The Administrator's Annual Report 2004-2005

CHALLENGES AND OPPORTUNITIES

1. Quasi-Criminal Liability for Environmental Offences in Canada

On May 6, 2004, the Honourable David Anderson, Minister of the Environment, tabled new legislation (Bill C-34) to amend the Migratory Birds Convention Act (1994) and the Canadian Environmental Protection Act (1999).

As a result of the Dissolution of Parliament on May 23, 2004, the proposed legislation "died on the order paper". See the Administrator's Annual Report 2003-2004 at section 4.1.

On October 26, 2004, during the next session of Parliament the legislation was re-introduced as Bill C-15 by the Honourable Stéphane Dion, Minister of the Environment. On May 19, 2005, Parliament passed the legislation. The Act was proclaimed in force as of June 28, 2005.

This Act amending the Migratory Birds Convention Act, 1994, and the Canadian Environmental Protection Act, 1999, is commented on, from another prospective, in the Stewart McKelvey Stirling Scales, Barristers and Solicitors, Halifax, Nova Scotia, Client Update: "Changes to Canadian Marine Pollution Laws". The following excerpts are reprinted with permission of the law firm:

After more than a year of Parliamentary effort, including an intervening general election, Canada has adopted legislation which in some respects duplicates, but in some important respects fundamentally alters, Canadian law relating to marine pollution in the exclusive economic zone.

Under former, and still-existing, Canadian law (principally the Canada Shipping Act) discharge of prescribed pollutants is prohibited in the territorial sea and in the EEZ, and is punishable by fines not exceeding C$250,000 (on summary conviction) or C$1 million (on indictment). Although there is provision for detention of a ship in the case of a suspected discharge, there was some uncertainty whether Canadian authorities formerly had power to detain an offending ship, or to redirect it into a Canadian port, when the ship was in transit outside Canada's territorial waters.

On May 19, 2005, Parliament passed legislation, designated Bill C-15, to amend the Migratory Birds Convention Act, 1994 and the Canadian Environmental Protection Act, 1999. The amendments expand the application of both these Acts to ship-source pollution and facilitate their availability to support prosecutions in addition to, and perhaps in lieu of, the more traditional Canada Shipping Act regime.

Under the amendments to the Migratory Birds Convention Act, 1994, which formerly applied only to the outer limit of Canada's territorial sea, this statute is declared to apply in the EEZ. It contains a prohibition against any ship or person discharging any substance harmful to migratory birds in waters frequented by migratory birds or in a place from which the substance may enter such waters. It enacts statutory positive personal duties on the master and chief engineer of the ship, and on directors and officers of the corporate owner and operator of the ship, to take all reasonable care to ensure compliance by the ship and by all persons on board the ship. In addition, corporate directors, officers, and agents who "direct, authorize, assent to or acquiesce in" the discharge will be declared to be parties to the offence and liable to conviction. Maximum fines on conviction are increased to C$300,000 on summary conviction or C$1 million on indictment; in the case of conviction of a ship over 5,000 DWT, the statute imposes minimum fines of C$100,000 on summary conviction or C$500,000 on indictment. There is in addition provision for imprisonment of individuals who are convicted.

Enforcement officers, who will likely be officials of the Canadian environment department, are empowered to "stop" or "move", and to detain "for a reasonable time" for the purpose of inspection, any ship. They are empowered also to board and inspect, without warrant, any ship in Canada's territorial sea or EEZ if the ship is believed to have on board "any thing to which this Act or the Regulations apply or any document, record or data relating to the administration of this Act …". Although not stated in the legislation, it is believed that the "thing" will be oil (including bunkers, lubricants and bilge waste) and that the "record" will include the oil record book. The boarding and inspection powers will be exercisable in respect of foreign-flag vessels in the EEZ only with the consent of the Minister of the Environment. Officers will have, in addition, the power to direct a ship into port and to issue detention orders against the ship if they believe that the ship has committed, or has been used in, an offence. The power to deviate and/or detain may only be exercised in respect of a ship in the EEZ if the officer believes that the offence "will cause major damage to the environment, or an actual threat of major damage to the environment". Although apparently an attempt to be consistent with Canada's international obligations under the Law of the Sea Convention and MARPOL, the concept "major damage" is not defined and can be expected to be a significant source of controversy in practice. In particular, there is provision for consideration of the "cumulative or aggregate" effect of discharges, causing concern that relatively small individual spills will be alleged to contribute to "major" cumulative damage, and so support exercise of the detention power. Finally, the deviation/detention power will be exercisable in respect of foreign-flag ships in the EEZ only with the consent of the Attorney-General of Canada.

Under the Migratory Birds Convention Act, 1994, as amended, security may be provided to release a ship from detention, but unless the Attorney-General of Canada accepts a lower amount in a specific case, the security must be in the amount of "the maximum fine that might be imposed as a result of conviction of every accused", causing concern that security demands will be in multiples of the million-dollar maximum fine.

The Canadian Environmental Protection Act, 1999 is a multi-faceted statute which formerly was seldom applied to ship-source marine pollution. Among other things, its Part 7, Division 3 prohibited "deliberate" disposal of prescribed waste in waters including Canada's territorial sea and EEZ, but excludes from that prohibition, among other things, disposals which are "incidental to the normal operations of a ship". The amendments to this Division delete the word "deliberate" from the definition of "disposal", but would still except from the prohibition releases incidental to or derived from the normal operations of a ship. However, the amendments empower the Minister of the Environment to make regulations specifying "acts or omissions that constitute a disposal" for purposes of the prohibition, and also specifying "the operations that are deemed to be, or deemed not to be, the normal operations of a ship". It is believed that this prohibition, and these regulation-making powers, will be employed to expressly prohibit, and to support prosecution for, discharges of bilge waste in those portions of Canada's EEZ which cannot be proved to be frequented by migratory birds.

Maximum fines under the present Canadian Environmental Protection Act, 1999 are C$1 million on indictment and C$300,000 on summary conviction, and there is present provision for imprisonment of individuals. These penalty provisions have not been amended, and unlike the case of the Migratory Birds Convention Act, 1994, there is no provision for minimum fines under the Canadian Environmental Protection Act, 1999.

Despite many subtitles, and some striking, differences in wording, the effects in practice of which differences are imponderable at the moment, the amendments to the Canadian Environmental Protection Act, 1999, like those to the Migratory Birds Convention Act, 1994, provide for enforcement officers' exercise of powers of boarding and inspection in respect of foreign-flag ships in the EEZ with the consent of the Environment Minister and the exercise of powers of "arrest, entry, search and seizure" in respect of such ships with the consent of the Attorney-General. There is also power when an offence is suspected, to direct ships in the EEZ into Canadian ports. Under the amended Canadian Environmental Protection Act, 1999, security for release from detention will be required to be in the amount of "the maximum fine that might be imposed as a result of conviction of the person or ship charged with that offence". Finally, the amendments to the Canadian Environmental Protection Act, 1999 similarly provide for criminal responsibility of the master and chief engineer of the ship, and of directors and officers of any corporation who are in a position to direct or influence the corporation's policies or activities in respect of conduct that is the subject-matter of the offence'.

