According to a Forbes report, the oil spill in Mauritius in August has had lawyers scrambling through their maritime insurance libraries to understand the implications of the incident, caused by the Japanese bulk carrier, the Wakashio.
The damage from the oil spill is estimated at over $10 billion.
Downplaying Insurance Payouts?
However, local groups have been facing an aggressive counter narrative operation being put out by the shipping and oil industry where there have been attempts to downplay Mauritian expectations of any insurance payouts.
The oil spill impact has been extensive in Mauritius, due to the Wakashio, with ongoing cleanups involving 200 displaced fishermen
Indeed, Captain John Konrad from leading U.S. maritime publication, gCaptain, has called some of the advice being given publicly to Mauritian authorities and business leaders by the United Nations agencies involved as, “the worst advice ever.”
It now turns out that the unique circumstances of the ship grounding and the oil spill in Mauritius have opened up an unexpected set of legal loopholes that could be a pathway for which Mauritian organizations could claim over $10 billion in compensation from the global reinsurance market.
Calls for a just response
First, it is important to bear in mind that there were real victims in Mauritius. This oil spill and devastation was caused by a vessel that was not even meant to be stopping in Mauritius. Islanders and coastal communities have been devastated by the spill, four responders lost their lives, and the chemical impact on marine life by the experimental fuel is only just being revealed.
The entire shipping industry is on trial with the Wakashio oil spill, with scrutiny about the laws and arguments that will be used in court, the conduct of the corporations involved, and the transparency with which the industry operates. Already, there has been surprise with how senior lawyers of the Captain of the Wakashio has been cast aside for lawyers appointed by the shipowner and insurer.
Given the disproportionate impact on poorer coastal fishing communities and endangered species in Mauritius, both the Pope and major maritime insurer, Lloyds have called for an ethical approach by insurers to the Mauritius oil spill.
On August 17, Lloyds said, “It is unacceptable for a poor third-world government only to receive tens of millions of dollars in compensation for a clean-up that will cost hundreds of millions of dollars to undertake,” argued Lloyds List. “Even if that is legally right, it is morally wrong.” There are questions about whether the Lloyds opinion piece on the legality of liability is accurate.
MOL’s Tony Hayward Moment
In comparison, on August 10, one of the first responses by the charterer and operator of the vessel, Japanese giant Mitsui OSK Lines who earned $14 billion in revenues last year, issued a statement saying that “It does not expect an earnings impact from the incident to be big enough to warrant timely disclosure.” This was viewed as particularly insensitive for MOL to be more interested in their quarterly earnings results at the same time as the world’s media was watching islanders cut their hair and stitch home made oil protection booms to protect their island from being drenched in the experimental ship fuel oil that was purchased by Mitsui OSK Lines.
This was MOL’s ‘Tony Hayward moment’ – named after the BP CEO who delayed BP’s response to the Deepwater Horizon spill and initially denied BP’s responsibilities, was filmed at sailing regattas instead of visibly leading the most expensive oil spill in history, and complaining that he ‘wanting his life back.’ This approach ultimately cost him his job.
An Executive Vice President of Mitsui OSK Lines, Akihiko Ono, then told Reuters on August 14 that MOL had no responsibility for the accident. MOL has not responded to any of the key operational questions raised by Forbes over the past few months and raised publicly on October 30th. For the world’s second largest shipping company, there are higher expectations of corporate transparency and conduct for an incident that has caused a state of National Environmental Emergency to be declared in another nation.
The Wakashio was one of the largest vessels in the ocean, and with such large vessels have come even larger risks and responsibility. This had already been recognized by the industry and leading insurance firms, who had previously highlighted the costs of a container ship running aground in an environmentally sensitive area would easily amount to at least $4 billion to clear up.
Parallels To the Case
There are many parallels with that case and what is seen in Mauritius.
Last year, the global shipping reinsurer, Allianz (Allianz Global Corporate & Specialty or ACGS), highlighted the growing risk of the shipping industry’s expanding ship sizes. They flagged that the size of vessels around the world were continuing to balloon, without commensurate increases in safety standards.
“Insurers such as AGCS (Allianz) have been warning for years that the increasing size of vessels is leading to a higher accumulation of risk,” said Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS, in Allianz’s 2019 Annual Report on shipping safety. “These fears are now being realized, as demonstrated by the growing number, and cost, of incidents with ULCS (Ultra Large Container Ships).” The amount of fuel carried in Ultra Large Container Ships and Capesize Bulk Carriers like the Wakashio, are similar, given the huge size of both vessels.
