes in a so-called “gas free” wing tank.
Some years later, Sigval Bergesen d.y. lost contact with the sister ship Berge
Vanga, also carrying iron ore at the time. Here there were no survivors. We
can only assume that the story is the same, because the vessel went down so
quickly that no signal was given. When London underwriters heard that they
had been doing welding onboard, one of them refused to pay for this second
casualty, but he gave in later.
I think it was a mistake for shipowners, engineers and classification societies
to treat this as a steel matter. Had they consulted with the oil industry, they
would have been given a quicker answer to the problem. It is indicative that
the Silja owners did not want the system on their new buildings, also that the
Berge Istra crew turned off the system that could have saved their lives.
Obviously, the value of the system was not well understood until years later.
We have had no ugly tanker explosions since 1990, but the airline industry
had one some years ago, when TWA 800 went down. After nine months of
research the conclusion was that faulty wiring in an empty fuel tank caused
the explosion. Here we go again, searching for the ignition source. It is no
surprise that the wiring on an older aircraft might be faulty; but the empty
fuel tank was the real cause of the accident.
84
Notes:
“Arrow” was owned by Aristotle Onassis and had – according to Noel Mostert’s “Supership,” New
York, 1974, p. 59, been operating “with almost none of its navigation equipment serviceable.” See also
Mr. Mostert’s comments on “Wafra,” pp. 164 and 165. On “Marpessa,” “Mactra” and “Kong
Haakon,” see “Anchor and Balance - The Norwegian Veritas, 1864-1989,” pp. 265-268, S. Howarth:
“Sea Shell,” pp. 153-158 and Audun Reksten: “Slik var det,” Oslo, 1983, pp. 88-89.
Sven Moestue is a lawyer by education and was a leading insurance broker and adviser to several major
tanker owners, including Mr. Reksten. Later he also served as an insurance expert for owners of kingsize passenger vessels such as the Royal Caribbean Cruise Lines.
III. BRUSSELS ONCE MORE, BUT WHY RELIEVE
THE SHIPOWNERS?
Within IMCO, top priority was given to the establishment of an oil pollution
compensation fund. When delegations in late November 1971 returned to the
meeting rooms in Palais des Congres in Brussels, the majority of the delegates
were still of the legal profession with an agenda confined to seek compensation
for oil pollution damage.
The conference was scheduled to last from Nov. 29 to Dec. 18. Forty-nine
states were represented. A great number of the delegates had been present in
Brussels in 1969. In addition, “new” countries such as Iran, Kenya, the Philippines and Thailand were present as observers.
Imagination was needed to reconcile the legitimate interests of the oil companies and to protect the interests of shipowners at the same time. The main
target was, however, to provide effective protection for the society at large,
taking into account the point of view of the insurance companies whose cooperation would be essential.
Sir Colin Goad paid special tribute in his introduction to OCIMF and CMI
for their assistance with the preparations of the draft articles. A draft for a
Fund convention erecting an international fund financed by oil importers and
organized by governments was on the conference table, drawn up by the
IMCO’s Legal Committee.
According to the compromise from 1969, the Fund would fulfil two conditions: It would improve the position of the victims of oil pollution damage
through better compensation and secondly provide relief to the shipowner by
bringing the cargo interest into play as a provider of additional compensation.
It was clear from the start that delegations faced two major difficulties:
The oil industry had made representation to a number of governments which
now were convinced that they should not support the principle that shipowners would be relieved. Secondly, a number of delegations had ambitions to
85
introduce “improvements” which went beyond the compensation issue.
In his opening remarks, the elected chairman of the Committee on the Whole,
Dr. Walter Muller of Switzerland, expressed his gratitude to Mr. Nordenson,
who in 1970 had prepared the first draft that had served as a basis for all subsequent deliberations.
Already during the first debate, it became clear that one faced a new situation. Whereas the proposal to establish a compensation fund was generally
approved of, the “relief function” was met with strong criticism. Netherlands’
Mr. Rijn van Alkemade explained that his Government previously had been
in favour of cargo liability, but now had doubts about “the need to shift the
lines between the ship’s part and that of the cargo.” If it was found possible
to dispense “relief,” his delegation would support such simplification.
Mr. G.R.W. Brigstocke of the UK looked forward to the establishment of
a Fund, but he saw no reason for the oil industry to take over the burden
already imposed on the shipowners.
The American representative Mr. A.L. Doud shared the view of the Netherlands and the UK and others who saw no reason to give shipowners “relief.”
Mr. Doud praised CLC69 as a first constructive step and said that his government “was anxious that it should come into force.” However, there were five
basic shortcomings in the convention: The geographical coverage was too restricted because a victim of pollution damage deserved compensation wherever
the damage occurred. The shipowner had too many defences – “to the greatest
extent possible, these defences should be eliminated from the Fund.” Victims
would be indemnified whether they could identify the polluting tanker or not.
The amounts of compensation were too low and finally, the convention “failed
to offer sufficient inducement for the adoption of measures for the prevention
of oil pollution.”
Lars O. Broch of Norway, Ms. B. Blom of Sweden, Professor K. Spilioplous
of Greece and Mr. B.H. White of Liberia all spoke in favour of implementing
of the Resolution of 1969, including the provision on “relief.” Norway
attached great importance to this function, chiefly as a prerequisite not only
for the widest possible acceptance of CLC69 but also for the supplementary
convention to be concluded. The economic burden would, Mr. Broch pointed
out, ultimately be passed on to the consumer. As a response to Mr. Doud, he
added that shipowners would be encouraged to comply with minimum safety
standards and be granted “relief” only in such cases when this condition was
met.
86
Also other delegations including Denmark, Japan, France, Finland and the
USSR stressed the need to comply with the compromise agreement achieved
in 1969.
Canada was now rather vague; the previous frank position calling for cargo
owner liability had obviously evaporated, as its representative, J.C. Langley,
said diplomatically that it had been apparent to his delegation that the most
equitable distribution of costs should be found.
Mr. McGovern of Ireland recalled that CLC69 would not have been
concluded if it had not been for the clear understanding that the Fund would
alleviate shipowners of the additional burden imposed upon them in 1969.
But there should be no relief for the negligent shipowner. His government
believed that the implementation of the ’69 Resolution would materially
increase the number of contracting states that would accept both conventions.
The fact that the Resolution clearly stated that the Fund envisioned would in
principle relieve the shipowners of the additional financial burden imposed
upon them by the CLC69, and that this terminology meant the full burden
did not even come to light in the meeting room.
In 1992, 21 years after the Conference, Måns Jacobsson – the then-future
Director of the Fund – explained why. The “relief” “was part of a
political compromise at the 1969 Conference as a quid pro quo for ship owning nations accepting strict liability, higher liability limits and compulsory
insurance. As is often the case in this world, promises are not upheld, and in
particular not political promises. This was also the case here.”
Mr. Nordenson, who was one of the architects behind the Resolution as well
as the driving force behind the draft on the table, had in good time before the
meeting learned that – further to the oil company lobby - any efforts to obtain
full relief would be in vain and perhaps result in no agreement at all.
Notes:
The Official Records of the Conference on the Establishment of an International Compensation Fund
For Oil Pollution Damage 1971, printed in London 1978, provides a comprehensive report (742 pages)
on the participation, documentation and deliberations by the IMCO Conference in Brussels from Nov.
29 to Dec. 18, 1971. See in particular the following pages in the Report: pp. 61, 191, 249, 250, 260263, 273, 284, 309-314, 320-327, 330, 332, 333, 340, 356, 361-374, 390-392, 395, 404-409, 432449, 451, 453, 456, 462, 479-489, 493-498, 501, 621, 661-663, 675, 687 and 688.
M. Jacobsson’s presentation on the Conference is found on pp. 39-55 in a CMI publication “Liability
for Damage to the Marine Environment,” issued by Lloyd’s of London Press Ltd., 1993, edited by Colin
M. de la Rue.
87
IV. TECHNICAL CO-OPERATION?
The question of other future tasks was brought up on the first day of general
debate. The most interesting proposal came perhaps from Mr. Y.K. Quartey
of Ghana, who said that his government was eager that the Fund could take
on a more active role. In case of a serious pollution incident, it would be able
to come to the aid of coastal states, especially in developing countries. Rescue
squads could be organized and be ready to assist any country threatened by
serious pollution damage. He illustrated his intervention by referring to a
tanker containing 600 tons of oil that had just stranded near the coast of
Ghana. The tanker was presently in danger of breaking up, but his country
had neither the men nor the equipment to deal with the situation.
Ghana’s proposal – as discussions proceeded – received strong support from
representatives of the developing countries and the US’ representative. The US’
representative reminded the Conference that his delegation had repeatedly
stressed that they considered the Fund was intended to supplement CLC69
and provide means for the protection of the environment. Also the delegations
of Australia, Canada and the USSR argued that the Fund would not serve a
useful purpose if its role were restricted to intervention only after the damage
was done. Very often damage would be irreparable in nature, and in such cases
compensation in terms of money alone would be inadequate.
Mr. P.A. Medcraft of OCIMF voiced a strong protest against the proposal
to introduce extra burdens on the Fund. He pointed out that to keep such
equipment on stand-by at various stations around the world would incur enormous costs for the Fund. He respectfully suggested that the oil companies located where the pollution occurred could better deal with the type of pollution
that concerned Ghana.
The delegation of the UK strongly backed up the view of the oil companies, saying he could not imagine that the Fund would have at its disposal the
expertise and equipment required to carry out an operational role as Ghana
imagined. But the proposal deserved further study, he said.
On Dec. 10, the Chairman, Mr. Muller, invited the Committee to vote on
the Ghanaian proposal. A roll-call vote was taken and resulted in 34 votes in
favour, none against but with abstentions from Belgium, Italy, Japan and the
UK.
Despite its scepticism, the UK volunteered together with the Netherlands
to work out a draft that would include the proposed principle. With some
amendments suggested by the Nordic countries, the draft was accepted.
88
Twenty years later, IMCO adopted the International Convention on Oil
Pollution Preparedness, Response and Cooperation (OPRC) 1990. The OPRC
may well be seen in the light of Ghana’s initiative, but was one of several
measures adopted as a response to the Exxon Valdez oil spill in 1989.
V. THE FEE SYSTEM
The oil industry financing of the new international compensation fund caused
lengthy discussions. In what way should the payments be arranged, and who
should be directly responsible for the funding?
The Legal Committee had suggested that oil importers in each contracting
state should pay the operation of the Fund. The Spanish delegation had at the
very outset argued that such a system would destroy the balance and impair
the equity of the convention. If the financial burden of contributions were
placed only on the countries importing oil, the oil-exporting countries would
not contribute, but would still enjoy all the benefits. Yet these countries were
subject to great risks of incidents at their own shores, and it would be logical
that they should contribute, as well.
Neither was the representative of India, Mr. R. Doraiswamy, happy. He
proposed instead that one should take into account not only the quantity of
oil imported, but also the distance the oil was carried. This would be fair and
logical because the risk of pollution increased with the distance over which
the oil was carried. His proposal was therefore to base the calculations on
ton/miles instead of tons only. Spain and Indonesia supported him.
Other delegates agreed with the representative of OCIMF, who pointed out
that the proposal of the Legal Committee represented the best practical solution, as import figures were ready available in the form of Customs statistics
and would not involve governments in any additional work. The ton/mile concept would, on the other hand, complicate the system enormously. Also the
adviser on insurance matters to the Norwegian delegation, Mr. Poulsson,
supported this view by informing that in the experience of the P&I clubs,
practically all cases of pollution incidents recorded had occurred near port
entries or near terminals. Distance had therefore nothing to do with the
number or size of pollution incidents.
After an exchange of view, the Indian delegate withdrew his proposal.
The Egyptian representative, Mr. E.E. Issa, was, however, still in doubt about
the “quality” of the proposed contribution system. He was in particular
89
concerned about the ambiguity of the term “terminal installations.” Some of
the oil transported from the Persian Gulf in tankers was in his country discharged in the Port of Suez, for transhipment by pipeline to Alexandria. Then
the oil was subsequently re-loaded in other tankers and transferred by sea to
ports in Europe. If this oil should be considered “contributing oil” in Egypt,
the situation would be illogical and irrational because the same oil would probably be subject to taxation also at the European destination.
The Chairman replied that since no such amendment had been submitted
in writing by Egypt, the rules of procedure did not permit a vote.
At the end of the Conference, Mr. Issa once again raised the matter, introducing a paper with a proposed amendment submitted in cooperation with
Iraq, Libya and Syria. Contributions ought to be paid only at the final terminal
of destination. Reference was made to the generally accepted principle that
taxes should not be levied twice on the same goods, and to introduce any such
provision would be in flagrant contradiction with the principles of equity and
equality.
The US pointed out that the matter had been discussed fully in the Legal
Committee. Moreover, the risk of pollution was connected with every entry
and exit from ports. Thus, there was some merit in requiring a double contribution. In any case, the contribution would be at a minimal rate; something
in the order of at most one-tenth of a cent per ton. The Plenary finally rejected
the Egyptian proposal by a very narrow margin.
Then, with 32 votes to none (five abstentions) it was decided that the Fund
should be financed by a levy on the oil received by importers in a port or
terminal of contracting states, provided the quantity was 150,000 metric tons
or more per calendar year. Oil importers, not the governments, were made responsible for the payments, unless they explicitly had assumed this responsibility. Their normal role was to take appropriate measures under domestic
law, to ensure that the contributions were paid.
VI. INTERPRETATION
Uniform interpretation of the definitions in respect to CLC69 and the new
Fund Convention was required if the two instruments should work successfully
together. Whereas this principle was generally agreed on, its implementation
raised several questions. Already during the discussions in the Legal Committee, there had been suggestions to go beyond the scope of CLC69.
The discussion about the definition of oil gave rise to a considerable debate
90
that illustrates the problem. In general, it was felt that the notion “persistent”
referred to oils which represented a danger to the environment either because
a proportion will remain in nature after evaporation has ceased, or because
of the time it takes for such oils to dissipate naturally. In CLC69, “oil” was
defined as any “persistent oil such as crude oil, fuel oil, heavy diesel oil, and
lubricating oil.” The only non-hydrocarbon oil included was “whale oil.”
Release of lighter fractions of petroleum products were, in the opinion of the
Canadian delegation, equally damaging in given circumstances, although less
apparent than those emanating from the black oils. Thus it was felt necessary
to fill the gap in CLC69. This proposal was, however, met with protests from
a number of delegates who stressed the need for consistency between the two
legal instruments and in the end, Canada withdrew the proposal to include
petroleum products.
For practical reasons, it was decided to exclude petroleum products and
other hazardous substances and leave any appropriate compensation questions
in this respect to be dealt with by IMCO at a later stage and in a special convention.
Despite that delegates apparently were on guard against any deviation from
the established definitions in CLC69, two variations were nevertheless agreed
on after some debate. Both proposals were initiated by the delegation of the
UK. Mr. Brigstocke stressed that the oil that the Fund should deal with was
clearly persistent “mineral hydrocarbon oil.” The oil companies were not in
the whale oil business and could not be expected to pay for damage whale oil
caused. If such oil should be included, then the whale oil industry would also
have to contribute. But to bring in this industry as a contributor to the new
Fund would in his opinion, as well as in the opinion of Mr. Claude Douay,
serve no practical purpose and would only complicate its machinery. In
support of this view, the USSR pointed out that the amount of whale oil carried
at sea was very small; in the region of some 100,000 tons out of a total of one
billion tons. As whale oil was carried in very small shipments, it therefore was
unlikely to cause damage in excess of the limits in CLC.
However, Mr. M. Date of Japan, backed up by Ghana and Portugal,
protested against the deletion of whale oil on the grounds that this would be
unfair for possible victims of such pollution. Moreover, the definition in the
two legal instruments should be consistent. His efforts were in vain. A clear
majority decided to exclude whale oil.
As a consequence of the majority view, the UK delegation then suggested
that it should be spelt out quite clearly that the term oil should be confined to
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persistent hydrocarbon mineral oil. The proposal was meant solely to eliminate
any ambiguity in the definition and was adopted with an overwhelming
majority.
The nature of pollution damage turned out to be one of the most difficult
challenges to cope with – not only in 1971, but also for many years to come.
Mr. Langley of Canada introduced a proposal to make it quite clear that a
state that undertook preventive measures on the high seas in order to avoid
pollution damage to its territory should recover its expenses from the Fund.
Furthermore, “all direct and indirect costs incurred” should be accepted as
recoverable expenses. For example, the cost of using men and materials already
employed on government service in connection with a particular incident
should be compensated even if some of the expenditure would have been sustained in any case.
Mr. Nordenson, who had been elected as Rapporteur, reminded delegates
that it was agreed in 1969 that pollution damage on the high seas remained
outside the scope the convention agreed on. But the report of a working party
that had dealt with the issue at that time included a reservation that the cost
of the protective measures outside territorial waters undertaken to protect the
coast of a contracting state should be recoverable.
The general feeling of many delegations was that the effect of pollution on the
high seas normally was less important and should not require the involvement
of the new Fund. Nevertheless, Mr. Nordenson’s reference to a reservation
in a nearly three-year-old report was not found to be quite satisfactory.
Mr. R. von Keeler of the Federal Republic of Germany agreed with Canada
that a clarification was required.
Mr. Doraiswamy of India suggested that because the proposal was related
to the question of the territorial scope, a decision should be postponed until
Article 3 on the geographical scope came up for discussion.
Mr. L.N. Etherton explained that outside Australian territorial waters, the
Great Barrier Reef was a most sensitive area, and it was under constant threat
from oil spills from tankers. He introduced an amendment to ensure that
expenses incurred in dealing with such pollution damage should be covered,
even if the measures were taken outside the territorial sea.
The principle was advocated by the American and French delegations, as
well. They stressed that the objective of the Fund was to rectify the inadequacies of CLC69, one of which was indeed its limited geographical scope.
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Mr. Kerry of the UK repeated the points made previously by his delegation
as well as by Mr. Nordenson, and stated once more that claims for the cost of
preventive measures in respect to incidents on the high seas could be entertained under the CLC69 as already agreed. Moreover, it would be a mistake
to be seen to give the Fund Convention wider application than CLC69. His
concern was that it would run the risk of being flooded with claims for trifling
sums, which would render administration unnecessarily difficult.
The discussion continued outside the meeting room. After initiatives from
Canada and Australia, a renewed debate started at the morning session of
Dec. 13.
At the end of the session, the Chairman felt compelled to invite the Committee
to vote on the inclusion of the “Canadian principle.”
The outcome of the vote was a surprise. It was decided by 18 votes in
favour to 15 against (six abstentions) to include the “Canadian principle” in
an article in the Convention. Nevertheless, the Norwegian and Dutch delegations continued their opposition and claimed that the voting had been quite
“confused,” as Canada had been willing to accept that the mentioned principle
could be included in only the Preamble instead of the text of the new instrument. By 29 votes to two, the previous decision was then cancelled. The
principle would be included in the Preamble, which thereby stated that the
agreed instrument would provide “a regime for compensation for pollution
damage in Contracting States and for the cost of measures, wherever taken,
to prevent or minimize such damage.”
By including the words “wherever taken,” it was felt that any ambiguity was
removed. That may be so, but what the delegates really did was to add an
explanatory note how the other Convention, CLC69, should be understood.
VII. ROLE OF THE FUND: SUBSTITUTION AND
SUPPLEMENTATION
When no liability arose under CLC69, victims of pollution damage were not
left empty-handed. The Fund had to fill the gap, substitute the shipowner and
pay compensation. The Fund had to also compensate pollution victims if
they were not fully indemnified under CLC69. It had a role to play either
if the shipowner was not liable, or if neither he nor his insurer were able to
meet their obligations. Thus, two clear roles of the Fund were established:
Substitution and supplementation.
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The need for substitution became visible when a shipowner was exonerated,
because he could prove that the damage was wholly caused by an act of war,
hostilities, civil war, insurrection or a natural phenomenon of an exceptional,
inevitable and irresistible character, or the damage was wholly caused with intent by a third party or by a wrongful act of a governmental authority to maintain navigational aids (CLC69 Article III 2).
Moreover when pollution occurs at sea, the culprit may be an unidentified
ship and despite further investigation, it may still be difficult to establish the
identity of the ship that has caused the damage. The oil may well have some
other origin. It could e.g. be caused by the bunker fuel from a dry cargo ship,
or emanate from some offshore oil drilling installation or from a land-based
source.
In its draft, the Legal Committee had proposed that knowledge of the
source of the polluting oil was the first requirement for compensation. Thus
the Fund would be exonerated if “the identity of the ship that has caused the
damage has not been established.”
The consequence of this suggestion seemed to be that when two tankers
were involved in a collision, the claimant would – in order to obtain compensation from the Fund – have to prove exactly which of the two tankers polluted
his property.
Mr. Brigstocke saw no need for changing the draft and explained that it
was highly improbable that the identity of a tanker causing a large oil spill
would not be known. Possibly there could be many small spills from unidentified ships, but if the damage in such cases should be paid for by the Fund,
the result would be a very heavy administrative burden. He also argued that
to include unidentified spills would mean that there would be no incentive for
coastal states to ascertain the origin of spills.
The observer of OCIMF complained that it would be unfair to the oil companies if they also should pay for unidentified spills. This would mean that the
companies would be asked to pay while the shipowners went scot-free.
Mr. White, Liberia, agreed that involvement of the Fund in such cases could
lead to lengthy recovery procedures against the interest of the victim. The Fund
should, in his opinion, primarily compensate for serious disasters like the
Torrey Canyon and not for any kind of spill at sea.
The US did not agree. Mr. Massey wanted to see the Fund play a role. It
would, in other words, substitute the missing shipowner. There were a number
of gaps in CLC69, which it was important to fill as quickly as possible if a
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fair system would be established. The objective of the work undertaken was
not merely to prepare an instrument that would enable CLC69 to enter into
force. It seemed inequitable to deny relief to victims merely because the identity
of the ship was unknown. If it was proved that the pollution was a result of
oil escaping from a ship “carrying oil in bulk as cargo,” the victim should not
surmount the additional burden of proving what particular tanker was to
blame, particularly if more ships had been in the area at the critical time.
His point of view had the strong support of Australia. Mr. W.B. Nicholson
said that when it had not been possible to impose liability on the shipowner
to cover the damage an unidentified ship caused, the Fund should certainly
provide such coverage.
Mr. Broch of Norway, supported by Scandinavian delegations, feared that
courts dealing with damage claims would face serious difficulties in deciding
the validity of a claim where the offending ship was not identified.
On the other hand, it would be unreasonable that the victim was left uncompensated in particular when the damage amounted to a substantial sum.
Thus, Professor Philip introduced a compromise proposal on behalf of the
Scandinavians to the effect that the Fund would come in operation only if the
damage exceeded – for example 15 million Francs (approximately USD 2.9
million) – or such a significant amount which delegations would find
appropriate.
The temperature in the meeting room increased when Mr. Douay repeatedly made it clear that he wholeheartedly disagreed with the suggested compromise. He felt very strongly that by asking the Fund to cover damages from
an unknown source, one would thereby make it a relief institution to be
brought into play in a multitude of minor incidents. If the Conference wished
the Fund to meet all requests for compensation for damage by persons unknown “which was another way of saying that no action would be taken
against such ships and that any attempt at prevention was being abandoned,
then it might just as well tear up the 1969 Convention right away.” Later he
added that if such a proposal were accepted “his government would be obliged
to reconsider its position with regard to ratifying the 1969 Convention.”
It was finally agreed that the Fund would incur no obligation if: “The claimant
cannot prove that the damage resulted from an incident involving one or more
ships.”
This meant that if the damage was caused by one of several tankers in the
area where the spill occurred, the victim was not obliged to identify which
tanker caused the pollution damage. To obtain compensation it would be
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sufficient to prove that one of the tankers involved must have caused the pollution damage.
The Legal Committee had suggested by a narrow majority that it would be
inequitable to deny compensation when the damage resulted from a natural
phenomenon beyond the victim’s control.
In a submission to the Conference, the US had argued that the new compensation scheme should have the broadest possible scope and, to the extent possible, one should avoid that the injured party was denied relief. The US,
supported by a number of delegations, was opposed to introducing any
defence similar to the one in CLC69, if the pollution damage was caused by
“natural phenomena of an exceptional, inevitable and irresistible character.”
On the other hand, a submission from France had suggested a natural
phenomena of an exceptional character was a classical case for exoneration.
Reference was made to the Paris and Vienna Nuclear Conventions. Several
other delegates supported this view including the UK, who in its submission
contended that such damage would be rare and “it is not considered equitable
that the oil industry should bear the this risk, any more than do the shipowners, who are given an exception.”
Also, Mr. Spilliopoulos proposed that in a given situation it would be quite
unfair to give victims of tanker spills an advantage over victims of pollution
from other sources. Greece therefore suggested exonerating the Fund if the
pollution damage was caused by “a natural phenomenon of an exceptional,
inevitable and irresistible character.”
By an indicative vote, the Greek proposal was rejected by 19 votes to 14
with eight abstentions. The Legal Committee’s proposal was accepted, and
the Fund filled a new “gap” in CLC69.
Another “gap” in CLC69 was the exoneration of shipowners when the pollution damage was caused by “an act of war, hostilities, civil war or insurrection.” The Legal Committee had concluded that exoneration in such cases was
a normal feature of other liability conventions and would therefore also apply
to the Fund. Moreover, if a warship or a ship owned/used in non-commercial
service should cause the pollution, the Fund would incur no obligations.
Mr. Douay again underlined that the Fund would not be a charity institute
to compensate all victims of pollution. Damage arising as a result of acts of
war would be excluded as in other conventions. Not only would such coverage
place an intolerable burden on the Fund, but also it would be excluded on
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moral grounds since the shipowner was under no obligation to pay compensation, so why should the oil industry pay?
Mr. Massey of the US repeated that there were a number of gaps in CLC69
that needed to be filled as quickly as possible if a fair system of compensation
scheme should be established. The Fund Convention would enter new areas
of law, and would adopt new principles of compensation and new approaches
to environmental problems. A century ago, both governments and the industry
would have denied all responsibility towards victims of oil pollution. Since
then, great efforts had been made to alleviate the problems by legal means.
He stressed that: “The Conference should not look back towards the past, but
use the opportunity offered by the Fund Convention to take a step forward,
thus bringing nearer the day when redress could be provided for injustices of
all kinds.”
His delegation therefore suggested that the exception for an “act of war,
hostilities, civil war or insurrection” should be deleted so that the Fund could
play its proper role. The deletion would not add much to the cost, in view of
the fact that these cases in any event would be rare.
“The only way in which society at large could cover the costs of pollution
damage in such cases was for those costs to be spread over all the countries
which benefited from the transport of oil at sea; otherwise the full cost
would fall on the individual.”
Mr. A. Makowsky of the USSR shared the view that it was not equally defensible to cover risks related to war. That would be to shoulder an unreasonable
administrative burden. In the view of his delegation, the state responsible
should be held liable to pay compensation in such cases. Mr. Amoroso of Italy
agreed; the Fund was made up of contributions from the private sector, and it
was for the state, not for the private sector, to provide protection under its domestic law for any of its citizens who suffered from pollution incidents caused
by acts of war or hostilities. His view was shared by Mr. Brigstocke of the UK
and Mr. van Alkemade of the Netherlands, who both expressed that their governments “would find it very difficult to ratify the Convention” if the Fund
was not exonerated in such situations. Thus, the majority view was that it
would be wrong to impose upon the Fund the obligation to cover war risks.
The American proposal was defeated.
A related “gap” in CLC69 was the exoneration of shipowners when the
pollution damage was caused “wholly or partially” by a person who suffered
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the damage either intentionally or by negligence. The proposal by the Legal
Committee was that also the Fund should be exonerated in the same way and
always when the ship owner was exonerated under CLC.
Mr. Alkemade supported the proposal that the Fund should be relieved
from liability in such cases, and the same principle should apply when the
damage was caused by the wrongful act or negligence of governments themselves. But his government had submitted an amendment that would modify
the rule. “Where a party suffered damage as a result of the negligence or
wrongful act of a government other than its own government, then it would
be reasonable for the Fund to provide compensation,” he said.
Mr. I. Perrakis of Greece supported Mr. Alkemade and argued that failure
to take adequate security measures to prevent sabotage against tankers should
be treated as negligence. Hence in such cases, the state in concern should not
be entitled to claim compensation from the Fund.
But Mr. C.K. Kennedy of Canada and Mr. Massey disagreed. They would
both be sorry if the Fund was exonerated and the innocent party not entitled
to compensation. The society at large should cover the costs of pollution
damage in such cases by spreading the costs over all countries that benefited
from the transport of oil at sea.
The result of a prolonged discussion was that the draft from the Legal
Committee suggesting a qualified exoneration of the Fund was approved.
If it is proved that the damage was caused wholly or partly either from an act
or omission done with the intent to cause damage or due to negligence by the
party that suffered the damage, the Fund may be exonerated partially or
wholly. Moreover, it was agreed that the Fund should be exonerated in any
event to the extent the shipowner would be exonerated under CLC69.
The Fund’s supplementary role was to pay compensation when the recoverable
amounts from the shipowner proved to be inadequate. If the owner and his
insurer were not financially capable of meeting their obligation, the Fund
would provide compensation on the condition that the victim - after having
taken all reasonable steps - had not been able to obtain satisfaction of the
amount due under CLC69. The Legal Committee realized, however, that it
might take years of legal proceedings to establish whether a shipowner in a
given case was liable or not. In order to avoid undue delay, the Fund should
be authorized to pay compensation and simultaneously acquire by subrogation
the rights that the person compensated had against the ship owner under
CLC69.
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But Mr. Kennedy of Canada went one step further and proposed that if
“a Contracting State, which under a national scheme paid compensation to a
victim of pollution liability in advance of any adjudged liability of the
shipowner under the 1969 Convention or the Fund, should acquire by subrogation the same rights as the victim would enjoy under the draft convention.”
The proposal was approved after being supported by Norway, Greece and the
Netherlands.
Notes:
In her book: “Pollution from the Carriage of Oil by Sea,” Wu Chao, p. 80, opines that article 4.1a in
the 1971 Fund Convention must be understood to the effect that the Fund nevertheless substitutes for
the shipowner if a pollution incident is caused by “an act of war, the intentional act as a third party or
the negligence of a government.” But this may be right with respect to costs for preventive measures
only.
VIII. CONDITIONAL RELIEF
Much more controversial was – as already mentioned – the Fund’s “relief
function.”
In accordance with the ’69 Resolution, the Fund “should in principle relieve
the shipowner of the additional financial burden imposed by the present
convention.” Tanker owners had been allowed to limit liability at levels
corresponding to the full capacity of the insurance market; 2,000 Poincare
francs (USD 134) per ton of the tanker in question subject to a maximum of
210 million francs (about USD 14 million). This was seen as an “additional
burden,” as it was twice the compensation amount available for property damage under the 1957 General Liability Convention. Since then, the deliberations
in the Legal Committee proved it impossible to agree on the implementation
of this part of the Resolution.
The draft submitted by the Legal Committee revealed that the compromise
agreed on in 1969 had been subject to a new compromise in the time that had
passed. According to its wording, the Fund should only indemnify the
shipowner for a part of the liability imposed by CLC69.
The world tanker fleet had in the meantime grown to some 3,200 units
capable of carrying 10,000 tons or more of oil. The total fleet in terms of deadweight (dwt) or carrying capacity was close to 170 million dwt. Independent
tanker owners represented about 110 million, the oil industry nearly 60 million
dwt. The “seven sisters” owned most of this tonnage.
Whilst many independent tanker owners regarded the proposal as inferior to
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the intent and text prepared in 1969, the oil industry claimed “relief” was
meaningless, “at least in the present climate.” In its submission to the Conference, OCIMF stated: “… no case has been made out whereby there is any
necessity for the relief in principle of the ship-owner from the additional burden imposed by the Civil Liability Convention. We suggest that the basis for
the Resolution requires reconsideration in the changing climate of opinion and
that there are no grounds for relief to ship-owners.”
Due to the over-supply of tonnage in the market, the prospects for the independent tanker owners looked bleak. The tanker fleet had increased by more
than 11 percent in 1971, whilst the increase in oil consumption had declined.
Viewed against the background of more than 100 million dwt tankers and
combined carriers on order at the shipyards around the world, the trade
developments were disturbing.
The major oil companies had convinced a number of influential tanker owners
that it would be in their interest “voluntarily” to assume the responsibility for
government’s clean-up costs after pollution incidents and join TOVALOP.
Several owners had been seen to believe that the oil charterers were
prepared to pay a freight surcharge to meet the added insurance premiums
consequent of higher liability exposure. In hindsight, this was too good to be
true, and the oil companies after a while saw no reason to take on extra costs.
The oil industry – and not least Shell – had always maintained a lofty and
sceptical attitude towards governments and was convinced that private
arrangements would be far better than governmental interference.
Governments were informed that the private scheme had come into force
in October 1969 and that it was meant as a stopgap until CLC69 was implemented. Thanks to the efforts of coordinator John Kirby, president of Shell
International, owners representing some 90 percent of the world tanker fleet
had accepted the scheme at the time the conference convened in Brussels in
December 1971.
As mentioned above, the oil industry had also gone one step further and
offered to provide additional compensation to victims of oil pollution by topping up the shipowner’s liability through an oil company-financed scheme,
CRISTAL. It was “advertised” as a solution to bridge the gap until the Fund
Convention came into force.
Prior to the Conference, Mr. I. Nomura of Japan had no problem with the
interpretation of the wording of the ’69 Resolution; the “additional financial
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burden,” would be the difference between the figure of 1,000 francs per ton
stipulated in the 1957 Convention and the figure of 2,000 francs per ton
stipulated in the CLC69. On the other hand, his delegation was prepared to
take a flexible approach to the question, provided that the amount of indemnification was a figure substantial enough to be meaningful to shipowners.
Several other delegates, including the UK, were far from convinced that
there was a need to provide relief in accordance with the Resolution. Also the
Dutch delegation, which had spoken frankly in favour of cargo liability in
1969, now supported the view of the oil industry. Mr. Alkemade declared that
the situation had changed since 1969. This brought the question of relief in a
new light. He referred to the TOVALOP plan now in operation and to the
insurance market that now seemed prepared to accept risks that it had refused
at the time.
Mr. Broch of Norway stressed that the introduction of “relief,” as suggested
by the Legal Committee, would be required to make CLC69 generally acceptable by maritime governments. Several governments had in the preparatory
discussions in IMCO been in favour of a close link between safety standards
and relief. According to the draft presented to the Conference, the Fund should
incur no obligation to indemnify the shipowner if the pollution damage resulted from the wilful misconduct of the owner himself. Those shipowners
who failed to observe safety standards should rather be penalized. His
colleague, Mr. Poulsson, added that excess insurance offered in the private
market would be more expensive than through the Fund, which would be able
to offer substantial savings and would be in a distinctly better position than
an ordinary insurer.
Professor Philip pointed out that “the additional burden” not only embraced
a higher limitation figure for the shipowner, but also a new principle of
strict liability which replaced a liability system based on fault. The Resolution
was a compromise agreed on in 1969. What one now was faced with was a
proposal to reach a new compromise on what already was a compromise.
He explained:
“Some people said there was no longer any need for relief of the ship owner
by the Fund because he was covered by the TOVALOP plan which had
come into force after the 1969 Conference. This view was quite unfounded,
because the TOVALOP plan had in fact come into force before the 1969
Conference and the participants in the Conference had been aware of its
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existence; in particular they had known that it was a provisional system. In
1969, a compromise had been reached on the question of who should bear
the additional financial burden; they had not wanted to change the whole
draft in order to shift the burden from the owner to the oil industry; it had
therefore been decided to lay the burden on the owner subject to his being
relieved above a certain figure. It would be going back on that compromise
if they were to raise considerably the figures suggested by the Legal
Committee; the higher the figures, the fewer pollution cases the oil industry
would have to cover, because few cases of damage would reach the lower
limit, so that in the end the owner would have to carry the financial
burden alone.”
Also, a number of other delegations expressed that they supported “relief”
but on the condition that there was no wilful misconduct or negligence
attached to the shipowner himself when the pollution accident occurred. Some
went further and agreed with the Canadian view that compliance with
environmental safety standards in general should be a condition for indemnification.
Canada now argued that to be socially acceptable, relief had to be linked
with the tanker owners’ application of safety standards:
“In face of the failure to make provisions for full and adequate compensation of the victim in the case of a massive oil spillage, the only way remaining to redress the balance would be to introduce measures designed to
reduce the probability of such disasters as far as humanly possible. … The
draft Convention should have a preventive as well as remedial character and
should seek to promote multilateral as opposed to unilateral action on the
preventive side. …”
The UK had, as the discussion went on, understood that some sort of “relief”
could not be avoided. When Mr. Brigstocke withdrew his delegation’s opposition, he stressed that the question would in any case have to be seen in the
light of the TOVALOP plan. He found, however, the proposed “conditional
relief” problematic. Whereas at first sight the idea was an attractive one, it
gave in reality rise to so many objections that it was doubtful whether it should
be pursued. He reminded delegates that shipowners already had a substantial
incentive to observe recommended safety practices because their records were
taken into account in assessing the cost of insurance premiums:
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TANKER ACCIDENTS ACCELERATE – THE AMOCO CADIZ OIL SPILL, 1972–1982
“In any case, the idea that the Fund should set itself up as a regulatory or
regulation-making body, as contemplated under Alternative I in footnote 10,
would if implemented, convert it into a completely different body – almost
a rival to IMCO – for which it was not suited. Instead of the simple and
economical organization hoped for, a much larger and more complex
set-up would be needed.”
The major oil companies’ assets at the time ranked from USD 8 to 21 billion.
Japan and Liberia considered it fair to ask the oil industry to pay its proper
share. After all, it was the consumer who paid in the long run. Because the oil
companies were closer to the consumer than the shipping companies, they
could more easily pass on the burden. Hence they agreed with the Legal Committee’s draft but doubted the practicality of a proposal that meant that the
Fund should be a body to enforce IMCO conventions or recommendations.
Among the delegates who supported the Canadian view were India, Italy and
the US. Mr. C.R. Hallberg said that the US delegation had consistently maintained that the relief in some way had to be coupled with measures for
prevention of pollution. He pointed out that pollutants had a fine disregard
for political boundaries, the “only answer, therefore, lay in international
legislation and in the case of marine pollution that was particularly true.”
Mr. Douay, on the other hand, maintained that the Fund should not be
turned into a technical body. But, nevertheless, his delegation sympathized
with anything that could be done to reduce pollution and was prepared to
study any formula that would not distort the aim of the Convention and at
the same time implement the principle of conditional relief.
Mr. Nordenson as “Rapporteur” summarized the discussion by concluding
that a majority of the delegates would like to link the relief to certain safety
standards. He suggested that a small working party should be set up to study
the matter further. This was agreed. Many delegations wanted to participate.
The group finally numbered 14 countries, and Mr. Broch was selected as
chairman.
In the morning of the Dec. 14, the group reported that its deliberations had
resulted in a proposal based upon two basic principles. The first principle was
that the safety measures should be considered as applicable to the ship rather
than its flag state. Secondly, the conditions should refer to the mandatory rules
laid down in four safety conventions that had already entered into force. These
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Conventions were: The Convention for the Prevention of Pollution of the Sea
by Oil, The SOLAS Convention, The Load Line Convention and the International Regulation for Preventing Collisions at Sea. The Fund would be exonerated from the relief function wholly or partially if it was proved that the
pollution was a result of “the actual fault or privity of the owner” provided
there was a causal link between non-compliance of the mentioned regulations
and the incident.
The report was in general well received, but Mr. Brigstocke was still sceptical
and reserved his position. Mr. Langley felt that the scope was too limited and
restricted to a few conventions, none of which had been designed to cope with
accidental pollution. When the Chairman called for a vote on “conditional
relief” as set out in the report, it was approved in principle by 33 votes to none
with seven abstentions.
The next question was to what extent the shipowner should be relieved. The
Legal Committee had suggested for the moment that the relief should start
above the shipowners’ liability under the 1957 convention. In other words
above 1,000 Poincare francs per ton or more than 105 million francs (about
USD 7 million). This meant that if the damage exceeded any of these amounts,
the balance paid by the shipowner – or his P&I club – would be indemnified
by the Fund.
Mr. Brigstocke and Mr. van Alkemade were both of the opinion that the
mentioned figures were unacceptable. There was no justification for imposing
such an additional burden on the oil companies. The situation was not any
longer what it had been in 1969, and the Conference should not be tied down
by the letter of the Resolution.
Mr. Medcraft referred to OCIMF’s information paper that pointed out that
it was possible for shipowners to insure the whole liability arising under the
CLC69. The cost of that insurance would be an element in the freight rate that
would be passed on to the oil companies. Thus, in his mind, the additional
burden “was not necessarily borne by the shipowner. In the light of the TOVALOP plan, it would be reasonable to take the amount therein as a basis.”
With no solution in sight, the atmosphere was perplexed. The discussion was
postponed to the next day. The next morning Mr. M.R. Jeannel of France said
that his delegation in the interest of a much-desired compromise would be
prepared to propose a figure of 1,250 francs per ton as the limit above which
the relief should come into effect. Several delegations supported the proposal.
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Once again, strong opposition came from the UK, the Netherlands, the US,
Australia and Canada.
In the midst of the discussion, Mr. P.C. Goh of Singapore found reason to
deplore the element of haggling in the debate. He regretted that many delegations seemed to believe that the intention of the Fund was merely to relieve
shipowners. No, it was for compensation of victims, and coastal states had
made considerable gestures of compromise.
Mr. Medcraft then said that the oil industry was ready to contribute above
100 USD per ton or a maximum of 10 million USD “provided that paragraph
2 was so worded as to leave the option open to the Fund of acting as an
insurer.” After this intervention, the meeting was suspended. When resumed,
Professor Philip reported that the Danish, Norwegian and Swedish delegation
had agreed that the furthest concession they were prepared to make was to
base the relief figures on 1,500 francs per ton (as suggested by OCIMF), but
with a maximum of 125 million francs. It should be left to the Fund to decide
whether it would act as an insurer.
The expectation that the shipowner would be relieved of his liability exposure
above the amount laid down in the 1957 Convention would not be fulfilled
by Mr Philip’s formula. Greece, Liberia and the USSR made it clear that they
were unable to support the compromise. Even though the compromise gained
backing from other influential delegations and six different proposals were
voted upon, there was still no clarification.
Following hectic consultations, more support for Professor Philip’s formula
emerged, and Mr. Brigstocke – now in favour – suggested that an indicative
vote should be taken by roll call. The compromise was then approved by 18
votes to 11. Hence, during the last day of the Conference, article 5 was
adopted by the Plenary, including the part on indemnification by 27 votes to
three with 12 abstentions.
In practical terms, the owner’s P&I club would pay up to the maximum limit
of CLC69. But taken account of the relief conceded, the clubs would be
re-imbursed by the Fund according to the agreed formula. To round off two
weeks’ hefty debate on indemnification, the following additional paragraphs
were included in the Preamble:
“…Considering further that the economic consequences of oil pollution
damage resulting from the escape or discharge of oil carried in bulk at sea
by ships should not exclusively be borne by the shipping industry but should
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in part be borne by the oil cargo interest, Convinced of the need to elaborate
a compensation and indemnification system supplementary to the International Convention on Civil Liability for Oil Pollution Damage with a
view of ensuring that full compensation will be available to victims of oil
pollution incidents and that the shipowners are at the same time given relief
in respect of the additional financial burden imposed on them by the
said Convention.”
Note:
Two thousand Poincare francs were in 1969 equivalent to USD 134. See Colin de la Rue and Charles
B. Anderson: “Shipping and the Environment,” London, 1998, p.18.
For more information about Poincare francs exchange values, see http://www.jus.uio.no/english/services/library/treaties/07/7-04/hague-rules.xml
IX. THE MAXIMUM AMOUNT
The maximum amount that the Fund would be requested to contribute – including the liability of the shipowners – had been one of the main topics during
the preparatory discussions in IMCO since 1969.
An information paper OCIMF submitted said that – apart from Torrey
Canyon – the only other incident where the CLC69 limits had been exceeded
was the Arrow stranding in 1970 off Nova Scotia in Canada. Reference was
also made to a recent collision between two tankers; the Allegro and the Pacific
Glory in the British Channel. The incident was seen as an example of a wellorganized clean-up operation in which modern techniques were used. As a result, the total claims were only USD 500,000, including the cost of standby
tugs, but excluding the salvage operation. OCIMF’s conclusion was that a
maximum compensation of USD 30 million for pollution victims was more
than sufficient to meet future needs:
“any suggestion that future incidents may involve greater cost due to the
increase in size of ship ignores the improvement in ship design and in cleanup techniques which are available for use and in salvage methods which
restrict loss of cargo.”
Mr. Nordenson explained that the Legal Committee had found it necessary to
restrict the maximum amount, but had suggested for further consideration the
maximum amount of 450 million Poincare francs per incident as suggested by
OCIMF (about USD 30 million at the time). This figure would be reduced by
any sum recovered from the shipowner under his obligations in CLC69. If the
106
aggregate amount of damage exceeded 450 million francs (about USD 30
million), the amount available should be distributed among the claimants in
such a manner that their proportion was the same for all. The amount might,
however, prove inadequate in the future due to the cost of future incidents and
to changes in the monetary values. Thus the draft suggested that the Fund
Assembly should be empowered to raise the mentioned figure to say 900 million francs.
The amount of 450 million francs was “twice the cost of the damage laid
at the door of Torrey Canyon,” according to Mr. Douay and Mr. Broch. They
felt this amount would be appropriate. Also, Mr. J. Djavad of the USSR,
Professor Spiliopolos and Mr. Date as well as other delegates opined that there
was no justification at present for higher figures.
Mr. Brigstocke opposed, however, the proposal that the Fund should be
empowered to raise the maximum level as suggested by the Legal Committee.
It was for the present conference rather than the Assembly of the Fund to make
a definite decision on the amount of the compensation. The amount should
rather be 750 million francs. This would be more than three times the maximum liability in CLC69 and should be sufficient to cover any damage that
was likely to occur, “Even, if the size of tankers continued to increase, and the
value of money to fall, the new limitations on tank size and improved techniques for cleaning up oil spills tended to counteract these effects. Moreover,
the Fund should have something in reserve; that was why the UK proposed
that the figure of 450 million francs given in the draft, should be increased.”
The rapporteur, Mr. Nordenson, explained that if the Fund was not allowed
to raise the maximum figure, then it would be necessary to embark on a full
process of revision of the Convention, which would take several years.
After considerable debate, the UK proposal was rejected. The 450 million
francs suggestion was approved by 33 votes. The proposal to allow the Fund
to increase the 450 million francs to 900 million was thereafter approved by
18 votes to five with 12 abstentions.
Notes:
A list of the major oil company assets at the time is found in A. Sampson: “The Seven Sisters,” New
York, 1975, p. 226, and in Fortune magazine for May and September 1973.
In 1979, the Fund Assembly raised the maximum Fund limit to 45 million Special Drawing Rights
(SDR), and in 1987 the maximum amount was increased to 60 million SDR. See “IOPCF 25 years,”
pp. 10, 11. Note that the official figures in the Protocols are related to SDRs. Dollar figures can therefore
be confusing depending upon the exchange rate used. Here, 1 SDR = USD 1.3.
107
X. ADMINISTRATIVE MATTERS
At the end of the Conference, a link was established between CLC69 and
FC71. The new Convention could be ratified or approved only by States that
had given the same support to CLC69. It was agreed that “The International
Convention on the Establishment of an International Fund for Compensation
for Oil Pollution Damage of 1971 (IOPCF)” should enter into effect as soon
as at least eight states had ratified, provided that “persons in such states” had
received during the preceding calendar year a total quantity of at least 750
million tons of “contributing oil.” The work would be administered by IOPCF,
whose highest organ, the Assembly, would meet once a year to supervise the
proper execution of FC71 and decide on the budget as well as the contributions and approve settlements on compensation claims. The election of an executive committee and the appointment of the director were included among
other functions.
The choice of the headquarters location stood between London and Paris. Mr.
Jorgen Bredholt, who later became the Chairman of the Assembly, reported
in the Fund’s 25-year jubilee book that the legendary French delegate, Mr.
Douay, made an eloquent speech explaining why London was the best solution.
It took seven years before the 1971 agreement entered into force. Once
again a serious accident was required. In March 1978, a large tanker grounded
on the French coast, causing a major oil spill. Six months later, support from
several governments enabled the Fund Convention to enter into force. IOPCF
started its operations the same year with the support of 15 members, including
Japan.
108
6
Tanker accidents
accelerate
- the Amoco Cadiz oil
spill, 1972-1982
I. SPECTACULAR TANKER ACCIDENTS
During the 1970s, the world witnessed more serious oil spills than ever since
World War II.
The first spectacular pollution incident occurred in December 1972, when
the Korean 120,000-ton tanker, Sea Star, spilled her entire cargo after a
collision in the Gulf of Oman. A massive fire broke out and the following
explosions killed 12 crewmembers. The fire immediately spread to the other
tanker, Horta Borbosa (Brazilian flag), which was in ballast, but here the crew
safely abandoned the ship.
Nearly two years later, Shell’s Metula, 206,000 dwt, suffered serious bottom
damage in the Strait of Magellan. Some 45,000 to 50,000 tons of light crude
oil leaked out in the cold water off the coast of Chile. In cold climates the oil
will evaporate and disperse much slower than if spilt in waters with higher
temperatures. The oil from Metula covered 1,000 square miles of water and
seemed to cause serious environmental damage. The remaining cargo – some
140,000 tons – was transferred to other tankers whilst Metula was towed to
Brazil and eventually sold for demolition.
Despite the light grade of her oil, studies at the scene 12 years later found
“asphalt pavements” with a weathered crust of low-viscosity oil. Nevertheless,
109
it is claimed that the fishery in the area was not damaged for more than a year.
On Jan. 29, 1975, another well-established tanker owner, Maersk Line of
Denmark, lost a large tanker, Jacob Maersk, built in 1966. It carried 88,000
tons of crude oil when she exploded in Portuguese waters. Most of the oil was
consumed by fire, but according to estimates, 41,000 tons were spilt and six
crewmembers were killed.
Notes:
See “Tanker Spills - Prevention by Design” issued by the National Research Council, Washington, DC,
1991, pp. 16-19 and Lloyd’s List Tanker Safety Supplement, May 2000.
The long-lasting pollution damage caused by Metula’s light oil cargo in the frosty weather at the coast
of the Magellan Strait may be seen in contrast to the rapid dispersal of crude oil released in the Persian
Gulf during the Iran-Iraq war. Metula is, however, not worthy of comments in Stephen Howarth’s book,
“Sea Shell.”
II. BERGE ISTRA
At the end of 1975, a large Liberian flag combination carrier, Berge Istra, disappeared in the Indian Ocean on her way from Brazil to Japan. Three weeks
later, two of the 32 crew were picked up from a raft north of New Guinea.
Their story was simply that the ship had sunk after two big, sudden explosions.
Berge Istra was an Ore-Oil carrier with a cargo-carrying capacity of
224,000 tons in five central cargo holds and 20 side tanks. She was owned 80
percent by an American investor, Hugo Neu Corporation in New York,
and managed and 20-percent owned by a well-known shipping company in
Norway, Sigval Bergesen d.y.
Her sister ship, Berge Vanga, was also lost three years later with 40
crewmembers onboard, probably because of a similar explosion. There was
no survivor who could tell. These tankers were two of four similar ships built
for Bergesen at the Uljanik shipyard in Pula, Yugoslavia, from 1972 to 1974.
The yard had in the past built medium-size tankers, but had no previous experience in building ships of this dimension. The owners had been pleased to
negotiate a good deal, although delivery was 14 months late.
The ship was employed carrying ore from Brazil to Japan and oil from the
Arabian Gulf to Europe. After the Berge Vanga disaster in 1978, the owners
decided to convert the two remaining sister ships, Berge Brioni and Berge
Adria, to pure dry bulk carriers – no more oil. Other explosions causing loss
of life also occurred in other combined carriers within the Bergesen fleet.
110
Berge Istra survivors
The two Berge Istra survivors,
Imeldo Barreto Leon and
Epifanio Lopez, are now in their
seventies and live on Tenerife,
in the Canary Islands. They are
shown here pointing at the raft
that saved their lives. They still
keep the raft in a garage in the
village where they live.
© Nina Ruud/Dagbladet Magasinet
It was on Dec. 30, 1975, whilst sailing from Tubarao, Brazil, to Kimitsu,
Japan, that Bergesen’s office in Oslo lost connection with Berge Istra. A number of theories about the disappearance were launched in the international
media whilst American, Japanese and Norwegian craft searched in vain the
vast area where she was believed to be lost.
Shipping people know that tanks with oil residues contain a mixture of
different levels of hydrocarbon gases dependent upon the grade of the oil cargo
previously carried. The mixture of air and gas must be kept within certain
limits, otherwise it will be flammable and can be ignited. To maintain a safe
proportion, the tanks should be properly cleaned after the discharge of the oil
cargo. According to Norwegian journalist Otto Risanger, who wrote a book
about the accident published in June 1975, a spokesman for Bergesen
contended after the accident that the big centre tanks had been thoroughly
washed after the discharge of the oil cargo and then provided with inert gas
to keep the mixture within safe levels. The wing tanks which would not be
used for the ore cargo had, however, not been fully cleaned, but inert gas was
injected. This was standard procedure within the industry, he claimed.
In the report on the Berge Istra hearing conducted on Jan. 28, 1976, in New
York, Bergesen’s Captain Gudmundsen testified and confirmed the company
practice with respect to the wing tanks “There would always be some residues.
We never take up the residues.”
If so, it may seem that the recent introduction of inert gas systems has inspired some misplaced confidence.
In the wing tanks, one finds additional complicated structural parts required
for the strengthening of the entire hull. Under the centre tanks, there are
pipelines connected with the wing tanks. The wing tanks are not easy to clean.
Today, nearly 35 years after the accident, it is well known that the sludge –
that is, the oil residue – is thickest in the wing tanks and possesses additional
gas content. Sludge represents an unnecessary weight for the ship that eventually would reduce payload. Non-removal of sludge would in the long run also
cause corrosion of the hull. Whereas the cleaning of the wing tanks was not
mandatory at the time, such rules were in the offing.
Safety is important, but time is money. In the long run safety also is –
should be – profitable. The International Safety Guide on Oil Tankers and Terminals worked out by ICS and OCIMF recommended in 1978 that “Before
loading a dry bulk cargo, all holds that have been used for the carriage of oil
cargoes should be washed, gas freed and vented.”
The Liberian report on Berge Vanga pointed out “the one distinctive
difference in the case of Berge Vanga was that she had a riding crew on board
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to do hot work at sea in the process of installing COW machines and piping.”
In 1979, a professor at Norges Tekniske Hoyskole (the Norwegian Technical
University) was asked to compile relevant information on the background of
the explosions on board the “Berge ships.” In his report on Nov. 28, 1979, he
revealed – referring to Det Norske Veritas (DNV) – that because of difficulties
cleaning the wing tanks, a reasonable estimate seemed to be that the wing
tanks during carriage of ore still might contain about 500 tons of oil. Ten years
later, “Anchor and Balance” (p. 267), was published by DNV in connection
with its 125-year jubilee. Commenting on the Berge explosions, DNV refrains
from criticizing its paying client, and explains that “a change of cargo as often
as each trip sometimes made it impossible to carry out sufficient cleaning in
all spaces other than the cargo tanks.” Impossible is a very strong word. But
cleaning takes time, and time is money. There can be little doubt that the classification society with its central role in international tanker shipping was well
aware of the ICS/OCIMF recommendation industry practice. In any case, it
may be telling that combined carriers managed/owned by other Norwegian
companies did not experience the same explosions.
To this day, no one can say with certainty why Berge Istra exploded and killed
all the crewmembers with the exception of two survivors. The ships were operated by a reputable shipowner and manned by officers of professional competency. According to the chief investigator, Captain Alister Cromble of the
Marine Safety Department Bureau of Maritime Affairs, it would be accepted
that an explosive atmosphere had developed in the wing tanks in spite of the
introduction of inert gas in these compartments. Due to the complicated internal structure of the wing tanks, flammable gas pockets might have remained
there, and if the pipeline system was not tight, explosive gas from the wing
tanks may have leaked into the pipeline system below the centre tanks.
Cleaning machines are inserted into the tanks from the main deck, known universally as Butterworth machines after the brand name of the leading manufacturer. From the documents available today, the number of washing
machines differs. On the sister ship Berge Brioni, an inspection the Norwegian
Maritime Directorate carried out in November 1979 reveals that eight Butterworth cleaning machines were in use and did the job. In a paper on Berge Istra
safety routines and equipment worked out by the managers, 12 transportable
washing machines were referred to. How many were in use, we do not know.
It has been claimed that the number of such machines on board the Berge ships
was modest compared with comparable combination carriers operated by
113
other owners, but the author has seen no such evidence. But as expressed by
an old schoolmate who followed the construction of Berge Istra as a technical
engineer for DNV in Yugoslavia: “It is not here the problem lies.” He might
be right.
Bergesen’s two other combined carriers were converted to dry cargo bulk
carriers after strong pressure from a senior captain who told the old owner
that he would inform the media about the risks these ships represented when
carrying oil.
When the inert gas plant was last surveyed in September 1975, there was
an outstanding recommendation requiring the alarm device for the inert gas
plant to be brought in order. In Rotterdam, where the last oil cargo was discharged, such a device (Servomex) was taken ashore for repairs. It is not
known if it was repaired on the spot, but it is possible that it was not and that
portable instruments had checked the oxygen.
The mentioned reports stress that both carriers were well-run ships operated by a reputable shipowner. But nevertheless, circumstantial evidence
indicates that the efficiency of the inert gas plant had fallen below the level
required to protect the wing tanks. The gas might have leaked out from the
wing tanks into the piping system, which went all the way below the centre
tanks. But what caused the ignition?
No one knows for sure. A senior technical director within the Bergesen
group has said that no operational routines were changed on board the Bergesen combination carriers after Berge Istra’s disappearance. In the report on
Berge Vanga, it is noteworthy that the Liberian Marine Board of Investigation
concluded “The most likely source of ignition was hot work below deck.”
Notes:
On Berge Istra, see Otto Risanger: “Skipet som ikke kunne synke” (“The ship that could not sink”),
Oslo, 1976, and the Preliminary report on Berge Istra conducted in accordance with the Maritime Regulations of Liberia after hearings in New York, Jan. 28, 1976, and Report of the Marine Board of Investigation on Berge Istra, published March 31, 1978.
On Berge Vanga, see the Report of the Liberia Marine Board of Investigation, Monrovia, Nov. 18, 1981.
Other sources are various files deposited at The Norwegian Maritime Directorate, a letter from Aug.
20, 2008, from Hans Kristian Ovstaas, previous Project Director with Bergesen; interviews in 2008
with Thormod Holt Hansen, a naval architect who on behalf of DNV followed the building of Berge
Istra in Yugoslavia; Arne Sagen, a naval architect and researcher; and with Kaare Kopperud, Norwegian
General Counsellor who had administered the marine investigations relating to explosions and loss of
life in two other Bergesen tankers, Berge Edda (83,000 dwt) which exploded in April 1980 and cost the
lives of two crewmembers and Berge Septimus (280,000 dwt) in August 1983, when three more people
died. Both explosions occurred at sea on the ballast leg. Thus in an eight-year period, Bergesen’s combined carriers and tankers cost the lives of 75 crewmembers.
On Berge Istra, see Dagbladet/Magasinet primo February 2011.
DNV comments on the explosions onboard combination carriers are found in “Anchor and Balance,”
Oslo, 1989, pp. 265-267, published by the society in connection with its 125-year jubilee.
114
III. ARGO MERCHANT
In addition to highlighting the threat from new super tankers, the media focused equally critically on old, obsolete tankers, now named the “rust buckets”
of the seas. Both types were seen as major potential polluters.
No “rust bucket” raised more public alarm than Argo Merchant. She was
a “small” 28,000 dwt Liberian flag tanker built in 1953. Between 1964 and
1973, the ship was involved in 14 casualties, including one collision and two
groundings. It was revealed that the ship had changed names several times.
Before her final voyage from Venezuela with a cargo of heating oil to Salem,
Massachusetts, USA, she had come off a charter with one of the American
major oil companies. In the early morning of Dec. 15, 1976 – close to the
media centres of the world – she grounded in international waters off Massachusetts and started to spill oil. The 45-year-old captain, Georgios Papadopoulos, had served as master since 1969, and had never before been involved in a
grounding. The owner was a Greek company in New York. Despite pressure
from the US Coast Guard, the shipowner refrained from involving assistance
to minimise the oil spill. In the meantime, under very severe weather conditions, the 38-member crew was evacuated. After a few days, the ship sank
whilst her cargo of 28,000 tons of fuel oil drifted out to sea. The shallow waters and weather conditions made it impossible to offload the oil or salvage
the ship. Thanks to the currents and a north westerly wind, the fear of a massive injury to the environment on the US North East Coast never occurred.
It later appeared from a report published by the Liberian Bureau of
Maritime Affairs in October 1977 that the tanker was six months beyond the
date of her annual inspection by the classification society. The compass was
old and did not work well and the crew comprised a number of nationalities,
including two unqualified helmsmen. Several of the seamen spoke neither
English nor Greek. Whereas some of these failures may not have been very
unusual at the time, more noteworthy was that the charts on Argo Merchant
were outdated. The master explained that he had been without authority to
buy new ones. Some crewmembers had been discharged in Venezuela and
again the captain had been without authorisation to engage new hands.
