Canada asks: can a shipowner claim costs and expenses when they caused the oil pollution and were the only ship involved? (Spoiler alert: no)

At the end of August, the Canadian Federal Court dismissed a statutory appeal made by Haida Tourism Limited Partnership (Haida) against a decision of the Ship-Source Oil Pollution Fund (SOPF) Administrator. In doing so, it raised a few interesting points and gave us an excuse to take a quick look at one of the more claimant-protective ship-source oil pollution damage compensation regimes out there.

Facts:

On 08 September 2018, the Tasu I – an accommodation barge owned and operated by Haida – came loose from its mooring buoy in Alliford Bay, Haidi Fwaii, and drifted to a grounding point in Bearskin Bay on Lina Island, BC, Canada, where it released a mixture of gasoline and/or diesel. Haida contacted the Canadian Coast Guard about the incident and attempted to assuage the oil pollution damage caused by the grounding.

In late December 2018, Haida submitted a claim to the SOPF – pursuant to s103(1) of the Marine Liability Act SC 2001 c6 (MLA) – to recuperate the costs and expenses it incurred as a result of its mitigation efforts. They claimed the Tasu I’s mooring lines had been intentionally and wilfully tampered with by a third party, with the intent to cause harm, thereby providing Haida with a defence against liability under s77(3)(b) MLA. In early August 2021, the SOPF’s Administrator denied the claim and Haida appealed. 

The appeal did not assess the validity of the defence put forward in the initial claim (or other factual matters), but focussed on a question of law, specifically, on the interpretation of s103 of the MLA and whether it permits a right of recovery for costs and expenses by the shipowner when such costs and expenses are incurred as a result of preventing, repairing, remedying or minimizing potential oil pollution damage when the incident has been caused solely by the shipowner’s own ship.

Haida

Canadian law:

The Marine Liability Act 2001 addresses matters of maritime claims and liability. Of relevance to the appeal were Parts 6 and 7, which address liability and compensation for oil pollution damage, and the SOPF, respectively.

Division 1 of Part 6 gives several ship-source pollution conventions the force of law in Canada, including the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 (Bunker Convention), the International Convention on Civil Liability for Oil Pollution Damage, 1992, (CLC) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992 (Fund Convention).

The CLC imposes a capped, strict liability regime upon the shipowner of oil tankers/vessels adapted for the carriage of oil that cause oil pollution damage. In situations where the shipowner does not pay (because they are unable to/have reached the liability cap/ benefit from a defence), victims are able to seek compensation via a fund set up by the Fund Convention.

The Bunker Convention – which is similar in nature to the CLC but applies to pollution damage caused by spills from any seagoing vessel’s bunker oil (rather than cargo oil) – has no equivalent fund or Fund Convention.

Part 6, Division 2 concerns itself with liability that has not been covered by the international conventions incorporated into law by Division 1. Of particular note is s77 MLA, which – subject to some limited exceptions – imposes strict liability on a shipowner for oil pollution damage from their ship (s77(1)(a)), as well as for the costs and expenses incurred by the Minister of Fisheries and Oceans (a response organization under the Canada Shipping Act 2001), or any other person in Canada, in respect of measures taken to prevent, repair, remedy or minimize oil pollution damage from the ship, including measures taken in anticipation of a discharge of oil from it, to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures (s77(1)(b)).

Liability for pollution and related costs

77 (1) The owner of a ship is liable

a) for oil pollution damage from the ship;

b) the Minister of Fisheries and Oceans in respect of measures taken under paragraph 180(1)(a) of the Canada Shipping Act, 2001, in respect of any monitoring under paragraph 180(1)(b) of that Act or in relation to any direction given under paragraph 180(1)(c) of that Act to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures, or any other person in respect of the measures that they were directed to take or refrain from taking under paragraph 180(1)(c) of the Canada Shipping Act, 2001 to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures; and

(c) in relation to pollutants, for the costs and expenses incurred by

i. the Minister of Fisheries and Oceans in respect of measures taken under paragraph 180(1)(a) of the Canada Shipping Act, 2001, in respect of any monitoring under paragraph 180(1)(b) of that Act or in relation to any direction given under paragraph 180(1)(c) of that Act to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures, or

ii. any other person in respect of the measures that they were directed to take or refrain from taking under paragraph 180(1)(c) of the Canada Shipping Act, 2001 to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures.

