NOTE: This paper was to be read by the author at the Environment Law Committee Session, 2003 of the Inter-Pacific Bar Association (IPBA) Convention that was held in New Delhi, India in February, 2003. Unfortunately, due to Visa restrictions imposed by the Indian Government upon Pakistani nationals, and despite the efforts made by the IPBA Secretariat in this behalf, the author was unable to attend the same.
The Chairperson has been very kind to invite me to speak at this Joint Session on a hypothetical case of an oil tanker having capsized in our harbor leaking more than 500 tons of crude oil causing environmental damage. The Captain and crew of the ship having been rescued failed to bring the logbook unabling the authorities to determine the tanker status before the accident. The Port Authority claimed the tanker was un-seaworthy but the ship owner denied the same. The ship owner also does not have sufficient insurance cover for the losses arising therefrom. In the scenario arising from the capsizing of the oil tanker and the resultant damage, I am required to comment on:
- What is the extent of civil liability of the ship owner?
- What duties and powers do the relevant Port Authority have?
- What insurance cover would the shipowner, the port authority and the affected businesses be expected to have, and what issues arise in respect of each cover?
- What are the liabilities of (i) the shipowner and (ii) the cargo owner for the clean up costs and the damage to the environment?
- Are there any other interested groups which have to be considered in such a scenario?
Laws and Conventions Dealing with the Situation
The laws and conventions governing such a situation in Pakistan are Pakistan Merchant Shipping Ordinance, 2001 (hereinafter referred to as "the Shipping Ordinance"), The Pakistan Environmental Protection Act, 1997, (hereinafter referred to as "the Act, 1997"), The Ports Act, 1908, The Pakistan Insurance Ordinance, 2000, The Karachi Ports Trusts Act, 1886 (hereinafter referred to as "the KPT Act") the UN International Maritime Convention on Arrest of Ships, 1999 (hereinafter referred to as "the Convention, 1999"), and provisions of International Convention for the Prevention of Pollution from Ships 1973 – MARPOL 73/78 (hereinafter referred to as "the Convention, 1973") which have been adopted by the Merchant Shipping Ordinance 2001.
My views to the questions seriatim are:
What is the extent of civil liability of the ship owner?
Under Article III(1) of the Schedule to the Carriage of Goods by Ship Act, 1925, it is the responsibility of the Carrier to make the ship seaworthy. Section 90 of the Karachi Port Trust Act, 1886 imposes penalty not exceeding Rs.10 Million in case of contravention by the person (ship owner) due to discharge of solid or liquidate waste, oily noxious, hazardous substances or any other substances. In addition, the ship owner is also liable to charges for cleaning the Port and removal of the pollutant therefrom.
Under Section 417 of the Shipping Ordinance, when a ship has sustained or caused any accident or has received any material damage, the owner or the master is required, within 24 hours after the happening of the accident or damage, to transmit to the Federal Government or the nearest principal officer of the Port Authority, report of the accident or damage and of the probable costs thereof stating the name of the ship, her official principal, if any, port of the registry, and the place where she is. In the event of failure, the master of the ship is liable to a fine, which may extend to Rs.5,000/-.
Section 523 of the Shipping Ordinance makes the owner of the ship liable for any damage caused by the ship to water ways or related water areas, unless the owner can prove that the damage resulted from force majeure or negligence or actions of the Port Authority.
Section 555 of the Shipping Ordinance while adopting the provisions of MARPOL Convention, 1978 provides, if oil or oily mixture or harmful substance is discharged, the master or owner of the ship shall be liable to fine which shall not be less than US$50,000, but may extend to one million US Dollars and in case of continuing contravention or failure, then an additional fine may be imposed, which may extend to US$10,000 for every day after the first day during which such contravention or failure continues.
Section 560 of the Shipping Ordinance requires each oil tanker of 150 gross tons or above to maintain an oil record book in the form and manner, the nature of the entries and the time and circumstances of such entries to be made, the custody and disposal thereof and other related matters, as may be prescribed having regard to the provisions of the Convention of 1973. Any failure on the part of the master of the oil tanker to maintain the oil record book or destruction or mutilation thereof or any entry therein shall constitute an offence and the master of the oil tanker shall be liable to a fine extending up to Rs.500,000.
Section 566 of the Shipping Ordinance provides that if an accident occurs involving any ship in Pakistan waters and the Federal Government is informed that oil or oily mixture or harmful substances from such ship may cause pollution or damage to the marine environment on a large scale in Pakistan water, the government may give such directions to the master, owner, Charter or agent of the ship to avoid, reduce or neutralize such pollution and damage of the marine environment. Should the master, owner or agent fail to comply with the directions, all such persons shall be liable to an imprisonment which shall not be less than 2 years and fine which may extend to one million U.S. Dollars.
