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Limitation of LiabilityIntroductionLimitation of liability is dealt with in Part 3 of the Marine Liability Act. Part 3 of the MLA implements the 1976 Convention on Limitation of Liability for Maritime Claims and the 1996 Protocol but with Canadian amendments and limits. These provisions originally became part of Canadian law on August 10, 1998 when they were enacted as amendments to Part IX of the Canada Shipping Act. Prior to 10 August 1998, Canada adhered to the 1957 limitation Convention which had lower limits but it was also much easier to break limitation. Immediately below is a brief summary of the limitation provisions of the Marine Liability Act followed by case summaries. Persons Entitled to LimitAs is well known, the 1976 Convention as amended by the 1996 Protocol regulates the limitation of liability of shipowners. Article 1 sets out the persons entitled to limit liability. They are: the owner, charterer, manager and operator of seagoing ships and salvors. Article 1(4) extends the right to limit to employees and agents of such persons. Article 1(6) extends the benefits to liability insurers of persons entitled to limit. The MLA further extends the list of persons entitled to limit their liability beyond that allowed in the Convention. Section 25(1)(b) of the MLA extends the right to limit to owners, charterers, managers and operators of all ships and not just “seagoing” ships and further to any person with an interest in or possession of a ship. With these amendments the right to limit applies to pleasure craft on lakes and rivers as well as “seagoing” ships. Claims Subject to LimitationArticle 2 of the Convention sets out the claims that are subject to limitation of liability. The list of claims in article 2 is very broad and includes: claims for loss of life or personal injury, claims for loss of or damage to property, claims for consequential losses, claims for delay in the carriage of cargo or passengers and various other claims. Article 3 sets out the claims excepted from limitation. The excepted claims are limited. They are: claims for salvage, claims for oil pollution damage governed by the 1969 Convention on Civil Liability for Oil Pollution, claims for nuclear damage, and claims by employees if the applicable law does not permit limitation. Conduct Barring LimitationArticle 4 sets out the circumstances under which a person will lose their right to limit. In order to prevent a defendant from limiting his liability the plaintiff must prove that the loss resulted from the personal act or omission of the defendant “committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. This is a very strict test and is often referred to as establishing an “unbreakable limitation”. To the knowledge of the author, there has never been a case where Article 4 has successfully been invoked and the shipowner has lost the right to limit. The LimitsThe general limits of liability are established by Article 6 of the Convention and by section 28 of the MLA. Section 28 of the MLA sets out special Canadian limits for vessels of less than 300 gross tons. For vessels of more than 300 gross tons the limitation amount is governed by the Convention. The table below summarizes the limits applicable to all claims with the exception of claims by passengers. The limits of liability for passenger claims is dealt with in Article 7 of the Convention and section 29 of the MLA. These limitations are dealt with in the next section. Limitation Amounts
(Note: All SDR amounts are converted to Canadian dollars at a rate of 1 SDR= C$2.) The above limitations apply to the aggregate of all claims arising on any distinct occasion. It should be noted that pursuant to Article 6(2) where the limitation amount applicable to a personal injury claim is insufficient to satisfy all such claims the amount applicable to property damage claims shall be made available to satisfy the personal injury claims. Pursuant to Article 6(4) the limits of liability applicable to a salvor not operating from a ship are to be calculated according to a tonnage of 1,500 tons. Limits of Liability for Fatalities and Personal Injuries to PassengersThe limits of liability for claims by passengers and persons carried on board a ship are set by Article 7 and by section 29 of the MLA. Article 7 establishes the maximum liability at 175,000 SDR (C$350,000) multiplied by the number of passengers the ship is authorized to carry by her certificate. This provision, of course, requires that a ship have a certificate. It is unworkable where the ship carries passengers but is not required to have, and does not have, a certificate. In such cases, section 29(1) of