Rhône (The) v. Peter A.B. Widener (The), [1993] 1 S.C.R. 497

Great Lakes Towing Company Appellant

v.

The Owners and Operators of the MV Rhône, Vinalmar S.A. of Basle, Switzerland, the MV Rhône Respondents

and

The MV Peter A.B. Widener, the owners and operators of the MV Peter A.B. Widener, Seaway Towing Inc. and North Central Maritime Corporation Respondents

and between

Great Lakes Towing Company Appellant

v.

The MV Peter A.B. Widener, the owners and operators of the MV Peter A.B. Widener, Seaway Towing Inc. and North Central Maritime Corporation Respondents

Indexed as: Rhône (The) v. Peter A.B. Widener (The)

File Nos.: 21886, 21885.

1992: May 26; 1993: February 25.

Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.

on appeal from the federal court of appeal

Maritime law ‑‑ Collision ‑‑ Limitation of liability ‑‑ Actual fault or privity ‑‑ Corporate identification ‑‑ Navigational error by lead tug captain, acting as master of flotilla, causing collision between tow barge and moored ship ‑‑ Whether corporate tug owners entitled to limit liability ‑‑ Whether fault of tug master fault of corporation ‑‑ Canada Shipping Act, R.S.C. 1970, c. S‑9, s. 647(2).

Maritime law ‑‑ Collision ‑‑ Limitation of liability ‑‑ Appropriate unit of limitation ‑‑ Navigational error by lead tug captain, acting as master of flotilla, causing collision between tow barge and moored ship ‑‑ Vessels in flotilla belonging to different shipowners ‑‑ Whether limitation of liability provisions in Canada Shipping Act applicable to limit lead tug owner's liability ‑‑ If so, whether all vessels of lead tug owner in flotilla should be taken into account in determining extent of liability ‑‑ Canada Shipping Act, R.S.C. 1970, c. S‑9, s. 647(2).

The moored ship Rhône was struck by the barge Widener in the Port of Montréal. They both sustained damage. At the time of the collision, the Widener was being towed by four tugs. The Ohio was in front of the Widener, the South Carolina and the Ste. Marie II were on either side, and the Rival was at the rear. Of the four tugs, only two, the South Carolina and the Ohio, were owned by Great Lakes. Captain Kelch, on the tug Ohio, acted as de facto master of the flotilla. His navigational errors, compounded by a malfunction of the Ohio's towing apparatus, caused the collision.

The owners of the Rhône sued the barge and the tug owners for damaging their ship and North Central, the owner of the barge, sued Great Lakes for breach of its towage contract. Great Lakes denied liability in both actions and counterclaimed for limitation of liability pursuant to s. 647(2) of the Canada Shipping Act. In the Federal Court, Trial Division, in the action commenced by the owners of the Rhône, the trial judge apportioned 80 percent of the liability to Great Lakes, based on the negligence of the South Carolina and the Ohio, and 20 percent to North Central, based on the negligence of the captain of the Widener for failing to drop the Widener's own anchor to stop its slide into the Rhône. In the action instituted by North Central, the trial judge ordered Great Lakes to pay all of the damages incurred by the Widener. Great Lakes' counterclaims for limitation of liability in both actions were dismissed. Great Lakes appealed both decisions. North Central also cross‑appealed the trial judge's finding of fault against the Widener. The Federal Court of Appeal confirmed the finding of negligence against Captain Kelch on the Ohio and against the Widener but rejected the assessment of fault against the South Carolina, noting that any errors it had made had been pursuant to orders from Captain Kelch on the Ohio and not any negligence on the part of those responsible for her navigation. The court nevertheless maintained the trial judge's overall finding with respect to both the negligence and the apportionment of liability as between Great Lakes and North Central. The court also agreed with the trial judge that Captain Kelch was a directing mind of Great Lakes, at least for the purpose of carrying out Great Lakes' obligations in relation to the tow of the Widener. As such, it found Great Lakes was not entitled to limit its liability since the damage did not occur "without its actual fault or privity".

In this Court, Great Lakes challenges the denial of its counterclaims to limit its liability under s. 647(2) of the Canada Shipping Act. These appeals raise three issues: (1) Is the captain of Great Lakes' tug Ohio a directing mind of Great Lakes by virtue of the fact that he exercised some discretion and performed some non‑navigational functions as an incident of his employment? (2) Does s. 647(2) apply to limit Great Lakes' liability with respect to errors committed in the navigation of other vessels within the flotilla not owned by Great Lakes? (3) In the event that Great Lakes is entitled to limit its liability under the Canada Shipping Act, what vessels must be taken into account in determining the extent of its liability?

Held (L'Heureux‑Dubé and McLachlin JJ. dissenting in part): The appeals should be allowed. The judgment of the Federal Court of Appeal, in so far as it relates to Great Lakes' inability to limit its liability under s. 647(2) of the Canada Shipping Act, is set aside. The unit of limitation for purposes of s. 647(2) should be the tug Ohio.

Per La Forest, Sopinka, Gonthier, Cory and Iacobucci JJ.: The collision between the Rhône and the Widener did not occur with the actual fault or privity of Great Lakes. While Captain Kelch was the master of the Ohio at the time of the collision, navigational errors committed by a ship's master, in the course of his duties, do not in themselves give rise to actual fault or privity on the part of the shipowner in the absence of a breach of its duty to supervise the management and navigation of its vessel which is causally linked to the resulting damage. Further, there was no actual fault or privity on the part of Great Lakes on the basis that Captain Kelch was a directing mind of the corporation. The key factor which distinguishes directing minds from normal employees is the capacity to exercise decision-making authority on matters of corporate policy, rather than merely to give effect to such policy on an operational basis, whether at head office or across the sea. While Captain Kelch no doubt had certain decision-making authority on navigational matters as an incident of his role as master of the tug Ohio and was given important operational duties, he did not have governing authority over the management and operation of Great Lakes' tugs. The totality of the evidence clearly showed that Captain Kelch was essentially a port captain subject to supervision and direction. Given Captain Kelch's considerable expertise, he was given additional responsibilities, including some non‑navigational functions, but they do not denote delegation to him of the governing executive authority over the management and supervision of Great Lakes' fleet. This authority remained with his superior. The fact that his superior may have been lax in his supervision of Captain Kelch does not alter the fact that Kelch was essentially a servant of Great Lakes. Finally, it was not out of the ordinary practice for the captain of the lead tug to act as master of a flotilla. Arranging for additional tugs was also a component of the exercise of navigational responsibilities. In fact, Captain Kelch's extensive authority in navigational matters was not unusual in the trade. The discretion of a master in the performance of his assigned role is a wide one that generally extends to all acts that are usual and necessary for the use and employment of a ship. A master's discretion in navigational matters does not derive from delegation of central authority but from tradition and necessity.

Section 647(2) of the Canada Shipping Act is applicable to limit Great Lakes' liability. Under s. 647(2)(d)(ii), the owner of a ship may limit its liability for damage caused to another vessel through "any other act or omission of any person on board that ship". Great Lakes, as owner of the Ohio, may thus limit its liability since the cause of the collision consisted of acts or omissions of Captain Kelch on board the Ohio. Interpreting s. 647(2) in this manner to limit Great Lakes' liability accords not only with the clear words of the statute but also with the purpose underlying this section -- namely, removing the threat of unlimited liability to a shipowner.

All the vessels within a flotilla belonging to an impugned shipowner need not be taken into account in determining the extent of that shipowner's liability. The intent of s. 647(2) of the Canada Shipping Act is to limit liability for navigational errors according only to the tonnage of those vessels causing the alleged damage. Apart from the vessel responsible for the overall navigation of a flotilla, only those vessels of the same shipowner which physically caused or contributed to the resulting damage form the unit for which liability is limited. Here, the appropriate unit of limitation under s. 647(2) is the tonnage of the tug Ohio alone. The South Carolina was absolved of any fault. Only the Ohio and the Widener were found to have been negligent. It does not appear from the findings of the courts below that the South Carolina physically contributed to the collision in any manner. The resulting damage to the Widener and the Rhône would have arisen notwithstanding the South Carolina's role. In light of these facts, the South Carolina cannot be held to be a "guilty" vessel or part of the "wrongdoing mass". It would be stretching the principles of causation beyond their proper limits to hold a vessel not physically causing the impugned damage nor responsible for the navigation of the vessel which in fact physically caused the damage to be part of the "wrongdoing mass".

Per L'Heureux‑Dubé and McLachlin JJ. (dissenting in part): Both the Ohio and the South Carolina should be considered in determining the amount of the limitation of liability under s. 647(2) of the Canada Shipping Act. In cases of navigational error affecting the conduct of a flotilla, all the vessels owned by the party responsible for the error which are affected by the error, whether involved directly in the accident or contributing causally to the accident, should be considered for purposes of determining the maximum liability of that party.

This conclusion accords with the traditional Canadian "aggregate tonnage" approach, an approach compatible with the wording and purpose of s. 647(2). There is no requirement in s. 647(2)(d)(i) that the ship itself have been "negligent", nor that the negligent navigator have been on board the ship which is used for purposes of the limitation. All that is required is that there have been an act or omission in relation to the navigation or management of a ship. This language is broad enough to encompass the misdirection of a tow, and thus supports the Canadian approach that, in the context of this case, the tonnage of both tugs owned by Great Lakes should be considered for purposes of determining the limitation on liability. The fault of misnavigation of a flotilla cannot realistically be confined to a single vessel since it affects all the vessels which are involved in directing the barge. The fact that the navigator happens to be standing on one vessel or the other is incidental; what is essential is the direction which caused the various vessels to act as they did. Here, the navigation mistakes caused all the tugs, including the South Carolina, to move the barge too quickly. That movement, exacerbated by the mechanical malfunction on the Ohio, caused the collision. The South Carolina thus physically contributed to the collision and the loss. Finally, the policy basis of the enactment of statutory liability limitations for shipowners, including the limitation in the Canada Shipping Act, is the promotion of shipping by limiting the potentially ruinous risk that would otherwise be faced by shipowners. A shipowner's potential liability is limited to a value based on the assets which have been devoted by the shipowner to the operation in question. The owner's assets employed in the operation being higher, the amount of the limitation should proportionately be higher, if the purpose of the section is to be respected.

Section 647(2) is an extraordinary provision, operating in derogation of the usual rights of recovery for negligence causing damage to others. Unless it is clear that the limitation should be reduced to a portion of the owner's assets involved in the collision, all the assets should be considered; the courts should derogate from the usual rights of recovery only to the extent that the language and the purpose of the provision clearly so require.

Cases Cited

By Iacobucci J.

