Every shipowner and marine insurer knows that shipowners are entitled to limit their liability for marine claims. In Bahamas Oil Refining Company International v Owners of The Cape Bari, a decision which has attracted considerable interest in the shipping industry, the Privy Council has held that parties to a contract are able to waive their right to limit their liability.
On 25 May 2012, the vessel Cape Bari collided with sea berth no. 10 at Freeport, Grand Bahama. The berth was owned by the Bahamas Oil Refining Company International ("BORCO"), who claimed damages of US$22 million.
Owners claimed that they were entitled to limit their liability to approximately US$16.9 million under the Bahamian Merchant Shipping (Maritime Claims Limitation of Liability) Act 1989, which incorporated into Bahamian law the Convention on Limitation of Liability for Maritime Claims 1976.
High Court and Bahamas Court of Appeal
On the shipowners' application, the Court made an order for the constitution of a limitation fund in the amount of US16,995,487. BORCO applied to the Court to set aside that order. They argued that shipowners had waived their right to limit their liability under the 'Conditions of Use', a contract between BORCO and the shipowners which had been signed by the master shortly before the berthing operation. The relevant clause was as follows:
"If in connection with, or by reason of, the use or intended use by any vessel of the terminal facilities or any part thereof, any damage is caused to the terminal facilities or any part hereof from whatsoever cause such damage may arise, and irrespective of weather [sic] or not such damage has been caused or contributed to by the negligence of BORCO or its servants, and irrespective of whether there has been any neglect or default on the part of the vessel or the Owner, in any such event the vessel and the Owner shall hold BORCO harmless from and indemnified against all and any loss, damages, costs and expenses incurred by BORCO in connection therewith. Further, the vessel and her Owner shall hold BORCO harmless and indemnified against all and any claims, damages, cost and expenses arising out of any loss, damage or delay caused to any third party arising directly or indirectly from the use of the terminal facilities or of any part thereof by the vessel ..."
At first instance, the Judge held that owners were not entitled to limit their liability, as they had contracted out of their right to do so. The shipowners appealed, and the Court of Appeal of the Bahamas held that the shipowers were entitled to limit their liability. They held that under the Limitation Convention 1976 it was not permissible to contract out of the right to limit liability, even by entering into a contract of indemnity. BORCO appealed to the Privy Council.
The Privy Council held that:
- It is permissible for owners of a vessel to contract out of or waive their statutory right of limitation under the 1976 Convention or the 1989 Act. There is nothing in the language of the Convention or the Act which prohibits owners from doing so.
- It might be possible to exclude the right without express reference to the Convention, but the right must be clearly excluded, whether expressly or by necessary implication. The contract is treated as if the statutory right of owners to limit liability was written into the contract. If there is a provision which clearly contradicts those rights, such that the two provisions cannot be read together, the statutory right must have been excluded.
- On the true construction of the Conditions of Use, the indemnity provision in question did not clearly exclude owners' right to limit their liability. So owners were able to limit their liability.
The decision is of considerable significance to the shipping industry, especially given that the 1976 Convention has been very widely adopted. The finding that it is possible to contract out of the 1976 Convention does not come as a complete surprise: some commentators had suggested that this was the case. However, previous discussion has turned on the effect of The Satanita, a case decided in 1897 under the then existing limitation regime: the present case confirms the position under the 1976 Convention.