the MLA provides that the limitation amount is the greater of 2,000,000 SDR (C$4,000,000) and 175,000 SDR (C$350,000) multiplied by the number of passengers on board the ship. Sections 29(2) applies a similar limit to claims for loss of life or personal injury to persons carried on a ship “otherwise than under a contract of passenger carriage”. By virtue of the exceptions in section 29(3) these limits do not apply to the master, crew or other persons employed on the ship and do not apply to persons carried on board ships used for pleasure purposes. Owners of Docks Canals and PortsSection 30 of the MLA includes special limitation provisions applicable to owners of a dock, canal or port including any person having the control or management of the dock, canal or port and any ship repairer using the dock, canal or port. Such persons are entitled to limit their liability for loss caused to a ship or to any cargo or property on board the ship. The limitation amount is calculated by multiplying $1,000 by the tonnage of the largest ship to have used the dock in the last five years but is subject to a minimum of $2 million. As with claims under the Convention, the right to limit liability is lost if it is proved that the loss resulted from the personal act or omission of the person seeking to limit and “committed with intent to cause the loss or recklessly and with knowledge that the loss would probably result”. Case SummariesNote: In reviewing these case summaries it is important to recall that the limitation regime changed on 10 August 1998 from the 1957 Convention to the 1976 Convention. Personal Injury During Boat Trailering – Limitation of Liability Isen v Simms, 2006 SCC 41 See summary above under “Jurisdiction” where it was held that personal injury suffered when preparing a pleasure craft for transportation on provincial highways is not subject to limitation of liability. Personal Injury – Fishing Lodge – Defect – Failure to Warn – Limitation Cuppen v Queen Charlotte Lodge Ltd. et al, 2006 BCCA 443 affg. 2005 BCSC 880 See summary below under “Personal Injury” where it was held that the limitation in Part 4 of the Marine Liability Act relating to carriage of passengers did not apply where a fishing lodge provided a boat for use by a guest. The limitation in Part 3 of the Marine Liability Act was held to be applicable. Limitation of Liability – Personal Injury – Fault or Privity Vukorep v Bartulin, 2005 BCCA 142 In July 1998 the Plaintiff was injured on board the Defendant's pleasure craft when the vessel hit a wave from a passing ferry. At the time of the accident the vessel was being operated by the Defendant who was also the owner. The Defendant brought this application for a determination of whether he could limit his liability pursuant to s. 575 of the Canada Shipping Act. The trial Judge dismissed the application on the grounds that the Defendant failed in his capacity as owner to install after market handholds for passengers and that this brought the Plaintiff's injury within his “actual fault or privity” as owner. On appeal, the British Columbia Court of Appeal held that the trial Judge had erred by not considering whether the absence of handholds rendered the pleasure craft unseaworthy. The Court found as a fact that the installation of such handholds is not a common practice and accordingly held that the vessel was seaworthy. In the result, the appeal was allowed and the Defendant was entitled to limit his liability. (Note: The limitation provisions considered in this case were based on the 1957 Limitation Convention which was replaced in Canada on 10 August 1998 by Part 3 of the Marine Liability Act. The new provisions are based on the 1976 Convention on Limitation of Liability for Maritime Claims and the 1996 Protocol.) Collisions – Liability of Owner – Limitation Dixon v Leggat, 2003 ONCA 10101 A pleasure craft ran into a rock face in Lake Rosseau, Ontario. As a result of the accident two passengers were injured, one fatally. These actions were commenced against the owner of the pleasure craft and the driver of the pleasure craft, the owner’s brother. At trial, the trial Judge found the driver liable in that he was operating the vessel at an unsafe speed, failed to maintain a proper lookout, and failed to properly navigate the vessel. The trial Judge also held the Canada Shipping Act, in particular s. 566, created a statutory liability on the owner of the boat. On the issue of limitation, the trial Judge found that the operator could limit his liability but that the owner could not. The trial Judge's finding with respect to the liability of the owner of the vessel was appealed. The Ontario Court of Appeal held that the trial