Digests

Berhad v. Canada

T-609-99

2004 FC 501, Campbell J.

5/4/04

191 pp.

Bulk carrier Lantau Peak put in at Vancouver for repair of hull frames detached on voyage from Japan and to take on coal for voyage to Japan--But vessel subjected to inspection by government safety inspectors who ordered her detention as hull frames wasted by corrosion beyond limit of 17% of original thickness--Ship repaired under protest to lesser standard--Allowed to sail in ballast to China for extensive hull repairs under terms of release from detention--Action claiming damages for negligence due to detention, delay in releasing ship--Defence: inspectors acted under statutory authority (Canada Shipping Act) so no claim in negligence lies--If that defence invalid, no bar to determination of liability under maritime tort law--Conclusion: defence unavailable, as detention not authorized by Canada Shipping Act (ACT)--Inspectors, supervisors negligent and defendants liable in tort--Ship detained as "Port State Control" measure, regime of maintaining safety standards between maritime nations--Two such agreements: Paris Memorandum of Understanding (MOU) (Atlantic); Tokyo Memorandum of Understanding (Pacific)--Canada party to both--"Freedom of the seas" concept explained--Flag state has absolute command over ship--Flag state supremacy doctrine remains dominant theme in international law of sea--Recent rise of coastal state jurisdiction, states extending control to 200-mile limit--Sovereignty exercise is subject to right of innocent passage by foreign vessels--Both traditional, new positions recognized by U.N. Convention on the Law of the Sea 1982-- Port State Control not universally accepted, arises from agreement (MOU) between limited number of states--Two MOUs not intended to abrogate right of flag state to deal with own ships--Evidence proves nothing haphazard about vessel's maintenance--All repairs directed by surveyors carried out--Prior to her arrival at Vancouver, no authority considered vessel unsafe--Ship's owners took position requirement to repair to wastage standard unreasonable-- Malaysia requested release--Class NK corrosion standard for hull frames was 25%--Agreed to do some repairs at Vancouver but wanting to do remainder at Shanghai as cheaper there--Terms of release--Defendants changed standard from 17% to requirement frames corroded beyond 33% had to be repaired before release, on condition frames corroded beyond 25% be repaired in China--Captain felt had no choice but to agree--Plaintiffs' representations re: repair to Class NK standards fell on deaf ears--Actual seaworthiness of vessel not here at issue--Report on that prepared by New York naval architects C.R. Cushing & Co.--Admissibility of report--Defendants argue report not relevant to quality of decision-making--Report held relevant, admissible as proof professional analysis of hull condition data can yield well- supported opinion re: seaworthiness at given time--But expert's actual opinion irrelevant as played no part in impugned decision-making--Court did find relevant expert naval architects' statement never heard of 17% hull frame corrosion standard--Ultrasound survey conducted after repairs in China--Inadmissible for purpose for which tendered--But relevant as to quantum of damages--Under what authority did government inspectors detain, maintain detention of vessel?--Defendants relied on Canada Shipping Act, s. 310--International Convention for the Safety of Life at Sea, 1974 (SOLAS)--While Canada contracted to Convention, not made part of domestic law by legislation-- But SOLAS relevant, detention purportedly based on "Structural Deficiencies: SOLAS, ch. 1, Reg. 11"--Tokyo MOU, considered--Domestic safety regime--Canada Shipping Act's objectives to protect health, promote safety-- Provides for Steamship Inspection Service, appointment of inspectors, creation of inspection board--Empowers inspector to board, detain ships--May detain if any provision of Act not complied with, detention warranted in circumstances--Non-Canadian Ships Safety Order has significant impact on defence herein--Coasting Trade Act, administered by Canadian Transportation Agency--Definitions of "coasting trade" in s. 2 relevant--Question whether Act, Part V applicable to non-Canadian ship carrying on trade in Canadian waters--To be read to find harmony, not conflict: Driedger on the Construction of Statutes, 3rd ed., Toronto: Butterworths, 1994, at p. 176--Act, Order to be read with SOLAS to find harmony: majority opinion in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 (as to application of international conventions)--Act, Order to be read with understanding of reality of international marine trading to find harmony--Lawyer Swanson's argument all-encompassing, quoted at length as providing correct interpretation of relationship between Act, Order--If reasons for detention pursuant to non-binding SOLAS provisions through voluntary recognition of international convention obligations, why can't detention itself be on basis of same recognition?--Possible to view MOU as "enforcement" mechanism--Malaysian authorities did not question Canadian jurisdiction to detain vessel under MOU Port State Control program--Has been high degree of cooperation in enforcing Port State Control measures--While grounds for detention were SOLAS breach, everyone acted as if detention itself was under Act, s. 310--Relationship between Act, Order not considered--Detention order signed on Canada Shipping Act form--Plaintiffs' only concern had been to procure ship's release by whatever means, including appeal to Chairman-- Financial aspect of detention was plaintiffs' dominating interest--As matter of law, vessel's detention could not be under s. 310--MOU, with reliance on SOLAS, was authority --As to whether action in negligence lies herein, reference made to Crown Liability and Proceedings Act, s. 3-- Inspectors servants of Crown--Defendants' arguments based on statutory authority of s. 310 rejected--MOU