The law and economics of pollution damage arising from carriage of oil by sea

Private law plays an important and indispensable role in the effort to tackle ship-source oil pollution, in which the Civil Liability Convention (CLC) is the key regime setting out the liability and compensation framework for oil spills. In attempting to evaluate the law to determine whether it should be improved, the paper employs a law and economics approach to examine the desirability of strict liability and limitation of liability which are two hallmarks of the CLC. The theoretical framework of economic analysis of accident law is first presented followed by the argument that a single oil spill accident can be viewed as having both unilateral and bilateral features depending on the type of damage. The paper suggests that the available theories in the economic analysis of accident law are not tailor-made to suit marine pollution issues and therefore, in applying the theories to oil spill problems, modifications must be made. Based on the above, it is submitted first that strict liability with certain defences as set out in the CLC is desirable for dealing with oil spills. Limitation of liability should not only focus on whether or not the regime should be retained, but should be considered in relation to different kinds of damage. It is therefore proposed that a two-fold liability regime be established for marine oil spills.