In a recent decision1, the English High Court held that the 1971 International Oil Pollution Fund was immune from a P&I Club’s claim for indemnity as there was no contract between  the parties that amounted to a loan or a transaction for   the provision of finance. This decision,  and the subsequent conduct of the 1971 International Oil Pollution Fund, will affect oil pollution  compensation payments until a legally binding agreement can be reached.

Background

Assuranceforeningen Gard Gjensidig (the Club) commenced legal proceedings in England and Venezuela  against the 1971 International Oil Pollution Compensation Fund (the Fund) seeking declarations that  the Fund should be liable to indemnify it in respect of liability the Club had incurred towards Venezuela, courtesy of a  judgment at first instance in Venezuela in which the Club and its member, owners of the vessel  “NISSOS AMORGOS”, were found liable for some USD 60 million plus indexation and costs for the 1997  grounding of the vessel and resulting oil pollution.

As previously reported, the English Court had granted the Club a freezing order in respect of the  assets held by the Fund, finding that the Club had “a good arguable case” in respect of its English  proceedings.

The Fund’s subsequent challenge of the jurisdiction of  the court is the subject of this legal  update. The challenge was brought on the grounds that the Fund was immune from the jurisdiction  pursuant to article 6(1)(c) of the International Oil Pollution Compensation Fund (Immunities and  Privileges) Order 1979 (the Order). The court accepted this argument and held that the Fund was  immune from the Club’s action, and that the court had no jurisdiction over the claim.

The decision

The Club argued that it had a contract with the Fund, made partly orally and partly in writing, so  that the established practice and procedure would be followed in relation to the “NISSOS AMORGOS”, whereby the Club would fund the agreed interim payments and joint costs, up  to an amount equivalent to the limit under the Convention on Civil Liability for Oil Pollution Damage of 1969 (CLC Limit), following which the Fund would meet any further payments, up to the  limit of the International Fund for Compensation for Oil Pollution Damage 1971.

The Club argued that the contract was a loan or an agreement for the provision of finance, and, as  a result, the Fund was not immune from suit and legal process pursuant to article 6(1)(c) of the  Order.

Existence of the Agreement

The court held that the alleged contract was neither an express written agreement, nor one that  arose wholly through conduct. The alleged contract arose out of what was said in meetings, and in  writing, and was allegedly accepted by the Club’s conduct in paying claims.

However, the court held that it was not appropriate to approach the matter with the presumption  that there was an intention to create legal relations. It held that, in a hybrid case such as this,  where there was no expressly stated offer to contract in the terms alleged, the onus was on the  party claiming the existence of a binding agreement to prove that there was an intention to create legal relations. 

The court distinguished between a promise and a statement of policy, and held that it was impossible to construe the facts to support an argument that an  offer had been either expressly or impliedly made. The court considered that the conduct alleged  was equally consistent with the creation of  a non-contractual expectation. Accordingly, the court  held that although there was an expectation that the consecutive payment arrangement would be  followed, there was no legally binding contract, and the Fund was entitled to rely on its strict  legal rights if it chose to do so.

The court, therefore, held that there was no offer or agreement as alleged and, even if there was,  there was no intention to create legal relations.

Exception to immunity from jurisdiction

The court held that the Fund enjoyed immunity pursuant to the Order, “no more, no less” and that,  as the alleged agreement fell within the scope of the Fund’s “official activities”, the Fund had a prima facie right to immunity AND it was for the Club to establish that  the agreement fell within one of the exceptions.

The court concluded that, even if there was a “consecutive payment arrangement”, it was not a loan.  Moreover, the court determined that such an agreement was for the payment of claims, and was not  for the provision of funding, so it could not be held to be a “transaction for the provision of  finance”. Accordingly, the court held that the Fund was immune from the Club’s action, and that the  court had no jurisdiction over the claim.

Comment

In the week following this judgement, the Fund’s Administrative Council passed a resolution to wind  up the Fund with effect from 31 December 2014. In responding to the decision, the Fund’s Director stated: “that it was with great regret that the International  Oil Pollution Compensation (IOPC) Funds’ relationship with the P&I Clubs had been damaged” and  expressed his sincere hope that, notwithstanding the judgement, the IOPC Funds and the P&I Clubs  could reach an agreement to continue to work together to compensate the victims of oil pollution  damage.

The International Group’s Chief Executive has stated that, as a minimum, a new legally binding and  enforceable agreement would be needed if streamlined claims handling was to continue. The judgment  will have ramifications for oil spill compensation in the short term, as shipowners and P&I Clubs  will be faced with little choice but to follow the prescribed approach where there is a risk that  the CLC limit will be exceeded. This may delay payment of compensation.

This decision to wind up the Fund also throws into question the continued co-operation between the  Clubs and the remaining IOPC Funds.