Berhad v. Canada, 2004 FC 501

1. The principal players

[14]            A limited number of principal players participated in the detention and release of the Vessel: for the Plaintiffs: Captain Aloro, Commander Swa, and Captain Khoo; and for the Defendants: Inspector Biant Warna, Inspector David Hall, Captain Phil Nelson, Mr. Bud Streeter, and Mr. Richard Day.

Captain Aloro:

Captain Aloro is a Philippine National who has extensive sea experience; he first sailed on deep sea vessels in 1962 and continuing until his semi-retirement in 1999. He is a Master Mariner and sailed as Master since 1980 for a number of shipping companies including Philippine President Line, Zim Line, Mitsui OSK, Showa and others. He has commanded container vessels, bulk carriers and other ships of varying sizes and ages.

Captain Aloro joined the "Lantau Peak" on September 17, 1996 shortly after it was acquired by the Plaintiffs. He was on board during the entirety of the detention of the Vessel in Vancouver.

Commander Swa:

Commander is a Malaysian National who has an extensive background in the marine industry. He joined the Malaysian Navy in 1972; attended the University of Technology of Malaysia and graduated with a Bachelor of Engineering in Mechanical Engineering in 1977; and attended the Royal Naval Engineering College in England and obtained a certificate in Applied Marine Engineering. For the Navy he: worked as a Marine Engineering Officer on transport vessels, in the planning office at the Ship Refit Office, and in the Offshore Patrol Vessel Building Project in Pusan, Korea for 2 years; attended college in Malaysia in 1988 in order to become a Commander in the Malaysian Navy; was placed in charge of fleet maintenance (hull, etc.) for the entire Navy, in 1991 was placed in charge of inspection of all vessels; and was posted to the Royal Navy Training School in 1993 as head of the technical training division and he remained there until mid 1996.

Commander Swa joined the Plaintiff MCM on November 1, 1996; his initial role was to organize their International Safety Management ("ISM) Program and was then appointed as the Inspectorate Engineer for the MCM fleet which meant visiting ships and inspecting their condition.

Commander Swa was asked to go to Vancouver to assist in repairing the detached frames. He was in Spain inspecting another MCM vessel and arrived in Vancouver the day before the Vessel where he remained for 39 days.

Captain Khoo:

Captain C.Y. Khoo is a Malaysian National who joined the Malaysian International Shipping Company as a deck cadet. He then completed his apprenticeship and ultimately obtained his Masters Foreign Going Certificate of Competency in 1990. He sailed as a Master on product tankers until 1993 when he joined the Plaintiff MCM.

Captain Khoo's initial position with MCM was as a Marine Superintendent in charge of fleet operations, which included the scheduling of movement of ships and related items. In January of 1994 he became the Operations Manager with the marine superintendent working for him. He remained in that position until the beginning of 1995 when he became Fleet Manager. During this time period MCM was acquiring other vessels. As Fleet Manager he was responsible for a number of matters including technical matters involving the maintenance, classification and insurance of MCM managed vessels. He remained as Fleet Manager until January of 1996 when he became "Fleet General Manager", a position he held until approximately 1999 when he was appointed the Chief Operating Officer of MCM.

Captain Khoo learned of the detention and the requirements imposed by the Port State Control inspectors in Vancouver, and, to provide assistance, he decided to travel to Vancouver and arrived on April 14, 1997.

Inspector Biant Warna:

Inspector Warna was appointed a steamship inspector in 1983 and has served in that capacity since that time. His professional training qualifications include completion of a four-year full time course of the Government of India Marine Engineering College, and a Canadian First Class Motor Steamship Certificate of Competency.

Inspector Warna's professional experience includes: from 1965 to 1977 on Convention bulk carriers and cargo ships as a watch keeping engineer, second engineer and chief engineer; from 1977 to 1978, as Chief Engineer of a Canadian Coast Guard ship; from 1978 to 1979, as Technical Training Officer - Engineering for the Canadian Coast Guard; from 1979 to 1983 as Senior Marine Surveyor - Training and Examinations; and from 1983 to the present as Senior Marine Inspector (Machinery) - Canadian Coast Guard / Transport Canada.

As a steamship inspector, Inspector Warna's duties include: Port State Control inspections; pollution investigations; examination of engineers for all levels of certificate of competency including chief engineers; as an expert, giving Port State Control seminars to Port State Control officers of member countries of the Paris and Tokyo Memorandum of Understanding, including Canada, Malaysia, South Korea, and Vietnam.

Prior to Canada becoming a member of the Paris Memorandum of Understanding, his duties included inspection of foreign ships carrying lumber on deck and tackle gear, Canadian ship inspections, and pollution investigations.

Inspector David Hall:

Inspector Hall was appointed a steamship inspector in 1988, has served in that capacity since that time, and is presently a senior surveyor. His professional training qualifications include a degree in philosophy from the University of Guelph, Ontario.

Inspector Halls's professional experience includes: prior to 1974, sailing as a steward on passenger ships and tankers; from 1974 to 1988 at sea in the engine room of various ships; from 1974 to approximately 1980, sailing with the Canadian Coast Guard and for a short time with Fisheries and Oceans, and for five years thereafter employed with Northern Transportation Company sailing out of Hay River in the Northwest Territories. His experience on ships has been in the capacity of oiler, engine room storekeeper, fourth engineer, third engineer, second engineer, and chief engineer. As an engineer, he sailed on Coast Guard vessels, tugs, and fisheries patrol boats.

Inspector Hall received his training as a steamship inspector on the job. Being a Port State Control Officer under the Paris MOU, required him to be a flag state surveyor for at least two years and under the Tokyo MOU a flag state surveyor for at least twelve months.

Captain Phillip Nelson:

Captain Nelson has an extensive and varied career in the shipping industry. From 1972 to 1987 he was at sea as a navigating cadet, and third and second officer on bulk carriers, oil product tankers, chemical tankers, and combination carriers trading world wide. For several years he sailed on the west coast of Canada and the United States. During the last 5 years of this experience he served as Master on oil tankers trading along the Atlantic coast of North America, including Canada's inland water ways.

Captain Nelson commenced his employment in the public service in 1987. During the 15 years that he was with Transport Canada Marine Safety, he was involved with all aspects of the positions of Marine Surveyor, Senior Surveyor, and Manager, and from 1997 to 2003, of Regional Director. In March 2003 he accepted the post of President of the Council of Marine Carriers in Vancouver.

At the time of the detention of the Lantau Peak, Captain Nelson was the immediate supervisor to Inspectors Warna and Hall.

Mr. Bud Streeter:

Mr. Streeter graduated from the Canadian Coast Guard College in Sydney, Nova Scotia in June, 1973, with a Diploma in Marine Engineering and a Fourth Class Combined Certificate of Competency as a Marine Engineer. He sailed nearly full time until June 1978. He obtained a First Class Certificate of Competency as a Marine Engineer, Motor Ships in March, 1978. Mr. Streeter has experience on board commercial, civilian, and government ships, including experience as Chief Engineer.

Mr Streeter taught engineering sciences and technologies to the First Class Level at the Canadian Coast Guard College between July 1978 and May 1981. He was also a non-exclusive surveyor to Lloyd's Register of Shipping for a time.

He was appointed as a Marine Machinery Surveyor to Canadian Coast Guard Ship Safety Branch in Sydney, N.S. in May 1981 and remained in the position, with a short stint at the Canadian Coast Guard College as an instructor to help with staff shortage until December 1985, when he was appointed Senior Surveyor in Charlottetown, PEI, responsible for Prince Edward Island and Les Iles de La Madeleine, Quebec.

In September 1987 Mr. Streeter accepted a position as Manager, Marine Technical with Marine Atlantic Inc., a large passenger ferry operator in Moncton, N.B. He was promoted to Director, Marine Technical in 1988 and to Vice President, Safety and Regulatory Affairs in January 1995.

In November 1996, Mr. Streeter was offered the position of Director, General Marine Safety, for the Government of Canada in Ottawa. He remained as the responsible person for marine regulatory matters for Canada until accepting employment with Lloyd's Register North America, Inc. in April 2002.

[15]            Only Mr. Streeter testified concerning the decision making in Ottawa which went into the continuing detention of the Vessel in Vancouver, even though others were directly involved. The Plaintiffs pay particular attention to the participation of Mr. Richard Day who was acting Director, Policy and Planning under the direction of Mr. Streeter in Ottawa. The evidence indicates that Mr. Day was fundamentally involved in the decision making with respect to the continuing detention of the Vessel. However, even though available, and at times in the courtroom during the trial, he was not called to testify on behalf of the Defendants to provide explanations for the Ottawa office's conduct which, in part, caused the present action to be brought. As a result, the Plaintiffs have asked that I draw an adverse inference, being that there is no adequate explanation for the apparent negligent conduct of the detention of the Vessel after the Ottawa office became involved. This issue is addressed in Section IV below.

[16]            The Plaintiffs also make special mention of Mr. Flood, who was a naval architect in the Ottawa office and was consulted in mid-June 1997 regarding the Vessel and who prepared an opinion concluding that the Vessel should, on certain conditions, be permitted to sail to China. Mr. Flood did not testify. Further mention is made about his participation in Section IV.

a. the 1996 detention

[20]            In January 1996, while under the previous ownership, the Vessel was inspected by Inspectors Warna and Hall in Vancouver, and was found to be "unseaworthy", primarily on account of defective hatch covers due to corrosion. The Vessel was detained, and after the required work was completed, the detention was lifted and the Vessel sailed. It is important to note that, at that time, the Vessel was allowed to sail in a loaded condition even though many frames were wasted beyond 17%.

b. inspections of the Vessel conducted between the date of purchase by the Plaintiffs and the date of detention

[21]            As substantiation of the proved assertion that there was nothing haphazard or careless about the continuing maintenance program for the Vessel, as outlined in the "Chronology of Events", inspections of the Vessel in early 1997 were conducted on January 8^th, 20^th , 27^th , February 7^th, March 21^{s t}, and March 22^nd . The following narrative explains these events in respective order:

The Captain was onboard during Class and P & I surveys done shortly after the acquisition of the Vessel by the Plaintiffs. He was initially given a list of maintenance items to be attended to and he confirmed the completion of those items as the work was done (Vol. 1, Tab 21 and Transcript 129-131).

[Captain Aloro] recalled the U.K. P & I Club's surveyors attending in Singapore and going into the Vessel's holds (Transcript p. 131 and Vol. 5, Tab 179). Those surveyors commented on the condition of the holds in their survey report (Vol. 5, Tab 179, paragraph 4). They said there "was no evidence of any serious corrosion/wastage" and Capt. Aloro agreed those observations were consistent with his observations (Transcript p. 133, line 16-20).

The Vessel after being inspected on behalf of Class NK in Shenzhen, China (Vol. 1, Tab 25), proceeded to Port Hedland, Australia where it was inspected by a Port State Control officer (Mr. Kenneison) who was onboard for approximately 24 hours (Vol. 1, Tab 26). Captain Aloro recalled Mr. Kenneison first checking the appropriate certificates and then attending in the holds before loading operations were commenced (Transcript 135-136). Some deficiencies were identified by the Port State Control inspector but they were rectified prior to the Vessel's scheduled departure, except for two which were to be repaired later. [The inspector checked the holds, but did not note any wastage or corrosion (CAP, p.6)]. Consequently, the Vessel left Australia as planned fully laden with a cargo of coal destined for Taiwan.

The Vessel was re-inspected in Taiwan on behalf of the P & I Club and all was found to be in order (Transcript p. 138, line 25 - 141, line 9 and Vol. 2, Tab 195, p. 2). The P & I surveyors found the "inner frames, bulkheads and tank tops all in apparent good condition", which was consistent with the Captain's recollection of the condition of the Vessel.

In addition to the various survey reports by Class and P & I underwriters, the crew maintained daily working reports which were signed and approved by the Master (Vol. 2, Tab 109, Transcript p. 141-143). Those reports record activities such as hold cleaning and regular maintenance issues.

The Vessel returned to Newcastle, Australia to load coal (Transcript 143, line 17 - 144, line 4). The Vessel then sailed to Japan from Australia with a cargo of coal (Transcript p. 141, line 7-12).

The Vessel arrived at Kawasaki anchorage on March 18, 1997 and berthed the next day on March 19, 1997.

The charterer, Showa Line, had an inspection of the Vessel in Kawasaki (Vol. 2, Tab 111, p. 2). That inspection took place on March 21, but all the cargo had not yet been discharged from the Vessel and there was no mention by that inspector regarding the condition of the holds (Transcript p. 148, line 1-12).

There was also a Class survey that was done on March 21, 1997 (Vol. 3, Tab 16, p. 5 and Transcript p. 149, line 14- 150, line 12). That surveyor identified some deformed frames in Hold 1 which were to be attended to at the next docking survey. There is no mention of observations in the other holds, but it should be remembered cargo operations were not complete at that time. (CAP, pp.7-9)

c. the detached frames

[22]            The story of the detention of the Lantau Peak has to do with her transverse hull frames.

[23]            During the voyage from Kawasaki, Japan to Vancouver in late March 1997, while in the process of cleaning the Vessel's holds, the crew noted that there were detached frames in Holds 3 and 9. As a result, arrangements were made through the ship's agent in Vancouver to conduct repairs upon arrival, and Commander Swa travelled to Vancouver to meet the ship and to supervise the repairs.

[24]            To provide an understanding of the general construction of the Lantau Peak, and, in particular, the function of the hold frames, Counsel for both sides agree to the inclusion in these reasons of the following narrative and diagram. Of particular importance are paragraphs 11 and 12 (Exhibit Y for Identification, pp.1-8):

GENERAL DESCRIPTION OF M/S LANTAU PEAK

5.        The vessel is a steel hull, single screw combination ore/bulk carrier built in 1978 by Nippon Kokan's Tsurimi Shipyard in accordance with Nippon Kaiji Kyoki (NKK), the Japanese Classification Society. At the time of the detention the M/S Lantau Peak was in class with NKK [also referred to as Class NK].

6.        There are nine cargo holds forward of the engine room. Corrugated transverse watertight bulkheads separate the holds. The accommodation is arranged in a deckhouse located above the engine room at the aft end of the vessel....

Vessel Particulars:

12.      The hold frames are constructed in a "T" configuration. The stem of the T is the web plate of the frame. The top of the T is the faceplate of the hold frame. The hold frames are different sizes depending on which hold they are located in. Holds 1, 3, 5, 7,and 9 are designed for carrying ore, which is a very heavy cargo. When ore is carried in these holds, the vessel can be at full draft while Holds 2, 4, 6 and 8 are empty. The frames for holds 2, 4, 6, and 8 have to be stronger than the frames for holds 1, 3, 5, 7, and 9 due to greater external pressure from the sea without internal cargo pressure to help counteract the sea loads. Hold 6 can also be used as a ballast tank. With No. 6 filled with ballast water and the vessel at ballast draft [because of ] the internal pressure from the ballast water the frames require additional strength.

The hold frame sizes are:

Holds 1, 3, 5, 7, and 9

Web      525mmx 12mm

Face plate    150mm x 25mm

Holds 2, 4, and 8

Web      550mmx 14mm

Face plate    150mm x 25mm

Hold 6

Web      800mmx 14mm

Face plate 200mm x 25mm

[25]            In the above diagram, which is Figure 2 referred to in the above description, the hold frames are the vertical members on each side: one is labelled on the left side just above the label for the "bilge hopper". The present action concerns 137 frames replaced in Vancouver and 671 replaced in China.

3. The detention itself

[26]            Upon arrival of the Vessel in Vancouver, Inspectors Warna and Hall boarded to carry out a Port State Control inspection. They split the responsibilities; Inspector Warna inspected the hull and machinery, while Inspector Hall attended to safety equipment requirements. Inspector Hall did not go into the holds of the ship, and effectively did not participate in the decision to detain the Vessel for hull deficiencies, except to sign the detention order itself.

[27]            Prior to the Vessel's arrival in Vancouver, Inspectors Warna and Hall were advised of the detached frames, but since there was no question that they would be repaired, the Vessel was not detained for that reason. Inspector Warna only went into Holds 1, 3, and 9 and only did a cursory visual inspection of each. The Vessel's safety certificates were all in order. The detention was based on one minor deficiency respecting the compass, and three perceived major problems, one in particular respecting the condition of the hull frames due to corrosion.

[28]            The "circumstances of detention" noted on the "Detention Order" dated April 5, 1997 were "Structural Deficiencies, SOLAS, Ch.1, Reg. 11" (Vol 1, Tab 34). The accompanying "Form B: Report on Inspection in Accordance with the Memorandum of Understanding on Port State Control" completed on April 5^th (Vol 1, Tab 33) contains the following statements respecting the items for which the Vessel was detained:

Magnetic compass to be adjusted & swung...

4. Undisputed events before release

[32]            The "Chronology of Events" discloses the following principal undisputed features of the efforts made from the Plaintiffs' side to have the Vessel released from detention, and understood as having been made on the Defendants' side:

1. The owners of the Vessel, through their various representatives, argued that the requirement to repair to the 17% wastage standard was unreasonable.

2. At the request of the owners, the Vessel's flag state, Malaysia, requested release.

3. In an attempt to have the 17% standard changed, the owners argued that the Class NK requirement should be the standard applied.

4. In support of the owner's position, shortly after the detention, Class NK confirmed the precise Class corrosion standard for hull frames being 25% of the original for the face plate and 7.5 mm minimum thickness for the web.

5. Captain Khoo agreed to conduct repairs to a certain level in Vancouver, but with a request that the balance of the repairs be conducted in Shanghai. The argument made by the owners was that, since repairs are much cheaper in China, the Vessel should be allowed to sail in ballast to Shanghai whereupon the required repairs would be undertaken.

6. In support of the owner's position, Class NK supplied certificates and calculations attesting to the belief that the Vessel was in good order to make a trans-Pacific voyage to China.

6. An alternate proposal of having the Vessel towed in ballast to Asia for repairs was considered.

7. As it was understood that Mr. Streeter, being the Chairman of the Steamship Board under the Canada Shipping Act and most senior surveyor with overriding authority to change the 17% standard applied by Inspector Warna, the owners applied to him for relief. Inspector Warna provided Mr. Streeter with a briefing note outlining his justification for the detention.

[34]            There is evidence that in late April, the Defendants were under the impression that the Class NK standard was 25%. However, the evidence clearly establishes that as of May 13, 1997, the Defendants had notice of the precise Class NK standard. On May 8^th, Class NK wrote to the Marine Department of Peninsular Malaysia reconfirming the seaworthiness of the Vessel to make a ballast voyage to China for repairs and also confirming the Class NK rules which stipulate that the face place corrosion limit is 25% of original, and the minimum thickness of the web plate is 7.5 mm. By fax dated May 12, 1997, the Class NK letter of May 8^th along with the Class NK survey report of April 21^st and the Class NK seaworthiness certificate of May 5^th, were sent to Bill Henderson at Ship Safety Transport Canada in Ottawa. (Vol. 8, Tab 315, sub-tab 15). The "received" stamp confirmed receipt on May 13^th of both the fax and the Class NK letter of May 8^th. That information was sent by Ottawa to Vancouver on May 13, 1997 (Vol. 8, Tab 315, sub-tab 16).

[35]            I do not put any weight on any possible criticism of the Plaintiffs if the Defendants might not have known of the precise Class NK standard until May 13^th because, as discussed in Section IV below, the Defendants had no intention of accommodating the Class standard in releasing the detention, whatever it was.

[36]            As to the issue of an alleged change in the standard during the period of detention, I find that the following contents of Mr. Streeter's final decision of July 18, 1997 (Vol 8, Tab 36) is conclusive proof that, until the writing of the letter, the standard remained as that originally imposed by Inspector Warna, being 17%:

JUL 18 1997

Captain C.Y. Khoo

Maritime Consortium Management Sdn. Bhd. (282453-W)

No. 68C, Kompleks Damai, Jalan Lumut Off Jalan Ipoh

50400 Kuala Lumpur, Malaysia

Dear Capt. Khoo:

SUBJECT: M.V. "LANTAU PEAK"

We have given due consideration to your letter dated July 15, 1997. The information you provided has been reviewed and we have had consultations with our Pacific Regional Office.

Following our extensive review of the situation, we should like to advise you of the outcome of our deliberations.

(1)      In the event m.v. "LANTAU PEAK" is to be towed to Shanghai, the list of requirements provided to you by the Regional Director - Pacific Region must be complied with.

(2)      We believe that the one million dollar bond is reasonable.

(3)      If you intend to proceed to Shanghai in ballast, we ask that all frames with web wastage of 33% or higher in hold numbers 4, 5, 7, and 8 be renewed prior to departure from Vancouver.

(4)      Upon arrival in Shanghai all pending items from the Port State Control inspection reports of April 5 and 8, 1997 are to be complied with. After due consideration, we have raised the wastage limit of 17% to 25%. The same requirements will apply if you intend to repair the vessel in Vancouver for the purpose of loading or SOLAS Certificate validity continuation.

We agree that this time of year is the most opportune to transit the Pacific Ocean and would recommend weather routing.

The fact that you have taken the initiative to come to Canada to work closely with us is appreciated and trust that we can collectively determine how best m.v. "LANTAU PEAK" [sic] can safely undertake the ballast voyage to Shanghai.

Yours sincerely,

Bud Streeter

Director General

Marine Safety

[Emphasis added]

[37]            In oral argument, Counsel for the Defendants suggested that Captain Khoo had agreed to a 25% wastage standard of repair. No admissible evidence was referred to substantiate this suggestion. The evidence is very clear that Captain Khoo had agreed to accommodate the Defendants' demands to have some repairs done in Vancouver and to have the balance done in China, but not to the standards being demanded by the Defendants.

