CLC, Fund and Supplementary Fund cases

Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) and Socony Mobil Oil Co Inc and Others v West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island) (No. 2) [1990] 2 Lloyd’s Rep 191

House of Lords, UK

• Note: This landmark decision allowed the P&I Clubs’ appeals from the Court of Appeal. It established that a “pay to be paid” clause in a P&I Club’s rules is effective against a third party seeking to claim directly from the Club under the Third Parties (Rights against Insurers) Act 1930.
• Further Note: This is not a pollution case, but it is included here because it is a landmark decision on the effect of “pay to be paid” clause in P&I insurance covers, which is frequently seen in P&I covers for oil pollution liability.
• A “pay to be paid” clause in a P&I Club’s rules, which provides that a member is only entitled to an indemnity for liabilities that “he shall in fact have paid,” creates a condition precedent to the Club’s obligation to indemnify the member.
• Under such a clause, a member who has incurred a liability to a third party but has not paid it has no accrued or present right to an indemnity, only a contingent right that will crystallise upon payment.
• The Third Parties (Rights Against Insurers) Act 1930 transfers to a third party only such rights as the insured had against the insurer. The Act is not intended to put the third party in a better position than the insured member was in.
• Consequently, when a shipowner member of a P&I Club becomes insolvent and is wound up without having paid a third-party claim, the statutory transfer under the 1930 Act only vests the member’s contingent right in the third party.
• Since the condition precedent (prior payment by the member) has not been satisfied, the third party cannot compel the Club to pay the indemnity. The Club has the same defence against the third party as it would have had against its own member.
• A “pay to be paid” clause is not rendered ineffective by s. 1(3) of the 1930 Act. It does not “alter the rights of the parties” upon the member’s insolvency; the rights remain the same, but the member’s insolvency makes it practically impossible for the member to fulfil the pre-existing condition.
• The equitable doctrine that could, in some cases, compel an indemnifier to pay a liability before the indemnified party has done so does not override a clear and express contractual term like a “pay to be paid” clause.

The appeal involved two separate cases raising the same legal question regarding the effect of “pay to be paid” clauses in P&I Club rules. In The Fanti, the claimants’ cargo of cement was lost. They obtained a judgment against the shipowner (a member of the Newcastle P&I Association), but the shipowner was wound up without paying.

In The Padre Island, the plaintiffs had cargo claims against the owners of the tanker Padre Island (members of the West of England P&I Club). The owners were also wound up after judgment was given against them and without having paid it.

In both cases, the rules of the respective P&I Clubs contained a “pay to be paid” clause, making prior payment by the member a condition for indemnity.

The cargo claimants brought proceedings directly against the Clubs, asserting that the insolvent shipowners’ rights had been transferred to them by the Third Parties (Rights against Insurers) Act 1930.

The Court of Appeal had found in favour of the cargo claimants, holding that the “pay to be paid” condition became impossible to perform upon the statutory transfer and was therefore ineffective. The Clubs appealed to the House of Lords.

The House of Lords unanimously allowed the appeals of both P&I Clubs. It was held that the shipowner members, not having paid the underlying claims, had no accrued right to an indemnity from their Clubs at the time they were wound up. They only had a contingent right, dependent on them first making payment. The 1930 Act transferred only these contingent rights to the third-party claimants.

Since the condition precedent of prior payment by the members had not been fulfilled, the third parties’ rights against the Clubs never became accrued rights to payment. The Court of Appeal’s reasoning that the condition of prior payment became “impossible” or “futile” after the transfer and was therefore ineffective was rejected as being fundamentally flawed. The “pay to be paid” clauses were held to be valid and provided the Clubs with a complete defence to the direct actions brought by the third parties.

Esso Petroleum Co Ltd v Hall Russell and Co Ltd (The Esso Bernicia) [1989] 1 Lloyd’s Rep 8

