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These notes refer to the Merchant Shipping(Pollution) Bill [HL] as brought from the House of Lords on 26th October 2005 [Bill 68] MERCHANT SHIPPING (POLLUTION) BILL
EXPLANATORY NOTESINTRODUCTION 1. These explanatory notes relate to the Merchant Shipping (Pollution) Bill as brought from the House of Lords on 26th October 2005. They have been prepared by the Department for Transport in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament. 2. These notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given. 3. The Department has given consideration as to the compatibility of this Bill with human rights and in particular with Article 6 and Article 1 of the First Protocol of the European Convention on Human Rights ("the Convention"). It is considered that the provisions of this Bill are compatible with the Convention. SUMMARY 4. Clause 1 of the Bill confers on Her Majesty power to make an Order in Council which will enable implementation of revisions of the international arrangements relating to compensation for oil pollution from ships. 5. Clause 2 of the Bill confers on Her Majesty power to make an Order in Council to enable the UK to implement Annex VI of the MARPOL Convention (Regulations for the Prevention of Air Pollution from Ships) by amending section 128(1) of the Merchant Shipping Act 1995 (c.21) ("the 1995 Act"). 6. Clause 3 of the Bill amends section 178(1) of the 1995 Act relating to the limitation period for claiming compensation from the International Fund for Compensation for Oil Pollution Damage. [BILL 68-EN] 54/1 BACKGROUND Clause 1 7. Chapters 3 and 4 of Part 6 of the 1995 Act respectively implement the International Convention on Civil Liability for Oil Pollution Damage 1992 ("the Liability Convention") and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992 ("the Fund Convention"). Copies of the text of these conventions can be obtained from Clare Boam, Department for Transport, 2/28 Great Minster House, 76 Marsham Street, London SW1P 4DR (clare.boam@dft.gov.uk) and a copy has been placed in the library of each House. These instruments form the basis of the international regime for compensation for oil pollution from ships. Oil is defined in the Liability Convention as meaning any persistent hydrocarbon mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil. This definition applies throughout the regime. 8. The Liability Convention makes shipowners strictly liable (i.e. liable even in the absence of fault) for pollution damage arising from the carriage of oil in bulk as cargo by sea. This greatly simplifies the process of obtaining compensation for claimants. The limit of liability ranges from £4 million to £72 million depending on the tonnage of the ship. Owners of ships registered in States that are party to the Liability Convention, or operating in waters of such States, and carrying more than 2,000 tons of oil as cargo are required to maintain insurance to meet their limit of liability. The Fund Convention provides additional compensation when the amount available under the Liability Convention is not sufficient to meet the costs of damage arising from an incident. The Fund also provides compensation if liability is not established under the Liability Convention. This additional compensation is paid by major receivers of oil (more than 150,000 tonnes per annum) in the States that are party to the Fund Convention. The Fund is administered by a Director and a Secretariat and its headquarters are situated in London. In many of the 135 incidents in which the Fund has been involved since it was established in 1978 most compensation for eligible claims has been paid without claimants having to take legal action. 9. The overall amount of compensation available through the Liability and Fund Conventions is £162 million per incident. The international regime greatly simplifies the process of obtaining compensation for claimants and in most cases without the need for victims to take legal action. However, in a small number of recent cases, the total cost of damage arising from an incident has exceeded this amount. More frequently, full payment of claims has been delayed because of the need to ensure that the overall amount of compensation available is not exceeded. The total cost of damage arising from an incident may not be known for several years. One of the underlying principles of the regime is that all claims are treated equally. In order to ensure that all claimants receive payment for the same proportion of their claim, compensation is often paid at a reduced rate until the overall cost of the incident is known. Claims from the most recent major spill (the Prestige, affecting Spain, France and Portugal in 2002) have to date been paid at just 15% of the total amount claimed and the overall cost is expected to exceed the total amount available with the effect that claimants may not be fully compensated. 10. In May 2003 a protocol to the Fund Convention was adopted at the International Maritime Organization. The Protocol, known as the Supplementary Fund Protocol, was published and presented to Parliament as Command Paper 6245. The Protocol provides further compensation, up to an overall total of £600 million in the event that the costs of damage arising from an incident exceed the compensation available under the Liability and Fund Conventions. This additional compensation will be subject to the same procedural and administrative rules as the underlying regime. States must be party to the underlying regime in order to become a party to the Supplementary Fund Protocol although the Protocol is an optional third tier for those States who feel they need the higher level of compensation and who accept that their contributors may have to meet a supplementary call for levies for money in major incidents in any State party to the Protocol. 11. The United Kingdom was not among the first phase of ratifying States which brought the Protocol into force in March 2005. The United Kingdom's exposed coastline is vulnerable to spills from tankers and three of the world's worst oil spills have occurred in United Kingdom waters (the Torrey Canyon, Isles of Scilly 1967; the Braer, Shetland 1993; and the Sea Empress, Milford Haven 1996). 12. EU Council Decision 2004/246/EC of 4 March 2004 ("the Council Decision") authorised Member States to ratify the Supplementary Fund Protocol within a reasonable time and if possible before June 2004. Without the power in clause 1 of the Bill the United Kingdom has been unable to fulfil this obligation. The Government's proposal to implement the Protocol was the subject of a public consultation in 2004 (Copies of that consultation are available on the DfT website www.dft.gov.uk). 13. It is intended that the United Kingdom will use the power contained in section 1(2)(a) of the Bill in order to give effect to the Supplementary Fund Protocol at the earliest possible opportunity. This will ensure that:
