The Cabinet of Japan approved the captioned draft legislation on 24 February 2004 and submitted on the same day to the Diet which is now in session. The main features of the draft legislation are: a) to raise the limitation amount of compensation available to victims of pollution caused by tankers carrying crude oil corresponding with the 3rd Tier Protocol and b) enactment of provisions so as to substantiate protection of victims from oil pollution caused by non-tank vessels and removal of wreck of them.

Set out below is explanation about item a) above and please refer for details regarding item b) above to our separate Special Circular No.03-022 of 12 March 2004 titled "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".

1. Points of amendments/Increase in compensation to persons suffering from oil pollution by tankers.

Any person suffering from pollution damage, if such person has been unable to obtain full and adequate compensation for the damage under the scheme provided by the Protocol of 1992 to amend the International Convention on Civil Liability for Oil Pollution Damage, 1969 (hereinafter referred as the "1992 CLC") and the Protocol of 1992 to amend the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1971 (hereinafter referred as the "1992 FC"), shall be able to ask for further compensation from the Supplementary Fund in accordance with the Paragraph 1, Article 4 (See Note below) of the 3rd Tier Protocol ).

Note: Paragraph 1, Article 4 of the 3rd Tier Protocol is summarized below:-
The Supplementary Fund shall compensate persons suffering pollution damage who have not been able to obtain full and adequate compensation under the 1992 CLC and 1992FC. The aggregate amount of compensation payable by the 3rd Tier shall not exceed SDR750 million after taking into account the total sum of the compensation actually paid under the 1992 CLC and the 1992 FC or both.

2. Background

In view of the fact that there was a series of serious pollution claims as "Prestige" in 2002, "Erica" in 1999 and "Nakhodka" in 1997, and the situation under which victims suffering pollution damage could not always obtain compensation fully, public opinion has urged internationally to establish a further fund supplemental to the compensation scheme under the 1992 CLC and the 1992 FC.

As a result, the 3rd Tier Protocol was adopted at a diplomatic conference held at the IMO (International Maritime Organization) during the period from 12th to 16th May 2003. Once this protocol has become effective, the maximum amount of compensation available shall be SDR750 million.

The Bill to amend the Law on Liability for Oil Pollution Damage, 1975 aims at incorporating the 3rd Tier Protocol into the Japanese national law.

3. Date of Enforcement

The date of enforcement of the amendment to the existing "Law on Liability for Oil Pollution Damage, 1975" in respect to the increase in the limitation amount of compensation available to victims of pollution caused by tankers carrying crude oil is the date when the 3rd Tier Protocol becomes effective with regard to Japan.

The 3rd Tier Protocol will enter into force 3 months after it has been ratified by 8 States which have received a combined total of at least 450 million tons. Though the State ratified the 3rd Tier Protocol is Denmark only as of 3 March 2004 (Japan intends to ratify in the current Diet session.), it is thought that procedures for ratification by more States will be made smoothly in the future, and if so, the Protocol may well enter into force around this September at earliest.

4. Effect on Shipping Industry

Since the 3rd Tier Fund is to be contributed only by oil receivers and not by tanker owners, there is criticism that the current balance of contribution in respect of compensation for pollution damage will be distorted. To cope with this the International Group of P&I Clubs has made some proposals, like a voluntary agreement called "STOPIA" by which the minimum limitation amount available to shipowners will be voluntarily increased to SDR20 million per incident for smaller tankers or instead of this it has suggested that shipowners could contribute to the 3rd Tier to some extent. Such move would mean not only to increase the potential burden for oil cargo receivers but also the same of tanker owners depending on further development of this issue.

Besides the 3rd Tier Protocol, there are other international conventions, yet to enter into force which will place an additional burden on shipowners, For example they are the 1996 LLMC, HNS, Athens and the Bunker Convention. Members are cordially requested to keep close watch on any development of those conventions in future.

NB: 1SDR = JPY162.13 = USD1.47 as of 11 March 2004