Mari-Times Newsletter - December 2017

MARI-TIMES NEWSLETTER

An annual summary of key Canadian legal developments

DECEMBER 2017

Introduction

2017 was an active year in Canadian maritime law. As expected, Canada's Oceans Protection Plan (the "OPP"), announced last year on November 7, 2016, has resulted in a number of policy and legislative developments. The OPP is part of the federal government's initiative to spend $1.5 billion on improving Canada's spill prevention and response regime. A variety of important Canadian legal decisions concerning maritime law and related admiralty practice areas were also rendered in 2017.

Policy Developments

(a) Pilotage Act Review

As part of the OPP, the Government of Canada committed to conducting a review of the Pilotage Act, R.S.C., 1985, c. P-14 (the "Review"). On May 31, 2017, the government announced Marc Grgoire, Commissioner of the Canadian Coast Guard from 2010 to 2014, as chair of the Review. The purpose of the Review is to modernize the regulatory framework with respect to pilotage services, as the Pilotage Act has remained largely unchanged since it was first enacted in 1972.

Following initial consultation with stakeholders to determine the most important pilotage issues, the scope of the Review concerns the following six issues:

(i) Governance, such as the composition of the Pilotage Authorities' Boards of Directors;

(ii) Safety, such as the scope of powers within the Pilotage Act with respect to the safe delivery of services;

(iii) Labour Models, including examination of service delivery models in other countries;

(iv) The Tariff Setting Process, including consideration of alternative tariff setting models;

(v) Economic and Public Policy Considerations, such as costs and areas of shared responsibility with the United States; and

(vi) Emerging Issues, such as pilotage in the Arctic.

The public has been invited to provide comments and submissions regarding these issues. Consultations with stakeholders took place in the fall of 2017, with an intensive series of solution-focused consultations to occur in early 2018. A published summary of the consultations is set to

IN THIS ISSUE

1 Policy Developments

3 Legislative Developments

5 Regulatory Developments

7 Case Law Recent Key Judgments

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be released in the summer of 2018. The release date of the final report has not yet been determined.

(b) Improving Arctic Spill Prevention and Response

One of the federal government's initiatives under the OPP is to partner with Indigenous communities to update regulations and create a more comprehensive maritime safety framework. As part of this initiative, the federal government announced that it will spend $175 million on various measures aimed at improving safety and enhancing Canada's incident response regime within Arctic waters, as well as to increase engagement with Indigenous groups and local communities in the Arctic region. These measures include:

(i) Investing $94.3 million in the Safety Equipment and Basic Marine Infrastructure in Northern Communities Initiative, which is a program that supports northern resupply operations by providing equipment, infrastructure, and training to northern coastal communities.

(ii) Establishing Low Impact Shipping Corridors through partnerships with Indigenous communities and Arctic stakeholders. Low Impact Shipping Corridors are high-traffic Arctic shipping routes that will receive prioritized infrastructure and emergency response funding.

(iii) Spending $29.9 million to build a new Arctic National Aerial Surveillance Program Complex in Iqaluit, Nunavut, which will include a new hangar, in order to improve aerial surveillance of Arctic maritime traffic.

(iv) Investing $21 million in the Marine Training Contribution Fund, which aims to provide maritime training and opportunities to underrepresented groups in the Arctic, such as Indigenous people and women.

(v) Spending $16.89 million over five years to establish Transport Canada's Office of Incident Management, which will oversee the implementation of the Incident Command System as the standard response to maritime emergency situations.

(vi) Spending $13.4 million over five years to expand the Community Participation Funding Program, which is an initiative aimed at improving the level of participation and input from Indigenous groups on decisions related to maritime issues.

(vii)Expanding the Canadian Coast Guard Auxiliary in the Arctic.

(c) International Convention for the Control and Management of Ships' Ballast Water and Sediments

The International Convention for the Control and Management of Ships' Ballast Water and Sediments (the "BWM Convention") entered into force on September 8, 2017. Aimed at preventing the transfer of invasive species between aquatic bodies, the BWM Convention will require several substantial shifts in how ships manage their ballast water.

The BWM Convention will require the installation of a ballast water treatment system on most international vessels. Existing vessels will be required to comply with the standards in the BWM Convention by the date of their first or second International Oil Pollution Prevention Certificate renewal survey. As a result, existing vessels will potentially be able to operate as late as 2024 without updating their ballast water treatment systems. In the interim, ships are to exchange ballast water mid-ocean.

Vessels will be required to maintain a Ballast Water Record Book (the "Record Book") and adopt a Ballast Water and Sediments Management Plan (the "Ballast Management Plan"). The Ballast Management Plan must include a full description of how the aforementioned ballast water treatment system is going to be implemented. The Record Book must record when ballast water is taken on board, circulated, treated, and discharged into the sea. The Record Book should also record when ballast water is discharged to a reception facility, as well as record accidental or other exceptional discharges of ballast water.

Much of the BWM Convention is already in force in Canada pursuant to the enactment of the 2006 Ballast Water Control and Management Regulations,

SOR/2011-237. These regulations harmonized Canadian law with the BWM Convention in advance of the BWM Convention coming into force.

(d) Coastal Environmental Baseline Program

As part of the OPP, the federal government will spend $50.8 million over five years on the Coastal Environmental Baseline program. Run by Fisheries and Oceans Canada, the program will collect comprehensive data on six marine ecosystems that have been identified as having high maritime traffic. The objective of this research is to collect long-term baseline data in order to better understand how human activity impacts marine ecosystems over time. Consideration of this data will allow future governments to make more informed decisions when developing maritime policy and legislation. The six study areas are the: (i) Port of Vancouver (British Columbia), (ii) Port of Prince Rupert (British Columbia), (iii) the Lower St. Lawrence Estuary (Qubec), (iv) the Port of Saint John (New Brunswick), (v) Placentia Bay (Newfoundland and Labrador), and (vi) Iqaluit (Nunavut).

(e) Inuit of Labrador Marine Management Plan

On September 28, 2017 the Federal Government signed a Statement of Intent with the Nunatsiavut Inuit government in northern Labrador to develop a marine management program for coastal waters on the far eastern end of the Northwest Passage. The Federal and Nunatsiavut Inuit governments have committed to co-manage a 380,000 square kilometre area that includes the marine zone covered by the Labrador Inuit Land Claims Agreement. The marine management program will be developed through the use of traditional Inuit knowledge and will govern shipping, resource extraction, water quality, species management, conservation of historical sites, and other marine matters. Once established, the marine management program will be the first in Canada where Indigenous people are recognized as custodians of the environment.

At this stage there are no specific terms in place beyond the Statement of Intent. It is estimated that it will take around eighteen months before finalized terms are released. Following a period of investigation and consultation, the Nunatsiavut Inuit government will draft the terms of the program within a year,

followed by six months of finalizing terms with the federal government. As a result, the legal ramifications of the agreement remain unknown at this point.

(f) Review of the St. Lawrence Seaway

In 2016, Transport Canada launched Transportation 2030, an initiative intended to revitalize Canada's transportation system and position it to contribute directly to economic growth while protecting the environment. As part of this initiative, Transport Canada is conducting an extensive review of the St. Lawrence Seaway (the "Seaway") to determine the best way to ensure the Seaway remains a critical part of North America's transportation system. The Seaway represents a strategic transportation route that consists of 15 locks along with connecting canals and channels. The review will primarily focus on how to maintain and improve the Seaway's commercial and economic development, long-term competitiveness, sustainability, governance, funding, and service delivery models.

Legislative Developments

(a) Bill C-48: Oil Tanker Moratorium Act

On May 12, 2017, the federal government introduced Bill C-48, the Oil Tanker Moratorium Act (the "Moratorium Act"). The Moratorium Act is part of the OPP and is intended to ensure the protection of British Columbia's northern coast from potential oil spills. If brought into force, the Moratorium Act will complement the existing voluntary Tanker Exclusion Zone (created in 1985 to help avoid potential spills from oil tankers travelling between Alaska and the continental United States) as well as the prohibitions on oil tankers travelling within the Inside Passage.

