BIMCO Address

Dr. Chao Wu
26th April 2005

THE ESCALATION OF SHIPOWNERS’ LIABILITIES
CALL FOR FAIR AND BALANCED SOLUTIONS

1. Introduction

While we are peacefully and comfortably discussing the issue of safety and the environment, seafarers may be encountering storms and rough seas, striving for safety and preservation of the environment. That is their business. The sea is a dangerous place, full of mysteries, ready to offer mankind unexpected surprises and challenges. The seafarers’ business is one of the toughest of all.

Tough but indispensable: tough to the ones who perform it, but indispensable to the whole of society which benefits from it. Imagine a life without the foods, clothes, cars, tools, electronics and numerous other products that move by sea. And imagine the impoverished lives of those who would not be employed if their goods could not be carried by maritime transport to be sold in distant lands. Transportation and shipping is the necessary and cheapest tool to move goods on a global or regional scale. Six billion tons of cargo was loaded in 2003, representing more than 80% of world trade. Shipping is indispensable in the globalisation of trade and economy.

Nevertheless, tougher in some ways are the man-made challenges imposed upon seafarers who are facing an enormous burden in their everyday tasks due to stringent and multi-layered liability laws and regimes, endless paper duties, and the unjustifiable risk of being imprisoned for accidentally causing pollution.

2. Stringent and multi-layered liability laws and regimes

The marine oil pollution liability law took a radical step in 1969 by establishing a strict nature of liability in an aim to protect the victims of pollution. The shipping and oil industries demonstrated their solidarity towards society by accepting the responsibility for the consequences of their business. Together, the Civil Liability Convention and the Fund Convention form an unprecedented regime providing compensation for pollution damage. This regime has worked well in the vast majority of cases. From $14 14 USD was the value of the surviving lifeboat attached to the Torrey Canyon. which was what the law allowed as compensation in the catastrophic spill of Torrey Canyon in 1967 to approximately $300million This figure depends on the exchange rate between SDR and USD. under 1992 Protocols (and now more than $1 billion with the third tier), the progress achieved by this regime is undeniable. Is there any other area where international law has prospered so remarkably?

Yet this regime is in danger of being fragmented or even dissolved. The reason is that although it worked well in the vast majority of cases, it may fail to fully compensate pollution damage claims in two spills, namely the Erika and the Prestige. This regime is under revision. It is too early to know the future of the Convention system, to predict whether its prompt and non-litigious way of compensating can be kept. It is only to be hoped that in the aftermath of the emotions caused by the unfortunate events of the Erika and Prestige spills, those who make the law do not lose sight of the big picture – the fact that this regime has successfully performed over the last 35 years for the rest of spills. Changes should be kept in proportion, not made at the expense of the effectiveness of the system.

However stringent the liabilities tend to be, that is not the only onerous aspect. The more onerous aspect remains in the fact that liabilities imposed upon shipowners are multi-layered. To cite a few examples, at international level there is the Civil Liability Convention, the Athens Convention on liability for passengers, the Hazardous and Noxious Substances Convention, the Bunkers Convention, and the MARPOL Convention; at regional level, the European directives on environmental liability and on criminal sanctions for pollution offences etc; and at national level, the French pollution law, the Spanish decree on ports of refuge, the Argentina contingency plan requirements, the Panama Canal Shipboard Oil Pollution Emergency Plan requirements, the Turkish environmental code on pollution and fines, Canada’s newly adopted controversial law on criminal sanction and enforcement and US oil pollution laws including individual US states laws.

In 1990, when implementation of US Oil Pollution Act (OPA 90) became a fact, it shocked the maritime world by its onerous requirements and features which altogether made the US an exceptionally risky place for shipowners to trade. However OPA only sets out the minimum standard of liability in the US, as the individual States are free to enact more stringent laws and impose more severe requirements. Indeed States like Alaska and California did not hesitate to impose unlimited liability laws and with wider ranges of admissible damages. As a result of the stringent legal situation in the US, many big oil or shipping companies changed their strategy by carrying oil to the US only through chartered vessels, or by other protective means. Industries could not bear it anymore!

Who would have predicted that a decade later, the US OPA would be taken as a model by the European Union (EU) countries so as to build a system even more onerous and radical in countries which are parties to the well-functioning CLC and FC regime?

The European Directive on Environmental Liability adopted last year, though excluding environmental damage falling into scope of the international conventions, i.e. CLC, HNS, or Bunkers Convention, which is the logical way, clearly allows in its Preamble the Member States to enact more stringent provisions in relation to prevention and remedying of environmental damage.

