08/2004 - Small Tanker Oil Pollution Indemnification Agreement (STOPIA) - Member Circulars

Circular No. 8/2004 February 2005

TO THE MEMBERS OFASSURANCEFORENINGEN GARD -gjensidig-

Dear Sirs

Small Tanker Oil Pollution Indemnification Agreement (STOPIA)

On 3 March 2005 the Supplementary Fund Protocol will come into force in Denmark, Finland, France, Germany, Ireland, Japan, Norway and Spain. A number of other States are expected to ratify the Protocol shortly.

The Protocol provides an additional layer of compensation in respect of oil pollution damage to which the 1992 Civil Liability Convention (CLC 92) and/or 1992 Fund Convention (1992 Fund) apply. The maximum amount of compensation available in States where the Protocol is in force will be SDR 750 million (approximately US$1.15 billion). This figure is inclusive of the compensation payable under the 1992 Fund (up to SDR 203 million) which is, in turn, inclusive of any compensation payable under CLC 92 (between SDR 4.51 million and SDR 89.77 million depending upon vessel tonnage).

In 2001, at the time when the Supplementary Fund Protocol was being drawn up, the Boards and Committees of all International Group Clubs agreed to put in place a mechanism for increasing the minimum limit of shipowner liability under CLC 92 in order to:

Demonstrate the support of shipowners for the compensation scheme established by CLC 92/1992 Fund.
Demonstrate the commitment of shipowners to the notion of sharing and in recognition of the potential increased burden for contributing oil receivers under the proposal to introduce a third tier of compensation through the Supplementary Fund Protocol.
Avoid the necessity to amend the CLC and Fund Conventions.

Following the adoption of the draft Protocol at the IMO two agreements were drawn up in order to implement the scheme approved by Club Boards.

The first agreement, known as Small Tanker Oil Pollution Indemnification Agreement (STOPIA) has the effect of substituting the limit of liability under CLC 92 of SDR 4.5 million ( approximately US$ 6.7 million) for a tanker not exceeding 5,000gt with a limit of SDR 20 million ( approximately US$30 million) for a tanker not exceeding 29,548gt.

STOPIA is an agreement between the owners of tankers of 29,548 gt or less to indemnify the 1992 Fund in respect of the Fund’s liability for the difference between the shipowner’s limit of liability under CLC 92 and SDR 20 million. The indemnity will only apply in the event of tanker spills affecting a State in which the Supplementary Fund Protocol is in force and when liability is imposed on the ship owner under CLC 92. Neither the flag of the vessel nor the ownership of the cargo are relevant. Provided that the amount of compensation payable exceeds the shipowner’s limit under CLC 92, the scheme will operate even if there is no claim upon the Supplementary Fund. Because the indemnity is payable to the 1992 Fund, all contributors to the 1992 Fund will benefit when STOPIA applies.

The scheme is based upon the liability and compensation system established by the 1992 Conventions and shipowners and their Clubs reserve the right to withdraw the scheme if and when any material change to the provisions regarding tanker owners’ liability is made. Although the 1992 Fund is not a party to STOPIA, legally enforceable rights of indemnification are created for the benefit of the 1992 Fund.

The second agreement (currently awaiting the approval of the 1992 Fund Assembly) takes the form of additional provisions to be inserted into the Memorandum of Understanding (MOU) which has been in existence between the 1992 Fund and the International Group of P&I Clubs for many years. Under these new provisions, the Clubs undertake to provide cover against the liabilities incurred by their Members to indemnify the 1992 Fund in accordance with STOPIA and to give the 1992 Fund the right of Direct Action against the insuring Club in respect of those liabilities. The Clubs also undertake to provide for automatic entry of relevant vessels in STOPIA as a condition of pollution cover and to advise the Fund of the names of all such vessels.

Therefore, with effect from 3 March 2005, Rule 38.3 of the Association’s Rules for Ships will have the effect of entering Members who are owners of tankers of 29,548 gt or less , and which may carry persistent oil in bulk as cargo , in the STOPIA scheme. A Member’s liability to indemnify the 1992 Fund under STOPIA will be insured by the Club in accordance with the Rules and the Member’s terms of entry.

A copy of STOPIA, plus a more detailed explanatory note is attached to this circular as Annex 1.

A copy of the MOU amendment is attached to this circular as Annex 2.

Charterparty Clause

It is likely that charterers will require relevant tanker owners to warrant their participation in STOPIA under the terms of charterparties. A recommended clause for inserting into charterparties is attached as Annex 3.

If you have any questions, please contact Senior Vice President Kjetil Eivindstad of Gard AS.

