Trinity Term
[2016]
UKPC 20
Privy Council Appeal
No 0114 of 2014
JUDGMENT
Bahamas Oil Refining Company International Limited
(Appellant) v The Owners of the Cape Bari Tankschiffahrts GMBH & Co
KG (Respondents) (Bahamas)
From the Court of Appeal
of the Commonwealth of the Bahamas
before
Lord Neuberger
Lord Mance
Lord Clarke
Lord Sumption
Lord Toulson
JUDGMENT GIVEN ON
19 July 2016
Heard on 23 February 2016
|
Appellant
Peter MacDonald Eggers QC
Oscar Johnson
Tara A Archer
(Instructed by
Clyde & Co LLP)
|
|
Respondents
Luke Parsons QC
Paul Henton
Kenra
Parris-Whittaker
(Instructed by Reed
Smith LLP)
|
LORD CLARKE:
Introduction and essential facts
1.
On 25 May 2012, during a berthing operation, the respondents’ vessel Cape
Bari (“the vessel”) collided with Sea Berth no 10 at Freeport in Grand
Bahama. Sea Berth no 10 was the property of the appellant (“BORCO”) and was
part of its storage facility. As a result of the damage caused by the
collision, BORCO initially claimed damages in the amount of about US$26.8m,
plus interest, against the respondents (“the owners”). It later reduced its
claim to some US$22m. The owners say that they are entitled to limit their
liability (if any) to 11,012,433 Special Drawing Rights (calculated by
reference to the vessel’s gross tonnage), being approximately US$16.9m 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”). BORCO denies that the owners are entitled to limit their
liability, on the ground that they had waived their right to do so under a
contract which it was agreed that the parties had made immediately before the
berthing operation. The contract is contained in or evidenced by a document
referred to hereafter as “Conditions of Use” which was signed by the master.
2.
On 20 September 2012, upon the owners’ ex parte application, the court
made an order for the constitution of a limitation fund in the amount of
US$16,995,487.84. By a summons dated 16 October 2012, BORCO applied to the
court for an order setting aside that order. At first instance, in a judgment
dated 9 August 2013, Senior Justice Hartman Longley (“the judge”) held that the
owners were not entitled to limit their liability because, on the true
construction of the contract, they had contracted out of their right to limit. It
was common ground before the judge that, under both the 1989 Act and the 1976
Convention, it was permissible for the owners to contract out of their right to
limit.
3.
On 22 May 2014 the Court of Appeal (Allen P and Blackman and Adderley
JJA) reversed the decision of the judge, not on the ground that he erred in his
construction of the Conditions of Use, but on the different ground that, under articles
2.1 and/or 2.2 of the 1976 Convention it was not permissible to contract out of
the right to limit, even by entering into a contract of indemnity. However it
is not in dispute that this issue was not argued before the Court of Appeal
because it then remained common ground that it was permissible for parties to
contract out of the 1989 Act and the 1976 Convention.
4.
It is submitted on behalf of BORCO that the Court of Appeal was wrong to
reverse the decision of the judge because (1) on the true interpretation of the
1989 Act and the 1976 Convention it was permissible for the owners to contract
out of the right to limit (as both parties had acknowledged) and (2) on the
true construction of the Conditions of Use, the owners had done so. BORCO also
complains that the Court of Appeal acted unfairly in disposing of the appeal on
a ground which had not been argued by either party and which the court gave
neither party an opportunity to address in argument.
5.
So far as relevant to this appeal, the facts are not in dispute. The
vessel arrived at Freeport at about 1318 hours on 25 May 2012 with a view to berthing
in order to load a cargo of crude oil at BORCO’s terminal. At or soon after
1330 hours, two pilots boarded the vessel. It was a requirement at the terminal
that the vessel would berth using tugs and a pilot provided by BORCO, although
they were in fact supplied through BORCO’s affiliate company, BORCO Towing
Company Ltd (“BORTOW”). At about 1336 hours, 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” relating to the owners’ use of BORCO’s facilities, which
the Board will call the “Conditions of Use”. Shortly after the agreements were
signed, at about 1348 hours on the same day, 25 May 2012, two tugs arrived and
towing lines were secured to the vessel and at or soon after 1350 hours, the
vessel proceeded towards Sea Berth no 10. Very shortly thereafter, at about
1401 hours, the vessel collided with Sea Berth no 10, causing substantial
damage.
6.
Both of the agreements were expressed to be governed by the law of the
Bahamas. Clause 2 of the Pilotage/Towage Agreement provided:
“2. Whilst towing and/or
piloting the vessel, the Pilot and the Master and the crew of the tug shall be
deemed the servants of the Owner of the vessel (the ‘Owner’) and/or servants or
agents and shall be under the control of and identified with the Owner and/or
his servants or agents, and anyone on board the vessel who may be employed
and/or paid by BORTOW shall be considered the servant of the Owner.”
