Supreme Court Of Canada Weighs In On Conduct Barring Limitation

PERACOMO INC. v. TELUS COMMUNICATIONS CO. 2014 SCC 29

The difference between intentionally or recklessly causing a loss and willful misconduct.

In a much awaited decision, the Supreme Court of Canada examined the standard of fault constituting conduct barring limitation under Article 4 of the Convention on Limitation of Liability for Maritime Claims, 1976 ("Limitation Convention") and whether the same behavior constitutes wilful misconduct voiding insurance coverage under the Marine Insurance Act.

Mr. Vallée is a crab fisherman from the lower St-Lawrence River. A fibre-optic submarine cable became entangled with his fishing gear. He raised the cable to the deck of his ship and proceeded to cut the cable with a chain saw. He was under the mistaken belief that the fibre-optic cable was not in use. That belief was based on a handwritten note on some sort of map that he had briefly seen in a museum. The marine charts of the area indicated the presence of a live cable. The result was $1 million of damage. As the trial judge put it, Mr. Vallée was a good man who did a very stupid thing.

The Marine Liability Act gives force of law in Canada to the Limitation Convention. It also provides that the limitation of liability of ships with less than 300 gross tonnage, such as this fishing boat, is of CAD $500,000.

The cable owner argued that the fisherman was not entitled to limit his liability. Intentionally cutting the submarine cable constituted conduct barring limitation under Article 4 of the Limitation Convention as it was done recklessly with knowledge that the loss would probably result. To compound Mr. Vallée's problems, his insurers claimed that the same behavior also constituted willful misconduct which voids the insurer's obligation to indemnify. Both issues turned on the fisherman's degree of fault.

All the Justices agreed that the behaviour in question did not meet the threshold of conduct barring limitation under the Limitation Convention. It was insufficient that the person liable intended to perform the act, namely cutting the cable. Rather, in order to break limitation, it must be proven that the person intended to cause the loss that actually resulted or had knowledge that the loss would probably occur, namely stopping fiber-optic traffic.

The Court examined a number of decisions interpreting the Limitation Convention, including the "Leerort", as well as the Warsaw Convention on carriage by air which inspired Article 4. The Court...