Web alert: High Court decision to affect compensation funding arrangements after major pollution incidents

News & Insights 22 October 2014


We informed members, in April this year, of the International Group’s support of the Gard Club’s application to the High Court concerning claims handling and compensation arrangements between Gard and the IOPC Fund and of the potential repercussions.

We informed members, in April this year, of the International Group’s support of the Gard Club’s application to the High Court concerning claims handling and compensation arrangements between Gard and the IOPC Fund and of the potential repercussions.
 
In a judgement handed down on 17 October 2014, Mr Justice Hamblen has held that there was no legally binding contract between the Gard Club and the 1971 IOPC Fund as regards the practice of making consecutive payments in the aftermath of the Nissos Amorgos incident and that the Fund was entitled to rely on its statutory immunity.  As a direct consequence, Gard cannot expect the Fund to contribute further in the Nissos Amorgos case.  On a broader analysis, this decision may have serious implications on how P&I clubs and the IOPC Fund co-operate in the aftermath of oil spills in the future.
 
The Nissos Amorgos grounded in the Maracaibo Canal, Venezuela, in 1997 causing a spill of approximately 3600MT of crude oil.  At that time, Venezuela was a signatory of CLC ‘69 and a member of the Fund Convention ‘71.  Shortly after the incident, compensation payments started to be made to the victims of the spill, by both the Gard Club and the IOPC Fund, on the basis that there would be a final adjustment to ensure that the club only paid up to the CLC limit, in line with the provisions of CLC.  In addition to these numerous compensation payments, the Venezuelan Government and several other trade organisations filed claims in the Venezuelan courts.  In 2013, the Venezuelan Supreme Court upheld a 2010 judgement against the shipowner for $60.25 million plus indexation plus costs.  As the Gard Club had already paid up to the CLC limit, they understood the judgement  to be for the Fund’s account.
 
For a number of years, the Funds’ Administrative Council has been working to wind up the ‘71 Fund.  All the while the ’71 Fund remains in existence there is a risk that a spill would occur in one of the few remaining ’71 Fund countries, putting a huge burden remaining members for contributions.  In order to wind itself up, the Fund must return the $4.6millilon it still currently holds to its contributors.  However, the Fund is obliged to remain in existence until all claims are dealt with, in accordance with Article 44 of the ’71 Fund Convention.
 
Gard made an application for, and was granted, a freezing order in May 2014 against the ’71 Fund to prevent it dissipating its assets and winding up before the Nissos Amorgos proceedings in Venezuela were completed.  The Fund challenged this application on the basis that the Fund is immune from jurisdiction.  Gard argued that it had entered a contract with the Fund regarding consecutive payments and that this contract fell outside the immunity provisions.  The recent judgement found against Gard on both these points.
 
The consequence of this decision is that P&I Clubs can no longer rely on the IOPC Fund to fulfil its obligations in the aftermath of an oil spill.  If a P&I club pays over the CLC limit there is no longer certainty that the IOPC Fund will reimburse it.  The consequence of this is increased exposure to shipowners and their P&I clubs and a likely delay in compensation payments which can only but increase the political tensions which tend to follow a major spill.

Categories: Pollution

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