The Moratorium Act will restrict oil tankers carrying more than 12,500 metric tons of crude or persistent oil from anchoring, loading, or unloading at any port or marine installation in an area extending from the British Columbia and Alaska border to the northern tip of Vancouver Island, including Haida Gwaii (the "Moratorium Area"). Crude oil is defined within the Moratorium Act as any liquid hydrocarbon mixture that occurs naturally in the Earth. Other oil products such as lubricating oils, partially upgraded bitumen, synthetic crude oil, pitch, slack wax, and bunker C fuel oil are included within the Moratorium Act's definition

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of persistent oil. The Moratorium Act also prohibits any person or vessel from transporting by water any crude or persistent oil to or from an oil tanker in order to circumvent the prohibition. Contravention of the Moratorium Act may result in serious consequences, including penalties of up to $5 million and possible imprisonment of up to 18 months.

The Moratorium Act creates exceptions to its prohibitions for circumstances where an oil tanker must anchor or moor in the Moratorium Area to ensure the safety of the vessel, to assist a vessel in distress, or to obtain emergency medical service for any person on board. The Moratorium Act also gives the Minister of Transport the ability to carve out exceptions when it is necessary for community or industrial resupply, is in the public interest, or in the event of an actual or potential discharge of a pollutant.

To ensure compliance with the new law, the Master of an oil tanker that is capable of carrying 12,500 litres of crude or persistent oil (regardless of how much oil it is actually carrying) must give notice to authorities 24 hours prior to arriving at a port in the Moratorium Area. The Moratorium Act also gives authorities extensive inspection and detention powers to ensure compliance.

The Moratorium Act has gone through its second reading and has been referred to the Standing Committee on Transport, Infrastructure and Communities.

(b) Bill C-64: Wrecked, Abandoned or Hazardous Vessels Act

On October 30, 2017, the Government introduced Bill C-64, the Wrecked, Abandoned or Hazardous Vessels Act (the "Shipwreck Act"). The Shipwreck Act is intended to deal with the growing number of wrecked or abandoned ships in Canadian waters that pose an increasing threat to maritime traffic and to the maritime environment.

The Shipwreck Act will prohibit the abandonment of vessels in Canadian water unless otherwise authorized to do so by law or due to a maritime emergency, and will require certain ship owners to carry sufficient wreck removal insurance or similar financial security. The Shipwreck Act also gives the Minister of Transport and Minister of Fisheries and Oceans authority to order or take necessary measures

to remove abandoned, wrecked, or hazardous vessels while holding ship owners liable for the costs and expenses they incur while doing so. Owners of abandoned, wrecked, or hazardous ships may find themselves subject to such liability after the Shipwreck Act goes into effect, as the government has stated that it will use the Shipwreck Act to proactively deal with wrecked and abandoned ships.

The Shipwreck Act will also adopt the Nairobi International Convention on the Removal of Wrecks (the "Convention") into Canadian law the Convention which was signed in 2007 and came into force in 2015. The Convention contains similar provisions to the Shipwreck Act but primarily applies to extraterritorial waters. As with the Shipwreck Act, the Convention saddles ship owners with governmentincurred clean-up costs and requires owners of certain ships to hold insurance or financial security to cover these potential costs. States will be able to remove wrecks they determine pose a hazard to the safety of navigation or to the environment, and will possess the ability to pursue ship owners directly in order to recuperate costs they incur as a result.

(c) Bill C-55: An Act to amend the Oceans Act and the Canada Petroleum Resources Act

On June 15, 2017 the federal government introduced Bill C-55, An Act to amend the Oceans Act and the Canada Petroleum Resources Act (the "Amended Oceans Act"). The Amended Oceans Act underwent a second reading on October 17, 2017 and is now in committee.

The Amended Oceans Act empowers the Minister of Fisheries and Oceans to establish Marine Protected Areas at his or her discretion and to prohibit certain activities within those areas, including navigational activities such as anchoring, which may harm the marine environment. After five years, the order must be either repealed or replaced with regulations to make the area a permanent Marine Protected Area. The Amended Oceans Act also increases fines, expands ship liability under the provisions of the Amended Oceans Act, and strengthens the powers of enforcement officers, including powers to direct a ship to any place in Canadian waters and to detain a ship that has or is about to commit an offence under the Act.

(d) Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act

On May 16, 2017, the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act, S.C. 2017, c. 6 (the "CETA") received royal assent. In conjunction with the Transportation Modernization Act (described below) CETA implements the Canada-European Union Comprehensive Economic and Trade Agreement, which was entered into by Canada and the European Union on October 30, 2016. As a result of CETA, the Coasting Trade Act, S.C. 1992, c.31 has been amended to permit further licencing exemptions for foreign and non-duty-paid ships seeking to undertake coastal trade in Canadian waters. Ships operating under these exemptions will otherwise remain subject to all Canadian laws related to maritime safety and pollution prevention.

Prior to these amendments, the Coasting Trade Act required foreign vessels conducting commercial activity in Canadian waters to first obtain a coastal trading licence, which could only be issued after the Minister of Public Safety confirmed that no Canadianregistered duty-paid vessels or Canadian-registered non-duty-paid vessels under licence were available.

(e) Bill C-49: Transportation Modernization Act

On May 16, 2017, Bill C-49, the Transportation Modernization Act (the "TMA"), underwent its first reading in the House of Commons. The TMA has progressed through Parliament quickly and has gone through a second reading in the Senate. The TMA amends the Canada Marine Act, S.C. 1998, c. 10, to permit port authorities and their wholly-owned subsidiaries to receive loans and loan guarantees from the Canada Infrastructure Bank. The TMA also amends the Coasting Trade Act to enable repositioning of empty containers by ships registered in any register. In addition, foreign or non-duty paid ships will be permitted to carry out certain dredging activities which are currently prohibited without a licence.

Regulatory Developments

(a) Arctic Shipping Safety and Pollution Prevention Regulations

On January 1, 2017, the International Code for Ships Operating in Polar Waters (the "Polar Code") entered into force internationally. The Polar Code was adopted as an amendment to the International Convention for the Safety of Life at Sea, 1974 (SOLAS) and the International Convention on the Prevention of Pollution from Ships (MARPOL). The Polar Code addresses the unique hazards that exist for the increasing number of vessels operating in the Arctic and Antarctic regions by implementing numerous safety and pollution prevention measures, including those related to vessel design and equipment, vessel operations, crew training, on-board procedures and communications, and the protection of the environment.

As part of its commitment to implementing the Polar Code, the federal government published the Arctic Shipping Safety and Pollution Prevention Regulations in Part 1 of the Canada Gazette on July 1, 2017 (the "Polar Code Regulations").

The Polar Code Regulations is broken into three parts. Part One adopts by reference the Polar Code's mandatory safety measures, which deal with matters such as the structural requirements of vessels and safety protocols and arrangements. Part One also adds some provisions beyond what is required by the Polar Code.

Rather than by adopting by reference, Part Two incorporates specific pollution prevention measures from the Polar Code that add to or improve Canada's existing Arctic regime. Part Two also adds some provisions beyond what is required by the Polar Code.

Finally, Part Three makes numerous consequential amendments to ensure the Polar Code Regulations do not duplicate or conflict with other regulations. Along with reintroducing most of the provisions of the Artic Shipping Pollution Prevention Regulations, C.R.C., c. 353, Part Three makes amendments to the Navigation Safety Regulations, SOR/2005-134, the Ship Station (Radio) Regulations, 1999, SOR/2000-260, and the Vessel Pollution and Dangerous Chemical Regulations, SOR/2012-69.

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(b) Vessel Fire Safety Regulations

The Vessel and Fire Safety Regulations, SOR/2017-14 (the "Safety Regulations") were published in Part II of the Canada Gazette on February 22, 2017. The Safety Regulations repeal and replace the entirety of the Fire Detection and Extinguishing Equipment Regulations, C.R.C., c. 1422, along with portions of the Hull Construction Regulations, C.R.C., c. 1431.

The Safety Regulations are intended to streamline and update the Canadian vessel fire safety regulatory regime to be consistent with the International Maritime Organization's 2002 revisions to the International Convention for the Safety of Life at Sea, 1974 (the "SOLAS Convention"). The former regulations were no longer in compliance with these international requirements and an overhaul was needed as a result.

The Safety Regulations cover all Canadian vessels that are greater than 15 gross tonnage or vessels of not more than 15 gross tonnage that are carrying more than 12 passengers. Pleasure craft, fishing vessels, nuclear vessels, and vessels designed for oil and gas operations are exempt from the Safety Regulations.