House of Lords, UK

• Note: This is a leading authority on the recoverability of payments made under voluntary industry compensation schemes and the distinction between subrogation and direct claims for economic loss following a pollution incident.
• A shipowner who makes payments to third parties for pollution damage under a voluntary agreement, such as the Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution (TOVALOP), cannot recover those sums as a direct head of damage from a negligent tortfeasor who caused the spill.
• Such payments are considered to be made pursuant to the shipowner’s voluntary contractual obligations under the agreement, not as a direct and foreseeable consequence of the physical damage to the ship. The damage to the ship merely acts as a trigger for the pre-existing voluntary obligation.
• This position is distinct from a scenario where liability is imposed by law, for instance under the Merchant Shipping (Oil Pollution) Act 1971, which implemented CLC 1969. Had the payments been made under such a statutory compulsion, they would have been a recoverable head of damage.
• The doctrine of subrogation allows an indemnifier (such as a shipowner who has paid a claim under TOVALOP) to pursue the rights and remedies of the person they have indemnified (the pollution victim). However, the general rule in both English and Scots law is that the indemnifier must sue in the name of the indemnified person, not in their own name, unless they have taken a formal legal assignment of the claim.
• A shipowner’s strict liability for physical damage caused by their vessel to harbour works under s. 74 of the Harbours, Docks and Piers Clauses Act 1847 is a valid head of damage that is recoverable from a negligent third party whose actions caused the vessel to strike the works.
• A pilotage authority is not vicariously liable for the negligence of a compulsory pilot. The Pilotage Act 1913 provides that the owner or master of the vessel is answerable for loss or damage caused by the pilot’s fault, effectively making the pilot the servant of the shipowner for the purposes of navigation.

In December 1978, the tanker Esso Bernicia was berthing at the Sullom Voe oil terminal when an assisting tug, the Stanechakker, suffered a fire and had to cast off its line. The Esso Bernicia then collided with mooring dolphins, sustaining damage and spilling a large quantity of her bunker oil. The tug was designed and built by the defenders, Hall Russell. Esso, the tanker owners, alleged the incident was caused by Hall Russell’s negligence in the tug’s design and construction.

Under the terms of TOVALOP, Esso paid compensation to local crofters whose sheep were affected by the pollution and to BP, the terminal operator, for clean-up operations. Esso sued Hall Russell to recover these TOVALOP payments, claiming them as economic loss flowing from the physical damage to their vessel, or alternatively, under the doctrine of subrogation. Hall Russell denied liability and contended, among other things, that any fault lay with the compulsory pilot, for whom the Shetland Islands Council (SIC) as the pilotage authority was vicariously liable.

The House of Lords held that Esso could not recover the sums paid out under TOVALOP as a direct head of damage against Hall Russell. The payments were the result of Esso’s voluntary contractual undertaking, not a loss caused by Hall Russell’s negligence. Esso’s attempt to recover the sums by suing in its own name based on subrogation also failed. The Court affirmed the established rule that a subrogated party must sue in the name of the person indemnified, which Esso had not done.

The House of Lords did, however, allow Esso’s appeal in relation to its claim for a declaration concerning its potential liability for damage to the jetty under the Harbours, Docks and Piers Clauses Act 1847, holding this to be a prima facie valid head of damage. Hall Russell’s cross-appeal was dismissed, with the Court confirming that SIC was not vicariously liable for the negligence of the compulsory pilot.

The Kingdom of Spain & The French State v The London Steam-Ship Owners’ Mutual Insurance Association Ltd (The Prestige) [2024] EWCA Civ 1536

Court of Appeal, England and Wales

• Note: This decision was a combined appeal from various High Court judgments including: London Steam-Ship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain [2021] EWHC 1247 (Comm), The Kingdom of Spain v London Steam-Ship Owners’ Mutual Insurance Association Ltd [2023] EWHC 2473 (Comm), and The French State v The London Steam-Ship Owners’ Mutual Insurance Association Ltd [2023] EWHC 2474 (Comm).
• A sovereign state bringing a direct-action for pollution damages against a liability insurer is bound by the arbitration clause in the insurance policy – the “conditional benefit” principle.
• However, when a sovereign state breaches its obligation to follow the arbitration agreement and pursues a direct claim in a court of the state, an arbitral tribunal has no power to injunct the state against enforcing the foreign judgment, by s 13 of the State Immunity Act 1978.
• It follows that the arbitral tribunal does not have the power to make an award of “equitable compensation”, in lieu of an injunction under s 50 of the Senior Courts Act 1950, in the sum of a judgment the state may secure in its courts.
• The English court may, in such circumstances, refuse to register and enforce the foreign judgment, being manifestly contrary to public policy, as did the High Court and the Court of Appeal in this case.