Ship owner shall also be liable under section 526(3) to compensate the Salvor for services rendered by him in abating pollution.
From the above provisions, the extent of civil liability of the ship owner appears to be as under:-
- The ship owner has to prove the seaworthiness of the ship.
- To report to the Federal Government or the Principal Officer of the Port Authority the accident/damage and the probable cost of damage caused, name of the ship, her official principal, port of registry and the place where she is registered. Failure of the owner or master of the ship to report will render the ship owner liable to fine of Rs.5000/-.
- In the present case, since the Captain and crew failed to bring the log book and the Port Authority claims that the tanker was unseaworthy, the onus to prove that the tanker was seaworthy would lie on the ship owner and the Captain of the ship. Therefore unless, the ship owner and the Captain prove seaworthiness of the vessel and the cause of the capsizing of the ship due to force majeure or negligence of the Port Authority, both the ship owner and the captain would be liable to fine mentioned hereinbefore.
- Under the Shipping Ordinance/MARPOL Convention ship owner is liable to fine not less than US$50,000 but extended upto US$ one million and in case of continuing failure to remove harmful substance or damage additional fine at US$10,000 for every day.
- In the event of directions from the Federal Government or Port Authority to reduce or neutralize pollution or damage of the marine environment, failure of the ship owner will render liability to imprisonment, which may extend to two years and fine upto US$ one million.
What duties and powers do the relevant Port Authority have?
The management, control and administration of Karachi Port vests in the Karachi Port Trust, a statutory body created under the Karachi Port Trust Act, 1886.
Under section 566 of the Shipping Ordinance, if an accident occurs involving any ship in Pakistan waters and the Federal Government is informed that oil or oily mixture or harmful substance from such ship may cause pollution or damage to the marine environment on a large scale in Pakistan waters, it may give such direction to the master, owner, charter, salvor or agent of the ship as it considers necessary to avoid, reduce or neutralize such pollution and damage and the marine environment. Should the master, owner or agent fail to comply with such directions, each of them shall be liable to imprisonment, which shall not be less than two years and a fine, which may extend to US$ one million.
Section 90 of the KPT Act lays responsibility on the Board for maintaining the marine environment of the Port’s limit, free from pollution of the sea. It imposes penalty not exceeding ten million rupees in case of contravention by the ship owner due to discharge of solid or liquid waste, oily noxious, hazardous substances or any other substances. In addition, the ship owner is also liable to charges for cleaning the port and the removal of the pollutants, therefrom.
Section 16 of the Act generally provides that (for protection of the Ports) where the agency (Federal or Provincial) is satisfied that the discharge or emission of any effluent, waste or the disposal of waste, or the handling of hazardous substances or any other act or omission has occurred, and is causing or has caused an adverse environmental effect the agency may after giving the person responsible an opportunity of being heard, by order direct such person to take such measures that the agency may consider necessary within such period as may be specified in the order. In the event of failure, the agency may inflict penalty, which may extend to one million rupees. Should despite the imposition of the fine there is a continuing contravention or failure the agency may impose an additional fine, which may extend to one hundred thousand rupees for every day during which such contravention or failure continues.
Section 471 of the Shipping Ordinance provides for the principal officer of the Port Authority to inquire into shipping casualties and whenever any principal officer receives by notice or otherwise credible information that a shipping casualty has occurred, he shall forthwith convey the information to the Federal Government. The Federal Government may appoint a person to hold a preliminary inquiry and call for such information and presence of persons for the purpose requiring enforcement and production of books, papers and documents considered necessary for the purpose and send a report to the Federal Government of the casualty and its effect.
Section 513 of the Shipping Ordinance provides that where any vessel is sunk and is, in the opinion of the Port Authority, likely to become obstruction or threat to the environment, marine life, the Authority may remove or destroy the whole or any part of the vessel and give information to the master and agent of the ship.
The Ports Act, 1908 provides for appointment of some officer or body of persons to be Conservator of every port. Under section 12 of the Act, if there is any obstruction or impediment to the navigation of any port by any lawful reason or otherwise, the Conservator shall report the same for the information of the Federal Government and shall, with the sanction of the government, cause the same to be removed and make reasonable compensation to persons suffering damage on account thereof.