Considered: London Dredging Co. v. Greater London Council (The Sir Joseph Rawlinson), [1972] 2 Lloyd's Rep. 437; The Bramley Moore, [1963] 2 Lloyd's Rep. 429; Stein v. The Ship "Kathy K", 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802; The Ran; The Graygarth, [1922] P. 80; The Harlow, [1922] P. 175; The Freden (1950), 83 Ll. L. Rep. 427; Owners of the M.S. Pacific Express v. The Tug Salvage Princess, 1949 CanLII 590 (CA EXC), [1949] Ex. C.R. 230; Monarch Towing & Trading Co. v. British Columbia Cement Co., 1957 CanLII 75 (SCC), [1957] S.C.R. 816; distinguished: The Alvah H. Boushell, 38 F.2d 980 (1930); referred to: The Lady Gwendolen, [1965] 1 Lloyd's Rep. 335; Grand Champion Tankers Ltd. v. Norpipe A/S (The Marion), [1984] 2 All E.R. 343; Northern Fishing Co. (Hull) Ltd. v. Eddom (The Norman), [1960] 1 Lloyd's Rep. 1; Wishing Star Fishing Co. v. The B.C. Baron, 1987 CanLII 5429 (FCA), [1988] 2 F.C. 325; Tesco Supermarkets Ltd. v. Nattrass, [1972] A.C. 153; Lennard's Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705 (H.L.), aff'g [1914] 1 K.B. 419 (C.A.); Paterson Steamships, Ltd. v. Robin Hood Mills, Ltd. (The Thordoc) (1937), 58 Ll. L. Rep. 33; British Columbia Telephone Co. v. Marpole Towing Ltd., 1970 CanLII 131 (SCC), [1971] S.C.R. 321; H. L. Bolton (Engineering) Co. v. T. J. Graham & Sons Ltd., [1957] 1 Q.B. 159; Canadian Dredge & Dock Co. v. The Queen 1985 CanLII 32 (SCC), [1985] 1 S.C.R. 662; Continental Bank of Canada v. Riedel International Inc. (1991), 1991 CanLII 8253 (FCA), 78 D.L.R. (4th) 232; The Garden City, [1982] 2 Lloyd's Rep. 382; Société anonyme des minerais v. Grant Trading Inc. (The Ert Stefanie), [1989] 1 Lloyd's Rep. 349; Grant v. Norway (1851), 20 L.J.C.P. 93; Robertson v. Owners of the Ship Maple Prince, 1956 CanLII 813 (CA EXC), [1955] Ex. C.R. 225.

By McLachlin J. (dissenting in part)

The Ran; The Graygarth, [1922] P. 80; Owners of the M.S. Pacific Express v. The Tug Salvage Princess, 1949 CanLII 590 (CA EXC), [1949] Ex. C.R. 230; Monarch Towing & Trading Co. v. British Columbia Cement Co., 1957 CanLII 75 (SCC), [1957] S.C.R. 816; The Bramley Moore, [1963] 2 Lloyd's Rep. 429; London Dredging Co. v. Greater London Council (The Sir Joseph Rawlinson), [1972] 2 Lloyd's Rep. 437; The Alvah H. Boushell, 38 F.2d 980 (1930); The Bordentown, 40 F. 682 (1889); The Anthracite, 168 F. 693 (1909), certiorari denied, 214 U.S. 522 (1909).

Statutes and Regulations Cited

Canada Shipping Act, R.S.C. 1970, c. S‑9, ss. 647(2), 649.

Canada Shipping Act, R.S.C., 1985, c. S‑9, ss. 575(1), 577.

Authors Cited

Donovan, James J. "The Origins and Development of Limitation of Shipowners' Liability" (1979), 53 Tul. L. Rev. 999.

Ewaschuk, E. G. "Corporate Criminal Liability and Related Matters" (1975), 29 C.R.N.S. 44.

Gilmore, Grant, and Charles L. Black, Jr. The Law of Admiralty, 2nd ed. Mineola, N.Y.: Foundation Press, 1975.

Hill, Christopher Julius Starforth. Maritime Law, 3rd ed. London: Lloyd's of London Press, 1989.

Jones, Walter W. "Flotilla or Several Vessels of Same Owner as Liable Under Federal Statute Providing for Limitation of Shipowner's Liability (46 USC § 183(a))" (1971), 9 A.L.R. Fed. 768.

Kovats, L. J. The Law of Tugs and Towage. Chichester: Rose, 1980.

Marsden, Reginald G. The Law of Collisions at Sea, 11th ed. By Kenneth C. McGuffie. London: Stevens & Sons, 1961.

Muir, I. A. "Tesco Supermarkets, Corporate Liability and Fault" (1973), 5 N.Z.U. L. Rev. 357.

Williams, Glanville. Textbook of Criminal Law, 2nd ed. London: Stevens & Sons, 1983.

APPEALS from a judgment of the Federal Court of Appeal, 1990 CanLII 12986 (FCA), [1990] 3 F.C. 185, 106 N.R. 113, 67 D.L.R. (4th) 646, affirming in part a judgment of Denault J. (1988), 18 F.T.R. 81. Appeals allowed, L'Heureux-Dubé and McLachlin JJ. dissenting in part.

Marc Nadon and George J. Pollack, for the appellant.

Edouard Baudry, for the respondents.

By Iacobucci J.

The judgment of La Forest, Sopinka, Gonthier, Cory and Iacobucci JJ. was delivered by

Iacobucci J. -- These appeals require this Court to consider the limitation of liability provisions within the Canada Shipping Act, R.S.C. 1970, c. S‑9, allowing a shipowner to limit its liability for damages caused to other vessels occurring without the shipowner's actual fault or privity. More specifically, this Court must determine whether the appellant is entitled to limit its liability for the negligence of its employee in directing the navigation of a flotilla and, if so, the appropriate unit of limitation.

I. Facts

On November 7, 1980, the moored ship, Rhône, owned by the respondent Vinalmar S.A. ("Vinalmar"), was struck by the barge, Peter A.B. Widener ("Widener"), at the Port of Montréal. The Rhône sustained damages in the agreed amount of $88,357.89, while the damages to the Widener were set at $49,200.

The Widener, owned by the respondent North Central Maritime Corporation ("North Central"), is a "dumb" barge, so called because it relies on tug boats for its movements. At the time of the casualty, the Widener was commanded by Captain Lyons and was being towed by four tugs. Two of these, the South Carolina and the Ohio, were owned by the appellant, Great Lakes Towing Company ("Great Lakes"). Two others, the Ste. Marie II and the Rival were owned by the respondent North Central, and McAllister Towing & Salvage Ltd., respectively.

The towage of the Widener had been arranged through an oral contract between North Central and Great Lakes and involved its towage from Duluth, Minnesota to the Port of Montréal. Captain Kelch, master of the Great Lakes' tug Ohio, acted as de facto master of the flotilla.

On the day of the collision in question, the Ohio was in front of the Widener, the South Carolina and the Ste. Marie II were on either side, and the Rival was at the rear. Owing to navigational errors made by Captain Kelch relating to the speed at which the flotilla was travelling and the point at which they turned around St. Helen's Island and proceeded up river against the St. Mary's current, the Widener began to move off course as the flotilla entered the Port of Montréal. The tugs attempted to compensate for this but the Ohio's towing apparatus malfunctioned and the Widener began to drift towards the Rhône. Despite attempts to correct the Widener's angle of drift, the Widener collided with the Rhône.

As a result of this mishap, two actions were commenced. In the first, the owners of the Rhône, the respondent Vinalmar, sued everyone involved ‑‑ the barge owner and tug owners ‑‑ for damaging their ship. In the second, the owners of the Widener, the respondent North Central, sued the appellant Great Lakes for breach of its contract of towage. Great Lakes denied liability in both actions and counterclaimed for limitation of liability pursuant to s. 647(2) of the Canada Shipping Act.

The two actions were joined for trial. In the action commenced by the owners of the Rhône, Denault J. apportioned 80 percent of the liability to Great Lakes, based on the negligence of the South Carolina and the Ohio, and 20 percent to the respondent, North Central, based on the negligence of Captain Lyons, captain of the Widener, for failing to drop the Widener's own anchor to stop its slide into the Rhône. In the action instituted by North Central, Denault J. ordered Great Lakes to pay all of the damages incurred by the Widener. Great Lakes' counterclaims for limitation of liability in both actions were dismissed.

Great Lakes appealed both decisions. North Central, the owners of the Widener, also cross‑appealed the trial judge's finding of fault against the Widener. Although the Federal Court of Appeal disagreed with certain findings made by Denault J., it nevertheless maintained his overall finding with respect to both the negligence and the apportionment of liability as between Great Lakes and North Central. It agreed with Denault J. that Captain Kelch was a directing mind of Great Lakes, at least for the purpose of carrying out Great Lakes' obligations in relation to the tow of the Widener. As such, it found Great Lakes was not entitled to limit its liability since the damage did not occur "without [its] actual fault or privity".

As both appeals to this Court involve the same parties, facts, issues, and reasons in the courts below, I propose to deal with both through a single set of reasons. In both actions, the appellant, Great Lakes, challenges the denial of its counterclaims to limit its liability under s. 647(2) of the Canada Shipping Act submitting that Captain Kelch was not a directing mind of the company. It therefore contends that it should be entitled to limit its liability on the basis of the tonnage of the tug Ohio. However, if this Court finds the courts below erred in holding the resulting damage to the Widener and Rhône did not occur "without [the] actual fault or privity" of Great Lakes, the respondents submit that s. 647(2) is of no avail to Great Lakes in any event or, alternatively, that liability should be limited according to the combined tonnage of its tugs, the Ohio and South Carolina.

II. Relevant Statutory Authority

Canada Shipping Act, R.S.C. 1970, c. S‑9

647. . . .

(2) The owner of a ship, whether registered in Canada or not, is not, where any of the following events occur without his actual fault or privity, namely,

(d) where any loss or damage is caused to any property, other than property described in paragraph (b), or any rights are infringed through

(i) the act or omission of any person, whether on board that ship or not, in the navigation or management of the ship, in the loading, carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers, or

(ii) any other act or omission of any person on board that ship;

liable for damages beyond the following amounts, namely,

(f) in respect of any loss or damage to property or any infringement of any rights mentioned in paragraph (d), an aggregate amount equivalent to 1,000 gold francs for each ton of that ship's tonnage.

649. (1) Sections 647 and 648 extend and apply to

any person acting in the capacity of master or member of the crew of a ship and to any servant of the owner or of any person described in paragraphs (a) to (c) where any of the events mentioned in paragraphs 647(2)(a) to (d) occur, whether with or without his actual fault or privity.

(2) The limits set by section 647 to the liabilities of all persons whose liability is limited by section 647 and subsection (1) of this section arising out of a distinct occasion on which any of the events mentioned in paragraphs 647(2)(a) to (d) occurred apply to the aggregate of such liabilities incurred on that occasion.

(Now R.S.C., 1985, c. S-9, ss. 575(1)(d), (f), and 577.)