The P&I Club insured the liability of the oil tanker The Prestige to a limit of USD1 billion. That was subject to a London arbitration clause and a “pay to be paid” clause. In 2002, the tanker broke in two and sank off the Spanish coast while carrying 70,000 MT of fuel oil. This resulted in a massive oil pollution in the coastal lines of Spain and France. The States directly sued the P&I Club in Spanish courts. In response, the Club instituted a few arbitrations, in which it was held that the States pursuing a direct-claim against the Club would be bound by the arbitration agreement, and that the Club’s liability was not triggered by reason of the “pay to be paid” clause as no payment was yet made by the owner, and that the States must pay an “equitable compensation” to the Club in the sum of any judgment that it obtained in Spain. The “equitable compensation” was awarded in lieu of injunction to prevent the States from enforcing the judgment. The awards affirming the States’ being bound by the arbitration agreement and the liability not triggering because of the “pay to be paid” clause were registered pursuant to s 66 of the Arbitration Act 1995, after the High Court refused the States’ section 67 challenge to the awards ([2014] 1 Lloyd’s Rep 309). The registration was upheld by the Court of Appeal in another appeal ([2015] 2 Lloyd’s Rep 33).

To the contrary, the Spanish court gave a judgment in the sum of USD1 billion against the Club. The Court of Appeal, as did the High Court, did not doubt that the States pursuing the direct-claim would be bound by the arbitration agreement in the insurance policy. The High Court refused to register and enforce the Spanish judgment, due to res judicata arising from the awards and because it would be manifestly contrary to the English public policy to enforce the Spanish judgment which conflicted binding awards in favour of the Club. The Court of Appeal upheld the refusal.

While the High Court allowed the “equitable compensation” awarded in the arbitration to stand, the Court of Appeal overturned it on the ground that s 13 of the State Immunity Act 1978 prevented an injunction being granted against a state; hence it was outside the power of the tribunal to award a compensation in lieu of injunction under s 50 of the Senior Courts Act 1981.

In the result, the Club was left with a binding declaration that the Club’s liability did not trigger and that the States may not enforce the judgment insofar as England is concerned.

Tsavliris Salvage (International) Ltd v Great Lakes Transport Inc (The Sea Angel) [2007] EWCA Civ 531

Court of Appeal, England and Wales

• Note: The Court of Appeal dismissed the charterers’ appeal, affirming the High Court’s decision that the charterparty had not been frustrated.
• This case concerned a question of whether a 20-day time charter of a salvage vessel was frustrated when the authorities unlawfully detained her upon completion of the salvage operation following a major oil spill.
• A contract would be frustrated only if the circumstances rendered the performance of the contract “radically different” from what was agreed upon – a high threshold. A court will perform a “reality check” to determine this question.
• The Court of Appeal applied a “multi-factorial approach” to determine frustration, evaluating the contract’s terms, its context, the parties’ knowledge and assumptions about risk, the nature of the supervening event, and the possibilities of future performance.
• In a high-risk venture such as a salvage operation following a major pollution incident, the risk of the vessel being detained by authorities is foreseeable.
• Under a time charter, the risk of delay generally falls on the charterer. Where the charterer is a professional salvor chartering a vessel for a salvage operation, they are taken to have knowledge of and to have accepted the commercial risks inherent in such an operation, including the risk of significant detention.
• The Court of Appeal held that although the vessel’s detention was lengthy (over 100 days), it was not a “radically different” event from the risks contemplated. It was a matter of degree rather than a fundamental change in the nature of the contract, and therefore did not meet the high threshold required to establish frustration.
• Hence, charterers remained liable for hire during the period of detention.

In July 2003, the tanker Tasman Spirit grounded near Karachi, Pakistan, leading to a major spill of its crude oil cargo. The charterers, a professional salvage company, hired the vessel The Sea Angel on a 20-day time charter to assist in the salvage. After completing its work, The Sea Angel was detained by the local port authorities as security for pollution claims, a detention which lasted for over 100 days beyond the initial charter period.

The charterers claimed the charterparty was frustrated by this unexpected and lengthy detention, which would relieve them of their obligation to pay hire. The owners argued that the risk of such a delay in a pollution salvage operation was foreseeable and fell upon the charterers under the terms of the time charter.

The High Court held that the charterparty had not been frustrated and that the charterers remained liable for hire. The Court of Appeal dismissed the charterers’ appeal, affirming this decision. The Court of Appeal ruled that while the detention was longer than anticipated, it was not an event of a character so different from what the parties could have reasonably contemplated in this high-risk context as to frustrate the contract. The risk of operational delays, including detention by authorities, was a risk the charterers had assumed.

