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Leave to Appeal Denied in “Lantau Peak”
Published in the July 2006 issue of Transportation Notes - View Article
On May 25, 2006, the Supreme Court of Canada dismissed the Application for Leave to Appeal by the owners of the ship “Lantau Peak” from a decision of the Federal Court of Appeal dated August 4, 2005.
The ship Lantau Peak was a gearless bulk carrier with a gross tonnage of 62,412 and was categorized as a “Capesize” vessel. She was built in Japan in 1997 and was sailing under the Malaysian flag. While enroute from Kawasaki, Japan to Vancouver, British Columbia in April of 1997, the ship’s crew noticed that eight of the vessel’s hull frames had become detached. The captain sent a fax to the charterer’s agent in Vancouver, advising that the detachment was attributable to heavy corrosion. By the time the ship arrived in Vancouver five more frames had become detached.
When the ship arrived in Vancouver, two Transport Canada steamship inspectors carried out a Port State Control inspection, as a result of which the ship was detained and taken off hire. The ship remained under detention for a period of slightly over four months, from April 5 to August 12, 1997. During that time a debate raged with respect to the extent of the repairs that would be required before the ship would be permitted to sail. The owners wanted to carry out the bare minimum and have the ship sail, in ballast, to China where more comprehensive repairs could be carried out at a lower cost.
The ship’s classification society issued certificates of seaworthiness on April 15 and again on May 5, but Transport Canada continued to hold out for more extensive repairs. The owners appealed to the Chairman of the Board of Steamship Inspection, who issued a decision on July 18, which modified the repair requirement somewhat. The owners could have appealed that decision to the Minister of Transport but did not do so. Instead, they completed the necessary repairs and 1 ½ years later, commenced a negligence action against Transport Canada and the two steamship inspectors.
The Trial Division of the Federal Court of Canada agreed with the owners and granted them damages in the amount of $4,344,859. This decision was reversed by the Federal Court of Appeal, which found that the trial judge had erred in a number of respects. Firstly, he had held, as a matter of law, that the steamship inspectors did not have the authority to seize and detain the ship. While the Canada Shipping Act contains broad powers for steamship inspectors to seize and detain ships, the trial judge relied on a regulation under the Canada Shipping Act, the Non-Canadian Ships Safety Order (“NCSS” Order), which stipulates that the Governor-in-Council may direct that the part of the Canada Shipping Act dealing with inspections (Part V) “…shall apply to any ship or class of ship registered elsewhere than in Canada while within Canadian waters”, but goes on to state that a ship shall be regarded as in compliance with Part V if it carries a certificate issued by a recognized classification society.
The Lantau Peak was subject to Part V, because it was loading coal in Vancouver, but the owners argued that it should be exempted from inspection because it was carrying a classification certificate. The Court of Appeal ruled that the NCSS order may create a rebuttable presumption of compliance, but does not provide immunity against safety inspections. From a purely practical point of view, this makes sense, since the hull or machinery of a ship can deteriorate to the point of presenting safety concerns, after a class certificate has been issued.
Having ruled that the trial judge erred by misconstruing the legal basis for the inspection, which was the factual foundation for the owners claim for damages, the Court of Appeal went on to do the job which “the trial judge should have done”, namely to assess the reasonableness of the decision taken by the steamship inspectors. The Court makes some interesting remarks about whether or not the owners should have exhausted the administrative remedies available to them before commencing a claim for damages. The owners could have appealed the decision of the Chairman of the Board of Steamship Inspection to the Minister of Transport and could have applied for a judicial review of a decision by the Minister of Transport. While this had been urged at early stages of the proceedings, it had not been pursued on appeal and so the court could not deal with the issue head on. However, the court does say that a ship owner that is aggrieved by the result of a safety inspection ought to exhaust the statutory remedies before asserting a tort claim due to the “public interest in the finality of inspection decisions”. The short time frames assigned to challenges to administrative decisions are “not whimsical” but exist “in the public interest, in order to bring finality to administrative decisions so as to ensure their effective implementation without delay and to provide security to those who comply with the decision or enforce compliance with it, often at considerable expense”. The Court goes on to say that there is also “…a public interest in precluding the use of tort claims to engage in collateral attacks on decisions that are, or should be, final…” and that in this case “…the detention order requiring that certain repairs be done was not only aimed at protecting the marine environment, but also at ensuring the safety of human lives”.
The Court went on to say, however, that the negative effects of permitting a collateral attack could be mitigated in the circumstances of this case by ensuring that the administrative decision was reviewed in the same way and under the same standard of review as if it had been challenged in judicial review proceedings. The Court then went on to consider the standard of review, which is one of reasonableness. In this case the expertise of steamship inspectors suggests that considerable deference should be accorded to their decisions. After reviewing the basis on which the seizure and detention was carried out, the Court concluded that it was reasonable in the circumstances and granted the appeal. It was this decision with respect to which leave to appeal was refused by the Supreme Court of Canada.
Budisukma Puncak Sendirian Berhad v. Canada, [2005] F.C.J. No. 1302