Because of the extremely poor freight market prevailing, the investigators
speculated whether the management would sooner sink the ship than continue
to operate it and thereby obtain the insurance money. No direct evidence was
found, but the delay in efforts to salvage her was unexplained and inexcusable.
Note:
On Argo Merchant, see de la Rue and Anderson: “Shipping and the Environment,” London, 1998, pp.
53-54, 777, 837 and Jack Devanney: “The Tankship Tromedy,” Florida, 2006, pp. 34-35.
115
IV. MORE ACCIDENTS AND REACTIONS
Argo Merchant, hoisting the Liberian flag, was in international waters when
she grounded. In accordance with traditional international law, the flag state
has exclusive jurisdiction over violations. Now the “Intervention Convention
of 1969” had entered into effect, and not surprisingly the Coast Guard
boarded the vessel, taking control of the salvage attempts that proved to be in
vain. In 1980, the exclusive economic zone was included in the national plan
to prevent marine pollution.
The accident led to proposals for new regulations governing tanker operation and construction. Moreover, international initiatives on these aspects
were taken in order to secure support for new safety rules in IMO, including
a requirement for tankers to be constructed with double bottoms. No agreement was achieved on this proposal and the US – disappointed with the reaction – started the unilateral legislation process that culminated in 1990 after
the Exxon Valdez catastrophe.
With President Jimmy Carter in the White House, bill HR 1023 was introduced in Congress to preserve a part of the oil import to the US for domestic
tankers. Reference was made, perhaps for the first but certainly not the last
time, to the threat to the environment foreign tankers presented. The fact that
the same tankers were chartered by US oil companies to carry their oil, and
that the worst polluter ever, Torrey Canyon, was owned and operated by a US
oil company, did not seem to get any particular attention.
Further to the substantial tonnage surplus, the highest volume of tanker
tonnage ever was scrapped during the first six months of 1976. Some 160
tankers were sold for demolition or converted for other uses. The number of
idle tankers had increased rapidly. In 1974, the whole tanker fleet – with very
few exceptions – had been fully employed. But during the first half year of
1976, an armada of 534 unemployed tankers had been sent to lay-up. These
tankers represented more than 14 percent of the total world tanker fleet.
Also, total losses of tankers had increased during these six months and aggregated nearly half a million tons. This number included new tonnage. The very
large crude carrier, Olympic Bravery (273,600 tons) may serve as an illustration. The VLCC had been delivered from a French shipyard to her Greek
owner. In January 1976, with no employment in sight, she was on passage off
the French coast to a Norwegian fjord to be laid up when she developed engine
trouble and grounded. All attempts to re-float her were unsuccessful. She
broke in two and was eventually declared a total loss. With no cargo onboard,
the resulting pollution was, however, minimal.
116
In May the same year, Urquiola (111,000 dwt) spilt 91,000 tons off the northwestern coast of Spain when she struck the bottom as she was entering the
port of La Coruna. All but the master and the pilot abandoned the tanker
before explosions ripped through the forepart, followed by a major fire. The
master was killed, but the pilot managed to swim to shore. Thick black smoke
soon covered the port, and the tide spread the crude cargo throughout the port
area, to the shores and out to sea. Helicopters and vessels dumped detergents
in large quantities in the hope of containing the spill that threatened to destroy
the shellfish industry.
Then in February 1977, a new major spill occurred near American waters.
The Liberian-flag tanker Hawaiian Patriot sustained a huge crack in her hull
during a storm 330 miles west of Honolulu. She was loaded with 95,000 tons
of crude oil, of which more than 17,000 tons leaked out before it was ignited
in an enormous explosion. Hawaiian Patriot broke in two and sank. One life
was lost. The currents carried a 50-mile oil slick away from the shores.
Changes in tanker design to protect the marine environment and prevent oil
spills were introduced in 1978, when the MARPOL Convention was revised.
Requirements for segregated ballast tanks (in new buildings) located in places
where they could protect the most exposed cargo tanks were introduced and
agreed upon. But despite the huge tonnage surplus, the voices raised to make
these arrangements applicable also for existing tankers were ignored. Implementation of such rules would not only have enhanced the environment, but
would at the same time have reduced some extra carrying capacity of the
tanker fleet. The exact reverse occurred in 1966 – prior to the closure of
the Suez Canal – when new load lines were introduced to allow large tankers
to have a deeper draft and carry more oil. Thereby the tonnage supply was
increased, to the benefit of the world’s oil industry.
Also, the US proposals for double bottoms and double sides were strongly
opposed and rejected in IMCO without much opposition from the
American delegation’s spokesman, a USCG admiral.
The new “MARPOL tanker” became the standard against which any further
design changes would be measured. Operational procedures were standardised. Among the other safety conventions agreed upon, perhaps the most
important was the revision of SOLAS - the International Convention for
Safety of Life - in 1978. Its overall objective was to assure the safety of the
crew, ports, passengers, ships and cargo. Now, SOLAS mandated the incorporation of inert gas systems to counter the risk of explosion in the cargo tanks
that had resulted in so many serious accidents.
117
The Amoco Cadiz oil spill
The US oil company Amoco
group owned the Amoco Cadiz.
The oil spill in 1978 represents
one of the worst catastrophes ever
seen. In hindsight, it is easy to see
that it could have been avoided or
substantially reduced if the master
of the super tanker had the
authority to engage professional
salvors to assist the vessel at an
early stage. Instead, a lengthy
discussion with the management
in Chicago went along whilst the
tanker drifted into dangerous
waters. The pollution victims later
sued the oil group in the United
States for a huge compensation.
The subsequent litigation lasted
until 1992, when a Federal Court
decided they were entitled to an
award of USD 61 million plus
interest. The judge expressed that
“Amoco has little reason to shed
crocodile tears.”
© Benoit Gysemberg / CAMERA PRESS / Scanpix
CHAPTER
Notes:
On the market conditions during the ’70s and ’80s, see John A. Jacobs’ semi-annual World Tanker
Reviews.
On the US position on double bottoms in IMCO, see E. Nalder, “Tankers Full of Trouble,” pp. 214215, New York, 1992, where he quotes the remarks of an American “double-bottom advocate” after
an IMCO-meeting: “Sometimes I wonder if the US Coast Guard is really a subsidiary of the oil industry.”
Whether this is a fair remark, one may doubt. But it is a fact that the admiral, who was head of the US
delegation, later was appointed managing director of AIMS, the American Institute of Merchant Shipping, which the US oil companies dominated.
V. THE AMOCO CADIZ
But again, a long time passed before the new legislation entered into force. In
the meantime, more serious accidents occurred and additional tankers were
added to the long list of total losses. On March 16, l978, more oil was spilled
off the windy coast of Brittany, France, than the world had ever seen.
The 240,000 dwt Liberian flag super tanker Amoco Cadiz was owned by
Amoco Transport, an offspring of Amoco International, whose parent company was in turn the old Rockefeller Standard Oil of Indiana, with an office
in Chicago. The grounding occurred in French waters on her voyage from the
Persian Gulf bound for Rotterdam. The large tanker, fully laden with a Shell
cargo of 220,000 tons of heavy crude oil, got out of control because of a failure
of the steering gear. All attempts to repair the hydraulic gear proved unsuccessful. Despite the problems with the steering gear, Captain Pasquale Bardari
hesitated to accept salvage assistance pending a green light from the owner.
The master of the West German salvage tug that had arrived wanted the
salvage operation performed on the common contractual terms of Lloyd’s
Open Form - the standard form used in such cases. But acceptance of these
terms meant that the salvage master would take over the command of the ship
and that the salvage company, if it was successful, would be entitled to a
substantial salvage award from Amoco. The accident, however, revealed an
anomalous position of a master who felt it to be his duty to minimise his
owner’s costs by avoiding salvage and instead try to obtain assistance under a
less expensive towage contract.
From the start, the disaster has been described as a black comedy of errors
when commercial pressures were followed by physical failures. The master of
Amoco Cadiz later explained that he had no authority to expose his superiors
to the costs of salvage. Whilst the captain discussed with his Chicago headquarters, the weather worsened. After long negotiations on the financial terms
between Captain Bardari and the master of the tugboat, the Captain agreed
to receive a towline. This, however, broke during the discussion, and the huge
119
tanker drifted towards the rocks. When he finally got a green light from
Amoco to agree to the Lloyd’s Open Form, it was too late. The tanker drifted
aground and soon spilled a quarter of her Iranian crude cargo into the sea.
Twelve days after the grounding, the fore part broke in two, and the rest of
the cargo went into the ocean.
Clean-up operations took months, and an estimated 10,000 people took
part. The French Government decreed a national disaster and called in the
troops, but could not do much to prevent that more than 300 kilometres of
coastline were badly polluted. Again, an ugly thick layer of oil covered
beaches. The wreck could be bombed in an effort to ignite the oil and sink the
ship. Pungent fumes would blow inland and taint the farmland. Thus, French
farmers protested because they feared that the soot would ruin their crops.
On the windy coast, waves washed off more than half of the spilt oil in four
weeks. The clean-up operations led by the Government continued for a full
year after the grounding. The fishermen, farmers, hoteliers and other victims
did not find much comfort in the fact that France had ratified CLC69, which
was now in force. Unless the claimants were able to prove that the spill was
caused by “actual fault or privity” of the owners, the limitation rules would
only allow a compensation of no more than a fraction of the amount claimed.
Even if such a compensation claim based upon the owners’ “fault or
privity” would be successful, it was more than doubtful that a French judgement could be effectively enforced against a Liberian company, with or without assets. On this background, the French government and other claimants,
including representatives of some 90 French towns and villages, chose to
pursue the claims in the US and brought suit in the Federal District Court
of Chicago against Amoco Transport Company, the registered owner, the
operator; Amoco International Oil Company and the parent company,
Standard Oil Co. of Indiana.
A legal battle started which would last for years. In the end, the court held
both Amoco International and Standard Oil Co. responsible. It turned out that
the maintenance of the tanker had been postponed to avoid disturbance in the
commercial operation. Hence the management had also failed to carry out
maintenance of the steering gear.
The judge “pierced the corporate veil” and found that the parent company
had been so substantially involved in the operation that both companies had
to answer for their negligence. Amoco Transport Company, the registered
owner, was found to have to have failed to remedy the deficiencies on board
120
Lannion
Morlaix
St. Brieuc
Douarnenez
© T. Haugen
Amoco Cadiz oil spill
its tanker despite having actual knowledge of them. The US Limitation of
Liability Act of 1851 was not applicable.
The two mentioned oil companies were not the registered owners of the
tanker. Neither were they immune if CLC69 had been applicable. There was
no inhibition in the text that precluded victims from claiming compensation
outside the convention against persons other than the owner, his servants or
agents. According to the judgement, the legislative history of the CLC also
clearly showed that it was meant to immunise the master and the crew but in
no way the operators of a vessel.
By 1982, USD 2 billion worth of writs had been filed. The claims exceeded by
far anything seen in the past for pollution damage. For two to three years, the
121
public outcry against the oil company prevailed and its sale of oil products
was reported to have fallen by about 15 percent p.a. Litigation took a longer
time. The appeal that followed was in vain. In 1992, the claimants received
an award of USD 61 million plus interest as the Federal Court of Appeals
confirmed the lower court’s decision and severely reprimanded Amoco for its
negligence:
“Amoco has little reason to shed crocodile tears. Exxon reportedly spent
USD 2 billion to clean up the oil Exxon Valdez spilled off Alaska, it has
agreed to pay another USD one billion as damages and to pay a criminal
fine of USD 125 million. Amoco will be called on to pay only USD 61
million plus interest to redress a spill that not only was larger but also
occurred in a more densely populated area. Calling the USD 61 million
the result of inflated or fraudulent claims taxes credulity.”
The international salvage rules in 1978 were based on an old convention from
1910. Amoco Cadiz became an impetus to re-examination of these rules, and
IMCO eventually adopted a new International Convention on Salvage in
1989.
Its most important feature was that it provided for compensation for salvors
when they managed to prevent or minimize pollution, even if the ship was not
saved. After the grounding of Amoco Cadiz, it took only a few months before
IMCO had sufficient ratifications of FC71. This process would in all probability have been further delayed if the catastrophe had not happened.
In March 1980, the worst affected districts in Brittany were just beginning
to recover from the damage the Amoco Cadiz caused when the Malagasy
tanker Tanio broke up in heavy weather and spilled 13,500 tons of heavy fuel
oil. More than 125 miles of shoreline were polluted.
Once again, there was serious concern about the economic losses. France had
just ratified FC71, and the Fund now had to consider the admissibility for
economic losses for the first time. The Fund took the view that such claims
were admissible in principle provided the claimant depended directly on earnings from coastal or sea-related activities. Claimants were required to describe
the nature of the loss and to provide documentation to prove that their claims
resulted directly from the accident. Apart from clean-up costs, considerable
expenses were connected with the removal of oil in the wreck, which had sunk
in deep water. The pumping operations lasted 16 months. Upon examination
of claims, some GBP 32 million were deemed to fall within the criteria of
122
recoverable loss under FC71.
After interim payments, the claims were settled without litigation against
the Fund for some 70 percent of the established amounts. Despite the claims
exceeding the maximum amounts available under the two international
regimes, ways were found to compensate victims in less than five years after
the incident. This contrasts with the 14-year period that elapsed before the
legal struggle about the Amoco Cadiz compensation came to an end. To the
claimants’ satisfaction, supplementary compensation was recovered against
other parties involved, including the vessel’s bare boat charterer and classification society. The public reaction was this time far less vigorous, not because
of indifference, but the parties involved learnt lessons.
Notes:
On Amoco Cadiz and (Tanio), see Jeff Wheelwright: “Degrees of Disaster,” New York, 1994, p. 85,
Norman Hooke’s article on tanker accidents in Lloyd’s Safety Supplement, May 2000, an article by
Emanuel Fontaine in a CMI publication “Liability for Damage to the Marine Environment,” issued by
Lloyd’s of London Press Ltd, 1993. See also “IOPCF 25 years,” Kent, 2003, Jack Devanney: “The
Tankship Tromedy,” Florida, 2006, pp. 36-42, M. Rafcliffe: “Liquid Gold Ships,” p. 149-150 and de
la Rue and Anderson: “Shipping and the Environment,” London, 1998, pp. 31-33, 97-98 and 657.
The 1969 Convention (CLC69) was changed by the 84/92 Protocols, which now provide that the
exclusive remedy lies against the owner.
123
OIL PRICES THROUGH THE ROOF – THE HUGE TANKER SURPLUS,1970-1990
7
Oil prices through the
roof – The huge tanker
surplus, 1970-1990
I. THE TANKER SURPLUS
Brisk industrial growth and improved standards of living in the Western
economies led to a strong growth cycle in oil transportation from the mid1960s. Over the 10 years from 1964, crude oil carried by sea increased by 182
percent. The growth was even stronger in ton-miles, which grew by 350 percent because of the longer transport distances.
The strong demand produced a firm tanker market with lofty expectations
for continued growth in consumption. This produced a contracting surge for
large tankers in the 200,000 tdw class. Swedish and Japanese shipbuilders
were offering vessels of 500,000 tdw, and Mr. Kirby, the president of Shell
International, envisaged even larger vessels: “We are reaching a plateau. The
next increase should be 1,000,000 tons deadweight.”
When the US by and by became convinced that its domestic production
would be far less than demand and decided to remove the import quotas in
April 1973, inquiries for tonnage accelerated in the fall of 1973 when tanker
freight rates reached the highest level seen since the closure of the Suez Canal
in 1956.
On Oct. 6 that year, the fourth war between Israel and Egypt – the Yom Kippur War – started. Supported by most other Arabian states, Egypt attacked Israel. In the wake of the war, the Arabian oil-exporting countries imposed an
oil embargo on most Western nations. The Organization of the Petroleum Exporting Countries (OPEC) utilized its market position by a substantial rise in
124
© Portrait
OPEC meeting 1973
oil prices, as seen by the price of Arabian Light, the
“marker” crude, soaring from USD 2.90 a barrel to
USD 13. There had been underlying weaknesses in the
Western economies as private consumption had outgrown productivity gains, as already seen by the collapse of the fixed currency system. Now, the oil price
hike contributed to inflation and economic stagnation.
At a time when the order book for tankers amounted to
196.9 million tdw, equivalent to 91 percent of the trading fleet, the consumption of crude oil stagnated. Over
the years 1974 to 1978, the world tanker fleet grew by
54 percent, whereas the tanker trade remained stagnant.
At the end of 1978, more than 100 ultra large crude carriers (ULCC) were constructed. This gross imbalance
between tankers and trade brought about an overcapacity of vessels and a long and painful crisis for the tanker
industry.
1973 was the year that turned
the tanker business upside
down, partly because of the
price-increase decisions the
men shown here made.
Centrally placed, we find the
leading figure of OPEC, H.E.
Sheik Zaki Yamani of Saudi
Arabia. OPEC had now become well aware of using the
oil as a weapon to promote its
cause. The Sheik expressed,
“The world needs our oil and
we in our turn need the world.
In other words, we are all like
the human body; when one
part of it is hurt all the other
parts are affected.”
125
Many tanker owners tried to cut back in their building programmes, and about 70 million tdw of large
tankers were cancelled from 1974 1976. Still, the fleet
continued to grow, as the volume of laid up tankers
reached 50 million tdw in 1975. By mid-1978, the
research department of the London shipbrokers John I
Jacobs estimated the tanker surplus to some 142 million
tdw, or 43 percent of the total tanker fleet.
© Scanpix
Hilmar Reksten
Hilmar Reksten was born in
1897 in Bergen. He started as a
shipowner in 1929 and contracted his first tanker in Sweden in
1941. During World War II, he
worked for the Norwegian
Government in London and
New York. After his return to
Norway, his tanker fleet made
him a huge fortune connected
with the unrest in the Middle
East in the late ’50s and ’60s.
His policy was to refuse to
charter his tankers on “safe”
long-time charters, but played
instead in the “spot market.”
His fantastic profits were immediately pumped into the procurement of more and more
ships. But what went up had to
come down. His fleet was taken
over by the Norwegian Government’s “Garantiinstitutt” after
the market crashed 1973/74.
His last years, up to his death
in 1980, were darkened by
accusations of tax evasion and
manipulation of the national
currency regulations. Not many
of the accusations were later
confirmed.
126
The financial effects on the shipowners were severe.
Freight income was severely reduced, or even reversed
when trading below breakeven. Ships’ values plummeted. A 280,000 tdw tanker delivered in 1973 at USD
50 million saw its value drop to USD 15 million by
1976 and USD 9 million two years later. Shrinking
values would frequently bring owners to default on
financing terms, and a large number of modern tankers
were put on the market at bargain prices to be picked
up by new owners.
In established maritime communities in Europe,
traditional shipowners were forced out of business.
In Norway, shipowners such as Hilmar Reksten and
Hagb. Waage went bankrupt, despite saving efforts,
as did Swedish owners such as Malmros, Greeks like
Colocotronis, and so on.
From the time OPEC turned the price squeeze, miseries
began for the tanker industry.
Everything that could go wrong did go wrong.
Higher oil prices meant that the industrial world looked
for other fuels, and fuel-saving technologies were developed. The depression following the increased oil prices
in 1974 was reinforced by the Iranian revolution, when
oil prices in 1979 and 1980 once more went through
the roof. The situation was further worsened by the increased production of oil in the North Sea located close
to the consumers in Europe and the US. The start-up of
oil production in Alaska made an impact by cutting US
oil imports.
The re-opening in 1975 of the Suez Canal, which had been closed since
1967, was a triumph for those involved in its clearance, but reduced the distance from the producer countries to the consumer and was hence another
blow for the owners of oil tankers. Other negative factors included the increased building of pipelines to transport oil, notably the opening of the SuezMediterranean (SUMED) pipeline in 1976. The pipeline began running on an
annual rate of 20 million tons, only a quarter of its full capacity.
The result was shorter tanker hauls and less demand for tanker transportation. The masters were ordered to cut costs and sail at slow speed to reduce
fuel consumption. And, ironically, it was mainly the modern, well-equipped
tankers that were laid up. The older tonnage could offer lower freight rates,
and the charterers looked for the cheapest ships.
Notes:
In March 1968, the Nagasaki shipyard of Mitsubishi Heavy Industries launched the biggest tanker at
the time – 276,000 dwt – for Daniel Ludwig. If placed upright on its stern, it would reach the 100th
floor of the Empire State Building in New York. Esso was at the time looking into the possibility of
building 800,000 tonners, whilst John Kirby of Shell had even more ambitious dreams. See R. Petrow:
“The Black Tide,” London, 1968, pp. 26-27.
OPEC was started in 1960 with only five members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
Among the objectives was “the stabilization of prices in the international oil markets with a view to
eliminating harmful and unnecessary fluctuations.” Source: A.A. Kubbah, “OPEC - Past and Present,”
Vienna, 1974.
II. REMEDIAL MEASURES
The massive overcapacity of crude-oil tankers became an important issue for
the tanker owners and hence for INTERTANKO. The organization had seen
a strong beginning with a listed fleet of 160 million tdw by 1975, and with
industry leaders such as Mr. Jahre, Peter George Goulandris, Mr. Naess, YueKong Pao, Ali Khasawneh, Sven H. Salén, Carl Rentz-Petersen, Francis
Ravano and Mr. Tung on its executive committee.
INTERTANKO explored every possibility to reduce the over-capacity.
Shipowners were encouraged to cancel new building contracts without
employment and to scrap older vessels. The organization helped locate lay-up
facilities around the world, promoted tankers for oil storage, looked into new
design concepts that were environmentally safer and also cut down on capacity.
Through their organization, independent tanker owners consistently strived
to persuade other parties in the industry that the only way out of the disastrous
127
Jorgen Jahre,
Tormod Rafgard and
Thor Heyerdahl (from left)
Jorgen Jahre was born in 1907. He
was active in Norwegian and international tanker shipping until his
death in 1998. Apart from being a
partner in his uncle’s whaling and
tanker company Anders Jahre &
Co, his many commissions of trust
included the chairmanship of the
Norwegian Ship-owners’ Association from 1960-62, the Norwegian
Olympic Committee from 1963-65
and INTERTANKO from 19721975. During the miserable market
in the 1970s, he - thanks to his
remarkable diplomatic skills succeeded in establishing the
International Maritime Industry
Forum in London, bringing together
the four major actors in the tanker
industry: Banks, European oil companies, shipyards and tanker owners. The aim was to alleviate and
reduce the enormous tonnage surplus in order to expedite a balance
in the market through cancelling
shipbuilding orders and scrapping
obsolete tonnage.
© Private photo – T. Rafgard
situation was to cut down the tonnage supply in order to narrow the gap
between supply and demand. One of the astonishing aspects of the situation,
however, was that governments and bankers seemed to deny any long-time
problem caused by the massive overcapacity.
Thus, in December 1975, INTERTANKO, on the initiative of its chairman,
Mr. Jahre, was instrumental in setting up the International Maritime Industry
Forum (IMIF) to take remedial action to try to alleviate the tonnage surplus.
IMIF drew together tanker owners, European oil companies, shipbuilders and
bankers. The steering committee was comprised of Robert B. Horton, director
of BP Tanker Co., Otto Norland, executive director of Hambros Bank and L.
A. Vernede, managing director of the AG Weser shipyard, as well as Mr. Jahre.
The aim was to promote market recovery. Among the most important
targets were to convince shipyards to accept that a number of new building
contracts had to be cancelled. Likewise scrapping of obsolete and surplus
tankers had to be accelerated if market balance should be pushed forward.
Whether it could be credited to IMIF and INTERTANKO or not, the volume
of scrapping amounted to 45 million tdw from 1975-78, in addition to
20 million tdw temporarily withdrawn from the market to serve as storage
tankers.
Jan Erik Dyvi of Norway sent the first undamaged VLCC to the scrap yard
for demolition in 1978. The Dyvi Nova was only 10 years old and was followed by six oil company-owned super tankers of the same vintage. The first
half of 1978 saw the greatest volume of tanker tonnage scrapped in any
previous six-month period. Between 1974 and 1986, a fleet representing a
carrying capacity of more than 200 million dwt had been sold for demolition.
In its June 1975 report, John I. Jacobs recalled the tonnage shortage in 1968
after the closure of the Suez Canal when the Load Line Convention was
amended. This had allowed for deeper loading and increased capacity by five
percent. Now, the idea of reversing to the original load lines might give some
small alleviation. The oil industry, however, did not favour such a scheme.
INTERTANKO brought up several other ideas for curtailing the tanker
surplus, some of them more viable than others.
The oil industry was opposed to a proposal discussed in IMO that would –
also in the interest of a cleaner marine environment – introduce rules requiring
existing tankers over a certain size to be equipped with segregated ballast tanks
(SBT). This would cut the cargo capacity and reduce the desperate need for
129
reception facilities in loading ports and terminals for the dirty ballast carried
in the cargo tanks. Opposition also came from tanker owners who were in the
lucky position to have their tankers fixed on long-term charters, as it was unthinkable that they would be paid the same freight rate for less transportation
capacity. For tanker owners in the spot market, the intention seemed grand,
but there was little capital to finance costly conversions to SBT. The discussion
within the industry and even more so within IMO lasted for much too long to
have any meaningful effect on the surplus situation.
A viable alternative use of tankers was for floating oil storage. The Japanese
Government initiated a floating storage programme in 1980. It was expanded
to involve around 30 super tankers. US oil companies built up a fleet of floating storage in the US Gulf and the Caribbean. Floating storage reached its
peak in October 1981, when nearly 150 tankers representing about 35 million
dwt were used for that purpose around the world.
No stone was left unturned in the efforts to reduce the tonnage surplus.
Tankers were converted and used for cement storage, harbour construction
facilities and at least in one case as a reception facility for oil slops received
from other ships. Moreover, in the period from 1973 to 1982, 12 tankers
totalling about half a million dwt were converted to sheep or cattle carriers.
In 1982, it was reported that a super tanker, World Saga, had been purchased
and converted to an “ice island” drilling vessel in the Beaufort Sea. The use of
older tankers for oil production and trap/storage/offloading (FPSO) vessels
would become common at a later stage.
In 1977, INTERTANKO suggested to the US Department of Energy that there
were substantial savings to obtain if Alaskan oil was transported to the US
East Coast and Caribbean the long way around Cape Horn instead of being
transferred to smaller units and sent through the Panama Canal. Costs would
be reduced and some of the tonnage surplus would be absorbed. The calculations were straightforward, and after a while some VLCCs traded around the
Horn. During the Falkland War, one of them, the US-owned Hercules under
Liberian flag, was attacked and struck by a bomb when she was in ballast
from St. Croix to Valdez in Alaska. Because of the hazard of the unexploded
bomb, it was decided to scuttle the vessel off the Brazilian Coast.
Notes:
In 1983, some 372 tankers were laid up at the end of the year with an all-time high during the summer,
whilst 75 tankers were employed as floating storage. Further information on the massive disposal of
tonnage is found in the reports of major tankers brokers like John I. Jacobs, Fearnleys, etc., and in the
130
annual reports of INTERTANKO, where an oversight of alternative use is given in the annual report
for 1982, pp. 38-42. See also John Newton: “A century of tankers.”
In INTERTANKO’s annual report for 1975, p. 10, readers are reminded of tanker owners’ understanding of oil companies’ problems in 1967 and 1968, when the closure of the Suez Canal created a tonnage
shortage. Owners then voluntarily agreed to deeper drafts before the new load line rules were implemented. John I. Jacobs comments in its review, June 1975, p. 24: “One remedial measure which could
be implemented quickly provided governments can be persuaded to provide prompt ratification would
be a return to the pre-1966 situation regarding load lines. It will be recollected that on ratification in
July 1968 the 1966 Load Line Convention allowed decreased freeboards and the consequently increased
deadweight for tanker amounted to about 5 percent … To put the clock back to 1968 could reduce the
existing and future tanker availability by nearly 20 million tons, which would be a worthwhile palliative.”
On transport of Alaskan oil, see INTERTANKO annual reports 1978, p. 8, where it is reported that it
had been proposed to the US Energy Department that transport of oil in VLCCs around Cape Horn
would cost about USD 10 per ton, whilst the traditional transportation costs through the Panama Canal
in smaller tankers were more than double that amount. On water transportation, see Seatrade, June
1979.
Slow steaming
The masters on board tankers were ordered by their principals to cut losses
and sail at slow speed to reduce fuel consumption. The oversupply of oil-carrying tonnage at the end of 1975, as estimated by John I. Jacobs, was more
than one third of the total oil-carrying fleet.
Owners of some 450 tankers provided data to INTERTANKO relating to
tonnage operating both on the spot market and on period charter during the
period from July to October 1976. The information indicated that for the
tankers below 100,000 dwt, the average speed reduction was equivalent to a
loss of six and a half percent of total carrying capacity. The larger tonnage
groups showed nearly a 12 percent reduction, equivalent to about two knots.
The tonnage actually trading in oil at the time was about 300 million tons, allowing for at least 34 million tons in lay-up. Because oil-company owned tonnage was also operating at similar reduced speeds, the total reduction in global
cargo carrying capacity was estimated to have been about 30 million tons at
the time.
The man behind the estimates was a young economist who 40 years later
would become one of the leading European tanker owners, Herbjorn Hansson.
131
Bringing fresh water to MEG
A fascinating proposal to alleviate the weak market was to carry fresh water
in tankers on their ballast voyage to loading terminals in the Middle East. The
plan was launched by INTERTANKO at the “Environment and Pollution
Seminar” in Kuwait in April 1979. Reference was made to the fact that every
year some 400 million tons of water were carried as ballast to the Middle East.
Water transported in tankers for drinking and industrial use had in the past
been carried by tankers to destinations that had been short of rainfall, e.g. to
Peru and from Chinese rivers to Hong Kong. Why not use the fresh ballast
water for agricultural irrigation in loading ports in areas where water was
badly needed? Supplies by tankers could be supplementary to methods used
locally in the Middle East countries to overcome chronic water scarcity. Not
only would such a scheme help to make the desert bloom and increase food
production, it could also help to defray the operating costs of desperate tanker
owners.
Commander Trygve Meyer, INTERTANKO’s technical expert in cooperation
with the Kuwait Institute for Scientific Research and the Agricultural University of Norway, had researched plants watered by cleaned ballast and grown
in Gulf sands. They proved successful “in that all those involved have eaten
happily of the fruit and lived to tell the tale!”
Parallel to these experiments, the Water Supply Team of Mitsui Japan’s Ship
and Project Division worked with a similar project to make use of the ballast
water in tankers. In 1982, the Arab Gulf Cooperation Council which included
Saudi-Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates
decided to look into the feasibility of importing water in incoming tankers.
Also, IMO initiated studies on the provision of dual-purpose reception facilities where fresh water ballast would be treated and used ashore for industrial
and agricultural purposes.
But sadly, when the Iran-Iraq War entered into a new phase in 1984 through
numerous assaults on tankers, placing oil transportation and the lives of sailors
at risk, there was little priority left for new schemes like water transportation.
Note:
Source: Seatrade, June 1979, p. 82 and INTERTANKO Annual report 1979
132
Heads that had never been used
In the midst of a dismal freight market and a poor image, there was, however,
still room for an ironic twist. INTERTANKO chairman Mr. Naess, who was
no longer a young man, demonstrated that superbly in his eloquent annual
dinner speech in Eastbourne in 1978. In his well-drawn and witty presentation,
he admitted that he suffered from a strange head ailment commonly known
as vertigo and had consequently been hunting for a new head:
“Being in London, I therefore used the opportunity to visit the Caledonian
market where as you know you can buy all kinds of second-hand articles very
cheaply.
I told the salesman that I was in the shipping business and needed a secondhand head to replace the one I was now carrying, which was no good.
Being in the shipping business, he suggested that perhaps I would like a
shipbuilder’s head. I could have a European shipbuilder’s head very cheap. I
was delighted, and he showed me several, but alas, they all had their throats
cut. The salesman said this was unfortunately so because of the competition
with the Japanese.
I was certainly not going to buy a head with its throat cut, so I asked him to
show me some other heads. He suggested that perhaps some banker’s head
might interest me. I said it would, and he showed me several. But they all had
their eyes wide open and looking scared. I asked if they could not shut their
eyes, but the salesman said they had lost the ability to shut their eyes and sleep
because of anxiety over their ship loans.
I said this would be no good to me and asked for other alternatives. Brightly,
he suggested some oil company heads. I was enthusiastic, and he brought out
several from the cold store. But they were all squinting. He explained that they
all did because they for so long had one eye on the US Department of Justice
Anti-Trust Department and the other on their business. All oil company heads
squinted.
I said that did not want to go through the rest of my life squinting, so he had
to get me something else. Yes, I could get a shipowner’s head, but that would
be much more expensive. He had several good ones, but they cost several
thousand dollars. Why so expensive, I asked. Ah, he said, the reason for that
is that they have never been used. I replied that unfortunately this would be
no good, because why should I swap one head that has never been used for
133
another which was never used. That was the end of my visit, and unfortunately
I still have my old head.”
It is not what you preach; it is the way you preach. The joke being full square
on the owners themselves had them falling about in laughter.
III. THE CRISIS DEEPENS
The oil price shock of late 1973 was followed by new shocks in 1979 and
1980, when the depression was reinforced by the Iranian revolution, the
removal of the Shah and the arrival of the Ayatollah Khomeini. In September
1980, the eight-year-long war between Iraq and Iran began.
The glimmer of hope for a more healthy tanker market was overtaken by
new price panic, as oil prices once more went through the roof and jumped
from USD 13 per barrel to over USD 40. Several Arab governments, inspired
by the boom in 1973, realized that they had invested in tankers much too late
and became the victims of their own oil prize policies.
Apart from the industry’s unfounded optimism, other important reasons
for the development of the disastrous tonnage surplus were the bankers’ readiness to provide soft loans and the desire of many governments to keep their
shipyards alive and the workers fully employed through heavy governments
grants.
Despite all the negative aspects, the fleet of VLCCs, tankers above 200,000
tdw had continued to grow as the shipyards delivered an increasing number
of super tankers. Thus the world tanker fleet at the end of 1978 included some
700 big units. Thirty of these super tankers could each carry a cargo of
400,000 tons or more. By now, however, further ordering had ceased and at
the end of 1978, the order book was confined to only 16 VLCCs. The research
department in the London shipbroker firm John I. Jacobs estimated that the
surplus of tankers amounted to some 116 million dwt, or 31 percent of the
total tanker fleet. The VLCC sector was hardest hit; the value of a three-year
old, 250,000-ton turbine tanker had plummeted from USD 70 million in 1973
to USD 10 million in 1978.
After a passing market improvement in 1979 and 1980, decreasing oil transportation once more deflated the rate levels. From 1978 to 1985, crude oil
transportation shrank by incredibly 61 percent, expressed in ton-miles. Such
a collapse of the market was only aggravated by the already massive oversup-
134
ply of tankers. The long and painful adjustment of fleet to trade caused the
second – and most vicious – part of The Shipping Depression, the structural
changes which came to affect the shipping industry.
The bottom was reached in the summer of 1983, when a fleet representing
73 million dwt, more than 400 tankers, were without employment and laid
up around the world. This oversupply caused a trading environment where
only the cheapest operation could survive.
For the tanker industry, it was nothing less than a massacre.
By 1990, a fleet of tankers representing nearly 200 million dwt had been
removed since 1974 and was sold for demolition mainly to scrap yards in the
Far East. That amount of tonnage corresponds to no less than some 400 very
large crude carriers.
The painful adaptation of supply to demand, or tankers to trade, led to a range
of cost-cuts. Maintenance was in many instances reduced to the minimal of
surveys and what the classification society required. Replacing trained crews
with cheaper maritime labour from developing countries cut manning costs.
Management and crewing were often sourced out to third-party contractors,
while the commercial control of the vessel remained with the owners in the
traditional shipping centres.
Dr. Martin Stopford, managing director of H. Clarkson & Co. Ltd. in
London and a respected shipping economist, stated at a shipping conference
in Hong Kong that during the “survival period” routine maintenance of
tankers became a thing of the past. He reported: “major inspections were
reduced to a few hours’ paperwork in the office.”
Together, these factors led to a restructuring of the shipping industry, the move
from integrated shipping companies under national flags and national crews
to a globalized industry based on minimum standards and low-cost labour.
The cumulative effects of these changes took time to show. But from 1987,
the International group of P&I clubs began to receive claims that turned the
pool claims for the successive years from 1987 to 1992 into all-time records.
For the P&I club Gard, 1986 was closed with claims of USD 55 million, which
was the lowest in a decade. The following years, however, came to run pool
claims of a staggering USD 1.013 billion by 1994. The shipping industry had
been hit by a monster wave of calamities.
135
The years of gloom finally drew to a close in 1986,
when time charter earnings for tankers were up noticeably from USD 4,000 to 5,000 up to 15,000 per day.
From 1985 to 1990 the tanker trade picked up by 56
percent, expressed in ton-miles, whereas the fleet
continued to shrink by nine and a half percent.
This produced a long-awaited improvement. It was
time to pocket sale profits and look for new and
competitive tonnage as new opportunities opened.
Declining fleet of combined
carriers
Saddam Hussein
The president of Iraq started a
war with Iran in 1980 with tacit
support from the United States.
When the US eventually lost
patience with Saddam and
bombed Southern Iraq in
January 1993, US President
George Bush explained that he
had ordered the attacks to teach
Saddam a “short, sharp lesson.”
No result. When the US invaded
Iraq in 2003, Rumsfeld was US
Secretary of Defence and in the
forefront of the campaign which
ended with the capitulation of
Iraq and the hanging of
Saddam. The fight with Iraqi
terrorists still continues.
136
From 1979 to 1980, the combined carrier fleet began to
decline from the peak of 47 million tdw. The loss of
faith in this sector seems to be a combination of various
factors, one of which is that the operation of such ships
is far more complicated than the operation of a straight
bulk carrier or crude tanker. According to SSY Consultants, the biggest hurdle for these ships has been the
policy of many oil companies to not charter this type of
vessels. The fate of Derbyshire and other mysterious
disappearances might also have been a contributing
factor. By the year 2000, the combined fleet remained
a third of its former extent.
The first Gulf War
During these dismal years, an opportunity appeared for
profitable tanker trade in the war zone in the Middle
East Gulf during the Iran-Iraq war which began in
August 1980.
Freight premiums were offered for owners who took
the risk and sent their tankers for loading in places such
as Kharg Island in Iran. The war initially created a short
fall in crude oil supply as bombing damaged export
terminals. However, revenues for owners of VLCCs
were further depressed by an increase in bunker prices
of some 30 percent. USD 2 million was now required to
fuel a VLCC for a round-trip voyage from the Middle
East to Europe.
In 1984, the war entered a new phase, as neutral shipping became military targets, both for the Iraqis and
Iranians, what was to be called The Tanker War.
This began when Iraq attacked Iranian tankers and
the oil terminal at Kharg Island in 1984. Iran struck
back by attacking tankers carrying Iraqi oil from
Kuwait and then any tanker of the Persian Gulf states
supporting Iraq. The attacks by air and small boat did
very little damage to Persian Gulf state economies. Iran
moved its shipping port to Larak Island. No less than
343 tankers had been hit in the war, resulting in more
than 60 total losses and about 250 sailors being killed
in the straits of Hormuz.
On Nov. 1, 1986, Kuwait formally petitioned foreign
powers to protect its shipping. The following year, the
US Navy was brought in to protect US interests and also
neutral ships bound for Iraqi ports.
Lloyd’s of London estimated that the Tanker War
damaged 546 commercial vessels and killed about 430
seafarers.
The work done by INTERTANKO towards sensitizing public opinion to the importance of this matter was
apparently not lost on the United Nations. Recognition
by the Security Council of the legitimacy of the association’s concern and initiatives – as expressed at the May
1988 meeting in New York between representatives of
the Security Council and INTERTANKO under its
chairman Mr. Papachristides – augured for an awakening of international conscience on a most critical issue.
Basil Ph. Papachristidis
Basil Ph. Papachristidis is the
Chairman of Hellespont
Steamship Corporation and various shipping groups. His father
founded Hellespont in 1946
and became a member of Intertanko’s Executive Committee.
Basil Papachristidis become its
chairman in 1981. In 19871989 as chairman of INTERTANKO, he placed the war
between Iraq and Iran on the
top of his priority list. He urged
maritime actions to provide
naval escorts to protect innocent passage in the Gulf and
started a tour of meetings with
political leaders to whom his
message was clear: The attack
on shipping and the killing of
seamen in breach of international law had to be stopped.
At the time he retired as a
chairman, the combatants had
agreed on a cease fire.
137
Mohammad Souri
Mohammad Souri has served
as Chairman and Managing
Director of NITC since 1986.
He is a Howard University
(USA) graduate with 30 years'
experience in shipping. In 1982,
he joined the Islamic Republic of
Iran Shipping Lines and served
as Chairrman and Managing
Director until he joined NITC
in 1986.
NITC tanker, Barcelona
The National Iranian Tanker
Company continued its services
during the war with Iraq. This
photo depicts the tanker
Barcelona ablaze in the Persian
Gulf.
Notes:
In his article, “Tanker Industry Overview,” Martin Stopford commented on tanker owners’ strategies
in the survival period. See INTERTANKO, “The first 25 years,” Oslo, 1996, pp. 91-101. Out of a total
number of 567 VLCCs in the market by the end of 1983, as many as 332 units were estimated to represent surplus tonnage (slow steaming taken into account). Sixty-five VLCCs were sold for scrapping
that year, including the largest tanker ever built, the 546,000-dwt PierreGuillaumat. See J.I. Jacobs’ reports from December 1980 and 1983 and INTERTANKO’s annual report for 1983.
Today, the VLCC fleet includes about 550 units. See Erik Ranheim’s article in Kapital no. 2, 2010.
On the development of the combined carrier fleet, see SSY Consultancy & Research Ltd., London, Vol.
2, 2000.
On the Gulf War and the cost of a round-trip voyage from the Middle East to Europe, see Stephen
Howarth “Sea Shell,” pp. 176-177 and Jack Devanney: “The Tankship Tromedy,” Florida, 2006, pp.
31-32, where he describes the attack on the 412,000 dwt storage tanker World Petrobas, which was
bombed by Iraqi jets whilst transferring oil to another tanker. The captain reported: “Since we were
both inerted and had our inert gas plants running, an explosion was avoided.” Devanney opines that
inert gas was “a tremendous step forward in tank ship safety – the single most important step of all
time.”
IV. COUNTERPRODUCTIVE MEASURES?
The groundings in 1976 of old Argo Merchant and two years later the recently
built Amoco Cadiz caused pollution from ships as different as two crude carriers could be. But yet their negative effect on the image of the tanker and oil
industry was much the same. Ironically, the Amoco Cadiz accident happened
at the same time as the annual INTERTANKO meeting on the other side of
the English Channel in Eastbourn. The independent tanker owners had gathered its members to discuss the public perception of tankers and the perception
of the new giant tankers that during the last years had been delivered by the
ship yards to carry oil cargoes over 300,000 tons.
In Eastbourne the press was told that as most accidents happened in congested waters, in and out of ports. According to both the oil industry and the
independent tanker owners, larger units would mean less traffic, less control
problems and safer transportation.
The environmentalists had long argued that the increasing number of
VLCCs was bound to result in more disasters. Thus the answer from the
environmentalists was: “No way, the bigger the tankers are, the bigger the
disaster will be.”
Few tanker owners found much comfort in the Greek proverb: “The sea gets
sick, but it never dies.” In this crisis, most tanker owners felt that the current
mass production of new rules was counterproductive. Strict implementation
of current rules would be far better than the production of new measures, that
140
Sir Yue-Kong Pao
governments seemed to neglect and which a large number of owners could not afford to implement in any
case.
The problem for those owners who tried to follow
up the new regulations was further increased by the
oil companies’ preferences for cheap transportation.
Despite the public declarations from their top men, their
chartering departments continued to prefer the lowest
bidder.
In September 1981, INTERTANKO’s chairman, Sir
Pao, sent a message from Helsinki which included the
following passages:
“Intertanko particularly endorses the current efforts
of IMCO to obtain ratification of international
conventions … . The delay among some IMCO member states … gives rise to concern. INTERTANKO is
apprehensive that over-ambitious goals set by IMCO
Born in 1918 in Ningbo, China,
Sir Yue-Kong Pao trained as a
banker. He moved to HongKong in 1949 and established
his own shipping company.
Over the next 25 years, he assembled the largest privately
owned ocean-going fleet under
one house flag – over 20 million
dwt including tankers and dry
bulk carriers. He was the resourceful chairman of INTERTANKO from 1979-1982 with
direct access to world leaders
such as Britain’s Margaret
Thatcher, America’s Ronald
Reagan and Germany’s Helmut
Schmidt. Before his death in
1991, he was knighted by
Queen Elisabeth of England.
141
may result in difficulties experienced by individual governments …
This might in turn, injure IMCO’s image and effectiveness ... a need exists
to consolidate present efforts with the aim of inducing governments to give
priority to the ratification and enforcement of conventions already agreed.
INTERTANKO believes that amendments approved prior to ratifications
of conventions very often raise … uncertainty among administrations
and tanker owners. This can only be harmful to IMCO’s efforts to
achieve early ratifications … INTERTANKO, therefore, urges IMCO to
consider this aspect fully before considering further amendments to conventions awaiting ratification.”
IMCO took the point, and two months later its Assembly decided that the
organization should:
“entertain proposals for new conventions or amendments to existing
conventions only on the basis of clear and well-documented demonstrations
of compelling need, taking into account the undesirability of modifying
conventions not yet in force or of amending existing conventions unless such
later instruments have been in force a reasonable period of times, and
experience has been gained of their operation, and having regard to the cost
of the maritime industry and the burden of the legislative and administrative
resources of member states.” (Source: Resolution A-500).
European ministers responsible for maritime safety met in Paris in 1982 and
agreed on a Memorandum on Port State Control, which committed them to
inspect 25 percent of all foreign ships entering their ports every 12 months.
Moreover, it was agreed to develop common inspection standards.
V. PRICY FUEL AND DIRTY TRICKS
During the years since 1973, soaring oil prices and reduced supplies of oil had
resulted in demand for higher yields from every barrel of crude. At an IMIF
meeting in London in June 1977, a prominent tanker owner from Norway
illustrated the huge operating losses owners of VLCCs were suffering.
He pointed out a 250,000-dwt tanker, burning 165 tons of bunker oil a day
at the speed of 16 knots, which would earn on a voyage from Kuwait to Rotterdam some USD 820,000 at the current freight level. The cost of the bunker
oil alone would come to about USD 800,000, and port fees accounted for a
142
further USD 115,000. Daily running costs under the Norwegian flag for the
63-days-long round trip represented about USD 7,000, totalling USD 440,000.
Even if depreciation and interest on capital were ignored, expenses exceeded
income by around USD 8,500 every day. Few owners could afford to continue
effectively subsidizing the oil companies and other charterers in this manner
for long.
The poor quality of fuel the shipowners would receive from their suppliers
made the increasing fuel prices problem worse. This was related to the oil
industry’s introduction of a new separation process: Catalytic cracking. By
this process, the crude oil achieved higher yields of lighter distillates from each
barrel. The residual oil left at the bottom of the barrel was sold as fuel oil for
ships called “bunkers:” An extremely poor product for which there was little
market elsewhere. Still, bunker oil remained without comparison the single
most expensive part of a tanker’s operating costs.
The quality of the residues at the bottom of the barrel declined gradually to
an all-time low, whereas prices accelerated to an all-time high. It did not help
that the oil industry left it to the shipowners to separate and dispose of
abrasive sediments as aluminium and silicate particles, which might tear up
the cylinders and the fuel pump in a short time.
Refineries would easily be in a position to remove the sediments. Tanker owners and other shipowners were under international law in duty bound to ensure
the seaworthiness of their vessels prior to the commencement of the voyage.
This meant that the fuel must be good for the engine, good enough to enable
the tanker to reach its destination safely. Engine breakdowns because of inferior bunkers were experienced, but not yet in narrow and heavily trafficked
waters. The industry could not afford another Amoco Cadiz.
Neither did it help that the business ethic of an increasing number of bunker
suppliers became more and more questionable. Excess water was blended in
to the bunkers sold to shipowners. Seeing that as a business opportunity, some
bunker suppliers were even more inventive and provided reception facilities
for the oil slops that remained after the discharge of cargo. As discharging of
the tank residues in the sea was illegal and no alternative for the prudent
operator, his best alternative was to pay a price at the bunkering station to get
rid of the cargo residues. But then, a “clever” bunker supplier would mix the
slop into the bunker oil that he sold back again to shipowners – and hocuspocus, the supplier was paid twice. The reception facilities dreamed of in
IMO’s meeting rooms did not exist in the real world.
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Dr. Carsten Boe
Dr. Carsten Boe was born in
1944 in Bergen. A few years
after he earned his doctorate,
he joined Det Norske Veritas,
where he became a director and
developed a special interest in
the field of bunker economy for
ships. At a General Meeting of
INTERTANKO in Manila in
1980, he presented his views on
the prevailing quality problems
together with Mr. F.B Ashlock,
Vice President for navigation
and marine sales of Chevron.
Dr. Boe suggested a closer
co-operation between tanker
owners and the classification
societies to provide information
on bunker qualities in the
various ports of the world. After
the meeting, chaired by Sir YueKong Pao, several constructive
measures were initiated to
alleviate the problems. Dr. Boe
also set up his own business in
Oslo to provide expert advice.
144
In ancient China, mixing sand and gravel in rice was a
crime punishable by death. The major tanker owner of
the world, the Mr. Pao, put the problem on INTERTANKO’s agenda. At the annual meeting in Manila in
1980 attended by Dr. Carsten Boe – who spoke for the
DNV – together with representatives of Chevron, it was
decided to establish a closer cooperation to find remedial measures to improve the situation. Shortly after the
meeting, tanker owners were offered to send samples of
the fuel bunkered by express airmail to the laboratories
of DNV that developed a fuel-testing programme.
The ships would receive test results within four to eight
days. Reports were issued monthly showing the most
important parameters for each bunkering station to all
subscribers.
At the instigation of The General Council of British
Shipping, the British Standard Institute introduced
marine fuel standards in January 1983.
Moreover, in close cooperation with Dr. Carsten Boe,
INTERTANKO provided from that time on a bunker
information letter – called the White List – which
became popular for reporting names of reliable
bunker suppliers around the world. In the same spirit,
the International Chamber of Shipping succeeded to
persuade its oil company membership to accept a
standard delivery note to be used by suppliers for some
specifications of the fuel delivered.
When receiving reports on the most important parameters for each bunkering station, buyers could make more
informed decisions on the fuel-quality standards of different suppliers. A minimum requirement was, however,
that the chief engineer onboard knew more about the
fuel he received from bunker suppliers. It would be of
little help if the chief engineer and his assistants onboard
were not capable of understanding what the specifications meant. But as Moses descended from Mount Sinai
with 10 “guidelines” to his people, the organization of
tanker owners descended into the engine rooms of its
membership with 10 commandments for the chief engineers to ensure that
they were up to par.
A fuel focus report published and distributed by CBC Marine Publications (set
up by Dr. Boe) complemented the White List. Both were based on the analysis
of data supplied by Lloyd’s Register’s respected Fuel Oil Bunker and Advisory
Service (FOBAS). In July 1992, the port of Singapore clamped down on bunker
fraud as the Port instituted a new bunkering procedure in order to eliminate
fraudulent practice in the largest bunker port in the world. By and by, other
ports also took similar action. After some years, an organization of bunkering
ports was set up to improve the image of this industry.
Not all tanker owners seemed “clean” either, and some appropriated quantities
of cargo oil to fuel the ship. Control was not easy. Some cargo loss had, after
all, always been accepted by the cargo-receiver as measurement was no exact
science, and human failure had to be taken into consideration. Thus, cargo
insurers had for a long time accepted about a half percent cargo loss as a
standard insurance deductible.
As cost-cutting was a condition for continued trading, the less honest owners
found that one way to survive was by bunkers cheating. Pressed by soaring
bunker prices, low-quality bunkers and the lowest freight market ever seen,
cargo losses were turned to account by some ship-owners.
By manipulating the positioning of the tanker just after loading, it was possible
to trick the terminal inspector to believe that less cargo was loaded than was
the case. One step further was taken when the idea struck the even more
inventive ones that a good deal of money could be saved simply by pinching
some tons of crude from the cargo tanks and using it as bunker oil. By
installing a hose from the cargo tanks over to the bunker tanks connected with
the engine room, “good” money could be saved. Regrettably, more than one
owner abused this opportunity to reduce their losses.
It was a highly dangerous practice, as the transferred crude contained the gas
naphtha and other flammable gases that increased the risk of explosion and
endangered the lives of the crew. Similarly, the use of oil slops (residues in the
tanks) as bunker oil was a dangerous practice, as the slops contained explosive
gas. But key officers were rewarded for performing this risky operation. It is
alleged that rewards in the form of travellers cheques were contributory to the
unveiling of a celebrity case that related to a Norwegian tanker owner who
later acquired one of the world’s largest tanker fleets.
145
The details were presented in an unauthorized biography published in 1991
and go as follows:
The shipowner’s P&I club had received more claims than average for cargo
losses onboard his tankers. Suspicion raised, the insurers managed to find a
dismissed captain who put the cards on the table and confessed. He was moreover in a position to name other officers who could confirm his story. A professional insurance investigator got – after some pressure – the information he
was after. Further supporting witnesses appeared from other quarters.
Unveiling documentation was, however, never confiscated. It was believed
to have been burnt as soon as the ship owner’s directors understood the seriousness of the case. But the Norwegian Police concluded they had gotten sufficient evidence and arrested some executives while they searched after the top
man. In June 1986, the shipowner gave himself up. Subsequent to countless
examinations, he was released after several months in jail.
The case came never up for trial. It was postponed time and again. In the
meantime, lawyers unveiled the amateurish investigation by the police who
had no knowledge of maritime matters. It did not help, either, that elementary
rules of procedure in the penal code seemed to have been overlooked in the
rush. Some of the confessions given by the executives were withdrawn. The
drama ended in September 1989, when the parties settled the matter. According to the unauthorized biography, the shipowner accepted to pay his insurer
USD 800,000, and some of the money that had been seized. He also accepted
to pay a heavy fine for endangering the lives of the crew. All other charges
were withdrawn.
Notes:
On owners operating losses because of bunker prices, see the report of J. I. Jacobs, June 30, 1977, p.
22. On the general bunker problems, see a presentation by T. Rafgard for DNV Forum, May 6, 1982,
in New York; Lloyd’s List, March 10, 1986 and Jan. 21, 1987; Hauge & Stavrum: “John Fredriksen –
an unauthorized biography,” Oslo, 1991; Tradewinds, July 31, 1992; Seatrade Review, August 1993.
VI. MORE SPILLS TO FOLLOW
On Jan. 8, 1979, the corroded structure of a large French oil company-owned
tanker, Betelgeuse, blew up whilst discharging at Bantry Bay in Ireland. Fifty
people were killed. Findings by an Irish tribunal under a High Court judge
placed the responsibility at the feet of the owners, the Total Oil Company, but
also apportioned blame to Gulf Oil, which managed the terminal, because of
its failure to ensure the safety of personnel at the offshore jetty. An inspection
146
of the tanker, nine months before the explosion, revealed 37 cracks in its cargo
tanks. The ship’s classification society, Bureau Veritas, knew that the ship was
in an inferior condition, but did not interfere, as Total intended to sell the ship.
The oil pollution caused is not reported.
The Tanio case had served to show that the principles in CLC/FC were
reasonably well-adapted to cope with pollution incidents of large magnitude.
But the Amoco Cadiz disaster, where the real damages had been estimated to
be well over USD 1 billion, had made it abundantly clear that the liability
limits for pollution damage were hopelessly out of date and were far too low
to provide fair compensation to pollution victims.
Both the oil industry and the tanker owners recognized the need to provide
increased compensation to pollution victims. But the opposing views on who
should pay up delayed the progress. It took more than five years of preparations before IMCO, with some hope of success, once more could invite
delegations to London to revise CLC69/FC71. In the meanwhile, IMCO had
in 1978 taken steps to revise the MARPOL Convention of 1973.
Whilst fresh amounts of documents were produced in preparation for a new
conference, new serious tanker accidents occurred. According to statistics
provided by the US Coast Guard, an oil spill larger than the one caused by
Amoco Cadiz occurred on the July 19, 1979, 10 miles off Tobago in the West
Indies. The 292,000-ton Greek super tanker, Atlantic Empress, caught fire
after having collided with a large Liberian tanker, Aegan Captain. The oil spilt
threatened not only Trinidad and Tobago, but the South American mainland,
as well.
With oil leaking out, Atlantic Empress became completely engulfed in
flames. Instructed by the local government, salvors managed to tow the wreck
further out to sea, whilst at the same time striving to extinguish the fire. But
to no avail, an enormous explosion ripped the tanker apart and she sank with
most of her 257,000 tons of oil cargo still on board. Twenty-nine of her
34-man crew were killed. The Aegan Captain was towed to Curacao, where
her remaining cargo was discharged before she was sold for demolition.
Atlantic Empress is still listed as having caused the largest oil spill ever.
Thanks to the salvage operation, the cargoes did not cause pollution ashore.
An environmental catastrophe had been avoided. But the weakness of the old
international salvage rules was once again unveiled; as salvors had failed to
save any property, they had no right to any award for their services rendered.
147
Some months later, on Nov. 15, 1979, south of the Strait of Bosporus, the
Romanian tanker Independenta (147,631 dwt) exploded after a collision with
a dry cargo ship. All but three of 45 crewmembers died. The force of the
explosion smashed windows up to four miles inland. The tanker continued to
burn for weeks. From the breached tanks, 95,000 tons of oil poured out, while
a blanket of thick acrid black smoke hung over Istanbul. After a month, the
fire burnt itself out. In the meantime, navigation in the strait was halted.
The next year, 1980, the tanker Irene’s Serenade exploded and spilled 82,000
tons of oil in Greek waters.
Even if no pollution damage was traced, the picture of 1980 would not
be complete without mention of the mysterious disappearance of the largest
UK-flag ship ever to have vanished at sea, the 170,000-ton ore/oil carrier,
Derbyshire. She was built by Swan Hunter’s shipyard in the UK and launched
in 1976. On her final voyage, she was bound for Japan carrying dry cargo
when she was lost with 42 British officers and crew and two wives. The
subsequent formal investigation concluded that one could never with any
certainty find out what happened during the last minutes before the vessel disappeared, leaving no trace. The most likely explanation could be that it was
caused by a violent typhoon.
This conclusion was, however, not generally accepted by the International
Transport Federation and other parties, as findings of what is believed to be
the stern section and hundreds of small pieces of wreckage indicated an
extremely violent break-up of the hull in a very short time - perhaps only
seconds or minutes. One may also wonder whether this combined carrier
collapsed, due to an explosion in the same way as the two “Berge-ships.”
The years 1981 and 1982 went by without serious tanker spills. In 1983, however, one of the major oil spills so far occurred.
Thanks to the weather, what could have become one of the worst pollution
catastrophes ever was avoided when the Spanish super tanker Castillo De Bellver, laden with 250,000 tons of light crude oil, burst into flames in 1983 off
South Africa. She came from Jebel Dhanna, United Arab Emirates, bound for
Spain. After huge explosions, she started to burn, broke in two and sank with
some 100,000 tons of crude oil still in her tanks. Three crewmembers were
killed. More oil escaped into the sea from Castillo De Bellver than from
Amoco Cadiz, but an offshore wind pushed the 60-square-mile oil slick out
to sea and away from the nearby beaches. A black oily rain - from smoke
caused by the oil on fire - fell upon the farmland, damaging wheat crops and
148
harming flocks of sheep in the land around Saldanha Bay. In 1994, South
Africa’s Cape peninsula beaches were polluted again. Oil seen bubbling up to
the surface in the same region was believed to have come from the Spanish
tanker that had gone down there 11 years earlier.
VII. THE SLOW BUT STRONG RECOVERY OF
THE TANKER MARKETS
Troubled tanker owners began to see a silver lining in 1986, when the freight
rates showed signs of improvement. The trade decline had bottomed out the
previous year and from there begun to climb, driven by a general economic
recovery and a shift in manufacturing from Western to Far Eastern economies.
The tanker market went into a healthy recovery in 1988-1991, as reflected
by long-awaited revival of ship values. From 1986 to 1991, crude oil transportation grew by 11 percent per annum, while the fleet continued to shrink
until 1988 and from there pick up slowly. By 1991, the world tanker fleet
stood at 246.4 million tdw; 18 million tdw less than in 1985.
The phase of recovery passed into a slower pace in the 1990s, with a 14 percent increase in crude oil transportation from 1991 to 1999 and a marginally
higher increase in vessel capacity. The decade ended on a negative note, as
transportation decreased by 12 percent until 2002, while the fleet continued
to grow by five percent.
The progress of the globalized economy and the “China boom” made the
period from 2002 one of rapid growth. In six years, the world seaborne trade
showed an increase of 39 percent; six and a half percent per annum. The
growth in crude oil transportation, however, was barely half that rate, 18.5
percent, or three percent per annum. Additions to the tanker fleet could not
keep pace with the growth, but left an order book at the end of 2008 of 164
million tdw, corresponding to 43 percent of the trading fleet of large tankers.
Relations may be put into perspective by looking back: The crude oil trade
in 2008 of 9.3 billion ton-miles was about the same level as 1973, while the
fleet was more than doubled, 101.5 percent larger to be exact.