Khanna goes on to warn, “While we have seen total losses reduce over the past decade, the benefits are being largely offset by the increased cost of losses for large vessels. The cost of casualties or incidents is rising, with an increase in severity, and this is down to the increasing size of vessels. Such ships generate economies of scale for ship owners but also increased risk, and a disproportionately greater cost when things go wrong.”
In their Shipping Safety Annual Report in 2019, Allianz gave an example of what they called a ‘worse-case scenario’ of a major oil spill in a biodiversity hotspot requiring an insurance payout of at least $4 billion.
The Allianz report says, “A hypothetical worse-case loss scenario involving the collision and grounding of two large container vessels, or a container vessel and a cruise ship, could result in a $4 billion loss when the costs of salvage, wreck removal and environmental claims are included. Potentially, one insurer could find they have insured more than one vessel involved in the same incident, with exposure to hull, machinery breakdown and cargo losses.”
Risks of Rapidly Expanding Vessels
Allianz’s Global Head of Marine Claims, Régis Broudin, highlights the risks of rapidly expanding vessels, without commensurate increase in safety equipment. For example, the Wakashio was not carrying enough oil protection booms to cover its own perimeter of 700 meters.
“The size of a vessel can significantly increase salvage and general average costs. Ultra Large Container Ships require specialist tugs and finding a port of refuge with capacity to handle such a large ship can be difficult, which increases the salvage operation costs,” explains Broudin in the Allianz report.
Allianz also points out that following a number of incidents in recent years, the shipping industry should question whether it is running acceptable levels of risk for large vessels, according to Captain Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global Corporate & Specialty.
“There is a push for efficiency and scale in the shipping industry but this should not be allowed to give rise to unacceptable levels of risk,” says Kinsey.
In the Allianz Report, they used a worked example of a collision of a Container Ship with a Cruise Ship leading to pollution, a salvage and passenger injuries in an environmentally sensitive location.
Mauritius Claims To Double Cleanup Expenditure
With Mauritius, there were at least 35,200 people directly exposed to the oil, with many having had to inhale the fumes of heavy ship oil for months from the saturated hydrocarbons in the ground just meters from their coastal houses. In addition, there were four deaths from the Sir Gaetan tugboat sinking, and between 210,000 and 300,000 gallons of oil spilled in the lagoon. So the Allianz comparison may be a significant underestimate for what Mauritius is experiencing.
The Mauritius claims would be double the previous most expensive oil spill clean up per barrel. This was the Bulk Carrier Kure that struck a harbor in California in 1997 and the subsequent ten day clean up cost of $47 million for 105 barrels of bunker fuel. According to the case written up in one of the most authoritative books on the legal aspects of pollution from ships, Shipping and the Environment (2009) by Colin de la Rue and Charles Anderson, each barrel of bunker fuel cost almost $500,000 to clean up.
In Mauritius, as much as 10,000 barrels of bunker fuel were spilled (300,000 gallons). At $500,000 a barrel, this would bring the clean up costs to almost $5 billion.
Oil Spill & Shipping Laws Loopholes
Immediately following the Wakashio oil spill, maritime legal commentators working for the industry, centered on the Bunker Fuel Convention as the most applicable law under which damages should be filed. A series of uncannily timed articles appeared in the media around the world claiming that under this law, Mauritius was limited to between $18m and $65m of damages.
It is important to also bear in mind that within days of the oil spill, the Wakashio’s shipowners, Nagashiki Shipping, had engaged the largest international crisis communications firm for global shipping, MTI-Network, which was an indicator that they were aware of how serious this oil spill was and attempted to deploy a sophisticated domestic and international media campaign. Neither Nagashiki Shipping nor MTI-Network have responded to questions raised about the budget spent on external communication consultants in the wake of the Wakashio disaster.
Even the representative of the UN International Maritime Organization, tried to convince Mauritius businesses to take a ‘fast deal,’ rather than receive full reparations for the damage caused. Senior IMO leaders have consistently avoided answering questions about this advice, and have instead referred journalists to a statement on their website, which was then hacked on October 1. In the statement on the IMO website, the IMO revealed that its IMO Representative was supported by an ‘IMO Secretariat’ based at the IMO Headquarters in London. This raises other questions about the capabilities, neutrality and motivations of the IMO activities in Mauritius in undermining Mauritius’ multi-billion dollar insurance claim. Was this done deliberately?
