Canada (Ship-Source Oil Pollution Fund) v. Dr. Jim Halvorson Medical Services Ltd.

In Other Practice Topics, Pollution (Ship Source) on (Updated )

Précis: The Federal Court held that the registered defendant owner was not liable for oil spill clean up costs as it was not the the legal owner of the vessel at the time of sinking.

Facts: On 27 September 2014 the barge Crown Forest 84-6 sank near Zeballos, British Columbia, leaking fuel and other contaminants into the surrounding waters. The Canadian Coast Guard responded to the spill, and total clean up costs came to $67,348.81. The Coast Guard presented its expenses to the Administrator of the Ship Source Oil Pollution Fund and a total of $71,698.27 was reimbursed, inclusive of interest. The Administrator then sought to recover the cost from the Crown Forest’s registered owner, the defendant Dr. Jim Halvorson Medical Services Ltd., and Dr. Halvorson in his personal capacity as the Administrator sought to pierce the corporate veil. A third party was also joined to the action.

In September 2012, the defendant had sold the vessel to the third party defendant for $1, under an "Intent to Purchase" document. That document provided that "upon payment of the purchase price the purchasers shall have possession of the asset and bear legal responsibility for the asset". Upon completion of the sale, neither the defendant nor the third party had registered the barge in the third party’s name with the Canadian Register of Vessels. As such, the vessel continued to be registered in the name of the defendant medical company.

Decision: Action dismissed. The third party was the legal owner of the vessel at the time of sinking, and the defendant medical company is not liable to the Administrator for the clean up costs.

Held: The Court began by noting s. 75 of the Marine Liability Act defines "owner" as "the person who has for the time being, either by law or by contract, the rights of the owner of the ship with respect to its possession and use". Importantly, the court found nothing in s. 75 ties ownership of a vessel to the registration of title in the Canadian Register of Vessels. The Court went on to note the statutory provisions under s. 46(2) of the Canada Shipping Act which impose an obligation on an owner to ensure that a vessel is registered (if not a pleasure craft, wholly owned by qualified persons and not registered), as well as s.58(1)(b) which states the authorized representative of a Canadian vessel is required within 30 days after a change in ownership of the vessel to notify the Chief Registrar of that change. Importantly, however, the Court found that the Canada Shipping Act does not set out any formalities that must be complied with before title to a vessel will pass to a new owner. The Court went on to hold that while the Canada Shipping Act does address the consequences that flow from the failure to register a change in ownership of a vessel, it does not provide that the registered owner of a vessel remains liable for pollution damages under the Marine Liability Act after a vessel has been sold to a third party.

The cornerstone of the Courts’ reasons are worth reciting in full:

[58] Importantly, there is no suggestion in either the Canada Shipping Act, 2001, or the Regulations enacted thereunder, that title to a vessel will not pass to a purchaser if the transaction is not registered in the Canadian Register of Vessels. Nor is there any suggestion in the Act (or in the Marine Liability Act for that matter) that a prior owner of a vessel will continue to be responsible for damages caused by the vessel as long as that individual or entity is recorded in the Register as the owner of the vessel.

The Court then turned to examine the conveyance of title to the vessel by the September 2012 transaction, which the Court decided in accordance with the law of contract. There was an offer to sell the vessel, the offer was accepted by the third party, and consideration was paid to the defendant vendor. Therefore, it was the third party and not the defendant who was the owner and had rights to possession and use after September 2012.