King v Brandywine Reinsurance Co (The Exxon Valdez) [2005] EWCA Civ 235

Court of Appeal, England and Wales

• Note: This decision dismissed the appeal from the judgment of the High Court, which had found in favour of the defendant retrocessionaires (reinsurers of reinsurers).
• The term “removal of debris” in the first-party property section (s. I) of a complex corporate insurance policy does not, in its natural meaning, cover the costs associated with cleaning up a large-scale crude oil spill from a tanker. Spilled oil that contaminates the sea and shorelines is not appropriately described as “debris”.
• When an insurance policy is intended to cover the specific and well-known risk of oil pollution, it typically does so using express and clear language (e.g., “pollution”, “contamination”, “clean-up”), rather than relying on general terms.
• In construing a multi-section insurance policy, the court will consider the structure of the policy as a whole. Where separate sections provide distinct cover for property loss (s. I), marine liabilities (s. IIIA), and non-marine liabilities (s. IIIB), the court will not readily construe general words in one section to cover a risk specifically addressed in another.
• A “Notwithstanding” clause stating that there can be no recovery under the property section (s. I) for “liabilities as described under” the liability sections (ss. IIIA and IIIB) functions to prevent overlapping cover and gives primacy to the liability sections.
• A general public liability section (s. IIIB) providing cover for “all transportation activities” in the context of drilling, production, and exploration operations does not extend to cover liabilities arising from the marine carriage of oil in a tanker. Such a risk is properly classified as a marine liability falling under the dedicated marine liability section (s. IIIA)

The case resulted from the grounding of the oil tanker Exxon Valdez in Prince William Sound, Alaska, on Mar. 24, 1989, leading to a spill of approximately 11 million gallons of crude oil. The shipowner, Exxon Shipping Corp. (ESC), and the cargo owner, Exxon Corporation (Exxon), incurred over US$2 billion in clean-up costs and faced vast third-party liability claims from government bodies and private parties. The vessel was entered in the P&I club ITIA, which provided US$400 million of cover specifically for oil pollution risks, and this sum was paid in full to ESC.

Exxon and its affiliates were also insured under a Global Corporate Excess (GCE) Policy, which had three main sections: s. I for property damage, s. IIIA for marine liabilities, and s. IIIB for general third-party liabilities. Exxon claimed its clean-up costs under s. I of the GCE policy, arguing they were covered as “removal of debris”. It also pursued claims under the liability sections, ss. IIIA and IIIB. The GCE insurers settled with Exxon, paying US$300 million for the s.I claim and US$480 million for the s. III claims.

The GCE insurers (the claimants) then claimed against their retrocessionaires (the defendants). The retrocession contracts required the claimants to prove that the original losses were legally covered by the GCE policy. The defendants denied that the oil spill clean-up costs were covered under s. I or s. IIIB of the GCE.

The Court of Appeal dismissed the insurers’ appeal, holding that the defendant retrocessionaires were not liable. The Court found that, on a true construction of the policy, the phrase “removal of debris” in s. I did not provide cover for the oil pollution clean-up costs. It was held that the policy’s structure clearly segregated different types of risk, with oil pollution liabilities being the domain of the marine liability section (s. IIIA), not the property section (s. I) or the general liability section (s. IIIB).

The Court concluded that liability arising out of the marine transport of oil was a marine liability covered by s. IIIA and was not intended to fall within the scope of s. IIIB, which dealt with non-marine risks. Even if the clean-up costs had fallen within the term “removal of debris”, the Court indicated that the “Notwithstanding” clauses in s. I would have operated to exclude recovery for a liability that was described and covered under the liability sections of the policy.

R J Tilbury & Sons (Devon) Ltd v Alegrete Shipping Co Inc & Others (The Sea Empress) [2003] EWCA Civ 65

Court of Appeal, England and Wales

• Note: This decision affirmed the High Court judgment in Alegrete Shipping Co Inc v The International Oil Pollution Compensation Fund 1971 & R J Tilbury & Sons (Devon) Limited [2002] EWHC 1095 (Admlty).
• Liability for “damage caused … by contamination” under the statutory oil pollution compensation regime (s. 153 of the Merchant Shipping Act 1995, implementing the CLC and Fund Conventions) does not extend to all foreseeable economic loss that would not have occurred “but for” the contamination.
• The statutory liability scheme excludes claims for “secondary” or “relational” pure economic loss. This is determined by applying considerations similar, though not identical, to the common law rules that prevent recovery for such losses.
• A key factor in determining whether an economic loss is a recoverable “direct” loss or an irrecoverable “secondary” loss is the claimant’s physical and geographical proximity to the contamination.
• The economic loss suffered by a fish processor located 200 miles from a spill, whose business was interrupted because its fishermen suppliers were prevented from fishing in the contaminated area by a statutory ban, was held to be an irrecoverable secondary or relational loss.
• The processor’s interest was in the landed whelks after they had been caught, not in the whelks in their natural, contaminated habitat, and its business was not a local activity in the physical area of the contamination.
• This is contrasted with the assumed-recoverable claims of the fishermen themselves, whose livelihoods have a direct economic and physical interest in the contaminated waters.
• The fact that a claimant has pre-existing supply contracts that are disrupted by a pollution incident is not sufficient to elevate a secondary economic loss into a recoverable direct loss.

