The International Compensation Regime for Oil Pollution in Malaysian Waters

Ahalya Mahendra provides a primer on the subject




For many of the readers of this Article, the issue of oil pollution is nothing new, considering that the Straits of Malacca is an important shipping route linking the Indian and Pacific Oceans and sees traffic of over 50,000 vessels per year.


The types of damage that can result from an oil pollution incident would be property damage, the cost of clean-up operations at sea and on-shore, economic loss suffered by those engaged in the fishing or marine-culture industries and the tourism sector and the cost of reinstatement of the environment.





The Torrey Canyon

The first major oil spill was the grounding of the TORREY CANYON on the Seven Stones Reef between Lands End and the Scilly Reefs in 1967. The resulting loss of her cargo of 120,000 tons of crude oil contaminated 80 km of French and 190 km of Cornish coast.


Following this incident, and pending the adoption of 2 international conventions, 2 voluntary and parallel oil spill compensation regimes were conceived. They were the Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution (“TOVALOP”) and the Contract Regarding a Supplement to Tanker Liability of Oil Pollution (“CRISTAL”). They were both designed as interim arrangements and were managed by The International Tanker Owners Pollution Federation Limited.



The 1969 and 1971 Conventions

The 2 pending international conventions referred to above were eventually adopted as the 1969 International Convention on Civil Liability for Oil Pollution Damage (“1969 Civil Liability Convention”) and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage ("1971 Fund Convention"). Both conventions were developed under the auspices of the International Maritime Organisation.


Following the adoption of the 1969 Civil Liability Convention and the 1971 Fund Convention, TOVALOP and CRISTAL came to an end on 20th February 1997.


The 1969 Civil Liability Convention, sometimes referred to as the CLC, provided strict liability for any pollution damage caused by oil which has escaped or been discharged from a ship. The provisions in the Convention which limit the liability of a ship-owner made the Convention as much as a Limitation Convention as a Liability Convention.


The 1971 Fund Convention, sometimes referred to as the Fund Convention, was established in part to lighten the burden of the ship-owners by passing some of the responsibility of liability caused by pollution to the oil industry itself.



The Merchant Shipping (Oil Pollution) Act 1994

Malaysia adopted the 1969 Civil Liability Convention and the 1971 Fund Convention by passing the Merchant Shipping (Oil Pollution) Act 1994 (“MSOPA”). The provisions of the afore-mentioned Conventions are enacted in Parts II and III respectively of the MSOPA.


The 1969 Civil Liability Convention and 1971 Fund Convention were amended by Protocols in 1992 (with a view that the 1992 Protocols replace 1969 Civil Liability Convention and the 1971 Fund Convention eventually). Following these changes, the MSOPA was amended in 2005 to incorporate the changes under the 1992 Protocols.






It is a reflection of the collective suffering of governments and other victims of oil pollution damage that strict liability is imposed on the owner of the ship under Section 3(1) of the MSOPA. "Ship" in this instance includes any seaborne craft when it is actually carrying oil, and the definition of oil refers to any persistent hydrocarbon mineral oil, whether carried as cargo or in bunkers.


"Pollution damage" is defined to include loss or damage for impairment of the environment and further loss or damage caused by preventive measures.




The owner can avoid liability under the exceptions to liability in Section 4 of MSOPA. One of the exceptions to strict liability is where the owner can prove that the discharge or escape of oil was wholly caused by the negligence or wrongful act of a government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function.


In 1977, a Soviet oil tanker TSESIS struck a submerged rock and ran aground in the southern Stockholm archipelago, in Swedish territorial waters of the Baltic Sea. The rock ripped a length of the vessel’s bottom causing a spill of about 1,000 tons of oil in shallow and productive waters in the archipelago. The rock was not marked on the relevant navigation chart. The case found its way to the Swedish Supreme Court which found the State at fault, inter alia, as the owner proved that the State failed to maintain “other aids of navigation.


A comment in Maritime Law by Christopher Hill (Sixth Edition), Lloyd’s Practical Shipping Guides on this case was that in English Law, the ‘ejusdem generis’ rule would have probably applied to exclude charts as navigational aids, the rationale being that the exception only applied to aids of like nature to “lights”.



Limitation of Owner's Liability

The liability of a ship-owner who is unable to exclude liability for pollution damage under Section 4 is subject to the financial limits set out in Part I of the First Schedule of the MSOPA. Such liability is co-related to the weight of the vessel. For a vessel which does not exceed 5,000 tons, the owner’s liability is limited to 4,510,000 special drawing rights and for a vessel that exceeds 5,000 tons, the owner's liability is 4,510,000 special drawing rights plus an additional 631 special drawing rights for every additional ton. In any event, the owner’s liability is capped at 89,770,000 special drawing rights.


A "special drawing right" is a financial measurement unit of the International Monetary Fund which is based on the value of the United States Dollars derived from a basket of major currencies, namely the Euro, Japanese Yen, Pound Sterling and U.S. Dollar.


The weight of a vessel is based on its gross tonnage, as calculated in accordance with annex I of the International Convention on Tonnage Measurement of Ships 1969.


Under Section 5 of the MSOPA, crew members, pilots, charterers and salvors are not liable unless the pollution damage results from their intentional or reckless acts or omissions, committed with the knowledge that such damage would probably result.



