Liability

1. Strict liability of the shipowner (the first tier)
In terms of the liability established as the first tier, the HNS Convention is parallel to the CLC 1992. Under the HNS Convention, the shipowner is strictly liable for damage caused, unless the circumstances fall within one of the stated exceptions. That means that liability does not depend on the fault of the owner or any other person. The fact that damage has been caused by substances on board the ship is sufficient to establish the shipowner’s liability.
The liability is channelled to the shipowner and shall not be attached to other persons connected with the operation of the ship unless the damage resulted from their own fault. The reason is to prevent unnecessary litigation.
The shipowner will be denied the right to limitation of liability if it is proved that the damage resulted from the shipowner’s personal act or omission committed either with intent, or recklessly, and with the knowledge that damage would probably result, as a result of the owner’s personal act or omission. This is only the case in the event of an act or omission by the shipowner, not in the event of an act or omission by the master or crew of the ship.
2. Defences available to the shipowner for exoneration from liability
To avoid liability, the shipowner may invoke certain defences similar to those in the CLC. Accordingly, no liability shall attach to the owner if the owner proves that:

(a) the damage resulted from an act of war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional, inevitable and irresistible character; or

(b) the damage was wholly caused by an act or omission done with the intent to cause damage by a third party; or

(c) the damage was wholly caused by the negligence or other wrongful act of any Government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function; or

(d) the failure of the shipper or any other person to furnish information concerning the hazardous and noxious nature of the substances shipped either

(i) has caused the damage, wholly or partly; or

(ii) has led the owner not to obtain insurance in accordance with Art. 12;

provided that neither the owner nor its servants or agents knew or ought to reasonably known of the hazardous and noxious nature of the substances.
3. Unique defence of the shipowner: shipper’s failure to furnish information
The defense available under provision (d) is unique to the HNS Convention. Subparagraph (d) applies only if someone has failed to give the shipowner the relevant information or if the shipowner has not obtained the necessary insurance cover as a consequence of this failure to provide information. This defence was attracted extensive attention and caused much debate.
Some delegations felt that this defence should not be available to the shipowner since it would breach the principle of channeling liability. According to this view, the grounds for exoneration should be as limited as possible. This view also argued that this type of exoneration would open the way to litigation and therefore adversely affect the victim’s right to prompt and adequate compensation.
A contrary view suggested that it would be rather unfair to hold the shipowner liable in a situation where he had not been given correct information about a consignment.130 Even in the absence of first-tier liability, the victim would not suffer, since the HNS Fund would cover the amount that would have been available under the first tier.
1. Small ships
It is clear that small ships may potentially create much greater risks than their tonnage would indicate. While the Conference appeared to have been unanimous in its view that the Convention should introduce a minimum threshold for small ships so as to avoid the HNS Fund having to intervene in minor cases, it proved more difficult to agree on the actual amount. The LLMC and the CLC recognized this factor to the same extent in the way that the limitation funds under the Conventions are to be calculated. Therefore, there had been suggestions that the minimum limits should be set fairly high for small vessels. If the limits are very low for such vessels, there might be an unacceptably high number of claims against the HNS Fund.131 This would be inefficient and could affect the viability of the HNS Fund by burdening it with a lot of small claims.
At the 71st session, a paper on the size and number of the fleet was presented by the U.K.132 Accordingly 46% of the ships were below 2,000 gross tons and 72% were below 10,000 gross tons. Of chemicals tankers used for HNS carriage, 50% were below 2,000 gross tons and 80% below 10,000 gross tons. Under the 1976 LLMC, the minimum tonnage is 500 gross tons. The 1992 Protocol to the 1969 Liability Convention introduced a minimum tonnage limitation of 5,000 gross tons for small ships. It was pointed out that small ships carrying HNS, e.g. in packaged form, could cause more damage then a large cargo ship carrying less harmful products. Under the 1992 CLC, the maximum limit only applies at 140,000 gross tons. An HNS Convention maximum of 100,000 gross tons would mean that only 1% of ships would reach the maximum liability. A maximum reached at 50,000 gross tons would produce a fairly steep progression of limits, but would still apply only to 4% of ships. Consequently, it was concluded that figures indicated that the minimum tonnage figure should be set at 2,000 gross tons with the maximum operating at either 50,000 or 100,000 gross tons.  
When it became clear that the Convention would also cover not only international but also domestic voyages, many delegations looked for a rather high minimum liability amount for small ships. The concern was that the levels of insurance cover would mean discontinuing these services, since no insurance would be
available for such small ships. This prompted the Conference to agree to allow a state to exclude the application of the Convention in respect of ships not exceeding 200 gross tonnage and carrying HNS in packaged form only while engaged on voyages between ports or facilities of that state.
2. Level of limit
The limit of liability was one of the major stumbling blocks during the Diplomatic Conference.137 It was clear that before detailed consideration of any second tier was possible, it was necessary to have some idea of the limits which would operate in the first tier. At the 62nd session, the P&I Clubs indicated that it would not be feasible to indicate a figure of more than 100 million Special Drawing Rights (“SDR”) as the upper limit.138 However, it was not possible to ensure that it would ever be possible to develop a special liability cover for HNS alone.139 International Union of Marine Insurers noted the difficulties of providing cargo liability insurance due to the state of the reinsurance market. Delegations suggested figures ranging between 100-300 million SDR, with the exception of one proposal for 300-500 SDR. 100 million SDR was suggested as an estimate of the likely capacity of the insurance market at the date when the HNS Convention would be likely to come into force. At the 70th session, insurance interests presented a paper indicating the problems of capacity in the insurance and reinsurance markets.
After all these discussions, the limit of shipowners’ liability under the Convention was set at an amount calculated on the basis of the units of tonnage of the ship as follows:

