Peracomo Inc. v. TELUS Communications Co.

Peracomo Inc. v. TELUS Communications Co.
Collection
Supreme Court Judgments
Date
2014-04-23
Neutral citation
2014 SCC 29
Report
[2014] 1 SCR 621
Case number
34991
Judges
McLachlin, Beverley; Rothstein, Marshall; Cromwell, Thomas Albert; Karakatsanis, Andromache; Wagner, Richard
On appeal from
Federal Court of Appeal
Subjects
Maritime law
Notes
SCC Case Information: 34991
Decision Content
SUPREME COURT OF CANADA
Citation: Peracomo Inc. v. TELUS Communications Co., 2014 SCC 29, [2014] 1 S.C.R. 621
Date: 20140423
Docket: 34991
Between:
Peracomo Inc., Réal Vallée, the owners and all other
persons having an interest in the fishing vessel “Realice”
and the fishing vessel “Realice”
Appellants
and
TELUS Communications Company, Hydro-Québec, Bell Canada and
Royal & Sun Alliance Insurance Company of Canada
Respondents
Official English Translation: Reasons of Wagner J.
Coram: McLachlin C.J. and Rothstein, Cromwell, Karakatsanis and Wagner JJ.
Reasons for Judgment:
(paras. 1 to 72)
Reasons Dissenting in Part:
(paras. 73 to 110)
Cromwell J. (McLachlin C.J. and Rothstein and Karakatsanis JJ. concurring)
Wagner J.
Peracomo Inc. v. TELUS Communications Co., 2014 SCC 29, [2014] 1 S.C.R. 621
Peracomo Inc.,
Réal Vallée, the owners and all other persons having an interest
in the fishing vessel “Realice” and the fishing vessel “Realice” Appellants
v.
TELUS Communications Company,
Hydro-Québec, Bell Canada and
Royal & Sun Alliance Insurance Company of Canada Respondents
Indexed as: Peracomo Inc. v. TELUS Communications Co.
2014 SCC 29
File No.: 34991.
2013: November 15; 2014: April 23.
Present: McLachlin C.J. and Rothstein, Cromwell, Karakatsanis and Wagner JJ.
on appeal from the federal court of appeal
Maritime law — Liability in tort — Limitation of liability — Conduct barring limitation — Standard of fault — Fisherman intentionally cutting submarine fiber-optic cable he believed to be abandoned, resulting in almost $1 million in damage — Whether appellants’ right to limit their liability pursuant to Convention is barred — Whether fisherman acted with intent to cause such loss or recklessly and with knowledge that such loss would probably result — Convention on limitation of liability for maritime claims, 1976, 1456 U.N.T.S. 221, art. 4.
Maritime law — Marine insurance — Exclusion of coverage — Standard of fault — Wilful misconduct — Whether standards of fault under Marine Insurance Act and Convention are same — Whether loss caused by fisherman’s wilful misconduct such that it is excluded from coverage — Marine Insurance Act, S.C. 1993, c. 22, s. 53(2) .
V, a crab fisherman and sole shareholder of P, was fishing in the St. Lawrence River when one of his anchors snagged a cable lying on the river bottom. He adverted to the risk that the cable could be in use but formed the belief that it was not. This belief was based on a handwritten note on some sort of map that he had seen for a few seconds the year before on a museum wall. V made no further inquiries to confirm or dispel his belief and proceeded to cut the cable. The cable was, in fact, a live fiber-optic cable co-owned by or used by a number of the respondents. The result was almost $1 million in damage.
In the Federal Court, V, his company and its vessel were found to be jointly and severally liable for the damage. The trial judge held that because V had cut the cable on purpose, the appellants were not entitled to limit their liability to $500,000 pursuant to the Convention on limitation of liability for maritime claims, 1976 because the damages cap on maritime liability imposed by that Convention does not apply where a loss has been caused by a person’s intentional and reckless conduct. Further, the appellants’ insurance policy was found to be inapplicable because cutting the cable constituted “wilful misconduct”, a statutory exclusion from marine liability insurance set out at s. 53(2) of the Marine Insurance Act . An appeal to the Federal Court of Appeal was unsuccessful.
Held (Wagner J. dissenting in part): The appeal should be allowed in part.
Per McLachlin C.J. and Rothstein, Cromwell and Karakatsanis JJ.: The limit on liability under the Convention applies and the appellants’ liability is capped at $500,000, but the loss is excluded from their insurance coverage. V may be held personally liable for the damage.