Following the grounding of the tanker Sea Empress off Milford Haven, Wales, a large quantity of crude oil escaped, leading to a statutory ban on fishing in a wide area. The claimants, a company processing whelks in Exmouth, Devon, claimed for loss of profits. Their business depended on supply contracts with fishermen who harvested whelks from the area covered by the ban. When the ban stopped their supply, their business with Korean buyers was destroyed. The claim was brought against the International Oil Pollution Compensation Fund 1971 (the Fund), which is liable for claims exceeding the shipowner’s own limited liability.

The High Court held the claim was an irrecoverable secondary or relational economic loss. The Court of Appeal dismissed the claimant’s appeal, affirming the High Court’s decision. The Court of Appeal held that the statutory liability for pollution damage is focused on the physical contamination and its more direct consequences. While the fishermen who worked in the contaminated waters had a direct interest and could likely claim, the processor’s loss was one step removed. The processor’s business was physically remote from the spill, and its loss arose from the interruption of its contracts with the primary victims (the fishermen), making it an indirect, secondary loss that was outside the scope of the compensation scheme.

West of England Shipowners Mutual Insurance Association (Luxembourg) v Cristal Ltd (The Glacier Bay) [1996] 1 Lloyd’s Rep 370

Court of Appeal, England and Wales

• Note: This decision allowed the appeal from, and overturned, the judgment of the High Court. Leave to appeal to the House of Lords was refused.
• The CRISTAL (Contract Regarding a Supplement to Tanker Liability for Oil Pollution) agreement was a voluntary scheme established by the oil industry to provide supplementary compensation for oil pollution damage, intended as a fund of last resort when other sources of compensation were insufficient.
• An agreement that purports to wholly oust the jurisdiction of the courts is generally contrary to public policy and void. However, parties to a contract can agree that a chosen person or body shall be the final arbiter on questions of fact.
• When interpreting an international, self-regulatory agreement like the CRISTAL contract, which contains a clause making one party the “sole judge” of the validity of claims, the court will consider the context of the entire scheme.
• The phrase “sole judge” in Clause IX of the CRISTAL contract was held to be sufficient to make CRISTAL’s determinations on questions of fact final and binding for all purposes.
• Such a determination on the facts could, however, still be challenged in court on the grounds of bad faith, unfairness, or perversity.
• The words “in accordance with these terms” following “sole judge” in Clause IX, combined with the contract’s English law and exclusive jurisdiction clause, meant that CRISTAL’s determinations on questions of law remained subject to review by the English courts.

In July 1987, the tanker Glacier Bay grounded in Alaska, spilling a significant quantity of its crude oil cargo. The plaintiff P&I Club (the Club) incurred substantial costs in clean-up operations and in compensating third-party claimants such as fishermen. The Club subsequently sought compensation from the CRISTAL fund.

CRISTAL Ltd, a Bermudan company that administered the fund, disputed liability. It argued that the Club had failed to provide a written notice of claim within the two-year time limit required by Clause VIII of the CRISTAL contract. CRISTAL asserted that under Clause IX of the contract, it was the “sole judge” of the validity of any claim, including the factual determination of whether notice was given in time, and that its decision could not be challenged in court.

The Club initiated proceedings in the Commercial Court, arguing that CRISTAL’s determination could be fully challenged on matters of both fact and law. The High Court judge, at a trial of preliminary issues, ruled in favour of the Club, holding that there was an unrestricted right to challenge any determination by CRISTAL in the courts. CRISTAL appealed this decision to the Court of Appeal.

The Court of Appeal allowed CRISTAL’s appeal, setting aside the High Court’s order. The Court held that on a true construction of Clause IX within the context of the overall agreement, the words “sole judge” made CRISTAL’s determination of factual issues final and binding. Lord Justice Neill reasoned that this interpretation was consistent with the nature of the CRISTAL scheme, which was an unusual international agreement designed to have a simple and efficient machinery for adjudicating claims on the fund.

The Court confirmed, however, that any determination by CRISTAL on a question of law could be challenged in court. In the result, the preliminary issues were answered to the effect that CRISTAL was the sole judge on questions of fact (such as the receipt of notice) but not on questions of law. The court could not conduct a full rehearing of the factual evidence but retained its supervisory role over legal interpretations and could intervene in cases of bad faith or perversity.