Judge erred in his interpretation of s. 566 of the Canada Shipping Act. The Court of Appeal noted that this section merely provided for joint and several liability where there were joint tort-feasors and did not impose liability where none otherwise existed. The Court of Appeal then considered other sections of the Canada Shipping Act also referred to by the trial Judge but held that neither individually nor collectively did they impose a statutory liability on the owner of a boat. The Court of Appeal did, however, confirm that an owner could be liable on the principle of respondeat superior or on the basis of ordinary principles of tort law. In result, the Court of Appeal returned the case to the trial division for a new trial on the issue of the owner's liability. Collisions - Limitation - Damage to Fishing Net Capilano Fishing Ltd. v The "Qualicum Producer", 2001 BCCA 244,
[2001] B.C.J. No. 631 This was an action for damages suffered during the 1997 herring fishery
when the Defendant's vessel cut the net of the Plaintiffs' vessel. The
Plaintiffs claimed damages for the net, for the value of the lost catch and
for the costs of fishing licences thrown away. The Defendants denied
negligence and claimed the right to limit liability. On the issue of
liability the trial judge found that the Master of the Defendant vessel was
negligent in that he was aware of the Plaintiffs’ vessel yet manoeuvred his
vessel in a direction that ultimately led to the collision. On the matter of
limitation, the trial judge found that the Defendant vessel was well
equipped and had a competent Master and crew and, therefore, held that the
Defendants were without “fault or privity” and entitled to limit their
liability to the amount of approximately $40,000.00. On appeal, the Court of
Appeal upheld the finding on liability but overturned the finding on
limitation. The appeal court adopted the reasoning from North Ridge
Fishing Ltd. et al. v The “Prosperity” et al.,(2000) 78 B.C.L.R. (3d)
388 and held that any owner who permits his vessel to participate in the roe
herring fishery is not entitled to limit liability since the fishery compels
the sacrifice of safe navigation and good seamanship. (Note: This case was
decided under the old limitation of liability regime. Under the new regime
the limitation amount is substantially higher ($500,000.00 for vessels under
300 tons) and the owner is entitled to limit unless the claimant establishes
a personal act or omission committed with intent to cause loss, or
recklessly, with the knowledge that loss would probably result.) Collisions - Limitation - Small vessels Leggat Estate v Leggat, (March 30, 2001)
No. 1954/97 & 3419/98 (Ont. Sup. Ct.), [2001] O.J. No. 1301 In this case, also decided under the old limitation regime, the Court held that the operator of a small vessel was entitled to limit his liability but the owner was not. The owner appealed. The decision of the appellate court is summarized above under Dixon v Leggat. Limitation Proceedings - Calculation of Fund - Flotilla Principle Canadian Pacific Railway Company v The "Sheena M" et al., (November 28, 2000) No. T-1692-99 (F.C.T.D.), [2000] F.C.J. No. 1953 This action arose out of the collision between the unmanned barge, "Rivtow 901", in tow of the "Sheena M", and the Mission Railway Bridge. The Plaintiffs, the owners of the "Sheena M", brought this application for summary judgment for an order that they were entitled to limit their liability under s. 577(1)(b) of the Canada Shipping Act to $500,000.00 plus interest. The Defendant, the owner of the bridge, admitted that the collision was not caused by a "personal act or omission" or "with intent to cause such loss" or "recklessly with knowledge that such loss would probably result" and, therefore, the right of the Plaintiffs to limit liability was not in dispute. The sole issue was whether the limitation fund should be calculated on the tonnage of the tug, "Sheena M", alone or whether it should be calculated on the combined tonnage of the tug and tow. The leading Canadian case on this issue was recognized by all to be the decision of the Supreme Court of Canada in The "Rhone" v The "A.B. Widener", [1993] 1 S.C.R. 497, in which the Supreme Court affirmed that the limitation fund should be calculated on the combined tonnage of the tug and tow provided the tug and tow were in common ownership (the "flotilla principle"). In the absence of common ownership and where the barge was a "dumb barge", the fund was to be calculated on the basis of the tonnage of the tug alone. However, the limitation of liability regime in effect at the time of the decision in The "Rhone" was essentially that contained in the 1957 Convention on