Clauses 1, 4 and 6 of the Conditions of Use provided, so
far as material
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 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 ...
6. These Conditions of Use are the [sic] be
interpreted and construed in accordance with the Laws of the Bahamas.
The issues
7.
In the agreed statement of facts and issues the parties agreed that the
principal issues which arise in this appeal are these. (1) Is it permissible
for the owners of a vessel to contract out of or waive their statutory right of
limitation under the 1989 Act and the 1976 Convention? (2) On the true
construction of the agreement contained in or evidenced by the Conditions of
Use, did the owners and BORCO agree to exclude the owners’ right to limit their
liability under the 1989 Act and the 1976 Convention? (3) Accordingly, are the
owners entitled to a declaration that their liability in respect of damages
caused as a result of the Collision shall be no more than $16,995,487.84 plus
interest thereon in the amount of $342,695.90? In addition the Board is asked
to consider whether the Court of Appeal acted unfairly in holding that it was
not permissible for the owners of a vessel to contract out of or waive its
statutory right of limitation under the 1989 Act and the 1976 Convention
because the Court of Appeal (a) determined the appeal from the decision of the
judge on a basis not put forward by either party and not raised by the Court of
Appeal during the hearing and (b) failed to give BORCO a reasonable opportunity
to argue before the Court of Appeal that any such conclusion was wrong as a
matter of law.
8.
The agreed statement of facts and issues also contains a further
question which seems to the Board to be encompassed in the issues set out
above. It also says that there are in addition consequential issues relating to
procedural matters, including BORCO’s application for an order setting aside
the order dated 20 September 2012 relating to the constitution of a limitation
fund. The Board will return to this, so far as necessary, below. It is
convenient first to discuss the first two questions set out in para 7 above in
the order set out in the statement of facts and issues. However, before doing
so, it is appropriate to refer briefly to the statutory limitation regime set
in its international and historical context.
The right to limit set in context
9.
The 1976 Convention superseded the International Convention
Relating to the Limitation of the Liability of Owners of Sea-Going Ships of
1957 (“the 1957 Convention”), to which the Bahamas was a party by accession. The earlier UK legislation of particular relevance, prior
to international harmonisation, was section 503 of the Merchant Shipping Act
1894, and prior to that section 54 of the Merchant Shipping Act Amendment Act
1862, which was the statutory regime in operation when Clarke v Earl of
Dunraven and Mount-Earl (The Satanita) [1897] AC 59 was decided. In order
to limit its liability at that time it was necessary for the owner to show that
the damage had been caused without its actual fault or privity.
10.
The 1976 Convention radically altered the position. It introduced a
harmonised and uniform set of rules in relation to limitation of liability for
maritime claims around the world, including the Bahamas. Chapter 1 is entitled
“THE RIGHT OF LIMITATION” and contains articles 1 to 4. Article 1.1 provides:
“Shipowners and salvors, as
hereinafter defined, may limit their liability in accordance with the rules of
this Convention for claims set out in article 2.”
The remainder of article 1 is not relevant for present
purposes.
11.
Article 2, which is entitled “Claims subject to limitation”
provides, so far as relevant:
“1. Subject
to articles 3 and 4 the following claims, whatever the basis of liability may
be, shall be subject to limitation of liability:
(a) claims in respect of
loss of life or personal injury or loss of or damage to property (including
damage to harbour works, basins and waterways and aids to navigation),
occurring on board or in direct connexion with the operation of the ship or
with salvage operations, and consequential loss resulting therefrom ...
2. Claims set out in paragraph
1 shall be subject to limitation of liability even if brought by way of
recourse or for indemnity under a contract or otherwise ...”
12.
Article 2 is expressly subject to articles 3 and 4. Article 3 lists
certain claims which are excepted from article 2 and which are not relevant
here. Article 4, which is entitled “Conduct barring limitation” and which is
the sole provision to that effect, provides:
“A person liable shall not be
entitled to limit his liability if it is proved that the loss resulted from his
personal act or omission, committed with the intent to cause such loss, or
recklessly and with knowledge that such loss would probably result.”
13.
There are critical differences between the 1976 Convention and its predecessor,
the 1957 Convention. In particular, article 1.1 confers on “shipowners” and
“salvors” (as defined) a statutory entitlement to limit their liability in
respect of claims falling within the categories listed in article 2, which
provides by article 2.1 that the claims listed “whatever the basis of liability
may be, shall be subject to limitation of liability”, which makes clear
that the right to limit now exists whether the claim is brought in contract,
tort, or otherwise. The 1957 Convention and preceding regimes contained no
equivalent provision. Thus prior to the 1976 Convention, owners were unable to
limit their liability where the claim was based on a contractual liability to
indemnify (as opposed to a damages claim within a listed category - typically a
claim in negligence).
14.