While the exclusions set out in the Convention and the Marine Insurance Act are related, there are important differences between them, both in purpose and text, which drive the result in this case. The Convention imposes a higher standard of fault than does the insurance exclusion. In order to bar the benefit of the Convention’s limitation on maritime liability, it must be proven that the loss resulted from an act or omission committed either with the intent to cause such loss or recklessly and with knowledge that such loss would probably occur. For its part, the Marine Insurance Act , excludes marine insurance coverage for losses resulting from “wilful misconduct”, a standard of fault which includes not only intentional wrongdoing but also conduct exhibiting reckless indifference in the face of a duty to know.
It is insufficient to break the limit on liability under art. 4 of the Convention that V intended to cut the cable. Rather, in order to break that limit, it must be proven that he intended to cause the loss that actually resulted or that he acted recklessly and with knowledge that the loss would probably occur. The trial judge found that V thought the cable was useless. In cutting the cable, he did not intend to cause the loss incurred by the respondents or know that it was a probable consequence of his actions. It was therefore an error of law for the lower courts to conclude that V intended to cause a loss, or was reckless knowing that such loss would probably occur, within the meaning of art. 4 of the Convention.
Although V’s conduct does not meet the very high level of fault so that he loses the benefit of the Convention’s limit on liability, it does constitute wilful misconduct for insurance purposes. V had a duty to be aware of the cable and he failed miserably in that regard. His acts were so far outside the range of conduct to be expected of him in the circumstances as to constitute misconduct. The trial judge’s findings make clear that his misconduct was willful. For insurance purposes, the fact that V believed that the cable was not in use is beside the point. V knew that what he was cutting was a submarine cable. He adverted to the risk that it could be in use but failed to make further inquiries in order to confirm or dispel his belief that the cable was abandoned and useless. His conduct exhibited a reckless indifference to the possible consequences of his actions of which he was actually aware. He thus committed an act of wilful misconduct: he ran an unreasonable risk with subjective knowledge of that risk and indifference as to the consequences.
Per Wagner J. (dissenting in part): The appellants can both limit their liability and benefit from coverage under their insurance policy.
Even though the provisions do not have the exact same wording, the provision of the Marine Insurance Act at issue must be read harmoniously with the Convention’s provisions. Both of them require proof of the same fact: that the insured had knowledge of the harmful consequences of his or her act, and intended or was reckless with regard to those consequences. Section 53(2) of the Marine Insurance Act , like art. 4 of the Convention, establishes a subjective criterion: an act cannot be characterized as wilful misconduct unless it is proven that the insured intended the result of his or her act or was reckless in that regard.
“Wilful misconduct” requires either a deliberate act intended to cause the harm, or such blind and uncaring conduct that one could say that the person was heedless of the consequences. Conduct exhibiting reckless indifference in the face of a duty to know cannot be characterized as wilful misconduct unless it is proven that at the time of the wrongful act, the person who committed it had subjective knowledge of the loss that would result. Proving conduct exhibiting reckless indifference in the face of a duty to know is but the first step, as it must then be proven that this misconduct was wilful. If after considering the possible consequences of an act, an insured sincerely, although erroneously, believes that the act will cause no loss, his or her misconduct cannot be characterized as wilful.
The fact that a reasonable person ought to have known, or that a person had a duty to know, does not suffice to justify a finding that an act has the characteristics of wilful misconduct: it is also necessary to establish that the person intended to cause the loss, and to prove gross negligence or misconduct in which there is a very marked departure from the conduct of a reasonable person.
This definition clearly does not apply to V’s conduct. He sincerely believed the cable was not in use. Nothing in the record supports a finding that V actually knew or had any suspicion that the cable was in use. Nor is there any support in the record for a conclusion that V had knowledge of the loss that would result, let alone that he intended to cause such a loss. This shielded him from being deprived of coverage under his liability insurance policy while at the same time enabling him to limit his liability.
Cases Cited
By Cromwell J.
Referred to: London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299; ADGA Systems International Ltd. v. Valcom Ltd. (1999), 43 O.R. (3d) 101, leave to appeal refused, [2000] 1 S.C.R. xv; Nugent v. Michael Goss Aviation Ltd., [2000] 2 Lloyd’s Rep. 222; Margolle v. Delta Maritime Co. (The “Saint Jacques II” and “Gudermes”), [2002] EWHC 2452, [2003] 1 Lloyd’s Rep. 203; Schiffahrtsgesellschaft MS “Merkur Sky” m.b.H. & Co. K.G. v. MS Leerort Nth Schiffahrts G.m.b.H. & Co. K.G. (The “Leerort”), [2001] EWCA Civ 1055, [2001] 2 Lloyd’s Rep. 291; The “Bowbelle”, [1990] 1 Lloyd’s Rep. 532; Daina Shipping Co. v. Te Runanga O Ngati Awa, [2013] NZHC 500, [2013] 2 N.Z.L.R. 799; MSC Mediterranean Shipping Co. S.A. v. Delumar BVBA (The “MSC Rosa M”), [2000] 2 Lloyd’s Rep. 399; Goulet v. Transamerica Life Insurance Co. of Canada, 2002 SCC 21, [2002] 1 S.C.R. 719; McCulloch v. Murray, [1942] S.C.R. 141; Studer v. Cowper, [1951] S.C.R. 450; Thompson v. Fraser, [1955] S.C.R. 419; Walker v. Coates, [1968] S.C.R. 599; Markling v. Ewaniuk, [1968] S.C.R. 776; Goulais v. Restoule, [1975] 1 S.C.R. 365; R. v. Boulanger, 2006 SCC 32, [2006] 2 S.C.R. 49; Attorney General’s Reference (No. 3 of 2003), [2004] EWCA Crim 868, [2005] Q.B. 73; Lewis v. Great Western Railway Co. (1877), 3 Q.B.D. 195; Thomas Cook Group Ltd. v. Air Malta Co., [1997] 2 Lloyd’s Rep. 399.
