In 2018, the Canadian government purchased the Trans Mountain pipeline, running from Alberta to British Columbia, along with the plans for expansion. The expansion could triple the transport capacity from 300,000 to 890,000 barrels of oil per day, and would increase the tanker traffic in the inland waterways of the Salish Sea, an area known for its sensitive marine habitat, and narrow, difficult to navigate passages. The anticipated increase in tanker traffic in this busy waterway continues to raise concerns about the impact of an oil spill and the financial means to address related injuries, particularly to natural resources. The transboundary nature of any spill further complicates the situation vis-à-vis the applicable liability regimes and response resources.

Under the Canada-United States Joint Marine Contingency Plan (“JCP”), the United States Coast Guard and Canadian Coast Guard acknowledge each country's responsibility to fund their own response actions and pursue reimbursement of those costs within their respective jurisdictions. The availability of funding for a response, and to compensate injured parties, however, including the limits of liability of the responsible party, differs under each regime, and could impact the nature and scope of a response.

For spills into or posing a substantial threat to the navigable waters of the United States, the Oil Pollution Act of 1990 governs and a national fund, the Oil Spill Liability Trust Fund (“OSLTF”), is immediately available to address an incident, including emergency restoration to natural resources. Canada's Marine Liability Act enables the Ship-source Oil Pollution Fund (“SOPF”) to pay claimants who have incurred damages as a result of oil pollution. Both countries' funds operate under the same principal—the polluter pays—but the compensation structure, and claims processes and procedures are entirely different.

This paper provides an overview of these funding sources and claims procedures, comparing and contrasting the different systems. The discussion is meant to provide an overall understanding of potential funding pools available for spill responses under each scheme in order to facilitate transboundary spill planning and discussion.

Oil pollution knows no boundaries; it observes no political or national ideologies, persuaded only by the dictates of the wind and waves upon its own chemical composition. Remediating spills within territorial boundaries are often complicated and costly; with the addition of a transboundary element to the spill, the effects may have far-reaching diplomatic and legal impacts beyond the immediate response issues.

Countries that coexist along maritime borders are naturally concerned with the impact of oil pollution from a neighbor, and Canada and the United States are no exception. The territorial boundary between the two nations is approximately 8,891 kilometers (5,525 miles), including portions of the Great Lakes, and along the Atlantic, Pacific, and Arctic coasts. Because of this, Canada and the United States have undertaken four decades of cooperative contingency planning and preparations; they are signatories to the 1990 International Convention on Oil Pollution Preparedness Response, and Co-operation; and they have developed the Canadian United States Joint Marine Pollution Contingency Plan (“JCP”), which establishes a coordinated system of operational guidelines for national and regional preparedness, planning and response, and a system for mutual aid to each country. However, the planning and preparations are predicated on the use of private-sector resources, funded by the responsible party.3 It does not address liability and cost recovery from the responsible party, or the payment of damages and compensation to injured victims, leaving those issues to national and treaty laws.

This paper discusses the two primary national funding schemes available for oil pollution response and for payment of damages in the event of catastrophic spill that is in or that threatens the waters of either country. The United States has the Oil Spill Liability Trust Fund (“OSLTF”) administered by the National Pollution Funds Center (“NPFC”); and Canada has the Ship-source Oil Pollution Fund (“SOPF”) managed by the SOPF Administrator.

The focus of the discussion is to provide an overview of both funds in the context of ship-source oil spills in contiguous waters. Understanding the legal framework and policy considerations surrounding a transboundary spill is critical to any contingency planning and preparation.

The OSLTF and SOPF share the same philosophy and purpose. Their central objective is to provide national funding resources to respond to and compensate victims of oil pollution damage. Their underlying statutory regimes also provide strict liability under a polluter pays principle. The source and availability of funding, and the operations and implementation of each system are remarkably different, however. The following are some of the more salient differences in the context of a transboundary spill:

