The Nairobi Convention on the Removal of Wrecks, Turkey s Position and the Role of Insurers

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1 9 The Nairobi Convention on the Removal of Wrecks, Turkey s Position and the Role of Insurers by POLLY DAVIES* Turkey s geographical situation has given her a prominent position in the history of marine environmental affairs. The list of incidents and resultant wrecks in Turkish waters is extensive. There are reportedly currently over twenty wrecks in the Bosphorus, three in the Sea of Marmara and nine in the Dardanelles. Major incidents may have been more prevalent prior to 2003 when a Vessel Tracking System was introduced, but the large number of vessels transiting the straits, (50,000 vessels, 10,000 of which are carrying dangerous cargoes) combined with the frequent presence of fog still creates a considerable degree of risk. The Nairobi Convention on the Removal of Wrecks is due to come into force on 14 April Given the risks associated with passage through Turkish waters, the removal of wrecks is a potentially important issue for Turkey. This article considers how the convention fits into the canon of international marine environmental law, the effect this type of legislation has on the industry (i.e. on the shipowners and their insurers) and Turkey s position within this. I. Independenta 1979 The collision of the Romanian tanker Independenta with the Greek bulk carrier Evrialy in 1979 illustrates the many facets of a marine casualty. The Independenta was carrying 94,600 tonnes of crude oil from Libya to Constanza when the two vessels collided about four miles south of Haydarpaşa. The tanker exploded and burst into flames, spilling her cargo into the Bosphorus and tragically killing forty-two of the forty-five crew on board. The force of the explosion was reported to have smashed windows up to four miles inland and the spilt oil set 1.5 miles of the Bosphorus alight. The Independenta then ran aground and broke in two off Kadıköy from where thick black smoke spread over the city and oil slicks drifted southwards into the Sea of Marmara causing immense ecological damage: thousands of fish washed up dead on the Asian shoreline and, in the following weeks, black balls of tar were washed up in Moda. A later explosion caused 100ft flames, raining burning debris on to the shore, and the vessel continued to burn for a month after the initial incident. Several years later, in 1983, the Turkish ro-ro vessel Hürriyet collided with and stranded herself on the wreck. The Turkish government then ordered the wreck of the Independenta to be removed and she was eventually broken up as scrap at Aliağa. * Polly Davies read Turkish with Islamic Art and Archaeology at Oxford University. She then qualified as a solicitor, working at the City firm Ince & Co for several years, specialising in maritime law. She now works at the Standard P&I Club and works particularly with the club s Turkish membership TURKISH COMMERCIAL LAW REVIEW ONLINE, Vol. 1, 25 February 2015

2 10 The Turkish Commercial Law Review Online Volume 1 25 February 2015 The personal injury, property damage, wreck removal and environmental pollution issues associated with the Independenta demonstrated why coastal states and the international community needed to address various issues of liability and compensation arising from marine casualties. Wreck removal is just one of these issues, but with the Nairobi Convention it now comes to the fore. II. INTERNATIONAL MARINE ENVIRONMENTAL LEGISLATION The United Nations Convention on the Law of the Sea 1982 (UNCLOS) gives states the power to legislate in their own territorial waters and exclusive economic zones. Given the international nature of shipping, states have normally done so in a uniform manner by implementing regimes agreed in international fora, principally the International Maritime (IMO). Since the 1960s, following the Torrey Canyon disaster, the IMO has developed a number of international regimes to deal with marine casualties. The framework of these regimes creates a liability and compensatory regime involving compulsory insurance. The appeal of such regimes to coastal states (over their own domestic provision) is that these arrangements are only viable in practice if they are uniform and are only enforceable by co-operation between coastal states (largely through their port authorities monitoring certificates carried on board vessels entering their ports). Certain of these regimes create a two tier compensatory scheme, with an additional standalone fund which allows the burden of compensation to be spread further. Individual states can only achieve something comparable if they set up a funding regime but there still remains the difficulty in enforcement. These conventions channel liability directly to the shipowner despite the fact that, in the complex world of shipping, incidents can result from a number of possible causes, internal and external to the ship, which do not necessarily involve fault on the part of the shipowner or his employees. In recognition of this acceptance of liability without fault, the shipowner is generally entitled to limit his liability. When first proposed, these arrangements were considered appropriate for reasons of certainty. From a practical perspective, it allows a shipowner to set up a limitation fund thereby preventing detention of the ship (or securing its release). The compulsory insurance requirement ensures that such funds are readily available and that compensation can start being paid as soon as possible after an incident occurs. By the date of the Independenta incident, the first liability and compensatory regime had already come into force. The International Convention on Civil Liability for Oil Pollution Damage (CLC 69) provided a system whereby liability for damage caused by persistent oil carried as cargo is channeled directly to the owner of the tanker, and his insurer, to the exclusion of other parties who may be responsible, such as the charterers or the owners of a colliding ship. It also allows the shipowner to limit his liability at a 1 International Convention on Civil Liability for Oil Pollution Damage (Brussels, 29 November 1969).

