Legal Update: The right to limit under the 1976 Convention on Limitation of Liability for Maritime Claims

The Privy Council in its recent decision in Bahamas Oil Refining Company International Limited (Appellant) v The Owners of the Cape Bari Tankschiffahrts GMBH & Co KG (Respondents) (Bahamas) [2016] UKPC 20 confirmed that it is possible for parties to contract out of, or waive, the right to limit under the 1976 Convention on Limitation of Liability for Maritime Claims. This case was an appeal from the Court of Appeal of the Commonwealth of the Bahamas.Brief facts 

The respondents in this case are the owners  of the Cape Bari ("the vessel"). The vessel arrived at Freeport on 25 May 2012 with a view to berthing in order to load a cargo of crude oil at the appellant, BORCO's terminal. Two pilots boarded the vessel. The master and the pilots exchanged information and the master, as agent for the owners, signed two agreements as presented to him. The first was a Pilotage/Towage Agreement relating to the provision of pilotage and tug services. The second was an agreement headed "Conditions of Use of Jetties, Sea Berth and Inner Harbour Berth at Freeport, Grand Bahama" ("Conditions of Use") relating to the owners' use of BORCO's facilities. Very shortly thereafter, the vessel collided with the berth, causing substantial damage approximating to USD 22m. The owners claimed they were entitled to limit their liability (if any) to approximately USD 16.9 m plus interest under the Merchant Shipping (Maritime Claims Limitation of Liability) Act 1989 of the Bahamas ("the 1989 Act") which incorporated into Bahamian Law the Convention on Limitation of Liability for Maritime Claims 1976 ("the 1976 Convention")

The first sentence of Clause 4 of the Conditions of Use purported to impose a form of  strict liability on the owners in respect of damage to the terminal facilities. The appellant contended that this effectively excluded  the Owners' right to limit liability under the 1976 Convention  as incorporated into the 1989 Act.

Contract terms Amongst the Clauses considered by the Privy Council were Clauses 1, 4 and 6 of the Conditions of Use as set out below. 

"1. . In all circumstances the Master of any vessel shall remain solely responsible on behalf of his owners for the safety and proper navigation of his vessel .4. 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 thereof from whatsoever cause such damage may arise, and irrespective of whether or not such damage has been caused or contributed to by the negligence of BORCO or its servants, and irrespective of whether  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...

6. These Conditions of Use are the [sic] be interpreted and construed in accordance with the Laws of the Bahamas."The Contract was silent on owner's right to limit liability. 

The 1976 Limitation Convention was incorporated in to Bahamian law by the Merchant Shipping (Maritime Claims Limitation of Liability) Act 1989 of the Bahamas ("the 1989 Act"). 

DecisionIn brief, the Privy Council held as follows: 

(1) It was possible for owners of a vessel to contract out of or waive their  right to limit under the 1976  Convention and the 1989 Act.  There is nothing in the Convention or the Act to prohibit parties from doing so. 

(2) The words of the contract must be construed in. the light of the default position, namely that the statutory rights of the owners were known to and understood by the parties and were treated as being written in to the contract. WhereFor a party to be held to have abandoned or contracted out of  valuable rights arising by operation of law, the provision relied upon must make it clear that that  was what was intended.

(3) In this case, Clause 4 of the COU was alleged  to have excluded the application of the 1989 Act and the 1976 Convention but it did not mention either instrument. Therefore the clause should only be construed to  impose a duty to hold harmless and indemnify. That liability served as the trigger for the statutory right to limit liability. The lesson for Masters in this case is never to sign any agreement without a full understanding of its terms.  Where Masters have any doubts, they are recommended to consult their Owners or the vessel's P&I Club.  Where time does not so permit, any agreement signed should be qualified with the following clause," signed for receipt only without any authority to bind the Owners or the Vessel".

Members who have questions regarding this legal update should contact their usual Club contact.A significant proportion of the expertise in the Managers' offices around the world consists of lawyers who can advise Members on general P&I related legal, contractual and documentary issues. These lawyers participate in a virtual team, writing on topical and relevant legal issues under the leadership of our Legal Director, Chao Wu.