The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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

Buckeye Partners, in its 10-Q filing with the Securities & Exchange Commission (SEC) this month, pledged to appeal a Court of Appeal verdict that found a tanker’s owner could limit its liability for $26.8 million worth of damage caused when the vessel collided with BORCO’s Berth 10 jetty.

And, compounding BORCO’s woes over the incident, Buckeye Partners’ latest filing revealed that the vessel’s owners have filed a lawsuit against their Bahamian subsidiary’s towing unit, alleging its negligence caused the action.

In the action that led to the Court of Appeal ruling, BORCO and its New York Stock Exchange (NYSE) listed parent are disputing the assertion by the Cape Bari tanker’s owner that it can limit its liability for the damage to $17 million.

“The Bahamas court of first instance denied the vessel owner the right to limit its liability for the incident, leaving the vessel owner responsible for all provable damages,” Buckeye Partners said in its 10-Q filing.

“The vessel interests appealed, and the Bahamas Court of Appeal reversed, holding that the vessel interests may limit their liability.

“We have filed a motion for leave to appeal that decision to the Privy Council, which motion is pending. We believe the motion for leave will be granted but can express no view on whether the Court of Appeal decision ultimately will be affirmed or reversed.”

With BORCO and Buckeye possessing insurance to cover the loss, subject to 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.

And Cape Bari’s owners have moved to intensify the legal battle, with Buckeye’s August filing revealing: “On May 12, 2014, the vessel interests filed a third-party complaint against a BORCO subsidiary, Borco Towing Company, which provided pilots and tugs to assist the Cape Bari, alleging that Borco Towing was negligent.

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

Buckeye added: “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 June 30, 2014, we had a $5.9 million receivable included in ‘other non-current assets’ in our unaudited condensed consolidated balance sheet, representing reimbursement of the deductible.”

BORCO’s parent then said: “Additionally, we have received cash proceeds of $15.8 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 June 30, 2014, no gain had been recognised. However, we recorded a $13.9 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.’

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 that occurred on May 25, 2012 - almost exactly two years ago.

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.