[38]            By the third week in April, Captain Khoo was getting nowhere with the Vancouver office of Transport Canada in his attempts to have the Vessel released. As a result, by letter dated April 21^st, he wrote directly to Ottawa. In his letter he addressed the high cost of doing repairs in Vancouver compared to Shanghai, and argued for release based on the evidence of Class NK that the Vessel was safe to make a single voyage to Shanghai for repairs. He specifically said this (Vol. 1, Tab 43):

The class is of the opinion that the vessel complies with class recommendations as set out in the "Seaworthiness Certificate" issued on 15 April 1997, some of the deficiencies to be rectified here before commencement of the voyage and the remaining items to be completed at the next port.

The letter ended with this statement:

We hereby wish to appeal to your good office to lift the detention of the vessel and allow her to proceed on the proposed voyage to Shanghai. We undertake to conduct the necessary repairs in Vancouver to rectify the items as recommended by class before commencement of the voyage and to complete all the remaining items at the next port in Shanghai.

[39]            In his evidence at trial, Captain Khoo confirmed that he was essentially indicating that he would comply with the Class NK requirements (Transcript, Vol. 3, p.505).

[61]      However, as I indicated during the course of the trial, I find that the Nantong Report is very relevant on the issue of damages. In oral argument, Counsel for the Plaintiffs' admitted that, on arrival in Vancouver, the Vessel should have been within Class with respect to the condition of the hull frames, and, as a result, agreed that the cost of repair in China of frames found not to meet Class NK standards would not be the responsibility of the Defendants. On this basis, as dealt with in Section V below, an important part of the argument on damages has focussed on the Nantong Report.

                            II. The Jurisdictional Question

Under what authority did Inspectors Warna and Hall detain the vessel

and under what authority was the detention maintained by them

                                 and/or their supervisors?

[62]       The Plaintiffs argue as follows:

The Plaintiffs allege in the Statement of Claim that the Defendants' requirements for the Vessel were excessive, that they were contrary to the position taken by the Class NK and the flag state, that is, the Government of Malaysia, and that the Defendants' conduct was contrary to the Canada Shipping Act and regulations, the duty contained in the international Convention for the Safety of Life at Sea 1974 and amendments and Protocol thereto. Further, the Plaintiffs state that the Defendants and each of them were negligent and in breach of their duty to the Plaintiffs in their conduct of the Port State Control inspection and detention of the Vessel (PCO, p.52).

[63]            A primary element of the Defendants' defence to this action is that the detention was made pursuant to the provisions of the Canada Shipping Act R.S., 1985, c. S-9 ("the Act"), in particular, s.310 as quoted below, and that this fact acts as a block to the Plaintiffs' claims. The Plaintiffs maintain that, in fact, the detention was not made under the Act, and, in any event, in law, the detention could not be made under the Act, and, as a result, the block does not exist.

[64]            On the basis of the following analysis, I agree with the Plaintiffs.

A. The international safety at sea regime

1. The International Convention for the Safety of Life at Sea, 1974 ("SOLAS")

[65]            Canada is a Contracting Government to the Convention, but it is agreed that it is not part of the domestic law of Canada since it has not been made the subject of legislation passed by Parliament. Nevertheless, SOLAS is relevant because, as set out in Section I, the detention was purported to be pursuant to "Structural Deficiencies: SOLAS, Ch. 1, Reg. 11". Therefore, a basic understanding of the terms of the Convention is important.

[66]            Article 1(b) reads as follows:

The Contracting Governments undertake to promulgate all laws, decrees, orders and regulations and to take all other steps which may be necessary to give the present Convention full and complete effect, so as to ensure that, from the point of view of safety of life, a ship is fit for the service for which it is intended.

[67]            Chapter 1 of Part B of the Annex to the 1974 SOLAS Convention contains the following important provisions (Vol. 13, Tab 47):

Regulation 6

(a)            The inspection and survey of ships, so far as regards the enforcement of the provisions of the present regulations and the granting of exemptions therefrom, shall be carried out by officers of the Administration [ie. the flag state]. The Administration may, however, entrust the inspections and surveys either to surveyors nominated for the purpose or to organizations recognized by it.

...

(d)            When applicable, the Government of the port State concerned shall ensure that the ship shall not sail until it can proceed to sea, or leave port for the purpose of proceeding to the appropriate repair yard, without danger to the ship or persons on board.

Regulation 11

The condition of the ship and its equipment shall be maintained to conform with the provisions of the present regulations to ensure that the ship in all respects will remain fit to proceed to sea, without danger to the ship or persons on board.

Regulation 19

(a)           Every ship when in a port of another Party is subject to control by officers duly authorized by such Government in so far as this control is directed towards verifying that the certificates issued under regulation 12 or regulation 13 of the chapter are valid.

(b)            Such certificates, if valid, shall be accepted unless there are clear grounds for believing that the condition of the ship or of its equipment does not correspond substantially with the particulars of any certificates or that the ship and its equipment are not in compliance with the provisions of regulation 11(a) and (b) of this chapter.

(c)            In the circumstances given in paragraph (b) of this regulation or where a certificate has expired or ceased to be valid, the officer carrying out the control shall take steps to ensure that the ship shall not sail until it can proceed to sea or leave the port for the purpose of proceeding to the appropriate repair yard without danger to the ship or persons on board.

(d)            In the event of this control giving rise to an intervention of any kind, the officer carrying out the control shall forthwith inform, in writing, the Consul or, in his absence, the nearest diplomatic representative of the State whose flag the ship is entitled to fly of all the circumstances in which intervention was deemed necessary. In addition, nominated surveyors or recognized organizations responsible for the issue of the certificates shall also be notified. The facts concerning the intervention shall be reported to the Organization.

(e)            The port State authority concerned shall notify all relevant information about the ship to the authorities of the next port of call, in addition to parties mentioned in paragraph (d) of this regulation, if it is unable to take action as specified in paragraphs (c) and (d) of this regulation or if the ship has been allowed to proceed to the next port of call.

(f)             When exercising control under this regulation all possible efforts shall be made to avoid a ship being unduly detained or delayed. If a ship is thereby unduly detained or delayed it shall be entitled to compensation for any loss or damage suffered.

Regulation 12 requires the issuance of the certificates mentioned in Regulation 19(a). The certificates are listed in Regulation 12(a)(vii), together with the terms of their issuance as follows:

       (vii) Passenger Ship Safety Certificates, Cargo Ship Safety Construction Certificates, Cargo Ship Safety Equipment Certificates, Cargo Ship Safety Radio Certificates and Exemption Certificates shall be issued either by the Administration or by any person or organization duly authorized by it. In every case, that Administration assumes full responsibility for the certificate.

2. The Memorandum of Understanding ("the MOU")

[68]            As mentioned, Canada is a signatory to two Port State Control Memorandums of Understanding: the Paris Memorandum which controls Atlantic Ocean shipping, and the Tokyo Memorandum which controls Pacific Ocean shipping. The Memorandum of Understanding on Port State Control in the Asia-Pacific was signed in Tokyo on December 1, 1993, and April 11, 1994, by the following countries, referred to in the MOU as "the Authorities":

[69]            The Preamble to the MOU states as follows (Vol. 6, Tab 219):

Recognizing the importance of the safety of life at sea and in ports and the growing urgency of protecting the marine environment and its resources;

Recalling the importance of the requirements set out in the relevant maritime conventions for ensuring maritime safety and marine environment protection;

Recalling also the importance of the requirements for improving the living and working conditions at sea;

Noting the resolutions adopted by the International Maritime Organization (IMO), and especially Resolution A682(17) adopted at its 17th Assembly, concerning regional co-operation in the control of ships and discharges;

Noting also that the Memorandum is not a legally binding document and is not intended to impose any legal obligation on any of the Authorities;

Mindful that the principal responsibility for the effective application of standards laid down in international instruments rests upon the administrations whose flag a ship is entitled to fly;

Recognizing nevertheless that effective action by port States is required to prevent the operation of substandard ships;

Recognizing also the need to avoid distorting competition between ports;

Convinced of the necessity, for these purposes, of an improved and harmonized system of port State control and of strengthening cooperation and the exchange of information;

...

[70]            The following provisions of the MOU are most relevant to the present action:

Section 1 General

1.1            Each Authority that has accepted the Memorandum will give effect to the provisions of the present Memorandum.

...

1.3            Each Authority will establish and maintain an effective system of port State control with a view to ensuring that, without discrimination, foreign merchant ships calling at a port of its Authority, or anchored off such a port comply with the standards laid down in the relevant instruments as defined in section 2.

Section 2    Relevant instruments

2.1            For the purposes of the Memorandum, the following are the relevant instruments on which regional port State control is based:

1.              the international Convention on Load Lines 1966;

2.              the international Convention for the Safety of Life at Sea as amended;

3.              the protocol of 1978 relating to the International Convention for the safety of Life at Sea, 1974

4.              the international Convention for the Prevention of Pollution from Ships 1973, as modified by the Protocol of 1978 relating thereto;

5.              the International Convention on Standards for Training, Certification and Watchkeeping for Seafarers, 1978, as amended;

6.              the Convention on the International Regulations for Preventing Collisions at Sea, 1972;

7.              the International Convention on Tonnage Measurement of Ships, 1969, and

8.              The Merchant Shipping (Minimum Standards) Convention, 1976 (ILO Convention No. 147).

2.2            With respect to the Merchant Shipping (Minimum Standards) Convention, 1976 (ILO Convention No. 147), each Authority will be guided by the instructions in chapter 4 of the Asia-Pacific Port State Control Manual (hereinafter referred to as the "Manual"). The implementation of ILO Convention No. 147 will not require any alterations to structure or facilities involving accommodation for ships whose keels were laid down before April 1, 1994.

2.3            In the application of the other relevant instruments, each Authority will be guided by the standards specified in chapter 3 of the Manual.

2.4            Each Authority will apply those relevant instruments which are in force and are binding upon it. In the case of amendments to a relevant instrument each Authority will apply those amendments which are in force and which are binding upon it. An instrument so amended will then be deemed to be the 'relevant instrument' for that Authority.

...

2.6            When inspecting ships for provisions of the relevant instruments to which it is a Party, the Authority as the port State will not impose standards on foreign ships that are in excess of standards applicable to ships flying the flag of that port State.

Section 3    Inspection Procedures, Rectification and Detention

3.1           In implementing this Memorandum, the Authorities will carry out inspections, which will consist of at least a visit on board a ship in order to check the certificates and documents, and furthermore satisfy themselves that the crew and the overall condition of the ship, its equipment, machinery spaces and accommodation, and hygienic conditions on board, meets the provisions of the relevant instruments. In the absence of valid certificates, or if there are clear grounds for believing that the crew or the condition of the ship or its equipment does not substantially meet the requirements of a relevant instrument, or the master or crew are not familiar with essential shipboard procedure relating to the safety of ships or the prevention of pollution, a more detailed inspection will be carried out. Inspections will be carried out in accordance with the Manual.

3.2           Clear Grounds

3.2.1        The Authorities will regard as 'clear grounds' inter alia the following:

.1              a report or notification by another Authority;

.2              a report or complaint by the master, a crew member, or any person or organization with a legitimate interest in the safe operation of the ship, shipboard living and working conditions or the prevention of pollution, unless the Authority concerned deems the report or complaint to be manifestly unfounded; and

.3              other indications of serious deficiencies, having regard in particular to the Manual.

3.2.2        For the purpose of control, specific 'clear grounds' include those prescribed in paragraph 2.3 of IMO resolution A.787(19) contained in chapter 3 of the Manual.

3.2.3         Nothing in these procedures should be construed as restricting the powers of the Authorities to make measures within their jurisdiction in respect of any matter to which the relevant instruments relate.

...

3.6           Each Authority will endeavour to secure the rectification of all deficiencies detected. On the condition that all possible efforts have been made to rectify all deficiencies, other than those referred to in 3.7, the ship may be allowed to proceed to a port where any such deficiencies can be rectified. The provisions of 3.8 apply accordingly.

In exceptional circumstances where, as a result of the initial control and a more detailed inspection, the overall condition of a ship and its equipment, also taking the crew and its living and working conditions into account, are found to be substandard, the Authority may suspend an inspection.

The suspension of the inspection may continue until the responsible parties have taken the steps necessary to ensure that the ship complies with the requirements of the relevant instruments.

Prior to suspending an inspection, the Authority will have recorded detainable deficiencies in the areas set out in Appendix 1 of IMO resolution A.787(19) and ILO Convention deficiencies, as appropriate.

In cases where the ship is detained and an inspection is suspended, the Authority will, as soon as possible, notify the responsible parties. The notification will include information about the detention. Furthermore, it shall state that the inspection is suspended until the Authority has been informed that the ship complies will all relevant requirements.

3.7           In the case of deficiencies which are clearly hazardous to safety, health or the environment, the Authority will, except as provided in 3.8 ensure that the hazard is removed before the ship is allowed to proceed to sea. For this purpose appropriate action will be taken, which may include detention or a formal prohibition of a ship to continue an operation due to established deficiencies which, individually or together, would render the continued operation hazardous. In the event of a detention, the Authority will as soon as possible, notify in writing the flag State or its consul or, in his absence, its nearest diplomatic representative of all the circumstances in which intervention was deemed necessary. Where the certifying Authority is an organization other than a maritime administration, the former will also be advised.

Where deficiencies which caused a detention as referred to in paragraph 3.7 cannot be remedied in the port of inspection, the Authority may allow the ship concerned to proceed to the nearest appropriate repair yard available, as chosen by the master and agreed to by the Authority, provided that the conditions determined by the Authority and agreed by the competent authority of the flag State are complied with. Such conditions will ensure that the ship can proceed without risk to the safety and health of the passengers or crew, or risk to other ships, or without being an unreasonable threat of harm to the marine environment. In such circumstances the Authority will notify the Authority of the ship's next port of call, the parties mentioned in paragraph 3.7 and any other authority as appropriate. Notification to Authorities will be made in accordance with Chapter 7 of the Manual. The Authority receiving such notification will inform the notifying Authority of action taken.

If a ship referred to in paragraph 3.8 proceeds to sea without complying with the conditions agreed to by the Authority of the port of inspection:

1.              that Authority will immediately alert all other Authorities, and

2.              the ship will be detained at any port of the Authorities which have accepted the Memorandum, until the owner or operator has provided evidence to the satisfaction of the Authority of the port State, that the ship fully complies with all applicable requirements of the relevant instruments.

If a ship referred to in paragraph 3.8 does not proceed to the nominated repair port, the Authority of the repair port will immediately alert all other Authorities.

...

3.12          When exercising control under the Memorandum, the Authorities will make all possible efforts to avoid unduly detaining or delaying a ship. Nothing in the Memorandum affects rights created by provisions of relevant instruments relating to compensation for undue detention or delay.

[Emphasis added]

[71]            Chapter 2 of the MOU specifically attaches Regulation 19 of SOLAS as quoted above as a "relevant instrument".

B. The domestic safety regime

1. The Canada Shipping Act

[72]            The Act presently sets out a list of objectives, and while the version which was law at the time of detention did not contain the list, it is agreed that they set out the purpose of legislation both then and now:

2.          The Non-Canadian Ship Safety Order, Chapter , C.R.C., c.1452 (1978) ("the Order")

[75]            It is agreed that the Order was operative at the time of the detention; however, its references to Part VIII are out of date. These references should be read as Part V. As the Order has a significant impact on the defence to the present action, it is cited here in its entirety.

[79]            In particular, the Defendants argue that s.3(c) of the Order does not apply to the Lantau Peak because, at the time of the detention, the Vessel was not "being used or operated at a place within Canadian waters"; that is, it travels between countries loading and delivering coal and iron ore, and in April 1997 it was travelling between Japan and Canada and not "being used or operated at a place within Canadian waters". The Defendants urge an interpretation that, on the plain meaning of the words in s.3(c), before the Order can be said to apply to a particular ship, that ship must have some certain geographic connection with Canada. In support of this argument, the Defendants point to the French version of s.3(c). It is agreed that the English translation of the French version of s.3(c) is as follows:

3. This order applies to every ship registered elsewhere than in Canada that

...

c) is used or operated in a place within the limits of Canadian waters.

I do not find that the French version adds anything to the Defendants' argument. In addition, on the basis of the analysis which follows, I do not agree with the Defendants' interpretation of the provision.

[80]            In the course of oral reply, Mr. Swanson, on behalf to the Plaintiffs, made a compelling argument with respect to the correct interpretation of the Order, and the relationship between the Act and the Order.

[81]            Three important features underpin the argument, with which I agree. First, the Act and the Order should be read in a way so as to find harmony, not conflict. This feature is well expressed in the following quote from Driedger on the Construction of Statutes (3^rd ed.) at p. 176:

It is presumed that the provisions of legislation are meant to work together, both logically and teleologically, as parts of a functioning whole. The parts are presumed to fit together logically to form a rational, internally consistent framework; and because the framework has a purpose the parts are also presumed to work together dynamically, each contributing something toward accomplishing the intended goal.

[82]            Second, the Act and the Order should be read with SOLAS so as to find harmony, not conflict. In making this point, Mr. Swanson referred to Driedger, supra.; the following is the entire passage at p.330:

Although international law is not binding on Canadian legislatures, it is presumed that legislation is meant to comply with international law and with Canada's international law obligations. The presumption applies to both federal and provincial legislation. The presumption was stated broadly in Bloxom v. Favre. Every statute is to be so interpreted and applied as far, as its language admits, as not to be inconsistent with the comity of nations or with the established rules of international law. In Solomon v. Customs and Excise Commissioners, Lord Diplock wrote:

...there is a prima facie presumption that Parliament does not intend to act in breach of international law, including therein specific treaty obligations, and if one of the meanings which can reasonably be ascribed to the legislation is consonant with the treaty obligations and another or others are not, the meaning which is consonant is to be preferred.

In Daniels v. White and The Queen, Pigeon J. wrote:

This is a case for the application of the rule of construction that Parliament is not presumed to legislate in breach of a treaty or in any manner inconsistent with the comity of nations and the established rules of international law.

These authorities make it clear that there are two aspects to the presumption. First, the legislature is presumed to comply with the obligations owed by Canada as a signatory of international instruments, and more generally as a member of the international community. In choosing among possible interpretations therefore, the courts avoid interpretations that would put Canada in breach of any of its international obligations. Second, the legislature is presumed to respect the values and principles enshrined in international law, both customary and conventional. These constitute a part of the legal context in which legislation is enacted and read. Insofar as possible therefore, interpretations that reflect these values and principles are preferred.

In addition, as support for this statement, Mr. Swanson referred to the majority decision in Baker v. Canada [1999] 2 S.C.R. 817, where, while speaking of an immigration issue, Justice L'Heureux-Dubé said this about the application of international conventions at paras. 69-71:

69      Another indicator of the importance of considering the interests of children when making a compassionate and humanitarian decision is the ratification by Canada of the Convention on the Rights of the Child, and the recognition of the importance of children's rights and the best interests of children in other international instruments ratified by Canada. International treaties and conventions are not part of Canadian law unless they have been implemented by statute: [1956] S.C.R. 618=">Francis v. The Queen, [1956] S.C.R. 618, at p. 621; Capital Cities Communications Inc. v. Canadian Radio-Television Commission, [1978] 2 S.C.R. 141">[1978] 2 S.C.R. 141, at pp. 172-73. I agree with the respondent and the Court of Appeal that the Convention has not been implemented by Parliament. Its provisions therefore have no direct application within Canadian law.

70      Nevertheless, the values reflected in international human rights law may help inform the contextual approach to statutory interpretation and judicial review. As stated in R. Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994), at p. 330:

     [T]he legislature is presumed to respect the values and principles enshrined in international law, both customary and conventional. These constitute a part of the legal context in which legislation is enacted and read. In so far as possible, therefore, interpretations that reflect these values and principles are preferred. [Emphasis added.]

     The important role of international human rights law as an aid in interpreting domestic law has also been emphasized in other common law countries: see, for example, Tavita v. Minister of Immigration, [1994] 2 N.Z.L.R. 257 (C.A.), at p. 266; Vishaka v. Rajasthan, [1997] 3 L.R.C. 361 (S.C. India), at p. 367. It is also a critical influence on the interpretation of the scope of the rights included in the Charter: Slaight Communications, supra; R. v. Keegstra, [1990] 3 S.C.R. 697.

71     The values and principles of the Convention recognize the importance of being attentive to the rights and best interests of children when decisions are made that relate to and affect their future. In addition, the preamble, recalling the Universal Declaration of Human Rights, recognizes that "childhood is entitled to special care and assistance". A similar emphasis on the importance of placing considerable value on the protection of children and their needs and interests is also contained in other international instruments. The United Nations Declaration of the Rights of the Child (1959), in its preamble, states that the child "needs special safeguards and care". The principles of the Convention and other international instruments place special importance on protections for children and childhood, and on particular consideration of their interests, needs, and rights. They help show the values that are central in determining whether this decision was a reasonable exercise of the H & C power.

[83]            Third, the Act and the Order should be read with an understanding of the reality of international marine trading so as to find harmony, not conflict.

