The Torrey Canyon spill off the south west coast of the UK in 1968, led to many changes in international regulations. A system of compensation for pollution damage resulting from oil spills from sea-going tankers was established by international governments under the auspices of the International Maritime Organisation (IMO). The system is governed by two separate conventions which correspond to two separate 'tiers' of compensation:
- Civil Liability Convention (CLC 92)
- The Fund Convention (Fund 92)
In 2003, a Supplementary (‘third tier') Fund was established at the IMO.
Civil Liability Convention (CLC 92)
The first tier of compensation for oil spill damage is sourced from the Protection and Indemnity insurer of the vessel (P&I Club) on behalf of the shipowner under the International Convention on Civil Liability for Oil Pollution Damage (Civil Liability Convention or CLC).
The CLC was adopted in 1969 but has since been superseded by the 1992 Protocol (CLC 92). Subject to a number of specific exceptions, the Civil Liability Convention places liability for pollution damage on the owner of the tanker from which the polluting oil escaped or was discharged (not necessarily the vessel at fault). The advantage of this system of ‘strict liability' is that there is no need for litigation processes to take place in order to establish who is responsible for providing compensation, thus potentially enabling claimants to receive financial assistance more rapidly.
CLC 92 applies to all spills of persistent oil (e.g. crude oil, bunker oil and lube oil), within the Exclusive Economic Zone (EEZ) of a country which has ratified the convention, from ships carrying the oils in bulk as cargo. It does not apply to bunker oil carried as fuel for other types of ships, and it does not apply to spills of non-persistent oil such as gasoline or diesel. In addition, the amount of compensation for which the shipowner is liable under CLC 92 can be limited based on the gross tonnage of the vessel (not the size of the spill). For more information on the CLC please see the IMO website.
NB: Since the advent of the 1992 Protocol it is no longer possible for countries to ratify the 1969 Civil Liability Convention. However, some countries which originally ratified CLC 69 have yet to ratify the 1992 Protocol and hence the rules governing compensation in these countries are different (e.g. the compensation limits are lower, compensation is not provided for damage resulting from spills from unladen tankers, and compensation is only available for spills within the territorial waters of a participating country).
Fund Convention (Fund 92)
In the event that there are not enough funds available under the CLC 92 to settle all the claims resulting from a tanker spill, there is an additional layer of compensation for countries that are party to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (Fund Convention).
The Fund Convention was originally adopted in 1971 but has since been replaced by the 1992 Protocol which resulted in a considerable increase of available funds. Compensation under the Fund Convention is provided by oil cargo receivers in Contracting States and each contribution depends on individual import quantities.
As with the CLC, the Fund Convention applies only to spills of persistent oil from tankers within the EEZ of contracting countries. However, unlike the CLC, the compensation limit is fixed and is therefore not limited by vessel size. In addition, compensation is also provided for mystery spills from tankers or in cases where the vessel is uninsured. The Fund Convention is administered by the International Oil Pollution Compensation (IOPC) Funds. For more information on the Fund Convention please see the IOPC Fund website.
NB: Contracting States that receive less than 150,000 tonnes of oil cargo per annum are not required to make contributions to the Fund. However, they are able to benefit from the compensation regime should a spill occur. In this way the largest importers of oil, which are typically the more developed countries, shoulder the bulk of the burden of the oil spill damage compensation provided by the Fund Convention.
In May 2003, a Supplementary (‘third tier') Fund was established at the IMO through a Protocol that increased the amount of available compensation to around US$ 1 billion (including the amounts paid under the 1992 CLC and Fund Convention) in countries that are party to it.
The Supplementary Fund Protocol entered into force on 3 March 2005 and is financed by contributions payable by oil receivers in participating States. The criteria for compensation are the same as for the Fund 92, that is, a spill of persistent oil from a tanker within the EEZ of a contracting State.