The International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 ("the HNS Convention") was adopted in May 1996. It is modelled on CLC 1992 but intended to cover damages caused by spillage of hazardous and noxious substances during maritime transportation.
The definition of HNS set out in the HNS Convention is based on a list of individual substances identified in a number of IMO Conventions and Codes, designed to ensure maritime safety and the prevention of pollution. A large number of substances are covered under the Convention, such as those which appear under the IMDG Code. The Code lists hundreds of substances that can be dangerous when shipped in packaged form.
The transport of hazardous and noxious substances (HNS) by sea is a vital trade. Chemicals and other products underpin many manufacturing processes and thanks to IMO regulations, they are transported safely. However, incidents do happen and, when they do, victims need to be adequately and efficiently compensated. There does not however currently exist a comprehensive international regime to address claims from victims of these incidents. Twenty- three years after the HNS Convention was signed, it has still not received ratifications from a sufficient number of States.
The system of compensation for damage under the HNS Convention was also generally modelled on the system accepted and already operated under the oil pollution conventions i.e. the CLC and Fund Conventions. In April 2010, an international conference on the revision of the HNS Convention adopted the protocol of 2010 to the HNS Convention. This was designed to address practical problems that had prevented many States from ratifying the original Convention. The HNS Convention today following the 2010 Protocol is referred to as the 2010 HNS Convention.
Despite the 2010 Protocol, States have been reluctant to support the Convention. For various (mostly economic) reasons, the system of compensation under the oil pollution Conventions does not constitute a proper model for compensation caused by chemical cargoes carried by sea. There are essential differences between the position of the oil industry and of the chemical industry with regards to the sharing of responsibility for marine incidents between these industries and the shipping industry.
Under the HNS Convention, liquefied natural gas ("LNG") is included within the definition of HNS. This is the first time an international liability regime will make LNG shipowners and cargo title holders strictly liable for accidents solely as a result of LNG being classified as a HNS. This would have the drastic effect of increasing the liability of LNG shipowners and cargo title holders to third parties in states that are party to the Convention.
What does the HNS Convention cover?
The shipowner is only liable for damages caused by hazardous substances in connection with their carriage by sea on board the ship (as per Article 7.1). "Carriage by sea" covers the period from the loading of the goods on board the vessel to the time they are discharged.
Nonetheless, a State can declare that the HNS Convention does not apply to ships which do not exceed 200 gross tonnage and which carry hazardous substances only in packaged form (while engaged in voyages within the ports of that State).
It should be noted that there are other important exclusions under the Convention. For instance, in relation to contracts of carriage, the HNS Convention does not apply to claims arising out of a contract for the carriage of passengers (Article 4.1). This exclusion only relates to claims arising out of a contract of carriage. Therefore passengers who suffer personal injury or death are not prevented by their contracts of carriage from pursuing claims for compensation founded on Convention.
The passenger therefore have two options; either to base his action on the legislation governing the contract, such as the 1974 Athens Convention or base his action solely on the HNS Convention. This aligns with the purpose of the Convention which is inter alia to ensure that adequate compensation is available to persons who suffer loss of life or personal injury as a result of the carriage of hazardous substances.
In relation to goods that have been lost, damaged or destroyed as a result of the HNS on board, the Convention only applies to damage to property outside the ship carrying the hazardous substances.
Loss or damage caused by preventive measures is compensated under the HNS Convention (as per Article 1.6(d)). For example, if clean-up operations result in damages to roads, piers and embankments, the cost of the resulting repairs will be compensated under the Convention.
Significantly, a further exemption is that if a shipper fails to furnish the information concerning the hazardous and noxious substances either wholly or partly, and this led the shipowner not to obtain insurance, then the shipowner can exempt himself from liability under the HNS Convention. However, this defence would not be available if the shipowner ought reasonably to have known about the consignment in question.
What is the scope of the HNS Convention?
Article 3 provides that the Convention shall apply exclusively:
- to any damage caused in the territory, including the territorial sea, of a State Party.
- the Convention is also capable of applying to damage by contamination of the environment caused in the EEZ of a State Party. If a State party has not established such a zone, in an area beyond and adjacent to the territorial sea of that State determined in accordance with international law and extending not more than 200 nautical miles from the baselines from which the breadth of its territorial sea is measured.
- to damage, other than damage by contamination of the environment, caused outside the territory, if the damage has been caused by a substance carried on board a ship registered in a State Party, or in the case of an unregistered ship, on board a ship entitled to fly the flag of a State Party; and
- to preventive measures wherever taken, to minimize damage in (a) -(c) above.
It should be noted that the scope of application of the Convention depends on the place where the damage occurred and not on the place of the incident. The type of damage is deemed as relevant, and in regards to (c), the nationality of the ship is also important.
Levels of Compensation
The Convention provides two tiers of compensation in the event of a HNS casualty.
The first tier imposes liability on the shipowner, and such liability will normally be covered under the shipowner's P&I insurance.