Behind the dry statistics we find a dynamic and dramatic story. The revival of
the industry in the late 1980s brought several ailments to the surface; more
on these later. The 1990s were largely disappointing to the shipping industry,
with weak periods from 1991 to 1993 and 1998 to 1999. Shipping was still
149
© Furulund, Svein Erik / Aftenposten / Scanpix
Herbjorn Hansson
Herbjorn Hansson was born in
1948. In 1974, the Norwegian
Shipowners' Association hired
him. From 1975 to 1980, he
was chief economist and
research manager of INTERTANKO. During the 1980s, he
was Chief Financial Officer of
Kosmos. In 1989, Mr. Hansson
founded Ugland Nordic
Shipping AS, or UNS, which
became one of the world's
largest owners of specialized
shuttle tankers. Mr. Hansson is
also the founder and has been
Chairman and Chief Executive
Officer of Nordic American
Tanker Shipping since its
establishment in 1995.
150
considered to be “high risk and low profit.” Yet, the
trading environment changed with stricter regulations
and operations requirements, brought about by OPA
’90, the ISM code and stricter practices by the oil companies. And at the same time, a consolidation process
began which also altered the structure of the industry,
with large fleets built up in specific segments by players
such as Teekay, the Tankers International pool and others.
Those who remained in the market were to be richly
rewarded by the “China boom.” The boom was preceded by a strong upturn in the autumn of 2000 that
saw freight rates unseen for decades. From 2003,
rising demand came to maintain a firm market with
pronounced contractions to all-time high levels. In general, tanker values doubled from 2002 to 2006.
The recovery from 1986 was followed by an unexpected
surge in damages; in small incidents like collision,
groundings and cargo contamination, but also human
and environmental disasters. Ferry tragedies such as the
Herald of Free Enterprise, Scandinavian Star and
Estonia contributed to a new focus on stability and fire
protection, while Exxon Valdez, Mega Borg and others
led to a new round of pollution liability.
It all turned into a disaster tsunami of excessive damage claims. The P&I pool claims went from a quiet
period in the mid-80s into a wave of claims in 1987 to
1991. For the period from 1982 to 1986, annual claims
came out at USD 59 million after eight years, rising to
209 million per year for 1987 to 1991. An analysis the
P&I club Gard carried out in 1992 showed that slightly
over half of all major claims resulted from human error
by crew, officers or pilots. Thirty-five percent were related to structural, mechanical and equipment failure.
Pilot error was the main cause in 50 percent of all major
property damage cases, with officer error accounting for
a further 25 percent and crew error 12 percent. More
major claims arose in the US than in any other jurisdic-
tion: 42 percent of the number and 50 percent of the value. Vessels in the 10to 14-year-old range were the most liable to claims.
There were reasons, effects and consequences.
The shipping industry had come to face the bill for 12 years of depressed
markets, the combined effects of low-cost operation, neglected maintenance,
faulty technical equipment, human error, cultural clashes and also the
emergence of a new breed of players. The drive for cost-cutting in order to
survive had brought in a new manning structure largely based on third-world
seafarers, not all of which were properly trained and qualified. Even the
standards of classification societies were slipping. There were losses and
pollution where the owners of the incumbent vessel were impossible to trace,
hidden behind a free flag register and a post office box address in a tax haven.
Disasters such as Exxon Valdez and Herald of Free Enterprise attracted
great public outcry and political concern. When also the US Coast Guard and
the Paris MOU port state control agencies revealed more vessels with technical
defects or not compliant with regulations, the shipping industry at large came
under scrutiny.
The industry was to be taken to task.
The European nations and Japan were pressing for IMO solutions rather
than unilateral steps like the OPA’90. It was not the lack of rules and regulations, but rather the lack of implementing them that had caused the accidents.
Consequently, a safety management system was needed. IMO agreed on the
International Safety Management (ISM) code in May 1994, to be implemented
by 1998 and 2002. This also included external audits of ship and shore organizations. The human factor was dealt with in a new Standards of Training,
Certification and Watchkeeping for Seafarers (STCW) code with stricter
requirement for seafarers’ training and qualifications in 1995.
The charterers, the oil companies, instigated their own quality control
systems, based on regular control of management, operational procedures,
contingency plans, etc. These “vettings” became a new control burden on the
vessel and the officers, along with Port State Control and Class.
Neither ISM nor the Port State Control could prevent the Italian-owned
tanker Erika from breaking up in heavy weather off Brittany in 1999. The
measures laid down by the EU Commission in the Erika packages the following year laid a time-table for phasing out single-hull tankers. More ominous
was the lack of continued efforts to include other actors in the safety chain as
potential responsible parties for pollution damage.
151
Notes:
The Betelgeuse salvage operation lasted for more than a year. Total claims for the incident amounted to
USD 120 million. The West of England P&I club paid for the pollution response costs and the removal
of the wreck.
Independenta closed the Istanbul Strait for weeks. The wreck remained in the area for several years before it was removed. According to ITOPF, the incident in 1979 is in 2010 still listed as the 12th largest
oil spill. See also the UK P&I club 125-year anniversary report.
On the mysterious sinking of Derbyshire, see Lloyd’s List on April 11, 2000. The relatives of the 44
people who died had formed the Derbyshire Families Association to try to prove that the vessel suffered
structural failure rather than being overcome by the forces of nature. In January 2010, it was reported
that the chairman of the Families Association was appointed Member of the Order of the British Empire
for his continued efforts to campaign for better shipping safety regulations, Lloyd’s List, Jan. 5, 2010.
Derbyshire was owned by Bibby Line in Liverpool and built by the Swan Hunter shipyard.
On Castillo De Bellver, see Lloyd’s List June 27, 1994, and Norman Hooke in Lloyd’s List Safety Supplement, May 2000. According to ITOPF, the spill still ranks as the third-largest oil spill.
The fleet and trade statistic is based on information published by Fearnleys and RS Platou, Oslo, and
Institut fur Seeverkehrswirtschaft und Logistik, Bremen.
Herald of Free Enterprise was a car/passenger ferry which capsized outside the Belgian port of Zeebrugge
in March 1987. The ferry with 650 passengers was bound for Dover when hundreds of passengers were
trapped onboard. The final death toll was 193. The owner was Townsend Thoresen.
The Scandinavian Star caught fire in April 1990 while carrying 439 passengers and 268 crewmembers
between Oslo and Fredrikshavn, Denmark. One hundred fifty-eight people were killed. During the investigation, there were great problems with identifying the real owners of the vessel.
Estonia was a passenger ferry with 989 people on board when she sank en route from Tallinn to Stockholm in September 1994. Only 137 people survived. The owners were EstLine Maritime Company of
Estonia and the Swedish company Nordstrom & Thulin. The three tragedies resulted in a new focus on
passenger ferries within IMO in order to improve stability and fire protection.
152
HM Strategies
TANKERSEABORNE
MARKET – SELECTED
OIL TRADEGRAPHS – by Shipping Adviser Jarle Hammer
SEABORNE
TRADE
14000
SEABORNE
OILOIL
TRADE
BILLION TONNE-MILES
14000
12000
HM Strategies
PRODUCTS
BILLION12000
TONNE-MILES
CRUDE OIL
PRODUCTS
10000
CRUDE OIL
10000
8000
6000
4000
8000
6000
4000
2000
0
2000
62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
© Fearnleys
0
62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
© Fearnleys
This slide shows the phenomenal growth in oil ton-miles due to strongly increased oil usage and longer shipment
distances because of the increased role of the Middle East and in particular the closure of the Suez Canal from 1967
to 1975. The strong decline in the late 1970s and up to the mid-1980s can mainly be ascribed to the North Sea
offshore expansion and the war between Iran and Iraq. This war led to severe oil-production cuts and strongly
increased oil prices, spurring the search for alternative oil and favouring other types of energy. An increasing share
of seaborne oil trade is shipped as oil products following increased downstream involvement in oil-exporting
countries in order to get higher value added. The growth in world oil consumption has tapered off significantly.
Total seaborne oil trade measured in tonne-miles in 2009 was only about 2 percent higher than in 1977.
HM Strategies
HM Strategies
OIL PRODUCTS BY AREA 1960–2010
OILPRODUCTS
PRODUCTION
AREA1960–2010
1960–2010
OIL
BYBY
AREA
MILLION B/D incl. NGL & Condensates
MILLION B/D incl. NGL & Condensates
30
Sources: BP/OPEC/IEA
25
M. EAST OPEC
HM Strategies
Sources: BP/OPEC/IEA
30
25
M. EAST OPEC
20
R-O-W
20
15
R-O-W
N. AMERICA
15
10
N. AMERICA
10
FSU
OTHER OPEC
FSU
OTHER OPEC
5
N. SEA
5
0
60 62 64 66 68 70N.72SEA
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
N. America includes USA, Canada & Mexico
0
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
N. America includes USA, Canada & Mexico
Here, production developments since 1960 are shown. Middle East OPEC’s role as a swing-producer is clearly
displayed. So is depletion in some areas, like North America (USA, Canada and Mexico) and the North Sea.
The former Soviet Union has managed to get back to pre-collapse levels. As for areas not included in the graph,
Brazil has enjoyed substantial offshore success, whereas China and the Far East show fairly stable or stagnant
output levels.
153
HM Strategies
TANKER MARKET – SELECTED GRAPHS – by Shipping Adviser Jarle Hammer
CRUDE OIL EXPORTS
HM Strategies
CRUDE OIL EXPORTS
MILLION B/D
Source: OPEC
35
OPEC EXPORTS
30
25
20
15
10
NON-OPEC
EXPORTS
5
0
70
72
74
76
78
80
82
84
86 88
90
92
94
96
98
00
02
04
06
08
HM Strategies
HM Strategies
OPEC’s crude oil exports were in 2009 lower than in 1972. However, OPEC’s oil production was significantly
higher. OPEC’s domestic oil consumption has increased strongly, and more oil is exported as oil products. NonOPEC exported more crude oil than OPEC in 2002, but has since seen a continuous drop due to depletion of
resources.
SEABORNE OIL TRADE
OIL TANKERBILLION
DELIVERIES
& DELETIONS [Vessels over 10,000 dwt]
TONNE-MILES
OIL TANKER
DELIVERIES & DELETIONS
14000
HM Strategies
VESSELS OVER 10 000 DWT
50
PRODUCTS
MILLION12000
DWT
CRUDE OIL
10000
DELIVERIES
40
30
8000
6000
DELETIONS
4000
20
2000
10
0
62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
© Fearnleys
0
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
© Fearnleys
In this graph, deletions include scrapping, losses and conversion to offshore units, heavy-lift vessels and bulk
carriers. In recent years, many more tankers have been converted than actually scrapped.
Old, solid single-hull vessels constructed with mild-steel skin, which is thicker than the high-tensile skin used in
modern vessels, provide a favourable alternative compared to construction of purposed-built offshore units and
various vessel types starting from scratch.
154
HM
Strategies
TANKER
MARKET
– SELECTED GRAPHS – by Shipping Adviser Jarle Hammer
OIL
LAY-UP
– YEARLY
AVERAGES
OILTANKER
TANKER
LAY-UP.
Yearly averages
75
HM Strategies
MILLION DWT
75
50
50
25
25
HM Strategies
0
HM Strategies
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
SEABORNE OIL TRADE
Source: Fearnleys
OIL
FLEET
1960–2010
[Vessels over 10,000 dwt]
BILLION TONNE-MILES
OILCARRIER
CARRIER
FLEET
1960–2010
14000
HM Strategies
VESSELS OVER 10 000 DWT
500
PRODUCTS
12000
MILLION DWT
START OF YEAR
CRUDE OIL
10000
400
OIL TANKERS
8000
300
6000
4000
200
2000
100
COMBINED
CARRIERS
0
62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
© Fearnleys
0
1960
1970
1980
1990
2000
2010
© Fearnleys
This shows the fleet development for oil tankers and combined carriers. The tanker fleet peaked at 331.8 million
dwt at the beginning of 1978. The combined carrier fleet peaked at 48.7 million dwt one year later. It took 29 years
for the tanker fleet to become larger than in 1978. It stood at 410.1 million dwt at the beginning of 2010.
The combined carrier fleet has seen a continuous decline to only 4.7 million dwt.
The serious disasters of “Berge Vanga” and “Berge Istra” in the 1970s illustrated the risk of combining oil cargos with possible gas leaks - and iron ore, with possible sparks in connection with cargo handling. Combined carriers
are more expensive to build than plain tankers and bulkers. They are either suboptimal tankers or suboptimal bulkers. However, the few still around benefit from nice combination trades in wet and dry and modest ballast distances.
In protracted periods of tonnage oversupply, cargo owners were in a pick-and-choose position, and the popularity
of combined carriers has faded away.
155
THE ’84 PROTOCOLS – A STROKE IN THE AIR?
8
The ’84 Protocols
– A stroke in the air?
I. SETTING THE AGENDA
In 1984, IMCO changed its name to the International Maritime Organization
– IMO. The number of parties to the 69CLC was now twice the number of
states that had ratified the 71FC.
One particular weakness of CLC69 had been that the compensation figures
could not be adjusted without the blessing of a diplomatic conference. This
practical problem had been foreseen in 1971, and hence FC71 included a
stipulation that enabled the Fund Assembly to raise the limit. In 1978, the
compensation available from the Fund had been increased by 50 percent to
USD 54 million.
Shipowners had in this connection pointed out that the Fund already had
power to raise compensation further to USD 72 million but had failed to use
this option. The Assembly had instead passed a resolution asking IMO to
revise CLC69. The two conventions were regarded as one package, and the
oil-importing member states claimed that it now was time to re-establish the
balance between the two instruments.
IMO’s Legal Committee had, after lengthy discussions, prepared a number of
suggested amendments. These suggestions were discussed with interested parties at a number of meetings during 1983 and 1984 in London, Stockholm,
Brussels, Djakarta and other locations in between the sessions of the Legal
Committee.
No agreement had been reached on the future sharing of pollution liability.
The definitions of ship, oil and pollution damage had been discussed but
required further critical examination. Other important issues were the
156
channelling provision, the geographical scope and the
exoneration question as well as the future amendment
procedures.
All these questions were still unsolved when the ’84
Conference convened. In addition, the Conference had
to solve problems related to what rules should apply in
the transitional period until the new set of rules had
replaced the old instruments. What the parties seemed
to agree on was that only the new texts should take the
form of Protocols to the ’69 and ’71 Conventions.
When the Conference finally convened in May 1984,
delegates met in the new headquarters on Albert Embankment in London. The delegations elected a young
Swedish lawyer, Mr. Jacobsson, as chairman for the deliberations on how to update CLC69 and FC71.
Notes:
For further information on the ’84 Protocols, see the official records of
The International Conference On The Revision Of The 1969 Civil Liability Convention (69CLC) and The 1971 Fund Convention (71FC). See also
the records on The International Conference On Liability And Compensation For Damage In Connection With The Carriage Of Certain Substances By Sea. Both reports were printed in London in 1993 in four
volumes. Volume 4 contains the report on the subsequent Conference in
1992 on 69CLC and 71FC.
The ’92 Conference was initiated when it became clear that the ’84 Protocols would not enter into force in the foreseeable future and was intended
to maintain the substantive provisions in the 1984 Protocols but with
lower requirements for entry into force.
The four volumes provide comprehensive reports on the participation, documentation and deliberations by the IMO Conferences in London from
April 30 to May 25, 1984, and from Nov. 23 to 27, 1992.
See in particular the following pages in Volume 1: pp v) – viii), pp. 132214 and 321-372, Volume 2: pp. 3-150 and 311-629, Volume 4 (a report
on the Conference held in 1992): Refer in particular to pp. 78-87, 94-96
and 149-154.
II. CHEMICALS
CLC/FC applied to only the pollution damage caused by
persistent oil. Despite all the difficulties ahead, the ambitions of IMO went even further. Certain toxic substances
Måns Jacobsson
Mr. Jacobsson was the
Director of the International
Oil Pollution Fund from 1985
to 2006. Before his appointment, he had represented the
Swedish Government on frequent occasions, not least with
respect to the preparatory work
to reconsider the text of the oil
pollution liability regimes. He
was elected chairman of the
IMO Diplomatic Conference
in 1984. Thanks to his able
chairmanship and personal
diplomatic skill, the ’84 Protocols were agreed with great
majority. Several later developments – not least the Exxon
Valdez accident – delayed,
however, the implementation of
the Protocols. But in 1992, the
text agreed on in 1984 was
adopted with two minor
adjustments, and the instruments went into force after
a few years.
157
tankers carried could, in the event of a spill, have the same damaging consequences as those caused by crude oil.
In 1969, a resolution had recommended that IMCO should intensify its work
on all aspects – including liability – of polluting agents other than oil. The chemical tankers or parcel-tankers were equipped with a number of separate tanks,
one for each type of the liquid hazardous cargo that the tanker carried. Notwithstanding IMCO’s work to improve safety of tankers carrying such dangerous
cargoes, accidents of a catastrophic nature could not be ruled out. Transportation of such cargoes had grown considerably, both in volume and in frequency.
The convention on shipowner standard liability of 1957 had been revised in
1976 and the liability limits were increased considerably, at least in percentage
terms. But the environment is not restored by percents. Several governments
considered the general limits to be far too low for potential claims for damage
caused by chemical tankers. Time had come to find a better solution.
Thus the “International Conference on Liability and Compensation for
Damage in Connection with the Carriage of Certain Substances by Sea” was to
be arranged at the same time in 1984. A separate committee should undertake
the work, basing its work on a draft prepared by the secretariat in cooperation
with the Legal Committee. The draft convention’s scope of application was
defined by referring to lists of various “hazardous and noxious substances”
(“HNS”) in other IMO conventions.
IMO failed to realize that many governments lacked interest in the matter.
After all, no record of serious incidents could be tabled. Moreover, the chemical
industry declined to contribute to an instrument similar to the model CLC/FC
provided. Suffice to say that the Conference did not manage to reach any agreement on chemical tankers. Further elaboration in IMO lasted 12 more years before finally in May 1996, the convention on Liability and Compensation for
Damage in Connection with the carriage of Hazardous and Noxious Substances
(HNS) was adopted. The subject had then been on the agenda for 25 years.
In 2010, the convention was still not in force. A new diplomatic conference convened in April that year addressed several practical problems that had prevented
many states from ratifying the Convention agreed on in 1996.
Under the new Protocol, damage caused by chemicals carried in bulk would
first be sought by the shipowner, up to a maximum Special Drawing Rights
(SDR) of 100 million (USD 130 million) whilst damage caused by packaged
HNS could be compensated by SDR 115 million (USD 149.5 million) from the
owner. Once these limits are reached, compensation would be obtained from a
second tier, the HNS Fund, up to a maximum of SDR 250 million (USD 375
million) including compensation paid under the first tier. This seems to mean
158
that in the best case the HNS liability convention can enter into force about 45
years after IMCO’s Resolution of 1969, which recommended that the organization “should intensify its work, in collaboration with all interested international organizations, on all aspects of pollution by agents other than oil.”
IMO had more success when the Legal Committee in 2000 completed a draft
convention regarding liability for bunker oil pollution damage. Together with
the HNS Convention, the plan was to provide a comprehensive set of unified
international rules governing compensation to all victims of pollution damage
from ships. As the International Convention on Civil Liability for Bunker Oil
Pollution Damage was closely modelled on CLC69/84/92, without the need for
any contribution from the oil industry, the ratification process was simpler.
It entered into effect in the fall of 2008. It makes the shipowner, bareboat charterer, manager and operator strictly liable for such damage, up to a certain limit,
and his responsibility is backed up by the requirement of compulsory insurance.
Note:
For a full review of the Bunkers Convention, see Maans Jacobsson’s article in the Journal of
International Maritime Law, 2009, p. 21.
See Mr. Jacobsson’s two articles; “The HNS Convention – Prospects for its entry into force” – CMI
yearbook 2009” and “Diplomatic Conference adopts Protocol to HNS Convention” – Shipping and
Transport International 2010, no 2, p. 8.
III. WHAT SHIPS, WHAT OIL?
Two essential questions were: What ships and what oils should be covered by
the new instruments?
The 1969 and 1971 regimes covered only pollution laden tankers caused.
The potential danger from the oil residues and from the fuel (bunkers) kept in
designated bunker tanks had become apparent when the Greek tanker
Olympic Bravery grounded off the French coast in late January 1976. (Chao,
p. 130) Two months later, a storm broke the wrecked tanker in two and 1,200
tons of fuel oil leaked out, with some environmental damage as a result. The
accident demonstrated that even if a tanker was in ballast with no cargo, there
might still be plenty of oil onboard to cause pollution should an accident occur.
Although many delegates surely knew that also dry cargo and other ships carry
bunker oil and are capable of causing serious pollution damage, nobody suggested that oil spilt by such ships should be dealt with. The general feeling was
that the general liability rules of the revised 1957 Convention would normally
159
be sufficient to cover pollution damage caused by dry cargo and passenger
ships.
If a tanker with an oil cargo onboard spilled persistent bunker oil and no cargo
oil, CLC69 would still cover the spill. In 1984, it was suggested to extend CLC
and FC to provide compensation also for pollution damage caused by unladen
tankers. This meant that when a tanker had discharged her oil cargo and began
the ballast voyage back to the next loading port, pollution damage caused by
spills of cargo residues or bunker oil should in principle be covered. It was
also suggested to extend the coverage in the same way to the first ballast
voyage undertaken by a combination carrier – or any other vessel capable of
carrying oil. Emphasis was placed on whether the ship “was constructed or
adapted for the carriage of oil in bulk as cargo.”
The total combined carrier fleet of the world included at the time some
337 vessels above 10,000 dwt. Because of the oversupply of tankers, most of
the combination carriers were employed in dry trades such as grain, coal etc.
Thirty units were laid up and nine arrested by creditors. Only about 100
combination carriers were actually employed in the oil trade.
OCIMF had pointed out that it was not logical to make the cargo interest coresponsible for damage caused by oil from unladen tankers. Such damage
would arise from the bunker oil, not from the cargo. Moreover, provided the
new liability limits were raised to a realistic level, the potential damage would
be limited and would be well covered under CLC in the future.
The other view was that the cargo residues reflected the cargo interest because the ballast voyage was as much a part of the venture of transporting oil
as the loaded voyage was. Consequently, it was logical that the Fund should
be available in the normal way. Hence, a substantial majority of the Legal
Committee had been in favour of applying both conventions to unladen
tankers and to apply the same rules to combination carriers.
Dr. Kalpin (USSR) stressed that his delegation felt that any extension to
unladen tankers should be confined to tankers having oil cargo residues on
board from their previous voyage. This view was generally accepted.
The new instruments should apply also to combination carriers on the ballast voyage – following a voyage with oil cargo onboard – unless it was proved
that there had been no oil residues onboard from the previous voyage. Because
the claimant, in most cases, would not have the means of proving what the
situation was, Dr. N. Trotz of the German Democratic Republic and
Dr. Hisashi Tanikawa of Japan, among others, suggested imposing the burden
of proof on the shipowner. This was agreed.
160
Both instruments applied to persistent oils. Neither of them defined the meaning of this term. Some 80 percent of the oil transported at sea was crude oil.
Crude carriers caused the major accidents experienced. Persistent indicates to
what extent oil residues remains in the marine environment after evaporation.
The general notion was that persistent oil included “crude oil, heavy and
medium fuel oil, heavy diesel oil and lubricating oil,” whilst damage that gasoline, light diesel oil and kerosene caused was not covered.
At the 1971 Conference, a Canadian proposal was presented intending to
enable the Fund to fill the gap in CLC69. Mr. Langley had then drawn attention to the potential damage that could result from the release of the “lighter
fractions.” Such releases, although less apparent than those emanating from
the black oils, were equally damaging in given circumstances, he argued.
In the meantime, there had been considerable debate in the Legal Committee whether to extend the scope to damage caused by non-persistent oils or
not.
At the ’84 Conference, Admiral B.F. Hollingsworth of the US recommended that incidents non-persistent oils caused should be covered. The environmental effect of such oils was under certain conditions – for example,
in cold or shallow waters – similar to the damage caused by crude oil. Hence,
any required response action should be covered by CLC and not left to be paid
by the Government the oil spill affected.
In the view of Mr. J.R. Perrett of the UK, it was tempting to extend the scope
as suggested, but in his mind this meant that some serious difficulties would
arise. CLC was concerned with contamination, and it would not be logical to
include toxic non-persistent oil. Furthermore, the potential damage was less
serious; often nature alone would solve the problem. When damage occurred,
the Convention on shipowners’ general liability, revised recently in 1976,
would be sufficient to cover the claims. Moreover, an extension would mean
that a great additional number of vessels of different types would be included.
This implied an administrative challenge to enforce certification and compliance with the compulsory insurance requirements. Thus the administrative
burden to extend the application to non-persistent oil would be heavy and
quite out of proportion to any possible benefit. Furthermore, the cargo interest
represented in the transport of non-persistent oil tended to be more fragmented
and differed from the ones engaged in the transport of persistent oil. The
contribution system to the Fund was already the subject of some criticism.
To extend the definition to non-persistent oil, without at the same time
161
extending the duty to contribute, would make the current scheme unworkable.
Experience in no way supported the need to include such spills.
Mr. Douay said that his delegation was strongly in favour of including nonpersistent oil in CLC69, whilst there was no need to include such oils in FC.
Ms. K.M. Bruzelius of Norway agreed and pointed out that when incorporating CLC69 into its domestic legislation, Norway had extended the concept of
strict liability to include damage also from non-persistent oils.
The USSR gave the UK view strong support, as did the Federal Republic of
Germany, Greece, Japan and India, among others. The Director of the Fund,
Dr. Reinhard Ganten, also warned against the consequences of including nonpersistent oil in FC:
“… it would be necessary to decide whether receivers of it were also to
contribute to the IOPC Fund. … the number of contributors was likely to
increase, … from some 350 to probably more than 1,000. … The
infrastructure of those small contributors often did not allow them to have
experts understanding the system of the Fund Convention, and thus the
collection of monies from them could cause a great deal of
additional work …”
The Chairman noted that 21 states had spoken against the inclusion of nonpersistent oil, with only 16 in favour. On this basis, the suggested change could
not be introduced. Instead, the CLC definition of oil was somewhat narrowed
in line with the definition of oil in FC71. Whale oil was not carried in such
quantities that it had to be covered. For clarification, the words “hydrocarbon
mineral” were inserted in the new definition of oil.
IV. POLLUTION DAMAGE
– PREVENTIVE MEASURES
The definitions of pollution damage, preventive measures and incidents were
the pillars of the entire compensation system. The long time the Conference
spent to find acceptable solutions reflected their importance.
In CLC69 and FC71, the definition of pollution damage referred to loss or
damage caused outside the ship by contamination. Contrary to a proposal
162
from France, it had been agreed that damages caused by fire or explosion
should not be covered. It followed that the impact sustained in a collision with
a ship or other object also fell outside the definition.
But the definition was not at all clear with respect to environmental damage.
Should such claims be covered? As the text stood, they were neither allowed
nor expressly excluded. Many delegates felt that the old definition could lead
to speculative claims, whilst one on the other hand risked rejection of justified
claims.
The Legal Committee had concluded that the concept should be clarified,
but was unable to draw the line of demarcation, which was no easy task. As
no consensus had been reached with respect to a new wording, the Committee
had instead presented a proposed CMI text and listed several questions, which
delegates were invited to address:
“Whether the definition should include personal injury and loss of life,
whether it should stipulate that recovery would be limited to costs actually
sustained, whether it should be restricted to loss resulting directly from
contamination, whether the reasonableness of costs incurred should be a
condition of recovery, and whether there should be a reference in the
definition to restoration of the marine environment.”
Allowing the national courts wide margins of interpretation would lead to
unfair differences in terms of compensation. The challenge was to find a
solution that ensured compensation for persons earning their living from
tourism, such as hoteliers and restaurant owners, but at the same time
excluding those who were not directly dependent on such activities.
In connection with the publication of the book on the 25th Jubilee of IOPCF,
Dr. Ganten commented in 2003 on how the interpretation of the definition
had caused working problems:
“With all due respect to the drafters of CLC (in those days greater clarity
had not been possible), this definition was a totally inadequate yardstick
for deciding whether the damage could be regarded as “pollution damage.”
“Clearly, clean-up costs would normally be covered, but what about loss
of income by fishermen making a living in a polluted area or losses
suffered by hoteliers, petrol stations or tourist shops close to a polluted
beach, damage caused by an accident involving vehicles taking part in
clean-up operations or loss of tax revenues suffered by local authorities
owing to a decline in tourism?”
163
When it turns out that a definition in a treaty requires further interpretation,
such problems could usually be left to national courts. However, in this
particular case, most delegates felt that different consideration should apply.
As the members of IOPCF shared the cost of pollution claims, it was imperative that all states admit claims on the same basis, otherwise serious inequity
would occur. For the purpose of uniformity, it seemed necessary to reach a
definition as detailed as possible.
Mr. E. Klingsborn of the Federal Republic of Germany stressed that only
“reasonable” costs should be compensable. Reasonable claims based on
estimates of future costs of reparation should also be compensable even if the
costs had not yet materialized. Finally, reasonable costs borne to restore the
marine environment should be covered.
Ms. A. de Bievre of Friends of the Earth International (FOEI), an environmental group, argued that it was important to include expenses arising from
the restoration of the environment. A second valuable element was providing
compensation of costs expected to be incurred to restore the marine environment. Together with Dr. V. Sebek, observer for the Advisory Committee on
Pollution of the Seas, she supported the German intervention.
Several delegations supported by the observers from the oil and tanker industry
were concerned that if measures that had been undertaken should be covered,
as well as measures that should be undertaken, this could invite speculative
claims. Admiral Hollingsworth underlined the importance of limiting
compensation to claims for costs that had been incurred and economic losses
that had been sustained, and to exclude such claims that were speculative in
nature. In his view, courts should approve claims only accompanied with firm
plans and make sure that such plans were carried out.
What delegates had in mind when referring to speculative claims may be illustrated by the “restoration calculation” that had been based on a mathematical
model the USSR applied in the Antony Gramsci case. In February 1979, this
tanker had grounded in the Baltic Sea. Fifty-five hundred tons of crude oil had
leaked out and caused damage to the coastlines of Sweden, Finland and the
USSR. The USSR, which at the time had ratified CLC69, but not FC71,
claimed compensation for ecological damage. Based on domestic legislation,
the USSR authorities claimed compensation according to a formula whose
only variable was the amount of oil spilled; two roubles per cubic metre of
polluted water for restoring the water to clean condition. Although compensation could not be sought from the Fund, as the USSR was not a member, the
164
claim was of considerable interest to the Fund because it competed with a
claim put forward by the Swedish government (which was a Fund member)
for the amount payable by the shipowner. The Fund Assembly reacted by
adopting a unanimous resolution stating that the assessment of compensation
for environmental damage to be paid should not be made “on the basis of an
abstract quantification of damage calculated in accordance with theoretical
models.”
Following the adoption of the Resolution, the Fund decided that compensation
for environmental damage could be granted only if a claimant had a legal right
to claim under national law and had suffered a “quantifiable economic loss.”
The Gramsci case (which was settled out of court) was of considerable interest when the Conference set up a working group – chaired by Dr. Trotz –
to find an acceptable text. It was realized that what was reasonable had to be
considered on the facts available at the time of decision. The group could not
agree on one single proposal and presented two alternative definitions of
pollution damage. The first alternative contained more specific guidelines for
the national courts, whereas the second alternative gave them more freedom
of action. Contrary to the view of the P&I clubs, both alternatives allowed
compensation to be granted for future expenses referring to measures to be
undertaken.
Dr. A.B. Jaafar of Malaysia found that the proposals tabled were not satisfactory, as both the suggested alternatives referred to “loss of profit,” which
in his mind was too restrictive. “In many societies, including his own, the loss
would bear on income rather than on profit; fishermen, for example made
no actual profit but still had to pay their overhead expenses and to hire or
purchase boats and other equipment.” The next day, however, he left this
somewhat subtle point in the hands of a drafting committee.
Finally, a clear majority agreed on the following definition of pollution:
a) “loss or damage caused outside the ship by contamination resulting from
the escape or discharge of oil from the ship, wherever such escape or
discharge may occur, provided that compensation for impairment of the
environment other than loss of profit from such impairment shall be
limited to costs of reasonable measures of reinstatement actually
undertaken or to be undertaken”
b) “The costs of preventive measures and further loss or damage caused
by preventive measures.”
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The Fund had on several occasions paid compensation to hotel owners, restaurant owners, shopkeepers and others who were conducting their business at
beaches and living from tourism. There had been voices claiming that sometimes the damage suffered was too remote to be directly caused by the pollution incident. The new definition did not require a direct cause. Hence, IOPCF
welcomed the wording, as it confirmed the legality of the internal guidelines
for granting compensation. The decision on whether fishermen, businessmen,
etc., living from tourism or involved in related industries suffered a compensable loss would be based on the same explicit evaluation as before.
It is somewhat unusual to award compensation for measures to be undertaken
in the future. So when the majority favoured that “cost of measures to be
undertaken” should be included in the definition and be compensable, this
was a clarification of importance. As set out above, several delegations had
preferred that compensation was restricted to proven damages actually
sustained and preventive measures actually taken.
Most delegations were comfortable with the change that allowed compensation for costs of future measures, e.g. to reinstate the environment. It should
be kept in mind that such claims would be compensated only if they were
found to be reasonable, which meant that claims based upon theoretical calculations like in the Gramsci case would not be honoured. Nor would it be
possible to obtain compensation if it was found that there was no real intention or possibility of actually restoring the environment in question.
Moreover, money up front was clearly important to poor countries. In a number of developing countries, the clean-up measures could not be undertaken
until compensation was readily available. Efforts to clean up or re-instate the
environment should not be postponed until a settlement had been reached
between claimants and the shipowner and his P&I club. Behind the new
definition, one may assume that also the experience gained from the Tanio
accident played a part. The Fund had in that case paid out compensation on
the basis of an estimate and thereby avoided the ludicrous result of not paying
compensation because the costs had not actually been incurred, because there
had been no money available to pay for the measures.
The expenses from a successful operation to prevent pollution are often substantial. But the operation might be so successful that no pollution damage
occurs; should the expenses thereby connected be recoverable?
The question was raised after Tarpenbeck – a small tanker – collided with
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an auxiliary vessel and capsized off the coast of England in June 1979. The
salvors agreed with owners to strive to avoid/minimize pollution at a daily
rate instead of the usual “no-cure, no-pay principle.” The measures taken were
successful. The contractors towed the tanker into sheltered waters and pumped
the cargo over to safer storage. Considerable expenses were thereby incurred.
The owner claimed compensation from the 71Fund for the amount that
exceeded his modest liability limits under CLC69.
IOPCF, however, was of the opinion that pre-spill costs were entirely irrevocable and refused to accept the claims for compensation from the shipowner,
the UK government and the local authorities. The refusal was based on the
fact that there had indeed been no escape of oil. Thus it was argued that when
no pollution occurred, the Fund did not come into play.
At the ’84 Conference, it was agreed that it would not be reasonable to grant
a right of recourse to anyone who had partially succeeded to prevent pollution,
but refuse to provide compensation to someone that had been completely
successful in his efforts. Hence, it was concluded that measures taken after an
accident but prior to the threat of an oil spill, which prevented spills, should
be covered.
To avoid any misapprehension, the Conference had to introduce a new definition of incident that was interlinked with the definition of pollution damage.
In the original version of the two conventions, the incidents to be taken into
account were “any occurrence or series of occurrences having the same origin,
which causes pollution damage.” It was decided that if no pollution damage
was caused, compensation for clean-up costs should also be obtained if the
incident “creates a grave and imminent threat of causing such damage.”
Before this conclusion was reached, a long debate went on. It was argued
that a threat could be very serious in the long-term, even if there was no imminent danger. A sunken tanker could cause substantial pollution damage
many years after the incident, and it would be reasonable to cover expenses
taken to prevent such damage right away. Attempts to remove the oil should
not be discouraged under such circumstances, and several delegates felt that it
would be sufficient that there had been a “serious threat” of pollution damage.
The majority, however, preferred to refer to a “grave and imminent threat.”
In such cases, expenses incurred to undertake preventive measures would be
covered, even if no oil spill occurred.
The words “grave and imminent” also appear in a parallel section of The
International Convention Relating to Intervention on the High Seas in Cases
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of Oil Pollution Casualties of 1969, and are a condition for governmental
authorities’ intervention on the high seas in case of pollution incidents. Moreover, the new definition of incident adopted the same wording as laid down
in the TOVALOP agreement.
Note:
On the admissibility of claims, see Dr. Ganten’s article, pp. 59-61, and Mr. Joe Nichol’s article, pp. 103118, in “IOPCF 25 years,” Kent, 2003. See also de la Rue and Anderson: “Shipping and the Environment,” London, 1998, pp. 419-431 and 503-558, and W. Chao: “Pollution from the Carriage of Oil by
Sea,” pp. 146-156 and 361-382.
See also Maans Jacobssons article; How clean is clean? - The concept of reasonableness in response to
tanker spills. Ref. Scritti in onore de Francesko Berlingeri.
V. GEOGRAPHICAL SCOPE
CLC69 restricted its application to pollution damage caused on the territory
including the territorial sea of the contracting states and to preventive measures taken to prevent or minimize such damage. This could be understood to
the effect that the costs of preventive measures taken outside the territorial
waters were not recoverable.
Contrary to this interpretation, the Preamble of FC71 implied that CLC69
was “a regime for compensation for pollution damage in Contracting States
and the cost for preventive measures, wherever taken, to prevent or minimize
such damage ...”
Canada had in the past strongly criticized this approach. In the representative’s
mind, it was not at all clear that the connected costs were compensable when
a state undertook preventive measures on the high seas in order to avoid pollution damage to its territory. Now, in 1984, Canada wanted to repair the mistake and clarify what may have been an oversight in 1969.
In the years to come, it was realized that what the Canadians had suggested
in 1971 was common sense. During the preparatory work, there was general
agreement that one had to spell out clearly that measures to minimise or prevent pollution damage should be compensated also if these measures were
taken outside the territorial waters. Thus the revised text of CLC article IIb
and FC article 3b made reference: “to preventive measures, wherever taken.”
Representatives of Australia, Canada, New Zealand, the US and several
South American countries advocated further extension. In the view of these
groups, the new protocols should allow for compensation when pollution
damage resulted in loss of income in the Extended Economic Zone (EEZ), a
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zone which together with the territorial sea covers a surface greater than the
continents.
Mr. L.J.W. Ludbrook of New Zealand emphasised that “Coastal states possessed sovereign rights in respect of natural resources in the EEZ and on the
continental shelf. Those natural resources required protection from pollution
damage. Activities, installations and structures connected with the exercise of
such sovereign rights also required protection.”
The same opinion had been strongly voiced and elaborated in a submission
from the FOEI. One of the arguments was based on the Law of the Sea Convention, under which contracting states had a duty to co-operate to ensure adequate compensation in respect of all damage caused by pollution to the
marine environment including the EEZ.
Mr. M.R. Carly of Belgium opposed, arguing that “Extension of the Convention’s scope to areas beyond the territorial sea would incur the risk that,
in subsequent years, some countries might claim that those waters were their
property, since they could obtain compensation for damage occurring therein,
they might indeed claim that the 200-mile zone comprised territorial waters.
Belgium attached great importance to the freedom of the seas. …”
Other opponents referred to the fact that the concept of the territorial sea was
now much wider than it had been in 1969. Furthermore, the legal rights and
obligations of states with respect to the EEZ were not at all clear in international law. The various national zones were very different in nature, and some
of the potential contracting states had not even established such a zone. Thus
it was claimed that the only link between the various national zones was the
name by which they were described.
Mr. Aage Os of Norway pointed out that for some states which were situated very close to their neighbours, it was impossible to allow for a zone of
200 nautical miles. The distance envisioned should not exceed 10 nautical
miles.
The opposition was supported in a submission from the P&I clubs that had
dealt with 17,000 claims for oil pollution damage throughout the last 13 years.
Their experience was that a number of claims had been grossly inflated. Thus,
the insurance industry felt strongly that the EEZ question should not be seen
in isolation, because the cumulative effect of widening the conventions could
involve a dramatic increase in the exposure both of the Fund and the ship
owner without any corresponding benefit. Each proposed extension had to be
very carefully considered on its merits to avoid “contentious or speculative
claims and an unacceptable aggregation of risk,” it was argued.
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The discussion continued for five to six days till a compromise finally was
achieved. The agreed text extended the geographical scope to include the EEZ,
provided that the zone was “established in accordance with international law.”
If no such zone was established, it was decided that in no case should such
zone extend beyond 200 nautical miles “from the baselines from which the
breadth of its territorial sea is measured.”
The extension of the geographical scope was seen as one of the main changes
undertaken by the ’84 Conference to improve the position of the potential victims for pollution damage. Arguably, it also seems to favour the party potentially liable, the shipowner. He now acquired the right to limit his liability if
the pollution damage occurred in the EEZ outside the territorial waters. With
no such extension, he could have been subject to national laws that may not
have entitled him to limit his liability.
Note:
On the geographical scope, see Dr. Thomas Mensah’s article in “IOPCF 25 years,” pp. 48-49, and
W. Chao, pp. 153-156.
VI. EXONERATION
There was no proposal put forward to the ’84 Conference to turn the clock
back and re-introduce the traditional maritime principle that the liability of
the ship-owner should be based on fault. The strict liability under CLC69 had
come to stay. The question was rather whether the exceptions to the strict
liability agreed on in 1969 should survive.
According to CLC69, the shipowner was obliged to insure his potential liability, and the majority of governments had found it appropriate to exonerate
him for such risks which marine liability insurers normally were unwilling to
bear. To be exonerated, the owner had to prove that the pollution damage was
caused by certain extraordinary events listed including “act of war,” “a natural
phenomenon of an exceptional and irresistible character,” or wholly caused
with “intent of a third party” or “failure of governmental authority to maintain navigational aids.”
The preceding discussions in the Legal Committee had revealed that a number
of delegations were of the opinion that the current system deviated too much
from the principle of strict liability on which CLC69 was based. No agreement
had been reached. A particularly difficult question was whether the shipowner
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should continue to be exonerated when the pollution damage was wholly
caused by the negligence of any governmental authority responsible for lights
or navigational aids.
Such governmental failures did not constitute force majeure in the usual
meaning of the term, it was argued. Moreover, the exception compelled victims
to sue governments and prove negligence to obtain compensation. This was
felt to be an unfair burden, because most victims would – contrary to shipowners – have little or no knowledge on how to go about proving the insufficiency
of navigational aids.
Other delegations concluded that the reference in the text to “wholly
caused” was too restrictive, as exoneration did not clearly result, for example,
when a ship relied on faulty navigational charts.
The problem was illustrated by a case that had been considered at length by
the Swedish Supreme Court. Tsesis, a USSR tanker laden with about 16,000
tons of oil, grounded in October 1977 on a submerged rock in the sensitive
waters off the Swedish coast. Five hundred tons of heavy fuel oil escaped. The
rock was not marked on the chart, and a majority of the judges concluded
that navigational aids must include marine charts. There had been no negligence, and the shipowner was not held liable from the resulting oil pollution
damage. The difference of opinion among the judges showed that the provision
in CLC69 with respect to navigational aids was in no way clear, and courts in
other countries could have reached the opposite conclusion.
The representative of the International Association of Lighthouse Authorities
(IALA) pointed out that mariners learn to not rely 100 percent on navigational
aids, but have to use all available means to ensure safe navigation. If negligence
in the maintenance of aids is claimed and the innocent victim should sue the
government responsible directly, he would be put in a very unfavourable
position. On the other hand, nothing would prevent the owner from suing the
governmental authority responsible for substandard aids of navigation in order
to recover any compensation paid. The International Association of Ports and
Harbours put similar arguments forward.
Dr. Jaafar of Malaysia, together with other delegates including Major Bernard
of Trinidad and Tobago and Mr. Douay of France, argued that maintaining
navigational aids had never been a legal obligation of coastal states, but was
merely a moral obligation. The basic concept of the 1969 Convention was one
of strict liability; in exchange, the owner was allowed to limit his liability.
171
To make maintenance of the navigational aids legally mandatory, would, in
their minds, destroy the whole basis of the Convention.
On the other hand, a lengthy submission from FOEI pointed out that charts
and other navigational documents clearly were the responsibility of public
authorities, and it would be most unfair to make shipowners liable for any
resulting damage.
Several delegations supported this view, including the UK and the Scandinavian countries. The Conference was reminded that the wording adopted in
1969 was a part of a compromise package. Deleting the provision would put
other elements of the compromise at risk, according to Dr. Kalpin of the USSR.
He rejected the argument that the victim would have great difficulties in bringing claims against the authorities. He suggested “in fact in most cases it was
the Government or authority itself which was the victim and which made the
claim.” In his mind, to excuse Governments from their responsibilities “would
have catastrophic consequences, since it would lead to a situation in which
they could rely on being free from liability whatever might occur.”
INTERTANKO argued that the direction of a cleaner environment had
emphasized the need for closer co-operation between sea and shore interests.
In this respect “to delete par. 2c would seem extremely odd in the light of
Assembly Resolution A.500 (XII) which stipulated that existing instrument
should not be altered except where there was a compelling need.”
After a lively discussion it was decided by simple majority to delete the
exoneration of the shipowner when an accident was wholly caused because
of failure of navigational aids (article III c). However, at the Plenary a twothirds majority was required to alter the text, and the majority 38 votes in
favour of deletion and 20 against was insufficient. The exoneration of the shipowner when the damage was wholly caused by negligence of a Governmental
authority responsible for navigational aids very narrowly survived.
The cases in which the Fund was exonerated raised little discussion at the ’84
Conference. There was one exception.
According to Article 4.3, the Fund was wholly or partially exonerated if it
was proved that the pollution was caused by the claimant’s own negligence or
with his intent to cause damage. But it was also stated that this exoneration
did not apply with regard to claims for recovery of costs related to preventive
measures. In this regard the chairman raised the questions of whether the Fund
should always be exonerated only to the extent that the owner was fully
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exonerated, or if there should there be special treatment with respect to
preventive measures irrespective of who took them.
To encourage rapid clean-up operations, no delegation wished to cover less
than the costs of preventive measures taken by the shipowner. Mr. E. Gesmar
of Denmark was of the opinion that as a general rule, preventive measures
should always be compensated. Mr. Douay agreed that preventive measures
should be treated as a special case and pointed out that in any case, it was
only reasonable preventive measures that would qualify for compensation.
To encourage all victims to take preventive measures, it was agreed to insert
a new stipulation in article 4.3 of the Fund Protocol: “However, there shall be
no such exoneration of the Fund with regard of the preventive measures.”
Later, it was pointed out that introducing this stipulation contradicts the other
provision in the very same paragraph, reading, “The Fund shall in any event
be exonerated to the extent that the ship-owner may have been exonerated
under Article III, paragraph 3, Liability Convention.” There is no need to see
this as a contradiction. The article imposes a heavier burden on the Fund;
otherwise it is exonerated in the same way as the shipowner.
Note:
On the Thesis case, see de la Rue/Anderson, pp. 89-90 for details. CLC69, article III 2.
VII. CHANNELLING
According to article III in CLC69, the shipowner was liable for any pollution
damage the ship caused. Only the owner’s “servants and agents” were explicitly excluded from liability. No other parties were excluded. The text thereby
opened up the possibility that parties other than the owners (charterers,
salvors, cargo-owners, shipbuilders or other interests) might incur liability for
oil pollution damage under national law.
Clarity and simplicity are essential elements in a provision on channelling,
and the registered owner was the most easily identifiable party to assume
responsibility. It was generally agreed upon that the need to encourage salvage
operations and preventive measures required a change in the text so that these
parties were protected against claims from pollution victims. But the Legal
Committee went several steps further and presented a proposal to the Conference that directed all pollution damage claims against the registered owner
and explicitly barred claims against a number of parties listed.
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In the same way as under CLC69, “servants or agents of the owner or the
member of the crew,” were protected. Now the exception was extended to
salvors and “the pilot or any other persons … performing services for the
ship.” Moreover, no such claim could be directed against other parties such
as “charterers (howsoever described) … manager or operator of the ship,” as
well as people taking preventive measures or servants or agents of the people
mentioned.
P&I clubs supported this solution. Their argument was that such elimination
would increase the capacity of the insurance market and reduce the need for
overlapping insurance coverage. Moreover, rather than chasing other parties
that might be involved in the pollution incident, it was normally easier for victims to sue the owner and benefit from his compulsory insurance.
For obvious reasons, the international oil industry, which otherwise could
be exposed as charterers of tankers, also wanted a new wording. By and by,
a majority within the Legal Committee was convinced that adopting a
proposal to exclude charterers and other parties was the best option for the
victims under the revised instruments. Others would agree with The International Union for Conservation of Nature and Natural Resources (IUCN)
and the European Council of Environmental Law, who opined “that strict
channelling should not permit persons who cause damage to escape liability.”
The proposed text precluded victims to claim compensation outside the
Convention against the parties listed, unless the parties were reckless or had
intended to cause damage. Other parties (not listed) in control over the oil
transport or the handling of the oil which were in a position to minimize the
pollution risk consequently remained a potential responsible party under
national law if an incident causing pollution damage was because of their negligence. Thus shipyards, tanker terminals/cargo owners (unless the cargo is
owned by a party explicitly excepted), classification societies or an owner of
a colliding vessel, had – according to the proposal – no absolute protection
against compensation claims pursued by victims under national law.
In view of this possibility, OCIMF had submitted a paper proposing a wording
that precluded potential liability for all parties except the ship owner. This
proposal did not get any support. The effect would have been that companies
behind the registered owner as an “alter ego” could not have been held liable
as in the Amoco Cadiz case. At the preparatory stage, the association had
alternatively suggested that “shareholders” should be included in the list of
exempted persons. This proposal was rejected, and one delegation observed:
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“that if a corporation was a ship-owner and was sued for pollution damage,
it was because it was a shipowner, not because it was a corporate shareholder.”
However, several delegations questioned the proposal of the Legal Committee.
The adoption of a provision disallowing claims against certain parties directly
involved in the operation of the tanker was a considerable step from the traditional legal system in many countries. The litigation following the Amoco
Cadiz incident in 1978 had demonstrated the need to seek compensation for
pollution damage against other parties than only the shipowner. In an effort
to avoid the modest compensation CLC69 offered, action was brought in the
US not only against the owner Amoco Transport Corporation, an offspring
of Amoco International, but also against the operator, Amoco International
Oil Co. and the parent company, Standard Oil Co. of Indiana. If the US had
been a party to CLC69, such litigation would also have been permissible according to the 1969 wording where only the agents or servants of the owner
were excluded.
The representative of the US, Admiral Hollingsworth, stated that the channelling question represented one of the elements crucial for the US. The
concept, however, “was unfamiliar in the US law and his country could only
accept the concept if the ship-owners’ liability was set at a sufficiently high
level and provision made to protect the subrogation rights of the Fund.”
Also, Alfred H. E. Popp QC confirmed that the concept was foreign to his
country’s legal system, “and could only be applied if the compensation offered
by the Convention, as supplemented by the Fund Convention, was satisfactory.” The definition of owner in the Canadian Shipping Act could cover the
registered owner, the operator or the charterer.
Mr. Douay was also sceptical to the proposed text of the Legal Committee.
Favouring retention of the present text, he objected strongly, because it would
provide virtual immunity to the parties listed. This was quite excessive. Thus
the exception of potential liability for the parties listed in the draft’s subparagraphs a to f should be deleted. The formulation in its present form seemed
unacceptable “all the more so if inadequate amounts of liability were
adopted.”
Several speakers, including Mr. I. Petrakis of Greece, Mr. P. Anders of
Poland and the representative of The International Chamber of Shipping
supported Mr. Douay.
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Also Mr. Perrett of the UK questioned whether an exhaustive list of parties to
be exonerated was a good solution. Some parties might be left out, which, in
retrospect, should have been included. Moreover, CLC69 had proved to be
reasonably satisfactory. One should remember that it was not a question of
attributing blame but of organizing compensation in the best practical way.
Only salvors might be considered added to the parties already exempted in
CLC69.
What the UK delegation argued might on reflection seem to be common
sense. However, more enthusiastic support for the proposal of the Legal Committee was voiced by the representatives of the Netherlands and the German
Democratic Republic, who both explained that they favoured the suggestion
of the Committee because “it had the advantage of avoiding overlapping
insurance cover of persons connected with the operation of the ship.” Many
other speakers also supported the proposal obviously for the same reason, but
with no further argumentation. Thus, if the total compensation to be provided
was sufficiently increased, the majority of delegations were prepared to disregard established legal principles and provide a sanctuary for most other parties
involved in the operation of tankers – including the charterers. The Legal Committee’s formula was in the end accepted with 29 votes to 13 and five abstentions.
The exclusion of liability for the parties listed, including charterers, operators,
pilots, salvors – and their servants – required, however, that the damage did
not result “from their personal act or omission, committed with the intent to
cause such damage, or recklessly and with knowledge that such damage would
probably result.” In such situations, a claim may be brought against them
under national law. Consequently, it is arguable that the position for servants
and agents of the shipowner thereby became less favourable than under the
original text of CLC, because under that instrument their immunity was absolute.
The shipowners’ right to recourse against third parties, Article III 5, was
retained. Here it was stated: “Nothing in the Convention shall prejudice any
right of recourse of the owner against third parties.”
Note:
On channelling, see Dr. Ganten’s article in “Oil & Petrochemical Pollution,” 1985, p. 93-107.
Regarding the various problems with respect to the interpretation of “actual fault or privity,” see W.
Chao, pp. 174-183.
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VIII. LIMITATIONS & LIMITS
Under CLC69, the shipowner lost his right to limit his liability if the pollution
damage resulted from his “actual fault or privity.”
Within IMCO, it seemed to be general agreement that the existing text had
led to wide differences in its application by courts in the various countries.
Furthermore, it was not clear who had the burden of proof. The P&I clubs
had in a submission to IMO expressed that one of the most glaring defects in
CLC was this very provision. Settlement of many claims had been delayed in
many cases until the issue of limitation was clarified.
The Conference accepted that the legal interpretation could cause serious
difficulties and that divergences might emerge as a result of inconsistent judgement, depending on which national law was applied. In the 1976 Convention
on Limitation of Liability for Maritime Claims (LLMC) the provision on conduct barring limitation read: “A person liable shall not be entitled to limit his
liability if it is proved that the loss resulted from his personal act or omission,
committed with the intent to cause such loss or recklessness and with knowledge that such loss would probably result.”
After an informal meeting of all interested parties in Stockholm in December 1981, general agreement had been achieved to delete the reference to
“actual fault or privity” and to replace it by a new clause in line with the provision in LLMC. The type of conduct barring limitation described here was
generally believed to be graver than under the previous wording.
CLC69 also contained another provision in article V.3, which had prevented
quick settlements. In the view of many delegations, the compulsory establishment of the Limitation Fund (LF), which shipowners had to set up after an
incident as a pre-condition to limitation, should be discontinued. The aim of
the LF was to make adequate compensation available to victims promptly, but
in practice the procedures had proved to be very time-consuming and delayed
the payment of compensation. P&I clubs usually arranged the compulsory
insurance requirements in CLC69. This meant that there was very little risk
of compensation not being paid. Thus, in the experience of IOPCF, the duty
to set it up might in some cases impose a disproportionate burden on the
shipowner. If the claim was small compared to the substantial legal cost
required, the requirement had therefore in some cases been waived despite the
stringent wording.
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Nevertheless, the obligation to constitute a Limitation Fund was retained in
the new text. Its survival has been explained by reference to financial considerations; the Fund might accumulate substantial interest between the point in
time when it was set up and the time when compensation was paid. It is shown
that in the Tanio case, the LF nearly increased 100 percent in this period.
IOPCF was, however, according to an additional provision now introduced,
expressly empowered – in extraordinary cases – to decide that compensation
could be paid even if no fund was constituted.
The limitation figures and the amounts of liability constituted the heart of the
revision work. The figures laid down in the two instruments were the prime
reason for the revision work.
Neither the shipping industry nor the oil industry objected in principle to
an increased liability. But their views collided on the question of how the future
liability system should be structured. Whereas most governmental delegations
considered that an upward revision of the limits was essential, they were divided with respect to the way the increased liability should be shared between
shipowners and the oil industry. Moreover, several delegations had emphasized
that some of the new proposals would be acceptable only if the liability of the
shipowner was set at a sufficiently high level. Thus France, the US and Canada
had accepted only the new channelling provision on the condition that the
compensation amounts would be substantially increased.
Japan, the USSR, Greece and other governments felt, on the other hand,
that the experience from recent years could justify only a moderate revision.
Despite a number of informal meetings attended by representatives of governments, various industry groups and other interested parties arranged around
the world, no agreement and nothing close to a compromise was in sight prior
to the ’84 Conference.
The Chairman, Mr. Jacobsson, reminded the delegations of the remaining basic
questions:
Should there be a tonnage link on the shipowner’s liability
or
a flat amount for all ships?
Should there be a specific minimum amount for small ships?
What amounts should be inserted?
Regarding the Fund; what amounts should be fixed?
Should there continue to be some system of roll-back/relief for the owner?
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Regarding the last question, the shipowners had, on the presumption that the
liability should continue to be shared with the cargo interests, already accepted
that time was ripe to abolish “a roll-back system” introduced in 1971 to provide for “shipowner relief.” This question no longer represented any problem.
In principle, it was agreed in the Legal Committee that a minimum liability
for small ships should be introduced. The shipowners accepted that a minimum limit was required in order to reduce the workload for the Fund. The oil
industry argued that the gap between the liability of the ship and the cargo
had to be tightened, and one way to do it was to impose a high minimum liability on shipowners. No agreement had been reached on the question where
the limit should be drawn. What tanker should be considered a small ship
under CLC, and what should the limitation amount be?
In OCIMF’s submissions to the Conference, it was argued that there was
no correlation between the size of a vessel and the amount of the damage it
caused. The continued use of the ship’s size as the basis for the limits was
therefore no longer sound. An analysis of the serious pollution claims showed
that most of the significant casualties involved tankers of less than 40,000
tons. The vast majority of pollution incidents occurred in a harbour or other
estuarial or coastal waters where the smaller tankers trade.
Establishing a high minimum in the revised CLC would result in smaller
vessels having to carry responsibility more appropriate to the risk they posed.
In OCIMF’s view, the limitation figure for the tanker owner should cover all
claims except the catastrophic incidents for which the Fund would provide
supplemental coverage.
It was also pointed out that contributions to the Fund were made by individual companies in separate states. This resulted in an uneven balance between contracting states and created problems. Three nations – Japan, Italy
and France – provided almost 60 percent of total FC obligations. Moreover,
the capacity of the insurance market had markedly increased since 1971, and
a way to avoid the imbalance was to increase the CLC limits substantially, as
shipowners now had the possibility to cover themselves through their insurers.
OCIMF had suggested that the shipowner with tankers up to 50,000 gross
register tons (grt) should take responsibility for the first USD 50 million of
pollution damage per incident, with a supplemental coverage from the Fund
of USD 75 million per incident. For vessels above this size, USD 10,000 per
grt up to a limit of USD 100 million should apply. FC supplementary coverage
would provide a total compensation per incident of USD 250 million. If it was
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agreed to continue the old linkage system between limits and tonnage in CLC,
Mr. Blackwood, on behalf of OCIMF, appealed to delegates, to establish the
same linkage in FC.
INTERTANKO had persistently rejected the arguments OCIMF put forward.
The mentioned proposal would, if accepted, mean that the oil industry contribution would come into play only in very rare cases and thereby in practice
abolish the principles on sharing as agreed in 1969 and 1971. Oil was a very
special cargo, and its transportation at sea represented a very special and
serious pollution risk. Both the owner of the ship as well as the owner of the
cargo should consequently accept a fair share of the financial burden in case
of pollution incidents.
IMO was reminded that the inherent particulars of the cargo had not changed
its characteristics since 1971, but the value of oil had increased dramatically.
Whilst the oil industry had prospered during the last years, the tanker industry
had suffered from a continued depression since 1974. According to figures
recently presented by OECD, the transportation cost was about 40 percent of
the price of the oil in 1969-1971, whereas this element in 1984 had decreased
to about two percent. Contrary to the oil industry, owners of oil tankers could
not pass on the increased costs to the consumer. In the light of the principle
laid down in IMO Assembly Resolution A. 500, it would be paradoxical to
change the rules of the game in the current situation. The resolution made it
clear that IMO should entertain only proposals for amendments to existing
conventions “on the basis of clear and well-documented demonstration of
compelling need …”
Under these circumstances, INTERTANKO suggested that the minimum liability of USD 1 million laid down in the private compensation scheme, TOVALOP, should be included in the revised CLC. From that level, the
shipowner’s liability should increase on a ton basis, up to a maximum of USD
30 million. With supplementary compensation from the cargo through the
Fund, the total compensation package should be USD 150 million.
Japan – a major importer of oil and thus also potentially a major contributor
to the new Fund – had during the preparatory talks stressed that radically
increased compensation levels would discourage participation from oilimporting countries. Thus, the view of Japan had been that the maximum limit
of compensation for one incident should not exceed USD 100 million, includ-
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ing the amount payable via CLC. The Japanese representative, Dr. Tanikawa,
on behalf of several delegations stressed that adjustment should be done in
such a way that the inflation since 1969 and 1971 was reflected. The average
inflation rate had been calculated as approximately three times the original
figure. The delegations considered it essential that the balance between the exposure of the ship and cargo was maintained. The economic burden should
be spread fairly between shipping and oil-importing interests. USD 30 million
available under CLC would be acceptable.
Canada, on the other hand, wanted to see a high minimum level of some USD
15 million to 20 million on the shipowner with an upper limit of about USD
70 million, based on a tonnage-related progression. The maximum exposure
of IOPCF should be in the range of USD 200 million to 225 million.
