INCIDENT OVERVIEW
On 28 February 2023, Philippine-flagged MT “Princess Empress”, a tanker vessel with 20 crew members on board and 800,000 liters of industrial fuel oil sank off in the waters of Naujan, Oriental Mindoro, the Philippines. After the rescue of the 20 crew members, the next pressing concern was the major spill of the entire cargo. With the vessel completely submerged, different provinces across three regions were affected.[1] There were continuous efforts extended for the recovery of oil remaining on board the ship which was 400 meters below the surface. Operations likewise commenced for the coastal clean-up, assistance, and payment of valid claims.
On 25 July 2024, another Philippine-flagged oil tanker MT “Terranova” sank due to severe weather in Manila Bay. Fortunately, a major spill was averted by the salvage contractors who successfully extracted over 97% of the oil from the cargo tanks.
The maximum oil pollution insurance cover available through the international oil pollution conventions is 1 billion USD, but that maximum amount is not available to the Philippines.
COMPENSATION REGIMES APPLICABLE TO THE PHILIPPINES
To set the proper context, the Philippines is a Member State of two international conventions on oil spill compensation: the 1992 Civil Liability Convention (the “1992 CLC”) and the 1992 Fund Convention (the “1992 Fund”) . These international conventions were adopted by the Philippines through the enactment of R.A. 9483 or Oil Pollution Compensation Act of 2007. These two compensation regimes primarily govern the payout of damages and costs resulting from the oil spill in the country.
Under the 1992 CLC, the shipowner is liable for damages with a limitation of liability depending on the tonnage size of the vessel. As an example, the applicable liability limitation for Princess Empress of 508 GT was 4.5 million Special Drawing Rights (SDR).[2] Once this limit is breached, the 1992 Fund may be activated and cover the amount exceeding the limit under the 1992 CLC. However, the 1992 Fund also has a limitation of 203 million SDR, which already includes the amount payable under the 1992 CLC.[3] When the cost of compensation exceeds the limitation figure, the amount payable to each claimant will be proportionately decreased.[4]
BUT WHO FINANCES THE 1992 FUND CONVENTION?
The 1992 Fund Convention is only one of the two regimes under the International Oil Pollution Compensation Funds (the “IOPC Funds”), the other being the Supplementary Fund Protocol (the “Supplementary Fund”) which was created due to the increasing cost of containing a spill for ever larger oil tankers. The money from the IOPC Funds used to compensate member states in the events of oil spill are primarily sourced from contributions paid by persons/entities that receive certain types of oil imported through sea carriage. [5]
The 1992 Fund is financed through charges imposed on oils being transported via sea and subsequently received by Member States like the Philippines.
SCOPE OF COMPENSATION FOR OIL POLLUTION DAMAGE
The 1992 Fund and the previously discussed 1992 CLC (collectively the “Conventions”) pay for property and environmental damages as well as economic and other consequential losses which are said to be reasonable, justifiable, and quantifiable.
The Conventions can also cover reasonable expenses for clean-up drives and similar measures which were adopted to forestall the dreaded effects of oil spill, particularly of persistent mineral oils, which were once carried as cargo by sea-going vessels.
SUPPLEMENTARY FUND NOT APPLICABLE TO THE PHILIPPINES, YET.
The Supplementary Fund is made accessible by the establishment of the IOPC Funds. Similar to the 1992 Fund, the Member States accepting persistent oil carried by sea-going vessels pay a contribution to the Fund. The Supplementary Fund operates as another level of renumeration when the overall claims exceed the compensation allotted under the 1992 Fund. The total amount available for compensation to State Members of the Supplementary Fund is approximately at USD 1,024 million.[6]
Regrettably, (at the time of this writing) the Philippines is not a State Party to the Supplementary Fund Protocol. The Philippine Congress conducted inquiries in 2023 into the sinking of and oil spill from the MT “Princess Empress”. Some members of the House of Representatives expressed their desires for the Philippines to have access to the greater protection offered by the Supplementary Fund Protocol. But desire alone is not enough, before the Supplementary Fund Protocol can come into force in the Philippines, the President must ratify the treaty or international agreement and the Philippine Senate must concur.[7] Thereafter, Philippine Congress must pass a law implementing the Supplementary Fund Protocol. In the alternative, the Philippine Congress can amend the existing oil pollution compensation law to embrace this system of funding to be implemented locally. But there will be a cost, with greater protection from oil spills, the bigger the monetary contribution to the IOPC.
WHO PAYS?
The Oil Pollution Compensation Act of 2007 ascribes strict liability for oil pollution damage and directly points the finger at the ship owner at the time of the mishap as the party responsible. The proof of fault is unnecessary so long as the damage and loss were due to the discharge of oil from the concerned ship or tanker vessel. The guiding principle of the legislation is very simple: “polluters ultimately pay”.
On the assumption that the polluting ship was properly insured, then the Philippine shipowner can trigger the following funds for an oil spill occurring in Philippine waters, to wit: (1) ship owner’s insurance; (2) the 1992 Civil Liability Convention, and the (3) 1992 Fund Convention.
Apart from the polluter’s insurance cover, a larger portion of the money needed for the clean-up and the compensation for affected persons comes from the Fund Convention money. The money for the Fund Convention comes from contributions from the Member States like the Philippines and by the key players in the oil industry, who in the conduct of their business, may encounter oil spills polluting the waters.
Signing up as a party to the Supplementary Fund would require additional contributions as mandated by the Convention. There is no stopping the Philippines from signing up to the Supplementary Fund for additional oil pollution protection for a future disaster, except probably economic pressure.
It is not far-fetched that the economic pressure may find its way into the consumers’ wallets by way of higher oil prices, but it also begs the question whether the key players will be willing to cover the increased costs of the contribution.
FINAL NOTE
The sinking of the MT “Princess Empress” and the MT “Terranova” are undoubtedly tragic events that should be avoided by the exercise of greater diligence by all stakeholders. But when tragedy strikes, the lawyers of VeraLaw have been there for the vessel owners and their insurers with a view to making things right for the local communities, government agencies, and the State.
This article is not a comprehensive legal advice on oil spill resolution and compensation. For legal inquiries and assistance, you may contact veralaw@veralaw.com.ph.
[1] Department of Environment and Natural Resources, Task Force MT. Princess Oil Spill Incident, Situational Report No. 46, 14 June 2023.
[2] Claims Manual 2019 Edition. International Oil Pollution Compensation Fund.
[3] Supra note 2; see more from International Oil Pollution Compensation Funds (IOPC Funds). The 1992 Fund Convention retrieved from https://iopcfunds.org/about-us/legal-framework/1992-fund-convention-supplementary-fund-protocol/ last accessed 24 November 2023.
[4] Compensation and Claims Management retrieved from https://iopcfunds.org/compensation/ last accessed 11 October 2023.
[5] Funds Overview retrieved from https://iopcfunds.org/about-us/ last accessed 11 October 2023.
[6] Report by the International Oil Pollution Compensation Funds to the Division for Ocean Affairs and the
Law of the Sea retrieved from https://www.un.org/depts/los/general_assembly/contributions_2020/IOPCFunds.pdf last accessed 11 November 2023.
[7] 1987 Philippine Constitution, Art. VII, § 21.