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02 May 2012
Changes introduced by the protocol
Entry into force
The 1996 International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea – known as the HNS Convention – still has not entered into force some 16 years since it was adopted. Eight countries have now signed the 2010 protocol, which was designed to overcome the practical problems that have prevented the convention from entering into force. The HNS Convention establishes a new liability and compensation regime that will cover not only pollution damage from hazardous and noxious substances carried by ships, but also the risk of fire and explosion, including loss of life or personal injury and loss of or damage to property.
The convention will create a two-tier compensation system which is largely modelled on the existing regime for oil pollution from tankers under the 1992 Civil Liability Convention and the 1992 Fund Convention. The financial burdens of the new regime will be shared by shipowners and cargo interests.
Shipowners will contribute to the first tier through strict liability for damage caused by hazardous and noxious substances in connection with their carriage by sea. Liability may be limited, but for significantly higher amounts than under the current global limitation rules. The maximum liability will be 100 million special drawing rights (SDR) (approximately $150 million). Where damage is caused by packaged hazardous and noxious substances, or by both packaged and bulk hazardous and noxious substances, the maximum liability will be SDR115 million (approximately $173 million). The shipowner will be obliged to take out compulsory liability insurance covering this liability and the injured party will be entitled to bring a direct action against the liability insurer.
The second tier of compensation will be a compensation fund which will compensate the injured party to the extent that it does not receive full indemnification from the shipowner or its insurer. The fund will cover claims arising out of the same incident for amounts up to SDR250 million (approximately $375 million), insofar as such claims are not covered by the shipowner or its insurer. The fund will be financed by contributions from the receivers of hazardous and noxious substance cargo.
The HNS Convention will enter into force when it has been ratified by at least 12 states, of which at least four have a minimum fleet of 2 million gross tonnage, and when the International Maritime Organisation (IMO) secretary general has received information substantiating that these states have received a total quantity of at least 40 million tonnes of hazardous and noxious substance cargo in the year prior to ratification. So far, 14 states have ratified the convention, but they have not satisfied the tonnage requirement or the requirement for notification of the amount of hazardous and noxious substance cargo received.
The protocol addresses a number of practical problems which have prevented a sufficient number of states from ratifying the convention and complying with the reporting requirements.
First, in order to overcome difficulties that some states have experienced in getting an overview of the receivers of hazardous and noxious substance cargo shipped in packages, and thereby reporting the total amount of received hazardous and noxious substance cargo, the protocol differentiates between hazardous and noxious substances shipped in packages and in bulk, and exempts packaged hazardous and noxious substances from the contribution system. However, damage caused by packaged hazardous and noxious substance cargo will still be covered by the owner's liability insurance and the fund. Further, the owner's limit of liability for damage caused by packaged hazardous and noxious substances is increased by 15% compared to hazardous and noxious substances shipped in bulk.
The second problem with the convention is that some states have failed to provide the IMO with information regarding the quantity of hazardous and noxious substance cargo imported in the year before ratification and thereafter on an annual basis. In response, the protocol imposes sanctions on states that do not comply with their reporting obligations. An instrument of ratification which is not followed by a report on the received quantity of cargo in the previous year will not be accepted by the IMO. Furthermore, if a state fails to comply with the annual reporting requirements, it will be temporarily suspended as a state party to the convention until the required reports have been provided.(1) As a result, these states will not be entitled to rely on the rights and obligations of the state parties under the convention. Moreover, the right to compensation for incidents which occur in the state, except from death and personal injury, will be lost unless the state provides the reports by a certain deadline. However, the owner's liability under the HNS Convention will not be affected.
A third problem was that the owners of liquefied natural gas cargo prior to discharge, which have been responsible for paying contribution fees to the HNS fund, have defaulted in their payment obligations. Given that many of these companies have been located outside the jurisdiction of the state parties, it has been difficult to enforce the payment obligations. In order to avoid this problem, the protocol provides that the responsibility for paying the fees rests with the receiver of the liquefied natural gas cargo, unless the owner of the cargo has agreed with the receiver of the cargo to pay the fees and the relevant convention state has been informed. However, the receiver will remain liable for paying the fee even if the owner of the cargo does not pay.
Due to the long-term nature of liquefied natural gas sales contracts, receivers may have difficulties in passing responsibility for paying the fees onto the sellers. Therefore, due to the uncertainty over which entity is ultimately left to foot the bill, importing states may be less enthusiastic to ratify the protocol.
The protocol will enter into force on the same conditions and at the same time as the HNS Convention. So far, the protocol has been signed by Norway, Denmark, Canada, France, Germany, the Netherlands and Turkey, but it remains to be seen how effective the protocol will be in facilitating the entry into force of the HNS Convention.
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