The French delegation argued that new opportunities were afforded by the increased capacity of the insurance market. This meant that it would be no difficulty for the shipowner to obtain insurance coverage for up to USD 100
million at an acceptable premium. There was no doubt that compensation had
been reduced in real terms in light of the inflation. Mr. Douay concluded that
a minimum level of USD 5 million to 8 million should be imposed on the
shipowner with a maximum limit of USD 60 million to 100 million. Adding
the contribution from the Fund, a compensation package of USD 250 million
to 300 million would then be available to pollution victims. Finally, he recommended that the Fund Assembly should be authorised to increase that
amount further.
The representative of the P&I clubs, Mr. J.C.W. Riley, maintained that tonnage
remained a rational basis for limitation. The statistics of the P&I clubs revealed
that in the period 1970-82, the fleet of small tankers had over the last 12 years
produced less claims and that the average costs per incident not surprisingly
increased with the ship’s size. Statistics also revealed that the growth in cost
of incidents had not kept pace with inflation, which could partially be explained by improved technology in fighting spills.
Reference was also made to an extensive submission to the Conference in
which the argument that an insurance coverage of USD 300 million was available in the market and was rejected. The suggestion was ill-founded, “since
any radical change in limits could seriously affect the confidence of underwriters to provide protection not necessarily at the top range of risk but at the
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lower levels of re-insurance where their funds are more likely to be exposed
to regular rather than infrequent claims.”
It would be unrealistic to impose a higher liability upon the shipping industry than what could be insured by their P&I clubs. A major claim would
then prove financially disastrous.
Ms. De Bievre of FOE stressed “it did not seem fair to impute all the liability
to the shipowner.” FOE was opposed to any system that set the amounts independently of the ship’s size and recommended that a criterion based on tonnage be adopted instead. The compensation should be shared between the
shipowner and the cargo.
Chris Horrocks of ICS said that the majority opinion within the shipping
industry was in favour of sharing. Being in a difficult as well as delicate position, he added that some of the views expressed in the submission from ICS
to IMO were not “necessarily shared by the oil company-owned fleet within
its membership.”
There was no compelling need for experimentation, claimed Mr. Shen
Zhaoqi of China, who presented a joint proposal from China, Cyprus, Greece,
India, Italy and Poland. According to the proposal, a USD 3 million minimum
limit on the shipowner and a maximum contribution of USD 30 million would
be appropriate. Adding to the Fund’s contribution, the total compensation
could be between USD 100 million and 120 million.
Mr. Douay now surpassed all previous frank statements and declared that he
considered the proposal China presented to be misleading and as such it did
not provide a valid basis for discussion.
Whilst the originators of the proposal China presented may have been surprised by the patronizing tone of the French spokesman, consolatory support
came immediately from other delegations who saw no reason for the proposal
to be ignored, and Mr. Perrakis of Greece questioned how it could be claimed
that a document, expressing the views of important regions, was not a basis
for a serious discussion.
The temperature in the meeting room increased. Delegates asked themselves
whether the deadlock could be overcome only by an entirely new concept.
Time was short. Acceptance for innovations would require the maximum
amount of tact and diplomacy.
Admiral Hollingsworth found that the time had come to clarify the intention of his country because he was aware that some delegations seemed to be-
182
lieve that the US had no intention to ratify the new instruments. However:
“The US ratification … process was … complicated and full of impediments.
…, it required the approval of the Administration followed by … the Senate
and, finally the adoption of … both Houses of Congress.”
He appreciated: “… considerable scepticism among other delegations
regarding … American ratification – if an agreement was reached. But on the
assumption that the outcome would be acceptable the ratification process …
had already begun. The Administration had ... announced its support. A Bill
was before Congress enabling the United States to ratify. …”
Furthermore the Senate Committee had participated in formulating the US
positions and was represented in his delegation. Of course, … no guarantee
…, but he doubted that any other delegation … was in a position to provide
such an assurance. … a compensation ceiling of some 225 million to 250 million dollars would ensure adequate compensation … time may have come to
discuss this in smaller groups which should include insurance experts.
After several more days of group discussions, there were indications that the
deadlock could be overcome when the US, Canada, France, Gabon, the Federal
Republic of Germany, Ireland, Malaysia, Netherlands and Zaire presented a
fresh approach with respect to the role of the Fund: The maximum compensation – including the shipowner’s contribution – could start at a relatively
low level.
This “basic coverage” could enter into effect quickly as soon as a limited
number of oil-importing governments had ratified. The new element was the
application of a “trigger mechanism” which would provide “expanded
coverage” when contributing oil received in three member states reached at
least 600 million tons. This figure would be reached when the US had become
a party to the Fund. In other words, the Fund would first operate providing a
moderate level of compensation. But as soon as the US joined, the level of
compensation would go up.
In an effort to circumvent the impasse, Mr. Jacobsson embarked upon private
consultations. He succeeded. A majority of delegations agreed to support a
SDR 3 million (about USD 4.1 million) minimum liability on ships up to 5,000
gross tons. From every ton above, the limit would increase on a linear scale
by SDR 420 per ton up to 140,000 gross tons (equivalent to a tanker of some
280,000 dwt.) to a maximum amount of SDR 59.7 million (about USD 82
million).
183
As suggested by the US and eight other delegations, contributions from the
cargo would be set at two levels. The first would give a total compensation of
SDR 135 million (around USD 186 million), including the liability exposure
of the shipowner. This amount would increase to SDR 200 million (about USD
275 million) “when there are three Parties to this Convention in respect of
which the combined relevant quantity of contributing oil received by persons
in the territories of such Parties during the preceding year, equalled or exceeded
600 million tons.”
Many delegations supported the proposal of the Chairman whilst others –
including the US and France – were not entirely satisfied, but accepted the
proposal under the circumstances in the spirit of compromise.
Mr. T. Yamada made it clear, however, that the compromise was not acceptable
to Japan. The compensation limits were far too high and the balance between
ship and cargo were destroyed.
Mr. I. Blackwood wished to state how disappointed OCIMF was. He foresaw that a number of states “would have to reconsider whether it was wise to
accept such a financial burden.”
After the interventions, the chairman, Mr. Jacobsson, suggested that the new
limitation figures would be considered adopted, and it was so decided.
Notes:
For Mr. Yamada’s comments, see Conf. rep. vol. 2, pp. 615-616. About the USD 30 million available,
see Conf. Rep. vol. 1, p. 381.
IOPCF Annual report 1992.
IX. THE FEES TO IOPCF
In the consolidated text forwarded to the Conference, the annual contribution
system was retained. Thus the Fund would continue to be financed by importers of oil in the contracting states provided that they individually received
more than 150,000 tons during a calendar year. This meant that states that
paid nothing or very little had precisely the same benefits as major oil-importing countries if an accident occurred.
But Mr. H. Sinaga of Indonesia referred to a paper submitted by his delegation
and appealed to all delegations to take a fresh look at the system and provide
a better balance between the obligations and the potential benefits. He stressed
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that the level of risk of massive marine pollution of the individual country was
influenced not only by the quantity of imported oil, but by many other factors,
as well. These factors included geographical features, weather conditions, the
density of tanker traffic and the availability of national resources. Even if
Indonesia, geographically, was vulnerable, he argued that the most serious
pollution incidents occurred in the western world. Moreover, the ability to pay
should also be taken into consideration as the present obligations represented
a heavy burden, in particular on developing countries. Whilst some delegations
had expressed sympathy for the Indonesian proposal, the general feeling was
that the present system might not be perfect, but it had, after all, proved workable and reasonably fair. After consultations with other delegations, Mr. Sinaga
said he felt compelled to withdraw his proposal.
The Legal Committee had suggested that the initial contributions for new
members should be abolished. These levies were originally meant to provide
a working capital and were no longer required. Moreover, it had been agreed
that these contributions represented an obstacle for ratification.
Dr. Tanikawa opposed the proposal, pointing out that when a new fund
was set up, initial contributions would again be necessary. However, after the
proposal to abolish the initial contributions had been supported by most other
delegates, he accepted the majority view.
X. SIMPLIFIED UPDATING OF LIMITS
Experience had shown that a serious defect of CLC69 was the lack of a provision authorizing IMO to update the limits of compensation without arranging a Diplomatic Conference. Such amendment procedure had been secured
when FC71 had been agreed upon. A text the Legal Committee had prepared
was on the table. The document ensured that the shipowners’ liability amounts
could be updated and thereby maintained in real terms without the need for
cumbersome summoning of another conference.
Most delegations agreed that such a stipulation was essential to ensure that
the conventions could be kept viable for a long time. However, other delegations feared that a simplified amendment procedure could create constitutional
difficulties. But an alternative proposal to convene a Diplomatic Conference
every five years to discuss the matter had little support.
Admiral Hollingsworth said that: “the establishment of effective procedures
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for periodically updating the liability limitation amounts in the Conventions
was almost as important as fixing the limits themselves. …”
It was found essential that limits in both instruments were revised at the same
time and according to the same rules. Thus, detailed conditions for amendments were introduced in both protocols; CLC article 15 and FC article 33.
In short, any request to amend the limits had to be supported by one-quarter
of the contracting states and should be sent to members of the Legal Committee with six months’ notice. All contracting states were entitled to participate
in the Legal Committee when such a request was on the agenda. Any amendments required a two-thirds majority to be recommended, with at least half
of the contracting states present in the committee. No amendment could be
considered before five years had passed from the entry into force of the
Protocol or any later amendment of the limits. No increase should exceed six
percent per year, “calculated on a compound basis from 15 January 1993,”
and should not exceed three times the original limits.
With all the safeguards, including those mentioned above, the amendment
procedures were found acceptable, also to the delegations that had constitutional reservations to the first proposal.
XI. ENTRY INTO FORCE/RATIFICATION
In order to secure a worldwide acceptance, a number of delegations were
fronted by Captain Zhuanghuai of China, who advocated that the entry into
force of CLC should require ratifications of governments that represented a
definite percentage of the world tanker fleet.
Mr. Perrakis of Greece argued that this principle would be fair and facilitate
the new instruments’ entry into force. G. Ivanov of the USSR supported the
proposal, but was in favour of an increased number of signatures to allow the
Protocols to enter into force.
Mr. Perrett of the UK disagreed “due to the disparity of tonnage of national
fleets.” The proposal from China and other delegations overlooked that the
existing system had worked extremely well. He pointed out that the suggested
system would mean that “a convention could enter into force simply because
one or two countries with large fleets had ratified it; and conversely that those
countries could delay or even prevent its entry into force.” Several other speak-
186
ers, including those from France and Norway, supported him.
The opinion was evenly split. After a vote resulting in the rejection of the
proposal put forward by China, the Chairman tabled a compromise package
that was adopted. The entry into force of the CLC Protocol should be dependent upon the ratification of 10 states, including six states with a tanker fleet
of not less than one million gross tons.
The proposal for the Fund Protocol proved less controversial. It was decided
that the Fund Protocol could not enter into force before the CLC Protocol.
Subsequent to a proposal from the UK, it was agreed that it should enter into
force when eight states representing a total of 450 million tons of contributing
oil had ratified.
When three of the ratifying states in the preceding year together had received
a total quantity of 600 million tons, it was agreed that the compensation available to victims would be increased to SDR 200 million (USD 260 million).
When the Plenary finally voted on the adoption of the two ’84 Protocols, no
delegation voted against. There were, however, several abstentions: 16 for the
CLC Protocol and 21 for the Fund Protocol.
Note:
The background for the entry into force provisions is outlined in a presentation by Mr. Magnus Goransson in the CMI publication, “Liability for Damage to the Marine Environment,” London, 1993, edited
by Colin M. de la Rue.
XII. SUMMARY – AFTERMATH
The definition of pollution damage was clarified, and expenses incurred for
reasonable preventive measures became recoverable. For the oil and tanker industry, other important changes were that a minimum liability limit of SDR 3
million was introduced, and the maximum liability was increased dramatically.
Moreover, the system that provided indemnification of shipowners (roll-back)
was abolished, and a simplified procedure for updating the amounts was introduced. The immunity of the master and the shipowner’s servants and agents
was extended to pilots, managers, charterers, operators and salvors.
The destiny of the agreed instruments was now to a great extent in the hands
of the largest oil-importing nation, the US. But the record of this country –
when it came to ratification of international conventions in the field of maritime law – was not particularly impressive. In hindsight, it seems that many
delegations based their optimistic attitude with respect to ratifications upon
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the fact that the liability levels was close to the agreed compromise proposal
put forward by the US. One overlooked the facts: The definition of pollution
damage, the new channelling provisions, the geographical scope and the
limitations all differed a great deal from the position of the US at the opening
of the Conference.
The US Secretary of Transportation, Elizabeth H. Dole, arrived in London a
few weeks after the IMO Conference to sign the ’84 Protocols. Even if her
signature had no legal significance, it was a clear token of goodwill, the more
so as she used the opportunity to declare that she and Secretary Schultz (State
Department) had agreed that the process should proceed without delay.
In vain, the IOPCF Director, Dr. Ganten, testified in Congress (House SubCommittee on Coast Guard and Navigation). He argued:
“From the US’ point of view, the results is (sic.) in my opinion quite
satisfactory. This is due to the fact that a two-tier system was adopted which
allows for a 48-percent increase of the IOPC Fund’s limits when the US
joined the Fund Convention. This achievement was due to the efficient way
in which the US delegation at this Conference lobbied other delegations …
as a result of this, considerable concessions were made … many of the U.S.
objectives were largely achieved. … Should the US decide not to ratify … ,
the enormous amount of goodwill built up … would not only be lost …,
but could have the contrary effect of delegations becoming unwilling to …
accommodate wishes of the US at Diplomatic Conferences …”
President Reagan’s message to the Senate in November 1984 was clear, but
produced no results:
“I transmit herewith, for the advice and consent of the Senate to
ratification, the Protocol of 1984 to amend the International Convention of
Civil Liability for Oil Pollution Damage, 1969 (Civil Liability Convention)
and the Protocol of 1984 to amend the International Convention on the
Establishment of an International Fund for Compensation for Oil
Pollution Damage, 1971 (Fund Convention). …”
By 1985, the ’84 Protocols were signed by the UK, Sweden, Portugal, the
Federal Republic of Germany, Poland, Morocco, France and the US.
As late as 1988, the US Secretary of Transportation, Samuel S. Skinner,
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confirmed the administration’s intent to ratify. He outlined the advantages of
the Protocols at the same time as he stressed that within 10 years, the oil imported on foreign keels would increase to 65 percent. At the time, the majority
of the House of Representatives were in favour of ratification.
However, the US oil companies had continued their opposition. They argued
that consumers would have to pay far more than they were likely to receive in
compensation. Thus when the oil industry testified before the Merchant
Marine and Fisheries Committee’s Coast Guard Subcommittee, the oil representative called for careful revaluation of what would best serve American
interests. According to an anonymous analysis of the 1984 Protocols conducted pursuant to memos prepared for the Oceans and Fisheries Committee
and Assistant Secretary Malone “Congressmen Young (Alaska) and Breaux
(Louisiana) found it politically difficult to express support for the international
solutions. How do we justify exposing American citizens to paying 30 to 45
percent of the damages and cleanup costs if an oil spill finds its way to the
Sheik of Sharjah’s beachfront villa? One is left with the picture of America’s
compensating the Ayatollah Khomeini if Iran joins the Fund. While this is a
somewhat melodramatic picture, it could happen.”
The US Senate, which had the final say, was negative from the start, and the
1984 Protocols formally never entered into force. Their resurrection was, however, secured when IMO eight years later – subsequent to the US Congress’
adoption of the Oil Pollution Act of 1990 – modified the entry into force
provisions and introduced them as the 1992 Protocols.
The oil industry, which felt that compensation for pollution damage was best,
dealt with by the private industry, made no secret of its position. In a memorandum to its shareholders: CRISTAL set out the “shortcomings” of the
Protocols in clear language. The most important failures were that IMO should
have imposed a substantially higher liability on the tanker owner in particular
for spills from small- and medium-size tankers and thereby neglect the financial impact on oil-importing companies. Moreover, it was argued that the new
definition of pollution damage would open up for speculative claims in respect
of prospective restitution of the environment. Finally, the extension of the
geographical scope to cover the EEZ could result in an unacceptable increase
in the exposure of the industry.
In the campaign against the international instruments, the oil companies found
some unusual bedfellows. It turned out that most of the American environ-
189
mentalists and their organisations also opposed the Protocols, but for different
reasons. In their minds, limited liability was no good at all.
Time had come for the boards of TOVALOP and CRISTAL to re-evaluate
their positions. The oil industry proposed to abolish the current private agreements and adopt a new and more attractive compensation scheme. This was
named PLATO, an acronym for Pollution Liability Among Tanker Owners.
One important feature of the plan was that shipowners maximum liability
would not be more than USD 10 million – in case of tankers up to 5,000 grt.
For tankers in excess of that size, USD 10 million plus USD 500 per grt in
excess of the mentioned 5,000 tons subject to a maximum of USD 60 million.
Considerable efforts were made to gain support for new scheme. Invitations
with comprehensive information were sent out throughout 1985 to all tanker
owners. The invitation was signed by: the president of Amoco Transport Co.,
E. J. Roland; the managing director of BP Shipping, Ian G. S. Hartigan; the
president of Chevron Shipping Co., D. C. Wolcott; an attorney for Esso Int.
Shipping, Chris J. Carven; a director for Fina Marine, H. Cran; an attorney
for Mobil Shipping, Walter C. Mink Jr.; the managing director of Shell Int.
Marine, Juan H. Kelly; and the vice-president of Texaco Inc., J. A. Cole Jr.
The plan was to make PLATO operational when a tanker fleet of 50 million
grt had been entered in its membership. However, the needed support had not
come forward within the time limit, March 31, 1986. In a presentation on
Sept. 5, 1985, in the International Chamber of Shipping, Mr. N. Zervudachi,
a vice chairman of INTERTANKO, had made the points that:
“1. PLATO would have severe adverse effects on ratification and entry
into force of the 1984 Protocols
2. PLATO/CRISTAL offered less compensation than the Protocols.
3. PLATO increased the financial burden on the ship-owners, while reducing the obligation of the cargo owner to compensate pollution victims and
4. Ship-owner organizations including Comite Central des Armateurs de
France, Danish Ship-owners Association, Japanese Ship-owners Association,
Norwegian Shipowners’ Association, Swedish Shipowners Association,
Union of Greek Shipowners, Hong Kong Shipowners Association and
BIMCO all opposed the scheme.”
Because of insufficient signatories, the scheme was given up without becoming
operational.
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Instead, a TOVALOP supplement was worked out. In February 1987, tankerowners agreed to increase their level of compensation close to the figures in
the CLC Protocol. The CRISTAL limits were also raised, but the oil industry
saw no reason to increase their compensation to match the Fund Protocol.
There were also some other significant differences. The revised CRISTAL
adopted a tonnage-linked cargo compensation system, which OCIMF had
strongly promoted during the 1984 Conference. Moreover, several strict conditions had to be satisfied before CRISTAL would provide any compensation.
On the background of the oil companies’ campaign against ratification, Ms.
Chao seemed perhaps not quite realistic when she, in her otherwise excellent
book, claims that the lower CRISTAL limits “would appear to have been done
deliberately in order to encourage States to ratify the Protocols.” In hindsight,
it might seem puzzling that so little governmental action was taken to ratify
the Protocols. However, further to the increased compensation from the
private regimes, the effective lobbying of the oil industry and other political
events in the shipping sector, the interest of governments seemed to evaporate.
One reason may be the Iran-Iraq war. The conflict lasted from 1980 to 1988.
For the shipping industry in particular, serious problems escalated in 1984.
From that time, tankers in the Gulf were bombed or hit by Exocet missiles
from fighter planes as well as being the target for surface craft, mines and landbased missiles. Before the war ended, more than 250 seafarers had lost their
lives.
One dramatic but unsuccessful attack was on one of the largest Liberian flagholding tankers in the world fleet; World Petrobras (412,000 dwt) occurred
on Dec. 22, 1987. At the time, the tanker served as a floating oil storage ship
in the northern part of the Strait of Hormuz. When Mirage jets dropped two
500–pound bombs onto the main deck, the crew was in the process of transferring cargo to other smaller tankers. Some damage was caused, but World
Petrobras could resume operations 42 hours after the attack. Probably because
of the working of the inert gas plants on board, a serious explosion were
avoided. The tanker had, however, to be later repaired in Singapore.
One of the many other victims was the super tanker Seawise Giant owned by
Mr. Tung in Hong Kong. She was built by Sumitomo Heavy Industries of
Japan in 1976 for a Greek owner and later sold to Mr. Tung, who rebuilt the
ship to increase its carrying capacity and make it the world’s largest tanker.
191
After being bombed at Larak Island, the tanker was burned out, but later
completely restored, rebuilt and resold to Norwegian interests, then named
Jahre Viking. It was 565,000 dwt.
Having appealed in vain for several years to both sides to stop the attacks, the
INTERTANKO Chairman, Basil Papachristides, in May 1988 hosted a meeting with members of the UN Security Council in New York to discuss the situation in light of international law and freedom of navigation in international
waters. The need for the UN to see the tanker war as a separate issue was
stressed. The impact of the meeting should not be overstated; combatants
agreed later that year on a cease-fire.
Both CLC69 (article IIIa) and FC71 (article 4.2) provide immunity for the
shipowner as well as the Fund with respect to pollution damages caused by
act of war. Nevertheless it is noteworthy that the chairman, Jorgen Bredholt,
of the IOPCF Assembly (1978-1994) in pages 64 to 67 of the organization’s
25th-jubilee book reviewed his period without mentioning the tanker war with
one word.
Long after the hostilities between Iraq and Iran had come to an end, a new
dramatic situation emerged in early October 2002. Terrorists attacked a
French-flag super tanker, Limburg, with a cargo-carrying capacity of nearly
300,000 barrels of crude oil while she was miles off the shores of Yemen. The
attackers were believed to be associated with al-Qaeda. They fired a rocket
from a small boat against the hull of the tanker, which caught fire. According
to another source, it was a suicide boat laden with explosives that the terrorists
used. The explosion killed one crewmember. In early 2005, a Yemeni appeals
court found that it was proved that the arrested individuals had given a pledge
to al-Qaeda leader Osama Bin Laden to kill “infidels.” A group of 15 men
was found guilty of the attack. The leader was sentenced to death. The tanker
was to be repaired later.
According to the international liability regimes, the shipowner was not exposed to pollution liability claims in such situations. Moreover, standard P&I
rules excluded coverage for damage war perils caused unless a special insurance agreement was signed between the parties. No surprise that the press
reported that the Belgian operator of the Limburg (Compagnie Maritime Belge
– CMB) reacted furiously when the Yemen government initially requested a
warranty between USD 18 million and 19 million in respect of the resulting
192
pollution damage. The government, however, shortly dropped the claim, and
the damaged tanker was permitted to leave its waters and be towed to Dubai.
After the event, P&I clubs have offered coverage for war perils including acts
of terrorism.
The attack was unique because it was the first time terrorists caused pollution. Because of the leakage from the large tanker, IMO offered its assistance
to combat the oil spill. The pollution problem proved, however, to be manageable. It had happened neither in Europe nor US and did apparently not
produce a great deal of dead fish and birds. Hence the media attention was of
only middle intensity and probably a great disappointment for the terrorists,
who had hoped to catch the headlines in the media in the same way as Erika
and the calamity that followed a month later off the Spanish coast.
In the meantime, tanker accidents at sea had continued in more peaceful areas.
In March 1985, Greek tanker Patmos collided in the strait of Messina with
Spanish tanker Castillo de Monte Aragon. Seven hundred tons of oil drifted
ashore. The Italian Ministry of the Merchant Marine lodged a claim that included lost values of the affected natural resources. Were such losses legally
compensable and covered by the definition of “pollution damage” set out in
CLC69? A higher court upheld the claim, but the basis for the award is unclear.
In 1994, it became clear that the final compensation was within the limitations
of the shipowner, and the Fund was not called upon.
On Nov. 10, 1988, the 136,280 dwt Liberian tanker, Odyssey, caught fire
in the mid-Atlantic. She lost her cargo of 132,000 tons of crude oil about 700
miles off the coast of Nova Scotia. Nature took care of the spilt oil, but all 27
crewmembers died.
More attention was given to Khark 5, an old and not well-maintained Iranian VLCC of 284,632 dwt which exploded off Morocco in 1989. Seventy-six
thousand tons of crude oil were released. The Dutch salvors were denied
taking the tanker into the sheltered waters of the Canary Islands. This was
also the position of other coastal states. Despite the huge oil spills the Odyssey
and Khark 5 caused, there were no serious initiatives to have the ’84 Protocols
ratified internationally.
The accidents would be completely overshadowed by a tanker accident in
March 1989 in Alaskan waters.
Notes:
An American review of the 1984 Protocols to the 1969 International Convention on Civil Liability for
Oil Pollution Damage and the 1971 International Convention on the Establishment of an International
Fund for Oil Pollution Damage is found in memos prepared for the Oceans and Fisheries Committee
193
May 1, 1985, and for Assistant Secretary Malone, March 27, 1985. On pages 4 and 5, it is reported
that the major contentions of the oil industry are that the Protocols would place a disproportionate
financial burden on US consumers as they fail to place sufficient liability on the tanker owner and too
much of the burden on the cargo interest. The general conclusion of the review is that “the 1984
Protocols do indeed entail the probability of a net outflow of money. If one could devise an optimum
international regime that would best serve US interests, the Protocols would not be that regime.”
About the oil industry’s PLATO scheme, see Ms. Chao, “Pollution from the Carriage of Oil by Sea,”
pp. 192-196, and INTERTANKO Circular letter to members, no. 5A, May 24, 1985.
On the revised TOVALOP and CRISTAL agreements, see the October 1987 presentation of The
Britannia Steam Ship Insurance Association Limited and Ms. Chao, “Pollution from the Carriage of
Oil by Sea,” p. 210 note 81, where she comments on the revision of CRISTAL. Contrary to TOVALOP,
it does not entertain the same compensation as provided in the Protocols.
On the Iran-Iraq war, see above chapter 7iii. On Limburg, see IMO News no. 4, 2002 and various
articles referred to in IMO Awareness Bulletin, November 2002 to March 2006
194
9
Exxon Valdez
and subsequent incidents
in US waters
I. EXXON VALDEZ
Maritime safety legislation and rules on compensation for pollution damage
were pushed ahead after the event at the Seven Stones Reef in the British
Channel. The public outcry after the grounding off the coast of Brittany – 11
years later – generated a new wave of rules. The next impetus came after a
new interval of 11 years. The “incident” happened in Prince William Sound,
south of Valdez, Alaska. On a late evening in March 1989, a modern, very
large crude carrier of about 215,000 dwt departed from the Valdez Marine
Terminal. She was built at the National Steel & Shipbuilding’s yard in San
Diego, California, and named Exxon Valdez.
Real industrial oil production had started in Alaska in 1965. But it all began
in a modest way more than 100 years ago when a beach caught fire after a
hunter had lit a match to it. Such seep sites were obvious places for oil exploration, and by 1930 a modest amount of 150,000 barrels of oil per day were
produced. In 1965, Union Oil was blessed with a series of oil discoveries in
the icy waters of Cook Inlet. The strikes signalled the finding of new rich oil
and gas fields. Three years later, one other enterprising company, Atlantic (later
Arco) struck oil in Prudhoe Bay. This proved to be a reserve of major importance. Money for further development was no longer a problem when Exxon
was brought in as a partner. Also the geologists from BP had been hunting for
oil in the area, and their search was rewarded nine years later.
195
EXXON VALDEZ AND SUBSEQUENT INCIDENTS IN US WATERS
Valdez had a good port. In 1963, only about 400 inhabitants had settled
here. On Good Friday 1964, an environmental disaster hit Alaska. It took the
form of a violent earthquake that jolted the coast including the town, which
was half destroyed within five minutes. At night, four surges completed its
ruin. It turned out to be the strongest earthquake ever recorded in North
America. Union Oil’s efforts to explore potential oil fields suffered a serious
setback.
Bad luck struck again in October when the company’s tanker, Santa Maria,
loaded with heating oil and gasoline, collided with another vessel and caught
fire in the same area.
In 1969, Exxon converted one of its large tankers, Manhattan, to find out
whether ice-breaking tankers could deliver crude oil from Alaska through the
Arctic ice fields of the North West Passage to the US East Coast. Her hull was
reinforced by 10,000 tons of extra steel and included an ice belt around the
tanker’s waterline. The test voyages made it clear that she still was not
powerful enough. The experiments were suspended in 1970.
Tankers sailing south continued to carry the oil from the North Slope. Oil
was also pumped to the markets through pipelines. This was no easy game.
They were laid through forests and rugged hills, encountering numerous problems in the early years. New projects were met with opposition from environmentalists, who claimed that realization of such plans would seriously disturb
the wildlife of the whole region.
The protests delayed the oil production for three to four years. But then,
the federal government, alarmed by the Arab oil boycott, swept the opposition
aside and encouraged the oil industry to explore for more oil in Alaska and
on the outer continental shelf. One contribution of Congress was the
enactment of the Trans-Alaska Pipeline Authorization Act (TAPAA) in 1973,
which would facilitate the delivery of gas and oil. Alyeska, a consortium
owned by seven oil companies, became the operator of both the long 800-mile
Trans-Alaska Pipeline and the Valdez tanker terminal. From now on, the
Alaskan oil production became an important part of world production, and
the North Slope became a pioneer province for petroleum development in
Arctic conditions.
Under TAPAA, strict and joint liability was imposed on operators and
owners of tankers for all damages oil spills caused. The TAPAA Fund established under the law would top up the USD 14 million liability of the operator
to a total of USD 100 million. It was entitled to seek reimbursement from
negligent tanker owners. If the damage exceeded the maximum amount, the
196
claims were reduced proportionally, and the claimant
could pursue his claim under any other applicable
state/federal law. Under Alaska state law, a shipowner
was strictly liable for all clean-up costs and damages
incurred as a result of the spill, including damages on
private properties.
That particular evening of March 23, 1989, the Exxon
Valdez’s Captain Joseph Hazelwood had some drinks
in his favourite bar, the Pipeline Club, half an hour drive
away from the terminal. After returning to his tanker,
he radioed the Coast Guard station that he would be
changing course to avoid some small, drifting icebergs
on the way out. He received permission, but instead of
guiding the tanker from the bridge, he went back to his
cabin after instructing the third mate and the assisting
helmsman to get back into the lane once the ship had
passed the icebergs. With a cargo of nearly 200,000 tons
of North Slope crude on board, the large tanker moved
slowly out into Prince William Sound’s shipping lane.
The third mate had gotten less than six hours’ sleep
during the last 24 hours and was probably very tired.
Just after midnight, the large tanker grounded with a
loaded draft of 56 feet on Bligh Reef, where the lowtide chartered depth was only 30 feet. When reporting
the grounding over the radio to the Coast Guard,
Captain Hazelwood added: “We are leaking some oil.
We will be here for a while.”
In his conversation with the Coast Guard representatives and during later hearings, the captain never denied
that he’d had some drinks. Thirty-two years old, he was
Exxon’s youngest master and had turned down promotion ashore on several occasions. Now commanding
one of the newest and largest tankers in the fleet, his
style later did him no favour along with his concise reply
to the first Coast Guard officer to board his grounded
vessel. “What is the problem?” asked the officer.
“I think you are looking at it,” was the answer.
© NICK UT / AP / Scanpix
Captain Joseph Hazelwood
Known as Jeff in his younger
days, Captain Joseph Hazelwood was born 1946 in
Hawkinsville, Georgia. As one
of four children, he was the son
of a Pan Am Pilot. The allegation that the Captain was drunk
when Exxon Valdez grounded
has been rejected by the crew.
A test taken some 10 hours
after the accident found that his
blood alcohol content was
about 50 percent higher than
the 0.1 percent level laid down
in Coast Guard regulations.
The Coast Guard later expressed that his handling of the
tanker after the grounding was
exemplary. By adjusting the
engine power, he kept the ship
stable, thereby preventing an
even worse spill and may have
saved lives.
197
US OIL SUPPLY BALANCE
MILLION B/D
Source: EIA
12
10
CRUDE OIL PRODUCTION
8
CRUDE OIL
IMPORTS
6
4
OIL PRODUCTS IMPORTS
2
OIL PRODUCTS EXPORTS
70
72
74
76
78
80
82
84
86
88
Note: Minor crude oil export volumes excluded
90
92
94
96
98
00
02
04
06
08
Compiled by HM Strategies
US Oil Energy Balance
The negative oil supply balance
and the increasing dependence
on foreign oil has for many
years been a challenge for the
US Congress. The breathing
space Alaskan oil provided in
the mid- 70s was warmly
welcomed. The same can be
said for production of oil in the
Mexico Gulf wells during the
more recent years.
198
It appeared that 11 of the centre and starboard tanks
were ripped open, resulting in an oil spill of 37,000
tons. At first light on Good Friday, observers flying over
the crippled tanker saw an oil slick of about five miles
long and 1,000 feet wide. That was seven hours after
the accident. The release of the crude oil polluted a
1,300-mile shoreline, comprising one of the most sensitive wilderness areas in the US. Local fishermen and
businesses were dependent on fishing and wildlife and
feared that their future was disrupted.
Exxon Valdez has been seen as a disaster on a scale
that defies comparison. But paradoxically, the accident
is not found in the list of the 35 worst tanker spills;
neither did it cause any deaths. Statistically, the oil
pollution was less than one third of the spill from Torrey
Canyon and about 15 percent of Amoco Cadiz. But the
clean-up costs, the claims from fishermen and other parties, the headlines in the media, the series of legal battles,
the political discussions and the consequential national
and international legislation put the event in a class of
its own.
The past spills of any importance in Alaskan waters were limited to the Santa
Maria accident 25 years earlier and the Glacier Bay, an American flag tanker
owned by Apex Oil which grounded in 1987 and released an estimate of 100150 tons of crude oil. Due to the increased tanker traffic as well as the growing
appreciation of the environmental risk, a US Coast Guard’s office had been
opened in Valdez in 1977. In 1989, about 8,700 oil tanker transits had taken
place, but only minor spills had occurred.
Exxon was blamed for permitting a suspected alcoholic to be in charge of a
super-tanker that was operating along an environmentally sensitive coastline.
The refusal of its chairman to demonstrate the slightest regret over the spill
did not help the position of the company. It may be assumed that legal advice
had suggested that regret would indicate liability. In Washington, DC, young
girls were walking around wearing T-shirts marked “I hate Exxon.”
As the first few days passed after the grounding, a whole crew of other
“villains” began to emerge, including Alyeska, whose statistical department
in 1986 had previously presented figures implying that a major tanker spill
would take place in Prince William Sound once every 241 years.
Alyeska had a commitment to the federal government to implement a
contingency plan in case of a major oil spill. But it turned out that little had
been done. The evening before the grounding, its management had declined
an invitation from a local group to give a presentation at a meeting convened
to discuss the tanker traffic and the potential pollution risk. After the spill, the
media was quick to point out that the partners BP and Exxon had just spent
hundreds of thousands of dollars to prepare and present their new logo, but
the spending on an efficient contingency plan for Valdez never reached an
amount worthwhile mentioning in any PR report.
Also, the Coast Guard came in to the fire line. In a report on the grounding issued some time after the accident, the National Transportation Safety Board
(NTSB) of Washington, DC, concluded that the Coast Guard had not been
maintaining an effective vessel traffic system in the area. It was revealed that
the person standing watch on duty on the fated day lost the tanker on his radar
screen. When the master reported that he would be leaving the normal route
to avoid ice, the watch did not adjust his screen to locate the new position and
course of the tanker. Thereby, he failed to see that the new course brought the
vessel into dangerously shallow waters.
When Exxon in 1994 in a federal court claimed that the Coast Guard had
failed in its duty to warn the tanker of impending danger, the agency’s top of-
199
ficer at the time of the grounding, Paul Yost, rejected the allegation, pointing
out that Prince William Sound was a rather easy area to navigate, requiring
no extraordinary safety measures by tanker captains. He was convinced that
the Coast Guard’s control centre bore no blame for the grounding. The vessel
was in open water on a clear night with all the aides working. On the bridge
was a competent third mate, but the pilot as well as the captain should have
been there. “Somebody is at fault when a ship goes aground. In this case, it is
not the vessel-traffic service,” Mr. Yost said. However, other subsequent investigators have maintained that the traffic control system was neglected at
the time. Exxon Valdez would not have slipped through the surveillance if the
radar equipment had been up to par and the operators less complacent.
The night of grounding and during two more days, the weather was calm. The
smooth sea was perfect for an orderly cleanup. That task rested with the US
Coast Guard, which, however, made no protests when Exxon took upon itself
to lead the work. Exxon’s authority lay in its purse. When informed about the
spill, the top management of Exxon in New York saw what might be in the
offing and immediately assumed full responsibility. But it took nearly 12 hours
before a tugboat arrived with equipment to pump oil off the grounded tanker.
By the time Exxon had sufficient equipment available, the weather had
changed dramatically, and gales drove the oil ashore with tremendous force.
Under such conditions, the use of chemical dispersant and efforts to burn off
the oil were non-starters.
The Jones Act, which protects US flag vessels, meant that vessels under foreign flags could not be deployed immediately. Another frustration was that no
waste disposal sites were available.
An organisation including over 12,000 people, 85 aircraft and 1,400 vessels
was established to do what could be done with the oil spill. These efforts could
not prevent the grounding from sparking a battle lasting for years about who
was most to blame, a firestorm of lawsuits and a flurry of legislation.
In the years following the spill, a high percentage of fishermen and associated companies went bankrupt. More than 4,000 plaintiffs filed 190 lawsuits
in the Federal District Court of Alaska. More than 200 cases were filed with
the Alaskan State Court involving some 3,000 plaintiffs. The federal government filed criminal charges against Exxon, Captain Hazelwood and several
other officers onboard.
In April 1989, US President George Bush requested an assessment of the spill
200
response. A report provided by the National Response Team was available the
next month. It stated that none of the “responsible parties,” Exxon, Alyeska,
the State of Alaska or the federal government had been prepared for a spill of
this magnitude. In July, a Senate Committee reported that the spill was “exacerbated greatly by an unreasonably slow, confused and inadequate response
by industry and government that failed miserably in containing the spill and
preventing damage.”
A year after the accident, the Valdez’s officials felt compelled to issue a press
release to convince the hesitant potential tourists that the spill did not have
the long-term effect the media supposed. In any case, the lost wildlife was only
a minor fraction of the fauna in the surrounding area. The affected shoreline
was remote and outside the area likely to be seen by seaborne tourists. Ten
years after the grounding, Bob Malone, President of Alyeska, told the Anchorage Chamber of Commerce that the company now was very different from
what it was in 1989. At that time, the company’s clean-up standard mandated
a response to only a 4,000-barrel spill. “Now we can respond to spills of
300,000 barrels in 72 hours,” he said.
Payments to victims were delayed. Four years after the accident, the mayor of
a nearby fishing community committed suicide and left a note blaming Exxon
for some of his problems. The claimants for damages numbered 11,000, and
in 1994 a federal jury finally ordered the corporation to pay punitive and
actual damages of USD 5.3 billion – the largest amount ever assessed by an
American jury. The company was found to have been recklessly guilty when
it had failed to monitor the captain, who had been an alcoholic for some time.
The punitive amount was roughly equivalent to a single year’s profit by
Exxon at that time. But the stock market may have fared even worse as
Exxon’s shares rose after the verdict. If the punitive fine had been based on
2005 profits, it would have been about USD 30 billion (not accounting for inflation). However, its chairman at the time, Lee Raymond, described the award
as utterly unfair, totally unwarranted and excessive. He promised that every
legal means would be used to fight the unjust verdict.
Exxon had paid USD 300 million voluntarily after the spill, but many commercial fishermen expected far better compensation and looked forward to
having their claims honoured. In March 1999, attorney generals from 37 US
states sent a letter to the chief executive, Mr. Raymond, demanding that Exxon
should pay the punitive damages for the spill in accordance with the 1994
201
verdict. In this connection they pointed out that the oil company was profiting
from delaying the payment: “Each year Exxon delays payment of its obligation it earns an estimated USD 400m from the difference between the statutory
interest rate on judgements of six percent, and the company’s internal rate of
return of about 14 percent.”
Neither were the efforts to overturn the verdict well received by a group
of 30,000 to 40,000 people the spill affected. They had taken the name “Survivors of the Exxon Valdez Oil Spill.” Steven Goldstein, their press secretary,
responded: “People all across the country and the world are indignant at
Exxon’s arrogance ... Exxon had been counting on the political pressure to
subside once the 10th anniversary (of the spill) passed. But guess what? The
pressure is still on.”
Exxon seemed to take little notice and maintained that the company was:
“exercising a fundamental right to appeal these damages, a right to which
every American individual and company is entitled. This is a core value of our
judicial system which any AG (Attorney General) should understand and
support.”
The reward came about in 2001, when the 9th Circuit Court of Appeal ruled
that the punitive damages imposed in 1994 were excessive. At the end of 2002,
the punitive damages were set at USD 4 billion plus interest. Exxon appealed
again, but this just caused the judge to increase the punitive damages to USD
4.5 billion. Once more, the oil company appealed. The US Supreme Court
who decided that the reduced amount should be reviewed again wrote the next
chapter in the tragic/comic saga. In December 2006, IMO reported that an
appeals court, considering the case for the third time, had slashed the punitive
damages to USD 2.5 billion. The Court hoped that its third review of damages
awarded to the Alaskan seafood and tourist industry now would end the
lengthy litigation.
But Exxon/Mobil still felt over-penalised and continued to press for a better
deal. However, in May 2007 – 18 years after the event – the public was informed that:
“Exxon Mobile has failed yet again to get a US appeals court to cap its
Exxon Valdez punitive damages at USD 2.5 billion, setting the stage now
for the US Supreme Court to issue the final verdict. The US Court of Appeals for the Ninth Circuit refused on Wednesday to reconsider its earlier
decision to set the punitive damages payable by Exxon Mobil at USD 2.5
billion. This decision, issued in late December last year, had trimmed the
damages figure down from USD 4.5 billion.”
202
Contradictory reports have been released regarding the long-term effect of the
spill.
During the first years after the accident, each scientist’s report on the extent
of the pollution damages generally reflected the view of his or her sponsor.
But in 1993, a geochemist, K.A. Kvenvolden, working for the US Geological
Survey independently from Exxon, concluded that on the surface of the shores
it was easier to find residues from the unnoticed spill after the earthquake in
1964 than from the oil that gushed from the big tanker in March 1989. His
findings indicated that some of the claims against Exxon were not valid.
A report from early 1999 issued by a coalition of federal and Alaskan
agencies working to restore the oil spill region was far more negative in its
judgement. Out of the 28 species listed as being injured by the spill, only two,
the river otter and the bald eagle, were considered to be recovered. Eight
species were considered to have made little or no progress towards recovery,
including killer whales, harbour seals and common loons. But in a comment
to the report, Molly McCammon, executive director of the Exxon, told the
press that the impact of the spill now was subtle and probably not detectable.
More than USD 2 billion had been spent on cleaning up the mess after the
grounding in Valdez. Despite the favourable weather conditions throughout
the night of the spill and the two following days, the local contingency plan
Alyeska prepared proved to be worthless. Later, it was claimed that there had
been more focus on operational pollution caused by discharge of ballast water
from loading tankers than on the capacity to handle a major accidental tanker
spill. Whether that assumption is right or wrong is water under the bridge.
What became clear was that the combined efforts of the US government and
one of the world’s largest corporations proved inadequate.
Exxon spent millions on animal rescue and billions on shoreline clean-up and
compensation to fishermen and various local businesses. Two months after
the accident, between 700 and 750 vessels and oil skimmers were deployed,
assisted by 36 helicopters and 17 floatplanes. More than 6,000 people were
involved in the effort. The background or qualifications did not matter much
to the labour contractor, and what counted to the job seekers was the good
pay. The work force engaged in the clean-up left their garbage in the wilderness. Some of the cleaning methods may have done more harm than good. The
chemicals used seemed to remove the oil from the rocks and beaches, but devastated many of the organisms under and above the surface.
203
The exact amount of monetary damages will never be known. The research
undertaken at the time was more than ever subject to public pressures.
Emotions ran high, and each scientist’s presentation echoed to a large extent
the interest of his/her sponsoring agency. Exxon seemed to be blamed by
everybody. An exception was – no surprise – the president of the firm in
Anchorage that handled the cleanup for the oil company, Peter Leathard. Out
of tune with public opinion, he compared the current damages with the
strongest earthquake ever recorded in North America on Good Friday, 25
years earlier: “We did not waste time seeking to punish the cause of that
disaster,” he said in a press statement sent out a few weeks after the accident.
He continued: “nor is it productive to spend time placing blame and seeking
to punish the perceived cause of this disaster.”
It has been estimated that as much as one quarter of the spill evaporated and
disappeared. Jeff Wheelwright – a long-time science editor of Life Magazine
and devoted to environmental issues worldwide – claims in his book, “Degrees
of Disaster,” that the billions Exxon spent for the cleanup were mainly an exercise in corporate contrition. His analysis of the shoreline cleanup program
concluded that the operation in itself was a disturbance and inferior to the
natural cleansing by waves and weather. “It was overkill that fell short, a paradox obscured by an overkill of figures.”
However, after public hearings many years later, the National Fisheries Service
in Juneau reported that the oil spilled had caused further harm to the environment than previously thought. Further to the report, the US federal government and the State of Alaska in 2006 asked Exxon/Mobil to pay an extra USD
92 million to cover the lingering ecological damage in Prince William Sound.
It was alleged that remaining pockets of oil spilt in the basin in March 1989
continued to threaten a variety of marine species.
A press release sent out by the US Department of Justice on June 1, 2006,
refers to a 1991 civil settlement reached with Exxon. The agreement included
a “re-opener provision” enabling the authorities to claim up to an additional
USD 100 million for damages not reasonably anticipated in 1991. Such claims
had to be submitted by June 2, 2006. When notified about the intention to
re-open the case, Exxon/Mobil spokesman Mr. Boudreaux, referring to the
findings of more than 350 studies done by independent academics, commented
that “the sound has recovered, is healthy and is thriving. ... We find the timing
interesting, that the study has been released for peer review two weeks before
the deadline for the decision to notify Exxon Mobil of an intention to request
a reopener of the settlement.”
204
Exxon’s own estimates were that its war against the oil spill had resulted in
expenditures for clean-up costs, government settlements, fines and compensation exceeding USD 2.5 billion. The scale of expenditure seems to bear no serious relation to the technical affairs of the case, but reflects to a far greater
extent the large resources of the company and its determination to do whatever
could be done to repair its damaged public image. It is claimed that Exxon
spent USD 40,000 on every one of the 5,000 otters that the company tried to
rescue. Thanks to its relentless legal defence, there have been widespread feelings that the oil giant avoided paying damages that it should have paid.
Alaskan fishermen still insist that the spill continues to have bad effects on
their livelihood, such as the herring catches, which are way down.
Further to the huge pollution-related expenses, Exxon turned to its global
corporate excess insurance policy and called for re-imbursement from underwriters for the incurred costs. The underwriters first repudiated the claims for
a number of reasons. Their objections were many, including arguments that
the corporation had failed to disclose material facts about Exxon Valdez and
oil transportation in Alaskan waters. Moreover, a good deal of Exxon’s
expenditures were made to protect its profits and public image for which it
was not insured. Neither did the policy cover the claims, fines penalties, etc.,
which resulted from violating government regulations. Finally, it was asserted
that the stranding occurred because of wilful and/or reckless misconduct of
Exxon as a shipowner. The tanker was unseaworthy before the incident, and
the company knew, but failed to report.
Nevertheless, in 1996, a settlement was agreed on with the underwriters
in the London market. The settlement brought the total payout from insurers
up to about USD 780 million. This amount adds to what Exxon has recovered
through tax write-offs and not least by a simultaneous and well-timed increase
in the price for its product. Finally, further to the punitive damages imposed
in 1994, the company set aside the USD 5 billion and has since been collecting
good interest. With respect to the underwriters, they embarked on a lengthy
litigation to recover their outlays from the re-insurers.
Captain Hazelwood, who previously had lost his driver’s license because of
alcohol problems, was for some time said to be the most hated man in America: A villain whose recklessness had caused irreparable harm to the environment. The relentless pursuit of the wretched master should be seen in the light
of one mistake. Contrary to regulations for navigation in inland waters,
navigation was left to a third mate who possibly left the steering on automatic
205
pilot. It was claimed that the mate had had very little sleep and was deadly
tired. According to industry practice, mates in a loading port and on watch
standing after departure could be on the job for up to 36 hours.
Although he was permitted to leave Valdez after the accident, Captain Hazelwood was then regarded as a fugitive from justice. Despite a pre-arranged agreement to attend the court at a certain time, various New York City and State police
forces were waiting outside when he returned home for the “honour” of
bringing in the “fugitive” to court. He was first convicted but later got the
conviction reversed, being defended by Michael Chalos of a Manhattan law
firm. The firm rose to public prominence through its client.
Mr. Chalos argued that the captain was merely a convenient scapegoat for
the significant failures of the other actors in the drama. The captain never had
his master’s license revoked and he paid his share through a long-lasting community service in Alaska and finished his debt by handing over a USD 50,000
check to the authorities in May 2002.
The final act in the legal drama that had lasted for 19 years ended when the
US Supreme Court in June 2008 slashed to USD 500 million the USD 2.5 billion in punitive damages that Exxon had been ordered to pay for the Valdez
disaster in Alaska. Writing for the majority, Justice David Souther said the
punitive damages should not have exceeded the actual damages of some USD
500 million that Exxon had spent in compensatory damages to those who had
suffered economic losses from the accident. Exxon/Mobil chairman Rex
Tillerson was reported to send an apologetic note after he had been informed
about the decision, reiterating the oil giant’s regret for the “tragic accident.”
But Exxon and the oil industry in general had reason to cheer. In 1994, a
jury had awarded those harmed by the spill USD 5 billion in punitive damages.
Now the 32,677 fishermen and other interests whose business was disrupted
by the spill were left with USD 500 million. Since the lawsuit was filed, plaintiffs alleged that 20 percent of those eligible for damages had died.
Environmental groups criticized the decision. “The worst environmental
calamity in US history will continue to haunt the Prince William Sound and
those dependent upon it for their livelihoods” said the director of Greenpeace
US in a statement. One other spokesman in Valdez now felt that enough was
enough and said that “The courts have spoken, and it’s time to put it to bed
and get on with life.” The Senate Judiciary Committee chairman Patrick J.
Leahy regretted the ruling as “another in a line of cases where this Supreme
Court has misconstrued congressional intent to benefit large corporations.”
206
In September 2008, the press reported that Exxon/Mobil had reached an
agreement with the plaintiffs over the punitive damages, meaning that a portion of the disputed award could be expected to be paid out in October 2008.
Notes:
On TAAPA, see de la Rue and Anderson: “Shipping and the Environment,” London, 1998, pp. 48-51.
On the history of Valdez, see Welty & Taylor: “The 76 Bonanza,” and J. Wheelwright: “Degrees of Disaster” and in particular p. 150, where he makes the point that risk assessment is a social science that produces hard numbers, the utility of which is not known until after the fact. Thus it was not a good assessment
when Alyeska in 1986 predicted that a major tanker spill in Prince William Sound would happen only
once every 241 years. This should be noted by coastal states with much tanker traffic.
See “Federal on the Scene Co-ordinators Report” on the Exxon Valdez oil spill, published by USCG September 1993 and the report to 101st Congress 1st session, July 28, 1989, from the Senate’s Committee on
Environment and Public Works.
See also E. Nalder: “Tankers Full of Trouble,” pp. 37-48, 187, 225 and Jim Mulrenan in Lloyd’s List,
March 24 and 30, May 1994, July 13, 1992, Oct. 2, 1993, Oct. 4, 1995, Nov. 2, 1996, July 10, 1998,
Feb. 12, 1999, Oct. 2, 2003, Sept. 13, 2004, Dec. 28, 2006; and Seatrade Week, July, July 17-23, 1992;
Tradewinds, Sept. 11, 1998 and July 9, 1999; New York Times, Dec. 1, 1993; Fairplay, Dec. 6, 2001; Oil
Spill Intelligence Reports, Jan. 17, May 23 and June 23, 2002, June 8, Sept. 14, 2006 and Sept. 4, 2008;
Financial Times and US Today, June 25, 2008; Wall Street Journal, June 26 and 27,, 2008; and a press
release from the US Department of Justice, June 1, 2006, on a new compensation claim.
II. SUBSEQUENT INCIDENTS IN US WATERS
At the beginning of the new millennium, Valdez was again in a panic when a
sister vessel to Exxon Valdez, the S/R Long Beach, started to leak crude oil in
waters nearby. According to press reports, another environmental disaster was
narrowly averted. Now the oil giant Exxon had joined forces with Mobil and
become the world’s largest oil company.
After the grounding in 1989, Exxon changed the name of the company from
Exxon Shipping Co. to Sea River Maritime Co. The unfortunate Exxon Valdez
was renamed Exxon Mediterranean and sent in to exile outside home waters.
Under a section in the Oil Pollution Act of 1990, the tanker was banned from
ever entering the Prince William Sound again. A suit to have the section
declared unconstitutional was in vain, and Exxon suffered a new setback when
the Anchorage District Court in 1998 dismissed the lawsuit. An appeals court
upheld the ban in the fall of 2002.
The Exxon Valdez spill was followed in quick succession by new tanker
accidents in US waters. Three spills happened on June 23/24, 1989, and
demonstrated that oil pollution from accidental tanker spills was a real and
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continuing threat to the public health and welfare.
The Greek tanker World Prodigy (30,000 dwt), built in 1986, spilled about
200 tons of Bulgarian heating oil in the coastal waters of Rhode Island. Later,
it was contended that the captain had violated state regulations by entering
the area without a pilot, he had suffered from lack of sleep and was using an
obsolete map.
The next day, the Uruguayan tanker President Riviera (87,300 dwt) left the
shipping channel in the Delaware River and grounded 15 miles from Philadelphia. About 100 tons of heavy fuel oil leaked out. For good measure, a barge
collided at the same time with a freighter in the Houston Ship Channel, spilling
about 10 tons of heavy crude oil.
In June 1990, a Norwegian tanker, Mega Borg (136,500 dwt) exploded and
caused a major oil spill while in the course of lightering operations off Galveston, Texas. Twelve thousand tons of its cargo of crude oil were lost overboard
across 57 miles of beaches in Texas. Four crewmembers were killed in the
explosion and blaze. The 15-year-old tanker burned for five days. The smoky
blaze was tremendous, and the locals demanded that it be put out. This was
done, but the USCG, again unprepared for a spill of this magnitude, had to
fly in equipment from the North Sea to stop or at least minimize the damage.
Little of the leaked oil reached the coast. The tanker was later towed to the
Far East and sold for demolition.
The need for better American legislation to protect against pollution from
tankers was reconfirmed in February 1990 by the unfortunate American
Trader (80,700 dwt). The tanker, owned by Attransco, punctured her hull by
running over her own anchor when approaching the mooring buoy at low tide
in Huntington Beach off the coast of California. Associate branches of BP of
America had time-chartered the vessel and owned her cargo. More than 9,000
barrels were spilt to the sea. It emerged that the water depths in the area were
four feet less than the master and the pilot had been led to believe from their
charts.
The Attorney General, Bill Lockyer, later described the accident as the worst
in California for 20 years. Claims included compensation for lost opportunities
of beachgoers and boaters who were unable to use local waters and beaches
after the accidents. After more than nine years of litigation, a settlement was
reached with the tanker owner. The shipping company agreed to pay USD 16
million for the damages. The case raised the interesting issue of whether a
charterer could be considered to be an operator. The court noted that this
possibility should not be ruled out, but due to the settlement, the question
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remained unanswered. Separately, between 1994 and 1996, the cargo owner,
the tanker terminal and other involved parties had paid about USD 11 million
for clean-up costs, biological resource damages, lost recreational uses and legal
fees, etc. BP was reported to have spent about USD 250,000 a day to minimize
the spill.
Even though the money paid out and the responses to the latest spills by and
large were more prompt than in Valdez, the efforts were in the view of the US
Congress no unqualified success. The pollution damage was given substantial
media coverage and gave a further impetus to the feelings that the tankers represented a continuing threat to the environment in the waters and the coastline
of the US.
In the wake of these accidents, the interest in Alaska was revived for a
pollution accident that had occurred way back in July 1987. At the time, an
American flag tanker, Glacier Bay (82,000 dwt) – controlled by Apex Oil
Company based in St. Louis – spilled about 150 tons of oil whilst in transit
from Valdez to the Nikiski Terminal in Cook Inlet, Alaska. The tanker was in
the process of dropping her anchor in the inlet when she struck an unknown
rock, resulting in the leakage. It was later claimed that the National Oceanic
and Atmospheric Administration (NOAA), had failed to chart the rocks in the
area properly.
The P&I club, the West of England Shipowners’ Mutual Insurance Association, had undertaken the cleaning in co-operation with the owner of the ship,
the cargo owner and the time charterer. Because of the renewed interest for
compensation, claims were now brought before the court for the District of
Alaska. The court held that the Trans-Alaska Pipeline Authorization Act
(TAPAA) had completely removed the old federal 1851 Limitation of Liability
Act with respect to the tanker owner’s liability and tanker transportation of
Alaskan oil.
The shipowner was a member of TOVALOP. The oil company, which
owned the cargo, was a party to CRISTAL Ltd., which was backed by more
than 700 oil companies worldwide and intended to provide a last-resort fund.
Compensation could only be claimed when the oil cargo in question was
owned by a party to CRISTAL.
Two hundred thirty-two claims arose from the spill. West of England
paid out some USD 60 million to compensate claims from fishermen, fish
processors and others. The amount exceeded the shipowner’s liability limits
of TOVALOP, and West of England requested reimbursement of up to USD
40 million from CRISTAL. However, the claim was denied on the grounds
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that written notice, in accordance with the rules of this institution, was not
given within two years of the incident. Furthermore, reference was made to
its charter that stated: “In fulfilling its obligations ... CRISTAL shall be the
sole judge ... of the validity of any claim made hereunder...”
West of England opined that proper notice was given. In any case, the time
bar did not apply to the circumstances of the case, and it would be “repugnant
or void as contrary to public policy” if CRISTAL was the sole judge of its legal
obligation. The insurer brought the claim to the Commercial Court in London
that held that its power of review was unrestricted under English law, and that
a party was free to challenge any of CRISTAL’s findings.
However, after an appeal, the Court of Appeal’s ruling went in favour of
CRISTAL. It was held that “subject to there not being unfairness and not
showing bad faith or perversity in its determination,” the defendant was
allowed to be the sole judge. The feeling within West of England was that
CRISTAL had been “using all their endeavours to avoid paying proper and
adequate compensation to anyone whatever their status for as long as possible.” But the Appeals Court refused an appeal to the House of Lords. The
chief executive of CRISTAL, John Hawkes, emphasised to the press that the
reason for contesting the claim was in no way to resist the claim, but to avoid
setting an unwelcome precedent. The case was later settled amicably when the
P&I club accepted a reimbursement of about USD 17 million to 18 million
from CRISTAL.
Congress passed the Oil Pollution Act (OPA90) in 1990. Up to that time, the
American oil pollution liability and compensation legislation embraced a
broad patchwork of federal statutes and laws of various coastal states. The
legislation was partly supplemented by the old Limitation of Liability Act of
1851 – which had remained part of domestic law for nearly 140 years – and
partly the two private schemes: TOVALOP and CRISTAL.
The Clean Water Restoration Act of 1966 introduced liability for clean-up
costs for the first time. The act contained, however, no authority for courts to
provide compensation for damage private parties suffered. When CLC69 was
sent to the Senate for ratification, the Foreign Relations Committee reported
favourably on the treaty, but advised the Senate to await the pending discussion on the Fund Convention before further steps were taken. The message
resulted in nothing.
Instead, Congress enacted the Federal Water Quality Improvement Act
(WQIA) that imposed liability on tanker owners and operators for clean-up
costs the federal government incurred, but not for pollution damage private
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parties suffered. The shipowner was made subject to strict liability. The liability limits were linked to the size of his vessel. If the accident was caused by an
“act of God, act of war, negligence on the part of the US Government or an
act or omission of a third party,” liability was avoided. On the other hand,
the limits could be broken if the discharge was a result of “a wilful negligence
or misconduct within the privity and knowledge of the owner.” In 1972, the
law was amended to cover “hazardous substances,” as well. Thirty-five years
later, the discussion in IMO has not resulted in an operational international
convention on liability caused by chemical cargoes.
The concerns of private parties about the pollution risk represented by tankers
carrying oil from Alaska along a sensitive coastline were accommodated in
1973, when the Trans-Alaska Pipeline Authorization Act (TAPAA) was passed.
TAPAA contained provisions imposing strict, but limited, liability on tanker
operators for all pollution damage caused, including on private property. In
the Glacier Bay case, the Ninth Circuit Court of Appeals held:
“... TAPAA was designed to supersede any conflicting law – Because this
scheme is in irreconcilable conflict with the Limitation Act, we hold that
TAPAA implicitly repealed the Limitation Act with regard to
transportation of trans-Alaska oil.”
At the time of the oil crisis in 1973-74, it was envisioned that offshore terminals would be built to receive large tankers that because of draft restrictions
could not safely enter US ports. Such a facility was the Louisiana Off-Shore
Oil Port (LOOP). The enactment of the Deepwater Port Act in 1975 applied
to ports outside the three-mile territorial limit of the US. For clean-up costs
and pollution damage within designated safety zones, shipowners and operators were held strictly and jointly liable. The liability was limited, but with
few defences, to USD 150 per gross ton or USD 20 million, whichever was the
lesser. On the other hand, these limitations might be broken if gross negligence
caused the discharge.