So if there are questions about the impartiality of the IMO advice, how should Mauritius evaluate its insurance claim. The first step is to have a better understanding of the 2001 Bunker Fuel Convention, than was originally presented to the island.
Distinguishing Oil Spills
It is important to distinguish between two types of oil spills. Crude oil from oil tankers, and bunker oil spills – the heavier ship fuel oil that is used to power ships. As ships have grown larger in the past 50 years (1500% larger since 1968, including doubling in the last decade alone), the risks from a major spill from bunker fuel have increased, as revealed in the Allianz reports. Indeed, the Wakashio was carrying over 1 million gallons of bunker fuel when it collided with Mauritius. In a gallon for gallon comparison, bunker fuel is a lot more polluting than crude oil.
A report by oil industry representatives, ITOPF presented in Florida in 2001, opens with “Experience shows that spills of persistent heavy fuel oils, whether from cargo carried on tankers or bunker fuel used by ships in general, are among the most difficult to combat. Because of their viscous nature, which leads to prolonged persistence in the marine environment, such oils have the potential to cause widespread contamination of sensitive environmental and economic resources.”
ITOPF then goes on to say, “Various factors determine the severity (and cost) of an oil spill, including the type of oil; amount spilled; rate of spillage; physical, biological and economic characteristics of the spill location; weather and sea conditions’ and efficiency of cleanup. Of these factors one of the most significant is the type of oil, with heavy fuel oils being amongst the most problematical because of their high viscosity, which is more pronounced in cold waters and in winter months.”
It was winter in the Southern Hemisphere when the Wakashio ran aground in Mauritius with surrounding waters being at their coldest. This would have made the Wakashio oil spill particularly toxic.
Bunker Fuels Damaging Than Crude Oil
So the oil industry and shipping companies have known that bunker fuels were a lot more damaging than crude oil as early as 2001, and they used their influence at the IMO to introduce legislation to attempt to limit how much they would have to pay in the event of an oil spill. The tradeoff for this was to introduce a term called ‘Strict Liability.’ ‘Strict Liability’ means that there is an automatic payment in the event of an oil spill, without needing to prove who was at fault.
In return for ‘Strict Liability,’ the amount that needs to be paid out (called ‘Limitation of Liability’) was reduced by several orders of magnitude. Rather than billions of dollars (as in the $5 billion case of Exxon Valdez in 1989 in Alaska and $20 billion BP Deepwater Horizon in 2010 in the U.S. Gulf of Mexico), the Bunker Fuel Convention attempted to limit payouts to $65 million, compared to the $4 billion estimated by Allianz (a 61-times difference). These limits were being set regardless of how large shipowners built their vessels and the significant increases in the amount of bunker fuel they were carrying.
This was not a law written to protect the environment or island populations.
2001 Bunker Fuel Convention Loopholes
Regardless of the ethics of why a separate set of laws was needed for the more harmful bunker fuel compared to crude oil, there are several loopholes with the law governing bunker fuel spills.
In order to understand these loopholes, it is important to be aware of three pieces of international legislation: the 2001 Bunker Convention, the 1976 Liability for Maritime Claims (LLMC 1976) and the 1969 International Convention on Civil Liability for Oil Pollution Damage (CLC Convention).
These are all laws under the International Maritime Organization and several international law courts could be used if there any disputes (such as the International Tribunal for the Law of the Sea).
With the insurance claims almost certainly extending above the Japan P&I threshold, this case is likely to involve the shipping reinsurer, the International Group P&I Club based in London, as well as even extending beyond them to a third tier of global reinsurers like Swiss Re. The salvage operation was signed under the Lloyds agreement, implying some hearings in British Courts too about damage caused by the salvage operation.
- Linkage of 2001 Bunker Fuel Convention to LLMC 1976 to define payout
The Bunker Fuel Convention defines who is broadly responsible for a spill of bunker fuel. This is important, as there is an international law specifically covering bunker fuel spills (not just crude oil spills).