This is an example of how additional liability was introduced by a regional legislative power and how shipowners’ liabilities have consequently escalated on a global scale! Lawmakers have a job to do, and seem to feel they are beyond criticism when the subject relates to the environment. And indeed they seem to compete with each other in legislating in the environmental field. It is left for the shipowners to grasp the meaning and scope of this uncertain liability amid ambiguity and confusion.

There are other areas contributing to increased shipowners’ liabilities:

The EU, and some individual countries including Italy and Brazil, have challenged the non-admissibility of pure environmental damage (where no quantifiable economic losses were incurred by any party) under the Conventions. This has been discussed within the IOPC Fund Working Group. In the US, natural resource damage claims have become increasingly expensive, and an assessment is conducted in almost all US spills. Assessment methods make possible abstract, exaggerated and huge figures as admissible damages. It is worrying to note that those methods are seemingly permissible under the EU Environmental Liability. Again in the US, spill clean-up costs have increased by more than 10 times since the Exxon Valdez years. The increase in spill cleanup costs is also a global trend. Greater admissibility will amount to a horizontal increase in the overall liability of shipowners for pollution damage (alongside any vertical increase in the limits of liability).

Under a new Spanish law, the deposit of a bank guarantee, which can be as high as one billion Euro, can be required when a ship in distress wishes to gain access to a port of refuge.

The industry faces defence costs that can be “astronomical”, and class actions in pollution and asbestosis claims have encouraged lawsuits.

In general terms, the tendency of courts to focus on the role of management in shore operations in casualties may erode the shipowner’s right of limitation.

Rules on everything from contingency plans to terrorism prevention not only mean dearer planning costs, but often uncertain liability exposure. An increased duty of care leads to increased negligence exposure.

3. Endless paper-work disruptive to traditional duties

Not only are liabilities varied and extremely onerous, but also paper-work arising from multi-layered liability requirements can be disruptive to the traditional shipboard duties of the master and crew members.

Doubtlessly for the master and crew member, the law is becoming more and more complex, with more and more documents to follow. Their requirements may contradict each other. If we professionals in law have to struggle so hard to understand the law and incorporate it into our decisions, how can the people on the ship be expected to absorb so much that is required in a vessel response or contingency plan, ISM Code, ISPS Code, ballast water management plan and this and other certificate? Have we thought of the consequences of over-enacting and over-regulating, of inconsistency resulting from multi-layered actions, or are we doing so simply to complete a task which is on a political agenda? Since each legislator has an agenda and must accomplish his task, seafarers seem to have no recourse but to struggle to comply with each and every layer of requirements. Is that going to be productive, or does it create a risk that attention to traditional shipboard duties is lessened by the time taken to deal with paper and regulation?

Who cares about finding a fair and balanced solution?

4. Unjustified criminalisation of seafarers

In most professions, if we make an unintentional error, we are not going to be put into prison, because criminalisation is only justified if there is a criminal intent (mens rea). Why should seafarers be singled out for punishment with prison terms if they negligently cause an accident or damage the environment in their everyday tasks? How many officials sitting in cosy offices face the same outcome if their work is careless?

In some regimes, criminal liability can be established on a strict basis, by the mere fact of spilling oil. The maximum penalty can reach as high as twice the civil damages, as in the US, or two to three times the value of the cargo carried for accidental spills, as in France.

Under the French pollution law, Code of the Environment, a person causing an involuntary pollution due to carelessness or negligence can be imprisoned for two years, and if such an accidental pollution results in irreversible environmental damage, his prison terms can be up to five years. The hope that the EU Directive on Criminal Sanctions would put a ban on such zealous legislation has been diminished by the latest version of the draft directive which not only prescribes criminal sanctions for “seriously negligent” pollution, in contravention with the spirit of MARPOL spirit, but also allows Member States to take even more stringent measures against ship-source pollution.

It is ironic to see what is being offered to people who are engaged in the sort of work which is risky to them but indispensable to society. Shipping professionals can become criminals merely because of the business they are engaged in. Is there not a conflict between laws that create ever increasing levels of complexity in what is required of shipboard personnel, and laws that discourage good people from taking up a shipboard career?

The criminalisation of seafarers has been the topic of many recent seminars, which is encouraging. While it is not intended here to merely add vain words on the unfair treatment of seafarers, it is only proper to remind us that such legislative exercise in criminalising the seafarer has again been conducted at national, regional and international level!

5. Conclusion: Call for Solutions

This talk concludes by a call for fair and balanced solutions. Let’s make our efforts to contribute to a better world where justice and balance can reign. If this talk has made the audience thoughtful about the issues raised, the lawmakers to pay attention to the need for coherent justice and productive outcomes, that would be my humble contribution.


Chao Wu
26 April 2005