In the midst of hectic legislative activity during the 1970s, both the Nixon and
Ford administrations submitted bills to Congress in order to implement the
international regimes, but in vain. President Carter placed the ratification
process on hold, and the Reagan administration opposed ratification partly
because it would increase governmental spending.
The main reason for the refusal, however, was the Senate’s resistance to
give up the legislative rights of the individual states. One of the first states to
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provide for special compensation for pollution damage was Florida, which
imposed strict and unlimited liability on shipowners for damage caused by
pollution in its waters. The state had been sued by various shipping interests
because it allegedly had intruded upon federal jurisdiction, but the Supreme
Court opined that so long as the federal government had not by its legislation
pre-empted the individual coastal states from protecting its own waters, the
states were free to legislate.
In the light of the Amoco Cadiz and the public alarm Argo Merchant caused,
Congress in 1980 was determined to update legislation to address the problem.
Some states had at that time indicated a willingness to accept adequate, international limits to benefit from a federal regime, provided they retained the
right to maintain their own funds for well-established purposes. But the
occurrence of a series of domestic disasters connected with disposal of chemical wastes changed the focus. The result was the enactment in 1980 of the
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), which established a tax-financed Superfund for removing
hazardous waste sites. A main target was the cleaning of the contaminated
land-based facilities. Among the many other features was the inclusion of a
liability regime for vessel operators for about 300 designated hazardous
substances.
By and by, some 24 individual states had separately enacted comprehensive
oil pollution laws covering compensation for clean-up costs and/or damages
to third parties. A number of the laws created compensation funds to pay for
clean-up operations. License fees, penalties, fines and/or state appropriations
financed such funds. Several states, including Maine, New Hampshire, New
York, New Jersey and Florida, financed their funds in part by a tax on oil. In
17 states, the liability imposed on the polluter was unlimited.
In February 1983, the US General Accounting Office presented a study that
concluded that a complex legal patchwork of international, national and state
arrangements governed ocean spill cleanup in America. It was claimed that
the system did not effectively protect US interests from the risk of ocean pollution. “In general, a private American party injured by oil pollution from a
ship must now legally depend for compensation either on State statutes or on
tort suits in the civil courts.”
The American Petroleum Institute (API) and the oil industry were frustrated
212
about the regulatory framework. In a June 1989 report, API complained:
“In order to accomplish its operational and logistical goals, the spiller
usually must comply with a myriad of federal, state and local regulations
and ordinances. Very often compliance requires review and/or approval by
a number of political agencies or subdivisions. ... In a catastrophic spill
situation, where swift and decisive action is critical, such delay can
substantially increase environmental impact.”
Notes:
Exxon Valdez renamed Exxon Mediterranean, which was renamed again in 2009 to Dong Fang Ocean
and spent the 20th anniversary of the oil spill at a Chinese yard to be converted to a dry cargo bulker.
See Tradewinds, May 26, 2000, and March 27, 2009.
On the polluters Mega Borg, World Prodigy, President Rivera and American Trader, see de la Rue and
Anderson: “Shipping and the Environment,” London, 1998, pp. 58, 226, 462 and 618 and John I Jacobs
1989/1990 Reports. On Glacier Bay, see Lloyd’s Law Report, 1995, Vol. I, pp. 560-570, Lloyd’s List
Feb. 3, 11, 20 and Oct. 28, 1995. See also Tradewinds, April 4, 1996. On the Deepwater Port Act, see
de la Rue and Anderson: “Shipping and the Environment,” London, 1998, pp. 51-53.
On the complex legal patchwork of international, national and state arrangements, see the US General
Accounting Office: “International Oil Pollution: Current and Alternative Compensation Arrangements
Affecting the US,” February 1983 and INTERTANKO: “Survey of the US Coastal State Law,” Oslo,
1995.
III. NEW RADICAL LEGISLATION AFTER
EXXON VALDEZ – THE TANKER INDUSTRY
IN DESPAIR
The Exxon Valdez and American Trader, followed by other accidents in
domestic waters, triggered a reaction from Congress in the form of unilateral
punitive oil spill regulations.
On April 7, 1989, President Bush went on record stating: “The Alaska spill
is in my judgment conclusive evidence against pre-empting state law.” He
introduced a plan that included a comprehensive legislative program to address
the wide-ranging problems associated with prevention, response and compensation for oil spills. New standards would be required for vessel construction,
crew licensing, manning and contingency planning. Federal response capability
would be enhanced, enforcement authority broadened, penalties increased,
research and development authorized and new liability for oil pollution
damage and financial responsibility rules were to be introduced.
213
President George Bush
George Bush was the forty-first
President of the United States.
Serving from 1989-1993, he was
also a World War II veteran. He
started his own oil company in
1951 and co-founded the Zapata
Offshore Company, which first
drilled for oil in the Texas basin
and then moved on to Houston.
After being elected chairman of
the company, his ambitions turned
political. He was President when
Congress rejected ratifying the
IMO protocols. He signed
OPA90, but regretted that the
ratification failure “may weaken
our leadership in the development
of international maritime
standards.”
© Ria Novosti / Boris Kaufman / Camera Press / Scanpix
Within the White House and the House of Representatives, there was nevertheless a widespread desire to restore the credibility of the US with respect to
continued cooperation within IMO. Thus, there was support for some type of
international solution. Secretary of Transportation Mr. Skinner, in the first session of the 101 Congress, testified before the Senate Subcommittee on Environmental Protection and argued that the Protocols would provide effective
coverage for US citizens; jurisdiction and enforceability of US judgments
abroad; enhanced settlement of claims; predictability and consistency of limits
and costs for ship owners and oil companies; reduced costs to the US for
catastrophic spills and expanded US influence in international maritime
negotiations.
But strong opposition to the ’84 Protocols was soon signalled by the Senate
and in particular by Senator George J. Mitchell, Jr., a Democrat from coastal
Maine. He moved to attack the administration by introducing a bill meant to
set up a unique national regime for tanker traffic to the US. Bitterly opposed
to any federal legislation that would deprive the coastal states of the right to
legislate in respect of environmental issues, he brushed the ’84 Protocols aside.
In his mind, their scope was too limited and the liability limits far too low. He
argued that the only way the citizens of Alaska would have any hope of being
fully compensated for their losses was under Alaskan law. Had the protocols
and/or pre-emptive federal legislation been in place, Alaskans would have been
unable to seek full recovery for their losses. In the wake of the Valdez spill,
it was inconceivable to him that anyone would want to pre-empt State legislation.
Whether Exxon’s liability would have been confined by the Protocol limits if
these had been in effect is, however, questionable. The company had left the
command of a giant super tanker to a master with a sheet of conduct that
reflected alcohol abuse. It is not unlikely that claimants in such a situation
would have argued that the owner (Exxon) acted “recklessly and with knowledge that such damage would probably result.” This could have meant that
the limitations in CLC would not apply. On the other hand, one may also ask
whether the oil company could have escaped part of its liability by proving
that the damage resulted from the wrongful acts of the US Coast Guard, whose
radar control operation arguably amounted to gross negligence.
Speculation aside, the fact remains that nearly all environmental groups
supported Senator Mitchell, including the few who initially had been sympa-
215
thetic to ratification. Oil was both dirty and a symbol
of economic growth. The “greens” were opposed to
both, and gained an increasingly powerful voice as a result of their support for a cleaner and “kinder society.”
© Sebastian Scheiner / Afp / Scanpix
George J. Mitchell Jr.
Senator Mitchell was the majority leader of the US Senate
when Congress agreed on
OPA90. Before entering the
Senate in 1980, he served as a
federal judge and as a longstanding member of the Senate
Environment and Public Works
Committee, and was thus perfectly suited to spearhead the
passage of the Act. Nevertheless, he had to give up the implementation of his favoured
principle that all parties involved in a pollution accident
should be held accountable for
their actions. A stipulation exonerating cargo owners (oil
companies) was worked into
the bill before it was passed. In
1994, he turned down an appointment to the US Supreme
Court. Since then, he has successfully completed several international missions. Most
impressive is his work as the US
Special Envoy for Northern Ireland, which resulted in the
Belfast Peace Agreement signed
on Good Friday 1998.
216
An effort to resolve the dispute came about in November 1989 when Congressman Gerry Studds, chairman
of the House of Representatives’ Merchant Marine and
Fisheries Committee, introduced a bill. The House voted
in November 1989 overwhelmingly to pass Congressman Studds’ bill, which would strengthen the federal
standards. But the bill also contained an ingenious
provision letting the US join the international convention - that would enable ratification of the ’84 Protocols
and yet would avoid pre-empting state laws. It would
allow the US to participate within the IMO instruments
for five years on a trial basis as soon as sufficient ratifications had been achieved. During this time, US negotiators would work with representatives from other
countries to “modify” the Protocols to bring them in
line with US legislation. Although the proposal won the
support of the administration and even from some
environmentalists, the independent tanker owners quietly asked themselves how such a compromise could
work in practice.
Fearing that the version with unlimited liability provisions would prevail, Ian McGrath, managing director
of the oil major Shell, in early June 1990 announced
that his company would stop crude oil deliveries to the
US mainland. Shell-owned or managed tankers would
go no further than the marine terminal platform
“LOOP” some 20 miles off the Louisiana coast in order
to limit the company’s exposure to the pollution liability
risks. The news caught the headlines of the finance and
shipping press. According to June 12 edition of the Wall
Street Journal, Shell’s reaction “will make the liability
problem more visible and accelerate a compromise.”
In a press statement, Mr. Skinner, Secretary of Transportation, expressed deep
concern that failure to ratify the treaties would drive responsible owners “from
our shores.” However, the abundant supply of bank loans combined with less
demand for transportation had caused the surplus of tankers to grow to dimensions never seen before. The independent tanker owners found themselves
in a market obsessed with the bottom line. Not much else mattered except the
freight rate. To no avail, voices were raised arguing that the oil industry as
charterers of tankers had a duty and responsibility to ensure that the ships
they chartered were properly maintained and operated.
The development caused strong protests from INTERTANKO. One of its
Council members, Bjorn Wilhelmsen, opined that the unlimited liability on
tanker owners would mean that well-established shipping companies might
hesitate to serve the US and leave the trade to one-ship companies with very
little to lose. Thus, he felt tempted to draw a comparison with the prohibition
laws in the 1920s:
“The comparison is not perfect because whisky is
certainly a better drink than crude oil, but my point is that if you criminalise
an activity, you leave the field open to the bad guys with nothing to lose.
And oil is presumably more vital to the nation than whisky.”
Although the US had taken a leading role in the formation of the ’84 Protocols
and had signed both, the Senate never consented to ratification. In late June,
members of the House and Senate came together to work out a compromise.
Senator Mitchell’s argument that the protocols did not provide advantages
over US federal and state law met with very little opposition. It was unanimously agreed to drop the “joinder” provision, which had contemplated
implementation of the ’84 Protocols.
A provision in the House Bill, which imposed a secondary liability on the cargo
owner confined to 50 percent of the removal costs, became one of the most
controversial proposals. It was deleted by the conferees in order to complete
their work before Congress’ August 1990 recess. The effective lobbying of oil
company representatives had “convinced” members of Congress that such a
provision “would have had a devastating effect on small, independent companies which provide home heating oil to citizens of the north east part of the
country.”
217
Whereas the provision in the House Bill which had directed a secondary liability on the cargo owner was deleted, Congress agreed that there would be a
national Oil Spill Liability Trust Fund (OSLTF) financed from a 5-cent-abarrel oil tax imposed on imported oil as well as oil produced in the US.
A second major source of revenue was the transfers from the previous pollution funds, which had been operating under the Federal Water Pollution Control Act, Trans-Alaska Pipeline Authorization Act, Deep Water Port Act and
the Outer Continental Shelf Lands Act. Some revenues would also be received
from other sources such as interest on the capital and penalties imposed on
the polluter.
“The reason you need a fund, of course, is maybe you may not have an
Exxon that has an accident; you may have a fly-by-night oil company that
cracks up on the reef with no assets. And what does unlimited liability mean
for them? Not very much. Their only asset may be the ship.”
These were the words of senator Breaux at the Senate floor debate on Aug. 3,
1989. The Certificate of Financial Responsibility requirements introduced five
years later would prevent such incidents that he had in mind. Otherwise, the
“flight by night” term may perhaps in practical life more likely be a one-ship
independent tanker owner rather than an oil company.
The one billion dollar Fund (OSLTF) would be made available to cover cleanup costs and damages not compensated by the shipowner. Its history went four
years back in time. Congress had established a similar fund already in 1986,
but had not passed legislation to bring it into effect. OSLTF would be available
to cover clean-up costs and damages not compensated by the shipowner or
any other responsible party within 90 days unless the damages were caused
by gross negligence or wilful misconduct of the claimant. But in “normal”
cases, claimants, whose claims were not settled by the responsible party, might
seek compensation directly from the Fund, which in turn could later seek
reimbursement from the responsible party by means of subrogation rights.
The amount to be paid per incident was assumed not to exceed USD 1 billion.
Hence, despite diplomatic pressure and reproach from IMO and all parties
within the shipping and insurance industries, Congress saw no reason to bring
the US laws in conformity with the Protocols.
The Oil Pollution Act (OPA90) was signed on Aug. 18, 1990, by President
218
Bush somewhat reluctantly, it may seem, as he after signing also felt compelled
to declare that:
“In most respects the Oil Pollution Act is a responsible piece of legislation...
Ultimately the threat of oil pollution is a global challenge, and the solutions
we devise must be broad enough to address the needs of all nations. Therefore I urge the Senate to give immediate consideration to the International
Protocols and give its advice and consent to ratification of these treaties.”
He also expressed concern that failure to ratify could create a situation:
“in which larger oil shippers seeking to avoid risk are replaced by smaller
companies with limited assets and a reduced ability to pay for the clean-up
of oil spills. We will need to monitor developments in order to protect
against such undesirable consequences.”
Maritime governments as well as the shipping industry were distressed. Despite
the fact that no liability was imposed on the cargo-owner, the oil industry was
also frustrated, as Congress had failed to harmonize the variety of oil spill liabilities under the complex combination of state and federal law. In the view
of Peter H. Ghee, Mobil’s legal counsel, Congress was posed in the summer
of 1990 with “a unique opportunity to resolve in a uniform manner the
liability for oil spills in US waters,” but the situation was left “as confused as
it had been, with no clear perception as to whether the potential exposures
under either prior law or the 1990 Act would or would not be beyond the
financial resources of tanker owners, charterers, and their underwriters.”
The oil industry’s frustration is understandable, but the same companies had
done their utmost to oppose ratification of the international regimes. The old
saying that you cannot have your cake and eat it too comes to mind.
A few independent tanker owners followed Shell’s example and confined their
operation to the “LOOP terminal.” One of them, A.P. Moller of Copenhagen,
Denmark, told Tradewinds in December 1990 that they had adopted a policy
of not serving US ports with their crude oil tankers, but would continue to
call as before with their tankers carrying clean products. But a clear majority
of the owners continued as before, including the largest independent operator,
World Wide in Hong Kong, who first had told Lloyd’s List that a decision to
halt its shipments to the US probably would be made. Similar statements were
219
also uttered by some French and Belgian oil companies, whilst a leading tanker
broker, Clarkson & Co. in London, opined there were still enough tanker owners more than willing to serve the US.
Two years later, Senator Mitchell gave some lip service to international co-operation on environmental issues. There would be many benefits for his country
in a worldwide approach to the problems oil spills caused, he claimed. Thus,
OPA90 was not a rejection of future participation in an international oil
pollution regime. Instead, the law would be seen as a clear signal that any
international accords must provide the degree of protection sought by the
American people. At the same time, he acknowledged the value of state law
liability rules that motivated the cargo interests to avoid oil spills. He pointed
out that if the ’84 Protocols had been ratified when the American Trader
spilled the large amount of oil off Huntington Beach, BP would have been
insulated from liability, as California law would have been pre-empted:
“The Congress and the states, however, have recognised that channelling
liability to shipowners and relying on recourse actions to impose liability on
other responsible parties does not provide the same level of deterrence and
accountability that is provided by holding each and every responsible party
directly and fully liable for their actions ...
“Much of American and English civil law and criminal law is based upon
the principle that persons are accountable for their actions. Our law uses
that accountability to create a deterrent to negligent, damaging behaviour.
The public interest is not served where charterers, operators, pilots and
others who are in the best position to prevent oil spills know that they are
insulated from liability for catastrophic oil spills caused by their own gross
negligence or violation of federal regulation.”
Notes:
On the development of US environmental legislation, see de la Rue & Anderson, “Shipping and the Environment,” London, 1998, and US Coastguard, “Regulatory Impact Analysis - Financial Responsibility
for Water Pollution (Vessels),” CGD 91-005, June 1994.
Also see B. Sandvik, “What can we learn from US law,” Marius no 218, Norsk Institutt for Sjorett,
Oslo.
On the exoneration of the cargo owner, Chao notes that the omission of the cargo owner was not explained anywhere except in a brief statement given by Mr. Lent, a member of the House of Representatives. See “Pollution from the Carriage of Oil by Sea,” pp. 234-235. The full text of President George
Bush’s statement was sent from the White House, Aug. 18, 1990, and is reproduced in INTERTANKO’s
Annual Report, 1990, p. 23. Mobil’s legal counsellor Mr. Gee’s paper on OPA90 was presented April
15-17, 1991, at an international shipping seminar at Oslo Plaza Hotel.
On the reaction of tanker owners, see Lloyd’s List, June 25, 1990, and Wall Street Journal late June
1990. Senator Mitchell’s article is found in “Environmental law,” Vol. 21, pp. 236-251.
220
IV. OPA90 & THE IMO INSTRUMENTS
A few voices tried to iron out the difference between OPA90 and the international instruments. One of them was Daniel F. Sheehan, director of the U.S.
Coast Guard National Pollution Funds Centre in Virginia. “The devil is in the
details,” he argued. In his mind, the regimes were, after all, very similar. At
the American 1995 Oil Spill Conference, he “substantiated” his view with the
following generalisations about the two regimes:
“Both have limits of liability for ship-owners – OPA90’s is higher. Both
have limits that can be broken – OPA90’s is easier to break. Both describe
damages that are compensable – OPA90’s are broader and more extensive,
particularly in the area of natural resource damages.
Both require certification of ability to meet potential limits of liability. Both
permit third-party direct action against guarantors. Both limit policy
defences of guarantors. Both have funds for damages and removal costs in
excess of shipowners’ liability and both are funded by importers.”
Mr. Sheehan’s points are perhaps valid, but only to a limited extent. A rough
comparison of the two legal systems reveals that the OPA limits increased the
tanker owners’ liability exposure substantially. In the case of a tanker of 3,000
gross tons or more, liability was set at USD 1,200 per grt, or USD 10 million,
whichever is the higher. Thus, it is the highest figure that is chosen in contrast
to the international instruments that apply the lower figure. A medium-size
tanker of 75,000 dwt (roughly 40,000 gross tons), would thereby face a
liability of nearly USD 50 million, and for the largest tankers, limits would go
beyond USD 240 million. However, due to draft restrictions, the VLCCs could
not enter US ports. These super tankers discharged their cargoes far out from
the coast by transferring the oil to smaller tankers or to LOOP. If an accident
occurred there, the risk of being exposed to huge claims would be considerably
reduced, as was pointed out in Shell’s press release mentioned above.
Moreover, the OPA90 defences against liability for an oil spill are weaker. The
shipowner may be “excused” only if the spill is solely caused by “an act of
God, or an act of war” or under certain circumstances “an act/omission of a
third party” or any combination of these factors. There is no reference to the
defences such as “hostilities,” “insurrection” or “irresistible natural phenomenon.” Neither is there any exoneration of the shipowner for claims from
private parties if the spill was caused by the negligence of any authority
responsible for the operation of navigational aids. In such a situation, the
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shipowner is exempted from claims of the Government only if the spill is
caused by gross negligence of the same Government.
Conflicts of perhaps an even more serious nature exist in relation to other
liability aspects. Under the ’84 Protocols, the liability limits of a shipowner
can be broken only if the damage is caused by his personal fault, committed
with the intent to cause damage or recklessly with the knowledge that such
damage was likely to occur. In an effort to encourage responsible behaviour,
OPA90 made tanker owners exposed to unlimited liability for spills not only
caused by gross negligence or wilful misconduct of the shipowner himself, but
equally on the part of any of his employees, agents, contractors, the master or
a crew member. Moreover, taking into account the masses of rules and regulations issued by the Coast Guard and other American authorities, the shipping
and insurance industries were particularly troubled. The law made it clear that
the limitations did not apply if there was a violation of an applicable federal
safety, operation or construction requirement. Likewise, a failure to report an
incident or to provide reasonable co-operation with officials in connection
with clean-up operations would break the ceiling and expose the shipowner
to unlimited liability.
V. COMPENSATION FOR DAMAGE TO
NATURAL RESOURCES
At the 1984 IMO Conference, it was agreed that “speculative and frivolous
claims” should be excluded from compensation, but the definition of “pollution damage” would remain wide enough to allow recovery for all reasonable
claims. To reach this goal, compensable claims were limited to costs of damage
caused outside the ship, such as damage to property and direct economic
losses, and to the cost of reasonable measures taken to prevent pollution. For
damage to the environment, the IMO Protocol compensation was restricted
“to reasonable measures undertaken (or to be undertaken)” to restore the environment after the accident. According to a resolution passed by the IOPCF
Assembly in 1980, compensation should not be based on “abstract quantification of damage calculated in accordance with theoretical models.”
OPA90 introduced no such restrictions. The obligation to pay for damage to
natural resources included compensation for all “lost values,” as well as
restoration of bringing impaired natural resources back to their original state.
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Furthermore the costs incurred to assess such damages would be compensated.
The full, legal effect of OPA90 on this issue still remains to be seen. But it
seems clear that the law differs fundamentally compared with the international
regimes.
In 1989, the Court of Appeals for the District of Columbia held that under
CERCLA, so-called “contingent valuation” was an acceptable yardstick to
calculate non-use values. This meant that compensation for lost values could
be measured by taking into account the (economic) value set by individuals,
irrespective of whether they were users of the resources in question or only
passive, potential users. In other words, what non-users were willing to pay
for the availability of the natural resource seemed as relevant as the value set
by users. The only two exceptions recognized by the Court were if restoration
was infeasible or when the restoration costs were “grossly disproportionate”
to the diminution in the value of the damaged resources. With this approach,
the shipping and oil industries, and not least their insurers, feared that levels
of liability, hitherto unimaginable, had been introduced.
In 1990, Congress gave NOAA the task of publishing rules on the assessment
procedure to establish the scope of pollution damage. In this respect, one of
many problems was that unspoiled natural areas of considerable ecological
value often have little or no commercial value.
For several years, the international community hoped that NOAA would
remove the most extreme feature of the law and return the issue to a practical
level. After a delay of nearly three and a half years, the federal agency finally
published standards for Natural Resource Damages Assessment (NRDA). The
rules had many facets, one being that the “Contingent Valuation Methodology
(CVM)” was authorized as a legally acceptable assessment method. The “passive use” value seemed thereby to be reconfirmed as a basis for the evaluation.
Prior to OPA90, tanker owners were subject to, but less concerned with, the
prospects of facing unlimited liability for removal costs and damages associated with an oil spill under US state laws. While such consequences had existed
for many years, it was only after the claims against Exxon Valdez that the full
implications were acknowledged. Thereafter, it seemed clear that there was a
risk that, with a catastrophic spill, liability could exceed both available insurance and the assets of the responsible party. No independent tanker company
had the financial resources or insurance to withstand the claims faced by
Exxon. Based on an open-ended definition of pollution damage, an oversight
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of a crew member resulting in a serious oil spill could overnight enable an
American judge to wipe out the business of any independent tanker company
supplying oil to the US.
In a submission to NOAA dated Sept. 10, 1992, INTERTANKO claimed that
CVM would place an additional intolerable financial pressure on an extremely
small sector of the transportation chain. It would benefit only the lawyers and
other experts who would be paid millions of dollars to litigate the merits of
the methodology.
Senator Mitchell had made the point that the threshold, as regards the
amount that can be recovered from a polluter in violation of OPA90, could
be found in only the US bankruptcy laws. Some shipowners transporting oil
to America felt they were engaged in “I bet my company lottery.”
However, several members of Congress by and by concluded that certain realities might have been overlooked when the NRDA provisions in CERCLA
and OPA90 were passed. A new bill was introduced in the House that would
require resource restoration plans to be cost-effective and cost-reasonable.
NOAA was requested to issue specific regulations to take care of the shortcomings.
In 1997, it was reported that the US Court of Appeals for the District of
Columbia had in principle approved the CVM calculation methods, but had
at the same time underlined that the courts had an obligation to independently
scrutinize assessments for reliability and validity. Simplified computer assessments, without the development of actual site-specific plans, would not be
allowed. Furthermore, it was held that claimants cannot simply estimate the
dollar value of damages, but must present calculations showing the exact value
of lost services. The next year, NOAA proposed new regulations along the
lines the Court decided.
The Contingency Valuation Methodology
An illustration of the shortcomings of an extreme implementation of the contingent value principle was presented at a public meeting of the Contingent
Valuation Panel in August 1992:
“If citizens are polled regarding the value of a single dolphin killed by
pollution, the average “value” would, for example, be maybe ten cents.
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Consequently, if 100 dolphins are killed, the harm valued by that single survey
is 10 dollars. Multiplying this number with the total population of the US –
about 260 million – the damages from the killing of these dolphins would be
an implausible USD 2.6 billion. Even in the event that a recommended discount factor of 50 percent is used, the damages would still amount to an unbelievable USD 1.3 billion, which is USD 13 million for each dolphin killed.”
Notes:
On National Resource Damage and Restoration Costs, see de la Rue & Anderson, “Shipping and the
Environment,” London, 1998, pp. 503-558. On the “Contingent Valuation Methodology” (CVM), see
“Maritime Update” issued by Eckert, Seamans, Cherin & Mellot, Washington, Nov. 6, 1995, and Nov.
18, 1997. For Ohio v. Department of the Interior, see DC 1986 and Collin de la Rue & Charles
Anderson, p. 526.
VI. RESPONSIBLE PARTIES – CHANNELLING OF
COMPENSATION CLAIMS
At the 1984 IMO Conference, Admiral Hollingsworth stressed that the
suggested channelling concept was unfamiliar in US law. Also, France had
objected strongly to a text that seemed to provide virtual immunity upon a
number of identified parties.
The formulation would be unacceptable “if inadequate amounts of liability
were adopted.” Several other delegations were of the same opinion, including
Canada, Greece and Poland. The final result was nevertheless that claims for
pollution damage would be directed against the ship owner alone.
The US Congress decided that shipowners should be the responsible parties,
but not all other parties in a position to prevent oil spills would be insulated
from liability. Thus the responsible parties identified were – “in the case of a
vessel – any person owning, operating, or demise chartering the vessel.”
The Act gives no further guidelines with respect to the interpretation of a
“responsible party,” but as the shipowner may be exonerated if the damage is
caused by an omission or act of a third party, this third party may under such
circumstances be regarded as a “responsible party.”
The person operating the vessel – the operator – is mentioned expressly in the
law. Based on the rulings of US courts, it seems clear that people or corporations that exercise day-to-day management or control over the vessel are
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operators. Many tanker owners have entered into contractual arrangements
with professional management companies and left the operation of their fleet
to them. If such a company has assumed the operational responsibility in
respect to seaworthiness, maintenance, crewing and other functions relevant
to general safety, the company may fall under the term “operator.” The term
“operator” has been liberally construed by US courts under CERCLA, but the
Coast Guard has in the Preamble to the rules on financial responsibility in
1994 presumed that traditional voyage or time charterers are not covered by
the term “responsible party” in OPA.
In 1996, Ms. Chao in her book, “Pollution from the Carriage of Oil by
Sea,” commented on the question as follows:
“... given that various persons may exercise some degree of control over the
ship to a greater or lesser degree, it remains to be decided what degree or
control would be sufficient to render a person liable as an operator. It was
understandable that several categories of persons within the oil industry
were concerned about whether they might be construed as being operators.”
At the proceedings following the American Trader, the time charterer and the
cargo-owner, BP Oil Shipping and BP Oil Supply, argued that the company
was neither owner nor operator. The argument was rejected, as it was found
possible “for the plaintiffs to establish that the charter by BP makes it an
operator under the statute” by both the district court and the court of appeals.
The case was heard under TAPAA, but in this context this is of limited consequence as long as the act contained the same provision as OPA90, making
both the owner and the operator liable. Had the ’84 Protocols been in place
in the US, the time charterer – BP Oil Shipping – would have been insulated
from liability. Based on the two court findings in the American Trader case, it
cannot be ruled out that following a future pollution disaster in US waters, a
time charterer may be regarded as an operator and responsible party, as well.
For the shipping industry, a major concern has been whether a corporation
with multiple tanker companies could go down the drain altogether if only
one tanker faulted and polluted the American coast. Thus, foreign tanker
owners raised the question of whether single-asset shipping companies would
provide protection against a veil-piercing/alter-ego inquiry in the event of
a catastrophic spill. Another important question was whether individual
shareholders and/or members of the board of directors could be held
personally liable.
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As a general rule, there is a presumption of separateness between a corporation and its owners. Nevertheless, this is no more than a starting point, or a
rule with important exceptions. The legal battle which started after the
grounding of Amoco Cadiz in 1984 was in the back of the industry’s mind. It
was a battle that carried on until the litigation finally concluded in 1992,
nearly 14 years after the accident.
Both the Federal District Court and the Federal Court of Appeals held Amoco
International and Standard Oil Company responsible. The claimants were
awarded USD 61 million, plus interest. Standard Oil had exercised such
control over its subsidiaries that these entities were considered to be mere
instrumentalities. The management had failed to maintain the steering gear in
order, and the maintenance had been delayed to avoid disturbing in the
commercial operation of the tanker. The judge pierced the corporate veil and
decided that the parent company had been substantially involved in the
operation, and consequently had contributed to the damage. Thus the judgment led to involvement and controls of operation being critical elements.
Following legal advice, the Norwegian shipowner Westye Høegh considered
splitting up his company into separate units. He controlled a large fleet, owned
and managed by the company Leif Høegh & Co. AS. In October 1990, the
press was told that because of the potential liability OPA90 imposed, the
parent company would no longer exercise full control over all the activities.
Later, the company sold its crude tankers and combined carriers to more
courageous operators.
At the same time, two Norwegian shipping institutions approached a New
York law firm, asking for a legal analysis on the potential liability of shareholders, partners, investors and officers in shipping companies. They were
informed that: “A shareholder who has the ability to and exercises substantial
control over the Company takes a larger risk than one who, having the ability
to do so, accedes to greater independent judgement by the company through
its officers and directors.”
In September 1998, the Oil Spill Intelligence Report informed that the US
Supreme Court had ruled that a corporate parent might be culpable only if it
“actively participated” in operating the facility responsible for the pollution
damage.
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OPA90 does not specifically establish director or officer liability for pollution
damage. However, as the definition of the responsible party does not exclude
individuals, such officers may be at risk. One may assume, however, that officers or directors will risk liability themselves only if it is proved that they
knew of an unseaworthy condition of one of the company’s tankers and failed
to remedy it, with the result that a major oil spill occurred.
OPA90 explicitly states that demise charterers are responsible parties together
with the shipowners. Such charterers are commonly called “bare boat
charterers.” The characteristic of such a contractual relationship is that a ship
is leased on a “bare boat,” without a crew. The charterer will thus engage the
master and crew and have full control of the operation unless he prefers to
engage a professional management company. In short, he will be in command
and is thus very much in the same position as the owner.
In the drafting stages, OPA90 was to contain an exclusion from liability for
lenders, but the exception was dropped. A particular problem is therefore the
potential liability for financiers or lenders who have chosen to take control of
a shipping company that has failed to fulfil its obligations. In the case United
States v. Fleet Factors Corp., an appeals court held that under CERCLA, a
lender could be held liable if he actively participated in the financial management of a company to such a degree that it influenced the company’s treatment
of hazardous wastes.
On May 10, 1991, The Journal of Commerce addressed the problem and
announced: “Ship pollution rules send banks running for cover.” The paper
reported that banks were buying liability insurance for their entire shipping
portfolios as their pollution litigation risks now had increased. Even with no
explicit provision in OPA90, it was feared that if a bank or any other lender
affirmatively decided to take over the operation of a shipping company to such
a degree that it de facto undertook the role as the ship manager/owner, it might
be seen by American courts as the responsible party.
In the same way, a mortgagee could not feel certain any longer that he would
be shielded from pollution damages if he chose to participate in managing the
ship in an active way, for example by supervising the employees or directors
of the owning company. Peter Stokes, a maritime consultant in London,
painted a picture of the risks for banks in an article in Lloyd’s List, Dec. 31,
1990:
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“If, for example, we take the case of a vessel owned by a one-ship company
in Liberia and financed mainly by debt rather than equity, we can be reasonably sure that claimants in the US will not waste their time trying to pursue
the beneficial owners, unless they are known to be a substantial group.
Instead they will be inclined to pursue the mortgage bank, arguing that the
equity content in the vessel is negligible and the true controllers of the ship
are the secured lenders.”
Notes:
On “responsible party,” see de la Rue & Anderson: “Shipping and the Environment,” London, 1998,
pp. 31-32, 179, 616-618, 665-667, 687-690 and W. Chao: “Pollution from the Carriage of Oil by Sea,”
p. 235. See also Hazardous Cargo Bulletin, April 1988, and the legal counsellor Lasse Brautaset’s article:
“Piercing the Corporate Veil” in Nordic Defence Club’s bulletin for 1990.
The mentioned unpublished memorandum to Norwegian shipowners is dated Feb. 1, 1991, and is written by the New York lawyer Richard L. Jarashow.
VII. CERTIFICATE OF FINANCIAL
RESPONSIBILITY (COFR)
According to a special section in OPA90, any vessel calling US waters has to
establish evidence of financial responsibility to meet the maximum amount of
liability to which the owner could be subjected to under the law. It was left
to the “Secretary” to declare further regulations for this purpose. The job to
provide evidence of financial capability to satisfy liability claims for removal
costs and damages was in turn left to the US Coast Guard, which faced no
easy task in its dealing with the shipping industry. The “maximum amount of
liability” was in many quarters within the shipping industry feared to mean a
liability without limitations and as such the requirement was unknown and
unacceptable.
As usual, tanker owners looked to their P&I clubs for liability insurance and
assistance. The mutual clubs were owned by a variety of owners: Independent
tanker owners, oil company tanker owners, owners of dry cargo ships, liners,
passenger vessels, etc. The major clubs were all part of the International Group
of P&I Clubs that at the time insured the liability of over 95 percent of the
world’s ocean-going tonnage. They in turn reinsured most of their coverage
with Lloyd’s London, a marketplace made up of about 27,000 individual
underwriting members.
The boards of the various clubs in the International Group responded and offered tanker owners a modest coverage of USD 500 million as protection
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against pollution claims in the US. An additional coverage of USD 200 million
was also obtained elsewhere in the commercial market.
The International Group had fundamental difficulties providing further assistance, including acting as guarantors under the harsh conditions of OPA90.
To accept the exposure as guarantor by issuing certificates of financial responsibility along the lines suggested by the US Coast Guard would mean that the
claimants could sue the clubs directly (direct action). It was claimed that such
a procedure conflicted with a basic principle for this type of insurance, the
essence of which was that the shipowner would remain primarily liable to the
claimant, but would be indemnified by his club for the claims he had paid
(“pay-to-be-paid principle”).
Another important P&I principle was that any claim for indemnity would
be subject to the terms of the insurance contract. If the club in question had a
defence under the tanker owner’s insurance contract, the obligation to indemnify the shipowner ceased. Such defence could include that the owner had
failed to pay the insurance premiums, failed to maintain the insured tanker in
class or failed to report information material to the insured risk.
The implication of the guarantor role combined with “direct action” meant
that the clubs could be sued directly in US courts and be held directly liable
for the consequences of a pollution incident. Would an American judge in a
heated situation respect statutory limits in the law where the dollar amounts
were in the range of the Valdez catastrophe? Due to the non-pre-emption of
state liability laws, US courts had ample opportunities to find reasons for
imposing liability in excess of the OPA limitations. An additional risk was
that insurers’ conduct – not only the polluters – could become an issue in the
litigation. The clubs’ final objection was that they had a duty to their whole
membership, not only to tanker owners, to preserve – and not jeopardise –
the mutual capital base by exposing it to open–ended liability claims under
national laws.
When Terence Coglin, on behalf of the clubs, testified in November 1991
before the House Merchant Marine and Fisheries Subcommittee, he stressed
that the clubs had: “consistently stated that the position that they would not
provide certification under any law which differed markedly from the 1984
Protocols ... The clubs believe the reinsurances which they obtain from the
commercial market, and which are vital to their coverage, would be imperilled
by the giving of certificates under OPA.”
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His statement was confirmed at the same hearing by a marine underwriter at
Lloyd’s, Richard Youell, who claimed that:
“We at Lloyd’s wish to respond in a constructive fashion to the insurance
requirements which arise anywhere in the world. However, it is impossible
to justify employing our capital and resources in an insurance environment
where some of the fundamental principles of insurance practice are not
allowed to operate.”
The implementation of the requirements for financial responsibility, COFR,
Wilbert Joseph Tauzin, Bill Clinton, Daniel F. Sheehan and Tormod Rafgard
© Lloyd’s List
Wilbert Joseph Tauzin was born in 1943, elected to US Congress in 1980 and was chairman of the Subcommittee
on Coast Guard and Navigation at hearings on the OPA90 - proposed rules for evidence of financial responsibility
(COFR). In November 1991, his committee listened to the statements presented by the insurance and tanker industry, but was not impressed.
Bill Clinton was President of the US from 1993 to 2001. During this period, the US Oil Pollution Act (OPA90)
was fully implemented.
Daniel F. Sheehan was the first Director of the United States Coast Guard National Pollution Funds Center when
it was established in Arlington, Virginia, in 1991. The mission of the center set up in accordance with OPA90 was
to provide funding for oil-removal actions, initiate damage assessments, compensate claimants, recover funds
owed by responsible parties and certify the financial responsibility of vessel owners and operators.
Tormod Rafgard was born in 1937. He joined INTERTANKO after the inaugural meeting in October 1970.
Rafgard served as the manager of the association during the first 25 years until the fall of 1995, when he joined
a law firm before he became a judge in a Norwegian Appeals Court the next year.
231
was delayed time and again because of the protests. In a statement in early
November 1991, Admiral Appelbaum of the National Pollution Fund Centre
tried to justify the COFR requirements. He told Lloyd’s List: “We are trying
to be as flexible as possible.” He insisted that “direct action” was not at all a
new concept; it was a feature of TAPAA and CLC69 as well. If a responsible
party’s liability limit was broken, the guarantor would still only be liable –
under direct action – to the limits of the guarantee, he claimed.
Despite such comforting explanations, scepticism prevailed. The spokesmen
for the industry had probably not forgotten that “direct action” was – as
Appelbaum had said – accepted in principle already when CLC69 was agreed
on in Brussels in 1969. But the IMO limits seemed much more reliable and
far more “solid” to shipowners. In any case, the insurance coverage offered
was grossly inadequate to cover a catastrophic spill that was bound to happen
in US waters sometime in the future.
Some tanker owners still wanted to “boycott” the US. However, their organization was placed between “a rock and a hard place,” as many other owners
found that the risk of a total catastrophe had been reduced to acceptable levels
by way of the increased USD 700 million insurance coverage. Miles Kulukundis, chairman of a leading shipping company, London Overseas
Freighters, was one of them. At a conference in Genoa, he proclaimed that:
“With additional cover ... and some minor structural changes, we are satisfied
as things stand today not only to fulfil our charter commitments, but also to
increase our involvement in the US trade.”
When Mr. Kulukundis later was elected as the chairman of INTERTANKO, a
large group of members argued that COFR should be replaced by a mandatory
insurance scheme providing cover for a “worst case discharge” as defined in
OPA90. Because funding beyond the market capacity was required, Congress
would, according to the proposal, establish a Mandatory Excess Insurance Facility (MEIF) which would be authorized to issue federal debt certificates to
secure the capital required. The “facility” would provide additional oil pollution coverage above the coverage obtained from the clubs. It was estimated
that a total of USD 2 billion to USD 3 billion might be available if the US
Government accepted the concept. The financing would in the first place be
taken care of by the owners themselves who, when calling US ports, would
pay premiums to MEIF as port taxes to be refunded by the charterers (oil companies) through the freight rate. Ultimately, the cost would be passed on to
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consumers. The federal government’s participation in the scheme would by
and by diminish as the public debt was repaid.
The plan was met with little enthusiasm in London, which remained the shipping centre of the world. In the opinion of the UK Chamber of Shipping, the
scheme was found “unworkable - and naive in the extreme.” Influential voices
in the institution recommended that their members should give “no support
to the Norwegian/Greek proposal, but refrain from criticising it unless provoked.”
When the so-called “Regulatory Impact Analysis” on the COFR was finally
prepared and published by the USCG in June 1994, it concluded that of all
options available, MEIF would be the most expensive. Furthermore, if
adopted, it would require fresh legislation and probably a substantial implementation delay. Nevertheless, there were some positive elements in the proposal, so the USCG concluded diplomatically that “it deserved further study.”
Why not? In practice such time-consuming exercises were never in the cards.
Several business proposals had meanwhile been introduced to overcome the
impasse stubborn shipowners and their insurers caused. A potential “COFR
Market” alternative to the traditional P&I coverage started to emerge during
the spring and early summer of July 1994. Two commercial entities as well as
a number of so-called “surety companies” came forward and declared that
they were willing to provide the required guaranties without further delay. The
USCG was also delighted. On July 1, 1994, the agency after lengthy hearings
and informal discussions with the industry published its long-awaited but controversial Interim Final Rule to implement the provisions concerning financial
responsibility.
The rules provided that the owner of any tanker calling US ports after Jan. 1,
1995, had to procure a COFR by the end of 1994. The USCG, conscious of
the importance of keeping the oil flowing into America, quietly allowed a more
flexible interpretation of the rules than anticipated. It was clarified that applications for certification did not have to be submitted to the USCG by the end
of the year for tankers that were going to call months later. So in the last hours
of 1994, two alternative guarantee offers emerged from the scramble. They
were made available by commercial interests under the names “First Line”
and “Shoreline Mutual” who both had identified COFR as an interesting
business opportunity.
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First Line offered to be accountable for the entire amount of financial
responsibility for each owner or operator. Premiums would be based on the
type of operation and vessel as well as the operators’ prior shipping record.
Shoreline Mutual resembled a P&I club, but covered only US pollution risks.
The Coast Guard showed further flexibility when the financially stronger shipping companies were allowed to set up guaranty corporations with the sole
purpose of qualifying for COFR. The method was developed by Mobil and
adopted by Shell to cover the liability for their large tankers. A few foreign independent tanker owners such as A.P. Moller, Bergesen and Stolt-Nielsen with
substantial assets in the US adopted the same solution. Moreover, American
“bonding companies” soon offered their co-operation.
Thus, the immediate “technical” problem was solved – albeit it being a very
costly solution – thanks to the flexibility of the parties involved. Tanker owners
had to pay the special P&I oil pollution premium when calling US ports in
addition to the “COFR premium.” The exposure to the potential unlimited
liability led to a continued discussion about whether the P&I coverage could
be raised to USD 1 billion. This took time, but in March 2000, it was reported
that following a decision of the International Group, the clubs would provide
members with coverage up to USD 1 billion for each accident in respect to a
ship entered by an owner.
Notes:
In January 1995, Luke Readman, a director of Thomas Miller P&I, elaborated in an article in Lloyd’s
List about why the P&I clubs rejected the “OPA guarantor role.” In his opinion, it was conceivable
that the US oil pollution risk would become genuinely uninsurable.
See also the Hearing in the House Merchant Marine and Fisheries Subcommittee on Coast Guard and
Navigation, Nov. 6, 1991, serial no. 102-47, pp. 29-46, where the two English insurance experts, Mr.
Coughlin and Mr. Youell, testified.
In April 1992, the Greek shipowner Mr. Kulukundis opined that his company, London Overseas
Freighters, would continue to call US ports despite the new liability imposed on shipowners. See Lloyd’s
List, April 9, 1992. He (off the record) added that his company – contrary to many other owners –
avoided calling on Kharg Island, which certainly was more than risky.
The Norwegian shipping director of Cosmos, Bjorn Wilhelmsen, looked at the problem from a different
angle: “My lawyers have read the 100 pages of uncertainty (that constitutes the Act) and told me that
they see little risk that I will be held personally liable or ruined and be sent to jail. But why should I
take any risk at all?” (Extract from a speech given at a Marine Log seminar in Washington, DC, on the
new legislation. See Seatrade Business Review, Nov/Dec. 1990)
For the “Mandatory Excess Insurance Facility – MEIF” designed by Mr. Wilhelmsen, the negative reaction in the unpublished UK Chamber of Shipping Report was a major blow to the efforts of the large
group of independent tanker owners who had put forward the scheme.
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VIII. PREVENTION IS BETTER THAN CURE
– TECHNICAL REQUIREMENTS
The rules on liability enter the stage when administrative and operational
control have failed to prevent damage.
In light of the growing environmental concern and the projections for
increased oil import, OPA90 required that rulemaking should be undertaken
on a great number of pertinent issues to enhance safety and reduce the
pollution risk.
Obviously inspired by the Exxon Valdez experience, a new stipulation was
introduced whereby the master could be removed if the next two most senior
officers believed that he was under the influence of drugs or alcohol.
A more practical component of the Act’s measures to prevent and minimise
the impact of oil spills was the requirement that owners/operators of tankers
would submit their own contingency plan. OPA90 did not provide much guidance exactly on what the legislators had in mind, but eventually the USCG
presented the suggested rules. By February 1993, tanker owners trading to
every port and terminal in the US were required to lodge detailed contingency
plans to cover their ships in the event of any oil spill – ranging from the smallest spill to a catastrophic accident: “worst case discharge.”
The demands were complex, and the costs had to be borne entirely by the
shipowners. The USCG instigated now for the first time “a rulemakingby-negotiation process (reg. neg)” to enlist assistance in formulating workable
regulations. INTERTANKO and one other overseas shipping organization
were invited to participate in the 26-man committee composed of industry
groups together with state and federal representatives. Tanker owners would
have to contract US “oil-spill-removal organisations” in the various geographical locations where their tanker would trade and appoint a “qualified
individual (Q.I).” with sufficient experience to handle any emergency to the
satisfaction of USCG. The Q.I. would be available on a 24-hour basis and
cooperate with a “Federal On-Scene Coordinator.”
During the negotiations, the tanker owners in particular stressed the inadvisability of using ship crews to undertake clean-up activities, on the grounds
that they would be more effective when carrying out traditional duties onboard
– e.g., damage control, stability, stopping oil flow and reporting the discharge.
235
The final rules concurred with this view. As no time extension was given with
respect to implementation, tanker owners once again felt squeezed from all
angles.
Existing tank vessel design standards were found to be inadequate. Apart from
the liability provisions, none of the new rules proved to be more controversial
than the double-hull requirements. Steel is the highest-priced item on a tanker.
Mr. Nalder points out in his book, “Tankers full of trouble,” an extra ton of
steel in the hull means roughly that the tanker can carry one less ton of oil.
Unless the administration found that equal or better protection would be
achieved by other structural arrangements, OPA90 required that all new
tankers should be built with double hulls and double bottoms. A second hull
had the obvious advantage in case of groundings and collisions, as puncturing
one single hull would not allow oil to escape. Existing tankers were required
to be retrofitted with double hulls according to a phase-out schedule based on
age, the latest to be done by 2010. For tankers trading to offshore terminals,
the time limit was 2015.
The advantages of double hulls in so-called “low-energy accidents” were generally accepted by the industry as an expensive solution. If a tanker grounded
with low speed on a sandbank, at least the inner hull would remain intact. But
the industry opposition, fronted by the Greek shipowner Mr. Embiricos,
claimed that double hulls were counterproductive in the event of “high-energy
accidents” when for example a large tanker grounded on a rocky beach or
collided with another vessel at a certain speed. Most of the serious oil spills
prior to OPA90 were caused by explosions/fire/structural failure. Double hulls
could increase the explosion and fire hazard, it was argued. Moreover, structural failures would multiply as a consequence of the increased maintenance
burden. The length of a super tanker approximates the height of the Empire
State Building, with the depth equal to a 10-story building. Inspections of such
colossal additional areas meant serious personnel safety risks. Finally, in the
event of a grounding causing penetration, there would be a loss of buoyancy
that would make the tanker more difficult to save. Thus it would be wrong to
“freeze technology” by double-hull requirements.
Instead the so-called “Hydrostatically Balanced Loading systems (HBLS)”
were promoted. The concept was based upon ideas presented from various
sources including two Americans, the naval architect George Blake and the
ship-owner C.S. Conway. Both had separately concluded that according to the
236
law of physics, hydrostatic pressure was a means to
reduce or prevent oil outflow resulting from bottom
damage or damage to the side tanks. The oil would run
out of the submerged tank, opening only if the interior
pressure of the oil at the opening was greater than the
pressure of the seawater outside at the same point.
Provided that the cargo tanks were not fully loaded, the
outside pressure of the seawater would then prevent oil
outflow, it was argued. One of the HBLS variations, the
so-called “Mid-Deck tanker,” was promoted by the
Japanese shipyard Mitsubishi Heavy Industries.
(Seigo) Shigeyuki Suzuki
Before the final rules were announced, a total of 17
design concepts were evaluated by a committee set up
by the National Research Council. The majority view
presented in 1991 was that no design could be identified
as superior to the double-hull solution for all accident
scenarios. HBLS were untested, and their effectiveness
depended on “the operator’s strict adherence to rules,
rather than on a permanent feature of vessel design and
construction.”
More than nine years after Exxon Valdez, in July 1998,
the environmentalist Sally Ann Lentz in a hearing in the
House of Representatives claimed that the USCG had
demonstrated a remarkable reluctance to impose any
meaningful measures on the existing fleet of single-hull
tankers. The opposite view was once again presented
when Senator Breaux spoke up in the Senate and
opined: “ignoring new, innovative technology which has
been developed since the passage of OPA90 exhibits bad
judgement and, simply put, is bad policy.”
After a new round of consultations, the USCG announced its final word in April 1999. Double hulls had
come to stay. No extension of the time limit for double
hulls would be granted.
Shipowners realized that double hulls were the config-
Shigeyuki Suzuki was a director
of the Japanese shipping giant
Mitsui O.S.K. Lines Limited
when he was elected Chairman
of INTERTANKO in 1989. He
was the first Japanese to chair
an international shipping association. It is arguable that if
there ever was a time not to
volunteer to take over such a
post, this must have been it. But
Mr. Suzuki completed his threeyear term in 1992, promoting
the view of independent tanker
owners in Washington, DC, on
the problems the Exxon Valdez
catastrophe caused and the subsequent implementation of the
new and radical US Oil Pollution Act of 1990. The views of
how tanker owners should react
to the multiple regulations issued under the Act were in no
way homogenous within the
membership. But Mr. Suzuki’s
message that accidents happen
not because of lack of regulations but lack of compliance
with the existing rules and that
quality must be paid for was
shared by all members.
237
uration at least for the next decades. A number of double-hull tankers were
ordered. The first VLCC with the new design, Arosa, was ordered by a Greek
shipowner, Lykiardipolu & Co. Ltd., and delivered in Japan in January 1993.
The next VLCC, Eleo Maersk, was ordered by A.P. Moeller and built at Lindoe
Shipyard in Denmark. In 1997, however, a large Swedish tanker, Stena Convoy, was converted and certified for HBLS.
In the meantime, the existing single-hull tankers continued to trade. Mid-2007,
Tradewinds reported: “Large charterers take single hulls. Some big names have
taken more than 400 single-hull tankers on charter this year. ExxonMobil, the
US oil group at the heart of the Exxon Valdez spill in Alaska which led to
double hulls for tankers, is still one of the biggest charterers of single-hull
tonnage...”
Notes:
On the discussion on tanker design, see National Research Council’s “Tanker Spills: Prevention by
design” published by the National Academy Press, Washington, 1991. See also E.Nalder: “Tankers full
of trouble,” pp. 216-219 and Philip A. Embiricos: “The quest for the environmental ship.”
About the first VLCC built with double hulls or converted to hydrostatic balanced loading, see Dr. Raymond Solly: “Supertankers – Anatomy and Operation,” Witherby & Company Ltd, London, 2001, pp.
409 and 563.
IX. OSLTF IN TROUBLE
The five-cent OSLTF import tax imposed on the oil cargo was suspended in
1993, and the authority to collect the tax expired at the end of 1994.
During that year, the Fund was down to USD 842 million, mainly because
of an oil spill on Nov. 26 in the Delaware River caused by a Cyprus singlehull tanker, Athos I. Some 30,000 gallons of heavy Venezuelan crude oil leaked
out. The US Coast Guard warned that OSLTF was likely to be exhausted by
fiscal year 2009 if the present rate of depletion continued unchecked.
Then the largest spill in US waters since Exxon Valdez occurred in November
2000, when the oil tanker Westchester lost power and ran aground near Port
Sulphur in the Mississippi River, south of New Orleans, Louisiana. Five hundred sixty-seven thousand gallons of crude oil went into the river. Four years
later, a major December storm pushed a dry cargo vessel onto a rocky beach
in an Alaskan bay. The vessel broke in two, and 337,000 gallons of oil were
released. In May 2005, the British shipping magazine “Fairplay” brought
details about OSLTF and the tax to be paid by the oil industry:
238
“The US Congress is trawling for money, which means that the maritime
industry had best watch its wallet. Two key programmes need funding
sources. USCG warned on May 12 that the OSLTF would be bankrupt by
2009. Then a key senator suggested taxing imports to fund maritime
security efforts. The spill trust set up by OPA90 is the ultimate insurer for
clean-ups in US waters. It has had more than one billion in its coffers,
but rising costs, compounded by a rash of major spills, have diminished
the Fund.”
By the Energy Policy Act of 2005, Congress reinstated the import tax and
increased the maximum size of the Fund to USD 2.7 billion. Well aware of
misgivings from the industry that the current rules might result in liability
claims out of all proportion to the losses suffered, Congress also passed a
provision to the effect that no more than USD 500 million of government
money would be available per incident for natural resource damage expenditures in the future.
To alleviate the oil industry further, the House of Representatives passed a bill
in 2005 raising the liability limits for shipowners’ single-hull tankers by 2007,
with nearly 100 percent and roughly 50 percent for double hulls.
Notes:
On OSLTF, see Oil Spill Intelligence Report, May 19, 2005, and the USCG National Pollution Centre,
University of Delaware’s Internet, reported in 2006.
X. DEEPWATER HORIZON OIL SPILL
The US Oil Pollution Act of 1990 limits the liability of an offshore drilling
facility for non-clean-up costs of USD 75 million unless gross negligence is
proven. All removal costs are additional. When the suggested liability rules
were discussed in the US Senate 30 years ago, four Senators expressed deep
concern: Chaffe, Lieberman, Graham and Durenberger. They stressed that accidents occurring with Outer Continental Shelf (OCS) facilities might be infrequent, but like airline tragedies, they will be catastrophic. The size of such
a spill might be enough to fill hundreds or even thousands of tankers the size
of the Exxon Valdez, they argued. Moreover, leakages will be particularly
difficult to control. To weld steel plates below the water line of a leaking super
tanker is an extraordinary, but still a minor, problem compared to efforts to
cap a well that has blown out several miles beneath the ocean surface. Two
239
OCS spills were used to illustrate the thrust of the statement: The Santa Barbara blowout in 1969 and the even more dramatic “IXTOC I spill” (3.3 million barrels), which occurred 20 years later, leaking more than ten times as
much oil in the Gulf of Mexico as was lost in the grounding of Exxon Valdez.
The Deepwater Horizon oil spill, also known as “the BP oil spill” or “the
Mega Gulf of Mexico oil spill” occurred on April 20, 2010, in the Macondo
Prospect reservoir in the Gulf of Mexico. The culprit was no tanker and falls
therefore – strictly speaking – outside the framework of this book. But the
disaster overshadowed by far any other accidental spill in the history of
the oil industry and cannot be ignored. The leaking oil stemmed from the
explosion of a nine-year-old oil-drilling rig, killing 11 platform workers and
seriously injuring 17 other workers onboard. The other workers were evacuated by lifeboats or airlifted by helicopter from the rig that was located about
66 km off the Louisiana coast. The damaged Horizon, owned by a company
named Transocean and leased to BP, sank, dragging its equipment and pipes
to the bottom of the ocean 1,500 meters below. (The world’s biggest oil spill,
however, was intentional and happened in Kuwait during the Gulf War, when
Iraqi forces dumped an estimated six billion to eight billion barrels of oil into
P.G. to set it on fire to stop the progress of US forces.)
President Obama soon pledged that if laws were broken, the responsible would
be brought to justice. The Justice Department was then focusing on criminal
charges under federal legislation including the Clean Water Act and the Outer
Continental Shelf Act as well as other laws aimed at the protection of endangered species. Moreover, it was considered to pursue charges under the Seaman’s Manslaughter Statute to address the workers’ deaths.
In BP’s initial exploration plan in March 2009, the oil company announced
“it is unlikely that an accidental spill would occur.” No adverse effects were
expected for the fishing industry. But they happened. It took close to three
months to stop the leak after Deepwater Horizon had released an estimated
4.9 million barrels of oil – or around 700,000 tons. On its way, the oil caused
extensive damage to marine wildlife and to the fishing and tourism industries.
In early May, the US Coast Guard estimated that 170 vessels and nearly 7,500
personnel – with an additional 2,000 volunteers – were engaged in the efforts
to protect the coastline and marine environment. The same month, the federal
government declared a fishing ban covering more than one third of the Mexico
Gulf. In August, the fishing ban was lifted in some areas. In the meantime, a
240
Taiwanese super tanker retrofitted as an oil skimmer was found useless to
collect any significant amount of oil.
The US Government named BP as the responsible party, holding the company
accountable for the pollution damage as well as all clean-up costs. BP, owning
65 percent of the Macondo Prospect, was the operator and the developer of
the Prospect. The other owners were Anadarko Petroleum Corporation with
25 percent – the largest independent gas and oil operator in the US – and
Mitsui, Japan, with 10 percent. The three partners had contracted a company
named Halliburton Energy Services to do the well cementing and other
installations on the rig.
By July 30, the oil appeared to have dissipated faster than originally expected.
Warm weather accelerates the evaporation and microbes’ consumption of oil.
BP was, however, criticised for having failed to disclose the amount and effect
of the chemical dispersants used to dissolve the oil. The US Environmental
Protection Agency (EPA) feared that the detergents used could reduce oxygen
levels and kill microbes in the already-reeling Gulf. It did not help that BP and
also the US Government restricted the media’s access to the spill area. In early
August, the EPA voiced the opinion that the dispersants did no more harm
than the oil itself and that they stopped a good deal of the oil from reaching
the coast by making it break down faster.
Horizon was still a major disaster. But arguably, there were some “extenuating
circumstances.” Unlike the Valdez oil, the Gulf oil is light-degradable. The oil
from Horizon was certainly of a heavier blend than most of the oil drilled off
Louisiana. But the water there is very warm, which has helped bacteria break
down the oil. Moreover, the heavy flows of Mississippi water helped to keep
some of the oil away from the coast and finally – not to forget – the oil is a
part of nature, and nature in the Gulf area in this respect takes care of itself
better than in chilly Alaska.
Several US agencies including the USCG are investigating the accident.
Congressional committees arranged hearings. Some crewmembers testified in
federal hearings that several alarms had been either bypassed or disarmed on
the orders of rig officials. In early August, BP published the first comprehensive
report about what had gone so very wrong. According to the report, it was
evident that no single factor caused the explosion and that a series of mechanical errors and human failures by BP’s own crew had been committed. The
241
incoming CEO, Bob Dudley, stated that the explosion was a shared responsibility among several entities. The allegations included that the cement job was
bad, the blow-out preventer did not work well and pressure tests were misread.
But no admittance of gross negligence or reckless behaviour, which would have
opened the door to unlimited liability, were forthcoming.
However, Transocean announced that the report was self-serving and rejected
the accusations. Halliburton, which did the well cementing, said that there
were a number of inaccuracies in the report. The work they had undertaken
was in accordance with BP’s specifications. BP’s partner, Anadarko Petroleum
Corporation, was also very critical. Its CEO, Jim Hackett, went on the record
and said that research “indicates BP operated unsafely and failed to monitor
and react to several critical warning signs during the drilling.”
A report of the Committee set up by the President, which was released in
January 2011, concluded that a number of system failures and economizing
efforts seemed to have contributed to the accident.
According to the US Energy Information Administration, offshore drilling in
the Gulf of Mexico represents 23.5 percent of US oil production. Less than a
month before the explosion, President Barack Obama announced support for
a plan to expand offshore drilling as a part of his energy policy. Instead, a
number of initiatives were taken in and out of Congress to curb offshore oil
drilling. The President’s plan seemed at the time to be dead on arrival.
Instead, the Department of the Interior announced a six-month moratorium
on new drilling in the Gulf and Pacific. A federal judge lifted the moratorium
on June 22, but the Department of Justice did not hesitate to appeal the
decision to the 5th Circuit Court of Appeal. In the House of Representatives,
an energy reform bill was discussed which contained more stringent rules for
offshore drilling. One suggested provision would ban BP from offshore drilling
for seven years because of an “extensive record of serious worker safety and
environmental violations.”