Note: The Administrator understands that Environment Canada is in the process of negotiating a Memorandum of Understanding with DFO/CCG and TCMS with respect to enforcing the provisions of the Act.

2. Civil Liability for Environmental Damage in Canada

Compensation for environmental damage is handled differently under the Canadian Marine Liability Act (MLA), the 1992 CLC, the 1992 IOPC Fund Convention, and the US OPA.

The 1992 CLC and the 1992 IOPC Fund Convention, in their definitions provide that "pollution damage" means [in part]

"(a) loss or damage caused outside the ship by contamination resulting from the escape or discharge of oil from the ship, wherever such escape or discharge may occur, provided that compensation for impairment of the environment other than loss of profit from such impairment shall be limited to costs of reasonable measures of reinstatement actually undertaken or to be undertaken…"

In Canada the MLA (the SOPF Fund's governing statute) defines "oil pollution damage" as:

"…in relation to any ship, means loss or damage outside the ship caused by contamination resulting from the discharge of oil from the ship."

The MLA provides:

"the owner of a ship is liable for oil pollution damage from the ship."

The MLA further provides:

"If oil pollution damage from a ship results in impairment to the environment, the owner of the ship is liable for the costs of reasonable measures of reinstatement actually undertaken or to be undertaken."

In the United States, OPA 90 provides for payment of natural resource damage claims from the Oil Spill Liability Trust Fund. Only designated Trustees may submit natural resource damages. Under the US regulations the trustee may consider a plan to restore and rehabilitate or acquire the equivalent of the damaged natural resource.

The technically justified reasonable cost for reinstatement/restoration measures, for which compensation is available under the 1992 CLC and the 1992 IOPC Fund Convention, might equate to primary restoration under the US NRDA regulations. However, the further measure of OPA NRDA is:

• The diminution in value of those natural resources pending restoration, plus
• The reasonable cost of assessing those damages.

The 1992 CLC and the 1992 IOPC Fund Convention do not, by their definition of pollution damage, cover this latter sort of compensation provided by the NRDA regulations or other theoretically based assessments of environmental damage.

Note: A list of federal legislation and regulations dealing with various aspects of marine pollution in Canada is contained in section 5.2 of the Administrator Annual Report 2003-2004.

3. Canada's Environmental Damages Fund (EDF)¹

Prior to 1995, any judgments obtained from a court or monies obtained from settlements reached between parties involving the Canadian government had to be paid into the Consolidated Revenue Fund by virtue of the Financial Administration Act². Consequently, those monies could not be used to assist in environmental restoration projects. A new policy was developed to avoid this problem. The Treasury Board of Canada in 1995 authorized the creation of a special holding account (Environmental Damages Fund) for the purpose of allocating court awards and settlements, as well as voluntary payments and international funds compensation, towards environmental restoration projects.

¹ Harry Wruck, QC, Overview of Canadian Environmental Legislation and Compensation for Environmental Damage, presented at the EDF national workshop, Towards a national Environmental Damages Fund Action Plan, hosted by Environment Canada, Gatineau, Qc, December 11-13, 2002. See also Harry Wruck QC, The Federal Environmental Damages Fund, 5 C.E.L.R. (3d) 120.

² R.S. 1985, c. F-11.

The object of the Environmental Damages Fund (EDF) is to assist in the rehabilitation of injured or damaged environmental or natural resources and to ensure that proposed projects to help rehabilitate the environment are cost effective and technically feasible.

For instance, after the Crown successfully prosecutes a polluter under certain federal environmental legislation and a fine is imposed, or in a case where the federal government commences civil litigation against the polluter and either negotiates or obtains a judgment from a court in relation to restoration of environmental damages both with respect to past and future damage, the court, the Crown and the defence can recommend that the monies obtained be placed into the EDF. However, cleanup costs, actual response costs and legal costs are specifically excluded from the EDF.

This approach is seen to be effective. At the March 2001 sessions of the Third Intersessional Working Group of the 1992 IOPC Fund, ITOPF presented its views on compensation for environmental damages under the international 1992 Civility Liability and Fund Conventions. In its paper (92FUND/WGR.3/5/2) ITOPF refers to other approaches by the USA and developments in the European Commission. ITOPF comments on the EDF managed by Environment Canada:

"The Environmental Damages Fund serves as a special trust account to manage monies that are received as a result of court orders, awards, out-of-court settlements, voluntary payments and, so it is stated, compensation provided through international liability regimes. The Canadian Courts are apparently able to use various Federal laws to direct money to the Fund, including the Canadian Environmental Protection Act, Migratory Birds Convention Act, the Canada Wildlife Act, the Fisheries Act and the Canada Shipping Act.

The Environmental Damages Fund is used to remediate damages to the environment, including assessment or research and development work required to support such restoration efforts. Whilst monies received may not always be used to restore the damaged area in respect of which they were received, it is a requirement that any projects have to be in the region/community where the incident occurred. This initiative is seen as both an effective economic disincentive for illegal activities and as a means of providing compensation for environmental damage."

One of the problems that arose after 1995 and to some extent is still the case today, is that courts and even government counsel are not familiar with the EDF. As a consequence, not a great deal of money has been paid into the EDF.

In the Atlantic Region of Environment Canada alone, as at November 2004, in excess of $650,000 has been contributed to the EDF, and $450,000 dispersed for worthwhile restoration projects. A major part of that contribution is composed of proceeds obtained through quasi-criminal charges filed under the Canadian Environmental Protection Act and sections 32, 35 and 36(3) of the Fisheries Act.

As government officials, prosecutors, judges and defence counsel become more aware of the EDF it may become more utilized.

For instance, on February 25, 2002, a Nova Scotia Provincial Court judge imposed the country's highest ever fine - $125,000 - for pollution of coastal waters that are a haven to thousands of seabirds. In this case, the Philippine - registered ship Baltic Confidence was charged for dumping at least 850 litres of oil-mixed bilge water in December 1999, about 158 kilometres southwest of Halifax. In pleading guilty to the quasi-criminal offense, lawyers for Prime Orient Maritime of Manila said the company agreed to a penalty of $80,000 and a contribution of $45,000 to Canada's Environmental Damages Fund. The Baltic Confidence incident was the first time that a shipping firm paid into the EDF.

