Limitation of liability – can you opt out?

The importance of a shipowner’s ability to limit their liability in the context of commercial maritime operations cannot be understated. As such, whether the law permits the waiver of this right is of the upmost significance. This key issue was recently considered by the Privy Council in the landmark case of the Cape Bari.

In the Cape Bari, the vessel in question collided with a sea berth at Freeport in Grand Bahama causing substantial damage to the facility. The owner of the vessel claimed that it was entitled to limit its liability to 11,012,433 SDR, plus interest, on the basis of the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976) which was incorporated into Bahaman law.

The owner of the berth, BORCO, denied that the owner of the vessel was entitled to limit its liability on the grounds that it had waived its right to do so. The master of the vessel had signed the Conditions of Use for the facility which stated at Clause 4 that the owner of the vessel would be responsible for “any and all loss or damage” caused by the vessel to the facility.

In the Court of First Instance, it was held that the owner was not entitled to limit liability in light of Clause 4. However, the Bahaman Court of Appeal reversed the decision concluding that the owners were not permitted to contract out of the statutory right of limitation under the local legislation nor the LLMC 1976.

Permission to appeal was granted and the matter was heard before the Privy Council. The Privy Council held that it was permissible for the owner to contract out of the LLMC 1976. The judgment explained that there is nothing in the wording of the LLMC 1976, or the incorporating domestic legislation, which made contracting out impermissible. However, in the matter in hand, the indemnity provision in Clause 4 was not sufficiently clear to waive the owner’s right to limit their liability.

In the absence of conduct preventing an owner from being able to limit, such as that demonstrated in the recent case of the Atlantik Confidence 2, for a shipowner to waive the valuable right to limit liability it must be clear from the wording of the agreement that this is what is intended.

However, despite this ruling, the need for the consideration of the issue by three courts, and the increasing number of contracts which try to exclude or vary an owner’s right to limit, demonstrates that owners need to be careful not to inadvertently waive their rights to limit either by their conduct or those who can bind them. For example, the master. 

Paul Dean is a partner and global head of oil and gas at Holman Fenwick Willan. He can be contacted on +(0)20 7264 8363 or paul.dean@hfw.com. Matthew Dow is an associate at Holman Fenwick Willan, specialising in international commercial dispute resolution. He can be contacted on +(0)20 7264 8784.