Sunday, 13 November 2011

RENA salvage and Convention Liability

Thanks again to the readers who have commented since the 'NZ Herald' picked up on the story;

Time now to 'heave to and weather the storm'. One of the burning questions being debated in New Zealand is why is the nation going to have to pick up a large proportion the cost of the clean up? The ship is owned by a substantive Shipowner, Costamare, who have issued a statement apologising for the accident and the Authorities are not having to trawl through a web of Liberian and Panamanian shelf companies to identify the beneficial Owner. The answer lies in commercial principles on which merchant shipping has operated since the Greek and Roman times.

The two basic principles in play are the mutual insurance of maritime catastrophes and limitation of liability. Starting with mutual insurance, the 'Rena' is insured with the Swedish Club. How, you may ask, can a Club be an insurance company? The name Club indicates that the insurer is a Protection and Indemnity Club - or P&I Club for short. P&I Clubs are not-for-profits and have existed for centuries because of the inherently risky nature of shipping. Members of the Club collectively self-insure the 'uninsurable' risks of their combined fleets. Every Shipowner who is a member of the Swedish Club will be contributing to, and has collective liability for, the cost of the Rena's salvage and oil spill clean-up.

So with this open-ended liability now resting with the Swedish P&I Club, how do they avoid the hypothetical catastrophe of one of their mutually insured ships colliding with the 'Queen Mary' and then both vessels sinking in the middle of New York Harbour? Every member of the Club would face financial ruin. This is where the second principle kicks in - liability is limited in proportion to the size and earnings capability of the ship.

It's a bit like Finland's legal system where your speeding fine is a calculated by how much you earn - an expensive exercise for the CEO of Nokia who was fined 116,000 Euro for riding his Harley Davidson 25km over the speed limit in 2002.

Rena's liability is limited, based on her Gross Tonnage. The term has been 'metricated' as the original term was a Tun, or a wine barrel. A ships tunnage was a measurement of how many
barrels could be fitted in the cargo holds and as a proxy for how much money the Owner could earn from her on a voyage. Gross Tonnage is used in all aspects of commercial shipping to calculate fees, charges, levies and taxes. 'Rena' will have paid a tonnage-based oil pollution levy to Maritime NZ (also known as conservancy dues) on arriving in New Zealand on her final, fateful voyage. This is ratified by the Governments of maritime nations through the concisely named 'International Convention on Civil Liability for Oil Pollution Damage', or CLC Convention for short.

Put together, 'Rena' carries insurance which is capped by her ability to earn money (freight) for her Owner. The Swedish Club will pay for the clean-up up to the limits of the CLC Convention.

This summary is simplified to explain the principles on which maritime commerce operates. The Swedish Club has confirmed that up to US$1.4 Billion is available for oil pollution clean-up. There is still the legal bun-fight ahead about salvage, wreck removal and cargo (so eloquently described by our man on Astrolabe Reef).

Next positing, I'll try to explain the principle of General Average.

The Antipodean Mariner
13th November 2011

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