An Overview of The HNS Convention
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1 An Overview of The HNS Convention Noor Apandi Osnin, Research Fellow Centre for Ocean Law and Policy, Maritime Institute of Malaysia Unit B-06-10, Megan Avenue II, 12 Jalan Yap Kwan Seng Kuala Lumpur, Malaysia. Tel: Fax: apandi@mima.gov.my Introduction 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 on 3 May 1996 by the International Maritime Organisation (IMO), to address the need for an international compensation and liability regime governing damage arising from the carriage of hazardous and noxious substances (HNS) by sea. The Convention contains 54 Articles in six Chapters with two Annexes. The main objective of this convention is to provide adequate, prompt and effective compensation for loss or damage arising in connection with the carriage of HNS on sea going ships by establishing a guaranteed level of compensation up to 250 million Special Drawing Rights (SDR) for claims arising from HNS incidents. The SDR is the International Monetary Fund (IMF) special drawing right derived from currencies of leading industrialized nations. SDR 250 m is approximately 200 m or USD 303 m. Background to Compensation Regime The Torrey Canyon incident in 1967 provided an incentive to the development of voluntary agreements and international Conventions to ensure that compensation is available to those who suffer pollution damage as a result of a spill of persistent hydrocarbon mineral oil from ships. The voluntary agreements of TOVALOP (Tanker Owners Voluntary Agreement Concerning Liability for Oil Pollution) and CRISTAL (Contract Regarding a Supplement to Tanker Liability for Oil Pollution) were established by the tanker and oil industries in the late 1960s as interim 1
2 arrangements pending the widespread ratification of two international Conventions developed by the International Maritime Organisation (IMO). The original Conventions were the 1969 International Convention on Civil Liability for Oil Pollution Damage (1969 CLC) and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (1971 Fund Convention). This old regime was amended in 1992 by two Protocols which increased the compensation limits and broadened the scope of the original Conventions. The amended Conventions are commonly known as the 1992 Civil Liability Convention (1992 CLC) and the 1992 Fund Convention. The voluntary agreements lasted far longer than expected, even as their relevance was progressively eroded as countries around the world ratified the international Conventions. In view of this, and the entry into force in 1996 of Protocols which updated the original Conventions, the voluntary agreements of TOVALOP and CRISTAL were terminated on 20 February More than 100 countries have ratified one, or a combination of, the Conventions and compensation equivalent to many hundreds of millions of US dollars has been paid to the victims of oil spills, without the need in the vast majority of cases for recourse to litigation. The system proved to be successful. As the CLC and FUND conventions only cover oil, it was felt that there is a need to develop a similar regime for HNS. Work began in IMO in since the early 1970s. A first attempt by IMO for a one tier HNS convention funded by ship-owners alone was rejected in A two tier compensation regime similar to the existing regime for oil was finally adopted in May The HNS Convention is also designed to fill the gap in oil compensation and liability by providing for compensation for damage other than those which arise from contamination by oil, such as damages resulting from fire or explosion, including personal injury or death, which are not covered by the present compensation instruments. The HNS Convention The HNS Convention creates new liabilities on ship-owners and on certain cargo interests to ensure that better liability and compensation arrangements are in place to cover damage arising 2
3 from the carriage of a range of hazardous substances and products by sea. The Convention provides compensation for damage arising from the carriage of HNS by sea as follows: a first tier of compensation, through strict liability of the ship-owner (guaranteed by insurance cover, or other financial security, maintained by the ship-owner), and A second tier of compensation, above the ship owner s limit of liability, provided by an HNS Fund (financed by 'receivers' of HNS in State Parties following carriage by sea). Under the HNS Convention, a ship-owner is held strictly liable for damage caused. This means that regardless of whose fault it is, the ship-owner will be liable for damages caused by the HNS that his ship is carrying. This is the first of the two tier compensation. The Convention however entitles the ship-owner to limit his liability based on units of tonnage of the ship. This range from 10 to 100 million SDR. These are to be covered by the insurance or other forms of financial security that is compulsory for the ship-owner to maintain. The Convention requires ship-owners to provide evidence of insurance cover upon entry into port of a State party by production of a certificate. This insurance certificate is necessary for the ship regardless whether the flag it is flying or its registries is party to the Convention. Units of Tonnage Maximum Liability 2,000 and less 10 million SDR 2,001 to 50,000 Add 1,500 SDR per unit 50,000 or more Add 360 SDR per unit Aggregate amount 100 million SDR Ship-owners may lose the right to limit liability if it is proven that the damage resulted from the ship-owners personal act or omission committed with intent or recklessly with knowledge that damage will ensue. One possible example would be a ship-owner knowingly allowing a ship to sail in such an unseaworthy condition that an accident is likely to happen and do so. Once the limit of the first tier of compensation is depleted, where the damage cost more than the maximum limit of liability, the HNS Fund will take over. This is the second tier. The HNS 3