Another successful aerial surveillance mission occurred in March 2002, when a fishery patrol aircraft spotted an oil slick about 120 kilometres southeast of Halifax. The slick was reported to be 40 kilometres long and 15 metres wide. The oil trailed directly astern of the foreign-registered bulk carrier CSL Atlas. Subsequently quasi-criminal charges were laid and, after an agreement was reached between defence lawyers and federal Justice Department officials, a Nova Scotia Provincial Court judge imposed a fine of $125,000 on November 25, 2002. The fine includes a $50,000 assessment that will go to the EDF toward dealing with environmental damages caused by marine pollution.

The important point to recognize with respect to the administration of the EDF is that it establishes clear criteria and standards that apply both to applicants and decision-makers in relation to the use of the Fund monies in respect to the restoration and projects. There really are three important principles running through the process. First, the restoration projects must be cost effective. Second, they must be technically feasible. Third, they must be scientifically sound before Fund monies may be used in that manner. To a large degree these important principles have been borrowed from American jurisprudence such as in the Puerto Rico v. SS Zoe Collocotroni³ case, where the court refused to grant damages for the restoration of the environment, unless the government had a realistic plan in place to restore the environment to its pre-spill state.

³ Puerto Rico v. SS Zoe Collocotroni, 456 F.Supp 1327 (D.P.R. 1978)

4. Environment Damage Assessments and Restoration in Canada (EDA)

Following on the EDF there are now persons in Canada who are developing natural resource valuation methodologies to quantify damages to the environment for the purpose of obtaining funding for restoration.

The enforcement of environmental laws and regulations is done primarily through a system of fines relating to the different pieces of legislation applicable in Canada. It is stated that the traditional problem associated with this technique is the lack of accepted methods to match costs with the damage that had occurred. Judges have used the deterrence criterion in sentencing for environmental offences. Environment Canada is developing a new approach - Environmental Damage Assessment or EDA - towards quantifying such costs.

The Atlantic Region of Environment Canada is currently developing a framework to guide the various activities associated with the three primary components of the EDA: assessing damage to the natural environment; valuing this damage; and initiating projects aimed at restoring the damage which has been caused.

The initial trigger for implementing assessment activities occurs when an incident is reported or observed. Once damage has been measured, there is a need to place a value on the losses or environmental impacts. The Atlantic Region is developing models and protocols for conducting this type of economic valuation. Restoring the damage caused by a spill or release is an integral component of the EDA process. The intent is to replace the damaged ecosystem components, or enhance natural recovery.

The EDF is intended to fund environmental restoration projects after completion of an EDA. At this point in the development of a framework for general fund criteria and project requirements, all project proposals submitted to Environment Canada for funding from the EDF should satisfy the following general requirements:

• Satisfy all conditions specified by the courts;



• Build on partnerships with stakeholders in achieving common goals/objectives regarding remediation and restoration of damages to the natural environment;



• Satisfy evaluation/technical review criteria;



• Be cost effective in achieving goals, objectives and deliverables;



• Recipients must process the necessary knowledge and skills required to undertake the project;



• Have broad community support;



• Be approved by the Regional Director General.

In the meantime, it is acknowledged that the framework for establishing a national plan for implementing an environmental damage assessment and restoration process remains as a work in progress.

Due to the infancy of the EDA process in Canada, it is clearly at a stage in its history where conflict emerges between the theoretical aspects developed by its creators and its use by judges. The development of the EDF by Environment Canada may be a strong influence on judges to call upon EDA for environmental offences. The impact, if any, of such developments on the statutory civil liability of the SOPF for oil pollution damage from a ship which results in impediment to the environment remains to be seen.

Note: Additional information about Canada's Environmental Damages Fund, and the current framework for the general fund and project requirements are described in SOPF Administrator's Annual Reports (insert link to Annual Reports) 2001-2002 and 2002-2003, respectively, at section 4.1.1, and the 2003-2004 Annual Report at Sections 4.3 and 4.4.

5. Prevention and Response Measures in Canada

5.1 Port Reception Facilities for Oily Waste

Many migratory seabirds die each year as a result of ships deliberately dumping a mix of water and oil waste from engine room bilges. The ability of ships to comply with regulatory discharge requirements when in port depends largely upon the availability of adequate port reception facilities. The lack of reception facilities in many ports worldwide may contribute to pollution of the marine environment.

MARPOL Convention

At the international level, IMO Member States that are party to MARPOL 73/78 are required to ensure the provision of adequate reception facilities in its ports for the reception of oily waste from oil tankers and other ships using its ports without causing undue delay. Furthermore, all parties to the MARPOL Convention are required to communicate to IMO a list of reception facilities in their ports in accordance with the Convention. With the aim of promoting the effective implementation of the Convention, since 1983 the IMO has been collecting and disseminating information on the availability of reception facilities through the Marine Environment Protection Committee (MEPC) circulars. A recent report of MEPC states: "Port States failing to provide adequate reception facilities will make it harder to deal with the enforcement of ships' illegal discharge at sea." Canada is a signatory to MARPOL 73/78.

Note: The list of oily waste reception facilities can be accessed at: http://www.imo.org.

The IMO has prepared guidelines for ensuring the adequacy of port waste reception facilities. In summary, these guidelines provide information relating to the ongoing management of existing facilities, as well as for the planning and establishment of new facilities. The guidelines are also intended to encourage the better and more active use of port waste facilities. The ultimate aim is to help achieve the complete elimination of intentional pollution of the marine environment by oil and other harmful substances, One of the main objectives of the guidelines is to assist States Parties to MARPOL 73/78 in planning and providing adequate port waste reception facilities. Most States have delegated this duty to their ports' industry, port authorities, or to other public or private bodies, but States retain the ultimate responsibility for ensuring that their undertaking is fulfilled.

Transport Canada

In response to the Administrator's enquiry, TCMS advised in 1999:

"The authority exists in paragraph 657(1)(n) of the Canada Shipping Act to make regulations requiring ports to provide reception facilities, to the satisfaction of the Minister of Transport, but no regulation has ever been made". The decision not to produce regulations was based on surveys before and after Canada's accession to MARPOL indicating that adequate facilities were being provided by the Canadian ports. The most recent survey then was completed in 1995.

TCMS also advised the Administrator in 1999 that as a result of concerns by some that Canadian ports may not be providing adequate facilities, the issue was added to the agenda of the Environment Standing Committee of the Canadian Marine Advisory Council (CMAC) in 1999. TCMS led the Committee's focus group, which consulted with representatives of the Canadian shipping, and petroleum industries, port authorities and other stakeholders. TCMS reported to CMAC that the focus group studying the question of adequate reception facilities found that waste facilities for residual oils and other ships' waste at Canadian oil refineries and oil terminals were adequate.