Limitation of Liability for Marine Claims. That regime was repealed by C.6 Statutes of Canada 1998, which implemented the 1976 Convention on Limitation of Liability for Marine Claims, with some modifications. Counsel for the Defendant argued that these changes to Canada’s limitation of liability regime had overtaken the decision of the Supreme Court of Canada in The "Rhone" and that the new regime should be interpreted as requiring the tonnage for limitation purposes to be calculated on the basis of the combined tonnage. Counsel for the Defendant pointed specifically to the new definition of "shipowner" in s. 576(3) of the Canada Shipping Act which includes "any person having an interest in or possession of a ship" and urged that by virtue of this definition the owners of the "Sheena M" were also owners of the "Rivtow 901". The Court, however, held that the new definition of "shipowner" was merely a substitution for former s. 577 of the Canada Shipping Act which had similarly extended the limitation of liability provisions to, inter alia, "any person having an interest in or possession of a ship". The Court therefore concluded that the legislation before it was essentially the same as was before the Supreme Court of Canada in The "Rhone". Counsel for the Defendant next argued that the "flotilla principle" was no longer valid because the new limitation of liability regime did away with concepts of "causative negligence" and "common ownership" . The Court also rejected this argument saying that the 1998 amendments showed no clear intent on the part of Parliament to change the existing Canadian "flotilla principle". In the result, the limitation fund was calculated on the basis of the tonnage of the tug alone. Collisions - Limitation - Damage to Fishing Net North Ridge Fishing Ltd. et al. v The "Prosperity" et al., (2000) 78 B.C.L.R. (3d) 388 (B.C.S.C.) This was an action for damages suffered during the 1997 herring fishery when the Defendant's vessel cut the net of the Plaintiffs' vessel. (The full case is summarized below under Miscellaneous.) One of the issues was limitation of liability. The Court noted that there were two prior decisions that had allowed limitation of liability under similar circumstances and stated that it would have followed those decisions and allowed limitation, if necessary. It is noteworthy, however, that in the absence of precedent the Court indicated that it would not have allowed the Defendants to limit liability. The Court indicated that the decision of an owner to engage in a shotgun herring opening, a venture that "compels masters to sacrifice good seamanship for profit", would be sufficient by itself to disentitle the owner to limitation. (Note: This case was decided under the old limitation of liability regime which is no longer in effect.) Collisions - Limitation - Damage to Fishing Net Capilano Fishing Ltd. v The "Qualicum Producer", (January 17, 2000) Vancouver Registry No. C072709 (B.C.S.C.). This was an action for damages suffered during the 1997 herring fishery when the Defendant's vessel cut the net of the Plaintiffs' vessel. The Plaintiffs claimed damages for the net, for the value of the lost catch and for the costs of fishing licences thrown away. The Defendants denied negligence and claimed the right to limit liability. On the issue of liability the court found that the Master of the Defendant vessel was negligent in that he was aware of the Plaintiff's vessel yet maneuverer his vessel in a direction that ultimately led to the collision. With respect to damages, the court held that the damages should be calculated in accordance with the method established in Wishing Star Fishing Co. v The "B.C. Baron", [1987] F.C.J. No. 161, being the total catch divided by the number of vessels less the fish actually caught. The court denied the Plaintiffs’ claim based on unjust enrichment holding that such a claim was not available on the facts of the case. On the matter of limitation, the court found that the Defendant vessel was well equipped and had a competent Master and crew and, therefore, held that the Defendants were entitled to limit their liability to the amount of approximately $40,000.00. (Note: This case was decided under the old limitation of liability regime. Under the new regime the limitation amount is substantially higher ($500,000.00 for vessels under 300 tons) and the owner is entitled to limit unless the claimant establishes a personal act or omission committed with intent to cause loss, or recklessly, with the knowledge that loss would probably result.) Limitation Proceedings - Pleadings Bayside Towing Ltd. v Canadian Pacific Railway Company, (February 2, 2000) No. T-1692-99 (F.C.T.D.) This