4 Convention will establish a guaranteed level of compensation of up to 250 million SDR. HNS cargo receivers in States party to the Convention will provide the funding for the second tier compensation in the form of levies calculated after the incident has occurred. The HNS Convention entitles claimants to compensation for loss or damage to persons (death or injury), property and the environment caused by incidents, within the scope of application of the Convention, involving cargoes of oil, gases, and chemicals, plus other hazardous substances in packaged form. The Convention also allows for recovery of costs or damages arising from incidents which have the potential to cause damage as defined in the HNS Convention, for example reasonable costs incurred responding to an incident. The HNS Convention will enter into force eighteen months after the date on which: at least 12 States, including 4 States each with not less than 2 million units of gross tonnage, ( eight plus four States each with registered fleets totalling 2 million tonnes or more), have expressed their consent to be bound by it; and The Secretary-General of the IMO has received information that those persons in such States who would be obliged to contribute have received during the preceding calendar year a total quantity of at least 40 million tonnes of contributing cargo. As of 18 March 2005, it has been ratified by eight States which are Angola, Cyprus, Morocco, Russian Federation, Saint Kitts and Nevis, Samoa, Slovenia and Tonga. Only Cyprus and the Russian Federation have more than 2 million units of gross tonnes. Japan, Netherlands, Denmark, New Zealand, Italy, Singapore, Germany, Sweden, Canada, Finland, Norway, UK and Greece are either in the process of evaluation, preparation to ratify or amending national legislation in preparation for implementation. 4
5 Implementation and administration of the HNS Fund The HNS Fund will be organised through an Assembly, Secretariat and a Director. The HNS Fund shall have the status of a legal person in each State party with the Director as its legal representative. The Assembly consists of all state party and will meet once a year. A Claims Committee will be established made up of State parties elected by the Assembly. This committee s main purpose will be to consider claims for compensation especially if it involves new issues of principles. Once the entry into force criteria have been met, an Assembly of the contracting states will be convened by the Secretary General of the IMO. This Assembly will determine the essential administrative arrangements for the HNS Fund. These arrangements will include the appointment of the Secretariat and agreement on the rules of procedure. The first Assembly is also expected to decide on key matters for the administration and policies and procedures which have not been pre-determined by the HNS Convention, i.e. matters relating to contributions to the HNS Fund, collection of levies, claims procedures and payment of compensation. Scope of application of the HNS Convention Article 3 of the Convention establishes the geographical scope of the Convention, which will apply to any damage caused by HNS in the territory or territorial sea of a State party, and to damage caused in the Exclusive Economic Zone (EEZ) of a State Party, or if such a zone has not been established, in an equivalent area. Any damage caused by ships registered in, or entitled to fly the flag of, a State Party is covered wherever it occurs, unless the damage occurs in the territory or the territorial sea of a State not party to the Convention. Claim for compensation may be made in any State Party to the HNS Convention, where damage has arisen within the scope of application of the Convention. Claimants may be individuals, partnerships, companies, private organisations or public bodies, including States or local authorities. The Convention covers incidents involving the carriage of HNS by sea by any sea 5
6 going craft of any type whatsoever, although the Convention allows States the option to exclude small ships engaged in domestic voyages. The Convention does not cover liability and compensation for damage caused during the transport of HNS to or from a ship. Classification of Hazardous and Noxious Substances under the Convention For the purpose of this convention, HNS is defined based on lists of substances that have been previously identified in a number of Codes. This include lists provided by Annex I (prevention of pollution by oil) and II (control of pollution by noxious liquid substances) of the International Convention for the Prevention of Pollution from Ships 1973, as amended by the Protocol of 1978 (MARPOL 73/78), chapter 17 of the International Code for the Construction and Equipment of Ships Carrying Dangerous Chemicals in Bulk, 1983 (the IBC Code), the International Maritime Dangerous Goods Code (the IMDG Code), chapter 19 of the International Code for the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk, 1983 (the IGC Code) and appendix B of the Code of Safe Practice for Solid Bulk Cargoes (the BC Code). HNS are varied and include both bulk cargoes and packaged goods. Bulk cargoes may be solids, liquids or liquefied gases. Bulk solids are included only if they possess chemical hazards, are listed in appendix B of the BC Code and are also subject to the requirements of the IMDG Code. Examples of bulk solids include some fertilisers, nitrates, sulphurs and fishmeal. Bulk liquids are included if they present safety, pollution or explosion hazards and include organic chemicals i.e. methanol, xylene and styrene, inorganic chemicals i.e. sulphuric acid, phosphoric acid and caustic soda, vegetable and animals oils and fats i.e. palm oil, soy bean oil and tallow. Persistent (oils that do not dissipate quickly and will therefore pose potential threats to natural resources when released to the environment i.e. crude oil, fuel oil, heavy diesel oil and lubricating oil) and non-persistent oils are also covered with the exception of pollution damage caused by persistent oil which is already covered by the CLC and FUND Convention. All liquefied gases transported in bulk are included. These includes liquefied natural gas (LNG), liquefied petroleum gas (LPG), ammonia, ethylene, butadiene, ethane and propylene. 6