Yours faithfully, GARD AS As agent only for Assuranceforeningen Gard -gjensidig-

Claes Isacson Chief Executive Officer

Annex 1Small tanker oil pollution indemnification agreement (STOPIA)

Explanatory Note This Note explains the purpose behind the Small Tanker Oil Pollution Indemnification Agreement (STOPIA) and gives a short summary of its main features. It does not form part of the Agreement but is intended to serve as an informal guide for those interested in understanding how it is intended to operate.

The Agreement establishes the STOPIA Scheme, the object of which is to provide a mechanism for shipowners to pay an increased contribution to the funding of the international system of compensation for oil pollution from ships, as established by the 1992 Civil Liability Convention, the 1992 Fund Convention and the 2003 Supplementary Fund Protocol. The Scheme reflects the desire of shipowners to support efforts to ensure the continuing success of this international system. It is also intended to encourage widest possible ratification of the Protocol, and has been drawn up in recognition of the potential additional burden imposed by the Protocol on receivers of oil.

STOPIA is designed to compensate for this additional burden by adjusting the financial effect of the limitation of liability provisions in CLC 92 in respect of incidents causing pollution damage in States where the Supplementary Fund Protocol is in force. The Scheme reflects the fact that CLC 92 provides for the liability limit of the shipowner to be calculated by reference to the tonnage of the ship, subject to a minimum limit of SDR 4.51 million for ships of 5,000 gross tons or less. Given that the 1992 Fund pays compensation where claims exceed the CLC 92 limit, incidents involving small tankers may result in the 1992 Fund bearing a relatively high proportion of the compensation payable, and paying compensation in a larger number of incidents than would be the case if the minimum limit under CLC 92 were higher. Against this background the Scheme provides for shipowners to bear the cost of oil spills up to a minimum level of SDR 20 million. That amount is equivalent to the liability limit under CLC 92 for a ship of 29,548 gross tons. STOPIA therefore re-apportions the ultimate cost of oil spills involving ships up to that size.

The Scheme is established by a legally binding Agreement between the owners of ships in this category which are insured against oil pollution risks by P&I Clubs in the International Group. In all but a relatively small number of cases, ships of this description will automatically be entered in the Scheme as a condition of Club cover. Their owners will be parties to the Agreement and are referred to as “Participating Owners”.

As the Scheme is contractual it does not affect the legal position under the 1992 Conventions, and the victims of oil spills continue to enjoy their existing rights against the 1992 Fund. For this reason the Scheme provides for the owner of the ship involved in an incident to pay Indemnification to the 1992 Fund, rather than to pay extra sums directly to claimants.

Although the 1992 Fund is not a party to STOPIA the Agreement is intended to confer legally enforceable rights on the 1992 Fund, and it expressly provides that the 1992 Fund may bring proceedings in its own name in respect of any claim under the Scheme. The Scheme is governed by English law, and English legislation enables legally enforceable rights to be conferred in this manner.

Insurers are not parties to the Agreement, but all Clubs in the International Group have amended (or agreed to amend) their Rules to provide shipowners with cover against liability to pay Indemnification under STOPIA. The Clubs are also authorised under the Scheme to enter into ancillary arrangements enabling the 1992 Fund to enjoy a right of direct action against the relevant Club in respect of any claim under the Scheme. It is envisaged that these and other terms supporting the operation of the Scheme will be incorporated in a revised version of the current Memorandum of Understanding between the 1992 Fund and the International Group of P&I Clubs.

Whilst the above are the main features of the Scheme, its eleven clauses address numerous matters of detail. Clause I sets out various definitions, most of which are intended to dovetail with the terminology and provisions of the relevant international conventions. Clauses II and III contain general provisions relating to the Scheme and provide for it to apply to “Relevant Ships”. Apart from a relatively small category of ships mentioned below, all tankers will be Relevant Ships if they are of 29,548 gross tons or less and are insured by an International Group Club. The Scheme provides that the owner of any such ship shall become a party to the Agreement when made a party by his Club in accordance with its Rules, and normally this will result in him automatically becoming a party as a condition of cover against oil pollution risks. The Agreement also provides for any Relevant Ship which he owns to be entered automatically in the Scheme.

An exception to these arrangements relates to ships which are insured by an International Group Club but are not reinsured through the Group’s Pooling arrangements. A ship in this category is not automatically entered in the Scheme, but may nonetheless be deemed to be a Relevant Ship (and be entered in the Scheme) by written agreement between the owner and his Club. Certain Japanese coastal tankers are insured outside the International Group Pooling arrangements, but it appears that fewer than 200 of these exceed 200 gross tons. By contrast, some 6,000 tankers are expected to be entered in STOPIA.

Clause IV sets out the precise circumstances in which the Participating Owner of a Relevant Ship is liable to pay Indemnification to the 1992 Fund, and it includes detailed provisions affecting the calculation of the precise amount payable.