The Safety Regulations are structured into four parts. Part One specifies the classes of vessels for which compliance with the recommendations on fire safety systems of the revised SOLAS Convention is mandatory. Part Two outlines the structural fire protection requirements for cargo vessels that are less than 500 gross tonnage but longer than 24 meters in length. Part Three applies to non-passenger-carrying vessels that are less than 24 meters in length, but more than 15 gross tonnage. Part Three also applies to vessels with fewer than 36 passengers that meet these requirements, or to all passenger-carrying ships that are carrying more than 12 passengers and have at least 15 gross tonnage. Part Four makes the required changes to other regulations as needed to ensure harmony and uniformity across regulations once the Safety Regulations come into force.

(c) Regulations Amending the Administrative Monetary Penalties and Notices (CSA 2001) Regulations

On April 3, 2008 the Administrative Monetary Penalties and Notices (CSA 2001) Regulations, SOR/2008-97 (the "AMP Regulations") came into force. The AMP Regulations allow authorities to levy administrative monetary penalties ("AMPs") against vessels or individuals for contravening various acts. AMPs are intended to provide an alternative to the penalties that otherwise exist under legislation, as one cannot be subject to both an AMP and any additional prosecution for committing the same offence. The purpose of AMPs is to provide authorities with a flexible tool to improve regulatory compliance while also lowering the cost of enforcement as compared to judicial proceedings.

Regulations Amending the Administrative Monetary Penalties and Notices (CSA 2001) Regulations, published in the Canada Gazette Part 1 on October 14, 2017 (the "Proposed Amendments"), adds 587 new violations that may be enforced by way of an AMP to the Canada Shipping Act, 2001, S.C. 2001, c. 26, as well as to the following six regulations under the Canada Shipping Act, 2001:

Collision Regulations, C.R.C., c. 1416;

Ballast Water Control and Management Regulations, SOR/2011-237;

Small Vessel Regulations, SOR/2010-91;

Fire and Boat Drills Regulations, SOR/2010-83;

Safety Management Regulations, SOR/98-348; and

Vessel Pollution and Dangerous Chemicals Regulations, SOR/2012-69.

Each violation that may be enforced by way of an AMP is subject to a range of possible penalties depending on the severity of the offence. These ranges are $250$5,000, $600-$12,000, and $1,250 to $25,000. Once the appropriate range is determined, authorities will consider guidance materials and the circumstances of each case in determining the specific AMP amount.

Case Law - Recent Key Judgments

(a) Canada (Ship-Source Oil Pollution Fund) v. Canada, 2017 FC 530

In Canada (Ship-Source Oil Pollution Fund) v. Canada, 2017 FC 530, the Administrator of the Ship-source Oil Pollution Fund (the "Administrator") asked the Court to determine whether it could require a claimant seeking to recover the costs incurred in responding to an oil spill, to execute a Release and Subrogation Agreement (the "Release Agreement") as a condition precedent to payment of its claim.

The facts underlying the reference concerned an oil spill that occurred on May 31, 2014, when the fishing vessel Maryjack sank and discharged oil. The Canada Coast Guard (the "CCG") responded to the incident and incurred $94,689.51 in costs to contain the spill. The CCG subsequently sought to recover its costs from the Ship-Source Oil Pollution Fund (the "Fund") by filing a claim with the Administrator, pursuant to ss. 101 and 103 of the Marine Liability Act, S.C. 2001, c. 6 (the "Act").

Upon assessment of the claim, the Administrator offered to pay the CCG $86,228.70 plus interest for costs incurred in relation to the incident as long as it first executed the Release Agreement. The CCG accepted the offer but refused to sign the Release Agreement. As a result, the Administrator refused to pay the funds.

The Court noted that if the offer of payment by the Administrator is accepted by a claimant, then section 106 of the Act requires the Administrator to pay the claimant "without delay". The claimant is then precluded from pursuing its rights against the polluting ship owner "in relation to the occurrence", and the Administrator is subrogated to those rights to the extent of the payment to the claimant.

The Administrator argued that the Release Agreement was no broader than the release and subrogation provisions of section 106 of the Act, and was necessary because it otherwise would have no remedy if an additional clean-up claim was brought by the CCG or another claimant with respect to the "occurrence" it had already settled.

The CCG, on the other hand, argued that a plain reading of the Act provides that once the Administrator's offer is accepted by a claimant, the

Administrator must, without delay, direct payment to be made to the claimant of the amount of the offer, and there is no authority in the Act to make the payment conditional upon signing the Release Agreement.

The Court accepted the CCG's position as correct in law. The Administrator does not have the right to demand a claimant to sign a release and subrogation agreement. Section 106 of the Act limits certain recovery rights of the claimant and subrogates them to the Administrator as an operation of law; it does not give the Administrator authority to require the claimant to sign a release as a condition to its obligation to pay the claimant "without delay."

With respect to the Administrator's concern that this could expose it to further claims, the Court held that whether the use of the word "occurrence" in section 106 limits the CCG or any other claimant to making only one claim arising from the event giving rise to the spillage was not a question that arose on the facts of this case. The Court therefore would not address that issue.

The Court held that the CCG was not required to sign the Release Agreement as a precondition to receiving compensation from the Fund.

(b) Platypus Marine, Inc. v. Tatu (Ship), 2017 FCA 184

In Platypus Marine, Inc. v. Tatu (Ship), 2017 FCA 184, the appellant, Platypus Marine, Inc. ("Platypus"), was a ship repairer based in Washington State. Platypus provided repairs and maintenance to the respondent ship Tatu, which was owned by the respondent Platinum Premier Corporation Limited ("Platinum"). The work was conducted over a period of several months. Platypus sent Platinum ten invoices throughout the course of this period, each marked "INVOICE DUE UPON RECEIPT". After delivery of a final invoice on September 19, 2014, Platinum had still not paid any of Platypus' previous invoices.

To resolve this issue, the parties came to an arrangement. Platinum agreed to pay $100,000 to Platypus as interest on the amount due for the work performed by Platypus. In consideration thereof, Platinum would not have to effect payment of Platypus' invoices until the end of January 2015 (the "Oral Agreement"). Platinum failed to settle Platypus' invoices before the end of January 2015, so Platypus

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arrested the Tatu by way of a caveat release and on October 29, 2015, commenced an action against the respondent Platinum.

On December 4, 2015, Platypus brought an ex parte motion against Platinum seeking judgment for the Canadian dollar equivalent of US$386,508.92. The Federal Court granted judgment against Platinum for that amount, exclusive of interest. Platinum paid the principal sum in full and subsequently filed a motion for summary judgment dismissing Platypus' claim for US$100,000 in interest on the grounds that it violated section 347 of the Criminal Code, R.S.C. 1985, c. C-46 (the "Criminal Code"), which prohibits charging annual interest rates above 60%.

The Federal Court heard Platinum's motion on May 3, 2016. Platypus calculated that the US$100,000 constituted an interest rate of approximately 59.5%. The Court disagreed. Even if the Court did not follow Platinum's calculations, which had interest accumulating from the date of the last invoice and approximate Oral Agreement to pay, the Court found that the rate of interest would be criminal. The Court therefore refrained from making a determination of the date from which interest properly started to accrue.

The Court then had to determine whether it should strike out the contract to pay US$100,000 or substitute a different rate of interest. The Court examined the four factors outlined by the Supreme Court of Canada in Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7. A key determination is whether or not there can be severance of the interest portion from the rest of the agreement. Here, the Federal Court had already split off the principal debt and Platinum had paid it. It was therefore appropriate for the Court to substitute a different interest amount. At the 5% interest rate provided in the Interest Act, R.S.C. 1985, c. I-15, Platinum owed $35,000.

On appeal, Platypus first argued that the sum of US$100,000 did not violate the criminal interest provisions of the Criminal Code because interest began to accrue on the date of the invoice. Even allowing a three-day grace period for delivery and receipt of the invoice, the total amount came down to just under the 60% interest rate. A 60% interest rate would yield a slightly higher total payment of $100,082.21.

Platinum, not surprisingly, argued that the US$100,000 amount violated the Criminal Code because interest began to accrue on the date of the Oral Agreement. Platinum argued that before the Oral Agreement of September 19, 2014, there was no agreement on interest, as the invoices did not refer to interest. Furthermore, Platinum argued that Platypus confused contract interest with pre-judgment interest (which requires no agreement). Pre-judgment interest accrues from the date of the cause of action. As Platypus sought contractual interest, the onus was on Platypus to establish the terms of the agreement. Since the agreement didn't come into existence until after the ten invoices were issued, it would be improper to argue that the interest agreed to was retroactive to the dates of the invoices.

