The Nissos Amorgos grounded in the Maracaibo Channel, Venezuela in 1997, resulting in 3,600mt of crude oil escaping from the vessel, and numerous claims being made.

Pursuant to the Convention on Civil Liability for Oil Pollution Damage 1969 (the CLC), which provides compensation for parties who suffer loss as a result of marine oil pollution incidents, the owners of the vessel and their P&I club, Gard, established a limitation fund, in the region of USD 7.2 million.

The International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971 (the Fund Convention), provides a second tier of compensation for parties who suffer loss by reason of oil pollution incidents, over and above the layer of compensation provided by the CLC.

A summary of the salient provisions of these two conventions can be found in this database (in the freezing injunction application between the same parties) at CMI71. The only additional point mentioned by Hamblen J in this case in relation to the CLC (as point 5) was that shipowners or insurers who make payment for pollution damage acquire subrogation rights against the limitation fund (art 5.5 of the CLC).

The Fund is an international organisation created pursuant to the Fund Convention and given the status of a corporation under English law by virtue of the International Organisations Act 1968 and a related statutory instrument, the 1979 Order.

Following the spill, Gard and the Fund opened a joint claims agency. Through the agency, Gard paid USD 6.5 million in respect of claims made. Thereafter, claims were paid by the Fund (to a total amount of approximately USD 18.5 million).

Belatedly, the Criminal Court of First Instance in Maracaibo gave judgment, in a civil action, that the vessel owners and Gard were liable to the Republic of Venezuela in an amount equivalent to USD 60 million (plus costs). This judgment would appear to be in disregard of the provisions of the CLC, in particular the Owners’ right to limit liability and the barring effect of the constitution of a limitation fund.

In light of the judgment, Gard brought proceedings in Venezuela and in England - in Venezuela seeking a declaration that the Fund was liable to the Republic of Venezuela for its claim and for reimbursement of any payment made by Gard; in England contending that pursuant to the arrangements made between Gard and the Fund, it had a right of indemnity from the Fund in respect of any liability that it had to the Republic of Venezuela in excess of the CLC limit (up to the Fund Convention limit).

The Fund applied to challenge the jurisdiction of the English Court over the claims brought by Gard. It contended it was immune from legal suit under article 6.1.c of the 1979 Order, and the English court accordingly did not have jurisdiction to hear Gard’s claim.

Gard argued that through an exchange of faxes and meetings

1. there was a contract between it and the Fund and
2. this contract fell within the exceptions to immunity set out in the 1979 Order, so the Fund was not immune from suit.

In particular, Gard contended that the Fund’s fax of 23 April 1997 and its fax of 4 June 1997 completed the Fund’s offer to adopt the usual practices (including the ‘consecutive payment arrangement’ whereby the Fund would fund further payments provided the club (Gard) had funded payments and joint costs up to an amount equivalent to the CLC limit, to be followed by a reconciliation procedure once all claims had been settled and paid). Gard’s case was that by making the payments that the Fund had approved on 4 and 5 June 1997, it thereby accepted the Fund’s offer to apply the consecutive payment arrangement, and a binding contract came into existence. 

Held: There was no contract between Gard and the Fund, and the Fund is accordingly immune from Gard’s suit in England, and the English court has no jurisdiction over Gard’s claim against the Fund, in respect of the (rogue) claim by the government of Venezuela.

The applicable principles of contract formation under English law were not in dispute.

Hamblen J reminded the parties that the test for determining whether a contract exists is objective. It depends not on the parties’ actual intentions but on what those intentions would reasonably be understood to be from the parties’ communications (by words or conduct) with each other.

Applying the law to the facts, the court held that it was impossible to construe the fax of 23 April 1997 as making an offer (to undertake an absolute commitment to pay any and all claims, regardless of the circumstances, once Gard had paid claims up to the CLC limit) expressly or impliedly, let alone doing so clearly and unequivocally.

Similarly, the Fund’s fax of 4 June 1997 was held not be an offer, only a statement of the Fund’s position (that the Fund could not at that moment make payments; but it had no objection to Gard paying claims; claims paid by Gard would subrogate against the Fund; subrogated rights would be pro-rated in the event that the claims exceed the Fund Convention limit).

The position was not materially changed by the further discussions.  The court held that both Gard and the Fund had an expectation that the ‘consecutive payment arrangement’ would be followed and would not be problematical. However, there was no specific agreement or promise that it would be followed, still less that it would be followed ‘come what may’, as would be the effect of the alleged unconditional contract.

For these reasons, Hamblen J was unable to accept that the contract contended for by Gard was made as alleged or at all.

There were also further facts and matters which supported this conclusion, including

1. that the alleged contract was vague and uncertain;
2. that as it would involve an improvident bargain, this required clear and unequivocal agreement;
3. if the circumstances in which an agreement was entered into, and its terms, cannot be stated clearly then this suggests that no such agreement existed;
4. where a party goes to the trouble of formally setting out its position, it is reasonable to presume that it sets out the full extent of that position;
5. the correspondence shows the Fund’s reluctance to commit itself beyond a statement of position; it was not prepared to enter into an agreement on another issue (regarding exoneration), which is similar to the finding on this issue;
6. there is no contemporaneous documentary evidence of the alleged agreement;
7. the contemporaneous evidence reflects language of expectation, not obligation;
8. if Mr Jacobsson had no authority to make payments he would surely be understood to have no authority to promise to make payments;
9. the confirmation given by the Fund in relation to subrogation rights (being of general application and applying to all claims) was inconsistent with a contractual commitment to make consecutive payment, for if the Fund had contractually agreed to pay all claims above the CLC limit, there would be little point in confirming that Gard had subrogation rights against it;
10. no reference to the alleged contract or binding agreement was made when Gard stated to assert its claims, until June 2013, 16 years after the binding agreement was allegedly made. 

In conclusion, the court held that there was no contractual offer as alleged, that there was no contractual agreement as alleged and, if there was, that there was no intention to create legal relations in relation to such an agreement.

Hamblen J summarised the matter as follows, ‘I have some sympathy with the Club’s position. It has paid claims up to the CLC limit and now finds that there is judgment against it for a substantial sum over and above and regardless of that limit. Although there was no contract, there was a mutual expectation that the “consecutive payment arrangement” would be followed in this case and that payments over the CLC limit and up to the Fund limit would rest with the Fund. That expectation has not been met. Nevertheless, the Fund is entitled to rely on its strict legal rights, if it so chooses. For the reasons outlined above I find for the Fund. It follows that the Fund is immune from Gard’s suit in this country, that the Court has no jurisdiction over the claim and that the Fund’s application must be granted.’