Former Vessel Owner Not Liable to Ship-Source Oil Pollution Fund

A recent decision of the Federal Court of Canada provides helpful guidance to parties involved in the purchase and sale of a ship. It addresses the issues of whether a former shipowner can be liable for environmental contamination caused after title to the ship has passed to a new owner, and whether registration of the new owner is required for title to pass.

However, this case also raises unanswered questions about whether provincial sale of goods legislation applies to the purchase and sale of a ship.

Background

The Ship-Source Oil Pollution Fund (Fund) was established to pay certain claims arising from oil spills caused by ships, including where a shipowner is unable or unwilling to do so. However, the polluter pay principle applies regardless: if the Fund pays claims arising from the spill, the Fund can pursue the owner of the responsible ship to recover the amounts of paid claims.

In Canada (Ship-Source Oil Pollution Fund) v. Dr. Jim Halvorson Medical Services Ltd., a barge named Crown Forest 84-6 (Vessel) sank off the coast of Vancouver Island. The Fund paid clean-up costs of more than C$70,000 to the Canadian Coast Guard. The Fund sought to recover those costs from the “owner” of the Vessel pursuant to the Marine Liability Act, but an issue arose about who owned the Vessel.

According to the Canadian Register of Vessels (Register), Dr. Jim Halvorson Medical Services Ltd. (MSL) was the registered owner of the Vessel. The Fund sued MSL. However, MSL sold the Vessel to Mr. Fred Adams before the Vessel had sunk. Neither MSL nor Adams took any steps to update the Register to reflect change of ownership after the sale. MSL denied that it was the owner when the Vessel sunk, and therefore, denied liability.

A Former Owner of a Ship is not Liable for Spills

The Fund argued that full title to the Vessel could not pass to Adams until he was named as the owner in the Register. While the Canada Shipping Act, 2001 imposes penalties for failing to update the Register after a vessel is sold, the Court made two key findings in paragraph 58 of its decision:

(1)  Full title to a ship can pass to a purchaser even if the purchaser is not named as the owner in the Register; and

(2)  A former owner that remains named as the owner in the Register is not liable for damages caused by the ship.

As a result, the Court held that MSL was not the owner of the Vessel and that MSL was not liable to the Fund.

This case has important implications for commercial transactions that involve the purchase and sale of ships. There is sometimes a delay between the closing of a sale of a ship and the registration of the new owner in the Register. While it remains important to clarify when title to a ship is intended to pass and which parties are responsible for insurance, the Court’s decision provides clarity about the parties’ rights and liabilities between closing of the sale and the registration of the new owner.

Does the Sale of Goods Act Apply?

The Court also raised, but did not answer, the question of whether a provincial sale of goods act applies to the sale of a ship. In this case, it would have made no practical difference because the applicable legislation is materially the same as earlier legislation that has been incorporated into Canadian maritime common law. However, it has now become especially important to be cognizant of the potential application of provincial legislation to the purchase and sale of ships.

For further information, please contact:

Ian Breneman             403-260-9715

or any other member of our Energy Litigation group.

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