[84]            As Mr. Swanson's argument is all-encompassing, and deals well with Counsel for the Defendants' submissions on the issue of the authority for and enforcement of the detention, I quote it here with some editing for clarity because, in my opinion, it provides the correct interpretation of the relationship between the Act and the Order (Transcript, January 21, 2004, pp.59-76):

MR. SWANSON: That's in large part what the Canada Shipping Act does, but it's specific to Canadian flag vessels. I think as I said yesterday, it would be absurd to read the Canada Shipping Act as somehow regulating non-Canadian flag vessels from a construction, safety and manning perspective, because what that would do then is that would impose Canadian safety, construction, manning and safety standards on ships all around the world flying different flags.

That would be] problematic because that would result in essentially foreign flag vessels boycotting Canada, and that would mean Canada would end up in a situation where unless it had sufficient foreign flag vessels to carry products to and from Canada, we would be in a terrible state economically.

So [the Act] has to be thought of in that context. I know my friend wants you to view the Canada Shipping Act as simply a public safety and health document or legislation. It's not. As the objects clearly state in 1998, an economic transportation system is important to Canada. An ability to get goods to and from Canada is important to Canada.

So we could not and we do not create this regulatory framework where foreign flag vessels coming to Canada have to comply with unique Canadian safety standards. And that's recognized, yet Parliament obviously at some point [said]: Well, we need to have some way of judging the suitability of these foreign flag vessels when they're in our waters. When they're in our waters we certainly have territorial jurisdiction over them. When they're in our waters, we certainly need a mechanism to make sure that they're not flouting the most basic of safety standards.

Well, what is the mechanism? The mechanism is you go to the international framework -- SOLAS, Safety of Life at Sea Convention that Canada is a party to, and you go: Okay, well, basically every country requires vessels coming into their jurisdiction to comply with SOLAS. So what do you look for?    Step 1 is you look to see whether or not the vessel has valid statutory certificates, i.e. certificates under SOLAS.   

The other way of judging safety or gauging safety is ...the classification societies.... We know that these ships are monitored by classification societies. We know that flag states will pay heed to classification society requirements. We know that these statutory certificates will not generally be issued unless it can be shown that the vessel is meeting minimum standards like class.

And the point is, under the Coasting Trade Act , non-Canadian flag vessels cannot coast unless they bring the ship in and register it here, or unless they, for notional purposes, import the ship and pay duty. And I think as Mr. Bernard said, this legislation is legislation that virtually every country in the world has, and it's protective legislation to protect local ship owners to make sure that foreign flag ship owners don't come in and take the work of locals. It really is very much protectionist legislation. But it's protectionist legislation that virtually every country has.

...

[By provision (b) of the definition of "coasting trade" which deals with the carriage of passengers] it's a little more complicated in the context of passengers, but in essence it's the same thing. Foreign flag vessels can't come into Canadian waters and carry passengers to and from Canadian ports. That's the preserve of Canadian flag vessels, unless you as a foreign flag owner come and apply under the Coasting Trade Act, either get exempted -- or you have to get exempted in which case you have to pay duty as if you import the vessel and there's a formula to do that and it costs quite a bit of money. So it's legislation that prohibits foreign flag vessels from doing those things.

Importantly, if you flip the page, you'll see that there's another provision under the definition of Coasting Act and that's (f) and (f) is:

The engaging by ship in any other marine activity of a commercial nature in Canadian waters¼"

So the oil rig, I would suggest, the floating hotel I would suggest.

"¼and with respect to waters above the continental shelf of Canada, and such other marine activities of a commercial nature that are in the relation to the exploration, exploitation or transportation of mineral or non-living natural resources of the continental shelf of Canada."

So coasting is not only moving cargo and moving people back and forth, but it's also coming in a stationary sense and doing work, commercial work, commercial exercises in a stationary sense in Canadian waters. So that rig that comes in, it's a foreign flag vessel, a foreign flag rig, it can't just come in to Canadian waters and start drilling. It can't do it. You have to get an exemption under the Coasting Trade Act, duty pay your vessel and come in and do it.

Similarly I would submit the floating hotel. No different. A foreign flag passenger ship operator could not bring a ship into Vancouver harbour, position it in the harbour and say, "We're just a floating hotel." If they do that, they are coasting.

So when you look at that broad definition of coasting and you go back to the Order, you have to read that broad definition of coasting into s.3(a) because it's the exact same language, it's the exact same wording. And I expect my friend will agree that in comparable legislation if you use the same words -- and there's actually a definition in comparable legislation you go to that definition and you apply that definition.

So "coasting trade" as used there means coasting as defined in the Coasting Trade Act which means that a ship that is a foreign flag vessel which, when you bring into this Section 3 [of the Order] it means a foreign flag vessel that is either carrying cargo from one place in Canada to another place in Canada, it's coasting. A foreign passenger ship carrying people from one place in Canada to another place in Canada, it's coasting. A foreign flag vessel that is stationary such as a drilling rig or a floating hotel, it is coasting. So that (a) captures all of those activities.

So why then do you have (c) to simply reiterate what (a) says? The Defendants would have you interpret "use or operate at a place within Canadian waters", to simply be a restatement of coasting. Well, that's contrary to all general principles of statutory interpretation.

There's another way of looking at it, and that is the principle that legislation should not be construed to promote an absurd result. Well, if you take what the Defendants are saying here, they are saying that a vessel that is a non-Canadian flag vessel that comes into Canada, pays duty, seeks an exemption under the Coasting Trade Act -- it's still coasting but it has authority to do it now -- comes into Canada, carrying passengers to and from one port in Canada to another or is carrying cargo from one port to and from in Canada, that ship, interestingly enough, that's here on a frequent or on a more regular basis, that ship only has to meet the SOLAS and have a valid class certificate [under s.6(a)(i) of the Order. That's what he's saying. That ship, under this regulation, that's all they have to have.

But [the Defendants say] you must interpret this legislation so that the one-off ship, the foreign flag ship that comes here in ballast to come to the Port of Vancouver to load cargo and leave and go to Japan, that ship interestingly enough, is governed by all of Canada's safety laws. That ship must comply with all of the provisions of the Canada Shipping Act.    That's what his argument is suggesting.

It makes no sense. It makes no sense at all. The foreign flag vessel that is here frequently is here performing a regular kind of operation here in Canada, they only have to meet a minimum standard of SOLAS and class [by s.6(a)(i) or (ii) of the Order], but a ship that's here on and-off, it's got this higher stricter regime it has to comply with. It's just nonsensical.    Not only that, and I appreciate that the titles of legislation do not govern, obviously and they do not take precedence over the wording of the legislation itself, but it's pretty hard to ignore the title of this order: "An Order Directing that the Application of Section 110 and Part 8¼" which has been agreed is Part 5, "¼of the Canada Shipping Act be extended to ships registered elsewhere than in Canada."

What my friend wants you to accept is that when Parliament enacted this regulation, Parliament was intending to apply the provisions of the Canada Shipping Act to all ships that ever come into Canada, except they won't for those that are coasting. It just doesn't make any sense.

And there's another way of dealing with this, My Lord, and that is that interpretation that my friend wants to place on it, I submit, is inconsistent with SOLAS itself. It's inconsistent with the MOU to the extent that that is an important document in trying to interpret something like this. You have to look, I submit, at "used or operated" [in s.3(c) of the Order] not only in the context of the Canada Shipping Act but again -- and there can be no doubt that this particular document is a document that has an international law flavor. The "Safety Convention" [referred to in s.2 of the definition section of the Order] is in fact defined as the International Convention for the Safety of Life at Sea, 1960.    When this regulation was implemented, they were aware of SOLAS, 1960 and they were legislating specifically in respect of SOLAS, 1960.

So you have to go to SOLAS and [ask], "Okay, well, how does this fit?" And you have to ask how does the defendant's interpretation of this fit with the international legal framework in existence. It doesn't fit.

And I'd like to refer you to [a provision of SOLAS] where I say their interpretation results in an inconsistency--I'm at Volume 13, tab 47, page 29, Regulation 19A:

"Every ship when in a port of another party is subject to control by officers duly authorized by such government insofar as this control is directed towards verifying that the certificates issued under Regulation 12 or Regulation 13 of this Chapter are valid."

That's exactly what the Non-Canadian Ship Safety Order says if you ascribe to the interpretation that we're advancing. It's completely at odds with the interpretation that the defendant is advancing.

So just reverting back to Baker, you've got two possible interpretations to "used or operate" [in s.3(c) of the Order]. My friend's which I think is a restrictive, narrow interpretation that creates more uncertainty and absurdity than it creates clarity or harmony. And that interpretation is clearly contrary to what the obligations, the international treaty obligations Canada has agreed to.

Our interpretation is, a foreign flag vessel like the LANTAU PEAK is being "used or operated" when it is here in Vancouver for the purpose of loading cargo. That's what it came here for, it came here to be used. It didn't just come here for -- to have repairs done. So when it came here it fits within 3 (c) [of the Order], it is a foreign flag vessel, it therefore need only comply with Section 6 [of the Order]. Section 6 says if you've got valid certificates, away you go. If you are in class, you comply with Part 5 of the Canada Shipping Act.

So I submit the only proper interpretation that can be given to that Order is the interpretation that we advanced. The one encouraged by my friend really just creates more confusion and uncertainty and disharmony than anything else.

[85]       In my opinion, the Defendants have failed to meet the harmony argument in any serious way. It is not enough to say, as the Defendants have, that the argument cannot be based on correct analysis because it would mean that the many detentions made under the purported authority of s.310 have been unauthorized. There is no question that there have been detentions, but it seems that the actual authority to do so has not been questioned until now.

[86]            Quite apart from s.310, if there is a need to detain a ship, in my opinion, there is ample authority to do so. When pressed by me in the course of oral argument to test the strength of the argument against the possible application of s.310, Mr. Swanson made the suggestion that the authority of SOLAS might be the basis of the authority:

THE COURT:      What about the argument that certificates be issued at a certain point of time and then subsequently something dramatic happens to the vessel or it's substantially in an unsafe condition and it comes into port? It has the certificates all right.

MR. SWANSON:      I don't have a lot of trouble with the concept that if a ship is clearly not in compliance with the certificates then there's an ability to look at it and deal with it under SOLAS.

THE COURT:      SOLAS or the Canada Shipping Act?

MR. SWANSON:      Well, you don't get to just apply the Canada Shipping Act. It's still governed by SOLAS because this talks about a valid cargo ship safety construction certificate. It doesn't say Part 5 will apply even though you have a valid safety construction certificate but concerns are raised about whether or not it's truly reflective of the condition of the vessel. You still are stuck with SOLAS.    They don't get then to apply some unique Canadian standard. They never do.

And it would make no sense to suggest that they should be able to apply a unique Canadian standard.

THE COURT:      So in that instance, the Canada Shipping Act Section 310 would not apply in your submission.

MR. SWANSON:     It's hard to reconcile the Order which says for foreign flag vessels if you have a valid certificate or your vessel is in class then you are deemed to comply. In relation to hull and machinery. It's not for all purposes. It's in relation to hull and machinery deemed to comply with Part 5.

It's hard to take that extension of the Canada Shipping Act to foreign flag vessels and then read it in a broader way and say: In addition we're going to apply 310.

There's another way to look at this and that is we're not saying that a ship that limps into town that happens to have valid certificates on it cannot be looked at, cannot be examined and cannot be dealt with. That's not what happened here. What happened here was two inspectors boarded a ship. Two inspectors then, in their mind, had no regard for classification society rules. They boarded and they were of the view, "We couldn't care less what class says. Class is irrelevant to our determination." And that's the problem, they got off on the wrong foot from the get-go. From the very beginning they started down a road they should have never gone down.

[87]            I find the argument has weight. As in the present case, if the reasons for a detention are pursuant to the non-binding provisions of SOLAS through voluntary recognition of international convention obligations, why can't the detention itself be on the basis of the same recognition? I can see no reason, except for the argument that a hypothetical ship owner might not agree and argue that there is no legal authority to detain. The counter to this argument is the cooperation expected under the MOU. In such a case, and indeed in the present case, it is possible to view the MOU as the "enforcement" mechanism. While the preamble to the MOU specifically states that it "is not a legally binding document and is not intended to impose any legal obligation on any of the Authorities", nevertheless, it has proved to be an effective enforcement tool.

[88]            For example, Captain Koo felt he had to agree to repair the Vessel as demanded by the Defendants because were he to refuse, because of the strong communication links between parties to the MOU, the Vessel would be detained upon arrival in another MOU port.

[89]            In addition, the Vessel's flag state Malaysian authorities did not question the jurisdiction of Canada to detain the Vessel under the port state control program of the MOU.

[96]            The Agreed Statement of Facts establishes that Inspectors Warna and Hall are servants of the Crown as follows:

6. Her Majesty the Queen in Right of Canada, as represented by the Minister of Transport at material times, was in 1997 the employer of the Defendants B.S. Warna and D.A. Hall all of whom had an office at 800 Burrard Street, in the City of Vancouver, in the Province of British Columbia.

7. The Defendants B.S. Warna and D.A. Hall were, in 1997, employed by the Department of Transport as steamship inspectors pursuant to the provisions of Part V of the Canada Shipping Act, R.S.C. 1985, c. S-9 and were stationed in the Port of Vancouver, British Columbia.

There is no dispute that Mr. Nelson, Mr. Streeter, and Mr. Day are servants of the Crown.

As a defence to their potential liability for negligence, the Defendants' written opening statement expresses a number of reasons for why the Plaintiffs' claim should fail (Argument of the Attorney General of Canada (AAG), pp.1-2):

Should this Honourable Court find in favour of the Plaintiffs the objectives of the Canada Shipping Act ("the Act") the Bulk Carrier Inspection Regime, the Paris and Asia-Pacific (Tokyo) Memorandae [sic] of Understanding on Port State Control, the International Convention for the Safety of Life at Sea, 1974 ("SOLAS") and other conventions, all of which have the objectives of protecting human life and the environment, will be undermined.

No act or omission of the Crown or its servants can give rise to liability in tort unless (1) it is committed without legal authority, and (2) it is a tort. Neither condition being present, the Plaintiffs cannot succeed in this action brought in negligence. Hogg and Monahan, Liability of the Crown, 3^rd ed., (2000) at p. 136, 138.

A Steamship Inspector ("Inspector") owes no private law duty of care to a shipowner. The objectives of the Act are to protect private and public interests from shipowners not to confer a private law remedy upon shipowners. Parliament has provided an appeal mechanism to review the decisions of Messrs. Hall, Warna and Streeter. In hearing an appeal from the decision of the Inspectors Mr. Bud Streeter, Chairman of the Board of Steamship Inspection performed a quasi-judicial function; accordingly the law of negligence has no applications in the circumstances. Parliament did not contemplate an appeal from these decisions to the Court on the merits. There are compelling public policy reasons for not imposing on Inspectors a private law duty of care to shipowners.

Parliament has, through the enactment of Section 310 of the Act, ordered an Inspector ("Inspector") to detain a ship if the Inspector considers the ship unsafe. Such a decision is a subjective not an objective determination. This Court has no jurisdiction to substitute an objective determination of whether the Lantau Peak is safe or not for the subjective test enacted by Parliament.    Nonetheless there are compelling reasons to find objectively that the decisions of Messrs. Warna and Streeter were reasonable.

[97]            Further arguments made by the Defendants respecting the impact of s.310 are as follows (AAG, p.150, 154):

The safety of the "Lantau Peak" and thus the merits of the detention cannot be determined by judicial decree. Neither can the acceptability of risks associated therewith. Parliament has entrusted these matters to be subjectively decided by Transport Canada officials not the Court. While science and technology may, in theory at least, assess and estimate overall risk, the acceptability of the measured risk is a subjective determination. Parliament has, in its wisdom, decided to confer the decision as to the acceptability of the risks associated with the "Lantau Peak" sailing to Shanghai to the Inspectors initially and on appeal to the Chairman and the Minister. Accordingly, such issues are not suitable for determination by this Honourable Court and therefore are not justiciable.

and

Parliament would have been aware that economic loss is the inevitable result of the detention of a ship under Section 310 of the Act. A shipowner's remedies are restricted to those set forth in the Act and judicial review of the Minister's decision. Section 307 provides for the Minister to "finally decide the matter" and accordingly no private law remedy in negligence is contemplated by the Act.. There being no provision for compensation for ships detained under Section 310 of the Act the Plaintiffs must bear their own loss.

[98]            Thus, the Defendants present a mix of arguments to defend against the Plaintiffs' claim of liability; some are based on the application of s.310 of the Act, while others deal directly with the law of tort.

[99]            Since in Section II of these reasons I have found that s.310 was not the authority for the detention, I dismiss all of the Defendants' arguments based on the statutory authority of s.310. In my opinion, the Defendants cannot raise the "legal authority" argument with respect to the detention under the MOU. It is common ground that the MOU is merely a non-binding agreement between governmental departments of the signatory states. On this basis, I find that, as the MOU does not have the force and effect of law, it cannot be considered a "legal authority" to detain a ship. Nevertheless, it is the authority under which the Lantau Peak was detained.

[100]        The substantive tort arguments are dealt with later in this Section.

A. The basis for the action

[101]        The Plaintiffs have made it clear that they are not bringing this action in negligence directly under either the MOU or SOLAS. That is, while these instruments working together provide the authority for the detention, the right to sue for negligence does not rely on the provisions of either instrument. The Plaintiffs argue that maritime common law provides the right.

[102]        In Mr. Swanson's reply argument quoted above, an important point made is that, in the application of the Non-Canadian Ships Safety Order, in a situation where a ship's certificates are not truly reflective of the condition of the vessel, the provisions of SOLAS authorize a steamship inspector to go beyond the certificates and to require certain repairs to be conducted. Indeed, Regulations 19(b) and (c) of SOLAS speak to this issue:

19(b)                    Such certificates, if valid, shall be accepted unless there are clear grounds for believing that the condition of the ship or of its equipment does not correspond substantially with the particulars of any certificates or that the ship and its equipment are not in compliance with the provisions of regulation 11(a) and (b) of this chapter.

19(c )                   In the circumstances given in paragraph (b) of this regulation or where a certificate has expired or ceased to be valid, the officer carrying out the control shall take steps to ensure that the ship shall not sail until it can proceed to sea or leave the port for the purpose of proceeding to the appropriate repair yard without danger to the ship or persons on board.

[103]        Given the finding that the MOU, with reliance on SOLAS, was the authority for the detention in the present case, the MOU provides the authority to take the action stated in Regulations 19(b) and (c) of SOLAS. The standard of care in taking this action is stated in Regulation 19(f) of SOLAS as follows:

19(f)                     When exercising control under this regulation all possible efforts shall be made to avoid a ship being unduly detained or delayed. If a ship is thereby unduly detained or delayed it shall be entitled to compensation for any loss or damage suffered.

[104]        In my opinion, by becoming an Authority to the MOU, Canada has agreed to respect this standard of care. However, the MOU is careful to state that the MOU "is not a legally binding document and is not intended to impose any legal obligation on any of the Authorities"; this means that an Authority cannot be sued directly under the MOU for breach of an agreement to respect a standard of care. Indeed, as stated, the Plaintiffs make it clear that they are not attempting to do so in bringing this action. Essentially, by bringing this action the point being made is that the proviso in the MOU does not mean that an Authority is unaccountable for its actions in detaining a ship under the MOU; the Authority and its servants are still liable for negligent conduct as a matter of maritime common law.

B. The test for negligence

[105]        The most recent statement from the Supreme Court of Canada of the test for negligence is found in Odhavji Estate v. Woodhouse, (2003) S.C.C. 69. Justice Iacobucci confirms at para. 44 that, for an action in negligence to succeed, a plaintiff must be able to establish three things: that the defendant owed the plaintiff a duty of care; that the defendant breached that duty of care; and that damages resulted from that breach. With respect to the duty of care, he goes on to elaborate as follows:

45      It is a well-established principle that a defendant is not liable in negligence unless the law exacts an obligation in the circumstances to take reasonable care. As Lord Esher concluded in Le Lievre v. Gould, [1893] 1 Q.B. 491 (C.A.), at p. 497, "[a] man is entitled to be as negligent as he pleases towards the whole world if he owes no duty to them". Duty may therefore be defined as an obligation, recognised by law, to take reasonable care to avoid conduct that entails an unreasonable risk of harm to others.

46     It is now well established in Canada that the existence of such a duty is to be determined in accordance with the two-step analysis first enunciated by the House of Lords in Anns v. Merton London Borough Council, [1978] A.C. 728, at pp. 751-52:

_____First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter -- in which case a prima facie duty ofcare arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise.

      See for example [1984] 2 S.C.R. 2">Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2; B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228 ; Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021 ; London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299 ; Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85 ; and Cooper v. Hobart, [2001] 3 S.C.R. 537 , 2001 SCC 79">2001 SCC 79.

47     The first stage of analysis, then, demands an inquiry into whether there is a sufficiently close relationship between the plaintiff and defendant that the defendant owes to the plaintiff a prima facie duty of care. The question of when such a duty arises is one with which this Court and others have repeatedly grappled since Lord Atkin enunciated the neighbour principle in Donoghue v. Stevenson, [1932] A.C. 562 (H.L.), at p. 580:

     The rule that you are to love your neighbour becomes in law you must not injure your neighbour; and the lawyer's question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be -- persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.

     As eloquently observed by Professor J. G. Fleming, this passage is a sacrosanct preamble to judicial disquisitions on duty, yet contains a fateful ambiguity: The Law on Torts (9th ed. 1998), at p. 151. More specifically, does the reference to persons so closely and directly affected by the conduct in question that the defendant ought reasonably to have had them in contemplation conflate foreseeability of harm and duty? Or does it require something in addition to foreseeability of harm?

48      In Cooper, supra, the Court clearly stated that the latter approach is the correct one. At para. 29 of their joint reasons, McLachlin C.J. and Major J. stated that there must be reasonable foreseeability of harm "plus something more". At para. 31, they concluded that this "something more" is proximity: in order to establish that the defendant owed the plaintiff a duty of care, the reasonable foreseeability of harm must be supplemented by proximity. It is only if harm is a reasonably foreseeable consequence of the conduct in question and there is a sufficient degree of proximity between the parties that a prima facie duty of care is established. The question that thus arises is what precisely is meant by the term proximity.

49      McLachlin C.J. and Major J. concluded, at para. 32, that the term proximity, in the context of negligence law, is used to describe the type of relationship in which a duty of care to guard against foreseeable harm may rightly be imposed. As this Court stated in Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 , at para. 24:

     The label "proximity", as it was used by Lord Wilberforce in Anns, supra, was clearly intended to connote that the circumstances of the relationship inhering between the plaintiff and the defendant are of such a nature that the defendant may be said to be under an obligation to be mindful of the plaintiff's legitimate interests in conducting his or her affairs.

50      Consequently, the essential purpose of the inquiry is to evaluate the nature of that relationship in order to determine whether it is just and fair to impose a duty of care on the defendant. The factors that are relevant to this inquiry depend on the circumstances of the case. As stated by McLachlin J. (as she then was) in Norsk, supra, at p. 1151, "[p]roximity may be usefully viewed, not so much as a test in itself, but as a broad concept which is capable of subsuming different categories of cases involving different factors" (cited with approval in Hercules Managements, supra, at para. 23; and Cooper, supra, at para. 35). Examples of factors that might be relevant to the inquiry include the expectations of the parties, representations, reliance and the nature of the property or interest involved.

51        The second stage of the Anns test requires the trial judge to consider whether there exist any residual policy considerations that ought to negative or reduce the scope of the duty or the class of persons to whom it is owed. In Cooper, McLachlin C.J. and Major J. wrote, at p. 554, that this stage of the analysis is not concerned with the relationship between the parties but, rather, with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally. At this stage of the analysis, the question to be asked is whether there exist broad policy considerations that would make the imposition of a duty of care unwise, despite the fact that harm was a reasonably foreseeable consequence of the conduct in question and there was a sufficient degree of proximity between the parties that the imposition of a duty would not be unfair.

C. The application of the Anns test

[106]        To determine whether the Defendants owed a duty of care to the Plaintiffs respecting the detention of the Lantau Peak, the analysis now turns to three questions identified by Justice Iacobucci at para. 52 of Odhavji: a positive answer is required to the first two, and a negative answer is required to the third in order to find a duty of care.

1.        Is the harm complained of a reasonably foreseeable consequence of the alleged breach?

[107]        I agree with the Plaintiffs' argument that there can be no doubt that each of Inspectors Warna and Hall, Captain Nelson, and Mr. Streeter knew that, by the detention, the Vessel would be losing income and that the cost differential for repair work in China instead of Canada was significant. On this basis there is also no doubt that the harm complained of in the present case, being the additional repair expenses, off-hire losses, and related damages, were reasonably foreseeable if it is concluded that the detention was done negligently.

2.        Is there sufficient proximity between the parties that it would not be unjust or unfair to impose a duty of care on the Defendants?

[108]        Odhavji is a case which dealt with a situation where a person was fatally shot by police officers, the police officers involved did not comply with statutory obligations to cooperate in an internal investigation of the incident, and, in addition to other claims made, the family of the deceased sued the police chief claiming mental distress as a result of his negligent failure to ensure that members of his force carry out their duties as required by law. In evaluating this claim, Justice Iacobucci made this statement at para. 55 with respect to proximity:

55       The next question that arises is whether there is sufficient proximity between the parties that a duty of care may rightly be imposed on the Chief. It may be that the appellants can show that it was reasonably foreseeable that the alleged misconduct would result in psychiatric harm, but foreseeability alone is an insufficient basis on which to establish a prima facie duty of care. In addition to showing foreseeability, the appellants must establish that it is just and fair to impose on the Chief a private law obligation to ensure that the defendant officers cooperated with the SIU. A broad range of factors may be relevant to this inquiry, including a close causal connection, the parties' expectations and any assumed or imposed obligations. See for example Norsk, supra, at p. 1153; Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860 , 2000 SCC 60">2000 SCC 60, at paras. 51-52; and Cooper, supra, at para. 35.

[109]        With Justice Iacobucci's statements in mind, the Plaintiffs make the following carefully focussed argument on proximity:

Unlike in the Odhavji case, there is no doubt the requisite proximity exists in this case by reason of the direct causal link between the misconduct of the Defendants and the harm in question. More specifically, the wrongful detention clearly caused the loss of use of the Vessel and hence the economic consequences that flow from that loss of use. Put another way, but for the actions of Mr. Warna and Mr. Hall in issuing a detention order the Vessel would have repaired the frames in holds 3 and 9 as originally anticipated and would have sailed fully laden with a cargo destined for Japan. Because, however, Mr. Warna and Mr. Hall detained the Vessel that could not take place. Because, Her Majesty failed in the course of the appeal process to either move that appeal along quickly or to ultimately overrule the decision of the inspectors, further losses were suffered in the form of greater expense to perform hold frame replacement work in Vancouver.

It is therefore submitted that the question of proximity is more than just satisfied in this case. This is a very clear case. Mr. Warna and Mr. Hall actually met with the Plaintiff, through various representatives on numerous occasions, as did Mr. Nelson and others. Mr. Warna and Mr. Hall knew full well the consequences of their actions. Similarly, Mr. Streeter knew full well that every day he allowed to pass through either inaction or indecision the Plaintiffs' losses mounted. It is, quite frankly, hard to conceive of a case with a greater causal connection.

...

Regarding the Parties' expectations, it goes without saying that the Plaintiffs did not expect their Vessel to be detained without just cause. Mr. Streeter, himself, expected ships would not be detained without proper cause. He also expected a minimum level of inspection which was clearly not carried out. Indeed SOLAS contemplates that ships will not be "unduly" detained. Clearly those expectations existed, but were not met in this case. (PCA, pp.64-65)

On the other hand, the Defendants make the following wide-ranging statement about proximity:

Contrary to the Plaintiffs' submissions (pp. 63-64) the issue of causation has nothing to do with the determination of proximity.

The Crown stands in equal proximity to all citizens where legislation is enacted in the general interest of the public as opposed to a certain class of the public. In the case at bar, the onus is on the Plaintiffs to establish unique and special circumstances to create a legal right arising from the Act.

Inspectors are sworn to carry out their statutory public duties impartially in the public interest. They do not have any or a sufficiently close relationship with shipowners to warrant the imposition of a duty of care. Other factors suggest Parliament did not intend to impose a duty of care. The inspection services set forth in the Act mirror similar services provided in other federal and provincial statutes designed to promote public health and safety e.g. transportation, food and drugs. Nothing in the Act suggests Parliament intended to impose a duty of care upon those public servants whose public law inspection and investigatory duties protect the safety of all seamen and the marine environment.

To find proximity and a duty of care to shipowners would create a potential conflict with other parties exposed to greater risks and irreparable harm. Shipowners have a non-delegable duty to keep their ships seaworthy. Of all the parties at risk, shipowners are the least in need of and deserving the protection under by the Act.

There was no reliance whatsoever by the Plaintiffs on the Inspectors. The parties did not know each other until the "Lantau Peak" was detained. No reliance is pleaded; no representations are alleged. No advice was given. There was no contractual relationship. (AAG, p.93)

I give weight to the Plaintiffs' argument since it is directly responsive to the suggested test set out in Odhavji by Justice Iacobucci and deals accurately with the features underpinning the detention of the Vessel.   

[110]        I find that the MOU is the principle feature which establishes proximity. The agreement to establish a Port State Control process creates a close causal connection between an inspection and any harm that results from an inspection. Under the MOU, with particular reference to Regulation 19(f) of SOLAS, the parties have an expectation that inspections will be conducted in such a way so as not to cause undue detention or delay. In addition, by Regulation 19(b), "clear grounds" are required to go beyond valid certificates to initiate detailed inspections. These expectations impose an obligation on inspectors to take specific care in carrying out inspections.

[111]        In my opinion, there is nothing unjust or unfair in the imposition of a duty of care on the Defendants given that Canada has agreed to be an Authority under the MOU.

3. Are there policy reasons to negative or otherwise restrict the duty found?

[112]        The Defendants provide a number of reasons to negative any duty on steamship inspectors as follows:

Policy reasons for not imposing a duty of care on Inspectors exercising their statutory duties under Section 310 include the following:

a.        Recognition of a duty of care would undermine enforcement of the Bulk Carrier Inspection Regime, Port State Control and Canada's international obligations generally, particularly the International Convention for the Safety of Life at Sea, 1974 (SOLAS).

b.        Shipowners are not within the class of persons for whose protection the legislative scheme has been established. The Act is designed to protect private and public interests from negligent shipowners. Parliament did not enact the provisions of the Steamship Inspection Service of the Act to protect the economic interests of shipowners. Clearly Parliament's intention was to make the protection of seamen and the marine environment prominent objectives.

c.        Recognition of a duty of care would create the spectre of an unlimited liability to an unlimited class of shipowners. Indeed Parliament must have been alert to the fact the detention of a vessel would, of necessity, cause economic loss to a shipowner but decided not to provide compensation, as provided for in Sections 392 and 397 of the Act to shipowners whose vessels are detained under Section 310 of the Act. If a duty of care is owed to shipowners, those in no need of the Act's protection, it's difficult to argue against a private law duty to seamen, cargo owners, charterers, and owners of recreational properties that might be damaged by oil pollution. Such unlimited financial exposure could not have been intended by Parliament.

d.        Recognition of a duty of care to shipowners would conflict with the duties Inspectors owe to the public generally and the objectives of the Act.

e.        It would not be fair, just and reasonable, indeed it would be contrary to the principles of common sense and reason, to reward or compensate owners of substandard ships for their lack of diligence and breach of their non-delegable duty to keep their vessels seaworthy. Surely Inspectors should have no duty to protect a shipowner from its own imprudence.

f.         Recognition of a duty would create an insurance scheme funded by Canadian taxpayers who did not agree to assume the risk of private loss to owners of substandard ships.

g.        The Act already provides the shipowner a remedy. Parliament intended the decisions of Inspectors and Port Wardens to be reviewed as provided for in the statute [Section 308] and not otherwise. While the Minister has the final say as to the continued detention of the vessel, the Minister's decision is subject to judicial review.

h.        Parliament did not intend to expose Inspectors executing public duties to private law negligence claims or to permit a collateral challenge to the merits of their decision through an action brought in negligence.

i.        It would not be fair, just and reasonable to impose a private law duty of care on Inspectors charged by Parliament with a public duty of inspecting ships with a view to promote safety at sea. This is particularly appropriate when the Inspectors are personally tasked with enforcing the will of Parliament.

j.        Inspectors must take into account a variety of complicated and technical considerations in forming their opinions and making decisions on matters about which reasonable persons may differ. It would be detrimental to the administration of the Act to impose a duty of care to shipowners in the circumstances.

k.        Shipowners have a non-delegable duty to keep their ships in a seaworthy condition. It would not be fair, just and reasonable to superimpose a common law duty on a statutory framework and international agreements designed to discourage substandard shipping throughout the world.

l.         To impose a duty of care in this case would be to encourage innumerable lawsuits to the detriment of the administration, enforcement and attainment of the Act's objectives. The attainment of the Act's objectives would be obstructed by the diversion of resources to defend lawsuits brought by foreign shipowners who have been the author of their own misfortune.

m.       There is an adequate supervision, control and an appeal process to review the decisions of Inspectors. Imposing a duty of care would not improve the quality of inspections but would be detrimental to achieving the Act's objectives.

n.        To extend the law of tort to the supervision, on the merits, of an Inspector's inspection and detention of a ship, and inevitably the inspections provided for by in other health and safety related statutes and regulations, would require the courts to sit in review of significant regulatory functions. Courts would potentially become involved in assessing the merits of decisions made by public health and safety Inspectors thus drawing the courts into complex areas of decision making with which the courts are ill-equipped to deal. Provided Inspectors and other public officers act within the scope of their powers and for a proper purpose, their decisions ought not to be eroded through the extension of tort law theory.

o.       The chilling effect of imposing a private law duty of care and the threat of litigation following therefrom would naturally result in Inspectors carrying out their duties in a defensive frame of mind to the detriment of achieving Parliament's objectives of promoting safety at sea.

[113]        As is evident, the focus of the argument is on s.310 of the Act. In my view the argument lacks weight, not just because I have found that s.310 was not the authority for the detention of the Vessel, but because there is no recognition or analysis of a very critical feature at the base of the detention, being the Port State Control regime instituted by the MOU. This feature is well dealt with by the Plaintiffs as follows:

The third question is whether there exists any policy reason to negative or otherwise restrict that duty. It is respectfully submitted that there is no such policy reason to negative or otherwise restrict the duty. Indeed the right of the inspectors to board the Vessel and conduct Port State Control inspections flows from the MOU in question. Prior to that MOU steamship inspectors did not conduct such inspections.

It was only once the MOU was in place that steamship inspectors began conducting the types of inspections in question. They did that with full knowledge of the SOLAS obligation to compensate owners for wrongful detention. In light of that legislative and international legal framework it is hard to conceive of circumstances from a policy perspective that would justify Canadian inspectors and the Canadian government being immune from claims such as the one being advanced in this case. Any such policy would be contrary to Canada's international obligation as recognized in SOLAS which would be contrary to the general principle that Canadian law should be interpreted consistently with Canadian international obligations, and in the context of maritime law international conventions should be considered when assessing the development of the common law. (See Driedger on the Construction of Statutes (3^rd ed., Toronto) at 330 and Ordon Estate v. Grail, [1998] 3 S.C.R. 437 at pp. 494-495).

To put it another way it would be contrary to Canada's international legal obligations to have a policy (rather than a law) that bars recovery by a shipowner of damages for wrongful detention in light of the SOLAS obligation found at Ch. 1, reg. 19(f). ...

It is submitted there are no possible policy reasons to negative or otherwise restrict the duty owed by the Defendants to the Plaintiffs in this case.

[114]        I accept the Plaintiffs' argument and I find that there are no policy reasons to negative or otherwise restrict the duty found. It is clear that the Authorities to the MOU agree that the safety of the ships of their flags are their joint responsibility. However, there is certainly no agreement that this responsibility can be carried out in a negligent manner. To the contrary; there is an explicit understanding that, if a flag state is negligent in its conduct, it should expect to be held accountable.

[115]        With respect to the imposition of a duty of care, an issue which received some attention is whether the decision to detain is a policy decision as opposed to an operational decision. This issue arose because of recognition of the principle that the standard of negligence applied by the courts in determining whether a duty of care has been breached cannot be applied to a policy decision , but it can be applied to an operational decision (see: Just v. British Columbia, [1989] 2 S.C.R. 1228 at pp.1239-1243). In my opinion, there is no question that the detention of the Lantau Peak was an operational decision as a measure of Post State Control established by the MOU.

C. Conclusion

[116]        As a result, I find that the answer to the question is "yes"; an action in negligence does lie against the Defendants for their conduct in detaining the Vessel

                                  IV. The Proof Question:

                          Were Inspectors Warna and Hall,

                                    and their supervisors,

                       negligent in the conduct of their duties

             with respect to the inspection of the Lantau Peak?

[117]        The Plaintiffs allege negligence on the part of the Defendants with respect to three key features of the detention of the Lantau Peak: the reasons for detention; the time that passed before the release of the Vessel; and the terms of release. The gauge for deciding that the Defendants were negligent is based on a comparison of their conduct with the standard of care they had to meet.

[118]        The Supreme Court of Canada has set the general standard of care in Ryan v. Victoria (City), [1999] 1 S.C.R. 201 where Justice Major at paragraphs 28 and 29 says as follows:

Conduct is negligent if it creates an objectively unreasonable risk of harm. To avoid liability, a person must exercise the standard of care that would be expected of an ordinary, reasonable and prudent person in the same circumstances. The measure of what is reasonable depends on the facts of each case including the likelihood of a known or foreseeable harm, the gravity of that harm, and the burden or cost which would be incurred to prevent the injury. In addition, one may look to external indicators of reasonable conduct, such as custom, industry practice, and statutory or regulatory standards.

[Emphasis added]

[119]        Thus, it is first necessary to determine the standard of care that might be expected of an ordinary, reasonable and prudent person in the same circumstances as the Defendants with respect to each of: the reasons for detention; the time that passed before the release of the Vessel; and the terms of release.

[120]        The starting point for establishing the general standard of care to apply to the specific circumstances of the Port State Control detention of the Lantau Peak is not difficult; the standard of conduct for this practice in the Asia-Pacific shipping industry is established by the MOU. That is, while the present action is not being brought directly under the provisions of the MOU but, instead, for the tort of negligence in maritime common law, and while a failure to meet the expectations for conduct set out in the MOU does not necessarily prove negligence, the MOU must still be carefully considered in the process of establishing the standard of care required of a detention made under its authority.

[121]        As already mentioned in Section II respecting a detention under the authority of the MOU with reliance on SOLAS, industry practice for the standard of care is generally stated in Regulation 19(f) of SOLAS:

(f)       When exercising control under this regulation all possible efforts shall be made to avoid a ship being unduly detained or delayed. If a ship is thereby unduly detained or delayed it shall be entitled to compensation for any loss or damage suffered.

[122]        In order for an inspector acting under the MOU to avoid a ship being unduly detained or delayed, it is necessary for an inspector to understand what constitutes due detention and delay. Direction on this issue is found in certain provisions of the MOU itself which are quoted in Section II above and will be further referred to here, and in the guidelines provided in the Asia-Pacific Port State Control Manual, published by the Tokyo MOU Secretariate ("the Manual"). It is agreed that what is behind Tab 219 of Vol.6 of the trial record is the MOU and relevant portions of the Manual applicable from the time of detention until the Vessel's release.

A. The reasons for detention

1. The standard of care

[123]        Section 2.2 of the MOU provides that, in the application of SOLAS and other of the shipping safety Conventions, each Authority to the MOU "will be guided by the standards specified in chapter 3 of the Manual".

[124]        Chapter 3 of the Manual, adopted on November 23, 1995, is a highly detailed statement of expectations in the operation of Port State Control under the MOU. Section 1.1 reads as follows:

This document is intended to provide basic guidance on conduct of port State control inspections and afford consistency in the conduct of these inspections, the recognition of deficiencies of a ship, its equipment, or its crew, and the application of control procedures (Vol.6, Tab 219, p.1862).

[125]        Section 1.4 provides that, under SOLAS and other of the conventions "the authorities of port States should make effective use of these provisions for the purposes of identifying deficiencies, if any, in such ships which may render them substandard (see 4.1), and ensuring that remedial measures are taken".

[126]        Section 3.1 of the MOU, in part, states that, in the carrying out of a Port State Control inspection, "if there are clear grounds for believing that the crew or the condition of the ship or its equipment does not substantially meet the requirements of a relevant instrument...a more detailed inspection will be carried out. Inspections will be carried out in accordance with the Manual".

[127]        With reference to the meaning of "clear grounds" as used in s.3.1 of the MOU, s.3.2.1.1 says that "the authorities will regard as 'clear grounds'...indications of serious deficiencies, having regard in particular to the Manual". Section 3.2.2 of the MOU makes reference to s.2.3 of Chapter 3 of the Manual for examples of "clear grounds" to conduct a more detailed inspection.

[128]        Section 2.3 of the Manual referred to in s.3.2.2 of the MOU is part of a general statement of expectations respecting inspection as follows:

2.2      INSPECTIONS

2.2.1 In the pursuance of control procedures under the applicable conventions, which, for instance, may arise from information given to a port State regarding a ship, a PSCO may proceed to the ship and before boarding gain, from its appearance in the water, an impression of its standard of maintenance from such items as the condition of its paintwork, corrosion or pitting or unrepaired damage.

2.2.2 At the earliest possible opportunity the PSCO should ascertain the year of build and size of the ship for the purpose of determining which provisions of the conventions are applicable.

2.2.3 On boarding and introduction to the master or the responsible ship's officer, the PSCO should examine the vessel's relevant certificates and documents, as listed in appendix 4.

2.2.4 If the certificates are valid and the PSCO's general impression and visual observations on board confirm a good standard of maintenance, the PSCO should generally confine the inspection to reported or observed deficiencies, if any.

2.2.5 If, however, the PSCO from general impressions or observations on board has clear grounds for believing that the ship, its equipment or its crew do not substantially meet the requirements, the PSCO should proceed to a more detailed inspection, taking into consideration chapter 3.

2.3     CLEAR GROUNDS

"Clear grounds" to conduct a more detailed inspection include:

.1    the absence of principal equipment or arrangements required by the conventions;

.2    evidence from a review of the ship's certificate that a certificate or certificates are clearly invalid;

.3    evidence that the ship's logs, manuals or other required documentation are not on board, are not maintained, or, are falsely maintained;

.4    evidence from the PSCO's general impressions and observations that serious hull or structural deterioration or deficiencies exist that may place at risk the structural, watertight or weathertight integrity of the ship;

.5    evidence from the PSCO's general impressions or observations that serious deficiencies exist in the safety, pollution prevention, or navigational equipment;

.6    information or evidence that the master or crew is not familiar with essential shipboard operations relating to the safety of ships or the prevention of pollution, or that such operations have not been carried out;

.7    indications that key crew members may not be able to communicate with each other or with other persons on board;

.8    absence of an up-to-date muster list, fire control plan, and for passenger ships, a damage control plan;

.9    the emission of false distress alerts not followed by proper cancellation procedures;

.10 receipt of a report or complaint containing information that a ship appears to be substandard. [Emphasis added]

Of particular importance is s.2.3.4. I find that this provision gives clear direction to an inspector on two points: that "clear grounds" to conduct a more detailed inspection arise when it is determined on a cursory inspection that serious hull or structural deterioration or deficiencies exist", and by implication, if this is not the determination, no more detailed inspection is required.

[129]        The following provisions of Chapter 3 of the Manual are also important.

2.6      GENERAL PROCEDURAL GUIDELINES FOR PSCOs

2.6.1 PSCO should use professional judgement in carrying out all duties, and consider consulting others as deemed appropriate.

2.6.2 When boarding a ship, the PSCO should present to the master or to the representative of the owner, if requested to do so, the PSCO identity card. This card should be accepted as documented evidence that the PSCO in question is duly authorized by the Administrator to carry out port Sate control inspections.

2.6.3 If the PSCO has clear grounds for carrying out a more detailed inspection, the master should be immediately informed of these grounds and advised that, if so desired, the master may contact the Administration or, as appropriate, the recognized organization responsible for issuing the certificate and invite their presence on board.

2.6.4 In the case that an inspection is initiated based on a report or complaint, especially if it is from a crew member, the source of the information should not be disclosed.

2.6.5 When exercising control, all possible efforts should be made to avoid a ship being unduly detained or delayed. It should be borne in mind that the main purpose of port State control is to prevent a ship proceeding to sea if it is unsafe or presents an unreasonable threat or harm to the marine environment. The PSCO should exercise professional judgement to determine whether to detain a ship until the deficiencies are corrected or to allow it to sail with certain deficiencies, having regard to the particular circumstances of the intended voyage.

2.6.6 It should be recognized that all equipment is subject to failure and spares or replacement parts may not be readily available. In such cases, undue delay should not be caused if, in the opinion of the PSCO, safe alternative arrangements have been made.

2.6.7 Where a ship has suffered accidental damage and enters port for examination and repairs, the port State may ascertain the remedial action that is being considered. If it is established that appropriate remedial action is being taken to render the vessel safe to proceed to sea, no detention order should be issued.

2.6.8 Since detention of a ship is a serious matter involving many issues, it may be in the best interest of the PSCO to act with other interested parties. For example, the officer may request the owner's representatives to provide proposals for correcting the situation. The PSCO may also consider co-operating with the flag State Administrator's representatives or recognized organization responsible for issuing the relevant certificates, and consulting them regarding their acceptance of the owner's proposals and their additional requirements. Without limiting the PSCO's discretion in any way, the involvement of other parties could result in a safer ship, avoid subsequent arguments relating to the circumstances of the detention, and prove advantageous in the case of litigation involving "undue delay".

2.6.9 Where deficiencies cannot be remedied at the port of inspection, the PSCO may allow the ship to proceed to another port, subject to any appropriate conditions determined. In such circumstances, the PSCO should ensure that the competent authority of the next port of call and the flag State are notified.

2.6.10       Detention reports to the flag State should be in sufficient detail for an assessment to be made of the severity of the deficiencies giving rise to the detention.

2.6.11       To ensure of consistent enforcement of port State control requirements, PSCOs should carry an extract of 2.6 (General Procedural guidelines for PSCOs) for ready reference when carrying out any port State control inspections.

CHAPTER 3 - MORE DETAILED INSPECTIONS

3.1      GENERAL

3.1.1 If the ship does not carry valid certificates, or if the PSCO from general impressions or observations on board has clear grounds for believing that the condition of the ship or its equipment does not correspond substantially with the particulars of the certificates or that the master or crew is not familiar with essential shipboard procedures, a more detailed inspection as described in this chapter should be carried out.

3.1.2 It is not envisaged that all of the equipment and procedures outlined in this chapter would be checked during a single port of State control inspection, unless the condition of the ship or the familiarity of the master or crew with essential shipboard procedures necessitates such a detailed inspection. In addition, these guidelines are not intended to impose the seafarer certification programme of the port State on a ship entitled to fly the flag of another Party to STCW 78 or to impose control procedures on foreign ships in excess of those imposed on ships of the port State.

3.2     CLEAR GROUNDS

When a PSCO inspects a foreign ship which is required to hold a convention certificate, and which is in port or an offshore terminal under the jurisdiction of that State, any such inspection shall be limited to verifying that there are on board valid certificates and other relevant documentation, and the PSCO forming an impression of the overall condition of the ship, its equipment and its crew, unless there are clear "clear grounds" for believing that the condition of the ship or its equipment does not correspond substantially with the particulars of the certificates.

3.3      GUIDELINES FOR SHIP STRUCTURAL AND EQUIPMENT REQUIREMENTS

3.3.1 If the PSCO from general impressions or observations on board has clear grounds for believing that the ship might be substandard, the PSCO should proceed to a more detailed inspection, taking the following consideration into account.

Structure

3.3.2 The PSCO's impression of hull maintenance and the general state on deck, the condition of such items as ladderways, guard-rails, pipe coverings and areas of corrosion or pitting should influence the PSCO's decision as to whether it is necessary to make the fullest possible examination of the structure with the ship afloat. Significant areas of damage or corrosion, or pitting of plating and associated stiffening in decks and hull affecting seaworthiness or strength to take local loads, may justify detention. It may be necessary for the underwater portion of the ship to be checked. In reaching a decision, the PSCO should have regard to the seaworthiness and not the age of the ship, making an allowance for fair wear and tear over the minimum acceptable scantlings. Damage not effecting seaworthiness will not constitute grounds for judging that a ship should be detained, nor will damage that has been temporarily but effectively repaired for a voyage to a port for permanent repairs. However, in this assessment of the effect of damage, the PSCO should have regard to the location of crew accommodation and whether the damage substantially affects its habitability.

3.3.3 The PSCO should pay particular attention to the structural integrity and seaworthiness of bulk carriers and oil tankers (resolutions A.744(18)).

3.3.4 The PSCO's assessment of the safety of the structure of those ships should be based on the Survey Report File carried on board. This file should contain reports of structural surveys, condition evaluation reports (translated into English and endorsed by the Administration), thickness measurement reports and a survey planning document.

3.3.5 If the Survey Report File necessitates a more detailed inspection of the structure of the ship or if no such report is carried, special attention should be given by the PSCO, as appropriate, to hull structure, piping systems in way of cargo tanks, pump-rooms, cofferdams, pipe tunnels, void spaces within the cargo area, and ballast tanks.

3.3.6 For bulk carriers, PSCOs should inspect holds' main structure for any obviously unauthorized repairs. [Emphasis added]

[130]        I take three important points from the provisions just considered. First, the MOU sets certain standards for the conduct of Port State Control inspections, and the standards set in the Manual are considered important to be followed by the Authorities to the MOU.

[131]        Second, by the MOU and the Manual, upon determining that a ship's certificates are valid, and a good standard of maintenance is observed, no detailed inspection is required; however, if clear grounds exist, such as evidence of serious hull or structural deterioration or deficiencies, a more detailed inspection should be carried out.

[135]        In the early 1990's, the Department of Transport established its own safety program under the aegis of the MOU with respect to bulk carriers called the "Bulk Carrier Inspection Regime". It is important to note that, by memorandum dated March 1, 1994 addressed to Port State Control inspectors under his supervision, Mr. Nelson gave specific instructions respecting inspections under the Bulk Carrier Inspection Regime which I find also establishes a standard against which the conduct of the detention is to be judged. These instructions are found on p. 3 of Annex III to a document entitled "Bulk Carrier Inspection Regime: Instructions to Surveyors: Amended Version 14.02.94" (Vol. 5, Tab 172):

A)      VESSEL TO BE ADVISED PRIOR TO ARRIVAL THAT IT WILL BE INSPECTED UNDER PORT STATE CONTROL AND THAT THE FORE PEAK AND TWO MIDSHIP TOPSIDE TANKS (P & S) SHOULD BE OPENED FOR INSPECTION. TANKS TO BE WELL VENTILATED AND LIGHTING TO BE SUPPLIED. FORWARD AND AFTER HOLDS SHOULD ALSO BE PREPARED FOR INSPECTION.

B)       ON ARRIVAL AT WHARF OR ANCHORAGE VESSEL SHOULD BE INSPECTED IN THE ABOVE LISTED SEQUENCE AS FAR AS POSSIBLE WITH SPECIAL ATTENTION BEING GIVEN TO THE CONDITION OF EXTERNAL SHELL PLATING FROM TUG OR FROM WHARF.

C)       STRUCTURAL DEFICIENCIES SHOULD BE LISTED ALONG WITH OTHER DEFICIENCIES FOUND ON PORT STATE CONTROL FORM. NO RECOMMENDATION AS TO WHAT REPAIRS ARE REQUIRED SHOULD BE INCLUDED IN THIS LIST AS THIS IS A DECISION WHICH SHOULD BE TAKEN BY THE CLASSIFICATION SOCIETY AND THE OWNERS.

[Emphasis added]

Thus, according to the directive emphasized, if after a cursory inspection an inspector has concern that serious hull or structural deficiencies exist, the ship owners and classification society should be asked to decide what repairs are required to rectify the deficiencies. The directive implies that the decision reached should be accepted as a course of action to effect the necessary repairs. It seems to me that if an inspector is unwilling to accept the decision, good grounds based on solid evidence would need to be produced to establish that the decision is unacceptable, otherwise a detention could be considered to be undue.

[136]        With respect to the history and general functioning of Port State Control, the Defendants called Mr. Richard Scheferli. Mr. Scheferli graduated from the Merchant Marine Academy in the Netherlands in 1973; sailed on cargo ships for 10 years; in 1982 obtained his Master Mariner Certificate (foreign-going, unlimited voyages); joined the Netherlands Ministry of Transport in 1984 where he worked on policy, and in 1989 joined the Paris MOU Secretariat.

[137]        The Annex III directive quoted above calls for the exercise of cooperation between inspectors, Classification Societies, and owners. As to the need for balance in the relationship between flag states, Classification Societies and Port State Control enforcement officials, Mr. Scheferli had this to say under cross-examination (Transcript, p.1320):

Q    Do you consider that there is a need, sir, for a balance between the rights of the flag state as represented either by its own officers and inspectors or by a classification society and the rights of the port state?

A    Yes.

Q    And it's a very important element in what the port state control regime does, is to try and achieve that balance to ensure that it's fairly administered?

A    Yes.

Q    And is it fair to say that it was never intended that the port state replace the flag state as the body to administer the conventions and to ensure that the vessel was in compliance?

A    Well, the port state could never replace the responsibilities of the flag state.

Q    All right. And the classification society, if it was undertaking those responsibilities, it also was not to be replaced by the port state.

A    Well, the class is acting on behalf of the flag state, so it's playing the role of the flag state so the answer would be the same.

[138]        As to standards for corrosion to be applied within Port State Control, Mr. Scheferli ultimately made a concession to the Classification Societies in the following exchange (Transcript, pp.1335-1339):

Q    The intention with respect to administration of the Paris MOU by Port State Control inspectors in the various member states is that they should apply internationally accepted standards. Isn't that correct?

A    Yes.

Q    And in order to determine what internationally accepted standards are, is it not correct that you go to the rules of the classification society and the international conventions, perhaps in the other order?

A    Only the international conventions.

THE COURT:      Sorry, sir, I didn't get your answer.

A    Only the International Conventions, only those instruments listed in the MOU as relevant.

MR. BERNARD:     

Q    Those are the only relevant instruments.

A    For port state control.

Q    And so that you do not encourage or insist upon the port state control inspectors going to the classification society rules for the classification society that covered the ship.

A    In general, no.

Q    In general, no. And where do you get those standards from then in the conventions in terms of such things as corrosion and diminution of structural members?

A    When it's found that a ship has substantial corrosion or does not meet the conventional requirements as regards to serious doubts about the strength and things like that, it may result in the detention of the ship. So the flag state gets informed of the detention, including a copy of the inspection certificate, and if class was involved as acting on behalf of the flag, they also get a copy. Then it's up to the flag and the classification society to go back to the port state if they feel they have not been correctly treated.

Q    But there are no specific references in the international conventions to specific diminutions, isn't that correct?

A    That's correct.

Q    You go to the classification society rules in order to obtain those specific diminutions for, for example, structural problems.

A    The onus of proof is with the classification society, it's not the other way around.

Q    Well, that's your view, sir. All I asked you is to agree with me that in order to determine a level of diminution or a level of wastage for structural members, you must go to the classification society rules.

A    They play a role, yes.

Q    Sorry?

THE COURT:     Sorry?

A    They do play a role, yes.

MR. BERNARD:     

Q    That's the only place that the inspector can go for a definitive setting with respect to any aspect of structural diminution, isn't that correct?

A    There are many different classification societies and they all have their own different rules.

Q    Where else, sir, can an inspector go for a specific criteria with respect to wastage in a deep cargo ship, other than the classification society rules?

A    Well, I'd say in the industry there are, let's say, generally accepted standards of wastage.

Q    And where do those generally accepted standards come from?

A    Well, we usually get them from the IACS.

Q    IACS is the --

A    Overall -- it's the International Association of Classification Societies.

Q    Yes, and they get them from their members, isn't that correct?

A    Well, IACS is coming out with guidelines which are, let's say, unified guidelines on certain structural aspects.

Q    That hasn't happened yet, has it, sir?

A    They have published very good guidelines on the structural safety of bulk carriers.

Q    But they haven't come out with specific numbers yet.

A    No.

Q    No. They're working on it, correct?

A    It's possible.

Q    And in 1997 there was no such thing. It was a matter of looking to the individual classification society rules and recommendations such as for thickness, in order to determine the specific wastage or diminution that one might look to or apply. Isn't that correct?

MR. CARRUTHERS:      Who? Who must do this?

MR. BERNARD:     

Q    Well, I will respond to that and say the inspectors should look to those classification society rules and other recommendations in that respect. Isn't that correct?

A    I don't think they have the obligation. They can take it into account, yes.

Q    There's nowhere else for them to go for specifics though, is there, sir?

A    I guess not, no.

[139]        In addition, Mr. Scheferli had this to say about the need for consultation on technical matters (Transcript, pp.1362-1363):

Q    Mr. Schiferli, if a dispute arises between class and a port state control officer regarding the strength and the strength calculations or the structural members of a vessel, wouldn't you expect the port state control officer to go to naval architects in his department, assuming that they are there, and seek their counsel and their calculations on the matter?

A    Yeah, it's possible that we a strength calculation that's built on this -- is based on certain assumptions or criteria or data. So I would expect that they would consult with naval architects to see if the data under which that calculation was made leads to requirements that it should.

Q    And for that purpose you would expect that the naval architect would recreate the calculation in some way or do his own calculations, not necessarily rely on the ones that are put to him. Isn't that fair?

A    Well, I mean, because it's not always necessary that the naval architect from the port state makes his own calculations. I think it's fair to say that he can judge whether the calculations submitted are reliable.

Q    Right, and if he does that then he doesn't have to do his own.

A    Yes.

Q    Yes. He can accept them, in other words.

A    Right.

Q    And then one would expect that naval architect would advise the port state control officer that he accepts the calculations presented. I mean, the communication should flow between these people, shouldn't it, Mr. Schiferli?

A    Yes.

[140]        From the analysis which has just taken place, it is very clear that Port State Control is a highly regulated process operating in a complex environment of powerful forces: flag states, ship owners, Classification Societies, and Port State Control Authorities. The need for balance described by Mr. Scheferli is necessary for the process to work effectively in achieving ship safety. It is obvious that a great deal of care is needed in the taking of strong measures within such a complex situation, given the strength of the forces involved. There is certainly no room for arbitrary behaviour.

[141]        With respect to the conclusions that can be drawn about certain hull frames meeting corrosion standards simply from a visual inspection, I put weight on the evidence of Mr. Allan Elander, who did ultrasound testing of the hull frames of the Vessel the day after the Vessel was detained.

[142]        At the request of the Plaintiffs, Mr. Elander, the principal of Elander Inspection Ltd., attended on the Lantau Peak on April 6^th. Mr. Elander has been in the non-destructive testing inspection business since 1974, came to Vancouver in 1980, worked for an engineering company which did certification work for Classification Societies and wrote procedures for certification for technicians working in the company, is a certified technician "across the board", worked at another firm for 6 years doing non-destructive testing, and in 1996 he started his own company. Mr. Elander testified that, in a year he does gauging and special surveys on between 60 and 100 vessels, and did the ultrasound test himself on the Lantau Peak on April 6^th.

[143]        As stated in his report dated April 14, 1997 (Exhibit D-12) ("the Elander Report") Mr. Elander's purpose was to perform an ultrasound thickness examination on the side shell frames in Hold 3 to confirm thickness results from the Shin Toyo Report. His observations noted on page 1 of the Report are as follows:

The side frames were found to be heavily corroded from the Upper Part weld seam to the Lower Part. The Upper Part was pitted but not corroded to the same extent as the Mid and Lower Parts. The Upper Part was not gauged due to the general good condition of the web plating. The face plates were not tested. All gauged areas showed heavy scale build up that was difficult to remove by chipping.

[144]        In the course of giving his evidence on behalf of the Defendants, from his extensive experience, he made the following observations (Transcript, pp.2114-2117):

Q    Could you describe for His Lordship what equipment you used?

A    All our equipment in this case is what we call a Panametric 26DL Plus. It's a full feature machine, capable of gauging thickness on any steel material, even plastics and rubber. We use it because we find it has a lot of different functions and we're able to store the actual thickness readings into the machine. We're also able to calibrate on an accurate way. It doesn't drift or it doesn't vary in range. It's a digital instrument, and therefore it holds its calibration very nicely. It's a modern instrument. It was purchased -- it's only one-year old at the time I used it on this particular vessel.

Q    Could you describe, when you're using that piece of equipment, exactly what it is you do in order to take a measurement?

A    Initially you have to chip down to sound material or bare metal. If it's coated, these machines are able to read through the coating and still get an accurate reading of the steel itself. On this particular vessel we -- I shouldn't say "we". I was the only one there. I chipped down to bare metal and we used -- the machine, it hooks up by cable to a small ultrasonic transducer, a dual transducer that sends and receives the pulses. We would apply a couplent to the steel, to assist in the transfer of sound between the probe and the steel, and then we would take a reading, a direct thickness reading on the sound. It would come out as a digital thickness read-out on the CRT of the instrument.

Q    And so it gives you the measurement then in millimetres, does it?

A    Millimetres or inches, you have a choice.

Q    And so when you turn over to tab 2, the numbers that you've written there in your handwriting and then those are the same numbers that you subsequently put into your computer when you returned to the office, those represent millimetres then?

A    That's correct, yes.

Q    What is it that you're chipping off?

A    Heavy scale, rust, any kind of product that might interfere with the sound beam. You have to get down to bare metal substrate to take your reading.

Q    Okay, and going back to the boxes on page 1 of tab 1, you have a box for surface condition in your form. Do you see that?

A    Yes, of course, yeah.

Q    Can you describe what you've entered there?

A    I have indicated under "other" check mark or cross, it's a very rusty and corroded surfaces.

Q    Can you expand on that?

A    On this particular vessel, when we -- when I got up onto the frames and actually looked at it, there was quite a thick coating of rust product on the -- actually, more than just rust. There was heavy scale on the steel. I required quite aggressive chipping to remove it and it actually came off in large sheets. It's typical of corrosion on a vessel of this type -- well, I shouldn't say typical, but certainly it's -- I've seen it before, and it's quite easy to remove. It just requires fairly aggressive hammering to remove the rust and scale. It's almost like sheets of the material would come down after you hit on the web member.

Q    Are you able to say how the amount that you had to scale off on this vessel compared with other vessels that you've worked on?

A    No, I've been on lots of other ones that have been, not necessarily similar, but I would say it might have been one of the more severe ones I've been on, but you can't relate the amount of rust on the steel to the amount of corrosion that you actually see. It's sometimes very difficult to tell. You actually have to gauge it to determine what the metal loss is like.

[Emphasis added]

[145]        Finally, as part of their case respecting the standard for care, the Defendants called Dr. Ilan Vertinsky to offer an expert opinion on the issue of the assessment and acceptability of risk. The Plaintiffs objected to the introduction of his evidence on the basis of relevance. I find that, on the issues to be determined in the present action, his evidence is irrelevant.

2. The conduct of Inspectors Warna and Hall

a. the detention

[146]        The imposition of the 17% standard by the detention order of April 5, 1997 is the single most important feature of the allegation of negligence in the present case. The evidence shows that the decision to impose this standard was Inspector Warna's as he took responsibility to inspect the hull and machinery, but it was agreed to by Mr. Hall by signing the detention order. Therefore, I find they are both equally responsible for the detention.

[147]        Prior to attending at the Lantau Peak, Inspector Warna reviewed the records on file about the Vessel's detention in 1996. He knew the ship was old, had a history of a previous detention, had a history of structural problems, and the ship was coming into harbour with detached frames, all of which caused him some concern (Transcript, p.2915).

[148]        Immediately after boarding the Vessel, Inspector Warna made a cursory inspection of Holds 1, 3, and 9 and did a visual check of the detached frames in Holds 3 and 9. He was concerned that the detachments might start a "domino effect" whereby other adjacent frames might also become detached . In addition, based on his visual inspection and his experience, he became concerned that the hull might be weakened because of corrosion. He then checked the safety certificates which were in order. However, on the basis of his observations, Inspector Warna reached the preliminary conclusion that the ship was structurally unsafe (Transcript p.2956).

[149]        His direct evidence with respect to concluding the Vessel was unsafe at this point in the Port State Control process is as follows (Transcript, pp.2953-2954):

Then after I've done that [inspected the detached frames], then I looked at the other condition as much as I could. And because, you know, I've been inspecting the ships and the bulk carriers for quite a long time and I know it may appear very unusual but it is possible that with the time we get a feel that when the structure is weak or when the structure has, you know, diminished in dimension because of the corrosion.

And the reason why I'm saying, Your Honour, is that we look at the part which is corroded, plus there is no protective coating at all. If there's a protective coating and the coating is damaged, the corrosion is very obvious, Your Honour, because it becomes like a badge or what have we. But if it is like unprotected structure, then the corrosion is very even.    

But however, because it is even to quite an extent but not entire frame of the hold, so then I tried to look at a part which basically is less corroded, relatively less corroded, and we really try to compare the less corroded part with the one which appears to be more corroded. And then usually I'm able to make some judgment call that okay, yes, there is a corrosion or there's a diminution of the structure. And once I get that idea, then you know, that was quite a reasonable idea. Then I also noted, Your Honour, that in number 3 hold and number 9 hold, the frames which were detached, they were all adjacent frames.

[150]        It is important to note that Inspector Warna accepted that further investigation was required. The following quotation from his evidence under direct examination shows his state of mind upon making the cursory inspection. After commenting on the detached frames, Inspector Warna continued (Transcript, p.2956):

A    Approximately. But number 3, I remember very clearly that they were all adjacent. Number 9, I believe they were adjacent also. I believe but it can be verified later, you know, at some document. But if memory is not failing me, that's what I -- because this just stuck hold in my memory. I looked at the rest of the structure. There was no doubt in my mind that there is an extensive corrosion and corrosion is quite uniform.

So this was enough for me because the time I spent, like I mentioned earlier, Your Honour, that when we do inspection we have the owner's agent waiting on top of our head, we have almost everyone because the time period we use on the ship for the purpose of these port state control inspections is taken off hire. So naturally they want to have the decision from us. Is the ship -- can the ship be allowed to load or not? Because it's a kind of a race to get to the berth first. Whosoever gets to the berth first gets loading first. Simple as that.

So there is a pressure in that we make a decision, we have seen this, the sampling was good enough for me to make a decide -- or decide the ship, there is a problem with the ship and the ship is structurally unsafe. And how much what extent, to what extent, we'll look after later because I do not have all -- you know, I mean I don't believe that I should be spending more time than what perhaps should be necessary for the purpose of a spot inspection because it's still the taxpayer's money, Your Honour.

[151]        It is certain, therefore, that as a result of his observations of the corrosion on the hull frames, Inspector Warna believed he had clear grounds to be concerned that the Vessel did not substantially meet the requirements of SOLAS because of serious hull deterioration. To this point I find that Inspector Warna met the standard of care required.

[152]        According to the Manual, given the conclusions reached on the cursory inspection, Inspector Warna was now to carry out a detailed inspection.

[153]        At this point it is important to note that the determination of whether hull frames need repair is one requiring training and skill. On the evidence, it is not possible to say from an observation of corrosion on a cursory inspection just what work, if any, needs to be carried out.

[154]        Mr. Masanori Akagi, General Manager of the Vancouver Class NK office was called by the Plaintiffs to testify to the Class NK rules and procedures, and to Class NK's involvement with the Lantau Peak. In 1978, Mr. Akagi entered Osaka University, studied naval architecture, and graduated in 1982 with a bachelor's degree in engineering. Between 1982 and 1984 he then completed a master's degree in naval architecture, and immediately joined Class NK. For the first six years, Mr. Akagi worked on new vessel construction, and in 1990 became a field surveyor in Kobe Japan; in this position he surveyed some 100 vessels in an 18-month period. He then returned to Tokyo where he worked in the Survey Department for two years, and then moved on to the Technical Information Department. In this latter position he worked on investigating hull failures from such things as collisions and groundings. After a further two years service as a ship surveyor, in 2000 he assumed the role of general manager at the Vancouver office of Class NK.

[155]        In giving evidence, Mr. Akagi was closely examined on the Class NK criteria for hull corrosion, and, in particular, when a decision can be made that repairs will be needed to be undertaken. I think it is fair to say that the answer to "when" is, "it depends". It is clear from the following quotations from his evidence that skill of observation is needed to make such a determination. In cross examination he said this (Transcript, pp.1124, 1124-1125, pp. 1127-1128):

Q    Thanks.    Is it the Society's policy that all frames or sections of frames below wastage limits should be renewed or replaced?

A    The criteria is guidance for the surveyor and usually any structure members below the corrosion limit should be repaired, but it's based on the decision of the attending surveyor. It is not always to renew the plate. It is not always required to be renewed, but basically, usually, it should be renewed.

Q    Okay. Is it fair to say if the criteria for the -- if the general limit for the wastage of the web of the frame is 7.5, that there may be situations in which 7.7 or 7.8 is inappropriate and an inspector may call for a replacement of a frame that is even above the limit as opposed to below the limit.

A    Correct.

Q    So is it fair to say it depends on the overall condition of the vessel as assessed by the surveyor?

A    Yes, and according to the nature of the corrosion condition or the importance of the structure, sometimes original thickness, so that surveyor shall consider all factors and determine that the member should be renewed or not. Not only for the criteria.

Q    Sorry, I didn't catch that last statement?

A    Pardon?

Q    I didn't catch your last --

A    Not only for the criteria.

Q    Okay. So he has to be flexible on whether he permits it above the limit or below the limit.

A    Yes, sometimes.

Q    And that depends on the overall wastage of the frames of a particular ship.

A    Yes.

Q    If I could show you Exhibit 12 [the Elander Report].    Just to give you some background, this thickness measurement was done on April the 4^th, I believe. April 3^rd or 4^th, 1997, and that was done on the LANTAU PEAK at the request of the owners. And it was for cargo hold number 3. You've testified the limit is 7.5 as a general rule.

A    Yes.

...

Q    If I could show you -- what would you as a surveyor or naval architect, what would you say of the general condition of the frames in cargo hold number 3?

A    So quite corroded. Corroded quite a lot.

Q    And they should be replaced.

A    Sorry, I can't say yes or no, because I haven't seen it. I have not surveyed.

Q    That's a judgment call of the inspector, is it?

A    Pardon?

Q    That would be a judgment call of the surveyor that looked at the frame, the frames in the cargo hold?

A    Sorry.

Q    That would be a decision of the surveyor to make, who viewed the ship and cargo hold number 3.

A    Corrosion pattern of hold frames, or not only for hold frames, hull structure, is not so easy to comprehend. So that probably some parts are very corroded but the other parts are not so corroded. I don't know which plates was measured, pointed. So some value shows the badly corrosion condition of the frame. But I don't know how the thickness measurement was conducted, which place, which sampling point was selected, which area, so this is a general condition. I don't know how it can represent the condition of the hold frame. So that is why I cannot say it should be repaired or not. Because I have not seen it.

[156]        On the basis of Mr. Akagi's evidence, I find that moving from a cursory to a detailed inspection requires moving from a preliminary conclusion based on tentative evidence, to a final conclusion based on conclusive evidence.

[157]        However, with respect to the detailed inspection of the hull frames of the Lantau Peak, the only step Inspector Warna took was to consider the contents of the Shin Toyo Report of the ultrasound readings taken of the hull frames in 1995. The evidence indicates that he did nothing more than determine that a number of hold frames were wasted beyond 17%, and made the decision that this deficiency was a ground for detention.

[158]        It is obvious, that in making the detention, the directive given by Mr. Nelson was not followed by Inspector Warna.

[159]        Of greater importance is the fact that, according to the Manual, to reach the decision to detain, Inspector Warna had to have determined that the Vessel was unsafe. It seems obvious that, to come to such a significant conclusion just on the basis of the Shin Toyo Report readings, some convincing evidence would have to exist that the readings alone would provide the basis for this conclusion. The following excerpt from his cross-examination shows that Inspector Warna had no such evidence (Transcript p.3469):

Q    And so when you generated that Form B, you had been given a copy of the Shin-Toyo report and you reviewed that report, correct?

A    Yes, sir.

Q    And you noted from that report that many of the frames had wastage recordings beyond 17 percent.

A    Yes, sir.

Q    And once you saw that there was wastage to many of those frames beyond 17 percent from the Shin-Toyo report, that was really all you needed to make that decision, the decision to require renewal of frames wasted beyond 17 percent.

A    In relation to 4, 5, 7 and 8, sir?

Q    Yes.

A    That's correct, sir.

Q    And you were prepared on April 5^th of 1997 in relation to those holds 2, 4, 5, 7 and 8 to base your decision simply on what you read in the Shin-Toyo report.

A That is correct, sir

And Mr. Warna went on to say (Transcript, pp.3475-3477):

Q    But to exercise your judgment as a professional in relation to hold number 2, for example, -

A    Yes, sir.

Q    - you actually have to go and do a visual inspection to exercise any kind of professional judgment. Isn't that right?

A    But once, like, sir, I mentioned earlier that once we had the Shin-Toyo report there, then I can read those readings in each of those holds. And I knew that, you know, that most of them are in excess of 17 percent, sir. So really speaking whether or not that would have made any difference with regards to my decision-making, what I put it on the records here in the reports, I don't think that would have made very much difference, sir.

Q    The point of this, sir, that -

A    Excuse me.

Q    - what you did in this case was you simply went to the gauging reports, saw that there was wastage beyond 17 percent, and that was sufficient for you to detain. You didn't need to do anything else at that stage, right?

A    That is correct, sir.

Q    So from the point of view of trying to exercise any judgment independent of simply looking at the gauging reports and applying your 17 percent rule of thumb, you didn't do that, you didn't have to do that in your mind.

A    That is correct, sir.

[160]        Inspector Warna's conduct in detaining the Vessel on the basis of the 17% "rule of thumb" corrosion standard is in direct conflict with his evidence at trial on the purpose for which the rule was established. Under direct examination, Inspector Warna gave the following evidence on how his 17% "rule of thumb" came into being (Transcript, pp.2909-2913):

Your Honour, with regards to this 17 percent rule of thumb, at that time and before that what we were realizing, that other than the classification societies there is no standard from the Department of Transport Canada. There is no where else, even the IACS did not have any standard for the corrosion in 1997 and basically the surveyor who were obliged to use as independent discretion to determine whether the ship is safe or unsafe. We felt here in the Vancouver office that perhaps we should consider having some kind of a figure form which will really put us onto an alert level. That mean the first alert where we will be really concerned about the safety of the ship.

Then we will use, you know, we will use whatever we decide on, then we will use that rule of thumb to make the order and the classification society to look further, provide us much more detailed report and based on what has followed later on a detailed basis, then we come to sort of between the steamship inspector involved, the classification society involved, the owners involved, then we come into some rational decision making.

And that's how the 17 percent circulated. It came from, as far as I can recall, to the best of my knowledge, at the time, Your Honour, in light -- for example, there are certain areas, that provides guidance on the wastage, Your Honour. There are certain areas on a ship where they only permit ten percent of wastage. There are certain areas, structures, where the Lloyds only permit 15 percent wastage. There are certain areas where Lloyds permits 20 percent wastage and there are certain -- you know.

Similarly the Bureau Veritas, similarly they have areas where they only permit 10 percent wastage, there are areas where they permit 15 percent and there are areas where they permit 20 percent.

We came out to some figure that, okay, somewhere in the middle, the moment we get there, where we -- what the classification society call it as a "suspect area", for example, Your Honour. In other words, once the wastage has reached the 75 -- you know, the -- once it has reached or getting closer to the 25 percent diminution level, it becomes a high alert for the classification. That mean they call it a suspect area, Your Honour. And in other words, they are obliged to look at every inspection during the classification society.

On the other hand, the purpose of the suspect area, Your Honour, is to let the owners know that this structure is getting to its limit and it's time for you to act and have it prepared before really going right to the loss or the drop of the, you know, of the wastage. Because the closer it gets, the more potential for the failure of the structure, Your Honour.

So it's like a twofold. For a good conscientious owner, Your Honour, this is an advance allowed for him to plan his maintenance, plan his budget, plan his expenses, plan how quickly he can act and remove this problem, Your Honour. On the other hand, it is alert for the classification society that okay, the surveyor of the classification society should be paying special attention to these areas every time he gets an opportunity to be on board the ship.

So this figure, we believed at the time, I remember, that I talked with Ron Wilson who was a naval architect, Your Honour, and he was the manager at the time and I worked with him for a long time. And he believed that, you know, we are not unreasonably applying the standard as a first alert, that okay, the moment structures hit the 17 percent wasted, and this applied for the plating where the class only allows 10 percent, this also applies for structure, those structures where the class only applies -- some classes only applied 15 percent, Your Honour. We came to 17 percent that we believed in all sincerity that at least we have some basis to go by there. We've could reasonably be -- applying this figure to the owner so that we're not considered being, like, how should I say, discriminated, discrimination or partial to anyone, how that figure applied. And that's a first alert and made the owners go through a detailed inspection. And then once we have a total picture of the ship and then decided what action has to be taken, Your Honour. That's what the 17 percent came about.

And at least all I can say, Your Honour, is that maybe, you know, because there was no other -- even the classification -- International Association of Classification Society, we've talked a lot about it, Your Honour, and you heard a lot about it. They even didn't have a standard, IMO didn't have a standard, so owners doesn't have a standard. No one did have a standard other than the classification societies. Your Honour, there are 28 different societies, Your Honour, and they all have different figures.

A surveyor who's supposed to be a third party impartial who has no vested interest with the ship, what figure should he use, Your Honour? That was a dilemma to us and that's where the 17 percent came in, Your Honour.

[161]        Thus, according to Inspector Warna's evidence just quoted, the rule was only to be used as a "first alert" tool to determine that a more detailed inspection is required, and only after a detailed inspection, would a decision be made as to repairs required to meet safety standards. It is important to note that, according to this evidence, an "alert" was directed at both a ship's owners and its Classification Society; this implies that the Classification Society would be included in the process of deciding the repairs to be undertaken. If applied, this practice would be in conformity with Mr. Nelson's directive made under Annex III as referred to above. However, it is clear from the evidence that Inspector Warna did not use the 17% rule as an "alert"; it was the inspection standard of repair which endured until Mr. Streeter's second level decision was made in August.

[162]        A second conflict which arises from the evidence only adds to the confusion about the 17% standard. Contrary to Inspector Warna's evidence that the 17% standard was merely an "alert", he also gave evidence in direct examination that the standard was imposed as a final standard of repair given his understanding that the Vessel was to leave Vancouver in a loaded condition (Transcript, pp.2950-2951):

MR. CARRUTHERS:     

Q    Okay now, let me ask you this. We heard evidence of the 17 percent rule of thumb. You did, as we'll see in the report -- I think we may have seen it to an extent so far but we'll look at it in greater detail. This 17 percent, did you contemplate the ship, and we're talking now of August -- or April the 5^th. Did you contemplate the ship leaving Vancouver loaded when the 17 percent requirement was made?

A    Absolutely, that's correct. That's why -- the day of inspection, always the belief that the ship is here to load and therefore it must do the repairs so that the ship is able to load and proceed.

[163]        In my opinion, Inspector Warna meant the 17% standard to be a final standard of repair when he made it a requirement of repair in the Form B to the Detention Order. This point is confirmed on two passages from the evidence. Under cross-examination at trial he agreed that this is what he meant (Transcript, pp.3395-3397):

MR. SWANSON:     

Q Mr. Warna, if I could get you to refer to Volume 3, tab 20, please.

A    Yes, sir.

Q    That's the Form B that was prepared by you and Mr. Hall?

A    That is correct, sir.

Q    And your handwriting starts in the middle of the first page, "The wasted well crack"?

A    That's correct, sir.

Q    Okay, and those are the cracked frames that you were aware prior to attending on board the vessel, right?

A    That is correct, sir.

Q    Okay, and you knew that the owner had made arrangements to do the repair work to those frames in Vancouver.

A    That is correct, sir.

Q    And that's why you didn't put a 30 beside that notation because they were already prepared and were going to do the work.

A    That's correct, sir.

Q    And as I understand your practice, sir, if an owner advises you that they've got a ship coming to town and it has a deficiency and they're going to have the deficiency repaired in Vancouver, your normal practice is not to detain it, it's just to make sure that the work gets done.

A    That is correct, sir.

Q    And then if we go on to the bottom of that page, it says:

"All side vertical frames with sections exceeding 17 percent wastage in holds number 1, 2, 3, 4, 5, 7, 8 and 9 as listed in the hull condition report dated 9/11/95 to be cropped and renewed."

A    That's correct, sir.

Q    Okay, so you -- and you have a 30 beside it.

A    Yes, sir.

Q    And that means the vessel is detained until that work is done.

A    That is correct, sir.

Q    And the 17 percent wastage is the rule of thumb that you've described, right?

A    That is correct, sir.

Q    And so you require the owner in this case on April 5^th to do all of that work. That was your expectation.

A    That is correct, sir.

Indeed, in examination for discovery, Inspector Warna confirmed this position as well (Transcript, pp.3415-3416):

Q    And you made it clear, I presume, to Commander Swa and the captain of the vessel that you weren't prepared to release the vessel from detention unless the criteria, the 17 percent was met, correct?

A    On that day, what -- what exactly my wording was it's very difficult for me to remember, but at the end of the meeting this is what we agreed as stated.

Q    Well, let me put it this way, Mr. Warna. You weren't prepared to release the vessel unless the 17 percent or all frames with wastage in excess of 17 percent were cropped and renewed, correct?

A    That was our -- that was our position.

Q    Okay, that wasn't a negotiable position from your point of view on April 8^th of 1997, was it?

A    No.

Q    It was either you do it or the vessel sits here, correct?

A    Yeah, you can say that.

Q    Okay, and I suggest to you that you made that clear to the captain and Mr. Swa, that they were either going to comply with that, in other words everything that had in excess of 17 percent, 17 percent wastage, had to be cropped and renewed or the vessel was going to remain detained.

A    The exact wording, exactly what you know the conversation, exact conversation wording during that meeting, I -- it's difficult for me to recall, but that was the summary --

Q    Okay.

A    -- of it.

[164]        In my opinion, Inspector Warna's statements that the 17% standard was merely an "alert" is so inconsistent with the evidence just quoted, that I find they were designed to downgrade the importance of the standard imposed so as to avoid criticism of his actions in ordering the detention.

[165]        A number of other concrete conclusions arise from the evidence of what actually happened at the time of detention. First, I find that Inspector Warna did not meet the standard required by the MOU for doing a detailed inspection. In my opinion, the scan he did of the Shin Toyo Report could not accomplish meeting his apparent concerns about the condition of the Vessel. In order to give some meaning to the readings in the Report on the issue of serious hull deterioration would require a careful professional analysis of the data. In my opinion, Inspector Warna did not do this, nor does he have the qualifications to attempt the task. Inspector Warna is an experienced steamship inspector with a background in the maintenance of marine machinery; the analysis of the data would properly be the task of a naval architect.

[166]        In my opinion, before any decision could have properly been made to detain the Vessel, more was required to be done by way of conducting a detailed inspection than just a look at the Shin Toyo Report. It might very well be that, on a careful analysis of the data in the Shin Toyo Report, grounds would have been found for detention. But this was not the procedure. Inspector Warna simply decided to impose the detention because the hull frame readings did not meet his own subjective view of what should be required of a bulk carrier such as the Lantau Peak; the problem is, he had no verifiable basis for coming to this conclusion.

[167]        On the point of verification, it is important to note that Inspector Warna did only a cursory inspection of Holds 1, 3, and 9, yet the Vessel was detained until repairs were done to the hold frames in Holds 2, 4, 5, 7, and 8. According to the evidence, no one from the Defendants' side ever did an actual inspection of the frames in Holds 2, 4, 5, 7 or 8 during the period of the detention.

[168]        The Plaintiffs' have carefully set out the evidence of the arbitrary, unverifiable, unsupervised, uncontrolled, and unsupportable nature of the imposition of the 17% standard in the following argument which I find has weight (CAP, pp.24-29):

35.           Mr. Warna was clearly aware that the work he required was substantial. (Transcript, p. 3480, line 24 to 3481, line 17). If there was any doubt about the amounts involved that was clarified by Captain Khoo's letter of April 11, 1997 (Vol. 3, Tab 30).

36.           Mr. Warna applied the 17% rule regardless of intended use, i.e., whether the ship was to sail in ballast or fully loaded. (Transcript, p. 3483, lines 16-18 and the discovery transcript read to him at Transcript p. 3487 to 3489).

37.           Mr. Warna believed at the time that if a vessel had frames wasted beyond 17% it was "unsafe, period". (Transcript p. 3483, line 1 to p. 3485, line 4).

38.           Mr. Warna and Mr. Hall decided in late 1996 to start applying the 17% standard to ships despite nothing in the various documents and instruments to support such a rule. They did not seek the permission of Ottawa to apply such a standard and Mr. Warna does not recall if he sought approval from his manager, Mr. Nelson. (Transcript, p. 3502, line 21 to p. 3505, line 7) Mr. Nelson, of course, said he was not aware of the 17% standard until April 1997 and he was unaware of any 17% rule of thumb in the Vancouver office (Transcript p. 1976, line 20 - p. 1977, line 17).

