Canada v. Berhad, 2005 FCA 267

Date: 20050804

Docket: A-237-04

Citation: 2005 FCA 267

CORAM:        LÉTOURNEAU J.A.

SEXTON J.A.

SHARLOW J.A.

BETWEEN:

                         HER MAJESTY THE QUEEN IN THE RIGHT OF CANADA,

                                                     B.S. WARNA and D.A. HALL

                                                                                                                                          Appellants

                                                                           and

                                    BUDISUKMA PUNCAK SENDIRIAN BERHAD,

                 MARITIME CONSORTIUM MANAGEMENT SENDIRIAN BERHAD

                                                                                                                                      Respondents

                          Heard at Vancouver, British Columbia, on June 20, 21 and 22, 2005.

                                 Judgment delivered at Ottawa, Ontario, on August 4, 2005.

REASONS FOR JUDGMENT BY:                                                                     LÉTOURNEAU J.A.

CONCURRED IN BY:                                                                                                  SEXTON J.A.

                                                                                                                                  SHARLOW J.A.

Date: 20050804

Docket: A-237-04

Citation: 2005 FCA 267

CORAM:        LÉTOURNEAU J.A.

SEXTON J.A.

SHARLOW J.A.

BETWEEN:

                         HER MAJESTY THE QUEEN IN THE RIGHT OF CANADA,

                                                     B.S. WARNA and D.A. HALL

                                                                                                                                          Appellants

                                                                           and

                                    BUDISUKMA PUNCAK SENDIRIAN BERHAD,

                 MARITIME CONSORTIUM MANAGEMENT SENDIRIAN BERHAD

                                                                                                                                      Respondents

                                                    REASONS FOR JUDGMENT

LÉTOURNEAU J.A.

[1]                On April 5, 2004, Campbell J. of the Federal Court of Canada found the Federal Government liable in tort and ordered it to pay to the respondents damages totalling $4,344,859. He ruled that employees of the Government were negligent in detaining the respondents' ship, the Lantau Peak. Her Majesty the Queen and two steamship inspectors appeal against that decision.

[2]                In my respectful view, the appeal must be allowed. The decision is vitiated by a number of errors, notably by an application of the wrong legal regime to the facts of the case. For ease of reference, I include a table of contents that identifies the various issues considered in these reasons.

                                                                 Table of contents

                                                                                                                                                    Para.

Facts and judicial history                                                                                                                      3

The standard of review applicable to the decision of the trial judge                                                      21

The legal regime relevant to the case at bar                                                                                         22

a)         International Convention for the Safety of Life at Sea, 1974 (SOLAS)                 23

b)         Memorandum of Understanding on Port State Control in the Asia-

Pacific Region (MOU)                                                                                             25

c)         Canada Shipping Act, 1985                                                                                     26

The legal authority for inspecting and detaining the ship                                                                       27

Whether the ship should have been detained by the chief officer of customs

pursuant to section 329 of the Act                                                                                                      43

The standard of review applicable to the administrative decisions under attack                                     53

a)         statutory mechanism of review                                                                                    67

b)         relative expertise of the steamship inspectors and of the Chairman of

the Board                                                                                                                  68

c)         purpose of the statute                                                                                                 71

d)         nature of the question                                                                                                 76

Application of the standard of review to the facts: the reasonableness of the decisions

under attack                                                                                                                                      79

a)         the fax sent by the Captain of the ship                                                                         81

b)         the inspection that led to the finding that the ship was unsafe and to

its detention                                                                                                               90

c)         the Elander Report                                                                                                     99

d)         the Class NK Seaworthiness Certificates dated April 15 and May 5,

1997                                                                                                                       107

e)         the Flood Report                                                                                                     115

f)          the Vertinsky Report                                                                                                117

The reasonableness of the length of the detention                                                                              128

The respondents' allegations that the Chairman's decision rendered on July 18, 1997

was biased or created a reasonable apprehension of bias                                                                  148

Conclusion                                                                                                                                      156

Facts and judicial history

[3]                The background to this appeal is the inspection and subsequent detention for over four months by Canadian authorities of the respondents' ship, sailing under the Malaysian flag, which arrived in Vancouver, British Columbia in April, 1997.

[4]                The ship was a gearless bulk carrier with a gross tonnage of 62, 412 and was categorized as a "Capesize" vessel. It was built in 1977 in Japan under the supervision of the Japanese classification society Nippon Kaiji Kyokai (Class NK). The ship was first classed by Class NK in March, 1978 and remained classed with that society for its entire working life. At the time of its sale to the respondents in 1996, the ship was almost nineteen years old. Although a pre-sale inspection suggested that the vessel might, with proper maintenance, remain in active service for another ten years (see proceedings, vol. 4, at page 615), a more realistic assessment of the expected working life of such a ship was closer to the twenty-year mark (see the testimony of Mr. Akagi, compendium, tab 87, at page 1153). By the time of its detention in 1997, the vessel was engaged in a battle against corrosion that it would eventually lose. On December 23, 2000, it was sold for scrap (see appeal book, vol. 2, tab 118 and proceedings, vol. 4, at page 613). Over its history, the vessel engaged in worldwide trading for Showa Line of Japan and generally carried coal and iron ore from various source countries to Japan.

[5]                Mr. Biant Warna and Mr. David Hall, two of the appellants, were the government steamship inspectors who inspected the vessel and ordered its detention.

[6]                The respondents, Budisukma Puncak Sendirian Berhad (BPSB) and Maritime Consortium Management Sendirian Berhad (MCM), are both wholly-owned subsidiaries of Global Carriers Berhad, a company headquartered in Malaysia. BPSB was the owner of the vessel at all relevant times, having purchased the vessel in August of 1996.

[7]                The ship was not unknown to Canadian steamship inspectors. In January 1996, it had been detained in Vancouver by Inspectors Warna and Hall. The 1996, week-long detention had been justified, among other things, on the basis that the vessel's hatch coamings were corroded and that it was unseaworthy.

[8]                In the months leading up to its arrival in Vancouver, the ship underwent several inspections including a Port State Control inspection at Port Hedland, Australia on January 20, 1997. It also underwent Class NK inspections and surveys in China and Japan prior to departing for Vancouver on March 23, 1997.

[9]                En route from Kawasaki, Japan to Vancouver, crew members noticed that eight of the vessel's hull frames in Holds Nos. 3 and 9 had become detached. On April 3, 1997, the ship's captain sent a fax to the charterer's agent in Vancouver indicating that the detachment was attributable to heavy corrosion. By the time the ship arrived in Vancouver, five more frames had become detached, for a total of thirteen. Within each hold, all of the detached frames but one in Hold No. 3 were adjacent; there were seven in Hold No. 3 and six in Hold No. 9. Arrangements were made through the ship's agent in Vancouver for those frames to be repaired upon arrival in Canada. The respondents had also been advised to be ready for Port State Control inspection upon arrival.

[10]            On April 5, 1997, the ship arrived at Vancouver. A repairer boarded the vessel along with Inspectors Warna and Hall. Warna and Hall performed a Port State Control inspection and, as a result of that inspection, detained the vessel. It was taken off-hire the same day.

[11]            The Report on Inspection ("Form A" and "Form B") completed on April 5, 1997 indicated that both a Safety Inspection and a Canadian Structural Inspection had been performed in accordance with the Tokyo Memorandum of Understanding on Port State Control in the Asia-Pacific Region (MOU) by Inspectors Warna and Hall and that the following deficiencies had been noted, many resulting from corrosion:

Magnetic compass to be adjusted & swung....

Accommodation ladders P & S: cranes -

Pad eyes on cranes corroded - to be replaced

Galley door to alleyway - lock to be removed

Galley screen door to deck - handles to be replaced.

Galley doors to be marked to show exit to boat deck.

The wasted, weld crack and or buckled shipside vertical frames (i) 7 frames No. 3 Hold and (ii) 6 frames - No. 9 Hold affected section to be cropped and renewed.

No.1 Hold aft Bulkhead Port & Stbd vertical main frame side stiffeners wasted at the base to be cropped and renewed. Several other side main frame face plates and frame side stiffeners damaged affected sections to be replaced.

All side vertical frames with sections exceeding 17% wastage in Holds Nos. 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.

All deck plating with doublers between all hatch coamings to be permanently repaired (i.e. no doublers) instead plate inserts.

Ship holds and coamings to be further surveyed by the Class Surveyor and any recommendation to be included in the repair.

All above work to be done to the satisfaction of the ship safety surveyor and the Class Surveyor.

[12]            Four of the above deficiencies were expressly identified as detainable deficiencies. Although the detached frames in Holds Nos. 3 and 9 also constituted a detainable deficiency, no mention of this was made in the report due to the fact that it had already been agreed that this problem would be repaired upon arrival in Vancouver.

[13]            The Detention Order signed the same day, issued in accordance with the provisions of the Canada Shipping Act, R.S.C. 1985, ch. S-9 (Act), indicated that structural deficiencies were the reason for the detention and referred to "SOLAS Ch.1, Reg.11" which meant that the ship was found to be unseaworthy and would not be considered seaworthy until the structural deficiencies were repaired and until the adequacy of the repairs had been verified by port state authorities. A follow-up visit conducted by Inspector Warna on April 8^th led to the following notation:

As agreed to, all highlighted sections exceeding wastage 17% in the Special Survey Thickness Report Number S/2 995/95 dated April 12 to 21^st, 1995 of Shin Toyo Engineering Private Limited Singapore. Ship side vertical frames in Holds Nos. 1, 2, 3, 4, 5, 7, 8 and 9 to be cropped and renewed.

[14]            The Shin Toyo Report referred to by Inspector Warna provides detailed ultrasound readings of the thickness of the steel of the hold frames as of the date it was prepared, which was during a special survey of the vessel completed in Singapore in April, 1995. These readings provide a gauge of the extent to which the ship's hull frames were affected by corrosion at that time. I will refer to the report's conclusions later in discussing the reasonableness of the decisions relating to the safety of the ship.

[15]            Between April 5, 1997, the date of the initial inspection and detention of the vessel, and August 12, 1997, the date of the vessel's release, there was considerable communication between the appellants and the respondents concerning the vessel's status and the conditions that would have to be met in order to secure its release. There was also an exchange of correspondence at a higher level between Malaysian and Canadian authorities in their respective roles as representatives of the flag state and port state. The respondents expressed concerns about the extent to which Canadian authorities would insist that repairs be undertaken in Vancouver, rather than allowing the vessel to sail in ballast to China in order to complete repairs there at a much lower cost; they wanted to do only minimal repairs in Vancouver. The following chronology provides an outline of the exchanges that took place during the more than four months of detention:

Although the events which followed the detention will be reviewed in greater detail later in the reasons, the following key elements are worth underlining at this juncture.

[16]            On April 6, 1997, at the request of the respondents, Mr. Allan Elander, the principal of Elander Inspection Ltd., attended on the ship and did an ultrasound reading to gauge the thickness of the side shell frames in Hold No. 3. This hold was chosen because its frames were considered to be representative of the condition of the ship's cargo hold side frames and would therefore permit an assessment of the level of corrosion affecting the ship's frames (see appeal book, vol. 16, tab 1, at page 3273).

[17]            On July 11, 1997, Inspector Hall set out the conditions on which the vessel might be towed to China for repairs if, as requested by the respondents, they were authorized to do so.

[18]            By letter dated July 18, 1997, Mr. Bud Streeter, Director General of Marine Safety for Transport Canada and Chairman of the Board of Steamship Inspection (Chairman), issued his decision in the respondents' appeal of the initial detention decision. In it, the Chairman confirmed most of the existing conditions for a ballast voyage to China, but did modify the two levels of corrosion that would act as triggers for either the requirement to do some of the repairs in Vancouver prior to departure or the requirement to do the rest of the repairs in China upon arrival. There was no modification to the requirement of repairing the detached hull frames in Vancouver prior to departure. For a voyage to Shanghai in ballast, it was stated that all frames with web wastage of 33% or higher in Holds Nos. 4, 5, 7 and 8 would have to be repaired in Vancouver prior to departure. As for the remaining frames with high levels of corrosion, it was stated that only those frames with corrosion of 25% (as opposed to 17%) or higher would need to be repaired in China. The same 25% standard would apply if the ship's owners decided to conduct repairs in Vancouver with a view to making the return voyage fully loaded.