III. Judgments in the Courts Below

Federal Court, Trial Division (1988), 18 F.T.R. 81

Denault J. had no trouble in concluding that Captain Kelch, as captain of the Ohio, conducted the flotilla in a negligent manner. Kelch had personal knowledge that the turn around St. Helen's Island at the entrance to the Port of Montréal would be a difficult one because he had run into trouble there the year before while towing another vessel. He was aware that the current at that point was fast and had actually agreed the night before with Captain Lyons of the Widener that they would make the turn at a less precarious place. In fact, he had notified Captain Lloyd, vice‑president of operations of Great Lakes, that he was calling in a fourth tug (the Rival) to assist in the turn precisely because he was concerned about the difficulties involved. While Denault J. did not fault Kelch for his arrangement of the tugs, he found Kelch negligent in having them enter the turn at full speed so that they had little power to respond to deviations in the course of the tow. He further found Kelch negligent in failing to communicate adequately with the other tugs. In this regard, Denault J. made the following finding of fault (at pp. 103-4):

However, the greatest part of the liability must of necessity rest with the lead tug, the "Ohio", its master and owners. The lack of preparation which was apparent in the organization and conduct of this voyage, the haste shown by Capt. Kelch to get into the Port of Montréal, the flagrant lack of communication between the masters both before the turn at the Ile Ste‑Hélène buoy and while they were proceeding back up the river, the decision to turn at that location, their return speed, are all factors which helped to make the accident inevitable. Furthermore, the mechanical breakdown on the tug, which had been the subject of extreme tension, cannot serve to exonerate the owners of the "Ohio" in respect of the "Rhone".

Denault J. also found the South Carolina failed to discharge its burden in establishing that it had not been at fault. Moreover, he held the captain of the Widener was negligent for failing to communicate with the Ohio as the accident developed and in not dropping the barge's anchor on his own initiative. He apportioned 80 percent of the liability to Great Lakes and 20 percent to North Central.

Denault J. proceeded to consider the question of limitation of liability under s. 647(2). He analyzed the organization of Great Lakes and essentially found that the directing minds of Great Lakes were represented by Captains Lloyd and Kelch, as well as Joseph White, who was responsible for the maintenance and repairs for its fleet. He noted that, while Captain Lloyd had plenary responsibility for operational matters, he had delegated significant responsibility over the tug Ohio to Kelch. In particular, he observed that Kelch was responsible for anything relating to the navigation of the Ohio, including the provision of maritime maps and ensuring that all necessary items were on board the tug. He also highlighted that, by Lloyd's own admission, Kelch was part of the company's management and that Kelch himself viewed his many duties as making him a representative of Great Lakes. In terms of this particular voyage, Denault J. noted that, apart from preliminary measures taken care of by Lloyd, all navigational decisions were Kelch's responsibility. Therefore, while Kelch referred to Lloyd for authority to retain a fourth tug, Denault J. viewed this merely as a formality to cover the financial aspects of the matter. The decision whether to retain an additional tug rested with Kelch.

Denault J. also found that the breakdown of the towing equipment had to be attributed to the negligence of Great Lakes in maintaining its equipment. Moreover, he was particularly concerned by the fact that Lloyd had not been aware that Kelch had elected to act as master of the flotilla and, as a matter of practice, did not check whether Great Lakes' servants would assume responsibility as lead tug in a flotilla. Therefore, he concluded (at p. 110):

In short, even assuming that the defendant G.L.T. was able to prove the identity of persons whose acts identified them with acts of the company, it is far from establishing that those persons were not guilty of fault or privity in the sense that must be given to these words, as explained in the "Kathy K". On the contrary, the evidence established that Capt. Lloyd was the person whose acts identified him most with the acts of the company so far as administration and general supervision are concerned, and it was abundantly clear from his testimony that he knew practically nothing of what was happening on board his tugs during this voyage, cared very little about it and gave his masters all possible latitude. The person responsible for maintenance, Jos White, gave no plausible explanation of the mechanical breakdown on board the "Ohio". Finally, Capt. Kelch, who was responsible on the company's behalf not only for providing the tugs with the documentation necessary for such a voyage, but inter alia for hiring a fourth tug to bring the barge to its destination, failed lamentably in his duties by exercising his functions as a company manager negligently in respect of the "Rival".

Denault J. dismissed the argument that, because the mistakes made by Captain Kelch were navigational in nature, the limitation provisions within the Act should nevertheless apply. He found the fact that Kelch performed non‑navigational functions, such as providing maps and arranging additional tugs, made him part of Great Lakes' management and, as such, any errors committed while in his capacity as tug master were those of the company. He concluded (at pp. 109-10):

It does not much matter whether he acted wrongfully in his capacity as a manager of the company, as port master, or whether his faults are attributable to navigational errors as tug master: that cannot be a means of excluding his liability to the plaintiff. If the same person who commits a navigational mistake is also one whose acts identify him with the acts of the company, and in that capacity is also at fault, his employers cannot benefit from the limitation of liability contained in s. 647.

Denault J. next turned to North Central's action against Great Lakes. He found Great Lakes breached its contractual obligation to North Central and could not limit its corresponding liability for the same reasons stated above. He also found that the limitation of liability contained in Great Lakes' published tariff did not form part of the contract between the parties and, therefore, he refused to give effect to it. Accordingly, Denault J. held North Central was entitled to recover the entire amount of the damages sustained by the Widener from Great Lakes.

Federal Court of Appeal, 1990 CanLII 12986 (FCA), [1990] 3 F.C. 185

Hugessen J.A. wrote for the court. He addressed the findings of negligence against the three vessels in turn. He confirmed the finding of negligence against Kelch on the Ohio, noting that it was well supported by the evidence and that any other conclusion would have been perverse. He also confirmed the finding against the Widener. However, he rejected the assessment of fault against the South Carolina, noting that any errors it had made had been pursuant to orders from Kelch on the Ohio and not any negligence on the part of those responsible for her navigation. He stated, however, this reversal had no implications for the distribution of liability between Great Lakes and North Central.

On the issue of limitation of liability, Hugessen J.A. disagreed with the trial judge's finding of actual fault or privity in Captain Lloyd because of his inadequate supervision of Captain Kelch. While he agreed with the trial judge that an owner may be in actual fault or privity through sins of omission, he noted that the jurisprudence requires that such omission breach the standard of a reasonably prudent shipowner and be causally related to the casualty. Relying on The Lady Gwendolen, [1965] 1 Lloyd's Rep. 335 (C.A.), Grand Champion Tankers Ltd. v. Norpipe A/S (The Marion), [1984] 2 All E.R. 343 (H.L.), and Northern Fishing Co. (Hull), Ltd. v. Eddom (The Norman), [1960] 1 Lloyd's Rep. 1 (H.L.), he commented (at pp. 212-13):

The comparison between these cases and the facts as found by the learned Trial Judge in the case at bar is striking. There is no suggestion that a lack of supervision by the owners contributed in some way, however remote, to the casualty. The specific acts of negligence found against Captain Kelch are without exception ordinary questions of navigation lying within the normal authority and scope of activity of the master. There is no shred of evidence to suggest that a prudent shipowner would have so concerned himself with the details of navigation as to specifically instruct Kelch where to turn the flotilla or at what speed to tackle the St. Mary's current or in what manner to communicate with the other captains. . . . [T]here was no reasonable likelihood that any closer degree of supervision and reporting imposed by the owners at the company's Head Office in Cleveland would have materially affected the actions or decision of Captain Kelch when he was navigating his flotilla in the Port of Montréal.

He further found Denault J. to have erred in finding Great Lakes was in actual fault or privity by reason of White's supervision of the repair and maintenance of the Ohio's towing machinery. While there was clearly a causal link between the breaking of the towing machine and the resulting damage, Hugessen J.A. concluded the trial judge erred in imposing such a high standard on the owner of a ship in relation to the proper functioning of its equipment. He highlighted that Great Lakes' inspection and maintenance system was "numerous and sophisticated" and that there was no finding of any inadequacy or defect in that system. As such, Hugessen J.A. observed that the trial judge's assessment of fault had the effect of incorrectly turning a shipowner into an insurer every time a casualty results from an equipment failure.

Hugessen J.A. then turned to the question of whether Kelch was a directing mind of Great Lakes. Citing Wishing Star Fishing Co. v. The B.C. Baron, 1987 CanLII 5429 (FCA), [1988] 2 F.C. 325 (C.A.), he noted that, if Kelch was a directing mind, the fact that he was also acting as master and that his negligent acts had been committed within the scope of that capacity was irrelevant. Hugessen J.A. emphasized that Kelch was more than an ordinary master and had extended duties and responsibilities for the conduct of the flotilla. In this regard, he relied on the following facts in coming to the conclusion that Kelch was a directing mind of Great Lakes: (1) he was the towmaster of the flotilla and was vested with authority to give commands to all the other vessels in the flotilla; (2) his appointment to command the flotilla was not made by or with the knowledge of anyone senior to him at Great Lakes; (3) he was described, in parts of the evidence, as being part of management, a salaried employee, a "trouble shooter" and the person responsible for breaking in new captains; and (4) he took care of the documents for all of the Great Lakes' fleet. Hugessen J.A. admitted that this finding was at "the outer margins of the application of the doctrine of corporate identification" (p. 222) but declined to characterize the trial judge's finding as so palpable and overriding an error that it warranted appellate intervention, particularly bearing in mind the heavy burden on Great Lakes to establish its right to invoke the statutory limitation.

With respect to Great Lakes' liability for the damage caused to the Widener, Hugessen J.A. rejected Great Lakes' attempt to raise the issue of contributory negligence. Moreover, he further dismissed its assertion that the limitation of liability clause contained in its tariff rates formed part of the contract between the parties. As such, apart from striking from the trial judgment the attribution of fault against the South Carolina, Hugessen J.A. dismissed both the appeal and the cross‑appeal.

IV. Issues

These appeals raise three issues. First, is the master of the appellant's tug Ohio a directing mind of the appellant by virtue of the fact that he exercised some discretion and performed some non‑navigational functions as an incident of his employment? Second, do the limitation of liability provisions in the Canada Shipping Act apply to limit a shipowner's liability for the acts or omissions of its servant in directing a flotilla comprising vessels belonging to other shipowners? Third, in the event that the appellant is entitled to limit its liability under the Canada Shipping Act, what vessels must be taken into account in determining the extent of its liability?

V. Analysis

1. Is the Master of the Appellant's Tug a Directing Mind of the Corporation?

The appellant, Great Lakes, contends that Hugessen J.A. erred in concluding that there was actual fault or privity on its part on the basis that Captain Kelch was a directing mind of the corporation and that therefore Great Lakes could not limit its liability under the Canada Shipping Act. Assessing the merits of this contention requires that I examine briefly both the general principles pertaining to the limitation of liability under the Canada Shipping Act and the development of the doctrine of corporate identification before applying the relevant principles to the facts of this case. As a preliminary matter, I believe it important to point out that the identification of particular individuals within a corporate structure as directing minds of that company is a question of mixed fact and law. As Lord Reid observed in Tesco Supermarkets Ltd. v. Nattrass, [1972] A.C. 153 (H.L.), at p. 170, "It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent." The legal issue is concerned with identifying which functions or offices ground corporate identification; the factual issue determines who carries out these functions or fills these offices.

(a) The General Principles of Limitation of Liability and Corporate Identification

It is well settled that in an action to limit liability under s. 647(2) of the Canada Shipping Act, the onus is on the shipowner claiming the limitation to establish a complete absence of "actual fault or privity" on its part. The onus is a heavy one which is not discharged by showing merely that the owner was not the sole or principal cause of the mishap: Stein v. The Ship "Kathy K", 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802, at p. 819.