Part 7 lays out the specifics of the SOPF, which was set up as a fund of first recourse, providing an extra layer of protection to ship-source oil spill victims by compensating them in situations where a shipowner is either unable to do so, refuses to do so or is not obliged to do so, irrespective of whether any of the above conventions apply (s101)[1]. The SOPF is a unique feature in oil pollution damage compensation, combining the benefits of the CLC regime and the American one – the USA, not being a party to the CLC, set up a similar regime (encompassed in its Oil Pollution Act 1990), including a fund which covered situations akin to those compensable under the Fund Convention, as well as situations outside of it.

Canada’s Ship-Source Oil Pollution Fund does not cap its limits and includes pay outs for pure economic loss.

Liability of Ship-source Oil Pollution Fund

101(1) Subject to the other provisions of this Part, the Ship-source Oil Pollution Fund is liable in relation to oil for the matters referred to in sections 51, 71 and 77, Article III of the Civil Liability Convention and Article 3 of the Bunkers Convention in respect of any kind of loss, damage, costs or expenses — including economic loss caused by oil pollution suffered by persons whose property has not been polluted — if

a) all reasonable steps have been taken to recover payment of compensation from the owner of the ship or, in the case of a ship within the meaning of Article I of the Civil Liability Convention, from the International Fund and the Supplementary Fund, and those steps have been unsuccessful;

b) the owner of a ship is not liable by reason of any of the defences described in subsection 77(3), Article III of the Civil Liability Convention or Article 3 of the Bunkers Convention and neither the International Fund nor the Supplementary Fund are liable;

c) the claim exceeds

i) in the case of a ship within the meaning of Article I of the Civil Liability Convention, the owner’s maximum liability under that Convention to the extent that the excess is not recoverable from the International Fund or the Supplementary Fund, and

ii) in the case of any other ship, the owner’s maximum liability under Part 3;

d) the owner is financially incapable of meeting their obligations under section 51 and Article III of the Civil Liability Convention, to the extent that the obligation is not recoverable from the International Fund or the Supplementary Fund;

e) the owner is financially incapable of meeting their obligations under section 71 and Article 3 of the Bunkers Convention;

f) the owner is financially incapable of meeting their obligations under section 77;

g) the cause of the oil pollution damage is unknown and the Administrator has been unable to establish that the occurrence that gave rise to the damage was not caused by a ship; or

h) the Administrator is a party to a settlement under section 109.

Section 103(1) permits the filing of claims by persons suffering loss or damage or incurred costs or expenses in respect of actual or anticipated oil pollution damage, against the Administrator of the SOPF for such loss, damage, costs or expenses. This right is in addition to those granted to claimants under s101.

Claims filed with Administrator

103 (1) In addition to any right against the Ship-source Oil Pollution Fund under section 101, a person may file a claim with the Administrator for the loss, damage, costs or expenses if the person has suffered loss or damage, or incurred costs or expenses, referred to in section 5171 or 77, Article III of the Civil Liability Convention or Article 3 of the Bunkers Convention in respect of any kind of loss, damage, costs or expenses arising out of actual or anticipated oil pollution damage, including economic loss caused by oil pollution suffered by persons whose property has not been polluted.

The appeal:

Haida initially framed its claim under s101, being based on the view that they needed to satisfy one of the criteria under s101 before being able to proceed with s103. It was noted in the initial decision made by the Administrator against Haida that ss101 and 103 were separate and independent mechanisms for claims and that requiring the establishment of criteria in s101 in order to proceed with a s103 claim contradicts the express wording, “in addition to any rights against the [SOPF] under s101,” and would also reduce access to justice by imposing additional burdens on the claimant. Haida had been permitted to recategorize their claim under s103(1) and thus argue that the provision did not preclude a shipowner from making a claim for costs and expenses in situations where they had a defence to liability. Additionally, ‘liability of the shipowner’ and ‘costs and expenses’ were separate under s77.