By Wagner J. (dissenting in part)
McCulloch v. Murray, [1942] S.C.R. 141; Studer v. Cowper, [1951] S.C.R. 450; Russell v. Canadian General Insurance Co. (1999), 11 C.C.L.I. (3d) 284; Avgeropoulos v. Karanasos (1969), 6 D.L.R. (3d) 34; Lewis v. Great Western Railway Co. (1877), 3 Q.B.D. 195; Thomas Cook Group Ltd. v. Air Malta Co., [1997] 2 Lloyd’s Rep. 399; Forder v. Great Western Railway Co., [1905] 2 K.B. 532; Horabin v. British Overseas Airways Corp., [1952] 2 Lloyd’s Rep. 450; Kenyon Son v. Baxter, Hoare & Co., [1971] 1 Lloyd’s Rep. 232; Compania Maritima San Basilio S.A. v. The Oceanus Mutual Underwriting Association (Bermuda) Ltd. (The “Eurysthenes”), [1976] 2 Lloyd’s Rep. 171; Rustenburg Platinum Mines Ltd. v. South African Airways, [1977] 1 Lloyd’s Rep. 564; Sidney G. Jones Ltd. v. Martin Bencher Ltd., [1986] 1 Lloyd’s Rep. 54; National Oilwell (UK) Ltd. v. Davy Offshore Ltd., [1993] 2 Lloyd’s Rep. 582; National Semiconductors (UK) Ltd. v. UPS Ltd., [1996] 2 Lloyd’s Rep. 212; Laceys Footwear (Wholesale) Ltd. v. Bowler International Freight Ltd., [1997] 2 Lloyd’s Rep. 369; Symons General Insurance Co. v. Sabau Construction Inc., [1986] R.J.Q. 2823; Aetna Casualty and Surety Co. v. Groupe Estrie, mutuelle d’assurance contre l’incendie, [1990] R.J.Q. 1792; Triglav v. Terrasses Jewellers Inc., [1983] 1 S.C.R. 283; Audet v. Transamerica Life Canada, 2012 QCCA 1746 (CanLII); Canadian Indemnity Co. v. Walkem Machinery & Equipment Ltd., [1976] 1 S.C.R. 309.
Statutes and Regulations Cited
Carriage by Air Act, 1961 (U.K.), 9 & 10 Eliz. 2, c. 27.
Charts and Nautical Publications Regulations, 1995, SOR/95-149.
Civil Code of Lower Canada, arts. 2383, 2385, 2563, 2663, 2693.
Civil Code of Québec, arts. 1461, 1471, 1474, 1613, 1706, 2301, 2464, 2576.
Marine Insurance Act, S.C. 1993, c. 22, s. 53 .
Marine Insurance Act, 1906 (U.K.), 6 Edw. 7, c. 41, s. 55(2)(a).
Marine Liability Act, S.C. 2001, c. 6, ss. 26 , 28 [am. 2009, c. 21, s. 3], 29.
Motor Vehicle Act, S.N.S. 1932, c. 6, s. 183.
Treaties and Other International Instruments
Convention for the Unification of Certain Rules Relating to International Carriage by Air, 137 L.N.T.S. 11 [Warsaw Convention], art. 25.
Convention on limitation of liability for maritime claims, 1976, 1456 U.N.T.S. 221, arts. 1, 2, 4.
Protocol to amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air, 478 U.N.T.S. 371 [Hague Protocol].
Vienna Convention on the Law of Treaties, Can. T.S. 1980 No. 37, art. 32.
Authors Cited
Arnould’s Law of Marine Insurance and Average, 17th ed. by Jonathan Gilman et al. London: Sweet & Maxwell, 2008.
Belleau, Claude. “L’harmonisation du droit civil et de la common law en droit des assurances au Québec” (1991), 32 C. de D. 971.
Brown, Craig. Insurance Law in Canada, vol. 1. Toronto: Carswell, 2002 (loose-leaf updated 2013, release 7).
Cane, Peter. “Mens Rea in Tort Law” (2000), 20 Oxford J. Legal Stud. 533.
Comité Maritime International. The Travaux Préparatoires of the LLMC Convention, 1976 and of the Protocol of 1996. Antwerp, Belgium: CMI, 2000.
Damar, Duygu. Wilful Misconduct in International Transport Law. Heidelberg, Germany: Springer, 2011.
Gold, Edgar, Aldo Chircop and Hugh Kindred. Maritime Law. Toronto: Irwin Law, 2003.
Griggs, Patrick, Richard Williams and Jeremy Farr. Limitation of Liability for Maritime Claims, 4th ed. London: LLP, 2005.
Grime, R. P. “Implementation of the 1976 limitation convention” (1988), 12 Marine Pol’y 306.
Heerey, Peter. “Limitation of Maritime Claims” (1994), 10 MLAANZ Journal 1.
Hodges, Susan, and Christopher Hill. Principles of Maritime Law. London: LLP, 2001.
Le Petit Robert: dictionnaire alphabétique et analogique de la langue française, nouvelle éd. Paris: Le Robert, 2012, “délibéré”.
Lluelles, Didier. Précis des assurances terrestres, 5e éd. Montréal: Thémis, 2009.
Mandaraka-Sheppard, Aleka. Modern Maritime Law and Risk Management, 2nd ed. London: Routledge-Cavendish, 2007.
Ogg, Terry. “IMO’s International Safety Management Code (The ISM Code)” (1996), 1 I.J.O.S.L. 143.
Shorter Oxford English Dictionary on Historical Principles, 5th ed. Oxford: Oxford University Press, 2002, “wilful”.
Wilson, John F. Carriage of Goods by Sea, 7th ed. Harlow, England: Longman, 2010.
APPEAL from a judgment of the Federal Court of Appeal (Létourneau, Gauthier and Trudel JJ.A.), 2012 FCA 199, 433 N.R. 152, [2012] F.C.J. No. 855 (QL), 2012 CarswellNat 2191, affirming a decision of Harrington J., 2011 FC 494, 389 F.T.R. 196, [2011] F.C.J. No. 602 (QL), 2011 CarswellNat 1226. Appeal allowed in part, Wagner J. dissenting in part.
Nicholas J. Spillane and Victoria Leonidova, for the appellants.
Jean Grégoire, John O’Connor and Michel Jolin, for the respondents the TELUS Communications Company, Hydro-Québec and Bell Canada.
Jean-François Bilodeau and Nick Krnjevic, for the respondent the Royal & Sun Alliance Insurance Company of Canada.
The judgment of McLachlin C.J. and Rothstein, Cromwell and Karakatsanis JJ. was delivered by
Cromwell J. —
I. Introduction
[1] The appellant, Réal Vallée, fishes for crab in an area of the St. Lawrence River known as Zone 17, near Baie-Comeau, Quebec. He had been fishing for about 50 years, starting when he was just 15. In 2005 and 2006, he operated the fishing boat Realice which he owns through his company, Peracomo Inc.
[2] While in his boat, he took an electric saw and cut a fibre-optic submarine cable that he raised to the surface after it had become entangled with his fishing gear. Mr. Vallée knew he was cutting a cable and had adverted to the risk that it could be in use. However, he formed the belief that it was not. His belief was based on a handwritten note on some sort of map that he had seen for a few seconds the year before on a museum wall. This belief was wrong. The cable was live. The result was almost $1 million in damage. As the trial judge put it, Mr. Vallée is a good man who did a very stupid thing.
[3] Mr. Vallée, his company and the vessel were sued successfully for the damage in the Federal Court and their appeal to the Federal Court of Appeal was dismissed. On further appeal to this Court, the main issues are whether their liability is limited to $500,000 by virtue of both the Convention on limitation of liability for maritime claims, 1976, 1456 U.N.T.S. 221 (“Convention”), and s. 29 of the Marine Liability Act, S.C. 2001, c. 6 , and whether the loss is covered by their insurance. In addition, Mr. Vallée contends that he is not personally liable for the loss.
[4] Both the limitation of liability and the insurance issues turn on Mr. Vallée’s degree of fault. He is not entitled to the limited liability if the loss resulted from his act “committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result” (art. 4); furthermore, the loss is excluded from his insurance coverage if it is attributable to his “wilful misconduct”. We must decide whether the federal courts erred in finding that both of these exclusions apply to Mr. Vallée’s conduct.
[5] In my view, the limit on liability under the Convention applies, but the loss is excluded from the insurance coverage. While the two exclusions are related, there are important differences between them, both in purpose and text, which drive the result in this case. The Convention, as we shall see, imposes a higher standard of fault than does the insurance exclusion. Mr. Vallée’s conduct does not meet the very high level of fault so that he loses the benefit of the Convention’s limit on liability, but it does constitute wilful misconduct for insurance purposes.
[6] I conclude that Mr. Vallée is personally liable for the damage, the appellants are entitled to the limitation on liability under the Convention, but the loss is excluded from their insurance coverage.
II. Facts and Proceedings
[7] In 2005, Mr. Vallée was fishing for crab when one of his anchors snagged an obstacle on the river bottom. The anchor was raised using a winch and the snagged object was found to be a cable. It was in fact a cable known as the Sunoque I, co-owned by the respondents TELUS Communications Company (“Telus”) and Hydro-Québec and which Bell Canada has the right to use.
[8] Sometime after snagging the cable in 2005, Mr. Vallée got a brief look at a map or a chart in a local museum (a former church) which showed a line drawn running through the area in which he fished and which had [translation] “abandoned” (“abandonné”) written on it by hand. He thought that this was the cable he had snagged. As the trial judge put it, “[w]ithout giving [the matter] a second thought, [Mr. Vallée] concluded that this was what he was hooking with his anchor. He only glanced at it for a matter of seconds and cannot recall whether it was a marine chart, a topographical chart, or indeed what type of map it was at all”: 2011 FC 494, 389 F.T.R. 196, at para. 40. The trial judge found as a fact that “[t]here is not, and there never was, such a marine chart”: para. 83.
[9] When Mr. Vallée snagged the cable again in 2006, he cut it with a circular electric saw and buoyed one end of the cable. A few days later, while fishing in the same area, his anchor got snagged on the cable once more. Mr. Vallée cut the cable a second time. Telus, Hydro-Québec and Bell Canada (“Telus respondents”) sued Mr. Vallée, his company and his vessel to recover the costs of repairing the cable.
[10] At trial, Harrington J. found the appellants liable in negligence for damaging the cable because Mr. Vallée had breached his common law duty of care and statutory duty to be aware of the submarine cables in the areas in which he fished: paras. 34 and 49. Mr. Vallée did not own or consult any of the maritime charts of Zone 17, as the trial judge held he was obliged to do under the Charts and Nautical Publications Regulations, 1995, SOR/95-149. The judge rejected the appellants’ argument that Telus was contributorily negligent in failing to bury the cable underground and in failing to provide mariners with adequate notice of its installation.
[11] Section 29 of the Marine Liability Act (then s. 28 , amended by S.C. 2009, c. 21, s. 3 ) sets a damages cap of $500,000 on maritime liability for property damage caused by ships of the size and class of the Realice. However, the trial judge held that because Mr. Vallée cut the cable on purpose this limit did not apply pursuant to art. 4 of the Convention, which provides that the cap is inapplicable where a loss resulted from a person’s intentional or reckless conduct. Further, the appellants’ lost the benefit of their insurance policy with the respondent, Royal & Sun Alliance Insurance Company of Canada (“Royal”), because cutting the cable fell within the statutory exclusion from marine liability insurance for “wilful misconduct” set out at s. 53(2) of the Marine Insurance Act, S.C. 1993, c. 22 . The trial judge explained that “[r]ecklessness connotes a mental attitude or indifference to the existence of the risk” and found as a fact that while Mr. Vallée “believed the cable was not in use”, he had been “reckless in the extreme”: paras. 5 and 84-85.
[12] In the result, the trial judge found Mr. Vallée, Peracomo, and the Realice as an in rem defendant, jointly and severally liable for the $892,395.32 it cost to repair the Sunoque I, in addition to $88,038.22 for administrative charges, for a total amount of $980,433.54.
[13] The Federal Court of Appeal dismissed the appellants’ appeal, finding no error in the trial judge’s evaluation of the evidence or in his legal analysis.
III. Issues
[14] On their appeal to this Court, the appellants raise three main issues:
(1) Is Mr. Vallée personally liable for the loss?
In my view, he is.
(2) Are the appellants entitled to the limit on marine liability despite art. 4 of the Convention?
In my view they are and I would reverse the conclusions of the federal courts on this point.
(3) Was the loss caused by Mr. Vallée’s “wilful misconduct” so that it is excluded from coverage under the insurance policy with Royal?
In my view, it was and the loss is excluded from coverage.