The leading Anglo‑Canadian case setting out the meaning of the words "actual fault or privity" and its application to a corporate shipowner is Lennard's Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705 (H.L.), aff'g [1914] 1 K.B. 419 (C.A.). The words "actual fault or privity" were found to denote something personal and blameworthy to a shipowner as opposed to a constructive fault arising under the doctrine of respondeat superior. In the oft-quoted words of Viscount Haldane L.C. at pp. 713‑14:

It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondeat superior, but somebody for whom the company is liable because his action is the very action of the company itself. It is not enough that the fault should be the fault of a servant in order to exonerate the owner, the fault must also be one which is not the fault of the owner, or a fault to which the owner is privy; and I take the view that when anybody sets up that section to excuse himself from the normal consequences of the maxim respondeat superior the burden lies upon him to do so.

In Paterson Steamships, Ltd. v. Robin Hood Mills, Ltd. (The Thordoc) (1937), 58 Ll. L. Rep. 33 (P.C.), Lord Roche adopted the meaning attributed to the words "fault and privity" by both the Court of Appeal and the House of Lords in Lennard's, supra, and further highlighted that the fault or privity of a shipowner must be fault or privity in respect of that which causes the loss or damage in question. See also British Columbia Telephone Co. v. Marpole Towing Ltd., 1970 CanLII 131 (SCC), [1971] S.C.R. 321, at pp. 326‑27, per Ritchie J.

Therefore, in the case of a corporate shipowner, it is necessary to consider whether the acts of a particular individual giving rise to liability should be attributed to that of the company itself. Said differently, the question that arises is at what point in the hierarchy of a company is the fault of a person employed in the organization to be treated as the fault of the company itself. In this connection, the nature of a corporation was aptly described by Viscount Haldane L.C. in Lennard's, supra, in the following manner at p. 713:

My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself, or it may be, and in some companies it is so, that that person has an authority co‑ordinate with the board of directors given to him under the articles of association, and is appointed by the general meeting of the company, and can only be removed by the general meeting of the company.

In H. L. Bolton (Engineering) Co. v. T. J. Graham & Sons Ltd., [1957] 1 Q.B. 159, the Court of Appeal compared a corporation to a human body, describing those who control what a company does (and who therefore are the directing mind and will of a company) as the brain of an individual. Denning L.J. rejected the argument that only actions arising from a meeting of a company's board of directors can form the intention of a company. Rather, he accepted that the intention of a company can be derived from its officers and agents in some instances depending on the nature of the matter in consideration and their relative position within the company. Denning L.J. observed at p. 172:

A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.

In Tesco Supermarkets, supra, the House of Lords dealt with a situation in which a manager of one store in a chain of supermarkets was found to have been negligent in supervising an employee who placed improperly priced goods for sale, thereby committing a pricing offence under the Trade Descriptions Act 1968 (U.K.), 1968, c. 29. Their lordships held that the mere fact that the manager exercised limited discretion in the performance of his assigned role did not render him part of the directing mind of the company. Lord Morris of Borth‑y‑Gest stated at pp. 180‑81:

A system had to be created which could rationally be said to be so designed that the commission of offences would be avoided. There was no delegation of the duty of taking precautions and exercising diligence. There was no such delegation to the manager of a particular store. He did not function as the directing mind or will of the company. His duties as the manager of one store did not involve managing the company. He was one who was being directed. He was one who was employed but he was not a delegate to whom the company passed on its responsibility. He had certain duties which were the result of the taking by the company of all reasonable precautions and of the exercising by the company of all due diligence. He was a person under the control of the company . . . . He was, so to speak, a cog in the machine which was devised: it was not left to him to devise it.

Some commentators have suggested that their lordships placed too great a reliance upon form at the expense of function in their analysis: I. A. Muir, "Tesco Supermarkets, Corporate Liability and Fault" (1973), 5 N.Z.U. L. Rev. 357, at p. 365. Glanville Williams states in his Textbook of Criminal Law (2nd ed. 1983), at p. 973:

In crimes requiring mens rea it does not greatly matter if the range of persons inculpating the company is restricted, since the purposes of deterrence are generally best served by prosecuting those who are responsible. It is in offences of negligence that the limitation of liability imposed in Tesco is most injurious. That a company should not be liable for an offence of negligence committed by its branch manager, who after all represents the company in the particular locality, is a considerable defect in the law.

Another commentator characterizes Tesco Supermarkets and the cases which followed it as evincing a "socially unjustifiable regression" which was incapable of providing effective deterrence against criminal conduct perpetrated by multinational corporations with complex managerial structures: E. G. Ewaschuk, "Corporate Criminal Liability and Related Matters" in (1975), 29 C.R.N.S. 44, at pp. 52‑53.

This Court considered the issue of corporate identification in Canadian Dredge & Dock Co. v. The Queen, 1985 CanLII 32 (SCC), [1985] 1 S.C.R. 662. Estey J. found that in order for a corporation to be criminally liable under the "identification" theory, the employee who physically committed the offence must be "the ego', the centre' of the corporate personality, the vital organ' of the body corporate, the alter ego' of the employer corporation or its `directing mind'" (p. 682). However, he also acknowledged that there may be more than one directing mind and highlighted that there may exist the "delegation and sub-delegation of authority from the corporate centre" and the "division and subdivision of the corporate brain". In this regard, Estey J. provided the following guidance as to who may qualify as the directing mind of a corporation at p. 693, casting doubt in the process of whether the specific conclusion reached in Tesco Supermarkets, supra, is appropriate in the Canadian context:

The identity doctrine merges the board of directors, the managing director, the superintendant, the manager or anyone else delegated by the board of directors to whom is delegated the governing executive authority of the corporation, and the conduct of any of the merged entities is thereby attributed to the corporation. . . . [A] corporation may, by this means, have more than one directing mind. This must be particularly so in a country such as Canada where corporate operations are frequently geographically widespread. The transportation companies, for example, must of necessity operate by the delegation and sub‑delegation of authority from the corporate centre; by the division and subdivision of the corporate brain; and by decentralizing by delegation the guiding forces in the corporate undertaking. The application of the identification rule in Tesco, supra, may not accord with the realities of life in our country, however appropriate we may find to be the enunciation of the abstract principles of law there made.

As Estey J.'s reasons demonstrate, the focus of inquiry must be whether the impugned individual has been delegated the "governing executive authority" of the company within the scope of his or her authority. I interpret this to mean that one must determine whether the discretion conferred on an employee amounts to an express or implied delegation of executive authority to design and supervise the implementation of corporate policy rather than simply to carry out such policy. In other words, the courts must consider who has been left with the decision‑making power in a relevant sphere of corporate activity.

Negligence on the part of a master of a ship in the performance of his or her navigational duties does not amount to actual fault or privity on the part of a corporate shipowner. Courts have viewed masters as the "hands" of a shipping company. Obviously, if it were otherwise a corporate shipowner's right to limit its liability would be virtually nonexistent. However, having said that, the courts have moved away from allowing shipowners to wash their hands completely of all responsibility for matters of navigation by leaving everything to the discretion of their masters. Whereas in the past it may have been sufficient for a shipowner to discharge its responsibility by merely showing that it appointed a competent master, a number of decisions now make it clear that there exists an overall duty on a shipowner to supervise properly the navigation of its vessels: see, for example, Grand Champion Tankers, supra, and Continental Bank of Canada v. Riedel International Inc. (1991), 1991 CanLII 8253 (FCA), 78 D.L.R. (4th) 232 (F.C.A.).

In such instances, the focus of inquiry is on whether a shipowner acted as an ordinary reasonable shipowner in the management and control of its shipping operation (e.g., in the selection of its crew and supervision of the navigation of its vessels): The Lady Gwendolen, supra, and The Garden City, [1982] 2 Lloyd's Rep. 382 (Q.B. (Adm. Ct.)). Courts have further applied a "reasonable likelihood" test in determining whether the exercise of particular duty by a shipowner would have prevented the impugned damage. For example, in Marpole Towing, supra, Ritchie J. accepted that damage caused by the negligent navigation of a ship does not give rise to actual fault or privity on the part of the shipowner where the navigational error committed by the tug master could not have been foreseen by the shipowner.

The issue, however, this Court is asked to consider is not whether Great Lakes breached its duty to supervise and manage its vessels properly but instead whether Captain Kelch's faults are essentially the actual faults of Great Lakes by reason of his position within the corporate hierarchy of the appellant. In this regard, it is relevant to note Hugessen J.A.'s observation at p. 213 that "if Kelch was truly a directing mind and will of the company, the fact that he was also acting as master and that his negligence was committed in that capacity is nothing to the point": see also Wishing Star Fishing, supra, and Société anonyme des minerais v. Grant Trading Inc. (The Ert Stefanie), [1989] 1 Lloyd's Rep. 349 (C.A.). The appellant did not challenge this proposition before this Court and, in light of the conclusion I have arrived at, I need not discuss this matter any further.

(b) Application of These Principles to This Case

Captain Kelch was admittedly the master of the Ohio at the time of the collision. As noted above, navigational errors committed by a ship's master, in the course of his or her duties, do not in themselves give rise to actual fault or privity on the part of the shipowner in the absence of a breach of its duty to supervise the management and navigation of its vessel which is causally linked to the resulting damage. However, it is alleged that Captain Kelch also performed exceptional duties on behalf of his employer which rendered him not just a master but more importantly a directing mind of Great Lakes such that his fault was that of the company. In particular, the courts below emphasized that Kelch was de facto commodore of the flotilla and in this capacity he gave instructions to the other vessels in the flotilla and could elect to bring in additional tugs if he deemed it necessary for safe navigation. Furthermore, reference was made to the fact that Kelch was described as being part of management, a salaried employee, a fleet captain, a "trouble shooter" and the person responsible for breaking in new captains. The courts below also placed weight on the fact that Kelch was responsible for ensuring that the paperwork was in order for all of the tugs in Great Lakes' fleet.

With respect, I cannot agree with the conclusion reached by the courts below as to the status of Captain Kelch as a directing mind of Great Lakes. In my opinion, the facts of this case do not merely put it at "the outer margins of the application of the doctrine of corporate identification" but outside those margins.

While Captain Kelch was described as part of the "management" and a "trouble shooter" for Great Lakes (Hugessen J.A., at p. 221; Captain Lloyd, Evidence, hearing September 15, 1987, transcript at p. 49; and Captain Kelch, Commission Evidence, Appeal Book, app. I, vol. 3, at p. 291), one must look behind these labels and consider the responsibilities and functions performed by Captain Kelch within the Great Lakes' hierarchy in the context of captains of seafaring vessels. In this respect, it is clear from the totality of the evidence that Captain Kelch was essentially a port captain subject to the supervision and direction of Captain Lloyd. It is not surprising that given his twenty‑five years of expertise that Kelch was given additional responsibilities in such matters as breaking in new tug captains, assisting with occasional problems, and taking care of documents for Great Lakes' fleet. However, these additional tasks, in my mind, do not denote delegation to Captain Kelch of the governing executive authority over the management and supervision of Great Lakes' fleet. This authority remained with Captain Lloyd, as is borne out by the evidence.

