6 Maritime civil liability
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5907/06
COM(05) 593
| Draft Directive on the civil liability and financial guarantees of shipowners
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| Legal base | Article 80(2) EC; co-decision; QMV
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| Document originated | 23 November 2005
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| Deposited in Parliament | 09 February 2006
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| Department | Transport |
| Basis of consideration | EM of 18 February 2006
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information awaited
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Background
6.1 There are four International Maritime Organisation (IMO) conventions
relating to the liability of shipowners:
- the 1996 Convention on Limitation of Liability for Maritime
Claims (LLMC), to which the UK is a state party and which has
the force of law in the UK;
- the 1992 International Convention on Civil Liability
(CLC) for Oil Pollution Damage and its associated Fund Conventions
(IOPCF), to which also the UK is a state party;
- the 1996 International Convention of 1996 on
Liability and Compensation for Damage in Connection with the carriage
of Hazardous and Noxious Substances by Sea (the HNS Convention),
which the Government aims to ratify in 2006; and
- the 2001 International Convention on Civil Liability
for Bunker Oil Pollution Damage (the Bunkers Convention), which
also the Government aims to ratify in 2006.
6.2 The LLMC sets liability limits for two types
of claims — claims for loss of life or personal injury and
property claims (such as damage to other ships, property or harbour
works). The IMO says it provides for a virtually unbreakable system
of limiting liability, allowing unlimited liability against a
person only if "it is proved that the loss resulted from
his personal act or omission, committed with the intent to cause
such a loss, or recklessly and with knowledge that such loss would
probably result". The other conventions cover or will cover
liability for the maritime transport of oil and other dangerous
and polluting substances and the fuel oils of ships and require
or will require shipowners to sign financial guarantees.
6.3 In 1999 the IMO adopted guidelines recommending
that shipowners take out civil liability insurance. And some countries,
including the UK, have established obligatory insurance systems.
(The Government is currently considering applying a compulsory
insurance provision to all ships of 300 gross tonnage and over
not covered by an international instrument.)
The document
6.4 The draft Directive is intended to introduce
a Community-wide civil liability regime governing liability and
compulsory third-party insurance. It is primarily aimed at shipowners
operating ships in and out of Member State ports and terminals.
The proposal would:
- require Member States to ratify
the LLMC;
- remove in certain cases, including cases of gross
negligence, the right of owners of ships of states that are not
party to this convention to limit their liability;
- require financial guarantees (such as insurance
or bank or other financial institution guarantee) for both Member
State ships and for third-country ships entering Community waters;
and
- introduce a system of mandatory state certification
for all ships, placing an obligation on Member States to validate
the insurance of every ship on its register and issue a certificate
attesting that insurance is in place.
6.5 The proposal would not affect liability and compensation
arrangements contained in the CLC and the associated IOPCF, the
HNS Convention and the Bunkers Convention. But the Commission
asserts that the conventions need modernising, notes that the
CLC is presently undergoing revision, during which it will seek
changes including removal of the ceiling on civil liability, and
notes also that the other conventions will not be updated in the
near future. The Commission suggests therefore that the draft
Directive is a first step in a two-step process. As the second
step it will seek a mandate to negotiate within the IMO for a
revision of the LLMC, with a review of the level at which shipowners
lose their right to limit their liability.
6.6 This proposal is part of what the Commission
refers to as the "Third Maritime Safety Package". This
comprises seven discrete measures which are being taken forward
separately, rather than as a package, by the Council. The draft
Directive does not feature on the Austrian Presidency's agenda
(only two of the measures do) and the Finnish and German Presidencies
are considering whether or not to give time to the other measures.
The Government's view
6.7 The Minister of State, Department of Transport
(Dr Stephen Ladyman) tells us that the Government has not formally
consulted about this proposal, but it has worked collaboratively
with interested parties and the concerns he expresses are representative
of industry and Government views. He says that the Government
and relevant industries consider that the proposal that all Member
States ratify LLMC is sensible and proportionate. But he then
sets out a number of concerns:
- the possible implications for
negotiating future amendments to the LLMC, if its provisions become
part of internal Community law and therefore a matter of exclusive
Community external competence;
- introduction of the concept of gross negligence
into the limitation of liability for ships flying the flag of
third-party states — shipping is a global industry, necessarily
regulated by a framework of internationally applicable rules,
and introducing regional measures of the type proposed could lead
to a fragmentation of the global system of such rules;
- the same proposal, based on the premise that
exposing shipowners to unlimited liability will improve safety,
fails to acknowledge the way in which most shipowners insure their
ships through the mutuality of Protection and Indemnity (P&I)
Clubs. These mutual clubs allow shipowners to share individual
loses among the membership of a P&I Club, so minimising the
financial impact on individual ship owning entities;
- the same proposal may lead to a reduction in
the amount of available compensation. Shipowners and insurers
are able presently to apply relatively high limits because the
level of liability is known, but removing certainty could have
negative effects on the marine reinsurance market; and
- mandatory state certification for all ships would
entail a significant administrative effort and contribute little
to the overall safety of ships calling at Member State ports and
terminals and it could not apply to ships transiting Member State
or international waters on innocent passage.
6.8 In relation to subsidiarity the Minister says
the Government that "authorising the Member States to ratify
the LLMC in the interests of the Community would be justified
in accordance with the principle of subsidiarity, as similar proposals
have already been accepted in relation to the International Oil
Pollution Compensation Fund Supplementary Fund, the HNS Convention
and the Bunkers Convention".
6.9 As for the financial implications of the draft
Directive the Minister comments that:
- the cost of the introduction
of compulsory insurance would be met by shipowners. The costs
of P&I Club provided insurance are an extremely small percentage
of shipowners' running costs — the International Group of
P&I Clubs estimate it to be less than 2% overall. But the
real cost implication is unknown as much would depend on the marine
insurance and reinsurance markets response to incidents that lifted
the shipowners right to limit his liability; and
- in relation to mandatory state certification
the Maritime and Coastguard Agency charge a flat fee of £30.00
for the certificate required under the CLC — that charge
is likely to apply for other certificates.
6.10 Finally, the Minister tells us that the Commission
has produced an impact assessment for the draft Directive, but
at the moment is only available in French. A supplementary Explanatory
Memorandum will be produced when the assessment is available in
English. Additionally, there is insufficient information yet to
enable the Government to prepare a Regulatory Impact Assessment,
but one will be produced when the impact on the Maritime and Coastguard
Agency and owners of smaller ships becomes clearer.
Conclusion
6.11 This proposal, if adopted, clearly could
have significant consequences for shipowners. We recognise that
it may be some time before negotiations allow the Minister to
report back to us on developments in relation to the concerns
he has mentioned. Equally, we understand that a Regulatory Impact
Assessment may not be possible for some time.
6.12 But in the meantime, in addition to the supplementary
Explanatory Memorandum on the Commission's impact assessment,
we should be grateful if the Minister would send us further explanation
on two points. First, we are puzzled as to the Government's attitude
to obligatory accession to the LLMC. On the one hand the Minister
says that proposal is sensible, but on the other he refers to
concerns about the consequent Community external competence and
future negotiations on the LLMC. Does the Government have any
specific fear? Secondly, we are unclear as to what the Minister's
comment about subsidiarity means. He refers to Member States being
authorised to ratify the LLMC, but we understand that Member States
are to be obliged to do so. Moreover he does not explain why the
precedents he cites are themselves compatible with the subsidiarity
principle.
6.13 Meanwhile the document remains uncleared.
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