This was two actions brought by Landcatch Ltd (the pursuer) against the IOPC Fund (action 1) and Braer Corp, the owner of the Braer, (the owner), and their insurers Assuranceforeningen Skuld (the insurer) (action 2). The Court considered, among others, the following questions: the competency and prematurity of action 1; the relevancy of both actions; and the choice of law in action 2.

On 5 January 1993, the tanker Braer grounded off Shetland, and 84,700 mt of crude oil and 1,600 mt of bulk fuel oil escaped or were discharged from the vessel. As a result of the incident, on 8 January 1993, the Secretary of State for Scotland issued the Food Protection (Emergency Prohibitions) (Oil and Chemical Pollution of Fish) Order 1993, designating an area which could be affected by oil or other chemical substances which were likely to create a hazard to human health if fish or shellfish drawn from within the area were consumed. On 17 January 1993, this designated area or exclusion zone was enlarged to about 400 square miles.

The pursuer's business was to rear salmon from eggs to smolt in freshwater conditions and sell them for growing to maturity in seawater conditions. Their principal place of business was not within Shetland but about 500 km distant. The pursuer argued that its business depended on on-growers in Shetland who bought about 65% of their smolt.

The pursuer contended that the incident affected the on-growers' activity in Shetland. As a result, the pursuer incurred losses, namely, smolt culled because of lack of sales; reduced selling prices of smolt sold in 1993; reduced selling price of smolt sold in 1994 when prices had not resumed to their normal level; additional rearing costs incurred; and expenses in pursuing claims. The total sum claimed was GBP 1,961,347.

Held: The pursuer's actions are both dismissed.

The Court determined that the legislative framework to consider the dispute was the CLC 1969, which was enacted by the Merchant Shipping (Oil Pollution) Act 1971 (UK) (the 1971 Act), and the Fund Convention 1971, which was enacted by the Merchant Shipping Act 1974 (UK) (the 1974 Act).

It was concluded and was not disputed by the parties, that the incident caused the pollution damage according to the terms of the CLC 1969. Also, it was agreed that there was no difference in substance between the expression 'damage caused … by contamination' in s 1(1)(a) of the 1971 Act and 'pollution damage' in s 1(3) of the 1974 Act. Thus, although there might be circumstances in which the owner might avoid liability and the IOPC Fund could not, for instance, if the damage occurred because of something done by neither the servant nor the agent of the owner with intent to cause damage, the types of damage for which the Fund might be liable under the 1974 Act were the same as those for which the owner and the insurer might be liable under the 1971 Act.

Competency and prematurity of action 1

The Court concluded that the Fund’s liability is secondary. This follows from ss 1, 4(1), and 4(5) of the 1974 Act. It means that the Fund’s liability arises only when the preconditions of s 4(1)(b) of the 1974 Act are met, ie, when the claimant is unable to obtain full compensation under s 1 of the 1971 Act because the owners or the insurers cannot meet their obligations in full.

Section 4(5) of the 1974 Act stipulates that the owners and the insurers are to be treated as incapable of meeting their obligations if the obligations have not been met after all reasonable steps to pursue the legal remedies available have been taken. Therefore, it is unknown whether the Fund is liable until the liability of the owner and the insurer has been determined. Moreover, the Fund’s liability is limited. Thus, it is important to determine the extent of the overall liability of the owner and the insurer first. In this regard, Lord Gill concluded that the action against the Fund is not incompetent since the Court is competent to consider the dispute in principle. However, this claim is premature because it should have been brought after the liability of the owner and the insurer is determined.

Lord Gill found that the fact that the Fund has paid other claims, which may be similar to some extent to the circumstances of the present claims, and the way the Fund treated the present claim do not provide grounds to conclude that the Fund waived its rights and guarantees provided by the 1974 Act. Article 18.7 of the Fund Convention 1971 empowers the Fund to make provisional payments and to determine the terms and conditions on which such payments should be made. Lord Gill emphasised that it would defeat the purpose of the Fund if any claimant had to wait until all the claims had been finally established before receiving any compensation. Where the liability of the owner and the insurer has not yet been established with regard to the present claims nor in relation to the other sections, the payments made by the Fund are of a provisional nature. The provisional payments cannot constitute a waiver by the Fund of the benefits provided by the requirements of art 4.1 of the Fund Convention 1971 and s 4 of the 1974 Act that the pursuer should first pursue a legal remedy against the owner and the insurer, and only after that, if the pursuer failed to obtain the full amount of compensation from the owner and the insurer, is it entitled to claim the remained compensation from the Fund in the amount up to the limits of the Fund's liability.