The Act 1997, which is a general legislation on the environmental protection, covers the major areas of environmental hazards, through the establishment of Pakistan Environmental protection Agency under section 5. It empowers the agency to perform functions including the protection of the ports. In addition, the agency may under section 6(1)(i) and 6(2) carry out surveys, surveillance, monitoring, measurement, examination, investigation, research, inspection, audit to prevent and control pollution, estimate the cost of cleaning up pollution and rehabilitating the environment.
Pakistan is a signatory to the U.N. International Maritime Convention on Arrest of Ships, Article 1 whereof provides that in case of any maritime claim as a result of damage caused by ship to the environment, coastal line or related areas, necessary measures shall be taken to prevent, minimize, remove or compensate such damage. It further provides for the cost of reasonable measures for reinstatement of the environment actually undertaken or to be undertaken, to incur or likely to be incurred by their parties in connection with such damage, costs or loss of similar nature. Though the Pakistan has not given the legal effect to the said Convention by a municipal statute, the Supreme Court of Pakistan in a judgement of Shehla Zia v.s. Wapda (PLD 1994 SC 693), referring to two other conventions namely the declaration of UN Conference on Human Environment at Stockholm 1972 and the Rio Declaration 1992 expressed the view that an international instrument even if not ratified by the State is of persuasive value and will be given due importance and weightage. The Court added that the issue of environment protection transcends national frontiers and requires cooperation of nations.
From the foregoing provisions of the KPT Act, the Ordinance, the Act of 1908 and the Convention, the Port Authorities have the duties and powers as:
- The Port Authorities and the Conservator are obliged and empowered, with the approval of the Government to inquire into any ship casualties, submit report to the Federal Government, remove and destroy whole or any part of the vessel, causing casualties and damage, cleaning of the port and removal of pollutant, estimating the cost of cleaning up of the pollution and rehabilitation of environment.
- The Port Authorities, in the event of failure of the master of the oil tanker to maintain the oil record book, are empowered to impose fine extending up to Rs.500,000.
- The Conservator, with the sanction of the Government, can cause removal of the damage to coastal environment and make reasonable compensation to persons suffering damage on account thereof.
- The Port Authorities can impose a penalty not exceeding Rs.10 million and in addition, require the ship owner to pay charges for cleaning the port and removal of the pollutants therefrom.
- The Port Authorities under the Shipping Ordinance can also direct the master and owner of the ship to neutralize such pollution and damage to the marine environment and upon failure, they are liable to imprisonment, which shall not be less than two years and a fine which may extend to US$1 million.
What insurance cover would the shipowner, the port authority and the affected businesses be expected to have, and what issues arise in respect of each cover?
I could not find in the Shipping Ordinance, the Act and the Convention, referred to hereinabove, any provision for insurance by the ship-owner/cargo-owner/Port Authority covering oil spill by a sinking oil tanker, although the Convention of 1999 Article 1(q) mentions insurance premium (including mutual insurance calls) in respect of the ship payable by or on behalf of the ship owner or demised charter, but there is no provision requiring the ship owner or the oil cargo owner or the port authority to carry out any insurance cover for any possible damage caused as a result of oil spill to the environment or the Port Authority’s own operations of the Port. Similarly, one does not find any express provision, whereby the other cargo ships embarking or disembarking from the port and the cargo owners are required or generally in commercial practice, will carry out an insurance cover to meet the eventuality of an oil spill rendering the port’s inability to entertain embarking or disembarking of the ships delaying the import and export of goods.
Since there is no such provision, the ship owner and the Port Authority in their own commercial/economic interest may carry an insurance cover for damage by a sinking oil tanker causing oil spill. I understand there is a commercial practice whereby generally, the ship owners who are members of the Protection and Indemnity Club carry out mutual insurance of their ship and its cargo and the Club undertakes to provide cover in consideration of premium paid, and at times meet the liabilities against the vessel. Whether such mutual insurance would cover oil spill by a sinking oil tanker, I have not been able to ascertain.
Since the ship owner does not have sufficient cover, the questions, which arise are:-
- What action can be taken by the Port Authority against the ship owner for carrying insufficient insurance cover for the resultant damage to the Port and the environment?
- What are the Port Authority’s responsibilities, if the ship owners/Port Authority are not carrying insurance cover to the ship owners, who are scheduled to embark or disembark from the Port affected by the oil spill or importers and exporters?
- Will the other ship owners, who cannot embark or disembark on account of the oil spill and the closure of the Port paying port charges or the importers and exporters of goods, claim such damage from the ship owner or the Port Authority in the absence of any insurance cover by the ship owner and the Port Authority?
