Bunker Oil Pollution Liability Insurance and Iranian Sanctions

Islamic Republic of Iran Shipping Lines v. Steamship Mutual Underwriting Association (Bermuda) Ltd [2010] Commercial Court 26 October 2010

Background

In common with many maritime States, the United Kingdom is party to the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 ("the Convention").

Under Article 7(1) of the Convention, shipowners are required to maintain insurance or other financial security to meet their liability for bunker oil pollution under the applicable local or international limitation regime. Evidence of satisfactory insurance must be presented to the ship's relevant State authority, who will in turn issue a certificate confirming that such insurance is in place. Certification issued by a State party is accepted by the authorities of all other States that are party to the Convention.

The Convention also makes provision for rights of direct action with respect to bunker pollution claims against the shipowner. Specifically, Article 7(10) of the Convention permits any such claim to be brought directly against the insurer, although the insurer may invoke all defences that would have been available to the shipowner. The insurer may also limit its liability to the amount of the insurance cover, but otherwise policy defences may not be asserted1.

In the present case, the insured Claimant ("IRISL"), an Iranian shipowner, was entered with the Defendant P&I Club ("the Club"), in respect of the 28 vessels then in its ownership, including the vessel "ZOORIK". In accordance with the normal procedure, the Club issued a "Blue Card" to the UK Maritime and Coastguard Agency, confirming that the relevant insurance was in place, in response to which the MCA duly issued an Article 7 Certificate for each of the entered vessels, including the ZOORIK.

During the period of the insurance, however, HM Treasury promulgated the Financial Restrictions (Iran) Order 2009, pursuant to the Counter-Terrorism Act 2008. That Order prohibited transactions and business relationships between relevant persons and designated Iranian entities, including IRISL, but always subject to derogation by licence where appropriate. In the present case, HM Treasury issued a licence permitting the club to "continue to provide insurance cover in accordance with the Blue Cards issued to IRISL for a period of three months starting on 30 October 2009".

Nevertheless the Club terminated cover in respect of IRISL's ships because it took the view that...