Claims for Damage Caused by Hazardous and Noxious Substances

Chemical spills may present a major threat to the environment and human health. Approximately four million tonnes of chemicals are shipped to Australia per annum. Many of the chemicals commonly imported to Australia have physical properties which complicate containment and management efforts in the event of an incident. Some chemicals will dissolve in water or evaporate, while other highly volatile chemicals will evaporate rapidly over a limited area and may produce a fire hazard extending beyond the area covered by the pool of spilled material. Many bulk chemicals are toxic at low concentrations in air, so dangerous conditions may prevail downwind from such a spill for a considerable distance.

These diverse physical properties increase the likelihood of high costs arising from the environmental impacts of the spill, such as closure of fisheries and tourism activities, and loss of amenity. Some of these substances are toxic to marine life, carcinogenic or highly flammable, and many present a threat to human health. Exposure to toxic substances is a hazard to personnel conducting salvage and response operations to manage an HNS incident. Some of the chemicals imported to Australia have properties which may produce long term health problems as a result of exposure, necessitating long term medical monitoring of affected personnel.

The International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (the HNS Convention) establishes a two tier scheme for determining liability to pay compensation in the event of a marine incident involving HNS, and ensures that a high level of compensation can be made available to the victims of an incident. The definition of HNS in the Convention covers about 6,500 substances. These include chemicals, non-persistent petroleum products (such as petrol, diesel and aviation fuel), liquefied natural gas and liquefied petroleum gas.

The HNS Convention provides compensation for pollution damage, fire or explosion, loss of life, personal injury and damage to property resulting from an incident involving hazardous and noxious substances carried by ships.

In accordance with the first tier of the HNS Convention:

• the shipowner is strictly liable for damage resulting from an incident involving HNS on a ship;
• the owner is able to limit liability in accordance with the liability limits set out in the Convention;
• with minor exceptions, the owners of ships carrying HNS are required to maintain insurance to cover their liabilities; and
• claims for compensation for damage may be brought directly against the insurer.

A shipowner's liability limit under the HNS Convention depends on the size of the ship. The liability limits set out in the Convention in respect of HNS incidents are as follows:

• for all ships with a gross tonnage up to 2,000: 10 million Special Drawing Rights (SDR)
• for ships with a gross tonnage in excess of 2,000:
  - 1,500 SDR for each unit of tonnage from 2,001 to 50,000; and
  - 360 SDR for each unit of tonnage in excess of 50,000.

In no case shall the liability limit for a ship exceed 100 million SDR. This upper limit applies to ships with a gross tonnage of 100,000 and over.

The second tier of this scheme applies where the compensation available from the shipowner is insufficient to pay the full compensation costs.

The HNS Convention will establish the International Hazardous and Noxious Substances Fund (HNS Fund) to provide compensation for victims who do not obtain full compensation from the shipowner. The HNS Fund will be financed by levies paid by entities and persons who have received more than the threshold amount of HNS after sea transport in a calendar year in a country that is Party to the HNS Convention. Contributions must be made by persons and entities which, in the preceding calendar year:

• received more than 150,000 tonnes of crude oil or fuel oil in a State Party; or
• held title to any LNG cargo prior to its discharge in a port or terminal of a State Party; or
• received more than 20,000 tonnes of any other HNS cargo in a State Party.

The maximum amount of compensation payable in respect of any one incident under the HNS Convention is 250 million SDR.

The HNS Convention has not yet entered into force internationally and Australia is not a Party to the Convention.

Many countries have encountered difficulties in implementing the HNS Convention with the result that they have not become Parties to it. In an attempt to overcomes these difficulties, the International Oil Pollution Compensation Funds (IOPC Funds), which will share their secretariat with the proposed HNS Fund, is considering proposals to amend the HNS Convention.  The IOPC Funds intend to submit these proposals to the October 2008 meeting of IMO's Legal Committee for its consideration. It is expected that IMO will convene a diplomatic conference to adopt amendments to the HNS Convention after their consideration and refinement by the Legal Committee.

A description of the HNS Convention is available on the IMO's website. More extensive information on the HNS Convention is available from www.hnsconvention.org, a web site developed by the International Oil Pollution Compensation Funds.