[19]            Although the vessel's compass was adjusted on April 18, 1997, the remainder of the work required by Canadian authorities did not commence until late July, 1997. In late July and early August, the vessel was repaired in Vancouver to the extent required in order to undertake the voyage in ballast to China for completion of repairs there. Following an inspection on August 11, 1997 by Inspector Warna, the ship was released from detention on August 12, 1997 and set sail for China, where outstanding repairs were completed by mid-October, 1997.

[20]            Although, as indicated above, the respondents appealed the decision of the Inspectors to the Chairman under subsection 307(1) of the Act, they did not appeal that second-level decision to the Minister of Transport, as they could have under subsection 307(3) of the Act. Instead, almost a year and a half later, they commenced an action against the government in tort for negligence in the Federal Court. The trial judge found in their favour, hence the present appeal.

The standard of review applicable to the decision of the trial judge

[21]            On appeal, this Court will not intervene with a trial judge's findings of fact or with his findings involving questions of mixed fact and law unless such findings disclose a palpable and overriding error. On questions of law, however, a standard of correctness applies. That standard also applies to the legal issue involved in a question of mixed fact and law where the legal issue can be easily extricated from the facts: Housen v. Nikolaisen, [2002] 2 S.C.R. 235 at paragraphs 8 and 10.

The legal regime relevant to the case at bar

[22]            In order to understand the nature of the decision under review, it is important to have a sense of the legal regime governing the decision to inspect and detain the respondents' ship. This regime includes international instruments, mutual agreements as well as Part V of the Act, the principal piece of domestic legislation in this area.

a)         International Convention for the Safety of Life at Sea, 1974 (SOLAS)

[23]            This instrument is the latest iteration of an international maritime safety regime which dates back to 1914. The current treaty was adopted on November 1, 1974 (1184 U.N.T.S. 2) and entered into force at the international level on May 25, 1980. Canada became a contracting party and acceded to SOLAS on May 8, 1978. SOLAS specifies minimum standards for the construction, equipment and operation of merchant ships and prescribes various certificates that ships must carry in order to demonstrate that they have met these standards. States that have ratified SOLAS implement the treaty by incorporating its requirements into domestic legislation. In Canada, this has been done under the Act as well as by means of regulations enacted pursuant to it. Therefore, while it may be correct to say that Canada has not implemented SOLAS in its entirety, it has incorporated much of the treaty into domestic law through the Act.

[24]            SOLAS represents a balance between respect for flag state jurisdiction and acknowledgment of the jurisdiction of the port state. Compliance with international obligations is verified by inspections and surveys that are carried out by representatives of the maritime administration of the port state, by representatives of the maritime administration of the flag state, or by organizations nominated by the flag state such as the recognized classification societies: see Gold, Chircop and Kindred, Maritime Law (Toronto: Irwin Law Inc., 2003) at pages 198-199. As was the case in this instance, inspections in Canadian waters of both Canadian and foreign-flag ships are carried out by the Canadian Steamship Inspection Service.

b)         Memorandum of Understanding on Port State Control in the Asia-Pacific Region (MOU)

[25]            The MOU is a non-binding mutual agreement which was concluded in Tokyo on December 1, 1993 by the maritime authorities of various Asia-Pacific states, including Canada. It attempts to harmonize and coordinate the process of Port State Control and the role of flag states, port states, shipowners and classification societies in ensuring compliance with international obligations such as those under SOLAS. Canada carries out its inspection role under the MOU pursuant to Part V of the Act.

c)         Canada Shipping Act, 1985

[26]            As noted above, the Act is the core piece of domestic legislation affecting navigation and shipping. It is through this legislation that Canada's participation in international instruments is implemented. In the same vein, it is through the regulatory powers of the Act that Canada carries out its undertakings under the MOU relating to inspections: see Gold, supra, at page 230. The Act is also, as we shall see, the source of the authority under which the decisions under review were made in this case.

The legal authority for inspecting and detaining the ship

[27]            The appellants submitted before the trial judge that they acted under the authority of section 310 of the Act. The section reads:

                                                                                                                                 (emphasis added)

Subsection 310(1) gives a steamship inspector the power to go on board any ship and inspect it. It also gives the inspector a discretionary power to assess the safety of the ship. When he considers the ship to be unsafe, he is then under a duty to detain it. The term "ship" is broadly defined in section 2 of the Act as including "any description of a vessel used in navigation and not propelled by oars". Some Parts of the Act are excluded from that definition, but they are not relevant to this case.

[28]            Subsection 310(2) grants the inspector a separate discretionary power to detain any ship in respect of which there has been a violation of the Act.

[29]            The respondents argued before the trial judge that a reading of the Act together with the Non-Canadian Ships Safety Order, C.R.C., c. 1452 (1978) (the NCSS Order) leads to the conclusion that Part V of the Act, in which section 310 is found, does not apply to their ship. Therefore, the respondents argue, the steamship inspector had no legal authority under the Act to detain the ship.

[30]            The NCSS Order is a regulation enacted pursuant to section 481 (now section 420) of the Act. The text of the two sections is identical. I therefore reproduce the current section:

[31]            The NCSS Order directs the application of section 110 of the Act (which requires certain ships to be provided with certificated engineers) and Part VIII of the Act (the provisions relating to ship safety, now Part V of the Act; section 310 is part of Part V) be extended to ships registered elsewhere than in Canada in certain circumstances. For example, the NCSS Order extends the application of what is now Part V of the Act to ships registered elsewhere than Canada that, among other things, are being used or operated at a place within Canadian waters: see subparagraph 3(c) of the Order.

[32]            The trial judge found, properly so in my view, that the respondents' ship met that criterion since it was coming to Vancouver to load a shipment of coal. From there, he relied upon subparagraph 6(a)(ii) of the NCSS Order to conclude that Part V of the Act had been complied with and, therefore, that section 310 of Part V did not apply. That subparagraph reads:

                                                                                                                                 (emphasis added)

[33]            The trial judge accepted the respondents' submission and ruled, as a matter of law, that the Act, in particular Part V and, therefore, section 310, did not provide the legal authority for the seizure and detention of the ship. Rather, he concluded that such authority was to be found in the MOU and SOLAS. Surprisingly, he came to that conclusion after having accepted that all persons involved believed that the action taken was as a Port State Control measure, that the detention itself was under section 310 of the Act, that the detention order was issued pursuant to the Act and that respondents' appeal to the Chairman against the inspectors' detention order was an appeal of a section 310 decision: see paragraphs 91 to 93 of his decision.

[34]            In fact, I am of the view that the trial judge came to exclude the application of the Act because of his misunderstanding of the purpose of the NCSS Order and his misapprehension of the Act.

[35]            I am satisfied that the whole of Part V relating to the safety of ships, including inspection powers to ensure the seaworthiness of a ship (section 310) applies to non-Canadian ships, either because of the broad statutory definition of ship in section 2 of the Act, or as a result of the extension of Part V to non-Canadian ships under the NCSS Order.

[36]            The NCSS Order creates, in subparagraph 6(a)(ii), a rebuttable presumption of compliance with the requirements of Part V of the Act for non-Canadian ships that possess a valid class certificate issued by a recognized classification society. Of course, conditions aboard a ship may change after the time a class certificate is issued. The hull or machinery of a ship may be damaged while loading or at sea, or may deteriorate, thereby causing a safety problem that Part V of the Act is designed to address. In other words, a valid class certificate is not an end in itself, let alone an immunity against safety inspections. Indeed, this is evidenced by the fact that Regulation 10 of SOLAS, for example, provides that the hull, machinery and equipment of a cargo ship "shall be surveyed on completion and thereafter in such a manner as the Administration may consider necessary in order to ensure that their condition is in all respects satisfactory". The provision requires inspections at intervals which cannot exceed five years. In addition to such periodical inspections, a tanker of ten years of age and over must undergo a minimum of one intermediate survey during the period of validity of its Cargo Ship Safety Construction Certificate.

[37]            Subsection 328(3) of the Act is to the same effect. A non-Canadian cargo ship that holds a valid Cargo Ship Safety Equipment or Safety Construction Certificate or an exemption Certificate relating to either of the certificates is exempted from an inspection but only in respect of matters dealt with by such certificates. Moreover, under subsection 328(3), that exemption no longer applies "where it is necessary to determine that the condition of the ship and its equipment corresponds substantially with the particulars set out in the certificates". I see nothing in the NCSS Order that expressly or impliedly excludes the general regime of steamship inspection for safety. Specifically, the NCSS Order does not, and does not purport to, exempt any foreign ship from the requirement to submit to safety inspections under section 310 of the Act.

[38]            The Act contains no provision authorizing the Governor-in-council to enact regulations exempting ships from safety inspections and shipowners from complying with safety regulations. Although section 421 of the Act gives the Minister the authority, in certain circumstances, to exempt foreign ships from the requirements of the Act, that authority does not permit any exemption from the provisions relating to the seaworthiness of a ship where the ship is unsafe and unfit by reason of its hull, equipment or machinery. Section 421 of the Act reads as follows:

                                                                                                                                 (emphasis added)

[39]            I am compelled to conclude that the trial judge was wrong to find that the Act did not apply to the respondents' ship because of the NCSS Order and, therefore, that the Act was not the legal authority under which the ship was detained. Contrary to what the trial judge found, the purpose of the NCSS Order was not to create this kind of exemption. The NCSS Order did not and could not legally have that effect.

[40]            It was also an error for the trial judge to conclude that the legal authority for detention was to be found in the MOU. At best, the MOU can provide a consensual authority among the maritime authorities who are a party to the agreement. However, the preamble of the MOU expressly indicates that "the Memorandum is not a legally binding document and is not intended to impose any legal obligation on any of the Authorities". Moreover, in Section 3 entitled Inspection Procedure, Rectification and Detention, subsection 3.2.3 preserves the scope of a local authority's power to take measures within its jurisdiction. After having described a suggested procedure for the inspection and detention of a ship, subsection 3.2.3 states:

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

[41]            As previously mentioned, SOLAS was ratified by Canada and implemented in part in the Act through section 316 and regulations enacted pursuant to section 314: see Gold, supra, at page 198. The two sections read:

                                                                                                                                 (emphasis added)

[42]            The NCSS Order and section 420 of the Act make these provisions implementing SOLAS in domestic law applicable to non-Canadian ships. It is therefore the Act, and not SOLAS the international convention, that provided the legal authority for the detention that occurred in the case at bar.

Whether the ship should have been detained by the chief officer of customs pursuant to section 329 of the Act

[43]            The respondents submitted that if this Court were to find that the Act applied, the detention of the ship should then have been ordered by the chief officer of customs pursuant to paragraph 329(1)(b) that I reproduce:

                                                                                                                                 (emphasis added)

They submit, therefore, that the detention by the inspectors pursuant to section 310 of the Act was illegal.

[44]            As the argument goes, section 329 is a specific provision dealing with non-Canadian ships holding a valid Safety Convention certificate. It is a specific provision that derogates from the general regime provided by section 310. It is, therefore, the applicable provision.

[45]            The submission is attractive at first glance, but it does not withstand a careful reading of section 329 and a proper understanding of that section's purpose.

[46]            Paragraph 329(1)(b) bestows a form of privilege on a non-Canadian ship holding a Safety Convention certificate, but it does so for the purposes of section 392. Section 392 is found in Part V under the heading "Ships Alleged to be Unseaworthy".