For example, Captain Kelch described both his and Captain Lloyd's role at Great Lakes in the following manner:

Q. At the end of your employment with Great Lakes, you were a fleet captain?

A. Port captain, or whatever.

Q. What were your duties?

A. Flunkie . . . I was a flunkie, believe me, more or less a trouble shooter. I would make tows. I could communicate pretty good with the unions, you know, really.

Q. Chick Lloyd was mentioned. Who exactly is he?

A. He is the flunkie now. He was the operations manager. He was a vice‑president.

Q. He was a vice‑president and operations manager. What were the nature of his duties then?

A. Well, he could make prices on the tows. They would come to him if somebody wanted a specific tow or tug or anything like that.

Q. Was he responsible for crewing the tugs?

A. Well, in a way. I mean he had a lot of people that if he didn't want them on there, they didn't go. He was in charge of the whole operation, really, as far as the marine end of it, you know.

Q. And I take it then he was your supervisor?

A. My supervisor, my immediate supervisor, yes.

Q. Did you report only to him?

A. Just about. I never had any cause to report to anyone one else unless, of course, you call into the dispatcher. I mean, I was under Chick Lloyd. I did ‑‑ whatever rotten job he had for me, I done.

(Captain Kelch, Commission Evidence, Appeal Book, app. I, vol. 3, at pp. 404-6; see also pp. 299 and 411.)

In terms of Captain Kelch's role as towmaster of the flotilla, evidence was led at trial to show that it was not out of the ordinary practice for the captain of the lead tug to act as master of a flotilla (Captain Lyons, Evidence, hearing September 15, 1987, transcript at pp. 130‑31). Arranging for additional tugs was also a component of the exercise of navigational responsibilities. While Captain Kelch did not require authorization to engage a fourth tug, he frequently reported to Captain Lloyd about his actions (Denault J., at p. 107). His extensive authority in navigational matters was not unusual in the trade. In this regard, we should bear in mind that, by necessity and tradition, the discretion of a master in the performance of his or her assigned role is a wide one that generally extends to all acts that are usual and necessary for the use and employment of a ship: Grant v. Norway (1851), 20 L.J.C.P. 93, at p. 98. A master's discretion in navigational matters does not derive from delegation of central authority but from tradition and necessity. The very nature of the shipping business makes it impractical for a ship's master to call in for instructions to deal with routine navigational concerns. In this respect, the appellant submits, correctly in my mind, that to find Captain Kelch a directing mind of Great Lakes on the basis of his authority in navigational matters while at sea would virtually nullify the effect of the limitation of liability provisions within the Canada Shipping Act.

It should be noted that the managerial complexity of shipping companies is not a novel development of which earlier formulations of the corporate identification doctrine were not cognizant. Keeping in mind Estey J.'s observations in Canadian Dredge & Dock, supra, one cannot truly say that the authority over navigational matters enjoyed by Captain Kelch is the sort of delegation which conferred "governing executive authority" over the management of Great Lakes' ships. It is in the very nature of seafaring that the master must be invested with discretion to respond to variations in the weather, the tides, and other navigational matters. It does not flow from this necessary delegation that the master is thereby invested with the full discretion to act without guidance from supervisors in relation to matters of corporate policy, such that he can be said to have been delegated managerial authority. Nor can it be said that a master is free from control and instruction from those at Great Lakes responsible for the supervision and management of its fleet (i.e., Captain Lloyd). The fact that Captain Lloyd may have been lax in his supervision of Captain Kelch does not alter the fact that Kelch was essentially a servant of Great Lakes.

With respect, I think that the courts below overemphasized the significance of sub‑delegation in this case. The key factor which distinguishes directing minds from normal employees is the capacity to exercise decision-making authority on matters of corporate policy, rather than merely to give effect to such policy on an operational basis, whether at head office or across the sea. While Captain Kelch no doubt had certain decision-making authority on navigational matters as an incident of his role as master of the tug Ohio and was given important operational duties, governing authority over the management and operation of Great Lakes' tugs lay elsewhere. Therefore, I am of the view that the courts below erred in holding that Captain Kelch was part of the directing mind and will of Great Lakes. As a result, the collision between the Rhône and the Widener did not occur with the actual fault or privity of Great Lakes.

2. Does Section 647(2) Apply to Limit Great Lakes' Liability with Respect to Errors Committed in the Navigation of Other Vessels Within the Flotilla not Owned by Great Lakes?

Because I am of the view that the courts below erred in finding Captain Kelch a directing mind of Great Lakes, it is necessary to consider the respondents' alternative argument that s. 647(2) does not extend to limit Great Lakes' liability for Captain Kelch's direction of other vessels within the flotilla not owned by it. For ease of reference, I reproduce again s. 647(2)(d):

647. . . .

(2) The owner of a ship . . . is not, where any of the following events occur without his actual fault or privity, namely,

(d) where any loss or damage is caused to any property . . . through

(i) the act or omission of any person, whether on board that ship or not, in the navigation or management of the ship, . . . or

(ii) any other act or omission of any person on board that ship;

The respondents contend that Captain Kelch was negligent with respect to the navigation not only of the Ohio but also of the Ste. Marie II, Rival, and Widener. As such, they submit that Great Lakes cannot limit its liability under s. 647(2)(d)(i). This provision allows a shipowner only to limit its liability for damage caused through the navigation or management of its own ships. Since it is alleged that the collision was caused through acts or omissions of Captain Kelch in the navigation of vessels not owned by Great Lakes, the respondents submit that the appellant cannot rely on this provision to limit its liability. Moreover, the respondents contend that s. 647(2)(d)(ii) should not be interpreted to apply in this case since it would require this Court to accept that any act or omission of Captain Kelch on board the Ohio would be subject to limited liability regardless of whether it is related to the operation of that vessel. In this regard, the respondents highlight that Captain Kelch's directions related not only to the operation of the Ohio but also to the overall navigation of the flotilla.

A similar argument was addressed and unanimously rejected by the Court of Appeal in The Bramley Moore, [1963] 2 Lloyd's Rep. 429. In that case, the owners of a tug brought an action to limit their liability under the English equivalent to s. 647(2) of the Canada Shipping Act for a collision between a barge being towed by the tug and a third vessel. The tug and tow were separately owned. Counsel for the third vessel contended that the tug's owners were not entitled to limit their liability. They argued that it was by reason of the improper navigation of both tug and tow that the collision occurred and, therefore, a claim could not be made out under the statute both prior to and after its amendment in 1958. The relevant portion of the statute prior to 1958 provided that the "owners of a ship" could limit their liability for damage caused to another vessel "by reason of the improper navigation of the ship." Accordingly, it was submitted that since the collision was not only caused by reason of the improper navigation of the tug but also the tow, the tug owner was not able to claim the benefit of limited liability under the statute.

Lord Denning, M.R., writing for the court, dismissed this argument on two separate grounds. First, he highlighted that the statutory provision required courts to consider the cause of the damage. He reasoned that, at least in the case of separate ownership, where only those on board a tug are negligent, the true cause of the damage is the improper navigation of the tug and not the tow. In those circumstances, the statute would apply without question to limit the liability of the tug owner. He reasoned at p. 436:

It can well be said that the owners of the tug were guilty of "improper navigation" of the barge ‑‑ in that they were in control of the movement of the barge through the water. But the section requires you also to look at the cause of the damage. That is clear from the words "by reason of". And in a case where those on the tug are negligent, and those on the barge are not, the cause of the damage is in truth the improper navigation of the tug, not the improper navigation of the barge. It is the tug which is the cause of all the trouble. That is, at any rate, the way in which these cases have been regarded in the past . . . . This must be on the assumption that the damage is "by reason of the improper navigation" of the tug, but not "by reason of the improper navigation" of the tow.

Second, Lord Denning found that, in any event, the argument that the tug owners' right to limit their liability was conditional on their being owners of the barge was dispelled by virtue of the 1958 amendment to the Act. This amendment expanded the scope of limited liability to also include damage caused to any property "through any other act or omission of any person on board the ship." Applying this statutory provision to the fact situation at hand, Lord Denning observed at p. 437:

If those on board the tug are negligent and those on board the tow are not, and the tow comes into collision with another vessel, then clearly the damage is caused through an "act or omission of any person on board the tug". If you insert the appropriate words into the section as now amended, it reads in this way: "The owners of a tug shall not, where damage is caused through any act or omission of any person on board the tug, be liable in damages" beyond an amount calculated on the tonnage of the tug. So read, it seems clearly to cover the case when those on the tug are negligent and those on the tow are not. It shows that the owners of the tug can limit their liability according to the tonnage of the tug.

The respondents, in the case at bar, contend that Captain Kelch's orders to turn at the Seaway entrance buoy and to proceed at full speed once the turn had been made involved not only Great Lakes' tugs but also the Rival and Ste. Marie II. Therefore, it is argued that these acts of Captain Kelch, which were expressly found by the courts below to have caused the resulting casualty, involved the navigation of vessels not owned by Great Lakes, thereby foreclosing its ability to rely on s. 647(2)(d)(i). Moreover, they argue that it is implicit in the trial judge's reasons and findings that Captain Kelch's omission to order the drop of the Widener's anchor contributed to the collision. In this regard, the respondents contend that this case can be distinguished from cases such as the Robertson v. Owners of the Ship Maple Prince, 1956 CanLII 813 (CA EXC), [1955] Ex. C.R. 225 (which have held that where a tug and tow are separately owned, a casualty arising from the navigation of the tow should be attributed to the tug) since Captain Kelch was capable of navigating the Widener without the use of the Ohio.

Accepting for the sake of argument that the cause of the collision must be attributed to Captain Kelch's navigation not only of the Ohio but also the other vessels within the flotilla not owned by Great Lakes, the respondents' argument nonetheless fails on the clear words of s. 647(2)(d)(ii). This provision provides that Great Lakes, as owner of the Ohio, may limit its liability for damage caused to another vessel through "any other act or omission of any person on board [that] ship." Therefore, Great Lakes may limit its liability since the cause of the collision consisted of acts or omissions of Captain Kelch on board the Ohio.

Interpreting s. 647(2) in this manner to limit the appellant's liability accords not only with the clear words of the statute but also with the purpose underlying this section, namely, removing the threat of unlimited liability to a shipowner. In this regard, we should recall the role of limited liability for shipowners in the development of modern shipping enterprises and in the facilitation of insurance coverage: see Marpole Towing, supra, at p. 338; The Garden City, supra, at p. 398; and Christopher Hill, Maritime Law (3rd ed. 1989), at p. 242. As has often been observed, the origin of these limitation provisions rests with the desire to promote commerce and international trade by affording shipowners protection from the full impact and perhaps ruinous pecuniary liability arising from acts of navigation over which they have no personal control.

Certainly, a number of commentators have drawn into question the continued need for limited liability in this day and age of corporations and developed insurance markets: e.g., Grant Gilmore and Charles L. Black, The Law of Admiralty (2nd ed. 1975), at p. 822. However, whether this regime is responsive to modern realities is a question of policy to be determined by Parliament and not the courts whose task is to interpret and give effect to the intention of Parliament. In this regard, I consider the following comment by Lord Denning in The Bramley Moore, supra, at p. 437 apposite:

The principle underlying limitation of liability is that the wrongdoer should be liable according to the value of his ship and no more. A small tug has comparatively small value and it should have a correspondingly low measure of liability, even though it is towing a great liner and does great damage. I agree that there is not much room for justice in this rule; but limitation of liability is not a matter of justice. It is a rule of public policy which has its origin in history and its justification in convenience.

Accordingly, Great Lakes is not precluded from limiting its liability under s. 647(2) under the respondents' alternative argument.

3. In the Event that Great Lakes Is Entitled to Limit its Liability Under Section 647(2), Is the Appropriate Unit of Limitation Under Section 647(2) the Tonnage of the Tug Ohio Alone or the Aggregate Tonnage of the Tugs Ohio and South Carolina?

Great Lakes submits that, in the event that it is found able to limit its liability under s. 647(2), its limitation should be restricted to the tonnage of the tug Ohio. The respondents, however, contend that the proper unit of limitation is the combined tonnage of the two tugs owned by the appellant, the Ohio and South Carolina. They submit that the collision was caused in part by the combined navigation of both these tugs by the same servant of the appellant. Therefore, they argue that liability should be calculated according to the aggregate tonnage of the "wrongdoing mass". The Canada Shipping Act provides that a shipowner's liability may be limited according to the tonnage of its vessel whose navigation or management caused the resulting damage or on which the impugned acts or omissions giving rise to liability occurred. However, a review of Anglo‑Canadian jurisprudence, relating to the limitation of liability for collisions involving tugs and tows, reveals some divergence of opinion as to which vessels belonging to a shipowner must be taken into account in determining the extent of the shipowner's liability. As such, it is appropriate to review the case law briefly before stating my conclusion on this point.

Early English case law accepted that, where a tug and tow are commonly owned, navigational errors committed by the employees of the shipowner, while on board the tug, are also errors in the navigation of the tow thereby giving rise to liability to the shipowner as both owner of the tug and tow: The Ran; The Graygarth, [1922] P. 80 (C.A.); The Harlow, [1922] P. 175 (Adm.); and The Freden (1950), 83 Ll. L. Rep. 427 (Adm.). Accordingly, the appropriate unit of limitation was that of both tug and tow.

Canadian courts adopted a similar stance. In Owners of the M.S. Pacific Express v. The Tug Salvage Princess, 1949 CanLII 590 (CA EXC), [1949] Ex. C.R. 230, the court relied on The Ran and The Harlow to conclude that, where a tug and tow are commonly owned, liability will be limited according to the aggregate tonnage of both despite the fact that only the tug could be said to have been negligent. Sidney Smith D.J.A. commented at pp. 234‑35:

But to do this they must bring into account the tonnage of those of their vessels as may have contributed to the damage by actual impact, or by their momentum. Liability must be calculated on the aggregate tonnage of the wrong‑doing mass. I think this is the effect of The Ran; The Graygarth case supra, as explained in the Harlow case supra. Here the tonnage in question must be that of tug plus barge; for, to slightly modify the language of plaintiffs' submission, "the tug and derrick‑barge were lashed together as a unit during the whole of the relevant period; it was a case of the one vessel, one owner, one master, one group of employees of that owner".

However, in Maple Prince, supra, Sidney Smith D.J.A. drew a distinction between cases in which the tug and tow are separately and commonly owned. The court in that case held a tug owner was entitled to limit its liability based on the tonnage of the tug alone for a collision between its tow and a third vessel because, unlike the situation in Pacific Express, supra, the tug and tow were not owned by the same person. He observed at p. 228:

I think the language of the decisions on limitations taken in its full effect indicates that the ships that must be brought into account in fixing a tonnage‑basis of liability are the defendant's ships that are "guilty" in the affair of the collision. . . . Where the barges do not belong to the tug‑owner, they are not "guilty", and so are not to be considered.

The issue came before this Court in Monarch Towing & Trading Co. v. British Columbia Cement Co., 1957 CanLII 75 (SCC), [1957] S.C.R. 816. Monarch owned the tug and chartered the unmanned scow which became stranded and sank during the voyage. The owner of the scow sued the tug owner. Negligence was admitted and the tug owner brought an action to limit its liability. For purposes of the limitation provisions, "owner" was defined to include the "lessee or charterer of any vessel responsible for the navigation thereof". Consequently, Monarch was deemed both the owner of the tug and scow. When it sought to limit its liability, it argued that the appropriate measure of its liability should be the tonnage of the tug alone since the actual negligence occurred on the tug. This Court rejected that argument and held liability should be assessed on the combined tonnage of both vessels.

Kerwin C.J., writing also for Taschereau J. and with Cartwright J. concurring, reasoned that since Monarch was the owner of both vessels for purposes of the Canada Shipping Act and further that the tow was not an "innocent" ship, the tonnage of both vessels had to be taken into account. He found the scow, as well as the tug, to be negligent on the ground that its stranding was caused by those in command of the tug who were both servants of Monarch and also responsible for the navigation of the scow. As such, this case was found to be distinguishable from Maple Prince, supra. Locke J. came to the same conclusion without rendering any reasons. Rand J., with Cartwright J. also concurring, observed that liability in this case arose both in contract and tort. As such, he interpreted the term "ship" in then s. 657 of the Canada Shipping Act, R.S.C. 1952, c. 29, to include both a tug and its tow performing a contractual undertaking. He observed that the same result would arise if the claim had been based in tort concluding that, since both vessels were owned by Monarch, the negligent navigation of the tug by Monarch's agents was also attributable to the navigation of the scow and thereby rendered the latter also negligent. The scow was held to be in a "guilty agency" and to be analogous to the barge in The Ran, supra. Rand J. stated at p. 822:

With a common ownership of two vessels whose combined mismanagement has caused damage through collision to the goods of a shipper in one of them, the liability of the owner is related to the several fault of each of his vessels, that is, they are deemed to be two sources of liability, two distinct agencies with different servants of the same master, each giving rise to a responsibility and each coming under the limitation of s. 657. [Citation omitted.]

However, when the issue of limited liability came before the English Court of Appeal again in The Bramley Moore, supra, Lord Denning openly questioned the significance of common ownership in determining the extent of a shipowner's liability. In his opinion, where those on board a tug are negligent and those on a tow are not, the cause of damage is the improper navigation of the tug and not its tow. It is the tug which is the cause of all of the trouble. In this regard, Lord Denning drew into question the decision in The Ran, supra. He failed to see the relevance of common ownership and found there was "no logical ground" for this special exception allowing for liability to be assessed on the combined tonnage of tug and tow where both are commonly owned. In his opinion, it is only when those on board both the tug and tow are negligent and it is the combined negligence of both vessels which cause the damage that liability against the common owner of both vessels should be based on the combined tonnage of both tug and tow: i.e., The Harlow, supra. It is important to stress that Lord Denning's comments regarding common ownership were strictly obiter dictum since the tug and tow in that case were not commonly owned.

Lord Denning's obiter comments were reluctantly followed in London Dredging Co. v. Greater London Council (The Sir Joseph Rawlinson), [1972] 2 Lloyd's Rep. 437 (Q.B. (Adm. Ct.)). The issue before the court was on what basis could the owners of a tug and tow limit their liability for a collision arising from the negligence of those on board the tug but for which there was no negligence on the part of anyone on the tow. As the tug and barge were owned by the same person, the respondent submitted that the appropriate limit should be the combined tonnage of both ships. Kerr J. expressed great sympathy for the view that the owner of a tug whose barge was also involved in the casualty should be called upon to pay an amount related to both vessels. However, he felt bound by Lord Denning's test of "causative negligence" to hold that liability must be limited according to the tonnage of the tug alone. Consequently, he dismissed the respondent's argument that the English equivalent to our s. 647(2)(d)(i) required liability to be limited according to the tonnage of both tug and tow, stating the following at p. 445:

First, there is the passage by Lord Denning, giving the unanimous judgment of the Court of Appeal, about the effect of causation . . . . It seems to me that on the basis of that passage the only causative negligence, which is the negligence to which one must look, must in cases such as this be regarded as negligence in the navigation of the tug, and not negligence in the navigation of the tow or negligence in the navigation of both the tug and tow. Accordingly, whilst it is apparently still correct to say that a person who negligently navigates a tug towing something may be negligent in the navigation both of the tug and the tow, in particular where the damage is caused wholly or as in the present case partly by the tow, it seems to me that the effect of the decision of the Court of Appeal is that the causative negligence is in such cases to be treated as negligence in the navigation of the tug alone. I also consider that if this is the correct approach to the statutory position before 1958, then one cannot say that this has been altered by the 1958 Act. [Emphasis in original.]

With the decisions in The Bramley Moore, supra, and The Sir Joseph Rawlinson, it must now be regarded as settled in English jurisprudence that common ownership of a tug and tow is irrelevant for purposes of the limitation of liability provisions of the Act: L. J. Kovats in The Law of Tugs and Towage (1980), at p. 172, and Hill, supra, at p. 260. Regardless of ownership, liability is limited according to the vessel found to be negligent.

Although English jurisprudence has expressly cast doubt on the correctness of finding the owner of a tug and tow liable to the extent of their combined tonnage, when the issue came before this Court again in Kathy K, supra, liability was assessed against the common owner of a tug and tow for the negligent navigation of the tug on the basis of the tonnage of both vessels. Without elaborating on its reasons, this Court merely stated that it agreed with the trial judge that liability should be based on the aggregate tonnage of the wrongdoing mass (i.e., the tug and tow). At the trial level, [1972] F.C. 585, Heald J. (as he then was) relied on Pacific Express, supra, and Monarch Towing, supra, to reach this conclusion. Neither court in Kathy K, supra, made any reference to The Bramley Moore, supra, or to The Sir Joseph Rawlinson, supra.

Not surprisingly, Great Lakes submits this Court should follow the English example and base the extent of its liability solely according to the tonnage of the Ohio. The respondents, on the other hand, highlight that jurisprudence from this Court suggests that liability must be calculated on the aggregate tonnage of those vessels owned by Great Lakes forming the "wrongdoing mass" (i.e., the tugs Ohio and South Carolina). The respondents also raise The Alvah H. Boushell, 38 F.2d 980 (4th Cir. 1930), in support of their position. The relevant passage relied on by the respondents appears at p. 982:

In this case, the towing company contracted to tow a ship to a given destination, necessitating the use of two of its tugs. The ship was taken over and placed in the control of the tugs, under the specific direction of the master of one of the tugs. That master took command of the ship and tugs, and was proceeding en route in charge of the flotilla, directing the same from the ship's bridge, as is customary, and while so engaged, pursuant to the towage undertaking, a collision occurred, as a result of the fault in navigation of the tow thus in charge of the master of one of the tugs, so placed in command by the towing company. Under such circumstances, both tugs are responsible and liable for damages arising from such collision, certainly where, as found here by the trial court, and as to which there seems to be no very serious controversy, both were participants in the venture and undertaking, and both were at fault in bringing about the collision. The master of the Boushell, so in control of the undertaking, was, in such circumstances, to all intents and purposes, the master of both vessels, and the two tugs constituted the unit to be surrendered to justify a limitation of liability.

