New Hazmat Liability Convention Could Enter Into Force Next Year

The global merchant shipping industry is about to get a new layer of liability with the impending entry into force of a treaty that sets compensation for damages and pollution associated with hazardous cargo.

In a span of 18 months, the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea 2010 - better known as the 2010 HNS Convention - will enter into force after receiving the required number of ratifications.

Belgium, Germany, the Netherlands and Sweden became the latest countries to ratify the convention, setting in motion a new system that will require shipping companies and covered industries to pay hefty liabilities for loss suffered or damages resulting from a shipping incident.The covered cargo categories are broad, and include oil, noxious or dangerous liquids, all liquefied gases, low-flashpoint liquids, and hazardous dry bulk or packaged cargoes.

The treaty requires at least 12 states to express their consent to be bound by it, including four states each with not less than 2 million units of gross tonnage. Five of the eight states that had previously ratified the treaty had more than 2 million units of gross tonnage each.

The treaty is supposed to enter into force 18 months after the contracting parties have received at least 40 million tonnes of HNS cargo in a calendar year. Last year, Belgium, Germany, the Netherlands and Sweden received almost 28 million tonnes of HNS contributing cargo; the IMO will assess the 2025 HNS cargo volume received by the other eight signatories in May, and based on prior data, the criteria will likely be met to trigger the 18-month timetable for entry into force.

Through the "polluter pays" principle, shipping and HNS industries will bear liability for damages caused by HNS cargoes transported by sea. Beyond pollution damage, the liabilities also extend to the risks of fire and explosion, loss of life or personal injury as well as loss of or damage to property.

The regime is anchored on a two-tier model of compensation, with the first capping total compensation at 250 million Special Drawing Rights (SDR) of the International Monetary Fund ($360 million) per event.

In the event the damage costs exceed the shipowner's limit of liability under Tier 1, an HNS Fund established under the convention will augment the compensation, also capped at a maximum of 250 million SDR ($360 million) per incident, including the shipowner's portion. The fund will be financed through contributions paid after the incident by the receivers of HNS cargoes.

Given the increasing amounts of chemicals and alternative fuels being transported in bulk by sea, it is estimated that some 65,000 ships will require the HNS certificates of insurance or other financial security in line with the treaty. The treaty adds a new layer of liability for shipping, adding to existing exposure to claims related to oil transport, bunker fuel, wreck removal, and harm to passengers.