[47]            Provisions under this heading address the issues of the safety of the crew and their rights to lodge a complaint about the unseaworthiness of a ship or the sufficiency of their accommodation or, if charged with desertion or leaving the ship without leave, to request a survey of the ship. The survey can be conducted by a surveyor of ships appointed under the Act, a person appointed for that purpose by the Minister or, where such surveyor or person cannot be obtained without unreasonable expense or delay, by a surveyor appointed by the Court: see subsection 391(5) of the Act. Any person making this kind of survey possesses, for the purposes thereof, all the powers of a steamship inspector: see subsection 391(7). Generally speaking, pursuant to subsection 391(1), there shall be implied, in every contract of service between the owner of a ship and the master or any seaman, an obligation on the owner of the ship that the owner, the master and every agent charged with the loading, preparing or sending of the ship to sea shall use all reasonable means to ensure the seaworthiness of the ship from the beginning to the end of the voyage.

[48]            Section 392 allows any crew member entering any port in Canada to complain to the chief officer of customs about the safety of the ship for various reasons including undermanning, overloading or improper loading.

[49]            Obviously, section 392 and the other provisions under this heading of Part V serve a purpose different from, although complementary to, the general inspection regime under section 310 of the Act. They coexist with the general regime and in no way displace it. I reproduce sections 391 and 392, which I have just paraphrased, so that the reader can get a better sense of the purpose of this heading and of these two provisions:

                                                                                                                                 (emphasis added)

[50]            I should add that there is nothing unusual for the steamship inspectors and the chief officer of customs to coordinate their efforts and to exchange information and cooperate in the exercise of their respective powers of inspection and detention. Indeed, section 410 of the Act goes further. Where an officer of customs at a port receives, from a steamship inspector, a notice in writing that a ship has been found unseaworthy, the chief officer of customs at that port shall detain that ship until he receives notice in writing from the inspector concerned that the ship may be released:

[51]            Such written notice was given in the present instance on April 7, 1997 by Inspector Hall in a fax sent by Transport Canada, Ship Safety, to the Collector of Customs and Excise at Vancouver: see appeal book, vol. 7, at page 1423. Section 410 of the Act is a good example of the complementarity intended by Parliament between Transport Canada and Customs Canada with respect to the safety of ships.

[52]            Counsel for the respondents submitted that only customs officers could find foreign ships to be unsafe and order their detention. They alone under the Act, to the exclusion of the Steamship Inspection Service, the Chairman of the Board of Steamship Inspection and the Board itself, would have such powers over foreign ships. It would mean that only Canadian ships would be subject to safety inspections under the Act conducted by duly qualified, trained and experienced safety inspectors. I can find nothing in the Act that can support such differential and prejudicial treatment of safety issues.

The standard of review applicable to the administrative decisions under attack

[53]            For the reasons explained above, the trial judge erred by misconstruing the legal basis of the inspection that is the factual foundation for the respondents' claim for damages against the appellants. It is necessary therefore to analyse the claim anew, on the basis that the inspection was an exercise of the inspectors' discretionary authority under subsection 310(1) of the Act, and not the MOU and SOLAS.

[54]            A decision made by steamship inspectors under subsection 310(1) of the Act as to safety and seaworthiness of ships is, at law, a discretionary decision. If a ship inspector, in the exercise of that discretion, finds a ship to be unsafe, then the detention that ensues is mandatory.

[55]            The Act contains a regime for challenging the decisions of steamship inspectors. The first level of review is a reference to the Chairman under subsection 307(1) of the Act, which reads as follows:

                                                                                                                                 (emphasis added)

[56]            That procedure was followed in this case. It led to a substantial change in the decision of the inspectors.

[57]            If the respondents were dissatisfied with the decision of the Chairman, they could have challenged it directly by appealing to the Minister under section 307(3) of the Act, which reads as follows:

                                                                                                                                 (emphasis added)

[58]            While there is no statutory right of appeal from the Minister's final decision, it is subject to judicial review to the Federal Court under section 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7.

[59]            There is an issue as to whether a shipowner seeking damages as a result of an allegedly flawed ship safety inspection ought to exhaust the available statutory remedies before commencing an action for damages. In this particular case, the appellants attempted to raise objections on that ground in pre-trial motions, but those attempts failed before a Prothonotary, whose decision was not appealed: see Berhad v. Canada, 2003 FC 992 at paragraphs 30 to 38. In my view, it is not now open to this Court to question, in this particular case, the propriety of considering the respondents' tort claims in the absence of a challenge to the inspection decisions through the statutory process and judicial review. However, that question remains open for consideration in future cases.

[60]            In my view, the most important reason why a shipowner who is aggrieved by the result of a ship safety inspection ought to exhaust the statutory remedies before asserting a tort claim is the public interest in the finality of inspection decisions. The importance of that public interest is reflected in the relatively short time limits for the commencement of challenges to administrative decisions - within 30 days from the date on which the decision is communicated, or such further time as the Court may allow on a motion for an extension of time. That time limit is not whimsical. It exists in the public interest, in order to bring finality to administrative decisions so as to ensure their effective implementation without delay and to provide security to those who comply with the decision or enforce compliance with it, often at considerable expense. In this case, the decision of the Chairman was not challenged until, a year and a half after it was made, the respondents filed their claim for damages.

[61]            There is also a public interest in precluding the use of tort claims to engage in collateral attacks on decisions that are, or should be, final. The case of R. v. Consolidated Maybrun Mines Ltd., [1998] 1 S.C.R. 706 is instructive because, not unlike the present instance, it relates to a collateral attack on an order requiring that certain measures be taken to protect the environment while direct review proceedings were available under the Environmental Protection Act. In our case, the detention order requiring that certain repairs be done was not only aimed at protecting the marine environment, but also at ensuring the safety of human lives.

[62]            In Maybrun, the Supreme Court undertook a review of the statute and of the legislative intent behind it and concluded that persons charged with failing to comply with an order under that statute "cannot attack the validity of the order by way of defence after failing to avail themselves of the appeal mechanisms available under the [statute]": ibidem, at paragraph 65. In the Court's view, to permit such a collateral attack would encourage conduct contrary to the statute's objectives and would tend to undermine its effectiveness: ibidem, at paragraph 60. Although the circumstances of that case differ slightly from those in the case at bar, the conclusions reached by the Supreme Court are nevertheless relevant to the present issue. If an accused, who has a right to full answer and defence, is not permitted in a penal proceeding to use as a shield a collateral challenge to the administrative order that is the basis for the charge that he faces, it seems to me that, in similar circumstances, a party should be discouraged from employing a collateral attack as a sword in a civil proceeding of the kind that the respondents initiated.

[63]            However, having said that, the negative effects of permitting a collateral attack may be mitigated in the circumstances of this case by ensuring that the administrative decision that is the basis of the tort claim is reviewed in the same way, and under the same standard of review, as if it were challenged in judicial review proceedings. In this instance, the proceedings before the trial judge were launched against administrative decisions and challenged their legality and legitimacy. It was therefore incumbent on the trial judge to undertake a pragmatic and functional analysis in order to determine the standard of review applicable to the decisions in question. By failing to do so, the trial judge committed an error of law which warrants our intervention.

[64]            Our role now is to determine the standard of review applicable to the administrative decisions in question, and to apply that standard to the review of the administrative decisions as the trial judge should have done at first instance: see Housen, supra, at paragraphs 43 and 44.

[65]            The Supreme Court has clearly indicated that review of all administrative decision-making by a court, whether by way of judicial review or by appeal, requires the determination of the appropriate standard of review by means of a pragmatic and functional analysis. It is the fact that the decision under review originates with an administrative body that is determinative of the approach required, not the procedure by which the decision is attacked and reviewed by the courts. Any doubt on this issue was dispelled by the Supreme Court in its reasons in Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, where McLachlin C.J., writing for the Court, indicated at paragraphs 21 and 25:

The term "judicial review" embraces review of administrative decisions by way of both application for judicial review and statutory rights of appeal. In every case where a statute delegates power to an administrative decision-maker, the reviewing judge must begin by determining the standard of review on the pragmatic and functional approach.

[...]

Review of the conclusions of an administrative decision-maker must begin by applying the pragmatic and functional approach.

                                                                                                                                 (emphasis added)

[66]            In my view, the same principle applies when the attack on the decision, as in this instance, takes the form of an action for damages flowing from the decision rather than an application for judicial review of the decision. To suggest otherwise would be to increase the likelihood of attempted collateral attacks as a means of circumventing the deference which often results from a pragmatic and functional analysis. Such a result would run directly counter to Parliament's intent and to the message sent by the Supreme Court in Dr. Q, supra, which was to bring a more nuanced and contextual approach to the issue of curial deference towards administrative decision-making. While the courts must maintain the rule of law, their reviewing power should not be employed unnecessarily: see Dr. Q, supra, at paragraphs 21 and 26. I now turn to the four contextual factors that constitute a pragmatic and functional analysis.

a)         statutory mechanism of review

[67]            The statutory mechanism for review of inspection decisions is described above. The absence of a right of appeal of such decisions to the courts, and the mention that the decision of the Minister is final are strongly suggestive of deference to the Minister's decision.

b)         relative expertise of the steamship inspectors and of the Chairman of the Board

[68]            Steamship Inspectors are appointed by the Governor in Council pursuant to section 301 of the Act. These individuals cannot be appointed unless they have passed a satisfactory examination before the Board of Steamship Inspection, and have obtained a certificate to that effect from the Chairman of the Board (section 302). Steamship inspectors are barred from having any pecuniary interest in the construction or sale of steamships or their equipment or machinery and must take an oath of office (sections 302 and 303).

[69]            The Board of Steamship Inspection is composed of inspectors and such other persons as the Minister may appoint (subsection 304(1)). The Governor in Council may appoint any of these members as Chairman (subsection 304(2)). The Chairman need not therefore be qualified as an inspector. The Chairman is however, responsible to the Minister for the administration of the law relating to steamship inspection (section 306). The work of the Board involves expertise in the area of steamship construction and maintenance. These are areas with which courts have only limited familiarity whereas the inspectors and the Board, by virtue of their education, training and experience, including their frequent exposure to safety issues and their front-line perspective, have developed considerable expertise.

[70]            Furthermore, this experience will allow them to recognize where and when cooperation with other types of specialized expertise is required in order to effectively carry out their duties. Where, as here, the inspectors and the Board are resolving questions directly related to steamship maintenance and safety, they are acting squarely within that expertise and the reviewing court is at a considerable disadvantage. The factor of expertise is therefore suggestive of deference.

c)         purpose of the statute

[71]            The Act is the principal piece of legislation dealing with vessel use in Canadian waters. The legislation is broad in scope and has been amended considerably over time. Although the following list of legislative objectives was added to section 5 of the Act in 1998, it reflects the objectives of the Act as they existed in 1997:

The objectives of this Act are to

(a)            protect the health and well-being of individuals, including the crew of ships, who participate in marine transportation and commerce;

(b)           promote safety in the marine transportation system;

(c)            protect the marine environment from damage due to navigation and shipping activities;

(d)           develop a regulatory scheme that encourages viable, effective and economical marine transportation and commerce;

(e)            promote an efficient marine transportation system;

(f)            ensure that Canada can meet its international obligations under bilateral and multilateral agreements with respect to navigation and shipping;

(g)            encourage the harmonization of marine practices;

(h)           provide an appropriate liability and compensation regime in relation to incidents involving ships; and

(i)            establish an effective inspection and enforcement program.

[72]            Part V of the Act, entitled "Safety", sets out, among other things, the regime of steamship inspection and constitutes the domestic source of authority for Canadian participation in the international regime of Port State Control under the MOU. Through Part V, the Act seeks to ensure the safety of ships, and thereby to ensure the safety of crews, passengers and of the marine environment.

[73]            Decisions made under Part V relating to the inspection, detention and release of ships are polycentric in nature. They are informed by various considerations, including those listed under section 5 of the Act. Such decisions therefore cannot be divorced from considerations of an environmental, commercial, and indeed diplomatic nature.