It also indicates that under international law, fault and liability may lie with several parties, such as the ship’s charterer and operator too – not just the shipowner. In the Wakashio’s case, the owners were the Japanese companies, Nagashiki Shipping and the charterer was Japanese giant, Mitsui OSK Lines (MOL) who purchased the fuel and hired the vessel.
The law then implies there is no limit to the amount that should be paid to restore a habitat and compensate local communities for losses incurred (i.e., states can claim an unlimited amount, so long as there is sufficient evidence provided in court). This is because when it comes to the payment threshold, the 2001 Bunker Fuel Convention specifically refers to a 1976 Law, the Limitation of Liability for Maritime Claims (LLMC 1976).
A 2012 UNCTAD Report is clear in saying, “The 2001 BOPC does not specify a shipowner’s limit of liability.”
The Treaty is full of complex legal language, but it essentially says that the 2001 Bunker Convention “does not affect the right of the shipowner, or his insurer, to limit their liability under any applicable national or international regime, referring, by way of example, to the 1976 LLMC.”
To clarify what this means: ‘Limit their liability’ is a way for shipowners to reduce the payout, and the ‘right of the shipowner’ shows that this law was written for shipowners, not the ‘rights of citizens or the environment’ who had been affected by the oil spill.
This language reveals a large loophole in the Bunker Convention Law. The reference to the 1976 LLMC implies that the 1976 Limitation of Liability for Maritime Claims should be the law against which dollar damages are assessed and awarded.
A more specific set of examples is given by maritime lawyer, Konstantinos Bachxevanis in a September 2009 paper published by major international law firm, Reed Smith. In the fifth section of his paper that covers limitation of liability, Bachxevanis highlights that, “There have been strong arguments that the LLMC 1976 may give no general right to limitation for bunker pollution claims which do not involve physical damage to property or result to infringement of rights because such claims cannot be brought within the existing wording of the sub-paragraphs of Art.2(1) of the LLMC 1976.” Those subparagraphs are (a) claims for loss or damage to property and (c) referring to claims in respect of loss resulting from infringement of rights.
He goes on to say, “An example is economic losses arising from disruption of business caused by bunker oil spill. Such claims are the claims by fishing and tourist industries which are unrelated to any damage to property. First, there may be no ‘property’ damaged apart from the sea itself or the beaches. Secondly, a more natural reading of the relevant provision is that it refers to the consequential loss of the person whose property has been damaged. That would not probably apply to the hotelier (unless he owned the beach or the marina).”
It is not just Bachxevanis that highlights this point. Several other maritime analysts have identified this loophole in how the Bunker Fuel Convention law was drafted and voted upon. For example, Nicholas Gaskell and Craig Forrest wrote about this in the Journal of International Maritime Law in a 2009 article entitled, ‘The Bunker Pollution Convention 2001 and Limitation of Liability.’ Tsimplis wrote about this in Lloyd’s Maritime and Commercial Law Quarterly in 2005, in an article entitled, ‘The Bunker Pollution Convention 2001: completing and harmonizing the liability regime for oil pollution from ships?” It was also highlighted in an UNCTAD Report in 2012 (see paragraph 103), and Jacobsson also mentions this in the Journal of International Maritime Law in his 2009 article called ‘Bunkers Convention in force.’
Mauritius ratified the 2001 Bunker Convention and it came into force in 2013, meaning these loopholes are particularly relevant.
- Limitation of Liability for Maritime Claims (LLMC 1976)
So in order to determine the criteria and thresholds for payment, it is important to refer to the second body of international law, the Limitation of Liability for Maritime Claims (LLMC 1976).
This is another piece of IMO-introduced legislation that was originally designed to reduce the amount that shipping companies have to pay in the event of an oil spill. Again, another unethical law designed to protect shipping interests, and not poorer coastal communities or the environment.
Articles 2 and 3 of this legislation, cover ‘Claims Subject to Limitation’ and ‘Claims Excepted from Limitation.’
What is notable is that Article 2 of the LLMC 1976 only defines limits for losses due to physical damage. For example, the destruction of a fishing cage or boat due to oil damage. So this sort of physical damage from oil has a maximum cap of $65 million that can be claimed (defined by something called Special Drawing Rights or SDRs which is a basket of currencies from the IMF).