14. The international oil pollution compensation regime is reviewed and amended from time to time. This can result in the development of new treaties, as in the case of the Supplementary Fund Protocol. Any review would be unlikely to lead to any major alteration in the legal structure that currently exists under the present regime. A review would be likely to consider the balance of financial contribution made under the regime by shipowners and the oil industry. It would also be likely to address a number of specific administrative issues to improve the operation and effectiveness of the Fund. 15. Clause 1 of the Bill provides for the United Kingdom to implement the Supplementary Fund Protocol and any new instruments which modify or replace the existing oil pollution compensation regime. Clause 2 16. Annex VI was introduced into the International Convention on the Prevention of Pollution from Ships 1973 as modified by the Protocol of 1978 relating thereto (the MARPOL Convention) by the Protocol of 1997. The object of Annex VI and the Technical Code on Control of Emission of Nitrogen Oxides from Marine Diesel Engines (NOx Technical Code) referred to in Annex VI is to control, on an international basis, emissions to the atmosphere from ships and offshore installations. 17. It provides for all relevant ships to be certified, maintained and operated in accordance with Annex VI and the NOx Technical Code. It limits the sulphur content of fuel used on board ships in a Sulphur Oxides Emission Control Area. 18. The MARPOL Convention is an International Maritime Organization Treaty. 19. The United Kingdom acceded to the Protocol of 1997 on 5 August 2004 and Annex VI entered into international force in May 2005. Clause 3 20. Clause 3 of the Bill clarifies section 178(1) of the Merchant Shipping Act 1995. That section is in Chapter 4 of Part 6 of the Act, which relates to claims for compensation against the Fund. COMMENTARY ON CLAUSES Clause 1 21. Clause 1 enables Her Majesty by Order in Council to give effect to revisions of the international arrangements relating to compensation for oil pollution from ships. 22. Subsection (1) defines the three instruments which establish the international arrangements relating to compensation for oil pollution from ships. These are the Supplementary Fund Protocol, the Liability Convention and the Fund Convention. The latter two instruments are implemented in Chapters 3 and 4 respectively of Part 6 of the 1995 Act and so the definitions in this Bill use the definitions contained in that Act. 23. Subsection (2) contains the enabling powers which provide for implementation, by Order in Council, of:
24. The provision at paragraph (b) will allow the UK to implement any new instrument governing liability or compensation for oil pollution which revises or amends the existing regime. Such instruments may arise out of a review of the existing international oil pollution compensation regime (see paragraph 14 of these notes). Use of this provision will be subject to affirmative resolution procedure (see paragraph 35 of these notes). 25. Subsection (3) explains that any provision in an Order in Council under subsection (2) may not come into force until the treaty in question has been ratified by the United Kingdom. But this does not prevent particular implementing provisions coming into force sooner if this is necessary in order for the United Kingdom to be able to ratify it. Under the Fund Convention and Supplementary Fund Protocol, States are required to provide information relating to receipts of oil to the Secretary General of the International Maritime Organization at the time of ratification. If future instruments contain similar obligations it may be necessary to make provision for obtaining such information prior to ratification. 26. Subsection (4) specifies particular provisions which may be included in an Order in Council under subsection (2). 27. Paragraph (a) makes it clear that an Order in Council may require contributions to be paid to either the Supplementary Fund or another fund which may be established under instruments which modify or replace any or all of the Supplementary Fund Protocol, the Liability Convention and the Fund Convention. This provision is likely to be similar to that in section 173(1) of the 1995 Act, which deals with contributions to the current International Fund 28. Paragraph (b) authorises the Secretary of State to make an order by statutory instrument in an Order in Council under subsection (2). This means that an Order in Council could contain provision to make further legislative instruments. Such a provision is necessary to ensure that the United Kingdom can implement the procedure in Article 24 of the Supplementary Fund Protocol. This is expected to be replicated in any instruments which revise the Liability Convention, the Fund Convention and/or the Supplementary Fund Protocol. The Article 24 type procedure provides for increases to be made to the limits of liability or compensation as set out in each instrument, without the need to revise or amend the instrument in question. Similar procedures appear in the Liability Convention (Article 15) and the Fund Convention (Article 33). 29. Paragraph (c) provides for the delegation of functions that could be exercised under an Order in Council. 30. Paragraph (d) provides for an Order in Council to create summary offences and offences which may be tried either summarily or on indictment. Where conviction is on indictment, any term of imprisonment must not exceed two years. 31. Paragraph (e) allows for provisions made by or under an Order in Council to apply beyond the territorial sea. 32. Paragraph (f) provides for an Order in Council to make provision that applies to or affects the interests of the Crown. 33. Subsection (5) enables an Order in Council made under subsection (2) to provide for various ancillary matters.
