The plaintiff’s tug was towing a barge which struck and damaged the defendants' properties. The defendants commenced an action against the plaintiff and its ships for a sum of approximately CAD 300,000.

The plaintiff made an ex parte application to constitute a limitation fund amounting to CAD 42,130, applied to admit liability, and sought, among other things, to stay all proceedings against the plaintiff and its ships.

The defendants contended that the plaintiff must wait until all claimants to the fund have been identified before the plaintiff can apply for a stay. The defendants also adopted the position that the plaintiff could not obtain a stay via an ex parte application.

The issues before the Court were whether: (i) the limitation figure amounted to CAD 42,130; (ii) the plaintiff could apply for a stay via an ex parte application and needed to wait for all claimants to the fund to be identified before obtaining a stay; and (iii) terms should apply to the grant of the stay as opposed to an unconditional stay.

Held: The plaintiff's application is allowed, but on terms.

On the issue of the quantum of the fund, s 575 of the Canada Shipping Act, RSC 1985, c S-9 (the Act), which is similar to art 3.1 of the LLMC 1957, allows a shipowner in the absence of actual fault or privity to limit liability for damages in respect of loss or damage to property to the Canadian dollar equivalent of 1,000 gold francs for each ton of the ship’s limitation tonnage. Limitation tonnage is defined in s 581 of the Act (similar to art 3.7 of the LLMC 1957) as the vessel's registered tonnage, together with engine room space, but excluding space occupied by seafarers. Section 579 of the Act (similar to art 3.5 of the LLMC 1957) provides that for limitation purposes, there shall be a deemed minimum tonnage of 300 tons. Assuming that the appropriate limitation tonnage is not that of tug and tow, but rather that of the tug alone, the deemed tonnage of the plaintiff's ship, for limitation purposes, would be 300 tons: as to the limitation tonnage being that of the wrongdoing vessel and the demise of the flotilla theory of aggregate tonnage, see The Rhône v The Peter AB Widener, 1993 CanLII 163 (SCC), [1993] 1 SCR 497 (CMI1006). As the plaintiff's tug was less than 300 tons, the relevant calculations of the fund yielded a figure of CAD 42,130.

Turning to the ex parte issue, Canadian civil procedural rules state that applications in relation to a limitation action shall be served on claimants whose identity is known to the applicant, and that an applicant may apply to the Court ex parte for an order with respect to service on the possible claimants where the number of possible claimants is large or the identity of all of the possible claimants is unknown to the applicant. The Court held that it would prove meaningless if applications concerning limitation actions could not be heard ex parte. Further, the Court also likened the Canadian civil procedure to that of English civil procedure in that English procedure requires one named defendant but leaves it open to the plaintiff whether to name others. This was similar to the abovementioned Canadian civil procedure rules which only require the plaintiff in a limitation proceeding to effect service on claimants whose identity was known to the plaintiff. The omission, in the current version of r 1012 of the Federal Court Rules, of a provision for bringing an ex parte application was therefore of no consequence.

With regard to the issue of the stay, the plaintiff based its application on s 575 of the Act (which is related to arts 3 and 5.1 of the LLMC 1957). The Court made it clear that, because Canada was not a signatory to the LLMC 1976, a stay of proceedings on the constitution of a limitation fund in court is discretionary.

The Court contrasted the position in the UK, where the LLMC 1976 does apply. In return for much larger limitation funds, the right to limit has become close to absolute. Thus, a stay, while seeking a limitation decree, is a right in the sense that the LLMC 1976 provides that any person having a claim against the fund is barred from exercising any rights against other assets of the party seeking to limit and further, subject to several fairly inconsequential procedural provisions, any arrested vessels and security must be released (see art 13 and also The Bowbelle [1990] 1 Lloyd's Rep 532 (QB)). In contrast, under the UK system before the LLMC 1976 and under the present Canadian system, a stay is discretionary and there is no requirement barring requiring security to the full value of the claim, even where a limitation fund has been established.

Whilst a stay is a discretionary remedy, it is granted by Canadian courts provided that the limitation proceedings are not premature and that the shipowner must admit liability for all purposes, thus divesting itself of the opportunity to defend the liability aspect of claims. The Court endorsed the position adopted in previous Canadian cases and held that the procedure leading up to the determination of the limitation of liability under the Canada Shipping Act is in many ways a compromise. To illustrate, the tortfeasor admits liability in order to avoid a large number of actions, whilst the claimants, in turn, avoid having to prove liability but agree to subject their claims to the limit of the fund. The Court, however, found that the admission of liability may be an illusory benefit because the facts of the case involve a moving tug and tow striking a stationary facility, thereby creating a presumption of fault on the tug and lifting the burden of proof. If proceedings claiming a substantial amount could be stayed by the constitution of a small limitation fund without the claimants receiving any benefit, there would be inequity. As such, the Court held that a stay should therefore be granted on terms that existing actions may proceed and actions may be commenced to obtain security, taxation and payment of costs.