(a) 10 million SDR for a ship not exceeding 2,000 units of tonnage  

(b) for a ship in excess of 2,000 units of tonnage, the shipowner is entitled to limit his liability to 10 million SDR plus the following amount:
In any case, the aggregate amount of the shipowners’ liability shall not exceed 100 million SDR.
With regard to the constitution of the limitation fund, two alternative systems were suggested. According to the first alternative, in order for a shipowner to have the right to limit his liability, he was obliged to constitute a “free-standing” limitation fund, i.e. a limitation fund which only covered HNS claims. According to the second alternative, the general limitation fund that was constituted in conformity with the LLMC 1976 Convention or national law should also cover the HNS claim. This system, called “linkage,” was crucial to insurers and was therefore supported by the International Group of P&I Association. Accordingly, the need to provide cover for the same type of damage to be compensated by two different funds would result in the reduction of available insurance capacity.145 The linkage, therefore, would ensure the avoidance of double insurance in respect of risks arising from the same incident.
Considering that non-HNS claimants would be competing with HNS claimants in the general limitation fund, which would result in less compensation for the former group of claimants than what they would get under free-standing funds and other technical difficulties connected with the linkage alternative, a free-standing limitation fund seemed to be more appropriate.146
Accordingly, the limitation fund was based on a free-standing fund. In order to be able to limit his liability, the shipowner must establish a limitation fund, in accordance with the determined limit, with a competent court. This is so as to ensure that the limitation amount is actually available for the payment of compensation. Once the limitation fund has been established, no other assets of the owner may be seized, i.e. “legally arrested.” Any other person also providing financial
security also has the right to institute a limitation fund, e.g. the shipowner’s in surer.
V. Compulsory insurance of the shipowner
The provision on compulsory insurance is closely modelled on Art. 7 of the CLC. According to Art. 12, any ship that carries HNS will have to take out insurance or maintain other acceptable financial security.149 Depending on the ship’s tonnage, the shipowner and the shipowner’s insurer will be liable to pay an amount of up to between 10 and 100 million SDR per incident.
The HNS Convention requires the shipowner to provide evidence of insurance cover upon entry into port of any state that is party to the Convention by production of a certificate. This is necessary regardless of whether the state of the ship’s registry is party to the Convention. The dominant form of security under the CLC is the so-called blue card issued by P&I Clubs, but other kinds of insurance or security may be utilized.152 It is often said that such other kinds of insurance will be more common under the HNS Convention than under the CLC.
Each State Party must ensure under its national law that any ship entering or leaving a port within its territory has the required insurance of financial security. The responsibility for issuing insurance certificates will fall upon the state of the ship’s registry. Initially, however, many ships may be registered in states that
are not parties to the HNS Convention and the burden of issuing the certificates will fall on a few state parties. Ships registered in states not parties to the HNS Convention will be able to seek certificates from states that are parties to the HNS Convention as long as they can satisfy the insurance requirements.
Within this framework, insurance should not be confused with certification. Insurance is underwritten by the insurer, while the certificates are issued by the state against evidence of insurance.156 Under the terms of the Convention, the relevant authority of the vessel’s state of registry issues a certificate for the vessel, subject to conditions of issue, which certifies that the insurance or financial security in place is valid and satisfies the requirements of the Convention.

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