Australia – Breaches of MARPOL and the Possible Consequences

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The following article, written by Australian lawyers Colin Biggers & Paisley, Sydney, was commissioned by Shipping Australia and is due to be published in its next annual magazine early in 2014.

As is well known under the Protection of the Sea (Prevention of Pollution from Ships Act) 1983, section 9, it is provided that if oil or an oily mixture is discharged from a ship into the sea, whether it be the territorial sea, the outer territorial sea, or the exclusive economic zone (EEZ), the master, the charterer and the owner of the ship commit an offence punishable on conviction by a fine not exceeding 20,000 penalty units.

What is perhaps less well known is that section 27A of the same legislation empowers the Australian Maritime Safety Authority (AMSA) to detain foreign ships in certain circumstances. Those circumstances include where:

"Section 27A(1)

1. The ship is voluntarily at a port and there are clear grounds for believing that a pollution breach has occurred in the territorial sea or the EEZ; or
2. The ship is in the territorial sea and there are clear grounds for believing that a pollution breach has occurred whilst the ship was navigating in the territorial sea; or
3. The ship is in the territorial sea or the EEZ and there is clear objective evidence that:
   1. a pollution breach has occurred as a result of acts or omissions in relation to the ship in the EEZ, and
   2. the actions resulted in a discharge from a ship that has caused or threatens to cause major damage to the coastline of Australia, to related interests of Australia or to any resources of the territorial sea or EEZ."

The ship must be released from detention if security is provided pursuant to sub-section (4) of section 27A. That provides that the security must:

1. be provided in a form which is acceptable to the Authority (AMSA); and:
2. "be an amount that, in the Authority's opinion, is equivalent to the maximum amount of all penalties, other amounts of money, costs and expenses that could be payable by the master and any other member of the crew of the ship and the owner of the ship in respect of the pollution breach."

As a result of a detention order issued by AMSA earlier this year it became apparent that AMSA is of the opinion that it has no discretion in setting the amount for which security is required under that sub-section. AMSA advised those representing the owners and their P&I Club that it is only in relation to unknown variables that AMSA is required to form an opinion about when assessing the amount of the security. The maximum amount of penalty payable by each of the class of persons mentioned in sub-section 27A(4)(b), it argued, is always known and is not a variable.

Thus security was sought in relation to that matter for $20,400,000 being equivalent "to the maximum amount of all penalties, other amounts of money, costs and expenses that could be payable by the master and owner" of the vessel if found responsible for the pollution breach.

The calculation was done on the basis that 20,000 penalty units is the maximum penalty for an individual and 100,000 penalty units for a corporation. As a penalty unit equates to $170, the calculation in respect of the individual was 20,000 x $170 and 100,000 x $170 which equals $3,400,000 and $17,000,000, making a total of $20,400,000.

At the recent Maritime Law Association of Australian and New Zealand Annual Conference in Sydney, Clinton McKenzie, the Manager, Office of Legal Counsel of AMSA confirmed that in AMSA's opinion it has no discretion to vary the amount of the security from that maximum amount.

That recent experience confirmed that the third party liability insurers of shipowners, P&I Clubs will not be prepared to issue P&I Club letters of undertaking to AMSA in order to obtain the release of the ship detained where such enormous sums are demanded by way of security. Accordingly, whenever such security is next sought by AMSA it will be necessary for a test case to be run to have the position clarified, unless AMSA appreciates the impracticality of its interpretation and either causes the legislation to be amended or adopts a more pragmatic interpretation of the legislation. This was not achievable in the recent case in which AMSA sought $20,400,000 worth of security, as AMSA, for other reasons, removed the detention order and the vessel was permitted to sail. Where that does not happen in the future, it might be anticipated that considerable delay will be occasioned to the foreign shipowner whilst the test case is run.

The problem with AMSA's interpretation can be readily seen if a foreign fishing vessel, for example, is detained in circumstances in which AMSA considers that even the tiniest oil spill has occurred as a result of activities in the territorial sea when pursuant to section 27A(1)(b) it is only a "pollution breach" which AMSA is required to believe has occurred in the territorial sea (and it is not even a requisite of the provision, unlike activities in the EEZ, that it has caused or threatened to cause "major damage to the coastline of Australia, to related interests of Australia or to any resources of the territorial sea or exclusive economic zones".) In such circumstances, according to AMSA's interpretation of section 27A(4), AMSA must obtain security for the maximum amount of the potential fine payable by the Master and any other member of the crew of the ship and the owner of the ship in respect of that breach. One wonders how many foreign fishing vessels have the ability to source such security or have liability insurance coverage for such enormous sums of money, and if so, whether their insurers are prepared to provide such security where even on a best case scenario the potential fine and clean up costs are unlikely to exceed a few thousand, or even hundreds of thousands of dollars.