3 Procedural Requirements in Dispute Settlement Provisions 11 certain level defined in the convention in reference to the ship s tonnage and without prejudice to his rights of recourse against other parties responsible. Accompanying this convention was the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (Fund Convention 1971) 2, which created a London-based fund to provide a second tier of compensation 3. This was financed by contributions levied on oil receivers in Fund Member States and calculated according to the quantities of contributing oil they received. The Fund makes compensation payments to victims of spills occurring in Member States when the limits set in CLC 69 are exceeded (or if the shipowner is exempt from liability or incapable of paying). CLC 69 and the Fund Convention 1971 have now been effectively superseded by CLC 92 and the Fund Convention 92, which introduced higher limits and today the CLC 92 has 113 signatories. A third tier of compensation was created by the Supplementary Fund Protocol 2003 of which there are currently only thirty members, including Turkey. CLC 92 and the Fund Convention only apply to persistent oil. There are some grey areas where a shipowner may attempt to invoke CLC 92 and the subsequently the Fund as part of other operations: the pumping of oil out of a wreck, for example, may be covered by the Fund as a pollution prevention measure but the cost of removing the wreck itself would not be covered by the Fund (as confirmed by the Fund governing body s decision in the Singapora Timur). Similarly, smoke damage would likely fall outside the definitions in the convention in circumstances where the oil is ignited while on board the ship: the definition refers to damage caused by contamination resulting from the escape or discharge of oil from the ship. There was therefore a need especially considering such incidents as the Independenta to create a regime to cover cargoes of non-persistent oils and other substances and damage caused by explosion and fire, which fall outside of CLC and the Fund Convention. The HNS Convention (the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea 1996) 4 creates a liability and compulsory insurance regime and a fund to be set up as a secondary tier of compensation. As the name indicates, it covers hazardous cargoes but also specifically damage caused by explosion and fire and not just damage directly caused by the substance being carried. The Bunkers Convention (International Convention on Civil Liability for Bunker Oil Pollution Damage 2001) 5 applies a liability and compensation scheme to damage 2 Adopted on 18 December This convention only concerns the creation and working of this Fund. Article 2 specifically establishes the Fund. 4 Entered into force 30 May Adopted on 23 March 2001; entered into force on 21 November 2008.

4 12 The Turkish Commercial Law Review Online Volume 1 25 February 2015 caused by spills of ship s bunkers. The Athens Convention (the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 2002) 6, while not concerned with pollution, follows the same model in relation to damage suffered by passengers on seagoing vessels. When all these regimes are in force, it is foreseeable that a shipowner would put up three or more limitation funds after any one incident to cover the different types of damage caused. However, the HNS Convention is yet to come into force and, beyond the boundaries of the conventions outlined above, there are areas of environmental law which are not currently covered. If the Independenta were to happen today, there would still be no regime in place to deal with certain types of damage which arose. With the advent of the Nairobi Convention, there is now at least provision available for wreck removal aspects. III. The Nairobi Convention on the Removal of Wrecks 2007 The Nairobi Convention applies to the exclusive economic zone of signatory states and makes shipowners strictly liable for the removal of hazardous wrecks from those waters. The coastal state applies criteria outlined in the convention to decide whether the wreck is a hazard and, if so, can order the shipowner to remove it. If the shipowner does not carry out the works himself, the state can remove the wreck and claim the costs of so doing (which must be proportionate) from the shipowner. The convention also provides also for a compulsory insurance regime but, unlike the other regimes listed above, the shipowner does not have the right to limit his liability. He is entitled to limit his liability by applying other limitation regimes, however, namely the Conventions on Limitation of Liability for Maritime Claims 1976, if it is available to him. Considering Turkey alone, the number of wrecks in her waters and the continuing risk of maritime incidents, it is clearly important that a state is able to deal with hazardous wrecks efficiently. At times, states may deem it necessary to remove the wreck at their own expense without the possibility of making any recovery from the shipowner however, unlike with salvage operations, there may be no residual value to a wreck. This also means there is little incentive for any other third party to step in and do the work. The Nairobi Convention aims to facilitate the safe and quick removal of wrecks without a state bearing the cost of doing so. However, the certainty of reimbursement which the compulsory insurance requirement creates could foreseeably lead to states making unreasonable wreck removal orders. IV. The Liability Insurer s Position Risks of the type described above are insured by a ship s Protection and Indemnity Club 6 Adopted on 1 November 2002; entered into force on 23 April 2014.