Initially, BP promised to compensate oil spill victims. After a meeting with the
President in June, the BP executives probably found it unrealistic to insist on
the liability cap laid down in OPA90 and agreed to create a USD 20 billion
spill fund to alleviate the pollution damage. Moreover, the Fund would be no
cap on BP’s potential liabilities. For the Fund’s payment, BP said it would cut
capital spending, sell assets and cut dividends to shareholders. A Gulf Coast
Claim facility was set up on Aug. 23. Within a week, 19,000 claims were
242
received, and in early September, BP had paid out about USD 375 million.
In Canada, stricter rules were discussed after the Horizon disaster, whilst
reports from Brussels said that the EU was discussing toughening the regime
on offshore liability. In Norway – an important European player with respect
to offshore drilling – Horizon provided left-wing politicians and environmentalists with fresh ammunition in their fight to stop drilling off the sensitive
coastline of Northern Norway.
A 200- to 300-ton oil spill from a grounded Panama dry cargo ship off the
Norwegian coast in 2009 resulted in the internment of the Chinese captain,
followed by a six-month jail sentence. So far no Horizon personnel are
reported to be jailed. On June 25, Tradewinds reported that BP then-chief
executive Tony Hayward may well have had a “bruising in the US,” but was
free to return to the UK and enjoy an outing with his yacht during the following weekend.
The legal challenges for the US government, the victims of the pollution and
the actors involved in the accident will be messy. It is difficult to imagine that
they will come to an end before five to 10 more years have passed. Still,
authorization of new offshore drilling activities seems unavoidable with the
present huge US oil deficit. Past experience suggests that such activities will
hardly be allowed without toughened regulations.
The international re-insurance market expects that the liability cap in OPA90
will be raised. Whether the Horizon disaster also will prepare the ground for
even harsher liability provisions for oil tankers is a scenario that cannot be
ruled out.
Notes:
For information on the Senator’s stances, see 101st Congress, 1st session – Senate – Report 101-94,
pp. 26-27, Time Magazine, May 17, June 21, June 28 and Aug. 9, 2010; Los Angeles Times, September
2010. Fortune magazine, Feb 7, 2011, presentation of Admiral Thad Allen, USCG, in Oslo, March 9,
2011.
Information about the Kuwait oil spill during the Gulf War is from Jessica Marshall in Discovery News,
June 1, 2010.
243
IMO WAKES UP
10
IMO wakes up
I. MORE OPA APPROACHES?
When Mr. Chandrika Pasad Srivastava retired in 1989 after 16 years as
Secretary General of IMO, the US appeared to have withdrawn from the close
cooperation in what would be the closest thing to world authority on maritime
safety and environmental protection. The development represented a serious
blow to the prestige of the agency.
At the time OPA90 was adopted, five years after Amoco Cadiz, only Australia, the Federal Republic of Germany, France and three other small countries
had ratified the CLC Protocol. Even worse, only the Federal Republic of
Germany and France had become parties to the Fund Protocol. Thus it would
take many years before the efforts of the ’84 Conference and its chairman
Mr. Jacobsson were recognized.
The delayed ratifications, together with the unilateral action taken in Washington, DC, raised the obvious question of whether other nations would also
work out their own solutions.
No great imagination was needed to see the implications of numerous
national “OPA approaches.”
Was Canada next? Canadians were infuriated when the Cayman Island
tanker Rio Orinico grounded in the Gulf of St. Lawrence in 1990 with a cargo
of heated asphalt on board. The National Coast Guard faced an unpleasant
challenge. The clean-up operation was difficult because of the bad weather.
Once in the water, it was feared that the solid-but-brittle asphalt would break
into small pieces and cause the most serious damage by contamination to
beaches. No asphalt leaked out, but 150 tons of fuel was spilt. Despite the
modest amount, a costly operation was initiated to diminish the pollution
damage. Contracted personnel were able to clean the most seriously polluted
beaches manually, supported by boats, helicopters and hovercrafts, as there
244
were no coastal roads in the area.
In November, Rio Orinoco was declared a total loss.
The next summer, she was refloated and pulled free
without further complications. The cargo of asphalt was
partly removed. After it had been refloated and towed
to a place of safety, the tanker and the remaining cargo
were disposed of. The costs incurred were recovered
from the P&I club and from IOPCF by way of preventive measures.
Canada did not follow in the footsteps of the US.
Perhaps it was realized that inconsistent national regulations of the shipping industry would mean an utterly
inefficient transportation system. A shipper would be
confined to chartering tankers that complied with the
national regulations of his own country. Instead of access to the free world market where all tankers offered
their transportation services at competitive rates, he
would have very limited possibilities to cover unforeseen
transport needs, not the benefit of free competition.
Transport costs would surely escalate.
Inspired by the development in the US, IMO took fresh
measures to reduce accidental pollution from new and
existing tankers. New tankers, ordered after July 6,
1993, would be built with double hulls. Not to “freeze
technology,” the door remained open for approval of
alternative designs provided they offered the same
protection. The design requirements would be phased
Secretaries-General
of IMO
IMO’s past Secretaries-General
includes; Ove Nielsen
(Denmark) 1959-1961,
William Graham
(United Kingdom) 1961-1963,
Jean Roullier
(France) 1964-1967,
Colin Goad
(United Kingdom) 1968-1973,
Chandrika Pasad Srivastava
(India) 1974-1989,
William A. O’Neill
(Canada) 1990-2003 and
Efthimios E. Mitropoulos
(Greece) 2004-present.
Efthimios E. Mitropoulos
Efthimios E. Mitropoulos was
born in Piraeus, Greece, in
1939. His career has included
working as a commissioned
Coast Guard officer and serving
on the Maritime Safety Committee and other subcommittees of
the IMO.
IMO WAKES UP
in for existing tankers in accordance with an agreed time plan. Moreover, in
July 1995, the amendments to the IMO Convention on Standards of Training
and Certification amounted to a complete re-writing.
In December 2003, IMO adopted a revised, accelerated phase-out scheme for
single-hull tankers by amendments to MARPOL 73/78. The final phase-out
of such a tanker built before 1982 was brought forward to 2005 from 2007.
The flag state was, however, allowed to permit continued operation if this,
after careful consideration, was found justifiable but in no case beyond the
date which the tanker reached 25 years old.
II. THE SALVAGE CONVENTION
For salvors, the working conditions had been somewhat improved under the
channelling provisions of the unratified 84CLC Protocol. The 84CLC Protocol
encouraged them to provide prompt assistance in difficult environmental
situations. Thus it was spelled out that no claims could be made against “any
person performing salvage operations with the consent of the owner or on the
instructions of a competent public authority.”
In the same spirit, IMO in 1989 adopted a new International Convention on
Salvage, which included an additional incentive for salvors to minimize the
potential for environmental damage tanker accidents caused.
A salvage operation had normally been performed on the terms of Lloyd’s
standard salvage contract, “Lloyd’s Open Form.” This contract reflected established maritime law as laid down in a convention of 1910. For generations,
the rule of the game had been “no cure, no pay,” meaning that the opportunities were unpredictable, the risks high and the potential reward considerable
if the salvage operation was successful; five to 10 percent of the salvaged values
– ship and cargo – were not uncommon. It was called an “open form” because
no amount is stipulated prior to the salvage job. The award to be paid would
be decided later by a professional arbitrator. Amoco Cadiz and her cargo have
been valued to some USD 40 million. The salvage company could have made
millions and the accident could have been avoided or minimized if the Amoco
headquarters in Chicago had permitted the master to sign the form the first
time he requested permission to do so. To avoid a salvage award, the management took a risk hoping everything would turn out all right. It did not.
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IMO WAKES UP
For the salvor, the old principle “no cure, no pay” could turn out to be disastrous when his efforts were in vain. When Lloyd’s Open Form was revised
in 1980, the old principle was modified in order to prepare the ground for the
parties to agree that the salvor’s cost for rendering assistance to a tanker would
be recovered also if he had not been successful. In the revised Salvage Convention, this principle was firmly established to all vessels. The salvor would
be entitled to the special compensation whenever his operation had minimised
or prevented damage to the environment. It meant reimbursement of his costs
plus an extra award of 30 percent of the expenses incurred. The amount could
be further increased to 100 percent of his costs under certain circumstances.
IMO cannot, however, be said to have played a particular pro-active role in
this context. The most important principles agreed on were not revolutionary,
but simply conclusions which the private industry by and large had reached
several years ago. The Convention took 10 years to develop and another seven
years before it came into force. Indeed, some nations are only just adopting it.
IMO also left another problem unsolved. It is no simple task to calculate a
fair reward for salvors’ efforts to avoid environmental damage. But it was possible to contractually amend several provisions in the Convention. In the
1990s, the commercial insurance market went a step further to enable salvors
to respond to pollution threats with more confidence. Once again a new clause
was introduced in Lloyd’s Open Form, to entitle the salvor – provided he in
no way was to blame for his operation – to at least break even on his costs for
maintaining salvage tugs that may be employed for only a short time, when a
threat of damage to the environment existed. After the Sea Empress disaster,
the salvors have been concerned that they are increasingly exposed to potential
criminal liability. Moreover, the Bunker Convention of 2001 does not provide
the same protection against liability for oil spills as the CLC protocol. Thus,
salvors still feel that they are inadequately rewarded for the environmental
benefit of a salvage operation.
Notes:
On Rio Orinoco, see IOPCF Annual Reports 1990-1995.
On the topic of environmental salvage, see Legal Advisor to the International Salvage Union Archie
Bishop’s presentation at the CMI seminar in Dubrovnik, May 2007.
247
IMO WAKES UP
III. INTERNATIONAL CONVENTION ON OIL
POLLUTION PREPAREDNESS RESPONSE AND
CO-OPERATION (OPRC)
After Canadian William A. O’Neil took over the job as IMO’s Secretary General in January 1990, some quarters found it evident that with the new leadership the IMO would become more active.
Already in November 1990, the International Convention on Oil Pollution
Preparedness Response and Co-operation (OPRC) was adopted. OPRC was
one of a number of measures IMO initiated as a response to the Exxon Valdez
oil spill. It was designed to facilitate international cooperation and mutual
assistance for preparing for, and responding to, major pollution incidents.
Member states would be encouraged to develop an adequate capability to deal
with oil pollution emergencies. OPRC is claimed to have proved useful already
before it came into force. It received its first test only a few months after the
adoption, when a major oil spill occurred in the Persian Gulf as a result of
military hostilities. Acting as if the Convention was in effect, IMO in co-operation with other local and international organizations set up a Disaster Fund
and an Oil Spill Co-ordination Centre. Even if the impact is difficult to assess,
it seemed that the action taken might have prevented major damage to the
environment of the Saudi Arabian coast.
Notes:
On the change of leadership in IMO, see the above-mentioned report “Ships of Shame” from the Australian House of Representatives Standing Committee on Transport to the Parliament in December
1992: “Inquiry into ship safety – Ships of Shame,” December 1992, p. 77.
IV. RESURRECTION OF THE PROTOCOLS
In September 1990, just weeks after President George Bush signed OPA90, the
International Oil Pollution Compensation Fund (IOPCF) found that time
was ripe to undertake a thorough review of the situation. An intercessional
working group under the chairmanship of Mr. Popp of Canada got the
following mandate:
“To consider the future development of the inter-governmental oil pollution
liability and compensation system by examining the prospects for the entry
248
IMO WAKES UP
into force of the 1984 Protocols to the Civil Liability Convention and the
Fund Convention...”
The group’s report was available in October 1991. It warned that a full
revision of the ’84 Protocols would be an enormous task. That would mean
re-opening a large number of problems that had already found their solutions.
A resolution was addressed to the new Secretary General requesting that the
organization convened an international conference in 1992. It was recommended that IOPCF should confine the work to modify the entry into force
provisions and consider the possible introduction of a cap on contributions
payable.
After the preparatory work had been undertaken by IMO’s Legal Committee,
a diplomatic conference convened in November 1992 in London. At the opening session the Secretary-General O’Neill made the intentions clear:
“... two draft protocols have been prepared to revise the 1969 CLC and the
1971 Fund Convention. In practice, these protocols will replace the 1984
Protocols ... they are however not intended to introduce any changes to the
substantive provisions of the 1984 Protocols but merely amend the entry
into force provisions.”
There was considerable support for his view. A submission from Greece read
in part:
“... The above system (CLC 69 and FC 71) has met with world-wide
acceptance and constitutes an adequate international treaty regime, on the
basis of which the economic consequences of pollution damage are shared
by the shipping industry and by the oil cargo interest. ... For this reason, the
need of maintaining the viability of the aforementioned system ... is obvious.
... we wish that the diplomatic conference limit its work only to focus on
the earliest possible enforcement of the ’84 Protocols. ... the revision must
not be used to re-open other issues which had already been given careful
attention ... any such attempt could jeopardise the early entry into
force of the new protocols ...”
Not all parties agreed. The US had by the passing OPA90 made its view quite
clear. Two other major oil-importing countries, Italy and Japan, had strong
reservations. The IOPCF assessment of compensation after two recent major
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IMO WAKES UP
oil pollution accidents in Italian waters was on Italians’ minds.
The Italians were at that time ripe for immediately accepting compensation
for “environmental damage.” Moreover the liability ceiling was “inadequate
especially in cases of disasters occurring in sea areas of high economic and environmental interest.”
Japan had already signalled that it would be “difficult” to ratify the revised
instruments. As the largest contributors to the IOPCF, the country had in the
past roughly paid some 30 percent of the Fund’s total annual income. On the
other hand, the country had received only 15 percent of the total payout from
the Fund after spills in Japanese waters. In 1984, only Japan had spoken
against the “American” compromise on which the Protocols were based, and
yet its delegation did not vote against their adoption. Despite the minute fee
(probably less than one fifth of a US cent per ton, according to Katherine Grey
of IOPCF) to be paid per ton on imported oil, the Japanese oil companies felt
that they paid too much for pollution damage in other parts of the world.
Furthermore, Japan was proud to have developed a very effective domestic
response program, which was well-geared both to prevent and mitigate significant oil spill damage. The proposal now was to cap the contributions so
that no oil-importing country payment should exceed 25 percent of the total
amount of annual contributions to the Fund.
Nearly all other delegations preferred the existing system. The suggested capping meant that Japan’s oil industry would get a five percent rebate and the
effect would arguably be a distortion of competition within the industry. Taken
into consideration that the fees per ton were minute, the Japanese view was
hard for other delegates to appreciate.
But the Conference did not have much of a choice. Finally a cap was agreed
on, but not quite the one Japan suggested. Agreement was reached on the compromise that no oil-importing country should contribute more than 27.5 percent of the total amount paid to the Fund. The cap was further modified by
the inclusion of an extra provision to the effect that the cap would apply only
until the total amount of contributing oil to the Fund had reached 750 million
tons, or until five years had elapsed after entry into force of the Protocols,
whichever occurred first.
Agreement was thereby reached. According to the final clauses, the new ’92
Fund Protocols would require for its entry into effect ratification at least eight
states representing together a total amount of 450 million tons “contributing
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oil,” instead of the 750-million-ton requirement of the ’84FC.
Also, the entry-into-force provisions in the 92CLC Protocol were modified.
It would enter into force when ratified by 10 states, including four states, each
with a tanker fleet of no less than one million grt. This compared with six
states previously.
With the exception of the entry into force provisions and the cap provision,
the ’92 Protocols merely became a new name for the ’84 Protocols. But when
IMO in 1998 reported on its achievements in the publication “50 years of
IMO,” it was proclaimed that the compensation for victims of oil pollution
was greatly increased in 1992. In the mentioned jubilee publication, every
agreement of some importance is listed ... except the ’84 Protocols, which were
worked out after endless meetings and three weeks of heated discussion under
the chairmanship of Mr. Jacobsson, who was later the Director of IOPCF. The
presentation might perhaps be seen as a clever marketing effort to
promote ratifications of the new Protocols. For whatever reason, it was hardly
a slip of the pen.
The ratification process of the revised instruments progressed slowly, but by
and by, support from more governments came along. After Denmark’s ratification in 1996, the Protocols from 1984, as revised in 1992, finally entered
into force. More than 16 years had passed since the revision began after the
Amoco Cadiz disaster. Finally in 1996, the new Salvage Convention went into
force, as well.
Two sets of IMO compensation schemes were now in force: The 69CLC/FC71
and the ’92 Protocols, 92CLC and 92FC.
The duplication was not without problems. FC71 was still operational and
supported by a large number of nations that had not yet adopted the new
instruments. The text of FC71 provided that it would not cease to be in
force before the number of contracting states had fallen below three. 92 FC
contained a mechanism for compulsory denunciation of FC71. According to
the 1996 IOPCF annual report, page 16, the compusory denunciation takes
effect when eight parties to the '92 Protocol import 750 million tons of oil annually.
The states that had ratified the two Protocols were obliged to deposit instruments of denunciation by May 1997 that would take effect 12 months
after that date.
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Before time had solved the problem with the two different and operational
funds, a Russian tanker, Nakhodka, broke up in Japanese waters early in
January 1997. In bad weather, the vessel carrying 19,000 tons of medium fuel
oil broke in two and spilled about 6,200 tons of its cargo. Although much of
the oil dispersed naturally at sea, the spill resulted in heavy contamination
of the adjacent shoreline. There were important seafood activities in the area,
including oyster, fish and seaweed cultivation in sheltered bays and inlets.
An investigation commissioned by the Japanese government found that corrosion of the tanker had resulted in a substantial reduction in the original
thickness of the forepart hull. The strength of the hull at the point where it
failed was about half of what it should be. Had the ship not been corroded so
badly, it would have weathered the gale.
The ’92 Protocols had entered into effect in respect of Japan and were therefore in principle applicable. The Russian Federation was, however, at that time
not yet a party to the protocols, but to 69CLC/FC71.
In October 1999, the Executive Committees of IOPCF’s two funds
concluded that the investigation of the tanker’s hull had revealed that it had
been unseaworthy. Thus it was claimed that the owner, Primorsk, should not
be able to limit its liability, as the incident resulted from his personal fault or
privity. Recovery action was started in Japan both against the classification
society, the Russian Maritime Register of Shipping (which had not ensured
that the tanker met the applicable safety regulations) as well as the owner and
its P&I club (UK Club).
In a parallel legal action the Japanese government, nine associations of fishermen and more than 330 additional parties, mainly in the tourism sector,
proceeded against the shipowner, the P&I club and the two IOPC Funds for
compensation. All in all, the claims amounted to about GBP 190 million
(about USD 311 million).
The owner rejected the claims on the grounds that the incident was caused
mainly by an extraordinary natural phenomenon. A settlement to pay GBP
137 million (about USD 205.67 million) was reached by November 2002.
In accordance with the agreement, the owners’ P&I club reimbursed the
IOPCF Funds about GBP 27 million (about USD 40.53 million) in respect of
their payments.
The question arose of how the recovered amount should be shared. The Japanese delegation took the view that an amount recovered during the transitional
period, when both the new and the old instruments were applicable, should
be re-imbursed to the 1992 Fund.
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This view was, however, met with opposition from several other delegations.
The majority concluded that the provisions in the two legal instruments gave
no guidance of how to solve the problem. Five years after the accident, it was
finally agreed to support a proposal from the Director. Thus the recovered
amount “should be distributed in proportion to the respective liabilities of the
1971 and 1992 Fund in yen.”
Both funds became involved again when a small Korean tanker, Osung no. 3,
grounded in April 1997 in the Pusan area, polluting the nearby Korean shore
as well as Japanese beaches with heavy fuel oil. The Republic of Korea was a
party to 69CLC and FC71, but not yet a party to the ’92 Protocols, whilst
Japan had ratified the new instruments. On this occasion, the overlap caused
fewer problems. The total claims were below GBP 10 million (about USD
16.37 million) and were settled at a lower amount. The Japanese pollution
victims had the advantage of a higher maximum amount of compensation than
those suffering from the spill along the coast of Korea and were compensated
accordingly.
IOPCF now had several other problems to deal with. It had become evident
that countries were becoming parties to the new instruments in less numbers
than desirable. Furthermore, the dwindling support of the “old Fund” slashed
its contribution base. Should a major pollution accident happen in the waters
of the “FC71 countries” – and Italy was one of them – the FC71 might be
unable to fulfil its function. Such failure could damage the credibility of both
IMO as well as the new compensation regimes.
It had been the hope of many IOPCF members that the FC71 would fall asleep
and gradually die away, but the process seemed to take more time than anticipated. The difficulty was that several states whose help were needed to reach
an agreement did not even bother to attend the sessions of IOPCF. The
predominant feature of these states was that they imported no or little oil.
When the FC71 assembly met in October 1999, representatives of only 17
out of 45 member states showed up. The meeting was postponed for half an
hour, but in vain, participation was still not sufficient to establish a quorum.
The failure to achieve a forum re-occurred in the next year, as well, and the
agenda had to be dealt with administratively on behalf of the Assembly.
Further complications resulted from the fact that a great number of the
member countries had been neglecting to file their oil-import reports despite
the requirement on each state to submit such a statement annually.
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All state members of the FC71 were now urged to denounce the old instruments and join the ’92 Protocols as soon as possible. In an effort to solve the
legal problems, two experts were commissioned by IOPCF to ascertain
whether the old fund could be legally wound up before the number of states
fell to the statutory minimum. In September 2000, a diplomatic conference
amended the rules for winding up the FC71. Hence the 1971 Fund Convention
ceased to be in force in May 2002, when the number of member states had
fallen below 25.
The termination did not result in liquidation. Obligations in respect of pending
claims had to be complied with and took several more years.
Notes:
For further information on the ’92 Protocols, see the Official Records of the International Conference
On The Revision Of The 1969 Civil Liability Convention (69CLC) and The 1971 Fund Convention
(FC71), held in London from Nov. 23 to 27, 1992, Volume 4, which provide comprehensive reports on
the participation, documentation and deliberations. The ’92 Conference was initiated when it became
clear that the ’84 Protocols would not enter into force in the foreseeable future and were intended to
maintain the substantive provisions in the 1984 Protocols, but introduce lower requirements for entry
into force. See in particular Volume 4, pp. 85-86, 150 and 176. Also see IOPCF annual reports 1991 to
1993. The two major, recent incidents in Italian waters, the Haven and the Agip Abruzzo, caused the
somewhat “militant” Italian position at the ’92 Conference. See information below. The IOPCF fees
were minimal, probably less than one fifth of a US cent per ton, according to information from the secretariat. On Nakhodka, see Lloyd’s List, Jan. 20, 2000, and the IOPCF annual report, 1997-2002. On
Osung no. 3, see IOPCF annual reports, 1997-2001.
V. TOVALOP & CRISTAL OUT
The question had been raised from time to time whether the private schemes
had served as a soporific for governments and contributed to many years’ neglect of the international agreements and principles introduced after Amoco
Cadiz’s grounding in 1978.
The “seven sisters” had in no way been happy with the outcome of the 1984
Conference. Some had openly lobbied against ratification. Their preference had
been to handle the pollution damage potential as a problem to be managed
by the industry in the driver’s seat.
Now it seemed that the relevance of the private schemes would erode as more
and more states ratified the IMO agreements. This development accelerated
with the entry-into-force of the ’92 Protocols in May 1996.
The decision to withdraw the private compensation agreements, TOVALOP
provided by the International Tanker Owners Pollution Federation (ITOPF)
254
IMO WAKES UP
and CRISTAL, had already been made the previous
year. In June 1996, the Chairman of TOVALOP, Peter
John Goulandris, announced the termination taking
effect in February 1997: “Port authorities, terminal
operators and others who have for many years required
sight of TOVALOP certificates before allowing a tanker
to load or discharge will need to amend their procedures, looking to the stronger legal alternative offered
by the Civil Liability Convention and its Protocol.”
For the victims of oil pollution damage, the IMO instruments offered significant advantages. Unlike the private
arrangements – which depended upon whether the
tanker and cargo owner concerned were parties to the
respective agreements – the Protocols provided assurance of financial responsibility and made tanker owners
and oil receivers legally liable to meet legitimate costs.
ITOPF was originally established to administer the
private liability arrangements under the TOVALOP
agreement, but had during the last decades placed more
and more emphasis on the provision of technical
services to tanker owners and governments in the
field of oil spill preparedness, damage assessment and
response.
An important aspect of TOVALOP was that each participant had to provide evidence to ITOPF of financial
capability to meet his responsibilities under the agreement. Whilst this function now had come to an end, the
technical assistance including training and education
would continue as before. This role had evolved in
response to the growing demand throughout the world
in the face of increasing environmental awareness. The
majority of clean-up operations involving the 1971
Fund had been monitored and claims assessed in co-operation between the Fund and one of the P&I clubs and
ITOPF.
Peter John Goulandris was pleased to report in 1996:
“that the Federation will continue as present to play an
© Scanpix
Helmut Sohmen
Helmut Sohmen is an Austrian
lawyer and banker who in 1967
married the daughter of Sir
Yue-Kong Pao; Anna. In 1970
his family moved to Hong
Kong. He is in charge of the
World Wide Shipping Group,
one of the largest in the world.
His many commission of trusts
in shipping include President of
the “Baltic and International
Maritime Council, Copenhagen” and Chairman of
“International Tanker Owners
Pollution Federation” London
(TOVALOP) - 2001-2006.
255
IMO WAKES UP
active technical and advisory role in support of our Membership, their insurers,
and those who suffer pollution damage.”
There seems to be little doubt that this promised professional assistance
continued undisturbed, to the satisfaction of governments and industries alike
in the following years.
Notes:
On the exit of TOVALOP and CRISTAL, see Ocean Orbit, June 1996, and the IOPCF annual report
1996, p. 33.
256
NEW SERIOUS INCIDENTS AT TANKER TERMINALS AND IN COASTAL WATERS AROUND THE GLOBE
11
New serious incidents at
tanker terminals and in
coastal waters around
the globe
I. HAVEN
In April 1991, Italy became the theatre of the most spectacular pollution
accidents in Europe since 1978. The prologue to the disaster was caused by a
VLCC, Agip Abruzzo, with a cargo-carrying capacity of more than 250,000
tons. On the night of April 10, 1991, the super tanker was struck by a cargo
ferry, Moby Prince, when at anchor off Livorno. Both vessels caught fire. Two
thousand tons of cargo oil escaped from the Italian oil company-owned VLCC,
but more important, 143 people on board the ferry were killed.
Not many miles to the north, seven miles off the old shipping centre Genoa,
the Cypriot flag super tanker Haven (232,000 dwt) was anchored. The tanker
had just emerged from an extensive refit. But on the April 11, she caught fire
and exploded. On board was a cargo of approximately 144,000 tons of crude
oil. Some of it was consumed by fire, but most was spilled into the sea. Five
crewmembers were killed. Beaches in the area were polluted. Oil spread as far
as France and contaminated four French departments. On April 14, the Italian
government declared a state of national emergency.
Whereas Amoco Cadiz and Exxon Valdez were new and modern tankers,
257
Haven was not. Whereas the two oil-company-owned tankers descended from
the old established petroleum industry in the US, Haven was one of many
crude carriers the Haji-Ioannou family from Cyprus owned. Pater familias:
Lucas Haji-Ioannou was born in 1927 in the mountain village named Pedhoulas. He first moved to work in a trading house in Nicosia. In 1950, he immigrated to Saudi Arabia, where he started as a trader and shipping agent. In
1958, he settled in London and became involved with passenger vessels and
dry cargo ships before he realized his dream to transport oil all over the world.
With active support from his two sons, Polys and Stelios, his dream came true
in April 1991, when Lucas Hadji-Ioannou could claim to be the owner of one
of the largest private tanker fleets afloat, including the unfortunate Haven.
In terms of legal complexity, the Haven accident turned out to be the European
counterpart to Exxon Valdez. Claims for pollution damage were presented
from the Italian and French governments for clean-up operations. The Italian
government also claimed for damage to the environment.
Moreover, demands for compensation were received from about 1,300
affected parties, including 700 hotel owners, more than 40 yacht owners,
about 200 fishermen, 230 shop and restaurant owners, as well as nearly 100
operators of beach facilities. All in all, about USD 1 billion in claims were filed
in the proceedings against the ship owner.
In IMO, the Italian delegation – inspired by the consequences of the two major
accidents back home – obtained little support for the proposal to introduce
major changes in the liability provisions. Whilst the delegations discussed the
revision of the ’92 Protocols in London, the battle between claimants and the
owners of Haven and IOPCF began in Genova.
Legal action had been taken soon after the accident. It became clear that the
damages by far exceeded what could have been recovered even on the basis of
the ’84 Protocols if they had been in force. An IMO Protocol which in 1976
had replaced the “official value” of gold francs with Special Drawing Rights
(SDR) was in force with respect to CLC69 but not in relation to FC71. In
1978, the IOFCF Assembly adopted an interpretation under which one SDR
was to be considered equal to 15 gold francs.
Nevertheless the claimants argued that the current limitation amounts, stipulated in gold francs, had to be converted to the local currency, lire, based on
the free market value of gold. This method produced a liability limit more
258
Photo: www.aukevisser.nl
Haven
than seven times the size of what it had been, if the base
was SDR.
IOPCF rejected the argument for gold franc conversion. Moreover, a number of claimants failed to notify
its administration within the three-year time limit in
accordance with the provisions in FC71. Finally it was
alleged that a number of other claims could not be
justified by the current definition of pollution damage.
The proceeding went on for several years before the
French authorities, together with some private
claimants, were prepared to compromise. However, the
Italian government still continued to press its claims that
amounted to USD 530 million as compensation for environmental damage and a further USD 150 million for
clean-up costs. In October 1995, it seemed that the
efforts to resolve the most controversial case in the
17-year history of IOPCF had collapsed completely.
Despite the gloomy situation, an international consultation group remained in existence to find a solution.
Its work was successful when a tripartite global settle-
The super tanker that the HajiIoannou family owned was at
anchor in Genoa when it exploded in April 1991. On board
was a cargo of some 144,000
tons of crude oil which partly
were consumed by flames. Most
was spilled into the sea. Four
crew members were killed.
There was massive pollution of
the Italian coastline, and the oil
slick spread as far as France.
The heavy contamination resulted in numerous claims from
the pollution victims as well as
a major claim from the Italian
Government. All in all, claims of
about USD 1 billion were filed
against the shipping company.
The subsequent litigation can be
seen as the European counterpart in complexity to the disputes subsequent to the Exxon
Valdez disaster in Alaska. Also,
a lengthy criminal proceeding
was instigated. Finally in 2002,
the ship owner was acquitted of
the manslaughter charges.
259
© Bruno Bebert / EPA / Scanpix
Stelios Haji-Ioannou
Born in 1967, Stelios HajiIoannou has had several
entrepreneurial ventures. After
working for the Troodos Shipping Co Ltd., his father's firm,
he founded Stelmar Shipping.
He went on to start the airline
company EasyJet. He also
earned the title of Sir Stelios
when he was knighted at age 39.
ment finally was signed in Rome in March 1999 after
nearly eight years of negotiations and litigations. The
compromise meant that Italy accepted a total compensation package of about GBP 43 million, of which some
30 million was paid by IOPCF with the remaining – including an ex gratia payment – to come from the owners
through its P&I club. The payment was to be made
without admission of liability by the owners – the HajiIoannou family – to the extent it exceeded the limitation
amount under CLC69. At the end of May 1999, the
long-running saga of the compensation case was
brought to a final conclusion when the agreed amount
was paid and the compensation proceedings terminated.
Despite that compensation had been paid far beyond the
legal liability under the conventions - which was GBP
37 million in 1991 - Mr. Jacobsson, director of the
IOPCF, did not hesitate to express to Lloyd’s List that
he was happy that a solution was reached, particularly
as the settlement respected the two principles the Fund
260
had all along: “first that the maximum amount is fixed in SDR, and second,
that the Fund convention does not allow any payments for environmental
damage.”
However, these claims were not the only major worry for the owners. Criminal
proceedings had started after the accident. It was alleged that the master, the
chief mate and the chief engineer had been guilty of gross negligence, and the
owners’ right to limit their liability was challenged once more. Crewmembers
had been killed. The owners were blamed because they had not ordered the
tanker to stop sailing, despite serious technical problems. Furthermore, the
prosecutor insisted that the classification had not been notified about an inert
gas generator that was out of order.
In November 1997, a Genoa court seemed to have ended the seven-year ordeal
when Lucas Hadji-Ioannou and his son, Stelios, were acquitted of the charges
of manslaughter. Stelios Haji-Ioannou, relieved but bitter, commented to the
press that he was highly critical of what he described as the Italian “banana
republic” justice system.
But the criminal case had not yet come to an end. The nightmare of the owners
continued when they were faced with an appeal against their acquittal on
charges relating to the explosion of their tanker. For the appeals court, an expert panel had been set up. A second diving survey of the wreck at the bottom
of the Genoa harbour revealed, according to the panel, that the accident was
indeed a result of overpressure of inert gas whilst cargo was transferred. The
appeal case was now to be administered by a judge who was the Mayor of
Genoa when the accident took place. In that position, he had previously condemned the parties involved. A petition was sent to the Italian Supreme Court
to have the appointed judge, who was claimed to have “political ambitions”
removed. However, in March 2000, before any decision on his qualifications
was made, it turned out that the acquittal was upheld.
In the meantime, Stelios Hadji-Ioannou, born in 1967, extended his business
interests in shipping as well as other areas, notably airlines. His entrepreneurship and philanthropic achievements earned the young man a knighthood in
1996, when Queen Elisabeth II on her 80th birthday made him Sir Stelios.
Further to the lengthy legal battle on the compensation issue, the trade press
was, in the following years, filled with speculations about whether the public
261
outcry over the disaster would spark off “OPA-like” regulations in the European Community. Whereas some voices spoke up in favour of such legislation,
Haven did not result in any unilateral action. The Europeans seemed to continue to support IMO to coordinate the efforts to improve safety at sea and
protection of the marine environment, including the liability question.
Notes:
On the Haven incident, the claims and the method of conversion are listed in local currency in the
IOPCF annual reports, 1991-1999. Also see Lloyd’s List, March 6, 1999. On the criminal case, see
Tradewinds, Nov. 28, 1997. Also see Lloyd’s List, Feb. 19, 1999, and March 15 and 21, 2000.
II. ABT SUMMER
Two more serious incidents followed Haven only a month later.
The 17-year-old Saudi-owned and Liberian-flag super-tanker ABT Summer
exploded in the deck area and sank 900 miles off the coast of Angola. On
board was a cargo of 260,000 tons of crude oil. Five of the 32-man crew lost
their lives. The oil around the tanker began to burn, and the oil slick was reported to cover 80 square miles. The tanker was recently bought from a Greek
owner, had been transferred to the French classification society Bureau Veritas
and was due for docking in September. The charterer was the National Iranian
Tanker Co., who was also the owner of the super tanker Albortz, which
shortly after the accident in Angolan waters was under repair in Cape Town
harbour. The Albortz exploded and caught fire, killing three repairmen and
seriously injuring six others.
Hence during a time span of less than two months, three 1970s-built large
tankers had exploded at a cost of 16 lives – one of the tankers were chartered
to and one owned by the National Iranian Tanker Company.
Mohammad Souri, the honest chairman of the company, stated in a speech
delivered to the annual meeting of INTERTANKO in Hamburg, Germany,
that his group was in general satisfied with the old ships and that the affiliated
company, National Iranian Oil Co., did not “prefer” to pay higher rates for
ships certified above minimum class standards.
Despite that the ABT Summer spill ranks as the one of the largest ever
recorded, the accident received modest attention in the media. Partly perhaps
because of the location, the media instead continued to focus on the Haven
affair.
Notes:
On ABT Summer, see Seatrade Week, May 31 to June 6, 1991. According to ITOPF Data and Statistics
2010, the ABT Summer spill – 260,000 tons – is the second largest ever.
262
III. AUSTRALIA WARNS AGAINST “SHIPS OF
SHAME” - KIRKI
Also on the other side of the globe, the experience with the standard of foreign
ships gave rise to serious concern.
The anger in Australia culminated on July 21, 1991, when the bow section
simply fell off a rusty Greek registered tanker, Kirki, while en route from the
Arabian Gulf. She was loaded with 82,000 tons of light crude when she
collapsed. The coast of Western Australia and its marine environment faced a
major pollution risk that was only narrowly averted. In the event the lives of
the crewmembers were put at risk, but with good luck and a major salvage
operation, the crew was rescued and the ship saved.
Together with the loss in close succession of six bulk carriers in the same waters between January 1990 and August 1991, Kirki resulted in an inquiry from
the Australian House of Representatives Standing Committee on Transport.
The report, which was presented in December 1992, carried the name “Ships
of Shame.” Kirki, owned by the Thenamaris group, was nicely painted whilst
her tanks were horribly corroded. Rust was camouflaged with canvas. The
committee pointed out that Kirki was in class with a reputable classification
society and had been regularly inspected. Yet the tanker suffered a major structural failure because of corrosion which had gone undetected by all responsible
parties including the classification society, Germanischer Lloyd, the ship’s managers and the charterers.
The committee turned its focus on the classification societies and made the
point that the industry is unusual in the sense that these societies, which are
used to regulate the world fleet, are subject to the same market forces as
shipowners. Whilst being responsible for safety at sea, the societies have to
maintain market share to be commercially viable. The basic dilemma that it is
the shipowner who selects and pays his regulator – the classification society –
for its services was not expressly mentioned. More diplomatically, the committee focused on the wide variance in the quality of classification societies
that allowed irresponsible tanker owners to cut corners with respect to investments in safety.
A small consolation to the tanker industry is shown in the findings that the
dry bulk industry standards were found to be worse. The Australian committee
stated:
263
“It is generally recognised that the conditions of oil tankers is better than
dry bulk carriers. ... It is evident that, with the new leadership, the IMO is
becoming more active. The recent initiative of the Secretary General in
having bulk carrier safety addressed is an indication of a refreshing change
of attitude within IMO. ... This attitude must be encouraged.”
In this connection it was pointed out that between 1988 and 1991, 47 dry
bulk carriers sank, with a loss of 381 lives. In 1991 alone, 19 of these carriers
sank, with a loss of 149 lives.
The Committee recognized that while IMO had proven an effective forum for
setting standards, it had generally been ineffective in ensuring the observation
of the same standards. Thereby it repeated the message that Sir Yue Kong Pao
had sent to IMO from Helsinki 11 years earlier. The considerations in the
report also included a reference to the continued crisis in the shipping industry
with substantial overcapacity, which enabled the charterers – including the oil
companies – to press freight rates to levels below what was required to maintain decent quality for marine transportation:
“In response to commercial pressure, substandard ship-owners/managers
are accepting lower freight rates, leaving responsible ship/owners/managers
that are unable to operate at the lower freight rates with a declining market
share. ... Where maintenance is not carried out it may be a case of the
captain and crew not being provided with the necessary resources rather
than poor onboard procedures.”
It was found that the continued depression in the market place also had
resulted in considerable pressure by the shipowner on the master. Such pressure
could include maintaining speed in heavy weather conditions to meet deadlines
set by the oil charterers, in which case the Captain was reduced to “merely
the driver of a ship, rather than its master.”
The inquiry into ship safety undertaken by the Australian Parliamentary
Committee revealed a better understanding of the market forces than seen
within other governmental quarters prior to Erika, which grounded seven
years after the inquiry was published.
When Kirki experienced structural failure, Australia had not taken steps to
ratify many IMO conventions, yet the report concluded that international co-
264
operation was the most effective lasting solution to ship safety problems.
Disaster was never far away, and prevention of pollution of the sea is a far
better option than cure. IMO, flag states, port states, classification societies,
shipowners and managers, crews, insurance underwriters, charterers and cargo
owners all need to participate if short- and long-term solutions were to bear
positive results. The possibility of unilateral Australian action was considered,
but rejected: “What concerns the Committee is that ships which are now inappropriate for the US trade will operate in those areas which are less capable
of regulating them. This situation would not improve the ship safety problem
as much as pass it on to those nations least able to do something about it.”
Australia’s representation at IMO should be strengthened by the inclusion of
industry and trade delegates with relevant experience.
In a widely published message to IMO and the oil industry, INTERTANKO
once more appealed – this time through its new chairman, Mr. Suzuki, Mitsui
OSK (Japan):
“accidents happen not due to lack of regulation but due to lack of
compliance with the existing rules. ... Quality must be paid for – in shipping
as in other industries. The oil companies continue to declare their preference
for first class tankers, but their chartering departments often pursue a
different strategy. In the spot market, the cheapest rust bucket is often
treated as the market leader – the rate setter! The oil industry’s chartering
conditions should induce compliance with conventions. Today, however,
this is not always the case. ... If charterers pay a premium for quality, they
also pay a premium for a better marine environment and, not least,
the aging tanker fleet would be renewed on a sound financial basis.
Governments can contribute to this renewal process by resisting pressure to
over regulate the industry. ... Overregulation would detract from existing
standards and, once again, would push quality tonnage into an
unfavourable market position. This, in turn, would delay much-needed
fleet renewal.”
Notes:
Seigo Suzuki’s statement is found in Lloyd’s List, July 2, 1991.
On Kirki, see the above mentioned report “Ships of Shame” from the Australian House of Representatives Standing Committee on Transport to the Parliament in December 1992, pp. xxi, xvii, 1, 2, 27-29,
32 and 75.
See also Jack Devanney: “The Tankship Tromedy,” Florida, 2006, pp. 56-57.
265
IV. AEGEAN SEA
The Iraqi invasion of Kuwait in August 1990 overshadowed any other event
in the tanker market. Within months, a land campaign led by US forces under
the authority of the United Nations completed the liberation of the country.
But Iraq had in the meantime deliberately released an estimated 780,000 to
1,500,000 tons of crude oil into the Arabian Gulf off the tanker terminals in
Kuwait. It is listed in the news as the largest oil spill ever. Hundreds of miles
of the Saudi coast were smeared black, but had little military significance. It
helped that the conditions were excellent for skimming, the weather was nice
and a converted tanker, Al Wasit, and two other skimmers managed to recover
some of the oil.
A few weeks after the IMO delegates had left the conference rooms on Albert
Embankment, several major oil spills occurred in European waters.
The night of Dec. 3, 1992, a double-bottom combined carrier under the
Greek flag, Aegean Sea (114,000 dwt), ran aground while approaching the
port of La Coruna, in northwestern Spain. The owner, linked to the LondonGreek company Coulouthros Shipping Agency, had agreed with the Spanish
oil company Repsol to carry a cargo of oil from Sullom Voe to “one or two
safe ports European Mediterranean.” Repsol ordered the vessel to go to La
Coruna where she arrived on Dec. 1 and waited two days for a berth before
she was ordered to proceed. Despite the bad weather, the Greek master, Captain Stavridis, attempted to manoeuvre the tanker into the entrance channel
at a point, later found to be dangerously close to the shore.
The vessel ran aground, broke in two and exploded. The heavy weather delayed initiatives to start effective recovery of the spilled oil. All 32 crewmembers were rescued by helicopter after the grounding. The last man was still in
the air when the tanker exploded. The forward section sank 50 metres from
the coastline. Most of the cargo of some 80,000 tons was either consumed by
the fire or dispersed into the sea. Only 6,500 tons that remained onboard were
successfully removed by salvors.
Like Exxon Valdez, the tanker grounded in an area where extensive fishing
and various forms of aquaculture took place. A wide-ranging clean-up operation was carried out at sea and ashore. Attempts were made to protect sensitive areas by using booms deployed from ships and from shore. Several
stretches of the coast northeast and east of La Coruna were contaminated.
The regional Fisheries Council imposed a comprehensive fishing ban in inshore
266
waters. Later, the Council presented a claim totalling more than GBP 2 million
(about USD 3.53 million) for economic assistance given to fishermen and shellfish harvesters.
The oil lost was less than the Urquiola spill in the same waters in 1976. But
the spill from Aegean Sea is still listed as one of the major spills. As a result of
the nature of the cargo and the vigorous wave action, there was, however, considerable natural dispersion of the oil, and fishing was back to normal in
August 1993.
Nevertheless, the restrictions had seriously affected 3,000 to 4,000 fishermen, including shellfish harvesters. At the end of 2001, the amount of claims
submitted before the Spanish courts represented some GBP 200 million (about
USD 287 million). It took more than 10 years to settle all compensation claims.
Settlement agreement was finally reached between the government, the IOPCF
and the tanker owner and his P&I club in 2002. The last outstanding payment
was made in December 2003.
In 1992, criminal proceedings had been initiated against the master and the
pilot. The Court held that Captain Stavridis had been negligent when he decided to bring the ship into the port in extremely bad weather with poor visibility. He was held liable together with the pilot who had ordered the master
to enter port at 2 a.m. in spite of the heavy weather and knowing that the
weather would further deteriorate. Contrary to the regulations, the pilot did
not meet the ship at the designated boarding station and did not board the
ship until she had entered into the port area.
The criminal court also considered the compensation claim that had been
presented against the owner, the P&I club, the master, IOPCF and the owner
of the cargo, the Spanish oil company Repsol. The court held that the limitations in CLC69 were applicable. According to the 92 CLC Protocol, no claim
for compensation for pollution damage under the Convention could be made
against the pilot. The protocol was, however, not in force and the original
CLC69 contained no such exception. Spanish pilots were state employees and
in its first ruling the court held that the owner and the pilot were both liable
for criminal negligence. It was found that the incident could have been avoided
if either of them had acted with proper care. The ruling of April 1996 was
appealed, but upheld by an appeal court in June 1997.
During the pleadings on the claims for compensation, IOPCF maintained that
267
the Commandant of the port should be held liable. He had ignored an order
prohibiting this type of tanker from entering port under the prevailing conditions. In the end, the court acquitted him of the charge.
Moreover, the tanker company started arbitration proceedings in London
against the charterer. The shipowner alleged that Repsol by nominating La
Coruna had failed its obligation to nominate a safe port. On this basis the
owner sought to recover the substantial compensation he had paid out to pollution victims plus the value of the tanker, her bunkers and the loss of freight.
It all amounted to USD 65 million.
Repsol refused to pay and contended that in the event the company was
liable to pay damages, the liability would be limited under the general 1976
Convention on Limitation of Liability for Maritime Claims. The Convention
entitles a shipowner to limit his liability for certain claims listed therein and
the definition of the term ship owner (article 1.2) included “charterer, manager
and operator of a sea-going ship.”
The English High Court held by way of preliminary issue that the charterers
were not entitled to limit liability in respect of a claim based on failure to nominate a safe port under the charter party. De la Rue and Anderson have drawn
the conclusion that if oil pollution claims are brought directly against the charterer, he may limit his liability under the 1976 Convention. But if claims are
brought against the owner, who later seeks to recover the sums he has paid
from the charterer by way of recourse, limitation is not available. The implications of this view may be of particular interest to oil companies chartering
tankers to the US.
Notes:
On Aegean Sea, see IOPCF’s annual reports, 1992 to 2003, and de la Rue and Anderson: “Shipping
and the Environment,” London, 1998, pp. 642-643.
V. BRAER
Europe should soon once again be subject to another spectacular pollution
incident.
The next occurred in early January 1993, when a Liberian tanker Braer of
89,730 dwt suffered an engine failure, lost her power and went aground in
horrendous weather 15 km off the southern coast of the Shetland Islands. She
268
was en route from Norway to Canada with a cargo of 85,000 tons of North
Sea crude oil. Severe gales prevailed for several days. The ship broke up in
three sections. No crewmember was killed, but the entire cargo was lost.
During the first week after the spill, TV crews, journalists and other media
people flocked to Shetland and reported that this was one of the most serious
environmental catastrophes ever seen.
The oil spray from the tanker contaminated 45 square km of the local farmers’ grassland. About 23,000 sheep had to be removed and given special feed.
Three days after the accident, the UK Government imposed a fishing exclusion
zone in the affected area.
A high-level committee under the leadership of Lord Donaldson was appointed
to study what went wrong and to come up with recommendations on how
marine safety could be enhanced in the area.
The 85,000 tons of oil Braer spilt was twice as much as the Exxon Valdez spill
and the largest spill in the UK since Torrey Canyon in 1967. Partly because of
extremely high wave conditions produced by strong winds and partly because
of the low viscosity and dispersibility of the light crude spilled, most of the oil
vanished naturally into the sea. Thus there was less pollution of the coastline
than feared. It was later estimated that only one percent of the oil cargo had
been washed up on beaches. Despite the harm it caused to fisheries and farmland, the accident required a physical clean-up response on a comparatively
modest scale. The doomsday forecasts during the first days evaporated little
by little. But the compensation claims still amounted to large sums.
The tanker owner was a Liberian single-ship company controlled by Norwegian/US interests: Bergvall & Hudner. Its P&I club, Skuld, together with
IOPCF set up a joint office on the island to administrate the claims which were
coming from various affected interests including farmers, fishermen, property
owners and the tourist industry. Moreover, the UK government had submitted
a claim for compensation for costs incurred for its clean-up operations, for
disposal of oily waste, for monitoring operations carried out for salving ship
and cargo and for tests undertaken in the water to establish the extent of hydrocarbon content. In October 1995, IOPCF had to terminate all payments
to claimants. According to Tradewinds, a compensation of USD 70 million
had so far been paid to the victims, leaving just another USD 18 million before
the amounts available under the conventions were exhausted.
269
The standstill of further payments led to impatience among the uncompensated
claimants, who now saw a breach of the CLC limitations as the only way of
resolving the problem. Thus a leading Scottish law firm, Paul & Williamsons,
told the press that action might be prepared to break the (near) USD 90 million
limit on compensation available. Among the claimants still waiting to have
their claims settled were the Department of Transport and the Shetland Islands
Council, the salmon farming industry and a number of fish processors.
A club spokesman rebuffed the contention and maintained that the two-tier
system, including the shipowner’s right to limit, had been and still was fundamental to the system for handling oil spill. Furthermore, he cautioned the law
firm by informing that the single ship company that owned Braer no longer
existed. It was now up to his club to consider refusing to meet claims under
the “pay-to-be-paid” rule. According to the press report, his view was that the
claimants had no direct action against Skuld. This statement should, however,
be seen in the light of CLC69, which entitled the claimant to bring his claims
for pollution damage directly against the insurer, but the insurer may “avail
himself of the limits of liability.”
A wide range of business interests were affected by the accident, and some felt
very strongly that their losses should be taken into account. Landcatch, a company that produced smolt (juvenile salmon), based on the West Coast of
Scotland, sold its product to salmon farms, some of them located as far away
as Shetland; a distance of 500 km. Landcatch claimed that because of Braer,
its buyers in Shetland purchased less smolt than usual. It was argued that compensation had to be granted and that it was sufficient to prove that the loss
would not have happened if the pollution accident had not taken place. The
claim was, however, rejected both in the lower court as well as by three judges
of the Court of Appeals. In its house magazine, Skuld commented on the
favourable judgment, stressing that all legal systems have to establish a point
beyond which one cannot recover for economic losses. A line has to be drawn
somewhere, otherwise - as a judge in the US had put it - there will be liability
“in an indeterminate amount for an indeterminate time to an indeterminate
class.”
In January 1999, a number of disillusioned Shetlanders felt they had to abandon their compensation claims. It was not worthwhile to pursue the expensive
legal action further, as they probably would be able to secure only a fraction
of the original amount. One claimant said that he was asked for hundreds of
270
Braer
Braer spilled twice as much oil
as Exxon Valdez when she
broke up in three sections during horrendous weather off the
coast of the Shetland Islands in
January 1993. The entire cargo
of more than 80,000 tons of oil
was lost, representing one of
the largest oil spills ever. However, partly due to extremely
high wave conditions and partly
due to the low viscosity and
dispersibility of the light crude
oil spilled, most of the oil
vanished naturally into the sea.
Nevertheless, the impact on the
coastline was serious, and the
claims for compensation from
the pollution victims were
numerous and huge. Thirteen
years after the accident, one
claim remained still unsettled.
The tanker was owned jointly
by US and Norwegian interests
and represented by the Norwegian P&I club Skuld.
85
37
Braer
oil spill
85,000 tons
Exxon Valdez
oil spill
37,000 tons
© AFP / Scanpix
pounds for lawyers every year and could not afford it. One of them, Martin
Thomson, a farmer at Exnaboe, told Lloyd’s List that he would drop his fivefigure claim because of frustration over the IOPCF policy not to co-operate,
but just to play for time. Chemical dispersants had swept ashore in January
1993 and covered his property. Moreover, the asbestos roofs on his farm buildings had been affected and started leaking one year after the accident. “You
cannot run a farm with leaking roofs. I have to look after my livestock.” He
claimed that the position of IOPCF was that: “the roofs form part of the evidence, and we are not allowed to touch them until the claim is settled.” The
farmers could not live with that. A representative of an Edinburgh law firm,
Eric Scott, said that damage to the asbestos roofs had all happened in one particular area and had affected all roofs of this kind, old and new. He complained
that the Fund “is using every procedural and technical device to avoid paying
the claims.”
IOPCF seemed to be at pains about what to do. There was only GBP 3.5 million (about USD 5.66 million) left to accommodate the remaining claims. Yet
the press was told that its policy was successful. Sally Gregory, spokeswoman,
said that the number of court cases had dropped from 200 in January 1996 to
100 cases in 1998. Most of the big claims were not backed up properly, she
said, and the Fund would prefer to talk to people in order to persuade them
to reach out-of-court settlement.
In mid-March 2000, Lloyd’s List could report that the UK government had
dropped its claim. It turned out that the Shetland Salmon Farmers’ Association, smolt suppliers and several other claimants had also withdrawn their
claims after the courts had rejected them. IOPCF should thereby be able to lift
its self-imposed moratorium so that legitimate payments long overdue could
be paid out.
In early January 2005, only one claim remained. At that time, the Fund had
paid nearly GBP 46 million (about USD 83.73 million) and the shipowner’s
insurer, Skuld, had paid GBP 6.2 million (about USD 11.22 million) to
claimants. The remaining claimant was Shetland Sea Farms Ltd., which
contended to have contractual commitments to buy smolt at the mainland.
The question arose whether some of the documents offered as evidence were
genuine.
The court of the first instance concluded in 2001 that officers of the
claimant had knowingly presented copies of fake letters in support of the
272
claim. The court decided, however, that the company should be given another
opportunity to prove that a contract existed before the Braer accident. In May
2003, a new decision was rendered confirming that Shetland Sea Farms Ltd.
had indeed been involved in a fraudulent scheme. Nevertheless, the case was
allowed to proceed. Skuld and the IOPCF Fund appealed against this decision.
In January 2007, a settlement was reached between Sea Farms and IOPCF
and Skuld, whereby the claimant withdrew its claim and paid GBP 75,000 to
Skuld (USD 150,126) and GBP 20,000 (about USD 40,033) to the 1971 Fund
for the legal costs incurred. Fourteen years after the grounding, the case was
thereby brought to an end.
Notes:
See “The Impact of an Oil Spill in Turbulent Waters: The Braer,” a report edited by J.M. Davies and G.
Topping, London, 1998. See also IOPCF annual reports 1993-2007; Tradewinds, May 31, 1996; Skuld
newsletter no. 3, October 1999; and Lloyd’s List, Jan. 6, 1999.
VI. MAERSK NAVIGATOR
Sixteen days after the Braer accident, a fully laden large Danish crude carrier,
Maersk Navigator (255,000 dwt), which had been leased to an affiliate of
Exxon Corporation, collided with a Japanese tanker (96,000 dwt). The
calamity occurred near the entrance of the Malacca Strait, one of the busiest
waterways in the world. Both tankers were registered in Singapore. The Japanese ship was in ballast, but oil leaked out from Maersk Navigator. Mr. Law
Hieng Ding, Malaysia’s environment minister, warned the press that “We can
expect a disaster” whilst a spokesman of the owner played down the danger,
saying that a salvage tug reached the tanker the same night and “Any leaking
oil from the breached cargo is burning off.” Before the leakage was stopped,
however, about one-tenth of the cargo escaped into the sea.
In Malaysia, concern had for some time been expressed about the practice of
allowing big tankers use the already congested and relatively shallow straight.
The government had proposed that laden super tankers carrying oil from the
Arabian Gulf to Japan should proceed through the Sunda Strait, or the Lombok and Makassar Straits, which offered a safer deep-water channel through
the Indonesian archipelago. Tanker owners were reluctant to comply with the
routing the government proposed, as the oil industry was not prepared to pay
the added transportation costs which the extra mileage would mean.
273
Notes:
See International Herald Tribune, Jan. 22, 1993, on Maersk Navigator. In
1975, Jacob Maersk had spilled more than the double amount of oil –
88,000 tons – off Oporto, Portugal.
VII. SEA EMPRESS
© Poppe Cornelius / Scanpix
John Fredriksen
John Fredriksen was born in
1944 in Eidsvoll, north of
Oslo. At 16 years old, he began
as a ship broker and moved to
New York, where he proved his
talent in the early 1970s. There,
he worked closely with oil interests in the Middle East and
established his own tanker
company. The next decade, he
made good money transporting
oil from the Persian Gulf during
the war between Iran and Iraq.
In Oslo, he got his own table,
known as “Kharg Island,” at
“Theatercafeen” restaurant.
His many other investments
include oil rigs and marine
harvesting. Today, he is
probably the world’s major
tanker owner.
In February 1996, history repeated itself. Thirty years
had passed since the master of the Torrey Canyon
ordered a change of course which, all being well, would
save half an hour and reach the evening tide in Milford
Haven. Once more, a large tanker on its way to this very
terminal caused a major spill. Once more it was
confirmed that tanker pollution is a media event as long
as it occurs close to the media centres and there is bad
photogenic news to report.
The Milford Haven waterway had a long history as an
oil port, chosen during the 1950s for its deep waters and
natural shelter, features that make it ideal for large
tankers. In 1996, the oil terminal was the second busiest
in Britain, taking delivery of crude oil and shipping refined petroleum products worldwide. On Feb. 15 that
year, the three-years-old Liberian-flag tanker (149,000
dwt) Sea Empress – owned by a Norwegian, John
Fredriksen, and managed by Acomarit, Glasgow –
caused an oil spill of 72,000 tons of crude oil and 360
tons of heavy fuel oil, polluting the waters and coastline
in southwest Wales. Four cargo tanks and two ballast
tanks had been ripped open on the rocks at the entrance
to Texaco’s terminal.
The grounded tanker had been in very good technical
condition. But the first mate did not speak English, and
communications between ship and shore proved difficult. The port’s radar installations had been out of order
for some time. A pilot had been on board at the time of
the accident, but according to reports available, he
arrived just 15 minutes before the tanker grounded. He
274
had failed to follow the leading lights, and it took 12 hours from when the
pilot reported that he had lost control with the steering till any action was
taken by the authorities ashore. It turned out to be an accident from top to
toe. The tanker was refloated, but despite salvors efforts, she grounded again
the next day and once again, causing more oil leakage during persistently bad
weather. On Feb. 21, Sea Empress was finally towed to a jetty inside Milford
Haven, where the remaining 58,000 tons of oil was discharged.
The oil came ashore along 200 km of coastline, most of which was a national
park. The Milford Haven Waterway represents one of the most productive
commercial fisheries in Wales, taking advantage of the abundant shellfish, crab
and lobsters, sea bass and other fish. The event prompted widespread fears of
an environmental catastrophe. A ban was imposed on commercial and recreational fishing in the region, and there was concern that tourism – important
for the local economy – would be badly affected by the heavy-oiled beaches.
The ban was lifted 18 months later. At that time, there were few visible signs
of the oil except in a few areas where some clean-up still was required.
Critical voices later claimed that the spill could have been reduced significantly
if communication had been better. It was moreover claimed that shore
personnel had given inaccurate information about the tide.
During the investigation that followed, the Minister of Maritime Affairs,
Lord Goschen, went a long way to admit that the distress signals from the
tanker had not been taken sufficiently seriously. He and his government were
harshly criticized by the Labour opposition for not having paid attention to
the recommendations in the report Lord Donaldson worked out after the Braer
accident. A spokesman for the opposition demanded that Lord Goschen and
the secretary of transportation, Sir George Young, should leave their Cabinet
posts. A draft report issued by the UK Marine Accident Investigation Branches
leaked out in January 1997. Glenda Jackson, Labour transport spokeswoman,
said: “The (draft) report underlines that the Sea Empress grounding was a
disaster, the salvage operation a farce.” She also accused the Government of
“a cover-up” after it was revealed that the official report on the oil spill would
not be published until after the general election.
Also the Government found that the standards of training and examination
of pilots at Milford Haven were unsatisfactory and in need of improvement,
in particular with respect to large tankers. In hindsight, an accident seemed
just waiting to happen. Thus when the Milford Haven Port Authority (MHPA)
275
© Rebecca Naden / EPA / Scanpix
Sea Empress
On Feb. 15, 1996, the threeyear-old modern tanker on her
way to a refinery in Milford
Haven grounded and lost
72,000 tons of crude oil and
480 tons of fuel into the sea.
The incident proved the old
truth that despite a vessel being
in first-class technical condition,
safety depends on the quality
and professionalism of the other
actors on sea or shore.
In this case, the communication
between the ship and the port
was not up to par. The port
radar was out of order, the pilot
arrived too late and it was
claimed that inaccurate information had been given about the
tide. The Milford Haven Waterway is one of the most productive fisheries in Wales. The
damage to marine life was
serious. Among the conclusions
of a special Environmental
Evaluation Committee set up by
the British Government was:
“The main impact occurred at
the time of the spill or shortly
afterwards - there appear to
have been few major long
term effects.”
