The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Oil Refining Company’s (BORCO) has been granted permission to appeal a ruling that leaves it with a potential multi-million dollar jetty repair bill to the Privy Council.

Buckeye Partners, in its regulatory filings with the Securities & Exchange Commission (SEC) last week, said its motion for leave to appeal a Court of Appeal verdict, which found a tanker’s owner could limit its liability for $26.8 million worth of damage, had been granted.

The vessel owner had claimed it could limit its liability for damage caused by the accident to around $17 million. While this argument was rejected by the Supreme Court, the Bahamian Court of Appeal overturned that verdict and ruled in the owner’s favour.

“We are contesting the right of the vessel owner to such limitation,” Buckeye said. “The Bahamas court of first instance [Supreme Court] denied the vessel owner the right to limit its liability for the incident, leaving the vessel owner responsible for all provable damages.

“The vessel interests appealed, and the Bahamas Court of Appeals reversed, holding that the vessel interests may limit their liability. We filed a motion for leave to appeal that decision to the Privy Council, which was granted. We can express no view on whether the Bahamas Court of Appeals decision ultimately will be affirmed or reversed.”

Buckeye reaffirmed that its insurance covered all loss and damages stemming from the May 25, 2012, incident when the Cape Bari collided with the Berth 10 jetty at BORCO . However, Buckeye and BORCO have to cover the $5 million insurance policy deductible.

“Full security for our claim has been provided by the vessel owner’s insurers, reserving all of their defences,” Buckeye added.

“We also have notified the customer on whose behalf the vessel was at the BORCO facility that we intend to hold them responsible for all damages and losses resulting from the incident, pursuant to the terms of an agreement between the parties. Any disputes between us and our customer on this matter are subject to arbitration in Houston, Texas.”

BORCO’s services and operations were not interrupted by the accident, and Buckeye said: “The aggregate cost to repair and reconstruct the damaged portions of the jetty, and pursue recovery in court, has been approximately $23 million.

“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 September 30, 2014, we had a $6 million receivable included in ‘other non-current assets’, representing reimbursement of the deductible and other third party expenses.”

The New York Stock Exchange listed company added: “We have received cash proceeds of $16 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.

“BORCO’s insurers have paid most of the claim, and have now appeared in the Bahamas litigation. As of September 30, 2014, no gain had been recognised. However, we recorded a $14.1 million deferred gain in ‘accrued and other current liabilities’, representing excess proceeds received over the loss on disposal and other costs incurred.”

Buckeye also confirmed that the Cape Bari’s owners had, on May 12, filed a third-party complaint against a BORCO subsidiary, Borco Towing Company, alleging negligence by the pilots and the tugs that assisted the berthing.

It said: “We are investigating those allegations but, at this time, we believe that we have defences and intend to vigorously defend ourselves and pursue our claims against the vessel interests.”

In the main case now set to go before the Privy Council, a Supreme Court verdict by Justice Hartman Longley on August 9, 2013, found 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.

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.