It can thus be seen that the limitation regime in the 1976 Convention is
less favourable to owners than it was previously in that the financial limit is
significantly higher but, importantly, that a claimant can only break the limit
if it proves either intention or recklessness with knowledge that damage will
probably result. This is a high hurdle to jump and is very rarely jumped with
success. So, for example in Schiffahrtsgesellschaft MS Merkur Sky mbH &
Co KG v MS Leerort Nth Schiffahrts GmbH & Co KG (The Leerort) [2001] EWCA Civ 1055; [2001] 2 Lloyd’s Rep 291, Lord Phillips MR (with whom Henry and
Brooke LJJ agreed) said in the Court of Appeal at para 9 that he could do no
better that adopt some passages from the judgment of Sheen J in The Bowbelle
[1990] 1 WLR 1330. They included the following: that the 1976 Convention had
brought about “a profound change” (p 1332) or a “dramatic change” (p 1334) in
the law of limitation. In para 10 Lord Phillips quoted this passage from the
judgment of Sheen J at p 1335:
“I return to consider the
Convention of 1976, under which shipowners agreed to a higher limit of
liability in exchange for an almost indisputable right to limit their
liability. The effect of articles 2 and 4 is that the claims mentioned in
article 2 are subject to limitation of liability unless the person making the
claim proves (and the burden of proof is now upon him) that the loss resulted
from the personal act or omission of the shipowner committed with the intent to
cause such loss, or recklessly and with knowledge that such loss would probably
result. This imposes upon the claimant a very heavy burden.”
The Board turns to the specific questions identified by
the parties.
(1) Is it permissible for the owners of a vessel to
contract out of or waive their statutory right of limitation under the 1989 Act
and the 1976 Convention?
15.
As stated above, it was common ground before the judge that the answer
to that question was yes. The Court of Appeal answered the question no and,
moreover, did so without the point being taken and without giving the parties
the opportunity to make submissions on it. The Board wishes to make it clear at
the outset that the Court of Appeal ought not to have decided the point without
giving the parties such an opportunity. In very many cases, such an approach
will lead to an appeal against the decision being allowed. However, both
parties have now had the opportunity of putting their argument on the substance
of the point to the Board. In the course of his oral submissions on behalf of the
owners the Board asked Mr Luke Parsons QC whether the owners intended to
maintain their stance on the question raised by issue one. He replied that they
did, although he said that he did not intend to add oral submissions to those
set out in the owners’ written case. In the event the Board is satisfied that
it has sufficiently detailed submissions on both sides on this issue and that
the ends of justice will served by the Board considering the question on its
merits, especially since it raises an issue of some general importance.
16.
The general approach in accordance with which the 1976 Convention should
be construed was considered by the Court of Appeal in CMA CGM SA v Classica
Shipping Co Ltd [2004] 1 Lloyd’s Rep 460; [2014] EWCA Civ 114, in a
judgment given by Longmore LJ, with whom Neuberger and Waller LJJ agreed, at
paras 9-11.
17.
First, the interpretation of international conventions must not be
controlled by domestic principles but by reference to broad and generally
acceptable principles of construction. The task of the court is therefore to
construe the 1976 Convention as it stands without any English law
preconceptions. Secondly, some particular broad and generally acceptable
principles of construction are set out in articles 31-32 of the 1969 Vienna Convention
on the Law of Treaties, which provide:
“ARTICLE 31
General rule of interpretation
1. A treaty shall be
interpreted in good faith in accordance with the ordinary meaning to be given
to the terms of the treaty in their context and in the light of its object and
purpose.
2. The context for the
purpose of the interpretation of a treaty shall comprise, in addition to the
text, including its preamble and annexes:
(a) Any agreement relating
to the treaty which was made between all the parties in connexion with the
conclusion of the treaty;
(b) Any instrument which
was made by one or more parties in connexion with the conclusion of the treaty
and accepted by the other parties as an instrument related to the treaty.”
“ARTICLE 32
Supplementary means of interpretation
Recourse may be had to
supplementary means of interpretation, including the preparatory work of the
treaty and the circumstances of its conclusion, in order to confirm the meaning
resulting from the application of article 31, or to determine the meaning when
the interpretation according to article 31:
(a) Leaves the meaning
ambiguous or obscure; or
(b) Leads to a result which
is manifestly absurd or unreasonable.”
18.
The Board adopts the following conclusions of Longmore LJ in his para 10
based on those provisions:
“As I read these provisions, the
duty of a court is to ascertain the ordinary meaning of the words used, not
just in their context but also in the light of the evident object and purpose
of the convention. The court may then, in order to confirm that ordinary
meaning, have recourse to what may be called the travaux preparatoires and the
circumstances of the conclusion of the convention. I would, for my part, regard
the existence and terms of a previous international convention (even if not made
between all the same parties) as one of the circumstances which are part of a
conclusion of a new convention but recourse to such earlier convention can only
be made once the ordinary meaning has been ascertained. Such recourse may confirm
that ordinary meaning. It may also sometimes determine that meaning but only
when the ordinary meaning makes the convention ambiguous or obscure or when
such ordinary meaning leads to a manifestly absurd or unreasonable result.”
