Thought leadership from our experts

Uncertainties caused to shipowners by new amendment to Marine Environment Protection Law

, Sloma & Co, China

As a measure to strengthen the protection sea environment and to avoid pollution to sea, the Standing Committee of the National People's Congress of China approved and published on 7 November 2016 an Amendment to the Marine Environment Protection Law, which has received many amendments since its taking effect in 1982. This latest Amendment came into effect as of 7 November 2016 and has set forth some particular measures to avoid pollution to the sea and more serve penalties on pollution at sea, the most influential of which is the substantial increase to the limit of fine that could be imposed in case of pollution.

Before this Amendment, the fine that may be imposed on a party liable for pollution should not exceed RMB 300,000 (approximately USD 45,000), regardless how severe the pollution has caused to the environment, and the limit is now increased to 20% – 30%, depending on the extent of the pollution, of the direct loss that caused by the pollution.

It is believed that this Amendment, in particular the new limit applied to fine provided therein, is a response to an oil spill accident occurred in 2011 to China's largest offshore oilfield, in which it was reported that approximately 700 barrels of oil leaked into the Bohai Bay and around 2,500 barrels of mineral oil-based drilling mud was released onto the seabed. That accident caused so severe damage to local environment of sea and local fishery industry as well, but the fine imposed against the liable party could not exceed the RMB 300,000 cap then in force under the Marine Environment Protection Law.

Obviously, the fine limit of RMB 300,000 is too low to be of the effect of preventing some deliberate release of industry pollutants into the sea, which was found from time to time, and is therefore required to be properly increased so as to better protect local environment of sea. Nevertheless, the new limit as amended, which aims mainly at local factories rather than shipowners, would in practices put shipowners in a very uncertain and difficult situation, not to say heavy financial burden in case of severe ship pollution accident.

Given that the amount of fine is to be determined on the basis of possible direct loss caused by pollution according to the new Amendment, the first uncertainty it would cause is therefore what loss can be or should be categorized to be direct loss caused by pollution, and the second one is how to quantify such direct loss.

Direct loss caused by pollution has not been defined in the Marine Environment Protection Law or the latest Amendment or any other laws. It is expected that the Supreme Court would follow its usual practices to publish some specific judicial interpretations to clarify the category of the direct loss when this issue arises in the future but the problem is how soon such interpretations would be available. Anyway, the undefined direct loss could be a matter of interpretation of law and clarified by judicial interpretations of the Supreme Court and then the uncertainty it may cause to the practices could be relatively limited.

To quantify direct loss is, however, more of a relatively complicated technical issue, the standards of which could vary from case to case and from court to court, and the assessment of such loss in some particular cases could be very much time consuming in practices. According to our experiences in handling ship pollution cases, it would not be a surprise if the assessment of the direct loss caused by a ship pollution accident takes years.

In practices before this Amendment, where a ship might be held to be liable for a pollution accident and a fine might be imposed as a result, relevant authority would release the ship against a security from the owner of the ship. Thus, before the implementation of the latest Amendment, the owner of ship involved in a pollution accident could simply put forward a security up to RMB 300,000 before relevant authority to cover the fine, and the ship could then be allowed to depart without waiting for the final decision of relevant authority on the fine.

As can be seen, it will be difficult for the above approach to be continued in future practices for that the fine that may be imposed in case of a ship pollution accident now depends on the direct loss that may be caused by such pollution, which cannot be expected to be quickly assessed without dispute, especially when the pollution is severe and the loss is substantial. So, before the direct loss is determined, which could be very much time consuming, especially when damage to fishery is involved, it would not be possible for the government authority responsible for imposing the fine to know what security it should require from the ship which caused the pollution or for the shipowner to know what security it has to place. As said, our experiences suggest that the assessment of the direct loss caused by a ship pollution accident could take years. So, a ship causing pollution to the sea in the future would most likely face the risk of being detained indefinitely, unless an open security or a relatively higher security is posted. This is the third and could be the most crucial uncertainty that this Amendment caused to the shipping industry.