Recently, to assist with the annual submission to IMO of information on new reception facilities and to update information on the list of facilities in Canadian ports, TCMS developed a website database. All Canadian port authorities and other representatives of marine waste reception facilities are requested by TCMS to provide information to the database as it applies to their facilities.

As reported in section 5.3 of the Administrator's 2004-2005 Annual Report, TCMS advised in November 2004 that during its first year of operation the database achieved limited response. Consequently, TCMS intends to take a further pro-active role in this matter.

It is generally acknowledged that from an economic and practical standpoint, all Canadian port reception facilities have to be adequate and conveniently located to meet the needs of the ship without causing undue delay. The facilities must also be affordable for all classes of ships. There must be more incentive for the ship to retain oily bilge water and residue on board for disposal in port, rather than dumping it at sea.

Baltic Strategy

TCMS reported at the CMAC meeting in November 2004 that in 2005 Transport Canada plans to examine the feasibility of adopting an approach like the "Baltic Strategy" for reception facilities for ship-generated waste. As part of this strategy, to facilitate offloading of ships' waste at ports of Baltic countries the costs are integrated into port fees - a "no-special-fee" system.

The Swedish Maritime Administration reports that, actions to deal with the environmental problems caused by discharges of wastes from ship have been part of international Baltic co-operation ever since the first Convention on the Protection of the Marine Environment of the Baltic Sea Area (the Helsinki Convention) was signed in 1974.

In addition, the Baltic Sea Area has also been designated a Special Area under the International Convention for the Prevention of Pollution from Ships, 1973 as amended by a protocol in 1978 (MARPOL 73/78). Such status is given to sea areas which, because of their special oceanographic or ecological characteristics, are regarded as particularly sensitive to environmental disturbances.

As a consequence, regulations concerning discharges of oil and other types of ship-generated wastes are particularly strict in the Baltic Sea Area. In principle, all wastes should be delivered to reception facilities ashore.

However, despite 20 years of international co-operation within the Helsinki Commission (HELCOM) framework as well as in IMO to control discharges of wastes from ship's, such illegal discharges remained a serious environmental problem in the Baltic Sea Area.

To address this problem, the countries around the Baltic Sea Area agreed on a comprehensive set of measures to tackle problems with ship-generated waste. The Baltic Strategy for Reception Facilities for Ship-generated Waste and Associated Issues was adopted by HELCOM in March 1996.

The main objective of the Strategy is to substantially decrease operational and to eliminate illegal disposal of ship's wastes and thus, prevent pollution of the Baltic Sea Area.

The Strategy includes all types of wastes generated onboard ships, being it a large ship, fishing vessel, working vessel or pleasure craft.

In practice, this means that:

• Over 210 port reception facilities for ship-generated wastes are available in ports around the Baltic. These facilities are easily accessible and adequately equipped;



• It is mandatory for ships to deliver all their wastes to a reception facility before leaving port, with some exceptions;



• According to the "no-special-fee" system, a fee covering the cost of reception, handling and final disposal of ship-generated wastes is levied on the ship irrespective of whether or not ship-generated wastes are actually delivered. The fee is included in the harbour fee or otherwise charged to the ship.

Currently the "no-special-fee" system should be applied in all Baltic Sea ports to oily wastes from machinery spaces. The "no-special-fee" system is expected to be extended by 2005 to cover other categories of ship-generated wastes, i.e., sewage and garbage.

Pollution from shipping, by its very nature, has transboundary implication. Actions to reduce the environmental impact of shipping are needed in a wide international context.

Thus, the application of the concepts embedded in the Baltic Strategy (e.g. the no-special fee system and mandatory delivery of all wastes ashore) to wider geographical regions would be important steps towards further reducing the effects of shipping on the marine and coastal environments.

European Union

With respect to the European Union's position on this issue, it is reported that the deadline for implementation of the European waste reception directive come into effect on May 1, 2004. This directive aims to reduce discharges at sea by insisting that each European Union port have disposal facilities. It has been reported, however, that Member States have different interpretations of how waste should be dealt with at the quayside. The lack of standardization and the fact that fees are not harmonized are causing problems with implementation of the directive. As a result, several governments and industry agencies continue to work on improving the port waste reception facilities and finding a "best practice" solution.

Canadian Industry

In Canada, the Canadian Petroleum Products Institute (CPPI) makes the point that lack of support (industry input) for the new TCMS database is a matter for all ports, all terminals and all waste disposal service providers. CCPI says its members' facilities constitute a very small part of the picture.

CPPI says it is more than willing to play its part in supporting the initiative and even to encourage others to do the same. CPPI is encouraging TCMS to more actively market the database to industry and to pursue Canada's international obligations in this matter.

Note: The Administrator is following progress on this matter, particularly in light of reports of chronic mystery marine oil spills in eastern Canada. The issues associated with port reception facilities in Canada for ship's waste can be sorted.

5.2 National Aerial Surveillance Program (NASP)

Federal governments departments and agencies are using available resources to combat oil pollution caused by passing ships. Transport Canada is responsible for the overall direction and coordination of the NASP. The objectives of the NASP include enforcement of the pollution prevention regulations, deterrence, emergency response and program support for other government departments and federal agencies, such as, the CCG, Environment Canada, and the Royal Canadian Mounted Police.

Currently, aerial surveillance is conducted through the use of three different aircraft. Two of these are owned and operated by Transport Canada's Aircraft Services Directorate. The third is a contracted aircraft owned and operated by Provincial Airlines Limited. The number of patrol hours are increased during the winter by multi-tasking the ice reconnaissance aircraft flights south of 60 degrees north latitude. Specialized video and still cameras, computerized reporting software, remote sensing and communication instruments are fitted and utilized in various methods of detection on each of the aircraft. The computerized imaging equipment records vessel discharges and pollution sightings.

Transport Canada reported in May, 2005 that surveillance equipment valued at $2.3M has recently been acquired that significantly increases TC's ability to detect illegal discharges from passing vessels, even in conditions of reduced visibility and darkness. The primary new sensor is a side looking airborne radar that extends the range for detecting spills to 25 nautical miles on both sides of the aircraft. Ships can be detected up to 50 nautical miles away. Previously, visual detection by crews on planes was effective for a range limited to just 2 nautical miles. Other new equipment includes an ultraviolet/infrared line scanner; Airborne Automated Identification System transponder; a high-resolution digital photography camera and video system; and a console that integrates all the systems.

