Is the LNG Industry Ready for Strict Liability

It has been said that lie gets halfway around the world before the truth has a chance to get its pants [1]. It seems that misconceptions travel equally as fast. One misconception that appears to have spread throughout the LNG world is that the International Maritime Organization's Hazardous and Noxious Substances Convention (the Convention) [2] will never be of particular significance to the LNG industry. On the contrary, the truth is that the Convention, an international treaty providing more than US$350 million in compensation to victims of a casualty involving hazardous and noxious substances (HNS), is likely to become effective in the very near future and, unlike any prior international treaty dealing with transportation liability, will have a direct impact on LNG shipments into countries which adopt it. The Convention will substantially increase, in any member state, the potential liability of LNG shipowners and of LNG cargo owners for damages to third parties. Because the International Maritime Organization (the IMO) completed its work on the Convention almost eight years ago, from afar it appeared that the Convention would simply die a slow death due to the lack of a sufficient number of countries taking the requisite steps to ratify it [3]. The reality behind the scenes is quite different, however, and recent events evidence considerable governmental support for the Convention, including: (i) the issuance of European Council Decision 971/2002, which cleared the way for and encouraged EU member states to ratify the Convention unilaterally; (ii) a June 2003 meeting of the HNS Correspondence Group in Ottawa, Canada, during which delegates from a number of HNS importing nations agreed on a concrete governmental implementation plan; and (iii) an October 2003 meeting of the IMO's Legal Committee in London, during which the Legal Committee adopted the Ottawa recommendations, smoothing the way for earlier ratification of the Convention. As a result of these and other recent developments, the Convention is arguably closer to being a reality than one might think. Despite the fact that very few in the LNG industry know what it entails (understandably so given its complexity and, until recently, its relegation by many to the obituaries column in the international conventions digest), so long as the Convention continues to gain the momentum which it has recently found, it could well be a reality in the very near future. Supposing it becomes a reality, why should the LNG industry care? Because, for the first time, an international liability regime will make LNG shipowners and cargo title holders strictly liable for accidents solely as a consequence of LNG being classified as HNS. Because few in the LNG industry appear to be taking the inherent commercial risks of the Convention into consideration in current commercial dealings. Because, with the recent proliferation of terrorist activities worldwide, the LNG industry can no longer rely on sound technology and responsible management to avert casualties. In an effort to highlight the importance of the changes that will follow ratification and implementation of the Convention, this article briefly discusses and attempts to put into perspective the latest developments on the road toward that end. It examines the LNG industry's historical contribution to the drafting of the Convention and provides a sneak preview into how the Convention is designed to work. Finally, it discusses the likely effects the Convention will have on the LNG industry.

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