34. Subsections (6) and (7) explain the Parliamentary procedure to be followed in respect of an Order in Council made under subsection (2). 35. Under subsection (6)(a) an Order in Council which relates to any instrument which revises or replaces the Liability Convention, the Fund Convention or the Supplementary Fund Protocol will be subject to affirmative resolution procedure. 36. Under subsection (6)(b) and subsection (7)(a) an Order in Council giving effect only to the Supplementary Fund Protocol will be subject to negative resolution procedure. This will facilitate the prompt implementation of the Supplementary Fund Protocol after the Bill is passed (see paragraph 13 of these notes). 37. Subsections (6)(c) and (7)(a)) secure that Orders in Council relating only to the law in British possessions require no formal Parliamentary procedure. 38. Subsection (7)(b) provides that any order made under an Order in Council by virtue of subsection (4)(b) (see paragraph 28 of these notes), is subject to negative resolution procedure. 39. The intention is to make an Order in Council to implement the Supplementary Fund Protocol as soon as possible after this Bill receives Royal Assent. The Supplementary Fund Protocol is already in force in a number of States and so, in accordance with Article 21, the Protocol will enter into force in the United Kingdom 3 months after the date on which the United Kingdom ratifies the Protocol. 40. A public consultation on the proposal to ratify the Supplementary Fund Protocol was conducted in 2004. A copy of an advanced draft, on which the Department is still working, of the Order in Council intended to implement the Supplementary Fund Protocol under clause 1, and an explanatory note, was placed in the library of each House upon commencement of committee stage of the Bill. Alternatively, copies are available from Clare Boam, Department for Transport, 2/28 Great Minster House, 76 Marsham Street, London SW1P 4DR (clare.boam@dft.gov.uk). Clause 2: Power to give effect to Annex VI of the MARPOL Convention 41. Clause 2 of the Bill enables Her Majesty by Order in Council to implement Annex VI (Regulations for the Prevention of Air Pollution from Ships) of the MARPOL Convention. 42. Subsection (2) inserts a specific reference to Annex VI of the MARPOL Convention in section 128(1) of the Merchant Shipping Act 1995. This will enable Annex VI to be implemented using the same powers that have been used to implement the other annexes of the MARPOL Convention. 43. It is proposed that Annex VI of the MARPOL Convention will be implemented by subordinate legislation after an Order in Council has been made giving the power to make such regulations. A copy of an advanced draft of the regulations on which the Department is still working was placed in the library of each House upon commencement of committee stage. Copies of the MARPOL Convention, including the Protocol of 1997 which introduced Annex VI have also been placed in the library of each House. Both documents are also available from the contact details contained in paragraph 7. Clause 3: Limitation period for claims against the International Fund 44. Clause 3 amends section 178(1) of the Merchant Shipping Act 1995. Article 6 of the Fund Convention provides that rights to compensation under that Convention shall be extinguished unless an action is brought within 3 years from the date when the damage occurred. The corresponding provision in section 178 of the Merchant Shipping Act 1995 provides that no action to enforce a claim shall be entertained by a court in the United Kingdom unless the action is commenced not later than three years after the claim against the Fund arose. 45. While the intention when section 178 was originally enacted was to give effect to Article 6 of the Fund Convention, it is thought that there is a risk that section 178(1) could be read as referring to the time when it is established that full compensation for oil pollution damage cannot be obtained from the shipowner. Under section 175(1) of the 1995 Act, the Fund is only liable if a person suffering damage has been unable to obtain full compensation under section 153 of that Act (i.e. through the shipowner or insurer under the Liability Convention). 46. Clause 3 of the Bill therefore amends section 178(1) to make it absolutely clear that the time limit contained in the 1995 Act is consistent with the text of the Convention. Clause 4: Short title, commencement and extent 47. Subsection (2) provides for commencement of the Bill. Sections 1(2)(b) and 3 will come into force 2 months after the day on which the Act is passed. 48. Sections 1(2)(a) and 2 will enter into force on the day on which the Act is passed. This will allow the United Kingdom to implement the Supplementary Fund Protocol and Annex VI to MARPOL promptly. 49. Subsection (3) provides for amendments made by section 3 to be extended to British possessions under Section 315 of the Merchant Shipping Act 1995. FINANCIAL EFFECTS OF THE BILL 50. Upon full implementation of the Bill and the implementing legislation provided under it, the public sector is not expected to incur significant costs. 51. A potential cost arising through clause 1(2)(a), implementation of the Supplementary Fund Protocol, would be the administrative cost of obtaining an annual report of United Kingdom oil receipts. However, this information is already required under the existing oil pollution compensation regime so in practice there would be no additional burden. 