The Fund is an inter-governmental organisation answerable to the Contracting States and to its contributors. Therefore, the Fund cannot, by its actions, bind itself beyond the extent of the powers given to it by the Fund Convention 1971, nor can it bind itself to act beyond its competence.

The same consideration applies to the pursuer's plea on the personal bar against the Fund. Nothing in the Fund’s actions reflected that the Fund led the pursuers to believe that it would not insist on pursuing legal remedies against the owner and the insurer. Also, nothing supported the argument that the Fund could, and did, depart from its statutory scheme, thereby exceeding its statutory powers.

Relevancy of the actions

Next, the Court dealt with the pursuer's argument that the 1971 and 1974 Acts placed upon the owner, the insurer, and the Fund a burden of absolute liability of indeterminate extent in respect of all losses caused by the contamination. Considering this argument, the Court first assumed that the Parliament had accurately implemented the treaty obligations set out in the CLC 1969 and the Fund Convention 1971. Therefore, the statutory interpretation of the relevant provisions may be made without any reference to the relevant Conventions and travaux préparatoires. If the sections of the Acts disclose a clear-cut meaning, that meaning should be given, whether or not it contradicts the assumed purpose of the Conventions. There is a need to resort to the Conventions or 'other secondary sources' only if the statutory provisions are obscure or ambiguous (Salomon v CEC [1967] 2 QB 116, 143-44 (Diplock LJ)).

On the basis of this view, Lord Gill considered primarily the construction of s 1 of the 1971 Act and s 4 of the 1974 Act. The Judge declined the proposition that the wording 'shall be liable' constituted strict liability for oil pollution or that it removed any further limitation on the ambit of liability other than causation based on the 'but for' test. He added that nothing could be found to suggest that the limitations upon recoverability of economic loss in the general law were to be displaced. On the contrary, Lord Gill found that the use of the familiar concepts of loss, causation, and contributory negligence in the Acts tended to suggest that the ordinary principles of liability applied.

From the construction of s 1 of the 1971 Act, it followed that the liability was not unlimited. Moreover, it was localised and confined to the area of contamination. The references to 'contamination', 'preventive measures', and damage 'outside the ship' pointed to localised and limited liability. The same applied to the wording of 'measures reasonably taken' and the damage which those measures caused. If liability had been indeterminate, adding these constructions to the statutes would have been unnecessary. At the same time, these provisions did not exclude the recoverability of economic losses.

Another argument in favour of the localised nature of liability was that the liability of the owner, the insurer, and the Fund is limited (ss 4 and 5 of the 1971 Act, ss 4(1) and 4(10) of the 1974 Act, and arts 4.4‑4.6 of the Fund Convention 1971). Lord Gill found it unlikely that such a liability structure would have been erected if there was no limit to the extent of claims arising under the Conventions. It suggested that only proximate and not remote claimants should be compensated. Based on the above, Lord Gill concluded that liability both under the 1971 Act and the 1974 Act was closely circumscribed to the area of contamination.

As a result, Lord Gill found that claims for economic losses were not excluded per se. However, the statutory liabilities on which they were founded were not indeterminate in extent. The liability for pure economic losses should be interpreted as liability for such loss where the contamination directly causes it. The burden of proof of the necessary proximity is upon the pursuer.

Lord Gill also emphasised that the same conclusion could be reached by the interpretation of art 2 and 9 of the CLC 1969, art 3 of the Fund Convention 1971, and the relevant travaux préparatoires (Gatoil v Arkwright Boston Manufacturers Mutual Insurance CMI694). The most significant source in this regard was the Official Records of the International Legal Conference on Marine Pollution Damage 1969 where the draft of the CLC 1969 was considered. There, it was reflected that the definition of ‘pollution damage’ was amended in the way the United Kingdom delegates proposed.

The draft definition was 'loss or damage outside the ship carrying oil, caused by the escape or discharge of oil'. The amended wording was 'loss caused or damage done outside the ship carrying oil by contamination resulting from the escape or discharge of oil'. The amendment was designed 'to ensure that damage covered by the convention is confined to damage by contamination whether to persons or property and does not extend to damage consequential on an escape of oil such as fire or explosion'. In Lord Gill's view, the relevant amendments to the draft supported the conclusion reached regarding the limited character of liability under the statutes.

