A numerical model for coastal and estuary waters has been developed to study the dynamic processes in estuaries and shallow water. The model is based on joining together a multi-level two dimensional river model with a three-dimensional hydrodynamic bay model. An interactive sigma coordinate splicing scheme is used to match the sigma coordinates with different vertical and time resolution so that the exchange of dynamic information between two models can be achieved. The river model has been used for the modelling of the flow and relevant transport processes, including salinity and sediment transport in the estuary. The bay model has been used to provide real time tidal forcing information to the river model across the common boundary of two models. After the joined model was set up and operated satisfactorily, the numerical experiments were carried out in Liverpool bay and the Mersey estuary to study the interaction of tidal flow in these two areas. The model was applied with real time tidal forcing due to an M2 tidal constituent at the open boundary of the bay model and freshwater discharge from the Mersey estuary into Liverpool bay. The relevant results obtained from the numerical model have been compared with the data reported according to the observations and have shown good agreement with the data. It is shown that the M2 tide plays an important role in the mixing of freshwater with the sea water in the Mersey estuary and Liverpool bay. The discharge of freshwater from Mersey into the bay leads to a plume of low salinity water around the mouth of river. The flow in the river driven by tidal forcing from Liverpool bay and the freshwater flow leads to the transport of suspended sediment from the Mersey estuary into Liverpool bay.