Owners’ & Charterers’ Liability for Oil Pollution

FREEHILL HOGAN & MAHAR, LLP 80 PINE STREET NEW YORK, NY 10005-1759 TEL: 212 425-1900 FAX: 212 425 1901

Who is liable under Federal Law?

Oil Pollution Act of 1990 33 USC §2702 …each responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil into or upon the navigable waters or adjoining shoreline or the exclusive economic zone is liable for the removal costs and damages specified in subsection (b) that result from such incident.

33 USC §2701 (32) “responsible party” means the following: (A) Vessels In the case of a vessel, any person owning, operating or demise chartering the vessel.

Under OPA 90 a vessel owner is clearly a “responsible party” liable for oil pollution.

A time or voyage charterer unlikely to be held as a “responsible party” unless they are operationally involved in the spill incident.

Who is liable under State law?

OPA 90 does not prevent individual states from passing their own pollution statutes and 26 coastal states have such statutes.

As under OPA 90, vessel owners are clearly liable under state pollution laws. State statutes do not uniformly define who is responsible and some of the definitions are vague and broad. Examples: Alabama – “any person” whose wrongful act, omission or negligence results in pollution Delaware – “any other person” who is responsible for the operation, manning, victualling and supplying of the vessel.

Therefore, a charterer could have liability under the broad wording of certain state pollution statutes

However, it would be unusual for a charterer to be pursued under state law because

:

OPA 90 requires shipowners to post financial guarantees in order to trade to the U.S. - $1,200 per grt for a tanker. The guarantee is used to pay for clean up and claims Even if the vessel owner’s financial guarantee is exceeded, the owners P&I Club will almost certainly continue to fund clean up and claims.

Why? Concern over “federalization” of spill OPA 90 established National Pollution Trust Fund to cover damages not covered by the responsible party There are few instances of charterers being pursued for pollution liability

What costs and damages are recoverable for an oil spill?

33 USC § 2702(b) Removal costs Damage to natural resources Damage to real or personal property Damage to subsistence use Loss of revenues by U.S. or state Loss of profits Public services A responsible party can also be liable for: Civil and criminal penalties Federal and state costs of natural resource damage assessment The responsible party will also bear it’s own defense costs – lawyers, experts, etc.

Is the responsible party’s liability limited under OPA 90?

Yes and no.

OPA 90 provides for complete exoneration 33 USC §2703 relieves a responsible party from all liability if the spill was solely due to: Act of God Act of War Act of a third party not in contract with the responsible party, but responsible party still must prove: ● it exercised due care for the oil ● took precautions against the foreseeable acts of the third party

OPA 90 provides for a limit on responsible party’s liability

33 USC § 2704 limits liability to $1,200 per grt for a tanker and to $600 per grt for a non-tank vessel BUT, the right to limit is lost if the spill was proximately caused by: gross negligence of willful misconduct the violation of an applicable Federal safety,construction or operating regulation by responsible party, employee, agent or contracting party The right to limit is lost if the responsible party: fails to report the spill fails to cooperate in clean up fails to comply with orders given by Federal authorities In reality, limitation under OPA 90 is very difficult.

Examples Of Major Spills:

BOUCHARD B 155/BALSA 37/ BARGE OCEAN 255 - 1993

300,000 barrels no. 6 oil Cost of clean up and third party claims $82.5M

NRDA claim - $8.5M

BARGE NORTHCAPE – 1996

828,000 gallons of no. 2 oil Cost of clean up - $12.2M

Cost of third party claims - $21M NRDA - $8M plus lobster restoration project Criminal fine - $8.5M

JULIE N - 1996 179,634 gallons of oil Cost of clean up - $39.2M

Cost of third party claims - $7.4M

NRDA - $1M A rare case where the shipowner was able to limit liability.

STAR EVVIVA - 1999 24,000 gallons fuel oil – but 30-50 miles off coast of South Carolina Clean up – none Third party claims – none NRDA settlement for deaths of 183 birds - $2M Criminal fine - $500,000

ATHOS I - 2004

265,000 gallons crude oil affecting 115 miles of shoreline Cost of clean up - $125M Cost of third party claims – unknown NRDA – unknown This is another rare case where the vessel owner may be able to limit liability.

SERGO ZAKARIADZE - 1999

Bulk carrier loaded with cement – grounded on breakwater at entrance to San Juan Harbor No spill Cost of removal of vessel - $15M Cost of USCG response to threat of spill from Bunkers - $1M

Natural Resource Damage Assessments

Goal of NRDA is to measure and quantify damage to environment Cooperative NRDA Importance of baseline data Computer modeling Restoration Projects NRDA claims usually settle

Criminal Sanctions

Criminal investigations of oil spills are now almost the rule, not the exception Refuse Act, 33 USC §411 – strict criminal liability for discharging oil in U.S,. waters, regardless of fault or intent Migratory Bird Treaty Act, 16 USC §707 – strict criminal liability for discharge of oil which kills migratory birds Clean Water Act, 33 USC 1319(c) - makes negligent discharge a misdemeanor, but negligence is measured by ordinary civil standard (more likely than not) as opposed to criminal standard (beyond a reasonable doubt) Fines can be up to double the damages Conviction of an individual can result in a jail sentence under Mandatory Federal Sentencing Guidelines

Recommendations

1.

Pre-plan - have operable vessel response plans in place, along with current contracts with clean up contractors and your Qualified Individual 2.

Make certain the contractors and advisors in your plan are experienced and competent. Negotiate rates in advance.

3. React fast and in force. Better to overreact than under-react.

4. Remember possible criminal liability. Advise crew of their rights. Get criminal counsel to the scene.

5. Delegate responsibility – clean up, third party claims, NRDA and criminal issues are too much for one person to handle.

6. Aggressively settle third party claims. This may help to avoid class actions.

7. Cooperate with the media - may help to stem public outrage, which can affect politicians and prosecutors. 8. Get baseline data for NRDA 9.

DON’T SPILL OIL!