Australia: $20.4 million mandatory minimum security for oil pollution in Australia

Last Updated: 28 October 2014
Article by Nathan Cecil
Most Read Contributor in Australia, September 2016

A recent suspected oil pollution incident resulted in the relevant regulatory authority detaining the ship in question and demanding security of A$20.4 million. The demand was later withdrawn, but leaves the issue open for the next incident. Owners, Charterers (who may be held liable for cross-security under the charterparty) and their P&I Clubs must be prepared to face an identical demand in the event of any future pollution incident in Commonwealth waters.

In 2012, the maximum penalty applicable to a corporation for discharging oil into Commonwealth waters was increased from A$275,000.00 to A$17 million and the penalty applicable to the Master was increased from A$55,000.00 to A$3.4 million. In each case, the offence is one of strict liability, meaning that an offence occurs and is punishable by penalty, regardless of cause or fault. In addition, the Commonwealth and most State/Territory jurisdictions permit the relevant regulatory body to recover clean-up costs and legal costs of any prosecution from the Owner and Master. The amendments also made Charterers strictly liable for oil pollution, with a maximum penalty of A$17 million. However, there is yet to be any prosecution of Charterers under this amendment.

Under the Commonwealth marine pollution legislation, the Australian Maritime Safety Authority (AMSA) is empowered to detain a vessel from which oil has been discharged until security is provided in respect of:

  • the penalty applicable as against the Owner and Master
  • clean-up costs likely to be incurred by the authority
  • (potentially) legal costs of the likely prosecution action.

The States and Territories each have broadly similar legislation, although in some jurisdictions security is limited only to the likely costs of the clean-up action. The security provision does not presently require security to be provided by or in respect of Charterers' strict liability for a pollution incident. However, charterparty provisions may require Charterers to counter-secure Owners.

In the first significant suspected oil pollution incident to occur after the increased penalties, AMSA detained the ship in question and demanded security in the amount of the maximum possible penalties as against the Owner and Master – being A$20.4 million.

AMSA's practice was previously to require security in the amount of the maximum potential penalties applicable to the Owner and Master. However, prior to the 2012 increase to the maximum potential penalties, this amount was a relatively modest A$330,000.00. The basis for AMSA's demand of security at the maximum possible penalty is section 27A of the Protection of the Sea (Prevention of Pollution from Ships) Act 1983 (Cth), which provides that a detained vessel must be released upon the provision of security which is:

  • in a form acceptable to AMSA; and
  • in an amount that, in AMSA'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.

AMSA interprets the above provisions as requiring AMSA to demand security in the sum of the maximum potential penalties under the Act, as opposed merely to the maximum potential penalties likely to be imposed in the particular circumstances in question (i.e. having regard to the size and cause of any spill). On this view, if a ship discharges one drop of oil into Commonwealth waters and is detained by AMSA, AMSA is required by the legislation to demand security of A$20.4 million before releasing the ship.

This is to be contrasted with the practice of the NSW authority, which seeks to make an assessment of the severity of the spill and demands security accordingly, rather than demanding the maximum possible security regardless.

In this recent case, Owners made a formal submission to AMSA requesting that the demand for security be reduced, which was rejected by AMSA. Owners were therefore forced to commence proceedings to seek to have AMSA's demand set aside. Very shortly after, AMSA withdrew the demand, as we understand it, on the basis that AMSA could not be certain that the pollution had originated from the ship in question.

AMSA's interpretation of the security provision remains at large and untested in Court, awaiting the next incident, when AMSA will in all likelihood feel compelled to demand A$20.4 million in security.

The next time that there is an oil pollution incident in Commonwealth waters, Owners and their P&I Clubs must be prepared to receive a demand for security of A$20.4 million and will either have to:

  • pay it in order to secure the release of the vessel; and/or
  • challenge the demand in Court and seek to have it set aside.

Owners trading to Australia and, in particular, their P&I Clubs are encouraged to consider this issue and seek pre-emptive advice to have a response plan in place in order to avoid protracted detention in the event that any such demand for security is to be challenged in Court.

Our Transport team have extensive experience in responding to and defending oil pollution prosecutions.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Nathan Cecil
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