7 Packaged goods are also included if they are listed in the IMDG Code. In short all substances mentioned in any of these lists are covered under the HNS Convention with the exception of radioactive materials and pollution damage caused by persistent oils that are already covered by the CLC and FUND Convention. Liability of the Ship-owner Under the Convention the ship-owner is strictly liable for damage caused by HNS carried by his or her ship. Strict liability means that the ship-owner is liable, even if the incident did not result from the fault or neglect of the ship-owner. The ship-owner can limit his or her liability to an amount which is determined by the tonnage of the ship. With regard to this, the Convention requires the ship-owner to maintain insurance cover, or other effective financial security, to cover his or her liability under the Convention. This requirement is referred to as 'compulsory insurance' which are compulsory to all ships over 200 GRT registered in a State Party to the HNS Convention and carrying HNS. The HNS Convention requires a State party to ensure that all owners of ships carrying HNS entering or leaving a port in its territory, or arriving at or leaving an offshore facility in its territorial sea, maintain insurance cover, irrespective of where the vessel is registered. The Convention also requires that a certificate is issued, by a State Party, attesting that insurance or other financial security is in place. The responsibility for issuing such certificate rests with the State where the ship is registered. Where a ship is registered in a State that is not party to the HNS Convention, a certificate may be issued by any State Party to the Convention as long as the insurance requirements are satisfied. Compensation under the HNS Convention When the total amount of claims for damage under the Convention exceeds the ship owner s liability, the HNS Fund will provide further compensation up to a combined total of 250 million SDR, regardless of ship size. The HNS Fund will also pay compensation up to 250 million SDR where: 7
8 the ship-owner is exonerated from liability, e.g. damages resulting from a natural phenomenon, or the ship-owner liable for the damage is financially incapable of meeting his obligations, or The vessel responsible for the damage cannot be identified, but the claimant is able to prove that there is a reasonable probability that the damage resulted from an incident involving a ship as defined by the Convention. Financing and levies The HNS Fund will be financed by annual contributions from those persons who are obliged to contribute under the HNS Convention, who in the preceding calendar year: received over 150,000 tonnes of crude or fuel oil in a State Party; or held title to any LNG cargo immediately prior to its discharge in a port or terminal of a State Party; or Were the receiver of any other HNS cargo, including oils other than crude and fuel, in quantities exceeding 20,000 tonnes in a State Party. HNS Account Oil - persistent Oil non persistent LNG LPG Bulk solids & other HNS Thresholds 150,000 tonnes 20,000 tonnes No minimum quantity 20,000 tonnes 20,000 tonnes The Fund will raise levies on such persons in all States party to the HNS Convention. The Assembly shall decide the total amount of annual contributions to be levied both to make 8
9 compensation payments and also to cover the administrative costs of running the HNS Fund. The distribution of administrative costs between the sectors of the general account and the separate accounts will be decided by the Assembly. The levies applying to individual receivers will be calculated according to the quantities of contributing cargo received. Reporting requirements The Convention requires States Parties to provide to the HNS Fund the name and address of any person obliged to contribute to the Fund as well as details of the relevant quantities of contributing cargo in respect of the preceding calendar year. Contributions will be made in the form of levies to the HNS Fund once it is in operation. Levies are likely to be invoiced by the HNS Fund direct to the persons obliged to make contributions or to the State Party as appropriate. In order to ensure the efficient, and accurate, operation of a reporting system implemented through the Regulations, they should also include: a compliance and verification system in order to monitor and manage the reporting system for contributing cargo; the provision of legal rights for the HNS Fund to recover unpaid levies; Consideration of application of statutory fines for failure to report receipts of HNS where necessary. Therefore, implementation of the HNS Convention will require that States Parties ensure that all persons obliged to contribute under the Convention submit annual reports of contributing cargo, that is, HNS cargo received (or in the case of LNG, discharged), in that State, where those quantities meet or exceed the Convention thresholds. Such reports should be compiled, on an annual basis, by a competent authority to be designated by the State. NAO, June
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