Web Alert: The Cape Bari - The Importance of Carefully Reviewing Port Agreements and Terminal 'Conditions of Use'

It has been established pursuant to the Convention on Liability for Maritime Claims 1976 [1] (LLMC) that owners are entitled to limit their liability for maritime claims. The Privy Council in the Cape Bari [2] decision held that it is possible to contract out of or waive the right to limit liability under the convention. The consequences should an owner lose the protection of limitation would be to face potentially large and unanticipated liabilities.

Facts and Arguments

In May 2012, the vessel Cape Bari, whilst undergoing berthing operations, collided with a berth at Freeport, Grand Bahamas which was owned by the Bahamas Oil Refining Company (BORCO). The incident resulted in significant damages and BORCO brought a claim against the owners in the amount of $26.8 million, plus interest which later reduced to $22 million.

The master had previously signed a contract for provision of pilotage and towage services as well as the Conditions of Use of Jetties, Sea Berth and Inner Harbour Berth at Freeport, Grand Bahama. The master executed the agreements as presented to him.

The owners argued that they were entitled to limit their liability to around $16.9 million based upon the Bahamian Merchant Shipping Act 1989 which incorporated the LLMC.

BORCO, contended that the owners had lost their right to limit liability and as such they should settle their claim in full. BORCO relied on clause 4 of the Conditions of Use which stated that;

“the vessel and the owners shall hold BORCO harmless from and indemnified against all and any loss, damages, costs and expenses incurred by BORCO in connection therewith”.

The Privy Council decision

The Privy Council held that it was permissible for the owners to agree to waive their right to limit as there was nothing in the language of the Convention that prevented a party from doing so.

The Privy Council further assessed (i) the parties’ objective intentions by reference to the language used in the 'Conditions of Use' agreement; (ii) the factual background which was known or ought to have been known to both parties; and (iii) the commercial purpose of the agreements and found that there was nothing in the language of the 'Conditions of Use' agreement which suggested that the owners had actually agreed to waive their right to limit.

Specifically, in the Privy Council’s opinion, if the parties had intended that the owners could not limit their liability, this should have been expressly stated or necessarily implied and simply the use of the terminology “all damages” was not sufficient to suggest that the owners had abandoned their right to establish a limitation fund. Thus, it is possible to waive the right to limit liability without express reference to the applicable statute (ie the 1976 Convention).

Comments

This decision confirms that a party can contract out of or waive its right to limit liability under the 1976 Convention. The wording of the contract, though, has to be clear and unequivocal of the parties’ intention to exclude this right.

The Cape Bari underlines the importance of careful contract review when entering into Port Agreements and Terminal 'Conditions of Use' so that the owners’ right to limit liability is not unintentionally lost. Members are recommended to put in place necessary procedures for reviewing and accepting the terms of any relevant contracts in order to avoid the master and/or the agent contracting blindly on their behalf.

This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the author of this article.

[1] Including the amendments by way of the 1996 Protocol to the Convention (“the 1996 Protocol”).

[2] Bahamas Oil Refining Company International v. Owners of Cape Bari Tankschiffahrts GmbH & Co KG (Cape Bari) [2016] UKPC 20.