The three aircraft utilized by the TCMS are:

• A de Havilland Twin Otter aircraft is located in Vancouver. This aircraft patrols Vancouver Island's Inner Passage, the Strait of Juan de Fuca and the West Coast tanker exclusion zone, as well as the Queen Charlotte Islands;



• A de Havilland Dash - 8 aircraft now located in Moncton, New Brunswick. This aircraft patrols the Great Lakes, the St. Lawrence River, and the Gulf of St. Lawrence, Cabot Strait and the coast of Nova Scotia, including the Bay of Fundy;



• A Beechcraft King Air 200 is located in St. John's. This aircraft is contracted for fisheries patrol off the coast of Newfoundland. It is also multi-tasked or conducts dedicated oil pollution surveillance flights.

Transport Canada continues to seek funding for additional aerial surveillance. Transport Canada will also continue the NASP's involvement in the Integrated Satellite Tracking of Polluters Project I-STOP. The objective of this project is to help determine if RADARSAT technology can be harnessed to the task of reducing chronic oil pollution in Canada.

Note: Other Canadian initiatives on oiled wildlife issues are reported in the Administrator's Annual Report 2003-2004, sections 4.8.1, 4.8.2 and 4.8.3.

5.3 Using Satellites to Protect the Marine Environment in Canada: Integrated Satellite Tracking of Polluters (I-STOP)

Canada's 243,000 km coastline and vast off-shore waters present a challenge to effective ship source oil detection by conventional methods such as aircraft. The use of satellite technology presents a cost effective tool to monitor vast areas of ocean and to direct aircraft to areas where oil releases are suspected. To increase the effectiveness of existing aircraft monitoring programs, several government departments have become involved in a project to utilize satellite detection systems.

In 2002 a three-month pilot project known as STOP (Satellite Tracking of Oil Polluters), implemented by Environment Canada, Transport Canada, Canadian Coast Guard and the Canadian Space Agency illustrated that RADARSAT-1 was a reliable monitoring tool. A protocol for downloading, processing and analyzing the image of potential oil releases and potential target sources in near-real time was also developed by the industrial partner, RADARSAT International Inc. The STOP project was further refined through the partnership with C-CORE (Memorial University, St. John's, Newfoundland) and their ability to link this Canadian project to those European agencies involved in oil discharge monitoring.

Operational projects in 2003 and 2004 resulted in: 12- month monitoring of Canada's Atlantic and Pacific coasts, the St. Lawrence Seaway and the Great Lake region; near-real time processing of images of approximately 1 hour and 20 minutes; and the participation of seven project partners representing government, industry and academia. Although satellite technology is stable, the need for visual confirmation of oil releases remains the accepted practice with respect to investigating possible releases. All Federal Departments that routinely travel over an "Area of Interest" by plane or ship can be contacted, and monitoring activities are coordinated to provide ground validation for the I-STOP project.

One of the newest participants is the Offshore Petroleum Boards of Newfoundland and Nova Scotia who regulate oil platforms that are routinely monitored. This provides vital information for ground validation of satellite imagery. In 2005 the I-STOP project team is expanding image acquisition to include Canadian waters in the north, thereby creating a three-ocean program and examining operational linkages between the I-STOP program and Environment Canada's Canadian Ice Service. Satellite technology will play an important role in monitoring and detecting ship-sourced oil discharges.

6. Changes to the 1992 International Regime - Impact on SOPF

6.1 Increases in Compensation Limits

From 1989 to May 29, 1999, Canada was a Contracting State to the 1969 Civil Liability Convention and the 1971 IOPC Fund Convention. The compensation limit for each incident was approximately $120 million. These Conventions applied to pollution damage suffered in the territory - including the territorial sea - of a State Party to the respective convention by spills of persistent oil from oil tankers.

On May 29, 1999, Canada became a Contracting State to the 1992 Civil Liability Convention and the 1992 IOPC Fund Convention. The compensation limit per incident increased to approximately $270 million. Under the 1992 Civil Liability and the 1992 IOPC Fund Convention, the geographical scope is wider with the cover extended to pollution damage caused in the exclusive economic zone, or equivalent area of a Contracting State.

On November 1, 2003, the limits of liability and compensation under the 1992 CLC and 1992 IOPC Fund Convention increased by 50.37 per cent. These increases were adopted by the IMO legal committee pursuant to Articles 15 and 33 of the 1992 CLC and the 1992 Fund Convention respectively. The increase which resulted in a total of approximately $372 million (as at April, 2005) of coverage per incident for oil tanker spills is noted under Figure 1, Appendix D of the Administrator's 2004-2005 Annual Report.

To illustrate (using a nominal value of $2.00 to one SDR), as a result of the amendment to the 1992 CLC the increased limits of the shipowner's liability for incidents caused by oil tankers on or after November 1, 2003, are as follows:

1. For a ship not exceeding 5,000 units of gross tonnage, 4,510,000 SDR (approximately $9 million);



2. For a ship with a tonnage between 5,000 and 140,000 units of gross tonnage, 4,510,000 SDR (approximately $9 million) plus 631 SDR ($1,262) for each additional unit of tonnage, and



3. For a ship of 140,000 units of tonnage or over, 89,770,000 SDR (approximately $179.5 million).

As of April 1, 2005, the limit of liability of the SOPF is approximately $145 million for each incident. This amount is available to cover oil spills in Canada from ships of all classes - not just tankers - and not only persistent mineral oil. As a result of the increase in the limits of compensation for oil pollution damage under the 1992 CLC, the 1992 IOPC Fund and the domestic SOPF, the aggregate compensation available for an oil tanker - spill in Canada - was approximately $517 million on April 1, 2005.

The above-noted increases are unrelated to any amount of compensation that might be available under the Supplementary Fund - "optional" third tier, referred to following.

6.2 Supplementary Fund - "Optional" Third Tier

The IOPC Supplementary Fund entered into force on March 3, 2005. The first session of the Supplementary Fund Assembly was held from March 14 to 23, 2005. The following Contracting States were present: Denmark, Finland, France, Germany, Ireland, Japan, Norway and Spain.

Note: Information about the first session is contained in Appendix F of the Administrator's 2004-2005 Annual Report.

By way of background, the Diplomatic Conference convened by IMO in London during the week of May 12, 2003, adopted a Protocol creating the International Oil Pollution Compensation Supplementary Fund (IOPC Supplementary Fund). The most important elements of the Protocol include:

• The aggregate maximum amount of compensation available will be 750 million SDR per incident, consisting of the 1992 CLC; the 1992 Fund Convention and the Supplementary Fund. This amount represents about C$1.5 billion as compared to the current amount of C$372 million.



• The minimum receipt of one million tons of contributing oil is deemed to be received in each Contracting State to the Supplementary Fund. This is a new feature designed to deal with those States that normally submit nil reports and, therefore, make no contributions.