[74]            As suggested by objectives (f) and (g), the Act operates in an environment that seeks the harmonization of marine practices and that requires cooperation at both the domestic and international level. Canada's participation in the MOU, and the relationship of that agreement to the Act, exemplify this trend and suggest that an awareness of such reciprocal arrangements must accompany decisions taken under Part V.

[75]            In this instance, the involvement of the flag state, the port state, the ship owners and the classification society demonstrates the complexity of the relations involved and confirms that although decisions to detain and to release taken under Part V are, at their core, decisions regarding marine safety, they are ones taken in light of a wide variety of factors and considerations. A polycentric decision-making process warrants deference from a reviewing court.

d)         nature of the question

[76]            The evaluation that leads the inspector to declare a ship unsafe involves the exercise of discretion and is essentially a question of fact. The same can be said of the decisions made by both the inspectors and the Chairman in relation to the extent of repairs required of a vessel before it can be considered seaworthy as well as the related question of the establishment of conditions on which such a vessel might be released. These are factual determinations which attract considerable deference on review.

[77]            On balance therefore, I find that the decision of the inspectors, and in turn that of the Chairman, should be reviewed on at least a standard of reasonableness simpliciter. Indeed, strong arguments could be made that the standard is or should be one of patent unreasonableness. Whether the standard is one or the other, I believe that both have been met. Given this finding, it may be helpful to reiterate what constitutes a reasonable decision. Iacobucci J., writing for the Court in Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, offered the following guidance at paragraph 55:

A decision will be unreasonable only if there is no line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived. If any of the reasons that are sufficient to support the conclusion are tenable in the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing court must not interfere (see Southam, at para.56). This means that a decision may satisfy the reasonableness standard if it is supported by a tenable explanation even if this explanation is not one that the reviewing court finds compelling (see Southam, at para.79).

Iacobucci J. further noted that it is the decision as a whole which must be reasonable, rather than each of its constituent elements. If the reasons offer tenable support for the decision made, then the reviewing court should not interfere with the administrative body's exercise of authority (see Ryan, supra, at paragraph 56).

[78]            The respondents have argued that no deference is owed to the decisions under review. Instead, they have suggested that Canadian port inspection authorities should defer to the classification societies in such circumstances. This submission is problematic. There are many classification societies in operation, and, although there are a small number of larger ones such as Class NK which are acknowledged as reputable, their standards are not uniform. Although Canadian authorities cooperate with the classification societies, they must and do retain final responsibility for the assessment of the safety of ships within Canadian waters.

Application of the standard of review to the facts: the reasonableness of the decisions under attack

[79]            The trial judge found that the initial detention of the ship up to April 21, 1997 was justified for safety reasons. However, he erroneously found that the detention after that date was unjustified in view of the Class NK opinion issued on that date that the ship was fit to sail to Shanghai for repairs: see his decision at paragraph 254. Not only was there ample and cogent evidence to support the decisions regarding the lack of safety of the respondents' ship and, therefore, its detention, these decisions were reasonable. The trial judge erred in substituting his views to those of the inspectors and of the Chairman when he should have deferred to their expertise and experience.

[80]            I will review some of the evidence that establishes the state of corrosion of the ship and explains the decision that led to its detention. That review will include some evidence that the trial judge erroneously rejected or ignored to the prejudice of the appellants.

a)         the fax sent by the Captain of the ship

[81]            On April 3, 1997, the Captain sent a fax indicating that "4 frames in Holds Nos. 3 and 9 are already detached from their welds to some extent and separated from the starboard side shell plating due to heavy corrosion and should be cropped out and renewed" (emphasis added). This information was retransmitted by the respondents' agent to the charterer on the same day. The fax of the respondents' agent also indicated "that the vessel will be inspected on arrival by the coast guard for port state inspection". There was no doubt in the agent's mind that the inspectors "will most definitely sight the damage and detain vessel until repairs are effected to satisfaction of class surveyors": see appeal book, vol. 7, tab 114, at pages 1285-1286.

[82]            The detached frames were first noticed by the crew while the ship was sailing to Canada from Japan. The Chief Officer on board inspected the detached frames and prepared the fax sent by the Captain of the ship who also went into the hold to inspect the detached frames. The trial judge found that the Captain accepted the statement of the Chief Officer printed on the fax: see the decision at paragraph 49.

[83]            The appellants tried to introduce into evidence the fax sent by the Captain of the ship. The trial judge refused to admit it on the basis that the opinion appearing on it was the opinion of the Chief Officer who was not called to testify and that it was, therefore, inadmissible hearsay. I should point out that the opinion of the Chief Officer was shared and accepted by the Captain who did testify at trial.

[84]            With respect, this was an error. The fax was admissible for two reasons. First, it amounted to a statement against interest by a senior employee of the respondents that, in his view, the cause of the detachment was heavy corrosion. That such an out-of-court assertion is admissible evidence in the proceedings is beyond doubt: see Sopinka, Lederman and Bryant, The Law of Evidence in Canada, 2^nd ed., (Toronto: Butterworths, 1999), at page 286. The admission is admissible either as an exception to hearsay because of the general adversary theory, as evidence of conduct or, as Wigmore contends, without the need to create an exception to hearsay "because the mischief, which the hearsay rule was designed to prevent, is non-existent": ibidem, at page 287. In Wigmore's view, the lack of opportunity to cross-examine a declarant is the main objection to the admissibility of hearsay evidence. Such objection does not exist in the case of a party's admission. At page 287, Sopinka, Lederman and Bryant explain in the following terms the lack of valid objection to admissibility:

It is illogical to suggest that it is objectionable for the admission to be received because there is no opportunity to cross-examine the declarant. If the party made the statement, the party cannot argue that he or she has lost the opportunity of cross-examining himself or herself, nor complain about the lack of personal oath. Moreover, it is always open to that party to take the witness box and testify either that he or she never made that admission or to qualify it in some other way.

[85]            After having reviewed the different theories for the admissibility of such evidence, the learned authors conclude that "elements of trustworthiness and the adversary theory and original evidence all combine together to justify the reception of this kind of evidence": ibidem.

[86]            Second, the fax sent by the Captain of the ship is also admissible because the inspectors were entitled to treat it as a credible indication not only of the damage that the Captain observed, but also of what he and the Chief Officer believed the cause of such damage to be. The fax may not be proof by itself that the damage was caused by corrosion, but it was reasonable for the inspectors to regard it as some evidence that the damage might have been caused by corrosion. In other words, the fax is admissible not for the truth of its content, but as part of the body of evidence that is relevant in assessing the reasonableness of the inspectors' decision.

[87]            The fax was therefore a highly relevant piece of evidence that supported the steamship inspectors' conclusion as to the seriousness of the situation and the reasonableness of their decision to detain the ship for safety reasons.

[88]            In addition, the condition of the ship was discussed with the Chief Officer during the course of the port state inspection. In his examination-in-chief (see transcript, vol. 15, at pages 2971 to 2974) Inspector Warna relates the following:

Q              Did you have any discussions with any of the crew respecting the condition of the ship?

A              With regards to the condition of the ship, when as I mentioned earlier, the chief officer and a crew member was with me.

Q             This is during the inspection, is it?

A             During the inspection. The chief officer in number 9 hold, he mentioned to me his worries about these frames detaching, and you know, the fear they had that probably the ship is going to break up, and they were sort of keeping a very close watch and they were worried. And that's not unusual for a seaman to feel that way because from my own personal experience, when the steel frame detaches from another steel, you get a kind of - just like, you know, the string of a guitar. You know, when you pull the string or it comes out the string, it makes a noise. Similarly there's a kind of a - with a very loud, sometimes it's quite a loud noise when the frame detaches from the ship side.

Now, I do not exactly experience myself breaking the ship, but I have experience when it happened when I was on board the ship during my inspection up in the north. So naturally such bang, you know, such noise of the frame breaking, it does worry the seaman who is at sea.

THE COURT:

That last point you made, sir, was that? When the frame - say it again.

A             Your Honour -

THE COURT:

Just the last, very last sentence you used.

A             That when a breaking frame and making noise, Your Honour, and the crew hearing those noises that the frame is making and, you know, like a kind of a little banging, banging noise, it worries the crew.

THE COURT:

Okay, I've got it.

A             Yes, because, you know, the fear is that, "Oh, is my ship sinking?" And then they starting to see what is happening on the structure, then sure enough they must have found that, you know, the damaged frames and actually that more or less made them worry more, and they might - the chief officer told me that, told me that he was worried that the ship, you know, was possibly breaking.

MR. CARRUTHERS:

Q             Now, with respect to these detached frames, during your inspection, inspections of the holds of bulk carriers and other ships, how frequently do you come across detached frames?

A             The only other ship I remember there was one ship which came with on arrival detached frames, just one. But generally the corrosion problem is quite prevalent on bulk carriers.

Q             What significance if any did this conversation you have with the chief officer, did it have any significance with respect to your decision to detain the vessel?

A             I sympathized with his concerns, but because of the fact that they were detached frames and there was overall corrosion, and all others, you know, the concern - all other condition of the structure I have seen, it made me conclude the ship is unsafe. So whether or not the chief officer had mentioned to me did not influence my decision to a great extent, but at the same time it more or less endorsed that what I am doing, because of the fact what I've seen doing the inspection, that the ship is unsafe. [sic]

                                                                                                                                 (emphasis added)

[89]            The respondents could have called the Chief Officer, who was their employee, to testify if they thought that the views of their second in command on the ship needed clarification or retraction.

b)         the inspection that led to the finding that the ship was unsafe and to its detention

[90]            The ship was inspected by Mr. Warna and Mr. Hall. Both were certified inspectors under the Act. Mr. Warna, who was 61 years of age at the time, had a long and vast experience with navigation, ships and navigation equipment and safety. He was a senior surveyor at Transport Canada. He had completed a four-year full-time Marine Engineer Course and obtained his certificate. He was a qualified chief engineer according to Canadian standards. He had also completed several technical and job-related courses such as port state control, marine repair workshop, welding inspection, non-destructive testing and pollution investigation.

[91]            Mr. Warna's experience and training also included studies in naval architecture, ship construction, bending movement (the transcript says "movement" when it should be "moment"), sheer forces of structures, grounding and effects of bilging. His qualifications and expertise were also recognized internationally. The following excerpts from the transcript, vol. 14, at pages 2857 to 2864 speak to his credentials:

Q             And we'll get to some of these other matters but while it's in my mind, we've just heard evidence from Mr. Hall as to his participation in the port state control program. Have you participated in port state control exercises outside of Canada?

A             Yes, I have.

Q             Perhaps you can tell us about those briefly.

A             Last year I gave a presentation on safety of bulk carriers in Australia on behalf of the Tokyo MOU, and there were 18 delegates - delegates from 18 countries.

Also last year I gave a seminar on port state control to the trainers of the Indian Ocean MOU member countries. Before that I have also jointly given a port state control seminar with Mr. Dave Hall in Malaysia, Vietnam, and also I did one port state control seminar in Korea.

Q             So from your evidence, we've heard in these proceedings thus far of the Asia Pacific or Tokyo MOUs, the Paris MOU, and yet there's additional MOUs out there that really, with the exception of what you've said to this Indian MOU, exist.

A             That's correct, sir.

Q             Now, before your course you took in marine engineering, did you study naval architecture?

A             Yes, I did.

Q             And what particular subject matters did that include?

A             That included naval architecture, ship construction of different type of ships, bending movement, sheer forces of structures, grounding, effects of bilging.

Q             Sorry, what was that?

A             Effects of bilging. That means as a result of grounding and if the structure is holed and the hold is flooded, what are the effects of that. Free service effect and - yeah, basically.

Q             Do you learn anything about the modulus calculations in that course or in any other course you may have taken?

A             Yes, I did.

Q             And was that part of this marine engineering course or - ?

A             It was a part of the marine engineering course on strength of material.

Q             Now, with respect to sailing experience, could you please tell us how many years you've sailed and on what kind of ships?