Even with the permitted re-categorisation, the Administrator viewed this interpretation as problematic for several reasons.

First, the Administrator (sensibly) did not believe that s103’s reference to art 3 of the Bunker Convention (which expressly imposes liability on the shipowner for pollution damage) was intended by its drafters to sever shipowner liability from loss, damage, costs and expenses. And since a shipowner is incapable of being liable to itself, the Administrator did not believe it was possible for Haida to make its claim under s103 by using art 3 of the Bunker Convention.

Secondly, s77’s express reference to costs and expenses could not be divorced from shipowner liability when the provision was read in its full context – it is perfectly possible for a shipowner to suffer losses (including costs and expenses) when their ship is damaged in an oil spill incident, but not under s77(a)-(c) as that would result in the shipowner being liable to itself. For this reason, s77 could also not be used by Haida for its claim under s103(1).

The Federal Court agreed with this interpretation and further pointed out that simply benefitting from a defence from strict liability under s101 did permit a claim for costs and expenses under s103(1) as they were distinct claims processes. In addition, when investigating and assessing a s103(1) claim, the Administrator is restricted to considering only two factors (s105(1)). Neither of these two factors involve consideration of a shipowner’s defence to its strict liability, and when viewed within the overall context of Parts 6 and 7, the obvious and correct conclusion of s103(1) not creating a right for a shipowner to recover costs and expenses incurred during damage mitigation in an incident was correct.


[1]  Where a shipowner is liable but does not pay out, the Administrator settles the claims and then subrogates the claimants’ rights in order to pursue the shipowner. They are also able to commence actions in rem either against the ship or the proceeds from the sale of the ship (s102).

Independent Contractors Facing Unlimited Liability!

JD Irving Ltd v. Siemens Canada Ltd (The SPM 125) 2016 FC 287 (Federal Court of Canada)

 The shipowners, JDI, engaged a firm of marine consultants to prepare stability calculations in respect of the loading of a cargo of large industrial equipment on and off the barge SPM125. During the loading process, the cargo was damaged and the owner of the cargo brought an action against the carrier claiming damages (CAD$45,000,000). The cargo owner also brought an action against the firm of marine consultants and the naval architect (who was the principal of that firm and had carried out the calculations) for the same amount.

The question that arose in this case was whether the firm of consultants had a right to limit their liability under the Convention on Limitation of Liability for Maritime Claims 1976, as amended by the Protocol of 1996, which has been incorporated into Canadian law by Part 3 of the Marine Liability Act.

Article 1(4) of the Convention stipulates:

If any claims set out in Article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention.

There is no firm judicial reasoning on this point and differing opinions have been expressed in text books. The Court has subscribed to the view that Article 1(4) would afford limitation to a person if the shipowner or salvor has vicarious liability for the actions of that person. This would be the case when the negligence of a master or crew member gives rise to a claim by a third party against the owner or salvor. The crew or master in that case would accordingly have a right to limit their liability under the Convention. However, the relationship between an employer and an independent contractor would not usually give rise to a claim for vicarious liability and on that basis, such contractors are not afforded a right to limit their liability under Article 1(4) of the Convention. Applying this reasoning, it was held that the marine consultants in the present case could not enjoy the right of limitation.

The decision is a significant one as it adopts a new yardstick in determining whose actions a shipowner and/or salvor is responsible for in the context of the application of Article 1(4) of the Limitation Convention 1976 as amended by 1996 Protocol. The relevant party is able to limit its liability if the shipowner and/or salvor has vicarious liability for the actions of that party. Apart from marine consultants, classification societies, freight forwarders and logistics experts are likely to fall under this category. The judgment is not binding on English courts but obviously its reasoning needs to be considered carefully when the issue does arise, in addition, it sends a strong warning to the liability insurers of independent contractors as lack of the prospect of limitation would mean a huge increase in the exposure that they might face!