PROSPECTS FOR BETTER COMPENSATION FOR ECOLOGICAL DAMAGE RESULTING FROM ACCIDENTS IN EUROPEAN MARINE WATERS

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1 CRPMDTR B3 CONFERENCE DES REGIONS PERIPHERIQUES MARITIMES D EUROPE CONFERENCE OF PERIPHERAL MARITIME REGIONS OF EUROPE 6, rue Saint-Martin, RENNES - FR Tel. : + 33 (0) Fax : + 33 (0) web : FEBRUARY 2012 TECHNICAL PAPER FROM THE CPMR GENERAL SECRETARIAT PROSPECTS FOR BETTER COMPENSATION FOR ECOLOGICAL DAMAGE RESULTING FROM ACCIDENTS IN EUROPEAN MARINE WATERS Compensation of ecological damage resulting from oil pollution has been and is still a major issue following the Erika and Prestige accidents, as well as many of the less important and less publicised accidents which unfortunately often occur in European waters. For a number of reasons which are explained in this document, ecological damage in marine waters is presently not fully recognized at international and European levels, which makes it naturally difficult to obtain proper compensation. The issue is therefore one for which new action should be taken at EU or international level. Following the Deepwater accident, the European Commission is about to propose new actions concerning offshore platforms. These proposals will notably address the issue of ecological damage in marine waters, for instance through amendments to the European Liability Directive. Adoption of these proposals could represent a great step forward towards a general recognition of ecological damage in marine waters at EU level, and therefore for better compensation for damages. This document addresses the issue of compensation for ecological damage in EU waters from the following angles: The recognition of ecological damage in marine waters at international and European level; Financial compensation for ecological damage in marine waters at international and European level. I. THE RECOGNITION OF ECOLOGICAL DAMAGE IN MARINE WATERS AT INTERNATIONAL AND EUROPEAN LEVEL EU Directive 2004/35/EC defines environmental or ecological damage as damage to protected species and natural habitats, which is any damage that has significant adverse effects on reaching or maintaining the favourable conservation status of such habitats or species, water damage and land damage. Such damage can result from accidents, but also from other causes, such as for instance illegal dumping by ships (so-called discharge ). Two following types of environmental damage can be distinguished: Primary damage, concerning cleaning and rehabilitation of the environment, when possible, in the short term; Compensatory damage, when rehabilitation action is needed in the longer term, and compensation for affected services. Resulting from Accidents in European Marine Waters - Reference CRPMDTR B3 February 2012 p. 1

2 A) Some major shortcomings at international and EU Member State levels 1. Insufficient recognition of ecological damage in marine waters at international level At international level, compensation for ecological damage is an issue covered by several international conventions, which are however only limited in scope: For Oil Pollution - The Convention on Civil Liability for Oil Pollution Damage (CLC Convention) and the IOPCF convention take into account, to a certain extent, the reasonable costs of reinstatement, but not pure ecological damage. The latter is only recognised in a limited way in that the two conventions refuse any compensation based on a theoretical model and that furthermore, the reasonable nature of reinstatement gives rise to controversy, particularly in assessing the timescale and the extent of the measures that need to be taken into account. As a consequence in practice, compensation for ecological damage is incomplete on the basis of these conventions. For pollution resulting from Hazardous and Noxious Substances - The HNS Convention (for International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea) deals with offshore hazardous and noxious substances. It covers economic and ecological damage caused by these substances, with conditions which are similar to the ones applied in the framework of the CLC Convention, and therefore faces the same limits. In addition, the HNS Convention has not yet been entered into force. 2- Very diverse situations across EU Member States Some of the Member States, such as Germany or Italy for instance, recognize environmental damage in their legislation. In France, ecological damage was only recognized through the Erika trial in 2008, and was then introduced into French Environmental legislation in Other Member States recognize a general principle of compensation without however covering pure environmental damage in their legislation. Other Member States have not recognized ecological damage in their legislation. The situation concerning the recognition of ecological damage is therefore very different across Member States. B) The current impossibility to compensate ecological damage on the basis of EU legislation towards a major step forward through a review of the European Liability Directive? 1- Loopholes in current EU legislation Two main EU Directives could cover the issue of ecological damage in EU waters, but they only offer limited possibilities, the first due to its very purpose, and the second because it excludes consideration of ecological damage caused in marine waters. The lack of recognition of environmental damage in the Ship-source pollution Directive The 2005 Directive on Ship-source pollution and on the introduction of penalties for infringements 1 established sanctions concerning ship source pollution caused by illegal discharges. The purpose of this Directive is not to cover ecological damage caused in marine waters, which is considered as being addressed in the framework of the Environmental Liability Directive. However, the question has arisen, and through its decision of 3 rd June , the European Court of Justice confirmed that it was impossible to recognise the sanction for ecological damage on the basis of this Directive. Ecological damage cannot be recognised on the basis of this Directive. Failure to recognize damage in marine waters by the European Liability Directive (ELD) The ELD 3 organizes rules for the recognition and compensation of environmental damage at EU level in respect of land, waters and natural resources. However, a major loophole in this directive consists in the fact that it does not recognize damage caused by oil pollution in marine waters. As a consequence and paradoxically, damage caused to land by oil pollution can currently be better covered in the framework of the ELD Directive than damage caused to marine waters Resulting from Accidents in European Marine Waters - Reference CRPMDTR B3 February 2012 p. 2