A             I sailed about 11 years on cargo ships, bulk carriers, tankers essentially.

Q             And in what capacity were you on the ship?

A             I have sailed also as chief engineer for about five years on cargo ships, and second engineer on bulk carriers and tankers, also chief engineer on tanker, plus I was chief engineer on a coast guard ship in Canada, and on lower capacities as boiler keeping engineer on several different cargo ships.

Q             Now, were these with one - sorry, these were with a variety of shipping companies?

A             That's correct, sir.

Q             And in what countries were these shipping companies based?

A             I worked with Indian shipping company initially, then I worked with the Maldivian shipping company. After that I worked with the German shipping company, then I worked with the Canadian shipping company out of Montreal, and then later with the Canadian Coast Guard as a chief engineer on a coast guard ship.

Q             Is that the Maldives, is that what you said?

A             Sorry, sir?

Q             Was it Maldives, is that what you said?

A             Maldive, that's correct, sir.

Q             And was there a different standard of maintenance applied by these ship owners to their ships?

A             Yes, sir.

Q             And how can you describe that generally?

A             At least one company I worked with which they were not very gung ho on maintenance standard, and I wasn't too pleased. I left the company.

There were other companies who were very proactive. They have their own standards and those standards were very high standards and they will not tolerate even a - you know, like paint being absent on any of the structure or dirty accommodation or what have we, the technical staff or the superintendents or technical managers of the company visiting the ship.

So there is a variance of standards with different companies for maintenance.

Q             Now, were these companies all classified with one society or another?

A             I beg your pardon please?

Q             Were these ships classified with one classification society or another?

A             Yes, different Classification Societies.

Q             Now, we've had some evidence in these proceedings with respect to - in this case we had capesized 9 hold bulk carrier. And certain, I guess, holds have been emphasized, particularly in the midship region in connection with the structural integrity of the vessel. Is there any, from your knowledge and experience, importance attached to number one hold as opposed to the rest of the - as opposed to say the midship holds?

A             Yes, a number 1 hold is relatively more important because it does take the sea, you know, the wave, like hammering sea, hammering from the - when the ship is, you know, sort of cutting through the sea. And so it does take, you know, it's more important and in case of a flooding of number one hold, then the ship has a tendency to go down by the - you know, by the bow and sort of plough into the sea deeper and deeper and more chances of sinking.

With regards to the middle ship holds, it's also a very important area especially in the topside deck area. The topside tanks and the middle ship double bottom tanks because this is where we have the effects of, you know, hogging and sagging.

Q             And you're familiar with those concepts?

A             Yes, sir, I am.

Q             And had you learned that as part of your studies or as part of your practical experience?

A             I learned about, say for example, hogging and sagging and different forces acting on the ship at sea when I was in the college. I've also enhanced my own knowledge during all these years of experience, acquired knowledge from reading different books, technicals and all kind of, you know, there's some safety assessment studies done by the IMO which are accessible through the website. So you know, all that has enhanced my knowledge.

Q             So what does a chief engineer - you've indicated you've been a - you're qualified as a chief engineer according to Canadian standards?

A             Yes, sir, I am.

Q             What does that entitle - what does that entail briefly?

A             I'm allowed to sail in the capacity of a chief engineer on any foreign-going ship, either propelled by steam, steam turbines or steam engines or propelled by diesel, right across the world without any restrictions.

Q             Now, I notice your résumé indicated that from 1965 to 1977, again we're at tab 1 here, that you were in Singapore?

A             I was from 1973 to 1976 working in Singapore in the capacity of a manager of the shipyard owned by the Port of Singapore Authorities.

Q             Okay now, as manager of the shipyard, what did your duties entail?

A             My role was to be in charge of all repairs, maintenance, periodical as well as preventive maintenance, of all the Port of Singapore Authority fleet.

Q             Okay now, how many vessels were in - I just noticed in your résumé it says '65 to '77. Am I reading something wrong here or -

A             I think what I mentioned was from '65 to '77, excluding three years as the manager of a shipyard.

Q             Oh, I see, okay, fine. Now, in this - being a manager of the shipyard, what was the nature of the Port of Singapore's fleet?

A             It had ocean-going tugs to handle the supertankers or VLCCs, very large cargo or crude carriers. And then it had a fleet of pilot vessels, smaller size tugs to handle the ships. It had also passenger ferries - yeah, basically, and then also the state-owned yachts of the government as well as of the premier.

Q             And were these vessels classified with societies?

A             The ocean-going tugs were.

Q             How many vessels did you say there were? I can't remember if I asked you.

A             About 104 if I remember rightly. [sic]

                                                                                                                                 (emphasis added)

[92]            The trial judge found that Mr. Warna did a cursory inspection of Holds Nos. 1, 3 and 9: see the decision at paragraph 168. However, this inspection has to be placed in its proper and full context.

[93]            As previously mentioned, Mr. Warna had discussions with the crew and the Chief Officer who reported the detached frames. Quite significant are the facts that between the time of the report of the detached frames and the arrival of the ship in Vancouver, five more frames had detached and that these detached frames, with one exception, were adjacent to each other in their respective holds, thereby weakening the structure of the ship.

[94]            Of great concern from a safety and seaworthiness point of view were the numerous doublers on the deck plates around and between cargo hatches. Doublers are metal plates installed over corroded areas, but they are not an integral part of the ship's structure and they do not contribute to its strength. They are accepted only on an emergency repair basis. At pages 2232 to 2234 and 2236 of the transcript, vol. 11, Mr. Warna expressed his concerns in the following words:

Q             Now in that statement are there significant items - or items that were of significance to you?

A             Well, the letter had a number of significant items that at the time I recall discussing particularly with Mr. Day. You know, Mr. Day, as we heard Mr. Nelson say, Richard Day was the director responsible at the time, acting director I might add, responsible at the time for port state control program. But when I - as I flip through the letter, which, you know, I have done obviously before I came here, as requested, there's a couple of issues that were of concern to me at the time, and remain.

And that was that we seem to have lost sight of the fact that there was a number of doublers on the deck plates, in way in particular of different cargo holds, cargo hatches and between hatches. And when you look at the strength of the longitudinal, the resistance of the vessel in a longitudinal sense, the deck is part of that longitudinal strength. And you know, there's a statement in here that there is nothing in the material to indicate longitudinal members of the ship are an issue. Well, there is. I mean, a doubler plate, and I'm sure you know what a doubler plate is.

But basically a doubler plate has no strength. It's only welded around the outside of the - and is not - doesn't contribute to - it's not an integral part of the ship structure, which is why they're not, why they're not permitted except in emergency repair basis.

So there were some issues in terms of longitudinal strength. As I recall that they were of significant enough concern to wonder about the integrity of the hatch coamings, because cut the hole in the deck for the hatch and you then have to build the sides up to restore the strength of the longitudinal - in the longitudinal plane.

So that was an issue; and the fact that

[...]

But as more information came and you tried to look back at it, there was some initial confusion, and then to me the issue was that - it really boiled down to ultimately whether or not the vessel had sufficient strength to first and foremost load and proceed; secondly to proceed in ballast, you know, with a weather routing, which is not an uncommon practice; and then thirdly, whether it had to proceed, you know, by tow, which again has happened.

So we had a discussion at that time, and the concern to me at the time was that everyone seemed to - and I asked that question. Everyone seemed to have, at the time, lost sight of the doublers on the deck. Because to me that was a bigger problem than the frame face wastage, given what rudimentary details we had at the time about the loss of some of the bulk carriers in the North Atlantic. [sic]

                                                                                                                                 (emphasis added)

[95]            In coming to his decision that the ship was unsafe and that substantial repairs had to be done before going back to sea, Mr. Warna took into consideration the cumulative effect that the thirteen (13) detached frames, the state of corrosion of other frames as we shall see, and the doublers had on the safety of the ship. Mr. Warna testified that Lloyd's, ABS, Bureau Veritas as well as Classification Societies' guidelines for the accepted percentage of steel wastage vary according to the cumulative effect that a large number of defective items would have on the ship in general and on the integrity of its structure. The more corrosion is widespread, the more the accepted percentage of tolerance of corrosion goes down, especially if a large number of longitudinal frames are wasted on the ship. Here are some excerpts of his cross-examination at pages 3419 to 3421 of vol. 17 of the transcript:

A             Well, My Lord, first and foremost I have to give an idea as to how the 17 percent came about, My Lord. It is - what we are looking at at the time when we do the inspection, My Lord, we are looking at the ship in general and the structure in general. The 17 percent has been - it's just like a rule of thumb which was based on some other factors, one of which is very important, the cumulative effect of the numbers of a structural item concerned. If there's a large number of structural items concerned, then naturally the percentage drops, My Lord. And this is not unusual, My Lord, the 17 percent.

This is reflected, My Lord, also in the Lloyd's guidelines for the wastages. This is - the cumulative effect is also reflected in ABS, ABS guidelines for the wastage. It is also reflected, My Lord, even more clearly in the Bureau Veritas guidelines for the corrosion, My Lord.

When we're looking at a large number of any structure member, then the percentage totals goes much much less, My Lord. And to be even more specific about it, My Lord, say for example, My Lord, the Lloyd's requirement. When we consider the top area, My Lord, top area is the deck plating and the longitudinals. If it is one isolated corrosion, My Lord, they allow only 20 percent. If it is - let's say all the plates within the midship of the section of the ship are wasted, wasted and the average wasted should not be more than 10 percent, My Lord. So that - and the longitudinal, My Lord, if the one longitudinal frame of the ship, the isolated wastage totals is 20 percent, My Lord. If there's a large number of longitudinal frames wasted on the ship, My Lord, the percentage goes down to 15 percent, My Lord. [sic]

                                                                                                                                 (emphasis added)

[96]            At the time of making their decision, Inspectors Warna and Hall had in their possession and considered the Shin Toyo Report made in 1995 pursuant to an ultrasound reading of the hull frames of the respondents' ship. The Report mentions a number of deficiencies. With respect to corrosion, it indicates that eleven frames located in Cargo Holds Nos. 3, 5 and 9 were found corroded and repaired and nine hatch cover brackets were also found corroded and partially repaired. It is worth noting that the thirteen (13) detached frames upon arrival in Vancouver two years later were also in Holds Nos. 3 and 9.

[97]            In the previous year, i.e. in January 1996, Inspectors Warna and Hall had ordered the detention of the ship and the repair of corroded frames, hatch coamings and cracks in relation to Holds Nos. 1, 3, 4, 5, 6, 7 and 8.

[98]            The evidence also reveals, including the coloured pictures filed as exhibits, extensive and excessive visible corrosion. Inspector Warna testified that it was one of the worst ships he had inspected in many years: see the transcript of his testimony, vol. 17, at page 3384. The respondents' agent, Commander Swa, was also quite alarmed by the state and level of corrosion he saw on the ship: see the transcript of his testimony, vol. 2, at page 299. The condition of the ship was serious. While at sea, the Captain of the ship posted a 24-hour a day watch on the holds looking out for the breaking up of frames. He had to alter the course of the ship on its way to Vancouver "for the good of the ship and for the crew": see the transcript of Captain Alorro, vol. 1, at pages 157 and 178.

c)         the Elander Report

[99]            The respondents retained the services of Elander Inspection Ltd. to perform an ultrasonic thickness examination of shell frames on the ship. The company tested the side shell frames of Cargo Hold No. 3, on the starboard side. As previously mentioned, this hold was selected for testing because the conditions of the side frames appeared to represent the general condition of the other cargo hold side frames. The report of the ultra sonic examination concludes:

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.

