Facts: Réal Vallée is a fisherman and the president, sole shareholder, and directing mind of Peracomo Inc, a corporation that owns the shipping vessel Realice. He was 57 years of age at the time of the incident. Réal Vallée had been fishing since he was fifteen, and never had any formal naval navigation training.

Vallée’s trade consisted in fishing snow crab a few months per year by laying strings of cages on the river bottom, secured at both ends by small anchors attached to buoys. On occasion, while fishing in his favorite spot, Zone 17 about 9 kilometers from Baie-Comeau, Realice’s fishing gear would get entangled in debris found on the river bottom. In 2005, Realice’s cage string anchors got caught on a brown submarine cable about 1 inch in diameter. This was the Sunoque I, a fiber optics communication cable owned by Société TELUS Communications and Hydro-Québec.

Shortly after the first time the Sunoque I got caught in Realice’s gear, Vallée remembers visiting a deconsecrated church turned museum in Baie-Comeau, and seeing there a map of unknown nature that indicated that a submarine cable in the same location as the Sunoque I was abandoned. This map was never found again.

In early June 2006, the Realice’s gear got entangled in the Sunoque I once again. Having had enough of the cable, Vallée decided resolutely to solve the issue once and for all. Having concluded that the Sunoque I was the abandoned cable from the map he saw in the church the previous year, he lifted it to the surface and cut it with an electric circular saw. A few days later, the cable got caught in Realice’s gear again, and Vallée cut it once again.

It must be noted that the maps aboard Realice were outdated and none of them contained any indication of the Sunoque I.

The damages caused to the owners and the users of the cable as a result of the cut ran close to CAD 1,000,000.

Appeal History: At trial level, the Federal Court judge found that, because Vallée cut the cable intentionally, the CAD 500,000 limit on liability under the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976) did not apply. Peracomo’s liability insurance did not apply because Vallée’s cutting of the cable constituted 'willful misconduct', pursuant to s 53(2) of the Marine Insurance Act (Société Telus Communications v Peracomo Inc [2011] FC 494 (CMI674)).

The appeal to the Federal Court of Appeal was unsuccessful (Peracomo Inc v Société Telus Communications [2012] FCA 199 (CMI672)).

Held: Majority (McLachlin CJ, Rothstein, Cromwell, Karakatsanis JJ) The Supreme Court ruled that, while the limit on liability under the LLMC 1976 applies and the damages are capped at CAD 500,000, the insurance coverage must be denied.

While the disposition of the LLMC 1976 and the Marine Insurance Act are similar, the LLMC 1976 imposes a higher threshold for liability. Indeed, while the Marine Insurance Act excludes from its coverage any loss resulting from 'willful misconduct', to break the limit on liability under the LLMC 1976 it must be proven the loss resulted from an act or omission committed either with the intent to cause such loss or recklessly and with knowledge that such loss would probably occur.

To find Vallée liable for the entire amount of the loss (which at the moment of the hearing before the Supreme Court exceeded CAD 1,000,000), it must be proven that he intended to cause the loss or that he acted recklessly and with knowledge that the loss would probably occur. Although his conduct did not breach this threshold, it did constitute willful misconduct sufficient to deny coverage under the Marine Insurance Act. Vallée had a duty to be aware of the cable but he failed to meet it. He knew that he was cutting a submarine cable, and entertained the idea that it might be in use, but failed to sufficiently investigate the issue or make reasonable inquiries about its condition.

Vallée’s conduct exhibited reckless indifference to the possible consequences of which he was in fact aware. He ran an 'unreasonable risk with subjective knowledge of that risk and indifference as to the consequences', which constituted willful misconduct.

Dissent: (Wagner J) Vallée and Peracomo can both benefit from the limitation of liability and get insurance coverage under their policy.

Despite the difference in the wording of the applicable provision of the LLMC 1976 and the Marine Insurance Act, they both require proof of the same fact: the insured had knowledge of the harmful consequences of his act, and intended or was reckless with regard to those consequences. As they both establish a subjective criterion, an act cannot be characterized as willful misconduct unless it is proven that the insured intended the result of his act or was reckless in that regard. If the insured, after considering the possible consequences of his act, sincerely believes, although wrongly, that it will not cause harm, his misconduct cannot be characterized as willful. The criterion of knowledge of a reasonable person does not suffice to justify a finding of fault.

Judgment: Appeal allowed in part. Liability is limited to CAD 500,000 under the LLMC 1976. Appeal dismissed against the insurer; Vallée and Peracomo are not covered under their insurance policy.