In the opinion of the Board Longmore LJ correctly had
regard to the contrast between the 1976 Convention and its predecessor, as the
Court of Appeal had done in The Leerort.
19.
Applying those principles of construction, the Board is of the clear
opinion that it is open to parties, here shipowners, to agree to waive their
right to limit their liability under the 1976 Convention or the 1989 Act.
Simply as a matter of language, the Board concludes that there is nothing in
the language of the Convention or the Act to prohibit them from doing so.
20.
The 1989 Act throws no light on the point distinct from the 1976
Convention. It simply provides in section 3(1) that the provisions of the 1976
Convention “shall have the force of law in The Bahamas”. It follows that all
turns on the construction of the Convention. The language of the Convention
strongly supports the conclusion that there is nothing to prevent shipowners
agreeing to waive their right to limit. Chapter 1 expressly refers to the right
of limitation. Article 1.1 provides that they may limit their liability
… for claims set out in article 2. The Board emphasises those provisions
because they show that the Convention confers rights on shipowners and not
duties. There is no linguistic support for the conclusion that shipowners
cannot agree to pay more than the limit or, more accurately, cannot agree to
pay a particular claimant more than the limit provided for in the Convention.
They have a right to limit, which they can choose to exercise, or not, as they
please.
21.
Some reliance was placed on behalf of BORCO on the travaux préparatoires.
However, the Board does not attach significance to it. There is certainly
nothing in the travaux to support the owners’ case that it is
impermissible to contract out.
22.
The authorities decided under the previous regime show that nobody
suggested that it was not possible to contract out. The whole of the debate in
the House of Lords in The Satanita was as to the construction of the
relevant contractual arrangement, to which the Board will return when
considering issue (2). The Board was also referred to Virginia Carolina
Chemical Co v Norfolk and North American Steam Shipping Co [1912] 1 KB 229,
where the point was common ground. At first instance, Bray J said (p 236) that
it was conceded that it was open to the parties to exclude the section by their
contract, adding that The Satanita was sufficient authority on that
point. On appeal, Kennedy LJ said (p 246):
“In The Satanita the
question was whether a contract to pay for all damage excluded the provisions
of the Merchant Shipping Act, 1894, as to limitation of liability, and it was
held that if the language of the contract was sufficiently clear it had that
effect.”
23.
The conclusion which the Board has reached is consistent with the general
principle that “a man may by his conduct waive a provision of an Act of
Parliament intended for his benefit”: Wilson v McIntosh [1894] AC 129,
133-134 (PC).
24.
In this case the Court of Appeal, which (as stated above) was unassisted
by argument on the point, reached the opposite conclusion, essentially for the
reasons given by Allen P in paras 34-40 of her judgment. She recognised that
under the previous regimes in the Merchant Shipping Amendment Act 1862 and the
Merchant Shipping Act 1894, the position had been held to be different but she
noted that there were no provisions in those statutes which compared with
article 2.2 of the 1976 Convention. In para 34 she set out clauses 1 and 4 of
the Conditions of Use (quoted in para 6 above) and said that it could not be
denied that the contract clearly had as to its intent and purpose to indemnify BORCO
against “all and any loss resulting from the collision”. She then said in para
35 (somewhat enigmatically):
“Undoubtedly, prior to the
Convention becoming a part of Bahamian law in 1989, such a contract of
indemnity could have been construed as excluding the appellants’ right to limit
their liability. However, article 2(1) must be read with article 2(2) which
specifically and clearly excludes the contracting out of the right to limit
liability even by means of contracts of indemnity.”
25.
The essence of Allen P’s reasoning is in her paras 36-40, where
she relies in particular upon the reasoning of Lord Phillips in The Leerort,
namely (as she put it in para 36)
“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.”
Having referred in para 38 to a statement of Lord Denning
MR in The Bramley Moore [1964] P 200, 220; [1963] 2 Lloyd’s Rep 429,
437, where he said that “limitation of liability is not a matter of justice. It
is a rule of public policy which has its origin in history and its
justification in convenience”, Allen P set out these extracts from paras 16 and
19 of Lord Phillips MR’s judgment in The Leerort:
“16. It seems to me that where the loss in respect of
which a claim is made resulted from a collision between ship A and ship B, the
owners of ship A, or cargo in ship A, will only defeat the right to limit liability
on the owner of ship B if they can prove that the owner of ship B intended that
it should collide with ship A, or acted recklessly with the knowledge that it
was likely to do so ...
19. These considerations
demonstrate that when a claim is made for damage resulting from a collision, it
is virtually axiomatic that the defendant shipowner will be entitled to limit
his liability ...”