The second tier consists of the HNS Fund, into which certain importers of HNS will be obligated to contribute following a casualty. The amount of such contributions will be based, among other factors, on the amount of HNS imported by each such cargo title holder in the calendar year immediately preceding the calendar year in which the casualty occurs.
In essence, the HNS Fund is modelled after the 1992 Civil Liability Convention and the 1992 Fund Convention applicable to crude oil pollution and administered by the IOPC Funds based in London.
Both tiers above consist of a strict liability regime. This means that the liability of the shipowner is established regardless of fault. Thus, unless one of the limited defences under the Convention is applicable, a shipowner who causes a casualty in the territory of a State Party, involving HNS, will be liable in accordance with the Convention. This will apply regardless of whether it would otherwise have been liable in accordance with the general principles of fault and negligence.
This is an important distinction between the Convention and other limitation regimes. Whereas traditional regimes (such as the Civil Liability Convention or FUND Convention) are invoked to limit a shipowner's liability in the event that the shipowner is found legally to be at fault, the HNS Convention imposes liability irrespective of fault.
Channelling of liability
The HNS Convention contains provisions on so-called channelling of liability identical to those contained in the 1992 CLC. However, the HNS Convention differs in one crucial aspect as it prohibits claims against the servants and agents of the shipowner or members of the crew as well as claims against the pilot or any other person who, without being a member of the crew, performs services for the ship. It also prohibits claims against any charterer (including a bareboat charterer), manager or operator of the ship, against any person performing salvage operations with the consent of the shipowner or on the instructions of a competent public authority and against any person taking preventive measures, as well as claims against the servants or agents of any of these parties.
First tier liability
Under the first tier, the owner of a vessel carrying HNS and suffering a casualty in a State Party will be strictly liable for an amount not exceeding a sum determined with reference to the gross tonnage of the vessel involved in the casualty. Thus, unless one of the Convention's exceptions is applicable, the shipowner will be liable for any damages caused by HNS during transit, regardless of fault or negligence.
The Convention provides a few exceptions to the shipowners' first tier strict liability. The Convention explicitly exempts shipowners from any damages (i) resulting from acts of war, hostilities, civil war, insurrection or certain natural phenomena, (ii) wholly caused by an act or omission done with intent to cause damage by a third party (e.g. terrorist attack), and (iii) wholly caused by the negligence or other wrongful act of any governmental authority responsible for the maintenance of lights or other navigational aids. The maximum limitation under the first tier is 100 million SDR (for cargo carried in bulk) or SDR 115 million (where damage is caused by packaged cargo or by both bulk and packaged cargo, or where it is not possible to determine the origin of the cargo causing the damage).
Second tier liability
The second tier of the Convention imposes liability at large on the various industries importing HNS. The Convention's second tier liability imposes burdens on HNS-importing industries by way of mandatory contributions to the HNS Fund, such to be made when the liability limits of the first tier are exceeded or in the event that a shipowner is unable to meet its first tier obligations.
For instance, when a casualty involving HNS occurs in a State Party, the shipowner will first be liable up to the first tier 100 or 115 million SDR. To the extent that damages exceed the first tier limit, or to the extent that the shipowner cannot meet its first tier obligation, claimants are entitled to compensation from the HNS Fund, in each case up to a maximum of 250 million SDR inclusive of the shipowner's first tier contribution.
It should be noted that the second tier liability is borne by the industry and all State Parties contribute to this tier as a whole regardless of fault or the location of the incident.
From year to year, the number of LNG Owners will change and volumes imported will fluctuate. As a result, ascertaining the extent of an individual LNG Owner's contingent liability under the second tier of the Convention can be viewed as somewhat of a moving target.
Although the second tier of the Convention is similar to that of the 1992 Fund Convention, it is clear that administration of the HNS Convention will be more complicated. This is due to the variety of products covered and the difficulty in ascertaining who is the receiver of the HNS cargo (and in cases of LNG, the cargo title holder).
Prospects of ratification
To date, the following five States have ratified the 2010 HNS Convention; Norway (21 April 2017), Canada and Turkey, (23 April 2018), Denmark (28 June 2018) and South Africa (15 July 2019). In order for the Convention to enter into force, at least twelve States must ratify. Four of the ratifying States should each have a merchant fleet of no less than 2 million units gross tonnage (this requirement has now been achieved) and the total volume of the ratifying States' contributing cargo during the preceding calendar year must be at least 40 million tonnes. Once these criteria are fulfilled, the HNS Convention will come into force 18 months later.
The IMO advised in July of this year in relation to the 2010 HNS Convention that, "A number of other States have reported significant progress towards ratification in recent months and it is therefore anticipated that further instruments will be deposited in the near future".
Therefore, the HNS Convention, an important set of regulations and the final piece in the jigsaw puzzle which ensures access for victims of damage caused by HNS cargoes carried on board ships to a prompt and effective compensation regime, may be coming into force in the not too distant future.
 Such as the International Maritime Dangerous Goods Code (IMDG Code)
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