The Court of Appeal stated that whether the interest breached the 60% threshold depends on the period used to calculate the interest owed on the principal sum. It adopted the reasoning of the Supreme Court of Canada in Canadian General Electric Co. v. Pickford & Black Ltd., [1972] S.C.R. 52, that in admiralty matters, interest is owed from the time the debt becomes payable. Consequently, irrespective of the Oral Agreement, Platypus would have been entitled to claim interest from the date upon which the invoice was delivered to or received by Platinum. Thus, the Oral Agreement must be characterized in light of the fact that interest was owed by Platinum on the amounts covered by the ten invoices.

The Court held that the US$100,000 was intended to subsume the interest to which Platypus was already entitled at the time the Oral Agreement was made. As such, the US$100,000 did not constitute a criminal rate of interest. If interest ran from two days after the invoice date (one day after the date of the breach) then 60% per annum would result in a payment of US$100,529.78.

The Court therefore allowed Platypus' appeal and dismissed Platinum's cross appeal.

(c) De Wolf Maritime Safety B.V. v. Traffic-Tech International Inc., 2017 FC 23

In De Wolf Maritime Safety BV v. Traffic-Tech International Inc., 2017 FC 23, the shipper De Wolf, entered into a contract with the carrier Traffic-Tech, for the transport of its cargo from Vancouver, Canada to Rotterdam, Netherlands. Although the shipper

alleged that the true value of the cargo was almost CAD$100,000, no value was declared and the carrier issued a clean bill of lading. The cargo was loaded aboard the M/V Cap Jackson in Vancouver but never made it to Rotterdam, as the cargo was swept overboard and lost at some point during transit.

The shipper brought an action in Federal Court against the carrier for the full value of the cargo. The carrier moved for a preliminary determination of a question of law under rule 220(1) of the Federal Court Rules. The Court considered the following two questions:

1. Does the undeclared on-deck carriage of the cargo under the bill of lading prevent the carrier from relying on the Hague-Visby Rules (the "Rules")?

2. If not, what are the limitations applicable to the contract of carriage pursuant to the Hague-Visby Rules?

On the first issue, the Court considered whether the cargo fell within the definition of "goods" under Article I(c) of the Rules, which provides:

"goods" includes goods, wares, merchandise and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.

The Court found that the exception under Article I(c) for on-deck cargo requires both parts to be satisfied: the cargo must be declared to be carried on deck and the cargo must in fact be carried on deck. Accordingly, as the cargo in this case was not declared to be carried on-deck, the exception did not apply and the contract of carriage was subject to the Rules.

On the second issue, the Court considered whether the carrier could rely on the limitation of liability provided for in Article IV(5)(a) of the Rules. Where there is no declared value of the goods on the bill of lading, Article IV(5)(a) limits the liability of the carrier and the ship "in any event" to an amount not exceeding the greater of 666.7 units of account per package or two units of account per kilogram of gross weight.

The Court found that on its ordinary meaning and applied literally, the words "in any event" must be understood to mean "in every case". It must be noted that Article IV(5)(e) bars Article IV(5)(a)'s limitation of liability where damage results from an

intentional or reckless act or omission by the carrier with the knowledge that damage would probably result. Although the Court recognized that this was the only exception to Article IV(5)(a)'s applicability, it was not considered in this case because such a determination would require an assessment of facts, not just a question of law. There was nothing within the wording or the context of the Article that limited this interpretation.

Accordingly, the Court found that the contract of carriage was subject to the Rules and the carrier was entitled to rely on the limitation of liability provided by Article IV(5)(a).

(d) Canada v. Adventurer Owner Ltd., 2017 FC 105

In Canada v. Adventurer Owner Ltd., 2017 FC 105, the Clipper Adventurer, an expedition cruise ship, hit an uncharted, submerged shoal in the Canadian Arctic at full speed in August 2010. The vessel struck the shoal with such force that more than half its length became firmly embedded. Considerable time and money was spent refloating, making temporary repairs, and ultimately transporting it to Poland for permanent repairs.

The owners of the Clipper Adventurer (the "Owners") subsequently brought this action claiming that the Canadian Coast Guard and the Canadian Hydrographic Service knew of the presence of the shoal, had a duty to warn the Owners of the existence of the shoal, and failed to do so. The Owners sought to recover US$13,498,431.19 from Her Majesty the Queen in right of Canada (the "Crown") for the cost of temporary and permanent repairs, payment to salvors, business interruption, and related matters.

The Crown denied liability and filed a counterclaim against the Clipper Adventurer and the Owners in the amount of CAD$486,801.72 for costs and expenses incurred in respect of efforts to control the pollution that resulted from the incident.

When the shoal was discovered in 2007, a Notice to Shipping (a "NOTSHIP") was issued and broadcast via radio for two weeks. The captain who had discovered the shoal returned to the area with a team of hydrographers in 2009 to more accurately map the feature. Rather than issue another NOTSHIP, the captain decided to turn the original NOTSHIP into a Notice to Mariners (the "Notice"). Notices to Mariners

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serve as permanent updates to paper hydrographic charts, whereas a NOTSHIP is only available electronically. Unfortunately, the Notice was not issued until after the Clipper Adventurer's grounding.

Canadian mariners are required under the Charts and Nautical Publications Regulations, 1995, SOR/95149 (the "Regulations") to have onboard and in use all Canadian charts and publications. Importantly, section 7 of the Regulations requires these materials to be up-to-date based on, among other things, information contained in NOTSHIPs.

The Court held that various Crown servants in the employ of the Coast Guard and Hydrographic Service had a duty to warn mariners about the shoal once it had been discovered. However, the Crown in this case had discharged that duty. The Court reasoned that if mariners have a reciprocal duty to update their charts on the basis of NOTSHIPs, issuing a NOTSHIP must discharge the Crown's duty. Even where a ship's crew and owners are not familiar with Canadian waters or the Canadian notice system, the legal obligation to consult NOTSHIPs and Notices to Mariners exists. Ignorance of the law is no excuse.

As a result, the Court held that the sole cause of the casualty was the failure of the Owners to keep its hydrographic chart up-to-date. The Court dismissed the Plaintiffs claim while granting the Crown judgment of $445,361.64 in personam and in rem against the Plaintiffs.

(e) Atlantic Container Lines AB v. Cerescorp Company, 2017 FC 465

In Atlantic Container Lines AB v. Cerescorp Company, 2017 FC 46, the Defendant, Cerescorp Company ("Ceres") brought a motion to amend its Statement of Defence and Counterclaim. Ceres was unloading cargo from a container ship time chartered by the Plaintiff, Atlantic Container Lines AB ("ACL"), when a stack of eight 20-foot containers toppled within the vessel's hold. The collapse caused damage to the vessel and the cargo. ACL brought an action against Ceres alleging Ceres' negligent operation of a crane caused the damage.

Initially, Ceres defended ACL's claim by asserting that the collapse had been caused in part by the longitudinal misalignment of the containers at the bottom of the stow, which led to vertical misalignment of the containers stacked above. This defence pleaded that the misalignment was solely caused by

the negligence of those responsible for loading the containers, APM Terminal Gothenburg AB ("APM"). APM was subsequently added as a third party.

Ceres now sought to amend its defence to raise, as a further issue, the alleged substandard and inherently dangerous arrangement of the bulkhead vertical cell guides. Ceres also claimed that ACL stacked the containers too high, contrary to industry practice. For the allegations contained in both of these amendments, it was ACL which could ultimately be held liable.

ACL did not dispute that Ceres' proposed amendments constituted a reasonably arguable defence. However, ACL opposed the amendments on four grounds: (i) the amendments constituted a radical departure from previous pleadings; (ii) the allegations were unsupported by any evidence and were doomed to fail; (iii) the amendments were untimely; and (iv) the amendments were prejudicial because evidence had been lost, and also because ACL's recourses against the ship would now be time-barred.

The Court first examined the amendments and held that they did not constitute a radical departure from previous pleadings. The proposed amendments did not depart significantly from Ceres' assertion from the outset: that the collapse was caused by the misalignment of the containers. The amendments simply added another root cause for the misalignment. The Court held that these allegations were not contradictory to the facts previously pleaded, but rather were consistent with and complementary to them.