Sindicato Unico de Pescadores del Municipio Miranda del Estado Zulia v International Oil Pollution Compensation Fund (The Plate Princess) [2015] EWHC 2476 (QB)

High Court, England and Wales

• The International Oil Pollution Compensation Fund 1971 (IOPC Fund 1971) and the International Oil Pollution Compensation Fund 1992 (IOPC Fund 1992) are separate and distinct legal entities under both international and English law.
• The IOPC Fund 1992 possesses immunity from jurisdiction and legal process in the United Kingdom, subject to specific exceptions set out in its Headquarters Agreement with the UK and the corresponding statutory order.
• One such exception is for “actions brought against the 1992 Fund in accordance with the provisions of the [1992 Fund] Convention”.
• The 1992 Fund Convention (and the related 1992 CLC) only applies to a pollution incident if the State in which the damage occurred was a party to the 1992 Conventions at the time of the incident. The regime does not apply retrospectively.
• For a pollution incident that occurred in 1997 in Venezuela, a state that did not become a party to the 1992 Conventions until 1999, the governing liability regime was the 1969 CLC and the 1971 Fund Convention.
• A foreign judgment obtained against the IOPC Fund 1971 cannot be registered or enforced in England against the IOPC Fund 1992. The 1992 Fund is not the same entity and is immune from such proceedings as they do not fall within any of the exceptions to its immunity.
• The IOPC Fund 1971 was formally dissolved and ceased to exist as a legal personality with effect from 31 December 2014.
• Article 36 bis of the 1992 Fund Protocol applies exclusively to states that have ratified, accepted, or approved the Protocol through the deposit of a relevant instrument but have not yet denounced the 1971 Fund Convention. This interpretation was affirmed by the court, which rejected the broader application of Article 36 bis as argued by the applicant.

A Venezuelan fishermen’s union (Sindicato) obtained a judgment in the Venezuelan courts against the “International Fund for Compensation for Oil Pollution Damage, 1971” in relation to a 1997 oil spill from the tanker Plate Princess. In 2015, Sindicato sought to enforce this judgment in England by obtaining an order to register it against the IOPC Fund 1992, which is headquartered in London. By this time, the IOPC Fund 1971 had been formally dissolved. The IOPC Fund 1992 applied to set the registration order aside, arguing it was a separate entity from the 1971 Fund and was immune from jurisdiction.

The High Court granted the IOPC Fund 1992’s application and set the registration order aside in its entirety. The court affirmed that the 1971 and 1992 Funds were distinct legal persons. The 1997 pollution incident was governed by the 1971 compensation regime, as Venezuela only became a party to the 1992 regime in 1999. The Venezuelan judgment was therefore correctly made against the 1971 Fund. Since the judgment was not against the 1992 Fund, and the claim did not arise under the 1992 Convention, there was no basis to enforce it against the 1992 Fund, which was protected by its immunity from jurisdiction in the UK.

A key argument presented by the applicant was based on Article 36 bis of the 1992 Fund Protocol. The applicant contended that the provision should apply in a manner that extended its scope beyond states meeting the specific conditions of ratification and non-denunciation of the 1971 Fund Convention.

The court rejected this argument, concluding that Article 36 bis was narrowly tailored to apply only to states that had ratified the 1992 Fund Protocol but had not denounced the 1971 Fund Convention. This interpretation was supported by the judge’s detailed analysis in paragraphs 50 to 58 of the judgment, particularly paragraphs 50, 54, 55, 56, and 57.

Assuranceforeningen Gard Gjensidig v The International Oil Pollution Compensation Fund (The Nissos Amorgos) [2014] EWHC 1394 (Comm)

High Court, England and Wales

• The International Oil Pollution Compensation Fund 1971 (the Fund) possesses privileges and immunities in the UK as granted by the International Oil Pollution Compensation Fund (Immunities and Privileges) Order 1979 (the Order). The Order was enacted to give domestic effect to the Fund’s Headquarters Agreement with the UK.
• When interpreting a statutory instrument designed to implement an international treaty, the court must first apply the clear and unambiguous words of the instrument. Only if the instrument is ambiguous can the underlying treaty be used to resolve the ambiguity.
• Article 6(1) of the Order provides the Fund with a qualified immunity from “suit and legal process”. The immunity does not apply where a claim falls into one of the specified exceptions.
• The term “legal process” includes freezing orders. If a claim falls within an exception to immunity from “suit,” there is consequently no immunity from a freezing order sought in support of that claim.
• An exception to the Fund’s immunity exists under Article 6(1)(c) for any “loan or other transaction for the provision of finance”.
• A long-standing practice between a P&I Club and the Fund, whereby the Club advances funds to pay claims promptly on the understanding that accounts will be balanced later, can be arguably classified as a “transaction for the provision of finance” and thus fall within the Article 6(1)(c) exception to immunity.
• Another exception to immunity exists under Article 6(1)(b) for “actions brought against the Fund in accordance with the provisions of the Convention“.
• A legal action by an insurer against the Fund for a general indemnity or reimbursement—a right not explicitly granted by the Fund Convention—does not qualify as an action “brought… in accordance with the provisions of the Convention”.