26.
As was submitted on behalf of the BORCO, the problem with reliance upon The
Leerort is that in that case the Court of Appeal was not considering the
question which arises in this appeal, which is whether on the true construction
of the 1976 Convention, it is permissible to contract out of the right to limit
liability. Moreover there is nothing in the Convention, and in particular in
articles 2.1 and 2.2, which prohibits the right to contract out of the right to
limit liability by means of contracts of indemnity or otherwise.
27.
For all these reasons the Board answers the question posed by issue (1),
namely whether it is permissible for the owners of a vessel to contract out of
or waive their statutory right of limitation under the 1989 Act and the 1976
Convention, in the affirmative.
(2) On the true construction of the agreement
contained in or evidenced by the Conditions of Use, did the owners and BORCO
agree to exclude the owners’ right to limit liability under the 1989 Act and
the 1976 Convention?
28.
The judge answered this question in the affirmative. In the light of the
Board’s view that the first sentence of the quotation from para 35 of Allen P’s
judgment is enigmatic, it is not quite clear to the Board what view the Court
of Appeal took of the question of construction raised by this issue. On balance
it appears to the Board that the Court of Appeal thought that, if the matter
had arisen under the old law, the court could have construed the agreement as
excluding the owners’ right to limit their liability but that the point did not
arise under the new law for the reasons discussed above. The Board will reach
its own conclusions without reference to para 35 of the judgment in the Court
of Appeal.
29.
BORCO’s case depends primarily on clause 4 of the Conditions of Use
which is set out in full in para 6 above. For present purposes the critical
part is 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 ...”
30.
The question is essentially one of construction of that clause. There is
no dispute as to the relevant principles. As it is put in BORCO’s case, the
object of construing a contract is to identify the parties’ objective intention
by reference to the language used, the factual background which was known or
ought to have been known to both parties and the commercial purpose of the
contract. As submitted on behalf of the owners, the overarching question is
what is the meaning that the words of the agreement, especially clause 4, would
convey to a reasonable person having the background knowledge which would
reasonably have been available to the parties in the position they were in when
the contract was made.
31.
The principles which are principally relevant in a case of this kind are
those which are applicable where it is alleged that the agreement excludes a
legal right, including a legal right under a statute. The Board accepts the
submission that, 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.
32.
This principle has been applied in very many contexts. For example, in Gilbert-Ash
(Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, where it
was said that the parties to a building contract had agreed to exclude, or
contracted out of, the contractors’ common law and statutory entitlement, under
section 53(1)(a) of the Sale of Goods Act 1893, to set off breach of warranty
claims in diminution for the price. Thus the right allegedly excluded was one
which would go to diminish the value of the claim otherwise maintainable
against the contractor. It was in this respect not unlike a right to limit. Lord
Diplock put the principle in this way at pp 717-718:
“It is, of course, open to parties
to a contract for sale of goods or for work and labour or for both to exclude
by express agreement a remedy for its breach which would otherwise arise by
operation of law. … But in construing such a contract one starts with the
presumption that neither party intends to abandon any remedies for its breach
arising by operation of law, and clear express words must be used in order to
rebut this presumption … one starts with the presumption that each party is to
be entitled to all those remedies for its breach as would arise by operation of
law, including the remedy of setting up a breach of warranty in diminution or
extinction of the price of material supplied or work executed under the
contract. To rebut that presumption one must be able to find in the contract
clear unequivocal words in which the parties have expressed their agreement
that this remedy shall not be available in respect of breaches of that
particular contract …”
33.
Reliance was also placed on similar principles in the House of Lords in Trafalgar
House Construction (Regions) Ltd v General Survey & Guarantee Co Ltd [1996]
1 AC 199, per Lord Jauncey at 208C (alleged contracting out of incidents of
suretyship); in Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574, per Lord Goff at 585C (shipyard’s rights to recover purchase price
instalments); and in HIH Casualty & General Insurance Ltd v Chase
Manhattan Bank [2003] 2 Lloyd’s Rep 61; [2003] UKHL 6, per Lord Bingham at
para 11 (legal remedies for negligent misrepresentation). See also two similar
statements by Moore-Bick LJ in the Court of Appeal: in Stocznia Gdynia v
Gearbulk Holdings Ltd [2009] 1 Lloyd’s Rep 461; [2009] EWCA Civ 691, para
23 and in Seadrill Management Services Ltd v OAO Gazprom [2010] 1 CLC 934, para 29. In the first of those cases he said:
“The court is unlikely to be
satisfied that a party to a contract has abandoned valuable rights arising by
operation of law unless the terms of the contract make it sufficiently clear
that that was intended. The more valuable the right, the clearer the language will
need to be.”
The Board agrees.
34.