                                                                                                                                 (emphasis added)

[100]        Indeed, the results were telling. Mr. Elander measured each of the twenty-five (25) frames on the starboard side of Hold No. 3: see the testimony of Mr. Elander, transcript, vol. 11, at page 2145. Six of these frames were already detached and five were adjacent to each other. These frames were not tested because they were already marked for repair. Of the nineteen (19) frames tested, ten (10) were below Class NK standards, that is to say the web had a thickness of less than the 7.5 mm required. For example, frames 219, 224, 225, 226, 227, 230, 236, 237 and 238 had respectively a diminution percentage of 45%, 41.7%, 38.3%, 44.7%, 41.3%, 40.6%, 41.9%, 43.3% and 43.1% of the original thickness: see the Report in appeal book, vol. 16, at pages 3273-3274 and the testimony of Mr. Elander in transcript, vol. 11, at pages 2146-2147. Thus, sixteen (16) of the twenty-five (25) frames were below standard and at least five of the remaining nine (9) were not much above the minimum requirement. All but one had wastage above 25%.

[101]        Mr. Elander explained that, in order to perform the ultrasounds, he had to resort to fairly aggressive chipping to remove the heavy scale and rust that were on the steel. Asked if he was able to compare the amount of "scale off" that he had to do on the respondents' ship with other vessels that he had worked on, he replied:

No, I've been on lots of other ones, but I would say it might have been one of the more severe ones I've been on.

                                                                                                                                 (emphasis added)

[102]        On April 7, Inspectors Warna and Hall met on the ship with representatives of the respondents and members of Class NK. They were shown the Elander Report. They looked at the results and they could see that quite a few frames had further deteriorated since the Shin Toyo Report in 1995 (in the two-year period there was a further reduction in the thickness of the frames ranging from one to four millimetres): see the testimony of Mr. Warna in transcript, vol. 15, at pages 2980-2981.

[103]        There is no doubt that the Elander Report informed the opinion of the two steamship inspectors. What the trial judge made of the Report is, however, somewhat puzzling. At paragraph 142 of his decision, he asserted that he was giving weight to the evidence of Mr. Elander who had testified and explained his Report and the results of his testing of the hull frames. Yet, at paragraph 277 of the decision, he ruled that he would give no weight to the Elander Report evidence. I reproduce the two paragraphs where these conflicting conclusions are found:

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.

[...]

The evidence proves that decision making with respect to the repair of hull frames is a complex process involving expertise. As quoted in Section IV, Mr. Akagi testified that, whether a frame which does not meet Class NK standards needs to be repaired at all, depends on a Class NK surveyor's opinion, including an observation of the overall condition of the ship concerned. I agree with the Plaintiffs' argument that they were deprived of the application of this expertise by the arbitrary detention and release conduct of the Defendants. In my opinion, this fact ought not to work against the Plaintiffs. As a result, I give no weight to the Elander Report evidence.

                                                                                                                                 (emphasis added)

[104]        In my respectful view, the trial judge erred in refusing to give weight to the Elander Report evidence. While a decision as to the extent to which repairs are necessary before going back to sea involves a certain degree of complexity, the authority and responsibility for the taking of such a decision rest with the Canadian Steamship Inspection Service, not with a Class NK surveyor. The trial judge appears to have accepted, as part of his reasoning to exclude the Elander evidence, that the decision as to repairs depends on a Class NK surveyor's opinion. It is somewhat ironic that, as a result of such reasoning, Canadian authorities could incur liability for an erroneous decision taken by a private classification society as to the seaworthiness of a ship or, as was the case here, for a decision that differed from theirs, especially when Class NK itself denies any liability for any inaccuracies in its reports or certificates or any error of judgment, default or negligence of its officers, surveyors or agents: see the Seaworthiness Certificate, compendium, tab 50, at bottom of page 1, where the disclaimer is found. While the Canadian Steamship Inspection Service works in cooperation with Class NK, there should not be confusion of their respective roles and different interests. The Class NK interest in fixing its standards cannot necessarily be equated with the public interest that the Canadian authorities must serve.

[105]        Furthermore, it is not obvious to me, and the trial judge provided no explanation in this respect, how and why the detention of the ship deprived the respondents of a Class NK surveyor's expertise when Class NK performed surveys of the ship while in detention and issued two conditional Seaworthiness Certificates.

[106]        The trial judge simply had no justification for refusing to give weight to the Elander Report evidence.

d)         the Class NK Seaworthiness Certificates dated April 15 and May 5, 1997

[107]        The respondents rely heavily on the fact that Class NK issued two seaworthiness certificates for their ship. This is true. However, the certificates did not constitute an unrestricted license to sail. They contained a number of conditions and were issued only for the purpose of allowing a single voyage to Shanghai in order to have the mandated repairs done there at a better cost.

[108]        First, the April 15, 1997 certificate requires that the deficiencies related to safety equipment (magnetic compass, accommodation ladder, galley doors, etc.) be repaired before leaving. In addition, the deformed or cracked hold frames in Holds Nos. 3 and 9 must be permanently repaired by "crop and renew" before departure.

[109]        Second, the bending moment and shearing stress in the ship's longitudinal strength are to be minimized as far as possible.

[110]        Third, the ship is "to proceed only after having verified that, upon examination of weather reports as far as possible, the ship will not encounter any severe weather en route" (emphasis added).

[111]        Fourth, all the remaining deficiencies have to be permanently repaired in China in any case not later than the end of May 1997 (emphasis added).

[112]        I reproduce the narrative, the recommendations and the surveyor's notes appearing in the certificate:

1.             Narrative

The ship had arrived in Vancouver on 5^th April 1997 in ballast condition to load coal, and succeedingly inspected by Transport Canada Port State Control. As the result, the following deficiencies were pointed out and the ship had been detained:

(1)           Some facilities concerning safety equipment such as magnetic compass, accomodation ladder and galley doors are not in good condition.

(2)           Seven (7) pieces of hold frames in No. 3 cargo hold and Six (6) pieces in No. 9 cargo hold were deformed and/or cracked.

(3)           Several stiffners on transverse frames and vertical frames on aft bulkhead in No. 1 cargo hold were deformed.

(4)           Most hold frames in all cargo hold except No. 6 cargo hold were worn down in excess of 17% of original thickness, according to the previous thickness measurement report No. S/2995/95 dated April 12^th to 21^st 1995, provided by Shin-Toyo Engineering Pte. Ltd.

(5)           Several parts in cross decks were repaired by doubling plate, which never considered as permanent repair.

The shipowner intended to complete the repair at Shanghai, China and to effect the necessary repair at Vancouver, B.C., to the extent permitting a single voyage from Vancouver B.C. to Shanghai, China.

2.

[...]

3.             Recommendations for Voyage (Vancouver to Shanghai)

(1)           The facilities concerning safety equipment pointed out in 1.(1) above are to be permanently repaired.

(2)           The deformed and/or cracked hold frames in Nos. 3 and 9 cargo holds pointed out in 1.(2) are to be permanently repaired by crop and renew.

(3)           The bending moment and shearing stress in ship's longitudinal strength are to be minimized as far as possible to take consideration for loading/ballast condition for the voyage.

(4)           Sufficient provisions for riding crew and sufficient fuel oil are to be provided for the voyage.

(5)           The ship is to proceed only after having verified that, upon examination of weather reports as far as possible, the ship will not encounter any severe weather enroute.

4.             Surveyor's Notes

(1)           The shipowner and the shipmaster have agreed upon the foregoing recommendations.

(2)           The under signed Surveyor, having surveyed the M.V. "LANTAU PEAK", is of the opinion that the ship is in suitable condition to proceed on a voyage from Vancouver, B.C. to Shanghai, China, subject to compliance with the foregoing recommendations.

(3)           The deficiencies pointed out in 1.(3), (4) and (5) are recommended to be permanently repaired in any case not later than the end of May, 1997.

Survey was made without prejudice. [sic]

                                                                                                                                 (emphasis added)

[113]        It should be pointed out that the certificate indicates that the respondents (i.e. the shipowner) and the shipmaster have accepted and agreed to all the recommendations contained in the certificate. Insofar as the repairs ordered by the Canadian Steamship Inspection Service are concerned, the certificates underlines the respondents' desire to have them done in China rather than in Vancouver. Neither the respondents, the shipmaster nor the Class NK surveyor questioned their necessity. Indeed, the surveyor's recommendation stresses the necessity and the urgency of doing them by fixing a short time limit for their completion.

[114]        The May 5, 1997 Seaworthiness Certificate is to the same effect. It acknowledges that some of the repairs were done and it re-asserts the same conditions as in the previous certificate. The same time limit for doing the permanent repairs was maintained.

e)         the Flood Report

[115]        During the discussions that ensued with the respondents, Class NK surveyors and the Malaysian government as the flag state, the Canadian Steamship Inspection Service consulted Mr. Flood, a naval architect at the employ of Transport Canada, on the possibility of allowing the respondents' ship to sail to China for repairs. Mr. Flood showed his willingness to authorize the release of the ship, but, once again, only subject to conditions.

[116]        Mr. Flood proceeded to an examination of the section modulus calculations of hold frames performed by Class NK and found them generally acceptable. He noted that the Special Survey performed in Singapore (which led to the Shin Toyo Report) indicated substantial corrosion of the ship. At paragraph 7 of his Report, he inquired as to the status of the primary scantlings contributing to longitudinal strength in view of the extensive corrosion throughout the hull. Finally, he expressed the view that the vessel could be allowed to depart for Shanghai as recommended by Class NK, but with the following conditions:

1.             That a copy of the Gauging reports required by NKK in accordance with their thickness standard where 'suspect areas' are required to be examined at subsequent surveys, are received, reviewed and found within acceptable Class limits.

2.             A longitudinal strength calculation, stamped approved by Class, be carried out for the proposed ballast voyage, using the deteriorated scantlings recently determined.

3.             The vessel have onboard short term, restricted certification only for the proposed voyage.

We know from the Elander Report that in Hold No. 3, which was representative of the condition of the ship's cargo hold frames and where gauging tests were conducted, ten (10) of the nineteen (19) frames tested had a thickness below the standards of Class NK, six (6) were detached and five (5) of the remaining nine (9) were also close to the minimum standard. Again, the certification would be a restricted one, limited only to the proposed voyage.

f)          the Vertinsky Report

[117]        Dr. Vertinsky was asked by the appellants to give an expert opinion on the definition of risk, the methods used to determine the degree of risk, the issues involved in determining what level of risk is acceptable, the expertise, if any, required in assessing risk and deciding whether a risk is acceptable, the authority qualified to determine what level of risk is acceptable and, finally, the role of governments in regulating safety.

[118]        Dr. Vertinsky has a very impressive curriculum vitae and list of publications and conferences at the national and international levels. His qualifications are not in doubt with respect to the general principles applicable to risk, acceptable risk and risk assessment. However, the trial judge, at paragraph 146 of his decision, found the evidence irrelevant because of "the issues to be determined in the present action". This is the only justification that he provided for its exclusion. This is surprising since the questions of risk, acceptable level of risk and risk assessment lie at the core of the inspectors' decision regarding the safety of the ship. Even on the question of whether the inspectors were negligent in detaining the respondents' ship for safety reasons, I would have thought that the evidence was relevant. The weight to be given to it is, of course, another issue.

[119]        With respect, I find that this evidence is relevant and should have been considered.

[120]        The Report entitled "A Consideration of Risk Assessment and Acceptable Risk" provides assistance in understanding the role of safety inspectors. It assists in the assessment of the reasonableness of the inspectors' decision to detain the ship for safety reasons. It also sheds light on the role of Canadian authorities in regulating safety. I am content to summarize and discuss some of the conclusions reached by Dr. Vertinsky. They will reveal the relevance and usefulness of his Report.

[121]        I agree with Dr. Vertinsky, and this is an important conclusion of his to keep in mind when reviewing a discretionary decision of a steamship inspector relating to safety, that "risk is a measure of both the probability and the consequences of all the hazards of an activity or condition": see the Report in appeal book, vol. 28, at page 6579.