cannot be considered "legal authority" for detention--Plaintiffs' action under maritime common law--Under SOLAS Regulations, all possible efforts to be made to avoid ship's undue detention, delay; where unduly delayed, she is entitled to compensation for damage suffered (s. 19(f))--By becoming Authority to MOU, Canada agreed to respect this standard of care--Yet Authority cannot be sued directly under MOU--Test for negligence that set out by S.C.C. in 2003 case Odhavji Estate v. Woodhouse, [2003] 3 S.C.R. 263: plaintiff must demonstrate: (1) duty of care; (2) duty breached; (3) damages resulted therefrom--Inspectors, other officials knew vessel would lose income due to detention, repairs more expensive here than in China--Damages reasonably foreseeable--As to proximity, not unfair, unjust to impose on defendants duty of care--Detention of Lantau Peak operational, not policy, decision--Action in negligence does lie herein--Three aspects of negligence allegation: (1) reasons for detention; (2) delay in vessel's release; (3) release terms--As to standard of care, see: Ryan v. Victoria (City), [1999] 1 S.C.R. 201--Clear grounds for conducting more detailed inspection arise where cursory inspection reveals serious hull, structural deterioration, deficiencies--Ship to be detained only if unsafe or presents unreasonable threat of harm to marine environment --Inspector must have substantial reason to detain ship-- Must be some verifiable evidence detention necessary-- Department of Transport's "Bulk Carrier Inspection Regime", adopted in early 1990s, also established standard against which conduct of detention to be judged--Directive: if, after cursory inspection, inspector concerned serious hull or structural deficiencies exist, ship's owners, classification society should be asked to decide repairs needed to rectify deficiencies--Court's opinion: if inspector cannot accept decision, must have good grounds based on solid evidence lest detention considered undue--Port State Control highly regulated process operating in complex environment of powerful forces: flag states, ship owners, Classification Societies, Port State Control Authorities--Imposition of 17% standard was arbitrary, unverifiable, unsupervised, uncontrolled, unsupportable--Reasonable, prudent Port State Control inspector would not have imposed 17% wastage standard--Imposition constituted breach of duty of care owed plaintiffs, negligence on Warna's part--Warna's lack of accuracy in reporting constituted negligence--Implicit from Manual decision-making must be subject to quality control --Authority should put in place process for supervision of inspectors' decisions, especially in case of hotly contested detention decision--Supervisor (Mr. Nelson) owed duty of care to: be aware of inspectors' detention criteria; ask appropriate questions to ensure proper inspection conducted, grounds for detention exist; encourage use of expert advice in decision-making process, insist where detention strongly contested; review reports to ensure accuracy--Nelson failed to properly supervise Warna--Failed to detect errors in Briefing Note--Nelson was ignorant of Warna's practice of imposing own unique, arbitrary 17% corrosion standard-- Nelson's conduct was negligent--Defendants owed plaintiffs duty of expeditious decision-making--Defendants put on notice detention considered undue, would have serious economic consequences--No excuse for delay of three months to move from detention decision to next step in process-- Evidence of manifest indecision at Ottawa regarding what to do about second-level decision--Internal expert opinion recommended release on terms--Malaysian authorities did all possible to secure vessel's release--Decision-making impaired by fear release without repairs at Vancouver would undermine Port State Control regime--Defendants' undue delay, mismanagement breached standard of care owed to plaintiffs and was negligent--Decision-making was anything but transparent--Breach of good faith--Terms of release--No realistic basis for extremely stringent terms of towing option-- Terms imposed were based on one very bad incident number of years ago--Port State Control process so strong under both Paris, Tokyo MOUs, no chance Lantau Peak could evade Port State Control obligations--No reason to demand $1 million bond--Terms of release were unreasonable, imprudent as terms originally imposed, in breach of duty of care--Negligent conduct on Streeter's part--Importance of Class NK standard for corrosion--At time, was only non-arbitrary, verifiable hull frame corrosion standard--All ships covered by Classification standards and safety certificates are issued according thereto-- Defendants neither set standard nor accepted Class requirements so can't object to determination of damages according to Class NK standard--Issue as to level of repairs that should have been done at Vancouver, given cost differential for repairs in China--Damages--To be assessed from date of first Class NK opinion Lantau Peak fit to sail to Shanghai for repairs--Given cost differential, was reasonable to hope decision set aside upon appeal to Streeter--Cost of particular repairs at Vancouver, in China considered--Other expenses due to detention--Total damages award: $4,344,859 --Pre-judgment interest for period of 6.49 years at average prime business rate of 5.76%--Costs awarded to plaintiffs-- Canada Shipping Act, R.S.C., 1985, c. S-9, s. 310--Paris Memorandum of Understanding on Port State Control-- United Nations Convention on the Law of the Sea, December 10, 1982, 1833 U.N.T.S. 3--International Convention for the Safety of Life at Sea, 1974--Non-Canadian Ships Safety Order, C.R.C., c. 1452, s. 3(c)--Coasting Trade Act, S.C. 1992, c. 31, s. 2(1) "coasting trade" (as am. by S.C. 1996, c. 31, s. 108)--Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50, ss. 1 (as am. by S.C. 1990, c. 8, s. 22), 3 (as am. by S.C. 2001, c. 4, s. 36)--Tokyo Memorandum of Understanding on Port State Control.