The Federal Court of Appeal decision in Peracomo Inc. v. Société Telus Communications (June 29, 2012) provided Canadian courts with the first opportunity to consider the application of Article 4 of the Convention on the Limitation of Maritime Claims 1976, concerning the loss of the right to limit liability because of the defendants’ “personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.” The decision is likely to be cited repeatedly in future Canadian and foreign limitation cases.

Vallée, a snow crab fisherman, and his wholly‑owned company (Peracomo Inc.), as well as his fishing vessel, were sued in personam and in rem for nearly $1 million in damages for cutting a submarine cable stretching across the bed of the St. Lawrence River between Pointe au Père and Baie Comeau, Quebec. When the anchor of his crab cage got hooked on the cable, Vallée, on two occasions, hauled the cable out of the water and freed the anchor by cutting the cable with an electric saw. He thought that the cable had been abandoned.

The plaintiffs were the owners and users of the cable. They alleged that the defendants were liable for damaging the cable and that they had lost the right to limit liability, under Article 4 of the Convention on the Limitation of Liability for Maritime Claims 1976, as amended by its 1996 Protocol, owing to their personal act or omission committed with intent to cause the damage to the cable or recklessly with knowledge that such loss would probably result.

In defence, Vallée alleged that he should have been notified of the cable’s existence, that its installation on the riverbed had been defective and that there was contributory negligence on the part of the plaintiffs. The defendants also sought to limit their liability under Section 29 of the Marine Liability Act to the principal sum of $500,000. The defendants also took third‑party proceedings against their insurers, who denied liability on the ground that the loss had been caused by the “wilful misconduct” of the assureds within the meaning of subsection 53(2) of the Marine Insurance Act.

The trial judge concluded that the defendants were liable for cutting the cable and that there had been no contributory negligence on the part of the plaintiffs. The federal government had published many Notices to Mariners and given radio warnings of the presence of the cable and marine charts (which the defendant was obliged to carry aboard his vessel, but did not) had been amended to show the cable. Vallée owed a duty of care to the plaintiffs, obliging him to know of the cable’s existence. He had failed miserably in that regard, thus becoming liable for the resulting damage. His company was similarly liable, as he was its directing mind or alter ego. The vessel was also liable in rem, under paragraph 22(2)(d) of the Federal Courts Act, for damage caused by a ship. There was no contributory negligence found on the part of the plaintiffs because the manner by which the cable had been installed had not caused the loss. Rather, the loss had been caused only by the defendant fisherman’s intentional cutting of the cable with his saw.

Although the defendants were liable they were nevertheless entitled to limit their liability to $500,000 under Section 29 of the Marine Liability Act, unless the plaintiffs could show that the loss had been caused by the personal act or omission of the defendants, committed with intent to cause such loss or recklessly with knowledge that such loss would probably result. In this case, the court held that the loss resulted from the personal act or omission of Vallée and his company, committed deliberately by Vallée. He intended the very damage that occurred because he thought the cable had no value. In any case, the defendants had acted recklessly and with knowledge that “such loss” (the diminution in value of the cable that actually resulted, not the cost of its repair) would probably result. They had “actual knowledge”, as established by earlier decisions, in the sense of knowledge resulting from “turning a blind eye” to the existence of the risk.

The defendants’ insurers, for their part, were held entitled to deny liability under subsection 53(2) of the Marine Liability Act, because of the “wilful misconduct” of the defendants, whose behaviour constituted either a deliberate act intended to cause the harm or such blind and uncaring conduct that they could be said to have been heedless of the consequences. Vallée’s conduct was in marked departure from the norm, so the defendants lost the benefit of the insurance policy.

The Federal Court of Appeal upheld the trial judge on the liability and contributory negligence issues. As the judge had determined, Vallée should have known of the cable’s presence, as was required by the Charts and Nautical Publications Regulations and it was open to the judge to find that the cable was a “navigational hazard”. Vallée was not aware, as he should have been, of the repeated notices to mariners about the cable published by the federal government. His vessel had an out‑dated marine chart and an unapproved electronic chart on board, both of which predated the cable. The court also found that the trial judge had committed no palpable or overriding error in concluding that there was no contributory negligence on the part of the plaintiffs. The cause of the loss was Vallée’s intentional and deliberate severing of the cable. He had the “last clear chance” to avoid the accident by simply releasing the cable. Instead of doing that, he severed it. Canadian maritime law includes a duty of care on ship operators not to damage underwater cables or pipelines. The judges concluded that cutting the cable without further investigation was also a breach of the duty of care. As Peracomo was a one-man company of which Vallée was the directing mind and will or alter ego, the judge was not in error in deciding that Vallée was personally liable for the company’s tortious conduct causing property damage.

The appeal court also found that the trial judge had reasonable grounds for deciding that the appellants were not entitled to limit their liability to $500,000 under Section 29 of the Marine Liability Act.

Nor did the appeal court find any palpable or overriding error in the conclusion that Vallée’s deliberate and intentional conduct was a marked departure from the norm, causing a loss “attributable” to wilful misconduct, and thereby discharging the insurer from liability, in accordance with Subsection 53(2) of the Marine Insurance Act. There was nothing other than Vallée’s saw that caused the loss, so that his wilful misconduct was the proximate cause of that loss, within the meaning of the subsection.

What does not seem to have been considered is the view that the language of Article 4 should be read comparatively such that the tortfeasor should have known that loss would result or probably result. Certainly the intention of Vallée was to cut the cable, but arguably he did not intend to cause the loss or know that it would result because he believed that it was an abandoned cable. It may have been a reckless act and indeed a fault for which the defendants are liable, but that is an error no different than colliding with a fixed object because of failure to make proper use of radar in limited visibility. It is one thing to risk colliding with a fixed object that is honestly believed to be, for example, a disused jetty, but it is quite another thing to deprive a defendant of the right to its limited liability in such circumstances.

Ed. Note: Leave to appeal to the Supreme Court of Canada has been sought by Peracomo Inc. et al.