Second, the Court agreed with ACL that the amendments as proposed did not sufficiently particularize how the arrangements of the vertical cell guides was allegedly substandard and inherently dangerous. However, neither were the amendments a bald assertion of a conclusion or symptomatic of a frivolous defence. Rather, the Court was satisfied that Ceres had knowledge of particulars which, if provided, would properly define and frame this defence. Although the vagueness of the pleadings would not allow ACL to know and understand the full scope of the amendments, the Court held that this was not a reason to refuse the amendments rather than to impose, as a condition for the amendment, the obligation on Ceres to provide particulars.

Third, the Court held that the mere fact the amendments could have been proposed earlier

does not make them untimely and is not in and of itself a reason to refuse them. Here, because the amendments were proposed shortly after discoveries, before expert reports had been prepared, and before a trial date had been requested, the Court was satisfied that any delay caused by the amendments would not be undue.

Finally, the Court examined prejudice in terms of loss of evidence. Amendments may be refused if to allow them would cause prejudice to the other side that cannot be compensated by an award of costs. ACL argued it would suffer such a prejudice by the fact that evidence relevant to the amendments has now been lost because the vessel was sold and destroyed in the intervening period since the incident. The Court held that the test for determining whether ACL would be prejudiced is as follows: if the amendments had been made earlier and the opposing party could have preserved the evidence, and the opposing party nonetheless would have allowed the evidence to be destroyed, it would be unfair for that party to claim prejudice from allowing the amendment. Here, none of the parties were aware that the vessel was going to be destroyed. ACL had the opportunity to secure data from the ship's computer and hold but chose not to do so. Because the prejudice would have occurred even if the allegations had been part of Ceres' initial pleadings, the proposed amendments would not result in an injustice to ACL.

In the end, the Court allowed Ceres' motion, provided that Ceres include particulars of the ways in which it alleged the arrangement of the cell guides was substandard and inherently dangerous.

(f) Moray Channel Enterprises Ltd. v. Gordon, 2017 FC 250

In Moray Channel Enterprises Ltd. v. Gordon, 2017 FC 250 Moray Channel Enterprises Ltd., the owner of the Richmond Marina (the "Marina"), entered into a moorage agreement with MacDonald B. Gordon (the "Owner") regarding his float home, which was a registered vessel (the "Vessel"). Under the terms of the agreement, the Marina had to provide moorage and certain ancillary services for a monthly fee while the Owner had to comply with the Marina community rules.

The Owner failed to pay the monthly fees at various points in time, resulting in a number of monetary penalties, all of which remained unpaid. For this reason, and because the Owner failed to respect

various other marina rules, the relationship between the parties quickly soured. By May 2015, the Owner simply stopped making payments altogether.

The Marina began proceedings in Federal Court against both the Owner and the Vessel to recover its fees. The Vessel was arrested and a marshal was appointed to take possession of it. The Owner filed a counterclaim, claiming misrepresentations and fraud, and argued that the case should be tried by the British Columbia Residential Tenancy Board rather than the Federal Court.

The marshal eventually sold the vessel for less than the asking price, as an initial potential sale was cancelled after an inspection revealed serious deficiencies in the Vessel. The Court received a total of $132,000 from the sale, while the claim by the Marina was for $17,000 plus costs on a solicitorclient basis (valued at about $18,000).

The Court first rejected the argument of the Owner that the case was, in pith and substance, a property rights case. The case dealt with a registered vessel and as such must be treated under the principles of Canadian maritime law.

The Court recognized that misrepresentations were made by the Marina's manager as to the outstanding amounts owing under the moorage contract. There seemed to have been an ongoing practice of overcharging the Owner and a general failure to provide him with up to date invoices. However, the Marina's negligence did not excuse the Owner's failure to pay any of the charges under the contract as of May 2015.

The Court disallowed several of the late payment charges claimed by the Marina, but held that it was entitled to CAD$15,000. The Court struck the counterclaim on the basis that it demonstrated no genuine issue for trial. With respect to costs, the Court held that the negligent billing practices of the Marina disentitled it to anything higher than regular costs.

This case is a reminder that despite recent decisions to the contrary in the United States, house boats in Canada fall within the ambit of Canadian maritime law, not provincial property rights law.

(g) Avina v. Sea Senor (Ship), 2016 BCSC 2488

Avina v. Sea Senor (Ship), 2016 BCSC 2488 concerned a dispute over a co-owned vessel. The Plaintiff and the Defendant agreed to purchase a

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vessel, the Sea Senor (the "Vessel"), through SeaChariot Holdings Inc. ("Sea-Chariot"). The Defendant owned 51% of the shares in Sea-Chariot while the Plaintiff owned 49%. The parties entered into an agreement whereby the Defendant would loan the amount of the Plaintiff's share of the purchase price to the Plaintiff, which debt the Plaintiff would repay over time with 5% interest. As part of this arrangement, the Plaintiff delivered 50,000 shares in a company called Aurcana Corporation ("Aurcana") to the Defendant (the "Shares").

The Defendant claimed that the Plaintiff defaulted on the loan in August 2014. Accordingly, the Defendant took the Vessel from its normal mooring in Vancouver, used it for a period of time, and then moored it at Bowen Island. The Plaintiff located the Vessel and had it arrested and sought an order that it be sold, which the Defendant opposed.

The Court first decided whether the Shares transferred from the Plaintiff to the Defendant were part of the monies owed for the Vessel or were security for the debt. If they constituted part of the debt owed by the Plaintiff, then the Plaintiff may not have actually been in default of the loan. The Court concluded that the Shares were a security for the balance of the loan, and that the parties did not intend those shares to be partial payment of the debt, as the parties created a document which plotted a potential schedule of payments that did not include the Shares. Furthermore, when the Defendant demanded payment for the balance of the debt owing on the loan, neither party brought up the Shares as partial payment of the debt.

Next, the Court had to evaluate whether the arrangement was, in substance, a secured transaction. The Defendant argued that the parties' agreement created a security interest in the Vessel and that Sea-Chariot or its majority shareholder, the Defendant held that security interest. The Defendant's argument was not clear to the Court, but the security interest itself would be either the shares of the Plaintiff in Sea-Chariot or the Plaintiff's interest in the Vessel itself. The Defendant referred to Coutinho & Forrostaal GmbH v. Tracomex (Canada) Ltd., 2015 BCSC 787 for the proposition that when determining whether a particular interest falls within the scope of section 2(1) of the Personal Property Security Act, RSBC 1996, c. 359 (the "PPSA") which states that the PPSA applies to every transaction that in

substance creates a security interest regardless of its form the Court looks to the relationship between the parties, the practical and commercial realities of the situation, and the intention of the parties.

Taking that approach, the Court disagreed with the Defendant and held that the only secured transaction in this situation was the loan from the Defendant to the Plaintiff that was secured by way of the Shares held in Aurcana. Besides some very general evidence that the Defendant intended to have some documents prepared to recognize the security interest, those documents were never prepared and the matter was never discussed with the Plaintiff. Accordingly, the transaction was an unsecured loan that was in default, since the Shares were returned to the Plaintiff once their value had largely eroded.

The final issue was the ownership of the Vessel. Legal title to the Vessel was in the name of the company, Sea-Chariot. The Defendant took the position that the 51/49 share split in his favour provided him with security no matter the state of the debt. The Court rejected this argument and found the Vessel belonged solely to the company, and that the Plaintiff and the Defendant had interest in the Vessel only as shareholders in proportion with their holdings.

The Court found that the Plaintiff had defaulted on his loan agreement with the Defendant for which the Defendant was entitled to judgment against the Plaintiff. The Court therefore denied the Plaintiff's relief that the Vessel be sold. The particular amount owed by the Plaintiff depended on the details of the parties' expense-sharing arrangement. The Court ordered the parties to reconvene on that issue and on costs, as well as on whether the Vessel should be sold or the rest set aside. If the parties were unable to resolve these issues on their own, Sigurdson J. invited them to make further submissions before the Court.

(h) Avina v. Sea Senor (Ship), 2017 BCSC 1406

In Avina v. Sea Senor (Ship), 2017 BCSC 1406, the Court subsequently heard the parties' submissions on the issue of costs. The Court found the Defendant was substantially successful at trial, although it first acknowledged that the above-noted results were mixed. The Court therefore awarded the Defendant two-thirds of his costs.