276
was prosecuted by the UK Environment Agency, the
Port Authority pleaded guilty to a charge under the new
and unfamiliar 1991 Water Resources Act. A fine of
USD 6.5 million was imposed by Cardiff Crown Court
three years later in January 1999. It was held that pilotage standards were inadequate, and pilot error
caused by inadequate training and experience were seen
as contributory factors to the accident. The government
represented by the head of the Environment Agency, Ed
Gallagher, left no doubt as to his satisfaction. He saw
the huge fine as “an important landmark in environmental protection.”
The harbour master, Captain Mark Andrews, who had
pleaded not guilty, was acquitted on all counts. As an
employee of the port authority, he had only acted on its
behalf.
In the meantime, the new general manager of the port,
Ted Sangster, had repeatedly pointed out to the press
that the MHPA guilty plea was based on a non-fault
basis and was meant to end an extraordinarily expensive lawyer festival. He felt strongly that the court had
failed when it imposed the unprecedented fine. In addition to the fine, the port was ordered to pay GBP
CHAPTER
825,000 in legal costs. According to Mr. Sangster, these fees came on top of
the GBP 1.3 million the port had spent “on enhancing and investing in its
safety system over the past couple of years.” The judgment was appealed in
January 1999.
In Norway, a spokesman of the owner’s defence club Skuld, Arild Wegener,
did not quite agree with the views Mr. Sangster expressed. Mr. Wegener told
the press that the MHPA’s guilty plea was a further confirmation that its
shipowner member was not at fault, thus the blame for the accident “can be
laid at the doorstep of another party.” The club consequently hoped to recover
all or part of what had been paid out to victims for the spill. Another Skuld
spokesman, Jonathan Hare, a senior lawyer, told the press that the likely
amount of claims could reach USD 65 million. He would not give an amount
of the claims settled but said that “a great majority” had walked away with
an acceptable settlement. In his mind, it seemed clear that the early press
reports holding the owner responsible had proved incorrect and that it had
been recognized that a safe ship is still a major hazard if shore-side responsibilities are evaded. According to Mr. Hare, the insurers and the shipowner had
abided by the rules and that time had come – together with the Fund – to
consider teaming up as plaintiffs seeking redress for the liabilities incurred.
Such action would have as its basis the rights acquired by subrogation from
the victims of oil pollution to whom it had made compensation payments.
Both sides expressed strong opinions. In October 1999, Lord Donaldson felt
compelled to publicly attack the “disgraceful” conduct of the Environment
Agency over the prosecution of the Port Authority. In March the following
year, Lord Chief Justice Bingham of the Appeal Court found that the port authority’s fine was manifestly excessive. He slashed the fine to GBP 750,000
(USD 1,213,670). But the fine came on top of the GBP 1.3 million (USD 2.10
million) that the port had invested in a safety system the last couple of years.
For the new general manager of the port, Mr. Sangster, the reduced fine was
still a considerable burden for the port. “There had been no winners here,”
he said.
Also, the Environmental Agency was depressed. Its Chairman, Sir John Harman, told the press that the passed judgement was “extremely bad news.” In
his mind, the fine could in no way be compared to the serious impact on the
environment that the Sea Empress incident caused. Moreover, the judgement
failed to address the vexed issue of responder immunity, which first and fore-
277
most concerned the salvage companies.
The UK government decided to stand last in queue for its claims to ensure that
IOPCF had sufficient funds to pay other claimants. Once again, the Fund had
been compelled to suspend payments to the victims of the pollution damage
as the claims presented exceeded the amount available under the international
conventions.
After thorough consideration, the Fund decided to take recoursive action
against MHPA in the Admiralty Court in early 2001. The action was delayed,
but in February 2002 the proceedings commenced in cooperation with Skuld
and on behalf of 786 other claimants. The claims were based on allegations
of negligence and/or breach of duty, including failure to put a proper system
in place for safe entrance into the port, failure to have in place effective radar,
the entrance to the port not being sufficiently marked, the system of pilot
allocation being negligent and the system of pilot training being defective.
At the same time, Texaco, which operated the oil terminal in Milford Haven,
commenced legal proceedings against MHPA and the Milford Haven Pilotage
Limited. The compensation claim of Texaco included damage to the cargo
(USD 10.5 million), whilst other expenses including salvage costs amounted
to more than USD 5.6 million.
MHPA rejected all claims in respect of the economic loss suffered. The defence
was lengthy and detailed. In short, it was alleged that the port indeed had put
in place proper systems to ensure that the entry to the port was safe. During
the court proceedings, the parties finally agreed with the proposal of the judge
that the parties should explore the possibility of a settlement by mediation.
The mediation resulted in an agreement with IOPCF and Skuld that their
claims should be fully and finally settled by means of a payment by MHPA of
GBP 20 million by the end of 2003. By this settlement, all outstanding claims
in relation to the Sea Empress incident had been resolved.
An out-of-court settlement was also reached with Texaco. The IOPCF annual report for 2003 concludes that 1,034 claimants had presented claims for
damages caused by the Sea Empress accident. The claims represented nearly
GBP 50 million. Payments were made to 797 claimants totalling some GBP
37 million, of which 7.4 million had been paid by Skuld and the balance by
the Fund.
278
The lesson learnt was that a safe ship is still a major hazard if shore-side
responsibilities are evaded. The focus was for once turned on port safety, not
only on ship safety. One other positive consequence of the spill was recognizing
that the chain of command after the serious incident has to be clear with
respect to political and operational control. Mid-2002, Milford Haven Port
Authority announced that it would escort loaded tankers over 50,000 dwt
through the narrow entrance to the port. At Lord Donaldson’s suggestion, a
Secretary of State representative was appointed by the UK administration to
take charge in such incidents. According to observers in London, this has been
a resounding success.
Moreover the enactment of the UK Maritime Safety Act of 2003 provides
powers for the Secretary of State`s Representative for Maritime Safety and
Navigation (SOSREP) to facilitate salvage and assist ships in distress outside
the English coast.
Notes:
On Sea Empress, see IOPCF annual reports 1996-2003; Lloyd’s List through January 1997; Feb. 15
and 18, 1999 and May 3, 2000; Tradewinds, Jan. 15 and Feb. 26, 1999; Skuld’s Newsletters 1996-1997
and a final report of the Sea Empress Environmental Evaluation Committee, Cardiff 1998.
279
DRACONIAN MEASURES REQUIRED?
12
Draconian measures
required? - The viability
of IMO’s solutions
questioned again
I. ERIKA
The break-up of an old 37,000-dwt, single-hull tanker on the morning of Dec.
12, 1999, in the Bay of Biscay 60 nautical miles off the coast of Brittany,
France, came as a bolt out of the blue. It happened after an extended period
of relative peace and quiet on the maritime spill front.
In severe weather, the master sent the first distress signal late Dec. 11, but soon
after, he cancelled the message. Then, the next morning at 6:20 a.m., he sent
a new distress message. Two hours later, the tanker broke up.
Under the Maltese flag, Erika (built in 1975) was en route to Italy from
Dunkirk with a cargo of 31,000 tons of heavy fuel oil on board. Nearly 20,000
tons were spilt about 100 km off the mouth of the river Loire. The wreck sank
in 120 meters of water.
No lives were lost, as the French marine rescue services airlifted all members
of the Indian crew to safety. The oil that escaped from Erika was less than
seven percent of the oil spilt 22 years earlier when Amoco Cadiz grounded in
waters nearby. Nevertheless, the incident stirred up more media interest and
political debate than the grounding in Brittany in 1978. The spilt cargo was
280
blown east towards the coast, and the first oil polluted the shores of France
on Dec. 25. The clean-up efforts continued for two years.
The incident illustrated dramatically the difficulties of cleaning up heavy fuel
– whether originating from cargo or from the fuel from any kind of ship. Because of its highly persistent nature, such oil is resistant to natural clean-up as
well as difficult to remove from the surface by booms, skimmers, chemical dispersant or other techniques. Hence, the consequences were immense when the
heavy fuel travelled great distances from the spill location and caused widespread contamination of coastlines and damage to fish and fishing gear as well
as to aquaculture facilities and wildlife. At the end of 2001, about 250,000
tons of oily waste had been collected from the coast and stored. It took two
more years to dispose of the recovered waste. The connected costs alone represented about GBP 33 million.
The Savarese family in Sorrento owned Erika through Tevere Shipping Company of Valetta. The technical manager was an Italian company, Panship Management and Services in Ravenna, with Captain Antonio Pollara in charge.
She was one of eight tankers built at the Kasado Dockyard in Japan in the
mid-seventies, and had been used to carry black-market products at freight
rates which a French Permanent Commission of Enquiry into Accidents at Sea
(CPEM) in December 2000 concluded were insufficient to cover the maintenance costs. From 1975 to 1994, the tanker changed its name several times,
which suggested several changes in ownership.
The irony of the disaster was that the three major oil companies on the European continent, the Total/Fina/Elf group, had chartered an old tanker – later
claimed to be sub-standard – spilling a substantial amount of heavy fuel oil
and affecting 400 km of shoreline, including some of the best beaches on the
French coast. Twenty years ago, Total had sent a large tanker (Betelgeuse) with
horribly corroded structures to discharge her cargo at Bantry Bay in Ireland.
Here, the tanker exploded in January 1979, with the result of 50 people dying.
The tanker was to be sold, and neither the oil company nor the French classification society, Bureau Veritas, had concluded that it was required to spend
extra money before the transaction.
Following the breakdown of Erika, governments, the media, the public in
general and not in the least environmentalists scrutinised Total once again.
This time, no crewmember was killed, but the tanker chosen by the company
to carry its oil caused one of France’s worst environmental disasters and dominated the media for a considerable time.
281
Erika
The 37,000 dwt single-hull
tanker, Erika, 24 years old at the
time, was en route to Italy with
a cargo of heavy fuel oil for the
French oil company Total in
December 1999 when she sank
and spilled nearly 20,000 tons of
oil about 60 km from the French
coast. The oil that escaped was
only a fraction of the spill Amoco
Cadiz caused in the same area
22 years earlier, but came as a
bolt out of the blue after a peaceful period with respect to marine
spills. The incident stirred up
more media attention and political debate in Europe than ever
seen before. Because of the oil’s
highly persistent nature, it was
resistant to natural cleanup and
difficult to remove. The fuel
travelled great distances and
caused widespread contamination
and damage to the fishing and
tourist industries as well as to
the wildlife.
© Stephane Marc / AFP / Scanpix
© Benoit Tessier / REUTERSP / Scanpix
Giuseppe Savarese
Giuseppe Savarese, the Italian
owner of old Maltese tanker
Erika, soon faced criminal
charges and had huge bail on
his head after the accident. He
was summoned to the Court in
Paris. His defence was that the
responsibility for the pollution
scandal did not lie with him but
with the Maltese authority and
the Italian classification society
RINA. He argued that he had
paid RINA to verify that his
ship was in proper condition.
This was verified. When given a
clean bill of health on his ship,
he should be allowed to trade
that ship.
284
The French environmental minister, Dominique Voynet,
told the press that it was impossible to approve a system
that pushed old ships to their limits, underpaid its seafarers and imposed minimum control. “Satisfying oneself with saying that the captain is the sole master
onboard after God often amounts to putting the bulk
of responsibility on the fall-guy,” she said. Transporters
and charterers had to assume the responsibility.
But Guiseppe Savarese, the owner, claimed that the vessel was in good condition. A reputable company in
Ravenna managed it. The Italian classification company,
Registro Italiano Navale (RINA), which was a member
of the International Association of Classification
Societies, an association of high esteem, approved it.
Everything was done according to the rules. Moreover,
the tanker had recently passed inspections by other leading oil companies, including Exxon and Repsol. According to a press report, at least five major oil firms had
approved the 24-year-old tanker for chartering at the
time she was lost.
In a subsequent interview with the newspaper Le Journal du Dimanche,
Captain Karun Mathur – who had been jailed after being brought ashore –
claimed that the manager of the vessel had offered little or no cooperation
during the fatal hours.
The only advice he received was to try to get the stricken tanker to Spain. “I
think that they feared the French authorities and that they probably hoped to
do better with the Spanish authorities,” he said.
When asked whom he thought was ultimately responsible for the disaster,
he replied: “An inquiry is in progress. But I think that the most guilty are the
Neapolitan owner Guiseppe Savarese and the bank which finances him, The
Bank of Scotland.”
A lawyer representing him claimed that Mathur had discovered and signalled
some serious corrosion problems to the owner in November, two months after
he took command of the ship. The conditions onboard the tanker had not
been good. The crew had not been paid for three months. The master had ordered spare parts that never arrived. Moreover, the crew on three other vessels
Mr. Savarese owned had been waiting for their wages for a considerable time.
One of these tankers was Maria S, arrested in Augusta, Sicilia, in mid-January
2000 because of unpaid wages of some USD 107,000 and several technical
problems.
According to a report by RINA – issued after two months internal inquiry –
the residual strength of the vessel at the time of the casualty was sufficient to
withstand normal operations, even during the prevailing storm conditions.
Captain Mathur and the manager of the vessel had misjudged the problems
posed by a small structural failure in the hull, and thereby allowed it to develop
into a much more serious structural failure. The crack was from corrosion, it
was claimed, but rather it was due to weaknesses in the hull, possibly caused
in the course of repair work by the Byelaw shipyard in Monte Negro in August
1998. Moreover, the master had failed to follow the emergency procedures
laid down in the International Ship Management Code, and he had not sought
advice from RINA.
When it became known not long after the accident that several of Erika’s sister
ships – all still trading – had suffered identical structural failures in 1990 and
1991, RINA’s chief executive, Nicola Squassafichi, countered the accusations
and complained that the other classification societies had failed to report the
past problems with the sister ships:
285
“Eight sister ships of the Erika class were built under two different class
societies, and have been classed by five different IACS classification societies
at some time in their life. ... All of these ships have suffered structural
problems. Three of them, other than Erika, were serious. No information
on the history of problems was available to RINA.”
When it was revealed that Erika had changed classification society four times,
the public and the media seemed to lose faith in the experts. Instead of an industry educating the public, the reverse now seemed to be the case.
A representative of the Green party in France had called a few days after the
incident for the freeing of the master, who had been detained in custody:
“The detention of the captain of Erika is all the more scandalous for the fact
that the ones really responsible for this shipwreck and this ecological catastrophe – the owner, the shipping company, the charterer Total/Fina, the port
authorities of all kind who have judged the ship, worn out by the years, fit
for service – seem to have slipped through the judicial net.”
The Greenpeace international oil campaigner was no less blunt: “It is another
example of the irresponsibility of the oil industry to operate as cheaply as
possible.”
Substandard ships would not be sailing if oil companies did not cut costs by
using them, the environmentalists argued. Dagfinn Lunde, managing director
of INTERTANKO, backed them up. French shipowners joined the environmentalists and the domestic shipmasters’ association protesting against the detention of Captain Mathur.
The Director of OCIMF, John Hughes, confirmed that the information on
Erika in SIRE, a central oil industry database register, had been available to
the Total group. SIRE had, however, never been intended to report on the hull
condition of a tanker as long as the papers were in order. But the database
would be re-considered in light of the accident.
On the role of the classification societies in the future, the outspoken shipping financier Paul Slater told the press that in his mind, their days might soon
be over. The system whereby class societies were chosen and answerable to
shipowners was in his mind “monstrously outdated.” The better alternative
was publicly funded societies with powers similar to the aviation authorities.
A leading tanker owner, Lars Carlsson, president of Concordia Maritime,
286
accused the oil industry of undermining safety measures that could prevent
disasters. He pointed out that if only the oil companies were prepared to
change their policies and begin to charter the better ships in the world fleet,
this would eliminate the cheats who systematically broke the law and avoided
the restrictions.
In an interview with Lloyd’s List, the chairman of the Italian shipowners’ association Confitarma, Mr. Paolo Clerici, proposed: “a broader form of liability
– if not unlimited – for charterers as a measure by the EU to cut the number
of aged and substandard tankers in European waters.”
He was not at all happy with the policies of the charterers and how they
were in a position to run the game: “There are owners who have quite young
vessels in their tanker fleets, but who are keeping in service aged vessels due
to the demand from the market. Often, aged vessels are specifically required.
The market is prepared to pay only marginal premiums for young tonnage.”
On this background, it was no surprise that Henry Desmarest, chairman of
the Total group, won few friends when he was confronted with aggressive
journalists at a press conference in January 2000. When asked about the quality elements in the chartering policy of his group, according to a Lloyd’s List
report, he “with his eyes on the group’s share price” in no way agreed that
the oil group had been shaken to its roots by the impact of public opinion.
Mr. Desmarest also called for a massive increase in the liability for shipowners
for the consequences of casualties like Erika. On another occasion, however,
the director of the group’s shipping department, Bertrand Thouilin, admitted
that the disaster had shaken his own belief that the system in place within the
company was good and effective.
France’s Green party claimed that the oil group’s financial liability bore no
relation to the real cost caused by the accident and presented a number of proposals to the Commission, including one which would compel the oil companies to assume the total costs of all environmental damage caused by oil
pollution for which they were responsible. Draft legislation to this effect would
be presented to the French Parliament.
At the same time, the Total/Fina/Elf group – under pressure to announce something quickly – together with the subsidiaries of Shell, BP, Esso and other local
oil companies, worked out a “charter” committing themselves to introduce
tighter checks on vessels aged 15 years and above and to phase out single-hull
287
vessels by 2008.
They also seemed to agree that vessels 15 years and over would not be used
unless they had undergone a thorough hull inspection in the preceding twoand-a-half-year period and could provide inspection reports no more than six
years old. The Total group announced that it would no longer employ tankers
of 80,000 dwt and above if their age exceeded 20 years. With respect to the
smaller sizes, Total maintained that there were not enough vessels below 20
years on the market.
A few weeks before the joint announcement, the Total group had reacted furiously to a statement from Shell to the effect that it considered the Erika unfit
for charter. The group counterclaimed that Shell was operating a large 300,000
dwt tanker that should rather be scrapped and in no way used for oil transportation. The whole discussion seemed at this stage an open-ended circus.
The European Commission’s maritime policy director, Georgette Lalis,
announced that tougher measures on shipping were in the pipeline.
She criticised the classification societies and the flag-of-convenience countries that continued to allow obsolete tankers to be used by the oil industry.
It should be considered to phase out old single-hull tankers in line with the
US Oil Pollution Act, rather than the current IMO targets.
Another item on its agenda was whether the liability of cargo owners was
adequate or whether the international compensation fund should be supplemented within EEC. Leading shipping representatives were summoned several
times to discuss the various proposals. The agenda included more stringent
port state control and for the European Union to become closely involved in
authorising classification societies. A proposal to accelerate outlawing of single-hull tankers was controversial. Opponents claimed that such age limits
would discourage owners from building into new ships’ extra strength against
fatigue, corrosion margins, the best coating and first-class steel. With radical
age limits, why should owners bother to invest in such luxuries?
European Transport Commissioner Loyola de Palacio reacted sharply in
March 2000 to the opposition of an early phase-out of single-hull tankers,
and now revealed that a second package of safety measures was prepared.
At a maritime conference in Athens in June, Ms. de Palacio declared:
“We have found no plausible explanation why the European Commission
should not act when it comes to protecting its coasts and its population, especially when the US has already taken similar measures.”
288
She brushed aside arguments that maritime safety is a global issue and should
best be left with IMO. She feared that unless action was taken, the result would
be that Europe would be “getting all the rust buckets that will be prohibited
from US waters.” The current liability regime was inadequate and needed a
shake-up.
Listening to her thunder were IMO chief O’Neil – who previously had warned
against taking action hastily on the spur of the moment – and the President of
the Greek Shipowners Union, John M. Lyras. After the presentation, Mr. Lyras
told the press that he had found the message from Ms. de Palacio “rather
disconcerting.”
Erika broke apart while underway at sea. Such occurrences are rare. Analysis
carried out after similar incidents had shown that it was highly unlikely that
a floating object could have struck the ship with sufficient energy to cause a
breach. Whilst the tanker had encountered bad weather throughout the voyage, she should not have been overwhelmed by the wave loads or by the hull
loading, even taking into account the reduced steel thickness measured during
the last survey.
With the safety net to be provided by the international classification societies,
it seemed obvious that behind the structural failure, the survey must have
failed. Subsequent investigations undertaken by the governments of France
and Malta concluded, however, that it was not possible with absolute certainty
to establish what caused the accident. But it was most likely that it resulted
from structural weakness due to a combination of corrosion, local cracks,
substandard repairs and maintenance as well as the questionable quality of
surveys previously carried out.
The master could have made some mistakes, but it had to be taken into
consideration that he had to act quickly. He was not in an office with plenty
of time. The achievement in getting his crew off the ship unharmed should not
be underestimated. A preliminary report of a marine accident bureau team
which had investigated the loss of Erika leaked out in April. This concluded
that the state of the vessel and its rapid deterioration in the last hours of its
life were such that the master and his crew could probably not have done
anything to prevent the disaster.
But it did not take long before a subsequent French Senate Commission
report criticised the master for not alerting the authorities sooner. He could
289
have given information about the crack in the hull from the beginning, reduced
speed and waited for the arrival of a tug.
A new blow to RINA and to the oil industry as well came in August 2000,
when a BBC correspondent wrote the story “The scandal of Erika,” which
includes the following passage: “The oil tanker industry argues that Erika was
one off, but Correspondent discovered another tanker in an even worse
condition – and still sailing. Like Erika, the Nunki was flagged to Malta and
surveyed by the Italian classification society, RINA.”
Another judicial report published six years after the incident goes a long way
to confirm the conclusions of the first investigation.
Corrosion failures meant that Erika’s “fate was sealed.” The report
highlights the failure of Panship and RINA to detect and deal with advanced
structural corrosion from which the vessel was suffering before its break-up
and sinking. At the time of chartering, it did, however, not seem possible for
Total to detect the state of corrosion of the internal structures of Erika.
Total/Fina chairman Thierry Desmarest had shortly after the casualty publicly
undertaken to not pursue any claim for cleanup and other related expenses,
to the extent that the total claims exceeded the maximum amount available
under the international IMO instruments. The French Government also
undertook not to pursue claims which would exceed the maximum amounts
available under the international regimes. Moreover, the government provided
supplementary compensation for the benefit of suffering parties engaged in
tourism, salt-producing and the fishing sector. These special payments from
the government totalled about GBP 11 million (about USD 16.67 million).
In March 2000, a local court in Nantes determined that the owner’s and his
P&I club’s (Steamship Mutual) tonnage limitation under the CLCProtocol
amounted to GBP 8.6 million (about USD 13.03 million). The total maximum
amount available for compensation under the international instruments at the
time of the disaster was GBP 124 million.
As of Dec. 31, 2007, more than 7,000 claims for compensation had been
submitted to IOPCF, for a total of GBP 155 million (about USD 310.26 million). By that date, 99.7 percent of the claims had been assessed. Payments
Total’s Thierry Desmarest and Bertrand Thoulin
In early January 2000, the chairman of Total, Thierry Desmarest, told the press that Total had set aside 50
million French francs to cover cleanup costs after the Erika accident. Their contribution to the compensation
to the pollution victims amounted to about 120 million French francs. Total had chartered Erika to carry its
oil, and the chairman called for a massive increase in the liability for shipowners to cover the expenses caused
by such casualties. The shipping manager, Mr. Thoulin, conceded that he was shaken in his belief that the
290
TANKERS,
BIGwithin
OIL & POLLUTION
LIABILITY
chartering
system
the oil company
group was good.
had been made in respect of some 5,900 claims representing GBP 95 million
(about USD 190.15 million). About 1,000 claims totalling up to GBP 23 million (about USD 46.03 million) had been rejected.
Several disputed claims resulted in judgements rendered by French courts.
Erika was a small tanker. Many of these judgements related to claims for loss
of earnings suffered by parties whose property had not been polluted (pure
economic losses). In view of the uncertainty as to the total amount of claims
arising from the incident, the IOPCF decided in July 2000 that the payments
should be limited to 50 percent of the damage actually suffered by the
claimants. In 2003, the level was increased to 100 percent.
Among the various claims that was approved was one from France’s
Brittany Ferries. The shipping company had suffered disruption of its ferry
services and succeeded in convincing the Fund that the consequential loss was
a direct result of the pollution incident.
As a condition for approval, the IOPCF adhered to a number of rules agreed
on by its governing bodies.
The starting point was that a claim was not admissible for the sole reason
that the loss would not have occurred had no oil been spilt. The following
elements should be taken into consideration before approval:
“the geographic proximity between the claimants activity and the
contamination, the degree to which a claimant was economically dependent
on an affected resource, the extent to which a claimant had alternative
sources of supply or business opportunities, the extent to which
a claimant’s business formed an integral part of the economic
activity within the area affected by the spill.”
The judgements rendered by the French Courts related mainly to loss of
earnings suffered by parties whose property had not been polluted. Claimants
questioned the application and justification of some of the principles listed
above. In some cases, IOPCF was ordered to pay compensation. However, in
most of the proceedings, the Fund’s interpretation was upheld. Several claims
were, however, still pending in 2007.
Separate actions in court were brought against the shipowner by a number of
public and private bodies, including Total and the French State. However, most
of these claims, other than those of the government and the oil company, were
settled. France also brought action against the shipowner, Panship, IOPCF and
291
Total, claiming about GBP 128 million (about USD 256.16 million). The
picture was most complex, suffice perhaps to add that Total in turn took legal
action against the shipowner and IOPCF and others, claiming some GBP 96
million (about USD 192.16 million).
Whilst the shores were cleaned and compensation claims discussed, a criminal
investigation was commenced by an appointed magistrate in Paris. From 2000
to 2003, criminal charges were brought against several individuals including
the master of Erika, a representative of Tevere Shipping, the president of Panship, one of RINA’s managers, representatives of the French Navy who was
in control of the traffic off the coast of Brittany, as well as RINA and the Total
group. They were charged for “maritime pollution, endangering life and complicity in endangering life.” After four years of investigation, it was announced
that the trial would begin in 2005.
But there were delays. The criminal proceedings finally started in February
2007 and were meant to last until June. It seemed that everybody was blaming
each other of negligence. The case was seen as one of the most complex in
French legal history. According to the judges, no final judgement could be
expected before the end of 2007 at the earliest. The Court ruled against
RINA’s bid for immunity on the same terms as the flag state, Malta, whose
right as a sovereign nation was not disputed.
During the hearing, it was claimed that the amount of steel plating to carry
out the repairs in 1998 was massively reduced to cut the bill of the shipyard.
The steel plates required had originally been estimated to 273 tons, but the
final bill showed only some 73 tons. According to one of the first parties to
testify, the Secretary General of the International Federation of Shipmasters’
Association, Rodger McDonald, port state control in Dunkirk had not done
its job properly. It had the authority to prevent the unseaworthy tanker from
sailing, but had failed to do so. He implied that the port should be arraigned
with other defendants at the trial.
There were heated exchanges when the Court was informed that BP had
declined to approve the tanker after carrying out a vetting inspection less than
three weeks before the accident. Moreover, Total had to accord that the 12
months’ approval of Erika had run out when it took her on charter for the
last time. It probably did not help that the group insisted that this did not
mean that it was prohibited from chartering a vessel with a hidden defect not
possible to detect.
Total was also faced with the assertion that it had effective operational con-
292
trol over Erika during its last voyage. Reference was made to the voyage
instructions warranted by the charter party and concluded between the oil
company and the commercial manager of the tanker. But the head of the shipping department, Mr. Thouilin, insisted that there were only three parties responsible for the calamity: The owner, Malta and RINA. He was supported
by the last Total vetting inspector, who visited Erika and told the Court that
she was “quite well-equipped.”
When the long-awaited criminal trial of those accused opened, the court heard
several expert witnesses who supported RINA and alleged that a hidden weakness in its hull and not corrosion caused the collapse of the tanker. Moreover,
she could have been saved if appropriate action had been taken when she first
got into difficulties. The master’s decision to rebalance the ballast tanks had
probably increased the stress on the hull and contributed to the collapse.
The owner, Mr. Savarese, who had been largely absent from the media when
summoned by the court, was now facing serious criminal charges and a bail
of EUR 1 million on his head. He had argued that the responsibility rested not
with him, but with Malta, under whose flag Erika sailed, and with RINA.
Mr. Savarese saw no reason not to be blunt and stated:
“A lot of people behaved in an extremely bad way. I paid RINA to certify
my ship. I paid RINA to verify that my ship was in proper condition.
They did verify that my ship was in a proper condition. If, as some people
are alleging, there was a structural problem, they should have been able
to spot that there was a structural problem. If they give me clean bill of
health on my ship, I am allowed to trade that ship!”
The owner’s former technical manager, Captain Pollara of Panship, had been
compelled to maintain a fairly high profile during the time passing since
December 1999. He had dismissed the official report by the French accident
investigation bureau as partly wrong, partly incomplete and partly as an effort
to defend domestic institutions. In the courtroom, he became irritated again
when was asked for an explanation of why he had flown the crew out of
France after the accident. He denied that this was done to escape questioning,
claiming that there was a “revolutionary climate” surrounding the crew at the
time and the authorities were looking for “heads to cut off.”
293
A witness with particular expertise in the application of the International
Safety Management (ISM) Code told the Court that after his investigation, he
had no negative remarks with respect to Panship’s safety management system.
Two technical experts Panship called upon came up with more defence. One
criticized the theory that corroded steel structures had caused the breakup of
Erika. Instead, he supported Captain Pollara’s theory that further to the
stormy weather, “sloshing” – violent movements of the cargo and ballast water
within the tanks – had resulted in a massive crashing back and forth and placed
substantive stress on the steel structure.
Captain Mathur was briefly detained in a French jail after the loss of Erika.
He had been released on bail, but was not present in the Tribunal de Grande
Instance in Palais de Justice when he on the first day of the hearing was called
by the President of the Court Jean-Baptiste Parlos to give evidence. From his
home in Bombay, Mathur had questioned the French legal system, which had
singled him out as the person who had to go to prison.
When the young captain, who had no previous experience in Atlantic waters, suddenly appeared in the courtroom in March, his lawyer claimed that
his defence rights had not been respected. Moreover, penal proceedings against
him had also started in India, and he should not be charged twice. But to no
avail. He came soon under fire and was faced with an explanation from Admiral de Monval, who told that the Coast Guard centre in Brest had considered Erika as no emergency after Captain Mathur had cancelled his first
Mayday signal and informed that he had the situation under control. Valuable
time was thereby lost. Other witnesses claimed that the tanker could have been
saved had it been handled differently by its master. The Captain sprung a new
surprise when he announced that he would sue RINA for having put his life
in danger. He said he was also considering claims against Mr. Savarese and
Captain Polara.
In June 2007, the criminal prosecutors called for a fine of EUR 10,000 (about
USD 13,340) for Erika’s Indian captain because he noted anomalies from the
start, but as his whole crew was saved, the charges of endangering lives were
dropped. One year in jail and the maximum of EUR 75,000 (USD 100,800)
each were suggested for the tanker owner, Mr. Savarese, and the manager, Mr.
Pollara. They were both accused of reckless negligence and putting people’s
lives in danger.
294
In mid-January 2008, a milestone was passed when the
Paris Tribunal de Grande Instance published a clear-cut
judgement after more than six months of proceedings.
A number of contributory causes were found to have
resulted in the loss of Erika and the subsequent pollution disaster. Whilst the master and other individual
defendants were acquitted with the exception of the
owner and the manager, RINA was found guilty of failure to show due caution when it declared the Maltese
registered vessel seaworthy. Total was deemed to have
been imprudent from its failure to find the ship unfit for
service during its vetting process. The oil company and
RINA were each fined nearly USD 560,000. The criminal charges against the head of the Total’s shipping department, Mr. Thoulin, as an individual were not
approved.
The Italian shipowner and the manager, Mr. Savarese
and Mr. Pollara, were both found guilty of the oil
pollution Erika caused, and a fine was imposed on each
of them at the maximum penalty set by law for individuals, which was EUR 75,000 (USD 100,800).
It may have been the first time a European court has
held a charterer of a tanker responsible for pollution
caused by a tanker accident.
A London-based lawyer at Clyde & Co commented
after the ruling of the French court: “Charterers and
ship managers of all descriptions should be careful, as
they are likely to find themselves more liable for prosecution in pollution cases.”
The judges did not, however, directly pass sentence
on whether Total in its capacity as charterer was immune to sanctions under international maritime conventions (the ’84/’92 Protocols). They circumvented the
difficulty by holding it liable for the ship’s “vetting.”
Total had neglected the age of the ship, the low standard
of its technical management and its maintenance.
© Michael Lipchitz / AP / Scanpix
Captain Karun Mathur
of Erika
Captain Karun Mathur was the
Indian Captain of Erika, fully
crewed with Indian seamen.
Certain people made efforts to
make him a scapegoat of the
catastrophe, but as usual in
such cases, a number of players
were involved. He was one of
the very last people to leave the
vessel when the crew was
rescued. No human lives were
lost. The cargo owner Total’s
office could not be reached
when Mathur contacted it in
the early morning when it
became clear to him what was
in offing. A Total executive
contacted the Captain about
two hours and 50 minutes later.
At that time, everyone apart
from the maritime authorities
knew that the situation was
desperate.
295
According to newspaper reports, after two weeks of consideration, Total decided to appeal the verdict. This was reported to have caused very strong reactions from environmental organizations that now also would lodge appeals
in efforts to obtain higher awards for the damage to nature.
One of several other “Erika lawsuits” which Total faced was in the centre of
the media attention in the early summer of 2008. It was reported that the
French coastal region of Mesquer tried to use the EU waste directive to hold
the oil major further responsible. The claim had no legal relationship to the
judgement passed by the Paris Tribunal in January, when Total was ordered
to pay for the incident. Mesquer received half a million Euros in that decision.
France’s Supreme Court did not dismiss the new claim from Mesquer, but
asked the European Court of Justice (ECJ) to decide whether, under the directive, it was for the producer of the oil, the seller or the carrier who had to pay
for clean-up. ECJ’s 13-judge panel ruled in June 2008 that the shipowner
should be regarded as having produced the waste, but the national courts
could hold Total responsible if it had “failed to take measures to prevent such
an occurrence, such as measures concerning the choice of the ship.”
Long before the criminal investigations were commenced, IOPCF concluded
that it had to protect its legal position in particular to prevent that potential
recourse claims became time-barred. Hence, the Director was authorised to
challenge the owner’s right to limit his liability. In December 2002, recourse
actions were brought in a French Civil Court against a number of parties involved, including Tevere Shipping, Panship and Total.
The CLC92 Protocol precludes claims for marine pollution damage against
a number of other parties than the owner, such as the charterer, but cargo
owners and classification societies were not among these parties. In principle,
the potential liability of a classification society would normally fall within two
categories, either negligence or breach of contract. Thus, the Fund Executive
Committee authorized the director to bring action against RINA and the
French classification society Bureau Veritas when it became known that the
society had inspected Erika prior to the transfer of class to RINA. Further
legal steps were, however, postponed until the criminal trial had been terminated.
As the buck-passing and finger-pointing continued during the criminal
proceedings in Palais de Justice, the EU transport committee had rejected a
proposal from an Italian member to limit liability for classification societies.
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A plea from the chief executive of the American Bureau of Shipping (ABS),
Robert Sommerville, was also ignored. He feared that unlimited liability would
ruin his and other classification societies within a matter of time. ABS was at
the time involved in a legal dispute after one of its classed tankers had caused
serious pollution in Spanish waters.
In response to the public/political outcry for measures that could prevent similar accidents in the future, the French government and the Commission of the
EU had in the wake of the accident called for new measures to improve marine
safety and the position of pollution victims. In March and December 2000,
the Commission put forward the so-called Erika I and II packages to bring
about the necessary improvements. Timetables were agreed on for phasing out
single-hull tankers, and directives were issued providing for stricter control
for ship inspection and classification societies. It was in no way given from
above that Europe would wait for IMO to act. The Erika II package established a Community vessel traffic-monitoring and information system and a
new European Maritime Safety Agency (EMSA) to monitor the implementation of the safety regulations and standarise the response to accidents.
Within the European Union, the discussion continued on regional regulations
to improve marine safety and protect the environment. But progress was slow,
and in November 2002 the transport and energy commissioner Loyola de Palacio seemed to have lost some of her fighting spirit. According to Tradewinds,
she did not think countries would speed up the phase-out programme of
elderly tankers. “EU-member states are already dragging their feet over
existing legislation,” she complained.
Hence in February 2004, only a handful of EU countries stood ready to introduce the second package of regulations; some had not even managed to
implement the first set of safety rules. Nevertheless, the Commission continued
its work and presented a third “Erika package” in November 2005. It
comprised seven additional legislative measures, including a re-definition of
the pollution liability concept and increased shipowners’ liability.
The ICS urged the EU governments to “veto” the two most controversial
proposals in the Erika III package.
Focus was on the civil liability directive that threatened to undermine the
principle of limited liability, as it seemed to transfer sovereignty from the flag
state to Brussels. The industry felt furthermore particularly provoked by a
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directive imposing criminal sanctions in respect of accidental pollution at sea.
Various shipping bodies challenged the validity of the Directive as conflicting with internationally agreed instruments. The coalition scored the first victory when the High Court in London mid-2006 decided that their case should
be heard before the EU’s Luxemburg-based European Court of Justice (ECJ).
A one-day oral hearing was held in the fall the following year. The coalition,
which INTERTANKO now led, presented its case. But to no avail, in June
2008, ECJ delivered its judgement, holding the main provisions of the Directive valid.
In Spain, the government was encouraged by the Erika judgment and appealed
a US First District Court ruling that had dismissed its USD 1 billion lawsuit
against American Bureau of Shipping (one of the biggest classification
societies) over the Prestige casualty. The appeal used RINA’s conviction as
case law.
In France, further to the appeals, the Criminal Court of Appeals in Paris began
hearings in October 2009. During the following seven-week hearings, Total
argued that oil companies couldn’t be bound to check the work of classification societies. But most appeals were in vain. The Appeals Court upheld the
criminal law judgements from 2008 and confirmed the fines imposed. Regarding civil liabilities, the Court held that RINA, in issuing statuary safety certificates, had acted as an agent of Malta – the flag state – but could not take
advantage of the state’s immunity because it had not been invoked in an earlier
stage in the proceedings.
The Appeals Court found, however, that Total de facto was the charterer
of Erika and could therefore benefit from the channelling provision in CLC
Article 4 IIIc. Despite the oil company’s sloppy control of the tanker, its failure
could not be considered as having been committed “with the intent to cause
such damage; or recklessly and with knowledge that such damage would
probably result.”
The judgement is not supportive of the guidelines the IOPCF Fund has
worked out in order to quantify “pollution damage.” The French interpretation goes well beyond the strict definitions applied by the Fund. The Criminal
Court accepted the right to seek compensation for “pure environmental
damage.”
The Erika accident and the subsequent situation were also carefully studied
in Japan. A submission to IMO drew attention to similarities with a rusty
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tanker that had collapsed in Japanese waters. It was suggested that tougher
requirements should be introduced worldwide on the structural integrity of
tankers, including a maximum 15 percent corrosion tolerance limit.
IMO’s committee on the protection of the marine environment also received
proposals from European countries that would accelerate the phase-out of elderly single-hull tankers. The age limits suggested were less than those agreed
by IMO in 1992 and included categories of tankers, which, on account of their
size, were not covered by the mandatory requirements for double hulls or the
approved alternatives.
Some sceptics questioned the impact such legislation would have – if implemented – on the world tanker fleet’s ability to ensure that supplies of oil could
meet global demands. But Secretary General O’Neil welcomed the proposals.
Fully aware of the preference in some quarters for regional solutions,
he stressed:
“Any attempt to impose regional standards will simply divert the problem
elsewhere. If the European Union, for example, imposes its own restrictions
on tankers, we should not expect the sub-standard ships that are displaced
will go straight to the scrap-yard. They will move to other areas such as
Asia and continue trading.”
Notes:
On Erika, see the IOPCF annual report 1999-2007; IMO publication World Maritime Day 2000; INTERTANKO Briefing Notes for the Monte Carlo Tanker Event April 9 to 13, 2000; BBC News: “The
scandal of Erika,” July 24, 2008; and Lloyd’s List Tanker Safety Supplement, May 17, 2000. Also see
Lloyd’s List through January 2000, Feb. 9, 11 and 12, March 3, April 10 and June 5, 2000, Oct. 24,
2004, Dec. 16, 2005, July 6, 2006, March 14, 2007 and Jan. 16 and 31, 2008; Fairplay, April 11, 2002,
and Feb. 5, 2004; Tradewinds, July 12, Nov. 22, 2002 and Jan. 25, 2008. See the Judgment dated Jan.
16 of the Paris Court Of First Instance, 11th Chamber – section 4.
In July 2009, it was reported that further to the appeals, a Paris court would begin hearings in October
2009. During the following seven-week hearings, Total argued that oil companies cannot be bound to
check the work of classification societies.
The appeals were in vain. The appeals court upheld the judgments from 2008. But the last word is not
yet said, as it expected that a further appeal to the Supreme Court may be expected.
Exchange rates for Euros to USD were calculated based on historical rates found at http://www.
oanda.com/currency/historical-rates.
For details on EMSA, see home page: “Agencies of the European Union”
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II. CASTOR AND PRESTIGE - PLACE OF REFUGE
The right of a coastal state to take action to protect its coastline from maritime
pollution was now well established in international law. On the other hand,
there was no doubt that it was acceptable for a foreign ship to enter the internal waters of another state in a situation of distress to protect human lives.
The dilemma came to light on New Year’s Eve 2000 in Spanish waters,
when heavy weather came close to tearing the Liberian flag tanker Castor
apart. On a voyage from Constanza to Lagos with a cargo of 28,000 tons of
unleaded gasoline, Castor suffered damage to the hull, resulting in a 26-meter
crack half way along its length.
After the initial heavy damage, the President of the American classification
company ABS, Robert Somerville, told the press:
“this vessel has been subjected to an extreme force 12 gale with wave
heights in excess of eight meters without any further deterioration in its
structural condition. Over the last 30 days, it had been towed 1,000 miles
across the Mediterranean, remaining intact without losing any cargo or
causing any pollution. Only a remarkable robust, well-maintained vessel in
stout structural condition could withstand such a beating and still deliver
its cargo safely.”
In a subsequent annual report of ABS, the description of the weather was toned
down a bit.
The coastal states in the area deemed Castor to represent a serious risk of
explosion and a serious potential polluter. Hence the authorities of nine
countries, including Morocco, Algeria, Greece, Tunisia, Gibraltar and Spain,
refused the tanker refuge as salvors towed it through storms in search of
sheltered waters.
Still, it ended well. Early February 2001, the salvage company Tsavliris
could announce that after five weeks of battle and a risky operation, the cargo
onboard the stricken ship was safely pumped onto another tanker in the
exposed waters of Malta. No oil pollution happened, and no lives were lost.
The crew on board was evacuated and brought to Spain. At the end of the
day, it turned out that the fatal crack was caused by “hyper-accelerated”
corrosion of the hull.
Steel thickness and corrosion had never been on the top of IMO’s working
agenda. Concerned about the experience with Castor, IMO’s Secretary
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General was instead swift to suggest that the organization should deal with
the “place of refuge” problem.
The problem had already been discussed in the media. During the salvage
operation in March 1967, Prime Minister Wilson had told the press that if
Torrey Canyon was refloated, his Government reserved the right to refuse her
entry into UK territorial waters.
Castor had demonstrated the need to designate places where damaged ships
could seek shelter. In the interest of a cleaner environment, the Secretary
General invited members of IMO to find a solution: “Taking into account the
non-mandatory character of the approach envisaged by IMO, I am confident
that any concerns can be alleviated and that the matter will be tackled in
IMO’s usual successful manner,” he said.
In 2002, a new disaster confirmed the need for such action. Regrettably,
however, little or no progress had been made with respect to the “place of
refuge” proposal. The result was that when a Bahama-flag tanker, Prestige,
broke in two and later released some 25,000 tons of crude oil into the Atlantic,
no progress had been made.
Guidelines on places of refuge were in 2003 worked out by IMO (Resolution
A.949), but the difficulty with implementation was the lack of incentive for
governments to designate such “safe havens”. To provide a real incentive –
such as a special salvage award – would require changing international law,
which is a very time-consuming process. Nevertheless in 2003 the UK Marine
Safety Act directed the Secretary of State’s Representative for Maritime Salvage
(SOSREP) to locate places of refuge as appropriate anywhere around the UK
coast. It was, however, considered unwise to pre-emptively list the particular
places as each incident would have its unique character.
According to the legal advisor to the International Salvage Union, Archie
Bishop, it is commonly accepted within the industry that Prestige and much
of her cargo could have been salvaged had a place of refuge been granted. On
Nov. 13, 2002, the Bahamas-registered tanker – loaded with a cargo of 77,000
tons of heavy fuel oil – suffered structural damage on her way to Singapore,
30 km off Cape Finisterre at the north-west coast of Spain. This was roughly
the same area where Aegean Sea had grounded 10 years ago, and the compensation claims had just been settled when the new accident was reported.
Prestige went down some 200 miles west of Vigo. This Spanish town happened
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not only to be the base for more than half the domestic fishing fleet, but also
the main port for fishing vessels in all of Europe. Also shellfish harvesting and
various forms of aqua culture were important industries in the area.
The owners of Prestige, a company registered in Liberia, remained veiled, but
were believed to be hidden behind a single-purpose company called Mare Shipping, associated with a foundation the late Greek shipowner John Coulouthros
set up. Despite the name, the group was not linked with the London-based
Coulouthros Shipping Agency, which in the past had suffered the loss of
Aegean Sea. The tanker was managed by Universe Maritime through its office
in Athens. Here decisions were made by Captain Michael Margetis, who soon
proved to be rather reluctant to provide information to the media. There were
many initiatives after the accident. Among them, French President Jacques
Chirac demanded and Spanish Premier Jose Maria Aznar pushed for greater
ownership transparency instead of the current “shady” structure in international shipping.
Prestige was 26 years old, with a single hull like Erika, but double her size
– about 42,000 gross tons. She was entered with the London Steamshipowners’ Mutual Insurance Association Ltd. (the London Club) and had been
deployed as a storage tanker off St. Petersburg prior to her fateful journey.
The charterer Crown Resources was one of the major oil traders in Russia.
She began listing and leaking oil and drifted three miles in heavy seas off the
coastline before salvors were able to secure lines onboard. Spain flatly refused
a plea from the management to allow the stricken tanker to find a place of
refuge close to shore. Following orders from the Spanish Government, she was
instead towed into deep waters. Whilst under tow, she broke in two and sank,
having released about 25,000 tons of the cargo. Oil continued to leak at a
declining rate from the wreck. All in all, it is estimated that the leakage
amounted to more than 60,000 tons.
At the end of 2002, the north-west coast of Spain – with numerous beaches –
had been seriously polluted. The coastline was, and still is, an attractive tourist
destination, and the hotels, restaurants and other parties involved feared heavy
economic losses. Contamination by the escaped oil made the local government
impose a ban on fishing and use of the marine resources in places extending
eight to 10 miles offshore. A number of onshore fish farms and other industries
that were dependent on regular supplies of clean seawater found themselves
in deep trouble. In some cases, the situation was so serious that seafood stocks
had to be destroyed. However, in 2003 the situation improved, and in October
the authorities had lifted all fishing bans.
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© Spanish Navy Press / AFP / Scanpix
Prestige
Because of the highly persistent nature of the cargo, the
oil had moved as far as the Bay of Biscay, polluting a
part of the French coast. For a short period, early 2003,
the French authorities imposed a ban on the sale of
shellfish from the Arcacon Basin. Even the UK was
affected, as some minor traces of oil were detected on
the shores of the Channel Islands.
An armada of oil recovery vessels from a number of
European countries participated in the clean-up operations. About a thousand fishing vessels assisted them.
A large workforce comprising local government and
military personnel, contractors and volunteers handled
manual clean-up of the shoreline. Some 5,500 personnel
were engaged in the months following the accident.
At the end of 2003, the Spanish government decided to
try removing the oil remaining in the wreck. A contract
was signed with Repsol, which commenced the work in
The 26-year-old, single-hull
tanker Prestige broke in two
and released 25,000 tons of its
oil cargo in the Atlantic in
2002. The Spanish authorities
refused Prestige a port of
refuge, and her huge subsequent
spill impacted many of the same
areas in Galicia (Spain) that
were polluted by the Aegean
Sea a decade earlier. Also, part
of the French coastline was polluted. It thereby seemed clear
that the post-Erika legislation
had failed to prevent disaster
caused by “single-hull pariahs.”
The result was new hefty discussions in IMO and among
European politicians about
what steps had to be taken.
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May 2004. After four months, some 13,000 tons of cargo were successfully
removed from the forepart of the vessel. The remaining oil was treated by biological agents aimed at accelerating the degradation of the oil.
But, in February 2004, only a handful of EU countries stood ready to introduce
the second package of regulations; some had not even managed to implement
the first set of safety rules. Nevertheless, the Commission continued its work
and presented a third “Erika package” in November 2005. Five years later,
by Nov. 20, 2010, EEC member states were required to implement it into domestic law. The third package is made up of eight regulations and directives
which include measures dealing with quality of flag, standards for classification societies and port state control.
Notes:
On Castor and Prestige, see ABS press releases May 16 and 30 and June 2003; Jack Devanney: “The
Tankship Tromedy,” Florida, 2006, pp. 67-72; News Updates Marine log, Feb. 9, 2001; Professional
Mariner, April/May 2002; Lloyd’s List, Feb. 9, 2001, Aug. 5 and 6, 2004, Dec. 6, 2006 and Jan. 29,
2008; Fairplay, May 22, 2003, Nov. 24, 2005 and Nov. 11, 2006; Tradewinds, Dec. 6, 2002, Nov. 29,
2003, Dec. 8, 2006, Jan. 4 and 11, 2008; Reuters, Jan. 2, 2008 and Daily News, Jan. 11, 2008. See also
an article on “The Prestige In The Courts” by Prof. Dr. Miguel Michinel of the University Vigo in Spain,
IOPCF annual reports 2002 to 2009 and European Parliament resolutions on Prestige in 2002, Crispin,
Gill, Soper: “The wreck of Torrey Canyon,” London, 1967, p. 39 on Harold Wilson’s threat in 1967:
“To refuse her (Torrey Canyon) entry into British territorial waters.”
After six years of proceedings, in March 2009, a Spanish Judge concluded: “It is not the case that
the decision to send the ship was an aggravating factor to the risk already present. ... There was
no other option but to deny it (refuge).” See Lloyd’s List, March 25, 2009. In the US, the
proceedings were allowed to continue. The US government filed an “amicus curiae brief” in favour of
Spain. See Lloyd’s List, March 26, 2009 and Tradewinds, March 27, 2009. Regarding Places of Refuge
in the UK, see home page “Maritime and Coastguard Agency.”
III. DRACONIAN MEASURES
REQUIRED?
Under the current IMO “phase-out programme,” the 26-year-old Prestige
could have gone on trading for several more years. Now the interest of the
media was enormous. It was claimed that the spill was a carbon copy of Erika.
Single-hull tankers over 20 years old were labelled “single-hull pariahs.”
Prestige was approved for hydrostatically balanced loading, a technique
available to single-hull tankers to prevent oil pollution in case of hull damage.
Even if this solution works fine in the event of grounding or bottom damage,
it seemed to not function if a breach occurred in the hull plating, which seemed
to be the case with Prestige.
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Questions were asked how a tanker classed and controlled by one of the leading classification societies, the
ABS, could break up and cause one of the biggest environmental disasters of recent times. The press concluded
that the post-Erika legislative programme had failed, or
as Labour’s European transport spokesman Brian Simpson described it: “too little, too late.”
The European port state inspection seemed to have
failed, as well. The Commission sent letters to the UK
government because it allegedly failed to inspect Prestige
in Gibraltar and to Greece for failing to inspect the
tanker when it stopped in a domestic port for bunkers.
But the countries replied that they had no such duty
with respect to vessels in transit when no complaints
had been received.
Once again, it became clear that a huge gap was opening
between the massive claims that were in prospect and
the relatively modest compensation available under the
IMO instruments. The damages were likely to exceed
those of Exxon Valdez. The limitation amount applicable to the owners of the tanker was about GBP 15 million and adding money from IOPCF, the total amount
available for pollution victims was about GBP 115 million.
The growing pressures on the authorities to be seen to
act with more determination persuaded the French President Jacques Chirac to come forward and call for “draconian measures.” In November 2002, he said,
according to Tradewinds:
French President Jacques
Chirac (1995-2007)
Subsequent to the Erika and
Prestige disasters, French
President Jacques Chirac did
not hesitate to make strong
public statements about his
perception of the oil and shipping industry with respect to
environmental issues. In the
photo, he seems to be inspecting ducks which have been
exposed to pollution. He called
for draconian measures to stem
the laxity that permitted such
vessels as Erika to carry on.
“I am horrified by the inability of those in charge,
politically, nationally and particularly at the European
level, to take action to stem the laxity that permits
these ships fit only for the dustbin to carry on. Now
we must urgently take draconian measures, even if
they harm the interests of certain companies whose
interests are not worth defending.”
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At the time, Denmark was the only EU country that had
ratified the Erika I package. The transport and energy
Commissioner Ms. de Palacio seemed disillusioned and
told the press that the recent experience had shown that
EU members were “dragging.” Under her original tough
“phase-out scheme,” Prestige would have been scrapped
in 2001.
© Yves Logghe / AP / Scanpix
Loyola de Palacio
y del Valle-Lersundi
Loyola de Palacio y del ValleLersundi (Sept. 16, 1950 to Dec.
13, 2006) was a Spanish politician. She was elected to the
European Parliament in June
1999 and joined the European
Commission the same year as
Commissioner for energy and
transport. The Erika incident
and the following opposition
from the shipping industry to
an early phase-out of single-hull
tankers made her very annoyed.
“We have found no plausible
explanation why the European
Commission should not act
when it comes to protecting its
coast and its population,
especially when the US has
already taken similar measures,”
she said. As a response to the
public outcry, the European
Commission put forward several
legislative passages to improve
marine safety and to protect
against marine pollution (“Erika
packages I, II and III”).
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In many quarters, it was claimed that the salvage efforts
had been undermined by the “desperate action” of the
Spanish authorities to refuse the vessel refuge and chase
her as far away as possible. Spain rejected such accusations, probably feeling that the country once more had
to “show muscles.” Information leaked to the press that
the country together with France and Portugal was considering prohibiting single-hull tankers to carry heavy
fuels within their 200-mile EEZ. Such steps would be a
breach of international law.
According to a press report, the ban was implemented
and enforced by warships by the three states.
IV. COMPENSATION CLAIMS
AGAINST THE CLASSIFICATION
SOCIETY
By April 2003, insurers had paid out USD 7 million for
the loss of Prestige. The settlement followed an agreement that the tanker was lost as an insured peril of the
sea rather than due to lack of maintenance or other
causes that could have prejudiced the claim. The most
likely reason, according to the classification society ABS,
was that the tanker could have sustained unreported
damage to its shell plating during the lightering activities
prior to the fatal journey.
At the end of 2006, ABS was the third-largest class
society, with a classed fleet of over 10,000 commercial
vessels and off-shore facilities. The records showed that
a sister ship to Prestige suffered hull damage back in 1989 after a similar commission. But according to the ABS President Mr. Somerville, the damage leading to the loss was unlikely to be definitively identified either at the time or in
the future.
Fronted by their organization IACS, the classification societies had consistently
argued that they had no legal liability for such consequences of their survey
activities. This argumentation did not impress the Spanish government, which
hit the company with a USD 700 million “gross negligence suit” for declaring
the tanker seaworthy when it was not. The society’s survey of the tanker was
claimed to be flawed. The inspection had failed to detect corrosion, permanent
deformation, defective materials and fatigue. In short, ABS was accused of
gross negligence when granting renewal of the classification certificate. A suit
was filed in the Federal Court of First Instance in New York in May 2003. A
reservation was added to allow the claim to be increased when the total
amount of damages became clearer. The reservation related in particular to
the environmental damages which had not yet been assessed, as well as to the
loss of earnings from tourism and other costs.
In June 2005, lawyers acting for the Spanish government revealed to the press
that they would raise the claim against ABS to USD 2.5 billion, more than
three times the amount originally demanded. To exclude ABS from doing
business in Europe, Spain had moreover announced that it would submit a
formal request to the European Commission to have the recognition of the
classification company revoked within the European Union. A dossier was in
this connection sent to Brussels, listing recent maritime casualties involving
structural damage on vessels ABS classed (including Castor).
ABS refuted the allegations and presented a counterclaim against Spain,
arguing that the pollution damage could be directly attributed to the
government’s failure to activate an oil spill contingency as required by Spanish
law. The government response by not assuming control of the tanker, refusing
the request of a place of refuge and not moving the vessel to a place where the
cargo could be off-loaded – instead ordering Prestige away from the coast in
deteriorating weather – all amounted to gross negligence. Moreover, Spain
contravened its obligations under the 1989 Salvage Convention by delaying
access to the vessel by professional salvors.
With respect to the ABS counterclaim, however, the New York Court agreed
with Spain that the State was entitled to immunity by the Foreign Sovereign
Immunities Act. The society suffered a double blow when it failed to have a
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claim – brought by the Basque government – dismissed by the Federal Court
in Houston, Texas. But the decision was later overturned, and the Basques
withdrew their USD 50 million claim after an agreement was sealed to join
forces with the central government of Spain.
All classification societies followed the dispute closely not only because of the
huge claim, but because it could set a precedent that would expose the business
of the societies to the constant risk of bearing the liability for ruinous compensation claims for big-dollar casualties.
During the legal battle, rumours surfaced, according to Lloyd’s List, that
the ABS executives had been hugely rewarded (amounting to millions of dollars), despite an apparent shortage of resources to hire surveyors. An apparent
suicide of the chief financial officer of ABS mystified the issue further.
The case took a new dramatic turn in January 2008, when it became known
that the Southern District Court of New York ruled in favour of a motion for
ABS filed in 2005 and threw the billion-dollar claim from the Spanish
Government out of court. The judge, Laura T. Swain, came under heavy fire
for having let the decision rest for several years and then dismissing it on
jurisdictional grounds. Classification societies are not among the parties listed
in CLC84/92 expressly exempted from liability like, for example, the charterers. But to seek immunity against pollution liability claims, representatives for
classification societies have argued that they should be entitled to the same
legal position as flag states, as they are indeed carrying out statutory functions
on behalf flag states. Instead, the District Court seemed to accept that ABS fell
in the category of “any other person who performs services for the ship” under
Article III.4B of the 1992 CLC and thereby may enjoy protection similar to
pilots. However, judge Swain confined herself to declare that Spain as
signatory to CLC is bound by the provisions therein and had to pursue its
claim under that convention in its own courts. US courts lacked the necessary
jurisdiction to adjudicate the case, she said. Lawyers in another case Swain
was handling were reported to seek the appointment of a new judge, citing
years of delays and decisions which they regarded as similar to her performance in the Prestige case.
A strongly worded appeal from Spain followed. Then the press reported that
after a brief internal skirmish, Spain decided to engage a new legal counsel to
defend its interests. In June 2009, the Court of Appeals reversed both the
dismissal of Spain’s claim as well as ABS’s counterclaims. The case was sent
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back to the District Court for further consideration, and a hearing took place
in May 2010. ABS argued that there was no evidence of reckless behaviour
on their part, and in any case unlimited liability based on ordinary negligence
could destroy the international classification system. Spain argued that ABS
was aware of certain serious deficiencies in its control system and – knowing
these risks – the company should have addressed the problem. If Prestige had
been properly examined, the disaster would not have happened.
In a new summary judgment published in August 2010, Judge Swain once
more ruled in favour of ABS. She found that a class society performing services
for a shipowner cannot be held responsible “to an injured coastal state on the
basis of reckless certification-related conduct.” The next month, nearly eight
years after the breakup of Prestige, it became clear that the Kingdom of Spain
once more had appealed the decision of Judge Swain to a federal court.
The Exxon Valdez legal drama continued for 19 years. The battle about
compensation for pollution damages after the Amoco Cadiz spill lasted from
1978 to 1992. The Prestige dispute might go on for years. How long is
anybody’s guess.
V. IOPCF POSITION
The breakup of the Prestige was expected to produce the biggest claim since
the Exxon Valdez.
On the basis of the damage reports, the IOPCF director, Mr. Jacobsson,
estimated that the potential total claims could amount to nearly GBP 700
million (about USD 1.14 billion). In view of this prediction and the uncertain
level of admissible claims, the Executive Committee of IOPCF decided in May
2003 that the level of payment to victims for the time being should be limited
to 15 percent of the loss or damage suffered by the claimants as assessed by
IOPCF and London Club experts.
Seven years later, in May 2010, the Claims Handling Office set up in
La Coruna received 844 claims – all relating to damage in Spain. The claims
totalled more than 1 billion EUR (USD 1.32 billion). Fourteen claims were
included from the Spanish government, amounting to 968 million EUR (about
USD 1.27 billion). IOPCF rejected more than 300 claims, mainly because the
claimants were not in a position to prove their alleged losses. One claim
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totalling 132 million EUR (USD 174.24 million) from a group of 58 associations representing 13,600 fishermen and shellfish harvesters had been
withdrawn following a settlement with the Spanish Government. The Fund’s
experts disputed a number of other claims.
In France, the Claims Handling Office in Bordeaux had at the same time
received 482 claims. The claims had been assessed at nearly 110 million EUR
(USD 145.20 million) including a claim from the French government for cleanup expenses and preventive measures. This claim alone represented 67.5 million EUR (about USD 89.10 million). The remaining claims included alleged
losses oyster farmers suffered, companies and persons in the fishing industry
and businesses engaged in the tourist sector. Also, the IOPCF experts disputed
a number of the claims France submitted.