[122]        It is also important to underline, as Dr. Vertinsky does, that safety is not measured. It is judged and it is judged according to an assessment of an acceptable risk: ibidem. "An acceptable risk is essentially a value-based proposition determined by policy and/or by those authorized by governments to judge safety and/or by those exposed to the risk": ibidem. This is a reminder that the policy regarding safety is that of the Canadian authorities, not those of classification societies which, as previously mentioned, vary from one society to another. It is interesting to note in this context that after the release of the respondents' ship, Class NK raised its safety standards with respect to the wastage permitted regarding the web and face of a bulk carrier's frame. While a minimum web thickness of 7.5 millimetres applied at the time of the detention and still continues to apply, it has now added another requirement that corrosion of the web, the web plate and the face of the frame be within 25% of the original thickness: see the Thickness Measurement and Close-Up Survey of Hull Structural Members, Class NK 1999, appeal book, vol. 23, at pages 5100-5108; see also the testimony of Mr. Akagi, transcript, vol. 6, at pages 1148 to 1153. This is the same wastage limit percentage that the Chairman had retained in his decision of July 18, 1997 authorizing the release of the respondents' ship: see the decision of Mr. Streeter, compendium, tab 87.

[123]        Dr. Vertinsky explains the involvement of governments in regulating safety by reason of market failure and, on the issue of deciding acceptable levels of risk, by the need to provide a voice to those exposed involuntarily to risks. A market failure occurs, for example, when those who decide to take on a hazardous activity are not the only ones who bear its risks: ibidem, at page 6581.

[124]        Finally, he concludes that "in dealing with environmental risks many governments use the "precautionary principle" which suggests that in cases of doubt one should employ pessimistic assumptions thus lowering the levels of risks which are acceptable".

[125]        At the hearing before us, the respondents admitted that they were not discriminated against. Indeed, other ships have been inspected and detained for safety reasons for twenty-nine (29) years under the Act. They also recognized that the good faith of the inspectors and of the Canadian authorities were not in issue. The Canadian authorities were cautious in their assessment of the situation. Perhaps it can be said that they were too cautious. I am aware that the question of the "precautionary principle" was debated before the trial judge, including whether this principle, recognized in Europe, is customary international law, applies in Canada or not, and is governed by applicable provisions of federal law, binding federal/provincial agreements and international agreements to which Canada is a party: see the cross-examination of Dr. Vertinsky, transcript, vol. 8, at pages 1477 to 1485. However, I believe that, in the exercise of their discretion regarding the safety of the ship, the Canadian authorities were entitled to err on the safe side, irrespective of the "precautionary principle", so as to protect the life of the crew and the marine environment as required by the Act and their international undertakings.

[126]        To sum up, I believe that a review of all the above evidence clearly establishes that the inspectors had valid concerns for the safety and seaworthiness of the respondents' ship. The evidence supports their exercise of discretion regarding these issues. Their conclusion to detain was supported by the evidence and I cannot say that such conclusion was unreasonable.

[127]        This brings me to the respondents' allegation that the length of the detention was unreasonable.

The reasonableness of the length of the detention

[128]        Between April 5, 1997, the date of the vessel's detention, and August 12, 1997, the date of its release, the ship's file did not lie dormant with Canadian maritime authorities. As has already been noted, during this period there was considerable correspondence and communication between the ship's owners, Canadian maritime authorities both at the regional level in Vancouver and at the national level in Ottawa, the maritime authority of the flag state Malaysia and Class NK both in the United States and in Canada.

[129]        Class NK became involved shortly after the beginning of the detention. On April 15, 1997, as previously mentioned, Class NK issued a conditional Seaworthiness Certificate for the ship, which included recommendations for repairs accepted by the respondents and the shipmaster and a timeline whereby certain repairs were to be completed prior to a voyage in ballast and others before the end of May 1997, regardless of whether a voyage in ballast was authorized: see compendium, tab 39, at pages 835-836.

[130]        Prior to April 19, 1997, the respondents had attended an off-the-record meeting with Canadian Coast Guard officials in which the option of towing the ship to Shanghai in order to complete repairs there was raised. As a result of this meeting, a surveyor came from Class NK's Seattle office in order to inspect the vessel. The results of this survey were produced April 21, 1997, and indicated that Class NK was still of the opinion the ship could safely sail to Shanghai in ballast, along a southerly route, as long as the essential repairs identified in the April 15, 1997 survey were made prior to departure: see compendium, tab 42, at page 843.

[131]        On April 22, 1997, a second off-the-record meeting was held with Coast Guard officials and again the towing option was discussed. Representatives of Class NK from both Seattle and Vancouver were in attendance. A letter dated April 23, 1997 from the respondents' legal representatives to Transport Canada suggests that the respondents were willing to undertake the essential repairs identified in Class NK's April 15, 1997 survey report prior to departure. It also suggests that they were willing to follow the recommendations of Class NK relating to conditions for the voyage and, therefore, asked that Canadian authorities permit a single voyage in ballast to Shanghai along a southerly route: see compendium, tab 45, at pages 3212 to 3215.

[132]        At that stage, Canadian regional maritime authorities had indicated to the respondents that they would consider a single voyage in ballast to Shanghai for the purpose of having repairs completed there, as long as any frames affected by wastage or corrosion in excess of 25% of original thickness were repaired in Vancouver prior to departure. The requirement of repairing the detached frames remained in force. It was not challenged by the respondents. This position was reiterated by Ottawa in two letters dated April 25 and 30 to different representatives of the maritime authority of the flag state. The concluding paragraph of the April 30, 1997 letter signed by Richard Day, Acting Director or Policy and Planning, Safety and Security, Transport Canada, reads as follows:

The owner of the M.V. "Lantau Peak" is requesting permission to leave Vancouver to effect repairs in Shanghai after repairing only the thirteen buckled frames. In our opinion, the ship would not be safe to proceed to Shanghai in this condition but we would allow a voyage to Shanghai, in ballast, via a southerly route if repairs were conducted to all frames with wastage exceeding 25% in Hold No. 4, 5, 7 and 8, in addition to other non-structural deficiencies.

                                                                                              (see compendium, tab 46, at page 1467)

As this correspondence reveals, the trial judge's conclusion, found at paragraph 45 of his decision, that there was no relaxing of the initial 17% standard imposed by the inspectors until the Chairman's decision was rendered and that the respondents' arguments with respect to repairing to Class NK standards fell on deaf ears is simply not supported by the evidence and is therefore palpably and overridingly wrong.

[133]        The flag state responded in a letter faxed on the same day. Mr. Day, writing for Mr. Streeter, continued the exchange on May 2, 1997. In a letter addressed to the Maritime Division of the Malaysian Ministry of Transport, Mr. Day reiterated the fact that 180 frames were heavily corroded and were below Class NK standards. Of these 180 frames, 154 were corroded to an extent that even exceeded the 33% figure used by Class NK in the calculation of the modular strength of the ship. All of these frames would require repair prior to departure. I reproduce the key paragraph of that letter:

As a total of 180 frames are wasted beyond the Classification Society limit and 154 of these frames are in excess of the 33% figure used by class to calculate the modular strength of the ship, we would appreciate your confirmation that you agree that those frames wasted beyond these limits should be renewed prior to allowing the ship to proceed for further repairs in Shanghai.

                                                                                              (see compendium, tab 48, at page 3227)

[134]        Class NK issued a further conditional seaworthiness certificate on May 5, 1997, repeating the April 15, 1997 list of repairs which had to be completed prior to the end of May, and noting that the other repairs Class NK had identified as needing to be done prior to departure had now been completed: see compendium, tab 50, at pages 862-863. That same day, the respondents' legal representatives wrote to Canadian authorities asking for a decision on the release of the ship by the following day as well as contact information for the relevant decision-maker in Ottawa. The letter acknowledged that there had been a slight delay in the ability to contact the correct Malaysian authorities due to incorrect address information, but stated that this problem had now been rectified: see compendium, tab 51, at pages 860-861.

[135]        Canadian authorities responded the next day as requested, indicating that although the detached frames had been repaired and that general safety items were considered satisfactory, the problem of the corroded frames (as well as a smaller deficiency regarding the accommodation ladder) remained outstanding. The initial response also indicated that the respondents' letter had been forwarded to Mr. Day in Ottawa, and provided his contact information there: see compendium, tab 51, at page 1520. There was a further exchange of correspondence that same day, with regional authorities in Vancouver reiterating to the respondents their position that wastage exceeding 25% in Holds Nos. 4, 5, 7 and 8 be repaired prior to departure. The letter further urged the respondents to discuss the situation with flag state maritime authorities and then provide a response to Canadian authorities in Ottawa as soon as possible: see compendium, tab 51, at page 869.

[136]        A May 7, 1997 letter from Mr. Day in Ottawa to maritime authorities in Malaysia noted the lack of response from that authority to a May 2, 1997 fax from Ottawa: see compendium, tab 51, at page 1541. While this letter maintained the 25% corrosion limit, by May 15, 1997 Canadian authorities were proposing 33% as the level of corrosion which would be tolerated for a voyage in ballast. Any frames with wastage beyond 33% would require repair prior to departure: see compendium, tab 56, at page 2855.

[137]        It was not until June 23, 1997 that Malaysian authorities responded to the May 15, 1997 letter from Canadian authorities in Ottawa. The delay in responding was partially due to the flag state's decision to send their own surveyor to Vancouver on June 11, 1997 in order to examine the ship. They also pursued discussions with Class NK. The letter from Malaysian Marine Department Headquarters rejected the reference to 33%, indicating that such a figure was not a criterion to be followed but merely a "calculation example to express class' opinion on structural strength". The letter then referred to Class NK rules and the "thickness measurement standards" included in a June 3, 1997 letter from them to Ottawa. In response to a request by Ottawa for further calculations to be made on the section modulus of hold frames with diminished web thickness of 7.0 mm and 6.0 mm (and therefore below Class NK standards), Malaysian authorities argued that Class NK had completed those calculations and that the results indicated the ship's strength exceeded that required for a voyage in ballast. The request from Malaysian authorities was therefore for permission to have the ship sail in ballast to Shanghai and complete all necessary repairs there: see compendium, tab 61, at pages 2896-2897.

[138]        In the meantime, Mr. Flood, a naval architect employed with Transport Canada, reviewed the section modulus strength calculations which had been included in the respondents' April 24, 1997 letter to Canadian authorities. In his report dated June 18, 1997, Mr. Flood reviewed Class NK's standards regarding corrosion levels as well as their corrosion-related inspection process, noting that such inspection procedures did not appear to have been fully complied with by Class NK in this instance: see compendium, tab 60, at pages 2888 to 2890. Mr. Flood warned of the dangers of relying on percentage evaluations alone as a means of assessing the overall strength of a ship, but concluded that the ship could make the single voyage to Shanghai for repairs subject to the three conditions previously mentioned.

[139]        An internal memorandum sent June 24, 1997, from Bill Nash, Regional Director of Marine Safety for the Pacific Region, to Mr. Day expressed the opinion that the issue was not as simple as Class NK was suggesting. Mr. Nash indicated that Canadian authorities at the regional level in Vancouver had already made substantial concessions from the original deficiency list and that further allowances could not safely be accommodated: see compendium, tab 62, at page 2901.

[140]        Ottawa's response to the June 23, 1997 letter from Malaysian maritime authorities was sent by fax on July 3, 1997. It expressed concern over the adequacy of class survey procedures in this instance and indicated the need for an independent overall thickness gauging prior to sailing in order to confirm adequate strength for the ballast voyage. No mention of specific percentages for tolerable corrosion levels was made: see compendium, tab 63, at pages 1588-1589.

[141]        On July 8, 1997 the respondents faxed Canadian authorities in Vancouver and indicated they were awaiting a response from them to the fax sent the previous day as well as a Canadian response to the Malaysian maritime authorities' most recent position regarding the conditions for release of the ship. The fax also proposed a meeting with Canadian authorities on either the 11^th or 14^th of July and announced that it was investigating options for having the ship towed to Shanghai. It asked that Canadian authorities identify the conditions under which such an arrangement might be permitted and asked that they respond to the fax within twenty-hours: see compendium, tab 64, at page 2918.