While the court in that case held the owner of the two tugs had to surrender both tugs in order to limit its liability, contrary to the suggestion of the respondents, I do not interpret that case to stand for the proposition that a blameless tug under the direction of the lead tug must also be included in determining the extent of a shipowner's liability. In my mind, the broad language used in that case should be read in light of the fact that both tugs were found by the trial judge to have been at fault. The Circuit Court rejected the argument that the subordinate tug was entirely free from fault in bringing about the collision since the lead tug was in charge of the tow. The Circuit Court, to the contrary, emphasized that at the time of the collision the subordinate tug was the only one of the two tugs still in a position to render aid in avoiding the collision. Liability was also assessed against the lead tug on the basis that it owed a duty to exercise the proper precautions for the protection and safe conduct of shipping place under its control. As such, the decision is distinguishable from the case at bar where only one of the tugs was actually found to have been at fault. The respondents did not challenge before this Court Hugessen J.A.'s finding of no fault on the part of the South Carolina and his statement that the uncontradicted evidence in the record as to the South Carolina's actions was "wholly disculpatory" (p. 200).

It is apparent that there exists a difference of opinion between Canadian and English courts in interpreting what is essentially the same statutory provision. The respondents seek to extend the wrongdoing mass principle developed in the context of tug and tow cases to the case at hand. However, for purposes of this appeal I do not believe it necessary or appropriate to resolve this divergence of opinion between Canadian and English courts given my view that the respondents' argument can also be dismissed under the existing wrongdoing mass doctrine.

It is important to highlight that the jurisprudence on this issue has never extended so far as to require that all the vessels within a flotilla belonging to an impugned shipowner be taken into account in determining the extent of that shipowner's liability: The Harlow, supra, The Freden, supra, and Maple Prince, supra. The intent of s. 647(2) is to limit liability for navigational errors according only to the tonnage of those vessels causing the alleged damage. Apart from the vessel responsible for the overall navigation of a flotilla, only those vessels of the same shipowner which physically caused or contributed to the resulting damage form the unit for which liability is limited: Pacific Express, supra, and Monarch Towing, supra. As already mentioned, the South Carolina was absolved of any fault in this case. Only the Ohio and the Widener were found to have been negligent. Moreover, it does not appear from the findings of the courts below that the South Carolina contributed to the collision in any manner other than in following Captain Kelch's instructions with respect to the location of the turn and the speed at which it travelled. Said differently, it did not physically contribute to the collision in any manner. The resulting damage to the Widener and the Rhône would have arisen notwithstanding the role of the South Carolina. In light of these facts, the South Carolina cannot be held to be a "guilty" vessel or part of the "wrongdoing mass".

In my view, it would be stretching the principles of causation beyond their proper limits to hold a vessel not physically causing the impugned damage nor responsible for the navigation of the vessel which in fact physically caused the damage to be part of the "wrongdoing mass". While it may appear to be unjust to limit a shipowner's liability to only one vessel when it has a second vessel which may be used to satisfy a plaintiff's loss, we must remember, as Lord Denning pointed out in The Bramley Moore, supra, that the rationale for limitation of liability rests on public policy concerns and not necessarily on considerations of justice. As stated above, the purpose of these limitation provisions generally is to promote international trade and merchant shipping by giving shipowners the protection of limited liability. In my opinion, it would be counter to the intent of these limitation of liability provisions to include within the unit of limitation a helper tug not committing a fault of its own or otherwise physically causing the impugned damage. Therefore, I am of the view that liability should be limited only to the tonnage of the Ohio.

V. Disposition

Both appeals are allowed and the judgment of the Federal Court of Appeal, in so far as it relates to the Great Lakes' inability to limit its liability under s. 647(2) (now s. 575(1)) of the Canada Shipping Act, is set aside. The unit of limitation for purposes of s. 647(2) should be the tug Ohio. Pursuant to s. 649(2), the appellant's liability in both actions with respect to all the losses and damages resulting from the collision of the Rhône and Widener is limited to the tonnage of the Ohio. The appellant is entitled to its costs in this Court. However, because it disputed a finding of liability in both of the courts below and because this finding was upheld on appeal, the appellant is entitled only to half of its costs in the courts below.

By McLachlin J. (dissenting in part)

The reasons of L'Heureux-Dubé and McLachlin JJ. were delivered by

McLachlin J. (dissenting in part) -- I have read the reasons of Iacobucci J. and substantially agree with them, except on one issue. I agree that the limitation on liability found in s. 647(2) of the Canada Shipping Act, R.S.C. 1970, c. S-9, applies in this case. Like my colleague, I would reject the argument that the appellant cannot claim the benefit of the limitation of liability because Captain Kelch was its directing mind. I would also reject the argument that the limitation of liability does not apply where some of the vessels in a flotilla are not owned by the party responsible in law for a shipping accident.

The only remaining question is what vessels must be taken into account into determining the extent of the liability. On this point, I respectfully differ from my colleague. In my view, the wording of the section, the jurisprudence, the rationale for the limitation, and the practical implications of the alternative rulings, all point to the conclusion that both tugs owned by the appellant, the Ohio and the South Carolina, should be considered in determining the extent of the liability.

The limitation is stated in the following terms. Provided that it applies, the owner is not:

647. . . .

liable for damages beyond the following amounts, namely,

(f) in respect of any loss or damage to property or any infringement of any rights mentioned in paragraph (d), an aggregate amount equivalent to 1,000 gold francs for each ton of that ship's tonnage. [Emphasis added.]

The phrase "that ship" refers back to the opening of s. 647(2), which confers the limitation on "[t]he owner of a ship . . . ." The question is what, for the purposes of this case, constitutes "that ship". Section 647(2)(d) incorporates a further limitation which may bear on the meaning of "that ship". The loss or damages must be caused through:

(i) the act or omission of any person, whether on board that ship or not, in the navigation or management of the ship . . ., or

(ii) any other act or omission of any person on board that ship;

Of the four tugs towing the barge the Widener, two, the Ohio and the South Carolina, were owned by the appellant. All the tugs acted in tandem. The Ohio was positioned ahead of the Widener, the Rival was behind the Widener, and the South Carolina and Ste. Marie II were to the starboard and port sides of the Widener, respectively. Captain Kelch, who was on board the Ohio, acted as de facto tow master of the flotilla. The Captain's navigational errors, compounded by a malfunction of the Ohio's towing apparatus, caused the collision. The findings of the trial judge focus on two navigational errors by Captain Kelch: (1) having the tugs enter the turn in question at full speed; and (2) failing to communicate with the masters on board the various tugs. As a result of these errors, the tugs were unable to respond adequately to deviations in the course of the tow, and the barge which they were towing collided with another vessel, the Rhône.

The question is whether the appellant's liability is limited by reference to the tonnage of the Ohio, or whether the tonnage of both vessels owned by the appellant, the Ohio and the South Carolina, should be used as the basis for calculating the maximum liability of the appellant under s. 647. The appellant contends that only the Ohio's tonnage should be considered, because it was the ship from which Captain Kelch's navigational negligence emanated. This would result in lower liability than if the aggregate tonnage of both vessels were considered, as the respondents contend.

My colleague Iacobucci J. concludes in the appellant's favour that only the tonnage of the Ohio should be considered in determining the amount of the limitation. The principle he applies, as I understand it, is that only a vessel which is "guilty", or independently contributed to the collision, can be considered to be a "ship" for purposes of the limitation in s. 647 of the Canada Shipping Act. Applying this principle, he concludes as a matter of fact that the South Carolina was not a "guilty" ship, characterizing it as "a helper tug not committing a fault of its own or otherwise physically causing the impugned damage" (p. 000). This leads him to the conclusion that the South Carolina should not be considered in determining the amount of the limitation of liability under s. 647 of the Canada Shipping Act.

With great respect, I cannot agree with my colleague's statement of the governing principle, nor with the resulting conclusion that the South Carolina was an "innocent" ship. These differences lead me to the conclusion that both vessels should be considered in determining the amount of the limitation under s. 647 of the Canada Shipping Act.

The question is fundamentally one of statutory interpretation. Two different lines of interpretation exist on the authorities, which for purposes of convenience may be termed the Canadian approach and the revised English approach. As I see it, the jurisprudence may be summarized as follows.

Canadian and English jurisprudence in the first part of this century uniformly took the view that where two vessels owned by the same owner were involved in an accident due to the navigational errors of the owner's employees, the tonnage for the purpose of the owner's limitation of liability was both vessels: The Ran; The Graygarth, [1922] P. 80 (C.A.); Owners of the M.S. Pacific Express v. The Tug Salvage Princess, 1949 CanLII 590 (CA EXC), [1949] Ex. C.R. 230; Monarch Towing & Trading Co. v. British Columbia Cement Co., 1957 CanLII 75 (SCC), [1957] S.C.R. 816.

In 1963, in obiter comments in The Bramley Moore, [1963] 2 Lloyd's Rep. 429 (C.A.), a case involving a single tug and a separately owned tow, Lord Denning, M.R., suggested that even if the tow had been owned by the same company as owned the tug, the limitation would have been based on the tug alone, because that was the only "negligent" ship. This fault-based approach was reluctantly adopted in the case of London Dredging Co. v. Greater London Council (The Sir Joseph Rawlinson), [1972] 2 Lloyd's Rep. 437 (Q.B. (Adm. Ct.)). These two cases represent what I have called the revised English rule.

This Court confirmed the traditional "aggregate tonnage" approach in 1975, after the divergence of the English courts, although without mentioning the English cases: Stein v. The Ship "Kathy K", 1975 CanLII 146 (SCC), [1976] 2 S.C.R. 802.

Where the two vessels involved are a tug and a barge owned by the same owner, the two lines of authority clearly produce divergent results. On the Canadian "aggregate tonnage" view, the navigational error relates to both vessels and both therefore serve as the basis for calculating the tonnage relevant to the limitation. On the revised English view, the tug alone can be said to be at fault, and tonnage for purposes of the limitation is confined to the tug. The same result would seem to follow in a case like the present, where two commonly owned tugs are involved in an accident caused by the negligence of the owner's employee. On the Canadian approach, one would take the "aggregate tonnage" of the two tugs. On the revised English view, one would arguably consider only the tonnage of the tug or tugs which are at fault.