The Defendant also sought double costs on the basis of an offer to settle. The offer would have released

the Plaintiff of all liability and interest in the Vessel for $15,000. This would put the Plaintiff in a slightly better position than they were post-trial indebted to the Defendant in the amount of $62,454.50. The Court examined the leading case in British Columbia on the issue of double costs, Hartshorne v. Hartshorne, 2011 BCCA 29. The key consideration is whether the offer to settle was one that ought reasonably to have been accepted either on the date that the offer was made.

The Court found that the Vessel had been moored for a number of months without any upkeep or maintenance so its condition was therefore unknown at the time the offer was made. As such, the Plaintiff could not reasonably assess the market value of the Vessel, so the Court found that it was reasonable for him to reject the offer.

(i) ING Bank N.V. v. Canpotex Shipping Services Limited, 2017 FCA 47 (leave to appeal dismissed, [2017] S.C.C.A. No. 163)

In ING Bank N.V. v. Canpotex Shipping Services Limited, 2017 FCA 47, Canpotex Shipping Services Limited ("Canpotex") time chartered two vessels (the "Vessels"). At Canpotex's request, marine fuel (bunkers) was delivered to the Vessels. At issue was who was entitled to payment in respect of the delivery of the bunkers.

Canpotex and O.W. Supply & Trading A/S ("OW S&T") agreed to a fixed term price trading agreement which was to govern Canpotex's purchase of bunkers in respect of Vessels chartered by Canpotex (the "Fixed Price Agreement"). Canpotex made no purchases under the Fixed Price Agreement. However, Canpotex did place two orders with O.W. Bunkers (U.K.) Limited ("OW UK"), a subsidiary of OW S&T, for the supply of bunkers (the "Spot Purchases"). Although the Spot Purchases were not made under the Fixed Price Agreement, OW UK made it clear that the purchases were nonetheless subject to the general terms and conditions of sale of the O.W. group of companies (the "OW Group"), which included OW S&T and OW UK.

OW UK then made arrangements with Marine Petrobulk Ltd. ("Petrobulk") for the physical delivery of the bunkers to Canpotex's charted Vessels in the Port of Vancouver. Petrobulk made it clear that its services were subject to its own terms and conditions. Petrobulk delivered the bunkers and invoiced OW UK for its services on October 27, 2014. OW UK in turn invoiced Canpotex for the same amount plus a markup fee for making the arrangement.

On November 7, 2014, the OW Group including OW UK and OW S&T filed for bankruptcy. One year prior, the OW Group had assigned their receivables from the sale of bunkers to ING Bank N.V. ("ING"). Upon the OW Group's declaration of bankruptcy, therefore, all of its outstanding debts were assigned to ING. It was agreed that all monies owing to OW UK assigned to ING would be collected by ING and payment to it would satisfy the debtors' obligations to OW UK.

Petrobulk, remaining unpaid by OW UK, sent its invoice to Canpotex, registered a maritime lien against the Vessels and their owners (the "Shipowners"), and threatened to arrest the Vessels. Canpotex began interpleader proceedings, requesting the Federal Court to allow it to pay the outstanding amounts into Court and seeking a declaration that any maritime lien was thereby extinguished. The Federal Court allowed the application and the amount was paid into the trust account of the solicitors for Canpotex.

ING subsequently filed a motion seeking a declaratory judgment to the effect that the money in trust should be paid to them. Petrobulk did the same.

At trial (Canpotex Shipping Services Limited v. Marine Petrobulk Ltd., 2015 FC 1108) the Court ordered that Petrobulk be paid its fee out of the trust fund. The Court further ordered that Canpotex pay ING an amount equal to the mark up payable to OW UK for the supply by Petrobulk. In doing so, any and all liability of Canpotex, the Vessels, and the Shipowners in respect of the bunkers supplied by Petrobulk would be extinguished together with any and all liens.

On appeal, the Federal Court of Appeal first decided whether interpleader relief was properly available. The purpose of interpleader relief is to prevent a multiplicity of suits and to avoid double vexation. The Court of Appeal determined that the only claims that were truly conflicting were the contractual claims advanced by OW UK and Petrobulk. Petrobulk's assertion of a maritime lien was not a conflicting claim because it was a claim against the Vessels, rather than against Canpotex. As a result, the interpleaded funds extinguished Canpotex's liability only in regard to the contractual claims. Because the subject matter of Petrobulk's asserted lien the Vessels was not paid into Court, Canpotex's liability was not extinguished with regards to the lien.

The Court also held that the trial judge had erred in applying the terms and conditions of the Fixed Price Agreement to the bunkers delivered by Petrobulk. If

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Schedule 3 of the Fixed Price Agreement had applied, the terms of contract between Canpotex and OW UK would be subject to variation when the physical supply of the bunkers was provided by a third party. In such circumstances, Canpotex would have been deemed to have read and agreed to the conditions of Petrobulk, which would hold Canpotex and OW UK jointly and severally liable to pay the outstanding amount. Furthermore, Petrobulk would enjoy its asserted maritime lien.

The Court examined the Fixed Price Agreement and found that any purchases, including the Spot Purchases, were beyond the scope of the Fixed Price Agreement. The fact that Canpotex had explicitly agreed to be bound by the OW Group's general terms and conditions bolstered this finding. The Court held that affidavit evidence suggesting that Canpotex intended to be bound by the Fixed Price Agreement was in violation of the parole evidence rule and therefore inadmissible.

Because the trial judge made no finding in respect of the OW Group's general terms and conditions which governed the sale of bunkers as a result of the above analysis the Court decided it would be unwise to make a determination which should have been made by the court below. The Court therefore allowed the appeal, set aside the Federal Court's decision, and returned the matter to the Federal Court for reconsideration in light of its reasons.

(j) Canadian National Railway Company v. Hanjin Shipping Co. Ltd., 2017 FC 198

Canadian National Railway Company v. Hanjin Shipping Co. Ltd., 2017 FC 198 concerned the ongoing fallout of the recent bankruptcy of Hanjin Shipping Co. Ltd. ("Hanjin"), the South Korean transport company that used to operate a worldwide door-to-door liner container service. As part of its operations, Hanjin chartered various ships, including the Co-defendant Hanjin Vienna, to perform the sealeg of carriage, as well as hired the Plaintiff Canadian National Railway Co. (CNR) to perform inland portion of carriage in North American. In this action, CNR asserted that Hanjin is indebted to it for approximately $20 million in unpaid freight, a portion of which

relates to the Hanjin Vienna. CNR also claimed it has a contractual relationship with both Hanjin and the owners of the Hanjin Vienna (the "Owners").

The Owners brought a motion to dismiss CNR's claim on two grounds: (1) the claim disclosed no reasonable cause of action within the subject-matter jurisdiction of the Court; and (2) the claim was scandalous, frivolous, or vexatious.

The Court first examined the legislative definition and judicial interpretation of "maritime law" for the purposes of establishing jurisdiction. The Federal Courts Act defines "Canadian Maritime Law" as any matter that the Admiralty side of the Exchequer Court of Canada would have administered if it had had unlimited jurisdiction in relation to maritime and admiralty matters. The Supreme Court of Canada, in ITO-International Terminal Operators Ltd. V. Miida Electronics Inc., [1986] 1 SCR 752, interpreted this definition as being so broad that for all intents and purposes it was co-extensive with the Federal legislative class of subject of "navigation and shipping." In that case, the Supreme Court of Canada established the content of the Federal Court's jurisdiction with reference to "navigation and shipping" and outlined three relevant factors for this determination: proximity of operation to the sea, connection between the operator's activities and the contract of carriage by sea, and the length of time the goods would be stored pending final delivery to the consignee. In addition, the Supreme Court held that the definition of maritime matters should evolve and respond to the modern context of commerce and shipping.

With those considerations in mind, the Court examined CNR's claim. Section 139 of the Marine Liability Act gives CNR a maritime lien on a foreign ship for services it supplied to the foreign ship. The Owners submitted that because CNR's activities were entirely land-based CNR did not load or unload any containers on or off of the Hanjin Vienna CNR did not supply services to the Hanjin Vienna for the purposes of section 139, and therefore did not have the right a maritime lien over the vessel.

The Court did not accept the Owners' argument and dismissed their motion for a number of reasons. First, CNR's claim was for unpaid freight and not damaged cargo. The Court found it would be unreasonable for CNR to have to defend a cargo claim in Federal Court but be required to go to provincial court to recover unpaid freight.