[142]        In a letter dated July 11, 1997, Inspector Hall provided the respondents with an eleven-point proposal for towing the ship to China. No mention was made of any change to the Canadian position as to what repairs would need to be completed in Vancouver prior to departure: see compendium, tab 65, at pages 2926-2927.

[143]        Meetings were held with Canadian regional authorities on July 14 and 15, 1997. The purpose of these meetings was to discuss the towing conditions as well as the repairs to be completed in Vancouver prior to departure. In a July 15, 1997 letter, the respondents indicated to Canadian authorities that they felt the performance bond requested was too high and that the corrosion-related repairs (frames with corrosion beyond 33% in Holds Nos. 4, 5, 7 and 8) being requested prior to departure were unreasonable. The respondents indicated that the focus of concern over corrosion for such a voyage should be an evaluation of the strength of the midship area of the vessel, in this case Holds Nos. 5 and 6. Since Hold No. 6 was a ballast hold under normal circumstances, it was not subject to the same stress as the other holds and did not require repairs. The respondents therefore proposed to repair all of the frames in Hold No. 5 with 33% or more wastage. Since Holds Nos. 4 and 7 were farther from the centre of the ship, it was suggested that every second frame with that level of wastage be repaired in Vancouver prior to departure. The letter made no mention of Hold No. 8: see compendium, tab 66, at pages 2935 to 2937.

[144]        Class NK followed the July 15, 1997 meeting with a faxed letter to Canadian authorities indicating that in Shanghai, the ship would be subjected to a more detailed survey of any areas identified as "suspect areas" due to the level of corrosion. Any additional class-recommended work would also be completed in Shanghai: see compendium, tab 67, at page 1102. On July 18, 1997, Class NK wrote to Malaysian maritime authorities and raised the issue of the difference between its standards for corrosion and allowable thickness limits and the question of the actual critical limit for thickness, suggesting that the former were designed to allow a margin before a critical level of corrosion was actually reached. Class NK reconfirmed its opinion that the ship had enough longitudinal structural strength in order to complete the voyage in ballast but emphasized that weather routing would be preferable: see compendium, tab 71, at pages 1103 to 1105.

[145]        The Canadian authorities' response to the respondents' July 15, 1997 letter came in the form of the Chairman's appeal decision delivered by letter dated July 18, 1997. In it, the Chairman indicated that all frames in Holds Nos. 4, 5, 7 and 8 with web corrosion exceeding 33% of original thickness would need to be repaired in Vancouver prior to departure. Frames with more than 25% corrosion would need to be repaired in Shanghai. The alternate frame repair suggestion for Holds Nos. 4 and 7 was therefore rejected: see compendium, tab 70, at page 1630.

[146]        As the preceding review suggests, the period between the ship's initial detention and the rendering of the Chairman's decision on the appeal as released July 18, 1997 included communication at various levels and on a wide range of issues relevant to detention and release. Although the ship was detained in Vancouver for some time, the length of the detention is attributable to the fact that the respondents' goal was to minimize any requirement to complete repairs in Vancouver, even if such a stance risked extending the time spent negotiating the ship's release. Although some time was lost due for example to a lack of precise contact information for Malaysian authorities, on the whole, the timeline of correspondence shows that all interested parties participated actively in an effort to facilitate the vessel's release.

[147]        What also emerges from a review of this correspondence is the fact that there was movement in the appellants' position during this period. They demonstrated a willingness to reach a viable solution, without compromising their domestic obligation and their international undertaking to ensure and promote safety at sea. Such a solution could involve accommodation, but could not involve abdication of their ultimate responsibility for ensuring the seaworthiness of the ship prior to its departure.

The respondents' allegations that the Chairman's decision rendered on July 18, 1997 was biased or created a reasonable apprehension of bias

[148]        The respondents submit that the decision of the Chairman authorizing the release of their ship was biased or rendered pursuant to a process that creates a reasonable apprehension of bias. They invoke two facts in support of that submission. First, the briefing note that was sent to the Chairman by Mr. Warna was biased. Second, Mr. Warna wrote a draft of the Chairman's decision rendered on July 18, 1997. I shall address these two concerns together.

[149]        The trial judge found that there were a number of inaccuracies in the briefing note sent to the Chairman. On this question, he accepted the contentions of the respondent. He found that Mr. Hall was negligent in drafting the briefing note: see paragraph 183 of his decision.

[150]        It was also found by the trial judge that Mr. Warna "was put in the position of doing a draft of [the Chairman's] decision letter which revised his own detention order". The judge concluded that he did not "believe that this lack of transparency exposes an objectively unreasonable risk of harm", but that it was "an extreme breach of the good faith which should be shown" by the appellants to the respondents: see his decision, at paragraphs 234 and 235.

[151]        Let me say outright that the practice followed here of requesting the inspector to write a draft letter of the appeal decision against his own detention order is one that is unacceptable and that cannot be condoned. The inaccuracies in the briefing note are unfortunate and reflect adversely on the Inspection Service. However, the briefing note is not the only piece of evidence that was before the Chairman. The respondents and Class NK submitted their views as to the legality and opportunity of the detention, referring to the NK seaworthiness certificate of April 15, 1997, the NK survey report dated April 21, 1997, the modulus calculations of the ship's hold frames, the cost of repairs, the discussions about reducing the repair requirements, the level of corrosion and the economic impact and consequences of the detention and repairs for the respondents: see the letters of Captain Khoo and of Mr. Bernard, counsel for the respondents, compendium, tab 45.

[152]        I am satisfied that the appeal process overall was not unfair to the respondents. The decision of the Chairman was favourable to them and they did not seek a review of it by way of an appeal to the Minister as they could have done under subsection 307(3) of the Act. In fact, the Chairman's decision increased, to the benefit of the respondents, the web wastage limit originally fixed by the inspectors for repairs in Vancouver prior to departure (33% or higher in Holds Nos. 4, 5, 7 and 8) and thereafter in China (from 17% to 25%). It also authorized the release of the ship for a voyage in ballast to Shanghai. It is not in dispute that the decision was that of the Chairman.

[153]        I agree with the trial judge that the lack of transparency in the process, regrettable as it is, did not affect its outcome. No prejudice resulted from it to the respondents. In addition, I cannot say that the inaccuracies in the briefing note and the fact that inspector Warna prepared a draft of the Chairman's decision then rendered unreasonable a detention which was otherwise reasonable and justified until departure.

[154]        At best, it could be argued that the Chairman's decision might have been more favourable to the respondents. In doing so, we are in the realm of speculation. A more realistic assessment of the situation based on the evidence of extensive corrosion and the history of the ship would seem to indicate that more concessions from Canadian authorities were unlikely. In any event, a more favourable decision would have reduced the extent of the repairs to be done in China. However, the repairs ordered by the decision of the Chairman were accepted by the respondents and considered necessary and urgent by Class NK in their conditional Seaworthiness Certificates: see the April 15 and May 5, 1997 certificates, compendium, tabs 39 and 50.

[155]        I see no merit in the respondents' argument that the appeal process was tainted and biased to their prejudice.

Conclusion

[156]        The respondents brought against the appellants an action for negligence in which, for the first time, they alleged that the repairs to their ship were not necessary. Their claim appears as an afterthought because, at the time of their ship's detention, their request was to obtain the authorization to sail to Shanghai to have the repairs done there at a lower cost. Indeed, the conditional Class NK Seaworthiness Certificates confirmed that the repairs mandated by the Canadian authorities had to be done and fixed a strict timetable for doing them. Moreover, the certificates clearly indicate that the respondents and the shipmaster had accepted and agreed to all the recommendations contained in the certificates, including those made by the Canadian authorities.

[157]        The trial judge applied the wrong legal regime to the determination of the legality and legitimacy of the inspection and detention of the respondents' ship. The Port State inspection performed by the two Canadian inspectors was conducted under Part V of the Act pursuant to subsection 310(1). That subsection gives the inspectors discretion in assessing the safety of a ship. Once a ship is found to be unsafe, subsection 310(1) makes its detention mandatory.

[158]        The respondents appealed to the Chairman the decision of the inspectors regarding the safety of the respondents' ship. They had further remedies if they were dissatisfied with the decision of the Chairman. They could launch a direct attack on that decision by appealing to the Minister. They did not. If they had appealed to the Minister, they would have had the right to proceed by way of judicial review to attack the Minister's decision. Their action in tort against the inspectors and the government is a collateral attack on the inspectors' decision regarding the safety of the ship and on the Chairman's decision to conditionally release the ship. The review of these administrative decisions is subject to a standard of review determined by applying the pragmatic and functional approach.

[159]        The trial judge failed to apply the pragmatic and functional approach both to the discretionary decision of the inspectors regarding the safety of the ship and to the decision of the Chairman releasing it. In this instance, a pragmatic and functional analysis suggests that the decisions are owed a not insignificant degree of deference. The decisions regarding the safety of the ship are to be assessed at least on a standard of reasonableness simpliciter.

[160]        The trial judge erred in rejecting or ignoring admissible evidence to the prejudice of the appellants. There was sufficient evidence to support the conclusion of the inspectors regarding the safety of the respondents' ship. Their decision was not unreasonable. Nor was the Chairman's decision requiring some repairs before the release of the ship.

[161]        Although the length of detention of the ship could perhaps have been shortened, I cannot say that it was unreasonable in the circumstances in view of the complexity of the matter, the number of participants and interveners, the delay inherent in detention for repair and the appeal process, the requirements of diplomacy and the respondents' insistence initially, in relation to the corroded frames, that only the detached frames be repaired in Vancouver before departure, then, later, that all the frames in Hold No. 5 with 33% or more wastage be repaired but that only every second frame in Holds Nos. 4 and 7 be repaired and, finally, that the ship be towed to China.

[162]        When applying the proper standard of review to the decisions of the inspectors and the Chairman and considering the evidence that was improperly excluded, I am led to an inescapable conclusion: the facts and the evidence do not support a finding of negligence on the part of the appellants and an award of damages against them. The Canadian authorities had the legal authority to inspect and detain the ship for safety reasons. The trial judge did not have the power to review the merits of the decisions taken by the Steamship Inspection Service and the Chairman, and to substitute his views for theirs as to safety. It belonged to them, not to the court, to appreciate the acceptability of the risk to human life and the marine environment.

[163]        One of the issues that might have arisen in this case, if the decision of the steamship inspectors regarding the safety of the ship had been found to be unlawful or unreasonable, is whether an action for damages lies against the Crown or a ship inspector in respect of losses arising from that decision. There is a large body of jurisprudence that may be relevant to that debate, including Anns v. London Borough Council, [1978] A.C. 728 (H.L.), Cooper v. Hobart, [2001] 2 S.C.R. 537, and numerous other cases from the Supreme Court of Canada and other Canadian courts. As I have found the ship safety inspection decisions in this case to be both lawful and reasonable, I do not consider it necessary to reach a final conclusion on this issue. In my view, it remains an open question.

[164]        For these reasons, I would allow the appeal with costs, set aside the decision of the Federal Court and, proceeding to render the judgment that should have been rendered, I would dismiss the plaintiffs' action with costs.

                                                                                                                               "Gilles Létourneau"               

                                                                                                                                                      J.A.

"I agree

J. Edgar Sexton J.A."

"I agree

K. Sharlow J.A."

                                                  FEDERAL COURT OF APPEAL

                            NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                               A-237-04

STYLE OF CAUSE:                               Her Majesty The Queen in Right of Canada et al. v.

     Budisukma Puncak Sendirian Berhad et al.

PLACE OF HEARING:                         Vancouver, B.C.

DATE OF HEARING:                           June 20, 21 and 22, 2005

REASONS FOR JUDGMENT:            LÉTOURNEAU J.A.

CONCURRED IN BY:                          SEXTON J.A.

     SHARLOW J.A.

DATED:                                                  August 4, 2005

APPEARANCES:

SOLICITORS OF RECORD: