The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company (BORCO) and its insurers appear to have been stuck with a multi-million dollar repair bill, after the Court of Appeal overturned a previous ruling and found a tanker owner could limit its financial liability for damaging a jetty.

The Appellate Court, in a May 22, 2014, verdict, found that the owners of the MT Cape Bari oil tanker could limit their liability for $26.8 million worth of damage caused when the vessel collided with BORCO’s Berth 10 jetty.

This overturned a Supreme Court verdict by Justice Hartman Longley on August 9, 2013, in which he ruled that a contract between BORCO and the tanker’s owners did not limit the latter’s liability for the accident.

But the MT Cape Bari’s owners, and their attorneys, Luke Parsons QC and Bahamian Parris Whittaker, successfully persuaded the Court of Appeal that their client’s total liability was limited to $16.687 million by the Convention on Limitation of Liability for Maritime Claims.

This, they argued, overrode the contract between BORCO and their clients, even though that did not limit the MT Cape Bari owner’s liability for the accident that occurred on May 25, 2012 - almost exactly two years ago.

BORCO’s New York Stock Exchange (NYSE) listed parent, Buckeye Partners, in its latest regulatory filing issued some three weeks before the ruling, said the combined cost of jetty repairs and pursuing the legal action had totalled $23 million to-date.

Buckeye added that it was fully insured against the BORCO damage, albeit it would have to pay a $5 million deductible.

All this implies that the Court of Appeal ruling, by limiting/capping the tanker owner’s liability at just under $17 million, has left BORCO, its parent and its insurers with a collective $6 million-plus bill that they will have to cover.

In its regulatory filing with the Securities & Exchange Commission (SEC), Buckeye said it had also warned the customer whose product was being transported on the MT Cape Bari that it would “hold them responsible for all damages and losses resulting from the incident pursuant to the terms of an agreement between the parties”.

On the positive side, Buckeye added: “We experienced no material interruption of service at the BORCO facility as a result of the incident, and the repairs of the damaged sections are complete. The insurers recently intervened in the litigation and are now parties.”

However, the Court of Appeal ruling may require some changes to the accounting treatments for the incident.

Buckeye’s filing explained: “We recorded a loss on disposal due to the assets destroyed in the incident and other related costs incurred.

“However, since we believe recovery of our losses is probable, we recorded a corresponding receivable. As of March 31, 2014, we had a $5 million receivable included in ‘Other non-current assets’ in our unaudited condensed consolidated balance sheet, representing reimbursement of the deductible.”

That, given last week’s verdict, may be open to question. “We have received cash proceeds of $15.3 million related to insurance reimbursements, and to the extent the aggregate proceeds from the recovery of our losses is in excess of the carrying value of the destroyed assets or other costs incurred, we will recognise a gain when such proceeds are received and are not refundable,” Buckeye added.

“As of March 31, 2014, no gain had been recognised. However, we recorded a $12.7 million deferred gain in ‘accrued and other current liabilities’ in our unaudited condensed consolidated balance sheet, representing excess proceeds received over the loss on disposal and other costs incurred.”

Back with the ruling, the attorneys for the MT Cape Bari owners said the convention limiting liability was to be viewed ‘as one’ with the Merchant Shipping Act 1989 of the Bahamas.

In particular, they argued that the Supreme Court ignored Article 2 (2) of the convention, which limited maritime accident claims even when a contract between parties did not.

And they alleged that the only time liability could not be limited was when an accident was caused deliberately or recklessly by a personal act.

Appeal Court president, Justice Anita Allen, said that while the contract between BORCO and the MT Cape Bari’s owner was designed to indemnify the Bahamian facility “against any and all loss”, the Convention “specifically and clearly excludes the contracting out of the right to limit liability even by means of contracts of indemnity”.

“Interestingly, the modern justification for the enactment of limitation laws is stated as being for the protection of carriers and the general public who use their services,” Justice Allen said.

“It is said that if very large claims have to be paid, carriers would either be run out of business or would have to increase their fees for services. In either case, commerce would be adversely affected.”

Accordingly, she ruled that the MT Cape Bari’s liability “should be no more than” $16.995 million plus interest at $342,695.