39.           When questioned with respect to the application of the 17% standard, Mr. Hall could not be clear on its origin. He was certain that neither his superiors in the region nor in Ottawa gave any direction on the issue. He never told them that it was being applied. (Transcript, p. 2768, line 4, p. 2769 line 18, p. 2776 lines 14-21.) Also in April of 1997 he was not aware of what criteria were applied by Class to determine acceptable wastage on structural steel in bulk carriers. In fact, Mr. Hall did not believe that classification standards were relevant to his obligation in reviewing wastage. Mr. Hall had no knowledge of the application of the 17% criteria in any other place in the world but confirmed that he had required shipowners to replace steel that was wasted beyond 17% prior to the arrival of the LANTAU PEAK. (Transcript, p. 2773, line 19 - p. 2776, line 12, p. 2786, line 9 - p. 2789, line 19).

40.           The 17% rule was not previously applied in a consistent manner. By way of example the M/V Blue West was allowed to do the repairs to 17% at another port. (Transcript p. 3490, line 14 to p. 3493, line 2, and see Exhibits P-23, P-26).

41.           The evidence clearly established there was no rule either in the Canadian Department of Transport or in any classification society which required frames with sections exceeding 17% wastage to be renewed. Moreover, the 17% rule has not been applied since the detention in issue and was never applied nationally. (Transcript p. 3489, line 26 to p. 3490, line 13).

42.           With respect to the 17% criteria being applied by certain inspectors in Vancouver, Mr. Streeter testified that he had no knowledge of the use of that criteria in 1997. In fact, he had never heard of the number until he attended for examination for discovery in 2001. He confirmed that Transport Canada in Ottawa did not have a steel wastage standard of 17% in 1997 or at any time nor were they aware of its use in Vancouver. Mr. Streeter agreed that 17% was not a generally accepted international standard for steel wastage and he was in fact surprised to see a number as low as 17% when he was asked about wastage of structural steel on a vessel during discovery. The evidence of Mr. Streeter regarding the 17% rule of thumb is significant. At discovery he said:

Page 227, Q. 934 - No I didn't expect that you were, but the impression that I was left with, and I remember you saying that this morning - I am sorry, I was left with the impression that you were a bit surprised to see a low - a number as low as 17%?

A. Oh I think I was surprised to see it as low as 17%. I was aware of the 25% existence.

Q. 935 -    Yeah. And you mentioned also that you thought that the number of 17% was something agreed between Mr. Warna and the shipowner?

A. Yes.

P. 229, Q. 948 -    That's -that gets me to a fairly interesting point. This figure of 17% was certainly set out in the report of inspection that -that resulted ultimately in the detention originally of the LANTAU PEAK in early April of 1997, and that was certainly a requirement that was imposed by Mr. Warna and Mr. Hall for the vessel to be in a position to sail: wastage of frame or frames wasted beyond 17% to be cropped and renewed?

A. That is correct.

Q. 949 - Does your office -does Ottawa have a corrosion standard of 17%?

A. No.

Q. 950 - Did you in 1997?

A. No.

Q. 951 -    Did any of your regional offices to your knowledge?

A. Not that I am aware of.

Q. 952 -    Certainly not the Quebec or Ontario or maritime office to your knowledge?

A. Not that I am aware of.

P. 231 Q. 960 -    So between 1996, when you became Director, and sometime in 2000, when this particular standard was adopted, as far as you know, there was no Canadian Government corrosion criteria, if you will, --

A. No, there weren't.

Q. 961 - -Applied?

A. We clearly made a management decision to work with the classification societies to interpret theirs consistently.

Q. 962 - When did you make that decision to work with the classification societies?

A. 1997, 1998. I am not sure.

Q. 963 - Before the LANTAU PEAK or after?

Q. No after.

P. 232 Q. 965 - The -you'd agree with me that it would be rather unusual if your Quebec regional office applied a 25% corrosion criteria and your Pacific regional office applied a 17% corrosion criteria, wouldn't you?

A. I agree it would be undesirable.

Q. 966 - It would be inappropriate?

A. Yes.

P. 234 Q. 975 - Are you aware of their [sic] having been any consultation in the Pacific regional area regarding 17%? In other words, consultation with naval architects, in-house consultation with marine engineers? You're not aware of anything of that sort?

A. I am not aware of any specifics leading up to the determination of that figure, no.

P. 237 Q. 979 - Do you know if the 17% wastage figure that has been or was - was applied in this case, and originally by Mr. Warna and Mr. Hall, was it ever applied to any other vessel prior to the LANTAU PEAK to your knowledge?

A. Not to my knowledge.

Q. 980 - You haven't taken any steps to determine- ?

A. I have not. I have not investigated to see if the 17% -- to tell you the truth today is the first time that I have heard that 17% is a rule of thumb.

P. 239 Q. 983 - Okay. Why don't you do this for me, then: please confirm for me that the 17% wastage criteria is not a standard that has ever been applied by any of the other regions in the country?

Mr. Carruthers: You mean the rule of thumb or standard?

Mr. Swanson: Guideline, standard, rule of thumb.

A. I can.

Q. 984 - -- I don't care.

A. I can safely say that it is not, but I will confirm.

43.           Mr. Streeter had never been told that the detention of the LANTAU PEAK was based on a 17% criteria even in the course of his consideration of the appeal and it was only in the final appeal letter dated July 18, 1997 that reference is made to the 17% diminution level. It is interesting to note that Mr. Streeter had no knowledge of the application of 17% in other cases in Vancouver in 1996 and 1997 and he agreed that the application of such a criteria by a few inspectors in the Vancouver office alone was completely contrary to the objectives that Mr. Streeter had for the Ship Safety division of Transport Canada. He also agreed that it was contrary to the spirit and intent of the Memorandum on Port State Control. He also agreed he never questioned the use of 17% by the inspectors (Transcript p. 2426, line 9 to p. 2429 line 5, p 2432, line 4 - 13).

44.           As set out above, Mr. Nelson confirmed he was unaware of any 17% standard prior to April 1997. Mr. Pantyik, in direct, said in his experience as a naval architect he had never come across such a low requirement (Transcript p. 2513, line 8 - 15). Mr. Zinged said he had never heard of such a standard. At page 16 of Mr. Zinged's report (Exhibit Y for identification) paragraph 24, he says "setting a limit of 17% ¼ is unsupportable". Mr. Schiferli, [an expert on Port State Control called by the Defendants] in cross-examination said he, as a Port State Control officer never applied a 17% standard. Indeed he said he has never heard of a 17% standard (Transcript p. 1345, line 8 - 25). Nobody who testified was familiar with such a standard except Messrs. Warna and Hall. Not a single defence witness, other than Messrs. Warna or Hall, ever tried to suggest such a standard was appropriate. The Defendants did not even attempt to call any evidence to support the suggestion by Mr. Warna that 17% was some kind of local rule of thumb. The lack of such evidence is significant.

45.           Significantly, a 17% standard is not applied to Canadian flag vessels (see Warna Examination for Discovery Q. 2312 - 2322 and answer to the undertaking, Exhibit P-31), meaning the Defendants in this case applied a more stringent standard to a foreign flag vessel than Canadian flag vessels in violation of the Tokyo MOU.

[169]        On the basis of the above analysis, I find that a reasonable and prudent Port State Control inspector would not have imposed a 17% wastage standard; in my opinion its imposition constitutes a breach of the duty of care owed to the Plaintiffs, and, as such, constitutes negligent conduct on the part of Inspector Warna.

[170]        A point should be made on the issue of verification of grounds for detention. As mentioned above, the verification would naturally come from evidence that would be expected and accepted in the shipping industry, including the Authorities to the MOU. In my opinion, on the evidence I have heard in the trial, the only verification that exists as a stable part of Port State Control inspection is that which comes from meeting the standards of a particular ships' Classification Society. In my opinion, it is not reasonable to dismiss this verification out of hand. This is exactly what was done in the present case.

[171]        Inspector Warna was very clear in his evidence that he did not accept Classification Society standards as evidence against which to judge hull corrosion; specifically with reference to the Lantau Peak he was of the opinion that the NK Class standards were unacceptable (Transcript p.3314-3317):

A     Sir, before I answer that I would also like, My Lord, that in all sincerity we believed that 7.5 millimetre is way to [sic] high, and it is -- and the reason why I'm saying My Lord -- I will answer Mr. Swanson's question later, My Lord -- is My Lord, that if the whole issue was to let the ship go because it was within the class rules -- and the class rules said, My Lord, that the wastage of 38.7 wasted and 46.4 wasted in even holds, you know, they were two dimension, My Lord, 12 millimetres and 14 millimetres, My Lord, that 46.4 percent wastage is okay because the ship followed all the class rules and therefore the ship should not have been detained, My Lord. I will ask Your Lordship, My Lord, please consider if this ship was considered safe with so many frames gone and wasted beyond that, with that kind of a wastage, My Lord, and we have on another occasion a ship coming under the Lloyds, My Lord, under the ABS, My Lord, or under the Bureau Veritas where the wastage limit is only 20 percent for the web and for the face plate. This becomes a precedent, My Lord. Then are we be in any position at all to detain the ship which is under the Lloyds, My Lord, or the ABS, or the Bureau Veritas because they have exceeded their class limit, My Lord, which in fact is way less than the NK, ClassNK, My Lord? We can't. Then we would be considered again discriminating against other classification and the other class ships, My Lord, and then we'll have far more law suits what we are facing now, My Lord.

Because in all principle and honesty to God, I believe that this ship, that 7.5 millimetre was way unacceptable wastage limit. That can be wasted 46.4 percent or 38.7 percent wastage, My Lord is way in excess than what I believed and what the general industry believed what the safe limit should be.

And please kindly repeat the question. I'll answer your question, sir.

Q    I would have to defer to Madam Reporter, I'm afraid.

THE COURT:      Let's see if she can find it.

MR. SWANSON:      Actually I think I can remember the question.

THE COURT:      Okay, do you want to do that or do you want to --

MR. SWANSON:      I'll do that.

Q    The question, sir, was you didn't go to management and say, in mid-May that: I've just learned that class standard is something different than what I've thought and we should go back and review the Shin-Toyo report to determine whether or not the information set out in the briefing note is accurate. You didn't do that, right?

A    That is correct, sir.

Q    And given what you said about the ClassNKK standard of 7.5 millimetres, what I'm left to understand, sir, is that if a ClassNK vessel comes to Vancouver, what you would do, because you believe 7.5 millimetres is unacceptable, or 7.6 or 7.7 millimetres is unacceptable, is you would detain those vessels even though they are fully within class. That's what you are saying, correct?

A    No, sir. I will have a look at the ship in its totality and based on the inspection, what I find, and based on my 26 or twenty -- almost like 35 years of experience dealing with the ships, I will be in a reasonable level to make a decision whether or not the ship is safe or unsafe. And if I believe that the ship is unsafe, My Lord, I will detain the ship. It doesn't matter which class it is.

[172]        It is abundantly clear that a factor in Inspector Warna's decision making was political in nature; he was very concerned that to accept the Class NK standard for corrosion would cause owners of ships built under different and apparently more stringent classification rules to complain, which would be a bothersome result. I do not accept this as a legitimate reason for rejecting a particular Class standard, in particular one from such a well established and well recognized Classification Society as Class NK. It should be possible to give reasons for detaining a ship against whatever Class standard and make it stick, if the reasons are well supported. The fact that it might be difficult to state the necessary reasons is no answer to avoiding doing so.

b. reporting to the Chairman

[178]        As indicated, all parties to the detention accepted that Mr. Streeter, as the Chairman of the Board of Steamship Inspection and, therefore, the most senior steamship inspector, had the authority to consider Inspector Warna's decision and make an overriding determination of his own. While this practice was followed on a belief that the authority for the detention was under s.310 of the Act, which I have found is not the case, I find that this practice is not in conflict with either the MOU or the Manual. Indeed, s.2.6.8 of the Manual contemplates a process of decision making leading to release from detention; it is only reasonable that changes to an initial detention order may be made by an inspector senior to the one who imposed the order:

2.6.8         Since detention of a ship is a serious matter involving many issues, it may be in the best interest of the PSCO to act with other interested parties. For example, the officer may request the owner's representatives to provide proposals for correcting the situation. The PSCO may also consider co-operating with the flag State Administrator's representatives or recognized organization responsible for issuing the relevant certificates, and consulting them regarding their acceptance of the owner's proposals and their additional requirements. Without limiting the PSCO's discretion in any way, the involvement of other parties could result in a safer ship, avoid subsequent arguments relating to the circumstances of the detention, and prove advantageous in the case of litigation involving "undue delay".

[179]        As the decision to detain the Lantau Peak made its way through the process of decision making to release, it is obvious that Inspector Warna was under an obligation to be accurate in his reporting of the evidence which acted as a basis for his decision. I find that, not only was he not accurate about why the detention was imposed in the first place, he was not accurate in the reporting of after-the-fact justifications.

[180]        Inspector Warna produced a "Briefing Note" for Mr. Streeter's consideration dated April 24, 1997, the admissible portions of which are as follows (Vol. 3, Tab 44):

The Malaysian flag vessel was boarded by the Port State Control officers in Vancouver on April 5 and 8, 1997 in order to conduct a Port State Control Bulk Carrier Inspection.

The Port State Control inspection programme is conducted according to procedures agreed to under the Paris and Tokyo Memorandums of Understanding on Port State Control.

The Bulk Carrier Inspection programme is in place due to the high loss rate of certain bulk carriers with subsequent loss of life and damage to the marine environment.

The "Lantau Peak" has been found to have at least twelve deficiencies, four of which are detainable structural deficiencies, and one is in regard to navigational equipment.

There are approximately 230 ship side vertical frames in Hold No. 1 to 9, with the exception of hold No. 6, which are heavily corroded. The corrosion exceeds NKK Classification Society recommended wastage limit of 25%. This figure includes seven detached/buckled frames in Hold No. 3 and six in the Hold No. 9. The maximum wastage recorded is 46.7%.

The main deck plating between all hatchcoamings has doublers of varying sizes. The doublers are not considered as a permanent repair since they do not adequately compensate for the loss of wasted/perforated deck plating underneath. The remaining deficiencies are general safety items.

This vessel was previously inspected and detained on January 25, 1996 in Vancouver and several deficiencies including detached frames and stress fractures in way of hatchcoaming were found.

[181]        I agree with the content of the following analysis prepared by Counsel for the Plaintiff of the evidence with respect to the accuracy of the Briefing Note prepared (CAP, pp.32-35):

56.           The briefing note ("BN") which was prepared in Vancouver by Mr. Warna, reviewed by Mr. Hall, and sent to Mr. Streeter by Mr. Nelson on April 24, 1997 is a very significant document (Vol. 3, Tab 44). The document is biased, misleading and deficient in many respects. It does not provide a correct description of the circumstances. It is wrong and misleading, and as a result, completely tainted the appeal process. The salient points are:

(a)           The BN was prepared initially on or about April 23 (Vol. 3, Tab 39) and was reviewed and sent to Ottawa on April 24 (Vol. 3, Tabs 44 and 47). It was prepared by Messrs. Warna and Hall (Transcript p. 3300, lines 12 - 23), although Mr. Hall does not recall being involved;

(b)           Mr. Warna prepared it because of the appeal process (Transcript p. 3301, line 12 to p. 3304, line 11);

(c)           Mr. Warna knew the BN was to give Mr. Streeter pertinent information to determine if the detention should be made, and he also considered his role, "in a way", to advocate his position (Transcript p. 3304, lines 8 - 21);

(d)           Mr. Warna was aware that Mr. Streeter wanted "accurate and uncoloured" facts and he knew Mr. Streeter expected him to verify all the background information in the BN (Transcript p. 3305, line 15 to p. 3306, line 4);

(e)           Despite that knowledge there were a number of inaccuracies and omissions in the BN including:

(i)            there were not 230 frames wasted beyond Class NK standards. In fact based on the Shin Toyo report relied on, not a single frame was wasted beyond Class NK standards (Transcript p. 3323, line 18 to p. 3324, line 18);

(ii)           it wrongly states the Class standard as a simple 25%;

(iii)          Mr. Warna, in preparing the BN had, but ignored, the Class NK report of April 21 (Vol. 3, Tab 36) which states the Vessel is within permissible class limits. Mr. Warna did not advise Mr. Streeter the Class NK architect from Seattle considered the Vessel within class (Transcript p. 3307, line 7 to p. 3310, line 26) Mr. Nelson said he saw the survey report and understood Mr. Takahashi to be saying the Vessel was within Class. (Transcript p. 1981, line 14 - p. 1983, line 10) Mr. Nelson went on to say he thought there was some confusion regarding the Class standard, but he also did nothing to clarify (Transcript p. 1994, line 20 - p. 1996, line 12). Importantly, this issue was not identified in the BN;

(iv)          the BN does not mention the application or existence of a 17% standard;

(v)           the BN says the Vessel was detained for one navigational deficiency but does not mention that deficiency had been rectified (Transcript p. 3320, lines 12 - 24) Mr. Nelson agreed clarification of this point would have been useful to Mr. Streeter (Transcript p. 1990, line 7 - 22);

(vi)          the BN says there were 4 detainable structural deficiencies but does not say the Vessel was detained for only 3 such deficiencies (Transcript p. 3321, line 16 to p. 3322, line 15);

(vii)         despite being aware the Vessel was owned by different owners in 1996, the BN makes no mention of this despite the reference to the previous detention in 1996 (Transcript p. 3325, line 23 - p. 3326, line 11). Mr. Warna says he did not think change of ownership was worth mentioning, although change of ownership is a port state targeting factor (Transcript p. 3326, line 23 - 26 and Vol. 5, Tab 172, p. 1094). Mr. Nelson confirmed change of ownership was an important factor (Transcript p. 1948), but it did not occur to him to mention that fact in the BN (Transcript p. 1986, line 6 - p. 1988, line 26);

(viii)        although there is no reference to "detached frames" in the 1996 detention record (Vol. 3, Tab 9) the BN says the Vessel was detained in 1996 by reason of, inter alia, "detached frames" (Transcript p. 3328, line 2 - p. 3329, line 14);

(ix)           there is no mention in the BN that holds 2, 4, 5, 6, 7 or 8 were never inspected and significantly Mr. Warna never told either his local management or Ottawa that the Vessel was detained for apparent deficiencies in holds 2, 4, 5, 7 and 8 that nobody ever saw (Transcript p. 3331, lines 8 - 24);

(x)            Mr. Warna did not tell Ottawa that his decision to require work in holds 2, 4, 5, 7 and 8 was based solely on a 1995 gauging report (Transcript p. 3332, line 23 - p. 3334, line 19);

(xi)           Mr. Warna was well aware the Vessel had traded since April 1995 with wastage in excess of 17% (as recorded in the Shin Toyo report) but did not mention that in the BN (Transcript p. 3365, lines 13 - 19);

(xii)          Mr. Warna knew he was obliged to advise flag state of the detention which flowed from the Tokyo MOU, and he knew flag state had written to Mr. Hall on April 10, 1997 requesting the Vessel be allowed to sail to Shanghai for repairs, but there is no mention of that request in the BN. He says it was not important (Transcript p. 3370, line 15 - p. 3375, line 7). Mr. Nelson also was aware of the importance of notifying flag state (Transcript p. 1958 - p. 1959).

57.           Mr. Streeter received and relied on the BN (Vol. 8, Tab 315, sub-tab 3 - p. 2228 to 2230). Mr. Streeter agreed that there was "no question" that he had received the BN from Mr. Nelson on the 24^th of April, 1997. He said that the initial purpose of the BN was to provide information for the Minister's office but agreed that it was the only information received in a more formal way from regional office. Mr. Streeter agreed that he had no choice at the time that he received the BN but to accept it as accurate but that he ultimately found out that it was not (Transcript p. 2471, line 9 - p. 2472, line 25). Mr. Streeter agreed that a BN must be accurate and verified (Transcript p. 2483, line 15 - p. 2485, line 26, p. 2487, lines 9 - 13). Finally with respect to the BN, Mr. Streeter agreed that the BN description of the condition of the frames in holds 3 and 9 suggested a more serious condition than was recorded in the inspection report prepared by Mr. Warna (Transcript p. 2492, line 1 - p. 2494, line 10). Mr. Streeter also acknowledges that the statements made by Mr. Nelson in his email of April 25^th are wrong. Mr. Streeter also agreed that none of his people ever directed him to Mr. Takahashi's report which confirmed that error.

58.           Mr. Hall did not prepare the BN which went to Ottawa, but he did see the document. He confirmed that he did not provide any other information to national headquarters of Transport Canada with respect to the matter although he recognized that various statements in the BN turned out to be inaccurate.    (Transcript, p. 2811, line 1 to line 17). Even though Mr. Hall recognized that inaccuracies in communications arose from the BN, Mr. Hall did nothing to advise Ottawa or the flag state that the information was wrong. (Transcript, p. 2814, line 3 to p. 2815, line 5).

[182]        It does appear that Inspector Warna intentionally drafted the Briefing Note in such a way so as to justify his detention order, rather than to communicate accurate information. However, I am not able to reach this conclusion on a balance of probabilities. Even if the appearance does not accurately portray the truth, in my opinion, at the very least, Mr. Warna's conduct is extreme neglect which would not be expected of a reasonable and prudent Port State Control inspector. Therefore, I find that Inspector Warna's failure to be accurate in the preparation of the Briefing Note, and Mr. Hall's failure to correct the inaccuracies once found, each constitute a breach of the duty owed to the Plaintiffs, and each breach constitutes negligent conduct.

