Who’s liable anyway? – Allocation of liability in Maritime Environmental Law

Regulation of environmental­ liability in a maritime context first received international attention in the aftermath of the Torrey Canyon and Exxon Valdez incidents.

At that time, the international regulations sought to regulate tanker activities and the potential impact of large scale oil spills by channelling liability for such spills to the ship owners who in turn would have the necessary insurance ­coverage. Much has happened since then, and the current regulatory framework takes into account the environmental impact of the entire life cycle of a ship (whether a tanker or otherwise).

This has also shifted the focus of responsibility to entities that control the operation of the ship or who receive the financial benefit from those operations. In this article we will look at how responsibility for implementation of environmental standards and liability for breach, is regulated in international and national maritime environmental law. We will also consider what ship owners can do to allocate the related risks.

From international regulation to national law

International conventions and regulations are by their very nature primarily directed at states. The international framework imposes requirements on states in the role as either flag states or port states, but often leave the ­specific implementation to the state. It also ­varies the extent to which the international regulatory mechanism specifies which private entity should be responsible for implementing the required measures.

In many instances, the environmental requirements will be implemented as annexes to well-established international conventions such as the SOLAS or MARPOL conventions. These are in turn implemented into national legislation. As in a number of different areas, the EU has been a frontrunner in ensuring implementation in EU states. In Norway, the SOLAS and MARPOL conventions have been incorporated into national law through the Ship Safety Act 2007 and related subsidiary legislation. In accordance with the ISM Code, and EU Regulation No 336/2006, this Act directs primary responsibility for implementation to the “company”. This is the private entity identified in the ­vessel’s Safety Management Certificate, and will normally be the company responsible for the technical operation of the ship. However, administrative and/or criminal sanctions for breach of the Act may be imposed on the company, key ­employees at the company, the master or other crew members tasked with implementing the environmental safety measures in question.

A wide net or channeling of liability

However the liability position under environmental legislation is not uniform. In other instances, it casts a wide net to hold all parties currently or ­previously involved with the ship responsible for ensuring compliance. For example, the duties in the EU Ship Recyling Regulation to provide information about the ship which is to be scrapped, and to ensure that the ship is recycled at an approved facility, are imposed on the “ship owner”. The “ship owner” is defined in the regulation to include not only the registered owner, but also a natural or legal person owning the ship for a limited period pending its sale or handover to a ship recycling facility, non-registered owners and a manager or bareboat charterer who has assumed the responsibility for operation of the ship from the legal owner.

Alternatively certain specific environmental responsibilities, which are inherently linked to the ownership of the ship, may be directed at the ship owner alone. This is the case with the duty to remove a wreck as set out in the Nairobi Wreck Removal Convention. As is the case with much of international ­environmental law, this does not however prevent states from imposing further far reaching obligations in their domestic law, despite this creating uncertainty from an insurance perspective.

In addition to specific maritime environmental regulation, many states have also adopted general prohibitions against unlawful emissions and pollution in their domestic legislation. These domestic provisions will often be much more generally worded legal standards in order to hold any party with the potential to prevent unlawful pollution liable, and which, by accident or design, increase the likelihood of application according to political agendas. Although such legislation often affects a number of parties involved with a ship, the authorities will usually seek to hold the persons and entities responsible who have the closest link to the pollution, whether as a result of their operational or financial interests in the ship.

A part of identifying risk

Increased environmental awareness­ and regulation requires effective implementation. Administrative and ­prosecuting authorities actively monitor the measures taken by ship owners and others to adhere to the new regulatory framework. Recent examples show that the authorities will not hold back on imposing administrative or criminal sanctions in cases where requirements are not met, although the precise ­measures taken will vary depending on the qualification of the breach and rules in question.

The new environmental regulations impose strict duties on the responsible party. With the increased risk of administrative sanctions or criminal liability it is therefore paramount for ship owners and/or operators to implement safety management systems which meet the regulatory requirements and provide a clear allocation of responsibility between the relevant parties to ensure that vessels are operated in accordance with the legal requirements.

Contractual regulation

Regardless of who is held liable towards the authorities, the parties involved with the operation of a ship are free to allocate responsibility for the implementation and potential liability for environmental issues through their contractual relationships. Whilst this will be a matter of negotiation on a case by case basis the standard forms provide a useful starting point based on what is perceived to be industry standards. For example, in the Shipman 2009 ­standard management agreement, the ship owner has a duty to hold the manager harmless for any liability not caused by his negligence, gross negligence or wilful default, and in any event to the extent that such liability exceeds an amount ten times the annual management fee. Leaving insurance considerations aside, such contractual regulation will in many instances be decisive for determining where financial liability for possible breaches eventually ends up.

Managing risk

Today, large ship owners are ­generally environmentally responsible ­owners. However, the scale of operations may make it challenging to implement the extent of environmental legislation ­successfully and/or uniformly throughout their fleets. There is also a clear difference between the traditional regulation covering the environmental impact of accidents and the legislation governing the environmental impact concerning normal vessel operations. In the latter instances, the potential range of liable parties is wider, and liability will often be an operational risk rather than an insurance matter.

In addition to making efforts to implement new legislation diligently, and thereby avoid liability, it is also commercially sensible for parties to ensure that the final economic liability for breach of such legislation is ­transferred (where possible) to the entity with the largest economic benefit from the operation of the vessel. As the regulatory frameworks keep developing and maturing, we expect to see the industry adapting and in particular ­continuing to take a ­commercial and practical approach to the allocation of liability regardless of who is held directly liable in the applicable legal environmental legislation. As set out above this will need to be achieved through negotiation and clear contractual drafting.