Mandatory Insurance

As the ship-owner is exposed to potentially immense liability following an incident of oil pollution, it is required to take compulsory insurance on any ship which carries in bulk a cargo of more than 2,000 tons of oil.


In practice, it is the Protection and Indemnity Clubs (P&I Clubs) which provide the cover. It is important to note that Section 13 of the MSOPA confers a right on the victims of oil pollution damage to institute action directly against persons who provide the insurance or other financial security. The insurer however enjoys the benefit of the limitation of liability discussed above even in circumstances where the ship-owner is not entitled to limit his liability.



Limitation Periods

The limitation period for the enforcement of claims arising under Section 3 of the MSOPA is 3 years from the date of the occurrence of the pollution damage or 6 years from the date of the incident.


In Gray and Another v the Braer Corporation and Others and the International Oil Pollution Fund [1999] 2 Lloyd’s Rep 541 ("Gray Case"), the claimants argued that there were two limitation periods under section 9 of the United Kingdom Merchant Shipping (Oil Pollution) Act 1971 ("UK Act"). The Scottish Sessions Court held that a natural reading of the section was that to be within time, any action to which the section applied must meet two requirements. Firstly, the claim must be raised within 3 years from the date on which the claim arose and secondly, and in any event, must be raised within 6 years from the date of the relevant occurrence or the first of the relevant occurrences. The Court further held that these requirements were cumulative and not optional.


As there are differences in the language used in the MSOPA and the UK Act, it is submitted that the decision in the Gray Case may not necessarily be adopted by a Malaysian Court in interpreting Section 3.






The 1992 Convention established a worldwide inter-governmental organisation, The International Oil Pollution Compensation Fund ("the Fund"), for the purpose of administering the compensation regime created by the 1992 Fund Convention. By becoming a party to the 1992 Fund Convention, Malaysia became a Member of the Fund.


The Fund has its headquarters in London and is a legal entity which is capable of suing and being sued in the Malaysian Courts.




Section 17(4) of the MSOPA imposes a mandatory obligation on any person who receives more than 150,000 tons of oil per calendar year by sea, whether at ports or terminal installations in Malaysia, to contribute to the Fund. Contributions are payable whether or not the oil is being imported, or to the carriage of the same oil on a previous voyage.



Compensation Claims

The Fund Convention as embodied in Section 19(1) of the MSOPA provides a second tier compensation by paying victims who are not able to be fully compensated under Section 3 of the MSOPA because (a) the owner is exonerated from liability; or (b) the owner or its insurer is incapable of meeting its obligations under the MSOPA; or (c) the pollution damage exceeds the owner’s liability under Part I of the First Schedule of the MSOPA.


Additionally, Section 19(2) allows the oil polluter to claim for expenses reasonably incurred or sacrifices reasonably made by it to prevent or minimize pollution damage. The polluter will therefore be in the same position with respect to claims against the Fund under this section, as if he had a claim in respect of liability under Section 3 of the MSOPA.


The exceptions to the Fund’s obligations to pay compensation includes circumstances where it can be proved that pollution damage resulted from an act of war, hostilities or civil war, or which was caused by oil which has been discharged or has escaped from a warship, or the claimant cannot prove that the pollution damage resulted from an incident involving one or more ships.



Limitation of Fund's Liability

The overall liability of the Fund under Section 19 of the MSOPA is set out in Part II of the First Schedule. The liability of the Fund, together with compensation actually paid under Part II of the MSOPA, is limited to 203,000,000 special drawing rights. Where pollution damage results from a natural phenomenon of an exceptional, inevitable and irresistible character, the Fund's own liability is increased to 203,000,000 special drawing rights.


The limitation on the Fund’s liability increases to 300,740,000 special drawing rights when there are 3 parties to the Convention in respect of which the combined quantity of oil received by persons in the territories of such countries during the preceding calendar year is equal to or exceeds 600 million tons.





Geographical Limits

The application of the MSOPA is limited to the territorial sea and the exclusive economic zone of Malaysia. However, if the pollution damage in Malaysia spreads to any adjacent country which has adopted the 1992 Civil Liability Convention, then pursuant to Section 3(2) of the MSOPA the owner may also face civil liability for pollution damage to the territorial sea or the exclusive economic zone of that other country.


The application of the 1992 Civil Liability Convention and the 1992 Fund Convention in circumstances of a trans-national oil spill may result in different legal systems applying to the pollution damage. An example of this situation would be the pollution damage from the oil spill of approximately 25,000 tons of fuel oil into the Singapore Straits as a result of the collision between the ORAPHIN GLOBAL and EVOIKOS in 1997. Whilst the incident occurred in Singapore waters, pollution damage was suffered by claimants in Singapore and Malaysia.



Court's Jurisdiction

The admiralty jurisdiction of the High Court of Malaysia is extended to claims for liability incurred under the MSOPA (including the liability of the Fund). However, statistics from the Fund's publication of March 2006 show that most claims are settled out of court.


In practice, particularly in a major oil spill incident, the Fund and the ship-owner’s insurer would cooperate by establishing a local claims office in the country where the oil spill had occurred.




Apart from the 1992 Civil Liability Convention and the 1992 Fund Convention which set out the international regime for oil pollution claims, it should be noted that sea-going oil polluters may face additional liability domestically under legislation such as the Merchant Shipping Ordinance, 1952 and the Exclusive Economic Zone Act, 1984.



AHALYA MAHENDRA ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )


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