52. It is not possible to predict costs to the public sector associated with clause 1(2)(b). This clause relates to implementation of instruments which revise any or all of the Liability Convention, Fund Convention and the Supplementary Fund Protocol. The content of such instruments will not be known until they have been adopted by the International Maritime Organization. However, it is expected that any such instruments would be closely modelled on the existing regime and would therefore be unlikely to impose any significant additional costs to the public sector. 53. Costs to the public sector under clause 2, implementation of Annex VI of the MARPOL Convention, are not expected to be significant. It will be necessary to check that vessels entering United Kingdom ports are compliant with the regulations implementing Annex VI but this will be carried out as part of the normal Port State Control procedures and should not lead to significant additional costs. 54. The United Kingdom Maritime and Coastguard Agency will be required to maintain a register of fuel oil suppliers but this would not necessitate significant expenditure. The Agency may also be required to conduct surveys of vessels which do not have the necessary certificate establishing compliance, but a fee will be charged for this so there should be no net cost. PUBLIC SERVICE MANPOWER IMPLICATIONS 55. None of the Bill's provisions has significant implications for public service manpower. SUMMARY OF REGULATORY IMPACT ASSESSMENT 56. Regulatory Impact Assessments (RIAs) have been prepared in respect of the provisions provided by clause 1(2)(a) and clause 2. An overall RIA has also been prepared which summarises the costs and benefits of the Bill's provisions. The overall RIA concludes that the benefits of introducing the Merchant Shipping Bill outweigh the costs and that the measures will (1) safeguard the financial security of UK victims in the event of a major oil spill and (2) bring about significant environmental benefits by reducing air pollution from ships. The RIAs also indicate that the Bill will not create a large burden or adverse effects on small business, charities or the voluntary sector. 57. A Regulatory Impact Assessment is not available in respect of the provisions contained in clause 1(2)(b). These relate to implementation of instruments which revise any of all of the Liability Convention, Fund Convention and the Supplementary Fund Protocol. The content of such instruments will not be known until they have been adopted by the International Maritime Organization so it is not possible to assess the costs and benefits as this stage. A Regulatory Impact Assessment would be carried out before using the power contained in clause 1(2)(b). 58. Copies of the Regulatory Impact Assessments have been placed in the library of each House and are available from the contact details at paragraph 7 of these notes. 59. The following table provides a summary of the costs to industry that will arise following full implementation of the Bill and the implementing legislation provided under it.
60. Potential costs that may arise under clause (1)(2)(a) relate to contributions to the Supplementary Fund for compensation in the event of a major oil spill in a State that is party to the Supplementary Fund Protocol. The maximum likely annual cost in a worst case scenario has been included however the precise cost per annum would depend on the frequency and scale of incidents and may in fact be nil in most years. 61. Costs will not arise under clause 1(2)(b) until any such international agreements are adopted at the International Maritime Organization. Instruments can take several years to be developed and so costs are not likely to occur in the near future. In any event, costs would only arise if and when Parliament decides to implement any such instrument in the United Kingdom. 62. Costs under clause 2 will be influenced by global oil markets and represent best estimates based on recent bunker prices. The price of bunker fuels has fluctuated in the last five years but has shown a steady upward trend due to increased global demand on petroleum. 63. In order to comply with Annex VI of the MARPOL Convention, vessels will need to use fuel with a sulphur content not exceeding 1.5%, which is more expensive that current higher sulphur level fuels, when in a Sulphur Oxide (SOx) emission control area. The first SOx emission control area will become effective in the Baltic Sea in 19 May 2006, the next SOx emission control area will become effective in North Sea and English Channel from 22 November 2007. The estimated costs of implementing Annex VI takes into account the higher cost of low sulphur fuel, but does not account for future increases in fuel prices generally. COMPATIBILITY WITH EUROPEAN CONVENTION ON HUMAN RIGHTS 64. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in each House of Parliament to make a statement about the compatibility of its provisions with the Convention rights (as defined by section 1 of that Act). The Secretary of State for Transport made a statement to the effect that - "In my view the provision of the Merchant Shipping (Pollution) Bill are compatible with the Convention rights." TERRITORIAL EXTENT 65. The Bill extends to the whole of the United Kingdom. |
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