Prior to 2018, the SOPF was limited to $175 million CAD per occurrence, which created a situation where claimants might receive only a pro rata share after all claims had been submitted, in the event of a spill that exceeded the limit. The amendments to the MLA removed the limit, enabling the SOPF to pay claimants 100% of their “admissible assessed claims.” Should the SOPF be exhausted on any given incident, then the Minister of Finance can grant the SOPF a loan from the Consolidated Revenue Fund. The loan would be recovered through the imposition of a levy or special levy on receivers and exporters of oil. ### c. Emergency Funding Availability. In the case of a “significant incident”57, the Minister of Fisheries and Oceans can seek the release of up to$10 million CAD from SOPF for immediate emergency response.58 Should this amount be insufficient, an additional $50 million CAD is available with the approval of the Governor in Council.59 This emergency money allows the Canadian Coast Guard to fund response activities, including compensating third-party responders who are acting under its direction. The Minister of Fisheries and Oceans is required to return the emergency funds to the SOPF, however.60 Alternatively, it can file its total claim with the SOPF, and credit the amount of any unused funds back to the SOPF.61 ### d. Compensation and Claims. The MLA establishes the SOPF's liability for matters under the CLC, Bunkers Convention, and from any vessel owner who spills oil. This liability is established if: • All reasonable steps have been undertaken for recovery from the owner of the ship, the CLC, the International Fund, or the Supplementary Fund, and those steps have been unsuccessful;62 • The owner of the ship is not liable based on established defenses, such as the occurrence/damages resulted from war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional, inevitable and irresistible character; was wholly caused by an act or omission done by third parties with the intent to cause damage; or was wholly caused by the negligence or other wrongful act of any Government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function; • The claim exceeds the limit of liability; • The shipowner is financially incapable of meeting the obligations set forth in the provisions of the MLA, the CLC, or the Bunkers Convention; • The Administrator is unable to establish the source of pollution (mystery spill); or • The Administrator is party to a settlement against the shipowner.63 The SOPF is broadly available for compensable damages. A “person”64 may file a claim with the Administrator of the SOPF “if the person has suffered loss or damage, or incurred costs or expenses” related to oil pollution damage referred to in Sections 51, 71, or 77 of the MLA, or Article 3 of the CLC, or Article 3 of the Bunkers Convention.65 The claim may cover “any kind of loss, damage, costs, or expenses arising out of actual or anticipated oil pollution damage, including economic loss suffered by a persons whose property has not been polluted.”66 As with the NPFC, the SOPF Administrator has made available online a “Claimants Guide” as a resource.67 The types of damages for which the SOPF compensates includes “any kind of loss, damage, costs or expenses—including economic loss—caused by oil pollution.”68 “Pollution damage” is defined under the CLC and Fund Convention as: • (a) Loss or damage caused outside the ship by contamination resulting from the escape or discharge of oil from the ship, wherever such escape or discharge may occur, provided that compensation for impairment of the environment other than loss of profit from such impairment shall be limited to costs of reasonable measures of reinstatement actually undertaken or to be undertaken; • (b) The costs of preventative measures and further loss or damages caused by preventative measures.69 The Bunkers Convention defines “pollution damage” similarly but refers to the escape of discharge of “bunker oil”. In addition to the above losses, the SOPF also compensates a special type of loss to fishing income70, a loss of a source of food or animal skins. Those claimants may file a claim for that loss or future loss.71 The time in which the claim must be filed depends on the nature of the claim. For a CLC or a Bunkers claim, the time limit is two years after the day on which the oil pollution occurs, and five years after the occurrence that causes the damage72. If no oil pollution damage has occurred, then the claim must be made within five years after the occurrence in respect of which oil pollution damage is anticipated.73 By contrast, for a loss of fishing claim under Section 107, the time in which to file the claim is three years from the oil discharge happening or being noticed, or six years after the occurrence which causes the discharge.74 ### e. Liability and Limits. As with the OSLTF in the United States, a private claimant entitled to SOPF compensation would not necessarily be concerned with the limits of liability. It can either come to the fund or exhaust its judicial remedies against the vessel and then come to the fund. Yet, in a transboundary spill, these limits of liability for various discharging vessels may impact any cost-recovery efforts by injured parties in the U.S. and vice versa. Under Article V of the CLC, the liability limits are as follows75: For spills of oil used in the operations or propulsion of the ship, then the Bunkers Convention and its limits of liability applies as follows77: Moreover, similar to the defenses under the Oil Pollution Act, there are also certain defenses to which shipowners are entitled to mitigate or exonerate liability. There is no liability if the owner can prove that the damage resulted from war or other hostilities, a natural phenomenon of an “exceptional, inevitable, and irresistible character”; an act of a third party whose intent was to cause damage; or the negligence or other wrongful act of any authority responsible in maintaining navigational aids. In addition, an owner may be entitled to complete exoneration or reduction in liability if it can show that the damage was the result from an act or omission by the claimant done with an intent to cause such damage, or by the claimant's negligence.78 On the other hand, liability limits may be broken upon a showing that damage resulted from the owner's act or omission with the intent to cause the damage, or recklessly and with knowledge that such damage would result. ### f. Financial Responsibility Requirements. The financial responsibility requirements are incorporated into the MLA by reference to the relevant international conventions. The CLC requires owners of ships registered in a Contracting State and carrying more than 2,000 tons of oil in bulk as cargo to have insurance or other financial security to cover the liability established in Article 5 of the CLC.79 Similarly, Article 7 of the Bunkers Convention also requires compulsory insurance or other security, but only for registered owners of the Contracting State and for those ships greater than 1,000 gross tons. The financial security must be enough “to cover the liability of the registered owner for the pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime, but in all cases, not exceeding an amount calculated in accordance with the [CLC]”.80 The OSLTF and SOPF are available to fund oil spill responses and compensate victims for damages. In turn, the administrators of these funds are empowered with the force of law to pursue cost recovery against the polluter. On its face, this is an uncomplicated proposition; the system, though not without fault, has achieved its noble mission thus far. However, the prospect of a significant transboundary spill between Canada and the United States raises concerns about how to handle compensation and liability when the relevant laws differ in such substantive and meaningful ways. Concerns about availability of funds to responders, liability and limits, and compensation for claims are magnified in a transboundary spill. Policy makers and administrators can only go so far, however. For their part, they endeavor to understand these systems and to anticipate the issues that could arise in a major transboundary spill. Fundamental and substantive changes must be addressed at the national level of each country's respective governments. 1 The findings and conclusions of this article are those of the author, and do not represent the views or policies of the United States Coast Guard National Pollution Funds Center. This article should not be considered legal advice and no attorney-client relationship has been formed because of reading this article. This article is intended to be informative only. For specific legal questions, please consult an attorney licensed in the respective jurisdiction. 2 Acknowledgements and thank you to SOPF Administrator and staff, specifically Cameron Grant, Rohan Mathai, and Captain James Parsons, who provided both substantive and editorial comments on Canadian law during the development of this paper. 32017 Canadian United States Joint Marine Contingency Plan found at: https://www.rrt10nwac.com/files/Canadian%20CG%20%20USCG%20Joint%20Marine%20Contingency%20Plan.pdf 4 U.S. Dollar. 5 Canadian Dollar. 7Id. 12 Executive Order 12777. 13 33 U.S.C. §2752(b). The annual$50 million USD can be carried over from year to year.