However, economic damage is not limited. For Mauritius, this means the economic damage to tourism (and support sectors such as taxi services, street tourism vendors, as well as to the brand reputation of Mauritius), economic losses to fisheries (and support industries such as fish markets and fish transport and storage businesses), as well as economic losses for bioprospecting (which is a proxy for Mauritius’ unique biodiversity), are not subject to insurance limitations.
Provided sufficient evidence is provided of the economic damage, Mauritius has a potentially unlimited claim that can be made from the shipowners, ship operators and insurers.
- CLC Convention 1969
This then takes Mauritius to a third international law, the International Convention on Civil Liability for Oil Pollution Damage that was passed in 1969 and updated in 1992. This is referred to as the CLC Convention 1969.
The CLC Convention is also designed to limit payouts if the ship owner is not at fault (e.g., by trying to limit payout by size of ship), in the event of bad weather or an ‘Act of God.’
However, under the CLC Convention, where the shipowner is found to be at fault, there would be no limit to the amount of compensation that could be claimed for economic losses from a major oil spill.
This compensation and liability is not limited to the pollution alone. It extends to physical injuries (human health), psychological conditions and loss of income from the pollution. Mauritius adopted the CLC Treaty in 1995.
This is relevant because incident investigators from the Wakashio’s flag state of Panama initially attempted to blame the Wakashio’s grounding on bad weather (which was refuted by satellite analysis). They then tried to infer that alcohol was a factor and that the captain had authorized the Wakashio to sail toward Mauritius to search for internet signal. If this was the case, questions will need to be asked about Mitsui OSK Lines’s responsibility. Due to Covid-19, two of the 20 crew (which was already 17% below accepted levels) had exceeded the 11month legal limit to be on the vessel. The global shipping industry had come together to ensure that sailors were defined as essential workers. MOL had claimed that all vessels in its fleet had unlimited internet connectivity from satellite provider Inmarsat since 2019. If MOL had decided to charter a vessel (which it had a long term relationship with) and not validate that internet for crew during the coronavirus pandemic was working, then there are serious questions that MOL would have to answer about its inspection and review process for how it assesses which vessel to charter and how MOL’s own inspections were conducted. If alcohol was found to be an issue, then questions about MOL’s policies regarding alcohol use on vessels it operates will be in question as the President and CEO of MOL, Junichiro Ikeda personally led a MOL-wide campaign on alcohol last year including installing the latest breathalyzers on all vessels chartered by MOL, in the wake of alcohol supposedly being a factor with the 2018 incident of the Nippon Maru at the U.S. Naval Base of Guam.
A vessel the size of the Wakashio should never have had a single point of failure of one single crew member, and just like any modern industrial organization, a management system of safety should have been in place. This is defined by an international law set by the IMO, called the Safety Management System (SMS) which is enforceable international law (under the IMO’s International Safety Management Code or ISM). The SMS document will need to be reviewed to see whether it adequately prepared the crew for the situation that faced them in the journey across the Indian Ocean and onto the shores of Mauritius.
So Mauritius will need to demonstrate that: 1) Mauritius has ratified the relevant Bunker Fuel Convention (which it did in 2013), 2) there is sufficient evidence for the Economic Losses (under LLMC 1976), and 3) there is evidence that the shipowner or other parties are at fault (under the CLC Convention).
The Japanese ship owner, Nagashiki Shipping, have also failed to answer any of the substantial operating questions raised of it since August 30, raising concerns about what they knew about the Wakashio before it set sail from Singapore on July 14.
- The HNS Convention
For the Mauritius oil spill, there is a fourth international convention that may become important – the Hazardous and Noxious Substances Convention, or HNS.
The reason this is relevant is because of the four types of chemicals on board that were leaked into Mauritius’ coral lagoons, and linked to the experimental fuel that was placed on the Wakashio.
Each one of these substances have their own toxicity impact as they interact with the marine environment, and will need to be carefully tracked (hence the need for oil fingerprinting). This is why the Wakashio oil spill is significantly more complex than if it had been a crude oil spill with one type of fuel spilt.
A) Bunker Fuel (VLSFO, which is a type of Heavy Fuel Oil) – 3894 tons
Ships use a thick heavy oil, called bunker fuel. This has the consistency of peanut butter and is referred to as a ‘persistent oil.’
Between 210,000 and 300,000 gallons of this oil (3894 tons according to the Mauritian Minister of Environment, Kavi Ramano) was leaked into Mauritius’ coral lagoons, and spills of this fuel are covered by the 2001 Bunker Fuel Convention. This is about 1.1 million gallons of VLSFO heavy fuel oil.
