Explanatory notes

International Group of P&I Clubs Oil Pollution Charter Party Clause - Financial Security in Respect of Pollution - Important Update

Background

In 1990, in response to prospective oil pollution legislation in the United States of America, the International Group of P&I Clubs circulated a recommended pollution charter party clause to Club members recommending that owners should not warrant in charter parties that they would comply with future unforeseen requirements regarding certificates of financial responsibility for oil pollution. This clause was endorsed by BIMCO and circulated to all members by Special Circular.

An amended clause for inclusion in charter parties of tankers was circulated in 1996 to reflect the 1992 Protocol to the Civil Liability Convention and the requirements concerning certification in the United States’ Oil Pollution Act of 1990 (OPA ’90). These clauses were updated again by the International Group and combined in a new single charter party clause in 2008 to reflect the entry into force of the Bunkers Convention. The updated combined clause was supported by BIMCO and distributed to all members by Special Circular.

Update

The International Group of P&I Clubs Oil Pollution Charter Party Clause has now been further updated by the International Group to remove any uncertainties that may have arisen with regard to the scope of charterers’ indemnity under the clause, in particular with regard to the consequences of non-compliance with financial security requirements and also the rights and liabilities of the parties in the event of the owner agreeing to meet such requirements.

The updated clause also addresses prospective enforcement of the recent amendment to the financial responsibility provisions of OPA ’90 by means of the US Coast Guard Authorization Act of 2010. The US Coast Guard Authorization Act of 2010, which was signed into law on 15 October 2010, extends the financial responsibility provisions of OPA ’90 to ‘any tank vessel over 100 gross tons using any place subject to the jurisdiction of the United States.’ Currently, these financial responsibility provisions apply only to vessels over 300 gross tons using any place subject to the jurisdiction of the US (except non-self-propelled vessels that do not carry oil as cargo or fuel) and to vessels using the exclusive economic zone to transship or lighter oil destined for a place subject to the jurisdiction of the United States.

The International Group has been informed by the US National Pollution Funds Center (NPFC) (an agency of the United States Coast Guard) that a further implementing Regulation is necessary before the US will require compliance with these extended financial responsibility provisions, and that this is likely to be issued in the coming months. The enforcement of the extended financial responsibility provisions of OPA ’90 at a future date is addressed in the wording of the updated clause.

The International Group will continue to engage with the NPFC and they will provide a further update to BIMCO as soon as the Regulation is issued and the enforcement date is known.

While the updated clause does not add to the current obligations in relation to certification, members should continue to make sure that their ships carry on board such certificates as are required under paragraph 1 of the clause.

BIMCO recommends that members should start using the revised International Group clause in all new charter parties.

All clubs in the International Group of P&I Clubs will be issuing similar circulars to their members.

BIMCO observations on amendments to the clause

The Secretariat has noted the following amendments:

1. The title of the Clause now refers to “financial security” rather than “financial responsibility”. This change reflects that the clause is intended to cover the requirements not only of OPA ’90, but also those of the Bunker Convention 2001.  
2. Sub-clauses 1(a) and 1(b) remain unchanged from the previous edition of the clause.  
3. In sub-clause 1(c) the phrase “or as might otherwise be required by US Federal Statutes and Regulations” has been added in the first line. This new wording addresses the prospective extension of financial responsibility under OPA ’90 to include tank vessels of 100 gross tons or more using any place subject to the jurisdiction of the United States (currently it applies to vessels of 300 gross tons or more).    
4. Sub-clause 2(a) has been amended to remove in the second line the words “or responsibility” after the phrase “establish or maintain financial security”. While the term “financial responsibility” is used in OPA ’90, the Bunker Convention 2001 refers to “financial security” which is defined in the Convention as the cover required for the liability of the registered owner for pollution damage. As the clause is intended to cover requirements under OPA ’90 and the Bunker Convention it is clearer to refer to the single generic term “financial security” to cover both regimes.   
5. A significant change has been made to sub-clause 2(b). It was felt by BIMCO that the old wording of this provision was slightly ambiguous and open to interpretation as to the extent of the charterers’ potential liability for oil pollution caused by the vessel. The intention of this provision is that the charterers should provide an indemnity to the owners only in respect of any loss, damage, liability or expense due to non-compliance with the certification requirements of the clause where the owners have fulfilled their obligations under sub-clause 1. The amended sub-clause 2(b) removes the phrase “whatsoever and howsoever arising” which in BIMCO’s view created the potential ambiguity. Additional wording now clarifies that the charterers’ indemnity is restricted to “non-compliance with any demand” in relation to establishing or maintaining financial security.   
6. A new sub-clause 2(c) has been added to provide the owners with a further indemnity by the charterers to cover costs and delays that may result from the owners establishing or maintaining financial security to enable the vessel to trade to ports or places within the agreed trading limits but outside the scope of the regimes that the owners have warranted compliance with under sub-clause 1.  
7. Sub-clause (d) is the previous sub-clause (c) of the clause and remains unchanged other than the removal of “or responsibility” after “financial security” as described above. 
8. Sub-clause 3 is unchanged from the previous edition of the clause and requires that the charterers warrant that the clause be incorporated into all bills of lading issued under the charter party.

Originally published in BIMCO Special Circular No. 2, 3 February 2011 - International Group of P&I Clubs Oil Pollution Charter Party Clause - Financial Security in Respect of Pollution - Important Update