• The amount of annual contributions payable by a single Contracting State will be capped at 20% of the aggregate amount of annual contributions. As a result, the annual contributions payable by all other Contracting States will be increased pro rata to ensure that the total amount of contributions payable by all persons liable to contribute to the Supplementary Fund, in respect of the calendar year, will reach the total amount of contributions decided by the Assembly.

These capping provisions shall remain in effect until the total quantity of contributing oil received in all Contracting States has reached one billion tons annually, or until a period of 10 years after the date on entry into force of the Supplementary Fund has elapsed, whichever occurs earlier.

According to its terms, the Protocol entered into force three months following the date that at least eight states had signed the Protocol without reservation or deposited instruments of ratification, etc., and the total quantity of at least 450 million tons of contributing oil had been received by those states in the preceding calendar year.

The Protocol shall cease to be in force when the number of Contracting States fall below seven or the total quantity of contributing oil received falls below 350 million tons, whichever occurs earlier.

Presumably, European Union countries will continue to adopt the third tier by becoming Contracting States to the Protocol. It appears, however, that most other Contracting States to the 1992 regime, save Japan, will not adopt the third tier. Most of these other Contracting States will continue with the 1992 CLC and the 1992 IOPC Fund Convention, which has had compensation limits increased as described immediately above.

We are pleased with the positive developments that took place on the international front with respect to establishing the Supplementary Fund. The Canadian delegation position, which includes that of the Administrator of the SOPF, is supportive of the initiative to establish an "optional" Supplementary Fund under the International Regime. However, we understand that support for the initiative does not imply a Canadian decision to join the Supplementary Fund now that it has come into force.

From the Administrator's view this Supplementary Fund ("optional" third tier) may prove to be both a practical alternative - and an effective IMO response - to the proposed European COPE Fund⁴.

⁴See SOPF Administrator's Annual Report 2000-2001, at pages i-iv, section 4.5.3 and Appendix G.

Will Canada become a Contracting State to the "optional" International Supplementary Fund? Of course this is a question for Cabinet to decide in Canada's interests.

Generally, should a State opt into the new Supplementary Fund very significant additional contributions may be required, as and when levied, over and above any contributions that would be payable for current International Fund coverage. It is noteworthy that for both Funds contributions are not in the form of premiums.

Both the International Fund and the (optional) International Supplementary Fund mutualize the risk of oil pollution from tankers. Thus, normally, the sources of monies for both Funds would be contributions in response to levies on actual oil receivers in Contracting States, collected retrospectively. Such is the open-ended "call" nature of these International Funds. Consequently, the number and levels of levies and contributions would be driven by the number and nature of international oil tanker spills, as well as the number and levels of related claims and how the claims are assessed.

For Canada the question of becoming involved in the Supplementary Fund - "optional" third tier - may raise particular issues and challenges⁵.

⁵ See SOPF Administrator's Annual Reports: 2000-2001, pages ii-iv, sections 4.5.3, 4.6 and 4.11; 2001-2002, page v, sections 4.3.4 and 4.6.2; 2004-2005, section 4.6.1.

In many cases the amounts claimed against the International Funds have been very high. Historically, in Canada the amounts claimed in oil tanker incidents have been significantly lower than claims in foreign incidents.

North America developments differ from European experience. While Canadian and US oil tanker incidents appear to have fallen off dramatically, there has been an increase in tanker incidents in Europe recently.

Sustainable shipping requires the prevention of costly accidents. The maritime industry's goal should be to develop a safety mentality in all those engaged in shipping oil. Significant steps have been taken in this direction.

On government's part, normally there is the question of efficacy in allocating public resources to the protection, prevention, preparedness, and response continuum for marine environmental protection. Compensation is part of the package. Enforcement may be the key to the continuum. We all know an ounce of prevention is worth a pound of cure for environmental impacts if oil spills happen.

In Canada, fiscal implications also arise with the question of who pays. It is sometimes assumed, incorrectly, that there are no public funds required for the SOPF Administrator to make payments to the International Funds. Uniquely, all Canadian contribution payments to the International Funds for foreign incidents involving oil tankers are made from the SOPF⁶. The SOPF is a special purpose account in the accounts of Canada established for the purposes set out in Part 6 of the Marine Liability Act. As the Government of Canada has borrowed the entire capital of the SOPF, it is required to provide the necessary funds to meet the liabilities of the SOPF as they arise. Such fiscal implications of joining the Supplementary Fund would not arise in other Contracting States to the International Fund. In other Contracting States invoices for levies of contributions are paid by the actual receivers of oil in the respective countries - not from the public treasury, as in Canada.

⁶ Canada itself (as opposed to oil receivers in Canada) assumed this obligation. See section 76 of the Marine Liability Act and Article 14 of the 1992 Fund Convention.

We ought not forget the importance of the SOPF's fundamental obligations in Canada. In Canada the SOPF covers oil spills from ships of all classes - it is not restricted to sea-going tankers as is the International Fund.

As we reported in 2001, it is apparent that non-tank vessels constitute significant risks of oil spills. There are more non-tank vessels making more frequent passages. The growth in non-tank vessels is projected to increase.

In North America, oil spills from tankers make up a small percentage of the total. For 1999, in the United States 94 per cent of oil spill incidents and 70 per cent of volume were from vessels other than tankers, according to the USCG. In Canada, between 1993 and 2000 some 88 per cent of incidents reported by the SOPF related to non-tank vessels and mystery spills.

It was reported in 2001 that it had been estimated that, on a global basis, as much as 14 million tonnes of bunkers (fuel) are being carried in non-tankers at any one time. This compared to approximately 30 million tonnes of oil cargo on the world's seas.

Some bulk carriers and containerships are known to carry more oil as bunkers than coastal tankers do as cargo. The International Fund does not pay claims for non-tanker spills. Fortunately, in Canada, the SOPF does.

In the meantime, the preponderance of oil tanker spills outside of Canada and the very high levels of claims in the International Regime continues.

Thus, even the current exposure of the SOPF is significant: The SOPF covers all Canadian oil spills from ships of all classes plus payments of all Canadian contributions to the International Fund for foreign incidents involving oil tankers.

If total SOPF payments to the International Funds for the period 2000/01 - 2004/05 (section 6 of the Administrator's 2004-2005 Annual Report) based on the then maximum compensation level of some $270 million per incident is any indication, membership in the "optional" Supplementary Fund, with a maximum compensation level of $1.5 billion per incident, would result in a very significant increase in the SOPF's exposure for contributions for oil tanker spills outside of Canada. The fiscal functioning of the SOPF as we know it may be challenged.