B) Diesel – 207 tons
However, in order for this fuel to flow, other chemicals needed to be added to the heavy bunker fuel within the ship’s engine. One of these is diesel. The Mauritian Minister of Environment and shipowner, Nagashiki Shipping revealed on August 11 that there was 207 tons of diesel being carried on board (which according to the U.S. Embassy and NOAA is 63,000 gallons, or enough to fill the tanks of over 4500 family cars). As diesel is lighter than heavy bunker fuel oil, this is not covered under the Bunker Fuel Convention or as a Crude Oil Spill.
It is covered under a newer international law called the Hazardous and Noxious Substances Convention (HNS) which the EU indicated in 2017 it was ratifying and France already published legislation on this. This is relevant as the lighter fuel could also have drifted into EU territory into the island of La Reunion, the sister island of Mauritius. This may trigger a European Union investigation under the European Maritime Safety Agency (EMSA).
Mauritius likely has domestic laws that cover diesel pollution in the water.
C) Lubricating Oils – 90 tons
The third oil on the Wakashio (after the Heavy Fuel Oil and Diesel) is the lubricating hydrocarbons that operated the huge amount of hydraulics on the Wakashio that was almost as tall as the Eiffel Tower.
This volume of lubricating hydrocarbons was disclosed as 90 tons by the Mauritian Minister of Environment on August 6 (which according to the U.S. Embassy and NOAA is 26,000 gallons and the equivalent to filling the tanks of 2000 family cars). This is substantial, especially for a 13 year old vessel that was built to transport heavy iron ore. These lubricating hydrocarbons have an equally toxic impact in the marine environment and will be covered by the Hazardous and Noxious Substances Convention.
There is a question whether additional lubricating fluids needed to have been purchased because the Wakashio was using the special type of VLSFO fuel.
Again, Mauritius likely has domestic laws that cover chemical spills in the marine environment.
D) Plastics and unknown chemicals added to the VLSFO
The fourth hazardous and noxious substance was the potential use of plastics or other chemicals that were added to the ship’s Heavy Fuel Oil. It has been revealed that the fuel that was leaked in Mauritius was unlike anything leaked before. It was an experimental fuel, where chemicals and other substances were being constantly added.
Analysis by the leading oil fingerprinting scientists in the U.S. and Australia reveal that this fuel contained highly ‘unusual’ chemical signatures, with concerns that plastics could have been mixed with the fuel. If this was the case, some of the chemicals would fall under the HNS Convention, as the microscopic particles could form plastic nurdles, contaminating Mauritius’ coast and the global ocean for decades.
So Mauritius will need to engage a specialized firm of lawyers familiar with maritime law, and ensure the appropriate evidence is being collected with international scientific oversight.
Bunker Convention establishes Strict Liability with Unlimited Limitations
So because of loopholes with how the Bunker Convention was drafted, it could lead to a situation of ‘strict liability’ with ‘unlimited limitation’ on the payout, as maybe the case with the Wakashio oil spill in Mauritius.
This covers just the 300,000 gallons of VLSFO fuel that was spilled in Mauritius’ lagoons, and other maritime laws around damage caused by the salvage operation and chemical spills may need to be explored to recover the additional damage caused to Mauritius’ ecosystem, human health, and the economy.
Turning this legal insurance language into conventional terms, this means strict liability (i.e., limited need to prove who was at fault) and unlimited limitations (i.e., no limit on payout, provided sufficient evidence is provided).
Bachxevanis points this out in the conclusion of his 2009 analysis. “This is because the Bunker Convention does not clarify whether environmental claims other than those related to restoration or reinstatement of the environment are included or excluded from the definition of damage and whether it prohibits recovery in relation to such claims under national law. What is, also, unclear is whether Art.2(1) LLMC 1976 covers damage from bunker oil when no physical damage has been sustained.
There is a risk, therefore, that, in jurisdictions where it will be taken not to cover such type of damage, the Bunker Convention will establish strict liability with no limitation applicable for such claims.”
Liability of salvors
Given the controversy around the actions of the salvors in Mauritius, there are additional questions here. For example, Bachxevanis highlights the risks for the salvors.