There is also authority to the same effect in a class of case which is
similar to this. Section 502 of the Merchant Shipping Act 1894 provided that
“the owner of a British sea-going ship” shall not be liable for “any loss or
damage happening without his actual fault or privity” where goods were lost or
damaged by reason of fire on board the ship. In Ingram & Royle Ltd v
Services Maritimes du Trėport Ltd [1914] 1 KB 541 Vaughan Williams LJ
said at p 553:
“Shortly my judgment is this, that
prima facie there is included in the bill of lading the statutory protection of
the shipowners under section 502. If the protection is not expressly or
impliedly excluded, it follows that one starts with the proposition that the
conditions in this bill of lading are accompanied by the provision contained in
section 502 for the protection of the shipowners. I have therefore to see if I
can find anything in the words of this bill of lading which excludes the
operation of that protection. I can find nothing.”
Buckley LJ said much the same at p 557.
35.
The decision in Ingram & Royle was upheld by the House of
Lords in Louis Dreyfus & Co v Tempus Shipping Co [1931] AC 726 at
733-734 and 741, where Lord Warrington of Clyffe said that the statutory
provision was as much written out in the contract as if the parties had written
it out in the contract itself.
36.
In Alsey Steam Fishing Co Ltd v Hillman (The Kirknes) [1957] P
51, after reviewing the authorities, including The Satanita, Willmer J
said at p 62, that the relevant statute (there section 503 of the 1894 Act)
“applies unless quite clearly it is expressly or impliedly excluded by the
terms of the contract”. The Board accepts that it might be possible to exclude
the right to limit without express reference to the statute, but concludes that
the right must be clearly excluded, whether expressly or by necessary
implication.
37.
Absent The Satanita, the Board would be in no doubt that
the application of the principles identified above leads to the clear
conclusion that the effect of clause 4 of the Conditions of Use is not that the
parties agreed that the owners could not rely upon their right to rely upon the
1976 Convention. The 1976 Convention is an important part of the factual matrix
against which clause 4 must be construed. As Willmer J put it in The Kirknes
[1957] P 51, p 62, section 503 of the Merchant Shipping Act 1894 applied
unless it was expressly or impliedly excluded by the terms of the contract and
that “the parties should be assumed to be contracting in accordance with the
known state of the law”. See also, to the same effect, in the context of the
1976 Convention a recent decision of Reyes J in Hong Kong: Sun Wai Wah
Transportation Ltd v Cheung Kee Marine Services Co Ltd [2010] 1 HKLRD 833,
para 11.
38.
It is noteworthy that, notwithstanding the provision in section 3(1) of
the 1989 Act that the provisions of the 1976 Convention “shall have the force
of law in The Bahamas”, there is no reference in clause 4 or any other part of
the Conditions of Use to any part of those provisions. In particular there is
no reference to articles 1, 2.1 or 2.2 of the Convention. In the opinion of the
Board, if the parties had intended to agree that the owners should not be
entitled to exercise their right to limit their liability in accordance with article
1 they would have so provided. Construed in the way most favourable to BORCO,
the property claims (including claims for an indemnity) which were to be
“subject to limitation of liability” were those set out in article 2.1(a) and 2.2.
Provided the claims were claims so defined, it appears to the Board that the
owners were entitled to limit their liability under the Act. There is nothing
in clause 4 which contains even a hint that the owners were agreeing to waive
their right to limit their liability under the Convention.
39.
On the contrary, clauses 1 to 3 contain provisions entirely for the
protection of BORCO and impose liability on the shipowners whether or not
BORCO, its servants or agents were responsible. In short, there are three
exclusion clauses which expressly identify with precision that which they
purport to exclude. It is said on behalf of BORCO that clause 4 has the effect
of excluding the owners’ rights to limit under the 1976 Convention and the 1989
Act. Yet it contains no reference to the Convention or the owners’ right to
limit. The first sentence of clause 4 purports to impose a form of strict
liability on the owners in respect of damage to the terminal facilities. Liability
is said to attach irrespective of whether the owners were negligent and even if
the relevant loss was caused by the negligence of BORCO or their servants. In
addition clause 4 imposes an obligation to indemnify BORCO in connection with
damage to the terminal facilities and in respect of third party claims. As the
owners observe, it is this liability to hold harmless and indemnify BORCO which
triggers the owners’ need to limit their liability.
40.
BORCO’s case depends in large part upon its reliance upon the reasoning
and decision of the House of Lords in The Satanita. It appears to the
Board that, if the principles identified above are applied, there is nothing in
the Conditions of Use which, on its true construction, excludes the owners’ rights
under the 1976 Convention. Although (as stated above) the Board accepts that it
would not be necessary to provide expressly for such a conclusion, it would
have to be clear from the language of the clause construed in its context that
the parties intended to exclude the right to limit.
41.
