Proposed amendments to the "Law on Liability for Oil Pollution Damage, 1975"(Part 1) – In relation to the measures for abandoned ships on Japanese coast –

12 March 2004 No.03-022
On 24 February 2004, the Ministry of Land, Infrastructure and Transport (MLIT) reported that the Cabinet has approved the draft legislation to amend the existing Japanese domestic legislation entitled the "Law on Liability for Oil Pollution Damage, 1975". The purpose of the original legislation was to implement the CLC Convention. The amending legislation was then submitted to the159th ordinary session of the Diet. The purpose of this amendment is to incorporate the mechanism of the Protocol to the International Convention which establishes the International Fund for Compensation for Oil Pollution Damage, 1992 as a supplementary fund (3rd Tier Protocol to 92 FC) and includes measures for bunker spills and abandoned ships. In this circular we would like to provide Members with information about that part of the new legislation concerned with measures to deal with bunker spills and abandoned ships. With regard to the amendment to comply with the 3rd Tier Protocol to 92 FC, please refer to our separate circular No.03-023. Details of the draft legislation (Japanese version only) are available on the MLIT's website which can be found at

1. Background

Several accidents have recently occurred on the Japanese coast resulting in pollution from ships' bunkers, and, because of the lack of or insufficient insurance coverage, the owners neither made any payment towards the cost of cleaning up after the oil pollution nor removed the wreck. The "Chil Song" case at Hitachi, Ibaraki, in December 2002, hardened the Japanese attitude and caused the policymakers to immediately prepare measures for non-insured ships. The MLIT thus started working on how to ensure compensation was available after an accident. They came to the conclusion that the responsible operator of ships, other than tankers, should respond to oil pollution damage caused by ship's bunkers and undertake wreck removal. Their response should be backed up by insurance cover or an alternative financial facility.

2. Outline of the amendments

1) Oil pollution damage arising from bunker of ships other than tankers
Responsibility for oil pollution damage arising from bunker of ships, other than tankers, is set forth in the draft legislation. The important points are:-
a. Liability principle:
Strict liability
b. Responsible party:
The registered owner and demise charterer to be jointly and severally responsible
c. Limit of liability:
In accordance with the Japanese national law for the 1976 LLMC

2) Compulsory insurance
Ships are required to maintain insurance or an alternative financial facility against i) oil pollution damage arising from bunkers, and ii) the costs and expenses for wreck removal carried out under the relevant national laws. The main factors are:-
a. Ships affected:
Ships, other than tankers, of 100 G/T and over engaged on international voyages which enter or leave Japanese ports. It does not apply to Japanese flag ships engaged only in coastal voyages.
b. Minimum amount to be insured:
For i) above, the limitation amount under the Japanese national law for the 1976 LLMC and for ii) above the amount equivalent to the limitation amount under the Japanese national law for the 1976 LLMC. Usually, the P&I cover provided by the P&I Clubs of the International Group meet this criteria.
c. Certificate:
Upon application from the ship's responsible party a certificate attesting that insurance or an alternative financial security is in force will be issued by the MLIT and shall be carried on board ship. For insurers approved by the Minister of the MLIT (the P&I Clubs of the International Group are believed to be included), a copy of the certificate of entry will be accepted in lieu of an MLIT's certificate.
d. Restriction to port entry:
The MLIT will be empowered to refuse entry into port for vessels without insurance, to order ship's masters or owners to make the necessary insurance arrangements or to impose penalties.

3) Effective date
It is proposed that the compulsory insurance legislation will come into effect on 1 March 2005. Issuing certificates will start on 1 December, 2004.

3. The Association's remarks

In their press release of July 2003, the MLIT proposed that 1) insurers like P&I clubs would be required to issue Blue Cards and 2) any claim could be brought directly against the insurer. This was not acceptable to the International Group of P&I clubs because the draft legislation is not applying an International Convention. However, as a result of the Association's approach to the MLIT in cooperation with the International Group and the Japanese Shipowners' Association, the MLIT finally withdraw the above items. After the introduction of the compulsory insurance legislation, it seems that the additional burden to the Members for ships entered with any P&I Club of the International Group will be:-

a. to carry a copy of certificate of entry on board the entered ship (the MLIT is considering what to be accepted as copy), and
b. to provide details of insurance arrangement to the local office of the MLIT prior to entering Japanese ports.

According to Japanese case law, contrary to the accepted practice of the shipping industry throughout the world, a time charter agreement is construed as a mixture of a demise charter agreement and a labour supply agreement. Thus, there is a possibility that, under the draft legislation, the time charterer is exposed to the same liability for a bunker spill incident as a demise charterer. There is no stipulation in the draft legislation regarding who is obliged to maintain the insurance. To avoid confusion in the shipping industry, the MLIT is believed to take the view that, whoever arranges the insurance, if a ship is covered for bunker spill damage and wreck removal costs this will meet the compulsory insurance requirement.