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 BARI1.

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 owners of the vessel (the Owners) claimed that they were entitled to limit their 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 owners of the berth, BORCO, denied that Owners were entitled to limit their liability on the grounds that they had waived their right to do so. The Master of the vessel had signed the Conditions of Use for the facility which stated at Clause 4 that Owners 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 Owners were not entitled to limit liability in light of Clause 4. However, the Bahaman Court of Appeal reversed the decision concluding that 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 Owners 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 Owners’ 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 CONFIDENCE2, 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 Owners’ 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 e.g. the master.