14 The U.S. Coast Guard or the EPA (for inland spills) serve as the delegated federal on-scene coordinators.

15 As of the current Fiscal Year 2020, the nine cent per barrel tax has been reinstated, but will expire on December 31, 2020. See P.L. 116–94, Division Q, Section 134.

18 26 U.S.C. §9509(c)(2). Under 33 U.S.C. §2701(14), an “incident” is defined as “any occurrence or series of occurrences having the same origin, involving one or more vessels, facilities, or any combination thereof, resulting in the discharge or substantial threat of discharge of oil.”

19 26 U.S.C. §9509(c)(2).

20https://fas.org/sgp/crs/misc/IF11160.pdf. Of this amount, $8.1 billion and$5.5 billion comprised natural resource damages and civil penalties respectively. http://www.gulfspillrestoration.noaa.gov/sites/default/files/wpcontent/uploads/Overview_04-07-16_final-508.pdf

21 40 C.F.R. §300.5.

22 33 U.S.C. §2712(a).

23 JCP Section 800.

24 Defined as “the costs of removal that are incurred after a discharge of oil has occurred or, in any case in which there is a substantial threat of a discharge of oil, the costs to prevent, minimize, or mitigate oil pollution from such an incident.” 33 U.S.C. §2701(31).

25 Defined as the “damages specified in section 2702(b) […], and includes the cost of assessing these damages.” 33 U.S.C. §2701(5).

26 A “claimant” means “any person or government who presents a claim for compensation under” OPA.

27 33 U.S.C. §2702(b).

28 Although a foreign trustee is recognized under the statute, because no comparable remedy exists in Canada, Section 2707(a)(1)(B) precludes payment from the OSLTF to Canadian trustees for natural resource damages.

29 33 U.S.C. §2713(a).

30 33 U.S.C. §2713(c). There are certain, limited exceptions to the presentment requirement: (a) if the NPFC notifies claimants to submit the claim directly to NPFC; (b) if the claimant is the responsible party asserting a defense or limitation of liability; (c) if the claimant is a State; or (d) if the claimant is a United States claimant suffering damages from a foreign offshore unit. 33 U.S.C. §2713(b)(1).

31 The NPFC has created a “Claimants Guide” and can be downloaded at https://www.uscg.mil/Portals/0/NPFC/docs/PDFs/Claimant%20Guide.pdf

32 33 CFR Part 136.

33 33 C.F.R. Part 136.

34 33 C.F.R. Part 136.

35 Defined as a resident of a foreign country; the government of a foreign country; and an agency or political subdivision of a foreign country. 33 U.S.C. §2707(c).

36 33 U.S.C. §2707(b).