3. The conduct of Mr. Nelson

[183]        On April 24^th, Mr. Nelson sent an e-mail to Mr. Streeter and attached Inspector Warna's Briefing Note (Vol. 3, Tab 47). In the e-mail he said he would be sending a letter with enclosures from Mr. Bernard on behalf of the Plaintiffs and made some specific comments on the evidence of the condition of the Vessel going to the belief he held that it was in poor condition and the evidence presented by the owners should not be accepted to allow the Vessel to sail either in ballast or with a cargo. In addition he commented that "if this vessel is released without repairs it would substantial [sic] undermine the Port State Control regime in general and the Bulk Carrier Inspection Program in particular". It is clear from this message that the ball was placed in Mr. Streeter's court for decision.

[184]        Given the concerns expressed in s.2.6.5 and 2.6.8 of the Manual concerning the serious nature of a detention, I find that, implicit in the standards directing care to avoid undue detention and delay, is the requirement of quality control of decision making. That is, to ensure that ship owners are treated fairly, an Authority should have in place a process of supervising the decisions taken by inspectors, particularly in the case of a hotly contested detention such as the one concerning the Lantau Peak.

[185]        I agree with the Plaintiffs' submission that a supervisor in Mr. Nelson's position owes a duty of care to do the following: be aware of the criteria for detention being applied by inspectors; ask necessary and appropriate questions of inspectors who detain a ship to ensure a proper and complete inspection was conducted and that grounds for a detention actually exist; encourage the introduction of expert advice in the decision making process respecting a detention and insist on it where the detention is strongly contested; and review the contents of reporting material prepared by inspectors to ensure its accuracy.

[186]        In my opinion, the evidence proves that Mr. Nelson failed to properly supervise Inspector Warna against the standard just described. It appears that Mr. Nelson reviewed Inspector Warna's Briefing Note, but did not do sufficient analysis of the available information to detect the errors in it. The following evidence he gave under cross-examination proves the point (Transcript, 2069-2070):

Q    Well, let me put it this way; your department detained the ship, correct?

A    That's correct.

Q    And they detained it based on the Shin-Toyo report. In other words, set out in the detention report is a requirement that any frames wasted beyond 17 percent identified in the Shin-Toyo report must be cropped and renewed. That's what it says, right?

A    That's correct.

Q    Okay, so you knew that the ship wasn't going anywhere until frames wasted beyond 17 percent in the Shin-Toyo report were rectified, right?

A    That was the intention, yes.

Q    Okay, and you knew that the plaintiffs were appealing that decision, right?

A    Yes.

Q    And so you knew that they were challenging number 1, the 17 percent, and number 2, that they were challenging the propriety of the detention generally, right?

A    That's correct.

Q    Okay, and so in response to that your department prepares a briefing note to go to Mr. Streeter, because you knew Mr. Streeter was the decision maker, correct?

A    Ultimately, yes.

Q    Okay, and you knew that Mr. Streeter was looking for accurate information from your department, not statistical manipulation, but accurate information, right?

A    That's correct.

Q    Okay, and that's not what he got, was it, Mr. Nelson?

A    It appears not.

[187]        The liberty Inspector Warna took in detaining the Lantau Peak did not appear to be of any concern to Mr. Nelson. I find that it should have been. I put strong weight on the fact that Mr. Nelson was not even aware of Inspector Warna's practice of imposing his unique and arbitrary standard of 17% for frame corrosion which is at the heart of the present claim. As a result, I find that Mr. Nelson's failure to properly supervise to the standard argued by the Plaintiffs is a breach of the standard of duty of care expected of a reasonable and prudent Port State Control inspector. Therefore, in my opinion, it constitutes negligent conduct on the part of Mr. Nelson.

B. The time that passed before the release of the Vessel

1. Mr. Streeter's responsibility for the delay

[188]        There is no doubt that the Defendants owe a duty of care to the Plaintiffs for expeditious decision making. This is the whole meaning behind Regulation 19(f) of SOLAS, which is specifically recognized in the MOU as follows:

3.12          When exercising control under the Memorandum, the Authorities will make all possible efforts to avoid unduly detaining or delaying a ship. Nothing in the Memorandum affects rights created by provisions of relevant instruments relating to compensation for undue detention or delay.

[189]        Within two weeks of the detention by Inspector Warna, the matter was directly before Mr. Streeter for a second level decision. As mentioned above, Mr. Nelson placed it there in his e-mail of April 24^th which passed on Inspector Warna's Briefing Note and his own comments on the status of the detention.

[190]        By letter dated April 23, 1997, Mr. Bernard on behalf of the Plaintiffs, made a detailed appeal to Mr. Nelson to release the Vessel. In turn, on April 24^th, Mr. Nelson faxed Mr. Bernard's letter to Mr. Streeter, with a cover sheet and the following documents (Vol 8, Tab 4): a letter dated April 23^rd from Captain Khoo to Inspector Warna stating that, on the basis of a Class NK section modulus calculation of the strength of the Vessel's hold frames (which was included) and after some repairs to be done in Vancouver, the Vessel was well capable of proceeding to Shanghai for the balance of repairs; the Survey Report of Mr. Takahashi, Surveyor for Class NK in Seattle dated April 23, 1997, which offered the recommendation that, upon repair of the detached frames, the Vessel could proceed to Shanghai for further repairs; and the Seaworthiness Certificate dated April 15, 1997 of Mr. Koshino, Surveyor for NK Class which makes a statement similar to that provided by Mr. Takahashi.

[191]        The hand written note on Mr. Nelson's fax reads:

Bud,

As discussed, & further to my e-mail, please find attached "some" of the correspondence with the class, owners, and P & I of the "Lantau Peak".

[192]        I find that by Mr. Bernard's letter, and by the documents forwarded by Mr. Nelson, Mr. Streeter had enough evidence to move forward quickly to try to reach an accommodation with the Plaintiffs on the issue of repairs, and, if none was possible, to go ahead and make a second level decision without delay. The full contents of Mr. Bernard's letter are as follows:

April 23, 1997

Transport Canada

Ship Safety

800 Burrard Street,

Vancouver, B.C.

Attention: Mr. Phil Nelson      

Dear Sirs:

Re:           LANTAU PEAK

Our File No. 022650/332

We write further to our meetings with Transport Canada to more formally place on the record owners' position with respect to the report on inspection and the detention of the above vessel.

Messrs. Warna and Hall acting under the apparent authority of the Memorandum of Understanding on Port State Control attended on board the vessel on the 5^th and 8^th of April. Inspector Warna took responsibility for consideration of the condition of the structural members of the vessel and in the course of doing so reviewed the hull condition report dated January 9 - 11, 1995. We understand that Inspector Warna also reviewed the situation with respect to some work that was done on the vessel when she was in Vancouver in January of 1996 around the hatches on the main deck area and observed that there had been no reoccurrence of the steel cracking which has been noted at that time.

The report on inspection required work in all holds except No. 6 and in particular, he required the following:

"All side vertical frames with sections exceeding 17% wastage in holds No. 1, 2, 3, 4, 5, 7, 8 and 9 as listed in the Hull Condition Report dated January 9 - 11, 1995 to be cropped and renewed."

Although the need to perform all of the work in Vancouver was doubted, owners' investigated the repair costs at Vancouver for the steel work referred to in the report on inspection. They determined that they could well exceed U.S. $4,000,000. At the same time enquiries were made in Shanghai where it appears that the costs of doing the same work would be approximately U.S. $1.1 million. The difference is of course significant and has tremendous financial implications for the owners of the vessel.

On the basis of the financial concern but also in recognition of the fact that the vessel has safely traded for some time in her current condition and that class were firmly convinced that a trans-Pacific voyage was without danger a meeting was arranged with Coast Guard to discuss a significant reduction of the requirements. The meeting itself was off the record but at the time a certificate from the ship's classification society NKK was presented. (That document along with the report of the NK surveyor from Seattle, Mr. Takahashi, and calculations with respect to the strength of the frames have now been formally submitted to Ship Safety by the owners with owners' letter all of which are attached to this letter).

As a result of the suggestions made during the meeting, a further investigation was made by owners with respect to certain areas in what was said to be the mid-ship portion of the vessel. In connection with that investigation Mr. Takahashi travelled from Seattle and boarded the vessel on April 19th. Upon completing his inspection and consideration of the issues Mr. Takahashi, who is an experienced naval architect, issued a report summarizing his observations and recommending that the vessel may proceed to Shanghai, China after the completion of repairs to damaged hold frames as outlined in the earlier NK report authorized by Mr. Koshino of the Vancouver office.

The investigation by NK continued with calculations being made in Vancouver and Tokyo concerning the section modulus of the hold frames. Copies of those calculations have been provided to Ship Safety. The conclusion or result is described in the calculations and shows a strength of almost 300% of what is required.

A second meeting was convened with Ship Safety on the 22nd of April. The meeting was also off the record but an opportunity was given in the course of the discussion for Ship Safety personnel to interview and question both Mr. Koshino of the Vancouver NK office, who is an engineer, and Mr. Takahashi of the NK Seattle office who is a naval architect. In any event, we wish to summarize below the advice provided to owners by these very experienced and expert NK surveyors. We particularly rely on the observation and findings of Mr. Takahashi given his expertise in naval architecture. The conclusions are as follows:

1.              That with respect to the strength of the vessel to withstand a voyage to Shanghai there is nothing in the material to indicate that the longitudinal members of the ship which provide the strength with respect to bending stresses are in anything but good and proper order. The calculation of the strength of these members is generally made without considering the presence of the traverse hold frame members which are subject to Inspector Warna's direction.

2.              There is no obvious deformation in either the side shell plates or the hold frames with the exception of frames in cargo holds number 3 and 9 which are to be repaired.

3.              There is no apparent grooving along the welding joints between the plates or along the welding connection at the hold frames and, in any event, the thickness readings of the shell plates show them to be within acceptable limits.

4.              The main deck plates outside the hatch openings although slightly eroded are within permissible limits.

Based on the rather thorough investigation and consideration of the situation of the NK class representatives, the owners of the vessel strongly submit to Ship Safety that the detention should be lifted to enable the vessel to proceed to a repair yard at Shanghai immediately after the repairs recommended by the NK report of April 15, 1997 have been completed. Calculations have been made which would indicate that with respect to the bending forces the vessel could proceed either with cargo or in ballast. As a greater precaution, given the calculations of the section modulus provided to you owners are prepared to have the vessel proceed in ballast by a southern route.

We believe that the request now being made of Ship Safety is practical and sensible. We do not believe that the conclusion with respect to the need for replacement of the frames in all holds except No. 6 is based upon a full understanding of the stresses and the naval architectural considerations that must be reviewed before one can properly reach a conclusion as to the strength and the ability of the vessel to withstand the elements of the voyage.

The mandate of Ship Safety under the Port State Control Memorandum in situations such as the one currently being considered is described in section 3. In particular, section 3.7 states that:

"In the case of deficiencies which are clearly hazardous to safety, health or the environments, the Authority will except as provided in 3.8 ensure that the hazard is removed before the ship is allowed to proceed to sea and for this purpose will take appropriate action, which may include detention."

In our view, particularly given the strong evidence and observations submitted by the classification society representatives it cannot be said that there are deficiencies which are "clearly hazardous to safety, health or the environment". It is not sufficient to simply explain that there is a difference of opinion. It is essential that Transport Canada demonstrate "clearly" that their position and the basis of the detention is justified.

Section 3.8 goes on to provide as follows:

"Where deficiencies referred to in 3.7 cannot be remedied in the port of inspection, the Authority may allow the ship to proceed to another port, subject to any appropriate conditions determined by that Authority with a view to ensuring that the ship can so proceed without unreasonable danger to safety, health or the environment."

The economic consequences of complying with the direction in the report on inspection would be disastrous for the owners of the vessel. The difference between the cost of the repair work at Vancouver and the cost in Shanghai is, as we point out above, very great and accordingly it can be said that the deficiencies "cannot be remedied at the port on inspection". It is without doubt necessary and proper to take into account the obvious economic impact in reaching conclusions under these provisions where the vessel can proceed without unreasonable danger which is clearly the case for the proposed voyage.

We have provided you with owners' submission which requests that the vessel be able to make the trans-Pacific voyage and we ask you to provide us with your detailed response as soon as possible.

Yours very truly,

CAMPNEY & MURPHY

Per.

P.G. Bernard

In addition, I find that the Defendants were placed on notice by Mr. Bernard that the detention was considered undue, and that serious economic consequences would result from maintaining the detention conditions imposed by Inspector Warna. It is also important to note, that the Plaintiffs were very willing to cooperate by following the repair recommendations of Class NK.

[193]        Inspector Warna's detention order was not revised by Mr. Streeter until July 18^th. In my opinion, on the evidence, there is no explanation for this delay other than the fact that it simply took three months to move from the decision to detain to another point in the decision making process.

[194]        Mr. Streeter's evidence respecting what took place after Mr. Bernard's letter was forwarded to him is noteworthy in two respects: first, on his own evidence, it is very clear that Mr. Streeter had delegated control over the second level decision making in his own office with respect to the Lantau Peak; and, second, Mr. Streeter is critical of the decision making that did take place with respect to the Vessel.

[195]        With respect to the delegation of control issue, Mr. Streeter made the following statement under direct examination:

Referring to Mr. Bernard's letter (Transcript, p.2237):

A              No. I mean, I clearly recall having a discussion on the letter and I clearly recall not paying a significant amount of attention to it, simply because, as I said, I was on a -- I was on a learning curve. I expected at the time that the subject matter experts would deal with it. I signed it. I don't know that -- I think if you had a -- if you have a look at the record that probably was sent to Mr. Day for response or analysis or something, but I don't really remember that.

Referring to Mr. Nelson's e-mail of April 24^th passing on Inspector Warna's Briefing Note: (Transcript, p.2244):

A    I'm afraid to say that my reaction was probably to simply file it at the time. It was an issue that I knew was under consideration by Mr. Day and I don't -- I don't recollect being that aggressively involved at that stage. As a matter of fact, I specifically recall receiving an e-mail from someone that indicated if I jumped in too heavily that I could totally discombobulate the port state control program. I mean, I was learning and I think I had a reputation for jumping in before I tested the water, and I was not that aggressive early on.

In short, I don't think that I interpreted this at the time as an appeal to the Chairman of the Board.

Referring to a letter dated April 25^th from Mr. Day to the Malaysian authorities regarding the detention and what was believed to be the condition of the Vessel, which was copied to Mr. Streeter (Transcript, p.2245):

A    I'm not sure, to be very honest, when I would have read this. I mean, I would have looked at this as something Mr. Day was dealing with on a detention. His normal job. I don't -- I was aware at the time that a port state control detention implied notification, normally notification through Department of Foreign Affairs and International Trade in Ottawa, but we've also -- we had also taken to, at times, if we were not getting the reaction from the flag state, to write directly. I take it this was one of those times.

I notice I'm copied on it, which meant that certainly a copy came to my office, but I frankly don't remember what reaction I had. I don't think it was that significant.

[196]        Further regarding control, under cross-examination Mr. Streeter also said the following:

Referring to the fact that Mr. Bernard's letter was an "appeal" (Transcript, pp.2334-2335):

A    I think at that -- I don't know why at that time I did not connect with appeal. I think, when we talk in terms of that at discovery, you know, by then I had had four and a half or five years of being Chairman of the Board. At the time of the LANTAU PEAK, I mean the ink was probably hardly even dry on the appointment certificate. So it was simply a case of having --

Q    It was your first one, wasn't it, Mr. Streeter?

A    It was the first real issue, in terms of port state control, yes, sir.

Q    It was the first appeal to you as the Chairman of the Board of Steamship Inspection, wasn't it?

A    On a port state control detention, yes, sir.

Q    Yes, and in that respect you were a little uncertain as to how things should go forward, I take it?

A    I was, as I said earlier, cognizant of the fact that I was brought to effect change. Also cognizant of the fact that, you know, I'm -- I didn't want to be a bull in the china shop when I didn't really understand all of the implications of that. So yes, sir, I was -- there was some trepidation, clearly.

Q    Did you have somebody you could take advice from? Your predecessor or somebody else?

A    No, sir, my predecessor left under probably less than favourable circumstances.

Q    Yes, I remember.

A    I could take legal advice from departmental counsel, and I know I had at various points, I don't know if I took it specifically on the LANTAU PEAK. I relied on, as I said before, people like Mr. Day and to provide advice in respect of port state control.

Referring to a letter dated April 11^th from Captain Khoo addressed to Transport Canada (Attention: Mr. D.A. Hall and Mr. B.S. Warna) and to Canadian Coast Guard, Ottawa Ontario (Attention: Officer in Charge) requesting release of the Vessel (Transcript, p.2336-2338):

A    I believe it probably came through Mr. Day's office, but from Vancouver. My guess would have been that Mr. Nelson or Mr. Nash would have forwarded it. But I think there's a subtle distinction that the Canadian Coast Guard, which was in a different department and in a different buildings [sic] at the time, at this time even may have simply expected that this was an appeal because they're the ones that would not give clearance for the vessel to proceed. I don't recall if it came from -- I don't recall where the letter to me, if I -- if I did get it, would have come from, but my guess would have been internally from Vancouver to Mr. Day and then brought to my attention if necessary.

Q    And your instructions to the regional offices would be, I'm sure, Mr. Streeter, to send correspondence of importance through to your office as soon as possible after receipt, is that fair?

A    My instructions to all of the people that reported to me were that I don't want to see every piece of correspondence, you're responsible individuals, you have to determine what's important, what can embarrass the department, the Minister and ourselves, and make sure that I'm aware of that.

Q    And if there's an appeal of a decision in the region that is intended to go to the Chairman of the Board of Steamship Inspection you would expect the region to send it along to you, wouldn't you?

A    Well, in the first instance, if the appeal is in the conduct of the port state control officers, there is provision in the arrangements for what is known as a regional superintendent to review that. So Mr. Nash would, by necessity, be a first step in appeal. He may or may not advise me at that point. He may advise me as it accelerated up.

I don't mean to sound obtuse, I'm just not certain that at what point I saw this letter and from whence it came, sir.

Referring to the detention of the Vessel by Inspector Warna (Transcript, 2351-2353):

Q    And did you know by the end of April, 1997, Mr. Streeter, what kind of a survey had been conducted by your inspector in Vancouver on board the LANTAU PEAK on the 5^th and 8^th of April?

A    No, sir, I don't believe I did. I don't know at what point in time I was aware of -- I honestly don't remember if I saw the port state control inspections early or not, and I certainly did not question as to whether or not the survey was close-up or done from the deck or done from the bottom or at all.

Q    Were those -- I'm sorry, you finish.

A    At all. I just -- I don't recall -- I mean, I do not recall at any point in time questioning the integrity of the survey carried out by the Transport Canada port state control inspector, no sir.

Q    Did -- perhaps you didn't question the integrity. Did you question the methodology?

A    No, sir, I did not.

Q    You never did determine whether the surveyor looked down from the hatch, from the deck and saw what he saw, or whether he went to the tank top, did you?

A    No, sir, I personally did not do that.

Q    You don't know where he went, what he did, what he saw?

A    No, sir.

Q    Or what notes he made, other than the inspection report?

A    Other than the documents that were shown to me during discovery and any documents that you have on my file, that's all I --

Q    And I take it, Mr. Streeter, you never felt obliged to compare the nature of the survey that was done by your inspector to the nature of the surveys that were done on behalf of NKK, the government of Malaysia and the owners in this case?

A    No sir, I never felt personally obliged to do that.

Q    You, in your position as Director General and the Chairman of the Board of Steamship Inspection are obliged to rely on your people to do things carefully and properly, isn't that right?

A    I think any one that's in a position of that type is obliged on -- is obliged (a) that people will fulfill their duties in the manner in which they're suppose to; and (b) that there are systems in place of, you know, direct level supervision that ensure that happens. Obviously there has to be systems in place as well to deal with eventualities if it doesn't. But I didn't have any concern, any personal concern at the time, relative the quality of the inspection.

Referring to the preparation of the final decision letter of July 18, 1997 (Transcript, p.2664-2666):

Q    Now, let's look at the letter of July 18^th.

A    The next tab, sir?

Q    That's the next tab, yes. Is this letter your ruling on the appeal of MCM?

A    Yes, sir.

Q    And who wrote the letter, Mr. Streeter?

A    Well, sir, I don't know for sure but I believe that -- I believe Mr. Day would have.

Q    And what leads you to that conclusion, sir?

A    Well, I frankly, sir, did not write letters myself, so the letter came from Mr. Day's shop. Now, I don't know if Mr. Day personally wrote it or Mr. Tue-Fee or --

Q    Is this the first time that you've had to write a response to the shipowners with respect to their appeal to you as the Chairman of the Board of Steamship Inspection?

A    I don't recall. I don't -

Q    When I say "this" I mean this letter of July 18^th, of course.

A    Well, no, sir, I believe we had -- I believe my office had sent other correspondence to the shipowner. Now whether it was in -- I can't remember if it was the first time I directly responded to him or whether -- but it certainly was not the first time I directly corresponded with him, but I just can't remember if I responded directly before or not, sir.

Q    Well, I guess I'm putting some greater stake on this particular letter, Mr. Streeter, because I take this letter to be your response to the appeal.

A    This letter, sir, was what I considered to be the sort of end of the scenario, yes, sir. It was in effect a final ruling if you wish, sir.

Q    This is my decision and we will go forward from here, sort of thing.

A    Yes, sir.

Q    Right. And is that the first one that you in your permission of Chairman of the Board of Steamship Inspection had had occasion to write that type of letter?

A    It's the first one I had occasion to sign, yes, sir.

Q    So you again had to accept the practices as they were recommended to you by the people that worked for you such as Richard Day.