- Whether such ship owners and also importers and exporters should have carried any insurance to cover for such an eventuality?
- Whether the government or the local authorities have any responsibilities in the matter of economic fallout as a result of oil spill and damage to the Port and the environment?
Section 4(4)(b) of the Pakistan Insurance Ordinance 2000 provides for insurance companies to carry out insurance of marine, business, effecting and carrying out contracts of insurance against loss to policy holder arising from loss or damage to, or arising out of or in connection with the use of vessels on the sea or on inland waters, including third party risk. All marine insurances are with reference to the goods carried by the ship or the ship itself and in some cases it may also cover third party risk, which has to be specified. Since normally the insurance companies would like to limit their liability, it is unlikely the insurance company will cover such an eventuality and even if it does, the premium costs are likely to be high.
The Port Authorities normally carry insurance to protect its operations of the Port and any acts of omission and commission caused by its agents/employees in handling ships. The insurance normally does not cover any marine environmental damage caused by oil spill of a capsized oil tanker.
The Port Authority can, therefore, only in collaboration with the Conservator and the government impose fine up to the extent of million Dollars on the ship master, owner, charter or agent and meet the expenses in removing the oil spill and the damage to the marine environment, so that it can continue with its operations of receiving the ship for loading and unloading. In addition, if a direction is given by the Port Authority/Federal Government under section 555 of the Shipping Ordinance to neutralize the pollution and damage to the marine environment and the master/owner of the ship fails to do so, they can be fined US$ 10,000 for every day after the first day, during which the failure on their part continues.
Besides the above, under section 574 of the Shipping Ordinance, the Federal Government may order the master, owner, charter or agent of the ship, which has caused damage to the marine environment or navigation to pay the costs/charges of recovery and cleaning of the spillage.
The question arises – If the master, owner, charter or agent does not pay the cost of recovery and cleaning up of the spillage as ordered by the government and the fine and penalties imposed are not sufficient to cover the costs/charges of removing the damage, what recourse the government has? In such an eventuality, it is possible, the Port Authority may have recourse to a court of law for recovering damages from the ship owner in the country where the ship is registered.
What are the liabilities of (i) the shipowner and (ii) the cargo owner for the clean up costs and the damage to the environment?
The liabilities of the ship owner and cargo owner for the clean up costs and damages to the environment are:
Since in the present case the ship owner and the cargo owner are the same, the liabilities, if any, would be that of the ship owner alone.
The captain/ship owner, being unable to establish the seaworthiness of the ship and the Port Authorities contending the ship was unseaworthy, the ship owner will be liable for clean up costs and damage to the environment.
The captain and the crew having failed to bring the logbook nor there being any oil record book available, as required under section 560 of the Shipping Ordinance, the ship owner will be liable for the damage to the marine environment.
The Port Authorities and the government can give direction under section 566 of the Shipping Ordinance to captain/owner of the ship to neutralize the pollution and damage to the marine environment. In the event the ship owner fails to comply with the direction, the captain/owner of the ship will be liable to imprisonment extending up to two years and a fine of US$ one million.
Should despite the imposition of fine and punishment of imprisonment of the captain, the ship owner fails to clean the pollution and damage to the marine environment, it will continue failure on the ship owner’s part to remove the damage to the marine environment rendering the ship owner liable under section 555 of the Shipping Ordinance to a further fine of Rs.10,000 per day till such time the pollution and damage to the marine environment is removed.
In addition, under section 90 of the KPT Act, the ship owner will be liable to penalty not exceeding Rs.10 million due to discharge of oily noxious and hazardous substance and further liable to charges for cleaning of the port and removal of the pollutants therefrom.
Are there any other interested groups which have to be considered in such a scenario?
In addition to the damage and loss caused as a result of oil spillage to the Port Authority, the other groups likely to be affected/interested are:-
ii) Importers and exporters of cargo, whose ships cannot embark or disembark at the Port on account of oil spill;
iii) Importers of goods outside the country of the Port where oil spillage has taken place because of delay in arrival of their goods;
iv) Port Authority and Government, which collects revenue and customs duty and other taxes likely to be affected, because there will be no incoming or outgoing ships till the oil spill is removed, resulting in loss of revenue;
v) Local Government, which collects certain local taxes on the imports and exports on transportation of goods;
vi) Road and rail transporters of goods, because of non-availability of imported and exported goods;
vii) Environmental groups;
viii) Wildlife local business community, which depends on the seashore for economic survival, such as fishermen;
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.