The case originated from the 1997 grounding of the oil tanker Nissos Amorgos in the Maracaibo Channel, Venezuela, which resulted in a spill of approximately 3,600 metric tons of crude oil. The vessel’s P&I Club, Gard, and the shipowners established a limitation fund of approximately US$7.2 million as required by the CLC 1969. The IOPC Fund 1971 was responsible for second-tier compensation under the Fund Convention. Gard and the Fund established a joint agency to handle claims. Gard initially paid claims amounting to US$6.5 million, with the Fund later paying an additional US$18.5 million.

A Venezuelan criminal court issued a civil judgment against the owners and Gard for over US$60 million, appearing to disregard the owners’ right to limit their liability under the CLC. Although the Fund was an intervener in the Venezuelan proceedings, no judgment was entered against it. The Venezuelan court did, however, reject the Fund’s time-bar defence and stated that the Fund was liable under the Fund Convention.

In response, Gard initiated legal action in both England and Venezuela, seeking a declaration that the Fund was liable to indemnify it for any amounts paid under the Venezuelan judgment. Gard applied for a freezing order in England against the Fund’s remaining assets (approx. £4.6 million). This was prompted by the Fund’s imminent dissolution and its plan to return all remaining money to its contributors.

The court granted the freezing order in respect of Gard’s English legal action but refused it for the Venezuelan action. The court found that the wording of the 1979 Order was clear and unambiguous. The Fund’s immunity under Article 6(1) is qualified, and if a claim falls within an exception, there is no immunity from either the suit or associated legal process like a freezing order.

The court held that Gard had a good arguable case that its claim in England—based on the long-standing funding arrangement with the Fund—was a “transaction for the provision of finance“. This brought the claim within the exception in Article 6(1)(c), meaning the Fund was not immune from the suit or the freezing order.

Conversely, the Court found that Gard’s claim in Venezuela for reimbursement was not an action brought “in accordance with the provisions of the Convention” under Article 6(1)(b), because the Fund Convention does not provide for such a claim by an insurer. Therefore, the Fund was immune from the Venezuelan proceedings and a freezing order in relation to them.

A real risk of dissipation was established by the evidence that the Fund was being wound up and intended to distribute its remaining assets, which justified granting the injunction for the English claim.

Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd (The Zoorik) [2010] EWHC 2661 (Comm)

High Court, England and Wales

• The Bunkers Convention 2001 requires shipowners to maintain compulsory insurance to cover their liability for bunker oil pollution, which is evidenced by a “Blue Card” issued by the insurer to the flag state or certifying state.
• A government licence permitting an insurer to “continue to provide insurance cover in accordance with the Blue Cards” despite general sanctions against the insured was construed to permit the continuation of the underlying contract of indemnity insurance for liabilities under the Bunkers Convention, and not just to allow payment of direct claims by third parties.
• The phrase “continue to provide insurance cover” points to the ongoing existence of the indemnity relationship between the insurer and the insured, not merely the creation of a guarantee-like liability to third parties.
• A contract of insurance is not frustrated by supervening illegality where government sanctions prohibit most of the cover, but a specific licence expressly permits a significant part of the cover (such as compulsory bunker pollution insurance) to continue.
• The doctrine of frustration does not apply where the effect of the supervening event is to make the contractual obligations less onerous for the party seeking to invoke it (i.e., the insurer, whose scope of risk was reduced).
• It would not be just to allow an insurer to be excused from a remaining, lawful part of its performance for which it has received a premium, simply because other parts of the contract have become illegal.
• Note: The court noted that the Bunkers Convention (in Article 6) expressly preserves the right of a shipowner to limit its liability under any other applicable international regime, such as the LLMC 1976.