was a limitation action by the owner of the tug "Sheena M" in relation to a collision between the barge "Rivtow 101" in tow of the "Sheena M" and a railway bridge owned by the Defendant. The Defendant challenged the right of the Plaintiff to limit liability pursuant to the 1976 Convention. The Plaintiff brought this application to strike out portions of the Statement of Defence. The court ordered that those portions of the Statement of Defence referring to faults allegedly committed by the owners of the tow be struck on the grounds that they were not relevant to whether the tug owner could limit liability. The court also struck out those portions of the Statement of Defence alleging mere negligence on the grounds that negligence has nothing to do with the test set out in Article 4 of the Convention for breaking limitation (i.e. personal act or omission committed with intent to cause loss, or recklessly, with the knowledge that loss would probably result). The court also struck out pleas of res ipsa loquitur, on the grounds that it was no longer applicable in Canada, and breach of statutory duty, on the grounds that it was not a recognized tort and was to be considered in the context of the general law of negligence. The court refused to strike out allegations of "wilful defaults", noting that concepts of wilfulness may be close to the test under the Convention. The court further refused to strike out an allegation that the tonnage for limitation purposes should be calculated on the combined tonnage of the tug and tow. The court doubted that the plea could succeed in the absence of common ownership of the tug and tow but it was not something that plainly and obviously would fail. Limitation Proceedings - Stay of Action Canadian Pacific Railway Company v The "Sheena M" et al., (March 7, 2000) No. T-1887-99 (F.C.T.D.). This is another action arising out of the collision between the barge "Rivtow 101" in tow of the "Sheena M" and a railway bridge. As a result of the collision $5 million in damage was caused to the bridge. Two actions were commenced following the collision; one by the owners of the "Sheena M" for limitation (the "limitation action") and the other by the Plaintiff for the damages occasioned by the collision (the "liability action"). This was an application by the owners of the "Sheena M" to stay the liability action pending the outcome of the limitation action and an application by the Plaintiff to consolidate the two actions. The court refused consolidation on the grounds that the two actions were incompatible for consolidation. The court noted that there were different issues, a conflicting burden of proof, and different standards of conduct at issue in the two actions. The court further noted that the limitation action should border on a summary procedure whereas the liability action would be a complex piece of litigation. The Plaintiff raised two preliminary objections to the jurisdiction of the court to hear the stay application. First, the Plaintiff argued that the court was functus by reason of res judicata. This argument was based on the fact that the court had earlier made an order under section 581 of the Canada Shipping Act enjoining the Plaintiff and anyone else from commencing or continuing proceedings against the "Sheena M" interests in any court other than the Federal Court. The court held that it was not functus because enjoining an action and staying an action are two different proceedings and the same question is not decided on the two motions. The second preliminary objection raised by the Plaintiff was that section 581 of the Canada Shipping Act prevailed over section 50 of the Federal Court Act and section 581 did not provide for a stay. The court noted that the wording of section 581 had changed over time and that earlier versions specifically referred to a stay of proceedings. However, the court found that the drafters of the present wording of section 581 had enjoinment in mind and not stay. The court concluded that there was no conflict or tension between section 581 of the Canada Shipping Act and section 50 of the Federal Court Act. They dealt with different concepts. With respect to the merits of the stay application, the court considered whether the test for granting a stay was to be governed by the two part test of Mon-Oil v Canada, (1989) 27 F.T.R. 50 (i.e. that the continuation of the action would cause prejudice or injustice to the applicant and not mere inconvenience and that a stay would not be unjust to the other side) or the three part test of RJR MacDonald Inc. v Canada, [1994] 1 S.C.R. 311 (i.e. that there was a serious issue to be tried, that the applicant will suffer irreparable harm if