37 33 U.S.C. §2707(a).

38 33 U.S.C. §2707(a)(2), (b)(4).

39 33 C.F.R. 138.230.

40 33 U.S.C. §2704.

41 33 U.S.C. §2703.

42 33 U.S.C. §2716(a). Under OPA, the financial responsibility requirements apply only to tank vessels over 100 GT; the regulations (33 C.F.R. §138.15(a)(1)) provide, however, that all operators of tank vessels must provide evidence of financial responsibility.

43 33 U.S.C. §2716(e). In addition 33 C.F.R. §138.80 sets specifies the requirements for each category of evidence.

44 A “guarantor” is defined as any person, other than the responsible party, who provides evidence of financial responsibility for a responsible party under the Act. 33 U.S.C. §2701(13). Although a guarantor can be an insurer, the key difference is that the insurer acting as the guarantor has no contractual or common law defenses that are ordinarily available and often identified in underlying insurance policies. 33 U.S.C. §2716(f).

45 33 U.S.C. §2716(f).

46 33 U.S.C. §2716(g).

49 These various conventions enable claimants in signatory countries to avail of additional financial sources. The Fund Convention establishes the International Oil Pollution Compensation Fund (“International Fund”) against which injured parties of signatory countries may claim compensation for damages. Also known as a “second tier” compensation, the purpose is to compensate victims who did not obtain full compensation under the CLC. Finally, the Supplementary Fund Protocol established a “third tier” of compensation from the “Supplementary Fund”, an additional fund for tanker spills above and beyond what is provided by the International Fund. The United States is not a signatory and therefore not entitled to avail of these resources.

50 Section 101, 103, MLA.

51 Section 103, MLA.

52 Section 101, MLA.

53 For example, the SOPF would be liable to the claimant if and to the extent that: (1) the shipowner successfully raises one of the statutory defenses; (2) the claim or claims against a shipowner exceed its maximum liability; (3) the shipowner is financially incapable of meeting the obligation; the Administrator decides to settle with the claimant. See generally,http://sopf.gc.ca/wp-content/uploads/pdf/39-202_GeneralClaims_Manuel-EN-Web.pdf

54 Section 103(3), MLA.

55 For example, the Bunkers Convention only applies to spills involving oil used in propulsion or other ship operations, while the CLC, Funds Convention and Supplementary Fund apply to spills from oil tankers.

57 Defined as “a discharge of oil that, due to its severity, size, or location and its impact—actual or potential—on the environment, requires extraordinary resources to respond to it.” Section 91, MLA.

58 Section 110(1), MLA.

59 Section 110(2), MLA.

60 Section 111(1), MLA. The amount taken from the SOPF is to be credited back out of appropriations for the Department of Fisheries and Oceans under the Appropriations Act.

61 Section 111.1(1), MLA.

62 Section 101, MLA. Also known as the case of “last resort”.

63 Section 101(1) MLA.

64 Although this term is not defined in the MLA, the MLA incorporates the CLC and Bunkers Convention, including the definitions found under Art. 1(2) of the CLC; and Art. 1(2) of the Bunkers Convention. Under these respective conventions, a “person” is “any individual or partnership or any public or private body, whether corporate or not, including a State or any of its constituent subdivisions.” The SOPF General Claims Manual also indicates that a “person” includes the “Canadian Coast Guard; ports, harbours, and marinas; those involved in the fishing and tourism industries; all levels of government; corporations; indigenous communities; individuals; coastal landowners; and owners of impacted ships and boats.” http://sopf.gc.ca/wp-content/uploads/pdf/39-202_GeneralClaims_Manuel-ENWeb.pdf. However, the MLA excludes certain “response organizations”—i.e. those entities certified by Transport Canada, of which there are currently four—from utilizing the SOPF as a first resort. See Section 103(6)(excluded response organizations are those that are referred to in Paragraph 51(1)(a), 71(1)(a), or 77(1)(b) of the MLA).

65 Section 103(1) MLA.

66 Section 103(1) MLA.

68 Section 101(1), MLA.

69 Article I (6) CLC.

70 Section 107, MLA.

71 Section 107 (3), MLA.

72 Section 103(2), MLA.

73 Section 103(2), MLA.

74 Section 107, MLA.

76 The term “SDR” means special drawing rights, and is artificial valuation created by the International Monetary Fund for accounting purposes and is used as a neutral account measure. The value of the SDR is determined on the value of a basket of currencies, each weighted based on their importance in the world market. The use of the SDR in various international conventions is to value penalties, charges, or in this case the limits of liability and would be converted to the relevant member currency.

78 Article 5, CLC.

79 Article 7, CLC.

80 Bunkers Convention Article 7(1).