“The responder’s immunity point, in particular, was strongly debated during the negotiations [of the 2001 Bunker Pollution Convention] as there was joint reaction by the industry with a joint submission by ITOPF, BIMCO, CMI, INTERTANKO, IAPH, ISU, ICS, OCIMF, and the International Group of P&I Clubs whereby they sought to re-introduce the responder immunity provision. This was not accepted and instead a draft Resolution was agreed giving specific recommendation and urging the State Parties to legislate on a national level for such immunity to persons taking measures to prevent or minimize the effects of bunker oil pollution.
Many scholars have seen this omission as a serious mistake [for the shipping industry]. The consequence of this is that there is no protection from civil suit (or criminal prosecution) to persons such as salvors and those performing clean-up operations. This is a very real possibility, as is shown by the arrest of the salvage tugs and the detainment of the salvage master by the Pakistani authorities in the Tasman Spirit case in 2003.”
Given the 12 day delay in getting the right vessels to the Wakashio, the split of the vessel in two (with little prior warning to citizens in Mauritius) and the subsequent scuttling of the Wakashio amid strong international outrage, the salvors appointed by Japan P&I Club, Smit Salvage, who are a wholly owned subsidiary of Dutch giant Boskalis, may need to account for their actions and liability too.
Nicholas Gaskell and Craig Forrest go into this in a bit more detail, when they assessed how the 2001 Bunker Convention was drafted. They highlight that “The undermining of the principle of ‘responder immunity’ for salvors appears particularly unfortunate and lawsuits against bareboat charterers, managers and operators (i.e. the categories included in the Shipowner’s definition) may lead to complications and extra costs, though the wish to have them included is partly explained by the uncertainty about whether the limits of liability will be sufficient.”
This raises the possibility that “In theory there might be, in some cases, unlimited liability.”
Are there enough funds?
The short answer is yes. The three tiers of insurance (Japan P&I Club, International Group P&I Agreement and Global Reinsurance), should provide sufficient coverage for the Wakashio oil spill. The global reinsurance industry would not be permitted to fail, and in the event of an even greater catastrophe, Governments around the world are likely to step in at that point with a sovereign intervention, as they did with the $182 billion bailout of AIG in 2008.
The precise mechanics of disbursement are likely to be complex and rely on dozens of pools of financing layers set up in various accounts based on set criteria for disbursement. But that is an insurance operations detail, and completely separate from the merits of Mauritius’ case.
What is important is to understand the three tiers of shipping reinsurance.
The first tier is the vessel insurer. In the Wakashio’s case, it is the Japan P&I Club. They are authorized to payout up to $10 million.
Beyond $10 million, the payout is shared among a group of 13 shipping insurers. There are the 13 Protection and Indemnity Clubs (P&I Clubs). These were originally established to protect shipowners, and are largely owned by them. They first ensure they share the losses among themselves if ever there is a large incident (e.g., Exxon Valdez 1989, BP Deepwater Horizon 2010, Costa Concordia 2012). The agreement against which they operate from is called the International Group Agreement and Pooling Agreement and is administered by the International Group of P&I Clubs.
There is some controversy about this structure and there have already been two investigations by the European Commission into through Cartels and Anti-competitive behavior legislation. The last investigation ending in 2012, with insufficient information. It was argued at the time that the IG P&I structure prevented other large insurers from entering the market.
If the claims exceed $8 billion, the 13 P&I Club have access to a reinsurance scheme linked to 80 reinsurance companies, including 20 of the world’s largest 25 reinsurers with assets exceeding half a trillion dollars ($605 billion). The exact names of the reinsurers are not revealed, but the 25 largest reinsurance companies in the world include Swiss Re, Munich Re, Berkshire Hathaway, Lloyds, Allianz, whose cumulative revenues last year was over $250 billion.
So the short answer is that the funding is available. The problem with the lack of independent oversight of the P&I Clubs is that when one of their members is accused of improper conduct, there are no avenues for oversight. This is yet another argument for why models of industry self-regulation are broken, and much stronger oversight of such industries with clear accountabilities, are needed.
Who may be called into the Inquiry?
The damage caused by the Wakashio was just due to the oil, but unknown chemicals and mishandled salvage and cleanup operations
Once a disbursement to Mauritius has been made, there is likely going to be a longer legal negotiation between the reinsurance companies and the various commercial parties who may be liable for the Wakashio disaster.
