Oil pollution compensation Bill kicks off in Lords

A Bill to increase the amount of compensation available for damage caused by major marine oil pollution incidents received an unopposed second reading in the House of Lords on 14 June. It will also enable the UK to ratify international rules on air pollution from shipping.

At just four clauses, the Merchant Shipping (Pollution) Bill is set to become one of the shortest pieces of primary legislation on the environment, but its value to victims of marine oil pollution will be very much greater.

Compensation for marine oil pollution is currently provided under two linked conventions developed by the International Maritime Organization.

A first tier of compensation is payable under the Liability Convention, which makes shipowners strictly liable for oil pollution damage and requires them to maintain insurance up to an amount determined by the tonnage of the ship. Between £4 million and £72 million is available in this lower tier, depending on the ship's tonnage.

Where these sums are inadequate, the Fund Convention provides additional compensation, paid for by major recipients of oil transported by sea. This brings the total amount of compensation to a maximum of £162 million per incident.

Although these arrangements are adequate for most oil spills, they have not proved up to the task with some recent major incidents. The problem is not simply that total claims can exceed £162 million, but also the lengthy delays in paying full compensation while all claims are assessed against the budget available.

Europe's last major oil tanker disaster, the loss of the Prestige in November 2002, has graphically highlighted the regime's shortcomings. Over 70,000 tonnes of fuel oil was lost from the ship, polluting large stretches of the coasts of Spain, Portugal and France.

Three years later, only 15% of claims arising from the disaster have been paid through the two funds. Interim payments covering the remaining 85% of claims have been made by the French and Spanish governments, but the full cost of the disaster is expected to exceed the limit under the funds, leaving them out of pocket.

In 2003, IMO members responded to these problems by adopting the Supplementary Fund Protocol, which will provide an additional £440 million where claims exceed the compensation available under the two existing funds.

As with the Fund Convention, the new fund will be built up by a levy on oil transported by sea.

EU countries agreed to ratify the new protocol by June 2004, and nine of them, along with Japan, have now done so, bringing it into force in March. Unusually, the UK is among the laggards, but the Government now says that it wants to give effect to the protocol "at the earliest possible opportunity".

Introducing the second reading debate on 14 June, Government whip Lord Davies said that "the main benefit of this legislation is that the presence of the Supplementary Fund will enable claims for payment under the existing fund to be met without fear of exceeding the limit of that fund. Full and prompt payment should be assured by virtue of the fact that the total sum of £600 million compensation that will be available should cover any likely circumstances."

The Bill will also enable the UK to ratify future changes to the international oil pollution compensation regime by using the affirmative resolution procedure rather than requiring new primary legislation. One change currently under discussion at the IMO is the balance of financial contributions between shipowners and the oil industry.

A further clause in the Bill relates to the limitation period for claims under the Fund Convention.

The Convention requires that such claims must be brought within three years of the damage occurring, but existing UK law muddies the water by providing that claims must be commenced within three years of the claim against the Fund arising.

The Government believes that there is a risk that this could be taken to refer to the much later point at which it becomes clear that full compensation cannot be obtained from the shipowner under the Liability Convention. The Bill will end the potential for confusion.

The Bill's remaining clause will enable the UK to ratify Annex VI to the international MARPOL Convention on prevention of pollution from ships. The annex, which deals with air pollution, was agreed in 1997, and again the UK is late in bringing it into force. A total of 23 countries have already ratified, and the annex entered into force in May.

The annex introduces technical standards for controlling emissions of sulphur and nitrogen oxides from ships' boilers, as well as controls on the emission and use of ozone-depleting chemicals.

Winding up the second reading, Government whip Baroness Crawley said that the benefits of Annex VI for the UK will include a reduction in damage to materials and structures worth £3 million per year, as well as 20 fewer deaths and a £26 million per year reduction in associated economic losses.

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