As mentioned, the question of whether or not Canada should also become a Contracting State to the International Supplementary Fund - "optional" third tier, is for Cabinet to decide. Whatever is proposed to Cabinet should undoubtedly have been preceded by meaningful consultations with government agencies and Canadian industries. Currently, a discussion paper prepared by Transport Canada officials on the subject, dated May 2005, is being circulated inviting comment by October 31, 2005.

For further information, please refer to the Administrator's Annual Reports: 1999-2000, pages 37-40; 2000-2001, pages i-iv, sections 4.2.1, 4.2.2, 4.2.3, 4.3, 4.5.3, 4.6, 4.11, and Appendix G; 2001-2002, page v, sections 4.3.1, 4.3.2, 4.3.3, 4.3.4, 4.6.2 and Appendix I; 2002-2003, sections 4.2.1, 4.2.2, 4.2.3, 4.2.4, 4.2.5, 4.2.6, 4.2.7, 4.3.1, 4.3.2, 4.3.4, 4.3.5, 4.3.6, 4.6.2, 4.6.3 and 4.11; 2003-2004, sections 4.8.1, 4.8.2, 4.8.3, 4.8.4, 4.8.5, 4.8.6, 4.9.1, 4.9.2 and 4.10; 2004-2005, sections 4.1, 4.2, 4.3, 4.4, 4.5.1, 4.5.2, 4.5.3, 4.6.1, 4.6.3 (TOPIA) and 6.

6.3 Revision of the Civil Liability and Fund Conventions "to be or not to be"

The fundamental issue before the Third Intersessional Working Group is whether or not to recommend the re-opening of the two Conventions in order to adjust the shipowners' limit of liability. This is a significant issue in light of the increases that entered into force in November 2003 and the entering into force of the Supplementary Fund Protocol on March 3, 2005. To assist the Working Group with its deliberations the IOPC Funds Secretariat had undertaken an independent study of the costs of post oil spills in relations to the past, current and future limitation amounts of the compensation conventions. The study showed that on the basis of the financial limits of the applicable compensation regime the shipping industry had contributed 45%, and oil cargo interests 55% of the total costs of 5,802 incidents that occurred world-wide (except in the United States of America) in the 25-year period 1978-2002. The study had also shown that the sharing of the financial burden varied considerably with different size ranges of ships, with cargo interests contributing considerably more to the costs of incidents involving ships up to 20 000 gross tonnes, an equal sharing of the costs between oil cargo interests and the shipping industry in respect of incidents involving ships between 20 000 and 80 000 gross tonnes, and the shipping industry contributing considerably more to the costs of incidents involving ships greater than 80 000 gross tonnes. When the costs of past incidents were inflated to 2002 and predicted 2012 monetary values the relative contribution of oil interests to the costs of oil spills increased considerably.

The debate about revision of the Conventions has concentrated on two principal issues:

Sharing the cost of compensation between shipowners and oil receivers; and Substandard shipping.

(a) Sharing the Financial Burden
The Oil Companies International Marine Forum (OCIMF)

OCIMF's position is that it is essential to maintain the principle of balancing risk between shipowners and cargo interests, which is the foundation of the current regimes.

OCIMF argues in favour of revision of the 1992 Conventions - and against voluntary arrangements.

OCIMF's arguments include:

It is one of the basic tenets of the international liability and compensation regime that the shipowner is strictly liable for the costs of pollution damage up to a limited amount based on the vessel's tonnage.

It is also a fundamental principle of the regime that "breakability" of limitation should begin where insurability ends. In other words the limitation of liability should end at the limit of capacity of the insurance market. Limitation limits currently lie well below the capacity of insurance and it is therefore feasible to increase limits closer to market capacity. As originally intended, when the insurance capacity is reached, the Fund would then take responsibility to ensure that full compensation is available to claimants. This issue can only be addressed through revision of the Conventions.

OCIMF has long argued that increasing the financial responsibility of the shipowner by increasing Civil Liability Convention (CLC) limits as well as participation in the Supplementary Fund is necessary to ensure that the person with control over the vessel has an appropriate financial stake in the regime. Without this "financial responsibility" the regime will not create, maintain and instill the correct incentives for safe and, above all, pollution free shipping.

In turn, if the financial responsibility of the shipowner is addressed in the 1992 regime and the Supplementary Fund this will give the International Group of P&I Clubs (through their pooling agreement) the appropriate financial responsibility and incentives to give greater consideration to the quality of its shipowner assureds.

Ensuring that the financial responsibility of the shipowners is commensurate with their operational controls of and responsibilities for their ships will provide a real incentive for marine liability insurers to better select and screen vessels for insurance cover.

Finally, OCIMF maintains that a strong argument for revising the Conventions has got to be that States that provide around three quarters (73%) of the financing for the Fund openly favour revision of the regime. It would be disingenuous, and strike at the heart of mutuality, for States opposing revision to say that the system is working fine and should not change, when three quarters of those financing the Fund take the opposite view, OCIMF says.

The International Group of P&I Clubs

During the course of the deliberations, the International Group of P&I Clubs has submitted various papers for consideration by the Third Intersessional Working Group. Two recent voluntary proposals by the International Group - as alternatives to revising the Conventions - are noted: (1) The Small Tankers Oil Pollution Indemnification Agreement (STOPIA) and, (2) The Tanker Oil Pollution Indemnification Agreement (TOPIA).

STOPIA

STOPIA, an offer by the International Group of P& I Clubs to the 1992 Fund to increase, on a voluntary basis, the limitation amount for small tankers, to be known as the Small Tankers Oil Pollution Indemnification Agreement (STOPIA), came into force on March 3, 2005, the date of the entry into force of the Supplementary Fund Protocol.

STOPIA, which applies to pollution damage in a State for which the Supplementary Fund Protocol is in force, is a contract between owners of small tankers to increase, on a voluntary basis, the limitation amount applicable to tankers under the 1992 Civil Liability Convention. The contract applies to all ships entered in one of the P&I Clubs that were members of the International Group and reinsured through the pooling arrangements of the International Group. The effect of STOPIA is that the maximum amount of compensation payable by owners of all ships of 29 548 gross tonnage or less would be 20 million SDR (some $40 million). The 1992 Fund is not a party to STOPIA, but STOPIA confers legally enforceable rights on the 1992 Fund of indemnification from the shipowner involved.

97% by tonnage of the world's tanker fleet, corresponding to some 5 000 vessels, are covered by STOPIA, including nearly 200 Japanese coastal tankers not covered by the International Group's pooling agreement. Further, ships insured with underwriters not members of the International Group but which had reinsurance with the Group are covered by STOPIA.