It is noteworthy that pursuant to the Rules of one of the P&I Clubs, whilst coverage is provided to owners in respect of the "accidental discharge or escape of oil or other substance, or the threat thereof", there is no recovery in respect of fines for "infringements or violations of or non-compliance with the provisions regarding construction, adaptation and equipment of ships contained in the International Convention for the Prevention of Pollution from Ships, 1973 as modified or amended by the Protocol of 1978 and any subsequent Protocol, or such of those aforesaid provisions as are contained in the laws of any State giving effect to that Convention or to such Protocol." AMSA may be under the mistaken belief that P&I Clubs will automatically post such enormous guarantees on behalf of their members. The following is an extract from a circular issued by the International Group of P&I Clubs at the height of reports about the bypassing of oily water separators:

"It should be noted that Clubs in the International Group do not condone breaches of the MARPOL Regulations. Other than in cases of purely accidental discharge, P&I cover for fines resulting from breaches of MARPOL regulations is only available on a discretionary basis. In such cases, the members are required to satisfy the Directors that they took such steps as appear to the Directors to have been reasonable to avoid the offence. In any event, the Clubs do not cover any fines or other penalties imposed where the owners knew or ought to have known of the offence, and failed to take reasonable measures to prevent it.

This means that fines or penalties imposed under MARPOL relating, inter alia, to the misuse of equipment referred to above, or resulting from a failure to comply with record-keeping obligations concerning the disposal and management of engine room and other waste, are not covered by the Clubs, unless the Directors in the exercise of their absolute discretion, agree reimbursement. Generally, the Club’s Directors will only consider whether any reimbursement should be allowed after proceedings are finally concluded.
Whilst proceedings are under way, therefore, full counter security in the form of cash or bank guarantee will be required for any security given on behalf of the owner and, in addition, security will be required for any costs paid by the Club in defending such allegations. The Club can provide the names of law firms and other experts who may be able to advise and assist members in the defence of such proceedings.

….

So far as P&I cover is concerned, the position is therefore that, whilst proceedings are under way, Clubs are unable to provide security (except in exchange for counter security in the form of cash or by bank guarantee) for any such alleged offences and, if the Club is asked to assist with the funding of costs incurred in defending criminal or civil proceedings, additional security will be required. Generally and with the exception of cases of purely accidental discharge, in relation to the offences discussed in this circular, cover will only be available as a result of an exercise of discretion by the Board in favour of the Member at the conclusion of the case when all the facts are known."

The position therefore seems to be that even if Clubs are prepared to post security on behalf of their members, they will require the members to provide counter security to the Club in such circumstances.

It should also be noted that Article 4(4) of the MARPOL Convention provides that "the penalties specified under the law of a Party pursuant to the present article shall be adequate in severity to discourage violations of the present Convention and shall be equally severe irrespective of where the violations occur."

Furthermore Article 7(1) provides that "all possible efforts should be made to avoid a ship being unduly detained or delayed under Articles 4, 5 or 6 of the present Convention and that "when a ship is unduly detained or delayed under Articles 4, 5 or 6 of the present Convention, it shall be entitled to compensation for any loss or damage suffered." To like intent is the provision of the United Nations Convention on the Law of the Sea, in Article 226 1(b) which provides in relation to the investigation of foreign vessels:

"If the investigation indicates a violation of applicable laws and regulations or international rules and standards for the protection and preservation of the marine environment, release should be made promptly subject to reasonable procedures such as bonding or other appropriate financial security."

And Article 232 of the Convention which provides:

"States shall be liable for damage or loss attributable to them arising from measures taken pursuant to section 6 when such measures are unlawful or exceed those reasonably required in the light of available information. States shall provide for recourse in their courts for actions in respect of such damage or loss."

Enquiries, which have been made in France and England of leading law firm Reed Smith, have ascertained that under the equivalent French legislation giving effect to the MARPOL Convention, the Public Prosecutor determines the amount of security which is required to be provided to release the ship. The amount is in the Prosecutor's discretion and is required to take into account the amount of the likely fine to be imposed and the amount of damages likely to be awarded by the Court to repair the consequences of the unlawful discharge.

In the UK, section 35(2)(a) of The Merchant Shipping (Prevention of Oil Pollution) Regulations 1996 (the U.K. adaption of MARPOL) states that "[i]n any case where a ship to which these Regulations apply is suspected of a contravention of the requirements of these Regulations, the ship shall be liable to be detained." In terms of security, section 37(3) provides that a "person exercising the power of detention conferred by regulation 35(2)(a) in respect of an alleged contravention of regulation 12, 13 or 16 shall immediately release the ship if:

1. the sum of £255,000 is paid to the Secretary of State by way of security; or
2. security which, in the opinion of the Secretary of State, is satisfactory and is for an amount not less than £255,000 is given to the Secretary of State, by or on behalf of the master or owner."

He must also do so if proceedings are not instituted within seven days, if they end without a conviction, or if a fine is paid.

The United States Coastguard has been provided with a broad discretion in setting the amount of security and the terms and conditions for the release of vessels which are detained for MARPOL violations.

It would appear that at least in so far as the UK, the United States and France are concerned, Australia's legislation (and its interpretation by AMSA) is far more extreme, which is surprising given the enormity of the oil spill incidents suffered around the coasts of those three countries compared with Australia.

If Australia, like the UK, wants to set a figure applicable to all possible pollution incidents and not provide AMSA with any discretion, it may find that it needs to be more reasonable in setting the figure to be required. If, however, it wants to obtain security to cover the worst possible contingency, it should provide a discretion to AMSA so that AMSA complies with Australia's other treaty obligations and does not seek to levy disproportionate and unreasonable amounts of security, which are likely to result in lengthy detentions and expose Australia to claims for damages.

 Stuart Hetherington

 Partner, Colin Biggers and Paisley,

 Sydney, Melbourne and Brisbane, Australia.