15 Things You Must Know About Fund Convention (1)

.A cross section of dignitaries and graduating cadets of the Maritime Academy of Nigeria during the recent passing out parade


There are several inter-governmental treaties and agreements across various industries and sectors. They are put in place to improve cooperation, build mutual trust, and safeguard the environment. From treaties on nuclear programs to agreements on how water is to be shared, these conventions play a very important role.

In the maritime and shipping sector too, there are several conventions in effect. These include treaties on piracy, shipping routes etc. One of the most important agreements is regarding pollution.

There are different types of pollution that may be experienced while at sea. Accidental grounding of vessels can lead to reef damage. This damage can alter the complete ecosystem of a region. Similarly, pollution due to discharge of fluids and hazardous material from a ship can affect the marine environment.

An issue that concerns ship owners and operators is the risk of an oil spill. Oil spills are the persistent leakage or discharge of oil and its products (or derivatives) into the ocean. It has enormous consequences for the region, in terms of economy, flora, fauna, and livelihood.

There have been numerous oil spills throughout the course of maritime trade, many of which have caused near irreparable damage. Oil spills may take anywhere from a few days to a few years to completely clean up.

Oil pollution through the Exxon Valdez incident, Deepwater Horizon incident, Kuwaiti oil fires, and the Black Sea spill have severely polluted the Earth.

Due to the transitionary nature of ocean and sea currents, the effects of oil spills are far-reaching. Even regions remote from the spill may be affected.

To combat these spills and reduce the fallout from them, several treaties have been put in place. They have included strict regulations on ship and platform designs, regulations on oil carriers, rapid response frameworks for containing oil spills etc.

One such treaty is the “International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage”.

Established in 1992 and referred to as the Fund Convention or FUND92, it is a step forward in the payment of compensation and dues to parties affected by oil-related pollution and damage.

It is an international maritime treaty drawn up in response to the initial 1969 CLC fund treaty and is administered by the International Maritime Organization (IMO).

This treaty includes the International Oil Pollution Compensation Funds (IOPC Funds) that was created in response to the 1967 Torrey Canyon spill.

Over time, the treaty has been inclusive of several oil-related damages and provides comprehensive coverage to affected parties.

In this article, we will delve into the working and principles of the Fund Convention.

We will primarily look at 15 facts and points that you must know about this Convention and its impact.

1. What is the Civil Liability Convention (CLC)?

The Convention on Civil Liability of 1969 was a landmark step towards making shipowners liable for oil spill-related damages. Known as the CLC, ship owners and operators are provided with a maximum liability for damages.

In case of an oil spill or similar disaster, they are only required to pay damages less than or equal to this limit. The CLC Protocol of 1992 increased liability limits and introduced various changes. Other amendments were adopted in 2000 to make the liability stricter.

Ships carrying more than 2,000 tons of oil are required to furnish insurance proof citing that they can cover liability in case of an oil spill. If the shipowner is found to be at fault (i.e., guilty), there is no liability limit.

On the other hand, if the shipowner is found to not be directly at fault, the liability is capped at different limits. For up to 5,000 DWT ships, liability is capped at 4.51 million SDR. Between 5,000 and 140,000 DWT, liability is 631 SDR for every ton over 5,000 DWT. For ships over 140,000 DWT, liability is capped at 89.77 million SDR.

Note, SDR refers to Special Drawing Rights and is the foreign exchange reserve assets maintained by the International Monetary Fund (IMF). It provides a unit of accounting between different currencies of member countries.

Although it is NOT the same as the Foreign Exchange (Forex), it is used in matters relating to industry and government treaties.

2. What is the Fund Convention?

The Fund Convention was drawn from the original CLC Treaty of 1969 and was ratified in 1992. It aimed at relieving ship owners from liabilities that were beyond their control. It also removed damage cap limits in some situations, so that guilty parties were liable to pay for complete damage.

The Fund has the power to indemnify ship owners and operators in case of certain oil pollution scenarios. This is mainly due to unforeseeable circumstance, and when they are in full compliance with international treaties and caused no willful damage.

The Fund is primarily operated in order to cover any compensation to the victims of oil pollution in cases where either the liability is not sufficient, or when the shipowner is not liable to pay. For instance, the maximum liability is capped at certain limits by the CLC treaty.

However, when damages exceed this cap, there must be some source of funds from which remaining damages can be paid out. This is what the Fund Convention achieves. By consolidating funds from different sources, there is a ready supply of compensation to oil spill victims when the CLC does not cover it.

*To continue next week