3 Practical shortcomings of Directive 2009/20/EC on the insurance of shipowners Since it established a transposition into European law of the 1996 LLMC International Convention, the 2009/20/CE Directive concerning shipowners insurance for maritime claims, adopted as part of the Erika III package, has not established specific European rules. The 2009 Directive makes a direct reference to the 1996 Protocol 4 to amend the LLMC Convention 5 (on Limitation of Liability for Maritime Claims), which lays down international rules concerning maritime claims. This Convention makes provisions for compensation for all maritime claims through the constitution of a fund, but like all international conventions, it fixes limits for compensation. So legally, ecological damage is covered by this Convention. Nevertheless, the text also states that some claims have priority over others. These are notably costs incurred by States and costs to compensate for loss of life or personal injury to crew. The rules of this Convention, and by extension of the Directive, which is the traditional rules relating to maritime claims, demonstrated its limitations with regard to marine pollution and led to the establishment of a specific CLC/IOPCF system. 2- A possible step forward through a review of the European Liability Directive? It is generally admitted and acknowledged that there are inadequacies in the coverage of damage to marine waters by the ELD directive and other EU directives. Today, major changes could be made through a review of the European Liability Directive, which will be proposed by the European Commission in the framework of its proposals concerning offshore platforms. The European Commission will indeed propose to extend the scope of ecological damage to damage caused by offshore platforms. This would represent a major step forward towards a general recognition of ecological damage in European marine waters. In addition to this, the European Commission is conducting preliminary studies concerning ways to integrate ecological damage resulting from oil pollution in marine waters in Member State legislation 6. Rules organizing the safety of off-shore platforms and compensation for environmental damage differ widely between the countries. Naturally, activities are more regulated in the United Kingdom and in the Northern part of Europe. One objective of the review of the ELD directive which could be made is to enable a better convergence of rules concerning offshore platforms. In parallel, it could be interesting to discuss the idea of creating a European database of all decisions taken by national courts of justice concerning ecological damage to improve operators financial security and compensation for damage. A rapport is scheduled for 2014 on the utility of this database. II. THE FINANCIAL COMPENSATION OF ECOLOGICAL DAMAGE IN MARINE WATERS AT INTERNATIONAL AND EUROPEAN LEVEL International Oil Pollution Compensation funds (IOPCF) systems were established by the Civil Liability Convention in order to allow quick compensation to oil-spill pollution victims 7. The main principles applied in the framework of the IOPCF in order to facilitate such compensation are: That compensation could be granted without having to prove either a wrongdoing or negligence in shipowners behaviour and without the need to undertake legal action at national level, however only for damages not exceeding IOPCF ceilings; That shipowners are the only ones liable for damages caused by their ships, which provides more legal clarity. A) Shortcomings in the International and European Systems As such, CLC and HNS Conventions and the creation of the IOPCF represented a major and highly positive step for better compensation for damages. There are however still big difficulties at both international and European levels, which could inspire new action at these levels Resulting from Accidents in European Marine Waters - Reference CRPMDTR B3 February 2012 p. 3

