The Supreme Court of Canada has granted leave to appeal the decision of the Federal Court of Appeal in Société Telus Communications v. Peracomo Inc.[1] This decision is the first in Canada in which a shipowner has been refused the right to limit its liability under the Convention on Limitation of Liability for Maritime Claims 1976[2] (“1976 Convention”). 

In June of 2006 the REALICE was fishing for crab on the St-Lawrence River when her crab trap line anchors got caught in a submarine fibre optic cable on the bottom of the river that was owned by Société Telus Communications (“Telus”). The master of the REALICE, Mr. Vallée, mistakenly believed that the cable was abandoned and cut the cable with a circular electric saw to free his lines. A few days later his lines snagged the same cable again, and he cut it a second time. Unfortunately, the cable was active and Telus incurred a loss of approximately $980,000.

Telus sued the REALICE, its owner, Peracomo Inc. (“Peracomo”), and Mr. Vallée in the Federal Court of Canada for damages arising from the cut cable. At trial, the Federal Court found that the defendants should have been aware of the cable, which was marked on charts and cited in notices to mariners, and accordingly held the defendants liable for Telus’ loss.

Under ordinary circumstances, s. 29 of the Marine Liability Act[3] and the 1976 Convention would have entitled Peracomo to limit its liability to $500,000. However, the trial judge found that because the loss resulted from the owner’s personal act or omission, committed with the intent to cause such loss, by virtue of Article 4 of the 1976 Convention, its liability could not be limited. It was significant that in this case Mr. Vallée was Peracomo’s sole officer and directing mind. The judge imputed Mr. Vallée’s actions to be a personal act of the owner, Peracomo and denied it the right to limit its liability. This may not have been the case had Mr. Vallée been only an employee of Peracomo, as is commonly the case with larger commercial operations.

The Federal Court’s decision was upheld by the Federal Court of Appeal. Significantly, the Court of Appeal did not disturb the lower court’s conclusion that Mr. Vallée intended to cause the diminution in value of an object that he honestly believed to be abandoned and useless. The court also upheld the lower court’s finding that Mr. Vallée’s “wilful misconduct” entitled Peracomo’s underwriters to deny coverage pursuant to subsection 53(2) of the Marine Insurance Act[4], which provides that “an insurer is not liable for any loss attributable to the wilful misconduct of the insured”. The Supreme Court of Canada will likely hear this case later this year, with judgment some time thereafter.