Claims for pollution damage caused by oil from oil tankers

A major oil spill can have a serious impact on people's livelihoods and on the environment. The International Maritime Organization (IMO) has established a three-tier scheme governing liability and compensation which applies to damage resulting from spills of persistent oil (crude oil and heavy fuel oil) from oil tankers. The scheme applies to damage resulting from oil carried by oil tankers both as cargo and as fuel.

The framework for the regime was originally the International Convention on Civil Liability for Oil Pollution Damage, 1969 (1969 Civil Liability Convention) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1971 (1971 Fund Convention). This “old” regime was amended in 1992 by two Protocols and the amended Conventions are known as:

  • the International Convention on Civil Liability for Oil Pollution Damage, 1992 (the 1992 Civil Liability Convention); and
  • the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992 (the 1992 Fund Convention).

The 1992 Conventions entered into force on 30 May 1996. The 1971 Fund Convention ceased to be in force on 24 May 2002 and does not apply to incidents occurring after that date.

The first tier of the scheme is established by the Civil Liability Convention. In accordance with the Civil Liability Convention:

  • a tanker owner is strictly liable to pay compensation for pollution damage resulting from a spill of persistent oil;
  • the tanker owner is able to limit liability to pay compensation in accordance with the liability limits set out in the Convention;
  • the owners of tankers carrying more than 2,000 tonnes of persistent oil as cargo are required to maintain insurance to cover their liabilities; and
  • claims for pollution damage may be brought by the claimant directly against the insurer.

In terms of the Civil Liability Convention, pollution damage includes not only damage to the environment (which covers primarily cleanup costs) but also loss of profit. The main industries affected by oil spills are the fishing, aquaculture and tourism industries.

A tanker owner's liability limit under the Civil Liability Convention depends on the size of the tanker. The liability limits set out in the Civil Liability Convention in respect of claims following a spill of persistent oil are as follows:

  • for all tankers with a gross tonnage up to 5,000: 4.51 million Special Drawing Rights (SDR);
  • for tankers with a gross tonnage of between 5,000 and 140,000: 4.51 million SDR plus 631 SDR for each gross ton in excess of 5,000; and
  • for tankers with a gross tonnage of 140,000 and over: 89.77 million SDR.

The Civil Liability Convention is implemented in Australian domestic legislation by the Protection of the Sea (Civil Liability) Act 1981.

A description of the Civil Liability Convention is available on the IMO website.

The second tier of this scheme applies where the compensation available from the tanker owner is insufficient to pay the full compensation costs. The second tier is governed by the 1992 Fund Convention.

The 1992 Fund Convention established the International Oil Pollution Compensation Fund 1992 (1992 Fund) to provide compensation for victims who are unable to obtain full compensation under the Civil Liability Convention. The 1992 Fund is financed by contributions levied on any entity or person who has received more than 150,000 tonnes of persistent oil after sea transport per calendar year in countries that are Parties to the 1992 Fund Convention.

The total aggregate amount of compensation payable for one incident under the Civil Liability Convention and the 1992 Fund Convention is 203 million SDR.

The third tier of the scheme is provided by the Protocol of 2003 to the 1992 Fund Convention (the Supplementary Fund Protocol). The Supplementary Fund Protocol establishes the International Oil Pollution Compensation Supplementary Fund (the Supplementary Fund) to provide compensation for victims who do not obtain full compensation under the Civil Liability and the 1992 Fund Conventions. The total aggregate amount of compensation available under the three tiers combined is 750 million SDR.

The Supplementary Fund is financed in a similar way as the 1992 Fund, that is, by contributions levied on public or private entities in receipt of more than 150,000 tonnes of contributing oil after sea transport per calendar year in countries that are Parties to the Supplementary Fund Protocol.

The text of the 1992 Conventions and Supplementary Fund Protocol is available on the website of the International Oil Pollution Compensation Funds. The International Oil Pollution Compensation Funds have also prepared a brochure which describes the international oil pollution compensation regime in a reader-friendly form.

The 1992 Fund Convention and the Supplementary Fund Protocol are implemented in Australia by four Acts:

Descriptions of the 1992 Fund Convention and the Supplementary Fund Protocol are on the IMO website.