BORCO relies in particular on two aspects of the decision and reasoning
of the House of Lords in The Satanita. The facts were simple. Two yachts
took part in a regatta. Each owner signed a letter to the secretary of the
Mudhook Yacht Club undertaking that while sailing in the regatta he would obey
and be bound by the rules of the Yacht Club Association Those rules included
rule 18, which corresponded to article 14 of the Regulations for Preventing
Collisions at Sea and also included rules 24 and 32, which provided, so far as
relevant:
“24. … If a yacht, in
consequence of her neglect of any of these rules, shall foul another yacht, or
compel other yachts to foul, she shall forfeit all claim to the prize, and shall
pay all damages
...
32. Any yacht disobeying or
infringing any of these rules … shall be disqualified from receiving any prize
she would otherwise have won, and her owner shall be liable for all damages
arising therefrom.”
The parties to the action were the owners of two of the
yachts, the Satanita and the Valkyrie. During the regatta the Satanita,
without the actual fault or privity of the owner, in breach of rule 18, ran
into and sank the Valkyrie.
42.
The owner of the Valkyrie brought an action for damages against
the owner of the Satanita. The owner of the Satanita paid into
court a sum as the amount of damages for which he was answerable under section
54(1) of the Merchant Shipping Act Amendment Act 1862, which was the forerunner
of the Merchant Shipping Act 1894. The limitation fund was calculated at the rate
of £8 per registered ton. Bruce J held that, even assuming that there was a
special contract binding the owners, including the owner of the Satanita,
the words “all damages” in the rules were not so express as to override the
statutory limitation. The Court of Appeal reversed his decision and an appeal
to the House of Lords failed.
43.
All members of the House agreed that there was a binding contract between
the parties on the terms of the rules and the case is indeed a case well known
to students on that point. The two points relied upon by BORCO in this appeal
are however the approach to the construction of the contract and the meaning of
“all damages”. It is said that the expression in clause 4 that the owners
“shall hold BORCO harmless from
and indemnified against all and any loss, damages, costs and expenses incurred
by BORCO in connection [with the facilities].”
has the same meaning as “all damages” in The Satanita.
44.
On the approach to construction, Lord Halsbury LC said at p 62:
“That being so [ie that the
parties were contractually bound by the rules], the whole question turns upon
what is the contract. It has been urged upon us that unless the parties used
very clear language they must be supposed to be contracting according to the
known state of the law with regard to ships coming into collision. I do not
deny that considerations of that sort are intelligible and reasonable. On the
other hand, I think it cannot be denied that the case of yachts is different
from that of merchant vessels.”
Lord Halsbury then gave number of reasons why yachts
competing in a yacht race are significantly different from merchant vessels. He
continued thus:
“I do not say that such a consideration
would be conclusive; but remember that these are competing vessels, and where
you are speaking of these first-class yachts competing in a yacht-race you
might as well value a race-horse by its weight, so many pounds of flesh, as
speak of the value of a yacht according to its tonnage. Of course, it may be
said in respect to merchant ships also, that that is a very rough test of the
value of the ship, and that the object of it is to limit the risk. That is true
also; but the conditions under which merchant ships sail and yachts sail are
different. Merchant ships must be on the seas at all times and in all weathers,
both by day and by night, and it may well be that the considerations that would
induce people, so to say, to diminish the stakes upon which they were running
their vessels would not be applicable to the case of yachts, which presumably
are intended to race in conditions of light and of weather in which they are
not exposed to the same risks.”
45.
In the opinion of the Board Lord Halsbury treated the position of yachts
engaged in a regatta as significantly different from the position of a merchant
vessel. He then said that all depended upon the language the parties had used,
that the words in the contract were popular words and that the expression “all
damages” did not mean damages as limited by the Merchant Shipping Act. He
accepted, at p 63, that, as he put it, this was not
“one of those cases which you can
pronounce to be absolutely clear (I can quite understand a different view being
taken for the reasons I have pointed out) - to my mind the intention of the
contract is that the parties are not to be bound by the limitation of the
Merchant Shipping Act, but that all damages are to be paid by the person
disobeying the rules.”
It appears to the Board that in this section of his
speech he also drew a distinction between the two classes of vessel.
46.
Lord Herschell also drew a distinction between the classes of vessel
concerned. He said, for example at p 65:
“My Lords, it has been said that a
contract such as the court below have held to exist is a very unlikely contract
for the parties to have entered into. I confess I am not satisfied of that
either. The parties here are yacht-owners who are entering their yachts for a
race in which other yachts will be engaged. I do not think there is anything
extraordinary in their entering for that race upon the terms that they shall be
liable for all damage, because the contract gives of course the correlative
right of being entitled to all damage. The question to whom that contract would
be an advantage would depend on the size of the injured vessel and the injuring
vessel in the particular case, which could not be foreseen; therefore it does
not seem to me extraordinary that a contract of this sort should be entered
into. And again, whilst it is a most uncommon thing for merchant vessels
engaged in an adventure to be actually navigated by the owner, that is not at
all an uncommon thing in the case of yachts.”