IV. Analysis
A. Is Mr. Vallée Personally Liable for the Loss?
[15] The appellants submit that there is no basis for holding Mr. Vallée personally responsible for the wrongs of Peracomo. Mr. Vallée is the sole shareholder and officer of Peracomo and the appellants concede that Mr. Vallée is the alter ego of Peracomo. But they argue that imposing personal liability on Mr. Vallée would disregard Peracomo’s distinct legal personality. The appellants rely on this Court’s decision in London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299, which left open the possibility that specific circumstances might call for departure from the general rule for piercing the corporate veil. The appellants do not say what those specific circumstances might be.
[16] The trial judge, upheld by the Federal Court of Appeal, found that Mr. Vallée was personally liable for breaching his duty of care to the Telus respondents: para. 49. He held that Peracomo was also liable for the losses both vicariously and personally. Mr. Vallée was the directing mind and alter ego of Peracomo: para. 50. The Court of Appeal cited ADGA Systems International Ltd. v. Valcom Ltd. (1999), 43 O.R. (3d) 101 (C.A.), leave to appeal refused, [2000] 1 S.C.R. xv, for the proposition that corporate officers and directors may be held liable in their personal capacity where they negligently cause property damage in the course of their corporate duties: para. 43.
[17] I agree with these conclusions. As the Telus respondents point out, corporate personality is not a relevant consideration in this case since Mr. Vallée was personally negligent in cutting the cable. The company is liable as a result of his acts, not the other way around. I would dismiss this ground of appeal.
B. Are the Appellants Entitled to the Limit on Marine Liability Despite Article 4 of the Convention?
[18] Section 29 of the Marine Liability Act limits liability for property damage caused by the operation of ships in the same class as the Realice at $500,000. However, this limit does not apply if the loss “resulted from [the defendant’s] personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. This flows from the fact that s. 26 of the Marine Liability Act gives the force of law in Canada to art. 4 of the Convention, which establishes this exclusion from the limitation on liability:
Article 4. Conduct barring limitation
A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.
[19] Whether the limitation on liability is excluded by art. 4 depends on the fault of the person liable. It sets out two types of fault, either of which bars the operation of the Convention’s limitation on liability. The first is an intention to cause “such loss” and the second is to cause the loss “recklessly and with knowledge that such loss would probably result”.
[20] There is some ambiguity in the trial judge’s reasons about what Mr. Vallée intended or knew. I agree with the Federal Court of Appeal’s reading of his reasons: Mr. Vallée knew that he was cutting a cable and that this was sufficient to establish an intention to cause the loss. As the court of appeal put it: “Given that in this case Mr. Vallée intended to cut the very cable for the loss of which he is sued, we do not have to discuss this issue further”: para. 58. The Court of Appeal was thus of the view that what mattered was the fact that Mr. Vallée intentionally caused physical damage to the cable.
[21] The appellants submit that this conclusion is in error and that Mr. Vallée’s conduct does not fall within either of the fault components set out in the Convention. With respect to the first (intention to cause such loss), Mr. Vallée did not intend to cause the loss because he thought the cable was worthless junk and that cutting it would not cause any loss: A.F., at paras. 48-49. The trial judge and the Federal Court of Appeal erred, submit the appellants, because they focused on the cutting of the cable itself as opposed to its consequences in assessing Mr. Vallée’s intention. As for the second fault element (recklessness with knowledge that such loss would probably occur), the appellants say that Mr. Vallée was neither reckless nor knew that the loss was probable. The appellants rely on Nugent v. Michael Goss Aviation Ltd., [2000] 2 Lloyd’s Rep. 222 (C.A.), for the proposition that the defendant must have recognized the risk and gone on to take it. In this case, they submit that Mr. Vallée was not aware of any risk. He believed from the map he had seen that the cable was abandoned. They further submit that even if he did act recklessly, he did not have any knowledge that the cable was in use and so had no knowledge that his actions would cause the Telus respondents any loss.
[22] The Telus respondents submit that Mr. Vallée possessed both fault elements under art. 4. His actions in cutting the cable constituted the common law intentional tort of trespass to goods. Since the facts would have supported liability for an intentional tort, Mr. Vallée’s conduct should be seen as intentional for the purposes of art. 4: Telus respondents’ factum, at para. 86. In the alternative, the Telus respondents say that Mr. Vallée’s actions were reckless. They say that recklessness requires either “a decision to run the risk or a mental attitude of indifference to its existence”: para. 99, citing Goldman v. Thai Airways International Ltd., [1983] 3 All E.R. 693 (C.A.), at p. 699, per Lord Eveleigh. Mr. Vallée claims to have seen the word [translation] “abandoned” written by hand on a map in a museum, although he could not remember any other details regarding this map. He did not take any other steps to satisfy himself that the cable was not in use. As the Telus respondents put it, [translation] “He deliberately remained in ignorance. He shut his eyes.”: para. 102.