5 Procedural Requirements in Dispute Settlement Provisions 13 (P&I Club), a mutual insurer. The P&I Club applies a pay to be paid rule under which they will only reimburse the insured once the insured has paid the claim in the first instance. The insurer does not directly pay the third party and, as is the general position under English law, the third party has no direct cause of action against the insurer. In terms of wreck removal liabilities, traditionally the insurer could refuse to pay in the instance of an unreasonable wreck removal order. However, the issuance of certificates under the Nairobi Convention alters the position and makes the insurer directly liable to the third party, i.e. the state. The costs of removing a wreck today can be extremely high. The wreck removal and anti-pollution costs following the Costa Concordia incident in January 2012 have run well over $1 billion. This is an extreme example but it is the case that the cost of wreck removal operations has increased dramatically in recent years due to the expensive technical operations which can now be deployed and the increased complexity of vessels which may be involved. From the perspective of coastal states, there may well be legitimate cases where hazardous wrecks have to be removed and there is no shipowner for them to claim against. However, the combination of high costs and direct recourse against insurers creates a situation which liability insurers will have to carefully watch: the Nairobi Convention certainly adds considerable further exposure beyond that already created by the earlier compulsory insurance regimes. As a possible reflection of a change in the way third parties view liability insurers in the maritime industry, a current case going through the courts in Turkey is discussing whether, under the provisions of the new Turkish Commercial Code (TCC) 7, a third party can legitimately bring a direct claim against a liability insurer outside the scope of any of the international regimes. A number of academics 8 argue that a victim in Turkey should have a direct cause of action against an insurer, applying Article 1478 of the TCC and Article 34 of the Turkish International Private and Procedural Law (Act No. 5718) and that the pay to be paid rule is contradictory to Turkish law. Were the Turkish court to rule in the affirmative, this would be of concern to insurers of ships which travel to Turkey. V. A Unified Global System? The intention behind the regimes outlined above is to create a unified regime across coastal states whereby liability is clear and compensation is readily available, thereby benefitting victims and creating increased certainty for the industry. The industry supports this unification and, despite concern which the Nairobi Convention may cause vis-a-vis unreasonable calls on insurers, is encouraging Member States to opt in to applying the convention within their territorial waters as well as their exclusive economic 7 Turkish Commercial Code numbered 6102, entered into force on 1 July For example Professor Dr Nuray Eksi and Professor Dr Yesim Atamer.

6 14 The Turkish Commercial Law Review Online Volume 1 25 February 2015 zones 9 (so far, the UK, Denmark, and Bulgaria have chosen to do so). The development of this global unified system is not without hindrance. Certain states namely the US which has sufficient resources to take their own independent measures as regards compensatory regimes proceed with their own programmes but there is also contradictory local legislation within the conventions signatory states themselves. There are also examples of EU law contradicting the international regimes, which can generally be attributed a differing balance of influence between flag and coastal states. Following the Erika and Prestige oil spills, the respective court proceedings for which have recently concluded, the EU introduced Directive 2005/35/EC of the European Parliament and of the Council of 7 September 2005 on Ship Source Pollution and the Introduction of Penalties for Infringements which creates criminal liability of implicated parties, including crew members, for ship source discharges of oil or other noxious substances. The criminalisation of seafarers in this way directly contradicts the regulatory MARPOL (International Convention for the Prevention of Pollution from Ships 1973) 10 and UNCLOS and a number of industry bodies led by Intertanko brought a judicial review in the English High Court challenging the implementation of this Directive on these grounds 11. Turkish law also provides for such criminalisation under Articles 181 and 182 of the Turkish Criminal Code Issues have also arisen where the terms of the international regimes have to be read alongside the civil codes which enact them locally. However, the advantages of a global system are widely recognised and Turkey, as a signatory of thirty IMO conventions, will remain an important voice in the development of marine environmental affairs. Turkey has yet not signed the Nairobi Convention but given the peculiar risks she is exposed to, it is foreseen that she will do so. For the liability insurer it remains to be seen what the full effect of the Nairobi Convention will be. As the costs of dealing with incidents escalate, so does their exposure with consequent implications for their shipowner members and the costs of maritime transport. 9 The area beyond a coastal state s territorial waters extending to 200 nautical miles from base line. 10 Adopted on 1973 (Convention); Entered into force: 2 October 1983 (Annexes I and II). 11 International Association of Independent Tanker Owners (Intertanko) and others v Secretary of State for Transport (C-308/6) [2008] 2 Lloyd s Rep 206. The court did not rule on the substance of the matter as it considered that it could not assess the validity of the Directive in the light of MARPOL and UNCLOS on formal grounds.