3. Who Uses and Contributes to the Fund?
The funds from the FUND92 Convention are used to pay out damages to the victims of oil pollution. This includes inhabitants of nearby islands, fishermen and other small vessel operators who were affected by the spill, and the families of crew members who were either handicapped or killed in the spill or its resulting aftermath.
The CLC addressed the issue of paying damages via liability charges against guilty ship owners. However, there was still the issue of determining where and whom to collect the fund from. This was laid down in the 1992 treaty, and responsibility was laid upon the countries that import oil and have ratified the treaty. They are the beneficiaries of the oil industry, and IMO decided that they would also have to pay for any damages inadvertently caused while transporting oil.
To understand why IMO adopted this approach, we know that only countries directly use oil. Individuals do not import oil, and so they can be indemnified from any such payment.
On the other hand, it is countries that have created a global demand for oil. Without this demand, there would no risk of oil spills or pollution. Thus, ratified nations are held responsible, and fund any compensation efforts.
Note, only ratified nations are allowed to access the funds from the Convention in case they are not able to cover damages.
4. What is the Payment Made to the Fund?
Payment related details are laid down in the Convention. Not all countries have to pay the annual contribution, only those which have imported over 150,000 tons of oil.
This is mentioned in Article 10 of the FUND, and is aimed at ensuring that small countries do not needlessly pay for damages. Since their impact on global spills is minimal, they are not held accountable as compared to the countries that import vast quantities of oil.
To prevent countries from bifurcating their oil industries such that each group imports less than 150,000 tons, the FUND92 lays down that this import value is inclusive of any and all parties involved in import within the country. Thus, the government will still have to pay the annual amount, irrespective of the number of subsidiaries.
5. Fund Disbursement When the Ship Owner Is Not Capable of Covering Damages
According to the CLC, any ship carrying over 2,000 tons of oil needs to make provisions to pay for any possible oil pollution. This insurance is put in place to prevent a situation where the shipowner may not have the funds necessary to cover damages.
However, 2 situations may arise. One, a ship carrying less than 2,000 tons of oil may cause an oil spill. Two, during a journey, company finances may drastically change which could alter its ability to pay for any damages. In both these situations, the shipowner is no longer able to pay for damages caused.
The Fund Convention pays for the compensation in both these cases, since the ship owner’s liability does not cover the total payout. There are several provisions to ensure that the company can insure an oil spill, however, unforeseen situations like those stated above may arise.
6. Fund Disbursement When Damages Exceed the Limited Liability of the Owner
The CLC fixes a limit on the liability of a shipowner in case of an oil spill. But, the actual cost of compensation and damage may far exceed this cap. In such cases, the Fund is obliged to pay for the remaining compensation from the oil spill.
To prevent the company from escaping any liability, their annual contribution is appropriately increased in the following years. Moreover, an additional fine may also be imposed on the government to dissuade such behaviour in future.
7. Fund Disbursement When the Ship Owner is Exempted from Liability
The shipowner is exempted from paying any liability or damages in 3 scenarios. These are:
1. Natural and unforeseeable phenomenon. So, a shipowner cannot sail into a cyclone which has been predicted, and then claim exemption from liability;
2. A deliberate attempt to sabotage or create damage by a third party is also grounds for a shipowner to not pay any liability; and,
3. Negligence of the government or any other authority who is responsible for maintain navigational aids and other facilities.;
In these 3 situations, the shipowner has no need to pay any compensation. However, there is yet another category- war damages. In this situation, no compensation will be paid to the parties involved in the war. As they go for conflict of their own volition, the Fund does not cover any payment of damages.
8. Limits of Fund Payment and Compensation
From the Fund Convention regulations, the following rules are applicable to maximum compensation payout in case of an oil spill:
1. Maximum compensation is capped at 203 million SDR when the oil received annually by any 3 contracting states is less than 600 million tons; and,
2. Maximum compensation is capped at 300.74 million SDR, when the oil received annually by any 3 contracting states is equal to or more than 600 million tons;
A contracting state refers to any member country, and the 3 contracting states mentioned in the above regulations are usually the top 3 governments in terms of oil import quantities. Note, the compensation amounts mentioned here include any payouts received in line with the CLC damage regulations. This payout limit is comprehensive and definite.
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