Further, on p 66 Lord Herschell suggested that the words
“All damages” were clear and that if an owner wished to impose a limitation on
those general words then he “must make it manifest that it is a contract which
there could be no reasonable ground for the parties to have entered into”. Lord
Macnaghten said much the same at p 67.
47.
It is clear from the passage quoted above that Lord Herschell attached particular significance to the fact
that every competitor accepted full liability for any damage which he might cause
to any other yacht in exchange for “the correlative right of being entitled to
all damage”. Lord Halsbury made the same or a similar point when he spoke about
“competing vessels” and described the case of yachts as different from merchant
vessels. The nature of such competitions is that they involve a particular risk
of collision if competitors are over aggressive, against which the yacht club
rules provided mutual protection. The House was not concerned with the more
usual type of exclusion or limitation clause inserted into a contract
predominantly for the benefit of one party.
48.
In the opinion of the Board that part of the reasoning of the House is
to be distinguished from that applicable in the instant case. The correct
analysis of cases of this kind has developed significantly since the decision
in The Satanita. The cases cited above show that the words of the
particular 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 to apply (The Kirknes) and were treated as being written
into the Conditions of Use (Ingram & Royle). It follows that that
remains the position unless there is some provision which clearly and
unequivocally excludes the right such that the two provisions cannot be read together
and the statutory right must have been excluded.
49.
In short, in the light of the later jurisprudence, in the opinion of the
Board 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, moreover, at a time when the relevant principles
of construction were much less developed than they are today.
50.
The Board accepts the owners’ submission that clause 4 of the Conditions
of Use and article 2.2 of the 1976 Convention can readily be read together as a
coherent scheme. BORCO is entitled to an indemnity in respect of “all and any
loss” up to the maximum recoverable pursuant to the Convention. The expression
“all and any loss” is simply generic indemnity clause wording which makes no
reference to the statutory wording. In short, there is nothing in the language
of the agreement which suggests that the owners were agreeing to waive their
right to limit. Indeed, viewed objectively, it seems to the Board to be
inconceivable that the owners intended to waive their right to limit. Moreover,
if BORCO had intended that they should do so, it could reasonably have been
expected for BORCO to include such a clause in the Conditions of Use.
51.
Finally, the Board reverts to the reasoning of Reyes J in the Sun Wai
Wah Transportation case referred to in para 37 above. It does so because
(albeit at first instance) he was considering a very similar case on the facts.
The Board agrees with the owners’ submission that his analysis cannot be faulted.
He said this at paras 10-12:
“10. Mr Tsui (appearing for
Sun Wai) notes that, since THE ‘SATANITA’ was decided, limitation legislation
has changed. For instance, in 1897 the relevant legislation required that
claims sound in damages in order to qualify for limitation. Claims for an
indemnity pursuant to a contract to indemnify would not have qualified for
limitation. Now, however, by article 2(2) of the Convention, except for certain
specific types of claims identified in articles 2(1)(d)-(f), claims ‘shall be
subject to limitation of liability even if brought ... for indemnity under a
contract’.
11. Thus, I should construe
the Indemnity Agreement in the context of article 2(2) of the Convention. The
existence of the Convention is part of the factual matrix. There is no evidence
that Sun Wai or Cheung Kee (both experienced in the business of carrying goods
by sea) would have been unaware of the provisions of the Convention.
12. When the parties entered
into the Indemnity Agreement, they must be taken to have done so in the context
of a shipowner (such as Sun Wai) being able to apply for limitation under the
Convention even in respect of a liability to indemnify. In the absence of clear
words to the contrary, I do not think that I can read the references to full
indemnification in the Indemnity Agreement as meaning other than a full
indemnity within the terms of what the Convention permits.”
52.
For these reasons the Board answers question (2), namely whether on the
true construction of the agreement contained in or evidenced by the Conditions
of Use, the owners and BORCO agreed to exclude the owners’ right to limit
liability under the 1989 Act and the 1976 Convention, in the negative.
Conclusion
53.
For these reasons the Board will humbly advise Her Majesty that the
relevant questions should be answered as follows: question (1) by holding that
it is permissible for owners of a vessel to contract out of or waive their
statutory right of limitation under the 1989 Act and the 1976 Convention and
question (2), namely whether on the true construction of the Conditions of Use
they agreed to do so, by answering in the negative. So far as the Board is
aware the only remaining question is whether the order of 20 September 2012
(referred to in para 2 above) for the constitution of a limitation fund in the
sum of US$16,995,487.84 should stand and, if not, what order should be made. The
Board naturally hopes that the parties will be able to agree all consequential
matters arising out of this judgment.
54.
The owners should serve written submissions on costs and any remaining
issues within 21 days of the handing down of this judgment and BORCO should
serve submissions on those issues within 14 days thereafter.