American authority lends support to the use of the Canadian "aggregate tonnage" approach where two or more commonly owned tugs are affected by the same navigational negligence. My colleague Iacobucci J. suggests that the American case of The Alvah H. Boushell, 38 F.2d 980 (4th Cir. 1930), is distinguishable, and that the broad language used by the Circuit Court of Appeals was obiter. That may be so. This does not negate the fact that the court's comments on using the combined tonnage of two tugs under common direction for the purposes of calculating the liability limit amount to a restatement of the position taken in American maritime law on this issue. Moreover, there is additional American case law that is almost directly on point to the facts in the matter at hand. In The Bordentown, 40 F. 682 (S.D.N.Y. 1889), two commonly owned tugs had been engaged in towing a flotilla of canalboats when most of the canalboats were lost in a heavy gale. The Bordentown was found liable on the basis of the decision of the tow master, who was on board the Bordentown, to attempt to cross an unsheltered area of water despite the dangerous wind and sea conditions. The court went on to hold that in assessing the applicable liability limit, both the Bordentown and the second tug, the Winnie, had to be taken into account, stating at p. 687:

As regards the vessels required by the statute to be surrendered in a case like the present, there can be no doubt that the Bordentown is one of them. The master of the tow was all the time on board of her, directing the navigation of all. I have no doubt that the Winnie, also, must be included. At the time when the master's fault arose, the Winnie was as much a part of the moving power as the Bordentown, and was equally under the same direction. She belonged to the same owners; and from the beginning to the end she was engaged, in the owners' behalf, in the work of towing the other boats, precisely as the Bordentown was engaged. It was immaterial on board which tug the master, for the time being, was, or from which boat his orders were given. Both as related to the owners of the tugs and as related to the owners of the boats in tow, the Bordentown and the Winnie, in taking the tow through to Kills, were in effect one vessel.

See also The Anthracite, 168 F. 693 (2d Cir. 1909), certiorari denied 214 U.S. 522 (1909), and Walter W. Jones, "Flotilla or Several Vessels of Same Owner as Liable Under Federal Statute Providing for Limitation of Shipowner's Liability (46 USC § 183(a))" (1971), 9 A.L.R. Fed. 768.

I am reluctant to depart from the settled Canadian approach unless it is clearly wrong. I am doubly reluctant given the rather shaky foundation on which the change is urged. As I noted earlier in these reasons, Lord Denning's comments in The Bramley Moore regarding a commonly owned tug and tow were obiter. More importantly, a close reading of his reasons for judgment reveals what is in my respectful view a fundamental flaw in his analysis on this point. At page 436, Lord Denning states:

I can see no logical reason for distinguishing cases when tug and tow are in the same ownership from cases where they are in different ownership.

But in fact a "logical reason" for this distinction may be found on the next page of Lord Denning's reasons for judgment, where he states (in a passage also quoted in my colleague's reasons):

The principle underlying limitation of liability is that the wrongdoer should be liable according to the value of his ship and no more. A small tug has comparatively small value and it should have a correspondingly low measure of liability, even though it is towing a great liner and does great damage.

This rationale does not apply where the owner of the tug also owns the tow, as Kerr J. noted in The Sir Joseph Rawlinson at pp. 440-41:

Thirdly, Mr. Thomas submitted that there is nothing intrinsically anomalous in a result which distinguishes between cases of common ownership and cases where the tug and tow are in different ownerships. He said that when an owner is employing (to use a neutral term) more than one of his ships in circumstances in which more than one is involved in one collision, then there is nothing anomalous in a result whereby his liability is higher than if only one ship had been involved.

Here again it seems to me that Mr. Thomas is correct in principle. The section is based on the tonnage of a ship, which is intended to reflect her value and size, so that it follows that the greater the tonnage, the greater the potential limited liability. It therefore seems to me that there is nothing anomalous in a result whereby an owner is under a greater liability, albeit limited, if two of his ships are involved in a collision than if only one is involved.

Although Kerr J. ultimately ruled that the liability limit in that case was to be calculated on the basis of the tug's tonnage only, he made it clear that had he not considered himself bound by Lord Denning's dicta in The Bramley Moore he would have ruled the liability limit was to be calculated on the basis of the combined tonnage of the tug and tow. At page 446, he stated:

I am not convinced, but it is not necessary to speculate about this, that if the present case had reached the Courts before the decision and reasoning of The Bramley Moore in the Court of Appeal, the legal position as I see it now facing me in this Court would be the same. I decide this case in the plaintiff's favour because I regard myself as bound by what was said in The Bramley Moore and because I regard the matter as not being any longer res integra in this Court. But for that decision I should have decided in favour of the defendants on the basis of Mr. Thomas's arguments . . . .

Notwithstanding the questionable pedigree of the revised English approach, the fact remains that if the approach hitherto adopted in this country is incompatible with the wording of s. 647 of the Canada Shipping Act or is less likely to fulfil the section's purpose than the revised English approach, revision of the rule in this country may be justified. It is therefore necessary to examine the wording of the section and the implications of the alternative interpretations with some care.

This brings me to the question of whether s. 647 of the Canada Shipping Act accords with the traditional Canadian view that in the situation of common ownership, both a tug and tow are to be considered for purposes of setting maximum liability for an accident involving the tow which was caused by navigational error of those on board the tug. In my view it does. The words "that ship" in s. 647(2)(f), which governs the limitation, refer us back to the opening words of s. 647(2), "[t]he owner of a ship". Subsection (2)(d)(i) applies where there is loss or damage caused to property, by "the navigation or management of the ship", "whether on board that ship or not". There is no requirement here that the ship itself have been "negligent", nor that the negligent navigator have been on board the ship which is used for purposes of the limitation. All that is required is that there have been an act or omission in relation to the navigation or management of a ship. This language is broad enough to encompass the misdirection of a tow, and thus supports the long-standing Canadian position that the tonnage of both tug and tow are to be considered for purposes of determining the limitation on liability where an accident occurs as a result of a navigational error.

Section 647(2)(d)(i) clearly contemplates that where navigational errors are concerned, it does not matter whether the negligent employee was on board or off a ship used as the basis for calculating the limitation of liability. As I see it, s. 647(2)(d)(ii) deals with errors not enumerated in s. 647(2)(d)(i); in those cases only must the negligent employee be on board the ship.

Where damage is caused as a result of the negligent navigation of a flotilla as a whole, it is questionable whether it is appropriate to say that the negligence attaches only to the lead tug, and not as well to any other tug in flotilla that is owned by the owner of the lead tug. The reasoning underlying the traditional Canadian approach applies just as much to two commonly owned tugs as to a commonly owned tug and tow, as the decision in The Bordentown demonstrates. The fault of misnavigation of a flotilla cannot realistically be confined to a single vessel; in fact it affects all the vessels which are involved in directing the barge. The fact that the navigator happens to be standing on one vessel or the other is incidental; what is essential is the direction which caused the various vessels to act as they did. In fact, in the case at bar, the mistakes of navigation caused all the tugs, including the South Carolina, to move the barge too quickly. That movement, exacerbated by the mechanical malfunction on the Ohio, caused the collision. So it seems to me inaccurate to say that the South Carolina did not physically contribute to the collision and the loss.

The traditional Canadian approach of considering the aggregate involved tonnage of the owner responsible for the accident for purposes of determining the limitation is also supported by consideration of the purpose of s. 647 of the Canada Shipping Act. The policy basis of the enactment of statutory liability limitations for shipowners, including the limitation in the Canada Shipping Act, is the promotion of shipping by limiting the potentially ruinous risk that would otherwise be faced by shipowners. The liability limit in English law was originally the value of the ship plus the value of the freight charge being earned on the voyage. For a number of reasons, including the practical difficulties of valuing individual ships, the basis for calculating the liability limit was later changed to a set value per ton of the ship -- which is of course the basis for calculating the liability limit under the Canada Shipping Act. See R. G. Marsden, The Law of Collisions at Sea (11th ed. 1961), at pp. 131-34, and J. J. Donovan, "The Origins and Development of Limitation of Shipowners' Liability" (1979), 53 Tul. L. Rev. 999. Under either method, a shipowner's potential liability is limited to a value based on the assets which have been devoted by the shipowner to the operation in question.

Where the owner owns more than one vessel involved in the operation, the assets directed at the operation are not limited to one of the vessels, for example, the lead tug in this case, but include all of them. The owner's assets employed in the operation being higher, the amount of the limitation should proportionately be higher, if the purpose of the section is to be respected. The rationale of the limitation has nothing to do with which ship a tow master of a flotilla may be physically situated on while making navigational decisions affecting the flotilla as a whole. Moreover, it is often a matter of chance which vessel the navigating officer is on. Should the owner's liability be reduced by reason of the fact the navigator was on a small tug rather than a large barge?

The practical implications of the alternative interpretations on conduct in the shipping industry similarly support the traditional Canadian position. If I am not mistaken, the rule adopted by Iacobucci J. may provide a disincentive to the safe operation of flotillas. It has been suggested that a flotilla such as the one in issue here is best operated from the bridge of the ship that is being towed, the Widener. Typically a barge will have much more tonnage than a tug. A rule basing the limitation on the tonnage of the "directing" vessel would mean that a company which chose to place its navigator on the barge would incur the risk of greater liability in the event of an accident. So, even if that were the safest place for the navigator to stand, it might be more prudent for the towing company to insist that he operate from the smallest vessel it owns in the flotilla rather than the barge. On the other hand, under the rule which has long represented the law in Canada, the towing company's limitation on liability would be the same regardless of which vessel in the flotilla the navigator directs it from. There is therefore no disincentive to choose the safest vessel.

In addition, excluding the tonnage of the tow for the purposes of determining the owner's liability limit where the tug and tow are commonly owned can lead to the absurdity that an owner of a ship can effectively reduce the applicable liability limit by changing the method of the ship's propulsion. If the ship moves under its own power, the liability limit applicable if the ship causes damage in a collision will be based on the tonnage of the ship. But if the ship is converted into a dumb barge, and thereafter propelled by a tug, the revised English position would, if followed, result in the liability limit being based on the tonnage of the much smaller tug. Why should whether a ship is powered by internal engines or by a tug owned by the same party that owns the ship make a difference to the applicable liability limit?

Finally on this point, it should also be borne in mind that s. 647 is an extraordinary provision, operating in derogation of the usual rights of recovery against negligence causing damage to others. Unless it is clear that the limitation should be reduced to a portion of the owner's assets involved in the collision, it seems to me all the assets should be considered; the courts should derogate from the usual rights of recovery only to the extent that the language and the purpose of the provision clearly so require.

For all these reasons, I am of the view that the traditional Canadian rule should be affirmed, with the result that in cases of navigational error affecting the conduct of a flotilla, all the vessels owned by the party responsible for the error which are affected by the error, whether involved directly in the accident or contributing causally to the accident, should be considered for purposes of determining the maximum liability of that party.

Disposition

I would allow both appeals and set aside the judgment of the Federal Court of Appeal in so far as it asserts the inability of the appellant to limit its liability under s. 647(2) of the Canada Shipping Act. I would hold that the extent of the limitation should be determined by the aggregate tonnage of the Ohio and the South Carolina. In light of the divided success of the parties in these appeals and in the overall conduct of this case, I would order that each party bear its own costs of the proceedings in this Court and in the courts below.

Appeals allowed, L'Heureux-Dubé and McLachlin JJ. dissenting in part.

Solicitors for the appellant: Martineau Walker, Montréal.

Solicitors for the respondents: Lavery, de Billy, Montréal.