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, 1996 (the 1996 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.

Many countries encountered difficulties in implementing the 1996 HNS Convention with the result that they did not become Parties to it. To overcome these difficulties, in April 2010, IMO adopted a Protocol to amend the 1996 HNS Convention. The 1996 HNS Convention, as amended by the 2010 HNS Protocol, is known as the 2010 HNS Convention.

The 2010 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 2010 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 2010 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:

• where the damage has been caused by bulk HNS only:
  • 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.

• where the damage has been caused by packaged HNS or by both bulk and packaged HNS
  • :for all ships with a gross tonnage up to 2,000: 11.5 million Special Drawing Rights (SDR)
  • for ships with a gross tonnage in excess of 2,000:
    • 1,725 SDR for each unit of tonnage from 2,001 to 50,000; and
    • 414 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 for an incident involving bulk HNS only;
• 115 million SDR for an incident involving packaged HNS or both bulk and packaged HNS.

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 2010 HNS Convention will establish the International Hazardous and Noxious Substances Fund (the HNS Fund) to provide compensation for victims who are unable to 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 will be required to be made by persons and entities which, in the preceding calendar year received in a State Party:

• more than 150,000 tonnes of crude oil or heavy fuel oil; or
• any quantity of LNG; or
• more than 20,000 tonnes of any other HNS.

The maximum aggregate amount of compensation payable by the shipowner and the HNS Fund in respect of any one incident under the 2010 HNS Convention is 250 million SDR.

The 2010 HNS Convention has not yet entered into force internationally and Australia is considering whether or not to become a Party to the Convention.

A description of the 2010 HNS Convention is available on the IMO’s website. More extensive information on the 2010 HNS Convention is available from www.hnsconvention.org, a web site developed by the International Oil Pollution Compensation Funds.