The Court also considered whether federal laws applied; the Supreme Court of Canada held in Corporation of the City of Windsor v. Canadian Transit Company, 2016 SCC 54 that the Federal Court does not have jurisdiction where there is no existing federal law to administer. Here, although the relevant federal law, the Canada Transportation Act, S.C. 1996, c. 10 and the Railway Traffic Liability Regulations, SOR/91-488, did not create the cause of action, they nonetheless formed part of the complex statutory framework that applied to the issue in this case and therefore constituted applicable federal law for the purposes of determining jurisdiction.

The Court also found that CNR arguably had a contractual relationship with the Owners, as the bill of lading between CNR and Hanjin defined the carrier as not only Hanjin Shipping Co. Ltd. but also its "vessels, agents and subcontractors at all stages of carriage".

For those reasons, the Court found that CNR's claim was within the definition of maritime law and the Federal Court therefore had jurisdiction to hear the case.

(k) Saam Smit Canada Inc. v. Hanjin Vienna (Ship), 2017 FC 745

Saam Smit Canada Inc. v. Hanjin Vienna (Ship), 2017 FC 745 is another case stemming from the bankruptcy of Hanjin Shipping Co. Ltd. ("Hanjin"). In this case the owners of the Hanjin Vienna (the "Owners") sought partial payment out of court of the proceeds of the sale of the Hanjin Vienna (the "Vessel").The Vessel was sold by court order for US$6,676,000.00, while the fuel on board was sold for US$939,727.66. The principal amount of the claims against the proceeds was approximately US$3.6 million. The Owners sought payment out of the proceeds that they submitted are surplus and not required to secure the alleged creditors' claims.

The Court outlined five issues for determination:

(a) Should the proceeds of the sale of the bunkers and other fuel be taken into account at the present time in determining if there is a surplus?

(b) What are the best reasonably arguable cases on the principal amounts claimed?

(c) What are the best reasonably arguable cases as to the award of interest?

(d) What are the best reasonably arguable cases as to the award of costs?

(e) What should be done with the owners' claim of US$2,068,643.80 against the proceeds of the sale of their own ship and the bunkers?

With regards to the first issue, the Court reasoned that at the time the Hanjin Vienna was arrested, the bunkers and fuel onboard belonged to time-charterer Hanjin Shipping Co. Ltd. Normally, owners would take over the bunkers upon redelivery of a vessel. In this case, the Court found the record "was far too murky" to reach a final decision on ownership of the bunkers after arrest and prior to sale. All those with claims in rem against the Hanjin Vienna would likely have claims in personam against Hanjin Shipping Co. Ltd. Whether it is established on the merits that these claims were maritime liens, statutory liens, or actions in rem against the Vessel, it was arguable that the bunkers may have been owned by Hanjin Shipping Co. Ltd. and constituted a separate fund available to those creditors. The Court therefore limited further analysis to the proceeds of the sale of the Vessel.

The Court examined the next two issues in a cursory manner. It applied a 30% interest markup to the claims after acknowledging that for some claims this amount would be either too large or too small. Similarly, although the Court found it was unlikely that a Canadian Court would award such high levels of interest, it allowed them for the purposes of determining surplus. The total claim by the creditors at its peak, therefore, would be just over US$4.5 million.

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With regards to costs, the Court found that the above-noted amount was sufficient to secure the claimants' costs.

With the foregoing in place, the Court turned finally to the Owners' claim. Originally, the Owners had claimed they spent over US$2 million maintaining the Vessel for the benefit of all creditors. However, they reduced their priorities claim, dollar-for-dollar, and instead pursued the surplus thereby maintaining their full claim against the bunkers and avoiding any doubledipping. The Court therefore held that the Owners were entitled to a payment of US$1,855,908.23, which was equal to the surplus remaining from the sale. The Owners' claim against the bunkers will be determined in a subsequent hearing.

(l) Transport Desgagnes Inc. v. Wrtsil Canada Inc., 2017 QCCA 1471

In Transport Desgagnes Inc. v. Wrtsil Canada Inc., 2017 QCCA 1471, the Qubec Court of Appeal upheld a limitation of liability clause in a contract for the supply of a Wrtsil engine notwithstanding the finding that that engine had suffered from a latent defect. In doing so, the Court reaffirmed that contracts for the supply of equipment installed on a vessel fall squarely within maritime law, and as a consequence, common law principles of tort and contract apply to the resolution of such disputes.

Transport Desgagns Inc. ("Desgagns") owned and operated the M/V Camilla. In 2007, Wrtsil installed a reconditioned crankshaft assembled on a new bedplate, together with related equipment and new marine style connecting rods, on the M/V Camilla. Wrtsil also provided Desgagns a warranty that included a clause that limited liability up to 50,000 (CAD$78,900).

Two and a half years later, on October 27, 2009, after operating for over 13,000 hours, the M/V Camilla's main engine suffered a major failure. Desgagns and its underwriters commenced suit in the Superior Court of Qubec alleging that the crankshaft suffered from a latent defect for which Wrtsil was liable and claimed over CAD$5,660,000 in damages.

The trial judge concluded that the supply of the engine parts was not subject to maritime law but rather to the Civil Code of Qubec, which imposes a presumption that a latent defect existed at the

time of sale unless the manufacturer proves that the defect resulted from improper use by the buyer. Moreover, the Civil Code of Qubec provides that the professional seller or manufacturer cannot rely on contractual limits of liability unless it proves that it did not know of the existence of the defect at the time of sale. The trial judge concluded that Wrtsil had not rebutted the presumption that the defect existed at the time of sale and also held that Wrtsil could not rely on the limitation of liability.

On appeal, two out of three judges of the Qubec Court of Appeal concluded that maritime law applied to this claim. The majority made the point that the supply and repair of engine parts to a ship is intrinsically related to its seaworthiness and therefore directly and integrally connected to navigation and shipping. Moreover, the definition of maritime jurisdiction in the Federal Courts Act includes any "contract relating to the construction, repair or equipping of a ship" as well as "any claim in respect of goods, materials or services wherever supplied to a ship for the operation or maintenance of the ship".

After having concluded that maritime law should be applied to the dispute, the Court explored what effect that would have on Wrtsil's warranty obligations and contractual limitation of liability. In contrast to civil law, the common law puts the onus on the buyer, Desgagns in this case, to prove that the latent defect was known to the seller or that the seller showed reckless disregard for what it should have known. Furthermore, the common law will consider a limitation of liability clause to be valid in a warranty contract unless it is deemed unconscionable or the failure to discharge the obligation amounts to fundamental breach.

The trial judge had concluded as a matter of fact that the defect an improperly torqued big end stud in a connecting rod was present at the time of the sale. The Court of Appeal felt it was not its place to revisit this finding of fact. As a result, the latent defect was held to be known by Wrtsil.

As a question of law, however, the majority concluded that the limitation of liability set out in the terms and conditions of Wrtsil's warranty, which limited liability to CAD $78,900, was enforceable. There was sufficiently clear and unambiguous language in the contract to oust the implied warranty of fitness.

As a result, the Court allowed the appeal in part and ordered Wrtsil to pay the Plaintiffs up to the limit of liability.

(m)Certain Underwriters at Lloyd's v. Mediterranean Shipping Company S.A., 2017 FC 893

Certain Underwriters at Lloyd's v. Mediterranean Shipping Company S.A., 2017 FC 893 was a motion for dismissal of the Third Party Claim commenced by Mediterranean Shipping Company S.A. ("MSC") against Trans Salonikios (the "Third Party") on the basis that the Federal Court lacked jurisdiction to hear the matter.

In June 2013, pursuant to a contract of carriage, MSC carried a container said to contain fruit and shrimp from the Port of Guayaquil, Ecuador, to the Port of Montral, Canada. The container was discharged in Montral and stored at Termont Terminal's yard in Montral awaiting pickup. The Third Party then picked up the container by using a PIN code to gain access to the terminal. The Third Party had not been permitted to do so by the consignee of the cargo, the Plaintiff Soline Trading Ltd., but had obtained the PIN code unlawfully. As a result, the cargo was never delivered to the rightful owner. The Plaintiff sued the carrier MSC, holding it liable for wrongful delivery of the cargo.

MSC denied that it was liable for the loss on the basis that its obligations under the contract of carriage ended when it delivered the PIN code to the agent for the merchants. It also made a Third Party Claim against Trans Salonikios, seeking indemnity for any judgment that might be rendered against MSC in favor of the Plaintiff. The Third Party argued that the Federal Court had no jurisdiction over MSC's Third Party Claim. MSC argued that the Court did have jurisdiction pursuant to section 22(1) of the Federal Courts Act.