The Mauritian investigation – which will ultimately need to be bipartisan and include all major political groups in Mauritius, as is the case in U.S. inquiries – is likely to call representatives from the following organizations, who may be required to testify under oath:
- The Shipowner: Nagashiki Shipping
- Operator/Charterer: Mitsui OSK Lines
- Crew manager: Anglo Eastern
- Crew: Captain and crew on board the Wakashio
- The Flag state: Panama Maritime Authorities (to explain the contradictory statements made in the immediate aftermath of the grounding)
- Insurer: Japan P&I Club
- Salvor: Smit Salvage, owned by Dutch giant, Boskalis, including the vessels chartered, such as the Stanford Hawk, Boka Expedition and Boka Summit
- The Flag state of the salvage vessels: Malta Maritime Authorities
- Clean up operations: Le Floch Depollution and Polyeco (both commissioned by Japan P&I Club)
- Vessel inspectors: ClassNK
- Electronic charts (ECDIS) hardware and software provider
- Shipbuilder of the Wakashio: Universal Shipbuilding Corporation, Tsu Shipyard, to understand any structural weaknesses of the hull
- Independent scientists and representatives from local social and environmental groups, as well as international environmental groups such as Greenpeace and Sea Shepherd
- Independent international salvage and oil spill response experts: Such as Rick Dawson or Rikki Ott
- Manufacturer of the Voyage Data Recorder (which the authorities in Mauritius appear to be struggling to extract audio from)
- Oil analysts: such as from Woods Hole Institution in the U.S. and Curtin University in Australia
- Oil spill consultants present on the ground in Mauritius: ITOPF
- Governments that provided assistance: Australia (AMSA), U.S. (NOAA), France (Cedre and Cellule Anti-Pollution), UK (CEFAS)
- The last port of refueling: Singapore Port Authority and the fuel suppliers
- International Shipping Regulators: The International Maritime Organization
- Government of Mauritius: Mauritius Port Authority, Commandant of the Mauritius Coastguard, Mauritius Director of Shipping, Mauritius Ministry of Environment, among other relevant units
This is just the list from what has been revealed so far.
The coalitions Mauritius needs to build
With the global oil and shipping industry determined to avoid a precedent-setting payout, many of the poorest coastal communities in Mauritius may be victims for many years to come.
There are bridge-finance options via the IMF and other regional development banks to ensure these communities’ needs are met. These are areas that the IMF has the relevant expertise in.
With the world at a junction with multiple crossroads, given the looming climate crisis, coronavirus pandemic, growing global inequality, and increasingly authoritarian Governments around the world, the question is who will take the moral leadership in addressing oil spills and international shipping disasters.
Global finance, insurance and governance institutions were created for a reason. If they don’t appear to be fit for purpose, then now is the time to fix these broken parts of the global governance architecture.
The UN Secretary General, global business leaders and ocean scientists like Sir Richard Branson and Dr Sylvia Earle, and even industry groups such as 300-year old maritime insurer, Lloyds have called for an ethical approach to the situation in Mauritius, with even the Pope intervening with his ‘prayers for Mauritius’ appeal at the Vatican on August 30.
With strong vested interests more focused on putting profits ahead of people and the planet, Mauritius appears to be yet another in the long line of list of countries falling victim to large shipping incidents with little to no impunity.
These now include the MT New Diamond (off the coast of Sri Lanka with various insurance underpayments), Gulf Livestock 1 from New Zealand (loss of 41 crew this year), Venezuela (multiple oil spills this year alone), Trinidad (ongoing issues with Venezuela’s oil tanker, the Nabarima), 150 million people in countries surrounding the Red Sea with a disintegrating oil tanker (The FSO Safer), Solomon Islands (still awaiting insurance from the Solomon Trader 2019), The Rena in New Zealand in 2011 (only $10m of compensation agreed to by the Government of New Zealand for the country’s worst maritime pollution incident, which was heavily criticized).
There is no point having fancy environmental conferences, whizzy social media campaigns and producing important-sounding White Papers on the ocean, when real issues that affect the most vulnerable in the world and the ocean continue to be ignored.
The reason why the Wakashio is such a landmark case is that it will finally cut through all the greenwashing talk and send a signal to the world in which direction the moral authority of the shipping industry is moving toward.
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Source: Forbes