Lord Gill also concluded that previous Fund decisions on compensation of damages did not support the position of the pursuer. First, the pursuer's claims were declined by the Fund in accordance with their criteria, which applied to previous cases. Secondly, in its previous decisions, the Fund did not apply the ‘but for’ test, but interpreted the Convention as requiring a line to be drawn to exclude an indeterminate chain of causation and liability of indeterminate scope. Also, the Fund accepted that, in cases of economic loss, there must be reasonable proximity between the contamination and the loss (Report of Seventh Inter-Sessional Working Group (1994), paras 7.2.25‑30).

As for the possibility of recovering pure economic loss under the statutes, Lord Gill concluded that the relevant national law principles apply to determine which types of damages are recoverable and which are not. In the present case, the Court concluded that the losses are not recoverable. A pursuer could recover damages ex delicto for economic loss only if they had a possessory title to the property when the loss or damage occurred. With reference to authority, Lord Gill concluded that it was not sufficient that the pursuers had only contractual rights in relation to the property that had been affected by the loss or damage. Therefore, the law excluded claims based on interference with the claimant’s economic expectations where a contract has become unprofitable (Candlewood Navigation Corporation Ltd v Mitsui OSK Lines [1986] AC 1, 15, 24-25 (Lord Fraser of Tullybelton)) and claims based on the loss of an opportunity to enter into contractual relations.

In interpreting which types of damages and losses are recoverable under the Conventions, Lord Gill emphasised that the sections of the Acts should be construed according to the law of the forum, whatever the position may be in other countries. This approach was consistent with the CLC 1969 itself, which provides that United Kingdom claimants are to have their claims adjudicated on in the United Kingdom Courts.

Choice of law

The pursuers argued that according to the Lugano Convention and the Norwegian Act Number 69 of 16th June 1989 relating to insurance contracts, Norwegian law applies to the claim against the insurer. Therefore, while the claims against the owner were submitted under the 1971 Act, the claims against the insurer were submitted pursuant to the provisions of the Norwegian statute.

The 1971 Act entitles the insurer to limit its liability in like manner and to the same extent as the owner. At the same time, whereas the owner cannot limit its liability if its actual fault or privity caused the incident, that does not affect the insurer. The insurer can limit its liability regardless (s 12 of the 1971 Act). The Norwegian statute allegedly did not allow the insurer to limit its liability in any event.

Lord Gill concluded that, on this interpretation of the 1971 Act, the pursuer treated the various provisions of the statute as being severable, and relied only on those to the pursuer's advantage. The 1971 Act, implementing the obligations of the United Kingdom under the CLC 1969, stipulates some provisions favourable to claimants. For instance, the 1971 Act gives claimants the benefit of strict liability (s 1), and of an extended jurisdiction over a foreign insurer (ss 12, 13) and confers a right, which would not otherwise apply, of direct recourse against an insurer, regardless of the state of solvency of the owner (s 12). At the same time, the 1971 Act contains provisions benefitting the owner and the insurer. The main one is the limitation of liability. All these provisions are interrelated and interdependent and form ‘a self-contained code of legislation governing claims to which s 1 applies’. Thus, if the pursuer seeks to take advantage of the jurisdiction, compulsory insurance, and strict liability provisions of the Act, it is not entitled to seek to avoid the limitation of liability provisions by reliance on the foreign system of law. If the pursuer's approach were correct, it could lead to an unjust result. If it could obtain the decree without any limitation of the insurers' liability, it would gain a preference over the proceeds of the insurance while all other successful claims were abated. At the same time, if this approach were correct, the insurer could do the same, eg, it could rely on a foreign law that excluded the right of direct suit or limit its liability even more than s 12 of the 1971 Act does. Such consequences 'would cut across the integral scheme of the [1971 Act] and frustrate its purpose’.

Reference to the CLC 1969 ‘put the matter beyond doubt’. Article 8.8 of the CLC 1969 states that the recourse against the insurance money available from compulsory insurance may be made only under art 7.1. The funds provided under the insurance are available exclusively to satisfy the claims brought under the CLC 1969 (art 7.9). The claims submitted under the 1971 Act are those brought under the CLC 1969.