[23] While I do not accept all of the appellants’ submissions, I agree with them that they are entitled to the limit on liability provided for under the Convention and set out more specifically at s. 29 of the Marine Liability Act . In my respectful view, the Federal Court of Appeal took too narrow an approach to the intent requirement under art. 4 of the Convention. It held, in effect, that if Mr. Vallée knew he was “cut[ting] the very cable for the loss of which he is sued”, the intent element of the Convention was satisfied. I cannot agree. This amounts to saying that all that is required to break the limit on liability is knowledge that one is interfering with property. Such an approach undermines the Convention’s purpose to establish a virtually unbreakable limit on liability and does not accord with its text.
[24] I turn first to the Convention’s purpose. The contracting states to the Convention intended the fault requirement to be a high one — the limitation on liability was designed to be difficult to break: Margolle v. Delta Maritime Co. (The “Saint Jacques II” and Gudermes”), [2002] EWHC 2452, [2003] 1 Lloyd’s Rep. 203, at para. 16; Schiffahrtsgesellschaft MS “Merkur Sky” m.b.H. & Co. K.G. v. MS Leerort Nth Schiffahrts G.m.b.H. & Co. K.G. (The “Leerort”), [2001] EWCA Civ 1055, [2001] 2 Lloyd’s Rep. 291, at para. 18. The Convention has been described as a “trade-off”: “As a quid pro quo for the increase of the [limitation] fund, the article providing for the breaking of limitation became tighter, so that it is almost impossible for the claimants to break the right to limit”: A. Mandaraka-Sheppard, Modern Maritime Law and Risk Management (2nd ed. 2007), at p. 865. Meeting the threshold fault requirement requires a high degree of subjective blameworthiness: Nugent, at p. 229 (interpreting the similarly worded Warsaw Convention, 137 L.N.T.S. 11, as amended by the Hague Protocol, 478 U.N.T.S. 371). The fault standard set by art. 4 has been described as “a virtually unbreakable right to limit liability” (P. Griggs, R. Williams and J. Farr, Limitation of Liability for Maritime Claims (4th ed. 2005), at p. 3) and as “an almost indisputable right to limit . . . liability”: The “Bowbelle”, [1990] 1 Lloyd’s Rep. 532 (Q.B.D.), at p. 535; see also D. Damar, Wilful Misconduct in International Transport Law (2011), at p. 168; R. P. Grime, “Implementation of the 1976 limitation convention” (1988), 12 Marine Pol’y 306, at p. 313; P. Heerey, “Limitation of Maritime Claims” (1994), 10 MLAANZ Journal 1, at p. 3; T. Ogg, “IMO’s International Safety Management Code (The ISM Code)” (1996), 1 I.J.O.S.L. 143, at p. 149; J. F. Wilson, Carriage of Goods by Sea (7th ed. 2010), at p. 288; E. Gold, A. Chircop and H. Kindred, Maritime Law (2003), at p. 728. It is worth noting that the contracting states considered, but expressly rejected, the inclusion of “gross negligence” as a sufficient level of fault to break the liability limit: Comité Maritime International, The Travaux Préparatoires of the LLMC Convention, 1976 and of the Protocol of 1996 (2000), Article 4. Conduct barring limitation, at pp. 123-32.
[25] In my respectful view, the Federal Court of Appeal’s approach to breaking the limit on liability lowered the intended fault element and thereby undermined the Convention’s purpose to establish a virtually unbreakable right to limit liability.
[26] Turning to the text of the Convention, my view is that the Federal Court of Appeal’s approach fails to distinguish between, on one hand, the limitation of liability that relates to a “claim” and, on the other, the bar to the limitation which arises if there was intention to cause “the loss” that resulted from the act or omission of the person liable. As we shall see, the limitation is expressed in broad and generic terms while the intention required to break the limitation relates to specific consequences of the conduct of the person liable.
[27] Article 2 lists the types of claims which are subject to the limitation of liability set out in the Convention. The list of “claims” in art. 2 includes, in para. 1(a), “[c]laims in respect of loss of life or personal injury or [as is in issue here] loss of or damage to property . . . occurring on board or in direct connexion with the operation of the ship”. Article 4 then addresses the limit on liability of “[a] person liable”. That person is entitled to limit his liability unless it is proved that “the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”.