the stay is not granted, and that the balance of convenience favours the stay). The court held that the two part test was the appropriate one where the court is asked to stay its own proceeding whereas the three part test is appropriate for stays of tribunals or stays pending appeal. Applying the two part test, the court held that it would be prejudicial to the applicants if the stay was not granted since the liability action would be lengthy and complex and would result in the shutting down of the applicant's operations. The court further held that it would be unjust if the limitation procedure under the 1976 Convention was not allowed to unfold as it should which would result in reduced litigation. The court further held that there was no prejudice to the Plaintiff in ordering the stay as the limitation proceeding might do away with the need for the liability action and the Plaintiff would have full discovery and full ability to do whatever investigations and hire whatever experts they required. Owner/Master Entitlement to Limit Conrad v Snair, (December 7, 1995) No. 109424 (N.S.C.A.) The Nova Scotia Court of Appeal held an owner/master was not entitled to limit his liability. See summary under Collisions. Right of Operator to Limit - Conversion Date Cox v Brown,(October 4, 1996) Vernon Reg No.10545 (B.C.S.C.) This was a summary trial for a declaration that the Defendant was entitled to limit her liability under the Canada Shipping Act. The facts were that a small motor boat operated by the Defendant struck a swimmer in Okanagan Lake. At the time, the Defendant was operating the boat without the permission of the owner, the Defendant's father. (An action against the owner was dismissed by consent as a result of a summary trial application brought by the owner.) The Plaintiff argued that as the Defendant did not have the permission of the owner to operate the vessel she was not "acting in the capacity of master" and was therefore unable to limit. The Court, however, held that it was bound by the decision of the British Columbia Court of Appeal in Whitbread v Walley, (1988) 26 B.C.L.R. (2d) 120, a case in which the operator was entitled to limit notwithstanding that the vessel was being operated without the permission of the owner. (This case was, of course, appealed to the Supreme Court of Canada [1989] 2 S.C.R. 1273, on the issue of whether operators of pleasure craft generally could limit liability.) A second issue in this case was the appropriate date for converting gold francs to dollars where there had been no payment into Court. The Court held that the appropriate date was the date of judgment. Right of Tug to Limit Meeker Log and Timber Ltd. et. al. v The "Sea Imp VIII" et. al., (May 30, 1996) Vancouver Registry CA019851 (B.C.C.A.) The British Columbia Court of Appeal held that a tug owner was entitled to limit its liability where the accident could not have been guarded against and was caused solely by a navigational error on the part of the Tug skipper. Owner/Master Entitlement to Limit Daniele v Creglia,(October 6, 1995), No. 4028-93, (Ont. Ct. Gen. Div.) This was an action by a Plaintiff/passenger against an owner/master for damages for personal injury suffered when a small vessel crashed into a breakwater. The Court held that the owner/master was clearly negligent in travelling at an excessive rate of speed and in not maintaining a proper lookout. The only real issue was whether the owner could limit his liability pursuant to the Canada Shipping Act. The Court held that the Defendant as owner was not entitled to limit his liability because, knowing the practice and intention of his alter ego, the master, he failed to ensure his alter ego would travel at a safe speed. Conversion Date Meeker Log and Timber Ltd. v The "Sea Imp VIII", (1995), 8 B.C.L.R. (3d) 143, (B.C.S.C.) The Court held that the exchange rate to be used for converting SDRs to Canadian Dollars is the rate in effect on the date the fund is established, whether the fund is established by judgment or payment into court. Stay upon payment Valley Towing Ltd. v Celtic Shipyards (1988) Ltd., (July 31, 1995), No. T-1492-95, (F.C.T.D.) In this matter a barge under tow of the Plaintiff's tug collided with and caused extensive damage to various docks and vessels. The Plaintiff tug owner admitted liability and commenced limitation proceedings. The Plaintiff then brought a motion for a stay of all proceedings upon payment of the limitation fund ($42,000) into Court. The Court allowed the Plaintiff's motion but only in part. Other actions were allowed to proceed for the purpose of obtaining security for the respective claims.
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