Clause V deals with recourse against third parties, and provides for Indemnification of the 1992 Fund to be postponed until a final conclusion has been reached in any recourse action it decides to bring against other potentially responsible parties. Credit is to be given for any sums recovered, but the 1992 Fund retains an absolute discretion as to the commencement, conduct and any settlement of such proceedings. In the event of Indemnification being paid before recourse proceedings have been completed, provision is made for it to be treated as an interest-free loan until the proceedings are over. (This is to avoid the recourse claim being prejudiced as a result of the defendant being able to argue that Indemnification has reduced the loss for which the 1992 Fund may claim recovery.)

Clause VI contains time bar provisions designed to dovetail with the 1992 Conventions (and to allow the 1992 Fund a further 12 months in which to claim Indemnification after the time limit for claims against it under the 1992 Fund Convention).

Clause VII deals with amendment of the Scheme and enables changes to be made by the International Group acting as agent for all Participating Owners. No amendment is to have retrospective effect, and the Clubs have agreed that new arrangements in a revised Memorandum of Understanding should provide for consultation with the 1992 Fund in good time prior to any decision to amend the Scheme.

Clause VIII provides for the Scheme to enter into effect simultaneously with the entry into force of the Supplementary Fund Protocol. Provision is also made for termination of the Agreement in certain circumstances, notably in the event of developments which materially and significantly change the system of compensation established by the current international regime. Again, the Clubs have agreed to consult with the 1992 Fund prior to any decision to terminate STOPIA.

Under Clause IX a Participating Owner may withdraw from the Scheme, and the terms on which he may do so are set out. However it is anticipated that the owner of a Relevant Ship will not normally be able to withdraw from STOPIA without prejudicing his Club cover in respect of oil pollution risks.

Clause X sets out the legal rights under the Scheme of the 1992 Fund, and the authority of the International Group to agree ancillary arrangements with the 1992 Fund in respect of direct actions. The Clubs have agreed to bear direct liability on a similar basis to that prescribed by CLC 92.

Finally the Agreement provides by Clause XI that it is to be governed by English law and that the English High Court of Justice shall have exclusive jurisdiction in relation to any disputes thereunder.

Small tanker oil pollution indemnification agreement (STOPIA)

INTRODUCTION

The Parties to this Agreement are the Participating Owners as defined herein.

The Participating Owners recognize the success of the international system of compensation for oil pollution from ships established by the 1992 Civil Liability and Fund Conventions, and they are aware that it may need to be revised or supplemented from time to time in order to ensure that it continues to meet the needs of society.

A Protocol has been drawn up and adopted to supplement the 1992 Fund Convention by providing for additional compensation to be available from a Supplementary Fund in States which opt to accede to the Protocol. The Parties wish to encourage the widest possible ratification of the Protocol, with a view to facilitating the continuance of the existing compensation system in its current form (but as supplemented by the Protocol).

In consideration of the potential additional burden imposed by the Protocol on receivers of oil, the Participating Owners have agreed to establish the scheme set out herein, whereby the Participating Owners of tankers below a specified tonnage will indemnify the International Oil Pollution Compensation Fund 1992 (“the 1992 Fund”) for a portion of its liability to pay compensation under the 1992 Fund Convention for pollution damage caused by such tankers in States in respect of which the Protocol establishing the Supplementary Fund is in force.

This Agreement is intended to create legal relations and in consideration of their mutual promises Participating Owners of each Entered Ship have agreed with one another and do agree as follows -

I DEFINITIONS

“Incident”, “Oil”, “Owner”, “Person”, “Pollution Damage”, “Preventive Measures”, “Ship”.

“Participating Owner” means the Owner of an Entered Ship who is a Party.

“Scheme” means the Small Tanker Oil Pollution Indemnification Agreement (STOPIA) as established by this Agreement.

II GENERAL

...

III THE STOPIA SCHEME

it is of not more than 29,548 Tons;
it is insured by a Club; and
it is reinsured through the Pooling arrangements of the International Group.
it ceases to be a Relevant Ship (as a result of tonnage re-measurement and/or of ceasing to be insured and reinsured as stated in Paragraph (B) above); or
it ceases to be owned by a Participating Owner; or
the Participating Owner has withdrawn from this Agreement in accordance with Clause IX.

IV. INDEMNIFICATION OF 1992 FUND

Pollution Damage caused:
1. in the territory, including the territorial sea, of a Protocol State ; and/or
2. in the exclusive economic zone of a Protocol State, established in accordance with international law, or, if such a State has not established such a zone, in an area beyond and adjacent to the territorial sea of that State determined by that State in accordance with international law and extending not more than 200 nautical miles from the baselines from which the breadth of its territorial sea is measured; and/or
the costs of Preventive Measures, wherever taken, to prevent or minimize such Pollution Damage.