[28] Two things stand out about the relationship between the limitation set out in art. 2 and the conduct barring that limitation set out in art. 4. First, the limitation of liability in art. 2 relates to liability for “claims”. “Claims” refer to the broad, generic categories of consequences for which recovery may be sought, such as in this case, “damage to property”. In short, it is “claims” that are subject to limitation of liability and this limitation is expressed in broad and generic terms. Second, the conduct barring the benefit of the limitation is expressed in much more restrictive language. The bar, unlike the limitation itself, is not expressed in relation to claims. The bar arises only if the “loss” resulted from the intentional act of the person liable, or as a result of reckless conduct committed with knowledge that the loss was probable. This signals that the intention which invokes the bar must relate to more specific consequences of the person’s conduct than that captured by the sorts of generic consequences referred to by the word “claims”. This requirement of intention in relation to more specific consequences is underscored by the use of the words “such loss” in connection with the intent and knowledge clauses of art. 4. Before the bar arises, the loss must be shown to have resulted from the “personal act or omission” of the person liable “committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. As one leading text puts it, “the use of the words ‘such loss’ in Article 4 seem[s] to underline the fact that the right to limit is barred only if the type of loss intended or envisaged by the ‘person liable’ is the actual loss suffered by the claimant”: Griggs, Williams and Farr, at p. 36 (emphasis in original); see also Damar, at p. 173.
[29] How specifically must the loss have been intended? There is some ambiguity in the authorities with respect to this question. Some authorities take the view that knowledge of the type of damage that occurs is required: see, e.g., Nugent, p. 229, per Auld L.J., interpreting the similar, but not identical language in art. 25 of the Warsaw Convention, as given effect by the Carriage by Air Act, 1961 (U.K.), 9 & 10 Eliz. 2, c. 27. However, this authority may be of limited assistance given that under the Warsaw Convention, what is required is foresight that “damage” would probably result, rather than as under the Convention, foresight that “such loss” would probably result: see The “Saint Jacques II”, at para. 16. Other cases have required knowledge of the very loss that actually occurred: see, e.g., Daina Shipping Co. v. Te Runanga O Ngati Awa, [2013] NZHC 500, [2013] 2 N.Z.L.R. 799, at para. 42, distinguishing the Federal Court of Appeal decision in this case, at para. 45. This appears to be the dominant view in the English courts. The leading case is The “Leerort” in which Lord Phillips of Worth Matravers M.R. (as he then was) stated that foresight of “the very loss that actually occurs, not merely of the type of loss that occurs” is required: para. 13; see also MSC Mediterranean Shipping Co. S.A. v. Delumar BVBA (The “MSC Rosa M”), [2000] 2 Lloyd’s Rep. 399 (Q.B.D.), and The “Saint Jacques II”. This view also has the support of leading commentators: see Griggs, Williams and Farr, at p. 36; Damar, at p. 173; S. Hodges and C. Hill, Principles of Maritime Law (2001), at pp. 593-94.
[30] Lord Phillips in The “Leerort” gave examples to illustrate the difference between the notions of “type of loss” and “very loss”:
It seems to me that where the loss in respect of which a claim is made resulted from a collision between ship A and ship B, the owners of ship A, or cargo in ship A, will only defeat the right to limit liability on the owner of ship B if they can prove that the owner of ship B intended that it should collide with ship A, or acted recklessly with the knowledge that it was likely to do so.
The alternative, which is perhaps arguable, is that the claimant merely has to prove that the owner of ship B intended that his ship should collide with another ship, or acted recklessly with the knowledge that it was likely to do so. [Emphasis added; paras. 16-17.]
[31] While Lord Phillips expressed a preference for the “very loss” requirement, he did not resolve the debate entirely and, in the present case, we do not have to take a firm position as to whether we ought to adopt the “type of loss” or the “very loss” approach. As I see it, the appellants are entitled to limit their liability on either view.
[32] The “loss” that “resulted” from Mr. Vallée’s act was the diminution in value of the cable measured by the cost of repairing it. Whether this description of the loss is considered to be of the “type of loss” or of the “very loss” that resulted from Mr. Vallée’s action, on the trial judge’s findings of fact, Mr. Vallée did not intend to cause that loss or know that it was a probable consequence of his actions. The trial judge found as a fact that Mr. Vallée thought the cable was useless — no matter how recklessly he may have reached that view — and therefore did not think it would be repaired because he thought it had no value: paras. 75 and 77. This does not constitute either “the intent to cause such loss” or “knowledge that such loss would probably result”.
[33] With respect, the Federal Court of Appeal misread The “Leerort” by finding that it was sufficient to break the limit on liability under art. 4, that Mr. Vallée intended “to cut the very cable for the loss of which he is sued”: para. 58. This statement mischaracterizes the legal effect of the relevant facts as found by the trial judge in The “Leerort” case. Here are the relevant comments of Lord Phillips in that case:
Mr. Teare submitted that the words “such loss” meant loss of the type suffered and that, to identify the type of loss, it was necessary to refer back to art. 2, which sets out the various types of loss in respect of which a right to limit arises. Thus, in the instant case, the claims advanced are in respect of “loss of or damage to property”, so that the only foresight required to defeat the right to limit was of the likelihood of loss of or damage to property.
This submission r