In addition, Portugal’s government had been compelled to engage in clean-up
and preventive measures, resulting in a claim for 3.3 million EUR (about USD
4.356 million).
In late 2002, a group of European politicians passed a resolution calling for
the establishment of an additional European compensation fund of 1 billion
EUR (USD 9.84 million) to be implemented immediately.
An urgent overhaul of the international liability arrangement was also called
for “in order to establish a much clearer division of responsibilities between
the various actors in the oil transportation chain.” Among the actors
mentioned were: “the shipping company, the captain of the vessel, the state in
which the vessel was registered and the owner of the cargo) ...,” according to
texts agreed on at the sitting of European Parliament on Nov. 21, 2002.
At the 2004 October session of IOPCF’s Executive Committee, the delegation
of Spain reported that the 15 percent limitations – the lowest in the Fund’s
history – had left the victims in a very unsatisfactory situation. France regretted
to report that at home the Fund’s policy had triggered a reaction of incomprehension and hostility towards the international system. For a number of
the smaller calls, this level did not even cover the costs of preparing the claims
and the time spent answering questions from the experts. But the Executive
Committee’s decision was not changed.
In 2003 and 2004, Spain felt compelled to pass legislation to make available
an additional amount of about 250 million EUR (USD 335.35 million) to the
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victims of the pollution disaster. In turn, the compensated victims renounced
their rights to compensation in any other way and transferred their claims
against IOPCF to the government. Individuals and businesses affected by the
oil spill received aid in the form of loans, tax relief and waivers of Social Security premiums.
In 2006, the Spanish government reported that the European Commission had
decided to make a concession to alleviate the consequences of the pollution.
Spain had received aid of about GBP 34 million (about USD 62.64 million),
and another GBP 22 million (about USD 40.53 million) was pending. As a
consequence, Spain reduced its claim against the IOPCF accordingly.
Also, French victims got governmental assistance when a national scheme was
introduced in 2004 to provide compensation in excess of the amount IOPCF
paid to claimants in the fishery and shellfish-harvesting sector. One hundred
seventy-five claims were subsequently approved, for a total amount of 1.15
million EUR (about USD 1.42 million).
Then in 2005, IOPCF’s Executive Committee authorised the Director to pay
another 15 percent, in other words to increase payments to the three countries
from 15 percent to 30 percent. As a condition, the Fund should receive such
undertakings from the three states that it was protected against any overpayment if this later proved to be the case. In addition, an amount representing
the total compensation payable by the Fund, minus a reserve of 10 percent,
should be apportioned between the three states.
During the previous year, the Executive Committee of IOPCF had considered
whether it should take recourse action against ABS. The delegates were very
aware of the fact that it has proved to be very difficult to pursue classification
societies in court. The societies have relied on the language on the certificates
that disclaims liability for any loss arising out of reliance on these documents.
Moreover, they have been confident that when they are carrying out statutory
functions on behalf of a flag state, they should be entitled to the same immunity as the government they represent.
After a lengthy discussion based on the documentation and opinion the IOPCF
Director presented, the committee found it premature to take action until the
results of the investigations was fully established. Moreover, in view of the
high legal costs which would incur in the US, combined with the risk that an
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action could be unsuccessful, it was found preferable to consider such action
in only Spain and possibly France. A French lawyer had advised that as the
incident occurred on Nov. 13, 2002, a 10-year time bar would be applicable
for a recourse action. This meant that here the Fund could wait till November
2012 to bring an action against ABS.
Spanish legislation differed from French law and provided other procedural
difficulties. In Spain, criminal actions were still pending. When a criminal
action had been brought under Spanish law, action for compensation under
civil law could not be based on the same facts, not against the defendants and
not against other parties, until final judgment had been rendered in the
criminal case. Thereafter, the Fund would have one year to bring an action
against ABS before any such claim would be time-barred. Furthermore, it was
found highly doubtful whether ABS had any significant assets in Spain, and
the enforcement of a positive judgement would represent another problem.
In view of these and other considerations, the Fund agreed with the Director’s
recommendation to reconsider the matter at a future session.
The flag state, Bahamas, undertook an investigation into the cause of the
accident, and the IOPCF Executive Committee reported a summary of the
findings in March 2005. The initial failure was found in several starboard
tanks. The tanks were in such a condition that they had not been in a position
to resist the huge waves. Damage from a recent ship-to-ship transfer of cargo,
or stress from large quantities of new metal being attached to old steel could
have contributed to the weakening of the tanks. Port state controls and a SIRE
inspection gave no cause to believe that an internal inspection of some of the
tanks was required. The tanker would probably have survived had it been
taken to a place of refuge instead of being chased out into the open waters of
the Atlantic. The investigators “found it was difficult to blame the master,” as
Captain Mangouras had acted in a “proper seamanlike manner.”
The Spanish Ministry of Public Works had also carried out an investigation
and provided IOPCF with some very frank comments.
It was inter alia claimed that the Bahamas report was drawn up to reach
conclusions in line with the argumentation of ABS and the auditors of the
International Association of the Classification Societies (IACS). Thus, the
report could not be considered to be independent or impartial. The Ministry
pointed also out that the sea conditions on Nov. 13 could not be considered
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extreme or unusual for the time of the year. There was no evidence of abnormal waves. It was highly likely – as the Captain had believed – that several
bulkheads between the tanks had failed or become badly damaged. No other
ship had at the time reported extreme conditions. Thus, the conclusion was
that the available evidence, including documentation recovered, “allowed Prestige to have been described as “substandard.”
Also, the French Ministry of Transport passed the results of its preliminary
investigation to IOPCF. Problems with aging along with successive repairs
which could indicate structural weakness and result in corrosion were among
the possible causes mentioned. Another factor was the conditions of the tanker
market, which were: “leading to carriage of a substantial part of such heavy
polluting products in old and pre-Marpol ships.”
In April 2010, the French State brought legal action in Bordeaux against the
ABS group to recover costs the French state incurred in the cleanup operations,
totalling 67.5 million SDR (USD 87.75 million). It was argued that the mission
of ABS was to verify the conformity of ships to safety regulations. The Prestige
incident was a consequence of an important structural failure ABS inspectors
had overlooked in 2001 and in 2002.
Note:
Information about the Resolution on the European compensation fund is from the Confederal Group
of the European United Left/Nordic Green Left.
VI. GREEK MASTER ARRESTED
The 67-year-old Greek master of Prestige, Captain Mangouras, with more
than 40 years of service on tankers, had been swiftly and summarily arrested
on Nov. 15, 2002, by the Barcelona police. Madrid had accused him of hampering early salvage efforts by refusing to take a tow, and he was suspected of
not having a valid master’s certificate.
This line of attack caused a furor within the Greek shipping industry. Some
saw it as an effort to pin the blame on him. It took months to verify that the
master was properly certified. In the meantime, bail was set at USD 3 million,
a higher amount than ever seen in any case of this nature. It surprised even US
lawyers, who reminded the press that Captain Hazelwood initially faced a
USD 1 million bond when he surrendered to officials in 1989. This figure had
soon been reduced substantially. However, the appeal the managing company
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of Prestige, Universe Maritime, lodged to reduce the bail was quickly refused.
Interventions to free the veteran master or at least reduce the bail also came
from Bahamas and the London P&I club, but in vain. In February 2003, 23
shipowners, including the Greek chairman Mr. Lyras, joined forces and
decided to pay the USD 3.2 million to get Mangouras out of jail. He was
released, but not allowed to leave Spain.
In the P&I club’s annual report for 2002, Mr. Lyras said:
“It was difficult to reach any other conclusion than the action taken against
the captain was designed to shield others responsible for the direction
and control of the salvage efforts ... and in particular denial of access
to a place of refuge. ...”
Fear of being flung in jail kept representatives of Universe Maritime from attending public hearings in Brussels. Instead, the manager, Michael Margetis,
submitted a written statement claiming that Spanish authorities denied a firstclass salvage team access to the vessel during the critical 12-hour period. He
contended that the team had arrived in La Coruna at 2 p.m. Nov. 14, the day
after the tanker had suffered problems, but was not allowed onto Prestige until
3 a.m. Nov. 15. After his release, the captain confirmed that Spanish maritime
government personnel had, in spite of his protest, ordered the tanker’s main
engine to be restarted and the vessel to be moved away from the coast.
Jose Luis Lopez-Sors, head of Spain’s Merchant Marine Directorate, verified
this information to a court in Galicia. He said that he, on the advice of technical experts, had made this decision the day after the Prestige ran into trouble.
Mr. Lopez-Sors, together with other two senior officials, was later charged for
their handling of the ill-fated tanker.
In January 2004, Mr. Mangouras was still not allowed to leave Spain. At the
end of the year, the manager Michael Margetis died from heart failure shortly
after a Spanish court made a renewed push to have him extradited to answer
questions regarding the disaster. Meanwhile, the Justice Minister of Greece
urged the Spanish government to allow the captain to come home. Despite the
firm assurances from the Greek government that the master, 69, would return
to Spain once the date for the trial was set, the request was refused again.
A Spanish appeals court gave the old sea wolf a three-month grace period. He
went home to Greece and was expected in Spain in February/March 2005.
There, he got the good news that he was granted permission to reside indefinitely in his homeland pending the start of the trial proceedings. In 2006, the
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press reported that Captain Mangouras had convinced the European Court
of Human Rights to investigate whether the Spanish court had violated
international law when it imposed a several-million-dollar bail upon him
shortly after his arrest.
The shipping industry was dismayed in January 2009, when it became clear
that the European Court of Human Rights had found that the long-lasting
imprisonment of Captain Mangouras was justified. More depressing news was
published in June 2010, when Fairplay reported that lawyers acting for fishers
who had lost their livelihoods as a result of the spill called for a nine-year jail
sentence for the Captain on the grounds that he had disobeyed the orders of
the Spanish Authorities. At the same time, it was reported that a civil rights
organization, Nunca Mas, had called for a five-year sentence of Mr. LopezSors, the chief of the Spanish merchant marine authority who had ordered the
Captain to take the tanker off the Spanish coast.
Note:
See Lloyd’s List, Jan. 12, 2009, and Fairplay, June 10, 2010.
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SUPPLEMENTARY COMPENSATION FUNDS FORMED
13
Supplementary
compensation funds
formed – Private schemes
to replace/delay IMO
I. REVIEW OF THE CURRENT SYSTEM
In 1996, the United Nations Secretary General Dr. Boutros Boutros-Ghali
swore in 21 judges of the newly established International Tribunal for the Law
of the Sea in Hamburg, Germany. The new court was meant to be a dedicated
tribunal for controversies arising from diverging interpretations of the UN
Convention of the Law of the Sea. Issues ranging from fisheries and navigation
to the prevention of pollution of the marine environment were on its agenda.
The Assistant Secretary General of IMO, Dr. Thomas Mensah, who had been
with the organisation for a number of years, became one of the judges.
The “Hamburg tribunal” was apparently not meant to interfere with the work
of IMO or satisfy IOPCF’s strong desire to speed up payments and overcome
or alleviate the problems national courts caused with respect to the interpretation of the key provisions in the compensation regimes. Within IOPCF,
several delegations felt that the magnitude of the compensation amounts, the
greater sensitivity to environmental issues and the diversity of legal systems
had made it increasingly difficult to reach settlements and ensure prompt payment of compensation. The time had come to study the possibilities of introducing alternative dispute procedures for cases where out-of–court settlements
could not be reached.
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At the end of the day, the national courts have the final say with respect to the
interpretation of “pollution damage” and other important concepts laid down
in the conventions. Understanding of these concepts could vary from country
to country. How far should the liability extend for the alleged consequences
of a spill? How to differentiate between real and imaginary losses after a pollution incident? The need for uniformity in the application of the two conventions was clear.
In a conflict with a foreign shipowner, it is understandable that some national
courts might be tempted to go a long way to protect local interests when dealing with a claim for “indirect” losses. After all, it is much easier to “punish”
a foreign shipowner who is not a part of a country’s infrastructure than a factory employing local people.
Nevertheless, most IOPCF delegates found that the current system had worked
well. After all, national courts had by and large based their decisions on the
criteria agreed upon within IOPCF. Ways had been found to settle matters amicably. But not always. Hence, the idea of a neutral body surfaced as a possible
instrument to secure fair application of the Protocols across borders. The UK
delegation had in particular stressed the need for the Fund to be more proactive in encouraging claimants to have their claims dealt with by arbitration.
A working group that Canadian delegate Mr. Popp chaired was appointed in
1996 to consider options to reach out-of-court settlements. A proposal to establish an international body (tribunal) received some interest. But after
lengthy discussions, the working group found that the idea had to be put aside,
as a number of countries found it unacceptable for constitutional and other
reasons. The group suggested that if more information were made available
to national courts with respect to decisions made by the IOPCF Assembly on
the interpretation of the Conventions, this might contribute to uniformity.
Thus the Chairman of the Assemblies, Mr. Charles Coppolani, had to admit
that it was not yet possible to make any decision on the “settlement of claims
problem.” But the question was of prime importance – “it is imperative that
the IOPC Funds resolve it in the future,” he expressed in the 1997 IOPCF
annual report. The report reveals that another decision of some importance
was made: Compensation should not be withheld to pollution victims if their
governments did not fulfil their obligations as members of the Fund.
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The accidents in 1999 and 2002 in the Mediterranean had showed that wellestablished claims for pollution damage could not be expected to be paid in
full. IOPCF had found it necessary to resort to pro-rating payment of claims
to ensure that all claimants were treated on an equal footing. France and Spain
had been compelled to come forward with additional funds. The regrettable
situation had resulted in a discussion within the European Union about
whether to replace the IMO instruments with a “made-in-Europe compensation regime” or establish a regional compensation fund to supplement IOPCF.
There was no reason why EU citizens should not have the same protection as
their US counterparts.
II. COMPENSATION INCREASED
The pressure from Brussels and Paris had an effect. In October 2000, 10
months after the Erika incident, the IMO’s Legal Committee adopted two
resolutions to increase the compensation to pollution victims.
Using the so-called “tacit amendment procedure,” the liability limits were
increased by about 50 percent for incidents occurring on or after Nov. 1, 2003.
The minimum liability for tankers (of 5,000 gross tons or less) was increased
to SDR 4.5 million (nearly USD 6 million). The maximum liability for the
largest tankers was raised to about USD 117 million. The total compensation
package for a single accident under both regimes amounted thereby to USD
265 million. It took effect in November 2003.
The criticism from the EU, however, not only focused on liability levels. Some
of the basic elements in the two aging instruments were also questioned, and
the IOPCF Assembly had to respond.
In April 2000, an internal review was initiated to assess the adequacy of the
current compensation system and identify possible improvements. An intercessional working group, again with Mr. Popp as chairman, was set up to do
the job. Its mandate was:
“a) to hold a general preliminary exchange of views, without drawing any
conclusions, concerning the need to improve the compensation regime
provided by the 1992 Civil Liability Convention and the 1992
Fund Convention.
b) to draw up a list of issues which could merit further consideration in
order to ensure that the compensation system meets the need of society.”
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When Mr. Popp delivered his report the next year, the Assembly was told that
the deliberations had resulted in a proposal to introduce an optional third tier
of compensation by means of a Supplementary Fund (SF). The suggestion
would be implemented by a new Protocol to the 1992 Fund Convention. This
reflected the view of many governments who maintained that in order for the
two regimes to retain credibility, the compensation offered should be sufficient
to ensure full coverage to victims even in the most serious oil spill incidents.
But several other delegations referred to the increases in the limits already
adopted by IMO in October 2000. They saw no need for any further increase.
Would the oil receivers be prepared to pay up? Not quite. The oil industry
argued that the suggestion would distort the current “balance” between the
contributions from the shipping and cargo interests. OCIMF recognized that
there was a need to take prompt action, but stressed that any funding of the
oil industry should be only “an interim solution.” It was argued that a permanent supplementary fund financed by oil receivers would “shield low-quality ship-owners from the consequences of their actions and would therefore
not provide any incentive to improve the quality of their ships or the standard
of their operations.” Thus, the oil companies demanded that a third tier had
either to be partly funded by shipowners, or the liability limits of shipowners
had to be substantially increased.
Whilst it was appreciated that the regimes could benefit from a review, views
differed fundamentally on what steps should be taken to contribute to
maritime safety and reduce accidental oil spills in general. In a document
submitted to Mr. Popp’s working group from France, Spain and the European
Commission, it was claimed that the virtually unbreakable liability limits of
the shipowners had hampered IOPCF from taking effective recourse action
against owners of substandard tankers. France also attacked the channelling
provisions agreed on in 1984 and proposed that one should revert to the
provisions of CLC69, which barred only claims against the servants or agents
of the shipowner. Italy went a step further and suggested that the best way to
remedy the situation would be to allow claims to be directed against charterers
which often were the “owners of the polluting cargo.”
A number of “conservative” delegations argued on the other hand that
whereas safety considerations were most important, the matter should be
taken care of by other appropriate IMO instruments. In their view, Protocols’
aims were to create nothing but an efficient compensation regime.
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Shipowners agreed that an increase was called for. The P&I clubs, representing
both oil companies and independent tanker owners, came forward and
declared that they were developing a voluntary scheme to increase the liability
limits for small tankers.
III. NEW DIPLOMATIC CONFERENCE
– SUPPLEMENTARY FUND ESTABLISHED
When the Diplomatic Conference convened in May 2003, the most important
topic on the agenda was not uniformity of interpretation of the international
regimes and/or their speedy application, but the amount of compensation
available.
Negotiations once again proved to be “difficult,” but the outcome of the
gathering was in line with the proposal of Mr. Popp’s working group. Delegations adopted a Protocol establishing a “voluntary” Supplementary Fund (SF)
which should provide additional compensation when the amounts available
under the ’92 Protocols were insufficient. Any state which was a party to the
’92 FC could opt to become a member of SF. The total amount of compensation for any one incident within the territories of these members would
thereby reach SDR 750 million (about USD 1.1 billion), including the amount
payable under the ’92 Protocols. The extra compensation would be available
to victims only in states that had joined SF.
The annual contribution of any state should not exceed 20 percent of the total
amount of contributions levied. IOPCF hoped that by means of the increased
compensation, one could put an end to the practice of prorating payment of
claims, a practice that became unavoidable in the recent years.
The conditions for the entry into force of SF required the ratification of eight
States, which together imported at least 450 million tons of contributing oil.
According to the IOPCF annual report for 2004, the conditions were met already in December 2004, when Spain ratified after Denmark, Finland, France,
Germany, Ireland, Japan and Norway. Thus SF became operational in March
2005. Soon, the Netherlands, Portugal and Sweden also joined. In the
foreword of IOPCF annual report for 2005, readers were told that:
“On 3 March 2005, the Supplementary Fund Protocol entered into force
and as a result the Supplementary Fund was established, which will provide
additional compensation over and above that available under the 1992
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Civil Liability and Fund Conventions. This new Fund should ensure that,
in those States that ratify the Protocol, sufficient compensation is available
for even the most serious spills and also that accepted claims can be paid
in full from the outset.”
Had time now come to consider a full-scale revision of the international
regimes? In March 2005, Lloyd’s List reported:
“Discussion on revisions to the Civil Liability and Fund Conventions
covering oil spill compensation has ended in stalemate with states evenly
split between those for and those against. More than 50 states had put their
views forward ... ranging from those in favour of a more radical amendment
to the two conventions to those opposed to any revision at all.”
IV. STOPIA AND TOPIA
In the depressed period, 1974 to 1990, a large fleet of tankers exceeding 200
million dwt had by and by been removed as surplus tankers and sold for demolition mainly to scrap yards in the Far East. That amount of tonnage corresponds to about 800 VLCCs. Moreover, in 1978, INTERTANKO estimated
that cancelling new building orders at shipyards around the world had reached
close to 70 million dwt.
This massive reduction is best seen in the light of the fact that the current
world fleet of tankers above 200,000 dwt per January 1st 2011, totals 548
units, or around 165 million dwt.
SSY Consultancy in London – (which had taken over John I. Jacobs’
reviews) – described the tanker market conditions during the second half of
the year 2000 as “the strongest experienced in three decades, which was especially significant as this happened in peace time conditions.” Tanker owners –
and owners of dry cargo ships, as well – enjoyed the most favourable freight
rates at the time. In the annual report for 2006/07, the manager of INTERTANKO’s research section, Erik Ranheim, could inform readers that “The
tanker market and other shipping market have been enjoying a glorious run.”
A resilient world economy and a substantial increase in the demand for tonnage followed the brutal slimming of the fleet in the 1970s and 1980s. The oil
industry’s financial results were at record levels. The previous crisis with a
huge excess of tankers seemed to belong to the history books.
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Study of past oil spills had showed that on the basis of the available compensation regimes, the shipping industry had contributed 45 percent and the Fund
55 percent of the total costs of the pollution incidents (except US) that had
occurred worldwide. The contribution of the cargo interest was in particular
dominant with respect to incidents that ships up to 20,000 grt caused.
Thus the shipping industry enjoyed a most favourable market. Their P&I
clubs, being in full control of the liability insurance business, felt that the current IMO instruments from their point of view worked very satisfactory in a
well-established game. To change the rules, as implied by certain European
governments, and introduce radical changes – for example impose liability on
other parties involved in oil transportation – was consequently opposed.
Instead, a new private scheme, “Small Tanker Oil Pollution Indemnification
Agreement (STOPIA),” was introduced in order to “Demonstrate the
commitment of shipowners to the notion of sharing and in recognition of the
potential increased burden for contributing oil receivers under the proposal
to introduce a third tier of compensation through the Supplementary Fund
Protocol” and “avoid the necessity to amend the Conventions ...”
The clubs informed the Fund Assembly accordingly. Tanker owners were willing to accept a minimum liability of SDR 20 million (about USD 26 million)
for accidents occurring in SF member states. In other words, the Fund would
be repaid by STOPIA “for any compensation it pays as a result of the ship’s
liability limit under CLC 92 being less than SDR 20 million.”
A contemporary circular (published in February 2005) from the P&I clubs
and distributed to members referred to the new scheme’s relations to the ’92
Fund Protocol and included the following passage:
“The indemnity will only apply in the event of tanker spills affecting a State
in which the Supplementary Fund Protocol is in force and when liability is
imposed on the shipowner under CLC 92. Neither the flag of the vessel nor
the ownership of the cargo is relevant. Provided that the amount of compensation payable exceeds the shipowner’s limit under CLC 92, the scheme will
operate even if there is no claim upon the Supplementary Fund.”
STOPIA entered into force on March 3, 2005, on the same date as the Supplementary Fund. One step further was taken when the clubs extended the indemnity to include spills not only in SF states, but to spills in all states that
322
had ratified the ’92 Fund Protocol.
The minimum liability limit for shipowners was thereby increased nearly
five times from SDR 4.5 million to SDR 20 million (about USD 26 million)
for “small” tankers not exceeding 29,584 grt. That a tanker of this size is not
a small tanker seemed to be of no consequence. Erika was 19,666 grt.
The first incident involving a vessel entered in STOPIA occurred in August
2006, when a small (998 grt) Philippines-registered tanker, Solar I, sank off
Guimaras Island in local waters. The following oil spill – 2,000 tons of fuel
oil – had a significant impact on the fishing industry and tourist business in
the area. More than 30,000 claims for compensation were made, and payments of about SDR 10 million (about USD 13 million) were paid to the
victims of the spill. The amount was more than double the small tanker limit
under CLC, but did not exceed the STOPIA limitation. The payment procedure agreed on between the 1992 Fund and the P&I club in question was that
the Fund assumed responsibility for compensation payments once the club had
paid up to the 1992 CLC limitation. The Fund would then seek reimbursements from the club up to the STOPIA limit. Payments would be made to the
Fund within two weeks.
Through STOPIA, the oil companies’ goal of having the small ship liability
limit substantially increased was realized. But the oil industry’s position would
be even further improved when the P&I clubs sent a new message to IOPCF.
The Fund learned that tanker owners – in addition to the increased minimum
liability – were prepared to indemnify the SF in respect of 50 percent of all
compensation amounts which SF would pay out to SF member states. A new
scheme – Tanker Oil Pollution Indemnification Agreement (TOPIA) – would
provide this oil industry subsidy.
The offers were presented as legally binding on the condition that the
revision of the existing conventions should be put on hold.
With such private schemes in sight, the majority of delegations to the IOPCF
Assembly supported its Chairman J. Rysanek when he in October 2005 summarized the discussion and stated that it was “clear that there was insufficient
support for the proposal to amend the terms of reference of the Working
Group with a view to revising the Conventions.” Consequently, the Working
Group was disbanded and the revision of the Conventions was removed from
the agenda.
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This was not the end. The next year, the very active P&I clubs came forward
once again with a new proposal. According to the IOPCF Annual Report for
2006, they were prepared to extend STOPIA even more “to apply not only to
1992 Fund Members States but also to those parties to the 1992 Civil Liability
Convention which were not Members of 1992 Fund.”
The Assembly had good reasons to reject the idea. It was felt that such extension would serve as a disincentive to further ratification of the ’92 Fund
Convention. One may wonder what the real intention of this proposal was –
an effort to diminish the future role of IOPCF? Was the plan that the Fund
some time in the future should be financed by the shipping industry alone?
At a meeting in October 2006 the same year, the Fund Assembly approved the
framework for the implementation of the two private compensation schemes.
The two Funds and the P&I clubs signed a memo of understanding. It was
agreed that a review should be carried out in 2016 to consider the fairness and
performance of the two schemes in light of the experience obtained with
respect to the assumed cost-sharing between the shipping and cargo interests.
A new review should be carried out every five years.
Provisions were also included for termination if the changed circumstances
proved that the agreements were no longer workable.
The position of the oil industry/cargo owner was now improved considerably.
The decision of IOPCF in October 2005 to postpone any initiative to revise
CLC/FC to some point in the not-foreseeable future seemed widely applauded.
The environmentalists were apparently engaged on other fronts.
The P&I clubs, which formally had only consultative status within IOPCF,
seemed now to be in the driver’s seat. On their initiative, the Fund Assembly
set up a new working group. According to the mandate, it should consider
“non-technical measures to promote quality shipping” and “make recommendations to the Assembly upon completion of its work.” The focus should be
on insurance measures, sharing of information and more transparent co-operation between the interests involved in oil transportation, including the
classification societies. It was stressed that the group should not “stray into
areas of competence of IMO nor duplicate work which had been undertaken
by that organisation,” and most important “not consider issues that would
require any re-opening of the discussion regarding a revision of the 1992
Convention.”
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The Working Group had its first session in May 2006 and decided to consult
Comite Maritime International (CMI) to perform a study that would meet the
requirements. A number of other industry associations were also approached.
But there were problems. At a CMI Symposium in Dubrovnik one year later,
a lawyer who was to explain CMI’s role regretted to state that it was not yet
clear what the IOPCF working group had in mind. Whereas the promotion of
quality shipping certainly was the most worthy cause, more precise instructions were needed before CMI could start its work. The lawyer concluded that
only time would tell if, when, how and by whom it would be carried out.
Notes:
Dr. Thomas Mensah was appointed Assistant Secretary General of the IMO in 1981 and Judge of The
International Tribunal of the Law of the Sea in 1995. One year later, he was elected President of the
Tribunal. See IOPCF 25 years, pp. 45-51.
On the alternative dispute settlement discussion and the working group Mr. Alfred Popp chaired, see
the IOPCF annual report 1996, p. 22 and 1997, p. 36. On the new Alfred Popp committee on the adequacy of the compensation system, see the IOPCF annual reports for 2000 and 2001.
The IOPCF annual reports for 2000 and 2003 comment on the compensation increase effective Nov. 1,
2003. The unit of account is Special Drawing Rights (SDR), as defined by the International Monetary
Fund, converted into US dollars at the rate of exchange applicable at a certain date. The dollar figures
here are based on the exchange rates in 2000 as reflected in the annual report for that year. But if one
converts SDR to USD on the basis of the rates on Dec. 31, 2003, when the increase entered into effect,
the total compensation package becomes some USD 300 million.
For more on STOPIA and TOPIA, see the IOPCF annual report 2006 and Skuld’s circular to members
on Feb. 14, 2005.
Several delegations expressed reservations about setting up a group to study alternatives to a review of
the liability instruments. See the presentation by the Deputy General Manager of the Nordic Defence
Club, Oslo, Karl Johan Gombri, at a CMI Conference in Dubrovnik in May 2007. The group was not
able to come forward with any recommendation. However, the chair person reported in October 2008
to the IOPCF Assembly that the work had “enhanced awareness and understanding of the issues involved.” See the IOPCF annual report, pp. 30-32.
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NEW BIG SPILLS IN 2007
14
New big spills in 2007
To the casual observer, major tanker spills seemed stagnant for several years
after the Prestige calamity. There was no serious incident worth mentioning
in front-page news. But once again without warning, new major incidents
happened during the winter storms of 2007. Two tankers spilled thousands
of tons of oil, caused extensive pollution of shore lines and resulted in new
complex challenges for IOPCF. None of the recently established compensation
schemes – the Supplementary Fund, STOPIA and TOPIA – were applicable to
the spills a Russian tanker caused in the Black Sea or a Hong Kong tanker in
the waters of the Republic of Korea.
VOLGONEFT
An incident that raised unusual legal problems on the IOPCF agenda in 2007
occurred after an accident in the strait of Kerch between the Russian
Federation and the Ukraine. In these waters, a Russian registered tanker,
Volgoneft, broke in two in November 2007. Volgoneft was a relatively small
tanker of 3.463 grt built in 1978. The tanker was not insured by a member of
the International Group of P&I Clubs, but by a Russian insurance company,
and was therefore not covered by STOPIA.
The consequential oil spill of 1,200 to 2,000 tons, polluting the shorelines
of the two states, represented the biggest oil spill that had ever happened in
this particular area. In terms of legal complexity, it overshadowed previous
accidents by presenting new problems in respect of the interpretation of the
international compensation regimes.
The Ukraine had not ratified or acceded to the ’92 Fund Convention whilst
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the Russian Federation had ratified, and was a party both to the 92 CLC and
the ’92 Fund Convention. The pursuant investigation revealed, however, that
it was more than doubtful whether the Russian Government had complied
with its duty to implement the CLC 92 in its national legislation. Thus based
on the liability limits published in the Russian Official Gazette, shipowner JSC
Volgotanker’s insurance coverage was SDR 3 million, well below the minimum
liability limit in CLC 92 of SDR 4.51 million. There was, in other words, an
“insurance gap” of about SDR 1.5 million (about USD 1.95 million).
The matter was further complicated as the Russian insurance company claimed
that “a natural phenomenon of an exceptional, inevitable and irresistible
character” wholly caused the accident, so that no liability could be attached
to the shipowner, the Fund should pay up. The Fund experts who investigated
the weather conditions at the time of the incident concluded that the storm
was timely forecasted, but the master had not acted on the weather forecast.
Had he done so, the casualty would have been avoided. Moreover, the accident
would not have occurred if the master had respected the trading limits
prescribed in its classification certificate.
Adding to the problems, it appeared that several claims represented compensation for environmental damage. One large claim was based on abstract
calculations; the quantity of oil spilled multiplied by an amount of Roubles
per ton. This was the Metodika model. As such claims were not in accordance
with the rules of the international regimes, the Fund experts succeeded to
convince the Russian authorities to withdraw the Metodika claim.
But the parties were far apart. In October 2008, the Russian delegation in
IOPCF’s Executive Committee expressed its concern about the perceived slowness of the compensation in general, since although the Secretariat had fully
cooperated with the Russian authorities, the victims had not yet received compensation for the losses suffered. The chairman of the Committee, on the other
hand, claimed that the Russians had not provided adequate information. Until
this request was satisfied, payment could not be authorized.
The interpretation of the Russian Government with respect to the liability level
was confirmed by an arbitration court in St. Petersburg, in February 2008.
Since the ruling was in clear conflict of CLC 92 as amended (ratified by Russia), IOPCF appealed the decision to several higher courts. But in vain. Finally,
the conflict was brought to the Supreme Court in Moscow.
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To the astonishment of IOPCF delegations, the wording in the Official Gazette
was confirmed by the Russian Supreme Court in December 2008. Thus, the
applicable limitation figures according to Russian law were SDR 3 million
(about USD 3.9 million), not SDR 4.51 million. In an effort to resolve the
“insurance gap” issue, a number of meetings have been held in Russia in 2009,
and new hearings were agreed upon. The Russian Ministry of Transport was
brought into the picture as a third party. The discussions continued throughout
2010.
HEBEI SPIRIT
On the morning of Dec. 7, 2007, while at anchor, a very large single-hull crude
carrier, Hebei Spirit, was struck by a crane barge – Samsung no. 1 – on the
west coast of the Republic of Korea. Close to 11,000 tons of crude oil escaped
into the sea from two cargo tanks ripped open above the waterline. The tanker
was loaded with 209,000 tons of four different crude oils. Her tonnage was
in excess of 140,000 grt, which meant that the liability limit applicable reached
the maximum under CLC 92, close to SDR 90 million (about USD 117 million). The amount available under CLC and FC for compensation was SDR
203 million (about USD 263.9 million).
On Dec. 24, the Korean Government declared that the spill was a national
disaster. In early 2008, a total of 375 km of shoreline had been polluted.
The 11,000-ton oil slick generated an unusually high rate of small claims as a
considerable number of mariculture facilities, hatchery facilities and oyster
farms were affected. By the end of June 2010, the number of claims received
by IOPCF was 15 times greater than the Erika casualty in 1999. It soon
became clear that the amount available under the international regimes would
not cover the losses suffered by the victims of the spillage.
Hebei Spirit hoisted the flag of Hong Kong and was owned by a Hong Kong
company of the same name. In a three-page report issued by Hong Kong’s
marine department published in March 2009, “a litany of errors by the tugs
involved” were identified as the main probable causes and contributory factors
of the casualty.
However, further to a suit of the state-controlled, pollution-controlled
response agency, the tanker was arrested. Moreover, despite the fact that Hebei
Spirit was at anchor when the barge punctured it, the Indian master, Jasprit
Chawla, and his chief officer were jailed shortly after the incident. During the
following criminal proceedings, they were found not guilty, but an appeals
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court later overturned the acquittal. About a year after the spill, they were
bailed out and released after an unprecedented and concerted campaign on
their behalf across the maritime industry, including a protest that 40 members
of INTERTANKO’s Council signed. Nevertheless, the officers were still not
allowed to leave Korea; the release did not mean that their case would be
dismissed.
Korea was a party to CLC 92 and a member of the ’92 Fund, but was not
a member of the Supplementary Fund. As the total claims for damages were
likely to exceed both the limitation figure in CLC 92 and the ’92 Fund
Convention, the Fund decided first to limit the payments to 60 percent and
then to 35 percent of the established damages. Once more, IOPCF took this
step in light of its limited resources to ensure equal treatment of all claimants.
Once more, a local Government – this time the Republic of Korea – was of
the opinion that the victims of oil pollution deserved a better treatment.
In 2009, the Korean Government took it a step further and decided to ban
single-hull tankers from calling its ports by the end of 2011 instead of 2015.
Single-hull tankers were on average 20 percent less expensive to charter than
their double-hull cousins, and were still in 2009 in heavy demand from many
oil companies looking to make savings rather than support the double-hull
concept. In October 2009, Tradewinds reported that there were still some 90
non-double-hulls trading, but several of those were expected to be removed
from the market in the near future.
In May 2009, it was reported that the owner of Hebei Spirit and the insurer,
Skuld, of Oslo, were considering launching a multi-million-dollar recourse
action against the owner of the crane barge that struck the tanker. For more
information, see Appendix II of the 2009 IOPCF Annual report, which gives
an extensive review of the challenge the Fund is facing when handling compensation problems after a major oil spill. The review is also found as an
appendix to this book on page 356.
Notes:
For the 2009 report on the double-hulls still trading, see Tradewinds, April 3 and May 8, 2009; Lloyd’s
List, Feb. 9, May 12 and May 22, 2009.
At the request of the South Korean government IOPCF agreed, however, in April 2011 to meet 100 %
of the losses resulting from the Hebei Spirit oil spill. The decision was taken at a meeting in Marrakech.
(Tradewinds April 21, 2011).
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TANKER OWNERS AND THEIR CLASSIFICATION SOCIETIES
15
Tanker owners
and their classification
societies
In a press release DNV sent out in 1984, the roles of shipowners and class
institutions were set out as follows: “The responsibility for the technical
standards of ships clearly rests with the owner, but it is also clear that the work
of the classification societies has an important impact on technical standards
and safety at sea.”
For several hundred years, shipowners have kept their financial risks at
acceptable levels by means of insurance. Because the insurance underwriters
appreciate that they are the real risk-takers, they demand that the ships they
insure meet acceptable standards. The ships had to be “classed,” and “classification” began as a concept in Edward Lloyd’s coffee house in London in
1760. Lloyd’s employed surveyors with technical knowledge they had gained
through practical experience at sea. The recognition by the surveyors’ expert
eyes enabled shipowners to get insurance coverage for the marine enterprise.
In 1950, there were less than 10 classification societies. The number later more
than doubled. It is not easy to set up a real classification society. It is claimed
that, on the other hand, to set up a new flag of convenience, all you need is to
find a government that wants to make some easy money. Neither do you need
any specific qualifications to become a shipowner.
Thus, maritime governments of all flags rely heavily on the societies to
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© Topham Picturepoint / Scanpix
discharge the government’s responsibility to have their
ships operated and maintained according to IMO standards. Marine safety and environment is thereby
dependent upon the performance of the various
classification societies, which may or may not be members of the International Association of Classification
Societies (IACS).
Currently, the SOLAS Convention set out their role:
“In addition to the requirements contained elsewhere
in the present regulations, ships shall be designed and
maintained in compliance with the structural,
mechanical and electrical requirements of a
classification society which is recognised by the
Administration ... or with applicable national
standards of Administration, which provide an
equivalent level of safety.”
Lloyd’s Coffee House
It opened in the 17th century
and soon established itself as
the meeting place of shipowners, cargo owners and insurance
clerks together with captains
with salt in their hair as well
as young ambitious journalists.
As a hub of intelligence and
news gathering, the house
fostered important institutions
like Lloyd’s Register of Shipping and Lloyd’s List, to
mention some.
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From Florida, one critical voice, Mr. Jack Devanney,
pointed out that in the period 1995 to 2005 inclusive,
54 tanker men were killed in tanker casualties, whilst
the statistics for dry cargo carriers are even more alarming: 463 crewmen were killed in the same period. He
asks: “Why would we ever think that a system based on
the regulatee, sorry, the client, choosing and paying for
the regulator would work? If a building contractor
chose and paid the Building Code inspection company,
would we not expect substandard buildings?”
Paul Slater
An American banker from First
International Corporation with
close ties to the North American tanker industry, Paul Slater
was the first chairman of
INTERTANKO’s Communications and PR Committee.
His main message to the media
was that the private classification system did not work well.
The role of the civil aviation
authorities of the various
national governments should be
considered as a possible model
for regulating international
shipping. But his private view
in this respect has not obtained
wide support within the tanker
industry.
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Several years ago, his fellow country man, the financier
Mr. Slater, alleged that: “It is time that classification societies were as directly answerable to the various
governments under whose nationality they operate as
are the civil aviation authorities of the same nations.”
During the last decades, it has been argued that there is
ample evidence that the quality of inspections has gone
down, whereas competition for clients has gone up. Has
the societies’ focus on profit developed at the sacrifice
of marine safety?
These are strong words. What seems certain is that the
coordination between the various class institutions with
respect to safety regulations – and implementation of
the same – has not been without problems during the
time since World War II.
If we go back again to the early 1950s, the formation
of IMCO resulted in a common fear among the societies
of being threatened and overshadowed. In particular,
the possibility of IMCO taking over or regulating the
societies’ role was scary. At a meeting of the leading societies in Oslo in 1968, the representative of the French
Bureau Veritas argued that there was a need for an
umbrella because “mist and dark clouds had banked on
the skyline and that a devastating storm was likely to
come.” When the representatives soon met again in
Hamburg, the IACS was established to streamline their work and prepare for
consultant status in IMCO. Dr. Schultz of Germanischer Lloyd was elected as
the first chairman of the Council. The next year, IACS Council together
adopted certain unified requirements with some guidelines to ensure uniform
interpretations of the agreed rules.
ABS, Bureau Veritas, DNV, Germanischer Lloyd, Lloyd’s Register of Shipping,
Nippon Kaiji Kyokai and RINA were all members of the new club. At the end
of 1968, IACS was granted consultative status with IMCO. Today, the Russian
Maritime Register of Shipping, the China Classification Society and the Korean Register of Shipping have also become full members of the association.
The members of the association classify more than 90 percent of the world’s
merchant marine tonnage.
Several classification societies such as Lloyd’s Register and ABS have remained
non-profit organisations. Their charitable status is claimed to be based on
work for the benefit of the public by investing their surplus in research to
improve marine safety further.
Others such as DNV are profit-making companies. After 10 years of litigation,
the Norwegian Supreme Court in 1991 decided that DNV was a taxable entity.
Classification had at the time become only one of many services offered to a
variety of industries. It had become a technology centre and moved into quality
control, research and development for the offshore industry as well as a number of land-based companies. It may be illustrative that during the tanker crisis,
DNV was seen to market a new tanker design. This caused concern in some
quarters. The INTERTANKO philosophy was that there were no tight bulkheads between the various tanker markets. The initiative might provide DNV
with some new clients, but could at the same time deepen the overall shipping
crisis.
The individual societies preferred for many years to remain as “Kings of the
Hill” and rotate the chairmanship within IACS without any joint secretariat,
which may have resulted in a more meaningful co-ordination of policies. But
the societies were hesitant to delegate any real power to IACS as such. Few
paid any attention to the association, and many did not know that it existed.
With respect to the relationship between the client and the regulator, one
may dwell with the comments from DNV many years after the two large
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Norwegian-owned combination carriers blew up in the
1970s and resulted in a total loss of 70 human lives. No
certain conclusion has been drawn as to the cause of the
explosions, but explosive gases may have developed in
the unwashed wing tanks of the two ships. Whatever
the explanation is, it is noteworthy that the classification
society DNV in its 125-year jubilee saga in 1989 commented as follows: “a change of cargo as often as each
trip sometimes made it impossible to carry out sufficient
cleaning in all spaces other than the cargo tanks.”
© Private photo
Dr. Nils Nordenstrom
Dr. Nils Nordenstrom was the
Chairman of the International
Association of Classification
Societies (IACS) from 1984 to
1986. He is a specialist in shipbuilding, and has been the
Director of Research and head
of the Norwegian Veritas
international department. He –
among other tasks – was in
charge of the start of the classification society’s engagement in
quality security systems.
Impossible is a strong word. The International Safety
Guide for Oil Tankers and Terminals issued by ICS
jointly with the OCIMF spells out that the wing tanks
(which have contained oil) should be cleaned and gas
freed before loading a dry cargo.
A positive effect of the competition between the classification societies is said to be improved safety at sea as
well as improved services rendered. But a less positive
effect is the temptation to compete by being lenient to
attract more clients. In the wake of accidents at sea,
classification societies have been accused of trying to
appease clients and attract new business by approving
sub-standard ships. We remember the 23-year-old Liberian tanker, Argo Merchant, which sank in 1976 and polluted the waters of Massachusetts. She was six months
beyond her annual date of inspection when she went
down. Another example is the fate of Betelgeuse, which
exploded in Bantry Bay in 1979 and cost the lives of 50
people. The classification society knew that the ship was
in a deplorable condition, but did not intervene because
the owner, Total, intended to sell the ship.
At the time of the Betelgeuse accident, IACS appointed
a permanent representative in IMCO, Mr. F.N. Boylan.
So far, the IACS council meetings had been confined to
one meeting per year. IACS was seen as a technical body.
To use their own words: “Not widely known outside a
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limited group of experts.” Keeping their seat warm in IMO, they played a
rather modest role.
In 1984, Dr. N. Nordenstrom of DNV was elected to chair the IACS Council.
He held the chair for two years, struggling to stop the disgraceful practice of
second-class ship owners shifting classification society when they were
required to meet international standards which they found too costly. In order
to put an end to owners’ shopping around for the most lenient society, requirements for a unified procedure for transfer of class from one member society
to another had to be agreed on. IACS members would be obliged to tell each
other when a ship leaves its class. Moreover, Mr. Nordenstrom wanted the
second society to be obligated to enforce recommendations of the requirements
of the previous society. In a presentation to IMO’s Marine Safety Committee
on May 22, 1985, he announced: “In order to prevent owners from changing
class to avoid recommendations, it is required that the receiving society checks
and deals with all recommendations from the previous society. Proposals for
more stringent requirements related to transfer of class will be handled at the
IACS Council Meeting in June 1985.”
When that meeting occurred, the majority of his Council felt that it was sufficient that the second society should deal with an outstanding recommendation without any strict and specific obligations to interfere. Has the situation
improved?
Well, IACS’s Transfer Of Class Agreement (TOCA) of 1996 intended to
make it impossible for owners to switch class until the requirements of the
outgoing society had been agreed. Still, after the Erika disaster, not everybody
was convinced. The chairman of the Italian shipowners’ association, Mr. Paolo
Clerici for one, fired this broadside against class in Lloyd’s List:
“I believe that the growing competition between classification societies since
the liberalisation of the sector may cause risks for the industry. Some societies are so eager to take new tonnage that the possibility of lowering their
guard over the vessels’ real condition is becoming real.”
Neither was the EU Commission’s marine director, Georgette Lalis, relaxed:
“The Erika changed classification society four times. Now we are trying to
prevent company-hopping.” No surprise that the previously mentioned TOCA
has been revised several times since then.
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Traditionally, classification societies require an annual survey and a more
detailed special survey every five years. IACS took one step further in 1982,
when it was agreed to introduce a new special survey aimed to bring about a
considerable upgrading of large tankers when they reached the age 15. But no
extension had been given in 1991 to the Greek tanker Kirki en route from the
Arabian Gulf to a terminal in Western Australia. Nevertheless, the forepeak
ballast tank was horribly corroded, and her bow section simply suddenly fell
off. She was loaded with some 82,000 tons of crude oil and fully approved
five months earlier by her classification society, Germanischer Lloyd.
Six years later, the Russian tanker Nakhodka broke in two in the Sea of Japan.
Her hull was also “significantly corroded,” and she was fully in class without
any outstanding recommendations by the Russian Classification Society.
Since 2002, a European Directive has required that the EMSA controls each
authorised society at least bi-annually to ensure that their performance is in
compliance with the rules. Whilst there are no IMO rules regulating the
robustness of the steelwork in tankers, IACS has during the last years taken
several initiatives to improve their services and address problems as far as
possible before, rather than after, a major casualty. Most important, in
December 2005, members without any reservation agreed to discontinue the
“rule competition” between them by producing Common Structural Rules to
ensure that the construction of oil tankers and bulk carriers in the future
should be more robust and safe. But some years later, this agreement had to
be amended because of the intervention of the Brussels antitrust directorate.
Class-hopping on the one hand and the liberal practice of many major societies
to permit extensions with respect to renewal of certification were intolerable
in the long run. A representative of a major society operating from his office
in Piraeus about 20 years ago was called “Mr. Extension” in informal circles
of shipping people in Oslo. They were frustrated about the liberal policies of
some IACS members. It seemed that owners in a poor financial situation were
allowed to continue to trade regardless of outstanding orders to undertake
maintenance and/or repairs, whereas there was no mercy for financially
stronger owners. Together with the oil companies’ constant pressure to force
freight rates well below break-even, the liberal policies of the classification
societies were a factor which did not seem to promote marine safety. On the
contrary.
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Something obviously had to be done to reduce the unhealthy competition and
instead facilitate a closer cooperation between the IACS societies. Within the
industry, it was rumoured in the late 1980s that a Super IACS was about to
be formed by the major societies including ABS, DNV, Lloyd’s and possibly
also Germanischer Lloyd. They all had exclusive surveyors in the most
important ports. Now the intention was to coordinate and enforce quality
shipping by a stricter control of their entered fleet. The formation of a
“premium league” was, however, never realized, mostly because of commercial
and regional implications. But in 1991, long overdue, it was decided in
Helsinki to set up a permanent Secretariat. Moreover, an IACS Quality System
Certification Scheme was introduced.
The next year, Mr. J. D. Bell was appointed as the first permanent secretary of
the association. On July 1, 1992, a permanent secretariat was set up in
London. In 1993, the members introduced a programme for more stringent
inspection of bulk carriers and oil tankers – the Enhanced Survey Programme.
It required that surveyors should physically reach all areas in the ships which
they were supposed to examine. More emphasis should be placed on gauging
the metal thickness of the hull.
A society could be expelled from IACS if it did not meet the quality criteria in
the Charter of the association. On June 1, 2000, the new administration
showed its strength when the Polish Register was expelled following the tragic
loss of one of its registered ships, which had cost 18 lives. Since then, the hulls
of Castor, Erika and Prestige, to mention a few, were later found to be dangerously corroded despite being classed by major societies.
Are periods of grace still parts of normal procedure among classification societies?
After the Erika tragedy, a representative of Bureau Veritas commented in
Lloyd’s List on the extension practice with respect to the special five-year
survey and said that: “There was nothing exceptional in the operation … It is
a normal procedure which exists when an owner is in difficulty because of a
commercial operation in progress.”
Obviously shaken by the attitude of RINA and Bureau Veritas, the IOPCF
decided in December 2002 to take recourse in the Civil Court in Lorient,
France, because of the their involvement in the Erika accident. Both societies
were among the founding members of IACS. None of them had stopped Erika,
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which had changed classification companies four times and ended up at the
bottom of the Atlantic. After Erika, Dr. Nikos Mikelis, a well-known Greek
expert on marine technical issues, fired a salvo on IACS for the lack of action
to rectify the current sad state of affairs. In his opinion, IACS had – despite
the serious flaws that now so clearly had been revealed – confined itself to
simply announce more surveys, which according to Dr. Mikelis was a selfserving decision because:
”1. More surveys equals more fees.
2. IACS is seen as doing something when the whole of the industry
now admits that the existence of substandard ships is a problem of
lack of compliance with the existing regulations.”
He added:
“The reality is that behind every structural failure of a substandard ship,
there is a substandard survey. The question IASC should therefore have
addressed is how to eradicate substandard surveys, and to this day we have
not heard a word on this matter from IASC.”
INTERTANKO was far more complimentary. In a report to its AGM in 2000,
tanker owners welcomed new IACS measures aimed at removing substandard
ships from service. These included:
“more rigorous check for older ships changing class, the computerisation
of class records and the transfer of these to new societies; increased
inspection of ballast tanks located next to cargo tanks carrying heated
products, more detailed intermediate surveys and closer monitoring of
steel thickness measurements.”
Up to the Erika and Prestige, pollution incidents in 1999 and 2002, IACS had
successfully protected status quo. Inspired by Prime Minister Chirac’s statement that “draconian measures” were required, the European Community
embarked on a crusade to put the shipping industry in order. One target was
the classification societies. As mentioned before, a European Directive on
Classification Societies enacted in 1994 was now amended asking the EMSA
to control each authorised society at least bi-annually to ensure that the
performance complied with the rules.
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The exclusive IACS group had battled complaints about restrictive business
practices since adopting its own common structural rules in December 2005.
One further step the European Community took was to launch an investigation into the activities of IACS that could possibly be in breach of the
regional antitrust legislation. The IACS Code of Ethics soon became a major
target. A central provision in the Code stipulated that the services rendered
by IACS members: “must not lead to compromises on safety of life and
property at sea or the lowering of technical standards.” Press reports implied
that IACS had been compelled by the EU “to scrap ethics.” This proved, of
course, to be a gross overstatement. The result was rather that the IACS code
as such had to be cancelled, but each member could continue to operate according to its “in-house” ethical rules. One cannot help feeling that this exercise caused a lot of bureaucratic ado about very little.
In December 2008, delegates to a meeting of IMO’s Maritime Safety
Committee were reported to be shocked by rumours that the EU would force
all classification societies to recognise each other’s certificates on a “no-questions-asked basis.” It was felt that this idea would undermine the traditional
classification process and impinge on the sovereignty of states to decide
independently what society was trustworthy or not. In an unusual move, the
Committee instructed the Secretary General of IMO, E. Mitropoulos, to voice
concern over the EU plans.
IACS’s membership had been confined to classification societies which
represented a sizeable fleet in international trade. One of the EU’s other
concerns was that the access to the IACS and its working groups, which
discussed and prepared the common rules and procedures, was closed to
non-members. An important result of the mentioned anti-trust investigation
saw the light of day in June 2009, when Brussels without further ado
compelled IACS to open the door to membership ajar. This meant that nonmembers in the future could obtain access to the mentioned working groups.
Moreover, any classification society would be entitled to apply for membership
in IACS. The new approach to assess applications for membership was to be
based more on quality rather than quantity criteria.
Following the publication of the new regime, the Polish register PRS confirmed
that it would “welcome a return to IACS.” Another obvious candidate for
membership is the Hellenic Register of Shipping, who chose to not comment.
Hellenic also had other problems. In March 2009, Lloyd’s List reported that
339
Brussels was planning to prevent the Hellenic Register from taking on new
business, as EU members states had decided to give the Greek classification
society 17 months to resolve “quality” issues. In the meantime, no classing of
new ships was allowed. What the future brings is always uncertain, but few
observers would be surprised if Hellenic is a member before 2012. In October
2009, Tradewinds reported that the EU regulators had ended their anti-trust
case against IACS after it had agreed to let rivals access its activities and
technical data.
For many observers within the tanker industry – including the author – the
fierce competition between the classification societies in the past has been a
problem. The result has been lenient practices with respect to certification and
representation of substandard surveyors. When the EU has chosen to focus on
possible restrictive business practices and opened the door to what may end
up in more competition – fair or unfair – it is in no way given from above that
the results will be safer shipping and a cleaner environment.
Today, charterers, insurers and other parties interested in the performance and
quality of a particular tanker will enjoy the increased transparency that has
developed in the shipping business. Safety-related data has become available
to all interested parties thanks to an initiative the European Commission and
the UK government launched to establish the Equasis database. From 2002,
maritime authorities of countries outside the European Community including
Japan and Singapore have agreed to support Equasis financially. Thus, it might
be hoped that some of the problems we have addressed are now more likely
to be addressed before, rather than after, a major casualty.
Serious accidents have in the past compelled clients and third parties to hold
the societies accountable for alleged mistakes. The claims brought by commercial interests have amounted to billions of US dollars. But it has proved to
be very difficult to pursue classification societies in court. The societies have
relied on the language on the certificates or reports that disclaim liability for
any financial loss arising out of reliance on these documents. Moreover, they
have felt confident that when they are carrying out statutory functions on
behalf of a flag state, they should be entitled to the very same immunity as the
government they represent. Most of the claims against the societies have failed.
Speaking on this topic at a maritime law conference (Marlaw) in Ithaca,
Greece, in September 2007, a legal adviser to the Lloyd’s Register put it this
way:
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“... governments around the world now rely heavily on class societies to
discharge the particular government’s statuary responsibility to have ships
flying its flag designed, constructed, operated and maintained in accordance
with its national laws including the applicable IMO conventions and class
requirements. That has resulted in classification going from, what at its
origin was purely a private function, into what is today, in reality,
a public function.”
But sorry, it is more complicated. When the immunity argument seemed unlikely to succeed in the Prestige case, the American Bureau of Shipping – with
Mr. Somerville in the driver’s seat – successfully convinced a New York Court
a few years ago that his society could not be held liable because it was “a person” like any agent or servant of the ship owner. This is the very point of Mr.
Devanney, mentioned above. Hence, in accordance with the channelling
provision in CLC, ABS was exonerated. It is arguable that class really wants
to have its cake and eat it, too. The decision was, of course, appealed by the
Spanish government. The outcome of the appeal remains to be seen.
The classification societies want the statutory privilege, but not the responsibility, of approving ships that are protected by disclaimer clauses in their standard contracts. Moreover, they maintain that when they are carrying out
statutory functions on behalf of a flag state, the societies should be entitled to
the very same immunity as the state. When liability has been tested in courts,
the societies have also more often than not had the sympathy of the judge.
Heavily publicised cases have fuelled the perception in the industry that these
institutions do not owe a duty of care to third parties and therefore cannot be
found liable to them in tort. A representative ruling of a US court rejected the
liability claim and warned: “The societies could be deterred by the prospect
of liability from performing work on old or damaged vessels that most need
their advice. The spreading of liability could diminish owners’ sense of vessel
safety ...”
In other jurisdictions such as France, the law is based on a simple but fundamental principle that “he who causes harm to a third person is obliged to make
it good” (Article 1382 of the Civil Code). When the French Court delivered
its widely published Erika judgment in January 2008, it became clear that the
court had swept aside RINA’s defence that it had jurisdictional immunity
of a foreign state. The Court held that “when it consists of checking the
implementation of the safety rules by the means if inspections involving the
341
structural solidity of the hull (1.1.1. § 6), the activity of classification societies
are of a private nature, performed at the request of the owner, in accordance
with a contract entered into.” The fault of imprudence of the inspector was
one of the causes of the shipwreck.
Nevertheless, the liability questioned remains a problematic issue. The Erika
judgment is appealed. There is no international guidance. An effort was made
in 1995, when CMI was asked to set up a working committee to draft rules
intended to reduce the threat of litigation. Frank Wiswall, a former chairman
of IMO’s Legal Committee, was asked to serve as chair. His working group
rejected the proposal to introduce straightforward limited liability for the societies’ involvement in shipping casualties. Some suggested standard clauses
were drafted, but the issue remains unsolved and has not yet been addressed
by IMO. So the question of what the classification societies’ liability exposure
really is in a certain jurisdiction, or should be on an international level, remains
unanswered. Any person or company who has incurred losses because of negligent acts or omissions of a classification surveyor is free to sue the society in
tort, finds himself in unchartered waters.
Neither marine safety nor the environment is served if the principal caretaker
of the public interest knows that they are insulated from liability for loss of
lives and major oil spills. Years ago, the Norwegian ship owner Knut Kloster
presented his dream of quality ships sailing under the flag of the UN. Can a
re-organization of IMO and a unification of the major classification societies
make his dream come true some time in the distant future? Can the IACS
judges one day be judged on their merits by IMO?
There’s a long way to go, but a first step could be introducing an international accrediting system for classification societies to which member governments may delegate regulative responsibilities. It sounds utterly unrealistic
today just as the vision of Mr. Kloster was, and probably still is, when he delivered his speech in 1987 at an INTERTANKO Council meeting. In any case,
here is the last paragraph of his presentation:
“The maritime industry has a proud history and long tradition of adventure
and discovery. As our forefathers did so many centuries ago – when they
sailed beyond the horizon and opened the world – we should once again be
guided by a process of vision. In the words of one of my favourite proverbs,
we must set our course by the distant stars and not by the light of the
passing ships.”
342
Notes:
On the role of class, see the SOLAS Convention chapter II-1, A-1, Reg. 3-1 and Andrew Kennedy:
“Classification societies & the law - The Inside Story” and Roger Miles’ “Class Societies and Liabilities,”
both papers presented at the Marlaw Conference in Vathy, Ithaca, Greece in September 2007.
Mr. Kennedy’s reference to the statement of the judge is taken from US Fifth Circuit Court of Appeals
in the case Otto Candies LLC vs. Nippon Kaiji Kyokai Corp. 346 F.3d 530 (2003). The judge also
stated: “The spreading of liability could diminish (an) owner’s sense of responsibility for vessel safety
even as it complicates liability determinations”
See comments on the fully classed Kirki in the Australian report on “Ships of Shame,” p. 1. On the history and development of IACS, see Eirik Andreassen’s presentation “IACS Organisation” at International Affairs, MSTNO232, November 2008 and Det Norske Veritas’ 125th-anniversary book, “Anchor
and Balance,” Oslo, 1989.
Jack Devanney’s criticism is taken from his “The Tankship Tromedy – The Impending Disasters in
Tankers,” Florida, 2006, pp. 56 and 260-267.
On the Berge Istra and Berge Vanga disasters, see “Anchor and Balance,” pp. 265-268.
On the expelling of ships, see DNV’s press release reported in Lloyd’s List on Oct. 15, 1984, Journal
of Commerce, Sept. 7, 1984 and comments on IACS in Fairplay, Oct. 18, 1984 and Nov. 30, 2006.
On IACS Quality Certification, see Dr. Philippe Boson’s paper presented at the 12th SBL Biennial Conference in Paris in September 1995. See the leader on Judging Judges in Lloyd’s List from July 27, 1995.
See the article on the views of Bureau Veritas in Lloyd’s List, Jan. 12, 2000, and the views of Paolo
Clerici in Lloyd’s List on Jan. 26, 2002.
On the revision TOCA, see Lloyd’s List, Jan. 7 and 26, 2000.
On the anti-trust allegations, see the February 2009 issue of Tradewinds.
Shipping financier Paul Slater’s address was at INTERTANKO’s AGM in Rome, 1986.
343
ON REFLECTION
16
On Reflection
Is it realistic to expect that the measures to better the marine environment will
be more successful than the efforts to halt increasing air pollution and global
warming?
The sneaking global warming represents no tangible threat comparable with
the dramatic grim pictures of a collapsed tanker blackening pristine shorelines
and killing birds, fish and wildlife. Air pollution is transparent in comparison
with ugly polluted beaches and may for many perhaps represent more of an
academic problem.
Still, crude oil is Mother Earth’s own product, and spillage from tankers represents only a minor part of the pollution of the environment. More oil gets
into the sea through the drainage system of the world than ever gets in from
tankers. But people detest oil spills because of their photogenic attributes.
Whereas large spills capture our attention, numerous, smaller, but regular
“operational” spills unnoticed by the media do more cumulative damage to
the oceans.

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