In May 2012, during a berthing operation, the respondents' vessel MT Cape Bari collided with Sea Berth No 10 at Freeport, Grand Bahama, the property of the appellant. The appellant claimed damages of USD 22 million. The respondents sought to limit their liability to approximately USD 16.9 million plus interest, under the Merchant Shipping (Maritime Claims Limitation of Liability) Act 1989 of the Bahamas (the Act), which incorporated into Bahamian law the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976). The appellant argued that the respondents are not entitled to limit their liability, on the ground that they had waived their right to do so under the Conditions of Use signed by the master before the berthing operation. Clause 4 of the Conditions of Use provides 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 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 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 ...

Upon the respondents’ ex parte application, the Court made an order for the constitution of a limitation fund. The appellant subsequently applied to setting aside that order. At first instance, Senior Justice Hartman held that the respondents were not entitled to limit their liability because they had contracted out of their right to limit. The Court of Appeal reversed the Judge's decision on the basis that, under arts 2.1 and/or 2.2 of the LLMC 1976 it was not permissible to contract out of the right to limit even by entering into a contract of indemnity.

The appellant appealed to the Privy Council on the grounds that the Court of Appeal was wrong to reverse the decision of the Judge because: (1) on a true interpretation of the Act and the LLMC 1976 it was permissible for the respondents to contract out of the right to limit; and (2) on the true construction of the Conditions of Use, the respondents had done so.

Held: Allowing the appeal:

1. Can shipowners contract out of or waive their statutory right of limitation under the Act and the LLMC 1976?

The Board concluded that parties can waive their right to limit their liability under the LLMC 1976 or the Act. There is nothing in the language of the LLMC 1976 or the Act prohibiting parties from doing so. Chapter 1 expressly refers to the right of limitation. Article 1.1 provides that 'shipowners … may limit their liability … for claims set out in article 2'. The Convention confers rights on shipowners and not duties. There is no linguistic support in the Convention for the argument that shipowners cannot agree to pay a particular claimant more than the limit provided for. The shipowners have a right to limit, which they can choose to exercise or not. This conclusion is consistent with the general principle established in Wilson v McIntosh [1894] AC 129, 133-134 (PC) that 'a man may by his conduct waive a provision of an Act of Parliament intended for his benefit'.

The authorities decided under the previous regime (ie the Merchant Shipping Amendment Act 1862 and the Merchant Shipping Act 1894) did not suggest that it was impossible to contract out. In Virginia Carolina Chemical Co v Norfolk and North American Steam Shipping Co [1912] 1 KB 229, Bray J concluded that it was open to the parties to exclude the section by their contract. In Clarke v Earl of Dunraven and Mount-Earl (The Satanita) [1897] AC 59, the House of Lords dealt with the issue whether a contract to pay for all damage excluded the provisions of the Merchant Shipping Act, 1894, as to limitation of liability, and held that if the language of the contract was sufficiently clear it had that effect.

The Board disagreed with the Court of Appeal. The Court of Appeal had recognised that under the previous regimes in the Merchant Shipping Amendment Act 1862 and the Merchant Shipping Act 1894, the position was held to be different but there were no similar provisions in those statutes to art 2.2 of the LLMC 1976. Further, Allen P JA relied upon the reasoning of Lord Phillips in Schiffahrtsgesellschaft MS Merkur Sky GmbH & Co KG v MS Leerort Nth Schiffahrts GmbH & Co KG (The Leerort) [2001] EWCA Civ 1055 that there is only one way a shipowner 'may lose his right to limit his liability, and that is where it is proven by the claimant that the loss claimed, resulted from the owner’s personal act or omission committed with the intent to cause such loss, or recklessly, and with knowledge that such loss would probably result'. However, the problem with relying on The Leerort was that in that case the Court of Appeal was not considering the question on appeal, which is whether it is permissible to contract out of the right to limit liability under the LLMC 1976.

2. On a true construction of the Conditions of Use, did parties agree to exclude the owners' right to limit liability under the Act and the LLMC 1976?

The Board held that the issue was the interpretation of the Conditions of Use, in particular the meaning of 'all damages' in cl 4 that the Respondent 'shall hold BORCO harmless from and indemnified against all and any loss, damages, costs and expenses incurred by BORCO in connection [with the facilities]'. The Board found that there is nothing in the language of the agreement which suggested that the Respondents were agreeing to waive their right to limit.

The Board held that, whilst it is possible to exclude the right to limit without express reference to the statute, the right must be clearly excluded, whether expressly or by necessary implication. For 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 is what was intended. The more valuable the right, the clearer the language will need to be.

The Board accepted the respondents' submission that cl 4 of the Conditions of Use and art 2.2 of the LLMC 1976 can readily be read together as a coherent scheme – the appellant is entitled to an indemnity in respect of 'all and any loss' up to the maximum recoverable under the LLMC 1976. The Board held that the expression 'all and any loss' is simply generic indemnity clause wording which makes no reference to the statutory wording. Moreover, if the appellant had intended that they should do so, the appellant could reasonably include such a clause in the Conditions of Use.

The Board dealt with the appellant’s argument that the phrase 'all damages' has the same meaning as 'all damages' in The Satanita where it was held to override the statutory limitation. The Board opined that The Satanita should not be treated as authority of general application. It was in any event only concerned with the proper construction of a yacht racing contract and was decided at a time when the relevant principles of construction were much less developed than they are today. The Board also referred to distinction drawn by Lords Halsbury and Herschell between the position of yacht-owners entering their yachts in a regatta and the position of a merchant vessel. The House of Lords there found that there was nothing extraordinary in the yacht owners entering in the race upon the terms that they shall be liable for all damage, because the contract gives the correlative right of being entitled to all damage. Further, the conditions in which merchant ships sail and yachts sail are different. Merchant ships must be on the seas at all times and in all weathers, considerations which would induce the owners to diminish the stakes upon which they were running their vessels. However, such considerations would not be applicable to the case of yachts, which presumably are intended to race in conditions in which they are not exposed to the same risks.