The 1992 Fund shall, in respect of ships covered by STOPIA, continue to be liable to compensate claimants if and to the extent that the total amount of admissible claims exceeded the limitation amount applicable to the ship in question under the 1992 Civil Liability Convention. If an incident involved a ship to which STOPIA applied, the 1992 Fund would be entitled to indemnification by the shipowner of the difference between the shipowner's liability under the 1992 civil Liability Convention and 20 million SDR. The 1992 Fund would be entitled to indemnification even if the Supplementary Fund would not be called upon to pay compensation in respect of the incident.

The Director of the IOPC Funds considers that the Agreement is, from a legal point of view, acceptable to the 1992 Fund.

It is noted that STOPIA is not a contract between the 1992 Fund and shipowners, but a unilateral offer by shipowners, which confers on the Fund the right of enforcement. It is also important to realize that although STOPIA only applies to pollution damage occurring in States that are members of the Supplementary Fund, the 1992 Fund would be indemnified and so contributors to the 1992 Fund would be the beneficiaries, whether or not they were located in a Supplementary fund Member State.

Many agree that this scheme is a significant step towards alleviating the inequality in the sharing of the financial burden between the shipping industry and oil cargo interests highlighted by the Secretariat's cost study undertaken in 2004.

Others say that STOPIA does not address the distortion of the financial burden created by the Supplementary Fund Protocol, but merely goes some way towards correcting the imbalance that already exists under the 1992 Conventions in respect of small ships. They therefore consider that STOPIA should apply to pollution damage in all States that are members of the 1992 Fund, whether or not they are members of the Supplementary Fund.

TOPIA

The International Group of P&I Clubs' paper 92 FUND/WGR.3/25/2 dated February 4, 2005, states:

"Oil receivers have suggested that the commercial exposure of the oil industry following a major incident involving the Supplementary Fund is disproportionately high. Various ways have been proposed in which the Conventions may be amended so that this result may be avoided. To meet this concern in a time-effective manner [the International Group of P&I Clubs makes an] alternative proposal… - that shipowners and their Clubs should offer to maintain the existing broad sharing of the cost of claims, as established by the [IOPC Funds] Secretariat's claims study, by means of a binding agreement to indemnify the Supplementary Fund... TOPIA provides that shipowners and their Clubs will indemnify the Supplementary Fund in respect of 50% of the claim falling on the Supplementary Fund. The principal objective of oil receivers can therefore be met by a binding agreement which does not involve the necessity to amend the Conventions. The oil companies represented in OCIMF have not associated themselves with this proposal, but this does not affect its viability, since it adopts the same mechanism as the STOPIA agreement and would also operate without the explicit agreement of oil receivers. However, it should be noted that the TOPIA proposal is put forward as an alternative to STOPIA and is not intended as an interim measure while the revision process continues but rather as a means of addressing the issue of sharing promptly without having to revise the Conventions. It should also be noted that TOPIA will only be available where the spilling vessel is liable under CLC and to the extent that the incident is not caused by a terrorist or bio-chemical incident."

"If the TOPIA proposal is accepted, it will be necessary to reach agreement with both the 1992 and Supplementary Fund Assemblies in order to ensure the simultaneous implementation of TOPIA and withdrawal of STOPIA."

"It should be noted that whilst the present draft of TOPIA is closely modeled on STOPIA, no detailed discussion in the text of TOPIA has yet taken place with the Director of the IOPC Funds."

"The TOPIA scheme would be established by a legally binding Agreement between the owners of tankers, which are insured against oil pollution risks by P&I Clubs in the International Group."

(b) Substandard Shipping

The problem of finding ways and means to reduce the incidents caused by substandard shipping has motivated a number of proposals designed to accomplish this end through particular revisions to the liability and compensation regime. The International Group of P&I Clubs says that these proposals are misplaced in the context of the Liability and Fund Conventions, because they will be ineffective, but the issue of substandard shipping is of crucial importance and has to be addressed seriously.

The OECD report (Report commissioned by the Maritime Transport Committee of OECD, dated June 2004, published at http://www.oecd.org/dataoecd/58/15/32144381.pdf, on "The Removal of Insurance from Substandard Shipping") was anticipated with interest since it focused specifically on the possible role of insurance in relation to sub-standard shipping.

The International Group, in its paper 92FUND/WGR.3/25/3, which can be found at www.iopcfund.org, suggests that the primary aim should be to create the conditions that would deter or prevent the substandard operator from trading altogether, rather than imposing greater liability for any damage he does and supporting him with insurance that spreads the liability burden.

The contribution of the P&I Clubs is set out in its paper in two parts, with the first part providing an overview of the existing measures taken by the clubs in relation to sub-standard shipping and the second part containing tentative conclusions on further measures that may be taken in response to the OECD report referred to above. Two further sections of the paper deal with the possible measures to be taken by other industries and proposals for action by States.

Note: For additional information about perspectives on substandard ships and revision of the Civil Liability and IOPC Fund Conventions, see the Administrator's Annual Reports 2002-2003 and 2003-2004, at section 4.6.3 and Appendix C (Third Intersessional Working Group-fifth meeting) and Appendix C (Third Intersessional Working Group - seventh meeting) respectively.

7. The Polluter Pays

Section 51 MLA makes the shipowner strictly liable for oil pollution damage caused by his ship and for costs and expenses incurred for clean-up and preventive measures.

As provided in the MLA, in the first instance, a claimant can take action against a shipowner. The Administrator of the SOPF is a party by statute to any litigation in the Canadian courts commenced by a claimant against the shipowner, its guarantor, or the 1992 IOPC Fund. In such event, the extent of the SOPF's liability as a last resort is stipulated in section 84 MLA.

The SOPF can also be a fund of first resort for claimants under section 85 MLA.

On settling and paying such a section 85 claim, the Administrator is, to the extent of the payment to the claimant, subrogated to the claimant's rights, and subsection 87(3) (d) requires that the "…Administrator shall take all reasonable measures to recover the amount of payment to the claimant from the owner of the ship, the International Fund or any person liable…."

In this process, the Administrator has to handle the claim twice, firstly with the claimant, then with the shipowner/person liable in a recovery action.

The Administrator notes that, as normal, in the cases of several incidents the claimant, primarily the CCG has, during the fiscal year, elected to first claim directly against the responsible shipowner. Sometimes this leads to claimants negotiating and settling their claims with the polluter's directly, with or without SOPF intervention as may be necessary. Other times the shipowner is not forthcoming and the claimant must resort to the SOPF.

In the interest of expediting satisfactory claim and recovery settlements the Administrator encourages such direct claim action by claimants where appropriate.

N.B.: In reality, the notion that the polluter pays is subject to the important caveat that the shipowner is entitled to limit his liability. The shipowner is deprived of the right to limit his liability only if it is proved that the pollution damage resulted from the shipowner's personal act or omission, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result. This new test makes it practically impossible to break the shipowner's right to limit liability.