None of the parties alleged the existence of a contractual relationship between the Third Party, on one hand, and either the Plaintiffs or MSC on the other. As such, any such claim for indemnity or contribution could only be based in tort or extra-contractual liability. Thus liability would be based on the Third Party's role as trucker working for thieves to pick up the cargo from the terminal, or as thieves themselves stealing directly from the terminal.

The Court found that what MSC put at issue in its claim against the Third Party did not concern MSC's obligation as a ship operator or carrier of goods by sea, nor did it concern the obligations of Termont Terminal as the operator of the sea terminal. Rather the Third Party Claim only concerned the obligations of the trucker and its conduct. The Court held that such a claim does not pertain to Canadian maritime law "by any stretch of the imagination". Rather, the Third Party is a land carrier whose negligence caused damage to goods that had previously been carried by sea. Transportation by a land carrier, even if under contract to the ocean carrier, and even where the land carrier's part in the carriage forms part of a continuous movement, is not "integrally connected to maritime matters as to be legitimate Canadian maritime law within federal legislative competence". As such the Third Party's activities were not part and parcel of the carriage by sea and a claim against it does not fall within the maritime jurisdiction of the Federal Court.

MSC's Third Party Claim was therefore dismissed with costs.

(n) Offshore Interiors Inc. v. Worldspan Marine Inc., 2017 FC 478 & 2017 FC 479

The case of Offshore Interiors Inc. v. Worldspan Marine Inc., 2017 FC 478 has a complicated and long history. In 2009, Harry Sargeant III ("Sargeant") commissioned Worldspan Marine Inc. ("Worldspan") to build a luxury yacht (the "Vessel"). Sargeant had a continuing first priority interest in the Vessel to secure sums advanced or paid to Worldspan. Worldspan in turn granted Sargeant a builder's mortgage in 2008, which was assigned to Comerica Bank ("Comerica"), and by 2009 payments made by or on behalf of Sargeant to Worldspan totalled US $11,064,525.38.

In 2010, a dispute arose between Sargeant and Worldpsan regarding project costs. Later that year, Offshore Interiors Inc. ("Offshore"), a supplier to the Vessel, commenced the underlying action against the defendants for unpaid invoices for services and materials rendered in connection with the Vessel. Offshore arrested the Vessel and eventually had it sold by court order.

Before the Vessel was sold, Worldspan filed a Petition under the Companies Creditors' Arrangement Act, R.S.C. 1985, c. C-36 in the Supreme Court of British

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Columbia that resulted in a Claims Process Order requiring all creditors to deliver proof of their claims against Worldspan to the B.C. Supreme Court on or before September 9, 2011, failing which the creditor would be forever barred from making or enforcing a claim against Worldspan. The Claims Process Order also provided that any creditor pursuing an in rem claim against the Vessel could pursue its claim in Federal Court.

On August 29, 2011, the Federal Court issued a Claims Process Order for in rem claims against the Vessel. Sargeant filed an affidavit in support of his claim which derived from payments in excess of US$20 million he made to Worldspan, and from the security interest in the Vessel granted to him by Worldspan. The Federal Court of Appeal confirmed that the mortgage secured any advances exceeding $20 million and upheld the decision dismissing Worldspan's priority over the claim.

The Court heard two motions in this case on the same day. The first motion (2017 FC 478) was for the payment out of sale proceeds of the Vessel, which sold for US$5 million in 2014. The moving party was the Intervenor Sargeant, who held a builder's mortgage against the Vessel and sought payment out of the sale proceeds less the amount required to secure statutory in rem claims advanced by trade creditors (the "Trade Creditors"). The Trade Creditors have not had their claim adjudicated, and while they would arguably rank behind Sargeant's, for the purposes of this motion Sargeant was prepared to assume they would rank ahead of him.

Worldspan argued that Sargeant deliberately breached the vessel construction agreement. Payment out of Court would therefore not be appropriate until the Court determined whether the equities were not actually in Worldspan's favour.

The Court found little merit in Worldspan's allegation. First, following Governor and Co. of The Bank of Scotland v. Nel (Ship), 144 F.T.R. 53 (FC), it would be

inappropriate to look at the merits of underlying claims in this type of motion. Second, some of Worldspan's arguments had been dealt with and rejected by the Federal Court in past decisions.

With that being said, the Court acknowledged that this situation was unusual. The normal course would be for the parties to resolve any issues between them and then be paid, rather than an ex ante partial payment request. The Court therefore decided it would be premature and potentially prejudicial to make a partial payment out of Court without properly determining the rights of all claimants. The Court dismissed the motion and directed the parties to contact the case management judge to determine the next steps in the litigation.

In the second motion (2017 FC 479), Worldspan sought the following relief: (i) leave to file a Supplementary Claim Affidavit attaching change orders; (ii) orders requiring Sargeant and the representative of Comerica Bank, Cynthia B. Jones ("Jones"), to attend in Vancouver for cross-examination on their respective affidavits; (iii) a direction defining the permissible scope of the cross-examination; (iv) an order requiring Sargeant and Jones to produce on cross-examination all relevant documents and other materials in their possession, power or control; and (v) costs.

The Court granted leave to file a Supplementary Claim Affidavit, as opposing parties did not allege any prejudice would arise.

Concerning cross-examination, the Court noted that, as party witnesses, Sargeant and Jones do not receive the benefit of the accommodation a third party witness would enjoy. Both parties chose to conduct business in Canada and must accept the minor inconvenience of attending in Federal Court. Worldspan was therefore allowed to serve Sargeant and Jones with the requisite Form 91 and also demand that the witnesses bring documents with them for inspection. The scope of the examination will depend on the relevancy of

questions on examination, which in turn is defined by the pleadings. As such, the Court declined to make an advance ruling on the scope of the examination.

Finally, as Worldspan's motion had mixed results, no costs were awarded to any party.

(o) Administrator of the Ship-Source Oil Pollution Fund v. Wilson, 2017 FC 796

In Administrator of the Ship-Source Oil Pollution Fund v. Wilson, 2017 FC 796, the Administrator of the Shipsource Oil Pollution Fund (the "Administrator") brought an ex parte motion for default judgment against the Defendants, Patricia A. Wilson (doing business as Jacobsen Marine & Industrial) and Steen Larsen. The Court had two questions before it: (i) are the Defendants in default; and (ii) is there evidence to support the Plaintiff's claim?

On the first question, the Court found that the Defendants were in default, as they had been properly served, and neither had filed a statement of defence within the time provided.

With regard to the second question, the Court examined affidavits provided by the Administrator from a member of the Canadian Coast Guard (the "CCG") and an employee of the Administrator. The evidence established that a barge owned by the Defendants was adrift in Howe Sound and the Defendants were unable to secure it. The CCG retained Seaspan ULC to salvage the barge, and subsequently presented a claim to the Administrator. The Administrator made an offer which was accepted by the CCG and in turn sought to recover that amount from the Defendants. The Administrator's demands for payment from the Defendants were ignored.

The Court was satisfied the Defendants were liable to the Administrator for the expenses reasonably incurred by the CCG in minimizing oil pollution associate applicants were set aside. Further, PMV was ordered to reconsider the applications "on the merits and in accordance with the most favourable approval benchmark applied to any of the successful licensing applications" and to issue licences to "any qualified Applicant whose application meets that benchmark for

approval."

19

Canadian Maritime Law

From Coast to Coast.

With the leading maritime law practice in Canada, BLG provides the full spectrum of legal services -- from negotiation and drafting of contracts and policies through to risk management and defence against claims, including arbitration. Our clients -- domestic and international shipping lines, ship owners, operators, charterers, terminal operators, P&I clubs, H&M underwriters and general marine insurers -- turn to us for critical insights and timely, innovative solutions based on well over 100 years of experience in this industry.

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Vancouver Dionysios Rossi Graham Walker Rick Williams

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Published annually, this newsletter supplements the various bulletins issued throughout the course of the year and underscores BLG's commitment to provide clients with salient information relating to legal developments in the maritime industry. This edition delves into various matters which occurred over 2017. Special thanks are extended to the authors and editors who contributed to this publication including: Darren McGuire, Dino Rossi, Nils Goeteyn, Auke Visser, Jacob Gehlen and Scott Duncan.

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