For prior proceedings in this matter, see Bayside Towing Ltd v Canadian Pacific Railway Co (CMI993). A barge, the Rivtow 901, while being towed by the Sheena M, a tug owned by Bayside Towing Ltd (the plaintiff), hit the protection pier and the swing-span of the Mission Railway Bridge, causing extensive damage estimated at USD 5,000,000. Canadian Pacific Railway Co (the defendant) commenced an action against the plaintiff claiming damages for the loss of the bridge. As a result, the plaintiff commenced this action and sought a declaration that it was entitled to limit its liability in respect of the bridge collision to USD 515,183.40 based on the tonnage of the Sheena M alone pursuant to s 577(1)(b) of the Canada Shipping Act, RSC 1985, c S-9 (the Act). The main issue was whether the limitation fund should be based on the tonnage of the Sheena M alone or on the basis of the combined tonnages of the Sheena M and the Rivtow 901.

Held: The plaintiff's application is allowed.

The adoption of the LLMC 1976 represented a compromise. In exchange for the establishment of a much higher limitation fund, claimants would have to accept the extremely limited opportunities to break the right to limit liability. Under the LLMC 1976, the right to limit liability is lost only when the claimant can prove wilful intent or recklessness on the part of the person seeking to limit. It was conceded that the damage was not caused by a 'personal act or omission', with 'intent to cause such loss', or 'recklessly, with knowledge that such loss would probably result'. Therefore, by virtue of art 4 of the LLMC 1976, the plaintiff was entitled to limit its liability.

The Supreme Court of Canada's decision in Rhône (The) v Peter AB Widener (The) [1993] CanLII 163 (SCC), [1993] 1 SCR 497 (CMI1006) was the leading Canadian case on the calculation of the quantum of a limitation fund in tug and barge situations. The purpose of the limitation provisions is 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. In addition, the rationale for limitation of liability rests on public policy concerns rather than on considerations of justice. Thus, at the time of the decision in The Rhône, the flotilla principle or the concept of 'wrongdoing mass' remained alive and well in Canada. However, it applied only in circumstances of common ownership of the vessels comprising the 'wrongdoing mass', as well as common causation.

There was, however, a distinguishing feature resulting from the enacting of the 1998 amendments to the Act that implemented the LLMC 1996. The defendant argued that the definition 'shipowner' under the 1998 amendments, which was extended to 'managers', 'operators' and 'other persons having possession', should be interpreted as signalling Parliament's intention to broaden the scope of persons who were considered 'shipowners' for the purpose of combining tonnage under the traditional Canadian 'flotilla principle'. The Court rejected this argument. Article 1.2 of the LLMC 1976 defined the term 'shipowner' in words that were narrower than those reflected in s 576(3) of the Act, as enacted in the 1998 amendments to the Act. Although the wording of the legislation extended the concept 'shipowner' beyond traditional concepts of ownership, the additions to the definition 'shipowner' through the 1998 amendments amounted to nothing more than a drafting device which shortened and simplified the provisions of the Act without effecting any change in substance. The law before the Court was in substance the same as the law that was before the Supreme Court of Canada in The Rhône. Thus, the Court refused to adopt the traditional Canadian 'flotilla principle' because there was no common ownership of the tug Sheena M and the dumb barge Rivtow 901, whether or not they could be taken together to constitute a 'wrongdoing mass'.