Bayside Towing Ltd’s tug, the Sheena M, was towing Rivtow Marine Ltd’s barge, the Rivtow 901, when it struck a bridge owned by Canadian Pacific Railway Co (the plaintiff), causing damage to the bridge. The plaintiff commenced a claim in damages against Bayside Towing Ltd, the Sheena M, the officers and crew of the Sheena M, Rivtow Marine Ltd and the Rivtow 901. In return, the Sheena M's interests, which consisted of Bayside Towing Ltd, the Sheena M as well as the Sheena M's officers and crew (the defendants) commenced a separate action to limit liability under the LLMC 1976, which is part of the Canada Shipping Act, RSC 1985, c S-9 (the Act). In the plaintiff's liability action for damages, the defendants sought a motion to stay the plaintiff's action so that the limitation action (see Bayside Towing Ltd v Canadian Pacific Railway Co (CMI993)) could be pursued without interruption. The plaintiff further sought a motion to consolidate all actions as an alternative to the stay.

Held: The plaintiff's motion to consolidate the actions is dismissed. The defendants' motion is allowed as between the plaintiff and all the defendants, except Rivtow Marine Ltd and the Rivtow 901.

In 1998 Canada enacted a new limitation of liability regime, by adopting the LLMC 1976 and a Protocol of 1996, with some Canadian variations, for example that variation allowed under art 15.2.b whereby a state that is party to the LLMC 1976 may set its own limits for ships under 300 tons. Under the LLMC 1976 it is for a claimant who wishes to break limitation of liability to prove that a shipowner is not entitled to limit liability with the standard of proof being that set out in art 4 of the Convention. The conventional wisdom is that it is very much more difficult to break limitation under the LLMC 1976. Indeed, Sheen J remarked in The Breydon Merchant [1992] 1 Lloyd's Rep 373, 376, that the right to limit liability under the 1976 Convention is 'almost indisputable'. See also Valley Towing Ltd v Celtic Shipyards (1988) Ltd, 1995 CanLII 3520 (FC), [1995] 3 FC 527 (TD) 541 (CMI1002).

It was recognised that the previous system of limitation had given rise to too much litigation and there was a desire that this should be avoided in future. There was agreement that a balance needed to be struck between the desire to ensure on the one hand that a successful claimant should be suitably compensated for any loss or injury which it had suffered and the need on the other hand to allow shipowners, for public policy reasons, to limit their liability to an amount which was readily insurable at a reasonable premium. The solution which was finally adopted to resolve the competing requirements of claimant and defendant was: (a) the establishment of a limitation fund which was as high as a shipowner could cover by insurance at a reasonable cost; and (b) the creation of a virtually unbreakable right to limit liability. The text of the 1976 Convention finally adopted by the Conference therefore represents 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 1976 Convention 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 (art 4). This desire of the delegates to the 1976 Convention to avoid excess litigation is laudable: hopefully that will prove to be the case once the Convention has been appropriately tested in the courts.

The limitation fund has been increased more than tenfold, to CAD 500,000, for property damage caused by a vessel of less than 300 tons. Counsel for the defendants makes the point that if a Trial Division judge were to make a finding of fact that the accident was intentionally caused, or caused recklessly with knowledge that the damage would result, an appeal is less likely than under the LLMC 1957. Be that as it may, were an injured party able to break limitation under the LLMC 1976, in effect establishing intention, or recklessness and knowledge of the damage, it is difficult to conceive that a shipowner could even wish to defend a liability action. This is so even though art 1.7 of the 1976 Convention provides that the invocation of limitation of liability does not constitute an admission of liability.

With regard to the plaintiff's action to consolidate the actions, this was rejected because the limitation action and the action for damages are incompatible. They have different issues, conflicting burdens of proof and different standards of conduct at issue. For instance, the limitation action would border on a summary procedure, whereas the action for damages would be likely to evolve into a complex piece of litigation. By reason thereof, the consolidation will not save any costs and the defendants should not be prejudiced by having their limitation action delayed.

The defendants' motion was allowed for the following reasons.

First, pursuant to art 4 of the LLMC 1976, the claimant bears the burden of breaking limitation of liability by proving that the loss resulted from the shipowner’s personal act or omission and that such act was committed with the intent to cause such loss, or recklessly, with the knowledge that such loss would probably result. Based on case law, it is very difficult to deny a shipowner limitation of its liability. By reason thereof, no purpose would be served in allowing a complex trial on liability to proceed when there is a faster and economical resolution by way of a limitation action.

Second, the Court had the power under s 50 of the Federal Court Act, RSC 1985, c F-7 (Federal Court Act), to stay the current action. This was supported by the overall tenor of the LLMC 1976 as seen in art 13 of the LLMC 1976 which barred other parties from exercising a right against the assets of shipowners once a fund is constituted. That said the Court cautioned that art 13 should not been seen as a bar to any liability proceeding continuing at the same time as a limitation proceeding.

Third, contrary to the plaintiff’s arguments, the Court was not functus officio by reason of res judicata. The plaintiff had tried to argue that because an order was obtained in the defendants' separation limitation action to enjoin the plaintiff from commencing or continuing proceedings before any other court against the defendants, the issue in the defendants' current motion was therefore already decided and the motion would fail by reason of res judicata. However, the Court clarified that the order in the separate limitation action was an enjoining order under s 581(1) of the Act whereas the current motion to stay was made pursuant to s 50 of the Federal Court Act. The tests for a stay and an enjoinment embodied very different concepts and there was no conflict or tension between s 50 of the Federal Court Act and s 581(1) of the Act. For example, the word 'enjoin' is an injunctive direction to perform or abstain from an act. On the other hand, a stay is an order by which a court suspends its own proceedings either temporarily or permanently. The issues which arose are therefore completely different and there was therefore no res judicata.

Fourth, the test for a stay under s 50 of the Federal Court Act had been satisfied. According to the test as set out in Mon-Oil Ltd v Canada (1989) 26 CPR (3d) 379 (FCTD), the applicant for a stay had to show that: (i) a continuation of the action would cause prejudice or injustice and not merely inconvenience or extra expense to the defendant; and (ii) a stay would not be unjust to the other side. In this regard, the Court was satisfied that prejudice would be suffered by the defendants, but no injustice would be suffered by the plaintiff. In particular, the Court found that: (i) forcing the plaintiff’s liability action to trial would be lengthy and costly, thereby prejudicing the defendants, in particular Bayside Towing Ltd, which was a one-man operation; (ii) it would be an injustice if the limitation of liability procedure under the LLMC 1976 was not allowed to unfold as intended; (iii) there would be no prejudice suffered by the plaintiff because if the plaintiff succeeded in the limitation action which has a high onus akin to gross negligence, the plaintiff would also likely be successful in his action for damages, hence the limitation action would essentially do away with the need of a liability trial; (iv) the plaintiff would have obtained a benefit because it would have full discovery of documents and full examination of such documents with the added concession that discovery from the limitation action may be used in any liability action trial, and (v) the stay would not prevent the plaintiff from continuing its investigations or compromise its ability to retain experts.

In light of the above, the defendants’ application for a stay was successful. However, as Rivtow Marine Ltd and the Rivtow 901 did not seek a stay, the stay did not apply as between the plaintiff and them.