Common sense on limitation

Some robust old-fashioned common sense on limitation from Lord Clarke in the Privy Council today. In BORCO v The Cape Bari [2016] UKPC 20 the Cape Bari, a sizeable tanker of about 160,000 dwt, managed to demolish large parts of a Bahamian berth where it was docking to pick up a cargo of crude oil. The damage was about $22 million; the limitation fund about $16 million. The vessel had docked under a contract stating:

“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 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 … ”

BORCO, owners of the berth, claimed their full losses, saying that the owners of the Cape Bari had contracted out of their right to limit. The first instance judge agreed with BORCO. The Court of Appeal, without the point being argued, allowed the shipowners’ appeal on the basis that the right to limit under the Limitation Convention 1976 as enacted was mandatory law and could not be ousted by agreement.

The decision of the Court of Appeal faced some little criticism, and BORCO appealed (with IISTL stalwart Peter Macdonald-Eggers QC leading the charge). The Privy Council held today (1) that the right to limit could be waived in advance; but that (2) it hadn’t been, on the proper interpretation of the contract. They therefore dismissed the appeal.

Both holdings are to be welcomed.

The first holding corresponds with what had always been assumed by shipping lawyers, and also with one’s instinctive feeling as a commercial lawyer: why ever not? It is also quite important in practice. Not only port usage agreements, but offshore construction contracts quite often contain waivers of the right to limit, with insurance arrangements doubtless made to match. There is only one word of caution: owners and P&I interests will now have to get it absolutely clear what the coverage position is where there is an effective contractual waiver of this sort (as an increasing number of ports in countries like Indonesia are said to demand).

The second holding seems entirely in accordance with the the terms of the agreement. The Privy Council rightly said that a shipowner should not lightly be regarded as having abandoned a crucial right of his: the gravamen of the clause in question was clearly aimed at making the owners strictly liable, and there was no reason to think that a reference to “all and any loss, damages, costs and expenses”, without more, implicitly got rid also of the right to limit. [Note for classical contract law buffs: the holding in that golden oldie, The Satanita [1897] AC 59, that similar words did oust the right to limit was, shall we say, not unequivocally endorsed. See Lord Clarke’s dry comment at [59]].

Speculative question for readers: how soon will the Bahamian port authorities and others re-write their terms of use to say expressly that the right to limit is waived? Answers on a postcard, please.