4 1- Difficulties in using IOPCF A first difficulty concerns the difficulty for victims to understand and use IOPCF procedures, which sometimes appears to be too complex. Problems also arise concerning transparency in the way the funds operate, in particular regarding the quantification of damages between estimations made by victims, and the amounts recognised. Although the setting up of the IOPCF represented a big step towards speeding up the allocation of compensation, despite everything, delays exist. These delays particularly result from the need and therefore the willingness for a victim to obtain full compensation. Delays result from many round trips between the applicant and the expert, since the IOPCF sets strict rules of eligibility of damages and assessment documents. This mainly concerns major pollutions, like in the Erika case, which sometimes need to go back before national courts. IOPCF compensation appears quick enough even if liability limits could create delays for major damages. However, at present, IOPCF remains clearly the most effective way to provide compensations to victims. In addition, obtaining supplementary funds by numerous States raises a certain number of limits relating to compensation ceilings. 2- Limits set by IOPCF ceilings The IOPCF Convention sets maximum ceilings for amounts that can be paid by shipowners in compensation for damages. In the case of very expensive damages, the existence of these ceilings does not allow victims to get full compensation in the framework of the IOPCF. The CLC Convention would make it possible to get compensation for more expensive damages, but only for those resulting from shipowner s personal act or omission, committed with the intent to cause damage, or recklessly and with knowledge that such damage would probably result. However, in this case, the question arises of solvency of the wrongdoer. As a consequence, and paradoxically, victims from pollution with very costly consequences are not as well-covered as victims from pollution with less expensive consequences. The adoption of supplementary funds will eventually overcome these limits. Experience in the operation of this Fund will provide answers. In this context, the European Union acted in favour of better compensation, beyond limits existing today in the framework of the IOPCF. In 1992, under pressure from the European Union, IOPCF ceilings were already increased by 50% to around 300 million EUR 8. As an example, the cost of damages caused by the Erika disaster was estimated at around 850 million EUR 9, of which only 180 million could be covered in the framework of the IOPCF. In 2003, again with the support of the European Union, IOPCF limits were raised to 900 Million EUR 10, and a Supplementary Fund was created. However, only 20 countries ratified the creation of this supplementary fund. Such a situation creates a strong disparity, since the ceiling for States which did not ratify this measure remains at 300 million EUR. Similarly, the limits of liability in the LLMC Convention do not really allow for the possibility to cover environmental damage. Priorities for compensation combined with the limits of liability for the funds established by the Convention mean that full compensation for ecological damage cannot be guaranteed. The Convention on maritime claims does not therefore allow for real compensation for environmental damage to sea waters. The IOPCF system seems then to be more effective in compensating ecological damage than the LLMC Convention. 3- The lack of ratifications for the HNS Convention The HNS Convention covers the scope of compensations for hazardous and noxious substances. The ratification process allowing it to enter into force is still not yet complete. As a result, damage caused by substances covered by the HNS Convention cannot be covered by a specific mechanism. They come under the classic rules of maritime claims. In order to accelerate the process, a protocol was adopted in 2010 in the framework of the IMO. This protocol will enter into force 18 months after the date on which it is ratified by at least twelve States, including four States each with not less than 2 million units of gross tonnage. It is open for signature at the IMO until http://europa.eu/rapid/pressReleasesAction.do?reference=IP/03/701&format=HTML&aged=1&language=EN&guiL anguage=en Resulting from Accidents in European Marine Waters - Reference CRPMDTR B3 February 2012 p. 4

5 October Implementation of this agreement should help greatly improve the compensation for damages resulting from damages covered by the Convention. B) Possible ways forward Stepping up the rules concerning environmental damage and compensation would improve compliance with maritime safety rules in third countries and reduce the risk of accidents and pollution in EU waters. At international level - Should rules for the recognition of ecological damage be changed? The 2003 agreement introduced a Supplementary fund in the framework of the IOPCF, and raised IOPCF ceilings to 900 million EUR. Rather than the creation of an international fund dedicated to environmental damage, which would involve the risk of a new international differentiation between States, we might consider making the international rules on the recognition of compensatory ecological damage more flexible, or even consider revising the system of insurance for maritime claims set out in the LLMC Convention, even though this possibility seems less feasible. 1- At EU level Could rules for compensation for ecological damage be better harmonized across Member States? Another solution could consist in better harmonization of Member States rules dealing with compensation for ecological damage. This would for instance allow a convergence of rules and methods used for the definition and assessment of environmental damage. Should a specific European fund for compensation for ecological damage be created? Towards a specific fund for damage caused by Offshore platforms in parallel to the review of the ELD Directive? In 2000, the European Commission suggested setting up a COPE fund 11 (Compensation for Oil Pollution in European waters fund) aiming at remedying shortcomings observed at international level. The COPE fund would have covered damages exceeding ceilings set in the framework of the IOPCF. The COPE project was however abandoned after the agreement creating the IOPCF compensatory fund in Acting at international level seemed a better option than an initiative taken at the sole level of the European Union. Considering however the current impossibility to cover ecological damage through the IOPCF, could the creation of a specific European fund be discussed again as an option? It seems that such an option could seriously be discussed in parallel to the review of the ELD directive. The setting-up of a specific fund would have the purpose of facilitating compensation for damage resulting from offshore platforms in cases where the organizations responsible for these platforms do not have the financial capacity to compensate damages. Should the role of EU agencies evolve? Both the creation of a specific EU fund or an upgrading of EU or national rules could imply a greater role for EU Agencies such as EMSA or the EEA, which could have the role of managing the fund or monitoring the implementation of EU legislation or the harmonization of national legislation. The issue of the management by a European agency of the monitoring of offshore platforms will be discussed at a later stage. Should role of the European Union at International level be increased? The EU has only an observer status in the framework of the IMO. Therefore, the EU cannot participate in the votes concerning international conventions, even if over the past few years it has increased its presence, alongside EU Member-States, within the IMO. Any future action of the EU concerning compensation for ecological damage must be coordinated as much as possible with the rules and organizations existing at international levels, and therefore raises the issue of the specific role of the European Union at international level. In the future, should the EU be a full member in the IMO and fully coordinate positions of the Member States? 11 Resulting from Accidents in European Marine Waters - Reference CRPMDTR B3 February 2012 p. 5

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