Indemnification shall not be payable for:(1) the costs of any Preventive Measures to the extent that the Participating Owner is exonerated from liability under Article III, paragraph 3 of the Liability Convention, and for which the 1992 Fund is liable by virtue of Article 4, paragraph 3 of the 1992 Fund Convention;(2) any other Pollution Damage to the extent that liability is incurred by the 1992 Fund but not by the Participating Owner.

The amount for which Indemnification is payable by the Participating Owner shall be the aggregate amount of compensation paid by the 1992 Fund for Pollution Damage in a Protocol State, provided always that –

for the purpose of this Clause IV(E) the aggregate amount of compensation paid by the 1992 Fund shall be the total amount of compensation paid by the 1992 Fund less any sums recovered by the 1992 Fund in recourse action pursuant to Clause V below (net of the costs of such recourse action);
the Indemnification amount shall not exceed in respect of any one Incident an amount equivalent to 20 million units of account less –(i) the amount of the Owner’s liability under the Liability Convention as limited by Article V, paragraph 1 thereof; and(ii) any amounts which he or his Club is entitled to recover from the 1992 Fund in respect of the Incident, whether in their own right, by subrogation, assignment or otherwise.

V. RECOURSE AGAINST THIRD PARTIES

Paragraph (B) above shall not prevent the 1992 Fund from commencing proceedings against the Participating Owner and the Club in order to protect its rights hereunder from becoming time-barred.

The Participating Owner and his Club agree to grant to the 1992 Fund any extension of time which the 1992 Fund may reasonably require in respect of the commencement or conduct of such proceedings in circumstances where recourse action is ongoing and/or no notice of final conclusion has been given in accordance with Paragraph (B) above.

VI. PROCEDURE AND MISCELLANEOUS

Any rights of the 1992 Fund to Indemnification under this Agreement shall be extinguished unless an action is brought hereunder within four years from the date when the Pollution Damage occurred. However, in no case shall an action be brought after seven years from the date of the Incident which caused the damage. Where this Incident consists of a series of occurrences, the seven years’ period shall run from the date of the first such occurrence.

VII. AMENDMENT

This Agreement may be amended at any time by the International Group acting as agent for all Participating Owners.

Any such amendment to this Agreement will take effect three months from the date on which written notice is given by the International Group to the 1992 Fund.

Each Participating Owner agrees that the International Group shall be authorized to agree on his behalf to an amendment of this Agreement if(1) it is so authorized by his Club, and(2) his Club has approved of the amendment by the same procedure as that required for alteration of its Rules.

VIII. DURATION

Each Participating Owner agrees that the International Group shall be authorized to terminate this Agreement on his behalf if -(1) the Clubs cease to provide Insurance against the liability of Participating Owners to pay Indemnification under this Agreement; or(2) any international instrument is adopted or agreement is reached, or any relevant domestic or regional law is made or adopted (including any binding judicial decision or precedent), which does or will materially and significantly change the system of compensation established by the Liability Convention, the 1992 Fund Convention and the Protocol, and/or the operation of that system in any one or more Protocol States (hereinafter referred to as a “material change”); or(3) termination is authorized by his Club, and his Club has approved of the termination by the same procedure as that required for alteration of its Rules.

Termination shall not take effect until three months after the date on which the 1992 Fund is notified thereof in writing by the International Group. In the event of termination on the grounds stated in Paragraph (C)(2) above, such notice may specify that termination is take effect -

at such later date, if any, on which the material change takes effect; and/or
either entirely, or in relation only to Pollution Damage in any State or States specified in the notice as being affected by such change.

IX. WITHDRAWAL

A Participating Owner may withdraw from this Agreement –(1) on giving not less than 3 months’ written notice of withdrawal to his Club; or

(2) by virtue of an amendment thereto, provided always –(i) that he exercised any right to vote against the said amendment when his Club sought the approval thereto of its members; and(ii) that within 60 days of the amendment being approved by the membership of his Club he gives written notice of withdrawal to his Club; and(iii) that such withdrawal shall take effect simultaneously with the entry-into-effect of the amendment, or on the date on which his notice is received by his Club, whichever is later.

X. LEGAL RIGHTS OF 1992 FUND

XI. LAW AND JURISDICTION

This Agreement shall be governed by English law and the English High Court of Justice shall have exclusive jurisdiction in relation to any disputes hereunder.

January 2005

Annex 2

STOPIA – Additional provisions for the MoU between the Clubs and the 1992 Fund

Draft - 27/01/05

6A. STOPIA

Annex 3

Recommended STOPIA Charterparty Clause

“Owner warrants that it is a Participating Owner and that the vessel is entered in the Small Tanker Oil Pollution Indemnification Agreement (STOPIA) and shall so remain during the currency of this charter, provided always that:-

the vessel is and remains a Relevant Vessel as defined in cl.III of STOPIA.
STOPIA is not terminated in accordance with cl. VIII of that agreement.”