Islamic Republic of Iran Shipping Lines (IRISL) had its fleet insured by the Steamship Mutual P&I Club, including for liabilities under the Bunkers Convention 2001. After HM Treasury imposed financial sanctions prohibiting business with IRISL, it issued a specific licence allowing the Club to “continue to provide insurance cover in accordance with the Blue Cards issued to IRISL”. The Club interpreted this narrowly, believing it only permitted payments for direct actions by third parties under the Convention, not indemnity to IRISL. On this basis, the Club declared the insurance contract frustrated and terminated all cover. The very next day, an IRISL vessel, the Zoorik, grounded in Chinese waters, causing bunker pollution. IRISL sought an indemnity, which the Club denied.

The High Court ruled in favour of IRISL. It held that the Treasury licence, properly construed, permitted the Club to continue providing its underlying indemnity insurance to IRISL for all liabilities falling within the Bunkers Convention. Because a significant and commercially essential part of the insurance remained lawful and performable, the contract as a whole was not frustrated. The effect of the sanctions and licence was merely to reduce the scope of the risks covered by the policy, making the Club’s obligations less onerous, not “radically different”. Therefore, the Club remained liable to indemnify IRISL for the pollution liabilities arising from the casualty.

CMA CGM SA v Classica Shipping Company Limited (The CMA Djakarta) [2003] EWHC 641 (Comm)

High Court, England and Wales

• Note: The primary legal test applied in the High Court judgment (the qua owner test) was overturned on appeal ([2004] 1 Lloyd’s Rep. 460), resulting in the Court of Appeal partially allowing the appeal. The Court of Appeal rejected the qua owner test as inconsistent with the LLMC 1976, clarifying that the capacity in which a charterer acts is not determinative of whether a claim is limitable. Instead, the focus should be on the nature of the claim itself. The Court of Appeal held that a shipowner’s claim for indemnity against liability to third-party cargo owners is a limitable claim under Article 2(1)(a), as it is a claim “in respect of” the loss of or damage to the cargo.
• In considering the interaction between oil pollution liability regimes and general limitation regimes, the High Court noted that the CLC 1969 (as amended) specifically excludes charterer liability for oil pollution damage but preserves the owner’s right of recourse against the charterer. The Court of Appeal, not having to deal with this principle, did not disturb it in any way.
• The High Court held that a charterer’s liability to indemnify a shipowner for pollution claims is not necessarily limited under the LLMC 1976; if the owner’s underlying liability for pollution was unlimited (e.g. under the CLC regime), the recourse claim against the charterer would also be unlimited. The Court of Appeal did not specifically rule on recourse for pollution claims but established a different general principle, holding that a shipowner’s claim for an indemnity against its liability to third-party cargo owners is a limitable claim under Article 2(1)(a), as it is a claim “in respect of” the loss of or damage to that third party’s property (the cargo).
• Applying the (since-overturned) qua owner test, the High Court held that a time charterer could only limit its liability against a shipowner under the LLMC 1976 if the liability was incurred while acting “as if it were the owner,” which a charterer does not do when shipping dangerous cargo in breach of charter. The Court of Appeal rejected this reasoning, emphasising that the nature of the claim, not the capacity in which the charterer acts, determines limitability.
• A claim for damage to the ship herself is not a claim for “damage to property” within the meaning of Article 2(1)(a) of the LLMC 1976 and is therefore not a claim subject to limitation. The ship cannot be both the instrument of the casualty and the damaged property for limitation purposes. The Court of Appeal affirmed this principle.

An explosion and fire occurred on the vessel CMA Djakarta as a result of dangerous cargo (bleaching powder) shipped by the time charterers, CMA CGM. The shipowners, Classica Shipping, brought a successful claim in arbitration against the charterers for damages, including the cost of ship repairs and an indemnity against liability to third-party cargo owners. The charterers commenced proceedings in the High Court, seeking a declaration that they were entitled to limit their liability to the owners under the LLMC 1976.

The High Court dismissed the charterers’ claim, holding they were not entitled to limit their liability. Applying the precedent from The Aegean Sea, Mr Justice David Steel held that a charterer could only limit its liability to an owner when it was acting qua owner (i.e., taking on responsibilities akin to ownership). The liability for shipping dangerous cargo was incurred in its capacity as a charterer, not qua owner, so the right to limit did not arise. The court also confirmed that, in any event, the largest part of the claim—for the physical damage to the ship herself—was not a type of claim subject to limitation under Article 2(1)(a) of the LLMC 1976.

The Court of Appeal partially allowed the charterers’ appeal, overturning the High Court’s legal reasoning but ultimately affirming that the claim for damage to the ship was not limitable, while holding that the claim for indemnity against cargo liability was.